What changed this year: You can now find the following content in our 2019 Business Report: • Message from the Chairman • Message from the Group CEO • Market trends • Our role in society • Our strategy • Sustainability
Swiss Re delivered a Group net income of USD 727 million, driven by a strong Life & Health Reinsurance result and excellent investment performance.
Economic growth in emerging Asian markets continued to outperform growth in other regions, despite slowing for the second consecutive year. Real GDP growth in India and China decelerated but remained above the 6% mark in China, at 6.1%, in 2019. Accommodative monetary policy and fiscal measures in China cushioned the drag from the weakening global economic backdrop. Growth in Central and Eastern Europe slowed slightly along with Western European markets, but remained firmly above trend in EU member states. Russia’s economy, however, slowed down abruptly, with GDP growth almost halving compared with 2018 to 1.2%. In Latin America, significant deceleration in Mexico and softening in Brazil drove slower growth in the region. Finally, political and economic crises kept some emerging countries in recession, including Turkey, Argentina and Venezuela.
Headline inflation moderated in most markets, tempered by lower oil prices. While underlying inflation (excluding energy prices) was mostly subdued in developed economies, it was more buoyant in the US, in line with strong income growth and tight labour markets. For instance, US real disposable personal income was up 2.9% in 2019, above the 2.7% average since 1990.
In emerging markets, central banks also joined the easing trend with the central banks of Russia, Turkey, South Africa, Indonesia, Brazil and Mexico cutting interest rates amid weak growth and falling inflation. Despite a rise in inflation towards the 3%-target at year-end, China’s central bank eased monetary policy to cushion the adverse impact from slowing external demand.
The U-turn in monetary policy led to a sharp downtrend in long-term bond yields across the globe. The US 10-year yield closed the year at 1.9%, down by almost 80 basis points compared with the previous year. Yields in the Euro area also declined significantly, dipping into negative territory. The German 10-year government bond yield ended the year at –0.2% and the UK yield closed at 0.8%. The Japanese yield ended the year at 0%.
– United States (S&P 500) – United Kingdom (MSCI UK) – Europe (Euro Stoxx 50) – Japan (TOPIX) – Switzerland (SMI) Source: Datastream
However, political and policy uncertainties led to repeated setbacks. Trade tensions between the US and China ebbed and flowed throughout the year, with a number of surprise tariff announcements keeping market participants on their toes. In Italy, the governing coalition broke down and was replaced by a new government. Meanwhile, uncertainty around Brexit peaked after Theresa May stepped down as Prime Minister, resulting in an escalation of no-deal risk before a notable de-escalation towards the end of the year.
US Eurozone UK Japan China 1 Yearly average 2 Year-end 3 USD per 100 units of foreign currency 4 German 10-year Bund yield
US stocks ended the year up 29%. Other major indices also fared well. The Swiss Market Index rose 26% over the year, the Eurostoxx50 was up 25%, the Japanese TOPIX rose 16% and the MSCI UK increased 11% (see stock markets chart).
We expect the outbreak of the novel coronavirus to lead to significant disruptions in economic activity, causing a global recession with global growth well below 1% in 2020. The main negative economic impact is likely to result from the measures to contain the further spread of the virus and a strong tightening in funding conditions. Several sectors such as hospitality, travel and manufacturing are likely to face particularly negative economic consequences. Even economies that are not directly affected by the outbreak will be hit by disruptions in the global supply chain and weaker global demand. While there is considerable uncertainty around the impact of the pandemic, our baseline scenario is for economic activity to normalise gradually going into 2021. However, a wider-thanexpected global spread of COVID-19 could result in an even more protracted global economic recession.
While downside risks dominate, we also see upside potential to our baseline forecast from continued macroeconomic policy support and a de-escalation in the trade conflict. A more positive scenario of stronger growth and contained inflation would be beneficial for the re/insurance industry. Investment yields would improve, albeit only slowly, and premium volumes would rise, along with economic activity.
Market overview The global primary non-life industry generated around USD 2 400 billion of premium income in 2019, of which 22% came from emerging markets. Non-life insurance ranges from standardised motor and household to sophisticated tailor-made liability and property covers, including specialty, commercial and industrial risk insurance.
Market performance Premiums rose modestly in most countries and regions in 2019 on the back of moderating economic growth. Global non-life premiums were up an estimated 3% in real terms, after a similar 3% gain in 2018.
Market outlook Against the backdrop of an expected slowing global economy in 2020 and 2021, demand for non-life insurance is expected to increase only moderately, but premium growth will be further supported by positive rate developments.
The profitability outlook remains challenging. We believe interest rates will continue to be very low, with 10-year US Treasury yields likely to remain below 1% over the next two years. As such, any improvement in sector profitability will depend on underwriting performance, highlighting the need for more rate increases and improved underwriting discipline.
Market overview Global non-life reinsurance premiums in 2019 totaled about USD 190 billion, with 28% coming from ceding companies in emerging markets. In general, reinsurance demand is a function of the size and capital resources of primary insurance companies, as well as of the risk profile of the insurance products provided.
Market performance We estimate that global premiums in non-life reinsurance grew by around 2% in real terms in 2019, with moderate expansion and stable reinsurance demand in both emerging and advanced markets.
The reinsurance industry currently faces mixed trends. The sector’s capital base remains very strong, allowing reinsurers to fulfill their role as the backbone of the primary insurance industry and to support the resilience of societies, businesses and households. The capital position of global reinsurers, the traditional source of capital, went up around 5% to approximately USD 360 billion during 2019. However, the alternative capital sector exhibited its first decline in capacity in 2019, after several years of soaring capital inflows. The capital base went down by 7% to below USD 90 billion at the end of 2019 from USD 95 billion at the end of 2018 due to loss payments and investors withdrawing funds.1
At the same time, the reinsurance industry experienced a third year of elevated insurance losses. While 2017 and 2018 were mainly impacted by natural catastrophes, the 2019 claims experience was driven by a broader range of significant losses, including heavy natural catastrophes, loss creep from previous year’s catastrophes, man-made disasters such as the Ethiopian Airlines crash and subsequent Boeing 737 MAX fleet grounding, the collapse of the tour operator Thomas Cook, and increasing claims in US liability insurance.
Market performance Estimated global premium growth in 2019 1 Source: Guy Carpenter, 2020 renewal briefing, January 2020
Market overview The global primary life insurance industry generated about USD 2 800 billion in premium income in 2019, of which 20% came from emerging markets. Around 85% of premium income in life insurance is derived from savings and retirement products. The protection business covers a broad spectrum of mortality and morbidity risks.
Market performance We estimate that global primary life insurance premiums grew by 2% in real terms in 2019, slightly below the average annual growth rate of the last five years. Premium growth in advanced markets remained sluggish: it stagnated in real terms in Europe and advanced Asia Pacific, but expanded in North America, driven by strong annuity sales in the US.
Market outlook The business outlook for life insurance is clouded by the increasing likelihood of a deeper global recession. In particular, sales for savings-related insurance policies are likely to decrease in 2020, while protectionrelated business is expected to remain more stable.
Market outlook Premium income of life reinsurers are expected to be negatively impacted by declining premiums in primary life in 2020. However, ongoing turmoil in the financial markets could increase the demand for specific risk transfer transactions to bolster balance sheets of primary life insurers.
Total shareholders’ equity as of 1 January 34 124 27 930 –18 Net income attributable to common shareholders 421 727 73 Dividends –1 592 –1 659 4 Change in unrealised gains/losses on securities, net –2 841 3 247 – Change in other-than-temporary impairment, net of tax –1 2 – Change in foreign currency translation –356 110 – Purchase/sale of treasury shares and share based payments –1 402 –1 166 –17 Other changes in equity –423 60 – Total shareholders’ equity as of 31 December 27 930 29 251 5 Non-controlling interests 797 1 786 124 Total equity as of 31 December 28 727 31 037 8
Short-term investments 5 417 5 768 6 Investments for unit-linked and with-profit business 29 546 520 –98 Cash and cash equivalents 5 985 7 562 26 Deferred acquisition costs 8 217 7 838 –5 Acquired present value of future profits 1 818 1 042 –43
Other reinsurance liabilities 15 865 17 775 12 Short-term debt 1 633 185 –89
Non-controlling interests 797 1 786 124 Total equity 28 727 31 037 8 1 Please refer to Note 11 “Assets held for sale” for more details.
Our 2019 results were impacted by heavy natural catastrophe losses, our decisive management actions to reposition Corporate Solutions and increased claims in US casualty. On the other hand, we delivered an excellent investment result and strong performance in L&H Re, demonstrating the power of our diversified business model.
An integral part of the Group strategy relies on monetising our research and development (R&D) capabilities, thereby cementing Swiss Re’s position as the leading risk knowledge company. We are running 80 R&D programmes with 450 dedicated FTEs and investing about USD 300 million a year in key technology projects. The aim is to strengthen Swiss Re’s proprietary risk knowledge and to advance our capabilities to enter new risk pools, compete and advise. In particular, platforms such as iptiQ, the digital B2B2C business, and Magnum, the leading automated underwriting solution for L&H Re, are becoming a significant business driver.
Net premiums and fees earned by business segment, 2019 50% P&C Reinsurance 34% L&H Reinsurance 11% Corporate Solutions 5% Life Capital 50% P&C Reinsurance 34% L&H Reinsurance 11% Corporate Solutions 5% Life Capital 1 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”.
L&H Re contributed a net income of USD 899 million in 2019, up from USD 761 million in 2018. The underwriting result included a negative adjustment to the carrying value of an existing treaty, which had to be fair valued following the acquisition of Old Mutual Wealth Life Assurance Limited by ReAssure from Quilter plc. This was partially offset by active portfolio management and improved mortality development in the Americas. The net operating margin increased to 10.0% in 2019 from 9.4% in the previous year.
Business performance Net premiums earned and fee income for the Group amounted to USD 38.6 billion for 2019, an increase of 12.0% year-on-year. At constant exchange rates, net premiums earned and fee income increased by 15.0%.
Investment result and expenses The Group’s investment portfolio, excluding unit-linked and with-profit investments, increased to USD 134.5 billion at the end of 2019, from USD 122.6 billion at the end of 2018. The increase was largely driven by the impact of declining interest rates and credit spread tightening, as well as favourable foreign exchange movements.
2 Gross cash generation is the estimated net cash arising from business activity within the Life Capital Business Unit during the reporting period taking into account both surplus development and certain capital actions. It is calculated gross across both Swiss Re’s and MS&AD Insurance Group Holdings Inc’s interest in ReAssure.
Climate change impacts As the world watches the number of major devastating weather events tick upward, we see the knock-on effects of events like wildfires, drought and floods contribute to an ever-growing protection gap. These so-called “secondary perils” can either spin off from a “primary peril” like a hurricane or earthquake, making such natural disasters even more dangerous, or result from more weather extremes linked to prolonged hot spells or heavy rain. They show no mercy and wreak havoc every year on the millions of households and businesses in their path.
These dangers are of particular concern in the world’s growing cities and densely populated areas which are exposed to rising temperatures and heavier precipitation. In recent years, such events accounted for more than half of all insured natural catastrophe losses.
Resilience is at the heart of our strategy The strategy of Swiss Re’s Reinsurance Business Unit is focused on differentiation, which is driven by three key assets: 1. Direct access to our clients, in particular our C-Suite access, which allows us to understand their specific needs and deliver tailored solutions.
2. Our risk knowledge, built up over more than 150 years, which helps us build actionable solutions to close existing and growing protection gaps.
Keeping our edge, now and in the future These are challenging times for our industry, and we need to be a step ahead of risk, predicting loss trends and providing a compelling risk-return balance for our capital providers. We continue to focus on capital allocation to risk pools and on extending the reach of our products, to make them more accessible and inclusive and help to close the protection gap.
Property & Casualty Reinsurance Property & Casualty Reinsurance (P&C Re) reported a net income for 2019 of USD 396 million compared with USD 370 million in 2018. The result reflected large natural catastrophe and man-made losses of USD 2.3 billion as well as proactive measures to address ongoing trends in US casualty. This was balanced by profitable business growth, driven by large transactions and growth in natural catastrophe business, as well as by a very strong investment result. The large natural catastrophe losses were mainly driven by typhoons Hagibis and Faxai in Japan, Hurricane Dorian in the Atlantic and wildfires, floods and hailstorms in Australia. The result was further impacted by late claims development for Typhoon Jebi. In addition, large man-made losses included the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet. The net operating margin decreased from 4.3% to 3.8%.
The investment result increased by 68.8% to USD 2.3 billion, driven by gains on sales of fixed income securities and market value gains on equity securities. The return on investments was 4.3%.
Lines of business The property combined ratio increased to 101.3% in 2019, compared with 99.9% a year earlier. While both periods were impacted by large natural catastrophe losses, the deterioration was driven by an adverse prior-year development in 2019, mainly due to late claims from Typhoon Jebi, partly compensated by reserve releases from large losses.
Expenses Claims and claim adjustment expenses –11 614 –14 783 27
Investment result The return on investments was 4.3% for 2019, up from 2.4% in 2018, reflecting an increase in the investment result of USD 1 080 million, mainly driven by additional net realised gains.
Net investment income increased by USD 36 million to USD 1 310 million for 2019, driven by a higher invested asset base.
Net realised gains, were USD 985 million for 2019 compared with net realised losses of USD 63 million for the prior period. The increase was driven by both additional gains on sales of fixed income securities and market value gains on equity securities, given strong equity market performance.
Outlook Renewals of loss-affected natural catastrophe business in January 2020 experienced favourable rate increases. Property insurance rates are generally hardening for business exposed to tropical cyclones and in loss-affected areas. In other areas the rates are broadly stable.
The Business Unit continues to see some good opportunities for transactions and will participate in those that meet its return requirements.
Life & Health Reinsurance Life & Health Reinsurance (L&H Re) reported a strong net income for 2019 of USD 899 million, compared with USD 761 million in 2018. The underwriting result included a negative adjustment to the carrying value of an existing treaty, which had to be fair valued following the acquisition of Old Mutual Wealth Life Assurance Limited by ReAssure from Quilter plc, reflecting the decrease in interest rates since treaty inception. As a result, L&H Re rebalanced its asset portfolio, realising gains of a similiar magnitude. Excluding this adjustment, the underwriting result was higher than in 2018, driven by active portfolio management and improved mortality developments in the Americas.
Premiums Net premiums earned and fee income in 2019 increased by 1.3% to USD 13.0 billion from USD 12.8 billion for the prior year. Gross premiums written decreased by 0.5% to USD 14.5 billion, reflecting unfavourable foreign exchange movements and the termination of an intra-group retrocession agreement with Life Capital. Adjusting for these two items, gross premiums written increased by 5.6%.
Lines of business Income before interest and income tax (EBIT) for the life segment decreased to USD 581 million for 2019, from USD 720 million in the prior year. The result in 2019 was adversely impacted by the carrying value adjustment following the acquisition of Old Mutual Wealth Life Assurance Limited by ReAssure. Excluding this item, the result benefited from active portfolio management and improved mortality developments in the Americas.
EBIT for the health segment was USD 258 million in 2019, compared with USD 355 million in the prior-year period. The 2019 result reflected the impact from an update of the assumptions for the Group business in Asia, experience and model improvements in EMEA and increased operating expenses in line with premium growth.
Income before interest and income tax expense 1 367 1 491 9 Interest expenses –410 –445 9 Income before income tax expense 957 1 046 9 Income tax expense –155 –147 –5 Net income before interest on contingent capital
Return on equity was 12.4% in 2019, up from 11.1% in 2018.
Swiss Re will continue to pursue growth opportunities in high-growth markets and in large transactions, including longevity deals. L&H Re is responding to the expanding need for health protection driven by ageing societies, and is applying its risk knowledge to help reduce the protection gap in all regions.
Since the emergence of the SARS-CoV-2 coronavirus, we observe changes in the volumes of new business sales in some markets due to the reduced personal interaction between consumers and sales agents. The situation is changing rapidly and Swiss Re is closely monitoring developments.
Performance Net loss was USD 647 million in 2019 with a net operating margin of –16.7%, compared with a net loss of USD 405 million in 2018 with a net operating margin of –11.1% for the previous period. The 2019 result reflected management actions to address underperformance and increased claims in US casualty business. It was also impacted by a high frequency and severity of large and medium-sized man-made losses, mainly from the prior accident years, with a claims burden of USD 1.1 billion. The investment result was higher year-on-year, mainly due to realised gains from sales of fixed income securities and market value gains on equity securities. The 2019 result was supported by higher realised gains from insurance in derivative form. From 1 July 2019, Corporate Solutions entered into an Adverse Development Cover (ADC) with Property & Casualty Reinsurance to protect accident years 2012–2018 across its portfolio.
Lines of business The property combined ratio for 2019 improved by 1.3 percentage points to 116.6%, driven by lower natural catastrophe losses, partially offset by higher man-made losses.
Loss before interest and income tax expense –460 –761 65 Interest expenses –24 –40 67 Loss before income tax expense –484 –801 65 Income tax expense/benefit 75 143 91 Net loss before attribution of non-controlling interests –409 –658 61 Income attributable to non-controlling interests 4 11 175 Net loss attributable to common shareholders –405 –647 60
Outlook Market momentum substantially accelerated throughout 2019. Terms and conditions tightened in parallel. Swiss Re expects the positive momentum in commercial insurance rates to continue after achieving a broad-based 12% price quality increase in 2019 (17% in the fourth quarter), which we expect will have a positive effect on the Business Unit’s profitability. Further rate hardening is required until the price level is sufficient across all lines of business. Corporate Solutions expects to realise the benefits from the 2019 management actions in its financial results in 2020 and 2021.
Strategy and priorities During 2019, Life Capital further accelerated its transition to a dynamically growing, digital B2B2C business.
2019 was a pivotal year for Life Capital. With the agreement to sell ReAssure, we took a definitive step in our transition to a B2B2C business focused on making insurance more accessible and affordable for people globally – both through our digital platform iptiQ and our Group Life & Health business, elipsLife.
Life Capital paid a dividend of USD 0.5 billion to the Group in October 2019.
Premiums Gross premiums written in the open book businesses increased by 22% during 2019 when measured at constant exchange rates. Net premiums earned and fee income increased to USD 2.1 billion during 2019 from USD 1.6 billion in the prior year, driven by growth in the open book life and health insurance businesses, combined with the net impact of intra-group retrocessions and foreign exchange movements.
Investment result The return on investments was 3.7% for 2019, compared with 3.3% in 2018, reflecting an increase in the investment result of USD 57 million.
Revenues Gross premiums written 2 739 2 831 3 Net premiums written 1 175 1 780 51 Change in unearned premiums –3 –82 – Premiums earned 1 172 1 698 45 Fee income from policyholders 434 451 4 Net investment income – non-participating business 1 256 1 193 –5 Net realised investment gains/losses – non-participating business 66 18 –73 Net investment result – unit-linked and with-profit business –1 560 4 821 – Other revenues – 1 –
Income before interest and income tax expense 113 81 –28 Interest expenses –41 –72 76 Income before income tax expense 72 9 –88 Income tax expense –26 –133 – Net income/loss before attribution of non-controlling interests 46 –124 – Income attributable to non-controlling interests –23 –53 130 Net income/loss attributable to common shareholders 23 –177 –
At present the scale and impact of the SARS-CoV-2 coronavirus outbreak does not appear to be great enough to cause significant mortality or morbidity impacts, but the situation is still changing rapidly. However, the Business Unit anticipates impacts on new policies written in some markets as sales activity is affected. Life Capital is closely monitoring this as the situation continues to unfold.
