The Group presents four core operating business segments: Property & Casualty Reinsurance, Life & Health Reinsurance, Corporate Solutions and Life Capital. The presentation of each segment’s balance sheet is closely aligned to the segment legal entity structure. The assignment of assets and liabilities for entities that span more than one segment is determined by considering local statutory requirements, legal and other constraints, the economic view of duration and currency requirements of the reinsurance business written and the capacity of the segments to absorb risks. Interest expense is based on the segment’s capital funding position. The tax impact of a segment is derived from the legal entity tax obligations and the segmentation of the pre-tax result. While most of the tax items can be directly attributed to individual segments, the tax which impacts two or more segments is allocated to the segments on a reasonable basis. Property & Casualty Reinsurance and Life & Health Reinsurance share the same year-to-date effective tax rate as both business segments belong to the Reinsurance Business Unit.
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 customised solutions tailored to the needs of clients. Corporate Solutions serves customers from over 50 offices worldwide.
Life Capital Life Capital manages Swiss Re’s primary life and health business. It encompasses the closed and open life and health insurance books, including the ReAssure business and the primary life and health insurance business comprising elipsLife and iptiQ.
Premiums earned 16 095 12 683 3 925 1 172 33 875 Fee income from policyholders 152 434 586 Net investment income – non-participating business 1 380 1 305 207 1 256 262 –335 4 075 Net realised investment gains/losses – non-participating business –16 347 16 66 –348 65 Net investment result – unit-linked and with-profit business –33 –1 560 –1 593 Other revenues 36 1 3 353 –354 39
Claims ratio in % 72.2 82.6 74.2 Expense ratio in % 31.8 34.9 32.4 Combined ratio in % 104.0 117.5 106.6 Management expense ratio¹ in % 5.4 Net operating margin2 in % 4.3 9.4 –11.1 3.9 2.9 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 11 “Assets held for sale“ for more details.
194 Swiss Re | Financial Report 2019 b) Property & Casualty Reinsurance business segment – by line of business For the year ended 31 December 2018 USD millions Property Casualty Specialty Unallocated Total
Property & Casualty Reinsurance business segment – by line of business For the year ended 31 December 2019 Property Casualty Specialty Unallocated Total USD millions
Management expense ratio1 in % 5.2 5.6 5.4 Net operating margin2 in % 7.3 8.2 9.4 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”.
Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2019 Life Health Unallocated Total USD millions
Expenses Life and health benefits –7 316 –3 271 –10 587 Return credited to policyholders –162 –162 Acquisition costs –1 295 –680 –1 975 Operating expenses –472 –274 –746
Management expense ratio1 in % 4.8 6.1 5.2 Net operating margin2 in % 6.0 5.8 10.0 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”.
United States 13 519 15 804 United Kingdom 3 487 3 593 China 1 644 2 136 Australia 2 061 2 026 Japan 1 426 1 620 Germany 1 226 1 330 Canada 1 209 1 205 Switzerland 952 1 071 France 789 941 Netherlands 837 913 South Korea 558 731 Other 6 753 7 224
Retrocession to external parties –567 –1 220 –316 –403 –2 506
Claims paid, thereof: Gross claims paid to external parties –12 453 –10 077 –3 836 –3 481 –29 847 Intra-group transactions (assumed and ceded) –585 –165 585 165 0
Unpaid claims and claim adjustment expenses; life and health benefits before impact of retrocession to external parties –2 176 –1 402 –1 118 417 –4 279
Net acquisition costs –4 810 –1 975 –640 –409 –7 834
Reinsurance recoverable on unpaid claims and policy benefits As of 31 December 2018 and 2019, the Group had a reinsurance recoverable of USD 7 058 million and USD 5 898 million, respectively. The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire Hathaway and subsidiaries accounted for 29% and 33% of the Group’s reinsurance recoverable as of year-end 2018 and 2019, respectively.
Policyholder dividends Policyholder dividends are recognised as an element of policyholder benefits. The relative percentage of participating insurance of the life and health policy benefits in 2018 and 2019 was 9% and 10%, respectively. The amount of policyholder dividend expense in 2018 and 2019 was USD 245 million and USD 165 million, respectively.
Retrocession to external parties –612 –1 212 –348 –407 –2 579
US asbestos and environmental claims exposure The Groupʼs obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1986, in particular in the area of US asbestos and environmental liability.
In the Property & Casualty Reinsurance and Corporate Solutions segments, all contracts that transfer significant insurance risk are included in scope to the extent they can be allocated to a disaggregation category. For many reinsurance contracts, proportional contracts in particular, ceding companies do not report losses by accident year. In these cases, the Group has allocated reported losses by underwriting year to accident year to produce the accident year tables. Similarly, IBNR is calculated on an underwriting year basis and then the liabilities are allocated to accident year.
The Corporate Solutions business segment was created in 2012. Therefore, seven accident years and reporting periods are shown for this business unit. 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. Business ceded to Property & Casualty Reinsurance prior to 2012 is included in the net claims development information reported by this segment.
The current reporting period estimate of net claims liabilities for accident years older than the number of years shown in the claims development tables is presented as a total after disclosure of cumulative paid claims.
Non-life re/insurance contracts For reinsurance business, cedents report their case reserves and their estimated IBNR to the Group. The Group develops and recognises its own estimate of IBNR claims, which includes circumstances in which the cedent has not reported any claims to the Group or where the Group‘s estimate of reserves needed to cover reported claims differs from the amounts reported by cedents. For reinsurance business, case reserves and estimated IBNR reported by cedents to the Group have been accounted for as case reserves in previous years. IBNR reported by cedents are presented together with the Group‘s own estimate of IBNR as IBNR in the claims development tables. Reserving for insurance business is performed similarly, except that the Group estimates case reserves as well. Reserving is done on portfolio or contract level depending on the features of the contract: For business reviewed on a portfolio level, the expected ultimate losses are set for most lines and types of business based on analysis performed using standard actuarial techniques. In general, contracts are aggregated into portfolios by combining contracts with similar features.
Liabilities for claims and claim adjustment expenses, net of reinsurance 7 653
The liability for unpaid claims and claim adjustment expenses for property in Property & Casualty Reinsurance shows positive development on most recent accident years. Claims in accident year 2011 were at a high level due to several large natural catastrophes including the earthquake and tsunami in Japan, the earthquakes in Christchurch, New Zealand, and floods in Thailand. The 2017 accident year claims incurred are higher due to natural catastrophes, mainly stemming from Cyclone Debbie, hurricanes Harvey, Irma and Maria in the Americas, the two earthquakes in Mexico and the wildfires in California. The 2018 to 2019 accident year claims incurred are lower than 2017 but include a higher level of natural catastrophes than 2012 to 2016.
Liabilities for claims and claim adjustment expenses, net of reinsurance 9 827
The increase in the incurred losses for accident years 2013 to 2019 is driven by volume increases of business being written. The increases in the incurred losses in reporting year 2019 for accident years 2015 to 2018 are driven by US business.
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
The negative IBNRs are due to overstated case reserves, mainly on the German business, and accident year 2011 includes the effects of an outwards proportional contract on inwards non-proportional business.
Liabilities for claims and claim adjustment expenses, net of reinsurance 6 349
In line with the Group‘s policy, cash flows under Loss Portfolio Transfers are reported through claims paid. For longer-tailed lines and depending on the business volume written, timing of cash flows can lead to net inward payments across the whole portfolio in the first development year of the contract for some accident years.
Liabilities for claims and claim adjustment expenses, net of reinsurance 4 776
This category contains several individual large losses on marine, aviation and space lines, including the Costa Concordia event in accident year 2012. The 2017 accident year claims incurred is higher due to natural catastrophes mainly stemming from hurricanes Harvey, Irma and Maria in the Americas which have reduced in reporting year 2019.
Liabilities for claims and claim adjustment expenses, net of reinsurance 5 960
For the 2019 reporting year, a Loss Portfolio Transfer to P&C Reinsurance of US liability lines of business reduced reserves by USD 1.2 billion in total across all accident years. Excluding this impact, there was unfavourable prior-year development across all lines of business, in particular US liability, mainly driven by large and medium-sized man-made losses. The impact of this unfavourable development was reduced by recoveries under an Adverse Development Cover with P&C Reinsurance in place for the second half of the year. A recovery in 2019 of USD 0.6 billion under this cover is included in the 2018 accident year above. P&C Reinsurance reports both the Adverse Development Cover and the Loss Portfolio Transfer under accident year 2019 (see ˝Property & Casualty Reinsurance – Liability, nonproportional ” on page 212).
Life & Health Reinsurance, long tail (RSI) 5.2% 15.6% 15.5% 11.0% 7.9% 6.1% 5.0% 4.5% 3.3% 3.0%
Property 7 653 Liability, proportional 9 827 Liability, non-proportional 9 689 Accident & Health 5 469 Motor, proportional 3 523 Motor, non-proportional 6 349 Specialty 4 776
Corporate Solutions 5 506 Consolidation –5 360 Impact of acquisition accounting –92 Other short duration contract lines 618
Please refer to Note 1 for more details about the Group‘s discounting approach for unpaid claims and claim adjustment expenses.
The percentage of PVFP which is expected to be amortised in each of the next five years is 16%, 14%, 13%, 12% and 12%.
224 Swiss Re | Financial Report 2019 7 Investments Investment income Net investment income by source (excluding unit-linked and with-profit business) was as follows: Fixed income securities 2 905 2 859 Equity securities 71 66 Policy loans, mortgages and other loans 213 162 Investment real estate 220 226 Short-term investments 62 93 Other current investments 128 127 Share in earnings of equity-accounted investees 166 387 Cash and cash equivalents 47 75 Net result from deposit-accounted contracts 250 149 Deposits with ceding companies 447 452
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 526 1 590 Gross realised losses –225 –143
Net realised investment gains/losses – non-participating business 65 1 580 1 For more details on the transaction, please refer to Note 11 “Assets held for sale“.
Realised gains/losses – fixed income securities –61 –140 89 135 Realised gains/losses – equity securities –2 124 –257 3 333 279 Realised gains/losses – other –14 1 90 9
Fixed income securities available-for-sale 89 673 4 023 –1 157 –1 92 538 2019 Amortised cost Gross unrealised Gross unrealised
Total 50 783 3 419 –161 54 041 Corporate debt securities 37 293 3 749 –46 40 996 Mortgage- and asset-backed securities 4 397 195 –14 –2 4 576 Reclassified to assets held for sale –17 693 –2 785 28 –20 450
Fixed income securities available-for-sale 74 780 4 578 –193 –2 79 163
Unrealised losses on securities available-for-sale The following table shows the fair value and unrealised losses of the Group’s fixed income securities, aggregated by investment category and length of time that individual securities were in a continuous unrealised loss position as of 31 December 2018 and 2019.
Due in one year or less 10 449 10 379 7 294 7 324 Due after one year through five years 24 547 24 614 27 559 28 083 Due after five years through ten years 16 183 16 471 15 994 17 115 Due after ten years 34 749 37 262 37 865 43 144 Mortgage- and asset-backed securities with no fixed maturity 3 745 3 812 3 761 3 947 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 3 314 2 358 Corporate debt securities 37 Mortgage- and asset-backed securities 63 52
Fixed income securities trading – non-participating business 3 414 2 410
Equity securities at fair value through earnings – non-participating business 3 036 2 993
Fixed income securities trading 2 253 2 685 1 963 2 717 Equity securities at fair value through earnings 21 326 1 797 35 528 2 078 Investment real estate 537 230 512 200 Other 702 16 692 3 Reclassified to assets held for sale –38 175 –4 998
Substantially all mortgage, policy and other loan receivables are secured by buildings, land or the underlying policies.
The Group manages risk associated with the residual value of its leased properties through careful property selection as well as diversification by geographical region and property type. Lease contracts for residential real estate in Switzerland and Germany are usually open-ended. Cash flows for such contracts have been projected taking into consideration the average turnover rate in the region. Lease contracts for residential real estate in the US with a lease term of one year or less have been excluded from the projected cash flows in the table above. Rental income for those leases for the year ended 31 December 2019 was USD 28 million.
Other financial assets and liabilities by measurement category As of 31 December 2018 and 2019, ‘‘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
Gross amounts of Net amounts of financial Related financial 2018 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 2019 recognised Amounts set-off assets presented instruments not set-off USD millions financial assets in the balance sheet in the balance sheet in the balance sheet Net amount
Derivative financial instruments – liabilities –1 750 1 058 –692 75 –617 Repurchase agreements –3 352 2 674 –678 653 –25 Securities lending –1 145 572 –573 524 –49
232 Swiss Re | Financial Report 2019 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.
Level 2 inputs are market-based inputs that are directly or indirectly observable, but not considered level 1 quoted prices. Level 2 inputs consist of (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical assets or liabilities in non-active markets (eg markets which have few transactions and where prices are not current or price quotations vary substantially); (iii) inputs other than quoted prices that are observable (eg interest rates, yield curves, volatilities, prepayment speeds, credit risks and default rates); (iv) inputs derived from, or corroborated by, observable market data; and (v) quoted prices provided by third-party brokers. The types of instruments that trade in markets that are not considered to be active include most government agency securities, investment-grade corporate bonds, certain mortgage- and asset-backed products, certain exchange-traded derivative instruments, catastrophe bonds, less liquid listed equities and state, municipal and provincial obligations.
Level 3 inputs are unobservable inputs. These inputs reflect the Group’s own assumptions about market pricing using the best internal and external information available. Certain financial instruments are classified within level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. Such instruments include private equity, less liquid corporate debt securities and certain asset-backed securities (ABS). Certain over-the-counter (OTC) derivatives trade in less liquid markets with limited pricing information, and the determination of fair value for these derivatives is inherently more difficult. 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.
Corporate debt securities mainly include US and European investment-grade positions, which are priced on the basis of quotes provided by third-party pricing vendors and first utilise valuation inputs from actively traded securities, such as bid prices, bid spreads to Treasury securities, Treasury curves and same or comparable issuer curves and spreads. Issuer spreads are determined from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call features. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable inputs and option-adjusted spreads and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure.
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 mortgagebacked 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 holds both exchange-traded and OTC interest rate, foreign exchange, credit and equity derivative contracts for hedging and trading purposes. The fair values of exchange-traded derivatives measured using observable exchange prices are classified in level 1. Longdated contracts may require adjustments to the exchange-traded prices which would trigger reclassification to level 2 in the fair value hierarchy. OTC derivatives are generally valued by the Group based on the internal models, which are consistent with industry standards and practices, and use both observable (dealer, broker or market consensus prices, spot and forward rates, interest rate and credit curves and volatility indices) and unobservable inputs (adjustments for liquidity, inputs derived from the observable data based on the Group’s judgements and assumptions).
USD millions (level 1) (level 2) (level 3) netting1 expedient Total
Interest rate contracts 6 424 6 436 Foreign exchange contracts 399 399 Equity contracts 1 377 339 717 Credit contracts 0 Other contracts 2 59 61 Contracts backing unit-linked and with-profit business 2 5 7
Interest rate contracts –3 –318 –3 –324 Foreign exchange contracts –169 –169 Equity contracts –8 –484 –43 –535 Credit contracts –1 –1 Other contracts –471 –471 Contracts backing unit-linked and with-profit business –3 –2 –5
Total liabilities at fair value –345 –3 162 –556 1 058 0 161 –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.
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
Derivative equity contracts 339 186 OTC equity option referencing correlated equity indices 339 186 Proprietary option model Correlation –50–55% (20%)1
Investment real estate 166 143 Discounted cash flow model Discount rate 5% per annum
–127 –110 Discounted cash flow model Discount rate 5% per annum
Weather contracts –77 –76 Proprietary option model Risk margin 5–11% (9%) Correlation –74–60% (25%) Volatility (power/gas) 27–118% (67%) Volatility (temperature) 69–304 (95) HDD/CAT2 Index value (temperature) 199–2 894 (1 115)
Private equity funds 504 565 647 non-redeemable n/a Hedge funds 196 208 redeemable1 45–95 days2 Private equity direct 69 128 42 non-redeemable n/a Real estate funds 43 12 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.
Fair value option The fair value option under the Financial Instruments Topic permits the choice to measure specified financial assets and liabilities at fair value on an instrument-by-instrument basis. The Group elected the fair value option for positions in the following line items: Other invested assets The Group elected the fair value option for certain investments classified as equity method investees within other invested assets in the balance sheet. The Group applied the fair value option, as the investments are managed on a fair value basis. The changes in fair value of these elected investments are recorded in earnings.
Liabilities for life and health policy benefits The Group elected the fair value option for existing GMDB reserves related to certain variable annuity contracts which are classified as universal-life-type contracts. The Group has applied the fair value option, as the equity risk associated with those contracts is managed on a fair value basis and it is economically hedged with derivative options in the market. The liability is carried at fair value and changes in fair value attributable to instrument-specific credit risk are reported in other comprehensive income and all other changes in fair value are reported as a component of earnings.
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 312 335 Funds held by ceding companies 9 009 9 472 of which at fair value pursuant to the fair value option 206 174 Liabilities Liabilities for life and health policy benefits –39 593 –19 836 of which at fair value pursuant to the fair value option –119 –91 Accrued expenses and other liabilities –6 798 of which at fair value pursuant to the fair value option –127 Liabilities held for sale –68 586 of which at fair value pursuant to the fair value option –110
Policy loans, other loans and certain mortgage loans are classified as level 3 measurements, as they do not have an active exit market. Some of these positions need to be assessed in conjunction with the corresponding insurance business, whilst the fair value of some other positions does not differ materially from the carrying amount. Considering these circumstances for these positions, the Group presents the carrying amount as an approximation for the fair value. For certain commercial mortgage loans and infrastructure loans, which are included in mortgage loans and other loans respectively, the fair value can be estimated using discounted cash flow models which are based on discount curves and spread inputs that require management’s judgement.
