Cash and cash equivalents (including 1 169 in 2016 and 322 in 2017 subject to securities lending) 9 011 6 806 Accrued investment income 1 108 1 095 Premiums and other receivables 13 270 13 834 Reinsurance recoverable on unpaid claims and policy benefits 7 461 7 942 Funds held by ceding companies 8 184 9 155 Deferred acquisition costs 6 6 200 6 871 Acquired present value of future profits 6 2 003 1 989 Goodwill 3 965 4 172 Income taxes recoverable 291 378 Deferred tax assets 5 902 4 817 Other assets 2 654 3 570
Liabilities Unpaid claims and claim adjustment expenses 5 57 355 66 795 Liabilities for life and health policy benefits 8 41 176 42 561 Policyholder account balances 34 354 37 537 Unearned premiums 11 629 11 769 Funds held under reinsurance treaties 2 544 3 109 Reinsurance balances payable 1 913 1 036 Income taxes payable 633 679 Deferred and other non-current tax liabilities 8 583 6 975 Short-term debt 11 1 564 433 Accrued expenses and other liabilities 9 811 7 190 Long-term debt 11 9 787 10 148
Equity Contingent capital instruments 1 102 750 Common shares, CHF 0.10 par value 2016: 360 072 561; 2017: 349 452 281 shares authorised and issued 34 33 Additional paid-in capital 341 368 Treasury shares, net of tax –1 763 –1 842 Accumulated other comprehensive income: Net unrealised investment gains/losses, net of tax 4 459 4 746 Other-than-temporary impairment, net of tax –5 –2 Cash flow hedges, net of tax –7 –10 Foreign currency translation, net of tax –6 074 –5 548 Adjustment for pension and other post-retirement benefits, net of tax –1 135 –820
Common shares Balance as of 1 January 35 34 Issue of common shares Cancellation of shares bought back –1 –1 Balance as of period end 34 33
Treasury shares, net of tax Balance as of 1 January –1 662 –1 763 Purchase of treasury shares –1 190 –1 161 Cancellation of shares bought back 1 018 1 006 Issuance of treasury shares, including share-based compensation to employees 71 76 Balance as of period end –1 763 –1 842
Net unrealised investment gains/losses, net of tax Balance as of 1 January 2 748 4 459 Changes during the period 1 711 287 Balance as of period end 4 459 4 746
Retained earnings Balance as of 1 January 37 526 38 682 Net income after attribution of non-controlling interests 3 626 398 Interest on contingent capital instruments, net of tax –68 –67 Dividends on common shares –1 561 –1 559 Cancellation of shares bought back –841 –1 005 Balance as of period end 38 682 36 449
Non-controlling interests Balance as of 1 January 89 82 Changes during the period –4 93 Income/loss attributable to non-controlling interests –3 –5 Balance as of period end 82 170
Cash flows from operating activities Net income attributable to common shareholders 3 558 331 Add net income/loss attributable to non-controlling interests –3 –5 Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items 643 542 Net realised investment gains/losses –5 787 –4 048 Income from equity-accounted investees, net of dividends received 135 70 Change in: Technical provisions and other reinsurance assets and liabilities, net 5 845 5 739 Funds held by ceding companies and under reinsurance treaties 862 –276 Reinsurance recoverable on unpaid claims and policy benefits 434 61 Other assets and liabilities, net –37 –386 Income taxes payable/recoverable –24 –606 Trading positions, net 489 –119
Securities purchased/sold under agreement to resell/repurchase, net 789 –1 042 Cash paid/received for acquisitions/disposals and reinsurance transactions, net 318 36 Net purchases/sales/maturities of other investments 1 293 –2 103 Net purchases/sales/maturities of investments held for unit-linked and with-profit business 2 762 2 356
Cash flows from financing activities Policyholder account balances, unit-linked and with-profit business: Issuance/repayment of long-term debt 762 –270 Issuance/repayment of short-term debt –1 331 –1 221 Issuance/repayment of contingent capital instrument –352 Purchase/sale of treasury shares –1 170 –1 142 Dividends paid to shareholders –1 561 –1 559
Total net cash provided/used 1 315 –2 738 Effect of foreign currency translation –508 533
Change in cash and cash equivalents 807 –2 205 Cash and cash equivalents as of 1 January 8 204 9 011
Cash and cash equivalents as of 31 December 9 011 6 806
For assets or derivative structures at fair value, the Group uses market prices or inputs derived from market prices. A separate internal price verification process, independent of the trading function, provides an additional control over the market prices or market input used to determine the fair values of such assets. Although management considers that appropriate values have been ascribed to such assets, there is always a level of uncertainty and judgement over these valuations. Subsequent valuations could differ significantly from the results of the process described above. The Group may become aware of counterparty valuations, either directly through the exchange of information or indirectly, for example, through collateral demands. Any implied differences are considered in the independent price verification process and may result in adjustments to initially indicated valuations. As of 31 December 2017, the Group has not provided any collateral on financial instruments in excess of its own market value estimates.
Unit-linked and with-profit business are presented together as they are similar in nature. For unit-linked contracts, the investment risk is borne by the policyholder. For with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the down-side risk for the policyholder, and a certain proportion of the returns may be retained by Swiss Re Group (typically 10%). Additional disclosures are provided in Note 7.
Funds withheld balances are presented together with assets and liabilities arising from the application of the deposit method because of their common deposit-type character.
The Group provides reserves for uncollectible amounts on reinsurance balances ceded, based on management’s assessment of the collectability of the outstanding balances.
Share-based payment transactions As of 31 December 2017, the Group has a Leadership Performance Plan, restricted shares, and a Global Share Participation Plan. These plans are described in more detail in Note 15. The Group accounts for share-based payment transactions with employees using the fair value method. Under the fair value method, the fair value of the awards is recognised in earnings over the vesting period.
Subsequent events Subsequent events for the current reporting period have been evaluated up to 14 March 2018. This is the date on which the financial statements are available to be issued.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, an update to subtopic 825-10, “Financial Instruments – Overall”. The ASU requires an entity to carry investments in equity securities, including partnerships, unincorporated joint ventures and limited liability companies at fair value through net income, with the exception of equity method investments, investments that result in consolidation or investments for which the entity has elected the measurement alternative. For financial liabilities to which the fair value option has been applied, the ASU also requires an entity to separately present the change in fair value attributable to instrument-specific credit risk in other comprehensive income rather than in net income. In addition, the ASU requires an entity to assess whether a valuation allowance is needed on a deferred tax asset (DTA) related to fixed income securities available-for-sale in combination with the entity’s other DTAs rather than separately from other DTAs. The Group will adopt ASU 2016-01 on 1 January 2018. The expected main impact from the adoption is a reclassification within shareholders’ equity from net unrealised gains, net of tax, to retained earnings of USD 0.3 billion.
In February 2016, the FASB issued ASU 2016-02, “Leases”, which creates topic 842, “Leases”. The core principle of topic 842 is that a lessee should recognise the assets and liabilities that arise from leases. A lessee should recognise in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term. This accounting treatment applies to finance leases and operating leases. The accounting applied by a lessor is largely unchanged from that applied under the current guidance. The new requirements are effective for
Swiss Re 2017 Financial Report 197 annual and interim periods beginning after 15 December 2018. Early application of the ASU is permitted. The Group is currently assessing the impact of the new requirements.
In March 2016, the FASB issued ASU 2016-05, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships”, an update to topic 815, “Derivatives and Hedging”. The amendments in this ASU clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under topic 815 does not require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Group adopted ASU 2016-05 on 1 January 2017. The adoption did not have an impact on the Group’s financial statements.
In March 2016, the FASB issued ASU 2016-07, “Simplifying the Transition to the Equity Method of Accounting”, an update to topic 323, “Investments – Equity Method and Joint Ventures”. The amendments in this update eliminate the requirement to retroactively adopt the equity method of accounting when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. Instead, the amendments require that the equity method investor adds the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopts the equity method of accounting as of the date the investment qualifies for equity method accounting. The Group adopted ASU 2016-07 on 1 January 2017. The adoption did not have an impact on the Group’s financial statements.
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”, an update to topic 740, “Income Taxes”. This ASU amends the current guidance which prohibits the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset has been sold to an outside party. This new standard requires that an entity recognises the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Group will adopt ASU 2016-16 on 1 January 2018. It is expected that the adoption will not have a material impact on the Group’s equity.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, an update to topic 350, “Intangibles – Goodwill and Other”. This ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the
Life Capital Life Capital manages Swiss Re’s primary life and health business. It encompasses the closed and open life and health insurance books, including the ReAssure business and the primary life and health insurance business comprising elipsLife and iptiQ. Through ReAssure, Swiss Re acquires closed blocks of inforce life and health insurance business, either through reinsurance or corporate acquisition, and typically assumes responsibility for administering the underlying policies. The administration of the business may be managed directly or, where appropriate, in partnership with a third party. In the open books business, elipsLife, the Group life and health insurance business, offers solutions to pension funds, corporates and affinity groups through an intermediated business to business (“B2B”) model. The iptiQ business, primarily the individual life and health business, partners with distributors and enables individuals to address their protection needs on a white labelled basis.
Premiums earned 17 008 11 486 3 503 694 32 691 Fee income from policyholders 41 499 540 Net investment income – non-participating business 985 1 279 138 1 256 101 –98 3 661 Net realised investment gains/losses – non-participating business 770 232 51 503 –72 1 484 Net investment result – unit-linked and with-profit business 15 5 367 5 382 Other revenues 37 5 5 1 346 –366 28
Income/loss before interest and income tax expense/benefit 2 890 1 350 157 798 –98 –119 4 978 Interest expenses –293 –301 –23 –29 –79 119 –606
Net income/loss before attribution of non-controlling interests 2 118 856 133 638 –122 0 3 623
Net income/loss after attribution of non-controlling interests 2 119 856 135 638 –122 0 3 626
Claims ratio in % 60.5 64.6 61.2 Expense ratio in % 33.0 36.5 33.6 Combined ratio in % 93.5 101.1 94.8 Management expense ratio in % 6.0 Net operating margin in % 15.4 10.4 4.2 27.0 –26.1 13.0
Business segments – income statement For the year ended 31 December 2017 Property & Casualty Reinsurance
Net premiums written 16 031 11 826 3 600 859 32 316 Change in unearned premiums 636 25 51 91 803
Income/loss before income tax expense/benefit –519 1 500 –949 263 230 0 525 Income tax expense/benefit 125 –360 203 –102 2 –132
Net income/loss attributable to common shareholders –413 1 092 –741 161 232 0 331
Claims ratio in % 79.0 97.4 82.3 Expense ratio in % 32.5 36.0 33.1 Combined ratio in % 111.5 133.4 115.4 Management expense ratio in % 5.7 Net operating margin in % –1.3 13.1 –23.5 10.9 41.1 2.8
Business segments – balance sheet As of 31 December 2016 Property & Casualty Reinsurance
Liabilities Unpaid claims and claim adjustment expenses 39 753 10 288 10 271 1 498 –4 455 57 355 Liabilities for life and health policy benefits 15 431 268 25 499 –22 41 176 Policyholder account balances 1 566 32 788 34 354 Other reinsurance liabilities 10 816 1 709 4 310 684 2 –1 435 16 086 Short-term debt 1 202 5 221 80 431 –5 370 1 564 Long-term debt 3 307 5 074 497 1 465 80 –636 9 787 Other 11 124 9 106 1 370 3 014 2 183 –7 770 19 027
Liabilities Unpaid claims and claim adjustment expenses 45 276 12 129 11 818 2 308 –4 736 66 795 Liabilities for life and health policy benefits 18 230 279 29 491 –5 439 42 561 Policyholder account balances 1 574 35 963 37 537 Other reinsurance liabilities 10 245 5 528 4 177 4 410 2 –8 448 15 914 Short-term debt 807 4 766 904 60 –6 104 433 Long-term debt 3 500 6 914 497 1 603 –2 366 10 148 Other 9 891 7 197 1 411 2 954 2 538 –9 147 14 844
204 Swiss Re 2017 Financial Report b) Property & Casualty Reinsurance business segment – by line of business For the year ended 31 December 2016 USD millions Property Casualty Specialty Unallocated Total
Net premiums written 6 499 8 833 2 436 17 768 Change in unearned premiums 153 –830 –83 –760
Total expenses before interest expenses –7 499 –8 811 –2 274 0 –18 584
Net premiums written 7 773 3 686 11 459 Change in unearned premiums 5 22 27
Management expense ratio in % 6.1 5.6 6.0 Net operating margin2 in % 9.9 6.6 10.4 1 The Group revised the methodology for allocating investment return to lines of business. Comparative information for 2016 has been adjusted accordingly. 2 Net operating margin is calculated as "Income before interest and income tax expense" divided by "Total revenues" excluding "Net investment result – unit-linked and with-profit business".
Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2017 Life Health Unallocated Total USD millions
Premiums earned 8 217 3 634 11 851 Fee income from policyholders 129 129 Net investment income – non-participating business 1 023 285 1 308 Net realised investment gains/losses – non-participating business 57 –1 535 591 Net investment result – unit-linked and with-profit business 81 81 Other revenues 3 3
Expenses Life and health benefits –6 491 –2 720 –9 211 Return credited to policyholders –119 –119 Acquisition costs –1 432 –632 –2 064 Operating expenses –533 –221 –754
Total expenses before interest expenses –8 575 –3 573 0 –12 148
Management expense ratio in % 5.7 5.6 5.7 Net operating margin1 in % 9.9 8.8 13.1 1 Net operating margin is calculated as "Income before interest and income tax expense" divided by "Total revenues" excluding "Net investment result – unit-linked and with-profit business".
208 Swiss Re 2017 Financial Report d) Net premiums earned and fee income from policyholders by geography Net premiums earned and fee income from policyholders by region for the years ended 31 December
United States 12 401 13 509 United Kingdom 3 759 3 382 Australia 1 919 2 095 China 2 425 1 933 Germany 1 200 1 258 Japan 1 105 1 168 Canada 1 107 1 137 Switzerland 902 886 France 733 730 Ireland 754 673 Spain 472 524 Other 6 454 6 410
Premiums earned, thereof: Direct 45 2 879 1 293 4 217 Reinsurance 17 166 12 204 968 173 30 511 Intra-group transactions (assumed and ceded) 113 594 –113 –594 0
Premiums earned, thereof: Direct 55 3 229 1 465 4 749 Reinsurance 16 901 12 829 862 128 30 720 Intra-group transactions (assumed and ceded) 137 315 –137 –315 0
Claims and claim adjustment expenses For the year ended 31 December 2016 Property & Casualty Reinsurance
Unpaid claims and claim adjustment expenses; life and health benefits before impact of retrocession to external parties –1 312 358 –445 867 –532
Claims and claim adjustment expenses; life and health benefits –10 301 –8 963 –2 263 –1 896 –23 423
Acquisition costs before impact of retrocession to external parties –4 474 –2 153 –573 –78 –7 278
Reinsurance receivables Reinsurance receivables as of 31 December were as follows: Premium receivables invoiced 1 717 3 135 Receivables invoiced from ceded re/insurance business 177 427 Assets arising from the application of the deposit method of accounting and meeting the definition of financing receivables 141 147 Recognised allowance –60 –71
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 2016 and 2017 was 10% and 10%, respectively. The amount of policyholder dividend expense in 2016 and 2017 was USD 279 million and USD 146 million, respectively.
Gross premiums written, thereof: Direct 45 3 056 1 317 4 418 Reinsurance 17 862 12 210 960 172 31 204 Intra-group transactions (assumed) 287 546 139 –972 0
Gross premiums written before retrocession to external parties 18 010 12 801 3 868 943 35 622
Retrocession to external parties –242 –1 342 –206 –262 –2 052 2017 Property & Casualty Reinsurance
Prior-year development Non-life claims development during 2017 on prior years continued to be driven by favourable experience on most lines of business. Property was mainly driven by positive claims development across the most recent accident years. Casualty includes adverse development on motor. Within specialty, the main reserve releases came from marine and engineering business lines, partially offset with adverse credit and surety experience.
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 and US life portfolios strengthened reserves following adverse trends. This was partially offset by positive experience in Continental Europe, in particular in German disability and life portfolios. Claims development related to prior years also includes an element of interest accretion for unpaid claims reported at the estimated present value.
