Together we apply fresh perspectives, knowledge and capital to anticipate and manage risk. That’s how we create smarter solutions for our clients, helping the world rebuild, renew and move forward.
Our 2015 performance was strong. We look forward to continued progress toward the targets we’ve set for 2016 and beyond.
Targets We performed successfully over our 2011–2015 financial target period and look forward to continued strong performance on the targets for 2016 and beyond.
For details on our 2015 performance and the next set of targets, see our Financial Report.
Return on equity1 in % 10.5 13.7 Return on investments in % 3.7 3.5
Property & Casualty Reinsurance Net income attributable to common shareholders 3 564 2 977 –16
Swiss Re is a leader in wholesale reinsurance, insurance and risk transfer solutions.
543m (USD 945m 2014) Gross cash generation total (After consolidation) 13.7%
Diversified and global Net premiums earned and fee income by Business Unit (Total USD 30.2 billion)
At the same time many market participants speak about a significant erosion of pricing levels across all businesses. They complain about this and about a further reduction in investment returns. The relationship between demand and available capacity seems out of balance — and while we all complain, margins have remained strong for quite a few years now.
Just to avoid any misunderstanding: we are clearly positive about the longer-term prospects for our business. Many trends in the world — in society, in science and in the economy — are positive for demand for our business: risk underwriting. But we have to successfully deal with important adverse forces in the short term.
Put your money where your mouth is! A third pillar of our strategy is about resource allocation. Allocate resources to where you see the opportunities; reallocate radically. Again, this sounds trivial, but it is not.
Take the example of emerging markets. Our own projections show that about 50% of the top-line growth and incremental capital requirements over the next ten years will come from emerging markets. Not a big surprise if we think of topics like protection gaps, urbanisation, formation of middle classes and the build-up of sophisticated industries in these parts of the world.
At present only about 15% of our global resources are allocated to these markets, even less than that if we think of senior management, research and local footprint. Change is required.
Resources in our business are people and systems. Once you have made up your mind where you want to allocate the capital, develop them so that they can match the challenges. Maintain this even and deliberately when the margin pressure is intense. It will ultimately produce a high return for shareholders. Inadequate resource has never been a recipe for success, certainly not in our business of risk underwriting and tough investment decisions.
Clients in reinsurance are partners. Our clients regularly put us at the top of the league tables as best reinsurer, in all parts of the world and nearly all lines of
– reported EPS – EPS @ 10% avg. annual growth (base: 2010) * assumes constant foreign exchange rate return on equity (in %)
In 2015, we took an important step to tap into a growing market segment with the creation of the Life Capital Business Unit. Life Capital is managing closed and open life and health insurance books since 1 January 2016, including our Admin Re® business. We believe that consolidating these activities will fit our goal of diversifying our business and providing our clients with the expertise and capabilities they need to help them seize new opportunities. Admin Re®, which is the cornerstone of Life Capital, delivered a strong performance in 2015, with strong gross cash generation and a net income of USD 422 million. In January 2016, it completed the acquisition of UK-based Guardian Financial Services, a move that is in line with our strategy to become a leading closed life book consolidator in the UK.
return on equity At least 700 basis points greater than the risk-free rate, as measured by ten-year US government bonds.
economic net worth per share 10% growth per annum, using year-end Economic Net Worth (ENW) plus dividends, divided by previous year-end ENW.
Delivering on our targets Over the last five years, we have grown the regular dividend and we have executed our internal growth initiatives while making sensible acquisitions. At the same time we distributed excess capital to our shareholders and maintained our very strong capital position. We have successfully reached the return on equity (ROE) and earnings per share (EPS) targets we set five years ago in very different circumstances. This is an impressive achievement under any conditions, though especially so in light of the turbulent markets and uncertain macroeconomic conditions that prevailed during much of the 2011–2015 target period. At 9.6%, we almost achieved our economic net worth per share (ENWPS) average annual growth target of 10%, following the previously announced agreement to acquire Guardian Financial Services.
In 2015, the world experienced some tragic events and great uncertainty — an evolving terrorism threat, wars and epidemics, a fragile global economy. Against this backdrop, the re/insurance industry needs to step up its game and extend the boundaries of insurability, building a safety net around those who need it most.
We have already defined annual return on equity targets for our businesses: P&C Reinsurance and Corporate Solutions aim for 10%–15%. Life & Health Reinsurance aims for 10%–12%. Swiss Re Life Capital will initially aim for 6%–8%, with updates to follow.
Return on equity At least 700 basis points greater than the risk-free rate, as measured by ten-year US government bonds.
Our capital allocation strategy requires us to attract the right talent and to equip them with the right resources, platforms and processes. Reaching new markets, for example, often requires local expertise. For this reason our local talent pool in high growth markets has more than doubled between 2011 and 2015.
II. Broaden and diversify client base to increase access to risk
A framework that builds from our current strategy, enabling us to move to the next stage in our transformation to be an agile capital allocator in insurance and associated asset risks.
2 STRATEGIC OBJECTIVE TWOBroaden and diversify client base to increase access to risk
For the past few years we have been increasing the contribution from our target high growth markets in Property & Casualty, while at the same time tapering off property business where prices have reached unsustainable levels. In Life & Health we’re keeping up the same momentum in target high growth markets and growing the relative share of health business. See also page 29.
Setting ourselves apart by generating knowledge 4 STRATEGIC OBJECTIVE FOUR Emphasise differentiation
In Reinsurance we’re drawing from a wide range of data sources to model motor accident rates in China. Rapid sales analytics in Corporate Solutions help us close deals — and deliver solutions — faster. Smart analytics help us gather data on hot topics and industry trends. We look forward to breakthroughs in Life & Health underwriting through our partnership with IBM. See also page 26.
This thought leadership sets Swiss Re apart from the market and creates a foundation to create and sustain deep, long-lasting client relationships. See also page 26.
Technological and market forces are driving a once-in-a-lifetime change in how risk is managed. For many, the changes aren’t happening quickly enough: economic development, population growth, ageing populations and other forces are putting people and assets in jeopardy. Here are some accounts of how our business makes the world more resilient.
insurance penetration in China remains far below advanced market levels. However the country is also a test-bed for innovations that can be applied around the world.
new technologies are reshaping our business — in the risks our clients face, how we reach new clients, and how we understand their risks.
“ A disaster can set a country’s economic development back by years. The TCiP guards against that, creating a safety net for our entire nation, strengthening our resilience and setting an example for the rest of the world.“
As a reinsurance partner, we take 50% of the risk on all of Suncorp’s “essentials by AAi” microinsurance policies. The policies offer very low limits for home contents and car insurance, with flexible payment options and a simple underwriting and claims process. The initial distribution will be via the good Shepherd Microfinance organisation, a leading microfinance operator in the the business of risk country. other support providers, such as legal and financial counsellors, can refer customers to essentials by AAi. By making insurance accessible and easy to understand, Suncorp is closing protection gaps for people on social benefits or those with household incomes of around half the average wage or less.
Closing the flood gap in the UK in the UK, we are helping to close another protection gap on an even larger scale. Floods, which affect more people worldwide than any other type of natural disaster, have had a significant social and economic impact in the UK in recent years.
Just as in Turkey, closing the flood protection gap will require more than a response from just insurers alone.
in recent years, Colombia has been one of Latin America’s fastest-growing economies. The country enjoyed sustained economic growth and political stability, improved infrastructure and an overall higher level of prosperity. However, more than 10 million Colombians still live in housing that is at risk of collapse should an earthquake, a landslide or a flood strike suddenly.
Construction is often made of inadequate materials, lacking professional design or supervision, and often uses dangerous configurations. Resilience-enhancing ‘retrofits’, especially in the most exposed communities, are limited.
The social enterprise Build Change developed an easy-to-use, codecompliant retrofit evaluation and implementation procedure in partnership with Colombia’s national Learning Service, Swisscontact and the seismic engineering community in Bogotá.
The Swiss Re Foundation is supporting Build Change in the first phase of a programme in which homeowners, government and the private sector work together to strengthen existing vulnerable homes as former slums continue to develop into vibrant urban neighborhoods.
in this first phase, the project will target 50 home retrofits in Bogotá, impacting around 250 people and laying the necessary groundwork for a more ambitious implementation in a second stage, which will include the city of MedellÍn.
China is the world’s fourth-largest market in insurance premiums and Swiss Re’s third largest in 2015. Yet compared to the size of its economy, China’s insurance market still lags far behind.
we’ve been in China since the 1930s. we opened a representative office in Beijing in 1995 and another in Shanghai in 1996, then a branch office in Beijing in 2003 to conduct life and non-life business throughout the country. in 2015 we completed the acquisition of Sun Alliance insurance China Ltd to give Swiss Re Corporate Solutions a local base to help corporations operating in China. These investments are showing up clearly in our financial results, with premiums of USd 2.5 billion in 2015. Local talent has grown by more than 50% between 2011 and 2015 (see box). China is the key market in our plan to generate 30% of our premiums and fee income from high growth markets by 2020.
Read more online: reports.swissre.com 22 Swiss Re 2015 Business Report reports.swissre.com
Protecting lives and livelihoods while China’s economy has been booming, the country’s ‘mortality gap’ has been widening — that is, the gap between the insurance Chinese families would need should a wage-earner pass away suddenly, and the resources they actually have available. Between 2004 and 2014 the gap grew by 14% per year, so that by 2015 it amounted to a staggering USd 32.1 trillion.
our Fort wayne, indiana (US) office is meeting this challenge by reaching out to nationals of our target high growth markets, like Alia Hasbullah (see page 22), who are currently enrolled in actuarial science programmes in the US and plan to work in their home countries.
when Swiss Re was founded 152 years ago, insurance was catching up with the industrial revolution. Today we are again at the edge of another sea change — a digital revolution. People, devices and information are increasingly interconnected. These forces reshape the way we do business and interact with our environment. Just as when we were founded, our role is to understand the drivers of change, anticipate the evolving risks our clients face, and leverage these forces to make the world more resilient.
There are significant hurdles to assessing cyber risk accurately. designing products that are easy for clients to understand and that truly meet their needs is key. insurers also need to grapple with “accumulation risk,” or the possibility that one event can affect multiple policies. As a knowledge company we pride ourselves on developing expertise on these complex risks and sharing that with our clients.
Read more online: reports.swissre.com 2 billion Cyber risk premiums globally (2014, USd)
Leveraging the opportunities while as insurers it’s our job to look first at the risks of technological change, we have simultaneously to consider its enormous benefits.
Smart analytics, for example, is one of the trends that can help us find hidden patterns in data sets that once seemed unfathomably extensive and complex.
Cognitive technologies, coupled with human experience, can take decisionmaking to the next level. The technology marks the beginning of a new step in artificial intelligence, with systems now delving into unstructured data, generating new insights and continuously learning from their interactions with both data and humans. when iBM watson gets smarter, we get smarter, too.
“Cognitive computing is one of the most transformative technologies in the re/insurance industry, one that will enable our experts to focus on the work that humans do best,” said Thomas wellauer, group Chief operating officer. “it’s a genuine game-changer that can strengthen our capabilities and help us extend our competitive positioning.”
Changes in 2015 At the Annual General Meeting on 21 April 2015, Trevor Manuel and Philip K. Ryan were elected as new non-executive and independent members of the Board of Directors for a one-year term of office. At the same time, the shareholders re-elected Walter B. Kielholz, Mathis Cabiallavetta, Raymond K.F. Ch’ien, Renato Fassbind, Mary Francis, Rajna Gibson Brandon, C. Robert Henrikson, Hans Ulrich Maerki, Carlos E. Represas, Jean-Pierre Roth and Susan L. Wagner for a one-year term of office as members of the Board of Directors. Raymund Breu did not stand for re-election.
3. John R. Dacey Group Chief Strategy Officer 4. Guido Fürer Group CIO
5. Agostino Galvagni CEO Corporate Solutions 6. Jean-Jacques Henchoz CEO Reinsurance EMEA
Read more online: reports.swissre.com 7. Christian Mumenthaler CEO Reinsurance 8. Moses Ojeisekhoba CEO Reinsurance Asia 9. Patrick Raaflaub Group CRO
10. J. Eric Smith CEO Swiss Re Americas 11. Matthias Weber Group CUO
Such factors include, among others: ̤ instability affecting the global financial system and developments related thereto; ̤ deterioration in global economic conditions; ̤ Swiss Re’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of Swiss Re’s financial strength or otherwise; ̤ the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets; ̤ changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions; General information 32 Swiss Re 2015 Business Report
Swiss Re has about 70 office locations in more than 30 countries. For a full list of our office locations and service offerings, please visit swissre.com.
São Paulo Avenida Paulista, 500 Bela Vista São Paulo, SP 01310-000 Telephone +55 11 3073 8000
Sydney International Towers Sydney, Tower two Level 36, 200 Barangaroo Avenue, Barangaroo Sydney, NSW 2000 Telephone +61 2 8295 9500
Europe (incl. Middle East and Africa) Zurich Mythenquai 50/60 8022 Zurich Telephone +41 43 285 2121
Madrid Paseo de la Castellana, 95 Edificio Torre Europa 28046 Madrid Telephone +34 91 598 1726
The 2015 Annual Report is also available in German. The web version of the 2015 Annual Report is available at: reports.swissre.com
Telephone +41 43 285 2121 Fax +41 43 285 2999 www.swissre.com www.swissre.com
Group Net income attributable to common shareholders 3 500 4 597 31 Premiums earned and fee income 31 262 30 214 –3 Earnings per share in CHF 9.33 12.93 39
We present our business performance and economic position over 2015. The Annual Report serves as the Management Report in compliance with current Swiss accounting and financial reporting law.
Dear shareholders, Another very successful year for your company has just ended and this report will explain it in great detail. For this success to happen we needed, of course, benign circumstances, but we also needed the full effort of dedicated employees, our loyal clients and, last but not least, the support of our shareholders. To the many that contributed throughout the year, my sincere thanks.
Be quick on your feet! In risk underwriting and in asset management, value is created by allocating capital to where pricing inefficiencies can be detected and exploited. There is nothing new in this really. The present situation, however, requires us to identify inefficient pricing in the risk markets quickly and react decisively by either investing or, more likely at present, withdrawing capital. Doing this systematically will move the needle.
Secure access to business opportunities! Reinsurers traditionally have access to the risks they underwrite through intermediaries: direct insurance companies, brokers and others. However, and today more than ever, some of these intermediaries run the risk of getting disintermediated sooner rather than later because they are unable to adapt their business model, disruptors are penetrating their markets or technology is changing the entire industry.
Be different and — of course — better than the others We are convinced that the strength of the Swiss Re brand and reputation lies in a very clear development of three elements of differentiation: capital strength, client relationships and knowledge. These principal differentiation factors have been with our company since its foundation more than 150 years ago. Apparently it has been a great success. Let me quickly address what I sometimes call the wallet, the heart and the brain.
Christian Mumenthaler to become Group CEO on 1 July 2016, Michel M. Liès to retire Finally, I must share some important news. Christian Mumenthaler, currently CEO of Reinsurance, will become our Group Chief Executive Officer on 1 July 2016, and Michel M. Liès will retire. On behalf of the entire Board I extend our warmest thanks to Michel for his more than 35 years of service to Swiss Re. Throughout his career, Michel has lived Swiss Re’s highest values and been key to our Group’s continued strong performance. Under his leadership net income has almost doubled, the capital base has increased significantly and we have distributed more than USD 12 billion of excess capital back to you, our shareholders. It is fitting that we make this announcement at the end of a successful 2011–2015 financial target period, and after having introduced a new strategic framework. We wish him the very best.
Dear shareholders, I hope you share my confidence for the future. Our strategic priorities are confirmed and we welcome Christian to implement them together with his team and the 12 000 colleagues at Swiss Re. I believe the outlook is very positive indeed and I look forward to continuing our success story together.
– reported EPS – EPS @ 10% avg. annual growth (base: 2010) * assumes constant foreign exchange rate
Economic net worth per share 10% growth per annum, using year-end Economic Net Worth (ENW) plus dividends, divided by previous year-end ENW.
Market environment 14 Group strategy 22 Group results 24 Summary of financial statements 32 reinsurance 34 corporate Solutions 40 admin re® 44 Share performance 46
The global economy and financial markets The US and UK economies continued to expand at a solid pace, driven by investments and robust consumer spending. in contrast, the recovery in the eurozone remained weak. While low interest rates, low oil prices and a relatively weak euro contributed to the eurozone’s highest growth since 2011, its growth rate was still about one percentage point below the US and the UK. among the eurozone’s southern and other peripheral countries, ireland and Spain experienced the strongest expansion, while recovery was sluggish in italy and especially in Greece. Unemployment in the eurozone decreased slightly but remained significantly above the pre-crisis level. The Japanese economy grew modestly with the Bank of Japan (BoJ) continuing its quantitative easing programme. Falling commodity prices, fears of a chinese hard landing and the expectation of monetary tightening in the US created uncertainty for the global economy.
Headline inflation fell in many countries due to lower oil prices. in the US, the eurozone and the UK, it dropped close to zero. However, core inflation, which excludes food and energy prices, was basically unchanged in the US at 1.8%. inflation in Japan also dropped below 1% after rising to 2.8% in 2014 due to the sales tax increase in april 2014.
Interest rates The monetary policies of the major central banks remained accommodative, but diverged according to their different economic growth rates. The european central Bank (ecB) and the BoJ continued their quantitative easing programmes as eurozone and Japanese economies were still fragile and deflation remained a risk. in contrast, the US Federal reserve Board (the US Fed) moved towards monetary policy normalisation and finally increased the target range for the federal funds rate in December.
investor risk aversion was driven by concerns of reform fatigue in the eurozone, instability in iraq and Syria and uncertainties about the effect, especially on emerging markets, of the interest rate hike by the US Fed. investors were also concerned about declining growth prospects in china and the sluggish growth of global trade.
2.3% US 10-year treasury bond yield eurozone real GDP growth, 2015 (est.)
