Awards prior to 2020 are split equally into Restricted Share Units (RSUs) and PSUs. The RSU component for such in-flight plan cycles (ie granted in 2018 and 2019) is measured against an ROE performance condition. At the end of each year, the performance is assessed and one third of the RSUs is locked in within a range of 0% to 100%. At the end of the three-year period, the total number of units locked may vest. For the LPP 2018, the average performance factor for the RSUs was 1.67% for the three-year period. The PSU component is based on rTSR, measured against a pre-defined basket of peers, and vests within a range of 0% to 200%. For the LPP 2018, the performance factor for the PSUs was 146% for the three-year period. The table below gives an overview of the RSU and PSU performance achievement for the previous LPP plan years: 2018 RSU performance outcomes
The value of all outstanding deferred compensation for all employees at 31 December 2020 amounted to CHF 228 million (compared to CHF 239 million in 2019), whereof CHF 90 million will be payable in cash (compared to CHF 103 million in 2019) and CHF 138 million in shares (compared to CHF 136 million in 2019). The figure for outstanding deferred compensation is determined based on the value at grant for both cash-based and share-based compensation.
Category Number of employees Values (in CHF millions) Number of employees Values (in CHF millions)
6 Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with applicable laws, which amounted to CHF 6m in 2019 and CHF 6m in 2020.
Aggregate compensation for Key Risk Takers The aggregate compensation of the individuals that held a key risk-taking position as of 31 December of the performance years 2019 and 2020 was as follows (this table excludes members of the Group EC; members of the Group EC also qualify as Key Risk Takers and their compensation is disclosed separately in the table on page 140 of this Financial Report):
Compensation decisions for members of governing bodies 16 members 15 members CHF thousands1 2019 2020
4 Covers payments reflecting the time in the role as Group EC member. 5 For 2020, subject to shareholder approval at the AGM 2021. For 2019, based on shareholders’ approval at the AGM 2020 of the aggregate amount of short-term variable compensation.
7 For individuals leaving the Group EC during or before the reporting period, this only covers legally or contractually required payments for the period when the individual was no longer in the Group EC position (eg base salary when on garden leave).
8 Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with applicable laws, which amounted to CHF 1 971 899 in 2019 and CHF 1 953 251 in 2020 (for the individuals who joined the Group EC during the reporting year, the figure excludes employer social security contributions made during the period prior to joining the Group EC).
The section below is in line with Swiss law and specifically with Articles 14 to 16 of the Ordinance against Excessive Compensation at Public Corporations (the Ordinance), which require disclosure of compensation granted to members of the Board of Directors and the Group EC. Compensation to members of the Board of Directors and the highest-paid member of the Group EC is shown separately. At the AGM 2019 and the AGM 2020, the shareholders approved the maximum aggregate compensation amounts for the Board of Directors and Group EC for the prospective periods. For the reconciliation of these aggregate amounts to what was awarded, please refer to page 146 of this Financial Report.
Compensation decisions for the Group EC The number of Group EC positions decreased during 2020 from 14 to 13 (the position of CEO Life Capital was discontinued per 1 September 2020 due to the disbanding of the Business Unit Life Capital following the completion of the sale of ReAssure to Phoenix Group). The 2020 figures in the following table cover payments to 15 individuals who held a Group EC position at one point in 2020 (of whom 12 were active on the Group EC for the full year). The 2019 figures cover payments to 16 individuals who held a Group EC position at one point in 2019 (of whom nine were active on the Group EC for the full year) and legally or contractually required payments made in 2019 to an individual who stepped down from the Group EC in 2018.
Overall, total variable compensation for individual members of the Group EC (including the Group CEO) who were active on the Group EC for the full year 2020 ranged from 138% to 246% of total fixed compensation.
The proposed total API (including VAI) amount for 2020 for the Group EC (including the Group CEO) is CHF 15.1 million and includes pro-rata payments in relation to the active period on the Group EC for individuals who joined or left the Group EC in 2020.
After carefully considering the performance of the Group EC in 2020, the Compensation Committee and the Board of Directors concluded that the proposed amount of CHF 15.1 million is proportionate given the overall business environment for the Swiss Re Group and the qualitative achievements. This amount still remains significantly below target levels (see page 140 for further information). It represents an increase of CHF 1 million compared to the approved total API (including VAI) amount for 2019 for the Group EC (including the Group CEO), which was CHF 14.1 million. This increase is primarily driven by the increase in aggregate TAPIs (which, as explained on the previous page, is due to the higher number of Group EC members who were active for the full year in 2020 compared to 2019), and partially offset by the effect of lower business performance (ie lower Group BPF).
3 For 2020, subject to shareholder approval at the AGM 2021. For 2019, as part of the aggregate amount of short-term variable compensation approved by the shareholders at the AGM 2020. 4 Disclosure reflects all awards for a reporting year, ie the 2019 value reflects the fair value of the LPP award granted in April 2019 and the 2020 value reflects the fair value of the LPP award
granted in April 2020. The LPP for 2019 is split equally into two underlying components (50% RSUs and 50% PSUs). The award for 2020 is split equally into three underlying PSU components.
While the Group’s financial performance in 2020 was below target, the Board of Directors saw Swiss Re’s performance as broadly in line with peers. It also recognised the encouraging underlying result excluding the COVID-19 impact, the outstanding investment result and the successful completion of the sale of ReAssure to Phoenix Group in a challenging business environment.
The Board of Directors was satisfied with the Group CEO’s decisive leadership of the Group during the COVID-19 pandemic, an impressive turnaround in Corporate Solutions and Swiss Re’s initiatives and external visibility on Sustainability and Environmental, Social and Governance (ESG) topics. In addition, it recognised that the Group CEO has built a very strong leadership team, which lays the ground for future success.
Realised compensation for the highest-paid member of the Group EC The chart below shows the compensation granted to and realised by Christian Mumenthaler, Group CEO (in the role since
1 For 2020, subject to shareholder approval at the AGM 2021. 2 The LPP 2018 grant took place on 1 April 2018 and was based on a share price of CHF 98.22 (at the grant valuation date of 26 February 2018). Since vesting of the LPP 2018
Shares held by members of the Group EC The following table reflects Swiss Re share ownership by members of the Group EC as of 31 December: Leadership Performance Plan units held by members of the Group EC The following table reflects total unvested LPP units (RSUs and PSUs) held by members of the Group EC as of 31 December: Members of the Group EC 2019 2020
Christian Mumenthaler, Group Chief Executive Officer 100 734 81 031 Urs Baertschi, CEO Reinsurance EMEA /Regional President EMEA 10 076 14 134 Andreas Berger, CEO Corporate Solutions 11 293 24 858 Anette Bronder, Group Chief Operating Officer 11 293 24 858 John R. Dacey, Group Chief Financial Officer 50 369 40 517 Nigel Fretwell, Group Chief Human Resources Officer 30 222 24 689 Guido Fürer, Group Chief Investment Officer 62 960 50 645 Hermann Geiger, Group Chief Legal Officer 31 476 27 072 Russell Higginbotham, CEO Reinsurance Asia/Regional President Asia 31 808 31 402 Jonathan Isherwood, CEO Reinsurance Americas/Regional President Americas n/a 28 740 Thierry Léger, Group Chief Underwriting Officer 50 369 41 647 Moses Ojeisekhoba, CEO Reinsurance 50 369 43 531 Patrick Raaflaub, Group Chief Risk Officer 50 369 40 517 Edouard Schmid, former Chairman Swiss Re Institute & Group Chief Underwriting Officer 44 095 n/a J. Eric Smith, former CEO Reinsurance Americas/Regional President Americas 40 295 n/a
Loans to members of the Group EC As per Article 27 of the Articles of Association, credits and loans to members of the Group EC may be granted at employee conditions applicable for the Swiss Re Group, with a cap on the total amount of such credits and loans outstanding per member (currently CHF 3 million per member of the Group EC). During 2019, any outstanding loans and mortgages to current and former Group EC members were transferred to an external party. No loans or mortgages were granted to current or former members of the Group EC in 2020.
Members of the Board of Directors Total 2019 Fees and allowances in cash Fees in blocked shares Total 2020
Trevor Manuel, former member4 351 70 47 117 Joachim Oechslin, member2 n/a 131 87 218
Eileen Rominger, former member4 275 55 37 92 Philip K. Ryan, member, Chair Finance and Risk Committee3 898 642 240 882 Sir Paul Tucker, member 325 195 130 325 Jacques de Vaucleroy, member, Chair Compensation Committee5 718 517 202 719 Susan L. Wagner, member, Chair Investment Committee 595 363 242 605
Total compensation for the reported financial years7, 8 9 538 6 326 3 613 9 939 1 Includes fees for duties on the board of Singapore Group companies.
6 Includes fees for duties on the board of ReAssure Group companies from January to July 2020. 7 Compensation for the members of the Board of Directors includes fixed fees (cash and shares) and minimal allowances. No sign-on or severance payments have been made. 8 Amounts are gross and include social security contributions of the Board member. Additionally and not included are company contributions to social security systems paid by Swiss Re in line
with applicable laws which amounted to CHF 392 690 in 2019 and CHF 418 024 in 2020. For Board members domiciled outside of Switzerland, company social security contributions are refunded, if bilateral social security agreements between Switzerland and the country of domicile apply and provide for such refund.
Walter B. Kielholz, Chairman 3 800 Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and
Compensation for members of the Board of Directors The following two tables illustrate (1) the individual compensation for the members of the Board of Directors for the reported financial years 2019 and 2020 and (2) the individual compensation for the members of the Board of Directors paid or payable for the term of office from AGM 2020 to AGM 2021. Figures are in CHF thousands and foreign currency conversions are calculated using December 2020 year-to-date FX rates for 2020 and 2021 figures, and December 2019 year-to-date FX rates for 2019 figures, where relevant.
(1) Individual Board compensation for the reported financial years 2019 and 2020
Shares held by members of the Board of Directors The number of shares held by members of the Board of Directors as of 31 December were: Loans to members of the Board of Directors No loans were granted to current or former members of the Board in 2020 and no loans were outstanding as of 31 December 2020.
Trevor Manuel, former member4 7 065 n/a Joachim Oechslin, member2 n/a 1 263 Deanna Ong, member2 n/a 1 166
At the AGM 2019, shareholders approved a prospective maximum aggregate amount of CHF 34.0 million for fixed compensation and variable long-term compensation for the financial year 2020 for the members of the Group EC expected at the time of the AGM 2019 to hold such position in 2020.
At the AGM 2020, the shareholders approved a maximum aggregate amount of compensation of CHF 10.3 million for the members of the Board of Directors for the term of office from the AGM 2020 to the AGM 2021.
AGM 2021 motion for variable short-term compensation for the Group EC for the financial year 2020 At the AGM 2021, the Board of Directors will propose to the shareholders to approve an aggregate amount of CHF 15 094 666 for variable short-term compensation in relation to the completed financial year 2020 for the 15 individuals who were members of the Group EC at one point during the financial year 2020. This amount has been included in the items “Cash Annual Performance Incentive” and “Value Alignment Incentive” in the table for Group EC compensation on page 140 of this Financial Report. It includes pro-rata payments in relation to the active period on the Group EC for individuals who joined or left the Group EC in 2020.
Board of Directors Term of office: AGM 2020–AGM 2021 CHF millions
An audit involves performing procedures to obtain audit evidence on the disclosures made in the Compensation Report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the Compensation Report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the Compensation Report.
The climate-related financial disclosures provide a foundation to improve investors’ and other stakeholders’ ability to appropriately assess and price climate-related risk and opportunities.
Mitigating climate risk and advancing the energy transition: one of our top priorities Climate change is an essential element in our Group Sustainability Strategy. “Mitigating climate risk and advancing the energy transition” is one of our three overarching 2030 Sustainability Ambitions. The 2030 Sustainability Ambitions cover three focus areas where we can have a significant positive impact in terms of supporting sustainability and strengthening resilience.
Swiss Re first detected the potential long-term challenges posed by climate change some 30 years ago, and this topic is now at the centre of our sustainability efforts. As a re/insurer, climate change is a
Climate-related financial disclosures (TCFD) Starting from the premise that climate change creates physical, liability and transition risks, the Task Force on Climaterelated Financial Disclosures (TCFD) aims to offer consistent and effective financial disclosures that allow investors and other stakeholders to assess the climate risks faced by companies and to take appropriate action. We have played an active role in the TCFD since its creation by the Financial Stability Board, and began to implement the TCFD recommendations in our 2016 Financial Report. Since then, we have continued to expand our climate-related disclosures.
Tackling climate change and advancing the energy transition is challenging. In line with the Paris Agreement, we have committed to achieving net-zero CO2 emissions (see box).
Swiss Re has committed to achieving net-zero CO2 emissions: • Across the Group by 2050, by signing the UN Global Compact “Business Ambition for 1.5°C”2
2 This includes a commitment to setting science-based targets through the Science Based Targets initiative (SBTi).
At Swiss Re’s highest governance level, four Board of Directors committees are charged with overseeing the implementation and execution of Swiss Re’s Group Sustainability Strategy and Climate Action Plan.
The Chairman’s and Governance Committee, presided over by the Chairman, has the overall responsibility for monitoring and reviewing the Group’s strategic priorities on enabling sustainable progress, including initiatives and actions specifically addressing climate change.
The Compensation Committee establishes and reviews the compensation framework, guidelines and performance criteria. Performance criteria include sustainability and climate change-related topics.
The Board of Directors oversees the development and adoption of sustainability policies and Swiss Re’s climate strategies, while the Group Executive Committee (Group EC) ensures their implementation.
To optimise coordination and alignment at the Group level and to monitor progress on the implementation of the Group Sustainability Strategy, the Group EC has established the Group Sustainability Council (GSC), chaired by the Group Chief Risk Officer. The GSC is an advisory body to the Group EC. It is composed of Group EC members and other senior management representatives.
Sustainability and climate changerelated KPIs linked to compensation We have introduced sustainability as an additional assessment dimension for determining our Group Annual Performance Incentive (API) pool. This establishes a clear connection between sustainability and climate change-related targets and compensation for all employees, including Group EC members. The sustainability assessment in 2020 is primarily based on qualitative key performance indicators (KPIs) and targets. In 2021, the assessment will be expanded to include quantitative KPIs and targets. Our KPIs and targets are aligned with our 2030 Sustainability Ambitions and net-zero commitments. Please see pages 120‒121 of this Financial Report for details on the API pool funding process, and pages 133‒134 for details on performance outcomes of the qualitative assessment.
You can read more about our sustainability governance in our Sustainability Report 2020, page 82.
Swiss Re’s sustainability and climate-related governance 1 Only Board committees with allocated responsibilities related to sustainability and climate change are listed. 2 Dedicated sustainability and climate change roles, networks and/or committees in all Group Functions and on
Business level. 3 The iptiQ Division has been in place since 1 January 2021. The Business Unit Life Capital was disbanded at the end of December 2020.
In view of the significance of climate change for our business, we have developed a Climate Action Plan as part of our Group Sustainability Strategy.
We assess the near-term materiality of potential climatic changes to our underwriting risk based on our proprietary loss modelling framework, with which we calculate the annual expected losses (AEL) and loss-frequency distributions of major natural catastrophes. The weather-related perils with the largest AEL for property insurance at present are disclosed on page 172 (North Atlantic hurricane, US tornado, European windstorm, Japanese cyclone, and European flood). Furthermore, the geographic distribution and peril split of Swiss Re’s annual expected natural catastrophe losses for property insurance are shown in the figure on page 153. The largest contribution to Swiss Re’s AEL for the most material weather-related perils comes from the North America region (46%), mainly dominated by hurricane risk, while Asia accounts for 19% of the AEL, with a significant contribution from typhoon risk. EMEA, where the major driver is European winter storms, and Latin America contribute with 17%, and 10%, respectively.
Please refer to page 172 (Climate metrics and targets) for additional natural catastrophe risk metrics.
Climate-related risks Physical risks Physical risks posed by climate change could potentially affect four areas of our business. They can: • Influence modelling and pricing of weather-related natural perils • Impact the economic viability of re/
Our Climate Action Plan Building on our Group Sustainability Strategy and our commitments and initiatives of recent years, our Climate Action Plan combines three objectives: 1. We aim to become the leading re/ insurance company on physical climate risk.
2. We aim to become a leading provider of re/insurance solutions for lowcarbon transition opportunities.
As our Climate Action Plan indicates, understanding the risks posed by climate change as well as identifying the potential to create and adapt suitable products and services for our clients continue to be priorities for Swiss Re. Our Climate Action Plan serves as Swiss Re’s climate strategy.
3 In previous years, we reported natural catastrophe premiums for our Property & Casualty (P&C) Reinsurance business only, but have now switched to Group-wide figures to provide a more complete picture.
Annual expected loss (AEL) for weather-related natural catastrophes As a percentage of most material perils in North America, Latin America, Europe, Asia and Oceania (all numbers have been rounded).
<1% Convective storms4% Flood14% Tropical cyclone 2% All other perils2% Convective storms 2% Flood2% Tropical cyclone
Swiss Re closely monitors climatic trends and other macro risk factors that are potentially material for the insurance industry over various time horizons. Physical climate change risks that affect our assessment and management of weather-related risks are summarised in the table below.
Source: Swiss Re sigma 2/2020 current climate, the dominant factor for Swiss Re’s weather-related risk exposure remains natural variability, affecting both the frequency and severity of extreme events in all regions. We expect this to remain the case both in the short and medium term (ie 2025 and 2030), in line with the most recent scientific findings from the Intergovernmental Panel on Climate Change (IPCC).4
Melting of glaciers and ice caps, thermal expansion: sea level rise/storm surge
Longer/more frequent heat waves, droughts, water scarcity, wildfires, health issues, increased mortality, potential political conflicts
Low-medium property insurance impact: no sudden/unprecedented events (adaptation!). Localised effects in coastal and flooding zones
Limited insurance impact as of today where climate risk is managed actively. Mid/end of century significant impact on re/insurance covers, both for severity (affecting capital) and frequency (affecting earnings), in particular where associated flood risk is covered in full
G lo b a l w a rm in g r e sp o n se
Confidence about observed and future climate trends is highest for risks related to the increase in global temperatures. For example, the melting of glaciers and ice caps, and thermal expansion of water in warmer temperatures are leading to rising sea levels. These can directly increase the magnitude of storm surges, a long-term risk for coastal regions. To date, the rise in sea levels has been relatively slow and will likely remain so in the near future, allowing time for measures to mitigate the risk of coastal flooding. The insurance impact today is limited to the property line of business, and is mostly localised in coastal and flooding zones (see the case study on sea level rise on page 156).
Furthermore, rising temperatures allow the atmosphere to hold more water vapour, thus (on average) increasing the risk of extreme rainfall (including tropical cycloneinduced rainfall). However, there is less confidence in estimating the impact of rising temperatures on river flood risk, which is also impacted by other factors. Regional trends are already observable, but the insurance impact for flood-related losses is limited due to still-large protection gaps for this peril.
There is lower confidence in the understanding of trends for atmospheric and oceanographic circulation changes. These affect, for example, the frequency and intensity of tropical cyclones or European winter storms. While warmer sea surface temperatures will increase the probability of tropical cyclone formation and intensification, higher wind shear can offset this. These complex interactions introduce a “confidence barrier” that renders any insurance-related quantification of climatechange effects on high-severity perils like hurricanes very uncertain. Given their material impact, Swiss Re performs internal research and collaborates with leading scientists to tackle this challenge.
