Seeking out new risk pools In 2018, Swiss Re explored new potential risk pools, including research into new financial risks, algorithmic risk to business processing and various emerging cyber risks.
Business Units at a glance 2 Message from the Chairman 4 Statement from the Group CEO 10 Market review 16 How re/insurance works 18 Our strategy 20
Driving transformation 24 Climate change: The new normal 28 Enabling positive lives 32
–741 * For reference only, excludes the impact of the new US Generally Accepted Accounting Principles (GAAP) guidance on recognition and measurement of financial instruments, which was effective for the Group as of 1 January 2018 and was not retroactively applied.
On a geopolitical level, we have seen an increase in the intensity of conflict. Many observers are predicting the end of the post-war order and a fundamental shift in global power structures.
Our insurance activities generate high volumes of cash flow, which we invest in financial assets. This results in substantial investment risk on our balance sheet, to which we must also allocate capital.
Slowing global economic growth, higher debt burdens both in the public and private sectors, weaker financial market structures overly dependent on Central bank interventions and a trend towards isolationism are current conditions that leave us at significant risk1. It’s time for the public and private sectors to take steps to build economic resilience and strengthen the capacity of a system to regenerate after a shock.
Support sustainable investing Adopting a common language around sustainable finance, establishing a market consistent regulatory framework for Environmental, Social and Governance (ESG) investments, and increasing the importance of ESGs in financial analysis is key.
Expand Public Private Partnership (PPP) to close the infrastructure gap Address the huge global infrastructure financing needs of USD 3.3 trillion a year3 and help relieve the burden on government budgets by tapping long-term investors’ assets. PPPs boost efficiency, distribute risk and reduce pressure on government budgets. Standard dispute resolution practices are needed on this front.
A look back at capital allocation It may sometimes appear that capital allocation at leading reinsurers is very stable and that large-scale changes occur once in a blue moon. Many investors regard insurers as “boring” investments. In the case of reinsurers at least, nothing could be further from the truth. Let’s take a look back at developments over the last ten years at Swiss Re: In the aftermath of the global financial crisis, which – as you may know – impacted Swiss Re as it did so many other companies, our initial focus was on restoring a “cast-iron” balance sheet. In other words, on bringing our equity back up to a conservative level. Our clients expect nothing less. We also massively reduced the use of financial and operational debt on and off balance sheet and – in the context of an economy still experiencing the fallout of the crisis – built up an extremely high level of liquidity.
An outlook Let’s now turn our attention to the current situation: As mentioned, we have implemented significant changes to Swiss Re’s risk portfolio over recent years and have continually adapted the portfolio in line with current market developments based on our continuous and consistent monitoring of capital allocation.
Changes in the Group Executive Committee As I draw to a close, I would like to inform you of a couple of important changes in our Group Executive Committee.
Today, we are pleased to appoint Anette Bronder as his successor taking over as Group Chief Operating Officer and member of the Group Executive Committee, effective 1 July 2019. Anette Bronder has more than 20 years of experience in operations, consulting and delivery services, most recently as a Member of the Management Board at T-Systems International. Her strategic technology knowledge and strong track record in operations delivery make her the ideal candidate to not only lead our Group Operations function but to also support Swiss Re in being at the forefront of technological changes that are taking place in our industry. I am convinced Anette Bronder will help us accelerate the digitisation of our whole value chain.
Capital returned to shareholders in USD billions in the form of dividends and 2017–2018 share buybacks
Dear shareholders, What a year 2018 was. The world faced major challenges from political and economic uncertainty, and the concerning shift towards anti-globalisation continued. Also very troubling were the natural catastrophes that struck in all parts of the world, causing widespread destruction and claiming thousands of lives – it was the fourth costliest year in history in terms of global catastrophe losses for the insurance industry.
Following these claims, we reported a Group net income of USD 421 million for 2018. Due to a US GAAP accounting change which took effect on 1 January 2018, our result also contains a negative pre-tax impact of USD 599 million because of challenging equity markets. On a like-for-like basis with the year before, our net income would have been USD 894 million for 2018.
Today, with a wealth of scientific evidence at our disposal, that initial perception has considerably changed. There is clearly momentum. There’s less scepticism. But then, there’s also less time. And the effects of climate change are everywhere. Floods in India contrast with extreme heatwaves, droughts and wildfires in Europe and the US. Ice caps are melting and sea levels are rising; warmer seas will make the most severe types of typhoons and hurricanes even more destructive and likely more frequent.
Nurturing solid economies and building societal resilience is a matter of global interest. The future is our collective choice. Let’s seize this opportunity.
At Swiss Re, it’s our priority to continue leading action on climate change and sustainability efforts, both on the asset and liability side of our business, and within and beyond our industry. All of our employees are behind that – for that, and for their commitment every day, I would like to thank them. I’d also like to thank you, our shareholders, for continuing to place your confidence in us.
Over the course of the year, Swiss Re monitored five major economic and insurance market trends.
(Estimated real GDP growth in the US, 2018, source: Swiss Re Institute)
USD 81bn (Insured catastrophic losses, nat cat and man-made, source: Swiss Re Institute, preliminary estimate)
Soft market/low non-life profitability Soft market conditions and high catastrophic losses led to a significant decline in overall profitability.
6–7% ROE (Average profitability of eight major non-life markets in 2018, source: Swiss Re Institute, preliminary estimate)
Market review Divergent growth Divergent growth trends caused financial market performance to vary by region 16 Swiss Re 2018 Business Report
Primary non-life In 2018, premiums have risen moderately in almost all regions due to stronger economic growth. Global non-life premiums were up an estimated 3% in real terms, after a 3% gain in 2017. The global aggregate is being driven by emerging markets, where we estimate 8% premium growth in 2018.
Primary life In 2018, global primary life insurance premiums are estimated to have risen by about 2% in real terms, slightly slower than the average annual growth of the past five years. Premiums in mature markets expanded by almost 2%, driven by Japan and the US, while European markets were mainly sluggish. Emerging markets, which have accounted for most of the acceleration in global life premiums income, contributed much less in 2018, particularly due to China, given its enormous impact in the emerging market aggregate.
Reinsurance non-life Global premiums in non-life reinsurance are estimated to have grown by around 5% in 2018 in real terms, mainly based on rapidly increasing cessions from emerging markets. The impact from natural catastrophe losses is less severe after last year’s record USD 144 billion in global insured disaster-related losses. However, claims were mounting up and are estimated at above USD 70 billion for the re/insurance industry. The largest natural catastrophe losses were from wildfires in California, hurricanes making landfall in the US (Michael, Florence), and from typhoons and floods in Japan.
Reinsurance life & health The life reinsurance industry registered a 2% increase in 2018. Underlying reinsurance premium growth in traditional reinsurance areas like mortality and morbidity risk has again remained relatively subdued, but other kinds of reinsurance transactions were also sluggish this year. In mature markets, slow increases in the US were contrasted by healthy growth in Europe and Asia-Pacific. Growth in emerging markets was significantly impacted by the decline in cessions in China of around 10%, offsetting expanding reinsurance demand from other regions.
Estimated global premium growth in 2018 180 (USD billions) Estimated global premium income in 2018
Risk Knowledge Swiss Re is a risk knowledge company that invests in risk pools. We apply our knowledge to support capital allocation
Growth Growth through systematic capital allocation will help us to deliver sustainable shareholder value 20 Swiss Re 2018 Business Report
̤ Demand for large and tailored transactions remains strong with more than 154 transactions closed in 2018.
Corporate Solutions Corporate Solutions represents a strategic platform to access the large pool of commercial risks. It remains core to our strategy to diversify into different risk pools.
High growth markets (HGM) We intend to maintain our leading position in high growth markets, establishing a strong presence. These world regions continue to remain a key element of our strategy, even when they are temporarily challenged.
Technology continues to throw curves at the automotive sector. Increasing adoption of advanced driver-assistance systems (ADAS) is making transportation of goods and people safer, with fewer accidents taking place.
Scheduled for launch in 2019, the programme will provide a win-win solution: Swiss Re clients will have an easy way to integrate ADAS into their insurance pricing, and drivers will benefit from premiums that acknowledge the safety offered by their vehicles. In addition to ADAS Risk Score, Swiss Re’s other initiatives in motor insurance include telematics - realtime information about how and where a car is being used - to enable our clients to create Usage Based Insurance (UBI) solutions.
Swiss Re’s investment in ADAS Risk Score reflects our belief that changing technology impacts the risk landscape and that new insurance solutions are needed to reflect that reality. By combining BMW’s engineering expertise and data with our capital, brainpower and the partnership approach we have with our clients, Swiss Re believes itself to be well-positioned in the race to shape the next generation of insurance products and services.
Swiss Re’s ADAS Risk Score is a vehicle risk-assessment model, built in strategic partnership with the BMW Group. ADAS Risk Score assesses a vehicle’s safety-enhancing capabilities and assigns it a safety score that insurers can use as a basis for underwriting and portfolio management. This relieves clients of the burden of having to continually reassess the safety features of numerous manufacturers.
> 30% Fewer rear-end accidents due to Automated Emergency Brake systems (AEB)
Swiss Re’s proprietary flood modelling tool calculates risk to an individual location, so insurers can confidently offer customers flood insurance. This powerful model uses elevation and precipitation data to generate more than 400 000 extreme weather scenarios — some based on disasters like Hurricane Sandy — to predict likely outcomes.
“ Customers are becoming more aware of their true vulnerability to flood damage. Now that the price more accurately reflects the risk, they’re making the good decision to opt for this coverage.”
Atlantic and Gulf Coastal Region, USA Areas exposed to storm surge
Closing the flood risk gap Florida-based Security First was one of the first Swiss Re customers to directly integrate the modelling tool, part of our Flood Toolkit, into its policy administration system. Now agents can generate premium quotes in real time to immediately add flood coverage to customers’ existing homeowners policies. The number of policyholders opting to add flood insurance has significantly exceeded expectations, according to Security First.
Enabling positive lives According to the World Health Organization, diabetes claims the lives of 1.6 million people every year. Of the estimated 422 million adults affected by the disease, 60 percent reside in Asia, where diet and lifestyle changes brought on by booming economies have contributed to a surge in diagnoses.
Fortunately, Type 2 diabetes can be prevented, enter into remission or have its complications reduced by managing risk factors relating to diet and lifestyle.
To this end, Swiss Re and Muang Thai Life Assurance joined forces in 2018 to create a new dynamicpricing health insurance product to address this modifiable risk. Personalised customer premiums are adjusted based on HbA1C, a key health indicator, reflecting their lifestyle decisions. It uses a smartphone app to encourage at-risk individuals to eat right, exercise regularly, monitor their glucose levels and see their doctor every six months. The result is healthier customers, fewer claims and a reduction in potentially catastrophic complications.
“ Modifiable risks are key drivers of Asia’s USD 1.8 trillion health protection gap. Holistic insurance solutions can be an efficient means to help customers manage their health and close the protection gap.”
Peace of mind for expecting mothers In Singapore, around one in five expectant mothers will develop gestational diabetes1. In response, Swiss Re partnered with MetLife’s LumenLab to create Vitana, the world’s first automated, app-based health insurance solution that makes it easy for families to get the protection they need.
Digital Health Management Digital tools allow users to manage and track their health condition.
Meet the people making a positive impact Our nearly 15 000 employees work diligently on a wide variety of projects every day to mitigate risk and build resilience around the world. Here are just a few examples.
Enabling women’s entrepreneurship in Egypt How can we positively impact the lives of women entrepreneurs in developing economies? That was the question we set out to answer when we joined a key microinsurance initiative in Egypt in 2017.
The Swiss Re cross-functional team comprised life and health actuaries, the North Africa Reinsurance team and experts in emerging consumers from Public Sector Solutions team (formerly Global Partnerships team).
This diverse team embodies Swiss Re’s unique ability to partner across both the private and public sectors and offer expertise in insurance product design adapted to local needs.
Befitting a team working at the cutting edge of technology, this cross-functional collaboration was “virtual” from the start and devoid of hierarchies.
Drawing upon their expertise in weather, anti-terrorism, political instability and medical emergencies, our specialists make sure major events, from Hollywood film shoots to charity sports events, come off without a hitch.46%
Changes in 2018 At the Annual General Meeting on 20 April 2018, Karen Gavan, Eileen Rominger and Larry Zimpleman were elected as new non-executive and independent members of the Board of Directors for a one-year term of office. With these changes, the Board of Directors aims to safeguard the stability of its composition while also renewing the Board in a sensible way. At the same time, the shareholders re-elected Walter B. Kielholz (Chairman), Raymond K.F. Ch’ien, Renato Fassbind, Trevor Manuel, Jay Ralph, Joerg Reinhardt, Philip K. Ryan, Sir Paul Tucker, Jacques de Vaucleroy and Susan L. Wagner for a one-year term of office as members of the Board of Directors.
For the years ended 31 December 40 Swiss Re 2018 Business Report
Forward-looking statements typically are identified by words or phrases such as “anticipate”, “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase”, “may fluctuate” and similar expressions, or by future or conditional verbs such as “will”, “should”, “would” and “could”. These forwardlooking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group’s actual results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects to be materially different from any future results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects expressed or implied by such statements or cause Swiss Re to not achieve its published targets. Such factors include, among others: ̤ the frequency, severity and development of insured claim events, particularly natural catastrophes, man-made disasters, pandemics, acts of terrorism and acts of war; ̤ mortality, morbidity and longevity experience; ̤ the cyclicality of the insurance and reinsurance sectors; ̤ instability affecting the global financial system; ̤ deterioration in global economic conditions; ̤ the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on the Group’s investment assets; ̤ changes in the Group’s investment result as a result of changes in the Group’s investment policy or the changed composition of the Group’s investment assets, and the impact of the timing of any such changes relative to changes in market conditions; ̤ the Group’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of the Group’s financial strength or otherwise; ̤ any inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their values recorded for accounting purposes; Swiss Re 2018 Business Report 41
Contacts Swiss Re has over 80 office locations in 30 countries. For a full list of our office locations and service offerings, please visit www.swissre.com
Americas Armonk 175 King Street Armonk, NY 10504 Telephone +1 914 828 8000
Westlake Village 112 South Lakeview Canyon Road Westlake Village, CA 91362 Telephone +1 805 728 8300
Madrid Torre Europa Paseo de la Castellana, 95 28046 Madrid Telephone +34 91 598 1726
Rome Via di San Basilio, 72 00187 Rome Telephone +39 06 323931
Media Relations Telephone +41 43 285 7171 Fax +41 43 282 7171 media_relations@swissre.com
Asia-Pacific Hong Kong Central Plaza 18 Harbour Road Wanchai Hong Kong Telephone +852 2827 4345
Tokyo Otemachi First Square West Tower 1–5–1 Otemachi Chiyoda-ku Tokyo 100-0004 Telephone +81 3 5219 7800
Photography: Getty Images (Cover, p. 6, 7, 13, 18–19, 24–25, 26) Marc Wetli (p. 10) All other images credited to Braschler/Fischer
The 2018 Annual Report is also available in German. The web version of the 2018 Annual Report is available at: reports.swissre.com
Return on equity in %1 1.0 1.4 Return on investments in % 3.9 2.8 Net operating margin in % 2.8 2.9
Property & Casualty Reinsurance Net income/loss attributable to common shareholders –413 370 —
Premiums earned and fee income 1 407 1 606 14 Gross cash generation3 998 818 –18 Net operating margin in % 10.9 3.9 Return on equity in %1 2.2 0.4 1 Return on equity is calculated by dividing net income/loss attributable to common shareholders by average common shareholders’ equity. 2 Regular staff. 3 Gross cash generation is the change in excess capital available over and above the target capital position, with the target capital being the minimum statutory capital plus the additional capital required by Life Capital’s capital management policy.
In this report We provide a detailed record of our financial and operational performance for 2018.
Overview 100 Group structure and shareholders 104 Capital structure 107 Board of Directors 110 Executive management 128 Shareholders’ participation rights 136 Changes of control and defence measures 137 Auditors 138 Information policy 140
Report from the Compensation Committee 144 Compensation highlights in 2018 146 Compensation framework 147 Compensation governance 156 Performance outcomes 2018 160 Compensation disclosure and shareholdings 2018 164 Report of the statutory auditor 171
Reinsurance Reinsurance provides clients and brokers with reinsurance products, insurance-based capital market instruments and risk management services. Reinsurance operates globally through two segments – Property & Casualty and Life & Health.
47% P&C Reinsurance 37% L&H Reinsurance 11% Corporate Solutions 5% Life Capital
Net premiums earned and fee income by region (Total USD 34.5 billion)
Strategic capital allocation is at the heart of what we do at Swiss Re
Dear shareholders, We are living in uncertain times and events on the world stage are increasingly providing cause for concern – at many levels.
Depending on the assessment of overall risk, we hold a higher or lower level of overall capital, we use more or less debt to finance our activities, and the share of highly liquid – and therefore low-yield – financial assets in our balance sheet is greater or smaller. We base our decisions on the Swiss Solvency Test (SST) solvency capital requirements stipulated by the regulator; we also adhere to rating requirements issued by the rating agencies.
If we cannot find good investment opportunities that meet our criteria and there is no urgent need to further strengthen our balance sheet, we give the capital back to our shareholders.
Ten years ago, the global financial crisis forced entire industries to the brink of collapse, and pushed countries around the world into recession. Yet despite the hard lessons of 2008 and 2009, the resilience of the global economy is as weak today as it was then.
The life insurance sector became extremely unpopular among investors after the financial crisis, and we faced increasingly loud calls to divest this segment as quickly as possible and release the capital allocated to it. Although we have had to overcome various problems in our in-force book, our confidence in the potential of this segment has never wavered. Swiss Re disregarded the market sentiment by investing heavily in organic growth. This allocation of capital has truly paid off and the Life & Health Reinsurance business at Swiss Re is once again a strong, stable revenue pillar portfolio.
We have long held the belief that the emerging markets – headed by China, South-East Asia, parts of Latin America and Africa – will account for more than 50% of growth in insurance markets in the long term, primarily due to demographic and economic criteria. Historically, we have had only limited access to this growth through our reinsurance business as the majority of new business – being large bulk retail insurance – is only reinsured minimally. Therefore, we invested a significant amount of capital in primary insurance
Focusing on governance trends in Switzerland, the United States and the European Union, Swiss Re’s Board of Directors continues to demonstrate strong leadership in matters related to Corporate Governance and to steer the Group’s governance standards towards increased transparency, accountability and a long-term sustainability strategy.
Governed by a robust set of principles and procedures, the company’s governance framework secures an effective, dynamic and open dialogue between the Board of Directors and the Group Executive Committee, the top corporate bodies responsible for the strategic oversight and the management of operations, respectively.
Where we will stand our ground Returning to my rather pessimistic introductory words, it becomes clear that we currently see little leeway in terms of the ‘cast-iron’ balance sheet I referred to earlier. The question of the right equity base and how much is too much comes up again and again. Reducing our equity ratio by a significant amount, in accordance with the SST, is not something that we are currently planning. This is an area in which we will stand our ground. However, any further expansion would take us from “a lot” to “too much”.
The second change in the Group Executive Committee concerns our Corporate Solutions Business Unit. As announced in September 2018, Andreas Berger will be taking over the role of CEO of Corporate Solutions from 1 March 2019, at the same time becoming a member of the Group Executive Committee. He was most recently Chief Regions & Markets Officer and a member of the Board of Management at Allianz Global Corporate & Specialty SE and will be succeeding Agostino Galvagni, who left Swiss Re at the end of 2018.
In November 2018, we announced that Thomas Wellauer will be retiring at the end of June 2019 after 9 years with our company. I would like to thank Thomas on behalf of the Swiss Re Board of Directors for his substantial contribution to Swiss Re throughout the years. Under his leadership, Group Operations developed into a highly effective and efficient backbone for the company.
Other changes to our climate, including warmer temperatures and prolonged heatwaves, will likely also continue to increase the frequency and severity of large wildfires and droughts. It was devastating to see footage of the damage caused by the Californian wildfires late last year. Due to very dry weather conditions, the fires spread quickly and raged for over a week – in their paths, they sadly claimed lives and destroyed homes, even whole communities.
