Change in unpaid claims and claim adjustment expenses; life and health benefits, thereof: Intra-group transactions (assumed and ceded) 941 –37 –941 37 0
Retrocession to external parties –550 26 –59 –31 –614 Net unpaid claims and claim adjustment expenses; life and health benefits 958 207 –246 732 37 1 688
Acquisition costs before impact of retrocession to external parties –3 904 –2 209 –486 –161 –6 760
Net acquisition costs –3 836 –1 965 –459 –159 –6 419 1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly.
Retrocession to external parties –283 –17 20 –83 –363 Net unpaid claims and claim adjustment expenses; life and health benefits –1 595 341 –425 784 –895
Net acquisition costs –4 405 –1 943 –517 –63 –6 928
Reinsurance recoverable on unpaid claims and policy benefits As of 31 December 2015 and 2016, the Group had a reinsurance recoverable of USD 6 578 million and USD 7 461 million, respectively. The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire Hathaway and subsidiaries accounted for 52% of the Group’s reinsurance recoverable as of year-end 2015 and 40% as of year-end 2016.
Reinsurance receivables Reinsurance receivables as of 31 December were as follows: Policyholder dividends Policyholder dividends are recognised as an element of policyholder benefits. The relative percentage of participating insurance of the life and health policy benefits in 2015 and 2016 was 8% and 10%, respectively. The amount of policyholder dividend expense in 2015 and 2016 was USD 126 million and USD 279 million, respectively.
Receivables invoiced from ceded re/insurance business 201 177 Assets arising from the application of the deposit method of accounting and meeting the definition of financing receivables 171 141 Recognised allowance –56 –60 196 Swiss Re 2016 Financial Report
Gross premiums written before retrocession to external parties 15 907 11 942 3 654 746 32 249
Retrocession to external parties –242 –1 342 –206 –262 –2 052 1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly.
A reconciliation of the opening and closing reserve balances for unpaid claims and claim adjustment expenses for the period is presented as follows: USD millions 20151 2016
Deferred expense on retroactive reinsurance 340 211 1 The Group has adjusted its presentation of the reconciliation to include both non-life and life and health business lines for the current and the comparative reporting period.
Prior-year development Non-life claims development during 2016 on prior years continued to be driven by favourable experience on most lines of business. Property includes adverse development from the New Zealand earthquakes that occurred in 2010 and 2011. Casualty includes adverse development on US asbestos and environmental claims, while the more recent years were in some cases strengthened in view of the unfavourable prevailing market conditions. Within specialty, the main reserve releases came from marine and engineering business lines.
For life and health lines of business, claims development on prior year business was driven by adverse claim experience across a number of lines of business and geographies. In particular, the UK critical illness portfolio strengthened reserves following adverse trends. This was partially offset by Canadian mortality and disability portfolios which had reserve releases following positive claims experience. Claims development related to prior years also includes an element of interest accretion for unpaid claims reported at the estimated present value.
Estimating ultimate asbestos and environmental liabilities is particularly complex for a number of reasons relating in part to the long period between exposure and manifestation of claims, and in part to other factors, which include risks and lack of predictability inherent in complex litigation, changes in projected costs to resolve, and in the projected number of asbestos and environmental claims, the effect of bankruptcy protection, insolvencies, and changes in the legal, legislative and regulatory environment. As a result, the Group believes that projection of exposures for asbestos and environmental claims is subject to far less predictability relative to non-environmental and non-asbestos exposures. Management believes that its reserves for asbestos and environmental claims are appropriately established based upon known facts and the current state of the law. However, reserves are subject to revision as new information becomes available and as claims develop. Additional liabilities may arise for amounts in excess of reserves, and the Group’s estimate of claims and claim adjustment expenses may change. Any such additional liabilities or increases in estimates cannot be reasonably estimated in advance but could result in charges that could be material to operating results.
Claims development information and information on reserves for claims relating to insured events that have occurred but have not yet been reported or not enough reported (“IBNR”) are generally presented by line of business for individually significant categories. Starting from a line of business split, additional aggregation or disaggregation is provided where appropriate, necessary and practicable (“disaggregation categories”). For instance, Reinsurance liability and motor lines of business are further disaggregated into proportional and non-proportional treaty types to provide more specific information on claims development whereas specialty is shown as one distinct category.
In the Life & Health Reinsurance segment, contracts classified as short duration include group life business, certain types of disability and long-term care contracts, group accident, health coverage including critical illness and medical expenses. The Group provides claims development information for Life & Health Reinsurance where reported accident year information is available and there is potential for claims development. This primarily applies to the Grouṕ s disability lines classified as short duration. This business is generally considered to have relatively higher claims estimation uncertainty than other life and health lines such as group life, due to longer claims development periods.
For the Life & Health Reinsurance long tail category, the Group discloses data for nine accident years and reporting periods. Disclosure of ten years of information is impracticable for all lines of business contained in this category as the Group historically has not used accident-year based information for reserving purposes in all income protection business lines.
̤ The reserving process considers any information available in respect of either a specific case or a large loss event and the impact of any unusual features in the technical accounting of information provided by cedents.
For Corporate Solutions, claims frequency is displayed for direct business only, as individual claims information is generally not available for assumed and ceded business. Claims are counted individually per contract to produce the claims frequency table. For some direct business, summary reports are received and multiple claims are booked under a single claim code; this is usually done at a program, policy year, state, country and/or line of business level of detail. This approach may be applied to business which has a high volume of claim counts, but with only minor claims dollars associated with each claim.
The increase in incurred losses from accident year 2013 to 2016 is driven by volume increases of business written. In view of current market conditions the loss ratios for accident year 2015 were increased. In line with the Grouṕ s policy, cash flows under loss portfolio transfers are reported through claims paid. For longer tail lines and depending on the business volume written, timing of cash flows can lead to net inward payments across the whole portfolio in the first development year of the contract for some accident years.
All liabilities before 2007 596 Liabilities for claims and claim adjustment expenses, net of reinsurance 5 752
All liabilities before 2007 5 891 Liabilities for claims and claim adjustment expenses, net of reinsurance 9 687 208 Swiss Re 2016 Financial Report
Property & Casualty Reinsurance – Accident & Health Incurred claims and allocated claim adjustment expenses, net of reinsurance
Increase in the incurred losses from accident year 2010 onward is driven by new business volume across all regions. Proportional motor business includes both longer tailed liability business and shorter tailed hull business. The negative IBNRs are due to overestimated case reserves, mainly on the German business and 2011 includes the effects of an outwards proportional contract in inwards non-proportional business.
All liabilities before 2007 316 Liabilities for claims and claim adjustment expenses, net of reinsurance 2 951 210 Swiss Re 2016 Financial Report
All liabilities before 2007 2 557 Liabilities for claims and claim adjustment expenses, net of reinsurance 4 949
This category includes credit and surety business, which was adversely affected by the financial crisis in 2007–2008. The category also includes several individual large losses on marine, aviation and space lines, including the Costa Concordia claims event.
In the reporting year 2013, the Group significantly strengthened IBNR claims liabilities in Australia for some lines of business. In addition, for 2009, 2013 and 2014 the effect of business volume increase is discernible as well.
Life & Health Reinsurance, long tail (RSI) 6.1% 16.6% 14.6% 10.0% 7.1% 5.8% 4.1% 4.1% 3.7%
Reconciliation of gross liability for unpaid claims and claim adjustment expenses The following table reconciles the Grouṕ s net outstanding liabilities to the gross liabilities for unpaid claims and claim adjustment expenses.
For the year ended 31 December 2016 216 Swiss Re 2016 Financial Report
Discounting information The following disclosure covers the discounting impact for the disaggregation categories included in the claims development information. Discounting information for Life & Health Reinsurance long tail as of 31 December: Please refer to Note 1 for more details about the Grouṕ s discounting approach for unpaid claims and claim adjustment expenses.
Opening balance as of 1 January 1 756 2 723 360 1 4 840 Effect of change in Group structure1 –12 12 0
Opening balance as of 1 January 1 294 2 003 0 2 003 3 297 Effect of acquisitions/disposals and retrocessions 2 2 2 Amortisation –159 –191 –191 –350 Interest accrued on unamortised PVFP 40 84 84 124 Effect of change in unrealised gains/losses 9 9 9 Effect of foreign currency translation –41 –77 –77 –118
In the first quarter 2016, the Group’s Business Unit Life Capital acquired Guardian Holdings Europe Limited, the holding company for operations trading under the name Guardian Financial Services (“Guardian”), and recognised negative PVFP. Upon acquisition, PVFP is calculated as the difference between the estimated fair value and established reserves, which is in line with US GAAP accounting policies and assumptions of the Group. The product mix of Guardian is weighted towards annuity business, for which the fair value of insurance and investment contract liabilities significantly exceeds the established US GAAP reserves. This excess is mainly due to differences in discount rates and risk weightings between fair value and US GAAP estimates. Overall, the excess on the annuity business outweighs the estimated future gross profits of other business and synergy expectations included in the fair value of insurance and investment contract liabilities for the business as a whole, resulting in a negative PVFP.
The percentage of PVFP which is expected to be amortised in each of the next five years is 10%, 10%, 9%, 9% and 8%.
Investment income Net investment income by source (excluding unit-linked and with-profit business) was as follows: Dividends received from investments accounted for using the equity method were USD 254 million and USD 176 million for 2015 and 2016, respectively.
Fixed income securities available-for-sale: Gross realised gains 889 789 Gross realised losses –283 –202
Other-than-temporary impairments –57 –88 Net realised investment gains/losses on trading securities 64 110 Change in net unrealised investment gains/losses on trading securities –30 –14 Net realised/unrealised gains/losses on other investments 85 118 Net realised/unrealised gains/losses on insurance-related activities 152 344 Foreign exchange gains/losses 83 178 Net realised investment gains/losses – non-participating business 1 206 1 484 220 Swiss Re 2016 Financial Report
Balance as of 1 January 137 136 Credit losses for which an other-than-temporary impairment was not previously recognised 30 13 Reductions for securities sold during the period –23 –48 Increase of credit losses for which an other-than-temporary impairment has been recognised previously, when the Group does not intend to sell, or more likely than not will not be required to sell before recovery 7 8 Impact of increase in cash flows expected to be collected –10 –7 Impact of foreign exchange movements –5 –5
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 12 212 612 –92 12 732
States of the United States and political subdivisions of the states 1 411 59 –20 1 450
Assets pledged As of 31 December 2016, investments with a carrying value of USD 7 249 million were on deposit with regulatory agencies in accordance with local requirements, and investments with a carrying value of USD 14 005 million were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
As of 31 December 2016, a real estate portfolio with a carrying value of USD 219 million serves as collateral for a credit facility allowing the Group to withdraw funds up to CHF 650 million.
Debt securities issued by governments and government agencies 2 710 2 538 Corporate debt securities 52 45 Mortgage- and asset-backed securities 134 112 Fixed income securities trading – non-participating business 2 896 2 695 Equity securities trading – non-participating business 68 60
Due in one year or less 4 874 4 911 6 607 6 650 Due after one year through five years 19 370 19 671 19 180 19 623 Due after five years through ten years 16 577 17 101 19 240 20 079
Derivative financial instruments – liabilities –2 179 1 477 –702 81 –621 2016 USD millions
Related financial instruments not set off in the balance sheet Net amount 2016 USD millions
Recognised gross liability for the obligation to return collateral that the Group has the right to sell or repledge As of 31 December 2015 and 2016, the gross amounts of liabilities related to repurchase agreements and securities lending by the class of securities transferred to third parties and by the remaining maturity are shown below. The liabilities are recognised for the obligation to return collateral that the Group has the right to sell or repledge.
Remaining contractual maturity of the agreements Overnight and continuous Up to 30 days 30–90 days Greater than 90 days Total
Repurchase agreements Debt securities issued by governments and government agencies 370 2 136 176 135 2 817 Corporate debt securities 3 24 27
Gross amount of recognised liabilities for repurchase agreements and securities lending 3 995 2016 USD millions
Unrealised losses on securities available-for-sale The following table shows the fair value and unrealised losses of the Group’s fixed income securities, aggregated by investment category and length of time that individual securities were in a continuous unrealised loss position as of 31 December 2015 and 2016. As of 31 December 2015 and 2016, USD 161 million and USD 62 million, respectively, of the gross unrealised loss on equity securities available-for-sale relates to declines in value for less than 12 months and USD 46 million and USD 21 million, respectively, to declines in value for more than 12 months.
Less than 12 months 12 months or more Total 2015 USD millions Fair value
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 5 993 91 11 1 6 004 92
Mortgage- and asset-backed securities 2 419 32 225 9 2 644 41
Less than 12 months 12 months or more Total 2016 USD millions Fair value
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 6 709 179 6 709 179
Mortgage- and asset-backed securities 1 599 26 147 9 1 746 35 226 Swiss Re 2016 Financial Report
Depreciation expense related to income-producing properties was USD 36 million and USD 42 million for 2015 and 2016, respectively. Accumulated depreciation on investment real estate totalled USD 504 million and USD 525 million as of 31 December 2015 and 2016, respectively.
FINANCIAL STATEMENTS Notes to the Group financial statements 8 Fair value disclosures
The fair values of assets are adjusted to incorporate the counterparty risk of non-performance. Similarly, the fair values of liabilities reflect the risk of non-performance of the Group, captured by the Group’s credit spread. These valuation adjustments from assets and liabilities measured at fair value using significant unobservable inputs are recognised in net realised gains and losses. For 2016, these adjustments were not material. Whenever the underlying assets or liabilities are reported in a specific business segment, the valuation adjustment is allocated accordingly. Valuation adjustments not attributable to any business segment are reported in Group items.
Values of mortgage- and asset-backed securities are obtained both from third-party pricing vendors and through quoted prices, some of which may be based on the prices of comparable securities with similar structural and collateral features. Values of certain asset-backed securities (ABS) for which there are no significant observable inputs are developed using benchmarks to similar transactions or indices. For both residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS), cash flows are derived based on the transaction-specific information, which incorporates priority in the capital structure, and are generally adjusted to reflect benchmark yields, market prepayment data, collateral performance (default rates and loss severity) for specific vintage and geography, credit enhancements, and ratings. For certain RMBS and CMBS with low levels of market liquidity, judgements may be required to determine comparable securities based on the loan type and deal-specific performance. CMBS terms may also incorporate lock-out periods that restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities, compared to RMBS. The factors specifically considered in valuation of CMBS include borrower-specific statistics in a specific region, such as debt service coverage and loan-to-value ratios, as well as the type of commercial property. Mortgage- and asset-backed securities also includes debt securitised by credit card, student loan and auto loan receivables. Pricing inputs for these securities also focus on capturing, where relevant, collateral quality and performance, payment patterns, and delinquencies.
Governance around level 3 fair valuation The Asset Valuation Committee, endorsed by the Group Executive Committee, has a primary responsibility for governing and overseeing all of the Group’s asset and derivative valuation policies and operating parameters (including level 3 measurements). The Asset Valuation Committee delegates the responsibility for implementation and oversight of consistent application of the Groupʼs pricing and valuation policies to the Pricing and Valuation Committee.
A formal IPV process is undertaken monthly by members of the Valuation Risk Management team within the Financial Risk Management function. The process includes monitoring and in-depth analyses of approved pricing methodologies and valuations of the Group’s financial instruments aimed at identifying and resolving pricing discrepancies.