Furthermore, since most of the re/insurance contracts with our clients have a duration of one year, updated risk views are quickly reflected in the costing of natural catastrophe risks.
Impact on the economic viability of re/insurance protection An increase in the frequency and severity of extreme weather events can restrict the affordability of re/insurance in certain regions, especially in coastal areas, by requiring a rise in premiums.
5 In climate science, long-term often refers to a time horizon until 2100. However, to align with our net-zero commitments and the Paris Agreement, we chose to use “long-term” to mean until 2050.
1 RCP: Representative Concentration Pathway. RCP scenarios represent possible future concentration trajectories of greenhouse gases. The scenarios are named after the resulting radiative forcing at the end of the 21st century, eg 8.5W/m2 for RCP8.5, where no mitigation measures nor technical innovation will limit temperature increases.
Case Study: Sea level rise Sea level rise is a direct consequence of a warming climate: caused by thermal expansion of water and the melting of glaciers and ice caps, sea level rise will directly increase the magnitude of storm surges and pose a long-term chronic risk for low-lying coastal regions. The relatively slow rise of sea levels allows time for the adaptation and implementation of flood-protection infrastructure that can reduce the risk of catastrophic coastal flooding. Up to 2050, the uncertainty range for climate change-driven sea level rise is relatively small with an expected rise of approximately 0.25 metres for a warming scenario that is aligned with the goals of the Paris Agreement (RCP2.6) and approximately 0.3 metres in a scenario where greenhouse gas emissions continue to rise throughout this century (RCP8.5).1 Sea level rise is expected to accelerate significantly during the second half of the 21st century, especially if no adequate mitigation measures are implemented to limit global warming. For the re/insurance industry, the impact of sea level rise on resourcerich coastal cities and large agriculture deltas is of particular relevance. Adequate adaptation measures will be important to protect coastal exposures.2 Such adaptation measures, including climate-resilient infrastructure, will help to ensure the availability and affordability of insurance in exposed coastal areas.
Largest population centres at risk of storm surge today and expected population growth by 2060
Urban population at risk in millions (today) 7–12m 4–6m 1–3m <–1m
* Aggregated population growth is shown for the following regions: Europe, North America, Sub-Saharan Africa, North Africa and West Asia, Central and Southern Asia, East and Southeast Asia, Latin America and the Caribbean, Australia and New Zealand, Oceania.
According to the IPCC Special Report on the Ocean and Cryosphere in a Changing Climate (2019), population growth, urbanisation and a further rise in global mean sea levels of 21cm by 2060 would increase the global population living below the hundred-year extreme sea level (ESL) from about 190 million in 2000 to between 316 and 411 million in 2060. The largest absolute changes are in South and Southeast Asia, while the largest relative changes are expected in Africa, as shown on the map on page 156.
Swiss Re manages its exposure to sea level rise by developing up-to-date risk models and by managing its risk accumulation in the most exposed areas to ensure a well-diversified underwriting portfolio. Swiss Re’s Global Storm Surge Zones help us and our clients to pinpoint storm surge risks globally in a quantitative way thanks to high-resolution data.
Transition risks in our re/insurance business Transition risks may arise as a result of the extensive policy, legal, technology and market changes that are required to make the transition to a low-carbon and ultimately, a net-zero economy. We have assessed the most relevant transition risks that may potentially affect our business: • Policy and legal risks • Technology risks • Market and reputational risks
Firstly, new technologies by definition do not have loss histories and thus may be challenging to cost accurately. Research and development is thus required to develop possible loss scenarios and the related expenses. Once these are developed and tested, new technologies are likely to present the sector with an opportunity for growth (see Climate-related opportunities, pages 161–162).
Transition risks in our re/insurance business conclusion: Overall, it is our view that the transition to a low-carbon economy is not likely to present a significant financial risk for Swiss Re’s re/insurance business. We expect that the associated risks can be managed effectively, primarily due to the annual renewal of contracts.
Market and reputational risks With policy, legal and technological changes as a backdrop, consumer and investment preferences will further shift toward less carbon-intensive products and services over time. Changes in market volumes will be reflected in the demand for insurance. In addition, to support their decision-making, investors and other stakeholders will expect greater transparency and more information regarding re/insurers’ exposure to emission-intensive sectors as well as their contribution to low emissions-related risk transfer solutions. Finally, particularly in fossil fuel-dependent societies, a late and sudden transition without appropriate mitigation measures may result in setbacks such as social unrest leading to an overall market decline.
Non-investment transition risks for the real economy and their relevance for the re/insurance industry
Transition risks Financial impacts on real economy Impacts on insurance liabilities
Policy and legal • Removal of fossil fuel subsidies and introduction of CO2 taxes • CO2 regulation and mandates • Exposure to litigation for historical and current CO2 emissions • Emission disclosure requirements
• Increased costs and/or reduced demand for products and services resulting from fines and judgments against CO2-intensive sectors
• Climate policy-induced economic effects may lead to higher claims for certain lines of business (eg credit insurance)
• Premium volume in engineering and property insurance will shift from CO2-intensive assets and activities to CO2-efficient ones
• Reputational risk for insurers via insured emissions (eg insurance of thermal coal) may further intensify
7 IPCC (2018) "Global Warming of 1.5°C: An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty": At Swiss Re, we have been measuring the weighted average carbon intensity of our corporate bond and listed equity portfolio since the end of 2015, and of our government bond portfolio since 2020.6 Detailed measurement results are presented in the Climate metrics and targets section (pages 176–177). Consistent with reaching net-zero greenhouse gas (GHG) emissions by 2050, the Intergovernmental Panel on Climate Change (IPCC)7 developed model emission pathways and corresponding development ranges for CO2 emissions and related indicators. The reduction of the carbon intensities of our corporate bond and listed equity portfolio achieved since 2015 is well aligned with the CO2 emission reduction required according to IPCC in order to limit global warming to 1.5°C.
Transition risks in our investments Climate-related risks can impact the value of our investments and are therefore considered an important part of our Responsible Investing strategy. One of the key risks faced by asset owners is that a changing regulatory environment may result in a specific company or a particularly exposed industry becoming a stranded asset in investment portfolios, ie the devaluation of investments driven by unfavourable changes, such as increased taxes or new regulations.
Making India’s Nagaland state resilient to excess rainfall: Swiss Re provided India’s Nagaland State Disaster Management Authority (NSDMA) with parametric reinsurance protection during the 2020 monsoon season. Using rainfall intensity data derived from satellite observations, payouts are made to regions in proportion to the amount of recorded rainfall, which mirrors the anticipated levels of loss.
Protecting farmers’ livelihoods from drought: Swiss Re has partnered with a provider of satellite-based soil moisture data to develop the Soil Moisture Deficit Index, which in turn is used as a parametric trigger to determine payouts to farmers when soil moisture levels fall below a pre-determined level. This innovative, yet easy to use insurance solution is providing a growing number of farmers in Europe with affordable access to financial protection from drought.
Helping Mexico become more resilient to natural catastrophes: In March 2020, the World Bank issued four tranches of catastrophe bonds providing the Government of Mexico with financial protection of up to a record USD 485 million against losses from natural catastrophes – of which USD 250 million was allocated to named storms and the remainder to earthquakes – with Swiss Re acting as the transformer between Mexico’s state-owned insurer and the World Bank. In addition, proceeds of the catastrophe bonds are used to finance sustainable development projects supported by the World Bank.
You can read more about these solutions in the Sustainability Report, pages 24–35.
Climate-related opportunities Climate change does not just create risks, but also presents new opportunities. Developing corresponding products and services is a core part of our Group Sustainability Strategy, 2030 Sustainability Ambitions and Climate Action Plan. With our offerings, we pursue two different but complementary objectives: adapting to the effects of climate change and supporting the transition to a low-carbon economy.
Protecting solar panels in Puerto Rico: Swiss Re Corporate Solutions provided a leading residential solar and energy storage service provider with parametric named storm coverage for its solar panels in Puerto Rico. In addition to providing protection against the risk of physical damage caused by storms, the insurance solution offered protection against the risk of a downed power grid that would prevent the transfer of excess energy from the solar panels into the grid as well as the risk that customers might miss their lease payments following a devastating hurricane.
Financing solar utility-scale projects in the US: Swiss Re Corporate Solutions and its data partner, kWh Analytics, successfully developed a ten-year Solar Revenue Put for an investor in large, utility-scale solar projects. The Solar Revenue Put is an insurance product that guarantees up to 95% of a solar farm’s expected output, helping to mitigate a central risk of generating solar power – lack of sunshine. It was the first time that this product was used in the financing or refinancing of solar projects within the US private-placement debt market.
23% Renewable energy infrastructure 23% Social infrastructure 54% Others 23% Erneuerbare Energieinfrastruktur 23% Soziale Infrastruktur 54% Sonstiges
USD 468 million of renewables, making up approximately 23% of our infrastructure loan portfolio, of which 51% are in solar panels and 49% in wind farms. In 2020, we established a new target to deploy an additional USD 750 million to renewable and social infrastructure loans by the end of 2024.
Green bond proceeds are used exclusively to finance environmentally sustainable projects that address key areas of concern, including not only climate change, but also natural resource conservation, biodiversity conservation, and pollution prevention and control. We support the transition to a net-zero emissions economy by investing in green bonds following the ICMA Green Bond Principles. As of 31 December 2020, we held USD 2.3 billion of green bonds and are targeting a portfolio1 of USD 4.0 billion by the end of 2024. We have embraced the opportunity to participate in the impressive average market growth of 54% p.a. since 2014.2,3 19.5% Sovereign 2.0% Information technology 17.3% Agency 1.9% Non-cyclical services 14.7% Supranational 0.9% Basic industries 10.9% Regional governments 0.3% General industrials 3.6% Agency securitised 0.3% Non-cyclical consumer goods 0.9% Municipals 0.2% Resources 20.5% Financials 0.1% Cyclical services 6.9% Utilities
Real estate Our real estate investment portfolio comprises commercial and residential buildings with a total market value of USD 5.4 billion as of 31 December 2020. These are predominantly located in Switzerland, the US, Germany, Australia, the UK, and Central and Eastern Europe (CEE). As sustainability considerations are a key pillar of long-term sustainable value creation, we incorporate them into decision-making throughout the whole operating model, including external investment manager due diligence.
24% BREEAM «Ausgezeichnet» 25% BREEAM «Sehr gut» 51% Nicht zertifiziert 13% LEED «Gold» 30% LEED «Silber» 57% Nicht zertifiziert
53% NABERS Energie 5 31% NABERS Energie 4/4.5 16% NABERS Energie < 4 oder nicht zertifiziert
Swiss Re’s climate resilience under different scenarios The TCFD requests that companies describe the resilience of their strategy, taking into account different climate-related scenarios including a 2°C or lower increase.
Swiss Re aligns its scenario analysis for physical climate risks with the Representative Concentration Pathway (RCP) and Shared Socio-Economic Pathway (SSP) scenarios adopted by the Intergovernmental Panel on Climate Change (IPCC).8 Differences between projected physical impacts across various scenarios in the near- to mid-term are minor, but a considerable divergence is expected for the second half of the 21st century. Furthermore, there is significant uncertainty within a single scenario, mainly caused by different modelling assumptions used in various climate models.9
These socio-economic dynamics will lead to vast changes of insured value distributions and the re/insurance landscape in general. From a re/insurance perspective, socio-economic dynamics will often overshadow slowly evolving climate trends and thus limit the decision-power of quantitative climate scenario analyses and stress tests in which only changes to climatic conditions of natural hazards are considered. For example, based on climate projections, the overall frequency of North Atlantic hurricanes is expected to decrease by more than 10% for a global mean temperature increase of 2°C. At the same time, the frequency of the most intense hurricanes (category 4 and 5 hurricanes) is expected to increase by about 10%.12 These climatic changes to the most material natural perils for the re/insurance industry need to be analysed in conjunction with vast socio-economic changes that occur over the same timeframes.
9 IPCC Fifth Assessment Report (AR5), Chapter 11, 2013. 10 See, eg Kunreuther, Howard; Michel-Kerjan, Erwann; and Ranger, Nicola, “Insuring Future Climate Catastrophes” (2012). Published Articles & Papers. Paper 171. 11 United Nations, Department of Economic and Social Affairs, Population Division (2018). World Urbanization Prospects: The 2018 Revision. 12 Knutson, T., and Co-authors, 2020: Tropical Cyclones and Climate Change Assessment: Part II: Projected Response to Anthropogenic Warming. Bull. Amer. Meteor. Soc., 101, E303–E322.
How we ensure resilience of our underwriting business in a changing climate 1. Diversification of insured natural hazards with regard to regions, lines of business, sectors and clients.
For the regions where Swiss Re is most exposed to weather-related risks (see AEL figure, page 153), a noticeable increase in flood damage is expected, especially beyond 2040 if no adequate adaptation measures are taken. Wildfire hazards in different regions have already reached medium-to-high risk levels and will continue to contribute to increasing economic and insured losses. Drought conditions will affect crop productivity and agriculture insurance and can lead to more land subsidence affecting property insurance. Swiss Re discussed the increasing relevance of these secondary perils in the face of climate change in recent sigma publications (sigma 2/2019, sigma 2/2020).
On a societal level, our Economics of Climate Adaptation studies have shown that climate change can lead to an increase of economic losses in specific locations due to weather risks of up to 30% within the next 25 years. More importantly though, economic development, urbanisation, higher population densities and asset concentrations in flood plains are expected to be the dominant factors in increasing weather-related economic losses. As these factors become more pronounced, our models will gradually factor in this trend, since they are updated and refined at regular intervals.
In addition, we have also started to assess different transition risk and opportunity scenarios that are relevant to the transition to a low, and ultimately net-zero, carbon economy. We focus on reducing our carbon intensity in both our investments and insurance activities and explore ways to accelerate this transition by allocating our investments and providing risk transfer solutions accordingly.
Natural catastrophes constitute one of the core risks modelled in Swiss Re’s risk landscape. Besides man-made risks, natural catastrophe risks are the key risk category in our P&C re/insurance risk landscape.
Swiss Re’s proprietary and fully integrated risk models are important tools for managing the business: we use them to determine the economic capital required to support the risks on our books as well as to allocate risk-taking capacity to our different lines of business.
Transition risks in our re/insurance business To ensure appropriate risk identification of transition risks and assess potential impacts on our business, we continue to monitor and identify such risks in risk management and casualty underwriting, as well as for relevant legal developments.
Our oil and gas policy also prevents us from offering any re/insurance cover for offshore drilling activities in the Arctic.
To learn more about our SBR Framework, carbon risk steering mechanism and thermal coal and oil and gas policies, please visit our Sustainability Report 2020, pages 36–43.
Investments Swiss Re is a long-term investor. As a result, it is important that we also take a long-term view on the risk factors that may have an adverse impact on our portfolio, such as climate change. Together with sustainability, climate change is therefore a core topic for our Asset Management.
• Financing targets • Renewable infrastructure loan investment target2 and implementation
• Voting & engagement targets • Exercise voting rights & engage
• Sub-portfolio targets • Corporate bonds • Listed equities • Real estate
We assess and manage climate-related risks and opportunities in our re/insurance business, our investments and in our own operations.
Annual expected losses for weather-related perils, Swiss Re Group (USD m)
Wirbelsturm im Nordatlantik the methodology in our direct insurance portfolios. Based on this methodology, we estimate the weighted average carbon intensity of our direct insurance portfolios at 120 tonnes of CO2 equivalent per million
USD of revenue (120 tonnes CO2e/USDm revenue). We will gradually expand the scope of this metric. Once fully implemented, this will help us steer the overall carbon footprint embedded in our re/insurance businesses. Ultimately, it will support us in reaching net-zero emissions by 2050 on the liability side of our balance sheet.
Another important step we took in 2020 to advance our carbon steering mechanism was the development of an exit strategy for thermal coal in our treaty business. This complements the policies we have already developed with a focus on our direct and facultative business. Together, they put us on course to reach our Group-wide target of completely phasing out our thermal coal business in OECD countries by 2030, and in the rest of the world by 2040.
Our approach defines thresholds for coal exposures in treaties across our property, engineering, casualty, credit and surety and marine cargo lines of business. The initial coal exposure thresholds will become effective in 2023 and vary depending on the line of business and the geographical area. These thresholds will then be gradually lowered until the final phase-out targets are reached.
Total climate protection offered to (sub-)sovereigns since 2014 by 2018 by 2019 by 2020
Investments Through our dedicated climate strategy, we are working to achieve a net-zero emissions investment portfolio by 2050 by setting intermediate targets every five years and regularly reporting on progress. In
Engagement Engagement topic: alignment with 1.5°C target • Engagement with investee companies delegated to investment managers based on Swiss Re Engagement Framework and portfolio monitoring results
• Direct engagement with investment managers • Engagement collaboration through Climate Action 100+
• Corporate bonds & listed equities: constant portfolio monitoring to identify optimisation opportunities, also aligned with engagement targets and actions
Sector • Corporate bonds & listed equities: coal phase-out by 2030
• Infrastructure loans & private placements: fossil fuel5 guideline application in investment decisions 1 Investment target also includes social and sustainability bonds. 2 Investment target also includes social infrastructure loans. 3 Base year 2018.
accordance with the AOA’s TSP, we set targets for the years 2020 to 2025. For our corporate bond, listed equity and real estate sub-portfolio targets, we set the base year at the end of 2018, reflecting previous portfolio actions.
Infrastructure loans are an attractive asset class for our investment portfolio given their credit quality and inherent liquidity premium. Renewable infrastructure loans in particular are used to finance environmentally sustainable infrastructure projects. By the end of 2020, we held USD 468 million of renewable energy infrastructure loans and an additional USD 455 million were allocated to social infrastructure, such as hospitals, student dorms or affordable housing projects.
As part of our climate-positive investments, we have for the first time set a target to increase our renewable energy and social infrastructure loan portfolio by USD 750 million by the end of 2024.
Engagement targets We believe that engagement with the real economy is an integral component to support the limitation of global warming to 1.5°C. In 2020, we therefore established an Engagement Framework aligned with the engagement targets defined in the AOA’s TSP. For details on our external managers’ engagement activities related to our two topics “Alignment of Business Model with 1.5°C Target” and “Disclosure of ESG Key Metrics”, please refer to the Sustainability Report 2020, pages 50–51.
Sector targets Coal assets are particularly carbon intensive and susceptible to stranded asset risk given the long life of these assets, as well as the evolving regulations on carbon emissions. To ensure we actively manage such risks, we have stopped investing in companies that use at least 30% thermal coal for power generation or produce 30% or more of their revenues from thermal coal mining. We also exclude oil sands companies that generate 20% or more of their revenues from such operations from the investment universe. Furthermore, in 2019, we extended our mitigation approach by implementing an absolute coal threshold to identify large carbon emitters with a diversified business mix, where relative thresholds may provide inadequate guidance. We do not invest in mining companies producing at least 20 million tonnes of coal per year and power utility generators with more than 10 gigawatts of installed coal fire capacity. Additionally, as part of the updated oil and gas policy of our Group-wide Sustainable Business Risk Framework, we divested from the world’s 10% most carbon-intensive oil and gas companies in 2020.