“ What we’ve experienced over the past year must serve as a wake-up call to stand together in unity and step up our efforts against climate change.”
of the value of diversification in our business – and we continue to meet our return on equity (ROE) target range.
In our third Business Unit, Life Capital, we once again delivered exceptional gross cash generation of USD 818 million in 2018 and exceeded our target range. Our preparations for a potential IPO of ReAssure continue. And we agreed with MS&AD on a further investment of GBP 315 million in ReAssure, resulting in a total shareholding by MS&AD in ReAssure of 25%. Meanwhile, our open book businesses in Life Capital continued to grow. I’m personally very optimistic about this segment of the Business Unit. This year may mark a turning point for Life Capital, which will look quite different if market conditions allow us to do a successful ReAssure IPO. The shift from being primarily a closed book business to a dynamic primary B2B2C business will be both demanding and exciting. By utilising technology and working with partners, we can help make insurance simpler and more accessible than ever.
We’ve also invested in building technology-driven solutions for our reinsurance clients. One example is our flood risk model, which we rolled out in the US last year as part of our efforts to manage uncovered risks caused by climate change and natural disasters. Only one in six homes in the US has flood insurance, even though the personal and economic cost of flooding is increasing every year. Flood insurance policies based on our model are priced according to the individual risk exposure, which is made up of thousands of data points, such as the location of a building, type of construction and insured value. Providing accurate pricing enables our clients – insurers in the US – to provide a more affordable product to homeowners and can potentially help make a significant difference in the coverage of this risk.
reported ROE 700 bps above 10-year US government bonds 1 The 10% ENW per share growth target is calculated as follows: (current-year closing ENW per share + current-year dividends per share) / (prior-year closing ENW per share + current-year opening balance sheet adjustments per share). This target applies since 1 January 2016. The reported figures for 2014 and 2015 have been adjusted for consistency with the target definition and are provided for reference purposes only.
Coming back to my concern on climate change, though. I do feel that there is more momentum globally about this issue at the moment – but that’s not enough. At the current rate of action, climate change will likely lead to more natural disasters, with implications for every aspect of society and everyone – not to mention the consequences that could spill over to future generations. It will take a “whole of society” approach to limit global warming before time runs out. I’m optimistic that we can build on the current momentum and do that.
Focused on performance We aim to achieve our Group financial targets and deliver sustainable shareholder value.
Our role and our mission We help insurance companies and individuals to manage their risks by absorbing some of their biggest losses, especially losses stemming from natural catastrophes that are among the largest and most complex risks that exist. Therefore, we play a major role in preparing people, businesses and governments to face new and old threats. We constantly make capital allocation decisions, exercising disciplined underwriting and focusing on the most attractive risk pools. The premiums we receive in exchange for protection need to be invested smartly in various financial assets, which means our investments contribute to the real economy and to strengthening infrastructure. The capital remains invested until we need it to pay claims following a loss. As a knowledge company, we generate and share risk knowledge, helping society thrive and progress.
Swiss Re delivered a Group net income of USD 421 million, in a year marked by large claims, volatile equity markets and significant impact from a US GAAP accounting change.
Global economy Tax cuts and increased public spending provided a boost to the US economy, lifting real GDP growth from already robust levels in 2017 to close to 3% in 2018. Growth in the Euro area remained strong in the first half of the year, but slowed in the second half, averaging 1.8% in 2018 after 2.4% the year before. Meanwhile, economic growth in the UK continued to soften in 2018, from 1.8% to 1.4%, as uncertainty around Brexit weighed on investment and elevated inflation continued to erode real wages, which in turn dampened consumer spending. Japan’s GDP growth also slowed from 1.9% to 0.7% as both domestic and external demand weakened (see economic indicators table).
After easing monetary policy in 2017 and into 2018, some emerging market central banks, including Russia, India and South Africa, started to tighten monetary policy in the second half of 2018. This was done to stem capital outflows and currency depreciation as well as contain inflation. The Chinese central bank cut the reserve requirement ratio twice in 2018 to support bank lending and growth.
US long-term government bond yields continued to rise along with central bank interest rates for most of the year, but reversed part of the increase in the final two months. The US 10-year yield ended the year at 2.7%, up some 30 basis points over the past 12 months. Long-term yields in other major markets were stable or slightly lower in 2018 (see interest rates chart). The German 10-year government bond ended the year at 0.2%, the UK yield at 1.3% and the Japanese yield at 0%.
The global economy and financial markets Divergent growth trends caused financial market performance to vary by region.
 United States (S & P 500)  United Kingdom (MSCI UK)  DJ Euro STOXX 50  Japan (TOPIX)  Switzerland (SMI)
Currency movements The US dollar strengthened during most of 2018 on the back of rising interest rates and stronger growth in the US, before losing some ground in December. The US dollar ended the year up 6% versus the British pound, 5% versus the euro and 1% versus the Swiss franc, whereas it lost 3% versus the Japanese yen.
In the US, inflation could increase more sharply than expected if the record-low level of unemployment leads to significantly higher wages. This could force the Fed to tighten monetary policy more aggressively and lead to a (temporary) spike in long-term bond yields as investors realise that the Fed is behind the curve. We could see a boom-and-bust cycle with a period of stronger growth and high inflation, followed by a sharp slowdown or even a recession. US overheating risks could spread across the globe, with a spike in bond yields and a stronger US dollar as the catalysts for contagion. Monetary policy errors elsewhere could also have severe consequences for economic growth and financial markets.
We define economic resilience as the capacity of a system to regenerate after a significant shock event. Shock buffer capacity is a blend of quantitative and qualitative factors, including trend growth, public and private debt stocks, and institutional stability.
Market overview The global non-life industry generated around USD 2 400 billion of premium income in 2018, of which around 22% came from emerging markets. Non-life insurance ranges from standardised motor and household insurance to sophisticated tailor-made liability and property covers, including specialty commercial and industrial risk insurance.
Advanced market premiums have grown by about 2% this year on the back of strong economic momentum, in particular in North America, and also others. In regions hit by the record natural catastrophe losses in 2017, harder rates in property lines have supported the premiums increase. Notable negatives for the advanced market aggregate this year has been declining premium income in motor in Japan and the UK, due to rate cuts in those markets. In Japan, the cuts resulted from benign claims trends and in the UK, as some insurers start to pass on expected cost benefits from the government's planned reforms to personal injury compensation.
Outlook The global economic outlook for 2019 and 2020 is positive and demand for non-life insurance is expected to increase. We expect real growth of 3% for the global aggregate, composed of 2% for advanced markets and up to 8% for emerging markets.
Market performance Estimated global premium growth in 2018 24 Swiss Re 2018 Financial Report
Market overview Global non-life reinsurance premiums in 2018 totalled about USD 180 billion, around 28% of which was attributable to ceding companies in emerging markets. In general, reinsurance demand is a function of the size and capital resources of primary insurance companies, as well as of the risk profile of the insurance products provided.
Reinsurance prices stabilised at the 2018 renewals with rate increases in loss affected lines and regions, but with little spill-overs into non-loss affected lines. Preliminary data indicate a combined ratio of around 98%–100% for 2018, a significant improvement compared to last year’s 108% which was heavily impacted by the huge natural catastrophe losses. However, this does not reflect underlying underwriting profitability, because natural catastrophe losses have been partly lower than anticipated and the claims ratio has been reduced by positive reserve releases from redundant reserves for prior years’ claims. Excluding these factors, the underlying combined ratio was unchanged at around be around 100% for 2018.
The reinsurance industry’s capital base remains strong. On the one hand, the capital position of global reinsurers, the traditional source of capital, was stable during 2018 at around USD 340–350 billion as a result of high natural catastrophe losses and continued strict capital management which returned almost all of the industry’s net income to shareholders through dividend payments and share buy-backs.
Market size in USD billions Estimated global premium income in 2018
Outlook In 2019 and 2020, the reinsurance is expected to expand at least with the same growth rate as the primary non-life market. Cessions from emerging markets are forecast to develop stronger than those from the advanced markets, given the stronger dynamics of the macroeconomy and the primary insurance markets.
Market overview The global life insurance industry generated about USD 2 900 billion in premium income in 2018, of which about 20% came from emerging markets. Around 85% of premium income in life insurance is derived from savings and retirement products. The protection business, which covers mortality and morbidity risks and represents the balance of the market, has a declining share of premium income.
Market performance We estimate that global life insurance premiums grew by 2% in real terms in 2018, slightly slower than the average annual growth rate of the last five years. Premiums in the advanced markets expanded by almost 2%, driven by Japan and the US, while the European markets were mainly sluggish.
The emerging market developed much slower than usual. In recent years, emerging markets have accounted for most of the acceleration in global life premium income, but their contribution will be much lower in 2018. The reason is China, which remains the engine of growth for the life industry. What happens there has large impact on the emerging market aggregate. Part-year data indicates that there will be a substantial contraction (–2%) in life premiums in China this year, due mostly due to tighter regulation of wealthmanagement -product (WMP) types since beginning of the year. Excluding China, we forecast emerging market life premiums to increase by 5% in 2018.
Market overview The size of the global life reinsurance business was around USD 75 billion in 2018. Most (62%) of this is attributable to the US, Canada and the UK. Ceding companies from emerging markets accounted for 20% of global demand. Life reinsurers are increasingly diversifying away from traditional mortality business.
Market performance The life reinsurance industry registered a 2% increase in 2018. Underlying reinsurance premium growth in traditional reinsurance areas like mortality and morbidity risk has again remained relatively subdued, but also other kinds of reinsurance transactions were sluggish this year. In mature markets, slow increases in the US were contrasted by healthy growth in Europe and Asia/ Pacific. Growth in the emerging markets regions were significantly impacted by the decline in cessions in China of around 10%, offsetting expanding reinsurance demand from other regions.
Against this background, life reinsurers have sought to increase revenues through large, individual risk transfer transactions that help primary insurers stabilise income and/or bolster their balance sheets. The introduction of risk-based capital regimes has prompted much of this activity. In Europe, for example, Solvency II has underpinned interest in reinsurance to reduce required regulatory capital or to economise on reserves.
Another area of growth for reinsurers has been longevity risk transfer. The availability of longevity reinsurance has become key to the pricing of annuity transactions, as insurers offering those transactions to pension funds typically look to simultaneously access reinsurance capacity to hedge at least part of the associated longevity risk inherent in these lines.
The operating margin of the life reinsurance industry improved to 8% of revenues in 2018, slightly up from the 7% achieved between 2015 to 2017. The contribution from investments further declined, due to the ongoing low interest rate environment, while underwriting performance improved.
Outlook Continued recovery in primary insurance should support growth in life reinsurance revenues, including a recovery in traditional renewable term business. Premium growth will nonetheless likely remain modest, especially in the large advanced markets. In real terms, global life reinsurance premiums are forecast to increase by around 2% in 2019 and 2020.
Premiums in the advanced markets are projected to expand by below 1% annually, driven by developments in the US where cession rates continue their long-term down trend and growth in the primary market remains weak. In Western Europe, where cession rates are usually lower, reinsurance premiums are forecast to grow by about 1%. The strongest contribution to real growth in the advanced markets will likely come from developed Asia.
Growth Growth through systematic capital allocation will help us to deliver sustainable shareholder value
Risk Knowledge Swiss Re is a risk knowledge company that invests in risk pools. We apply our knowledge to support capital allocation 28 Swiss Re 2018 Financial Report
̤ Large and tailored transactions contributed 30% to economic profit in 2018.
̤ Through the Swiss Re Institute, which celebrated sigma’s 50-year anniversary in 2018, we continued to deliver thought leadership through a wealth of expertise publications, conferences and articles on the evolving risk landscape and its impact on the industry.
̤ Life Capital continued its strategy to grow its individual and group business in Europe and in the US. iptiQ’s B2B2C digital insurance offering is attractive to an increasing number of distribution partners, with 19 having been onboarded to date. In Q4 of 2018, the number of policies sold weekly averaged 2 600.
̤ Changes in geographic footprint continued to shape our workforce profile, with millennials now accounting for 46% of the Group’s workforce.
Expenses Claims and claim adjustment expenses –16 730 –14 855 –11 Life and health benefits –11 083 –11 769 6 Return credited to policyholders –3 298 1 033 — Acquisition costs –6 977 –6 919 –1
Income/loss attributable to non-controlling interests 5 –19 — Net income after attribution of non-controlling interests 398 462 16
Total shareholders’ equity as of 1 January 35 634 34 124 –4 Net income attributable to common shareholders 331 421 27
Change in unrealised gains/losses on securities, net 287 –2 841 — Change in other-than-temporary impairment, net of tax 3 –1 — Change in foreign currency translation 526 –356 — Purchase/sale of treasury shares and share based payments –1 100 –1 402 27 Other changes in equity 2 –423 — Total shareholders’ equity as of 31 December 34 124 27 930 –18 Non-controlling interests 170 797 — Total equity as of 31 December 34 294 28 727 –16 30 Swiss Re 2018 Financial Report
Investments for unit-linked and with-profit business 35 166 29 546 –16 Cash and cash equivalents 6 806 5 985 –12
Acquired present value of future profits 1 989 1 818 –9
Liabilities and equity Unpaid claims and claim adjustment expenses 66 795 67 446 1 Liabilities for life and health policy benefits 42 561 39 593 –7
2018 was dominated by large catastrophic events that made it the second consecutive challenging year for Swiss Re, with our property and casualty businesses taking the heaviest toll. Swiss Re’s estimated insurance claims from large natural catastrophes, including typhoons Jebi and Trami in Japan, the Camp and Woolsey wildfires in California, as well as hurricanes Florence and Michael in the Americas, amounted to USD 2.2 billion in 2018, net of retrocession and before tax. In addition, multiple large man-made disasters generated USD 0.8 billion in claims. Swiss Re’s net income, which amounted to USD 421 million for the year, was above 2017 when natural catastrophe claims and manmade losses totalled USD 4.7 billion.
The 2018 net income was also impacted by a lower investment result, reflecting challenging financial markets, and an estimated negative pre-tax impact of USD 599 million due to the recent change in US GAAP accounting guidance on recognition and measurement of equity investments that took effect on 1 January 2018. Excluding the accounting guidance, net income would have been USD 894 million.
Property & Casualty Reinsurance reported a net income of USD 370 million in 2018, compared to a net loss of USD 413 million in 2017. Both periods were strongly impacted by natural catastrophes, totalling USD 2.0 billion in 2018 and USD 3.7 billion in 2017, net of retrocession and before tax. The net operating margin was 4.3%, compared to –1.3% in the prior-year period.
The Group’s net operating margin for 2018 was 2.9%, a slight increase from 2.8% in the prior year.
Earnings per share for 2018 were USD 1.37 or CHF 1.34, compared to USD 1.03 or CHF 1.02 for 2017.
Property & Casualty Reinsurance contributed USD 16.1 billion of premiums earned in 2018, down from USD 16.7 billion in 2017. The decline is mainly in the Chinese quota share business and in the US casualty business. The Property & Casualty Reinsurance combined ratio was 104.0% in 2018, down from 111.5% as the prior year included larger natural catastrophe impacts.
Life & Health Reinsurance premiums earned and fee income totalled USD 12.8 billion in 2018, an increase of 7.1% year-on-year, mainly reflecting growth across all markets and a positive impact of intra-group retrocession agreements.
Corporate Solutions premiums earned were USD 3.9 billion for 2018, up by 7.5% compared to the previous year. The Corporate Solutions combined ratio was 117.5% in 2018, compared to 133.4% in the previous year, reflecting less significant large natural catastrophe losses in 2018.
Operating expenses of USD 3.4 billion in 2018 increased by 3.7% year-on-year.
The Group reported a tax charge of USD 69 million on a pre-tax income of USD 550 million for 2018, compared to a tax charge of USD 132 million on a pre-tax income of USD 525 million for 2017. This translated into an effective tax rate in the current and prior-year reporting periods of 12.5% and 25.1%, respectively. The tax rate in 2018 was largely driven by tax benefits from foreign currency translation differences between statutory and US GAAP accounts, the release of valuation allowances on net operating loss and tax benefits from intra-entity transfers, partially offset by profits earned in higher tax jurisdictions and tax charges from unrecognised tax benefits.
Our proprietary natural catastrophe modelling is one example. The underlying tool was developed based on proprietary Swiss Re R&D. It has been built over the past three decades in collaboration with external partners, and crucially, by leveraging our own experience and proprietary data to create the model. Once an exclusively in-house underwriting tool, this year it has been extended to our insurance clients in response to demand. Our trust in this proven model has enabled us to become leaders in profitably allocating capital to the important natural catastrophe modelling market – and the same confidence allows us to retain most of the risk. This represents a distinctive proposition to our clients and shareholders alike.
“ Our effective investment in R&D is the basis for continued underwriting outperformance.”
We continue to create value by delivering resilience. Resilience – the confidence that we can stand by our underwriting and risk-taking for many years to come – is crucial to our clients and to our shareholders. That resilience is assured through our ongoing disciplined commitment to both active capital allocation, and distinctive underwriting.
Underwriting performance in 2018 The Group’s overall underwriting performance in 2018 was solid, despite high large natural catastrophe and man-made losses in the year. Group results were affected by a number of major insured natural catastrophe losses that made 2018 the fourth-costliest year for the insurance industry according to the Swiss Re Institute. Despite pricing improvements in 2018, the market environment in our Property & Casualty Reinsurance businesses remained challenging. Meanwhile, the performance of Life & Health Reinsurance continued to be solid, and critical underlying markets remained attractive.
Total Life and Health benefits increased from USD 9.2 billion in 2017 to USD 10.3 billion in 2018. The increase was due to various factors, mainly currency fluctuations against the dollar, unfavourable claims development in US Mortality observed in the first half of 2018, and strong business growth, in particular in US Individual Mortality, Disability in Australia and Continental Europe and Medical in Europe.
We expect broadly stable non-life reinsurance prices, even while underlying primary commercial line prices increase. We anticipate the possibility of moderately increasing interest rates, but continue to focus our underwriting on the key loss drivers. We continue to closely monitor inflationary trends and their effects on claims severity. Our capital allocation process takes this into account, and as a result, we remain comfortable that risk is well within our expectations.
Our core outlook remains the same as last year – we are positive about the opportunities available to us through three distinctive abilities. Our ability to engage in large and tailored transactions has created a market for which we have truly distinctive capabilities. Demand continues to grow for solutions and services that deploy our R&D to clients. Our industry-leading product and geographic franchise enables an unrivalled ability to rapidly and flexibly deploy capital across insurance risk pools.
Strategy Swiss Re’s investment portfolio provided a solid contribution in 2018, despite a negative impact from the recent change in US GAAP accounting guidance. Fundamentally, the portfolio performed well with no material impairments and a running yield that trended upward during the year. Overall, there were no significant changes to Swiss Re’s asset allocation during 2018 and the Group remains flexible should there be a change in the investment outlook or if any market opportunities arise.
corporate bond spreads widened considerably across all regions over the final two months. Government bond yields increased for the majority of the year, most notably in the US, before partially reversing in November and December.
The Group reported non-participating net realised investment gains of USD 0.1 billion in 2018 compared to USD 1.7 billion in 2017, as the prior year benefited from significant realised gains from sales within the equity portfolio versus market value losses in 2018.
Outlook Global economic growth is expected to slow in 2019, particularly in advanced markets. Across the US and Europe, tighter financial conditions and lingering political concerns as well as the impact from a waning US fiscal stimulus are likely to weigh on growth. Asia is expected to see economic growth slow moderately, but remains the strongest region globally, while Latin America is expected to see a modest growth recovery, albeit from a low base.
Reinsurance – While natural catastrophes weighed on our performance in 2018, they also underscore the critical role reinsurance plays in narrowing the protection gap and creating a more resilient world.
