Corporate Solutions Committed to a future of sustainable energy 150 years of managing risk A long, proud history of supporting global economic growth and stability
Swiss Re at a glance 02 our mission 04 how we operate 06 Message from the Chairman 08 statement from the Group Ceo 10 Board of Directors and Group executive Committee 12 our business 2013 in review 16 Reinsurance 20 Corporate solutions 24 Admin Re®
General information 40 Cautionary note on forward-looking statements 41 Business contact details 41 Corporate calendar
Reinsurance Reinsurance is Swiss Re’s largest business in terms of income and the foundation of our strength, providing about 85% of gross premiums and fee income through two segments — Property & Casualty and Life & Health. The unit aims to extend Swiss Re’s industry-leading position with disciplined underwriting, prudent portfolio management and diligent client service.
OUR MISSION Swiss Re aims to be the leading player in the wholesale re/insurance industry. We seek to outperform peers in core areas, combined with a smart expansion into areas where additional growth opportunities exist.
Superior performance We aim to be the best re/insurer in the world, and to outperform our peers in the closed life book business as well as with our balanced asset management approach.
Smart expansion We continue to expand our business where we see opportunities for sustainable growth, especially in Corporate Solutions, in high growth markets, and in funding longer lives and health.
1 Average US gov 5 years from 31 December 2012 until 31 December 2013: 1.16%. 2 EPS growth rate has been adjusted from 10% to 5% for 2014 to account for the proposed CHF 4.15 per share special dividend (approx. USD 1.6 billion) expected to be distributed in April 2014. Methodology is in line with the approach taken for the special dividend of CHF 4.00 per share paid in April 2013.
3 EPS growth rate from 31 December 2012 until 31 December 2013. 4 ENW growth rate from 31 December 2012 until 31 December 2013, including regular and special dividends per share paid.
New markets, new clients Growth in emerging markets is driving urbanisation and drawing more and more people into a global middle class. New markets demand re/insurance solutions.
A knowledge company We are a knowledge company and a thought leader. We devote substantial resources to understanding the risks we re/insure, as well as the ones just over the horizon. See pages 61 and 101 of the Financial Report for details.
Building ties We are actively recruiting top talent to fuel our growth and build up the relationships that are essential to success. See page 16 for a success story in Colombia.
we cost, price, structure ANd diversify risk risk coverage claims payment capital relief clieNts 4 swiss re 2013 Business Report swiss re At A glANce
Alternative capital Low interest rates have driven pension funds, hedge funds and other investors into the natural catastrophe risk pool, increasing competition and capacity for property re/insurance.
changing regulations Regulatory reforms aiming for stability in the banking sector can also have adverse consequences for the re/insurance sector.
The long term has always been the focus in our business. The reinsurance business is long-term and long-tail by nature. We look forward to helping clients and society to manage the changes they are facing on a daily basis with innovative and forward-looking solutions.
Dear shareholders I am very pleased to report that all Business Units contributed to Swiss Reʼs very strong 2013 net income of USD 4.4 billion. These results would be gratifying in any year, though especially so in our 150th — they reveal the dynamism that underlies our durability.
Another area of execution was to invest in profitable growth, especially in high growth markets. We continue to expect that a large share of future growth in re/insurance will be in these markets. In addition to our organic expansion in these markets, in 2013 we took a stake in SulAmérica, a well-established and successful multiline insurer in Brazil. In China we invested in New China Life and in the Hong Kong-based insurer FWD Group. We also obtained a license in Singapore for Corporate Solutions.
Internally we have started to enhance productivity. I remain firmly of the belief that we can perform and grow at the same time, and I have every confidence that we will deliver USD 250–300 million in cash savings by 2015 when compared to 2012.
We also have the task of addressing low returns in the Life & Health segment of Reinsurance. Although we made significant progress and remain on track to achieve our 10%–12% RoE target for this segment by 2015, we saw negative developments in the Australian group disability business. These latter developments required us to add USD 369 million to reserves in 2013. We are determined to meet these challenges and generate profitable new business going forward, especially in health.
A final word on our brand. Some of you may have noticed our logo has evolved. The logo is the visual symbol of a much more powerful brand promise: We are smarter together. Our companyʼs success has always depended on our clientsʼ success — the new logo and promise are now fresh reminders of this essential relationship. As a shareholder I hope you come to see more and more how ʼsmarter togetherʼ is the mindset and common thread running through all of our thinking and behaviour, and ultimately underlying our results.
“all Business Units contributed to Swiss Reʼs very strong 2013 net income of USD 4.4 billion.”
Our oversight body As of 31 December 2013, Swiss Reʼs Board of Directors was composed of the 14 members shown above. Collectively they are responsible for setting the Groupʼs strategy and overseeing management. All members of the Board of Directors meet our independence criteria.
1 Walter B. Kielholz 2 Mathis Cabiallavetta 3 Renato Fassbind 4 Jakob Baer 5 Raymund Breu 6 Raymond K.F. Ch’ien 7 John R. Coomber 8 Mary Francis 9 Rajna Gibson Brandon 10 C. Robert Henrikson 11 Malcolm D. Knight 12 Hans Ulrich Maerki 13 Carlos E. Represas 14 Jean-Pierre Roth
Full details on Corporate Governance see 2013 Financial Report 10 Swiss Re 2013 Business Report
Our executive body As of 31 December 2013, the Group Executive Committee was composed of the 12 members shown above. They are responsible for running the businesses of the Swiss Re Group.
5 agostino Galvagni CEO Corporate Solutions 6 Jean-Jacques Henchoz CEO Reinsurance EMEA
7 Christian Mumenthaler CEO Reinsurance 8 Moses Ojeisekhoba CEO Reinsurance Asia 9 George Quinn Group CFO
Reinsurance We cover reinsurance needs in the areas of Property & Casualty and Life & Health.
̤ 50.5% P & C Reinsurance ̤ 34.8% L & H Reinsurance ̤ 10.1% Corporate Solutions ̤ 4.6% Admin Re®
(96.2% in 2012) Combined ratio 521m (USD 1 196m in 2012) gross cash generation
(13.4% in 2012) For more information see the Financial Report and swissre.com
Our strategy also remained largely unchanged over the year. We’re aiming to outperform our peers in Reinsurance and Admin Re®, as well as in our balanced asset management approach. We’re also aiming for a sustainable expansion in Corporate Solutions as well as in high growth markets and in funding longer lives and health. In 2014 our focus will be on executing on this strategy and delivering on the previously communicated 2011–2015 financial targets (see page 3).
We look forward to 2014 with confidence. Our focus will remain on strategy execution. Our industry-leading underwriting track record has served us well and we aim to maintain it. We are emphasising productivity and keeping management expenses under control. We also continue to re-direct capital and talent to high growth markets, where we estimate that, by 2020, up to 45% of new re/insurance business premiums will be generated.
We provide Property & Casualty and Life & Health clients and brokers all over the world with reinsurance products, insurance-based capital market instruments and risk management services. With our proven reputation for innovative reinsurance and risk management solutions, we understand and meet client need.
Property & Casualty performance Net income in Property & Casualty Reinsurance climbed to USD 3.3 billion in 2013 (compared to USD 3.0 billion in 2012).
Capturing opportunities in growth markets remained a key priority across all business lines. As part of the high growth market strategy implementation we strengthened expertise by adding to our local underwriting and client 2013 IN REVIEW The three distinct Business Units of the Swiss Re Group correspond to Swiss Re’s core activities in reinsurance, insurance and risk transfer solutions.
Backed by 150 years of collective experience, significant capacity and the financial strength of the Swiss Re Group, our Corporate Solutions team solves the risk management and financing needs of corporations and other organisations around the globe.
Performance Corporate Solutions’ net income was 42% higher than in 2012, with the quality of its book remaining consistently high year-on-year. Corporate Solutions serves large corporations as a lean global player, with product offerings ranging from traditional property and casualty insurance to customised solutions in areas such as weather risk management.
The unique value proposition of Corporate Solutions continues to be the combination of large net capacity and innovation capabilities, underpinned by disciplined cycle management and superior underwriting.
Admin Re® is a recognised force in the closed life business. We acquire closed books of in-force life and health insurance business, whole lines of business, or the entire capital stock of life insurance companies. This helps insurers to divest themselves of non-core business, reduce administrative costs and release capital in order to realise other opportunities.
Performance Admin Re® delivered a very good net income of USD 423 million and gross cash generation of USD 521 million. These achievements demonstrate the success of management actions in improving the Business Unit’s operational efficiency and enhancing its contribution to the Group.
management staff in Asia and Latin America. We expect that this will enable us to deliver superior service to our existing clients and build new relationships.
We believe that active cycle management will also be key to success in the current market environment. We aim to maintain earnings quality through disciplined underwriting and superior service, and to position ourselves even more clearly as a knowledge company.
Life & Health performance Life & Health Reinsurance delivered net income of USD 356 million for 2013 (compared to USD 739 million in 2012).
The port city of Cartagena, located on Colombiaʼs north coast and home to nearly one million people.
P a rt n e r 2013 IN REVIEW | REINSURANCE
Heart of the Colombian economy Colombian SMEs could account for at least USD 250 million in premiums per year. And with an estimated 99 of every 100 Colombian firms falling into the SME range, potential clients aren’t hard to find.
One hundred people or more might work in a typical SME, working in industries like food, textiles, or auto parts. Nevertheless many are substantially underinsured against even common perils such as fire or theft. The culture of risk prevention is often absent on the shop floor.
Sura’s challenge is to demonstrate to these firms that risk management is central to competitiveness, and that insurance plays a fundamental role. Their strategy is to build loyalty in the segment, one client at a time.
And there is a broader win, says Gonzalo Pérez, Sura’s CEO. “Colombia has free trade agreements with Chile, Canada, the US and a number of others. The SME sector should be among the biggest beneficiaries of those agreements,” he says. “And indeed the number of exporting SMEs is growing fast. We want to help these firms to integrate with the global economy.”>
To reach our goals we need to help our clients reach theirs – leveraging 150 years’ worth of expertise.
We demonstrated how embedding Swiss Re’s knowledge in a tablet computer can open a dialogue between Sura and prospective clients on risk management
and their insurable risks such as business interruption, worker health and safety, earthquake and flood.
long-term relationships are more than just good business. By knowing their clients, Sura knows their risks, and over time this can translate to a larger relationship and more expert underwriting. They are committed to providing their clients with solutions to their primary needs.
Over our 150-year history we have largely travelled the same course, with Sura and around the world. We are eager to support clients in developing new markets, leveraging the key benefit of our long experience — a deep knowledge of risk.
Colombia’s small and medium-sized enterprises work in a range of potentially export-oriented sectors, including food, textiles and auto parts.
The way forward Sura is selling policies to the SME sector online. Swiss Re is continuing to explore ways to support their initiative. Meanwhile Swiss Re covers Sura’s property business including natural catastrophe exposure and other non-life coverages.
Such close collaboration, leveraging our position as a knowledge company, is essential to reaching our goals — especially in generating 20%–25% of premiums in high growth markets by 2015.
Swiss Re supports public sector clients around the world — governments, but also international development institutions and NGOs — to better manage risks. This unique business is housed in Swiss Reʼs Global Partnerships.
Then in January 2014, the project received its first test. Cyclone Ian swept across the island of Tonga, killing one person, displacing thousands and causing tremendous devastation to crops and infrastructure. Shortly afterwards Tonga’s government received a payment to help recover from the disaster, just as the project was designed to do.
In Bangladesh Global Partnerships has joined forces with Oxfam GB and other partners to launch an index-based flood insurance product designed to lower flood risk and provide speedy insurance payout to river basin residents. Covering 1 660 families from 14 villages located in the Char areas of Sirajganj district, the families will receive a swift emergency payout if struck by floods. The pilot insurance programme will provide cash relief of up to approximately USD 100 per household.
Swiss Re 2013 Business Report 19 2013 IN REVIEW | GlOBAl PARTNERShIPS
“The more complex the risks, the more Swiss Re Corporate Solutions stands out. It becomes a source of competitive advantage for us. Clients can see we’re sweating the details with them.”
as the storm raged swiss re experts were on the phone with clients and brokers. across the entire north sea — where nearly two-thirds of the worldʼs supply of offshore wind power is generated — only minor damage was recorded. the turbines had performed admirably, even in the record-setting gale.
A commitment to wind power corporate solutions is committed to sustainable energy in general, and offshore wind in particular. offshore wind is among the most promising sources of renewable energy. it is also an area where our large capacity and technical expertise can make a real difference in bringing renewables to reality.
“But thankfully,” Bob says, “we have a lot of in-house expertise we can draw on.”
A winning partnership corporate solutions leverages this reputation to build deep, long-term relationships. “the more complex the risks,” says ursula Barnett, Key account manager, “the more corporate solutions stands out. it becomes
such close collaboration was key to securing e.on’s business on the construction of amrumbank West, an array of turbines scheduled to go online in 2015, when it will begin contributing 288 megawatts of energy per year. the foundations of amrumbank West are currently being fixed into the sea floor — 24 metres below the surface, 35 kilometres from the nearest shore.
and where the risks are concerned, such details are critical. “Bob asked us what arrangements we had in place for vessel availability,” Bernd recalls. “He wanted to know how we were prepared to handle a situation — even three years into the future — where we had to move people and equipment out quickly to one of our facilities. on the one hand we could prove >
2013 IN REVIEW | corporate solutions 22 Swiss Re 2013 Business report
Food For a GroWinG World Partnering for food security is a crucial step on the path to making sure everyone has enough to eat.
swiss re is one of the world’s leading agricultural re/insurers, offering innovative risk transfer solutions tailored to the needs of farmers — farmers like Humberto Vonsowski.
thankfully Humberto had bought a farm revenue insurance policy at the same time that he had taken out a loan for the upcoming season. Both the loan and the insurance were offered by credicoamo, the lending operation of coamo, latin america’s largest agricultural cooperative.
Humberto says that thanks to the r$ 224 000 he received from the insurance, there was no need to extend his loan or to sell equipment to pay his debts. “i did not make a profit on that harvest, but i did not have a loss, either,” he said.
> e.on’s sound approach to risks and on the other hand it helps us think through the risks from further angles.
Working with major clients like e.on allows corporate solutions to leverage its full capacity and expertise.
corporate solutions can offer solutions along the entire value chain: from construction covers to lack of wind covers, from hull marine covers for newly acquired vessels to additional capacity for hurricane-exposed onshore windfarms along the Gulf of mexico.
For more on our activities regarding food security go to swissre.com/rethinking 2013 IN REVIEW | corporate solutions
New directioNs Admin re® stands at the busy crossroads of regulatory and market changes in the life insurance business.
24 Swiss Re 2013 Business report 2013 IN REVIEW | AdmiN re®
Left: With more people enjoying longer lives, itʼs time to consider the implications for healthcare and secure retirements.
with more people enjoying longer lives, the means of providing healthcare and a secure retirement must also change. in 2013 we asked more than 22 000 people in 19 countries who they thought should bear the inevitable costs.
so while both rising healthcare and retirement costs are consequences of longer lives, many people see them as separate concerns.
the Business unit is continuing to focus on selective acquisitions in the uK. opportunities continue to arise, though the long-term nature of the business means that management must scrutinise all possible deals very closely. And while the aim is to operate an efficient platform,
Admin re® recognises the critical importance of meeting obligations to the policyholders underlying such transactions.
over the last year, Admin re® has upgraded core actuarial, finance and it capabilities and systems across its operating platform. these initiatives have made it more efficient and more effective in managing the risks of the underlying portfolios.
For full results of the risk Perception survey go to riskwindow.swissre.com
Swiss Re 2013 Business report 25 2013 IN REVIEW | AdmiN re®
Swiss Re is founded in Zurich, prompted by the fire that had swept through the thriving town of Glarus in May 1861. The fire highlighted the threat to the Swiss insurance system posed by catastrophic losses.
The Marine department of Swiss Re organises sea voyages on behalf of the Red Cross during the
26 Swiss Re 2013 Business Report oUR pAST, oUR FUTURe, oUR CoMMITMeNT
Swiss Re celebrates its 150th anniversary by connecting generations around the theme of risk.
Swiss Re establishes the Swiss Insurance Training Centre (SITC). The SITC provided courses in technical areas of insurance, particularly for insurers from emerging markets.
Swiss Re begins issuing insurance-linked securities (ILS), an innovative market in which it remains a market leader.
Swiss Re's economic research team publishes the first edition of sigma, a flagship expertise publication featuring original data and analysis of re/insurance markets. sigma has been in continuous publication ever since, available online since 1996.
Bill Emmott Head Moderator, Open Minds Forum Former Chief Editor, The Economist
Swiss re has a long tradition of hosting events for clients, brokers, other partners and employees. We’ll always try to do something a bit special.
Our 150 Year anniversary celebration is no exception. We have been holding events in many of our key locations.
through the “Open Minds Forum” we hope to open people’s minds and raise awareness of what risks the future holds. and we hope to stimulate debate about how we, as an industry, can work together to find some of the answers.
Bill Emmott Head Moderator, Open Minds Forum The ambition of the Open Minds Forum looked intimidating — to envision the kind of world we want to see in 2050. swiss re’s stakeholders in Zurich, London and New York more than rose to the challenge. >
MiNds Bill Emmott reflects on the Swiss Re dialogues swiss reʼs “Open Minds Forum” focuses attention on the future of risk
DaviD Bloom Chair of Harvard university’s Department of Global Health and Population i was really impressed by Swiss re’s ability to convene such a diverse group of people, and to spark such engaging, constructive and forward-looking discussions. We heard a wealth of perspectives on food security, the supply of energy, human longevity and natural disasters. i can’t imagine anyone left the event without a deeper appreciation of the nature of these risks and the relationships among them — along with a shot of optimism on how we’re going to address them.
KarEn ClarK President and CEO, Karen Clark & Company i liked how one participant summed it up: we know how to do it, but the question is will we do it? We cannot prevent disasters from occurring, but we can take proactive steps to build more resilient communities for future generations. the primary challenges are not scientific but political because resiliency requires tough decisions with respect to building codes, land use planning, and who pays the costs. the swiss re event stimulated thinking in important areas beyond the typical insurance issues — i thoroughly enjoyed it.
a powerful theme has been the need to think internationally. all the topics under discussion are shared, and not just because we share a planet: even the ageing of demographic structures is a shared phenomenon, with China likely to get old well before it gets rich. this could be a vital starting point for the fourth regional day, in Beijing in March 2014.
miChaEl liEBrEiCh CEO of Bloomberg new Energy Finance i was hugely impressed by the leadership Swiss re showed on the occasion of its 150th anniversary. i was proud to play a part in a unique global conversation about the key long-term challenges of our time. the energy discussion highlighted three things. First, the scale and complexity involved in moving to affordable, secure, clean energy. second, the huge opportunities and cobenefits that such a transition will create for our economy and society. third, the extent to which an educated, articulate business constituency has become engaged in the world’s clean energy transition. swiss re — with initiatives such as its 150th anniversary celebrations — has been at the heart of that engagement, and i salute them.
hanS JoaChim SChEllnhuBEr Director of the Potsdam institute for Climate impact research and Chair of the German advisory Council on Global Change Swiss reʼs 150th anniversary meeting in Zürich was a remarkable event. the gathering ventured deep into largely uncharted territory like food security in an ageing world and novel regimes of extreme events on a rapidly warming planet. i found the enthusiasm and thoughtfulness of the participants especially gratifying. this combination turned the celebration into a delightful workshop — and set an agenda for a lot of hard work before swiss re’s 200th anniversary.
