Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December, the reconciliation of the fair values of assets and liabilities measured on a recurring basis using significant unobservable inputs were as follows: 2014 USD millions
Transfers out of level 31 –4 –131 –135 0 Impact of foreign exchange movements –1 –1 –58 –60 –3 –3
Realised/unrealised gains/losses: Included in other comprehensive income 1 12 13 0
Transfers out of level 31 –292 –292 0 Impact of foreign exchange movements 27 27 –4 –4
Closing balance as of 31 December 662 49 505 2 256 3 472 –993 –145 –1 138 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Gains/losses included in net income for the period 1 633 483 Whereof change in unrealised gains/losses relating to assets and liabilities still held at the reporting date 1 484 167
Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows: USD millions
Private placement credit tenant leases 68 71 Discounted Cash Flow Model Illiquidity premium 75 bps–175 bps (98 bps)
Derivative equity contracts 401 396 OTC equity option referencing correlated equity indices 401 396 Proprietary Option Model Correlation –20%–100% (40%)1
–677 –639 Discounted Cash Flow Model Risk margin 4% (n.a.) Volatility 4%–42%
Withdrawal rate 0%–90% Embedded derivatives in Mod-Co and Coinsurance with Funds Witheld treaties
The significant unobservable inputs underlying the fair valuation of an embedded derivative bifurcated from the Group’s modified coinsurance (Mod-Co) and Coinsurance with Funds Withheld treaties are lapse and mortality adjustment to published mortality tables; both are applied to build an expectation of cash flows associated with the underlying block of term business. Both inputs are not expected to significantly fluctuate over time.
Private equity and real estate funds generally have limitations imposed on the amount of redemptions from the fund during the redemption period due to illiquidity of the underlying investments. Fees may apply for redemptions or transferring of interest to other parties. Distributions are expected to be received from these funds as the underlying assets are liquidated over the life of the fund, which is generally from 10 to 12 years.
Assets and liabilities measured at fair value pursuant to election of the fair value option Pursuant to the election of the fair value option for the items described, the balances as of 31 December were as follows: 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: Fair value changes from equity securities trading are reported in “Net realised investment gains/losses – non-participating business”. Fair value changes from other invested assets are reported in “Net investment income – non-participating business”. Fair value changes from the GMDB reserves are shown in “Life and health benefits”.
Assets Equity securities trading 615 65 of which at fair value pursuant to the fair value option 544 0 of which at fair value pursuant to the fair value option 403 444 Liabilities Liabilities for life and health policy benefits –36 033 –33 605 of which at fair value pursuant to the fair value option –145 –187
Equity securities trading 35 2 Other invested assets 72 50 Liabilities for life and health policy benefits 125 –41
Amount offset Where a right of set-off exists –2 353 2 353 Due to cash collateral –524 303 Total net amount of derivative financial instruments 1 222 –1 448 –226 2014 USD millions
Fair value hedging relationships Interest rate contracts –240 255 Foreign exchange contracts 2 –1 122 –120 Total gain/loss recognised in income –238 254 122 –120
Certain derivative instruments held by the Group contain provisions that require its debt to maintain an investment-grade credit rating. If the Group’s credit rating were downgraded or no longer rated, the counterparties could request immediate payment, guarantee or an ongoing full overnight collateralisation on derivative instruments in net liability positions.
Credit derivatives written/sold In 2013, the Group has substantially completed the unwinding and de-risking activities and reduced its exposure in credit derivatives written/sold which decreased the related notional amount and fair values materially. As of 31 December 2014, the Group had no significant exposure in credit derivatives written/sold. The maximum potential payout, which is based on notional values, as of 31 December 2013 and 2014, was USD 640 million and nil, respectively.
1 During 2014, the Group revised the disclosure on contracts that contain credit risk related contingent features. The revision had no impact on net income and shareholders’ equity of the Group.
Maturity of long-term debt As of 31 December, long-term debt as reported above had the following maturities: USD millions 2013 2014
Short-term debt – financial and operational debt 3 818 1 701
USD millions 2013 2014 1 Balance was reclassified to short-term debt.
Various Payment undertaking agreements various USD 579 various 713 Total senior long-term debt as of 31 December 2014 4 226 Total senior long-term debt as of 31 December 2013 3 941 1 Assumed in the acquisition of GE Insurance Solutions.
Total subordinated long-term debt as of 31 December 2014 8 389 Total subordinated long-term debt as of 31 December 2013 10 781
Earnings per share for the years ended 31 December were as follows: USD millions (except share data) 2013 2014
Non-controlling interests –2 0 Interest on contingent capital instruments1 –67 –69 Net income attributable to common shareholders 4 444 3 500 Weighted average common shares outstanding 342 764 609 342 213 498 Net income per share in USD 12.97 10.23 Net income per share in CHF2 12.04 9.33
Financial statements I Notes to the Group financial statements 13 Income taxes
The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the Group operates. The components of the income tax charge were: 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: The Group reported a tax charge of USD 658 million on a pre-tax income of USD 4 227 million for 2014, compared to a charge of USD 312 million on a pre-tax income of USD 4 825 million for 2013. This translates into an effective tax rate in the current and prior-year reporting periods of 15.6% and 6.5%, respectively. The higher tax rate in the current year results from profits earned in higher tax jurisdictions and lower one-off tax benefits, partially offset by a higher tax benefit from foreign currency translation differences between statutory and GAAP accounts. The particularly low effective tax rate in 2013 was also driven by the conclusion of audits, rulings and revised tax opinions, as well as the implementation of lower tax rates and the transition to a new tax regime in the UK.
Deferred and other non-current taxes The components of deferred and other non-current taxes were as follows: As of 31 December 2014, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised amount to approximately USD 4.0 billion. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.
As of 31 December 2014, the Group had USD 11 336 million net operating tax loss carryforwards, expiring as follows: USD 28 million in 2018, USD 48 million in 2019, USD 9 149 million in 2020 and beyond, and USD 2 111 million never expire.
Net operating tax losses of USD 1 357 million and net capital tax losses of USD 43 million were utilised during the period ended 31 December 2014.
Liability for unrecognised tax benefits including interest and penalties –1 151 –667 Total deferred and other non-current tax liabilities –8 242 –9 445
Net deferred and other non-current taxes –2 479 –3 327 1 The Group updated its unrecognised tax benefits presentation. Unrecognised tax benefits is now presented as a reduction to deferred tax assets when a net operating loss carryforward, a similar tax loss or a tax credit carryforward exists. This change is applied prospectively.
During the year, certain tax positions and audits in Switzerland, France, Germany, Canada and Japan were effectively settled.
Australia 2010–2014 Japan 2009–2014 Belgium 2010–2014 Korea 2013–2014 Brasil 2010–2014 Luxembourg 2010–2014 Canada 2008–2014 Malaysia 2013–2014 China 2005–2014 Mexico 2009–2014 Colombia 1999, 2009, 2013–2014 Netherlands 2010–2014 Denmark 2010–2014 New Zealand 2009–2014 France 2008–2014 Singapore 2008–2014 Germany 2007–2014 Slovakia 2009–2014 Hong Kong 2008–2014 South Africa 2011–2014 India 2005–2014 Spain 2010–2014 Ireland 2010–2014 Switzerland 2011–2014 Israel 2008–2014 United Kingdom 2008, 2011–2014 Italy 2009–2014 United States 2009–2014
Financial statements I Notes to the Group financial statements 14 Benefit plans
Amendments 0 Actuarial gains/losses –338 57 –47 –328 Benefits paid –137 –73 –15 –225 Employee contribution 26 26 Acquisitions/disposals/additions 0 Effect of settlement, curtailment and termination 1 1 Effect of foreign currency translation 97 35 3 135 Benefit obligation as of 31 December 3 531 2 305 341 6 177
Benefits paid –137 –74 –15 –226 Employee contribution 26 26 Acquisitions/disposals/additions 0 Effect of settlement, curtailment and termination 1 1 Effect of foreign currency translation 109 34 143 Fair value of plan assets as of 31 December 3 661 2 245 0 5 906 Funded status 130 –60 –341 –271 2014 USD millions Swiss plan Foreign plans Other benefits Total
Amounts recognised in the balance sheet, as of 31 December were as follows: 2013 USD millions Swiss plan Foreign plans Other benefits Total
Non-current assets 130 49 179 Current liabilities –2 –16 –18 Non-current liabilities –107 –325 –432 Net amount recognised 130 –60 –341 –271 2014 USD millions Swiss plan Foreign plans Other benefits Total
Benefit obligation as of 1 January 3 692 2 192 383 6 267
Fair value of plan assets as of 1 January 3 661 2 245 5 906 Actual return on plan assets 281 266 547
Pension plans with an accumulated benefit obligation in excess of plan assets as of 31 December were as follows: 2013 USD millions Swiss plan Foreign plans Other benefits Total
Effect of settlement, curtailment and termination 0 Exchange rate gain/loss recognised during the year 10 10 Total recognised in other comprehensive income, gross of tax –514 7 –30 –537 Total recognised in net periodic benefit cost and other comprehensive income, gross of tax –368 20 –29 –377 2014 USD millions Swiss plan Foreign plans Other benefits Total
Prior service cost/credit –90 –3 –93 Amortisation of: Net gain/loss –43 –24 12 –55
Effect of settlement, curtailment and termination 0 Exchange rate gain/loss recognised during the year –25 –25 Total recognised in other comprehensive income, gross of tax 290 22 75 387 Total recognised in net periodic benefit cost and other comprehensive income, gross of tax 393 36 69 498
Projected benefit obligation 594 4 771 Accumulated benefit obligation 593 4 722 Fair value of plan assets 490 4 379
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 2014: Swiss plan Foreign plans weighted average Other benefits weighted average
Equity securities include Swiss Re common stock of USD 7 million (0.1% of total plan assets) and USD 6 million (0.1% of total plan assets) as of 31 December 2013 and 2014, respectively.
As of 31 December, the fair values of pension plan assets by level of input were as follows: 2013 USD millions
Residential mortgage-backed securities 21 21 Commercial mortgage-backed securities 1 1 Other asset-backed securities 5 5
Purchases, issuances and settlements 11 –1 10 Transfers in and/or out of Level 3 0 Impact of foreign exchange movements 17 3 20 Closing balance as of 31 December 631 132 763 2014 USD millions Real estate Other assets Total
Purchases, issuances and settlements 13 –4 9 Transfers in and/or out of Level 3 0 Impact of foreign exchange movements –66 –8 –74 Closing balance as of 31 December 578 139 717
Financial statements I Notes to the Group financial statements 15 Share-based payments
Total compensation cost for share-based compensation plans recognised in net income was USD 126 million and USD 76 million in 2013 and 2014, respectively. The related tax benefit was USD 28 million and USD 17 million, respectively.
Outstanding as of 1 January 89 100 000 Outstanding as of 31 December 84 100 000 Exercisable as of 31 December 84 100 000
The 2010 LTI grant was settled in shares in March 2013. The payout factor was driven by average ROE and average EPS over the vesting period. The share price used for measurement is based on the date of grant and was CHF 48.15.
For the year ended 31 December 2014, the outstanding units were as follows: LTI 2011
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.
Financial statements I Notes to the Group financial statements 17 Related parties
The Group defines the following as related parties to the Group: subsidiaries of Swiss Re Ltd, entities in which the Group has significant influence, pension plans, members of the Board of Directors (BoD) and the Group Executive Committee (EC) and their close family members, and entities which are directly and indirectly controlled by members of governing bodies of the Group and their close family members.
Share in earnings of equity-accounted investees 350 321 Dividends received from equity-accounted investees 198 277
Leasing commitments As part of its normal business operations, the Group enters into a number of lease agreements. As of 31 December, such agreements, which are operating leases, total the following obligations for the next five years and thereafter: The following schedule shows the composition of total rental expenses for all operating leases as of 31 December (except those with terms of a month or less that were not renewed): Other commitments As a participant in limited and other investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnerships for periods of up to 10 years. The total commitments remaining uncalled as of 31 December 2014 were USD 2 034 million.
Belgium Swiss Re Treasury (Belgium) N.V., Brussels EUR 382 100 f
Switzerland European Reinsurance Company of Zurich Ltd, Zurich CHF 312 100 f Swiss Re Asset Management Geneva SA, Carouge CHF 0 100 f Swiss Re Corporate Solutions Ltd, Zurich CHF 100 100 f Swiss Re Direct Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Holding Company Ltd, Zurich CHF 0 100 f Swiss Re Investments Ltd, Zurich CHF 1 100 f Swiss Re Life Capital Ltd, Zurich CHF 0 100 f Swiss Reinsurance Company Ltd, Zurich CHF 34 100 f
Barbados European Finance Reinsurance Company Ltd., Bridgetown USD 5 100 f European International Reinsurance Company Ltd., Bridgetown USD 1 100 f Gasper Funding Corporation, Bridgetown USD 17 100 f Milvus I Reassurance Limited, Bridgetown USD 0 100 f Swiss Re (Barbados) Finance Limited, Bridgetown GBP 513 100 f
Brazil Sul America S.A., Rio de Janeiro BRL 2 320 15 e Swiss Re Brasil Resseguros S.A., Sao Paulo BRL 194 100 f Swiss Re Corporate Solutions Brasil Seguros S.A., Sao Paulo BRL 108 100 f
Guernsey Pension Corporation Group Limited, St. Peter Port GBP 925 5 fv
China Alltrust Insurance Company of China Limited, Shanghai CNY 2 178 5 fv
When analysing the status of an entity, the Group mainly assesses if (1) the equity is sufficient to finance the entity’s activities without additional subordinated financial support, (2) the equity holders have the right to make significant decisions affecting the entity’s operations and (3) the holders of the voting rights substantively participate in the gains and losses of the entity. When one of these criteria is not met, the entity is considered a VIE and needs to be assessed for consolidation under the VIE section of the Consolidation Topic.
