The strong improvement of Corporate Solutions’ ex-COVID-19 result reflected the strict execution of management actions announced in 2019, including 85% of the planned portfolio pruning and a substantial expense ratio reduction. Pricing momentum
Life Capital’s result was driven by the continued investment into growth of the open book businesses. Gross premiums written in the open book businesses increased by 22% during 2020 when measured at constant exchange rates. The completion of the ReAssure sale and successful deconsolidation of the business marks a key achievement for Life Capital. For further details on the US GAAP financial performance, refer to pages 182–293 of this Financial Report.
Corporate Solutions’ underwriting loss was primarily driven by COVID-19-related losses more than offsetting otherwise good underwriting results reflecting the benefits of the management actions taken to improve profitability and low large man-made claims activity across all lines of business.
The unfavourable underwriting result of Life Capital was primarily driven by expenses to grow the open book businesses as well as a true-up to the gain on the sale of ReAssure, underperformance in elipsLife and unfavourable persistency in the closed book US business. For further details on the EVM financial performance, refer to the EVM chapter on pages 34–47 of this Financial Report.
• Establishing many other new solutions and partnerships, such as Movinx together with Daimler and the Granular Insurance Company together with Verily, an Alphabet company; Movinx develops fully digital automotive and mobility insurance products and the Granular Insurance Company combines innovative health technology solutions with novel insurance and payment models.
Client & service quality Swiss Re’s client and service quality is assessed on an annual basis through leading external benchmarks. Both clients and non-clients perceived Swiss Re as a leading brand in property and casualty, and life and health reinsurance. Client satisfaction remained strong and clients commended the uninterrupted service and availability of their Swiss Re contacts during the pandemic.
Human capital & talent management The Group’s employee engagement survey results were above the financial services benchmark and at their highest level since the start of measurement in 2015, with notable increases on agility and the perception of having an inclusive work environment. Swiss Re did note early signs of a decrease in employees’ personal resilience and has quickly taken mitigation actions, eg by establishing a new initiative with mental health champions and a programme leveraging learnings from the COVID-19 pandemic. Considering a diverse and inclusive workforce as integral to its success, the Group has further increased female representation in senior management and launched a new network to promote awareness and inclusion of people of colour in the workplace.
Risk and control behaviour Reinsurance and risk are intrinsically linked. Assessment scores based on the continuous assessment by Swiss Re’s Control Functions, including Group Internal Audit as an independent assurance function, have gone up compared to the prior year, demonstrating a robust risk governance framework with a defined risk appetite and accountability for managing risk. A clear tone from the top encouraged an effective and open risk culture.
Sustainability 2020 was the first year for which sustainability was considered as a separate assessment dimension in the Group API pool funding process. Sustainability-related performance targets focused on the Group’s ranking in the Dow Jones Sustainability Index (DJSI), the alignment of its business goals with the Paris Agreement and the increase in the share of sustainable business volume and services. Swiss Re has accomplished notable achievements, for example reaching a leading score in the DJSI, which makes it the only reinsurer represented in the top 10 in this index. The Group also continued to co-lead the Net-Zero Asset Owner Alliance and established an internal triple-digit carbon levy to support the transition to net-zero emissions in operations by 2030. For further details on sustainability governance and sustainability performance targets, please refer to pages 82 and 16–21 of the Sustainability Report.
Franchise building Having joined forces with public and private partners to deploy innovative solutions and strengthen its franchise, Swiss Re is proud of its collaborative achievements, for example: • Acting as a thought leader to foster
• Putting its pioneering Risk Resilience Centre platform, which provides access to the world’s richest data on COVID-19, at the service of global health by opening it to participants of The Trinity Challenge (a coalition of universities, foundations and leading companies with the aim of better protecting the world against health emergencies).
Performance targets used for the financial assessment are considered to be commercially sensitive and disclosure of such may provide an unfair advantage to Swiss Re’s competitors. However, to further increase transparency on the Group API pool funding process, results for each of the financial KPIs are disclosed.
+0.105 1 Based on (FPF 0.70 x QPF 1.05) + overall assessment 0.105 = Group BPF 0.84.
The main drivers were previous years’ business losses, mainly driven by reserve increases, especially for losses related to COVID-19 for Reinsurance and Corporate Solutions in 2020, and US casualty in Corporate Solutions and Property & Casualty Reinsurance. Business area performance factors for the VAI 2017 (awarded 2018) ranged from 62.6% to 99.8%.
Three-year average of the EVM previous years’ business profit margin: –8.9%
LPP plan year Performance period remaining as of 31 December 2020
Illustrative example of realised performance for the LPP 2018–2021 Granted and realised LPP 2018–2021 are shown below for a sample grant of CHF 100 000 of the LPP 2018. This is a simplified representation for illustrative purposes only. The number of RSUs and PSUs has been rounded up to the nearest full number. For the disclosure of actual realised compensation for the Group CEO, please refer to page 142 of this Financial Report.
1 The LPP 2018 grant was based on a grant valuation share price of CHF 98.22 (as of 26 February 2018, ie the next trading day after publication of the 2017 annual results). 2 Since vesting of LPP 2018 will occur after the publication of this report, the closing share price at year-end 2020 was used to estimate the realised value.
Aggregate compensation of the Swiss Re Group The aggregate compensation for the performance years 2019 and 2020 for all employees was as follows: As of 31 December 2020, the Group had 13 189 regular employees worldwide, compared to 15 401 regular employees at the end of 2019.
In 2020 and 2019, a reduction of expenses amounting to CHF 6 million and CHF 1 million respectively, was recognised for compensation in previous financial years.
Long-term variable compensation – Granted in units subject to performance conditions4 453 52 469 50 – Granted in units not subject to performance conditions 1 1 43 2 Other payments 1 Regular employees (excludes contractors) per 31 December, compensation on actual FTE basis; 2019 reporting adjusted to conform to 2020 presentation. ReAssure employees are included for 2019 but not for 2020 as the sale of ReAssure to Phoenix Group was completed during 2020.
2 Foreign currency conversions calculated using December 2020 year-to-date FX rates for 2020 figures and December 2019 year-to-date FX rates for 2019 figures (where relevant). 3 For 2019, includes separate variable short-term compensation and deferral schemes for ReAssure; for 2020, includes separate cash variable compensation scheme for one line of business. 4 Includes LPP; for 2019, also includes separate variable long-term compensation scheme for ReAssure. 5 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and
(iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in respect of amount, nature or duration. No severance payments were made to members of the Group EC.
6 Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with applicable laws, which amounted to CHF 225m in 2019 and CHF 190m in 2020.
Long-term variable compensation – Granted in units subject to performance conditions4 139 22 146 23 – Granted in units not subject to performance conditions 1 1 0 0 Other payments 1 Disclosure excludes members of the Group EC who were in office as of 31 December of the reporting year; 2019 reporting adjusted to conform to current presentation. Group EC compensation is disclosed separately in the table on page 140. Disclosure includes Key Risk Takers in ReAssure for 2019 but not for 2020 as the sale of ReAssure to Phoenix Group was completed during 2020.
2 Foreign currency conversions calculated using December 2020 year-to-date FX rates for 2020 figures and December 2019 year-to-date FX rates for 2019 figures (where relevant). Reported figures include Key Risk Takers who were in office as of 31 December of the reporting year and are full-year amounts, except for individuals hired during the year, for whom partial-year figures are reported.
3 For 2019, includes separate variable short-term compensation and deferral schemes for ReAssure; for 2020, includes separate cash variable compensation scheme for one line of business. 4 Includes LPP; for 2019, also includes separate variable long-term compensation scheme for ReAssure. 5 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and
(iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in respect of amount, nature or duration.
Total fixed and variable compensation 43 859 44 735 Compensation due to members leaving7 3 143 308 1 Foreign currency conversions calculated using December 2020 year-to-date FX rates for 2020 figures and December 2019 year-to-date FX rates for 2019 figures (where relevant). 2 Benefits or allowances, eg housing, schooling, lump sum expenses, relocation expenses and taxes, child and similar allowances. Also included is an amount of CHF 21 421 for 276 matching shares received by Group EC members participating in Swiss Re’s Global Share Participation Plan in 2020 (2019: CHF 24 045 for 242 matching shares). 3 Swiss Re’s Pension Fund has amended its regulations with effect from 1 January 2019, including some adjustments to the benefits provided to insureds in Switzerland. In consideration of those amendments (which apply both to Group EC members insured in Switzerland and all other employees insured in Switzerland), the figures disclosed for 2019 and 2020 include higher employer pension contributions and contributions to mitigate the effects of lower conversion rates.
Disclosure includes pro-rata payments in relation to the active period on the Group EC for individuals who joined or left the Group EC. 6 Disclosure reflects all awards for a reporting year, ie the 2019 value reflects the fair value of LPP awards granted in April 2019 and the 2020 value reflects the fair value of LPP awards granted in April 2020. Any awards granted in 2020 and then forfeited at a later point in the same year are not included. The LPP for 2019 is split equally into two underlying components (50% RSUs and 50% PSUs). The award for 2020 is split equally into three underlying PSU components.
For 2020, the total of the aggregate TAPIs for the members of the Group EC (pro-rata amount in relation to the active period on the Group EC) amounted to CHF 16.3 million (CHF 15.02 million in 2019), including the Group CEO. The increase in aggregate TAPIs is primarily due to the higher number of Group EC members who were active for the full year in 2020 (ie for individuals who joined the Group EC in 2019, only a pro-rata amount was included for 2019). For the Group CEO, the TAPI was CHF 2.5 million (no change compared to 2019).
Compensation decisions for the highest-paid member of the Group EC The table below shows the compensation paid to Christian Mumenthaler, Group CEO (in the role since 1 July 2016): CHF thousands 2019 2020
Cash Annual Performance Incentive3 1 088 1 155 1 Benefits or allowances paid in cash. Includes healthcare and accident insurance benefits, lump sum expenses, transportation, and child and similar allowances. 2 Swiss Re’s Pension Fund has amended its regulations with effect from 1 January 2019, including some adjustments to the benefits provided to insureds in Switzerland. In consideration of
those amendments (which apply to the Group CEO and Group EC members insured in Switzerland as well as all other employees insured in Switzerland), the figures disclosed for 2019 and 2020 include higher employer pension contributions and contributions to mitigate the effects of lower conversion rates.
5 Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with applicable laws, which amounted to CHF 264 515 in 2019 and to CHF 246 040 in 2020.
The performance of the Group CEO is evaluated against both quantitative targets (as defined in the Group Plan approved by the Board of Directors) and qualitative goals agreed between the Board of Directors and the Group CEO, designed to support the long-term business strategy and drive sustainable performance across the Swiss Re Group.
Additional information on compensation decisions For US GAAP and statutory reporting purposes, VAI and LPP awards are accrued over the period during which they are earned. For the purpose of the disclosure required in this Compensation Report, the value of awards granted is included as compensation in the year of performance for the years 2019 and 2020, respectively.
will occur after the publication of this report, the closing share price at year-end 2020 of CHF 83.34 was used to estimate the realised value.
Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and Nomination Committees 826 496 330 826 Raymond K.F. Ch’ien, member1 441 305 130 435 Sergio P. Ermotti, member2 n/a 91 60 151
Sir Paul Tucker, member 225 50 50 325 Jacques de Vaucleroy, member, Chair
(2) Individual Board compensation for the term of office between AGM 2020 and AGM 2021 The table below provides more detailed information on the compensation paid or payable to each Board member against the maximum aggregate amount of CHF 10.3 million, as approved by the AGM 2020:
Related parties transactions Disclosure on compensation decisions in 2020 covers members of the Board of Directors and the Group EC as indicated, and for both includes related parties to the extent applicable. Such related parties cover spouses, partners, children and other dependents or closely linked persons. In 2020, no compensation was paid to any related party.
Compensation for former members of governing bodies During 2020, payments in the total amount of CHF 0.22 million were made to nine former members of the Group EC. This amount is made up of company contributions payable by Swiss Re to governmental social security systems in line with applicable laws, matching shares awarded in the context of outstanding Global Share Participation Plan cycles, risk benefits, pension contributions and company commitments for tax-related services in line with contractual obligations.
Eileen Rominger, former member4 1 997 n/a Philip K. Ryan, member, Chair Finance and Risk Committee 15 693 18 871 Sir Paul Tucker, member 5 403 7 125 Jacques de Vaucleroy, member, Chair Compensation Committee 4 835 7 511 Susan L. Wagner, member, Chair Investment Committee 13 920 17 125 1 Walter B. Kielholz reported in the reporting period the purchase of 300 call options for a total of 30 000 shares, if exercised. For further details, please refer to: www.swissre.com/investors/shares/management-transactions 2 Elected to Swiss Re’s Board of Directors at the AGM of 17 April 2020. 3 Shareholdings include 2 500 American Depository Receipts (ADRs), equivalent to 625 shares. 4 Term of office expired after the completion of the AGM of 17 April 2020 and did not stand for re-election.
Framework of the Articles of Association In accordance with Article 22 of the Articles of Association, the Shareholders’ Meeting shall approve annually and with binding effect the proposals of the Board of Directors in relation to: a) The maximum aggregate amount of compensation of the Board of Directors for the next term of office. b) The maximum aggregate amount of fixed compensation and variable long-term compensation of the Group EC for the following financial year. c) The aggregate amount of short-term compensation of the Group EC for the preceding completed financial year.
AGM 2020 voting results At the AGM on 17 April 2020, shareholders approved the maximum aggregate prospective compensation of the members of the Board of Directors (84.7% approval). Shareholders also approved for the Group EC (i) the maximum aggregate prospective fixed compensation and variable long-term compensation and (ii) the aggregate retrospective variable short-term compensation. The outcomes were 85.5% and 86.4% approval, respectively. As in previous years, the 2019 Compensation Report was subject to a consultative vote and was approved by 87.7% of the shareholder votes.
The amount of fixed compensation and variable long-term compensation effectively granted to the 15 individuals who held a Group EC position at one point during the financial year 2020 amounts to CHF 29.9 million and includes compensation and associated costs in relation to the period in a Group EC position for one individual who joined the Group EC during the year (this appointment was not known at the time of the AGM 2019).
As shown on page 144 of this Financial Report, the compensation paid to the 14 members of the Board of Directors for their term of office from the AGM 2020 to the AGM 2021 is CHF 10.1 million and therefore within the approved amount.
1 Reconciliations calculated using December 2020 year-to-date FX rates where applicable.
We have audited the accompanying Compensation Report included in this 2020 Financial Report of Swiss Re Ltd (the ‘Company ’) for the year ended 31 December 2020. The audit was limited to the information according to Articles 14-16 of the Ordinance against Excessive Compensation at Public Corporations (the ‘Ordinance’) contained in the tables on pages 140 to 146 of the Compensation Report.
Opinion In our opinion, the Compensation Report included in the 2020 Financial Report of the Company for the year ended 31 December 2020 complies with Swiss law and articles 14–16 of the Ordinance.
Swiss Re has a long-standing commitment to sustainable, long-term value creation. Through our Group Sustainability Strategy, we have sharpened this commitment and have clearly defined sustainability as a strategic, long-term value driver.
We apply this approach throughout our re/insurance value chain, comprising both the liability and the asset sides of our balance sheet, our own operations and dialogue with our stakeholders.
Our climate-related financial disclosures summarise the steps we have taken to achieve our commitments to net-zero CO2 emissions. This chapter follows the structure of the TCFD recommendations (see table below). In each section, we focus on physical risks in our re/insurance business, transition risks in our re/insurance business, and transition risks in our investments.
key issue because it leads to an increase in the severity and a change in the patterns of natural catastrophes such as windstorms, floods, excessive rainfall, heatwaves and drought. In combination with growing asset concentrations in exposed areas and more widespread insurance protection, climate change will cause a steady rise in losses. For this reason, we have developed a Climate Action Plan (see Climate strategy, page 152).
• In our investment portfolio by 2050, as a founding member of the UNconvened Net-Zero Asset Owner Alliance
You can read more about our Group Sustainability Strategy and our climaterelated activities in our Sustainability Report 2020 at: sustainability-report/2020 1 Net-zero emissions means that for every tonne of CO2 that cannot be reduced, a tonne needs to be removed from the atmosphere and permanently removed through so-called carbon removal approaches.
The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews all key risk issues and exposures, including those with a specific climate dimension.
The Investment Committee reviews Swiss Re’s asset management-related activities and, as part of this, receives regular updates on Group Asset Management’s Responsible Investing Strategy and implementation, including in the area of climate change.
Group Functions also have specific responsibilities relating to climate change: a team located within Group Risk
Management is responsible for coordinating sustainability-related activities across the Group. Group Risk Management is responsible for maintaining a suitable risk policy framework, including sustainability and climate-related risks. Swiss Re Institute, which is headed by our Group Chief Underwriting Officer, provides the basis for pricing and, more specifically, all weatherrelated physical risks, eg through a dedicated natural catastrophes team and proprietary natural catastrophe models. Group Asset Management is responsible for developing and implementing the Group’s Responsible Investing Strategy, which includes a dedicated approach to climate change. Group Operations implements the net-zero strategy to manage the firm’s operational carbon footprint.
There is clear empirical evidence that the global climate has been changing and a far-reaching scientific consensus that this change has been due to human activity, primarily from the burning of fossil fuels and agriculture. Swiss Re recognises that climate change, if not mitigated, will potentially have disastrous effects on society and the global economy. In view of this, we are committed to playing an active role in the transition to a net-zero emissions economy and to supporting our private and public-sector clients in this transition and adaptation to unavoidable climate change.
Natural catastrophes are a key risk in our re/insurance business. The damage caused by storms, floods, droughts and other natural catastrophe perils (including wildfires) can affect millions of lives and the economies of entire countries. In 2020, our clients paid USD 4.1 billion of premiums3 for natural catastrophe covers exceeding losses of USD 20 million. This represents approximately 10% of total premiums, which shows the importance our clients place on obtaining re/insurance protection against natural catastrophe risks.
On average, insured losses due to natural catastrophes have increased steadily over the past 20 years. The key reasons have been economic development, population growth, urbanisation and a higher concentration of assets in exposed areas. At the same time, the protection gap, ie the difference between insured and total economic losses, has remained substantial in all regions (see graph on page 173).
Modelling and pricing of weatherrelated perils Climate change will impact the frequency and severity of losses and consequently, our modelling and pricing of insurance risks need to be adjusted on a regular basis. By constantly assessing the climate-related physical and transition risks, the insurance industry plays an important role in keeping such risks insurable and affordable wherever possible. Reducing emissions as much as possible (by managing transition risks and accelerating related solutions) and adapting to unavoidable climate change (through, eg risk transfer solutions and other means) is essential.
3. We build partnerships to develop scalable solutions to mitigate and adapt to climate change.
<1% All other perils1% Flood8% Tropical cyclone 1% All other perils
1% Alle anderen Gefahren 11% Konvektive Stürme 4% Überschwemmung28% Tropischer Wirbelsturm 2% Windsturm
<1% Konvektive Stürme4% Überschwemmung14% Tropischer Wirbelsturm 2% Alle anderen Gefahren 2% Konvektive Stürme 2% Überschwemmung2% Tropischer Wirbelsturm
In addition to property insurance, physical climate risks play an important role in a number of other areas. Agriculture insurance is one of those areas where perils like drought, excess rainfall, frost and hail play an important role.
