Foreign exchange contracts Gains/losses on derivatives 430 40 Gains/losses on hedged items –430 –40 Amounts excluded from the effectiveness assessment –2 Interest rate contracts
As of 31 December 2019, the maximum length of time over which the Group hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was three years.
The Group believes that the net gains and losses associated with cash flow hedges expected to be reclassified from accumulated other comprehensive income within the next 12 months cannot be reasonably estimated as they relate to foreign exchange volatility.
248 Swiss Re | Financial Report 2019 10 Acquisitions Old Mutual Wealth Life Assurance Limited On 31 December 2019, the Group through its ReAssure subsidiary acquired 100% of the UK closed book business of Quilter plc, consisting of Old Mutual Wealth Life Assurance Limited and its subsidiary Old Mutual Wealth Pensions Trustees Limited, including around 300 employees. The business acquired provides pension schemes, protection products, investment solutions and savings offerings predominantly to the UK retail market.
The transaction is consistent with ReAssure’s strategy to grow its closed-book business and adds approximately 0.2 million customer policies increasing ReAssure’s total policy count to 3.2 million. The acquisition was funded from ReAssure’s internal resources.
Historic intangibles have been eliminated. The Group established acquired PVFP of USD 209 million which qualifies as purchased intangible assets. There was no goodwill recognised upon acquisition.
As the business was acquired by ReAssure, it was recognised as held for sale upon acquisition and the pro forma revenue and earnings related to the acquisition are not presented. Assets held for sale of USD 13 603 million (including investments of USD 10 994 million) and liabilities held for sale of USD 13 382 million (including policyholder account balances of USD 12 184 million) related to this acquisition are included in the balances which are further discussed in Note 11 “Assets held for sale“.
Swiss Re will receive a cash payment of USD 1.6 billion, shares in Phoenix representing a 13% to 17% stake and be entitled to a seat on its Board of Directors. ReAssure’s minority shareholder, MS&AD Insurance Group Holdings Inc, will receive shares in Phoenix representing an 11% to 15% stake. An expected future loss of USD 230 million on the disposal of the net assets was recognised in the fourth quarter 2019.
The principal products administered by ReAssure are long-term life and pension products, permanent health insurance, critical illness products and retirement annuities. The Group reassessed goodwill based on the agreement to sell ReAssure to Phoenix. USD 139 million of the estimated loss has been allocated against the goodwill held by ReAssure, reducing its carrying amount to zero. For the remainder of USD 91 million an additional liability has been established within ”Liabilities held for sale”. The loss has been reflected in the “Net realised investment gains/losses“ line in the income statement. This loss will be adjusted based on the ultimate purchase price to be determined as of the closing of the transaction.
For the year ended 31 December 2018 and 2019, ReAssure reported a pre-tax income of USD 272 million and USD 120 million, of which USD 231 million and USD 32 million were attributable to the Swiss Re Group respectively.
Total senior long-term debt as of 31 December 2019 3 053
Total senior long-term debt as of 31 December 2018 3 816 1 Assumed in the acquisition of GE Insurance Solutions.
Total subordinated long-term debt as of 31 December 2019 7 911
Total contingent capital instruments classified as long-term debt as of 31 December 2019 494
Interest expense on long-term debt and contingent capital instruments classified as equity Interest expense on long-term debt for the years ended 31 December was as follows: Senior financial debt 100 87 Senior operational debt 11 10 Subordinated financial debt 108 174 Subordinated operational debt 118 111 Contingent capital instruments classified as financial debt 38 221 1 The figure includes interest expense on the senior unsecured exchangeable instrument with issuer stock settlement in the amount of USD 17 million.
In June 2019, ReAssure Group plc issued Tier 3 subordinated notes due 2026. The notes have an aggregate face value of GBP 250 million, with a fixed coupon of 4.016% per annum. The notes were initially issued to Swiss Re Finance (Jersey) Limited and, in July 2019, were sold to a third party outside the Swiss Re Group.
13 Leases As part of its normal business operations, the Group as a lessee enters into a number of lease agreements mainly for office space. Certain lease agreements include rental payments adjusted periodically for inflation. Renewal or termination options that are reasonably certain of exercise by the lessee are included in the lease term. The lease agreements do not contain any material residual value guarantees or material restrictive covenants.
In line with the elected transition method provided by ASU 2018-11 “Targeted Improvements“, the comparative lease information was not restated and continues to be reported in line with the requirements in ASC 840 Leases.
As of 31 December 2018, future minimum lease commitments as determined prior to the adoption of ASU 2016-02 were as follows: USD millions 2018
Lease cost The composition of total lease cost for all operating leases for the year ended 31 December was as follows: Fixed operating lease cost 87 Other lease cost1 3
Basic earnings per share Net income 481 769 Non-controlling interests –19 –42 Interest on contingent capital instruments1 –41
Weighted average common shares outstanding 306 841 773 295 660 059
Dividends are declared in Swiss francs. During the years ended 31 December 2018 and 2019, the parent company of the Group (Swiss Re Ltd) paid dividends per share of CHF 5.00 and CHF 5.60, respectively.
On 17 April 2019, the 2019 Annual General Meeting resolved the cancellation of the 11.2 million repurchased shares by way of share capital reduction. The share capital reduction was registered in the Commercial Register of the Canton of Zurich on 11 July 2019 and publication in the Swiss Commercial Gazette occurred on 16 July 2019.
As announced on 31 October 2019, the SRL Board of Directors decided not to launch the second tranche of the public share buyback programme approved by the 2019 Annual General Meeting.
Tax rate reconciliation The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the accompanying income statement: Income tax at the Swiss statutory tax rate of 21.0% 115 191 Increase (decrease) in the income tax charge resulting from: Foreign income taxed at different rates 122 27 Impact of foreign exchange movements –64 16 Tax exempt income/dividends received deduction –61 –142 Change in valuation allowance –92 –16 Non-deductible expenses 55 38 Change in statutory rate 25 6 Other income based taxes –2 76 Change in liability for unrecognised tax benefits including interest and penalties 72 –42 Intra-entity transfers –68 20 Other, net1 –33 –34 1 Other, net includes tax return to tax provision adjustments from various jurisdictions.
For the year ended 31 December 2019, the Group reported a tax charge of USD 140 million on a pre-tax income of USD 909 million, compared to a charge of USD 69 million on a pre-tax income of USD 550 million for 2018. This translates into an effective tax rate in the current and prior year reporting periods of 15.4% and 12.5%, respectively.
Deferred tax liabilities Present value of future profits –294 –241 Income accrued/deferred –199 –148 Investment valuation in income –382 –448 Deferred acquisition costs –1 071 –1 036 Technical provisions –2 264 –2 230 Unrealised gains on investments –584 –1 443 Foreign exchange provisions –602 –489 Other –780 –728 Reclassified to liabilities held for sale 1 321
Liability for unrecognised tax benefits including interest and penalties –295 –250 Reclassified to liabilities held for sale 29
As of 31 December 2019, the Group had capital loss carryforwards of USD 1 080 million that never expires.
Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: Balance as of 1 January 206 257 Additions based on tax positions related to current year 49 38 Additions based on tax positions related to prior years 57 8 Reductions for tax positions of current year –8 –7 Reductions for tax positions of prior years –15 –83 Statute expiration –19 –2 Settlements –7 –16 Other (including foreign currency translation) –6 –1 Reclassified to assets/liabilities held for sale –24
As of 31 December 2018 and 2019, the amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 257 million and USD 170 million, respectively.
During the year, certain tax positions and audits in Switzerland, the United States, France, the United Kingdom, Brazil, Germany, Japan and Malaysia were effectively settled.
The following table summarises jurisdictions and tax years that remain subject to examination: Australia 2014–2019 Korea 2013–2019 Brazil 2014–2019 Luxembourg 2015–2019 Canada 2012–2019 Malaysia 2012–2019 China 2009–2019 Mexico 2014–2019 Colombia 2016–2019 Netherlands 2015–2019 Denmark 2014–2019 New Zealand 2014–2019 France 2017–2019 Nigeria 2016–2019 Germany 2017–2019 Singapore 2014–2019 Hong Kong 2013–2019 Slovakia 2014–2019 India 2004–2019 South Africa 2015–2019 Ireland 2015–2019 Spain 2015–2019 Israel 2014–2019 Switzerland 2015–2019 Italy 2015–2019 United Kingdom 2008–2009, 2013–2019 Japan 2011–2019 United States 2011–2019
Fair value of plan assets as of 1 January 3 887 2 565 0 6 452 Actual return on plan assets –73 –46 –119 Company contribution 162 16 18 196 Benefits paid –202 –91 –18 –311 Employee contribution 25 25 Effect of settlement, curtailment and termination 4 4 Effect of foreign currency translation –43 –108 –151
Non-current assets 242 242 Current liabilities –3 –17 –20 Non-current liabilities –20 –195 –323 –538
Net gain/loss 864 393 –12 1 245 Prior service cost/credit –100 3 –61 –158
Components of net periodic benefit cost The components of pension and post-retirement cost for the years ended 31 December were as follows: 2018 USD millions Swiss plan Foreign plans Other benefits Total
Service cost (net of participant contributions) 120 8 5 133 Interest cost 23 68 9 100 Expected return on assets –93 –85 –178 Amortisation of: Net gain/loss 64 19 83 Prior service cost –15 –15
The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 6 043 million and USD 6 687 million as of 31 December 2018 and 2019, respectively.
Assumptions used to determine net periodic pension costs for the year ended Discount rate 0.6% 0.8% 2.8% 3.0% 2.1% 2.2% Expected long-term return on plan assets 2.5% 2.5% 3.6% 3.7% Rate of compensation increase 1.8% 1.8% 3.0% 3.0% 2.1% 2.1%
Assumed medical trend rates at year end Medical trend – initial rate 4.7% 4.4% Medical trend – ultimate rate 3.6% 3.6% Year that the rate reaches the ultimate trend rate 2021 2023
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have had the following effects for 2019: USD millions 1 percentage point increase 1 percentage point decrease
As of 31 December, the fair values of pension plan assets by level of input were as follows: Quoted prices in active markets Significant other Significant Investments measured 2018 for identical observable unobservable at net asset value as USD millions assets (level 1) inputs (level 2) inputs (level 3) practical expedient Total
Assets Fixed income securities: Debt securities issued by the US government and government agencies 50 211 261 Debt securities issued by non-US governments and government agencies 1 365 1 365 Corporate debt securities 2 011 11 2 022 Residential mortgage-backed securities 9 9 Commercial mortgage-backed securities 1 1 Agency securitised products 0 Other asset-backed securities 3 3
Total assets at fair value 1 136 3 979 767 698 6 580
Closing balance as of 31 December 721 10 731 2019 USD millions Real estate Other assets Total
As of 31 December 2019, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows: USD millions Swiss plan Foreign plans Other benefits Total
Defined contribution pension plans The Group sponsors a number of defined contribution plans to which employees and the Group make contributions. The accumulated balances are paid as a lump sum at the earlier of retirement, termination, disability or death. The amount expensed in 2018 and 2019 was USD 85 million and USD 86 million, respectively.
Restricted shares The Group granted 24 627 and 51 036 restricted shares to selected employees in 2018 and 2019, respectively. Moreover, as an alternative to the Group’s cash bonus plan, 154 743 shares were delivered during 2018 and for 2019 this alternative has been discontinued. In addition, 39 793 and 37 593 shares were delivered to members of the Board of Directors during 2018 and 2019, respectively, which are generally not subject to forfeiture risk.
Non-vested at 1 January 93 380 307 Granted 96 88 629 Forfeited 89 –436 Vested 97 –230 375 1 Equal to the market price of the shares at grant.
Leadership Performance Plan The Leadership Performance Plan (LPP) awards are expected to be settled in shares, and the requisite service as well as the maximum contractual term are three years. For LPP 2016, LPP 2017, LPP 2018 and LPP 2019 awards, an additional two-year holding period applies for all members of the Group EC and other key executives. At grant date, the award is split equally into two underlying components — Restricted Share Units (RSUs) and Performance Share Units (PSUs). The RSUs are measured against a return on equity performance condition and will vest within a range of 0–100%. The PSUs are based on relative total shareholder return, measured against a pre-defined group of peers and will vest within a range of 0–200%. The fair values of both components are measured separately, based on stochastic models.
For the year ended 31 December 2019, the outstanding units were as follows: RSUs LPP 2016 LPP 2017 LPP 2018 LPP 2019 Non-vested at 1 January 323 151 487 353 345 257 0 Granted 324 191 Forfeited –2 175 –40 242 –28 045 –9 912 Vested –320 976 –317 –143 –128
The number of shares authorised for the Group’s share-based payments to employees was 4 172 886 and 3 660 142 as of 31 December 2018 and 2019, respectively. The Group’s policy is to ensure that sufficient treasury shares are available at all times to settle future share-based compensation plans.
Global Share Participation Plan In June 2013, Swiss Re introduced the Global Share Participation Plan, which is a share purchase plan that was rolled out for the benefit of employees of companies within the Group. Swiss Re makes a financial contribution to participants in the plan, by matching the commitment that they make during the plan cycle with additional Swiss Re shares.
If the employee is still employed by Swiss Re at the end of a plan cycle, the employee will receive an additional number of shares equal to 30% of the total number of purchased and dividend shares held at that time. In 2018 and 2019, Swiss Re contributed USD 11 million and USD 12 million to the plans and authorised 197 194 and 169 772 shares as of 31 December 2018 and 2019, respectively.
Share in earnings and dividends received from equity-accounted investees for the years ended 31 December, were as follows: Share in earnings of equity-accounted investees 166 387 Dividends received from equity-accounted investees 170 104
270 Swiss Re | Financial Report 2019 20 Commitments and contingent liabilities As a participant in limited and other investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnerships for periods of up to ten years. The total commitments remaining uncalled as of 31 December 2019 were USD 2 339 million.
Ireland Ark Life Assurance Company dac, Dublin EUR 19 75 f
Jersey ReAssure Holdings Limited, St Helier GBP 0 100 f ReAssure Jersey One Limited, St Helier GBP 0 100 f ReAssure Jersey Two Limited, St Helier GBP 3 100 f Swiss Re ReAssure Limited, St Helier GBP 3 100 f Swiss Re ReAssure Midco Limited, St Helier GBP 0 100 f
Luxembourg iptiQ Life S.A., Luxembourg EUR 6 100 f Swiss Re Europe Holdings S.A., Luxembourg EUR 105 100 f Swiss Re Europe S.A., Luxembourg EUR 350 100 f Swiss Re Finance (Luxembourg) S.A., Luxembourg EUR 0 100 f Swiss Re Funds (Lux) I, Senningerberg1 EUR 14 412 100 f Swiss Re International SE, Luxembourg EUR 182 100 f
Share capital (millions) Affiliation in % as of 31.12.2019 Method of consolidation
The Group is a passive investor in structured securitisation vehicles issuing residential and commercial mortgage-backed securities (RMBS and CMBS, respectively) and other asset-backed securities (ABS). The Group’s investments in RMBS, CMBS and other ABS are passive in nature and do not obligate the Group to provide any financial or other support to the issuer entities. By design, RMBS, CMBS and ABS securitisation entities are not adequately capitalised and therefore considered VIEs. The Group is not the primary beneficiary, because it does not have power to direct most significant activities. These investments are accounted for as available-for-sale as described in the investment note and not included in the tables on the following pages.
As statutory auditor, we have audited the accompanying consolidated financial statements of Swiss Re Ltd and its subsidiaries (the ‘Company’), which comprise the income statement and statement of comprehensive income for the year ended 31 December 2019, the balance sheet as at 31 December 2019 and the statement of shareholders’ equity and the statement of cash flows for the year then ended, and notes to the Group financial statements (pages 170 to 278).
Board of Directors’ responsibility The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Investment valuation continues to be an area with inherent risk for certain level 2 and 3 investments that have unobservable or interpolated inputs. The risk is not the same for all investment types and is greatest for those listed below. These investments are more difficult to value because quoted prices are not always available, and valuation requires unobservable or interpolated inputs and complex valuation models:  Fixed income securitised products  Fixed income mortgage and asset-backed securities  Private placements and infrastructure loans  Private equities  Derivatives  Insurance-related financial products
 Comparing the assumptions used against appropriate benchmarks and investigating significant differences.
 Engaging our own valuation specialists to perform independent valuations of selected level 2 and 3 investments.
Moreover, not all natural catastrophe events and significant man-made losses can be modelled using traditional actuarial methodologies, which increases the degree of judgment needed in establishing reserves for these events.
 Applying IT audit techniques to analyse claims through the recalculation of claims triangles.
 Assessing the process and related judgments of the Company in relation to natural catastrophes and other large losses, including using our industry knowledge to assess the reasonableness of market loss estimates and other significant assumptions.
The Company’s valuation of liabilities for L&H policy benefits and policyholder account balances involves complex judgments about future events affecting the business.
In relation to the matters set out opposite, our substantive testing procedures included the following, which are applicable for both the standard reserving and large and/or structured transactions:  Testing the completeness and accuracy of the underlying data by vouching against the source documentation.
 Involving our life insurance actuarial specialists to perform independent model validation procedures, including detailed testing of models, independent recalculations and back testing.
 Evaluating the appropriateness of the recognition, accounting, and disclosures for large and/or structured transactions.
 Examining material movements within uncertain tax positions in each jurisdiction.
Income before income tax expense 2 675 2 875 5 523 Income tax expense –541 –77 –1 125
Net income before attribution of non-controlling interests 2 134 2 798 4 398
Balance sheet Assets Investments 156 947 162 224 152 812 Other assets 71 456 63 675 68 691 Assets held for sale
Liabilities Unpaid claims and claim adjustment expenses 64 690 64 878 63 670 Liabilities for life and health policy benefits 39 551 39 044 36 117 Unearned premiums 6 305 8 299 9 384 Other liabilities 72 524 65 850 62 020 Long-term debt 18 427 16 541 16 286 Liabilities held for sale
Swiss Re Ltd (the Company), domiciled in Zurich, Switzerland, is the ultimate holding company of the Swiss Re Group (the Group). Its principal activity is the holding of investments in Swiss Re Group companies.
Income statement Net income for 2019 amounted to CHF 932 million (2018: CHF 3 077 million).
Revenues were mainly driven by cash dividends from subsidiaries and affiliated companies of CHF 2 230 million, trademark licence fees of CHF 407 million and reported net realised foreign exchange gains of CHF 40 million.