Fixed income securities backing unit-linked and with-profit business 4 069 4 069 Equity securities held for proprietary investment purposes 4 753 34 4 787 Equity securities backing unit-linked and with-profit business 22 783 22 783 Short-term investments held for proprietary investment purposes 3 438 3 967 7 405 Short-term investments backing unit-linked and with-profit business 64 64
Funds held by ceding companies 245 245 Total assets at fair value 44 478 79 674 2 469 –1 953 124 668
Interest rate contracts –5 –786 –791 Foreign exchange contracts –201 –201 Equity contracts –12 –582 –38 –632 Credit contracts –19 –19 Other contracts –7 –5 –524 –536
Fixed income securities backing unit-linked and with-profit business 5 153 5 153 Equity securities held for proprietary investment purposes 3 426 5 4 3 435 Equity securities backing unit-linked and with-profit business 25 807 25 807 Short-term investments held for proprietary investment purposes 5 409 5 500 10 909 Short-term investments backing unit-linked and with-profit business 6 6
Other investments backing unit-linked and with-profit business 42 42 Funds held by ceding companies 225 225 Total assets at fair value 48 016 92 440 2 352 –1 580 937 142 165
Impact of Accounting Standards Updates1 274 –1 120 –846 –207 –207 Realised/unrealised gains/losses: Included in other comprehensive income 24 1 6 31 0
Transfers out of level 32 –6 –29 –35 0 Impact of foreign exchange movements –15 –2 –38 –17 –72 29 1 30
Gains/losses included in net income for the period 202 281 Whereof change in unrealised gains/losses relating to assets and liabilities still held at the reporting date –12 134
Private placement credit tenant leases 51 48 Discounted Cash Flow Model
The significant unobservable inputs used in the fair value measurement of the Group’s variable annuity and fair valued guaranteed minimum death benefit (GMDB) contracts are: risk margin, volatility, lapse, mortality adjustment rate and withdrawal rate. A significant increase (decrease) in isolation in each of the following inputs: risk margin, volatility and withdrawal rate would result in a significantly higher (lower) fair value of the Group’s obligation. A significant increase (decrease) in isolation in a lapse rate for in-the-money contracts would result in a significantly lower (higher) fair value of the Group’s obligation, whereas for out-of-themoney contracts, an isolated increase (decrease) in a lapse assumption would increase (decrease) fair value of the Group’s obligation. Changes in the mortality adjustment rate impact the fair value of the Group’s obligation differently for living-benefit products, compared to death-benefit products. For the former, a significant increase (decrease) in the mortality adjustment rate (i. e. increase (decrease) in mortality, respectively) in isolation would result in a decrease (increase) in fair value of the Group’s liability. For the latter, a significant increase (decrease) in the mortality adjustment rate in isolation would result in an increase (decrease) in fair value of the Group’s liability.
Other investments backing unit-linked and with-profit business For operational efficiencies, the Group elected the fair value option for equity-linked deposits from one of its unit-linked businesses. The assets are carried at fair value and changes in fair value are reported as a component of earnings. In the balance sheet and the following fair value disclosures, this item is included under “Investments for unit-linked and with-profit business”.
Private equity direct 121 80 non-redeemable n.a. Real estate funds 203 189 49 non-redeemable n.a.
Assets and liabilities not measured at fair value but for which the fair value is disclosed Assets and liabilities not measured at fair value but for which the fair value is disclosed as of 31 December, were as follows: Policy loans, other loans and certain mortgage loans are classified as level 3 measurements, as they do not have an active exit market. Some of these positions need to be assessed in conjunction with the corresponding insurance business, whilst the fair value of some other positions do not differ materially from the carrying amount. Considering these circumstances for these positions, the Group presents the carrying amount as an approximation for the fair value. For certain commercial mortgage loans and infrastructure loans, which are included in mortgage loans and other loans respectively, the fair value can be estimated using discounted cash flow models which are based on discount curves and spread inputs that require management’s judgement.
For the year ended 31 December 2016, the Group recorded a gain of USD 32 million on derivatives in accumulated other comprehensive income. For the year ended 31 December 2016, the Group reclassified a gain of USD 39 million from accumulated other comprehensive income into income.
For the years ended 31 December 2015 and 2016, the Group recorded an accumulated net unrealised foreign currency remeasurement gain of USD 1 631 million and a gain of USD 2 448 million, respectively, in shareholders’ equity. These offset translation gains and losses on the hedged net investment.
Fair value hedging relationships Foreign exchange contracts 119 –119 250 –250 Total gains/losses recognised in income 119 –119 250 –250
Maximum potential loss In consideration of the rights of set-off and the qualifying master netting arrangements with various counterparties, the maximum potential loss as of 31 December 2015 and 2016 was approximately USD 1 551 million and USD 1 679 million, respectively. The maximum potential loss is based on the positive market replacement cost assuming non-performance of all counterparties, excluding cash collateral.
The results of the operations of Guardian have been included in the Group’s consolidated financial statements since 6 January 2016. For the period 6 January until 31 December 2016, Guardian generated USD 1 965 million in revenues (including net investment result — unit-linked and with-profit business of USD 1 015 million) and USD 490 million in net income for the Group.
Assets Fixed income securities 11 321 Equity securities 1 Policy loans, mortgages and other loans 1 240 Short-term investments 117 Other invested assets 590 Investments for unit-linked and with-profit business 8 023 Total investments 21 292 Cash and cash equivalents 2 775 Accrued investment income 265 Premiums and other receivables 39 Reinsurance recoverable1 1 676 Negative acquired present value of future profits –641 Deferred tax assets 119 Other assets 11 Total assets acquired 25 536
Liabilities Unpaid claims and claim adjustment expenses 56 Liabilities for life and health policy benefits1 16 460 Policyholder account balances 6 157 Reinsurance balances payable 9 Income taxes payable 6 Deferred and other non-current tax liabilities 294 Accrued expenses and other liabilities 378 Total liabilities assumed 23 360
Intangible assets Historical intangible assets including goodwill have been eliminated. The Group has established negative acquired PVFP, which qualifies as a purchased intangible liability, and goodwill.
The negative PVFP of USD 641 million is amortised over a weighted average amortisation period of 12 years. The residual amount is expected to be nil.
The goodwill of USD 153 million recognised upon acquisition is attributed to the Life Capital Business Unit. It is mainly the result of synergies, which the Group expects to receive from cost savings, capital savings and asset allocation management actions. These do not qualify for separate recognition. The recorded goodwill is not expected to be deductible for tax purposes and, as of 31 December 2016, remained unchanged at constant foreign exchange rates.
Pro forma financial information (unaudited) The following table shows the Group’s unaudited pro forma consolidated financial information for the year ended 31 December 2015, assuming that the acquisition had occurred on 1 January 2015: The pro forma information for the period 1 January 2016 to 5 January 2016 is immaterial.
Receivables from ceded re/insurance business 39 39 Other debtors 15 15
The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines short-term debt as debt having a maturity at the balance sheet date of not greater than one year and long-term debt as having a maturity of greater than one year. For subordinated debt positions, maturity is defined as the first optional redemption date (notwithstanding that optional redemption could be subject to regulatory consent). Interest expense is classified accordingly.
The Groupʼs debt as of 31 December was as follows: As of 31 December 2015 and 2016, operational debt, i. e. debt related to operational leverage, amounted to USD 4.0 billion (thereof USD 3.0 billion limited- or non-recourse) and USD 3.1 billion (thereof USD 2.2 billion limited- or non-recourse), respectively. Operational leverage is subject to asset/liability matching and is excluded from rating agency financial leverage calculations.
Maturity of long-term debt As of 31 December, long-term debt as reported above had the following maturities: USD millions 2015 2016
Senior financial debt 590 Senior operational debt 765 431 Subordinated financial debt 1 069 543 Short-term debt – financial and operational debt 1 834 1 564
Maturity Instrument Issued in Currency Nominal in millions Interest rate Book value in USD millions 2019 Syndicated senior bank loans 2014 GBP 550 variable 680 2019 Bilateral senior bank loans 2016 NGN 6 360 various 21
Various Payment undertaking agreements various USD 353 various 423 Total senior long-term debt as of 31 December 2016 4 157 Total senior long-term debt as of 31 December 2015 4 155 1 Assumed in the acquisition of GE Insurance Solutions.
Interest expense on long-term debt and contingent capital instruments Interest expense on long-term debt for the years ended 31 December was as follows: In addition to the above, interest expense on contingent capital instruments classified as equity was USD 68 million and USD 68 million for the years ended 31 December 2015 and 2016, respectively.
Subordinated debt facility established in 2016 In April 2016, Swiss Re Ltd established a subordinated debt facility with a termination date of 15 February 2031. The facility allows Swiss Re Ltd to issue at any time subordinated fixed rate callable notes with a face value of up to USD 400 million, having a first optional redemption date of 15 February 2031 and a scheduled maturity date of 15 February 2056. Swiss Re Ltd pays a fee of 3.92% per annum on the available commitment under the facility. Notes issued under the facility have a fixed coupon of 6.05% per annum.
Both instruments may be converted, at the option of the issuer, into Swiss Re Ltd shares at any time through an “at market” conversion using the retrospective five-day volume weighted average share price with a 3% discount or within six months following a solvency event at a pre-set floor price (CHF 26 for the instrument with face value of CHF 320 million and USD 32 for the instrument with face value of USD 750 million, respectively). These instruments are referred to in these financial statements as “contingent capital instruments”.
Dividends are declared in Swiss francs. In the year ended 31 December 2015, the Group paid a dividend per share of CHF 4.25, as well as an additional special dividend of CHF 3.00, which were paid in the form of withholding tax exempt repayment of legal reserves from capital contributions. In the year ended 31 December 2016, the Group paid a dividend per share of CHF 4.60.
Earnings per share for the years ended 31 December were as follows: At the 151st Annual General Meeting held on 21 April 2015 and at the 152nd Annual General Meeting held on 22 April 2016, the Group’s shareholders authorised the Group Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of the Group’s own shares through public share buy-back programmes for cancellation purposes prior to the 2016 and 2017 Annual General Meetings, respectively. The buy-back programme prior to the 152nd Annual General Meeting was completed as of 2 March 2016. The total number of shares repurchased amounted to 10.6 million, of which 4.4 million and 6.2 million shares were repurchased as of 31 December 2015 and between 1 January and 2 March 2016, respectively. The 152nd Annual General Meeting resolved the cancellation of the repurchased 10.6 million shares by way of share capital reduction. The shares were cancelled as of 18 July 2016, after completion of the procedure in respect of the share capital reduction as set forth in Article 732 et seqq. of the Swiss Code of Obligations. As of 31 December 2016, 5.5 million shares were repurchased through the buy-back programme launched on 4 November 2016.
FINANCIAL STATEMENTS Notes to the Group financial statements 13 Income taxes
The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the Group operates. The components of the income tax charge were: Tax rate reconciliation The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the accompanying income statement: The Group reported a tax charge of USD 749 million on a pre-tax income of USD 4 372 million for 2016, compared to a charge of USD 651 million on a pre-tax income of USD 5 319 million for 2015. This translates into an effective tax rate in the current and prior-year reporting periods of 17.1% and 12.2%, respectively.
Income tax at the Swiss statutory tax rate of 21.0% 1 117 918 Increase (decrease) in the income tax charge resulting from: Foreign income taxed at different rates 303 191 Impact of foreign exchange movements –180 –5 Tax exempt income/dividends received deduction –93 –44 Change in valuation allowance –72 –256 Basis differences in subsidiaries –306 –3 Change in liability for unrecognised tax benefits including interest and penalties –126 –116 Other, net 8 64 250 Swiss Re 2016 Financial Report
Deferred and other non-current taxes The components of deferred and other non-current taxes were as follows: As of 31 December 2016, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised amount to approximately USD 2.2 billion. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.
As of 31 December 2016, the Group had USD 8 697 million net operating tax loss carryforwards, expiring as follows: USD 25 million in 2018, USD 51 million in 2019, USD 19 million in 2020, USD 7 650 million in 2021 and beyond, and USD 952 million never expire.
Net operating tax losses of USD 1 713 million and net capital tax losses of USD 236 million were utilised during the period ended 31 December 2016.
Deferred tax assets Income accrued/deferred 295 354 Technical provisions 685 640 Pension provisions 330 378 Benefit on loss carryforwards 3 467 2 914 Currency translation adjustments 394 339 Unrealised gains in income 226 424
Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 345 million and USD 215 million at 31 December 2015 and 31 December 2016, respectively.
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense in 2016 was USD 21 million (USD 35 million in 2015). As of 31 December 2015 and 31 December 2016, USD 72 million and USD 52 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2016 is included within the deferred and other non-current taxes section reflected in the balance sheet.
Balance as of 1 January 579 343 Additions based on tax positions related to current year 35 37 Additions based on tax positions related to prior years 115 21 Current year acquisitions 0 24 Reduction for tax positions of prior years –266 –106 Statute expiration 0 –47 Settlements –98 –53 Other (including foreign currency translation) –22 –3 Balance as of 31 December 343 216
Actuarial gains/losses 236 –67 –2 167 Benefits paid –189 –74 –16 –279 Employee contribution 26 26 Acquisitions/disposals/additions 2 2 Effect of settlement, curtailment and termination 2 2 Effect of foreign currency translation –36 –131 –5 –172 Benefit obligation as of 31 December 3 877 2 206 363 6 446
Benefits paid –140 –72 –16 –228 Employee contribution 25 25 Acquisitions/disposals/additions 0 Effect of settlement, curtailment and termination 1 1 Effect of foreign currency translation –62 –209 –2 –273 Benefit obligation as of 31 December 3 916 2 358 369 6 643
Expected return on assets –113 –89 –202 Amortisation of: Prior service cost –9 –9 –18 Effect of settlement, curtailment and termination 1 1 Net periodic benefit cost 99 6 2 107
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended 31 December were as follows: The estimated net loss and prior service credit for the defined benefit pension plans that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2017 are USD 104 million and USD 9 million, respectively. The estimated net gain and prior service credit for the other defined post-retirement benefits that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2017 are USD 2 million and USD 9 million, respectively.
Pension plans with an accumulated benefit obligation in excess of plan assets as of 31 December were as follows: USD millions Swiss plan Foreign plans Other benefits Total
Fair value of plan assets 4 283 4 854 256 Swiss Re 2016 Financial Report
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have had the following effects for 2016: Swiss plan Foreign plans weighted average Other benefits weighted average
Assumptions used to determine obligations at the end of the year
Equity securities include Swiss Re common stock of USD 6 million (0.1% of total plan assets) and USD 7 million (0.1% of total plan assets) as of 31 December 2015 and 2016, respectively.
Total assets at fair value 1 090 3 808 738 5 636
Residential mortgage-backed securities 26 26 Commercial mortgage-backed securities 4 4 Other asset-backed securities 6 6
Total assets at fair value 1 032 3 557 718 387 5 694
As of 31 December 2016, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows: Defined contribution pension plans The Group sponsors a number of defined contribution plans to which employees and the Group make contributions. The accumulated balances are paid as a lump sum at the earlier of retirement, termination, disability or death. The amount expensed in 2015 and in 2016 was USD 77 million and USD 69 million, respectively.
Purchases, issuances and settlements 8 21 29 Transfers in and/or out of level 3 –53 –53 Impact of foreign exchange movements –9 –3 –12 Closing balance as of 31 December 612 106 718
USD millions Swiss plan Foreign plans Other benefits Total 260 Swiss Re 2016 Financial Report
Restricted shares The Group granted 7 776 and 47 795 restricted shares to selected employees in 2015 and 2016, respectively. Moreover, as an alternative to the Group’s cash bonus programme, 288 125 and 300 382 shares were delivered during 2015 and 2016, respectively, which are not subject to forfeiture risk.
Outstanding as of 31 December 86 528 672 1 Equal to the market price of the shares on the date of grant.
If the employee is still employed by Swiss Re at the end of a plan cycle, the employee will receive an additional number of shares equal to 30% of the total number of purchased and dividend shares held at that time. In 2015 and 2016, Swiss Re contributed USD 10 million and USD 12 million to the plans and authorised 211 472 and 178 233 shares as of 31 December 2015 and 2016, respectively.
As of 31 December 2015 and 2016, the Group’s investment in mortgages and other loans included USD 287 million and USD 292 million, respectively, of loans due from employees, and USD 196 million and USD 184 million, respectively, due from officers. These loans generally consist of mortgages offered at variable and fixed interest rates.