Frequency perils, mostly affecting primary insurance, quota share and stop-loss reinsurance. Impact on insurance earnings, rather than capital. Impact strongly varies due to heterogeneous original covers, with considerable protection gap in flood insurance
Increasing regional trends already observable and medium-severe impact likely by mid/end of century
Another outcome of climate change for which there is high confidence is increased temperature extremes, which have brought longer and/or more frequent heat waves, droughts and periods of water scarcity. Heat waves affect agriculture, workforce productivity, infrastructure, water resources, health and mortality. In addition, hot and dry conditions exacerbate drought and wildfire risk, as seen in different regions in recent years (eg California, Portugal and Australia), with severe consequences for exposures in the wildland-urban interface. As losses from frequency perils often remain below the retention rates of reinsurance programmes, wildfire risk mostly affects primary insurers. The impact of wildfire risk and other frequency perils on a reinsurer is mostly through proportional covers such as quota shares and/or non-proportional aggregate covers.
While several climate-change factors are beginning to affect the natural catastrophe risk landscape, we expect weather risks to remain assessable by scientific methods. This means we can continue to update our loss models now and in the future to assure adequate costing of extreme weather events. The in-house development of risk models for weather-related perils ensures full modelling transparency and the ability to efficiently assess and update models if new scientific evidence becomes available (see also page 168, Climate risk management).
Regarding the long-term time horizon (20505), we expect a need for substantial adjustments to some of our weather risk models, based on evolving scientific knowledge. We are confident, however, that future research will continue to give us sufficient guidance on the magnitude and direction of these adjustments.
If rises in re/insurance premiums necessitated by increasing extreme weather risks remain modest, ie re/ insurance protection remains economically viable for our clients, the overall premium volume will potentially grow. Larger increases, however, will eventually reverse this effect by pushing re/insurance prices for certain exposed risks beyond the limits of economic viability. This is particularly relevant for areas with inadequate construction planning and development. In addition, timing is of crucial importance: if measures to exclude a particular risk are taken too early, we may offer our clients less insurance protection; if measures are taken too late, we may end up with higher claims.
In line with independent external studies, we have shown through a series of scenario assessments (Economics of Climate Adaptation studies, ECA) that in many regions, climate adaptation measures need to be taken to limit expected increases in natural catastrophe damage and thus to ensure the economic viability of re/insurance in the future. This is one of the key reasons why Swiss Re actively engages with the United Nations, the public sector, clients, industry peers and employees to advocate cost-effective adaptation to climate change.
2 For more details, see also IPCC Special Report on the Ocean and Cryosphere in a Changing Climate, Sea Level Rise and Implications for Low-Lying Islands, Coasts and Communities (2019), Figure 4.3.
Source: Swiss Re; United Nations Population Division, Department of Economic and Social Affairs, World Population Prospects 2019
From a re/insurance perspective, the most material risk associated with sea level rise is storm surge in large coastal cities. Today, approximately 230 million people, roughly 3% of the world’s population, are exposed to storm surge risk. Storm surges cause, on average, more than USD 10 billion of losses per year, of which the majority remains uninsured today. The largest urban areas that are currently exposed to significant storm surge risk are shown on the map above.
Estimate of insured property exposure in coastal storm-surge zones (as percentage of total insured property exposure)
Impact on real assets exposed to weather-related perils Real assets such as real estate or infrastructure are exposed to natural perils, such as hurricanes, tropical cyclones and floods. In addition to considering physical risks when acquiring new properties, we analyse these exposures across the investment portfolio based on our proprietary modelling capabilities used for our re/insurance underwriting. In the reporting year, we have extended this analysis to our private debt investments, including infrastructure loans and commercial mortgage lending, as well as commercial mortgage-backed securities. The results of both analyses suggest a very low exposure of our real asset holdings to natural perils in general and to climaterelated perils in particular.
Our own operations According to our in-house catastrophe loss models, severe weather risks are potentially of importance for some of our operations, mainly in Florida and on the northeastern coast of the US. However, even assuming an extreme climate change scenario, we do not expect any of these office locations to be exposed to risk levels that would undermine their economic viability. Additionally, robust and regularly tested business continuity plans are in place to mitigate the risk of climate-related disruptions. Strategies include transferring work and/or employees to unaffected Swiss Re locations, and providing temporary alternative office space. Working from home can also be a viable and effective alternative, as has been demonstrated during the COVID-19 pandemic, during which the majority of employees worked from home for many months.
For a re/insurer, financial risks arising from the transition to a low-carbon economy 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, re/insurers may also need to adapt to potential impacts on the liability side resulting from reductions in insurance premiums in carbon-intensive sectors.
Policy and legal risks As the move towards achieving a net-zero emissions economy by mid-century or earlier gains momentum in both the public and private sector, material policy-triggered changes are expected for the real economy (eg power and energy, materials and processes, logistics and transportation, and agroforestry and land-use practices). Such policy changes may include regulations to increase energy and material efficiency, mandates to rapidly scale up renewable energy and clean mobility, the removal of fossil fuel subsidies, the introduction of carbon pricing, policies addressing land-use change and agricultural practices, as well as the scaling up of carbon removal technologies. This requires a solid understanding of the related policy and legal risks as well as the proactive management of related risks and opportunities. Certain policy risks might also influence the risk quality of some underlying assets in the mid- to long-term (eg due to increased cost pressure and reduced asset maintenance).
Climate-related litigation risks We identified potential climate-related litigation risks as an emerging risk over a decade ago and assessed its potential relevance through our own research. Climate change litigation activities against large greenhouse gas emitters have increased in recent years without any significant impact on insurance. As a result, we have not faced any new claims from climate-related litigation in recent years and the results of the litigation, which in the majority of the cases remain in favour of the defendants, suggest that this trend may continue. However, this warrants ongoing monitoring, especially as the analytical capabilities for allocation of responsibility for greenhouse gas emitters could further develop with potential regulatory changes.
Technology risks The re/insurance sector is likely to experience the technological transition in two ways.
Secondly, new low-carbon technologies are likely to gradually displace traditional, fossil fuel-based ones. This will alter the market and, as a result, gradually change the nature of re/insured assets.
Consequently, while the automotive industry as a whole is undergoing significant change, the impact on insurance portfolios is expected to be gradual. As motor insurance contracts are renewed annually, re/insurers will be able to develop the appropriate underwriting experience, loss adjustment and claims handling.
To address the residual risk, we have started to develop a carbon risk steering mechanism. Its key component will be a carbon risk model designed to measure our carbon intensity and the associated risks embedded in our re/insurance business. For further information about the mechanism and related policies, see page 168, Climate risk management, and page 172, Climate metrics and targets.
• Increased operating costs (eg higher compliance costs, increased insurance premium)
• Increased operating risk and lower risk quality for impaired assets may impact property insurance (eg due to increased cost pressure and reduced asset maintenance)
Technology • Substitution of existing products and services with lower emissions options • Costs to transition to lower emissions technology
• Shift in predominant energy technologies could lead to a change in the liability structure and diversification for insurers
• New technologies without established loss histories may increase uncertainties in property and engineering lines of business
Market and reputation • Uncertainty in market signals and in client behaviour
• Reduced demand for goods and services due to shift in consumer preferences
• Change in revenue mix and sources, resulting in decreased revenues
• Reduction in capital availability • Increased reputational risk for highemission sectors
• Potential societal backlash due to transition in fossil fuel-dependent societies causing market decline (eg due to political unrest)
To enhance how we assess the alignment of our portfolio with the 1.5°C target, we have further strengthened our approach, taking additional forward-looking indicators into account. Companies may mitigate exposure to climate risk by adapting to market forces or adhering to new and evolving requirements. The forward-looking indicators allow us to analyse climate risk-exposed industries down to the issuer level. They inform us about the preparedness of companies for a transition to a net-zero emissions economy and identify potential leaders and laggards in such a transition. Although aware of the limitations related to data quality and coverage, we assess the sectoral temperature alignment of our corporate bond and listed equity portfolio. The evaluation of the companies’ alignment is based on the pre-defined 1.5°C carbon budget considering their reported as well as modelled future emissions. This informs us about the sectoral trajectory related to the transition to a net-zero emissions economy and hence the alignment with the 1.5°C target. While many issuers have set carbon reduction targets, are actively working towards lowering their energy consumption or are already on a pathway consistent with the targeted temperature trajectory, others continue to contribute substantially to excess emissions not consistent with the 1.5°C target. Even though our analyses show that a transition to a net-zero
Transition risks in our investments conclusion: While regulators and governments have started implementing policy and legal adjustments, we do not consider the transition to a net-zero emissions economy to pose a significant financial risk for Swiss Re’s investment portfolio. This view is based on having proactively implemented a strong mitigation strategy, which is regularly reviewed and adjusted, as well as the constant monitoring of our portfolio.
The market environment is expected to shift to address climate change mitigation and adaptation requirements to limit the global rise in temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C. Governments and regulators have accelerated the development of proposals to steer and transition climate changerelated market activities towards more sustainable alternatives. Japan and China’s net-zero emissions pledges and the UK’s Ten Point Plan for a Green Industrial Revolution, which aims to make the UK the number one centre for green technology and finance, are just three recent examples.
We continue to focus on policy and legal risks, as well as technology risks, as we mainly expect changes within these two dimensions to potentially impact asset values. Hence, we aim to identify those industries and groups of companies that are most exposed to these risks and may thus require adjustments in the near to medium term.
Industries and companies that are particularly exposed to policy and legal changes, as well as technological developments, have elevated risk exposures either in their production process, their raw materials, their transportation/logistics or distribution and store operations due to high carbon footprints in these areas. Furthermore, industries may face increased compliance costs in the production and distribution process, as well as costs arising from product demand substitution. All of these changes may cause increased price volatility of the underlying assets.
emissions economy may be challenging and costly, we consider the developments as identified to be encouraging.
Since 2015, Swiss Re has taken decisive action to actively manage our climaterelated risks and take advantage of related opportunities, such as the avoidance of coal-related investments or investing into green, social and sustainability bonds. Actions taken are described in detail in the chapters on Climate risk management (pages 170–171) and Climate metrics and targets (pages 174–175).
Opportunities related to physical risks in our re/insurance business Since most of our re/insurance contracts are renewed on an annual basis, we can offer our clients effective natural catastrophe protection that can help them cope with current climate risks. The same applies to our weather insurance solutions. In addition, we undertake special efforts to help expand re/insurance protection by focusing on non-traditional clients (in particular from the public sector), underdeveloped markets and innovative risk transfer instruments.
Business solutions that tackle physical climate risk Examples of recent transactions that tackle physical climate risk include: Protecting the Netherlands from storm surge: Swiss Re is insuring the refurbishment, required for climate adaptation, of the almost 90-year-old, 32-kilometre Afsluitdijk dam in the Netherlands, which protects large parts of the country against sea level rise and storm surge. In addition, the Afsluitdijk will serve as a test centre for renewable tidal energy where water emptied from Lake Ijssel meets the Wadden Sea.
Providing flood protection in Germany: In 2020, iptiQ, Swiss Re’s B2B2C business, entered into a partnership with one of Germany’s leading broker pool providers specialising in homeowner’s insurance to provide flood protection for properties located in the country’s highest flood risk zone (ZÜRS 4).
Opportunities related to transition risks in our re/insurance business The transition to a net-zero emissions economy offers business opportunities for a re/insurer across a range of sectors such as power and energy, materials and processes, logistics and transport, and agroforestry and food. While Swiss Re is active in all types of renewable energy re/insurance, over the years we have become a recognised lead market for offshore wind risks. In 2015, Swiss Re Corporate Solutions established a Centre of Competence for Wind Power and, through this focused investment, we have built up and refined the technical expertise required to understand and manage these risks. For example, in 2020, we were the lead insurer for the construction of the 640-megawatt Yunlin wind project eight kilometres off the coast of Taiwan. Thanks to our involvement in this project and our expertise in offshore wind, we have also been selected as the preferred insurer for the construction of the 350-megawatt Guanyin offshore wind project near the Taipei airport, which is set to enter the construction phase in 2022. In addition, we insured the Changfang and Xidao offshore wind farm off the coast of Taiwan. Over the next decade, we expect many new development opportunities to arise, which are likely to create demand for re/insurance protection in numerous lines of business, such as credit, engineering, property, and liability.
Promoting greener shipping technologies with marine insurance: In 2020, Spain’s leading shipping company unveiled its first fast ferry powered by liquefied natural gas, which generates up to 30% less CO2 emissions, 99% less sulphur, and up to 85% less nitrogen oxide than the heavy fuel oil typically used in the shipping industry. Swiss Re’s Global Marine division provided reinsurance cover for the construction of this ship as well as hull reinsurance, supporting efforts to meet the International Maritime Organization’s target to reduce the industry’s overall greenhouse gas emissions by 50% relative to 2008 levels, by 2050.
Renewable and social infrastructure loans 1 Consisting of green, social and sustainability bonds. 2 Moody’s, “Sustainable Finance – Global: Sustainable bond volumes to top USD 650 billion in 2021”, 3 Moody’s – Green bonds: Key numbers and trends, 2018.
Opportunities for our investments We expect our consistent and broad-based integration of environmental, social and governance (ESG) criteria along the investment process to contribute to an improved risk/return relationship in our investment portfolio, particularly over the longer term. We address sustainability risks such as climate change to make the portfolio more resilient against financial market shocks. This is of crucial importance as such risk factors are not yet fully reflected in current market valuations. As part of our adaptation strategy, we consider investment opportunities that enable the transition to a net-zero emissions economy.
For our infrastructure loan allocation, we work with best-in-class managers to gain access to, and provide financing for, renewable energy projects that reflect our risk appetite, generate attractive long-term returns and help build a more sustainable energy supply for the future. As of 31 December 2020, we held
New property investments are evaluated from an environmental and social perspective, which includes both a property’s current and potential future status as it relates to energy efficiency, public transport connectivity, use of sustainable materials, occupier well-being and community engagement. Ongoing business plan execution and asset management of properties already in the portfolio always incorporate different ways to improve sustainability characteristics, as economically and financially sensible.
For real estate investments in Switzerland, we apply the following sustainability criteria: analysis of energy sources as a percentage of market value and MINERGIE® certifications. MINERGIE® is a Swiss sustainability label for new and refurbished buildings. By the end of 2020, the combined market value of our MINERGIE®-certified buildings reached USD 0.6 billion, or 27% of our Swiss portfolio of direct real estate investments by value, which corresponds to an energy consumption floor area of 87 075m2. The Swiss portfolio is gradually shifting away from fossil fuels as a heating source to either renewable energy (26%) or district heating (14%). Whenever this is not possible, gas (39%) is considered as an alternative, given its smaller carbon footprint compared to oil (18%).
73% Keine Zertifizierung 1 Includes wood pellets, projects under construction, land and non-heated assets.
In the US, our approach to sustainability includes some of the most recognised certificates and guidelines such as the LEED certification of the US Green Building Council (USGBC). We also benchmark our US portfolio against GRESB, an industry-driven organisation transforming the way capital markets assess ESG performance of real assets.1 1 Due to a change in our investment setup, the 2020 GRESB Assessment does not reflect the portfolio’s performance appropriately for 2020.
53% NABERS Energy 5 31% NABERS Energy 4/4.5 16% NABERS Energy < 4 or not certified
It is important to state that in a warming climate there is significant uncertainty around projected changes to severe weather events such as hurricanes, as also outlined in the section on modelling and pricing of weather-related perils (pages 152–155). Therefore, Swiss Re relies on several processes and strategies to minimise the impact of such uncertainty on its underwriting business.
8 RCP scenarios represent possible future concentration trajectories of greenhouse gases. The scenarios are named after the resulting radiative forcing at the end of the 21st century, eg 8.5W/m2 for RCP8.5, where no mitigation measures nor technical innovation will limit temperature increases. SSP narratives describe alternative pathways for future society.
(which can be redefined during the annual renewal process of property re/insurance business), market conditions, capital costs, insurance penetration, storm hardening and other climate adaptation measures. Since our re/insurance book and current AEL are the result of a complex interaction between all of these factors, any future scenario would have to consider all of them, in the process rendering the effect of climate change on the resulting AEL marginal. Moreover, the future AEL for Swiss Re’s weather-related re/insurance book will depend both on our future market share and scenario projections of overall business volume.10 Independent studies have shown a wide range for future market business volumes, thus rendering long-term projections very challenging.
The complex dynamics become apparent when considering that over the next decades, significant population growth is expected in Asia and Africa. At the same time, the population in Europe and North America is unlikely to grow considerably or may even start to decline, as projected by the United Nations Department of Economics and Social Affairs. Over the same time period, real GDP per capita is expected to increase by more than 45% in the United States and will likely more than double in China by 2050 based on Swiss Re estimates. Global urbanisation will increase from approximately 56% today to almost 70% by mid-century.11
2. Flexible management and steering of weather-related exposure through limited duration of re/insurance contracts (typically one-year contracts for property insurance).
3. Regular updates of Swiss Re’s in-house risk models to ensure adequate costing of natural hazards for the current and near-term climate and socio-economic environment.
4. A qualitative scenario process to assess the most material impacts of climatic and socio-economic trends that affect insured risks. This is supported by quantitative assessments on the likely range of expected changes to assess their materiality over different time horizons and emission pathways.
Qualitative scenarios help us focus our attention and modelling improvements on relevant factors that will affect the physical risk landscape. Relevant regional key risks and potential for risk reduction through adaptation were identified by IPCC in the Fifth Assessment Report (AR5).13
Scenario analysis conclusion: We do not consider climate change to be a single factor posing a fundamental threat to the resilience of our business. It is one of many important factors we need to take into consideration when shaping our future business strategy. A key condition for our ability to continue acting as an ultimate risk-taker is diversification with regard to regions, lines of business, sectors and clients. In a world of strong or unmitigated climate change, however, the proportion of weather-related risks we could re/insure would decline and the protection gap would likely increase further. In light of the above, we are developing qualitative scenarios for physical and transition risks to be considered as part of our strategic business planning.
13 See eg Figure SPM.8 in IPCC AR5 Synthesis Report: Climate Change, Summary for Policymakers (2014).
The processes we use to identify, assess and manage climate-related risks are integrated into our risk management, underwriting and asset management.
We have an internal property risk modelling team that builds, maintains and updates sophisticated models for all relevant natural catastrophe risks (flood, tropical cyclones, windstorms, earthquakes). The models are based on current scientific knowledge and are regularly updated to include new scientific findings – including from our research collaborations with academic institutions – and to make use of advances in computing and modelling capabilities.
For all types of transition risks described on pages 158 and 159, we have risk monitoring in place. Technological developments are monitored through Swiss Re’s respective underwriting units and pricing of associated covers is reviewed on an annual basis.
General sustainability risks in our re/insurance business Our Sustainable Business Risk (SBR) Framework is an advanced risk management instrument that allows us to identify, assess and address social and environmental risks associated with our transactions, both on the underwriting and investment side. Two policies of our SBR Framework are particularly relevant in the context of climate change: the thermal coal policy and the oil and gas policy.
In 2018, we introduced a thermal coal policy, pledging not to provide re/insurance to businesses with more than 30% exposure to thermal coal utilities or mining. The policy applies to both old and new thermal coal projects and across all lines of business. While it is easier to implement this policy in some parts of our business, for others the transition will take some time and require a continued and constructive dialogue with our clients. In 2020, we continued to implement the thermal coal policy for treaty business (see also Climate metrics and targets, pages 172–173). In this context, we had over 400 engagements with insureds, brokers, investors and regulators across all regions on the topic of thermal coal.
In addition, we started implementing our updated oil and gas policy to shift away from highly carbon-intensive oil and gas production (see box). From July 2021, we will no longer provide individual insurance covers for those oil and gas companies that are responsible for the world’s 5% most carbon-intensive oil and gas production. From July 2023, we will no longer provide individual insurance covers for those oil and gas companies that are responsible for the world’s 10% most carbon-intensive oil and gas production.