The Group assesses for all its variable interests in VIEs whether it has a controlling financial interest in these entities and, thus, is the primary beneficiary. For this, the Group identifies the activities that most significantly impact the entity’s performance and determines whether the Group has the power to direct those activities. In conducting the analysis, the Group considers the purpose, the design and the risks that the entity was designed to create and pass through to its variable interest holders. In a second step, the Group assesses if it has the obligation to absorb losses or if it has the right to receive benefits of the VIE that could potentially be significant to the entity. If both criteria are met, the Group has a controlling financial interest in the VIE and consolidates the entity.
Insurance-linked and credit-linked securitisations The insurance-linked and credit-linked securitisations transfer pre-existing insurance or credit risk to the capital markets through the issuance of insurance-linked or credit-linked securities. In insurance-linked securitisations, the securitisation vehicle assumes the insurance risk from a sponsor through insurance or derivative contracts. In credit-linked securitisations, the securitisation vehicle assumes the credit risk from a sponsor through credit default swaps. The securitisation vehicle generally retains the issuance proceeds as collateral. The collateral held predominantly consists of investment-grade securities.
Swaps in trusts The Group provides risk management services to certain asset securitisation trusts which qualify as VIEs. As the involvement of the Group is limited to interest rate and foreign exchange derivatives, it does not have power to direct any activities of the trusts and therefore does not qualify as primary beneficiary of any of these trusts. These activities are in run-off.
The Group consolidates certain debt financing vehicles as it has power over the investment management in the vehicles, which is considered to be the activity that most significantly impacts the entities’ economic performance. In addition, the Group absorbs the variability of the investment return so that both criteria for a controlling financial interest are met.
Consolidated VIEs The following table shows the total assets and liabilities on the Group’s balance sheet relating to VIEs of which the Group is the primary beneficiary as of 31 December: USD millions Carrying value Whereof restricted Carrying value Whereof restricted
Life and health funding vehicles 18 792 792 1 683 1 683 1Maximum exposure to loss is the loss the Group would absorb from a variable interest in a VIE in the event that all of the assets of the VIE are deemed worthless. 2The maximum exposure to loss for swaps in trusts cannot be meaningfully quantified due to their derivative character.
Increase in provision 16 16 Release of provision –3 –3 Costs incurred –15 –3 –18 Effect of foreign currency translation –5 –1 –6
Financial statements I Notes to the Group financial statements 22 Risk assessment
The Group Executive Committee (Group EC) is responsible for developing and implementing Swiss Re’s Group-wide risk management framework. It also sets and monitors risk capacity limits, oversees the economic value management framework, determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group EC has delegated various risk management responsibilities to the Group Chief Risk Officer (CRO) as well as to the Business Units.
Report of the statutory auditor on the consolidated financial statements We have audited the accompanying consolidated financial statements of Swiss Re Ltd and its subsidiaries, which comprise the consolidated balance sheet as of 31 December 2014, and the related consolidated income statement, statement of comprehensive income, statement of share-holders’ equity, statement of cash flow and notes (pages 148 to 238) for the year then ended.
Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Swiss Re Ltd and its subsidiaries at 31 December 2014, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America and comply with Swiss law.
Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no cir-cumstances incompatible with our independence.
Expenses Claims and claim adjustment expenses –11 866 –9 405 –10 035 –9 222 –8 336 –7 254 –8 810 –7 763 –9 655 –10 577
Income statement Net income for 2014 amounted to CHF 4 110 million (2013: CHF 2 707 million) and was mostly driven by cash dividends from subsidiaries and affiliated companies of CHF 3 964 million.
The Company earned trademark license fees of CHF 306 million and incurred administrative expenses of CHF 142 million, of which CHF 139 million were charges for services provided by Swiss Reinsurance Company Ltd. In addition, the Company reported incurred other expenses of CHF 16 million, comprising net realised foreign exchange losses of CHF 11 million and capital and indirect taxes of CHF 5 million.
Investments in subsidiaries and affiliated companies increased from CHF 17 117 million as of 31 December 2013 to CHF 17 340 million as of 31 December 2014 due to a capital contribution made to a subsidiary of Swiss Re Principal Investments Company Ltd, mainly funded by sales of short-term investments.
As of 31 December 2014, the Company held short-term loans of CHF 3 250 million (2013: CHF 1 774 million) granted to Swiss Reinsurance Company Ltd. The increase was related to cash dividends received by the Company from its subsidiaries. In addition, own shares increased by CHF 215 million to CHF 956 million as of 31 December 2014 which was mainly due to the purchases of own shares previously held by Swiss Reinsurance Company Ltd. The own shares are used for share based compensation programs within the Swiss Re Group.
Income statement Swiss Re Ltd For the years ended 31 December
Expenses Administrative expenses 3 –174 –142 Investment expenses 2 –806 0 Other expenses –117 –16 Total expenses –1 097 –158
Liabilities Short-term liabilities Payables to subsidiaries and affiliated companies 7 – Other liabilities and accrued expenses 14 0 Total short-term liabilities 21 0
Reserve for own shares 948 1 146 Legal reserves from capital contributions 10 5 423 2 682
Basis of presentation On 1 January 2013, new Swiss accounting and financial reporting legislation entered into force based on partial revisions of the Swiss Code of Obligations. Based on the transitional provisions, the new provisions have to be implemented for annual accounts from the 2015 financial year onwards, at the latest. The Swiss Re Ltd’s financial statements 2014 have still been prepared based on the accounting provisions of the Swiss Code of Obligations in effect until 31 December 2012.
Own shares Own shares are carried at cost, less necessary and legally permissible depreciation.
Accrued expenses Accrued expenses consist of both income received before the balance sheet date but relating to a subsequent financial year, and charges relating to the current financial year but which are payable in a subsequent financial year.
Dividends from subsidiaries and affiliated companies Dividends from subsidiaries and affiliated companies are recognised as revenue in the year in which they are declared.
Income tax expense As a holding company incorporated in Switzerland, Swiss Re Ltd is exempt from income taxation at cantonal/communal level. On federal level, dividends from subsidiaries and affiliated companies are indirectly exempt from income taxation (participation relief). However, income tax is payable on trademark license fees charged to certain subsidiaries and affiliated companies.
Financial statements I Swiss Re Ltd 2 Investment income and expenses 3 Administrative expenses and personnel information
As of 31 December 2014, securities of CHF 117 million were lent to Group companies under securities lending agreements, whereas in 2013 securities of CHF 334 million were lent to Group companies. As of 31 December 2014 and 2013, there were no securities lent to third parties.
As of 31 December 2014 and 2013, Swiss Re Ltd held the following investments in subsidiaries and affiliated companies: CHF millions 2013 2014
Valuation adjustments on investments in subsidiaries and affiliated companies –805 – Realised losses on sale of investments 0 0 Investment management expenses –1 0 Other interest expenses 0 0 Investment expenses –806 0
Swiss Reinsurance Company Ltd Zurich 100% CHF 34.4 million Swiss Re Corporate Solutions Ltd Zurich 100% CHF 100.0 million Swiss Re Life Capital Ltd Zurich 100% CHF 0.1 million Swiss Re Investments Holding Company Ltd Zurich 100% CHF 0.1 million Swiss Re Principal Investments Company Ltd Zurich 100% CHF 0.1 million Swiss Re Specialised Investments Holdings (UK) Ltd London 100% GBP 1.0 million
As of 31 December 2014, Swiss Re Ltd and its subsidiaries held 28 508 013 (2013: 28 512 910) of Swiss Re Ltd’s own shares, of which Swiss Re Ltd owned directly 28 395 225 (2013: 25 685 817) shares.
As of 31 December 2014, there were three shareholders with a participation exceeding the 3% threshold of Swiss Re Ltd’s share capital: In addition, Swiss Re Ltd held, as of 31 December 2014, directly and indirectly 28 508 013 (2013: 28 512 910) own shares, representing 7.69% (2013: 7.69%) of voting rights and share capital. Swiss Re Ltd cannot exercise the voting rights of own shares held.
Warren E. Buffett/Berkshire Hathaway Inc. 11 262 000 3.10 10 June 2011 1 The percentage of voting rights is calculated at the date the obligation was created and notified. 2 BlackRock, Inc. notified on 13 January 2015 that it holds directly and indirectly through a number of its Group companies, in the capacity of investment manager for funds and clients 18 586 701 registered shares of Swiss Re Ltd, corresponding to 5.01% of the voting rights in Swiss Re Ltd. In addition to the number of registered shares held, BlackRock, Inc. reported contracts for difference conferring a total of 51 283 voting rights in Swiss Re Ltd. This corresponds to 0.02% of the voting rights in Swiss Re Ltd which can be exercised autonomously of the beneficial owners. The total notified holding amounts to 5.03% of the voting rights in Swiss Re Ltd.
Financial statements I Swiss Re Ltd 9 Conditional capital and authorised capital
Authorised capital The Board of Directors is authorised to increase the share capital of the Company at any time up to 10 April 2015 by an amount not exceeding CHF 8 500 000 through the issuance of up to 85 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10. Increases by underwriting as well as partial increases are permitted. The date of issue, the issue price, the type of contribution and any possible acquisition of assets, the date of dividend entitlement as well as the expiry or allocation of non exercised subscription rights will be determined by the Board of Directors.
With respect to a maximum of CHF 3 500 000 through the issuance of up to 35 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, out of the total amount of authorised capital referred to above, the Board of Directors may exclude or restrict the subscription rights of the existing shareholders for the use of shares in connection with (i) mergers, acquisitions (including take-over) of companies, parts of companies or holdings, equity stakes (participations) or new investments planned by the Company and/or Group companies, financing or re-financing of such mergers, acquisitions or new investments, the conversion of loans, securities or equity securities, and/or (ii) improving the regulatory capital position of the Company or Group companies in a fast and expeditious manner if the Board of Directors deems it appropriate or prudent to do so (including by way of private placements).
Joint provision for conditional capital for Equity-Linked Financing Instruments and for the above-mentioned authorised capital The total of registered shares issued from the authorised capital, where the existing shareholders’ subscription rights were excluded, and from the shares issued from conditional capital, where the existing shareholders’ advance subscription rights on the Equity-Linked Financing Instruments were excluded, may not exceed 74 000 000 registered shares up to 10 April 2015.
Financial statements I Swiss Re Ltd 13 Share ownership, options and related instruments of governing bodies
Share ownership The number of shares held as of 31 December were: Members of the Group EC 2013 2014
Mathis Cabiallavetta, Vice Chairman 109 177 92 287 Renato Fassbind, Vice Chairman 7 655 11 889 Jakob Baer, former Member and Chairman of the Audit Committee1 44 699 n/a
Vested options The following vested options were held by members of Group governing bodies as of 31 December: The vested options held by members of Group governing bodies as of 31 December 2014 will expire in 2015. The underlying strike price for the outstanding option series has been adjusted for special dividend payouts. The stock options shown in the table above for the members of the Board of Directors were awarded at a time when the recipients were still members of Swiss Re’s executive management.
Allocation to other reserves –2 710 –4 110 Retained earnings after allocation 4 4
Regular dividend payment out of other reserves –1 3181 –1 4542
Special dividend payment out of other reserves –1 4201 –1 0272
Other reserves after allocations and dividend payments 5 440 9 550 1 Since the Board of Directors’ proposal for allocation of disposable profit, included in the Annual Report 2013, the number of registered shares eligible for dividend, at the dividend payment date of 22 April 2014, increased due to the transfer of 447 213 shares for employee participation purposes from not eligible to eligible for dividend. This resulted in a higher dividend of CHF 3 million, compared to the Board of Directors’ proposal, and in lower legal reserves from capital contributions by the same amount.
1 The Board of Directors’ proposal to the Annual General Meeting of 21 April 2015, is subject to the actual number of shares outstanding and eligible for dividend.
Board of Directors’ Responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of 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.
We further confirm that the proposal for allocation of disposable profit complies with Swiss law and the Company’s articles of incorporation. We recommend that the financial statements submitted to you be approved.
Headquartered in Zurich, Switzerland, Swiss Re has operations across the globe. Our corporate structure allows us to sharpen our client focus, improve transparency and accountability, increase capital efficiency and operate with greater flexibility.
Risk-based securities that allow insurance and reinsurance companies to transfer peak insurance risks, including natural catastrophes, to institutional investors in the form of bonds. Catastrophe bonds help to spread peak exposures (see insurancelinked securities).
Adjustment of the book value or collateral value of a security, portfolio or account that reflects its current market value.
Financial transaction in which future cash flows from assets (or insurable risks) are pooled, converted into tradable securities and transferred to capital market investors. The assets are commonly sold to a special-purpose entity, which purchases them with cash raised through the issuance of beneficial interests (usually debt instruments) to third-party investors.
New regulatory framework for EU re/insurance solvency rules scheduled to replace the current Solvency I regime. Introducing a comprehensive, economic and riskbased regulation, Solvency II includes prudential requirements on solvency capital, risk modelling, supervisory control and disclosure.
The investment strategy process analyses trends in the general economy (inflation, jobless rate, GDP etc) and their relation with financial markets to assess the overall financial market outlook as well as their implications for a given sector.
Swiss Re uses some of the term definitions provided by the glossary of the International Association of Insurance Supervisors (IAIS).