The information presented in claims development tables is presented at current balance sheet foreign exchange rates as of the date of these financial statements to permit an analysis of claims development excluding the impact of foreign exchange movements.
Methodology for determining the presented amounts of liabilities for IBNR claims The liability for unpaid claims and claim adjustment expenses is based on an estimate of the ultimate cost of settling the claims based on both information reported to us by ceding companies and internal estimates.
In most cases, these standard actuarial techniques encompass a number of loss development factor techniques applied to claim tables of paid and reported losses. Other actuarial techniques may be applicable to specific categories. For instance, the analysis of frequency and severity could be applied in all disaggregation categories. Life contingency techniques for projecting regular payments related to bodily injury claims are applied to motor proportional, motor non-proportional, liability proportional, liability non-proportional, accident and health and similar Corporate Solutions lines, where the information is available. In some cases, techniques specific to the projection of future payments for specific risks such as asbestos or pollution claims are applied to both proportional and non-proportional liability claims, also in Corporate Solutions (see also separate section “US asbestos and environmental claims exposure” on page 217).
Liabilities for claims and claim adjustment expenses, net of reinsurance 7 772
Liabilities for claims and claim adjustment expenses, net of reinsurance 9 510
The increase in incurred losses for accident year 2015 compared to other years is due to an increase in volume of business written. Liabilities before 2008 include reserves for historic US Asbestos and Environmental losses.
Liabilities for claims and claim adjustment expenses, net of reinsurance 4 800
Claims development in non-proportional motor business is considered long-tailed as it is dominated by liability exposures leading to bodily injury claims which pay out for the lifetime of the claimant.
Liabilities for claims and claim adjustment expenses, net of reinsurance 4 518
Liabilities for claims and claim adjustment expenses, net of reinsurance 5 935
Change in claim counts in 2013 and 2014 relate mostly to agriculture business written in 2013, leading to high claim counts in those years.
Unallocated reinsurance recoverable on unpaid claims includes reinsurance recoverable which cannot be allocated on a reasonable basis to disaggregation categories used to present claims development information.
Total net undiscounted outstanding liabilities excluding other short duration contract lines and before unallocated reinsurance recoverable 50 845 Discounting impact on (Life & Health Reinsurance) short duration contracts –291 Impact of acquisition accounting –627
Corporate Solutions 5 013 Consolidation –3 865 Impact of acquisition accounting –132 Other short duration contract lines 634 Unallocated reinsurance recoverable on unpaid claims 411
As of 31 December, the DAC were as follows: 2016 Property & Casualty Life & Health Corporate USD millions Reinsurance Reinsurance Solutions Life Capital Total
Opening balance as of 1 January 1 134 1 830 0 1 830 2 964 Effect of acquisitions/disposals and retrocessions –603 –603 –603 Amortisation –132 –198 51 –147 –279 Interest accrued on unamortised PVFP 36 130 –19 111 147 Effect of change in unrealised gains/losses 1 1 1 Effect of foreign currency translation –72 –205 50 –155 –227
Retroceded PVFP may arise on retrocession of reinsurance portfolios, including reinsurance undertaken as part of a securitisation. The associated potential retrocession recoveries are determined by the nature of the retrocession agreements and by the terms of the securitisation.
In 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 subsequent measurement of negative PVFP is in alignment with the existing measurement of positive PVFP assets (please refer to Note 1).
The percentage of PVFP which is expected to be amortised in each of the next five years is 12%, 13%, 12%, 11% and 11%.
Gross investment income 4 079 4 097 Investment expenses –397 –380 Interest charged for funds held –21 –9
Realised gains and losses Realised gains and losses for fixed income securities, equity securities and other investments (excluding unit-linked and with-profit business) were as follows: Fixed income securities available-for-sale: Gross realised gains 789 748 Gross realised losses –202 –148
Net realised/unrealised gains/losses on insurance-related activities included impairments of USD 11 million for 2017.
Net investment result on unit-linked and with-profit business credited to policyholders was as follows: 2016 2017 USD millions Unit-linked With-profit Unit-linked With-profit
Total investment income – unit-linked and with-profit business 863 216 794 200
Total net investment result – unit-linked and with-profit business 4 682 700 2 904 411
A reconciliation of other-than-temporary impairments related to credit losses recognised in earnings was as follows: Balance as of 1 January 136 97 Credit losses for which an other-than-temporary impairment was not previously recognised 13 14 Reductions for securities sold during the period –48 –24 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 8 4 Impact of increase in cash flows expected to be collected –7 –4 Impact of foreign exchange movements –5 4
Investments available-for-sale Amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as available-for-sale as of 31 December were as follows: 2016 Amortised cost Gross unrealised Gross unrealised
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 13 162 481 –179 13 464 US Agency securitised products 3 415 22 –53 3 384 States of the United States and political subdivisions of the states 1 411 59 –20 1 450 United Kingdom 8 005 1 293 –97 9 201 Canada 3 916 517 –35 4 398 Germany 2 906 325 –15 3 216 France 1 931 277 –10 2 198 Australia 1 967 17 –5 1 979 Other 6 355 287 –96 6 546
Total 43 068 3 278 –510 45 836 Corporate debt securities 37 203 2 733 –181 39 755 Mortgage- and asset-backed securities 4 900 125 –30 –5 4 990
Total 49 497 3 145 –398 52 244 Corporate debt securities 39 510 3 218 –136 42 592 Mortgage- and asset-backed securities 4 271 162 –19 –2 4 412
Fixed income securities available-for-sale 93 278 6 525 –553 –2 99 248
Investments held for unit-linked and with-profit business The carrying amounts of investments held for unit-linked and with-profit business as of 31 December were as follows: 2016 2017 USD millions Unit-linked With-profit Unit-linked With-profit
Total investments for unit-linked and with-profit business 27 083 5 095 29 516 5 650
Assets pledged As of 31 December 2017, investments with a carrying value of USD 7 384 million were on deposit with regulatory agencies in accordance with local requirements, and investments with a carrying value of USD 12 209 million were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
Derivative financial instruments – liabilities –2 610 1 568 –1 042 8 –1 034 Repurchase agreements –3 991 3 461 –530 527 –3 Securities lending –1 319 839 –480 454 –26
Collateral pledged or received between two counterparties with a master netting arrangement in place, but not subject to balance sheet netting, is disclosed at fair value. The fair values represent the gross carrying value amounts at the reporting date for each financial instrument received or pledged by the Group. Management believes that master netting agreements provide for legally enforceable set-off in the event of default, which substantially reduces credit exposure. Upon occurrence of an event of default, the non-defaulting party may set off the obligation against collateral received regardless if it has been offset on balance sheet prior to the defaulting event. The net amounts of the financial assets and liabilities presented on the balance sheet were recognised in “Other invested assets”, “Investments for unit-linked and with-profit business” and “Accrued expenses and other liabilities”.
Recognised gross liability for the obligation to return collateral that the Group has the right to sell or repledge As of 31 December 2016 and 2017, 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 2016 Overnight and continuous Greater than 90 days Total USD millions Up to 30 days 30–90 days
Repurchase agreements Debt securities issued by governments and government agencies 219 3 023 415 334 3 991
Securities lending Debt securities issued by governments and government agencies 237 367 258 426 1 288 Corporate debt securities 13 13 Equity securities 18 18
Gross amount of recognised liabilities for repurchase agreements and securities lending 4 509
Less than 12 months 12 months or more Total 2016 Unrealised Unrealised Unrealised USD millions Fair value losses Fair value losses Fair value losses
Total 18 373 468 597 42 18 970 510 Corporate debt securities 6 859 172 143 9 7 002 181 Mortgage- and asset-backed securities 1 599 26 147 9 1 746 35
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 9 742 113 1 825 39 11 567 152 US Agency securitised products 3 773 37 1 029 29 4 802 66 States of the United States and political subdivisions of the states 304 4 120 3 424 7 United Kingdom 1 161 18 301 13 1 462 31 Canada 1 766 29 276 1 2 042 30 Germany 722 19 44 3 766 22 France 214 8 7 2 221 10 Australia 1 118 3 74 1 1 192 4 Other 2 813 54 451 22 3 264 76
Policy loans 95 95 94 94 Mortgage loans 2 401 2 411 2 665 2 674 Other loans 1 186 1 202 1 351 1 367 Investment real estate 1 925 3 576 2 220 4 099
Depreciation expense related to income-producing properties was USD 42 million and USD 49 million for 2016 and 2017, respectively. Accumulated depreciation on investment real estate totalled USD 525 million and USD 585 million as of 31 December 2016 and 2017, respectively.
Level 3 inputs are unobservable inputs. These inputs reflect the Group’s own assumptions about market pricing using the best internal and external information available.
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 2017, 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.
Corporate debt securities mainly include US and European investment-grade positions, which are priced on the basis of quotes provided by third-party pricing vendors and first utilise valuation inputs from actively traded securities, such as bid prices, bid spreads to Treasury securities, Treasury curves, and same or comparable issuer curves and spreads. Issuer spreads are determined from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call features. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable inputs and option-adjusted spreads and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure.
Values of mortgage- and asset-backed securities are obtained both from third-party pricing vendors and through quoted prices, some of which may be based on the prices of comparable securities with similar structural and collateral features. Values of certain 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.
Investments measured at net asset value as 2016 USD millions (Level 1) (Level 2) (Level 3) netting1 practical expedient Total
Debt securities issued by US government and government agencies 13 078 2 076 15 154 US Agency securitised products 3 423 3 423 Debt securities issued by non-US governments and government agencies 29 797 29 797 Corporate debt securities 38 625 1 175 39 800 Mortgage- and asset-backed securities 5 095 7 5 102
Fixed income securities backing unit-linked and withprofit 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 withprofit business 6 6 Derivative financial instruments 30 2 310 461 –1 580 1 221
Total assets at fair value 48 016 92 440 2 352 –1 580 937 142 165
Interest rate contracts –3 –709 –712 Foreign exchange contracts –591 –591 Equity contracts –1 –569 –39 –609 Other contracts –5 –625 –630 Contracts backing unit-linked and with-profit business –1 –67 –68
Total liabilities at fair value –389 –6 025 –808 1 568 –5 654 1 The netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists between two counterparties. A master netting agreement provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the termination of any one contract.
Interest rate contracts –2 –395 –1 –398 Foreign exchange contracts –321 –321 Equity contracts –19 –622 –31 –672 Credit contracts –79 –79 Other contracts –447 –447 Contracts backing unit-linked and with-profit business –1 –6 –7
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December, the reconciliation of the fair values of assets and liabilities measured on a recurring basis using significant unobservable inputs were as follows: Liabilities for life Fixed Other and health 2016 income Equity Derivative Investment invested Total Derivative policy Total USD millions securities securities assets real estate assets assets liabilities benefits liabilities
Assets and liabilities Balance as of 1 January 393 34 447 1 595 2 469 –581 –165 –746
Impact of Accounting Standards Updates1 274 –1 120 –846 –207 –207 Realised/unrealised gains/losses: Included in net income 3 58 32 –20 73 188 20 208 Included in other comprehensive income 24 1 6 31 0
Purchases 577 2 43 622 4 4 Issuances 0 –141 –141 Sales –37 –13 –59 –3 –112 101 101 Settlements –59 –39 –98 –52 –52 Transfers into level 32 302 6 12 320 –5 –5 Transfers out of level 32 –6 –29 –35 0 Impact of foreign exchange movements –15 –2 –38 –17 –72 29 1 30
Closing balance as of 31 December 1 182 4 461 209 496 2 352 –664 –144 –808 1 Impact of ASU 2015-02 (Investment real estate and Derivative liabilities) and ASU 2015-07 (Other invested assets). Please refer to Note 1 of the 2016 Annual Report. 2 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Assets and liabilities measured at fair value on a non-recurring basis In accordance with the provisions of the Impairment or Disposal of Long-Lived Assets Subsections of FASB Codification Subtopic 360-10, other assets with a carrying amount of USD 21 million were written down to their fair value of USD 17 million, resulting in a loss of USD 4 million, which was included in earnings for the period in "Operating expenses". This non-recurring fair value measurement was based on level 3 unobservable inputs using a discounted cash flow approach.
Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows: 2016 2017 Range USD millions Fair value Fair value Valuation technique Unobservable input (weighted average)
Infrastructure loans 486 778 Discounted Cash Flow Model Valuation spread 73 bps–232 bps (165 bps)
Private placement corporate debt 506 428 Corporate Spread Matrix Credit spread 37 bps–246 bps (162 bps)
Investment real estate 209 198 Discounted Cash Flow Model Discount rate 5% per annum
–161 –150 Discounted Cash Flow Model Discount rate 5% per annum
Weather contracts –41 –35 Proprietary Option Model Risk margin 8%–11% (10.9%) Correlation –69%–52% (–53.1%) Volatility (power/gas) 27%–110% (98.2%) Volatility (temperature) 146–467 (199) HDD/CAT2 Index value (temperature) 1769–4159 (3638)
Private equity funds 562 511 104 non-redeemable n.a. Hedge funds 106 128 redeemable1 45–95 days2 Private equity direct 80 92 non-redeemable n.a. Real estate funds 189 97 32 non-redeemable n.a.
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”.
Liabilities Liabilities for life and health policy benefits –41 176 –42 561 of which at fair value pursuant to the fair value option –144 –126 Accrued expenses and other liabilities –9 811 –7 190 of which at fair value pursuant to the fair value option –161 –150
Assets Policy loans 94 94 Mortgage loans 2 674 2 674 Other loans 1 367 1 367 Investment real estate 3 901 3 901
9 Derivative financial instruments The Group uses a variety of derivative financial instruments including swaps, options, forwards, credit derivatives and exchange- traded financial futures in its trading and hedging strategies, in line with the Group’s overall risk management strategy. The objectives include managing exposure to price, foreign currency and/or interest rate risk on planned or anticipated investment purchases, existing assets or liabilities, as well as locking in attractive investment conditions for future available funds.
Derivatives not designated as hedging instruments Interest rate contracts 42 622 1 120 –780 340 Foreign exchange contracts 19 138 350 –574 –224 Equity contracts 12 512 788 –609 179 Credit contracts 0 Other contracts 16 226 125 –630 –505
Amount offset Where a right of set-off exists –1 122 1 122 Due to cash collateral –458 446
Total net amount of derivative financial instruments 1 221 –1 042 179 2017 Notional amount assets/liabilities
Derivatives not designated as hedging instruments Interest rate contracts 36 386 524 –404 120 Foreign exchange contracts 16 592 206 –137 69 Equity contracts 17 049 780 –673 107 Credit contracts 4 194 1 –79 –78 Other contracts 12 432 98 –447 –349
Fair value hedging relationships Foreign exchange contracts 250 –250 –577 577
As of 31 December 2017, the maximum length of time over which the Group hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was nine years.
10 Acquisitions Bradesco Seguros, S.A. On 3 July 2017, the Group and Bradesco Seguros, S.A. (Bradesco) entered into a partnership combining the large Commercial Risk business of Bradesco with Swiss Re Corporate Solutions Brasil Seguros S.A. (SRCSB). Upon closing this transaction, SRCSB became one of the leading insurers in the commercial large-risk insurance market in Brazil. The acquisition cost was BRL 210 million paid in cash and 40% shares of SRCSB. The transaction includes Bradesco’s related operations, its team of experts and a business portfolio, including existing, new and renewal business.
This transaction strengthens the Group’s position in the Brazilian commercial insurance market by combining two diversified portfolios and securing a sustainable and large distribution channel.
Qualifying purchased intangible assets have been established. The following table presents details of acquired intangible assets subject to amortisation as of the date of acquisition: USD millions Weighted-average amortisation period Carrying value
Distribution channels 11 years 72 Customer relationships 6 years 24 Other intangibles 2 years 6
In addition, the intangibles not subject to amortisation are licences of USD 29 million and goodwill of USD 38 million. The goodwill relates to the Corporate Solutions Business Unit and is not expected to be deductible for tax purposes.