– United States – United Kingdom – Germany – Japan – Switzerland Source: Datastream
Economic risks affecting re/insurers Many risks could derail global growth and adversely impact financial markets and re/insurers.
concerns remain about the effect of US monetary policy normalisation on emerging markets. in recent years, their economies have been supported by rapid credit growth (especially in the private sector) due to inexpensive and abundant domestic and external liquidity. Higher interest rates in the US and a subsequent reduction in global liquidity now may lead to further capital outflows. in addition emerging market debt is often denominated in US dollars rather than in local currencies. a further appreciation of the US dollar would therefore cause the debt ratios of many countries to increase.
Source: Swiss re economic research & consulting, Datastream, ceic 16 Swiss Re 2015 Financial report
The risks for europe are manifold. The threat of a Greek debt default could flare up again. coupled with the contagion risk to other eurozone members, this could put european leaders in the dilemma of taking unpopular actions to avoid the collapse of the euro. europe also awaits the UK referendum on the eU membership to be held on 23 June 2016. in addition, instability in Syria and iraq is likely to remain a serious challenge, with corresponding heightened concerns over migration and terrorism.
Since these factors may persist for some time, re/insurers need to be prepared to cope with ongoing low interest rates. However, the report also mentions that, with time, interest rates could increase as the causes of the downward trend reverse. First, aggregate savings levels could decrease as the cohort of current savers continues to move towards retirement. Second, with the shift in china from investment and export-led growth to a more consumption-driven economy, the chinese outflow of capital into global financial markets may also stabilise. Finally, a gradual return of investor confidence into more risky assets could also alleviate pressure on interest rates.
in mature markets, premium growth declined to 1.7% from 2.0% last year. Western european markets slowed marginally despite moderate rate increases in Germany, France and the UK. in italy, premium income continued to fall sharply due largely to shrinking demand
Underwriting profitability in europe1 was about the same in 2015 as in 2014, with an average combined ratio of about 94%. Underwriting results were stable to slightly stronger across the board, based on a low loss burden from natural catastrophes and solid technical results. in Germany and italy, underwriting results in motor are moderating. This year’s large winter storms mostly affected northern europe, especially windstorm elon-Felix and winter storm niklas, which triggered more than eUr 1 billion in insured losses. The nordic countries in particular suffered from windstorm elon-Felix, which drove their combined ratio up by 6.5 percentage points in the first quarter. Germany was also affected by the two storms, which in part explains its higher combined ratio of 98%. in December, several storms induced heavy rains in the UK and ireland which led to insured flood losses of around GBP 1.3 billion in the UK alone.
Market size in USD billions estimated global premium income in 2015
Market overview Global non-life reinsurance premiums in 2015 totalled about USD 170 billion, 26% of which stemmed from ceding companies in emerging markets. in general, reinsurance demand is a function of the size and capital resources of primary insurance companies, as well as of the risk profile of the insurance products provided.
Outlook real premium growth in the non-life reinsurance sector is expected to weaken in 2016. Mature markets are expected to be impacted by the current rate softening. in the emerging markets (with the exception of china), premium growth is expected to improve on the back of macroeconomic recovery, particularly in latin america. in china, reinsurance demand is expected to decline following the introduction of c-rOSS, its new solvency regime. For 2017, a recovery of the growth trend is expected, driven by stronger sales in primary insurance in all regions.
Given the strong erosion of profit margins over the last two years, property catastrophe reinsurance rates are close to bottoming out. across lines of business, the softening of average rates is expected to moderate. For casualty and specialty lines, significant differences in pricing developments by market and line of business are expected.
reinsurance non-life 3 claims reserve releases lower the amount of claims incurred which are booked in a certain financial year, thus positively impacting underwriting results and net income. claims reserve additions add to the reported claims burden in a financial year, with the opposite effect on the P&l. For a more detailed discussion, see also in contrast, the industry saw a fourth year of strong underwriting results amidst an absence of large natural catastrophe losses. Preliminary data indicate a combined ratio of around 90% for 2015. However, this does not reflect underlying underwriting profitability, because natural catastrophe losses have been lower than anticipated and the claims ratio has been reduced by positive reserve releases from redundant reserves for prior years’ claims.3 excluding these factors, the underlying combined ratio would be around 100% for 2015.
The investment environment for reinsurers is the same as it is for insurers: challenging. The industry achieved a mere 3% in its average annualised investment yield in 2015, down from 2014. nevertheless, based on the strong underwriting results, an overall rOe of around 13% was achieved for non-life reinsurance for 2015. adjusted for the special factors that boost the underwriting result such as low natural catastrophe losses and reserve releases, the average rOe would be around 6%-7%.
The reinsurance industry’s capital base remains strong. The capital position of global reinsurers, the traditional source of capital, weakened by 6% in the first half of 2015. The main reasons were currency fluctuations, which contributed to a decline in US dollar-denominated reinsurance capital, continued strong capital management, which returned much of the industry’s net income to shareholders, and unrealised capital losses on bond and equity portfolios. comparing capital and premium developments in non-life reinsurance shows that premiums — as a proxy for insured exposures — have roughly traced capital development since 2009. capital growth has been managed increasingly via dividend payments and share buy-back programmes in recent years.
in mature markets, real premium income growth is estimated to have slowed to 2% in 2015 from 4.2% in 2014. The slowdown would have been more pronounced if not for the overall benign inflation environment, driven by the sharp decline in energy prices. Growth decelerated or continued to decline in most continental european markets, and premiums grew at a slower pace in 2013 and 2014. in Germany, term sales were down 4.4% in the first two quarters of the year, while sales of disability products grew by 5.8%. long-term care insurance sales in Germany also improved. in italy, protection sales are projected to have grown marginally.
The savings business contracted or slowed due to low interest rates, equity market volatility, and the impact of pension reforms in some markets (eg, the UK). low interest rates have made it harder for insurers to earn enough investment income and in many countries, guarantees and profit sharing have been reduced. Savings-type insurance has also become more expensive for regulatory reasons (eg, higher capital requirements for long-term guarantees, or asset/liability mismatches). This has made savings- type insurance less attractive for both policyholders and suppliers. Together with adjusting their products and offering more flexible guarantees, insurers are introducing new concepts such as a guarantee of a certain return over the full duration of the contract, rather than an annual return.
−5% Market performance estimated global premium growth in 2015 canada and Japan. in australia, premium income contracted following robust growth in 2014, the weakness stemming mainly from volatility in investment-linked products and also poor performance of disability and income protection products. in the US and the UK, premium income returned to growth in 2015 following contraction in the previous two years.
The protection business in the UK is growing again after a long period of contraction. in the first half of the year, protection sales rose by 3.7% following annual declines of close to 4% in both 20 Swiss Re 2015 Financial report
Global premiums in traditional life reinsurance, consisting of mortality and morbidity, are estimated to have grown by 2% in real terms in 2015. in mature markets, a 1% increase was driven by positive developments in the UK and the large continental european markets, while premiums in the US continued to contract as a result of lower cession rates and still-weak protection sales. in the emerging markets, premiums grew by 8%. Growth in asia (particularly china) and latin america was strong, mirroring the primary market.
The operating margin of the life reinsurance industry was 8% of net premiums earned in 2015, compared to 7% in 2014, based on improvements in the underwriting results. The contribution from investments further declined, due to the ongoing low interest rate environment.
The strategic framework shown to the right represents the next phase of a transformation journey that we accelerated in 2012, when we completed our Business Unit structure. Our aim then was to become the most successful capital allocator in insurance and associated asset risks while maintaining our strong balance sheet.
The framework is our roadmap for continuing on that path, focusing on four key areas.
The first area for strategic action is to systematically allocate capital to risk pools and revenue streams. capital allocation is at the core of our Group’s strategy. We allocate capital to risk pools and measure performance over time. Disciplined and agile capital allocation is the key to outperformance and the engine to pursue our strategic ambitions.
The second area is to broaden and diversify our client base. Many lines of business face shrinking cession rates and competition is increasing overall. at the same time, new risks (such as cyber) are emerging while other underinsured risks continue to grow. We believe new client segments and distribution channels can strengthen our position as the supply and demand equilibrium shifts.
lastly, it is important to emphasise differentiation. This strategic priority builds on what makes us who we are: our financial strength, our client relationships and our status as a knowledge company. We must continue to offer superior service and a differentiated and unique approach to our clients.
We believe these four areas of strategic action will better position us to deliver on our new Group financial targets, which we communicated in February 2015.
The strategy supports our overall mission: together, we apply fresh perspectives, knowledge and capital to anticipate and manage risk. That’s how we create smarter solutions for our clients, helping the world rebuild, renew and move forward.
economic net worth per share 10% growth per annum, using year-end enW plus dividends, divided by previous year-end enW.
Optimise resources and platforms to support capital allocation emphasise differentiation areaS OF STraTeGic acTiOn Financial TarGeTS
Our capital allocation strategy requires us to attract the right talent and to equip them with the right resources, platforms and processes. reaching new markets, for example, often requires local expertise. For this reason our local talent pool in high growth markets has more than doubled between 2011 and 2015.
Financial strength, client relationships, and being a knowledge company are the main components of our differentiation. all three have underpinned our strong performance. They remain pivotal going forward. Our clients take comfort in our financial strength. This helps form direct client relationships through which we can deliver large and tailored transactions. as part of our offer we bring top talent and a deep understanding of market dynamics — the practical benefit of being a knowledge company.
Our Group delivered a strong net income of USD 4.6 billion.
Swiss Re reported a strong net income of USD 4.6 billion for 2015, compared to USD 3.5 billion for 2014. Earnings per share were USD 13.44 or CHF 12.93, up from USD 10.23 (CHF 9.33) for 2014. All three Business Units contributed to this result. The underwriting performance of Property & Casualty Reinsurance and Corporate Solutions remained solid, reflecting the high quality of those portfolios. Life & Health Reinsurance met its return on equity target after the management actions of 2014. Admin Re® again generated significant gross cash for the Group.
corporate Solutions delivered net income of USD 340 million in 2015, compared to USD 319 million in 2014, reflecting continued profitable business performance across most lines of business and investment activities.
Business performance Premiums earned and fee income for the Group totalled USD 30.2 billion for 2015, compared to USD 31.3 billion for 2014, mainly reflecting unfavourable foreign exchange rate movements. at constant exchange rates, premiums and fees increased by 3.7%.
corporate Solutions premiums earned were USD 3.4 billion. at constant exchange rates, premiums earned increased by 1.7%. The corporate Solutions combined ratio was 93.8% in 2015, compared to 93.0% in 2014, impacted by higher large man-made losses.
Investment result and expenses The return on investments was 3.5% for 2015, compared to 3.7% for 2014, with the decrease mainly attributable to lower net investment income from equity-accounted investments.
The Group’s non-participating net investment income was USD 3.4 billion for 2015, compared to USD 4.1 billion for 2014. The decrease mainly related to net asset outflows and lower market value gains on equity-accounted investments. The Group’s fixed income running yield for 2015 was 3.0%, compared to 3.3% for 2014.
acquisition costs for the Group slightly decreased to USD 6.4 billion in 2015. at constant foreign exchange rates, acquisition costs increased by 4.0% due to a higher share of proportional business written.
Other expenses were USD 3.3 billion in 2015, a slight increase from the previous period, fully accounted for by the release of a premium tax provision in asia in the third quarter of 2014.
interest expenses amounted to USD 579 million in 2015, down from USD 721 million in 2014, mainly due to the unwinding of an asset funding structure supporting a longevity transaction in life & Health reinsurance in the fourth quarter of 2014.
Underwriters quantify the risk of providing insurance protection for homes, cars, ships, health expenses and many other risks. They determine the premium that is commensurate with each risk and set the terms and conditions of insurance policies and reinsurance contracts. They decide which risks are acceptable and which risks are not. Our underwriters seek to protect Swiss re’s book of business from exposures they feel will make a loss or put too much of Swiss re’s capital at risk. Underwriting is a cornerstone of our long-term success and one of Swiss re’s core competencies.
Our underwriters can respond to our clients’ often heterogeneous needs with innovative and tailored solutions such as multi-line deals with structural elements, longevity swaps, external run-off transactions or insurance-linked securities. Our ability to write bespoke transactions leads to deals that deliver better economics than commoditised open-market business.
Underwriting performance in 2015 The Group’s overall underwriting performance was strong with technical profitability across all businesses supporting the 31% increase in net income from USD 3.5 billion in 2014 to USD 4.6 billion in 2015. The Group's claims ratio for property and casualty decreased from 55.4% in 2014 to 53.3% in 2015.
However, 2015 was impacted by an above average amount of large man-made losses, while in 2014 large man-made losses came in close to expected. The 2015 man-made large loss burden included the explosion in the port of Tianjin, china (USD 250 million), a dam burst in Brazil and a fire on an oil platform in the Gulf of Mexico.
Both periods benefited from prior-year development: USD 950 million in 2015 compared to USD 673 million in 2014. it is important to note that these prior-year developments were not 'one-offs' caused by good luck, but valuable earnings contributions from effective risk selection and disciplined underwriting in prior accident years.
exposure growth should continue to accelerate gradually in line with the economy. in high growth markets, and especially in asia, we expect to see strong exposure growth for both life and non-life insurance, further accelerated by urbanisation and increasing insurance penetration among the growing middle classes. Fiscal austerity is expected to drive risks from the public to the private sector, creating opportunities in infrastructure, pensions, healthcare and natural catastrophes. More immediate opportunities exist in other areas with insurance protection gaps.
Strategy During 2015 Swiss re continued to maintain a balanced asset allocation with a steady allocation to government bonds and cash. We selectively added corporate bonds and loans across multiple currencies to further diversify our credit portfolio. We also significantly expanded our real estate allocation by 0.7% after a reduction in equity and hedge fund exposures during 2014.
Guido Fürer Group chief investment Officer 28 Swiss Re 2015 Financial report
The return on investments for 2015 was 3.5%, compared to 3.7% in 2014, with the decrease mainly attributable to lower net investment income from equity-accounted investments.
The Group’s non-participating net investment income decreased to USD 3.4 billion in 2015 compared to USD 4.1 billion in 2014, largely driven by net asset outflows, reducing the size of the fixed income portfolio, as well as lower earnings from equityaccounted positions. The Group’s fixed income running yield of 3.0% was lower than 3.3% for 2014, driven by recent net purchases in a lower yield environment, net outflows of higher yielding assets and a lower impact from extraordinary paydowns.
The Group reported non-participating net realised investment gains of USD 1.2 billion in 2015, mainly as a result of gains from sales of fixed income and equity securities, as well as gains on insurance-related items. The result was significantly higher than USD 567 million in 2014, which was impacted by the unwinding of an asset-funding structure in life & Health reinsurance and the sale of aurora in admin re®.
The total return on investments was flat in 2015, reflecting the impact of rising interest rates and credit spread widening over the year.
Outlook Overall, the outlook for 2016 is one of moderate growth, but financial market risks remain skewed to the downside. central bank policy divergence will remain a key theme as the US and UK are expected to begin raising policy rates, while the european central Bank (ecB) and Bank of Japan (BoJ) are expected to extend their quantitative easing programmes. The US Federal reserve (US Fed) and Bank of england (Boe) have emphasised that the path of rate increases will be very gradual, as inflationary pressure will remain fairly muted and will occur against the backdrop of steadily slowing emerging market economies (including china). The UK has the additional headwind of the referendum on its membership in the eU. Depending on the outcome, this could remain a key theme for the UK and europe over the coming years.
net investment income in USD billion, 2015 (2014: USD 4.1 billion)
Fee income from policyholders 506 463 –8 net investment income – non-participating business 4 103 3 436 –16 net realised investment gains/losses – non-participating business 567 1 206 113 net investment result – unit-linked and with-profit business 1 381 814 –41
Expenses claims and claim adjustment expenses –10 577 –9 848 –7 life and health benefits –10 611 –9 080 –14 return credited to policyholders –1 541 –1 166 –24 acquisition costs –6 515 –6 419 –1 administrative expenses –3 056 –3 039 –1 Other expenses –99 –264 167 interest expenses –721 –579 –20 Total expenses –33 120 –30 395 –8
Income before income tax expense 4 227 5 319 26 income tax expense –658 –651 –1 Net income before attribution of non-controlling interests 3 569 4 668 31 income attributable to non-controlling interests –3 – Net income after attribution of non-controlling interests 3 569 4 665 31 interest on contingent capital instruments –69 –68 –1 Net income attributable to common shareholders 3 500 4 597 31
Total shareholders’ equity as of 1 January 32 952 35 930 9 net income attributable to common shareholders 3 500 4 597 31 change in unrealised gains/losses on securities, net 3 796 –2 670 – change in other-than-temporary impairment, net of tax 3 –8 – change in foreign currency translation –778 –1 012 30
Purchase/sale of treasury shares and shares issued under employee plans –114 –521 – Other changes in equity –300 –191 –36 Total shareholders’ equity as of 31 December 35 930 33 517 –7 non-controlling interests 111 89 –20 Total equity as of 31 December 36 041 33 606 –7
Policy loans, mortgages and other loans 3 205 3 123 –3 investments for unit-linked and with-profit business 25 325 28 241 12
Strategy and priorities Our reinsurance Business Unit strategy focuses on differentiation and profitable growth through a dedicated emphasis on profitable risk pools, enabled by a strong operating platform and talent base.
in the r&n segment, we have been investing significant effort to understand the needs of our clients and tailoring our offerings accordingly since 2011. as a result, we have won an average of more than one hundred new P&c clients per year and improved the retention of existing ones.
in health, we address the needs of ageing populations and are capitalising on the opportunities from increasing demand for primary health products, particularly in asia and the US. We expect cessions to the reinsurance market to grow along with demand in the primary market.
Finally, we continue to expand geographically. High growth markets now account for about 20% of our premiums. Our focus in high growth markets is to establish high-performing local teams, further enhance client loyalty and support efforts to increase overall market penetration.
Optimising resources and platforms The reinsurance Business Unit is continuously improving its operations and processes. We have systematically relocated client-facing functions to high growth markets, particularly asia. By combining client management and underwriting responsibility, we have become more effective for our r&n clients. We have also continued to invest in iT platform optimisation in both P&c and l&H.