̤ the frequency, severity and development of insured claim events; ̤ acts of terrorism and acts of war; ̤ mortality, morbidity and longevity experience; ̤ policy renewal and lapse rates; ̤ extraordinary events affecting
General impact of adverse market conditions Pessimistic global growth forecasts, particularly in respect of Europe, and heightened volatility due to the constraints inherent in current monetary policies of the world’s principal central banks, among other factors, highlight the continued uncertainties around the post-crisis recovery and the risks that the world economy continues to face, notwithstanding positive macro-economic trends in the United States. The International Monetary Fund recently reduced its forecast for global economic growth and reports that the risk of a recession and deflation in the Eurozone has risen sharply. In the European Union, it remains unclear whether proposals for a single resolution mechanism and other components of a banking union in the European Union, as well as actions of the European Central Bank, will create the conditions necessary for increased bank lending and greater economic growth. Uncertainty around economic growth could be compounded by domestic political considerations in various EU member states.
Further adverse developments or the continuation of adverse trends that in turn have a negative impact on financial markets and economic conditions could limit the ability of Swiss Re Ltd (“Swiss Re”) and its subsidiaries (collectively, the “Group”) to access the capital markets and bank funding markets, and could adversely affect the ability of counterparties to meet their obligations. Any such developments and trends could also have an adverse effect on the Group’s investment results, which in the current low interest rate environment and soft insurance cycle could have a material adverse effect on overall results.
Although early regulatory efforts following the credit crisis in 2008 were focused primarily on banking institutions, there has been a noticeable trend in recent years to extend the scope of reforms and oversight beyond such institutions to cover insurance and reinsurance operations. Legislative initiatives directly impacting the Group’s industry include the establishment of a pan-European regulator for insurance companies, the European Insurance and Occupational Pension Authority (the “EIOPA”), which has the power to overrule national regulators in certain circumstances. In addition, the Group is subject to the Swiss Solvency Test, and will be subject to Solvency II, which will enter into force on 1 January 2016. The Group is also monitoring the proposed Swiss Federal Act on Financial Market Infrastructure (which will introduce new regulations for over-the-counter derivatives trading in line with international standards) and the proposed Swiss Federal Financial Services Act and Financial Institutions Act (which contain rules for financial services providers that are based on the EU Markets in Financial Instruments Directive (“MiFID”) regulations). In the United States, as a possible step towards federal oversight of insurance, the US Congress created the Federal Insurance Office within the Department of Treasury. In addition, provisions of the Wall Street Reform and Consumer Protection Act of 2010, as well as provisions in the proposed European Market Infrastructure Regulation and proposed changes to MiFID, in respect of derivatives could have a significant impact on the Group.
There is an emerging focus on classifying certain insurance companies as systemically important as well. The Group could be designated as a global systemically important financial institution (SIFI) under the framework for systemically important financial institutions developed by the Financial Stability Board, or as a systemically important non-bank financial company by the Financial Stability Oversight Council (the FSOC) in the United States. Separately, the International Association of Insurance Supervisors, an international body that represents insurance regulators and supervisors, published a methodology for identifying global systemically important insurers (“G-SIIs”) and on a framework for supervision of internationally active insurance groups. Initial designation of insurers as G-SIIs took place in July 2013, and initial designation of reinsurers as G-SIIs has been postponed pending further development of the methodology due by November 2015, to be applied in 2016. If and when reinsurers are included in the list of G-SIIs, the Group could be so designated. Were the Group to be designated as a G-SII, it could be subject to one or both of the resulting regimes, once implemented, including capital standards under both regimes (the Basic Capital Requirement for G-SIIs and the Insurance Capital Standard for Internationally Active Insurance Groups (“IAIGs”)). In addition, the Group ultimately will be subject to oversight of its Swiss regulator in respect of recovery and resolution planning.
In addition, regulatory changes could occur in areas of broader application, such as competition policy and tax laws. Changes in tax laws, for example, could increase the taxes the Group pays, the attractiveness of products offered by the Group, the Group’s investment activities and the value of deferred tax assets. Any number of these changes could apply to the Group and its operations. These changes, or inconsistencies between the various regimes that apply to the Group, could increase the costs of doing business, reduce access to liquidity, limit the scope of business or affect the competitive balance, or could make reinsurance less attractive to primary insurers.
The Group is also subject to credit and other risks in its credit business, including reliance on banks that underwrite and are expected to monitor facilities in which the Group participates and potential default by borrowers under those facilities.
The Group may not be able to secure new sources of liquidity or funding, should projected or actual liquidity fall below levels it requires. The ability to meet liquidity needs through asset sales may be constrained by market conditions and the related stress on valuations, and through third-party funding may be limited by constraints on the general availability of credit and willingness of lenders to lend. In addition, the Group’s ability to meet liquidity needs may also be constrained by regulatory requirements that require regulated entities to maintain or increase regulatory capital, or that restrict intra-group transactions, the timing of dividend payments from subsidiaries or the fact that certain assets may be encumbered or otherwise non-tradable. Failure to meet covenants in lending arrangements could give rise to collateral posting or defaults,
The Group could also be adversely affected by the insolvency of, or other credit constraints affecting, counterparties in its reinsurance operations. Moreover, the Group could be adversely affected by liquidity issues at ceding companies or at third parties to whom the Group has retroceded risk, and such risk could be exacerbated to the extent any such exposures are concentrated.
The Group is also involved, from time to time, in investigations and regulatory proceedings, certain of which could result in adverse judgments, settlements, fines and other outcomes. The number of these investigations and proceedings involving the financial services industry has increased in recent years, and the potential scope of these investigations and proceedings has also increased, not only in respect of matters covered by the Group’s direct regulators, but also in respect of compliance with broader business conduct rules, including those in respect of market abuse, bribery, money laundering, trade sanctions and data protection and privacy. The Group also is subject to audits and challenges from time to time by tax authorities, which could result in increases in tax costs, changes to internal structures and interest and penalties. The Group could be subject to risks arising from alleged, or actual, violations of any of the foregoing, and could also be subject to risks arising from potential employee misconduct, including non-compliance with internal policies and procedures. Substantial legal liability could materially adversely affect the Group’s business, financial condition or results of operations or could cause significant reputational harm, which could seriously affect its business.
Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that management uses, for example, 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
General information I Note on risk factors 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. 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.
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The 2014 Annual Report is also available in German. The web version of the 2014 Annual Report is available at: reports.swissre.com 3/15 Order no: 1490793_15_en
Contents The 2014 Corporate Responsibility Report sets out our commitment as a responsible company and describes the actions we have taken in 2014 to put this commitment into practice.
Independent assurance report to the management of Swiss Re Ltd, Zurich 70
In our core re/insurance business, we continued to create innovative solutions that help our clients and society at large to tackle major sustainability-related risks. Natural catastrophes and climate change, volatile weather, renewable energy and funding longer lives remained our focus areas. Across these risks, we have continued to place special emphasis on giving vulnerable communities in emerging and developing countries better access to insurance protection.
Reflecting this goal, we have recently made two significant commitments. In 2012, we pledged to the Grow Africa Partnership that we would help insure up to 1.4 million smallholder farmers against bad weather that may threaten their crops and thus their livelihoods. We are happy to report that, at the end of 2014, a total of two million farmers were newly insured thanks to innovative index-based products. Last year, we signed a second commitment, this time to the United Nations: addressing its Climate Summit in New York, we announced that we would advise 50 sovereigns and sub-sovereigns by 2020, offering them up to USD 10 billion of re/insurance protection.
It is our pleasure to present to you our 2014 Corporate Responsibility Report. In this publication, we describe how we contribute to sustainable progress and what we achieved during 2014. As in previous years, our Report doubles as our disclosure document for two voluntary commitments we have made to the United Nations: the UN Global Compact and the UNEP FI Principles for Sustainable Insurance (PSI). We remain committed to both initiatives and will continue to play an active role in the PSI.
Our strategic priorities have largely stayed the same in recent years. By building on our earlier work, we made some notable achievements and launched important new initiatives in 2014. Incidentally, we believe that this focus on continuous improvement is a key reason why we regained the sector leadership in the Dow Jones Sustainability Indices. It is a distinction we are proud of, because it shows that our stakeholders appreciate how we live our commitment as a responsible company.
Many of the large-scale risks facing society today are complex, and finding viable responses to them requires cooperation between various partners. This is why we place a strong focus on open, constructive dialogue.
Walter B. Kielholz Michel M. Liès Chairman of the Board of Directors Group Chief Executive Officer
Guided by our five Top Topics, we continued to engage with our partners and share our risk expertise in many ways during 2014, including several new publications. Our own conference facility, the Centre for Global Dialogue near Zurich, organised events on a range of different risk topics. For example, a two-day conference put the spotlight on the gradual advent of autonomous cars, which are going to pose a major challenge to established insurance practices and require new solutions.
As a typical knowledge company, we do not cause large environmental impacts. Yet, we firmly believe it is essential for any responsible company to minimise its footprint, thus leading by example. Given the strategic relevance of climate change for our business, our CO2 emissions and energy consumption remained top priorities. After launching new seven-year cycles of our pioneering Greenhouse Neutral Programme and COyou2 Programme in 2013, both continued seamlessly last year. We also launched the RE100 initiative as one of its founding members: in a joint effort with several other large companies, we want to encourage better supplies of renewable energy in some key emerging markets, so we can cover 100% of our energy requirements from renewable sources by 2020.
None of these initiatives and achievements would have been possible without our committed and skilful workforce. Remaining successful in today’s fast-moving marketplace and at the same time making a substantial contribution to sustainable progress can be challenging. We are fully aware of this and would like to thank all our employees for the great work they achieved for Swiss Re in 2014.
The Swiss Re Foundation in 2014 – Heading for resilience This separate report describes in detail how the Swiss Re Foundation helps communities to build resilience to risk.
Swiss Re is a leader in wholesale reinsurance, insurance and risk transfer solutions. Our clients include insurance companies, corporations, the public sector and policyholders.
Headquartered in Zurich, Switzerland, Swiss Re has operations across the globe. At the end of 2014, we had 71 offices in more than 30 countries. Based on “net premiums earned and fee income from policyholders”, our ten biggest markets in 2014 were: the United States, the United Kingdom, China, Australia, Germany, Canada, Japan, France, Ireland and Switzerland. They accounted for 79% of the Group’s total business over the year.
Swiss Re Ltd, the Group’s holding company, is a joint stock company, listed in accordance with the Main Standard on the SIX Swiss Exchange, domiciled in Zurich, and organised under the laws of Switzerland. No other Group companies have shares listed.
Admin Re® provides risk and capital management solutions by which Swiss Re acquires closed books of inforce life and health insurance business, entire lines of business, or the entire capital stock of life insurance companies. Admin Re® solutions help clients free up capital to redeploy to new business opportunities while reducing administrative burdens.
Premiums earned and fee income 28 818 31 262 Net investment income – non-participating 2 3 947 4 103 Net investment result – unit-linked and with-profit 3 347 1 381
Swiss Re is a knowledge company. We apply that knowledge to help clients, shareholders and society.
In simplified terms, our business model works as follows: We provide tailor-made solutions through traditional reinsurance or insurancebased capital market instruments. At the core of our expertise is the costing, pricing and diversification of non-life and life risks.
We invest assets long-term until money is needed, applying asset-liability matching techniques to align the duration and currency of invested assets to the duration and currency of our insurance liabilities, ensuring that we deliver on our promises to our clients.
The table below provides an overview of some of the Swiss Re Group’s key financial data:Net earned premiums and fee income by Business Unit (Total: USD 31.3 billion)
̤ 50% P & C Reinsurance ̤ 36% L & H Reinsurance ̤ 11% Corporate Solutions ̤ 3% Admin Re®
A key question for any company that seeks to take a long-term view and enable sustainable progress is what this means in the context of its own business and industry: which of its activities and which topics are “material” to achieving this goal?
̤ 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.
̤ Stakeholder dialogue Through regular dialogue with our clients and other stakeholders, we help to develop effective responses to sustainability and other key issues, by raising awareness of both the risks and the opportunities arising from them.
̤ Active in society Playing an active role in society beyond our core business is important to us. Globally, we empower vulnerable communities to become more resilient to risk and, where we have offices, we encourage volunteering activities and support local institutions.
How we determine key sustainability issues Our Commitment to Corporate Responsibility is what it says: It expresses our overarching commitment to long-term value creation and our general goals in this respect. It does not, however, specify the specific issues we consider material because these may evolve and change over time.
In our core re/insurance business, we have special units, such as our Global Partnerships function in the Group or the Environmental & Commodity Markets department in our Corporate Solutions Business Unit, that identify underinsured markets and risks, and seek to expand re/insurance protection through commercially viable solutions. (See special section on pages 66–67.)
In our risk management, the challenge is to identify sustainability risks we feel we should not re/insure for ethical reasons, and other risks that may pose a challenge to our own business. We conduct this analysis through our Sustainability Risk Framework and other tailor-made risk management tools.
Materiality has been a key topic in recent discussions about corporate responsibility reporting. It is our impression, however, that not everyone understands this term in the same way. Some stakeholders define materiality as all of a company’s actions that impact the environment and society; others narrow down materiality to those aspects that have a tangible link to a company’s financial performance.
These two notions of materiality lead to significant differences in reporting focus and scope. This is why we have started to provide an extended chapter on corporate responsibility in our Financial Report that focuses on actions with a strong link to our financial performance.
The four pillars of our climate change strategy ̤ Advancing our knowledge and understanding of climate change risks, quantifying and integrating them into our risk management and underwriting frameworks where relevant; ̤ Developing products and services to mitigate or adapt to climate risk; ̤ Raising awareness about climate change risks through dialogue with clients, employees and the public, and advocating a worldwide policy framework for climate change; ̤ Tackling our own carbon footprint and ensuring transparent, annual emissions reporting.
