The category “Other invested assets” includes the Group’s private equity and hedge fund investments which are made directly or via ownership of funds. Substantially all these investments are classified as level 3 due to the lack of observable prices and significant judgment required in valuation. Valuation of direct private equity investments requires significant management judgment due to the absence of quoted market prices and the lack of liquidity. Initial valuation is based on the acquisition cost, and is further refined based on the available market information for the public companies that are considered comparable to the Group’s holdings in the private companies being valued, and the private company-specific performance indicators; both historic and projected. Subsequent valuations also reflect business or asset appraisals, as well as market transaction data for private and public benchmark companies and the actual companies being valued, such as financing rounds and mergers and acquisitions activity. The Group’s holdings in the private equity and hedge funds are generally valued utilising net asset values (NAV), subject to adjustments, as deemed necessary, for restrictions on redemption (lock-up periods and amount limitations on redemptions).
Interest rate contracts –2 123 –2 123 Foreign exchange contracts –428 –428 Derivative equity contracts –14 –527 –190 –731 Credit contracts –11 –38 –49 Other contracts –8 –765 –773
Assets Fixed income securities held for proprietary investment purposes 12 530 73 738 401 86 669
Debt securities issued by US government and government agencies 12 530 1 797 14 327 US Agency securitised products 3 252 3 252 Debt securities issued by non-US governments and government agencies 30 692 30 692
Equity securities backing unit-linked and with-profit business 20 034 11 20 045 Equity securities held for proprietary investment purposes 4 050 39 4 089
2 In the first quarter 2014, the Group changed the valuation of short-term investments from amortised cost to fair value. There is no material impact to net income, total assets or shareholders’ equity.
Realised/unrealised gains/losses: Included in other comprehensive income 5 –5 –18 –18 0
Closing balance as of 31 December 401 39 521 1 812 2 773 –757 –187 –944 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) The gains and losses relating to the assets and liabilities measured at fair value using significant unobservable inputs (level 3) for the years ended 31 December were as follows: USD millions 2013 2014
Sensitivity of recurring level 3 measurements to changes in unobservable inputs The significant unobservable input used in the fair value measurement of the Group’s private placement corporate debt securities and private placement credit tenant leases is illiquidity premium. A significant increase (decrease) in this input in isolation would result in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Group’s variable annuity and fair valued guaranteed minimum death benefit (GMDB) contracts are: risk margin, volatility, lapse, mortality adjustment rate and withdrawal rate. A significant increase (decrease) in isolation in each of the following inputs: risk margin, volatility and withdrawal rate would result in a significantly higher (lower) fair value of the Group’s obligation. A significant increase (decrease) in isolation in a lapse rate for in-the-money contracts would result in a significantly lower (higher) fair value of the Group’s obligation, whereas for out-of-the-money contracts, an isolated increase (decrease) in a lapse assumption would increase (decrease) fair value of the Group’s obligation. Changes in the mortality adjustment rate impact fair value of the Group’s obligation differently for livingbenefit products, compared to death-benefit products. For the former, a significant increase (decrease) in the mortality adjustment rate (ie increase (decrease) in mortality, respectively) in isolation would result in a decrease (increase) in fair value of the Group’s liability. For the latter, a significant increase (decrease) in the mortality adjustment rate in isolation would result in an increase (decrease) in fair value of the Group’s liability.
Other invested assets The Group elected the fair value option for certain investments classified as equity method investees within other invested assets in the balance sheet. The Group applied the fair value option, as the investments are managed on a fair value basis. The changes in fair value of these elected investments are recorded in earnings.
Liabilities for life and health policy benefits The Group elected the fair value option for existing GMDB reserves related to certain variable annuity contracts which are classified as universal life-type contracts. The Group has applied the fair value option, as the equity risk associated with those contracts is managed on a fair value basis and it is economically hedged with derivative options in the market.
Private equity funds 735 710 278 non-redeemable n.a. Hedge funds 749 344 redeemable1 45–95 days2
Private equity direct 138 109 non-redeemable n.a. Real estate funds 231 203 74 non-redeemable n.a.
Assets and liabilities not measured at fair value but for which the fair value is disclosed Assets and liabilities not measured at fair value but for which the fair value is disclosed as of 31 December, were as follows: Policy loans, other loans and certain mortgage loans are classified as level 3 measurements, as they do not have an active exit market. The majority of these positions need to be assessed in conjunction with the corresponding insurance business. Considering these circumstances, the Group presents the carrying amount as an approximation for the fair value.
The Group uses a variety of derivative financial instruments including swaps, options, forwards, credit derivatives and exchangetraded 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.
Fair values and notional amounts of derivative financial instruments As of 31 December, the fair values and notional amounts of the derivatives outstanding were as follows: The notional amounts of derivative financial instruments give an indication of the Group’s volume of derivative activity. The fair value assets are included in “Other invested assets” and the fair value liabilities are included in “Accrued expenses and other liabilities”. The fair value amounts that were not offset were nil as of 31 December 2013 and 2014.
Non-hedging activities The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of derivative financial instruments not designated as hedging instruments are recorded in “Net realised investment gains/losses — nonparticipating business” in the income statement. For the years ended 31 December, the gains and losses of derivative financial instruments not designated as hedging instruments were as follows: Hedging activities The Group designates certain derivative financial instruments as hedging instruments. The designation of derivative financial instruments is primarily used for overall portfolio and risk management strategies. As of 31 December 2013 and 2014, the following hedging relationships were outstanding: Fair value hedges The Group enters into foreign exchange swaps to reduce the exposure to foreign exchange volatility for certain of its issued debt positions and fixed income securities. Previously, the Group has entered into interest rate swaps to reduce the exposure to interest rate volatility. These derivative instruments are designated as hedging instruments in qualifying fair value hedges. Gains and losses on derivative financial instruments designated as fair value hedging instruments are recorded in “Net realised investment gains/losses — non-participating business” in the income statement. For the years ended 31 December, the gains and losses attributable to the hedged risks were as follows: Hedges of the net investment in foreign operations The Group designates derivative and non-derivative monetary financial instruments as hedging the foreign currency exposure of its net investment in certain foreign operations.
For the years ended 31 December 2013 and 2014, the Group recorded an accumulated net unrealised foreign currency remeasurement gain of USD 29 million and a gain of USD 894 million, respectively, in shareholders’ equity. These offset translation gains and losses on the hedged net investment.
Derivatives not designated as hedging instruments Interest rate contracts –241 –225 Foreign exchange contracts –584 42 Equity contracts –962 –172 Credit contracts –71 9 Other contracts 1 728 –312 Total gain/loss recognised in income –130 –658
Maximum potential loss In consideration of the rights of set-off and the qualifying master netting arrangements with various counterparties, the maximum potential loss as of 31 December 2013 and 2014 was approximately USD 1 746 million and USD 1 817 million, respectively. The maximum potential loss is based on the positive market replacement cost assuming non-performance of all counterparties, excluding cash collateral.
The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 305 million and USD 112 million as of 31 December 2013 and 2014, respectively. For derivative financial instruments containing credit risk-related contingent features, the Group posted collateral of USD 2 million and USD 6 million as of 31 December 2013 and 2014, respectively. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 106 million additional collateral would have had to be posted as of 31 December 2014. The total equals the amount needed to settle the instruments immediately as of 31 December 2014.
Financial statements I Notes to the Group financial statements 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. Interest expense is classified accordingly.
The Groupʼs debt as of 31 December was as follows: The Group uses debt for general corporate purposes and to fund discrete pools of operational leverage and financial intermediation assets. Operational leverage and financial intermediation are subject to asset and liability matching, resulting in little to no risk that the assets will be insufficient to service and settle the liabilities. Debt used for operational leverage and financial intermediation is treated as operational debt and excluded by the rating agencies from financial leverage calculations. Certain debt positions are limited- or non-recourse, meaning the debtorsʼ claims are limited to assets underlying the financing. As of 31 December 2013 and 2014, debt related to operational leverage and financial intermediation amounted to USD 9.0 billion (thereof USD 6.1 billion limited- or non-recourse) and USD 4.7 billion (thereof USD 3.4 billion limited- or non-recourse), respectively.
Long-term debt – financial and operational debt 14 722 12 615
Maturity Instrument Issued in Currency Nominal in millions Interest rate Book value in USD millions 2018 Syndicated revolving credit facility 2014 GBP 550 variable 854
Maturity Instrument Issued in Currency Nominal in millions Interest rate First call in Book value in USD millions 2024 Subordinated contingent write-off loan note 2013 USD 750 6.38% 2019 829 2042 Subordinated fixed-to-floating rate loan note 2012 EUR 500 6.63% 2022 597 2044 Subordinated fixed rate resettable callable 2045 Subordinated contingent write-off securities 2013 CHF 175 7.50% 2020 212 2057 Subordinated private placement (amortising,
Subordinated perpetual loan note 2006 EUR 1 000 5.25% 2016 1 209 Subordinated perpetual loan note 2006 USD 752 6.85% 2016 752 Subordinated perpetual loan note 2007 GBP 500 6.30% 2019 778 Subordinated perpetual loan note 2007 AUD 300 7.64% 2017 245
Interest expense on long-term debt and contingent capital instruments Interest expense on long-term debt for the years ended 31 December was as follows: Interest expense on contingent capital instruments was USD 67 million and USD 69 million for the years ended 31 December 2013 and 2014, respectively.
Long-term debt issued in 2014 In April 2014, Swiss Re Life Capital Ltd entered into a GBP 550 million revolving credit facility with a syndicate of banks. The facility has an expiry date of 7 April 2018. At 31 December 2014, the facility was fully drawn.
In September 2014, Swiss Re Corporate Solutions Ltd issued a 30-year subordinated fixed rate resettable callable loan note with a first optional redemption date on 11 September 2024 and a scheduled maturity in 2044. The note has a face value of USD 500 million, with a fixed coupon of 4.5% per annum until the first optional redemption date.
In September 2014, Swiss Reinsurance Company Ltd issued 10-year senior notes maturing in 2024. The notes have a face value of CHF 250 million, with a fixed coupon of 1% per annum.
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).
Both instruments 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 (CHF 26 for the instrument with face value of CHF 320 million and USD 32 for the instrument with face value of USD 750 million, respectively). These instruments are referred to in these financial statements as “contingent capital instruments”.
Senior financial debt 148 120 Senior operational debt 48 16 Subordinated financial debt 286 300 Subordinated operational debt 246 231
Dividends are declared in Swiss francs. During the years ended 31 December 2013 and 2014, the Group declared regular dividends per share of CHF 3.50 and CHF 3.85, respectively, as well as additional special dividends of CHF 4.00 and CHF 4.15, respectively. All dividends were paid in the form of withholding tax exempt repayments of legal reserves from capital contributions.
Income tax at the Swiss statutory tax rate of 21.0% 1 013 888 Increase (decrease) in the income tax charge resulting from: Foreign income taxed at different rates 61 137 Impact of foreign exchange movements –8 –86 Tax exempt income/dividends received deduction –164 –105 Change in valuation allowance –257 99 Basis differences in subsidiaries –152 –155 Change in liability for unrecognised tax benefits including interest and penalties –144 –207 Other, net –37 87
The Group also had capital loss carryforwards of USD 1 511 million, expiring as follows: USD 81 million in 2019, USD 1 430 million never expire.
Income taxes paid in 2013 and 2014 were USD 447 million and USD 509 million, respectively.
Gross deferred tax asset 6 698 7 077 Valuation allowance –935 –935 Unrecognised tax benefits offsetting benefits on loss carryforwards1 –24 Total deferred tax assets 5 763 6 118
Deferred tax liabilities Present value of future profits –727 –640 Income accrued/deferred –642 –929 Bond amortisation –206 –374 Deferred acquisition costs –721 –730 Technical provisions –2 845 –3 104 Unrealised gains on investments –589 –1 657 Untaxed realised gains –524 –394 Foreign exchange provisions –132 –279 Other –705 –671 Total deferred tax liabilities –7 091 –8 778
Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 778 million and USD 539 million at 31 December 2013 and 2014, respectively.
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense in 2014 was USD 19 million (USD 128 million in 2013). As of 31 December 2013 and 2014, USD 138 million and USD 112 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2014 is included within the deferred and other non-current taxes section reflected above and in the balance sheet.
The balance of gross unrecognised tax benefits as of 31 December 2014 presented in the table above excludes accrued interest and penalties of USD 112 million.
The following table summarises jurisdictions and tax years that remain subject to examination: USD millions 2013 2014
Additions based on tax positions related to current year 88 26 Additions based on tax positions related to prior years 158 71 Reduction for tax positions of current year –137 Reductions for tax positions of prior years –392 –248 Settlements –90 –90 Other (including foreign currency translation) 21 –56 Balance as of 31 December 1 013 579
Non-current assets 208 208 Current liabilities –3 –15 –18 Non-current liabilities –150 –240 –356 –746 Net amount recognised –150 –35 –371 –556 14 Benefit plans
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows: Components of net periodic benefit cost The components of pension and post-retirement cost for the years ended 31 December, were as follows: 2013 USD millions Swiss plan Foreign plans Other benefits Total
Net gain/loss 521 385 –109 797 Prior service cost/credit –2 2 –88 –88 2014 USD millions Swiss plan Foreign plans Other benefits Total
Prior service cost/credit –87 2 –77 –162 2013 USD millions Swiss plan Foreign plans Other benefits Total
Expected return on assets –102 –99 –201 Amortisation of: Net gain/loss 57 18 –6 69 Prior service cost –10 –10
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended 31 December were as follows: The estimated net loss and prior service credit for the defined benefit pension plans that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2015 are USD 92 million and USD 9 million, respectively. The estimated net gain and prior service credit for the other defined post-retirement benefits that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2015 are USD 4 million and USD 10 million, respectively.