260 Swiss Re 2017 Financial Report 11 Debt and contingent capital instruments The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines short-term debt as debt having a maturity at the balance sheet date of not greater than one year and long-term debt as having a maturity of greater than one year. For subordinated debt positions, maturity is defined as the first optional redemption date (notwithstanding that optional redemption could be subject to regulatory consent). Interest expense is classified accordingly.
Long-term debt – financial and operational debt 9 787 10 148
Maturity of long-term debt As of 31 December, long-term debt as reported above had the following maturities: Due in 2018 0 0 Due in 2019 2 367 2 341 Due in 2020 195 197 Due in 2021 209 213 Due in 2022 771 845 Due after 2022 6 245 6 552
Maturity Instrument Issued in Currency Nominal in millions Interest rate Book value in USD millions 2019 Syndicated senior bank loans 2014 GBP 475 variable 642 2019 Senior notes1 1999 USD 234 6.45% 245 2022 Senior notes 2012 USD 250 2.88% 249 2023 Senior notes 2016 EUR 750 1.38% 895 2024 EMTN 2014 CHF 250 1.00% 255 2026 Senior notes1 1996 USD 397 7.00% 486 2027 EMTN 2015 CHF 250 0.75% 257 2030 Senior notes1 2000 USD 193 7.75% 262 2042 Senior notes 2012 USD 500 4.25% 490 Various Payment undertaking agreements various USD 338 various 390
Total subordinated long-term debt as of 31 December 2017 5 977
Total subordinated long-term debt as of 31 December 2016 5 630
In addition to the above, interest expense on contingent capital instruments classified as equity was USD 68 million and USD 67 million for the years ended 31 December 2016 and 2017, respectively.
Contingent capital instruments In March 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated capital instrument with stock settlement. The instrument has a face value of USD 750 million, with a fixed coupon of 8.25% per annum until the first optional redemption date (1 September 2018).
The instrument may be converted, at the option of the issuer, into Swiss Re Ltd shares at any time through “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 of USD 32. The instrument is referred to in these financial statements as “contingent capital instrument”.
12 Earnings per share All of the Groupʼs companies prepare statutory financial statements based on local laws and regulations. Most jurisdictions require reinsurers to maintain a minimum amount of capital in excess of the statutory definition of net assets or maintain certain minimum capital and surplus levels. In addition, some jurisdictions place certain restrictions on amounts that may be loaned or transferred to the parent company. The Groupʼs ability to pay dividends may be restricted by these requirements.
Weighted average common shares outstanding 331 767 651 320 811 238
Effect of dilutive securities Change in income available to common shares due to contingent capital instruments1 68 Change in average number of shares due to contingent capital instruments 35 745 192 Change in average number of shares due to employee options 1 768 217 514 803
Net income per share in CHF2 9.66 1.01 1 Please refer to Note 11 “Debt and contingent capital instruments”. 2 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
At the 152nd Annual General Meeting held on 22 April 2016 and at the 153rd Annual General Meeting held on 21 April 2017, 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 2017 and 2018 Annual General Meetings, respectively.
The buy-back programme prior to the 153rd Annual General Meeting was completed as of 9 February 2017. The total number of shares repurchased amounted to 10.6 million, of which 5.5 million and 5.1 million shares were repurchased as of 31 December 2016 and between 1 January and 9 February 2017, respectively. The 153rd 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 25 July 2017, after completion of the procedure in respect of a share capital reduction as set forth in Article 732 et seqq. of the Swiss Code of Obligations. As of 31 December 2017, 6.3 million shares were repurchased through the buy-back programme launched on 3 November 2017.
264 Swiss Re 2017 Financial Report 13 Income taxes The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which it operates. The components of the income tax expense were: Current taxes 728 727 Deferred taxes 21 –595
For the year ended 31 December 2017, the Group reported a tax charge of USD 132 million on a pre-tax income of USD 525 million, compared to a charge of USD 749 million on a pre-tax income of USD 4 372 million for 2016. This translates into an effective tax rate in the current and prior-year reporting periods of 25.1% and 17.1%, respectively.
At 31 December 2017, the tax rate includes a tax benefit of USD 93 million from US tax reform impact. The impact is included within the change in statutory rate and change in valuation allowance components of the tax rate reconciliation. The benefit arises from revaluing the US deferred tax assets and liabilities to the new US statutory tax rate of 21% (from 35%).
Deferred tax liabilities Present value of future profits –336 –322 Income accrued/deferred –600 –473 Bond amortisation –124 –241 Deferred acquisition costs –961 –918 Technical provisions –3 547 –2 191 Unrealised gains on investments –1 072 –984 Untaxed realised gains –393 –294 Foreign exchange provisions –527 –507 Other –778 –807
Total deferred and other non-current tax liabilities –8 583 –6 975
As of 31 December 2017, 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 3.2 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 2017, the Group had USD 9 705 million net operating tax loss carryforwards, expiring as follows: USD 19 million in 2018, USD 47 million in 2019, USD 14 million in 2020, USD 11 million in 2021, USD 8 502 million in 2022 and beyond, and USD 1 112 million never expire.
Income taxes paid in 2016 and 2017 were USD 755 million and USD 720 million, respectively.
Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: Balance as of 1 January 343 216 Additions based on tax positions related to current year 37 24 Additions based on tax positions related to prior years 21 16 Current year acquisitions 24 Reductions for tax positions of current year –9 Reductions for tax positions of prior years –106 –12 Statute expiration –47 –9 Settlements –53 –29 Other (including foreign currency translation) –3 9
The balance of gross unrecognised tax benefits as of 31 December 2017 presented in the table above excludes accrued interest and penalties (USD 54 million).
14 Benefit plans Defined benefit pension plans and post-retirement benefits The Group sponsors various funded defined benefit pension plans. Employer contributions to the plans are charged to income on a basis which recognises the costs of pensions over the expected service lives of employees covered by the plans. The Group’s funding policy for these plans is to contribute annually at a rate that is intended to maintain a level percentage of compensation for the employees covered. A full valuation is prepared at least every three years.
Funded status –384 –101 –369 –854 2017 Swiss plan Foreign plans Other benefits Total USD millions
Amounts recognised in “Other assets” and “Accrued expenses and other liabilities” in the Group’s balance sheet as of 31 December were as follows: 2016 USD millions Swiss plan Foreign plans Other benefits Total
Net amount recognised –384 –101 –369 –854 2017 USD millions Swiss plan Foreign plans Other benefits Total
Net gain/loss 805 375 13 1 193 Prior service cost/credit –115 2 –113
Service cost (net of participant contributions) 113 8 5 126 Interest cost 31 76 10 117 Expected return on assets –113 –89 –202 Amortisation of: Net gain/loss 76 11 –4 83 Prior service cost –9 –9 –18
Net gain/loss 56 182 9 247 Prior service cost/credit 0 Amortisation of: Net gain/loss –76 –11 4 –83 Prior service cost 9 9 18
Effect of settlement, curtailment and termination 0 Exchange rate gain/loss recognised during the year –42 –42
Total recognised in other comprehensive income, gross of tax –11 129 22 140
Total recognised in net periodic benefit cost and other comprehensive income, gross of tax 88 135 24 247
Net gain/loss –231 –137 42 –326 Prior service cost/credit –55 –3 –58 Amortisation of: Net gain/loss –77 –35 1 –111 Prior service cost 9 9
Total recognised in other comprehensive income, gross of tax –354 –138 101 –391
Total recognised in net periodic benefit cost and other comprehensive income, gross of tax –239 –104 52 –291
The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 6 205 million and USD 6 335 million as of 31 December 2016 and 2017, respectively.
Assumptions used to determine obligations at the end of the year Discount rate 0.6% 0.6% 2.9% 2.8% 2.4% 2.1% Rate of compensation increase 1.8% 1.8% 3.1% 3.0% 2.1% 2.1%
Assumptions used to determine net periodic pension costs for the year ended Discount rate 0.8% 0.6% 3.7% 2.9% 2.7% 2.4% Expected long-term return on plan assets 3.3% 2.5% 4.1% 3.5% Rate of compensation increase 2.0% 1.8% 2.9% 3.1% 2.1% 2.1%
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 2017: USD millions 1 percentage point increase 1 percentage point decrease
Equity securities include Swiss Re common stock of USD 7 million (0.1% of total plan assets) and USD 6 million (0.1% of total plan assets) as of 31 December 2016 and 2017, respectively.
The Groupʼs pension plan investment strategy is to match the maturity profiles of the assets and liabilities in order to reduce the future volatility of pension expense and funding status of the plans. This involves balancing investment portfolios between equity and fixed income securities. Tactical allocation decisions that reflect this strategy are made on a quarterly basis.
As of 31 December, the fair values of pension plan assets by level of input were as follows: Quoted prices in active markets Significant other Significant Investments measured 2016 for identical observable unobservable at net asset value as USD millions assets (Level 1) inputs (Level 2) inputs (Level 3) practical expedient Total
Quoted prices in active markets Significant other Significant Investments measured 2017 for identical observable unobservable at net asset value as USD millions assets (Level 1) inputs (Level 2) inputs (Level 3) practical expedient Total
Assets Fixed-income securities: Debt securities issued by the US government and government agencies 30 681 711 Debt securities issued by non-US governments and government agencies 847 847 Corporate debt securities 1 723 10 1 733 Residential mortgage-backed securities 23 23 Commercial mortgage-backed securities 1 1 Other asset-backed securities 1 1
Balance as of 1 January 596 142 738 Realised/unrealised gains/losses: Relating to assets still held at the reporting date 17 –14 3 Relating to assets sold during the period 13 13
Closing balance as of 31 December 612 106 718 2017 USD millions Real estate Other assets Total
Expected contributions and estimated future benefit payments The employer contributions expected to be made in 2018 to the defined benefit pension plans are USD 114 million and to the post-retirement benefit plan are USD 18 million.
The fair value assumptions in the grant valuations include market estimates for dividends (and an additional special dividend of CHF 4.15 for the LPP 2014 and a special dividend of CHF 3.00 for the LPP 2015, respectively) and the risk-free rate based on the average of the 5-year US government bond rate (for LPP 2014 and LPP 2015) and the average of the 10-year US government bond rate (for LPP 2016 and LPP 2017) taken monthly over each year in the performance period. This resulted in risk-free rates between 1.8% and 3.1% for all LPP awards.
For the year ended 31 December 2017, the outstanding units were as follows: RSUs LPP 2014 LPP 2015 LPP 2016 LPP 2017
Non-vested at 1 January 349 960 320 805 360 787 Granted 528 175 Forfeited –1 650 –10 725 –12 448 –17 034 Vested –348 310
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 2016 and 2017, Swiss Re contributed USD 12 million and USD 11 million to the plans and authorised 178 233 and 162 487 shares as of 31 December 2016 and 2017, respectively.
The disclosure requirements under Swiss Law in respect of compensation and loans to the members of the Board of Directors and of the Group Executive Committee, as well as closely related persons, are detailed in the Compensation Report on pages 173–178 of the Financial Report of the Swiss Re Group.
The disclosure requirements under Swiss Law in respect of participations of members of the Board of Directors and the Group Executive Committee, as well as closely related persons, are detailed on pages 308–309 of the Annual Report of Swiss Re Ltd.
17 Related parties The Group defines the following as related parties to the Group: subsidiaries of Swiss Re Ltd, entities in which the Group has significant influence, pension plans, members of the Board of Directors (BoD) and the Group Executive Committee (EC) and their close family members, and entities which are directly and indirectly controlled by members of governing bodies of the Group and their close family members.
As of 31 December 2016 and 2017, the Group’s investment in mortgages and other loans included USD 292 million and USD 301 million, respectively, of loans due from employees, and USD 184 million and USD 181 million, respectively, due from officers. These loans generally consist of mortgages offered at variable and fixed interest rates.
Contributions made to defined benefit pension plans and post-retirement benefit plans are disclosed in Note 14 Benefit plans. Plan assets of the defined benefit pension plans include Swiss Re common stock of USD 7 million (0.1% of total plan assets) and USD 6 million (0.1% of total plan assets) as of 31 December 2016 and 2017, respectively.
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 a board member of BlackRock, Inc. BlackRock, Inc is acting as external asset manager for the Group.
280 Swiss Re 2017 Financial Report 18 Commitments and contingent liabilities 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: USD millions 2017
Other commitments As a participant in limited and other investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnerships for periods of up to ten years. The total commitments remaining uncalled as of 31 December 2017 were USD 2 252 million.
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 ReAssure 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 12 552 100 f Swiss Re International SE, Luxembourg EUR 182 100 f
Switzerland Swiss Pillar Investments Ltd, Zurich CHF 0 100 f Swiss Re Corporate Solutions Ltd, Zurich CHF 100 100 f Swiss Re Direct Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Holding Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Ltd, Zurich CHF 1 100 f Swiss Re Life Capital Ltd, Zurich CHF 0 100 f Swiss Re Life Capital Reinsurance Ltd, Zurich CHF 10 100 f Swiss Re Management Ltd, Adliswil CHF 0 100 f Swiss Re Principal Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Reinsurance Holding Company Ltd, Zurich CHF 0 100 f Swiss Reinsurance Company Ltd, Zurich CHF 34 100 f
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 481 100 f Swiss Re (Barbados) Finance Limited, Bridgetown GBP 0 100 f
Cayman Islands Ampersand Investments (UK) Limited, George Town GBP 0 100 f FWD Group Ltd, Grand Cayman USD 1 15 e PEP SR I Umbrella L.P., George Town USD 595 100 f Swiss Re Strategic Investments UK Limited, George Town GBP 0 100 f
Colombia Compañía Aseguradora de Fianzas S.A. Confianza, Bogotá COP 224 003 51 f
United States Claret Re Inc., Burlington USD 5 100 f Facility Insurance Holding Corporation, Dallas USD 0 100 f First Specialty Insurance Corporation, Jefferson City USD 5 100 f North American Capacity Insurance Company, Manchester USD 4 100 f North American Elite Insurance Company, Manchester USD 4 100 f North American Specialty Insurance Company, Manchester USD 5 100 f Pecan Re Inc., Burlington USD 5 100 f Pillar RE Holdings LLC, Wilmington USD 0 100 f SR Corporate Solutions America Holding Corporation, Wilmington USD 0 100 f Sterling Re Inc., Burlington USD 213 100 f Swiss Re America Holding Corporation, Wilmington USD 0 100 f Swiss Re Capital Markets Corporation, New York USD 0 100 f Swiss Re Corporate Solutions Global Markets Inc., New York USD 0 100 f Swiss Re Financial Markets Corporation, Wilmington USD 0 100 f Swiss Re Financial Products Corporation, Wilmington2 USD 0 100 f Swiss Re Life & Health America Holding Company, Wilmington USD 0 100 f Swiss Re Life & Health America Inc., Jefferson City USD 4 100 f Swiss Re Management (US) Corporation, Wilmington USD 0 100 f Swiss Re Risk Solutions Corporation, Wilmington USD 0 100 f Swiss Re Treasury (US) Corporation, Wilmington USD 0 100 f Swiss Reinsurance America Corporation, Armonk USD 10 100 f Washington International Insurance Company, Manchester USD 4 100 f Westport Insurance Corporation, Jefferson City USD 6 100 f
China Alltrust Insurance Company Limited, Shanghai CNY 2 178 5 fv Swiss Re Corporate Solutions Insurance China Ltd, Shanghai CNY 500 100 f
Singapore Swiss Re Asia Pte. Ltd., Singapore SGD 428 100 f
Investment vehicles The Group consolidates 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.
Investment vehicles for unit-linked business Additionally, the Group invests on behalf of the policyholders as a passive investor in a variety of investment funds across various jurisdictions. By design, many of these funds meet a VIE definition. While the Group may have a potentially significant variable interest in some of these entities due to its share of the fund’s total net assets, it never has power over the fund’s investment decisions, or unilateral kick-out rights relative to the decision maker.
The Group’s maximum exposure to loss from its investments equals the loan outstanding amount.
The Group did not provide financial or other support to any VIEs during 2017 that it was not previously contractually required to provide.
Non-consolidated VIEs The following table shows the total assets and liabilities on 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: Fixed income securities available-for-sale 525 587 Equity securities available-for-sale 492 700 Policy loans, mortgages and other loans 876 1 035 Other invested assets 2 387 1 831 Investments for unit-linked and with-profit business 8 770 9 223 Premiums and other receivables 3
21 Subsequent events Investment by MS&AD Insurance Group Holdings Inc into ReAssure In October 2017, Swiss Re reached an agreement with MS&AD Insurance Group Holdings Inc (MS&AD) for an investment of up to GBP 800 million into ReAssure, for up to a three-year period from closing and with a maximum shareholding of 15%.
