About the front cover Jakarta is Southeast Asia’s largest city. The Indonesian capital has a population of over 10 million people and is a thriving economic hub. It is also exposed to a number of natural catastrophe risks.
In 2020, Swiss Re partnered with the Indonesian Ministry of Finance and a local insurer to build financial resilience around the country’s public assets. This is one example of how our research and data capabilities enable us to create insurance solutions that strengthen societies.
Insurance will have a central role in the process of rebuilding the global economy, protecting the vulnerable and making the world more resilient.
How can we build resilience in the wake of COVID-19? 22
How can we work together towards net zero? Christian Mumenthaler Group Chief Executive Officer and Co-Chair of WEF’s Alliance of CEO Climate Leaders
51% P&C Reinsurance 34% L&H Reinsurance 10% Corporate Solutions 5% Life Capital
Life Capital Net premiums earned and fee income (USD billions) –7.5
Life Capital supported and incubated entities in the B2B2C primary business, B2B corporate business and the closed book consolidation space. Following the successful sale of ReAssure, the Life Capital Business Unit disbanded at the end of 2020. Corporate Solutions has assumed responsibility for elipsLife, while iptiQ is now operating as a standalone division.
–177 1 These figures exclude the impact of claims and reserves established for COVID-19 and the associated estimated tax impacts.
During my years in the business, external upheavals in the ‘real’ world have repeatedly hit the ‘financial’ world with force. And on each such occasion, Swiss Re has had to react – and has done so successfully.
On this occasion, please allow me to reflect briefly on 45 years of working in the reinsurance industry and on 32 years at Swiss Re in various roles. Based on my past experience, I would also like to provide my insights into 2020, an unprecedented year, as well as on the COVID-19 pandemic and the ensuing health, social, economic and ultimately also political crises.
The COVID-19 pandemic – risk is our business At Swiss Re, a major event like the pandemic, which has had both financial and operational consequences, is something we must always expect. During my years in the business, external upheavals in the ‘real’ world have repeatedly hit the ‘financial’ world with force. And on each such occasion, Swiss Re has had to react – and has done so successfully.
Sometimes, such upheavals were caused by fundamental changes, other times they were the result of predictable but exceptionally large events. Sometimes, they affected our investments, and sometimes our reinsurance and direct insurance business, but rarely all at the same time. It was extremely rare for events to come completely as a surprise. However, there often was at least one aspect of each such event that was not expected. This was no different in the case of COVID-19; I shall come back to this a bit later.
Liability claims and the origins of our commitment to sustainability During the early years of my career, so in the 1970s and early 1980s, but especially after 1986, a massive wave of asbestos and environmental liability claims in the US crashed over the insurance industry. This resulted in huge claims payments around the world, especially for reinsurers. This also posed a threat to the future of your company, Swiss Re. We had to adapt to a completely new environment characterised by very aggressive plaintiffs lawyers in the US. It took years for the US to bring the excesses of a legal industry specialised in liability lawsuits under greater control.
As a result, prices for liability cover rose massively. Policies were restructured to allow for shorter run-off periods. To cope with the claims burden, Swiss Re had to take decisive action and divested its large direct insurance subsidiaries in Europe. The crisis also destroyed some of the largest corporate insurers in the US and a number of European reinsurers; the centuries-old Lloyds of London business model collapsed, and the Bermuda insurance market emerged. Swiss Re’s share price rose by more than 500%, and the now smaller company took off.
Since then, one insight has always guided us – an insight that has become increasingly important and has defined us over time: unsustainable business practices in the real economy, whether with regard to the environment or when dealing with product risks, sooner or later lead to major losses on insurers’ balance sheets. A resolute commitment to sustainability is a ‘must’ for Swiss Re, because sustainability means taking precautions and limiting future losses. This issue has become part of the economic mainstream, and our early commitment to sustainability thus greatly benefits the company today.