Further reading: More on our activities on developments shaping the risk landscape on swissre.com/rethinking 01: Capturing the key outcomes of our dialogue sessions in a unique fashion 02: Our dialogue sessions focused on the biggest risks faced today and by future generations.
the memories are still vivid: on 29 october 2012, Hurricane Sandy reached new York city and neighbouring new Jersey after gradually travelling up from the caribbean. over the next couple of days, one of the worldʼs most highly developed urban areas was shaken to its core by the stormʼs sheer force. tV viewers around the globe witnessed flood surges of up to 4 metres flooding manhattanʼs Battery park while scores of trees crashed into buildings and tore down power lines.
promoting resilience and understanding according to the special Report on extremes (sReX) published by the intergovernmental panel on Climate Change (ipCC), extreme weather events have become more numerous and severe. these range from more frequent and severe storms, floods, droughts, heat waves and other natural disasters to sea level rise, crop failures, and water shortages. and while it is impossible to blame climate change for any single event, higher sea levels certainly increased the extent and magnitude of coastal flooding. since 1900, sea levels around new york City have risen more than 33 centimetres, more than half of which is thought to be due to climate change. >
Lighting candles in remembrance of the first anniversary of Hurricane Sandy on 29 october 2013
in new yorkʼs case, the eCa study led to some stark conclusions: hurricane sandy caused around UsD 19 billion worth of damage to new yorkʼs five boroughs. and while a storm leading to this kind of loss can be expected to occur on average once every 70 years, climate change is expected to make them noticeably more frequent: once every 50 years by the 2050s under the climate change scenario used in the project. the study further envisioned that damage from a storm like sandy would likely increase more than fourfold, to UsD 90 billion, and that the average loss per year from windstorms and storm surge, meanwhile, could be expected to rise from around UsD 1.7 billion today to UsD 4.4 billion by the 2050s if no action were taken.
Ultimately the City outlined some 250 measures that could reduce damage in the future, most of which focus on coastal
tHouGHt LeadeRSHip: the mighty City new Yorkers are proud — and rightly so — of their cityʼs distinctiveness and prominence. at Swiss Re we are proud to work in public-private partnership to enhance the resilience of the great city.
urbanisation — insured as detailed in our october 2013 sigma study, China and india are on the crest of the urbanisation wave. China will account for 20% of the increase in the global urban population through 2030, and india for 16%. in regional terms, asia and africa will experience the greatest rates of urban population growth.
Cities concentrate not only people, but wealth. Urbanisation leads to enormous concentrations of property values. given low insurance penetration in many of those markets, a natural disaster can expose a massive gap between economic losses and what insurance will cover.
the aim is to strengthen citiesʼ ability to prepare for and bounce back more quickly from natural disasters, pandemics or even terrorism. successful interventions will save lives and protect property, speed up recovery and lessen the impact on public and private budgets.
Swiss Re 2013 Business Report 35 ouR paSt, ouR futuRe, ouR commitment | thoUght leaDeRship
SHaRe of tHe woRLdʼS popuLation living in Cities By 2050 > applied expertise one of those tools is Catnet®. at a glance it seems simple — hazard information laid over google maps™. Catnet® is highly visual and easy to understand.
R e 36 Swiss Re 2013 Business Report ouR paSt, ouR futuRe, ouR commitment | thoUght leaDeRship
Severine Rion Head, Life & Health R&d europe Swiss Re for more on our activities regarding longevity go to swissre.com/rethinking further reading: more on our commitment to urban resilience on swissre.com/rethinking
Swiss Re 2013 Business Report 37 ouR paSt, ouR futuRe, ouR commitment | KnoWleDge eXpeRts
in the communities where swiss Re has offices the foundation contributes to projects that protect the environment and promote social welfare. it also promotes volunteering initiatives for swiss Re staff around the world.
Swiss Reʼs 150th anniversary the foundation is supporting an exceptional set of projects for swiss Reʼs 150th anniversary year, demonstrating a shared commitment to improving risk resilience. the foundation teamed up with partners, clients and swiss Re employees to launch 16 initiatives, broadly following the anniversary theme of generations.
the social and emotional needs of older generations in the UK are being met through a project that provides vital support services. Childrenʼs basic needs for health and welfare are being met through different projects around the world. the foundation also looks ahead to future generations by funding basic research that may one day contribute to enhanced resilience for all.
the foundationʼs partnership with social entrepreneur honey Care africa is a good example. honey Care africa helps poor farming communities diversify their incomes by making honey. Under its “Business in a Beehive” programme, communities are organised into clusters, enabling access to a commercial honey value chain. With support from the foundation, honey Care is further extending its activities, setting up two new clusters for about 2 000 poor families. each cluster
should be economically sustainable and self-sufficient after about 18 months and families can begin to count on this supplement to their annual income. honey Care africa ensures a return on investment for all participating families by guaranteeing the market for all honey produced.
Beginning in 2012 the Reinsurance team for europe, middle east & africa (or emea, which accounts for a substantial share of both employees and premiums) was reorganising and didn’t want to miss the opportunity to bring out fresh views and new ideas. the goal was to to support the business strategy and to find diverse candidates, with different experiences and points of view. our belief was that by explicitly encouraging diversity we could increase the quality of decision-making and spark creativity and innovation. in addition, hiring managers undertook training to identify and root out unconscious biases that might influence their recruitment decisions.
the result? a refreshed team with a far higher proportion of women in management roles, for one thing, and a culture which has become even more positive and productivity-driven. talented people were treated to a powerful demonstration of why they should think big and be ambitious, chipping away at their own unconscious biases about the jobs they could and should apply for.
Claudia Cordioli is one of the members of the new management team. previously head of external Reporting in group accounting, she moved over to become emeaʼs Cfo. “i am proud to be part of a team that promotes such an open and inclusive culture,” Claudia said.
“danielʼs years of experience are a huge benefit to me — especially in helping me set and meet my goals.”
Valentina donnarumma Business analyst Swiss Re 01: claudia cordioli, the new cfo for Reinsurance emea 02: mentor and mentee daniel Jaeger and Valentina donnarumma exchange ideas.
“the emea management team leads by example and rewards performance in a very fair and transparent way. this motivates the team and creates a passion to perform at all levels.”
connecting generations mentoring is par for the course at swiss Re. as an innovator and knowledge company we rely heavily not only on diversity, but on expertise — the kind of expertise that can help us model earthquakes, project lifespans and invest to meet liabilities far into the future.
mentoring is just one of the advantages we give our people to succeed — thereʼs also formal training, clear career paths and global opportunities. open-minded candidates are encouraged to apply.
̤̤ changes̤in̤Swiss̤Re’s̤investment̤ result̤as̤a̤result̤of̤changes̤in̤its̤ investment̤policy̤or̤the̤changed̤ composition̤of̤its̤investment̤assets,̤ and̤the̤impact̤of̤the̤timing̤of̤any̤ such̤changes̤relative̤to̤changes̤in̤ market̤conditions; ̤̤ uncertainties̤in̤valuing̤credit̤default̤ swaps̤and̤other̤credit-related̤ instruments; ̤̤ possible̤inability̤to̤realise̤amounts̤ on̤sales̤of̤securities̤on̤Swiss̤Re’s̤ balance̤sheet̤equivalent̤to̤their̤ mark-to-market̤values̤recorded̤for̤ accounting̤purposes; ̤̤ the̤outcome̤of̤tax̤audits,̤the̤ability̤ to̤realise̤tax̤loss̤carryforwards̤and̤ the̤ability̤to̤realise̤deferred̤tax̤ assets̤(including̤by̤reason̤of̤the̤mix̤ of̤earnings̤in̤a̤jurisdiction̤or̤deemed̤ change̤of̤control),̤which̤could̤ negatively̤impact̤future̤earnings; ̤̤ the̤possibility̤that̤Swiss̤Re’s̤hedging̤ arrangements̤may̤not̤be̤effective; ̤̤ the̤lowering̤or̤loss̤of̤one̤of̤the̤ financial̤strength̤or̤other̤ratings̤of̤ one̤or̤more̤Swiss̤Re̤companies,̤and̤ developments̤adversely̤affecting̤ Swiss̤Re’s̤ability̤to̤achieve̤improved̤ ratings; ̤̤ the̤cyclicality̤of̤the̤reinsurance̤ industry; ̤̤ uncertainties̤in̤estimating̤reserves; ̤̤ uncertainties̤in̤estimating̤future̤
claims̤for̤purposes̤of̤financial̤ reporting,̤particularly̤with̤respect̤to̤ large̤natural̤catastrophes,̤as̤ significant̤uncertainties̤may̤be̤ involved̤in̤estimating̤losses̤from̤ such̤events̤and̤preliminary̤estimates̤ may̤be̤subject̤to̤change̤as̤new̤ information̤becomes̤available; ̤̤ the̤frequency,̤severity̤and̤ development̤of̤insured̤claim̤events; ̤̤ acts̤of̤terrorism̤and̤acts̤of̤war; ̤̤ mortality,̤morbidity̤and̤longevity̤
Forward-looking̤statements̤typically̤ are̤identified̤by̤words̤or̤phrases̤such̤ as̤“anticipate”,̤“assume”,̤“believe”,̤ “continue”,̤“estimate”,̤“expect”,̤ “foresee”,̤“intend”,̤“may̤increase”,̤“may̤ fluctuate”̤and̤similar̤expressions,̤or̤by̤ future̤or̤conditional̤verbs̤such̤as̤ “will”,̤“should”,̤“would”̤and̤“could”.̤ These̤forward-looking̤statements̤ involve̤known̤and̤unknown̤risks,̤ uncertainties̤and̤other̤factors,̤which̤ may̤cause̤Swiss̤Re’s̤actual̤results̤of̤ operations,̤financial̤condition,̤solvency̤ ratios,̤liquidity̤position̤or̤prospects̤to̤ be̤materially̤different̤from̤any̤future̤ results̤of̤operations,̤financial̤ condition,̤solvency̤ratios,̤liquidity̤ position̤or̤prospects̤expressed̤or̤ implied̤by̤such̤statements̤or̤cause̤ Swiss̤Re̤to̤not̤achieve̤its̤published̤ targets.̤Such̤factors̤include,̤among̤ others: ̤̤ instability̤affecting̤the̤global̤
armonk 175̤King̤Street̤ Armonk,̤New̤York̤10504̤ Telephone̤+1̤914̤828̤8000 overland Park 5200̤Metcalf̤Avenue̤ Overland̤Park,̤KS̤66202̤ Telephone̤+1̤913̤676̤5200 new york 55̤East̤52nd̤Street̤ New̤York,̤NY̤10055̤ Telephone̤+1̤212̤317̤5400 toronto 150̤King̤Street̤West̤ Toronto,̤Ontario̤M5H̤1J9̤̤ Telephone̤+1̤416̤408̤0272 mexico City Insurgentes̤Sur̤1898,̤Piso̤8̤ Torre̤Siglum̤ Colonia̤Florida̤ México,̤D.F.̤01030̤ Telephone̤+52̤55̤5322̤8400
Zurich Mythenquai̤50/60̤ 8022̤Zurich̤ Telephone̤+41̤43̤285̤2121 london 30̤St̤Mary̤Axe̤ London̤ EC3A̤8EP̤ Telephone̤+44̤20̤7933̤3000 munich Dieselstraße̤11̤ 85774̤Unterföhring̤bei̤München̤ Telephone̤+49̤89̤3844-0
Cape town 2nd̤Floor̤ Beechwood̤House̤ The̤Boulevard̤ Searle̤Street̤ Cape̤Town,̤7925̤ Telephone̤+27̤21̤469̤8400 madrid Paseo̤de̤la̤Castellana,̤95̤planta̤18̤̤ Edificio̤Torre̤Europa̤ 28046̤Madrid̤̤ Telephone̤+34̤91̤598̤1726
Hong kong 61 /̤ F̤̤Central̤Plaza̤ 18̤Harbour̤Road̤ G.P.O.̤Box̤2221̤ Wanchai,̤HK̤ Telephone̤+852̤2827̤4345 sydney Level̤29,̤363̤George̤Street̤ Sydney̤NSW̤2000̤ Telephone̤+61̤2̤8295̤9500 singapore 1̤Raffles̤Place̤ OUB̤Centre̤ Singapore̤048616̤ Telephone̤+65̤6532̤2161
Property & Casualty Reinsurance net income attributable to common shareholders 2 990 3 292 10
Life & Health Reinsurance net income attributable to common shareholders 739 356 –52 Premiums earned and fee income 9 122 10 023 10 operating margin in % 8.6 5.2 return on equity1 in % 8.9 5.4
Corporate Solutions net income attributable to common shareholders 196 279 42
Combined ratio in % 96.2 95.1 return on equity1 in % 7.4 9.6
Admin Re® net income attributable to common shareholders 183 423 131 Premiums earned and fee income 1 705 1 330 –22 return on equity1 in % 2.6 6.8 1 return on equity is calculated by dividing net income attributable to common shareholders by average common shareholders’ equity.
Swiss Re at a glance 02 our mission 04 how we operate 06 Message from the chairman 08 statement from the Group ceo 10 our business
Financial year 14 Market environment 20 Financial stability 21 Group strategy 22 Group results 26 summary of financial statements 28 Reinsurance 34 corporate solutions 36 admin Re® 38 share performance
General information 258 Glossary 264 cautionary note on forward-looking statements 266 note on risk factors 272 Business contact details 273 corporate calendar
Corporate Solutions Corporate Solutions serves mid-sized and large corporations, with product offerings ranging from traditional property and casualty insurance to highly customised solutions. Corporate Solutions serves customers from over 40 offices worldwide and is a growth engine of the Swiss Re Group.
With these actions we aim to achieve our 2011–2015 financial targets.
A knowledge company We are a knowledge company and a thought leader. We devote substantial resources to understanding the risks we re/insure, as well as the ones just over the horizon. See pages 61 and 101 for details.
Building ties We are actively recruiting top talent to fuel our growth and build up the relationships that are essential to success. See page 16 of the Business Report for a success story in Colombia.
we cost, price, structure ANd diversify risk risk coverage claims payment capital relief clieNts 4 swiss re 2013 Financial Report swiss re At A glANce
A resilient business model Over 150 years we have accumulated vast experience and expertise that we apply for the benefit of our clients. Alternative capital does not fundamentally challenge our business model. See page 17 for our strategic view on alternative capital.
protecting societies We are proud of our long record of supporting generations when disaster strikes. That reliability — and the trust it has earned us — goes a long way toward explaining our durability. See page 26 of the Business Report for some highlights of Swiss Re’s relevance to society over the years.
Dear shareholders At this time last year I wrote of my confidence in Swiss Reʼs prospects for 2013. That confidence has now been confirmed. Based on Swiss Reʼs very strong 2013 performance, the Board of Directors will recommend a regular dividend of CHF 3.85 per share at this yearʼs Annual General Meeting. We will also propose a special dividend of CHF 4.15 per share. Altogether this represents a return of about USD 3.1 billion of capital to our shareholders.
Central banks have kept interest rates artificially low for several years. This policy, pursued to stimulate economic growth and lower unemployment, has undoubtedly had some success. But it comes at increasing cost. One of the costs has been financial repression, ie, depriving longterm savers and investors, such as large re/insurers and pension funds, of important returns on their shareholdersʼ and policyholdersʼ assets. In returning to more ʼnormalʼ interest rates, central banks will face the risk of policy error. We are monitoring developments and preparing accordingly — indeed, the strategic short duration position that we implemented was meant partly to give us the flexibility to respond to changing conditions.
Proposed special dividend in CHF for 2013* (CHF 4.00 in 2012)
In the broader environment we saw in 2013 that the G-20 designated nine large insurers as globally systemically important insurers (G-SII). By all indications the companies named will be subject to additional reporting and higher capital requirements. The designation of reinsurers has been postponed to July 2014. We are looking at different scenarios although we continue to emphasise that our core activities are neither a source nor an amplifier of systemic risk. We believe we are well prepared for any additional requirements that would arise from such a designation.
These are major changes, and change should give us confidence. Indeed, our business depends on change. As we have often said, we enable the risk-taking on which economic progress depends. For our 150th anniversary we have celebrated under the motto “Open minds connecting generations”, examining ways to tackle some of the large-scale risks facing us today — longevity, climate change, natural disasters and food security. By highlighting ʼgenerations ,̓ we looked at the long-term consequences and implications of change in these areas and discussed possible solutions.
“Based on Swiss Reʼs very strong 2013 performance, the Board of Directors will recommend a regular dividend of CHF 3.85 per share at this yearʼs annual general Meeting. we will also propose a special dividend of CHF 4.15. altogether this represents a return of about USD 3.1 billion of capital to our shareholders.”
Smarter together? Weʼll need to be. Conditions for 2014 look challenging but weʼre ready to take them on.
Admin Re® We acquire closed in-force life and health books of business, which we administer through Admin Re®.
14 Market environment 20 Financial stability 21 Group strategy 22 Group results 26 Summary of financial statements 28 Reinsurance 34 Corporate Solutions 36 Admin Re® 38 Share performance
Financial year Swiss Re delivered a very strong net income of USD 4.4 billion. Overall the year was characterised by moderate economic growth and rising benchmark government bond yields. Developments in re/insurance markets were mixed, with the strongest growth in high growth markets.
Despite the improving economic environment, political uncertainties continued. In europe, the struggle to reach agreement on bail-out terms almost led to an exit of cyprus from the monetary union. also, the political ability, or will, to tackle urgently needed structural reforms remained weak in several countries. the pace of reform at a europe-wide level was moderate, with some progress towards a banking union. In the US, the ongoing impasse on the budget ultimately led to a government shutdown for 16 days in October. a US sovereign debt default was only narrowly averted by a last-minute deal to postpone the debate over increasing the debt ceiling until 2014.
Growth in emerging markets was more robust than in advanced markets but slower than in previous years. In addition, expectations of tighter monetary policy by the US Federal Reserve (the Fed) led to capital outflows from some emerging markets. those economies with large current account deficits, elevated debt levels and high inflation proved especially vulnerable.
Inflation remained moderate in most economies with the exception of a few emerging markets, notably India. In the US and the eurozone, inflation declined during 2013 to end the year well below their respective central bank target levels.
– United States – United kingdom – Germany – Japan – Switzerland Source: Datastream
– United States (S&P 500) – United kingdom (MScI Uk) – DJ euro StOXX 50– Japan (tOPIX) – Switzerland (SMI) Source: Datastream
US and German 10-year government bond yields about 120 and 60 basis points above their respective previous year-end levels (see interest rate chart).
Stock market performance Global stock markets suffered a brief setback in the early summer as investors worried about the Fed unwinding its asset purchase programme. Overall, however, all major markets performed well in 2013 (see stock markets chart). the MScI Uk was up 14%, the eurostoxx50 18%, the Swiss Market Index 20% and the S&P 500 30%. Japanese equities performed particularly well, supported by the BoJ’s monetary easing. the tOPIX gained 51% over the year.
economic indicators 2012–2013 USa eurozone Uk Japan china 1 Yearly average 2 Year-end 3 USD per 100 units of foreign currency Source: Swiss Re economic Research & consulting, Datastream, ceIc
transportation risks are often large and complex, leaving great potential for unpleasant surprises about the severity of losses. Insurers must continue to
Market overview the global non-life industry generated around USD 2 100 billion of premium income in 2013; 18% of this came from emerging markets. non-life insurance extends from standardised motor and household insurance to sophisticated tailor-made liability and property covers, including specialty commercial and industrial risk insurance.
Market performance the global non-life insurance sector was stable in 2013, with overall premium growth slightly up from 2012 to 3% in real terms. In the advanced markets, premium growth likewise remained steady at 1.4%. this mostly reflected moderate rate increases in some markets plus, to a lesser extent, growth in exposure – weakened, however, by the slow-growing global economy. Southern europe saw significant declines in premium income for the second year in a row.
emerging market premiums grew by 7.8%, down from 8.0% in 2012: a reflection of the economic slowdown in many exportdependent countries in Southeast asia and central and eastern europe. that said, china non-life premiums rose by about 13%, largely due to new car sales and infrastructure investments. Premium growth in Latin america, africa and the Middle east was also estimated to be stronger in 2013 than it had been in 2012.
ships, aircrafts and cargo) as is the room to adopt underwriting insights from different insurance classes.
