Gross premiums earned by regions, 2015 (Total USD 3 862 million)
North America 8% Asia-Pacific 24% Europe (including Middle East and Africa)
Swiss Re Corporate Solutions Group Net income attributable to common shareholders 393 409 4
Combined ratio in % 89.9 90.9 Return on equity1 in % 15.6 17.3 1 Return on equity is calculated by dividing annualised net income attributable to common shareholder by average common shareholder’s equity.
Group financial statements 2 Income statement 2 Statement of comprehensive income 3 Balance sheet 4 Statement of shareholder’s equity 6 Statement of cash flow 7
Notes to the Group financial statements 8 Note 1 Organisation and summary of significant accounting policies 8 Note 2 Information on business segments 15 Note 3 Insurance information 18 Note 4 Unpaid claims and claim adjustment expenses 19 Note 5 Deferred acquisition costs (DAC) 21 Note 6 Investments 22 Note 7 Fair value disclosures 26 Note 8 Derivative financial instruments 32 Note 9 Acquisitions 34 Note 10 Debt 35 Note 11 Income taxes 36 Note 12 Related parties 39 Report of the statutory auditor 40
Income before income tax expense 587 560 Income tax expense 11 –195 –149 Net income before attribution of non-controlling interests 392 411
Income/loss attributable to non-controlling interests 1 –2 Net income attributable to common shareholder 393 409
Net income before attribution of non-controlling interests 392 411 Other comprehensive income, net of tax: Change in unrealised investment gains/losses 18 –144 Change in foreign currency translation –48 –68
Comprehensive income attributable to non-controlling interests 1 –2 Total comprehensive income attributable to common shareholder 363 197 2014 USD millions
Balance as of period end –28 –13 –41 1 Reclassification adjustment included in net income is presented in the ’’Net realised investment gains/losses’’ line. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity.
Investments 6,7,8 Fixed income securities, available-for-sale, at fair value (including 352 in 2014 and 1 056 in 2015 subject to securities lending and repurchase agreements) (amortised cost: 2014: 5 116; 2015: 5 945) 5 148 5 888 Equity securities, available-for-sale, at fair value (including 121 in 2014 and 166 in 2015 subject to securities lending and repurchase agreements) (cost: 2014: 586; 2015: 906) 732 935 Short-term investments, at fair value (including 1 088 in 2014 and 488 in 2015 subject to securities lending and repurchase agreements) 2 348 1 256 Other invested assets 55 182
Income taxes recoverable 31 6 Deferred tax assets 11 258 242 Other assets 720 693
Common shares Balance as of 1 January 119 119 Issue of common shares Balance as of period end 119 119
Additional paid-in capital Balance as of 1 January 1 276 677 Dividends on common shares1 –599 Balance as of period end 677 677
Net unrealised investment gains/losses, net of tax Balance as of 1 January 98 116 Changes during the period 18 –144 Balance as of period end 116 –28
Foreign currency translation, net of tax Balance as of 1 January 103 55 Changes during the period –48 –68 Balance as of period end 55 –13
Net income attributable to common shareholder 393 409 Effect of change in Group structure2 13 Dividends on common shares –101 –200 Balance as of period end 1 396 1 605
Interest paid was nil and USD 23 million for the years ended 31 December 2014 and 2015, respectively.
Cash flows from operating activities Net income attributable to common shareholder 393 409 Add net income attributable to non-controlling interests –1 2
Cash flows from investing activities Fixed income securities: Net purchase/sale/maturities of short-term investments –774 1 052
Securities purchased/sold under agreement to resell/repurchase, net1 112 –43 Cash paid/received for acquisitions/disposal of reinsurance transactions, net –131 –108 Net purchases/sales/maturities of other investments –13 –23 Net cash provided/used by investing activities –885 –327
Total net cash provided/used 176 –53 Effect of foreign currency translation –12 –11 Change in cash and cash equivalents 164 –64 Cash and cash equivalents as of 1 January 404 568 Cash and cash equivalents as of 31 December 568 504 1 The Group reviewed the nature of certain items within the statement of cash flow. The "Securities purchased/sold under agreement to resell/repurchase, net" are reclassified from the operating cash flow to the investing cash flow.