Under the leadership of reinsurers – Swiss Re played a very important role here – the industry focused on better understanding these risks. Risk models for natural catastrophes were significantly improved. New capital, primarily out of Bermuda, was deployed to address the global natural catastrophe risks, which now consistently commanded significantly higher premiums. Swiss Re recognised the resulting opportunities early on, and the company’s share price rose accordingly. Today, Swiss Re is a market leader in this business, which, when viewed over a period of years, more than covers the cost of capital.
The dot.com crash, expansion in life reinsurance and disciplined asset-liability management Towards the end of 2000 and the beginning of 2001, the dot.com bubble burst. This marked the end of a euphoric period for investors in stock markets, driven by exorbitant valuations for companies that, in one way or another, were doing something related to the internet, and often came up with the most abstruse business plans. This had to end badly – and it did, taking everything down along with it.
Terrorism and the limits of insurability The industry had just come to terms with the dot.com crash when the terrorist attack on the Twin Towers in New York occurred on 11 September 2001. Terrorist attacks were not new territory for us. Time and time again, Swiss Re had covered losses caused by terrorist attacks. The sheer scale of the attack on the World Trade Center, however, exceeded our scenarios many times over. Only very few people had the foresight to ever imagine such an event would happen.
9/11 is probably the insurance event that is most comparable to COVID-19. It demonstrated to the industry, but also to regulators and policymakers, that certain things can simply not be insured by private capital alone: namely, when their magnitude cannot be rationally defined (for example, in the case of a dirty bomb) and they are ultimately caused by politically motivated reactions of governments. It is not without reason that terrorism is described as a continuation of war that uses asymmetric means.
The financial crisis, or why a strong capital base is essential So much has been written about the global financial crisis of 2008 to 2009 that I can be brief here. Institutional investors were massively impacted, banks went under and individual investors lost money on a very large scale. Again, the event itself was not unexpected. But the magnitude, the interdependencies and the speed with which the entire financial market collapsed took us by surprise – as it did many others.
Swiss Re has an excellent reputation around the world, and its market position, strategic focus, the quality of its employees and its capital base are outstanding.
The measures we introduced at Swiss Re as a result of the crisis were unequivocal: on the one hand, a disciplined approach with regards to very strong risk-based capitalisation and excess liquidity; on the other hand, strict limits on our debt-to-equity ratio. In other words, no extension of the balance sheet that is not driven by the core business, no matter how low interest on debt may be. Despite this deleveraging of our balance sheet – or perhaps precisely because of it – the Swiss Re share price recovered several times over in just a few years.
However, against the backdrop of the experience gained during the financial crisis, it is surprising to see the degree to which the level of indebtedness is rising again around the world. Even if this chapter appears to be closed, the end of the story has not yet been written.
Climate change and the narrowing the protection gap In the years that followed, climate change became increasingly prominent in the public consciousness. The frequency of small- and medium-sized loss events caused by storms, tidal surge and floods (referred to in the market as ‘secondary perils‘) increased markedly. This development and population growth in urban centres located by the sea make for a dangerous mix.
Climate change has become a key risk management issue, and this is something that everyone should be taking into account. As the market leader in businesses compensating for losses related to climate change, Swiss Re will be needed even more, since the protection gap, namely the difference between insured losses and actual total losses, is still large and is growing.
The COVID-19 pandemic, monetary and fiscal policy interventions, and their potential consequences This brings us to the present – to 2020 and the COVID-19 pandemic. Our Group CEO, Christian Mumenthaler, explains the consequences of this event in detail in his letter. But allow me to make three general observations.
First, the pandemic scenario for many years has been one of the key scenarios in Swiss Re’s risk assessment. So the pandemic was no surprise. In fact, due to our leading global position in life reinsurance, we were prepared for far worse pandemic scenarios. However, to our surprise, the majority of losses did not originate in this segment. Instead, the main losses originated in property and specialty lines. Because of the simultaneous responses of governments around the world, the losses accumulated as mitigation measures were imposed, such as lockdowns, travel restrictions and a full freeze of economic activity. We had to immediately restructure our risk portfolio based on this realisation (by excluding pandemic risk), which we achieved to a significant extent in a short period of time.