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: 2018 Notional amount assets/liabilities
Total net amount of derivative financial instruments 568 –582 –14 2019 Notional amount assets/liabilities
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”, “Investments for unit-linked and with-profit business” and “Assets held for sale”. The fair value liabilities are included in “Accrued expenses and other liabilities” and “Liabilities held for sale”. The fair value amounts that were not offset were nil as of 31 December 2018 and 2019.
For the years ended 31 December, the gains and losses of derivative financial instruments not designated as hedging instruments were as follows: Derivatives not designated as hedging instruments Interest rate contracts –178 –116 Foreign exchange contracts –60 8 Equity contracts 30 –183 Credit contracts –7 –51 Other contracts 73 112
For the years ended 31 December, the gains and losses attributable to the hedged risks were as follows: USD millions
Total amounts of income and expense line items 65 –555 1 905 1 580 –589 5 152
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 are designated as cash flow hedging instruments.
For the years ended 31 December 2018 and 2019, the Group recorded an accumulated net unrealised foreign currency remeasurement gain of USD 2 102 million and USD 1 895 million, respectively, in “Other comprehensive income - Foreign currency translation“. These offset translation gains and losses on the hedged net investment.
Credit risk-related contingent features Certain derivative instruments held by the Group contain provisions that require its debt to maintain an investment-grade credit rating. If the Group’s credit rating were downgraded or no longer rated, the counterparties could request immediate payment, guarantee or an ongoing full overnight collateralisation on derivative instruments in net liability positions.
The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 108 million and USD 75 million as of 31 December 2018 and 2019, respectively. For derivative financial instruments containing credit risk-related contingent features, the Group posted collateral of nil as of 31 December 2018 and 2019, respectively. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 75 million additional collateral would have had to be posted as of 31 December 2019. The total equals the amount needed to settle the instruments immediately as of 31 December 2019.
250 Swiss Re | Financial Report 2019 12 Debt and contingent capital instruments The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines short-term debt as debt having a maturity at the balance sheet date of not greater than one year and long-term debt as having a maturity of greater than one year. For subordinated debt positions, maturity is defined as the first optional redemption date (notwithstanding that optional redemption could be subject to regulatory consent). Interest expense is classified accordingly.
Maturity of long-term debt As of 31 December, long-term debt as reported above had the following maturities: Due in 2020 188 0 Due in 2021 816 152 Due in 2022 817 804 Due in 2023 855 840 Due in 2024 1 246 2 573 Due after 2024 4 580 7 089 Reclassified to liabilities held for sale –1 320
Maturity Instrument Issued in Currency Nominal in millions Interest rate Book value in USD millions 2022 Senior notes 2012 USD 250 2.88% 249 2023 Senior notes 2016 EUR 750 1.38% 838 2024 EMTN 2014 CHF 250 1.00% 257 2026 Senior notes1 1996 USD 397 7.00% 465 2027 EMTN 2015 CHF 250 0.75% 259 2030 Senior notes1 2000 USD 193 7.75% 251 2042 Senior notes 2012 USD 500 4.25% 490 Various Payment undertaking agreements various USD 226 various 244
Total subordinated long-term debt as of 31 December 2018 4 004 1 Reclassified to liabilities held for sale.
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% 494
Total contingent capital instruments classified as long-term debt as of 31 December 2018 682
In April 2019, Swiss Re Finance (Luxembourg) S.A., a subsidiary of Swiss Reinsurance Company Ltd, issued 30-year guaranteed subordinated fixed rate reset step-up callable notes, which are callable after ten years. The instruments have an aggregate face value of USD 1 billion, with a fixed coupon of 5% per annum until the first optional redemption date (2 April 2029). The notes are guaranteed on a subordinated basis by Swiss Reinsurance Company Ltd.
In June 2019, ReAssure Group plc issued callable Tier 2 subordinated notes due 2029, which are callable in 2024. The notes have an aggregate face value of GBP 250 million, with a fixed coupon of 5.766% per annum until the first optional redemption date (13 June 2024). The notes were initially issued to Swiss Re Finance (Jersey) Limited and, in July 2019, a portion was sold to a third party outside the Swiss Re Group. In August 2019, the remaining portion was sold to the same third party.
Maturity of lease liabilities As of 31 December 2019, the total undiscounted cash flows due to operating leases for the next five years and thereafter were as follows: USD millions 2019
Effect of dilutive securities Change in income available to common shares due to contingent capital instruments1 8 14 Change in average number of shares due to contingent capital instruments 6 203 404 13 143 130 Change in average number of shares due to employee options 604 473 704 411
Net income per share in CHF2 1.34 2.40 1 Please refer to Note 12 “Debt and contingent capital instruments”. 2 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
At the 2018 Annual General Meeting held on 20 April 2018, Swiss Re Ltd’s shareholders authorised the SRL Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of Swiss Re Ltd’s own shares by way of a public share buyback programme for cancellation purposes prior to the 2019 Annual General Meeting.
256 Swiss Re | Financial Report 2019 15 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 636 496 Deferred taxes –567 –356
For the year ended 31 December 2019, the tax rate was largely driven by tax benefits from effective settlement of tax audits and tax-exempt income, partially offset by tax charges from other income-based taxes and non-deductible expenses. The lower rate in the year ended 31 December 2018 was largely driven by tax benefits from foreign currency translation differences between statutory and US GAAP accounts, the releases of valuation allowances on net operating losses and tax benefits from intra-entity transfers, partially offset by the impact of different rates in various jurisdictions and tax charges from unrecognised tax benefits.
Deferred and other non-current taxes The components of deferred and other non-current taxes were as follows: Deferred tax assets Income accrued/deferred 212 238 Technical provisions 560 519 Unearned premium reserves 236 318 Pension provisions 293 303 Benefit on loss carryforwards 2 675 2 446 Currency translation adjustments 423 316 Unrealised gains in income 424 651 Investment valuation in income 171 269 Other 805 774 Reclassified to assets held for sale –604
Gross deferred tax asset 5 799 5 230 Valuation allowance –366 –505 Unrecognised tax benefits offsetting benefits on loss carryforwards –22 1
Total deferred and other non-current tax liabilities –6 471 –5 663
As of 31 December 2019, the Group had USD 10 553 million net operating tax loss carryforwards, expiring as follows: USD 12 million in 2020, USD 8 million in 2021, USD 7 million in 2022, USD 6 million in 2023, USD 6 171 million in 2024 and beyond, and USD 4 349 million never expire.
For the year ended 31 December 2019, net operating tax losses of USD 4 051 million and net capital tax losses of USD 43 million were utilised.
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. For the years ended 31 December 2018 and 2019, such expenses were USD 7 million and USD 5 million, respectively. For the years ended 31 December 2018 and 2019, USD 60 million and USD 55 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2019 is included within the deferred and other non-current taxes section reflected above and in the balance sheet.
The balance of gross unrecognised tax benefits as of 31 December 2019 presented in the table above excludes accrued interest and penalties (USD 55 million).
16 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 1 January 3 948 2 464 413 6 825 Service cost 120 8 5 133 Interest cost 23 68 9 100 Amendments 1 –61 –60 Actuarial gains/losses –43 –81 –25 –149 Benefits paid –202 –91 –18 –311 Employee contribution 25 25 Effect of settlement, curtailment and termination 4 4 Effect of foreign currency translation –43 –99 –4 –146
Benefit obligation as of 31 December 3 832 2 270 319 6 421
Funded status –72 66 –319 –325 2019 Swiss plan Foreign plans Other benefits Total USD millions
Amounts recognised in “Other assets” and “Accrued expenses and other liabilities” in the Group’s balance sheet as of 31 December were as follows: 2018 USD millions Swiss plan Foreign plans Other benefits Total
Net amount recognised –72 66 –319 –325 2019 USD millions Swiss plan Foreign plans Other benefits Total
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows: 2018 USD millions Swiss plan Foreign plans Other benefits Total
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended 31 December were as follows: 2018 USD millions Swiss plan Foreign plans Other benefits Total
Total recognised in other comprehensive income, gross of tax 74 19 –86 7
Total recognised in net periodic benefit cost and other comprehensive income, gross of tax 177 29 –72 134
The estimated net loss and prior service credit for the defined benefit pension plans that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2020 are USD 80 million and USD 15 million, respectively. The estimated net gain and prior service credit for the other defined post-retirement benefits that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2020 are nil and USD 15 million, respectively.
Pension plans with an accumulated benefit obligation in excess of plan assets as of 31 December were as follows: Projected benefit obligation 4 898 628 Accumulated benefit obligation 4 856 619 Fair value of plan assets 4 654 430
Assumptions used to determine obligations at the end of the year Discount rate 0.8% 0.1% 3.0% 2.1% 2.2% 1.5% Rate of compensation increase 1.8% 1.8% 3.0% 2.9% 2.1% 2.1%
Effect on total of service and interest cost components 0 0 Effect on post-retirement benefit obligation 18 –16
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 2018 and 2019 was as follows: Swiss plan allocation Foreign plans allocation
Asset category Equity securities 23% 26% 23% 13% 8% 13% Debt securities 46% 41% 46% 73% 76% 81% Real estate 24% 18% 23% 2% 0% 0% Other 7% 15% 8% 12% 16% 6%
Actual asset allocation is determined by a variety of current economic and market conditions and considers specific asset class risks.
Equity securities include Swiss Re shares of USD 4 million (0.1% of total plan assets) and USD 3 million (0.04% of total plan assets) as of 31 December 2018 and 2019, respectively.
Equity securities at fair value through earnings 901 308 1 209 Short-term investments 48 48 Derivative financial instruments 10 10 Real estate 721 721 Other assets 91 659 750
Quoted prices in active markets Significant other Significant Investments measured 2019 for identical observable unobservable at net asset value as USD millions assets (level 1) inputs (level 2) inputs (level 3) practical expedient Total
Expected contributions and estimated future benefit payments The employer contributions expected to be made in 2020 to the defined benefit pension plans are USD 117 million and to the post-retirement benefit plan are USD 17 million.
266 Swiss Re | Financial Report 2019 17 Share-based payments As of 31 December 2018 and 2019, the Group had the share-based compensation plans as described below.
The total compensation cost for share-based compensation plans recognised in net income was USD 47 million and USD 30 million in 2018 and 2019, respectively. The related tax benefit was USD 10 million and USD 6 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 2019 is as follows: Weighted average grant date fair value in CHF1 Number of shares
The fair value assumptions in the grant valuations include market estimates for dividends and the risk-free rate based on the average of the 10-year US Treasury bond taken monthly over each year in the performance period. This resulted in risk-free rates between 1.8% and 3.1% for all LPP awards.
Unrecognised compensation cost As of 31 December 2019, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based compensation awards was USD 46 million and the weighted average period over which that cost is expected to be recognised is 1.9 years.
268 Swiss Re | Financial Report 2019 18 Compensation, participations and loans of members of governing bodies
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 143–148 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 296–297 of the Annual Report of Swiss Re Ltd.
19 Related parties The Group defines the following as related parties to the Group: subsidiaries of Swiss Re Ltd, entities in which the Group has significant influence, pension plans, members of the Board of Directors (BoD) and the Group Executive Committee (EC) and their close family members, and entities which are directly and indirectly controlled by members of governing bodies of the Group and their close family members.
As of 31 December 2018 and 2019, the Group’s investment in mortgages and other loans included USD 373 million and USD 4 million, respectively, of loans due from employees, and USD 212 million and nil, respectively, due from officers. These loans generally consist of mortgages offered at variable and fixed interest rates.
The total number of shares, options and related instruments held by members of the BoD and the Group EC, as well as closely related persons, amounts to less than 1% of the shares issued by Swiss Re Ltd. None of the members of the BoD and the Group EC has any significant business connection with Swiss Re Ltd or any of its Group companies. The Board member Susan L. Wagner is also a Board member of BlackRock, Inc. BlackRock, Inc. acts as an external asset manager for the Group.
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 Holding 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 Reinsurance 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 1 Net asset value instead of share capital.
United Kingdom IptiQ Holdings Limited, London GBP 0 100 f Old Mutual Wealth Life Assurance Limited, Southampton GBP 64 75 f ReAssure FSH UK Limited, Shropshire GBP 710 75 f ReAssure Group Plc, Telford GBP 100 75 f ReAssure Midco Limited, Shropshire GBP 73 75 f ReAssure Limited, Shropshire GBP 387 75 f ReAssure UK Services Limited, Shropshire GBP 105 75 f Swiss Re Capital Markets Limited, London USD 60 100 f Swiss Re Life Capital Regions Holding Ltd, London GBP 0 100 f Swiss Re Services Limited, London GBP 2 100 f
Cayman Islands FWD Group Ltd, Grand Cayman USD 1 15 e PEP SR I Umbrella L.P., George Town USD 443 100 f
United States Claret LLC, Colchester USD 0 100 f Claret Re Inc., Colchester USD 5 100 f Facility Holding Corporation, Wilmington USD 0 100 f First Specialty Insurance Corporation, Jefferson City USD 5 100 f iptiQ Americas Inc., Wilmington USD 0 100 f Lumico Life Insurance Company, Jefferson City USD 0 100 f North American Capacity Insurance Company, Manchester USD 4 100 f North American Elite Insurance Company, Manchester USD 4 100 f North American Specialty Insurance Company, Manchester USD 5 100 f Pecan Re Inc., Colchester USD 5 100 f Pillar RE Holdings LLC, Wilmington USD 0 100 f SR Corporate Solutions America Holding Corporation, Wilmington USD 0 100 f Sterling Re Inc., Colchester USD 213 100 f Swiss Re America Holding Corporation, Wilmington USD 0 100 f Swiss Re Capital Markets Corporation, New York USD 0 100 f Swiss Re Corporate Solutions Global Markets Inc., New York USD 0 100 f Swiss Re Financial Markets Corporation, Wilmington USD 0 100 f Swiss Re Financial Products Corporation, Wilmington USD 0 100 f Swiss Re Life & Health America Holding Company, Wilmington USD 0 100 f Swiss Re Life & Health America Inc., Jefferson City USD 4 100 f Swiss Re Life Capital Americas Holding Inc., Wilmington USD 0 100 f Swiss Re Management (US) Corporation, Wilmington USD 0 100 f Swiss Re Property & Casualty America Inc., Kansas City USD 1 100 f Swiss Re Risk Solutions Corporation, Wilmington USD 0 100 f Swiss Re Treasury (US) Corporation, Wilmington USD 0 100 f Swiss Reinsurance America Corporation, Armonk USD 10 100 f Westport Insurance Corporation, Jefferson City USD 6 100 f Wing Re II Inc., Jefferson City USD 0 100 f
Significance is defined by the total assets of the subsidiaries and equity investees in relation to the total assets of the Group. The threshold is set at 0.05%.
274 Swiss Re | Financial Report 2019 22 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.
When analysing whether the entity is a VIE, the Group mainly assesses if (1) the equity is sufficient to finance the entity’s activities without additional subordinated financial support, (2) the equity holders have the right to make significant decisions affecting the entity’s operations and (3) the holders of the voting rights substantively participate in the gains and losses of the entity.
Swaps in trusts The Group provides interest rate and foreign exchange risk hedges to certain asset securitisation trusts which qualify as VIEs. As the Group’s involvement is limited to interest rate and foreign exchange derivatives, it does not have the power to direct any activities of the trusts and therefore does not qualify as primary beneficiary of any of these trusts. These activities are in run-off.
Investment vehicles for unit-linked business Additionally, the Group invests on behalf of the policyholders as a passive investor in a variety of investment funds across various jurisdictions. By design, many of these funds meet a VIE definition. While the Group may have a potentially significant variable interest in some of these entities due to its share of the fund’s total net assets, in most cases it does not have power over the fund’s investment decisions or unilateral kick-out rights relative to the decision maker.
278 Swiss Re | Financial Report 2019 23 Subsequent events The rapid spread of the coronavirus, which has been declared a pandemic, and the actions being taken to contain it on an increasingly global basis have led to significant volatility in the financial markets and are having an adverse impact on global business and economic activity. There is an increasing likelihood that the coronavirus and containment efforts could have adverse effects on the global economy and could possibly lead to a global recession. The Group is closely monitoring developments and the potential impact of the spread of infection and global responses on, for example, asset prices and insurance exposures, as well as on its operations.
Opinion In our opinion, the accompanying consolidated financial statements for the year ended 31 December 2019 present fairly, in all material respects, the financial position, the results of operations and the cash flows in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law.
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 210 to 218 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, which consisted of inquiries of the Company about the methods of preparing the information and comparing the information for consistency with the Company’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 information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
2 Swiss Re Ltd | Report of the statutory auditor to the General Meeting
We assessed and tested the design and operating effectiveness of selected key controls around the valuation models for level 2 and 3 investments, including the Company’s independent price verification process. We also tested the Company’s data integrity and change management controls relating to the valuation models.
In relation to the matters set out opposite, our substantive testing procedures included the following:  Challenging the Company’s methodology and assumptions, in particular, the yield curves, discounted cash flows, perpetual growth rates and liquidity premiums used in the valuation models.
Based on the work performed, we consider the methodology and assumptions used by the Company in determining the valuation to be appropriate.