SRCS is a wholly owned subsidiary of Swiss Re Ltd. Swiss Re Ltd is the ultimate parent company of the Swiss Re Group, which consists of four business segments: Property & Casualty Reinsurance, Life & Health Reinsurance, Corporate Solutions and Admin Re®. The presentation of each segment’s balance sheet is closely aligned with the segment legal entity structure.
For fixed income securities AFS that are other-than-temporary impaired and there is not an intention to sell, the impairment is separated into (i) the estimated amount relating to credit loss, and (ii) the amount relating to all other factors. The estimated credit loss amount is recognised in earnings, with the remainder of the loss amount recognised in other comprehensive income. In cases where there is an intention or requirement to sell, the accounting of the other-than-temporary impairment is the same as for equity securities AFS described above.
Other assets Other assets include deferred expenses on retroactive reinsurance, prepaid reinsurance premiums, capitalised software expenses, receivables related to investing activities, real estate for own use, equipment, accrued income, certain intangible assets and prepaid assets.
Experience features which are directly linked to an insurance and reinsurance asset or liability are classified in a manner that is consistent with the presentation of that asset or liability.
Insurance and reinsurance ceded The Group uses retrocession arrangements to increase its aggregate underwriting capacity, to diversify its risk and to reduce the risk of catastrophic loss on insurance and reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Group of its obligations to its ceding companies. The Group regularly evaluates the financial condition of its retrocessionaires and monitors the concentration of credit risk to minimise its exposure to financial loss from retrocessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are reported as reductions of premiums earned and claims and claim adjustment expenses. Amounts recoverable for retrocession contracts are reported as assets in the balance sheet.
and related collateral pledged. In line with the specific effective date provided in the ASU, the Group initially adopted the new disclosure requirements for the interim period ending 30 June 2015 and the adoption did not have an effect on the Group’s financial statements.
In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”, an update to topic 718, “Compensation – Stock Compensation”. ASU 2014-12 states that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period is a performance condition, and therefore, the target is not reflected in the estimation of the award’s grant date fair value. Compensation cost for such an award would be recognised over the required service period if it is probable that the performance condition will be achieved. The Group adopted ASU 2014-12 on 1 January 2015. The adoption did not have an effect on the Group’s financial statements.
Financial Statements I Notes to the Group financial statements a) Business segments – income statement For the years ended 31 December 2014 USD millions Property Casualty Specialty Credit Total
Expenses Claims and claim adjustment expenses –636 –864 –476 –78 –2 054 Acquisition costs –157 –95 –113 –98 –463 Other expenses –252 –154 –97 –76 –579 Total expenses before interest expenses –1 045 –1 113 –686 –252 –3 096
Net investment income 89 Net realised investment gains/losses 158 Interest expenses –8 Income before income tax expenses 587 2015 USD millions Property Casualty Specialty Credit Total
Expenses Claims and claim adjustment expenses –500 –783 –519 –153 –1 955 Acquisition costs –152 –104 –103 –100 –459 Other expenses –258 –174 –139 –87 –658 Total expenses before interest expenses –910 –1 061 –761 –340 –3 072
b) Gross premiums earned by geography Gross premiums earned by regions for the years ended 31 December
Latin America 429 406 Europe (including Middle East and Africa) 1 008 933 Asia-Pacific 266 291
Financial Statements I Notes to the Group financial statements 3 Insurance information
Reinsurance recoverable on unpaid claims and policy benefits As of 31 December 2014 and 2015, the Group had a reinsurance recoverable of USD 7 434 million and USD 6 182 million, respectively. The concentration of credit risk is regularly monitored and evaluated.