Share ownership and loans extended to members of BoD and Group EC are disclosed in Note 16 Compensation, participations and loans of members of governing bodies. The total number of shares, options and related instruments held by members of the BoD and the Group EC and persons closely related to, amounts to less than 1% of the shares issued by Swiss Re Ltd. None of the members of BoD and the Group EC has any significant business connection with Swiss Re Ltd or any of its Group companies. The Group BoD member Susan L. Wagner is also board member of BlackRock, Inc. BlackRock, Inc is acting as external asset manager for the Group.
Share in earnings of equity-accounted investees 52 41 Dividends received from equity-accounted investees 254 176
Leasing commitments As part of its normal business operations, the Group enters into a number of lease agreements. As of 31 December, such agreements, which are operating leases, total the following obligations for the next five years and thereafter: Minimum rentals for all operating leases (except those with terms of a month or less that were not renewed) for the years ended 31 December 2015 and 2016 were USD 63 million and USD 76 million, respectively.
The Group entered into a real estate construction contract. The commitments under the contract amount to USD 92 million over the next four years.
Jersey ReAssure Holdings Limited, St Helier GBP 0 100 f ReAssure Jersey One Limited, St Helier GBP 1 100 f ReAssure Jersey Two Limited, St Helier GBP 3 100 f Swiss Re Admin Re Limited, St Helier GBP 3 100 f Swiss Re ReAssure Midco Limited, St Helier GBP 0 100 f
Luxembourg iptiQ Life S.A., Luxembourg EUR 6 100 f Swiss Re Europe Holdings S.A., Luxembourg EUR 105 100 f Swiss Re Europe S.A., Luxembourg EUR 350 100 f Swiss Re Finance (Luxembourg) S.A., Luxembourg EUR 0 100 f Swiss Re Funds (Lux) I, Senningerberg1 EUR 12 316 100 f Swiss Re International SE, Luxembourg EUR 182 100 f
Switzerland Swiss Re Asia Ltd, Zurich CHF 312 100 f Swiss Re Asset Management Geneva SA, Carouge CHF 0 100 f Swiss Re Corporate Solutions Ltd, Zurich CHF 100 100 f Swiss Re Direct Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Holding Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Ltd, Zurich CHF 1 100 f Swiss Re Life Capital Ltd, Zurich CHF 0 100 f Swiss Re Management Ltd, Adliswil CHF 0 100 f Swiss Re Principal Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Reinsurance Holding Company Ltd, Zurich CHF 0 100 f Swiss Reinsurance Company Ltd, Zurich CHF 34 100 f
United Kingdom Pension Insurance Corporation Group Limited, London GBP 757 4 fv ReAssure FSH UK Limited, Shropshire GBP 710 100 f ReAssure Group Limited, Shropshire GBP 949 100 f ReAssure Life Limited, Shropshire GBP 0 100 f ReAssure Limited, Shropshire GBP 289 100 f Swiss Re Services Limited, London GBP 2 100 f Swiss Re Specialised Investments Holdings (UK) Limited, London GBP 1 100 f
Barbados European Finance Reinsurance Company Ltd., Bridgetown USD 5 100 f European International Reinsurance Company Ltd., Bridgetown USD 1 100 f Milvus I Reassurance Limited, Bridgetown USD 397 100 f Swiss Re (Barbados) Finance Limited, Bridgetown GBP 0 100 f
China Alltrust Insurance Company of China Limited, Shanghai CNY 2 178 5 fv Swiss Re Corporate Solutions Insurance China Ltd, Shanghai CNY 500 100 f
The adoption of ASU 2015-02 as of 1 January 2016 led to an increase in the number of variable interest entities (VIEs), mainly due to the evaluation of partnerships and investment funds.
Insurance-linked securitisations The insurance-linked securitisations transfer pre-existing insurance risk to investors through the issuance of insurance-linked securities. In insurance-linked securitisations, the securitisation vehicle assumes the insurance risk from a sponsor through insurance or derivative contracts. The securitisation vehicle generally retains the issuance proceeds as collateral, which consists of investment-grade securities. The Group does not have potentially significant variable interest in these vehicles and therefore is not a primary beneficiary.
Debt financing vehicles The Group consolidates a debt-financing vehicle created to collateralise reinsurance coverage provided by the Group. The Group manages the asset portfolio in the vehicle and absorbs the variability of the investment return of the vehicle’s portfolio, thereby satisfying both criteria for a controlling financial interest: power over activities most significant to the vehicle’s economic performance and significant economic interest.
Investment vehicles The ASU 2015-02 implementation resulted in consolidation by the Group of a real estate investment entity, which holds real estate backing annuities business. The Group is its primary beneficiary, because it has both power over the entity’s investment decisions, as well as a significant variable interest in the entity.
The Group is a passive investor in structured securitisation vehicles issuing residential and commercial mortgage-backed securities (RMBS and CMBS, respectively) and other asset-backed securities (ABS). The Group’s investments in RMBS, CMBS and other ABS are passive in nature and do not obligate the Group to provide any financial or other support to the issuer entities. By design, RMBS, CMBS and ABS securitisation entities are not adequately capitalised and therefore considered VIEs. The Group is not the primary beneficiary, because it does not have power to direct most significant activities. These investments are accounted for as available-for-sale as described in the investment Note 7 and not included in the tables below.
Non-consolidated VIEs The following table shows the total assets and liabilities in the Group’s balance sheet related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: The following table shows the Group’s assets, liabilities and maximum exposure to loss related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: The assets and liabilities for the swaps in trusts represent the positive and negative fair values of the derivatives the Group has entered into with the trusts.
Accrued expenses and other liabilities 45 78 Total liabilities 45 78
Report of the statutory auditor Report of the statutory auditor to the General Meeting of Swiss Re Ltd Zurich
Other matter Accounting principles generally accepted in the United States of America require that the supplementary information based on the requirements of ASU 2015-09, Disclosures about Short-Duration Contracts, on pages 206 to 214 be presented to supplment the consolidated financial statements. Such information, although not part of the consolidated financial statements, is required by the Financial Accounting Standards Board, which considers it an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the consolidated financial statements and other knowledge we obtained during our audit of the consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
On the basis of the work performed, we consider the assumptions used by management to be appropriate and that the investments classified as level 2 and 3 are properly valued as of 31 December 2016.
We assessed and tested the design and operating effectiveness of selected key controls relating to the application of the actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by management in the valuation of actuarially determined P&C loss reserves.
̤ Applying IT audit techniques to analyse claims through the recalculation of claims triangles.
̤ Performing independent projections of selected product lines. For these product lines, we compared our calculations of projected reserves with those of the Company taking into account the available corroborating and contrary evidence and challenging management’s assumptions as appropriate.
In relation to the matters set out opposite, our substantive testing procedures included the following: ̤ Testing the completeness and accuracy of the underlying
̤ Performing independent model validation procedures, including detailed testing of models, independent recalculations and back testing.
assessments to evaluate the Company’s judgements and estimates of the probabilities and the amounts.
On the basis of the work performed, we consider management’s initial assessment relating to the valuation of the uncertain tax items to be appropriate.
Income/loss before income tax expense 4 313 –1 074 920 2 675 2 875 5 523 4 825 4 227 5 319 4 372 Income tax expense –853 411 –221 –541 –77 –1 125 –312 –658 –651 –749 Net income/loss before attribution of non-controlling interests 3 460 –663 699 2 134 2 798 4 398 4 513 3 569 4 668 3 623
Income/loss attributable to non-controlling interests –154 –172 –141 –2 –3 3 Net income/loss after attribution of non-controlling interests 3 460 –663 699 1 980 2 626 4 257 4 511 3 569 4 665 3 626
Non-current assets increased from CHF 17 561 million as of 31 December 2015 to CHF 19 577 million as of 31 December 2016. Loans to subsidiaries and affiliated companies increased by CHF 103 million due to a new credit facility with Swiss Re Management Ltd. Investments in subsidiaries and affiliated companies increased from CHF 17 561 million as of 31 December 2015 to CHF 19 474 million as of 31 December 2016 due to capital contributions to Swiss Re Life Capital Ltd of CHF 1 736 million, Swiss Re Management Ltd of CHF 100 million and Swiss Re Principal Investments Company Ltd of CHF 77 million.
Liabilities Total liabilities decreased from CHF 371 million as of 31 December 2015 to CHF 352 million as of 31 December 2016.
Short-term liabilities increased by CHF 121 million to CHF 239 million as of 31 December 2016, mainly due to an increase in accrued expenses of CHF 80 million and payables to subsidiaries and affiliated companies of CHF 40 million.
Shareholders’ equity Shareholders’ equity increased from CHF 21 469 million as of 31 December 2015 to CHF 22 821 million as of 31 December 2016, mainly due to net income of CHF 3 972 million, partially offset by dividends to shareholders of CHF 1 525 million and share buy-back programmes of CHF 1 091 million.
Own shares (directly held by the Company) increased by CHF 125 million to CHF 1 555 million as of 31 December 2016 due to net purchases of own shares of CHF 34 million and share buy-back programmes of CHF 1 091 million, partially offset by the cancellation of own shares of CHF 1 000 million.
Expenses Administrative expenses 3 –112 –147 Investment expenses 2 –1 –1 Other expenses –20 –70 Total expenses –133 –218
Receivables from subsidiaries and affiliated companies 49 170 Other receivables and accrued income 0 2 Loans to subsidiaries and affiliated companies 2 287 2 260
Legal reserves from capital contributions 10 192 192 Other legal capital reserves 65 0 Legal capital reserves 257 192
Retained earnings brought forward 4 4 Net income for the financial year 3 865 3 972 Own shares (directly held by the Company) 8 –1 430 –1 555
Accrued income Accrued income consists of both other expenditures incurred during the financial year but relating to a subsequent financial year, and revenues relating to the current financial year but receivable in a subsequent financial year.
Accrued expenses Accrued expenses consist of both income received before the balance sheet date but relating to a subsequent financial year, and charges relating to the current financial year but payable in a subsequent financial year.
FINANCIAL STATEMENTS Swiss Re Ltd 2 Investment income and expenses 3 Administrative expenses and personnel information
Cash dividends from subsidiaries and affiliated companies 3 539 3 517 Realised gains on sale of investments 4 7 Income from short-term investments 2 2 Income from loans to subsidiaries and affiliated companies 17 35 Investment management income 1 1 Other interest revenues 0 51
Realised losses on sale of investments 0 0 Investment management expenses 1 1 Other interest expenses 0 0 Investment expenses 1 1 288 Swiss Re 2016 Financial Report
As of 31 December 2016 and 2015, Swiss Re Ltd held directly the following investments in subsidiaries and affiliated companies: Further disclosures in respect of investments in significant indirect subsidiaries and affiliated companies are detailed in note 19 “Significant subsidiaries and equity investees” on pages 267 to 269 in the notes to the Group financial statements, where the voting interests are equal to the affiliations disclosed, except of Sul América S.A. where the voting rights are equal to 10%.
Swiss Reinsurance Company Ltd Zurich CHF 34.4 100 100 Swiss Re Corporate Solutions Ltd Zurich CHF 100.0 100 100 Swiss Re Life Capital Ltd Zurich CHF 0.1 100 100 Swiss Re Investments Holding Company Ltd Zurich CHF 0.1 100 100 Swiss Re Principal Investments Company Ltd Zurich CHF 0.1 100 100 Swiss Re Specialised Investments Holdings (UK) Ltd London GBP 1.0 100 100
In June 2016, the Company entered into a subordinated funding facility with its subsidiary Swiss Reinsurance Company Ltd under which Swiss Reinsurance Company Ltd has the right, among others, to issue subordinated notes to the Company of up to USD 800 million at any time before August 2032. For its various rights, Swiss Reinsurance Company Ltd owes the Company an unconditional fixed commitment fee, payable in annual instalments calculated as 5.68% on the total facility amount. Annually, the Company receives a partial reimbursement of the commitment fee equal to 1.95% per annum on the undrawn facility amount. As of 31 December 2016, the facility was undrawn.
Sale of own shares 2 –1 576 1765 –983 451 Share buy-back programme (151st AGM 2015)3 4 420 000 6 214 370 Cancellation of shares bought back (151st AGM 2015) 0 –10 634 370 Share buy-back programme (152nd AGM 2016)4 0 5 542 500 Own shares as of 31 December 32 967 226 34 093 834 1 Purchased at average price CHF 88.73 (2015: CHF 92.91) 2 Sold at average price CHF 87.97 (2015: CHF 93.31) 3 Purchased at average price CHF 91.73 (2015: CHF 97.27) 4 Purchased at average price CHF 94.00 5 Number of sold own shares has been updated by 522 shares from a subsidiary
This section is in line with Articles 663c para. 3 and 959c para. 2 cif. 11 of the Swiss Code of Obligations, which requires disclosure of shareholdings, options and related instruments held by members of the Board of Directors and Group Executive Committee (Group EC) at the end of the reporting year and of share-based compensation for the Board of Directors during the reporting year. Further disclosures in respect of board and management compensation, and persons closely related, are detailed in the Compensation Report on pages 155 to 160 of the Financial Report of the Swiss Re Group.
Jean-Pierre Roth, former Member2 8 443 n/a Philip K. Ryan, Chairman of the Finance and Risk Committee3 3 394 6 134 Sir Paul Tucker, Member4 n/a 1 036 Susan L. Wagner, Chairman of the Investment Committee 3 485 6 111 1 Acting also as the Lead Independent Director.
C. Robert Henrikson, Chairman of the Compensation Committee 185 2 088 190 2 169 Hans Ulrich Maerki, former Member5 136 1 538 42 483
Retained earnings brought forward 4 4 Net income for the financial year 3 865 3 972
Allocation to voluntary profit reserves –3 865 –3 972 Retained earnings after allocation 4 4
Share structure per 31 December 2016 Number of registered shares Nominal capital in
1 The Board of Directors’ proposal to the Annual General Meeting of 21 April 2017 is subject to the actual number of shares outstanding and eligible for dividend.
Report of the statutory auditor on the financial statements As statutory auditor, we have audited the financial statements of Swiss Re Ltd (the “Company”), which comprise the income statement, balance sheet and notes (pages 283 to 294), for the year ended 31 December 2016.
Report on a key audit matter based on the circular 1/2015 of the Federal Audit Oversight Authority A key audit matter is a matter that, in our professional judgement, was of most significance in our audit of the financial statements of the current period. The matter was addressed in the context of our audit of the financial statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on this matter.
Key audit matter The Company applies individual valuation in accordance with Swiss Accounting Law.
The impairment assessment is considered a key audit matter due to the considerable judgement in performing the impairment assessment.
How our audit addressed the key audit matter In relation to the matter set out opposite, our substantive testing procedures included the following: ̤ Evaluating management’s method and assumptions to determine a value in use.
Type of insurance — mainly comprising accident and liability business — which is separate from property, engineering and life insurance.
The ratio is a combination of the non-life claims ratio and the expense ratio.
New regulatory framework for EU re/insurance solvency rules that introduces comprehensive, economic and risk-based regulation and includes prudential requirements on solvency capital, risk modelling, supervisory control and disclosure.
Investment related operating income plus the change in unrealised gains/losses on available-for-sale securities as well as the fair value of real estate and certain loans as a percentage of invested assets. Invested assets include investments, securities in transit, certain financial liabilities and exclude policy loans, minority interests, cash and cash equivalents, as well as assets related to securities lending, repurchase agreements and collateral balances.
An insurance contract that has additional amounts added to the sum insured, or paid/credited separately to the policyholder as a bonus, which result from a share of the profit generated by the with-profits insurance funds, including these funds’ interests in other blocks of business.
̤ operational factors, including the efficacy of risk management and other internal procedures in managing the foregoing risks.