Our climate-related policies are initial steps towards the development of a comprehensive carbon-risk steering mechanism to manage and reduce the carbon intensity and associated risks embedded in our re/insurance business. In 2020, we made progress in applying a carbon footprinting methodology we had previously helped develop in a project with peers via the CRO Forum in our direct and facultative liability portfolios. This methodology will support our carbon risk steering towards reaching net-zero emissions on the liability side of our business by 2050. For further information on the carbon footprint of our direct insurance portfolio, see Climate metrics and targets, page 172.
Phasing out the most severe oil and gas transition risks We implemented a project with the Norwegian energy research company Rystad Energy where we have studied the value chain CO2 intensities associated with the production of the world’s oil and gas companies. We found that the carbon emission intensities over the value chain of various hydrocarbons (naturally-occurring compounds that form the basis of crude oil, natural gas, coal and other important energy sources) can vary substantially. This analysis provided the basis for our updated oil and gas policy. Read more about this in our Sustainability Report 2020, page 39.
As a founding member of the UN-convened Net-Zero Asset Owner Alliance (AOA) launched in 2019, we have committed to having a net-zero emissions investment portfolio by 2050 in accordance with Article 2.1c of the Paris Agreement (www.swissre.com/ri-climate-action-aoa). Our commitment includes supporting the net-zero transition of economic sectors by advocating for and engaging on corporate and industry action. We consider engagement with investee companies to be a particularly effective instrument for enabling them to strengthen their long-term business performance. Swiss Re was instrumental to the development of the Alliance Inaugural 2025 Target Setting Protocol (TSP)14, a guide for individual and collective target setting and reporting by AOA members for the period from 2020 to 2025. In accordance with the TSP, we have defined targets for financing the transition, our engagement activities, the sub-portfolio, and investments in the coal sector, taking scientific evidence into account to the extent possible (for details, see Climate metrics and targets, pages 174–175).
Define targets to reach net-zero emissions in alignment with 1.5°C by 2050 at the latest
Actively manage transition and physical risks, and support real economy transition to net zero
• Corporate bonds & listed equities coal phase-out & coal expansion restriction
• Carbon Footprint • Corporate bonds • Listed equities • Real estate • Government bonds
• Fossil fuel exposure • Forward-looking indicators 1 In alignment with the Net-Zero Asset Owner Alliance Inaugural 2025 Target Setting Protocol. 2 Investment target also includes social infrastructure loans. 3 Investment target also includes social and sustainability bonds. 4 Fossil fuel: coal, oil & gas (including oil sands).
Re/insurance Annual expected losses (AEL) AEL for weather-related natural perils can be used as an indicator for our average current climate-related risk exposure. However, AEL figures do not, by definition, provide an adequate measure for the potential risk of individual years with exceptionally intense natural catastrophe losses. Adequate metrics for the risk of individual rare natural catastrophes are Value at Risk (VaR) or Tail Value at Risk (Tail VaR). For example, the 99.5% VaR measures the loss likely to be exceeded in only one year out of two hundred, see also page 71, where the results of insurance risk stress tests are provided for peak insurance risks.
The AEL figures are the result of expected weather activities, the vulnerability of insured assets and operations, their values and the volume and structure of our insurance products. Changes in the AEL figures will show the evolution of our climate risk exposure. This could be due to climate change, but also due to changes in the vulnerability of insured assets and operations, their values or changes in our business strategy. AEL figures are updated on an annual basis.
The five weather-related perils with the highest gross AEL for our business as of the end of 2020 are indicated in the diagram on the right.
Weather-related catastrophes: insured vs uninsured losses There is a substantial protection gap between total economic losses from weather-related catastrophes and insured losses in all regions. This data does not represent a company-specific metric but is an important overall risk indicator (see table below).
Insured loss Source: Swiss Re Institute in USD bn, at 2020 prices
Climate-related commitments to the United Nations and the Insurance Development Forum Reflecting our efforts to help expand re/insurance protection by working with public-sector clients, we made a commitment to the United Nations to advise up to 50 sovereigns and sub-sovereigns on climate risk resilience and to offer them USD 10 billion of insurance cover against this risk by 2020. You can see the progress we have made against this goal in the table below.
In addition, Swiss Re and a number of our industry peers have endorsed the joint Tripartite Agreement between the Insurance Development Forum (IDF), the UN Development Programme, and the government of Germany, in which they commit to increasing insurance protection in climate-exposed countries. Industry members collectively committed to offer up to USD 5 billion of risk capacity for climate risk insurance to contribute to the G7 InsuResilience target of protecting 500 million individuals against climate risk by 2025. In 2020, the Tripartite formed 13 country teams, with three more in the exploration phase. Swiss Re contributed to the projects alongside ten other industry members.
Amount of climate protection offered (in USD) 8.2 billion 10.0 billion 10.7 billion
Targets by 2025 aligned with the Net-Zero Asset Owner Alliance Inaugural 2025
• Renewable infrastructure loans: +USD 750m2 • Green bonds: constant market monitoring to identify potential investments • Renewable infrastructure loans: constant market monitoring to identify potential investments
• Infrastructure loans & private placements: maturity limitation for fossil fuel5-related investments
• Corporate bonds & listed equities: coal maturities to run off by 2030, ongoing monitoring
• Corporate bonds & listed equities: expansion restrictions for capital expenditures >USD 100 million for coal mining, coal-fired capacity >300 megawatts for coal-based power generation
4 Base year 2018. 5 Fossil fuel: coal, oil & gas (including oil sands).
Financing transition targets Green bond proceeds are used to finance environmentally sustainable projects and thereby facilitate the transition towards a net-zero emissions economy. By the end of 2020, we held USD 2.3 billion in green bonds. As part of our adaptation strategy, our mandate also considers social and sustainability bonds. This enables us not only to support the environment, but also underserved groups or populations, thus generating a positive impact on society.
Our ambition is to achieve our investment target of USD 4 billion for green, social and sustainability bonds by the end of 2024.
Sub-portfolio targets As Swiss Re committed to have a net-zero emissions investment portfolio by 2050, we established an intermediate portfolio emission reduction target for the period from 2020 to 2025. Informed by IPCC’s pathways consistent with the 1.5°C target, we defined a carbon intensity reduction target of –35% for our corporate bond and listed equity portfolio, to be achieved by 2025 with 2018 as the base year. This is also well in line with the AOA’s TSP recommendation of a reduction of at least –16% to –29%. Having chosen 2018 as the base year for our target, we included an additional 5% reduction for the one year of difference to the AOA’s base year.
Furthermore, we set a carbon intensity reduction target for our Swiss and German real estate investment portfolio of –5% with 2018 as the base year, to be achieved by 2025. This builds on our analysis showing that the portfolio emission intensity is already well aligned with the 1.5°C trajectory.
UK IG corporate bond portfolio UK Corp IG ESG BB+ index
UK IG Kreditportefeuille (tonnes CO2e /USDm revenue) (Tonnen CO2e /Mio. USD Umsatz)
Carbon footprint of our listed equity portfolio The portfolio of listed equities continues to be significantly less carbon intensive than the corresponding benchmark due to its focus on high quality companies with low carbon intensity.
To take our dedicated approach towards climate risk management one step further, we started to measure the carbon intensity of our government bonds in 2020. We implemented a widely adopted approach for these bonds, which constitute the largest holding within our investment portfolio. Here, the metric “weighted average carbon intensity” is also defined as the portfolio carbon intensity based on relative investment share but is combined with an additional element allowing for the comparison of the carbon intensity of economies. The greenhouse gas emissions of a specific bond’s issuing country are divided by its gross domestic product adjusted by purchasing power parity (PPP). This enables the equitable comparison of carbon intensity in terms of physical production and corresponding environmental impact.
1 G20 carbon intensity calculated as total of emissions of the G20 divided by the total PPP-adjusted GDP.
Carbon footprint of our government bond portfolio The composition of our government bond portfolio is impacted by the fact that asset-liability management is at the core of our investment approach. In 2020, Swiss Re’s government bond portfolio was less carbon intensive than the G201 countries due to our higher allocation to low carbon intensity countries.
Greenhouse gas emissions from our own operations (Scope 1, 2 and 3) Reducing our operational carbon footprint is an important part of our Group Sustainability Strategy. In 2003, Swiss Re was one of the first major companies to become carbon neutral.
CO2NetZero Programme to reduce our operational footprint to net zero Swiss Re has committed to reducing its operational CO2 footprint to net-zero emissions by 2030. To achieve this goal, we will “do our best, remove the rest” under our CO2NetZero Programme. “Doing our best” means we will intensify our efforts to reduce emissions. A special focus lies on our business travel emissions, which are currently responsible for the bulk of our operational carbon footprint. We have set ourselves the company-wide target of reducing our flight emissions by 30% in 2021, relative to the 2018 level, and will define a new, ambitious target for the post-pandemic period. “Removing the rest” means we are moving from buying conventional carbon offsets to supporting carbon removal projects to compensate for any unavoided emissions.
Carbon removal is a new form of emission compensation that extracts CO2 out of the atmosphere and stores it permanently. This is a prerequisite for balancing remaining gross emissions in any net-zero emissions target, including the Paris Agreement.
Carbon removal is currently much more expensive than conventional carbon offsetting, as the carbon removal industry is still in its infancy. To cover the first-mover price for carbon removal certificates, we are stepping up our internal carbon levy from less than USD 10 per tonne of CO2 to USD 100 per tonne of CO2 in 2021. Swiss Re is the first multinational company with a triple-digit real internal carbon price on both its direct emissions and indirect operational emissions (such as business travel). A real carbon price – unlike the more commonly used shadow carbon price – impacts budgets and is therefore particularly effective in fostering low-carbon decision-making within the company. Externally, a triple-digit carbon price signals to our stakeholders that Swiss Re is a credible partner when it comes to addressing climate risks. The new carbon steering levy will gradually increase to USD 200 per tonne of CO2 by 2030. This price transparency and the 10-year planning horizon will allow us to enter into long-term purchase agreements with carbon removal service providers, which sends a particularly strong market signal to the emerging carbon removal industry.
You can learn more about our Greenhouse Neutral Programme and net-zero commitment for operations in our Sustainability Report 2020, pages 60–69.
Note 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) 234
Expenses Claims and claim adjustment expenses 3 –18 683 –19 838 Life and health benefits 3 –13 087 –13 929 Return credited to policyholders –4 633 1 760 Acquisition costs 3 –7 834 –8 236 Operating expenses –3 579 –3 597
Income/loss before interest and income tax expense 1 498 –502 Interest expenses –589 –588
Earnings per share in CHF3 Basic 13 2.46 -2.97 Diluted 13 2.40 –2.97 1 Total impairments for the years ended 31 December of USD 80 million in 2019 and of USD 5 million in 2020, respectively, were fully recognised in earnings. 2 Total impairments for the years ended 31 December of USD 10 million in 2019 and of USD 29 million in 2020, respectively, were fully recognised in earnings. 3 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
Total comprehensive income/loss before attribution of non-controlling interests 4 437 –5
Cash and cash equivalents (including 1 257 in 2019 and 773 in 2020 subject to securities lending, and 4 in 2019 and 3 in 2020 backing unit-linked and with-profit contracts) 7 562 5 470 Accrued investment income 673 626 Premiums and other receivables 15 271 15 934 Reinsurance recoverable on unpaid claims and policy benefits 5 898 5 892 Funds held by ceding companies 9 472 10 726 Deferred acquisition costs 6 7 838 8 230 Acquired present value of future profits 6 1 042 928 Goodwill 3 945 4 021 Income taxes recoverable 466 337 Deferred tax assets 14 4 726 6 079 Other assets 3 489 3 686 Assets held for sale¹ 10 74 439 1 Please refer to Note 10 ”Acquisitions and disposals” for more details.
Liabilities Unpaid claims and claim adjustment expenses 5 72 373 81 258 Liabilities for life and health policy benefits 8 19 836 22 456 Policyholder account balances 5 405 5 192 Unearned premiums 13 365 13 309 Funds held under reinsurance treaties 3 521 5 146 Reinsurance balances payable 889 1 097 Income taxes payable 378 336 Deferred and other non-current tax liabilities 14 5 663 6 740 Short-term debt 11 185 153 Accrued expenses and other liabilities 7 7 191 8 093 Long-term debt 11 10 138 11 584 Liabilities held for sale¹ 10 68 586
Equity Common shares, CHF 0.10 par value 2019: 327 404 704; 2020: 317 497 306 shares authorised and issued 31 30 Additional paid-in capital 256 251 Treasury shares, net of tax –2 220 –1 396 Accumulated other comprehensive income: Net unrealised investment gains/losses, net of tax 5 152 5 760 Other-than-temporary impairment, net of tax –1 –1 Cash flow hedges, net of tax –2 Foreign currency translation, net of tax –5 794 –5 755 Adjustment for pension and other post-retirement benefits, net of tax –850 –808 Credit risk of financial liabilities at fair value option, net of tax 3 4
Common shares Balance as of 1 January 32 31 Cancellation of shares bought back –1 –1 Balance as of period end 31 30
Additional paid-in capital Balance as of 1 January 496 256 Transactions with non-controlling interests1 –241 9 Cancellation of shares bought back –23 –27 Share-based compensation –9 –1 Realised gains/losses on treasury shares 33 14 Balance as of period end 256 251
Treasury shares, net of tax Balance as of 1 January –2 291 –2 220 Purchase of treasury shares –1 041 –228 Cancellation of shares bought back 1 020 1 011 Issuance of treasury shares, including share-based compensation to employees 92 41 Balance as of period end –2 220 –1 396
Cash flow hedges, net of tax Balance as of 1 January 6 –2 Transactions with non-controlling interests1 1 Changes during the period –9 2 Balance as of period end –2 0
Adjustment for pension and other post-retirement benefits, net of tax Balance as of 1 January –828 –850 Transactions with non-controlling interests1 7 Disposal of ReAssure2 66 Changes during the period –29 –24 Balance as of period end –850 –808
Retained earnings Balance as of 1 January 34 512 32 676 Net income/loss after attribution of non-controlling interests 727 –878 Dividends on common shares –1 659 –1 765 Cancellation of shares bought back –996 –983 Impact of ASU 2016-023 92 Balance as of period end 32 676 29 050
Disposal of ReAssure2 –1 848 Balance as of period end 1 786 123 1 In 2019, MS&AD Insurance Group Holdings, Inc. (MS&AD) acquired a 10% stake in ReAssure Group Plc. (ReAssure), then a subsidiary of the Group, increasing its total non-controlling interest to 25%. In the fourth quarter of 2019, the Group agreed to reacquire the 25% stake in ReAssure in connection with the agreement to sell ReAssure to Phoenix Group Holdings Plc. (Phoenix). In the third quarter of 2020, the Group completed the agreed sale.
Cash flows from operating activities Net income/loss attributable to common shareholders 727 –878 Add income/loss attributable to non-controlling interests 42 54 Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items 538 617 Net realised investment gains/losses –5 515 972 Income from equity-accounted investees, net of dividends received –283 175 Change in: Technical provisions and other reinsurance assets and liabilities, net 10 659 4 736 Funds held by ceding companies and under reinsurance treaties –5 393 Reinsurance recoverable on unpaid claims and policy benefits –571 214 Other assets and liabilities, net –472 –281 Income taxes payable/recoverable –471 –630 Trading positions, net –252 22
Cash flows from investing activities Fixed income securities: Sales 51 008 50 302 Maturities 7 732 7 333 Purchases –58 240 –52 212 Net purchases/sales/maturities of short-term investments –405 –9 681
Securities purchased/sold under agreement to resell/repurchase, net –869 –1 587 Cash paid/received for acquisitions/disposals and reinsurance transactions, net 340 –2 535 Net purchases/sales/maturities of other investments 581 –1 262 Net purchases/sales/maturities of investments held for unit-linked and with-profit business 1 584 1 888
Change in cash and cash equivalents 4 306 –4 821 Cash and cash equivalents as of 1 January 5 985 7 562 Cash and cash equivalents as of 1 January classified as assets held for sale 2 729 Reclassified to assets held for sale –2 729
On 22 July 2020, the Group completed the sale of ReAssure to Phoenix. Subsequently, the subject business was deconsolidated as of that date. Further details on the transaction are provided in Note 10 “Acquisitions and disposals”.
(including limited partnership investments). Investments in limited partnerships where the Group’s interest equals or exceeds 3% are accounted for using the equity method. Investments in limited partnerships where the Group’s interest is below 3% and equity investments in corporate entities which are not publicly traded are accounted for at estimated fair value with changes in fair value recognised in earnings.
Other assets Other assets include deferred expenses on retroactive reinsurance, prepaid reinsurance premiums, receivables related to investing activities, real estate for own use, other classes of property, plant and equipment, lease right-of-use asset, accrued income, certain intangible assets and prepaid assets.
The Group recognises the effect of income tax positions only if sustaining those positions is more likely than not. Changes in recognition or measurement are reflected in the period in which a change in judgement occurs.
Insurance and reinsurance ceded The Group uses retrocession arrangements to increase its aggregate underwriting capacity, to diversify its risk and to reduce the risk of catastrophic loss on reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Group of its obligations to its ceding companies. The Group regularly evaluates the financial condition of its retrocessionaires and monitors the concentration of credit risk to minimise its exposure to financial loss from retrocessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are reported as reductions of premiums earned and claims and claim adjustment expenses. Amounts recoverable for ceded short- and longduration contracts, including universal-life-type and investment contracts, are reported as assets in the accompanying consolidated balance sheet.
Share-based payment transactions As of 31 December 2020, the Group has a Leadership Performance Plan, restricted shares and a Global Share Participation Plan. These plans are described in more detail in Note 16 “Share-based payments”. The Group accounts for share-based payment transactions with employees using the fair value method. Under the fair value method, the fair value of the awards is recognised in earnings over the vesting period.
In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans”, an update to Subtopic 715-20, “Compensation – Retirement Benefits – Defined Benefit Plans – General”. The amendments in this Update remove, clarify and add disclosure requirements related to defined benefit pension and other postretirement plans. The Group adopted the annual disclosure requirements retrospectively as of year-end 2020, which are provided in Note 15 “Benefit plans”.
In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract”, a consensus of the FASB Emerging Issues Task Force (EITF) to Subtopic 350-40, “Internal-Use Software”. The amendments in this ASU align the requirements for capitalising implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract with the requirements for capitalising implementation costs incurred to develop or obtain internal use software. The update requires that implementation costs related to a CCA that is a service contract need to be capitalised based on the phase and nature of the costs. The Group adopted ASU 2018-15 prospectively on 1 January 2020. The adoption did not have a material impact on the Group’s financial statements.
In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”. The amendments in this ASU address seven specific issues identified related to financial instruments with the aim to improve and clarify the Codification, correct unintended application of current guidance and eliminate inconsistencies. The Group adopted issues 1, 2, 3, 4 and 5 on 9 March 2020, which is the issuance date of the ASU. The adoption did not have an impact on the Group’s financial statements. Issues 6 and 7 will be adopted together with ASU 2016-13 “Measurement of Credit Losses” as required by the standard.
Future adoption of new accounting standards In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses”, an update to Topic 326, “Financial Instruments – Credit Losses”. ASU 2016-13 replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. The standard is applicable to all financial assets such as financial instruments that are measured at amortised cost, availablefor -sale debt securities and reinsurance recoverables. The objective of the expected credit loss model is that a reporting entity recognises its estimate of expected credit losses incorporating forward-looking information in a valuation allowance for financial assets in scope. As amended by ASU 2019-10 “Effective Dates”, ASU 2016-13 is effective for annual and interim periods beginning after 15 December 2022. For most affected financial assets, the ASU must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to opening retained earnings on the adoption date. The Group is currently assessing the impact of the new requirements.