Insurance receivables Insurance receivables as of 31 December were as follows: USD millions 2014 2015
Premium receivables invoiced 412 402 Receivables invoiced from ceded re/insurance business 178 189 Recognised allowance –24 –20
Reinsurance recoverable –7 836 –7 434 Net balance as of 1 January 3 528 4 287
Paid related to: Current year –398 –523 Prior year –898 –1 186
At the end of 2015, the Business Unit Corporate Solutions carried net reserves for US asbestos and environmental liabilities equal to USD 191 million. During 2015, Corporate Solutions incurred net losses of USD 29 million and paid net against these liabilities of USD 26 million.
Note that during 2015, USD 10 million of existing reserves were reclassified as asbestos following a detailed review of historic cedent accounts by our claims department. The above mentioned incurred amount (USD 29 million) does not show this amount as incurred during 2015.
Effect of acquisitions/disposals and retrocessions –13 Amortisation –461 –459 Effect of foreign currency translation –2 Closing balance as of 31 December 360 387
Investment income Net investment income by source was as follows: Realised gains and losses Realised gains and losses for fixed income, equity securities and other investments were as follows: USD millions 2014 2015
Equity securities available-for-sale: Gross realised gains 97 110 Gross realised losses –7 –17
Investments available-for-sale Amortised cost or cost and estimated fair values of fixed income securities classified as available-for-sale as of 31 December were as follows: 2014 USD millions
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 1 534 33 –5 1 562 US Agency securitised products 224 –1 223 States of the United States and political subdivisions of the states 230 5 235
Mortgage-and asset-backed securities 467 7 –1 473 Fixed income securities available-for-sale 5 116 75 –43 5 148 Equity securities available-for-sale 586 161 –15 732 2015 USD millions
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 2 209 17 –13 2 213 US Agency securitised products 176 176 States of the United States and political subdivisions of the states 330 10 340
Maturity of fixed income securities available-for-sale The amortised cost or cost and estimated fair values of investments in fixed income securities available-for-sale by remaining maturity are shown below. Fixed maturity investments are assumed not to be called for redemption prior to the stated maturity date. As of 31 December 2014 and 2015, USD 1 376 million and USD 1 670 million, respectively, of fixed income securities available-for-sale were callable.
Due in one year or less 544 536 546 530 Due after one year through five years 1 832 1 829 2 729 2 698 Due after five years through ten years 1 335 1 339 1 380 1 356 Due after ten years 938 971 893 909 Mortgage- and asset-backed securities with no fixed maturity 467 473 397 395 Total fixed income securities available-for-sale 5 116 5 148 5 945 5 888
Unrealised losses on securities available-for-sale The following table shows the fair value and unrealised losses of the Group’s fixed income securities, aggregated by investment category and length of time that individual securities were in a continuous unrealised loss position as of 31 December 2014 and 2015. As of 31 December 2014 and 2015, USD 13 million and USD 42 million, respectively, of the gross unrealised loss on equity securities available-for-sale relates to declines in value for less than 12 months and USD 2 million and USD 12 million, respectively, to declines in value for more than 12 months.
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 136 1 202 4 338 5
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 1 715 13 5 1 720 13 US Agency securitised products 96 96 0 States of the United States and political subdivisions of the states 22 22 0
The fair values of assets are adjusted to incorporate the counterparty risk of non-performance. Similarly, the fair values of liabilities reflect the risk of non-performance of the Group, captured by the Group’s credit spread. These valuation adjustments from assets and liabilities measured at fair value using significant unobservable inputs are recognised in net realised gains and losses. For 2015, these adjustments were not material.