General impact of adverse market conditions The operations of Swiss Re Ltd (“Swiss Re”) and its subsidiaries (collectively, the “Group”) as well as its investment returns are subject to market volatility and macro-economic factors, which are outside of the Group’s control and are often inter-related.
With fewer options available to policymakers and concerns generally over the absence of realistic confidence-building measures, and with heightened risk that volatility or depressed conditions in one sector, one market, one country or one region could have far broader implications, volatility can be expected to continue. Further adverse developments or the continuation of adverse trends that, in turn, have a negative impact on financial markets and economic conditions could limit the Group’s ability to access the capital markets and bank funding markets, could adversely affect the ability of counterparties to meet their obligations to the Group and could adversely affect the confidence of the ultimate buyers of insurance and reinsurance.
Any of the foregoing factors, developments and trends could have an adverse effect on the Group’s investment results, which in the current low interest rate environment and soft insurance cycle could have a material adverse effect on the Group’s overall results, make it difficult to determine the value of certain assets in the Group’s portfolio, make it more difficult to acquire suitable investments to meet its risk and return criteria and otherwise have a material adverse effect on its business and operations.
While certain regulatory processes are designed in part to foster convergence and achieve recognition of group supervisory schemes, the Group continues to face risks of extra-territorial application of regulations, particularly as to group supervision and group solvency requirements. In addition, regulators in jurisdictions beyond those where the Group has core operations increasingly are playing a far greater oversight role, requiring more localised resources and, despite a predominantly local focus, also raise issues of a cross-border nature. Furthermore, evolving regulatory schemes and requirements may be inconsistent or may conflict with each other, thereby subjecting the Group, particularly in light of the increasing focus on legal entities in isolation, to higher compliance and legal costs, as well as the possibility of higher operational, capital and liquidity costs. The effect of these trends could be exacerbated to the extent that the current political environment results in a return to more bilateral, and less harmonised, cross-border regulatory efforts.
In addition, regulatory changes could occur in areas of broader application, such as competition policy and tax laws. Changes in tax laws, for example, could increase the taxes the Group pays, the attractiveness of products offered by the Group, the Group’s investment activities and the value of deferred tax assets. Any number of these changes could apply to the Group and its operations. These changes, or inconsistencies between the various regimes that apply to the Group, could increase the costs of doing business, reduce access to liquidity, limit the scope of current or future business or affect the competitive balance, or could make reinsurance less attractive to primary insurers.
As claims paying and financial strength ratings are key factors in establishing the competitive position of reinsurers, a decline in ratings alone could make reinsurance provided by the Group less attractive to clients relative to reinsurance from competitors with similar or stronger ratings. A decline in ratings could also cause the loss of clients who are required by policy or regulation to purchase reinsurance only from reinsurers with certain ratings. Certain larger reinsurance contracts contain terms that would allow the ceding companies to cancel the contract if the Group’s ratings or those of its subsidiaries are downgraded beyond a certain threshold. Moreover, a decline in ratings could impact the availability and terms of unsecured financing and obligate the Group to provide collateral or other guarantees in the course of its business or trigger early termination of funding arrangements, potentially resulting in a need for additional liquidity. As a ratings decline could also have a material adverse impact on the Group’s costs of borrowing or ability to access the capital markets, the adverse implications of a downgrade could be more severe. These same factors could also impact the Group’s insurance business.
The Group is also involved, from time to time, in investigations and regulatory proceedings, which could result in adverse judgements, settlements, fines and other outcomes. The number of these investigations and proceedings involving the financial services industry has increased in recent years, and the potential scope of these investigations and proceedings has also increased, not only in respect of matters covered by the Group’s direct regulators, but also in respect of compliance with broader business conduct rules, including those in respect of market abuse, bribery, money laundering, trade sanctions and data protection and privacy. The Group also is subject to audits and challenges from time to time by tax authorities, which could result in increases in tax costs, changes to internal structures and interest and penalties. Tax authorities may also actively pursue additional taxes based on retroactive changes to tax laws. The Group could be subject to risks arising from alleged, or actual, violations of any of the foregoing, and could also be subject to risks arising from potential employee misconduct, including non-compliance with internal policies and procedures and malfeasance, such as undertaking or facilitating cyber attacks on internal systems. Substantial legal liability could materially adversely affect the Group’s business, financial condition or results of operations or could cause significant reputational harm, which could seriously affect its business.
Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that management uses, for example, as part of its risk models as well as those that affect the reported amounts of assets, liabilities, revenues and expenses in the Group’s financial statements, including assumed and ceded business. For example, the Group estimates premiums pending receipt of actual data from ceding companies, which actual data could deviate from the estimates. In addition, particularly with respect to large natural catastrophes, it may be difficult to estimate losses, and preliminary estimates may be subject to a high degree of uncertainty and change as new information becomes available. Deterioration in market conditions could have an adverse impact on assumptions used for financial reporting purposes, which could affect possible impairment of present value of future profits, fair value of assets and liabilities, deferred acquisition costs or goodwill. Moreover, regulators could require the use of standard models instead of permitting the use of internal models. To the extent that management’s estimates or assumptions prove to
GENERAL INFORMATION Note on risk factors be incorrect, it could have a material impact on underwriting results (in the case of risk models) or on reported financial condition or results of operations, and such impact could be material.
Overland Park 5200 Metcalf Avenue Overland Park, KS 66202 Telephone +1 913 676 5200
New York 55 East 52nd Street New York, NY 10055 Telephone +1 212 317 5400
Mexico City Insurgentes Sur 1898, Piso 8 Torre Siglum Colonia Florida México, D.F. 01030 Telephone +52 55 5322 8400
Mumbai A 701, One BKC Plot No C-66, G Block Bandra-Kurla Complex Bandra (East) Mumbai 400051 Telephone +91 22 6661 2121 316 Swiss Re 2016 Financial Report mailto:investor_relations%40swissre.com?subject=
Photography: Geri Krischker Marc Wetli Stephan Birrer, Swiss Re Deniz Kenber, Swiss Re
Independent assurance report to the management of Swiss Re Ltd, Zurich 82
The 2016 Corporate Responsibility Report sets out our commitment as a responsible company and describes the actions we have taken to put this commitment into practice.
Below we would like to summarise our recent achievements in the main areas in which we address our ESG priorities: In our core re/insurance business, we continued to work closely with our clients and partners to help them tackle climate and natural disaster risks and
improve food security. Highlights completed in 2016 include a pioneering scheme protecting UK homeowners against flood risks, two major natural catastrophe pilots in China, and solutions offering better insurance protection to small businesses and smallholder farmers in Guatemala, Kenya and Indonesia. In addition, we supported sustainable energy solutions by becoming co-lead insurer of two large offshore wind farm projects.
Reflecting our long-standing commitment and the comprehensive range of our efforts as a responsible company, we were confirmed insurance industry group leader in the prestigious Dow Jones Sustainability Indices in 2016 – the tenth time we have earned this accolade since 2004. We are particularly proud of this achievement, because it represents an important stakeholder’s view of Swiss Re.
Such continued success as a responsible company would not be possible without our employees, of course. We would like to take this opportunity to thank them sincerely for the professionalism and dedication they showed again throughout the past year. In this report you can also find out how we engage with our people through Swiss Re’s unique culture of being “smarter together”.
Swiss Re at a glance The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing directly and working through brokers, our global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. From standard products to tailor-made coverage across all lines of business, we deploy our capital strength, expertise and innovation power to enable the risk-taking upon which enterprise and progress in society depend.
Germany, Canada, Japan, Switzerland, Ireland and France. They accounted for 79% of the Group’s total business over the year.
Reinsurance is Swiss Re’s largest business in terms of income, providing about 85% of gross premiums and fee income through two segments – Property & Casualty and Life & Health. Reinsurance aims to extend Swiss Re’s industry-leading position with disciplined underwriting, prudent portfolio management and diligent client service.
10% Variable compensation 16% Income tax expense 54% Net income paid out as dividend or share buy-back 20% Net income added to retained earnings
Income before tax and variable compensation 5 758 4 773 Variable compensation1 510 466 Income tax expense 651 749 US GAAP net income attributable to shareholders 4 597 3 558 of which paid out as dividend2 1 561 1 572 of which share buy-back 1 018 1 0173 of which added to retained earnings within shareholders’ equity 2 018 969 1 Aggregate compensation for all employees was CHF 2 265 million in 2016. See 2016 Financial Report, page 140.
3 Includes shares bought back between 4 November 2016 and 9 February 2017 as part of the buy-back programme authorised at the AGM 2016. The total amount represents an estimate translated at the 2016 average CHF/USD FX rate.
The information in the lower table shows the distribution of Group income to key stakeholders (employees, government and shareholders).
We are committed to being a responsible company. Contributing to sustainable, long-term value creation serves as a guiding principle for our actions.
Swiss Re has a long-standing commitment to being a responsible company. A key element in our understanding of what this means is the desire to contribute to sustainable value creation, for the benefit of our clients and society at large. This long-term view helps us to pursue our vision of making the world more resilient and is embedded in our value framework, which means “doing business the Swiss Re way”.
It is also in our own best interest, though: it strengthens our capabilities to identify and address both risks and opportunities manifesting themselves in the longer run and, as a consequence, to retain our licence to operate.
Based on our commitment to long-term value creation, we have signed up to a number of external charters and initiatives: ̤ EP100: see page 54
̤ UNEP FI Principles for Sustainable Insurance (PSI): for our Public Disclosure of Progress, see page 86
We first began to address a specific sustainability issue almost 30 years ago when we drew attention to the potential risks created by climate change. Building on this, we gradually began to form a commitment to sustainable, long-term value creation and identified the areas of our business we considered relevant to supporting this goal. We first gave formal expression to this through our Sustainability Mission Statement and, in parallel, began to provide specific information in dedicated reports, starting with a Corporate Environmental Report covering the business year of 1998.
In the following years, we broadened our commitment to “corporate responsibility”. Still based on the key notions of long-term value creation and sustainable progress, we began to place more emphasis on social and governance aspects. Our current, overarching commitment is shown on page 9.
Our values mean doing business the Swiss Re way: Being open, honest and transparent in everything we do; Treating everyone with respect – both inside and outside the company; Taking the long-term view and playing our part in enabling sustainable progress – for stakeholders and society in general; Creating an inclusive culture that encourages diversity of thought and opinion.
A key question for any company that understands corporate responsibility as taking a long-term view and enabling sustainable progress is what this means in the context of its own business and industry: which topics are “material” to achieving this goal?
With regard to such issues, we consider the following groups as our principal stakeholders: ̤ Financial community: investors/
With the Centre for Global Dialogue near Zurich, we have our own in-house conference centre. Part of the Swiss Re Institute as from 1 March 2017, it allows us to actively manage and encourage collaboration with our stakeholders. In 2016, we held or hosted more than 100 stakeholder events at the Centre. Our publications form a second important element of our stakeholder dialogue: in 2016, we published 15 new expertise publications and 25 new fact sheets.
Our process to identify Corporate Responsibility Topics When identifying material Corporate Responsibility Topics, we draw both on our internal, embedded risk expertise and the insights we gain from our stakeholder dialogue. In addition, we take into account the views of various standard setters on materiality, eg: reporting requirements, materiality definitions by sustainability rating agencies, multilateral discussions such as the UN Sustainable Development Goals (see page 12), relevant academic research and regulatory developments.
To process the information from these three key sources, we use the following steps: ̤ Expert analysis by our Group
These three terms express different stages of relevance and maturity: Exploration: Topics with increasing relevance from an internal perspective and an expected increase in stakeholder inquiries. Warrant further analysis.
A community in Indonesia grappling with a flooded street. Helping to reduce the risk of natural catastrophes by advancing the climate transition remains one of our top priorities.
Climate change Climate change has been our most important sustainability issue for many years: For a reinsurer, it constitutes a key topic because it will lead to an increase in the frequency and severity of natural catastrophes such as floods, storms, excessive rainfall and drought. In combination with growing asset concentrations in exposed areas and more widespread insurance protection, this will cause a steady rise in losses. Of our current Corporate Responsibility Topics shown on page 11, two are directly connected to climate change: ”Managing climate and natural disaster risk“ and ”Advancing sustainable energy solutions“.
Goals for our Corporate Responsibility Topics For all our existing as well as the revised and new Corporate Responsibility Topics we have set goals – some quantitative, others qualitative. The overview on page 15 shows where you can find information on the progress we have made on these goals.
Advancing sustainable energy solutions ̤ Use our capacity and technical expertise to provide effective risk covers for complex offshore wind farm projects.
Managing sustainability risks ̤ Consistently identify potential sustainability risks in our business transactions and abstain from them if warranted; ̤ Increase the effectiveness and efficiency of the Sensitive Business Risk (SBR) process by advancing automation of sustainability risk screening with our proprietary SBR Assessment Tool; ̤ Engage with clients and industry partners on how to address and reduce sustainability risks in business transactions, especially in high growth markets.
Investing responsibly ̤ Meet our investment target for green bonds of at least
Reducing our environmental footprint ̤ Keep per-capita CO2 emissions from our own operations at 2013 levels, which we had reduced by 49.3% in the ten years since 2003; ̤ Reduce our energy intensity by an average 2% per year; ̤ Obtain 100% of power used for our own operations from renewable sources by 2020; ̤ Include our tier 1 and tier 2 vendors in the EcoVadis platform by 2020.
Advancing access to insurance ̤ Advance our understanding of the societal impact of insurance and develop metrics to measure our impact on stakeholders.
We seek to address our Corporate Responsibility Topics across all the areas of our business where our activities can make a contribution to sustainable value creation. These areas are listed below: Business solutions Within our core business of re/insurance and asset management, we strive to develop innovative solutions that help to tackle key environmental and social challenges. To achieve this, we work with our clients and partners in both the private and public sectors.
Stakeholder dialogue Through regular dialogue with our clients and other stakeholders, we help to develop effective responses to sustainability and other key issues, by raising awareness of both the risks and opportunities arising from them.
At Swiss Re’s highest governance level, the task of overseeing implementation of our commitment to corporate responsibility has been assigned to a committee of the Board of Directors: It is one of the responsibilities of the Chairman’s and Governance Committee to monitor the Group’s sustainability principles.
As in past years, the scope of the report is limited to Swiss Re’s own operations. Although we provide information on our sourcing and procurement policies, we do not report on the performance of our suppliers because the re/insurance business does not involve an extensive supply chain. However, since 2013, we have been disclosing some of the emissions caused along our supply chain (Scope 3 emissions).
The present report follows the 2015 edition and covers the calendar year of 2016 ending 31 December 2016. We plan to maintain our annual publishing cycle and to present our next Corporate Responsibility Report in the first quarter of 2018, covering the year of 2017.
To get a complete overview of our actions as a responsible company, this report should be read in conjunction with Swiss Re’s Annual Report and the report published by the Swiss Re Foundation (see pages 78–79).
̤ Although we engage actively in dialogue with our stakeholders, we do not currently have a formalised process for them to comment on our selection of the GRI’s “material aspects” and hence neither on the content of our Corporate Responsibility Report.
In the 2016 reporting cycle, we have also started to integrate the disclosure recommendations recently developed by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (www.fsb-tcfd.org). In view of their clear focus on financially relevant information, we are using the dedicated “Corporate responsibility” chapter of our 2016 Financial Report for this purpose (see pages 123–130).
Currently, we focus on the following themes: natural disaster and climate risks, food security, sustainable energy and funding longer lives. We develop our solutions as part of our established risk modelling and underwriting activities or by creating innovative new products in close cooperation with our clients and partners.
Across our efforts, we seek to develop solutions that improve access to insurance protection, especially in emerging and developing countries.
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.
Our re/insurance solutions help to address key environmental and social challenges. We focus on natural catastrophes and climate change, food security, renewable energy, funding longer lives and advancing access to insurance.
changing climate gradually leads to shifts in the frequency, intensity, spatial extent, duration and timing of extreme weather events.