Underwriting profitability improved marginally, thanks to a gradual strengthening of premium rates in the US, europe and other selected markets, and also because claims growth remained benign. canada and Germany among others, however, bucked this trend with an increase in natural catastrophe claims.
While 2013 underwriting results improved from the previous year, non-life earnings remained under pressure from weak investment returns. Six years after the financial crisis, the investment environment continues to challenge the insurance industry.
Outlook Global growth forecasts for 2014 are more positive, which is expected to lead to increased demand for non-life insurance. Premium growth in the emerging markets will likely remain strong, at about the same levels as 2013.
Market performance the reinsurance industry exhibited solid premium growth of 4% in 2013. Industry underwriting results were mixed during 2013: a very good first quarter, with a low incidence of large losses and significant reserve releases, followed by a second quarter with high catastrophe losses from tornadoes in the US and floods in Germany, the czech Republic and canada. the third quarter, which is most exposed to north american hurricanes losses, was generally benign. Hailstorms in Germany, however, generated multi-billion dollar insurance losses. the widespread devastation caused by the tropical cyclones that battered Mexico, eastern India and the Philippines was not reflected in the severity of reinsurance claims because of low insurance penetration in these markets. Preliminary data indicate a combined ratio of around 90% for 2013, reflecting a slightly below average natural catastrophe burden and continuing significant releases from prior-year loss reserves.
Market size in USD billions estimated global premium income in 2013
Market performance estimated global premium growth in 2013 as with the primary insurance industry, the investment environment still poses challenges for reinsurance. the industry’s average annualised investment yield has declined to just 3%. the full-year industry Roe is expected to be around 12%, down from 14% in 2012.
For these providers, catastrophe risk is a diversified asset class that has become relatively more attractive since the financial crisis, after which interest rates fell to historic lows.
about 70% of alternative capital is concentrated on the US natural catastrophe market, mostly wind and some earthquake. another 25% is allocated to the european catastrophe market. the remainder is in other markets and perils.
Market performance Global life insurance premiums grew by 2.9% in real terms in 2013. In advanced markets, premium income increased by 2.3%, based on strong growth in Western europe, canada, australia and Japan. Premium growth stagnated in the US. In emerging markets, premium income rose 6.2%, principally in asia and Latin america.
Protection products, which exhibited generally stable results, showed a modest increase during the first nine months of 2013. In the US, sales of term insurance products rebounded for the first time since 2007. term sales were slightly lower in Germany while disability and long-term care insurance continued to grow strongly.
boosts household earnings while empowering a new prospective client segment for insurance products.
Insurers that endeavour to meet this demand will be supported by relatively lower distribution costs within cities, the rapid pace of technological change and the tendency towards faster adoption. On the other hand, insurers will need to continuously strengthen their models to incorporate ever-growing risk exposure, monitor emerging risks and manage risk accumulation.
Further reading: Swiss Re’s 05/13 sigma on urbanisation in emerging markets.
Profitability in life insurance has declined slowly but steadily since the end of 2009. Roe for 2013 averaged around 9% for a sample of global composite and large life insurers. Lower profitability stems from low interest rates which have reduced investment yields and margins (the difference between earned and guaranteed interest rate), and weak premium income growth.
Life insurers’ balance sheets remain solid as companies continue to de-risk; and asset impairments have moderated as a result of stronger credit and equity markets.
In general, cities will present a high degree of risk concentration, including pandemic risk. Health insurance products need to reflect the evolving epidemiological landscape of a more urbanised world.
Urbanisation leads to ‘urban diseases’ such as obesity, diabetes, heart disease, stroke and some cancers. Increased and continuous exposure to high noise levels leads to hearing impairment, high blood pressure and heart disease. In poor urban areas, infectious diseases are exacerbated by unsanitary living conditions and poor access to health facilities. Motorisation leads to air pollution and road accidents.
Market performance Global premiums from traditional life reinsurance covering mortality and morbidity stagnated in 2013. In advanced markets, premiums declined 0.4%, but in emerging markets they were up almost 6.1% based on strong protection sales.
The interest rate legacy the forecast increase in interest rates should be a blessing for life insurers. However interest rate increases will not solve all problems. companies roll over only a small fraction of their investment portfolios every year — typically around 10%. Portfolio yields therefore lag changes in bond market yields.
even assuming a gradual increase in interest rates, the average insurer’s portfolio yield may continue to decline for some time. this is because the newly bought bonds have to be compared against the maturing bonds they’re replacing, which may still have a higher coupon. this would put insurers under increasing pressure to serve long-term guarantees written in the 1990s and early years of the new millennium.
and there is another challenge. Once interest rates rise, the market value of bonds will start to decline. In the same scenario of moderately increasing interest rates, the unrealised gains of the past few years will disappear while unrealised losses will begin to accumulate.
Further reading: Swiss Re’s 04/12 sigma on facing the interest rate challenge.
Swiss Re is well prepared for the upcoming regulatory changes as it already operates in one of the most advanced economic-based solvency regimes (the Swiss Solvency test) and is subject to comprehensive group supervision under an active college of Supervisors chaired by the Swiss Financial Market Supervisory authority FInMa. Swiss Re is concerned, however, that the ongoing regulatory reforms are overly focused on the size and interconnectedness of re/insurance groups, which undermines the essential idea of insurance: benefiting from risk pooling and global diversification to better manage risks.
̤ High Loss absorption (HLa) capacity on non-traditional and non-insurance activities
̤ Insurance capital standard (IcS) for all international active insurance groups 20 Swiss Re 2013 Financial Report
a strategy for applying our strong combination of capital, knowledge and brand
̤ Margin pressure as a result of alternative capital is counteracted by continued strong growth of natural catastrophe pools. competition in natural catastrophe reinsurance is expected to become fiercer as capital markets investors expand. Swiss Re is actively pursuing multiple actions to mitigate the economic impact of market softening. at the same time, Swiss Re is actively engaging governments, nGOs, and traditional insurers to extend catastrophe insurance to segments which have not historically been covered.
Swiss Re’s strategy remained unchanged in 2013. We aim to outperform our peers in Reinsurance and Admin Re®, as well as in our balanced asset management approach. We aim for a sustainable expansion in Corporate Solutions as well as in high growth markets and in funding longer lives and health. Our focus in 2014 will be on continuing to execute on this strategy and delivering on the previously communicated 2011–2015 financial targets.
We see four in particular: ̤ High growth markets will drive demand for re/insurance products. We estimate that by 2020 up to 45% of new re/insurance business premiums will be generated in high growth markets. Swiss Re already has solid positions in many of these markets and aims to expand them, both in Reinsurance and corporate Solutions. these endeavours have been and will be complemented by selected investments in insurance or insurancerelated businesses in these markets.
̤ ’Big data & smart analytics’ will change the way of insurance underwriting, costing, pricing and marketing. the ability to gather and process information is profoundly altering the business landscape. this process will not stop at the insurance sector. We aim to turn big data & smart analytics into a source of competitive advantage and an essential part of our value proposition to our customers. Swiss Re has launched a number of pilot projects to test practical applications with our clients.
Swiss Re reported net income of USD 4.4 billion for 2013, compared to net income of USD 4.2 billion in 2012. earnings per share were CHF 12.04 or USD 12.97, compared to CHF 11.13 (USD 11.85) in 2012.
the Group results in 2013 reflected a very good underwriting result along with favourable prior-year reserve development, investment gains and one-time tax benefits.
net income for Reinsurance was USD 3.6 billion compared to USD 3.7 billion in 2012. Property & casualty accounted for USD 3.3 billion (compared to USD 3.0 billion in 2012), while Life & Health accounted for USD 356 million, compared to USD 739 million in 2012. In 2013 a lower investment result and reserve strengthening for group disability business in australia were largely offset by one-time tax benefits.
the Group combined ratio was 85.3% in 2013, compared to a combined ratio of 83.1% in 2012. the 2013 result was driven by higher natural catastrophe losses, although lower than expected, and higher man-made losses, partially offset by positive development on prior-year reserves.
For information on segment shareholders’ equity, please see pages 212 to 213.
2013 operating performance Premiums earned for Property & casualty Reinsurance were USD 14.5 billion or 18% higher compared to 2012, mainly driven by the expiry of a quota share retrocession agreement at the end of 2012 and new business written in the americas. Life & Health Reinsurance premiums and fees increased by 10%, primarily driven by the business recaptured in the first quarter of 2013, rate increases in the yearlyrenewable term business, growth in health premiums in europe and new business in asia.
corporate Solutions premiums earned increased 28% to USD 2.9 billion, reflecting organic growth across most lines of business and the expiry of the quota share retrocession agreement mentioned above.
very strong net income of USD 4.4 billion driven by strong underwriting; all Business Units contribute 22 Swiss Re 2013 Financial Report
50% P & C Re 35% L & H Re 10% Corporate Solutions 5% Admin Re
Net premiums earned in 2013 by segment 50% P & C Re 35% L & H Re 10% Corporate Solutions 5% Admin Re net premiums and fees earned by Business Unit, 2013 (total: USD 28.8 billion)
the Group reported non-participating net realised investment gains of USD 766 million in 2013, mainly as a result of gains from the sale of investments related to the rebalancing of the investment portfolio and active management of the listed equity portfolio. this compares to USD 947 million in the prior year, which included significantly higher realised gains from the sale of government bonds offset by losses related to the sale of the admin Re® US business.
Return credited to policyholders reflected the investment performance on the underlying assets, mainly backing unitlinked and with-profit policies, which are passed through to policyholders. In 2013, an investment gain of USD 3.7 billion was passed through to policyholders compared to a gain of USD 3.0 billion in the prior year.
acquisition costs for the Group increased to USD 4.9 billion reflecting higher business volumes and the impact of the recapture of retrocessions.
administrative expenses were USD 3.2 billion, 8% higher than in the prior year mainly due to the implementation of strategic growth initiatives. Other expenses were USD 349 million.
Interest expenses were USD 760 million, 3% higher when compared to 2012.
the return on investments for 2013 was 3.6% compared to 4.0% in 2012, with the difference mainly attributable to lower realised gains in 2013. excluding the impact of foreign exchange movements, the return on investments was 3.6% in 2013 compared to 4.2% in 2012.
the total return on investments in 2013 was –0.1% as market value losses arising from higher interest rates were partially offset by credit spread tightening and a rise in equity values.
as illustrated in chart 2, current global infrastructure spending is estimated at USD 2.6 trillion, whereas by 2030 financing needs are projected to be over USD 4 trillion. Re/insurers can help mitigate this emerging financing gap. Given that re/insurers’ liabilities are longterm, they are well placed to make investments in transport, water, energy and communications.
In order for this to happen, the investment and regulatory environment needs to be more supportive of long-term investing. In particular regulatory incentives (ie capital charges for longerterm assets) need to be aligned, policy uncertainty needs to be minimised, and appropriate financial market instruments need to be available. taking appropriate action to develop the supporting framework is key to increase the potential investment appetite and capacity of re/insurers as long-term investors.
Facilitating infrastructure investment Bank loans continue to be the predominant instrument for financing infrastructure and related projects. changes in bank regulation and capital rules, however, are making this business less attractive to the banking sector.
Standardising financial instruments for infrastructure project investing could potentially attract more institutional investors. current infrastructure financing deals are complex, often involve a syndicate of banks and have relatively low investment ratings. Furthermore, no generally accepted benchmark is yet available for this asset class. efforts such as the World Bank’s Global Infrastructure Facility, the FSB Monitoring of regulatory impacts on long-term investing and the eU/eIB Project Bond initiative have all been undertaken in recognition of the importance of long-term investment for the real economy. coordination and concrete implementation of initiatives is needed on a global level.
In infrastructure financing, the efforts should ultimately be geared towards creating an asset class with all its desired features. to this end, standardisation and a more supportive regulatory stance could help narrow the financing gap. In europe, a tradable and harmonised “Pan-european Project Bond”, which would build on the 1 “Infrastructure Default and Recovery Rates, 1983–2012H1”, December 2012 eU/eIB project bond initiative and integrate a pool structure as well as enhance the financing capacity by partnering with the re/insurance sector, could be one possible model to meet the challenges ahead.
Other expenses –300 –349 16 Interest expenses –736 –760 3 income before income tax expense 5 523 4 825 –13 Income tax expense –1 125 –312 –72 net income before attribution of non-controlling interests 4 398 4 513 3
excellence in our core businesses relies on underwriting as a key differentiator, based on cycle management and portfolio steering. this includes the steering of peak perils, our risk transformation capabilities, and research and development. In property, an in-house research team develops and maintains proprietary models for storm, earthquake and flood. In casualty, we are developing an equivalent forward looking model based on a systematic assessment of risk drivers. In Life & Health, our mortality experience data allows us to better quantify the underlying risk.
Reinsurance consists of two segments, Property & casualty and Life & Health. the Business Unit operates globally, both through brokers and directly with clients, and provides a large range of solutions for risk and capital management.
Property & Casualty We believe that active cycle management and positioning as a knowledge company is likely to be key to success for Property & casualty Reinsurance (P&c) in the current market environment. We aim to maintain earnings quality through disciplined underwriting and superior service. Our product offerings go beyond pure capacity, with customised solutions that complement traditional reinsurance. We believe this approach differentiates Swiss Re from pure capacity providers.
capturing opportunities in growth markets remained a key priority across all P&c business lines in 2013. as part of the high growth market strategy implementation, we strengthened expertise by adding to our local underwriting and client management staff in asia and Latin america. We expect that this will enable us to deliver superior service to our existing clients and build new relationships.
We believe L&H is strategically attractive. It is an integral part of Swiss Re’s business model. L&H adds to the profits and diversification of the Group, enhances the value proposition to core clients and represents an attractive growth opportunity.
Swiss Re offers a variety of life and health reinsurance solutions to help close the global protection gap. Due to our recognised expertise, strong balance sheet, excellent track record and dedicated teams, we believe Swiss Re is the ideal partner for product development, large capital-driven transactions, longevity deals and structured solutions tailored to client needs.
Performance net income for 2013 increased by USD 302 million to USD 3.3 billion compared to 2012, mainly driven by a decrease in income tax and a better underwriting result, partially offset by a reduction in net investment income.
Major natural catastrophe events in 2013 included floods in central and eastern europe and canada, hailstorms in Germany and winter storms in europe. Large man-made losses included flooding at a Russian hydro power plant, a fire at a microprocessor plant in china and a marine loss in Japan.
Combined ratio Property & casualty Reinsurance reported a strong combined ratio of 83.3% in 2013, compared to 80.7% in the prior year. the increase was mainly due to lower net reserve releases from prior years and increased expenses.
investment result the return on investments for 2013 was 2.8% compared to 3.2% in 2012, with the difference largely attributable to lower operating income resulting from the transfer of Principal Investments to the Group segment in the first quarter of 2013. Overall, net investment income decreased by USD 317 million compared to 2012, the impact from natural catastrophes in 2013 was 2.9 percentage points below the expected level of 10.1 percentage points, and the favourable development of prior accident years improved the 2013 combined ratio by 7.4 percentage points compared to 8.1 percentage points in 2012.
Casualty the casualty combined ratio for 2013 was 101.9%, compared to 94.0% in 2012. the increase was mainly due to reserve strengthening for US asbestos, negative impacts in motor due to the hailstorm in Germany and reserve strengthening in the Uk and France.
Property & Casualty results USD millions 2012 2013 change in %
with most of the reduction due to lower mark-to-market gains on private equity investments, also due in part to the shift of Principal Investments to the Group.
the re-balancing of the portfolio contributed to a positive total return of 1.3%, despite higher interest rates. Specifically, increases in equities and alternative investments as well as the impact of the short duration position offset the reduction in net unrealised gains on fixed income securities. the transition from government bonds to corporate bonds also positively impacted total return.
Investment-related net realised gains were USD 380 million in 2013, mainly as a result of gains from the sale of government bonds related to the re-balancing of the investment portfolio, active management of the listed equity portfolio and the sale of real estate, partially offset by unfavourable movements in foreign exchange remeasurement. this compared to USD 384 million in 2012.
Return on equity the return on equity for 2013 was 26.4%, compared to 26.7% in 2012. the decrease was mainly driven by an increase in net income that was more than offset by the impact of increasing average shareholders’ equity. total equity for the business segment increased to USD 13.3 billion in 2013 from USD 12.4 billion in 2012. Foreign currency translation gains were more than offset by an increase in dividends and net unrealised losses.
Outlook Other than loss-affected layers, natural catastrophe reinsurance rates are softening significantly for all regions due to the strong supply of traditional and alternative capacity in the market. casualty rates are generally softening with the exception of Latin america, where rates are stable, and weather-affected motor rates, where there are some increases. Most proportional covers experienced flat to small commission increases for P&c. Our superior risk selection remains a key value driver in this environment.
Regional and national clients provide us with a buffer against volatility and play an important role in our growth aspirations.
Some of the longest-standing partnerships in our history are with R&n clients, and many relationships with our larger clients have their roots in this segment. R&n clients value us as a stable source of capital, technical expertise and broad market insight, and the fact that we are well positioned to rapidly provide expertise and tailored solutions, such as large multi-year transactions, sets us apart in the market.
We will achieve our goals with R&n clients by further increasing ease of doing business, providing the flexibility and timely service they require, and demonstrating our long-term commitment to them.
Performance net income was USD 356 million for 2013, compared to USD 739 million for 2012. the reduction was primarily due to a large reserve addition of USD 369 million for australian group disability business, the impact of business recaptured in the first quarter of 2013 and lower realised gains, partly offset by one-time tax benefits and lower interest expense from capital structure optimisation in 2013.
Operating margin is calculated as operating income divided by total operating revenues. total operating revenues are
investment result the return on investments for 2013 was 4.1%, compared to 4.7% in 2012, reflecting a reduction in the investment result of USD 216 million, mainly driven by lower realised gains from the sales of government bonds as compared to 2012. net investment income improved by USD 107 million, largely driven by the re-balancing of the portfolio into additional corporate bonds and loans as well as some equity and alternative investment exposure.
Fee income from policyholders 72 56 –22 net investment income – non-participating 1 365 1 442 6 net realised investment gains/losses – non-participating 562 269 –52 net investment result – unit-linked and with-profit 222 249 12 Other revenues 1 0 –
expenses Life and health benefits –6 787 –8 075 19 Return credited to policyholders –271 –286 6 acquisition costs –1 787 –1 698 –5 income before income tax expenses 1 008 434 –57 Income tax expense –231 –30 –87 Interest on contingent capital instruments –38 –48 26 net income attributable to common shareholders 739 356 –52
the total return was –1.5%, primarily due to interest rate increases, the effects of which are more pronounced in L&H due to the longer duration of the fixed income portfolio.
Outlook Growth in the traditional life business is expected to be muted as cession rates are expected to decrease as primary insurers retain more risk. the low interest rate environment will continue to have an unfavourable impact on the growth of long-term life business for our cedants.
We will continue to write new business at attractive rates, including through large transactions. Swiss Re aims to offer solutions and services in several attractive, growing markets where major demographic and socioeconomic trends are leading to increased demand for health insurance, including in asia. We experienced difficulties in our australian group disability business and have initiated changes in our pricing and product design to mitigate similar issues on future sales.
the new L&H business management team is focused on proactively managing the in-force business in order to improve profitability. Good progress is being made on actions outlined at the Investors’ Day in June 2013 and we expect the implementation of these strategies to begin to materialise in 2014.
Life and health in high growth markets analysis of the protection gap — the difference between the protection needed and the protection in place to maintain the living standards of dependents in the event of the death of the primary breadwinner — demonstrates that under-insurance is a massive global issue. this is particularly true in high growth markets. a Swiss Re study of eight markets in Latin america revealed a combined protection gap of USD 7.2 trillion (equivalent to 138% of GDP). In many cases the protection gap is even widening. In Brazil the gap increased from 2003 to 2012 even though life insurance penetration (premiums as a percentage of GDP) rose from 0.7% to 2.0% over the same period. the underlying reasons for protection gaps differ depending on the country, requiring country-specific products and distribution solutions to close them. Life insurers need to be proactive in helping customers fit life insurance into their lives and budgets.