Assets Total assets decreased from CHF 25 360 million as of 31 December 2018 to CHF 24 247 million as of 31 December 2019.
Current assets decreased by CHF 1 229 million to CHF 2 927 million as of 31 December 2019, mainly driven by a decrease in loans to subsidiaries and affiliated companies, partially offset by an increase in receivables from subsidiaries and affiliated companies.
Share capital decreased by CHF 1 million to CHF 33 million as of 31 December 2019 and legal profit reserves decreased by CHF 982 million to CHF 5 312 million as of 31 December 2019 resulting from the cancellation of own shares.
Own shares (directly held by the Company) decreased by CHF 56 million to CHF 1 890 million as of 31 December 2019 due to net purchases of own shares of CHF 17 million and share buyback programmes of CHF 927 million, partially offset by the cancellation of own shares of CHF 1 000 million.
Income before income tax expense 3 078 936 Income tax expense –1 –4
Investments in subsidiaries and affiliated companies These assets are carried at cost less necessary value adjustments to reflect other than temporary decreases in the value in use.
Payables to subsidiaries and affiliated companies/ Other liabilities These liabilities are generally carried at nominal value.
Payables to subsidiaries and affiliated companies/ Other liabilities also include derivative financial instruments. For the first time in 2019, derivative financial instruments which have an observable market price and are traded in an active and liquid market are recorded at market value. In 2018, derivative financial instruments were carried at the lower of cost or market value.
Provisions Provisions contain provision for currency fluctuation and provision for taxation.
At the federal level, dividends from subsidiaries and affiliated companies are indirectly exempt from income taxation (participation relief). However, income tax is payable on trademark licence fees charged to certain subsidiaries and affiliated companies.
Subsequent events Subsequent events for the current reporting period have been evaluated up to 18 March 2020. This is the date on which the financial statements are available to be issued.
As of 31 December 2019, securities of CHF 47.1 million (2018: CHF 10.7 million) were lent to Group companies under securities lending agreements. As of 31 December 2019 and 2018, there were no securities lent to third parties.
An overview of the subordinated debt facilities is provided in the following table: As of 31 December 2019 Domicile Currency Share capital (millions) Affiliation in % Voting interest in %
Swiss Reinsurance Company Ltd Zurich CHF 34.4 100 100 Swiss Re Corporate Solutions Ltd Zurich CHF 100.0 100 100 Swiss Re Life Capital Ltd1 Zurich CHF 0.1 100 100 Swiss Re Investments Holding Company Ltd Zurich CHF 0.1 100 100 Swiss Re Principal Investments Company Ltd Zurich CHF 0.1 100 100 Swiss Re Management Ltd Zurich CHF 0.1 100 100 Swiss Re Specialised Investments Holdings (UK) Ltd London GBP 1.0 100 100
As of 31 December 2018 Domicile Currency Share capital (millions) Affiliation in % Voting interest in %
Swiss Reinsurance Company Ltd Zurich CHF 34.4 100 100 Swiss Re Corporate Solutions Ltd Zurich CHF 100.0 100 100 Swiss Re Life Capital Ltd Zurich CHF 0.1 100 100 Swiss Re Investments Holding Company Ltd Zurich CHF 0.1 100 100 Swiss Re Principal Investments Company Ltd Zurich CHF 0.1 100 100 Swiss Re Management Ltd Zurich CHF 0.1 100 100 Swiss Re Specialised Investments Holdings (UK) Ltd London GBP 1.0 100 100 1 In the fourth quarter of 2019, the Group entered into an agreement to sell its subsidiary ReAssure Group plc, currently a subsidiary of Swiss Re Life Capital Ltd, to Phoenix Group Holdings plc. The transaction is expected to close in mid-2020, subject to approvals by regulators and anti-trust authorities. Detailed information is included in Note 11 "Assets held for sale" on page 249 in the notes to the Group’s 2019 financial statements.
As of 31 December 2019, Swiss Re Ltd had outstanding debt of CHF 484 million (2018: CHF 493 million).
CHF millions Share capital Legal capital reserves3 Legal profit reserves Reserves for own shares
Allocations relating to the dividend paid 3 077 –3 077 0 Dividend for the financial year 2018 –1 674 –1 674 Net income for the financial year 932 932 Share buyback programme 20181 –111 –111
Share buyback programme 20192 –816 –816 Other movements in own shares 16 1 –1 –17 –1
Allocations relating to the dividend paid 4 043 –4 043 0 Dividend for the financial year 2017 –1 551 –1 551 Net income for the financial year 3 077 3 077 Share buyback programme 2017 –415 –415
Share buyback programme 2018 –889 –889 Other movements in own shares 9 –2 2 –6 3 1 At the 154th Annual General Meeting held on 20 April 2018, the Group’s shareholders authorised the Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of the Group’s own shares prior to the 2019 Annual General Meeting through a public share buyback programme for cancellation purposes. The buyback programme was completed on 15 February 2019. The total number of shares repurchased amounted to 11.2 million, of which 10 million and 1.2 million shares were repurchased by 31 December 2018 and between 1 January and 15 February 2019, respectively. On 17 April 2019, the 155th Annual General Meeting resolved the cancellation of the repurchased 11.2 million shares by way of share capital reduction. The shares were cancelled on 16 July 2019, after completion of the procedure in respect of a share capital reduction as set forth in Article 732 et seqq of the Swiss Code of Obligations.
2 At the 155th Annual General Meeting held on 17 April 2019, the Group’s shareholders authorised the Board of Directors to repurchase two tranches of up to a maximum CHF 1 billion purchase value each of the Group’s own shares prior to the 2020 Annual General Meeting through a public share buyback programme for cancellation purposes.
3 Under current Swiss tax legislation, CHF 0.7 million of the legal reserves have been confirmed by the Swiss Federal Tax Administration to qualify as reserves out of capital contributions and can be distributed exempt from Swiss federal withholding tax. For Swiss resident individual shareholders holding shares in private wealth, distributions out of the confirmed reserves from capital contributions are also exempt from Swiss income taxes.
Own shares held by subsidiaries 162 487 197 194 Own shares held by Swiss Re Ltd directly 34 704 029 38 378 130
Sale of own shares 2 –476 363 –1 125 758 Share buyback programme (153rd AGM 2017)3 4 485 316 – Share buyback programme (154th AGM 2018)4 10 050 442 1 164 319 Cancellation of shares bought back –10 832 816 –11 214 761 Share buyback programme (155th AGM 2019)5 – 8 239 000 Own shares as of 31 December 38 575 324 36 749 762 1 Purchased at average price of CHF 98.75 (2018: CHF 93.17). 2 Sold at average price of CHF 98.03 (2018: CHF 94.49). 3 Purchased at average price of CHF 92.52.
4 Purchased at average price of CHF 94.98 (2018: CHF 88.50). 5 Purchased at average price of CHF 98.99.
This section is in line with Articles 663c para. 3 and 959c para. 2 cif. 11 of the Swiss Code of Obligations, which require disclosure of shareholdings, options and related instruments held by members of the Board of Directors and Group Executive Committee (Group EC) at the end of the reporting year and of share-based compensation for the Board of Directors during the reporting year. Further disclosures in respect of shareholding and compensation for the members of the Board of Directors and the Group EC, and persons closely related, are detailed in the Compensation Report on pages 143–148 of the Financial Report of the Swiss Re Group.
Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and Nomination Committees 27 593 31 143 Raymond K.F. Ch’ien, member 22 946 21 345
Eileen Rominger, member 813 1 997 Philip K. Ryan, member, Chair Finance and Risk Committee 11 611 15 693 Sir Paul Tucker, member 4 004 5 403 Jacques de Vaucleroy, member, Chair Compensation Committee 2 706 4 835 Susan L. Wagner, member, Chair Investment Committee 11 360 13 920 Larry Zimpleman, member 813 1 997 1 Shareholdings for 2018 and 2019 include 2 500 American Depository Receipts (ADRs), equivalent to 625 shares.
The rapid spread of the coronavirus, which has been declared a pandemic, and the actions being taken to contain it on an increasingly global basis have led to significant volatility in the financial markets and are having an adverse impact on global business and economic activity. There is an increasing likelihood that the coronavirus and containment efforts could have adverse effects on the global economy and could possibly lead to a global recession. The Group is closely monitoring developments and the potential impact of the spread of infection and global responses, for example on asset prices and insurance exposures, as well as on its operations.
Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and Nomination Committees
the AGM less the amount of any dividend resolved by such AGM. 3 Term of office expired after the completion of the AGM of 20 April 2018 and did not stand for re-election.
Allocation to voluntary profit reserves –3 077 –936 Retained earnings after allocation 4 0
Voluntary profit reserves after allocation and dividend payment 18 200 17 421 1 Since the Board of Directors’ proposal for allocation of disposable profit, included in the Annual Report 2018, the number of registered shares eligible for dividend, at the dividend payment date of 25 April 2019, decreased due to the share buyback programme of 1 164 319 shares and transfer of 40 744 shares for employee participation purposes from not eligible to eligible for dividend. This resulted in a lower dividend of CHF 6 million, compared to the Board of Directors’ proposal, and higher voluntary profit reserves by the same amount.
Share structure per 31 December 2019 Number of registered shares Nominal capital in CHF
1 The Board of Directors’ proposal to the Annual General Meeting of 17 April 2020 is based on the number of shares eligible for dividend as of 31 December 2019. The actual dividend payment will depend on the number of shares eligible for dividend as of 20 April 2020.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the Company’s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements for the year ended 31 December 2019 comply with Swiss law and the Company’s Articles of Association.
The impairment assessment is considered a key audit matter due to the considerable judgment in the assumptions and adjustments applied to the valuation model as well as the materiality of this account to the Company.
In relation to the matter set out opposite, our substantive testing procedures included the following:  Evaluating the model used by the Company to determine a market value.
 Understanding judgments applied by the Company for each investment to ensure they are in accordance with our own expectation based on our knowledge of the business and industry.
Portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period.
Economic net worth (ENW) is defined as the difference between the market-consistent value of assets and liabilities. ENW is an economic measure of shareholders’ equity and the starting point in determining available capital under the Swiss Solvency Test (SST).
The risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. Increasing life expectancy trends among policyholders and pensioners can result in payout levels that are higher than originally expected.
Insurance covering the liability of the manufacturer or supplier of goods for damage caused by their products.
Collective term for fire and business interruption insurance as well as burglary, fidelity guarantee and allied lines.
Amount of the risk accepted by the reinsurer which is then passed on to other reinsurance companies.
Investment-related operating income as a percentage of invested assets. Invested assets include investments, securities in transit, certain financial liabilities and exclude policy loans, cash and cash equivalents, as well as assets related to securities lending, repurchase agreements and collateral balances.
Net investment income on long-term fixed income positions, including coupon income and amortisation, as a percentage of the average market value of the long-term fixed income portfolio.
Form of reinsurance that protects the ceding insurer against an aggregate amount of claims over a period, in excess of either a stated amount or a specified percentage of estimated benefit costs. An example of this is employer stop-loss (ESL) coverage, which is used by US companies to cap losses on self-funded group health benefit programmes. The stop-loss can apply to specific conditions or aggregate losses.
Forward-looking statements typically are identified by words or phrases such as “anticipate”, “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase”, “may fluctuate” and similar expressions, or by future or conditional verbs such as “will”, “should”, “would” and “could”. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group’s actual results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects to be materially different from any future results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects expressed or implied by such statements or cause Swiss Re to not achieve its published targets. Such factors include, among others: • the frequency, severity and development of insured claim events, particularly natural catastrophes, man-made disasters, pandemics, acts of terrorism or acts of war; • mortality, morbidity and longevity experience; • the cyclicality of the reinsurance sector; • central bank intervention in the financial markets, trade wars or other protectionist measures relating to international trade arrangements, adverse geopolitical events, domestic political upheavals or other developments that adversely impact global economic conditions; • increased volatility of, and/or disruption in, global capital and credit markets; • the Group’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of the Group’s financial strength or otherwise; • the Group’s inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their values recorded for accounting purposes; • the Group’s inability to generate sufficient investment income from its investment portfolio, including as a result of fluctuations in the equity and fixed income markets, the composition of the investment portfolio or otherwise; • changes in legislation and regulation, or the interpretations thereof by regulators and courts, affecting the Group or its ceding companies, including as a result of comprehensive reform or shifts away from multilateral approaches to regulation of global operations; • the lowering or loss of one of the financial strength or other ratings of one or more companies in the Group, and developments adversely affecting its ability to achieve improved ratings; • uncertainties in estimating reserves, including differences between actual claims experience and underwriting and reserving assumptions; • policy renewal and lapse rates; Swiss Re | Financial Report 2019310
Coronavirus The rapid spread of the coronavirus and the evolving actions being taken to contain it on a growing scale have led to significant volatility in the financial markets, have had an adverse impact on global economic activity and have led to heightened concerns of potentially significant adverse effects on the global economy, and possibly recession. Even countries that experience less severe direct effects of the coronavirus could be adversely affected by disruptions in the global supply chain and significantly curtailed international travel. Swiss Re is closely monitoring the spread of the coronavirus and the actions being taken to contain it, and continues to evaluate the potential impact on the Group. Contingency covers could be affected depending on the scope and severity of the spread of the virus as well as of the actions taken to contain it, and coronavirus-related financial market volatility could adversely affect the Group’s investment result or access to the capital markets. The Group’s operations and control processes could also be adversely affected by widening containment efforts (undertaken on a voluntary or mandatory basis). The coronavirus outbreak, the impact on business and economic activity of containment efforts and the related equity market volatility, together with the recent interest rate cuts, are likely to have an adverse effect on our SST ratio, as long as these factors remain operative. We are not providing an SST ratio that is more current than 1 January 2020 due to the elevated levels of uncertainty, but refer to sensitivity analyses in this report as a guide to the potential impact of stress scenarios on our economic capital and SST ratio.
Regulatory changes Swiss Re and its subsidiaries operate in a highly regulated environment. The regulatory regimes to which members of the Group are subject have changed significantly in recent years and are expected to continue to evolve.
The Group is exposed to changes in the level and volatility of equity prices, as they affect the value of equity securities themselves as well as the value of securities or instruments that derive their value from a particular equity security, a basket of equity securities or a stock index. The Group is also subject to equity price risk to the extent that the values of life-related benefits under certain products and life contracts, most notably variable annuity business, are tied to financial market values; to the extent market values fall, the financial exposure on guarantees related to these contracts would increase to the extent this exposure is not hedged. While the Group has an extensive hedging programme covering its existing variable annuity business that it believes is sufficient, certain risks cannot be hedged, including actuarial, basis and correlation risks. Exposure to foreign exchange risk arises from exposures to changes in spot prices and forward prices as well as to volatile movements in exchange rates.
Liquidity risks The Group’s business requires, and its clients expect, that it has sufficient capital and sufficient liquidity to meet its re/insurance obligations, and that this would continue to be the case following the occurrence of any foreseeable event or series of events, including extreme catastrophes, that would trigger insurance or reinsurance coverage obligations. The Group’s uses of funds include obligations arising in its insurance and reinsurance businesses (including claims and other payments as well as insurance provision repayments due to portfolio transfers, securitisations and commutations), which may include large and unpredictable claims (including catastrophe claims), funding of capital requirements and operating costs, payment of principal and interest on outstanding indebtedness and funding of acquisitions. The Group also has unfunded capital commitments in its private equity and hedge fund investments, which could result in
funding obligations at a time when it is subject to liquidity constraints. In addition, the Group has potential collateral requirements in connection with a number of reinsurance arrangements, the amounts of which may be material and the meeting of which could require the Group to liquidate cash equivalents or other securities.
Legal and regulatory risks In the ordinary course of business, the Group is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which determine rights and obligations under the Group’s insurance, reinsurance and other contractual agreements. From time to time, the Group may institute, or be named as a defendant in, legal proceedings, and the Group may be a claimant or respondent in arbitration proceedings. These proceedings could involve coverage or other disputes with ceding companies, disputes with parties to which the Group transfers risk under reinsurance arrangements, disputes with other counterparties or other matters. The Group cannot predict the outcome of any of the foregoing, which could be material for the Group.
Any of the foregoing, as well as the occurrence of future risks that the Group’s risk management procedures fail to identify or anticipate, could have a material adverse effect on the Group, and could also give rise to reputational risk.
Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that management uses, including as part of its risk models as well as those that affect the reported amounts of assets, liabilities, revenues and expenses in the Group’s financial statements, including assumed and ceded business. For example, the Group estimates premiums pending receipt of actual data from ceding companies, which actual data could deviate from the estimates. In addition, particularly with respect to large natural catastrophes, it may be difficult to estimate losses, and preliminary estimates may be subject to a high degree of uncertainty and change as new information becomes available. Deterioration in market conditions could have an adverse impact on assumptions used for financial reporting purposes, which could affect possible impairment of present value of future profits, fair value of assets and liabilities, deferred acquisition costs or goodwill. Moreover, regulators could require the use of standard models instead of permitting the use of internal models. To the extent that management’s estimates or assumptions prove to be incorrect, it could have a material impact on underwriting results (in the case of risk models) or on reported financial condition or results of operations, and such impact could be material.
São Paulo Avenida Brigadeiro Faria Lima 3064 Itaim Bibi São Paulo, SP 01451-001 Telephone +55 11 3073 8000
Asia-Pacific Singapore Asia Square Tower 2 12 Marina View Singapore 018961 Telephone +65 6532 2161
Sydney Tower Two International Towers Sydney 200 Barangaroo Avenue Sydney, NSW 2000 Telephone +61 2 8295 9500
Mumbai One BKC Plot no. C-66, G-Block Bandra Kurla Complex Bandra (East) Mumbai 400 051 Telephone +91 22 6661 2121
The 2019 Annual Report is also available in German. The web version of the 2019 Annual Report is available at: reports.swissre.com
Note 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) 58
Last update 18 October 2019 16 December 2019 20 December 2019
Corporate Solutions provides risk transfer solutions to large and mid-sized corporations around the world. Its innovative, highly customised products and standard insurance covers help to make businesses more resilient, while its industry-leading claims service provides additional peace of mind.