Second, the industry withdrawal from pandemic coverage was unavoidable because we once again reached the limits of insurability. Without rapid and radical countermeasures, we would have lost the support of investors, or in other words, your support. On the other hand, the massive government support measures in so many countries demonstrate how urgently we need to develop a plan to better cushion the economic impact of another pandemic. Our societies must increase their resilience. Swiss Re sees private-public partnerships as an opportunity to work with governments to develop new types of coverage. At the same time, however, we must be clear in stating that such approaches cannot work without a government backstop.
Third, money arising from fiscal measures has flowed in unimaginable quantities; money no longer costs anything, for many nations it costs less than nothing. This has resulted in enormous disincentives and massive market distortions. So how can national balance sheets be brought back on track? How can this excessive liquidity be siphoned off? Which government dares to raise taxes in the near future? Which central bank dares to raise interest rates anytime soon? Politicians who wish to be re-elected will not support such actions. This leaves only one way out: the classic, tried-andtested option of inflation, through which the owners of nominal financial assets (savers, insurance companies) are slowly expropriated and debts are reduced just as slowly. This is also called the erosion of the value of money. I am certain, for various reasons, that we will experience inflation. Not immediately, but soon. Not everywhere to the same extent, but certainly in the US. Swiss Re is preparing for this scenario – as always in an effort to protect the capital of its shareholders.
Our Group went into this crisis with a very strong balance sheet and capital position. Our operations continued uninterrupted and we took a prudent approach to building reserves.
For decades, the insurance industry has warned of the potentially devastating effect of a pandemic. Thirteen years ago, Chief Risk Officers from the insurance industry, including me, co-authored a paper on influenza pandemics. We looked at the circumstances under which the 1918 Spanish flu broke out and asked what the impact would be if a global influenza pandemic happened again.
All of our businesses have delivered strong underlying performance in 2020 and are confident of hitting their financial targets for 2021.
We are also doing our part to help cover losses from the pandemic. Our Group went into this crisis with a very strong balance sheet and capital position. Our operations continued uninterrupted even when the vast majority of our employees had to work remotely. From the start of the pandemic, we took a disciplined and prudent approach to building reserves, as actual claims have been slow to come in.
Swiss Re | Business Report 2020 9Message from the Group CEO
Life & Health Reinsurance (L&H Re) maintained its strong underlying performance in 2020, with return on equity, excluding the impact of COVID-19 losses, at 10.4%. The segment also reported strong growth in net premiums earned of 6.9%, driven mainly by longevity deals. We continue to see attractive opportunities to grow our L&H Re business, particularly in high-growth markets and through large transactions.
Corporate Solutions is well ahead of plan in its turnaround, thanks to the decisive management actions announced in 2019 and more positive market movements than originally anticipated. The Business Unit has largely achieved its planned portfolio pruning and gross cost reductions. Together with rate increases of 15% over the past year, this has lowered the normalised3 combined ratio to 96.8% in 2020, well ahead of the 105% estimate for the year. Given the tremendous progress so far and favourable market expectations, Corporate Solutions will now target a normalised combined ratio of less than 97% in 2021, compared with the original 98% goal.
With the completed sale of ReAssure to Phoenix Group, we delivered on another strategic milestone. Swiss Re received a cash payment of GBP 1.2 billion and shares in Phoenix representing a 13.3% stake, which we believe maximises value for Swiss Re’s shareholders.
As a result of the sale, we decided to simplify our legal entity structure by disbanding the Life Capital Business Unit. Corporate Solutions has assumed responsibility for elipsLife, which provides life and health insurance solutions and services for corporate clients, while the white-labelling digital insurance platform iptiQ is now operating as a standalone division, enabling a greater focus on this business. After increasing the number of partners by 11 and achieving 76% premium growth in its core business in 2020, iptiQ is on track to becoming a leading player in its field.