Swiss Re is working closely with local and global insurers to close the protection gap in high growth markets.
Performance net income was USD 279 million in 2013, an increase of 42.3% compared to USD 196 million in 2012. the result was primarily driven by continued profitable business growth across most lines of business and increased realised gains on insurance derivatives.
the casualty combined ratio deteriorated by 16.7 percentage points to 108.4% in 2013, mainly due to less favourable prior-year reserve development, primarily on Motor and accident & Health, and a large european casualty loss impacting 2013 compared to an absence of large losses in the prior year.
the credit combined ratio improved to 74.5% in 2013, compared to 82.8% in 2012, driven by continued strong performance in 2013.
the property combined ratio improved by 11.4 percentage points to 89.3% for 2013 compared to 100.7% in 2012, cORPORate SOLUtIOnS
income before income tax expense 339 391 15 Income tax expense –143 –111 –22 Income attributable to non-controlling interests 0 –1 – net income attributable to common shareholders 196 279 42 claims ratio in % 63.4 60.6 expense ratio in % 32.8 34.5 combined ratio in% 96.2 95.1 34 Swiss Re 2013 Financial Report
Investment-related net realised gains were USD 59 million in 2013, mainly as a result of realised gains from active management of the listed equity portfolio and corporate bond portfolio, partially offset by unfavourable movements in foreign exchange remeasurement. this compares to USD 91 million in the prior year. Realised insurance derivative gains, which are not included in the return on investments, increased to USD 91 million in 2013, compared to a gain of USD 55 million in 2012. these contracts offer protection against weather perils and other risks related to insurance but are accounted for as derivatives.
Swiss Re corporate Solutions is well on track to achieve its goal of reaching USD 4–5 billion in gross written premium net of intra-group transactions by 2015. High growth markets (HGMs) are an important element of that strategy. Our goal is to grow the business in HGMs by establishing local presence and tailored expertise for clients in Latin america, emerging eMea and emerging asia.
In 2013 we obtained a direct insurance licence in Singapore which reinforces the growth plans of our local operation. this milestone complements the establishment of the Dubai branch (2012) and the acquisition of UBF Seguros in Brazil (2011). also in 2013, we leveraged our position as Brazil's leading provider of agriculture insurance by signing a strategic alliance with caixa Seguros to develop, launch and market agro-insurance products through caixa econômica Federal, a government-owned financial institution.
Demand in HGMs for ground-breaking insurance solutions for corporations, state companies and governments alike is expected to grow further — and we are ready to participate.
Corporate Solutions is moving to triple the premiums generated in high growth markets (HGMs) between 2010 and 2015
Selective growth is the first element of admin Re®’s strategy. admin Re® continues to pursue opportunities to build and enhance the franchise in the Uk market. all transactions need to meet Swiss Re’s Group investment criteria and hurdle rates.
In addition to in-house funding, the Swiss Re Group and admin Re® may seek alternative funding arrangements including an expanded use of leverage for new business growth. the clear objective is to lower admin Re®’s weighted average cost of capital, and build more flexibility for future transaction funding.
total investment-related net realised gains were USD 283 million in 2013, mainly as a result of gains from the sale of government bonds related to the re-balancing of the investment portfolio. this compares to USD 270 million in the prior year.
USD 399 million loss relating to the sale of the admin Re® US business. excluding this loss, the 2012 net income would have been USD 582 million. the decrease in underlying income in 2013 was primarily due to lower revenues following the sale of the admin Re® US business and less favourable tax credits than in 2012.
Return on equity the return on equity was 6.8% for 2013 compared to 2.6% for 2012. the 2012 return on equity included the loss recognised in the year related to the sale of the admin Re® US business. excluding the loss on disposal, the return on equity would have been 7.7% for 2012.
Shareholdersʼ equity Shareholders’ equity decreased by USD 0.9 billion to USD 5.8 billion compared to 31 December 2012. the reduction mainly reflects lower unrealised gains, driven by increasing interest rates in the Uk and the US during 2013. the increase related to net income was broadly offset by the USD 357 million dividends paid to the Group in 2013.
During 2013 the StOXX europe 600 Insurance index (SXIP) and the broader index of Swiss blue chips (SMI) increased by 28.9% and 20.2% respectively. the Swiss Re share increased by 24.5%.
Share trading the average on-exchange daily trading volume for 2013 was 1.0 million shares, the same as in 2012. trading volume peaked at 3.3 million shares on 21 February 2013, the day the 2012 annual Results were published.
Swiss Re’s dividend policy Swiss Re’s highest priority is to grow the regular dividend with long-term earnings. at a minimum Swiss Re aims to maintain the regular dividend. then Swiss Re will deploy capital for business growth where it meets its profitability requirements. Dividends are typically paid out of current earnings and Swiss Re pays its dividend annually. Shares are ex-dividend two working days after the annual General Meeting (aGM), with payment made five working days after the aGM. the corresponding dates in 2014 are 15 and 22 april.
Dividends the Board of Directors proposes a regular dividend of cHF 3.85 per share and an additional special dividend of cHF 4.15 per share for 2013. Both dividends will be in the form of Swiss withholding tax exempt distributions out of legal reserves from capital contributions.
information for investors More information on Swiss Re’s shares is available in the Investor Relations section on Swiss Re’s website at: www.swissre.com/investors
Swiss Security number (valorennummer) 12688156 – ISIn (International Securities Identification number) cH0126881561 US8708861088 ticker symbols Bloomberg telekurs Reuters
Share SRen:vX SRen SRen.vX aDR1 SSReY:US SSReY SSReY.Pk 1 Swiss Re’s aDRs are not listed but traded over the counter; one aDR corresponds to one Swiss Re share.
January February March april May June July august September October november December
Key share statistics 2009 —20131 of which treasury shares and shares reserved for corporate purposes 27 994 167 28 083 630 27 970 432 27 537 673 28 511 298 cHF unless otherwise stated
Price per share year-end 49.91 50.30 47.87 65.90 82.05 Price per share year high (intra-day) 53.10 53.75 60.75 68.10 84.75 Price per share year low (intra-day) 11.88 42.10 35.12 47.25 66.10 Daily trading volume (in cHF millions) 98 86 73 58 78 Market capitalisation7 (in cHF millions) 18 502 18 646 17 746 24 430 30 417 aDR price at year-end (in USD) 48.19 53.72 50.55 72.30 92.38 1 Due to the implementation of a new holding structure as of 23 May 2011, references to Swiss Re shares refer to shares of Swiss Reinsurance company Ltd (ticker symbol: RUkn) for the period until 20 May 2011 and to shares of Swiss Re Ltd (ticker symbol: SRen) as of 23 May 2011.
2 nominal value of cHF 0.10 per share. 3 In addition to the regular dividend of cHF 3.50 per share a special dividend of cHF 4.00 per share was paid in 2013. 4 Dividend divided by year-end share price of corresponding year. 5 calculated by dividing net income by the weighted average number of common shares outstanding. 6 Based on shareholders’ equity (excluding convertible perpetual capital instruments) divided by the number of external common shares entitled to dividend 7 Based on shares outstanding.
Risk and capital management In 2013, Swiss Re remained strongly capitalised. We aim to combine this capital strength with financial flexibility, maximising return on equity within our risk tolerance targets.
changes in our risk profile throughout 2013, Swiss Re’s overall risk increased as a result of higher financial market and credit risk. this reflected continued re-balancing of the investment portfolio with an increased allocation to high-quality corporate bonds and equities, along with the implementation of the short duration position. the other driver of the increase in Swiss Re’s overall risk was the higher property and casualty risk, driven by a reduction in hedging including, eg, the expiry of a major quota share retrocession agreement and some business growth. Life and health risk decreased mainly due to the rise in long-term interest rates. Swiss Re’s portfolio of risks from underwriting and investment activities remains widely diversified.
capitalisation during 2013, Swiss Re maintained its strong capitalisation, directed excess capital flows from subsidiaries to parent companies and further optimised its capital structure at the Group level. Swiss Re continues to hold excess capital under all applicable external capital adequacy requirements, including the Swiss Solvency test (SSt), Solvency I, and Standard & Poor’s AA rating. We are following and implementing the requirements of the forthcoming Solvency II regime for our european entities. these are broadly in line with those of the SSt.
We have made significant progress in optimising our capital structure. As announced at our Investor’s day in June 2013, this incorporates three main activities. First, we continued to reduce senior leverage, including letters of credit (Locs). this involved the repurchase of senior notes and the maturing of senior debt, which supports our target to reduce Swiss Re’s leverage by more than uSd 4 billion by 2016. Second, Swiss Re continues to issue new hybrid instruments in the form of contingent capital (two of them in 2013) that combine high capital quality with flexibility and fungibility. For the most part, these instruments replace traditional subordinated debt. third, we our management is confident of the Group’s overall risk profile and capitalisation.
continue to direct excess capital flows from our legal entities to their respective parent companies and ultimately to Swiss Re Ltd. this enhances the financial flexibility of the Group, thereby supporting our commitment to an attractive and sustainable external dividend policy (see page 38).
our internal target capital adequacy ratios established under our Group risk tolerance framework are more conservative than those used by external agencies. they are set to fulfil three aims: to meet all regulatory requirements and expectations; to maintain capital and liquidity levels that compare favourably with those of our peers and are attractive to clients; and to ensure our ability to write business even after a large loss event, an extremely adverse year in the financial markets, or both together.
the amount of liquidity held is largely determined by internal liquidity stress tests, which estimate the potential funding requirements stemming from extreme loss events. Based on these internal liquidity stress tests, we estimate that the Swiss Reinsurance company Ltd liquidity pool, the primary liquidity pool of the Group, holds surplus liquidity.
our proprietary integrated risk model provides a meaningful assessment of the risks to which the company is exposed and is an important tool for managing our business. It determines the capital requirements for internal purposes and forms the basis for regulatory reporting under the SSt.
during 2013, Swiss Re maintained its strong capitalisation and directed excess funds from its Business Units to the groupʼs holding company, Swiss Re ltd. this active capital management allows us to return capital to our shareholders via a proposed regular dividend for 2013 of cHF 3.85 per share and an additional special dividend of cHF 4.15 per share.
Swiss Re’s capital strength was underlined by Moody’s upgrade of Swiss Reinsurance company Ltd’s financial strength rating to Aa3 in december 2013.
– Loc (%)– Senior debt (%)– total hybrid incl contingent capital (%)– core capital (%)1 44 Swiss Re 2013 Financial Report
Senior deleveraging As part of the deleveraging strategy announced at the June 2013 Investor’s day, Swiss Re launched an “any-and-all” public tender offer resulting in the repurchase of uSd 713 million (in carrying value, uSd 527 million in notional terms) of senior legacy debt assumed as part of the 2006 acquisition of Ge Insurance Solutions. this liability management exercise reduced long-dated senior debt at a limited premium. In addition, senior leverage maturities totalled uSd 1.6 billion and a uSd 2.0 billion reduction in Locs was also completed in 2013.
legal entity capital management our regulated subsidiaries are subject to local regulatory requirements, which for our eu subsidiaries will include Solvency II. At the subsidiary level we set target capital at a level tailored to each entity’s business and the market environment in which it operates. our underwriting and investment decisions are steered so as to make capital and liquidity fungible to the Group wherever possible, while complying with local regulations and client needs. cash dividends paid to the Group’s parent holding company, Swiss Re Ltd, totalled uSd 2.8 billion in 2013.
– SSt risk-bearing capital – SSt target capital – SSt ratio 1 SSt RBc is based on the preceding (half-) year-end capital position (minus projected dividends).
each rating agency uses a different methodology for this assessment; A.M. Best and Standard & Poor’s (S&P) base their evaluation on proprietary capital models.
Swiss Re’s financial strength ratings As of 14 February 2014 Financial strength rating outlook Last update
Moody’s Aa3 Stable 10 december 2013 Standard & Poor’s AA– Stable 18 december 2013 A.M. Best A+ Stable 31 January 2014
market consistent valuations All traded assets and liabilities are marked to market, based on quoted prices in active markets or observable inputs. untraded assets and liabilities are valued consistently with market prices. the Group’s insurance liabilities are valued on a market consistent basis by replicating future expected cash flows with liquid financial market instruments. As the majority of the Group’s insurance liabilities do not contain embedded financial market risk exposure other than to interest rates, the market consistent value can be determined by discounting future cash flows using prevailing risk-free interest rates. If insurance liabilities include embedded options or guarantees (eg, variable annuities or interest sensitive life business), they are valued on a market consistent basis using stochastic models and other appropriate valuation techniques.
Best estimates Swiss Re values assets and liabilities based on best estimates of underlying cash flows – premiums, claims, expenses, taxes, capital costs, etc. – taking into consideration all the information available when a contract incepts. As with other valuation methods that depend on projections of future cash flows, evM involves a significant degree of judgement in establishing what assumptions should be used. Swiss Re actively and carefully reviews its assumptions, seeking both to achieve consistency across business activities and to reflect all available information.
In 2013, enW increased by uSd 3.3 billion from uSd 33.9 billion at the end of december 2012. 2013 evM income of uSd 6.3 billion was partially offset by the Swiss Re Group’s dividend payments.
as a re/insurance group, our core business generates liquidity primarily through premium income. Our exposure to liquidity risk stems mainly from two sources: the need to cover potential extreme loss events and regulatory constraints that limit the flow of funds within the group.
to manage these risks, we have a range of liquidity policies and measures in place. In particular, we aim to ensure that: ̤ sufficient liquidity is held to meet funding requirements under current conditions as well as adverse circumstances; ̤ funding is charged and credited at an appropriate market rate through our internal transfer pricing; ̤ diversified sources are used to meet our residual funding needs; and
the stress tests also assume that funding from assets is subject to conservative haircuts, that intra-group funding is not available if it is subject to regulatory approval, that no new unsecured funding is available, and that funding from new reinsurance business is reduced.
We actively manage liquidity risks to ensure that we can satisfy the financial obligations of the Group 41% Cash and short-term investments 33% Government bonds AAA rated & US and reverse repos 23% Other developed market government bonds investment grade 3% Developed market supranational, agencies and municipal bonds
̤ 41% cash and short-term investments ̤ 33% Government bonds AAA rated & uS
Risk management ensures an integrated approach to managing current and emerging threats. embedded throughout the business, our group Risk management function ensures that our strategic planning and limit setting conform to Swiss Re’s group-wide risk tolerance. it is also deeply involved in capital cost assessment, large transaction approvals, portfolio monitoring, and performance measurement. its objective is to enable controlled risk-taking and the efficient, risk-adjusted allocation of capital.
controlled risk-taking requires a strong and independent risk management organisation, as well as comprehensive risk management processes to identify, assess and control the Group’s and the Business units’ risk exposures. We base our risk management on four guiding principles that we strive to apply consistently across all risk categories throughout Swiss Re: ̤ controlled risk-taking: Financial strength and sustainable value creation are central to Swiss Re’s value proposition. We therefore operate within a clearly defined risk policy and risk control framework.
̤ clear accountability: our operations are based on the principle of delegated and clearly defined authority. Individuals are accountable for the risks they take on, and their incentives are aligned with Swiss Re’s overall business objectives.
̤ Independent risk controlling: dedicated specialised units within Risk Management monitor our risk-taking activities.
Risk management organisation the Board of directors is ultimately responsible for the Group’s governance principles and policies; these include the Group Risk Policy, which establishes both the guiding principles of risk management as well as the overall risk tolerance of the Group.
the Board of directors generally deals with risk management through two committees: ̤ the Finance and Risk committee is responsible for reviewing the Group Risk Policy and capacity limits, as well as for monitoring risk tolerance and reviewing top risk issues and exposures.
central Risk management departments Identification, assessment, control and reporting of insurance, financial market, credit, liquidity, operational and other risks group internal audit compliance key risk management bodies and functions
Business unit ceo. the Business unit cRos are responsible for risk oversight in their respective Business units, establishing the proper risk governance to ensure efficient risk identification, assessment, and control. there are also Regional cRos (Americas, Asia, and eMeA) with reporting duties to the Reinsurance regional management teams. they also provide functional support to the Regional Presidents.
While in Reinsurance the setting of the reserves is performed by valuation actuaries working with the Business Management unit, in corporate Solutions and Admin Re® actuarial management is an integral part of Risk Management. the monitoring of reserves for the three Business units is provided by a dedicated Actuarial control unit within Risk Management.
Risk management activities are also supported by Group Internal Audit and compliance. the Group Internal Audit department carries out independent, objective assessments of the adequacy and effectiveness of internal control systems. It evaluates the execution of processes within Swiss Re, including those within Risk Management.
the Group executive committee (Group ec) implements the risk management framework through four sub-committees: ̤ the Group Risk and capital committee has responsibility for establishing the Group's Risk Governance Framework, including setting and monitoring risk capacity limits and determining changes to the internal risk and capital measurement methodology. It also oversees Swiss Re's economic value measurement framework, including the principles for the allocation of capital and funding resources.
̤ the Group Products and Limits committee determines Swiss Re’s product policy and underwriting standards, sets transaction limits, and decides on large or non-standard transactions.
̤ the Group Regulatory committee is the central information and coordination platform for regulatory matters and compliance. It ensures a consistent approach to external communication on regulatory issues.
the Group chief Risk officer (cRo), who is a member of the Group ec, reports directly to the Group ceo as well as to the Board’s Finance and Risk committee. the Group cRo is a member of the four Group ec committees, serving as the chairman of both the Group Risk and capital committee and the Group Regulatory committee. In addition, the Group cRo leads the Group’s Risk Management function, which is responsible for risk oversight and control across the Group.
in 2013, Swiss Reʼs overall risk increased by 21%, predominantly driven by higher financial market and credit risk, which reflects the re-balancing of the investment portfolio.
̤ credit (default and migration) risk increased by 54% to uSd 3.0 billion due to the re-balancing of the investment portfolio and the growth in credit and surety re/insurance business.
our internal risk model takes account of the accumulation and diversification between individual risks. the effect of diversification at the category level is demonstrated in the table on page 53, which represents the difference between the Group 99% tail vaR and the sum of standalone tail vaRs for the risk categories. the extent of diversification is largely determined by the selected level of aggregation (the higher the aggregation level, the lower the diversification effect).
Swiss Re’s risk landscape the risk categories set out in the table on the left are defined in the following sections. across these categories we identify and evaluate emerging threats and opportunities through a systematic framework that includes the assessment of potential surprise factors that could affect known loss potentials. liquidity risk management is discussed on page 49.
categorisation of Swiss Re’s risk landscape credit ̤ credit default ̤ credit migration insurance ̤ Property and casualty ̤ Life and health
Operational risks group capital requirement based on one-year 99% tail VaR uSd billions, as of 31 december 2012 2013 change in % cross reference information
Large individual transactions that could materially affect the Group’s and Business units’ risk exposure require independent review and sign-off by Risk Management before they can be authorised. this is part of our three-signature approval process (involving Swiss Re’s underwriting, client Markets, and Risk Management functions) that establishes the accountability of each of the parties for significant transactions.
We monitor accumulated exposure to single risks or to an underlying risk factor (such as californian earthquake) on a Group-wide basis. We further manage our risk by external retrocession, risk swaps, or by transferring risk to capital markets through insurance-linked securities (such as the current Successor and Mythen cat bond programmes).
Swiss Re’s Risk Management function monitors reserving levels; it provides information to the risk-taking functions on trends to ensure appropriate pricing. Regular internal risk and issue reporting ensures transparency at all stages. underwriting systems across the Group provide timely information on risks assumed and capacity committed.
insurance risk management includes overseeing risk-taking activities, as well as ensuring that an appropriate risk governance framework is defined and operated.
the decrease by 10% in Swiss Re’s life and health risk in 2013 was mainly driven by the rise in long-term interest rates throughout the year. Mortality trend risk, a major component of the life and health business, decreased significantly as the long time horizon of mortality trend risk means that changes in interest rates impact the economic value of future liabilities. updating the mortality and lapse assumptions used in the internal risk model, to take into account our most recent experience, further reduced life and health 99% tail vaR.