Strategy and priorities By some accounts, 2017 and 2018 have been the costliest back-to-back years for insured catastrophe losses. As devastating as these events are, they also provide an opportunity to demonstrate the value of being reinsured. As always, we were there for our clients after hurricanes, typhoons, wildfires and hailstorms, fulfilling our promise to pay. Our clients recognise the financial strength of Swiss Re’s balance sheet and our ability to promptly pay claims.
While natural catastrophes are nothing new, the future holds many unknowns. Technology and globalisation are breaking down barriers in business, politics and society, while creating new structures, new opportunities and new threats. The strategy of Swiss Re’s Reinsurance Business Unit is focused on differentiation as well as the identification of risk pools – both existing and new – and the allocation of capital to those pools in a way that results in profitable growth. Reinsurance continues to prove its value by mitigating both established and emerging risks for businesses, governments and society.
Differentiation and client relationships Understanding the specific needs of our clients and delivering tailored programmes is what differentiates Swiss Re from other players. Our offerings are designed to respond to the realities of risk in today’s world. We look at our Reinsurance offerings in both Property & Casualty and Life & Health through the lenses of Core, Transactions and Solutions: Core is our traditional business and typically involves the transfer of insurance risk from a client’s balance sheet to our own. Transactions are usually driven by a client’s balance sheet needs, which necessitate the deployment of our knowledge and capital to deliver innovative deals. Our Solutions help clients add value to their underlying business, often by leveraging technology.
New active safety features like these, combined with changes in how cars are used (such as ride-hailing apps and car-share programs) meant it was time to radically rethink automotive insurance. In 2016, Swiss Re began developing an auto insurance product that uses telematics — data on when, how, and under what conditions a car is used — to more accurately assess evolving risk and price policies accordingly.
Premiums Net premiums earned were USD 16.1 billion for 2018, down from USD 16.7 billion in the prior period, reflecting a reduction mainly in the Chinese quota share business and in the US casualty business, partly offset by business volume increase in Asia. Gross premiums written of USD 16.5 billion in 2018 were in line with the prior-year period.
Expenses Claims and claim adjustment expenses –13 172 –11 614 –12 Acquisition costs –4 253 –4 012 –6 Operating expenses –1 159 –1 114 –4 Total expenses before interest expenses –18 584 –16 740 –10
Claims ratio in % 79.0 72.2 Expense ratio in % 32.5 31.8 Combined ratio in % 111.5 104.0 40 Swiss Re 2018 Financial Report
The Casualty combined ratio slightly increased to 110.6% in 2018, compared to 108.8% in 2017. The current period includes the impact from non-renewal of business in the US and reduced volumes in EMEA, mainly in the motor line of business.
The Specialty combined ratio improved to 93.4% for 2018, compared to 98.4% in 2017. This is a result of positive prior-year development across all lines of business, predominantly in marine.
Investment result The return on investments was 2.4% for 2018, compared to 3.5% in 2017, reflecting a reduction in the investment result of USD 329 million.
Net realised losses were USD 63 million for 2018, compared to net realised gains of USD 590 million for the prior period. The decrease is largely related to the contribution from equity securities, as the 2017 figure reflected significant realised gains from equity sales, while the current period was negatively impacted by the recent change in US GAAP accounting guidance, which entered into effect on 1 January 2018. Losses on interest rate derivatives and a reduction of gains from sales of fixed income securities also contributed to the lower result.
Shareholders’ equity Common shareholders’ equity decreased to USD 9.5 billion as of 31 December 2018 from USD 10.8 billion as of 31 December 2017, primarily driven by dividends paid to the Group of USD 1.3 billion, unfavourable foreign exchange movement and the net change in unrealised gains/losses, partly offset by net income. The return on equity for 2018 was 3.7% compared to –3.5% in 2017.
Net income was USD 761 million for 2018, a decrease from the previous year’s net income of USD 1.1 billion. The 2018 underwriting result was mainly driven by large transactions in Canada and New Zealand, as well as improved performance in Asia and EMEA, partly offset by unfavourable mortality experience in the US. Investment results were lower than in the prior year, reflecting lower realised gains and mark-to-market losses on equity securities. The return on equity was 11.1%, compared to 15.3% in 2017.
Premiums Net premiums earned and fee income in 2018 increased by 7.1% to USD 12.8 billion, compared to USD 12.0 billion for the prior year. Gross premiums written increased by 9.1% to USD 14.5 billion, reflecting growth across all markets, including a large transaction in Asia, a positive impact of intra-group retrocession agreements and favourable currency fluctuations. At constant exchange rates, the increase amounted to 8.1%.
Net operating margin The net operating margin for 2018 was 9.4%, a decrease from 13.1% in 2017 due to lower investment and underwriting performance.
Lines of business Income before interest and income tax expense (EBIT) for the Life segment decreased to USD 720 million for 2018, from USD 935 million in the prior year. The results in 2018 were adversely impacted by unfavourable mortality experience in the US individual life business, partly offset by a transaction in Canada.
Fee income from policyholders 129 152 18 Net investment income – non-participating business 1 308 1 305 0 Net realised investment gains/losses – non-participating business 591 347 –41 Net investment result – unit-linked and with-profit business 81 –33 — Other revenues 3 1 –67
Net realised gains were USD 192 million for 2018, compared to USD 459 million for the prior period, with the prior period positively impacted by significant net realised gains from sales of equity securities.
Corporate Solutions – Corporate Solutions’ results were impacted by natural catastrophe events and an exceptionally high severity and frequency of large man-made losses.
Performance The net loss was USD 405 million in 2018, compared to a net loss of USD 741 million in 2017, with a net operating margin of –11.1%, compared to –23.5% for the previous period. The 2018 result was impacted by natural catastrophe events and an exceptionally high severity and frequency of large man-made losses, with a combined claims burden of USD 0.7 billion. The investment result was lower in 2018 compared to 2017, as the previous period benefited from higher gains on sales of equity securities.
“ 2018 was a difficult year for Corporate Solutions. However, we are taking all necessary actions required to turnaround our performance and correct the current price deficiencies.”
Combined ratio The combined ratio decreased to 117.5% in 2018 compared to 133.4% in 2017, mainly due to lower large natural catastrophe losses, partially offset by higher large man-made losses. The previous year was particularly impacted by hurricanes Harvey, Irma and Maria in the third quarter of 2017.
Lines of business The Property combined ratio for 2018 decreased by 56.1 percentage points to 117.9%, driven by lower natural catastrophe losses, partially offset by a high severity and frequency of large man-made losses.
Net realised losses were USD 24 million compared to net realised gains of USD 118 million in 2017, with the prior-year result benefiting from significant realised gains from sales of equity securities.
We recently added access to CatNet, our industry-leading repository of detailed risk models related to natural disasters, allowing users to see the risk exposure of each of their business unit locations.
PULSE was designed to be a self-serve tool, but when a human touch is required, policy holders can use the platform to collaborate with their Risk Engineer on risk improvement actions.
Life Capital – Life Capitalʼs strategy is to create alternative access to insurance risk pools.
Strategy and priorities During 2018, the open book businesses continued their trend of significant policy growth, reaching new partners and distributors as well as expanding geographically.
The closed book business, ReAssure, continued to seek growth opportunities. The exploration of a potential initial public offering of the business (as announced in August 2018) continues but does not impede the business from considering additional closed life books to further strengthen its market position.
In December 2018, Swiss Re reached an agreement with MS&AD Insurance Group Holdings Inc (MS&AD) for a further investment of GBP 315 million in ReAssure. This transaction closed on 20 February 2019, resulting in a total shareholding by MS&AD in ReAssure of 25%.
Income before interest and income tax expense 298 113 –62 Interest expenses –35 –41 17 Income before income tax expense 263 72 –73 Income tax expense –102 –26 –75 Net income before attribution of non-controlling interests 161 46 –71 Income attributable to non-controlling interests –23 — Net income attributable to common shareholders 161 23 –86
Premiums Gross premiums written increased by 55.5% to USD 2.7 billion during 2018, mainly driven by growth in the open book businesses including a large medex transaction for iptiQ EMEA, combined with the impact of intra-group retrocessions and foreign exchange rate movements. Net premiums earned increased from growth in the open book life and health insurance businesses.
Operating expenses Operating expenses were USD 549 million in 2018 compared to USD 514 million in 2017, reflecting continued investment in the open book expansion and Legal & General Group (L&G) policy integration as well as the impact of unfavourable foreign exchange movements.
Shareholdersʼ equity Common shareholdersʼ equity decreased by USD 2.0 billion to USD 5.1 billion, compared to 31 December 2017. The decrease was mainly driven by a USD 1.1 billion dividend paid to the Group and a USD 1.1 billion reduction of net unrealised investment gains in 2018. The return on equity was 0.4% for 2018, compared to 2.2% for 2017. The year-on-year decrease was due to lower net income in 2018.
Outlook Life Capital continues to pursue selective acquisition opportunities within the closed book market and is focused on growing its individual and group open book businesses in Europe and the US. The ambition is to build a leading primary life and health business, with attractive returns for shareholders.
To increase conversion rates, iptiQ created Eva, a virtual assistant or “bot” that makes buying insurance online a more conversation-like experience. Eventually, Eva will be able to help walk customers through the process of selecting and purchasing insurance via their browser or mobile app, bringing a human touch to a complex purchase experience.
Eva’s timing is impeccable — in the last few years, Amazon’s Alexa and similar voice assistants offered by Apple, Google and Microsoft have been widely accepted by consumers. These virtual assistants are not widespread in the insurance industry. However, consumers are now comfortable interacting with bots to do everything from setting reminders, adjusting their air conditioning and purchasing household goods. So, insurance is the next logical step.
Today Eva is still a prototype within IptiQ, but in the future, we envision that Eva will be able to answer questions, inform customers about other types of coverage they may not be aware of, and make changes to policies on the back of important life events. In a next step, Eva will also be available as a chatbot and she will constantly evolve with the help of AI and state-of-the-art technology. If a customer stumps her, she can always refer them to a flesh-and-blood sales agent.
Eva officially went live in Germany and she only speaks German for now, but soon she will be launched in the UK. Currently Eva is equipped to sell life and health insurance, but eventually will be able to help clients’ customers choose other types of insurance coverage, including property and casualty.
Share performance The Board of Directors proposes to the 2019 AGM to authorise the company to repurchase own shares for the purpose of cancellation by way of a public share buy-back programme to be executed in two tranches before the 2020 AGM. The first tranche of up to CHF 1.0 billion would commence at the discretion of the Board shortly after the 2019 AGM pre-approval. The second tranche of up to CHF 1.0 billion will be conditional on the 2019 development of the Group’s excess capital position, for example a significant increase upon successful reduction of Swiss Re’s holding in ReAssure to below 50%.
Swiss Re will ask the AGM in April 2020 permission to cancel the repurchased shares by way of share capital reduction.
Index representation In addition to its relevant industry indices, Swiss Re is also represented in various Swiss, European and global indices, including the SMI and the SXIP. Swiss Re
Swiss Re shares Swiss Re had a market capitalisation of CHF 30.5 billion on 31 December 2018, with 338.6 million shares outstanding, of which 300.0 million were entitled to dividends. Swiss Re shares are listed in accordance with the International Reporting Standard on the SIX Swiss Exchange (SIX) and are traded under the ticker symbol SREN.
Share price performance Swiss Re shares opened the year at CHF 92.24. An intra-day high of CHF 98.80 was achieved on 27 February 2018. On 27 June 2018, the shares experienced an intra-day low of CHF 84.20. The year-end share price was CHF 90.12.
During 2018, the STOXX Europe 600 Insurance index (SXIP) decreased by 10.3% and the broader index of Swiss blue chips (SMI) decreased by 10.2%. The Swiss Re share decreased by 1.2%.
Share trading The average on-exchange daily trading volume for 2018 was 1.2 million shares. Trading volume peaked at 5.3 million shares on 8 February 2018.
The Group aims to ensure superior capitalisation at all times and to maximise financial flexibility, growing the regular dividend with long-term earnings and, at a minimum, maintaining it. Swiss Re will then deploy capital for business growth where it meets its strategy and profitability requirements and finally repatriate further excess capital to shareholders, with the preferred form of future capital repatriation being share buy-back programmes.
Dividends are typically paid out of current earnings and Swiss Re pays its dividend annually. Shares are ex-dividend two working days after the Annual General Meeting (AGM). Dividend payment is typically two working days after the ex-dividend date. The corresponding dates in 2019 are 23 and 25 April.
Insurance indices STOXX Europe 600 Insurance 5.43 Bloomberg Europe 500 Insurance 5.57 FTSEurofirst 300 Insurance 0.39 Dow Jones Insurance Titans 30 2.45
Information for investors More information is available on Swiss Re’s website: www.swissre.com/investors of which Treasury shares and shares reserved for corporate purposes 28 507 491 32 967 2262 34 093 8343 34 866 5164 38 575 3245
Price per share year-end 83.65 98.15 96.50 91.25 90.12 Price per share year high (intra-day) 86.55 99.75 97.85 98.50 98.80 Price per share year low (intra-day) 69.25 74.95 79.00 81.65 84.20 Daily trading volume (in CHF millions) 95 134 120 129 126 Market capitalisation11 (in CHF millions) 31 010 36 385 34 747 31 888 30 516 ADR price at year-end (in USD) 84.57 24.5312 23.76 23.38 22.84 1 Nominal value of CHF 0.10 per share.
2 Includes 4.4m shares repurchased under the share buy-back programme launched on 12 November 2015, which concluded on 2 March 2016. 3 Includes 5.5m shares repurchased under the share buy-back programme launched on 4 November 2016, which concluded on 9 February 2017. 4 Includes 6.3m shares repurchased under the share buy-back programme launched on 3 November 2017, which concluded on 16 February 2018. 5 Includes 10.1m shares repurchased under the share buy-back programme launched on 7 May 2018, which concluded on 15 February 2019. 6 In addition to the regular dividend of CHF 3.85 per share a special dividend of CHF 4.15 per share was paid in 2014. 7 In addition to the regular dividend of CHF 4.25 per share a special dividend of CHF 3.00 per share was paid in 2015. 8 Dividend divided by year-end share price of corresponding year.
9 Calculated by dividing net income by the weighted average number of common shares outstanding. 10 Based on shareholders’ equity (excluding convertible perpetual capital instruments) divided by the number of external common shares entitled to dividend. 11 Based on shares outstanding. 12 Since 15 June 2015 every Swiss Re ADR represents one quarter of a Swiss Re share. Prior to close of business on 12 June 2015, one ADR represented one Swiss Re share.
Swiss Re’s 2018 economic result was impacted by large losses and an unfavourable contribution from investment activities.
EVM performance 56 EVM financial information 60 Independent Assurance Report 68
Swiss Re reported a total contribution to economic net worth (ENW) of USD 2.2 billion in 2018 compared to USD 1.9 billion in 2017. On a risk-adjusted basis, Swiss Re reported an EVM loss of USD 693 million, compared to an EVM loss of USD 9 million in 2017.
Group performance The EVM loss of USD 693 million in 2018 reflected the impact of large natural catastrophe and man-made losses that adversely impacted the Property & Casualty Reinsurance and Corporate Solutions underwriting performance, and an unfavourable investment result, mainly due to widening credit spreads. These losses were partially offset by a strong new business result in Life & Health Reinsurance and a previous years’ business profit in Property & Casualty Reinsurance.
The EVM profit on new business was USD 356 million compared to an EVM loss on new business of USD 1.3 billion in 2017. The 2018 result was mainly driven by a strong new business result in Life & Health Reinsurance, partially offset by the Property & Casualty Reinsurance and Corporate Solutions new business results following large natural catastrophe and man-made losses.
Investment activities generated an EVM loss of USD 1.7 billion in 2018 compared to a profit of USD 1.5 billion in 2017. The 2018 result reflected a negative impact from credit spread widening as well as underperformance from equities and Principal Investments. The 2017 result was driven by favourable performance across credit and equities as well as from Principal Investments.
ENW per share growth amounted to 4.4% in 2018, below the over-the-cycle target of 10%. The underperformance was due to large losses, a negative investment result, and unfavourable foreign exchange impacts.
Economic net worth per share growth, %1 10.8 4.4 Profit margin − new business, % −4.1 1.2 Profit margin − previous years’ business, % −0.8 3.5 Profit margin − investments, % 16.5 −18.3
Life & Health Reinsurance reported an EVM profit of USD 523 million in 2018 compared to USD 1.6 billion in 2017. The EVM profit on new business of USD 980 million reflected a strong contribution from transactions in New Zealand and Japan and improved core business profitability in the US. The 2018
Corporate Solutions reported an EVM loss of USD 673 million in 2018 compared to a loss of USD 917 million in 2017. The EVM loss on new business was USD 81 million, driven by large natural catastrophe and man-made losses, partially offset by a 2018 current accident year retrocession recovery on the Ituango dam flooding and the occurrence of a higher premium volume from a moderately improved market environment. The EVM loss on previous years’ business was USD 530 million, significantly impacted by high severity and frequency of large man-made losses; the largest being the gross loss on the 2011 contract year Ituango dam flooding and a major satellite loss, as well as reserve strengthening on the excess and surplus casualty book. Investment activities generated an EVM loss of USD 63 million in 2018 compared to a profit of USD 79 million in 2017, with results in 2018 reflecting the impact of credit spread widening and unfavourable performance from equity investments, both in contrast to the 2017 result.
Profit margin – new business, % −4.1 1.2 Profit margin – previous years’ business, % −0.8 3.5 Profit margin – investments, % 16.5 −18.3
Cash and cash equivalents 6 467 5 695 In-force business assets 224 231 223 075
Provision for capital costs 9 034 7 569 Future income tax liabilities 4 914 4 264
Economic net worth as of 1 January 36 648 37 667 Total contribution to ENW 1 867 2 166 Dividends and share buy-back −2 629 −2 939 Other, including foreign exchange on economic net worth 1 781 −901 Economic net worth as of 31 December 37 667 35 993 Common shares outstanding as of 31 December 314 585 765 300 044 141 Economic net worth per share in USD as of 31 December 119.74 119.96
Gross underwriting result – new business 39 2 979 103 378 3 0 3 502
EVM profit – previous years’ business 120 11 −257 20 −42 0 −148
Net underwriting result – new business 134 2 116 89 124 −122 0 2 341
Economic net worth as of 1 January 12 410 13 081 2 918 3 978 5 285 −5 37 667 Change in EVM methodology1 743 −813 63 64 −57 0 Adjusted economic net worth as of 1 January 13 153 12 268 2 981 4 042 5 228 −5 37 667
Dividends and share buy-back −1 300 −650 −50 −1 125 186 −2 939 Other, including foreign exchange on economic net worth −289 −512 −3 88 −190 5 −901 Economic net worth as of 31 December 12 913 12 377 2 454 3 270 4 979 0 35 993 1 The Group revised the method to allocate EVM deferred tax assets and liabilities to business segments. The impact of the change in EVM methodology was recorded as an adjustment to the opening balance of 2018 economic net worth.
Comparison of EVM and US GAAP The most significant differences between EVM and US GAAP are as follows: ̤ Discounting: For EVM, all future expected cash flows are discounted using risk-free interest rates. Under US GAAP, most property and casualty reserves are undiscounted (except for reserves acquired in business combinations), whereas life and health reserves are usually discounted based on book yields.
̤ Investments and debt: For EVM, all investments and debt positions are carried at fair value. Under US GAAP, different treatment applies for certain investments (eg real estate is held at depreciated cost) and debt is carried at amortised cost rather than at fair value.
̤ Goodwill and other intangibles: EVM excludes the recognition of potential future new business activities, including potential renewals. As a result, no goodwill or other intangible assets are carried in the EVM balance sheet.
̤ Taxes: For EVM, deferred tax assets and liabilities are recognised for temporary differences between US GAAP and EVM.