On 23 January 2018, after ReAssure obtained regulatory approval for the transaction, MS&AD acquired a 5% stake in ReAssure (via a parent company) for GBP 175 million and subscribed for additional shares of GBP 330 million. On 28 February 2018, MS&AD subscribed for additional shares of GBP 82 million. These three investments now result in a total shareholding of ReAssure by MS&AD of 15%.
The Group financial statements and related notes presented in this report are not impacted.
Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the accompanying consolidated financial statements of Swiss Re Ltd and its subsidiaries (the ‘Company’), which comprise the consolidated balance sheet as of 31 December 2017, and the related consolidated income statement, statement of comprehensive income, statement of shareholders’ equity, statement of cash flows and notes for the year ended 31 December 2017.
Board of Directors’ responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
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 220 to 228 be presented to supplement the consolidated financial statements. Such information, although not part of the consolidated financial statements, is required by the Financial Accounting Standards Board, which considers it an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of 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.
How our audit addressed the key audit matter We assessed and tested the design and operating effectiveness of selected key controls around the valuation models for level 2 and 3 investments, including the Company’s independent price verification process. We also tested management’s data integrity and change management controls relating to the valuation models.
Engaging our own valuation experts to perform independent valuations of selected investments.
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 2017.
Testing the migration of actuarial data from legacy systems and/or spreadsheets to the new actuarial systems for completeness and accuracy.
Challenging the Company’s methodology and methods, focusing on changes to L&H actuarial methodology and methods during the year, by applying our industry knowledge and experience to check whether the methodology and methods are consistent with recognised actuarial practices and reporting requirements.
On the basis of the work performed, we consider that the methodology, methods, assumptions and underlying data used in the valuation of actuarially determined L&H reserves to be reasonable and in line with financial reporting requirements and accepted industry practice.
Key audit matter The Company’s valuation of liabilities for L&H policy benefits and policyholder account balances involves complex judgements about future events affecting the business. Actuarial assumptions selected by the Company with respect to interest rates, investment returns, mortality, morbidity, lapse in coverage, longevity, persistency, expenses, stock market volatility and future policyholder behaviour may result in material impacts on the valuation of L&H reserves. The methodology and methods used can also have a material impact on the valuation of actuarially determined L&H reserves.
Key audit matter The Company is carrying a provision for uncertain tax items on its books. The valuations of these items are based on management’s estimates and management’s assessment whether deferred tax assets are more likely than not to be realised. In recent years there have been releases of uncertain tax positions as a result of the completion of audits by tax authorities. Changes in the estimates of uncertain tax items have an impact (through income tax expense) on the results.
Expenses Claims and claim adjustment expenses –9 222 –8 336 –7 254 Life and health benefits –8 381 –8 639 –8 236 Return credited to policyholders 2 611 –4 597 –3 371 Acquisition costs –4 950 –4 495 –3 679 Other operating costs and expenses –4 358 –3 976 –3 620
Net income/loss before attribution of non-controlling interests –663 699 2 134
Liabilities Unpaid claims and claim adjustment expenses 70 944 68 412 64 690 Liabilities for life and health policy benefits 37 497 39 944 39 551 Unearned premiums 7 330 6 528 6 305 Other liabilities 73 366 73 336 72 524 Long-term debt 17 018 19 184 18 427
Earnings/losses per share in CHF –2.61 1.49 2.64 1 The Group changed its reporting currency from CHF into USD in 2010. Periods prior to 2010 have been translated to USD for informational purposes only based on the Group’s average exchange rates for the income statements and year-end rates for the balance sheets.
Income statement Net income for 2017 amounted to CHF 4 043 million (2016: CHF 3 972 million) and was mostly driven by cash dividends from subsidiaries and affiliated companies of CHF 3 832 million.
The Company earned trademark licence fees of CHF 347 million and incurred administrative expenses of CHF 126 million, of which CHF 122 million were charges for services provided by Swiss Re Management Ltd, and other expenses of CHF 179 million, due to financing costs related to subordinated debt facilities of CHF 87 million, net realised foreign exchange losses of CHF 83 million and capital and indirect taxes of CHF 9 million.
Assets Total assets increased from CHF 23 173 million as of 31 December 2016 to CHF 24 971 million as of 31 December 2017.
Non-current assets increased from CHF 19 577 million as of 31 December 2016 to CHF 21 013 million as of 31 December 2017. Investments in subsidiaries and affiliated companies increased by CHF 1 441 million to CHF 20 915 million as of 31 December 2017 due to capital contributions to Swiss Re Corporate Solutions Ltd of CHF 1 001 million, Swiss Re Life Capital Ltd of CHF 306 million and Swiss Re Principal Investments Company Ltd of CHF 134 million.
Liabilities Total liabilities increased from CHF 352 million as of 31 December 2016 to CHF 726 million as of 31 December 2017.
Shareholders’ equity Shareholders’ equity increased from CHF 22 821 million as of 31 December 2016 to CHF 24 245 million as of 31 December 2017, mainly due to net income of CHF 4 043 million, partially offset by dividends to shareholders of CHF 1 557 million and share buy-back programmes of CHF 1 064 million.
Share capital decreased by CHF 1 million to CHF 35 million as of 31 December 2017 and legal profit reserves decreased by CHF 980 million to CHF 7 285 million as of 31 December 2017 resulting from the cancellation of own shares.
Expenses Administrative expenses 3 –147 –126 Investment expenses 2 –1 –2 Other expenses –70 –179 Total expenses –218 –307
Liabilities Short-term liabilities Payables to subsidiaries and affiliated companies 40 43 Other liabilities and accrued expenses 199 225 Loans from subsidiaries and affiliated companies 0 429 Total short-term liabilities 239 697
Legal reserves from capital contributions 192 192 Other legal capital reserves 0 1 Legal capital reserves 192 193
Retained earnings brought forward 4 4 Net income for the financial year 3 972 4 043 Own shares (directly held by the Company) 8 –1 555 –1 636
An overview of the subordinated debt facilities is provided in the following table: As of 31 December 2017 Domicile Currency Share capital
Dated subordinated fixed rate callable notes facility 2016 USD 400 3.92% 6.05%1 2031 2056 Dated subordinated fixed-to-floating rate callable notes facility
Allocations relating to the dividend paid 3 865 –3 865 0 Dividend for the financial year 2015 –1 525 –1 525 Net income for the financial year 3 972 3 972 Share buy-back programme 2015 –570 –570
Share buy-back programme 2016 –521 –521 Other movements in own shares 31 –1 –34 –4 1 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 prior to the 2017 Annual General Meeting through a public share buy-back programme for cancellation purposes. The buy-back programme was completed on 9 February 2017. The total number of shares repurchased amounted to 10.6 million, of which 5.5 million and 5.1 million shares were repurchased by 31 December 2016 and between 1 January and 9 February 2017, respectively. On 21 April 2017, the 153rd Annual General Meeting resolved the cancellation of the repurchased 10.6 million shares by way of share capital reduction. The shares were cancelled on 25 July 2017, after completion of the procedure in respect of a share capital reduction as set forth in Article 732 et seqq. of the Swiss Code of Obligations.
3 Under current Swiss tax legislation, CHF 1.0 million of legal reserves from capital contributions, which has been confirmed by the Swiss Federal Tax Administration, can be paid out as dividends exempt from Swiss withholding tax, and for Swiss resident individual shareholders holding shares in private wealth also exempt from Swiss income taxes.
As of 31 December 2017, there was one shareholder with a participation exceeding the 3% threshold of Swiss Re Ltd’s share capital: Further information in respect of major shareholders are detailed in “Group structure and shareholders” on page 98 in the Financial Report 2017.
Swiss Re Ltd Financial statements 11 Share ownership, options and related instruments of governing bodies
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 compensation for the members of the Board of Directors and the Group EC, and persons closely related, are detailed in the Compensation Report on pages 173 to 178 of the Financial Report of the Swiss Re Group.
Renato Fassbind, Vice Chairman, Chairman of the Audit Committee 19 954 23 854 Raymond K.F. Ch’ien, Member 19 978 21 472
Share-based compensation The share-based compensation for the members of the Board of Directors for 2016 and 2017 was: Members of the Board of Directors Fees in blocked shares1
C. Robert Henrikson, Chairman of the Compensation Committee 190 2 169 185 2 183 Hans Ulrich Maerki, former Member4 42 483 n/a n/a
Jacques de Vaucleroy, Member5, 6 n/a n/a 73 868 Susan L. Wagner, Chair of the Investment Committee 229 2 626 223 2 643 1 Represents the portion (40%) of the total fees for the members of the Board of Directors that is delivered in Swiss Re Ltd shares, with a four-year blocking period. 2 The number of shares is calculated by dividing the portion (40%) of the total fees with the average closing price of the shares on the SIX Swiss Exchange during the ten trading days preceding the AGM less the amount of any dividend resolved by such AGM.
3 Acting as the Lead Independent Director. 4 Term of office expired after the completion of the AGM of 22 April 2016 and did not stand for re-election. 5 Includes fees received for duties on the board of Luxembourg Group companies.
8 Term of office expired after the completion of the AGM of 21 April 2017 and did not stand for re-election. 9 Elected to Swiss Re’s Board of Directors at the AGM of 22 April 2016.
Proposal for allocation of disposable profit The Board of Directors proposes to the Annual General Meeting to be held in Zurich on 20 April 2018 to approve the following allocations and dividend payment: Dividend If the Board of Directors’ proposal for allocations and dividend payment is accepted, an ordinary dividend of CHF 5.00 per share will be paid on 26 April 2018 from voluntary profit reserves.
Retained earnings brought forward 4 4 Net income for the financial year 3 972 4 043
Allocation to voluntary profit reserves –3 972 –4 043 Retained earnings after allocation 4 4
Voluntary profit reserves brought forward 11 890 14 305 Allocation from retained earnings 3 972 4 043 Ordinary dividend payment out of voluntary profit reserves –1 5571 –1 5732
2 The Board of Directors’ proposal to the Annual General Meeting of 20 April 2018 is based on the number of shares eligible for dividend as of 31 December 2017. The actual dividend payment will depend on the number of shares eligible for dividend as of 23 April 2018.
1 The Board of Directors’ proposal to the Annual General Meeting of 20 April 2018 is based on the number of shares eligible for dividend as of 31 December 2017. The actual dividend payment will depend on the number of shares eligible for dividend as of 23 April 2018.
Key audit matter The Company applies individual valuations of investments in subsidiaries and affiliated companies in accordance with Swiss Law.
On the basis of the work performed, we consider the methods and assumptions used by management to be reasonable. We agree with their conclusion that the book values for all investments in subsidiaries are recoverable.
Includes changes in the economic value of liabilities (as represented by the replicating portfolio) as a result of movements in risk-free discount rates, the passage of time, changes in credit spreads, changes in equity prices or changes in the economic value of embedded options and guarantees.
Total contribution to ENW is the total return generated for shareholders and includes the release of capital costs. Total contribution to ENW is therefore not a risk-adjusted performance measure.
Growth forecasts among the principal global economies remain uneven and uncertain in an environment of elevated political uncertainty. The planned withdrawal of the United Kingdom from the EU has created uncertainty not only for the United Kingdom but for the rest of the EU, and negotiations over withdrawal will likely continue to contribute to volatility and pose significant challenges for the EU and the United Kingdom. The long-term effects of a withdrawal of the United Kingdom from the EU will depend in part on any agreements the United Kingdom makes to retain access to the single market within the European Economic Area (“EEA”) following such withdrawal, the scope and nature of which currently remain highly uncertain. As China’s economy undergoes structural changes, recent near-term growth stabilisation may be reversed in the context of a broader economic slowdown were it to occur. The foregoing may be exacerbated by geopolitical tensions, fears over security and migration, and uncertainty created generally by the policy pronouncements that have been, and may in the coming months be, announced by the US administration on a range of trade, security, foreign policy, environmental protection and other issues having global implications, as well as by the consequences of the implementation of such policy pronouncements.
Regulatory changes Swiss Re and its subsidiaries operate in a highly regulated environment. The regulatory regimes to which members of the Group are subject have changed significantly in recent years and are expected to continue to evolve. During this period, there has been a noticeable trend to extend the scope of reforms and oversight, which initially targeted banks, beyond such institutions to cover insurance and reinsurance operations.
While in recent years there has been an evolving focus on classifying certain insurance companies as systemically important, it is unclear whether and, if so, in what form reforms will be enacted. The Group could be designated as a global systemically important insurer (“G-SIIs”) by the Financial Stability Board, or as a systemically important non-bank financial company by the Financial Stability Oversight Council (“FSOC”) in the United States. The International Association of Insurance Supervisors, an international body that represents insurance regulators and supervisors, has published and since refined the methodology for identifying G-SIIs. Were the Group to be designated as a G-SII, it could be subject to one or both of the resulting regimes, including capital standards (the basic capital requirement for G-SIIs), which would have various implications for the Group, including additional compliance costs and reporting obligations as well as heightened regulatory scrutiny in various jurisdictions. In addition, the Group ultimately will be subject to oversight of its Swiss regulator in respect of recovery and resolution planning.
The Group cannot predict which legislative and/or regulatory initiatives will be enacted or promulgated, what the scope and content of these initiatives ultimately will be, when they will be effective and what the implications will be for the industry, in general, and for the Group, in particular. The Group may be subject to changes in views of its regulators in respect of the models that the Group uses for capital and solvency purposes, and could be adversely affected if, for example, it is required to use standard models rather than internal models. Generally, legal and regulatory changes could have a material impact on the Group’s business. Uncertainty regarding the future relationship between the UK and the EU could also impact the legislative and/or regulatory regimes to which the Group is subject, both in the United Kingdom and in the EEA.
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. Recently enacted changes to the US tax regime is prompting us to consider modifications to our operating model for our US business. These changes, or inconsistencies between the various regimes that apply to the Group, could increase the costs of doing business (including due to related capital requirements), 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.
Credit risk If the credit markets were again to deteriorate and further asset classes were to be impacted, the Group could experience losses. Changes in the market value of the underlying securities and other factors impacting their price could give rise to market value losses. If the credit markets were to deteriorate again, the Group could also face write-downs in other areas of its portfolio, including other structured instruments, and the Group and its counterparties could face difficulties in valuing credit-related instruments. Differences in opinion with respect to valuations of credit-related instruments could result in legal disputes among the Group and its counterparties as to their respective obligations, the outcomes of which are difficult to predict and could be material.
Liquidity risks The Group’s business requires, and its clients expect, that it has sufficient capital and sufficient liquidity to meet its re/insurance obligations, and that this would continue to be the case following the occurrence of any foreseeable event or series of events, including extreme catastrophes, that would trigger insurance or reinsurance coverage obligations. The Group’s uses of funds include obligations arising in its insurance and reinsurance businesses (including claims and other payments as well as insurance provision repayments due to portfolio transfers, securitisations and commutations), which may include large and unpredictable claims (including catastrophe claims), funding of capital requirements and operating costs, payment of principal and interest on outstanding indebtedness and funding of acquisitions. The Group also has unfunded capital commitments in its private equity and hedge fund investments, which could result in funding obligations at a time when it is subject to liquidity constraints. In addition, the Group has potential collateral requirements in connection with a number of reinsurance arrangements, the amounts of which may be material and the meeting of which could require the Group to liquidate cash equivalents or other securities.
The Group’s ratings reflect the current opinion of the relevant rating agencies. One or more of its ratings could be downgraded or withdrawn in the future, and market conditions could increase the risk of downgrade. Rating agencies may increase the frequency and scope of ratings reviews, revise their criteria or take other actions that may negatively impact the Group’s ratings. In addition, changes to the process or methodology of issuing ratings, or the occurrence of events or developments affecting the Group, could make it more difficult for the Group to achieve improved ratings which it would otherwise have expected.