Net gain/loss –457 15 –46 –488 Prior service cost/credit 0 Amortisation of: Net gain/loss –57 –18 6 –69 Prior service cost 10 10
The expected long-term rates of return on plan assets are based on long-term expected inflation, interest rates, risk premiums and targeted asset category allocations. The estimates take into consideration historical asset category returns.
Assumed medical trend rates at year end Medical trend – initial rate 6.0% 6.0% Medical trend – ultimate rate 4.5% 4.5% Year that the rate reaches the ultimate trend rate 2018 2019
Effect on total of service and interest cost components 1 –1 Effect on post-retirement benefit obligation 28 –24
Assets measured at fair value For a description of the different fair value levels and valuation techniques see Note 9 “Fair value disclosures”.
Other assets classified within level 3 mainly consist of private equity investments valued with the same methodology as mentioned in Note 9.
Swiss plan allocation Foreign plans allocation 2013 2014 Target allocation 2013 2014 Target allocation
Debt securities issued by the US government and government agencies 136 136 Debt securities issued by non-US governments and government agencies 1 028 1 028
Total assets at fair value 1 236 3 714 763 5 713 2014 USD millions
Debt securities issued by the US government and government agencies 9 146 155 Debt securities issued by non-US governments and government agencies 890 890
Assets measured at fair value using significant unobservable inputs (Level 3) For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs were as follows: Expected contributions and estimated future benefit payments The employer contributions expected to be made in 2015 to the defined benefit pension plans are USD 257 million and to the post-retirement benefit plan are USD 15 million.
As of 31 December 2014, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows: Defined contribution pension plans The Group sponsors a number of defined contribution plans to which employees and the Group make contributions. The accumulated balances are paid as a lump sum at the earlier of retirement, termination, disability or death. The amount expensed in 2013 and in 2014 was USD 74 million and USD 79 million, respectively.
As of 31 December 2013 and 2014 the Group had the share-based compensation plans as described below.
A summary of the activity of the Group’s stock option plans is as follows: The weighted remaining contractual life is 1.4 years and all stock options outstanding are also exercisable. The fair value of each option grant was estimated on the date of grant using a binomial option-pricing model. The underlying strike price for the outstanding options has been adjusted for the special dividend payout in 2013 and 2014.
Restricted shares The Group granted 10 458 and 25 153 restricted shares to selected employees in 2013 and 2014, respectively. Moreover, as an alternative to the Group’s cash bonus programme, 295 535 and 302 260 shares were delivered during 2013 and 2014, respectively, which are not subject to forfeiture risk.
Delivery of restricted shares 73 –277 551 Outstanding as of 31 December 73 578 836 1 Equals the market price of the shares on the date of grant.
Long-term Incentive Plan Between 2006 and 2011, the Group annually granted a Long-term Incentive plan (LTI) to selected employees with a three-year vesting period. The requisite service period as well as the maximum contractual term for each plan is three years and the final payment, if any, occurs at the end of this performance measurement period. The plans include a payout factor which was derived from Return on Equity (ROE) and Earnings per Share (EPS) targets over the vesting period. The payout ratio can vary between 0 and 2 and the final payment for each plan will depend on whether the performance targets have been achieved over the plan period. The fair values of the plans are based on stochastic models which consider the likelihood of achieving performance targets and the impact of dividends.
The 2011 LTI grant was settled in shares in March 2014. The payout factor was driven by average ROE and average EPS over the vesting period. The share price used for measurement is based on the date of grant and was CHF 39.39.
For the year ended 31 December 2014, no units were outstanding: Leadership Performance Plan During 2011 the Compensation Committee reviewed the existing long-term incentive scheme, and in March 2012, the LTI was replaced by a new plan called the Leadership Performance Plan (LPP). The LPP plans are expected to be settled in shares, and the requisite service as well as the maximum contractual term are three years. For the LPP 2014 an additional two-year holding period applies for all Group EC and GMB members. At grant date the award is split equally into two underlying components - Restricted Share Units (RSU) and Performance Share Units (PSU). The RSU component is measured against a ROE performance condition and will vest within a range of 0–100%. The PSU is based on relative total shareholder return, measured against a predefined basket of peers and will vest within a range of 0–200%. The fair values of both components are measured separately, based on stochastic models.
The fair value assumptions included in the grant valuation are based on market estimates for dividends (and an additional special dividend of CHF 4.00 for the LPP 2013, respectively a special dividend of CHF 4.15 for the LPP 2014) and the risk free rate based on the average of the 5-year US government rate taken monthly over each annual period in the performance period. This resulted in risk free rates between 1.0 and 3.1% for LPP 2012, LPP 2013 and LPP 2014.
Unrecognised compensation costs As of 31 December 2014, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based compensation awards was USD 61 million and the weighted average period over which that cost is expected to be recognised is 1.8 years.
The number of shares authorised for the Group’s share-based payments to employees was 5 538 418 and 3 930 229 as of 31 December 2013 and 2014, respectively. The Group’s policy is to ensure that sufficient treasury shares are available at all times to settle future share-based compensation plans.
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 2013 and 2014, Swiss Re contributed USD 3 million and USD 7 million to the plans and authorised 28 218 and 109 461 shares as of 31 December 2013 and 2014, respectively.
The disclosure requirements under Swiss Company 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 138–143 of the Financial Report of the Swiss Re Group.
The disclosure requirements under Swiss Company 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 254–255 of the Annual Report of Swiss Re Ltd.
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 2013 and 2014, respectively.
Share ownership and loans extended to members of BoD and Group EC are disclosed in Note 16 Compensation, participations and loans of members of governing bodies in the financial statements of Swiss Re Ltd. 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.
Share in earnings and dividends received from equity-accounted investees for the years ended 31 December, were as follows: USD millions 2013 2014
Total operating lease commitments 586 Less minimum non-cancellable sublease rentals 42 Total net future minimum lease commitments 544
Financial statements I Notes to the Group financial statements 19 Significant subsidiaries and equity investees
Germany Swiss Re Germany AG, Unterföhring bei München EUR 45 100 f
Method of consolidation f full e equity fv fair value 1 Net asset value instead of share capital
Luxembourg 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 10 397 100 f Swiss Re International SE, Luxembourg EUR 182 100 f
Cayman Islands Ampersand Investments (UK) Limited, George Town GBP 353 100 f FWD Group Ltd., George Town USD 0 12 e Swiss Re Strategic Investments UK Limited, George Town GBP 211 100 f
United States Aurora National Life Assurance Company, Wethersfield USD 3 100 f Facility Insurance Corporation, Austin USD 1 100 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 SR Corporate Solutions America Holding Corporation, Wilmington USD 0 100 f Sterling Re Inc., Burlington USD 21 100 f Swiss Re America Holding Corporation, Wilmington USD 0 100 f Swiss Re Capital Markets Corporation, New York USD 0 100 f Swiss Re Corporate Solutions Global Markets Inc., New York USD 0 100 f Swiss Re Financial Markets Corporation, Wilmington USD 0 100 f Swiss Re Financial Products Corporation, Wilmington USD 2 116 100 f Swiss Re Financial Services Corporation, Wilmington USD 0 100 f Swiss Re Life & Health America Inc., Hartford USD 4 100 f Swiss Re Partnership Holding, LLC, Dover USD 368 100 f Swiss Re Risk Solutions Corporation, Wilmington USD 0 100 f Swiss Re Solutions Holding Corporation, Wilmington USD 9 100 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
Vietnam Vietnam National Reinsurance Corporation, Hanoi VND 1 008 277 25 e
Typically, the variable interests held by the Group arise through ownership of insurance-linked and credit-linked securities, in which case maximum loss equals to the Group’s investment balance.
Generally, the activities of a securitisation vehicle are pre-determined at formation. There are substantially no ongoing activities during the life of the VIE that could significantly impact the economic performance of the vehicle. Consequently, the main focus to identify the primary beneficiary is on the activities performed and decisions made when the VIE was designed.
Life and health funding vehicles The Group participates in certain structured transactions that retrocede longevity and mortality risks to captive reinsurers with an aim to provide regulatory capital credit to a transaction sponsor through creation of funding notes by a funding vehicle which is generally considered a VIE. The Group’s participation in these transactions is generally limited to providing contingent funding support via a financial contract to a funding vehicle, which represents a potentially significant variable interest. The Group does not have power to direct activities of the funding vehicles and therefore is not a primary beneficiary of the funding vehicles in these transactions. The Group’s maximum exposure in these transactions equals either the total contract notional or funding notes issued by the vehicle, depending on the specific contractual arrangements.
Fixed income securities available-for-sale 6 490 6 490 4 200 4 200
Other invested assets 8 16 Cash and cash equivalents 162 162 25 25
Deferred and other non-current tax liabilities 177 177 Short-term debt 62 62 Accrued expenses and other liabilities 20 20 7 7
Non-consolidated VIEs The following table shows the total assets and liabilities in the Group’s balance sheet related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: The following table shows the Group’s assets, liabilities and maximum exposure to loss related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: The assets and liabilities for the swaps in trusts represent the positive and negative fair values of the derivatives the Group has entered into with the trusts. Liabilities are recognised for certain debt financing VIEs when losses occur. To date, the respective debt financing VIEs have not incurred any losses. Liabilities of USD 85 million recognised for the “Other” category relate mainly to a guarantee granted.
Short-term debt 417 Accrued expenses and other liabilities 422 167 Total liabilities 839 167
In 2014, the Group set up a provision of USD 16 million for restructuring costs, and released USD 3 million.
The increase of the provision in the Property & Casualty Reinsurance business segment of USD 16 million is mostly related to office structure simplification costs and leaving benefits.
For the years ended 31 December, restructuring provision developed as follows: 2013 USD millions
Increase in provision 46 46 Release of provision –2 –2 Costs incurred –12 –1 –1 –14 2014 USD millions
The Group CRO, who is a member of the Group EC, reports directly to the Group CEO as well as to the Board’s Finance and Risk Committee. He leads the Group Risk Management function, which is responsible for risk oversight and control across Swiss Re. The Group Risk Management function is comprised of central risk management units providing shared services, along with dedicated teams for the Reinsurance, Corporate Solutions, and Admin Re® Business Units.
The three Business Unit risk teams are led by dedicated Chief Risk Officers, who report directly to the Group CRO and have a secondary reporting line to their respective Business Unit CEO. The Business Unit CROs are responsible for risk oversight in their respective Business Unit, as well as for establishing proper risk governance to ensure efficient risk identification, assessment and control. They are supported by functional, regional and legal entity CROs, who are responsible for overseeing risk management issues that arise at regional or legal entity level.
Risk management activities are also supported by our Group Internal Audit and Compliance units. Group Internal Audit performs independent, objective assessments of adequacy and effectiveness of internal control systems. It evaluates execution processes of Swiss Re, including those within Risk Management. Our Compliance function oversees Swiss Re’s compliance with applicable laws, regulations, rules, and the Group’s Code of Conduct. In addition, it assists the Board of Directors, the Group EC and management in identifying, mitigating and managing compliance risks. For more information on our audit and compliance functions, see page 95 of this Financial Report.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the over-all presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Income/loss before income tax expense 2 057 4 670 4 313 –1 074 920 2 675 2 875 5 523 4 825 4 227 Income tax expense –205 –1 033 –853 411 –221 –541 –77 –1 125 –312 –658 Net income/loss before attribution of non-controlling interests 1 852 3 637 3 460 –663 699 2 134 2 798 4 398 4 513 3 569
Income/loss attributable to non-controlling interests –154 –172 –141 –2 0 Net income after attribution of non-controlling interests 1 852 3 637 3 460 –663 699 1 980 2 626 4 257 4 511 3 569
Interest on contingent capital instruments –203 –1 117 0 –56 –67 –69 Net income/loss attributable to common shareholders 1 852 3 637 3 460 –663 496 863 2 626 4 201 4 444 3 500
Liabilities Unpaid claims and claim adjustment expenses 54 447 77 829 78 195 70 944 68 412 64 690 64 878 63 670 61 484 57 954 Liabilities for life and health policy benefits 23 583 36 779 44 187 37 497 39 944 39 551 39 044 36 117 36 033 33 605
Group’s average exchange rates for the income statements and year-end rates for the balance sheets. 3 The Group updated its balance sheet presentation of deferred tax assets and liabilities. Deferred tax assets and liabilities are presented on a gross basis as per the first quarter 2013. The comparative period has been adjusted accordingly and is consistent with the relevant income tax disclosure in the notes to the financial statements in the prior year.