Liabilities Derivative financial instruments –72 –72 Total liabilities at fair value 0 0 –72 –72 2015 USD millions
Assets Fixed income securities held for proprietary investment purposes 2 206 3 682 5 888
Equity securities held for proprietary investment purposes 935 935 Short-term investments held for proprietary investment purposes 842 414 1 256 Derivative financial instruments 3 5 8 Other invested assets 12 12 Total assets at fair value 3 986 4 096 17 8 099
Liabilities Derivative financial instruments –8 –106 –114 Total liabilities at fair value –8 0 –106 –114
Closing balance as of 31 December 13 11 21 45 –72 –72 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Closing balance as of 31 December 0 5 12 17 –106 –106 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) The gains and losses relating to the assets and liabilities measured at fair value using significant unobservable inputs (level 3) for the years ended 31 December were as follows: USD millions 2014 2015
Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 liabilities as of 31 December were as follows: Sensitivity of recurring level 3 measurements to changes in unobservable inputs The significant unobservable inputs used in the fair value measurement of the Group’s weather contracts are risk margin, correlation, volatility and index value. Where the Group has a long position, a significant increase (decrease) in the risk margin input in isolation would result in a significantly higher (lower) fair value measurement. Where the Group has a long volatility or correlation position a significant increase (decrease) in the correlation and volatility inputs would result in a significantly higher (lower) fair value measurement. Where the Group has a long index position, an increase (decrease) in the index value input in isolation would result in a significantly higher (lower) fair value measurement. Where the Group has a short position, a significant increase (decrease) in the risk margin input in isolation would result in a significantly lower (higher) fair value measurement. Where the Group has a short volatility or correlation position a significant increase (decrease) in the correlation and volatility inputs would result in a significantly lower (higher) fair value measurement. Where the Group has a short index position, an increase (decrease) in the index value input in isolation would result in a significantly lower (higher) fair value measurement.
Derivative financial instruments Foreign exchange contracts ECM/Weather contracts/ILW 1 269 11 –72 –61 Total derivative financial instruments 1 269 11 –72 –61 2015 USD millions
Derivative financial instruments Foreign exchange contracts –43 –1 –1 ECM/Weather contracts/ILW 1 078 8 –113 –105 Total derivative financial instruments 1 035 8 –114 –106
Credit risk-related contingent features 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. The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 55 million as of 31 December 2015, for which the Group posted collateral of nil as of 31 December 2015. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 55 million additional collateral would have had to be posted as of 31 December 2015. The total equals the amount needed to settle the instruments immediately as of 31 December 2015.
Sun Alliance Insurance (China) Limited On 14 May 2015, Swiss Re Corporate Solutions finalised the acquisition of 100% of Sun Alliance Insurance (China) Limited and is now licensed and operating in mainland China as Swiss Re Corporate Solutions Insurance China Ltd (SRCS China). In this market Corporate Solutions is focused on property, casualty, marine, engineering and construction risks, as well as providing customised solutions for the agriculture and energy sectors. The results of the operations of SRCS China have been included in the consolidated financial statements since 14 May 2015. This transaction supports Swiss Re Corporate Solutions’ growth strategy and will enable it to expand business in Asia through local representation. Further analysis of SRCS China‘s acquired balances at acquisition since the second quarter identified intangible assets of USD 33 million and indicated goodwill of USD 17 million (originally estimated at USD 40 million). The goodwill is not expected to be deductible for tax purposes.
Deferred and other non-current taxes The components of deferred and other non-current taxes were as follows: As of 31 December 2015, 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 374 million. 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.
Deferred tax assets Deferred acquisition costs 38 40 Income accrued/deferred 23 30 Unearned premium reserve 14 57 Technical provisions 37 20 Benefit on loss carryforwards 13 12 Currency translation adjustments 34 39 Tax credits 61
Gross deferred tax assets 258 244 Valuation allowance –2 Total deferred tax assets 258 242
Deferred tax liabilities Deferred acquisition costs –36 –46 Present value of future profits –72 –66 Property amortisation –25 –18 Income accrued/deferred –30 –28 Technical provisions –75 –76 Unrealised gains on investments –68 –18 Foreign exchange provision –27 –27 Currency translation adjustments –51 –56 Other –31 –31 Total deferred tax liabilities –415 –366
Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 9 million and USD 7 million at 31 December 2014 and 31 December 2015, respectively.