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 328 Swiss Re 2017 Financial Report
Legal and regulatory risks In the ordinary course of business, the Group is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which determine rights and obligations under insurance, reinsurance and other contractual agreements. From time to time, the Group may institute, or be named as a defendant in, legal proceedings, and the Group may be a claimant or respondent in arbitration proceedings. These proceedings could involve coverage or other disputes with ceding companies, disputes with parties to which the Group transfers risk under reinsurance arrangements, disputes with other counterparties or other matters. The Group cannot predict the outcome of any of the foregoing, which could be material for the Group.
General information Note on risk factors greater regulatory burdens and potential liability); risks arising from the Group’s dependence on policies, procedures and expertise of ceding companies; risks related to investments in emerging markets; and risks related to the failure of, or attacks directed at, the Group’s operational systems and infrastructure, including its information technology networks and systems. Any of the foregoing, as well as the occurrence of future risks that the Group’s risk management procedures fail to identify or anticipate, could have a material adverse effect on the Group, and could also give rise to reputational risk.
Risks related to the Swiss Re corporate structure Swiss Re is a holding company, a legal entity separate and distinct from its subsidiaries, including Swiss Reinsurance Company Ltd. As a holding company with no operations of its own, Swiss Re is dependent upon dividends and other payments from Swiss Reinsurance Company Ltd and its other principal operating subsidiaries. The Group expects that, over time, its structure will continue to evolve, and in the future it may elect again (having accepted an equity investment within its Life Capital Business Unit from a third party) to partner with minority investors in or within one or more of the Group’s Business Units or sub-groups within its Business Units, which could alter historical approaches taken in respect of capital, liquidity, funding and/or dividends, as well as other governance matters, including strategy for such Business Unit or sub-group.
Mexico City Avenida Insurgentes Sur 1898 Torre Siglum, Piso 8 Colonia Florida, Del Alvaro Obregon México City 01030 Telephone +52 55 5322 8400
Sydney Level 36, Tower two International Towers Sydney 200 Barangaroo Avenue Sydney, NSW 2000 Telephone +61 2 8295 9500
Cover The Mekong River basin is a vital source of life for millions of people. It also has large hydropower potential. In 2017, we sharpened our risk assessment capabilities to determine which dam projects in the region we want to support. You can find out more about how we address sustainability risks in our core business on pages 28–35.
Executive statement 2 Who we are and what we do 4 Our approach to corporate responsibility 8
Creating solutions for sustainability 18 Extending our risk intelligence 28 Being a responsible investor 36 Exploring and shaping the risk landscape 40 Reducing our environmental footprint 50 Engaging our people 60 Ensuring good corporate governance and compliance 70 The Swiss Re Foundation 74
Independent assurance report to the management of Swiss Re Ltd, Zurich 76 Memberships, commitments, awards and index listings 78
Dear stakeholders, We are pleased to present to you our 2017 Corporate Responsibility Report. With this publication, we want to show you how we understand and live up to our role as a responsible company. “We make the world more resilient” is Swiss Re’s vision. Hence we place particular emphasis on addressing longterm environmental, social and governance issues that may undermine sustainable progress.
In our re/insurance core business, we continued our close collaboration with clients and partners to create various innovative solutions that help them build resilience against natural catastrophe and weather risks (eg floods, windstorms, extreme rainfall and drought) and to cover risks associated with offshore wind farms. We also played a key role in launching the cat bond arm of the Pandemic Emergency Financing facility, a pioneering World Bank scheme designed to prevent diseases developing into fully-fledged pandemics. Furthermore, we carried out a pilot study to assess the social output of our Life Capital Business Unit – a precondition to appraise the general value insurance products create for customers.
As a responsible company, we are keen to minimise the environmental footprint of our own operations, even though this is relatively small in comparison with industrial companies. In 2017, we moved into Swiss Re Next, the new office building we constructed at our Zurich headquarters. Sustainability has been a key topic of the project right from the start and is woven into the building’s design and performance. As part of our commitment to the RE100 initiative, we also installed a solar plant at our Bangalore office. Last but not least, we celebrated the ten-year anniversary of our COyou2 Programme, which offers our employees grants for carbonfriendly acquisitions.
Asia * The Group CSO role will be merged with the Group CFO role effective 1 April 2018.
Total expenses –39 414 –41 962 Claims and claim adjustment expenses –12 564 –16 730 Life and health benefits –10 859 –11 083
2 FY 2017 is estimated based on average year-to-date CHF/USD FX rates as of February 2018. The dividend is subject to AGM approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend payout.
3 Includes shares bought back between 3 November 2017 and 16 February 2018 as part of the buy-back programme authorised at the AGM 2017. The total amount represents an estimate translated at the 2017 average CHF/USD exchange rate.
Importantly, this commitment is also in our own best interest: it strengthens our capabilities to address both risks and opportunities created by longerterm environmental and social challenges and, as a consequence, to retain our licence to operate.
̤ UNEP FI Principles for Sustainable Insurance (PSI): for our Public Disclosure of Progress, see online report
̤ UN Global Compact: for our Communication on Progress, see online report
Our values mean doing business the Swiss Re way: Being open, honest and transparent in everything we do.
Taking the long-term view and playing our part in enabling sustainable progress – for stakeholders and society in general.
Regarding the development and adoption of relevant policies and strategies, the role of the Board of Directors is to endorse them, while the Group Executive Committee approves them. Group Risk Management is responsible for maintaining a suitable risk policy framework, and the Business Units drive strategic implementation within their respective areas.
In order to identify these material Corporate Responsibility Topics, we use both our internal risk expertise and ongoing dialogue with our stakeholders.
In 2016, we carried out a comprehensive review of the key Corporate Responsibility Topics we are facing as a global re/insurer and, on this basis, developed a graphic Corporate Responsibility Map.
Priority: Topics with high stakeholder expectations as well as high internal relevance. Require continuous high attention and effort.
Exploration: Topics with increasing relevance from an internal perspective and an expected increase in stakeholder inquiries. Warrant further analysis.
For all our Corporate Responsibility Topics we have set goals – some of them quantitative, others qualitative. On the following four pages, we briefly describe why these topics are important for Swiss Re, their principal links to the UN Sustainable Development Goals, the internal goals we have set for them and what we achieved during the reporting year.
Advancing the climate transition In December 2015, nearly 200 governments agreed to strengthen the global response to the threat of climate change in the Paris Agreement. The private sector plays a key role in reaching the goals defined in Paris. Swiss Re advances the transition to a low-carbon economy from two angles: For general strategic objectives, see special section on our climate change strategy on page 16.
In cooperation with key stakeholders, create solutions to improve food security by giving farmers protection against natural perils.
Through our commitment to the Grow Africa Partnership, offer up to 1.4 million smallholder farmers in Sub-Saharan Africa protection against weather risks by 2017.
Use our capacity, technical expertise and natural offset of our mortality business to offer our clients risk transfer solutions for their longevity risk.
Due to continuous fine-tuning of the SBR Assessment Tool and increasing underwriter awareness, achieved a further fall of transactions referred for an individual assessment (pages 30–31).
2. Advancing sustainable energy solutions is 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. We continuously invest in our renewable energy research and solutions to help our clients and the global community to develop and establish secure energy supplies for the future.
Met the target of our five-year commitment, helping to bring insurance protection to 1.5 million smallholder farmers in Sub-Saharan countries (page 23).
Managing sustainability risks Sound risk management is essential for a re/insurer. Besides the core categories of our risk landscape (insurance, financial market and credit risk), we also pay attention to further significant risks we may be exposed to, including sustainability risks. We define sustainability risks as ethical concerns related to potential environmental and socio-economic impacts of our business transactions, and the reputational risks they may entail. The risk assessments we make through our Sustainability Risk Framework, an advanced risk management instrument, flow directly into our re/insurance and investment decisions.
Consistently identify potential sustainability risks in our business transactions and abstain from them if warranted.
Engage with clients and industry partners on how to address and reduce sustainability risks in business transactions, especially in high growth markets.
Following publication of our brochure on the Sustainability Risk Framework in 2016, intensified dialogue with clients and other companies on sustainablity risks and related issues (page 45).
Meet our investment target for green bonds of at least USD 1.5 billion.
Revised our Corporate Bylaws to anticipate developments and trends, enhanced our conflicts of interest framework as well as Board of Directors educational sessions and trainings (page 70).
Launched new policy governance framework and policy management tool, and simplified Global Policies architecture. Delivered mandatory compliance trainings for new and existing employees as well as risk-based tailored trainings (page 73).
Continuing to create new opportunities for our employees to support the Swiss Re Foundation’s partners with their expertise, 14% of the project portfolio encompassed an employee engagement component at the end of 2017 (see the Foundation’s 2017 Activity Report, pages 26–27).
Our approach to corporate responsibility * Note: SDG 17 “Partnerships for the Goals” is important for most of our CR Topics.
Investing responsibly Institutional investors such as re/insurers are naturally suited to invest responsibly because of their long-term view. Swiss Re systematically integrates environmental, social and governance (ESG) considerations into the investment process through its three pillars approach: Enhancement (eg by applying ESG benchmarks), Inclusion (ie thematic investments) and Exclusion.
By the end of 2017, we were well advanced in meeting our target of holding at least USD 1.5bn in green bonds (page 37).
Continue to build an organisation of diverse people that have a passion to make the world more resilient.
Achieve a top-quartile employee engagement score (EES>71%). Per 2017, achieved an employee engagement score of 69% (page 61),
Achieved a reduction of our per-capita CO2 emissions by 1.9% compared with 2013 (page 51).
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.
Implementation completed for 13% of our tier 1 and 2 vendors, and ongoing or ready to start for 30% (page 56).
Produced a sigma study on the value of re/insurance for development in emerging markets (page 46) and conducted a pilot analysis of the social output of our Life Capital Buiness Unit (page 27).
Navigating the digital transformation The digital transformation has the potential to radically transform the insurance industry. New analytical techniques such as smart analytics, Big Data and FinTech boost innovation and modernisation in product design, distribution, claims management and fraud detection. As Swiss Re develops its “digital DNA”, we are also advancing industry awareness of ethical challenges surrounding the digital transformation.
Refine our understanding of societal challenges related to the digital transformation.
Contribute to resilient societies by increasingly engaging Swiss Re employees with their skills and expertise.
Risk intelligence We develop and apply tailor-made tools to extend the scope of our risk management. This enables us to identify and appropriately address sustainabilityrelated and emerging risks in our core business.
Investments We integrate environmental, social and governance (ESG) criteria across our investment portfolio. Our approach is based on the three strategic pillars Enhancement, Inclusion and Exclusion.
Operations: our own footprint We apply best-practice standards of resource management to our properties and logistic operations as well as guidelines to our sourcing activities. In doing so, we continually reduce Swiss Re’s direct environmental impact.
Operations: our people Drawing on the know-how and experience of a diverse, multigenerational group of people, we want to ensure our employees can contribute to an organisation that is constantly looking for new ways to improve the wellbeing of society – where how we achieve results is as important as what we achieve.
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 damage. Among our current Corporate Responsibility Topics shown on pages 11–15, two have a direct link to climate change: “Managing climate and natural disaster risk“ and “Advancing sustainable energy solutions”.
Since detecting the long-term threat posed by climate change almost 30 years ago, we have been an acknowledged thought leader on the topic. To tackle the issue, we pursue a comprehensive strategy with four pillars: The four pillars of our climate change strategy
Advancing our knowledge and understanding of climate change risks, quantifying and integrating them into our risk management and underwriting frameworks where relevant; Developing products and services to mitigate or adapt to climate risk; Raising awareness about climate change risks through dialogue with clients, employees and the public, and advocating a worldwide policy framework for climate change; Tackling our own carbon footprint and ensuring transparent, annual emissions reporting.
All the main chapters of the report have received independent assurance from PricewaterhouseCoopers. Their assurance report is included on pages 76–77.
Reporting frameworks Our 2017 Corporate Responsibility Report includes Standard Disclosures of the G4 Guidelines of the Global Reporting Initiative, GRI (www.globalreporting.org), as far as is practical for a business-to-business company in financial services. You can find the GRI Content Index in the online version of the report.
ONLINE CONTENT More detailed information on reporting scope, reporting period and publishing rhythm is available in the online version of the report: reports.swissre.com/ corporate-responsibilityreport /2017/cr-report/ introduction/our-approach-tocorporate -responsibility/ report-profile.html
The present report also incorporates our 2017 Communication on Progress for the UN Global Compact (www.unglobalcompact.org/). References to the Compact‘s ten principles are incorporated into the GRI Content Index, in line with UN recommendations.
Finally, we provide detailed Climaterelated Financial Disclosures, as recently developed and recommended by a task force of the Financial Stability Board (www.fsb-tcfd.org).
Currently, our focus is 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.
Thus, our solutions frequently include: ̤ Public-sector partners: Besides direct insurers and corporate clients, we develop risk transfer solutions for, and in cooperation with, governments and various public-sector organisations; ̤ Index-based insurance products: We are a pioneer in creating innovative insurance solutions that use an index to determine payments; ̤ Insurance-linked securities (ILS) or cat bonds: We are a leading developer of these products, which enable cedents to transfer large risks to the capital markets.
USD 2.3 bn Natural catastrophe premiums in our P&C Reinsurance business
Over the whole year, Swiss Re’s combined estimated claims from large natural catastrophes amounted to USD 4.7 billion.
A residential area of Houston, TX flooded by Hurricane Harvey. The 2017 North Atlantic hurricane season was the second costliest ever, underlining the importance of understanding natural catastrophe and climate risks.
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 learn more about the CatNet® tool at www.swissre.com/ catnet and view a sample of our recent publications on page 49.
In 2017, we agreed to conduct an ECA study for the city of Lishui in China as part of our cooperation with the Deutsche Gesellschaft für Internationale Zusammenarbeit (see page 21).
In response to this evolving threat, the NFIP has sought to put the programme on a more sustainable financial path. Along with the establishment of a reserve fund, its strategy includes the creation of a reinsurance programme with partners from the private sector. Swiss Re has been involved in this initiative from the beginning and is one of its three original reinsurance providers.
Our solutions offering re/insurance protection against extreme weather events and weather volatility help communities adapt to climate change by making them more resilient against such risks.
The programme’s purpose is to cover losses from large and unexpected insured events such as severe floods caused by hurricanes. It proved its value in its first year by providing private capital to help homeowners recover from the devastation caused by Hurricane Harvey. This coverage saved US taxpayers USD 1 billion and helped prevent the programme from falling further into debt.
Strengthening disaster resilience in the Philippines It is estimated that each year an average of 20 typhoons make landfall in the Philippines. The strongest of these storms create significant damage and can cause many fatalities. In 2013, Super Typhoon Yolanda (also known as Typhoon Haiyan elsewhere), which was one of the strongest storms ever recorded at landfall, claimed approximately 6 000 lives and damaged a million homes in nine regions.
Grouper is one of the expensive fish breeds in Ping Tung County and represents a significant economic asset in Taiwan’s aquaculture industry. As the 2009 typhoon season showed, however, fish ponds can suffer badly from extreme rainfall. Flash floods due to typhoons caused many fish ponds to overflow then, destroying nearly 50% of the fisheries in the process and causing large financial losses.
Strengthening risk resilience in Lishui, China Lishui is a scenic city in Zhejiang province in eastern China, located in a mountainous area close to the East China Sea. Like many other Chinese cities, it has been growing at rapid speed recently and is developing into a regional centre of tourism. Further developing these urban zones is a strategic goal for the Chinese government, but many of them are located in areas facing high natural disaster risks. As they accumulate greater concentrations of people, assets and technology, these cities become even more vulnerable to the potential effects of extreme weather events, a trend further reinforced by climate change.
Swiss Re has been working closely with the Chinese government as well as regional and local authorities, eg in urban Guangdong and rural Heilongjiang, to develop new, innovative insurance solutions that help build resilience against these risks. They typically involve parametric triggers such as cyclone wind speed or the amount of rainfall to determine payouts, ensuring that funds are quickly available to the insured authorities.
The PEF covers six viruses and protects the world’s most vulnerable countries that are eligible for funding from the World Bank’s International Development Association. Financing is released on the basis of publicly available health data as reported by the World Health Organization (WHO). The PEF’s “insurance window” (re/insurance and cat bonds) will offer total coverage of USD 425 million for an initial period of three years. Donor contributions from the governments of Japan and Germany help finance the cost of premiums.