Our long-term objective for 2030 is to fully exit coal-related assets, such as coal mining and coal-based power generation, for our listed equity and corporate bond portfolio via normal portfolio reallocations. To increase efforts to mitigate transition risks in our portfolio, we have also begun to limit investments in companies active in coal mining or coal-based power generation that are planning to expand their capacity. We therefore apply a threshold for capital expenditures above USD 100 million for coal mining expansion, and one of 300 megawatts for coal-fired capacity, applicable to our listed equity and corporate bond portfolios.
To further strengthen our mitigation strategy in less liquid asset classes, we developed dedicated fossil fuel guidelines for our infrastructure loan and our private placement portfolios in 2020. This is particularly important as both have a long-term investment horizon. For upstream (exploration and production), midstream (transportation and storage) and downstream (refinement and distribution) investments, we are limiting the maturities for fossil fuel-related assets. The guidelines ensure an investment universe that is in line with our commitment to a net-zero emissions investment portfolio by 2050.
Carbon footprint of our corporate bond and listed equity portfolio Since the end of 2015, carbon intensities in both the corporate bond and the listed equity portfolio decreased substantially as part of our fossil fuel divestment. In 2020, carbon footprints for both, the corporate bond and listed equity portfolios, further decreased. In alignment with the AOA’s TSP, we adjusted the carbon footprint scope of our listed equity portfolio to include ETFs and exclude strategic holdings.
Since 2019, the UK corporate bond portfolio carbon intensity further decreased, whereas the index carbon intensity remained relatively stable.
Successful conclusion of our Greenhouse Neutral Programme Our first implementation plan to become carbon neutral was our Greenhouse Neutral Programme, starting in 2003 and ending in 2020. Throughout the course of the programme, we publicly reported on our Scope 1 and 2 greenhouse gas emissions, plus a major source of Scope 3 emissions (business travel). From 2003 to 2013, we cut CO2 emissions per employee (full-time equivalent, FTE) by 49.3%. From 2013 onward, we expanded our reporting to include further Scope 3 emissions such as waste and paper. By the end of 2020, we had reduced CO2 emissions by another 59.6% (2019: 10%) per employee relative to the 2013 level. As the 2020 data is distorted by the impact of the COVID-19 pandemic, we also show the figures per end of 2019 where relevant (see table on next page).
By the end of 2020, we achieved 100% renewable power sourcing for our operations. All remaining emissions are compensated by purchasing high-quality carbon offsets (carbon avoidance certificates) in line with our carbon neutrality claim.
2013–20192 Change in % 2013–2020 1 The figures for 2013 and 2019 have been restated due to the sale of our ReAssure business in the UK and the adjustment of how we handle renewable electricity credentials. An overview of the restatement is available in the Sustainability Report, page 90.
Note 17 Compensation, participations and loans of members of governing bodies 275
Premiums earned 3 37 974 40 321 Fee income from policyholders 3 620 449 Net investment income – non-participating business1 7 4 171 2 988 Net realised investment gains/losses – non-participating business2 7 1 580 1 730 Net investment result – unit-linked and with-profit business 7 4 939 –2 187 Other revenues 30 37
Income/loss before income tax expense 909 –1 090 Income tax expense/benefit 14 –140 266
Earnings per share in USD Basic 13 2.46 –3.04 Diluted 13 2.39 –3.04
Net income/loss before attribution of non-controlling interests 769 –824 Other comprehensive income, net of tax: Change in net unrealised investment gains/losses 3 375 2 741 Change in other-than-temporary impairment 2 Change in cash flow hedges –9 2 Change in foreign currency translation 46 52 Change in adjustment for pension benefits –29 –24 Change in credit risk of financial liabilities at fair value option –2 1 Transactions with non-controlling interests –56 Disposal of ReAssure –2 080 Other comprehensive income/loss attributable to non-controlling interests 341 127
Reclassification out of accumulated other comprehensive income For the years ended 31 December 2019 Net unrealised investment Other-thantemporary Cash flow Foreign currency Adjustment for pension
Balance as of period end 5 152 –1 –2 –5 794 –850 3 –1 492 2020 Net unrealised investment Other-thantemporary Cash flow Foreign currency Adjustment for pension
Balance as of 1 January 5 152 –1 –2 –5 794 –850 3 –1 492 Amounts reclassified on disposal of ReAssure –2 133 –13 66 –2 080 Change during the period 5 634 17 –166 –166 1 5 320 Amounts reclassified out of accumulated other comprehensive income –2 263 –15 18 137 –2 123 Tax –630 200 5 –425
Balance as of period end 5 760 –1 0 –5 755 –808 4 –800 1 Reclassification adjustment included in net income is presented in “Net realised investment gains/losses – non-participating business”. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. 3 Reclassification adjustment included in net income is presented in “Operating expenses”.
Investments 7, 8, 9 Fixed income securities: Available-for-sale (including 14 175 in 2019 and 7 435 in 2020 subject to securities lending and repurchase agreements) (amortised cost: 2019: 74 780; 2020: 73 862) 79 163 81 080 Trading (including 1 911 in 2019 and 1 551 in 2020 subject to securities lending and repurchase agreements) 2 410 1 938
Equity securities at fair value through earnings (including 186 in 2019 and 59 in 2020 subject to securities lending and repurchase agreements) 2 993 4 899 Policy loans, mortgages and other loans 3 021 3 315 Investment real estate 2 528 2 602 Short-term investments (including 1 157 in 2019 and 3 969 in 2020 subject to securities lending and repurchase agreements) 5 768 16 082 Other invested assets 7 343 10 314 Investments for unit-linked and with-profit business (including equity securities at fair value through earnings: 520 in 2019 and 463 in 2020) 520 463
Total accumulated other comprehensive income –1 492 –800 1 Please refer to Note 10 ”Acquisitions and disposals” for more details.
Net unrealised investment gains/losses, net of tax Balance as of 1 January 1 905 5 152 Transactions with non-controlling interests1 –128 Disposal of ReAssure2 –2 133 Changes during the period 3 375 2 741 Balance as of period end 5 152 5 760
Other-than-temporary impairment, net of tax Balance as of 1 January –3 –1 Changes during the period 2 Balance as of period end –1 –1
Foreign currency translation, net of tax Balance as of 1 January –5 904 –5 794 Transactions with non-controlling interests1 64 Disposal of ReAssure2 –13 Changes during the period 46 52 Balance as of period end –5 794 –5 755
Credit risk of financial liabilities at fair value option, net of tax Balance as of 1 January 5 3 Changes during the period –2 1 Balance as of period end 3 4
Non-controlling interests Balance as of 1 January 797 1 786 Transactions with non-controlling interests1 606 4 Income/loss attributable to non-controlling interests 42 54 Other comprehensive income attributable to non-controlling interests: Change in net unrealised investment gains/losses 380 179 Change in foreign currency translation –25 –53 Other –14 1
Total net cash provided/used 4 218 –4 825 Effect of foreign currency translation 88 4
Cash and cash equivalents as of 31 December 7 562 5 470
Interest paid was USD 572 million and USD 563 million (thereof USD 24 million and USD 7 million for letter of credit fees) for 2019 and 2020, respectively. Tax paid was USD 611 million and USD 364 million for 2019 and 2020, respectively.
Non-cash investing activities for 2020 amounted to USD 1.1 billion. USD 1.4 billion reflects the receipt of shares in Phoenix as part of the sales consideration for ReAssure to Phoenix. This is reduced by USD 0.3 billion representing the transaction with MS&AD. Please refer to Note 10 “Acquisitions and disposals“ for more details.
1 Organisation and summary of significant accounting policies Nature of operations The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss Re Ltd (the parent company) and its subsidiaries (collectively, the “Swiss Re Group” or the “Group”). The Swiss Re Group is a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Working through brokers and a network of offices around the globe, the Group serves a client base consisting of insurance companies, mid- to large-sized corporations and public-sector clients.
The Board of Directors of Swiss Re Ltd has decided that as of 1 January 2024 the Group’s consolidated financial statements will be prepared in accordance with International Financial Reporting Standards (IFRS). Financial statements for periods ending on or prior to 31 December 2023 will continue to be prepared in accordance with US GAAP.
For assets or derivative structures at fair value, the Group uses market prices or inputs derived from market prices. A separate internal price verification process, independent of the trading function, provides an additional control over the market prices or market inputs used to determine the fair values of such assets. Although management considers that appropriate values have been ascribed to such assets, there is always a level of uncertainty and judgement related to these valuations. Subsequent valuations could differ significantly from the results of the process described above. The Group may become aware of counterparty valuations, either directly through the exchange of information or indirectly, for example through collateral demands. Any implied differences are considered in the independent price verification process and may result in adjustments to initially indicated valuations. As of 31 December 2020, the Group had not provided any collateral on financial instruments in excess of its own market value estimates.
Derivative financial instrument assets are generally included in other invested assets and derivative financial instrument liabilities are generally included in accrued expenses and other liabilities.
Business combinations The Group applies the acquisition method of accounting for business combinations. This method allocates the cost of the acquired entity to the assets and liabilities assumed based on their estimated fair values at the date of acquisition.
Leases The Group recognises for finance and operating leases a liability to make lease payments (the lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term. The lease right-of-use asset is included in “other assets” and the lease liability is included in “accrued expenses and other liabilities” on the balance sheet. Lease expense for lease payments is recognised on a straight-line basis over the lease term.
Unpaid claims and claim adjustment expenses Liabilities for unpaid claims and claim adjustment expenses for property and casualty and for life and health insurance and reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims, using reports and individual case estimates received from ceding companies. Reserves also are established for claims incurred but not reported, which are developed on the basis of past experience adjusted for current trends and other factors that modify past experience. The establishment of the appropriate level of reserves is an inherently uncertain process involving estimates and judgements made by management, and therefore there can be no assurance that ultimate claims and claim adjustment expenses will not exceed the loss reserves currently established by the Group. These estimates are regularly reviewed, and adjustments for differences between estimates and actual payments for claims and for changes in estimates are reflected in income in the period in which the estimates are changed or payments are made.
The COVID-19 pandemic has created additional uncertainty, both in respect of estimation of claims across the insurance and reinsurance industry and assessments of the wider potential global health and economic impacts. This uncertainty has been compounded by the evolving nature of the pandemic, including the spread of new strains of the virus, and is driven, among other factors, by lack of definitive answers about the impacts of the pandemic and related mitigation efforts on economies and societies across the globe, the efficacy of vaccines and other treatments, and the long-term health and social impacts of the pandemic on populations, as well as by evolving responses of governments and regulators, responses of businesses and outcomes of legal actions that have already been brought or may in the future be brought. The Group has recorded its best estimate of claims and claim adjustment expenses incurred as a result of the pandemic as at 31 December 2020, which best estimate reflects the Group’s expectations based on current facts and circumstances. However, the Group may, as a result of the myriad uncertainties, need to change its estimates for claims incurred and additional future claims over time as underlying facts develop.
Liabilities for life and health policy benefits are increased with a charge to earnings if it is determined that future cash flows, including investment income, are insufficient to cover future benefits and expenses. Where assets backing liabilities for policy benefits are held as AFS, these liabilities for policyholder benefits are increased by a shadow adjustment, with a charge to other comprehensive income, where future cash flows at market rates are insufficient to cover future benefits and expenses.
Policyholder account balances Policyholder account balances relate to universal-life-type contracts and investment contracts.
Unit-linked and with-profit business are presented together as they are similar in nature. For unit-linked contracts, the investment risk is borne by the policyholder. For with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the downside risk for the policyholder, and a certain proportion of the returns may be retained by Swiss Re Group (typically 10%). Additional disclosures are provided in Note 7 “Investments”.
Funds held assets and liabilities On the asset side, funds held by ceding companies consist mainly of amounts retained by the ceding company for business written on a funds withheld basis. In addition, the account also includes amounts arising from the application of the deposit method of accounting to ceded retrocession or reinsurance contracts.
Shadow adjustments Shadow adjustments are recognised in other comprehensive income reflecting the offset of adjustments to deferred acquisition costs and PVFP, typically related to universal-life-type contracts, and policyholder liabilities. The purpose is to reflect the fact that certain amounts recorded as unrealised investment gains and losses within shareholders’ equity will ultimately accrue to policyholders and not shareholders.
Receivables Premium and claims receivables which have been invoiced are accounted for at face value. Together with assets arising from the application of the deposit method of accounting that meet the definition of financing receivables they are regularly assessed for impairment. Evidence of impairment is the age of the receivable and/or any financial difficulties of the counterparty. Allowances are set up on the net balance, meaning all balances related to the same counterparty are considered. The amount of the allowance is set up in relation to the time a receivable has been due and any financial difficulties of the debtor and can be as high as the outstanding net balance.
For share-based compensation plans which are settled in cash, compensation costs are recognised as liabilities, whereas for equity-settled plans, compensation costs are recognised as an accrual to additional paid-in capital within shareholders’ equity.
Adoption of new accounting standards In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”, an update to Topic 820, “Fair Value Measurement”. The amendments in this ASU add, remove and modify some disclosure requirements on fair value measurement. The Group adopted the standard retrospectively on 1 January 2020 with the exception of the amendments which require prospective adoption. The applicable amendments of ASU 2018-13 are reflected in Note 8 “Fair value disclosures”.
In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, an update to Topic 848, “Reference Rate Reform”. In response to concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates. The amendments in this update provide optional expedients and exceptions for applying US GAAP accounting principles to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of these reference rate reform initiatives. The Group adopted ASU 2020-04 on 12 March 2020, which is the issuance date of the standard. There is a choice to apply the guidance by Topic or industry Subtopic at any time prospectively during the effective period from 12 March 2020 through 31 December 2022. As of 31 December 2020, the Group applied the guidance to Topic 815 related to changes to the critical terms of a hedging relationship due to reference rate reform as well as to Topic 944 related to changes resulting from the replacement of discontinued reference rates included in contracts within the scope of Topic 944, “Financial Services – Insurance”. While these elections did not have a material impact on the Consolidated Financial Statements, they ease the administrative burden of accounting for contracts impacted by the reference rate reform.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, an update to Topic 350, “Intangibles – Goodwill and Other”. This ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity has to perform procedures to determine the fair value of its assets and liabilities (including unrecognised assets and liabilities) at the impairment testing date following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its regular goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognise an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognised should not exceed the total amount of goodwill allocated to that reporting unit. As amended by ASU 2019-10 “Effective Dates”, ASU 2017-04 is effective for goodwill impairment tests in annual and interim periods beginning after 15 December 2022. Early application of the ASU is permitted. The Group is currently assessing the impact of the new requirements.
Property & Casualty Reinsurance and Life & Health Reinsurance Reinsurance consists of two segments, Property & Casualty and Life & Health. The Reinsurance Business Unit operates globally, both through brokers and directly with clients, and provides a large range of solutions for risk and capital management. Clients include stock and mutual insurance companies as well as public sector and governmental entities. In addition to traditional reinsurance solutions, Reinsurance offers insurance-linked securities and other insurance-related capital market products in both Property & Casualty and Life & Health.
Through ReAssure, Swiss Re acquired closed blocks of inforce life and health insurance business, either through reinsurance or corporate acquisition, and typically assumed responsibility for administering the underlying policies. The administration of the business was managed directly or, where appropriate, in partnership with a third party. In the open books business, elipsLife, the Group life and health insurance business, offers solutions to pension funds, corporates and affinity groups through an intermediated business to business to consumer (“B2B2C”) model. The iptiQ business partners with distributors and enables individuals to address their protection needs on a white labelled basis.
As announced on 19 June 2020, the segmental disclosures will be revised to reflect the way the Group will manage its business activities going forward. As of 1 January 2021, the Life Capital reporting segment ceases to be managed as a separate Business Unit. iptiQ becomes a stand-alone division, and is reported as part of the Group items reporting segment. elipsLife moves to the Corporate Solutions reporting segment.
Group items Items not allocated to the business segments are included in the “Group items” column, which encompasses Swiss Re Ltd, the Group’s ultimate parent company, Principal Investments and certain Treasury units and reinsurance and insurance business in run-off. Swiss Re Ltd charges trademark licence fees to the business segments which are reported as other revenues. Certain administrative expenses of the corporate centre functions that are not recharged to the operating segments are reported as Group items.
Premiums earned 19 275 12 835 4 166 1 698 37 974 Fee income from policyholders 169 451 620 Net investment income – non-participating business 1 419 1 207 234 1 193 552 –434 4 171 Net realised investment gains/losses – non-participating business 883 628 162 18 –111 1 580 Net investment result – unit-linked and with-profit business 118 4 821 4 939 Other revenues 18 4 5 1 414 –412 30
Expenses Claims and claim adjustment expenses –14 783 –3 900 –18 683 Life and health benefits –10 587 –2 500 –13 087 Return credited to policyholders –162 –4 471 –4 633 Acquisition costs –4 810 –1 975 –640 –409 –7 834 Operating expenses –1 189 –746 –788 –721 –547 412 –3 579
Net income/loss attributable to common shareholders 396 899 –647 –177 256 0 727
Business segments – income statement For the year ended 31 December 2020 Property & Casualty Reinsurance
Income/loss before interest and income tax expense/benefit 12 456 –449 –203 –1 –317 –502 Interest expenses –321 –367 –31 –55 –131 317 –588
Net income/loss before attribution of non-controlling interests –247 71 –344 –217 –87 0 –824
Net income/loss attributable to common shareholders –247 71 –350 –265 –87 0 –878
Assets Fixed income securities 38 877 32 008 7 473 3 088 127 81 573 Equity securities 1 749 620 172 57 395 2 993 Other investments 14 606 4 871 147 865 5 009 –12 606 12 892 Short-term investments 3 283 1 678 380 377 50 5 768 Investments for unit-linked and with-profit business 520 520 Cash and cash equivalents 3 674 1 694 1 698 494 2 7 562 Deferred acquisition costs 2 613 4 529 483 213 7 838 Acquired present value of future profits 577 465 1 042 Reinsurance recoverable 2 325 4 887 7 058 3 111 –11 483 5 898 Other reinsurance assets 12 524 8 471 2 667 5 951 3 –4 873 24 743 Goodwill 1 895 1 846 204 3 945 Other 7 723 5 325 2 342 658 2 256 –8 950 9 354 Assets held for sale1 74 983 –544 74 439
208 Swiss Re | Financial Report 2020 b) Property & Casualty Reinsurance business segment – by line of business For the year ended 31 December 2019 USD millions Property Casualty Specialty Unallocated Total
Net premiums written 7 329 10 452 3 101 20 882 Change in unearned premiums –122 –1 166 –319 –1 607
Expenses Claims and claim adjustment expenses –5 328 –7 675 –1 780 –14 783 Acquisition costs –1 365 –2 758 –687 –4 810 Operating expenses –610 –395 –184 –1 189
Premiums earned 8 250 9 609 2 973 20 832 Net investment income 1 178 1 178 Net realised investment gains/losses 683 683 Other revenues 26 26
Income/loss before interest and income tax expense –779 –1 136 40 1 887 12 Interest expenses –321 –321
Income/loss before income tax expense –779 –1 136 40 1 566 –309
210 Swiss Re | Financial Report 2020 c) Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2019 Life Health Unallocated Total USD millions
Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2020 Life Health Unallocated Total USD millions
Net premiums written 9 156 4 501 13 657 Change in unearned premiums 36 32 68
Expenses Life and health benefits –8 587 –3 617 –12 204 Return credited to policyholders 5 5 Acquisition costs –1 309 –690 –1 999 Operating expenses –522 –264 –786
Income/loss before interest and income tax expense –168 221 403 456 Interest expenses –367 –367
Americas 18 158 19 462 Europe (including Middle East and Africa) 12 017 12 889 Asia-Pacific 8 419 8 419
United States 15 804 17 130 United Kingdom 3 593 3 793 China 2 136 2 133 Australia 2 026 1 865 Japan 1 620 1 677 Canada 1 205 1 341 Germany 1 330 1 336 Netherlands 913 1 325 Switzerland 1 071 1 205 France 941 968 Ireland 709 757 Other 7 246 7 240
Retrocession to external parties –1 –1 2020 Property & Casualty Reinsurance
Fee income from policyholders, thereof: Gross fee income before retrocession to external parties 159 291 450
Net unpaid claims and claim adjustment expenses; life and health benefits –2 097 –1 394 –913 344 0 –4 060
Acquisition costs For the year ended 31 December 2019 Property & Casualty Reinsurance
Claims and claim adjustment expenses For the year ended 31 December 2020 Property & Casualty Reinsurance
Change in unpaid claims and claim adjustment expenses; life and health benefits, thereof: Gross – with external parties –4 087 –1 474 –646 428 –2 –5 781 Intra-group transactions (assumed and ceded) 278 –88 –284 94 0
Unpaid claims and claim adjustment expenses; life and health benefits before impact of retrocession to external parties –3 809 –1 562 –930 522 –2 –5 781
Net unpaid claims and claim adjustment expenses; life and health benefits –4 041 –1 397 –990 437 –2 –5 993
Acquisition costs, thereof: Gross acquisition costs with external parties –5 142 –2 243 –712 –599 –14 –8 710 Intra-group transactions (assumed and ceded) –68 –24 66 26 0
Acquisition costs before impact of retrocession to external parties –5 210 –2 267 –646 –573 –14 –8 710
Reinsurance recoverable on unpaid claims and policy benefits As of 31 December 2019 and 2020, the Group had a reinsurance recoverable of USD 5 898 million and USD 5 892 million, respectively. The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire Hathaway and subsidiaries accounted for 33% and 30% of the Group’s reinsurance recoverable as of year-end 2019 and 2020, respectively.