Net�premiums�� earned (USD billions) Net premiums earned and fee income (usd billions)
Net�premiums�� earned� (USD billions) Net premiums earned and fee income (usd billions)
50% Reinsurance P&C 34% Reinsurance L&H 11% Corporate Solutions 5% Life Capital
Fee income from policyholders 586 620 6 Net investment income – non-participating business 4 075 4 171 2 Net realised investment gains/losses – non-participating business 65 1 580 – Net investment result – unit-linked and with-profit business –1 593 4 939 –
Income before interest and income tax expense 1 105 1 498 36 Interest expenses –555 –589 6 Income before income tax expense 550 909 65 Income tax expense –69 –140 103 Net income before attribution of non-controlling interests 481 769 60
Income attributable to non-controlling interests –19 –42 121 Net income after attribution of non-controlling interests 462 727 57
Total equity as of 31 December 28 727 31 037 8
Acquired present value of future profits 1 818 1 042 –43
Liabilities and equity Unpaid claims and claim adjustment expenses 67 446 72 373 7 Liabilities for life and health policy benefits 39 593 19 836 –50
attractive returns while taking an industry-leading approach focused on Environmental, Social and Governance (ESG) criteria, leveraging our financial markets expertise and benefiting from our flexible investment platform built on the latest technology and advanced analytics.
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 programs 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.
Reinsurance generated a net income of USD 1.3 billion, compared with USD 1.1 billion in 2018. P&C Re reported a net income of USD 396 million in 2019, up from USD 370 million in 2018. The current year’s result benefited from profitable business growth and a very strong investment result, while both years were adversely impacted by large natural catastrophe losses.
Solutions 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”.
Swiss Re achieved a return on equity (ROE) of 2.5% for 2019, compared with an ROE in 2018 of 1.4%.
Earnings per share for 2019 were USD 2.46 or CHF 2.46, compared with USD 1.37 or CHF 1.34 for 2018.
Book value per share stood at USD 100.64 or CHF 97.46 at the end of 2019, compared with USD 93.09 or CHF 91.72 at the end of 2018. Book value per share is based on shareholders’ equity and excludes noncontrolling interests.
Corporate Solutions net premiums earned were USD 4.2 billion for 2019, up 6.1% from the previous year, as double-digit rate increases and growth in targeted lines of business more than offset the impact from active pruning of selected underwriting portfolios. At constant exchange rates, net premiums earned increased 7.3% year-on-year. The Corporate Solutions combined ratio was 127.9% in 2019, compared with 117.5% in the previous year, mainly due to exceptionally severe and frequent large- and medium-sized manmade losses from prior accident years and reserve increases.
Net premiums earned and fee income for Life Capital increased to USD 2.1 billion in 2019 from USD 1.6 billion in the prior year, driven by growth in the open book life and health insurance business and the termination of an intragroup retrocession agreement with L&H Re. Life Capital continued to generate significant gross cash2 amounting to USD 1.1 billion in 2019, compared with USD 818 million in 2018.
The return on investment (ROI) was 4.7% for 2019, compared with 2.8% in 2018, reflecting strong equity market performance, as well as additional gains within the fixed income portfolio.
The Group’s non-participating net investment income increased to USD 4.2 billion in 2019 from USD 4.1 billion in the prior year, demonstrating the stability of the recurring investment income.
Operating expenses were USD 3.6 billion in 2019, compared with USD 3.4 billion in 2018. The year-on-year increase of 4.3% was primarily driven by expenses related to the suspended initial public offering of and subsequently, the agreement to sell ReAssure.
Interest expenses increased by 6.1% to USD 589 million in 2019 from USD 555 million in the prior year.
Climate change impacts Over the last few years, climate change is believed to have contributed to the increased occurrence of dangerous weather events. In particular, so-called “secondary perils” – events such as wildfires, drought, heatwaves, landslides, torrential rain and flooding of a small or mid-sized magnitude, are increasingly fuelled by changes in climate patterns. Sometimes a secondary effect of larger “primary perils” including natural catastrophes like hurricanes and earthquakes, secondary perils affect millions of households and businesses. This is especially so in the world’s growing cities and densely populated areas which are exposed to rising temperatures and heavier precipitation. As in recent years, such secondary disaster events accounted for more than half of industry insured natural catastrophe losses.
Differentiation helps us navigate an evolving industry, where change is driven by factors including digitalisation and technology, geopolitical tensions and persistently low interest rates. To continue to be effective and help our clients succeed in this complex environment, we have developed a strategy that moves from solving traditional business problems to responding to future needs. Through the three pillars of Core, Transactions and Solutions, we respond to today’s risks, while fulfilling a key role in maintaining society’s resilience.
Premiums Gross premiums written increased by 30.3% to USD 21.6 billion in 2019. Net premiums earned were USD 19.3 billion for 2019, up from USD 16.1 billion in the prior period. The increase was driven by large transactions in the Americas and EMEA, as well as growth in the natural catastrophe business.
Shareholders’ equity Shareholders’ equity decreased to USD 8.3 billion as of 31 December 2019 from USD 9.5 billion on 31 December 2018, primarily driven by dividends paid to the Group of USD 1.4 billion and the capitalisation of inter-segmental payables and receivables following a change in presentation of historic intercompany expense balances. This was partially offset by the net changes in unrealised gains/losses and net income. The return on equity for 2019 was 4.4% compared
Outlook Renewals of loss-affected natural catastrophe business experienced favourable rate increases. Property rates are generally hardening for tropical cyclone exposed and loss-affected business and otherwise are broadly stable.
For casualty, Swiss Re saw strong rate increases in the US for Excess of Loss treaty business and improvements on proportional treaty business supported by the material rate increases on the primary side as a response to the growing loss trends. In EMEA and Asia the outlook for casualty rates is stable.
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 porfolio 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.
The investment result was very strong, reflecting higher net realised gains from sales of fixed income securities and market value gains on equity securities. The return on equity was 12.4%, compared with 11.1% in 2018, above the business segment’s target range of 10–12%.
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 intragroup retrocession agreement with Life Capital. Adjusting for these two items, gross premiums written increased by 5.6%.
Management expense ratio The management expense ratio was 5.2%, a decrease from 5.4% in 2018, reflecting lower operating expenses and higher premium volumes.
Investment result The return on investments for 2019 was 5.0%, up from 3.7% in 2018, reflecting an increase in the investment result of USD 480 million.
Net investment income decreased slightly by USD 15 million to USD 1 113 million in 2019. The running yield for 2019 was 3.3%.
Fee income from policyholders 152 169 11 Net investment income – non-participating business 1 305 1 207 –8 Net realised investment gains/losses –
Expenses Life and health benefits –10 280 –10 587 3 Return credited to policyholders –5 –162 – Acquisition costs –2 045 –1 975 –3 Operating expenses –758 –746 –2 Total expenses before interest expenses –13 088 –13 470 3
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 instruments 802 899 12 Interest on contingent capital instruments, net of tax –41 –100 Net income attributable to common shareholders 761 899 18
Net realised gains were USD 687 million for 2019, compared with USD 192 million for the prior period, with the current period positively impacted by gains from sales of fixed income securities and market value gains on equity securities.
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 applies its risk knowledge experience to help reduce the protection gap in all regions.
Corporate Solutions’ results were impacted by decisive management actions to reposition the business and strengthen reserves. The result was also affected by large and medium-sized man-made losses, mainly from the prior accident years related to the recent deterioration in US casualty.
Strategy and priorities As communicated with half-year 2019 results, Corporate Solutions has carried out a strategic review of its portfolio to address recent underperformance. In addition to increasing reserves and reinsurance protection, decisive management actions include portfolio pruning measures to ensure a more focused and profitable portfolio going forward. Portfolio repositioning, together with efficiency improvements and accelerated momentum in insurance rates will help Corporate Solutions return to underwriting profitability with an estimated normalised combined ratio of 105% in 2020. The target normalised combined ratio for 2021
Insurance-related derivative results and foreign exchange gains/losses are not included in the investment figures.
Expenses Claims and claim adjustment expenses –3 241 –3 900 20 Acquisition costs –607 –640 5 Operating expenses –763 –788 3 Total expenses before interest expenses –4 611 –5 328 16
Shareholdersʼ equity Shareholdersʼ equity increased to USD 2.0 billion since the end of 2018, due to the Group’s injection of USD 600 million capital in the second quarter of 2019 and unrealised investment gains, partly offset by the net loss for the period.
Outlook Market momentum substiantially 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. We expect to realise the benefits from the 2019 management actions in our financial results in 2020 and 2021.
Life Capital made the first steps towards expanding into Asia in 2019, where significant potential for future growth is expected.
Performance In 2019, Life Capital reported a net loss of USD 177 million, including a USD 0.2 billion charge in connection with the agreement to sell ReAssure. Excluding this charge, net income was USD 53 million, an increase from USD 23 million in 2018. The current year result benefited from strong investment results, partially offset by expenses related to the separation of ReAssure into a standalone group and operating costs arising from the continued growth in the open book businesses.
The net operating margin in 2019 was 2.4% compared with 3.9% in the prior year, in line with movements in income.
reflecting an increase in the investment result of USD 57 million.
Net investment income decreased by USD 57 million to USD 787 million in 2019, mainly due to run-off within the closed book portfolios.
Operating expenses Operating expenses were USD 721 million in 2019 compared with USD 549 million in 2018. The increase was due to expenses related to the separation of ReAssure and investment into the growth of the open book businesses.
Shareholdersʼ equity Shareholdersʼ equity increased by USD 0.2 billion to USD 5.3 billion, mainly driven by increased unrealised gains, partially offset by the net loss and the USD 0.5 billion dividend paid in 2019. The return on equity was –3.4% for 2019, compared with 0.4% for 2018. The year-on-year decrease was due to lower net income in 2019 including the charge in connection with the agreement to sell ReAssure.
Net investment result – unit-linked and with-profit business –1 560 4 821 – Other revenues – 1 –
Expenses Life and health benefits –1 489 –2 500 68 Return credited to policyholders 1 038 –4 471 – Acquisition costs –255 –409 60 Operating expenses –549 –721 31 Total expenses before interest expenses –1 255 –8 101 –
individual records is fully integrated with Swiss Re’s proprietary risk modelling landscape, positioning us well for superior risk selection and advanced accumulation tracking. Strategic collaboration with open-source partners, for example the Global Earthquake Model (GEM) publicprivate partnership, provides further access to data and ensures timely consideration of leading scientific perspectives as we advance our own views on risk.
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 forms the basis for continued underwriting excellence and positions 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
Financial year Group results 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
Accelerated exposure growth and growing concentrations in areas with heightened exposure to natural catastrophes, such as coastal zones, have been contributing noticeably to loss activity in property and casualty. While technological progress can have a positive impact on loss frequency and severity in some lines of business, there are broad secular trends driving up loss cost tied to climate change, rapid urbanisation and increasing complexity of business operations. Changing societal trends and
attitudes have been impacting claims severity further in specific markets, mainly in the US, a phenomenon commonly described as social inflation. Similarly, on the life and health side, the expansion of genetic testing, rising obesity rates, opioid-related mortality and other trends drive up claims amid stalling mortality improvement rates.
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.
We expect broadly stable to improving property and casualty reinsurance prices as a result of rising claims and a significant reduction of available retrocession capacity. Underlying primary commercial line price increases have gained strength and broadened throughout 2019. Due to our long-standing underwriting experience as a leading reinsurer we are well positioned to navigate fast-developing risk environments.
Strategy Swiss Re’s investment portfolio provided an excellent contribution in 2019, despite headwinds from the declining interest rate environment. Fundamentally, the portfolio performed well with no material impairments alongside gains generated from the fixed income portfolio and strong equity performance. Overall, Swiss Re’s asset allocation changed only moderately during 2019, with a modest reduction in corporate bond exposure and continued deployment in private debt as well as real estate. We continue to systemically incorporate ESG across the entire investment value chain. As in the past, the Group remains flexible should there be a change in the investment outlook or if market opportunities arise.
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. Yields have partially recovered since then, but remain very low by historical standards. 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.
In the global macroeconomic environment, growth weakened in 2019 as trade activity slowed and the manufacturing sector contracted. Meanwhile, inflationary pressures have remained muted. Finally, the US-China trade dispute dominated geopolitics throughout the year, while the prospect of Brexit added to the political uncertainty in Europe.
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.
Central banks are set to stay very accommodative. The US Federal Reserve has said it will use its balance sheet to provide ample liquidity and is expected to keep rates unchanged for the foreseeable future. Meanwhile, the European Central Bank has said it will continue its asset purchase programme throughout 2020.
Expenses Claims and claim adjustment expenses 3 –14 855 –18 683 Life and health benefits 3 –11 769 –13 087 Return credited to policyholders 1 033 –4 633 Acquisition costs 3 –6 919 –7 834 Operating expenses –3 432 –3 579
Net income before attribution of non-controlling interests 481 769 Other comprehensive income, net of tax: Change in net unrealised investment gains/losses –2 389 3 375 Change in other-than-temporary impairment –1 2 Change in cash flow hedges 15 –9 Change in foreign currency translation –408 46 Change in adjustment for pension benefits –4 –29 Change in credit risk of financial liabilities at fair value option –2 Transactions with non-controlling interests –259 –56 Other comprehensive income attributable to non-controlling interests 72 341
Total comprehensive income before attribution of non-controlling interests –2 493 4 437
Equity securities at fair value through earnings (including 480 in 2018 and 186 in 2019 subject to securities lending and repurchase agreements) 3 036 2 993 Policy loans, mortgages and other loans 4 542 3 021 Investment real estate 2 411 2 528 Short-term investments (including 552 in 2018 and 1157 in 2019 subject to securities lending and repurchase agreements) 5 417 5 768 Other invested assets 6 398 7 343 Investments for unit-linked and with-profit business (including fixed income securities trading: 4 938 in 2018 and nil in 2019, equity securities at fair value through earnings: 23 123 in 2018 and 520 in 2019) 29 546 520
Total accumulated other comprehensive income –4 819 –1 492 1 Please refer to Note 11 "Assets held for sale" for more details.
Common shares Balance as of 1 January 33 32 Cancellation of shares bought back –1 –1 Balance as of period end 32 31
Cash flow hedges, net of tax Balance as of 1 January –10 6 Transactions with non-controlling interests1 1 1 Changes during the period 15 –9 Balance as of period end 6 –2
Foreign currency translation, net of tax Balance as of 1 January –5 548 –5 904 Transactions with non-controlling interests1 52 64 Changes during the period –408 46 Balance as of period end –5 904 –5 794
Retained earnings Balance as of 1 January 36 449 34 512 Net income after attribution of non-controlling interests 462 727 Interest on contingent capital instruments, net of tax –41 Dividends on common shares –1 592 –1 659 Cancellation of shares bought back –946 –996 Impact of ASU 2018-022 –159 Impact of ASU 2016-162 –3 Impact of ASU 2016-012 342 Impact of ASU 2016-023 92 Balance as of period end 34 512 32 676
Interest paid was USD 631 million and USD 572 million (thereof USD 43 million and USD 24 million for letter of credit fees) for 2018 and 2019, respectively. Tax paid was USD 740 million and USD 611 million for 2018 and 2019, respectively.
Cash and cash equivalents include restricted cash and cash equivalents, for instance pledged cash and cash equivalents (please refer to Note 7 “Investments“).
Basis of presentation The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP). All significant intra-group transactions and balances have been eliminated on consolidation. The accompanying condensed consolidated financial statements contain preliminary, unaudited financial information for the annual period ended 31 December 2019. The 2018 year-end balance sheet data presented was derived from audited financial statements. These condensed financial statements do not include all disclosures that US GAAP requires on an annual basis and therefore they should be read in conjunction with the Swiss Re Group’s audited consolidated financial statements for the year ended 31 December 2018. The Swiss Re Group’s audited consolidated financial statements for the year ended 31 December 2019 will be published on 19 March 2020.
The Group agreed to sell its subsidiary ReAssure Group plc in December 2019 to Phoenix Group Holdings plc. The corresponding held for sale assets and liabilities are separately disclosed on the balance sheet. Further details on the agreed sale are provided in Note 11 “Assets held for sale“.
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 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 October 2018, the FASB issued ASU 2018-16, ‘‘Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes’’, an update to topic 815, ‘‘Derivatives and Hedging’’. The amendments in this update permit the use of the OIS rate based on SOFR as a US benchmark interest rate in order to facilitate the LIBOR to SOFR transition. The Group adopted ASU 2018-16 on 1 January 2019. The adoption did not have an impact on the Group’s financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, an update to topic 350, “Intangibles – Goodwill and Other”. This ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity has to perform procedures to determine the fair value of its assets and liabilities (including unrecognised assets and liabilities) at the impairment testing date following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, under the amendments in this update, an entity should perform its regular goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognise an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognised should not exceed the total amount of goodwill allocated to that reporting unit. As amended by ASU 2019-10 “Effective Dates“, ASU 2017-04 is effective for goodwill impairment tests in annual and interim periods beginning after 15 December 2022. Early application of the ASU is permitted. The Group is currently assessing the impact of the new requirements.
2 Information on business segments The Group provides reinsurance and insurance throughout the world through its business segments. The business segments are determined by the organisational structure and by the way in which management reviews the operating performance of the Group.
Through ReAssure, Swiss Re acquires closed blocks of inforce life and health insurance business, either through reinsurance or corporate acquisition, and typically assumes responsibility for administering the underlying policies. The administration of the business may be managed directly or, where appropriate, in partnership with a third party. In the open books business, elipsLife, the Group life and health insurance business, offers solutions to pension funds, corporates and affinity groups through an intermediated business to business to consumer (“B2B2C”) model. The iptiQ business, primarily the individual life and health business, partners with distributors and enables individuals to address their protection needs on a white labelled basis.
Net income/loss before attribution of non-controlling interests 370 802 –409 46 –328 0 481
Business segments – income statement For the year ended 31 December 2019 Property & Casualty Reinsurance
Premiums earned 19 275 12 835 4 166 1 698 37 974 Fee income from policyholders 169 451 620 Net investment income – non-participating business 1 419 1 207 234 1 193 552 –434 4 171 Net realised investment gains – non-participating business 883 628 162 18 –111 1 580 Net investment result – unit-linked and with-profit business 118 4 821 4 939 Other revenues 18 4 5 1 414 –412 30
Net income/loss before attribution of non-controlling interests 396 899 –658 –124 256 0 769
Net income/loss after attribution of non-controlling interests 396 899 –647 –177 256 0 727
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”.