In August 2018, the FASB issued ASU 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts”, an update to Topic 944, “Financial Services – Insurance”. This ASU requires that the cash flows and net premium ratio will be updated for changes in insurance assumptions (eg mortality, morbidity, terminations) when measuring the liability for future policy benefits for nonparticipating traditional and limited-payment insurance and reinsurance contracts. There will no longer be a provision for adverse deviation. In addition, the discount rate used to reflect the time value of money in the calculation of the liability for future policy benefits will be standardised. Further, the ASU requires deferred acquisition costs (DAC) relating to most long-duration contracts to be amortised on a constant basis over the expected term of the contract. As amended by ASU 2020-11 “Effective Date and Early Application”, ASU 2018-12 is effective for annual periods beginning after 15 December 2024, and interim periods beginning after 15 December 2025. Due to the decision of the Board of Directors of Swiss Re Ltd to prepare the Group’s consolidated financial statements in accordance with IFRS beginning 1 January 2024, the Group does not plan to adopt ASU 2018-12.
202 Swiss Re | Financial Report 2020 2 Information on business segments The Group provides reinsurance and insurance throughout the world through its business segments. The business segments are determined by the organisational structure and by the way in which management reviews the operating performance of the Group.
Accounting policies applied by the business segments are in line with those described in the summary of significant accounting policies (please refer to Note 1). Cross-segmental dividends and gains and losses on certain one-off transfers and transactions between segments are accounted for through segmental shareholders' equity.
Corporate Solutions Corporate Solutions offers innovative insurance capacity to mid-sized and large multinational corporations across the globe. Offerings range from standard risk transfer covers and multi-line programmes to highly customised solutions tailored to the needs of clients. Corporate Solutions serves customers from offices worldwide.
Life Capital In the fourth quarter of 2019, the Group entered into an agreement to sell its subsidiary ReAssure, previously within the Life Capital business segment, to Phoenix. On 22 July 2020, the Group successfully completed the sale of ReAssure to Phoenix, following the receipt of all required regulatory and anti-trust approvals. The sale effectively led to the deconsolidation of ReAssure from the Group financial statements in the third quarter of 2020. For more details on the transaction, please refer to Note 10 ”Acquisitions and disposals”.
Life Capital manages Swiss Re’s primary life and health business as well as its primary retail property and casualty business. It encompasses the closed and open life and health insurance books, including the ReAssure business sold in 2020 and the business comprising elipsLife and iptiQ.
204 Swiss Re | Financial Report 2020 a) Business segments – income statement For the year ended 31 December 2019 Property & Casualty Reinsurance
Net premiums written 20 636 13 657 3 824 1 686 24 39 827 Change in unearned premiums 196 68 223 7 494
Premiums earned 20 832 13 725 4 047 1 693 24 40 321 Fee income from policyholders 158 291 449 Net investment income – non-participating business 1 178 1 140 140 827 20 –317 2 988 Net realised investment gains – non-participating business 683 445 74 243 285 1 730 Net investment result – unit-linked and with-profit business –32 –2 155 –2 187 Other revenues 26 4 5 1 407 –406 37
Expenses Claims and claim adjustment expenses –16 403 –3 433 –2 –19 838 Life and health benefits –12 204 –1 716 –9 –13 929 Return credited to policyholders 5 1 755 1 760 Acquisition costs –5 104 –1 999 –592 –527 –14 –8 236 Operating expenses –1 200 –786 –690 –613 –714 406 –3 597
Total expenses before interest expenses –22 707 –14 984 –4 715 –1 103 –737 406 –43 840
Income/loss before income tax expense/benefit –309 89 –480 –258 –132 0 –1 090 Income tax expense/benefit 62 –18 136 41 45 266
Claims ratio in % 78.7 84.8 79.7 Expense ratio in % 30.3 31.7 30.5 Combined ratio in % 109.0 116.5 110.2 Management expense ratio¹ in % 5.2 Net operating margin2 in % 0.1 2.9 –10.5 –6.6 –1.1 1 Management expense ratio is calculated as ”Operating expenses” divided by ”Total revenues” excluding ”Net realised investment gains/losses – non-participating business” and ”Net investment result – unit-linked and with-profit business”.
Liabilities Unpaid claims and claim adjustment expenses 49 963 13 094 12 881 2 489 –6 054 72 373 Liabilities for life and health policy benefits 20 679 728 4 250 –5 821 19 836 Policyholder account balances 1 401 4 004 5 405 Other reinsurance liabilities 12 899 2 904 4 987 2 034 2 –5 051 17 775 Short-term debt 915 1 500 66 60 –2 356 185 Long-term debt 5 511 11 225 798 838 494 –8 728 10 138 Other 11 662 7 970 1 093 1 015 1 900 –10 408 13 232 Liabilities held for sale1 68 624 –38 68 586 1 Please refer to Note 10 ”Acquisitions and disposals” for more details.
Business segments – balance sheet As of 31 December 2020 Property & Casualty Reinsurance
Assets Fixed income securities 39 691 32 958 7 024 3 244 101 83 018 Equity securities 1 518 641 204 110 2 426 4 899 Other investments 19 345 3 502 144 817 5 018 –12 595 16 231 Short-term investments 9 216 4 275 1 865 535 191 16 082 Investments for unit-linked and with-profit business 463 463 Cash and cash equivalents 2 941 1 625 558 294 52 5 470 Deferred acquisition costs 2 576 4 900 413 285 56 8 230 Acquired present value of future profits 510 418 928 Reinsurance recoverable 2 030 2 042 6 733 258 –5 171 5 892 Other reinsurance assets 13 003 7 883 2 491 4 469 9 –1 195 26 660 Goodwill 1 958 1 869 194 4 021 Other 8 769 7 705 2 366 1 193 4 580 –13 885 10 728
Liabilities Unpaid claims and claim adjustment expenses 55 267 14 863 13 560 2 727 9 –5 168 81 258 Liabilities for life and health policy benefits 20 207 746 1 495 9 –1 22 456 Policyholder account balances 1 303 3 889 5 192 Other reinsurance liabilities 14 570 1 399 4 137 887 74 –1 515 19 552 Short-term debt 435 1 500 66 60 –1 908 153 Long-term debt 4 771 12 304 498 2 400 –8 389 11 584 Other 16 834 9 416 909 808 3 067 –15 865 15 169
Premiums earned 7 207 9 286 2 782 19 275 Net investment income 1 419 1 419 Net realised investment gains/losses 883 883 Other revenues 18 18
Claims ratio in % 73.9 82.6 64.0 76.7 Expense ratio in % 27.4 34.0 31.3 31.1 Combined ratio in % 101.3 116.6 95.3 107.8
Net premiums written 8 278 9 364 2 994 20 636 Change in unearned premiums –28 245 –21 196
Total expenses before interest expenses –9 029 –10 745 –2 933 0 –22 707
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”.
Total expenses before interest expenses –10 413 –4 571 0 –14 984
2 Net operating margin is calculated as ”Income/loss before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”.
212 Swiss Re | Financial Report 2020 d) Net premiums earned and fee income from policyholders by geography Net premiums earned and fee income from policyholders by region for the years ended 31 December
3 Insurance information Premiums earned and fees assessed against policyholders For the years ended 31 December 2019 Property & Casualty Reinsurance
Premiums earned, thereof: Direct 3 896 2 427 10 6 333 Reinsurance 21 152 14 794 940 67 14 36 967 Intra-group transactions (assumed and ceded) 418 343 –411 –350 0
Retrocession to external parties –738 –1 412 –378 –451 –2 979
Change in unpaid claims and claim adjustment expenses; life and health benefits, thereof: Gross – with external parties –2 151 –1 394 –1 143 409 –4 279 Intra-group transactions (assumed and ceded) –25 –8 25 8 0
Claims and claim adjustment expenses; life and health benefits –14 783 –10 587 –3 900 –2 500 0 –31 770
Acquisition costs, thereof: Gross acquisition costs with external parties –4 875 –2 148 –729 –458 –8 210 Intra-group transactions (assumed and ceded) –28 –4 28 4 0
Claims paid, thereof: Gross claims paid to external parties –12 225 –11 813 –3 221 –2 791 –7 –30 057 Intra-group transactions (assumed and ceded) –553 –222 553 222 0
Claims before receivables from retrocession to external parties –12 778 –12 035 –2 668 –2 569 –7 –30 057
Claims and claim adjustment expenses; life and health benefits –16 403 –12 204 –3 433 –1 718 –9 –33 767
Acquisition costs For the year ended 31 December 2020 Property & Casualty Reinsurance
Net acquisition costs –5 104 –1 999 –592 –527 –14 –8 236
Reinsurance receivables Reinsurance receivables as of 31 December were as follows: Premium receivables invoiced 3 589 3 960 Receivables invoiced from ceded re/insurance business 444 468 Assets arising from the application of the deposit method of accounting and meeting the definition of financing receivables 249 649 Recognised allowance –56 –73
218 Swiss Re | Financial Report 2020 4 Premiums written For the years ended 31 December 2019 Property & Casualty Reinsurance
Gross premiums written 21 562 14 452 4 974 2 831 –1 591 42 228 Intra-group transactions (ceded) –68 –506 –373 –644 1 591 0
Retrocession to external parties –612 –1 212 –348 –407 –2 579 2020 Property & Casualty Reinsurance
Gross premiums written before retrocession to external parties 21 464 15 067 4 250 2 146 24 42 951
5 Unpaid claims and claim adjustment expenses A reconciliation of the opening and closing reserve balances for unpaid claims and claim adjustment expenses for the years ended 31 December is presented as follows: Balance as of 1 January 67 446 72 373 Balance as of 1 January classified as held for sale 497 Reinsurance recoverable −3 606 −3 732 Deferred expense on retroactive reinsurance −169 −168
Paid related to: Foreign exchange 161 2 149 Effect of acquisitions, disposals, new retroactive reinsurance and other items 1 302 −108
Reinsurance recoverable 3 732 3 636 Deferred expense on retroactive reinsurance 168 191 Reclassified to liabilities held for sale –497
For life and health lines of business, development on prior years' unpaid claims is unfavourable. For health business, adverse experience in disability portfolios in Australia and the US led to unfavourable claims development. Claims development related to prior years for disability portfolios also includes an element of interest accretion for unpaid claims reported at an estimated present value. For life business, favourable development in the US, driven by positive experience, is partly offset by unfavourable development in Latin America and the UK due to adverse experience.
Claims development information and IBNR are presented on an accident year basis and by line of business for individually significant categories. Additional aggregation or disaggregation is provided where appropriate, necessary and practicable (“disaggregation categories”). For instance, Reinsurance liability and motor lines of business are further disaggregated into proportional and non-proportional treaty types to provide more specific information on claims development. Amounts shown in the claims development tables are on a nominal basis, including cases where the Group discounts claims liabilities for measurement under US GAAP, and are net of external retrocession and retrocession between business segments to the extent that a retrocession programme can be allocated to a disaggregation category. Ceded retroactive reinsurance is not included in the claims development table if it cannot be allocated on a reasonable basis to the disaggregation categories used to present claims development information.
For Property & Casualty Reinsurance and Life & Health Reinsurance, the Group discloses data for ten accident years and reporting periods.
The Corporate Solutions business segment was created in 2012. Therefore, nine accident years and reporting periods are shown for this business unit. Corporate Solutions related business written in Property & Casualty Reinsurance prior to 2012 is included in the net claims development information reported by this segment. All but an immaterial portion of claims arising from accident years prior to 2012 relate to accident years which are over ten years ago and therefore out of the required range of disclosure.
Some of the information provided in the following tables is Required Supplementary Information (RSI) under US GAAP and does not form part of these consolidated audited financial statements. Claims development information for all periods except the current reporting period and any information derived from it – including average annual percentage payout of claims incurred – is considered RSI and is identified as RSI in the tables presented.
In most cases, these standard actuarial techniques encompass a number of loss development factor techniques applied to claim tables of paid and reported losses. Other actuarial techniques may be applicable to specific categories. For instance, the analysis of frequency and severity could be applied in all disaggregation categories. Life contingency techniques for projecting regular payments related to bodily injury claims are applied to motor proportional, motor non-proportional, liability proportional, liability non-proportional, accident and health and similar Corporate Solutions lines, where the information is available. In some cases, techniques specific to the projection of future payments for specific risks such as asbestos or pollution claims are applied to both proportional and non-proportional liability claims, also in Corporate Solutions (see also separate section “US asbestos and environmental claims exposure” on page 220).
Life and health re/insurance contracts For the Life & Health Reinsurance business, liability for IBNR claims includes provision for “not yet reported claims” expected to have been incurred in respect of both already processed and not yet processed reinsurance accounts and generally includes provisions for the cost of claims on disability contracts that currently are within their deferred period. The IBNR reserving calculations have been made using appropriate techniques, such as chain ladder and/or Bornhuetter-Ferguson approaches, depending upon the level of detail available and the assumed level of development of the claim. For certain lines of business, IBNR claims reserves include reported but not admitted claims, allowing for expected rates of decline for these claims.
Liabilities for claims and claim adjustment expenses, net of reinsurance 10 032
The increase in the incurred losses for accident years 2013 to 2020 is driven by volume increases of business being written. The increases in the incurred losses in reporting year 2020 for accident years 2016 to 2019 are driven by US business. The current accident year was impacted by COVID-19.
Liabilities for claims and claim adjustment expenses, net of reinsurance 9 692
The increase in incurred losses for accident year 2015 compared to other years is due to an increase in volume of business written in that year. Accident year 2019 includes an Adverse Development Cover and a Loss Portfolio Transfer written with Corporate Solutions. Liabilities before 2011 include reserves for historic US Asbestos and Environmental losses. The current accident year was impacted by COVID-19.
Liabilities for claims and claim adjustment expenses, net of reinsurance 5 423
The increase in incurred losses from accident year 2015 onwards is due to an increase in the volume of workers‘ compensation written on a proportional basis with the current year impacted by COVID-19. The 2010 and prior accident years include the run-off of business written by entities acquired as part of the acquisition of General Electric Insurance Solutions during 2006. This business, which generally had a longer payment pattern, was not renewed.
Liabilities for claims and claim adjustment expenses, net of reinsurance 6 506
This category contains several individual large losses on marine, aviation and space lines, including the Costa Concordia event in accident year 2012. From 2017 to 2020 accident years, claims incurred is higher due to natural catastrophes, with the current accident year impacted by COVID-19. Accident year 2019 has increased this year due to aviation and engineering but is partially offset by marine decreases.
Liabilities for claims and claim adjustment expenses, net of reinsurance 6 983
The increase in current accident year claims is driven by COVID-19-related losses and reserves and a number of large natural catastrophe losses, impacting mainly the property line of business. Decrease across prior accident years is driven by favourable reserve development on accident year 2019, mainly due to lower large man-made claims activity.
Reserves on the US liability line of business on accident years 2012-2019 were reduced by a Loss Portfolio Transfer to P&C Reinsurance of USD 1.2bn in the financial year 2019. In addition, the impact of unfavourable development across all lines of business for accident years 2012-2018 was reduced by recoveries under an Adverse Development Cover with P&C Reinsurance in place since the second half of the financial year 2019. For the financial year 2020, there were immaterial movements under both the Loss Portfolio Transfer and the Adverse Development Cover.
P&C Reinsurance reports both the Adverse Development Cover and the Loss Portfolio Transfer under accident year 2019 (see ’’Property & Casualty Reinsurance – Liability, non-proportional’’ on page 225).
Liabilities for claims and claim adjustment expenses, net of reinsurance 2 250
For details on consolidation please refer to Note 2 ’’Information on business segments’’.
Property 10 032 Liability, proportional 11 876 Liability, non-proportional 9 692 Accident & Health 5 423 Motor, proportional 3 681 Motor, non-proportional 6 506 Specialty 5 315
Total net discounted outstanding liabilities excluding other short duration contract lines and before unallocated reinsurance recoverable 61 012 Other short duration contract lines 4 131
Property 572 Liability, proportional 245 Liability, non-proportional 239 Accident & Health 238 Motor, proportional 52 Motor, non-proportional 220 Specialty 506
Discounting information The following disclosure covers the discounting impact for the disaggregation categories included in the claims development information. Discounting information for Life & Health Reinsurance long tail as of 31 December was as follows: Carrying amount of discounted claims 1 318 1 374 Aggregate amount of the discount –305 –311 Interest accretion1 28 29 Range of interest rates 3.0–3.4% 3.0–3.2%
Please refer to Note 1 ’’Organisation and summary of significant accounting policies’’ for more details about the Group‘s discounting approach for unpaid claims and claim adjustment expenses.
234 Swiss Re | Financial Report 2020 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
Opening balance as of 1 January 2 613 4 529 483 213 7 838 Opening balance as of 1 January classified as held for sale 657 657 Deferred 5 016 619 504 211 6 350 Effect of acquisitions/disposals and retrocessions –2 –5932 –595 Amortisation –5 103 –417 –579 –166 –14 –6 279 Effect of foreign currency translation and other changes 50 171 5 –37 70 259
Life & Health Reinsurance Life Capital Total 2020 Positive Negative USD millions PVFP PVFP Total
The percentage of PVFP which is expected to be amortised in each of the next five years is 16%, 15%, 14%, 13% and 12%.
236 Swiss Re | Financial Report 2020 7 Investments Investment income Net investment income by source (excluding unit-linked and with-profit business) was as follows: Fixed income securities 2 889 2 251 Equity securities 66 92 Policy loans, mortgages and other loans 162 127 Investment real estate 226 241 Short-term investments 93 36 Other current investments 97 103 Share in earnings of equity-accounted investees 387 –51 Cash and cash equivalents 75 25 Net result from deposit-accounted contracts 149 128 Deposits with ceding companies 452 421
Gross investment income 4 596 3 373 Investment expenses –412 –378 Interest charged for funds held –13 –7
Realised gains and losses Realised gains and losses for fixed income securities, equity securities and other investments (excluding unit-linked and with-profit business) were as follows: Fixed income securities available-for-sale: Gross realised gains 1 590 1 676 Gross realised losses –143 –256
Other-than-temporary impairments –5 –29 Net realised investment gains/losses on equity securities 200 –87 Change in net unrealised investment gains/losses on equity securities 478 782 Net realised investment gains/losses on trading securities 153 86 Change in net unrealised investment gains/losses on trading securities –26 –33 Net realised/unrealised gains/losses on other investments –197 –41 Net realised/unrealised gains/losses on insurance-related activities 108 40 Foreign exchange gains/losses –348 –163 Loss related to sale of ReAssure –230 –245
Net realised investment gains/losses – non-participating business 1 580 1 730
Investment income – fixed income securities 58 101 29 50 Investment income – equity securities 733 76 401 27 Investment income – other 25 11 5 3
Total investment income – unit-linked and with-profit business 816 188 435 80
Total realised gains/losses – unit-linked and with-profit business 3 512 423 –2 482 –220
A reconciliation of other-than-temporary impairments related to credit losses recognised in earnings was as follows: Balance as of 1 January 80 61 Credit losses for which an other-than-temporary impairment was not previously recognised 5 18 Reductions for securities sold during the period –24 –32 Increase of credit losses for which an other-than-temporary impairment has been recognised previously, when the Group does not intend to sell, or more likely than not will not be required to sell before recovery 2 Impact of increase in cash flows expected to be collected –3 –2 Impact of foreign exchange movements 1 1
Investments available-for-sale Amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as available-for-sale as of 31 December were as follows: 2019 Amortised cost Gross unrealised Gross unrealised
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 14 192 377 –31 14 538 US Agency securitised products 7 034 104 –14 7 124 States of the United States and political subdivisions of the states 1 783 168 –3 1 948 United Kingdom 7 936 1 309 –26 9 219 Germany 2 870 298 –35 3 133 France 2 095 343 –13 2 425 Canada 2 256 139 –4 2 391 Japan 2 028 98 –2 2 124 Other 10 589 583 –33 11 139
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 10 915 693 –18 11 590 US Agency securitised products 6 575 214 –10 6 779 States of the United States and political subdivisions of the states 1 444 248 1 692 United Kingdom 4 206 841 –5 5 042 Germany 3 038 494 –1 3 531 France 2 551 570 –1 3 120 Canada 2 179 223 –13 2 389 Japan 2 086 56 –24 2 118 Other 10 189 788 –20 10 957
Total 43 183 4 127 –92 47 218 Corporate debt securities 27 538 3 084 –35 30 587 Mortgage- and asset-backed securities 3 141 157 –22 –1 3 275
The “Other-than-temporary impairments recognised in other comprehensive income” column includes only securities with a credit-related loss recognised in earnings. Subsequent recovery in fair value of securities previously impaired in other comprehensive income is also presented in the “Other-than-temporary impairments recognised in other comprehensive income” column.
