Our Annual Report Our Annual Report consists of the Business Report and the Financial Report: Business Report This publication explains the progress we made in executing on our strategy and describes the markets in which we operate, our culture and our approach to sustainability. We also share stories of how we tackle risk to make the world more resilient.
You can only move forward when you move together. Working with our partners, we build new relationships and co-create new solutions.
Carbon intensity reduction target in our corporate bond and listed equity portfolio by 20252 1 These figures exclude the impact of claims and reserves established for COVID-19 and the associated estimated tax impacts. 2 With base year 2018.
Reinsurance provides clients and brokers with reinsurance products, insurance-based capital market solutions and risk management services. Reinsurance operates globally through two segments – Property & Casualty and Life & Health.
Swiss Re | Business Report 2020 3Swiss Re at a glance
Dear shareholders, This is the last letter to shareholders that I will write to you as Chairman of the Board of Directors of Swiss Re. As you know, I informed the Board of Directors last year that I would not stand for re-election at the next Annual General Meeting in April 2021. As I am turning 70 this year, it is time to hand over my responsibilities.
Natural catastrophes and the emergence of insurance-linked securities In the mid-1990s, after almost 30 years with no major storm damage in Japan or on the East Coast of the US (Betsy, a huge hurricane, made landfall in 1965), Typhoon Mireille (1991) and Hurricane Andrew (1992) caused our clients, and by extension also us, massive losses. These storms were the harbingers of a greatly increased frequency of natural catastrophes in Europe, Japan, Australia, the Caribbean and, above all, the US.
As a result of this experience, Swiss Re became the first reinsurer to start tapping additional sources of capital. The idea behind this was to securitise risks to make them tradeable. We developed – similar to mortgage-backed securities (MBS) – the first cat bonds, so-called insurance-linked securities (ILS). After experiencing growing pains for a number of years, this market has developed very well, and ILS are now a firmly established financing instrument for insurance risks.
Dividend policy Swiss Re’s dividend policy is a central element of Swiss Re’s capital management priorities.
Many institutional investors participated in the bull market, and most of them benefitted from the bubble. Although everyone was talking about the high level of risk in the markets, only very few managed to exit them at the right time. European and Asian life insurance companies. in particular. had disproportionately large equity investments relative to their shareholders’ equity. They did not have the financial strength to absorb the shock of the collapse in prices. Swiss Re, with a bit of luck, realised its gains in time and was able to walk away with a relatively small loss. We consistently expanded life reinsurance through further acquisitions, and a second, strong pillar was thus created alongside the property/casualty segment.
As a result of the financial market turbulence during those years, asset-liability management became an indispensable instrument for mitigating balance sheet risks in the insurance industry. This process aims to match maturities and liquidity needs on the asset side of the balance sheet with the liability side. Swiss Re, which has a larger balance sheet (or more asset leverage) than most of its clients due to its business portfolio, helped develop this tool from the ground up and began to use it with increasing frequency. This development encouraged a departure from the notion of always trying to time the market correctly. But it was only after the global financial crisis of 2008/2009 that the company began to systematically manage its balance sheet risks through asset-liability management.
Swiss Re therefore had to systematically exclude terrorism risk from its coverage. After this tragedy, you as shareholders would never have been prepared to use your capital to cover such risks. No risk model, no matter how elaborate, would have made it possible to price such a risk. Something very similar is currently happening with regard to pandemic risk.
The entire insurance industry was massively impacted on the investment side. Fortunately, the insurance business was very stable at the time. If I am to give an honest assessment, I must include the observation that Swiss Re did not fare particularly well during this crisis. A balance sheet inflated by operating debt left the company vulnerable. The situation was further complicated by the transition to fair-value accounting, which had recently been introduced, and which transferred market volatility one-to-one to the balance sheet.
Surprisingly, the industry did not react immediately but with a delay of several years. As is often the case with an increased frequency of mid-size events, hope springs eternal. It was not clear if this increase was just a phase in the cycle or – as we now know – whether it was a long-term trend. Due to the numerous medium-sized losses, not enough premiums remained to cover major events. It took several years for the industry to respond to pressure from reinsurers and set about adjusting risk models and thus premium levels worldwide. The market correction is still underway and has gained further momentum.
Thank you And now the time has come for me to say thank you. My thanks go to the employees of Swiss Re, who have supported me during all these years and have always been committed to advancing the company. My thanks also go to the business partners and the global network of representatives from business, academia, politics, international organisations, NGOs and the media who have worked with Swiss Re and me in a critically constructive and respectful manner over the years. Above all, however, I would like to thank you, our shareholders, who have remained loyal to Swiss Re all these years, supported us through difficult times and shared in our successes in good times.
I will be handing the reins over to Sergio Ermotti, whom I wish every success in his role – just as I wish the company as a whole every possible success. And I am convinced that this success will be achieved. After all, Swiss Re has an excellent reputation around the world, and its market position, strategic focus, the quality of its employees and its capital base are outstanding. All we need now is a bit of luck. I will keep my fingers crossed for you and Swiss Re!
Dear shareholders, The COVID-19 pandemic changed everyone’s lives, seemingly overnight. Swiss Re Institute estimates a cumulative global economic output loss of USD 12 trillion over 2020 and 2021 from the pandemic and the unprecedented wave of lockdowns around the globe. Some people have called this event a ‘black swan‘ – a concept for something that cannot be predicted. But it isn’t a black swan.
Many of the predictions we made in 2007 sound almost eery today: we thought that an outbreak would likely start in Asia and quickly spread to other regions; the rapid spread could hamper timely preventive measures; and, central banks would react by lowering interest rates. If anything has changed since our assessment in 2007, it’s that the world has become even more interconnected, further increasing the likelihood of a pandemic spreading.
In spite of the warnings, most countries were not ready for COVID-19. Part of the explanation lies in behavioural economics: it requires a significant effort to intellectually anticipate and act on risks that one hasn’t personally experienced in the past. The means to be better prepared for pandemics were known, but the risk was considered too remote by many governments and other stakeholders. In the trade-off between current-cost optimisation and future resilience, the decisions too often favoured economic, not systemic, benefits.
We need to draw lessons from this experience. While COVID-19 is still very fresh in our minds, we have a unique opportunity – if not an obligation – to build greater resilience against future pandemics and other systemic risks. The re/insurance industry alone cannot cover a risk that hits many countries and areas of life simultaneously. Public-private partnerships are the only solution for future pandemic preparedness. Swiss Re is working with many countries to initiate such schemes and we are encouraged by early progress in this regard.
In total, claims and reserves for COVID-19 amounted to USD 3.9 billion across the Swiss Re Group in 2020, and resulted in a Group net loss of USD 878 million for the year – our first annual loss since the global financial crisis of 2008. Excluding the impact from COVID-19, our Group net income amounted to USD 2.2 billion, a significant increase from USD 727 million in 2019.
Our capital position remained very strong throughout 2020. As of 1 January 2021, the Group Swiss Solvency Test (SST) ratio was at 215% – within our new target range of 200–250%. The Group’s very strong capital position and positive outlook enabled the Board of Directors to propose a stable dividend of CHF 5.90 per share at the upcoming Annual General Meeting.
While some further COVID-19 losses are expected for 2021, we have dramatically reduced relevant exposures in property and casualty lines. All of our businesses have delivered strong underlying performance in 2020 and are confident of hitting their financial targets for 2021.
Property & Casualty Reinsurance (P&C Re) improved its normalised1 combined ratio to 96.9% in 2020 from 98.4% in the previous year. P&C Re continued to focus on underwriting quality and improved terms and conditions in the January 2021 renewals, achieving a nominal price increase of 6.5%, more than offsetting lower interest rates and higher loss assumptions. The successful renewals allow for an improved normalised2 combined ratio estimate of less than 95% for P&C Re for 2021.
1 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments as well as the COVID-19 impact for 2020 and the Adverse Development Cover with Corporate Solutions for the 2019 figure.
2 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments as well as the COVID-19 impact.
In line with this approach, Corporate Solutions is also evolving from a pure risk taker in the broad corporate insurance market to a much more specialised and focused business, which provides complementary access to corporate clients for the Swiss Re Group. For example, thanks to its long-established relationships, Corporate Solutions gave access to partners such as BMW and Daimler for Reinsurance Solutions and IKEA for iptiQ, to name just a few.
While Reinsurance remains our key earnings contributor in the foreseeable future, we are also seeing more opportunities to capitalise on the synergies among our businesses and approach the future as ‘One Swiss Re’.
On the underwriting side, we tightened our policies for providing re/insurance support to businesses with thermal coal, oil and gas exposure. In Asset Management, we set a target to reduce the carbon intensity of our listed equity and corporate bond portfolio by 35% by 2025. We also aim to increase our investments in renewable and social infrastructure by USD 750 million by the end of 2024.
These are just a few examples of measures we are taking to transition to net zero, and I invite you to have a look at our Sustainability Report 2020 as well as our climate-related financial disclosures in the Financial Report 2020 for more details.
With tailor-made risk-transfer options, the re/insurance industry can provide data for climate adaptation, protect businesses, individuals and governments against catastrophes and support low-carbon and carbon-removal technologies in the green transition.
The year 2020 has not been an easy one, but we are looking ahead with confidence in our business and resolve to continue working towards our vision – to make the world more resilient. I would like to thank our employees for their engagement and dedication in these unprecedented times. They had to work from home, sometimes in challenging personal situations, and ensured that we didn’t miss a beat.
COVID-19 has been the major economic influence in 2020. It caused the sharpest global recession since the end of World War II, requiring a rapid response from governments, businesses, insurers and individuals across the globe.
Digital technologies are empowering millions and fuelling insurance growth. They are also bringing about new forms of cyber risk that our industry needs to address through new products and improved underwriting.
In terms of socio-economic trends, the continued shift of economic gravity from the West to the East has also not abated and is significant for the future growth of our industry. This shift is creating new wealth for billions of the world’s citizens as new economic opportunities emerge. It is also creating larger risk exposure as more and more communities are accumulating wealth in areas exposed to natural catastrophes.
estimated decline in global GDP in 2020 (Source: Swiss Re Institute)
The world economy is experiencing the deepest recession of our lifetimes, but the introduction of COVID-19 vaccines means that the risks to the outlook are now more balanced. Swiss Re Institute forecasts global GDP growth of 4.7% in 2021, reflecting our belief that much of the worst of the economic impact is already behind us.
The GDP shock in 2020 is disinflationary, but the risk of future rising prices has increased due to fiscal stimulus, potential for debt monetisation and acceptance of higher inflation as a policy choice. Even if inflation is a looming threat for the future, we believe that the low interest rate environment will persist.
Our strategic response On the asset side, portfolio diversification and a highly disciplined investment approach are critical in the persistently low interest rate environment. In 2020, we focused on higher quality fixed-income investments and hedging activities to counter the financial market turmoil during the first half of the year.
of economic losses from natural disasters were uninsured in 2020 (Source: Swiss Re Institute)
Recent natural catastrophes, including severe hurricanes, typhoons, widespread droughts and wildfires, demonstrate the forceful financial impact of climate-related risks on the insurance industry. The trend of urbanisation, combined with higher value concentration in exposed regions such as coastal areas, is increasing the potential impact of natural disasters. The effects of climate change and global warming are evident: warmer average temperatures, rising sea levels, melting ice caps, longer and more frequent heatwaves, erratic rainfall patterns and other weather extremes. The global lockdown due to COVID-19 may have reduced greenhouse gas emissions for a brief moment, but it will clearly not stop global warming.
net premiums earned by Swiss Re in high-growth markets in 2020
The trend of a growing middle class in high-growth markets remains strong. The world’s two most populous countries, China and India, combined are forecast to represent over 43.3% of the global middle class by 2030.
Our strategic response Swiss Re is well positioned to leverage the opportunities arising in Asia. For many years we have been working with insurance companies and brokers in Asia to provide a broad range of reinsurance products and services. In 2020, 16% of our net premiums earned were generated in high-growth markets, and Asia contributed over half of our high-growth market premiums.
We are currently the largest foreign reinsurer in China. Our historical presence in China and other key growth regions provides us with privileged access to clients and partners. As a sign of our commitment to thought leadership in the Chinese market, we also opened the Swiss Re Institute China Centre in Beijing in 2019.
bn estimated cyber insurance market by 2025 (Source: Swiss Re Institute)
The nature of cyber attacks is also changing. For example, according to US IT security company Malwarebytes, the number of ransomware incidents actually fell slightly in 2019, but they were more sophisticated and damaging. We are also seeing the rise of new, potent forms of digital misinformation, such as “deepfakes”, which can fabricate digital content with the help of machine learning and artificial intelligence.
This is all leading to the development of a new and growing market for cyber insurance. Swiss Re Institute forecasts premiums for cyber insurance to grow from USD 5.5 billion in 2020 to USD 20 billion in 2025. However, many of the risks involved are not yet fully understood and are changing. Businesses are asked to put risk management frameworks in place to manage cyber exposures. So-called “silent” cyber risks, together with the explicit coverage of cyber can lead to a risk accumulation on re/insurers’ balance sheets. This needs to be understood and actively managed.
Our strategic response Swiss Re provides the global cyber market with risk capacity and methods to assess, quantify and mitigate risks. We continue to develop cyber solutions that allow organisations and individuals to access state-of-the-art insurance and risk management support.
of insurers are forming relationships with non-traditional partners such as e-commerce, retail or automotive companies (Source: Accenture)
Over 4 billion people are connected online, 90% of whom are connected via mobile devices. With adequate analytics capabilities, insurance companies can benefit from this vast amount of data. Technology is now enabling better monitoring and modelling of risks and is optimising risk management, loss prevention and pricing. The insights gained from data allow insurers to provide customers with more flexible and personalised products and services, and to make offerings more efficient and affordable.
growth of global health data volumes annually (Source: International Data Corp.)
Improved vaccines and public health programmes impact our life expectancy. WHO data indicate an global average life expectancy of nearly 73 years in 2020, up from 67 years in 2000. A big challenge for society is that the global share of people aged 65 and older is expected to rise from 9.3% in 2020 to 15.9% by 2050. Ultimately, this puts more pressure on healthcare and pension systems.
The long-term health impact of the COVID-19 pandemic is also a concern for our industry. We have already seen that COVID-19 has the potential to leave recovered patients with long-term health impairments, such as permanent lung damage. The side-effects of COVID-19 survival are still largely unknown, resulting in greater uncertainty around potential claims.
Our strategic response Swiss Re is the largest life and health reinsurer globally and has deep knowledge of health and mortality risks, using data to create unique risk and portfolio insights. Through our dedicated research and development activities, we are in a strong position to lead change in the industry.
We have evolved our business and strategy to enable sustainable growth over the long term.
During 2020, Swiss Re’s Group Executive Committee conducted an assessment of Swiss Re’s business model and strategy.
Our purpose is to make the world more resilient. We do this by placing our clients and partners at the centre of our business. We address risks across the global economy in three ways: 1. Transfer: Reducing our clients’ risk exposure and that of their customers 2. Insights: Helping our clients better understand and take risks 3. Partnerships: Working with others to find new and innovative ways to process, transfer and distribute risk
Risk insights Our research, solutions and tools enable an improved understanding of risks and opportunities. We are leveraging new technology, specifically data and analytics capabilities, to further our ability to offer services and risk insights that help our clients and partners make more data-driven decisions and take risks.
We act as “One Swiss Re”, leveraging strengths and capitalising on synergies across our businesses as we become a more integrated Group. Reinsurance is in the centre as the core of our business, alongside Corporate Solutions, a specialised risk partner for corporate clients, and iptiQ, a digital B2B2C insurance platform. We have specific strategic priorities for each business segment.
The business segments are supported by the Group foundation, with our people as the key asset driving the performance of the Group, along with Swiss Re’s three competitive differentiators.
Our people Our people form the basis of everything we do, with our attitude and mindset playing a critical role in how we execute on our strategy employees across the Swiss Re Group as of 31.12.2020
Our competitive differentiators We focus on three differentiators: • Our capital strength, with one capital base and a streamlined legal entity structure
• One client approach and access to public sector and corporate partnerships
Our Group Sustainability Strategy supports our purpose and ensures that our business remains sustainable over the long term.
Major challenges that undermine sustainable development, such as climate change or health funding gaps, can weaken resilience because they create new risks or aggravate existing ones. Our focus on sustainability seeks to identify and address these challenges and to support sustainable progress in partnership with our clients.
Our 2030 sustainability ambitions We have set ourselves three ambitions for 2030: we will help mitigate climate risk and advance the energy transition; we strive to strengthen societal resilience with our re/insurance solutions and investments; and we make insurance more available and affordable through digital solutions and risk knowledge worldwide.
How we report sustainability Alongside the stories from across Swiss Re contained in this report, we encourage you to look at our 2020 Sustainability Report at sustainability-report/2020
Investing responsibly By financing green solutions, we support climate change mitigation and the transition to a net-zero emissions economy.
Ensuring good corporate governance and compliance We conduct business ethically and with integrity, complying with all applicable laws and regulations to safeguard the trust our clients place in us.
An important element of our sustainability strategy is creating solutions that help our clients and their customers deal with environmental and social issues. We focus on areas such as climate change, renewable energy, agriculture, health and infrastructure. We are also driving the expansion of digital solutions that can increase the access, availability and value of insurance.
In many ways, this work is intrinsic to our traditional re/insurance protection. For example, our core natural catastrophe business is clearly linked to helping society recover from climate-related events.
Our public-private partnerships facilitate recovery efforts following hurricanes and earthquakes, while also helping to finance development projects. Swiss Re often supports such partnerships through its alternative capital instruments. For example, we issued catastrophe bonds with the Mexican government and the World Bank.
Our digital solutions can address broader societal issues, such as the prevention and management of type 2 diabetes. In tackling these issues, we are extending the value of insurance in people’s lives beyond simple financial risk transfer.
Itʼs what we do. And in a world facing unprecedented upheaval, it’s now more important than ever.
How can we use digital solutions to make insurance more accessible? Page 28
In 2020, our role in helping make the world more resilient became critical. We provided support to societies through our financial strength, innovative solutions and risk knowledge.
It has been a challenging year; the COVID-19 pandemic caused widespread lockdowns, travel restrictions, business interruption and social distancing. Our financial strength, combined with our powerful research and data capabilities, put us in a position to be able to support our partners during these difficult times.
We care for our clients and partners by fulfilling our role of covering agreed losses, providing capacity, sharing knowledge and innovating.