Edouard Schmid Group Chief Underwriting Officer and Chairman Swiss Re Institute
Competitive advantage in underwriting Distinctive knowledge and insights into insurance risk pools and individual risks have been the bedrock of Swiss Re’s underwriting outperformance for more than 150 years, and cutting-edge research and development (R&D) continues to underpin the evolution of our capabilities and client offerings. Technological progress has opened up new opportunities to advance our expertise. Access to more and better data, advanced analytics and a strong talent base allow Swiss Re to create new insights at an ever-accelerating pace.
Deep risk insight coupled with a data- driven ability to assume forward-looking perspectives on insurance risk pools allows Swiss Re to allocate risk capital to the mutual benefit of our clients and shareholders, as well as society in the broader sense. Strategic investments in targeted R&D activities form the basis for continued underwriting excellence and position Swiss Re as a market-leading knowledge company.
Underwriting performance in 2019 The Group’s overall underwriting performance in 2019 was impacted by higher-than-expected large natural catastrophe and man-made losses. Normalised for large losses, the Group’s underwriting results are solid and bear testimony to our risk selection capabilities and the strong diversification of our business. In property and casualty, higher large loss burden and adverse prior-year development were balanced with profitable business growth, particularly in the natural catastrophe business. The Group’s total property and casualty claims payments in the amount of USD 18.7 billion helped individuals, businesses and communities rebuild in the aftermath of natural catastrophe and man-made events. Underlying underwriting performance in life and health was strong, offsetting the adverse impact from carrying value adjustments and the charge related to the agreement to sell ReAssure. Total life and health benefits amounted to USD 13.1 billion, up from USD 11.8 billion in 2018.
Swiss Re is well positioned to support our clients in addressing these challenges by utilising cutting-edge underwriting R&D, innovative risk transfer solutions and a strong balance sheet.
Market environment and outlook Going into 2020, we expect the outbreak of the SARS-CoV-2 coronavirus, and the related illness, COVID-19, will lead to significant disruptions of economic activity and a global recession in 2020. While there is considerable uncertainty around the virus spread, our baseline scenario is for economic activity to normalise during the second half of the year and into 2021. For our baseline, insurance premiums are nevertheless expected to grow by around 3% in real terms, with emerging Asia powering global industry growth. China, India and other Asian markets continue to expand, based on significant protection gaps in those markets. Government initiatives and industry efforts increasingly seek to close those gaps. Swiss Re aims to be at the forefront in this area to help reduce the barriers to supply and demand that currently hinder insurance uptake.
Looking at specific asset classes, government bond yields declined significantly across multiple regions in 2019. In August 2019, the US Treasury yield curve briefly inverted for the first time since 2007 and sovereign bond yields hit all-time lows in various countries, with further expansion of negative-yielding debt. Equities rose sharply throughout 2019 following the large declines at the end of the prior year, predominantly due to the accommodative monetary policy. The S&P 500 index hit all-time highs and ended the year up 29%, further supported by optimism regarding the US-China “phase one” trade deal. Investment-grade corporate credit spreads tightened notably during the year.
Investment result The Group’s investment portfolio, excluding unit-linked and with-profit investments, increased to USD 134.5 billion at the end of 2019, from USD 122.6 billion at the end of 2018. The increase was largely driven by the impact of declining interest rates and credit spread tightening as well as favourable foreign exchange movements.The return on investments for 2019 was 4.7%.
The Group reported non-participating net realised investment gains of USD 1.6 billion in 2019, compared with USD 0.1 billion in 2018, as the current year benefited from significant market value gains within the equity portfolio, as well as additional gains from sales within the fixed income portfolio.
Outlook Global economic growth is expected to slow significantly in 2020 due to the SARS-CoV-2 coronavirus pandemic, with several G7 countries at risk of a recession during the year. Central banks are likely to cut policy rates further and stay very accommodative in this environment of elevated uncertainty. The US Federal Reserve has already enacted two surprise interest rate cuts for a total of 150bp in March. On the policy front, the attention is also on the fiscal policy responses that are currently being discussed.
Besides the rapidly evolving coronavirus situation, other important themes for 2020 include the continued trade policy uncertainty and the US presidential elections.
Dividends The Board of Directors proposes a regular dividend of CHF 5.90 per share for 2019. The dividend paid for 2019 will be subject to 35% Swiss withholding tax.
The Board of Directors proposes to the 2020 AGM to authorise the company to repurchase own shares for the purpose of cancellation by way of a public share
Share price performance Swiss Re shares opened the year at CHF 89.38. An intra-day high of CHF 110.45 was achieved on 27 December 2019. On 3 January 2019, the shares experienced an intra-day low of CHF 88.90. The year-end share price was CHF 108.70.
During 2019, the STOXX Europe 600 Insurance index (SXIP) increased by 24.4% and the broader index of Swiss blue chips (SMI) increased by 25.4%. The Swiss Re share increased by 20.6%.
Swiss Re’s dividend policy Swiss Re’s dividend policy is a central element of Swiss Re’s capital management priorities.
Dividends are typically paid out of current earnings and Swiss Re pays its dividend annually. Shares are ex-dividend two working days after the Annual General Meeting (AGM). Dividend payment is
1 Swiss Re’s ADR are not listed but traded over the counter; four ADRs correspond to one Swiss Re share.
Information for investors More information is available on Swiss Re’s website: www.swissre.com/investors
Swiss Re reported a total contribution to economic net worth (ENW) of USD 2.9 billion in 2019, compared to USD 2.2 billion in 2018. On a risk-adjusted basis, Swiss Re reported an EVM loss of USD 19 million in 2019, compared to an EVM loss of USD 693 million in 2018.
The power of Swiss Re’s diversified business model is highlighted by our EVM results.
The EVM profit on new business was USD 1.2 billion, compared to USD 356 million in 2018. The 2019 result was mainly driven by a strong new business result in Life & Health Reinsurance and the estimated profit on the agreement to sell ReAssure in Life Capital, partially offset by the Property & Casualty Reinsurance new business result following large natural catastrophe losses and adverse industry trends in US casualty business.
Economic net worth per share growth, %1 4.4 8.2 Profit margin − new business, % 1.2 3.0 Profit margin − previous years’ business, % 3.5 −14.2 Profit margin − investments, % −18.3 21.8 1 ENW per share growth is calculated as follows: (current-year closing ENW per share + current year dividends per share) ÷ (prior-year closing ENW per share + current year opening balance sheet adjustments per share).
Business segment performance Property & Casualty Reinsurance reported an EVM loss of USD 1.4 billion in 2019, compared to a profit of USD 199 million in 2018. The EVM loss on new business of USD 209 million was driven by large natural catastrophe losses, mainly due to typhoons Hagibis and Faxai, Hurricane Dorian as well as proactive measures to address ongoing trends in US casualty and losses under the Adverse Development Cover with Corporate Solutions. The 2018 EVM loss of USD 430 million included large losses from typhoons Jebi and Trami in Japan, hurricanes Florence and Michael in the US as well as wildfires in California. The EVM loss on previous years’ business of USD 1.8 billion was due to the update of capital costs, late claims for Typhoon Jebi, the impact of adverse trends for US casualty business as well as the Ethiopian Airlines crash and the subsequent Boeing 737 MAX grounding. Investment activities generated an EVM profit of USD 627 million in 2019, compared to a loss of USD 68 million in 2018. The 2019 EVM profit reflected strong performance across equity and alternative investments as well as the impact of credit spread tightening. The 2018 EVM loss was driven by credit spread widening as well as losses from equities, partially offset by positive performance from alternative investments.
The EVM loss on previous years’ business of USD 272 million included the impact of adverse mortality assumption updates in the Americas and unfavourable morbidity assumption updates and experience in Asia, partially offset by a favourable impact from the restructuring of intra-group retrocession agreements and several modelling and assumption updates. Investment activities generated an EVM profit of USD 739 million driven by the impact of credit spread tightening as well as positive equity performance. The 2018 EVM loss of USD 625 million reflected the impact from unfavourable interest rate movements on the net duration position, as well as credit spread widening.
Group items reported an EVM loss of USD 184 million in 2019, compared to a loss of USD 649 million in 2018. The EVM loss on new business was USD 190 million in 2019, mainly driven by capital costs on excess capital and overhead expenses, partially offset by trademark licence fees charged to the business segments. The EVM profit on previous years’ business was USD 11 million, mainly driven by lower overhead expense assumptions. Investment activities generated an EVM loss of USD 6 million in 2019, compared to a loss of USD 398 million in 2018, reflecting an improved performance from Principal Investments in 2019.
Premiums and fees retention rate, % 97.9 97.9 Premiums and fees growth rate, % 7.5 30.2
Net underwriting result – new business 2 341 3 485 Taxes −415 −607 Capital costs −1 570 −1 672 EVM profit – new business 356 1 206 EVM profit – previous years’ business 638 −3 293 EVM profit – underwriting 993 −2 087 Investment result Mark-to-market investment result 895 9 565 Benchmark investment result −1 702 −5 645 Gross outperformance (underperformance) −808 3 920
Profit margin – new business, % 1.2 3.0 Profit margin – previous years’ business, % 3.5 −14.2 Profit margin – investments, % −18.3 21.8
Economic net worth as of 1 January 37 667 35 993 Total contribution to ENW 2 166 2 932 Dividends and share buyback −2 939 −2 590 Other, including foreign exchange on economic net worth −901 −197 Economic net worth as of 31 December 35 993 36 138 Common shares outstanding as of 31 December 300 044 141 290 654 942 Economic net worth per share in USD as of 31 December 119.96 124.33
Net underwriting result – new business 334 2 656 432 182 −119 0 3 485
Total liabilities and economic net worth 81 531 291 122 18 038 103 802 8 860 −105 210 398 142
Economic net worth as of 1 January 12 913 12 377 2 454 3 270 4 979 35 993
Comparison of EVM and US GAAP The most significant differences between EVM and US GAAP are as follows: • Discounting: For EVM, all future expected cash flows are discounted using risk-free interest rates. Under US GAAP, most property and casualty reserves are undiscounted (except for reserves acquired in business combinations), whereas life and health reserves are usually discounted based on book yields.
• Investments and debt: For EVM, all investments and debt positions are carried at fair value. Under US GAAP, different treatment applies for certain investments (eg real estate is held at depreciated cost) and debt is carried at amortised cost rather than at fair value.
• Reserving basis: For EVM, bestestimate current assumptions are used for all re/insurance reserves. Under US GAAP, life and health assumptions, including book yield discounting assumptions, are usually locked in and can include a provision for adverse deviation.
• Taxes: For EVM, deferred tax assets and liabilities are recognised for temporary differences between US GAAP and EVM.
Recognition differences −44 −168 −62 −125 −399 Goodwill and other intangibles −1 962 −1 836 −370 −159 −603 −4 930
All other EVM information included in, or made available outside, the Company’s 2019 Annual Report was not subject to assurance procedures and, accordingly, we express no conclusion on this information.
The reporting criteria used by the Company are described in the significant EVM principles (hereafter referred to as “EVM principles”) as published on the Company’s website (swissre.com/EVM_principles).
We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our assurance conclusion.
Based on the Group’s capital strength, the Board of Directors proposes a 2019 regular dividend of CHF 5.90 per share. In addition, the Board of Directors proposes a further public share buyback programme at the discretion of the Board of Directors and subject to obtaining all necessary legal and regulatory approvals.
Liquidity Our core insurance and reinsurance operations generate liquidity primarily through premium income. Our exposure to liquidity risk stems mainly from two sources: the need to cover potential extreme loss events and regulatory constraints that limit the flow of funds within the Group.
The amount of liquidity held is largely determined by internal liquidity stress tests, which estimate the potential funding requirements stemming from extreme loss events. Based on these internal
Financial strength Swiss Re maintained a strong capital position during 2019 despite significant loss events. The Group’s capital position remains very strong with a Group Swiss Solvency Test (SST) ratio of 232% as of 1 January 2020, which remains above Swiss Re’s target capitalisation of 220%. Rating agencies A.M. Best, Moody’s and Standard & Poor’s (S&P) rated Swiss Re’s financial strength ‘superior’, ‘excellent’ and ‘very strong’, respectively. This capital strength enables Swiss Re to support its clients while continuing to return capital to shareholders.
liquidity stress tests, we estimate that Swiss Reinsurance Company Ltd, the most important legal entity of the Group from a liquidity perspective, currently holds significant surplus liquidity.
Risk Management is embedded throughout Swiss Re’s business. The Group has dedicated Chief Risk Officers and risk teams for all major legal entities and regions. These are closely aligned to Swiss Re’s business structure, in order to ensure effective risk oversight, but remain part of the Risk Management function under the Group CRO, thus ensuring their independence as well as a consistent Group-wide approach to overseeing and controlling risks. They are supported in this by central risk teams that provide specialised risk expertise and oversight.
Higher life and health risk mainly reflects the impact of lower interest rates and business growth.
Deploy capital for business growth where it meets our strategy and profitability targets
Based on current SST rules introduced in 2017, the ratio is calculated as SST risk-bearing capital (SST RBC) minus market value margin (MVM), divided by SST target capital (SST TC) minus MVM.
Swiss Re’s Group SST 2020 ratio does not reflect the agreed sale of ReAssure Group plc to Phoenix Group Holdings plc expected to close in mid-2020. The transaction is estimated to increase the SST ratio by 12 percentage points.
SST risk-bearing capital (SST RBC) The SST RBC is derived from the SST net asset value (NAV), which represents the difference between the market-consistent value of assets and liabilities according to the valuation methodology prescribed under SST. For this purpose, the SST NAV is adjusted for the items in the table below.
Changes to the SST NAV mainly include economic capital generation or depletion due to underwriting and investment activities, foreign exchange movements, and capital management actions (such as dividend payments and share buyback programmes).
SST risk-bearing capital – market value margin 40 637 41 873 1 236 SST target capital – market value margin 16 188 18 021 1 833 SST ratio 251% 232% –19pp
• The Life Capital underwriting contribution to SST NAV is negative, driven by expenses incurred for growing the open book businesses and underperformance of elipsLife.
The contribution from investment activities is positive, mainly driven by the impact of credit spread tightening and positive performance across equities and alternative investments.
Supplementary capital is recognised as risk bearing under SST. The change in SST supplementary capital of USD 1.8 billion mainly reflects the issuance of one new senior and the replacement of two subordinated debt instruments.
A description of the change in market value margin, which represents the capital costs for the run-off period, is provided together with the SST target capital comments below.
In 2017, FINMA approved Swiss Re’s internal model and its components for SST reporting purposes under their revised model review process. As a result of the material review on credit risk conducted by FINMA in 2018, Swiss Re implemented a minor update to the credit risk module, which has negligible impact on the credit risk figures. In 2019, FINMA conducted a material review of the Tropical Cyclone North Atlantic model, which was approved for use without conditions.
• Foreign exchange risk – The removal of contingent foreign exchange risk has no material impact on risk figures. In addition further model currencies were introduced commensurate with business growth in the respective areas.
The risk exposure basis for SST is a projection for the period from 1 January 2020 to 31 December 2020 and is based on the economic balance sheet as of 31 December 2019 and adjustments to reflect 1 January 2020 business shifts.
SST TC increases to USD 27.4 billion due to an increase in the market value margin (reflected under “Other impacts”) and higher total risk driven by increased insurance risk (see Risk assessment p. 67 for details).
SST target capital – market value margin 16 188 18 021 1 833
Cash dividends paid from each business unit to SRL (USD bn)
14.0 Reinsurance P&C 3.2 Reinsurance L&H 1.8 Corporate Solutions 4.2 Life Capital
USD19.8bn distribution to shareholders2 1 Principal Investments has paid to Group dividends of USD 1.0bn between January 2013 and December 2019. 2 Reflects total external dividend and public share buyback programmes between January 2013 and December 2019.
Consistent with the established capital management priorities, the Board of Directors proposes a further public share buyback programme of up to CHF 1.0 billion purchase value. In light of the recent volatility in the financial markets, the Board will evaluate the appropriateness of launching the share buyback programme in the second half of 2020.
The Group also reinvested into the business by redeploying capital into the Business Units. The majority of this capital was allocated to grow profitable business.
On 16 December 2019, Moody’s affirmed Swiss Re’s insurance financial strength rating and outlook as “Aa3” stable. The rating reflects Swiss Re’s excellent market position, extensive diversification by line of business and geography, very strong capital adequacy and good reserve adequacy.
On 20 December 2019, A.M. Best confirmed the Group Swiss Re Financial Strength Rating of A+ (Superior) with stable outlook. The rating reflects A.M. Best’s assessment of Swiss Re’s balance sheet strength as “strongest”, strong operating performance, very favourable business profile and very strong enterprise risk management.
As of 31 December 2019 Financial strength rating Outlook Last update
Standard & Poor’s AA– Stable 18 October 2019 Moody’s Aa3 Stable 16 December 2019 A.M. Best A+ Stable 20 December 2019
Despite the increase in on-balance sheet leverage through 2019, the Group’s leverage is comfortably under the senior and subordinated leverage targets at 10% and 16%, respectively. The expected deconsolidation of the ReAssure Group upon closing of the sale to Phoenix Group Holdings Plc in mid-2020 will further reduce the Group’s subordinated leverage which, together with the off-balance sheet facilities, further strengthen the Group’s financial flexibility.
In August 2019, Swiss Reinsurance Company Ltd issued USD 1 billion of truly perpetual subordinated notes at a coupon of 4.25%. The notes, which have a fixed credit spread for life and may be called by Swiss Re at its option every five years, provide permanent non-dillutive capital for Swiss Re.
Senior leverage plus LOC ratio5 (target: < 25%) Subordinated leverage ratio6 (target: < 20%)
1 Drawn unsecured LOC and related instruments (2015 – 2018 shows drawn and undrawn). 2 Senior debt excluding non-recourse positions.
6 Funded subordinated debt divided by sum of funded subordinated debt and ENW (2015 – 2018 also shows undrawn pre-funded facilities).
Senior leverage plus LOC ratio3 Subordinated leverage ratio6 1 Core capital of Swiss Re Group is defined as economic net worth (ENW) 2 Senior debt excluding non-recourse positions 3 Senior debt plus LOCs divided by total capital 4 Includes SRL’s pre-funded dated subordinated debt facilities and contingent capital instruments accounted for as equity 5 Unsecured LOC capacity and related instruments (usage is lower) 6 Subordinated debt divided by sum of subordinated debt and ENW
The active management of liquidity risks ensures the Group’s ability to satisfy its financial obligations.