In addition to providing re/insurance covers, we offer our clients strategic expertise and integral risk assessments of natural disasters and climate adaptation. These include our Economics of Climate Adaptation (ECA) studies, free access for our clients to Swiss Re’s
CatNet® tool and our expertise publications. You can see a sample of our recent publications on pages 51 and 80–81.
CatNet®: free natural hazard information for our clients CatNet®, Swiss Re’s online natural hazard atlas, makes regions’ risk profiles visible. Clients can view these profiles in maps that are complemented by a geographical database with detailed information on natural hazards such as earthquakes, tropical cyclones, winter storms, tsunamis and floods. CatNet® thus provides a professional overview and assessment of risk exposures across the globe, quickly and easily.
Hereafter, we describe some key transactions and initiatives we were involved in during 2016 to strengthen risk resilience. Covering a range of natural disaster and weather risks, they help communities become more resilient to such shocks by ensuring that adequate funding is in place for quick and effective responses.
Helping to make New Orleans more resilient More than ten years have passed since September 2005 when New Orleans was hit by Hurricane Katrina and suffered massive damage through the ensuing storm surge and flooding. Culminating its fight back from disaster, the city’s leadership launched Resilient New Orleans (“Resilient Nola”, www.resilientnola.org) in 2015, the world’s first comprehensive urban resilience strategy.
We have played a prominent part in this initiative, joining up with utility company Veolia to help make the city’s vital systems more resilient to disasters, on the one hand, and to facilitate speedy relief and recovery on the other. At a ceremony celebrating Resilient Nola’s first anniversary in September
2016, the project’s key measures were presented to the public. Since then, the baseline exposure and existing resilience of all the city’s water, sanitation and related energy assets has been assessed to today’s risk as well as the expected risk in 30 years’ time, based on Swiss Re’s proprietary catastrophe modelling and climate risk analysis.
With this analysis in hand, New Orleans is exploring ways to utilise the capacity of the private sector to ensure the city can respond faster after a disaster and safeguard its economic future.
Protecting homeowners in the UK against flood risk In the UK, we started to provide support to Flood Re (www.floodre.co.uk), a pioneering scheme to make flood insurance more affordable for residential homeowners at risk. In recent years, floods have risen in frequency and intensity in the UK, causing unprecedented damage. Given the impact of climate change on northern European winter storms, this trend will likely continue or even increase.
Swiss Re supports the programme as a lead reinsurer. In total, Flood Re has secured GBP 2.1 billion of reinsurance cover, making it one of the five largest natural disaster schemes in the world. Ultimately, it is expected to reach some 350 000 households in the UK, providing valuable learnings for other countries at high risk of flooding.
As the programme’s sole reinsurer and technical adviser, we used advanced modelling techniques to design this innovative solution – the first of its kind.
You can read more about the background of these pilot programmes on page 48.
Supporting a national rice insurance scheme in Thailand Thailand is one of the world’s top rice producers. Rice farming is prevalent across the entire country and provides large parts of the population with their livelihoods. However, rice farmers in the country face the latent threat of natural disasters, in particular floods and droughts. To address this, a rice insurance scheme, complementing the Government Disaster Relief Programme, was launched together with the Thai General Insurance Association (www.tgia.org) a decade ago, offering further financial assistance to farmers whose crops have been damaged by destructive weather conditions.
Unfortunately, a typical problem of such traditional crop insurance schemes is that their administration costs are often too high in the early stages when they do not yet have the critical mass of policies to make them viable for their key stakeholders, ie governments, insurance companies and farmers. To overcome this obstacle and scale up the scheme, we have worked closely with the Thai government over the last two years.
MFIs are crucial for economic development in the area because they provide credit and insurance to numerous small businesses that could not survive otherwise. As the insured MFIs receive emergency funds quickly in the event of a strong earthquake, they have the means to help their small business clients to stay afloat and rebuild. Swiss Re supports this innovative solution with product structuring, pricing and underwriting, as well as reinsuring the risk.
The agriculture and small business sectors are vital to the further development of Central American economies in general, but are highly vulnerable to weather-related risks. On top of this, climate change is expected to aggravate extreme weather events, increasing both their frequency and intensity. MiCRO plans to expand such index-based insurance products to further countries, and has already submitted one for approval in El Salvador. The goal is to reach 250 000 people in the region by 2019.
Payouts to our clients in 2016 Innovative solutions, as described on these pages, all help to extend insurance protection. Three such solutions we have helped develop in recent years showed their practical benefits in 2016 by making payouts to their clients.
In the Caribbean, Hurricane Matthew caused many casualties and brought widespread destruction across the region. CCRIF SPC (www.ccrif.org), formerly the Caribbean Catastrophe Risk Insurance Facility, which we have been reinsuring since 2008, made payouts totalling USD 29 million to the governments of Haiti, Barbados, St. Lucia, St. Vincent and the Grenadines within two weeks of the disaster. This brought the total of emergency payouts to 21 since 2007, worth USD 68 million.
Our commitment to the Grow Africa Partnership centres on the following three goals: ̤ Give farmers in Sub-Saharan Africa access to tools such as weather and yield index insurance products; ̤ Invest in resources equivalent to about USD 2 million per year to support the development of sustainable agricultural risk management markets; ̤ Provide agricultural insurance for up to 1.4 million smallholder farmers.
Working together with different partners, we helped to bring weather insurance to 1 million smallholder farmers in 11 Sub-Saharan countries by the end of 2016. This is less than the 1.6 million recorded in the previous year. The reasons for this decrease are twofold: Firstly, developing schemes that promise to become commercially viable continues to face significant challenges, in particular regarding the creation of effective distribution networks and overcoming market fragmentation. Secondly, the entry of additional capacity providers into some existing schemes has led to a reduction of Swiss Re’s participation share in them.
Sustainable energy solutions Sustainable energy sources play a crucial role in reducing CO2 emissions and securing future energy supplies. Given our strategic focus on climate change, we are keen to support energy generation from renewable sources. But as sustainable energy projects increase in scale and complexity, so do the risks associated with them. However, innovative risk transfer solutions can help reduce these risks and drive investment in the sector.
well as other insurers. As a result, we are now considered a “lead market” for offshore wind risks.
35 Offshore wind projects we have participated in over the last five years
Merkur offshore wind farm The second new facility we underwrote in 2016 is Merkur Offshore Wind Park in the German sector of the North Sea, 45 km off the island of Borkum. It is a joint venture between Windreich and Belgium-based DEME. Merkur, too, is insured against material damage and loss of profit in its construction phase and the first three years of its operational phase. Beyond this, the insurance cover also protects the manufacturers of the wind turbines and foundations.
Merkur will consist of 66 wind turbines of 6 megawatts each, resulting in a total installed capacity of 396 megawatts. As the wind park is located a considerable distance away from the German mainland, the power it generates will be transmitted to a converter station currently being built (DolWin gamma) and converted to direct current. This technology makes it possible to minimise transmission losses over the 80 km long sea cable.
Award for an innovative wind risk hedge In 2016, Swiss Re Corporate Solutions won the second consecutive award from Environmental Finance magazine for a particularly innovative transaction in the “weather risk management” category. The award recognised a wind risk hedge we developed for Infigen Energy, the largest owner of wind energy capacity in Australia. This hedge is the first of its kind because it looks at actual energy production across multiple sites. In contrast, traditional wind protection solutions are tied to single sites and are based on modelled wind speed indexes.
Longevity solutions With life expectancy rising, pension schemes face the risk that they will not be able to meet all their commitments. Longevity transactions cover this risk by insuring the schemes’ liabilities in case their members live longer than expected.
In recent years, we have completed a number of landmark longevity transactions with different clients in the UK: ̤ The Scottish & Newcastle Pension
We have described these transactions in more detail in recent editions of our Corporate Responsibility Report.
Sustainability, political, regulatory and emerging risks are particularly relevant in this respect. We have developed instruments and know-how that help us to identify and assess all of them. This allows us to determine the specific risks we think we should avoid – because of their loss potential, for ethical reasons, or both. This extended risk awareness is also key to managing our assets responsibly. The risk assessments we make through our Sustainability Risk Framework, in particular, flow directly into our investment decisions.
We address sustainability, political, regulatory and emerging risks in our core business transactions. For this, we have developed specific tools and know-how.
We regularly review all the policies and guidelines of our Sustainability Risk Framework to ensure they reflect important new developments.
For more information see swissre.com/corporate_responsibility/ managing_env_risks.html mechanisms – the SBR online assessment tool and the SBR referral tool.
The online tool, which we first introduced in mid-2015, enables our underwriters to screen all transactions for their possible impacts on the local environment and on the human rights of the people and workforces affected. It is easy to access, provides clear guidance on what to assess in further detail and ensures consistent documentation in our standard underwriting tools. At the same time, it enables our central sustainability management unit to incorporate relevant new information by adjusting key policy parameters and making these effective “at the push of a button”.
When making these decisions, we refer to internationally recognised ethical principles. Swiss Re complies with the UN Guiding Principles on Business and Human Rights (the Ruggie Framework) and is a signatory to the UN Global Compact, which derives its human rights principles from the Universal Declaration of Human Rights, its labour principles from the ILO Declaration on Fundamental Principles and Rights at Work, its environment principles from the Rio Declaration on Environment and Development and its anti-corruption principles from the United Nations Convention against Corruption.
Dams ̤ Human rights abuses; ̤ Significant adverse environmental or social impacts, particularly where critical natural habitats, vulnerable groups and/or critical cultural heritages (in particular, indigenous people) are impacted; ̤ Non-involvement of relevant stakeholders; ̤ Non-involvement of affected neighbouring states.
Thus, our decisions are neither subjective nor entirely objective. In essence, they reflect our recognition of global fundamental rights, of human suffering and our commitment to limiting unwanted negative impacts of our business transactions, either by withdrawing or by influencing our clients’ behaviour.
Integrating anti-bribery & corruption guidance Swiss Re prohibits all forms of bribery and corruption, as expressed by our Code of Conduct. We clearly state this position and explain what it means for daily business conduct through our
Group Anti-Bribery and Corruption (ABC) Policy and detailed Group ABC Guidelines (see page 76). In 2016, we took further steps to mitigate our potential exposure to bribery and corruption risks by integrating corresponding guidance in our SBR assessment tool, thus ensuring appropriate due diligence on our counterparties.
Sensitive Business Risk referrals 2013 Sensitive Business Risks referred to our expert team in 2016
Number of Sensitive Business Risk referrals 28% Oil and gas 27% Mining 25% Dams 9% Excluded/critical country 4% Human rights 4% Defence 1% Animal testing 1% Environmental issues 1% Forestry, pulp & paper and oil palm
As the Sustainability Risk Framework is based on the principles of respecting human rights and protecting the environment, the SBR process with its two due diligence tools, the company exclusions and the country exclusions are our principal means to ensure compliance with the UN Global Compact in our core business.
Training Since we first introduced our Sustainability Risk Framework in 2009, we have made considerable efforts to raise awareness of sustainability issues among our underwriters and client managers. Through training, we ensure that they know how to properly apply the framework with its underlying principles of respecting human rights and protecting the environment. In recent years, we have focused on high growth markets where we want to expand our business.
Client and industry interaction Efforts to address environmental and social risks are obviously more effective when many companies join forces. This is why we are keen to further promote sustainability risk management within the re/insurance industry.
On an industry-wide basis, we have played a major role in establishing and advancing the Principles for Sustainable Insurance (PSI) introduced in 2012 by the UN Environment Programme Finance Initiative, UN EPFI (www.unepfi. org/psi). We were one of the initiative’s original signatories and currently act as one of its board members. The PSI address environmental, social and governance (ESG) issues in the re/insurance industry, spanning risk management, underwriting, product and service development, claims management, sales and marketing, and investment management. Our Public Disclosure of Progress for 2016 is included in this report on page 86.
Two years ago, we partnered with the UN Environment Programme (UNEP) to co-host a roundtable on “Insurance 2030: Policies and partnerships for sustainable development” at our Centre for Global Dialogue near Zurich. Around 60 leaders and executives from re/insurance companies and regulatory bodies, the UN, governments, think tanks and civil society reflected on the policies and partnerships needed to realise the full potential of re/insurance in promoting sustainable development.
We also participated in the UN Forum on Business and Human Rights in Geneva where we presented our Sustainability Risk Framework and explained the fundamental role that the principle of respecting human rights plays in the way Swiss Re does business. The event provided a valuable opportunity to bring various stakeholders together and gain further insights on our own approach.
Our understanding of political risks is also highly relevant to ensuring sustainable business operations in line with ESG principles. Several of the sectors and issues covered by the umbrella guidelines and policies of our Sustainability Risk Framework (see pages 29–31) have a significant political dimension. Implementing these policies, both through SBR assessments and exclusion policies, thus requires a solid grasp of political risks. This is particularly true with regard to human rights violations, the proliferation of armaments in conflict areas and the identification of areas prone to civil unrest.
Furthermore, we seek to raise awareness of political risk within the re/insurance industry and among the broader public, and engage in dialogue with our clients and other stakeholders. We also distil our ongoing assessments of political risks into country ratings which support our risk control frameworks.
Prudential regulation is developing towards more risk-sensitive and economic-based capital regimes, yet regulatory fragmentation remains high. Local capitalisation rules often fail to fully recognise the benefits of risk mitigation and diversification. In addition, there are moves to limit the use of internal models influenced by post-crisis banking regulation. Swiss Re strongly supports the use of internal models, full recognition of risk mitigation and diversification, appropriate consideration of counterparty default and concentration risk, and efficient application of eligible capital instruments.
National protectionism restricts the free flow of risk and capital. The outcome of the Brexit negotiations between the UK and the EU could potentially limit the ability to benefit from the free movement of services, including reinsurance. Swiss Re is advocating for removal or reduction of market access barriers, so that policyholders, governments, taxpayers, and national economies can fully benefit from international diversification and therefore reliable, quality, and affordable risk cover.
Climate change In view of the strategic importance climate change has for our core business, we closely monitor related regulatory developments. Governments’ and regulators’ interest in climate change and natural catastrophes has continued to build, leading to an increase in climate-related reporting requirements.
Starting from the premise that climate change creates physical, liability and transition risks, the TCFD aims to develop consistent and effective financial disclosures that will allow stakeholders to properly assess the climate risks faced by companies and to take appropriate action. In 2016, the task force published its Phase 1 report for public consultation. After processing the inputs received from key stakeholders, it launched its “Recommended disclosures” in December 2016. Swiss Re supports the work of the task force and has been providing one of its members since its launch. We have started to integrate the recommended disclosures in our 2016 Financial Report, pages 123–130.
Detecting and investigating such risks early on forms an important part of our comprehensive approach to risk management. Our aim is to reduce uncertainty and prevent unforeseen losses, while raising awareness within the Group and across the industry. Therefore, we try to understand how risks are changing, assess their impact and seek to recognise potential links between them.
Our SONAR framework SONAR (“systematic observation of notions associated with risk”) is our Group-wide framework specifically designed to manage and communicate emerging risks. Firmly embedded in the Group’s risk management organisation, SONAR allows us to identify, assess and report these risks in a timely manner and to factor them into our decisions.
There is growing evidence that drilling activities associated with hydrofracking or geothermal exploration may contribute to earthquakes. As most established risk models do not account for this effect, we treat “human-induced earthquakes” as an emerging risk.
The increase in earthquake activity associated with human actions is an emerging risk, as most risk models used by the re/insurance industry do not incorporate the associated increase in seismic hazard. Losses arising from the rapidly rising number of human-induced seismic events are largely uninsured or fall into the deductible of traditional earthquake insurance products, which are designed to protect against single big loss events rather than damage arising from frequent small earthquakes.
We have looked at hydrofracking in several of our recent publications. Our 2015 SONAR report highlighted the risks around fracking fluids with regard to chemical composition and groundwater contamination, whereas in the 2016 edition we address the increased earthquake risk associated with hydrofracking. In addition, we published a comprehensive report on “The link between hydrofracking, wastewater injection and earthquakes: key issues for re/insurers”.