The following table summarises jurisdictions and tax years that remain subject to examination: USD millions 2014 2015
Balance as of 1 January 12 9 Additions based on tax positions related to the current year 1 Additions for tax positions related to the prior years 19 Reductions for tax positions of prior years –17 –1 Settlements –6 Balance as of 31 December 9 8
Claims and claim adjustment expenses 33 –198 Acquisition costs –24 6 Other expenses –496 –498 Total expenses –487 –690
Net income for the financial year 2015 amounted to CHF 178 million, compared to CHF 288 million in the prior year.
The financial year under review was marked by a 14% improvement of the reinsurance result and the positive effect of foreign exchange movements. The reduction of net income was related to lower dividend income from a subsidiary, retained to fund an acquisition.
The Company paid an ordinary dividend in cash of CHF 194 million.
Reinsurance result Reinsurance result amounted to CHF 219 million in 2015, compared to CHF 192 million in 2014.
Premiums earned increased 1% to CHF 2 481 million in 2015 mainly due to positive foreign exchange movements. Excluding the effects of foreign exchange movements, premiums earned decreased by 2%.
In 2015, the Company increased the equalisation provision by CHF 44 million, compared to CHF 79 million in 2014.
Operating costs also remained flat at CHF 191 million, representing mainly cost recharges from the Swiss Re Group companies for administration and other services rendered to the Company.
The decrease to investment income in 2015 was driven by lower dividend income from a subsidiary, retained to fund an acquisition, partly offset by higher realised gains on the sale of investments compared to prior year.
Result from other income and expenses The result from other income and expenses was in line with the prior year and driven by foreign exchange gains in 2015, mainly due to the strengthening of the US dollar against the Swiss franc.
Total investments increased from CHF 4 567 million at 31 December 2014 to CHF 5 060 million at 31 December 2015, driven by higher reinsurance business volume, partly offset by the dividend to Swiss Re Ltd.
Technical provisions gross increased from CHF 4 270 million at 31 December 2014 to CHF 4 818 million at 31 December 2015, mainly reflecting increased business volume and increased equalisation provision of CHF 44 million.
The nominal share capital of the Company remained unchanged at CHF 100 million at 31 December 2015.
The industry experienced in 2015 a fourth year of strong underwriting results, which benefited from reserve releases and below average natural catastrophe losses. However, reinsurance prices in property have been softening since mid-2013 and this trend has recently spilled over into other lines of business. In general, rates in casualty have been more stable than in property.
Outlook Our economic outlook is that the moderate global growth environment will continue in 2016, led by the US economy. The cyclical Eurozone recovery is also expected to continue, but remain modest. Meanwhile, growth in China is set to slow further in 2016 amid the country‘s difficult transition to a more consumer-driven economy.
Regarding the investment outlook for 2016, government bond yields are forecast to rise moderately. The preference remains for high-quality corporate credit and shares in investment funds. Due to various downside risks, asset price volatility is also expected to increase in 2016.
The bodies and committees mentioned below belong to the Swiss Re Group as the identification, assessment and control of risk exposures of Swiss Re Corporate Solutions Ltd on a stand-alone basis is integrated in and covered by the Group risk management organisation and processes of the Swiss Re Group.
The Board of Directors of Swiss Re Corporate Solutions Ltd is responsible for the company‘s overall risk tolerance. In this role they are advised by the Board of Directors of the Swiss Re Group, which is ultimately responsible for the Group’s governance principles and policies, including approval of the Group’s overall risk tolerance. It mainly performs risk oversight and governance through three committees: ̤ The Finance and Risk Committee defines the Group Risk Policy and reviews risk capacity limits, monitors adherence to risk tolerance, and reviews top risk issues and exposures.