Net realised investment gains/losses 2 793 1 679 –615 –8 677 875 2 783 388 2 688 3 325 1 059 Trading revenues 278
Amortisation of goodwill Other operating costs and expenses –2 477 –3 679 –4 900 –4 358 –3 976 –3 620 –3 902 –3 953 –4 268 –3 876
Earnings/losses per share in USD 5.98 10.75 9.94 –2.00 1.46 2.52 7.68 11.85 12.97 10.23 Earnings/losses per share in CHF 7.44 13.49 11.95 –2.61 1.49 2.64 6.79 11.13 12.04 9.33 1 Trading revenues are included in net investment income; long-term debt also includes debt positions from former Financial Markets. 2 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
Assets Total assets increased from CHF 20 116 million as of 31 December 2013 to CHF 21 799 million as of 31 December 2014.
Liabilities Total liabilities increased from CHF 26 million as of 31 December 2013 to CHF 340 million as of 31 December 2014, mainly due to the increase of the provision for currency fluctuation, which was driven by unrealised foreign exchange gains.
Shareholders’ equity Shareholders’ equity increased from CHF 20 090 million as of 31 December 2013 to CHF 21 459 million as of 31 December 2014, mainly due to net income for 2014 of CHF 4 110 million, mostly offset by dividends to shareholders of CHF 2 741 million.
Legal reserves from capital contributions decreased from CHF 5 423 million as of 31 December 2013 to CHF 2 682 million as of 31 December 2014, reflecting the payment of dividends to shareholders of CHF 2 741 million.
Income before income tax expense 2 708 4 122 Income tax expense –1 –12
Current assets Cash and cash equivalents 66 30 Short-term investments 4 364 159 Loans to subsidiaries and affiliated companies 1 774 3 250 Receivables from subsidiaries and affiliated companies 53 64 Other receivables and accrued income 1 0
Cash and cash equivalents Cash and cash equivalents include cash at bank, short-term deposits and certain investments in money-market funds with an original maturity of three months or less. Such current assets are held at nominal value.
Payables to subsidiaries and affiliated companies/Other liabilities These liabilities are carried at nominal value.
Provisions The provision for taxation represents an estimate of taxes payable in respect of the reporting year.
In the year under report, 4 348 768 (2013: 5 998 405) own shares were purchased at an average price of CHF 74.66 (2013: CHF 78.85) and 4 352 775 (2013: 5 044 780) own shares were sold at an average price of CHF 79.99 (2013: CHF 72.95).
Opening balance of shareholders’ equity 19 954 20 090 Dividend payments for the previous year –2 571 –2 7411
Net income for the financial year 2 707 4 110 Shareholders’ equity as of 31 December before proposed dividend payments 20 090 21 459 Proposed dividend payments –2 738 –2 4812
Shareholders’ equity as of 31 December after proposed dividend payments 17 352 18 978 1 Since the Board of Directors’ proposal for allocation of disposable profit, included in the Annual Report 2013, the number of registered shares eligible for dividend, at the dividend payment date of 22 April 2014, increased due to the transfer of 447 213 shares for employee participation purposes from not eligible to eligible for dividend. This resulted in a higher dividend of CHF 3 million, compared to the Board of Directors’ proposal, and in lower legal reserves from capital contributions by the same amount.
2 Details on the proposed dividend payments for the financial year 2014 are disclosed on page 256.
As of 31 December 2014, Swiss Re Ltd had the following conditional capital and authorised capital: Conditional capital for Equity-Linked Financing Instruments The share capital of the Company shall be increased by an amount not exceeding CHF 5 000 000 through the issuance of a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, through the voluntary or mandatory exercise of conversion and/or option rights granted in connection with bonds or similar instruments including loans or other financial instruments by the Company or Group companies (hereinafter collectively the “Equity-Linked Financing Instruments”). Existing shareholders’ subscription rights are excluded.
With respect to a maximum of CHF 5 000 000 through the issuance of up to 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, out of the total amount of authorised capital referred to above, the subscription rights of shareholders may not be excluded.
In the year under report, undisclosed reserves on investments or on provisions were released by a net amount of CHF 426 million (2013: CHF 16 million).
The identification, assessment and control of risk exposures of Swiss Re Ltd on a stand-alone basis are integrated in and covered by Swiss Re’s Group risk management organisation and processes.
The section below is in line with article 663c para. 3 of the Swiss Code of Obligations, which requires disclosure of shareholdings, options and related instruments held by Swiss Re’s members of the Board of Directors and Group Executive Committee (Group EC). Further disclosures in respect of management compensation, as well as to closely related persons, are detailed in the Compensation Report on pages 138–143 of the Financial Report of the Swiss Re Group.
Raymond K.F. Ch’ien, Member 15 048 16 921 John R. Coomber, former Member1 140 200 n/a
Jean-Pierre Roth, Member 6 762 8 234 Susan L. Wagner, Member2 n/a 1 267 1 Term of office expired as of 11 April 2014 and did not stand for re-election. 2 Elected to Swiss Re’s Board of Directors at the Annual General Meeting of 11 April 2014.
Restricted shares Swiss Re grants restricted share units on an ad hoc basis that are subject to a vesting period with a risk of forfeiture during the vesting period.
Weighted average share price in CHF as of grant date 53.10 Moses Ojeisekhoba, CEO Reinsurance Asia 5 693
Weighted average strike price in CHF 83.92 74.34 Michel M. Liès, Group CEO 42 000 15 000 Guido Fürer, Group Chief Investment Officer 7 500 George Quinn, former Group Chief Financial Officer1 20 000 n/a Matthias Weber, Group Chief Underwriting Officer 7 000 3 500 1 Member of the Group EC until 30 April 2014.
Number of options Members of the Board of Directors 2013 2014
Retained earnings brought forward 7 4 Net income for the financial year 2 707 4 110
Other reserves brought forward 2 730 5 440 Allocation from retained earnings 2 710 4 110 Reclassification of legal reserves from capital contributions into other reserves 2 7381 2 4812
2 The Board of Directors’ proposal to the Annual General Meeting of 21 April 2015, is subject to the actual number of shares outstanding and eligible for dividend.
Report of the statutory auditor to the General Meeting of Swiss Re Ltd Zurich
Report of the statutory auditor on the Financial Statements As statutory auditor, we have audited the financial statements of Swiss Re Ltd, which comprise the income statement, balance sheet and notes (pages 245 to 255), for the year ended 31 December 2014.
Glossary 260 Cautionary note on forward-looking statements 266 Note on risk factors 268 Contacts 276 Corporate calendar 277
Operating income as a percentage of average invested assets. Invested assets include investments, cash and cash equivalents, securities in transit, financial liabilities and exclude policy loans and certain Group items.
Condition in which there is a possibility of injury or loss; also used by insurance practitioners to indicate the property insured or the peril insured against.
Switzerland already introduced an economic and risk-based insurance regulation, similar to the objectives of the Solvency II project in the EU. Since 2008, all insurance and reinsurance companies writing business in Switzerland have had to implement the SST, and since 1 January 2011, the SST-based target capital requirement is in force and companies must achieve economic solvency.
Operating income plus net unrealised gains/losses on available-for-sale securities as a percentage of average invested assets. Invested assets include investments, cash
and cash equivalents, securities in transit, financial liabilities and exclude policy loans and certain Group items.
Forward-looking statements typically are identified by words or phrases such as “anticipate”, “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase” and “may fluctuate” and similar expressions or by future or conditional verbs such as “will”, “should”, “would” and “could”. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results of operations, financial condition, solvency ratios, liquidity position or prospects to be materially different from any future results of operations, financial condition, solvency ratios, liquidity position or prospects expressed or implied by such statements or cause Swiss Re to not achieve its published targets. Such factors include, among others: ̤ instability affecting the global financial system and developments related thereto; ̤ deterioration in global economic conditions; ̤ Swiss Re’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of Swiss Re’s financial strength or otherwise; ̤ the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets; ̤ changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions; ̤ uncertainties in valuing credit default swaps and other credit-related instruments; ̤ possible inability to realise amounts on sales of securities on Swiss Re’s balance sheet equivalent to their mark-to-market values recorded for accounting purposes; ̤ the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings; ̤ the possibility that Swiss Re’s hedging arrangements may not be effective; ̤ the lowering or loss of one of the financial strength or other ratings of one or more Swiss Re companies, and developments adversely affecting Swiss Re’s ability to achieve improved ratings; ̤ the cyclicality of the reinsurance industry; ̤ uncertainties in estimating reserves; ̤ uncertainties in estimating future claims for purposes of financial reporting, particularly with respect to large natural catastrophes, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available; Cautionary note on forward-looking statements
Regulatory changes Swiss Re and its subsidiaries operate in a highly regulated environment and are subject to group supervision. Swiss Re’s subsidiaries are subject to applicable regulation in each of the jurisdictions in which they conduct business, particularly Switzerland, the United States, the United Kingdom, Luxembourg and Germany. New legislation as well as changes to existing legislation have been proposed and/or recently adopted in a number of jurisdictions that are expected to alter, in a variety of ways, the manner in which the financial services industry is regulated. Although it is difficult to predict which proposals will become law and when and how new legislation ultimately will be implemented by regulators (including in respect of the extraterritorial effect of reforms), it is likely that significant aspects of existing regulatory regimes governing financial services will change. These may include changes as to which governmental bodies regulate financial institutions, changes in the way financial institutions generally are regulated, increased regulatory capital requirements, enhanced governmental authority to take control over operations of financial institutions, restrictions on the conduct of certain lines of business, changes in the way financial institutions account for transactions and securities positions, changes in disclosure obligations and changes in the way rating agencies rate the creditworthiness and financial strength of financial institutions.
Other changes are focused principally on banking institutions, but some could have direct applicability to insurance or reinsurance operations and others could have a general impact on the regulatory landscape for financial institutions, which might indirectly impact capital requirements and/or required reserve levels or have other direct or indirect effects on the Group. Changes are particularly likely to impact financial institutions designated as “systemically important,” a designation which is expected to result in enhanced regulatory supervision and heightened capital, liquidity and diversification requirements under evolving reforms.
Significant policy decisions on a range of regulatory changes that could affect the Group and its operations remain undecided. The Group cannot predict which legislative and regulatory initiatives ultimately 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. Certain of these initiatives could have a material impact on the Group’s business.
With respect to equity prices, the Group is exposed to changes in the level and volatility of equity prices, as they affect the value of equity securities themselves as well as the value of securities or instruments that derive their value from a particular equity security, a basket of equity securities or a stock index. The Group is also subject to equity price risk to the extent that the values of life-related benefits under certain products and life contracts, most notably variable annuity business, are tied to financial market values; to the extent market values fall, the financial exposure on guarantees related to these contracts would increase to the extent this exposure is not hedged. While the Group has discontinued writing new variable annuity business and has an extensive hedging programme covering its existing variable annuity business that it believes is sufficient, certain risks cannot be hedged, including actuarial risks, basis risk and correlation risk. Exposure to foreign exchange risk arises from exposures to changes in spot prices and forward prices as well as to volatile movements in exchange rates.
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 reinsurance business (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 manages liquidity and funding risks by focusing on the liquidity stress that is likely to result from extreme capital markets scenarios or from extreme loss events or combinations of the two. Generally, the ability to meet liquidity needs could be adversely impacted by factors that the Group cannot control, such as market dislocations or interruptions, adverse economic conditions, severe disruption in the financial and worldwide credit markets and the related increased constraints on the availability of credit; changes in interest rates, foreign exchange rates and credit spreads; or by perceptions among market participants of the extent of the Group’s liquidity needs.
and further constrain access to liquidity. Finally, any adverse ratings action could trigger a need for further liquidity (for example, by triggering termination provisions or collateral delivery requirements in contracts to which the Group is a party) at a time when the Group’s ability to obtain liquidity from external sources is limited by such ratings action.
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 either policy or regulation to purchase reinsurance only from reinsurers with certain ratings. Certain larger reinsurance contracts contain terms that would allow the ceding companies to cancel the contract if the Group’s ratings or those of its subsidiaries are downgraded beyond a certain threshold. Moreover, a decline in ratings could impact the availability and terms of unsecured financing and obligate the Group to provide collateral or other guarantees in the course of its reinsurance business or trigger early termination of funding arrangements potentially resulting in a need for additional liquidity. As a ratings decline could also have a material adverse impact on the Group’s costs of borrowing or ability to access the capital markets, the adverse implications of a downgrade could be more severe.
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.
Insurance, operational and other risks As part of the Group’s ordinary course operations, the Group is subject to a variety of risks, including risks that reserves may not adequately cover future claims and benefits, risks that catastrophic events (including hurricanes, windstorms, floods, earthquakes, acts of terrorism, man-made disasters such as industrial accidents, explosions, and fires, and pandemics) may expose the Group to unexpected large losses (and related uncertainties in estimating future claims in respect of such events); changes in the insurance industry that affect ceding companies, particularly those that further increase their sensitivity to counterparty risk; competitive conditions (including as a result of consolidation and the availability of alternative capacity); cyclicality of the industry; risks related to emerging claims and coverage issues (including, for example, trends to establish stricter building standards, which can lead to higher industry losses for earthquake cover based on higher replacement values); 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. In addition, 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. Any of the foregoing, as well as other concerns in respect of the Group’s business, 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.
Asia-Pacific Hong Kong 61/F Central Plaza 18 Harbour Road G.P.O. Box2221 Wanchai, HK Telephone +852 2827 4345
Swiss Re has about 70 office locations in more than 30 countries. For a full list of our office locations and service offerings, please visit www.swissre.com.