Performance net income for 2015 was USD 3.0 billion. The result reflected solid underwriting results supported by benign natural catastrophe experience and net reserve releases from prior accident years. The overall result was impacted by a large man-made loss burden, notably the explosion in Tianjin, china, estimated to impact the property and marine business lines by USD 235 million.
The combined ratio was slightly higher at 86.0%, compared to 83.7% in 2014.
Combined ratio Property & casualty reinsurance reported a solid combined ratio of 86.0% in 2015, compared to 83.7% in the previous year. Both periods benefited from a better than expected natural catastrophe experience and favourable prior-year reserve developments.
The impact from natural catastrophes in 2015 was 8.7 percentage points below the expected level of 9.9 percentage points. Favourable development from prior accident years improved the 2015 combined ratio by 5.1 percentage points compared to 3.9 percentage points in 2014.
Lines of business Property The property combined ratio was 73.1% in 2015, in line with 69.7% in 2014, supported by benign natural catastrophe loss experience and favourable prior-year claims experience.
Property & Casualty results USD millions 2 014 2015 change in %
net realised gains were USD 497 million in 2015 compared to USD 730 million in 2014, as the prior period included additional gains from the sale of equity securities and alternative investments, which were partially offset by additional gains from the sale of government bonds in the current period.
Shareholders’ equity The return on equity for 2015 was 22.2% compared to 26.7% in 2014, mainly due to lower earnings in 2015. common shareholders’ equity for the business segment was USD 13.0 billion at the end of 2015 compared to USD 13.9 billion at the end of 2014. The decrease was driven by dividend payments to the Group, unrealised losses and lower 2015 net income.
Outlook Price erosion due to abundant capital and low loss occurrence continues for property, except for some loss-affected programmes. For special lines, rates are also under pressure, with significant differences by markets and lines of business. casualty markets also saw rate decreases but overall remain more stable, with significant differences by segment.
Top 7 reinsurers include: Swiss re, Munich re, Hannover re, Partner re, ScOr, everest re, alleghany
Performance life & Health reinsurance met its return on equity target of 10%–12% for 2015 which was announced at the investors’ Day in June 2013. The management actions taken in relation to the pre2004 US individual life business, the unwinding of an asset funding structure for a longevity transaction, as well as capital optimisation and asset rebalancing have all contributed to help life & Health meet the target and set the foundation for future profitable growth. Managing the in-force business will continue to be a key priority for Swiss re while growing new business in 2016 and beyond.
Net income net income for 2015 was USD 939 million, compared to a net loss of USD 462 million in 2014. The strong performance in 2015 reflects significant improvement in operating results, net realised gains and lower interest charges.
The loss in 2014 was mainly due to the management actions in respect of the pre-2004 US individual life business, as well as to net realised losses driven by the unwinding of the asset funding structure.
Operating income The life segment reported operating income of USD 641 million compared to a loss of USD 66 million in 2014. The current year results benefited from the management actions taken in the prior year in relation to the pre-2004 US individual life business, and a less unfavourable pre-2004 US post-level term business result in the current period. These were partly offset by lower investment income following the unwinding of an asset funding structure supporting a longevity transaction. The loss in 2014 was mainly due to management actions in respect of the pre-2004 US individual life business.
Operating income for the health segment increased to USD 593 million compared to USD 397 million in 2014. The 2015 results benefited from interest rate updates in the valuation of disabled life reserves, and were adversely impacted by reserve strengthening for UK critical illness business. The 2014 results were impacted by an increase in disabled life reserves in the US and UK.
Fee income from policyholders 53 49 –8 net investment income – non-participating business 1 544 1 331 –14 net realised investment gains/losses – non-participating business –255 310 – net investment result – unit-linked and with-profit business 75 42 –44 Other revenues 5 –
Income/loss before income tax expense –476 1 134 – income tax expense/benefit 63 –146 – interest on contingent capital instruments –49 –49 0 Net income/loss attributable to common shareholders –462 939 –
Premiums earned and fee income by L&H segment, 2014–2015 (USD millions)
We will continue to pursue growth opportunities in high growth markets and apply our experience to help reduce the protection gap in all regions. We are responding to the expanding need for health protection driven by ageing societies and we are pursuing large transaction opportunities, including longevity deals.
l&H reinsurance revenues and operating income share vs top reinsurers revenues1 Operating income2 1 limited comparability due to different accounting standards; Top 6 reinsurers include: Swiss re, Munich re, Hannover re, Partnerre, ScOr, rGa.
“in 2015 we actively managed the cycle and delivered a strong return on equity.”
Performance net income was USD 340 million in 2015, an increase of 6.6% compared to USD 319 million in 2014. The 2015 result was driven by continued profitable business performance across most lines of business and investment activities.
Net premiums earned net premiums were USD 3.4 billion in 2015, a decrease of 1.9% compared to 2014, driven by the challenging market, most notably in property in north america and latin america, and foreign exchange rate movements. at constant exchange rates, net premiums increased by 1.7%. Gross premiums written and premiums for insurance in derivative form, net of internal fronting for the reinsurance Business Unit, decreased 7.9%, or 4.3% at constant exchange rates, to USD 3.9 billion in 2015 compared to USD 4.2 billion in 2014.
Combined ratio The combined ratio increased by 0.8 percentage point to 93.8% in 2015 compared to 93.0% in 2014, impacted by higher large man-made losses and higher expenses as a result of investment in long-term growth.
The quality of the book remained consistently high year on year, with better than expected natural catastrophe experience.
The credit combined ratio increased to 91.1% in 2015 compared to 72.3% in 2014, driven by large surety losses in latin america and asia.
Revenues net investment income 94 135 44 net realised investment gains 168 142 –15 Other revenues 3 9 –
Income before income tax expense 497 471 –5 income tax expense –179 –129 –28 income attributable to non-controlling interests 1 –2 – Net income attributable to common shareholders 319 340 7 claims ratio in % 59.6 57.8 expense ratio in % 33.4 36.0 combined ratio in % 93.0 93.8
Investment result The return on investments for 2015 was 3.0% compared to 2.6% in 2014, reflecting an increase in the net investment income of USD 36 million and net realised gains of USD 13 million.
net investment income increased to USD 149 million in 2015 compared to USD 113 million in 2014, in part due to business growth and an ensuing increase in the investment portfolio. net realised gains were USD 107 million in 2015 compared to USD 94 million in 2014, as the current year included additional net realised gains on sales of equity securities.
Shareholders’ equity common shareholdersʼ equity remained stable at USD 2.3 billion since the end of 2014, with a USD 200 million dividend paid to the Group, offset by net income for the year. The return on equity was 14.8% in 2015, compared to 12.5% in 2014.
Outlook Prices for commercial insurance are under significant pressure, with a growing number of segments operating at unattractive rate levels. corporate Solutions has maintained its commitment to underwriting discipline while achieving its return on equity ambition for 2015. corporate Solutions believes that it is well positioned to successfully navigate an increasingly challenging market thanks to its value proposition, strong balance sheet and selective underwriting approach, but is not fully insulated from the general market environment.
The Environmental and Commodity Markets (ECM) team of Corporate Solutions offers insurance and derivative contracts covering weather perils and other risks, contributing approximately 8% of total premium.
in a growing industry that requires multi-billion dollar investments, the benefits of cash flow stability can not be underestimated.
in 2015 admin re® made a strong contribution to the Group and delivered against its strategy. Since 1 January 2016 it has become part of life capital.
Value extraction relates to the active management of the portfolios of assets and blocks of businesses and a focus on consistently creating value through capital and tax synergies.
Performance admin re® announced the acquisition of Guardian Financial Services (Guardian) in September 2015, which closed in January 2016 following regulatory approval. The acquisition is a strong demonstration of progress against admin re®’s strategy to be a leading closed life book consolidator in the UK. The sale of aurora national life assurance company (aurora) closed in april 2015, continuing admin re®’s exit from the US market; in the third quarter, HSBc policies were successfully migrated to admin re® platforms.
admin re® generated gross cash of USD 543 million in 2015 compared to USD 945 million in the prior year. The 2015 result includes the positive impact of USD 231 million primarily from updates to UK annuitant mortality assumptions and USD 80 million from the UK half year statutory valuation. The 2014 result included USD 217 million from the sale of aurora and USD 225 million release of surplus reserves held against the risk of credit default. in addition, the prior year included USD 234 million following the finalisation of the UK statutory valuations. a dividend of USD 401 million was paid to the Group in June 2015.
Investment result The return on investments was 4.7% for 2015 compared to 4.6% for 2014, reflecting a lower average invested asset base, which more than offset the impact of the decrease in the investment result of USD 156 million. The decrease in the investment result was mainly attributable to a reduced asset base, following the sale of aurora.
Expenses expenses were USD 320 million in 2015 compared to USD 359 million in 2014. admin re® delivered against its strategy with cost reductions in 2015 and lower deal-related costs.
Shareholdersʼ equity common shareholders’ equity at the end of 2015 was USD 4.9 billion or USD 1.5 billion lower than as of 31 December 2014. The decrease was mainly due to dividends paid to the Group and a USD 1.0 billion decrease in unrealised gains, driven by increasing interest rates in the UK and the US during 2015, partially offset by net income.
The return on equity was 7.5% for 2015, compared to 0.6% for 2014. The 2014 result included the loss following the sale of aurora. excluding this loss, the return on equity would have been 3.8% for 2014. The year-on-year increase was mainly due to higher net income and lower average equity in 2015.
Swiss Re shares Swiss re had a market capitalisation of cHF 36.4 billion on 31 December 2015, with 370.7 million shares outstanding, of which 337.7 million are entitled to dividends. Swiss re shares are listed in accordance with the main standard on the SiX Swiss exchange (SiX) and are traded under the ticker symbol Sren.
American Depositary Receipts (ADR) in the US Swiss re maintains an aDr level i programme (OTc symbol SSrey). in June 2015 Swiss re changed the ratio of american Depositary Shares (aDS) to Swiss re shares from 1:1 to 4:1, increasing liquidity and bringing the aDS trading price closer to typical trading prices of U.S. securities.
Share price performance Swiss re shares opened the year at cHF 83.65. On 15 January 2015, the day on which the Swiss national Bank discontinued the cHF to eUr exchange rate floor, the shares experienced an intra-day low of cHF 74.95. an intra-day high of cHF 99.75 was achieved on 29 December 2015. The year-end share price was cHF 98.15.
During 2015 the STOXX europe 600 insurance index (SXiP) increased by 14.0% and the broader index of Swiss blue chips (SMi) decreased by 1.8%. The Swiss re share increased by 17.3%.
Dividends The Board of Directors proposes a regular dividend of cHF 4.60 per share for 2015. as the tax privileged legal reserves from capital contributions were exhausted with the payment of the 2014 dividend, the dividend paid for 2015 will be subject to 35% Swiss withholding tax.
Public share buy-back programme The Board of Directors launched on 12 november 2015 the public share buy-back programme authorised by the aGM 2015. This programme was completed on 2 March 2016. For further information please visit www.swissre. com/investors/shares/share_buyback/
1 Swiss re’s aDrs are not listed but traded over the counter; four aDrs correspond to one Swiss re share
Insurance indices STOXX europe 600 insurance 6.09 Bloomberg europe 500 insurance 6.37 FTSeurofirst 300 insurance 7.24 Dow Jones insurance Titans 30 2.92
Sustainability indices Dow Jones Sustainability europe 0.41 Dow Jones Sustainability World 0.90 FTSe4Good Global 0.19 own shares for the purpose of cancellation by way of a public share buy-back programme of up to cHF 1.0 billion at any time ahead of the 2017 aGM. Swiss re will ask the aGM in april 2017 permission to cancel the repurchased shares.
January February March april May June July august September October november December closing price ̤ Volume on-exchange ̤ Volume off-exchange
 Closing price  Volume on-exchange  Volume off-exchange 2014 Annual results unaudited
Key share statistics 2011–20151 of which Treasury shares and shares reserved for corporate purposes 27 970 432 27 537 673 28 511 298 28 507 491 32 967 2263 cHF unless otherwise stated
Price per share year-end 47.87 65.90 82.05 83.65 98.15 Price per share year high (intra-day) 60.75 68.10 84.75 86.55 99.75 Price per share year low (intra-day) 35.12 47.25 66.10 69.25 74.95 Daily trading volume (in cHF millions) 73.00 58.00 78.00 95.00 134.00 Market capitalisation10 (in cHF millions) 17 746.00 24 430.00 30 417.00 31 010.00 36 385.00 aDr price at year-end (in USD) 50.55 72.30 92.38 84.57 24.5311 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 includes 4.4m shares repurchased under the share buy-back programme launched on 12 november 2015, which concluded on 2 March 2016. 4 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. 5 in addition to the regular dividend of cHF 3.85 per share a special dividend of cHF 4.15 per share was paid in 2014. 6 in addition to the regular dividend of cHF 4.25 per share a special dividend of cHF 3.00 per share was paid in 2015. 7 Dividend divided by year-end share price of corresponding year.
Overview 50 Capital management 52 Economic Value management 55 liquidity management 57 Risk management 59 Risk assessment 64
In 2015 we continued to be very strongly capitalised and to apply our risk appetite framework, which establishes the overall approach through which we practise controlled risk-taking throughout our Group.
Capitalisation Throughout 2015 we held capital well in excess of applicable external capital adequacy requirements. Under the swiss solvency Test (ssT), the group’s regulatory capitalisation was 223%, as submitted to the swiss Financial market supervisory Authority (FiNmA) in April 2015. The group ssT economic capitalisation at the end of 2015 is estimated at above 200%. Rating agencies A.m. Best, moody’s and standard & poor’s (s&p) rated swiss Re’s financial strength ‘superior,’ ‘excellent’ and ‘very strong’, respectively (see page 54).
Based on the group’s capital strength, the Board of directors propose an 8.2% increase in the 2015 regular dividend to CHF 4.60 per share. in addition, the Board of directors proposes a public share buy-back programme of up to CHF 1.0 billion purchase value, exercisable until the Agm in 2017.
On the insurance risk side, our property and casualty risk slightly increased due to continued reductions in our external hedging. At the same time, our overall life and health risk decreased, mainly driven by the strengthening of the Us dollar.
Risk management is embedded throughout our business. For each Business Unit, we have dedicated Chief Risk Officers and risk experts who analyse and challenge business decisions. They apply a consistent Enterprise Risk management approach across the group to ensure a fully integrated view of risk, and enable sustainable commercial success for swiss Re. The independence of the Business Unit CROs is maintained by a direct reporting line to the group Chief Risk Officer.
swiss Re’s Risk management function is an integral part of our business model and key to the controlled risk-taking that underpins our financial strength. Risk management is mandated to ensure that the group and its Business Units have the necessary expertise, frameworks and infrastructure to support good risk-taking. in addition, it monitors and ensures adherence to applicable frameworks and also performs reserving and reporting activities.
̤ First group holding company subordinated debt facility of Usd 700 million.
We have already achieved Usd 6 billion of deleveraging ahead of our 2016 target of Usd 4 billion.
Support business growth in Life Capital in line with leverage targets
Legal entity capital management Our regulated subsidiaries are subject to local regulatory requirements, which for our EU subsidiaries include solvency ii. At the subsidiary level we set the 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.
Swiss Re 2015 Financial Report 53 6 billion Net deleveraging since year-end 2012 (Usd)
Rating agency capital requirements Rating agencies assign credit ratings to the obligations of swiss Re and its rated subsidiaries.
Each rating agency uses a different methodology for this assessment; A.m. Best and s&p base their evaluation on proprietary capital models.
On 30 November 2015, s&p affirmed the AA- financial strength of swiss Re and its core subsidiaries. The outlook on the rating is “stable”. s&p revised upward its assessment of swiss Re’s management and governance score. s&p believes that swiss Re’s management team has established a track record of strong execution against its strategy and groupwide financial targets.
EVm is an integrated economic accounting and steering framework based on market-consistent valuations and defines the method for measuring value creation for all business activities of swiss Re.
Economic Value Management (EVM) is Swiss Re’s integrated economic valuation framework for planning, pricing, reserving and steering the business. Since 2003, Swiss Re has used the EVM framework as a tool to support business and strategic financial decisions, including compensation. EVM also provides the basis for determining available capital under the SST and, in the future, under Solvency II.
Market-consistent valuations All traded assets and liabilities are marked to market, based on quoted prices in active markets or observable inputs. Assets and liabilities that are not traded 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-ratesensitive life business), they are valued on a market-consistent basis using stochastic models and other appropriate valuation techniques.
Performance split of underwriting and investment activities EVm values insurance underwriting and investment activities separately. Underwriting activities create value by raising funds in insurance markets at a lower cost than through other sources. The investment functions are assessed on a risk-adjusted basis. This makes possible a like-for-like comparison of underwriting and investment activities.
Closed-book approach EVm recognises all cash flows associated with a new contract at inception, and any changes in estimates as they occur. in comparison, the deferral and matching principle under Us gAAp postpones recognition of revenues until they are earned and matches expenses to those revenues. EVm excludes the recognition of all potential future new business activities, as well as potential renewals.
Performance measurement after capital costs EVm explicitly recognises opportunity costs for shareholder capital. Cost-of- capital charges include the base cost of capital and frictional capital costs. The base cost of capital is reflected through a charge for risk-free returns on available capital and market risk premiums. market risk premiums compensate for systematic, nondiversifiable risk exposure, mainly assumed through investing activities. Frictional capital costs compensate for agency costs, costs of potential financial distress and regulatory (illiquidity) costs; they are reflected through a 4% charge on available capital and an average 2% charge on leverage.
in 2015, ENW decreased by Usd 1.0 billion to Usd 37.4 billion at the end of december 2015. 2015 EVm income of Usd 3.7 billion was more than offset by the swiss Re group’s dividend payments and foreign exchange rate movements.