Group Risk Management is also in charge of actuarial reserving and monitoring of the reserve holdings of the Corporate Solutions and Admin Re® Business Units, whereas in Reinsurance the setting of the reserves is performed by valuation actuaries within the P&C and L&H Business Management units.
Risk management activities are supported by the Group Internal Audit and Compliance units. Group Internal Audit performs independent, objective assessments of adequacy and effectiveness of internal control systems. It evaluates the execution of processes, including those within Risk Management. The Compliance function oversees Swiss Re’s compliance with applicable laws, regulations, rules, and the Group’s Code of Conduct. In addition, it assists the Board of Directors, the Group EC and management in identifying, mitigating and managing compliance risks.
Reinsurance Premiums written gross 2 907 2 671 Premiums written retroceded –103 –98
Interest expenses on subordinated liabilities 0 0 Other income 37 32 Other expenses –8 –7 Income before income tax expense 332 222 Income tax expense –44 –44 Net income 288 178
Investments Investments in subsidiaries and affiliated companies 1 435 1 435 Fixed income securities 879 724
Provisions for profit commissions gross 3 7 21 Equalisation provision gross 3 139 183 Total technical provisions gross 4 270 4 818
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 which required implementation in 2015. Swiss Re Corporate Solutions Ltd adopted the new regulation for the financial statements 2015 and chose to adapt the presentation of the 2014 financial statements to be comparable with 2015.
With the first time application of the new regulation set in the Swiss Code of Obligations as well as in the AVO-FINMA some of the prior year‘s information were amended in order to have the same aggregation level and sorting order for comparison reasons. There was no restatement of prior year figures and as such the net income as well as the total shareholder‘s equity remained unchanged.
Time period The financial year 2015 comprises the accounting period from 1 January 2015 to 31 December 2015.
The following table shows the main foreign currencies in which the Company operated: Currency exchange rates in CHF per 100 units of foreign currency Closing rate Average rate Closing rate Average rate
Investments The following assets are carried at cost, less necessary and legally permissible depreciation: ̤ Investments in subsidiaries and affiliated companies ̤ Fixed income securities (other than zero-coupon bonds) ̤ Shares in investment funds
Short-term investments contain investments with original duration between three months and one year. Such investments are generally held until maturity and are maintained at their amortised cost values.
Cash and cash equivalents Cash and cash equivalents include cash at bank, short-term deposits and certain investments in money-market funds with original maturity of three months or less. Such current assets are held at nominal value.
Other liabilities Other liabilities include rights in connection with repurchase agreements and securities lending transactions, which are held at redemption value.
Allocated investment return The allocated investment return contains the calculated interest generated on the investments covering the technical provisions. The interest rate reflects the currency-weighted, five-year average yield on five-year government bonds.
Foreign exchange transaction gains and losses Foreign exchange gains and losses arising from foreign exchange transactions are recognised in the income statement and reported net in other expenses or other income, respectively.
Financial Statements I Swiss Re Corporate Solutions Ltd 2 Investment result
Investment income Investments in subsidiaries and affiliated companies 122 – – 122 Fixed income securities 20 – 16 36
Shares in investment funds 1 – 20 21 Short-term investments 1 – 1 2
Investment expenses Investments in subsidiaries and affiliated companies – – – – Fixed income securities – –5 –1 –6 Loans – – – – Shares in investment funds – – – – Short-term investments – – 0 0 Other investments – – 0 0 Investment management expenses –18 – – –18 Investment expenses –18 –5 –1 –24
Financial Statements I Swiss Re Corporate Solutions Ltd 3 Assets and liabilities from reinsurance 4 Change in shareholder’s equity 5 Share capital and major shareholder
The nominal share capital of the Company amounted to CHF 100 million. It is divided into 100 000 shares, each with a nominal value of CHF 1 000. The shares were fully paid-in and held directly by Swiss Re Ltd. As of 31 December 2015 and 2014, the Company was a fully owned subsidiary of Swiss Re Ltd.