Cover In large parts of Bangladesh, life revolves around water. But because the country receives water from a drainage area 12 times its own size, it suffers from periodic flooding. Teaming up with several partners, we helped to develop a programme that protects some vulnerable communities against the consequences of a flood. You can read about this and other solutions supporting sustainable progress on pages 14–21.
The Principles for Sustainable Insurance (PSI): Our Public Disclosure of Progress 74
Below, we would like to summarise some of last year’s highlights: Through our solutions we expand insurance protection; in our risk management, however, our focus is on detecting and addressing risks that we feel we should not insure for ethical reasons or that may pose a challenge to our business. We have specific tools to address sustainability, political, regulatory and emerging risks. In 2014, our underwriting teams referred a total of 454 transactions to our Sensitive Business Risks process, up from 210 in the previous year. This marked increase was due to our expanding business in high growth markets and our ongoing training efforts. All of the transactions were carefully screened by our in-house sustainability experts; in 43 cases we decided to abstain from the transaction.
Who we are and what we do Swiss Re aims to be the leading player in the wholesale re/insurance industry. We seek to outperform peers in core areas, combined with smart expansion into areas where additional growth opportunities exist.
Our corporate structure with three Business Units allows us to sharpen our client focus, improve transparency and accountability, increase capital efficiency and operate with greater flexibility.
At Swiss Re we are working smarter together with our clients. That means working side by side, forming a deep understanding of their needs, applying our expertise and bringing fresh perspectives to manage risk in better ways.
Corporate Solutions serves mid-sized and large corporations, with product offerings ranging from traditional property and casualty insurance to highly customised solutions. Corporate Solutions serves customers from over 40 offices worldwide and is a growth engine of the Swiss Re Group.
Claims and claim adjustment expenses 9 655 10 577 Life and health benefits 9 581 10 611 Income tax expense 312 658
Earnings per share in CHF (basic) 12.04 9.33 Dividends paid to shareholders 2 760 3 129 Return on equity in % 13.7 10.5 1 Total debt expressed as total carrying value 2 Excluding unit-linked and with-profit business 3 Net income attributable to common shareholders
Against upfront premium payments, our solutions enable our clients to reduce peak risks, reduce earnings volatility, free up capital and finance growth, and achieve capital management targets for solvency and ratings.
Our approach to corporate responsibility We are committed to being a responsible company. Contributing to sustainable, long-term value creation serves as a guiding principle for our actions.
Swiss Re has a long-standing commitment to being a responsible company. A key element in our understanding of what this means is the desire to contribute to sustainable value creation, for the benefit of our clients and society at large. This long-term view is embedded in Swiss Re’s normative framework and governance, in particular the Group Code of Conduct. It is one of the principles that form the foundation of our values: ̤ Being open, honest and transparent in everything we do; ̤ Treating everyone with respect – both inside and outside the company; ̤ Taking the long-term view and playing our part in enabling sustainable progress – for stakeholders and society in general; ̤ Creating an inclusive culture that encourages diversity of thought and opinion.
We first began to address a specific sustainability issue more than 20 years ago when we drew attention to the potential risks created by climate change. Our first effort to disclose sustainability-related information dates back to 1999, when we published a Corporate Environmental Report covering the business year of 1998.
Our overarching commitment Reflecting this long-standing engagement for sustainable progress, our understanding of “materiality” has developed gradually over time. Our Sustainability Mission Statement, issued together with our initial reports, was the first document to make a public statement; it sought to emphasise the comprehensive nature of our commitment to long-term value creation and listed the areas of our business we considered relevant to this goal.
General commitment “Corporate responsibility” expresses Swiss Re’s commitment to being an open, honest and transparent organisation that treats all its stakeholders – employees, shareholders, clients, government agencies and the general public – with respect and integrity. In particular, we aim to take a long-term view and to play our part in enabling sustainable progress.
Sustainability as a guiding principle Sustainable progress – or sustainability – can be described as development that meets the needs of the present without compromising the ability of future generations to meet their needs. To be sustainable, progress must improve economic efficiency, protect and restore ecological systems, and enhance social wellbeing. In all our main activities aimed at implementing corporate responsibility, the principle of sustainability is a key criterion: ̤ Business solutions Within our core business of re/insurance and asset management, we strive to develop innovative solutions that help to tackle key environmental and social challenges. To achieve this, we work together with our clients and partners, both in the private and public sectors.
̤ Our 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.
̤ Our employees We want to provide our employees with a working environment conducive to their professional and personal development. We nurture a culture of diversity and inclusion across the company, offer excellent training possibilities, and provide a range of health and other benefits.
Over the years, we gradually developed a broader under standing of “corporate responsibility”, though still based on the key notions of long-term value creation and sustainable progress. Reflecting this, we updated our overarching statement and reissued it as our Commitment to Corporate Responsibility: It continues to express our overarching commitment and describes, in general terms, what goals we pursue in which areas of our business.
The expertise embedded in our core business and the issues we identify in this way directly influence the priorities of our stakeholder dialogue, our internal environmental management and our commitment to play an active role in society through the Swiss Re Foundation.
You can find a full list of material issues for all the relevant areas of our business on page 13.
For a reinsurer, climate change constitutes a key risk because it will lead to an increase in the frequency and severity of natural catastrophes such as floods, storms, excessive rainfall and drought. In combination with growing asset concentrations in exposed areas and more widespread insurance protection, this will cause a steady rise in losses.
The main business impacts of climate change ̤ We need to understand how climate change affects natural catastrophe risks so we can price our covers accurately; See pages 14–15
̤ Efforts to mitigate climate change create opportunities to offer insurance protection for renewable energy projects; See pages 20–21
̤ Efforts to adapt to climate change create opportunities to develop innovative products offering protection against natural catastrophes; See pages 15–19 and 66–67
At Swiss Re’s highest governance level, the task of overseeing implementation of our commitment to corporate responsibility has been assigned to a committee of the Board of Directors: It is one of the responsibilities of the Chairman’s and Governance Committee to periodically review the Group’s sustainability and citizenship activities.
We have voluntarily reported on our performance as a responsible company since 1998. Over the years, the range of topics covered in these yearly reports has gradually widened. While early editions had a strong focus on environmental concerns, later editions gradually extended their focus to social and governance issues. Since 2007, we have published a comprehensive Corporate Responsibility Report, guided by best practice in corporate responsibility reporting.
Content definition The structure of the present report reflects our Commitment to Corporate Responsibility: each business area specified as relevant there is covered by an individual chapter – with one exception: Our role as an active citizen in society is described in a separate report published by the Swiss Re Foundation (see page 65). Thus, the report includes the following five main chapters: ̤ Creating solutions for sustainability ̤ Extending our risk intelligence ̤ Exploring and shaping the risk landscape ̤ Reducing our environmental footprint ̤ Being an employer of choice
The content presented in these chapters reflects the material issues within the respective areas, as listed on page 13.
An additional chapter highlights some key features of Swiss Re’s corporate governance regime, including the Group Code of Conduct: ̤ Ensuring good governance
Scope Our Corporate Responsibility Report covers the whole Swiss Re Group, ie the publicly listed holding company Swiss Re Ltd., its three Business Units Reinsurance, Corporate Solutions and Admin Re®, and all directly or indirectly held subsidiaries. As in past years, its scope is limited to Swiss Re’s own operations. Although we provide information on our sourcing and procurement policies, we do not report on the performance of our suppliers because the re/insurance business does not involve an extensive supply chain. However, since 2013, we have been disclosing some of the emissions caused along our supply chain (Scope 3 emissions).
Furthermore, the present report incorporates our 2014 Communication on Progress for the UN Global Compact (www.unglobalcompact.org). In line with the United Nations’ recommendations, references to the Compact’s ten principles are incorporated into the GRI Content Index. For the third consecutive year, we also report against the Principles for Sustainable Insurance, PSI (www.unepfi.org/psi). You can find our Public Disclosure of Progress on page 74.
Stakeholder dialogue Our dialogue with stakeholders, which aims to form effective responses to key risks facing society, currently revolves around five Top Topics closely linked to our core business: ̤ Advancing sustainable energy solutions ̤ Funding longer lives ̤ Managing climate and natural disaster risk ̤ Partnering for food security ̤ Supporting financial stability
Our footprint Given the strategic importance of climate change for our business, our priority is to reduce CO2 emissions and energy consumption; furthermore, we apply Group-wide principles to our sourcing activities: ̤ CO2 emissions ̤ Energy consumption ̤ Sourcing
Active in society The Swiss Re Foundation seeks to empower communities to build risk resilience by using the expertise from our core business and by focusing on these areas: ̤ Climate change ̤ Natural hazards ̤ Water ̤ Society
An overarching goal is to create solutions that suit the special needs of emerging and developing countries: If governments and communities have financial protection against risks such as windstorms, earthquakes, drought and flooding, they can better cope with the immediate consequences of a disaster.
Natural catastrophes are a key risk in our Property & Casualty (P&C) business. Losses from floods, storms, earthquakes and other natural catastrophes can affect millions of lives and the economies of entire countries. Therefore, providing effective re/insurance protection against natural catastrophes has large social and economic benefits. In 2014, we received USD 2.9 billion of P&C Reinsurance premiums for natural catastrophe covers (for losses larger than USD 20 million); this accounted for approximately 19% of total premiums in this business segment.
Insured natural catastrophe losses are becoming more frequent and severe globally due to the increasing use of insurance and the concentration of insured assets in exposed areas. The effects of climate change are likely to further drive up losses. According to the Fifth Assessment Report (AR5) of the Intergovernmental Panel on Climate Change (IPCC) and its Special Report on Extremes (SREX), a changing climate gradually leads to shifts in the frequency, intensity, spatial extent, duration and timing of extreme weather events. As we have pointed out in our sigma publication on “Natural catastrophes and man-made disasters in 2014”, annual insured losses from weatherrelated events have increased ten-fold over the last 40 years, from USD 5 billion in the 1970s to USD 50 billion.
While the impact of climate change will manifest itself over the coming decades, most of our business is renewed annually and our risk models are refined every few years. Risks are essentially covered for 12 months, or for up to five years in the case of cat bonds. Thus, reinsurance premiums do not reflect expected loss trends over the next decades. Instead, for underwriting and risk management purposes, our models provide an estimate of today’s risk. However, as natural catastrophe losses continue to rise due to the different factors described above, our models will gradually reflect this trend, as they are updated at regular intervals.
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 expertise publications, free access to Swiss Re’s CatNet® and our Economics of Climate Adaptation (ECA) studies.
Economics of Climate Adaptation (ECA) With a time horizon of 2030, the ECA methodology enables decision makers to understand the future economic impact of climate change and to identify the most cost-effective actions to minimise that impact. This makes it possible to integrate adaptation to climate change with economic development and sustainable growth.
In 2014, our registered broker-dealer subsidiaries underwrote and distributed to institutional investors non-life ILS worth USD 1.4 billion, all of them for clients.
On the next four pages, we describe key transactions and initiatives we were involved in during 2014. All of them help our clients to cope with natural disasters, climate change and volatile weather. Making communities more resilient to these risks enables them to stabilise economic and social progress.
Improving resilience to natural disasters in China We made an important contribution to the development of natural catastrophe insurance markets in China. At present, insurance protection against natural catastrophes is very low in China: It is estimated that payouts usually cover less than 1% of economic losses, so there is an urgent need to improve resilience to disasters such as earthquakes and windstorms.
In a review of the insurance industry, the State Council recently issued a mandate to formulate and promote natural catastrophe schemes, which has sparked a lot of interest at both central and provincial levels. We have worked with the China Development Forum to produce a report on “Parametric Insurance and Reform of Natural Disaster Relief System in China”, which was discussed with high-level officials, and we are now involved in setting up major pilots in two provinces. These schemes are being designed to provide contingency funding for disaster relief and reconstruction efforts based on parametric triggers.
In view of this, Tonga decided to join the Pacific Catastrophe Risk Insurance Pilot, along with five other Pacific nations: the Marshall Islands, Samoa, the Solomon Islands, Vanuatu and – a little later – the Cook Islands. Arranged by the World Bank and launched in 2013, the pilot offers the governments of these six countries insurance protection against earthquakes, tsunamis and tropical cyclones, using a state-of-the-art “modelled loss” approach which quickly approximates the damage caused by a natural disaster. We cover the insurance plan jointly with other insurers and have also given technical feedback.
The programme insures 1 660 families in 14 villages located in the Char areas of the Sirajganj district. When the floods of August and September 2014 hit the region and caused massive damage in several villages, the programme was triggered for the first time. More than 700 families received a total of USD 25 000 in compensation, which enabled them to start rebuilding their lives and avoid desperate emergency measures.
Hydropower insurance for Uruguay Hydropower causes very few CO2 emissions in production; but as with other renewable energy sources, its actual output depends on the prevailing weather conditions. Uruguay generates a substantial amount of energy through hydroelectric plants that largely rely on rainfall. The risk of lower-than-usual rainfall has become an increasing burden to the Uruguayan government: For instance, in 2012 hydropower production slumped because of a prolonged drought, making it necessary for the government to buy costly electricity produced from fossil fuels as a substitute. Not only was this bad for the climate, it also pushed the government into a budget deficit.