Policyholder dividends Policyholder dividends are recognised as an element of policyholder benefits. The relative percentage of participating insurance of the life and health policy benefits in 2019 and 2020 was 10% and 0%, respectively. The amount of policyholder dividend expense in 2019 and 2020 was USD 165 million and USD 42 million, respectively.
Gross premiums written, thereof: Direct 3 883 2 466 10 6 359 Reinsurance 20 871 14 732 908 67 14 36 592 Intra-group transactions (assumed) 641 335 48 –1 024 0
Gross premiums written 21 512 15 067 4 839 2 533 24 –1 024 42 951 Intra-group transactions (ceded) –48 –589 –387 1 024 0
Prior-year development Non-life claims development in the year ended 31 December 2020 on prior years is mainly driven by favourable property experience largely offset by adverse casualty experience. Development in property is principally due to reserve releases related to natural catastrophe events in Asia. The deterioration for casualty mostly comes from adverse claims experience for liability in North America, partially offset by favourable development for accident & health and motor. Specialty was impacted by adverse claims experience in engineering and large losses for credit and surety, partly offset by positive claims experience and reduction of large losses for marine.
A summary of prior year net claims and claim adjustment expenses development by lines of business for the years ended 31 December is shown below1: Line of business: Property 367 –582 Casualty 1 425 456 Specialty 105 26 Life and health 334 266 1 Adverse development is shown as positive numbers, and represents a charge to the income statement. Favourable development is shown as negative, and represents a credit to the income statement.
US asbestos and environmental claims exposure The Group‘s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1986, in particular in the area of US asbestos and environmental liability.
At the end of 2020, the Group carried net reserves for US asbestos and environmental liabilities equal to USD 1 428 million. During 2020, the Group incurred net losses of USD 18 million and net paid losses of USD 80 million in relation to these liabilities.
Short duration contract unpaid claims and claim adjustment expenses Basis of presentation for claims development information This section of the note provides claims development information and information on reserves for claims relating to insured events that have occurred but have not yet been reported (“IBNR”).
In the Life & Health Reinsurance segment, contracts classified as short duration include group life business, certain types of disability and long-term care contracts, group accident, health coverage including critical illness and medical expenses. The Group provides claims development information for Life & Health Reinsurance where reported accident year information is available and there is potential for claims development. This primarily applies to the group disability business in Australia and the UK. This business is generally considered to have relatively higher claims estimation uncertainty than other life and health lines such as group life, due to longer claims development periods.
In the Life Capital segment, short duration contracts include mainly disability medical expenses business. The Group provides no claims development information for Life Capital as its short duration reserves are not material.
The number of years shown in the claims development tables differs by business segment.
Non-life re/insurance contracts The Group develops and recognises its own estimate of IBNR claims, which includes circumstances in which cedents have not reported any claims to the Group or where the Group‘s estimate of reserves needed to cover reported claims differs from the amounts reported by cedents. For reinsurance business, case reserves and estimated IBNR are reported by cedents and this IBNR is presented together with the Group‘s own estimate as IBNR in the claims development tables. For insurance business, reserving is performed similarly, except that estimates for case reserves and IBNR are performed by the Group.
Reserving is done on portfolio or contract level depending on the features of the contract. For business reviewed on a portfolio level, the expected ultimate losses are set for most lines and types of business based on analysis performed using standard actuarial techniques. In general, contracts are aggregated into portfolios by combining contracts with similar features.
Life & Health Reinsurance reports claims frequency information based on individual incidence. The number of reported claims is the actual number of claims booked. For disability business, claims with multiple payments in a year are counted as one claim. Claims that are reported but not admitted are included in the claim count.
The liability for unpaid claims and claim adjustment expenses for property in Property & Casualty Reinsurance shows positive development on most recent accident years. Claims in accident year 2011 were at a high level due to several large natural catastrophes including the earthquake and tsunami in Japan, the earthquakes in Christchurch, New Zealand, and floods in Thailand. The 2017 accident year claims incurred are higher due to natural catastrophes which also affected 2018-2020 accident years. In addition, the current accident year was impacted by COVID-19.
Liabilities for claims and claim adjustment expenses, net of reinsurance 11 876
Liabilities for claims and claim adjustment expenses, net of reinsurance 3 681
The increase in the incurred losses from accident years 2012 to 2016 is driven by new business volume across all regions, with the current accident year impacted by COVID-19. Proportional motor business includes both longer-tailed liability business and shorter-tailed hull business.
For accident year 2011, negative claims paid in the first year are due to the commutation of an external retrocession on acquired retroactive business. The increase in incurred losses for accident year 2019 compared to other years is due to an increase in volume of business written, with the current accident year impacted by COVID-19.
Liabilities for claims and claim adjustment expenses, net of reinsurance 5 315
USD millions Reporting year Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Life & Health Reinsurance, long tail (RSI) 5.0% 15.2% 16.3% 11.8% 8.2% 6.5% 5.1% 4.5% 3.7% 3.6%
The increase in incurred losses from accident year 2013 onwards is due to an increase in volume of group disability business in Australia. Disability business volume written in Australia has reduced since 2019.
Other short duration contract lines include reserves for business that is not material to the Group and where accident year information is not available. For Life & Health Reinsurance, in certain markets, cedents do not provide sufficient information to reinsurers to split claims incurred and claims paid by accident year. This is based on existing market practice. For these markets, an assessment of available information from other sources was made along with investigating approximations that could be used to provide claims development information by accident year. However, these alternate sources and estimates, based on currently available data and methods, could not be used to generate meaningful and representative accident year information and therefore have been excluded from disclosure. Other short duration contract lines also contain other treaties from Property & Casualty Reinsurance and Corporate Solutions which could not be allocated on a consistent basis to disaggregation categories or specific accident years.
Corporate Solutions 6 983 Life & Health Reinsurance, long tail 2 250
Total net undiscounted outstanding liabilities excluding other short duration contract lines and before unallocated reinsurance recoverable 61 758 Discounting impact on (Life & Health Reinsurance) short duration contracts –311 Impact of acquisition accounting –435
Exclusions: Unallocated claim adjustment expenses 1 242 Long duration contracts 12 126
Opening balance as of 1 January 2 156 4 784 488 789 8 217 Deferred 5 269 434 621 229 6 553 Effect of acquisitions/disposals and retrocessions –256 68 –188 Amortisation –4 809 –445 –626 –240 –6 120 Effect of foreign currency translation and other changes –3 12 24 33 Reclassified to held for sale –657 –657 2020 Property & Casualty Life & Health Corporate USD millions Reinsurance Reinsurance Solutions Life Capital Group Items Total
As of 31 December, the PVFP was as follows: Life & Health Reinsurance Life Capital Total 2019 Positive Negative USD millions PVFP PVFP Total
Opening balance as of 1 January 577 465 465 1 042 Opening balance as of 1 January classified as held for sale 1 156 –476 680 680 Effect of acquisitions/disposals and retrocessions2 –914 444 –470 –470 Amortisation –99 –328 33 –295 –394 Interest accrued on unamortised PVFP 28 73 –10 63 91 Effect of change in unrealised gains/losses –8 –8 –8 Effect of foreign currency translation 4 –26 9 –17 –13 1 Impact from termination of a reinsurance arrangement included. 2 Please refer to Note 10 “Acquisitions and disposals”.
Net investment income – non-participating business 4 171 2 988 1 The Group revised its allocation of net investment income. The revision has no impact on the income statement or balance sheet of the Group. Comparative information for 2019 has been adjusted accordingly.
Dividends received from investments accounted for using the equity method were USD 104 million and USD 124 million for 2019 and 2020, respectively.
Share in earnings of equity-accounted investees included impairments of the carrying amount of equity-accounted investees of USD 80 million and USD 5 million for 2019 and 2020, respectively.
Net realised/unrealised gains/losses on insurance-related activities included impairments of USD 5 million and nil for 2019 and 2020, respectively.
Net investment result on unit-linked and with-profit business credited to policyholders was as follows: 2019 2020 USD millions Unit-linked With-profit Unit-linked With-profit
Total net investment result – unit-linked and with-profit business 4 328 611 –2 047 –140
For securitised products, cash flow projection analysis is conducted by integrating forward-looking evaluation of collateral performance drivers, including default rates, prepayment rates and loss severities and deal-level features, such as credit enhancement and prioritisation among tranches for payments of principal and interest. Analytics are differentiated by asset class, product type and security-level differences in historical and expected performance. For corporate bonds and hybrid debt instruments, an expected loss approach based on default probabilities and loss severities expected in the current and forecasted economic environment is used for securities identified as creditimpaired to project probability-weighted cash flows. Expected cash flows resulting from these analyses are discounted, and the present value is compared to the amortised cost basis to determine the credit component of other-than-temporary impairments.
Fixed income securities available-for-sale 74 780 4 578 –193 –2 79 163 2020 Amortised cost Gross unrealised Gross unrealised
Fixed income securities available-for-sale 73 862 7 368 –149 –1 81 080
Unrealised losses on securities available-for-sale The following table shows the fair value and unrealised losses of the Group’s fixed income securities, aggregated by investment category and length of time that individual securities were in a continuous unrealised loss position as of 31 December 2019 and 2020.
Less than 12 months 12 months or more Total 2019 Unrealised Unrealised Unrealised USD millions Fair value losses Fair value losses Fair value losses
Less than 12 months 12 months or more Total 2020 Unrealised Unrealised Unrealised USD millions Fair value losses Fair value losses Fair value losses
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 1 315 18 1 315 18 US Agency securitised products 382 10 9 0 391 10 States of the United States and political subdivisions of the states 8 0 8 0 United Kingdom 230 5 230 5 Germany 13 0 27 1 40 1 France 41 0 28 1 69 1 Canada 61 8 66 5 127 13 Japan 841 24 841 24 Other 1 539 11 108 9 1 647 20
Maturity of fixed income securities available-for-sale The amortised cost or cost and estimated fair values of investments in fixed income securities available-for-sale by remaining maturity are shown below. Fixed maturity investments are assumed not to be called for redemption prior to the stated maturity date. As of 31 December 2019 and 2020, USD 20 188 million and USD 20 219 million, respectively, of fixed income securities available-for-sale were callable.
Fixed income securities trading – non-participating business 2 410 1 938
Fixed income securities trading 1 963 2 717 Equity securities at fair value through earnings 35 528 2 078 463 Investment real estate 512 200 Other 692 3 Reclassified to assets held for sale –38 175 –4 998
Total investments for unit-linked and with-profit business 520 0 463 0
Maturity of lessor cash flows As of 31 December 2020, the total undiscounted cash flows to be received from operating leases of investment real estate for the next five years and thereafter were as follows: USD millions Operating leases
Less than one year 203 Between one year and two years 182 Between two years and three years 158 Between three years and four years 125 Between four years and five years 97 After five years 412
The Group manages risk associated with the residual value of its leased properties through careful property selection as well as diversification by geographical region and property type. Lease contracts for residential real estate in Switzerland and Germany are usually open-ended. Cash flows for such contracts have been projected taking into consideration the average turnover rate in the region. Lease contracts for residential real estate in the US with a lease term of one year or less have been excluded from the projected cash flows in the table above. Rental income for those leases for the year ended 31 December 2019 and 2020 was USD 28 million and USD 27 million, respectively.
Accrued expenses and other liabilities 2 753 0 2 117 0 2 321 7 191
Derivative financial instruments 495 495 Repurchase agreements 248 248 Securities lending 1 638 84 1 722 Securities sold short 1 353 1 353 Other 1 959 2 316 4 275
Offsetting of derivatives, financial assets and financial liabilities Offsetting of derivatives, financial assets and financial liabilities as of 31 December was as follows: Gross amounts of Net amounts of financial Related financial 2019 recognised Amounts set-off assets presented instruments not set-off USD millions financial assets in the balance sheet in the balance sheet in the balance sheet Net amount
Gross amounts of Net amounts of financial Related financial 2020 recognised Amounts set-off assets presented instruments not set-off USD millions financial assets in the balance sheet in the balance sheet in the balance sheet Net amount
Derivative financial instruments – liabilities –1 775 1 280 –495 303 –192 Repurchase agreements –1 891 1 643 –248 248 0 Securities lending –2 032 310 –1 722 1 652 –70
As of 31 December 2019 and 2020, a real estate portfolio with a carrying value of USD 188 million and USD 200 million, respectively, served as collateral for a credit facility, allowing the Group to withdraw funds up to CHF 500 million.
Collateral accepted which the Group has the right to sell or repledge As of 31 December 2019 and 2020, the fair value of the equity securities, government and corporate debt securities received as collateral was USD 5 477 million and USD 4 837 million, respectively. Of this, the amount that was sold or repledged as of 31 December 2019 and 2020 was USD 2 025 million and USD 1 341 million, respectively. The sources of the collateral are securities borrowing, reverse repurchase agreements and derivative transactions.
Remaining contractual maturity of the agreements 2020 Overnight and continuous Greater than 90 days Total USD millions Up to 30 days 30–90 days
Securities lending Debt securities issued by governments and government agencies 1 099 303 551 1 953 Corporate debt securities 79 79
The fair values of assets are adjusted to incorporate the counterparty risk of non-performance. Similarly, the fair values of liabilities reflect the risk of non-performance of the Group, captured by the Group’s credit spread. These valuation adjustments from assets and liabilities measured at fair value using significant unobservable inputs are recognised in net realised gains and losses. For 2020, these adjustments were not material. Whenever the underlying assets or liabilities are reported in a specific business segment, the valuation adjustment is allocated accordingly. Valuation adjustments not attributable to any business segment are reported in Group items.
The category “Other invested assets” includes the Group’s private equity and hedge fund investments which are made directly or via ownership of funds. Valuation of direct private equity investments requires significant management judgement 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 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). These investments are included under investments measured at net asset value as a practical expedient.
Significant unobservable inputs Impact of Reclassified to assets held 2019 USD millions (level 1) (level 2) (level 3) netting1 for sale Total
Debt securities issued by US government and government agencies 14 057 2 510 –121 16 446 US Agency securitised products 7 175 7 175 Debt securities issued by non-US governments and government agencies 32 654 3 –5 283 27 374 Corporate debt securities 39 303 1 693 –14 671 26 325 Mortgage- and asset-backed securities 4 628 –375 4 253
Interest rate contracts 492 –8 484 Foreign exchange contracts 381 –51 330 Equity contracts 2 530 186 718 Credit contracts 17 17 Other contracts 6 3 39 48 Contracts backing unit-linked and with-profit business 3 3 –6 0
Interest rate contracts –415 –2 50 –367 Foreign exchange contracts –296 1 –295 Equity contracts –5 –506 –20 –531 Credit contracts –63 –63 Other contracts –443 111 –332 Contracts backing unit-linked and with-profit business –1 –1
Quoted prices in active markets for identical assets Significant other observable Significant unobservable 2020 and liabilities inputs inputs Impact of USD millions (level 1) (level 2) (level 3) netting1 Total
Debt securities issued by US government and government agencies 11 264 2 194 13 458 US Agency securitised products 7 021 7 021 Debt securities issued by non-US governments and government agencies 28 646 28 646 Corporate debt securities 29 404 1 183 30 587 Mortgage- and asset-backed securities 3 306 3 306
Equity securities held for proprietary investment purposes 4 899 4 899 Equity securities backing unit-linked and with-profit business 463 463 Short-term investments held for proprietary investment purposes 6 846 9 236 16 082 Derivative financial instruments 5 1 372 232 –1 343 266
Interest rate contracts 494 494 Foreign exchange contracts 215 215 Equity contracts 4 653 201 858 Credit contracts 10 10 Other contracts 1 31 32
Total assets at fair value 24 028 82 436 2 003 –1 343 107 124
Liabilities for life and health policy benefits –98 –98 Accrued expenses and other liabilities –891 –2 099 –2 990
Total liabilities at fair value –903 –3 521 –439 1 280 –3 583 1 The netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists between two counterparties. A master netting agreement provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the termination of any one contract.
Realised/unrealised gains/losses: Included in net income1 4 –151 16 20 –111 120 32 152 Included in other comprehensive income2 73 73 –4 –4
Purchases 417 16 20 453 0 Issuances 0 –147 –147 Sales –56 –9 –46 –2 –113 24 24 Settlements –82 –37 –119 60 60 Transfers into level 3 2 2 0 Transfers out of level 3 –76 –76 0 Disposals Impact of foreign exchange movements 38 2 7 7 54 –5 –5
Fair value changes from fixed income securities are reported in “Net unrealised investment gains/losses”. Fair value changes from liabilities for life and health policy benefits are reported in “Credit risk of financial liabilities at fair value option”.