We are a risk knowledge company, but we know that every event, like every client, is unique. For this reason, we continue to learn and share our learnings with our clients and partners.
Swiss Re is a global leader in the credit and surety business. Through our Corporate Solutions Business Unit, and in conjunction with a panel of other insurers, we support the IFC by sharing underlying credit risk for the facility.
USD999m COVID-19 claims and reserves: L&H Re 200–250% within new Group SST target range as of 1 January 2021
On the P&C side, our teams collected bottom-up data from clients, actively researched cancelled or postponed events, made a detailed analysis of contract wordings and integrated assessments from internal and external legal counsel. On the L&H side, a different team built a top-down mortality model, based on emerging population data across the world and progressively refined it as more granular data became available.
Apart from analysing Swiss Re’s own exposure, our pandemic experts developed the Risk Resilience Center in partnership with Palantir Technologies, collecting health, economic and social data onto one unique platform. We shared 1 “Incurred but not reported” reserves for events that have occurred but the client has not yet filed a claim.
this knowledge and pandemic expertise with our clients through webinars and online meetings. We also actively engaged with governments around the world to develop solutions to ensure that we, as a society, are better prepared for the next pandemic.
Q. Why are public-private partnerships so important in addressing a pandemic?
A. Unlike natural disasters, pandemics are of a global systemic nature and this makes them uninsurable on a purely private basis. For example, the loss in economic output over 2020 and 2021 due to COVID-19 is estimated at USD 12 trillion, far exceeding the capital of the entire insurance industry. As a result, governments are called upon to absorb the majority of financial risk.
A. There are three essential elements: prevention and preparedness; intervention and emergency management; and financing. Re/insurance plays an important role through its risk knowledge. Furthermore, it is vital to ensure that financial support – whether public or private – gets to those enterprises that are significantly impacted by such an event. The private insurance market has the deep client relationships and industry expertise to make that happen.
Q. Will there be closer public-private sector collaboration to make society more resilient?
Opening up Life Guide to clients As the pandemic took hold, Swiss Reʼs L&H underwriting team opened access to Life Guide, Swiss Reʼs market-leading life and health underwriting manual. The 90-day free offer helped more life and health insurers address the emerging risks associated with COVID-19.
By applying our global perspective and research, Swiss Re was the first to provide this underwriting guidance. Many clients cited this as critical support that gave them greater confidence in their underwriting decisions, as the world continued to discover more about the virus and its effects.
How the model works Our pandemic model uses large data sets to calculate the likely losses from different pandemic scenarios. It is based on both the characteristics of diseases that could result in a pandemic and society’s ability to cope with any given pandemic event.
The model draws on data around which viruses might cause a pandemic, how quickly they can spread and how lethal they are likely to be. It then incorporates insights on available medications that might decrease the rates of infection and the progression of the disease once people have been infected. It also includes factors such as healthcare structures and demographic data.
COVID-19 and our model It is important to remember that the model is not a predictive tool for the eventual costs of COVID-19 or any other pandemic, but is a tool to understand the impact of certain scenarios on our financial strength.
Going forward, the huge influx of knowledge that we acquired in 2020 will flow into the model, allowing for further refinements. For example, we are now much more aware of the potential economic impact from lockdowns and the accumulation potential from business interruption.
These factors are being incorporated into our model as part of its ongoing evolution. This will allow us to better understand the possible impact of future pandemics.
Origins of the model The SARS epidemic in the early 2000s showed the importance of understanding how pandemics affect our balance sheet.
Virus characteristics Eg ability to spread, mutations and lethality of new viruses.
Variables and calibrations The virus’s impact on different age groups, different infection rates, etc.
For our stress testing, we use aggregated scenarios to calculate the impact of a one-in200 -year pandemic on a model mortality book.
A. We knew, in general terms, that a pandemic would cause economic fallout, but the scale of the global containment measures due to COVID-19 was unprecedented and therefore we needed to accelerate our research.
This Risk Resilience Center is the world’s richest COVID-19 data platform. It integrates publicly available global data from more than 100 sources.
By contributing to The Trinity Challenge, we are joining a coalition of leaders across the academic, non-profit and private sectors, including Google, Microsoft, McKinsey & Company, the Bill & Melinda Gates Foundation, the University of Cambridge and Imperial College London.
Swiss Reʼs participation is based around the Risk Resilience Center, developed in partnership with leading big data analytics company Palantir Technologies.
We plug protection gaps by making insurance products more accessible and affordable. This means we can address issues such as the fact that only one in six Americans is protected against flood despite the increased risk.
In this section, we look at Swiss Re’s cyber solutions, satellite-powered parametric insurance schemes and flood modelling.
Technology and data help us to underwrite new risks. Thanks to the fast-paced digital revolution, we can create and manage increasing amounts of data and improve our risk insights.
How can we use digital solutions to make insurance more accessible?
By accelerating the use of technology and data in our industry, we bring millions more people within the insurance safety net.
Swiss Re | Business Report 2020 29How can we use digital solutions to make insurance more accessible?
The issue around flood insurance was sourcing the relevant granular data to accurately model the risk. Thankfully, recent advances in technology are helping us to address this challenge. Swiss Re’s inland flood model, developed by our Catastrophe Perils team, is high-resolution and fully
The coverage is based on a geospatial dataset where rainfall intensity is derived from satellite observation and rain gauges.
The technology providing the technical data is enabled by RIICE (Remote Sensing-based Information and Insurance for Crops in Emerging Economies). This scheme was created through a public-private partnership between the satellite data processing company sarmap, the International Rice Research Institute, the Swiss Agency for
Further expansion in Africa The African Risk Capacityʼs Tropical Cyclone cover was another important sovereign programme supported by Swiss Re in 2020.
This work builds on Swiss Reʼs track record of developing innovative solutions for the African continent. We have provided parametric and satellite-based insurance to support the agricultural sector there, as well as forming digital partnerships to create commercial cyber products and telematic solutions for motor insurance.
There is a strong willingness to close the flood protection gap in the US. We can only do this if we deploy smart digital solutions that help insurers understand risks.
Matt Junge Head of Property Solutions US & Canada probabilistic. It combines detailed hazard information and insurance conditions to support underwriting for flood insurance.
In March 2020, we announced our partnership with Microsoft to create a Digital Market Center. The Center draws on cutting-edge capabilities across Microsoft’s next-generation Azure cloud technologies, internet of things and artificial intelligence.
This partnership goes beyond insurance. It will enable the development of next-generation, large-scale tools that will transform the way the insurance industry predicts and manages risks. The Center will also create innovative platforms to measure business risks in a digital environment,
Transforming Tomorrow Together enabling industries to foster stronger societal resilience. Ultimately, it acts as a digital sixth sense that helps us to understand the ripple effects of risks on society, governments and economies.
Based on these types of data insights, insurers can develop solutions that proactively mitigate losses before they occur.
The first areas of application are planned to be cyber risk, supply chain management, natural catastrophe resilience and connected vehicles and mobility.
The Cyber Product Suite is tailored for small and medium-sized companies that require end-to-end cyber solutions to protect their business, as well as for individuals seeking to protect themselves against this emerging risk class.
The transition to a low-carbon economy is essential in order to mitigate the effects of climate change.
In 2015, Swiss Re signed the Paris Pledge for Action, an initiative that aims to strengthen the global response to the threat of climate change.
The time is now to strive for net zero We believe that the private sector plays a huge role in reducing carbon emissions and therefore combatting climate change. We are taking action to lead the change.
In 2020, we took several important steps on our journey. We committed to cut business support in underwriting and asset management for the world’s 10% most carbon-intensive oil and gas by 2023. We announced a triple-digit carbon levy across our operations, which will incentivise green decisionmaking as we conduct our business and help us strengthen our investment into high-quality carbon removal.
These actions are only the next steps on a long road to a net-zero future. They send a strong signal that the time has come to turn knowledge into action.
As we lead the change, we will use our knowledge and our investments to help our partners build a more sustainable future.
Decarbonising our underwriting Since 2018, our underwriters have restricted business related to thermal coal. From July 2023, we will no longer provide individual insurance cover for those oil and gas companies that are responsible for the world’s 10% most carbon-intensive oil and gas production. These restrictions are in place for underwriting single risks, and this approach is being extended to restrictions across the more complex treaty business.
Decarbonising our operations In 2020, we sourced 100% of our power needs from renewable sources. In 2021, we will curb flight emissions by 30%, relative to the 2018 level.
To reach net zero, itʼs necessary to develop and deploy key technologies. Swiss Re plays a role in helping to rapidly advance progress in this area.
We de-risk projects to make them profitable, provide funding through our investments and focus on carbon removal in our operational footprint measures. This sends a positive signal that stimulates demand for new technologies, such as: Renewable energies Wind and solar projects are the leading renewable energy sources. Insurance solutions already exist for construction covers.
Lithium battery storage As an example of a new technology, lithium ion batteries are essential to power a low-carbon economy. However, they are also an emerging risk – for example, the risk of fire when storing them.
Green buildings Improved heating systems, appliances, insulation and building materials are adaptations that make building more efficient.
As an operating project, Green River has begun to provide positive long-term economic impacts to the local and state communities. The project is estimated to contribute approximately USD 35 million in new tax revenue and USD 20 million in landowner payments throughout the first 20 years of operations.
In our mission to help make the world more resilient, we proudly teamed up with several leading technology companies to collaborate on a project that supports clean energy progress in the United States.
Swiss Re is committed to reaching net-zero carbon emissions by 2050 – this means we need to act in a smart, sustainable way now.
The product helped the client to refinance their portfolio of projects in Utah. By driving down the investment risk, the client successfully issued around USD 300 million in senior-secured private placement debt.
This was a landmark deal on two counts. Firstly, a leading renewable project ratings agency gave the solar project an investment grade rating of BBB–, citing the Swiss Re Solar Revenue Put as a contributing factor. This opens the door to additional solar deals for Swiss Re. Secondly, it was the first time that this product was used in the financing or refinancing of solar projects within the US private-placement debt market.
Partnerships give us the means to assess the risk landscape, explore the future of risk coverage and drive forward industry change.
The most successful journeys are the ones that we take together with our partners: clients, companies, academic institutions and sovereigns.
In this section, we look at how our partnerships help us to tackle the big industry challenges and find solutions that enable societies to become more resilient together.
New partners, new perspectives Ever since its inception, Swiss Re has been centred around partnerships – many of which have endured over generations.
Today, we are also building partnerships with a wider range of businesses – from retailers and car manufacturers to software companies. Many of these partnerships centre around the incorporation of new technologies. This enables us to develop new products, allowing our partners to confidently provide the best possible insurance solutions to their customers.
In this way, we collectively unlock new business models across the industry, push the boundaries of insurance and close protection gaps.
How can partnerships help us close protection gaps? Swiss Re | Business Report 2020 41
As automotive technology advances, so too must motor insurance. This requires effective collaboration and innovation, which is exactly how we developed the ADAS Risk Score.
calculate insurance premiums for BMW vehicles while taking the safety of driver assistance systems into account. In September 2020, we also partnered with Toyota Insurance Services to make this solution available for Toyota and Lexus vehicles across Europe from 2021.
End customer and society Car owners benefit from a reduced cost of ownership and safer vehicles.
Engineering feedback to OEMs Based on performance insights to enhance car safety
Swiss Re | Business Report 2020 43How can partnerships help us close protection gaps?
Building on a long-term partnership We piloted Gro Healthʼs Low Carb Programme with Aviva employees via their MyAviva wellness app. During the scheme, the employees followed Gro Health’s diet and exercise plans and then provided feedback on their experiences.
More than 260 employees joined the pilot and the results were very positive. For instance, weight reduction was recorded by over a quarter of the participants. The app also received a very high satisfaction rating from its users.
Adapting to COVID-19 COVID-19 caused only minimal disruption to the pilot. Gro Health even introduced lockdown-specific content such as indoor workouts and mindfulness exercises, which had a positive effect on uptake.
Opportunity for growth In addition to supporting Aviva’s employees, the pilot has given us insights into how we can develop other diabetes solutions. Growth opportunities are not limited to the UK. We are already seeing opportunities to offer this solution in several key global markets and also within different client segments.
Benefits for the industry With one in 11 adults globally suffering from diabetes, rolling out more programmes such as this will likely benefit insurers by reducing the frequency and cost of claims – and, even more importantly, help improve the lives of millions of people around the globe.
Gro Health was introduced to Aviva by Swiss Re as an innovative solution to bolster engagement and improve the health of Aviva employees.
Health insurance for China’s children In 2019, Swiss Re entered into a strategic partnership with JD Technology Group, a business group under the Chinese company JD.com.
In 2020, the partnership led to the launch of a simplified health product. Based on a co-created risk selection process, the product covers 15 critical diseases for children from birth to 17 years of age.
Granular Insurance and new health care Verily is a subsidiary of Alphabet that focuses on making health data useful so that people can enjoy healthier lives. Its tools and devices collect, organise and activate health data, and enable appropriate measures to prevent and manage disease.
Swiss Re Corporate Solutions and Verily have partnered to form Granular Insurance. The companyʼs first solution to enter the market will help self-funded employers to manage their healthcare costs through an innovative stop-loss product. This product reimburses employers for claims above a defined amount and therefore allows them to protect themselves from unexpected and large employee health benefit claims.
iptiQ is set to become a growth engine for Swiss Re. In 2020, we reached USD 371 million in premiums, with an 83% annual growth rate since 2017. Our market-implied valuation is USD 2 billion, making it a very exciting business.
Q. iptiQ began in L&H. How is its P&C growth developing?
Given our global footprint, we help distributors with local issues, such as specific product requirements or accessing local insurance partners to support them.
Swiss Re | Business Report 2020 45 How can partnerships help us close protection gaps?
Swiss Re’s workforce rose to the challenge in 2020, remaining focused on clients and partners.
In the extraordinary year that was 2020, we increased our efforts to service our clients. We did so by ensuring that our business continued to run without disruption during lockdown. We also increased our focus on employee wellbeing as our people dealt with the added challenges of juggling working from home, lockdowns, family life and day-to-day business.
It was a year in which diversity was a major social theme and we responded to this challenge with initiatives that increased inclusivity across our global workforce.
Our international teamOur people split by region 24% Americas 61% EMEA 11% Asia-Pacific
Alongside Mosaic, we have several active employee resource groups focusing on inclusion through the lens of topics such as gender diversity, LGBTI+ and mental health.
To learn more about our people initiatives and performance in 2020, please see our Sustainability Report at swissre.com/sustainability-report/2020
office locations in 29 countries (2019: 80 office locations in 31 countries)
Our vision to make the world more resilient can only be achieved if our employees themselves are resilient. This became all the more apparent during the COVID-19 pandemic, when we had to change our normal working patterns to accommodate working from home, home schooling and dealing with new emotions and worries – all while maintaining a seamless business flow. In recognition of our employees’ extra efforts in 2020, we introduced a special Swiss ReSilience Day on 15 January 2021, where each of our employees was given the day off to rest and recharge their batteries.
The benefit of an established culture Swiss Re’s flexible ‘Own The Way You Work’ culture paid dividends as the COVID-19 lockdowns were rolled out across the globe. On the technical side, our well-established IT infrastructure enabled teams to operate remotely from home without any disruption. We were therefore grateful that we could draw on our established culture of flexibility.
Swiss Re | Business Report 2020 47 Our people and culture
Wellbeing, not just performance Health and safety was a focus area for us in 2020. We know that prolonged working from home comes with its challenges for both physical and mental health.
Throughout 2020, we ran surveys with our workforce to feel the pulse on their wellbeing. We learned that a large majority of employees feel Swiss Re responded strongly to the COVID-19 crisis and took timely decisions showing care and support.
In Zurich, our mental health survey in November 2020 showed that 72% of all employees felt Swiss Re had increased awareness for mental health issues. Also, 88% of people said that they would approach a colleague who they believed was mentally unwell to check on their wellbeing.
Monika Waber Head Organisation & People Development Our passion is to drive the development
of our people and our culture to create impact for our business.
A. Swiss Re has gone through many ups and downs. We had phases of divestures and acquisitions, years of very low claims and periods of large losses. Through all these phases, we were guided by our capital management priorities. Our long-term shareholders will be very well familiar with them. The first priority has always been to ensure superior capitalisation at all times. The second priority is to grow the regular dividend with long-term earnings. The third is to deploy capital for business growth, and the fourth is to repatriate excess capital to shareholders.
A. That divesture later allowed us to acquire a whole range of national reinsurance companies in Europe and America, establishing Swiss Re as a truly global reinsurer. In the 1990s we also made the strategic decision to grow our Life and Health businesses to complement the already-strong Property & Casualty franchise and provide additional diversification benefits to the Group. We pursued this growth through acquisitions of Mercantile & General Re Group in 1996, Life Re in 1998 and Lincoln Re in 2001, and today we are the market leader in Life and Health Reinsurance. Finally, after establishing the Admin Re business in 1998, which focused on efficient administration of closed and legacy books of life insurance, we made many acquisitions in this space until we decided to sell this business.
Q. The Admin Re business you are referring to had grown into ReAssure, which Swiss Re sold in 2020. What was the reason for the sale?
A. We decided to sell ReAssure because of the high capital requirements for this business under the Swiss solvency rules and because we were not prepared to take as much risk on the asset side as was necessary for achieving target returns. In our business of taking risks, you can’t always grow and grow and take more and more risk. We must be selective.
A. When looking at the share price development for a company like Swiss Re,
A. Our company has a very resilient business model. We are in a volatile business, which can be challenging at times. We act as a shock absorber, and this means that every few years we will encounter circumstances that lead to large claims. We have supported our clients through many crises, and we are doing the same with the COVID-19 pandemic. I have always attributed the success of Swiss Re to three factors: the heart, the brain and the wallet. The heart stands for our strong relationships with clients, the brain represents the tremendous amount of risk knowledge we possess, and the wallet is our capital strength. All three of these success factors are as strong as ever, which also makes me very optimistic for the company’s future.
Under Walter B. Kielholz’s stewardship, Swiss Re has met a rapidly changing world with a spirit of innovation and a determination to grow.
down as Swiss Re’s CEO. From 2003, he served as Chairman
Diversification Swiss Re’s long-term diversification strategy saw the development of the Life and Health business, especially through large acquisitions such as the purchase of M&G Re, Life Re and Lincoln Re.
Walter B. Kielholz speaking on the topic of “Reflection on Facing Risk” at the 42nd St Gallen Symposium, 2012.