A range of liquidity policies and measures are in place to manage these risks, in particular to ensure that • sufficient liquidity is held to meet funding requirements under current conditions as well as adverse circumstances; • funding is charged and credited at an appropriate market rate through Swiss Re’s internal transfer pricing; • diversified sources are used to meet the Group’s residual funding needs; and
Liquidity risk management Swiss Re’s core liquidity policy is to retain access to sufficient liquidity in the form of unencumbered liquid assets, cash and pre-funded facilities, to meet potential funding requirements arising from a range of possible stress events. To allow for regulatory restrictions on intra-Group funding, liquidity is managed from a legal entity perspective. The amount of liquidity held is determined by internal liquidity stress tests, which estimate the potential funding requirements stemming from extreme loss events.
• Repayment or loss of all maturing unsecured debt and credit facilities
• Other large committed payments, such as expenses, commissions and tax
In 2019, the amount of surplus liquidity increased. This increase was largely due to net operating cashflows, internal dividends following legal entity optimisation and the positive impact of the reduction in interest rates.
The framework comprises the following major elements: • Risk governance documentation, including Group Risk Policy • Key risk management principles • Fundamental roles for delegated risk-taking • Risk culture • Organisation of risk management, including responsibilities at Board and executive level
Group Finance and Risk Committee outline the ultimate authority for risk management, assigning responsibilities to the Board of Directors and the Group Executive Committee.
• The Group Risk Management Standards outline how the Group organises and applies its risk management practices.
• The lowest level comprises risk management methodology and process documentation.
Fundamental roles for delegated risk-taking In order to ensure clear control, accountability and independent monitoring for all risks, Swiss Re’s risk governance distinguishes between three fundamental roles in the risk-taking process: • Risk owner – establishes a strategy, delegates execution and control, and retains ultimate responsibility for the outcomes.
Level 0 ‒ Risk management tasks of Boards and Executive Management
Level 1 ‒ Risk Appetite Framework incl. risk and capital principles
Organisation of risk management The Board of Directors of Swiss Re Ltd (the Board) is ultimately responsible for Swiss Re’s overall risk governance principles and policies. It defines basic risk management principles and the risk appetite framework, including the Group’s risk appetite and risk tolerance; in addition, it approves the Group’s risk strategy. The Board mainly performs risk oversight and governance through three committees: • Finance and Risk Committee − defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews top risk issues and exposures.
• Investment Committee − reviews the financial risk analysis methodology and valuation related to each asset class, and ensures that the relevant management processes and controlling mechanisms are in place.
The Group Executive Committee is responsible for developing and implementing Swiss Re’s Group-wide risk management framework. It also sets and monitors major risk limits, oversees the Economic Value Management framework, determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group Executive Committee has delegated various risk management responsibilities to the Group Chief Risk Officer (Group CRO) as well as to certain legal entity CROs, in particular the CROs of the legal entities SRZ, SRCS and SRLC.
Legal entity risk teams are led by dedicated CROs who report directly or indirectly to their top-level entity CRO, with a secondary reporting line to their respective legal entity CEO. These legal entity CROs are responsible for risk oversight in their respective entities, as well as for establishing the proper risk governance to ensure efficient risk identification, assessment and control. They are supported by functional, regional and subsidiary CROs who are responsible for overseeing risk management issues that arise at the regional or subsidiary level.
The central risk teams oversee Group liquidity and capital adequacy and maintain the Group frameworks for controlling these risks throughout Swiss Re. They also support CROs at the Group and legal entity level in discharging their oversight responsibilities. They do so by providing services, such as: • Financial risk management • Specialised risk category expertise and accumulation control • Risk modelling and analytics • Regulatory relations management • Maintaining the central risk governance framework
Risk management activities are complemented by Swiss Re’s Group Internal Audit and Compliance units: • Group Internal Audit performs independent, objective assessments of the adequacy and effectiveness of internal control systems. It evaluates the execution of processes within Swiss Re, including those within Risk Management.
Risk control framework Swiss Re operates within a clearly defined risk control framework. This is set out in the Group Risk Management Standards and comprises a body of standards that establish an internal control system for taking and managing risk. These standards set responsibilities for risk takers and risk controllers. The risk control framework defines key tasks, which are the core components of Swiss Re’s risk management cycle: • Risk tolerance and appetite assessment of plan – ensures that the risk implications of plans are understood, and determines whether business and investment plans adhere to the risk appetite framework (risk appetite and tolerance).
• Risk limit framework – allows Swiss Re to control its risk-taking decisions and total risk accumulations, including the passive risk we are exposed to through our operations.
In addition, Risk Management performs the following risk control activities: • Model and tool assurance – ensures that models or tools used for costing, valuation and risk capital determination are based on sound scientific concepts, have been implemented and calibrated correctly, and produce accurate results.
• Valuation assurance – assesses the quality of valuations for financial instrument prices and reserves.
• Insurance risk reviews – assess the quality of decision-making in the taking of insurance risks by performing independent evaluations of underwriting, costing, pricing and claims handling.
During strategic planning and targetsetting, Risk Management provides an opinion on the proposed strategy and targets to the Group Executive Committee and ultimately the Board. The opinion focuses on the risk impact of the proposed strategy and the risks related to its implementation. The strategic plan, risk appetite and capital allocation ambition are expressed in a target portfolio for the Group’s assets and liabilities, which should ultimately deliver the Group’s targeted performance.
The risk tolerance respectability criteria for the Swiss Re Group are set out in the Group Risk Policy. The Board is responsible for approving the risk tolerance criteria, as well as for monitoring and reviewing risk tolerance through its Finance and Risk Committee. Breaches or anticipated breaches of limits established to control the risk tolerance criteria must be communicated to the Group Finance and Risk Committee.
In SST 2020, total risk increases to USD 21.3 billion, driven by higher insurance risk mainly reflecting business growth and lower interest rates.
Total risk is based on 99% tail VaR and represents the average unexpected loss that occurs with an estimated frequency of less than once in 100 years over a one-year time horizon.
Alternative risk measurements — 99% and 99.5% VaR — increase to USD 16.1 billion and USD 19.0 billion, respectively.
The risk categories shown in the table below are discussed on the following pages. Across these categories we identify and evaluate emerging threats and opportunities through a systematic framework that includes the assessment of potential surprise factors that could affect known loss potentials. Liquidity risk management is discussed on page 60.
Swiss Re is exposed to a broad landscape of risks. These include risks that are actively taken as part of insurance or asset management operations and are calculated in the internal risk model as part of the Group’s economic capital requirement as well as to allocate risk-taking capacity: • Property and casualty insurance risk arises from coverage provided for property, liability, motor and accident risks, as well as for specialty risks such as engineering, agriculture, aviation and marine. It includes underlying risks inherent in the business Swiss Re underwrites, such as inflation or uncertainty in pricing and reserving.
• Life and health insurance risk arises from coverage provided for mortality (death), longevity (annuity) and morbidity (illness and disability) as well as from acquiring closed books of business. In addition to potential shock events (such as a severe pandemic), it includes underlying risks inherent in life and health contracts that arise when mortality, morbidity or lapse experience deviates from expectations.
• Strategic risk represents the possibility that poor strategic decision-making, execution or response to industry changes or competitor actions could harm Swiss Re’s competitive position and thus its franchise value.
Some of these risks are reflected indirectly in the risk model, as their realisations may be contained in the historical data and scenarios used to calibrate some of the risk factors. In addition, output from the model is used in measuring liquidity risk under stressed conditions. As separate risk categories, these risks are an integral part of Swiss Re’s risk landscape. They are monitored and managed within the Risk Management organisation, and included in risk reports to Executive Management and the Board at Group and legal entity level.
Risk developments The increase in property and casualty risk mainly reflects growth in property business translating into higher exposure to key natural catastrophe scenarios. Higher costing and reserving risk further contributes to the increase driven by higher reserves related to the 2019 large losses, business growth and, to a lesser extent, reserve strengthening for US liability.
The first line of control for property and casualty risks lies within Swiss Re’s underwriting units. In general, all transactions must be reviewed by at least two authorised individuals, and are subject to authority limits. Each underwriter is assigned an individual authority based on technical skills and experience. In addition, capacity limits are allocated to local teams; any business that exceeds this authority or is otherwise complex or unusual triggers an escalation process that extends up to the Group Executive Committee. Certain single risks and specified renewable treaty classes with non-material changes can be authorised by only one individual underwriter with the necessary authority − but these risks and treaties are subject to checks after acceptance.
Swiss Re’s Group limit framework includes risk limits for major insurance exposures that guard against risk accumulations and ensure that risk-taking remains within Swiss Re’s risk tolerance. At the entity level, underwriting and capacity limits are assigned that are used to ensure adherence to the Group’s risk limits and SST capitalisation targets.
Regular internal reports ensure transparency across the Group, providing management with quantitative and qualitative risk assessments. Swiss Re’s insurance risk landscape and related governance processes are regularly discussed and reviewed by the Senior Risk Council and other insurance risk oversight bodies in order to assist and advise the Group CRO on risk oversight.
Underwriters represent the first line of control for life and health risks. All transactions that could materially change risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they can be authorised. This is part of a three-signature principle, under which key transactions must be approved by Client Markets, Underwriting and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through a review of the individual transaction.
Atlantic hurricane 6 371 Californian earthquake 4 406 European windstorm 2 369 Japanese earthquake 3 668 Lethal pandemic 3 086 1 Excluding the impact of earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event.
In SST 2020, the largest natural catastrophe exposure for Swiss Re Group derives from the Atlantic hurricane scenario with a USD 6.4 billion loss. The lethal pandemic loss is estimated to be at USD 3.1 billion.
All activities with financial market and credit risk are subject to limits at various levels of the organisation (eg Group, lines of business and legal entities). At the highest level, the Board of Directors sets a financial risk concentration limit, which defines how much of the Group’s risk exposure can derive from financial risk. The Group Executive Committee establishes the principal risk limits for aggregate financial market and credit risk at Group level. Where required, additional risk limits are established by Risk Management for legal entities, key business lines, individual counterparties and countries. Furthermore, as part of the planning process, the risk-taking functions employ capacity limits to control the amount of risk mandated from the risk owner to the risk takers. Limits may be expressed in terms of notional value of policies, losses in a stress scenario, value at risk based on historic market moves, linear sensitivities to a particular risk factor or different methodologies of exposure aggregation.
Risk developments Financial market risk increases slightly, mainly due to repositioning of the credit portfolio, resulting in higher credit spread risk. This is partially offset by lower equity risk in view of an exposure reduction and hedging of the equity portfolio.
The reporting process is complemented by regular risk discussions between Financial Risk Management, Asset Management and the Group’s external investment managers, as well as by regular interactions with other key units that take financial market risk, such as Principal Investments and Acquisitions, Treasury and the respective business teams that write transactions.
Management Credit risk is monitored and controlled by experts within the Financial Risk Management team. Financial Risk Management regularly monitors and reports on counterparty credit quality, credit exposures and limits. In addition, it is responsible for regularly monitoring corporate counterparty credit quality and exposures, and for compiling watch lists of cases that merit close attention. These reports are presented and discussed with those responsible for the relevant business line at the weekly Credit Council.
The reporting process is supported by a Group-wide credit exposure information system that contains all relevant data, including counterparty details, ratings, credit risk exposures, credit limits and watch lists. Key credit practitioners across Swiss Re have access to this system, thus providing the necessary transparency to implement specific exposure management strategies for individual counterparties, industry sectors and geographic regions.
Credit risks are aggregated by country in order to monitor and control risk accumulation to specific risk drivers, such as economic, sovereign and political risks.
Interest rates +50bps 10pp Interest rates –50bps –12pp Spreads +50bps –9pp Spreads –50bps 9pp Equity values +25% 3pp Equity values –25% –3pp Real estate values +25% 6pp Real estate values –25% –6pp
Credit default1 2 390 1 Excluding the impact of earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event
Operational events and issues are recorded and managed in a central Operational Risk Management system in order to address the identified problems and avoid the recurrence of similar events. The results are reviewed by the company’s CRO and reported to the Executive Management team and Board.
Regulatory risk Regulatory developments and related risks that may affect Swiss Re and its subsidiaries are identified, assessed and monitored as part of regular oversight activities. Swiss Re is actively engaged in a dialogue with regulators to improve mutual understanding of the implications of new regulatory proposals. Periodic reports and recommendations on regulatory issues are provided to Executive Management and the Board at Group and legal entity level.
Several regulators in Europe and Asia have developed specific expectations of how climate risks should be managed and are translating these expectations into concrete regulations. New climate-related regulations are expected, even in jurisdictions that have thus far been hesitant to act. Swiss Re supports such measures but will continue to advocate for a harmonised and gradual implementation of the requirements recommended by the Financial Stability Board Task Force for Climate Disclosure in order to avoid regulatory fragmentation and ensure that requirements are appropriate.
Swiss Re consistently advocates for the removal or reduction of market access barriers, so that policyholders, governments, taxpayers and national economies can fully benefit from international diversification and therefore reliable, quality and affordable risk cover.
Swiss Re seeks to identify and assess the impact of political risk on its business. The Group raises awareness of political risk within the insurance industry and the broader public, and actively engages in dialogue with clients, the media and other stakeholders. The Group also builds relationships that expand the company’s access to information and intelligence, and allow Swiss Re to further enhance our methodologies and standards. For example, Swiss Re participates in specialist events hosted by institutions such as industry and risk management associations, and maintains relationships with political risk specialists in other industries, think tanks and universities, as well as with governmental and non-governmental organisations.
Reserve valuation risk is managed by Swiss Re’s Actuarial Control function, with dedicated teams for property and casualty, and for life and health valuations. These teams ensure that Swiss Re’s reserve setting process uses an appropriate governance framework, including defined accountabilities and decision-making processes for risk takers (as the first line of control) as well as for Actuarial Control. The framework ensures that there is independent assurance on the data, assumptions, models and processes used for valuation purposes; for all property and casualty business and selected life and health portfolios, it also includes an independent valuation of coverage provided to ensure that reserves are within an adequate range. Regular deep-dive investigations are performed into selected portfolios in order to review the appropriateness of both the reserves and the applied reserving approach.
Swiss Re is a founding signatory to the UN Principles for Sustainable Insurance (UN PSI) and is currently a board member of this initiative. The UN PSI provide a global framework for managing environmental, social and governance challenges. Swiss Re has been actively contributing to the initiative for several years, co-chaired it from 2013 to 2015 and publicly reports progress against the principles in its annual Sustainability Report; the 2019 edition has been published together with the 2019 Financial Report.
Swiss Re is developing a carbon footprinting methodology, in collaboration with peers, as a basis for carbon risk steering that will help to guide the Group’s business towards a low-carbon world and support Swiss Re’s clients in their transition. At the UN Climate Action Summit in September 2019, Swiss Re was one of 87 companies to sign the “Business Ambition for 1.5°C”. The pledge is a logical further step in leading the way towards a low carbon future.
Reflecting the Group’s strong overall commitment to sustainability, Swiss Re continued to be included in leading sustainability indexes and rankings such as FTSE4Good, Euronext Vigeo World 120, Ethibel Excellence Global, oekom Prime Investment and the Dow Jones Sustainability Index. For more information on Swiss Re’s sustainability practices, see the 2019 Sustainability Report.
Findings are reported to management and internal stakeholders, including a prioritised overview of newly identified emerging risks and an estimate of their potential impact on Swiss Re’s business. Swiss Re also publishes an annual emerging risk report (Swiss Re SONAR) to raise awareness within the Group and across the industry, and initiate a risk dialogue with key external stakeholders.
Environmental, social and governance (ESG) issues dominated corporate governance discussions in key jurisdictions during 2019. There is an understanding that corporate actions do not take place in a vacuum, but within a dynamic landscape of evolving ESG issues and risks. ESG issues are linked to a variety of areas, for which the boards already have oversight, meaning those issues cannot be viewed in isolation. It is not surprising that many of the main corporate governance trends in 2019, such as diversity, scrutiny of executive remuneration, and workforce and stakeholder engagement, are to some extent related to the wider discussion around ESG issues. We expect the ESG trend to intensify further over the next few years. One reason for the increased focus on ESG issues is the greater transparency with respect to corporate reporting in general and ESG disclosures in particular. Companies are increasingly asked about their approach to sustainability and corporate social responsibility. They recognise that a good reputation, including a well-developed response to ESG matters, can be a strategic asset. A failure to respond appropriately to ESG issues can be a long-term and strategic risk. Employees, in particular millennials, contribute to the focus on ESG issues as they expect their companies to reflect their values. Finally, investors are also increasingly focusing on ESG issues.
It is crucial to be able to make relevant decisions based on relevant information.
Information on compensation Information on compensation, shareholdings and loans of the members of the Board of Directors and the Group Executive Committee (Group EC) are included in the Compensation Report beginning on page 143 of this Financial Report.
Swiss Re Sustainability event The Sustainable Leadership Series “Responsible investing in practice” at the Swiss Re Center for Global Dialogue in Rueschlikon in September 2019 brought together market participants from the public and private sectors, including institutional investors, wealth managers, policymakers, non-profit organisations and academia. The event served as a platform to share first-hand insights on the implementation of sustainable investing strategies, discuss policy developments and look at latest trends in stewardship across a fast-evolving market.
Corporate Governance Refresher Training In September 2019, we held two Corporate Governance Refresher Training sessions, which our internal Swiss Re stakeholders could join via conference call. The Head Corporate Governance Group presented the Group’s corporate governance framework and documents, with a focus on the Corporate Governance Guidelines as well as the Bylaws. The participants discussed practical examples relevant for the applicability of the Bylaws. The training concluded with Q&A and feedback sessions.
• The SIX Swiss Exchange’s Directive on Information Relating to Corporate Governance (including its annex) dated 20 March 2018, effective as of 1 May 2018.
Swiss Re’s corporate governance adheres to: Swiss Re’s corporate governance framework Swiss Re’s governance documents
Group EC Composition in 2019 • Andreas Berger (former Chief Regions & Markets Officer and member of the Board of Management of Allianz Global Corporate & Specialty SE) was appointed CEO Corporate Solutions and a member of the Group EC with effect from 1 March 2019. He succeeds Agostino Galvagni, who decided to step down as CEO Corporate Solutions at the end of 2018.
• Anette Bronder (previously a member of the Management Board at T-Systems International) was appointed Group Chief Operating Officer and a member of the Group EC with effect from 1 July 2019, succeeding Thomas Wellauer, who retired on 30 June 2019.
• Nigel Fretwell, Group Chief Human Resources Officer, and Hermann Geiger, Group Chief Legal Officer, were appointed as new members of the Group EC with effect from 1 July 2019. The Group EC had therefore consisted of 14 members since 1 July 2019; prior to that it consisted of 12 members. At the same time, Group Human Resources became a new Group Function.
Information on its market capitalisation is provided on pages 32–33 of this Financial Report. No other Group companies have shares listed. More information on the Group companies is provided in Note 21 to the Group financial statements on pages 271–273.
Shares held by Swiss Re 28 510 762 8.7 Share buy-back programme 8 239 000 2.5 1 “Unregistered” shares refers to shares for which no application has been received by the owner to enter the shares in the share register. 2 Without Swiss Re’s holdings.