3 Swiss Re Ltd | Report of the statutory auditor to the General Meeting
Valuation of actuarially determined P&C loss reserves involves a high degree of subjectivity and complexity. Reserves for losses and loss adjustment expenses represent estimates of future payments of reported and unreported claims for losses and related expenses at a given date.
The Company uses a range of actuarial methodologies and methods to estimate these reserves. Actuarially determined P&C loss reserves require significant judgment relating to certain factors and assumptions. Among the most significant reserving assumptions are the A-priori loss ratios, which typically drive the estimates of P&C loss reserves for the most recent contract years. Other key factors and assumptions include, but are not limited to changes in interest rates, exposures and mix as well as inflation trends, claims trends and regulatory decisions.
In particular, loss reserves for ‘long tail’ lines of business (for example, the Liability, US Asbestos and Environmental, Motor Liability and Workers’ Compensation portfolios) generally require more judgment to estimate. This is due to the protracted period over which claims may be reported and/or settled as well as the fact that claim settlements are often less frequent but of higher magnitude.
We assessed and tested the design and operating effectiveness of selected key controls relating to the application of the actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by the Company in the valuation of actuarially determined P&C loss reserves.
 Involving PwC’s internal actuarial specialists to independently test the Company’s estimates of P&C loss reserves and evaluate the reasonableness of the methodology and assumptions used by comparing them with recognised actuarial practices and by applying our industry knowledge and experience.
 Performing independent projections of selected portfolios. For these portfolios, we compared our calculations of projected reserves with those of the Company taking into account the available corroborating and contrary evidence and challenging the Company’s assumptions as appropriate.
 Performing sensitivity tests to determine the impact of selected key assumptions.
 Evaluating the appropriateness of any significant adjustments made by the Company to P&C loss reserve estimates.
 Evaluating the appropriateness of the recognition, accounting and disclosures for large and/or structured transactions.
Based on the work performed, we consider the methodologies and assumptions used by the Company in the valuation of actuarially determined P&C loss reserves to be appropriate.
4 Swiss Re Ltd | Report of the statutory auditor to the General Meeting
Furthermore, on a regular basis, the Company enters into large and/or structured transactions which often have material or complex financial reporting and reserving consequences. The reserving for such transactions is subject to increased risk of error due to the non-routine nature of transactions and the judgmental nature of reserving.
The valuation of actuarially determined L&H reserves depends on the use of complex models. The Company continues to migrate actuarial data and models from legacy systems and/or spreadsheets to new actuarial modelling systems. At the same time, the Company 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 reserves need to be assessed in terms of appropriateness and classified as a change in estimate or as an out-of-period adjustment.
Based on the work performed, we consider the methodologies and assumptions used by the Company in the valuation of actuarially determined L&H reserves to be appropriate.
Key audit matter How our audit addressed the key audit matter
The Company operates in various countries and is subject to income taxes in those jurisdictions. The assessment of the valuation of deferred tax assets, resulting from net operating losses and temporary differences, and provisions for uncertain tax positions is based on complex calculations and depends on sensitive and judgmental assumptions made by the Company. These include, amongst others, future profitability and local fiscal regulations and developments. Changes in those estimates may have a material impact (through income tax expense) on the Company`s results.
We assessed and tested the design and operating effectiveness of selected key controls in place to determine the completeness of the uncertain tax items and the Company’s assessment of the items for recognition and valuation.
 Assessing how the Company considered new information or changes in tax law or case law and assessing the Company’s judgment of how these impact the Company’s position or measurement of the required provision.
 Examining tax audit documentation to validate the appropriateness of releases of uncertain tax provisions.
 Evaluating the appropriateness of the Company’s assessment of completeness of uncertain tax positions.
Based on the work performed, we determined the Company’s assessment of the completeness and valuation of uncertain tax positions to be appropriate.
Income statement Revenues Premiums earned 19 652 21 300 24 661 Fee income 918 876 785 Net investment income 5 422 5 469 5 302 Net realised investment gains/losses 2 783 388 2 688 Other revenues 60 50 188
Expenses Claims and claim adjustment expenses –7 254 –8 810 –7 763 Life and health benefits –8 236 –8 414 –8 878 Return credited to policyholders –3 371 –61 –2 959 Acquisition costs –3 679 –4 021 –4 548 Other operating costs and expenses –3 620 –3 902 –3 953
Net income after attribution of non-controlling interests 1 980 2 626 4 257
Interest on contingent capital instruments, net of tax –1 117 –56
Net income attributable to common shareholders 863 2 626 4 201
Earnings per share in CHF 2.64 6.79 11.13 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.
Expenses were mainly driven by valuation adjustments on investments in subsidiaries and affiliated companies of CHF 1 702 million and administrative expenses of CHF 143 million.
Non-current assets increased by CHF 116 million to CHF 21 320 million as of 31 December 2019, mainly driven by capital contributions to subsidiaries, an increase in loans to subsidiaries and affiliated companies, partially offset by a decrease in investments in subsidiaries and affiliated companies.
Liabilities Total liabilities increased from CHF 890 million as of 31 December 2018 to CHF 1 447 million as of 31 December 2019.
Short-term liabilities increased by CHF 667 million to CHF 930 million as of 31 December 2019, mainly driven by an increase in loans from subsidiaries and affiliated companies.
Long-term liabilities decreased by CHF 110 million to CHF 517 million as of 31 December 2019, mainly due to a movement in the provision for currency fluctuation.
Shareholders’ equity Shareholders’ equity decreased from CHF 24 470 million as of 31 December 2018 to CHF 22 800 million as of 31 December 2019, mainly due to dividends to shareholders of CHF 1 674 million and share buyback programmes of CHF 927 million partially offset by net income of CHF 932 million.
Current assets Cash and cash equivalents 1 0 Short-term investments 4 39 48 Receivables from subsidiaries and affiliated companies 2 442 703 Other receivables and accrued income 18 16 Loans to subsidiaries and affiliated companies 3 656 2 160
Non-current assets Loans to subsidiaries and affiliated companies 719 911 Investments in subsidiaries and affiliated companies 5 20 485 20 409 Total non-current assets 21 204 21 320
Liabilities Short-term liabilities Payables to subsidiaries and affiliated companies 120 149 Other liabilities and accrued expenses 143 152 Loans from subsidiaries and affiliated companies – 629 Total short-term liabilities 263 930
Retained earnings brought forward 4 4 Net income for the financial year 3 077 932 Own shares (directly held by the Company) 9 –1 946 –1 890
Time period The financial year 2019 comprises the accounting period from 1 January 2019 to 31 December 2019.
Receivables from subsidiaries and affiliated companies/ Other receivables These assets are generally carried at nominal value. Value adjustments are recorded where the expected recovery value is lower than the nominal value.
Receivables from subsidiaries and affiliated companies/ Other receivables also include derivative financial instruments. For the first time in 2019, derivative financial instruments which have an observable market price and are traded in an active and liquid market are recorded at market value. In 2018, derivative financial instruments were carried at the lower of cost or market value.
Income tax expense As a holding company incorporated in Switzerland, Swiss Re Ltd is exempt from income taxation at cantonal/communal level.
Realised losses on sale of investments 66 157 Valuation adjustments on derivative financial instruments 1 16 14 Valuation adjustments on investments in subsidiaries and affiliated companies 776 1 702 Investment management expenses 0 1 Other interest expenses 12 19 1 The derivative financial instruments are included in Receivables from subsidiaries and affiliated companies and Payables to subsidiaries and affiliated companies.
As of 31 December 2019 and 2018, 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 21 “Significant subsidiaries and equity investees” on pages 271 to 273 in the notes to the Group’s 2019 financial statements, where the voting interests are equal to the affiliations disclosed.
Dated subordinated fixed-to-floating rate callable notes facility 2015 USD 700 3.53% 5.75%1 2025 2050 Dated subordinated fixed rate callable notes facility 2016 USD 400 3.92% 6.05%1 2031 2056 Dated subordinated fixed-to-floating rate callable notes facility 2016 USD 800 3.67% 5.625%1 2027 2052 Perpetual subordinated fixed spread callable notes facility 2017 USD 750 2.77% 4.625%1 2022 Perpetual2 1 Until first optional redemption date. 2 First optional redemption date in 2022 and every five years thereafter.
Instrument Issued in Currency Nominal in millions Interest rate Maturity Book value
As of 31 December 2019, 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 83 of the Group’s 2019 financial report.
In addition, Swiss Re Ltd held, as of 31 December 2019, directly and indirectly 36 749 762 (2018: 38 575 324) own shares, representing 11.22% (2018: 11.39%) of voting rights and share capital. Swiss Re Ltd cannot exercise the voting rights of own shares held.
Shareholder Number of shares % of voting rights and share capital1 Creation of the obligation to notify 1 The percentage of voting rights is calculated at the date the obligation was created and notified.
Share ownership The number of shares held as of 31 December were: Members of the Group EC 2018 2019
Christian Mumenthaler, Group Chief Executive Officer 71 733 75 305 Urs Baertschi, CEO Reinsurance EMEA/Regional President EMEA n/a 546 Andreas Berger, CEO Corporate Solutions n/a 34 Anette Bronder, Group Chief Operating Officer n/a 0 John R. Dacey, Group Chief Financial Officer 27 124 29 809 Nigel Fretwell, Group Chief Human Resources Officer n/a 12 272 Guido Fürer, Group Chief Investment Officer 66 007 53 983 Agostino Galvagni, former CEO Corporate Solutions1 99 521 n/a Hermann Geiger, Group Chief Legal Officer n/a 49 318 Russell Higginbotham, CEO Reinsurance Asia/Regional President Asia 3 918 4 662 Thierry Léger, CEO Life Capital 53 785 56 167 Moses Ojeisekhoba, CEO Reinsurance 38 998 40 704 Jayne Plunkett, former CEO Reinsurance Asia/Regional President Asia2 36 264 n/a Patrick Raaflaub, Group Chief Risk Officer3 3 944 16 590 Edouard Schmid, Chairman Swiss Re Institute & Group Chief Underwriting Officer 30 936 31 794 J. Eric Smith, CEO Reinsurance Americas/Regional President Americas 24 004 25 262 Thomas Wellauer, former Group Chief Operating Officer4 110 520 n/a 1 The number of shares held on 31 December 2018 when Agostino Galvagni stepped down from the Group EC was 99 521. 2 The number of shares held on 8 July 2019 when Jayne Plunkett stepped down from the Group EC was 30 406. 3 For personal reasons, Patrick Raaflaub has extended time to meet the share ownership levels required under Swiss Re’s Stock Ownership Guidelines. 4 The number of shares held on 30 June 2019 when Thomas Wellauer stepped down from the Group EC was 83 102.
Share-based compensation The share-based compensation for the members of the Board of Directors for 2018 and 2019 was: Restricted shares For the years ended 31 December 2018 and 2019, neither the members of the Board of Directors nor the members of the Group EC held any restricted shares.
Vested options For the years ended 31 December 2018 and 2019, neither the members of the Board of Directors nor the members of the Group EC held any vested options.
Rajna Gibson Brandon, former member3 43 513 n/a n/a C. Robert Henrikson, former member, former Chair Compensation Committee3 63 749 n/a n/a
Philip K. Ryan, member, Chair Finance and Risk Committee 240 2 719 240 2 582
Jacques de Vaucleroy, member, Chair Compensation Committee 163 1 838 198 2 129 Susan L. Wagner, member, Chair Investment Committee 230 2 606 238 2 560 1 Represents the portion (40%) of the total fees for the members of the Board of Directors that is delivered in Swiss Re Ltd shares, with a four-year blocking period. 2 The number of shares is calculated by dividing the portion (40%) of the total fees with the average closing price of the shares on the SIX Swiss Exchange during the ten trading days preceding
The Board of Directors proposes to the Annual General Meeting to be held in Zurich on 17 April 2020 to approve the following allocations and dividend payment: Dividend If the Board of Directors’ proposal for allocations and dividend payment is accepted, an ordinary dividend of CHF 5.90 per share will be paid on 23 April 2020 from voluntary profit reserves.
Retained earnings brought forward 4 4 Net income for the financial year 3 077 932
Voluntary profit reserves brought forward 16 797 18 200 Allocation from retained earnings 3 077 936 Ordinary dividend payment out of voluntary profit reserves –1 6741 –1 7152
2 The Board of Directors’ proposal to the Annual General Meeting of 17 April 2020 is based on the number of shares eligible for dividend as of 31 December 2019. The actual dividend payment will depend on the number of shares eligible for dividend as of 20 April 2020.
As statutory auditor, we have audited the accompanying financial statements of Swiss Re Ltd (the ‘Company’), which comprise the income statement, balance sheet and notes (pages 287 to 297), for the year ended 31 December 2019.
Report on key audit matter based on the circular 1/2015 of the Federal Audit Oversight Authority
The Company applies individual valuations of investments in subsidiaries and affiliated companies in accordance with Swiss Law.
The impairment assessments of investments in subsidiaries and affiliated companies are based on the selected valuation model that reflects specific characteristics of the investment and corresponding assumptions as model inputs.
Based on the work performed, we consider the methods and assumptions used by the Company to be appropriate.
Insurance that provides for the payment of a sum of money upon the death of the insured, or upon the insured surviving a given number of years, depending on the terms of the policy. In addition, life insurance can be used as a means of investment or saving.
The payment, or one of the periodical payments, a policyholder agrees to make for an insurance policy.
Frictional capital costs provide compensation to shareholders for agency costs, costs for potential financial distress and regulatory (illiquidity) costs. Frictional capital costs include risk capital costs and funding costs. Risk capital costs are charged at 4.5% of eligible economic capital which consists of ENW and eligible hybrid debt. Funding costs are charged or credited at the legal entity level depending on the liquidity the respective legal entity uses or generates. In addition, the provision for capital costs includes an allowance for double taxation on the risk free return on capital allocated to underwriting activities.
Insurance which lowers the risk carried by primary insurance companies. Reinsurance includes various forms such as facultative, financial, non-proportional, proportional, quota share, surplus and treaty reinsurance.
Regulatory framework for EU re/insurance solvency rules. Solvency II is a comprehensive, economic and risk-based regulation and includes prudential requirements on solvency capital, risk modelling, supervisory control and disclosure.
An economic and risk-based insurance regulation, similar to the objectives of Solvency II to which all insurance and reinsurance companies writing business in Switzerland are subject.
Further adverse developments or the continuation of adverse trends that, in turn, have a negative impact on financial markets and economic conditions could limit the Group’s ability to access the capital markets and bank funding markets, could adversely affect the ability of counterparties to meet their obligations to the Group and could adversely affect the confidence of the ultimate buyers of insurance and reinsurance.
Any of the foregoing factors, developments and trends could have an adverse effect on the Group’s investment results, which in the current low interest rate environment could have a material adverse effect on the Group’s overall results, make it difficult to determine the value of certain assets in the Group’s portfolio, make it more difficult to acquire suitable investments to meet its risk and return criteria and otherwise have a material adverse effect on its business and operations.
While certain regulatory processes are designed in part to foster convergence and achieve recognition of group supervisory schemes, the Group continues to face risks of extraterritorial application of regulations, particularly as to group supervision and group solvency requirements. In addition, regulators in jurisdictions beyond those where the Group has core operations increasingly are playing a far greater oversight role, requiring more localised resources and, despite a predominantly local focus, also raise issues of a crossborder nature. Furthermore, evolving regulatory schemes and requirements may be inconsistent or may conflict with each other, thereby subjecting the Group, particularly in light of the increasing focus on legal entities in isolation, to higher compliance and legal costs, as well as the possibility of higher operational, capital and liquidity costs. The effect of these trends could be exacerbated to the extent that the current political environment results in a return to more bilateral, and less harmonised, cross-border regulatory efforts.
While in recent years there has been an evolving focus on classifying certain insurance companies as systemically important, it is unclear whether and, if so, in what form reforms will be enacted. The Group could be designated as a global systemically important financial institution (“SIFI”) under the framework for SIFIs developed by the Financial Stability Board, or as a systemically important insurer by the Financial Stability Oversight Council (“FSOC”) in the United States. The International Association of Insurance Supervisors, an international body that represents insurance regulators and supervisors, has published and since refined its methodology for identifying global systemically important insurers (“G-SIIs”). Were the Group to be designated as a G-SII, it could be subject to one or both of the resulting regimes, including capital standards (the basic capital requirement for G-SIIs), which would have various implications for the Group, including additional compliance costs, reporting obligations and capital costs (in the form of capital charges or high loss absorption capacity), as well as heightened regulatory scrutiny in various jurisdictions. In addition, the Group ultimately will be subject to oversight of its Swiss regulator in respect of recovery and resolution planning.
Market risk Volatility and disruption in the global financial markets could expose the Group to significant financial and capital markets risk, including changes in interest rates, credit spreads, equity prices and foreign currency exchange rates, which may adversely impact the Group’s financial condition, results of operations, liquidity and capital position. The Group’s exposure to interest rate risk is primarily related to the market price and cash flow variability associated with changes in interest rates. In general, a low interest rate environment, such as the one experienced in recent years, poses significant challenges to the insurance and reinsurance industries, with earnings capacity under stress unless lower investment returns from fixed income assets can be offset by lower combined ratios or higher returns from other asset classes. Exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. When credit spreads widen, the net unrealised loss position of the Group’s investment portfolio can increase, as could other-than-temporary impairments.
The Group’s ratings reflect the current opinion of the relevant rating agencies. One or more of its ratings could be downgraded or withdrawn in the future, and market conditions could increase the risk of downgrade. 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. In addition, changes to the process or methodology of issuing ratings, or the occurrence of events or developments affecting the Group, could make it more difficult for the Group to achieve improved ratings which it would otherwise have expected.