Swiss Re | Business Report 2020 51 30 St Mary Axe Since its opening, 30 St Mary Axe, or “The Gherkin”, has been an iconic part of the London skyline.
Holding company structure The creation of a holding company structure allowed for the creation of distinct Business Units, providing more transparency and accountability.
Walter B. Kielholz was elected Chairman of the Board of Directors on 13 March 2009.
For further information, please see p. 88 of the Financial Report
Renato Fassbind Vice Chairman and Lead Independent Director, non-executive and independent
Sergio P. Ermotti was elected to the Board of Directors of Swiss Re Ltd in 2020. In 2021, Sergio P. Ermotti will be nominated for election by the Annual General Meeting 2021 to succeed Walter B. Kielholz as Chairman of the Board of Directors.
Jacques de Vaucleroy was elected to the Board of Directors of Swiss Re Ltd in 2017. He chairs the Compensation Committee and is a member of the Chairman’s and Governance Committee, the Nomination Committee and the Investment Committee. He is also Chairman of Swiss Re Europe S.A. and Swiss Re International SE.
Thierry Léger, former Chief Executive Officer Life Capital, was appointed Group Chief Underwriting Officer as of 1 September 2020. He succeeded Edouard Schmid, who decided to step down as of 31 August 2020. Jonathan Isherwood, previously Head Globals Reinsurance, was appointed CEO Reinsurance Americas as of 1 April 2020 and Regional President Americas and member of the Group Executive Committee as of 14 August 2020. He succeeded J. Eric Smith, who retired
Russell Higginbotham assumed the role of Chief Executive Officer Reinsurance Asia and Regional President Asia with effect from July 2019. Prior to that, he was Chief Executive Officer Reinsurance EMEA and Regional President EMEA. He became a member of the Group Executive Committee in September 2018.
Guido Fürer was appointed Group Chief Investment Officer and a member of the Group Executive Committee in November 2012. In 2019, he additionally assumed the roles of Swiss Re Country President Switzerland and Chairman of the Swiss Re Strategic Council.
Urs Baertschi was appointed Chief Executive Officer Reinsurance EMEA and Regional President EMEA and a member of the Group Executive Committee in September 2019. Prior to that, he served as President of Reinsurance, Latin America.
Hermann Geiger assumed the global position as Head Legal & Compliance and Group Chief Legal Officer in 2009. He was appointed as a member of the Group Executive Committee with effect from July 2019.
Patrick Raaflaub was appointed Group Chief Risk Officer and a member of the Group Executive Committee in September 2014. Prior to that, he served as Chief Executive Officer of the Swiss Financial Market Supervisory Authority FINMA and held several leading positions within Swiss Re.
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 forward-looking 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 or acts of war; • mortality, morbidity and longevity experience; • the cyclicality of the reinsurance sector; • central bank intervention in the financial
São Paulo Avenida Brigadeiro Faria Lima 3064 Itaim Bibi São Paulo, SP 01451-001
Sydney Tower Two International Towers Sydney 200 Barangaroo Avenue Sydney, NSW 2000
Mumbai One BKC Plot no. C-66, G-Block Bandra Kurla Complex Bandra (East)
Swiss Re has 81 office locations in 29 countries. For a full list of our office locations and service offerings, please visit www.swissre.com
Property & Casualty Reinsurance Net income/loss attributable to common shareholders 396 –247 –
Premiums earned 19 275 20 832 8 Combined ratio in % 107.8 109.0 Net operating margin in %2 3.8 0.1 Return on equity in %1 4.4 –2.8 Life & Health Reinsurance Net income attributable to common shareholders 899 71 –92 Gross premiums written 14 452 15 067 4 Premiums earned and fee income 13 004 13 883 7 Net operating margin in %2 10.0 2.9 Return on equity in %1 12.4 0.9 Corporate Solutions Net loss attributable to common shareholders –647 –350 46 Gross premiums written 4 974 4 839 –3
 China  Euro area  Japan  Latin America  United States in %
A huge monetary response to the global downturn put new pressure on already low interest rates. Major central banks quickly restarted extraordinary monetary policies in the first half of 2020, including extending or reintroducing asset purchase programmes. In addition, the US Federal Reserve (Fed) and the Bank of England cut interest rates to historic lows, while the European Central Bank expanded its quantitative easing programme and purchased assets totalling more than 11% of Euro area GDP. Central banks in major emerging markets including China, Brazil, India and Russia also reduced interest rates.
German and Swiss yields were already negative at the onset of the crisis. The German 10-year yield declined further to end the year at –0.6%, while Swiss and Japanese yields were broadly unchanged at –0.5% and 0% respectively.
– United States – United Kingdom – Germany – Japan – Switzerland Source: Refinitiv, Swiss Re Institute
Japanese stocks also gained 8%. The Eurostoxx 50 did not fully recover its lost value, closing 5% lower than the previous year, while the MSCI UK index ended 2020 down 16% due to uncertainty around Brexit negotiations. The SMI ended the year roughly unchanged (+1%).
The US dollar depreciated against other major currencies in 2020 and ended the year 8% lower vs the euro, 9% lower vs the Swiss franc, 5% lower vs the Japanese yen and 3% lower vs the British pound. The key driver behind US dollar weakness was growing investor risk appetite after equity markets had troughed in March and the economic rebound in the summer turned out to be stronger than expected. This positive environment weighed on the US dollar, which is typically seen as a safe haven currency, strengthening in times of crisis and weakening in times of economic and financial market upswings. The sustained downward trend that started in late March more than offset the temporary strengthening of the US dollar exchange rate during the equity market sell-off. A more pronounced decline in US interest rates relative to other currencies added to US dollar weakness.
Economies and financial markets are also exposed to increased long-term inflation risks. While the immediate impact of the COVID-19 crisis has been disinflationary, a longer-term trend towards de-globalisation, including companies’ desire to diversify supply chains to become more resilient, could fuel inflationary pressure. There are also indications that central banks will tolerate higher inflation as they seek to keep interest rates low to facilitate the servicing of high public and private debt burdens. A scenario of high inflation coupled with such “financial repression” would be challenging for re/insurers.
1 sigma Resilience Index 2020: global resilience put to the pandemic test, Swiss Re, September 2020; Emerging markets macro resilience: beware fading global tailwinds, Swiss Re, September 2020.
Financial market development Human capital Economic complexity index Labour market efficiency
Market performance On the back of the COVID-19 crisis, the global non-life insurance market proved much more resilient than previously expected. Amid the strongest economic decline since the Great Depression, global non-life premiums were up an estimated 2% in real terms, after a 3% gain in 2019. The main reason was stronger-than-expected rate hardening in commercial lines.
At 2%, non-life premium growth in the advanced regions was unexpectedly resilient in 2020, again due to rate hardening in commercial lines. China remains the world’s fastest growing non-life insurance market: we estimate a 7% expansion in non-life premiums in 2020, coming from double-digit growth in the health business. Growth in the other emerging markets was negative, with the exception of Emerging Asia.
Pricing in non-life commercial insurance lines strengthened again in 2020. This marked the sharpest rate increase since 2001/2002 after the 9/11 terror attack, with prices up 19% throughout the year. The upswing broadened across lines of business and across regions. There were strong price increases in Property (19%) and in Financial and Professional liability (FinPro) (+38% ) lines in almost all regions. For Property, rates were mainly driven by natural-catastrophe-related covers, and in FinPro by rising Directors and Officers liability (D&O) claims. Casualty business, which had remained soft until 2018, started to exhibit stronger, but still single-digit, price improvements. This was driven by improvements in the US and Europe, while Asia and Latin America remained sluggish.
Market overview Global non-life reinsurance premiums totalled about USD 210 billion in 2020, with 28% coming from 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.
Market performance We estimate that global premiums in non-life reinsurance grew by around 4% in real terms in 2020, with moderate expansion and stable reinsurance demand in advanced markets and China. Other emerging markets suffered from lower exposure growth in the primary market.
Market performance Estimated global premium growth in 2020 1 See footnote on previous page 2 Source: Aon, Reinsurance Market Outlook, September 2019
Market overview The global life insurance industry generated about USD 2 800 billion in premium income in 2020, of which 25% came from emerging markets. Around 80% of premium income in life insurance is derived from savings and retirement products. The protection business covers a broad spectrum of mortality and morbidity risks.
Market performance We estimate that global life insurance premiums contracted by 4% in real terms in 2020. This was the result of rising unemployment in the COVID-19-induced recession, dwindling incomes leading to weaker demand, a slowdown in distribution activities due to lockdowns and even lower interest rates that made life insurance less attractive as a savings vehicle.
Premium decline in the advanced markets was 5%. This was, however, unevenly distributed. The US and Canada were less affected, while Japan contracted by 8%. In light of the steep recession and because the savings business is by far the largest source of premium income for the sector, we estimate that life premiums in advanced EMEA declined by nearly 10% in 2020.
Overall profitability of the global life insurance sector – as measured by GAAP return on equity (ROE) of listed life insurance companies – decreased significantly to 7%, compared with 10% in 2019. The impact of COVID-19 on mortality books was limited and the main driver of the decrease was life insurers’ investment results. These were impacted by the continued low interest rates, particularly in the US, and realised investment losses due to corporate bond and stock market volatility in the first half of the year. In North America, the weighted average ROE almost halved to 5.1% in the first half of 2020. Profitability in Europe and Asia also fell as the weighted average ROE of life insurers dropped to 6.3% in Europe and 9.4% in Asia Pacific.
Market outlook We expect a rebound in 2021 as the economy recovers and risk awareness increases. For 2021 and 2022, global life premiums are expected to grow by around 6% per year, mainly driven by continued strong growth in the emerging markets (7%) and an improved situation in the advanced markets (5%).
Market overview The size of the global life reinsurance business was about USD 105 billion in 2020. Around 75% of this is attributable to the US, Canada, the UK and China. Ceding companies from emerging markets accounted for 24% of global demand. Life reinsurers are increasingly diversifying away from the traditional mortality business.
Market outlook The continued recovery in primary insurance should support growth in life reinsurance revenues, including a recovery in traditional business. Premium growth will nonetheless likely remain moderate, especially in the large advanced markets. In real terms, we forecast global life reinsurance premiums will increase by around 2.5% in 2021 and 2022, while health reinsurance is expected to develop by around 6% annually. This will be mainly driven by the highly populated and growing economies in China and India.
Expenses Claims and claim adjustment expenses –18 683 –19 838 6 Life and health benefits –13 087 –13 929 6 Return credited to policyholders –4 633 1 760 – Acquisition costs –7 834 –8 236 5 Operating expenses –3 579 –3 597 1 Total expenses before interest expenses –47 816 –43 840 –8
Other reinsurance assets 24 743 26 660 8 Goodwill 3 945 4 021 2 Other 9 354 10 728 15 Assets held for sale1 74 439 –
Total liabilities and equity 238 567 182 622 –23 1 Please refer to Note 10 “Acquisitions and disposals” for more details.
Strategy and priorities Swiss Re took early steps to navigate the COVID-19 pandemic in 2020. Even in 2019, before COVID-19 became a pandemic, our experts were monitoring the situation and collecting data. As the situation unfolded, Swiss Re’s crisis management and robust IT infrastructure allowed business operations to continue uninterrupted. Swiss Re employees continued to conduct renewals, process claims, steer the asset portfolio, share knowledge and build long-term partnerships.
Corporate Solutions’ turnaround has been achieved through disciplined execution on the decisive management actions announced in 2019. At the end of 2020, portfolio pruning and gross cost reductions were largely completed and the unit delivered a normalised1 combined ratio of 96.8%, well ahead of the expected 105%. Corporate Solutions will target a normalised combined ratio of less than 97% in 2021, compared with the original 98% goal.
Following the successful sale of ReAssure, the Life Capital Business Unit was disbanded at the end of 2020. Corporate Solutions has assumed responsibility for elipsLife, while iptiQ is now operating as a standalone division.
P&C Re reported a net loss of USD 247 million in 2020, including claims and reserves of USD 1.9 billion related to the COVID-19 crisis. Excluding the after-tax impacts of COVID-19-related claims and reserves, the Business Unit would have contributed USD 1.3 billion, up from USD 396 million in 2019. The result was supported by strong new business generation with higher premiums earned and price increases. This was adversely impacted by significant claims from large catastrophe losses of USD 1.7 billion, primarily caused by a record-breaking Atlantic hurricane season, Australian hailstorm and flooding events, as well as wildfires on the US West Coast. Large man-made losses were dominated by the Beirut port explosion. The net operating margin was 0.1%, compared with 3.8% in 2019.
Net premiums and fees earned by business segment, 2020 Total: USD 40.8 billion
Net premiums and fees earned by business segment, 2020 51% P&C Reinsurance 34% L&H Reinsurance 10% Corporate Solutions 5% Life Capital 51% P&C Reinsurance 34% L&H Reinsurance 10% Corporate Solutions 5% Life Capital 1 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments as well as the COVID-19 impact. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”.
Business performance Net premiums earned and fee income for the Group amounted to USD 40.8 billion for 2020, an increase of 5.6% year-on-year. At constant exchange rates, net premiums earned and fee income increased by 5.5%.
Investment result and expenses Fundamentally, the portfolio performed well with insignificant impairments alongside gains generated from the fixed income portfolio, as well as market value gains on equity positions.
The Group’s non-participating net investment income was USD 3.0 billion in 2020, compared with USD 4.2 billion in 2019. The decrease was mainly driven by the impact of reinvestment into lower yields and reduced contribution from equity-accounted investments, as well as the absence of the ReAssure portfolio in the second half of the year. The Group’s running yield was 2.4% in 2020, compared with 2.8% in 2019, reflecting the impact of historically low reinvestment yields alongside de-risking actions. A high concentration of unrealised gains on long-maturity fixed income securities supports our running yield’s persistency looking forward.
Operating expenses remained stable at USD 3.6 billion in both years. Interest expenses were USD 588 million in 2020, slightly down from USD 589 million in 2019.
The Group reported a tax benefit of USD 266 million on a pre-tax loss of USD 1.1 billion for 2020, compared to a tax charge of USD 140 million on a pre-tax income of USD 909 million for 2019. This translated into an effective tax rate in the current and prior-year reporting periods of 24.4% and 15.4%, respectively. The tax rate in 2020 was largely driven by tax benefits from tax-exempt income and the release of valuation allowance on deferred tax assets, partially offset by tax charges from intra-entity transfers and foreign currency translation differences between statutory and US GAAP accounts.
Our Reinsurance business responded by increasing our commitment to our clients. For example, we offered insurance companies across the world free access to Life Guide – the industry’s top-rated1 digital underwriting manual for individual health risks. This enabled clients to provide important life insurance coverage to individuals, based on improved criteria for current and past infections and guidelines for possible exposures.
Transactions are tailor-made reinsurance structures that enable clients to achieve their objectives. Reinsurance engaged in over 200 deals in 2020. Our Transactions portfolio is spread across all lines of business and increasingly across all regions and markets, bringing attractive diversification within this business segment.
Summary Successful execution of our strategy has once again delivered value for our clients, partners and stakeholders. It has also allowed us to adapt quickly to rapidly changing environments. Looking ahead, we will continue to strengthen our partnerships across insurance and the wider ecosystem, remain relentless in our knowledge development and sharing, and draw on our global scale and capital strength to live up to our vision – to make the world more resilient.
Property & Casualty Reinsurance Property & Casualty Reinsurance (P&C Re) reported a net loss for 2020 of USD 247 million. The result included claims and reserves related to the COVID-19 crisis of USD 1.9 billion, reflecting affirmative non-damage business interruption, cancelled or postponed events, casualty and credit & surety losses. COVID-19 losses increased in the fourth quarter, mainly due to business interruption claims. Excluding the after-tax impact of these losses, net income would have been USD 1.3 billion, up from USD 396 million in 2019. P&C Re delivered strong new business generation with higher premiums earned, taking advantage of price improvements, particularly in April and July renewals.
Natural catastrophe losses amounted to USD 1.7 billion for 2020. This was largely driven by the Atlantic hurricane season, which included a record 30 named storms, and secondary perils across the globe. Large man-made losses were dominated by the Beirut port explosion in the third quarter. The result was further impacted by prior-year development, the majority of which was in the first quarter from higher cedent-reported claims in casualty. In comparison, 2019 was affected by a larger natural catastrophe loss burden and late claims development from Typhoon Jebi.
Premiums Net premiums earned increased by 8.1% to USD 20.8 billion, driven by strong new business generation. This included growth in natural catastrophe business, taking advantage of price improvements. In addition, the increase was supported by large casualty transactions written in 2019. Premiums written included portfolio mix
changes and active management actions implemented in 2020. As a result, gross premiums written were stable at USD 21.5 billion in 2020.
The administrative expense ratio decreased to 5.8% in 2020, compared with 6.2% in 2019, due to higher net premiums earned, while expenses had significant efficiency gains, supported by lower travel activity.
1 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments as well as the COVID-19 impact. 2 Operating expenses divided by premiums earned.
Investment result The return on investments was 3.0% for 2020, compared with 4.3% in 2019, reflecting a decrease in the investment result of USD 603 million.
Premiums earned by line of business, 2020 Total: USD 20.8 billion Premiums earned by line of business, 2020 46% Casualty 40% Property 14% Specialty
Outlook Property business showed improving margins, which enabled us to continue to de-risk the portfolio from business most exposed to climate change and nonmodelled risks, and minimise infectious disease business interruption coverage, while meeting planned profit targets.
Specialty lines, especially marine, engineering and aviation, showed positive momentum, and we continued to capitalise on our leading franchise in these lines.
Life & Health Reinsurance Life & Health Reinsurance (L&H Re) reported a net income for 2020 of USD 71 million. COVID-19-related claims and reserves included in this result amounted to USD 999 million (pre-tax), driven primarily by higher mortality rates in the US and the UK, as well as increased disability claims mainly in ANZ. Excluding the after-tax impact of COVID-19-related losses, net income was USD 855 million in 2020, compared with USD 899 million in 2019. This result was supported by a strong investment performance, which delivered an ROI of 3.7%, despite the global financial market volatility. The underwriting result reflected continuous improvements in the Americas mortality experience, compensated by adverse morbidity experience mainly in ANZ.
The ROE, excluding the impact of COVID19 -related losses, would have been 10.4%, compared to 12.4% reported in 2019. This was mainly due to the significantly higher average equity base in 2020. Reflecting the after-tax impact of COVID-19, the ROE was 0.9% in 2020.