31% Cash, short-term investments and reverse repos 50% government bonds AAA rated & Us 13% Other developed market government bonds investment grade 6% developed market supranational, agencies and municipal bonds 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
Liquidity position of the Swiss Reinsurance Company Ltd (SRZ) liquidity pool The sRZ liquidity pool is the primary liquidity pool of the group. The estimated total liquidity sources in the sRZ liquidity pool available within one year, after haircuts and net of short-term loans from swiss Re ltd, amounted to Usd 19.6 billion as of 31 december 2015, compared with Usd 20.4 billion as of 31 december 2014. The 2015 total includes Usd 13.7 billion of liquid assets and cash, referred to as “spot liquidity”, compared with Usd 15.0 billion in 2014. Based on the internal liquidity stress tests described above, we estimate that the sRZ liquidity pool holds surplus liquidity after dividends to swiss Re ltd.
Risk management is integrated into the group’s key business decisions and promotes a forward-looking awareness of our risk profile.
At swiss Re, all risk-taking activities are subject to our group Risk policy. The policy describes swiss Re’s risk mandate, including our group risk appetite framework (see page 60), and articulates the group’s four fundamental risk management principles. We strive to apply these four principles consistently across all risk categories at group, Business Unit and legal entity level: ̤ Controlled risk-taking: financial strength and sustainable value creation are central to swiss Re’s value proposition. We thus operate within a clearly defined risk policy and risk control framework.
̤ independent risk controlling: dedicated specialised units within Risk management monitor all risk-taking activities. They are supported by independent Compliance and group internal Audit functions.
̤ Risk identification — ensures that all risks to which swiss Re is exposed are transparent in order to make them controllable and manageable.
̤ Risk exposure control — allows swiss Re to control its risk-taking decisions and total risk accumulations, including the passive risk we are exposed to through our operations.
̤ Risk reporting — creates internal risk transparency and enables swiss Re to meet external disclosure requirements.
The Risk management function facilitates risk awareness by promoting a forwardlooking assessment of the group’s risk profile. The function is integrated into the group’s key business decisions, seeking to be a trusted partner within swiss Re as well as for our external stakeholders.
̤ Risk tolerance represents the aggregate amount of risk that the group is willing to accept within the constraints imposed by its capital and liquidity resources, strategy, risk appetite and regulatory and rating agency requirements.
Additional governance for Business Units and legal entities is prepared as required and represents an addendum to the respective group or Business Unit documents.
Clear accountability in order to ensure clear control, accountability and independent monitoring for all risks, our risk governance distinguishes between three fundamental roles in the risk- taking process: ̤ Risk owner — establishes a strategy, assumes responsibility for achieving the objectives and maintains ultimate responsibility for the outcomes.
Group Executive Committee develops and implements the group risk management framework, sets and monitors risk capacity limits; some responsibilities are delegated to the group CRO and the Business Units
Business Unit Executive Teams Ensure that risk-taking decisions in their area conform to the Risk Control Framework
Compliance manages compliance risks, and oversees compliance with applicable laws, regulations, rules and swiss Re’s Code of Conduct
Group CRO leads the Risk management function and represents it within the group EC; advises the Board and the Finance and Risk Committee
Central Risk Management units manage financial market and credit risk; provide shared risk management services such as risk modelling, risk governance, political risks and emerging risks; maintain group frameworks for liquidity, operational and regulatory risks
The group EC is responsible for developing and implementing swiss Re’s group-wide risk management framework. it also sets and monitors risk capacity limits, oversees the Economic Value management framework (see page 55), determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The group EC has delegated various risk management responsibilities to the group Chief Risk Officer (CRO) as well as to the Business Units.
The group CRO, who is a member of the group EC, reports directly to the group CEO, and advises the group EC, the Chairman or the respective group Board Committees, in particular the Finance and Risk Committee, on significant matters arising in his area of responsibility. The group CRO leads the group Risk management function, which is responsible for risk oversight and control across swiss Re. The group Risk management function is comprised of central risk management units providing shared services, along with dedicated teams for Reinsurance, Corporate solutions and Admin Re® (life Capital since 1 January 2016) Business Units.
The three Business Unit risk teams are led by dedicated Chief Risk Officers, who report directly to the group CRO, and have a secondary reporting line to their respective Business Unit CEO.
While the risk management organisation is closely aligned to the business organisation in order to ensure effective risk oversight, all embedded teams and CROs remain part of the group Risk management function under the group CRO. This ensures their independence as well as a consistent group-wide approach to oversee and control risk.
The central risk management units support the CROs at group, Business Unit and lower levels in discharging their oversight responsibilities. They do so by providing services such as: ̤ Financial risk management ̤ specialised risk category expertise and accumulation control ̤ Risk modelling and analytics ̤ Regulatory relations management ̤ maintaining the central risk governance framework
The central teams also oversee group liquidity and capital adequacy and maintain the group frameworks for controlling these risks throughout swiss Re.
group Risk management is also in charge of actuarial reserving and monitoring of the reserve holdings of Corporate solutions and Admin Re®, whereas in Reinsurance the setting of the reserves is performed by valuation actuaries within the p&C and l&H Business management units.
Open risk culture swiss Re fosters and maintains a strong risk culture to promote risk awareness and support appropriate attitudes and behaviours towards risk-taking and risk management. Our risk culture provides the foundation for the efficient and effective application of our Risk management framework. Risk management reinforces the group’s risk culture by ensuring risk transparency, and fostering open discussion and challenge in the group’s risk-taking and risk management processes.
Overall risk remained within our risk tolerance despite higher financial market and credit risk due to inclusion of guardian Financial services.
In 2015, Swiss Reʼs overall risk increased by 3% mainly driven by higher financial market and credit risk exposure related to the portfolio of Guardian Financial Services (see page 51). Property and casualty risk also increased while the decrease in life and health risk partly alleviated the development.
to Usd 12.6 billion in 2015, mainly driven by the additional credit spread risk related to the assets of guardian Financial services. This is slightly offset by the reduction in equity risk reflecting negative market movements.
̤ Credit risk was 29% higher at Usd 3.4 billion, mainly reflecting the additional default and migration risk of the corporate bonds acquired with the guardian Financial services portfolio.
Financial market and credit ̤ Credit (default and migration) ̤ Credit spread ̤ Equity market ̤ Foreign exchange ̤ interest rate ̤ Real estate ̤ Fm inflation
Life and health ̤ lethal pandemic ̤ longevity ̤ mortality trend
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 above, which represents the difference between the group 99% tail VaR and the sum of standalone tail VaR amounts in the individual risk categories. The extent of diversification is largely determined by the selected level of aggregation — the higher the aggregation level, the lower the diversification effect.
Developments in 2015 swiss Re’s overall property and casualty risk increased slightly by 4%, mainly driven by higher natural catastrophe risk resulting from our strategic decision to reduce external hedging as well as from new business. The increase was partly offset by foreign exchange developments.
large and complex individual transactions that could materially affect the group’s and Business Units’ risk exposure require independent review and sign-off by Risk management before authorisation. This is part of our threesignature approval process (involving swiss Re’s underwriting, client management 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 transferring risk to capital markets through insurance-linked securities (such as the successor and mythen cat bond programmes).
The 200-year pandemic event shown in the table above remained stable at Usd 2.4 billion.
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.
Natural catastrophes Atlantic hurricane –4.3 −5.6 31 Californian earthquake –4.0 −3.8 −4 European windstorm –3.1 −2.6 −17 Japanese earthquake –3.1 −3.2 2
Life insurance lethal pandemic –2.4 −2.4 0 1 single event losses with a 200-year return period show for example that there is a 0.5% probability over the next year that the loss from a single Atlantic hurricane event could exceed Usd 5.6 billion. The impact excludes earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event.
The overall financial market risk increased by 4% to Usd 12.6 billion (see table on page 65). The increase reflects the inclusion of guardian Financial services (guardian) as well as changes to swiss Re’s asset allocation increasing in particular our credit spread risk. This increase is partly offset by a decrease in equity and interest rate risk.
The table on page 69 shows swiss Re’s sensitivity to various market scenarios. The potential loss from credit spread widening increased in 2015, reflecting the inclusion of the guardian portfolio (see page 51). Without the guardian transaction, the sensitivity of the portfolio to changes in credit spread would have decreased. The decrease in equity stress is driven by the impact of negative market movements on our equity portfolio as well as by the sale of hedge fund positions. The increase in real estate risk reflects additional investments mainly in Us real estates. The decrease in the interest rate scenario resulted from the reduction of swiss Re’s net short duration position to an almost balanced portfolio.
Financial Risk management regularly reviews and updates the risk framework and is also responsible for monitoring financial market risk in accordance with our risk management standards. The unit provides daily and weekly group-level reports on risks and on specific limits for internally and externally managed investment mandates as well as for the Business Units. These reports track exposures, document limit usage (which is independently monitored by Financial Risk management) and provide information on key risks that could affect the portfolio. specific limits are assigned to the line of business heads, who seek to optimise their portfolios within those limits. The reports are normally presented and discussed with the relevant business line responsibles at weekly meetings.
Credit risk is managed and monitored by our Credit Risk management unit within the central Financial Risk management team.
An aggregate credit stress limit is set by the group Executive Committee. in addition, we assign aggregate credit limits by Business Unit, corporate counterparty and country. These limits are based on multiple factors, including the prevailing economic environment, the nature of the underlying credit exposures and a detailed internal assessment of the counterparty’s financial strength, industry position and other qualitative factors. Financial Risk management is also responsible for regularly monitoring corporate counterparty credit quality and exposures, and compiling watch lists of cases that merit close attention.
To take account of country risks other than from credit default, swiss Re’s political and sustainability Risk management unit prepares specific country ratings in addition to the sovereign ratings used by the group and the Business Units. These ratings are considered in the decision-making process, and cover political, economic and security-related country risks.
swiss Re’s internal model is based on two important principles. First, it applies an asset-liability management 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 sub-portfolios and that different risk factors can have mutual dependencies.
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, the model and its parameters are continuously reviewed and updated to reflect changes in the risk environment and current best practice. in addition, the group complements its risk models by ensuring a sound understanding of the underlying risks within the company and by applying robust internal controls.
in November, the luxembourg regulator approved our internal model to be used for our legal entities in continental Europe, which report under the solvency ii regime.
A major enhancement in 2015 was the development of a new model for European winter storm risk. This proprietary model is used for underwriting, business steering and risk management purposes. it draws on state-of-the-art research and technology with a particular emphasis on expanding the knowledge of historical winter storms over the past 140 years.
Operational risk Operational risk represents the potential economic, reputational or regulatory impact of inadequate or failed internal processes, people and systems, or from external events. Operational risks include legal and compliance risks and the risk of a material misstatement in swiss Re’s financial reporting.
Operational risk is inherent within swiss Re’s business processes. As the company does not receive an explicit financial return for such risks, the approach to managing operational risk differs from the approach applied to other risk classes. The purpose of operational risk management is not to eliminate operational risks but rather to identify and assess them, in order to cost-effectively manage risks that exceed swiss Re’s tolerance for operational losses.
Strategic risk strategic risk represents the possibility that poor strategic decision-making, execution, or response to industry changes or competitor actions could harm swiss Re’s competitive position and thus its franchise value.
Overall responsibility for managing strategic risk lies with swiss Re’s Board of directors, which establishes the group’s overall strategy. The Board of directors of the holding companies of the respective Business Units are responsible for the strategic risk inherent in their specific strategy development and execution.
As part of their independent oversight role, Risk management, Compliance and group internal Audit are responsible for controlling the risk-taking arising from the implementation of the strategy.
swiss Re is strongly engaged in the regulatory debate, striving to mitigate potentially negative impacts while supporting reforms that could enhance the overall health of the sector, facilitate convergence of regulatory standards or generate business opportunities.
Regulatory developments and related risks that may affect swiss Re and its Business Units are monitored as part of regular oversight activities and reported to the executive management and Board of directors at group, Business Unit and legal entity level in regular risk reports.
in 2015, the global regulatory agenda continued to accelerate. governments and regulators rolled out new policies and conducted numerous consultations and field tests on regulations with direct impact on the insurance sector. many reform proposals reflect the financial supervision agenda set by the g-20, which includes a focus on internationally active insurance groups (iAigs) and global systemically important insurers (g-siis). Furthermore, regulators are increasing their work on compliance and market conduct issues.
swiss Re is actively engaged in dialogue on these initiatives and supports regulatory convergence as well as increased application of economic and risk-based principles. At the same time, we share the broad concerns of the insurance industry around the cumulative and cross-sectoral impacts of the reforms. some proposed regulations are more appropriate for the banking industry and do not adequately take into account the nature and benefits of insurance and reinsurance. Regulatory fragmentation is another key concern — particularly in Europe, with the challenges in introducing solvency ii, but also in the context of cross-border business and protectionist measures introduced in several growth and mature markets.
Under the guidance of the Financial stability Board, the international Association of insurance supervisors (iAis) continues its work of refining the designation methodology for g-siis, and is elaborating corresponding policy measures, especially in the areas of international capital standards, including higher loss absorbency (HlA), recovery and resolution planning and enhanced group-wide supervision.
Political risk political risk comprises the consequences of political events or actions that could have an adverse impact on swiss Re’s business or operations.
A dedicated political risk team identifies, assesses and monitors political developments worldwide. swiss Re’s political risk experts also exercise oversight and control functions for related risks, such as political risk insurance business; this includes monitoring political risk exposures, providing recommendations on particular transaction referrals, or risk reporting. They also provide specific country ratings that cover political, economic and security-related country risks; these ratings complement sovereign credit ratings and are used to support underwriting as well as other decision-making processes throughout the group.
in 2015, key issues addressed by dedicated task forces included the potential impact on swiss Re of the ongoing Eurozone crisis, the Uk referendum on EU membership and the conflict between Russia and Ukraine.
swiss Re seeks to raise awareness of political risk within the insurance industry and the broader public, and actively engages in dialogue with clients, media and other stakeholders. We also build relationships that expand our access to information and intelligence, and allow us to further enhance our methodologies and standards. For example, we participate in specialist events hosted by institutions such as the international institute for strategic studies, the international studies Association and the Risk management Association, and maintain relationships with political risk specialists in other industries, think tanks and universities, as well as with governmental and non-governmental organisations.
Sustainability risk sustainability risk comprises current and emerging environmental, social and ethical risks that may arise from individual business transactions or the way swiss Re conducts its operations and manages operational failures.
swiss Re’s continued business success depends on the successful management of such risks, thus helping to maintain the trust of its stakeholders. The group has a long-standing commitment to sustainable business practices, active corporate citizenship and good, transparent governance. All employees are required to commit to and comply with swiss Re’s values and sustainability policies.
potential sustainability risks are mitigated through clear corporate values and active dialogue and engagement with affected external stakeholders, as well as robust internal controls. These include a group-wide sustainability Risk Framework to identify and address sustainability risks across swiss Re’s business activities. The framework comprises sustainability-related policies ‒ with pre-defined exclusions, underwriting criteria and quality standards ‒ as well as a central due diligence process for related transactional risks.
sustainability risks are monitored and managed by dedicated experts in swiss Re’s group sustainability Risk team, which is also responsible for maintaining the sustainability Risk Framework. in addition, this unit supports swiss Re’s risk management and business strategy through tailored risk assessments and risk portfolio reviews, fosters risk awareness through internal training, and facilitates development of innovative solutions to address sustainability issues. Finally, it represents and advocates swiss Re’s position on selected sustainability risk topics to external stakeholders.
Emerging risks Anticipating possible developments in swiss Re’s risk landscape is an important element of our integrated approach to Enterprise Risk management. We encourage pre-emptive thinking on risk in all areas of our business, combining our broad claims experience and risk expertise with a structured horizonscanning process. The key objectives are to reduce uncertainty and help diminish the volatility of the group’s results, while also identifying new business opportunities and raising awareness of emerging risks, both within the group and across the industry.
We also publish an annual emerging risk report to share findings, raise awareness and initiate a risk dialogue with key external stakeholders.
overview 76 Group Structure and Shareholders 78 Capital Structure 81 Board of Directors 84 executive Management 102 Shareholder’s participation rights 108 Changes of Control and Defence Measures 109 auditors 110 Information policy 112
the Board of Directors assesses the Group’s corporate governance on a regular basis with the aim to align to new stakeholder demands.
In addition, they include at the Business Unit level: ̤ Business Unit Bylaws, defining the governance structure and principles within the Business Units reinsurance, Corporate Solutions and Life Capital in line with the Group Bylaws.
2015 Key focus areas Binding AGM votes on Board of Directors and Group EC compensation the annual General Meeting 2014 had approved the amendments to the articles of association required to comply with the “ordinance against excessive Compensation at public Corporations” (ordinance) which became effective on 1 January 2014. Based on the new provisions, the annual General Meeting 2015 was asked to vote with a binding effect on the compensation for the Board of Directors and the Group eC. proposals with respect to the following three motions were submitted to the annual General Meeting 2015 for binding votes: 1. the maximum aggregate amount of the compensation of the Board of Directors for the next term of office; 2. the maximum aggregate amount for the fixed and variable long-term compensation of the Group eC for the financial year 2016; and 3. the aggregate amount of variable short-term
̤ trevor Manuel and philip K. ryan were elected as new members to the Board of Directors by the shareholders at the annual General Meeting which took place in Zurich on 21 april 2015, whereas raymund Breu did not stand for re-election.
̤ Mathis Cabiallavetta, raymond K.F. Ch’ien, renato Fassbind, Mary Francis, rajna Gibson Brandon, C. robert Henrikson, Hans Ulrich Maerki, Carlos e. represas, Jean-pierre roth and Susan L. Wagner were individually re-elected by the annual General Meeting 2015 for a further one-year term of office as members of the Board of Directors.
̤ as of 1 January 2016, thierry Léger was appointed Ceo Life Capital and a member of the Group eC.
̤ as of 1 July 2016, Christian Mumenthaler, currently Ceo reinsurance, will become Group Ceo, succeeding Michel M. Liès who will retire.
̤ the annual General Meeting 2015 approved the three compensation motions with overwhelming majorities of the votes validly cast.