Insurance, operational and other risks As part of the Group’s ordinary course operations, the Group is subject to a variety of risks, including risks that reserves may not adequately cover future claims and benefits; risks that catastrophic events (including natural disasters, such as hurricanes, windstorms, floods, earthquakes, and man-made disasters, such as acts of terrorism and other disasters such as industrial accidents, explosions, and fires and pandemics) are inherently unpredictable in terms of both their frequency and severity and have exposed, and may expose the Group to unexpected large losses (and related uncertainties in estimating future claims in respect of such events); changes in the insurance industry that affect ceding companies, particularly those that further increase their sensitivity to counterparty risk; competitive conditions (including as a result of consolidation and the availability of significant levels of alternative capacity); cyclicality of the industry; risks related to emerging claims and coverage issues; macro developments giving rise to emerging risks, such as climate change and technological developments (including greater exposure to cyber risks (where accumulation risk is yet to be fully understood), which could have a range of consequences from operational disruption, to loss of proprietary or customer data, to greater regulatory burdens and potential liability); risks arising from the Group’s dependence on policies, procedures and expertise of ceding companies; risks related to investments in emerging markets; and risks related to the failure of, or attacks directed at, the Group’s operational systems and infrastructure, including its information technology networks and systems.
The Group uses non-GAAP financial measures in its external financial reporting, including in this report. 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 substitutes 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 Swiss Reinsurance Company Ltd and its other principal operating subsidiaries. The Group expects that, over time, its structure will continue to evolve. In the future it may, for example, elect again (having accepted an equity investment within its Life Capital Business Unit from a third party) to partner with minority investors in or within one or more of the Group’s Business Units or sub-groups within its Business Units, which could alter historical approaches taken in respect of capital, liquidity, funding and/or dividends, as well as other governance matters, including strategy for such Business Unit or sub-group, 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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Head office Swiss Re Ltd Mythenquai 50/60, P.O. Box, 8022 Zurich, Switzerland Telephone +41 43 285 2121
Swiss Re has 80 office locations in more than 30 countries. For a full list of our office locations and service offerings, please visit www.swissre.com www.swissre.com
Photography: Braschler/Fischer Deniz Kenber, Swiss Re Fredi Lienhardt Geri Krischker Marc Wetli All other images provided by Getty Images and Shutterstock
This 2019 Financial Review of the Swiss Re Group contains updates on our business and results and preliminary unaudited financial information for 2019. The updates on our business and results will be included in our 2019 Annual Report, together with our audited financial statements for 2019 and other disclosures we are required to include or historically have included in an annual report. This Financial Review is not intended to be a substitute for the full 2019 Annual Report, which will be published on the Swiss Re website on 19 March 2020.
Group Net income attributable to common shareholders 421 727 73 Gross premiums written 36 406 42 228 16 Premiums earned and fee income 34 461 38 594 12 Earnings per share in CHF 1.34 2.46 84 Shareholders’ equity 27 930 29 251 5 Return on equity in %1 1.4 2.5 Return on investments in % 2.8 4.7 Net operating margin in %2 2.9 3.4 Number of employees3 14 943 15 401 3 Property�&�Casualty�Reinsurance Net income attributable to common shareholders 370 396 7 Gross premiums written 16 545 21 562 30 Premiums earned 16 095 19 275 20 Combined ratio in % 104.0 107.8 Net operating margin in %2 4.3 3.8 Return on equity in %1 3.7 4.4 Life�&�Health�Reinsurance Net income attributable to common shareholders 761 899 18 Gross premiums written 14 527 14 452 –1 Premiums earned and fee income 12 835 13 004 1 Net operating margin in %2 9.4 10.0 Return on equity in %1 11.1 12.4 Corporate�Solutions Net loss attributable to common shareholders –405 –647 60 Gross premiums written 4 694 4 974 6 Premiums earned 3 925 4 166 6 Combined ratio in % 117.5 127.9 Net operating margin in %2 –11.1 –16.7 Return on equity in %1 –19.4 –34.1 Life�Capital Net income/loss attributable to common shareholders 23 –177 – Gross premiums written 2 739 2 831 3 Premiums earned and fee income 1 606 2 149 34 Gross cash generation4 818 1 138 39 Net operating margin in %2 3.9 2.4 Return on equity in %1 0.4 –3.4 1 Return on equity is calculated by dividing net income/loss attributable to common shareholders by average common shareholders’ equity. 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”. 3 Regular staff.
4 Gross cash generation is the estimated net cash arising from business activity within the Life Capital Business Unit during the reporting period taking into account both surplus development and certain capital actions. It is calculated gross across both Swiss Re’s and MS&AD’s interest in ReAssure.
Life Capital supports and incubates entities in the B2B2C primary business, B2B corporate business as well as the closed book space.* As a key part of Swiss Re’s strategic growth plan, Life Capital provides alternative access to new Life & Health and Property & Casualty risk pools and creates simple and transparent digital propositions that make insurance products simpler and more accessible, and help boost the business of our partners.
Reinsurance provides clients and brokers with reinsurance products, insurance-based capital market instruments and risk management services. Reinsurance operates globally through two segments – Property & Casualty and Life & Health.
Property & Casualty Life & Health * Following completion of the sale of ReAssure, pending the required regulatory approvals, Life Capital will focus on its open book businesses.
Net�premiums�earned�� and�fee�income (USD billions) Net premiums earned and fee income (usd billions)
Expenses Claims and claim adjustment expenses –14 855 –18 683 26 Life and health benefits –11 769 –13 087 11 Return credited to policyholders 1 033 –4 633 –
Interest on contingent capital instruments, net of tax –41 –100 Net income attributable to common shareholders 421 727 73
Total shareholders’ equity as of 1 January 34 124 27 930 –18 Net income attributable to common shareholders 421 727 73
Change in unrealised gains/losses on securities, net –2 841 3 247 – Change in other-than-temporary impairment, net of tax –1 2 – Change in foreign currency translation –356 110 – Purchase/sale of treasury shares and share based payments –1 402 –1 166 –17 Other changes in equity –423 60 – Total shareholders’ equity as of 31 December 27 930 29 251 5
In Corporate Solutions, we took decisive management actions in 2019 to return this business to profitability. These measures included cost cutting, reserve strengthening, as well as a reduction in risk exposures in specific lines of business. Portfolio repositioning will allow Corporate Solutions to focus on selected profitable segments, where we are seeing an improving price environment. The next steps in business transformation will focus on de-commoditisation of its core portfolio, selective growth with differentiating capabilities such as innovative risk solutionsand expansion through tech-driven initiatives.
Life Capital is successfully transitioning to a dynamically growing, digital B2B2C business. In line with our objective to deconsolidate our UK subsidiary ReAssure, Swiss Re entered into an agreement to sell this closed-book business to Phoenix Group Holdings plc in December 2019. The transaction has a compelling strategic rationale and valued ReAssure at GBP 3.25 billion. The sale is expected to close in mid-2020, subject to regulatory and antitrust approvals. We also continue to expand our open book businesses. In particular, iptiQ is developing dynamically and averaged more than 4 000 policy sales a week, with significant expansion opportunities geographically.
Performance Swiss Re reported net income of USD 727 million for the year, compared with USD 421 million for 2018, driven by strong L&H Re results and excellent investment performance. The Group’s property and casualty businesses were impacted by natural catastrophes and man-made losses, as well as ongoing trends in US casualty business. The Group’s net operating margin1 increased to 3.4% compared with 2.9% in the prior year.
Claims in 2019 primarily stemmed from Typhoon Hagibis and Typhoon Faxai in Japan, Hurricane Dorian in the Atlantic, and wildfires, floods and hail storms in Australia, as well as losses from the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet. The result was further impacted by late claims development from Typhoon Jebi. The net operating margin decreased slightly to 3.8% in 2019 from 4.3% in 2018.
Net premiums and fees earned by business segment, 2019 50% P&C Reinsurance 34% L&H Reinsurance 11% Corporate Solutions 5% Life Capital
P&C Re contributed USD 19.3 billion of net premiums earned in 2019, up 19.8% from USD 16.1 billion in 2018, reflecting large transactions and growth in the natural catastrophe business. At constant exchange rates, net premiums earned increased by 23.0% year-on-year.
Life Capital reported a net loss of USD 177 million in 2019, compared with a net income of USD 23 million in 2018, mainly due to a charge related to the agreement to sell ReAssure. Excluding this one-time accounting impact, net income rose to USD 53 million, Life Capital’s net operating margin declined to 2.4% in 2019 from 3.9% in 2018.
L&H Re net premiums earned and fee income increased 1.3% to USD 13.0 billion, affected by unfavourable foreign exchange movements and the termination of an intragroup retrocession agreement with Life Capital. At constant exchange rates, premiums earned and fee income increased by 4.5%.
The Group reported non-participating net realised investment gains of USD 1.6 billion in 2019, compared with USD 0.1 billion in 2018. The increase was primarily due to the contribution from equity securities and additional gains on sales of fixed income securities.
Combined ratio The P &C Re combined ratio was 107.8% in 2019, compared with a reported combined ratio of 104.0% in 2018. The impact from natural catastrophes of USD 1.9 billion in 2019 was 3.5 percentage points above the expected level for the year. The unfavourable prior-year development negatively impacted the combined ratio by 3.5 percentage points in 2019.
Income before interest and income tax expense 755 813 8 Interest expenses –313 –352 12 Income before income tax expense 442 461 4 Income tax expense –72 –65 –10 Net income attributable to common shareholders 370 396 7
The specialty combined ratio deteriorated to 95.3% in 2019 compared with 93.4% in 2018. The current period included the impact of the Ethiopian Airlines crash and the subsequent Boeing 737 MAX fleet grounding, partly offset by favourable prior-year developments, mainly in marine and credit & surety businesses.
Insurance-related investment results and foreign exchange gains/losses are not included in the figures above.
The Business Unit observed rate increases for loss-affected lines and markets within specialty lines and otherwise stable terms and conditions.
The Business Unit continued to see some good opportunities for transactions and participated in those that meet its return requirements.
EBIT for the health segment was USD 258 million in 2019, compared with USD 355 million in the prior-year period.
The 2019 result reflected the impact from an update of the assumptions for the Group business in Asia, experience and model improvements in EMEA and increased operating expenses in line with premiums growth.
Management expense ratio in % 5.4 5.2 Net operating margin in % 9.4 10.0
Outlook The Business Unit expects increases in life and health treaty reinsurance new business to be driven by high-growth markets, and more modest growth in mature markets. In mature markets, the prolonged low interest rate environment continues to have an unfavourable impact on long-term life business. Cession rates are expected to be broadly stable in major markets. The Business Unit sees a continued strong focus on capital, risk and balance sheet optimisation in mature markets, leading to ongoing opportunities for large transactions.
Performance Net loss was USD 647 million in 2019 with a net operating margin of –16.7%, compared with a net loss of USD 405 million in 2018 with a net operating margin of –11.1% for the previous period. The 2019 result reflected management actions to address underperformance and increased claims in US casualty business. It was also impacted by a high frequency and severity of large and medium-sized man-made losses, mainly from the prior accident years, with a claims burden of USD 1.1 billion. The investment result was higher year-on-year, mainly due to realised gains from sales of fixed income securities and market value gains on equity securities. The 2019 result was supported by higher realised gains from insurance in derivative form. From 1 July 2019 Corporate Solutions entered into an Adverse Development Cover (ADC) with Property & Casualty Reinsurance to protect accident years 2012–2018 across its portfolio.
reflecting an increase in the investment result of USD 124 million.
The casualty combined ratio increased to 137.6% in 2019, mainly as a result of adverse prior-year development. The casualty combined ratio includes the full recovery from the ADC, as the majority of the reserves covered under the ADC agreement are casualty reserves.
The specialty combined ratio for 2019 deteriorated by 22.7 percentage points to 129.2%, impacted by higher large losses, including the compulsory liquidation of Thomas Cook in the third quarter.
Life Capital accelerated its transition to a dynamically growing, digital B2B2C business creating improved access to risk pools.
Life Capital generated significant gross cash of USD 1.1 billion in 2019 compared with USD 818 million in the prior year. The gross cash generated in 2019 was mainly driven by the proceeds from the sale of subordinated bonds issued by ReAssure and a 10% stake sale in ReAssure to MS&AD Insurance Group Holdings Inc partially offset by the impact of ReAssure recapitalisation ahead of separation. Consistent with the transition of Life Capital, the Group will no longer disclose the gross cash generation for 2020 and beyond.
Outlook Life Capital’s ambition is to build a leading primary business, with attractive economic value creation for shareholders. Its focus is on growing its individual and group open book businesses in Europe, the US and going forward also in Asia.
Competitive advantage in underwriting Distinctive knowledge and insights into insurance risk pools and individual risks have been the bedrock of Swiss Re’s underwriting outperformance for more than 150 years, and cutting-edge research and development (R&D) continues to underpin the evolution of our capabilities and client offerings. Technological progress has opened up new opportunities to advance our expertise. Access to more and better data, advanced analytics and a strong talent base allows Swiss Re to create new insights at an ever-accelerating pace.
For example, the ability to aggregate and augment large pools of natural catastrophe exposure data from different sources allows Swiss Re to expand its ability to model and understand risk. In this new approach, data-mining techniques and clustering algorithms are being used to enrich risk characteristics of individual property exposures (such as age or construction type, for example). The underlying exposure database with more than 12 billion
Market environment and outlook We anticipate a lackluster global economic expansion in 2020 and 2021: global growth is slowing from an already low base. Insurance premiums are nevertheless expected to grow by around 3.0% in real terms, with emerging Asia powering global industry growth. China, India and other Asian markets continue to expand, based on both solid economic growth of around 6.0% and significant protection gaps in those markets. Government initiatives and industry efforts increasingly seek to close those gaps. Swiss Re aims to be at the forefront in this area to help reduce the barriers to supply and demand that currently hinder insurance uptake.
Profitability, as measured by return on equity, has strengthened in both property and casualty and life and health reinsurance businesses in 2019, in part due to improved realised gains from investment management. With low interest rates set to stay, however, the investment environment will remain extremely challenging. With the industry experiencing its third year of elevated insurance losses, the pressure for improved market discipline is rising, and this discipline has begun to spread from catastrophe-affected portfolios to other lines of business. Enhanced discipline is leading to improvements in pricing and the exit of several re/insurers from otherwise unsustainable markets.
We are positive about the opportunities available to us. Demand continues to grow for solutions and services that deploy our R&D to clients, and our ability to engage in large and tailored transactions is an asset. In addition, our industry-leading product and geographic franchise enables us to rapidly and flexibly deploy capital across all insurance risk pools.
Financial markets overview Financial markets started 2019 on a strong note amid the central bank shift to looser monetary policy early in the year. This turn in policy stance was mainly driven by worsening market conditions coupled with weaker economic data, in particular slowing global trade and manufacturing activity.
The return on investments for 2019 was 4.7%. The result was primarily driven by net investment income as well as gains within the fixed income portfolio and performance from equity securities, reflecting the Group’s strong overall investment portfolio position. In 2018, the return on investments was 2.8%. The Group’s non-participating net investment income increased to USD 4.2 billion in 2019 from USD 4.1 billion the prior year, demonstrating the stability of the recurring investment income. The Group’s running yield was largely unchanged at 2.8% from 2.9% in the prior year, alongside declining yields.
The Group reported non-participating net realised investment gains of USD 1.6 billion in 2019 compared with USD 0.1 billion in 2018, as the current year benefited from significant market value gains within the equity portfolio, as well as additional gains from sales within the fixed income portfolio.
Outlook Global economic growth is set to stay subdued in 2020. Growth in developed markets is expected to slow further, but a recession is not foreseen. In contrast, economic growth in emerging markets will likely improve despite China’s continued slowdown, as the main Latin American economies slowly recover. Inflationary pressures are forecast to stay muted.
On the risk landscape, a key topic is continued trade uncertainty, with the US-China conflict the primary focus despite the recent “phase one” trade deal. Other important themes for 2020 revolve around potential late cycle concerns, the overall monetary and fiscal policy mix and the US presidential elections.
Our investment portfolio remains well diversified across investment classes with a continued focus on quality and ESG criteria. We plan to moderately increase our allocation to private markets including investments in private debt and real estate, which will further diversify the overall investment portfolio.
Income before income tax expense 550 909 Income tax expense –69 –140
Earnings per share in USD Basic 14 1.37 2.46 Diluted 14 1.37 2.39
Balance as of period end 1 905 –3 6 –5 904 –828 5 –4 819 2019 Net unrealised investment Other-thantemporary Cash flow Foreign currency Adjustment for pension
Balance as of period end 5 152 –1 –2 –5 794 –850 3 –1 492 1 Reclassification adjustment included in net income is presented in “Net realised investment gains/losses – non-participating business”. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. 3 Reclassification adjustment included in net income is presented in “Operating expenses”. 4 Impact of ASU 2018-02 ‘‘Reclassification of Certain Tax Effects from Accumulated Other Comprehensive income ‘‘, ASU 2016-16 ‘‘Intra-Entity Transfers of Assets Other Than Inventory’’ and ASU 2016-01 ‘‘Recognition and Measurement of Financial Assets and Financial Liabilities’’. Please refer to the Annual Report 2018 for more details.