Payouts to Caribbean governments Caribbean countries are heavily exposed to natural catastrophes such as tropical cyclones, earthquakes and excessive rainfall. Funding initial relief measures and maintaining vital government functions after a disaster creates a significant funding challenge for these small developing economies.
When hurricanes Irma and Maria hit the Caribbean in 2017, they caused significant damage and triggered payouts of USD 30.8 million and USD 23.6 million, respectively, from a regional insurance facility called CCRIF SPC. Originally set up in 2007 by 16 regional governments as the Caribbean Catastrophe Risk Insurance Facility (CCRIF) under the technical guidance of the World Bank, it was the world’s first multi-country risk pool. Its objective was to provide governments quick access to emergency funding by using parametric policies that are automatically triggered according to the physical characteristics
The original CCRIF structure has seen some important changes over the years. In 2014, coverage was extended from tropical cyclones and earthquakes to include excessive rainfall. The facility was restructured into a segregated portfolio company (SPC) to allow for total risk segregation, and renamed accordingly. In the ten years from its inception until 2017, it has made 36 payouts to 13 member governments, totalling USD 130.5 million. All payouts were made within 14 days of the end of the respective event.
Payout to Kenyan herders affected by drought Droughts are responsible for approximately 75% of livestock deaths in the Greater Horn of Africa region, repeatedly leaving herders, their families and entire communities destitute. To
… to the United Nations Many of our recent efforts to expand insurance protection cover losses from natural catastrophes and weather volatility (eg drought or excessive rainfall). As climate change is predicted to increase these losses, such transactions also help communities to strengthen their climate resilience. Furthermore, we have found that partnering with public sector clients, especially national and regional governments, is an effective way to develop solutions.
We have agreed with the United Nations to report publicly on the progress we make on this commitment. By the end of 2017, we had advised 66 sovereigns and sub-sovereigns on climate risk resilience and offered them a total of USD 5.3 billion in re/insurance protection.
... to the Grow Africa Partnership In 2012, we made a commitment to the Grow Africa Partnership (www.growafrica.org), an initiative launched by a number of organisations to promote public-private collaboration and investment in African agriculture. As most smallholder farmers in Sub-Saharan Africa have had no access to insurance protection to date, addressing this problem is crucial to protect families’ livelihoods, facilitate economic development and reduce poverty.
In 2017, six counties suffered drought conditions that triggered the programme. As a result, the government paid out about USD 5.3 million to a total of 14 000 pastoral households, or approximately USD 380 on average. It is estimated that the funds helped save 70 000 livestock, primarily cows, goats and camels, which in turn sustain approximately 100 000 people in the area.
The partners behind the programme include the Kenyan Ministry of Agriculture, Livestock and Fisheries (www.mygov.go.ke), the World Bank Group (www.worldbank.org), several local insurers and the International Livestock Research Institute (www.ilri.org) in Nairobi, with Swiss Re acting as the main reinsurance provider.
Launching our rainX tool Drought and flood increasingly affect communities and agriculture across the globe, frequently causing substantial damage and destroying livelihoods. What’s more, in areas where such events are a recurring phenomenon, the need/burden to finance recovery efforts often falls on taxpayers. This reduces purchasing power and slows down economic activity, thus further aggravating the situation.
Our rainX tool offers customised protection against two types of risk: heavy rain and subsequent flooding, and lack of rain (also called meteorological droughts). To feed the tool, we use daily rainfall data with a high spatial resolution provided by a number of independent and public satellite sources. The threshold values that trigger a payment are calculated on the basis of historical values as well as forward-looking modelling.
Offshore wind farm technology keeps evolving. Swiss Re Corporate Solutions is continuously enhancing its understanding of the associated risks and, in 2017, agreed to provide insurance protection to a Danish pilot project set up to test more cost-effective foundations and other innovations.
Swiss Re Corporate Solutions takes a special interest in offshore wind as it has both the large capacity and the technical expertise to help manage the associated risks. We are continually enhancing our understanding of these risks and share our insights with our clients as well as other insurers. As a result, we are now considered a “lead market” for offshore wind risks. In the last five years, Swiss Re Corporate Solutions has participated in numerous offshore wind projects, including wind farms, standalone offshore substations and standalone export cables.
In 2017, we were involved in a number of new offshore wind farm projects, including the two described below:
Demand for commercial health insurance solutions has also been growing, driven by several major demographic and socio-economic trends. These include: the greater healthcare needs of ageing societies; rising healthcare expectations of the new middle class, especially in growth markets; and healthcare finance reform, particularly in mature markets. We offer a variety of health reinsurance solutions to meet these needs, from short-term protection against the risk of volatility in medical expenses for insurers or employers to very long-term protection against the financial impact of disability or critical illness.
Nissum Bredning Vind Offshore Wind Farm This is a innovative 28 MW project in northwestern Denmark, close to the harbour of Thyborøn. It was set up by the Danish Energy Agency (www.ens.dk) as a pilot project to test new offshore technologies and integrated design. Its two developers are Nissum Bredning Vindmøllelaug (www.nbvind.dk) and Jysk Energi (www.jyskenergi.dk), who had placed the winning bid following the Danish Energy Agency’s tender.
Trianel Windpark Borkum II Swiss Re Corporate Solutions also supports phase 2 of Trianel Windpark Borkum II, the first purely communal wind farm in the North Sea (www.trianel-borkum.de/en/twb-ii/). It is located around 45 kilometres north of the German island of Borkum. With a planned capacity of 203 MW generated by 32 turbines, it is expected to power more than 140 000 homes and save 290 000 tonnes of CO2 per year. The owners include 17 German municipalities as well as the electric utility of the City of Zurich (www.ewz.ch). Construction of the windpark was decided in 2017 and is expected be completed in 2019.
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 previous Corporate Responsibility Reports, we have described a number of landmark longevity transactions completed in recent years with different clients in the UK: ̤ The Scottish & Newcastle Pension
Building on this data, we plan to establish a methodology to assess social impact, ie the overall value that insurance creates for individuals – socially vulnerable ones, in particular – and to apply this where possible.
Extending our risk intelligence We address sustainability, emerging, political and regulatory risks in our core business transactions. For this, we have developed specific tools and know-how.
Risk management is an integral part of Swiss Re’s business model and key to the controlled risk-taking that underpins our financial strength. It is embedded throughout our business and ensures that the Group and the three Business Units have the necessary expertise, frameworks and infrastructure to support good risk-taking (see 2017 Financial Report, pages 68–69 and 75–91).
Sustainability, political, regulatory and emerging risks are particularly relevant in this respect. We have developed instruments and know-how that help us identify and assess all of them. This allows us to determine the specific risks we think we should avoid – because of their potential to increase losses, for ethical reasons, or both.
Policies and guidelines Our Sustainability Risk Framework is based on the overarching principles of respecting human rights and protecting the environment, encapsulated in two umbrella policies that are valid for all our transactions. In addition, specific guidelines apply these overarching principles to seven sectors or issues in which we perceive major sustainability risks: the defence industry; oil and gas (including oil sands and hydraulic fracturing); mining; dams; animal testing; forestry, pulp & paper and oil palm; and nuclear weapons proliferation.
We regularly review all the policies and guidelines of our Sustainability Risk Framework to ensure they stay abreast of relevant new risk developments and stakeholder expectations (for recent refinements, see page 32).
As part of our efforts to support the transition to a low-carbon world, we have developed a thermal coal policy, to be implemented in our Sustainability Risk Framework by mid-2018.
Development of a carbon steering mechanism and a thermal coal policy Swiss Re supports the worldwide reduction of greenhouse gas emissions and contributes to limiting global warming to 1.5–2°C above pre-industrial levels. To this end, we continually review further measures to support the transition to a low-carbon economy.
After a range of such measures we have taken over the years in our product development, risk management and operations, we recently started to develop a carbon risk steering mechanism that will help guide our business towards a lowcarbon world and assist our clients in their transition.
Sharpening our dam assessments In 2017, we also undertook research to enhance our assessment capabilities for the specific environmental and human rights challenges potentially encountered in the Mekong River basin. The Mekong is the world’s 12th longest river, traversing six Asian countries over a distance of 4 350 km. It supports the world’s second largest aquatic biodiversity and wild fisheries worth USD 2 billion.
In 2016, we developed a new eLearning course for our in-house training. While this continues to be compulsory for all our employees who work in underwriting and with our clients, it is now mandatory for all our new entrants, as well. In 2017, a total of 2 388 employees completed this mandatory training course.
Complementing this eLearning course, we provided instructor-led training personally or via web-based conference to approximately 190 experienced underwriters and graduates.
Emerging risks Re/insurers operate in a rapidly changing and increasingly complex risk landscape. New demographic, economic, technological, socio-political, regulatory and environmental developments are all capable of changing risks or creating new ones. In addition, growing interdependencies between these developments can lead to accumulations of risk and create significant knock-on effects. People’s risk perceptions are shifting, liability and regulatory regimes continue to evolve and stakeholder expectations are growing.
To share some of our key insights on these emerging risks with external audiences, we published the fourth edition of our comprehensive Swiss Re SONAR report in 2017.
The Swiss Re SONAR report features emerging risk themes that have the potential to impact the re/insurance industry. These topics derive from our SONAR process and have been assessed by our emerging risk management experts in recent years. media.swissre.com/documents/ SONAR_publication_2017.pdf
The global increase of meat consumption and the shift in high growth markets from extensive to more intensive livestock husbandry and aquafarming is amplifying this development.
While some countries have initiated restrictions and regulations, others remain reluctant to take effective action. Furthermore, the surveillance and monitoring of antimicrobial resistance varies significantly between different regions and is insufficient from a global perspective.
We have covered aspects of antimicrobial resistance repeatedly in our recent publications. The 2015 SONAR report put the spotlight on the interconnections between regulatory issues, the development of new antibiotics and human health effects. The 2017 edition highlights the issue with a particular focus on animal farming.
Cyber attacks Improving the measurement of digital security incidents and risk management institute.swissre.com/events/ Measurement_digital_security_ incidents.html
“Financing resilient energy infrastructure – managing cyber risks” www.swissre.com/library/ partner-publication/world_ energy_perspective_the_road_to_ resilience_financing_resilient_ energy_infrastructure.html
Smart grids / The Internet of Things Risk approach to electricity grid storage innovations, institute.swissre.com/events/ Risk_approach_to_grid_storage_ innovations.html
These specialists identify, assess and monitor political risks on an ongoing basis, so the Group understands their implications and can initiate appropriate mitigation measures if required. Covering both developed and high growth markets, they pay attention to domestic risks such as political instability, terrorism or social unrest as well as cross-border issues, for example international trade, energy and armed conflicts.
WEBSITE You can read about our most important strategic initiatives concerning emerging risks at www.swissre.com/ rethinking/emerging_risks/ strategic_risk_initiatives.html
Recently, we have participated in the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (FSB-TCFD, www.fsb-tcfd.org). Starting from the premise that climate change creates physical, liability and transition risks, the initiative’s goal has been to develop a set of voluntary financial disclosures that allow stakeholders to properly assess the climate risks faced by companies and to take appropriate action.
Being a responsible investor We integrate environmental, social and governance (ESG) criteria across our investment portfolio. Our approach is based on the three strategic pillars Enhancement, Inclusion and Exclusion.
“We make the world more resilient” is Swiss Re’s vision. About ten years ago, our Asset Management unit embarked on a journey to not only invest the premiums we receive from our underwriting business to generate riskadjusted, stable long-term returns, but to also consider environmental, social and governance (ESG) aspects in our investment decisions. With this approach, our Asset Management has contributed to the Group’s vision.
Responsible investment approach The cornerstone of our investment philosophy continues to be asset-liability management (ALM). To meet future claims and benefits, we invest the premiums generated by our underwriting activities in assets whose cash flows match the durations and currencies of our re/insurance liabilities. Therefore, we generally invest more in higher-quality fixed income securities with stable long-term returns. At the end of 2017, such investments accounted for 80% of our total assets under management1 (see graph on page 38).
We are convinced that including ESG criteria into the investment process makes economic sense, especially for long-term investors, because it improves risk/return profiles and hence reduces downside risks.
1 Asset classes considered are government bonds, credit, and mortgages and other loans.
Executing our shareholder rights is another part of Swiss Re’s commitment to being a responsible investor. To reflect this pledge in our voting behaviour, we have defined principles in our Asset Management Voting Policy. See: www.swissre.com/about_us/about_ our_business/asset_management/ Responsible_Investments__Shaping_ the_future_of_investing.html
Inclusion Thematic investments are an ideal approach to tackle specific sustainability topics. We mainly target investments that contribute to a low carbon economy.
4 % Cash and cash equivalents 4 % Short-term investments 41% Government bonds 36% Credit 5% Equities1 3% Mortgages and other loans 7% Other investments incl. policy loans
Exclusion We apply a number of pre-defined criteria and qualitative standards that may lead to the exclusion of a company or a country from our investment scope if they do not meet these criteria and qualitative standards.
In order to mitigate the risk of stranded assets in light of an accelerating transition to a low-carbon economy, we avoid investments in companies that generate 30% or more of their revenues from thermal coal mining or that use at least 30% thermal coal for power generation.
The Swiss Re Responsible Investing Policy defines our approach to responsible investing, specifies roles and responsibilities in the organisation, implementation and monitoring of ESG criteria in the Group’s investment portfolio.
How we engage Voting We believe that ESG considerations, especially good corporate governance and transparency towards shareholders, are key drivers for sustainable value creation. We recognise our shareholder rights and responsibilities as an integral part of our commitment to responsible investment. We review our constitutive voting principles periodically to keep them aligned with best practice.
In the case of internally managed equities, we make use of our influence as a responsible shareholder by directly exercising our voting rights. For the externally managed portfolios, we work with the relevant portfolio managers to execute our proxy votes and related engagement activities.
We review the voting policies of external managers during the due diligence process to confirm compliance with our policy. In addition, external managers are required to report on voting activities conducted on Swiss Re’s behalf.
In 2017, we exercised 98% of our voting rights of our listed equity portfolio.2 We voted on 4 923 voting items through our external managers. We voted in line with the respective management resolution recommendation in 4 504 cases (91%) and against it in 295 cases (6%). In 124 cases (3%), we abstained from voting.
Promoting responsible investing Shifting the large institutional asset base towards sustainable investments would mark a big step forward in making the world more resilient. Swiss Re’s brand promise “We’re smarter together” is also applicable to responsible investing: We interact with policymakers and other market participants to promote ESG considerations in the investment process, for example with a keynote speech held by our Group CIO at the CFA/PRI event in New York in late 2017.
Knowledge sharing is another key aspect of promoting responsible investments. We offer all Asset Management employees various internal ESG training opportunities to ensure consistent know-how across the board. Furthermore, we are in an ongoing dialogue with other industry participants to develop ESG as a standard investment approach.
Because of their long-term view, institutional investors such as re/insurers are naturally suited to focus on responsible investing. There are still various hurdles on the way towards a broadly accepted, standard approach to integrating ESG into the investment process. Close collaboration between the private and public sectors would help to overcome these obstacles and contribute to a more resilient world.
We also became a member of the ICMA Green Bond Principles in 2017. This reflects our view that the industry needs a more standardised responsible investing market environment with agreed definitions, standards, methodologies and best practices to move the long-term investor base further towards systematic ESG integration.
We have focused on five Top Topics for a number of years: ̤ Advancing sustainable energy solutions ̤ Funding longer lives ̤ Managing climate and natural disaster risk ̤ Partnering for food security ̤ Supporting financial resilience
2017 was no exception: the year saw a record number of renewable energy installations, falling costs of renewable energy sources and, in more instances, a successful de-coupling of economic growth and emissions. But as sustainable energy projects continue to broaden in scale and complexity, so do their attendant risks.
Innovative risk transfer solutions help attract investment in the sector by reducing risk to investors. Building on our long-standing commitment to sustainability, we have intensified our renewable energy research and established key partnerships to help our clients – and indeed the wider global community – develop and secure the energy supplies of the future.