As of 31 December 2015, the Company has issued a limited guarantee of CHF 673 million (2014: CHF 242 million) to a subsidiary in support of its business activities or specific transactions.
CHF millions Share Capital Legal capital reserves Other reserves Voluntary profit reserves
To secure the technical provisions at the 2015 balance sheet date, securities with a value of CHF 431 million (2014: CHF 432 million) were deposited in favour of ceding companies. There were no security deposits to external third parties in 2015. In 2014 CHF 20 million referred to external parties and CHF 412 million to Swiss Re Group companies.
In the year under report, no net undisclosed reserves on investments or on provisions were released (2014: no net release).
Other reinsurance revenues 2 2 Premiums and other receivables from reinsurance 1 2 Reinsurance balances payable 2 2
Swiss Re Corporate Solutions Global Markets Inc United States New York 100% 100% Flint Hills Insurance Agency, LLC United States Overland Park 100% 100% Westport Insurance Corporation United States Jefferson City 100% 100%
The Palantine Insurance Company Ltd United Kingdom London 100% 100% Swiss Re Specialty Insurance (UK) Ltd United Kingdom London 100% 100% Swiss Re International SE Luxembourg Luxembourg 100% 100% SR Corporate Solutions America Holding Corporation United States Wilmington 100% 100%
In general, Swiss Re Corporate Solutions Ltd is managed by certain employees of Swiss Reinsurance Company Ltd. As of 31 December 2015, the Company directly employed a worldwide staff at an average of 8 (2014: 9) full time equivalents.
In 2015, the Swiss Re Group incurred total auditor‘s fees of CHF 35 million and additional fees of CHF 5 million, of which CHF 0.5 million (2014: CHF 0.5 million) were accounted for at the Company level solely relating to auditor’s fees.
Legal reserves from capital contributions brought forward 1 342 1 342 Proposed allocation to voluntary profit reserves in connection with the cash dividend – –301
Voluntary profit reserves brought forward – 16 Allocation from retained earnings 210 250 Voluntary profit reserves before proposed allocation of legal reserves from capital contributions and cash dividend 210 266 Proposed allocation from legal reserves from capital contributions – 301
The Board of Directors proposes to the Annual General Meeting of the Company, to be held on 28 April 2016, to approve the following allocations and payment of an cash dividend of USD 250 million, which must not exceed CHF 280 million, translated into CHF at spot rate on the settlement date. The cash dividend is paid to its sole shareholder Swiss Re Ltd out of voluntary profit reserves.
As such the effective cash dividend amount, translated into CHF at spot rate on the settlement date, must not exceed CHF 280 million. This threshold of CHF 280 million is presented in the below table and reflects the maximum amount in CHF to be paid.
Report of the statutory auditor Report of the statutory auditor to the General Meeting of Swiss Re Corporate Solutions Ltd Zurich
We further confirm that the proposed appropriation of available earnings complies with Swiss law and the Company’s Articles of Association. We recommend that the financial statements submitted to you be approved.
̤ extraordinary events affecting our counterparties; ̤ current, pending and future legislation and regulation affecting us, and interpretations of legislation or regulations by regulators, particularly in respect of minimum capital requirements; ̤ legal actions or regulatory investigations or actions, including those in respect of industry requirements or business conduct rules of general applicability; ̤ changes in accounting standards; ̤ significant investments, acquisitions or dispositions, and any delays, unexpected costs or other issues experienced in connection with any such transactions; ̤ changing levels of competition; and ̤ operational factors, including the efficacy of risk management and other internal procedures in managing the foregoing risks.
General impact of adverse market conditions The operations of Swiss Re Corporate Solutions Ltd and its subsidiaries (the “Group”) as well as its investment returns are subject to market volatility and macro-economic factors, which are outside of the Group’s control and are often inter-related.