Cash and cash equivalents (including 717 in 2018 and 1 257 in 2019 subject to securities lending, and 1 175 in 2018 and 4 in 2019 backing unit-linked and with-profit contracts) 5 985 7 562 Accrued investment income 1 052 673 Premiums and other receivables 13 789 15 271 Reinsurance recoverable on unpaid claims and policy benefits 7 058 5 898 Funds held by ceding companies 9 009 9 472 Deferred acquisition costs 6 8 217 7 838 Acquired present value of future profits 6 1 818 1 042 Goodwill 4 071 3 945 Income taxes recoverable 526 466 Deferred tax assets 5 411 4 726 Other assets 3 332 3 489 Assets held for sale¹ 11 74 439 1 Please refer to Note 11 "Assets held for sale" for more details.
Liabilities Unpaid claims and claim adjustment expenses 5 67 446 72 373 Liabilities for life and health policy benefits 8 39 593 19 836 Policyholder account balances 31 938 5 405 Unearned premiums 11 721 13 365 Funds held under reinsurance treaties 3 224 3 521 Reinsurance balances payable 920 889 Income taxes payable 597 378 Deferred and other non-current tax liabilities 6 471 5 663 Short-term debt 12 1 633 185 Accrued expenses and other liabilities 7 6 798 7 191 Long-term debt 12 8 502 10 138 Liabilities held for sale¹ 11 68 586
Treasury shares, net of tax Balance as of 1 January –1 842 –2 291 Purchase of treasury shares –1 454 –1 041 Cancellation of shares bought back 1 032 1 020 Issuance of treasury shares, including share-based compensation to employees –27 92 Balance as of period end –2 291 –2 220
Adjustment for pension and other post-retirement benefits, net of tax Balance as of 1 January –820 –828 Transactions with non-controlling interests1 13 7 Impact of ASU 2018-022 –17 Changes during the period –4 –29 Balance as of period end –828 –850
Credit risk of financial liabilities at fair value option, net of tax Balance as of 1 January 5 Impact of ASU 2016-012 5 Changes during the period –2 Balance as of period end 5 3
Dividends to non-controlling interests –152 Balance as of period end 797 1 786 1 In 2018, MS&AD Insurance Group Holdings Inc (MS&AD) acquired a 15% non-controlling interest in ReAssure Group Plc (ReAssure), a subsidiary of the Group. In the first quarter of 2019, MS&AD acquired an additional 10% stake, increasing its total non-controlling interest to 25%. In the second quarter of 2019, MS&AD restructured its 25% holding within ReAssure. 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.
2 Impact of ASU 2018-02 ‘‘Reclassification of Certain Tax Effects from Accumulated Other Comprehensive income ‘‘, ASU 2016-16 ‘‘Intra-Entity Transfers of Assets Other Than Inventory’’ and ASU 2016-01 ‘‘Recognition and Measurement of Financial Assets and Financial Liabilities’’. Please refer to the Annual Report 2018 for more details.
Cash flows from operating activities Net income attributable to common shareholders 421 727 Add net income/loss attributable to non-controlling interests 19 42 Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items 331 538 Net realised investment gains/losses 2 530 –5 515 Income from equity-accounted investees, net of dividends received 4 –283 Change in: Technical provisions and other reinsurance assets and liabilities, net –1 796 10 659 Funds held by ceding companies and under reinsurance treaties 212 –5 Reinsurance recoverable on unpaid claims and policy benefits 656 –571 Other assets and liabilities, net –421 –472 Income taxes payable/recoverable –682 –471 Trading positions, net 298 –252
Securities purchased/sold under agreement to resell/repurchase, net 3 464 –869 Cash paid/received for acquisitions/disposals and reinsurance transactions, net –11 340 Net purchases/sales/maturities of other investments –869 581 Net purchases/sales/maturities of investments held for unit-linked and with-profit business 1 288 1 584
Cash flows from financing activities Policyholder account balances, unit-linked and with-profit business: Issuance/repayment of long-term debt 346 3 614 Issuance/repayment of short-term debt –428 –2 205 Issuance/repayment of contingent capital instrument –750 Purchase/sale of treasury shares –1 446 –946 Dividends paid to shareholders –1 592 –1 659 Dividends paid to non-controlling interests –152 Transactions with non-controlling interests 811 634
Total net cash provided/used –558 4 218 Effect of foreign currency translation –263 88
Cash and cash equivalents as of 31 December 5 985 7 562
36 Swiss Re | Financial Review 2019 1 Organisation and summary of significant accounting policies Nature of operations The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss Re Ltd (the parent company) and its subsidiaries (collectively, the “Swiss Re Group” or the ”Group”). The Swiss Re Group is a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Working through brokers and a network of offices around the globe, the Group serves a client base made up of insurance companies, mid-to-large-sized corporations and public-sector clients.
Subsequent events Subsequent events for the current reporting period have been evaluated up to 19 February 2020. This is the date on which the condensed unaudited financial statements are available to be issued.
In March 2017, the FASB issued ASU 2017-08, ‘‘Premium Amortization on Purchased Callable Debt Securities’’, an update to subtopic 31020, ‘‘Receivables – Nonrefundable Fees and Other Costs’’. The update applies to certain purchased callable debt securities held at a premium. The ASU requires that those premiums should be amortised to the earliest call date and not to the maturity date. The Group adopted ASU 2017-08 on a modified retrospective basis on 1 January 2019. The adoption did not have a material impact on the Group’s financial statements.
In July 2017, the FASB issued ASU 2017-11, ‘‘Accounting for Certain Financial Instruments with Down Round Features’’, an update to topic 260, ‘‘Earnings Per Share’’, topic 480, ‘‘Distinguishing Liabilities from Equity’’ and topic 815, ‘‘Derivatives and Hedging’’. A down round feature is a provision in an equity-linked financial instrument (or embedded features) that reduces the exercise price if the entity later sells stock for a lower price or issues an equity-linked instrument with a lower exercise price than the instrument’s original exercise price. The amendments in this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features and require that a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The Group adopted ASU 2017-11 on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
In June 2018, the FASB issued ASU 2018-07, ‘‘Improvements to Nonemployee Share-Based Payment Accounting’’, an update to topic 718, ‘‘Compensation – Stock Compensation’’. The update expands the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Group adopted ASU 2018-07 on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
In June 2018, the FASB issued ASU 2018-08, ‘‘Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made’’, an update to topic 958, ‘‘Not-for-Profit Entities’’. The amendments in this update clarify and improve the former guidance about whether a transfer of assets (or the reduction, settlement, or cancellation of liabilities) is a contribution or an exchange transaction. The Group adopted ASU 2018-08 on a modified prospective basis on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
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 2019-09 "Effective Date", ASU 2018-12 is effective for annual periods beginning after 15 December 2023, and interim periods beginning after 15 December 2024. 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.
Income/loss before income tax expense/benefit 442 957 –484 72 –437 0 550 Income tax expense/benefit –72 –155 75 –26 109 –69
Net income/loss attributable to common shareholders 370 761 –405 23 –328 0 421
Claims ratio in % 72.2 82.6 74.2 Expense ratio in % 31.8 34.9 32.4 Combined ratio in % 104.0 117.5 106.6 Management expense ratio¹ in % 5.4 Net operating margin2 in % 4.3 9.4 –11.1 3.9 2.9 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”.
Business segments – balance sheet As of 31 December 2018 Property & Casualty Reinsurance
Business segments – balance sheet As of 31 December 2019 Property & Casualty Reinsurance
44 Swiss Re | Financial Review 2019 b) Property & Casualty Reinsurance business segment – by line of business For the year ended 31 December 2018 USD millions Property Casualty Specialty Unallocated Total
Total expenses before interest expenses –6 020 –8 476 –2 244 0 –16 740
Income/loss before interest and income tax expense –96 –1 542 131 2 320 813 Interest expenses –352 –352
Income before interest and income tax expense 581 258 652 1 491 Interest expenses –445 –445
Net premiums earned and fee income from policyholders by country for the years ended 31 December.
3 Insurance information Premiums earned and fees assessed against policyholders For the years ended 31 December 2018 Property & Casualty Reinsurance
Fee income from policyholders, thereof: Gross fee income before retrocession to external parties 170 451 621
Claims and claim adjustment expenses; life and health benefits –11 614 –10 280 –3 241 –1 489 –26 624
Claims before receivables from retrocession to external parties –13 038 –10 242 –3 251 –3 316 –29 847
Acquisition costs before impact of retrocession to external parties –4 903 –2 152 –701 –454 –8 210
Gross premiums written, thereof: Direct 67 3 648 2 055 5 770 Reinsurance 16 269 13 310 947 110 30 636 Intra-group transactions (assumed) 276 1 150 99 574 –2 099 0
Gross premiums written before retrocession to external parties 16 446 13 953 4 418 1 589 36 406
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 66 795 67 446 Reinsurance recoverable −4 458 −3 606 Deferred expense on retroactive reinsurance −240 −169
Amortisation of deferred expense on retroactive reinsurance and impact of commutations −41 −23
Foreign exchange −1 748 161 Effect of acquisitions, disposals, new retroactive reinsurance and other items 709 1 302
Prior-year development Non-life claims development during 2019 on prior accident years is mainly due to adverse development for Casualty impacted by large manmade losses predominantly in North America. Property was impacted by adverse natural catastrophe development in Asia as well as large man-made losses, partly offset by reserves releases from North America natural catastrophe events. Specialty was impacted by large manmade losses and adverse development, partly offset by reserves releases from North America natural catastrophe events.
As of 31 December, the DAC were as follows: 2018 Property & Casualty Life & Health Corporate USD millions Reinsurance Reinsurance Solutions Life Capital Total
Opening balance as of 1 January 921 1 612 –544 1 068 1 989 Amortisation –140 –170 40 –130 –270 Interest accrued on unamortised PVFP 45 107 –17 90 135 Effect of change in unrealised gains/losses 18 18 18 Effect of foreign currency translation –22 –62 30 –32 –54
Opening balance as of 1 January 804 1 505 –491 1 014 1 818 Effect of acquisitions/disposals and retrocessions –1611 2032 203 42 Amortisation –108 –220 46 –174 –282 Interest accrued on unamortised PVFP 32 103 –15 88 120 Effect of change in unrealised gains/losses –13 –13 –13 Effect of foreign currency translation 10 43 –16 27 37 Reclassified to assets held for sale –1 156 476 –680 –680 1 Impact from termination of a reinsurance arrangement included. 2 Please refer to Note 10 “Acquisitions”.
Share in earnings of equity-accounted investees included impairments of the carrying amount of equity-accounted investees of USD 80 million for 2019.
Total realised gains/losses – unit-linked and with-profit business –2 199 –396 3 512 423
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 12 144 218 –156 12 206 US Agency securitised products 6 416 18 –130 6 304 States of the United States and political subdivisions of the states 1 584 55 –19 1 620 United Kingdom 7 837 1 085 –74 8 848 Germany 2 723 229 –7 2 945 Canada 2 721 192 –29 2 884 France 1 723 205 –6 1 922 Japan 872 74 –8 938 Other 9 812 213 –130 9 895
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 1 157 33 6 170 123 7 327 156 US Agency securitised products 1 013 11 3 710 119 4 723 130 States of the United States and political subdivisions of the states 108 2 518 17 626 19 United Kingdom 1 372 47 442 27 1 814 74 Germany 109 4 156 3 265 7 Canada 549 8 855 21 1 404 29 France 381 5 15 1 396 6 Japan 160 0 73 8 233 8 Other 2 629 70 1 097 60 3 726 130
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: 2018 2019 USD millions Unit-linked With-profit Unit-linked With-profit
Other invested assets Derivative financial instruments 564 564 Reverse repurchase agreements 1 051 1 051 Securities lending/borrowing 302 11 313 Equity-accounted investments 312 2 660 2 972 Other 52 812 634 1 498
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 assets 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
Accrued expenses and other liabilities 2 753 0 2 117 0 2 321 7 191 1 Amounts do not relate to financial assets or liabilities.
Assets pledged As of 31 December 2018 and 2019, investments with a carrying value of USD 5 776 million and USD 5 239 million, respectively, were on deposit with regulatory agencies in accordance with local requirements, of which USD 277 million and USD 223 million, respectively, were cash and cash equivalents. As of 31 December 2018 and 2019, investments with a carrying value of USD 12 959 million and USD 14 659 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries, of which USD 404 million and USD 485 million, respectively, were cash and cash equivalents. Cash and cash equivalents pledged include some instances where cash is legally restricted from usage or withdrawal.
Remaining contractual maturity of the agreements 2018 Overnight and continuous Greater than 90 days Total USD millions Up to 30 days 30–90 days
Securities lending Debt securities issued by governments and government agencies 110 146 242 431 929 Corporate debt securities 7 4 11
68 Swiss Re | Financial Review 2019 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.
The Fair Value Measurements and Disclosures Topic requires all assets and liabilities that are measured at fair value to be categorised within the fair value hierarchy. This three-level hierarchy is based on the observability of the inputs used in the fair value measurement. The levels of the fair value hierarchy are defined as follows: Level 1 inputs are unadjusted, quoted prices in active markets for identical assets or liabilities that the Group has the ability to access. Level 1 inputs are the most persuasive evidence of fair value and are to be used whenever possible. The types of instruments include most US government and sovereign obligations, active listed equities, certain exchange-traded derivative instruments and most money market securities.
Level 2 inputs are market-based inputs that are directly or indirectly observable, but not considered level 1 quoted prices. Level 2 inputs consist of (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical assets or liabilities in non-active markets (eg markets which have few transactions and where prices are not current or price quotations vary substantially); (iii) inputs other than quoted prices that are observable (eg interest rates, yield curves, volatilities, prepayment speeds, credit risks and default rates); (iv) inputs derived from, or corroborated by, observable market data; and (v) quoted prices provided by third party brokers. The types of instruments that trade in markets that are not considered to be active include most government agency securities, investment-grade corporate bonds, certain mortgage- and asset-backed products, certain exchange-traded derivative instruments, catastrophe bonds, less liquid listed equities and state, municipal and provincial obligations.
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 mortgagebacked 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.
A formal IPV process is undertaken monthly by members of the Valuation Risk Management team within a Financial Risk Management function. The process includes monitoring and in-depth analyses of approved pricing methodologies and valuations of the Group’s financial instruments aimed at identifying and resolving pricing discrepancies.
Fixed income securities backing unit-linked and with-profit business 4 938 4 938 Equity securities held for proprietary investment purposes 3 023 13 3 036 Equity securities backing unit-linked and with-profit business 23 111 12 23 123 Short-term investments held for proprietary investment purposes 1 220 4 197 5 417 Short-term investments backing unit-linked and with-profit business 11 11 Derivative financial instruments 11 1 205 404 –1 052 568
Investment real estate 166 166 Other invested assets 286 16 364 812 1 478 Funds held by ceding companies 206 206
Total liabilities at fair value –316 –2 512 –636 923 0 –2 541 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.
Investments measured at net asset value as Reclassified 2019 and liabilities inputs inputs Impact of practical to assets held USD millions (level 1) (level 2) (level 3) netting1 expedient for sale Total
Investment real estate 143 –143 0 Other invested assets 317 140 411 913 1 781 Funds held by ceding companies 174 174
Purchases 201 11 212 0 Issuances 0 –159 –159 Sales –7 –8 –33 –129 –177 23 23 Settlements –44 –52 –96 48 48 Transfers into level 31 19 19 –3 –3 Transfers out of level 31 –18 –4 –3 –25 0 Impact of foreign exchange movements –68 –12 –13 –93 9 9
Assets and liabilities Balance as of 1 January 1 378 0 404 166 364 2 312 –517 –119 –636
Realised/unrealised gains/losses: Included in net income 4 –151 16 20 –111 120 32 152 Included in other comprehensive income 73 73 –4 –4
Variable annuity and fair valued –327 –311 Discounted cash flow model Risk margin 4% (n/a) GMDB contracts Volatility 9.5–46.5%
The significant unobservable input used in the fair value measurement of the Group’s investment real estate and swap liability referencing real estate investment is the rate used to discount future cash flows from property sales. A significant increase (decrease) in this input in isolation would result in a significantly lower (higher) fair value measurement.
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 2018 observable inputs inputs USD millions (level 2) (level 3) Total
Derivatives not designated as hedging instruments Interest rate contracts 27 544 494 –395 99 Foreign exchange contracts 26 256 291 –108 183 Equity contracts 16 089 721 –531 190 Credit contracts 3 283 17 –63 –46 Other contracts 10 290 48 –443 –395
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 2018 and 2019, 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.
Total amounts of income and expense line items 65 6 1 580 –2
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 2018 and 2019 was approximately USD 997 million and USD 987 million, respectively. The maximum potential loss is based on the positive market replacement cost assuming non-performance of all counterparties, excluding cash collateral.
84 Swiss Re | Financial Review 2019 10 Acquisitions 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 total consideration paid was USD 591 million in cash. The purchase price has been allocated based on estimated fair values of assets acquired and liabilities assumed as of the date of acquisition. The allocation required significant judgement.
Historic intangibles have been eliminated. The Group established acquired PVFP of USD 209 million which qualifies as purchased intangible assets. There was no Goodwill recognised upon acquisition.
As the business was acquired by ReAssure, it was recognised as held for sale upon acquisition and the pro forma revenue and earnings related to the acquisition are not presented. Assets held for sale of USD 13 603 million (including investments of USD 10 994 million) and liabilities held for sale of USD 13 382 million (including Policyholder account balances of USD 12 184 million) related to this acquisition are included in the balances which are further discussed in Note 11 “Assets held for sale“.
11 Assets held for sale In the fourth quarter of 2019, the Group entered into an agreement to sell its subsidiary ReAssure Group plc (ReAssure), currently within the Life Capital business segment, to Phoenix Group Holdings plc (Phoenix). The transaction is expected to close in mid-2020, subject to approvals by regulators and anti-trust authorities.