In 2014, we assumed a portion of risk in a USD 450 million weather coverage bought by the Uruguayan government with the assistance of the World Bank Treasury, which helps to reduce this financial risk. In future, if the government needs to import electricity because of drought and a subsequent fall in energy generation, it will automatically receive compensation. The payout amount will be determined by rainfall data and oil prices, thus covering the double risk of drought conditions and an increase in energy prices.
By removing a major source of budget uncertainty, this landmark transaction will support continued investment in climate-friendly hydropower generation.
When there is too little rainfall in the countries protected by the scheme, ARC will estimate the adverse impact on local crop production and the resulting response costs, using an innovative software that combines satellite-based rainfall estimates with crop models and local vulnerability profiles. When the response costs exceed a pre-defined threshold, the affected countries receive a payout within a few weeks, provided that their implementation plans have been approved. This move from “postdisaster aid” to “pre-disaster risk management” allows governments to significantly reduce the cost of emergency contingency funds.
We support ARC as a major capacity provider and by contributing our expertise to make it a commercially attractive and affordable solution. ARC is only the third sovereign risk transfer pool worldwide, after the Caribbean
... to the United Nations Many of the innovative insurance transactions we have completed in recent years cover losses from natural catastrophes and weather volatility (eg drought or excessive rainfall). As climate change is expected to increase these risks, such transactions also help communities increase their climate resilience.
... to the Grow Africa Partnership The African continent, especially Sub-Saharan Africa, is a focus area for our efforts to bring risk protection to underinsured communities. Most people in these countries are smallholder farmers and depend directly on agriculture for their livelihoods, yet have had little or no access to insurance protection so far. As a result, volatile weather and subsequent harvest failures can have devastating consequences for them.
To create effective insurance solutions, we work closely with several partners such as Oxfam America, the World Food Programme, USAID and the Global Index Insurance Facility. By the end of 2014, we helped to establish a total of 20 programmes that brought weather insurance to two million smallholder farmers in 12 Sub-Saharan countries – reaching our target ahead of schedule, and even exceeding it.
Our commitment 2 million Smallholder farmers benefiting from the Grow Africa Partnership (300 000 in 2013)
Swiss Re Corporate Solutions takes a special interest in offshore wind as it has both the large capacity and the technical
Offshore wind farms are an expanding source of clean energy. But because the technology is relatively new and projects are increasing in scale and complexity, they are challenging to insure. Swiss Re Corporate Solutions specialises in understanding these risks and helping our clients to manage them.
… and Sandbank In 2014, Swiss Re Corporate Solutions also signed an insurance cover for the Sandbank Offshore Wind Farm, which is situated 90 km west of the German island Sylt in the North Sea. The wind farm is being developed by a joint venture between Vattenfall and Stadtwerke München (SWM, Munich city utility). Swiss Re Corporate Solutions offers protection to the project for the entire construction phase, which is due to start in 2015.
Longevity and health insurance are two of our strategic priorities in the L&H business. The demand for longevity solutions is expected to grow further as demographics shift. We have invested in research and development to improve our ability to predict mortality and longevity trends. In the last few years, we have completed several longevity insurance contracts with pension funds in the UK.
Longevity deals in the UK The longevity solution we have developed with the Aviva Staff Pension Scheme is the latest in a series of such transactions in the UK. Our other clients include one of AkzoNobel’s pension funds (17 000 members), the LV= pension fund (more than 5 000 members) and the Royal County of Berkshire Pension Fund (11 000 members).
At the time, the deal with the Aviva Staff Pension Scheme was the largest longevity transaction ever completed. It covers GBP 5 billion of liabilities and protects not only the scheme’s 19 000 members with pensions in payment, but their widows or widowers and civil partners, as well. Swiss Re is in a position to write such large deals because we have a natural offset through our mortality business, the capacity to write the business to our own balance sheet and the expertise to create tailormade solutions.
In technical terms, we worked together with two other reinsurers to transfer the longevity risk from the Aviva Staff Pension Scheme to Aviva Life & Pensions UK Ltd and then to the reinsurance market.
Risk management is at the core of Swiss Re’s business model. Controlled risk taking requires a strong risk culture across the organisation, strengthened by comprehensive risk management processes to identify, assess and control the Group’s and the Business Units’ risk exposures. The core categories of our risk landscape comprise insurance, financial market and credit risks (see 2014 Financial Report, pages 62–68).
The Sustainability Risk Framework consists of: ̤ Eight policies on sensitive sectors or issues; ̤ The Sensitive Business Risks (SBR)
Nuclear weapons proliferation ̤ Activities associated with nuclear energy or similar in countries that are outside the established framework and international regime of global non-proliferation efforts.
Human rights and environmental protection ̤ Human rights violations and abuses such as murder, torture, deprivation of liberty, forced labour or harmful child labour; ̤ Countries that lack an operational, effective and internationally recognised government; ̤ Companies that are causing ongoing, severe and unmitigated damage to the environment, flora and fauna of a particular place and biodiversity in general, especially in industries and activities that have had a problematic track record in this area in the past.
This decision takes the form of a recommendation either to go ahead with the transaction, to go ahead with certain conditions attached or to abstain from it. If there is disagreement about the recommendation, the case can be escalated to the next management level.
The decisions we take as part of the Sustainability Risk Framework are based on internationally recognised ethical principles. Swiss Re is a signatory to the UN Global Compact, which derives its human rights principles from the Universal Declaration of Human Rights, its labour principles from the ILO Declaration on Fundamental Principles and Rights at Work, its environment principles from the Rio Declaration on Environment and Development and its anti-corruption principles from the United Nations Convention against Corruption.
Thus our decisions are neither subjective nor entirely objective. In essence, they reflect our recognition of global fundamental rights, of human suffering and our commitment to limiting unwanted negative impacts of our business transactions.
Company exclusions The policies of our Sustainability Risk Framework specify certain criteria that may lead to the exclusion of a company from both our re/insurance transactions and our investments, to the extent that such an exclusion is permissible (eg by virtue of mandatory law or internal policies) and possible (eg if existing documentation relating to such re/ insurance transactions and investments provide for it). These criteria include: involvement in prohibited war material; verifiable complicity in systematic, repeated and severe human rights violations; infliction of repeated, severe and unmitigated damage to the environment; and unregulated proliferation of nuclear weapons.
Growth and strengthening of the framework In 2014, the number of transactions referred to the SBR process rose to 454, more than double the number of the previous year. We issued negative recommendations in 43 cases and positive recommendations with conditions in 60 cases.
Independent internal reviews In 2014, we started to formally cooperate with our internal Business Risk Review (BRR) unit. A BRR is an independent quality assessment of underwriting and costing activities to review the quality of the technical work carried out and the decisions made, including checking whether mandatory underwriting standards have been adhered to.
In 2014, 306 employees completed our eLearning course on the Sustainability Risk Framework. For 278 new joiners who work in underwriting and with our clients, this training was mandatory.
We were also strongly involved in the development of the Principles for Sustainable Insurance (PSI) by the UN Environment Programme Finance Initiative, UN EPFI (www.unepfi.org/psi). We were one of the initiative’s original signatories and currently hold its cochair. Launched in 2012, the PSI address environmental, social and governance issues in the re/insurance industry, spanning risk management, underwriting, product and service development, claims management, sales and marketing, and investment management. Our Public Disclosure of Progress for 2014 is included in this report on page 74.
Furthermore, we seek to raise awareness of political risk within the re/ insurance industry and among the broader public, and actively engage in dialogue with clients and other stakeholders. We also distil our ongoing assessments of political risks into several political and sustainability risk ratings at country level, which support our underwriting and investment decisions.
Swiss Re remained engaged in the regulatory debate throughout 2014, supporting regulatory convergence as well as increased application of economic and risk-based principles. At the same time, we strive to mitigate developments that may adversely affect the re/insurance industry’s ability to foster financial and economic stability.
For example, we share the broad concerns of the re/insurance industry regarding the cumulative and crosssectoral impacts of some of the proposed reforms. Regulatory fragmentation is a key issue, particularly in the context of protectionist measures introduced in some growth markets. Moreover, the introduction of Solvency II in Europe has not fully achieved the goal of regulatory harmonisation.
Detecting and investigating such risks early on forms an important element of our comprehensive approach to risk management. Our aim is to reduce uncertainty and prevent unforeseen losses, while identifying new business opportunities and raising awareness within the Group and across the industry. Therefore, we try to understand how risks are changing, assess their impact and seek to recognise potential links between them.
Our SONAR framework With SONAR (“systematic observation of notions associated with risk”), we have a Group-wide framework which has been specifically designed to manage emerging risks. Firmly embedded in the Group’s risk management organisation, SONAR allows us to identify and assess these risks in a timely manner and to factor them into our decisions.
Thus, our emerging risk specialists assessed all these risk notions for their potential impact on our business and subsequently carried out more in-depth investigations of selected topics, for example of electronic cigarettes (see page 29). To share some of our key insights with external audiences, in 2014 we published the second edition of our comprehensive Swiss Re SONAR report (see page 30).
Electronic cigarettes – curse or blessing? Electronic cigarettes (e-cigarettes) imitate smoking by technical means without actually burning tobacco. They are battery-powered electronic devices designed to inhale vaporised liquids. These “e-liquids” are based on a solution of propylene glycol and/or glycerine, which is mixed with concentrated flavours and, optionally, with a variable amount of nicotine.
E-cigarettes were first introduced at the start of the millennium and have made inroads into the traditional tobacco smoking market at an exponential rate in recent years. The devices are mainly sold over the internet, but are also available over the counter in tobacco stores, pharmacies and supermarkets.
Regulation is also lagging behind. After several years of almost completely unregulated rapid growth, the e-cigarette business will likely face more stringent regulation in the coming years, as regulators and law makers in many major markets review their positions . This can also be expected to affect the public’s perception of e-cigarettes and the associated risks.
CRO Forum Emerging Risk Initiative (CRO ERI) The CRO ERI was launched in 2005 to raise awareness of major emerging risks relevant to society and the re/insurance industry. In 2014, Swiss Re chaired the Emerging Risk Initiative for the second time. www.thecroforum.org/emerging-riskinitiative -2/
Pushing the limits – Managing risk in a faster, taller, bigger world
The Resilience Action Initiative In 2013 and 2014 we partnered with other large, globally active companies in the Resilience Action Initiative (RAI). The premise of the initiative was that ever-greater demands on food, water and energy systems – in the context of climate change – will make the world a much more turbulent place in future. Putting a strong focus on practical action, the Resilience Action Initiative argued that our socio-economic systems will have to become more resilient to such turbulences – and then sought to explore how multinational companies can help to strengthen the adaptive capacity of their own operations as well as the communities they interact with and depend on.
Building on our substantial experience in helping communities to strengthen their risk resilience, our sustainability and emerging risk specialists developed a novel concept of enterprise resilience. This defines three levels of resilience: ̤ “structural”, focusing on the company’s own systemic nature; ̤ “integrative”, emphasising the company’s complex interconnections with its environment; ̤ “transformative”, highlighting the company’s ability to develop over time.
can have a positive impact on the longterm financial performance of our investment portfolio. Thus, we apply sustainability-related risk information consistently across our entire investment portfolio.
2% Mortgages and other loans 6% Other * Listed equities, hedge fund equities, private equity and Principal Investments
Turbulence: A Corporate Perspective on Collaborating for Resilience This 188-page publication presents the tools and concepts developed by the members of the Resilience Action Initiative to foster resilience in an increasingly turbulent world. Swiss Re contributed a full chapter focusing on enterprise resilience.
Responsible investment governance Our asset management has a welldefined framework, which considers ESG criteria consistent with the Group Code of Conduct and commitment to sustainability. This commitment is further outlined in the Group Asset Management Responsible Investment Policy, which describes our approach and principles in relation to sustainability in the management of Swiss Re’s investments, as well as the roles and responsibilities to ensure the integration of ESG considerations. This is complemented by the Swiss Re Voting Policy, which provides guiding principles that apply to all our voting activities. With this approach, we ensure a comprehensive commitment to responsible investment in our day-to-day asset management activities.
Overall responsibility for sustainable investing lies with the Group Chief Investment Officer, who is advised by the Asset Management Executive Team. Furthermore, an ESG Advisory Group, formed with representatives from all investment units and risk management, oversees and monitors the progress of our responsible investment activities.
All PRI signatories are required to provide in-depth reporting on their responsible investment activities. The reports are available on the PRI website at www.unpri.org/areas-of-work/ reporting-and-assessment/reportingoutputs /individual-2013-14/
Overarching approach Swiss Re is a long-term investor. Therefore, it follows that we take a longterm view on the risk factors that may have an adverse impact on our investment portfolio.
The framework consists of eight policies on sensitive topics: the defence industry, oil and gas (including oil sands), mining, dams, animal testing, forestry and logging, nuclear weapons proliferation, and an overarching human rights and environmental protection policy. Each policy contains a number of predefined criteria and qualitative standards that may lead to the exclusion of a company or a country from our investment scope.
Swiss Re’s Asset Management unit strictly applies these criteria to the vast majority of our investment assets, excluding companies and countries if they do not meet the predefined criteria and qualitative standards.
Approximately 90% of Swiss Re’s externally managed assets are managed by PRI signatories themselves. All of them have contractual provisions with Swiss Re, specific to responsible investments.