We have an aggregate Group limit governing the acceptance of all life and health risks, with separate individual limits for mortality, longevity, and lethal pandemic risk.
At the Business unit level, acceptance of life and health risks is governed by aggregated Business unit limits. Local teams can write reinsurance within their allocated capacity and clearly defined boundaries, such as per-life retention limits for individual business.
Market exposure limits are in place for catastrophe and stop-loss business. We pay particular attention to accumulation risk in densely populated areas and apply limits for individual buildings.
As in property and casualty, all large, complex, or unusual transactions are reviewed and require individual approval from Products underwriting, client Management, and Risk Management.
We manage the risk exposure of Swiss Re’s life and health book by external retrocession and also issue insurancelinked securities to reduce peak exposures.
Financial market risk is the risk that Swiss Re’s assets or liabilities may be affected by movements in financial market prices or rates — such as equity prices, interest rates, credit spreads, foreign exchange rates, or real estate prices. our financial market risk originates from two main sources: our own investment activities and the sensitivity of the economic value of liabilities to financial market fluctuations. Swiss Re actively manages the potential mismatch in financial market risk between its liabilities and the assets it holds.
the table on page 57 shows Swiss Re’s sensitivity to various market scenarios. overall interest rate sensitivity rose substantially, driven by the short duration position implemented during 2013. the exposure to equity market risk significantly
Financial market risks are subject to limits at various levels of the organisation (eg, Group, Business units, lines of business and legal entities). Individual limits are expressed in terms of stress testing, vaR and risk factor sensitivities. Asset Management determines a more detailed set of risk limits for its portfolio mandates.
Financial Risk Management oversees financial market activities, sets limits, provides quantitative risk assessment across financial risk factors, and monitors portfolio risk; it also develops tactical proposals for risk mitigation or risk reduction, reviews risk and valuation models, assesses asset valuations, and approves transactions and new products. these responsibilities are exercised through defined governance procedures, including monthly reviews by our Asset Management Senior Risk committee, where the Head of Financial Risk Management is a voting member. Financial Risk Management is responsible for both internally managed assets and Swiss Re’s external investment mandates.
credit risk is primarily the risk of incurring a financial loss from the default of Swiss Re’s counterparties or of third parties. We also take account of the increase in risk from any deterioration in credit ratings. credit risk arises directly from our investment activities as well as from liabilities underwritten by our Business units and from retrocession.
In 2013 Swiss Re’s credit risk increased by 54%, mainly due to an increased amount of corporate bonds in the Group's investment portfolio following the rebalancing, along with growth in our credit and surety re/insurance business. Both drivers also resulted in an increase in exposure to a defined credit default stress situation (see table above). this stress test is based on 20 years of historical corporate default data from Moody’s and assumes that a combination of the worst observed 12-month default frequencies for each credit rating category occurs in all of them in the same year.
credit risk is managed and monitored by a dedicated credit Risk Management team within our Financial Risk Management unit. In addition to the credit stress limit set by the Group Risk and capital committee, we assign aggregate credit limits by Business unit, corporate counterparty, and country. these limits are based on a variety of factors, including the prevailing economic environment, the nature of the underlying credit exposures, and (in the case of corporate counterparties) a detailed internal assessment of a corporate entity’s financial strength, industry position, and other qualitative factors. Risk Management is also responsible for regularly monitoring corporate counterparty credit quality and exposures, and compiling watch lists of cases that merit close attention.
contractual relationship, such as retrocession or over-the-counter derivatives; and risk assumed by Swiss Re through reinsurance contracts, such as trade credit and surety reinsurance business. credit risk is viewed separately from credit spread risk, which is included under financial market risk.
Financial market and credit risk stress tests Pre-tax impact on economic capital in uSd billions, as of 31 december 2012 2013 change in %
market scenarios 100bp increase in credit spreads –3.3 –3.6 10 30% fall in global equity markets (incl. hedge funds) –2.9 –4.3 49 15% fall in global real estate markets –0.6 –0.6 0 100bp parallel increase in global yield curves –0.1 0.6 –654 credit stress test credit default stress –1.5 –2.0 33
within a given range. From this distribution, we derive a base capital requirement that captures the potential for severe, but rare, aggregate losses over a one-year time horizon. Swiss Re’s risk model assesses the potential economic loss at a specific confidence level. there is thus a possibility that actual losses may exceed the selected threshold. In addition, the reliability of the model may be limited when future conditions are difficult to predict. For this reason, we continuously review and update our model and its parameters to reflect changes in the risk environment and current best practice. We complement our risk models by ensuring a sound understanding of the underlying risks and applying robust internal controls.
1 in 100 year loss expected result the risk measures derived from the integrated risk model are expressed as economic loss severities taken from the total economic profit and loss distribution. In line with the SSt, Swiss Re measures its total capital requirement at 99% tail vaR (expected shortfall). this represents an estimate of the average annual loss likely to occur with a frequency of less than once in one hundred years. A less conservative measure is the 99% value at risk (vaR), which measures the loss likely to be exceeded in only one year out of one hundred. 99.5% value at risk (vaR) measures the loss likely to be exceeded in only one year out of two hundred.
We use a proprietary integrated risk model to determine the capital required to support the risks on Swiss Re’s books, and to allocate risk-taking capacity to the different lines of business. our internal model is based on two important principles. First, it applies an asset-liability management (ALM) approach, which measures the net impact of risk on the economic value of both assets and liabilities. Second, it adopts an integrated perspective, recognising that a single risk factor can affect different subportfolios and that different risk factors can have mutual dependencies.
Swiss Re’s risk model provides a meaningful assessment of the risks to which the Group is exposed and is an important tool for managing our business. It is used for determining capital requirements for internal purposes and for regulatory reporting under the Swiss Solvency test (SSt). the model provides the basis for capital cost allocation in our economic value Management (evM) framework, which is used for pricing, profitability evaluation, and compensation decisions (see pages 47–48 for further information on evM).
the model generates a probability distribution for the Group’s annual economic profit and loss, specifying the likelihood that the outcome will fall 58 Swiss Re 2013 Financial Report
Swiss Re mitigates these risks using an approach based on three lines of defence. the first is the day-to-day risk management activities of the individual risk takers in the Business units and corporate and enabling functions. the second line of defence comprises the independent oversight functions of Risk Management and compliance. the third consists of independent audits of processes and procedures carried out by Group Internal Audit.
the purpose at every stage is to identify and manage cost-effectively those operational events with the potential to cause large financial loss or significant reputational damage.
the responsibility for managing strategic risk lies with the Board of directors. It is addressed by examining multi-year scenarios, considering the related risks, as well as monitoring the implementation of the chosen strategy year-by-year in terms of the annual business plan. the operational risks of implementing the strategy are reviewed through our integrated assurance framework comprising business management, risk management and independent internal audits.
Regulatory risk Regulatory risk represents the potential impact of changes in the regulatory and supervisory regimes of the countries in which we operate. the global regulatory agenda continued to accelerate in 2013. Governments and regulators rolled out new policies and conducted numerous consultations on rules and regulations with direct impact on the insurance sector. Many reform proposals reflect the financial supervision agenda set by the G20, which includes a focus on internationally active insurers and systemically important companies.
Swiss Re is actively engaged in the regulatory dialogue and supports reform to achieve regulatory convergence and increased application of economic and risk-based principles. However, the insurance industry, together with Swiss Re, remains concerned about the cumulative and cross-sectorial impacts of the reforms. Regulatory fragmentation is a key threat — particularly in europe, with the challenges in introducing Solvency II, but also in the context of transatlantic dialogue and the protectionist measures introduced in some growth markets. All these trends threaten to reverse progress toward a more coordinated global system.
there are also concerns that the design and implementation of regulatory reforms may increase procyclicality, which would exacerbate the effects of short-term market volatility. In 2013, Swiss Re participated in various consultations with the Financial Stability Board (FSB), oecd, the european Insurance and occupational Pensions Authority (eIoPA) and the european commission on the implications of regulatory reforms on long-term finance. In Solvency II, the institutions agreed to address the concerns regarding excessive volatility on long-term guarantee products.
In July, the FSB and the International Association of Insurance Supervisors (IAIS) published their first list of companies designated as globally systemically important insurers (G-SIIs). the designation of reinsurers as G-SIIs has been delayed until July or november 2014. Systemically important insurers will be subject to higher capital requirements; for this purpose, the FSB and IAIS announced the introduction of a basic capital requirement applicable to G-SIIs. In october, the IAIS confirmed its commitment to developing a global insurance capital standard (IcS), which will be applicable to large insurance groups, including Swiss Re, as part of comFrame, the IAIS common framework for international group supervision.
Swiss Re remained fully engaged in the regulatory debate during 2013, striving to mitigate potentially negative impacts while supporting reforms that could facilitate convergence of regulatory standards and generate business opportunities.
In addition, Swiss Re has been actively contributing over the years to the development of the un Principles for Sustainable Insurance (un PSI) and is currently co-chairing this initiative. As a founding signatory at the un conference on Sustainable development in Rio de Janeiro in 2012, Swiss Re reported progress against the un principles for the first time in its corporate Responsibility report in June 2013.
our internal SonAR (Systematic observation of notions Associated with Risk) system gives Swiss Re employees a forum to raise ideas on emerging risks and report early signals using an interactive platform. this information is complemented with insights from collaboration with think tanks, academic networks, and international organisations and institutions. Findings are reported at annual intervals to senior management and other internal stakeholders, providing them with a prioritised overview of newly identified emerging risks, along with an estimate of their potential impact on Swiss Re’s business and recommendations for risk mitigation.
Swiss Re 2013 Financial Report 63 64 overview 66 group structure and shareholders 69 capital structure 72 Board of Directors 86 executive management 92 Shareholders’ participation rights 93 changes of control and defence measures 94 auditors 96 Information policy corporate Governance transparent and comprehensive disclosure of the Group’s governance structure and governance processes is indispensable to support the assessment of the quality of the Group’s organisation and business conduct.
Swiss Re’s corporate governance framework Swiss Re’s Board of directors is responsible for oversight, while the Group ec is responsible for managing operations. this structure maintains effective mutual checks and balances between the top corporate bodies. our corporate governance principles and procedures are defined in a series of documents governing the organisation and management of the company. these include at the Group level: ̤ the code of conduct, outlining our compliance framework and setting out the basic legal and ethical principles and policies we apply globally; ̤ the corporate Governance Guidelines, (Guidelines) setting forth the Group’s governance framework, principles and processes, ensuring efficient and consistent corporate governance across the Group; ̤ the Articles of Association, defining the legal and organisational framework of the Group’s holding company; ̤ the Group Bylaws, defining the governance structure within the Group as well as the responsibilities of the Board of directors, chairman, Board committees, Group ec, Group ceo and Regional Presidents and the relevant reporting procedures; ̤ the Board committee charters, outlining the duties and responsibilities of the Board committees; ̤ the Group committee charters, outlining the duties and responsibilities of the committees at the Group ec level; ̤ the instructions and guidelines describing working methods, governance processes and timetables of the Board of directors and Board committees.
Furthermore, they include at the Business unit level: ̤ Business unit regulations, defining the governance structure and principles within the Business units Reinsurance, corporate Solutions and Admin Re® in line with the Group Bylaws.
2013 focus areas Review corporate governance guidelines the Group’s new Guidelines have been in force since 1 January 2013. At the end of 2013 the Board of directors reviewed and amended the Guidelines based on recommendations by the chairman’s and Governance committee. the stakeholders working with the Guidelines had been asked for feedback on the Group’s governance requirements and related processes. the amendments aim to streamline governance processes as far as possible to gain efficiency while maintaining high-quality corporate governance.
governance compliance review across the group In 2013, the Group’s legal entities were reviewed in a comprehensive exercise across the Group for their compliance with the Guidelines and the respective governance requirements. the Board of directors of the Group’s most important legal entities have conducted governance self-assessments and the remaining legal entities were asked to complete a certification process. the results of the exercise showed that the Group’s legal entities have fit-for-purpose governance structures.
Diversity diversity is important to the Group. Swiss Re drives several external and internal initiatives supporting diversity in various areas. In line with those efforts the Group is pleased that with the election of Mary Francis, the Board of directors currently has two female members.
Introduction of electronic voting at agM 2013 In order to facilitate voting for shareholders not able to attend the Annual General Meeting physically, Swiss Re introduced at the Annual General Meeting 2013 — as one of the first publicly listed Swiss companies — the possibility for the shareholders to instruct the Independent Proxy electronically via the investor web service on www.sherpany.com/swissre.
̤ Mary Francis was elected as new member to the Board of directors by the shareholders at the AGM which took place in Zurich on 10 April 2013.
̤ three current members of the Board of directors are not standing for re-election at the Annual General Meeting 2014: – Jakob Baer; he served as the chair of the Audit committee since his election to the Board, from 2005 to 2014; – John R. coomber; he was Swiss Re’s Group ceo from 2003 to 2005 and was in various positions with the Swiss Re Group for 41 years; – Malcolm d. Knight; he has been a Board member since 2010 and a member of the Audit committee and the Investment committee.
̤ George Quinn will leave the Group and step down as Group cFo and member of the Group ec as of 30 April 2014.
̤ the Group has completed a comprehensive exercise in 2013 measuring the Group’s legal entities’ compliance with the Group’s Guidelines and requirements. It was found that the Group’s legal entities have fit-for-purpose Governance structures.
̤ the “ordinance Against excessive compensation at Public corporations” (ordinance) became effective on 1 January 2014.
̤ Swiss Re had already introduced the possibility for shareholders to instruct the Independent Proxy electronically, via the investor web service on www. sherpany.com/swissre, for the Annual General Meeting 2013.
Legal structure — listed and non-listed group companies Swiss Re Ltd, the Group’s holding company, is a joint stock company, listed, in accordance with the Main Standard, on the SIX Swiss exchange (ISIn ch0126881561), domiciled at Mythenquai 50/60 in 8022 Zurich, and organised under the laws of Switzerland. Information on its market capitalisation is provided on page 39 of this report. no other Group companies have shares listed. More information on the Group companies is provided in note 18 to the Group financial statements on pages 220–222.
Management ̤ Finance Reinsurance corporate Solutions ̤ Regions ̤ Products & Global
Management ̤ Asset Management ̤ Pricing ̤ Reassure Admin Re® ̤ Admin Re® Services,
Significant shareholders and shareholder structure under the Swiss Federal Act on Stock exchanges and Securities trading (SeStA), anyone holding shares in a company listed on the SIX Swiss exchange is required to notify the company and the SIX Swiss exchange if their direct or indirect holding reaches, falls below or exceeds the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% or 66⅔% of 66 Swiss Re 2013 Financial Report coRpoRate goveRnance
2 during the reporting period, dodge & cox and MFS Investment Management, which had been reported as significant shareholders in 2012, fell below the 3% threshold due to sale of securities.
Registered shareholdings by country as of 31 december 2013 47.8% Switzerland 20.9% United Kingdom 16.3% USA
Registered shareholders by type as of 31 december 2013 73.1% Institutional shareholders 23.6% Individual shareholders 3.3% Swiss Re employees
̤ 47.8% Switzerland ̤ 20.9% united Kingdom ̤ 16.3% uSA ̤ 15.0% other registered shareholders
Shares held by Swiss Re 28 512 910 7.7 1 excluding shares held by Swiss Re Ltd and Group companies
Registered shares with voting rights by size of holding cross-shareholdings Swiss Re has no cross-shareholdings in excess of 5% of capital or voting rights with any other company.
capital in chF Shares capital in chF Shares conditional capital for equity-Linked Financing Instruments 5 000 000.00 50 000 000 5 000 000.00 50 000 000
the table below provides an overview of the issued, conditional and authorised capital of Swiss Re Ltd as of 31 december 2013, compared with the issued, conditional and authorised capital as of 31 december 2012.
More information is provided in the sections “conditional and authorised capital in particular” below and “changes in capital” on page 70.
conditional and authorised capital in particular conditional capital As of 31 december 2013, the conditional capital of Swiss Re Ltd consisted of the following category: conditional capital for equity-Linked Financing Instruments the share capital of the company may be increased up to chF 5 000 000 by issuing a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of chF 0.10. Such shares are issued through the voluntary or mandatory exercise of conversion and/or option rights granted by the company or Group companies in connection with bonds or similar instruments, including loans or other financial instruments (equity-Linked Financing Instruments).
Shares All shares issued by Swiss Re Ltd are fully paid-in registered shares, each with a par value of chF 0.10. each share carries one vote. there are no categories of shares with a higher or limited voting power, privileged dividend entitlement or any other preferential rights, nor are there any other securities representing a part of the company’s share capital. the company cannot exercise the voting rights of treasury shares. As of 31 december 2013, shareholders had registered 198 483 183 shares for the purpose of exercising their voting rights, out of a total of 370 706 931 shares issued. As of 31 december 2013, 342 195 633 shares were entitled to dividend payment.
the registered shares are administered as intermediated securities. the transfer of intermediated securities and furnishing of collateral in intermediated securities must conform to the Intermediary-held Securities Act. the transfer and furnishing of collateral by assignment is excluded.
Persons acquiring registered shares will, upon application, be entered in the share register without limitation as shareholders with voting power if evidence of the acquisition of the shares is provided and if they expressly declare that they have acquired the shares in their own name and for their own account and, where applicable, that they are compliant with the disclosure requirement stipulated by the Federal Act on Stock exchanges and Securities trading (SeStA). the Board of directors is allowed to remove the entry of a shareholder with voting rights from the share register retroactively from the date of entry if the entry was obtained under false pretences or if the owner, whether acting alone or as part of a group, has breached notification rules.
admissibility of nominee registrations Persons not expressly declaring in their application for entry in the share register that they are holding shares for their own account (nominees) are entered without further inquiry in the share register of Swiss Re Ltd as shareholders with voting rights of up to a maximum of 2% of the outstanding share capital available at the time. Additional shares held by such nominees that exceed the limit of 2% of the outstanding share capital are entered in the share register with voting rights only if such nominees disclose the names, addresses and shareholdings of any persons for whose account the nominee is holding 0.5% or more of the outstanding share capital. In addition, such nominees must comply with the disclosure requirements of the SeStA.
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Walter B. Kielholz (1951), Swiss chairman, non-executive and independent career walter B. Kielholz began his career at the General Reinsurance corporation, Zurich, in 1976. In 1986, he joined credit Suisse, where he was responsible for banking relationships with large insurance groups. he joined Swiss Re in 1989 where he became an executive Board member in 1993 and was chief executive officer from 1997 to 2002. he was vice chairman from 2003 until he was nominated chairman in 2009. In addition, he chairs the chairman’s and Governance committee of the Swiss Re Board.
̤ chairman of the Zurich Art Society, the organisation that is in charge of the Zurich Kunsthaus educational background ̤ Business finance and accounting degree, university of St. Gallen, Switzerland
International and BlackRock, Inc. ̤ executive Advisory Board member of General Atlantic Partners (GAP) ̤ Former member of the Bank council of Swiss national Bank ̤ Past vice chairman of the Board of directors of the Swiss Bankers Association
Renato Fassbind (1955), Swiss vice chairman, non-executive and independent career After two years with Kunz consulting AG, Renato Fassbind joined F. hoffmann-La Roche AG in 1984, becoming head of Internal Audit in 1988. From 1986 to 1987, he worked as a public accountant with Peat Marwick in new Jersey, uSA. In 1990, he joined ABB Ltd as head of corporate Staff Audit and, from 1997 to 2002, was chief Financial officer and member of the Group executive committee. In 2002, he joined diethelm Keller holding Ltd as Group chief executive officer. From 2004 to 2010, he was chief Financial officer and member of the executive Board of credit Suisse Group AG. Renato Fassbind was elected to Swiss Re’s Board of directors in 2011 and is a member of the chairman’s and Governance committee, the Audit committee and the compensation committee.