As of 31 December 2019 Shareholders in % Shares in %
Registered shareholdings by type As of 31 December 2019 67.2% Institutional shareholders 28.6% Individual shareholders 4.2% Swiss Re employees
More information is provided in the sections “Conditional and authorised capital in particular” below and “Changes in capital” on page 86 of this Financial Report.
Conditional and authorised capital in particular Conditional capital for Equity-Linked Financing Instruments The conditional capital of SRL as of 31 December 2019 was as presented in the table on page 86.
If advance subscription rights are excluded, then (i) the Equity-Linked Financing Instruments are to be placed at market conditions, (ii) the exercise period is not to exceed ten (10) years for option rights and thirty (30) years for conversion rights, and (iii) the conversion or exercise price or the calculation methodology for such price of the new registered shares is to be set in line with the market conditions and practice prevailing at the date on which the EquityLinked Financing Instruments are issued or converted into new registered shares.
The maximum number of 50 000 000 shares to be issued under the conditional capital for Equity-Linked Financing Instruments corresponds to 15.27% of the existing share capital.
The Board of Directors may exclude or restrict the subscription rights of existing shareholders with respect to a maximum of CHF 3 300 000 through the issue of up to 33 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, out of the total amount of authorised capital. Such exclusion or restriction relates to the use of shares in connection with (i) mergers, acquisitions (including take-over) of companies, parts of companies or holdings, equity stakes (participations) or new investments planned by the company and/or Group companies, financing or re-financing of such mergers, acquisitions or new investments, the conversion of loans, securities or equity securities, and/or (ii) improving the regulatory and/or rating capital position of the company or Group companies in a fast and expeditious manner if the Board of Directors deems it appropriate or prudent to do so (including by way of private placements).The Articles of Association are available at: www.swissre.com/articlesofassociation
Joint provision for conditional capital for Equity-Linked Financing Instruments and for the authorised capital The total of registered shares issued from (i) authorised capital, where the existing shareholders’ subscription rights were excluded and (ii) from conditional capital, where the existing shareholders’ advance subscription rights on the Equity-Linked Financing Instruments were excluded, may not exceed 33 000 000 registered shares (corresponding to 10.08% of the existing share capital) up to 17 April 2021.
The reduction of the ordinary share capital approved by the Annual General Meeting on 17 April 2019 was published in the Swiss Gazette of Commerce (Schweizerisches Handelsamtsblatt) on 16 July 2019.
For further details on the share buy-back programmes, please visit: www.swissre.com/sharebuyback
Furthermore, the Annual General Meeting 2019 renewed the authorised capital (until 17 April 2021) and made further amendments to the provisions of the Articles of Association concerning authorised and conditional capital (re-setting several sub-limits, and amending the description of permitted cases of an exclusion of subscription or advance subscription rights).
Changes in 2018 The Annual General Meeting 2018 approved the reduction of the ordinary share capital by CHF 1 083 281.60 from CHF 34 945 228.10 to CHF 33 861 946.50 by cancelling 10 832 816 shares with a nominal value of CHF 0.10 each repurchased by SRL on a second trading line on the SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 10 832 816 shares were repurchased under the share buy-back programme that ran from 3 November 2017 until 16 February 2018. The purchase value of the repurchased own shares corresponded to CHF 999 999 975.78.
Capital in CHF In % of the share capital Shares Capital in CHF In % of the share capital Shares
Conditional capital for Equity-Linked Financing Instruments 5 000 000.00 14.77% 50 000 000 5 000 000.00 15.27% 50 000 000
Shares All shares issued by SRL are fully paid-in registered shares, each with a par value of CHF 0.10. Each share carries one vote. The shares rank equally among each other in all respects (including in respect of entitlements to dividends and liquidation proceeds). There are no categories of shares with a higher or limited voting power, privileged dividend entitlement or any other preferential rights, nor are there any other securities representing a part of the company’s share capital.
Limitations on transferability and nominee registrations Free transferability The company maintains a share register for the registered shares, in which owners and usufructuaries are entered.
The registered shares are administered as intermediated securities. The transfer of intermediated securities and furnishing of collateral in intermediated securities must conform to the Federal Intermediated Securities Act of 3 October 2008. The transfer and furnishing of collateral by assignment is excluded.
Legal entities or partnerships or other associations or joint ownership arrangements that are linked through capital ownership or voting rights, through common management or in like manner, as well as individuals, legal entities or partnerships (especially syndicates) that act in concert with intent to evade the entry restriction are considered as one shareholder or nominee.
The provisions of the Articles of Association restricting the registration of nominees as shareholders with voting rights may be amended or abolished by a resolution of the General Meeting of shareholders, which requires an absolute majority of the votes validly cast (see page 113).
Convertible bonds and options Convertible bonds As of 31 December 2019, except as provided below, neither SRL nor any of its subsidiaries has any bonds outstanding that are convertible into equity securities of SRL.
Shares Vesting of share awards to Swiss Re employees are physically settled (with treasury shares). The number of issued shares will not be affected. For details on shares granted to Swiss Re employees and for more information on the quantitative impact of vested shares please see Note 17 to the Group financial statements on page 266 of this Financial Report. Assuming maximum vesting of all share awards granted as of 31 December 2019, 3 660 142 registered shares of SRL would have to be delivered (corresponding to 1.18% of the existing share capital).
Karen Gavan Canadian 58 2018 Trevor Manuel South African 63 2015 Jay Ralph American, Swiss 60 2017 Joerg Reinhardt German 63 2017 Eileen Rominger American 65 2018 Philip K. Ryan American 63 2015 Sir Paul Tucker British 61 2016 Jacques de Vaucleroy Belgian 58 2017 Susan L. Wagner American 58 2014 Larry Zimpleman American 68 2018 1 For the biographies of former Board members, please refer to: www.swissre.com/formerboardmembers 2 Initially elected to the Board of Directors of Swiss Reinsurance Company Ltd, the Group’s former parent company, and subsequently elected to the Board of Directors of SRL in 2011.
Renato Fassbind was elected to the Board of Directors of SRL in 2011. He was appointed Vice Chairman in 2012 and Lead Independent Director in 2014. He chairs the Nomination Committee and the Audit Committee and is a member of the Chairman’s and Governance Committee and the Compensation Committee.
Raymond K.F. Ch’ien was elected to the Board of Directors of Swiss Reinsurance Company Ltd in 2008 and to the Board of Directors of SRL in connection with its formation in 2011. He is a member of the Compensation Committee and the Investment Committee. He is also a member of the Board of Directors of Swiss Re Asia Pte. Ltd.
Professional experience Raymond K.F. Ch’ien was Group Managing Director of Lam Soon Hong Kong Group from 1984 to 1997. From 1999 to 2011, he was Chairman of CDC Corporation, a software development company, and from 2003 to 2015 Chairman of MTR Corporation Limited, which operates a major public transport network in Hong Kong.
Karen Gavan was elected to the Board of Directors of SRL in 2018. She is a member of the Audit Committee. She is also a member of the Board of Directors of Swiss Re America Holding Corporation.
External mandates • Chairman of the Board of Directors of Old Mutual Ltd* • Deputy Chairman of Rothschild & Co
South Africa • Professor Extraordinaire, University of Johannesburg • Honorary Professor,
Board of Trustees and Georgia O’Keeffe Museum Innovations Board * Listed company
External mandates • Chairman of the Board of Directors of Novartis Inc.* • Chairman of the Board of Trustees of the Novartis Foundation
External mandates • Operating Partner Corsair Capital • Member of the Advisory Board of
Professional experience Sir Paul Tucker was the Deputy Governor of the Bank of England from 2009 to 2013. He held various senior roles at the Bank of England from 1980 onwards, including as a member of the Monetary Policy Committee, Financial Policy Committee, Prudential Regulatory Authority Board and Court of Directors. He also served as a member of the Steering Committee of the G20 Financial Stability Board and as a member of the Board of the Bank for International Settlements. In 2014, he was granted a knighthood for his services to central banking. Sir Paul Tucker is the author of Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State (Princeton University Press, 2018).
External mandates • Chairman of the Systemic Risk Council • Research Fellow at the Harvard Kennedy
Volunteers Corps • Senior Fellow at the Harvard Center for European Studies • Governor of the Ditchley Foundation • President of the UK’s National Institute of Economic and Social Research
Jacques de Vaucleroy Member, non-executive and independent Born: 1961 Nationality: Belgian
Jacques de Vaucleroy was elected to the Board of Directors of SRL in 2017. He chairs the Compensation Committee and is a member of the Chairman’s and Governance Committee, the Nomination Committee and the Investment Committee. He is also Chairman of Swiss Re Europe S.A. and Swiss Re International SE.
Professional experience Jacques de Vaucleroy was a member of the Management Committee of AXA Group from 2010 to 2016, serving as Chief Executive Officer of North, Central and Eastern Europe and Chief Executive Officer of Global Life & Savings. He also held a number of positions in boards of directors and supervisory boards of AXA companies. Before that, he spent 24 years at ING Group, where he held senior roles in banking, asset management and insurance. He was a member of the Executive Board of ING Group from 2006 to 2009, in charge of insurance and asset management in Europe.
• Board member of the Simôn I. Patiño Foundation and the TATA non-profit organisation
Susan L. Wagner Member, non-executive and independent Born: 1961 Nationality: American
External mandates • Board member of Apple Inc.* • Board member of BlackRock, Inc.* • Board member of Color Genomics, Inc. • Member of the Board of Trustees of
In particular, each of the Board members must annually confirm that he or she: has not been employed by the company in any capacity within the last five years; has not accepted and does not have a family member who accepted any payments from the company or any subsidiary of the company in excess of USD 120 000 during the current fiscal year or any of the past three fiscal years; is not a family member of an individual who is, or during the past three years was employed by the company or by a subsidiary of the company in any capacity; is not (and is not affiliated with a company that is) an adviser or consultant to the company or a member of the company’s senior management; is not affiliated with a significant customer or supplier of the company; does not have any personal services contract(s) with the company or a member of the company’s senior management; is not affiliated with a not-for-profit entity that receives significant contributions from the company; has not been a partner or employee of the company’s external auditor during the past three years, and does not have any other conflict of interest that the Board of Directors determines to mean he or she cannot be considered independent.
Conflicts of interest The members of the Board of Directors are also subject to procedures to avoid any action, position or interest that conflicts with an interest of SRL or the Group or gives the appearance of a conflict. Each member must disclose any conflict of interest relating to a matter to be discussed at a meeting, as soon as the member becomes aware of the conflict, to the Chairman. The respective member must not participate in the discussion and decision-making involving the interest at stake. The Chairman informs the Board of Directors of the existence of the conflict and it is reflected in the meeting minutes. Each member must disclose any conflict of interest generally arising to the Group Chief Legal Officer (Group CLO), or in his absence to the Group Chief Compliance Officer (Group CCO). The Group CLO (or in his absence the Group CCO) ensures that such a reported conflict of interest is dealt with accordingly.
In addition, no member of the Board of Directors may serve on the board of directors of a listed company in which another member of the Board of Directors holds an executive function, or where a member of the Board of Directors is able to determine the compensation of another member of the Board of Directors.
Succession planning Succession planning is of significant importance to the Board of Directors. It regularly analyses its composition to confirm that its members’ qualifications, skills and experience correspond to the Board’s needs and requirements. The Board of Directors initiates the evaluation of potential new Board members in a timely manner with the continued aim to ensure its members have the desired qualifications and experience as well as to further diversify and renew its composition. The Nomination Committee evaluates candidates for Board membership and makes recommendations to the Board of Directors for election or re-election
The Board of Directors defines the selection criteria against which candidates for Board membership are assessed. The requirements that potential Board members have to meet in terms of knowledge in various key areas and the industry are constantly increasing.
Membership on the Board of Directors requires experience in key sectors such as insurance and reinsurance, finance, accounting, capital markets, risk management and regulatory matters as well as leadership and decision-making experience in a large, complex financial institution. The mandate also demands significant commitment, integrity and intercultural communication competence.
/c or po rat e re spons ibility Technology/dig italisatio n
C orp ora te Go vernance Human Resources / Verg ü
Chairman of the Board of Directors The Chairman of the Board of Directors leads the Board of Directors, convenes the Board and committee meetings, establishes the agendas and presides over Board meetings. The Chairman coordinates the work of the Board committees together with the respective Chairpersons and ensures that the Board is kept informed about the committees’ activities and findings. In cases of doubt, the Chairman makes decisions about the authority of the Board or its committees and about interpreting and applying Swiss Re’s governance documents.
The Chairman chairs the Chairman’s and Governance Committee and develops and continually adapts Swiss Re’s governance to regulatory and corporate requirements. He keeps himself informed about the activities within the Group and may attend Group EC and Business Unit Executive Committee meetings as he deems necessary. He also has access to all corresponding documentation and minutes. He ensures adequate reporting by the Group EC and the Group CEO to the Board of Directors and facilitates their communication with the Board. He annually assesses the Group CEO’s performance and discusses with the Group CEO the annual performance assessment of the Group EC members.
The Chairman presides over General Meetings of shareholders and represents the Group towards its shareholders, in industry associations and in the interaction with other stakeholders such as the media, political and regulatory authorities, governmental officials and the general public. Specifically, the Chairman keeps regular contact with the Group’s regulator FINMA.
The Chairman arranges the introduction for new Board members and appropriate training for all Board members.
Nominations for re-/election by the Annual General Meeting of 17 April 2020 The shareholders annually elect the members of the Board of Directors, the Chairman of the Board of Directors and the members of the Compensation Committee, individually and separately, for one-year terms, until completion of the next Annual General Meeting. The Board of Directors proposes, based on recommendations by the Nomination Committee, that each of the following Board members be re-elected for a one-year term: • Walter B. Kielholz • Renato Fassbind • Raymond K.F. Ch’ien • Karen Gavan • Jay Ralph • Joerg Reinhardt • Philip K. Ryan • Sir Paul Tucker • Jacques de Vaucleroy • Susan L. Wagner • Larry Zimpleman
Reinsurance Executive Committee Corporate Solutions Executive Committee Life Capital Executive Committee
Each committee consists of a chairperson and at least three other members elected from among the Board of Directors. The members of the Compensation Committee are elected annually by the Annual General Meeting.
Group Sustainability Strategy • Succession planning: Steered the succession planning processes, where relevant in collaboration with the Nomination Committee • Performance and self-assessments: Led the annual performance assessment and the annual self-assessment processes for the Board of Directors and the Group EC
Nomination Committee Responsibilities The Nomination Committee’s function is to generally assist the Board of Directors in its overall responsibility related to succession planning. The Nomination Committee’s responsibility is, in particular, to select and nominate candidates at the Board of Directors level for all the individuals who are elected by the Annual General Meeting. Those are the members at the Board of Directors, the Chairman and the members of the Compensation Committee.
Audit Committee Responsibilities The central task of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities as they relate to the integrity of SRL’s and the Group’s financial statements, the Swiss Re Group’s compliance with legal and regulatory requirements, the external auditor’s qualifications and independence, and the performance of Group Internal Audit (GIA) and the Group’s external auditor. The Audit Committee monitors independently and objectively SRL’s and the Group’s financial reporting process and system of internal control, and it facilitates ongoing communication between the external auditor, Group EC, Business Units, GIA and the Board of Directors with regard to the Group’s financial reporting and, more broadly, its financial situation.
Members • Renato Fassbind, Chair • Karen Gavan • Trevor Manuel • Philip K. Ryan 2019 key focus areas • External auditor: Led the process for the selection of a new external auditor • Reporting basis: Oversaw the decision-making process to change Swiss Re’s reporting basis from US GAAP to IFRS as of 2024 • Finance Transformation: Oversaw the finance transformation initiatives
Further qualifications Additional qualification requirements apply to members of the Audit Committee: Each member of the Audit Committee has to be financially literate. At least one member must qualify as an Audit Committee financial expert, as determined by the Board of Directors. Members of the Audit Committee should not serve on audit committees of more than four listed companies outside the Group. Audit Committee members have to advise the Chairman of SRL before accepting any further invitation to serve on an audit committee of another listed company outside the Group and observe the limitations set in the Articles of Association in relation to external mandates.
Compensation Committee Responsibilities The Compensation Committee supports the Board of Directors in establishing and reviewing SRL’s compensation framework and guidelines and performance criteria as well as in preparing the proposals to the Annual General Meeting regarding the compensation of the Board of Directors and of the Group EC. It proposes compensation principles in line with legal and regulatory requirements and the Articles of Association for the Group to the Board of Directors for approval and, within those approved principles, determines the establishment of new (and amendments to existing) compensation plans, and determines, or proposes as appropriate, individual compensation. The Compensation Committee also ensures that compensation plans do not encourage inappropriate risk-taking within the Group and that all aspects of compensation are fully compliant with applicable laws, rules and regulations.
Compensation Framework and its alignment with both shareholders’ interests and long-term business strategy, specifically with regard to long-term incentives. Monitored the way that leadership has implemented and utilised the pay for performance framework, including pay equity principles at both the business and individual level
Members • Susan L. Wagner, Chair • Raymond K.F. Ch’ien • Trevor Manuel • Eileen Rominger • Sir Paul Tucker • Jacques de Vaucleroy 2019 key focus areas • Investment performance: Reviewed SAA positioning, risk usage and performance in the context of financial markets and Business Unit developments • Financial markets outlook: Evaluated evolving economic and financial market risks and their impact on portfolio strategy and relative value to ensure appropriate positioning • Examined key topics such as liquidity and market structure, stress scenarios, ESG and investment trends
Board and committee meetings deal with the items on the agenda incorporating presentations by members of the Group EC and, where needed, by subject matter experts or external advisors. For every meeting of the Board of Directors, it is considered whether an executive session should be held for discussions between the Board of Directors and the Group CEO.
The table on the next page provides an overview of the meetings of the Board of Directors and its committees held in 2019.
Body Number and average duration of meetings Invitees in advisory capacity1, in addition to members
Chairman’s and Governance Committee 6 meetings3 1¾ hours Group CEO, Group Company Secretary
Group CEO, Group CFO, Group CRO, Group CUO, Group CIO, Group COO, Group Treasurer, CEO Reinsurance, CEO Corporate Solutions, CEO Life Capital, Group Company Secretary
Attendance rates1 of Board members: Board of Directors and Board committee meetings in 2019
Individual attendance rates1 of Board members: Board of Directors and Board committee meetings in 2019
The self-assessments also form the basis for the Board’s succession planning, comprising the evaluation of the skills needed among the members of the Board of Directors and Board committees. Please refer to page 94 for an overview of the Board of Directors’ skills and competencies.
Board of Directors and Group EC: areas of responsibility Non-transferable duties The Board of Directors has the ultimate responsibility for the success of SRL and the Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of SRL and the Group and the Group EC as well as for supervising compliance with applicable laws, rules and regulations. Such responsibilities are non-transferable and rest with the entire Board.