For more systematic and regular monitoring of the actual integration of ESG factors into our externally managed portfolio, we have engaged the services of a leading ESG research company. We apply the ratings provided by them to our investment portfolio to assess the quality of the portfolio and gain further insight into ESG risk exposures.
Real estate Our investment portfolio consists of direct investments in properties, principally in Switzerland and in Germany. Comprising buildings for both residential and commercial use, the total value of the portfolio was USD 2.5 billion at the end of 2014.
By the end of 2014, the combined value of our MINERGIE®-certified buildings had reached USD 0.4 billion, or 19.5% of our Swiss portfolio of direct real estate investments. The total energy consumption surface in accordance with the MINERGIE® standard was 82 497 m2 at the end of 2014. In addition, more than 56 000 m2 had been sold on to third parties in previous years.
At a country level, we have implemented political risk and sustainability assessments to guide on responsible investment decisions and to guarantee the quality of our government bond portfolio in this respect. Our rates products portfolio is screened against political country risk and sustainability rating considerations on a semi-annual basis. Furthermore, the rating measures are used to define investment mandates for our portfolio managers.
Political Country Risk Rating The Political Country Risk Rating comprehensively measures the political risk in a country, which is defined as events of a political, economic or social nature that harm business operations or adversely affect the business climate. The overall country score is derived from multiple external and internal data sets and Swiss Re’s expert assessment.
2 Rates products consist of cash, short-term investments, government bonds (incl. agency), and derivatives thereof.
In 2014, we exercised our voting rights on 97% of our listed equity portfolio. We voted on 4 171 ballots through our external managers, and we voted in favour of the respective management resolution in 3 817 cases (91%), against it in 280 cases (7%) and abstained from voting in 74 cases (2%).
 91% Voted with management  7% Voted against management  2% Abstained
Exploring and shaping the risk landscape We engage in regular dialogue with our stakeholders. By sharing expertise and knowhow, we help society to develop effective responses to key risks.
We periodically review our Top Topics portfolio to reflect new business developments and shifting global agendas. Following an extensive review in 2012, we adopted a revised set of five Top Topics for our stakeholder dialogue: ̤ Advancing sustainable energy solutions ̤ Funding longer lives ̤ Managing climate and natural disaster risk ̤ Partnering for food security ̤ Supporting financial stability
Our notable achievements in 2014: ̤ Together with the World Energy
Funding longer lives People are living longer today than ever before, but the share of the working population is shrinking. As a result of this demographic megatrend, the costs of funding retirement income, healthcare and long-term care in old age are increasing dramatically. This could have significant financial consequences for individuals, insurers, employer pension funds and society in general. Publicprivate partnerships are needed to overcome this challenge.
Life and health reinsurance is part of our core business, and we are the world’s largest reinsurer of mortality risk. Consequently, we are a natural home for the longevity and health risks associated with ageing societies, and have the financial strength to take on risks across a person’s whole lifespan. Our in-depth research and development in the life and health area combines medical, demographic, social, behavioural and financial expertise to deliver unique insights into the implications of funding longer lives. Our global presence and deep understanding of different demographic needs throughout the world allow us to adapt and develop innovative solutions in new markets.
Managing climate and natural disaster risk Losses from floods, storms, earthquakes and other natural catastrophes (nat cat) can have a dramatic impact on the citizens and economies of entire countries. Insurance helps people, businesses and societies to get back on their feet after disaster strikes.
By financing measures to mitigate disaster risks and adapt to climate change, we can strengthen the resilience of businesses, local and national economies, and societies. As insurance puts a price tag on risk, it helps to create an incentive to invest in prevention measures.
Our notable achievements in 2014: ̤ We continued to share our data on the potential impact of major nat cat events on cities. Following on from the publication “Mind the risk: a global ranking of cities under threat from natural disasters”, we launched our “Risky cities” publication series in 2014, which provided more detailed data for Los Angeles, Tokyo, Mexico City and Rome; ̤ We shared our expertise regionally and nationally through the four publications “Small quakes, big impact: lessons learned from Christchurch”, “Keeping tabs on the typhoon threat”, “The big one: The East Coast’s 100 billion dollar hurricane event” and “The risk of tropical cyclones in Brazil”; ̤ We produced the animated video “Resilient Cities: pathway to a more sustainable future” to explain the benefits of “nat cat proofing” the design of cities (see below).
Partnering for food security 805 million people – or 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 demand for food will be particularly challenging, as supply is constrained by factors such as climate change, depleted agricultural soils and the distribution of land, water and energy.
Most farming in the world is still carried out by small-scale subsistence farmers, who feed their families and sell a small surplus on local markets. This needs to change as more and more people are living in cities. Last year, the urban population exceeded the rural one for the first time ever, which means that cities are becoming increasingly dependent on the remaining farmers for their food.
Our notable achievements in 2014: ̤ Ahead of time, we met our commitment to provide insurance coverage to 1.4 million African smallholder farmers by 2017, and even exceeded our initial goal, with 2 million farmers benefiting at the end of 2014 (see page 19 for further details); ̤ We invited ninety clients, NGOs, banks and other stakeholders to the fourth Agricultural Reinsurance Workshop in Nairobi to discuss the measures needed to reshape agriculture in Africa to feed its growing population, identifying a lack of data on the importance of agriculture as a key challenge; ̤ As a follow-up to the Nairobi conference, we began providing such data in the new publication “SubSaharan Africa – breadbasket for a growing population” and by publishing “Agro insurance hotspots” on Mozambique and Kenya, which include overviews on the economics, production and perils of agriculture.
Supporting financial stability Re/insurance supports financial stability by acting as a shock absorber and by promoting growth. Through its core business, it helps to reduce the impact of major risk events on the broader economy and provides it with long-term investment finance.
International Finance (IIF) to publish the report “Infrastructure Investing. It Matters.”, which highlights the importance of infrastructure growth and partnerships to fund its investment; ̤ We collaborated with the World Bank’s Global Infrastructure Facility (GIF) as an advisor to help establish infrastructure investments as an asset class and to provide innovative insurance risk solutions for infrastructure investments (see page 39); ̤ We continued to keep a close eye on Solvency II developments, seeing as reinsurance can have a measurable effect on our clients’ capital requirements.
Swiss Re collaborates with the World Bank on infrastructure investment strategies
To attract more long-term investment, however, infrastructure needs to become established as a standardised and tradable asset class. In our cooperation with the GIF, we focus both on infrastructure as an asset class and effective risk transfer solutions.
The Swiss Re Centre for Global Dialogue is an important platform for interaction with our external stakeholders. Located near Zurich, this state-of-the-art conference centre hosts client and expert events. It allows us to present our thinking on some of the key issues confronting our industry and society at large, while exploring topics that are critical to a better understanding of the risk landscape we are facing.
The Centre reflects our commitment to being a knowledge company. We believe that by openly exchanging and sharing this knowledge we, our clients and stakeholders can be “smarter together”.
Natural catastrophes and man-made disasters Each year, an early edition of our renowned sigma series provides a detailed analysis of natural catastrophes and related losses witnessed in the previous year. When this sigma edition was published in 2014, the Centre for Global Dialogue held a one-day conference to highlight some of the key findings and strategic issues emerging from the data.
The autonomous car: Risks and opportunities for the re/insurance industry Autonomous cars have recently been identified by our emerging risk specialists as a development that may pose a significant challenge to the re/ insurance industry (see case study on “new forms of mobility” in the 2013 Corporate Responsibility Report, page 28). A two-day conference, organised by the Centre for Global Dialogue, sought to stimulate the debate on this topic, by bringing together manufacturers, technology producers, lawyers and road safety experts.
Jayne Plunkett, our Head Casualty Underwriting Reinsurance, personally addresses the two-day conference at Rüschlikon on “the autonomous car”. This is an important topic for us and the industry, because the technology will create significant challenges as well as new opportunities for re/insurers.
We collaborate with various (inter-) governmental and academic institutions both to promote effective approaches to sustainability challenges and to share our expertise on managing specific risks.
Working with (inter-)governmental agencies to promote effective sustainability responses ̤ In Europe, we worked with Insurance
Working with (inter-)governmental agencies to share risk management expertise ̤ With Global Partnerships, we have an entity that works strategically with public-sector bodies to improve risk resilience: – directly with governments, recently eg with the Government of Uruguay to create a solution providing cover for drought conditions that affect hydropower generation, with the State Council of China to improve resilience against natural catastrophe risks, or through the Pacific Catastrophe Risk Insurance Pilot (see pages 16–18); – with the United Nation’s International Strategy for Disaster Reduction (UNISDR) in a consulting role; – with development agencies such as the United States Agency for International Development (USAID), the UK’s Department for International Development (DFID), the Swiss Agency for Development and Cooperation (SDC), the World Bank, the Asian Development Bank (ADB), the Inter-American Development Bank (IADB) or the German Development Bank (KfW); ̤ We regularly contribute to platforms such as the World Economic Forum, B20, G20 and G8 to share our insights on key risks, and support the United Nations Framework Convention on Climate Change (UNFCCC) process; ̤ We recently contributed to the World Economic Forum’s Global Risks reports (see page 30 for the 2014 edition).
The autonomous car: Risks and opportunities for the re/insurance industry (Conference report)
China’s coastal cities have been escaping severe storms but how long will it last?
Risky cities: Los Angeles Los Angeles is a massive economic hub and highly exposed to earthquake risk. Using Swiss Re’s risk models and detailed hazard data available in CatNet®, we have analysed the potential impact of this risk and other natural perils on LA’s metropolitan area. This analysis is part of Swiss Re’s report: “Mind the Risk – a global ranking of cities under threat from natural disasters” which compares the human and economic exposure of 616 cities around the world.
Reducing our environmental footprint We want to lead by example and work to minimise the environmental impact of our operations. Cutting CO2 emissions and reducing energy consumption are key targets across the Group.
As a typical knowledge company, we do not cause large environmental impacts through our own operations. Nonetheless, we firmly believe it is important for a responsible company to minimise its environmental footprint, thus leading by example.
For our core re/insurance business, climate change represents a key issue. Reflecting this, we have been focusing on reducing our own CO2 emissions and energy consumption for many years. Our pioneering initiatives include the Greenhouse Neutral Programme and the COyou2 Programme. Both are now into their second cycles, running from 2013 to 2020.
Furthermore, we apply sustainability guidelines to our sourcing and construction activities. Extending our efforts beyond our company, we continue to take a leading role in the Swiss Climate Foundation.
Environmental objectives and targets are defined centrally at our headquarters, but responsibility for implementing improvement measures also lies with the Corporate Real Estate & Logistics departments of the respective locations.
Up until 2013, our policy was to have our largest locations certified according to the ISO 14001 environmental management standard (www.iso.org). We have since decided to move to a centralised approach and have the whole Corporate Real Estate & Logistics division certified globally according to ISO 14001. The certification process is well underway and is expected to be completed by the end of 2015. As a result, all our employees will be working at locations covered by an ISO 14001-certified environmental management system in the future.
Climate change has been a strategic priority for Swiss Re for more than 20 years. It is a key topic for a re/insurer, because it is likely to cause more extreme and more frequent weather events, resulting in rising damages and insurance losses. Our strategy to tackle climate change rests on four pillars, one of which is the pledge to reduce our own CO2 emissions (see page 11).
Our Greenhouse Neutral Programme has been the principal initiative to achieve this goal. Launched in 2003, it originally combined two commitments: firstly, to reduce our CO2 emissions by 15% per employee (full-time equivalent or FTE)
within ten years and, secondly, to fully offset all the remaining emissions by purchasing high-quality emission reduction credits, thus making the company greenhouse neutral for the whole period between 2003 and 2013.
3 The 2013 figure for technical gases has been restated due to a reporting error at one location. 4 At present, we do not compensate the emissions caused by our employees’ commuting.
Waste kg/FTE 182 192 5.5 1 The 2013 figure for business travel has been restated due to incompletely reported flights.
At the same time, we decided to extend the scope of our emissions accounting and reporting. In the programme’s first phase, we reported our Scope 1 and Scope 2 emissions (heating and power consumption) as well as a major source of Scope 3 emissions (business travel). In the programme’s second phase our reporting also covers the following activities along our supply chain (Scope 3): employee commuting, copy paper use, waste generation, water use and technical gases.
Our commitment to offset the CO2 emissions we cannot avoid now includes paper, waste, water and technical gases, in addition to power, heating and business travel.
The RE100 initiative In many countries where we want to grow our business, there is a lack of renewable energy supplies in reliable quality. Currently, around 10% of the power we use globally still comes from nonrenewable sources. This is a key reason why we have helped to establish the Climate Group’s RE100 initiative as a founding member.
In making these quality assessments and selecting suitable sources, we have relied on 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 second phase of our Greenhouse Neutral Programme (base year 2013) we committed ourselves to reducing energy intensity by 2% per year. In 2014, we exceeded this goal and reduced our energy intensity by 7.6%. The main reason for this was an 18.4% decrease in energy used for heating. While the unusually warm winter in Switzerland and our expansion into warmer regions with less demand for heating contributed to this achievement, we also continued to decommission existing office buildings and move into new ones equipped with more efficient heating systems, eg heat pumps.