̤ Regulatory responses to climate change may bring new reporting requirements we need to be aware of. See page 27
On an operational level, various divisions, departments and units are involved in implementing Swiss Re’s commitment to corporate responsibility in daily business. The Sustainability & Political Risk Management unit also carries out certain coordination tasks and is responsible for producing the Group’s Corporate Responsibility Report.
In our 2011 Corporate Responsibility Report we first included special sections in addition to the core chapters: Under the heading of “Corporate responsibility in context”, they provide some background information on important sustainability topics. In this year’s edition we present one such section: ̤ Corporate responsibility in context: Expanding re/insurance protection
To get a complete overview of our actions as a responsible company, this report should be read in conjunction with the annual report published by the Swiss Re Foundation (see page 65).
Independent assurance This is the second year that the five main chapters of the report have received independent assurance from PricewaterhouseCoopers. Their assurance statement is included on pages 70–71.
Reporting frameworks Insofar as is applicable to a business-tobusiness company in financial services, this report takes into account the G3.1 Sustainability Reporting Guidelines of the Global Reporting Initiative, GRI (www.globalreporting.org). The detailed GRI Content Index is included on pages 75–77.
The present report follows the 2013 edition and covers the calendar year of 2014. We plan to maintain our annual publishing cycle and to present our next Corporate Responsibility Report in the second quarter of 2016, covering the year of 2015.
Business solutions Our efforts to support sustainable progress by expanding re/insurance protection focus on the following themes: ̤ Natural catastrophes and climate change ̤ Renewable energy, especially offshore wind ̤ Agricultural risks ̤ Longevity ̤ Insurance in emerging and developing countries
Risk intelligence When trying to identify sustainability risks we may want to avoid in our re/insurance transactions and investments, we pay special attention to the following eight sectors or issues: ̤ Animal testing ̤ Dams ̤ Defence industry ̤ Forestry and logging ̤ Human rights and environmental protection ̤ Mining ̤ Nuclear weapons proliferation ̤ Oil and gas
Our employees As a typical knowledge company, we have identified four topics that are both beneficial to our employees and have a tangible link to our longer-term performance: ̤ Diversity and inclusion ̤ Development and training ̤ Employee relations ̤ Compensation and benefits
By managing risks and covering losses, re/insurance creates stability and enables economic growth. However, some environmental and social challenges can undermine sustainable progress if left unaddressed. Helping our clients and society at large to tackle such risks is a key component of our commitment as a responsible company.
Thus, our solutions frequently include: ̤ Public-sector partners: Besides direct insurers and corporate clients, we develop risk transfer solutions for, and in cooperation with, governments and various public-sector organisations; ̤ Index-based insurance products: We are a pioneer in creating innovative insurance solutions that use an index to determine payments; ̤ Insurance-linked securities (ILS) or cat bonds: We are a leading developer of these products, which enable large risks to be transferred to the capital markets.
We need to understand natural catastrophe risks and the impact of climate change to assess our P&C business accurately and to structure sound risk transfer solutions. To achieve this, we invest in proprietary, state-ofthe -art natural catastrophe models and collaborate with universities and scientific institutions. This enables us to stay abreast of the latest knowledge on the economic impact of natural disasters, including the effects of climate change.
We are a leading player in the insurancelinked securities (ILS) sector. ILS are capital market instruments, typically in bond or derivative format, designed to meet the risk or capital management needs of a transaction sponsor. In exchange for a coupon or premium payment, the sponsor receives single or multi-year collateralised protection for specified risk events. If such an event occurs, the sponsor receives all or part of the principal; otherwise this is paid back to the investors in full at maturity.
Insurance-linked securities are particularly well-suited to provide protection against peak risks – events that happen infrequently but tend to lead to high
Insurance-linked securities losses, for example earthquakes or windstorms. ILS are used for both risk and capital management purposes in the P&C and the L&H business. For reinsurers they are attractive because they free up scarce capital; for insurers and corporate clients they provide multi-year collateralised protection; and for investors they offer attractive diversification possibilities, as they are relatively uncorrelated with other asset classes.
When the category 5 Tropical Cyclone Ian hit Tonga in early 2014, it caused widespread destruction, killing one person, displacing thousands and destroying vital infrastructure such as health centres and schools. In some parts of the Ha’apai island group, up to 75% of the buildings were damaged. The intensity of the cyclone meant that a payout was triggered, thus quickly providing funds to the government for emergency and reconstruction measures.
First payout to flood victims in Bangladesh In 2013, we worked with several partners from the public and the private sector to develop a pioneering scheme in Bangladesh that offers insurance protection against flood damage to NGOs and other organisations so they can provide support to vulnerable low income households. Bangladesh is particularly vulnerable to periodic flooding, because it receives water from a drainage area 12 times its own size. This has had devastating consequences for the the country’s development and has been one of the main reasons for its widespread and persistent poverty.
By using an index-based solution, the programme has managed to meet two challenges at the same time. Building a fully-fledged flood hazard model would have been time-consuming and expensive, because there were no flood loss data for the area. Instead, the Bangladesh-based Institute of Water Modelling (IWM) built a simple model based on flood water level/depth and flood duration. This automatically triggers the payment of an insurance benefit and determines the households that are eligible for the payment, ensuring they receive compensation quickly.
We support the programme by reinsuring the risks and by offering product structuring support, pricing and underwriting.
Rainfall protection in the Caribbean Our innovative risk transfer instruments protect a number of Caribbean countries from the impact of tropical cyclones and earthquakes through the Caribbean Catastrophe Risk Insurance Facility (CCRIF). We stepped up that protection for eight countries in August 2014, extending insurance cover to extreme rainfall. We developed this innovative product with the CCRIF at the request of several Caribbean governments. It estimates the impact of heavy rain using satellite data so that payouts can be made quickly without time-consuming damage and loss assessments.
The governments protected by the new policy – Anguilla, Barbados, Dominica, Grenada, Haiti, Saint Lucia, St. Kitts & Nevis and St. Vincent & the Grenadines – did not have to wait long for payouts. The first payment was made to Anguilla on 27 October 2014 after flooding caused by Hurricane Gonzalo just two weeks earlier. Some of the funds will be used to make the island more resistant to future flooding. The largest payment in 2014 was made to Barbados, which received USD 1.3 million in December, less than three weeks after the heavy rains on 21 and 22 November. The four payments on the new product totalled USD 3.4 million in 2014.
African Risk Capacity Drought is a recurring threat across SubSaharan Africa: since 1980 there have been over 200 drought events. About two thirds of the area’s population work in agriculture, 80% as smallholder farmers. This means millions of people not only depend on farming for their food, but also for their incomes and livelihoods. A drought can thus have devastating consequences. In addition to the human suffering caused by famine, the costs of aid relief and a fall in revenues can wipe out years of development gains.
This is why we supported the launch of the African Risk Capacity, ARC (africanriskcapacity.org). Set up by the African Union and drawing support from the public and private sectors, ARC is the continent’s first natural disaster insurance pool. In the inaugural 2014/2015 risk pool, drought insurance of USD 129 million has been offered to four governments – Kenya, Mauritania, Niger and Senegal. Mozambique also participated in the pool originally, but withdrew later.
Catastrophe Risk Insurance Facility (CCRIF) and the Pacific Catastrophe Risk Insurance Pilot. We have played an instrumental role in both of these, too.
Offering smallholder farmers effective insurance protection has huge social and economic benefits beyond protecting their livelihoods. Once farmers can show they have insurance, banks are much more willing to give them loans. This enables the farmers to invest in better seeds and fertilisers to increase yields. With a secure minimum income, they can then gradually accumulate savings, leave subsistence farming behind and escape poverty. By supporting programmes such as this one and the ARC, we help to develop the African insurance markets that facilitate sustained economic and social progress.
In Sub-Saharan Africa, most people depend directly on farming for their food and income. Working with our partners in programmes such as the African Risk Capacity, we have recently helped to insure 2 million smallholder farmers against weather risks that may threaten their harvests.
To help find answers to this problem, we made an important commitment to the Grow Africa Partnership (www.growafrica.org) in 2012. This initiative was launched by a number of organisations to promote publicprivate collaboration and investment in African agriculture.
Our commitment to the Grow Africa Partnership includes the following three elements: ̤ Give farmers in Sub-Saharan Africa access to tools such as weather and yield index insurance products; ̤ Invest about USD 2 million per year in resources to support the development of sustainable agricultural risk management markets; ̤ Provide agricultural insurance for up to 1.4 million smallholder farmers.
Offshore wind is considered one of the most promising renewable energy sources. But like renewable energy in general, it presents very complex risks. Unlike traditional lines, there is no long loss history to refer to. Underwriting such risks is therefore challenging from an insurance perspective.
expertise to help manage the associated risks. We are continually enhancing our understanding of these risks and share our insights with our clients as well as other insurers.
Insurance cover for two offshore wind farms: Dudgeon … In 2014, we were involved in a number of offshore wind transactions. One of them is the Dudgeon Offshore Wind Farm (www.dudgeonoffshorewind.co.uk), which will be constructed over the next three years on a site 32 km off the UK’s Norfolk coast. As a lead underwriter, Swiss Re Corporate Solutions provides an “all risk” cover for the whole construction period as well as a “maintenance cover” for the first 24 months of the wind farm’s operation. Norwegian company Statoil is one of the shareholders of the limited company that is developing the project, and will be the operator for both the construction and operational phases.
The Dudgeon Offshore Wind Farm is planned to comprise 67 highly efficient turbines with a total capacity of 400 megawatts, sufficient to supply more than 410 000 UK homes with sustainable energy. When finished, its output will be transferred to the UK grid through a seabed cable of 38 km and an underground cable of 48 km.
Like the Dudgeon Offshore Wind Farm, Sandbank will use high-tech equipment to ensure efficient power generation. It will have an installed capacity of 288 megawatts and produce up to 1.4 TWh per year with 72 turbines, enough to power 400 000 homes. The power generated by Sandbank and two other wind farms nearby (DanTysk and Buitendiek) will be transmitted to a converter station currently being built, SylWin alpha. There, the power will be converted to direct current, which will help to reduce transmission losses over the 200 km long sea cable.
Life and health (L&H) insurance products play a crucial role in creating stability for individuals and society. They provide financial security in the event of death or illness, give access to medical treatment and offer dependable income in retirement. We help primary L&H insurers and other clients from the private and public sector to manage such risks efficiently, thanks to our specialist knowledge of mortality, morbidity and longevity trends.
Demand for commercial health insurance solutions is also growing, driven by several major demographic and socio-economic trends. These include: the greater healthcare needs of ageing societies; rising healthcare expectations of the new middle class, especially in growth markets; and healthcare finance reform, particularly in mature markets. We offer a variety of health reinsurance solutions to meet these needs, from short-term protection against the risk of volatility in medical expenses for insurers or employers, to very long-term protection against the financial impact of disability or critical illness.
Longevity transaction with the Aviva Staff Pension Scheme In 2014, we participated in a landmark longevity transaction with the Aviva Staff Pension Scheme in the UK. With life expectancy rising, pension schemes face the risk that they will not be able to meet all their commitments. Longevity transactions cover this risk by insuring the schemes’ liabilities in case their members live longer than expected.
Sound risk management is essential for a re/insurer: Tight control of our exposures guarantees that we can be a reliable partner to our clients when they need us. There is an additional dimension to risk management, though: As a responsible company, we need to pay attention to further, non-standard risks we may be exposed to, especially in the longer term.
For companies, this situation can cause dilemmas: A specific business transaction may be economically beneficial and perfectly fine from a legal perspective, yet may have significant environmental and social downsides. At Swiss Re, we believe it is important to recognise the existence of such dilemmas and to develop effective responses. Doing so requires a well-defined approach and the willingness to make decisions based on ethical principles.
Our Sustainability Risk Framework is an advanced risk management instrument that has been specifically designed to identify and address such “sustainability risks” in our core business. It is applicable to all of our business transactions, ie re/insurance as well as investments, to the extent that we can influence their various aspects.
Dams are an important source of renewable energy, but can potentially also have impacts on the environment and local communities. In our Sustainability Risk Framework we have a policy that specifies the risks we examine before underwriting dam projects.
process − a due diligence tool for assessing individual business transactions; ̤ Company exclusions; ̤ Country exclusions beyond mere compliance with international trade controls.
Dams ̤ Human rights abuses; ̤ Significant adverse environmental or social impacts, particularly where critical natural habitats, vulnerable groups and/or critical cultural heritages are impacted; ̤ Non-involvement of relevant stakeholders; ̤ Non-involvement of affected neighbouring states.
Forestry and logging ̤ Illegal logging; ̤ Significant adverse environmental or social impacts, particularly where critical natural habitats, vulnerable groups and/or critical cultural heritages are impacted.
Main concerns in critical sectors Policies Currently, the framework comprises policies on eight sectors and issues where we perceive major sustainability risks: the defence industry, oil and gas (including oil sands), mining, dams, animal testing, forestry and logging, nuclear weapons proliferation, plus an overarching human rights and environmental protection policy.
We regularly review these policies to ensure they reflect new developments. In 2013, for example, we made important amendments to our policies covering the defence industry, nuclear weapons proliferation, oil and gas, and forestry and logging. Further details were presented in the 2013 Corporate Responsibility Report.
The key concerns addressed by the eight policies of our Sustainability Risk Framework are listed on the right: For more information see swissre.com/corporate_responsibility/ sensitive_risks_process.html
The Sensitive Business Risks process Each of the eight policies of our Sustainability Risk Framework contains criteria which define precisely when our underwriters and client managers need to refer a transaction to the Sensitive Business Risks (SBR) process. In such a case, our sustainability and other experts carry out a due diligence assessment: they carefully analyse the benefits and downsides of the transaction at hand and decide whether it is acceptable on ethical grounds.