Premiums Net premiums earned and fee income increased by 6.8% to USD 13.9 billion, compared with USD 13.0 billion in 2019, supported by individual large transactions, including longevity deals. Gross premiums written in 2020 increased by USD 0.6 billion, or 4.3%, to USD 15.1 billion, compared with USD 14.5 billion in 2019.
Management expense ratio The management expense ratio in 2020 was 5.2%, in line with prior year. An increase in operating expenses was in line with strong premium growth.
EBIT for the health segment was USD 221 million in 2020, compared with USD 258 million in the prior-year period. COVID-19 losses included in this result amounted to USD 110 million, mainly related to disability claims which emerged in the second half of the year. Further profitable growth of the health business was partly muted by adverse experience across various markets in Asia impacting both years.
Operating expenses –746 –786 5 Total expenses before interest expenses –13 470 –14 984 11
Net realised gains were USD 438 million for 2020, compared with USD 687 million for the prior period. The decrease was mainly due to fewer gains from sales of fixed income securities, as well as lower market value gains on equity securities.
Return on equity, excluding the after-tax impact of COVID-19-related losses, was 10.4%.
Outlook While the current pandemic has led to disruption in sales and claims activity for insurers, L&H Re expects increases in life and health treaty reinsurance new business to remain driven by high-growth markets, with more modest growth in mature markets. However, the prolonged low interest rate environment continues to have an unfavourable impact on long-term life business. Cession rates are expected to remain broadly stable in major markets.
Premiums earned by line of business, 2020 Total: USD 13.7 billion
Corporate Solutions’ turnaround is ahead of plan at the end of 2020, reflecting the successful execution on the management actions and continued pricing momentum.
Strategy and priorities Corporate Solutions’ turnaround is ahead of plan, with pruning and gross cost reductions largely completed by the end of 2020. Portfolio repositioning, a low level of large man-made claims, together with efficiency improvements and improved momentum in insurance rates, helped Corporate Solutions to achieve a normalised1 combined ratio of 96.8%, well ahead of the estimate of 105% for 2020. The Business Unit will now target a normalised combined ratio of less than 97% in 2021, compared with the original 98% goal. While maintaining a strong focus on underwriting and operational performance, Corporate Solutions continues its longer-term strategic transformation as it invests in new capabilities and moves towards being a truly customer-focused, better diversified and more cycle- resilient commercial insurance provider.
Performance Corporate Solutions’ net profit, excluding the COVID-19 impact, would have been USD 393 million in 2020 with a net operating margin of 11.6%, compared with a net loss of USD 647 million in 2019 with a net operating margin of –16.7%. The strong improvement in the result excluding COVID-19 impacts reflected the benefits of the management actions taken to improve profitability, as well as continued rate increases, favourable prior-year development and lower-than-expected large man-made losses.
The investment performance contributed to the result, although to a lesser extent than in 2019.
Combined ratio The Business Unit’s combined ratio decreased to 116.5% in 2020 from 127.9% in 2019, mainly driven by strongly improved underlying business, a reduction in large man-made losses and favourable development from prior accident years, partially offset by COVID-19 impacts. The normalised1 combined ratio was 96.8%, reflecting the successful execution on the management actions to improve profitability, achieved rate increases, as well as lower- than-expected large man-made losses.
Lines of business The property combined ratio for 2020 deteriorated by 12.2 percentage points to 128.8%, mainly driven by COVID-19 reserves related to event cancellation and non-damage business interruption. Excluding COVID-19 impacts, the combined ratio would have been 83.6%.
The ROE was –17.4% in 2020, compared with –34.1% in 2019. Excluding COVID-19 impacts, the ROE would have been 16.5%.
Life Capital achieved its key strategic milestone in 2020 with the sale of ReAssure and continued strong growth of its digital B2B2C business.
Strategy and priorities Life Capital continued its strong growth in the open book businesses and achieved major strategic milestones with the completion of the ReAssure sale and the deconsolidation of the business.
iptiQ currently operates with 40 partners globally, a net increase of 11 compared with 2019. The successful expansion into the EMEA property and casualty business in 2020 has contributed positively to the overall growth and development of the business. iptiQ currently provides protection to 668 000 customers globally. Continued progress was made for expansion into Asia with the intention to enter China in the near term. The continued dynamic growth of the business contributes to its positive standalone valuation.
In 2020, Life Capital delivered a strategic milestone by completing the sale of ReAssure while continuing to grow its open book businesses. In a difficult COVID-19 environment, iptiQ’s dynamic growth demonstrates the resilience of its B2B2C business and the strength of its operating model.
Performance Life Capital reported a net loss of USD 265 million in 2020. The result was driven by continued investment into the growth of our open book businesses, underperformance in the elipsLife unit and COVID-19 losses. Overall, COVID-19 losses of USD 27 million for Life Capital are within expectations, given the underlying businesses.
Investment result The return on investments was 3.4% for 2020, compared with 3.7% in 2019. In 2020, the investment portfolio return related to ReAssure Group plc was excluded from the ROI calculation for the Business Unit and the Group due to the interim classification of ReAssure Group plc as held for sale.
Shareholdersʼ equity Shareholdersʼ equity decreased by USD 3.5 billion to USD 1.8 billion, mainly driven by the USD 1.5 billion dividend payment as well as a reduction in unrealised gains related to the disposal of ReAssure and the net loss. Return on equity was –7.5% for 2020, compared with –3.4% for 2019.
Although the outlook has improved, COVID-19 continues to shape our business environment in 2021. While the pandemic is clearly a challenge for society and insurers, it has significantly accelerated the shift toward digital insurance channels. This is of strategic importance for iptiQ. We have already witnessed an increased rate of flow and activity in digital interaction models and we expect this to continue further. This trend plays to iptiQ’s strengths, and we are well placed to help partners become closer to consumers as they increasingly use digital channels to purchase insurance.
While the impact of COVID-19, natural catastrophes and man-made losses are significant, our P&C businesses showed improved underlying performance following determined actions to strengthen the quality of our underwriting. We steered our portfolio mix to an increasingly attractive risk-return profile with continued growth in special lines, a cautious cycle management approach in credit and surety, and continuous updates to our natural catastrophe risk models to reflect recent events. Furthermore, we executed a focused de-risking of our P&C Re casualty business in North America. We continued Corporate Solutions’ exit from North America general liability.
Our underwriting performance was supported by a hardening price environment to compensate for lower interest rates, continued negative loss trends and years of soft markets.
Increasing rates and successful growth in natural catastrophe business helped P&C Re achieve a normalised combined ratio of 96.9%. L&H Re achieved a strong ROE of 10.4%, excluding the impact of COVID-19. This was supported by strict new business underwriting rules and careful capital deployment to disability business. Corporate Solutions delivered on its turnaround plans, with pruning and gross cost reductions largely completed. Together with significant rate increases and low large man-made loss activity, the decisive management actions resulted in a normalised combined ratio of 96.8%.
The pandemic highlighted the need to increase the clarity of reinsurance contracts in order to manage our exposure to complex risk scenarios. We are engaging with clients to improve our insights into their products. This will ensure that all exposures transferred to us are understood and priced for and that we have content clarity in our reinsurance contracts.
An evolving natural catastrophe risk landscape The 2020 hurricane season saw a record number of hurricanes in the North Atlantic and significant insured losses from secondary perils. Severe convective storms, hail and tornados in Australia, Canada and the United States caused USD 36 billion in insured losses for the industry. Wildfires in Australia and in the United States caused total insured losses well exceeding USD 10 billion.
In 2020, we advanced our understanding of the contribution of climate change and other climate conditions to hurricane and typhoon activity. Climate data points to an ongoing elevated hurricane activity level for 2021.
Through our research, we have continued to develop forward-looking models for new and emerging risks. In 2020, this led to significant revisions of underwriting risk views for multiple markets, most notably in Asia. These models allowed us to better reflect emerging risks in our underwriting, addressing the need for sustainable pricing.
Underwriting outlook: data and analytics at the core Underwriting excellence and discipline are the key success factors in a changing insurance landscape. We are evolving our underwriting capabilities through cuttingedge research, while putting emphasis on more and better data, advanced analytics and sharpening the skills of our people.
Underwriting data at an individual contract level and live monitoring that enables real-time underwriting decisions are a cornerstone of our efforts. End-to-end digitisation of our contracts helps us track exposures and review wordings, aided by machine learning. We are strengthening geospatial risk insights for individual locations, risks and policies. These enhancements to our core underwriting will strengthen our portfolio quality further. They will be supported by an increasingly data-driven Target Liability Portfolio, including advanced scenario modelling.
Underwriting discipline and covering the true cost of risk is imperative. Swiss Re is well-equipped to benefit from improving market conditions. We see a confluence of factors working towards further rate increases: growth in insurance demand alongside economic recovery, COVID-19triggered risk awareness and widening protection gaps. We will remain focused on sharper risk assessment, application of tighter terms and conditions and working closely with our clients.
Financial markets and investment strategy The COVID-19 pandemic as well as the ensuing monetary and fiscal policy responses were the key drivers of financial markets in 2020. In February/March, risk assets sold off sharply amid the first wave of COVID-19 infections, the related lockdown measures in many countries and the collapse in economic activity. However, decisive actions by central banks and governments to provide significant amount of stimulus contributed to an impressive recovery in equity and other asset classes that has continued.
Investment result Fundamentally, the portfolio performed well with insignificant impairments alongside gains generated from the fixed income portfolio, as well as market value gains on equity positions.
The Group’s non-participating net investment income was USD 3.0 billion in 2020, compared with USD 4.2 billion in 2019. The decrease was mainly driven by the impact of reinvestment into lower yields and reduced contribution from equity-accounted investments, as well as the absence of the ReAssure portfolio in the second half of the year. The Group’s running yield was 2.4% in 2020, compared with 2.8% in 2019, reflecting the impact from historically low reinvestment yields alongside de-risking actions. A high concentration of unrealised gains on long-maturity fixed income securities supports our running yield’s persistency looking forward.
Our investment portfolio remains well diversified across asset classes and underlying sectors, with an ongoing focus on quality and ESG integration. We look to moderately increase our allocation to private markets, including investments in private debt and private equity, which will further diversify the overall investment portfolio. Subject to market conditions, we also plan to add to our credit and equity allocations.
Additionally, we intend to further increase our focus on thematic investing, in light of a financial market outlook where differentiation within asset classes will become even more key to generating performance. We will also continue our efforts to apply technology, such as big data and smart analytics, across the investment process to enable continued outperformance. Lastly, we remain committed towards responsible investing, having incorporated ESG across the entire investment value chain.
Dividends The Board of Directors proposes a regular dividend of CHF 5.90 per share for 2020. The dividend paid for 2020 will be subject to 35% Swiss withholding tax.
Public share buyback programme On 17 April 2020, shareholders authorized a new public share buyback programme of up to CHF 1 billion purchase value. At the post-AGM meeting, the Board of Directors decided that the share buyback programme will not be launched.
Share price performance Swiss Re shares opened the year at CHF 108.75. An intra-day high of CHF 117.05 was achieved on 19 February 2020. On 19 March 2020, the shares experienced an intra-day low of CHF 52.68. The year-end share price was CHF 83.34.
During 2020, the STOXX Europe 600 Insurance index (SXIP) decreased by 13.8% and the broader index of Swiss blue chips (SMI) increased by 0.8%. The Swiss Re share decreased by 23.3%.
Share trading The average on-exchange daily trading volume for 2020 was 1 million shares. Trading volume peaked at 8 million shares on 30 April 2020.
In line with the Group’s capital management priorities, the Board has decided not to seek approval at the AGM 2021 for a new share buyback programme.
Swiss Re’s 2020 economic result was impacted by COVID-19, partially offset by a strong contribution from investment activities.
The economic result in Reinsurance and Corporate Solutions was impacted by the large losses related to the COVID-19 pandemic, partially offset by strong performance from investment activities.
Economic Value Management (EVM) is Swiss Re’s proprietary integrated economic valuation and steering framework, which consistently measures economic performance across all businesses.
Swiss Re reported a total contribution to economic net worth (ENW) of USD ‒434 million in 2020, compared to USD 2.9 billion in 2019. On a risk-adjusted basis, Swiss Re reported an EVM loss of USD 3.6 billion in 2020, compared to an EVM loss of USD 19 million in 2019.
The strong underlying business performance in 2020, excluding COVID-19-related losses, resulted in economic net worth per share growth of 10.3%.
‒3.6 EVM profit in USD billions, 2020 (2019: USD −19 million)
Group performance The EVM loss of USD 3.6 billion in 2020 reflected the impact of COVID-19 claims and reserves of USD 3.7 billion (COVID-19related impacts disclosed net of expenses, taxes and capital costs). Excluding COVID19 -related impacts, Reinsurance and Corporate Solutions showed strong new business performance.
The EVM profit on new business was USD 9 million in 2020, compared to USD 1.2 billion in 2019. Excluding the COVID-19 claims and reserves of USD 1.2 billion, the 2020 result was driven by strong renewals in Property & Casualty Reinsurance, transactional growth in Life & Health Reinsurance and good underwriting performance in Corporate Solutions. This was partially offset by continued investments in the open book businesses in Life Capital as well as overhead expenses in Group items.
The EVM loss from previous years’ business amounted to USD 4.3 billion in 2020, compared to an EVM loss of USD 3.3 billion in 2019. Excluding COVID-19-related claims and reserves of USD 2.5 billion, the result mainly reflected the adverse impacts of capital cost updates for Life & Health Reinsurance and negative development for the US liability portfolio in Property & Casualty Reinsurance.
Investment activities generated an EVM profit of USD 683 million in 2020, compared to a profit of USD 2.1 billion in 2019. The 2020 result reflected favourable interest rate impacts on a net long duration position and strong real estate performance. The 2019 result was driven by spread tightening on credit investments as well as strong performance across equities and alternative investments.
ENW per share growth amounted to ‒0.1% in 2020, below the over-the-cycle target of 10%. Excluding COVID-19-related claims and reserves the ENW per share growth was 10.3%.
‒434 Total contribution to ENW in USD millions, 2020 (2019: USD 2.9 billion)
Economic net worth per share growth, %1 8.2 −0.1 Profit margin − new business, % 3.0 0.0 Profit margin − previous years’ business, % −14.2 −16.1 Profit margin − investments, % 21.8 5.9 1 ENW per share growth 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).
Business segment performance Property & Casualty Reinsurance reported an EVM loss of USD 2.0 billion in 2020, compared to a loss of USD 1.4 billion in 2019. EVM loss on new business of USD 433 million was driven by COVID-19related claims and reserves of USD 1.2 billion. EVM profit excluding COVID-19-related impacts was USD 720 million with strong renewals from property natural catastrophe and specialty. The casualty business was impacted by lower interest rates, partially offset by volume and profitability improvements. EVM loss on previous years’ business was USD 1.5 billion due to COVID-19-related claims of USD 689 million, US liability experience and assumption updates, large natural catastrophe losses mainly in Australia as well as several man-made loss updates. This was partially compensated by reserve releases for large natural catastrophe losses. Investment activities generated an EVM loss of USD 91 million in 2020, compared to a profit of USD 627 million in 2019. The 2020 loss reflected the impact from declining interest rates on a net short duration position, partially offset by strong real estate performance. The 2019 EVM profit reflected strong performance across equity and alternative investments as well as the impact of credit spread tightening.
Life Capital generated an EVM loss of USD 511 million in 2020, compared to a profit of USD 591 million in 2019. The EVM loss on new business was USD 268 million, mainly driven by expenses for the open books and the running of Life Capital as well as capital costs, which more than offset the gross underwriting result generated by the open books. The EVM loss on previous years’ business was USD 233 million, impacted by a true-up to the gain on the sale of ReAssure mainly driven by an unfavourable movement in the Phoenix share price prior to the sale, underperformance in elipsLife and unfavourable persistency in the closed book US business. Investment activities generated an EVM loss of USD 10 million, compared to a profit of USD 596 million in 2019. The 2020 EVM loss was mainly related to ReAssure with unfavourable performance driven by spread widening on UK credit investments as well as unfavourable performance from the implied equity exposure arising from the unit-linked business. This was partially offset by positive performance of Phoenix shares following the sale of ReAssure and the related hedge as well as the favourable interest rate impacts on a net long duration position in Life Capital.
EVM profit −1 975 −207 −706 −511 −191 −3 590 Total contribution to ENW −714 820 −513 −302 276 −434
Premiums and fees retention rate, % 97.9 97.0 Premiums and fees growth rate, % 30.2 2.7
Other 452 −44 Gross underwriting result – new business 7 123 6 282
Net underwriting result – new business 3 485 2 551 Taxes −607 −573 Capital costs −1 672 −1 970 EVM profit – new business 1 206 9 EVM profit – previous years’ business −3 293 −4 282 EVM profit – underwriting −2 087 −4 274 Investment result Mark-to-market investment result 9 565 8 409 Benchmark investment result −5 645 −6 143
Taxes −810 −469 Capital costs −910 −994 EVM profit – investments 2 068 683 EVM profit −19 −3 590 Cost of debt −841 −259 Release of current year capital costs 2 911 2 443 Additional taxes 881 972 Total contribution to ENW 2 932 −434
Cash and cash equivalents 9 611 5 458 In-force business assets 266 327 318 440
EVM profit – previous years’ business −1 814 −272 −1 081 −137 11 0 −3 293
Profit margin – previous years’ business, %1 −19.5 −2.5 −88.8 −6.9 n/a n/a −14.2 1 The overall previous years’ business profit margin for the Reinsurance Business Unit was –10.4%.
Gross premiums and fees growth rate, % −1.3 9.2 −3.4 16.3 n/a 3.6
Other 14 −13 −34 −3 −8 −44 Gross underwriting result – new business 1 555 3 714 828 193 −8 0 6 282
Capital costs −458 −1 197 −104 −91 −120 −1 970 EVM profit – new business −433 1 046 −98 −268 −238 0 9 EVM profit – previous years’ business −1 451 −1 804 −624 −233 −169 0 −4 282 EVM profit – underwriting −1 884 −758 −723 −501 −407 0 −4 274 Investment result Mark-to-market investment result 2 763 2 891 371 1 694 690 8 409
Cost of debt −40 −71 37 −41 −144 −259 Release of current year capital costs 854 826 137 237 389 2 443
Total contribution to ENW −714 820 −513 −302 276 0 −434
Profit margin – new business, % −2.7 4.6 −4.3 −33.7 n/a n/a 0.0 Profit margin – previous years’ business, %1 −12.7 −14.6 −42.4 −17.3 n/a n/a −16.1 1 The overall previous years’ business profit margin for the Reinsurance Business Unit was –13.7%.