Delegation of management The Board of Directors has delegated the management of SRL and the Group to the Group EC (see section on Executive Management, starting on page 106). Such delegated tasks are within the responsibility of the entire Group EC. The Board of Directors based the delegated responsibilities on authority levels, including monetary thresholds and limits.
• approves the Group Risk Strategy and Risk Policy, which define the Group’s risk Appetite and tolerance, key principles for risk-taking and control and key capital structuring principles based on the endorsement by the Finance and Risk Committee
• approves significant corporate transactions, participations and principal investments and approves an annual capital expenditure plan
• supervises internal control • regulates the compensation framework of the Group; approves the Group’s variable compensation pool; proposes the Board of Directors and Group EC compensation to the Annual General Meeting for approval
• approves the applicable proprietary economic reporting and performance measurement standards (EVM)
• approves the annual financial statements for both SRL and the Group based on the recommendations of the Audit Committee
• approves the publication of the Annual Report, semi-annual financial statements and quarterly key financial figures news releases
Appointment and removal of Group EC members and further key executives, People Strategy • Appoints and removes Group EC
• annually reviews with the Group EC the Group’s overall human capital situation, strength of management and issues like diversity and inclusion, performance process and quality of succession planning
• approves annually a debt funding plan, and, if required, approves individual debt issuances
Financial reporting • Oversees the preparation and presents to the Board of Directors the annual and interim financial statements of both SRL and the Group together with segment reporting on the Business Units
Business transactions • Decides on certain strategic transactions and proposes important strategic transactions to the Board of Directors for discussion and decision
Compensation • Makes proposals for the individual compensation of selected members of senior management
The Group EC discharges its responsibilities as a joint body, except for responsibilities delegated to the Group CEO and further individual Group EC members. For the key responsibilities of individual Group EC members, please see page 112.
Special investigations The Board committees are entitled to conduct or authorise special investigations at any time and at their full discretion into any matters within their respective scope of responsibilities, taking into consideration relevant peer group practice and general best practice. The committees are empowered to retain independent counsel, accountants or other experts if deemed necessary. No special investigations were conducted in the reporting year 2019.
US GAAP Board Report (quarterly) The report provides factual financial highlights from an accounting perspective, with a focus on historical development of the business as an informational basis before the publication of results.
Group Performance Management Report (semi-annually) The report tracks the actual performance of the Group and the segments against pre-defined financial targets, analyses the impact of management actions and provides information on current challenges.
The Head of GIA meets at least once per quarter with the Audit Committee and immediately reports any issue that could have a potentially material impact on the business of the Group to the Chair of the Audit Committee.
Urs Baertschi Swiss, German 44 CEO Reinsurance Europe, Middle East and Africa (EMEA)/ Regional President EMEA
John R. Dacey American 59 Group Chief Financial Officer April 20182
Russell Higginbotham British 52 CEO Reinsurance Asia/Regional President Asia July 20195
Patrick Raaflaub Swiss, Italian 54 Group Chief Risk Officer September 2014
J. Eric Smith American 62 CEO Reinsurance Americas/Regional President Americas January 2012
Member of the Group EC since: 1 January 2011, 2 October 2012, 3, 4 July 2019, 5 September 2018, 6 March 2012.
Thomas Wellauer Swiss 64 Group Chief Operating Officer 30 June 2019
Reinsurance Advisory Board • Vice Chairman of the Geneva Association • Board member of economiesuisse, the
Swiss American Chamber of Commerce and the Society for the Promotion of the Institute of Insurance Economics, St. Gallen
Professional experience Urs Baertschi began his career at Swiss Re Capital Partners and Securitas Capital in a variety of private equity and corporate development roles. In 2001, he joined Cutlass Capital, a private equity firm focused on the health care industry, where he was appointed a Principal in 2006. In 2008, Urs Baertschi rejoined Swiss Re as the Head of US Direct Private Equity and was appointed Head of Principal Investments and Acquisitions Americas in 2010. In this role, he was responsible for the financial and strategic direct investments as well as corporate development transactions in the Americas. In 2016 Urs Baertschi became the President of Reinsurance, Latin America, with overall responsibility for the business in the region. On 1 September 2019, he assumed the role of Chief Executive Officer Reinsurance EMEA and Regional President EMEA and became a member of the Group Executive Committee.
Professional experience John R. Dacey started his career in 1986 at the Federal Reserve Bank of New York. From 1990 to 1998, he was a consultant and subsequently Partner at McKinsey & Company. He joined Winterthur Insurance in 1998 and was its Chief Financial Officer from 2000 to 2004 as well as a member of its Group Executive Board until 2007. From 2005 to 2007, he was Chief Strategy Officer and a member of its risk and investment committees. He joined AXA in 2007 as Group Regional Chief Executive Officer and Group Vice Chairman for Asia-Pacific as well as a member of their Group Executive Committee. John R. Dacey joined Swiss Re in October 2012 and was appointed Group Chief Strategy Officer and a member of the Group Executive Committee in November 2012. He also served as Chairman Admin Re® from November 2012 to May 2015. He was appointed Group Chief Financial Officer with effect from April 2018.
Washington University, St. Louis, USA • Master’s degree in Public Policy,
Nigel Fretwell Group Chief Human Resources Officer Born: 1962 Nationality: British
Professional experience Hermann Geiger started his professional career in 1990 as a law clerk and qualified attorney at law, working with various major law firms, specialising in financial services transactions and regulation, capital markets, corporate and litigation. In 1995, he joined GE Insurance Solutions where he served as General Counsel Europe & Asia in the insurance business of General Electric. Following the acquisition of GE Insurance Solutions by Swiss Re in 2006, Hermann Geiger joined Swiss Re as Regional General Counsel Europe. In 2009, he assumed the global position as Head Legal & Compliance and Group Chief Legal Officer. As of 1 July 2019, Hermann Geiger was appointed as a member of the Group Executive Committee.
Professional experience Russell Higginbotham started his career in 1986 at a UK life insurer and, in 1991, he joined Munich Re as a Senior marketing Analyst. Russell Higginbotham joined Swiss Re in 1995 and served in various roles in the Life & Health Reinsurance development and strategy teams. Between 2002 and 2005, he was Life & Health Country Manager for Japan and subsequently for South Korea. In 2006, he moved to Sydney and served as Chief Executive Officer of Swiss Re’s Australia and New Zealand operations. From 2010 to 2015, he assumed the role of Chief Executive Officer Reinsurance UK & Ireland, based in London, and was named Head of Life & Health Products Reinsurance in 2016. He was appointed Chief Executive Officer Reinsurance EMEA, Regional President EMEA and a member of the Group Executive Committee in September 2018. With effect from 8 July 2019, Russell Higginbotham assumed the role of Chief Executive Officer Reinsurance Asia and Regional President Asia.
• Master’s degree in Business Administration, Henley Management College, United Kingdom
Professional experience Thierry Léger started his career in the civil construction industry before joining Swiss Re as an engineering underwriter in 1997. In 2001, he moved to Swiss Re New Markets, providing non-traditional solutions to insurance clients. Between 2003 and 2005, he was a member of the executive team in France as leader of the sales team. From 2006, Thierry Léger assumed increasing responsibility for Swiss Re’s largest clients, ultimately becoming the Head of the newly created Globals Division in 2010 and a member of the then existing Group Management Board. In 2013, Thierry Léger became Head of Life & Health Products Reinsurance. As of January 2016, he was appointed Chief Executive Officer Life Capital and a member of the Group Executive Committee.
Professional experience Patrick Raaflaub began his career as an economist at Credit Suisse. He then was a founding member of a consulting start-up and research fellow at the University of St. Gallen. He joined Swiss Re in 1994 and was appointed Chief Financial Officer of Swiss Re Italia SpA in 1997, and then was Divisional Controller Americas Division from 2000. He worked as Head of Finance Zurich from 2003, then Regional Chief Financial Officer Europe and Asia from 2005. From 2006, he was Head of Group Capital Management, where he was responsible for capital management at Group level and global regulatory affairs. In 2008, he joined the Swiss Financial Markets Supervisory Authority FINMA as Chief Executive Officer. Patrick Raaflaub returned to Swiss Re as Group Chief Risk Officer and a member of the Group Executive Committee in September 2014.
Educational background • PhD in Political Science, University of St. Gallen, Switzerland
Management contracts SRL has not entered into any management contracts with any third parties.
Professional experience Edouard Schmid joined Swiss Re in 1991 as a risk analyst, developing catastrophe models and supporting property catastrophe underwriting on a global basis. From 1996, he was a team leader in the Cat Perils unit, until he became Head Cat Perils & Retrocession in 2002. From 2003 until 2008, he was based in Hong Kong as Chief Underwriter Property & Specialty Asia. He returned to Zurich in 2008 and served as Head Property & Casualty Risk and Actuarial Management, and, concurrently, as Chief Risk Officer Corporate Solutions from 2011. In May 2012, he became Head Property & Specialty Reinsurance. Edouard Schmid was appointed Group Chief Underwriting Officer and a member of the Group Executive Committee as of July 2017. Following the merger of the Swiss Re Institute (SRI) with Group Underwriting, effective 1 July 2019, he also serves as Chairman of the SRI.
Group Chief Executive Officer The Group CEO is responsible for overseeing the operational management of the Group. This responsibility covers the Group Functions, Group Legal and the three Business Units Reinsurance, Corporate Solutions and Life Capital. He leads and manages the Group EC, its processes, including succession planning and its costs, and is responsible for its performance. He oversees the work of the Group Function heads, the Group CLO and the Business Unit CEOs and gives them guidance on the execution of their tasks. He develops the Group strategy together with the Group EC and submits it to the Board of Directors for approval. Once approved, he focuses on the Group strategy’s implementation and its further development.
Group Chief Operating Officer The Group COO is responsible for the Group Operations function, its processes, including oversight of human resources and talent management as it relates to Group Operations, as well as its costs and performance. Her responsibilities include being a strategic partner to the Group and the Business Units in all operational matters and providing a high-quality, cost-effective and differentiating operating platform for the whole Group.
Group Chief Human Resources Officer The Group CHRO is responsible for the HR function Group-wide. This responsibility includes being a strategic partner to the Group CEO, Group EC and the Board of Directors on all people- and other HR-related matters. This includes defining and implementing a people strategy that helps enable the appropriate culture and human resources to support the business strategy of the Group. This work is conducted in close cooperation with the Group CEO and the Group EC.
Group Chief Legal Officer The Group CLO is responsible for the Group-wide Legal and Compliance functions with a focus on managing and mitigating legal and compliance risks for the Group in conjunction with the Business Units and the Group Functions. He defines and implements a legal and compliance strategy in support of the business strategy of the Group. The Group CLO serves in a dual function as a strategic business partner in an enabling capacity as well as in the role of a controller in an oversight and governance capacity.
The Board of Directors has delegated the management of SRL and the Group to the Group EC. Such delegated tasks are within the responsibility of the entire Group EC. The Group EC discharges its responsibilities as a joint body, except for responsibilities delegated to the Group CEO and further Group EC members. For an overview of the Group EC’s key responsibilities, please see page 103.
The Annual General Meeting elects the Independent Proxy for a one-year term of office.
Voting right restrictions, statutory group clauses and exception rules SRL does not have any voting right restrictions or statutory group clauses (other than the limitations on nominee registrations set out on page 87) in place. Therefore, there are no procedures or conditions for cancelling restrictions and no rules on making exceptions to them. Accordingly, no such exceptions were granted in 2019.
The Chairman of the General Meeting of shareholders determines the voting procedure. Provided that the voting is not done electronically, voting shall take place openly based on a show of hands or by written ballot.
Convocation of the General Meeting of shareholders In accordance with SRL’s Articles of Association, the Board of Directors convenes the General Meeting of shareholders through a notice published in the Swiss Official Gazette of Commerce at least 20 days before the date of the meeting. The notice must state the day, time and place of the General Meeting of shareholders, along with the agenda and proposals, which will be submitted by the Board of Directors.
SRL’s Articles of Association contain neither an “opting up” nor an “opting out” provision.
Change of control clauses The mandates and employment contracts of the members of the Board of Directors, Group EC and further Executive Management members do not contain any provisions such as severance payments, notice periods of more than 12 months, additional pension fund contributions or the treatment of deferred compensation that would benefit them in a change of control situation.
Cooperation and flow of information between the auditor and the Audit Committee The Audit Committee liaises closely with the external auditor. The lead auditors participate as advisors at all Audit Committee meetings. For more information, see page 101.
Fees paid to the auditor The fees (excluding value added taxes) for professional services provided by PwC in 2019 were as follows: USD millions 2018 2019 Audit fees 31.3 31.0 Non-audit fees 6.9 12.3
In 2019, audit-related assurance services included the support of the initially planned IPO and the agreement to sell ReAssure, other transaction-related advice as well as assurance services required by Swiss Re’s regulators. Services relating to corporate finance transactions included support on potential capital market transactions, Tax related services comprised advice on a number of tax assignments and other non-audit services included permitted advisory services related to a variety of initiatives such as the setting up of the IFRS programme, the implementation of client management software and the enhancement of Swiss Re’s training programme.
In September 2018, the Audit Committee decided to launch a tender process in Q1/2019 for a new external auditor of the Group. After a thorough tender process, the Board of Directors decided, as proposed by the Audit Committee and in line with the main criteria mentioned in the chapter on the evalution of the external auditor (far left of this page), to propose KPMG to the AGM 2020 for election as the new external audit firm to replace PwC for the financial year starting on 1 January 2021. On 31 July 2019, Swiss Re publicly announced the Board of Director’s decision to nominate KPMG as the new auditor as part of the news release on the H1/2019 US GAAP results. For the news release, please refer to: www.swissre.com/media/newsreleases /nr-20190731-hy-2019-newsrelease. html
Special Auditor SRL’s Articles of Association foresee that the Annual General Meeting may elect a Special Auditor for a term of three years which would be responsible for the special audit reports that are required by Swiss law in connection with changes in capital. Currently there is no Special Auditor elected.
At www.swissre.com/media/contacts, interested parties – internal or external – can subscribe to the Media Relations mailing list to receive ad hoc disclosures and relevant corporate news via email. Contact details are provided on page 318.
On 23 May 2019, Swiss Re hosted Management Dialogues in London, where Jayne Plunkett, former CEO Reinsurance Asia, provided insights on the Asia strategy and growth. Jason Richards, Head Casualty Underwriting Reinsurance, explained Casualty’s risks and opportunities and Thierry Léger, CEO Life Capital, and Pravina Ladva, CTOO Life Capital, explained the iptiQ strategy. At the Investor’s day in London on 25 November 2019, the Group CEO, Christian Mumenthaler, provided an update on the Group strategy, John R. Dacey, the Group CFO, on Swiss Re’s financial strength and capital management, and the Group CIO, Guido Fürer, on the Group’s asset management. The Business Unit CEOs gave updates on the businesses of the three Business Units, Reinsurance, Corporate Solutions and Life Capital, and the Chairman Swiss Re Institute & Group CUO spoke about Reinsurance’s capital portfolio steering. The presentations as well as the conference call recordings from these events are available at: www.swissre.com/investors/presentations
Swiss Re strictly observes close periods around the publication of the Group’s financial results. Close periods apply through the preparation of results or key financial data, and include a cooling-off period after their release. During such close periods, Swiss Re employees and members of the Board of Directors are not allowed to trade Swiss Re shares or financial instruments related to such shares.
20 February Annual results 2019 19 March Publication of Annual Report 2019 and 2019 EVM results as well as the AGM 2020 invitation 17 April 156th Annual General Meeting 30 April Release of first quarter 2020 key financial data 19 May Management Dialogues, Zurich 31 July Half-year 2020 results 30 October Release of nine months 2020 key financial data 20 November Investors’ day, Zurich
Swiss Re’s vision “we make the world more resilient” is supported by our mission – to create smarter solutions for our clients through new perspectives, knowledge and capital. The combination of these strengths makes Swiss Re a partner of choice for our clients. At the same time, Swiss Re wants to be an employer of choice for our employees. Its compensation framework is therefore designed to attract, motivate and retain the qualified talent the Group needs to succeed globally while providing superior returns to our shareholders. During the past year, the Compensation Committee monitored: • The alignment of Swiss Re’s
• Life & Health Reinsurance met its return on equity target and delivered a strong EVM new business profit.
Group Annual Performance Incentive 2019 In years with relatively benign natural catastrophe experience, variable compensation payouts were positive but not excessive. Conversely, in adverse environments, the negative impact shall be substantive but also proportionate, given the need to carefully manage key talent retention risk and the Group’s willingness to underwrite risk. Swiss Re’s US GAAP performance was below target, but higher than last year. This backdrop, in conjunction with the qualitative performance assessment, led the Compensation Committee and the Board of Directors to grant variable compensation payouts that are below target levels.
Compensation framework Swiss Re’s compensation framework is designed to promote long-term sustainable performance for the Group and its shareholders through a mix of fixed and variable compensation components. It comprises fixed components such as base salary, pension and other benefits, as well as a combination of variable short- and long-term incentives, as outlined later in this Compensation Report.
AGM 2020 The Compensation Committee remains committed to recommending compensation policies and programmes to the Board of Directors that support our business strategy and align the interests of our employees with those of our shareholders. We are therefore keen to maintain regular interactions with shareholders and other key stakeholders.
Consistent with last year and in line with our Articles of Association, shareholders will again be asked to approve the following amounts: • Maximum aggregate amount of
Separately from this and as in the past, shareholders will also be asked to support this Compensation Report in a consultative vote. The Compensation Committee is satisfied that this Compensation Report complies with applicable laws, rules and regulations and provides a comprehensive view of the compensation framework at Swiss Re and the 2019 compensation decisions.
The Compensation Committee monitors how compensation is aligned with specific business metrics, including US GAAP net income and EVM profit.
1 Variable/performance related, whereby VAI and LPP are deferred 78% Grundsalär 17% Bar-API1 2% VAI1 3% LPP1 31% Grundsalär 19% Bar-API1 16% VAI1 34% LPP1 26% Grundsalär 19% Bar-API1 19% VAI1 36% LPP1
USD millions (unless otherwise stated) 2017 % 2018 % 2019 %
Income before tax and variable compensation 814 100% 863 100% 1 218 100%
2 Includes shares bought back between 6 May 2019 and 18 February 2020 as part of the buyback programme authorised at the AGM 2019. The total amount represents an estimate translated at the respective period average rate.
Compensation Policy Building on the overarching compensation principles included in Swiss Re‘s Articles of Association, the compensation framework is captured within the Swiss Re Group Compensation Policy (Compensation Policy). The Compensation Policy governs the compensation structure and processes across all functions and locations at Swiss Re and is reviewed regularly.
The Human Resources function conducts a regular self-assessment of Swiss Re’s Compensation Policy. The Compensation Committee reviews this self-assessment and identifies potential areas for improvement. It also receives reports on compensation decisions as appropriate, including a comprehensive review of the effectiveness of the annual compensation review cycle.