Funding longer lives Global ageing is going to change socioeconomic structures and expectations as people work longer, face greater risks of disease and require more care. How we identify and address the very diverse needs of the elderly is a key concern for citizens, governments and the financial sector. This is especially true as the share of the working population continues to shrink in proportion to the ageing population and more of the financial responsibility shifts from public to private balance sheets.
For re/insurers, ageing still bears substantial uncertainties connected to underwriting the right risks, pricing them adequately or managing claims effectively. Reducing these uncertainties could give Swiss Re access to new risk pools and provide new ways to set apart the solutions we can bring to clients. Advanced technology is also opening new ways to improve the health and lives of seniors. Insurers who can successfully tap into this will have more opportunities to develop creative, successful solutions.
Our notable achievements in 2017: ̤ As part of a major campaign launched in 2017, we first published “Who pays for ageing?”, a report that looks at the ageing wallet to identify where the money comes from today and where the opportunities are for insurers to help (see special section on page 43); ̤ We followed this with a second report, “Who are the ageing?”. Based on interviews with more than 9 000 consumers, it analyses what consumers really want, thus laying the groundwork for solutions that are more relevant and more likely to be purchased; ̤ We shared this research and advanced the topic around the globe via social media, keynote presentations at client events, participation in regional campaigns and numerous media interviews, for example in The Economist.
Growing life expectancy, increasing health and care needs combined with declining state support will make it difficult for current funding systems to meet the needs of seniors in future. Thus, there is a growing role and opportunity for the re/insurance industry to develop solutions offering financial protection to senior citizens.
However, we emphasise that it is not enough for re/insurers to merely compete for market share with existing funding sources. In order to develop affordable, accessible solutions people want to buy, it is necessary to develop a good understanding of the various pathways to older age and the many different needs individuals have on that journey.
We have presented our research in two reports and eight fact sheets, and have conducted a comprehensive media campaign around them.
Who pays for ageing? Who are the ageing? Insurers who truly understand ageing consumers‘ needs will be the ones to create winning solutions for this very diverse population.
Consumer segments built on needs help develop and distribute solutions that are relevant and focused
LONG-TERM CARE Social long-term care system is further supported by the family
Source: Swiss Re, 2017All figures in purchasing power parity (PPP) USD per annum, 2015
Who pays for ageing? How the older population's needs are funded and where opportunity for insurers exists 49k 48k 44k 66k 38k 15k
Source: Swiss Re, 2017All figures in purchasing power parity (PPP) USD per annum, 2015 $
In 2017, the hurricanes in the Caribbean and the US, the typhoons in Australia and Asia, winter storms and flooding in Europe, wildfires in California and Europe, and two earthquakes in Mexico proved the point again. Total economic losses from natural and man-made catastrophes were more than USD 337 billion for the full year. Insurance payouts helped many to restore their lives, but even more were left with nothing once they could return to what was their home. This shows that there remains a large need to reduce the negative effects of natural disasters – let alone to assure the funds needed to rebuild affected communities after an event.
In the future, these negative effects will become even more severe. We expect extreme weather events like hurricanes and floods to increase as a result of climate change. Moreover, higher concentrations of assets in exposed areas will also result in higher losses, in particular in the world’s rapidly growing cities.
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 create incentives to invest in prevention measures.
Understanding natural catastrophe risks and how they develop is critical to cost our business accurately and to structure sound risk transfer solutions. By sharing this knowledge, we can help our partners to identify cost-effective protection measures. In addition, we provide solutions to cover the residual risk that cannot be avoided.
Our notable achievements in 2017: ̤ Storm surges triggered by tropical cyclones are a main force of destruction. In 2017, we released our Global Storm Surge Zones, the industry’s first service that helps stakeholders plan for these events. It is accessible via our CatNet® tool at www.swissre.com/catnet; ̤ Our Economics of Climate Adaption (ECA) studies help decision makers determine cost-effective measures that protect their communities against climate risks. In 2017, we launched a partner publication on the ECA study we had carried out for the city of Barisal in Bangladesh. For residual risk we developed rainX, an index insurance tool covering heavy or lack of rain (see page 24); ̤ Through the Swiss Re Institute, we held our 2017 sigma event on “Catastrophes – Protecting the uninsured. Solutions for a resilient world” (see page 47). It focused on what the re/insurance industry can do to help close the protection gap by creating solutions tailored to customers’ needs.
Partnering for food security About 800 million people – one in 11 – are chronically hungry and malnourished on the planet today. By 2050, the world’s population is expected to grow to an estimated 9 billion people, which will further aggravate the situation. Meeting this increasing demand for food will be particularly challenging, because supply is constrained by factors such as climate change effects, depleted agricultural soils and the distribution of land, water and energy.
Our notable achievements in 2017: ̤ We launched opti-crop, an app that enables farmers to track their fields in real time using high resolution satellite data. The increased transparency helps speed up the insurance uptake and supports the development of affordable insurance products; ̤ We continued to provide data and information about agricultural insurance through our fact sheet series, with new issues on Bolivia and Pakistan. We also launched a new series for Central America and the Caribbean that shows how agriculture can become more resilient in a region hit by hurricanes in 2017; ̤ Numerous stakeholders assembled at our agricultural conferences in Merida, Mexico and Kunming, China to discuss how farmers’ open roof business can be made more resilient against natural perils.
However, unconventional monetary policies implemented by central banks following the financial crisis of 2008 – 2009 present a challenge for our industry. These policies have contributed to an environment that is not conducive to sustainable economic growth.
As long-term investors, re/insurers could play a pivotal role in bridging the emerging infrastructure financing gap, which, in turn, would contribute to a healthier economic environment. But for that to happen, the right framework needs to be put in place. Standardisation of infrastructure investments would be an important step forward, while infrastructure debt as a tradable asset class would make this more attractive for long-term investors.
Our notable achievements in 2017: ̤ 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; ̤ We published a short video on the importance of resilient energy infrastructure and the need for an appropriate framework that enables long-term investors to provide capital for infrastructure projects; ̤ Our joint research project with the London School of Economics and Political Science (www.lse.ac.uk) on long-term investing and monetary policy continued.
In 2017, our team of sustainability experts decided in 12 Sensitive Business Risk assessments to proceed with conditions (see page 31). In most cases, these conditions required the particular underwriter to engage with the client on specific questions about human rights issues or environmental protection, in line with the requirements of the Ruggie Framework. In addition, we engaged with strategic clients that have a comparatively low sustainability
The project analyses how re/insurers, in particular, are affected by the ethical and legal challenges arising from the digital transformation and can address them. Furthermore, it examines whether legislation and regulations are fit to address them, and aims to propose a Big Data handling standard for the sector.
We also contributed to the publication “Big Data & Privacy: unlocking value for consumers” published by the CRO Forum (www.thecroforum.org). The publication looks at some of the potential challenges that may arise from using Big Data to improve insurance protection while ensuring data privacy and protection – in particular, in the context of the EU General Data Protection Regulation (GDPR), to be implemented in May 2018.
To support our dialogue with clients and industry partners about sustainability risks, we updated and expanded our publication on the Sustainability Risk Framework in 2016. During the reporting year, we had exchanges on this topic with a number of global re/insurance companies as well as corporate clients. Frequently, they approached us with questions about the SBR assessment tool and our internal due diligence process. Further discussion topics were sustainability risk management in general and climate change strategy, including the “Climaterelated Financial Disclosures” of the Financial Stability Board (FSB), which we have helped develop as a member of the FSB’s respective task force (www.fsb-tcfd.org).
On an industry-wide basis, we have played a major role in establishing and advancing the Principles for Sustainable
It was in this spirit that we launched the Swiss Re Institute in March 2017. The Institute functions on three levels. It builds and manages partnerships with world-class academic and research institutions (find out more on page 48), guides Swiss Re’s internal capital allocation and business steering processes, and provides our stakeholders with cutting-edge risk research.
Swiss Re Institute Symposia (EMEA) – The impact of technology on the risk and insurance landscape institute.swissre.com/events/ Swiss_Re_Institute_Symposium_ EMEA.html
Working with academic institutions Through the Swiss Re Institute, we build and manage partnerships with worldclass academic and research institutions (find out more on page 47), guide Swiss Re’s internal capital allocation and business steering processes and provide our stakeholders with cutting-edge risk research.
̤ We support the ETH Zurich Risk Center (www.riskcenter.ethz.ch/), which aims to advance a holistic, scientific approach to assessing and managing risks and educating a new generation of researchers; ̤ We support oasis (oasislmf.org/), an open source cat modelling platform free to use by anyone. It is owned by the re/insurance industry, with more than 40 re/insurance companies as members; ̤ With the Institute of Insurance Economics at the University of St. Gallen, HSG (www.ivw.unisg.ch/), we conduct industry-wide studies to better understand market dynamics.
The value of hedging New approaches to managing wind energy resource risk
Supported by: Barisal: helping a city prepare for climate change An Economics of Climate Adaptation study in Barisal, Bangladesh
By 2050, the farmers of our world are expected to have to feed a staggering 9.8 billion people, up from 7.5 billion today. With fertile soils and a conducive climate, Central America and the Caribbean are uniquely positioned to supply farm products to growing markets worldwide. But the outdoor business of farming is exposed to many perils in the region: hurricanes, droughts, floods and storms, all of which are set to increase with climate change. So what needs to be done to harvest the economic opportunities that lie ahead? Find out on the following pages where the region stands today and what measures will ensure resilient and profitable farming in the Caribbean and Central America.
Industry-first Global Storm Surge Zones Tropical cyclones put many areas of the world at risk from strong winds, storm surges and heavy rainfall. Hurricane Katrina in the US or Cyclone Nargis in Myanmar showed that if such storms hit flat coastal areas, storm surges can be the main driver of damage. While the loss potential is huge, there has only been limited availability of risk information and no global overview up to now. With the launch of the industry’s first Global Storm Surge Zones, Swiss Re is closing the gap. Our storm surge hazard zones enable our clients to pinpoint their storm surge risk with a consistent, worldwide, probabilistic and highresolution risk look-up in Swiss Re’s CatNet tool. The zones show that almost 230 million people – roughly 3% of the world’s population – are exposed to storm surge risk.
Furthermore, we apply sustainability guidelines to our sourcing and construction activities. Extending our efforts beyond our company, we continue to play an active role in the Swiss Climate Foundation.
Since 2015, our entire CRES division has been certified according to the ISO 14001 environmental management standard (www.iso.org), replacing the location-based approach previously used. This means that all our operations and employees are covered by an ISO 14001-certified environmental management system.
In 2017, some of our office locations also received certificates for their overall environmental quality: LEED Platinum for our office in Mumbai and LEED Gold for the one in Shanghai. The Green Building Council of Australia certified us with the 6 Star Green Star Interiors rating (signifying “World Leadership”) for our new Sydney office. (For Swiss Re Next, see page 57.)
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. Our strategy to tackle climate change rests on four pillars, one of which is our pledge to reduce our own CO2 emissions (see page 16).
Our Greenhouse Neutral Programme is the principal means to achieve this goal. It combines two commitments: firstly, to reduce our CO2 emissions per employee (full-time equivalent, FTE); secondly, to offset all the remaining emissions by purchasing high-quality emission reduction credits, thus making our company fully greenhouse neutral.
WEBSITE You can read more about the first phase of our Greenhouse Neutral Programme at www.swissre.com/ corporate_responsibility/ greenhouse_neutral.html kg/FTE
4 Our next biggest power consumption is in Slovakia with 3.1% and in India with 2.9% of the Group’s total.
In 2017, total CO2 emissions per employee (FTE) decreased by 5.6% and were thus 1.9% lower than in 2013. We achieved this reduction mainly by switching to renewable power in some of our Asian locations (see page 53) and by further cutting our energy intensity, eg through more efficient heating.
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 2017, 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 establish the Climate Group’s RE100 initiative in 2014 as a founding member.
The goal of this initiative is to unite the world’s most influential companies in a shared commitment to use 100% renewable power by 2020. To achieve this, the RE100 group approaches policymakers and regulators at national and sub-national level to make renewable energy more available. RE100 grew substantially again in 2017 and now includes more than 120 of the world’s largest companies.
Going beyond these collective efforts, we have recently started to build solar power plants at our own offices. You can read about our latest initiative in Bangalore on page 53. www.theRE100.org
In 2016, we also signed up to the EP100 initiative, launched by the Climate Group (www.theclimategroup. org) and the Global Alliance for Energy Productivity (www.globalproductivity. org). This is a shared commitment by leading global companies to double their energy productivity or, in other words, to get more economic output from each unit of energy. www.theclimategroup.org/project/ ep100/
Using renewable power Purchasing power from renewable rather than conventional sources has been a key measure of our Greenhouse Neutral Programme. Concluding a gradual build-up that started in 2005, we are now using 100% renewable power at all the Group’s locations where it is available in reliable and trustworthy quality (ie at a total of 25 locations in Asia, Europe, North America and Oceania). This means that approximately 84% of our total power consumption comes from renewable sources.
To assess the quality of the renewable power available in individual locations and select suitable sources, we use a “minimum standard” that clearly states how we define renewable power and what requirements it needs to meet. At our Zurich headquarters, for example, we only buy “naturemade star” electricity (www.naturemade.ch), which meets high ecological quality standards in its production beyond those required by environmental legislation. In Munich, we purchase our electricity from NaturEnergie (www.naturenergie.de), one of Germany’s premier suppliers of renewable energy.
For the current phase of our Greenhouse Neutral Programme from 2013 until 2020, our goal is to continuously reduce our energy intensity by 2% per year. At the end of 2017, the total reduction we had reached since 2013 was 24.3%. We partly achieved this by decommissioning existing office buildings and moving into more energy-efficient ones.
Bangalore is blessed with over 300 days of sunshine a year. So when we decided to consolidate our two existing offices in Bangalore, we looked for a building that would allow us to set up a solar plant on the rooftop.
Over a full year, the installation will produce about 500 000 kWh of electricity. This translates into savings of INR 4.55 million (approx. USD 70 000) per year. With an estimated payback period of about 4 to 4.5 years, it is thus an economically viable investment with a stable long-term cash flow.
Finally, the panels help to cool down the temperature of the space immediately below the roof by 2 to 4 degrees Celsius. This will bring down the air conditioning load, thereby further reducing energy consumption and costs.
All in all, we expect the solar power plant to save approximately 550 tonnes of CO2 emissions each year.
We continuously monitor all travel budgets and collect travel data centrally. Furthermore, we introduced an internal carbon levy on air travel in 2014, which uses the “polluter pays” principle. It allocates the costs of the Voluntary Emissions Reductions (VERs) we need to buy to offset our CO2 emissions to the Group’s Global Functions in proportion to their respective share of air travel; previously they had been borne centrally by Group Finance. This internal price on carbon heightens awareness of travel costs among our managers and employees and creates a further incentive to reduce air travel, in addition to flight costs.
Furthermore, it is difficult for us to influence water use and waste generation at locations where we rent office space. In the office buildings we own ourselves, though, we ensure that appliances meet high standards of water efficiency.
As paper use is more responsive to managerial action, we have taken a number of measures to reduce the average amount used by our employees in recent years. New IT solutions such as “pull printing” (which eliminates uncollected printouts), web-based collaboration and document management platforms have led to a significant decrease of paper use in all our locations. Average paper use per employee fell by 25% in 2017, mainly as a result of introducing pull printing at our US and UK locations, leading to a total reduction of more than 50% since 2013.
We have also continued our efforts to create more flexible and modern office environments that offer our employees optimal working conditions while, at the same time, using space and resources more effectively. The spread of digital communication and devices makes it possible to work seamlessly across different locations and devices, creating the foundation for a more flexible and informal workplace set-up that encourages teamwork. At Swiss Re Next, for example, this open workplace concept is a key feature. Although further reducing our environmental footprint is not the primary driver of these efforts, their potential to lower the energy intensity of our locations is nevertheless substantial.
Minimising business travel As a result of the substantial cuts we have achieved in CO2 emissions from power consumption and heating since 2003, business travel easily constitutes Swiss Re’s largest emissions source today. Since the business trips our employees take are ultimately driven by client needs, they are difficult to influence. However, we have taken several measures to reduce the need for business travel and to curb unnecessary business trips.