Given these challenges, we believe it is essential to foster risk dialogue with various partners. By sharing perceptions and assessments, all parties can gain a better understanding of potential emerging risks. In 2016, we contributed to the following strategic initiatives: CRO Forum Emerging Risk Initiative (CRO ERI) The CRO ERI was launched in 2005 to raise awareness of major emerging risks relevant to society and the re/insurance industry. www.thecroforum.org/emerging-riskinitiative -2/
In 2016, we contributed to the CRO Forum’s Emerging Risk Initiative position paper “Water Risks”.
International Risk Governance Council (IRGC) The IRGC is an independent organisation whose purpose is to help understand and manage global risks that impact human health and safety, the environment, the economy and society at large. Since its foundation in 2003, Swiss Re has been a partner of the IRGC, and has participated in its initiatives and publications. www.irgc.org
Responsible investment framework Our asset management runs under a well-defined framework, which considers ESG criteria consistent with the Group’s Code of Conduct and Swiss Re’s commitment to sustainability. This pledge is further outlined in the Group Asset Management Responsible Investment Policy, which describes our approach and principles with regard to sustainable investing. This is complemented by the Swiss Re Asset Management Voting Framework, which provides guiding principles that apply to all our voting activities.
Critical infrastructure Infrastructure private debt mandates, page 40 Supporting financial resilience, page 47
Cyber attacks Partner reports on “Financing resilient energy infrastructure”, page 44 Expert Forum on Cyber Risk, page 49
The Internet of Things Risk Talk on Smart Homes, page 49
In 2007, we signed the UN Principles for Responsible Investment (PRI) and in 2012, the Principles for Sustainable Insurance (PSI), thereby formally endorsing our commitment to corporate responsibility. The PRI and PSI are considered in Swiss Re’s comprehensive responsible investment framework.
All PRI signatories are required to provide in-depth reporting on their responsible investment activities. The reports are available on the PRI website at www.unpri.org/signatory-directory/
As a long-term investor, we consider factors that may have an adverse impact on the sustainable value of our portfolio, such as climate risk. As a result, we measure our exposure to carbon emissions in listed equities and corporate bonds in a systematic manner. In order to mitigate the risk of stranded assets, we have also adopted a policy to avoid investments in companies where a substantial part of their revenues is stemming from thermal coal.
Overarching approach The Sustainability Risk Framework (see pages 28–33) enables us to identify and analyse potential ESG risks within an investment, and is aligned with our overall governance structure.
The framework consists of two umbrella policies on human rights and environmental protection, and seven guidelines on sensitive sectors or issues: the defence industry; oil and gas (including oil sands); mining; dams; animal testing; forestry, pulp & paper and oil palm; and nuclear weapons proliferation. Each of these policies and guidelines contain a number of predefined criteria and qualitative standards that may lead to the exclusion of a company or a country from our investment scope. Following our recent review, we extended our exclusion list to include companies potentially posing a significant reputational risk to investors due to controversial business activities from an ESG perspective.
Our Asset Management unit applies these criteria to our investment assets, and excludes companies and countries if they do not meet the pre-defined criteria and qualitative standards.
Overall investment portfolio USD 130.5 bn, as of 31 December 2016 * Includes equity securities, private equity and Principal Investments
Specific approaches per asset class We have identified some key investment areas in which we apply further specific ESG criteria to cater for the different risk characteristics of responsible investing. Asset class specific approaches towards sustainability are outlined in the following sections.
In 2016, we revised our ESG screening approach at country level. We now include detailed information from a specialised research company on primary political risks, human rights, economic and environmental issues affecting the resilience of countries. Based on such factors, we assess our government bond assets to guide our responsible investment decisions and to guarantee the quality of our government bond portfolio. We screen our portfolio against ESG considerations twice a year. Furthermore, we use the rating measures to define investment mandates for our portfolio managers.
Real estate Our investment portfolio consists of direct investments in property in Switzerland, Germany and the US. It comprises buildings for residential, industrial and commercial use. The market value of the portfolio was USD 3.4 billion at the end of 2016.
We apply ambitious sustainability standards for these real estate investments. For projects in Switzerland, the applicable criteria are defined in the Energy Mission Statement of Swiss Re. This stipulates that all new buildings need to conform to the MINERGIE® standard (www.minergie.ch), a Swiss quality label specifying high levels of energy efficiency and superior user comfort. When an existing building in the portfolio is due for renovation, this standard is applied whenever it is feasible from an architectural, technical and financial point of view.
Since 2015, Swiss Re has also invested in the US real estate market, having now acquired a portfolio of 14 properties. The investment manager’s approach to sustainability includes “GreenGuide: Sustainable Property Operations”, a best practice guideline for sustainable and efficient real estate operations; “ULI GreenPrint Foundation”, a global environmental management platform; and “LEED Certification” from the USGBC.
We believe that ESG considerations, especially good corporate governance and transparency towards shareholders, are key drivers for sustainable value creation. Therefore, we review our voting principles periodically to keep them aligned with best practice.
This is why we attach great importance to ongoing dialogue with our stakeholders. Drawing on the expertise from our core business, we identify key risk topics and take an active role in discussions about them. We share and exchange knowledge through many channels, eg our renowned publications including the sigma series, international dialogue platforms, events hosted by the Centre for Global Dialogue (part of the Swiss Re Institute as from 1 March 2017), and cooperation with governments and academic institutions. Through this ongoing dialogue, our stakeholders give us valuable feedback and new insights for risk management and product development.
In 2015, we formed a new Reputation Management Committee, which comprises representatives from across the Group, ie our three Business Units, Investor Relations, Group Risk Management, Group Communications and – as from 1 March 2017 – the Swiss Re Institute. The Committee coordinates the content of our stakeholder dialogue across all our Business Units, functions and regions in order to optimise its effectiveness.
Advancing sustainable energy solutions The agreement reached in 2015 at the COP21 UN Climate Change Conference in Paris underscored that sustainable energy sources are essential to combat global warming. Reducing greenhouse gas emissions while, at the same time, satisfying the energy needs of a growing population will be one of the great challenges we face in the coming decades. Sustainable energy projects continue to increase in scale and complexity, as do the risks associated with them.
We engage in regular dialogue with our stakeholders. By sharing expertise and knowhow, we help society to develop effective responses to key risks.
Staying fit and enjoying it ... By devoting one of our Top Topics to “Funding longer lives”, we want to help ensure that people can continue to reap the benefits of living longer.
Food-water-energy nexus 98% of the world’s power supply depends on water. Food production, in turn, requires both water and energy. In other words, the foodwater -energy nexus can significantly impact energy supplies.
Cyber attacks Finally, the energy sector is highly vulnerable to cyber attacks. As Ukraine experienced recently, an attack on a power grid can cut off a whole country’s power.
Our notable achievements in 2016: ̤ We contributed an insurance perspective to the World Economic Forum (www.weforum.org) briefing on “Global Population Ageing: Technological Innovations for Health and Wealth”. This report explores how the interplay between wearables, connected devices, robotics and artificial intelligence can advance the social connections, emotional health, cognitive ability and physical fitness of older adults; ̤ The 2016 Entrepreneurs for Resilience Award of the Swiss Re Foundation focused on innovative solutions that enable the elderly to live independently at home. The four entrepreneurs in the final selection share CHF 800 000 in prize money, which will allow them to further their inventions ranging from robotic helpers and video therapy to online care coaches and health monitoring.
Hurricane Matthew and the Louisiana floods are just two examples of events that killed many and destroyed the livelihoods of even more. Total economic losses from disaster events in 2016 almost doubled to USD 175 billion, primarily due to natural catastrophes. This shows that our world is still not resilient enough to avoid the negative effects of natural disasters – let alone to assure the funds needed to rebuild affected communities after a disaster.
In the future, these negative effects will become even more severe. The expectation is that, as a result of climate change, extreme weather events like hurricanes and floods will increase. Moreover, rising losses will also come from higher concentrations of assets in exposed areas, in particular in the world's rapidly growing cities. If no action is taken, climate change could cost the world economy an estimated 20% of global GDP by the end of this century.
By financing measures to mitigate disaster risks and adapt to climate change, we can strengthen the resilience of citizens, businesses, local and national economies and societies. As insurance puts a price tag on risk, it helps to create an incentive to invest in prevention measures. For more information see swissre.com/rethinking/climate_and_ natural_disaster_risk/
Understanding natural catastrophe risks and the impact of climate change is critical to cost our business accurately and to structure sound risk transfer solutions. By sharing this knowledge, we help our partners to identify costeffective protection measures. In addition, we provide solutions to cover the residual risk that cannot be avoided.
Our notable achievements in 2016: ̤ We published new expertise publications on floods and earthquakes for Switzerland, Argentina, Italy, Canada and California, which provided the basis for discussions with stakeholders in these countries, ranging from insurers to government officials; ̤ We released a totally new version of our CatNet® services tool which brings the benefits of our big data & smart analytics skills in natural catastrophes to our stakeholders (see page 20); ̤ Through conferences, publications and social media channels, we communicated how we used a brand new concept to insure Guangdong Province against losses of up to USD 350 million from tropical cyclones and excessive rainfall (see page 22).
The surplus subsistence farmers currently produce will not be enough to feed the growing urban population. Smallholder farmers must make the transition to commercial agriculture to feed the world. For this, they need access to credit so they can buy tools, seeds and fertilizer. But lending will remain restricted if banks fear that farmers will be unable to pay back their loans in the event of a lost harvest due to drought, flood or other disasters. Here, insurance can play the same role in the developing world as it already does in developed countries: protecting farmers against the perils of nature to keep them in business, even if disaster strikes.
However, unconventional monetary policies implemented by central banks following the financial crisis of 2008 – 2009 present a challenge for our industry and have contributed to an environment that is not conducive to sustainable economic growth.
At Swiss Re, we are striving to influence these developments by actively participating in and contributing to the global and local financial reform dialogue. Ultimately, we want to ensure long-term investors can act – not only think – on a long-term horizon to achieve greater financial resilience.
Our notable achievements in 2016: ̤ We continued to take an active role in the debate on the consequences of financial repression for savers and long-term investors as well as the broader implications for financial resilience, eg through a fact sheet, a by-liner in the IMCA quarterly report no. 41 (www.imcagroup.org) and by sharing our views with key public and private sector stakeholders; ̤ We remained at the forefront of the policy call to make infrastructure debt a tradable asset class as we believe that bridging the large infrastructure financing gap is key to sustainable economic growth; ̤ We launched a joint research project with the London School of Economics and Political Science (www.lse.ac.uk) on long-term investing and monetary policy. Its key objectives are to analyse the effect of low interest rates on structural reforms, investigate the effect of monetary policy on capital markets and consider alternative monetary policy tools.
supported by modern technology, eg DNA tests at various stages, efficient drying procedures, the introduction of optical sorting machines (including near infrared technology), combined with the use of big data and the Cloud. Attention was also drawn to the industry’s Global Food Safety Initiative (www.mygfsi.com) which, amongst other things, works with certification bodies to ensure maximum audit reliability and seeks to address differences in national food regulations. The re/insurance industry, in turn, can support efforts to enhance food safety by providing risk assessment, ie by identifying potential risks and preparing suitable countermeasures, along with modelling potential loss scenarios.
The Swiss Re Centre for Global Dialogue (the “Centre”) is an important platform for interaction with our external stakeholders. Located at Rüschlikon near Zurich, this state-of-the-art conference centre hosts industry-leading events on risk and insurance.
Below you can read summaries of three events the Centre organised in 2016: Insuring food safety: What’s on the menu? “Partnering for food security” is one of Swiss Re’s Top Topics. Demand for food is growing, not just driven by worldwide population growth, but also by globalisation which has led to shifts in eating habits. One prominent trend is the rising popularity of convenience foods and ready-to-eat meals, which effectively means that many households increasingly delegate food safety to producers and processing companies. These, in turn, operate in highly complex supply chains, or “supply webs”, seriously complicating the task of ensuring food safety.
4th Swiss Re Symposium on Data Protection: Ethics and e-health in insurance The digital transformation of the insurance industry is one of the key challenges facing all its players. Digital technology is being implemented across the whole value chain, from distribution through underwriting to claims. This raises crucial questions concerning market dynamics and competitors, customer behaviour, data use, artificial intelligence and more.
Some impressions from “Insuring food safety: What’s on the menu?”, one of the stakeholder conferences we held at the Centre for Global Dialogue in 2016.
However, the use of such data also raises serious ethical questions that go beyond data and privacy protection. Making sure that no individuals or groups are disadvantaged by the information derived from big data algorithms will be essential. Furthermore, there are concerns about the potential misuse of health and health-related data, inaccurate algorithms, false outcomes and over-diagnosis. These concerns have prompted the EU General Data Protection Regulation (GDPR), for example, to focus on the governance of health and health-related data, substantially strengthening the rights of data providers and requiring more transparency from data users. As it was argued at the conference, a sound ethical base will be indispensable to create the necessary trust in new ways of managing and analysing health data.
Further events we held at the Centre for Global Dialogue in 2016 include: Expert Forum on Cyber Risk institute.swissre.com/events/Expert_ Forum_Cyber_Risk_2016.html
Our work with (inter-)governmental agencies to promote effective sustainability responses ̤ In Europe, we have continued to raise awareness of the important role insurers play in mitigating climate risk through different interactions with policy makers. This includes speaking at industry conferences (Insurance Europe and the ABI), presenting at the European Commission’s DG Climate Action’s working group on Climate Adaptation and bilateral engagement with the European Commission and national governments. We also remain engaged in the debate via our trade association memberships (eg the Reinsurance Advisory Board); ̤ In the US, we have maintained regular dialogue with the National Association of Insurance Commissioners (NAIC), principally on climate change and natural catastrophes; ̤ For our participation in the Financial Stability Board's Task Force on Climate-related Financial Disclosures, see page 31.
Our work with (inter-)governmental agencies to share risk management expertise ̤ With Global Partnerships, we have a team that works strategically with public-sector bodies to improve risk resilience: – directly with sovereigns or subsovereigns and their agencies, recently with the government and prefectures of two Chinese provinces to establish major natural catastrophe insurance schemes, with the UK government as part of a programme set up to make flood insurance more afordable for homeowners, with the Florida Hurricane Catastrophe Fund to strengthen risk resilience or the Turkish Catastrophe insurance Pool to improve re/insurance protection against earthquakes; – with the United Nation’s International Strategy for Disaster Reduction (UNISDR) in a consulting role; – with development agencies such as the United States Agency for International Development (USAID), the UK’s Department for International Development (DFID), the Swiss Agency for Development and Cooperation (SDC), the World Bank, the Asian Development Bank (ADB), the Inter-American Development Bank (IADB) or the German Development Bank (KfW).
̤ In 2016, we announced a formal partnership with the London School of Economics and Political Science (LSE) to support an 18-month research programme on monetary policy and long-term investment (see page 47).
With the World Energy Council: World Energy Perspective: The road to resilience – Financing resilient energy infrastructure
For more than 150 years globally and over 60 years in Africa, we have worked with clients and partners to turn pioneering ideas into reality. We have an extensive knowledge base which we share with our clients. This includes our sigma and SONAR publications as well as training programmes tailored to the needs of the African markets. We believe that public-private partnerships and constructive collaboration can result in successful solutions for a stronger, more resilient and prosperous Africa.
Policy coverage: Pilot programme will provide RMB 7.6 million (USD 1.2 million) coverage for about 8.4 square kilometres of cotton.
Insured party: Xinjiang Production and Construction Corps, a major farming group reporting directly to the Chinese Central Government.
Risk takers: China United Property Insurance Company Ltd. is the programme initiation partner and insurer. Swiss Re is the solution designer and reinsurer.