Liabilities Unpaid claims and claim adjustment expenses 49 963 13 094 12 881 2 489 –6 054 72 373 Liabilities for life and health policy benefits 20 679 728 4 250 –5 821 19 836 Policyholder account balances 1 401 4 004 5 405 Other reinsurance liabilities 12 899 2 904 4 987 2 034 2 –5 051 17 775 Short-term debt 915 1 500 66 60 –2 356 185 Long-term debt 5 511 11 225 798 838 494 –8 728 10 138 Other 11 662 7 970 1 093 1 015 1 900 –10 408 13 232 Liabilities held for sale¹ 68 624 –38 68 586 1 Please refer to Note 11 "Assets held for sale" for more details.
Net premiums written 6 047 7 548 2 503 16 098 Change in unearned premiums –18 116 –101 –3
Total expenses before interest expenses –7 303 –10 828 –2 651 0 –20 782
Income/loss before income tax expense –96 –1 542 131 1 968 461
Net premiums written 8 522 4 212 12 734 Change in unearned premiums 126 –25 101
48 Swiss Re | Financial Review 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
Net premiums earned and fee income from policyholders are allocated by country, based on the underlying contract.
Premiums earned, thereof: Direct 67 3 429 2 053 5 549 Reinsurance 16 314 13 358 916 110 30 698 Intra-group transactions (assumed and ceded) 161 577 –161 –577 0
Premiums earned before retrocession to external parties 16 475 14 002 4 184 1 586 36 247
Claims before receivables from retrocession to external parties –11 011 –10 754 –2 941 –3 046 –27 752
Change in unpaid claims and claim adjustment expenses; life and health benefits, thereof: Gross – with external parties –1 251 –629 –261 1 031 –1 110 Intra-group transactions (assumed and ceded) 294 –78 –294 78 0
Acquisition costs before impact of retrocession to external parties –4 077 –2 269 –656 –306 –7 308
Claims and claim adjustment expenses For the year ended 31 December 2019 Property & Casualty Reinsurance
Net unpaid claims and claim adjustment expenses; life and health benefits –2 097 –1 394 –913 344 –4 060
Claims and claim adjustment expenses; life and health benefits –14 783 –10 587 –3 900 –2 500 –31 770
Retrocession to external parties –348 –1 306 –296 –414 –2 364 2019 Property & Casualty Reinsurance
Gross premiums written before retrocession to external parties 21 494 13 946 4 601 2 187 42 228
Incurred related to: Current year 27 457 29 338 Prior year 42 2 231
The net paid losses include a settlement of USD 190 million for late asbestos and environmental reported claims presented by one cedent in Q2 2019.
58 Swiss Re | Financial Review 2019 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
60 Swiss Re | Financial Review 2019 7 Investments Investment income Net investment income by source (excluding unit-linked and with-profit business) was as follows: Fixed income securities 2 905 2 859 Equity securities 71 66 Policy loans, mortgages and other loans 213 162 Investment real estate 220 226 Short-term investments 62 93 Other current investments 128 127 Share in earnings of equity-accounted investees 166 387 Cash and cash equivalents 47 75 Net result from deposit-accounted contracts 250 149 Deposits with ceding companies 447 452
Dividends received from investments accounted for using the equity method were USD 170 million and USD 104 million for 2018 and 2019, respectively.
Other-than-temporary impairments –9 –5 Net realised investment gains/losses on equity securities 21 200 Change in net unrealised investment gains/losses on equity securities –483 478 Net realised investment gains/losses on trading securities –69 153 Change in net unrealised investment gains/losses on trading securities 39 –26 Net realised/unrealised gains/losses on other investments 117 –197 Net realised/unrealised gains/losses on insurance-related activities 97 108 Foreign exchange gains/losses 51 –348 Loss related to agreed sale of ReAssure1 –230
Net realised/unrealised gains/losses on insurance-related activities included impairments of USD 7 million and USD 5 million for 2018 and 2019, respectively.
Investment result – unit-linked and with-profit business For unit-linked contracts, the investment risk is borne by the policyholder. For with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the downside risk for the policyholder, and a certain proportion of the returns may be retained by the Group (typically 10%).
Net investment result on unit-linked and with-profit business credited to policyholders was as follows: 2018 2019 USD millions Unit-linked With-profit Unit-linked With-profit
Investment income – fixed income securities 68 120 58 101 Investment income – equity securities 715 72 733 76 Investment income – other 17 10 25 11
Investments available-for-sale Amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as available-for-sale as of 31 December were as follows: 2018 Amortised cost Gross unrealised Gross unrealised
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 14 192 377 –31 14 538 US Agency securitised products 7 034 104 –14 7 124 States of the United States and political subdivisions of the states 1 783 168 –3 1 948 United Kingdom 7 936 1 309 –26 9 219 Germany 2 870 298 –35 3 133 Canada 2 256 139 –4 2 391 France 2 095 343 –13 2 425 Japan 2 028 98 –2 2 124 Other 10 589 583 –33 11 139
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 2 357 31 97 0 2 454 31 US Agency securitised products 1 842 7 654 7 2 496 14 States of the United States and political subdivisions of the states 39 1 30 2 69 3 United Kingdom 1 297 22 83 4 1 380 26 Germany 669 34 17 1 686 35 Canada 863 3 62 1 925 4 France 340 12 16 1 356 13 Japan 443 1 2 1 445 2 Other 1 492 17 315 16 1 807 33
Mortgage, policy and other loans, and investment real estate As of 31 December, the carrying and respective fair values of investments in mortgage, policy and other loans, and investment real estate (excluding unit-linked and with-profit business) were as follows: 2018 2019 USD millions Carrying value Fair value Carrying value1 Fair value
Collateral pledged or received between two counterparties with a master netting arrangement in place, but not subject to balance sheet netting, is disclosed at fair value. The fair values represent the gross carrying value amounts at the reporting date for each financial instrument received or pledged by the Group. Management believes that master netting agreements provide for legally enforceable set-off in the event of default, which substantially reduces credit exposure. Upon occurrence of an event of default, the non-defaulting party may set off the obligation against collateral received regardless if it has been offset on the balance sheet prior to the defaulting event. The net amounts of the financial assets and liabilities presented on the balance sheet were recognised in “Other invested assets”, “Investments for unit-linked and with-profit business” and “Accrued expenses and other liabilities”.
Recognised gross liability for the obligation to return collateral (from repurchase agreements and securities lending) As of 31 December 2018 and 2019, the gross amounts of liabilities related to repurchase agreements and securities lending by the class of securities transferred to third parties and by the remaining maturity are shown below.
Repurchase agreements Debt securities issued by governments and government agencies 149 2 894 100 141 3 284 Corporate debt securities 9 41 50
Remaining contractual maturity of the agreements 2019 Overnight and continuous Greater than 90 days Total USD millions Up to 30 days 30–90 days
Valuation techniques US government securities typically have quoted market prices in active markets and are categorised as level 1 instruments in the fair value hierarchy. Non-US government holdings are generally classified as level 2 instruments and are valued on the basis of the quotes provided by pricing services, which are subject to the Group’s pricing validation reviews and pricing vendor challenge process. Valuations provided by pricing vendors are generally based on the actual trade information as substantially all of the Group’s non-US government holdings are traded in a transparent and liquid market.
Corporate debt securities mainly include US and European investment-grade positions, which are priced on the basis of quotes provided by third party pricing vendors and first utilise valuation inputs from actively traded securities, such as bid prices, bid spreads to Treasury securities, Treasury curves and same or comparable issuer curves and spreads. Issuer spreads are determined from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call features. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable inputs and option-adjusted spreads and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure.
The Group uses third party pricing vendor data to value agency securitised products, which mainly include collateralised mortgage obligations (CMO) and mortgage-backed government agency securities. The valuations generally utilise observable inputs consistent with those noted above for RMBS and CMBS.
The Group’s OTC foreign exchange derivatives primarily include forward, spot and option contracts and are generally valued based on the cash flow discounting models, utilising as main inputs observable foreign exchange forward curves.
Assets Fixed income securities held for proprietary investment purposes 11 668 82 906 1 378 95 952
Assets Fixed income securities held for proprietary investment purposes 14 057 86 270 1 696 –20 450 81 573
Liabilities for life and health policy benefits –91 –91 Accrued expenses and other liabilities –340 –1 882 –2 222
Realised/unrealised gains/losses: Included in net income 67 13 –19 61 44 7 51 Included in other comprehensive income –39 –39 0
Closing balance as of 31 December 1 378 0 404 166 364 2 312 –517 –119 –636 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Closing balance as of 31 December 1 696 0 225 143 411 2 475 –465 –91 –556 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Infrastructure loans 920 1 147 Discounted cash flow model Valuation spread 75–526 bps (173 bps) Private placement corporate debt 341 504 Corporate spread matrix Credit spread 48–321 bps (175 bps) Private placement credit tenant leases 42 42 Discounted cash flow model Illiquidity premium 125–150 bps (146 bps)
Other invested assets measured at net asset value Other invested assets measured at net asset value as of 31 December were as follows: 2018 2019 Unfunded Redemption frequency Redemption USD millions Fair value Fair value commitments (if currently eligible) notice period
Changes in fair values for items measured at fair value pursuant to election of the fair value option Gains/losses included in earnings for items measured at fair value pursuant to election of the fair value option including foreign exchange impact for the years ended 31 December were as follows: Other invested assets 6 16 Funds held by ceding companies 11 Liabilities for life and health policy benefits 6 32 Accrued expenses and other liabilities –11 Liabilities held for sale –10
Debt positions, which are fair valued based on executable broker quotes or the discounted cash flow method using observable inputs, are classified as level 2 measurements. Fair value of the majority of the Group’s level 3 debt positions is judged to approximate carrying value due to the highly tailored nature of the obligation and short-notice termination provisions.
80 Swiss Re | Financial Review 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.
Derivatives not designated as hedging instruments Interest rate contracts 52 719 441 –326 115 Foreign exchange contracts 19 415 186 –148 38 Equity contracts 12 493 719 –538 181 Credit contracts 379 –1 –1 Other contracts 11 385 61 –471 –410
Derivatives designated as hedging instruments Foreign exchange contracts 12 679 213 –21 192
Assets Fixed income securities available-for-sale 9 555 Liabilities Long-term debt –1 355 20
The major classes of assets and liabilities held for sale are listed below.
As of 31 December 2018 and 2019, operational debt, ie debt related to operational leverage, amounted to USD 2.5 billion (thereof USD 2.1 billion limited- or non-recourse) and USD 2.2 billion (thereof USD 1.9 billion limited- or non-recourse), respectively. Operational leverage is subject to asset/liability matching and is excluded from rating agency financial leverage calculations.
In June 2019, ReAssure Group plc issued Tier 2 subordinated notes due 2029. The notes have an aggregate face value of GBP 500 million, with a fixed coupon of 5.867% per annum.
In September 2019, Swiss Re Finance (Luxembourg) S.A., a subsidiary of Swiss Reinsurance Company Ltd, issued perpetual guaranteed subordinated fixed spread callable notes, which are callable every five years. The instruments have an aggregate face value of USD 1 billion, with a fixed coupon of 4.25% per annum until the first optional redemption date (4 September 2024). The coupon is reset every five years to the then prevailing US Treasury rate plus the initial credit spread. The notes are guaranteed on a subordinated basis by Swiss Reinsurance Company Ltd.
Lease liabilities and right-of-use assets Lease liabilities and right-of-use assets for operating leases as of 31 December were as follows: USD millions 2019
The weighted average discount rate for operating leases as of 31 December 2019 was 2.5%. The weighted average remaining lease term for operating leases as of 31 December 2019 was 8.9 years.
14 Earnings per share Earnings per share for the years ended 31 December were as follows: USD millions (except share data) 2018 2019
At the 2018 Annual General Meeting held on 20 April 2018, the Group’s shareholders authorised the Group Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of the Group’s own shares by way of a public share buyback programme for cancellation purposes prior to the 2019 Annual General Meeting.
At the 2019 Annual General Meeting held on 17 April 2019, the Group’s shareholders authorised a public share buyback programme consisting of two tranches of each up to CHF 1 billion purchase value of the Group’s own shares for cancellation purposes prior to the 2020 Annual General Meeting, the first tranche being conditional on obtaining all necessary legal and regulatory approvals and Board of Directors approval and the second tranche being conditional on (in addition to obtaining all necessary legal and regulatory approvals and Board of Directors approval) the 2019 development of the Group’s excess capital position and subject to Swiss Re’s capital management priorities.
92 Swiss Re | Financial Review 2019 15 Commitments and contingent liabilities As a participant in limited and other investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnerships for periods of up to ten years. The total commitments remaining uncalled as of 31 December 2019 were USD 2 339 million.
Typically, the variable interests held by the Group arise through ownership of insurance-linked securities, in which case the Group’s maximum loss equals the principal amount of the securities held by the Group.
Investment vehicles The Group consolidates a real estate investment entity, which holds real estate backing annuities business. The Group is its primary beneficiary, because it has both power over the entity’s investment decisions as well as a significant variable interest in the entity.
The Group consolidates an investment vehicle, because the Group holds the entire interest in the entity and makes investment decisions related to the entity. The investment vehicle is a VIE because it is structured as an umbrella company comprised of multiple sub-funds. The majority of the investments held in this vehicle are accounted for as available-for-sale and are disclosed in the investment note and not included in the tables on the following pages.
The Group consolidates an investment vehicle for unit-linked business, where the Group holds over three quarters of the voting power, which given the structure of the fund, gives it the power to make investment decisions related to the entity. The investment vehicle is consolidated at fair value in the Group’s balance sheet.
The Group did not provide financial or other support to any VIEs during 2019 that it was not previously contractually required to provide.
Non-consolidated VIEs The following table shows the total assets and liabilities on the Group’s balance sheet related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: Fixed income securities available-for-sale 935 1 187 Equity securities at fair value through earnings 272 113 Policy loans, mortgages and other loans 1 313 1 735 Other invested assets 1 953 2 160 Investments for unit-linked and with-profit business 5 999 17 131 Reclassified to assets held for sale –17 590
markets, trade wars or other protectionist measures relating to international trade arrangements, adverse geopolitical events, domestic political upheavals or other developments that adversely impact global economic conditions; • increased volatility of, and/or disruption in, global capital and credit markets;
• the Group’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of the Group’s financial strength or otherwise; • the Group’s inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their values recorded for accounting purposes; • the Group’s inability to generate sufficient investment income from its investment portfolio, including as a result of fluctuations in the equity and fixed income markets, the composition of the investment portfolio or otherwise;
• reforms of, or other potential changes to, benchmark reference rates;
terrorist attacks, cyberattacks, natural catastrophes, public health emergencies, hostilities or other events;
• operational factors, including the efficacy of risk management and other internal procedures in anticipating and managing the foregoing risks.
In addition, regulatory changes could occur in areas of broader application, such as competition policy and tax laws. Changes in tax laws, for example, could increase the taxes the Group pays, or impact, the attractiveness of products offered by the Group, the Group’s investment activities and the value of deferred tax assets. Any number of these changes could apply to the Group and its operations. These changes, or inconsistencies between the various regimes that apply to the Group, could increase the costs of doing business (including due to increased capital requirements), reduce access to liquidity, limit the scope of current or future business or affect the competitive balance, or could make reinsurance less attractive to primary insurers.
Counterparty risks The Group is exposed to the risk of defaults, or concerns about defaults, by its counterparties. Securities trading counterparties, counterparties under swaps and other derivative contracts, and financial intermediaries may default on their obligations due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons, which could have a material adverse effect on the Group. The Group has increased its allocation to higher return-generating strategies, including high-quality corporate debt and some alternative assets, which tend to also be subject to potentially greater counterparty risk.
As claims paying and financial strength ratings are key factors in establishing the competitive position of reinsurers, a decline in ratings alone could make reinsurance provided by the Group less attractive to clients relative to reinsurance from competitors with similar or stronger ratings. A decline in ratings could also cause the loss of clients who are required by policy or regulation to purchase reinsurance only from reinsurers with certain ratings. Certain larger reinsurance contracts contain terms that would allow the ceding companies to cancel the contract if the Group’s ratings or those of its subsidiaries are downgraded beyond a certain threshold. Moreover, a decline in ratings could impact the availability and terms of unsecured financing (potentially impacting the Group’s ability to rollover existing facilities or obtain new facilities) and obligate the Group to provide collateral or other guarantees in the course of its business or trigger early termination of funding arrangements, potentially resulting in a need for additional liquidity. As a ratings decline could also have a material adverse impact on the Group’s costs of borrowing or ability to access the capital markets, the adverse implications of a downgrade could be more severe. These same factors could also impact the Group’s insurance business.
value of future profits, fair value of assets and liabilities, deferred acquisition costs or goodwill. Moreover, regulators could require the use of standard models instead of permitting the use of internal models. To the extent that management’s estimates or assumptions prove to be incorrect, it could have a material impact on underwriting results (in the case of risk models) or on reported financial condition or results of operations, and such impact could be material.
The Group’s results may be impacted by changes in accounting standards, or changes in the interpretation of accounting standards. Changes in accounting standards could impact future reported results or require restatement of past reported results. The Group’s results may also be impacted if regulatory authorities take issue with any conclusions the Group may reach in respect of accounting matters.
The Group includes in its annual report a section in respect of its results, including financial statements, prepared in accordance with the Group’s proprietary economic value management (“EVM”) principles (“EVM report”). Financial information included in the EVM report contains non-GAAP financial measures. The EVM principles differ significantly from US GAAP and, accordingly, the Group’s results prepared in accordance with US GAAP will differ from its EVM results, and those differences could be material. The Group’s annual EVM results can be more volatile than the US GAAP results because, among other things, assets and liabilities are measured on a market consistent basis, profit recognition on new contracts is recognised at inception rather than over the life time of the contract, and life and health actuarial assumptions are on a best estimate basis as opposed to generally being locked-in. The Groupʼs EVM financial statements should not be viewed as a substitute for the Group’s US GAAP financial statements.