Economic net worth as of 1 January 10 136 14 887 2 306 3 955 4 854 36 138 Change in EVM methodology1 −183 −344 34 −492 Adjusted economic net worth as of 1 January 9 953 14 543 2 341 3 955 4 854 35 646 Total contribution to ENW −714 820 −513 −302 276 −434
• Recognition differences: EVM considers the economic value related to annual management charges on unit-linked funds and adjusts for counterparty credit risk in the valuation of insurance-related net assets. In addition, EVM does not show minority interests on the balance sheet, but consolidates assets and liabilities based on the proportion of the interest held by Swiss Re.
Zurich We have been engaged to perform a reasonable assurance engagement on the Economic Value Management (‘EVM’) financial information of Swiss Re Ltd (the ‘Company’) for the year ended 31 December 2020 (the ‘EVM financial information’). The EVM financial information consists of the income statement, balance sheet, statement of economic net worth and information on business segments as set out on pages 40 to 47 in the Company’s 2020 Annual Report.
All other EVM information included in, or made available outside, the Company’s 2020 Annual Report was not subject to assurance procedures and, accordingly, we express no conclusion on this information.
The reporting criteria used by the Company are described in the summary of significant EVM principles (hereafter referred to as “EVM principles”) as published on the Company’s website (swissre.com/EVM_principles).
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 40 to 47 in the Company’s 2020 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.
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.
In our opinion, the EVM financial information of the Company for the year ended 31 December 2020 as set out on pages 40 to 47 is 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).
Swiss Re maintained its very strong capital position in 2020 despite the impact of COVID-19, while successfully deploying capital to attractive risk pools.
The Group’s capital position remains very strong with a Group SST ratio of 215% as of 1 January 2021, compared with a target range of 200–250%. This is supported by our diversified business model and disciplined risk-taking.
The strength of our business model allows us to continue to offer an attractive dividend even in these unprecedented times.
Swiss Re also provides FINMA, its principal regulator, with a yearly report on its liquidity position, in accordance with FINMA Circular 13/5, “Liquidity — Insurers”.
The Group’s risk-taking is steered by Swiss Re’s Risk Appetite Framework, which consists of two interlinked components: risk appetite and risk tolerance. The risk appetite statement facilitates discussions about where and how Swiss Re should deploy its capital, liquidity and other resources under a risk/return view. The risk tolerance sets clear boundaries to risk-taking.
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 European Economic Area (EEA) and the United Kingdom.
The increase in property and casualty risk is mainly driven by a rise in non-life claims inflation risk reflecting the heightened probability of extreme inflation outcomes, as well as an increase in costing and reserving risk mainly due to COVID-19related reserves.
Higher life and health risk mainly reflects the business growth in Asia and the US, resulting in higher exposure to mortality trend, lethal pandemic and critical illness risk.
Swiss Re’s capital position remains very strong, demonstrating resilience to large losses and market volatility.
Swiss Re’s capital management priorities aim to ensure the ability to continue operations following an extremely adverse year of losses from insurance and/or financial market events. Swiss Re’s Board of Directors has also defined an SST capitalisation target range of 200–250% for the Swiss Re Group.
Despite a challenging year, Swiss Re Group maintains a very strong solvency level of 215% in SST 2021. The decrease of 17pp compared to SST 2020 is mainly driven by COVID-19-related claims and reserves, the significant decline in interest rates and higher financial market volatilities. These effects are partly offset by the sale of ReAssure Group Plc, a positive investment and underwriting performance (excluding COVID-19) and higher supplementary capital.
SST risk-bearing capital – market value margin 41 873 41 504 –370
• The Life & Health Reinsurance positive contribution reflects profitable transactional business growth across all regions, in particular in EMEA, mainly due to large longevity transactions, as well as life transactions in the Americas. This is partly offset by losses related to COVID-19 mainly driven by higher incurred and expected mortality claims in the US and the UK as well as higher disability claims mainly in Australia.
• The Corporate Solutions negative contribution mainly reflects losses related to COVID-19. This is partly offset by management actions taken to improve profitability and by low large man-made loss activity.
Positive foreign exchange movements are driven by the appreciation of major currencies against the US dollar.
Dividend payments and the completion of the last tranche of the 2019 share buyback programme resulted in a decline in the SST NAV of USD 2.0 billion. No share buyback programmes have been launched after Q1 2020 following the BoD decision of the post-AGM 2020 meeting.
Supplementary capital is recognised as risk bearing under SST. The change in SST supplementary capital of USD 1.7 billion mainly reflects the issuance of two new subordinated debt instruments.
Since SST 2020, two major model changes have been implemented; both changes were approved by FINMA in October 2020: • Market value margin – To improve market consistency and more adequately reflect differences between interest rates of different currencies, two changes have been made: discounting in original currencies and using forward rates to discount to future years. These changes reduce the MVM and increases the Group’s SST ratio.
To derive SST TC, total risk is adjusted for the line item Other impacts as shown below.
Capital returned to shareholders since 2013 14.4 Reinsurance P&C 4.4 Reinsurance L&H 1.8 Corporate Solutions 5.7 Life Capital
14.4 Reinsurance P&C 4.4 Reinsurance L&H 1.8 Corporate Solutions 5.7 Life Capital
USD21.7bn distribution to shareholders2 1 Principal Investments has paid to the Group dividends of USD 1.7 billion between January 2013 and December 2020. 2 Reflects total external dividend and public share buyback programmes between January 2013 and December 2020.
Rating agencies Rating agencies assign credit ratings to the obligations of Swiss Re and its rated subsidiaries. The agencies evaluate Swiss Re based on a set of criteria that include an assessment of our capital adequacy, governance and risk management. Each rating agency uses a different methodology for this assessment.
A.M. Best, Moody’s and S&P rate Swiss Re’s financial strength based upon interactive relationships. The insurance financial strength ratings are shown in the table below.
On 25 November 2020, S&P affirmed the AA– financial strength of Swiss Re and its core subsidiaries. The outlook on the rating is “negative”. The rating reflects Swiss Re’s very strong capital adequacy, its excellent franchise and diversified product suite across non-life and life reinsurance.
On 17 July 2020, A.M. Best confirmed the Group Swiss Re financial strength Rating of A+ (Superior) with stable outlook. The rating reflects A.M. Best’s assessment of Swiss Re’s balance sheet strength as “strongest”, strong operating performance, very favourable business profile and very strong enterprise risk management.
As of 31 December 2020 Financial strength rating Outlook Last update
Standard & Poor’s AA– Negative 25 November 2020 Moody’s Aa3 Stable 6 May 2020 A.M. Best A+ Stable 17 July 2020
Finance (UK) Plc was substituted as the issuer of the EUR 750 million senior notes due 2023 in place of Swiss Re Finance (Jersey) Ltd following a noteholder consent process. The notes are guaranteed by Swiss Re Ltd.
• In September 2020, Swiss Reinsurance Company Ltd exercised its option to early redeem its CHF 175 million subordinated contingent write-off notes.
As of 31 December 2020, the Group’s total leverage ratio was 24%.
Liquidity position of Swiss Reinsurance Company Ltd (SRZ) From a liquidity perspective, SRZ is the most important legal entity of the Group. The estimated total liquidity sources in SRZ available within one year, after haircuts and net of short-term loans from Swiss Re Ltd and securities lending, amounted to USD 26.7 billion as of 31 December 2020, compared with USD 21.7 billion as of 31 December 2019. Based on the internal liquidity stress tests described above, we estimate that SRZ holds surplus liquidity after dividends to Swiss Re Ltd.
Risk Management provides independent oversight and applies an integrated approach to managing current and emerging risks.
Embedded throughout the business, the Group Risk Management function ensures an integrated approach to managing current and emerging threats. Risk Management plays a key role in business strategy and planning discussions, where Swiss Re’s risk appetite framework facilitates risk/return discussions and sets boundaries to Group-wide risk-taking.
Swiss Re applies a differentiated governance approach at the legal entity level, depending on the materiality of individual entities. Major legal entities within the Group that are designated as so-called “Level I entities”, are subject to enhanced governance, which includes the following requirements: • Develop and maintain corporate and risk governance documentation that governs the responsibilities of the legal entity Board, committees and management
• Establish an Audit Committee as well as a Finance and Risk Committee to support the legal entity Board in performing its oversight responsibility for risk and capital steering
Risk governance documentation Swiss Re’s risk management framework is set out in risk governance documentation at Group and legal entity level. Risk governance is the subset of corporate governance that describes the risk management framework and documents risk management practices. Group-level risk documents form the basis for all risk governance across Swiss Re. Additional risk governance for legal entities is prepared as an addendum to the Group or parent entity document.
Group risk governance documents are organised hierarchically across five levels, which are mirrored by equivalent documents at legal entity (LE) level: • The Bylaws define Swiss Re’s governance framework and include the responsibilities of the Board of Directors and the Group Executive Committee and their members, including the responsibilities related to risk management.
• The Group Risk Policy is defined by the Group Board and articulates Swiss Re’s risk appetite framework (risk appetite and tolerance) as well as fundamental risk and capital structure principles.
Key risk management principles Swiss Re’s risk management is based on four fundamental principles. These apply consistently across all risk categories at Group and legal entity level: • Controlled risk-taking – Financial strength and sustainable value creation are central to Swiss Re’s value proposition. The Group thus operates within a clearly defined risk policy and risk control framework.
• Independent risk controlling – Dedicated units within Risk Management control all risk-taking activities. These are supported by Compliance and Group Internal Audit functions.
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
Swiss Re’s risk culture provides the foundation for the efficient and effective application of its Group-wide risk management framework. Group Risk Management reinforces the risk culture by ensuring risk transparency and fostering open discussion and challenge in the Group’s risk-taking and risk management processes.
Key risk takers across Swiss Re are a particular focus in promoting good risk- and control-related behaviours. The relevant positions are identified in a regular process, and those who hold them are subject to additional behavioural objectives and assessments.
Organisation of risk management The Board of Directors of Swiss Re Ltd (the Group Board) is ultimately responsible for Swiss Re’s overall risk governance principles and policies. It defines basic risk management principles and the risk appetite framework, including the Group’s risk appetite and risk tolerance; in addition, it approves the Group’s risk strategy. The Group Board mainly performs risk oversight and governance through three committees: • Finance and Risk Committee − defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews top risk issues and exposures.
Central Risk Management units • Oversight of financial market, credit and liquidity risk • Shared risk expertise: risk modelling and governance, as well as political, sustainability and emerging risks
Group Internal Audit • Independent risk controller • Assesses adequacy and effectiveness of internal control systems
• Risk identification – ensures that all risks to which Swiss Re is exposed are transparent in order to make them controllable and manageable.
• Risk measurement – enables Swiss Re to understand the magnitude of its risks and to set quantitative controls that limit its risk-taking.
To meet the first objective, the Risk Policy defines respectability limits to ensure that the Group has enough resources to meet capital requirements at Group level as well as respectability and liquidity requirements for all legal entities. These limits ensure that Swiss Re has adequate capital and liquidity above minimum requirements to be considered a respectable counterparty by external stakeholders. To meet the second objective, Swiss Re's risk tolerance criteria includes resilience limits for SRZ to ensure that the main operating entity is able to withstand capital and liquidity stresses. To meet the third objective, the Group has established a Group-wide risk matrix methodology in which key operational risks are assessed against an acceptable level of expected losses. Any operational risk exposure that exceeds the Group’s operational risk tolerance limit is subject to a mitigation plan that is monitored by the Group's Finance and Risk Committee.
The risk tolerance respectability criteria for the Swiss Re Group are set out in the Group Risk Policy. The Group and SRZ Boards are responsible for approving the risk tolerance criteria, as well as for monitoring and reviewing risk tolerance. Breaches or anticipated breaches of limits established to control the risk tolerance criteria must be communicated to the Finance and Risk Committee.
In SST 2021, total risk increases to USD 22.4 billion driven by higher insurance risk, offset partly by lower financial market and credit risk.
Swiss Re is exposed to insurance and financial risks that are calculated in its internal risk model, as well as other risks that are not explicitly part of the economic capital requirement but are actively monitored and controlled due to their significance for Swiss Re. These include operational, liquidity, model, valuation, regulatory, political, strategic and sustainability risks (see Swiss Re’s risk landscape, p. 68).
Total risk is based on 99% tail value-at-risk (tail VaR) and represents the average unexpected loss that occurs with a frequency of less than once in 100 years over a one-year time horizon.
Total risk increases to USD 22.4 billion driven by higher insurance risk, offset partly by lower financial market and credit risk. The higher weight of insurance risk leads to increased diversification at risk category level.
Property and casualty 11 708 12 895 1 187 see page 70 Life and health 9 857 11 852 1 996 see page 71 1 Credit comprises credit default and credit migration risk from both asset management and underwriting. Credit spread risk falls under financial market risk.
Swiss Re’s internal risk model takes account of the accumulation and diversification between individual risks. The effect of diversification at the category level is demonstrated in the table above, which represents the difference between the Group 99% tail VaR and the sum of standalone tail VaR amounts in the individual risk categories. The extent of diversification is largely determined by the selected level of aggregation – the higher the aggregation level, the lower the diversification effect.
• Life and health insurance risk arises from coverage provided for mortality (death), longevity (annuity) and morbidity (illness and disability). 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.
The risk landscape also includes other risks that are not explicitly part of the Group’s economic capital requirement but are actively monitored and controlled due to their significance for Swiss Re: • Liquidity risk represents the possibility that Swiss Re will not be able to meet expected and unexpected cash flow and collateral needs without affecting either daily operations or Swiss Re’s financial condition.
• 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.
Financial market • Credit spread • Equity • Foreign exchange • FM inflation • Interest rate • Real estate
Life & Health • Lethal pandemic • Mortality trend • Longevity • Critical illness • Income protection • Lapse
• Political risk comprises the consequences of political events or actions that could have an adverse impact on Swiss Re’s business or operations.
• Valuation risk represents uncertainty around the appropriate value of assets or liabilities. It may arise from product complexity, parameter uncertainty, quality and consistency of data, valuation methodology, or changes in market conditions and liquidity. Swiss Re is exposed to financial valuation risk from investment assets it holds as well as reserve valuation risk from insurance liabilities that result from the coverage it underwrites.
Risk developments Higher life and health risk mainly reflects the business growth in Asia and the US, resulting in higher exposure to mortality trend, lethal pandemic and critical illness risk. The increase is further driven by the impact of lower interest rates and the appreciation of the Canadian dollar and the British pound against the US dollar.
Costing actuaries represent the first line of control for life and health risks. All transactions that could materially change risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they can be authorised. This is part of a three-signature principle, under which key transactions must be approved by Client Markets, Products and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through a review of the individual transaction.
Atlantic hurricane 5 826 Californian earthquake 4 739 European windstorm 2 345 Japanese earthquake 4 101 Lethal pandemic 3 616 1 Excluding the impact of earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event.
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 decreases mainly due to the sale of ReAssure Group Plc and the increase in credit hedges.
Management Credit risk is monitored and controlled by experts within the Financial Risk Management team. Financial Risk Management regularly monitors and reports on counterparty credit quality, credit exposures and limits. In addition, it is responsible for regularly monitoring corporate counterparty credit quality and exposures, and for compiling watch lists of cases that merit close attention. These reports are presented and discussed with those responsible for the relevant business line at the Credit Council.
Credit risks are aggregated by country in order to monitor and control risk accumulation to specific risk drivers, such as economic, sovereign, and political risks.
Among financial market sensitivities, the Group is most sensitive to a 50-basis point decrease in interest rates, leading to an estimated decrease in the SST ratio of 14 percentage points.
Operational risk is inherent within Swiss Re’s business processes. As the company does not receive an explicit financial return for such risks, the approach to managing operational risk differs from the approach applied to other risk categories. The purpose of Operational Risk Management is not to eliminate risks but rather to identify and cost-effectively mitigate operational risks that approach or exceed Swiss Re’s tolerance.
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 relevant CRO and reported to the company’s management team and Board of Directors.
Strategic risk Overall responsibility for managing strategic risk lies with the Group Board, which establishes Swiss Re’s overall strategy. The Boards of legal entities are responsible for the strategic risk inherent in their specific strategy development and execution. Strategic risks are addressed by examining multi-year scenarios, considering the related risks, as well as monitoring the implementation of the chosen strategy year by year in terms of the annual business plan.
Regulatory risk Regulatory developments and related risks that may affect Swiss Re and its subsidiaries or branches are identified, assessed and monitored as part of regular oversight activities. Swiss Re is actively engaged in a dialogue with relevant regulators to improve mutual understanding of the implications arising from new regulatory proposals. Periodic reports and recommendations on regulatory issues are provided to executive management and the Board of Directors at Group and legal entity level.
The regulatory environment of the insurance industry continues to evolve on the national, regional 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.
Several regulators, particularly in Europe and Asia, have developed specific expectations of how climate risks should be managed and are translating these expectations into concrete regulations. New climate-related regulations are expected, even in jurisdictions which have thus far been hesitant to act. Swiss Re supports such measures and will continue to advocate for a harmonised and gradual implementation of these requirements in line with international standards, such as those recommended by the Financial Stability Board Task Force for Climaterelated Financial Disclosure (TCFD), in order to avoid regulatory fragmentation and improve comparability.
Dedicated political risk analysts identify, monitor, and assess political developments across the world. Swiss Re’s political risk experts also exercise oversight and control functions for named political risks, such as in the political risk insurance business; this includes monitoring political risk exposures, providing recommendations on particular transaction referrals and risk reporting. In addition, the Political Risk team provides specific country ratings that cover political, economic and security-related country risks; these ratings complement sovereign credit ratings and are used to support risk control activities and inform underwriting or other decision-making processes throughout the Group.
In addition to identifying and assessing the impact of political risk on its business, the Group seeks to raise awareness of political risk issues within the industry and among the broader public, through active dialogue with clients, the media and other stakeholders. The Group also builds relationships that expand its access to information and intelligence, and allow Swiss Re to further enhance its methodologies and standards. For example, Swiss Re participates in specialist events hosted by institutions such as industry and risk management associations, and maintains relationships with political risk specialists in other industries, think tanks and universities, as well as with governmental and non-governmental organisations.