Paper, water and waste As explained above, we expanded the scope of our emissions accounting in 2014 to include copy paper, water consumption and waste disposal, and have committed ourselves to offsetting the emissions from these additional three sources until 2020.
The overview of all our emissions sources (see table on page 45) shows that paper, water and waste are of much less relevance in our business than other environmental impacts. Furthermore, water use and waste generation are difficult to influence at locations where we rent office space. Having said this, in the office buildings we own ourselves we require appliances to meet high standards of water efficiency.
As a result, our offsetting costs are now allocated to the Group’s Global Functions in proportion to their respective share of air travel. 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.
Paper use, on the other hand, is much more responsive to managerial action. Although we have not set any quantitative targets, we have taken a number of measures to reduce the average amount of paper used by our employees in recent years. These include our Group Document Induction Process, which offers a coordinated scanning service wherever it is requested, and encouraging our employees to use double-sided printing by setting it as the default option on our computers. As a result, we managed to reduce our paper use by more than 60% per employee between 2003 and 2013.
Water consumption and waste generation increased somewhat in 2014, after a fall in the previous year. It needs to be stressed, though, that data quality is moderate at best for both, so we do not consider the rise to be significant.
Offsetting our remaining CO₂ emissions The second commitment of our Greenhouse Neutral Programme is to compensate all CO₂ emissions that remain after our reduction efforts. For the first phase of the Greenhouse Neutral Programme between 2003 and 2013, we bought and retired highquality Voluntary Emissions Reductions (VERs) for a total of 553 000 tonnes of CO2e.
We are keen to ensure that the VERs we buy are of a high environmental standard. Therefore, we have developed a set of criteria to select projects that generate certificates. In particular, we give priority to those which create strong social side-effects and benefit the poorest regions.
External verification of our CO₂ reporting From the very start of our Greenhouse Neutral Programme in 2003, we have disclosed our CO₂ emissions, their principal sources and relative performance over time. Both for the programme’s first phase and its current second phase, we have calculated our emissions based on the guidelines of the Greenhouse Gas Protocol, the most widely-used emissions accounting standard (www.ghgprotocol.org).
Before our emission figures are published, PricewaterhouseCoopers checks them to verify our calculations. Their complete assurance report, which covers this and the four other main chapters, is included on pages 70–71.
Swiss Re has around 70 offices in more than 30 countries. For new building or renovation work, we apply a number of principles. One of them is sustainability, which translates into criteria such as stringent construction standards, high-quality fittings and finishes, a comfortable ambient climate, environmentally sound, durable materials, low energy consumption and
The groundwork is being laid for Swiss Re Next, our new headquarter building that will set a leading example of sustainable construction. The “strut platform” shown in the picture was erected to support and preserve the existing excavation enclosure made of of 60 cm thick reinforced concrete. Originally constructed in the 1960s for the previous Neubau building, it is still in superb condition today.
In practice, we usually go beyond these requirements and use further standards such as MINERGIE-ECO® – which also includes health criteria and demands on building materials – and, more recently, MINERGIE-P-ECO®, which specifies the characteristics of a “passive house” that consumes even less energy than a MINERGIE®-certified building.
Swiss Re Next Under the title of Swiss Re Next, we are currently constructing a replacement building for the Neubau (“new building”) at the Group’s Zurich headquarters. From the start, sustainability was defined as one of the key features of the project: Our goal is to be awarded the MINERGIE-P-ECO® certificate as well as the highest certification level of the US LEED system – LEED Platinum. We recently received the preliminary MINERGIE®-P-ECO certificate and successfully passed the LEED design review.
Reducing our own CO2 emissions is one of four pillars of our climate change strategy (see page 11). In 2007, we launched the COyou2 Programme because we wanted to make our commitment more tangible for our employees and help them to become more aware of climate change. The programme offers subsidies for a range of investments through which our employees can reduce their own carbon footprints. To our knowledge, it was the first global corporate initiative of its kind when we launched it.
Amongst the largest Swiss Re locations, uptakes per employee were highest in Slovakia, Germany and Switzerland. Our office in Slovakia has witnessed particularly strong growth recently and many new employees made use of the opportunity to claim subsidies in 2014. In Europe, in general, mobility is a popular category, with bicycles the most common type of subsidy.
COyou2 payouts in 2014, by category 42% Home appliances 19% Home infrastructure 39% Mobility
In 2008, we set up the Swiss Climate Foundation with a number of partner companies. It was a response to the introduction of the Swiss CO2 law, which provides the basis for the CO₂ levy on heating fuels in Switzerland. This levy is not a proper tax but an environmental market mechanism: It imposes a charge on the use of heating fuels and then reimburses the money thus raised – to private companies proportionate to their total salary expenses. For financial service providers, who use relatively small amounts of heating fuel but employ large workforces, this means they receive a total “net reimbursement”.
The purpose of the Swiss Climate Foundation is to collect these funds and to use them to support various climatefriendly projects undertaken by small and medium-sized companies (SMEs) in Switzerland. In 2012, the Foundation broadened its scope and started to collaborate with the LIFE Climate Foundation Liechtenstein, generating more partner companies and enabling SMEs in Liechtenstein to benefit from the funds, too. By the end of 2014, 26 renowned financial service providers from Switzerland and Liechtenstein were partner companies of the Swiss Climate Foundation.
Our employees are the key to fulfilling this mission, through the skills, diversity, talent and commitment they bring to us. Our goal is to be seen as an employer of choice that can attract talents from around the world and offer them a place to succeed.
We aim to be a leading employer that attracts talented people from a broad range of disciplines and backgrounds. By fostering a culture of inclusion, we can leverage and grow the diversity of our workforce. Our diversity and inclusion (D&I) vision is “to see, feel and live diversity – diversity of gender, race, ethnicity, generation, sexual orientation (LGBT), physical abilities and experiences – at all levels, functions and regions of Swiss Re”.
Such an inclusive corporate culture is essential for a diverse workforce, given the diversity of thought, opinion and experience this helps to create. In essence, inclusion is about respecting the uniqueness of every individual and about providing an atmosphere in which everyone feels valued and empowered to perform at a consistently high level. Thus diversity and inclusion is motivating for our employees, helps to attract fresh talent and is good for bottom-line results.
Sharon Ooi, Head of P&C Reinsurance, Southeast Asia, India & Dragons, receives the 2014 Employer of the Year award on behalf of Swiss Re.
There is strong evidence that diverse teams outperform non-diverse ones. As diverse teams avoid group think − and therefore institutional blindness − they can respond more quickly to changes in the external environment. Furthermore, a strong representation of local talent is crucial to developing new markets, which is one of our key strategic priorities.
Our Global Inclusion Framework Our Global Inclusion Framework rests on three pillars: Recognising the important role each of our managers plays in fostering an inclusive culture and benefiting from its strengths, the framework’s first pillar focuses on Inclusive Leadership. We have developed Inclusive Leadership Principles that describe exactly what behaviours we expect of our leaders and managers to foster an inclusive work environment for all employees. These are firmly embedded in our Leadership Imperatives – our behavioural framework for leaders that support our strategy, values and brand attributes – and our leadership development curriculum. To make these principles tangible for all our employees, we have also included them in our Personal Imperatives – our behavioural framework for all employees without line management responsibilities – and embedded both the Leadership Imperatives and Personal Imperatives into our performance management framework.
Executive/senior management positions* 21.7 21.5 21.4 All management positions* 30.7 31.1 31.5 * “Executive/senior management positions” comprises the management levels of Director/Senior Vice President upwards. “All management positions” refers to Vice President and above.
Learning hours per employee 15.4 14.1 13.1 Learning costs per employee (in USD) 1 900 1 800 1 500
Our approach Professional and personal development 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.
To support the professional development of our employees, Swiss Re Academy provides a portfolio of “blended” learning paths, combining face-to-face learning, eLearning, peer-to-peer coaching and virtual classrooms. Together, they offer a flexible approach to learning. Topics addressed in blended learning paths include communication skills, conflict handling, influencing skills, presentation skills, and remote managing and working.
Swiss Re Academy in numbers In 2014, all our employees took part in our development and training programmes. They completed 159 551 hours of training overall, averaging 13.1 hours and USD 1 500 per employee.
In support of our flexible development and training philosophy, the Swiss Re Academy intranet site gives our employees easy access to our global learning catalogue, links to regional learning offerings and a multimedia library. Close to 80% of our training is delivered through eLearning formats. Using such online learning formats reduces the need for our employees to travel and spend time away from the office, while supporting our commitment to reducing our carbon footprint.
Career development at Swiss Re Our philosophy at Swiss Re is that career development is a shared responsibility between each employee, his or her line manager and the company. We encourage our employees to think in terms of a multidimensional career “lattice” and not just a vertical career ladder. There is no single, pre-set career path at Swiss Re; rather, the paths are as diverse as the individuals working in our company.
* To align with general reporting standards, we changed the basis for the calculation of our learning data from “employees trained” to “employees” (ie total headcount regular employees), and adjusted the 2012 and 2013 data accordingly.
Swiss Re also offers around 65 internship positions in Europe, India and the US each year. The interns@swissre programme is mainly aimed at university students who are pursuing a Bachelor’s or Master’s degree, and at graduates with less than one year of full-time work experience. Interns join teams in core business areas, where they take on specific tasks and various projects. In India, the US and the UK we offer traditional summer internships that typically last between 8 and 12 weeks, while in Germany and Switzerland the internships usually span three to six months.
In three locations we offer a Junior Power programme. Originally launched in Zurich in 1981, it was also introduced in Munich in 2008 and, most recently, in London in 2014. In total, we have developed over 550 apprentices and trainees through the programme. Currently, a total of 90 apprentices and trainees, aged between 15 and 25, participate in it and 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.
In turn, our apprentices and trainees contribute to the success of their respective teams, add new perspectives to Swiss Re and challenge established practices. We offer training for business roles, computer specialists, chefs, hotel housekeepers and media specialists. About 25% of all our former apprentices and trainees are still working at Swiss Re.
Our Virtual Career Centre (VCC) supports and embeds this philosophy. It includes extensive information about different roles in the organisation, and brings together useful tools that our employees can use to raise their selfawareness, to reflect and to plan their career. The number of employees who used the VCC averaged 1 459 per month in 2014, with a peak of 1 901 in February.
Mentoring We also offer our employees a mentoring programme. In a mentoring relationship, a person with less experience in any area of business or personal development (“mentee”) is matched with a more experienced person (“mentor”), who acts as an active listener and guide. This offers a confidential relationship outside the reporting line that helps individuals develop their skills, knowledge and behaviours as well as to move successfully through times of change and transition. Our VCC includes a special search tool that helps our employees identify potential mentors.
As part of the enrolment process for two of our senior leadership programmes, we established cross-divisional mentoring relationships with our senior leaders. 120 employees benefited from this valuable opportunity during their 15-month programme.
This unique programme was cited as one of the reasons why we won the first-ever Employer of the Year award conferred by the Asia Insurance Review at the 2014 Asia Insurance Industry Awards (see page 55).
Impressions from our High Growth Development Programme for Latin America: Carrying the team spirit from their working groups with them, the participants also spent some fun time together at the Iguaçu waterfalls.
Swiss Re sets high standards in terms of caring for the physical and mental wellbeing of its employees. Our services not only provide support to our employees, they also help to preserve valuable skills and know-how.
Assistance and prevention We regularly review and enhance our prevention and support services. Our goal is to help employees take a constructive approach to their own health, while improving and retaining their ability to perform. This also supports their sense of wellbeing and ability to balance work and family life.
Examples of prevention activities carried out in 2014 include a Lunch & Learn session in Switzerland dedicated to early stress detection and how to cope with it. We also offer our employees individual self-assessments, accompanied by coaching sessions. Building on earlier health programmes in Zurich, we organised health management initiatives for our employees in Bangalore and Bratislava. In Munich we held a series of seminars focusing on mindfulness in stressful situations.
In the UK, we introduced the “Healthy Me” initiative, which is designed to support and encourage our employees’ wellbeing by focusing both on a healthy body and a healthy mind. In the US, we held health fairs in Armonk and Kansas City and offered biometric screenings and flu shot events.
To accommodate the needs of working parents, we have a number of initiatives in place. Last year, 143 children in Switzerland attended our one-week vacation programmes during the spring and summer school holidays, enabling their parents to continue working. We also offer a number of reserved places at day care centres in and around Zurich. Furthermore, our external childcare provider helps parents find emergency nannies and gives guidance in all questions related to childcare as well as for adult and elder care.
In the UK, a well-established range of family services is available to meet the typical challenges faced by working parents and carers. Services include offering employees a certain number of emergency childcare sessions or school holiday cover, as well as providing back-up adult and elder care.
Number of employees who have recorded absence due to illness 1 918 1 893 1 900 Average number of sick days 6.9 7.0 7.4
At our Munich office we have a Works Council with clearly defined codetermination rights in several areas. It has the legal obligation to support topics such as diversity, development and training, career opportunities and worklife balance. The eleven members of the Works Council are elected by the employees for four years.
Networks Our former employees have helped to make Swiss Re what it is today and form an essential part of our extended employee community. They remain important stakeholders for Swiss Re. Furthermore, as many of our alumni work for our clients, they also help to deepen our client relationships.