International Ltd ̤ Board member of hSBc holdings plc ̤ Board member of the Swiss Federal
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̤ chairman of the Board of directors of Stäubli holding AG
external appointments ̤ chairman of the climate Group ̤ chairman of climatewise ̤ chairman of Mh (GB) Limited educational background ̤ theoretical Mechanics degree, nottingham university, united Kingdom
external appointments ̤ Board member of Banque Privée edmond de Rothschild S.A. ̤ director of Research of the Swiss
Finance Institute educational background ̤ Phd in economics and social sciences, university of Geneva, Switzerland
Mary Francis (1948), British Member, non-executive and independent career Mary Francis joined the uK civil Service in 1971, focusing on financial and economic policy. She held a number of senior positions including Financial counsellor at the British embassy in washington dc from 1990 to 1992, Private Secretary to the Prime Minister from 1992 to 1995 and deputy Private Secretary to the Queen from 1995 to 1999. Between 1999 and 2005 she was director General of the Association of British Insurers. She was a non-executive director of the Bank of england from 2001 to 2007 and a member of the board of directors of Aviva plc from 2005 to 2012. Mary Francis was elected to Swiss Re’s Board of directors in 2013 and is a member of the Finance and Risk committee.
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Malcolm D. Knight (1944), canadian Member, non-executive and independent career Malcolm d. Knight began his career as an academic at the university of toronto and the London School of economics. In 1975, he joined the International Monetary Fund, holding senior positions in both research and operations until 1999. From 1999 to 2003, he was Senior deputy Governor of the Bank of canada and from 2003 to 2008 he was General Manager (ceo) of the Bank for International Settlements. he was vice chairman of deutsche Bank from 2008 to 2012, where he is now an Advisor. he was elected to Swiss Re’s Board of directors in 2010 and is a member of the Audit committee and the Investment committee.
̤ Member of the Board of directors of the Global Risk Institute in Financial Services
̤ trustee of the Per Jacobsson Foundation educational background ̤ honour BA in Political Science and economics, university of toronto, canada
̤ M.Sc. and Phd in economics, the London School of economics, united Kingdom
Hans Ulrich Maerki (1946), Swiss Member, non-executive and independent career hans ulrich Maerki worked for IBM for 35 years, starting in 1973. From 1993 to 1995, he was General Manager of IBM Switzerland. he was appointed chairman of the Board of directors of IBM europe, Middle east and Africa (eMeA) in 2001 and was chief executive officer of IBM eMeA from 2003 to 2005. hans ulrich Maerki was elected to Swiss Re’s Board of directors in 2007 and is a member of the compensation committee and the Finance and Risk committee.
c. Robert Henrikson (1947), American Member, non-executive and independent career c. Robert henrikson was chairman and chief executive officer of MetLife, Inc. from 2006 to 2011. Before, he held senior positions in MetLife’s individual, group and pension businesses and became chief operating officer of the company in 2004. he is a former chairman of the American council of Life Insurers, a former chairman of the Financial Services Forum, director emeritus of the American Benefits council and a former member of the u.S. President’s export council. he was elected to Swiss Re’s Board of directors in 2012 and chairs the compensation committee. In addition, he is a member of the chairman’s and Governance committee and the Finance and Risk committee.
external appointments ̤ Board member of Invesco Ltd ̤ Board member of Americares and new York Philharmonic ̤ Member of the Boards of trustees of emory university, S.S. huebner Foundation for Insurance education and Indian Springs School educational background ̤ Bachelor of Arts, university of
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no other director has ever held a management position within the Group. none of the members of the Board of directors has any significant business connection with Swiss Re Ltd or any of the Group companies.
other activities and functions Any activities of Board members in governing and supervisory bodies of important Swiss and foreign organisations, institutions and foundations, as well as permanent management and consultancy functions for important Swiss and foreign interest groups and official functions and political posts, which are material, are stated in each of the directors’ biographies, which can be found on pages 73–77.
carlos e. Represas (1945), Mexican Member, non-executive and independent career Between 1968 and 2004, carlos e. Represas held various senior positions at nestlé in the uS, Latin America and europe, including executive vice President and head of the Americas of nestlé S.A. in Switzerland from 1994 to 2004. he was chairman of the Board of nestlé Group Mexico from 1983 to 2010. carlos e. Represas was elected to Swiss Re’s Board of directors in 2010 and is a member of the compensation committee.
Jean-pierre Roth (1946), Swiss Member, non-executive and independent career Jean-Pierre Roth joined the Swiss national Bank (SnB) in 1979. he was chairman of the SnB Governing Board from 2001 to 2009, during which time he also served as the Swiss governor of the International Monetary Fund. From 2001, he was also a member and, from 2006, chairman of the Board of the Bank for International Settlements. he was a Swiss Representative on the Financial Stability Board from 2007 to 2009. Jean-Pierre Roth was elected to Swiss Re’s Board of directors in 2010 and is a member of the Investment committee.
external appointments ̤ chairman of the Board of directors of Geneva cantonal Bank ̤ Board member of nestlé S.A. and
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election and term of office election procedure Members of the Board of directors are elected individually by the shareholders’ meeting.
Members whose term has expired are immediately eligible for re-election. Members who reach the age of 70 during a regular term of office shall resign at the Annual General Meeting after reaching that age, although the Board can exempt a member from this age limit under exceptional circumstances.
the term of office of a committee member is described in the section on the committees of the Board of directors.
nominations for re-election and election by the annual general Meeting on 11 april 2014 on 1 January 2014 the “ordinance” entered into effect. It provides that going forward the Annual General Meeting will annually elect the members of the Board of directors, the chairman of the Board of directors, as well as the members of the compensation committee, individually and separately, for one-year terms.
the Board of directors proposes that the following Board member be elected as chairman of the Board of directors, for a one-year term: ̤ walter B. Kielholz the Board of directors also proposes that the following Board members be elected as members of the compensation committee, for a one-year term: ̤ Renato Fassbind ̤ c. Robert henrikson ̤ hans ulrich Maerki ̤ carlos e. Represas organisational structure of the Board of Directors until now, the Board of directors constituted itself and elected among its members the chairman and vice chairmen as well as the chairpersons and members of the Board committees. It appoints its secretaries who do not need to be members of the Board.
the organisation of the Board of directors is set forth in the Group Bylaws, which define the responsibilities of the Board of directors, its committees and the Group executive committee (Group ec), as well as the respective reporting procedures. the chairman’s and Governance committee and the full Board annually review the Group Bylaws to ensure their continued effectiveness and compliance with the Articles of Association, applicable laws, regulations and best practice.
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the chairman arranges introduction for new Board members and appropriate training for all Board members.
If the chairman of the Board is prevented from performing any of these duties, one of the vice chairmen or another member of the Board will assume them.
compensation committee Responsibilities the compensation committee’s primary function is to propose to the Board for approval compensation principles in line with the Swiss Re Group’s legal and regulatory requirements and, within those approved principles, to determine the establishment of new (and amendments to existing) compensation plans, and determine, or propose as appropriate, individual compensation as outlined in its charter. the compensation committee will also ensure that compensation plans do not encourage inappropriate risk-taking within the Swiss Re Group and that all aspects of compensation are fully compliant with remuneration disclosure requirements.
Finance and Risk committee Responsibilities the Finance and Risk committee annually reviews the Group Risk Policy and proposes it for approval to the Board of directors, reviews the Risk control Framework and important risk exposures, including new products, strategic expansions, and compensation related risks. It reviews critical underwriting standards as well as principles used in internal risk measurement, asset and liability valuation, capital and liquidity adequacy assessment, and economic performance management. In addition, it reviews the Group’s funding structure, as well as capital and liquidity management activities.
Members ̤ Mathis cabiallavetta, chair ̤ Jakob Baer (until 11 April 2013) ̤ Raymund Breu (as of 11 April 2013) ̤ John R. coomber (until 11 April 2013) ̤ Mary Francis (as of 11 April 2013) ̤ Rajna Gibson Brandon ̤ c. Robert henrikson ̤ Malcolm d. Knight (until 11 April 2013) ̤ hans ulrich Maerki
Investment committee Responsibilities the Investment committee approves strategic asset allocation and reviews tactical asset allocation decisions. It reviews the monthly performance of all financial assets of the Swiss Re Group and makes proposals to the Board on strategic holdings. It reviews the risk analysis methodology as well as the valuation methodology related to each asset class and ensures that the relevant management processes and controlling mechanisms in Asset Management are in place.
Members ̤ Mathis cabiallavetta, chair ̤ Raymund Breu ̤ Raymond K.F. ch’ien ̤ Rajna Gibson Brandon ̤ Malcolm d. Knight (as of 11 April 2013) ̤ Jean-Pierre Roth chairman’s and governance committee Responsibilities the chairman’s and Governance committee’s primary function is to act as advisor to the chairman and to address corporate governance issues affecting the Group. It is in charge of the succession planning process at the Board of directors level and oversees the annual performance assessment and self-assessment at both the Board of directors and Group ec level.
Members ̤ walter B. Kielholz, chair ̤ Mathis cabiallavetta ̤ Renato Fassbind ̤ Jakob Baer ̤ John R. coomber ̤ c. Robert henrikson audit committee Responsibilities the central task of the Audit committee is to assist the Board of directors in fulfilling its oversight responsibilities as they relate to the integrity of Swiss Re’s and the Group’s financial statements, the Swiss Re Group’s compliance with legal and regulatory requirements, the external auditor’s qualifications and independence, and the performance of the Swiss Re Group’s internal audit function (GIA) and the Group’s external auditor. the Audit committee serves as an independent and objective monitor of Swiss Re’s and the Group’s financial reporting process and system of internal control, and facilitates ongoing communication between the external auditor, Group ec, Business units, GIA, and the Board with regard to the Swiss Re Group’s financial situation.
Members ̤ Jakob Baer, chair ̤ Renato Fassbind ̤ Raymund Breu (until 11 April 2013) ̤ Raymond K.F. ch’ien ̤ John R. coomber ̤ Malcolm d. Knight 80 Swiss Re 2013 Financial Report coRpoRate goveRnance | BoARd oF dIRectoRS
A quorum is constituted when at least half of the members of the Board or the committee are present in person or participate using some alternative means of communication. Resolutions are adopted by majority vote. Board and committee meetings consider and discuss the items on the agenda incorporating presentations by members of the Group ec and, where needed, by other specialist employees or outside advisers. It is contemplated for every meeting that an executive session is held for discussions between the Board of directors and the Group ceo. Furthermore, private sessions are held for discussions involving all members of the Board of directors only.
the Board and its committees can also adopt resolutions by written agreement if no member of the Board of directors requests a discussion of the topic. each committee provides a report of its activities and recommendations following a committee meeting at the next Board of directors meeting. If any significant topic comes up, the committees contact the
Work methods of the Board of Directors and its committees Swiss Re’s Board of directors oversees governance, audit, compensation, finance and risk, and investment and is supported in this responsibility by its committees. the full Board and its committees meet at the invitation of the chairman of the Board as often as business requires or at least quarterly. Any member of the Board of directors or the Group ec may, for a specific reason, require the chairman to call an extraordinary Board of directors or committee meeting.
the chairman defines the agenda for each meeting and therefore works closely with the chairpersons of the committees and the Group ceo. the agenda, along with any supporting documents, is delivered to the participants about ten days before the meeting in order to allow enough preparation time.
Board of directors 12 meetings1 Group ec members, President Swiss Re Ltd, Group General counsel, 3.5 hours company Secretary chairman’s and 8 meetings Group ceo, company Secretary Governance committee 2 hours
Finance and Risk committee 6 meetings Group ceo, Group cFo, Group cRo, Group chief Strategy officer & chairman Admin Re®, 3.5 hours Group chief underwriting officer, Group chief Investment officer, Group coo, 94.4% Group treasurer, ceo Reinsurance, ceo corporate Solutions, company Secretary
Investment committee 6 meetings Group ceo, Group cFo, Group cRo, Group chief Strategy officer & chairman Admin Re®, 2.5 hours Group chief Investment officer, head Financial Risk Management & cRo eMeA, 97.2% cFo Asset Management, head Rates, company Secretary 1 In addition, one decision by circular resolution. 2 the human resources consulting firm Mercer and the law firm niederer Kraft & Frey AG (nKF) provided support and advice for compensation issues during the reporting year.
Mercer organised benchmark studies and helped to review and amend the compensation philosophy. nKF provided support in disclosure matters. Representatives of Mercer and of nKF participated in six committee meetings each in 2013. during 2013 the compensation committee also received independent advice from hostettler, Kramarsch & Partner AG relating to compensation.
Minutes of discussions are kept and resolutions taken at each meeting of the Board of directors and its committees.
the Board has an assessment process in place, allowing the members to gauge the effectiveness of the Board on an annual basis.
each committee annually reviews the adequacy of the scope of its responsibilities, including processes and membership requirements, and also evaluates its performance.
the table below provides an overview of the meetings of the Board of directors and its committees held in 2013.
Financial reporting ̤ Approves the annual report of the holding company and of the Group capital management ̤ Proposes capital measures to the
General Meeting of shareholders ̤ Approves principles on capital allocation and capital steering for the Group
Human resources ̤ nominates Board member candidates for election by the General Meeting of shareholders
̤ ensures appropriate succession planning at Board of directors and Group ec level compensation ̤ Approves the Group’s compensation principles ̤ determines the compensation of the members of the Board of directors ̤ determines the compensation of the Group ceo and the overall compensation available for the members of the Group ec
Key responsibilities of the Board of Directors Board of Directors and group ec: areas of responsibility the Board of directors exercises ultimate responsibility for the Group. It delegates the responsibility for managing the Group’s operations to the Group ec (see section executive Management, starting on page 86). the Group ec also supports the Board of directors in fulfilling its duties and prepares proposals for consideration and decision-making by the Board of directors related to the following key responsibilities with Group relevance: strategy, the business plan, organisational structure, accounting principles, risk tolerance levels, share capital and any share repurchase programme, along with principles of financing through capital markets as well as for important strategic transactions. the following tables provide a summary of the key responsibilities of the Board of directors and delegations to the Group ec.
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governance ̤ has overall responsibility for managing operations, subject to delegation by the Board of directors
Business transactions ̤ decides on certain strategic transactions and proposes important strategic transactions to the Board of directors for discussion and decision
Human resources ̤ has responsibility for the Group’s talent management subject to the authority of the Board of directors compensation ̤ Proposes short-term compensation and benefit plans to the compensation committee for discussion and decision
̤ Proposes individual compensation of Group Management Board members (other than Group ec) to Group ceo for discussion and decision
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participation of Board members at executive management meetings the chairman of the Board is invited to all meetings of the Group ec and Business units and receives the corresponding documentation and minutes.
Involvement of executive management in meetings of the Board of Directors As a matter of principle, all members of the Group ec are requested to attend the regular meetings of the Board of directors as advisers. the members of the Group ec do not attend the constitutional meeting of the Board of directors following the Annual General Meeting. the entire Group ec was present at five regular and one extraordinary Board meetings in 2013. At four meetings one member of the Group ec was absent. At two meetings the presence of only a part of the members of the Group ec was requested.
̤ a description of trends and forecasts regarding the economic environment and the Property & casualty and Life & health re/insurance and financial markets.
Risk management Swiss Re’s Risk Management function provides regular risk reports to the Board of directors, which are discussed in depth by the Finance and Risk committee. these reports cover Swiss Re’s compliance with the Group’s risk tolerance criteria, major changes in risk and capital adequacy measures and a description of the Group’s main risk issues, including related risk management actions. the Finance and Risk committee regularly reports to the full Board of directors as deemed appropriate.
Right to obtain information the Board of directors has complete and open access to the Group ceo, the Group cFo, the Group cRo, the Group chief Strategy officer, the Group General counsel, the Group chief compliance officer and the head of Group Internal Audit. Any member of the Board of directors who wishes to have access to any other officer or employee of the Group will coordinate such access through the chairman.
group Internal audit Group Internal Audit (GIA) is an independent assurance function, evaluating the adequacy and effectiveness of the Group’s internal control environment. It helps the Group accomplish its objectives by applying a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.
GIA applies a risk-based approach, performing its own risk assessment as well as making use of risk assessments performed by the Group’s Risk Management and other assurance functions (after reviewing the quality of the assurance work performed). Based on the results of the risk assessment, GIA produces an annual Audit Plan for review and approval by the Audit committee. the Audit Plan is updated on a quarterly basis according to the Group’s evolving needs. GIA provides formal quarterly updates on its activities to the Audit committee, which include audit results, the status of management actions required, the appropriateness of the resources and skills of GIA and any changes in the tools and methodologies it uses.
the head of GIA meets at least once per quarter with the Audit committee, and immediately reports any issue which could have a potentially material impact on the business of the Group to the chairman of the Audit committee.
external auditor For information regarding the external auditors, please refer to pages 94 and 95.
Members of the group executive committee the Group executive committee (Group ec) consisted of the following members as of 31 december 2013: eXecutIve MAnAGeMent name nationality Age Function
President Asia George Quinn British 47 Group cFo J. eric Smith American 56 ceo Reinsurance Americas/Regional
President Americas Matthias weber Swiss, American 52 Group chief underwriting officer thomas wellauer Swiss 58 Group chief operating officer 86 Swiss Re 2013 Financial Report coRpoRate goveRnance
Professional experience Michel M. Liès joined Swiss Re in 1978, working initially for the life markets in Latin America and then europe from 1983 to 1993. Moving to the non-life sector in 1994, he took responsibility for the Spanish market, becoming head of the Southern europe/Latin America department in 1999. In 2000, he was appointed head of the europe division of the Property & casualty Business Group. In 2005, he assumed the position of head client Markets and was appointed member of the Group executive committee. Michel was chairman Global Partnerships from January 2011 until becoming Group ceo in February 2012.
Professional experience david cole began his career in 1984 with ABn AMRo. In 1999, he was appointed executive vice President and regional head of Risk Management for Latin America, located in Brazil. In 2001, he returned to Amsterdam to assume corporate centre responsibility within Group Risk Management. he became chief Financial officer of wholesale clients (wcS) in 2002 and was appointed Senior executive vice President and chief operating officer of wcS in 2004. In January 2006, he became head of Group Risk Management for ABn AMRo Bank and in 2008 was named chief Financial officer and chief Risk officer. david joined Swiss Re in november 2010 as deputy chief Risk officer and was appointed Group chief Risk officer and member of the Group executive committee in March 2011.
John R. Dacey (1960), American Group chief Strategy officer, chairman Admin Re®
educational background ̤ Master’s degree in economics, university of Zurich, Switzerland ̤ Phd in Financial Risk Management, university of Zurich, Switzerland ̤ executive MBA, InSeAd, France agostino galvagni (1960), Italian chief executive officer corporate Solutions
educational background ̤ Master’s degree in economics, Bocconi university, Milan, Italy
Professional experience Jean-Jacques henchoz started his career in 1988 at the Swiss Federal department of economic Affairs and the european Bank for Reconstruction and development. Jean-Jacques joined Swiss Re in 1998 and worked in several underwriting roles in the europe division until becoming head of Strategy for Property & casualty in 2003. From 2005 to 2010, he was chief executive officer of Swiss Re canada. Jean-Jacques assumed leadership of the europe division in March 2011. he was appointed chief executive officer Reinsurance eMeA, Regional President eMeA and member of the Group executive committee in January 2012.
educational background ̤ Master’s degree in Political Science, university of Lausanne, Switzerland ̤ MBA, International Institute for
Moses ojeisekhoba (1966), nigerian and American chief executive officer Reinsurance Asia / Regional President Asia
Swiss Re 2013 Financial Report 89 coRpoRate goveRnance | eXecutIve MAnAGeMent
educational background ̤ Bachelor’s degree in Finance, university of Illinois, uSA ̤ MBA, Kellogg School of Management, northwestern university, uSA
Professional experience Matthias weber started his career at Swiss Re in Zurich in 1992 as an expert for natural perils. he moved to the Swiss Re Americas division in 1998 and in 2000 became Regional executive for the western Region of the united States located in San Francisco. From 2001, he was responsible for property underwriting in the uS direct Business unit, and in 2005 was named head of the Americas Property hub in Armonk. From 2008, Matthias served as division head of Property & Specialty. Matthias was appointed Group chief underwriting officer and member of the Group executive committee in April 2012.