Legal structure — listed and non-listed Group companies Swiss re Ltd, the Group’s holding company, is a joint stock company, listed in accordance with the International reporting Standard on 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 47 of this Financial report. no other Group companies have shares listed. More information on the
Group companies is provided in note 19 to the Group financial statements on pages 237–239.
or not the voting rights can be exercised. notifications must also include financial instruments, regardless of whether cash or physically settled, constituting a purchase or a sale position. Since 1 January 2016, this provision has been transferred from SeSta to the Swiss Financial Markets Infrastructure act (FMIa)*. Upon receipt of such notifications, the company is required to inform the public by publishing within two trading days the notification on the electronic platform of the SIX Swiss exchange. the following table provides a summary of the current disclosure notifications of major shareholders holding more than 3% of the voting rights: In addition, Swiss re Ltd and Group companies held, as of 31 December 2015, directly and indirectly, 32 967 226 shares, which includes 4 420 000 shares repurchased under the public share buy-back programme Swiss re launched on 12 november 2015. this represents 8.9% of voting rights and share capital.
Registered shareholders by type as of 31 December 2015 68.5% Institutional shareholders 27.6% Individual shareholders 3.9% Swiss re employees 67.4% Institutional shareholders 28.6% Individual shareholders 4.0% Swiss Re employees Registered shareholdings by country as of 31 December 2015 50.9% Switzerland 18.1% United Kingdom 14.2% USa 16.8% other registered shareholders 53.8% Switzerland 17.0% United Kingdom 15.5% USA
Corporate GovernanCe Group Structure and Shareholders as of 31 December 2015 Shareholders in % Shares in %
the table on page 82 provides an overview of the issued, conditional and authorised capital of Swiss re Ltd as of 31 December 2015 and 31 December 2014, respectively.
More information is provided in the sections “Conditional and authorised capital in particular” below and “Changes in capital” on page 82.
existing shareholders’ subscription rights are excluded. the then current holders of the conversion and/or option rights granted in connection with equity-Linked Financing Instruments shall be entitled to subscribe for the new registered shares. Subject to the articles of association, the Board of Directors may decide to restrict or exclude existing shareholders’ advance subscription rights with regard to these equity-Linked Financing Instruments. Such a decision may be made in order to issue equityLinked Financing Instruments on national and/or international capital markets (including private placements to selected strategic investors), and/or to finance or re-finance the acquisition of companies, parts of companies, participations or new investments planned by the company and/or Group companies.
Joint provision for conditional capital for Equity-Linked Financing Instruments and for the abovementioned authorised capital the total of registered shares issued from the authorised capital, where the existing shareholders’ subscription rights were excluded, and from the shares issued from conditional capital, where the existing shareholders’ advance subscription rights on the equity-Linked Financing Instruments were excluded, may not exceed 74 000 000 registered shares up to 21 april 2017.
the annual General Meeting 2015 also approved that the limitation included in the provisions of the articles of association to issue shares from conditional capital, where the existing shareholders’ advance subscription rights on the equity-Linked Financing Instruments are excluded, be extended to 21 april 2017.
Changes in 2014 no changes in share capital occurred during 2014.
Changes in 2013 and previous years the annual General Meeting 2013 approved that the limitation included in the provisions of the articles of association to issue registered shares from conditional capital, where the existing shareholders’ advance subscription rights on the equity-Linked Financing Instruments are excluded, be extended to 10 april 2015 and the maximum number of shares under the same paragraph be set to 74 000 000 from 74 140 927 previously.
the annual General Meeting 2013 also approved that the authority to issue registered shares from authorised capital as set forth in the articles of association be extended to 10 april 2015 and that the limitation included in the articles of association to issue registered shares from authorised capital where the existing shareholders’ subscription rights are excluded, be extended to 10 april 2015 and the maximum number of registered shares under that provision be set to 74 000 000 from 74 140 927 previously.
Conditional capital for equity-Linked Financing Instruments 5 000 000.00 50 000 000 5 000 000.00 50 000 000 authorised capital
20 May 2013 by an amount not exceeding CHF 4 005 061.30 through the issue of up to 40 050 613 registered shares, payable in full, each with a nominal value of CHF 0.10.
Profit-sharing and participation certificates Swiss re Ltd has not issued any profitsharing and participation certificates.
each shareholder may, however, at any time request a written confirmation from the company of the registered shares held by such shareholder, as reflected in the company’s share register.
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.
Options valid exercise of stock options granted to Swiss re employees are either cash or physically settled (with treasury shares). the number of issued shares will not be affected.
Members of the Board of Directors according to the articles of association, the Board of Directors of Swiss re Ltd, the holding company of the Swiss re Group, consists of at least seven members. as of 31 December 2015 the Board of Directors consisted of the following members: Company Secretary
Board of Directors the Board of Directors decides on strategy and exercises ultimate supervision over the Group eC.
Independence Swiss re’s Group Bylaws stipulate that at least three-quarters of the members of the Board of Directors must be independent. Independence is defined in line with best practice corporate governance standards. to be considered independent a Group Board member may not be, and may not have been in the past three years, employed as a member of the Group eC, or by any Subsidiary of the Swiss re Group or may not have a material relationship with any part of the Swiss re Group (either directly or as a partner, director or shareholder of an organisation that has a material relationship with the Swiss re Group) other than serving as an independent board member in any Subsidiary. In addition, the Group Board agrees on other criteria that disqualify a Group Board member from being considered independent, taking into consideration provisions of applicable law, regulations and best practice. all the members of the Board of Directors meet our independence criteria with the exception of our Chairman. as a full-time Chairman he is not considered independent.
Career Walter B. Kielholz began his career at the General reinsurance Corporation, Zurich, in 1976 where he held several positions in the US, UK and Italy before assuming responsibility for the company’s european marketing. In 1986, he joined Credit Suisse, where he was responsible for 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. Walter B. Kielholz was also a member of the Board of Directors of Credit Suisse Group aG from 1999 to May 2014 and served as Chairman from 2003 to 2009.
Renato Fassbind vice Chairman and Lead Independent Director, non-executive and independent
Kühne + nagel International Ltd ̤ Board member of the Swiss Federal audit oversight authority
External appointments ̤ Board member of Blackrock, Inc. ̤ executive advisory Board member of General atlantic partners (Gap)
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 audit Committee and the Finance and risk Committee.
External appointments ̤ Chairman of the Boards of Directors of Mtr Corporation Ltd and Hang Seng Bank Ltd
̤ Board member of China resources power Holdings Company Ltd, the Wharf (Holding) Ltd and the Hong Kong and Shanghai Banking Corporation Ltd
Educational background ̤ Bachelor of arts, University of pennsylvania, USa ̤ Juris Doctorate, emory University, USa
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 audit Committee and the Compensation Committee.
International Inc. ̤ Member of the Foundation Board of the Schulthess-Klinik Zurich ̤ Member of the international advisory boards of the École des Hautes Études Commerciales (eDHeC), paris, the IeSe Business School University of navarra and Bocconi University Milan
Board of rothschild Group ̤ Deputy Chairman of rothschild South africa ̤ Chancellor of the Cape peninsula
Educational background ̤ national Diploma in Civil and Structural engineering, peninsula technikon, South africa
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., Swatch
Career Susan L. Wagner is a co-founder of Blackrock, where she served as vice Chairman and a member of the Global executive and operating Committees before retiring in mid-2012. over the course of her nearly 25 years with the firm, Susan L. Wagner served in several roles such as Chief operating officer, Head of Strategy, Corporate Development, Investor relations, Marketing and Communications, alternative Investments and International Client Businesses. prior to founding Blackrock, Susan L. Wagner was a vice president at Lehman Brothers supporting the investment banking and capital markets activities of mortgage and savings institutions. Susan L. Wagner was elected to Swiss re’s Board of Directors in 2014. She chairs the Investment Committee and is a member of the Chairman’s and Governance Committee and the Finance and risk Committee.
Information about managerial positions and significant business connections of non-executive directors Walter B. Kielholz, Chairman of the Board of Directors since 1 May 2009, was Swiss re’s Ceo from 1 January 1997 to 31 December 2002. In line with Swiss re’s revised independence criteria, Walter B. Kielholz, being a full-time Chairman, is not considered independent. no other director has ever held a management position within the Group. none of the members of the Board of Directors has any significant business connections with Swiss re Ltd or any of the Group companies.
Other mandates, activities and functions In line with Swiss re Ltd’s articles of association the members of the Board of Directors may not hold more than ten additional mandates of which no more than four additional mandates can be with listed companies. Mandates (i) in companies which are controlled by Swiss re Ltd or which control Swiss re Ltd, (ii) mandates held at the request of Swiss re Ltd or by companies controlled by Swiss re Ltd as well as (iii) mandates in associations, charitable organisations, foundations, trusts, employee welfare foundations, investment companies, equity partnerships or limited liability partnerships are not subject to the above limitations. no member of the Board of Directors may hold more than five mandates as set out in (ii) above and not more than 15 mandates as set out in (iii) above. Mandates shall mean mandates in the supreme governing body of a legal entity which is required to be registered in the commercial register or a comparable foreign register. Mandates in different legal entities that are under joint control are deemed one mandate.
the Board of Directors ensures that in any event the number of external mandates held by members of the Board of Directors does not conflict with their commitment, availability, capacity and independence required in fulfilling their role as Board member.
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 85–89.
Changes in 2015 at the annual General Meeting on 21 april 2015, trevor Manuel and philip K. ryan were elected as new non-executive and independent members of the Board of Directors for a one-year term of office. at the same time, the shareholders re-elected Walter B. Kielholz (Chairman), Mathis Cabiallavetta, raymond K.F. Ch’ien, renato Fassbind, Mary Francis, rajna Gibson Brandon, C. robert Henrikson, Hans Ulrich Maerki, Carlos e. represas, Jean-pierre roth and Susan L. Wagner for a one-year term of office as members of the Board of Directors. raymund Breu did not stand for re-election.
Election, qualifications and term of office Election procedure Members of the Board of Directors and the Chairman of the Board of Directors are elected individually by the General Meeting of shareholders for a term of office until completion of the next General Meeting of shareholders.
the Chairman’s and Governance Committee evaluates candidates for Board membership and makes recommendations to the Board of Directors for election or re-election proposals. the Board of Directors nominates candidates for Board membership for election at the General Meeting of shareholders, ensuring that the Board retains an adequate size and well-balanced composition and that at least threequarters of its members are independent.
Selection criteria the Board of Directors defines the selection criteria against which candidates for Board membership are assessed. Membership on the Board of Directors requires experience in key sectors such as insurance and reinsurance, finance, accounting, capital markets, risk management and regulatory matters as well as leadership and decision-making experience in a large, complex financial institution. the mandate also demands significant commitment, integrity and intercultural communication competence. the principles of gender and age diversity, inclusion, regional representation, transparency and the avoidance of conflicts of interest are also considered in the nomination process. as determined by applicable law, a Board member may not have any management or executive function within the Swiss re Group.
First election date the initial election year of each member is stated in the table on page 84.
Nominations for re-election and election by the Annual General Meeting on 22 April 2016 on 1 January 2014 the ordinance against excessive Compensation at public Corporations entered into effect. It provides that, as of the annual General Meeting 2014, the shareholders 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.
Sir paul tucker is Chairman of the Systemic risk Council, and a fellow at the Harvard Kennedy School of
Government. He is also a member of the board of the Financial Services volunteers Corps, and a member of the advisory Committee of autonomous research. He was the Deputy Governor of the Bank of england from 2009 to 2013. He held various senior roles at the Bank from 1980 onwards, including as a member of the Monetary policy Committee, Financial policy Committee, prudential regulatory authority Board and Court of Directors. He also served as a member of the Steering Committee of the G20 Financial Stability Board and as a member of the Board of the Bank for International Settlements. Sir paul tucker is a British citizen, born in 1958. He graduated from trinity College, Cambridge, with a Ba in Mathematics and philosophy. In 2014, he was granted a knighthood for his services to central banking.
Organisational structure of the Board of Directors the Board of Directors constitutes itself at the first meeting following the General Meeting of shareholders. With the exception of the Chairman and the members of the Compensation Committee who are elected at the annual General Meeting of shareholders, the Board of Directors elects among its members a vice Chairman and a Lead Independent Director, who may be the same member acting in both roles as well as the Chairpersons and members of the Group Board Committees as proposed by the Chairman’s and Governance Committee. the vice Chairman and the Lead Independent Director are appointed amongst the independent members of the Board of Directors. the Board of Directors may remove the members from any such special function at any time. the Board of Directors also appoints its secretaries who do not need to be members of the Board.
the organisation of the Board of Directors is set forth in the Group Bylaws, which define the organisational structure and function of Swiss re Ltd and the responsibilities and authorities of the Board of Directors, its committees and the Group executive Committee (Group eC) and their members. the Group Bylaws also provide an overview on periodic reports to be submitted to the Board of Directors and its committees.
the Chairman’s and Governance Committee and the full Board review at least annually the Group Bylaws to ensure their continued effectiveness and compliance with the articles of association, applicable laws, regulations and best practice.
Allocation of tasks within the Board of Directors Chairman of the Board of Directors the Chairman of the Board of Directors leads the Board of Directors, convenes the Board and committee meetings, establishes the agendas and presides over Board meetings. the Chairman coordinates the work of the Board committees together with the respective Chairpersons and ensures that the Board is kept informed about the committees’ activities and findings. In cases of doubt, the Chairman makes decisions about the authority of the Board or its committees and about interpreting and applying the Group Bylaws.
the Chairman presides over General Meetings of shareholders and represents the Swiss re Group towards its shareholders, in industry associations and in the interaction with other stakeholders such as the media, political and regulatory authorities, governmental officials and the general public. Specifically, the Chairman keeps regular contact with our Group regulator (FInMa).
Vice Chairman the vice Chairman deputises, if the Chairman is prevented from performing his duties or in a potential conflict of interest situation. the vice Chairman may prepare and execute Board resolutions on request of the Board and liaises between the Board and the Group eC in matters not reserved to the Chairman.
Lead Independent Director the vice Chairman may also assume the role of the Lead Independent Director. the Lead Independent Director shall act as an intermediary between the Swiss re Group and its shareholders and stakeholders in the absence of the Chairman or in particular when a senior independent member of the Board is required. He may convene and chair sessions where the Chairman is not present. He will communicate the outcome of these sessions to the Chairman.
Committees of the Board of Directors as determined by applicable law and the articles of association, the Board of Directors has non-transferable responsibilities and authorities. the Board of Directors has established Board committees to assist it in fulfilling its duties and has delegated certain responsibilities, including the preparation and execution of its resolutions, to the following five committees: the Chairman’s and Governance Committee, the audit Committee, the Compensation Committee, the Finance and risk Committee and the Investment Committee.
the term of office of a Board committee member is one year, beginning with the appointment at the constituting Board meeting following an annual General Meeting and ending at the Board meeting following the subsequent annual General Meeting. For the Compensation Committee members the term of office begins with the election at the annual General Meeting until completion of the next annual General Meeting.
each committee is governed by a Charter which defines the committee’s responsibilities. the committees operate in line with the Group Bylaws and according to their respective Charters.
the committees have the following overall responsibilities: 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 and impacting the legal and organisational structure. 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.
Walter B. Kielholz X (chair) Mathis Cabiallavetta X X renato Fassbind X X (chair) X raymond K.F. Ch’ien X X Mary Francis X X rajna Gibson Brandon X X C. robert Henrikson X X (chair) X Hans Ulrich Maerki X X trevor Manuel X Carlos e. represas X Jean-pierre roth X philip K. ryan X X X (chair) Susan L. Wagner X X X (chair)
Independence and other qualifications all members of the audit Committee are non-executive and independent. In addition to the independence criteria applicable to Board members in general, additional independence criteria apply to members of the audit Committee. they are required to possess such additional attributes as the Board of Directors may, from time to time, specify. each member of the audit Committee has to be financially literate. at least one member must possess the attributes to qualify as an audit Committee financial expert, as determined appropriate by the Board of Directors. Members of the audit Committee should not serve on audit committees of more than four listed companies outside the Swiss re Group. audit Committee members have to advise the Chairman of Swiss re Ltd before accepting any further invitation to serve on an audit committee of another listed company outside the Group and observe the limitations set in the articles of association in relation to external mandates (see other mandates, activities and functions on page 90).
Compensation Committee Responsibilities the Compensation Committee supports the Board of Directors in establishing and reviewing Swiss re Ltd’s compensation strategy and guidelines and performance criteria as well as in preparing the propo- sals to the General Meeting of shareholders regarding the compensation of the Board of Directors and of the Group eC. It proposes compensation principles in line with legal and regulatory requirements and the articles of association for the Swiss re Group to the Board of Directors for approval and, within those approved principles, determines the establishment of new (and amendments to existing) compensation plans, and determines, or proposes as appropriate, individual compensation as outlined in its Charter. the Compensation Committee also ensures 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.
of the committees and the Group Ceo. the agenda, along with any supporting documents, is delivered to the participants as a rule at least ten calendar days in advance of a meeting in order to allow enough preparation time. the Chairman may determine a Board of Directors meeting be held on an ad hoc basis, if circumstances require.
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 Board of Directors immediately. It is the responsibility of each committee to keep the full Board of Directors informed on a timely basis as deemed appropriate.
Investment Committee 6 meetings Group Ceo, Group CFo, Group Cro, Group Chief Strategy officer, Group Chief Investment officer, Head Group Financial risk Management, CFo asset Management, Global Head of rates, Company Secretary 2.5 hours 1 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 nKF provided support in disclosure matters. representatives of Mercer and of nKF participated in six committee meetings each in 2015.
Self-Assessment the Board of Directors annually reviews its own performance and effectiveness. From time to time it may consult external advisors for the self-assessments. In addition, each Board committee shall annually review and assess the adequacy of the scope of the committee’s responsibilities and how it carries out those responsibilities, including structure, processes and membership requirements, and evaluate its performance.