On the Economic Value Management financial information as of 31 December 2018 to the Board of Directors of Swiss Re Ltd, Zurich
Practitioner’s responsibility Our responsibility is to perform a reasonable assurance engagement to express a conclusion on the EVM financial information as set out on pages 60 to 67 in the Company’s 2018 Annual Report. We conducted our reasonable assurance engagement in accordance with International Standards on Assurance Engagements 3000 (Revised) ‘Assurance engagements other than audits or reviews of historical financial information’ issued by the International Auditing and Assurance Standards Board. This standard requires that we plan and perform this engagement to obtain reasonable assurance about the assurance conclusions.
Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior.
Conclusion In our opinion, the EVM financial information of the Company for the year ended 31 December 2018 as set out on pages 60 to 67 are prepared, in all material respects, in accordance with the Company’s EVM principles applied as published on the Company’s website (swissre.com/EVM_principles).
“ Large losses keep reminding us of the importance of maintaining a robust capital position.”
Swiss Re’s overarching target is to maintain a very strong capital position that operates efficiently within constraints imposed by regulators and requirements from rating agencies while giving the company maximum financial flexibility. Swiss Re’s capital allocation decisions are steered to make capital and liquidity fungible to the Group wherever possible, while complying with local regulations and client needs. Cash dividends paid by our Business Units to the Group’s parent holding company, Swiss Re Ltd, have amounted to USD 17.2 billion since 2013.
As part of the ongoing maintenance of the Group’s target capital structure, Swiss Re further enhanced its financial flexibility by issuing a USD 500 million non-dilutive senior exchangeable bond with anytime issuer stock settlement.
Swiss Re also provides FINMA with a yearly report on its liquidity position, in accordance with FINMA Circular 13/5, “Liquidity — Insurers”.
Swiss Re’s proprietary integrated risk model provides a meaningful assessment of the risks to which the Group is exposed and represents an important tool for managing our business. It determines the capital requirements for internal purposes and forms the basis for regulatory reporting under the SST and under Solvency II for our legal entities in the EEA.
Swiss Re continuously reviews and updates its internal model and parameters to reflect the Group’s experiences and changes in the risk environment and current best practice.
Swiss Re’s risk profile In SST 2019, Swiss Re’s overall risk remains broadly stable at USD 19.7 billion (compared to USD 19.9 billion in SST 2018), as higher underwriting and credit risks are more than offset by a decrease in financial market risk.
Property and casualty risk increases due to growth in property business in 2018 and the 1 January 2019 renewals which leads to higher natural catastrophe and terrorism exposure. These effects are partly offset by lower costing and reserving risk.
Financial market risk decreases mainly driven by significantly lower credit spread risk and to a lesser extent by lower equity risk. The decrease in credit spread and equity risk is driven by adverse market developments during 2018.
Swiss Re remained strongly capitalised throughout 2018 despite large industry losses, allowing us to deploy capital for potential market developments while continuing to repatriate excess capital to our shareholders.
Swiss Solvency Test (SST) Swiss Re is supervised at the Group level and for its regulated legal entities domiciled in Switzerland by FINMA. FINMA supervision comprises minimum solvency requirements, along with a wide range of qualitative assessments and governance standards.
Grow the regular dividend with long-term earnings, and at least maintain it
Deploy capital for business growth where it meets our strategy and profitability requirements
Repatriate further excess capital to shareholders 1 Payout ratio calculated as capital repatriation over total contribution to ENW; assumes AGM approval of the proposed ordinary dividend of CHF 5.60 per share and the unconditional share buy-back of up to CHF 1bn 74 Swiss Re 2018 Financial Report
In SST 2019, the solvency of Swiss Re Group remains at a very strong level of 251% and comfortably above the target of 220%. In a challenging year with large losses Swiss Re was able to generate a positive underwriting contribution. This is also reflected in a relative increase of insurance risk in the overall risk profile. Capital repatriation, the redemption of a subordinated instrument and depressed financial markets resulting in negative contribution from investments ultimately lead to a decrease in the overall SST ratio.
SST risk-bearing capital – market value margin 46 345 40 637 –5 708 SST target capital – market value margin 17 217 16 188 –1 029 SST ratio 269% 251% –18pp
̤ The Life Capital underwriting contribution is positive, resulting from favourable underwriting results.
The contribution from investment activities is negative, mainly driven by the impact of spread widening and negative equity performance as well as losses from Principal Investments.
The negative impact from foreign exchange movements on the SST NAV mainly reflects the weakening of major currencies against the US dollar.
Dividend payments and share repurchases lead to a decline in the SST NAV of USD 2.9 billion.
Supplementary capital is recognised as risk bearing under SST. The change in SST supplementary capital of USD 1.1 billion reflects the redemption of a subordinated instrument as well as changes in the market value of the capital instruments.
The risk exposure basis for SST is a projection for the period from 1 January 2019 to 31 December 2019 and is based on the economic balance sheet as of 31 December 2018 and adjustments to reflect 1 January 2019 business shifts.
The increase in MVM is mainly driven by actual and projected growth in Asian critical illness business and model improvements. These effects are partly offset by the depreciation of major currencies against the US dollar and slightly higher interest rates, mainly in US and Canadian dollar.
Since SST 2018, two major model changes have been implemented and were approved by FINMA in October 2018: ̤ Financial market risks – The change in calibration approach had no impact on required capital when it was introduced. The prospective impact is contingent on financial markets developments.
SST target capital – market value margin 17 217 16 188 –1 029
Consistent with the established capital management priorities, the Board of Directors proposes a further public share buyback programme. The first tranche of up to CHF 1.0 billion purchase value would commence at the discretion of the Board of Directors shortly after the 2019 AGM approval, subject to regulatory approvals. The second tranche of up to CHF 1.0 billion purchase value is conditional on the 2019 development of the Group's excess capital position.
The Group also reinvested into the business by redeploying capital into the Business Units. The majority of this capital was allocated to Life & Health Reinsurance, Corporate Solutions and Life Capital’s open-book businesses, reflecting our strategy to steer capital to the growing areas of the business in a competitive environment.
Dividend flows since new structure created in 2012CAPITAL RETURNED TO SHAREHOLDERS SINCE 2013
Life Capital 1 Reflects total external dividend and public share buyback programmes between January 2013 and December 2018. 2 Principal Investments has paid to Group dividends of USD 1.0bn between January 2013 and December 2018. 3 Internal dividend flows from January 2013 to December 2018.
On 24 October 2018, S&P affirmed the AA– financial strength of Swiss Re and its core subsidiaries. The outlook on the rating is “Stable”. The rating reflects Swiss Re’s extremely strong capital adequacy in excess of the ‘AAA’ benchmark and extremely strong competitive position build on a highly recognised brand name, highly diversified product offering and longestablished direct client relationships.
As of 31 December 2018 Financial strength rating Outlook Last update
Moody’s Aa3 Stable 19 December 2017 Standard & Poor’s AA– Stable 24 October 2018 A.M. Best A+ Stable 13 December 2018
In June 2018, Swiss Re Ltd issued a USD 500 million 6 year non-dilutive senior exchangeable bond with anytime issuer stock settlement at a coupon of 3.25%. This new issuance in the equity-linked capital market provides Swiss Re with valuable, cost efficient contingent capital, further enhancing the Group’s financial flexibility. The new bond replaced the CHF 320 million perpetual subordinated notes with anytime issuer stock settlement issued in 2012 by Swiss Reinsurance Company Ltd, which were redeemed in September 2017. Swiss Reinsurance Company Ltd further reduced subordinated leverage by USD 750 million by redeeming its second series of perpetual subordinated notes with anytime issuer stock settlement on their first call date in September 2018.
LOC1 Senior debt2 Total hybrid inkl. contingent capital3 Core capital4 Senior leverage plus LOC ratio5 (target range: 15–25%) Subordinated leverage ratio6 (target range: 15–20%)
1 Unsecured LOC capacity and related instruments (usage is lower). 2 Senior debt excluding non-recourse positions.
3 Includes SRL’s pre-funded dated subordinated debt facilities and contingent capital instruments accounted for as equity.
Liquidity management The active management of liquidity risks ensures the Group’s ability to satisfy its financial obligations.
A range of liquidity policies and measures are in place to manage these risks, in particular to ensure that ̤ sufficient liquidity is held to meet funding requirements under current conditions as well as adverse circumstances; ̤ funding is charged and credited at an appropriate market rate through Swiss Re’s internal transfer pricing; ̤ diversified sources are used to meet the Group’s residual funding needs; and
̤ long-term liquidity needs are taken into account in the Group’s planning process and in the management of financial market risk.
Liquidity risk management Swiss Re’s core liquidity policy is to retain access to sufficient liquidity in the form of unencumbered liquid assets, cash, and pre-funded facilities, to meet potential funding requirements arising from a range of possible stress events. To allow for regulatory restrictions on intra-Group funding, liquidity is managed from a legal entity perspective. The amount of liquidity held is determined by internal liquidity stress tests, which estimate the potential funding requirements stemming from extreme loss events.
̤ Repayment or loss of all maturing unsecured debt and credit facilities
In 2018, the amount of surplus liquidity reduced. This reduction was largely due to the management decision to reduce external debt, as well as an increase in contingent funding requirements stemming from extreme stress loss events.
Group risk governance documents are organised hierarchically across five levels, which are mirrored by equivalent documents at legal entity (LE) level: ̤ (SRL) Bylaws and the charter for the
̤ Risk category standards describe how risk practices are implemented for a specific category.
Fundamental roles for delegated risk-taking In order to ensure clear control, accountability and independent monitoring for all risks, Swiss Re’s risk governance distinguishes between three fundamental roles in the risk-taking process: ̤ Risk owner – establishes a strategy, delegates execution and control, and retains ultimate responsibility for the outcomes.
Risk-taking activities are typically subject to three lines of control. The first line comprises the day-to-day risk control activities performed by risk takers in the business as well as in Group functions, including identification of risks and design of effective controls. Independent oversight performed by functions such as Risk Management and Compliance represents the second line of control. The third line consists of independent audits of processes and procedures carried out by Group Internal Audit or by external auditors. This approach is designed to achieve a strong, coherent and Group-wide risk culture built on the principles of ownership and accountability.
Risk culture Swiss Re fosters and maintains a strong risk culture to promote risk awareness and discipline across all its activities. This risk culture stands for the risk- and control-related values, knowledge and behaviour shared by all employees. Its principal components are summarised in a framework that builds on the Group Code of Conduct as well as on key risk management principles in the Group Risk Policy.
The risk culture framework serves to influence appropriate risk-taking behaviour in four key aspects, which are assessed annually for all employees in the performance and compensation process: ̤ Leadership in providing clear vision and direction ̤ Consideration of risk-relevant information in decision-making ̤ Risk governance and accountability of risk takers as well as transparent flow of risk information
̤ Some responsibilities delegated to Group CRO and major legal entities
Group Internal Audit ̤ Independent risk controller ̤ Assesses adequacy and effectiveness of internal control systems
Legal entity management ̤ Manages underwriting decisions and operational risks in its area
The Group Executive Committee is responsible for developing and implementing Swiss Re’s Group-wide risk management framework. It also sets and monitors risk capacity limits, oversees the Economic Value Management framework, determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group Executive Committee has delegated various risk management responsibilities to the Group Chief Risk Officer (Group CRO) as well as to certain legal entity CROs, in particular the CROs of the legal entities SRZ, SRCS and SRLC.
Management function comprises dedicated risk teams for legal entities and regions, as well as central teams that provide specialised risk expertise and oversight.
Legal entity risk teams are led by dedicated CROs who report directly or indirectly to their top-level entity CRO, with a secondary reporting line to their respective legal entity CEO. These legal entity CROs are responsible for risk oversight in their respective entities, as well as for establishing the proper risk governance to ensure efficient risk identification, assessment and control. They are supported by functional, regional and subsidiary CROs who are responsible for overseeing risk management issues that arise at regional or subsidiary level.
̤ Risk reporting – creates internal risk transparency and enables Swiss Re to meet external disclosure requirements.
Find more information about Swiss Re’s risk control framework in the interactive online report.
Swiss Re’s risk tolerance describes the extent to which the Group Board has authorised executive management to assume risk. It represents the amount of risk that Swiss Re is willing to accept within the constraints imposed by its capital and liquidity resources, its strategy, and the regulatory and rating agency environment within which it operates.
̤ To avoid material operational risks that could subject the Group to large operational losses with corresponding consequences from an economic, reputational or regulatory perspective
Swiss Re’s risk-taking is governed by a limit framework in order to ensure that accumulation risk and large losses remain at an acceptable level, as well as to steer the allocation of available risk capacity. The limit framework is rooted in the risk appetite and risk tolerance objectives set in the Group Risk Policy and helps to translate these objectives into concrete, measurable criteria. In addition, lower level limits are implemented to allocate scarce capacity. The limit framework also allows for risk monitoring and thus supports risk controlling during the execution of the plan.
The Group’s financial risk derives from financial market risks as well as from credit risk. Key drivers of financial market risk are credit spread and equity risk. Credit risk is mainly driven by default risk of capital market products and credit and surety business.
In SST 2019, total risk remains broadly stable, as higher underwriting and credit risks are more than offset by a decrease in financial market risk. The weakening of major currencies against the US dollar also lowers this effect.
Property and casualty 10 113 10 537 424 see page 90 Life and health 7 727 8 633 906 see page 91 1 Credit comprises credit default and credit migration risk from both asset management and underwriting. Credit spread risk falls under financial market risk.
̤ Life and health insurance risk arises from coverage provided for mortality (death), longevity (annuity) and morbidity (illness and disability) as well as from acquiring closed books of business. In addition to potential shock events (such as a severe pandemic), it includes underlying risks inherent in life and health contracts that arise when mortality, morbidity or lapse experience deviates from expectations.
̤ Natural catastrophe ̤ Man-made ̤ Costing and reserving ̤ Claims inflation
̤ Lethal pandemic ̤ Mortality trend ̤ Longevity ̤ Critical illness ̤ Income protection ̤ Lapse
̤ Credit spread ̤ Equity ̤ Foreign exchange ̤ FM inflation ̤ Interest rate ̤ Real estate
̤ Operational risk represents the potential economic, reputational or compliance impact of inadequate or failed internal processes, people and systems or from external events, including legal risk and the risk of a material misstatement in financial reporting. Swiss Re has implemented a capital model for operational risk, which is used for Solvency II purposes.
̤ Political risk comprises the consequences of political events or actions that could have an adverse impact on Swiss Re’s business or operations.
In 2018, Swiss Re further refined its limit framework, establishing a principles-based approach that is more strongly focused on Swiss Re’s key defensive objectives. The new framework enables more dynamic capital allocation while strengthening the accountability of the first line of control of the capacity allocation decisions and capacity management.
Regular internal reports ensure transparency across the Group, providing management with quantitative and qualitative risk assessments. Swiss Re’s insurance risk landscape and related governance processes are regularly discussed and reviewed by the Senior Risk Council and other insurance risk oversight bodies in order to assist and advise the Group CRO in the risk oversight.
In addition to underwriting and capacity limits, Swiss Re’s limit framework includes individual limits for major natural catastrophe scenarios and other key risks, such as terrorism, claims inflation, reserving and liability. These limits guard against exposure accumulations and ensure that risk-taking remains within Swiss Re’s risk tolerance.
In SST 2019, the largest natural catastrophe exposure for Swiss Re Group derives from the Atlantic hurricane scenario with a USD 5.9 billion loss. The lethal pandemic loss is estimated to be at USD 2.8 billion.
with a secondary reporting line to the Group Chief Investment Officer. Financial Risk Management controls exposure accumulation for financial market and credit risks. In addition, the team is responsible for assurance activities related to asset valuation and financial risk models, as well as for reporting Swiss Re’s financial risks. These responsibilities are exercised through defined governance processes, including regular reviews by Swiss Re’s Senior Risk Council and other financial risk oversight bodies.
Risk developments Credit risk increases slightly since SST 2018 driven by business growth in credit and surety business.
Interest rates +50bps 10pp Interest rates –50bps –12pp Spreads +50bps –7pp Spreads –50bps 8pp Equity values +25% 3pp Equity values –25% –3pp Real estate values +25% 6pp Real estate values –25% –6pp
All operational events and issues are recorded and managed in a central Operational Risk Management system in order to address the identified problems and avoid the recurrence of similar events. The results are reviewed by the company’s CRO and reported to the management team and Board.
While techniques and technologies to turn data into risk knowledge are becoming increasingly sophisticated, Swiss Re further enhanced its organisational measures to protect privacy and safeguard data confidentiality in line with requirements of the European General Data Protection Regulation which took effect on 25 May 2018.
The regulatory environment of the insurance industry continues to evolve on the regional, national and international level. While some regulatory changes create new business opportunities, others come with significant costs and business restrictions. Growing regulatory complexity, increased national protectionism and a fragile global economy are persistent themes affecting regulation and the way Swiss Re operates worldwide.
Swiss Re continues to advocate for the removal or reduction of market access barriers, so that policyholders, governments, taxpayers and national economies can fully benefit from international diversification and therefore reliable, quality and affordable risk cover.
The ultimate outcome of Brexit and the relationship between the EU and the UK remain unclear. Swiss Re operates in the UK through the UK branches of Swiss Re’s Luxembourg entities and some UK-domiciled entities. Swiss Re is actively engaging with the relevant UK and EEA regulators to ensure minimum disruption from Brexit and has actioned contingency plans to mitigate the risk of any adverse impacts on Swiss Re’s businesses or the ability to service clients and customers as a result of Brexit.
Potential sustainability risks are mitigated through clear corporate values, active dialogue and engagement with affected external stakeholders, and robust internal controls. These include a Group-wide Sustainability Risk Framework to identify and address sustainability risks across Swiss Re’s business activities. The framework comprises sustainabilityrelated policies − with pre-defined exclusions, underwriting criteria and quality standards − as well as a central due diligence process for related transactional risks.
Sustainability risks are monitored and managed by dedicated experts in Swiss Re’s Group Sustainability Risk team, which is also responsible for maintaining the Sustainability Risk Framework. In addition, this unit supports Swiss Re’s risk management and business strategy through tailored risk assessments and risk portfolio reviews. It fosters risk awareness through internal training, and facilitates development of innovative solutions to address sustainability issues. Finally, it represents and advocates Swiss Re’s position on selected sustainability risk topics to external stakeholders.
Emerging risk Anticipating possible developments in the risk landscape is a central element of Enterprise Risk Management. Swiss Re promotes pre-emptive thinking on risk in all areas of the business in order to reduce uncertainty and diminish the volatility of the Group’s results, while also identifying new business opportunities and raising awareness for emerging risks.
Overview 100 Group structure and shareholders 104 Capital structure 107 Board of Directors 110 Executive Management 128 Shareholders’ participation rights 136 Changes of control and defence measures 137 Auditors 138 Information policy 140
“ We are in a constant dialogue with our shareholders and incorporate their valuable feedback into our governance framework.”
Our Board of Directors is in a regular dialogue with our shareholders and welcomes their valuable feedback on our governance framework.
Overview Corporate governance continues to evolve towards increased transparency and accountability of companies to stakeholders.
̤ The Corporate Governance Guidelines (Guidelines), setting forth the Group’s governance framework, principles, processes and requirements, ensuring consistent and fitted corporate governance across the Group
̤ The Articles of Association of Swiss Re Ltd (SRL), defining the legal and organisational framework of the Group’s holding company SRL, (available at com/documents/SRL_articles_of_ association_en_july2018.pdf)
̤ The SRL Bylaws, defining the governance framework of SRL and the Group, including the responsibilities and authorities of the Board of Directors, Chairman, Vice Chairman, Lead Independent Director, Board committees, Group EC, Group CEO and other individual Group EC members, including the Regional Presidents, as well as the relevant reporting procedures
In addition, they include at the Business Unit level: ̤ The Articles of Association of
̤ the Swiss Financial Market Supervisory Authority FINMA provisions on corporate governance, risk management and internal control system at insurers.