Professional experience thomas wellauer started his career with McKinsey & company, specialising in the financial services and pharmaceutical industry sectors, and became a Partner in 1991 and Senior Partner in 1996. In 1997, he was named chief executive officer of the winterthur Insurance Group, which was later acquired by credit Suisse. At credit Suisse he was a member of the Group executive Board, initially responsible for the group’s insurance business before becoming chief executive officer of the Financial Services division in 2000. From 2003 to 2006, he headed the global turnaround project at clariant. In 2007, he joined novartis as head of corporate Affairs and became member of the executive committee of novartis. From April 2009 until September 2010, he was a member of the Supervisory Board of Munich Re. thomas joined Swiss Re in october 2010 as Group chief operating officer and member of the Group executive committee.
International chamber of commerce (Icc) since 2013 educational background ̤ Phd in Systems engineering, Swiss
changes in 2013 and 2014 there were no changes to the composition of the Group ec or any changes of responsibility for Group ec members during the business year 2013.
George Quinn will leave the Group and step down as Group cFo and member of the Group ec as of 30 April 2014.
david cole, Swiss Re’s Group chief Risk officer since March 2011, was appointed Group cFo as of 1 May 2014.
Management contracts Swiss Re has not entered into any management contract with any third party.
voting right restrictions, statutory group clauses and exception rules there are no voting right restrictions and no statutory group clauses (other than the limitations on nominee registrations, page 71). therefore, there are no procedures or conditions for cancelling restrictions and no rules on making exceptions to them. Accordingly, no such exceptions were made in 2013.
Statutory rules on participating in the general Meeting of shareholders the share whose owner, usufructuary or nominee is entered in the share register as having voting rights on a specific qualifying day determined by the Board of directors entitles its holder to one vote at the General Meeting of shareholders.
Swiss Re’s legal provisions allow any shareholder with voting rights to have his or her shares represented at any General Meeting of shareholders by another person authorised in writing, or by corporate bodies, independent proxies or proxies for deposited shares. Such representatives need not be shareholders. the ordinance Against excessive compensation at Public corporations foresees that representations by corporate bodies or proxies for deposited shares are no longer permitted as of 1 January 2014.
Statutory quorums the General Meeting of shareholders may pass resolutions regardless of the number of shareholders present or shares represented by proxy. Resolutions pass by an absolute majority of votes validly cast, except where the law requires otherwise. the chairman does not have a casting vote.
the chairman of the General Meeting of shareholders determines the voting procedure. Provided that the voting is not done electronically, voting shall take place openly by a show of hands. the voting will only be carried out by written ballot if more than 50 of the shareholders present demand so by a show of hands.
agenda the Board of directors announces the agenda for the General Meeting of shareholders. Shareholders with voting power whose combined holdings represent shares with a nominal value of at least chF 100 000 may, no later than 45 days before the date of the meeting, request that further matters be included in the agenda. Such requests must be in writing and must specify the items and the proposals to be submitted.
the mandates and employment contracts of the members of the Board of directors, Group ec, Group Management Board and other members of senior management do not contain any provisions such as severance payments, notice periods of more than 12 months or additional pension fund contributions that would benefit them in a change of control situation.
Audit-related fees (apart from corporate finance due diligence services) include, among other tasks, review of the economic value Management report, Solvency II model validation, comfort letters, accounting advice and regulatory reports. corporate Finance Services include due diligence services.
additional fees In addition to the auditing fees, Pwc fees totaled uSd 2.2 million (excluding vAt) during the year ended 31 december 2013, primarily relating to: ̤ Income tax compliance and related tax services: uSd 1.6 million ̤ other fees: uSd 0.6 million other fees include permitted advisory work related to a range of projects, but are primarily related to corporate realignment activities and accounting advice.
Information tools pertaining to the external audit Responsibilities the external auditor is accountable to the Audit committee, the Board of directors and ultimately to the shareholders. the Board of directors reviews the external auditor’s professional credentials, assisted in its oversight by the Audit committee.
cooperation and flow of information between the auditor and the audit committee the Audit committee liaises closely with the external auditor; the lead auditors participate as advisers at all the Audit committee’s meetings. For more information on these, see page 81. the external auditor provides the Audit committee with regular updates on the audit work and related issues as well as with reports on topics requested by the Audit committee.
Qualifications At least once a year, the external auditor submits a report to the Audit committee describing the external auditor’s own quality control procedures, including any material issues raised by its most recent internal reviews or inquiries or investigations by governmental or professional authorities within the preceding five years, as well as any steps taken to deal with any such issues.
Independence At least once a year, the external auditor provides a formal written statement delineating all relationships with the company that might affect its independence. Any disclosed relationships or services that might bear on the external auditor’s objectivity and independence are reviewed by the Audit committee, which then recommends appropriate action to be taken by the Board.
Performance this assessment measures the external auditor’s performance against a number of criteria, including: understanding of Swiss Re’s business; technical knowledge and expertise; comprehensiveness of the audit plans; quality of the working relationship with management; and clarity of communication. It is compiled based on the input of key people involved in the financial reporting process and the observations of the Audit committee members.
audit fees the Audit committee reviews annually the audit fees as well as any fees paid to the external auditor for non-audit services, based on recommendations by the Group cFo.
oBt AG had been elected the first time as special auditor by the Annual General Meeting of shareholders of the former parent company, Swiss Reinsurance company Ltd, on 7 April 2010.
oBt AG did not prepare any audit reports under this mandate during the reporting year.
Swiss Re’s core business – managing global risk – makes us by necessity an information company. our information policy therefore goes well beyond legal requirements in establishing transparency in our communications and equal access to the facts for all investors and the public.
our information policy goes well beyond legal requirements in establishing transparency in our communications and equal access to the facts for all investors and the public.
date news Method of dissemination 3 January Swiss Re places uSd 270 million of north American earthquake risk news release 16 January Swiss Re releases sigma study on partnering for food security in emerging markets news release, sigma study 21 February Swiss Re announces net income of uSd 4.2 billion for full-year 2012 news release, press conference 15 March Swiss Re announces proposals for the upcoming Annual General Meeting news release 27 March Swiss Re releases sigma study on natural catastrophes and man-made disasters in 2012 news release, sigma study 28 March dispute with Berkshire hathaway settled news release 10 April Swiss Re’s shareholders approve proposals put forward by the Board of directors news release, AGM in Zurich 2 May Swiss Re delivers first-quarter Group net income of uSd 1.4 billion news release 20 May northeast uS hurricane risk placed on behalf of travelers news release 24 May Swiss Re structures and places uSd 175 million catastrophe bond news release 19 June Swiss Re publishes its 2012 corporate Responsibility Report news release, report 24 June Swiss Re confirms strategy at Investors’ day news release 26 June Swiss Re releases sigma study on world insurance in 2012 news release, sigma study 3 July Swiss Re capital Markets closes largest ever european wind cat bond news release 8 July Swiss Re estimates losses from recent flooding in europe at approximately uSd 300 million news release 12 July Swiss Re reacts to media speculation regarding Admin Re® news release 8 August Swiss Re reports second quarter 2013 net income of uSd 786 million news release, press conference 21 August Swiss Re sigma releases preliminary estimates for first half-year 2013 news release, sigma study 27 August People of all generations brace themselves for a riskier world news release, press conference 9 September Swiss Re releases sigma study on marine and airline insurance markets news release, sigma study 9 September demand for natural catastrophe cover to double in high growth markets news release, press conference 23 September Swiss Re estimates losses from German hail storms at uSd 240 million news release 15 october Swiss Re capital Markets places euR 350 million catastrophe bond for AXA Global P&c news release 16 october Swiss Re to invest up to uSd 425 million in Fwd Group news release 31 october Swiss Re releases sigma study on urbanisation in emerging markets news release, sigma study 7 november Swiss Re reports net income of uSd 1.1 billion for third quarter 2013 news release 13 november Swiss Re and Phoenix Group announce termination of discussions news release 18 november Swiss Re to acquire a 14.9% stake in Brazilian insurer SulAmérica news release 20 november Swiss Re invests uSd 493 million for a 4.9% stake in new china Life news release 4 december Swiss Re releases sigma study on life insurance: focusing on the consumer news release, sigma study 16 december Swiss Re’s Group chief Financial officer George Quinn to step down news release 18 december Swiss Re sigma releases preliminary estimates on natural catastrophes and man-made disasters in 2013 news release, sigma study 19 december Swiss Re unveils new brand strategy and modernised logo news release
Important dates for 2014 date event 20 February 2013 annual results 18 March Publication of 2013 Annual Report 11 April 150th Annual General Meeting 7 May First quarter 2014 results 3 July Investors’ day in London 6 August Second quarter 2014 results 7 november third quarter 2014 results
We work for the benefit of our clients and shareholders — and ultimately, we aim to serve society at large. this is the essence of sustainable value. this long-term approach is one of our core values, and thus reflected in the principles of our code of conduct: ̤ being open, honest and transparent in everything we do ̤ treating everyone with respect ̤ taking the long-term view, playing our part in enabling sustainable progress ̤ creating an inclusive culture that encourages diversity of thought and opinion this section describes some of the progress we have made in living up to those values over 2013. the full 2013 corporate Responsibility Report will be published in spring 2014.
Governance and reporting the chairman’s and Governance committee of Swiss Re’s board of directors is responsible for overseeing implementation of our commitment to corporate responsibility. on an operational level, numerous units are involved in applying that commitment in our day-to-day work.
Since 2007, we have published a comprehensive corporate Responsibility Report. the 2012 edition followed the G3.1 Sustainability Reporting Guidelines of the Global Reporting Initiative (as far as is sensible for, and applicable to, a businessto -business company in financial services). It also conformed with the disclosure guidelines of the un Global compact. Furthermore, the 2012 edition was the first to report progress on the principles for Sustainable Insurance (pSI, see next page).
this interim report provides summary information on how we have met our aspirations, beginning with sustainability in our re/insurance business and investment activities. the report also details our actions in reducing our own environmental footprint, particularly in terms of carbon emissions. It also describes at our policies toward employee diversity and engagement.
one of our 2013 goals was to help clients to develop and implement long-term adaptation strategies to climate change based on the economics of climate adaptation (eca) methodology. this is described in the box story on page 103, and in greater detail on page 33 of the business Report.
Risk intelligence is as fundamental for sustainability as it is for every other aspect of our business. our Sustainability Risk Framework addresses sustainability risks in our core business — activities in sensitive sectors such as oil and gas, defence and nuclear proliferation, mining, dams, forestry, pulp & paper and oil palm, animal testing, or with clients whose practices may have severe and repeated detrimental
We are committed to being a responsible company. contributing to sustainable, longterm value creation serves as a guiding principle for our practical actions.
Our commitment to reducing our own footprint as a provider of financial services, Swiss Re does not cause large environmental impacts through its own operations. nonetheless, minimising our direct environmental footprint is an important part of our commitment to be a responsible company. our main environmental priorities are to reduce our co2 emissions and energy consumption. We calculate our emissions based on the Greenhouse Gas protocol, the most widely used emissions accounting standard.
In environmental terms, 2013 has been a watershed year. We reached the end of our initial ten-year Greenhouse neutral programme, commenced in 2003, which originally sought to reduce co2 emissions per employee by 15% within ten years and to offset our emissions. this target was already met in 2007. by the end of 2013, we had successfully reduced co2 emissions by 56.5% per employee, principally by making continuous improvements in energy efficiency and switching to renewable power at many of our locations. We have now reached our goal of using 100% renewable power in all offices where it is reliably available. We have continued our efforts to curb unnecessary business travel without jeopardising our business objectives by encouraging full use of our worldwide video collaboration network. Growth of the business and expansion into new markets — along with new responsibilities created through the realignment of Swiss Re’s holding company into three business units — had contributed to an increase in business travel-related co2 emissions per employee in 2011 and 2012. against expectations, the figure did not rise in 2013, but remained stable, with a reduction of approximately 1%.
Since 2003 we have compensated these and all remaining co2 emissions by purchasing Voluntary emissions Reductions (VeRs). In 2013 we retired VeRs representing 55 800 tonnes of co2 emissions. this amount includes additional voluntary commitments to offset the emissions caused by events such as Swiss Re’s annual General Meeting of shareholders and those held at the centre for Global dialogue.
We are keen to ensure that the VeRs we buy are of a high environmental standard. to achieve this, we have developed a set of criteria to select the projects that generate certificates; for instance, we give priority to projects which come with strong social side-effects and benefit the poorest regions.
Insured natural catastrophe losses around the world are becoming more frequent and severe as people and assets concentrate in high-risk areas. climate change is likely to contribute to this rising trend in losses through shifts in the frequency, intensity, spatial extent, duration and timing of extreme weather events.
106 Report from the Compensation Committee 107 Compensation context and highlights in 2013 109 Compensation governance 113 Compensation framework 120 Compensation decisions in 2013
Dear shareholders I am pleased to present the Report from the Compensation Committee related to the business year 2013.
Swiss Re’s compensation plans are continuously reviewed and (if appropriate) updated to ensure they align with the interests of shareholders and other stakeholders. In addition to market competitive base salaries, pensions and benefits, Swiss Re continues to reward employee performance through proven incentives. Results achieved in the previous performance year are rewarded with a short-term variable cash incentive, with performance over a three-year period reflected in a deferred cash component. a select number of key senior employees are also granted a long-term award that provides a forward-looking incentive for sustainable and successful performance.
as always, the Compensation Committee works continuously to gauge and improve its own effectiveness. It also maintains regular interactions with the Swiss Financial market Supervisory authority FInma, as well as monitoring other regulatory developments including Solvency II and Swiss corporate law.
on 1 January 2014, the ordinance against excessive Compensation at public Corporations (the ordinance) came into force. the ordinance will have implications for compensation governance. during 2013, the Compensation Committee focused its efforts on preparing for the changes that will be implemented starting in 2014. the main changes are outlined below: – Yearly individual election of the members of the Board of directors and of the Compensation Committee, as well as the Chairman of the Board of directors, by the annual General meeting of shareholders.
– Introduction of a binding shareholders’ vote on remuneration for the Board of directors and the Group executive Committee (Group eC) at the annual General meeting in 2015.
̤ Compensation governance ̤ Compensation framework ̤ Compensation decisions in 2013
pay for performance the Compensation Committee ensures that executive management compensation is linked to the business performance of Swiss Re by delivering a substantial portion of compensation in the form of variable and performance related incentives.
the Compensation Committee monitors how compensation develops against specific business metrics including net income and eVm profit.
uSd million (unless otherwise stated) 2011 % 2012 % 2013 %
Income before tax and variable compensation 3 029 100% 5 872 100% 5 262 100%
of which added to retained earnings within shareholders’ equity 1 492 49% 1 441 25% 1 408 27%
1 FY 2013 dividend includes a special dividend of approximately uSd 1.6bn and is estimated based on average ChF/uSd Fx rates as of February 2014. the dividend is subject to aGm approval and the amount depends on the final number of dividend eligible shares and Fx rates upon dividend pay out. FY 2012 includes a special dividend of uSd 1.5bn.
9% Variable compensation 6% Income tax expense 58% Net income paid out as dividend 27% Net income added to retained earnings
̤ 9% Variable compensation ̤ 6% Income tax expense ̤ 58% net income paid out as dividend ̤ 27% net income added to retained earnings
aggregate compensation for all employees (ChF) 1 775 2 032 14% 2 067 + 2%
2 Represents incumbents and not positions; four new Group eC positions were created in 2012. 3 Including Group Ceo.
Background and context In 2011, based on feedback from shareholders and regulators, the Board of directors initiated a full review of the compensation framework for the Group. this review recommended several planned interventions in the performance and compensation area, with the objective to strengthen the link between pay and performance. most of the changes have been implemented in 2012, including the launch of the new two-dimensional performance management system, the introduction of the target annual performance Incentive (tapI) for senior management, the new long-term incentive leadership performance plan (lpp) and the new Global Share participation plan (GSpp).
activities in 2013 Compensation changes ̤ Further embedding of two-dimensional performance management, ensuring a balance between measuring the achievement of performance objectives and the demonstration of appropriate behaviours.
̤ transparent methodology for the determination of the annual performance Incentive (apI) pools, thus creating a stronger link between variable compensation and performance.
̤ updated vesting curve on the performance Share unit (pSu) component of the lpp with vesting beginning at median.
̤ adjustments to the Compensation Report to align with the new provisions as of the reporting year 2014.
̤ adjustments to employment contracts of the Group eC members in line with the requirements of the ordinance.
In early 2013, Swiss Re completed the implementation of the compensation framework review initiated in 2011, with the objective to further strengthen the link between variable pay and performance.
̤ Further details can be found in the Corporate Governance section on pages 72–85
̤ Composed of independent directors (as defined in the Corporate Bylaws) who are experienced and familiar with regulatory requirements, compensation practices and trends, particularly also relating to risk-related compensation issues
Secretary ̤ the head of Compensation, Benefits & International mobility serves as the Secretary to the Compensation Committee and attends its meetings (apart from the executive Sessions)
̤ niederer Kraft & Frey aG – provide legal advice, mainly about specific aspects of compliance and disclosure matters these advisors are retained by the Compensation Committee. they supply the Compensation Committee with an external perspective and occasionally provide other services to Swiss Re. during 2013 the Compensation Committee also received advice from hostettler, Kramarsch & partner aG relating to compensation.
Individual compensation of the members of the Group eC (excluding Group Ceo)
Compensation Committee 1 Board member concerned abstains from voting decisions and topics discussed after each of these meetings. a summary of the topics dealt with by the Compensation Committee during the year is shown on page 111.
Variable compensation for the Group at Swiss Re, the compensation cycle begins in december, with payments made in march/april of each year. the Compensation Committee oversees each stage of the process, starting with deciding on the variable compensation for the prior performance year, reviewing these decisions, and setting targets for the upcoming year.
̤ approval of performance factors for deferred compensation awards February and april
̤ Review and recommendation of the lpp pool for the upcoming year January and February
̤ Review lpp plan duration and vesting curve for pSu december
Compensation and performance of Group eC and GmB members the compensation of senior management follows the same cycle as that for the Group. again, the Compensation Committee is fully involved through all stages of the process, and all decisions are owned by the Compensation Committee and the Board of directors.
̤ Review and proposal of the Compensation Report January, February, June and december
Control assessment of Group and business functions the Compensation Committee continues to focus on the link between compensation and risk awareness. the Control Functions provide the Group Ceo and the Compensation Committee with assessments and information regarding risk and control-related behaviour and performance. this information is collected from all Control Functions and combined into a Group report that covers each business function.
Control assessment of Key Risk takers Key Risk takers are defined as individuals who, by the nature of their role, can materially commit or control Swiss Re’s resources, or influence its risk profile. Swiss Re bears risks in the course of its business activities, including market, credit and liquidity, underwriting, operational (including legal and compliance) and reputational risk.