For a start, we have built up a dense network of video conferencing equipment across the Group. Recently, we partly replaced these facilities with state-of-the-art telepresence technology, which creates a real-time, life-size virtual meeting experience in specially designed rooms. By the end of 2017, we had a total of 157 video presence facilities worldwide.
WEBSITE You can find out about our engagement in the Swiss Climate Foundation at www.swissre.com/corporate_ responsibility/Partner_initiative_ Swiss_Climate_Foundation.html
Renewable biomass is being fed into the kiln of a ceramic factory in rural Brazil, replacing firewood as the primary source of fuel and thus substantially reducing CO2 emissions. We have supported this project through the Voluntary Emissions Reductions we have bought.
Deforestation is the largest source of greenhouse gas emissions in Brazil and illegal logging for firewood is a primary cause of this. Ceramics factories, for example, have long been using native wood to fire their kilns. This not only produces CO2 emissions, but also places the country’s native forests under significant threat of deforestation.
We have started to implement the platform in our Corporate Real Estate Sourcing category, which covers more than 50% of our expenditure in this area. Going forward, we plan to fully incorporate the platform into our sourcing processes across all sourcing categories. We have set ourselves the goal of including all our tier 1 and tier 2 vendors in the EcoVadis platform (www.ecovadis.com) by 2020. By the end of 2017, implementation was completed for 13% of these vendors and in progress or ready to be started for 30% of them.
Key sustainability features of Swiss Re Next: ̤ Two spacious atria and the glass facade bring daylight into the building and thus greatly reduce power consumption.
̤ A solar plant on the roof delivers 5–7% of our power consumption for the building. For the rest we buy certified “naturemade star” electricity from renewable sources.
̤ The building meets the tough standards of both the MINERGIE-PECO ® and LEED Platinum certificates.
 Together, these and further measures help reduce energy consumption at Swiss Re Next by 60% compared with the previous building, and by 80% per workspace.
Our walls are talking! Hear what they are saying: Download the Talking Walls app from the App Store or Google Play and discover bite-sized stories about Swiss Re Next, its sustainability features, workplace concept and artworks.
In 2017, we granted a total of 2 528 subsidies spread across three product categories: home appliances, home infrastructure and mobility. Over the past four years, electricity-powered mobility has become more prominent, with 555 subsidies for e-bikes, e-motorbikes, e-cars and plug-in hybrid electric cars.
Amongst the larger Swiss Re locations, uptakes per employee were highest in Slovakia and India. Our office in Slovakia has witnessed particularly strong growth in recent years. Many new employees there have made use of the opportunity to claim subsidies, eg for highly energyefficient fridges and washing machines as well as bicycles for their daily commute to work. In Europe, in general, mobility remains a popular category, with bicycles the most common type of subsidy.
In our Asian locations, energy efficient home appliances were particularly popular. In the Americas region, both home appliances and home infrastructure subsidies were sought-after subsidy categories.
Reducing our environmental footprint 50% Home appliances 13% Home infrastructure 37% Mobility
Swiss Re is a global company with a presence in all major markets and 29 countries. As of 31 December 2017, we employed 14 485 people (regular staff) from over 110 nationalities: 59.5% work in Europe, the Middle East and Africa (EMEA), 25.8% in the Americas and 14.7% in the Asia-Pacific region.
Swiss Re has a clear People Strategy which sets out what we want to achieve in order to create an environment that enables each one of us to give our personal best. We regard our People Strategy as our “North Star”: It provides us with clarity and direction, it is embedded in everything we do and defines our ambition for the future of Swiss Re.
Four core themes bring our strategy to life: ̤ Lead and develop: We aim to be known in the market both for our technical expertise and our leadership capabilities. Our employees inspire and engage each other across all levels through honest, constructive and timely dialogue and feedback. We invest in the career development of our people, which we see as a shared responsibility, with leaders investing their time and resources and employees taking ownership to drive their development.
Feedback from voluntary leavers also shows strong progress on our employer value proposition; our key strengths have become stronger and weaknesses have improved (overall the Net Promoter Score has increased by 20 points since 2013).
Embedding the behaviours we need for the future We believe that everyone at Swiss Re personally contributes to the future of our company by delivering to our clients, adding value to Swiss Re in the best way possible, and by creating an environment where teamwork is the norm. Our Personal and Leadership Imperatives set out the behaviours we need and expect from our leaders and employees to support our strategy and values. We aspire to achieve exceptional performance by embedding these imperatives into our culture and human capital processes, such as recruiting, our performance management practices and leadership development programmes.
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.
Investing in a strong leadership pipeline Our ambition is to strengthen the capabilities of our line managers and prepare them to meet the challenges of a rapidly changing environment. We are integrating our existing programme offerings into a new leadership development architecture, with a manager curriculum at every management level. Our manager curriculum is about accelerating the development of our line managers through targeted training, providing them with the skills and resources they need to lead, build and engage our people in the future.
Given our investment in leadership skills, we are pleased to start seeing evidence of an improved feedback culture and quality of development conversations: our 2017 EES results indicate that our employees feel we manage performance in a way that enables them to contribute as much as possible for the company’s success (+18 p.p. since 2015), they feel significantly more positive about their career opportunities (+13 p.p. since 2015), they know whom to go to for guidance and counselling about their career (+13 p.p. since 2015) and their managers provide valuable feedback that helps our employees develop professionally and personally (+6 p.p. since 2015).
Jennifer Reid of Finance Reinsurance Americas collects the STEVIE Silver Award we received for an interactive new finance training programme.
In 2017, we also embarked on a set of pilots, exploring more flexible, timely performance management approaches to strengthen Swiss Re’s culture of continuous feedback/dialogue, recognition of achievement, and personal growth and development. We are committed to continuing to improve our programmes and capitalise on digitization where possible, as we build our feedback culture.
In 2017, we again won a “Top Company for Graduates to Work for” award from TheJobCrowd, a popular graduate job review website in the UK.
Actuarial Development Programme We view superior actuarial expertise as a vital factor for our success. That is why we place great emphasis on globally recruiting top talents for our Actuarial Development Programme (ADP). The ADP is designed to provide support to full-time employees studying to be actuaries in many ways – from study allowances to mentoring and career development. In North America, we also offer internships for college students with work assignments and projects that are challenging, educational and promote personal and professional development. In 2017, we hired 12 ADP interns to join the programme which runs from May to August each year. The students worked in Fort Wayne, Armonk or Dallas.
Junior Power Originally launched in Zurich in 1981, our Junior Power programme was extended to Munich in 2008 and to London in 2014. In total, we have trained over 700 apprentices and trainees through the programme. Currently, 100 apprentices and trainees, aged between 15 and 25, are being trained in a broad range of occupations. We provide them with an innovative and high-quality learning environment that enables them to build up the competencies and skills they need for the labour market. In this way, we also make a positive contribution to youth employment. Participants of our Early Joiner programmes say that they particularly appreciate the multicultural and open environment we offer, as well as the daily exchange with specialists from various disciplines.
One of the key aspirations of our People Strategy is to attract and engage talented employees from different backgrounds by providing a flexible, inclusive and open culture where dialogue and different perspectives are valued. This aspiration is reflected in our Diversity and Inclusion (D&I) vision: “See, feel and live diversity – diversity of age, race, ethnicity, nationality, gender, gender identity, sexual orientation, religious beliefs, physical abilities, personalities and experiences – across all levels, functions and geographies of Swiss Re”.
We are committed to this vision because it supports an environment in which our employees value each other’s
Launched in 2016, our “Together with Pride” network promotes equal treatment for LGBTI+ (lesbian, gay, bisexual, transgender, gender fluid) employees and supports their integration at Swiss Re. 2017 showed a strengthening of our Together with Pride network, as new local chapters were started in Australia, New Zealand, Hong Kong and Latin America. Swiss Re is committed to raising awareness and ensuring equal treatment for all LGBTI+ employees across the globe, and to ensure that all our employees experience a safe, open and inclusive work environment regardless of their office location.
For many years, Swiss Re has partnered with The Insurance Supper Club, a network of senior women in the insurance industry, in several key locations. In 2017, we hosted their Zurich Leadership Networking Event “Competence creates a world of opportunity – we shouldn’t be afraid to try new things”. It provided senior Swiss Re leaders with a platform to exchange with colleagues from other insurance companies and share best practice approaches with respect to gender equality.
Achieving gender equality at Swiss Re Swiss Re is deeply committed to the United Nation’s Sustainable Development Goal #5: “To achieve gender equality and empower all women and girls”. At Swiss Re, we believe that increasing gender balance in leadership is a strategic imperative that is critical to our future business success.
At our Swiss corporate headquarters, we reassessed ourselves against the EDGE best practice standard for gender equality (Economic Dividends for Gender Equality, www.edge-cert.com). This objective measurement strongly supports our global interventions, steering us towards implementing further gender equality best practices.
We set high standards in terms of caring for the physical and mental wellbeing of our employees and aim to provide a healthy workplace that helps our employees take a constructive approach to their own wellbeing, while improving and retaining their ability to perform.
Pathways, our Mental Health Network, was launched in the UK in February 2017. The network’s mission is to allow employees to bring their whole selves to work; to allow them to feel accepted and included and to reduce the stigma surrounding mental health issues. Training and awareness sessions have been at the core of our work since the launch. Across the globe, we also hold various local events on topics such as work stress, mental health and awareness trainings. For example, in South Korea we held two learning sessions on stress management that taught to understand stress and how to manage it properly. In Bangalore, we organised a mindfulness talk show where employees learned about the practice and benefits to reduce stress at work. To help our people stay fit, we provide onsite fitness centres and classes, for instance, in Switzerland.
Being a parent at Swiss Re At Swiss Re, we understand that having children and bringing them up is a source of great joy; that one’s life takes on a new quality that shapes the day-today routine. We want to help our employees balance their career and family responsibilities and it is important to us that our employees can always put their families first. Therefore, we offer a range of programmes, services and support.
In general, our employees can count on diverse options, such as additional family allowance, one-off childbirth allowance, additional paid maternity and paternity leave, or the option to take unpaid leave. These benefits are tailored to the local needs of our workforce and therefore differ from region to region. In and around Zurich, for instance, we offer a number of reserved places at day care centres. In Bratislava – one of our high growth locations – we have honoured the concept of “maternity buddies” since 2015: Every mother on maternity leave has a maternity buddy who informs her about current activities in the team, news concerning the organisation as well as open positions to encourage their return.
Employee relations 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.
Swiss Re is committed to having 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 the Group needs to succeed globally as well as to create a tangible link between performance and pay. The aim is to provide compensation that is competitive in local labour markets and to ensure that employees focus on delivering outstanding results while supporting appropriate and controlled risk-taking.
For most employees, total compensation comprises base salary and the Annual Performance Incentive (API), which is linked to both individual and business/ company performance.
We also encourage our employees to own Swiss Re shares by providing opportunities to participate in both the Global Share Participation Plan and the Incentive Share Plan.
expectations. Measuring a company’s corporate governance based on environmental, social and governance (ESG) criteria is gaining in importance.
Ensuring good corporate governance and compliance Swiss Re’s corporate governance is embedded in our culture.
Corporate governance developments and trends are changing rapidly and are based on enhanced regulation and evolving political parameters representing a comprehensive topic for the Board of Directors to deal with. A company’s corporate governance does not only need to incorporate legal and regulatory requirements but also has to respond to increasing stakeholder
̤ the SIX Swiss Exchange’s Directive on Information Relating to Corporate Governance, including its annex; ̤ the principles of the Swiss Code of Best Practice for Corporate Governance (Swiss Code) of September 2014, issued by economiesuisse, the Swiss business federation; and
In our Corporate Responsibility Report, we highlight key elements of Swiss Re’s corporate governance, in particular with respect to its structure, the independence of the Board of Directors, conflicts of interest procedures and shareholder rights. Comprehensive information on Swiss Re’s corporate governance is available in the 2017 Financial Report on pages 92–135.
other than serving as an independent board member in any subsidiary. In addition, the Board of Directors agrees on other criteria that disqualify a Board member from being considered independent, taking into consideration provisions of applicable law, regulations and best practice.
The SRL Bylaws define the governance framework of SRL and the Group, including the responsibilities and authorities 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.
Independence of the Board of Directors and conflicts of interest procedures The SRL 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 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)
SRL’s Articles of Association allow any shareholder with voting rights to have his or her shares represented at any General Meeting of shareholders by another person authorised in writing or by the Independent Proxy. Such representatives need not be shareholders.
The Code is supported by detailed policies and standards that document Swiss Re’s requirements in line with applicable laws and regulations. It is available to our employees in eight languages: English, French, German, Italian, Japanese, Portuguese, Slovak and Spanish.
Below we present additional information on some key topics in the Code: Bribery and corruption The Code addresses our position on bribery and corruption. It clearly states that “we conduct business fairly without accepting or offering benefits intended to improperly influence decisionmaking ”.
The Code is supported by our Global Policy on Financial Crime and our Global Standard on Anti-Bribery and Corruption, which emphasise 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 standard specify the correct procedures to be followed, including dealing with public officials and making entries in the gift and hospitality register.
Money laundering The Code draws attention to the risk of becoming unintentionally involved in money laundering and emphasises the importance of due diligence.
Who we are The Foundation reflects Swiss Re’s social and humanitarian values. We partner with social entrepreneurs, aid organisations, researchers and Swiss Re employees and clients to help communities increase their resilience.
What we respond to Threats to: ̤ Health ̤ Security ̤ Prosperity ̤ Opportunity
Who we support ̤ Social entrepreneurs ̤ NGOs ̤ Academic institutions that help communities increase their resilience
The Swiss Re Foundation in 2017 – Voices for change We have refreshed our reporting approach, showcasing fewer initiatives in greater depth and letting powerful photography tell more of the underlying story.
We have been engaged to perform a limited assurance engagement on the consolidated CO2 emissions reporting and Corporate Responsibility topics and sections disclosed with the 2017 Swiss Re Corporate Responsibility Report (“CR Report 2017”).
Criteria The management reporting processes with respect to the CR Report 2017 were assessed against the internal and external policies and procedures as set forth in the following: ̤ “Internal Environmental Performance
Indicators for the Financial Industry” published by the Verein für Umweltmanagement in Banken, Sparkassen und Versicherungen e.V. (VfU) published in 1997 and 2011; ̤ “The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition) published in 2001 by the World Resources Institute and the World Business Council for Sustainable Development; ̤ The framework document “Environmental Performance Indicators (EPI) Reporting at Swiss Re”, version 1.1 from December 2015 including Annex; and
Inherent limitations The accuracy and completeness of CR indicators are subject to inherent limitations given their nature and methods for determining, calculating and estimating such data. Greenhouse gas quantification is subject to inherent uncertainty because of incomplete scientific knowledge used to determine emissions factors and the values needed to combine emissions of differ ent gases. Our assurance report should therefore be read in connection with Swiss Re’s internal guidelines, definitions and procedures on the reporting of its CR performance.
Swiss Re’s responsibility Swiss Re management is responsible for both the subject matter and the criteria as well as for selection, preparation and presentation of the selected information in accordance with the criteria. This responsibility includes the design, implementation and maintenance of related internal control relevant to the calculation of the CR indicators that is free from material misstatement, whether due to fraud or error.
We conducted our limited assurance engagement in accordance with International Standard on Assurance Engagements 3000 (revised), Assurance Engagements other than Audits or Reviews of Historical Financial Information’, and, in respect of greenhouse gas emissions, International
Summary of work performed Our assurance procedures included the following work: ̤ Evaluation of the application of
Conclusion Based on our work described in this report, nothing has come to our attention that causes us to believe that the corporate responsibility data and information outlined in the scope and subject matter section has not been prepared, in all material aspects, in accordance with Swiss Re internal policies and procedures.
FSB Task Force on Climate-related Financial Disclosures The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. Its Task Force on Climate-related Financial Disclosures (TCFD) is developing voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. www.fsb-tcfd.org
TheJobCrowd: Top Companies for Graduates to Work for, 2017 We won first place in the “Banking and Finance” category, after coming first in the “Accountancy and Insurance” category in 2015 and 2016 (see page 64).
Environmental Finance: Deal of the Year for Weather Risk, 2016 Swiss Re Corporate Solutions won this award from Environmental Finance magazine for the second time in a row, this time for a wind hedge in Australia.