Swiss Re Summit On 19 June 2018, we held the Swiss Re Summit in Armonk, New York, where we brought together the members of the Boards of Directors of the ten most important Group companies. They were joined by the members of the Executive Committees of SRL as well as SRZ, SRCS and SRLC. The purposes of the Summit were to provide a dialogue platform for the Board members of the various Group companies and to hold practical training sessions on current trends: The Group CEO provided the participants with an update on the Group Strategy. They also received practical insights related to cyber risks and completed a cyber resilience exercise. The Summit was followed by an Audit Summit, where the members of the Group Audit Committee met with the members of the Audit Committees of the ten most important Group companies. The participants were introduced to the new Group CFO and discussed important large ongoing projects as well as Compliance and Internal and External Audit topics.
Subsidiary boards Swiss Re’s Corporate Governance Guidelines outline qualifications and skills required for the members of the Boards of Directors of the Group’s subsidiaries. They also establish procedures for the appointment and onboarding of Board and management members across the Group. In order to ensure an aligned implementation of the Group’s Strategy across the Group, the Boards of the most important Group companies are also comprised of individual SRL Board and Group EC members. The Boards also include non-executive members to comply with local requirements.
An example is Swiss Re Asia Pte. Ltd. (Swiss Re Asia). Effective 31 January 2018, Swiss Re strengthened its presence in Asia with the establishment of Swiss Re Asia, its headquarters for Asia. The Board of Directors of Swiss Re Asia includes four members of the Group EC as well as six external directors, who provide Swiss Re Asia with external perspectives and identify emerging trends that have the potential to affect Swiss Re’s business across the region. The composition of the Board of Directors ensures that the Asia-wide expertise of external Board members complements the global reinsurance experience of the members from Swiss Re’s Group EC.
̤ Our 2030 Sustainability Ambitions: 1. Mitigating climate risk and advancing the energy transition 2. Building societal resilience 3. Driving digital insurance solutions
̤ The three supporting Strategic Pillars: (i) Embed sustainability in all our business activities (ii) Lead sustainability-linked solutions and embrace opportunities
̤ Mary Francis, Rajna Gibson Brandon and C. Robert Henrikson did not stand for re-election.
̤ The Annual General Meeting 2018 re-elected Walter B. Kielholz for a further one-year term of office as Chairman of the Board of Directors.
̤ Renato Fassbind, Raymond K.F. Ch’ien, Trevor Manuel, Jay Ralph, Joerg Reinhardt, Philip K. Ryan, Sir Paul Tucker, Jacques de Vaucleroy and Susan L. Wagner were individually re-elected by the Annual General Meeting 2018 for a further one-year term of office as members of the Board of Directors.
̤ The Annual General Meeting 2018 re-elected Renato Fassbind, Raymond K.F. Ch’ien and Joerg Reinhardt as members, and elected Jacques de Vaucleroy as a new member of the Compensation Committee for a one-year term of office.
Group EC Composition 2018 ̤ John R. Dacey, previously Group Chief Strategy Officer, became Group Chief Financial Officer as of 1 April 2018, succeeding David Cole, who had decided to step down as Group Chief Financial Officer. With that change, the two roles of Group Chief Financial Officer and Group Chief Strategy Officer were merged.
̤ Russell Higginbotham was appointed CEO Reinsurance EMEA and Regional President EMEA and a member of the Group EC effective 1 September 2018. Russell succeeded Jean-Jacques Henchoz, who had decided to pursue an opportunity outside Swiss Re.
Announced composition changes in 2019 ̤ Anette Bronder (previously a member of the
̤ Andreas Berger (former Chief Regions & Markets Officer and member of the Board of Management of Allianz Global Corporate & Specialty SE) was appointed CEO Corporate Solutions and a member of the Group EC with effect from 1 March 2019. He succeeds Agostino Galvagni, who had decided to step down as CEO Corporate Solutions at the end of 2018.
Regional Presidents The Regional Presidents for the areas Americas, Asia and EMEA are responsible for representing the Swiss Re Group externally and internally, as well as enhancing our brand and safeguarding Swiss Re’s reputation in the regions for which they are responsible. They also oversee the Group’s operating platform and coordinate activities across the three Business Units in their region. The Regional Presidents’ responsibilities are governed in the SRL Bylaws as well as in the Regional Presidents’ Charter. The Charter has been revised in 2018 to simplify processes and implement changes based on gained experience.
voting rights can be exercised.* Notifications must also include financial instruments, regardless of whether cash or physically settled, constituting a purchase or a sale position. Upon receipt of such notifications, the company is required to inform the public by publishing within two trading days the notification on the electronic platform of SIX Swiss Exchange.
* According to Article 120(1) FMIA, anyone who directly or indirectly or acting in concert with third parties acquires or disposes shares or acquisition or sale rights relating to shares of a company with its registered office in Switzerland whose equity securities are listed in whole or in part in Switzerland, or of a company with its registered office abroad whose equity securities are mainly listed in whole or in part in Switzerland, and thereby reaches, falls below or exceeds the thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% or 66⅔% of the voting rights, whether exercisable or not, must notify this to the company and to the stock exchanges on which the equity securities are listed. According to Article 120(3) FMIA, anyone who has the discretionary power to exercise the voting rights associated with equity securities in accordance with Article 120(1) FMIA is also subject to the notification. The person or group is obliged to make a notification in writing to the company (issuer) and the stock exchange no later than four trading days after the creation of the obligation to notify (conclusion of a contract).
Creation of the obligation to notify 1 In the context of the issuance of USD 500 000 000 exchangeable notes due 2024 by Swiss Re Ltd with issuer stock settlement, ELM B.V., Amsterdam, Netherlands, (the repackaging vehicle used for the issuance of these notes), notified Swiss Re Ltd, in compliance with Article 120 of the Financial Markets Infrastructure Act (FMIA), that as of 13 June 2018 it holds a purchase position in the amount of 3.20% of the voting rights in Swiss Re Ltd.
2 In compliance with Article 120 of the Financial Markets Infrastructure Act (FMIA), BlackRock, Inc., New York, USA (BlackRock), notified Swiss Re Ltd (Swiss Re) on 28 December 2018 following an acquisition of collateral (acquisition and share position obligation) that it holds as of 27 December 2018 a total of 17 037 445 voting rights corresponding to 5.03% of the voting rights in Swiss Re. With recommendation of the Disclosure Office dated 15 July 2016, BlackRock was granted easing provisions from the obligation to disclose the direct shareholders according to Article 120(1) FMIA in conjunction with Article 11b and Article 22(1e) and (3) FMIO-FINMA when disclosing holdings according to Article 18(1) and (4) FMIOFINMA. However, collective investment schemes within the meaning of Article 18(2a) FMIO-FINMA that hold individually 3% or more of the voting rights of the relevant issuer will be mentioned in the relevant disclosure notification. Any person shall, at his/her request and without prove of interest, receive information about the direct shareholders within the meaning of Article 11b and Article 22(1e) and (3) FMIO-FINMA. Such request has to be addressed via email to the Disclosure Office: offenlegung@six-group.com. The information will be provided within five trading days from receipt of the relevant request by BlackRock. The information will be provided in electronic format with a reference date not older than one month. The easing provisions are granted until 15 July 2019. The 17 037 445 voting rights result from (i) the holding of 14 231 033 registered shares of Swiss Re (corresponding to 4.20% of the voting rights), of which 387 711 voting rights (corresponding to 0.11% of the voting rights) are due to repos (on the purchaser side) and/or collateral received with the title transfer (non-repo), (ii) 2 743 998 voting rights (corresponding to 0.81% of the voting rights) delegated by a third party and which can be exercised at BlackRock’s own discretion and (iii) contracts for difference and one equity-linked note (with expiry date of 6 February 2019) conferring a total of 62 414 voting rights (corresponding to 0.02% of the voting rights) in Swiss Re. In addition, BlackRock disclosed sales positions arising from contracts for difference amounting to 224 474 voting rights, corresponding to 0.07% of the voting rights in Swiss Re.
As of 31 December 2018 Shareholders in % Shares in %
Cross-shareholdings Swiss Re has no cross-shareholdings in excess of 5% of capital or voting rights with any other company.
As of 31 December 2018 65.7% Institutional shareholders 29.9% Individual shareholders 4.4% Swiss Re employees
As of 31 December 2018 58.7% Switzerland 17.9% United Kingdom 12.9% USA 10.5% Other registered shareholders
More information on the Swiss Re shares, such as the price performance and trading volume in 2018, Swiss Re’s dividend policy and dividends, the share buy-back programme and an overview on the key share statistics since 2014, is included in the section “Share performance” on pages 52–53 of this Financial Report.
Capital As a result of the cancellation of shares repurchased under the share buy-back programme which was completed on 16 February 2018, the fully paid-in share capital of Swiss Re Ltd as of 31 December 2018 amounted to CHF 33 861 946.50. It is divided into 338 619 465 registered shares, each with a par value of CHF 0.10.
The table on page 108 of this Financial Report provides an overview of the issued, conditional and authorised capital of Swiss Re Ltd as of 31 December 2018 and 31 December 2017, respectively.
Conditional and authorised capital in particular Conditional capital As of 31 December 2018, the conditional capital of Swiss Re Ltd consisted of the following: Conditional capital for Equity-Linked Financing Instruments The share capital of the company may be increased up to CHF 5 000 000 by issuing a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10.
The Board of Directors may exclude or restrict the subscription rights of existing shareholders with respect to a maximum of CHF 3 500 000 through the issue of up to 35 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, out of the total amount of authorised capital. Such exclusion or restriction relates to the use of shares in connection with (i) mergers, acquisitions (including takeover) of companies, parts of companies or holdings, equity stakes (participations) or new investments planned by the company and/or Group companies, financing or re-financing of such mergers, acquisitions or new investments, the conversion of loans, securities or equity securities, and/or (ii) improving the regulatory capital position of the company or Group companies in a fast and expeditious manner if the Board of Directors deems it appropriate or prudent to do so (including by way of private placements).
Joint provision for conditional capital for Equity-Linked Financing Instruments and for the above-mentioned authorised capital The total of registered shares issued from (i) authorised capital, where the existing shareholders’ subscription rights were excluded and (ii) shares issued from conditional capital, where the existing shareholders’ advance subscription rights on the Equity-Linked Financing Instruments were excluded, may not exceed 70 000 000 registered shares up to 21 April 2019.
Changes in capital Changes in 2018 The Annual General Meeting 2018 approved the reduction of the ordinary share capital by CHF 1 083 281.60 from CHF 34 945 228.10 to CHF 33 861 946.50 by cancelling 10 832 816 shares with a nominal value of CHF 0.10 repurchased by Swiss Re Ltd on a second trading line on SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 10 832 816 shares were repurchased under the share buy-back programme lasting from 3 November 2017 until 16 February 2018. The purchase value of the repurchased own shares corresponded to CHF 999 999 975.78.
Changes in 2017 The Annual General Meeting 2017 approved the reduction of the ordinary share capital by CHF 1 062 028.00 from CHF 36 007 256.10 to CHF 34 945 228.10 by cancelling 10 620 280 shares with a nominal value of CHF 0.10 repurchased by Swiss Re Ltd on a second trading line on SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 10 620 280 shares were repurchased under the share buy-back programme lasting from 4 November 2016 until 9 February 2017. The purchase value of the repurchased own shares corresponded to CHF 999 999 942.06.
Convertible bonds and options Convertible bonds As of 31 December 2018, except as provided below, neither Swiss Re Ltd nor any of its subsidiaries has any bonds outstanding that are convertible into equity securities of Swiss Re Ltd solely at the option of bondholders. The same applied as of 31 December 2017 and 31 December 2016.
On 6 June 2018, Swiss Re Ltd placed with the market via a repackaging vehicle USD 500 000 000 of six-year exchangeable notes, which may be stock-settled at the option of Swiss Re Ltd. Subject to the conditions of the notes, noteholders may exchange their notes for ordinary shares of Swiss Re Ltd at an initial exchange price of USD 115.2593 (set at a premium of 30% to the reference share price of USD 88.6610 (being the initial volume weighted average price of such shares between 7 June and 20 June 2018)). The exchange price is subject to adjustment in certain circumstances described in the conditions of the notes. To economically offset the settlement of a noteholder-initiated exchange, Swiss Re Ltd purchased matching call options on Swiss Re Ltd shares with a portion of the proceeds. Consequently, no new Swiss Re Ltd shares will be issued upon a noteholder-initiated exchange. The settlement and delivery of these notes took place on 13 June 2018. For further details please see Note 7 on page 314.
Felix Horber, attorney-at-law, has been the Company Secretary of Swiss Re since 2007. He holds a PhD in Law, an Executive Master in European and International Business Law and is a Certified Director for Board Effectiveness.
According to the Articles of Association, the Board of Directors of Swiss Re Ltd, the holding company of the Swiss Re Group, consists of at least seven members. As of 31 December 2018 the Board of Directors consisted of the following members: Name Nationality Age Initial election
Karen Gavan Canadian 57 2018 Trevor Manuel South African 62 2015 Jay Ralph American, Swiss 59 2017 Joerg Reinhardt German 62 2017 Eileen Rominger American 64 2018 Philip K. Ryan American 62 2015 Sir Paul Tucker British 60 2016 Jacques de Vaucleroy Belgian 57 2017 Susan L. Wagner American 57 2014 Larry Zimpleman American 67 2018 1 Initially elected to the Board of Directors of Swiss Reinsurance Company Ltd, the Group’s former parent company, and subsequently elected to the Board of Directors of Swiss Re Ltd in 2011.
Board of Directors The Board of Directors has the ultimate responsibility for the success and for delivering the sustainable interests of Swiss Re Ltd and the Swiss Re Group.
Professional experience After two years with Kunz Consulting AG, Renato Fassbind joined F. Hoffmann- La Roche Ltd in 1984, becoming Head of Internal Audit in 1988. From 1986 to 1987, he worked as a public accountant with Peat Marwick in New Jersey, USA. In 1990, he joined ABB Ltd as Head of Corporate Staff Audit and, from 1997 to 2002, was Chief Financial Officer and member of the Group Executive Committee. In 2002, he joined Diethelm Keller Holding Ltd as Group Chief Executive Officer. From 2004 to 2010, he was Chief Financial Officer and member of the Executive Board of Credit Suisse Group Ltd.
Professional experience Eileen Rominger began her career at Oppenheimer Capital, where she worked for 18 years as an equity portfolio manager, serving as a Managing Director and a member of the Executive Committee. Eileen Rominger then joined Goldman Sachs Asset Management in 1999, where she held a number of senior leadership positions, becoming the company’s Global Chief Investment Officer. She subsequently served from 2011 to 2012 as the Director of the Division of Investment Management at the United States Securities and Exchange Commission, where she led a team which implemented regulatory policy for mutual funds and federally registered investment advisors. From 2013 to 2018, Eileen Rominger held roles including being a senior advisor at CamberView Partners, a provider of advice to public companies on shareholder engagement and corporate governance.
External appointments ̤ Chairman of the Systemic Risk Council ̤ Research Fellow at the Harvard
Services Volunteers Corps ̤ Member of the Advisory Committee of Autonomous Research ̤ Senior Fellow at the Harvard Center for European Studies ̤ Governor of the Ditchley Foundation ̤ President of the UK’s National Institute of Economic and Social Research
̤ Board member of the Simõn I. Patiño Foundation and the TADA non-profit organisation
Professional experience Susan L. Wagner is a co-founder of BlackRock, where she served as Vice Chairman and a member of the Global Executive and Operating Committees before retiring in 2012. Over the course of her nearly 25 years at BlackRock, Susan L. Wagner served in several roles such as Chief Operating Officer, Head of Strategy, Corporate Development, Investor Relations, Marketing and Communications, Alternative Investments and International Client Businesses. Prior to founding BlackRock, Susan L. Wagner was a Vice President at Lehman Brothers, supporting the investment banking and capital markets activities of mortgage and savings institutions.
Larry Zimpleman was elected to the Board of Directors of Swiss Re Ltd in 2018. He is a member of the Finance and Risk Committee.
Professional experience Larry Zimpleman started his career in 1971 as actuarial intern at The Principal Financial Group, an investment management company that offers insurance solutions, asset management and retirement services to individual and institutional clients. From 1976 to 2006, he held various senior management and leadership positions at The Principal. He became President and Chief Executive Officer in 2008 and Chairman in 2009. In August 2015, Larry Zimpleman stepped down as President and CEO. His membership in the Board of Directors ended in May 2016.
External appointments ̤ Member of the Board of Trustees of the Drake University ̤ Member of the Board of Trustees of the Iowa Clinic
Independence The SRL Bylaws stipulate that at least three-quarters of the members of the Board of Directors must be independent. Independence is defined in line with best-practice corporate governance standards. To be considered independent a Board member may not be, and may not have been in the past three years, employed as a member of the Group EC, or by any subsidiary of the Swiss Re Group, or may not have a material relationship with any part of the Swiss Re Group (either directly or as a partner, director or shareholder of an organisation that has a material relationship with the Swiss Re Group) other than serving as an independent board member in any subsidiary. In addition, the SRL Board agrees on other criteria that disqualify a Board member from being considered independent, taking into consideration provisions of applicable law, regulations and best practice.
In particular, each of the Board members must annually confirm that he or she: has not been employed by the company in any capacity within the last five years; has not accepted or does not have a family member who accepted any payments from the company or any subsidiary of the company in excess of USD 60 000 during the current fiscal year or any of the past three fiscal years; is not a family member of an individual who is, or during the past three years was employed by the company or by a subsidiary of the company in any capacity; is not (and is not affiliated with a company that is) an adviser or consultant to the company or a member of the company’s senior management; is not affiliated with a significant customer or supplier of the company; does not have any personal services contract(s) with the company or a member of the company’s senior management; is not affiliated with a not-for-profit entity that receives significant contributions from the company; has not been a partner or employee of the company’s external auditor during the past three years and that he or she does not have any other conflict of interest that the Board of Directors determines to mean he or she cannot be considered independent.
Conflicts of interest The members of the Board of Directors are also subject to procedures to avoid any action, position or interest that conflicts with an interest of Swiss Re Ltd or the Swiss Re Group or gives the appearance of a conflict. Each member must disclose any conflict of interest relating to a matter to be discussed at a meeting, as soon as the member becomes aware of the conflict, to the Chairman. The respective member must not participate in the discussion and decision-making involving the interest at stake. The Chairman informs the Board of Directors of the existence of the conflict and it is reflected in the meeting minutes. Each member must disclose any conflict of interest generally arising to the Group Chief Legal Officer (Group CLO), or in his absence to the Group Chief Compliance Officer (Group CCO), in line with the standards and procedures set forth by the Personal Conflicts of Interest Instructions. The Group CLO (or in his absence the Group CCO) ensures that such a reported conflict of interest is dealt with according to these standards and procedures.
Information about managerial positions and significant business connections of non-executive directors Walter B. Kielholz, Chairman of the Board of Directors since 1 May 2009, was Swiss Re’s CEO from 1 January 1997 to 31 December 2002. In line with Swiss Re’s independence criteria, Walter B. Kielholz, being a full-time Chairman, is not considered independent. No other director has ever held a management position within the Group. None of the members of the Board of Directors has any significant business connections with Swiss Re Ltd or any of the Group companies.
Other mandates, activities and functions In line with Swiss Re Ltd’s Articles of Association, the members of the Board of Directors may not hold more than ten additional mandates, of which no more than four additional mandates with listed companies. Mandates (i) in companies which are controlled by Swiss Re Ltd or which control Swiss Re Ltd, (ii) mandates held at the request of Swiss Re Ltd or by companies controlled by Swiss Re Ltd as well as (iii) mandates in associations, charitable organisations, foundations, trusts, employee welfare foundations,
Changes in 2018 At the Annual General Meeting on 20 April 2018, Karen Gavan, Eileen Rominger and Larry Zimpleman were elected as new non-executive and independent members of the Board of Directors for a one-year term of office. These elections are another step towards the Board of Directors’ aim to complete the generation change in its composition initialised a few years ago. At the same time, the shareholders re-elected Walter B. Kielholz (Chairman), Renato Fassbind, Raymond K.F. Ch’ien, Trevor Manuel, Jay Ralph, Joerg Reinhardt, Philip K. Ryan, Sir Paul Tucker, Jacques de Vaucleroy and Susan L. Wagner for a one-year term of office as members of the Board of Directors. Mary Francis, Rajna Gibson Brandon and C. Robert Henrikson did not stand for re-election.