Country exclusions Swiss Re also excludes certain countries from its business, beyond compliance with international trade controls (ITCs). The criteria for these country exclusions are a particularly poor human rights record and no prospect of improvement. Our goal is not to directly underwrite risks or make investments in entities that are based in these countries. At the end of 2014, the countries excluded from our business due to human rights reasons and political risks were North Korea, Somalia, Sudan (North only) and Syria. In the case of Myanmar, Sensitive Business Risk referrals are mandatory.
Total number of business transactions referred to the Sensitive Business Risks process in 2014 (210 in 2013)
 19% Defence  17% Oil and gas  11% Excluded/critical country  11% Mining  9% Dams  9% Environmental degradation  8% Other industry/issue  6% Human rights  4% Forestry and logging  3% Nuclear weapons proliferation  2% Animal testing  1% Multi-issue 20% Oil and gas 20% Excluded /critical country 14% Defence 14% Mining 9% Environmental degradation 6% Other industry /issue 5% Forestry and logging 4% Human rights 3% Dams 3% Multi-issue 1% Animal testing 1% Nuclear weapons profileration
This strong increase was due to a combination of factors: our continued expansion in high growth markets, where regulation tends to be less stringent, and our continuing efforts to raise awareness of sustainability risks and to provide appropriate training to our underwriting community (see section below).
In view of the steady rise in the number of SBRs, we wanted to establish the approximate percentage of all potentially sensitive transactions that are currently referred to the SBR process. Therefore, we screened all of our business transactions according to four “sensitivity” parameters: countries, country/industry combinations, companies and individual projects. We found that, according to these criteria, around 3 700 of the business transactions we completed in 2014 (in both our Reinsurance and Corporate Solutions Business Units) had to be considered to contain at least some degree of sustainability risk.
Given the total of 454 SBR referrals in 2014, this means that around 12% of all our potentially sensitive transactions were centrally assessed by the sustainability management team at our headquarters. The remaining transactions were examined locally by the responsible business teams, based on the eight policies of our Sustainability Risk Framework.
Creation of an SBR expert network In response to the steady rise in SBR referrals across all geographical areas, in 2014 we decided to strengthen the Sustainability Risk Framework at our locations by setting up an SBR expert network to provide permanent points of contact. These experts from Risk Management will act as interfaces between the headquarter-based Sustainability Management team and our local underwriting teams. Their responsibilities include awareness raising, organising trainings, facilitating SBR assessments and maintaining contact with regional stakeholders.
During a BRR, our underwriting teams are now automatically asked a number of specific questions about their potential exposure to sustainability risks. The results and recommendations for improvement are reported to the Sustainability Management team, which can then take appropriate action if it detects potential problem areas.
Training Since we introduced our Sustainability Risk Framework in 2009, we have made considerable efforts to raise awareness of sustainability issues among our underwriters and client managers, and to ensure that they know how to properly apply the framework. Recently, we have focused in particular on high growth markets where we want to expand our business.
In addition, we provided training personally or via web-based conference to 115 experienced underwriters and graduates, and gave 16 presentations on the Sustainability Risk Framework, which were attended by 382 people. Through all our personally delivered training and outreach activities, we reached a total of 606 employees in 2014.
Client and industry interaction Efforts to address environmental and social risks are obviously more effective when many companies join forces. This is why we seek to further promote sustainability risk management within the re/insurance industry.
We take an active role in several industry organisations that promote sustainable business practices. One of them is the Chief Risk Officer (CRO) Forum (www.thecroforum.org). In 2014, we helped produce its publication on “Human rights and corporate insurance”, the fifth in its series on managing environmental, social and governance (ESG) challenges in business transactions.
Human rights and corporate insurance The purpose of this paper by the CRO Forum is to build an understanding of why the insurance industry has to bring respect for human rights into its risk management framework and how it can address human rights issues in its business relationships with other corporations.
As the PSI’s co-chair in 2014, we contributed to the implementation of its global strategy and work programme for 2014 to 2016, which spans key projects and activities across environ mental, social and governance issues. The PSI have witnessed strong growth since their launch in June 2012: In 2014, four more companies joined the initiative, with combined gross premiums of approximately USD 192 billion and USD 3 trillion of assets under management. Thus, there were a total of 43 PSI signatories at the end of 2014, representing approximately USD 766 billion in gross premiums (approximately 17% of the world total) and USD 14 trillion in assets under management.
These specialists identify, assess and monitor political risks on an ongoing basis, so we understand their implications and can initiate appropriate mitigation measures if required. Particular attention is paid to developments in high growth markets as well as to cross-border issues such as terrorism, energy, multi-national institutions or international trade.
Climate change In view of the strategic importance climate change has for our core business, we closely monitor regulatory developments in this area. Awareness of the topic by governments and regulators has continued to build, leading to an increase in climate-related reporting requirements. In 2014, the regulators of eight US states mandated that insurers domiciled or licensed in those states with USD 100 million or more in direct written premiums must complete a survey on climate change risks. Meanwhile, the UK government has recently introduced new regulations that have required quoted companies to disclose their greenhouse gas emissions in their annual reports from the fourth quarter of 2013.
The risk landscape in which re/insurers operate is changing faster today than ever before. New economic, technological, socio-political, regulatory and environmental developments all have the power to change risks or create new ones. Moreover, growing interdependencies between these developments can lead to accumulations of risk and create significant knock-on effects. The general business environment is undergoing significant changes, as well: liability and regulatory regimes continue to evolve, stakeholder expectations are strengthening and people’s risk perceptions are shifting.
SONAR uses an interactive, web 2.0-based platform, which enables all our employees to share risk notions quickly and easily and to stay up-to-date on new developments. In 2014, 127 risk notions and discussions were fed into the SONAR process, drawing on all main areas of the emerging risk landscape. While many of these early signals will never actually turn into emerging risks, others may well do so. As it is impossible to anticipate which signals will fall into which category, all of them warrant equal attention.
The emerging risks we have assessed in more detail and featured in our Corporate Responsibility Reports in recent years include: electromagnetic fields, critical infrastructure, carbon nanotubes, smart grids, cyber attacks, 3D printing and new forms of mobility. Of these, infrastructure and new forms of mobility – or, more specifically, autonomous cars – have indeed emerged as significant topics for our business, creating risks as well as new opportunities. Corresponding follow-up activities are described on pages 39 and 41, respectively.
Total of risk notions and discussions fed into the SONAR process in 2014
Given the high degree of uncertainty regarding health effects, consumer perception and regulation, a cautionary approach towards e-cigarettes seems justified. All related developments should be closely monitored and regularly reviewed to ensure that the underlying risk exposure is adequately assessed.
Strategic risk initiatives Identifying and addressing emerging risks can be challenging: The novelty and interconnectedness of such developments make it difficult to determine when a particular risk notion must be considered an emerging risk. Timing is thus of crucial importance: If measures to exclude a particular risk are taken too early, we can offer our clients less insurance protection; if measures are taken too late, we may end up with increased loss potential.
Given these challenges, we believe it is essential to foster risk dialogue with various partners. By sharing perceptions and assessments, all parties can gain a better understanding of potential emerging risks. In 2014, we contributed to the following strategic initiatives: WEF Global Risks Report (GRR) Since its first edition in 2006, Swiss Re has been a strategic partner to the GRR, the flagship publication of the World Economic Forum (WEF). In 2014, we authored an entire chapter under the heading of “Generation Lost?”. It highlights the challenges facing the “millennials” against the background of high youth unemployment, rising costs of education and the burden of an ageing population. www.swissre.com/about_us/ managing_risks/Global_Risks_ Report_2014.html
International Risk Governance Council (IRGC) The IRGC is an independent organisation whose purpose is to help understand and manage global risks that impact human health and safety, the environment, the economy and society at large. www.irgc.org/
As a partner of these strategic risk initiatives, we contributed to two reports on relevant risk developments in 2014 (see below).
Global Risks 2014, Ninth Edition, provides a high-level overview of 31 selected global risks, based on a survey with over 700 experts from industry, government, academia and civil society around the world. It highlights how global risks are interconnected and have a systemic impact. The report aims to improve efforts by the public and the private sector to map, monitor, manage and mitigate global risks, thus helping to build resilience to them. www3.weforum.org/docs/WEF_ GlobalRisks_Report_2014.pdf
Asset-liability management (ALM) is the cornerstone of our investment philosophy. Premiums generated by our underwriting activities are invested in assets whose cash flows match the durations and currencies of our re/insurance liabilities, to meet future claims and benefits. As a result, we have an overweight of higher-quality fixed income investments with stable longterm returns. At the end of 2014, such investments accounted for 72% of our total assets under management1.
Swiss Re is committed to investing its assets responsibly through a controlled and structured investment process, which integrates environmental, social and governance (ESG) criteria. We believe that considering these factors 1 Asset classes considered consist of government bonds (incl. agency), corporate bonds, securitised products, and mortgages and other loans.
For each of these levels, the concept specifies a set of “resilience lenses”, which companies can employ to assess their current resilience against potential turbulences and identify appropriate adaptation measures.
We also remain engaged on long-term investment themes, and particularly on infrastructure as an asset class: Re/insurance companies are well suited to bridging the emerging infrastructure financing gap due to the long-term nature of their underlying business; however, the right pre-conditions have to be set. Swiss Re recognises this and contributes to ongoing policy dialogue on a global level. For instance, we recently issued a joint publication with the Institute of International Finance (IIF), “Infrastructure Investing. It matters.” (see page 43) and support the World Bank’s recently established Global Infrastructure Facility as an advisor (see page 39).
5% Cash and cash equivalents 11 % Short-term investments 39 % Government bonds incl. agency 26 % Corporate bonds 5% Securitised products 6% Equities*
Investment mix as of 31 December 2014 (Total: USD 125.4 bn; assets for own account only, excluding unit-linked and with-profit)
In 2007 we signed the UN Principles for Responsible Investment (PRI) and in 2012 the Principles for Sustainable Insurance (PSI), thereby formally endorsing our commitment to corporate responsibility. The PRI and PSI are taken into account in Swiss Re’s comprehensive responsible investment framework.
At the core of our approach to tackling ESG related risks in investments is the Sustainability Risk Framework (see pages 22–27). This framework enables us to identify and analyse potential ESG risks within an investment and to ensure we are aligned with our governance structure.
Specific approaches per asset class In addition to the overarching approach described above, we have identified some key investment areas where we apply further, specific ESG criteria to cater for the different risk characteristics of responsible investment. These key investment areas include rates products, credit products, equities and real estate:
Credit products, equities and hedge funds At the end of 2014, close to 40% of our investment portfolio was externally managed. This portfolio is mainly comprised of credit products, equities and hedge funds.
For these real estate investments we apply ambitious sustainability standards. For projects in Switzerland, the applicable criteria are defined in the Energy Mission Statement of Swiss Re. This stipulates that all new buildings need to conform to the MINERGIE® standard (www.minergie.ch), a Swiss quality label specifying high levels of energy efficiency and superior user comfort. When an existing building in the portfolio is due for renovation, this standard is applied whenever it is feasible from an architectural, technical and financial point of view.
In 2014, construction of a new property, built to the MINERGIE-ECO® standard, was completed: In addition to environmental specifications, this residential complex with 40 flats also meets health criteria and demands on building materials. Furthermore, construction of a new building with 16 flats which will meet the MINERGIE® standard is currently underway; it is expected to be completed in 2016.
Rates products Rates products2 constitute the largest asset class in our investment portfolio, with a share of 55% at the end of 2014. With 39% of total assets under management, government bonds (incl. agency) are the largest holding within rates products.
We believe that ESG considerations, and especially good corporate governance and transparency towards shareholders, are key drivers for sustainable value creation. Therefore, we actively exercise our rights to enhance portfolio value.
Due to our large- and mid-cap company focus and the moderate total size of our equity exposure, we generally hold a very small portion of total issued share capital. This means Swiss Re rarely controls the outcome of a vote.
With Group Issue Management (GIM), we have a formal process to identify topics that are strategically important to us, our clients and society at large. These Top Topics denote the global challenges we want to help address and set an important focus for our stakeholder dialogue.
In 2014, we again worked on these Top Topics with many partners from the public and private sectors. In the following sections we provide a brief introduction to each topic, explain why we consider it to be important and give examples of our activities:
Advancing sustainable energy solutions Sustainable energy sources are essential to combat global warming. Reducing greenhouse gas emissions while, at the same time, satisfying the energy needs of a growing population, will be one of the great challenges we face in the coming decades. Sustainable energy projects continue to increase in scale and complexity, as do the risks associated with them.
Innovative risk transfer solutions help to drive investment in the sector by reducing risk for investors. Building on our long-standing commitment to sustainability, we have recently intensified our renewable energy research to help our clients and the global community to develop and establish secure energy supplies for the future.
Council, we launched the three-year research project “Financing resilient energy infrastructure” (FREI) to identify and characterise the nature, frequency and severity of emerging risks in renewable energy installations. Its results will help to make energy infrastructure more reliable and thus encourage investment in the sector; ̤ As a founding member, we launched the RE100 initiative with several partner companies, setting ourselves the goal of obtaining 100% of our energy from renewable sources. By increasing demand, this initiative will make it more viable for power companies to build renewable energy plants (for more details, see page 46); ̤ We extended Swiss Re Corporate Solutions’ partnership with Solar Impulse on the world’s first round-theworld flight with a solar-powered airplane, underscoring our commitment to supporting cuttingedge innovations in the field of sustainability.