Base salary Benefits Cash API VAI (deferred API) LPP GSPP Eligibility All
Plan duration 3 years 5 years for Group EC members and other key executives** (including a 2-year holding period); 3 years for remaining participants 3 years
Structure Swiss Re operates a Target API (TAPI) system along with a performance management framework that provides equal weighting to results-oriented and behaviour-related performance criteria for all employees. API is awarded for both objectives achieved and the demonstration of desired behaviours.
A TAPI is set based on multiple factors, but primarily on the role being performed, internal calibration and market benchmarks. The employee’s total compensation and pay mix are taken into account when setting the TAPI. The possible payout for the API ranges from 0 to 2 × TAPI.
In 2019, for the members of the Group EC including the Group CEO, the total of the aggregate TAPIs amounted to CHF 15.02 million. This is an increase compared to the prior year, which is due
to the number of Group EC positions being increased from 12 to 14 in 2019 (the existing positions of Group Chief Human Resources Officer and Group Chief Legal Officer have been added to the Group EC). The 14 positions were held by a total of 16 individuals during 2019. For the Group CEO, the TAPI was CHF 2.5 million for the same year.
Within those dimensions, the assessment includes, among others, environmental, social and governance (ESG) as well as sustainability considerations in accordance with our corporate values. The preliminary Group API pool is then reviewed considering a number of different perspectives, including pay for performance linkage, reasonableness in the market context and proportionality of value-sharing among employees and shareholders. As part of the process, the Compensation Committee can apply discretion to make upward or downward adjustments to the pool recommended for approval to the Board of Directors. For information on the discretion applied in 2019, please refer to page 138 of this Financial Report.
Value Alignment Incentive Purpose The VAI is the mandatory deferred portion of the API which introduces a time component to the performance-based, variable compensation. This supports the Group’s business model by aligning a portion of variable compensation with sustainable long-term results. The aim is to ensure that the ultimate value of the deferred variable compensation is affected by the longer-term performance of the relevant Business Unit and the Group.
Performance measurement The performance measurement calculation uses the three-year average of the published EVM previous years’ business profit margin.
EVM is Swiss Re’s proprietary integrated economic valuation and steering framework, consistently measuring performance across all businesses (please refer to the EVM section on pages 34–47 of this Financial Report).
A higher EVM previous years’ business profit margin (for all prior underwriting years) results in a higher performance factor. Conversely, a lower EVM previous years’ business profit margin results in a lower performance factor. The performance factor is a linear function, whereby payout generally ranges from 50% to 150%.
Additionally, clawback provisions apply in a range of events as defined in the VAI plan rules (please refer to page 129 of this Financial Report for details on termination and clawback provisions).
Leadership Performance Plan Purpose The purpose of the Leadership Performance Plan (LPP) is to provide an incentive for Swiss Re’s senior management (including the members of the Group EC) to create sustainable company performance over the long term. The LPP is a forward-looking instrument awarded to incentivise decisionmaking that is also in the shareholders’ interest.
Grant The amounts disclosed under LPP in the section “Compensation disclosure and shareholdings 2019” reflect the grants made in April 2019. The LPP 2019 will be measured over the period 2019 to 2021 and vests in 2022. Grant levels are determined based on multiple factors including the role being performed and market benchmarks.
Structure At the grant date, the award amount is split equally into two underlying components: Restricted Share Units (RSUs) and Performance Share Units (PSUs). The valuation by a third party is used to determine the number of RSUs and PSUs granted.
V e st in g a ft e r th re e y e a rs
Restricted Share Units The performance condition for RSUs is ROE with a linear vesting line. Vesting is at 0% for an ROE at the risk-free rate* and at 100% for an ROE at a pre-defined premium above the risk-free rate. The premium is set at the beginning of the plan period, and for LPP 2019, this premium has been set at 900 basis points above the risk-free rate. At the end of each year, the performance against the ROE condition is assessed and one third of the RSUs are locked in within a range of 0% to 100%. At the end of the three-year period, the total number of units locked in at each measurement period will vest (capped at 100%**).
Swiss Re’s three-year TSR performance is assessed relative to the TSR of the pre-defined peer group for the same period. This peer group consists of companies that are similar in scale and have a global footprint or a similar business mix to Swiss Re. The peer group, which is set at the beginning of the plan period, includes Allianz SE, American International Group Inc, Aviva PLC, AXA SA, Chubb Limited, Everest Re Group Ltd, Hannover Rueck SE, MetLife Inc, Muenchener Rueckversicherungs -Gesellschaft AG, Prudential PLC, QBE Insurance Group Ltd, Reinsurance Group of America Inc, RenaissanceRe Holdings Ltd, SCOR SE and Zurich Insurance Group Ltd.
For LPP performance outcomes over past years, please refer to page 140.
Any new LPP grants as of 2020 consider relative TSR, ROE and absolute ENW growth. At grant, the award is split in three components with equal value whereby each component is linked to one performance metric. These components have vesting multiples set between 0% to 100% for ROE and absolute ENW growth, and between 0% and 200% for relative TSR.
More details on the plan, structure and performance measurement will be included in the 2020 Compensation Report. Current outstanding LPP awards (grants prior to 2020) are unaffected by the change.
* The annual risk-free rate is determined as the average of 12 monthly rates for ten-year US Treasury bonds of the corresponding performance year. ** Maximum vesting percentage excludes share price fluctuation until vesting.
Termination for cause Unvested awards are forfeited as of the date of termination of the employment relationship.
Unvested awards shall vest immediately using the performance factors as presented during the latest Compensation Committee meeting.
Mutual agreement Unvested awards may vest at Swiss Re’s sole discretion. The final decision is subject to the review and approval of the Business Head, Head of Reward, Group Chief Human Resources Officer, Group CEO and, if applicable, the Compensation Committee.
With regard to deferred compensation, in the event of a change of control, the rights of members of the Group EC and other members of senior management are identical to those of all other employees. Both the VAI and LPP Plan Rules include provisions governing change of control events.
All vested shares that are owned directly or indirectly by the relevant Group EC member and related parties will be included in the assessment of whether the guidelines have been met or not.
• The maximum aggregate amount of compensation for the members of the Board of Directors is approved by the Annual General Meeting (AGM) in advance of the term of office for which the Board members are (re-)elected.
Certain committees, such as the Audit Committee, meet more frequently or hold longer meetings, and hence have higher workloads reflected in their fees. The table on page 101 of the Financial Report provides an overview of the meetings of the Board of Directors and its committees held in 2019.
The Chairman of the Board of Directors devotes himself full-time to his role. In defining the position of Chairman as a full-time role, Swiss Re applies best practice for regulated, complex financial institutions.
For further details on the duties and required expertise of the members of the Board of Directors (including the Chairman and Vice Chairman), please refer to pages 94 and 95 in the Corporate Governance Chapter of the Financial Report.
Fee approval In line with Swiss law, and as outlined in the Articles of Association, the aggregate compensation for the members of the Board of Directors for the next term of office is subject to shareholder approval at the AGM.
Subsidiary boards of directors The majority of the board members at subsidiary level are Swiss Re executives. They do not receive any additional compensation for their services in these roles. The non-executive members of the subsidiary boards receive their fees 100% in cash. When a member of the Board of Directors of Swiss Re Ltd also serves on the board of a subsidiary, the aggregate compensation of the Board of Directors proposed to the AGM for approval also includes any subsidiary board fees.
Authority for decisions related to compensation at the Board and Group EC level is governed by the Articles of Association and the Bylaws of Swiss Re Ltd, including the Charter of the Compensation Committee. The main responsibilities of the Compensation Committee are summarised in the table on the right.
• Is governed by a Charter approved by the Board of Directors, which defines the purpose, composition and procedural rules of the Compensation Committee, including its responsibilities and authorities for making proposals and decisions related to compensation of the members of the Board of Directors and the Group EC.
• No individual may attend any part of a meeting where their own compensation is discussed.
Secretary • The Head of Reward serves as the Secretary to the Compensation Committee and attends its meetings (apart from the executive sessions).
Compensation Committee activities The Compensation Committee operates as the Group’s global compensation committee and oversees the compensation framework applied at all entities of the Swiss Re Group.
Compensation approvals The table below shows the approval processes for key compensation decisions: Compensation Committee’s time allocation to key topics in 2019 22% Pay for performance for the Group 14% Pay for performance for Group EC members 17% Compliance and regulatory 17% Executive sessions 20% Review of compensation
framework 10% Other topics compensation for the Group compensation framework and regulatory and performance of members sessions
Compensation Committee Chairman of the Board of Directors, Board of Directors
Individual compensation for the members of the Board of Directors (excl. Chairman of the Board of Directors)
seven occasions, it passed decisions by circular resolution. A high-level overview of topics dealt with by the Compensation Committee during the year is shown on page 134 of this Financial Report.
Outlined below is an overview of the main topics discussed during the six Compensation Committee meetings held in 2019: January February April June September December
In 2019, Swiss Re identified 175 positions, held by 180 employees throughout the year, who qualify as Key Risk Takers. This group consists of the members of the
Group EC, Business Unit EC members, other key executives and roles with core risktaking authority. The list of Key Risk Takers is reviewed on a regular basis by Group Risk Management and Human Resources.
Influence of the behavioural assessment on compensation The risk and control-related behaviour assessment of Group and business functions provides additional input to help determine the Group API pool and its allocation to each business function.The assessment of each Key Risk Taker serves as an additional factor when considering individual performance and compensation outcomes.
The outcomes of the financial, qualitative and overall assessment, all part of Swiss Re’s three-step funding process (as described on pages 125–126 of this Financial Report), determined the Group API pool for 2019.
US GAAP financial performance Property & Casualty Reinsurance’s net income was adversely affected by the large natural catastrophe and man-made losses. Life & Health Reinsurance’s performance benefited from realised gains on fixed income securities and solid underwriting results due to active portfolio management and improved mortality developments in the Americas, partially offset by a negative adjustment to the carrying value of an existing treaty, which had to be fair valued following the acquisition of Old Mutual Wealth Life Assurance Limited by ReAssure from Quilter plc, reflecting the decrease in interest rates since treaty inception.
Life Capital’s result reflected a charge related to the agreement to sell ReAssure. Excluding this one-time accounting impact, the net result would have been favourable. The strong gross cash generation was mainly driven by the 10%-stake sale in ReAssure to MS&AD and the sale of subordinated bonds issued by ReAssure.
For further details on the US GAAP financial performance, refer to pages 170–285 of this Financial Report.
EVM financial performance The underwriting result of Property & Casualty Reinsurance was primarily driven by higher-than-expected claims, mostly in Casualty, as well as large natural catastrophes and man-made losses. The investment profit mainly reflected a strong performance from equities and alternative investments as well as favourable market development on credit investments and bonds. The Life & Health Reinsurance underwriting new business profit showed transactional business growth in the Americas and EMEA and strong business performance in the Americas, partially offset by a previous years’ business loss driven by reserve strengthening and higher-than-expected losses in all regions. The investment profit was mainly driven by favourable market development on USD credit investments and strong performance from equity investments.
The unfavourable underwriting result of Life Capital was primarily driven by expenses, partially offset by the gain on the agreement to sell ReAssure. This was more than offset by investment activities, driven by favourable market development on UK credit investments and positive performance from equity exposure arising from the unit-linked portfolio.
When it comes to franchise building, Swiss Re is a recognised voice on topics such as societal resilience and climate risks at major industry events such as the World Economic Forum. Our data-driven research publications, including the industry leading sigma, enabled risk-focused decisionmaking and identified strategic opportunities in the re/insurance industry. Reinsurance’s NatCat campaign further strengthened Swiss Re’s thought leadership position.
On Human Capital and Talent Management, Swiss Re increased female representation in management positions as we believe this is critical to our success. Bloomberg recognised our strong commitment to and transparency on gender-related topics in the workplace by again including Swiss Re in its Gender-Equality Index. Staff commended the open and inclusive culture that embraces individual differences. Initiatives to foster this diverse and inclusive culture comprised policy and benefit changes to Swiss Re’s LGBTI+ community, among other measures.
The capital market review highlighted that Swiss Re’s proposed value-sharing with employees in terms of revenue is below peers’ historical three-year median levels, giving a higher percentage distribution to shareholders.
The Group developed innovative solutions and played a leading technical role. It cooperated with clients, and public and private partners. For example, together Swiss Re: • Landed China’s first ever county-level
natural catastrophe programme, providing comprehensive coverage against losses caused by geological disasters.
Annual Performance Incentive Both the Compensation Committee and the full Board of Directors assessed in depth the 2019 performance of Swiss Re Group. The financial performance was below target, but higher than last year, as shown in US GAAP and EVM results. Combined with the Group’s strong qualitative performance, this has resulted in steps 1 and 2 in variable compensation payouts that are below target levels. Considering in step 3 aspects such as pay positioning, key talent retention risk and future growth potential, the Compensation Committee has applied upward discretion to the proposed API pool recommended for approval to the Board of Directors. This payout decision is supported by our long-standing practice where we have positive but not excessive variable compensation payouts in years with relatively benign natural catastrophe environments, and conversely, lower but proportionate variable compensation payouts in adverse environments.
Net operating margin EVM profit (% of ENW) ENW growth per share
Client and service quality Risk and control behaviour Franchise building Human capital and talent management Strategic initiatives
Illustrative example of realised performance for the VAI 2016 (awarded 2017) Granted and realised VAI are shown below for a grant of CHF 100 000 on the VAI 2016 (awarded 2017). For illustrative purposes, this example considers only the Group performance factor. For disclosure of actual realised compensation 2019 for the Group CEO, please refer to page 144 of this Financial Report.
Leadership Performance Plan The LPP award is consistently linked to the Group’s future achievement of multi-year performance conditions (ROE and relative TSR), keeping the focus on the long-term success of the Group. Swiss Re made LPP grants in 2019 consistent with this rationale. The LPP is generally part of total compensation (see pages 127–128 for a detailed description of the LPP).
The PSU component is based on relative TSR, measured against a pre-defined basket of peers, and vests within a range of 0% to 200%. For both the LPP 2016 and LPP 2017, the performance factor for the PSUs was 0% for the three-year period. The table below gives an overview of the RSU and PSU performance achievement for the previous LPP plan years: LPP plan year Performance period remaining as of 31 December 2019
2018 1 year to be determined to be determined 2019 2 years to be determined to be determined
1 The LPP 2017 grant was based on a grant valuation share price of CHF 90.70 (as of 24 February 2017, ie the date after publication of the 2016 annual results). 2 Since vesting of LPP 2017 will occur after the publication of this report, the closing share price at year-end 2019 was used to estimate the realised value.
Aggregate compensation of the Swiss Re Group The aggregate compensation for the performance years 2018 and 2019 for all employees was as follows: As of 31 December 2019, the Group had 15 401 employees worldwide, compared to 14 943 employees at the end of 2018.
In 2019 and 2018, an increase of expenses amounting to CHF 1 million and a reduction of expenses amounting to CHF 3 million, respectively, was recognised for compensation in previous financial years.
Aggregate compensation for Key Risk Takers The aggregate compensation of the individuals that held a key risk-taking position during the performance years 2018 and 2019 was as follows: Performance year 2018 Performance year 2019
Pensions, social security and benefits 14 943 443 15 401 509
2 Foreign currency conversions calculated using December 2019 year-to-date FX rates for 2019 figures and December 2018 year-to-date FX rates for 2018 figures (where relevant). 3 Includes separate variable short-term and long-term compensation schemes for ReAssure. 4 Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and
those amendments (which apply both to Group EC members insured in Switzerland and all other employees insured in Switzerland), the figure disclosed for 2019 includes higher employer pension contributions and contributions to mitigate the effects of lower conversion rates.
2019 disclosure includes pro-rata payments in relation to the active period on the Group EC for individuals who joined or left the Group EC in 2019. The 2018 disclosure includes full-year payments for all individuals (ie no pro-rata approach has been applied). If a pro-rata approach had been applied on the 2018 disclosure, this would have resulted in Cash Annual Performance Incentive payments of CHF 7 420 thousand and Value Alignment Incentive payments of CHF 6 264 thousand.
The proposed total API (including VAI) amount for 2019 for the Group EC (including the Group CEO) is CHF 14.1 million. This includes pro-rata payments in relation to the active period on the Group EC for individuals who joined or left the Group EC in 2019. For comparison purposes, the total API (including VAI) amount for 2018 includes full-year payments for all individuals who held a Group EC position at one point during the year 2018 (ie no pro-rata approach has been applied). If a pro-rata approach had been applied on the 2018 disclosure, this would have resulted in API (including VAI) payments of CHF 13.7 million.
While the Group’s financial performance in 2019 was below target, the Board of Directors recognised that an outstanding investment result was achieved based on decisive action on asset allocation strategy, very disciplined continuation of significant improvements on the cost side without cutting too deep into the knowledge base of the Group and a strong delivery on the agreement to sell ReAssure (subject to regulatory and anti-trust approvals).
In particular, the Board of Directors was satisfied with how decisively the turn around at Corporate Solutions was initiated under the strong and very close guidance of the Group CEO: the underwriting portfolio was pruned, new talent was brought in, costs were cut and at the same time morale and fighting spirit in the Business Unit were maintained. The Board of Directors also appreciated the Group’s efforts in the areas of technology, digitalisation and particularly in developing successful new business models.
Overall, the Board of Directors was pleased with the Group CEO’s effective management of the Group despite challenging conditions.
Cash Annual Performance Incentive3 1 063 1 088 1 Benefits or allowances paid in cash. Includes healthcare and accident insurance benefits, lump sum expenses, transportation, and child and similar allowances. 2 Swiss Re’s Pension Fund has amended its regulations with effect from 1 January 2019, including some adjustments to the benefits provided to insureds in Switzerland. In consideration of
3 For 2019, subject to shareholder approval at the AGM 2020. For 2018, as part of the aggregate amount of short-term variable compensation approved by the shareholders at the AGM 2019. 4 Disclosure reflects all awards for a reporting year, ie the 2018 value reflects the fair value of the LPP award granted in April 2018 and the 2019 value reflects the fair value of the LPP award
granted in April 2019. 5 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
Additional information on compensation decisions For US GAAP and statutory reporting purposes, VAI and LPP awards are accrued over the period during which they are earned. For the purpose of the disclosure required in this Compensation Report, the value of awards granted is included as compensation in the year of performance for the years 2018 and 2019, respectively.
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 2018 2019
Raymond K.F. Ch’ien, member1 439 311 130 441 Mary Francis, former member2 117 0 0 0
Rajna Gibson Brandon, former member2 109 0 0 0 C. Robert Henrikson, former member, former Chair Compensation Committee2
Total compensation for the reported financial years6, 7 9 506 6 044 3 494 9 538 1 Includes fees for duties on the board of Singapore Group companies.
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). In 2019, all existing loans and mortgates have been transferred to an external party. No new loans and mortgages were offered as of 1 July 2019.
The following table reflects total mortgages and loans offered by Swiss Re for members of the Group EC as of 31 December: CHF thousands 2018 2019
Eileen Rominger, member 225 50 275 Philip K. Ryan, member, Chair Finance and Risk Committee
Sir Paul Tucker, member 225 50 50 325 Jacques de Vaucleroy, member, Chair Compensation Committee
Total compensation for the term of office from AGM 2019 to AGM 20203 9 605 1 Including Vice Chairman or subsidiary fees (converted to CHF at 2019 average exchange rates where applicable). 2 Excluding company contributions to social security systems paid by Swiss Re in line with applicable laws. 3 Including an amount of approximately CHF 15 000 for minimal benefits.