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 2 357 31 97 0 2 454 31 US Agency securitised products 1 842 7 654 7 2 496 14 States of the United States and political subdivisions of the states 39 1 30 2 69 3 United Kingdom 1 297 22 83 4 1 380 26 Germany 669 34 17 1 686 35 France 340 12 16 1 356 13 Canada 863 3 62 1 925 4 Japan 443 1 2 1 445 2 Other 1 492 17 315 16 1 807 33
Total 9 342 128 1 276 33 10 618 161 Corporate debt securities 2 562 18 531 28 3 093 46 Mortgage- and asset-backed securities 730 5 404 11 1 134 16 Reclassified to assets held for sale –1 071 –8 –301 –20 –1 372 –28
Total 4 430 76 238 16 4 668 92 Corporate debt securities 1 072 31 147 4 1 219 35 Mortgage- and asset-backed securities 402 9 173 14 575 23
Due in one year or less 7 294 7 324 8 806 8 863 Due after one year through five years 27 559 28 083 18 298 19 040 Due after five years through ten years 15 994 17 115 14 512 15 696 Due after ten years 37 865 43 144 29 942 35 035 Mortgage- and asset-backed securities with no fixed maturity 3 761 3 947 2 304 2 446 Reclassified to assets held for sale –17 693 –20 450
Investments trading and at fair value through earnings The carrying amounts of fixed income securities classified as trading and equity securities at fair value through earnings (excluding unitlinked and with-profit business) as of 31 December were as follows: Debt securities issued by governments and government agencies 2 358 1 907 Mortgage- and asset-backed securities 52 31
Equity securities at fair value through earnings – non-participating business 2 993 4 899
Investments held for unit-linked and with-profit business The carrying amounts of investments held for unit-linked and with-profit business as of 31 December were as follows: 2019 2020 USD millions Unit-linked With-profit Unit-linked With-profit
Mortgage, policy and other loans, and investment real estate As of 31 December, the carrying and respective fair values of investments in mortgage, policy and other loans, and investment real estate (excluding unit-linked and with-profit business) were as follows: 2019 2020 USD millions Carrying value1 Fair value Carrying value Fair value
Policy loans 50 50 43 43 Mortgage loans 2 104 2 144 1 410 1 458 Other loans 2 314 2 376 1 862 1 906 Investment real estate 2 674 4 706 2 602 5 118 1 Policy loans, mortgages and other loans include a total of USD 1 447 million which were reclassified to assets held for sale. Investment real estate of USD 146 million was reclassified to assets held for sale.
Depreciation expense related to investment real estate was USD 61 million and USD 67 million for 2019 and 2020, respectively. Accumulated depreciation on investment real estate totalled USD 660 million and USD 779 million as of 31 December 2019 and 2020, respectively. Investment real estate held by the Group includes residential and commercial investment real estate.
Other financial assets and liabilities by measurement category As of 31 December 2019 and 2020, ‘‘Other invested assets’’ and ‘‘Accrued expenses and other liabilities’’ by measurement category were as follows: Investments measured at net asset value as Amortised USD millions Fair value practical expedient cost or cost Equity-accounted Not in scope1 Total
Other invested assets Derivative financial instruments 472 472 Reverse repurchase agreements 2 089 2 089 Securities lending/borrowing 457 21 478 Equity-accounted investments 335 2 580 2 915 Other 76 913 905 1 894 Reclassified to liabilities held for sale –60 –445 –505
Derivative financial instruments 692 692 Repurchase agreements 678 678 Securities lending 458 115 573 Securities sold short 1 764 1 764 Other 1 653 2 512 4 165 Reclassified to liabilities held for sale –161 –329 –191 –681
Other invested assets Derivative financial instruments 266 266 Reverse repurchase agreements 3 002 3 002 Securities lending/borrowing 1 636 282 1 918 Equity-accounted investments 287 2 503 2 790 Other 302 1 026 1 010 2 338
Gross amounts of Net amounts of financial Related financial 2019 recognised Amounts set-off liabilities presented instruments not set-off USD millions financial liabilities in the balance sheet in the balance sheet in the balance sheet Net amount
Gross amounts of Net amounts of financial Related financial 2020 recognised Amounts set-off liabilities presented instruments not set-off USD millions financial liabilities in the balance sheet in the balance sheet in the balance sheet Net amount
Assets pledged As of 31 December 2019 and 2020, investments with a carrying value of USD 5 239 million and USD 5 858 million, respectively, were on deposit with regulatory agencies in accordance with local requirements, of which USD 223 million and USD 249 million, respectively, were cash and cash equivalents. As of 31 December 2019 and 2020, investments with a carrying value of USD 14 659 million and USD 15 424 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries, of which USD 485 million and USD 259 million, respectively, were cash and cash equivalents. Cash and cash equivalents pledged include some instances where cash is legally restricted from usage or withdrawal.
As of 31 December 2019 and 2020, securities of USD 18 686 million and USD 13 787 million, respectively, were transferred to third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding liabilities of USD 1 251 million and USD 1 970 million, respectively, were recognised in accrued expenses and other liabilities for the obligation to return collateral that the Group has the right to sell or reuse.
Recognised gross liability for the obligation to return collateral (from repurchase agreements and securities lending) As of 31 December 2019 and 2020, the gross amounts of liabilities related to repurchase agreements and securities lending by the class of securities transferred to third parties and by the remaining maturity are shown below.
Repurchase agreements Debt securities issued by governments and government agencies 30 3 312 3 342 Corporate debt securities 3 7 10
Gross amount of recognised liabilities for repurchase agreements and securities lending 4 497
Repurchase agreements Debt securities issued by governments and government agencies 197 1 490 54 1 741 Corporate debt securities 2 148 150
The programme is structured in a conservative manner with a clearly defined risk framework. Yield enhancement is conducted on a noncash basis, thereby taking no re-investment risk.
244 Swiss Re | Financial Report 2020 8 Fair value disclosures Fair value, as defined by the Fair Value Measurements and Disclosures Topic, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Pursuant to the election of the fair value option, the Group classifies certain liabilities for life and health policy benefits in level 3 of the fair value hierarchy. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.
Values of mortgage- and asset-backed securities are obtained both from third party pricing vendors and through quoted prices, some of which may be based on the prices of comparable securities with similar structural and collateral features. Values of certain ABS for which there are no significant observable inputs are developed using benchmarks to similar transactions or indices. For both residential mortgage-
backed securities (RMBS) and commercial mortgage-backed securities (CMBS), cash flows are derived based on the transaction-specific information, which incorporates priority in the capital structure, and are generally adjusted to reflect benchmark yields, market prepayment data, collateral performance (default rates and loss severity) for specific vintage and geography, credit enhancements and ratings. For certain RMBS and CMBS with low levels of market liquidity, judgements may be required to determine comparable securities based on the loan type and deal-specific performance. CMBS terms may also incorporate lock-out periods that restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities, compared to RMBS. The factors specifically considered in valuation of CMBS include borrower-specific statistics in a specific region, such as debt service coverage and loan-to-value ratios, as well as the type of commercial property. Mortgage- and asset-backed securities also includes debt securitised by credit card, student loan and auto loan receivables. Pricing inputs for these securities also focus on capturing, where relevant, collateral quality and performance, payment patterns and delinquencies.
The Group’s OTC credit derivatives can include index and single-name credit default swaps. Plain vanilla credit derivatives, such as index and single-name credit default swaps, are valued by the Group based on the models consistent with the industry valuation standards for these credit contracts, and primarily utilise observable inputs published by market data sources, such as credit spreads and recovery rates. These valuation techniques warrant classification of plain vanilla OTC derivatives as level 2 financial instruments in the fair value hierarchy.
Fixed income securities backing unit-linked and with-profit business 4 680 –4 680 0 Equity securities held for proprietary investment purposes 2 992 1 2 993 Equity securities backing unit-linked and with-profit business 37 550 56 –37 086 520 Short-term investments held for proprietary investment purposes 1 098 4 812 –142 5 768 Derivative financial instruments 11 1 426 225 –1 184 –65 413
Total assets at fair value 56 025 97 559 2 475 –1 184 –62 566 92 309
Total liabilities at fair value –345 –3 162 –556 1 058 161 –2 844 1 The netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists between two counterparties. A master netting agreement provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the termination of any one contract.
Assets Fixed income securities held for proprietary investment purposes 11 264 70 571 1 183 83 018
Other invested assets 551 1 085 588 2 224 Funds held by ceding companies 172 172
Liabilities Derivative financial instruments –12 –1 422 –341 1 280 –495
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December, the reconciliations of the fair values of assets and liabilities measured on a recurring basis using significant unobservable inputs were as follows: Liabilities for life Fixed Other and health 2019 income Equity Derivative Investment invested Total Derivative policy Total USD millions securities securities assets real estate assets assets liabilities benefits liabilities
Closing balance as of 31 December 1 696 0 225 143 411 2 475 –465 –91 –556 1 Fair value changes are reported in “Net realised investment gains/losses – non-participating business”. 2
Realised/unrealised gains/losses: Included in net income1 79 14 1 –9 85 –8 –8 –16 Included in other comprehensive income2 –2 –2 1 1
Closing balance as of 31 December 1 183 0 232 0 588 2 003 –341 –98 –439 1 Fair value changes are reported in “Net realised investment gains/losses – non-participating business”. 2
Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows: 2019 2020 USD millions Fair value Fair value Valuation technique Unobservable input Range (weighted average1)
Infrastructure loans 1 147 701 Discounted cash flow model Valuation spread 84–526 bps (199 bps) Private placement corporate debt 504 440 Corporate spread matrix Credit spread 214–236 bps (112 bps) Private placement credit tenant leases 42 42 Discounted cash flow model Illiquidity premium 125–150 bps (146 bps)
Variable annuity and fair valued –311 –355 Discounted cash flow model Risk margin 4% (n/a) GMDB contracts Volatility 12.8–63.8%
HDD/CAT2 1 Unobservable inputs were weighted by the relative fair value of the instruments. For Derivative equity contracts, the weighted average correlation is derived by computing an absolute piecewise correlation impact and is not weighted by the relative fair value.
Uncertainty of recurring level 3 measurements from the use of significant unobservable inputs The significant unobservable input used in the fair value measurement of the Group’s infrastructure loans is valuation spread. A significant increase (decrease) in this input in isolation would have resulted in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value measurement of the Group’s private placement corporate debt securities is credit spread. A significant increase (decrease) in this input in isolation would have resulted in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value measurement of the Group’s private placement credit tenant leases is illiquidity premium. A significant increase (decrease) in this input in isolation would have resulted in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Group’s variable annuity and fair valued guaranteed minimum death benefit (GMDB) contracts are: risk margin, volatility, lapse, mortality improvement rate and withdrawal rate. A significant increase (decrease) in isolation in each of the following inputs: risk margin, volatility and withdrawal rate would have resulted in a significantly lower (higher) fair value of the Group’s obligation. A significant increase (decrease) in isolation in lapse rate would, in general, have resulted in a significantly higher (lower) fair value of the Group’s obligation due to the maturity of the contracts. Changes in the mortality improvement rate impact the fair value of the Group’s obligation differently for living-benefit products, compared to death-benefit products. For the former, a significant increase (decrease) in the mortality improvement rate (ie decrease (increase) in mortality) in isolation would have resulted in a decrease (increase) in fair value of the Group’s liability. For the latter, a significant increase (decrease) in the mortality improvement rate in isolation would have resulted in an increase (decrease) in fair value of the Group’s liability.
Private equity funds 565 763 589 non-redeemable n/a Hedge funds 208 2 redeemable1 45–95 days2 Private equity direct 128 259 72 non-redeemable n/a Real estate funds 12 2 15 non-redeemable n/a 1 The redemption frequency varies by position. 2 Cash distribution can be delayed for an extended period depending on the sale of the underlyings.
Private equity and real estate funds generally have limitations imposed on the amount of redemptions from the fund during the redemption period due to illiquidity of the underlying investments. Fees may apply for redemptions or transferring of interest to other parties. Distributions are expected to be received from these funds as the underlying assets are liquidated. The period of time over which the underlying assets are expected to be liquidated is indeterminate as investees provide liquidation notices.
Other derivative liabilities For operational efficiencies, the Group elected the fair value option on a hybrid financial instrument, where the host contract is a debt instrument and the embedded derivative is pegged to the performance of the fund’s real estate portfolio. The liability was carried at fair value and changes in fair value were reported as a component of earnings. In the balance sheet and the following fair value disclosures, this item was included under ”Liabilities held for sale” for the year ended 31 December 2019.
Assets and liabilities measured at fair value pursuant to election of the fair value option Pursuant to the election of the fair value option for the items described, the balances as of 31 December were as follows: of which at fair value pursuant to the fair value option 335 287 Funds held by ceding companies 9 472 10 726 of which at fair value pursuant to the fair value option 174 172 Liabilities Liabilities for life and health policy benefits –19 836 –22 456 of which at fair value pursuant to the fair value option –91 –98 Liabilities held for sale –68 586 of which at fair value pursuant to the fair value option –110
Changes in fair values for items measured at fair value pursuant to election of the fair value option Gains/losses included in earnings for items measured at fair value pursuant to election of the fair value option including foreign exchange impact for the years ended 31 December were as follows: Other invested assets 16 –24 Funds held by ceding companies 11 6 Liabilities for life and health policy benefits 32 –8 Liabilities held for sale –10
Assets and liabilities not measured at fair value but for which the fair value is disclosed Assets and liabilities not measured at fair value but for which the fair value is disclosed as of 31 December were as follows: Significant Significant other unobservable 2019 observable inputs inputs USD millions (level 2) (level 3) Total
Significant Significant other unobservable 2020 observable inputs inputs USD millions (level 2) (level 3) Total
Assets Policy loans 43 43 Mortgage loans 1 458 1 458 Other loans 1 906 1 906 Investment real estate 5 118 5 118
Fair values and notional amounts of derivative financial instruments As of 31 December, the fair values and notional amounts of the derivatives outstanding were as follows: 2019 Notional amount assets/liabilities
Amount offset Where a right of set-off exists –675 675 Due to cash collateral –509 383
Amount offset Where a right of set-off exists –653 653 Due to cash collateral –690 627
The notional amounts of derivative financial instruments give an indication of the Group’s volume of derivative activity. The fair value assets are included in “Other invested assets” and “Investments for unit-linked and with-profit business”. The fair value liabilities are included in “Accrued expenses and other liabilities”. The fair value amounts that were not offset were nil as of 31 December 2019 and 2020.
Total gains/losses recognised in income –361 908 1 The Group has revised the scope of its non-hedging derivative activities. The revision had no impact on net income or shareholders' equity. Comparative information for 2019 has been adjusted accordingly.
Hedging activities The Group designates certain derivative financial instruments as hedging instruments. The designation of derivative financial instruments is primarily used for overall portfolio and risk management strategies. As of 31 December 2019 and 2020, the following hedging relationships were outstanding: Fair value hedges The Group enters into foreign exchange and interest rate swaps to reduce the exposure to foreign exchange and interest rate volatility for certain fixed income securities and its issued long-term debt positions. These derivative instruments are designated as hedging instruments in qualifying fair value hedges.
Foreign exchange contracts Gains/losses on derivatives 40 –852 Gains/losses on hedged items –40 852 Amounts excluded from the effectiveness assessment –2 Interest rate contracts
Gains/losses on hedged items 20 –30 1 Represents the net change in accumulated other comprehensive income, reflecting the revised presentation of gains/losses recorded in AOCI. Comparative information for 2019 has been adjusted accordingly.
Cash flow hedges The Group entered into cross-currency swaps to reduce the exposure to foreign exchange volatility for a long-term debt instrument issued in the second quarter of 2016. These derivative instruments were designated as cash flow hedging instruments, until the hedge was discontinued in the second quarter of 2020.
Total amounts of income and expense line items 1 580 –9 1 730 2
2 Includes a loss of USD 11 million that was reclassified into earnings, as a result of cash flow hedge discontinuance.
Maximum potential loss In consideration of the rights of set-off and the qualifying master netting arrangements with various counterparties, the maximum potential loss as of 31 December 2019 and 2020 was approximately USD 987 million and USD 956 million, respectively. The maximum potential loss is based on the positive market replacement cost assuming non-performance of all counterparties, excluding cash collateral.
The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 75 million and USD 71 million as of 31 December 2019 and 2020, respectively. For derivative financial instruments containing credit risk-related contingent features, the Group posted collateral of nil and USD 48 million as of 31 December 2019 and 2020, respectively. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 25 million additional collateral would have had to be posted as of 31 December 2020. The total equals the amount needed to settle the instruments immediately as of 31 December 2020.
258 Swiss Re | Financial Report 2020 10 Acquisitions and disposals Disposal of ReAssure Group Plc. On the 22 July 2020, the Group completed the sale of ReAssure Group Plc. (ReAssure) to Phoenix Group Holdings Plc. (Phoenix), following the receipt of all required regulatory and anti-trust approvals. The agreement to sell the subsidiary was entered into in the fourth quarter of 2019.
The principal products administered by ReAssure, formerly part of the Life Capital business segment, are long-term life and pension products, permanent health insurance, critical illness products and retirement annuities.
The transaction resulted in a net loss of USD 245 million in the Life Capital business segment for the year 2020, which has been reflected in the “Net realised investment gains/losses“ line in the income statement. In 2019, USD 139 million of the estimated loss was allocated against the goodwill held by ReAssure in 2019, reducing its carrying amount to zero, and for the remainder of USD 91 million, an additional liability was established within “Liabilities held for sale”. The Group reassessed goodwill based on the agreement to sell ReAssure to Phoenix.
Acquisition of Old Mutual Wealth Life Assurance Limited On 31 December 2019, the Group through its ReAssure subsidiary acquired 100% of the UK closed book business of Quilter plc, consisting of Old Mutual Wealth Life Assurance Limited and its subsidiary Old Mutual Wealth Pensions Trustees Limited, including around 300 employees. The business acquired provides pension schemes, protection products, investment solutions and savings offerings, predominantly to the UK retail market.