FINANCING RESILIENT ENERGY INFRASTRUCTURE In Partnership with Marsh & McLennan Companies and Swiss Re Corporate Solutions
As a knowledge company in the financial services sector, we do not cause large environmental impacts through our own operations. Nonetheless, we firmly believe it is important for a responsible company to minimise its environmental footprint, thus leading by example.
For our core re/insurance business, climate change represents a key topic. Reflecting this, we have been focusing on our own CO2 emissions and energy consumption for many years. Our pioneering initiatives include the Greenhouse Neutral Programme and the COyou2 Programme. Both are now into their second cycles, running from 2013 to 2020.
In 2015, we had our entire CRES division certified according to the ISO 14001 environmental management standard (www.iso.org), replacing the locationbased approach we had used before. As a result, all our operations and employees are now covered by an ISO 14001-certified environmental management system.
Climate change has been a strategic priority for Swiss Re for almost 30 years. It is a key topic for a re/insurer, because it is likely to cause more extreme and more frequent weather events, resulting in rising damages and insurance losses. Our strategy to tackle climate change rests on four pillars, one of which is our pledge to reduce our own CO2 emissions (see page 12).
For more information see swissre.com/corporate_responsibility/ reducing_footprint.html 3.9% Total increase in CO2 emissions per employee since 2013
Goals and scope of the programme’s second phase Seamlessly continuing from the Greenhouse Neutral Programme’s first ten years, we launched a second commitment phase in 2013, which runs until 2020. However, after almost halving our CO2 emissions per employee in the previous ten years, the potential for further reductions is now much smaller. Our new target is to keep our CO2 emissions per employee stable at the level of 2013. In view of our expansive business strategy, especially in high growth markets, we consider this to be an ambitious goal.
CO2 emissions per employee (full-time equivalent, FTE), Swiss Re Group kg/FTE
Indirect emissions from purchased electricity, Swiss Re Group In line with the new Scope 2 Guidance of the Greenhouse Gas (GHG) Protocol, we report the emissions associated with our electricity consumption according to both a locationbased approach representing the CO2 intensity of the grids where we operate and a market-based method taking into account emission reductions from instruments such as Renewable Energy Certificates (RECs) and Guarantees of Origin (GOs).
RECs, GOs, residual mix 1 All Swiss electricity producers are required by law to declare the quality and quantity of the electricity produced. Swiss Re buys 100% green labelled electricity (naturemade star). 2 In the US, we purchase green-e labelled Renewable Energy Certificates (RECs) for our total power consumption.
3 The UK government claims all green credentials of renewable electricity produced in the country.
Even though over 80% of the electricity we consume in the UK comes with Renewable Energy Guarantees of Origin (REGOs), we report the same emission figures for location-and market-based approaches.
For the programme’s second cycle, we also extended the scope of our emissions reporting and of our offsetting commitment. In addition to our Scope 1 and Scope 2 emissions (heating and power consumption) and a major source of Scope 3 emissions (business travel), our reporting now covers further activities along our supply chain (Scope 3): copy paper use, waste generation, water use, technical gases and employee commuting.
Based on this, we extended our commitment to offset the CO2 emissions we cannot avoid to paper, waste, water and technical gases.
Using renewable power Purchasing power from renewable rather than conventional sources has been a key measure of our Greenhouse Neutral Programme. After starting to use renewable power at four European locations in 2005, we set ourselves the goal of using 100% renewable power at all locations where it is available in reliable and trustworthy quality by the end of 2013. Based on our quality assessments of available energy sources, we believe we reached this goal and used only renewable power at 25 locations in Asia, Europe, North America and Oceania at that time.
Reducing energy consumption In parallel with our switch to using renewable power, we have made continuous efforts to lower the actual amount of energy consumed per employee, ie to reduce our energy intensity. In the first phase of our Greenhouse Neutral Programme, we set ourselves a 20% reduction target compared with 2003 levels, measured in kWh per employee. Through many small measures to improve energy efficiency and by concentrating back-office tasks in fewer and more energy-efficient buildings, we actually achieved a reduction of 46.5% by 2013.
RE100 and EP100 In a number of countries where we want to grow our business, there is a lack of renewable energy supplies in reliable quality. At the end of 2016, approximately 84% of the power we purchased across the Group came from renewable energy sources. We are committed to raising this figure to 100%, which is why we helped to establish the Climate Group’s RE100 initiative in 2014 as a founding member.
84% Share of total power consumption from renewable sources in 2016
Our large office at Armonk in New York State is our US headquarters, with more than 700 employees. At Climate Week NYC 2016, we announced our decision to build a solar power plant directly on our own premises to supply our office with renewable power.
As a founding partner of the Climate Group’s RE100 initiative, we are committed to covering 100% of our power consumption from renewable sources by 2020. At the end of 2016, the share of our power generated by renewables was 84%, mostly purchased from reliable producers.
Going one step further, we have recently started to build our own solar power facilities. Following earlier projects in Italy, Switzerland and the
UK, our new venture in Armonk is the largest launched yet. Comprising ten acres of ground-mounted panels, the facility will have a capacity of two megawatts, sufficient to supply more than 60% of the site’s power requirements.
Despite these measures, the amount of kilometres travelled per employee and the associated emissions have been rising in recent years. A key driver is our continued expansion in high growth markets, which has brought an increase in teams distributed across different locations. In 2016, the total distance each of our employees travelled on average increased by 8.6%.
The overview of all our emissions sources (see table on page 53) shows that paper, water and waste are of much less significance in our business than other environmental impacts. Furthermore, it is difficult for us to influence water use and waste generation at locations where we rent office space. However, in the office buildings we own we ensure appliances meet high standards of water efficiency.
Paper use, on the other hand, is much more responsive to managerial action. Although we have not set any quantitative targets, we have taken a number of measures to reduce the average amount of paper used by our employees in recent years. New IT solutions such as “pull printing” (which eliminates uncollected printouts), webbased collaboration and document management platforms have led to a decrease of paper use in all our locations. Thus, average paper use per employee fell by 13% across the whole Group and was 41.2% lower than in 2013.
Offsetting our remaining CO2 emissions The second commitment of our Greenhouse Neutral Programme is to compensate all CO2 emissions we cannot avoid. For the seven emissions sources covered in the second phase of our Greenhouse Neutral Programme, we bought and retired VERs for a total of 80 700 tonnes of CO2e in 2016.
We are keen to ensure that the VERs we buy are of a high environmental standard. Therefore, we have developed a set of criteria to select the projects generating certificates. In particular, we give priority to those which create strong social side effects and benefit the poorest regions. You can read more about the compensation project we selected in 2016 on page 57.
When selecting compensation projects for our CO2 emissions, we require them to have tangible social benefits. In 2016, we chose a “Gold Standard” (www.goldstandard.org) project that provides clean cooking stoves for poor communities in the southern Indian states of Tamil Nadhu and Karnataka.
The project, which is managed by our partners South Pole Group (www.thesouthpolegroup.com), comprises the design, manufacture and distribution of efficient household cooking stoves for 200 000 rural households. These stoves reduce smoke and toxic emissions by 80%, significantly improving the health and wellbeing of the families that use them. Besides requiring less fuel, the stoves also cook much faster. This means the families can save time and money and turn to more productive activities, especially children’s education. Normally, people in Tamil
An added feature of the project is that it trains local women as entrepreneurs and actively involves them in the marketing and sales of the stoves. This enables them to earn their own income and to improve their social position in their rural communities.
In total, the project prevents the emission of around 27 500 tonnes of greenhouse gases. The money generated through the associated certificates is used to subsidise the cost of the cooking stoves, making them more affordable to the local families.
We consider environmental criteria relating to materials and ingredients, production methods, recycling and waste. For some sourcing categories, we have developed “minimum standards” that further specify our requirements. Besides power (see page 54) and paper (see page 56), these cover cleaning services and agents, refrigerant agents and building materials. Each standard lists objectives, ecological aspects, ecological minimum standards, exceptions, controlling and labels.
When we make these purchases, we apply general and individual criteria. In line with our overarching Group Sourcing Policy, we select suppliers that offer the best value for money, meet high quality standards and adhere to the UN Global Compact. As a signatory to the Compact, we are committed to honouring all its ten principles. Amongst other things, these prohibit any sort of discrimination or the use of child or forced labour, and require that the freedom of association and the right to collective bargaining be upheld.
Swiss Re has over 80 office locations in more than 30 countries. For new building or renovation work, we apply a number of principles. One of them is sustainability, which translates into criteria such as stringent construction standards, high-quality fittings and finishes, a comfortable ambient climate, environmentally sound, durable materials, low energy consumption and low maintenance and running costs. Constructing or renovating an office building in line with such sustainability criteria is the most effective way to minimise its environmental footprint.
For construction projects in Switzerland, the applicable criteria are defined in detail in the Energy Mission Statement of Swiss Re, Zurich. They stipulate that new buildings need to conform to the MINERGIE® standard (www.minergie.ch), a Swiss quality label specifying high levels of energy efficiency and superior user comfort. When we renovate old buildings, this standard is to be applied if feasible from an architectural, technical and financial perspective. Our pension fund in Switzerland applies the same criteria for all its direct investments into real estate projects.
In practice, we usually go beyond these requirements and use further standards such as MINERGIE-ECO® – which also includes health criteria and demands on building materials – and MINERGIE-PECO ®, which specifies the characteristics of a nearly zero-energy building.
At present, our individual workplaces are already occupied less than 50% of the time on average, while meeting rooms are generally used to the full. Ongoing digitalisation will further increase the need as well as the possibilities for communication and networking. Thus, there will no longer be any assigned workplaces or single offices at Swiss Re Next. Instead, our employees will find a varied design with think tanks, meeting rooms, lounges, temporary workplaces, informal meeting areas, service zones and cafeterias. At the same time, the teams will retain dedicated areas of their own, called “home bases”, equipped with adaptable workbenches for four to six people. Importantly, access to these home bases will be through communal zones with generous coffee bars, encouraging spontaneous encounters.
In 2016, we granted a total of 2 449 subsidies spread across three product categories: home appliances, home infrastructure and mobility. Over the past three years, electric-powered mobility has become more prominent, with 362 subsidies for e-bikes, e-motorbikes, e-cars and plug-in hybrid electric cars. Responding to this trend, we have introduced e-car charging stations at several locations.
Some of our Asian locations have also seen strong growth and, consequently, high subsidy rates. Energy-efficient home appliances were particularly sought after. In the Americas, meanwhile, home appliances as well as home infrastructure were popular categories.
The investment options we offer for subsidies are clearly specified in the programme. Some of them are supported at all our locations, while others vary to account for regional differences in climate, living conditions etc. Our subsidies cover 50% of the investment amount up to a locally determined maximum allowance. All regular employees are entitled to apply and new employees can submit subsidy requests after three months following their hire start date.
COyou2 payouts in 2016, by category 46% Home appliances 15% Home infrastructure 39% Mobility
The purpose of the Swiss Climate Foundation is to collect these funds and to use them to support various climatefriendly projects undertaken by small and medium-sized companies (SMEs) in Switzerland. In 2012, the Swiss Climate Foundation broadened its scope and started to collaborate with the LIFE Climate Foundation Liechtenstein, generating more partner companies and enabling SMEs in Liechtenstein to benefit from the funds, too. By the end of 2016, 28 renowned financial service providers from Switzerland and Liechtenstein were partner companies of the Swiss Climate Foundation.
Cups and lunch containers for reuse, not for the waste bin: reCIRCLE is supported by the Swiss Climate Foundation and provides more sustainable containers for convenience food bought on the go. reCIRCLE’s reusable cups and lunch containers are tough enough to last for at least 100 wash-and-reuse cycles, and the company’s goal is to market them through as many takeaway outlets as possible.
To meet these goals, we developed and embedded a new People Strategy. Looking back on 2016, we can see that this strategy has borne fruit – the engagement level of our employees has increased significantly (+9 percentage points vs 2015) and we achieved the Aon Hewitt Best Employer status in nine out of 17 eligible countries.
Swiss Re is a global company with a presence in all major markets. As of 31 December 2016, we employed 14 053 people (regular staff) from 109 nationalities: 60.7% work in Europe, incl. the Middle East and Africa (EMEA), 25.6% in the Americas and 13.7% in the Asia-Pacific region.
Average tenure regular staff (in years) 9.3 9.0 8.8 For more information see swissre.com/careers/
In 2015, we introduced a newly designed Employee Engagement Survey to find out what we can collectively improve to live the spirit of our People Strategy. We ran the survey for the second time in May 2016, with a response rate of 86% (1% up from last year) with close to 20 000 written comments. Our overall engagement score increased 9 points from 58% to 67%, putting us well above the Global Financial/Insurance Average benchmark of 61% and close to the Global High Performance benchmark of 71%.
Advancement of women Almost half of Swiss Re’s global workforce are women and we are steadily improving gender balance at management levels. To underline our commitment to reducing bias in talent decision-making, this year we integrated line manager training and tools into the recruiting process and across the talent life cycle. As part of our new employer brand positioning, we systematically apply D&I best practices, such as forming diverse hiring panels and using gender-sensitive language and visuals in all job advertisements.
Externally, Swiss Re continues to contribute to the advancement of female talent in the communities in which we operate. One such partnership is with the association Advance – Empowering Women in Swiss Business, of which Swiss Re is a founding member. We hosted their 2016 Annual Conference at our Centre for Global Dialogue. It was devoted to “The Future of Work” and the role women play, making clear that companies must create progressive working conditions and cannot afford to ignore the expectations of women in the workplace.
Agile working Our future success depends on our ability to create a flexible, global workforce that is responsive and highly resilient in responding to the needs of our business. Swiss Re follows an integrated, future-focused strategy that brings together our physical workplace, technology and people management practices.
region. This has become a differentiating part of Swiss Re’s employee value proposition.
A key aspect of our People Strategy is to prevent stereotyping of individuals based on any dimensions of diversity. It centres on raising awareness of the “unconscious biases” that every one of us have, which can unintentionally influence our decision-making and our behaviour towards others.
To support our growth ambitions in high growth markets, we have introduced targeted training to equip leaders with the necessary skills to create an impactful recruitment experience. Furthermore, we developed our
Employee development and growth Implementing effective programmes to further develop and train our employees and leaders lies at the heart of our People Strategy. This is also something that employees clearly want, as reflected in the Employee Engagement Survey results. While 70% of surveyed employees said we strongly support their learning and development (above the Global High Performance benchmark), respondents still asked for more development opportunities at Swiss Re.
Formal training Formal training at Swiss Re combines technical, professional and leadership skills training. We design our training internally or in collaboration with leading external partners and deliver it through our long-established Swiss Re Academy. In late 2016, we introduced some new “blended learning” professional skills training which embraces the 70/20/10 principle.
Swiss Re Academy provides a portfolio of blended learning, combining face-toface learning, eLearning, peer-to-peer coaching and virtual classrooms. Together, they offer a flexible approach to learning. Our courses are well received by our employees; for instance, in leadership skills training we scored 4.39 out of 5 in 2016 (highest score ever recorded). Swiss Re Academy has developed extensive professional and personal development curricula to respond to changing business needs.
Learning hours per employee 13.1 15.5 15.3 Learning costs per employee (in USD) 1 500 1 024 919
Currently, we offer more than 1 000 different training courses. Our employees attend training in areas as diverse as underwriting, finance, sales and negotiation, leadership, diversity and inclusion, interpersonal skills, project management, office tools and language skills. Certain courses, such as compliance training, are mandatory.
In 2016, all our employees took part in our development and training programmes. They completed 231 826 hours of training overall, averaging 15.3 hours and USD 919 per employee. This drop in per-capita training expenses is directly related to the increase in online learning and the decrease in classroom trainings. In addition, each of our Business Units organises a considerable amount of specialist training.
We have also integrated the Leadership Imperatives and Personal Imperatives into both our performance management process and leadership development programmes.