Swiss Re continues to operate in the UK mainly through the UK branches of its Luxembourg entities. From 1 January 2021, Swiss Re’s UK branches are operating under the UK’s Temporary Permissions Regime which, subject to certain conditions, allows third country branches to carry on insurance and reinsurance business in the UK until licences are granted by UK regulators. Applications for licenses for third country branches have been submitted and Swiss Re is in regular contact with the UK’s Prudential Regulatory Authority to progress the applications.
Valuation risk Financial valuation risk is managed by internal and external portfolio managers, who ensure that valuations remain in line with the market. In addition, Swiss Re has a function within Financial Risk Management that independently assesses valuations and valuation techniques; this team performs independent price verification for financial risk positions to confirm that valuations are reasonable and ensure there are no material misstatements of fair value in Swiss Re’s financial reports. The results of the independent price verification process are reviewed by the Asset Valuation Committee. Summary results are regularly reported to executive management and the Board of Directors at Group and legal entity level. In addition, Swiss Re’s external auditor conducts quarterly reviews as well as a comprehensive year-end audit of controls, methodology and results.
Reserve valuation risk is managed by Swiss Re’s Actuarial Control function, with dedicated teams for property and casualty, and for life and health valuations. These teams ensure that Swiss Re’s reserve setting process uses an appropriate governance framework, including defined accountabilities and decision-making processes for risk takers (as the first line of control) as well as for Actuarial Control. The framework ensures that there is independent assurance on the data, assumptions, models and processes used for valuation purposes; for all property and casualty business and selected life and health portfolios, it also includes an independent valuation of coverage provided to ensure that reserves are within an adequate range. Regular deep-dive investigations are performed into selected portfolios in order to review the appropriateness of both the reserves and the applied reserving approach. In addition, Swiss Re’s external auditor conducts quarterly reviews as well as a comprehensive year-end audit of controls, methodology and results.
As a signatory of the Paris Pledge for Action, the Group reinforced its support by committing to reach net-zero emissions for our insurance and investment portfolios by 2050 and for our own operations by 2030. Swiss Re is developing a methodology to assess the carbon footprint of our underwriting business. This will serve as a basis for carbon risk steering and will support Swiss Re and our clients in their transition. In this context, Swiss Re has contributed to a CRO Forum publication on methodologies to measure and eventually disclose the carbon footprint of insurance portfolios.
To further advance risk awareness across the industry and beyond, Swiss Re maintains regular exchanges on emerging risks with its clients and continues to participate actively in strategic risk initiatives such as the CRO Forum’s Emerging Risk Initiative and the International Risk Governance Council.
Potential business impact Edge computing can lead to an increased cyber risk for the devices themselves but also to the network they are connected to. Heightened exposure can be a result of poor implementation and maintenance of edge computing devices. Such devices may not be designed and operated following the same security principles as for an e-banking system or a smartphone. The security focus on Operational Technology is still not the same as on Business IT. This emerging cyber risk is relevant to Swiss Re both as an operational threat and as a subject for insurance and reinsurance solutions for clients.
Potential business impact The insurance sector is exposed to transition risks which may arise as a result of policy, legal, technology and market changes that are required to facilitate the transition to a low-carbon economy. For insurers and reinsurers, investment risks arising from this transition are mainly linked to the potential re-pricing of carbon-intensive financial assets, and the speed at which any such re-pricing might occur. To a lesser extent, insurers and reinsurers may also need to adapt to potential impacts on insurance resulting from, for example, reductions in insurance premium volumes from carbonintensive sectors or coverage of new technologies without established loss histories, which may increase uncertainties in lines of business such as property and engineering.
Mitigation measures Swiss Re is taking proactive measures to reduce potential business impacts on our investment and insurance portfolios, for example, reducing exposure to assets with the potential to be stranded in carbonintense energy infrastructure (eg thermal coal). More generally, climate change requires global risk mitigation actions and Swiss Re is dedicated to supporting decarbonisation pathways. Swiss Re underwrites renewable energy risk and is actively adapting existing products, as well as developing new risk transfer solutions. A new focus area for the future will be the risk cluster related to innovations in carbon removal which will be an integral part of reaching net-zero.
For more information about emerging risk, see the Swiss Re SONAR report.
Prolonged large-scale power blackout Long-lasting power blackouts can be triggered by natural catastrophes (eg solar storms), and intentional (eg cyber risk) or unintentional man-made events. Power blackout becomes more likely as energy grids are increasingly operating at capacity limits and are not always well maintained. Adding to the complexity and interdependency are alternative energy supplies and the digitisation of parts of the grid interacting with older installed infrastructure. All of these can trigger or exacerbate power blackouts.
Mitigation measures Swiss Re actively addresses prolonged power blackout risk through scenario assessment to estimate the potential business impact. As an example of such a scenario assessment, Swiss Re looked at direct and indirect loss potentials from a long-duration power blackout in the US triggered by a solar storm. Enriched by findings from vulnerability assessments for the US energy industry, as well as from internal exposure data, this also provided insights for underwriting.
Swiss Re maintains a risk dialogue with governmental bodies, power suppliers and other stakeholders to discuss power blackout risk and potential mitigation measures. Considerations include preventive measures, possibilities for public-private partnerships to create insurance pool solutions and other approaches to improve resilience.
COVID-19 Governance Swiss Re has navigated the crisis very successfully and ensured seamless continuity of business operations. To address the crisis, the Board of Directors and its Board committees increased the frequency of their meetings, demonstrating their commitment to decisive leadership and providing critical support for the Group Executive Committee (Group EC). The Board of Directors received regular updates on the spread of the pandemic, its impact on Swiss Re’s employees, operations and business, as well as the mitigating efforts put in place. The Board of Directors was informed of how management handled the evolving pandemic and its effect on client interactions, writing new business and managing claims, as well as the many reporting necessities. The Board committees dealt with COVID-19-related topics based on their respective competencies and responsibilities. Their tasks are described in the section on the Board committees (see page 98). Swiss Re’s Group Crisis Management Team (GCMT), under the lead of the Group CRO and the Group COO as deputy, held weekly meetings between February and May 2020. The GCMT is composed of Group EC members (Group CFO, Group CIO, Group CUO, Group HRO, Group CLO) as well as further senior management members, such as the Head Group Communications, Head Investor Relations and Head IT. The GCMT took the lead in developing and coordinating the implementation of business continuity measures across the Swiss Re Group to protect the health and safety of our employees. Measures included work-fromhome protocols, guidelines on travel and the closure of our premises. Coordination was handled through local incident management teams. The GCMT reported to the Group EC after each of its meetings. Beginning in May, the Group EC held regular calls to address pandemic-related matters. GCMT and Group EC directives and actions were in line with the recommendations and guidelines set by the Swiss Federal Council and Switzerland's Federal Office of Public Health and all local directives.
The Board of Directors’ dedicated commitment and strong leadership are key to navigate through a crisis.
Cyber Risk The cyber threat landscape is constantly evolving, and Swiss Re’s Board of Directors continues to closely monitor the company’s cyber threat resilience. The Board of Directors were updated on important cyber security developments, in particular the increase of Covid-19 related attacks across the globe and the wide-ranging SolarWinds cyber incident. Swiss Re’s IT infrastructure and cyber defence measures proved to be resilient and no breaches were reported. Besides the ever-changing cyber threat landscape, Swiss Re’s exposure and digital footprint is expanding due to our digitalisation efforts, the move of critical business applications to the cloud and our business transformation with the development of new markets and new innovative products. The Finance and Risk Committee received an in-depth report on cloud security with the focus on protecting Swiss Re and client data related to public cloud services. In April 2020 the Finance and Risk Committee also reviewed the annual cyber risk assessment report, which evaluates Swiss Re’s cyber risk exposure and cyber threat resilience. The regular re-assessment enables the Board members to understand how well the company’s assets are protected against the evolving risks of intrusions, data breaches, and loss of access. Members of the Finance and Risk Committee regularly share their cyber expertise with Management and the topic of cyber risk remains a standing item on the Finance and Risk Committee agenda. The company’s cyber risk strategy will continue to be a key focus area for the Board and its Committees.
• The Compensation Committee establishes and reviews the compensation framework, guidelines and performance criteria. Performance criteria include sustainability-related topics.
• The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews all top risk issues and exposures, including those with a specific sustainability dimension.
• The Group Chief Investment Officer (Group CIO) is responsible for ensuring consistent integration of ESG aspects across the investment process. The Group CIO is responsible for investment decisions within the Strategic Asset Allocation implementation, including those related to responsible investing, and is informed of ESG updates through various channels, including the Asset Management Investment Committee.
Swiss Re’s Corporate Governance Framework The Board of Directors has ultimate responsibility for the success of Swiss Re Ltd and the Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of Swiss Re Ltd and the Group and of the Group EC, as well as for supervising compliance with applicable laws, rules and regulations. Such responsibilities cannot be delegated and therefore rest with the entire Board. The Board of Directors has delegated the management of Swiss Re Ltd and the Group to the Group EC.
This corporate governance framework ensures sustainability, fosters transparency and facilitates a quality assessment of the Swiss Re Group’s organisation and business.
Swiss Re’s corporate governance adheres to: • The SIX Swiss Exchange’s Directive on Information Relating to Corporate Governance (including its annex) dated 20 June 2019, effective as of 2 January 2020.
Swiss Re’s corporate governance also complies with applicable local rules and regulations in all jurisdictions where it conducts business.
For Swiss Re’s governance documents please visit: Group Code of Conduct files.swissre.com/codeofconduct/
Key Focus Area 2020/2021 Changes to the Group structure The Business Unit Life Capital, which combined the closed book business of ReAssure with the open book businesses of elipsLife and iptiQ, was disbanded by the end of December 2020, following the completion of the sale of ReAssure to Phoenix Group Holdings plc. Effective 1 September 2020, the CEO Life Capital ceased to be a member of the Group Executive Committee. The Business Unit Corporate Solutions assumed responsibility for elipsLife as of 1 October 2020, which provides life and health insurance solutions and services for corporate clients, allowing it to better leverage this Business Units relationships with corporates and brokers. Swiss Re’s white-labelling digital insurance platform iptiQ became a standalone division reporting to the Group CEO, effective 1 January 2021, enabling a greater focus on this business.
On 25 September 2020, we announced that we would further streamline the legal entity structure of the Swiss Re Group. Swiss Re intends to reorganise the legal entity structure of its Corporate Solutions Business. As part of the changes, Swiss Re intends to make Swiss Reinsurance Company Ltd the sole direct wholly-owned operating subsidiary of Swiss Re Ltd. Swiss Reinsurance Company Ltd would in turn have separate holding companies for the Reinsurance and Corporate Solutions Business Units, as well as the Division iptiQ. The streamlining of the Group’s legal entity structure will not change the fact that these businesses continue to operate independently. It is expected that the target legal entity structure will be implemented by the end of 2021, subject to receipt of the required regulatory approvals.
* The Group CLO reports with a dual reporting line to the Group CEO and the Group COO. ** Group Legal is not a Group Function. *** Disbanded at the end of December 2020. Effective 1 January 2021: Division iptiQ. For more details please refer to page 83.
Information on its market capitalisation is provided on pages 32–33 of this Financial Report. No other Group companies have shares listed. More information on the Group companies is provided in Note 20 to the Group financial statements on pages 278–280.
Legal structure — listed and non-listed Group companies Swiss Re Ltd, the Group’s holding company, is a joint stock company, listed in accordance with the International Reporting Standard on SIX Swiss Exchange (ISIN CH0126881561, Swiss Security Number 12688156), domiciled at Mythenquai 50/60 in 8022 Zurich, and organised under the laws of Switzerland.
As of 31 December 2020 Shareholders in % Shares in %
Capital As a result of the cancellation of shares repurchased under the share buy-back programme that was completed on 18 February 2020, the fully paid-in share capital of Swiss Re Ltd as of 31 December 2020 amounted to CHF 31 749 730.60. It is divided into 317 497 306 registered shares, each with a par value of CHF 0.10.
Conditional and authorised capital in particular Conditional capital for Equity-Linked Financing Instruments The conditional capital of Swiss Re Ltd as of 31 December 2020 amounts to CHF 5 000 000, permitting the issuance of a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, corresponding to 15.74% of the existing share capital.
Authorised capital The authorised capital of Swiss Re Ltd as of 31 December 2020 amounts to CHF 8 500 000. The Board of Directors is authorised to increase the share capital of the company at any time up to 17 April 2021 through the issue of up to 85 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, corresponding to 26.77% of the existing share capital.
For more information on the terms and conditions of the conditional capital and the authorised capital please refer to articles 3a and 3b of the Articles of Association. The Articles of Association are available at: www.swissre.com/articlesofassociation
In line with the requirements of article 733 of the Swiss Code of Obligations, this reduction of the ordinary share capital was published in the Swiss Gazette of Commerce (Schweizerisches Handelsamtsblatt) on 28 July 2020.
Changes in previous years Information about changes in share capital of Swiss Re Ltd as well as of our former parent company Swiss Reinsurance Company Ltd for earlier years is provided in the Annual Reports of these companies for the respective years. For details please visit: www.swissre.com/investors/financialinformation. html
Shares All shares issued by Swiss Re Ltd are fully paid-in registered shares, each with a par value of CHF 0.10. Each share carries one vote. The shares rank equally among each other in all respects (including in respect of entitlements to dividends and liquidation proceeds). There are no categories of shares with a higher or limited voting power, privileged dividend entitlement or any other preferential rights, nor are there any other securities representing a part of the company’s share capital.
The company cannot exercise the voting rights of treasury shares. As of 31 December 2020, shareholders had registered 174 237 358 shares with the share register for the purpose of exercising their voting rights, out of a total of 317 497 306 shares issued.
Convertible bonds and options Convertible bonds As of 31 December 2020, 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.
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 a conversion price of USD 106.6067 (adjusted from the initial exchange price of USD 115.2593 and the subsequently adjusted exchange price of USD 111.6987). The exchange price is subject to further 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 to the financial statements on page 302 of this Financial Report. Assuming all of the notes were exchanged at the request of noteholders, 4 690 136 registered shares of Swiss Re Ltd would have to be delivered (corresponding to 1.48% of the existing share capital).
Members of the Board of Directors According to Article 14 of the Articles of Association, the Board of Directors of Swiss Re Ltd, the holding company of the Group, shall consist of at least seven members. As of 31 December 2020, the Board of Directors consisted of the following members: Name Nationality Age Initial election
Renato Fassbind (Vice Chairman, Lead Independent Director) Swiss 65 2011 Raymond K.F. Ch’ien Chinese 68 20081
Sergio P. Ermotti Swiss 60 2020 Karen Gavan Canadian 59 2018 Joachim Oechslin Swiss 50 2020 Deanna Ong Singaporean 49 2020 Jay Ralph American, Swiss 61 2017 Joerg Reinhardt German 64 2017 Philip K. Ryan American 64 2015 Sir Paul Tucker British 62 2016 Jacques de Vaucleroy Belgian 59 2017 Susan L. Wagner American 59 2014 Larry Zimpleman American 69 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.
Trevor Manuel South African 64 2015 Eileen Rominger American 66 2018
For the biographies of former Board members, please refer to: www.swissre.com/formerboardmembers
Felix Horber, attorney-at-law, has been Group Company Secretary of Swiss Re since 2007. He holds a PhD in Law and an Executive Master in European and International Business Law. He is a Certified Director for Board Effectiveness and a Lecturer in Law at the University of St. Gallen (HSG), Switzerland.
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 a 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 a member of the Executive Board of Credit Suisse Group Ltd.
Sergio P. Ermotti Member, non-executive and independent Born: 1960 Nationality: Swiss
Professional experience Sergio P. Ermotti was Group Chief Executive Officer and a member of the Group Executive Board of UBS Group from 2011 to 31 October 2020. Before joining UBS, he was Head of the Markets & Investment Banking Division as of December 2005, and Group Deputy Chief Executive Officer from 2007 to 2010 at UniCredit Group, responsible for Corporate and Investment Banking and Private Banking. Between 1987 and 2004, he held various positions at Merrill Lynch & Co. in the areas of equity derivatives and capital markets. He became Co-Head of Global Equity Markets and a member of the Executive Management Committee for Global Markets & Investment Banking in 2001.
• Master of Science in Mathematics, Swiss Federal Institute of Technology (ETH), Zurich, Switzerland
Professional experience Deanna Ong has been Chief People Officer and a member of the Group Executive Committee at GIC, a sovereign wealth fund established by the Government of Singapore, since 2017, and Managing Director since 2008. Deanna Ong joined GIC in 1994 and held various finance roles covering public and private market assets until 2009. From 2009 to 2014, she was Director Finance, responsible for financial management across GIC’s portfolio. In 2012, she also took on responsibility for Human Resources & Organisation and Corporate Governance. Prior to joining GIC, she was a tax accountant with Arthur Andersen & Co.
External mandates • Board member of the International Forum of Sovereign Wealth Funds
Jay Ralph was elected to the Board of Directors of Swiss Re Ltd in 2017. He is a member of the Finance and Risk Committee and the Investment Committee.
Professional experience Jay Ralph was a member of the Board of Management of Allianz SE from 2010 to 2016, where he also served on a number of boards of directors of Allianz SE subsidiaries. He was Chief Executive Officer of Allianz Re from 2007 to 2009 and President and Chief Executive Officer of Allianz Risk Transfer from 1997 to 2006. Before joining Allianz, he was an auditor at Arthur Andersen & Co., Investment Officer at Northwestern Mutual Life Insurance Company, President at Centre Re Bermuda Ltd and a member of the Executive Board of Zurich Re.
O’Keeffe Museum Board of Trustees and member of the O’Keeffe Innovations Board
Joerg Reinhardt was elected to the Board of Directors of Swiss Re Ltd in 2017. He is a member of the Nomination Committee and the Compensation Committee.
Professional experience Joerg Reinhardt has been Chairman of the Board of Directors of Novartis since 2013. He was Chairman of the Board of Management and the Executive Committee of Bayer HealthCare AG from 2010 to 2013 and, prior to that, held various executive positions at Novartis. He was Chief Operating Officer from 2008 to 2010, headed the Vaccines and Diagnostics Division from 2006 to 2008 and held a number of other senior roles, primarily in research and development, in the preceding years. Joerg Reinhardt started his career at Sandoz Pharma Ltd, a predecessor company of Novartis, in 1982.
External mandates • Chairman of the Board of Directors of Novartis Inc.* • Chairman of the Board of Trustees of the Novartis Foundation * Listed company
Professional experience Jacques de Vaucleroy was a member of the Management Committee of AXA Group from 2010 to 2016, serving as Chief Executive Officer for North, Central and Eastern Europe and Chief Executive Officer of Global Life & Savings. He also held a number of positions in boards of directors and supervisory boards of AXA companies. Before that, he spent 24 years at ING, where he held senior roles in banking, asset management and insurance. He was a member of the Executive Board of ING Group from 2006 to 2009, in charge of insurance and asset management in Europe.