Therefore, while Reinsurance will remain our key earnings contributor in the foreseeable future, we are also seeing more opportunities to capitalise on synergies among our businesses and approach the future as ‘One Swiss Re‘ with strong Group foundations. We remain flexible towards creating new businesses and partnerships, based on our competitive strengths. We are convinced that this will position Swiss Re for success over the long term, even as re/insurance markets change and evolve.
We are also focused on building a truly sustainable business. We have committed to reaching net-zero emissions from our own operations by 2030 and made the pledge to transition our investment and underwriting portfolios to net zero by 2050. To help curb our operational emissions, as of 2021 we stepped up our internal carbon levy to USD 100 per tonne and will gradually increase it to USD 200 by 2030.
3 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments as well as the COVID-19 impact.
Beyond our own net zero commitments, Swiss Re is actively involved in the work of the World Economic Forum’s Alliance of CEO Climate Leaders, which I have the privilege of co-chairing. In this alliance, we are working together with other CEOs around the globe to make the transition towards a low-carbon economy possible. Businesses have vast resources to address the climate crisis if they come together, and I am very encouraged by the strong commitment I am seeing from many of my fellow CEOs.
COVID-19 lockdowns may have reduced CO2 temporarily, but they will neither stop global warming nor reverse the harm greenhouse gas emissions are causing to our planet and its natural ecosystems. I am looking forward to supporting the climate transition through the work we do at Swiss Re as well as my engagement in the WEF Alliance.
I would also like to thank you, our shareholders, for your continued support.
Swiss Re | Business Report 2020 11Message from the Group CEO
In 2020, COVID-19 significantly changed our market context, while ongoing trends such as climate change, digitalisation and low interest rates influenced our strategic decisions.
Yet COVID-19 was not the sole influence on our markets and the environment in which we operate. This section looks beyond the pandemic and into key challenges and opportunities in our market. These can be broadly categorised across three thematic areas: technological, environmental and socio-economic trends.
For technological trends, the ongoing digital revolution is fuelling opportunities for our industry. The evolution of mobile communication, global interconnectivity and the use of data has totally transformed the way we communicate, travel, shop or even maintain personal relationships.
For environmental trends, clearly, climate change remains the most significant long-term global risk. Governments, communities and businesses continue to deal with a vast array of challenges arising from a warming planet, such as how to ensure food security or manage urban infrastructure.
At the same time, greater climate consciousness is leading to new business opportunities. For example, greener technologies are being developed to replace carbon-intensive industries.
As a leader in our industry, we will continue to rise to the challenges, providing the foresight and solutions for our partners.
COVID-19 will accentuate some of the important economic trends of the past few years. Governments are supporting their domestic economies with stimulus packages, which are helping to ease the crisis in the short term, but these packages will also lengthen the periods of high public debt. The Institute of International Finance indicates that global debt has surged by over USD 15 trillion since 2019 to nearly USD 275 trillion in the third quarter of 2020, resulting in the all-time high global debt-toGDP ratio of approximately 365%. High public debt levels can adversely affect the ability of governments to spend over the long term. This in turn can reduce insurance demand, for example, through fewer large construction and infrastructure projects.
Swiss Re’s Responsible Investing approach, focusing on companies with a better environmental, social and governance (ESG) profile, makes economic sense as it improves risk-adjusted return profiles and reduces downside risks, especially over the longer term.
Our strategic response Swiss Re’s history is rooted in providing the capacity to protect societies around the globe against the financial impact of natural catastrophes. Over the years, Swiss Re has developed a unique set of data and proprietary risk knowledge. This allows us to optimally steer and assess risks across a wide range of perils and regions. We continue to heavily invest into natural catastrophe risk research, including assessing and quantifying the impacts of climate change on the natural perils risk landscape. We provide our knowledge and services to our clients to tailor and develop industry-leading risk transfer solutions.