Over a period of 18 months, the graduates receive on-the-job training in their respective functions. They also attend a number of classroom-based training sessions which are specifically designed for the programme and focus on Swiss Re’s core business areas. By the end of 2016, around 379 graduates had either completed the programme since its launch in 2007 or were still participating in it. They are employed across many different functions and regions.
In 2016, we employed 61 interns through the interns@swissre programme. This includes seven internship positions for students from the African Leadership Academy (ALA) in support of our high growth market talent strategy. The interns programme is mainly aimed at university students who are pursuing a Bachelor’s or Master’s degree, and at graduates with less than one year of full-time work experience. Interns join teams in core business areas, where they take on specific tasks and various projects. In India, South Africa, the US and the UK we offer traditional summer internships that typically last between eight and 12 weeks, while in Germany and Switzerland the internships usually span three to six months.
Our graduates were asked to complete a survey on their work experience at Swiss Re. The survey covered questions such as: what are the best things about your company, what attracted you to the company, how do you rate the work-life balance, training and ethical/environmental balance. The results from our graduates were overwhelmingly positive.
Three of our former graduates attended the awards ceremony at the Intercontinental Hotel in London to collect a 2016/2017 Top Company award from TheJobCrowd.
A healthy mind is as important as a healthy body. We offer free, locally available Employee Assistance Programmes, through which our employees can get confidential, impartial and professional assistance on issues of a personal or work-related nature. In this way, our employees can benefit from personalised support on emotional, family, financial and legal issues.
We also hold various local events on topics such as work stress, mental health and awareness trainings. For example, in Australia we organised various activities that focused on physical and mental health such as a stress & resilience workshop, a “Happy Body at Work” seminar and we invited guest speakers from new medical facilities and the local gym. In Bangalore we offered a health & nutrition session and a bone density check to help detect possible mineral deficiencies and take corrective action. In Hong Kong a special week was dedicated to increasing awareness of work- life balance. We also offer free flu jabs in various countries, such as Switzerland, the UK and the United States.
To accommodate the needs of working parents, we have a number of initiatives in place. Last year, approximately 165 children in Switzerland attended our one-week vacation programmes during the spring and summer school holidays, enabling their parents to continue working. We also offer a number of reserved places at day care centres in and around Zurich. Furthermore, our external childcare provider helps parents find emergency nannies and gives guidance in all questions related to childcare.
purposes. When a Business Unit is likely to be affected by proposed collective redundancies, the respective employee representatives are consulted.
At our Munich office we have a Works Council, with clearly defined codetermination rights in several areas. It has the legal obligation to support topics such as diversity, development and training, career opportunities and work-life balance. The eleven members of the Works Council are elected by employees for a four-year term.
Through the Swiss Re Alumni Network, we offer our former employees the opportunity to continue sharing their knowledge and experience, and to keep in contact with colleagues. Currently, we have more than 3 700 active members.
We are a signatory to the UN Global Compact and support its ten principles in the areas of human rights, labour, the environment and anti-corruption. Many of our locations have active employee groups. These employee representatives play an important part in the company’s success by contributing valuable perspectives and by helping to identify employment-related challenges.
In the UK, Swiss Re has an Employee Liaison Group (ELG), made up of representatives from across all functions, who are elected by employees for a two-year term. The ELG provides a forum for employee representatives and managers to discuss company policy and practices which affect all employees. It is legally recognised as the collective consultation body for redundancy
Swiss Re is committed to maintaining a compensation framework that is balanced and performance-oriented, and which aligns the interests of both shareholders and employees. Our compensation framework is designed to attract, motivate and retain the qualified talent that the Group needs to succeed, while creating a tangible link between performance and pay. The aim is to provide compensation that is competitive in local labour markets, while ensuring that employees focus on delivering outstanding results in line with our business strategy, targets, risk awareness and corporate values.
Simplifying performance management We have undertaken significant work to improve our performance management process over the last three years, with the aim of focusing on both what people achieve and how they achieve their goals. We are leveraging our Leadership and Personal Imperatives to create more focus on the outcome of performance management through improved employee discussions, better performance differentiation and more transparent pay-for-performance.
Swiss Re’s corporate governance structure Swiss Re has a dual board structure in place: the Board of Directors is responsible for the overall direction, supervision and control of Swiss Re Ltd and the Group. It has delegated the management of Swiss Re Ltd and the Swiss Re Group to the Group Executive Committee (Group EC). This structure maintains effective mutual checks and balances between these top corporate bodies.
Swiss Re’s corporate governance forms the basis for sustainable management of the Swiss Re Group.
The Swiss Re Ltd & Group Bylaws (“SRL&Group Bylaws”) define the governance structure for Swiss Re Ltd and within the Swiss Re Group, including the responsibilities of the Board of Directors, Chairman, Vice Chairman, Lead Independent Director, Board committees, Group EC, Group CEO and of the other individual Group EC members including the Regional Presidents, as well as the relevant reporting procedures.
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, which support the Board in fulfilling its duties. The Board of Directors 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.
Independence of the Board of Directors and conflicts of interest procedures The SRL&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.
The members of the Board of Directors are also subject to procedures to avoid any action, position or interest that conflicts with an interest of Swiss Re Ltd or the Swiss Re Group or gives the appearance of a conflict. Each member must disclose any conflict of interest generally arising or relating to a matter to be discussed at a meeting, as soon as the member becomes aware of the conflict, to the Chairman. The respective member must not participate in the discussion and decision-making involving the interest at stake. The Chairman informs the Board of Directors of the existence of the conflict and it is reflected in the meeting minutes.
Shareholders’ participation rights Shares All shares issued by Swiss Re Ltd are fully paid-in registered shares, each with a par value of CHF 0.10. Each share carries one vote. There are no categories of shares with a higher or limited voting power, privileged dividend entitlement or any other preferential rights, nor are there any other securities representing a part of Swiss Re Ltd’s share capital. Swiss Re Ltd cannot exercise the voting rights of treasury shares.
Our Code of Conduct (the “Code”) is one in a series of documents governing the organisation and management of our company. It sets the framework and defines the basic legal and ethical compliance principles we adhere to globally. The Code is built on the five Swiss Re values, which guide us in making responsible decisions and achieving results using the highest ethical standards: integrity, team spirit, passion to perform, agility and client centricity.
We regularly review and update the Code to reflect changes in regulations and principles. A comprehensively overhauled version was published in the second half of 2016. While the requirements set out in the Code generally remain the same, many changes were made to make it a more user-friendly document. The language used in the new Code is easy to understand and concise. The new layout and real-life examples give us clearer guidance in our day-to-day business.
The Code is supported by detailed policies and standards that document Swiss Re’s requirements in line with applicable laws and regulations.
The new Code is available to our employees in eight languages: English, French, German, Italian, Japanese, Portuguese, Slovak and Spanish.
In support, we implemented our Group Anti-Bribery and Corruption (ABC) Policy in 2012. This emphasises that bribery, facilitation payments and hospitality where the giver is not present are always prohibited. For gifts, hospitality, sponsorships and charitable contributions, the policy and standards specify the correct procedures to be followed.
In 2016, we integrated our ABC Policy in our Sensitive Business Risks assessment tool, which our underwriters use to screen transactions for potential negative impacts on the environment and human rights (see page 31). This helps us to mitigate our exposure to bribery and corruption risks through appropriate due diligence on our counterparties.
Data protection We could not work successfully with our business partners, clients and individual consumers around the world without maintaining their trust for the data they provide to us. The Code highlights that we need to handle personal data with greatest care and use it only for legitimate business purposes.
Our Data Protection Compliance Framework, with global as well as local policies and standards, addresses our commitment to protecting personal data and respecting privacy rights across our operations. We use internationally recognised data protection and privacy principles that ensure compliance with a complex and constantly changing set of laws and regulations, and we provide proper training and awareness sessions to our employees. Procedures for reporting security incidents and notifying on data breaches are established.
Sustainability and human rights The Code includes our formal commitment to sustainability and human rights, providing a guiding principle for our efforts to act as a responsible company.
In addition, we conducted trainings for all our employees on the following topics in the three years between 2014 and 2016: ̤ Anti-bribery and corruption ̤ Anti-money laundering and terrorist financing ̤ Information security ̤ Data protection ̤ Inside information and insider training ̤ Fraud awareness
Who we are The Foundation reflects the social and humanitarian values of Swiss Re. We partner with social entrepreneurs, aid organisations, researchers and Swiss Re employees and clients to help communities increase their resilience.
Where we help ̤ In emerging and developing countries ̤ In regions where
Severe weather events in the late 19th century and their potential impact on insurance today
Ten years after the first tropical cyclone ever recorded in the South Atlantic, we investigate the possibility and potential impact of another event like it.
We have been engaged to perform assurance procedures to provide limited assurance on the consolidated CO2 emissions reporting and CR topics and sections disclosed with the 2016 Swiss Re Corporate Responsibility Report (“CR Report 2016”).
Scope and subject matter Our limited assurance engagement focused on the following data and information disclosed in the CR Report 2016 of Swiss Re and its consolidated subsidiaries, for the financial year ended 31 December 2016: a) The management and reporting processes with respect to the consolidated CR reporting as well as the control environment in relation to the aggregation of data and information; b) The organisational measures and internal key controls in place at the corporate level regarding aggregation of information obtained from the subsidiaries and reporting functions; c) The consolidated data and information disclosed in the sections “Creating solutions for sustainability” on pages 18–27, “Extending our risk intelligence” on pages 28–41, “Exploring and shaping the risk landscape” on pages 42–51, “Reducing our environmental footprint” on pages 52–61 , “Engaging our people” on pages 62–73 and “Compliance: Code of Conduct” on pages 76–77; d) The consolidated CO2 emissions 2016 (Scope 1, 2 and 3 in adherence with the Greenhouse Gas Protocol) of the tables entitled “CO2 emissions per employee (full-time equivalent, FTE), Swiss Re Group” on page 53, “Underlying environmental data, Swiss Re Group” on page 53 and “Indirect emissions from purchased electricity, Swiss Re Group” on page 53 in the CR Report 2016 covering the reporting period from 1 October 2015 to 30 September 2016; e) The retirement of 80 700 tonnes of CO2e (CO2 equivalents) described on page 56 of the CR Report 2016.
Criteria The management reporting processes with respect to the CR Report 2016 were assessed against the internal and external policies and procedures as set forth in the following: ̤ Internal Environmental Performance
Swiss Re CR reporting guidelines Assessing whether the methodology applied by Swiss Re is in line with the reporting criteria; ̤ Interviews and management inquiry Evaluating the CR reporting and underlying performance indicators by performing analytical procedures and interviewing selected key contacts to assess whether the internal Environmental Performance Indicators Reporting guidelines and CR guidance were consistently applied by the selected locations; performing enquiries of personnel responsible for internal CR reporting and data collection at the Swiss Re corporate level to evaluate the reporting and aggregation process and to assess its appropriateness; ̤ Reconciliation of CO2 emissions data Reconciling the CO2 emissions data for energy consumption, business travel, copy paper, waste, water, technical gases and commuting and CR data and information to the data used for the internal CR emissions reporting of the selected locations; ̤ Assessment of the key figures Performing tests on a sample basis of evidence supporting selected CR data and information (strengthening risk resilience: 2016 highlights, the commitments to the United Nations and to the Grow Africa Partnership, sustainable energy solutions, the Sensitive Business Risk process, responsible investments, HR data and information, diversity and inclusion, development & training) to assess their completeness, accuracy, adequacy and consistency; ̤ Review of the documentation Reviewing the relevant documentation on a sample basis, including Swiss Re’s CR-related policies, the management of reporting structures, the documentation and systems used to collect, analyse and aggregate reported CR data and information; ̤ Assessment of the processes and data consolidation Reviewing the appropriateness of the management and reporting processes for CR reporting; and assessing the processing and consolidation of data at Swiss Re’s Group level; and
̤ Review of verified emission reductions Reviewing the retirement of 80 700 tonnes CO2e verified emission reductions (VER) according to the Voluntary Carbon Standard or Gold Standard.
We have not carried out any work on data reported for prior reporting periods, nor have we performed work in respect of projections and targets. We have not conducted any work on data other than outlined in the subject matter as defined above.
ClimateWise ClimateWise is the global insurance industry’s leadership group driving action on climate change risk. The group leverages the insurance industry’s expertise to better understand, communicate and act on climate risks. www.cisl.cam.ac.uk
Selected index listings and ratings Dow Jones Sustainability Indices, Industry Group Leader 2016/2017
As described in our “approach to corporate responsibility”, we seek to embed ESG issues in both our business solutions and risk management (see page 14).
Principle 2 We will work together with our clients and business partners to raise awareness of ESG issues, manage risk and develop solutions.
As described in our “approach to corporate responsibility”, we engage in regular dialogue with our clients and other stakeholders, and apply ESG guidelines in our sourcing activities (see page 14).
Key actions taken in 2015: a) for client and industry cooperation, see achievements described on pages 32–33; b) for general risk dialogue, see achievements described on pages 42–51; c) for sourcing guidelines, see achievements described on page 58.
Principle 3 We will work together with governments, regulators and other key stakeholders to promote widespread action across society on ESG issues.
As described in our “approach to corporate responsibility”, we engage in regular dialogue with all our stakeholders (see page 14).
We plan to achieve this by: sharing and advancing our risk expertise with a special focus on five Top Topics, supported by our own dialogue platform, the Centre for Global Dialogue.
Principle 4 We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.
Swiss Re and the PSI We are keen to support the spread of sustainable business practices in the re/insurance industry. Not only are we one of the original signatories to the Principles of Sustainable Insurance, we have played an active role in their development and currently provide one of its board members.
The Principles for Sustainable Insurance (PSI): Our Public Disclosure of Progress 86 Swiss Re 2016 Corporate Responsibility Report
General standard disclosures Strategy and analysis G4-1 Chairman’s and CEO’s statement Statement of continuing support 2–3 G4-2 Key impacts, risks and opportunities 11–13, 18–27, 28–32, 42–47
G4-11 Collective bargaining agreements 3 72–73 G4-12 Description of supply chain 58 G4-13 Organisational changes 6, 16 G4-14 Precautionary principle 8–13, 18–27, 28–41 G4-15 External charters and principles 8, 84–85 G4-16 Memberships 84–85
This Corporate Responsbility Report contains Standard Disclosures from the G4 Sustainability Reporting Guidelines of the Global Reporting Initiative (GRI). The corresponding GRI Content Index (indicator G4-32) is provided below.
References to the UN Global Compact principles addressed as part of our Communication on Progress (COP) are incorporated into the GRI Content Index, in line with UN recommendations.
Stakeholder engagement G4-24 List of stakeholders 10 G4-25 Basis for stakeholder identification 10 G4-26 Approaches to stakeholder engagement 10 G4-27 Key topics raised by stakeholders 10, 42–51, 63–64
Report profile G4-28 Reporting period 16–17 G4-29 Most recent previous report 17 G4-30 Reporting cycle 17 G4-31 Contact point 92 G4-32 GRI content index 87–91 G4-33 External assurance 82–83
Ethics and integrity G4-56 Values and Codes of Conduct 10 8–9, 76–77
G4-EC7 Infrastructure investments 39–40, 47 G4-EC8 Significant indirect impacts 4–7, 18–25
Disclosure of management approach: Our management approach to all material aspects of the sub-category “labour practices and decent work” is disclosed in the chapter “Engaging our people”.
Disclosure on management approach: We address human rights aspects relevant to our business through our Sustainability Risk Framework, our supply chain management and employee relations policies. The corresponding management approaches are disclosed in the chapters “Extending our risk intelligence”, “Reducing our environmental footprint” and “Engaging our people”, respectively.
Disclosure on management approach: We provide information on our management approach for the “local communities” aspect in the report of the Swiss Re Foundation and the “Creating solutions for sustainability” chapter; for “anti-corruption” in the “Ensuring good corporate governance and compliance” chapter; and for our supply chain in the “Reducing our environmental footprint” chapter.