Board of Directors Term of office: AGM 2019–AGM 2020 CHF millions
Shareholder compensation resolutions and awarded compensation The following explanations give an overview of the applicable framework of Swiss Re Ltd’s Articles of Association based on the Ordinance, the approvals by the shareholders at the AGM 2019 of the respective motions proposed by the Board of Directors and the reconciliation of the shareholders’ resolutions with the compensation awarded in the reporting year 2019.
Framework of the Articles of Association In accordance with Article 22 of the Articles of Association, the Shareholders’ meeting shall approve annually and with binding effect the proposals of the Board of Directors in relation to: a) The maximum aggregate amount of compensation of the Board of Directors for the next term of office. b) The maximum aggregate amount of fixed compensation and variable long-term compensation of the Group EC for the following financial year. c) The aggregate amount of short-term compensation of the Group EC for the preceding completed financial year.
AGM 2019 voting results At the AGM on 17 April 2019, shareholders approved for the fifth time the maximum aggregate prospective compensation of the members of the Board of Directors (89.98% approval). Shareholders also approved for the Group EC (i) the maximum aggregate prospective fixed compensation and variable long-term compensation and (ii) the aggregate retrospective variable short-term compensation. The outcomes were 87.59% and 89.57% approval, respectively. As in previous years, the 2018 Compensation Report was subject to a consultative vote and was approved by 89.92% of the shareholder votes.
The amount of fixed compensation and variable long-term compensation effectively granted to the 16 individuals who held a Group EC position at one point during the financial year 2019 amounts to CHF 32.9 million and includes compensation and associated costs in relation to the period in a Group EC position for Andreas Berger, Anette Bronder, Nigel Fretwell, Hermann Geiger and Urs Baertschi who joined the Group EC during the year (those appointments were not known at the time of the AGM 2018).
AGM 2020 motion for variable short-term compensation for the Group EC for the financial year 2019 At the AGM 2020, the Board of Directors will propose to the shareholders to approve an aggregate amount of CHF 14 144 529 for variable short-term compensation in relation to the completed financial year 2019 for the 16 individuals who were members of the Group EC at one point during the financial year 2019. 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 143 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 2019.
PricewaterhouseCoopers AG, Birchstrasse 160, Postfach, CH-8050 Zurich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch
These disclosures provide a foundation to improve investors’ and other stakeholders’ ability to appropriately assess and price climate-related risk and opportunities.
We adopt this approach throughout our re/insurance value chain, comprising of both the liability and the asset sides of our balance sheet, our own operations and dialogue with our stakeholders.
Climate-related financial disclosures “Mitigating climate risk and advancing the energy transition” is one of these ambitions. This is why we continue to play an active part in the Task Force on Climate-related Financial Disclosures (TCFD, www.fsb-tcfd.org) since it was set up by the Financial Stability Board.
We began to implement the TCFD recommendations in our 2016 Financial Report and have since continued to expand our climate-related disclosures. The table on page 153 provides an overview of the core elements of these disclosures, which are covered on the following pages.
• In our operations already by 2030 1 Net-zero emissions means that for every tonne of CO2 that cannot be reduced, a tonne needs to be removed from the atmosphere and stored permanently through so called carbon removal technologies.
The Chairman’s and Governance Committee, presided over by the Chairman, has the overall responsibility of monitoring the Group’s Strategic Priorities on enabling sustainable progress, including initiatives and actions specifically addressing climate change.
As we move to implement our enhanced Group Sustainability Strategy, we will also introduce a number of key performance indicators at the Group Executive Committee level. One such indicator will align Swiss Re’s business actions with the goals of the Paris Agreement to limit a global temperature rise to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C.
We regularly assess the actual and potential impacts of climate-related risks and opportunities on our business, strategy and financial planning.
In view of the high potential relevance of climate change for our P&C businesses, climate change continues to be an essential element in our enhanced Group Sustainability Strategy, which includes “Mitigating climate risk and advancing the energy transition” as one of our three 2030 Sustainability Ambitions. As part of this ambition, we have developed a Climate Action Plan.
Building on our commitments and initiatives of recent years, our Climate Action Plan (which serves as our climate strategy), combines three objectives: 1. Becoming the leading re/insurance company providing cover for physical climate risk 2. Becoming a leading provider of re/insurance solutions for low-carbon transition opportunities 3. Building partnerships to develop scalable solutions to mitigate and adapt to climate change
Climate-related risks Physical risks Physical risks posed by climate change could potentially affect four areas of our business. They can: • Reduce/disrupt our operations • Influence modelling and pricing of weather-related natural perils • Impact the economic viability of re/insurance for risks exposed to extreme weather events
Physical risks conclusion: Although the physical risks arising from climate change will have significant economic consequences over time, especially from a wider societal perspective, they represent a limited and manageable risk for Swiss Re.
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 economy. We have assessed the two transition risks that may potentially affect our business: • Climate-related litigation risks • Risks from technological and market shifts
To address the residual risk, we have recently started to develop a carbon risk steering mechanism. Its key component will be a carbon risk model designed to measure our carbon intensity and the associated risks embedded in our re/insurance business.
We also intensified our efforts to decarbonise our business by committing to net-zero emissions by 2050 on the liability and the asset sides of our balance sheet. A further step towards this commitment was the development of a policy to shift away from highly carbon-intense oil and gas production.
From July 2021, we will no longer provide individual/insurance covers for those oil and gas companies that are responsible for the world’s 5% most carbon-intense oil and gas production.
From July 2023, we will no longer provide individual insurance covers for those oil and gas companies that are responsible for the world’s 10% most carbon-intense oil and gas production.
Transition risks in our re/insurance business conclusion: Overall, it is our view that the transition to a low-carbon economy is not expected to present a significant financial risk for Swiss Re. Mainly due to the annual renewal of contracts, we expect the associated risks can be managed effectively.
Based on these market developments, we continue to focus on policy and legal risks, as well as technology risks, as we mainly expect changes within these two dimensions to potentially impact asset values. In this way, we aim to capture those industries and groups of companies that are most exposed to these risks and may therefore require adjustments in the near to medium term.
Based on our commitment to support the transition to a low-carbon economy, we have been measuring the weighted average carbon intensity1 of our corporate credit and listed equities portfolios since the end of 2015. Measurement results are presented in the “Metrics and targets” section (pages 164–167). As part of our mitigation strategy, 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.
Transition risks in our investments conclusion: While we expect some policy and legal adjustments in the market environment, we do not consider the transition to a low-carbon economy as a significant financial risk for Swiss Re. This view is formed on the basis of having a strong mitigation strategy in place, which is regularly reviewed and adjusted, as well as the constant monitoring of our portfolio.
In addition, we undertake special efforts to help expand re/insurance protection by focusing on non-traditional clients (in particular from the public sector), underdeveloped markets and innovative risk transfer instruments. You can read about some innovative transactions we have recently completed in our 2019 Sustainability Report, pages 25–31.
Opportunities related to transition risks in our re/insurance business While Swiss Re is active in all types of renewable energy re/insurance, over the years we have become a recognised lead market for offshore wind risks. More than five years ago, Swiss Re Corporate Solutions established a Centre of Competence for Wind Power and through this focused investment, we have built up and refined the technical expertise required to understand and manage these risks. For example, in 2019, we played a key role in several major windfarm projects, including the Parc éolien en mer de St-Nazaire, the first large commerical windfarm project in France. Additionally, we took on the role of lead insurer for a number of large projects in Taiwan – Formosa II and Greater Changhua 1 & 2a. Over the next decade, we expect many new development opportunities to
Infrastructure renewables For our infrastructure loan mandates, we work with best-in-class managers to gain access to, and provide financing for, renewable energy projects that reflect our risk appetite, generate attractive long-term returns and help build a more sustainable energy supply for the future. Renewables make up approximately 13% of our infrastructure portfolio, whereof 76% are in solar panels and 24% in wind farms.
1 Moody’s, “Sustainable Finance – Global: Green, social and sustainable bond issuance to hit record $400 billion in 2020”, 3 February 2020 2 Moody’s – Green bonds: Key numbers and trends, 2018 arise, which are likely to create demand for re/insurance protection in numerous lines of business (credit, engineering, property, liability, etc).
Opportunities for our investments We expect to experience, particularly over the longer term, an improved risk/return relationship in our investment portfolio as part of our consistent and broad-based integration of environmental, social and governance (ESG) criteria along the investment process. We address sustainability risks such as climate change to make the portfolio more resilient against financial market shocks. This is of crucial importance as such risk factors are not yet fully reflected in current market valuations.
29.0% Agencies 1.0% Basic industries 13.6% Financials 2.4% Information technology 2.9% Municipals 0.4% Non-cyclical consumer goods 10.8% Regional governments 0.2% Resources 11.3% Sovereigns 16.2% Supranationals 9.7% Utilities 2.5% Non-cyclical services
New property investments are evaluated from an ESG perspective, which includes both a property’s current and potential future status as it relates to energy efficiency, public transport connectivity, use of sustainable materials, occupier well-being and community engagement. Ongoing business plan execution and asset management of properties already in the portfolio always incorporate different ways to improve ESG characteristics, as economically and financially sensible.
For investment real estate in Switzerland, we apply the following sustainability criteria: analysis of energy sources as a percentage of market value and MINERGIE® certifications. MINERGIE® is a Swiss sustainability label for new and refurbished buildings. By the end of 2019, the combined value of our MINERGIE®-certified buildings reached USD 0.4 billion, or 23% of our Swiss portfolio of direct real estate
Gas Öl Fernwärme Erneuerbare Energie Übrige1 investments by value, which corresponds to a gross floor area of 82 497 m2. The Swiss portfolio is gradually shifting away from fossil fuels as a heating source to either renewable energy (14%) or district heating (15%). Whenever this is not possible, gas (49%) is considered as an alternative, given its smaller carbon footprint compared to oil (19%).
The externally managed real estate portfolio is predominantly invested in Australia, the UK and the US, and contains 47% green buildings based on regional energy labels. The Australian portfolio is the most advanced, followed by the UK portfolio.
22% BREEAM “Excellent” 27% BREEAM “Very Good” 51% Not certified 16% LEED “Gold” 28% LEED “Silver” 56% Not certified
22% BREEAM «Ausgezeichnet» 27% BREEAM «Sehr gut» 51% Nicht zertifiziert 16% LEED «Gold» 28% LEED «Silber» 56% Nicht zertifiziert
41% NABERS Energie 5 14% NABERS Energie 4/4.5 45% NABERS Energy < 4 oder nicht zertifiziert
Swiss Re’s climate resilience under different scenarios The TCFD requests companies to describe the resilience of their strategy, taking into account different climate related-scenarios including one of, or less than 2°C increase. In principle, it would be possible for us to compute the potential long-term effects caused by climate change on AEL based on today’s re/insurance book. However, we do not consider this to be meaningful as a stand-alone exercise, for the following reasons outlined below.
On a societal level, our Economics of Climate Adaptation studies have shown that climate change can lead to an increase of economic losses 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.
To summarise, we do not consider climate change to be a single factor posing a fundamental threat to the resilience of our business. It is one of many equally important factors we will need to take into consideration when shaping our future business strategy. A key precondition for our ability to continue acting as an ultimate risk-taker is diversification, with regard to regions, lines of business, sectors and clients. In a world of strong or unmitigated climate change, however, the proportion of weather-related risks we could re/insure would decline and the protection gap would likely increase further. In light of the above, we are developing qualitative scenarios for physical and transition risks to be considered as part of our strategic business planning.
We have an internal property risk modelling team that builds, maintains and updates sophisticated models for all relevant natural catastrophe risks (flood, tropical cyclones, wind storms, earthquakes). The models are based on current scientific knowledge and are regularly updated to include new scientific findings – including from our research collaborations with academic institutions – and to make use of advances in computing capabilities. Using statistical data spanning more than 100 years, our models are capable of simulating probabilistic “daughter” events that may have never occurred in reality but that may occur in the future.
Transition risks in our re/insurance business To ensure appropriate management of transition risks and assess potential impacts on our business, we have set up a monitoring system that combines expertise in risk management and casualty underwriting, as well as for relevant legal developments.
General sustainability risks in our re/insurance business We use our Sustainable Business Risk Framework to identify and address potential sustainability risks in all our underwriting and investment transactions (see 2019 Sustainability Report, pages 35–37). This framework continuously evolves to reflect scientific knowledge and internal standards. With respect to climate change, this framework prevents us from offering any re/insurance cover to businesses with more than 30% exposure to thermal coal utilities or mining and for offshore drilling activities in the Arctic.
In 2019, we continued the implementation of our thermal coal policy for treaty business with over 300 engagements with insureds across all regions. We also intensified our efforts to decarbonise our business by committing to net-zero emissions by 2050 on the liability and the asset side.
Investments Swiss Re is a long-term investor. Therefore, 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. Hence, sustainability and climate change are essential topics for our Asset Management.
Swiss Re is committed to investing its assets responsibly via a controlled and structured investment process by integrating ESG criteria. In 2017, as part of our continuous improvement, we switched to benchmarks composed of higher ESG-rated companies for our active corporate credit and listed equities portfolios. For more information about our approach to ESG integration, see our publication “Responsible investments – The next steps in our journey”, published in 2018 and available at swissre.com (www.swissre.com/ri-next-steps), as well as our 2019 brochure “Responsible investing – Our approach” (www.swissre.com/ri-our-approach).
As part of our dedicated approach towards climate risk management, we review our corporate credit and listed equities portfolios on an ongoing basis to track the development of our carbon footprint, as well as related forward-looking indicators. Additionally, we monitor our coal and oil sands-related investments that are below the set thresholds. As part of our active risk management, we stopped investing in coal and oil sands-related companies that are above the thresholds (for details, see page 157).
Further actions to support the transition to a low-carbon economy are described in the section “Opportunities for our investments” on pages 158–160.
Climate protection offered to (sub-)sovereigns In 2019, cover against natural catastrophes accounted for approximately 15% of premiums in our P&C Reinsurance business. As we regularly update our risk models to reflect any changes in the underlying parameters and renew contracts annually, we are in a position to offer our clients re/insurance protection against current climate-related risks.
We assess and manage climate-related risks and opportunities in our re/insurance business (the liability side of our balance sheet), our own operations and our investments (the asset side of our balance sheet).
The four weather-related perils with the highest gross AEL for our business as per the end of 2019 are indicated in the table to the right.
In 2019, we also took another important step in our carbon steering mechanism and developed a policy to shift away from high carbon intensity oil and gas production.
Green bonds Green bond proceeds are used to finance environmentally sustainable projects and facilitate the transition towards a low-carbon economy.
Insured loss Source: Swiss Re Institute in USD bn, at 2019 prices
Amount of climate protection offered (in USD) 5.3 billion 8.2 billion 10.0 billion
Since the end of 2015, carbon intensities in both the corporate credit and the listed equities portfolios decreased substantially as part of our fossil fuel divestment of more than USD 1.4 billion. In 2019, carbon footprints for both portfolios, the corporate credit and listed equities, further decreased.
Forward-looking carbon indicators Companies may mitigate exposure to climate risk through adaptation to market forces or adherence to new and evolving requirements. In 2019, we therefore extended our capabilities further to analyse the impact of climate risk on investments, advanced our analytical toolset, and improved our monitoring of related risks and opportunities. For the corporate credit and listed equities portfolios, we focused on the most carbon-intensive sectors that are responsible for the vast majority of the portfolio carbon intensity.
The forward-looking indicators that form the basis of the climate risk analysis have been extended and refined. The extensions and refinements allow us to analyse climate risk-exposed industries down to the issuer level, which provides an important additional dimension to our carbon intensity analysis. These forward-looking indicators inform us about the preparedness of companies for a transition to a low-carbon economy, and identify potential leaders and laggards in such a transition.
Many issuers have set carbon reduction targets and are actively working towards lowering their energy consumption, which we consider an encouraging development. The analysis also shows that a transition to a low-carbon economy may be challenging and costly.
2 Commuting data are gathered biannually by means of a survey. The figures are rounded and fraught with considerable uncertainty.
Additionally, in 2019, Swiss Re committed to reduce its operational CO2 footprint to net-zero emissions by 2030. In 2020, we will start by reducing our air travel emissions by at least 15%, with further reduction ambitions planned. At the same time, we are moving from buying conventional carbon offsets to supporting carbon removal projects to compensate any unavoided emissions. Carbon removal is a new form of emission compensation that extracts CO2 out of the atmosphere and stores it permanently. This is a necessary prerequisite for reaching any net-zero emissions target, including the Paris Agreement.
Note 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) 222
Net premiums written 4 34 042 39 649 Change in unearned premiums –167 –1 675
Income before interest and income tax expense 1 105 1 498 Interest expenses –555 –589
Income before income tax expense 550 909 Income tax expense 15 –69 –140
Reclassification out of accumulated other comprehensive income For the years ended 31 December 2018 Net unrealised investment Other-thantemporary Cash flow Foreign currency Adjustment for pension
Balance as of 1 January 4 746 –2 –10 –5 548 –820 0 –1 634 Transactions with non-controlling interests –325 1 52 13 –259 Impact of Accounting Standards Update4 –127 –17 5 –139 Change during the period –3 129 –1 25 –303 –75 –3 483 Amounts reclassified out of accumulated other comprehensive income 154 –10 8 68 220 Tax 586 –113 3 476
Balance as of period end 5 152 –1 –2 –5 794 –850 3 –1 492 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”. 4 Impact of ASU 2018-02 ‘‘Reclassification of Certain Tax Effects from Accumulated Other Comprehensive income‘‘, ASU 2016-16 ‘‘Intra-Entity Transfers of Assets Other Than Inventory’’ and ASU 2016-01 ‘‘Recognition and Measurement of Financial Assets and Financial Liabilities’’. Please refer to the Annual Report 2018 for more details.
Total accumulated other comprehensive income –4 819 –1 492 1 Please refer to Note 11 “Assets held for sale“ for more details.
Additional paid-in capital Balance as of 1 January 368 496 Transactions with non-controlling interests1 123 –241 Contingent capital instrument issuance costs 11 Cancellation of shares bought back –85 –23 Share-based compensation –6 –9 Realised gains/losses on treasury shares 85 33 Balance as of period end 496 256
Net unrealised investment gains/losses, net of tax Balance as of 1 January 4 746 1 905 Transactions with non-controlling interests1 –325 –128 Impact of ASU 2018-022 176 Impact of ASU 2016-162 44 Impact of ASU 2016-012 –347 Changes during the period –2 389 3 375 Balance as of period end 1 905 5 152
2 Impact of ASU 2018-02 ‘‘Reclassification of Certain Tax Effects from Accumulated Other Comprehensive income‘‘, ASU 2016-16 ‘‘Intra-Entity Transfers of Assets Other Than Inventory’’ and ASU 2016-01 ‘‘Recognition and Measurement of Financial Assets and Financial Liabilities’’. Please refer to the Annual Report 2018 for more details.