As a company, we are committed to sustainability. We have been consistently vocal in the public domain about the threat of climate change. As an early proponent of sustainable investing, we were among the first to adopt stringent environmental, social and governance (ESG) criteria for our asset portfolio. In 2018, we stopped providing re/insurance to businesses with more than 30% thermal coal exposure. As of 2021, we introduced an internal carbon levy of USD 100 per tonne, which will increase to USD 200 per tonne by 2030. Ultimately, we are evolving our business practices with the aim of producing net-zero carbon emissions by 2050.
forecast insurance premium growth in China in 2021 (Source: Swiss Re Institute)
Increased risk awareness due to the COVID-19 pandemic is expected to accelerate insurance market growth in Asia. A Swiss Re COVID-19 consumer survey conducted in major APAC markets in April 2020 found that people were likely to cut other expenses before they gave up their insurance. Out of the respondents, 78% were willing to sacrifice eating out, 57% would give up gym membership, and just 14% were willing to sacrifice insurance coverage.
bn estimated growth in global cyber security market to USD 326 billion by 2027 (Source: Grand View Research Inc.)
Cyber security is a top priority for every organisation as they adapt to the postCOVID -19 world. The identities and devices of remote workers represent a new and growing security risk. Cyber attackers have been quick to target the unprotected digital spaces created when tens of millions of employees began working from home. Overall, the shift from human intervention to software-enabled processes is driving efficiency and convenience, but it also creates new risks.
In terms of insurance opportunity, demand for insurance protection continues to rise rapidly. However, cyber continues to be largely a preventative market, enabling clients to develop a strong defence against attacks. A strong trend is for insurers to partner with cyber security companies and develop offerings that span both prevention and financial risk transfer.
Prior to the COVID-19 outbreak, insurance was, on average, lagging behind other industries in terms of digitalised service offerings. While many people use the internet to research insurance, relatively few purchases are made online. Increased demand for online services may favour competition from insurtech start-ups and tech-savvy players entering the markets if traditional players are not able to gain momentum. In Swiss Re’s 2020 APAC consumer survey, respondents said they wanted insurers to process policies and claims entirely online.
The level of connectivity across the globe is vast and the sheer amount of data enables effective networking capabilities.
Our strategic response Co-developing solutions is at the heart of our strategy. Examples include the creation of our Digital Market Center with Microsoft to create risk management and insurance solutions that go beyond traditional insurance product development. Other areas include new automotive solutions – especially in the area of Advanced Driver Assistance Systems (ADAS). iptiQ, our digital insurance platform, enables both insurance and non-insurance partners to advance the digital distribution of insurance.
share of population aged 65 and older by 2050 (Source: United Nations)
The speed of medical innovation in recent years has been remarkable. For example, the first COVID-19 vaccine was in use less than a year after the first reported infections.
To better understand the impact of health and lifestyle factors, in 2020, we expanded our research into six key lifestyle factor areas, with the aim of harnessing what they mean to the insurance industry. Our work combines the power of new data and casualty models with our underwriting expertise.
Using our capacity, technical expertise and diversification within the life and health portfolio, we provide our clients with bespoke risk transfer solutions – for example, in the area of longevity – where tailored transactions supported life and health premium growth for Swiss Re in 2020.
The outcome is a refreshed and sharpened Group strategy that builds on our existing strengths and our key convictions about the future.
Risk transfer We work with our clients and partners to re/insure against large losses. Types of risk transfer include: traditional property and casualty and life and health re/insurance; large and complex transactions; and public sector risk transfer, where we work with governments.
Our platforms include: • Swiss Re Institute • CatNet® • Magnum • SwiftRe®
Risk partnerships Through strong partnerships, we create platforms to process, transfer and distribute risks. This includes access to capital markets, business- to-business-to-consumer (B2B2C) products and new ecosystems.