M. Francis J. Baer R. Breu M. Cabiallavetta C. Represas M. Francis E. Rominger
R. Gibson J. Coomber H. U. Maerki R. Gibson P. Ryan
least three-quarters of its members are independent. With regard to its succession planning, the Board of Directors aims to safeguard the stability of its composition while also renewing the Board in a sensible way.
First election date The initial election year of each member is stated in the table on page 110.
In addition to the skill sets and competencies of the Board members the principles of gender and age diversity, inclusion, nationality and regional representation play an important role in the composition of the Board of Directors.
The Board of Directors proposes that Walter B. Kielholz be re-elected as Chairman of the Board of Directors for a further one-year term. Walter B. Kielholz is a very experienced Chairman with our company. This proposal is in line with the Board of Directors’ aim to ensure stability in the Board of Directors’ composition and work.
Organisational structure of the Board of Directors The Board of Directors constitutes itself at the first meeting following the Annual General Meeting of shareholders. With the exception of the Chairman and the members of the Compensation Committee, who are elected at the Annual General Meeting of shareholders, the Board of Directors elects among its independent members a Vice Chairman and a Lead Independent Director. The same member may act in both roles. The Board of Directors also elects the Chairpersons and members of the Board Committees as proposed by the Chairman’s and Governance Committee. The Board of Directors may remove the members from any such special function at any time. The Board of Directors also appoints its secretaries, who do not need to be members of the Board.
The organisation of the Board of Directors is set forth in the SRL Bylaws, which define the organisational structure of Swiss Re Ltd and the responsibilities and authorities of the Board of Directors, its committees and the Group EC and their members. The SRL Bylaws also provide an overview on periodic reports to be submitted to the Board of Directors and its committees. The Chairman’s and Governance Committee and the entire Board of Directors review at least annually the SRL Bylaws to ensure their continued effectiveness and compliance with the Articles of Association, applicable laws, regulations and best practice.
The Chairman chairs the Chairman’s and Governance Committee and develops and continually adapts Swiss Re’s governance to regulatory and corporate requirements. He keeps himself informed about the activities within the Group and may sit on Group EC and Business Unit Executive Committee meetings as he deems necessary. He also has access to all corresponding documentation and minutes. He ensures adequate reporting by the Group EC and the Group CEO to the Board of Directors and facilitates their communication with the Board.
Vice Chairman The Vice Chairman deputises, if the Chairman is prevented from performing his duties or in a potential conflict-of- interest situation. The Vice Chairman may prepare and execute Board resolutions on request of the Board and liaises between the Board and the Group EC in matters not reserved to the Chairman.
Committee ̤ the Audit Committee ̤ the Compensation Committee ̤ the Finance and Risk Committee ̤ the Investment Committee
The term of office of a Board committee member is one year, beginning with the appointment at the constituting Board meeting following an Annual General Meeting of shareholders and ending at the Board meeting following the subsequent Annual General Meeting of shareholders. For the Compensation Committee members, the term of office begins with the election at the Annual General Meeting of shareholders until completion of the next Annual General Meeting of shareholders.
Each committee is governed by a Charter, which defines the committee’s responsibilities. The committees operate in line with the SRL Bylaws and according to their respective Charters.
Please refer to the next page for an overview on the responsibilities and members of the Board committees.
Members ̤ Renato Fassbind, Chair ̤ Karen Gavan ̤ Trevor Manuel ̤ Philip K. Ryan
Investment Committee Responsibilities The Investment Committee endorses the strategic asset allocation and reviews tactical asset allocation decisions. It reviews the performance of the financial assets of the Swiss Re Group and endorses or receives information on Participations and Principal Investments. It reviews the risk analysis methodology as well as the valuation methodology related to each asset class and ensures that the relevant management processes and controlling mechanisms in asset management are in place.
Members ̤ Susan L. Wagner, Chair ̤ Raymond K.F. Ch’ien ̤ Trevor Manuel ̤ Eileen Rominger ̤ Sir Paul Tucker ̤ Jacques de Vaucleroy
Furthermore, private sessions are held for discussions involving all members of the Board of Directors only.
The Board of Directors and its committees can also adopt resolutions by written agreement if no member of the Board of Directors requests a discussion of the motion. A circular resolution may be adopted only if all the members sign the circular resolution or respond to the email, respectively. A circular resolution shall be passed if the majority of the total number of Board members (or Board committee members) express their agreement with the resolution.
Group Treasurer, CEO Reinsurance, CEO Corporate Solutions, CEO Life Capital, Company Secretary 3¾ hours
The self-assessments also build the basis for the Board’s succession planning, comprising the evaluation of the skills needed amongst the members of the Board of Directors and Board committees. Please refer to page 117 for an overview on the Board of Directors’ skills and competencies.
Strategy and overall direction of the company: ̤ Defines the strategy of the Swiss Re
̤ Approves the entry into new business activities and the exit of existing activities, provided they are of strategic relevance
̤ Approves the financial objectives and the means necessary to achieve them
Governance and organisation: ̤ Determines the operating model of the Swiss Re Group and the organisational structure in line with this model and the strategy
̤ Issues and regularly reviews the SRL Bylaws, necessary policies and directives, including governance standards and the Group Code of Conduct
̤ Regulates the compensation framework of the Swiss Re Group; approves the Group’s variable compensation pool; proposes the Board of Directors and Group EC compensation to the Annual General Meeting of shareholders for approval
Accounting, financial control and financial planning: ̤ Approves the applicable accounting standard for external reporting, budgeting and financial control and planning
̤ Approves the annual financial statements for both Swiss Re Ltd and the Swiss Re Group based on the recommendation of the Audit Committee
̤ Approves the Annual Report of both Swiss Re Ltd and the Swiss Re Group
̤ Approves the People Strategy of the Group and, on an annual basis, reviews progress towards this strategy
̤ Annually reviews with the Group EC the Swiss Re Group’s overall human capital situation, strength of management and issues like diversity and inclusion, performance process and quality of succession planning
̤ Approves annually a debt funding plan, and, if required, approves individual debt issuances
General Meetings of shareholders: ̤ Convenes General Meetings of shareholders and decides on proposals to be brought forward to the shareholders
Under the leadership of the Group CEO, the Group EC has management responsibility for matters concerning Swiss Re Ltd as a legal entity. Additionally, the Group EC has management and functional responsibility for the Swiss Re Group’s matters. In particular, the Group EC focuses on (the control of) the implementation of the Swiss Re Group Strategy, as promulgated and approved by the Board of Directors. In particular, it includes the responsibilities set forth in the SRL Bylaws addressing Group Strategy, including strategic and financial targets for the Business Units; decisions on Group-wide steering and control; allocation of capital and resources to business opportunities; asset and liability management, treasury, Group funding and capital management; finance and risk management, governance, compliance, legal and regulatory affairs; functional issues such as human resources, talent management as well as reputational issues and brand. In particular with respect to the below topics, the Group EC: Governance ̤ has overall responsibility for managing operations, subject to delegation by the Board of Directors; and
̤ issues guidelines relating to the delegation of decision-making authority within the Group.
Financial reporting ̤ prepares and presents to the Board of Directors the annual and interim financial statements of the Group together with segment reporting on the Business Units.
Business transactions ̤ decides on certain strategic transactions and proposes important strategic transactions to the Board of Directors for discussion and decision.
Compensation ̤ makes proposals for the individual compensation of selected members of senior management; and
Participation of Board members at Executive Management meetings The Chairman is invited to all meetings of the Group EC and Business Unit Executive Committees and receives the corresponding documentation and minutes.
Special investigations The Board committees are entitled to conduct or authorise special investigations at any time and at their full discretion into any matters within their respective scope of responsibilities, taking into consideration relevant peer group practice and general best practice. The committees are empowered to retain independent counsel, accountants or other experts if deemed necessary.
Involvement of Executive Management in Board committee meetings As a matter of principle, selected members of the Group EC as well as further senior management members participate in Board committee meetings as advisors. The Charter of the Board committees specifies management participation in committee meetings.
The attendance rate of the Group EC members at Board and Board committee meetings was 95.7% in 2018. A detailed summary of Executive Management participation in Board committee meetings is provided on page 123.
The Head of GIA meets at least once per quarter with the Audit Committee, and immediately reports any issue which could have a potentially material impact on the business of the Group to the Chair of the Audit Committee.
GIA has unrestricted access to any of the Group’s property and employees relevant to any function under review. All employees are required to assist GIA in fulfilling its duty. GIA has no direct operational responsibility or authority over any of the activities it reviews.
External auditor For information regarding the external auditors, please refer to page 138.
Executive Management In line with the applicable law, the Articles of Association and the Bylaws, the Board of Directors has delegated the management of Swiss Re Ltd and the Group to the Group Executive Committee.
The Group Executive Committee (Group EC) consisted of the following members as of 31 December 2018: Name Nationality Age Function
Russell Higginbotham British 51 CEO Reinsurance Europe, Middle East and Africa (EMEA)/Regional President EMEA
From left to right: Russell Higginbotham, CEO Reinsurance EMEA, Thomas Wellauer, Group COO, J. Eric Smith, CEO Reinsurance Americas, Edouard Schmid, Group CUO, Patrick Raaflaub, Group CRO, Christian Mumenthaler, Group CEO, John R. Dacey, Group CFO, Jayne Plunkett, CEO Reinsurance Asia, Guido Fürer, Group CIO, Thierry Léger, CEO Life Capital, Moses Ojeisekhoba, CEO Reinsurance, Agostino Galvagni, CEO Corporate Solutions 128 Swiss Re 2018 Financial Report
̤ Member of Insurance Europe’s Reinsurance Advisory Board, of the Pan-European Insurance Forum, of the IMD Foundation Board, of the Global Reinsurance Forum, of the Steering Board Insurance Development Forum, of the Board of Trustees of Avenir Suisse and of the Board of Trustees of the St.Gallen Foundation for International Studies
Department of Banking and Finance, University of Zurich, and of the Board of Trustees G&B SchwyzerWiniker Stiftung
Agostino Galvagni Chief Executive Officer Corporate Solutions Born: 1960 Nationality: Italian and Swiss
Russell Higginbotham Chief Executive Officer Reinsurance Europe, Middle East and Africa (EMEA)/ Regional President EMEA Born: 1967 Nationality: British
Professional experience Russell Higginbotham started his career 1986 with a UK life insurer. From 1991, he worked as a Senior Marketing Analyst for Munich Re. Russell Higginbotham joined Swiss Re in 1995 and served in various roles in the Life & Health Reinsurance development and strategy teams. Between 2002 and 2005, he was Life & Health Country Manager for Japan and subsequently for South Korea. In 2006, he moved to Sydney and served as Chief Executive Officer of Swiss Re’s Australia and New Zealand operations. From 2010 to 2015, he assumed the role of Chief Executive Officer Reinsurance UK & Ireland, based in London, and was named Head of Life & Health Products Reinsurance in 2016. On 1 September 2018, he was appointed Chief Executive Officer Reinsurance EMEA, Regional President EMEA and member of the Group Executive Committee.
Professional experience Jayne Plunkett started her career at John Deere Insurance Company in 1992, where she held various positions in the Commercial Lines segment in Property and Casualty. In 1999, she joined GE Insurance Solutions, where she served as Insurance Pricing Team Leader, Deputy Chief Reserving Actuary, Head of Casualty Risk Management, and Head of Planning and Analysis. Following the acquisition of GE Insurance Solutions by Swiss Re in 2006, Jayne Plunkett joined Swiss Re as Head of Property & Casualty Underwriting Regional Accounts in the US. From 2008 to 2012, she was based in Hong Kong as Head of Casualty Underwriting for Asia. In 2013, she assumed the global role of Division Head Casualty Reinsurance, also managing the unit handling large and complex transactions for P&C Reinsurance. In July 2016, Jayne Plunkett was appointed Chief Executive Officer Reinsurance Asia, Regional President Asia and member of the Group Executive Committee. Jayne Plunkett is a fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries. Additionally, she was named a Young Global Leader of the World Economic Forum in 2010.
Professional experience J. Eric Smith worked in various roles in property and casualty insurance with Country Financial for more than 20 years, then joined Allstate in 2003, where he rose to the rank of President, Financial Services. He moved to USAA in 2010 as President USAA Life Insurance Co. J. Eric Smith joined Swiss Re in July 2011 as Chief Executive Officer Reinsurance Americas and as a member of the Group Management Board. He was appointed Regional President Americas and member of the Group Executive Committee in January 2012.
̤ President of the Board of the University Hospital Zurich Foundation
Changes in 2018 John R. Dacey, previously Group Chief Strategy Officer, was appointed Group Chief Financial Officer effective 1 April 2018, succeeding David Cole who had decided to step down as Group Chief Financial Officer. With that change, the two roles of Group Chief Financial Officer and Group Chief Strategy Officer were merged.
Russell Higginbotham was appointed CEO Reinsurance EMEA and Regional President EMEA and a member of the Group EC effective 1 September 2018. Russell succeeded Jean-Jacques Henchoz, who had decided to pursue an opportunity outside Swiss Re.
Any activities of members of the Group EC in governing and supervisory bodies of important Swiss and foreign organisations, institutions and foundations as well as permanent management and consultancy functions for important Swiss and foreign interest groups and official functions and political posts are stated in each of the Group EC members’ biographies on pages 129–132.
Management contracts Swiss Re has not entered into any management contracts with any third parties.
The Board of Directors has delegated the management of Swiss Re Ltd and the Swiss Re Group to the Group EC. Such delegated tasks are within the responsibility of the entire Group EC. For an overview of the Group EC’s key responsibilities, please see page 125.
Group Chief Financial Officer The Group CFO is responsible for the Group-wide Finance function, with a focus on steering and achieving the company’s financial targets. He provides guidance to the Business Unit CFOs, and gives input on the financial aspects of strategic projects and transactions. The Group CFO provides the Audit Committee and Finance and Risk Committee with regular and ad hoc financial reporting that allow the committees to fulfil their respective authorities as per their Charters. The Group CFO’s responsibilities include the Group strategic process and initiating the respective discussions in the Group EC as preparation for submission of strategic content to the Board of Directors for approval. He supports and advises the Board of Directors and the Group EC by developing and articulating a Group strategy in close cooperation with the Business Units and the Group
Group Chief Operating Officer The Group COO leads and manages the Group Operations function, its processes, including oversight of human resources and talent management as well as its cost and is responsible for its performance. His responsibility includes being a strategic partner to the Group and the Business Units in all operational matters and providing a high-quality, cost-effective and differentiating operating platform for the whole Group.
Group Chief Risk Officer The Group CRO is responsible for providing the Board of Directors and Group EC with independent assurance that all of Swiss Re’s risks are being appropriately modelled, governed and managed and that adequate controls are in place. As part of executing these responsibilities, the Group CRO is charged with establishing the Group’s Risk Management Framework for all risk categories including but not limited to financial, insurance and operational risk (the latter comprising reporting risks, legal and compliance risks and other operational risks).
The Business Unit Chief Executive Officers The BU CEOs are responsible for the management and performance of the respective Business Unit Top-Level company as well as the respective Business Unit. The BU CEOs set the business and corporate agenda of the respective Business Unit, ensuring high-quality and performance-oriented and timely decision-making. They oversee the implementation of the decisions made and ensure the Business Unit Executive Committees fulfil their responsibilities.
Voting right restrictions, statutory group clauses and exception rules Swiss Re Ltd does not have any voting right restrictions or statutory group clauses (other than the limitations on nominee registrations, page 109) in place. Therefore, there are no procedures or conditions for cancelling restrictions and no rules on making exceptions to them. Accordingly, no such exceptions were granted in 2018.
Swiss Re Ltd’s Articles of Association allow any shareholder with voting rights to have his or her shares represented at any General Meeting of shareholders by another person authorised in writing or by the Independent Proxy. Such representatives need not be shareholders. Business firms, partnerships and corporate bodies may be represented by legal or authorised representatives or other proxies, married persons by their spouses and minors and wards by their guardians, even though such representatives are not shareholders.
The Independent Proxy is elected by the General Meeting of shareholders for a term of office until completion of the next ordinary General Meeting of shareholders. The Independent Proxy whose term of office has expired is immediately eligible for re-election. The duties of the Independent Proxy are determined by applicable laws, rules and regulations. The General Meeting of shareholders may remove the Independent Proxy with effect as per the end of the General Meeting of shareholders.
If the company does not have an Independent Proxy, the Board of Directors shall appoint one for the next General Meeting of shareholders.
The FMIA allows companies to include an “opting up” provision in their articles of association, which raises the mandatory takeover offer threshold up to 49%, or an “opting out” provision, which waives the mandatory offer. Swiss Re Ltd’s Articles of Association contain neither of these provisions.
Change of control clauses Unvested deferred compensation may vest and employee participation plan rules may be amended upon a change of control. In such an event, the rights of members of the Board of Directors and the Group Executive Committee (Group EC) as well as of further members of senior management are identical to those of all other employees.
Audit-related (USD 6.1m) Corporate finance (USD 0m) Tax (USD 0.6m) Other non-audit (USD 0.2m)
Information tools pertaining to the external audit Responsibilities The external auditor is accountable to the Audit Committee, the Board of Directors and ultimately to the shareholders. The Board of Directors reviews the external auditor’s professional qualifications and is assisted in its oversight by the Audit Committee.
Cooperation and flow of information between the auditor and the Audit Committee The Audit Committee liaises closely with the external auditor. The lead auditors participate as advisors at all Audit Committee meetings. For more information, see page 123.
Evaluation of the external auditor It is the Audit Committee, which is responsible for recommending an audit firm to the Board of Directors for election at the Annual General Meeting of shareholders. As opposed to the European Union (EU), there is no law in Switzerland which provides for a mandatory rotation of the external auditor after a certain number of years. The Audit Committee closely monitors the regulatory developments in the EU and elsewhere on the topic. In order to be able to recommend an audit firm for election by the shareholders and in line with good corporate governance, the Audit Committee annually and thoroughly evaluates the credentials of the current external auditor and presents its findings to the Board of Directors. PwC has proven record of professionalism and efficiency and fully meets the high demands made by Swiss Re as a global re/insurance Group.
The Audit Committee’s assessment of the external auditor is based on the external auditor’s qualifications, independence and performance. The Audit Committee furthermore evaluates annually the performance of the lead auditors.
The Chairman annually conducts a corporate governance roadshow to visit and have an ongoing dialogue with Swiss Re’s largest shareholders. Throughout the year, our Investor Relations team, often joined by executive management, holds regular meetings with institutional investors and analysts, including roadshows, conferences and calls. At the Investors Day in Zurich on 4 April 2018, Swiss Re gave an update on the Group’s strategy, presented its underwriting priorities, financial strength and capital generation and provided business updates for each of the three Business Units Reinsurance, Corporate Solutions and Life Capital. The presentations as well as the conference call recordings from this event are available on: www.swissre. com/investors/presentations
At www. swissre.com/media/contacts, interested parties – internal or external – can subscribe to the Media Relations mailing list to receive ad hoc disclosures and relevant corporate news via email. Contact details are provided on page 342.
Find more information on Swiss Re’s website by scanning the QR code with the camera of your smartphone.