The transaction was consistent with ReAssure’s strategy to grow its closed-book business and added approximately 0.2 million customer policies, increasing ReAssure’s total policy count to 3.2 million. The acquisition was funded from ReAssure’s internal resources. The total consideration paid was USD 591 million in cash. As the business was acquired by ReAssure, it was recognised as held for sale upon acquisition and deconsolidated as part of the ReAssure assets and liabilities set out above on disposal.
The Groupʼs debt as of 31 December was as follows: Senior operational debt 153 Contingent capital instruments classified as financial debt 185
Senior financial debt 2 809 2 919 Senior operational debt 244 95 Subordinated financial debt 5 993 6 147 Subordinated operational debt 1 918 1 927 Contingent capital instruments classified as financial debt 494 496 Reclassified to liabilities held for sale –1 320
As of 31 December 2019 and 2020, operational debt, ie debt related to operational leverage, amounted to USD 2.2 billion (thereof USD 1.9 billion limited- or non-recourse) and USD 2.2 billion (thereof USD 1.9 billion limited- or non-recourse), respectively. Operational leverage is subject to asset/liability matching and is excluded from rating agency financial leverage calculations.
Maturity Instrument Issued in Currency Nominal in millions Interest rate Book value in USD millions 2022 Senior notes 2012 USD 250 2.88% 250 2023 Senior notes 2016 EUR 750 1.38% 913 2024 EMTN 2014 CHF 250 1.00% 282 2026 Senior notes1 1996 USD 397 7.00% 453 2027 EMTN 2015 CHF 250 0.75% 284 2030 Senior notes1 2000 USD 193 7.75% 246 2042 Senior notes 2012 USD 500 4.25% 491 Various Payment undertaking agreements various USD 85 various 95
Total senior long-term debt as of 31 December 2020 3 014
Total senior long-term debt as of 31 December 2019 3 053 1 Assumed in the acquisition of GE Insurance Solutions.
Maturity Instrument Issued in Currency Nominal in millions Interest rate First call in Book value in USD millions 2035 Subordinated fixed rate resettable callable loan note 2020 SGD 350 3.13% 2025 263 2042 Subordinated fixed-to-floating rate callable loan note 2012 EUR 500 6.63% 2022 606 2044 Subordinated fixed rate resettable callable loan note 2014 USD 500 4.50% 2024 498 2049 Subordinated fixed rate reset step-up callable loan note 2019 USD 1 000 5.00% 2029 992 2050 Subordinated fixed rate reset step-up callable loan note 2019 EUR 750 2.53% 2030 913 2052 Subordinated fixed rate reset step-up callable loan note 2020 EUR 800 2.71% 2032 990 2057 Subordinated private placement (amortising, limited recourse) 2007 GBP 1 409 6.16% 1 927 Perpetual Perpetual subordinated fixed-to-floating rate callable loan note 2015 EUR 750 2.60% 2025 892 Perpetual Perpetual subordinated fixed spread callable note 2019 USD 1 000 4.25% 2024 993
Total subordinated long-term debt as of 31 December 2020 8 074
Maturity Instrument Issued in Currency Nominal in millions Interest rate Book value in USD millions 2024 Senior unsecured exchangeable instrument with issuer stock settlement 2018 USD 500 3.25% 496
Other information For the year ended 31 December 2019 and 2020, cash paid for amounts included in the measurement of operating lease liabilities was USD 91 million and USD 93 million, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities in 2019 and 2020 were USD 68 million and USD 51 million, respectively.
Basic earnings per share Net income/loss 769 –824 Non-controlling interests –42 –54 Net income/loss attributable to common shareholders 727 –878
Diluted earnings per share Net income assuming debt conversion and exercise of options 741 Weighted average common shares outstanding 309 507 600
The first tranche of the public share buyback programme approved by the 2019 Annual General Meeting was completed on 18 February 2020. The total number of shares repurchased amounted to 9.9 million, of which 8.2 million and 1.7 million shares were repurchased as of 31 December 2019 and between 1 January and 18 February 2020, respectively. As announced on 31 October 2019, the Board of Directors of Swiss Re Ltd decided not to launch the second tranche of the public share buyback programme approved by the 2019 Annual General Meeting.
Net of tax expense effects of debt conversion, totalling USD 14 million in 2020, and the potential impact of this debt conversion as well as the issuance of employee options on the weighted average number of shares, of 14 303 549 shares, have not been included in the diluted earnings per share calculation because the impact of such an inclusion was antidilutive.
264 Swiss Re | Financial Report 2020 14 Income taxes The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which it operates. The components of the income tax expense were: Current taxes 496 398 Deferred taxes –356 –664
Tax rate reconciliation The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the accompanying income statement: Income tax at the Swiss statutory tax rate of 21.0% 191 –229 Increase (decrease) in the income tax charge resulting from: Foreign income taxed at different rates 27 –12 Impact of foreign exchange movements 16 172 Tax exempt income/dividends received deduction –142 –181 Change in valuation allowance –16 –88 Non-deductible expenses 38 61 Other income based taxes 76 –36 Change in liability for unrecognised tax benefits including interest and penalties –42 –17 Basis differences in subsidiaries 1 38 Intra-entity transfers 20 92 Other, net1 –29 –66 1 Other, net includes tax return to tax provision adjustments from various jurisdictions.
Deferred tax liabilities Investment valuation in income –448 –240 Deferred acquisition costs –1 036 –1 062 Technical provisions –2 230 –1 818 Unrealised gains on investments –1 443 –1 492 Foreign exchange provisions –489 –790 Currency translation adjustments –156 –266 Other –961 –883 Reclassified to liabilities held for sale 1 321
Liability for unrecognised tax benefits including interest and penalties –250 –189 Reclassified to liabilities held for sale 29
As of 31 December 2020, the Group had capital loss carryforwards of USD 592 million that never expire.
Income taxes paid in 2019 and 2020 were USD 611 million and USD 364 million, respectively.
Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: Balance as of 1 January 257 170 Additions based on tax positions related to current year 38 13 Additions based on tax positions related to prior years 8 –6 Reductions for tax positions of current year –7 16 Reductions for tax positions of prior years –83 –30 Statute expiration –2 –5 Settlements –16 –17 Other (including foreign currency translation) –1 9 Reclassified to assets/liabilities held for sale –24
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. For the year ended 31 December 2019 such expenses were USD 5 million and for the year ended 31 December 2020 such benefits were USD 10 million. For the years ended 31 December 2019 and 2020, USD 55 million and USD 37 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2020 is included within the deferred and other non-current taxes section reflected above and in the balance sheet.
During the year, certain tax positions and audits in the United Kingdom, Japan, Malaysia, United States and Switzerland were effectively settled.
The following table summarises jurisdictions and tax years that remain subject to examination: Australia 2014–2020 Korea 2013–2020 Brazil 2014; 2016–2020 Luxembourg 2016–2020 Canada 2012–2020 Malaysia 2016–2020 China 2010–2020 Mexico 2016–2020 Colombia 2016–2020 Netherlands 2015–2020 Denmark 2015–2020 New Zealand 2014–2020 France 2018–2020 Nigeria 2016–2020 Germany 2017–2020 Singapore 2014–2020 Hong Kong 2014–2020 Slovakia 2016–2020 India 2004; 2010–2020 South Africa 2015–2020 Ireland 2016–2020 Spain 2016–2020 Israel 2016–2020 Switzerland 2016–2020 Italy 2016–2020 United Kingdom 2008, 2013–2020 Japan 2013–2020 United States 2017–2020
15 Benefit plans Defined benefit pension plans and post-retirement benefits The Group sponsors various funded defined benefit pension plans. Employer contributions to the plans are charged to income on a basis which recognises the costs of pensions over the expected service lives of employees covered by the plans. The Group’s funding policy for these plans is to contribute annually at a rate that is intended to maintain a level percentage of compensation for the employees covered. A full valuation is prepared at least every three years.
Benefit obligation as of 31 December 4 165 2 589 340 7 094
Fair value of plan assets as of 31 December 4 145 2 633 0 6 778
Benefit obligation as of 1 January 4 165 2 589 340 7 094 Service cost 120 8 4 132 Interest cost 4 47 5 56 Amendments 0 Actuarial gains/losses 226 169 10 405 Benefits paid –49 –84 –17 –150 Employee contribution 35 35 Acquisitions/disposals/additions –541 –541 Effect of settlement, curtailment and termination –161 –161 Effect of foreign currency translation 410 46 18 474
Benefit obligation as of 31 December 4 750 2 234 360 7 344
Fair value of plan assets as of 1 January 4 145 2 633 0 6 778 Actual return on plan assets 220 272 492 Company contribution 104 15 17 136 Benefits paid –49 –84 –17 –150 Employee contribution 35 35 Acquisitions/disposals/additions –559 –559 Effect of settlement, curtailment and termination –161 –161 Effect of foreign currency translation 408 39 447
Non-current assets 294 294 Current liabilities –3 –18 –21 Non-current liabilities –48 –209 –342 –599
Net gain/loss 818 441 13 1 272 Prior service cost/credit –85 2 –50 –133
Net gain/loss 832 297 23 1 152 Prior service cost/credit –70 2 –35 –103
Components of net periodic benefit cost The components of pension and post-retirement cost for the years ended 31 December were as follows: 2019 USD millions Swiss plan Foreign plans Other benefits Total
Service cost (net of participant contributions) 120 8 4 132 Interest cost 4 47 5 56 Expected return on assets –102 –61 –163 Amortisation of: Net gain/loss 66 21 87 Prior service cost –15 –15 –30
Total recognised in other comprehensive income, gross of tax 29 –144 25 –90
The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 6 687 million and USD 6 921 million as of 31 December 2019 and 2020, respectively.
Pension plans with a projected benefit obligation and an accumulated benefit obligation in excess of plan assets as of 31 December were as follows: Projected benefit obligation 4 793 5 455 Fair value of plan assets 4 575 5 195
Accumulated benefit obligation 619 5 413 Fair value of plan assets 430 5 195
Assumed medical trend rates at year end Medical trend – initial rate 4.4% 4.3% Medical trend – ultimate rate 3.6% 3.6% Year that the rate reaches the ultimate trend rate 2023 2024
Plan asset allocation by asset category The actual asset allocation by major asset category for defined benefit pension plans as of the respective measurement dates in 2019 and 2020 was as follows: Swiss plan allocation Foreign plans allocation
Quoted prices in active markets for identical Significant other observable Significant unobservable
Investments measured at net asset value as USD millions assets (level 1) inputs (level 2) inputs (level 3) practical expedient Total
Assets Fixed income securities: Government debt securities 50 1 576 1 626 Corporate debt securities 2 011 11 2 022 RMBS/CMBS/ABS 13 13
Equity securities 1 209 122 1 331 Real estate 4 861 865 Other assets 56 1 155 1 211 Cash and cash equivalents 119 119
Assets measured at fair value using significant unobservable inputs (level 3) For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs were as follows: 2019 USD millions Real estate Other assets Total
Balance as of 1 January 721 10 731 Realised/unrealised gains/losses: Relating to assets still held at the reporting date 20 1 21 Relating to assets sold during the period 0
Purchases, issuances and settlements 2 2 Transfers in and/or out of level 3 0 Impact of foreign exchange movements 13 13
Balance as of 1 January 756 11 767 Realised/unrealised gains/losses: Relating to assets still held at the reporting date 19 –1 18 Relating to assets sold during the period 0
Purchases, issuances and settlements 12 12 Transfers in and/or out of level 3 0 Impact of foreign exchange movements 74 1 75
As of 31 December 2020, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows: USD millions Swiss plan Foreign plans Other benefits Total
The total compensation cost for share-based compensation plans recognised in net income was USD 30 million and USD 44 million in 2019 and 2020, respectively. The related tax benefit was USD 6 million and USD 9 million, respectively.
A summary of the movements in shares relating to outstanding awards granted under the restricted share plans for the year ended 31 December 2020 is as follows: Weighted average grant date fair value in CHF1 Number of shares
Non-vested at 1 January 91 238 125 Granted 79 69 693 Forfeited 92 –3 212 Vested 90 –71 103 1 Equal to the market price of the shares at grant.
For the year ended 31 December 2020, the outstanding units were as follows: ROE PSU LPP 2017 LPP 2018 LPP 2019 LPP 2020 Non-vested at 1 January 446 794 317 069 314 151 Granted 215 458 Forfeited –10 337 –13 864 –17 121 –7 532 Vested –436 457
If the employee is still employed by Swiss Re at the end of a plan cycle, the employee will receive an additional number of shares equal to 30% of the total number of purchased and dividend shares held at that time. In 2019 and 2020, Swiss Re contributed USD 12 million and USD 11 million to the plans and authorised 169 772 and 178 571 shares as of 31 December 2019 and 2020, respectively.
The disclosure requirements under Swiss Law in respect of compensation and loans to the members of the Board of Directors and of the Group Executive Committee, as well as closely related persons, are detailed in the Compensation Report on pages 140–146 of the Financial Report of the Swiss Re Group.
The disclosure requirements under Swiss Law in respect of participations of members of the Board of Directors and the Group Executive Committee, as well as closely related persons, are detailed on pages 304–305 of the Annual Report of Swiss Re Ltd.
Contributions made to defined benefit pension plans and post-retirement benefit plans are disclosed in Note 15 ‘‘Benefit plans’’. Plan assets of the defined benefit pension plans include Swiss Re common stock of USD 3 million (0.04% of total plan assets) and USD 2 million (0.03% of total plan assets) as of 31 December 2019 and 2020, respectively.
19 Commitments and contingent liabilities As a participant in limited and other investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnerships for periods of up to ten years. The total commitments remaining uncalled as of 31 December 2020 were USD 1 781 million.
The Group has entered into various real estate construction contracts. The commitments under the contracts amount to USD 127 million over the next six years.
Legal proceedings In the normal course of business operations, the Group is involved in various claims, lawsuits and regulatory matters. In the opinion of management, the resolution of these matters is not expected to have a material adverse effect on the Group’s business, consolidated financial position, results of operations or cash flows.
Share capital (millions) Affiliation in % as of 31.12.2020 Method of consolidation
Jersey Swiss Re Finance Holdings (Jersey) Limited, St Helier GBP 0 100 f Swiss Re Finance (Jersey) Limited, St Helier GBP 3 100 f Swiss Re Finance Midco (Jersey) Limited, St Helier GBP 0 100 f
Liechtenstein Elips Life AG, Vaduz CHF 12 100 f Elips Versicherungen AG, Vaduz CHF 5 100 f
Switzerland Swiss Pillar Investments Ltd, Zurich CHF 0 100 f Swiss Re Corporate Solutions Ltd, Zurich CHF 100 100 f Swiss Re Direct Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Ltd, Zurich CHF 1 100 f Swiss Re Life Capital Ltd, Zurich CHF 0 100 f Swiss Re Life Capital Management Ltd, Zurich CHF 0 100 f Swiss Re Nexus Reinsurance Company Ltd, Zurich CHF 10 100 f Swiss Re Management Ltd, Adliswil CHF 0 100 f Swiss Re Principal Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Reinsurance Holding Company Ltd, Zurich CHF 0 100 f Swiss Reinsurance Company Ltd, Zurich CHF 34 100 f
Significance is defined by the total assets of the subsidiaries and the carrying value of the equity investees in relation to the total assets of the Group. The threshold is set at 0.05%.
21 Variable interest entities The Group enters into arrangements with variable interest entities (VIEs) in the normal course of business. The involvement ranges from being a passive investor to designing, structuring and managing the VIEs. The variable interests held by the Group arise primarily as a result of the Group’s involvement in certain insurance-linked securitisations, life and health funding transactions, swaps in trusts, debt financing, investment, senior commercial mortgage and infrastructure loans as well as other entities, which meet the definition of a VIE.
Unpaid claims and claim adjustment expenses 19 Accrued expenses and other liabilities 43 52
Insurance-linked securitisations 598 627 545 381 Life and health funding vehicles 22 2 300 20 2 377 Swaps in trusts 83 43 –2 14 52 –2 Investment vehicles 2 174 2 174 2 435 2 435 Investment vehicles for unit-linked business 17 131 145 Senior commercial mortgage and infrastructure loans 2 318 2 318 2 047 2 047 Other 25 19 Reclassified to held for sale –17 590 –607 1 Maximum exposure to loss is the loss the Group would absorb from a variable interest in a VIE in the event that all of the assets of the VIE are deemed worthless. 2 The maximum exposure to loss for swaps in trusts cannot be meaningfully quantified due to their derivative character.
The assets and liabilities for the swaps in trusts represent the positive and negative fair values of the derivatives the Group has entered into with the trusts.
PricewaterhouseCoopers Ltd, Birchstrasse 160, Postfach, CH-8050 Zurich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch
Auditor’s responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law, Swiss Auditing Standards and auditing standards generally accepted in the United States of America (US GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the Group’s preparation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Other Matter Accounting principles generally accepted in the United States of America (US GAAP) requires that the supplementary information based on the requirements of ASU 2015-09, Disclosures about Short-Duration Contracts, on pages 223 to 231 be presented to supplement the consolidated financial statements. Such information, although not part of the consolidated financial statements, is required by the Financial Accounting Standards Board, which considers it an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America (US GAAS), which consisted of inquiries of the Group about the methods of preparing the information and comparing the information for consistency with the Group’s responses to our inquiries, the consolidated financial statements and other knowledge we obtained during our audit of the consolidated financial statements. We do not express an opinion or provide any assurance on the supplementary information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
In relation to the matters set out opposite, our substantive testing procedures included the following:  Challenging the Group’s methodology and assumptions, in particular, the yield curves, discounted cash flows, perpetual growth rates and liquidity premiums used in the valuation models; comparing these assumptions against appropriate benchmarks; and investigating significant differences.
In relation to the matters set out opposite, our substantive testing procedures included involving our PwC internal actuarial specialists, as appropriate, to perform the following:  Testing the completeness and accuracy of underlying data utilised by the Group’s actuaries in estimating P&C loss reserves; this includes applying IT audit techniques to validate the claims triangles used by management to develop reserving estimates.
 Performing independent projections of selected portfolios. For these portfolios, we compared our calculations of projected reserves with those of the Group taking into account the available corroborating and contrary evidence and challenging the Group’s assumptions as appropriate.
 Testing the reasonableness of the methodology and assumptions for further selected portfolios by comparing the methodologies and assumptions adopted by the Group with recognised actuarial practices and by applying our industry knowledge and experience.
 Assessing the process and related judgments of the Group in relation to natural catastrophes and other large losses, including using our industry knowledge to assess the reasonableness of market loss estimates and other significant assumptions.
The Group’s valuation of actuarially determined liabilities for L&H policy benefits involves complex judgments about future events affecting the business.
Actuarial assumptions selected by the Group, including mortality, morbidity, longevity, and persistency, may result in material impacts on the valuation of liabilities for L&H policy benefits. The methodology and methods used can also have a material impact on the valuation of actuarially determined liabilities for L&H policy benefits. In addition, the impact of the COVID-19 pandemic required additional management judgment, particularly over shorter-term mortality assumptions.
The valuation of actuarially determined liabilities for L&H policy benefits depends on the use of complex models. The Group continues to migrate actuarial data and models from legacy systems and/or spreadsheets to new actuarial modelling systems. At the same time, the Group is validating models to ensure that new models are fit for use. Moving from one modelling platform to another is a complex and time-consuming process, frequently taking several years. Any resulting adjustments to the liabilities for L&H policy benefits need to be assessed in terms of appropriateness and classified as a change in estimate or as an out-of-period adjustment.
 Performing independent model validation procedures, including detailed testing of models, independent recalculations and back testing.
 Challenging the process followed and related judgments of the Group in relation to COVID-19 pandemic losses to assess the reasonableness of loss estimates.