Assets Fixed income securities available-for-sale 20 450 Short-term and other investments 2 240 Investments for unit-linked and with-profit business 43 173 Cash and cash equivalents 2 729 Reinsurance recoverable 3 134 Deferred acquisition costs 657 Acquired present value of future profits 680 Other assets 1 376
Liabilities Unpaid claims and claim adjustment expenses 497 Liabilities for life and health policy benefits 22 624 Policyholder account balances 41 459 Other reinsurance liabilities 309 Other liabilities 3 606 Loss accrual upon held for sale 91
The Groupʼs debt as of 31 December was as follows: Senior financial debt 235 Subordinated financial debt 637 Contingent capital instruments classified as financial debt 761 185
Senior financial debt 3 428 2 809 Senior operational debt 388 244 Subordinated financial debt 1 892 5 993 Subordinated operational debt 2 112 1 918 Contingent capital instruments classified as financial debt 682 494 Reclassified to liabilities held for sale –1 320
Interest expense on long-term debt and contingent capital instruments classified as equity Interest expense on long-term debt for the years ended 31 December was as follows: Senior financial debt 100 87 Senior operational debt 11 10 Subordinated financial debt 108 174 Subordinated operational debt 118 111 Contingent capital instruments classified as financial debt 38 221 1 The figure includes interest expense on the Senior unsecured exchangeable instrument with issuer stock settlement in the amount of USD 17 million.
In addition to the above, interest expense on contingent capital instruments classified as equity was USD 41 million and nil for the years ended 31 December 2018 and 2019, respectively.
Long-term debt issued in 2019 In March 2019, Swiss Re Finance (Luxembourg) S.A., a subsidiary of Swiss Reinsurance Company Ltd, issued 31-year guaranteed subordinated fixed rate reset step-up callable notes, which are callable after 11 years. The instruments have an aggregate face value of EUR 750 million, with a fixed coupon of 2.534% per annum until the first optional redemption date (30 April 2030). The notes are guaranteed on a subordinated basis by Swiss Reinsurance Company Ltd.
In June 2019, ReAssure Group plc issued Tier 3 subordinated notes due 2026. The notes have an aggregate face value of GBP 250 million, with a fixed coupon of 4.016% per annum. The notes were initially issued to Swiss Re Finance Jersey Ltd and, in July 2019, were sold to a third party outside the Swiss Re Group.
Operating lease right-of-use assets are included in “Other assets“ and operating lease liabilities are included in “Accrued expenses and other liabilities“ on the balance sheet.
Undiscounted sublease cash flows over the next four years are USD 15 million.
Total lease cost 84 81 1 “Other lease cost“ includes variable lease cost. 2 A distinction between “Fixed operating lease cost“ and “Other lease cost“ is not available for 2018 comparative information.
Other information For the year ended 31 December 2019, cash paid for amounts included in the measurement of operating lease liabilities was USD 91 million and right-of-use assets obtained in exchange for new operating lease liabilities were USD 68 million.
Diluted earnings per share Net income assuming debt conversion and exercise of options 429 741 Weighted average common shares outstanding 313 649 650 309 507 600
The public share buyback programme approved by the 2018 Annual General Meeting was completed as of 15 February 2019. The total number of shares repurchased amounted to 11.2 million, of which 10 million and 1.2 million shares were repurchased as of 31 December 2018 and between 1 January and 15 February 2019, respectively.
The first tranche of the public share buyback programme approved by the 2019 Annual General Meeting commenced on 6 May 2019 and 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.
16 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.
The Group monitors changes to the facts and circumstances of the existing involvement with legal entities to determine whether they require reconsideration of the entity’s designation as a VIE or voting interest entity. For VIEs, the Group regularly reassesses the primary beneficiary determination.
The Group does not have power over the activities most significant to the aforementioned borrower entities designated as VIEs and therefore does not consolidate them.
Unpaid claims and claim adjustment expenses 66 55 Unearned premiums 8 12 Funds held under reinsurance treaties 4 Reinsurance balances payable 15 21 Deferred and other non-current tax liabilities 180 152 Accrued expenses and other liabilities 144 129 Long-term debt 2 112 1 918 Reclassified to liabilities held for sale –114
The assets of the consolidated VIEs may only be used to settle obligations of these VIEs and to settle any investors’ ownership liquidation requests. There is no recourse to the Group for the consolidated VIEs’ liabilities. The assets of the consolidated VIEs are not available to the Group’s creditors.
The following table shows the Group’s assets, liabilities and maximum exposure to loss related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: USD millions Total assets Total liabilities
Insurance-linked securitisations 447 462 598 627 Life and health funding vehicles 25 2 174 22 2 300 Swaps in trusts 76 58 –2 83 43 –2 Investment vehicles 2 130 2 130 2 174 2 174 Investment vehicles for unit-linked business 5 999 17 131 Senior commercial mortgage and infrastructure loans 1 795 1 795 2 318 2 318 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.
Certain statements and illustrations contained herein are forward-looking. These statements (including as to plans, objectives, targets, and trends) and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact.
Forward-looking statements typically are identified by words or phrases such as “anticipate”, “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase”, “may fluctuate” and similar expressions, or by future or conditional verbs such as “will”, “should”, “would” and “could”. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group’s actual results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects to be materially different from any future results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects expressed or implied by such statements or cause Swiss Re to not achieve its published targets. Such factors include, among others: • the frequency, severity and development of insured claim events, particularly natural catastrophes, man-made disasters, pandemics, acts of terrorism or acts of war;
• mortality, morbidity and longevity experience; • the cyclicality of the reinsurance sector; • central bank intervention in the financial
• changes in legislation and regulation, or the interpretations thereof by regulators and courts, affecting the Group or its ceding companies, including as a result of comprehensive reform or shifts away from multilateral approaches to regulation of global operations; • the lowering or loss of one of the financial strength or other ratings of one or more companies in the Group, and developments adversely affecting its ability to achieve improved ratings; • uncertainties in estimating reserves, including differences between actual claims experience and underwriting and reserving assumptions; • policy renewal and lapse rates; General information
• 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;
• 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
• limitations on the ability of the Group’s subsidiaries to pay dividends or make other distributions; and
General impact of adverse market conditions The operations of Swiss Re Ltd (“Swiss Re”) and its subsidiaries (collectively, the “Group”) as well as its investment returns are subject to market volatility and macroeconomic factors, which are outside of the Group’s control.
Financial, credit and foreign exchange markets are experiencing continued periods of volatility reflecting a range of political, economic and other uncertainties, some of the more significant of which are inter-related. These include the withdrawal of the United Kingdom from the European Union and significant uncertainty regarding the future relationship between the United Kingdom and the European Union; the possible emergence of trade barriers and other protection policies across a range of economies, including a sustained trade war between the United States and China; geopolitical tensions more broadly; a prolonged slowdown in one or more of the principal global economies, particularly in China, and possible recession; continued challenges faced by the Eurozone; the tightening of monetary policy; sustained challenges to multilateral institutions and frameworks; the domestic political situation in the United States, various member states of the European Union and potentially other countries; and heightened scrutiny of technology companies.
The Group is exposed to changes in the level and volatility of equity prices, as they affect the value of equity securities themselves 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 business, are tied to financial market values; to the extent
Unexpected liquidity needs (including to meet collateral calls) could require the Group to incur indebtedness or liquidate investments or other assets. The Group may not be able to secure new sources of liquidity or funding, should projected or actual liquidity fall below levels it requires. The ability to meet liquidity needs through asset sales may be constrained by market conditions and the related stress on valuations, and through third-party funding may be limited by constraints on the general availability of credit
and willingness of lenders to lend. In addition, the Group’s ability to meet liquidity needs may also be constrained by regulatory requirements that require regulated entities to maintain or increase regulatory capital, or that restrict intra-group transactions, the timing of dividend payments from subsidiaries or the fact that certain assets may be encumbered or otherwise non-tradable. Failure to meet covenants in lending arrangements could give rise to collateral-posting or defaults, and further constrain access to liquidity. Finally, any adverse ratings action could trigger a need for further liquidity (for example, by triggering termination provisions or collateral delivery requirements in contracts to which the Group is a party) at a time when the Group’s ability to obtain liquidity from external sources is limited by such ratings action.
Legal and regulatory risks In the ordinary course of business, the Group is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which determine rights and obligations under the Group's insurance, reinsurance and other contractual agreements. From time to time, the Group may institute, or be named as a defendant in, legal proceedings, and the Group may be a claimant or respondent in arbitration proceedings. These proceedings could involve coverage or other disputes with ceding companies, disputes with parties to which the Group transfers risk under reinsurance arrangements, disputes with other counterparties or other matters. The Group cannot predict the outcome of any of the foregoing, which could be material for the Group.
Insurance, operational and other risks As part of the Group’s ordinary course operations, the Group is subject to a variety of risks, including risks that reserves may not adequately cover future claims and benefits; risks that catastrophic events (including natural disasters, such as hurricanes, windstorms, floods, earthquakes, and man-made disasters, such as acts of terrorism and other disasters such as industrial accidents, explosions, and fires and pandemics) are inherently unpredictable in terms of both their frequency and severity and have exposed, and may expose the Group to unexpected large losses (and related uncertainties in estimating future claims in respect of such events); changes in the insurance industry that affect ceding companies, particularly those that further increase their sensitivity to counterparty risk; competitive conditions (including as a result of consolidation and the availability of significant levels of alternative capacity); cyclicality of the industry; risks related to emerging claims and coverage issues; macro developments giving rise to emerging risks, such as climate change and technological developments (including greater exposure to cyber risks (where accumulation risk is yet to be fully understood), which could have a range of consequences from operational disruption, to loss of proprietary or customer data, to greater regulatory burdens and potential liability); risks arising from the Group’s dependence on policies, procedures and expertise of ceding companies; risks related to investments in emerging markets; and risks related to the failure of, or attacks directed at, the Group’s operational systems and infrastructure, including its information technology networks and systems. Any of the foregoing, as well as the occurrence of future risks that the Group’s risk management procedures fail to identify or anticipate, could have a material adverse effect on the Group, and could also give rise to reputational risk.
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Property & Casualty Life & Health * Following completion of the sale of ReAssure, pending the required regulatory and anti-trust approvals, Life Capital will focus on its open book businesses.
Net premiums earned and fee income by business segments (Total USD 38.6 billion)
Life Capital supports and incubates entities in the B2B2C primary business, B2B corporate business as well as the closed book space.* As a key part of Swiss Re’s strategic growth plan, Life Capital provides alternative access to new Life & Health and Property & Casualty risk pools. It creates simple and transparent digital propositions that make insurance products simpler and more accessible, helping boost the business of our partners.
Net premiums earned (USD billions) Net premiums earned and fee income (usd billions)
50% Reinsurance P&C 34% Reinsurance L&H 11% Corporate Solutions 5% Life Capital 50% P&C Reinsurance 34% L&H Reinsurance 11% Corporate Solutions 5% Life Capital
Swiss Re has the expertise and the network required to consistently assess the situation from all angles and to adapt capital allocation strategies accordingly.
Dear shareholders, A year ago, I gave you a rather pessimistic outlook on developments in the global risk landscape – evidently I was not entirely wrong. Major shifts in security policy, the exceptional economic, trade and monetary policy situation as well as the reluctance of governments to face the challenges posed by climate change continue to give everyone cause for scepticism.
The coronavirus pandemic clearly demonstrates the vulnerability of our globally interconnected economies. While the containment and isolation measures taken by governments have painful consequences for the economy and for the everyday life of each of us, they are sensible and necessary. The virus is not only claiming human lives — it is putting the entire political and psychological immune system of globalisation to the most severe stress test yet. Prudence and capital strength will help us steer through the crisis. Resilience — the theme of this annual report and the guiding principle of all our actions at the company — is more relevant than ever to global society and will remain so for many years to come.
Even those who do not take responsibility are responsible – for unresolved problems Given the many pressing problems faced by and affecting society as a whole, we must acknowledge that there is a glaring lack of responsibility and political leadership at an international level. This situation can be seen reflected in a number of countries. Instead of championing joint solutions, politicians – whether democratically elected or not – are excelling at pursuing selfish, nationalist objectives. How is the world meant to move forward with this mindset? I remain firmly convinced that the big challenges can only be resolved with a multilateral approach based on global cooperation.
Cooperation requires interaction, and dialogue requires contacts. But it is becoming increasingly difficult to identify the points of contact for the business world, even in some established democracies. Tendencies towards populism, polarisation and – the third “P” – the handling of facts known as “post-truth” are also putting existential pressure on political parties that so far have advocated rational dialogue with businesses.
Given this development, the business world must become more involved in society and make its voice heard not only as the voice of economic reason, but increasingly also that of social reason. Businesses must shoulder their responsibility and take a leading role, for example in the fight against climate change. If they respond to the plea for climate protection with effective contributions of their own, they will also win back the people’s trust. Not only does Swiss Re intend to reduce its own CO2 emissions to net zero by the end of the decade, it is also driving change through its underwriting policy and in its activities as an investor. Innovation and technology are the key to ultimately making climate protection an attractive business. As we do this, it is important to manage the high initial investment costs – a task in which not just our company but the entire financial sector has an important role to play.
I therefore believe that the company is well equipped to make decisions based on all relevant changes to the risk landscape and, if we consider it necessary, to shift capital very quickly.
At the beginning of 2019, we expected to see interest rate increases during the course of the year. The US Federal Reserve’s policy U-turn on interest rates therefore came as somewhat of a surprise. However, we anticipated the opportunities in the credit and equity markets early on and were able to benefit accordingly. It was clear already in 2019 that these conditions would not last forever. We have therefore started to reallocate capital, reduce risk and realise gains.
In terms of our investments, we have used the momentum in capital markets to sell or reduce some commitments. For example, we sold a stake in the Brazilian insurance company SulAmérica – for a very good profit. That was an attractive opportunity. We continue to hold significant positions in the Latin American market, although political developments in some of the countries most relevant to the region’s economy, such as Argentina, Venezuela, Mexico and, more recently, Chile, indicate that caution is needed.
Growth in the reinsurance business for natural catastrophes Our decision to invest more capital in the dynamic growth of the non-life reinsurance business has proved to be the right move. After little opportunity to expand this business on acceptable terms in recent years, we changed our underwriting policy at the end of 2018 amid improved market conditions. Although we were still dealing with late claims at the beginning of 2019 (eg the impact from Typhoon Jebi in Japan in September 2018), by the end of the year we had achieved a positive result: in the natural catastrophe business, claims and profits from previous years were balanced. The business achieved profitability in 2019. And it is clear from the renewals on 1 January 2020 that prices are continuing to rise in certain segments.
In light of the dynamically increasing problem of a public that has a critical attitude towards businesses as well as US case law – known as the “social inflation” phenomenon – the number of medium and larger claims, which we as reinsurers deal with, has risen sharply. We are doing our utmost to react responsibly in the face of this development and to respond as quickly as possible to structural changes. Among other things, this also required subsequent reserving in 2019, though these reserves are quite modest compared to our total non-life reserves.
Separation from the closed-book business initiated in the UK; Corporate Solutions turnaround At the beginning of 2019, we announced that we would separate from ReAssure as part of an IPO. An IPO that, as you know, we had to suspend in the summer of 2019 due to the political uncertainty in the UK. However, the separation from the closedbook business in the UK has now been set in motion thanks to an agreement to sell ReAssure to Phoenix Group Holdings plc. And at a price that is at the upper end of the range we were hoping to achieve through the IPO. I am also confident that the shares in the Phoenix Group that we are receiving as part of this deal will prove to be an attractive investment.
Complete reliability in the equity base A year ago, I wrote that we wanted to stand our ground where necessary. For me, that means our capital position. I am confident that our client, the regulators – our own and those of our clients – and ultimately also our shareholders want Swiss Re’s capital strength to be beyond any doubt. So this is one area where we are standing our ground.
For this reason, we took into account that we have enjoyed strong organic growth, that the development of the US casualty business would affect annual profit, that the persistently low US interest rates cost capital and that the ReAssure IPO did not take place in 2019 – and cancelled the second tranche of the share buyback programme last year. At the same time, we continue to ensure highly attractive conditions for our investors through a dividend that is once again being increased. We will evaluate the appropriateness of launching another share buyback programme in the second half of 2020. All of this is consistent with our policy.
Succession We are very pleased to also announce an orderly succession plan for the role of Chairman. Sergio P. Ermotti, who has been the Group CEO of UBS since 2011, will be nominated for election to our Board of Directors at the upcoming Annual General Meeting of shareholders on 17 April 2020. After one year on the Board, Sergio P. Ermotti will then be nominated for election as the next Chairman upon my retirement. His wealth of experience and impressive leadership track record will be important assets for Swiss Re, and his appointment will ensure a smooth leadership transition.
Fast-paced change creates both challenges and opportunities for our industry. This is why our strategy is centred around diversifying our access to risk pools by leveraging our risk knowledge, unique client access and capital strength.
Natural catastrophes are estimated to have caused more than USD 130 billion in economic damage in 2019. While this is lower than we have seen in some recent years, we again saw a high number of smaller and mid-sized loss-generating disaster events, most likely as a result of climate change. Together, climate-related perils such as heatwaves, droughts, wildfires and floods caused more than 50% of the global insured losses from natural catastrophes in 2019, demonstrating once again the very significant impact these events can inflict on communities and societies.