Risks related to the Swiss Re corporate structure Swiss Re is a holding company, a legal entity separate and distinct from its subsidiaries, including Swiss Reinsurance Company Ltd. As a holding company with no operations of its own, Swiss Re is dependent upon dividends and other payments from Swiss Reinsurance Company Ltd and its other principal operating subsidiaries. The Group expects that, over time, its structure will continue to evolve. In the future it may, for example, elect again (having accepted an equity investment within its Life Capital Business Unit from a third party) to partner with minority investors in or within one or more of the Group’s Business Units or sub-groups within its Business Units, which could alter historical approaches taken in respect of capital, liquidity, funding and/or dividends, as well as other governance matters, including strategy for such Business Unit or sub-group, or may elect otherwise to dispose of interests in Group businesses or portions thereof, or to grow through acquisitions. To the extent it undertakes acquisitions, it is subject to the risks inherent in acquiring and integrating new
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an ability to recover from or adjust easily to misfortune or change (Source: Merriam-Webster)
About the front cover In our 2019 Business Report, we feature three stories of how our solutions impact people around the world. Read how Swiss Re is helping Kanlaya Bunthan, Alexis Hofmann and Suzanne Bielser go from risk to resilience.
Net premiums earned and fee income (USD billions) Net premiums earned and fee income (usd billions)
Net premiums earned and fee income by region (Total USD 38.6 billion)
Be it coronavirus, the American-Chinese trade war, the unresolved issue of the UK’s future integration in the European economy or the fight against the consequences of climate change, only one conclusion can be drawn: risks are becoming less local and more global. Responsibility must be taken for these enormous risks, and it is up to businesses and governments to do so.
So who is poised to take the lead? Who will guide the world back onto the path of multilateralism? There are very few people on whom to pin our hopes, and some bizarre incidents at the recent World Economic Forum in Davos have only reinforced my concerns.
If there is no political consensus on how to manage major risks and ensure global prosperity, large global companies like Swiss Re will increasingly have to fend for themselves. This does not make our task of assessing insurable risks and making them economically manageable any easier. Risk management is the joint responsibility of both business and governments!
The Group aims to grow the regular dividend with long-term earnings or, at a minimum, maintain it.
Let me briefly explain at this point which of our decisions regarding capital allocation in 2019 and the previous years can from today’s perspective be judged as successful, and which were less so.
I am mindful that we operate in a very long-term business and are navigating an ever-changing environment. So, here is my assessment from today’s perspective.
Financial investments enjoyed a boost in 2019 Let’s start with a positive aspect: 2019 provided exceptionally favourable conditions for those invested in financial assets. Our asset managers did an excellent job and achieved a very strong result. And let’s not forget that this was achieved without taking excessive risks.
However, we also had to invest in the Corporate Solutions business unit in 2019. The insurance of major corporate risks is cyclical and volatile due to the capacity used. However, it is and will remain an important component of our business portfolio. We are adhering to our strategy and returning this Business Unit, which achieved solid results up to 2016, back to profitability.
Thanks to sharply increasing market rates, the Business Unit maintained its premium volume in the past year despite the restructuring measures. These measures are being implemented consistently: key members of the Corporate Solutions management team have been replaced, the underwriting policy has been tightened, the portfolio has been comprehensively adjusted and costs have been reduced. The right course has been set. “Stay tuned”, as the Americans would say.
Looking back, 2019 was not an easy year – and the challenges are getting bigger, not smaller. But we know that we can count on the experience and commitment of more than 15 000 employees worldwide. I would also like to thank you as shareholders for your trust and support, which were invaluable in 2019.
Dear shareholders, 2019 was a year of important steps to position Swiss Re for continued long-term success in a challenging macroeconomic and re/insurance industry environment. We reached an agreement to sell ReAssure, which should maximise the value of this asset for the Group and ultimately for you, our shareholders. We initiated a far-reaching transformation of Corporate Solutions to return this business to profitability. And we made good progress on our targeted growth strategy in Reinsurance, with an emphasis on our capabilities in underwriting large transactions and providing innovative solutions. Finally, we further reinforced our commitment to sustainability by setting new ambitious goals for achieving net-zero carbon emissions in our underwriting, investing and operations.
Four big trends affecting the re/insurance industry stood out in 2019: declining interest rates; rising costs attributable to climate-related disasters, such as heatwaves and wildfires; higher insurance claims due to societal trends, such as changing perceptions by an injured party of what they are owed and their willingness to pursue claims via the legal system; and hardening rates in some lines of business.
As global economic growth weakened due to trade tensions and geopolitical polarisation, more than half the central banks around the world cut interest rates in 2019 – the biggest number to do so since the aftermath of the global financial crisis. Interest rates are forecast to stay low for longer, and this has a two-fold effect on our business. This environment has led to an influx of capital into the re/insurance market over the past years, damping prices and suppressing investment yields. These conditions also negatively affect global economic resilience. The world economy currently has less capacity to absorb a shock than it did in 2007, according to the latest research by Swiss Re Institute. And this means that re/insurance is needed more than ever to help close a record-high USD 1.2 trillion protection gap in the three main risk areas – natural catastrophes, mortality and healthcare spending.
Another trend that has been gaining momentum in recent years is the phenomenon of so-called social inflation, or rising insurance claims due to increased litigation, higher jury awards and broader contract interpretations. With roots in the general anti-corporate sentiment since the global financial crisis, social inflation is particularly visible in US liability claims.
These adverse developments are somewhat balanced by hardening rates in loss-affected reinsurance lines, such as the natural catastrophe business. We also see strong pricing momentum in Corporate Solutions, which achieved a 12% price increase in its portfolio in 2019. However, to ensure a re/insurance market that is sustainable in the long-term, further rate increases are needed to reflect changing market conditions.
Reinsurance remains our core engine of profitability, delivering a market-leading combination of shareholder returns and capital repatriation to the Group. To address the recent trends, we employ robust portfolio steering to inform our strategy of targeted growth. Based on expected loss trends, pricing outlook and risk management, Property & Casualty Reinsurance (P&C Re) is expanding its natural catastrophe franchise in attractive segments, while managing exposure and strengthening reserves in the casualty business. Our Life & Health Reinsurance segment continues to deliver solid performance. Transactions and solutions are becoming ever more important to our offering and demonstrate significant further growth potential. Demand for transactions, which contributed approximately 23% to the economic profit of the Reinsurance Business Unit in 2019, continues to increase because they have the potential to meet a range of client needs, such as greater capital efficiency or reduced earnings volatility. Economic profit from solutions, where Swiss Re helps clients to deliver on their strategic priorities, such as improving profitability or developing new products, rose 12% in 2019 from the prior year.
In Corporate Solutions, we took decisive actions to adapt to the unfavourable claims trends and a soft market environment. These measures included cutting costs, reserve strengthening, the establishment of an Adverse Development Cover with P&C Re, as well as a reduction in risk exposures in specific lines of business. Portfolio repositioning will allow Corporate Solutions to focus on selected profitable segments where we are seeing an improving price environment. The next steps in business transformation will focus on decommoditisation of its core portfolio, selective growth with differentiating capabilities such as innovative risk solutions, and expansion through tech-driven initiatives. Portfolio repositioning, together with efficiency gains and the accelerating momentum in insurance rates should help Corporate Solutions return to underwriting profitability with a target normalised combined ratio of 98% in 2021.
Life Capital is successfully transitioning to a dynamically growing, digital B2B2C business. Our goal has been to deconsolidate our UK closed-book subsidiary ReAssure because of the high capital requirements for this business under the Swiss solvency rules. Although our attempt to do an initial public offering of ReAssure was thwarted by unfavourable conditions in the UK primary equity market in the first half of 2019, we are very pleased to have found a strong buyer for this business in Phoenix Group Holdings plc. The rationale for this transaction is compelling, and once completed, we believe it will maximise long-term value for Swiss Re shareholders. In the meantime, our open-book businesses are continuing to attract new partners and expand. In particular, our white-label digital platform iptiQ is developing dynamically and selling more than 4 000 policies per week across both the Life & Health and Property & Casualty businesses, with significant opportunities for geographic expansion. Partnerships, such as the recent agreement with IKEA to offer transparent, affordable and easily accessible home insurance, demonstrates the great potential for this business in the future as well as the strategic role it plays when it comes to accessing attractive new risk pools for Swiss Re.
Our commitment to sustainability Despite the low-yield environment, our asset management team again demonstrated their ability to consistently generate very strong returns, achieving a return on investments of 4.7% in 2019. They do this while taking an industry-leading approach focused on environmental, social and governance (ESG) criteria, which underscores that putting sustainability at the heart of the business makes economic sense. In 2019, Swiss Re demonstrated yet again its strong commitment to sustainable investing by being one of the founding partners of the UN-convened Net-Zero Asset Owner Alliance, pledging to transition our investment portfolios to net-zero carbon emissions by 2050. We have already reduced the carbon intensity of our listed equity and corporate bond portfolios by an average of 50% since the end of 2015.
We have also made the same strong commitment on our underwriting side by signing the “UN Business Ambition for 1.5°C” pledge. In 2018, we stopped providing re/insurance to businesses with more than 30% thermal coal exposure. In a next step, Swiss Re will gradually stop supporting the top 10% of the world’s most carbon-intensive oil and gas companies by the end of 2023. With these measures, we aim to provide incentives for carbonintensive businesses to transition towards more sustainable business models. And it is important that we as a society focus on setting the right incentives rather than simply punishing the businesses that powered the industrial revolution and progress over the past two centuries. After all, these companies still offer jobs to millions of people worldwide. This is why actively engaging with clients on sustainability matters is very important to us at Swiss Re.
In our own operations, we have been carbon neutral since 2003. We have achieved this by continuously reducing our emissions and purchasing high-quality emission reduction credits. As a next step, we have committed to start removing our carbon emissions from the atmosphere, with the goal of reaching net-zero emissions by 2030. I am encouraged by many other companies making similar pledges to fight global warming. Swiss Re has been warning about the effects of climate change for the past 40 years, and finally the tide seems to be shifting towards concrete actions. I sincerely hope that an ever-growing number of companies will take responsibility for their actions that will affect our planet’s future. Businesses have the power of capital to take significant steps in addressing the climate crisis, and we should not wait for national governments to agree on how to tackle this global problem. Seeing the corporate actions taken over the past 12 months makes me optimistic that we can make the shift. I envision a strong alliance of stakeholders and capital markets – bound together by mutual interest in fostering long-term business success.
In January 2020, we achieved a 2% increase in premium volume of renewed reinsurance contracts and a nominal price increase of 5%, as growth in our property business, and particularly in the natural catastrophe book, was offset by our decision to reduce casualty exposure. The risk-adjusted price quality was unchanged, reflecting both the lower interest rate environment and our more conservative loss assumptions. We are therefore starting the year with an improved portfolio, and we aim to maintain this trend in the upcoming renewals later in the year. We will also focus on completing the sale of ReAssure and improving the performance of Corporate Solutions through active portfolio pruning and rate increases.
However, we are also facing increasing competition. There is an oversupply of capital entering the re/insurance industry in search of returns in the current low interest rate environment. The lines between primary insurance and reinsurance have blurred, as more and more companies operate in both fields. In addition, new technologies and competitors are emerging which could potentially disrupt the whole re/insurance value chain.
On the following pages we take a look at some of the key market trends and our response to them.
From an economic perspective, all of our assets and liabilities are fully matched. This neutralises the effect of the low yields on our in-force portfolio. Further, on the underwriting side, Swiss Re has refrained from doing asset intensive reinsurance transactions and assuming products with asset risk, such as life insurance savings products.
of all bonds outstanding had a negative yield at the end of 2019 (Source: Swiss Re Institute)
For insurers, this entails both challenges and opportunities. On the one hand, medical inflation may have an impact on disability, medical expense and casualty insurance. On the other hand, insurers can offer new paths to financial security for older people.
Our strategic response Swiss Re is the largest life and health reinsurer globally. We have built leading knowledge in biometric risks, using the accumulated data to create unique risk and portfolio insights. Dedicated R&D activities ensure that we remain abreast of the underlying changes in the industry.
Co-creating products and solutions is at the core of our life & health value proposition. Together with our clients, we aim to close the life and health protection gap and make societies more resilient. Using our capacity, technical expertise and diversification within the life and health portfolio, we provide our clients with bespoke risk transfer solutions.
Longevity and medical innovation re/insurers’ balance sheets that needs to be understood and actively managed.
To respond successfully to cyber risk, monetary compensation for an incurred loss is only one component of a modern cyber insurance policy. Policies increasingly embed a broader service proposition including advice, loss prevention and mitigation services that support capacity and is heavily investing in research. As a risk knowledge company, we continuously build expertise and tools to assess and quantify risks but also to understand and promote sound risk mitigation methods.
The upside to this is the development of a new and growing market – Swiss Re Institute forecasts a premium growth from USD 4.5 billion in 2017 to USD 25 billion in 2023. On the downside, many of the risks involved are not yet fully understood and are undergoing constant changes. Moreover, insurance companies are asked to put robust risk management frameworks in place to manage their cyber exposures. So-called “silent” cyber risks, together with the explicit coverage of “affirmative” cyber policies might lead to a risk accumulation on the
Growth of population aged 65 and older by 2050 vs. 2019 (Source: United Nations)
Digital innovation industry growth in the future. China’s share of global premiums will rise to 20% by 2029 from the current share of 11%. China is on course to become the world’s biggest insurance market by the mid-2030s, surpassing the US.
Emerging markets in Asia, and China in particular, will continue to be an important driver of insurance
Digital platforms and devices are enabling cheaper, faster and more scalable solutions that make insurance accessible to an increasing proportion of the world’s population. The emergence of digital platforms and ecosystems creates a unique opportunity to integrate insurance to narrow a current protection gap. Due to both a massive increase in access and the introduction of new technologies, a broader and more affordable variety of policies have become available to more and more people.
Swiss Re is currently the largest foreign reinsurer in China. Our historic presence in China and other key growth regions provides us with privileged access to clients and partners. As a testimony of Swiss Re’s knowledge leadership and commitment to the Chinese market, we also opened the Swiss Re Institute China Centre in Beijing in 2019.
Asia-Pacific estimated share of global reinsurance premiums in 2029 (Source: Swiss Re Institute)
2/3 of the global population has access to a mobile device (Source: Swiss Re Institute)
Our strategic response Swiss Re’s history is rooted in providing capacity to protect societies around the globe against natural catastrophes. Over the years, Swiss Re has built a unique set of data and proprietary risk knowledge. This allows us to optimally steer and assess risks across perils and regions. We continue to heavily invest in natural catastrophe risk research, including assessing and quantifying the impacts of climate change on the natural perils risk landscape. We provide our knowledge and services to our clients to tailor and develop industry-leading risk transfer solutions.
Secondary perils are also becoming a major risk related to climate change. Secondary perils are risks resulting from natural hazards, and are typically weather-related: for example, a primary peril like tropical cyclones can lead to a higher rate and risk of flooding, 1/2 of economic losses from natural disasters were uninsured in 2018 (Source: Swiss Re Institute)
of global insured natural catastrophe losses due to secondary perils (Source: Swiss Re Institute)
We invest across many different pools of risk to ensure that our business is diversified.
Our capital strength is instrumental in diversifying risk and investing in new risk pools
Together, these strategic assets differentiate us from the competition and, alongside our collaborative, innovative and empowering culture, help us attract and retain some of the best talents in the industry.
Gaining exposure to risk pools in high-growth markets that we can’t access otherwise by taking minority stakes through Principal Investments and Acquisitions
Why sustainability matters Sustainability is the principle of achieving economic and social development that can be maintained in the long term, without overusing precious resources.
Through our Group Sustainability Strategy, we seek to identify and address the challenges that threaten stable long-term development.
In 2019, worldwide weather-related losses totaled USD 135 billion, of which 62% were uninsured. In cooperation with our partners, we continued to develop re/insurance solutions covering risks such as hurricanes, droughts, floods and extreme rainfall.
Climate change was a primary focus of our sustainability efforts in 2019. Here we present highlights across four of our sustainability topics that are key to tackling this challenge.
In 2019, we made three major commitments to reach net-zero emissions across the whole Group: Swiss Re | Business Report 201918
“ We insure, invest, operate, and share our knowledge in a way that tackles sustainability challenges and creates long-term value.”
Through the Sustainable Business Risk Framework, we continued to implement our thermal coal policy in our underwriting and had engagements with over 300 clients across the globe in 2019.
By signing the UN Global Compact Business Ambition for 1.5°C, we committed to reaching net-zero emissions also on the liability side of our business.
We place emphasis on tackling the carbon footprint of our own operations. CO2 emissions and energy consumption reductions are priorities across the Group. In 2019, we committed to reach net-zero emissions in our operations by 2030.
Over the years, we have set ambitious targets for our operations. In 2003, we were one of the first global companies to become fully greenhouse neutral. In 2014, we pledged to cover 100% of our power consumption from renewable sources by 2020, reaching a share of 92% by 2019.
In 2019, we went a step further and committed to achieve net-zero emissions in our operations by 2030. The concept of net-zero requires that for every tonne of CO2 emitted, another tonne needs to be removed from the atmosphere and stored permanently.
Until the nascent market for these certificates is fully developed – also supported through our early engagement – surplus funds from the levy can be used for other sustainability projects across the company.
With climate change as a core topic in our Responsible Investing strategy, we are transforming risk into opportunity by: • Allocating 13% of our infrastructure investments to renewable energy • Avoiding investments in companies where we see a high risk of stranded assets, by continuously reducing the carbon footprint of our investment portfolio
Considering ESG criteria along our investment process, thereby improving risk-adjusted returns, stands at the centre of our strategy.
Shifting the large institutional asset base towards sustainable investments would mark a big step forward in making the world more resilient: we interact with policymakers and other market participants to transition towards more sustainable financial markets.
Mitigating climate risk The effects of climate change are quickly becoming the new normal. We mitigate the risk of natural catastrophes with innovative solutions that allow people and businesses to withstand more frequent and severe climate impacts.
Building societal resilience Technological and economic development, population growth and other societal trends contribute to an evolving risk landscape. Our work in the areas of health and longevity, food security and infrastructure represents some of the ways we help build societal resilience.
Driving digital insurance solutions In our digital world, we want fast, intuitive and streamlined digital experiences to help us live safer and healthier lives. These same expectations are also affecting the entire re/insurance value chain.
These are the risk topics that are strategically important for us and inspire us to tackle sustainability challenges to create long-term value for our stakeholders. In this section, you can read more about the journeys we embarked on to strengthen communities around the world.