Liabilities for life Fixed Other and health 2020 income Equity Derivative Investment invested Total Derivative policy Total USD millions securities securities assets real estate assets assets liabilities benefits liabilities
Assets and liabilities Balance as of 1 January 1 696 0 225 143 411 2 475 –465 –91 –556
Purchases 367 19 386 0 Issuances 0 –102 –102 Sales –7 –14 –47 –68 6 6 Settlements –48 –11 –59 127 127 Transfers into level 3 204 3 211 418 0 Transfers out of level 3 0 0 Disposals –945 –204 –134 –1 283 104 104 Impact of foreign exchange movements 43 1 4 3 51 –3 –3
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: Gains/losses included in net income for the period 41 69 Whereof change in unrealised gains/losses relating to assets and liabilities still held at the reporting date –45 –16
Derivative equity contracts 186 201 OTC equity option referencing correlated equity indices 186 201 Proprietary option model Correlation –30–55% (30%)
Weather contracts –76 –30 Proprietary option model Risk margin 6–11% (7.9%) Correlation –49–45% (12.1%) Volatility (power/gas) 27–65% (56.4%) Volatility (temperature) 34–385 (164) HDD/CAT2 Index value (temperature) 441–7586 (2315)
The significant unobservable input used in the fair value measurement of the Group’s OTC equity option referencing correlated equity indices is correlation. Where the Group is long correlation risk, a significant increase (decrease) in this input in isolation would have resulted in a significantly higher (lower) fair value measurement. Where the Group is short correlation risk, a significant increase (decrease) in this input in isolation would have resulted in a significantly lower (higher) fair value measurement.
The significant unobservable input used in the fair value measurement of the Group’s investment real estate and swap liability referencing real estate investment is the rate used to discount future cash flows from property sales. A significant increase (decrease) in this input in isolation would have resulted in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Group’s weather contracts are risk margin, correlation, volatility and index value. Where the Group has a long position, a significant increase (decrease) in the risk margin input in isolation would have resulted in a significantly higher (lower) fair value measurement. Where the Group has a long volatility or correlation position, a significant increase (decrease) in the correlation and volatility inputs would have resulted in a significantly higher (lower) fair value measurement. Where the Group has a long index position, an increase (decrease) in the index value input in isolation would have resulted in a significantly higher (lower) fair value measurement. Where the Group has a short position, a significant increase (decrease) in the risk margin input in isolation would have resulted in a significantly lower (higher) fair value measurement. Where the Group has a short volatility or correlation position, a significant increase (decrease) in the correlation and volatility inputs would have resulted in a significantly lower (higher) fair value measurement. Where the Group has a short index position, an increase (decrease) in the index value input in isolation would have resulted in a significantly lower (higher) fair value measurement.
Other invested assets measured at net asset value Other invested assets measured at net asset value as of 31 December were as follows: 2019 2020 Unfunded Redemption frequency Redemption USD millions Fair value Fair value commitments (if currently eligible) notice period
Assets Policy loans 50 50 Mortgage loans 2 144 2 144 Other loans 2 376 2 376 Investment real estate 4 563 4 563
Derivatives designated as hedging instruments Interest rate contracts 1 403 1 –22 –21 Foreign exchange contracts 15 038 90 –188 –98
Total net amount of derivative financial instruments 478 –692 –214 2020 Notional amount assets/liabilities
Derivatives not designated as hedging instruments Interest rate contracts 21 315 485 –436 49 Foreign exchange contracts 27 311 195 –186 9 Equity contracts 21 583 858 –364 494 Credit contracts 9 755 10 –237 –227 Other contracts 10 128 32 –318 –286
Derivatives designated as hedging instruments Interest rate contracts 3 990 9 –10 –1 Foreign exchange contracts 18 258 20 –224 –204
For the years ended 31 December, the gains and losses of derivative financial instruments not designated as hedging instruments were as follows: Derivatives not designated as hedging instruments Interest rate contracts –116 145 Foreign exchange contracts –123 970 Equity contracts –183 –114 Credit contracts –51 –93 Other contracts 112
Total amounts of income and expense line items 1 580 –589 3 375 1 730 –588 2 741
As of 31 December, the carrying values of the hedged assets and liabilities, and the cumulative amounts of fair value hedging adjustments included therein, recognised in the balance sheet, were as follows: 2019 2020 Cumulative basis Cumulative basis USD millions Carrying value adjustment Carrying value adjustment
Assets Fixed income securities available-for-sale 9 555 13 083 Liabilities Long-term debt –1 355 20 –3 968 –10
For the years ended 31 December, the gains and losses recorded in accumulated other comprehensive income, and reclassified into income were as follows: USD millions
Foreign exchange contracts Gains/losses on derivatives –48 –9 152 2 1 Represents the net change in accumulated other comprehensive income, reflecting the revised presentation of gains/losses recorded in AOCI. Comparative information for 2019 has been adjusted accordingly.
Swiss Re received a cash payment of USD 1.6 billion, shares in Phoenix representing a 13.3% stake and is entitled to a seat on the Board of Directors of Phoenix. ReAssure’s minority shareholder, MS&AD Insurance Group Holdings, Inc. received shares in Phoenix representing a 14.5% stake. Phoenix is not considered a related party of Swiss Re preceding or following the transaction.
For the year ended 31 December 2019 and for the period ended 22 July 2020, ReAssure reported a pre-tax income, including the loss on sale, of USD 120 million and a pre-tax loss of USD 69 million, of which a net income of USD 32 million and a net loss of USD 113 million were attributable to the Swiss Re Group, respectively.
The major classes of assets and liabilities held for sale as of 31 December 2019 and disposed on 22 July 2020 are listed below.
Assets Fixed income securities 20 450 19 797 Short-term and other investments 2 240 2 287 Investments for unit-linked and with-profit business 43 173 37 885 Cash and cash equivalents 2 729 4 171 Reinsurance recoverable 3 134 2 031 Deferred acquisition costs 657 595 Acquired present value of future profits 680 468 Other assets 1 376 1 752
Liabilities Unpaid claims and claim adjustment expenses 497 512 Liabilities for life and health policy benefits 22 624 21 300 Policyholder account balances 41 459 36 177 Accrued expenses and other liabilities 4 006 4 430
Total contingent capital instruments classified as long-term debt as of 31 December 2020 496
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: Senior financial debt 87 88 Senior operational debt 10 7 Subordinated financial debt1 194 263 Subordinated operational debt 111 112 Contingent capital instruments classified as financial debt 22 17 1 The Group has revised the presentation of interest expense on subordinated financial debt to exclude the change in fair value of the hedged long-term debt positions in addition to the change in fair value of the swap. The change has no impact on total interest expenses as shown in the income statement. Comparative information for 2019 has been amended accordingly.
The Group hedges the interest rate risk on some of its long-term debt positions. The net impact of the change in the fair value of the debt and interest rate swap is reflected in the interest expense line in the income statement but not in the table above. For more details on the hedging, please refer to Note 9 “Derivative financial instruments“.
262 Swiss Re | Financial Report 2020 12 Leases As part of its normal business operations, the Group as a lessee enters into a number of lease agreements mainly for office space. Certain lease agreements include rental payments adjusted periodically for inflation. Renewal or termination options that are reasonably certain of exercise by the lessee are included in the lease term. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Operating lease right-of-use assets are included in “Other assets” and operating lease liabilities are included in “Accrued expenses and other liabilities” on the balance sheet.
As of 31 December 2020, undiscounted sublease cash flows over the next eleven years were USD 39 million.
The discount rates used to determine the lease liability reflect the collateralised borrowing rates for the Group, where the underlying collateral is assumed to be real estate.
The weighted average discount rate for operating leases as of 31 December 2019 and 2020 was 2.5% and 2.4%, respectively. The weighted average remaining lease term for operating leases as of 31 December 2019 and 2020 was 8.9 years and 9.3 years, respectively.
Total lease cost 81 84 1 “Other lease cost” includes variable lease cost.
13 Earnings per share Earnings per share for the years ended 31 December were as follows: USD millions (except share data) 2019 2020
Weighted average common shares outstanding 295 660 059 289 126 570
Net income/loss per share in CHF¹ 2.40 –2.97 1 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
Dividends are declared in Swiss francs. During the years ended 31 December 2019 and 2020, the parent company of the Group (Swiss Re Ltd) paid dividends per share of CHF 5.60 and CHF 5.90, respectively.
At the 2019 Annual General Meeting held on 17 April 2019, Swiss Re Ltd’s shareholders authorised a public share buyback programme consisting of two tranches of each up to CHF 1 billion purchase value of Swiss Re Ltd’s own shares for cancellation purposes prior to the 2020 Annual General Meeting, the first tranche being conditional on obtaining all necessary legal and regulatory approvals and Board of Directors approval and the second tranche being conditional on (in addition to obtaining all necessary legal and regulatory approvals and Board of Directors approval) the 2019 development of the Group’s excess capital position and subject to the Group’s capital management priorities.
For the year ended 31 December 2020, the Group reported a tax benefit of USD 266 million on a pre-tax loss of USD 1 090 million, compared to a charge of USD 140 million on a pre-tax income of USD 909 million for 2019. This translates into an effective tax rate in the current and prior-year reporting periods of 24.4 % and 15.4%, respectively.
Deferred and other non-current taxes The components of deferred and other non-current taxes were as follows: Deferred tax assets Income accrued/deferred 238 312 Technical provisions 519 756 Unearned Premium Reserves 318 322 Pension provisions 303 295 Benefit on loss carryforwards 2 446 2 982 Currency translation adjustments 316 522 Unrealised gains in income 651 232 Investment valuation in income 269 182 Other 774 869 Reclassified to assets held for sale –604
As of 31 December 2020, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised amount to approximately USD 3.4 billion. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.
As of 31 December 2019 and 2020, the amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 170 million and USD 150 million, respectively.
The balance of gross unrecognised tax benefits as of 31 December 2020 presented in the table above excludes accrued interest and penalties (USD 37 million).
Fair value of plan assets as of 1 January 3 760 2 336 0 6 096 Actual return on plan assets 391 323 714 Company contribution 97 16 16 129 Benefits paid –59 –95 –16 –170 Employee contribution 32 32 Effect of settlement, curtailment and termination –150 –150 Effect of foreign currency translation 74 53 127
Funded status –20 44 –340 –316 2020 Swiss plan Foreign plans Other benefits Total USD millions
Fair value of plan assets as of 31 December 4 702 2 316 0 7 018
Amounts recognised in “Other assets” and “Accrued expenses and other liabilities” in the Group’s balance sheet as of 31 December were as follows: 2019 USD millions Swiss plan Foreign plans Other benefits Total
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows: 2019 USD millions Swiss plan Foreign plans Other benefits Total
Service cost (net of participant contributions) 99 8 3 110 Interest cost 29 67 7 103 Expected return on assets –93 –88 –181 Amortisation of: Net gain/loss 35 15 –2 48 Prior service cost –15 –15 –30
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended 31 December were as follows: 2019 USD millions Swiss plan Foreign plans Other benefits Total
Net gain/loss 10 55 24 89 Prior service cost/credit –1 –1 Amortisation of: Net gain/loss –35 –15 2 –48 Prior service cost 15 15 30
Total recognised in net periodic benefit cost and other comprehensive income, gross of tax 47 45 33 125
Net gain/loss 108 –42 10 76 Prior service cost/credit 0 Amortisation of: Net gain/loss –66 –21 –87 Prior service cost 15 15 30
Effect of settlement, curtailment and termination –28 –28 Impact of sale of ReAssure –93 –93 Exchange rate gain/loss recognised during the year 12 12
Total recognised in net periodic benefit cost and other comprehensive income, gross of tax 136 –129 19 26
Assumptions used to determine obligations at the end of the year Discount rate 0.1% 0.0% 2.1% 1.6% 1.5% 1.1% Rate of compensation increase 1.8% 1.8% 2.9% 2.6% 2.1% 2.1% Interest crediting rate 1.5% 1.8%
Assumptions used to determine net periodic pension costs for the year ended Discount rate 0.8% 0.1% 3.0% 2.1% 2.2% 1.5% Expected long-term return on plan assets 2.5% 2.5% 3.7% 2.9% Rate of compensation increase 1.8% 1.8% 3.0% 2.9% 2.1% 2.1% Interest crediting rate 1.5% 1.8%
Equity securities include Swiss Re shares of USD 3 million (0.04% of total plan assets) and USD 2 million (0.03% of total plan assets) as of 31 December 2019 and 2020, respectively.
Equity securities 1 082 205 1 287 Real estate 4 756 760 Other assets 174 698 872 Cash and cash equivalents 198 198
Assets Fixed income securities: Government debt securities 60 1 521 1 581 Corporate debt securities 1 891 11 1 902 RMBS/CMBS/ABS 9 9
Closing balance as of 31 December 756 11 767 2020 USD millions Real estate Other assets Total
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 2019 and 2020 was USD 86 million and USD 84 million, respectively.
16 Share-based payments As of 31 December 2019 and 2020, the Group had the share-based compensation plans as described below.
Restricted shares The Group granted 51 036 and 21 709 restricted shares to selected employees in 2019 and 2020, respectively. In addition, 37 593 and 47 984 shares were delivered to members of the Board of Directors during 2019 and 2020, respectively, which are generally not subject to forfeiture risk.
Leadership Performance Plan The Leadership Performance Plan (LPP) awards are expected to be settled in shares, and the requisite service as well as the maximum contractual term are three years. For LPP 2017, LPP 2018, LPP 2019 and LPP 2020 awards, an additional two-year holding period applies for all members of the Group EC and other key executives. At grant date, LPP 2017, LPP 2018 and LPP 2019 awards were split equally into two underlying components of Performance Share Units (PSUs). The ROE PSUs are measured against a return on equity performance condition and will vest within a range of 0–100%. The TSR PSUs are based on relative total shareholder return, measured against a predefined group of peers and will vest within a range of 0–200%. At grant date, LPP 2020 was split equally into three underlying components of PSUs. The ENW PSUs, being the third component, are measured against ENW growth performance and will vest within a range of 0-100%. The fair values of all components are determined separately, based on stochastic models.
The fair value assumptions in the grant valuations include market estimates for dividends and the risk-free rate based on the average of the 10-year US Treasury bond taken monthly over each year in the performance period, resulting in risk-free rates ranging between 1.5% and 3.1% for all outstanding LPP awards.
TSR PSU Non-vested at 1 January 609 090 256 939 302 567 Granted 352 827 Forfeited –14 091 –11 243 –16 498 –12 334 Vested –594 999
ENW PSU Non-vested at 1 January Granted 199 497 Forfeited –6 974 Vested
Unrecognised compensation cost As of 31 December 2020, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based compensation awards was USD 52 million and the weighted average period over which that cost is expected to be recognised is 1.9 years.
The number of shares authorised for the Group’s share-based payments to employees was 3 660 142 and 3 004 148 as of 31 December 2019 and 2020, respectively. The Group’s policy is to ensure that sufficient treasury shares are available at all times to settle future share-based compensation plans.
Global Share Participation Plan Swiss Re has a Global Share Participation Plan, which is a share purchase plan available to employees of companies within the Group. Swiss Re makes a financial contribution to participants in the plan, by matching the commitment that they make during the plan cycle with additional Swiss Re shares.
276 Swiss Re | Financial Report 2020 18 Related parties The Group defines the following as related parties to the Group: subsidiaries of Swiss Re Ltd, entities in which the Group has significant influence, pension plans, members of the Board of Directors (BoD) and the Group Executive Committee (EC) and their close family members, and entities which are directly and indirectly controlled by members of governing bodies of the Group and their close family members.
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 the BoD and the Group EC has any significant business connection with Swiss Re Ltd or any of its Group companies. The Board member Susan L. Wagner is also a board member of BlackRock, Inc. BlackRock, Inc. acts as external asset manager for the Group. The Board member Joachim Oechslin is a senior advisor to Credit Suisse Group AG. Swiss Re has a banking relationship with Credit Suisse. It is also a credit provider, and a named dealer under Swiss Re‘s Debt Issuance Programme.
Luxembourg iptiQ Life S.A., Luxembourg EUR 6 100 f Swiss Pillar Investments Europe SARL, Luxembourg EUR 0 100 f Swiss Re Europe Holdings S.A., Luxembourg EUR 105 100 f Swiss Re Europe S.A., Luxembourg EUR 350 100 f Swiss Re Finance (Luxembourg) S.A., Luxembourg EUR 0 100 f Swiss Re Funds (Lux) I, Senningerberg1 EUR 13 772 100 f Swiss Re International SE, Luxembourg EUR 182 100 f
Netherlands elipsLife EMEA Holding B.V., Hoofddorp EUR 0 100 f Swiss Re Life Capital EMEA Holding B.V., Hoofddorp EUR 0 100 f
Brazil Swiss Re Brasil Resseguros S.A., Sao Paulo BRL 295 100 f Swiss Re Corporate Solutions Brasil Seguros S.A., Sao Paulo BRL 318 60 f
Cayman Islands FWD Group Ltd, Grand Cayman USD 1 15 e SRE HL PE 1 LP, George Town EUR 156 100 f SREH HL PE 1 LP, George Town EUR 213 100 f SRZ HL PE 1 LP, George Town USD 190 100 f
Colombia Compañía Aseguradora de Fianzas S.A. Confianza, Bogota COP 234 203 51 f
United States First Specialty Insurance Corporation, Jefferson City USD 5 100 f iptiQ Americas Inc., Wilmington USD 0 100 f Lumico Life Insurance Company, Jefferson City USD 0 100 f North American Capacity Insurance Company, Manchester USD 4 100 f North American Elite Insurance Company, Manchester USD 4 100 f North American Specialty Insurance Company, Manchester USD 5 100 f Pecan Re Inc., Colchester USD 5 100 f Pillar RE Holdings LLC, Wilmington USD 0 100 f SR Corporate Solutions America Holding Corporation, Wilmington USD 0 100 f SRE HL PE 1 (Master) LP, Wilmington EUR 155 100 f SREH HL PE 1 (Master) LP, Wilmington EUR 213 100 f SRZ HL PE 1 (Master) LP, Wilmington USD 190 100 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 0 100 f Swiss Re Life & Health America Holding Company, Wilmington USD 0 100 f Swiss Re Life & Health America Inc., Jefferson City USD 4 100 f Swiss Re Life Capital Americas Holding Inc., Wilmington USD 0 100 f Swiss Re Management (US) Corporation, Wilmington USD 0 100 f Swiss Re Property & Casualty America Inc., Kansas City USD 1 100 f Swiss Re Risk Solutions Corporation, Wilmington USD 0 100 f Swiss Re Treasury (US) Corporation, Wilmington USD 0 100 f Swiss Reinsurance America Corporation, Armonk USD 10 100 f Washington Insurance Corporation, Jefferson City USD 4 100 f Westport Insurance Corporation, Jefferson City USD 6 100 f Wing Re Inc., Jefferson City USD 0 100 f Wing Re II Inc., Jefferson City USD 0 100 f
The party that has a controlling financial interest is called a primary beneficiary and consolidates the VIE. The party is deemed to have a controlling financial interest if it has both: the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and the obligation to absorb the entity’s losses that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
The Group did not provide financial or other support to any VIEs during 2020 that it was not previously contractually required to provide.
Consolidated VIEs The following table shows the total assets and liabilities in the Group’s balance sheet related to VIEs of which the Group is the primary beneficiary as of 31 December: Fixed income securities available-for-sale 3 423 3 807 Investment real estate 143 Short-term investments 260 59 Investments for unit-linked and with-profit business 654 Cash and cash equivalents 49 20 Accrued investment income 27 30 Premiums and other receivables 31 35 Funds held by ceding companies 1 1 Deferred acquisition costs 3 5 Deferred tax assets 182 191 Other assets 15 14 Reclassified to assets held for sale –812
Unpaid claims and claim adjustment expenses 55 59 Unearned premiums 12 16 Funds held under reinsurance treaties 4 4 Reinsurance balances payable 21 22 Deferred and other non-current tax liabilities 152 166 Accrued expenses and other liabilities 129 18 Long-term debt 1 918 1 926 Reclassified to liabilities held for sale –114
As statutory auditor, we have audited the accompanying consolidated financial statements of Swiss Re Ltd and its subsidiaries (the ‘Group’), which comprise the income statement and statement of comprehensive income for the year ended 31 December 2020, the balance sheet as at 31 December 2020 and the statement of shareholders’ equity and the statement of cash flows for the year then ended, and notes to the Group financial statements (pages 182 to 284).
Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
Investment valuation continues to be an area with inherent risk for certain level 2 and 3 investments that have unobservable or interpolated inputs. The risk is not the same for all investment types and is greatest for those listed below. These investments are more difficult to value because quoted prices are not always available, and valuation requires unobservable or interpolated inputs and complex valuation models:  Fixed income securitised products  Fixed income mortgage and asset-backed securities  Private placements and infrastructure loans  Private equity investments  Derivatives  Insurance-related financial products
We assessed and tested the design and operating effectiveness of selected relevant controls around the valuation models for level 2 and 3 investments, including the Group’s independent price verification process. We also tested the Group’s data integrity and change management controls relating to the valuation models.
Based on the work performed, we determined the Group’s conclusions with regard to the valuation of these investments to be reasonable.
The valuation of P&C loss reserves within the unpaid claims and claim adjustment expenses financial statement line item involves a high degree of subjectivity and complexity. Reserves for losses and loss adjustment expenses represent estimates of future payments of reported and unreported claims for losses and related expenses at a given date.
The Group uses a range of actuarial methodologies and methods to estimate these reserves. P&C loss reserves require significant judgment relating to certain factors and assumptions. Among the most significant reserving assumptions are the a-priori loss ratios, which typically drive the estimates of P&C loss reserves for the most recent contract years. Other key factors and assumptions include but are not limited to changes in exposure and business mix as well as inflation trends, claim emergence trends, and legal or regulatory decisions.
In particular, loss reserves for ‘long tail’ lines of business (for example, Liability, US Asbestos and Environmental, Motor and Workers’ Compensation portfolios) generally require more judgment to estimate. This is due to the protracted period over which claims may be reported and/or settled as well as the fact that claim settlements are often less frequent but of higher magnitude.
Moreover, losses from natural catastrophe, significant manmade and COVID-19 pandemic events cannot be modelled using traditional actuarial methodologies or available proprietary models, which increases the degree of judgment needed in establishing reserves for these events. The ongoing nature of the COVID-19 pandemic and additional complexity because of unresolved contract coverage issues, notably on property lines, required particular focus and judgment by management.
Valuation of actuarially determined liabilities for Life & Health (‘L&H’) policy benefits
Furthermore, on a regular basis, the Group enters into large and/or structured transactions which often have material or complex financial reporting and reserving consequences. The reserving for such transactions is subject to increased risk of error due to the non-routine nature of transactions and the judgmental nature of reserving.
We assessed and tested the design and operating effectiveness of selected relevant controls relating to the application of actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by the Group in the valuation of actuarially determined liabilities for L&H policy benefits.
In relation to the matters set out opposite, our substantive testing procedures included involving our PwC internal actuarial specialists, as appropriate, to perform the following, which are applicable for the valuation of both standard and large and/or structured transactions:  Testing the completeness and accuracy of the underlying data by vouching against the source documentation.
 Testing the migration of actuarial data from legacy systems and/or spreadsheets to the new actuarial systems for completeness and accuracy.
 Testing the reasonableness of L&H assumptions by applying our industry knowledge and experience to check whether the assumptions are consistent with recognised actuarial practices and industry trends.
The Group operates in various countries and is subject to income taxes in those jurisdictions. The assessment of the valuation of deferred tax assets, resulting from net operating losses and temporary differences, and provisions for uncertain tax positions is based on complex calculations and depends on sensitive and judgmental assumptions made by the Group. These include, amongst others, future profitability and local fiscal regulations and developments.
We assessed and tested the design and operating effectiveness of selected relevant controls related to the valuation of deferred tax assets and selected relevant controls in place to determine the completeness of the uncertain tax items and the Group’s assessment of the items for recognition and valuation.
Group’s ‘more likely than not’ tax assessments and to evaluate the Group’s judgments and estimates of the probabilities and the amounts.
 Assessing the feasibility of the Group’s tax planning measures, including the assessment of forecasted taxable income and any relevant tax rulings that impact the recoverability of deferred tax assets resulting from net operating losses.
 Assessing how the Group considered new information or changes in tax law or case law and assessing the Group’s judgment of how these impact the Group’s position or measurement of the required provision.
 Evaluating the appropriateness of the Group’s assessment of completeness of uncertain tax positions.
Based on the work performed, we determined the Group’s assessments of the valuation of deferred tax assets and the completeness and valuation of uncertain tax positions to be reasonable.
Income statement Revenues Premiums earned 21 300 24 661 28 276 Fee income 876 785 542 Net investment income 5 469 5 302 4 735 Net realised investment gains/losses 388 2 688 3 325 Other revenues 50 188 24
Income/loss before income tax expense 2 875 5 523 4 825 Income tax expense/benefit –77 –1 125 –312
Net income/loss before attribution of non-controlling interests 2 798 4 398 4 513
Net income/loss after attribution of non-controlling interests 2 626 4 257 4 511
Balance sheet Assets Investments 162 224 152 812 150 075 Other assets 63 675 68 691 63 445 Assets held for sale
Revenues were mainly driven by cash dividends from subsidiaries and affiliated companies of CHF 3 658 million, trademark licence fees of CHF 416 million, interest on loans with subsidiaries and affiliated companies of CHF 75 million, and commitment fees of CHF 67 million.
Expenses were mainly driven by valuation adjustments to the carrying amount of investments in subsidiaries and affiliated companies totalling CHF 1 982 million. These valuation adjustments were recognised to reflect the substance reduction caused by dividend payments funded by proceeds from sale of significant investments. Expenses were also driven by administrative expenses of CHF 310 million.
Assets Total assets increased from CHF 24 247 million as of 31 December 2019 to CHF 25 104 million as of 31 December 2020.
Current assets increased by CHF 1 786 million to CHF 4 713 million as of 31 December 2020, mainly driven by an increase in receivables from subsidiaries and affiliated companies, partially offset by a decrease in loans to subsidiaries and affiliated companies.
Non-current assets decreased by CHF 929 million to CHF 20 391 million as of 31 December 2020, mainly driven by a decrease in investments in subsidiaries and affiliated companies partially offset by an increase in loans to subsidiaries and affiliated companies.
Short-term liabilities decreased by CHF 428 million to CHF 502 million as of 31 December 2020, mainly driven by a decrease in loans from subsidiaries and affiliated companies.
Own shares (directly held by the Company) decreased by CHF 817 million to CHF 1 073 million as of 31 December 2020 due to share buyback programme of CHF 184 million offset by the cancellation of own shares of CHF 1 000 million and net sale of own shares of CHF 1 million.
Current assets Cash and cash equivalents 0 0 Short-term investments 4 48 55 Receivables from subsidiaries and affiliated companies 2 703 2 615 Other receivables and accrued income 16 26 Loans to subsidiaries and affiliated companies 2 160 2 017
Liabilities Short-term liabilities Payables to subsidiaries and affiliated companies 149 264 Other liabilities and accrued expenses 152 128 Loans from subsidiaries and affiliated companies 629 110 Total short-term liabilities 930 502
Retained earnings brought forward 4 – Net income for the financial year 932 1 573 Own shares (directly held by the Company) 9 –1 890 –1 073
Basis of presentation The financial statements are prepared in accordance with Swiss Law.
Receivables from subsidiaries and affiliated companies/ Other receivables also include derivative financial instruments. Derivative financial instruments which have an observable market price and are traded in an active and liquid market are recorded at market value.
Investments in subsidiaries and affiliated companies These assets are carried at cost less necessary value adjustments to reflect other than temporary decreases in the value in use. As of year-end 2020 a group valuation approach is applied for the Company’s investments in subsidiaries and affiliated companies, when the facts and circumstances indicate that the investments are to be seen as an economical unit.
As of 2020, the provision for currency fluctuation comprises the net effect of foreign exchange gains and losses arising from the revaluation of the balance sheet at year-end. Until the end of the financial year 2019, the provision for currency fluctuation comprised the net effect of foreign exchange gains and losses arising from the yearly revaluation of the opening balance sheet and the translation adjustment of the income statement from average to closing exchange rates at year-end. These net impacts are recognised in the income statement over a period of up to three years. Where the provision for currency fluctuation is insufficient to absorb net foreign exchange losses for the financial year, the provision for currency fluctuation is reduced to zero and the excess foreign exchange loss is recognised in the income statement.
Own shares (directly held by the Company) Own shares are carried at cost and presented as a deduction in shareholders’ equity.
Subsequent events Subsequent events for the current reporting period have been evaluated up to 17 March 2021. This is the date on which the financial statements are available to be issued.
Cash dividends from subsidiaries and affiliated companies 2 230 3 658 Realised gains on sale of investments 155 5 Valuation adjustments on derivative financial instruments 1 35 24 Income from short-term investments 1 0 Income from loans to subsidiaries and affiliated companies 131 75 Investment management income 0 0 Other interest revenues 77 70
The Company has established subordinated debt facilities which allow the Company to issue subordinated callable notes at any time. The Company pays a fee on the available commitment under the facility and an interest rate on issued notes. Notes, when issued, will be classified as subordinated debt. As of 31 December 2019 and 2020, no notes have been issued under the facilities.
As of 31 December 2019 Domicile Currency Share capital (millions) Affiliation in % Voting interest in %
Swiss Reinsurance Company Ltd Zurich CHF 34.4 100 100 Swiss Re Corporate Solutions Ltd Zurich CHF 100.0 100 100 Swiss Re Life Capital Ltd Zurich CHF 0.1 100 100 Swiss Re Investments Holding Company Ltd Zurich CHF 0.1 100 100 Swiss Re Principal Investments Company Ltd Zurich CHF 0.1 100 100 Swiss Re Management Ltd Zurich CHF 0.1 100 100 Swiss Re Specialised Investments Holdings (UK) Ltd London GBP 1.0 100 100 1 On 22 July 2020, the Group completed the sale of ReAssure Group Plc a subsidiary of Swiss Re Life Capital Ltd, to Phoenix Group Holdings Plc. Detailed information is included in Note 10 “Acquisitions and disposals” on page 258 in the notes to the Group’s 2020 financial statements.
The Company has entered into subordinated funding facilities with its subsidiary Swiss Reinsurance Company Ltd under which Swiss Reinsurance Company Ltd has the right, among others, to issue subordinated notes to the Company at any time. For its various rights, Swiss Reinsurance Company Ltd owes the Company an unconditional fixed commitment fee on the total facility amount, payable in annual instalments. Annually, Swiss Reinsurance Company Ltd receives a partial reimbursement of the commitment fee on the undrawn facility amount. As of 31 December 2019 and 2020, the facilities were undrawn.
An overview of the subordinated funding facilities is provided in the following table: Instrument Borrower Issued in Currency Nominal value in millions
Allocations relating to the dividend paid 936 –4 –932 0 Dividend for the financial year 2019 –1 705 –1 705 Net income for the financial year 1 573 1 573 Share buyback programme 20191 –184 –184
Allocations relating to the dividend paid 3 077 –3 077 0 Dividend for the financial year 2018 –1 674 –1 674 Net income for the financial year 932 932 Share buyback programme 2018 –111 –111
Share buyback programme 2019 –816 –816 Other movements in own shares 16 1 –1 –17 –1 1 At the 155th Annual General Meeting held on 17 April 2019, the Group’s shareholders authorised the Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of the Group’s own shares prior to the 2020 Annual General Meeting through a public share buyback programme for cancellation purposes. The buyback programme was completed on 18 February 2020. The total number of shares repurchased amounted to 9.9 million, of which 8.2 million and 1.7 million shares were repurchased by 31 December 2019 and between 1 January and 18 February 2020, respectively. On 17 April 2020, the 156th Annual General Meeting resolved the cancellation of the repurchased 9.9 million shares by way of share capital reduction. The shares were cancelled on 28 July 2020, after completion of the procedure in respect of a share capital reduction as set forth in Article 732 et seqq of the Swiss Code of Obligations.
Own shares held by subsidiaries 197 194 169 772 Own shares held by Swiss Re Ltd directly 38 378 130 36 579 990
Sale of own shares 2 –1 125 758 –474 412 Share buyback programme (154th AGM 2018)3 1 164 319 – Share buyback programme (155th AGM 2019)4 8 239 000 1 668 398 Cancellation of shares bought back –11 214 761 –9 907 398 Own shares as of 31 December 36 749 762 28 520 907 1 Purchased at average price of CHF 74.56 (2019: CHF 98.75). 2 Sold at average price of CHF 73.99 (2019: CHF 98.03). 3 Purchased at average price of CHF 94.98.
This section is in line with Articles 663c para. 3 and 959c para. 2 cif. 11 of the Swiss Code of Obligations, which require disclosure of shareholdings, options and related instruments held by members of the Board of Directors and Group Executive Committee (Group EC) at the end of the reporting year and of share-based compensation for the Board of Directors during the reporting year. Further disclosures in respect of shareholding and compensation for the members of the Board of Directors and the Group EC, and persons closely related, are detailed in the Compensation Report on pages 140–145 of the Financial Report of the Swiss Re Group.
Share-based compensation The share-based compensation for the members of the Board of Directors for 2019 and 2020 was: Vested options For the years ended 31 December 2019 and 2020, neither the members of the Board of Directors nor the members of the Group EC held any vested options granted or allocated by Swiss Re.
Philip K. Ryan, member, Chair Finance and Risk Committee 240 2 582 240 3 178
The Board of Directors proposes to the Annual General Meeting to be held in Zurich on 16 April 2021 to approve the following allocations and dividend payment: Dividend If the Board of Directors’ proposal for allocations and dividend payment is accepted, an ordinary dividend of CHF 5.90 per share will be paid on 22 April 2021 from voluntary profit reserves.
Share structure per 31 December 2020 Number of registered shares Nominal capital in CHF
PricewaterhouseCoopers Ltd, Birchstrasse 160, Postfach, CH-8050 Zürich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch
As statutory auditor, we have audited the accompanying financial statements of Swiss Re Ltd (the ‘Company’), which comprise the income statement, balance sheet and notes (pages 295 to 305), for the year ended 31 December 2020.
A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the financial statements of the current period. The matter was addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.
The Company applies either individual valuations, or when the facts and circumstances indicate that the investments are to be seen as an economic unit, group valuations of investments in subsidiaries and affiliated companies in accordance with Swiss law.
In relation to the matter set out opposite, our substantive testing procedures included the following: • Assessing whether the group valuation approach
Security for which the payment of interest and/or principal depends on the occurrence or severity of an insurance event. The underlying risk of the security is a peak or volume insurance risk.
Includes net investment income, realised gains and losses and changes in unrealised gains and losses reported under the accounting principles generally accepted in the United States of America (US GAAP). In addition, it includes changes in market value of investment positions carried at amortised cost under US GAAP. It excludes the following US GAAP items: investment income from cedants, unit-linked and with-profit business and certain loans as well as minority interest and depreciation on real estate.
Management tool for the comprehensive identification and assessment of risks based on knowledge and experience in the fields of natural sciences, technology, economics and statistics.
Net investment income on long-term fixed income positions and loan investments, including coupon income and amortisation, as a percentage of the average market value of the long-term fixed income portfolio and carrying value of loan investments.
The SST risk-bearing capital (SST RBC) is the amount of capital that is available to protect the policyholders of an entity in case of a large and unexpected adverse event.
Forward-looking statements typically are identified by words or phrases such as “anticipate”, “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase”, “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 the Group’s actual results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects to be materially different from any future results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects expressed or implied by such statements or cause Swiss Re to not achieve its published targets. Such factors include, among others: • the frequency, severity and development of insured claim events, particularly natural catastrophes, man-made disasters, pandemics, acts of terrorism or acts of war; • mortality, morbidity and longevity experience; • the cyclicality of the reinsurance sector; • central bank intervention in the financial markets, trade wars or other protectionist measures relating to international trade arrangements, adverse geopolitical events, domestic political upheavals or other developments that adversely impact global economic conditions; • increased volatility of, and/or disruption in, global capital and credit markets; • the Group’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 the Group’s financial strength or otherwise; • the Group’s inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their values recorded for accounting purposes; • the Group’s inability to generate sufficient investment income from its investment portfolio, including as a result of fluctuations in the equity and fixed income markets, the composition of the investment portfolio or otherwise; • changes in legislation and regulation, or the interpretations thereof by regulators and courts, affecting the Group or its ceding companies, including as a result of comprehensive reform or shifts away from multilateral approaches to regulation of global operations; • the lowering or loss of one of the financial strength or other ratings of one or more companies in the Group, and developments adversely affecting its ability to achieve improved ratings; • uncertainties in estimating reserves, including differences between actual claims experience and underwriting and reserving assumptions; • policy renewal and lapse rates; Swiss Re | Financial Report 2020318
The operations, investments and other activities of Swiss Re Ltd (“Swiss Re”) and its subsidiaries (collectively, the “Group”) are subject to a range of risks that could adversely impact the Group’s business, financial condition, results of operations, liquidity and cash flows.
Coronavirus The global spread of the novel coronavirus and the disease it causes (“COVID-19”), and the actions taken to slow the spread of the pandemic, have had an adverse impact on communities, social and business interactions, economic activity and economies across the globe. After significant contractions in 2020, the global economy is expected to experience a protracted and uneven recovery in 2021. The impact of the pandemic on recovery of individual economies will be affected by their respective capacities to absorb shocks and the fiscal responses of their governments, and more broadly by continuing uncertainties over the impact of new strains of the virus and the effectiveness of vaccines against new strains, the timeline for the rollout of vaccination programs, the duration of immunity and resulting restrictions on mobility. Despite the impact of the pandemic on the global economy, the global insurance markets (as measured by premium growth) were less severely impacted in 2020 than expected (although the life market was more adversely affected than the non-life market) and premium growth is expected to recover, alongside recovery of the global economy, in 2021 and 2022, supported by rate hardening. Growth is expected to be led by China and, to a lesser extent, by other markets in Asia, aided in the case of life business by greater awareness of the importance post-pandemic of mortality and health coverage, as well as digital insurance penetration.
For the Group, in Property & Casualty Reinsurance, the COVID-19 crisis (in particular the impact on businesses and business activity) had the greatest impact on event cancellation, non-damage business interruption covers, and credit and surety. In Life & Health Reinsurance, the COVID-19 crisis had the greatest impact on mortality exposures. The majority of losses were incurred in the second and fourth quarters, largely driven by business closings and excess mortality, and reported 2020 losses continue to reflect high levels of incurred but not reported (IBNR) reserves.
The COVID-19 crisis prompted regulatory actions, including regulatory guidance in a number of US states in respect of temporary policyholder leniency, and legislative proposals in respect of policy exclusions and retroactive business interruption coverage. Legal challenges have been brought in a variety of jurisdictions, including, most notably, test cases brought in the United Kingdom by the Financial Conduct Authority, in respect of which the UK Supreme Court largely found on appeal, by the insurance company parties, in favour of holders of business interruption insurance policies, and in Australia, where a Court of Appeal also found in favour of policyholders. Legal actions on a range of pandemic-related claims are likely to continue in a number of jurisdictions.