Our notable achievements in 2014: ̤ We continued our involvement in
Asia Health Symposia, which is an information-sharing platform to gather a cross-section of key stakeholders. Spin-off task-force groups maintained dialogue on key health issues identified; ̤ Our senior management were engaged as keynote speakers at various US and Canadian industry conferences on “funding longer lives”; ̤ We contributed several articles and interviews on “funding longer lives” topics to different media.
Although insured losses from natural catastrophes were lower in 2014 than in recent years, the number of events was among the highest ever recorded. The expectation is that, as a result of climate change, extreme weather events like hurricanes and floods will increase. Moreover, the economic losses from such events are also expected to rise given a higher concentration of assets in exposed areas. If no action is taken, climate change could cost the world economy an estimated 20% of global GDP by the end of this century.
As a result of increased insurance penetration, losses from natural catastrophes are expected to rise. Understanding natural catastrophe risks and the impact of climate change is critical to cost Swiss Re’s business accurately and to structure sound alternative risk transfer solutions. By sharing this knowledge, we help our partners to identify cost-effective measures to protect themselves. In addition, we provide solutions to cover the residual risk that cannot be avoided.
By taking the right precautionary measures, cities can increase their resilience to natural disasters: A papercraft video we produced in 2014 shows how. You can watch the video at swissre.com/urban_resilience.
The surplus subsistence farmers currently produce will not be enough to feed the growing population in our cities. Smallholder farmers must make the transition to commercial agriculture to feed the world. For this, they need access to credit so they can buy tools, seeds and fertilizer. But lending will remain restricted if banks fear that farmers will be unable to pay back their loans in the event of a lost harvest due to drought, flood or other disasters. Here, insurance can play the same role in the developing world as it already does in developed countries: protecting farmers against the perils of nature to keep them in business, even if disaster strikes.
However, regulatory reforms, the macroeconomic environment and assetliability matching are three areas that currently impact re/insurers’ balance sheets and their ability to promote financial stability. Taken together, these three pillars form the basis of our Top Topic “supporting financial stability”.
Financial stability emerged as a key topic in re/insurance after the 2008/2009 financial crisis, which revealed flaws in the supervisory system. New regimes were introduced to address the root causes of the crisis. Today, insurers face a new dimension of macro regulation and new institutions unfamiliar with our sector. This is particularly relevant now, given the ongoing debate on systemic risk in re/insurance and the impact of regulatory reform on investments. That is why we expanded the financial stability topic in 2014 to include infrastructure investment reform and developing business from Solvency II.
Our notable achievements in 2014: ̤ We cooperated with the Institute of
According to the OECD, less than 1% of the USD 80 trillion or so managed by institutional investors (eg re/insurance companies and sovereign wealth funds) is earmarked for infrastructure investment. However, emerging markets and developing economies, especially, are facing a massive gap in infrastructure investment: it is estimated that an additional USD 1 trillion to USD 1.5 trillion will be required to meet demand until 2020 alone.
Besides organising dialogue events, the Centre is responsible for executive client training and engages in research projects with third parties, principally from academia. These projects provide us with fresh perspectives on topics of pressing concern to the re/insurance industry. The Centre also manages some of Swiss Re’s key external networks.
Below you can read summaries of three events we held at the Centre in 2014: Connecting generations: Funding longer lives When we celebrated our 150 Year Anniversary in 2013, the Centre for Global Dialogue launched a series of events under the motto of “Connecting generations”. This series continued in early 2014, first focusing on our Top Topic of “funding longer lives”. A mixed group of entrepreneurs, industry experts, government representatives and researchers met to discuss the roles of different generations in tackling the financial challenges posed by our ageing societies.
Although the numbers vary from one year to the next, there has been a clear trend: Natural catastrophes are now responsible for more human casualties and higher financial losses than ever before, particularly in densely populated and unprotected locations. In the face of this mounting challenge, the re/ insurance industry is looking for ways to better manage natural catastrophe risks.
Re/insurers have developed some very sophisticated models to handle natural catastrophe risks. However, a key theme of the conference discussions was how important it is to make societies and governments more aware of the risks they face, and to make the existing risk expertise available to a wider public. A second focal point was the impact that climate change is having on the frequency and severity of extreme weather events. Conference participants came to the conclusion that tackling these growing challenges requires better cooperation between all the parties involved.
The discussion revealed two ways of trying to address the looming pensions’ crisis. The first is financial: Individuals should be encouraged to save more, while private and employers’ pensions must be further developed. Insurance schemes covering care costs could also help, but need time to develop. The second is to challenge our current worklife patterns. It is neither financially feasible nor economically optimal that most workers retire in their early 60s. We all need to be much more flexible in rethinking our working lives and retirement, so individuals can choose a lifestyle that suits their personal and financial circumstances.
It was also argued, however, that we may not just have to rethink pensions and retirement, but the concept of ageing altogether. New technologies are already being developed that have the potential to fundamentally change the way we age. They include, for example, augmentation of existing organs, bionic implants, personalised medicine and diagnostics such as biometric sensors. When such “next society” technologies begin to influence both our longevity and our investment decisions, this will raise profound moral, social and political questions for our societies.
Until recently, cars have evolved incrementally in appearance and capability, and the fundamental model of the driven car has changed very little. The new technologies that are already on the market are designed to assist drivers but, in future, they may actually take over from them, making cars autonomous. Almost all major car manufacturers are working on such prototypes, so this is not the stuff of science fiction.
The speed with which autonomous cars will spread depends on a number of factors, such as consumer preferences, legal environments and data security. But questions surrounding insurance and insurability will also play a crucial role; what is certain is that the car insurance market will change and that insurers will need to be flexible in their product offerings. We will continue to work with our clients and partners to keep abreast of the challenges and opportunities created by the arrival of the autonomous car.
Management project at the Swiss Federal Institute of Technology (ETH) Zurich, which aims to advance a holistic approach to managing risks and educate a new generation of researchers; ̤ As a member of the steering committee of Swiss-based ProClim – the Forum for Climate and Global Change – we support integrated research activities and get access to the latest scientific findings; ̤ Through our co-chairmanship of the PSI Board, we cooperate with Temple University on the role of insurance in improving society’s risk resilience.
The publications and other media we produce in-house or in cooperation with our partners play an important role in our efforts to help clients and society form effective responses to key risks. Listed below are the publications mentioned in this chapter on pages 36–41. Further Swiss Re publications are displayed on pages 68–69.
A publication highlighting the importance of long-term investing and proposing specific initiatives to strengthen the role of institutional investors and facilitate infrastructure investing
Floods, cyclones, droughts and hail – these are the main threats to the core of Mozambique s economy: agriculture. Employing 80% of the workforce and generating 29% of country GDP, working the land is the pillar that supports large parts of business in the country.
Mozambique ranks third among African nations most threatened by weather hazards, making it heavily exposed to major humanitarian crises. Most of the perils present in the country are insurable today – for smallhold farmers as well as for professional operations. Still insurance penetration is low, ex posing farmers and the population at large to the effects of large natural disasters which can overburden society.
We operate an integrated global management system (GMS) at our Corporate Real Estate & Logistics division, which interlinks quality and environmental management and ensures that similar processes are seamlessly managed. Through a Group-wide systematic reporting process, we monitor our environmental performance and implement appropriate improvement measures.
Total reduction in CO2 emissions per employee between 2003 and 2013
Technical gases 283 27 –3.6 1 The 2013 figure for power has been restated due to an update of the emission factors used for renewable energy. 2 The 2013 figure for business travel has been corrected to account for two calculation adjustments: a) use of updated emission factors, based on recent scientific evidence regarding the radiative forcing of C02 (DEFRA 2014); b) incompletely reported business flights due to a technical issue.
Goals and scope of the programme’s second phase Seamlessly continuing from the Greenhouse Neutral Programme’s first ten years, we launched a second commitment phase running from 2013 until 2020. However, we should bear in mind that, after halving our CO2 emissions per employee in the previous ten years, the potential for further reductions is now much smaller. Our new target is to keep our CO2 emissions per employee stable at the level of 2013; we consider this to be an ambitious goal in view of our expansive business strategy, especially in high growth markets.
Officially launched at the sixth Climate Week NYC (www.climateweeknyc.org) in September 2014, RE100 aims to unite 100 of the world’s largest companies in a shared commitment to use 100% renewable power by 2020. The group approaches policy makers and regulators at national and sub-national level to make renewable energy more available, focusing on countries such as China, India, Brazil and South Africa over the next three years.
Using renewable power Purchasing power from renewable rather than conventional sources has been a key measure of our Greenhouse Neutral Programme. After starting to use renewable power at four European locations in 2005, we set ourselves the goal of using 100% renewable power at all locations where it is available in reliable and trustworthy quality by the end of 2013. Based on our quality assessments of available energy sources, we believe we reached this goal and used 100% renewable power at 25 locations in Asia, Europe, North America and Oceania at the end of 2013.
Reducing energy consumption In parallel with our switch to using renewable power, we have made continuous efforts to lower the actual amount of energy consumed per employee, ie to reduce our energy intensity. For this, we also established a Group-wide goal: Measured in kWh per employee (FTE), we committed to reducing energy intensity by 20% compared with 2003 levels. Through many small measures to improve energy efficiency and by concentrating backoffice tasks in fewer and more energyefficient buildings, we met and clearly exceeded this goal. At the end of 2013, energy intensity across the Group was 46.5% lower than in 2003.
Minimising business travel Because of the substantial cuts we have achieved in CO2 emissions from power consumption and heating since 2003, business travel today constitutes Swiss Re’s largest emissions source by far. While business travel is ultimately driven by client needs and is thus difficult to influence, we have taken several measures to curb unnecessary business trips. Travel budgets are continuously monitored and travel data are collected centrally.
We have also built up a dense network of video conferencing equipment across the Group. Recently, we have partly replaced these facilities with state-ofthe -art telepresence technology, which creates a real-time, life-size virtual meeting experience in specially designed rooms. By the end of 2014, we had 80 video conferencing rooms and 64 telepresence facilities worldwide.
Despite these measures, the amount of kilometres travelled per employee and the associated emissions have been rising in recent years. The general recovery in the business environment after the financial crisis and the realignment of our corporate structure by creating a holding company with three distinct Business Units have been important factors; recently, however, the increase in business travel has been strongly driven by our ongoing expansion in high growth markets.
Our recent financial results show that our new Group structure and our strategic focus on high growth markets have benefited our clients and shareholders. In essence, we thus face a dilemma between two objectives: necessary adaptation to create economic value in a changing world, and reducing environmental impacts.
We remain committed to curbing unnecessary business travel and in 2014 introduced an innovative mechanism that creates an incentive to minimise air travel, which accounts for the bulk of business travel (see box to the right).
Internal carbon levy on air travel Offsetting those CO2 emissions we cannot avoid has been a key element of our Greenhouse Neutral Programme. In the past, all the costs of purchasing the necessary Voluntary Emissions Reductions have been borne centrally by Group Finance. In 2014, we introduced an internal carbon levy on air travel, which works according to the “polluter pays” principle.
In 2014, we achieved another substantial decrease in paper use per employee, mainly through the My Productivity Initiative: Using a gamification approach, we encouraged our employees to compete as teams against each other to see who could achieve the biggest cut in paper consumption. As a result, the total amount of printouts in the Group fell by 27%, leading to a decrease in paper consumption of 22.5% and cost savings of approximately USD 350 000.
In 2014, we calculated our CO2 emissions according to our new, extended setup for the first time (see table on page 45). To offset these emissions, we bought and retired VERs for 69 800 tonnes of CO2e. This amount includes an additional voluntary commitment to offset the CO₂ emissions caused by events held at our Centre for Global Dialogue in Rüschlikon near Zurich.
Firewood and biomass fuels put immense pressure on natural resources in Kenya (and East African countries in general). In the last 15 years alone, the region has lost over 10% of its forest cover. The project funds high-quality and efficient cooking stoves that can cut demand for firewood by 50%. These stoves are offered to poor families at reduced prices. Not only does this slow down deforestation, it also improves indoor air quality and means women and children need to spend far less time collecting wood. By the end of 2014, more than 128 000 stoves were distributed.
In rural Kenya, over 65% of all people lack access to clean drinking water, which exposes them to diarrhoea, cholera and other water-borne diseases. To improve water treatment, chlorine dispensers are being installed at communal water points such as springs and boreholes. This further reduces the demand for firewood, because families no longer have to sterilise water by boiling it. By the end of 2014, more than 80 000 chlorine dispensers were distributed.
In total, the lower rates of deforestation achieved by the project’s two measures prevent around 20 000 tonnes of CO2 from being released into the atmosphere per year. The revenues generated by these emissions reductions have made it possible to secure investment for subsidising the manufacture and sale of the stoves and chlorine dispensers.
When procuring these goods and services, we apply general and individual criteria. In line with our overarching Group Sourcing Policy, we select suppliers that offer the best value for money, meet high quality standards and adhere to the UN Global Compact. As a signatory to the Compact, we are committed to honouring all its ten principles; amongst other things, these prohibit any sort of discrimination or the use of child or forced labour, and require that the freedom of association and the right to collective bargaining be upheld.
When selecting new suppliers, we examine whether they comply with these requirements as part of the overall evaluation process. We take a fresh look at existing strategic suppliers in our periodical contract reviews, and we visit individual suppliers to inspect them onsite. Internally, we hold regular awareness trainings with all our sourcing staff.