From climate risk The effects of climate change are profoundly impacting communities, people’s health and our natural environment. They are also visible in the risks we cover: over the last 25 years, average insured losses from severe weather events have more than doubled.
to strong communities With our re/insurance solutions, we help people and businesses get back on their feet quickly after a disaster and prepare them for a world confronted with more climate risks.
To help vulnerable farmers, we need to work closely with local authorities to deploy our risk knowledge effectively.
Here’s another example of how re/insurance innovation is helping tackle weather-related challenges. In 2018, a very dry and warm summer left the water levels of rivers in Europe at record lows. Companies using the rivers to transport their goods were faced with higher costs and decreased production volumes.
Over the years, the insurance cover has been further developed, and now also includes other crops, such as maize, thus offering additional protection to over 2 million people. The scheme offers compensation of up to 65% of the average production cost a farmer would have to bear, if the crop is damaged before it can be harvested.
Our solution is helping people on the ground rebuild their lives
Swiss Re | Business Report 201926 Swiss Re | Business Report 2019
In 2019, a severe drought hit the Surin Province, a rural area peppered with paddy fields some 400 kilometres northeast of Bangkok.
The scheme proves that through public-private partnership and effective risk transfer to the private sector, the government can offer swift assistance to vulnerable populations. “This is why insurance matters,” says Anon Vangvasu, Executive Vice President at Bangkok Insurance Public Co. Ltd. and President of Thai General Insurance Association.
From outdated infrastructure Modern and expanded infrastructure is needed all around the world to support a growing population, together with new and sustainable transportation systems that require significant investment.
to increased mobility As projects continue to get bigger and more complex, re/insurers can tap into data, risk knowledge and specific expertise to help bridge the emerging infrastructure financing gap and improve quality of life and safety standards, while reducing poverty and inequality.
You can never completely eliminate risk, but we can quantify and mitigate it, allowing projects such as these to be completed.
Parent Protect Rider* Insured against major cancers, severe dementia and Parkinson’s disease up to the age of 100.
Policyholder Insured against death, total permanent disability, terminal illness and up to 53 critical illnesses.
Besides enabling modern infrastructure, re/insurance also helps communities cope with increasing longevity.
Together with leading insurers in Singapore, Malaysia and Hong Kong, Swiss Re developed a series of first-in-market health protection solutions that ease the financial and emotional burden on the members of the sandwich generation. These critical illness plans protect three generations of a family – policyholders, their children and their parents – at once.
Re/insurance is an enabler for many large construction and infrastructure projects around the world. Without insurance coverage, potential losses, such as construction failure, would be catastrophic for operators and society as a whole.
Thanks to Swiss Re’s backing, we are able to cover all kinds of risks that naturally come with such a pivotal and ambitious project.
Images (clockwise): Paris traffic jam; Alexis Hofmann on the metro; construction sites.
to security Swiss Re’s iptiQ is trying to close the global life insurance protection gap by addressing some of consumers’ major pain points. The only way to do this is to deliver coverage quickly, conveniently and strategically. iptiQ partners with companies to offer a 100% digital, streamlined consumer and agent journey that’s customisable.
So when she celebrated her fifty-third birthday, she knew it was time to look into finding the right policy.
Image: Lumico’s mobile app makes applying for a life insurance policy modern, intuitive and efficient.
Developed by Swiss Re with cyber reinsurance broking specialist Capsicum Re, Decrypt provides a single, flexible, end-toend solution. It starts by analysing policy wordings and mapping accumulation scenarios, quantifying the exposures and delivering bespoke reinsurance solutions to facilitate risk transfer.
Decrypt gives insurance companies a unique understanding of the cyber exposures across their portfolios, and offers protection against the aggregation of cyber losses across different lines of business. It also helps them meet growing legal, regulatory and internal requirements.
Images (clockwise): Suzanne Bielser and Niels Kueker at their computers; iptiQ website.
The platform’s sophisticated use of data and technology allows iptiQ to cater to an individual’s specific needs and demands. Suzanne never had to answer the same questions twice because the platform remembers and auto-fills already-inputted data, combining customer answers on their digital application with real-time external data sources to create quick and frictionless buying experiences. Suzanne could even use a digital or voice signature at the end to finalise the application. The entire process was simultaneously fast and comprehensive, and completely digital. Her path to personal resilience was made easier through iptiQ’s cutting-edge technology.
In addition, the platform enables our partners to test and analyse user journeys in order to continually optimise. This has contributed to the platform’s continued success and growth.
Our aim is to live visible and invisible diversity – diversity of age, race, ethnicity, nationality, gender, gender identity, sexual orientation, religious beliefs, physical abilities, personalities and experiences – at all levels and in all functions and regions at Swiss Re.
Our international team We have operations across the world, at the end of 2019: office locations in 31 countries (2018: 80 office locations in 30 countries)
Swiss Re is an official sponsor of Hack n’Lead in Zurich, Switzerland’s first women-focussed hackathon that aims to increase diversity in the technology space. The hackathon is a sprint-like event in which computer programmers and others involved in software development, including graphic designers, interface designers, project managers, and others, often including domain experts, collaborate intensively on software projects in a time-restricted period.
The Board of Directors consists of 13 members. Jacques de Vaucleroy (Chair), Renato Fassbind, Raymond K.F. Ch’ien and Joerg Reinhardt were re-elected as members of the Compensation Committee for a one-year term of office.
For further information, please see p. 106 of the Financial Report
Urs Baertschi was appointed CEO Reinsurance EMEA and Regional President EMEA and a member of the Group EC as of 1 September 2019, succeeding Russell Higginbotham.
of assets, liabilities, revenues or expenses, including contingent assets and liabilities;
to terrorist attacks, cyberattacks, natural catastrophes, public health emergencies, hostilities or other events;
Swiss Re has 80 office locations in more than 30 countries. For a full list of our office locations and service offerings, please visit www.swissre.com
About the front cover “Mitigating climate risk and advancing the energy transition” is a key ambition of our Group Sustainability Strategy. In this report you can find out more about the strategy and the risk transfer solutions we developed in 2019.
Independent Assurance Report on the Swiss Re 2019 Sustainability Report 82
Executive statement Walter B. Kielholz Chairman of the Board of Directors
We believe that with our enhanced Sustainability Strategy we have positioned ourselves well to address pressing sustainability challenges and benefit from related opportunities for our business. The strategy builds on our successful track record and further sharpens our commitment. It clearly defines sustainability as a strategic, long-term value driver and embeds this approach throughout our re/insurance value chain. It thus supports our ability to meet our vision to “make the world more resilient”, which gives our company a strong sense of purpose benefiting all our key stakeholders.
Below we would like to highlight some of the concrete actions we took during the reporting year to implement our Group Sustainability Strategy.
As part of our stakeholder engagement, we continue to be a member of the Task Force on Climate-related Disclosures (TCFD) and the EU Technical Expert Group (TEG) on Sustainable Finance. Both bodies are working on important frameworks guiding the future development of sustainability, chiefly disclosures, standards or legislative proposals.
We would like to conclude by thanking our employees for the great work they have delivered for Swiss Re day in and day out. The initiatives and achievements we describe in this report are due to their commitment and know-how. Our goal, in turn, is to offer our employees an attractive, inclusive and cooperative work environment that inspires them to shape viable responses to the big issues we all face, thus creating long-term value for all of our stakeholders.
Number of employees (regular staff) as of 31 December 2019 * Counting each location with offices once; not counting data centres
The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing directly and working through brokers, our global client base consists of insurance companies, mid- to large-sized corporations and public-sector clients. From standard products to tailormade coverage across all lines of business, we deploy our capital strength, expertise and innovation power to enable the risktaking upon which enterprise and progress in society depend.
You can get more information on our strategy in the 2019 Business Report at: reports.swissre.com/2019/businessreport /our-business/our-strategy.html.
* Following completion of the sale of ReAssure, pending the required regulatory approvals, Life Capital will focus on its open book businesses.
Who we are and what we do * The Group CLO reports with a dual reporting line to the Group CEO and the Group COO. ** Group Legal is not a Group Function.
Total expenses –36 497 –48 405 Claims and claim adjustment expenses –14 855 –18 683 Life and health benefits –11 769 –13 087 Net income 421 727
of which added to retained earnings within shareholders’ equity –2 258 –2 049 1 Aggregate compensation for all employees was CHF 2 310 million in 2019. See 2019 Financial Report, page 142.
2 FY 2019 is estimated based on the average monthly CHF/USD FX rate as of February 2020. The dividend is subject to AGM approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend payout.
1 The Group agreed to sell its subsidiary ReAssure Group plc in December 2019 to Phoenix Group Holdings plc. The corresponding held for sale assets and liabilities, including investments and debt are separately disclosed on the balance sheet. Further details on the agreed sale are provided in Note 11 “Assets held for sale“ of the 2019 Financial Report, page 249.
Finally, we have defined three Principles to guide our practical work: Embed
The illustration below shows how the elements of our Group Sustainability Strategy interact with each other: Adjusting our terminology Reflecting our enhanced Group Sustainability Strategy and its accelerating relevance for our business, we have changed our terminology and replaced our former umbrella term of “corporate responsibility” with “sustainability”. In line with this change, our annual review is now called Sustainability Report instead of Corporate Responsibility Report.
You can learn more about our Group Sustainability Strategy and related aspects on the following pages: the crucial link between sustainability and resilience (page 11), our three 2030 Sustainability Ambitions (pages 12–13), our Climate Action Plan (page 12), our approach to the UN Sustainable Development Goals (page 14) and the full, adjusted set of our Sustainability Topics with related targets (pages 16–19).
Making the world more resilient is Swiss Re’s vision. Sustainability as a strategic priority supports our ability to meet this vision. Here’s how: Resilience describes the ability of individuals, organisations, communities and entire societies to bounce back after major setbacks such as financial or human loss due to natural disasters, pandemics and other risks. Effective re/insurance protection plays a vital role in strengthening this ability.
Mitigating climate risk and advancing the energy transition The effects of climate change are already evident and impacting our risk landscape: warmer average temperatures, rising sea levels, longer and more frequent heatwaves, as well as more intense precipitation events. These phenomena are becoming the new normal and will increasingly impact our way of life, our health and our natural environment. Urgent questions we need to ask are how to tackle climate change, how to advance the transition to renewable energy, and how we can best adapt to and mitigate climate risk.
With our underwriting and innovative re/insurance solutions, we can help communities and businesses get back on their feet quickly after a disaster, as well as prepare them for more frequent and severe climate impacts.
We build partnerships with clients and governments to develop scalable solutions to mitigate and adapt to climate change. This includes offering solutions that support the transition to more sustainable, low-carbon energy systems by managing the risks associated with renewable energy projects and making them more attractive to investors with re/insurance backing. Overall, it is our goal to be a leading re/insurance capacity provider for the development of renewable energy solutions.
Our Climate Action Plan Swiss Re first detected the potential long-term challenges posed by climate change some 30 years ago. Consequently, it has become our most important sustainability issue: For a re/insurer, climate change constitutes a key topic because it leads to an increase in the severity and a change in the patterns of natural catastrophes such as windstorms, floods, excessive rainfall, heatwaves and drought. In combination with growing asset concentrations in exposed areas and more widespread insurance protection, this will cause a steady rise in losses.
Building on our commitments and initiatives of recent years, our Climate Action Plan, which also serves as our climate change strategy, combines three objectives: 1. We aim to become the leading re/insurance company on physical climate risk.
• We committed to net-zero emissions in our own operations already by 2030 (page 57).
• We continued to implement our thermal coal policy in the treaty business. In 2019, we had over 300 engagements with clients across the globe on the topic of thermal coal (page 35).
• We took a further important step in the development of our carbon steering mechanism and developed a policy to shift away from the most carbon-intensive oil and gas production (page 35).
Building societal resilience Technological and economic development, population growth, ageing populations and other societal trends are increasingly putting people and assets at risk. Swiss Re’s responsible investment strategy, as well as its work in the areas of health and longevity, agriculture and infrastructure represent some of the ways we help build societal resilience and reduce related vulnerabilities.
Furthermore, economic growth depends on investment in infrastructure. However, the funding gap for both maintaining existing infrastructure and building new infrastructure is widening. As a re/insurer and long-term investor, we both underwrite the projects needed – from transport infrastructure to urban spaces or renewable energy infrastructure – and provide capital to infrastructure projects to help narrow the financing gap.
Driving affordable insurance with digital solutions By embracing the opportunities offered by new technologies and the digital transformation, we aim to develop solutions that make insurance more affordable, accessible and available to customers. Technology not only allows us to deliver greater efficiencies through the entire insurance value chain, but also to provide innovative insurance covers and share our risk knowledge more widely.
Our response Our goal is to use technology to provide affordable insurance for more types of risks and across broader income levels. Technology can help streamline processes, which eventually leads to more customerfriendly access to insurance and more affordable coverage. Another benefit comes from utilising our parametric solutions to speed up claims payments to customers, eg via their smart devices. Ultimately, we want to help close the protection gap by offering risk cover to a greater number of individuals through a simplified insurance value chain.
By combining smart analytics and devices we can enhance our risk knowledge as well as advice to customers to improve risk prevention, mitigation and crisis management. For example, we can improve our natural catastrophe modelling and understanding of risk exposures by combining our proprietary, internal data sources with external ones. Furthermore, customers can benefit from education and behaviour change platforms that provide advice on nutrition, exercise, sleep and other activities.
While creating new possibilities to deliver value directly to our customers and closing protection gaps, leveraging technology and using big data also raises some questions. Various regulators around the world have started to evaluate the need for regulations on the topic of big data and digital responsibility or have issued first guidelines. At Swiss Re, we seek to understand and proactively address the digital challenges surrounding the digital transformation, including developing digital best practices and integrating digital responsibility aspects into our solutions and businesses to manage the risks of digital societies.
Our approach to the UN Sustainable Development Goals Swiss Re endorses the UN Agenda 2030. Since the Sustainable Development Goals (SDGs) were launched in 2015, we have continuously refined our approach to using the SDG framework and defining how our business contributes to achieving the goals.
• UN Global Compact Business Ambition for 1.5°C, see page 33
• UN Global Compact: for our Communication on Progress, see online report
As part of our responsible investment strategy, we have developed an approach to measuring the impact of our thematic investments and aligning it to the SDGs (see page 44).
In order to identify these material Sustainability Topics, we use both our internal risk expertise and ongoing dialogue with our stakeholders.
Insights from our internal risk expertise As a leading re/insurer, we act as ultimate risk-taker in society, which requires us to have a very sound understanding of the risk landscape. This risk expertise embedded in our company and the deep understanding of re/insurance markets also give us a solid foundation to identify material sustainability issues. In many areas of our business, we have special teams, functions and processes to identify and address issues relevant to sustainable development.
Complementing the insights we gain directly through dialogue with our stakeholders, we also evaluate and use data provided by specialised third-party organisations such as RepRisk (www.reprisk.com), Sigwatch (www.sigwatch.com), MSCI (www.msci.com) and Sustainalytics (www.sustainalytics.com), as well as the results of academic research.
As part of our enhanced Group Sustainability Strategy, we reviewed the materiality of our Sustainability Topics (formerly Corporate Responsibility Topics). In doing so, we tapped the key sources described above and conducted the following steps: • Benchmarking and gap analysis by the
• Revised list of material topics finalised by Group Sustainability Risk unit, based on Group Sustainability Strategy and former list of material topics
Our Sustainability Topics Links to the UN Sustainable Development Goals* Our targets Key achievements
• Completed: Based on our commitment to the United Nations, advise 50 sovereigns and sub-sovereigns on climate risk resilience by 2020 and offer USD 10 billion of re/insurance protection against this risk.
• Were involved in further offshore wind farm projects, including the first large commercial project to be constructed in France and expanding our engagement in Taiwan, Asia’s most important market for offshore wind (page 30).
• By the end of 2019, brought life and health insurance protection to 219 000 beneficiaries through our partnership with Women’s World Banking (page 27).
• New: Increase our digitally enabled value propositions for people and businesses, using new and evolving technologies as well as analytical capabilities, eg in the area of agriculture and natural catastrophes.
• Continued with the implementation of our thermal coal policy and sharpened our oil and gas policy, with the goal of gradually decarbonising our business model (pages 34–35).
• Recorded a small decrease in the number of transactions referred to our team of in-house experts for individual Sustainable Business Risk assessments (page 36).
• During 2019, had over 300 engagements with clients in the context of implementing our thermal coal policy (pages 35 and 37).
• New: In partnership with Women’s World Banking, bring life and health insurance to two million low-income customers by the end of 2020.
• Through our Group Sustainability Strategy further explored the relevance and implications of the UN Sustainable Development Goals for Swiss Re and how we can further align our activities with them, both in re/insurance and our investments (pages 14 and 44).
• Adjusted: Consistently identify new sustainability risks, adapt the Sustainable Business Risk Framework accordingly and apply it to the full scope of our business.
Ensuring good corporate governance and compliance We consider good corporate governance as a key precondition to ensure sustainability throughout the Group’s activities and indispensable to maintaining long-lasting, valuable relationships with our stakeholders. We conduct business in a legal, fair, ethical and transparent way by adhering to best practices at all times, and apply the principles of our Code of Conduct across all company lines and regions.
Reducing our footprint As a leading global re/insurer, we are directly affected by the consequences of climate change. Based on our strong commitment to sustainability, we consider it important to reduce the environmental impact caused by our own operations, thus leading by example. Tackling our CO2 emissions and reducing energy consumption have been key targets across the Group, reflected by our pioneering initiatives such as the Greenhouse Neutral Programme, the COyou2 Programme and co-founding RE100. In 2019, we took another major step by committing to reach net-zero emissions in our operations already by 2030.
• Until 2020, keep per-capita CO2 emissions from our own operations at 2013 levels, which we had reduced by 49.3% in the ten years since 2003.
* Note: SDG 17 “Partnerships for the Goals” is important for most of our Sustainability Topics.
• Completed: Meet our investment target for green bonds of at least USD 1.5 billion.
• By the end of 2019, we held USD 1.8 billion in green bonds, exceeding initial goal (page 43).
Engaging our people We want to be an organisation where diverse talents come together globally to apply fresh perspectives and knowledge to “make the world more resilient”. For this it is imperative that we build an engaged, inclusive and agile organisation. Throughout the year, we check-in with our employees through pulse surveys to measure progress, which also gives them an opportunity to engage in dialogue and share ideas for improvement.