Board of Directors and Group EC: areas of responsibility Non-transferable duties the Board of Directors has the ultimate responsibility for the success and for delivering the sustainable interests of the Swiss re Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of the Swiss re Group and the Group eC as well as for supervising compliance with applicable laws, rules and regulations. Such responsibility is non-transferable and rests with the entire Board.
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. they are not to be understood as exhaustive.
Strategy and overall direction of the company ̤ defines the strategy of the Swiss re
Accounting, financial control and financial planning ̤ approves the applicable accounting standard for external reporting, budgeting and financial control and planning; ̤ approves the applicable proprietary economic reporting and performance measurement standard (evM); ̤ approves an annual budget and a mid-term financial plan based on both the accounting and the internal economic standards; ̤ approves the annual financial statements for both Swiss re Ltd and the Swiss re Group; ̤ is informed of the quarterly and semi-annual financial statements for both Swiss re Ltd and the Swiss re Group, which are approved by the audit Committee; and
Capital ̤ takes decisions regarding equity and equity-linked issuances and reductions of equity in line with applicable law; and
Under the leadership of the Group Ceo, the Group eC has management responsibility for Swiss re Ltd and the Swiss re Group. It supports the Board of Directors in its decision-making process and prepares any proposals for the Board of Directors in the Group eC’s area of responsibility. With respect to, in particular, it: Governance ̤ has overall responsibility for managing operations, subject to delegation by the Board of Directors
Group’s strategy ̤ decides on legal, financial and management structures, as delegated by the Board of Directors
Capital Management ̤ establishes principles on financing through capital markets and the allocation of financial resources within the Group
Human Resources ̤ has responsibility for the Group’s talent management, subject to the authority of the Board of Directors
Group Chief Risk Officer the Group Cro is responsible for providing the Board of Directors and Group eC with independent assurance that all of Swiss re’s risks are being appropriately modelled, governed, managed and that adequate control instruments are in place. as part of executing these responsibilities, the Group Cro is charged with establishing the Group’s risk Management Framework for financial, insurance and operational risk (comprising people, system, internal process and external event risk).
Involvement of executive management in meetings of the Board of Directors as a matter of principle, some (or all) members of the Group eC are requested to attend the 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 and the Board selfassessment session.
Involvement of executive management in Board committee meetings as a matter of principle, selected members of the Group eC as well as further senior management members participate at Board committee meetings as advisers. the charter of the Board committees specifies management participation at committee meetings.
Periodic reports to Board of Directors and its committees the executive management regularly provides the Board of Directors with different types of reports, in particular the following reports: Executive Report this comprehensive report gives an update on current business developments, covering the Business Units and the Group Functions, including major business transactions, claims, corporate development and key projects.
US GAAP Board Report the report provides factual financial highlights from an accounting perspective, with a focus on historical development of the business as an informational basis before the publication of results.
Group Performance Management Report the report tracks actual performance of the Group and the segments against pre-defined financial targets, analyses the impact of management actions and provides information on current challenges.
Benchmarking of Swiss Re against selected peers the report provides an analysis of the performance of the Swiss re Group compared to the performance of selected peers.
Swiss Re Liquidity Report the report describes the liquidity position of the Swiss re Group in current and in stressed market conditions.
Duty to inform on extraordinary events as soon as the Group Ceo or the Group eC becomes aware of any significant extraordinary business development or event, it is obliged to inform the Board of Directors immediately. the Board has specific respective reporting procedures in place.
Right to obtain information the Board of Directors has complete and open access to the Group Ceo and the other members of the Group eC, the Group Chief Legal officer, the Chief Compliance officer and the Head of GIa. any member of the Board of Directors who wishes to have access to any other officer or employee of the Group will coordinate such access through the Chairman. the Chairpersons may approach the Group eC members as well as further key executives directly should they require information supporting the respective Board committee’s duties.
any member of the Board of Directors may demand at Board meetings to obtain information on any aspect of the Group’s business. outside Board meetings, any member can direct a request for production of information and business records to the Chairman.
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.
GIa has unrestricted access to any of the Group’s property and employees relevant to any function under review. all employees are required to assist GIa in fulfilling its duty. GIa has no direct operational responsibility or authority over any of the activities it reviews.
Members of the Group Executive Committee the Group executive Committee (Group eC) consisted of the following members as of 31 December 2015: Executive Management the Group executive Committee manages Swiss re Ltd and steers the Swiss re Group including its Business Units as delegated by the Board of Directors.
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 Southern europe/Latin america Division. 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 october 2010 until becoming Group Ceo in February 2012.
̤ Member of IMD Foundation Board ̤ Board member of the Society for the promotion of the Institute of Insurance economics, St. Gallen
Washington University, St. Louis, USa ̤ Master in public policy, Harvard
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.
Professional experience Christian Mumenthaler started his career in 1997 as associate with the Boston Consulting Group. He joined Swiss re in 1999 and was responsible for key company projects. In 2002, he established and headed the Group retro and Syndication unit. He served as Group Chief risk officer between 2005 and 2007 and was Head of Life & Health between 2007 and 2010. In January 2011, Christian was appointed Chief Marketing officer reinsurance and member of the Group executive Committee until he became Chief executive officer reinsurance that october. Christian will become Group Ceo as of 1 July 2016.
Professional experience patrick raaflaub began his career as a research fellow at the University of St. Gallen and then worked for Credit Suisse and a consulting start-up. He joined Swiss re in 1994 and was appointed Chief Financial officer of Swiss re Italia Spa in 1997, and then was Divisional Controller americas Division from 2000. He worked as Head of Finance Zurich from 2003, then regional Chief Financial officer europe and asia from 2005. From 2006, he was Head of Group Capital Management, where he was responsible for capital management at Group level and global regulatory affairs. In 2008 he joined the Swiss Financial Markets Supervisory authority FInMa as Chief executive officer. patrick raaflaub returned to Swiss re as Group Chief risk officer and member of the Group executive Committee as of September 2014.
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.
̤ phD in natural Sciences, Swiss Federal Institute of technology (etH), Zurich, Switzerland
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.
Professional experience J. eric Smith worked in various roles in property and casualty insurance with Country Financial for more than 20 years, then joined allstate in 2003 where he rose to the rank of president, Financial Services. He moved to USaa in 2010 as president USaa Life Insurance Co. eric joined Swiss re in July 2011 as Chief executive officer of Swiss re americas and as a member of the Group Management Board. eric was appointed regional president americas and member of the Group executive Committee in January 2012.
University of Illinois, USa ̤ MBa, Kellogg School of Management, northwestern University, USa 106 Swiss Re 2015 Financial report
any activities of members of the Group eC in governing and supervisory bodies of important Swiss and foreign organisations, institutions and foundations as well as permanent management and consultancy functions for important Swiss and foreign interest groups and official functions and political posts, which are material, are stated in each of the Group eC members’ biographies on pages 103–106.
Convocation of the General Meeting of shareholders In accordance with Swiss re Ltd’s articles of association, the Board of Directors convenes the General Meeting of shareholders through a notice published in the Swiss official Gazette of Commerce at least 20 days before the date of the meeting. the notice must state the day, time and place of the General Meeting of shareholders, along with the agenda and proposals, which will be submitted by the Board of Directors.
extraordinary General Meetings of shareholders may be called by a resolution of the General Meeting of shareholders or the Board of Directors, or by one or more shareholders with voting powers whose combined holdings represent at least 10% of the share capital.
Registrations in the share register In recent years, Swiss re has recognised the voting rights of shares registered no later than two working days before the General Meeting of shareholders.
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 83). 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 2015.
Swiss re’s articles of association allow any shareholder with voting rights to have his or her shares represented at any General Meeting of shareholders by another person authorised in writing or by the Independent proxy. Such representatives need not be shareholders.
the Independent proxy is elected by the General Meeting of shareholders for a term of office until completion of the next ordinary General Meeting of shareholders. the Independent proxy whose term of office has expired is immediately eligible for re-election.
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 (excluding blank and invalid ballots), except where the law requires otherwise.
Duty to make an offer Swiss re has not put in place any specific measures to defend against potential unfriendly takeover attempts. the Board of Directors believes that the company’s best protection is a fair valuation of its shares, and that the efficiency of a free market is preferable to artificial obstacles, which can have a negative impact on the share price in the long term.
the SeSta allows companies to include an “opting up” provision in their articles of association, which raises the mandatory takeover offer threshold up to 49%, or an “opting out” provision, which waives the mandatory offer. Swiss re’s articles of association contain neither of these provisions.
Change of control clauses Unvested incentive shares, share options and certain other employee benefit programmes would vest upon a change of control. In such an event, the rights of members of the Board of Directors and the Group executive Committee (Group eC) as well as of further members of senior management are identical to those of all other employees.
the mandates and employment contracts of the members of the Board of Directors and of the Group eC 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.
Upon a change of control the rights of the members of the Board of Directors and Group eC are identical to those of all other employees.
Auditors the external auditor is elected by the General Meeting of shareholders for a term of office until completion of the next ordinary General Meeting of shareholders.
Duration of the mandate and term of office of the lead auditors pricewaterhouseCoopers Ltd (pwC) was appointed as the external auditor of Swiss re Ltd when the company was founded on 2 February 2011. pwC had been elected as the external auditor of the previous parent company of the Group, Swiss reinsurance Company Ltd, at its annual General Meeting 1991 and had been re-elected annually since then. the annual General Meeting 2015, following the proposal of the Board of Directors based on the recommendation of the audit Committee, re-elected pwC for a term of one year as auditors.
the audit Committee reviews and approves in advance all planned audit services and any non-audit services provided by the external auditor. It discusses the results of annual audits with the external auditor, including reports on the financial statements, necessary changes to the audit plans and critical accounting issues.
the external auditor shares with the audit Committee its findings on the adequacy of the financial reporting process and the efficacy of the internal controls.
It informs the audit Committee about any differences of opinion between the external auditor and management encountered during the audits or in connection with the preparation of the financial statements.
In accordance with the Swiss Code of obligations and to foster external auditor independence, the lead audit partner rotates out from his or her role after seven years.
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.
Investors and other stakeholders can subscribe to receive ad hoc disclosures and further corporate news automatically at swissre.com/media.
Swiss re observes strict close periods around the publications of the Group’s quarterly and annual results. the close periods apply throughout the preparation of the results and provide for an appropriate cooling-off period after the release of the results. During such close periods, employees of Swiss re and members of the Board of Directors are prohibited from trading in Swiss re securities.
Date news Method of dissemination 19 February Swiss re delivers strong 2014 net income of USD 3.5 billion; proposes CHF 4.25 regular, CHF 3.00 special dividend per share and a share buy-back of up to CHF 1.0 billion news release, press conference 18 March Swiss re proposes to return CHF 2.5 billion to shareholders via dividends and up to CHF 1.0 billion in a share buy-back programme news release 21 april Swiss re shareholders approve all proposals put forward by the Board of Directors at Swiss re’s annual General Meeting news release, aGM in Zurich 30 april Swiss re delivers 17% rise in first-quarter 2015 net income to USD 1.4 billion; strong underwriting and investment results news release, media conference call 20 May Swiss re Sonar update report highlights new and emerging risks the re/insurance industry expects to face over the next few years news release 30 July Swiss re reports half-year net income of USD 2.3 billion on solid underwriting and a strong investment result; on track to reach 2011–2015 financial targets news release, press conference 11 august preliminary sigma estimates for first-half 2015: global catastrophes cause economic losses of USD 37 billion; number of victims rises news release, sigma study 10 September Swiss re remains top in its industry in sustainability, according to 2015 Dow Jones Sustainability Indices news release 23 September admin re® to buy Guardian Financial Services for GBp 1.6 billion, extending its position as a leading closed life book consolidator in the UK
CoNTENTs overview 116 Natural catastrophes and climate change 117 Expanding re /insurance protection 120 our sustainability risk Framework 123 Diversity and inclusion in our workforce 125
sustainable, long-term value creation serves as a guiding principle for our actions.
in other words, we have been using a decentralised approach to determine “material” sustainability issues. We present all these issues and our efforts to address them in our annual Corporate responsibility reports (the 2015 edition will be published in May 2016). in this chapter of the Annual report we use a narrower definition of materiality and focus on topics which we perceive as having a tangible link to our financial performance. Thus, our Corporate responsibility report addresses all our stakeholders on a wide range of topics they might take an interest in, while this chapter of the Financial report aims to speak more specifically to our investors and other members of the financial community.
in view of the potential impact of climate change on our business in the medium- to long-term, we made it a priority issue more than 20 years ago and formed a comprehensive climate change strategy with four pillars: ̤ Advancing our knowledge and understanding of climate change risks, quantifying and integrating them into our risk management and underwriting frameworks where relevant; ̤ Developing products and services to mitigate — or adapt to — climate risk; ̤ raising awareness about climate change risks through dialogue with clients, employees and the public, and advocacy of a worldwide policy framework for climate change; ̤ Tackling our own carbon footprint and ensuring transparent annual emissions reporting.
Having access to effective re/insurance protection against natural catastrophes creates significant benefits for our clients – as well as society at large. in 2015, we received UsD 2.6 billion of p&C reinsurance premiums for natural catastrophe covers (for losses larger than UsD 20 million); this was equivalent to 17% of total premiums in this business segment.
UsD 2.6 billion Natural catastrophe premiums in our p&C reinsurance business
The impact of climate change on average, both economic and insured losses caused by natural catastrophes have increased steadily over the past 20 years. The key reasons have been economic development, population growth, urbanisation and a higher concentration of assets in exposed areas.
Mitigation: by “mitigation” we mean efforts to reduce Co2 emissions. renewable energy projects are key to this. To date our product development has focused on offshore wind, which is considered one of the most promising renewable energy sources. However, these infrastructures present highly complex risks because the technology is developing rapidly and there is little loss history to rely upon for underwriting purposes. our Corporate solutions business Unit takes a special interest in offshore wind, as we have both the large capacity and the technical expertise to assess and manage the complex risks associated with it (see example on the left).
First offshore wind farm in the US in 2015, we insured a number of offshore wind projects in different countries, including the block island Wind Farm in the Us (dwwind.com/ project/block-island-wind-farm). Developed by Deepwater Wind, this is the country’s first-ever offshore wind facility. The project is situated in the Atlantic ocean, approximately three miles from block island, rhode island, where there are strong and steady winds. Thanks to its expertise and proximity to the client, swiss re Corporate solutions was appointed as the project’s lead insurer and provides both a Construction All risk (CAr) and a Delay in start-Up (DsU) cover.
Construction of the wind farm is underway and is scheduled to be completed by the end of 2016. our client, GE Wind (formerly Alstom), is building five powerful, highly efficient turbines that will generate a total capacity of 30 megawatts. The wind farm will give the inhabitants of block island access to reliable as well as renewable electricity for the first time. so far, they have had to use diesel generators, which are inefficient and cause substantial air pollution. The power not used on block island will be transmitted to the mainland through a 21-mile long cable under the ocean floor.
in 2015, we also partnered with standard & poor’s in a special project to quantify the impact of natural catastrophes and climate change on sovereign ratings. based on a sample of 38 countries, our simulations indicate that natural disasters (earthquakes, tropical storms, floods and winter storms) of a severity that is likely to occur once every 250 years can indeed weaken the affected sovereign’s rating. Moreover, climate change can be expected to increase this impact by 20% on average. The expected effect is strongest in emerging countries and especially in the event of earthquakes and tropical storms: the most severe of these disasters could lead to a downgrade of around 1.5 notches. However, the study also found that this potential effect can be significantly reduced by catastrophe insurance.
Tackling our carbon footprint The fourth pillar of our climate strategy focuses on the emissions from our own operations. Through our pioneering Greenhouse Neutral programme we halved our emissions per employee between 2003 and 2013 and set off all remaining emissions. our new commitment, valid until 2020, is to keep our per capita emissions stable at the 2013 level even as we continue to pursue an ambitious strategy in high growth markets. As part of our new commitment, we have also extended the scope of our emissions accounting and reporting to include five additional emission sources.
Total Co2 emissions per employee kg/FTE1 6 645 6 723 6 433 –3.2% Energy intensity (power consumption & heating) kWh/FTE1 6 515 6 019 5 442 –16.5%
Throughout our long history, we have provided our clients with financial protection against risk. Traditionally, our most important client groups are insurers and large corporations. We offer them a wide range of products covering many different types of losses.
Protecting the Florida Hurricane Catastrophe Fund The state of Florida has over UsD 3 trillion of coastal assets, one of the highest concentrations anywhere in the world. but as the state lies within the infamous “hurricane alley,” its population faces a latent disaster risk. in response, the state-run Florida Hurricane Catastrophe Fund (FHCF) established its first-ever reinsurance programme in 2015 and chose swiss re as one of its leaders.
This is why the FHCF has purchased reinsurance protection for the first time in its 22-year history: by adding UsD 1 billion of private capital it can further build the financial stability it needs to ensure Florida’s economic resilience in the face of disasters.
Supporting the African Risk Capacity As a provider of reinsurance capacity and expertise, we helped to launch the African risk Capacity (ArC) in 2014, the continent’s first parametric natural disaster insurance pool. it offers governments insurance protection against drought, which poses a recurring threat in large parts of Africa and puts the livelihoods of millions of citizens at risk.
To develop a sustainable product that meets actual needs, the scheme has pursued a holistic approach from the beginning, involving all key stakeholders in a public-private partnership. stakeholders include various government ministries, the Vietnam National reinsurance Corporation (in the role of aggregator and bridge between the government and local insurers), local insurers and their branch offices, as well as local people’s committees and authorities. The scheme has got off to a promising start and the intention is to expand it rapidly to other provinces.
... to the United Nations Many of our recent efforts to expand insurance protection cover losses from natural catastrophes and weather volatility (eg drought or excessive rainfall). As climate change is predicted to increase these losses, such transactions also help communities to strengthen their climate resilience. Furthermore, we have found that partnering with public sector clients, especially national and regional governments, is an effective way to develop solutions.
sometimes, business transactions that create economic value and are perfectly fine from a legal perspective may also have negative impacts on the environment or certain vulnerable groups. Furthermore, such transactions may damage our brand and/or reputation.
based on our long-standing commitment to enabling sustainable progress, we believe that it is important to recognise and address such dilemmas. Doing so requires a well-defined approach and the willingness to make decisions based on ethical principles.