Swiss Re has identified 140 positions that qualify as Key Risk takers, including the members of the Group eC, GmB and other roles with significant risk authority. the increase of Key Risk takers from 125 positions in 2012 to 140 in 2013 was mainly driven by newly created functions (eg in high growth markets) and internal reorganisations.
influence of the control assessment on compensation the control assessment provides additional input to determining the Group apI pool. It also influences the apI pool that is allocated to each business function.
the Compensation policy also contains guidance for the execution of individual compensation actions. the Compensation Committee, together with the Group Ceo, has approved an authority matrix that defines the limits to which each level of management can authorise compensation payments. Separate limits apply to each compensation element, thereby ensuring that all payments receive the appropriate level of approval. the Group Ceo or the Compensation Committee, as applicable, approves salaries, incentives, termination agreements or sign-on payments that exceed pre-set limits.
line managers receive guidance on practical aspects of the Compensation policy and its implementation. the human Resources function conducts a regular self-assessment on Swiss Re’s compliance with the Compensation policy. the Compensation Committee reviews this self-assessment and identifies potential areas of improvement. the Compensation Committee receives reports on compensation decisions as appropriate, including a comprehensive review of actions resulting from the annual Compensation Review Cycle.
Swiss Re is required to assess the degree to which the Compensation policy complies with the requirements of FInma. as part of this process, the Finance and Risk Committee is required to review risks related to the Compensation policy. In order to facilitate the compliance certification process, a comprehensive risk analysis of the Compensation policy is conducted on an annual basis.
Guiding principles Swiss Re’s compensation framework is designed to attract, motivate, and retain the qualified talent the Group needs to succeed globally, while creating a tangible link between pay and performance. the aim is to provide compensation that is competitive in local labour markets while ensuring that employees focus on delivering outstanding results without taking inappropriate risks. a balanced compensation package is complemented by competitive pension plans and benefits. this approach contributes to the success of the business by: ̤ supporting strong performance with a focus on risk-adjusted financial results; ̤ ensuring close correlation between business results, individual contribution, compliance and compensation; ̤ supporting Swiss Re’s commitment to attract, motivate and retain key talent; ̤ aligning the interests of employees with those of Swiss Re’s shareholders; and
Swiss Re has a range of incentive programmes that reflect the long-term nature of the business: both the VaI and lpp aim to reward sustained performance rather than short-term results. this helps to align shareholder and employee interests more closely.
Base salary Base salary is fixed compensation paid to employees for carrying out their role and is established based on the following factors: ̤ Scope and responsibilities of the role, as well as qualifications required to perform the role
̤ external market value of the role in the location in which Swiss Re competes for talent
̤ performance, skills and expertise of the individual in the role
overview of the compensation components Swiss Re aims for total compensation that is competitive in the external market.
In addition Swiss Re aims to ensure that total compensation is well-balanced in terms of fixed versus variable remuneration and in terms of short-term versus longterm incentives. this is to encourage sustainable performance and appropriate risk-taking.
the illustration below shows a summary of the compensation and benefit elements which are explained in the next section.
Cash (deferred) Shares Shares Shares pension, insurances, perquisites performance Kpis Business and individual performance measurement of the economic impact of reserving accuracy
Relative tSR Roe performance period 1 year 3 years 3 years performance range 0%–200% of target 50%–150% 0%–150%
Summary of compensation and benefit components 114 Swiss Re 2013 Financial Report
when the total apI level for an employee exceeds a pre-defined amount, the variable pay is delivered in two components: a cash incentive payment (cash apI) and VaI (deferred apI).
the Compensation Committee receives proposals from management requesting the total funding for variable compensation pools for both the apI and the lpp. the management proposal for the annual apI pool is based on the Group’s overall performance for the year. the lpp pool is reviewed in the context of sustainable business performance and affordability, but generally remains stable. the Compensation Committee considers these proposals and recommends a total pool to the full Board of directors for approval. the Compensation Committee and the Chairman of the Board of directors also propose an individual award for the Group Ceo within this overall pool. the VaI is not funded as a separate pool, and the apI pool will include amounts paid in cash as well as the amounts to be deferred into the VaI.
In 2012 Swiss Re introduced a three-step process based on business performance to determine the overall Group apI pool. the process comprises a financial, a qualitative and an overall assessment. the financial assessment attributes equal weight to uS Gaap income, eVm, economic net worth and return on equity measures both for the Group and each Business unit individually. additionally, multi-year comparisons and an assessment of the quality of earnings are also considered. the chart below gives more detail on the criteria used to determine the size of the pool. the Business units then allocate their pools following a similar assessment.
In 2012 Swiss Re introduced the concept of target apI along with a revised performance management framework that provides equal weighting to “behavioural” criteria along with quantitative “results” for senior executives (with planned further roll-out within the company going forward). In this way, apI is awarded both for objectives achieved and for demonstration of desired behaviours. the target apI is set in advance for each eligible employee based on multiple factors, including market benchmarks, with payout linked both to Swiss Re’s results and to individual performance.
Group api pool funding process overall Group assessment and proposal from management to the Compensation Committee, who retain adjustment discretion. Reviewed proposal recommended for approval to the full Board of Directors
apply. the VaI tracks the eVm profit margin development over the subsequent three years after grant. eVm profit margin is the ratio of eVm profit to eVm capital. the average eVm profit margin over the three-year measurement period is used to determine the final payout factor. the payout factor is a linear function that ranges from 50% (for an average eVm profit margin development of –15%) to 150% (for an average eVm profit margin development of +15%).
eVm results, additional targets and non-financial performance factors are taken into consideration in the asset
plan duration the VaI supports a longer-term perspective by directly linking awards to performance over a three-year period.
Structure the higher the apI, the greater the portion of variable compensation that remains at risk through the VaI, as shown in the table below.
plan duration For all Group eC and GmB members, the lpp plan duration is five years. plan duration comprises a three-year vesting and performance measurement period and an additional two-year holding requirement. For all other participants, the vesting and performance measurement period is three years with no additional holding requirement.
Structure at grant date, the award is split equally into two underlying components – Restricted Share units (RSus), and performance Share units (pSus). Both are explained next.
additionally, clawback provisions apply in the event of any downward financial restatement which is caused or partially caused by the lpp participant’s fraud or misconduct. In this case, the company is entitled to seek repayment of any vested and settled award.
Lpp grant the amounts disclosed under lpp in the section Compensation decisions in 2013 reflect the grants made in march 2014. this lpp award will be measured over the period 2014–2016.
F o rf e it u re c o n d it io n s to ta l L p p a w a rd a d d it io n a l 2 y e a r h o ld in g f o r
Compensation framework for Group eC members Compensation principles the Group Ceo and the other members of the Group eC are remunerated under the same compensation framework and guiding principles as all other Swiss Re employees. the Group Ceo and the other members of the Group eC are paid a fixed base salary and are eligible to receive variable compensation in the form of apI, VaI as well as lpp.
In 2013, for the members of the Group eC including the Group Ceo, the total of the aggregate target apIs was ChF 15.8 million (capped at 3x annual base salary) and the aggregate lpp award was ChF 11.4 million.
the Compensation Committee assesses the performance of the Group Ceo and the Group eC members against a set of quantitative and qualitative objectives. the main financial performance indicators are based on uS Gaap, eVm results, economic net worth and return on equity. the qualitative criteria include client and service quality, franchise building, leadership and talent management as well as risk and control related behaviour objectives. these objectives are agreed at the beginning of the year and are aligned with the Group’s financial plan.
Benchmarking the external adviser, mercer, conducts an annual review of the total compensation for the Group eC relative to a group of reference companies in the financial services industry to ensure that market competitiveness is maintained. this peer group consists of the following globally active primary insurance and reinsurance firms: ace ltd, allianz Se, american International Group Inc, aviva plC, axa Sa, Generali, hannover Rueck Se, metlife Inc, muenchener RueckversicherungsGesellschaft aG, partnerRe ltd, QBe Insurance Group ltd, Reinsurance Group of america Inc, SCoR Se, xl Group plC and Zurich Insurance Group aG.
employment conditions the Group Ceo and the other Group eC members have employment contracts with maximum notice periods of 12 months and without severance payment agreements. Information on “change of control” clauses is covered in the Corporate Governance section on page 93. executives are covered by the Group’s standard definedcontribution pension plans.
Stock ownership Guidelines with effect from 1 January 2010, Swiss Re established stock ownership guidelines which articulate the levels of stock ownership expected of the members of the Group eC and the GmB. the guidelines are designed to increase the alignment of individual members of senior management with shareholders and demonstrate that Swiss Re executives bear the same risks as other shareholders.
the determination for whether a Group eC or GmB member has met the guidelines will include all vested shares that are owned directly or indirectly by the relevant members and related parties.
Long-term incentive until 2012, a different vintage of the ltI plan was awarded to employees. there is still one vintage of awards outstanding under this plan, vesting in march 2014.
the ltI awards vest after three years and are paid in Swiss Re shares, provided the performance thresholds are met. For each ltI plan year, final payment, if any, occurs at the end of the respective three-year performance measurement period. the plan includes a payout factor which can vary between zero and two, driven by average return on equity (Roe) and average earnings per share (epS) over the performance period. the final payment in respect of each plan will depend on whether performance targets, expressed as average Roe and epS, have been achieved over the plan period, as well as the share price at conclusion.
Roles and time commitment the fees for the members of the Board of directors reflect differing levels of responsibility and time commitment. the individual levels of pay therefore vary considerably. Certain committees, such as the audit Committee as well as the Finance and Risk Committee, meet more frequently with longer meetings and require more preparation time than other committees and hence have higher workloads. Chairpersons of these committees devote even more time to their task.
the Chairman of the Board of directors devotes himself full-time to his role. In defining the position of Chairman as a fulltime role, Swiss Re applies international best practice for highly regulated, complex financial institutions. the Chairman participates in developing the firm’s strategy, supervises the implementation of the agreed strategy and organises the work of the Board of directors and its committees. he also has an important task, together with the Group Ceo, in representing the firm to outside parties including shareholders, industry associations, the media and the general public, at all key locations where Swiss Re operates.
Compensation framework for the Board of Directors Compensation principles the objective in compensating members of the Board of directors is to attract and retain experienced individuals who are motivated to perform a critical role in the strategic oversight of the company and to contribute their individual business experience and expertise. the structure of compensation for members of the Board of directors must, however, take account of the way their contribution to the success of Swiss Re differs from that of the Group eC.
It is important that the compensation elements are used so as to achieve a strong alignment with the interests of the shareholders of Swiss Re. therefore, a significant portion of the compensation arrangements for the Board of directors consists of shares of the company, in line with best practice.
Valid cross-border comparisons of the roles and responsibilities of the Swiss Re Board against the boards of other international companies are clearly difficult to make, given both the differing legal environment and operating context within each country. nevertheless, it is apparent that the demands on the Swiss Re Board members are particularly significant, and that these requirements continue to increase. In addition to their core responsibilities, Board members, similar to the Chairman, are regularly asked to meet with external stakeholders including regulators, political authorities and investors, all of which warrant additional time, dedication and commitment from the individuals concerned.
VaI plan year performance measurement period as of 31 december 2013 performance factor 2010 3 years to be determined 2011 2 years to be determined 2012 1 year to be determined
General compensation payouts of deferred compensation plans Value alignment incentive the VaI performance is measured for the Group and each underlying business area. participants receive the performance factor relating to the business area that they were in at the time of award. In march 2013, the Group VaI 2009 (awarded in 2010) vested with an average performance factor of 104%.
of the plans that have expired or are due to expire in 2014, the ltI represented about 29% of the total compensation for the Group eC members over that period. these ltI plans have resulted or will result in a settlement value of approximately 84% of the award value. Consequently, the total compensation awarded for the Group eC members over that period was approximately 5% higher than the value realised upon vesting.
Grant units awarded1 6 037 420 Value awarded2 286 weighted average value per unit at grant 47.17
Vesting units vested1,3 5 519 740 Value vested of which: 271
Vesting related to performance factor 155 Vesting related to share price growth 116 weighted average value per unit at vesting 49.16 1 number of units 2 “Value awarded” includes awards to all employees 3 Vesting of ltI 2011 is on 31 march 2014. number of units is as of 28 February 2014. an indicative share price of ChF 82.20 as of 28 February 2014 has been used for the calculations 120 Swiss Re 2013 Financial Report
pensions, social security and benefits1 11 193 424 11 574 457 annual performance Incentive long-term variable compensation other payments Severance payments3 393 28 355 19 1 In 2012 various cash allowances (eg service awards, car and meal allowances) in the amount of ChF 11.6 million were not included.
3 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and (iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in respect of amount, nature or duration.
2 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and (iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in respect of amount, nature or duration.
aggregate variable compensation expense the Compensation Committee takes its decisions to award variable compensation on an economic value basis at the time of grant. In the financial statements the recognition of deferred compensation follows the accrual principles as defined under uS Gaap. the financial statements reflect the aggregate value of variable compensation for the year under review as follows: Compensation decisions for the Group eC
the variable compensation awarded to all members of the Group eC (including the Group Ceo) totalled ChF 30.0 million for 2013, compared to ChF 33.2 million in 2012. the following table covers payments to 16 members for 2012, of whom seven were employed for the full year. the 2013 payments cover 12 members who were all employed for the full year.
̤ 28% Base salary and allowances ̤ 27% Cash apI ̤ 18% VaI (paid after 3 years) ̤ 27% lpp (paid after 3 years)
VaI 2013 (granted in april 2014) 63 lpp 2014 (granted in april 2014) 45 Cash apI 20121 –25 –25 VaI 2009–2012 (granted between 2010 and 2013)2 64 –2 62 lpp 2012–2013 (granted between 2012 and 2013)2 24 –1 23 1 accrual related to prior performance year. 2 plans were granted in prior years.
Cash annual performance Incentive4,5 12 394 10 072 total fixed and variable compensation7 47 794 44 902 Compensation due to members leaving8 2 268 1 the company contributions to social security systems paid by Swiss Re in line with applicable laws amounted to ChF 4 961 777 in 2012 and ChF 3 116 428 in 2013. the table shows gross amounts.
2 allowances consist of housing, schooling, lump sum expenses, child and similar allowances. 3 For 2012, notional loan interest of ChF 8 265 for one Group eC member was not included. For 2013, the notional loan interest is included.
6 disclosure reflects all awards within a compensation cycle; eg, the 2013 value reflects the fair value of lpp granted in march 2014.
total fixed compensation (excluding funding of pension benefits) reflects the portion of the total compensation that is fixed and therefore not variable with performance. For 2013, the portion of Group eC compensation that is fixed amounts to 30% (compared to 28% for 2012).
each member of the Group eC (including the Group Ceo) participates in a definedcontribution pension scheme. the funding of pension benefits shown in the table above reflects the actual employer contributions.
Base salary and allowances 1 663 1 639 Funding of pension benefits 175 177
3 disclosure reflects all awards within a compensation cycle; eg, the 2013 value reflects the fair value of lpp granted in march 2014.
michel m. liès, Group Ceo 171 947 Guido Fürer, Group Chief Investment officer 21 253 agostino Galvagni, Ceo Corporate Solutions 108 060 Jean-Jacques henchoz, Ceo Reinsurance emea 16 335 Christian mumenthaler, Ceo Reinsurance 50 984 moses ojeisekhoba, Ceo Reinsurance asia 8 583 George Quinn, Group Chief Financial officer 96 506 matthias weber, Group Chief underwriting officer 38 592 thomas wellauer, Group Chief operating officer 17 708 moses ojeisekhoba, Ceo Reinsurance asia 5 693 weighted average exercise price in ChF 83.92 michel liès, Group Ceo 42 000 Guido Fürer, Group Chief Investment officer 7 500 George Quinn, Group Chief Financial officer 20 000 matthias weber, Group Chief underwriting officer 7 000 124 Swiss Re 2013 Financial Report
Swiss-based variable-rate mortgages have no agreed maturity dates. the basic preferential interest rates equal the corresponding interest rates applied by the Zurich Cantonal Bank minus one percentage point. to the extent that fixed or floating interest rates are preferential, the value of this benefit has been included in the line item “base salary and allowances” on pages 122 and 123.
the following table reflects total mortages and loans for members of the Group eC (see Financial Statements, note 13 on page 251 for more details).
Renato Fassbind, Vice Chairman4 461 302 202 504 Jakob Baer, Chairman of the audit Committee 807 484 323 807
2 the company contributions to social security systems paid by Swiss Re in line with applicable laws amounted to ChF 1 294 292 in 2012 and ChF 1 282 026 in 2013. the table shows gross amounts.
walter B. Kielholz, Chairman 399 490 mathis Cabiallavetta, Vice Chairman 109 177 Renato Fassbind, Vice Chairman 7 655 Jakob Baer, Chairman of the audit Committee 44 699 Raymund Breu, member 36 024 Raymond K.F. Ch’ien, member 15 048 John R. Coomber, member 140 200 mary Francis, member 1 027 Rajna Gibson Brandon, member 26 047 C. Robert henrikson, Chairman of the Compensation Committee 4 339 malcolm d. Knight, member 7 665 hans ulrich maerki, member 25 594 Carlos e. Represas, member 8 900 Jean-pierre Roth, member 6 762 126 Swiss Re 2013 Financial Report
performance shares for the members of the Board of Directors In 2009 and 2010, the Chairman and the then-Vice Chairman received half of their respective total fees in the form of a three-year performance share plan. the final number of shares to vest after the three years could vary between 0% and 150% of the original award, depending on Swiss Re’s relative total shareholder return (tSR) ranking against a peer group over the performance period. For a vesting at 150% of the original award, performance on this measure had to be at or above the 75th percentile. the peer group companies comprised ace ltd, allianz Se, the allstate Corporation, aviva plC, axa Sa, Credit Suisse Group aG, assicurazioni Generali S.p.a, hannnover Rückversicherung aG, InG Groep nV, metlife Inc, muenchener Rueckversicherungs-Gesellschaft aG, prudential Financial Inc, uBS aG and Zurich Insurance Group aG. awards under this plan were only made in 2009 and 2010.
In march 2013, the 2010 award vested, and based on a third-party assessment of achievement against the performance targets set, Swiss Re achieved a ranking of 3rd out of 15 participants as well as a tSR of 66.19%. Given this performance, the vesting percentage was determined at the maximum 150%.
Vested options held by members of the Board of Directors Swiss Re does not grant employee stock options to members of the Board of directors. the stock options shown in the table below were awarded at a time when the recipients were still members of Swiss Re’s executive management. the vested options held by members of the Board of directors as of 31 december were: the underlying exercise prices for the outstanding option series have been adjusted for the special dividend payout in 2013. the vested options held by members of the Board of directors will expire in 2014 and 2015, and the weighted average exercise price is ChF 83.04 after the adjustment.
Loans to members of the Board of Directors the table below includes loans for the members of the Board of directors. this loan was established when the recipient was still a member of Swiss Re’s executive management.
the mortgage is secured against real estate and its terms and conditions are the same as those available to all Swiss Re employees in Switzerland. It carries a fixed rate and has a maturity of five years. the interest rate corresponds to the five-year Swiss franc swap rate plus a margin of 10 basis points at the time of fixing. to the extent interest rates are preferential, the value of this benefit has been included in the line item “fees and allowances” on page 126.
disposable profit 254 Report of the statutory auditor 138 Notes to the Group financial statements 138 note 1 Organisation and summary of significant accounting policies 146 note 2 investments 153 note 3 Fair value disclosures 170 note 4 Derivative financial
and loans of members of governing bodies 206 note 15 Related parties 207 note 16 commitments and contingent
Other expenses –3 217 –3 508 interest expenses –736 –760 total expenses –28 101 –32 077 income before income tax expense 5 523 4 825 income tax expense 11 –1 125 –312 Net income before attribution of non-controlling interests 4 398 4 513 income attributable to non-controlling interests –141 –2 Net income after attribution of non-controlling interests 4 257 4 511 interest on contingent capital instruments –56 –67 Net income attributable to common shareholders 4 201 4 444 earnings per share in USD
Reclassification out of accumulated other comprehensive income For the year ended 31 December the accompanying notes are an integral part of the Group financial statements.
Balance as of 1 January 4 407 –28 –3 609 –953 –183 change during the period –3 057 34 –327 479 –2 871 amounts reclassified out of accumulated other comprehensive income –834 59 –775