Cash flows from operating activities Net income attributable to common shareholders 421 727 Add income/loss attributable to non-controlling interests 19 42 Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items 331 538 Net realised investment gains/losses 2 530 –5 515 Income from equity-accounted investees, net of dividends received 4 –283 Change in: Technical provisions and other reinsurance assets and liabilities, net –1 796 10 659 Funds held by ceding companies and under reinsurance treaties 212 –5 Reinsurance recoverable on unpaid claims and policy benefits 656 –571 Other assets and liabilities, net –421 –472 Income taxes payable/recoverable –682 –471 Trading positions, net 298 –252
Cash flows from investing activities Fixed income securities: Sales 44 679 51 008 Maturities 5 159 7 732 Purchases –49 816 –58 240 Net purchases/sales/maturities of short-term investments –761 –405
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 made up of insurance companies, mid- to large-sized corporations and public-sector clients.
Investments The Group’s investments in fixed income securities are classified as available-for-sale (AFS) or trading. Fixed income securities AFS are carried at fair value, based on quoted market prices, with the difference between the applicable measure of cost and fair value being recognised in shareholders’ equity. Trading fixed income securities are carried at fair value with unrealised gains and losses recognised in earnings. A trading classification is used for securities that are bought and held principally for the purpose of selling them in the near term.
Other invested assets include affiliated companies, equity accounted companies, derivative financial instruments, collateral receivables, securities purchased under agreement to resell, deposits and time deposits, and investments without readily determinable fair value
Cash and cash equivalents Cash and cash equivalents include cash on hand, short-term deposits, certain short-term investments in money market funds and highly liquid debt instruments with a remaining maturity at the date of acquisition of three months or less.
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.
Amounts assessed against policyholders for mortality, administration and surrender are shown as fee income. Amounts credited to policyholders are shown as interest credited to policyholders. Investment income and realised investment gains and losses allocable to policyholders are included in net investment income and net realised investment gains/losses except for unit-linked and with-profit business, which is presented in a separate line item on the face of the income statement.
Shadow loss recognition testing becomes relevant in low interest rate environments. The test considers whether the hypothetical sale of AFS securities and the reinvestment of proceeds at lower yields would lead to negative operational earnings in future periods, thereby causing a loss recognition event. For shadow loss recognition testing, the Group uses current market yields to determine best estimate US GAAP reserves rather than using locked-in or current book yields. If the unlocked best estimate US GAAP reserves based on current market rates are in excess of reserves based on locked-in or current book yields, a shadow loss recognition reserve is set up. These reserves are recognised in other comprehensive income and do not impact net income. In addition, shadow loss recognition reserves can reverse up to the amount of losses recognised due to past loss events.
Share-based payment transactions As of 31 December 2019, the Group has a Leadership Performance Plan, restricted shares and a Global Share Participation Plan. These plans are described in more detail in Note 17 “Share-based payments“. The Group accounts for share-based payment transactions with employees using the fair value method. Under the fair value method, the fair value of the awards is recognised in earnings over the vesting period.
In July 2017, the FASB issued ASU 2017-11, “Accounting for Certain Financial Instruments with Down Round Features“, an update to topic 260, “Earnings Per Share“, topic 480, “Distinguishing Liabilities from Equity“ and topic 815, “Derivatives and Hedging“. A down round feature is a provision in an equity-linked financial instrument (or embedded features) that reduces the exercise price if the entity later sells stock for a lower price or issues an equity-linked instrument with a lower exercise price than the instrument’s original exercise price. The amendments in this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features and require that a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The Group adopted ASU 2017-11 on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities“, an update to topic 815, “Derivatives and Hedging“. The update expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The ASU eliminates the requirement to separately measure and report hedge ineffectiveness and requires the presentation of all items that affect earnings in the same income statement line as the hedged item. The new standard also provides alternatives for applying hedge accounting to additional hedging strategies and for measuring the hedged item in fair value hedges of interest rate risk. Further, the standard reduces the cost and complexity of applying hedge accounting by easing the requirements for effectiveness testing, hedge documentation and application of the critical terms match method. The Group adopted ASU 2017-12 on 1 January 2019. The adoption did not have a material
188 Swiss Re | Financial Report 2019 impact on the Group’s financial statements. The additional and extended disclosures required by ASU 2017-12 are presented in Note 9 “Derivative financial instruments“.
In June 2018, the FASB issued ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting“, an update to topic 718, “Compensation – Stock Compensation“. The update expands the scope of topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The Group adopted ASU 2018-07 on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
In August 2018, the FASB issued ASU 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts”, an update to topic 944, “Financial Services – Insurance“. This ASU requires that the cash flows and net premium ratio will be updated for changes in insurance assumptions (eg mortality, morbidity, terminations) when measuring the liability for future policy benefits for nonparticipating traditional and limited-payment insurance and reinsurance contracts. There will no longer be a provision for adverse deviation. In addition, the discount rate used to reflect the time value of money in the calculation of the liability for future policy benefits will be standardised. Further, the ASU requires deferred acquisition costs (DAC) relating to most long-duration contracts to be amortised on a constant basis over the expected term of the contract. As amended by ASU 2019-09 “Effective Date“, ASU 2018-12 is effective for annual periods beginning after 15 December 2023, and interim periods beginning after 15 December 2024. Due to the decision of the Board of Directors of Swiss Re Ltd to prepare the Group's consolidated financial statements in accordance with IFRS beginning 1 January 2024, the Group does not plan to adopt ASU 2018-12.
Accounting policies applied by the business segments are in line with those described in the summary of significant accounting policies (please refer to Note 1).
Total expenses before interest expenses –16 740 –13 088 –4 611 –1 255 –599 351 –35 942
Income/loss before interest and income tax expense/benefit 755 1 367 –460 113 –332 –338 1 105 Interest expenses –313 –410 –24 –41 –105 338 –555
Total expenses before interest expenses –20 782 –13 470 –5 328 –8 101 –547 412 –47 816
Claims ratio in % 76.7 93.6 79.7 Expense ratio in % 31.1 34.3 31.7 Combined ratio in % 107.8 127.9 111.4 Management expense ratio¹ in % 5.2 Net operating margin2 in % 3.8 10.0 –16.7 2.4 3.4 1 Management expense ratio is calculated as ”Operating expenses” divided by ”Total revenues” excluding “Net realised investment gains/losses – non-participating business“ and ”Net investment result – unit-linked and with-profit business”.
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
Income/loss before income tax expense 9 –812 158 1 087 442
Premiums earned 8 635 4 048 12 683 Fee income from policyholders 152 152 Net investment income – non-participating business 1 001 304 1 305 Net realised investment gains/losses – non-participating business 59 –4 292 347 Net investment result – unit-linked and with-profit business –33 –33 Other revenues 1 1
Premiums earned 8 648 4 187 12 835 Fee income from policyholders 169 169 Net investment income – non-participating business 912 295 1 207 Net realised investment gains/losses – non-participating business –24 652 628 Net investment result – unit-linked and with-profit business 118 118 Other revenues 3 1 4
198 Swiss Re | Financial Report 2019 d) Net premiums earned and fee income from policyholders by geography Net premiums earned and fee income from policyholders by region for the years ended 31 December
Americas 16 075 18 158 Europe (including Middle East and Africa) 11 044 12 017 Asia-Pacific 7 342 8 419
Retrocession to external parties –380 –1 319 –259 –414 –2 372
Net acquisition costs –4 012 –2 045 –607 –255 –6 919
Reinsurance receivables Reinsurance receivables as of 31 December were as follows: Premium receivables invoiced 3 041 3 589 Receivables invoiced from ceded re/insurance business 445 444 Assets arising from the application of the deposit method of accounting and meeting the definition of financing receivables 124 249 Recognised allowance –58 –56
Gross premiums written 16 545 14 527 4 694 2 739 –2 099 36 406 Intra-group transactions (ceded) –99 –574 –276 –1 150 2 099 0
Paid related to: Foreign exchange −1 748 161 Effect of acquisitions, disposals, new retroactive reinsurance and other items 709 1 302
Reinsurance recoverable 3 606 3 732 Deferred expense on retroactive reinsurance 169 168 Reclassified to liabilities held for sale −497
For life and health lines of business, claims development on prior year business was mainly driven by adverse development for the disability portfolio in Australia, Continental Europe and the US. This was partly offset by positive experience in other regions and lines of business including Canada, Asia, and the UK. Claims development related to prior years for the disability portfolio also includes an element of interest accretion for unpaid claims reported at an estimated present value. Unfavourable claims development for the Australia group disability portfolio is offset by a reduction in profit share reserve.
Claims development information and information on reserves for claims relating to insured events that have occurred but have not yet been reported or not enough reported (“IBNR”) are generally presented by line of business for individually significant categories. Starting from a line of business split, additional aggregation or disaggregation is provided where appropriate, necessary and practicable (“disaggregation categories”). For instance, Reinsurance liability and motor lines of business are further disaggregated into proportional and non-proportional treaty types to provide more specific information on claims development, whereas specialty is shown as one distinct category.
Claims development information and information on IBNR reserves are shown on a nominal basis, also for cases where the Group discounts claims liabilities for measurement under US GAAP. Information is shown per accident year and by reporting period. The number of years shown in the claims development tables differs by business segment: For Property & Casualty Reinsurance and for Life & Health Reinsurance long-tail, the Group discloses data for ten accident years and reporting periods.
In most cases, these standard actuarial techniques encompass a number of loss development factor techniques applied to claim tables of paid and reported losses. Other actuarial techniques may be applicable to specific categories. For instance, the analysis of frequency and severity could be applied in all disaggregation categories. Life contingency techniques for projecting regular payments related to bodily injury claims are applied to motor proportional, motor non-proportional, liability proportional, liability non-proportional, accident and health and similar Corporate Solutions lines, where the information is available. In some cases, techniques specific to the projection of future payments for specific risks such as asbestos or pollution claims are applied to both proportional and non-proportional liability claims, also in Corporate Solutions (see also separate section “US asbestos and environmental claims exposure” on page 207).
In addition, the following applies to all non-life re/insurance business: For the most recent underwriting years, reliance may be made on the Group‘s costing and underwriting functions for the initial estimates of claims, although the initial reserving estimates may differ from these pricing estimates if there is good reason to believe losses are likely to emerge higher or lower, and in light of the limited claims experience to date. Reviews of those initial estimates are performed regularly, forming a basis for adjustments on both the current and prior underwriting years.
The reserving process considers any information available in respect of either a specific case or a large loss event and the impact of any unusual features in the technical accounting of information provided by cedents.
Liabilities for claims and claim adjustment expenses, net of reinsurance 9 689
The increase in incurred losses for accident year 2015 compared to other years is due to an increase in volume of business written in that year. Accident year 2019 includes an Adverse Development Cover and a Loss Portfolio Transfer written with Corporate Solutions. Liabilities before 2010 include reserves for historic US asbestos and environmental losses.
Liabilities for claims and claim adjustment expenses, net of reinsurance 5 469
The increase in incurred losses from accident year 2015 onwards is due to an increase in the volume of workers‘ compensation written on a proportional basis. The 2010 and prior accident years include the run-off of business written by entities acquired as part of the acquisition of General Electric Insurance Solutions during 2006. This business, which generally had a longer payment pattern, was not renewed.
Liabilities for claims and claim adjustment expenses, net of reinsurance 3 523
The increase in the incurred losses from accident years 2010 to 2016 is driven by new business volume across all regions. 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 and the increase in incurred losses for accident year 2019 compared to other years is due to an increase in volume of business written.
Liabilities for claims and claim adjustment expenses, net of reinsurance 2 169
In the reporting year 2013, the Group significantly strengthened IBNR claims liabilities in Australia for some lines of business. In addition, for 2013 and 2014 the effect of business volume increases is discernible as well. The decrease in incurred losses for accident year 2019 is due to the lower volume of business being written in Australia.
Corporate Solutions 5 960 Life & Health Reinsurance, long tail 2 169
Total net undiscounted outstanding liabilities excluding other short duration contract lines and before unallocated reinsurance recoverable 55 415 Discounting impact on (Life & Health Reinsurance) short duration contracts –305 Impact of acquisition accounting –489
Total net discounted outstanding liabilities excluding other short duration contract lines and before unallocated reinsurance recoverable 54 621 Other short duration contract lines 3 028
Property 674 Liability, proportional 289 Liability, non-proportional 235 Accident & Health 216 Motor, proportional 65 Motor, non-proportional 224 Specialty 551
Exclusions: Unallocated claim adjustment expenses 1 111 Long duration contracts 11 184
Discounting information The following disclosure covers the discounting impact for the disaggregation categories included in the claims development information. Discounting information for Life & Health Reinsurance long tail as of 31 December was as follows: Carrying amount of discounted claims 1 223 1 318 Aggregate amount of the discount –291 –305 Interest accretion1 35 28 Range of interest rates 3.0–3.6% 3.0–3.4%
Opening balance as of 1 January 2 146 4 234 454 37 6 871 Deferred 4 048 1 235 634 978 6 895 Amortisation –4 012 –496 –595 –187 –5 290 Effect of foreign currency translation and other changes –26 –189 –5 –39 –259 2019 Property & Casualty Life & Health Corporate USD millions Reinsurance Reinsurance Solutions Life Capital Total
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 assets held for sale –657 –657
As of 31 December, the PVFP was as follows: Life & Health Reinsurance Life Capital Total 2018 Positive Negative USD millions PVFP PVFP Total
Life & Health Reinsurance Life Capital Total 2019 Positive Negative USD millions PVFP PVFP Total
Gross investment income 4 509 4 596 Investment expenses –419 –412 Interest charged for funds held –15 –13
Total investment income – unit-linked and with-profit business 800 202 816 188
Total net investment result – unit-linked and with-profit business –1 399 –194 4 328 611
Total 7 478 180 13 036 379 20 514 559 Corporate debt securities 12 135 275 6 334 267 18 469 542 Mortgage- and asset-backed securities 1 111 15 1 718 42 2 829 57
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 2018 and 2019, USD 18 601 million and USD 20 188 million, respectively, of fixed income securities available-for-sale were callable.
Total fixed income securities available-for-sale 89 673 92 538 74 780 79 163
Total investments for unit-linked and with-profit business 24 818 4 728 520 0
Policy loans 84 84 50 50 Mortgage loans 2 890 2 882 2 104 2 144 Other loans 1 568 1 587 2 314 2 376 Investment real estate 2 411 4 307 2 674 4 706 1 Policy loans, mortgages and other loans include a total of USD 1 447 million which were reclassified to assets held for sale. Investment real estate of USD 146 million was reclassified to assets held for sale.
Maturity of lessor cash flows As of 31 December 2019, 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
Accrued expenses and other liabilities 2 421 0 1 717 0 2 660 6 798
Other invested assets Derivative financial instruments 472 472 Reverse repurchase agreements 2 089 2 089 Securities lending/borrowing 457 21 478 Equity-accounted investments 335 2 580 2 915 Other 76 913 905 1 894 Reclassified to assets held for sale –60 –445 –505
As of 31 December 2018 and 2019, securities of USD 15 850 million and USD 18 686 million, respectively, were transferred to third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding liabilities of USD 941 million and USD 1 251 million, respectively, were recognised in accrued expenses and other liabilities for the obligation to return collateral that the Group has the right to sell or reuse.
As of 31 December 2018 and 2019, a real estate portfolio with a carrying value of USD 191 million and USD 188 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 2018 and 2019, the fair value of the equity securities, government and corporate debt securities received as collateral was USD 4 239 million and USD 5 477 million, respectively. Of this, the amount that was sold or repledged as of 31 December 2018 and 2019 was USD 1 721 million and USD 2 025 million, respectively. The sources of the collateral are securities borrowing, reverse repurchase agreements and derivative transactions.
Securities lending Debt securities issued by governments and government agencies 295 493 299 1 087 Corporate debt securities 58 58
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 2019, 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.
Fixed income securities backing unit-linked and with-profit business 4 680 –4 680 0 Equity securities held for proprietary investment purposes 2 992 1 2 993 Equity securities backing unit-linked and with-profit business 37 550 56 –37 086 520 Short-term investments held for proprietary investment purposes 1 098 4 812 –142 5 768 Short-term investments backing unit-linked and with-profit business 0 Derivative financial instruments 11 1 426 225 –1 184 –65 413
Total assets at fair value 56 025 97 559 2 475 –1 184 913 –62 566 93 222
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December, the reconciliations of the fair values of assets and liabilities measured on a recurring basis using significant unobservable inputs were as follows: Liabilities for life Fixed Other and health 2018 income Equity Derivative Investment invested Total Derivative policy Total USD millions securities securities assets real estate assets assets liabilities benefits liabilities
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 112 41 Whereof change in unrealised gains/losses relating to assets and liabilities still held at the reporting date 33 –45
Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows: 2018 2019 USD millions Fair value Fair value Valuation technique Unobservable input Range (weighted average)
Other derivative contracts and liabilities for life and health policy benefits
The significant unobservable inputs used in the fair value measurement of the Group’s variable annuity and fair valued guaranteed minimum death benefit (GMDB) contracts are: risk margin, volatility, lapse, mortality improvement rate and withdrawal rate. A significant increase (decrease) in isolation in each of the following inputs: risk margin, volatility and withdrawal rate would result in a significantly lower (higher) fair value of the Group’s obligation. A significant increase (decrease) in isolation in lapse rate would, in general, result in a significantly higher (lower) fair value of the Group’s obligation due to the maturity of the contracts. Changes in the mortality improvement rate impact the fair value of the Group’s obligation differently for living-benefit products, compared to death-benefit products. For the former, a significant increase (decrease) in the mortality improvement rate (ie decrease (increase) in mortality) in isolation would result in a decrease (increase) in fair value of the Group’s liability. For the latter, a significant increase (decrease) in the mortality improvement rate in isolation would result in an increase (decrease) in fair value of the Group’s liability.
Other derivative liabilities For operational efficiencies, the Group elected the fair value option on a hybrid financial instrument, where the host contract is a debt instrument and the embedded derivative is pegged to the performance of the fund’s real estate portfolio. The liability is carried at fair value and changes in fair value are reported as a component of earnings. In the balance sheet and the following fair value disclosures, this item was included under ”Accrued expenses and other liabilities” for the year ended 31 December 2018 and is included under ”Liabilities held for sale” for the year ended 31 December 2019.
244 Swiss Re | Financial Report 2019 9 Derivative financial instruments The Group uses a variety of derivative financial instruments including swaps, options, forwards, credit derivatives and exchange- traded financial futures in its trading and hedging strategies, in line with the Group’s overall risk management strategy. The objectives include managing exposure to price, foreign currency and/or interest rate risk on planned or anticipated investment purchases, existing assets or liabilities, as well as locking in attractive investment conditions for future available funds.
Non-hedging activities The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of derivative financial instruments not designated as hedging instruments are recorded in “Net realised investment gains/losses — non-participating business” and “Net investment result — unit-linked and with-profit business” in the income statement.