The COVID-19 crisis continues, and the ultimate toll of the pandemic in terms of lives lost, societal dislocations, business activity, economic growth, broader costs to society and industry losses remains highly uncertain. Many pandemic-related developments interact with long-term trends and outlooks, including the impact of persistent low yields on the insurance industry. It also remains to be seen how public-private partnership initiatives may evolve to address future pandemics.
General impact of adverse market conditions Swiss Re’s operations as well as its investment returns are subject to conditions in the financial markets and macroeconomic factors, which are outside of its control. Financial, credit and foreign exchange markets are experiencing continued periods of volatility reflecting a range of political, geopolitical, economic and other uncertainties, some of the more significant of which are inter-related. Further adverse developments or the continuation of adverse trends that, in turn, have a negative impact on financial markets and economic conditions, could limit the Group’s ability to access the capital markets and bank funding markets, could adversely affect the ability of counterparties to meet their obligations to the Group and could adversely affect the confidence of the ultimate buyers of insurance and reinsurance. Any of the foregoing factors, developments and trends could have an adverse effect on the Group’s investment results, which in the current extremely low interest rate environment could have a material adverse effect on the Group’s overall results, make it difficult to determine the value of certain assets in the Group’s portfolio, make it more difficult to acquire suitable investments to meet its risk and return criteria and otherwise have a material adverse effect on its business and operations.
While certain regulatory processes are designed in part to foster convergence and achieve recognition of group supervisory schemes, the Group continues to face risks of extra-territorial application of regulations, particularly as to group supervision and group solvency requirements. In addition, regulators in jurisdictions beyond those where the Group has core operations increasingly are playing a far greater oversight role, requiring more localised resources and, despite a predominantly local focus, also raise issues of a cross-border nature. Furthermore, evolving regulatory schemes and requirements may be inconsistent or may conflict with each other, thereby subjecting the Group, particularly in light of the increasing focus on legal entities in isolation, to higher compliance and legal costs, as well as the possibility of higher operational, capital and liquidity costs.
On the international level, certain large insurance companies were designated as global systemically important insurers (“G-SIIs”) and reinsurance companies faced potential designation as G-SIIs. While further designations have been suspended until 2022, the determination to discontinue G-SII designations altogether will only be made in 2022, based on an assessment of progress made by the International Association of Insurance Supervisors (“IAIS”), in establishing a new holistic framework for systemic risk that was adopted in November 2019 and implemented as of the beginning of 2020. The new framework embraces an enhanced set of policy measures targeted at the exposures and activities that can lead to systemic risks from the insurance sector as a whole. The Group cannot predict what additional regulatory changes will be implemented as the IAIS systemic risk process evolves and what any such changes may mean for how the Group is structured in any particular jurisdiction and how aspects of its business may be affected. Moreover, the Group cannot predict whether the Financial Stability Board will endorse the new IAIS holistic framework or retain the existing G-SII approach, or what regulatory changes may apply in the future to ceding companies in the context of broader designations of reinsurers as systemically important.
In addition, large internationally active insurance groups (“IAIGs”), which is a designation compiled by the IAIS as identified by group-wide supervisors, may become subject to a risk-based group-wide global insurance capital standard (“ICS”). ICS Version 2.0 was adopted in November 2019, and is expected to take effect in 2025, following a five-year confidential reporting period during which no supervisory action will be taken on the basis of the monitoring. In November 2019, the IAIS also adopted the Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”), as well as some changes to a number of Insurance Core Principles (“ICPs”) – guidance and standards on supervision of insurers and which apply to insurance companies regardless of size and international exposures. ComFrame strengthens ICP requirements for IAIGs and proposes that the group-wide supervisor, in consultation with the host supervisors, should exercise discretion in requiring IAIGs to submit resolution plans. Swiss Re expects that it will be classified as an IAIG.
The Group cannot predict which legislative and/or regulatory initiatives will be enacted or promulgated, what the scope and content of these initiatives ultimately will be, when they will be effective and what the implications will be for the industry, in general, and for the Group, in particular. The Group may be subject to changes in views of its regulators in respect of the models that the Group uses for capital and solvency purposes, and could be adversely affected if, for example, it is required to use standard models rather than internal models. Generally, legal and regulatory changes could have a material impact on the Group’s business. Notwithstanding the departure of the United Kingdom from the EU single market and customs union, continued uncertainty regarding the ways in which the future relationship between the United Kingdom and the European Union will evolve could also impact the legislative and/or regulatory regimes to which the Group is subject (including Solvency II), both in the United Kingdom and in the European Union.
Regulatory changes also could occur in areas of broader application, such as competition policy and tax laws. For example, changes in tax laws, or the interpretation of the tax laws or tax regulations in jurisdictions in which the Group does business, or withdrawals of tax rulings in jurisdictions such as Switzerland that have issued such rulings to Swiss Re, could increase the taxes the Group pays, or impact the attractiveness of products offered by the Group, the Group’s investment activities or the value of deferred tax assets. These changes, or inconsistencies between the various regimes that apply to the Group, could increase the costs of doing business (including due to increased capital requirements), reduce access to liquidity, limit the scope of current or future business or affect the competitive balance, or could make reinsurance less attractive to primary insurers
Market risk Volatility and disruption in the global financial markets could expose the Group to significant financial and capital markets risk, including changes in interest rates, credit spreads, equity prices and foreign currency exchange rates, which may adversely impact the Group’s financial condition, results of operations, liquidity and capital position. The Group’s exposure to interest rate risk is primarily related to the market price and cash flow variability associated with changes in interest rates. In general, low interest rates continue to pose significant challenges to the insurance and reinsurance industries, with earnings capacity under stress unless lower investment returns can be offset by lower combined ratios or higher returns from other asset classes, which in a soft market cycle is a challenge. Exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. When credit spreads widen, the net unrealised loss position of the Group’s investment portfolio can increase, as could other-thantemporary impairments.
These risks can have a significant effect on investment returns and market values of securities positions, which in turn may affect both the Group’s results of operations and financial condition. The Group continues to focus on asset-liability management for its investment portfolio, but pursuing even this strategy has its risks – including a possible mismatch between investments and liability benchmarks – that in turn can lead to reinvestment risk. The Group seeks to manage the risks inherent in its investment portfolio by repositioning the portfolio from time to time, as needed, and to reduce risk and fluctuations through the use of hedges and other risk management tools.
Unexpected liquidity needs (including to meet collateral calls) could require the Group to increase levels of indebtedness or to liquidate investments or other assets. Should the Group require liquidity at a time when access to bank funding and the capital markets is limited, it may be unable to secure new sources of funding. The Group’s ability to meet liquidity needs through asset sales may be constrained by market conditions and the related stress on valuations. In addition, the Group’s ability to meet liquidity needs through the incurrence of debt may be limited by constraints on the general availability of credit in the case of bank funding, and adverse market conditions, in the case of capital markets debt. Failure to meet covenants in lending arrangements could further constrain access to liquidity. The Group’s ability to meet liquidity needs may also be constrained by regulatory requirements that require regulated entities to maintain or increase regulatory capital, or that restrict intra-group transactions, the timing of dividend payments from subsidiaries or the fact that certain assets may be encumbered or are otherwise not tradeable. Finally, any adverse ratings action against the Group could trigger a need for further liquidity (for example, by triggering termination provisions or margin calls/collateral delivery requirements in contracts to which Swiss Re is a party) at a time when the Group’s ability to obtain liquidity from external sources is limited by such ratings action. See also “Risks relating to credit rating downgrades.”
As claims paying and financial strength ratings are key factors in establishing the competitive position of reinsurers, a decline in Swiss Re’s ratings and/or the ratings of its key rated legal entities could make reinsurance provided by the Group less attractive to clients relative to reinsurance from competitors with similar or stronger ratings. A decline in ratings could also cause the loss of clients who are required by policy or regulation to purchase reinsurance only from reinsurers with certain ratings. Certain larger reinsurance and derivative contracts may contain terms that would allow the ceding companies or counterparties to terminate the contract if the Group’s ratings or those of its subsidiaries are downgraded beyond a certain threshold. Furthermore, ratings directly impact the availability and terms of unsecured financing (potentially impacting the Group’s ability to rollover existing facilities or obtain new facilities) and declines in the Group’s ratings or the ratings of legal entities within the Group could also obligate the Group to provide collateral or other guarantees in the course of its business or trigger early termination of funding arrangements, potentially resulting in a need for additional liquidity. As a ratings decline could also have a material adverse impact on the Group’s costs of borrowing or ability to access the capital markets, the adverse implications of a downgrade could be more severe. These same factors could also impact the Group’s insurance business.
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 natural catastrophes, such as hurricanes, cyclones, tornadoes, windstorms, hail storms, wildfires, floods and earthquakes, as well as extreme space weather events such as solar storms and geomagnetic activity, and man-made disasters, such as acts of terrorism, cyberattacks and other disasters such as explosions, industrial accidents and fires, as well as pandemics) are inherently unpredictable in terms of both their frequency and severity and have exposed, and may continue to 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 significant levels of alternative capacity); cyclicality of the industry; risks related to emerging claims and coverage issues (including, in particular, social inflation), which trends may potentially be exacerbated by the COVID-19 crisis; macro developments giving rise to emerging risks, such as climate change and technological developments (including greater exposure to cyber risks (where accumulation risk is yet to be fully understood), which could have a range of consequences from operational disruption, to loss of proprietary or customer data, to greater regulatory burdens and potential liability); risks arising from the Group’s dependence on policies, procedures and expertise of ceding companies; risks related to investments in emerging markets; and risks related to the failure of, or attacks directed at, the Group’s operational systems and infrastructure, including its information technology networks and systems. Any of the foregoing, as well as the occurrence of future risks that the Group’s risk management procedures fail to identify or anticipate, could have a material adverse effect on the Group, and could also give rise to reputational risk.
The Group includes in its annual report a section in respect of its results, including financial statements, prepared in accordance with the Group’s proprietary economic value management (“EVM”) principles (“EVM report”). Financial information included in the EVM report contains non-GAAP financial measures. The EVM principles differ significantly from US GAAP and, accordingly, the Group’s results prepared in accordance with US GAAP will differ from its EVM results, and those differences could be material. The Group’s annual EVM results can be more volatile than the US GAAP results because, among others, assets and liabilities are measured on a market consistent basis, profit recognition on new contracts is recognised at inception rather than over the life time of the contract, and life and health actuarial assumptions are on a best estimate basis as opposed to generally being locked-in. The Group’s EVM financial statements should not be viewed as a substitute for the Group’s US GAAP financial statements.
Kansas City 1200 Main Street Kansas City, MO 64105 Telephone +1 816 235 3703
Mexico City Avenida Insurgentes Sur 1898 Torre Siglum Colonia Florida, Del Alvaro Obregon México City 01030 Telephone +52 55 5322 8400
Beijing China Life Financial Centre 23 Zhenzhi Road Chaoyang District Beijing 100026 Telephone +86 10 6563 8888
Tokyo Marunouchi Nijubashi Building 3-2-3 Marunouchi Tokyo 100-0005 Telephone +81 3 5219 7800
Photography: Braschler/Fischer Deniz Kenber Fredi Lienhardt Geri Krischker Getty Images, Shutterstock Marc Wetli
This report is printed on sustainably produced paper and is climate neutral. The wood used comes from forests certified to 100% by the Forest Stewardship Council (FSC).
• Launched Greenhouse Neutral Programme, achieving total reduction of 80% in CO2 emissions per employee (FTE) by end of programme in 2020
• Have offset all CO2 emissions from operations, making Group fully carbon-neutral
• Launched Own The Way You WorkTM, a programme to promote autonomous working
• Published first climate-related financial disclosures (TCFD) as original TCFD member
• Introduced thermal coal policy, with aim of gradual coal phase-out
• Signed Business Ambition for 1.5°C, committing to net-zero emissions in re/insurance and investments by 2050
• Committed to achieve net-zero emissions in our operations by 2030
• Announced internal carbon levy at USD 100 per tonne of CO2 and set target to reduce emissions from air travel by 30% (relative to 2018), with ambitious post-COVID target to follow
About the front cover In line with our Group Sustainability Strategy, Swiss Re provides insurance cover for the refurbishment of the historic Afsluitdijk dam, which protects the Netherlands from storm surge. In this report you can find out more about this and many other risk transfer solutions that support our strategy.
Independent Assurance Report on the Swiss Re Sustainability Report 2020 92
Dealing with the immediate fallout of the COVID-19 crisis has been the top priority around the world up to now. For a leading global re/insurer, however, it is equally important to analyse and understand the wider implications of the pandemic. It is estimated that 60% of all known infectious diseases in humans – and 75% of emerging ones – are zoonotic, meaning they originate from wild and domestic animals. Increasing pressure on ecosystems, eg rainforests, as a result of human activity will not only undermine resources vital to human life, but further increase the risk of pathogens passing from animals to humans.
The need to protect ecosystems and biodiversity is quickly gaining in importance to ensure sustainable progress and societal resilience. Climate change, meanwhile, was somewhat overshadowed by the COVID-19 pandemic in the past year, but it did not become less relevant. We argue that the financial industry, and re/insurance in particular, will be critical to tackling climate change and achieving a net-zero carbon world. Seizing the opportunities that lie in funding and providing risk transfer services for viable climate solutions will be key to this effort.
Strategy, we place special emphasis on mitigating climate risk and advancing the energy transition, building societal resilience and driving affordable insurance through digital solutions.
In asset management, we set a target to reduce the carbon intensity of our corporate credit and listed equities portfolios by 35% by 2025 (for details, please refer to our climate-related financial disclosures (TCFD) in the Financial Report 2020). To further support the transition to a net-zero emissions world, we have also defined a first-time target to increase our renewable and social infrastructure portfolio by USD 750 million. Engagement with the real economy is another essential part of a successful transition. For this purpose, in 2020 we introduced an aspirational Engagement Framework with the investment managers for our active listed equities portfolio.
triple-digit real internal carbon levy and are the first multinational company to do so. The levy gives us a strong incentive to further reduce our operational emissions and provides the necessary funds to engage in the emerging carbon- removal market.
Our Sustainability Report continues to serve as the official disclosure document for two voluntary commitments we have made to the United Nations: the UN Global Compact and the UNEP FI Principles for Sustainable Insurance. You can view the fully linked reference tables in the online version of the report. We will continue to honour both commitments as part of our Group Sustainability Strategy and report on our activities to meet their principles.
Number of employees (regular staff) as of 31 December 2020 * Counting each location with offices once; not counting data centres
across all lines of business, we deploy our capital strength, expertise and innovation power to enable the risk-taking upon which enterprise and progress in society depend.
At the end of 2020, we had 81 office locations in 29 countries. Based on “net premiums earned and fee income from policyholders”, our ten biggest markets in 2020 were: the US, the UK, China, Australia, Japan, Canada, Germany, the Netherlands, Ireland and Switzerland. They
You can get more information on our strategy in the Business Report 2020 on pages 16–17.
* The Group CLO reports with a dual reporting line to the Group CEO and the Group COO. ** Group Legal is not a Group Function. *** Disbanded at the end of December 2020. Effective 1 January 2021: iptiQ Division. For more details please refer to
Life Capital Life Capital supported and incubated entities in the B2B2C primary business, B2B corporate business and the closed book consolidation space. Following the successful sale of ReAssure, the Life Capital Business Unit disbanded at the end of 2020. Corporate Solutions has assumed responsibility for elipsLife, while iptiQ is now operating as a standalone division.
1 The total compensation of the Group for 2020 amounted to CHF 1 937 million (compared to CHF 2 086 million in 2019), whereof CHF 1 885 million has been or will be paid in cash (compared to CHF 2 033 million in 2019) and CHF 52 million has been granted in share-based awards (compared to CHF 53 million in 2019). Please refer to page 138 of the Financial Report 2020 for details.
2 Restated to reflect final approved figure. 3 FY 2020 is estimated based on the average monthly CHF/USD FX rate as of January 2021. The dividend
Through our Group Sustainability Strategy, we aim to reinforce our efforts to make the world more resilient and sustainable, thus helping to maintain our competitiveness today and in future.
Most of the world’s glaciers are rapidly shrinking due to rising temperatures. Tackling climate change and advancing the energy transition is one of the main ambitions of our Group Sustainability Strategy.
• Driving affordable insurance with digital solutions Our customers are seeking quick, intuitive and streamlined digital experiences to make their lives safer and healthier. With our digital solutions we increase access to, and the availability and affordability of, re/insurance and risk knowledge worldwide, thus helping to close the protection gap.
• Lead sustainability-linked solutions and embrace opportunities: We shape sustainability-linked innovations and advance the transition to more sustainable products and services. To do so, we cooperate with clients, partners and communities, and exploit the potential of new technologies.
• Quantify sustainability performance and impact: We set sustainability metrics and targets across the Group. This contributes to a systematic capital allocation to risk pools with long-term value, aligns us with external frameworks such as the Paris Agreement and allows us to measure our contributions to the UN Sustainable Development Goals.
Our Group Sustainability Strategy defines sustainability as a strategic, long-term value driver and embeds this approach throughout our re/insurance value chain. At its core, it involves managing and monitoring risks and opportunities associated with environmental, social and governance (ESG) issues. Sustainable re/insurance covers all our business activities from the liability to the asset side of our balance sheet, our own operations and dialogue with our stakeholders. In our core business, it aims to develop innovative solutions, improve business and investment performance on a risk-adjusted basis, and thus to contribute to environmental, social and economic sustainability.
We insure, invest, operate and share our knowledge in a way that tackles sustainability challenges and creates long-term value
Sustainability denotes the principle of achieving economic and social development that can be maintained in the long term, ie without overusing precious resources. Major challenges that undermine sustainable development, eg climate change, insecure food supplies, health funding gaps, ageing infrastructure, etc, can weaken resilience because they create new risks or aggravate existing ones, further widening the protection gap.
Our focus on sustainability seeks to identify and address the challenges that threaten stable long-term development. From the perspective of a re/insurer this
Finally, companies that make sustainability a priority across all aspects of their businesses are better qualified to adjust to the changing risk landscape – they become more sustainable themselves. In Swiss Re’s own case, this enhances our long-term prospects of continuing to meet our vision of making the world more resilient.
Our Climate Action Plan As part of implementing our Group Sustainability Strategy, we have developed a specific Climate Action Plan, which also serves as our climate strategy.
The plan builds on our commitments and initiatives of recent years, and combines three objectives: 1. We aim to become the leading re/insurance company on physical climate risk.
Framework, including thermal coal policy, and updated oil and gas policy (pages
• Continued work on the carbon steering mechanism – started to apply a carbon footprinting methodology developed with the CRO Forum to our direct insurance portfolio (page 38)
• First multinational company to announce triple-digit real carbon levy (page 63)
• SONAR 2020 report on emerging risks, including special features on carbon capture and a low-carbon future (page 56)
For further details please also refer to our climate-related financial disclosures (TCFD) in the Financial Report 2020,
E n g a g in g o u r p e o p le
In order to identify these material Sustainability Topics, we follow a structured process that taps into our internal risk expertise and inputs from ongoing dialogue
We conducted a high-level review of our Sustainability Topics in 2020. Our internal sustainability experts discussed the relevance of the topics as well as potential
See website with our stakeholders, and takes into account the work of various standardsetters (eg reporting frameworks, sustainability definitions used by rating agencies, the UN Sustainable Development Goals, etc). You can read a detailed description of this assessment process on our website.