In 2014, we screened our critical, important and material (CIM) suppliers using a risk-based approach: It included country and industry specific sustainability criteria established through our Sustainability Risk Framework (see pages 22–26) as well as specific country risk ratings (see page 33). The assessment did not reveal any significant sustainability or reputational risks among our CIM suppliers.
For construction projects in Switzerland, the applicable criteria are defined in detail in the Energy Mission Statement of Swiss Re, Zurich: They stipulate that new buildings need to conform to the MINERGIE® standard (www.minergie.ch), a Swiss quality label specifying high levels of energy efficiency and superior user comfort. When we renovate old buildings, this standard is to be applied if feasible from an architectural, technical and financial perspective. Our pension fund in Switzerland applies the same criteria for all its direct investments into real estate projects.
This trench wall is still in superb condition today. Therefore, the most desirable and sustainable solution was to keep it and reuse it as the excavation enclosure for Swiss Re Next. As long as the previous building was in place, the trench wall was supported by the basement floors against the horizontal forces of earth and water pressure outside. But as the building was gradually demolished down to the basement floors, a different support structure was required for the wall. For this purpose, a “strut platform” consisting of 988 tonnes of steel was constructed and pre-stressed by hydraulic pressure.
The presence of this strut platform has made it possible to demolish all the basement floors, right down to the old floor slab. It will be dismantled when the ceiling above the second basement floor is completed.
The investment options eligible for subsidies are clearly specified in the programme. Some of them are supported at all our locations, while others vary to account for regional differences in climate, living conditions etc. Our subsidies cover 50% of the investment amount up to a locally determined maximum allowance. The programme is open to all regular employees who have successfully completed their probation period and have been with Swiss Re for a minimum period of time (currently three months).
In the US there was a spike in subsidies for home energy audits and installations of windows and doors following the cold spell between December 2013 and April 2014. Home appliances and more expensive home infrastructure subsidies were both popular subsidy categories across the Americas region.
Since becoming operational in 2009, the Swiss Climate Foundation has supported more than 900 SMEs in Switzerland and Liechtenstein with CHF 12 million in total. In 2014, 470 SMEs were supported with a total of CHF 2 million. These projects are expected to help avoid about 65 000 tonnes of CO₂ emissions over the next ten years.
Being an employer of choice Our goal is to attract talented people from a broad range of disciplines and backgrounds. We offer them a culture of diversity and inclusion, excellent development opportunities, a supportive environment and attractive total rewards.
We consider four areas as key to being an employer of choice: we foster diversity and inclusion; we provide excellent development and training opportunities; we work to maintain favourable employee relations; and we offer competitive compensation and benefits.
We continually seek to further develop our employees: By focusing both on what was achieved and how it was achieved, we encourage them to build strong relationships within our company.
Swiss Re is a global company with a presence in all major markets. As of 31 December 2014, we employed 12 224 people (regular staff) from 89 nationalities. Currently, 61% of our employees work in Europe (including the Middle East and Africa), 27% in the Americas and 12% in the Asia-Pacific region.
Asia Insurance Industry Award At the 2014 Asia Insurance Industry Awards, we won three of the coveted awards conferred by the Asia Insurance Review. One of them was its first-ever Employer of the Year award. We were honoured for our various development and training initiatives, such as the High Growth Development Programme and the graduates@swissre programme and also received praise for our Own the Way You WorkTM: Living Team Spirit initiative, which gives our employees more autonomy to organise their work. We see the award as confirmation that we are moving in the right direction in attracting and developing the talented people that will help us and our clients to achieve our objectives.
To foster diversity and inclusion across the whole organisation, we have set up a comprehensive strategic framework. Backed by the Group CEO and the Group Executive Committee, our diversity & inclusion agenda is driven by a network of 35 D&I Champions, who are senior managers from a wide range of business units, in addition to multiple geographically-based D&I Councils and 25 inclusive employee networks at grassroots level worldwide.
The second pillar Smashing Stereotypes, Opening Minds tackles stereotyping of people based on all dimensions of diversity. It centres on raising awareness of the “unconscious bias” that every one of us has and which can unintentionally influence our decision-making and our behaviour towards others.
As part of our efforts to promote gender balance, we recently started the assessment process for a leading certification standard in gender equality, beginning with our Switzerland-based operations. In the UK, we have launched a similar process to achieve equality and foster inclusion of our LGBT employees. These assessments are just two of the many initiatives currently underway to improve the inclusiveness of our workplace.
In line with Swiss Re’s policy of fostering diversity, we have strong provisions in place to penalise any infringing behaviour. Our Group Code of Conduct clearly states that discrimination in the workplace against any employee or job applicant based on the person’s age, (dis)ability, origin, gender, religion or sexual orientation (or any other characteristic protected by local law) is not tolerated under any circumstances. We encourage our employees to report violations of the Group Code of Conduct, laws, rules or regulations, explicitly stating that reporting in good faith is treated with discretion and that retaliation will not be tolerated.
Developing our people at every level and in all functions remains a strong focus for Swiss Re. By offering our employees first-class development and training opportunities, we create significant mutual benefits: Highly skilled employees help Swiss Re retain a competitive edge in ever-changing market conditions. In return, as a global market leader, we can offer our employees exciting and fulfilling career prospects.
Swiss Re Academy has developed extensive professional and personal development curricula to respond to changing business needs. Currently, we offer more than 730 different training courses. Our employees and line managers attend training in areas as diverse as underwriting, finance, sales and negotiation, leadership, diversity and inclusion, interpersonal skills, project management, office tools and language skills. Certain courses, such as compliance training, are mandatory. Employees who work directly with our clients are recommended to invest at least two days per year in formal sales training.
Total learning hours recorded in 2012 were noticeably higher due to increased activity in compliance risk training. As a general trend over the past three years, we have observed that employees tend to prefer to learn online, thus spending fewer hours in the classroom and contributing to a decrease in average learning costs.
Our value proposition for clients and other stakeholders Swiss Re Academy also provides industry-leading insurance and finance training to clients, regulators, government officials and members of non-governmental organisations. These courses are tailored to different global markets and client needs. In 2014, the Academy trained 939 representatives from clients and other stakeholders onsite in classroom sessions. The feedback on our external client training courses continued to be very positive. Also in 2014, Swiss Re Academy launched an eLearning portal for clients based in South Africa and the Americas, increasing their access to cost effective training opportunities.
In 2013, we began offering executive development programmes and selective master classes that focus on leadership. They aim to create a common understanding of how to drive Swiss Re forward and how to develop leaders consistently across the entire Group.
Over a period of 18 months, the graduates receive on-the-job training in their respective functions. They also attend a number of classroom-based training sessions which are specifically designed for the programme and focus on Swiss Re’s core business areas. At the end of 2014, there were about 320 employees who had either completed the programme since its launch in 2007 or were participating in it. They are employed across many different functions and regions.
In line with our Leadership and Personal Imperatives, we have developed a growth survey tool involving a 360° process. This survey is designed to provide feedback on the effectiveness of leaders and experts as well as to identify areas of further development. In 2014, 150 leaders conducted the survey during the enrolment process for our internal leadership programmes.
High Growth Development Programme Our High Growth Development Programmes (HGDP) is a specialised development programme for promising and talented employees from high growth markets or working for high growth markets. It is designed to prepare these leaders for the specific challenges and opportunities of high growth markets.
Sponsored by senior executives, the participants work in small groups on real business challenges and are tasked with delivering innovative solutions to global business leaders.
An HGDP runs over the course of 12 months and includes three face-toface modules at high growth locations. Currently, we offer the programme for Latin America and Asia.
As part of the Parents@Swiss Re initiative, which was launched in 2012 to provide important information on pregnancy and parenthood, we created a brochure and an online support page for employees in Munich and Bratislava. Both our Bangalore and Bratislava locations organised local childcare events to support employees with children. Munich held a two-week summer vacation programme and organised childcare support for various public holidays in November to assist working parents.
Employee engagement surveys We aspire to communicate openly and transparently with our employees. An integral part of this is having a constructive dialogue across the whole Group on how we want to develop our corporate culture and live our corporate strategy. One way we do this is through our employee engagement survey, which asks employees for their views on over 70 questions. The most recent surveys were taken in 2011 and 2013, with the next one planned for 2015. We have redesigned our engagement survey to better identify barriers to performance and to measure progress on our Human Capital Strategy 2015–2020. From 2015 onwards we plan to run the survey annually.
In the UK, Swiss Re has an Employee Liaison Group (ELG), consisting of representatives from across all functions, who are elected by employees for a twoyear term. The ELG provides a forum for employee representatives and managers to discuss company policy and practices which affect all employees. It is legally recognised as the collective consultation body for redundancy purposes. When a business unit is likely to be affected by proposed collective redundancies, the respective employee representatives are consulted.
Our smaller branches in Europe (eg France, Italy, Luxembourg, Denmark) also have Works Councils or Staff Delegates, depending on the size of the branch and local regulations.
The network also includes our retirees. This important group of stakeholders continues to take great interest in the company. Through extended access rights we enable them to read news items and utilise resources that are normally available to employees only.
Swiss Re uses additional incentive programmes which reflect the longerterm nature of our business: Both the Value Alignment Incentive Plan (VAI), which is the deferred part of the API, and the Leadership Performance Plan (LPP) aim to reward sustained performance and long-term company success, rather than short-term results. This helps to align shareholder and employee interests more closely. The VAI applies for employees who have an API in excess of a defined threshold, and the LPP is awarded to our senior executives and select key employees.
We also encourage our employees to own Swiss Re shares by providing the Global Share Participation Plan (GSPP) and the Incentive Share Plan (for all employees who receive an API – such employee can elect to receive his or her API in form of shares at a discount under the Incentive Share Plan).
business strategy and purpose. The what is assessed based on challenging targets and goals. For measuring the how, we use our Leadership and Personal Imperatives to ensure that all of our employees are behavioural role models for the next generation, creating an environment that inspires and engages others. Our imperatives put our values and brand promise into action and are critical to our performance and future success.
The overall performance assessment is then aligned to variable reward outcomes to reflect achievement and contribution, and to reinforce a pay-forperformance linkage.
Dialogue and feedback are important aspects of our performance management cycle. In 2014, close to 100% of the Group’s employees completed year-end performance reviews.
Further information on Swiss Re’s approach to compensation and benefits can be found in our 2014 Financial Report (pages 122–144).
At Swiss Re, we strive for a high performance culture in which our individual and team goals and behaviours – what we do and how we do it – are aligned to the Group’s
Ensuring good governance Swiss Re’s corporate governance aims at safeguarding the sustainable interests of the company.
In our Corporate Responsibility Report, we highlight key elements of Swiss Re’s corporate governance concerning the structure and independence of the Board of Directors, shareholder rights and the Group Code of Conduct. Comprehensive information following the structure of the SIX Directive is available in the 2014 Financial Report, pages 72–107.
Swiss Re’s Group Bylaws stipulate that the Board of Directors consists of at least a majority of independent members. To be considered independent, a director may not be employed as an executive officer of the Group, or have been employed in such a function for the previous three years. Moreover, he or she must not have a material relationship with any part of the Group, directly or as a partner, director or shareholder of an organisation that has a material relationship with the Group. Furthermore, in line with the Group’s independent criteria, a full-time
The Board has delegated certain responsibilities, including the preparation and execution of its resolutions, to five committees: the Chairman’s and Governance Committee, the Audit Committee, the Compensation Committee, the Finance and Risk Committee, and the Investment Committee.
All members of the Audit Committee are non-executive and independent. In addition to the independence criteria applicable to Board members in general, additional independence criteria apply for members of the Audit Committee.
Shares All shares issued by Swiss Re Ltd are fully paid-in registered shares, each with a par value of CHF 0.10. Each share carries one vote. There are no categories of shares with a higher or limited voting power, privileged dividend entitlement or any other preferential rights, nor are there any other securities representing a part of the company’s share capital. The company cannot exercise the voting rights of treasury shares.
Voting right restrictions, statutory group clauses and exception rules There are no voting right restrictions and no statutory group clauses. Therefore, there are no procedures or conditions for cancelling restrictions and no rules on making exceptions to them. Accordingly, no such exceptions were made in 2014.
Statutory rules on participating in the General Meeting of shareholders The share whose owner, usufructuary or nominee is entered in the share register as having voting rights on a specific qualifying day determined by the Board of Directors entitles its holder to one vote at the General Meeting of shareholders.
Bribery and corruption The Code’s section on moral behaviour contains, among other things, our position on bribery and corruption. This clearly states that “Swiss Re pursues a ‘zero tolerance’ policy with respect to bribery and corruption” and that “bribing governmental agents, regulators or other officials is a crime”.
Employee training on the Group Code of Conduct All new permanent and temporary employees joining Swiss Re must undergo mandatory training on the Group Code of Conduct. Completion of the training is tracked and instances of non-completion are escalated until resolution.
Disaster risk reduction We support development efforts aimed at preventing and preparing for the adverse impacts of natural disasters and the suffering they cause.
Capacity building We help to develop human skills and improve the social environment, so people can improve their living conditions and their resilience.
Research and innovation Continuous research and innovation allow us to develop new approaches to risk management that can work in areas often thought uninsurable.
Social entrepreneurship We support social entrepreneurs whose ideas and connections can provide innovative solutions to address critical social and environmental issues.
Who we support Social entrepreneurs, NGOs and academic institutions that help communities address critical issues
Swiss Re Dots Imagery Title: World map Category: Symbolic images 66 Swiss Re 2014 Corporate Responsibility Report
For 151 years, we have provided our clients with effective financial protection against the risks they face. Traditionally, our most important client groups are insurers and large corporations. We offer them a large range of products covering many different types of losses.