External mandates • Chairman of Kazidomi SRL • Board member of Colt Technology
Services Group plc, Fidelity International Limited, Eight Roads Holdings Limited and Zabka Polska SA
• 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. Previously, Susan L. Wagner served as Chief Operating Officer, Head of Strategy and Corporate Development, and Head of the Alternative Investment 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.
Independence At least three-quarters of the members of the Board of Directors must be independent members. Swiss Re Ltd defines independence 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 five years, employed as a member of the Group EC, or by any subsidiary of the Group, or may not have a material relationship with any part of the Group (either directly or as a partner, director or shareholder of an organisation that has a material relationship with the Group) other than serving as an independent board member in any subsidiary. In addition, the 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. The Board members annually need to confirm that they meet additional criteria.
For an overview on all the independence criteria that apply to our Board members please refer to: www.swissre.com/board-independence
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 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 decisionmaking 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 CLO, or in his absence to the Group Chief Compliance Officer (Group CCO). The Group CLO (or in his absence the Group CCO) ensures that such a reported conflict of interest is dealt with accordingly.
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 Ltd’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, or represents a company or organisation that has, any significant business connections with Swiss Re Ltd or any of the Group companies, other than as disclosed in Note 18 to the Group financial statements on page 276 of this Financial Report.
Other mandates, activities and functions Article 26 of the Articles of Association governs the requirements regarding the external mandates held by Board members. The Articles of Association are availabe under: www.swissre.com/ articlesofassociation
All Board members comply with the requirements on external mandates set out in the Articles of Association. Any activities of Board members 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 directors’ biographies, which can be found on pages 89–93.
Changes in 2020 Sergio P. Ermotti, Joachim Oechslin and Deanna Ong were elected as new members to the Board of Directors by the shareholders at the Annual General Meeting, which took place in Zurich on 17 April 2020. Trevor Manuel and Eileen Rominger did not stand for re-election. The Annual General Meeting 2020 re-elected Walter B. Kielholz for a one-year term of office as a member and Chairman of the Board of Directors. Renato Fassbind (Vice Chairman and Lead Independent Director), Raymond K.F. Ch’ien, Karen Gavan, Jay Ralph, Joerg Reinhardt, Philip K. Ryan,
Sir Paul Tucker, Jacques de Vaucleroy, Susan L. Wagner and Larry Zimpleman were individually re-elected by the Annual General Meeting 2020 for a further one-year term of office as members of the Board of Directors. The Board of Directors now consists of 14 members, it consisted of 13 members up to the Annual General Meeting 2020. The Annual General Meeting 2020 also re/elected Renato Fassbind, Raymond K.F. Ch’ien, Karen Gavan (new), Joerg Reinhardt and Jacques de Vaucleroy as members of the Compensation Committee for a one-year term of office.
Succession planning Succession planning is of significant importance to the Board of Directors. It regularly analyses its composition to confirm that its members’ qualifications, skills and experience correspond to the Board’s needs and requirements. The Board of Directors initiates the evaluation of potential new Board members in a timely manner with the continued aim to ensure its members have the desired qualifications and experience as well as to further diversify and renew its composition. The Nomination Committee evaluates candidates for Board membership and makes recommendations to the Board of Directors for election or re-election proposals. The Board of Directors nominates candidates for Board membership for election at the Annual General Meeting, ensuring that the Board retains an adequate size and well-balanced composition and that at 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.
Membership on the Board of Directors requires experience in key sectors such as insurance and reinsurance, finance, accounting, capital markets, risk management and regulatory matters as well as leadership and decision-making experience in a large, complex financial institution. Further details are provided on the previous page. The mandate also demands significant commitment, integrity and intercultural communication competence.
The prevalence of these qualifications and skills ensures that the Board of Directors has the relevant expertise required for active involvement and supervision of an international listed company.
Board members’ training The Board of Directors has a unique role in the company oversight. The company therefore strives to build a strong and effective Board culture, supported by ongoing learning, which is an important component to foster Board effectiveness.
Upon election new Board members undergo a comprehensive onboarding programme in order to gain a sound understanding of the Group’s organisation, business and environment. The programme encompasses the study of detailed pre-reading materials, as well as a total of 24 hours of sessions with key management functions and topic experts over a period of nine months. Additionally, the Board members update and enhance their knowledge of emerging business trends and risks through regular meetings with internal and external experts throughout the year.
In addition to the skill sets and competencies of the members of the Board of Directors, the principles of gender and age diversity, inclusion, nationality, race, ethnicity, regional representation, transparency and the avoidance of conflicts of interest play an important role in the composition of the Board of Directors.
Additionally, one-to-one training sessions are offered at any time through the year with our top executives and experts.
Nominations for re-/election by the Annual General Meeting of 16 April 2021 The shareholders annually elect the members of the Board of Directors, the Chairman of the Board of Directors and the members of the Compensation Committee, individually and separately, for one-year terms, until completion of the next Annual General Meeting. The Board of Directors proposes, based on recommendations by the Nomination Committee, that each of the following Board members be re-elected for a one-year term: • Renato Fassbind • Raymond K.F. Ch’ien • Sergio P. Ermotti • Karen Gavan • Joachim Oechslin • Deanna Ong • Jay Ralph • Joerg Reinhardt • Philip K. Ryan • Sir Paul Tucker • Jacques de Vaucleroy • Susan L. Wagner • Larry Zimpleman
The Board of Directors proposes, based on a recommendation by the Nomination Committee, that Sergio P. Ermotti be elected as new Chairman of the Board of Directors to succeed Walter B. Kielholz. As announced by Swiss Re on 3 March 2020, Walter B. Kielholz, Chairman of the Board of Directors, will not stand for re-election at the Annual General Meeting 2021. Sergio P. Ermotti’s biography is available on page 90.
The Board of Directors furthermore proposes, based on recommendations by the Nomination Committee, that Raymond K.F. Ch’ien, Renato Fassbind, Karen Gavan, Joerg Reinhardt and Jacques de Vaucleroy be re-elected as members of the Compensation Committee.
* Disbandment of the BU Life Capital at the end of December 2020. For more details, please refer to page 83. ** Disbanded as of 31 December 2020. *** The members of the Life Capital EC resigned as of 1 January 2021.
Chairman of the Board of Directors The Chairman of the Board of Directors leads the Board of Directors, convenes the Board and committee meetings, establishes the agendas and presides over Board meetings. The Chairman coordinates the work of the Board committees together with the respective Chairpersons and ensures that the Board is kept informed about the committees’ activities and findings. He ensures adequate reporting by the Group EC and the Group CEO to the Board of Directors and facilitates their communication with the Board. The Chairman presides over General Meetings of shareholders and represents the Group towards its shareholders, in industry associations and in the interaction with other stakeholders such as the media, political and regulatory authorities, governmental officials and the general public. Specifically, the Chairman keeps regular contact with the Group’s regulator FINMA.
Board and committee meetings deal with the items on the agenda incorporating presentations by members of the Group EC and, where needed, by subject matter experts or external advisors. For every meeting of the Board of Directors, it is considered whether an executive session should be held for discussions between the Board of Directors and the Group CEO. Furthermore, private sessions are held for discussions involving all members of the Board of Directors only.
The table on page 99 provides an overview of the meetings of the Board of Directors and its committees held in 2020.
• COVID-19 crisis: Oversaw detailed COVID-19 business and operational updates with the Group EC, including emergency scenarios and increased the number of meetings of the Board of Directors and Board committees meeting frequency
• Public Affairs: Led the launch of an effective global Public Affairs Strategy and organisation • Performance and self-assessments: Led the annual performance assessment and the annual self-assessment processes for the
• Succession planning: Steered the succession planning process for the Board members who are elected by the Annual General Meeting, including the composition of the Compensation Committee
• P&C Reserving Process: Jointly with the Finance and Risk Committee led the review and benchmarking of Swiss Re's P&C reserving philosophy, process and governance and the implementation of the identified improvement measures
• Compensation Framework and Compensation Plan design: 1. Monitored the effectiveness of the Compensation Framework and its alignment with both shareholders’ interests and long-term business strategy addressing i) pay for performance principles at the business and individual level, ii) performance differentiation and iii) gender pay equity 2. Reviewed and assessed the current Compensation Framework with a focus on the 2021 incentive compensation architecture
• Legal and regulatory developments: Monitored legal and regulatory developments, including continued compliance with the Ordinance against Excessive Compensation at Public Corporations
• Investment positioning: Reviewed SAA positioning, risk usage and performance in the context of financial markets and Business Unit developments
• Monitored operational resilience of investment activities in light of COVID-19
Delegation of management The Board of Directors has delegated the management of Swiss Re Ltd and the Group to the Group EC (see section on Executive Management, starting on page 102). Such delegated tasks are within the responsibility of the entire Group EC. The Board of Directors based the delegated responsibilities on authority levels, including monetary thresholds and limits.
Group CEO, Group CFO, Group CLO, Group Chief Compliance Officer, Head Group Internal Audit, Chief Accounting Officer, lead auditors of external auditor, Group Company Secretary
1 As of 24 November 2020, this entity was renamed to “Swiss Re Nexus Reinsurance Company Ltd.”
Key responsibilities of the Group EC 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 Group matters. In particular, the Group EC focuses on (the control of) the implementation of Swiss Re Group’s Strategy, as promulgated and approved by the Board of Directors. In particular, it includes the responsibilities 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; human resources, talent management as well as reputational issues and branding. For further details on the Group EC’s responsibilities please refer to: www.swissre.com/managementresponsibilities
Board supervision of Executive Management The Board of Directors maintains effective and consistent oversight and monitors the execution of responsibilities it has delegated to the Group EC through the following control and information instruments.
Periodic reports to Board of Directors and its committees The Group EC and further senior management members regularly provide the Board of Directors with different types of reports, in particular the following reports: Executive Report (quarterly) This comprehensive report gives an update on current business developments, covering the Group Functions and the Business Units, including major business transactions, claims, corporate development and key projects.
Swiss Solvency Test Report (annually) The report provides the legally required update on the assessment of solvency according to the Swiss Solvency Test (SST) of the Group, Swiss Reinsurance Company Ltd, Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Reinsurance Ltd1.
Right to obtain information The Board of Directors has complete and open access to the Group CEO and the other members of the Group EC, the Chief Compliance Officer and the Head of Group Internal Audit (GIA). Any member of the Board of Directors who wishes to have access to any other officer or employee of the Group will coordinate such access through the Chairman. The Vice Chairman and the chairpersons may approach the Group EC members as well as further key executives directly if they require information to support their respective (Board committee’s) duties. Any member of the Board of Directors may request at Board meetings to obtain information on any aspect of the Group’s business. Outside Board meetings, any member can direct a request for the provision of information and business records to the Chairman.
GIA applies a risk-based approach, performing its own risk assessment as well as making use of risk assessments performed by the Group’s Risk Management and other assurance functions (after reviewing the quality of the assurance work performed). Based on the results of the risk assessment, GIA produces an annual audit plan for review and approval by the Audit Committee. The audit plan is updated on a quarterly basis according to the Group’s evolving needs. GIA provides formal quarterly updates on its activities to the Audit Committee, which include audit results, the status of management actions required, the appropriateness of the resources and skills of GIA and any changes in the tools and methodologies it uses.
These reports cover compliance with the Group’s risk tolerance criteria, major changes in risk and capital adequacy measures and a description of the Group’s main risk issues, including related risk management actions. The Finance and Risk Committee regularly reports to the entire Board of Directors. For further information on Swiss Re’s Risk Management, please see the Risk and Capital Management Report on pages 50–77 (for Risk Management in particular pages 61–77).
John R. Dacey American 60 Group Chief Financial Officer April 20182
Nigel Fretwell British 58 Group Chief Human Resources Officer May 20133
Russell Higginbotham British 53 CEO Reinsurance Asia/Regional President Asia July 20195
Jonathan Isherwood British 54 CEO Reinsurance Americas/Regional President Americas April 20206
Patrick Raaflaub Swiss, Italian 55 Group Chief Risk Officer September 2014
The following two Group EC members stepped down during 2020: Stepped down
Edouard Schmid Swiss 56 Chairman Swiss Re Institute & Group Chief Underwriting Officer 31 August 2020
For the biographies of former Group EC members, please refer to: www.swissre.com/formergroupecmembers
Leaders • Vice Chairman of the Geneva Association • Board member of economiesuisse and the Swiss American Chamber of Commerce
Professional experience Urs Baertschi began his career at Swiss Re Capital Partners and Securitas Capital in a variety of private equity and corporate development roles. In 2001, he joined Cutlass Capital, a private equity firm focused on the health care industry, where he was appointed a Principal in 2006. In 2008, Urs Baertschi rejoined Swiss Re as the Head of US Direct Private Equity and was appointed Head of Principal Investments and Acquisitions Americas in 2010. In this role, he was responsible for the financial and strategic direct investments as well as corporate development transactions in the Americas. In 2016 Urs Baertschi became the President of Reinsurance, Latin America, with overall responsibility for the business in the region. In September 2019, he assumed the role of Chief Executive Officer Reinsurance EMEA and Regional President EMEA and became a member of the Group Executive Committee.
Professional experience Andreas Berger started his insurance career in 1995 as a leadership trainee at Gerling Group, followed by various leadership positions at Boston Consulting Group. He returned to Gerling in 2004 as Head of Commercial Business and International Programs and Affinity Business. When Allianz Global Corporate & Specialty SE (AGCS) was created in 2006, Andreas Berger became its Global Head of Market Management & Communication, where he established an overall market management function for the corporate client segment and served as AGCS spokesperson. In 2009, he was appointed AGCS Chief Executive Officer, Regional Unit London, with responsibility for UK, Ireland, South Africa, the Middle East and Benelux. In 2011 Andreas Berger joined the AGCS Board of Management as Chief Regions & Market Officer (Central & Eastern Europe, Mediterranean, Africa and Asia). In addition, he assumed responsibility for the Global Broker Channel Distribution for the Allianz Group. Andreas Berger joined Swiss Re in March 2019 as Chief Executive Officer Corporate Solutions and member of the Group Executive Committee.
Professional experience Nigel Fretwell started his career at Barclays PLC, where he held various management roles over 25 years. His last role was as Group Employee Relations Director, leading the development and delivery of key Group-wide People Strategy, Industrial Relations and Employment Policy initiatives. In 2005 he joined HSBC as Human Resources Director for the worldwide operations of HSBC Insurance Brokers Limited. He then served from 2008 to 2011 as Regional Head of Human Resources, Asia Pacific, and from 2009 concurrently as Global Head of Human Resources, Commercial Banking, and finally from 2011 to 2013 as Global Head of Human Resources for Retail Banking and Wealth Management, which included HSBC Insurance and HSBC Asset Management. Nigel Fretwell joined Swiss Re as Group Chief Human Resources Officer in May 2013 and was appointed as a member of the Group Executive Committee effective July 2019.
Professional experience Russell Higginbotham started his career in 1986 at a UK life insurer and, in 1991, he joined Munich Re as a Senior marketing Analyst. Russell Higginbotham joined Swiss Re in 1994 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. He was appointed Chief Executive Officer Reinsurance EMEA, Regional President EMEA and a member of the Group Executive Committee in September 2018. With effect from July 2019, Russell Higginbotham assumed the role of Chief Executive Officer Reinsurance Asia and Regional President Asia.
Thierry Léger Group Chief Underwriting Officer Born: 1966 Nationality: French and Swiss
Changes in 2020 Jonathan Isherwood, previously Head of Globals Reinsurance, was appointed CEO Reinsurance Americas with effect from 1 April 2020, and Regional President Americas and a member of the Group Executive Committee effective 14 August 2020. He succeeded J. Eric Smith, who retired on 13 August 2020.
Management contracts Swiss Re Ltd has not entered into any management contracts with any third parties.
The Annual General Meeting elects the Independent Proxy who represents shareholders’ votes.
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 set out on page 87) 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 2020.
The Independent Proxy is elected by the Annual General Meeting for a term of office until completion of the next ordinary General Meeting of shareholders.
Resolutions are passed by an absolute majority of votes validly cast (excluding blank and invalid ballots), except where the law requires otherwise.
Registrations in the share register Any share whose owner, usufructuary or nominee is entered in the share register as having voting rights through said share on a specific qualifying day (record date) designated by the Board of Directors entitles its holder to one vote at the General Meeting of shareholders. In 2020, Swiss Re Ltd recognised the voting rights of shares registered no later than four working days before the Annual General Meeting of shareholders.
Duty to make an offer Swiss Re Ltd has not put in place any specific measures to defend against potential unfriendly takeover attempts. The Board of Directors believes that the company’s best protection is a fair valuation of its shares and that the efficiency of a free market is preferable to artificial obstacles, which can have a negative impact on the share price in the long term.
In accordance with the Financial Markets Infrastructure Act (FMIA), any party who acquires Swiss Re Ltd shares which, added to those already owned, exceed the threshold of 33⅓% of Swiss Re Ltd shares, either directly, indirectly or in concert with third parties, and regardless of whether these voting rights of such Swiss Re Ltd shares are exercisable or not, triggers a mandatory takeover offer for the outstanding Swiss Re Ltd shares owned by all other shareholders.
Clauses on changes of control The mandates and employment contracts of the members of the Board of Directors, Group EC and further Executive Management members do not contain any provisions such as severance payments, notice periods of more than 12 months, additional pension fund contributions or the treatment of deferred compensation that would benefit them in a change of control situation.
The AGM 2020 elected KPMG as Swiss Re’s new external auditor – effective for the financial year starting on 1 January 2021.
In line with the Swiss Code of Obligations and to foster external auditor independence, each of the two group audit engagement leaders rotates out of his or her role after seven years. Roy Clark has undertaken this role since April 2018 and Jasmine Chang since July 2020.
The Audit Committee reviews and approves all planned audit services and any non-audit services provided by the external auditor.
It discusses the results of annual audits with the external auditor, including reports on the financial statements, necessary changes to the audit plans and critical accounting issues.
In 2020, audit related assurance services included programme and control assessments as well as assurance mandates required by Swiss Re's regulators. Services relating to corporate finance transactions contained the arrangement and administration of a financing programme, tax-related services included advice on a number of tax matters and other non-audit services covered a variety of permitted advisory services primarily related to the recently launched IFRS programme.