The following illustration shows the result of our materiality assessments: Our 2030 Sustainability Ambitions, which are closely
related to our core business and re/ insurance solutions, as part of the full set of our Sustainability Topics. All our Sustainability Topics as well as related targets and key achievements are described on pages 16 – 21.
As re/insurers, understanding the extent and impact of this decline and the associated risks is key to minimising further damage. For example, trees protect coastal areas and riversides from erosion. In areas where forests disappear, floods and landslides are more frequent, causing higher property losses. Conversely, measures to preserve biodiversity, such as reforestation, reduce the risk of damage
The Biodiversity and Ecosystem Services Index One thing is clear – maintaining a healthy balance between humans and nature will remain a key issue going forward. For this reason, Swiss Re has developed the Biodiversity and Ecosystem Services (BES) Index, which identifies the economic
Biodiversity as an emerging Sustainability Topic 1 IPBES (2020). Workshop Report on Biodiversity and Pandemics of the Intergovernmental Platform on Biodiversity and Ecosystem Services. IPBES secretariat, Bonn, Germany.
In 2006, we developed a pandemic model to help us understand how pandemics affect our balance sheet. To learn about our model and how we are integrating knowledge acquired during the COVID-19 pandemic into the model,
In our reporting you can also learn more about how we have helped address the pandemic and its consequences: In the Sustainability Report: • “Creating solutions for sustainability”,
The effects of climate change and global warming are already evident and shaking up our risk landscape: warmer average temperatures, rising sea levels, longer and more frequent heatwaves and more weather extremes. We continue to evolve our way of doing business towards a low-carbon economy in line with our net-zero commitments and the Paris Agreement. Our key objectives are: • We aim to become the leading re/insurance company on physical climate risk.
• In cooperation with key stakeholders, create solutions to improve food security by giving farmers protection against natural perils.
• By the end of 2020, brought life and health insurance protection to around 296 000 beneficiaries through our partnership with Women’s World Banking (page 33).
targets we have set for them, what we achieved during the reporting year, and their principal links to the SDGs.
• For progress on our net-zero commitments, see the following sections on page 19: Managing sustainability risks; Investing responsibly; and Driving sustainable operations.
• In 2020, the Tripartite formed 13 country teams, with three more in the exploration phase. Swiss Re contributed to the projects alongside ten other industry members (page 32).
• In 2020, insured more than 5 600 wind and solar farms, avoiding more than 22 million tonnes of CO2 emissions (page 34).
• For further details on climate-related achievements, please refer to our climate-related financial disclosures (TCFD) in the Financial Report 2020, pages 148–179.
• Adjusted: In partnership with Women’s World Banking, bring life and health insurance to two million low-income customers by 2023.
• Completed a number of innovative transactions providing insurance protection to smallholder farmers against various natural perils, eg in Vietnam (page 31).
• Jointly organised a four-part virtual event series with UNEP FI on Sustainability Leadership in Insurance (pages 54‒55).
Our customers are seeking quick, intuitive and streamlined digital experiences to make their lives safer and healthier. With our digital solutions we increase the availability and affordability of re/insurance and risk knowledge worldwide. Our key objectives are: • We leverage technology to provide affordable cover for more types of risks across all income levels and ensure efficient claims handling.
• We apply smart analytics and devices to enhance our risk knowledge and advice to improve risk prevention, mitigation and crisis management.
• Completed several transactions that increased access to insurance through digital means, thus helping close the protection gap. Examples include our iptiQ platform and a parametric insurance structure for the Indian state of Nagaland (pages 30 and 35).
• Consistently identify new sustainability risks, adapt the Sustainable Business Risk (SBR) Framework accordingly and apply it to full scope of our business.
• New: Achieve total phase-out out of thermal coalrelated re/insurance in OECD countries by 2030, and in rest of the world by 2040.
• New: Ensure phase-out of direct and facultative re/ insurance for the world’s most carbon-intensive oil and gas companies (top 10%) by 2023.
• New: Include quantitative ESG risk assessments for insurance underwriting in the SBR process.
• By the end of 2020, held USD 2.6 billion in green, social and sustainability bonds, which is more than 50% of our 2024 target of USD 4 billion (page 47‒49).
• Completed: Keep per-capita CO2 emissions from our own operations at 2013 levels until 2020, which we had reduced by 49.3% in the ten years since 2003.
• New: Achieve 30% reduction in CO2 emissions from air travel by the end of 2021, relative to the level of
• Completed 100% Tier 1 and Tier 2 ESG communication; 95% Tier 1 and Tier 2 ESG assessments completed (pages 68‒69).
Sound risk management is essential for a re/insurer. Besides the core categories of our risk landscape (insurance, financial market and credit risk), we also pay attention to other significant risks we may be exposed to, including sustainability risks. Even when absolutely legal and economically beneficial, any business activity we undertake may also have unintended social and environmental consequences, which we define as sustainability risks. We manage these risks through our Sustainable Business Risk Framework, an advanced risk management instrument. The assessments flow directly into our re/insurance and investment decisions.
• Screened close to 100% of our direct and facultative re/insurance transactions for sustainability risks in 2020 (pages 36–41).
• Developed an exit strategy for thermal coal in our treaty business (page 38). • Started to implement our sharpened oil and gas policy, to exclude support
• Hold at least USD 4 billion in green, social and sustainability bonds by the end of 2024.
• New: Increase renewable and social infrastructure loans by USD 750 million
• Since 2018, close to 100% of our Strategic Asset Allocation considers ESG aspects (page 46).
• Co-led the development of the Net-Zero Asset Owner Alliance Target Setting Protocol enabling target setting for 2025 (page 50; see also 2020 Financial Report, page 170).
• For a full overview of highlights per asset class, see page 47.
As a leading global re/insurer, we are directly affected by the consequences of climate change. Based on our strong commitment to sustainability, we consider it important to reduce the environmental impact caused by our own operations, thus leading by example. Tackling our CO2 emissions and reducing energy consumption have been key targets across the Group, reflected by our pioneering initiatives such as the Greenhouse Neutral Programme, the COyou2 Programme and co-founding RE100. In 2019, we took another major step by committing to reach net-zero emissions in our operations as early as 2030.
• Completed: Obtain 100% of power used for our own operations from renewable sources by 2020.
• New: Achieve net-zero emissions in our operations by 2030 (interim targets: 10% of emissions compensated by carbon removal in 2021, 50% in 2025).
• New: Continue to reduce energy intensity by an average of 2% per year and maintain 100% renewable power (until 2030, relative to the intensity level of 2018).
• Completed: Require all of our Tier 1 and Tier 2 vendors to be ESG-assessed by the end of 2020.
• New: Create a Vendor Development Programme to be piloted in 2021.
• Now cover 100% of power consumption from renewable sources (page 65).
• First multinational company to introduce a triple-digit internal carbon levy (USD 100) per tonne of CO2, with the goal of increasing it to USD 200 per tonne by 2030 (pages 62‒63).
• Reached our highest employee engagement index (71%) since we started measuring in 2015 (page 79).
• 87% of our employees believe Swiss Re is appropriately assisting employees during the COVID-19 pandemic (page 72).
We consider good corporate governance a key precondition to ensure sustainability throughout the Group’s activities and indispensable to maintaining long-lasting, valuable relationships with our stakeholders. We conduct business ethically and with integrity, applying the principles of our Code of Conduct and complying with all applicable laws.
• Demonstrated commitment to tax transparency including the publication of our tax transparency report (page 86).
• New: By end of 2020 support our existing partners during the COVID-19 pandemic.
• By 2021, aim to have improved financial access to basic healthcare for a total of one million low-income people.
• To achieve the impact goal we are dedicating our key initiative Entrepreneurs for Resilience Award to “Making healthcare financially accessible to low-income people”. We expect to award three social ventures that impact more than 500 000 people (page 89).
• Further roll-out of Pathways, Swiss Re’s mental health network as well as Mosaic, Swiss Re’s network for racial and ethnic diversity (page 78).
• Manage compliance risks through maintaining frameworks, delivery of effective training and awareness to our employees, oversee implementation within the business, and provide assurance of operating effectiveness.
• Formally integrated sustainability-related performance targets into compensation framework (Group Annual Performance Incentive pool funding process) and achieved most of the ambitious targets set. Targets focused on several themes: ranking in the Dow Jones Sustainability Index, alignment of business goals with the Paris Agreement, and an increase in the share of sustainable business volume and services (page 82).
• Provided tailored training and awareness activities to nurture a ‘speak up’ culture, enhance transparency of the compliance investigation process, and provide a reminder of the available reporting channels (page 85).
Operations We apply best-practice standards of resource management to our properties and logistic operations, including business travel, as well as guidelines to our sourcing activities. In doing so, we aim to minimise Swiss Re’s direct environmental impact.
Within these core chapters, the content primarily reflects our three 2030 Sustainability Ambitions and other Sustainability Topics, as shown and described on pages 16 – 21. The activities of the Swiss Re Foundation to foster resilient societies are described in detail in its own Activity Report.
Swiss Re has set up a governance framework to define, implement and monitor our Group Sustainability Strategy. You can find further information about it on page 82, in the “Ensuring good corporate governance and compliance” chapter and on our website.
Furthermore, we continue to report against the Principles for Sustainable Insurance (PSI). Our Public Disclosure of Progress is also available in the online version of the report.
In the online version of our Sustainability Report, you can also find two reference tables showing where content relevant to the Sustainability Reporting Standards as defined by the Global Reporting Initiative (GRI), as well as the Sustainability Accounting Standard for the insurance industry as defined by the Sustainability Accounting Standards Board (SASB), can be found.
In our Financial Report 2020 we provide detailed climate-related disclosures as recommended by the Task Force on Climate-related Financial Disclosures (TCFD).
Our Sustainability Report is an essential part of Swiss Re’s commitment to sustainability and is our primary means of reporting progress on the implementation of our Group Sustainability Strategy. To get the full view of how we provide accountability to all our stakeholders, the Sustainability Report should be read in conjunction with the Annual Report, the report published by the Swiss Re Foundation and additional information available on our website.
The Sustainability Report 2020 covers the whole Swiss Re Group as it was organised on 31 December 2020, ie the publicly listed holding company Swiss Re Ltd, its three Business Units Reinsurance, Corporate Solutions and Life Capital, and all directly or indirectly held subsidiaries. The report covers the calendar year of 2020 and follows the 2019 edition. We plan to maintain our yearly disclosure rhythm and will next report on our sustainability performance in the first quarter of 2022.
Our Sustainability Report incorporates our 2020 Communication on Progress (CoP) for the UN Global Compact. You can view the full list of references to the Compact’s ten principles in the online version of the report.
Our re/insurance solutions help address key environmental and social challenges. We focus on mitigating climate risk and advancing the energy transition, building societal resilience, and driving affordable insurance with digital solutions to advance access to insurance.
We develop our solutions as part of our established risk modelling and underwriting activities or by creating innovative new products in close cooperation with our clients and partners. Thus, our solutions frequently include: • Index-based insurance products: We are a pioneer in creating innovative insurance solutions that use an index to determine payments.
• Climate-related risk analytics, models and tools: Our sustainability solutions for insurance clients improve their current and future performance and provide ground for the development of new products.
• Public-sector partners: Besides direct insurers and corporate clients, we also develop risk transfer solutions for, and in cooperation with, governments and various public-sector organisations.
Our solutions support our clients in their journey towards sustainability. They rely on our models and tools for underwriting, which consider sustainability-related aspects, eg the impact of climate change on floods. Equally, our clients benefit from our digital platforms for launching new products, eg parametric earthquake insurance.
Across our efforts, we seek to develop solutions that improve access to insurance protection, especially in emerging markets. If governments and communities are financially protected against risks such as windstorms, earthquakes, drought and flooding, they can better cope with the immediate consequences of a disaster.
• Swiss Re Corporate Solutions considered a “lead market” for offshore wind risks.
Just as importantly, our solutions help create the conditions for sustained social and economic development because they protect investments, allow governments to stabilise budgets and give people the financial stability required to build and maintain businesses.
Natural catastrophes are a key risk in our property and casualty (P&C) business. The damage caused by storms, floods, droughts, earthquakes and other natural catastrophes can affect millions of lives and the economies of entire countries. In 2020, natural catastrophe losses were largely driven by the Atlantic hurricane season, which included a record 30 named storms, and numerous secondary perils across the globe.
This general trend will continue. But, crucially, economic losses will be further aggravated by climate change. The scientific consensus is that a continued rise in average global temperatures will have a significant effect on weather-related natural catastrophes. According to the Intergovernmental Panel on Climate Change (IPCC)2, a changing climate gradually leads to shifts in the frequency, intensity, spatial extent, duration and timing of extreme weather events.
To assess our P&C business accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the effects of climate change. This is why we invest in proprietary, state-of-theart natural catastrophe models, developed and advanced by a team of more than 40 scientists, as well as from regular collaboration with universities and scientific institutions.
Based on our research, there is a trend towards increasing losses from secondary perils3. These are often highly localised small to mid-sized events, or a resulting effect of a primary peril that can include hurricane-induced rainfall, storm surge, as well as drought and wildfire outbreaks. We explicitly factor the main risk trends into our modelling to underwrite catastrophe business sustainably and build global resilience.
While the impact of climate change will increase gradually over the coming decades, most of our business is renewed and repriced annually, and our risk models are refined regularly. Risks are normally covered for 12 months (up to five years for catastrophe bonds). Thus, re/insurance premiums do not reflect expected loss trends over the coming decades. Rather, for underwriting and risk management purposes, our models provide an estimate of the current risk. But as natural catastrophe losses continue to rise as a result of the different factors listed above, our models will gradually factor in this trend.
Natural catastrophe premiums across Swiss Re Group (USD 3.5 billion in 2019)¹
Natural catastrophe data In the Financial Report 2020, we provide detailed quantitative information on natural catastrophe perils: the five perils with the highest annual expected losses (page 172) and the liquidity requirements stemming from four extreme loss scenarios (insurance risk stress tests, page 71).
Decentralised microenergy networks such as residential solar panels can help boost Puerto Rico’s resilience to energy disruptions caused by storms. But in 2020, one of the leading local providers of residential solar panels and energy storage solutions was struggling to find risk capacity for hurricanes. Swiss Re Corporate Solutions was able to offer a parametric named storm insurance solution for this provider’s solar panels in Puerto Rico. But what really set our solution apart was the fact that it also provided coverage for two important but often overlooked risks: the risk of lost income when a downed power grid prevents the transfer of excess energy back into the grid, and the risk that customers might miss the lease payments on their solar panels following a devastating hurricane.
By providing risk protection for solar panels in Puerto Rico, not only does Swiss Re support our ambition to accelerate the transition to cleaner energy, it also contributes to local communities’ resilience in the aftermath of powerful storms.
To learn more about how the Solar Revenue Put helped our client refinance their portfolio of projects, please refer to page 39 of the Business Report 2020.
For this reason, the government of Mexico has been a leader in managing natural catastrophe risk, having been the first country to issue a catastrophe bond to raise funds for disaster relief and reconstruction efforts in 2006. Since 2009, the government of Mexico has used the World Bank’s International Bank for Reconstruction and Development (IBRD) catastrophe bond issuance platform, whereby sovereigns pass risk to the World Bank, who in turn issues the notes to investors. Swiss Re has long been a trusted partner to the government of Mexico, having helped place nearly all of its catastrophe bond issuances.
In March 2020, the World Bank successfully issued four tranches of catastrophe bonds that provide the government of Mexico with financial protection of up to a record USD 485 million against losses from earthquakes and named storms until 2024. Swiss Re Capital Markets acted as Joint Structuring Agent and Joint Bookrunner and Swiss Re as transformer between Mexico’s state-owned insurer, Agroasemex, S.A., and the World Bank. Payouts to Mexico are triggered when the earthquake or named storm meet the bond’s predefined parametric criteria for location and severity, thus providing faster access to funds when they are needed most.
To learn more about how publicprivate partnerships (PPPs) such as the PEF can support the global response to pandemics, read the interview with Ivo Menzinger, Head Public Sector Solutions EMEA, in the Business Report 2020 (page 25).
In 2018, the Dutch Ministry of Infrastructure and Water Management (Rijkswaterstaat) embarked on a multi-year infrastructure project to renovate the iconic causeway. Key elements of the renovation include raising the height of the dyke, reinforcing its outer wall with specially designed concrete blocks to protect against waves and adding two solar-powered pumping stations to drain water out of Lake Ijssel when natural drainage is not possible. In addition, the Afsluitdijk will serve as a test centre for renewable tidal energy where water emptied from Lake Ijssel meets the Wadden Sea.
To design, build and finance the refurbishment efforts, the Levvel Consortium was selected as the Design, Build, Finance, Maintenance (DBFM) contractor, with Swiss Re Corporate Solutions as the lead provider of
Located in north-eastern India and west of Myanmar, Nagaland is one of the country’s smallest states. Featuring a largely mountainous terrain where agriculture constitutes about 70% of its economy, Nagaland has high levels of humidity and heavy rains in the monsoon months of May to September. As a result, the state is susceptible to damage from heavy rainfall, windstorms/hailstorms, floods and landslides, particularly during the monsoon season.
As Swiss Re’s first disaster risk financing arrangement in India, this transaction marks a positive step towards strengthening the country’s resilience to natural disasters. And as cyclones hit India’s coastal areas in early 2020, the Nagaland transaction also serves as a model for other states looking for similar innovative re/insurance solutions that help protect their significant natural catastrophe exposures.
Drought is the number one threat to farmers around the world and climate change has only exacerbated this risk. Within the last ten years, the frequency and severity of droughts have only increased as the five hottest years on record have all occurred since 2015, with 2020 being the second warmest year behind 2016. Not only do high temperatures and droughts put farmers’ livelihoods at risk, they also make it difficult for farmers to secure suitable insurance cover for their crops: Less than 10% of farmers worldwide have drought insurance.
Soil moisture is also a truly objective indicator that cannot be influenced by the farmer or insurance provider. Swiss Re’s drought insurance solution uses a parametric trigger to determine payouts: If the soil moisture deficit reaches a certain predefined level, the farmer is compensated immediately, eliminating the need to make time-consuming loss adjustment calculations in the field. The entire process is fully digitised and runs on Swiss Re’s Opti-Crop web-based index tracker, which provides both farmers and insurers with real-time soil moisture data, making the solution transparent, cost-effective and scalable.
An estimated 10 million farmers in Vietnam, many of them smallholders, rely on agricultural outputs for their livelihoods. At the same time, Vietnam’s extensive coastline makes it particularly susceptible to tropical cyclones and coastal flooding, threatening food security, farmers’ livelihoods and one of the country’s main agricultural exports: rice. With harvests of up to 45 million tonnes of rice per year, Vietnam is the world’s second largest rice exporter. For this reason, the ability to monitor the health of its rice crops is critical to Vietnam’s economy.
Many of our efforts to expand insurance protection cover losses from natural catastrophes and weather volatility, such as tropical cyclones, drought or excessive rainfall. As climate change is predicted to increase these losses, such transactions also help communities strengthen their climate resilience. Furthermore, we have found that partnering with public-sector clients, especially national and regional governments, is an effective way to develop solutions.
Building on these experiences, we made a significant commitment to the United Nations at its Climate Summit in September 2014. Personally addressing the government leaders present at the summit, our then