Identifying risks with a protection gap In many parts of the world, re/insurance protection against key risks remains limited. For example, natural catastrophes such as windstorms, earthquakes and floods tend to have huge social and financial impacts. Yet, the global gap between total and insured natural catastrophe losses is still massive (see illustration below).
Agriculture is another case in point, especially in emerging and developing countries. All too often, farmers there face the devastating effects of adverse weather without insurance protection. What is more, both natural catastrophe and agricultural risks are expected to increase and become more unpredictable as a result of climate change.
Working with different clients and partners To provide effective re/insurance protection for such risks, we need to cooperate with a wider range of partners, ranging from governments, supranational organisations, private companies and NGOs to “aggregators” such as financial institutions or service providers. We actively seek to build such client and partner relationships, depending on the specific risk to be addressed. To offer tailor-made solutions and expertise to public sector clients, for example, we established our Global Partnerships function several years ago.
Parametric and index insurance products are suitable for these purposes, because they enable automatic payouts and have low administrative costs. As they are considered acceptable collateral by banks and input providers, they help secure and raise incomes. Swiss Re is an acknowledged leader in the development, structuring and pricing of such products.
In developed countries with a functioning insurance market, there is no need for the government to actively absorb natural catastrophe risks. In countries where the insurance market is not yet sufficiently developed, however, the government may need to assume a more active role as an enabler of risk transfer. In addition, governments themselves may choose to buy private insurance coverage in order to prefinance public disaster expenses.
Microinsurance Although the concept of microinsurance is gaining in popularity across the globe, there is no commonly accepted definition. The term typically refers to insurance products designed for lowincome individuals. The word “micro” represents the relatively small transaction size or lower premiums, a concept similar to microfinance with small ticket loans. Microinsurance differs from traditional insurance in many ways, such as the size of premiums, coverage limits, product features, distribution, policy administration and target customers.
Parametric insurance Parametric insurance uses measured or modelled parametric data to determine payouts. The payout model aims to closely mirror the actual damage on the ground and is usually based on the physical parameters of a catastrophic event or an index of such parameters, eg wind speed, geographic location of a hurricane or earthquake magnitude. Parametric insurance enables a more rapid payment than indemnity insurance because it requires no loss adjustments to assess the actual damage after an event.
Area-yield index products The payout is made at any time the realised average yield (eg over a valley, a country or a defined geographic unit) falls below some threshold yield, regardless of the realised yield on the insured farm.
Sources: – Closing the financial gap – New partnerships between the public and private sectors to finance disaster risks (2011) – The fundamentals of insurance-linked securities (2011) – Sub-Saharan Africa – breadbasket for a growing population (2014)
A mature market: Building a capital market for longevity risk A capital market for longevity risk could help address the challenges of funding longer lives. Such a market would form part of an overall solution involving the cooperation and innovation of the public and private sectors to ensure that we continue benefiting from our ageing societies.
Building a sustainable energy future: risks and opportunities Mind the risk
“We must build a stronger, more resilient city – and this plan puts us on a path to do just that.”
Hurricane Sandy was the most costly natural disaster to ever hit New York City. Fortythree New Yorkers lost their lives and many more lost homes or businesses. Economic losses for the city were $19billion but rising sea levels mean a similar storm in the future could cause far greater losses.
Climate adaptation is an urgent priority for the custodians of national and local economies, such as finance ministers and mayors. Such decision-makers ask: What is the potential climate-related loss to our economies and societies over the coming decades? How much of that loss can we avert, with what measures? What investment will be required to fund those measures – and will the benefits of that investment outweigh the costs?
The hidden risks of climate change: An increase in property damage from soil subsidence in Europe Property damage from drought-induced soil subsidence has risen dramatically across Europe. Climate change will further magnify the risks.
Economics of Climate Adaptation (ECA) fact sheets The Economics of Climate Adaptation (ECA) methodology provides decision-makers with a fact base to identify the most cost-effective investments to make their communities more resilient to the impact of climate change. These fact sheets summarise the findings of ECA studies we have completed.
Flood – an underestimated risk: Inspect, inform, insure Floods affect more people worldwide than any other type of natural disaster. But the risk from flooding is often under- estimated. In many countries, flood insurance is not widely available or affordable.
sigma: the series For more than three decades, the sigma series has been a trusted source of market information for managers and specialists in direct insurance companies worldwide. To ensure a truly global readership, sigma appears in six languages: English, German, French, Spanish, Japanese and Chinese.
Floods in Switzerland – an underestimated risk Floods are the most important natural peril in Switzerland. And Swiss Re’s new probabilistic model makes one thing clear: It would not take much for the magnitude of flood damage to exceed that of the August 2005 flood event.
Natural catastrophes and man-made disasters in 2014: convective and winter storms generate most losses 1 Executive summary global overview 7 Regional overview storms: a growing global risk 21 Tables for reporting year 2014 43 Terms and selection criteria
We have been engaged to perform assurance procedures to provide limited assurance on the consolidated CO2 emissions reporting and CR topics and sections disclosed with the 2014 Swiss Re Corporate Responsibility Report (“CR Report”).
Performance Indicators for the Financial Industry” published by the Verein für Umweltmanagement in Banken, Sparkassen und Versicherungen e.V. (VfU) published in 1997 and 2011; ̤ “The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition)” published in 2001 by the World Resources Institute and the World Business Council for Sustainable Development; ̤ The framework document “Environmental Performance Indicators Reporting at Swiss Re”, version 2014 including Annex; and
We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.
During 2014 we have not performed any tasks or services for Swiss Re that would conflict with our independence, nor have we been responsible for the preparation of any part of the CR data reporting; and therefore qualify as independent as defined by Code of Ethics and applicable legal and regulatory requirements.
Swiss Re CR reporting guidelines Assessing whether the methodology applied by Swiss Re is in line with the reporting criteria; ̤ Interviews and management inquiry Evaluating the CR reporting and underlying performance indicators by performing analytical procedures and interviewing selected key contacts to assess whether the internal Environmental Performance Indicators Reporting guidelines and CR guidance were consistently applied by the selected locations; performing enquiries of personnel responsible for internal CR reporting and data collection at the Swiss Re corporate level to evaluate the reporting and aggregation process and to assess its appropriateness; ̤ Reconciliation of CO2 emissions data Reconciling the CO2 emissions data for energy consumption and business travel and CR data and information to the data used for the internal CR emissions reporting of the selected locations; ̤ Assessment of the key figures Performing tests on a sample basis of evidence supporting selected CR data and information (sensitive business risk process, management of emerging and political risks, responsible investment, HR data and information, diversity and inclusion, development & training, compensation & benefits, energy consumption, business travel, other environmental data, group sourcing, construction management) to assess their completeness, accuracy, adequacy and consistency; ̤ Review of the documentation Reviewing the relevant documentation on a sample basis, including Swiss Re’s CR-related policies, the management of reporting structures, the documentation and systems used to collect, analyse and aggregate reported CR data and information; ̤ Assessment of the processes and data consolidation Reviewing the appropriateness of the management and reporting processes for CR reporting; and assessing the processing and consolidation of data at Swiss Re’s Group level; and
Conclusion Based on our work described in this report: a) Nothing has come to our attention that causes us to believe that the Swiss Re internal CR reporting guidelines are not applied in all material respects, in accordance with the reporting criteria; b) Nothing has come to our attention that causes us to believe that the internal reporting processes to collect and aggregate CR data and information is not functioning as designed and does not provide an appropriate basis for the presentation of CR data and information, in all material respects; c) Nothing has come to our attention that causes us to believe that the CR data and information disclosed in the 2014 CR Report is not stated, in all material respects, in accordance with the reporting criteria; d) Nothing has come to our attention that causes us to believe that the CO2 emissions data and information disclosed in the 2014 CR Report is not stated, in all material respects, in accordance with the reporting criteria; and e) Nothing has come to our attention that causes us to believe that the retirement of 69 800 tonnes of CO2e has not been conducted, in all material aspects, in accordance with the internal requirements.
The Geneva Association The Geneva Association is a leading inter national insurance think tank for strategically important insurance and risk management issues. It identifies fundamental trends and strategic issues where insurance plays a substantial role or which influence the insurance sector. www.genevaassociation.org
The RE100 initiative The Climate Group is partnering with CDP to encourage the world’s most influential businesses to join RE100 and commit to going 100% renewable. The aim is for at least 100 companies to make a global 100% renewable commitment with a clear timeframe for reaching their goal. www.theRE100.org
UNEP Finance Initiative UNEP FI is a global partnership between UNEP and the financial sector. Over 190 institutions, including banks, insurers and fund managers, work with UNEP to understand the impacts of environmental and social considerations on financial performance. www.unepfi.org
ANZIIF Women’s Council Employer of the Year 2014 In recognition of our ongoing commitment to diversity and inclusion, we received this award at the 2014 Australian Insurance Industry Awards.
Selected index listings and ratings Dow Jones Sustainability Indices, Industry Leader 2015
As expressed in our Commitment to Corporate Responsibility, we seek to embed ESG issues in both our business solutions and risk management (see page 9).
Key actions taken in 2014: a) for business solutions, see achievements described on pages 14–21; b) for risk management, see achievements described on pages 22–30; c) for asset management, see achievements described on pages 31–34.
Key actions taken in 2014: a) for client and industry cooperation, see achievements described on pages 26–27; b) for general risk dialogue, see achievements described on pages 35–43; c) for sourcing guidelines, see achievements described on page 50.
Key actions taken in 2014: See stakeholder dialogue achievements on pages 35–43.
References to the UN Global Compact principles addressed as part of our Communication on Progress (COP) are incorporated into the GRI content index, in line with UN recommendations.
This content index refers to the Global Reporting Initiative (GRI) G3.1 Guidelines for Sustainability Reporting. The guidelines form a voluntary framework setting out principles and indicators that companies can use to measure and report their economic, environmental and social performance.
Strategy and analysis 1.1 Chairman’s and CEO’s statement Statement of continuing support 2–3 1.2 Key impacts, risks and opportunities 9–11, 13
Report parameters 3.1 Reporting period 12 3.2 Most recent previous report 12 3.3 Reporting cycle 12 3.4 Contact point 78 3.5 Content definition 12 3.6 Boundary of the report 12 3.7 Limitations on the report’s scope 12 3.8 Reporting on other entities 12 3.9 Data measurement techniques 45–46, 56–57, 70–72 3.12 GRI content index 75–77 3.13 External assurance 70–71
Governance, commitments and engagement 4.1 Governance structure 63–64, FR 74, 82–95 4.2 Independence of chairman 63 4.3 Independence of board members 63–64, FR 82–90 4.4 Shareholder and employee representation 64, FR 102–103 4.5 Executive compensation FR 120–144 4.6 Conflicts of interests 63–64, FR 74, 82–90 4.8 Mission statements and Code of Conduct 9, 64 4.9 Governance procedures on CR 12 4.11 Precautionary approach principle 7 8–11, 13, 22–34 4.12 Externally developed charters and principles 2, 26, 32, 72 4.13 Memberships 72–73 4.14 List of stakeholder groups 9, 35 4.15 Stakeholder identification 35 4.16 Approaches to stakeholder engagement 2–3, 9, 26–27, 35, 40
Product and service impact Disclosure on management approach: We provide comprehensive disclosure on our management approach to product and service impact in the two chapters “Creating solutions for sustainability” and “Extending our risk intelligence”.
FS1 Environmental and social policies in business lines 1, 2, 7–9 9, 14, 22 FS2 Screening of environmental and social risks 1, 2 and 8 22–26, 31–32 FS4 Environmental and social training for staff 1, 2 and 8 26 FS5 Interactions with clients/investees/business partners 1 and 2 14, 26–27 FS7 Products with specific social benefit 14–21, 66–67 FS8 Products with specific environmental benefit 7 and 8 14–21 FS11 Environmental and social screening in asset management 31–34
EN1 Materials used by weight or volume 8 45, 47–48 EN2 Recycled materials used 8 and 9 45, 48 EN4 Indirect energy consumption 8 45–47 EN5 Energy conservation and efficiency 8 and 9 46–47 EN6 Initiatives to use renewable energy 8 and 9 46 EN7 Initiatives to reduce indirect energy consumption 8 and 9 46–47, 51 EN8 Total water withdrawal 8 45 EN16 Greenhouse gas emissions 8 45–46 EN17 Indirect greenhouse gas emissions 8 45–46
LA1 Breakdown of workforce 54, 56 LA2 Employee turnover 6 54 LA4 Freedom of association and collective bargaining 3 50, 61 LA7 Number of lost days 60 LA8 Training on serious diseases 1 60 LA10 Training hours 6 57 LA12 Performance review 62 LA13 Workforce diversity 1 and 6 55–56
Society Disclosure on management approach: We address society aspects relevant to our business through our business solutions, Group Code of Conduct and stakeholder dialogue. The corresponding management approaches are disclosed in the chapters “Creating solutions for sustainability”, “Ensuring good governance” and “Exploring and shaping the risk landscape”, respectively.
Graphic design and production: Swiss Re Corporate Real Estate & Logistics/ Media Production, Zurich
Photographs: Istockphoto (Cover & back cover) Geri Krischker (page 3) Swiss Re (page 6) Stocktreck/Getty Images (page 11) Paul Chesley/Getty Images (page 16) Swiss Re (page 18) Antti-Pekka Lehtinen/Getty Images (page 20) Visage/Getty Images (page 23) Victor de Schwanberg/Getty Images (page 29) Swiss Re (page 37) Swiss Re (page 39) David Ausserhofer/Swiss Re (page 41) South Pole Carbon (page 49) Stefan Birrer/Swiss Re (page 50) Asia Insurance Review (page 55) Swiss Re (page 59)