Date News Method of dissemination 23 January Swiss Re and India’s National Insurance Academy signed a Memorandum of Understanding
News release 19 February Swiss Re completed its share buy-back programme of up to CHF 1.0 billion purchase value, launched on 3 November 2017
News release 23 February Swiss Re reports full-year 2017 net income of USD 331 million despite USD 4.7 billion natural-catastrophe losses
News release, press conference 15 March Swiss Re proposes an increased dividend of CHF 5.00 per share and a new share buy-back programme of up to CHF 1.0 billion
News release 2 May Swiss Re announced the expansion of its African operations through its newly approved licence for Property & Casualty business in South Africa
News release, press conference 16 August Swiss Re Institute preliminary sigma estimates: catastrophes cause global economic losses of USD 36 billion in the first half of 2018
News release 18 October Swiss Re estimates third quarter claims burden from large natural catastrophes at USD 1.1 billion; large man-made losses to be additional USD 300 million
News release 1 November Swiss Re reports USD 1.1 billion net income for the first nine months 2018, after absorbing USD 1.6 billion of large claims
News release 21 February 2018 annual results 14 March Publication of 2018 Annual Report and 2018 EVM results as well as of AGM 2019 invitation 17 April 155th Annual General Meeting 3 May Release of first quarter 2019 key financial data 23 May Management Dialogues, London 31 July Half-year 2019 results 31 October Release of nine months 2019 key financial data 25 November Investors’ Day, Zurich
Swiss Re is committed to a compensation framework that is balanced and performance-oriented and that aligns the interests of employees and shareholders.
Dear shareholders, As the Chair of Swiss Re’s Compensation Committee, I am pleased to share with you Swiss Re’s Compensation Report for the financial year ended 31 December 2018, which has been prepared in accordance with applicable laws, rules and regulations.
Swiss Re’s vision “we make the world more resilient” is supported by our mission – to create smarter solutions for our clients through new perspectives, knowledge and capital. The combination of these strengths makes Swiss Re a partner of choice for our clients. At the same time, Swiss Re wants to be an employer of choice for our employees. Its compensation framework is therefore designed to attract, motivate and retain the qualified talent the Group needs to succeed globally while providing superior returns to our shareholders. During the past year, the Compensation Committee continued to monitor: ̤ The alignment of Swiss Re’s
̤ The effectiveness of the current performance measurement approach (i.e. performance achievements at the business and individual level against the goals set for the year, including behaviour and risk aspects) which determines compensation outcomes.
On behalf of the Compensation Committee, I would like to acknowledge the strong shareholder support at the Annual General Meeting (AGM) 2018. Swiss Re’s shareholders again approved the proposed aggregate compensation of the members of the Board of Directors and the Group EC. Additionally, all proposals for re-election and election to the Compensation Committee were approved and the 2017 Compensation Report again received a positive outcome in the consultative vote.
Through discussions with key investors and proxy advisors, Swiss Re continued to identify potential enhancements to its compensation disclosure. As a result, the 2018 Compensation Report contains additional information, particularly in the area of variable compensation.
Group business performance 2018 Key considerations for Swiss Re’s annual compensation decisions continue to cover a combination of US GAAP and Economic Value Management (EVM) based business results, qualitative factors and Swiss Re’s pay-for-performance approach. Compensation decisions were made considering Swiss Re’s performance for the reporting year, in which the Group’s US GAAP and economic performance was negatively impacted by higher-thanexpected natural catastrophe events and man-made losses.
̤ The US GAAP and economic results of Property & Casualty Reinsurance reflect large insurance claims in the aftermath of a string of natural catastrophe events.
̤ The Corporate Solutions US GAAP and economic results were heavily impacted by large natural catastrophe events and man-made losses, resulting in a loss for the year.
̤ Life Capital generated significant gross cash for the Group. The economic result was impacted by investment underperformance, partially offset by a strong underwriting profit.
Consistent with last year and in line with our Articles of Association, shareholders will again be asked to approve the following amounts: ̤ Maximum aggregate amount of
compensation for the members of the Board of Directors for the term of office from the AGM 2019 to the AGM 2020.
̤ Aggregate amount of variable short-term compensation for the members of the Group EC for the financial year 2018.
1 Dividend payments are made in April of the following year. For 2018, an ordinary dividend of CHF 5.60 is proposed to the AGM 2019.
Income before tax and variable compensation 4 773 100% 814 100% 863 100%
This approach adds to the success of the business by: ̤ Supporting a culture of high
Base salary Benefits Cash API VAI (deferred API) LPP GSPP ISP***
Measurement of the economic impact of profit/loss from previous years’ business
OVERVIEW OF KEY COMPENSATION AND BENEFITS COMPONENTS FOR GROUP EC MEMBERS AND OTHER EMPLOYEES
disability and death. ̤ Be competitive in the markets where Swiss Re competes for talent. ̤ Connect with Swiss Re values and enhance engagement.
Swiss Re aims for total compensation that is competitive in the market. Swiss Re also seeks to ensure that total compensation is well balanced in terms of fixed versus variable compensation and in terms of short- term versus long-term incentives.
For Group EC members an additional cap applies which is 3 × annual base salary.
The individual API is determined considering the TAPI, business and individual performance. Individual performance is assessed against the individual’s established goals and Swiss Re’s behaviour expectations and corporate values.
Value Alignment Incentive Purpose The VAI is a mandatory deferral of a portion of the API and introduces a time component to this performance-based, variable compensation. This supports the Group’s business model by aligning a portion of variable compensation with sustainable long-term results. The aim is to ensure that the ultimate value of the deferred variable compensation through VAI is affected by the longer-term performance of the relevant Business Unit and the Group.
using fewer performance factors (at the Business Unit and Group level) and, where possible, published EVM information, ie EVM profit – previous years’ business.
̤ Focus participants on long-term goals. ̤ Attract and retain individuals of
Grant The amounts disclosed under LPP in the section “Compensation disclosure and shareholdings 2018” reflect the grants made in April 2018. The LPP 2018 will be measured over the period 2018 to 2020 and vests in 2021. Grant levels are determined based on multiple factors including the role being performed and market benchmarks.
Plan duration The vesting and performance measurement period is three years. For LPP awards granted to Group EC members and other key executives, the duration of the LPP is five years, comprising a three-year vesting and performance measurement period and an additional two-year holding requirement.
Swiss Re’s three-year TSR performance is assessed relative to the TSR of the predefined peer group for the same period. This peer group consists of companies that are similar in scale, have a global footprint or a similar business mix to Swiss Re. The peer group, which is set at the beginning of the plan period includes Allianz SE, American International Group Inc, Aviva PLC, AXA SA, Chubb Limited, Everest Re Group Ltd, Hannover Rueck SE, MetLife Inc, Muenchener Rueckversiche rungs-Gesellschaft AG, Prudential PLC, QBE Insurance Group Ltd, Reinsurance Group of America Inc, RenaissanceRe Holdings Ltd, SCOR SE, XL Group Ltd1 and Zurich Insurance Group Ltd.
* The annual risk-free rate is determined as the average of 12 monthly rates for ten-year US Treasury bonds of the corresponding performance year. ** Maximum vesting percentage excludes share price fluctuation until vesting. 1 XL Group Ltd has now been integrated into AXA SA with effect from 12 September 2018.
Swiss Re also makes it possible for all LPP participants to have shares sold or automatically settled on a net basis as applicable, to cover statutory tax and social security liabilities that may arise at vesting. For LPP performance outcomes over past years, please refer to page 163.
Incentive Share Plan The Incentive Share Plan (ISP) provides employees with an opportunity to purchase shares with some or all of their immediate cash API. The ISP encourages alignment with shareholder interests. Shares are offered with a 10% discount on the fair value and are subject to a one-year blocking period. Full shareholder rights apply during this blocking period.
Supplementary information on Group EC members Performance assessment The Compensation Committee assesses the performance of the Group EC, including the Group CEO, against the same set of quantitative and qualitative objectives. These objectives are agreed at the beginning of the year and are aligned with the Group’s strategy.
Benchmarking The external compensation advisor to the Compensation Committee conducts an annual review of the compensation of the Group EC relative to a group of reference companies in the financial services industry to ensure that market competitiveness is maintained. The reference companies are regularly reviewed by the Compensation Committee to ensure their continued relevance. The core peer group consists of the following globally active primary insurance and reinsurance firms: Allianz SE, American International Group Inc, Aviva PLC, AXA SA, Chubb Limited, Hannover Rueck SE, MetLife Inc, Muenchener Rueckversicherungs- Gesellschaft AG, Prudential PLC, QBE Insurance Group Ltd, Reinsurance Group of America Inc, SCOR SE, XL Group Ltd1
Stock Ownership Guidelines Swiss Re has stock ownership guidelines which articulate the levels of stock ownership expected of the Group EC, including the Group CEO. The guidelines are designed to increase the alignment of the interests of senior management and shareholders.
Members have a five-year timeframe to achieve these targets. In case of non-compliance and because Swiss Re believes that a meaningful stock ownership position is essential for alignment with the interests of shareholders, restrictions on the cash portion of the API and/or the vested VAI amounts will apply. These amounts may also be settled in shares.
Compensation framework for the Board of Directors The objective in compensating members of the Board of Directors is to attract and retain experienced individuals who are highly motivated to perform a critical role in the strategic oversight of Swiss Re and to contribute their individual business experience and expertise. The structure of compensation for members of the Board of Directors must, however, take account of the way their contribution to the success of Swiss Re differs from that of the members of the Group EC.
It is important that the compensation components are structured to achieve a strong alignment with the interests of the shareholders of Swiss Re. In line with best practice, a significant portion (40%) of the compensation for the Board members consists of shares.
Certain committees, such as the Audit Committee and the Finance and Risk Committee, meet more frequently or hold longer meetings, and hence have higher workloads. The table on page 123 of the Financial Report provides an overview of the meetings of the Board of Directors and its committees held in 2018.
Fee approval In line with Swiss law, and as outlined in the Articles of Association, the aggregate compensation for the members of the Board of Directors, for the next term of office, is subject to shareholder approval at the AGM.
Subsidiary boards of directors The majority of the board members at subsidiary level are Swiss Re executives. They do not receive any additional fee for their services in these roles. The non-executive members of the subsidiary boards receive their fees 100% in cash. When a member of the Board of Directors of Swiss Re Ltd also serves on the board of a subsidiary, the aggregate compensation of the Board of Directors proposed to the AGM for approval also includes any subsidiary board fees.
̤ the supplementary amount for changes in the Group EC (Art. 23), if the maximum aggregate amount of compensation approved by the AGM is not sufficient to also cover compensation of a new Group EC member;
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̤ Further details can be found in the Corporate Governance section on pages 110–127 of this Financial Report.
̤ Further details can be found in the Corporate Governance section on page 121 of this Financial Report.
Secretary ̤ The Head of Reward serves as the Secretary to the Compensation Committee and attends its meetings (apart from the executive sessions).
Maximum aggregate amount of compensation for the members of the Board of Directors for the next term of office
Aggregate amount of variable short-term compensation for the members of the Group EC
Variable short-term compensation pools and long-term incentive pools for the Group and Group EC (excl. Group CEO)
̤ 22% Pay for performance for the Group ̤ 17% Pay for performance for Group EC members ̤ 17% Compliance and regulatory ̤ 16% Executive sessions ̤ 15% Review of compensation
Compensation Committee activities The Compensation Committee operates as the Group’s global compensation committee and oversees the compensation system applied at all entities of the Swiss Re Group.
COMPENSATION COMMITTEE’S TIME ALLOCATION TO KEY TOPICS IN 2018 commits time to executive sessions and conducts periodic self-assessments to ensure its continued high level of effectiveness. It held six meetings during 2018 and provided an update to the Board of Directors on topics discussed, decisions made and items for approval after each of these meetings. In addition, five items were resolved by circular resolution. A summary of the topics dealt with by the Compensation Committee during the year is shown on page 158.
compensation for the Group compensation framework and regulatory and performance of members sessions
The table below shows the approval processes for key compensation decisions: Swiss Re 2018 Financial Report 157
Variable compensation for the Group At Swiss Re, the compensation cycle begins in December and runs through to April of the following year. The Compensation Committee oversees each stage of the process, starting with deciding on the variable compensation pool for the prior performance year, reviewing this decision, and setting targets for the upcoming year.
̤ Fees of the Board of Directors for the following compensation period April
̤ Analysis of compensation practices for non-executive directors relative to the market September
2 Within the maximum aggregate amount of compensation approved by the AGM. 3 The ISP has been discontinued from 2019.
In 2018, Swiss Re identified 181 positions that qualify as Key Risk Takers. This group consists of the members of the Group EC, BU EC members, other key executives and roles with core risk-taking authority. The list of Key Risk Takers is reviewed on a regular basis by Group Risk Management and Human Resources.
Influence of the behavioural assessment on compensation The risk and control-related behaviour assessment of Group and business functions provides additional input for helping determine the Group API pool and its allocation to each business function.
Independence of the Control Functions In order to ensure the continued independence of Control Functions, their compensation approval processes differ in that key annual compensation decisions for these functions are approved at the Board level.
This includes the approval of the aggregate API pools of the Control Functions, and the approval of the individual compensation for the head of each Control Function by the Board of Directors, including the Chairs of the Audit Committee and the Finance and Risk Committee.
The outcomes of the financial, qualitative and overall assessment, all part of Swiss Re’s three-step funding process (as described on page 149 of this Financial Report), again determined the Group API pool for 2018.
Swiss Re Group and Business Units In 2018, the Group’s US GAAP performance and EVM results were significantly impacted by large natural catastrophe events and man-made losses: years like this, even in sequence, are not unusual in the context of the business market of Reinsurance. The destructive force of these events was reflected in both the Property & Casualty Reinsurance and Corporate Solutions results. The investment result mirrors challenging financial markets, with credit spread widening and equity market volatility, the latter also negatively impacting US GAAP net income as a result of the new US GAAP guidance on equity investments. Life & Health Reinsurance delivered solid US GAAP and strong economic new business results. Life Capital generated significant gross cash for the Group.
US GAAP financial performance US GAAP net income of Property & Casualty Reinsurance was adversely affected by large natural catastrophe events and man-made losses, partially offset by favourable prior-year development. The solid performance of Life & Health Reinsurance was mainly driven by large transactions and partially offset by unfavourable mortality experience in the US. Gross premiums written increased compared to 2017, mainly driven by growth across all markets.
EVM financial performance The EVM underwriting result of Property & Casualty Reinsurance was mainly driven by previous years’ business profit, partially offset by a new business loss due to large natural catastrophe events and man-made losses. The investment loss was primarily due to credit spread widening and mark-to-market losses on equity securities. Life & Health Reinsurance generated a strong new business profit, mainly due to large transactions in Asia and good core business development in the US. Investment activities were impacted by spread widening on credit investments as well as unfavourable interest rate movements on a net long duration position.
The strong EVM underwriting result of Life Capital was primarily driven by a profit on previous years’ business. This was more than offset by a loss on
Technology played an important role, such as i) in Property & Casualty Reinsurance’s partnership with BMW when developing a vehicle-specific insurance rating that primary insurers worldwide can use to calculate car insurance premiums, and ii) in Life & Health Reinsurance’s market-leading automated underwriting solution, enabling primary insurance clients to automate the assessment and decision-making process, and providing useful data insights. Corporate Solutions extended its global network and now has servicing capabilities in over 120 countries. Life Capital’s open book businesses have grown strongly and the increased MS&AD share demonstrates a strong equity story, creating positive momentum for the potential initial public offering of the UK closed life book business ReAssure.
Contributing to sustainability (including social development and financial inclusion) throughout the whole value chain remained key: by supporting clients in sustainable underwriting and by investing responsibly. The ESG (Environment, Social, Governance) approach stood out and the global
A comprehensive array of innovative solutions was launched, such as the award-winning service helping people back to wellbeing after cancer treatment. New modelling and risk transfer solutions were developed to counter environment- related losses such as from floods and drought. On many occasions, there was close cooperation with Swiss Re’s clients, and public and private partners. For example, together Swiss Re i) established the first global mechanism dedicated to supporting famine prevention, response and recovery, ii) designed a new type of insurance to protect the coral reefs and iii) launched the first health coverage for women in Egypt.
Annual Performance Incentive Both the Compensation Committee and the full Board of Directors assessed in depth the 2018 performance of Swiss Re Group. The US GAAP performance was below target, but higher than last year, and would have been even better without the impact of the new US GAAP accounting guidance on equity investments. Combined with the Group’s strong qualitative performance, this has resulted in variable compensation payouts that are below target levels but higher than last year. This payout decision is supported by our long-standing practice where we have positive but not excessive variable compensation payouts in years with relatively benign natural catastrophe environments, and conversely, lower but proportionate variable compensation payouts in adverse environments. This allows us to carefully manage key talent retention risk.
Value Alignment Incentive VAI performance is measured for the Group and each underlying business area. The performance factor for each participant is determined based on the business area that the participant worked on 31 December of the year preceding the award (see page 150 for a detailed description of the VAI). The VAI 2015 (awarded 2016) performance factor of 100.0% for the Swiss Re Group is based on the three-year average previous years’ business performance for years 2016, 2017 and 2018. The main drivers were previous years’ business profits in Property & Casualty Reinsurance offset by previous years’ business losses in Life & Health Reinsurance and Corporate Solutions.
Overall assessment of Group API Pool from a number of different perspectives, eg labour market, capital market
The RSU component is measured against an ROE performance condition. At the end of each year, the performance is assessed and one third of the RSUs are locked in within a range of 0% to 100%. At the end of the three-year period, the total number of units locked in vests. For the LPP 2015 and LPP 2016, the average performance factor for the RSUs was 66.7% and 32.3% respectively for the three-year period.
The PSU component is based on relative TSR, measured against a predefined basket of peers, and vests within a range of 0% to 200%. For both the LPP 2015 and LPP 2016, the performance factor for the PSUs was 0% for the three-year period. The table below gives an overview of the RSU and PSU performance achievement for the previous LPP plan years:
The total compensation of the Group for 2018 amounted to CHF 2 208 million (compared to CHF 2 165 million in 2017), whereof CHF 2 156 million has been or will be paid in cash (compared to CHF 2 112 million in 2017) and CHF 52 million has been granted in share-based awards (compared to CHF 53 million in 2017).
The value of all outstanding deferred compensation (determined for VAI at grant and for LPP using the fair value at grant) for all employees at 31 December 2018 amounted to CHF 270 million (compared to CHF 293 million in 2017) whereof CHF 132 million will be payable in cash (compared to CHF 155 million in 2017) and CHF 138 million in shares (compared to CHF 138 million in 2017).
Aggregate compensation for Key Risk Takers The aggregate compensation of the individuals that held a key risk-taking position during the performance years 2017 and 2018 was as follows: Performance year 2017 Performance year 2018
Long-term variable compensation Leadership Performance Plan 377 50 404 50 1 Regular staff. 2 The number of employees receiving cash API, VAI and severance payments in 2017 has been restated. 3 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally
Fixed compensation Base salaries 180 67 181 67 Pensions, social security and benefits 180 29 181 24
Annual Performance Incentive Cash Annual Performance Incentive 178 36 171 39
Long-term variable compensation Leadership Performance Plan 152 37 164 38 Other payments Severance payments1 1 1 3 0 1 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and (iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in respect of amount, nature or duration. No severance payments were made to members of the Group EC.
The section below is in line with Swiss law and specifically with Arts. 14 to 16 of the Ordinance against Excessive Compensation at Public Corporations (the Ordinance) which requires disclosure of compensation granted to members of the Board of Directors and the Group EC. Compensation to members of the Board of Directors and the highest-paid member of the Group EC is shown separately.
Compensation decisions for the Group EC The following table covers payments to 14 members of the Group EC for 2018, of whom 11 were active for the full year. The 2017 payments also cover 14 members of the Group EC, of whom 12 were active for the full year.
̤ 18% Cash API ̤ 15% VAI (paid after 3 years) ̤ 34% LPP (paid after 5 years)
Total fixed and variable compensation4 42 438 42 842 Compensation due to members leaving5 721 1 411 1 Benefits or allowances paid in cash. Consists of housing, schooling, lump sum expenses, relocation expenses/ taxes, and child and similar allowances.
3 Disclosure reflects all awards for a reporting year, ie the 2017 value reflects the fair value of LPP awards granted in April 2017 and the 2018 value reflects the fair value of LPP awards granted in April 2018.
payments for the period when the member was no longer in the role (eg base salary when on garden leave). 6 Amounts are gross before deduction of employee social security contributions. Additional and not included are
company contributions to social security systems paid by Swiss Re in line with applicable laws which amounted to CHF 2 984 097 (restated) in 2017 and CHF 2 109 031 in 2018.