 Evaluating the appropriateness of the recognition, accounting, valuation, and disclosures for large and/or structured transactions.
Based on the work performed, we determined the Group’s conclusions with regard to the valuation of actuarially determined liabilities for L&H policy benefits to be reasonable.
Valuation of deferred tax assets and completeness and valuation of uncertain tax positions
Changes in those estimates may have a material impact (through income tax expense) on the Group’s results.
In relation to the matters set out opposite, our substantive testing procedures included the following:  Involving our own tax specialists to critically review the
Net income/loss attributable to common shareholders 2 626 4 201 4 444
Liabilities Unpaid claims and claim adjustment expenses 64 878 63 670 61 484 Liabilities for life and health policy benefits 39 044 36 117 36 033 Unearned premiums 8 299 9 384 10 334 Other liabilities 65 850 62 020 57 970 Long-term debt 16 541 16 286 14 722 Liabilities held for sale
Earnings per share in CHF 6.79 11.13 12.04 1 The Group updated its balance sheet presentation of deferred tax assets and liabilities. Deferred tax assets and liabilities are presented on a gross basis as per the first quarter 2013. The comparative period has been adjusted accordingly and is consistent with the relevant income tax disclosure in the notes to the financial statements in the prior year.
Income statement Net income for 2020 amounted to CHF 1 573 million (2019: CHF 932 million).
Liabilities Total liabilities increased from CHF 1 447 million as of 31 December 2019 to CHF 2 619 million as of 31 December 2020.
Long-term liabilities increased by CHF 1 600 million to CHF 2 117 million as of 31 December 2020, mainly due to loan agreements with Swiss Re Finance (UK) plc.
Shareholders’ equity Shareholders’ equity decreased from CHF 22 800 million as of 31 December 2019 to CHF 22 485 million as of 31 December 2020, mainly due to dividends to shareholders of CHF 1 705 million and share buyback programme of CHF 184 million partially offset by net income of CHF 1 573 million.
Coronavirus The global spread of the novel coronavirus and the disease it causes (“COVID-19”), and the actions taken to slow the spread of the pandemic, have had an adverse impact on communities, social and business interactions, economic activity and economies across the globe. After significant contractions in 2020, the global economy is expected to experience a protracted and uneven recovery in 2021. As the COVID-19 crisis continues, the ultimate toll of the pandemic in terms of lives lost, societal dislocations, business activity, economic growth, broader costs to society and industry losses remains highly uncertain. The Swiss Re Group will continue to monitor pandemicrelated developments and their impact on its operations and its investments.
Income before income tax expense 936 1 576 Income tax expense –4 –3
Legal reserves from capital contributions 192 192 Other legal capital reserves 0 0 Legal capital reserves 192 192
Time period The financial year 2020 comprises the accounting period from 1 January 2020 to 31 December 2020.
Foreign currency translation Assets and liabilities denominated in foreign currencies are converted into Swiss francs at year-end exchange rates, with the exception of participations, which are reported in Swiss francs at historical exchange rates. Income and expenses in foreign currencies are converted into Swiss francs using the exchange rate prevailing at the date of transaction. Until the end of the financial year 2019, income and expenses were converted into Swiss francs using the average exchange rates for the reporting year.
Short-term investments Short-term investments contain investments with an original maturity between three months and one year. Such investments are carried at cost, less necessary and legally permissible depreciation.
Loans to subsidiaries and affiliated companies Loans to subsidiaries and affiliated companies are carried at nominal value. Value adjustments are recorded where the expected recovery value is lower than the nominal value.
Payables to subsidiaries and affiliated companies/ Other liabilities also include derivative financial instruments. Derivative financial instruments which have an observable market price and are traded in an active and liquid market are recorded at market value.
Dividends from subsidiaries and affiliated companies Dividends from subsidiaries and affiliated companies are recognised as investment income in the year in which they are declared.
As of 31 December 2020, the Company’s assets for derivative financial instruments carried at market value amounted to CHF 155 millions (2019: CHF 101 millions).
Swiss Re Ltd receives management and other services from Swiss Re Management Ltd and Swiss Reinsurance Company Ltd and has no employees of its own.
As of 31 December 2020, securities of CHF 53.0 million (2019: CHF 47.1 million) were lent to Group companies under securities lending agreements. As of 31 December 2020 and 2019, there were no securities lent to third parties.
As of 31 December 2020 and 2019, Swiss Re Ltd held directly the following investments in subsidiaries and affiliated companies: Further disclosures in respect of investments in significant indirect subsidiaries and affiliated companies are detailed in Note 20 “Significant subsidiaries and equity investees” on pages 278 to 280 in the notes to the Group’s 2020 financial statements, where the voting interests are equal to the affiliations disclosed.
Swiss Reinsurance Company Ltd Zurich CHF 34.4 100 100 Swiss Re Corporate Solutions Ltd Zurich CHF 100.0 100 100 Swiss Re Life Capital Ltd1 Zurich CHF 0.1 100 100 Swiss Re Principal Investments Company Ltd Zurich CHF 0.1 100 100 Swiss Re Management Ltd Zurich CHF 0.1 100 100 Swiss Re Insurance-Linked Investment Management AG2 Zurich CHF 1.5 100 100 Swiss Re Finance (UK) plc3 London GBP 1.0 100 100
2 New direct subsidiary, registered 16 October 2020. 3 Swiss Re Specialised Investments Holdings (UK) Ltd was renamed to Swiss Re Finance (UK) plc.
Subordinated funding facility Swiss Reinsurance Company Ltd 2015 USD 700 5.80% 2.22% 3.58% 2030 Subordinated funding facility Swiss Reinsurance Company Ltd 2016 USD 400 6.10% 2.13% 3.97% 2036 Subordinated funding facility Swiss Reinsurance Company Ltd 2016 USD 800 5.68% 1.95% 3.73% 2032
CHF millions Share capital Legal capital reserves2 Legal profit reserves Reserves for own shares
2 Under the new provision applicable as of 1 January 2020 (Article 4a paragraph 4 VstG), legal reserves from capital contributions need to be used for share buyback programmes. With the share buyback programme completed on 18 February 2020, the CHF 0.7 million legal reserves that have been previously confirmed by the Swiss Federal Tax Administration were fully used. Consequently, the Board of Directors proposes at the Annual General Meeting to reclassify the full amount of legal reserves from capital contributions into voluntary profit reserves.
4 Purchased at average price of CHF 110.56 (2019: CHF 98.99).
As of 31 December 2020, there was one shareholder with a participation exceeding the 3% threshold of Swiss Re Ltd’s share capital: Further information in respect of major shareholders are detailed in “Group structure and shareholders” on page 84 of the Group’s 2020 financial report.
In addition, Swiss Re Ltd held, as of 31 December 2020, directly and indirectly 28 520 907 (2019: 36 749 762) own shares, representing 8.98% (2019: 11.22%) of voting rights and share capital. Swiss Re Ltd cannot exercise the voting rights of own shares held.
Swiss Re Ltd has issued guarantees to its subsidiaries and affiliated companies in support of their business activities by securing their overall capital positions or specific transactions. As of 31 December 2020, the Company has guaranteed CHF 2 130 million (2019: CHF 0 million) of which no amount was utilised as of 31 December 2020 and 2019, respectively.
Share ownership The number of shares held as of 31 December were: Members of the Group EC 2019 2020
Christian Mumenthaler, Group Chief Executive Officer 75 305 83 157 Urs Baertschi, CEO Reinsurance EMEA /Regional President EMEA 546 1 371 Andreas Berger, CEO Corporate Solutions 34 125 Anette Bronder, Group Chief Operating Officer 0 135 John R. Dacey, Group Chief Financial Officer 29 809 30 346 Nigel Fretwell, Group Chief Human Resources Officer 12 272 12 436 Guido Fürer, Group Chief Investment Officer 53 983 54 203 Hermann Geiger, Group Chief Legal Officer 49 318 49 756 Russell Higginbotham, CEO Reinsurance Asia/Regional President Asia 4 662 8 546 Jonathan Isherwood, CEO Reinsurance Americas/Regional President Americas n/a 51 196 Thierry Léger, Group Chief Underwriting Officer 56 167 56 343 Moses Ojeisekhoba, CEO Reinsurance 40 704 40 831 Patrick Raaflaub, Group Chief Risk Officer 16 590 24 063 Edouard Schmid, former Chairman Swiss Re Institute & Group Chief Underwriting Officer1 31 794 n/a J. Eric Smith, former CEO Reinsurance Americas/Regional President Americas2 25 262 n/a 1 The number of shares held on 31 August 2020 when Edouard Schmid stepped down from the Group EC was 31 935. 2 The number of shares held on 13 August 2020 when J. Eric Smith stepped down from the Group EC was 25 355.
Joachim Oechslin, member3 n/a n/a 87 1 263 Deanna Ong, member3 n/a n/a 80 1 166
Retained earnings brought forward 4 – Net income for the financial year 932 1 573
Voluntary profit reserves brought forward 18 200 17 431 Allocation from retained earnings 936 1 573 Reclassification of legal reserves from capital contributions3 – 192 Ordinary dividend payment out of voluntary profit reserves –1 7051 –1 7052
Voluntary profit reserves after allocation and dividend payment 17 431 17 491 1 Since the Board of Directors’ proposal for allocation of disposable profit, included in the Annual Report 2019, the number of registered shares eligible for dividend, at the dividend payment date of 23 April 2020, decreased due to the share buyback programme of 1 668 398 shares and transfer of 3 811 shares for employee participation purposes from not eligible to eligible for dividend. This resulted in a lower dividend of CHF 10 million, compared to the Board of Directors’ proposal, and higher voluntary profit reserves by the same amount.
2 The Board of Directors’ proposal to the Annual General Meeting of 16 April 2021 is based on the number of shares eligible for dividend as of 31 December 2020. The actual dividend payment will depend on the number of shares eligible for dividend as of 19 April 2021.
3 Under the new provision applicable as of 1 January 2020 (Article 4a paragraph 4 VstG), legal reserves from capital contributions need to be used for share buyback programmes. As of 31 December 2020, Swiss Re Ltd has no legal reserves from capital contributions that can be distributed exempt from Swiss withholding tax and, for Swiss resident shareholders holding the shares in private wealth, exempt from Swiss income taxes. Therefore, the full amount of legal reserves from capital contributions is proposed to be reclassified into voluntary profit reserves.
1 The Board of Directors’ proposal to the Annual General Meeting of 16 April 2021 is based on the number of shares eligible for dividend as of 31 December 2020. The actual dividend payment will depend on the number of shares eligible for dividend as of 19 April 2021.
Opinion In our opinion, the financial statements for the year ended 31 December 2020 comply with Swiss law and the Company’s Articles of Association.
The impairment assessments of investments in subsidiaries and affiliated companies are based on the selected valuation method that reflects specific characteristics of the investment and corresponding assumptions as model inputs.
The impairment assessment is considered a key audit matter due to the considerable judgment in the assumptions and adjustments applied to the valuation method as well as the materiality of this account to the Company’s financial statements.
(where applied) is appropriate. • Evaluating the method used by the Company to determine a market value. • Assessing whether the assumptions used are reasonable. • Understanding changes in the approach and discussing them with the Company to ensure they are in accordance with our own expectations based on our knowledge of the business and industry.
Based on the work performed, we consider the methods and assumptions used by the Company to assess the recoverability of investments in subsidiaries and affiliated companies to be reasonable.
Securities backed by notes or receivables against financial assets such as auto loans, credit cards, royalties, student loans and insurance profits.
Insurance covering the loss of earnings resulting from, and occurring after, destruction of property; also known as “loss of profits” or “business income protection insurance”.
Claims and benefits in the EVM income statement represent the present value of all estimated future claims and benefits on contracts written during the year. Changes in estimates of claims and benefits payable on contracts written in prior years are reflected in previous years’ business profit, along with changes in other underwriting cash flows relating to previous years.
Sum of claims paid and change in the provisions for unpaid claims and claim adjustment expenses in relation to premiums earned.
Difference in yield between a fixed income security which has default risk and one which is considered to be risk-free, such as U.S. Treasury securities.
The market value margin (MVM) represents the minimum cost of holding capital after the one-year SST period until the end of a potential run-off period.
The operating margin is calculated as operating result divided by total operating revenues. The operating result is before interest expenses, taxes and net realised gains/losses.
Profit margin is calculated for new business, previous years’ business and investment activities. The new business profit margin is the ratio of new business profit/loss to EVM capital allocated to new business over the lifetime of the business. The previous years’ business profit margin is the ratio of previous years’ business profit/loss to EVM capital allocated to previous years’ business in the current year. Investment profit margin is the ratio of investment profit/loss to EVM capital allocated to investment activities in the current year. These ratios can be used to compare profitability across all underwriting and investment activities on a consistent, risk-adjusted basis.
Form of reinsurance arrangement in which the premiums earned and the claims incurred of the cedent are shared proportionally by the cedent and the reinsurer.
Amount required to be carried as a liability in the financial statements of an insurer or reinsurer to provide for future commitments under outstanding policies and contracts.
Amount of capital that is required to support the risks assumed by an entity. It is based on the entity’s total risk.
Total on-balance sheet senior and subordinated debt and contingent capital, including drawn LOCs, divided by total capitalisation.
• uncertainties in estimating future claims for purposes of financial reporting, particularly with respect to large natural catastrophes and certain large man-made losses, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available; • legal actions or regulatory investigations or actions, including in respect of industry requirements or business conduct rules of general applicability; • the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings, and the overall impact of changes in tax regimes on the Group’s business model; • changes in accounting estimates or assumptions that affect reported amounts of assets, liabilities, revenues or expenses, including contingent assets and liabilities; • changes in accounting standards, practices or policies; • strengthening or weakening of foreign currencies; • reforms of, or other potential changes to, benchmark reference rates; • failure of the Group’s hedging arrangements to be effective; • significant investments, acquisitions or dispositions, and any delays, unforeseen liabilities or other costs, lower-thanexpected benefits, impairments, ratings action or other issues experienced in connection with any such transactions; • extraordinary events affecting the Group’s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events; • changing levels of competition; • the effects of business disruption due to terrorist attacks, cyberattacks, natural catastrophes, public health emergencies, hostilities or other events; • limitations on the ability of the Group’s subsidiaries to pay dividends or make other distributions; and
Regulatory changes Swiss Re and its subsidiaries operate in a highly regulated environment, which continues to change over time. The regulatory regimes to which members of the Group are subject have changed significantly in recent years and are expected to continue to evolve. While some regulation is national in scope, the global nature of the Group’s business means that its operations are subject in effect to a patchwork of global, national and regional standards. Swiss Re and its subsidiaries are subject to group supervision and Swiss Re’s subsidiaries are also subject to applicable regulation in each of the jurisdictions in which they conduct business, particularly Switzerland, the United States, the United Kingdom, Luxembourg and Germany. The Group and its Swiss regulated entities and branches are subject to the Swiss Solvency Test and, through its legal entities and branches organised in the European Economic Area (“EEA”) and the United Kingdom, Solvency II (which going forward as between the EEA and the UK could diverge).
The Group is exposed to changes in the level and volatility of equity prices, as well as the value of securities or instruments that derive their value from a particular equity security, a basket of equity securities or a stock index. The Group is also subject to equity price risk to the extent that the values of life-related benefits under certain products and life contracts, most notably variable annuity contracts, are wholly or partially exposed, directly and/or indirectly, to market fluctuations, including equity prices. To the extent market values fall, the financial exposure on guarantees related to these contracts would increase to the extent this exposure is not hedged. While the Group has an extensive hedging programme covering its existing variable annuity business, certain risks cannot be hedged, including actuarial, basis and correlation risks. Exposure to foreign exchange risk arises from changes in spot prices, forward prices and volatilities of currency rates.
Credit risk If the credit markets were to deteriorate, the Group could experience losses. Changes in the market value of the underlying securities and other factors impacting their price could give rise to market value losses. The Group could also face write-downs in other areas of its portfolio, including other structured instruments, and the Group and its counterparties could face difficulties in valuing credit-related instruments. Differences in opinion with respect to valuations of credit-related instruments could result in legal disputes among the Group and its counterparties as to their respective obligations, the outcomes of which are difficult to predict and could be material. The Group is also subject to credit and other risks in its credit business, including reliance on banks that underwrite and monitor facilities in which the Group participates and potential default by borrowers under those facilities.
The Group manages liquidity and funding risks by focusing on the liquidity stress that is likely to result from extreme capital markets scenarios or from extreme loss events or combinations of the two. Generally, the ability to meet liquidity needs could be adversely impacted by factors that the Group cannot control, such as market dislocations or interruptions, adverse economic conditions, severe disruption in the financial and worldwide credit markets and the related increased constraints on the availability of credit; changes in interest rates, foreign exchange rates and credit spreads; or by perceptions among market participants of the extent of the Group’s liquidity needs.
The Group could also be adversely affected by the insolvency of, or other credit constraints affecting, counterparties in its insurance and reinsurance operations. Moreover, the Group could be adversely affected by liquidity issues at ceding companies or at third parties to whom the Group has retroceded risk, and such risk could be exacerbated to the extent any such exposures are concentrated.
Risks relating to credit rating downgrades Ratings are an important factor in establishing the competitive position of reinsurance companies. Third-party rating agencies assess and rate the financial strength of reinsurers and insurers, such as Swiss Re. These ratings are intended to measure a company’s ability to repay its obligations and are based upon criteria established by the rating agencies. Ratings may be solicited or unsolicited and may be revised downward or revoked at the sole discretion of the rating agencies.
The Group’s ratings reflect the current opinion of the relevant rating agencies. One or more of the Group’s ratings could be downgraded or withdrawn in the future. In addition, unsolicited ratings may also be downgraded or withdrawn, such as a downgrade in April 2020 of unsolicited insurer financial strength and long-term issuer default ratings assigned to various entities within the Group. Rating agencies may increase the frequency and scope of ratings reviews, revise their criteria or take other actions that may negatively impact the Group’s ratings and/or the ratings of its legal entities, which it cannot predict. In addition, changes to the process or methodology of issuing ratings, or the occurrence of events or developments affecting the Group, could adversely affect the Group’s existing ratings or make it more difficult for the Group to achieve improved ratings which it would otherwise have expected.
The Group could in the future be involved in investigations and regulatory proceedings, which could result in adverse judgments, settlements, fines and other outcomes. These investigations and proceedings could relate to insurance or reinsurance matters, or could involve broader business conduct rules, including those in respect of market abuse, bribery, money laundering, trade sanctions, and data protection and privacy. The Group also is subject to audits and challenges from time to time by tax authorities, which could result in increases in tax costs, changes to internal structures and interest and penalties. Tax authorities may also actively pursue additional taxes based on retroactive changes to tax laws. The Group could be subject to risks arising from alleged, or actual, violations of any of the foregoing, and could also be subject to litigation or enforcement actions arising from potential employee misconduct, including non-compliance with internal policies and procedures, negligence and malfeasance, such as undertaking or facilitating cyber-attacks on internal systems. Substantial legal liability could materially adversely affect the Group’s business, financial condition or results of operations or could cause significant reputational harm, which could seriously affect its business.
Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that its management uses, for example, as part of its risk models as well as those that affect the reported amounts of assets, liabilities, revenues and expenses in the Group’s financial statements (such as assumptions related to the Group’s capital requirements and anticipated liabilities), including assumed and ceded business. For example, the Group estimates premiums pending receipt of actual data from ceding companies, which actual data could deviate from the estimates (and could be adversely affected if premiums turn out to be lower, while claims stay the same). In addition, particularly with respect to large natural catastrophes, it may be difficult to estimate losses, and preliminary estimates may be subject to a high degree of uncertainty and change as new information becomes available. Deterioration in market conditions could have an adverse impact on assumptions used for financial reporting purposes, which could affect possible impairment of present value of future profits, fair value of assets and liabilities, deferred acquisition costs or goodwill. Moreover, regulators could require the use of standard models instead of permitting the use of internal models. To the extent that management’s estimates or assumptions prove to be incorrect, it could have a material impact on underwriting results (in the case of risk models) or on reported financial condition or results of operations (in the case of accounting judgments), and such impact could be material.
The Group uses non-GAAP financial measures in its external financial reporting. These measures are not prepared in accordance with US GAAP or any other comprehensive set of accounting rules or principles and should not be viewed as a substitute for measures prepared in accordance with US GAAP. Moreover, these may be different from, or otherwise inconsistent with, non-GAAP financial measures used by other companies. These measures have inherent limitations, are not required to be uniformly applied and are not audited.
Risks related to the Swiss Re corporate structure Swiss Re is a holding company, a legal entity separate and distinct from its subsidiaries, including Swiss Reinsurance Company Ltd. As a holding company with no operations of its own, Swiss Re is dependent upon dividends and other payments from its direct and indirect operating subsidiaries. The Group is in the process of streamlining its legal entity structure, with the expectation that, over time, its structure will continue to evolve. In the future it may, for example, elect again to partner with minority investors or may elect otherwise to dispose of interests in Group businesses or portions thereof, or to grow through acquisitions. To the extent it undertakes acquisitions, it is subject to the risks inherent in acquiring and integrating new operations.
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Design: Superunion, London Swiss Re Corporate Real Estate & Services/ Media Production, Zurich
The Annual Report 2020 is also available in German. The web version of the Annual Report 2020 is available at: reports.swissre.com
• Have continuously held leading position in Dow Jones Sustainability Indices
• Launched COyou2 Programme to help employees reduce their private carbon footprints
• Established Global Partnerships, our dedicated function for public-sector clients (later renamed Public Sector Solutions)
• Made commitment to the United Nations to offer USD 10 billion of climate protection to sovereigns and sub-sovereigns by 2020
• Revised oil and gas policy, with aim of phasing out most severe carbon risks in this sector
Despite having to cope with the COVID-19 pandemic for most of the year, we continued with the implementation of our Group Sustainability Strategy. Below we highlight some of the key actions we took in 2020.
We implement and monitor our Group Sustainability Strategy through a welldefined governance framework. In 2020, we refined this framework by adding a number of sustainability-related key performance indicators (KPIs) and targets to the assessment process that determines compensation across the Group, including the Group Executive Committee. While the 2020 performance assessment was mostly based on qualitative sustainability KPIs, we further quantified sustainability performance and will mainly use quantitative KPIs in 2021.
As we have repeatedly said, building effective stakeholder partnerships is key to addressing sustainability challenges. Due to the COVID-19 crisis, we had to abstain from holding physical conferences, but made full use of digital formats. For example, we co-organised a four-part virtual event series on Sustainability Leadership in Insurance and a follow-up Food for Thought conference. While continuing to cover the main topics of our Group Sustainability Strategy, we also put a focus on the emerging topic of biodiversity and ecosystem services, producing a Swiss Re expertise publication and a joint report with the WWF.
For our own operations we are committed to reaching net-zero emissions as early as 2030. In 2020, we took a significant step towards achieving this ambitious target: We have set a 30% reduction target for business travel emissions for 2021 relative to the level of 2018, and will define a new, ambitious target for the post-pandemic period. On top of that, we are introducing a
We are proud of what our company achieved in this challenging year and would like to thank all our stakeholders for the excellent cooperation along the way. A special thanks goes to our employees for
the outstanding work they delivered during 2020. The COVID-19 pandemic has added considerable pressure and greatly impacted how work is organised, in many cases testing their personal wellbeing. It is due to their continued efforts and commitment that the initiatives and achievements described in this report were realised, despite the obstacles faced. We strive to continue providing a supportive, cooperative and inclusive working environment at Swiss Re going forward.
The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing directly and working through brokers, our global client base consists of insurance companies, mid- to large-sized corporations and public-sector clients. From standard products to tailor-made coverage
Working with our clients and partners, we help to protect assets and lives around the globe – for a resilient future.
Headquartered in Zurich, Switzerland, Swiss Re has operations across the world.
accounted for approximately 78% of the Group’s total business over the year.
Total expenses –48 405 –44 428 Claims and claim adjustment expenses –18 683 –19 838 Life and health benefits –13 087 –13 929 Net income 727 –878 1 The Group completed the sale of ReAssure Group Plc. to Phoenix Group Holdings Plc. in July 2020. Please refer to Note 10 "Acquisitions and disposals" of the Financial Report 2020, page 258, for more details.
Income before tax and variable compensation 1 215 100% –797 100%
Income tax expense 140 12% –266 – US GAAP net income attributable to shareholders 727 –878 of which paid out as dividend3 1 766 145% 1 925 –
is subject to AGM approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend payout.
The information in the lower table shows the distribution of Group income to key stakeholders (employees, government taxes and shareholders).
Our 2030 Sustainability Ambitions provide this mission with topical focus areas. We have selected three overarching ambitions that describe how we can have a significant positive impact in terms of supporting sustainability and strengthening resilience, especially through our core re/ insurance business solutions: • Mitigating climate risk and advancing the energy transition The effects of climate change and global warming are already evident and shaking up our risk landscape, eg through warmer average temperatures, rising sea levels, longer and more frequent heatwaves and more weather extremes. We continue to evolve our way of doing business towards a low-carbon economy in line with our net-zero commitments and the Paris Agreement.
• Building societal resilience Technological and economic development, population growth, ageing populations and other societal trends are putting people and assets in jeopardy. With our re/insurance solutions and investments we help reduce societal vulnerabilities.
To guide practical implementation of the strategy, we have defined the following three Principles: • Embed sustainability in all our business activities: We systematically consider ESG factors in all activities, ensure that sustainability is appropriately reflected in all roles and responsibilities and shift our existing business portfolio to make it more sustainable.
Swiss Re has a long-standing commitment to being a responsible company. In our understanding, a guiding principle of acting responsibly is to take a long-term view and play our part in enabling sustainable progress, to the benefit of our stakeholders and society at large. This principle is integrated into our value framework as part of what we call “doing business the Swiss Re way” and into our Code of Conduct.
Feedback from our stakeholders confirms that Swiss Re is widely regarded as a sustainability leader, reflecting our many achievements to date. Building on this successful track record, we introduced an enhanced Group Sustainability Strategy in 2019. As the momentum around sustainable development keeps accelerating, our strategy helps us take positive action, benefiting from new opportunities and meeting fresh challenges.
Key elements of our Group Sustainability Strategy At its highest level, the strategy states our Sustainability Mission, derived from Swiss Re’s vision of making the world more resilient, to the benefit of all our key stakeholders. It expresses what we do and what we aim for: We insure, invest, operate and share our knowledge in a way that tackles sustainability challenges and creates long-term value.
The illustration below shows how the core elements of our Group Sustainability Strategy interact with each other: In addition to the three Sustainability Ambitions that are closely tied to our core business and re/insurance solutions, we continue to address six Sustainability Topics (see page 13). These topics have
been identified through our materiality assessments, and are relevant to our overall sustainability performance. You can find more information on the topics on pages
Swiss Re’s vision is to make the world more resilient. Guided by our Group Sustainability Strategy, we strive to reduce risks that may weaken resilience and develop re/insurance solutions offering protection against some of these risks.
translates into offering protection against such risks where viable, and supporting efforts to reduce them and to prevent them (“adaptation” and “mitigation”). This in turn helps strengthen resilience.
Climate change is an essential element in our Group Sustainability Strategy: “Mitigating climate risk and advancing the energy transition” is one of our three overarching 2030 Sustainability Ambitions. In the course of defining metrics and setting targets, we have developed our Climate Action Plan.
For specific targets related to these objectives, take a look at the “Mitigating climate risk and advancing the energy transition” section on pages 16 – 17. The targets include our three net-zero commitments made in 2019.
Key achievements of 2020 Below you can see an overview of the key actions we took in 2020 that are relevant for our Climate Action Plan and help us progress towards our net-zero commitments, with references to detailed content in the report: • Revised our Sustainable Business Risk
• Co-led the development of the Net-Zero Asset Owner Alliance Target Setting Protocol enabling target setting for 2025, and set a reduction target of 35% on the carbon intensity of our corporate bond and listed equity portfolio by 2025, with base year 2018 (Financial Report 2020, pages
• From 2014 to 2020, we offered USD 10.7 billion of climate protection to 130 (sub-) sovereigns (page 32)
• >5 600 wind and solar farms insured, avoiding 22 million tonnes of CO2 emissions (page 34)
• Set a 30% reduction target for CO2 emissions from air travel by the end of 2021, relative to the level of 2018 (page 62)
Ensuring good governance & affor dab le ins ur an ce w ith d ig it al s o lu ti o n s
gaps and new developments in dedicated expert meetings. One topic that emerged in 2020 – and may become a key topic for us in the future – is biodiversity and ecosystem
Intact biodiversity and ecosystems provide services that are vital to societal and economic wellbeing, but are in serious decline in many places around the world. We have recently developed an index that identifies the sectors and countries most at risk, which can then be factored into decision-making.
from natural catastrophes at a lower cost than the financial losses caused by storms or flooding. Preserving our natural assets also enhances our quality of life and provides revenue streams that should be protected.
The COVID-19 pandemic has further highlighted one of the most devastating consequences of biodiversity loss. Deforestation and other human activities encroach on the world’s ecosystems, creating pathways that facilitate the transmission of zoonotic diseases from our rainforests to environments inhabited by humans.1 Preserving ecosystems is therefore critical to preventing pandemics.
sectors and countries most exposed to biodiversity end ecosystem decline. The index enables businesses and governments to factor biodiversity into their economic decisions. The index also allows re/insurers to incorporate BES data into their risk assessment, thus helping to preserve BES, which are vital to societies’ resilience. To learn more about the BES Index, visit our website.
Nature-based solutions Nature has proven its ability to self-heal, capture carbon and reduce the impact of weather-related disasters. In turn, man-made solutions that mimic nature or rely on its support can help societies prevent, mitigate and recover from the impacts of climate change and natural disasters. And insurance can play an important role in protecting natural assets and enabling the development and scaling of such “nature-based solutions”, ultimately helping to shape a low-carbon future and build more sustainable economies.
Our approach to the UN Sustainable Development Goals We fully endorse the UN Agenda 2030 and regard the UN Sustainable Development Goals (SDGs) as an important reference point to determine our material Sustainability Topics and how to address them. Since the SDGs were launched in 2015, we have continuously refined our approach to using the SDG framework and defining how our business contributes to achieving the goals.
We started by mapping the SDGs to our 2030 Sustainability Ambitions and our Sustainability Topics, clearly showing where we contribute to the SDGs (see table on
The COVID-19 pandemic In 2020, our role in helping make the world more resilient became critical. Responding to the COVID-19 pandemic, we provided support to societies through our financial strength, innovative solutions and risk knowledge. 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 worked with the portfolio owners to assess our re/insurance underwriting portfolios using the SDGs as a sustainability lens, to better understand the contributions of the individual portfolios to the SDGs and identify areas to increase our impact. This is how we are building sustainability into portfolio management on the liability side of our business.
Furthermore, we created an inventory of re/ insurance products with particularly strong contributions to the SDGs, making SDG impacts visible to client managers and management.
To better understand the re/insurance industry’s contribution to the SDGs, we work with the UNEP FI Principles for Sustainable Insurance to develop “Insurance SDGs” (iSDGs) for the liability side of our business (see page 55).
As part of our Responsible Investing strategy, we have developed an approach to measuring the impact of our thematic investments and aligning it to the SDGs (see page 48).
On the next six pages you can see all the SDGs we address through our activities.
• Achieve net-zero emissions across the Swiss Re Group: by 2030 in our own operations, and by 2050 in our underwriting and investment portfolio.
• As a member of the Insurance Development Forum (IDF), collectively committed in a Tripartite Agreement to offer up to USD 5 billion of risk capacity for climate risk insurance benefiting up to 500 million individuals by 2025.
Technological and economic development, population growth, ageing populations and other societal trends are putting people and assets in jeopardy. With our re/insurance solutions and investments we help reduce societal vulnerabilities. Our key objectives are: • We provide affordable health and longevity solutions to our customers to ensure healthy lives and to promote wellbeing across all age groups.
• We support sustainable agriculture and enhance livelihoods across the re/insurance value chain through our risk knowledge and solutions.
• We facilitate sustainable and resilient infrastructure through our risk transfer products.
• Advance our understanding of the societal impact of insurance and develop metrics to measure our impact on stakeholders.
• Increase our digitally enabled value propositions for people and businesses, using new and evolving technologies as well as analytical capabilities, eg in the area of agriculture and natural catastrophes.
• Refine our understanding of societal challenges related to the digital transformation.
For all of our Sustainability Topics we have set targets – some of them quantitative, others qualitative. On the following six pages, we briefly describe why these topics are important for Swiss Re, the
• By the end of 2020, advised a total of 130 (sub-)sovereigns on climate risk resilience and offered them protection of USD 10.7 billion, thus exceeding our committed target (page 32).
• Further aligned our activities to the SDGs, both in re/insurance and our investments, to better understand our societal impact (pages 15 and 47‒48).
• Continued our engagement in discussions with peers, regulators, academics and trade associations on how to embrace the opportunities offered by digitalisation in a responsible and ethical way (page 84).
• Completed: Increase share of structured and automated sustainability assessments in the SBR process.
• Started to apply a carbon footprinting methodology developed with the CRO Forum to our direct insurance portfolio (page 38).
• Launched the BES Index to enable businesses and governments to factor in biodiversity and ecosystem issues into economic decision-making
• Published a report with the WWF on the concept of spatial finance in understanding threats to World Heritage Sites (page 55).
Institutional investors such as re/insurers are naturally suited to investing responsibly because of their businesses’ long-term nature. Swiss Re systematically integrates environmental, social and governance (ESG) considerations along the investment process through its threecornerstones approach: Enhancement, Inclusion and Exclusion.
• Completed: Reduce our energy intensity by an average of 2% per year until 2020.
to the most carbon-intensive oil and gas companies from July 2021 onwards (page 39).
• For details on climate-related targets, please refer to our climate-related financial disclosures (TCFD) in the Financial Report 2020, pages 148–179.
• Implemented our newly developed Engagement Framework in collaboration with our active listed equities managers (page 50).
• Completed our Greenhouse Neutral Programme, cutting CO2 emissions per FTE by 54% since 2003 without the COVID-19 impact in 2020 (with COVID-19: 80%) (pages 65‒67).
• Achieved an accumulated reduction in our energy intensity of 69% since 2003 without the COVID-19 impact in 2020 (with COVID-19: 75%) (pages 65‒67).
• Provided over 33 000 subsidies to our employees for a range of climatefriendly technology investments through which they can reduce their private carbon footprints through our COyou2 Programme from 2007 to
We are an organisation where diverse talents come together globally to apply fresh perspectives and knowledge to “make the world more resilient”. For this it is imperative that we build an engaged, inclusive and adaptable organisation. Throughout the year, we check in with our employees through pulse surveys to measure progress, which also gives them an opportunity to engage in dialogue and share ideas for improvement.
• New: Support the personal resilience of our employees during the challenging COVID-19 pandemic and beyond.
• 87% of employees agree that if misconduct has been, or is being committed, they know how to report it (ie whistleblowing) (page 85).
The Swiss Re Foundation partners with NGOs, social entrepreneurs, foundations and academic institutions. To help build resilient societies, the Foundation offers its partners tailored grant funding and access to Swiss Re’s expertise. Its initiatives address three focus areas: natural hazards and climate risk management, access to health and income opportunities, and innovation to build resilience. The Foundation operates in regions where the protection gap is biggest – in emerging and developing countries and where Swiss Re has offices.
• CHF 5.36 million committed to 82 partners in 29 countries to support the COVID-19 response (page 89).
• For an overview of 2020 corporate governance focus areas, highlights and trends, see our Financial Report 2020 (pages 81–83).
We address our Sustainability Topics across the different areas of our business where they are relevant. These “implementation areas” are listed below and provide the basic chapter structure for our Sustainability Report 2020: Re/insurance solutions Within our core business of re/insurance, we strive to develop innovative solutions that help tackle sustainability challenges. To achieve this, we work with our clients and partners in both the private and public sectors.
Risk intelligence We develop and apply tailor-made tools to extend the scope of our risk management. This enables us to identify and appropriately address sustainabilityrelated and emerging risks and opportunities in our core business.
Investments We integrate ESG criteria across our investment portfolio. Our approach is based on the three strategic cornerstones Enhancement, Inclusion and Exclusion.
Stakeholder dialogue Through regular dialogue with our clients, investors and other stakeholders, we help develop effective responses to sustainability and other key issues by raising awareness of both the risks and opportunities arising from them.
Corporate governance and compliance By adhering to the highest standards of governance and compliance, we seek to maintain effective checks and balances between the top corporate bodies and to ensure the application of laws, rules and regulations, and ethical standards in our business. Swiss Re’s commitment to sustainability is fully integrated into our Code of Conduct.
Swiss Re Foundation Playing an active role in society beyond our core business is important to us. Globally, we empower vulnerable communities to become more resilient to risk and, where we have offices, we encourage volunteering activities and support local institutions.
By managing risks and covering losses, re/insurance creates stability and enables economic growth. However, some environmental and social challenges may undermine sustainable progress if left unaddressed. Helping our clients and society tackle such risks is a key part of our commitment to sustainability and of our vision to make the world more resilient.
Building on our efforts in recent years, our focus is on the three overarching 2030 Sustainability Ambitions we have defined in our Group Sustainability Strategy (see pages 9–10).
2020 highlights: • USD 4.1 billion natural catastrophe premiums across Swiss Re Group.
• USD 10.7 billion climate protection offered to 130 (sub-)sovereigns since 2014.
from life and health insurance cover through Women’s World Banking microinsurance programme.
As a lead re/insurer of offshore wind farms, Swiss Re is helping to advance the transition to cleaner energy sources.
Providing effective re/insurance protection against large natural catastrophes creates significant benefits for our clients and for society at large. In 2020, our clients paid us USD 4.1 billion of natural catastrophe premiums1 for natural catastrophe covers exceeding losses of USD 20 million, equivalent to approximately 10% of total premiums.
Worldwide economic as well as insured losses from natural catastrophes were high in each of the past four years but have steadily increased on average for more than 20 years. The main reasons for this are economic development, population growth, urbanisation and a higher concentration of assets and operations in exposed areas.
In addition to providing re/insurance covers, we offer our clients strategic expertise and integral risk assessments of natural disasters and climate adaptation. These include free client access to Swiss Re’s CatNet® tool, which includes our Global Storm Surge Zones service, and our expertise publications (for examples, see pages 52–59).
2 IPCC, Fifth Assessment Report (AR5, 2014) and Special Report on Global Warming of 1.5°C (SR15, 2018).
1 In previous years, we reported natural catastrophe premiums for our Property & Casualty (P&C) Reinsurance business only, but switched to Group-wide figures to provide a more complete picture.
In this section, we describe a selection of the innovative transactions and initiatives we were involved in during 2020 to help strengthen risk resilience. These transactions help meet the three 2030 Sustainability Ambitions defined in our Group Sustainability Strategy, often more than one at the same time. The transactions help our clients and their communities become more resilient to the risks they face by ensuring that adequate funding is in place when it is needed.