Our response to market developments As stewards of this Group, we have to adapt our business constantly to stay at the forefront of the latest developments. We cannot control our environment, but we can make sure that our response is informed, timely and effective. Fast-paced change creates both challenges and opportunities for our industry, which is also facing growing and ever-more complex risks, an exponentially increasing wealth of data as well as new competitors. This is why our strategy is centred around diversifying our access to risk pools by leveraging our risk knowledge, unique client access and capital strength. Diversification creates a natural hedge within our business model as different lines of business go through diverging economic cycles. Our ability to adapt at speed is what makes our business model sustainable over the long term.
Starting 2020 with an improved portfolio We at Swiss Re will continue to do our part in fighting the climate crisis and making the world more resilient. Our very strong capital position allows us to continue to support our clients and capture growth opportunities as they arise, while maintaining attractive shareholder returns.
In these challenging, transformative times, we are fortunate to be able to rely on the dedication and hard work of our employees, whom I would like to thank for their engagement. I would also like to thank you, our shareholders, for your continued support.
At Swiss Re we monitor and actively respond to the most pressing and marketmoving macro and sector trends.
The risks the world is facing are growing. The global population is growing, and people are living longer. More and more people now live in densely populated areas. Climate change is intensifying natural catastrophe risk. As a result, there is a widening gap between the risk protection needed and the insurance cover — the protection gap. This creates opportunities for Swiss Re to grow.
We expect global growth to remain subdued in 2020 after a slowdown in 2019. After years of low interest rates, the environment of cheap money has become the new norm. For the re/insurance industry this poses several challenges, not least because the influx of capital into the sector has increased competition.
Additionally, the continued low interest rate environment poses a challenge to investment returns. Yields on government and corporate bonds remain very low or negative in some markets. These assets and other fixed income securities constitute a significant part of re/insurers’ investment portfolios and were key profit contributors. Not all lines of business are equally affected: long-term contracts in particular suffer from low investment returns. For life insurers with guaranteed products in the portfolio, it has become increasingly challenging to match the guaranteed returns.
The global population is becoming older: people are living longer than ever before, while the share of the working population is shrinking. As more people want to enjoy a longer retirement, public and private institutions face the risk that they will not be able to meet their financial commitments.
Longer lives have become possible as medical treatment improves, particularly the diagnosis and treatment of illnesses such as heart disease and stroke. The increasing cost of health services and long-term care impacts societies and insurance companies equally, as both need to bear these costs.
Growth of global health data volumes annually (Source: International Data Corp.)
The importance of cyber risks for the insurance industry must not be underestimated. There is a clear need in the market for insurers to be part of a wider response to this growing societal and economic threat. Hyper-connectivity, artificial intelligence, automation and the Internet of Things (IoT) are just a few factors that will shape the risk landscape in the years to come and give rise to new risks, as well as new opportunities.
Our strategic response Swiss Re is providing the global cyber market with significant risk
For years, the phenomenon of cyber risk has been the centre of attention of the wider public – driven by headlines detailing high-profile data breaches and widespread ransomware attacks on large and small companies as well as on cities. The insurance industry has been trying to find ways to support customers in their risk mitigation and risk transfer efforts with new and innovative insurance products.
We continue to develop cyber solutions that allow organisations and individuals to access state-ofthe -art insurance and risk management support. We put our knowledge at the disposal of our clients to help them better understand and manage their cyber exposures and provide fit-forpurpose solutions to their customers.
Growth in cyber security breaches in past 5 years (Source: Accenture)
Our strategic response Swiss Re is well positioned for the opportunities arising in Asia. For many years we have been working with insurance companies and brokers in Asia to provide a broad range of reinsurance products and services. Swiss Re currently generates 17% of our net premiums
Our strategic response In its capacity as a risk knowledge company, Swiss Re has always been at the forefront of digital innovation. We have a track record of innovating several hundred digital use cases across the insurance value chain, often co-developing these with our clients. Our innovative life insurance platform, Magnum, is an example of an industry-leading technology application. In our partnership with car manufacturers, we provide our telematics-based risk insights to the benefit of the customer.
The availability of new data sources allows insurance companies to earned in high-growth markets, and Asia contributed over half of Swiss Re’s high-growth market premiums.
To provide our wholesale clients with an innovative digital offering, Swiss Re has built digital insurance platforms across all business units. In Reinsurance, insurance companies benefit from our online risk portal SwiftRe. Industrial companies are offered a digital customer experience through the client portal of Corporate Solutions. In Life Capital, we have built state-of-the-art digital insurance platforms in iptiQ to partner on the basis of the latest technology with non-insurance distributors and ecosystems alike.
create new digital products, and achieve improved underwriting and pricing. Traditionally, insurers had one-time access to historical data from clients. In contrast, today, a continuous flow of data enables insurers to dynamically underwrite policies with new insurance products. Through advanced analytics and process digitisation, insurance companies can improve the way they operate, ultimately increasing cost efficiency and improving the customer experience. As an example, machine intelligence allows insurers to detect claims fraud far earlier in the process.
As a company, we are committed to sustainability. We continue to take a public stance on identifying climate change as a crucial issue for the sector, as well as society at large. As an early proponent of sustainable investing, we were among the first to adopt stringent environmental, social and governance (ESG) criteria for our asset portfolio. In 2018, we stopped providing re/insurance to businesses with more than 30% thermal coal exposure.
Recent natural catastrophes, including severe hurricanes, typhoons, widespread droughts and wildfires, demonstrate the forceful financial impact of climate-related risks on the insurance industry. Meanwhile, the growing and quickly urbanising population amplifies the impact of any catastrophe. Higher value concentration in risk-exposed regions, such as coastal areas, increase the potential cost of a natural catastrophe. As our world warms, we will experience increased atmospheric energy, resulting in more catastrophic storm events. A warming atmosphere can also lead to greater frequency of droughts and a broadening of the areas vulnerable to these kinds of perilous conditions.
Responsible investing is embedded in our approach, and we apply ESG criteria across our investment portfolio.
We focus on developing insurance products that allow for more extensive loss coverage.
Our risk knowledge enables us to understand risk and anticipate clients’ needs
Swiss Re’s purpose is to make the world more resilient and act as a shock absorber for societies and communities. Our access to risk is not guaranteed, even as risk pools continue to grow over the next decades.
We therefore diversify our access to risk pools to fulfill our purpose and succeed. We do this by leveraging three strategic assets that we have built over more than 150 years.
This will enable us to achieve our financial targets and, over the long term, create sustainable value for all stakeholders.
Accessing retail market risk by innovating the value chain through our digital insurance white-labelling solution iptiQ
Find more information on Swiss Re’s performance in our Financial Report.
Major challenges that undermine sustainable development – such as climate change, insecure food supplies, health funding gaps, ageing infrastructure – also weaken resilience because they create new risks or aggravate existing ones, thus widening the protection gap.
In recent years, we have become an important market player to cover the risks of offshore wind farms. In total, we were providing risk cover to over 4 000 wind and solar projects at the end of 2019. Notable new developments included insuring the first-ever offshore wind farm in France.
What sustainability means for our business Sustainable re/insurance is a strategic, long-term approach where all activities in the re/insurance chain are carried out in a responsible and forward-looking way.
This involves managing and monitoring risks and opportunities associated with environmental, social and governance (ESG) issues. Our sustainability strategy covers both the liability and the asset side of our balance sheet. It aims to develop innovative solutions, improve business and investment performance on a risk-adjusted basis, and contributes to environmental, social and economic sustainability.
To learn more about our Group Sustainability Strategy, we invite you to have a look at our 2019 Sustainability Report.
The effects of climate change and global warming are already evident and shaking up the risk landscape. We continue to evolve our way of doing business towards a low-carbon economy in line with the Paris Agreement, the landmark agreement to combat climate change.
Our Group Sustainability Strategy supports our vision of making the world more resilient.
Via the CRO Forum, which is attended by Chief Risk Officers of major insurance companies, we worked with peers to develop a robust carbon footprinting methodology that will support our carbon steering and address the risks embedded in our re/insurance business.
We co-founded the UN-convened Net-Zero Asset Owner Alliance, thus committing to having a net-zero greenhouse gas investment portfolio by 2050. This marks an important milestone in our efforts to accelerate the transition to a low-carbon economy.
carbon removal certificates purchased in the world’s first auction for negative emissions.
We want to achieve this goal by imposing a stringent internal carbon levy on all our air travel. This will create an incentive to fly less and at the same time generate the funds needed to purchase carbon removal certificates.
• Targeting to increase our green, social and sustainability bond mandate to at least USD 4 billion by the end of 2024
From risk to resilience It is estimated that the global protection gap for uninsured risks amounts to a staggering USD 1.2 trillion*. We aim to change that.
In addressing some of the biggest challenges of our time, from climate adaptation to digitalisation, we develop solutions that help our clients and increase society’s resilience.
For information on our Group Sustainability Strategy and Ambitions, please see p. 8–13 of our 2019 Sustainability Report
Our employees are crucial to the success of our projects. Learn more about them and their roles at
Since 1970, the annual number of natural catastrophes has risen four-fold. Trends such as urbanisation and economic development increase the number of assets that are exposed to natural catastrophes.
Most losses are still uninsured, leaving millions of households and businesses in the most disaster-prone areas of the world without protection. Working with our partners and clients, we strive to design solutions that are effective, affordable and impactful.
Thailand is one of the world’s top rice exporters, and rice farming is often the only source of income for many local families. Catastrophes such as floods and droughts can have a devastating impact on these rural populations. For years, Thai local authorities and insurers have partnered to offer insurance protection. Swiss Re has been standing behind them.
Swiss Re Corporate Solutions developed FLOW, a new parametric water-level insurance, designed to protect businesses from the financial impact of low (or high) river water levels.
Since 2011, Swiss Re has been offering reinsurance capacity to the Thai national rice insurance scheme.
Budget certainty for the government and continued disaster relief assistance for the farmers: a win-win situation, made possible by re/insurance.
These are the people that still earn a living from agricultural activities. It is important that no one is left behind in the face of adversity.
Then, the rain came. As local farmers rushed to fertilise their crops, one of them, Kanlaya Bunthan, recalls how it was then that a disease started to kill the crops that had survived the devastation. “We lost more than half of our crops and the income we receive by selling them,” she says.
Kanlaya is one of hundreds of local Thai farmers covered by the insurance scheme, who receive funds after catastrophes to recoup their expenses and be able to buy new seeds and fertilisers.
Images (clockwise): Kanlaya Bunthan at work; Biggy Nguyen explores the rice fields.
These crops are our source of income and we need the funds to restore what was destroyed.
Swiss Re is acting as lead reinsurer for the Grand Paris Express project – a fundamental rethink and redesign of the city’s public transport network.
With an estimated population of over 12 million people, few parking spaces and a popular city centre, Paris is often congested. An extended and reliable transport network would encourage citizens to leave their own cars behind for their daily commute. One of the goals for the project is also to better connect airports, business districts and research hubs with the suburbs.
Child Protect Benefit* Insured against up to 53 critical illnesses and up to 25 juvenile conditions until the age of 18.
The cover provides protection for the many hazards that can occur during the construction phase, such as collapses, subsidence of the terrain that could damage third-party property, floods of the tunnels and fires. It also includes any design errors for a period of ten years after the project is completed.
Image: Men at work in the Grand Paris Express construction site.
Alexis Hofmann knows the Paris metro well. A faithful user for the last 20 years, he commutes daily to work, to the gym and to his mother’s home, criss-crossing the city he was born and raised in.
“Paris has two big problems: never-ending traffic jams and lack of parking space. I’ve got my driving licence, but I drive in Paris very rarely,” says the 39-year-old movie trader. Hofmann says the extension of the metro system is a necessary step to meet the needs of a growing population and is confident that the project will help reduce overcrowding on some of the busiest lines. He also says new connections to previously isolated areas in the suburbs will make it easier for him to visit family members living in those neighbourhoods.
“This project will help people from Paris and surrounding areas connect with each other and make public transport more convenient for all,” he says.
From uncertainty The life insurance protection gap is a global problem. For example, in the United States, 61% of Americans are not adequately covered. This is due to multiple factors, which typically include an often less than transparent and tedious process for consumers to understand and determine how much and which type of coverage they need.
She had reached a point where her children were living independent lives and starting families of their own, and she felt content about where she was in her life – she was enjoying her job, being a grandmother, and her life in the open spaces of rural Nebraska. It was time to plan for her and her husband’s future. She wasn’t looking for a massive amount of coverage, but just enough to give her peace of mind.
When she found Lumico, iptiQ’s US carrier, she was relieved – she doesn’t consider herself tech-savvy, but she found the platform logical and intuitive.
Consumers in the United States purchased over 100 000 Lumico insurance policies in 2019, resulting in more than USD 100 million in new annualised premiums.
Buying a policy online was so simple and straightforward, and I’m not a tech expert. The platform made the process of purchasing life insurance easy and even pleasant.
Suzanne Bielser had always planned to purchase life insurance when she reached her early fifties.
Improvements in technology and connectivity have enabled greater economic efficiencies and access to new markets and services. At the same time, they also led to new and complex exposures that have not traditionally been considered by the insurance industry.
We are focused on making it easier for people to protect themselves and their families.
Suzanne was able to find the right policy easily and efficiently
Digitally narrowing the protection gap Through iptiQ’s end-to-end omnichannel platform, Swiss Re partners with companies to focus on consumers in the middle market, an area where the protection gap can likely be narrowed through a convenient, more efficient digital process.
Swiss Re provides partners with the platform, which includes a clean and attractive user experience that they can align with their unique branding.
The iptiQ platform asked her to answer basic questions about her life and coverage needs. Based on her answers, she received a quote, and Suzanne was able to start the purchasing process, applying online.
iptiQ enables people like Suzanne to buy life and health insurance policies easily and efficiently, not only in the United States, but also in Europe and Australia, and its reach is only expanding. The iptiQ platform consolidates best of breed components with product innovation, balance sheet relief, underwriting and digitised sales capabilities in a single package, allowing its partners instant digitisation – an attractive option for carriers that clearly benefits the end-user.
Customers increasingly demand greater choice, enabled by expanded technology access, and choosing the right life insurance policy is no exception. This requires digital agility from the life insurance sector. The bar is being raised by technology firms for improved customer experience and expanded personalisation. Insurers are no longer competing with peers in their sector, but with the customers’ last best digital experience. iptiQ allows partners to respond to this changing marketplace and enhances the chance of satisfaction and peace of mind for end-users like Suzanne so they can more easily purchase the coverage they need.
Our people split by region 24% Americas 61% EMEA 11% Asia-Pacific
Swiss Re believes in championing diversity of thought with all our talent and inclusiveness in the way we work together.
We’re a global and diverse workforce that understands our clients and markets, and we develop smarter solutions together and help the world to rebuild, renew and move forward. This is how we strive to make the world more resilient.
As a part of our goal to increase global resilience, our employees take an active role in both international and local initiatives and programmes in all of our offices around the world.
Co-created by Swiss Re Foundation and Swiss Re Bangalore, the SHINE social entrepreneurship program is an example of the company’s commitment to realising the United Nations Sustainable Development Goals. SHINE combines social innovation with entrepreneurial thinking to shape next-generation Swiss Re leaders and help early-stage entrepreneurs achieve wider social impact. 2019’s beneficiary start-up was Pure Paani, a Bangalorebased business dedicated to making drinking water available to all by providing access to affordable filtration and treatment solutions.
Swiss Re employees have taken an active role in promoting this important yearly event, providing information to participants about career opportunities and, in particular, mentoring and coaching Hack n’Lead participants with their hackathon projects – whether by assisting in defining the problem statement or the product they are developing, pitching the product, or with respect to participants’ careers in the tech-related fields in general.
In Slovakia, Swiss Re initiated a programme called Generation Re, focused on recruiting and promoting junior talents that share the values of the company – that is, building a resilient world of tomorrow, and in particular, working to solve today’s myriad environmental problems. Generation Re has included a major digital outreach, as well as events like the Green Wave, where employees that arrived at work on a bicycle received a green bracelet, not only as a gesture of appreciation, but to create a visual, symbolic “green wave,” demonstrating the company’s commitment to global sustainability. The company also erected an Eco Wall of Fame, featuring the faces of people that promote the health of the planet in their everyday lives.
Swiss Re in the United Kingdom named Demelza Hospice Care its 2018–2019 Charity of the Year, an annual charity-company partnership. Demelza Hospice Care runs facilities and raises money for terminally ill children and their families throughout the UK.
Employees participated in many activities throughout 2018–2019 to raise money for this important cause, and physically helped maintain the charity’s facilities. In what was a particularly enjoyable and challenging event in July, the Swiss Re Life & Health team in the UK participated in a 25 kilometre trek across London’s historic bridges to raise money for the charity. Over the past two years, Swiss Re raised over GBP 300 000 for Demelza Hospice Care.
At the Annual General Meeting on 17 April 2019, Walter B. Kielholz was re-elected as member and Chairman of the Board of Directors for a one-year term of office. The shareholders also re-elected all other members of the Board of Directors for a one-year term of office: Renato Fassbind (Vice Chairman and Lead Independent Director), Raymond K.F. Ch’ien, Karen Gavan, Trevor Manuel, Jay Ralph, Joerg Reinhardt,
Eileen Rominger, Philip K. Ryan, Sir Paul Tucker, Jacques de Vaucleroy, Susan L. Wagner and Larry Zimpleman.