In September 2018, the Audit Committee had decided to launch a tender process in the first quarter of 2019 for a new external auditor of the Group. After a thorough tender process, the Board of Directors had decided, as proposed by the Audit Committee and in line with the main criteria mentioned in the chapter on the evalution of the external auditor (far left of this page), to propose KPMG to the AGM 2020 for election as the new external audit firm to replace PwC for the financial year starting on 1 January 2021. On 31 July 2019, Swiss Re publicly announced the Board of Director’s decision to nominate KPMG as the new auditor as part of the news release on the first-half 2019 US GAAP results. For the news release, please refer to: www.swissre.com/media/news-releases/ nr-20190731-hy-2019-news-release.html
The AGM 2020 elected KPMG as the new external auditor for a one-year term of office for the financial year starting on 1 January 2021. Following this election, KPMG became fully independent as of 1 July 2020 and started their work. Activities included the review of PwC’s US GAAP workpapers for the 2019 audit in Switzerland and other key regions, process walkthroughs, as well as the shadowing of PwC’s 2020 audit work. In parallel, KPMG conducted audit planning sessions with key departments and stakeholders within Swiss Re and established regular updates with Swiss Re management. Despite restrictions in travel and face-to-face interactions due to COVID-19, the audit transition has proceeded according to plan and KPMG will present its 2021 audit plan to the Audit Committee during the second quarter of 2021.
As a global company, Swiss Re strives to inform its stakeholders openly, consistently and in a transparent manner – beyond the minimum legal information requirements.
Swiss Re maintains open lines of communication with stakeholders on matters related to its financial and business performance, strategy and business activities through analyst and media conferences and calls, road shows, news releases and corporate reports. The latter encompass the company’s Annual Report and the Half-Year Report, which are made available both in print and digitally. Additionally, Swiss Re publishes the Financial Condition Report, the Sustainability Report, solvency reports for the regulated entities and key quarterly financial information online.
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 328.
The presentations as well as the conference call recordings from these events are available at: www.swissre.com/investors/presentations
Dear shareholders, The year 2020 has been an extraordinary year and Swiss Re’s vision “we make the world more resilient” has proven to be even more relevant. The Compensation Committee has worked to support this vision through the lens of compensation. Against this background, I am pleased to present the 2020 Compensation Report, which informs you on the compensation outcomes and key decisions taken in 2020.
and plan design to ensure continued fit for purpose as well as alignment with shareholders’ interests and long-term business strategy: an outlook on the changes that will come into effect as of performance year 2021 is provided on page 124 of this Financial Report; • reviewed the Committee’s meeting architecture: changes were made to its working processes, tasks and responsibilities starting in 2021 to ascertain ongoing effectiveness, sound governance and focus on key topics; • monitored compensation decisions in view of pay for performance, pay equity, shareholder alignment and long-term business strategy; and
Compensation framework changes for performance year 2020 While Swiss Re’s compensation framework remained stable overall, an additional performance metric for the Leadership Performance Plan (LPP) came into effect for the first time in 2020 as a consequence of a decision taken by the Group in 2019: as of 2020 grants, absolute economic net worth growth complements the already existing metrics return on equity (ROE) and relative total shareholder return. This strengthens the focus on growth in terms of operating value as an incentive driver. Further details on the LPP 2020 plan design are provided on pages 123–124 of this Financial Report.
However, excluding COVID-19-related losses, the Group’s business performance was strong with an ROE of 7.3% and net income of USD 2.2 billion. Property & Casualty Reinsurance delivered significant new business generation with 8% higher premiums earned, supported by price increases. The normalised combined ratio was in line with the estimate of 97% provided at the beginning of 2020. Life & Health Reinsurance’s performance, excluding COVID-19 losses, was solid with an ROE within the target range of 10–12%. This was supported by a strong investment result and enabled a positive contribution to the Group’s net result, despite COVID-19related losses. Corporate Solutions’ turnaround is ahead of plan; results excluding COVID-19-related losses reflect the benefits of portfolio repositioning, rate increases achieved for new business and lower large man-made losses compared to 2019. Life Capital continued to invest into the growth of the open books business and achieved a strategic milestone with the sale of ReAssure.
No in-flight changes to awards, metrics or targets nor additional incentive awards have been made to mitigate the impact of COVID-19. As the 2020 LPP grants were determined based on a share price of
(ie largely unimpacted by any COVID-19related stock market developments), the Compensation Committee concluded that no windfall gains will occur. Details on the 2020 performance outcomes are provided on pages 132–137, and information on compensation disclosure and shareholdings for 2020 is detailed on pages 138–145 of this Financial Report.
The Group recognised opportunities to further develop its disclosure practice and a number of changes are incorporated into this Compensation Report, including further transparency on Swiss Re’s process for determining the Group API pool and on the use of and rationale for discretion as part of this process. Shareholders valued Swiss Re’s deep commitment to sustainability/environment, social and governance (ESG) matters, diversity and inclusion. Additional details on how this commitment is reflected in the compensation framework are also included in this Compensation Report.
• Aggregate amount of variable short-term compensation for the members of the Group EC for the financial year 2020.
1 Dividend payments are made in April of the following year. For 2020, an ordinary dividend of CHF 5.90 is proposed to the AGM 2021.
2 Disclosure includes all awards for a reporting year, ie the 2020 aggregated compensation values include the fair value of the Leadership Performance Plan (LPP) granted in April 2020. The total Annual Performance Incentive (API) for 2020 for members of the Group EC is subject to approval by the shareholders at the AGM 2021. For individuals who left the Group EC during or before the reporting period, disclosure also includes legally or contractually required payments for the period when the individual was no longer in a Group EC position (eg base salary when on garden leave).
3 2018 and 2019 figures for aggregate compensation for all employees restated to conform to 2020 presentation. 4 Including the Group CEO as well as individuals holding a Group EC position at one point during a reporting year. In 2020, 15 individuals held a Group EC position at one point in 2020 (16 in 2019), of whom 12 were active on the Group EC for the full year (nine in 2019).
Income before tax and variable compensation 863 100% 1 215 100% –797 100%
US GAAP net income attributable to shareholders 421 727 –878 of which paid out as dividend2 1 659 192% 1 766 145% 1 925 –
of which added to retained earnings within 1 Restated to reflect final approved figure. 2 FY 2020 is estimated based on the average monthly CHF/USD FX rate as of January 2021. The dividend is subject to AGM
Guiding principles Swiss Re’s compensation framework is designed to add to the success of the business by: • Supporting a culture of sustainable
• Ensuring alignment of compensation to long-term business results and individual contribution, and recognising both what was achieved and how it was achieved.
• Fostering compliance, supporting appropriate and controlled risk-taking in line with Swiss Re’s business and risk strategy, and avoiding conflict of interest.
Swiss Re’s total compensation is well balanced in terms of fixed versus variable compensation and short-term versus long-term incentives. This encourages sustainable long-term performance and supports shareholder alignment. Complemented by pension plans and benefits, the total reward package is competitive in local labour markets.
To incentivise employees to do the right thing for these stakeholders, it is important that we smooth this volatility within the Group’s compensation framework. This is designed and tailored to reflect the nature of the business. Consequently, volatility in incentive plans, and in particular our Annual
Performance Incentive (API), requires some limitations. This safeguards that awards are capped in years without large events when positive performance outcomes are not entirely in the hands of the company or employees. At the same time, in eventful years where Swiss Re’s employees duly perform according to the nature of the business, the downside needs to be proportionate (see page 121 of this Financial Report for details on the Group API pool funding process).
The Compensation Policy governs the compensation structure and processes and is regularly reviewed: • The Human Resources function conducts
• The Compensation Committee reviews the self-assessment and reports on the effectiveness of the compensation decisions, and identifies potential areas for improvement.
The key objectives of Swiss Re’s benefits packages are to: • Be competitive in the markets where Swiss Re competes for talent. • Provide a degree of financial resilience for employees as it relates to pension,
Base salary Benefits Cash API VAI (deferral from the API) LPP GSPP Eligibility All employees All employees All employees Employees with an API
Plan duration 3 years 5 years for Group EC members and other key executives* (including a 2-year holding period); 3 years for remaining participants 3 years
Annual Performance Incentive Purpose The Annual Performance Incentive (API) is a performance-based, variable component of compensation. Combined with the base salary, it provides competitive total cash compensation for achievements against both business and individual performance targets and demonstration of desired behaviours.
Funding Swiss Re uses a three-step process to assess business performance for the purposes of determining the overall Group API pool.
The starting point is the Group TAPI Pool, in principle derived in a bottom-up approach from the individual TAPIs (pro rata where needed) for all eligible employees.
As part of the process, the Compensation Committee can apply discretion to make an upward or downward adjustment to the Group BPF and Group API Pool recommended for approval to the Board of Directors. For information on the calculation of the 2020 BPF and the discretion applied in 2020, please refer to page 134 of this Financial Report.
Includes assessment of the financial performance versus targets, a multi-year view and review of the quality of earnings that then impacts the overall assessment.
Results in Financial Performance Factor floored at 0.7 and capped at 1.3
Series of overarching tests including pay for performance linkage, assessment of market competitiveness and affordability checks.
Based on Steps 1, 2 and 3, results in Group Business
The API for each individual employee is determined considering their TAPI, business and individual performance. Individual performance is assessed against the individual’s established goals and Swiss Re’s behaviour expectations and corporate values.
Settlement API is settled in cash. When the total API level for an employee exceeds a pre-defined amount, a portion is deferred into the Value Alignment Incentive (VAI) and remains subject to performance conditions over the VAI plan duration of three years. The non-deferred portion is settled in immediate cash (cash API).
EVM previous years’ business profit measures the economic performance of existing contracts in comparison to the valuation assumptions set in the past; ie under-reserving (over-reserving) in the past leads to a negative (positive) EVM previous years’ business performance when reserves are adjusted in the current year. The performance factor is a linear function, whereby payout ranges from 50% to 150%.
Settlement At the end of the deferral period, the VAI is settled in cash. For the full three-year performance measurement period, forfeiture conditions apply.
Additionally, clawback provisions apply in a range of events as defined in the VAI plan rules (please refer to page 125 of this Financial Report for details on termination and clawback provisions).
Leadership Performance Plan Purpose The purpose of the Leadership Performance Plan (LPP) is to provide an incentive for Swiss Re’s senior management (including the members of the Group EC) to achieve sustainable company performance over the long term. The LPP is a forward-looking instrument awarded to incentivise decisionmaking that is also in the shareholders’ interest.
capital efficiency and Swiss Re’s position against peers, all of which are critical to sustain shareholder value creation.
A d d it io n al t w o -y ea r h o ld in g
As a result of the review, a third metric, absolute economic net worth (ENW) growth, was added to complement the already existing metrics return on equity (ROE) and relative total shareholder return (rTSR). Absolute ENW growth measures the generation of new business, links capital generation, regulatory capital and dividend capacity, and neutralises the impact of share buy-backs.
Grant The amounts disclosed under LPP in the section “Compensation disclosure and shareholdings 2020” reflect the grants made in April 2020. The LPP 2020 will be measured over the period from
Plan duration The vesting period, during which performance is measured, 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 period.
Performance Share Units: ROE The performance condition for the first PSU component is ROE with a linear vesting line. Vesting is at 0% for an ROE at the risk-free rate* and at 100% for an ROE at a predefined premium above the risk-free rate. The premium is set at the beginning of the plan period. To align with external financial targets, the premium for the LPP 2020 has been set at 700 basis points above the risk-free rate. At the end of each year, the performance against the ROE condition is assessed and one third of the PSUs are locked in within a range of 0% to 100%. Vesting occurs only at the end of the full three-year plan period (capped at 100%**).
V e st in g f a ct o r absolute ENW growth
Funding The LPP pool granted each year is reviewed in the context of sustainable business performance and affordability, and funded as part of the Group’s total variable compensation pool.
Forfeiture and clawback provisions apply in a range of events as defined in the LPP plan rules (please see page 125 of this Financial Report for termination and clawback provisions in long-term plans).
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 136.
Outlook for 2021 During 2020, a thorough review of Swiss Re’s compensation framework was undertaken to ensure the Plan’s continued effectiveness and pay-for-performance alignment. As a result, the LPP will be renamed to Leadership Share Plan (LSP).
As a consequence of this change to the global plan, the following key changes apply to grants as of 2021: • The vesting factors for all performance
• In case of negative absolute TSR, vesting will be capped at maximum 100% even if Swiss Re meets or exceeds the rTSR peer group performance.
More details on the LSP will be included in the 2021 Compensation Report.
* 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 refers to the maximum number of granted PSUs that can vest.
V e st in g f a ct o r rTSR
Voluntary resignation Unvested awards are forfeited pro rata and the performance factor is capped at 100% as of the date of termination of the employment relationship.
Unvested awards are forfeited as of the date of termination of the employment relationship.
Retirement Unvested awards shall vest on the regular vesting date, subject to performance.
Matching Share awards are forfeited as of the date of termination of the employment relationship.
Death Unvested awards shall vest immediately using the performance factor as presented during the latest Compensation Committee meeting.
Mutual agreement Unvested awards may vest at Swiss Re’s sole discretion. The final decision is subject to the review and approval of the Business Head, Head Reward, Group Chief Human Resources Officer and, if applicable, the Compensation Committee.
Matching Share awards may vest if stated in the agreement between Swiss Re and the employee.
Supplementary information on Group EC members Performance assessment The Compensation Committee assesses the performance of the Group EC, including the Group CEO, against a set of quantitative and qualitative objectives. These objectives are agreed at the beginning of the year and are aligned with the Group’s strategy.
Specifically, the Board of Directors (or to the extent delegated to it, the Compensation Committee) may decide at its discretion on the continuation, acceleration, amendment or removal of any vesting, blocking or exercise conditions for the payment or grant of deferred compensation. It may also decide to replace any LPP award with shares of the entity assuming control. In addition, it may apply any other measure which it considers equitable and reasonable, provided this does not constitute impermissible compensation pursuant to the Ordinance against Excessive Compensation at Public Corporations. Should the Board of Directors decide to accelerate vesting, performance factors will generally be based on the latest performance estimates available.
Information on “change of control” clauses is also covered in the Corporate Governance section on page 109 of this Financial Report. For more information on the quantitative impact of vested shares, please refer to page 87 of this Financial Report and Note 16 to the Group financial statements on page 273 of this Financial Report.
The guidelines define target ownership by role and the ownership levels required are: • Group CEO – 3 × annual base salary. • Other Group EC members – 2 × annual
Members have a five-year timeframe to achieve these targets. In case of noncompliance 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 be settled in shares, then bought against market conditions.
• The fee level for each Board member, subject to their re-election, is reviewed annually.
Certain committees, such as the Audit Committee, meet more frequently or hold longer meetings, and hence have higher workloads reflected in their fees. The table on page 99 of this Financial Report provides an overview of the meetings of the Board of Directors and its committees held in 2020.
The Vice Chairman, who is also the Lead Independent Director, acts as a deputy of the Chairman if the Chairman is prevented from performing his duties or in potential conflict of interest situations. 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. The Lead Independent Director acts as an intermediary between the Group and its shareholders and stakeholders in the absence of the Chairman or, in particular, when a senior independent member of the Board is required. He may convene and chair sessions where the Chairman is not present. He will communicate the outcome of these sessions to the Chairman.
Pension contributions are split equally between Swiss Re and the respective members of the Board of Directors. Contributions made by Swiss Re for the period from 1 January 2021 until the AGM 2021 are included in the table “Individual Board compensation for the period from the AGM 2020 to the AGM 2021” (refer to page 144 of this Financial Report).
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• Prepares the proposals to the AGM regarding Board of Directors and Group EC compensation.
• Further details can be found in the Corporate Governance section on pages 78–112 of this Financial Report.
Management • The Group CEO and the Group Chief Human Resources Officer participate in the Compensation Committee meetings.
Secretary • The Head Reward serves as the Secretary to the Compensation Committee and attends its meetings (excluding the executive sessions).
• Mercer provides information about remuneration trends, market benchmarking and advice on executive compensation issues.
• Niederer Kraft Frey Ltd provides legal advice, mainly about specific aspects of compliance, plan rules and disclosure matters regarding compensation.
Compensation approvals The table below shows the approval processes for key compensation decisions: Compensation Committee’s time allocation to key topics in 2020 28% Review of compensation framework 28% Pay for performance
Group CEO Compensation Committee, Chairs of the Audit Committee and the Finance and Risk Committee
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.
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.
Risk and control-related behaviour assessment Swiss Re bears risks in the course of its business activities, including market, credit and liquidity, underwriting, operational (including legal and compliance) and reputational risk. The Control Functions annually perform an independent assessment of risk and control-related behaviours of the Group and each of the business functions, and of Swiss Re’s Key Risk Takers individually.
These reports are delivered to key executives including the Group Chief Risk Officer and the Group Chief Human Resources Officer on an annual basis.
Key Risk Takers Swiss Re’s Key Risk Takers are executives in core risk-taking positions who decide on business and people strategies, approve budgets and can materially influence financial results or expose Swiss Re to significant operational or reputational risks.
Desired behaviours Swiss Re’s performance management approach supports a high-performance culture. Individual and team goals, as well as behaviours, are aligned to Swiss Re’s purpose and business strategy. Swiss Re’s “leadership from every seat” philosophy, as part of which desired behaviours are clearly articulated, is embedded in the continuous performance management and feedback discussions. This allows for forward-looking conversations that foster real-time improvement and faster adaptation to business needs and in doing so, arrive at a robust performance differentiation and transparent pay for performance.
Influence of sustainability on compensation Since 2020, sustainability-related performance targets are defined for the Group as well as for each Business Unit and Group Function. Targets are grouped around several sustainability-related themes such as sustainability-related indices, climate change, sustainable business, and stakeholder engagement. The KPIs and targets are aligned to Swiss Re’s Group Sustainability Strategy and take into account Swiss Re’s sustainability ambitions and identified risks (see pages 16–21 in the Sustainability Report 2020 for details on sustainability performance targets and pages 36–43 for details on sustainability risks).
The outcomes of the financial, qualitative and overall assessment, all part of Swiss Re’s three-step funding process (as described on page 121 of this Financial Report), determined the Group API pool for 2020. In line with Swiss Re’s established processes, key performance indicators (KPIs) and targets for the Group API pool were approved by the Compensation Committee at the beginning of 2020 and have not been modified in the wake of the COVID-19 pandemic.