• Fifty-nine percent of our employees are experiencing progress on developing a more agile culture (page 72)
• Manage compliance risks through maintaining adequate frameworks, delivery of effective training and awareness to our employees and oversee effective implementation within the business.
• Continued development of Compliance tools through new data analytics to improve assurance activities and build towards continuous monitoring of the Compliance Risk frameworks. Delivery of mandatory compliance training as well as risk-based targeted training also continued (pages 76–78).
• Reduce our energy intensity by an average 2% per year until 2020.
• Obtain 100% of power used for our own operations from renewable sources by 2020.
• By the end of 2019, achieved an accumulated reduction in our energy intensity of 39.0% since 2013 (pages 58–59).
Board of Directors At Swiss Re’s highest governance level, the Board of Directors (BoD) is responsible for overseeing the development and adoption of the Group Sustainability Strategy and related policies. Detailed tasks have been assigned to three BoD committees.
• Based on regular updates from management and the sustainability team, the Chairman’s and Governance Committee monitors and reviews general progress on the Group’s Sustainability Strategy including all sustainability-related external engagements.
Group Executive Committee While the BoD is responsible for oversight, the Group Executive Committee (Group EC) approves the implementation of the Group Sustainability Strategy.
As part of its mandate, it approves detailed sustainability policies such as the thermal coal policy introduced in 2018. Furthermore, it sets and monitors risk capacity limits (including for natural catastrophes), and determines product policy and underwriting standards. As we are implementing our Group Sustainability Strategy, we have introduced a number of qualitative key performance indicators for the Group EC and its individual members.
is responsible for providing the BoD and Group EC with independent assurance that all of Swiss Re’s risks are being appropriately modelled, governed and managed, and that adequate controls are in place. As part of executing these responsibilities, the Group CRO is charged with establishing the Group’s Risk Management Framework for all risk categories, including sustainability and emerging risks. In addition, the Group CRO is also chairing the GSC. In this role, he guides the GSC coordination of sustainability activities across the Swiss Re Group.
• The Chairman Swiss Re Institute and Group Chief Underwriting Officer (Group CUO) is responsible for steering capital to the most attractive areas in underwriting that are of strategic importance for the Group’s underwriting, and overseeing research and development that improves both capital allocation and risk selection. The Institute’s research agenda also includes sustainability and resiliencerelated topics.
We address our Sustainability Topics across the different areas of our business where they are relevant. These implementation areas are listed below and provide the basic chapter structure for our 2019 Sustainability Report: Business solutions Within our core business of re/insurance, we strive to develop innovative solutions that help tackle key environmental and social challenges. To achieve this, we work with our clients and partners in both the private and public sectors.
Risk intelligence We develop and apply tailor-made tools to extend the scope of our risk management. This enables us to identify and appropriately address sustainability-related and emerging risks in our core business.
Our own footprint We apply best-practice standards of resource management to our properties and logistic operations as well as guidelines to our sourcing activities. In doing so, we continually reduce Swiss Re’s direct environmental impact.
A full, interactive overview showing where and how we have addressed our Sustainability Topics in 2019 is available in the online version of the report: reports. swissre.com/sustainabilityreport /2019/introduction/ourapproach -to-sustainability/overviewimplementation -in-2019.html
Our Sustainability Report covers the whole Swiss Re Group as it was organised on 31 December 2019, ie the publicly listed holding company Swiss Re Ltd, its three Business Units Reinsurance, Corporate Solutions and Life Capital, and all directly or indirectly held subsidiaries. (On 6 December 2019, Swiss Re announced the agreement to sell ReAssure to Phoenix Group Holdings plc. The transaction is expected to close in mid-2020, subject to regulatory and antitrust approvals.)
Furthermore, we continue to report against the Principles for Sustainable Insurance, PSI (www.unepfi.org/psi). Our Public Disclosure of Progress is also available in the online version.
In our 2019 Financial Report we provide detailed Climate-related financial disclosures, as developed and recommended by the Financial Stability Board (www.fsb-tcfd.org).
You can view our Climate-related Financial Disclosures in the “Sustainability” chapter, pages 151–167.
Creating solutions for sustainability Our re/insurance solutions help address key environmental and social challenges. We focus on mitigating climate risk and advancing the energy transition, building societal resilience, and driving affordable insurance with digital solutions to advance access to insurance.
Building on our efforts in recent years, our focus is on the three overarching 2030 Sustainability Ambitions we have defined in our Group Sustainability Strategy: • Mitigating climate risk and advancing the energy transition • Building societal resilience • Driving affordable insurance with digital solutions
Thus, our solutions frequently include: • Public-sector partners: Besides direct insurers and corporate clients, we also develop risk transfer solutions for, and in cooperation with, governments and various public-sector organisations.
• Index-based insurance products: We are a pioneer in creating innovative insurance solutions that use an index to determine payments.
Natural catastrophe premiums in our P&C Reinsurance business (USD 2.29 billion in 2018) Natural catastrophe data
In our 2019 Financial Report, we provide detailed quantitative information on natural catastrophe perils: the four perils with the highest expected annual losses (page 164) and the liquidity requirements stemming from four extreme loss scenarios (Insurance risk stress tests, page 71).
To assess our property and casualty business accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the effects of climate change. This is why we invest in proprietary, state-of-the-art natural catastrophe models, developed and advanced by a team of around 40 scientists, as well as from regular collaboration with universities and scientific institutions.
Based on our research, there is a trend towards increasing losses from secondary perils1. These are often highly localised small to mid-sized events, or a resulting effect of a primary peril that can include hurricane-induced rainfall, storm surge, as well as drought and wildfire outbreaks. We explicitly factor the main risk trends into our modelling to underwrite catastrophe business sustainably, and build global resilience.
You can view our Climate-related financial disclosures in the Sustainability chapter, pages 151–167
For a long time, the inability to effectively underwrite flood risk made private insurers reluctant to offer coverage to homeowners, with many considering the risk “uninsurable”. Thus, approximately 85% of all homeowners in the US are currently without flood insurance. As more severe storms with higher precipitation have led to rising flood losses, this protection gap and its impact on human lives has continued to grow.
Thanks to technological advances around flood mapping and modelling, we have recently been able to improve the accuracy of our flood risk assessments. On this basis, we are now able to provide private insurers with satellite and digital evaluation tools,
Parametric windstorm insurance for solar panels in Connecticut, US We support the development of scalable solutions to mitigate, and adapt to, climate change. This includes offering solutions that support the transition to more sustainable, low-carbon energy systems by managing the risks associated with renewable energy projects and making them more attractive to investors with re/insurance backing.
In 2019, Swiss Re tailored an innovative named windstorm insurance solution for a Green Bank in the US, using a parametric trigger. The Bank financed the installation of more than 14 000 solar panels on residential and commercial rooftops across the state of Connecticut as part of a solar renewable energy credit (SREC) securitisation, which aimed to pool the revenue stream from the produced electricity into an investable security. The Green Bank was concerned about the potential risk of hurricanes causing damage to the rooftop solar panels, interrupting the revenue stream for SREC securitisation investors.
Increasingly, customers of local private insurers can choose to add the new, optional flood and water backup coverage to their existing homeowner policies. The fact that they can get access to comprehensive flood insurance protection through a traditional insurance policy shows that this peril is insurable in the private market. While flood risks are such that no one insurer can solve this challenge alone, our innovative approach and partnerships with local insurers mean that communities can become more resilient and recover more quickly after a storm event.
In the context of significantly reduced state and federal government subsidies for agriculture insurance in Mexico, Swiss Re Corporate Solutions has recently launched, together with a local distribution partner, an agriculture insurance programme to protect small-scale farmers who face being impacted the most by reduced crop yields. Our local distribution partner has been enabled with an internet-based pricing tool that allows them to quickly and efficiently provide farmers insurance quotes as well as issue policies within 24 hours. In 2019, the programme brought agriculture yield insurance to Mexican farmers in the states of Guanajuato (for wheat), Sinaloa (for corn, wheat and beans) and Sonora (for corn and wheat). In parallel, we also prepared insurance distribution for barley crops in the states of Guanajuato, Michoacán, Jalisco and Querétaro. Looking ahead, we plan to broaden the coverage to production in greenhouses as well as livestock.
The Brenner Base Tunnel (www.bbt-se.com) is the main element of the new Brenner railway from Munich to Verona and one of the most important infrastructure projects in Europe. At 64 kilometres, the tunnel will be
It is estimated that there are eight million rural farmers in Mexico, who cultivate approximately 22 million hectares of agriculture land. However, agriculture insurance is largely unavailable to many of them. In view of this protection gap, we continue to develop our electronic pricing platform and expand distribution with local partners to ensure that many more smallholder farmers gain access to cover and the opportunity to reinforce their and their communities’ livelihoods.
After more than ten years of planning, the City of Paris is working on the largest public transport project in Europe, known as the Grand Paris Express (www.societedugrandparis.fr/). This ambitious development aims to double the size of the existing metro system by adding 200 kilometres of new tracks and 68 new stations. Expected to carry up to two million passengers per day when completed, it represents a major step forward in the city’s public transportation thinking.
Many of our recent efforts to expand insurance protection cover losses from natural catastrophes and weather volatility (eg drought or excessive rainfall). As climate change is predicted to increase these losses, such transactions also help communities strengthen their climate resilience. Furthermore, we have found that partnering with public-sector clients, especially national and regional governments, is an effective way to develop solutions.
In 2018, we started to help expand a pioneering health microinsurance programme that targets this protection gap in Egypt. By the end of 2019, the programme covered around 219 000 customers with health and life insurance; and during the year, cover was extended to additional family members.
Encouraged by the success of the Egypt programme, we have formed a partnership with Women’s World Banking (www.womensworldbanking.org/), its initiator, to extend this concept to two million consumers globally by the end of 2020. Women’s World Banking is dedicated to developing market-driven financial solutions for underserved women in emerging markets, thereby promoting economic stability and prosperity.
… with Women’s World Banking by 2017 by 2018 by 2019
This one-policy protection solution relieves some of the financial and emotional burden for the “sandwich” generation. By integrating coverage and simplifying the process for individuals who want to have their children and parents insured, it strengthens the financial resilience and support systems for multi-generation families in Asia.
In 2019, Swiss Re developed a parametric natural catastrophe programme for the Agriculture Bureau of Shaanxi Province, in partnership with a local Chinese insurer. The programme covers drought, excessive rain and heavy rainfall in seven counties around the city of Shang Luo, where poverty remains a particular concern. When the strength of one of the named disasters goes beyond a pre-defined trigger point, the programme quickly makes payouts to the Agriculture Bureau, which can then use the funds to initiate recovery efforts in the affected areas. The financial stability and security gained in this way help mitigate the impact of natural disasters on the livelihoods of the region’s farmers.
Shaanxi’s disaster management and financial preparedness planning highlight ways to alleviate the costs and impacts of natural catastrophes. This contributes to greater resilience of low-income communities in the region and strengthens their food security.
With our local partners Agribuddy (www.agribuddy.com) and Forte Insurance (www.forteinsurance.com), Swiss Re supports Cambodian rice farmers with soil moisture index insurance in 90 communes across multiple provinces. By using innovative soil moisture index data from satellite imagery, our expertise in parametric insurance products and our reinsurance know-how, we were able to develop a solution that accurately meets the needs of rice farmers in non-irrigated areas. This includes the ability to quickly compensate farmers for total or partial losses of crop output.
“Mitigating climate risk and advancing the energy transition” is one of the key ambitions of our Group Sustainability Strategy (for more information, see page 12.) We offer a range of re/insurance solutions to manage the risks of different kinds of renewable energy projects. At the end of 2019, we were providing risk cover to more than 4 000 wind and solar farms.
Offshore wind is considered one of the most promising renewable energy sources. Swiss Re Corporate Solutions has both the large capacity and the technical expertise to help manage its complex risks. We are
Making Indonesia more resilient by insuring state assets Indonesia is Southeast Asia’s largest economy as well as the world’s fourth-most populous country. At the same time, Indonesia is particularly susceptible to natural catastrophe risks because it is in a seismically active region. Despite the substantial risk of disasters and the related need for insurance across the archipelago nation, Indonesia has not previously insured state assets due to the difficulties in assessing the different types of risks existing across its more than 17 000 islands.
For 2019, Swiss Re was named the lead reinsurer for the Indonesian government’s natural disaster insurance programme, which is supported by a consortium of 56 insurance and reinsurance companies. The programme helps protect critical public assets such as ministry and institutional buildings against earthquake, flood and fire, as well as a number of man-made risks. With the programme planned to continue through 2023, the government and consortium have designed and agreed on a flat-rate insurance scheme that, in a first step, provides coverage for 1 360 buildings and assets owned by the Ministry of Finance.
Creating solutions for sustainability continually enhancing our understanding of these risks and share our insights with our clients as well as other insurers. As an initiator and co-founder of the European Wind Turbine Committee established ten years ago, we were instrumental in launching the Offshore Code of Practice (OCoP), a best-practice guide for risk management in the sector. Mirroring these efforts, we are now considered a lead market for offshore wind risks. In recent years, Swiss Re Corporate Solutions has participated in numerous offshore wind projects, including wind farms, stand-alone offshore substations and stand-alone export cables.
Expansion in Taiwan We also continued our strong engagement in Taiwan, the most important offshore market in Asia. It witnessed significant growth again in 2019, which led to tight insurance capacities. We were able to respond to this situation by becoming the lead insurer for some major projects: Formosa II and Greater Changhua 1 & 2a. Formosa II comprises 47 turbines with a total capacity of 378 megawatts. Once complete, it is estimated to displace 18 750 kilotonnes of CO2e over its lifetime, while powering the equivalent of 380 000 households annually. Changhua 1 has 75 turbines with a capacity of 605 megawatts and Changhua 2a has 36 turbines with a total capacity of 295 megawatts. All three projects are situated in the Taiwan Strait.
Increasing accessibility to life insurance with the Magnum Go digital solution
New technologies are changing the way life insurers write business, handle sensitive data and engage customers. At the same time, these technologies are also shifting customers’ expectations when it comes to their life insurance buying experience. They want more convenient transactions, customisable products, faster decisionmaking and less intrusive underwriting practices.
Embracing this transformation, we have developed Magnum Go, an online life insurance solution. It helps small and medium-sized insurers respond to digitalisation and their customers’ changing buying demands by providing a simple and standardised approach to automated underwriting. This cloud-based digital solution ensures data security, reduces operating costs and improves regional customers’ access to life insurance products. Magnum Go has been integrated into a French insurer’s existing online presence, enabling them to benefit from an easy-touse, flexible and personalised consumer experience, which delivers instant underwriting decisions that previously would have taken weeks.
Our iptiQ programme Our Life Capital Business Unit was created in January 2016 and is dedicated to developing Swiss Re’s primary life and health business. It operates through three wholly owned subsidiaries in three lines of business: ReAssure for closed books, elipsLife for Group L&H insurance and iptiQ for individual L&H and P&C insurance. (On 6 December 2019, Swiss Re announced the agreement
to sell ReAssure to Phoenix Group Holdings plc. The transaction is expected to close in mid-2020, subject to regulatory and antitrust approvals.)
Our partners can choose from numerous product configurations in order to get easy-to-understand protection products with clear and transparent pricing. By entering the P&C market in 2019, iptiQ expanded its L&H products offer from term life, whole life, critical illness and disability to a broad P&C proposition including, for example, property cat, cyber, private liability and household insurance.
iptiQ has grown strongly since its creation in 2016. To illustrate, our inforce policy count has increased from 175 000 to 377 000 from 2018 to 2019 (core business), supported by an increase from 19 to 29 distribution partners between year-end 2018 and year-end 2019.
iptiQ’s overriding goal is to offer simple, streamlined, digital solutions that remove the traditional hurdles to purchasing protection and thereby protecting a larger amount of people.
Extending our risk intelligence We address sustainability, cyber, political and emerging risks in our core business transactions. For this, we have developed specific tools and know-how.
Risk management is an integral part of Swiss Re’s business model and key to the controlled risk-taking that underpins our financial strength. It is embedded throughout our business and ensures that the Group and the three Business Units have the necessary expertise, frameworks and infrastructure to support good risk-taking (see 2019 Financial Report, pages 52–53 and 61–77).
Sound risk management is essential for a re/insurer. Tight control of our risk exposures guarantees that we can fulfil our role in society as ultimate risk-taker and be a reliable partner to our clients when they need us. The core categories of our risk landscape comprise insurance risk (property and casualty, life and health) as well as financial market and credit risk. In addition, we consider it essential for a company committed to sustainability that it pays attention to further significant risks we may be exposed to, especially in the longer term.
Swiss Re supports the worldwide reduction of greenhouse gas emissions and contributes to the goal of limiting global warming to 1.5°C above pre-industrial levels. We continuously review measures to assist the transition to a low-carbon economy and, formalising our commitment, in 2015 signed the Paris Pledge for Action (www.parispledgeforaction.org) to affirm our support for the Paris Agreement.
For transactions located in low- and middle-income countries that derive more than 70% of electricity from coal, existing power plants (ie operational before 2018) can be covered until 2025 if there is evidence that the insured is implementing an effective emission reduction strategy. Implementation of the thermal coal policy for treaty business will follow a staggered approach until 2023.
With our 2019 net-zero commitment on the liability side and by joining the Powering Past Coal Alliance (poweringpastcoal.org/) in 2019, we are fully committed to a total phase-out of thermal coal from our business in the long term.
Carbon steering The introduction of our thermal coal policy was designed as a first step towards the development of a comprehensive carbonrisk steering mechanism to measure our carbon intensity and associated risks embedded in our re/insurance business. In 2019, we helped launch a project with peers via the CRO Forum (www.thecroforum.org) to develop a robust carbon footprinting methodology to quantify these exposures. It is expected to serve as an industry-wide standard and thus support our carbon steering towards reaching net-zero emissions on the liability side of our business by 2050.
In 2018, we introduced our thermal coal policy. Reducing our re/insurance cover to thermal coal utilities and mining is one of the steps we have taken towards decarbonising our business model.
Learn more about our efforts to decarbonise our business model at: www.swissre.com/sustainability/ risk-intelligence/decarbonisation.html
In a market environment, profitable business activities create economic value. Occasionally, however, they may also have adverse effects on the environment and certain vulnerable groups. If such impacts are ignored, they may pose a threat to societies’ long-term sustainable development.