Andreas Berger was appointed CEO Corporate Solutions and a member of the Group EC as of 1 March 2019, succeeding Agostino Galvagni, who decided to step down at the end of 2018. Anette Bronder became Group COO and a member of the Group EC as of 1 July 2019, succeeding Thomas Wellauer, who retired on 30 June 2019. Nigel Fretwell, Group Chief Human Resources Officer, and
Hermann Geiger, Group Chief Legal Officer, were appointed as new members of the Group EC, effective 1 July 2019. Since 1 July 2019, the Group EC consists of 14 members, prior to that it consisted of 12 members. Russell Higginbotham assumed the role of CEO Reinsurance Asia and Regional President Asia on 8 July 2019, succeeding Jayne Plunkett who decided to pursue an opportunity outside Swiss Re.
• the Group’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to
actual or perceived deterioration of the Group’s financial strength or otherwise; • the Group’s inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their values recorded for accounting purposes; • the Group’s inability to generate sufficient investment income from its investment portfolio, including as a result of fluctuations in the equity and fixed income markets, the composition of the investment portfolio or otherwise;
• changes in legislation and regulation, or the interpretations thereof by regulators and courts, affecting the Group or its ceding companies, including as a result of comprehensive reform or shifts away from multilateral approaches to regulation of global operations; • the lowering or loss of one of the financial strength or other ratings of one or more companies in the Group, and developments adversely affecting its ability to achieve improved ratings; • uncertainties in estimating reserves, including differences between actual claims experience and underwriting and reserving assumptions; • policy renewal and lapse rates; • uncertainties in estimating future claims
• changes in accounting estimates or assumptions that affect reported amounts
• 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
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In this report we introduce our enhanced Group Sustainability Strategy and describe the actions we have taken to accelerate sustainable progress.
Memberships, commitments and index listings 84 1Swiss Re | 2019 Sustainability Report
You can find out more about our Group Sustainability Strategy and its key elements in this report, on pages 9–14.
Climate change has long been a key sustainability topic for Swiss Re, since it can have strong long-term implications for the re/insurance business. Tackling the issue effectively will be challenging and require a true multi-stakeholder effort.
We are determined to support this effort and to help set the agenda. In 2019, we made three important commitments to achieve net-zero CO2 emissions: • Across the whole Swiss Re Group by 2050, as a signatory to the UN Global Compact Business Ambition for 1.5°C
• In our investment portfolio by 2050, as a founding partner of the UN-convened Net-Zero Asset Owner Alliance
In our core re/insurance business, we made some important steps towards decarbonising our business model. Through our Sustainable Business Risk Framework, we continued with the implementation of our thermal coal policy, with the aim of reducing our exposure to thermal coal utilities and mining. We also
Dear stakeholders, The year of 2019 was an important one for sustainability. The momentum around the topic has increased noticeably, especially with regard to climate change. While this has raised expectations on businesses, it is also creating new opportunities for positive action. Particularly in our regular interactions with clients and brokers, investors and regulators, we have noticed rapidly growing awareness of sustainability as a key long-term value driver.
Christian Mumenthaler Group Chief Executive Officer worked with peers to develop a robust carbon footprinting methodology, which will allow us to measure and address the carbon risks embedded in our re/insurance business. As a next step, we will start shifting away from the most carbon-intensive risks in the oil and gas industry over the next years.
Achieving net-zero emissions in our own operations by 2030 is a challenging ambition. After more than halving our CO2 emissions per employee since 2003 and offsetting all our remaining emissions, it requires us to further double down on our reduction efforts. All remaining emissions then need to be removed from the atmosphere and stored permanently. We tackle this challenge by supporting nascent carbon removal technologies, and in 2019 completed our first purchase of carbon removal certificates generated by a pioneering biochar project in Finland.
Through our Group Sustainability Strategy we focus on a number of specific topics: climate change, renewable energy, health, agriculture and infrastructure – while seeking to use the possibilities offered by digitalisation. In this report, you can read about a selection of transactions we completed in 2019 to offer our clients effective re/insurance protection against risks in these areas. The transactions span developed as well as emerging countries, private- as well as public-sector clients. Working in close partnership has again proved to be essential for creating solutions that meet our clients’ needs.
Exchanging know-how on workable solutions and addressing gaps as part of a true multi-stakeholder approach is essential to tackling sustainability challenges. This is why we place great emphasis on regular dialogue with our stakeholders. Swiss Re Institute plays an important role in this: combining our internal expertise with world-class research, it serves as the platform for our high-quality conferences and publications, including the sigma series and the annual SONAR Report. Often, our senior managers join the debate, for example by sharing their views on specific topics in blogs or at major conferences. On the following pages, you can read summaries of various dialogue highlights from 2019.
Who we are and what we do Our vision: We make the world more resilient.
At the end of 2019, we had 80 office locations in more than 30 countries. Based on “net premiums earned and fee income from policyholders”, our ten biggest markets in 2019 were: the US, the UK, China, Australia, Japan, Germany, Canada, Switzerland, Ireland and France. They accounted for approximately 79% of the Group’s total business over the year.
Our strategy Our Group strategy helps us meet our financial targets and to make the world more resilient.
Income before tax and variable compensation 863 100% 1 218 100%
US GAAP net income attributable to shareholders 421 727 of which paid out as dividend2 1 659 192% 1 766 145%
3 Includes shares bought back between 6 May 2019 and 18 February 2020 as part of the buyback programme authorised at the AGM 2019. The total amount represents an estimate translated at the respective period average rate.
Our approach to sustainability Through our Group Sustainability Strategy, we aim to reinforce our efforts to make the world more resilient and sustainable, thus helping to maintain our competitiveness today and in future.
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 clients 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. It is notable, however, that the momentum around sustainable development has intensified recently, opening up new opportunities to businesses for decisive action. Building on our successful track record, our Group Executive Committee has thus decided to further strengthen our efforts and to develop an enhanced Group Sustainability Strategy.
This enhanced strategy defines sustainability as a strategic, long-term value driver and embeds this approach throughout our re/insurance value chain. At its core, it involves managing and monitoring risks and opportunities associated with environmental, social and governance (ESG) issues. Sustainable re/insurance covers both the liability and the asset side of our balance sheet, our own operations and dialogue with our stakeholders. In our core business, it aims to develop innovative solutions, improve business and investment performance on a risk-adjusted basis, and thus to contribute to environmental, social and economic sustainability.
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: Our 2030 Sustainability Ambitions provide this mission with topical focus areas. Initially, we have selected three overarching ambitions that describe how we can have a significant positive impact in terms of supporting sustainability and strengthening resilience (see pages 12–13 for further details): Mitigating climate risk and advancing the energy transition
We insure, invest, operate and share our knowledge in a way that tackles sustainability challenges and creates long-term value.
Learn more about our vision, mission and values at: www.swissre.com/about-us/ our-vision-mission-and-values.html
Swiss Re’s vision is to make the world more resilient, thus enabling communities to quickly bounce back after a disaster. Through our Group Sustainability Strategy we help reduce risks that may weaken resilience and develop re/insurance solutions offering protection against them.
Sustainability denotes the principle of achieving economic and social development that can be maintained in the long term, ie without overusing precious resources. Major challenges that undermine sustainable development, eg climate change, insecure food supplies, health funding gaps, ageing infrastructure etc. can weaken resilience because they create new risks or aggravate existing ones, further widening the protection gap.
Our focus on sustainability seeks to identify and address the challenges that threaten stable long-term development. From the perspective of a re/insurer this translates into offering protection against such risks where viable, supporting efforts to reduce them and to prevent them (“adaptation” and “mitigation”). This in turn helps strengthen resilience.
Our response Swiss Re’s main responses to this challenge are to make societies more resilient to the growing risks of climate change and natural hazards, as well as evolving our way of doing business towards net-zero carbon emissions by 2050, in line with the Paris Agreement. We do this in a number of ways.
Climate change continues to be an essential element in our enhanced Group Sustainability Strategy: “Mitigating climate risk and advancing the energy transition” is one of our three overarching 2030 Sustainability Ambitions. In the process launched to define metrics and setting targets, we have put the initial focus on this topic and started to develop a Climate Action Plan.
2. We aim to become a leading provider of re/insurance solutions for low-carbon transition opportunities.
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. We will report against these targets in our 2020 Sustainability Report.
Key achievements of 2019 Below you can see a selection of key actions we took in 2019 that are relevant for our Climate Action Plan, with references to further content in the report: • We committed to net-zero emissions on the liability and asset side of our balance sheet by 2050 (pages 33 and 47).
• Many of our clients have introduced a thermal coal policy of their own and are helping us reduce our carbon exposure in our treaty business (page 37).
Our response Today, billions of people are either uninsured or underinsured for life and health risks. Health gaps are widening, such as those caused by our ageing populations or chronic illnesses like diabetes. At the same time, as the world population increases, so too must global food production. But climate change and rising food prices pose a serious threat, not least to farmers and the agricultural industry. We share our knowledge, apply new technologies and partner with clients and other stakeholders to come up with innovative solutions to address these challenges. To this end, our goal is to ensure health and wellbeing across all age groups, as well as affordable and sustainable agriculture to enhance the livelihood of society.
We started by mapping the SDGs to our Sustainability Topics (formerly Corporate Responsibility Topics), clearly showing where we contribute to the SDGs (see table on pages 16–19).
We then explored how to use our Group Sustainability Strategy to further align our activities with the SDGs, and understand related strengths, opportunities and risks.
Our external commitments Based on our commitment to sustainability, we have committed to a number of external charters and initiatives: • Paris Pledge for Action, see page 33
• IDF commitment with UN Development Programme, Germany and the UK, see page 50
• UNEP FI Principles for Sustainable Insurance (PSI): for our Public Disclosure of Progress, see online report
• Task Force on Climate-related Financial Disclosures (FSB-TCFD): see 2019 Financial Report, pages 151–167
We have analysed our Reinsurance Underwriting Portfolio from an SDG perspective and will use the insights for our portfolio steering. As we look to develop further products supporting sustainability, an important criterion will be how we can contribute to the SDGs.
Going forward, we will further focus on mapping, measuring and disclosing our SDG contributions and impacts. Below you can see all the SDGs we address through our activities: www.un.org/ sustainabledevelopment/
A key question for any company that seeks to advance sustainability is what this means in the context of its own business and industry: which topics are “material” to achieving this goal?
Insights from dialogue with our stakeholders Our role as ultimate risk-taker in society means that we have an intrinsic interest in maintaining active and ongoing dialogue with our key stakeholders. Generally speaking, this dialogue works in both directions: Our partners expect us to share our risk expertise, thus helping them – and society at large – to form effective responses. In turn, we also benefit from this exchange because it helps us sharpen our understanding of key risks, including sustainability issues, and to set priorities.
With regard to such issues, we consider the following groups as our principal stakeholders: • Clients: cedents, brokers, corporate clients, government entities, multilateral organisations
Swiss Re Institute plays a key role in our stakeholder dialogue. It incorporates successful Swiss Re brands, such as the sigma publication series and the Centre for Global Dialogue, our in-house conference venue in Rüschlikon near Zurich. Swiss Re Institute acts as a coordination point for research output from research-focused business lines within Swiss Re and from external partners. Our renowned expertise publications form another important element of our stakeholder dialogue.
Our process to identify Sustainability Topics When identifying our material Sustainability Topics, we draw both on our internal, embedded risk expertise and the insights we gain from our stakeholder dialogue. In addition, we take into account the views of various standard-setters on materiality, eg: reporting requirements, materiality definitions by sustainability rating agencies, multilateral discussions such as the UN Sustainable Development Goals (see page 14), relevant academic research and regulatory developments.
• Exchanges with our sustainability risk stakeholders (eg investor meetings, events at the Centre for Global Dialogue, project- and business-related interactions) and external experts (academia, NGOs, consulting firms)
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: 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 the Paris Agreement. Our key objectives are: • We aim to become the leading re/insurance company on physical climate risk.
• We aim to become a leading provider of re/insurance solutions for low-carbon transition opportunities.
• We build partnerships to develop scalable solutions to mitigate and adapt to climate change.
• By the end of 2019, advised a total of 120 (sub-)sovereigns on climate risk resilience and offered them protection of USD 10.0 billion, thus meeting our commitment one year ahead of schedule (page 27).
Driving affordable insurance with digital solutions Our customers are seeking quick, intuitive and streamlined digital experiences to make their lives safer and healthier. With our digital solutions we increase the availability and affordability of re/insurance and risk knowledge worldwide. Our key objectives are: • We leverage technology to provide affordable cover for more types of risks across all income levels and ensure efficient claims handling.
For all of our Sustainability Topics we have set targets – some of them quantitative, others qualitative. On the following four pages, we briefly describe why these topics are important for Swiss Re, their principal links to the UN Sustainable Development Goals, the targets we have set for them and what we achieved during the reporting year.
• Use our capacity and technical expertise to provide effective risk covers for complex offshore wind farm projects.
• New: Achieve net-zero emissions across the Swiss Re Group by 2050.
• Revised our oil and gas policy with the goal of shifting away from the most carbon-intensive oil and gas production in the next years. (page 35).
• 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 53).
Managing sustainability risks Sound risk management is essential for a re/insurer. Besides the core categories of our risk landscape (insurance, financial market and credit risk), we also pay attention to other significant risks we may be exposed to, including sustainability risks. We define sustainability risks as ethical concerns related to potential environmental and socioeconomic impacts of our business transactions, and the reputational risks they may entail. The risk assessments we make through our Sustainable Business Risk Framework, an advanced risk management instrument, flow directly into our re/insurance and investment decisions.
• Adjusted: Increase the share of structured and automated sustainability assessments in the Sustainable Business Risk process.
• Engage with clients and industry partners on how to address and reduce sustainability risks in business transactions, especially in high growth markets.
• Continue to build an engaged, inclusive and agile organisation. • Sixty-eight percent of our employees are of the opinion that Swiss Re offers an environment that is open to and inclusive of individual differences (page 72).
• Have all of our tier 1 and tier 2 vendors ESG-assessed by the end of 2020.
• By the end of 2019, achieved a further reduction of our per-capita CO2 emissions by 10.6% since 2013 (page 58).
• In 2019, bought first batch of 100 tonnes carbon removal certificates (page 62).
• Contribute to resilient societies by increasingly engaging Swiss Re employees with their skills and expertise.
• Added two new components to our skills-based volunteering programme. In total, Swiss Re expert volunteers supported our partners during more than 6 100 hours (for more information, see www.swissrefoundation.org/).
• By the end of 2019, had helped give 500 000 people access to healthcare (for more information, see www.swissrefoundation.org/).
Investing responsibly Institutional investors such as re/insurers are naturally suited to invest responsibly because of the businesses’ long-term nature. Swiss Re systematically integrates environmental, social and governance (ESG) considerations along the investment process through its three-cornerstones approach: Enhancement (eg by applying ESG benchmarks), Inclusion (ie thematic investments) and Exclusion.
• New: Hold at least USD 4 billion in green, social and sustainability bonds by the end of 2024.
• New: Achieve a net-zero greenhouse gas emission investment portfolio by 2050.
• At the end of 2019, close to 100% of our Strategic Asset Allocation considered ESG aspects (page 42).
• Continuously assess our corporate governance against regulatory developments, best practice and new stakeholder demands.
• For an overview of key focus areas and highlights in 2019, see our 2019 Financial Report (pages 80–82).
• By the end of 2019, completed ESG assessment for 35% of our tier 1 and tier 2 vendors, and during 2019 re-assessed approximately 50% of assessed tier 1 and tier 2 vendors due to expired scorecards (page 63).
Empowering communities The Swiss Re Foundation reflects the social and humanitarian values of Swiss Re. It partners with social entrepreneurs, aid organisations, researchers, Swiss Re employees and clients to help communities increase their resilience. The Foundation’s initiatives address the causes and effects of risks in three focus areas – climate risk management and natural hazards, access to health and income opportunities, and societal resilience – both in emerging and developing countries and in regions where Swiss Re has offices.
• New: By 2021, aim to have improved financial access to basic healthcare for a total of one million low-income people.
• The Board’s Investment Committee reviews Swiss Re’s Asset Management activities and, as part of this, receives regular updates on Group Asset Management’s responsible investing approach.
In order to optimise coordination at Group level, the Group EC has established a Group Sustainability Council (GSC), chaired by the Group Chief Risk Officer. The GSC is an advisory body to the Group EC. It is composed of Group EC members and further senior management representatives.
The Group EC members who head Swiss Re’s Business Units and Group Functions have explicit tasks related to sustainability, which include but are not limited to the following: • The Group Chief Risk Officer (Group CRO)
• The Group Chief Financial Officer (Group CFO) is responsible for the Group-wide Finance function with a focus on steering and achieving the Group’s financial targets. He is also responsible for Swiss Re’s investor relations and public disclosures, including the Group Annual Report (which includes our Climaterelated Financial Disclosures).
• The Group Chief Operating Officer (Group COO) is responsible for the Group-wide operations functions. This responsibility includes overseeing Communications, Human Resources, the Corporate Real Estate & Services (CRES) division, Global Sourcing and IT. CRES steers and monitors the reduction of Swiss Re’s environmental footprint and is in charge of Swiss Re’s Greenhouse Neutral Programme to reduce our own CO2 emissions as well as the new commitment to reach net-zero CO2 emissions in our operations by 2030.
Investments We integrate ESG criteria across our investment portfolio. Our approach is based on the three strategic pillars Enhancement, Inclusion and Exclusion.
Sustainability index representation Swiss Re is a member of various sustainability indices, including the Dow Jones Sustainability World and Europe, FTSE4Good, Euronext Vigeo Europe 120, Bloomberg GenderEquality Index and the MSCI ESG Leaders Indexes (2019). In July 2019, Swiss Re received an AAA rating on the MSCI ESG assessment.
Our most important index listings and ratings are displayed on page 85.