The Senior Consultants initiative, introduced as a pilot in 2012, has continued to grow and was officially launched in 2014. The initiative gives our retirees the opportunity to get involved in specific projects on a part-time basis. This is a beneficial situation for all involved: Swiss Re gains access to people with extensive knowledge of our company and business, while the retirees can continue to work flexibly.
In addition to our publicly available 2014 Compensation Report, employees also have online access to the Swiss Re Group Compensation Policy as well as deferred compensation plan rules and other compensation and benefits-related information on our intranet. Additionally, employees receive an annual Swiss Re Compensation Statement.
The “Ordinance Against Excessive Compensation at Public Corporations” (Ordinance) entered into effect on 1 January 2014. Swiss Re has undertaken the steps necessary to ensure timely compliance with the Ordinance’s requirements. The requirement to instruct the Independent Proxy electronically had already been introduced at the Annual General Meeting 2013.
Swiss Re has a dual board structure: the Board of Directors is responsible for oversight, while the Group Executive Committee is responsible for managing operations. This structure maintains effective mutual checks and balances between the top corporate bodies.
Chairman is not considered independent. All members of the Board of Directors, with the exception of the full-time Chairman, meet our independence criteria.
The organisation of the Board of Directors is set forth in the Group Bylaws, which define the responsibilities of the Board of Directors, its committees and the Group Executive Committee, as well as the respective reporting procedures.
They are required to possess such additional attributes as the Board may, from time to time, specify. Each member of the Audit Committee has to be financially literate. At least one member must possess the attributes to qualify as an Audit Committee financial expert, as determined appropriate by the Board of Directors.
The Group Code of Conduct (Code) is one in a series of documents governing the organisation and management of the company. It sets the framework and defines the basic legal and ethical compliance principles and policies we apply globally.
We regularly review and update the Code to reflect changes in regulations and principles.
We rolled out our Group Anti-Bribery and Corruption Policy, and delivered Group-wide training on it in 2012.
All employees are required to complete a Code of Conduct Acknowledgement every two years. The next Acknowledgement will take place in 2015.
The Swiss Re Foundation reflects the social and humanitarian values of Swiss Re. We empower vulnerable communities to become more resilient to risk and to adapt to changing circumstances. Our global programmes address the underlying causes and challenging effects of changes in the natural and social environment. These are areas where Swiss Re’s core competencies can be brought to bear on our work.
The Swiss Re Foundation in 2014 – Heading for resilience This report presents the Swiss Re Foundation’s strategic focus, its activities in 2014 and a focus section on its work in disaster risk reduction.
Emergency aid Rapid assistance can save lives during an emergency. We respond quickly through donations and Swiss Re employees’ fundraising matching programmes.
Volunteering We support communities where Swiss Re has offices and engage Swiss Re employees in volunteering activities. Our community programmes aim to promote social welfare and protect the environment in our neighbourhood.
What we respond to Threats to health, security, prosperity and opportunity
Where we help ̤ In emerging and developing countries ̤ In regions where Swiss Re has offices
With new challenges and new needs for risk protection emerging around the world, we have made considerable efforts in recent years to widen the reach of our re/insurance solutions. An important part of this has been to look beyond our established client base and traditional business model. We believe there is significant unmet demand for effective, commercially viable re/insurance protection, but offering suitable solutions requires innovative thinking on several levels.
Moving into new markets It stands to reason that many underinsured risks are located in countries where insurance markets are less developed. This means that a special effort is required to gain a foothold in these markets and to develop a good understanding of local needs, conditions and challenges. Selecting and working with the right partner organisations can greatly help this. To intensify our efforts in Africa, for example, we have dedicated market development teams in both Reinsurance and Corporate Solutions.
Public-private partnerships Effectively reducing and financing catastrophic risks requires a combined response by both private and public sector players. While the public sector plays a key role in setting a legal framework that enables the development of a private insurance sector, it is the primary role of private insurers and reinsurers to develop appropriate risk transfer solutions and to absorb and manage those risks most effectively.
Parametric insurance products can be further distinguished based on how payment is determined: ̤ Pure parametric triggers: using location and physical parameters; ̤ Parametric index triggers: a refined form of pure parametric triggers, using more granular loss data and giving relative weights to the locations; ̤ Modelled loss triggers: using a third-party model to calculate losses (and determine payouts).
Insurance products with a parametric index trigger – or index-based insurance products – are used to provide protection against both natural catastrophes and adverse weather conditions harming crops. In the latter case, they are particularly suited to protecting smallholder farmers in emerging and developing countries. Three types of products are popular: Index-based products used in crop insurance
Weather index products The payout is made at any time an objective weather parameter (eg rainfall, temperature, or soil moisture) triggers a defined threshold.
Remote sensing index products The payout is made at any time an objective weather parameter derived from a satellite (eg rainfall and ”normalised differenced vegetation index“ for crop and livestock) triggers a defined threshold.
Insurance-linked securities Insurance-linked securities (ILS), such as catastrophe bonds, are a means of ceding insurance-related risks to the capital markets. They usually rely on index-based payout mechanisms. Since the first cat bond in 1997, ILS have been used to transfer a wide range of risks from natural catastrophes to life insurance risks (see page 15).
Mind the risk: A global ranking of cities under threat from natural disasters This publication provides a comprehensive analysis of natural disaster risk in locations around the world.
Other Swiss Re publications Our publications provide the gateway to Swiss Re’s broad knowledge base and expertise. They cover a wide range of topics: from technical reinsurance issues and emerging risks to natural perils, economic trends and strategic issues in our industry. This is a selection of recent publications, in addition to those featured on page 43.
New partnerships between the public and private sectors to finance disaster risks
Economics of Climate Adaptation (ECA) - Shaping climate-resilient development A framework for decision-making
The ECA methodology 1 provides decision-makers with a fact base to answer these questions in a systematic way. It enables them to understand the potential impact of climate change on their economies – and identify actions to minimize that impact at the lowest cost to society. It therefore allows decision-makers to integrate adaptation and resilience building measures with economic development and sustainable growth. In essence, we provide a methodology to pro-actively manage total climate risk, which means: ̤ Assess today’s climate risk and how that might change under future economic paths and climate change scenarios, and assess the most cost effective risk reduction measures to minimise future losses.
Using state-of-the-art probabilistic modeling, we estimate the expected economic loss today and any further incremental increase due to economic development paths and climate change.
Background 1 The methodology is based on the findings of a study by the Economics of Climate Adaptation Working Group, a partnership between the Global Environmental Facility, McKinsey & Company, Swiss Re, The Rockefeller Foundation, Climate Works Foundation, the European Commission and Standard Chartered Bank.
The future of human longevity: focusing on you (Conference report) This stakeholder conference was the latest in a series about our growing life expectancy and its implications for the future. Focusing on consumer behaviour, health policy and translational medicine, it sought to answer what recent developments mean for the individual.
Closing the financial gap: New partnerships between the public and private sectors to finance disaster risks This publication features some of our most innovative transactions and shows how governments in different regions have used risk transfer products to prepare for the economic consequences of catastrophic events and to make their societies more resilient.
Scope and subject matter Our limited assurance engagement focused on the following data and information disclosed in the CR Report of Swiss Re and its consolidated subsidiaries, for the financial year ended 31 December 2014: a) The management and reporting processes with respect to the consolidated CR reporting as well as the control environment in relation to the aggregation of data and information; b) The organizational measures and internal key controls in place at the corporate level regarding aggregation of information obtained from the subsidiaries and reporting functions; c) The consolidated data and information disclosed in the sections “Creating sustainability solutions” on pages 14–21, “Extending our risk intelligence” on pages 22–34, “Exploring and shaping the risk landscape” on pages 35–43, “Reducing our environmental footprint” on pages 44–53 and “Being an employer of choice” on pages 54–62; d) The consolidated CO2 emissions 2014 (Scope 1, 2 and business travel-related Scope 3 in adherence with the Greenhouse Gas Protocol) of the tables entitled “CO2 emissions per employee (full-time equivalent, FTE), Swiss Re Group” on page 45 and “Underlying environmental data, Swiss Re Group” on page 45 in the 2014 CR Report for the period of 1 October 2013 till 30 September 2014; e) The retirement of 69 800 tonnes of CO2e (CO2 equivalents) described on page 48 of the 2014 CR Report.
Criteria The management reporting processes with respect to the CR Report were assessed against the internal and external policies and procedures as set forth in the following: ̤ “Internal Environmental
Our responsibility We conducted our limited assurance engagement in accordance with International Standard on Assurance Engagements 3000, Assurance Engagements other than Audits or Reviews of Historical Financial Information, and, in respect of greenhouse gas emissions, International Standard on Assurance Engagements 3410, Assurance Engagements on Greenhouse Gas Statements, issued by the International Auditing and
Assurance Standards Board. These standards require that we plan and perform this engagement to obtain limited assurance about whether the identified CR indicators are free from material misstatement.
For the subject matter for which we provide limited assurance, the nature, timing and extent of procedures for gathering sufficient appropriate evidence are deliberately limited relative to a reasonable assurance engagement.
In accordance with International Standard on Quality Control 1, PricewaterhouseCoopers AG maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.
̤ Review of verified emission reductions Reviewing the retirement of 69 800 tonnes CO2e verified emission reductions (VER) according to the Voluntary Carbon Standard or Gold Standard.
We have not carried out any work in respect of projections and targets nor such outside of the agreed scope and therefore restrict our conclusion to the 2014 CR Report of Swiss Re.
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our limited assurance conclusion.
Memberships CDP CDP is an international, not-for-profit organisation providing the only global system for companies and cities to measure, disclose, manage and share vital environmental information. CDP works with market forces to motivate companies to disclose their impacts on the environment and natural resources and take action to reduce them. www.cdp.net
ClimateWise ClimateWise is the global insurance industry’s leadership group driving action on climate change risk. The group leverages the insurance industry’s expertise to better understand, communicate and act on climate risks. www.climatewise.org.uk
ICRC Corporate Support Group The ICRC Corporate Support Group is an innovative and long-term partnership set up by the International Committee of the Red Cross (ICRC) and a group of selected Swiss companies. The members of the Corporate Support Group have committed themselves to supporting the ICRC’s humanitarian work in the years ahead. www.icrc.org
Klimastiftung Schweiz (Swiss Climate Foundation) The Swiss Climate Foundation is a non-profit foundation that directly champions the cause of climate protection in Switzerland, helping to fund small and medium enterprises that are proactive in their approach to reducing CO2 emissions. Swiss Re is one of the foundation’s members and is sponsoring its managing director. www.swiss-climate-foundation.ch
Principles for Responsible Insurance Developed by the UN Environment Programme’s Finance Initiative, the Principles for Sustainable Insurance (PSI) are a framework for the global insurance industry to address environmental, social and governance risks and opportunities. Currently, a Swiss Re representative has the co-chair of the UN PSI Board. www.unepfi.org/psi
Memberships, awards and index listings Listed here is a selection of Swiss Re’s most important memberships, recent awards and index listings with regard to corporate responsibility.
AIIA General Reinsurer of the Year 2013 Swiss Re won this Asia Insurance Industry Award (AIIA) for enhancing natural catastrophe tools and partnering with governments for predisaster financing, amongst other things.
Ethibel Pioneer & Excellence Investment Register oekom research, Prime investment status
As expressed in our Commitment to Corporate Responsibility, we engage in regular dialogue with our clients and other stakeholders, and apply ESG guidelines in our sourcing activities (see page 9).
As expressed in our Commitment to Corporate Responsibility, we engage in regular dialogue with all our stakeholders (see page 9).
⇒ We plan to achieve this by: sharing and advancing our risk expertise with a special focus on five Top Topics, supported by our own dialogue platform, the Centre for Global Dialogue.
The Principles for Sustainable Insurance (PSI): Our Public Disclosure of Progress 74 Swiss Re 2014 Corporate Responsibility Report
Organisational profile 2.1 Name of the organisation 4 2.2 Brands, products and services 4–6 2.3 Operational structure 6, FR 2–3 2.4 Headquarter location 4 2.5 Countries of operation 4–5, FR 172 2.6 Nature of ownership 4, FR 76–81 2.7 Markets served 4–5, FR 162–172 2.8 Scale of the organisation 7, 54, FR 26–45 2.10 Awards received 73
Economic dimension Disclosure on management approach: Our management approach to the economic dimension is primarily disclosed in the 2014 Financial Report. Specific aspects (“implications of climate change” and “indirect economic impacts”) are disclosed in this report in the “Who we are and what we do”, “Creating solutions for sustainability” and “Exploring and shaping the risk landscape” chapters.
EC1 Direct economic value generated 7, FR 148–153 EC2 Implications of climate change 7 14–21, 35–38, 66–67 EC3 Benefit plan obligations FR 216–223 EC9 Indirect economic impacts 6, 14–21
Environmental dimension Disclosure on management approach: We provide comprehensive disclosure on our management approach to the environmental dimension in the chapter “Reducing our environmental footprint”.
Human rights Disclosure on management approach: We address human rights aspects relevant to our business through our Sustainability Risk Framework and our sourcing guidelines. The corresponding management approaches are disclosed in the chapters “Extending our risk intelligence” and “Reducing our environmental footprint”, respectively.
HR2 Supplier screening on human rights 1–6 50 HR6 Child labour 1, 2 and 5 22–25, 50 HR7 Forced or compulsory labour 1, 2 and 4 22–25, 50