For companies this situation can create dilemmas. A particular business transaction may be economically beneficial and in compliance with all legal and regulatory requirements, yet may have significant environmental or social downsides. Swiss Re recognises that such dilemmas exist and develops effective responses through a well-defined approach and by taking decisions based on ethical principles.
The Sustainable Business Risk Framework consists of: • Two umbrella policies on human rights and environmental protection plus eight specific guidelines on sensitive sectors or issues
• The Sustainable Business Risk (SBR) process comprising an online assessment tool and a referral tool – due-diligence mechanisms to assess our business transactions
• Company exclusions • Country exclusions beyond mere compliance with international trade controls (ITCs)
Learn more about our Sustainable Business Risk Framework at: www.swissre.com/sustainability/ risk-intelligence/sustainable-businessrisk -framework.html
The online tool stores the relevant sustainability risk information for these sectors and thus provides our underwriters with an efficient means to check the potential impact of their transactions on human rights, labour rights and the environment. For transactions that reveal low to medium risks, they need to carry out additional due diligence based on industry and country advice provided by the tool.
If the potential human rights or environmental risks of a transaction are assessed as high but the responsible underwriter wants to pursue it, it is automatically transferred through the SBR referral tool to Swiss Re’s in-house team of sustainability experts. These specialists then conduct in-depth research to decide whether the transaction at hand is acceptable on ethical grounds.
Since we introduced the SBR assessment tool in 2015, we have continually fine-tuned it, thus strengthening our underwriters’ ability to integrate sustainability risk assessments into their decision-making. Between 2015 and 2017, this led to a marked, and steady, decrease of SBR referrals to our in-house sustainability experts.
Sustainable Business Risks referred to our expert team in 2019, by sector/issue
Number of Sustainable Business Risk referrals and decisions taken 25.2% Oil and gas 21.0% Mining (excl. thermal coal) 21.0% Thermal coal 14.7% Dams 7.6% Other: human rights 4.6% Defence 2.9% Other: environmental issues 1.7% Forestry, pulp and paper, and oil palm 1.3% Animal testing
Furthermore, Swiss Re issues an annual Service Organisation Controls (SOC) 2 report, which provides assurance to our clients that we provide our services in a reliable, secure and compliant manner. The SOC 2 report contains the opinion of an independent auditor who has tested the design and effectiveness of our controls according to international standards.
Re/insurers operate in a rapidly changing and increasingly complex risk landscape. Demographic, economic, technological, socio-political, regulatory or environmental trends may change existing risks or create new ones. In addition, growing interdependencies between these developments can lead to accumulations of risk and create significant knock-on effects. People’s risk perceptions are shifting, liability and regulatory regimes continue to evolve and stakeholder expectations are growing.
This complex landscape provides fertile ground for “emerging risks” – newly developing or changing risks that are not yet entirely understood and managed. Such risks are difficult to quantify, and their potential impact on society and the re/insurance industry is not yet sufficiently accounted for.
At Swiss Re’s headquarters, our Energy line of business team held an in-person meeting with its broker community on the industry’s journey towards net-zero emissions. The discussion centred on the question of how the oil and gas industry can embrace the low-carbon transition and how the insurance sector can offer support for this.
In partnership with other re/insurers, we are also developing risk assessment tools designed to help the industry better understand and manage sustainability risks. One of these ongoing partnerships is the UNEP FI Principles for Sustainable Insurance (PSI, www.unepfi.org/psi).
In 2019, the PSI launched the first guide for the re/insurance industry to preserve protected areas such as World Heritage Sites. We actively contributed to the development of this guide, which is a significant step forward in making the protection of World Heritage Sites a market standard. It confirms our long-standing commitment to preserve protected areas, enshrined in several policies of our Sustainable Business Risk Framework.
Swiss Re has cyber risk on its radar and has implemented multiple layers of protection to minimise these risks. Correspondingly, we maintain a Group-wide Cybersecurity Programme designed to protect the confidentiality, integrity and availability of data and IT systems. Our Cybersecurity Programme is based on the ISO 27001 standard for information security management, which covers key areas of management, technical and physical controls, legal, compliance and business continuity management.
In many geographical areas climate change is leading to more frequent heat days. This is likely, eg, to increase the risk of strokes, cardiovascular diseases and accidents. At Swiss Re, we treat such climate-related implications on life and health re/insurance as an emerging risk.
Emerging risk case study: life and health implications of climate change
An important area where emerging risks connected to climate change are likely to occur is life and health (L&H) re/insurance. Building on Swiss Re’s own expertise and on our long-standing cooperative efforts with research institutions, we dedicated a special feature to this topic in our 2019 SONAR Report, with related content on interactive web pages. Its central piece is an infographic which depicts key factors producing impacts on L&H insurers and their respective lines of business.
By providing financial risk transfer solutions to individuals, infrastructure providers and others, the insurance industry can support building resilience to emerging L&H risks on many levels. Importantly, this includes the provision of risk expertise and the fostering of risk dialogue.
In 2019, we contributed to a new position paper published by The CRO Forum’s Emerging Risk Initiative: The heat is on – Insurability and Resilience in a Changing Climate, January 2019.
Our SONAR framework SONAR (systematic observation of notions associated with risk) is our Group-wide framework specifically designed to manage and communicate emerging risks. Firmly embedded in the Group’s risk management organisation, SONAR allows us to identify, assess and report these risks in a timely manner and to factor them into our strategic business decisions.
The SONAR process involves several integrated layers. The first is an interactive intranet platform which enables our employees to share and discuss risk notions based on trends and developments in the re/insurance landscape. This allows for bottom-up identification and peer reviews.
You can read more about these activities at: www.swissre.com/sustainability/ risk-intelligence/emerging-risks/ case-study-critical-infrastructure.html and www.swissre.com/sustainability/ risk-intelligence/emerging-risks/ case-study-cyber-attacks.html
You can learn more about one of these topics – the life and health implications of climate change – in the case study on page 38. To share some of our key insights on these emerging risks with external audiences, we published the sixth edition of our comprehensive SONAR Report in 2019 (see to the left).
Since we first identified these emerging risks, we have followed up on several of them in our core business and together with our stakeholders, eg Critical infrastructure and Cyber attacks:
Being a responsible investor We are convinced that integrating environmental, social and governance (ESG) considerations into our investment portfolio makes economic sense. Our Responsible Investing strategy is based on the three strategic cornerstones Enhancement, Inclusion and Exclusion.
Asset-liability management (ALM) continues to be the foundation of our investment philosophy. To meet future claims and benefits, we invest the premiums generated by our underwriting activities in assets
whose cash flows match the durations and currencies of our re/insurance liabilities. Therefore, we generally invest the majority of our portfolio in higher-quality fixed income securities with stable long-term returns. At the end of 2019, such investments accounted for 79% of our total assets under management1 (see graph below).
6% Cash and cash equivalents * Includes equity securities, private equity and Principal Investments
With a share of 42% of total assets under management at the end of 2019, government bonds (incl. agency) constitute the largest holding within our investment portfolio. We have been successfully applying a minimum ESG rating threshold of BB for investments within this relevant asset class for several years (see overview on page 45). Any potential exception to the minimum rating would be driven by ALM considerations.
As part of our active risk management, we announced in 2017 that we had switched to ESG benchmarks consisting of betterrated companies from an ESG perspective for our actively managed listed equities and corporate credit portfolios. Limited leeway for deviations is given, whereby such investments are required to have either a positive ESG trend or provide compensation for the underlying ESG risk (see overview on page 45). The implementation of these benchmarks allows us to have both the right measurement and appropriate incentives for our portfolio managers in place. If benchmarks are not applicable, a minimum ESG rating threshold is applied to our mandates.
By consistently applying these prerequisites, we were able to further improve the ESG profile of our portfolio throughout the year, as shown in the graph on the left.
In the US, the investment managers’ approach to sustainability includes the “GreenGuide: Sustainable Property Operations”, a best-practice guideline for sustainable and efficient real-estate operations; ULI GreenPrint Foundation (americas.uli.org/research/centersinitiatives /greenprint-center/), a global environmental management platform; and the LEED certification from the U.S. Green Building Council. We also benchmark the portfolio against GRESB (gresb.com/), an industry-driven organisation transforming the way capital markets assess the ESG performance of real assets. It outperformed the GRESB average of 72/100 with a score of 82/100.
In Australia and the UK, the investment managers’ approach to sustainability includes the National Australian Built Environment Rating System (NABERS, www.nabers.gov.au/) rating scheme and the BREEAM (www.breeam.com/) certification framework, respectively.
To further expand our thematic investments, we also include social and sustainability bonds in our allocation, investing in bonds whose use of proceeds helps tackle the challenges faced by underserved groups or populations. This enables us to embrace positive social impacts as an additional thematic focus. For social bonds we use the Social Bond Principles (SBP) and for sustainability bonds the Sustainability Bond Guidelines (SBG) issued by the ICMA as guiding principles for our investments. Overall, we increased our target for our green, social and sustainability bond mandate to USD 4 billion, to be achieved by the end of 2024.
Inclusion is one of three cornerstones of our Responsible Investing strategy. Our thematic investments include social infrastructure projects such as hospitals, student dorms and affordable housing.
• 13% of our infrastructure investments are allocated to renewable energy such as wind farms and solar panels.
In our 2019 Financial Report, we disclose further information on our climate changerelated investment risk exposure (pages 151–167).
In the context of our Inclusion approach, we also measure our real-world impact and align it to the Sustainable Development Goals (SDGs, sustainabledevelopment.un.org/). As part of our Responsible Investing strategy, we mainly focus on the five SDGs shown in the graph below.
≈3 800 MW of installed renewable energy capacity households with access to modern energy services
• Investment universe requiring ESG ratings BB and better, taking ALM considerations into account
• Green, social and sustainability bond mandate considering ICMA Principles and/or Guidelines
• Active mandates benchmarked against ESG BB and Better index with limited leeway to deviate from the benchmark
• Reinvestment universe of buy-and-hold mandates restricted to ESG rating BB and better
• Swiss Re reviews ESG performance and compliance for each potential investment
Our Asset Management operates within a well-defined framework. Strong governance is key to including ESG considerations along the investment process in a structured and controlled way. Our Responsible Investing strategy is based on clear principles, procedures and responsibilities consistent with Swiss Re’s Code of Conduct and formal commitment to sustainability.
The Swiss Re Responsible Investing Policy describes our approach, specifies roles and responsibilities in the organisation, and defines implementation and monitoring standards for ESG criteria in the Group’s investment portfolio.
The overall responsibility for our Responsible Investing strategy lies with the Group CIO, who signs off investment decisions within the Group’s Strategic Asset Allocation.
Voting and engagement We believe that ESG considerations, especially good corporate governance and transparency towards shareholders, are key drivers for sustainable value creation. We recognise our shareholder rights and responsibilities as an integral part of our commitment to responsible investing. To reflect this pledge in our voting and engagement behaviour, we have defined principles in our Asset Management Voting and Engagement Policy and will report on them going forward (see: www.swissre. com/voting-and-engagement-overview). We review our constitutive voting and engagement principles periodically to keep them aligned with best practice.
In 2019, we exercised 95% of our voting rights of our listed equity mandates. We voted on 6 536 voting items through our external managers. We voted in line with the respective management resolution recommendation in 5 716 cases (88%) and against it in 683 cases (10%). In 131 cases (2%), we abstained from voting. The remaining votes were withheld.
In addition to shares in listed companies, investments in our equity portfolio include equity exchange-traded funds (ETFs). The fund managers cast votes on these ETFs in line with their own voting policies and processes.
We interact with policymakers and other market participants to promote ESG considerations in the investment process. As an example, we contribute to the European Commission’s Technical Expert Group on Sustainable Finance and specifically participate in the development of climate-transition and Paris-aligned benchmarks and of ESG reporting needs for benchmarks. As an active member of the OECD’s long-term investor network, we also engage in the development of policy proposals regarding sustainable infrastructure and ESG. Furthermore, as part of relevant industry organisations we shape and advise on sustainable financial market developments in Switzerland.
Being a member of the ICMA Green and Social Bond Principles since 2017 supports our view that the industry needs a more standardised responsible investing market environment with agreed definitions, standards, methodologies and best practices to move the long-term investor base further towards systematic ESG integration.
As we are determined to stay a leader in responsible investing and to continuously play a decisive role in making the world more resilient, we went one step further in 2019. To accelerate the transition to a low-carbon economy and to mitigate climate change, we co-founded the UN-convened Net-Zero Asset Owner Alliance. In this role, we committed to aligning our investment portfolio with the 1.5°C goal stated in the Paris Agreement by having a net-zero GHG emission investment portfolio by 2050.
with other industry participants to develop responsible investing as a standard investing approach.
We first formalised our commitment to responsible investing in 2007 by signing thePrinciples for Responsible Investment. In 2012, we signed the Principles for Sustainable Insurance (PSI, www.unepfi. org/psi/), a further step to formally endorse our commitment to corporate responsibility. Both the PRI and PSI are taken into account within our comprehensive responsible investing framework. All PRI signatories are required to provide in-depth reporting on their responsible investment activities. Our Transparency Report is available on the PRI website.
We have once again been recognised by the PRI for our thought leadership in the field of responsible investing, achieving our best-ever rating and being nominated to the 2019 Leaders’ Group (www.swissre.com/ pri-leaders-group).
The UN-convened Net-Zero Asset Owner Alliance is an international group of institutional investors delivering on the commitment to transition their investment portfolios to net-zero GHG emissions by 2050. As of year-end 2019, the then 16 members represented nearly USD 4 trillion in assets under management. The Alliance shows united investor action to align portfolios with a 1.5°C scenario, addressing Article 2.1c of the Paris Agreement. www.unepfi.org/net-zero-alliance/
Engaging in dialogue with our stakeholders We engage in regular dialogue with our stakeholders. By co-creating knowledge and sharing expertise, we help society advance effective responses to key risks.
Our re/insurance solutions help our clients and partners manage the risks they face. This in turn fosters stability and enables economic growth. However, many of today’s risks are complex and may threaten sustainable progress. To find effective, long-term responses to such risks, partners from the public and the private sector need to work together. For this reason, we attach great importance to engaging in an active dialogue with our principal stakeholders, which include: • Clients: cedents, brokers, corporate clients, government entities, multilateral organisations
Our role as a risk knowledge company and ultimate risk-taker in society means that we have an intrinsic interest in pursuing productive dialogues with our stakeholders. Drawing on the expertise from our core business, we identify key risks and take an active role in discussions about them.
We share, exchange and co-create knowledge through many channels, eg our publications, international dialogue platforms, client and partner events, as well as cooperation with governments, nongovernmental organisations, and academic institutions. Swiss Re Institute with its established brands such as the sigma series and the Centre for Global Dialogue plays a key role in our stakeholder dialogue (for further information, see below).
The cutting-edge risk knowledge generated in this way is shared through publications, client programmes and conferences. Swiss Re Institute incorporates successful Swiss Re brands such as the sigma publication series, the annual SONAR Report and the Centre for Global Dialogue.
As part of developing our Group Sustainability Strategy, we defined our 2030 Sustainability Ambitions, combining insights from our own risk expertise and from our stakeholders. We consider these Ambitions to be highly relevant for our clients, the re/insurance industry and society as a whole. They denote topical focus areas where we believe Swiss Re can have a significant positive impact in terms of supporting sustainability. Thus they also help us meet our vision to make the world more resilient (for further details, see pages 9–13): Mitigating climate risk and advancing the energy transition
The effects of climate change are already evident and impacting our risk landscape: warmer average temperatures, rising sea levels, longer and more frequent heatwaves, as well as more weather extremes. These phenomena are becoming the new normal and will increasingly impact our way of life, our health and our natural environment. Urgent questions we need to ask are how to tackle climate change, how to advance the transition to renewable energy, and how we can best adapt to and mitigate climate risk.
* Further companies that have initially endorsed the IDF commitment are: Allianz, Aon, Axa, Munich Re, Renaissance Re, Scor, Willis Tower Watson.
In 2019, our stakeholder dialogue on this 2030 Sustainability Ambition included the following highlights: • Through Swiss Re Institute, numerous stakeholders assembled at our “Expert Forum on Mental Health”, where experts exchanged viewpoints on the current mental health landscape and how insurers can make a difference to improve it. Further on the topic, our Reinsurance Solutions Asia Pacific Team Lead, Li Hui Lee, published a blog article titled: “World Mental Health Day: Preventing and Breaking Taboos”, to advance awareness of this global health challenge in the Asia-Pacific Region.
In the online version of our 2019 Sustainability Report you can find links to further information on these activities.
• We produced the sigma issue 5/2019: “Indexing resilience”. As an industry first, Swiss Re Institute and the London School of Economics jointly developed new resilience indices that provide a more holistic assessment of economic health than gross domestic product. The findings indicate that the world economy has become less resilient and that there is a record-high global protection gap within three main areas of risk – natural catastrophes, mortality and healthcare.
By embracing the opportunities offered by new technologies and the digital transformation, we aim to develop solutions that make insurance more affordable, accessible and available to customers. Technology not only allows us to deliver greater efficiencies through the entire insurance value chain, but also to provide innovative insurance covers and share our risk knowledge more widely.
• We produced the sigma issue 4/2019: “Advanced analytics”, which investigated how re/insurers will be able to unlock new frontiers in property and casualty re/insurance. Through the use of structured and unstructured data sources from new sensor networks and platforms, re/insurers will be able to price new markets and risk classes, as well as make existing processes more efficient.
• We engaged with the NGO Oceana, under the UNEP FI Principles for Sustainable Insurance, and became a signatory committing to the reduction and elimination of illegal, unreported and unregulated (IUU) fishing. To this end, we have appropriate risk management protocols and due-diligence procedures in place to help reduce the risk of insuring vessels or companies that act contrary to agreed international governance frameworks and international law covering IUU fishing.
global sustainability and resilience by closing the protection gap for all stakeholders, and how great progress can be made through public-private partnerships as well as technologyenabled parametric solutions.
• Swiss Re Institute hosted our “Sustainability Leadership Series – Responsible investing in practice” event. You can read more about this event on page 54.
• Our Chairman of the Board of Directors, Walter B. Kielholz, annually conducts governance roadshow meetings with Swiss Re’s largest shareholders to provide an update on corporate governance and engage on environmental, sustainability and governance (ESG) issues, strategy