After continuously rising for several years, the number of transactions referred to the sbr process fell to 309 in 2015. of those we issued negative recommendations in 32 cases and positive recommendations with conditions in 24 cases. The fall in referrals is due to the introduction of our sbr assessment tool, which enables our underwriters to carry out due diligence checks themselves. in 2015, they used the new tool for a total of 3 550 cases.
Company exclusions The policies of our sustainability risk Framework specify certain criteria that may lead to the exclusion of a company from both our re/insurance transactions and our investments, to the extent that such an exclusion is permissible (eg by virtue of mandatory law or internal policies) and possible (eg if existing documentation relating to such re/insurance transactions and investments provide for it). These criteria include: involvement in prohibited war material; verifiable complicity in systemic, repeated and severe human rights violations; causing repeated, severe and unmitigated damage to the environment; proliferation of nuclear weapons; and unethical/cruel animal testing practices.
Number of sensitive business transactions referred to our sustainability expert team
There is strong evidence that diverse teams outperform non-diverse ones. As diverse teams avoid group think — and therefore institutional blindness — they can respond more quickly to changes in the external environment. Furthermore, a strong representation of local talent is crucial to developing new markets, which is one of our strategic priorities.
Executive/senior management positions1 21.5 21.4 22.1 All management positions1 31.1 31.5 32.2 1 “Executive/senior management positions” comprises the management levels of Director/senior Vice president upwards. “All management positions” refers to Vice president and above.
Our Global Inclusion Framework our “Global inclusion Framework” rests on three pillars: The first pillar focuses on “inclusive leadership”. We have developed inclusive leader principles that describe the behaviours we expect of our leaders and managers to foster an inclusive work environment. These are firmly embedded in our leadership imperatives — our behavioural framework for leaders that support our strategy, values and brand attributes — and in our leadership development curriculum. To make these principles tangible for all our employees, we have also included them in our personal imperatives — our behavioural framework for all employees without line management responsibilities. At the end of each year, their performance evaluations and subsequent reward decisions are in part based on “how” they have demonstrated these desired behaviours, in addition to “what” they have accomplished.
our third pillar is “own the Way you Work”TM. This is a cultural change initiative, which gives managers and employees more autonomy to decide how, when and where work is carried out, within applicable laws, rules and regulations. our future success depends on our ability to create a flexible, global workforce that is responsive to the needs of our business.
The “own the Way you Work” TM philosophy has not only become a distinctive element of our brand, it also plays an important part in our efforts to make our offices more flexible and productive, and to reduce our energy intensity (see “Tackling our carbon footprint” on page 119).
With regard to increasing women’s representation in management, we have recently conducted country-based analyses of our talent flows and assessed ourselves against external best practices. A formal approach is currently being developed as part of our Group Talent strategy, and progress will be closely monitored by the Group Executive Committee and the board of Directors.
At our switzerland headquarters, we have committed to a number of actions we expect will qualify us for certification by the industry-leading EDGE (Economic Dividends for Gender Equality) organisation. And across the Group, we introduced a new Employer brand, We're smarter together, which emphasises gender-neutral visuals, messaging and job advertisements.
Within this Compensation Report we give an overview of the compensation context and highlights in 2015 and then further detail the compensation policy and principles that underpin our compensation framework. Following this we set out how compensation is effectively governed within swiss Re including the procedure for determining compensation and the roles and accountabilities of the responsible parties. Finally we detail the compensation decisions taken in 2015 including those for the Group executive Committee and the Board of Directors.
swiss Re’s compensation framework is designed to promote long-term sustainable performance for the Group and its shareholders through a mix of fixed and variable compensation components. it comprises core components such as base salary, pensions and other benefits, as well as a combination of variable short- and long-term incentives as outlined later in this Compensation Report.
the Compensation Committee continues to review and monitor the compensation framework of swiss Re considering business strategy, targets, risk awareness and corporate values. external factors with respect to regulatory requirements and legal developments, the international context and relevant market data are also taken into account.
During the financial year 2015, the following activities and key decisions took place: ̤ as part of the continued focus on the effectiveness and business alignment of existing compensation components, a review of the Leadership performance plan was completed considering the strategy going forward and the new financial targets for 2016 and beyond. as a consequence, the risk-free rate of the Restricted share Unit component of the Leadership performance plan for the 2016 award will be set at the 10-year Us government bond rate (as opposed to the 5-year Us government bond rate used in previous years), in alignment with the external return on equity target.
̤ Key considerations for annual compensation decisions continue to cover a combination of Us Gaap and economic Value management based business results, qualitative factors and swiss Re’s pay-for-performance approach. Compensation decisions were made considering swiss Re’s overall performance in the reported year in which the Group delivered very strong Us Gaap and solid economic results. all three Business Units contributed to this outcome. the underwriting performance of property & Casualty Reinsurance and Corporate solutions remained strong, reflecting the high quality of those portfolios. Life & Health Reinsurance exceeded its return on equity targets after the management actions of 2014 addressing the pre-2004 Us individual life business. admin Re® generated significant gross cash for the Group.
̤ the Compensation Committee again conducted a self-assessment of its effectiveness. Regular interactions with the swiss Financial market supervisory authority Finma, shareholders and other key
̤ at the 2015 annual General meeting, under the swiss ordinance against excessive Compensation at public Corporations (the ordinance), swiss Re’s shareholders for the first time voted on and approved the proposed compensation of the members of the Group executive Committee as well as the compensation of the Board of Directors. additionally, all the members of the Compensation Committee were re-elected. separate to this and as in the past, the 2014 Compensation Report received a positive outcome in the consultative vote. i would like to thank all our shareholders for these positive votes.
UsD millions (unless otherwise stated) 2013 % 2014 % 2015 %
income before tax and variable compensation 5 262 100% 4 629 100% 5 758 100%
Us Gaap net income attributable to shareholders 4 444 3 500 4 597 of which paid out as dividend1 3 129 59% 2 608 57% 1 549 27%
share Unit (RsU) component of the Lpp for the 2016 award will be set at the 10-year Us government bond rate.
̤ Continued embedding of the twodimensional performance rating on the ‘what’ and the ‘how’ (achievements and behaviours) for all employees.
Legal and regulatory oversight Regulatory aspects covered the continued interaction with Finma and the monitoring of solvency ii developments to ensure alignment of the compensation framework with the new requirements which entered into force on 1 January 2016.
additionally, reviews of compliance with new local legal and regulatory requirements were conducted.
shareholders voted for the first time on the aggregate prospective compensation of the members of the Board of Directors (86.74% approval). shareholders voted also on the aggregate prospective fixed compensation and variable long-term compensation and aggregate retrospective variable short-term compensation of the Group executive Committee (Group eC). the vote outcomes were 90.37% and 90.00% approval respectively.
̤ as in previous years, the 2014 Compensation Report was subject to a consultative vote and was approved by 88.64% of the shareholder votes.
̤ the members of the Compensation Committee were re-elected with an average of 97.87% of the shareholder votes.
Outlook 2016 the Compensation Committee will continue focusing on legal and regulatory oversight in addition to monitoring and further improving the overall compensation framework and plans.
the interaction with key shareholders and regulators will also be maintained in 2016.
swiss Re is required to assess the compliance of the Compensation policy with the requirements of Finma. as part of this process, the Board’s Finance and
Risk Committee is required to review risks related to the Compensation policy. to facilitate the compliance certification process, a comprehensive risk analysis of the Compensation policy is conducted on an annual basis.
the aim is to provide compensation that is competitive in local labour markets and to ensure that employees focus on delivering outstanding results while supporting appropriate and controlled risk-taking. a balanced compensation package is complemented by competitive pension plans and benefits.
this approach adds to the success of the business by: ̤ supporting a culture of high
performance with a focus on riskadjusted financial results; ̤ ensuring alignment of compensation to business results, individual contribution and compliance; ̤ 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
in addition, swiss Re aims to ensure that total compensation is well-balanced in terms of fixed versus variable compensation and in terms of short-term versus long-term incentives. this is to encourage sustainable performance and appropriate risk-taking.
̤ market value of the role in the location in which swiss Re competes for talent; and
Purpose attract and retain pay for performance pay for sustained performance alignment with future performance alignment to shareholders alignment to shareholders
Performance KPIs Business and individual performance measurement of the economic impact of profit/ loss from previous years’ business
Forfeiture rules no yes yes yes yes (on match) no yes * Group managing Directors 134 Swiss Re 2015 Financial Report
a higher eVm previous years’ profit margin (for all prior underwriting years) results in a higher payout factor. Conversely, a lower eVm previous years’ profit margin results in a lower payout factor. the payout factor is a linear function that ranges from 50% to 150%.
Settlement at the end of the deferral period, Vai will be settled in cash. For the full three-year performance measurement period, forfeiture conditions apply.
Performance measurement starting with the 2015 award, the performance measurement calculation has been simplified to increase transparency. this was achieved by using fewer performance factors (at the Business Unit and Group level) and, where possible, published eVm information.
Structure the higher the api granted, the greater the amount of compensation that remains at risk through deferral into the Vai, as shown in the table below.
employees can invest some or all of their cash api in shares under the incentive share plan (isp).
Value Alignment Incentive Purpose the Vai is a mandatory deferral of a portion of the api and introduces a time component to this discretionary, variable compensation. this supports the Group’s business model by aligning a portion of variable compensation with sustained long-term results. the aim is to ensure that the ultimate value of the deferred variable compensation through Vai is affected by the longer-term performance of the relevant Business Unit and the Group.
Portion of API that is deferred measurement of the economic impact of profit/loss from previous years’ business, measured over three years
Group Ceo 50% of api Group eC members 45% of api Group managing Directors 40% of api all other employees 50% of the amount at or above UsD 100 000
Leadership Performance Plan Purpose the purpose of the Lpp is to provide an incentive for swiss Re's senior management to create successful and sustainable company performance over the long-term. the Lpp is a forward-looking instrument awarded to participants with an objective to incentivise decision-making that is also in the shareholders' interest.
Structure at the grant date, the award amount is split into two underlying components, Restricted share Units (RsUs) and
performance share Units (psUs), using a fair market value methodology executed by a third party.
swiss Re’s tsR performance is assessed relative to the tsR of the pre-defined peer group. this peer group consists of companies that are similar in scale, have
Settlement at the end of the three-year measurement period, both RsUs and psUs will typically be settled in swiss Re Ltd shares. For Group eC members and GmDs, an additional two-year holding is required. For the full three-year performance measurement period, forfeiture conditions apply.
PSUs – Performance Share Units performance condition: Roe, measured after each year performance condition: Relative tsR, measured over three years
the Compensation Committee receives proposals from management requesting the total funding for variable compensation pools for both api and Lpp. the management proposal for the annual api pool is generally based on the Group’s overall performance for the year. the Lpp pool is reviewed in the context of sustainable business performance and affordability. 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: the api pool will include amounts paid in immediate cash and amounts to be deferred into the Vai.
swiss Re uses a three-step process to assess business performance to help determine the overall Group api pool. the process comprises a financial, a qualitative and an overall assessment. the financial assessment covers Us Gaap eps/net income*, Roe, eVm profit and economic net worth measures for both the Group and each Business Unit individually. also, multi-year comparisons and an assessment of the quality of earnings are 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.
the key objectives of swiss Re’s benefits packages are to: ̤ provide a degree of security for
employees as they relate to pension, health matters, disability and death;
̤ be competitive in the markets where swiss Re competes for talent, as such perquisites are generally provided where these are market driven; and
includes consideration for indicators such as client and service quality, risk and control behaviour, franchise building, human capital & talent management, and strategic initiatives
API Pool * eps for the Group and net income for the Business Units.
̤ Lpp plan duration: the Lpp plan duration is five years comprising a three-year vesting and performance measurement period, and an additional two-year holding requirement.
the Compensation Committee assesses the performance of the Group eC including the Group Ceo against a set of quantitative and qualitative objectives. the main financial performance indicators are based on Us Gaap eps/ net income, Roe, eVm profit and economic net worth. the qualitative criteria include client and service quality, franchise building, human capital and talent management as well as risk- and control-related behavioural objectives. these objectives are agreed at the beginning of the year and are aligned with the Group’s strategy.
Employment conditions the Group eC including the Group Ceo have employment contracts with notice periods of 12 months and no severance clauses. information on “change of control” clauses is covered in the Corporate Governance section on page 109 of this Financial Report. Group eC members are covered by the Group’s standard defined-contribution pension plans.
the guidelines define target ownership by role and the ownership levels required are: ̤ Group Ceo — 3x annual base salary;
the determination for whether a Group eC member has met the guidelines will include all vested shares that are owned directly or indirectly by the relevant members and related parties.
Compensation framework for the Board of Directors the objective in compensating members of the Board of Directors is to attract and retain experienced individuals who are highly motivated to perform a critical role in the strategic oversight of 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 components are structured to achieve a strong alignment with the interests of the other shareholders of swiss Re. in line with best practice, a significant portion (40%) of the compensation for the Board of Directors consists of swiss Re Ltd shares.
swiss Re’s Vice Chairman was appointed in 2012, acting also as the Lead independent Director since 2014. He is a member of the Chairman’s and Governance Committee, chairs the audit Committee and is a member of the Compensation Committee. His overall responsibility is to act as a deputy of the Chairman, if the Chairman is prevented from performing his duties or if a conflict of interest situation arises. the Board of Directors may assign further tasks to the Vice Chairman.
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 continue to be high. in addition to their core responsibilities, Board members, similar to the Chairman, are regularly asked to meet with external stakeholders including regulators and investors, all of which warrant additional time, dedication and commitment from the individuals concerned.
̤ Further details can be found in the Corporate Governance section on pages 84–101.
̤ assesses the individual performance of the Group eC including the Group Ceo and periodically review the effectiveness of the performance management process.
̤ Reviews compensation principles, policies and share-based plans annually to ensure that they remain in line with swiss Re’s objectives and strategy, shareholders’ interests, and legal and regulatory requirements.
̤ Further details can be found in the Corporate Governance section on page 94.
management ̤ the Group Ceo, the Group Chief operating officer and the Chief Human Resources officer participate in the Compensation Committee meetings.
̤ other members of senior management may attend as deemed appropriate by the Compensation Committee and upon invitation by the Chair of the Compensation Committee.
̤ no individual may attend any part of a meeting where their own compensation is discussed.
secretary ̤ the Head Reward serves as the secretary to the Compensation Committee and attends its meetings (apart from the executive sessions).
̤ niederer Kraft & Frey aG provides legal advice, mainly about specific aspects of compliance and disclosure matters regarding compensation.
changes in the Group eC (art. 23); ̤ the compensation principles
for both the members of the Board of Directors and the Group eC covering short-term and long-term elements, performance related pay, payment in shares, financial instruments or units, compensation in kind or other types of benefits (art. 24); and
Full details on these rules are available on the swiss Re website: www.swissre.com — about us — Corporate governance — Corporate regulations — articles of association of swiss Re Ltd.
̤ 23% Variable compensation for the Group ̤ 9% Review of compensation framework ̤ 18% Compliance and regulatory ̤ 12% Compensation and performance of
Compensation approval the table below shows the role of the Compensation Committee in approving compensation.
Decision on Proposed Endorsed Approved maximum aggregate amount of compensation of Group Board members for the next term of office1
Compensation Committee, Chairman of the Board of Directors, Board of Directors (to the aGm)
Compensation Committee, Board of Directors, aGm aggregate amount of variable short-term compensation of Group eC members
Variable compensation for the Group at swiss Re, the compensation cycle begins in December and runs through to march/april of the following year. the Compensation Committee oversees each stage of the process, starting with deciding on the variable compensation pool for the prior performance year, reviewing these decisions, and setting targets for the upcoming year.
outlined below is an overview of the topics discussed during 2015: Items relating to the past performance cycle Meeting
̤ performance assessment process and proposal of the variable compensation pool January and February
Compensation and performance of the Group EC the review of the Group eC compensation 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 taken by the Compensation Committee and the Board of Directors.
̤ Review and confirm reference companies for the Group eC compensation benchmarking april
Compensation of the Board of Directors the compensation of the Board of Directors is reviewed annually and the Compensation Committee formulates proposals for the approval of the Board of Directors accordingly2.
̤ Fees of the Board of Directors for the following compensation period February and april
̤ analysis of compensation practices for non-executive directors relative to the market september
̤ Review and update of the Vai plan January, February and april
̤ Review of the role and mandate of external advisors June
High-level overview of topics discussed 1 Within the maximum aggregate amount of compensation approved by the aGm and the supplementary amount available for changes in the Group eC as per the articles of association respectively.
Risk and Control Related Behaviour 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.
in 2015, swiss Re has identified 213 positions that qualify as Key Risk takers. this group consists of the members of the Group eC, GmDs and other roles with significant risk taking authority. the list of Key Risk takers is reviewed on an annual basis.
Independence of the Control Functions in order to ensure the continued independence of Control Functions, their compensation approval processes differ in that the annual compensation decisions for these functions are approved at the Board level.
Swiss Re Group and Business Units the Group delivered very strong Us Gaap and solid economic results. all three Business Units contributed to this result. the underwriting performance of property & Casualty Reinsurance and Corporate solutions remained strong, reflecting the high quality of those portfolios. Life & Health Reinsurance exceeded its Roe targets after the management actions of 2014 addressing the pre-2004 Us individual life business. admin Re® again generated significant gross cash for the Group.
US GAAP financial performance property & Casualty Reinsurance achieved an excellent result reflecting continued good underwriting performance supported by benign natural catastrophe experience and favourable prior-year development. Life & Health Reinsurance reported a strong operating result following the management actions addressing the pre-2004 Us individual life business. the result benefited from lower interest charges and net realised gains.