Regulatory changes The Group’s activities are regulated in a number of jurisdictions in which the Group conducts business. In addition, the Group could be affected by regulatory changes or developments affecting the overall Swiss Re group, of which the Group is a part (the “Swiss Re Group”). The regulatory regimes to which members of the Group are subject have changed significantly in recent years and are expected to continue to evolve as a result of global efforts following the credit crisis.
Although early regulatory efforts following the credit crisis 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, through its legal entities organised
in the European Economic Area, Solvency II, which entered into force on 1 January 2016. The Group is also monitoring the impact of the Swiss Federal Act on Financial Market Infrastructure (which became effective 1 January 2016 and introduced 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.
Significant policy decisions on a range of regulatory changes that could affect the Group and its operations or the broader Swiss Re Group remain undecided. The Group cannot predict which legislative and regulatory initiatives ultimately will be enacted or promulgated, what the scope and content of these initiatives ultimately will be, when they will be effective and what the implications will be for the industry, in general, and for the Group, in particular. Certain of these initiatives could have a material impact on the Group’s business.
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
Credit risk If the credit markets were again to deteriorate and further asset classes were to be impacted, the Group could experience further losses. Changes in the market value of the underlying securities and other factors impacting their price could give rise to market value losses. If the credit markets were to deteriorate again, the Group could also face further write-downs in other areas of its portfolio, including other structured instruments, and the Group and its counterparties could once again face difficulties in valuing credit-related instruments. Differences in opinion with respect to valuations of credit-related instruments could result in legal disputes among the Group and its counterparties as to their respective obligations, the outcomes of which are difficult to predict and could be material.
Liquidity risks The Group’s business requires, and its clients expect, that it has sufficient capital and sufficient liquidity to meet its insurance obligations, and that this would continue to be the case following the occurrence of any event or series of events, including extreme catastrophes, that would trigger insurance coverage obligations. The Group’s uses of funds include obligations arising in its insurance business, which may include large and unpredictable claims (including catastrophe claims), funding of capital requirements and operating costs, payment of principal and interest on outstanding indebtedness and funding of acquisitions. The Group also enters into contracts or trading arrangements that could give rise to significant short-term funding obligations and, in connection with the Group’s trading operations, it could be subject to unexpected calls to deliver collateral or unwind trading positions at a net cost to it. The Group also has unfunded capital commitments in its private equity and hedge fund investments, which could result in funding obligations at a time when it is subject to liquidity constraints.
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, and further constrain access to liquidity. Finally, any
Counterparty risks The Group is exposed to the risk of defaults, or concerns about defaults, by its counterparties. Securities trading counterparties, counterparties under swaps and other derivative contracts, and financial intermediaries may default on their obligations due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons, which could have a material adverse effect on the Group. The Group 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.
Risks relating to credit rating downgrades Ratings are an important factor in establishing the competitive position of insurance companies, and market conditions could increase the risk of downgrade. Third-party rating agencies assess and rate the financial strength of insurers such as Corporate Solutions. These ratings are intended to measure a company’s ability to repay its obligations and are based upon criteria established by the rating agencies.
Legal and regulatory risks The Group could be named, from time to time, as a defendant in legal actions in connection with its operations. The Group is also involved, from time to time, in investigations and regulatory proceedings, certain of which could result in adverse judgements, 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 our 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 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 noncompliance 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.
The Group does not currently operate on a standalone basis. It is dependent on other members of the Swiss Re Group for a range of asset management services, corporate services (including general management services, human resources, logistics, IT support, finance, treasury and accounting services and auditing services) and technical services (including actuarial services support, underwriting services support and claims operations support). In addition, it derives a range of significant operational and other benefits from its status as a part of the Swiss Re Group, including its ability to market its products on a worldwide basis under the “Swiss Re Corporate Solutions” brand name. As a result, factors affecting the Swiss Re Group, whether involving developments or events unique to Swiss Re or events or