Compensation decisions for the highest-paid member of the Group EC The table below shows the compensation paid to Christian Mumenthaler, Group CEO (in the role since 1 July 2016): The performance of the Group CEO is evaluated against both quantitative targets (as defined in the Group Plan approved by the Board of Directors) and qualitative goals agreed between the Board of Directors and the Group CEO, designed to support longterm business strategy and to drive sustainable performance across the Swiss Re Group. The quantitative results of the Group have been discussed in detail on pages 160 to 161.
The Board was very satisfied with the achievement of the Group CEO on qualitative goals. These include, amongst several others, a constructive relationship with regulators worldwide, strong credit ratings and stable credit spreads, successfully representing the Group to our global client base, developing long-term initiatives to build a strong franchise far into the future (such as the ESG investment strategies, the Swiss Re Institute and employee engagement/diversity) and, in particular, leading the decision-making process in large possible, but discontinued corporate transactions.
Each member of the Group EC, including the Group CEO, participates in a defined contribution pension scheme. The funding of pension benefits shown in the previous two tables reflects the actual employer contributions.
Cash Annual Performance Incentive2 810 1 063 Value Alignment Incentive2 810 1 063 1 Benefits or allowances paid in cash. Includes health care and accident insurance benefits, lump sum expenses, transportation, and child and similar allowances. 2 For 2018, subject to shareholders approval at the AGM 2019. For 2017, as part of the aggregate amount of short-term variable compensation approved by the shareholders
the LPP award granted in April 2018. 4 Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by
Swiss Re in line with applicable laws, which amounted to CHF 300 767 in 2017 and CHF 230 930 in 2018.
Shares held by members of the Group EC The following table reflects Swiss Re share ownership by members of the Group EC as of 31 December: Leadership Performance Plan units held by members of the Group EC The following table reflects total unvested LPP units (RSUs and PSUs) held by members of the Group EC as of 31 December: Loans to members of the Group EC As per Article 27 of the Articles of Association, credits and loans to members of the Group EC may be granted at employee conditions applicable for the Swiss Re Group, with a cap on the total amount of such credits and loans outstanding per member.
Swiss-based variable-rate mortgages have no agreed maturity dates. The basic preferential interest rates equal the corresponding interest rates applied by the Zurich Cantonal Bank minus one percentage point. Where fixed or floating interest rates are preferential, the value of this benefit has been included under “allowances” in the tables covering compensation decisions for Group EC members.
Total mortgages and loans to members of the Group EC 914 900 Highest mortgage or loan to an individual member of the Group EC: Edouard Schmid, Group Chief Underwriting Officer 914 900 Total mortgages and loans not at market conditions to former members of the Group EC 4 300 4 300
(1) Individual Board compensation for the reported financial years 2017 and 2018 (figures in CHF thousands)
Carlos E. Represas, former Member6 197 0 0 0 Eileen Rominger, Member4 n/a 110 74 184 Philip K. Ryan, Chair Finance and Risk Committee5 878 654 240 894 Sir Paul Tucker, Member 315 195 130 325 Jacques de Vaucleroy, Chair Compensation Committee7 377 470 163 633 Susan L. Wagner, Chair Investment Committee 558 345 230 575 Larry Zimpleman, Member4 n/a 110 74 184 Total compensation for the reported financial years8, 9 9 495 5 995 3 511 9 506 1 Acting as the Lead Independent Director.
2 Includes fees for duties on the board of Singapore Group companies. 3 Term of office expired after the completion of the AGM of 20 April 2018 and did not stand for re-election. 4 Elected to Swiss Re’s Board of Directors at the AGM of 20 April 2018. 5 Includes fees received for duties on the board of US Group companies. 6 Term of office expired after the completion of the AGM of 21 April 2017 and did not stand for re-election. 7 Includes fees for duties on the board of Luxembourg Group companies. 8 Compensation for the members of the Board of Directors includes fixed fees (cash and shares) and minimal allowances. No sign-on or severance payments have been made. 9 Amounts are gross and include social security contributions of the Board member. Additionally and not included are company contributions to social security systems paid
Jay Ralph, Member 225 50 275 Joerg Reinhardt, Member 225 50 275 Eileen Rominger, Member 225 50 275 Philip K. Ryan, Member Chair Finance and Risk Committee
2 Excluding company contributions to social security systems paid by Swiss Re in line with applicable laws. 3 Received subsidiary fees for the period from AGM 2017 to AGM 2018 in the equivalent of CHF 34 121, which were not included in the 2017 Compensation Report. 4 Including an amount of approximately CHF 15 000 for minimal benefits.
Compensation for former members of governing bodies During 2018, payments in the total amount of CHF 0.2 million were made to five former members of the Group EC. This amount is made up of company contributions payable by Swiss Re to governmental social security systems in line with applicable laws, benefits in the context of the outstanding mortgages and loans not at market rates, risk benefits and company commitments for tax-related services.
Framework of the Articles of Association In accordance with Article 22 of the Articles of Association, the Shareholders’ meeting shall approve annually and with binding effect the proposals of the Board of Directors in relation to: a) The maximum aggregate amount of compensation of the Board of Directors for the
AGM 2019 motion for variable short-term compensation for the Group EC for the financial year 2018 At the AGM 2019, the Board of Directors will propose to the shareholders to approve an aggregate amount of variable short-term compensation for the 14 members of the Group EC for the completed financial year 2018 of CHF 14 339 563. This amount has been included in the items “Cash Annual Performance Incentive” and “Value Alignment Incentive” in the table for the Group EC compensation on page 165.
Report of the statutory auditor to the General Meeting of Swiss Re Ltd on the Compensation Report 2018
We have audited the accompanying Compensation Report included in this 2018 Financial Report of Swiss Re Ltd (the Company) for the year ended 31 December 2018. The audit was limited to the information according to Articles 14 to 16 of the Ordinance against Excessive Compensation at Public Corporations (the Ordinance) contained in the tables on pages 165 to 170 of the Compensation Report.
Auditor’s responsibility Our responsibility is to express an opinion on the accompanying Compensation Report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the Compensation Report complies with Swiss law and Articles 14 to 16 of the Ordinance.
Opinion In our opinion, the Compensation Report included in the 2018 Financial Report of the Company for the year ended 31 December 2018 complies with Swiss law and Articles 14 to 16 of the Ordinance.
We began to implement the recommended TCFD in our 2016 Financial Report and have significantly expanded them since, devoting the whole “Corporate responsibility” chapter to this important topic. The table on the right provides an overview of the core elements of the disclosures, which are covered on the following pages.
To learn more about our overarching commitment as a responsible company and for a full account of our recent actions and achievements, we invite you to read our stand-alone 2018 Corporate Responsibility Report at reports.swissre.com/corporateresponsibility -report/2018/
The Investment Committee reviews Swiss Re’s Asset Management related activities and, as part of this, receives regular updates on Group Asset Management’s responsible investing strategy and approach.
Group Risk Management is responsible for maintaining a suitable risk policy framework, and the Business Units drive strategic implementation within their respective areas. Group Asset Management is in charge of developing and implementing Swiss Re’s responsible investing strategy, including specific considerations on climate change, under consideration of the Group-wide sustainability principles.
Climate strategy We regularly assess the actual and potential impacts of climate-related risks and opportunities on our business, strategy and financial planning.
Natural catastrophes are a key risk in our Property & Casualty (P&C) businesses. The damage caused by storms, floods, droughts and other natural catastrophe perils (including earthquakes) can affect millions of lives and the economies of entire countries. In 2018, we received USD 2.3 billion of P&C Reinsurance premiums from our clients for all natural catastrophe covers (for losses larger than USD 20 million). This represents approximately 14% of total premiums in this business segment, which shows the value our clients place on getting re/insurance protection against natural catastrophe risks.
In view of the high potential relevance of climate change for our P&C businesses, we have addressed the issue with a strategy combining four pillars: ̤ Advancing our knowledge and understanding of climate change risks, quantifying and integrating them into our risk management and underwriting frameworks where relevant; ̤ Developing products and services to mitigate – or adapt to – climate risk; ̤ Raising awareness about climate change risks through dialogue with clients, employees and the public, and advocacy of a worldwide policy framework for climate change; ̤ Tackling our own carbon footprint and ensuring transparent annual emissions reporting.
Climate-related risks Physical risks Physical risks posed by climate change could potentially affect four areas of our business: ̤ Reduction/disruption of our own operations ̤ Modelling and pricing of weatherrelated natural perils ̤ Impact on the economic viability of re/insurance for risks exposed to extreme weather events
In addition, we expect weather risk to remain assessable by scientific methods, meaning we can continue to update our loss models in the future to assure adequate costing of extreme weather events. Since most of the re/insurance contracts with our clients have a duration of one year, we can thus adequately price natural catastrophe risks by updating our models to reflect the current climate.
Climate-related litigation risks We assessed potential climate-related litigation risks several years ago through our own research. After years of decline, climate change litigation activities against large greenhouse gas emitters have increased recently. However, associated insurance coverage disputes have remained stable.
Driven by intensifying efforts to curb climate change, the global vehicle inventory will shift from combustion to electric engines. A recent Swiss Re study on the Casualty Risk Trends in Automotive Industry notes that “the move from conventional (pure combustion engine) cars to a more electrically based mobility is an elementary transition process in the automotive industry. This development is a continuum to implement a variety of new technologies, from new lightweight materials to advanced battery systems.”
Thus, while the automotive industry as a whole is undergoing significant change, the impact on insurance portfolios is expected to be gradual. As motor insurance contracts are renewed annually, re/insurers will be able to develop the appropriate underwriting experience, loss adjustment and claims handling.
Governments and regulators have started to develop proposals to steer and transition climate change related market activities to more sustainable alternatives. The European Commission’s action plan on financing sustainable growth or the UK regulators’ supervisory statement, which sets out expectations regarding firms’ approaches to managing the financial risks from climate change, are just two examples.
Based on these market developments, we continue to focus on policy and legal as well as technology risks, as we mainly expect changes within these two dimensions that impact the asset values. In this way, we aim to capture those industries and groups of companies that are most exposed to these risks in a positive or negative way and may therefore require adjustments in the near to medium term.
1 Weighted average carbon intensity = (company CO2/company revenue) * (investment/portfolio)
Based on Swiss Re’s commitment to support the transition to a low-carbon environment, we started to measure the weighted average carbon intensity1 of our listed equities and credit portfolio from the end of 2015. Measurement results are presented in the “Metrics and targets” section (pages 184–189). Since then, we have also stopped investing in companies that generate 30% or more of their revenues from thermal coal mining or that use at least 30% thermal coal for power generation and divested from related holdings. As from 2018, we also exclude tar sands companies that generate 20% or more of their revenues from such operations from the investment universe.
In addition, we undertake special efforts to help expand re/insurance protection, by focusing on non-traditional clients (in particular from the public sector), underdeveloped markets and innovative risk transfer instruments. You can read about some innovative transactions we have recently completed in our 2018 Corporate Responsibility Report, pages 20–23.
Infrastructure renewables For our infrastructure loan mandates, we work with best-in-class managers to gain access to and invest in renewable energy projects that reflect our risk appetite, provide attractive long-term returns and help build a more sustainable energy supply for the future. Renewables make up approximately 20% of our infrastructure portfolio, whereof 65% are in solar panels and 35% in wind farms.
Swiss Re’s climate resilience under different scenarios The TCFD requests companies to describe the resilience of their strategy taking into account different climaterelated scenarios, including one of a 2°C increase or less. In principle, it would be possible for us to compute the potential long-term effects caused by climate change on AEL based on today’s re/insurance book. However, we do not consider this to be meaningful, for the following reasons.
On a societal level, our Economics of Climate Adaptation (ECA) studies have shown that climate change can lead to an increase of economic losses due to weather risks of up to 30% within the next 25 years. More importantly, though, economic development, urbanisation, higher population densities and asset concentrations in flood plains are expected to be the dominant factors in increasing weather-related economic losses. As they continue to rise, our models will gradually factor in this trend, since they are updated and refined at regular intervals.
3 Kunreuther, Howard; Michel-Kerjan, Erwann; and Ranger, Nicola, “Insuring Future Climate Catastrophes” (2012). Published Articles & Papers. Paper 171.
Climate risk management The processes we use to identify, assess and manage climate-related risks are integrated into our risk management, underwriting and asset management.
We have an internal property risk modelling team that builds, maintains and updates sophisticated models for all relevant natural catastrophe risks (flood, tropical cyclones, wind storms, earthquakes). The models are based on current scientific knowledge and are regularly updated to include new scientific findings – including from our research collaborations with academic institutions –, and to make use of advances in computing capabilities. Using statistical data spanning 100 years, our models are capable of simulating probabilistic “daughter” events that may have never occurred in reality but that may occur in the future.
Swiss Re’s full, proprietary integrated risk model is an important tool for managing the business: we use it to determine the economic capital required to support the risks on our books as well as to allocate risk-taking capacity to the different lines of business.
In 2018, we integrated a thermal coal policy for our underwriting in our Sustainability Risk Framework, pledging not to provide re/insurance to businesses with more than 30% exposure to thermal coal utilities or mining. The policy applies to both old and new thermal coal projects and across all lines of business (direct, facultative and treaty). Its introduction marks the first step towards the development of a carbon risk steering mechanism, to measure our carbon intensity and associated risks embedded in our re/insurance business.
Investments Swiss Re is a long-term investor. Therefore, it is important that we also take a long-term view on the risk factors that may have an adverse impact on our portfolio, such as climate change. Hence, sustainability and climate change are essential topics for our Asset Management. Our Sustainability Risk Framework enables us to identify and address environmental and human rights concerns throughout our business. Its criteria are fully applied to our investments. For further details, see above and our 2018 Corporate Responsibility Report, pages 27–31.
Climate metrics and targets We use a number of metrics and targets to assess and manage relevant climate-related risks and opportunities.
As per the end of 2018, the four weather- related perils with the highest gross annual expected loss for our whole business were: Weather-related catastrophes: insured vs uninsured losses There is a substantial protection gap between total economic losses from weather-related catastrophes and insured losses in all regions. These data do not represent a company-specific metric but are an important overall risk indicator (see table on the upper right).
You can find out more about the Greenhouse Neutral Programme in our 2018 Corporate Responsibility Report, pages 47–51.
Change in % since 2013 1 Calculation based on a market-based approach taking into account the purchase of renewable energy instruments, with the exception of the UK, where the government requires companies to report an average grid factor.
Versicherte Schäden Quelle: Swiss Re Institute*Nordamerika und Lateinamerika/Karibik in Mrd. USD, zu Preisen von 2017
Green bonds Green bonds, whose proceeds are used to finance environmentally sustainable projects facilitating the transition towards a low-carbon economy. In the near term, we have committed to building a portfolio of at least USD 1.5 billion, which we reached by 2018.
Physical risk assessment of real estate In addition to considering physical risk when acquiring new properties, the physical risks of properties in the Real Estate investment portfolio have been analysed both for an “as is” climate scenario and for a future climate change scenario. This analysis was carried out leveraging in-house know-how and catastrophe loss models developed for the Reinsurance side. Results suggest a very low estimated financial impact from all perils, in particular climate-related perils.
Tar sands exposures Tar sands assets are particularly carbon-intensive and susceptible to stranded asset risk given the long life of these assets, as well as the evolving regulations on carbon emissions. For that reason we decided to limit investments to issuers with less than 20% revenues from tar sands business in 2018.
UK IG Credit PortfolioUK Corp IG ESG BB+ Benchmark t CO₂ / Mio. USD Umsatz
WEIGHTED AVERAGE CARBON INTENSITY COMPARISON OF THE US CREDIT PORTFOLIO VERSUS CORRESPONDING BENCHMARK PER END OF 2018
The forward-looking indicators allow to analyse particularly climate risk exposed industries down to issuer level and add an important piece to the carbon intensity analysis.
The results are encouraging in the sense that most issuers held in carbon-intense sectors have set a carbon reduction target and work actively towards lowering energy consumption, while improving operational efficiencies. This newly developed toolset will allow us to continuously improve our understanding of the carbon emissions we invest in and with that support our monitoring of involved stranded asset risks.
Group financial statements 192 Income statement 192 Statement of comprehensive income 193 Balance sheet 196 Statement of shareholders’ equity 198 Statement of cash flows 200
Premiums earned 3 33 119 33 875 Fee income from policyholders 3 586 586 Net investment income – non-participating business1 7 3 708 4 075 Net realised investment gains/losses – non-participating business2 7 1 727 65 Net investment result – unit-linked and with-profit business 7 3 315 –1 593 Other revenues 32 39
Income before interest and income tax expense 1 091 1 105 Interest expenses –566 –555
Earnings per share in USD Basic 12 1.03 1.37 Diluted 12 1.03 1.37
Total comprehensive income before attribution of non-controlling interests 1 521 –2 493
Balance as of period end 4 746 –2 –10 –5 548 –820 0 –1 634 2018 Net unrealised investment Other-thantemporary Cash flow Foreign currency Adjustment for pension
Equity securities: Available-for-sale (including 277 in 2017 subject to securities lending and repurchase agreements) (cost: 2017: 3 544)1 3 862 Trading1 3 At fair value through earnings (including 480 in 2018 subject to securities lending and repurchase agreements)1 3 036
Liabilities Unpaid claims and claim adjustment expenses 5 66 795 67 446 Liabilities for life and health policy benefits 8 42 561 39 593 Policyholder account balances 37 537 31 938 Unearned premiums 11 769 11 721 Funds held under reinsurance treaties 3 109 3 224 Reinsurance balances payable 1 036 920 Income taxes payable 679 597 Deferred and other non-current tax liabilities 13 6 975 6 471 Short-term debt 11 433 1 633 Accrued expenses and other liabilities 7 7 190 6 798 Long-term debt 11 10 148 8 502
Equity Contingent capital instruments 750 Common shares, CHF 0.10 par value 2017: 349 452 281; 2018: 338 619 465 shares authorised and issued 33 32 Additional paid-in capital 368 496 Treasury shares, net of tax –1 842 –2 291 Accumulated other comprehensive income: Net unrealised investment gains/losses, net of tax 4 746 1 905 Other-than-temporary impairment, net of tax –2 –3 Cash flow hedges, net of tax –10 6 Foreign currency translation, net of tax –5 548 –5 904 Adjustment for pension and other post-retirement benefits, net of tax –820 –828 Credit risk of financial liabilities at fair value option, net of tax 5
Contingent capital instruments Balance as of 1 January 1 102 750 Changes during the period –352 –750 Balance as of period end 750 0
Common shares Balance as of 1 January 34 33 Cancellation of shares bought back –1 –1 Balance as of period end 33 32
Other-than-temporary impairment, net of tax Balance as of 1 January –5 –2 Changes during the period 3 –1 Balance as of period end –2 –3
Cash flow hedges, net of tax Balance as of 1 January –7 –10 Impact of sale to non-controlling shareholder1 1 Changes during the period –3 15 Balance as of period end –10 6
Retained earnings Balance as of 1 January 38 682 36 449 Net income after attribution of non-controlling interests 398 462 Interest on contingent capital instruments, net of tax –67 –41 Dividends on common shares –1 559 –1 592 Cancellation of shares bought back –1 005 –946 Impact of ASU 2018-023 –159 Impact of ASU 2016-163 –3 Impact of ASU 2016-013 342 Balance as of period end 36 449 34 512
Non-controlling interests Balance as of 1 January 82 170 Transactions with non-controlling interests 93 688 Income/loss attributable to non-controlling interests –5 19 Other comprehensive income attributable to non-controlling interests
Change in net unrealised investment gains/losses 191 Change in foreign currency translation –109 Other –10
Cash flows from investing activities Fixed income securities: Sales 43 904 44 679 Maturities 5 537 5 159 Purchases –52 696 –49 816 Net purchases/sales/maturities of short-term investments 6 459 –761
Total net cash provided/used –2 738 –558 Effect of foreign currency translation 533 –263
Cash and cash equivalents as of 31 December 6 806 5 985