Corporate solutions delivered good results in 2015, reflecting continued profitable business performance across most lines of business and increased investment income. premiums earned decreased slightly compared to 2014, driven by the challenging market, most notably in property in north and Latin america, and foreign exchange rate movements. after successful acquisitions and the start of new operations worldwide, Corporate solutions continues to focus on expansion into primary lead and to further broaden the distribution network.
Qualitative and overall assessment Qualitatively, swiss Re has made some noticeable improvements in 2015. the new branding, mission and vision have positively redefined the Group. employee engagement survey scores are in aggregate above relevant external benchmarks in the majority of the business and core it capabilities are market leading. Client centric behaviour continues to improve in all areas and the business structure and organisational set-up position swiss Re effectively for future challenges.
the Vai 2011 performance factor of 103%, which applies to all Group functions, was mainly driven by positive investment performance in 2012 and 2013 and partially offset by adverse business development in 2012 for the relevant performance year.
Vai plan year performance measurement period elapsed as of 31 December 2015 performance factor 2012 (awarded 2013) 3 years to be determined 2013 (awarded 2014) 2 years to be determined 2014 (awarded 2015) 1 year to be determined
other payments severance payments1 397 22 346 33 1 severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and (iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in respect of amount, nature or duration. no severance payments were made to members of the Group eC.
Compensation decisions for the Group EC the variable compensation awarded to all members of the Group eC (including the Group Ceo) totalled CHF 32.5 million for 2015, compared to CHF 28.1 million for 2014. the following table covers payments to 12 members for 2015 who were all employed for the full year. the 2014 payments cover 13 members, of whom 11 were employed for the full year.
Compensation decisions for the Group CEO michel m. Liès, Group Ceo since February 2012 13 members7 12 members CHF thousands 2014 2015
period when the member was no longer in the role (eg base salary when on garden leave). 6 amounts are gross and include social security contributions of the employees. additionally and not included are
Base salary and allowances 1 651 1 638 Funding of pension benefits 177 178
Cash annual performance incentive1 1 250 1 600 1 For 2015, subject to shareholders approval at the aGm 2016. For 2014, as part of the aggregate amount of shortterm variable compensation approved by the shareholders at the aGm 2015.
2 Disclosure reflects all awards for a reporting year, ie the 2014 value reflects the fair value of the Lpp award granted in april 2014 and the 2015 value reflects the fair value of the Lpp award granted in april 2015.
3 amounts are gross and include social security contributions of the employee. additionally and not included are company contributions to social security systems paid by swiss Re in line with applicable laws which amounted to CHF 359 721 in 2014 and CHF 813 446 in 2015.
Compensation Compensation desicions in 2015 members of the Group eC 2014 2015 michel m. Liès, Group Ceo 187 690 262 808 David Cole, Group Chief Financial officer 28 755 54 207 John Dacey, Group Chief strategy officer, Chairman admin Re®1 45 171 Guido Fürer, Group Chief investment officer 32 315 42 302 agostino Galvagni, Ceo Corporate solutions 64 860 65 816 Jean-Jacques Henchoz, Ceo Reinsurance emea 38 280 35 476 Christian mumenthaler, Ceo Reinsurance 40 000 50 000 moses ojeisekhoba, Ceo Reinsurance asia 14 369 26 404 J. eric smith, Ceo swiss Re americas 0 16 990 matthias Weber, Group Chief Underwriting officer 57 649 25 410 thomas Wellauer, Group Chief operating officer 75 973 116 111 1Chairman admin Re® until may 2015.
swiss-based variable-rate mortgages have no agreed maturity dates. the basic preferential interest rates equal the corresponding interest rates applied by the Zurich Cantonal Bank minus one percentage point. Where fixed or floating interest rates are preferential, the value of this benefit has been included in the line item “base salary and allowances” on page 147.
the table below provides more detailed information on the compensation paid or payable to each Board member against the maximum aggregate amount of CHF 10 600 000 as approved by the aGm 2015 (figures in CHF thousands): CHF thousands total 2014 Fees and allowances
Jean-pierre Roth, member 274 160 107 267 philip K. Ryan, Chairman of the Finance and Risk Committee6,7 540 168 708 susan L. Wagner, Chairman of the investment Committee8 236 294 197 491 Total compensation for the reported financial years9,10 11 715 6 569 4 026 10 595 1 acting as the Lead independent Director. Chairman of the audit Committee since 11 april 2014. 2 term of office expired as of 11 april 2014 and did not stand for re-election. 3 term of office expired as of 21 april 2015 and did not stand for re-election. 4 Vice Chairman until 21 april 2015. 5 includes fees received for duties on the board of Luxembourg Group companies. 6 elected to swiss Re’s Board of Directors at the annual General meeting of 21 april 2015. 7 includes fees received for duties on the board of Us Group companies. 8 elected to swiss Re’s Board of Directors at the annual General meeting of 11 april 2014. 9 Compensation for the members of the Board of Directors includes fixed fees and allowances both in cash and shares. no sign-on or severance payments have been or are made. 10 amounts are gross and include social security contributions of the member. additionally and not included are company contributions to social security systems paid by swiss Re
in line with applicable laws which amounted to CHF 598 083 in 2014 and CHF 478 385 in 2015. For Board members domiciled outside of switzerland, company social security contributions are refunded, if bilateral social security agreements between switzerland and the country of domicile apply and provide for such refund.
Legend: C = Chairperson of the respective Committee, m = member of the respective Committee 1 includes Vice Chairman fees and subsidiary fees. 2 excluding company contributions to social security systems paid by swiss Re in line with applicable laws. 3 including an amount of approximately CHF 18 000 for minimal benefits.
Compensation for former members of governing bodies During 2015, payments in the total amount of CHF 0.2 million were made to six former members of the Group eC. this amount is made up of company contributions to social security paid by swiss Re in line with applicable laws, benefits in the context of the outstanding mortgages and loans not at market rates above, risk benefits as well as company commitments for tax related services.
Weighted average strike price in CHF 74.34 n/a Walter B. Kielholz, Chairman 20 000 0 members of the Board of Directors 2014 2015
Jean-pierre Roth, member 8 234 8 443 philip K. Ryan, Chairman of the Finance and Risk Committee2 3 394 susan L. Wagner, Chairman of the investment Committee3 1 267 3 485 1 term of office expired as of 21 april 2015 and did not stand for re-election. 2 elected to swiss Re’s Board of Directors at the annual General meeting of 21 april 2015. 3 elected to swiss Re’s Board of Directors at the annual General meeting of 11 april 2014.
Report of the statutory auditor to the General meeting on the Compensation Report 2015
We have audited pages 147 to 151 of the accompanying Compensation Report included in this 2015 Financial Report of swiss Re Ltd for the year ended 31 December 2015.
an audit involves performing procedures to obtain audit evidence on the disclosures made in the Compensation Report with regard to compensation, loans and credits in accordance with articles 14 to 16 of the ordinance. the procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatements in the Compensation Report, whether due to fraud or error. this audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the Compensation Report.
Opinion in our opinion, the Compensation Report included in the 2015 Financial Report of swiss Re Ltd for the year ended 31 December 2015 complies with swiss law and articles 14 to 16 of the ordinance.
Group financial statements 156 income statement 156 statement of comprehensive income 157 Balance sheet 158 statement of shareholders’ equity 160 statement of cash flow 161
Notes to the Group financial statements 162 note 1 Organisation and summary of significant accounting policies 162 note 2 information on business segments 172 note 3 insurance information 183 note 4 Premiums written 188 note 5 Unpaid claims and claim adjustment expenses 189 note 6 Deferred acquisition costs (Dac) and acquired present value of future profits (PVFP) 191 note 7 investments 192 note 8 Fair value disclosures 200 note 9 Derivative financial instruments 211 note 10 acquisitions and disposals 215 note 11 Debt and contingent capital instruments 216 note 12 earnings per share 219 note 13 income taxes 220 note 14 Benefit plans 223 note 15 share-based payments 231 note 16 compensation, participations and loans of members of governing bodies 234 note 17 Related parties 235 note 18 commitments and contingent liabilities 236 note 19 significant subsidiaries and equity investees 237 note 20 Variable interest entities 240 note 21 Restructuring provision 244 Report of the statutory auditor 246 Group financial years 2006–2015 248
Swiss Re Ltd 250 annual Report 250 income statement 251 Balance sheet 252 notes 254 Proposal for allocation of disposable profit 262 Report of the statutory auditor 263 cOntents
income statement For the years ended 31 December the accompanying notes are an integral part of the Group financial statements.
Fee income from policyholders 3 506 463 net investment income – non-participating business1 7 4 103 3 436 net realised investment gains/losses – non-participating business2 7 567 1 206 net investment result – unit-linked and with-profit business 7 1 381 814 Other revenues 34 44
Other expenses –3 155 –3 303 interest expenses –721 –579 Total expenses –33 120 –30 395
Earnings per share in CHF3 1 total impairments for the years ended 31 December were nil in 2014 and UsD 83 million in 2015, of which nil and UsD 83 million, respectively, were recognised in earnings. 2 total impairments for the years ended 31 December were UsD 40 million in 2014 and UsD 57 million in 2015, of which UsD 40 million and UsD 57 million, respectively, were recognised in earnings. 3 the translation from UsD to cHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
Reclassification out of accumulated other comprehensive income For the years ended 31 December the accompanying notes are an integral part of the Group financial statements.
UsD millions 2014 2015 net income before attribution of non-controlling interests 3 569 4 668 Other comprehensive income, net of tax: change in unrealised investment gains/losses 3 796 –2 670 change in other-than-temporary impairment 3 –8 change in foreign currency translation –778 –1 012 change in adjustment for pension benefits –291 –191
Balance as of period end 2 748 –11 –5 687 –1 016 –3 966 1 Reclassification adjustment included in net income is presented in the “net realised investment gains/losses – non-participating business” line. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. 3 Reclassification adjustment included in net income is presented in the “Other expenses” line.
Balance sheet as of 31 December assets the accompanying notes are an integral part of the Group financial statements.
Liabilities Unpaid claims and claim adjustment expenses 57 954 55 518 liabilities for life and health policy benefits 8 33 605 30 131
Equity common shares, cHF 0.10 par value additional paid-in capital 1 806 482 treasury shares, net of tax –1 185 –1 662 accumulated other comprehensive income: net unrealised investment gains/losses, net of tax 5 418 2 748 Other-than-temporary impairment, net of tax –3 –11 Foreign currency translation, net of tax –4 675 –5 687 adjustment for pension and post-retirement benefits, net of tax –825 –1 016 total accumulated other comprehensive income –85 –3 966 non-controlling interests 111 89
statement of shareholders’ equity For the years ended 31 December the accompanying notes are an integral part of the Group financial statements.
Contingent capital instruments issued Balance as of period end 1 102 1 102
Additional paid-in capital share-based compensation –34 17 Realised gains/losses on treasury shares 6 –61 Dividends on common shares1 –3 129 –1 280 Balance as of period end 1 806 482
Other-than-temporary impairment, net of tax Balance as of 1 January –6 –3 changes during the period 3 –8 Balance as of period end –3 –11
Adjustment for pension and other post-retirement benefits, net of tax Balance as of 1 January –534 –825 changes during the period –291 –191 Balance as of period end –825 –1 016
Retained earnings net income after attribution of non-controlling interests 3 569 4 665 interest on contingent capital instruments, net of tax –69 –68 Purchase of non-controlling interests –9 Dividends on common shares1 –1 328 Balance as of period end 34 257 37 526
statement of cash flow For the years ended 31 December interest paid was UsD 885 million and UsD 672 million for the years ended 31 December 2014 and 2015, respectively. tax paid was UsD 509 million and UsD 1 190 million for the years ended 31 December 2014 and 2015, respectively. the accompanying notes are an integral part of the Group financial statements.
Cash flows from operating activities net income attributable to common shareholders 3 500 4 597 add net income attributable to non-controlling interests 3 adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items 458 594 net realised investment gains/losses –1 059 –1 221 income from equity-accounted investees, net of dividends received –66 202 change in: technical provisions and other reinsurance assets and liabilities, net2 –34 –121 Funds held by ceding companies and under reinsurance treaties 433 764 Reinsurance recoverable on unpaid claims and policy benefits 1 273 670 Other assets and liabilities, net2 –323 87 income taxes payable/recoverable 134 –567 trading positions, net1.2 81 404
Cash flows from financing activities Policyholder account balances, unit-linked and with-profit business:2 issuance/repayment of long-term debt 1 438 199 issuance/repayment of short-term debt –2 584 –1 155 Purchase/sale of treasury shares –197 –579 Dividends paid to shareholders –3 129 –2 608 Net cash provided/used by financing activities –5 917 –6 008
For assets or derivative structures at fair value, the Group uses market prices or inputs derived from market prices. A separate internal price verification process, independent of the trading function, provides an additional control over the market prices or market input used to determine the fair values of such assets. Although management considers that appropriate values have been ascribed to such assets, there is always a level of uncertainty and judgement over these valuations. Subsequent valuations could differ significantly from the results of the process described above. The Group may become aware of counterparty valuations, either directly through the exchange of information or indirectly, for example, through collateral demands. Any implied differences are considered in the independent price verification process and may result in adjustments to initially indicated valuations. As of 31 December 2015, the Group has not provided any collateral on financial instruments in excess of its own market value estimates.
Deferred acquisition costs The Group incurs costs in connection with acquiring new and renewal reinsurance and insurance business. Some of these costs, which consist primarily of commissions, are deferred as they are directly related to the successful acquisition of such business.
FINANCIAL STATEMENTS Notes to the Group financial statements 164 Swiss Re 2015 Financial Report
Acquired present value of future profits The acquired present value of future profits (PVFP) of business in force is recorded in connection with the acquisition of life and/or health business. The initial value is determined actuarially by discounting estimated future gross profits as a measure of the value of business acquired. The resulting asset is amortised on a constant yield basis over the expected revenue recognition period of the business acquired, generally over periods ranging up to 30 years, with the accrual of interest added to the unamortised balance at the earned rate. The earned rate corresponds to either the current earned rate or the original earned rate depending on the business written. The rate is consistently applied for the entire life of the applicable business. For universal-life and similar products, PVFP is amortised in line with estimated gross profits, and estimated gross profits are updated quarterly. The carrying value of PVFP is reviewed periodically for indicators of impairment in value. Adjustments to reflect impairment in value are recognised in earnings during the period in which the determination of impairment is made or in other comprehensive income for shadow loss recognition.
FINANCIAL STATEMENTS Notes to the Group financial statements 166 Swiss Re 2015 Financial Report
Funds held assets and liabilities On the asset side, funds held by ceding companies’ consist mainly of amounts retained by the ceding company for business written on a funds withheld basis. In addition, the account also includes amounts arising from the application of the deposit method of accounting to ceded retrocession or reinsurance contracts.
Pensions and other post-retirement benefits The Group accounts for its pension and other post-retirement benefit costs using the accrual method of accounting. Amounts charged to expense are based on periodic actuarial determinations.
Treasury shares Treasury shares are reported at cost in shareholders’ equity. Treasury shares also include stand-alone derivative instruments indexed to the Group’s shares that meet the requirements for classification in shareholders’ equity.
Recent accounting guidance In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-01, “Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)”,
In January 2014, the FASB issued ASU 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)”, an update to subtopic 310-40, “Receivables — Troubled Debt Restructurings by Creditors”. ASU 2014-04 applies to creditors who obtain physical possession resulting from an in substance repossession or foreclosure of residential real estate property collateralising a consumer mortgage loan in satisfaction of a receivable. Existing guidance requires a creditor to reclassify a collateralised mortgage loan with the result that the loan is derecognised and the collateral asset recognised when there has been in substance repossession or foreclosure by the creditor. The ASU provides additional guidance on when a creditor is considered to have received physical possession from an in substance repossession. The Group adopted ASU 2014-04 on 1 January 2015. The adoption did not have an effect on the Group’s financial statements.
In August 2014, the FASB issued ASU 2014-14, “Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure”, an update to subtopic 310-40, “Receivables — Troubled Debt Restructurings by Creditors”. ASU 2014-14 affects creditors that hold government-guaranteed mortgage loans. The ASU requires that a mortgage loan be derecognised and that a separate other receivable be recognised upon foreclosure if specific conditions are met, including that the guarantee is not
The Group presents four core operating business segments: Property & Casualty Reinsurance, Life & Health Reinsurance, Corporate Solutions and Admin Re®. The presentation of each segment’s balance sheet is closely aligned to the segment legal entity structure. The assignment of assets and liabilities for entities that span more than one segment is determined by considering local statutory requirements, legal and other constraints, the economic view of duration and currency requirements of the reinsurance business written, and the capacity of the segments to absorb risks. Interest expense is based on the segment’s capital funding position. The tax impact of a segment is derived from the legal entity tax obligations and the segmentation of the pre-tax result. While most of the tax items can be directly attributed to individual segments, the tax which impacts two or more segments is allocated to the segments on a reasonable basis. Property & Casualty Reinsurance and Life & Health Reinsurance share the same year-to-date effective tax rate as both business segments belong to the Reinsurance Business Unit.
Property & Casualty includes the business lines property, casualty (including motor), and specialty. Life & Health includes the life and health lines of business.
FINANCIAL STATEMENTS Notes to the Group financial statements 172 Swiss Re 2015 Financial Report
Consolidation Segment information is presented net of external and internal retrocession and other intra-group arrangements. The Group total is obtained after elimination of intra-group transactions in the “Consolidation” column. This includes significant intra-group reinsurance arrangements, recharge of trademark licence fees, and intersegmental funding.
Fee income from policyholders 53 453 506 Net investment income – non-participating business 1 076 1 544 94 1 256 115 18 4 103 Net realised investment gains/losses – non-participating business 699 –255 168 –114 69 567 Net investment result – unit-linked and with-profit business 75 1 306 1 381
Income/loss attributable to non-controlling interests –1 1 0 Net income/loss after attribution of non-controlling interests 3 584 –413 319 34 45 0 3 569
Interest on contingent capital instruments –20 –49 –69 Net income/loss attributable to common shareholders 3 564 –462 319 34 45 0 3 500
Business segments – income statement For the year ended 31 December 2015 USD millions