• We act as “One Swiss Re” based on one foundation
• Our established leadership in risk knowledge, including our Swiss Re Institute 200–250% target Group SST range from 2021
~11 000 mid-sized and large corporate clients >250 research notes and publications in 2020
For us, sustainability is a strategic, long-term value driver and we embed this approach throughout our re/insurance value chain. Sustainable re/insurance spans both the liability and the asset sides of our balance sheet, as well as our own operations. It is also a key topic in our dialogue with stakeholders.
Our sustainability topics These sustainability ambitions create broad focus areas for our work. In addition, we have specified six topics that guide our efforts in driving Swiss Re’s sustainability performance.
Our principles We have defined three principles that guide how we implement the Group Sustainability Strategy when conducting business. We embed sustainability in all of our business activities, develop sustainability-linked solutions and embrace opportunities, and we quantify sustainability performance and impact.
Managing sustainability risks We manage ESG risks across Swiss Re’s balance sheet. In 2020, we began assessing the carbon footprint of our direct insurance book, building the foundation to reach net zero in our underwriting by 2050.
estimated weighted average carbon intensity of our direct insurance portfolio, measured in tonnes of CO2 equivalents per million USD of revenue of our employees agree that Swiss Re provides an open and inclusive work environment (2019: 68%)
Fostering resilient societies Swiss Re Foundation partners with NGOs, social entrepreneurs, foundations and academic institutions. It leverages the expertise of Swiss Re employees and collaborative networks to help communities increase their resilience.
of employees agree their colleagues act ethically and with integrity (2019: 86%)
CHF5.36m committed to 82 partners in 29 countries to support COVID-19 response
We provide solutions to de-risk renewable energy projects, such as the construction of wind farms or large solar energy projects, enabling the energy transition.
Now is the time to rethink old ways, adopt forward-looking approaches and work together to reshape our industry.
On the following pages, youʼll read about how we have been doing this and working to transform tomorrow together.
As a leader, we will focus on going beyond insurance and finding solutions that help our partners to do so. In this section, we look at how we have supported our clients over the year, worked with governments and stayed one step ahead through our sophisticated pandemic research and risk modelling.
Learning together to strengthen our societies For more than 150 years, we have supported our clients through challenging times with our financial strength and expertise. In this respect, the COVID-19 pandemic has been no different.
Innovation is also key if we are to stay in step with our customers and the new risks that they face. By driving change, we play our role in developing resilient societies.
How can we build resilience in the wake of COVID-19? Swiss Re | Business Report 2020 23
For more than 150 years, Swiss Re’s financial strength and risk expertise have enabled us to support our clients through many global crises. During the COVID-19 pandemic, Swiss Re was again a strong partner that our clients and partners could rely on. Our teams of experts have been actively monitoring developments and collecting data since the first cases of infection with the novel coronavirus were reported in China, long before COVID-19 was officially declared a pandemic. As the situation unfolded, Swiss Re’s strong global crisis management set-up and robust IT infrastructure kept the business running without any operational disruptions, even as most employees had to work from home. Swiss Re staff continued to handle claims, renew contracts, share their knowledge and innovate.
In total, Swiss Re set aside USD 3.9 billion in 2020 to pay for claims related to
Securing lines of credit for SMEs In emerging markets, access to local credit is critical for small and medium-sized enterprises (SMEs) as they employ the vast majority of the local workforce. Due to COVID-19, many local banks were forced to freeze or restrict lending in 2020, as their access to financing dried up.
To combat this problem, the International Finance Corporation (IFC) developed a rapid response facility that provides financing to local banks, who in turn offer loans to local SMEs.
Strengthening the commitment to our clients in 2020 the COVID-19 pandemic. Our experts went through a very detailed and thorough analysis to arrive at this figure because the level of actual claims has so far been low.
This COVID-19 process was ongoing throughout 2020. It also ran in parallel to a record number of large loss assessment processes, which were triggered by the extraordinary number of hurricanes in the North Atlantic. In total, the team conducted 13 such assessments; more than 2018 and 2019 combined.
How can we build resilience in the wake of COVID-19? Swiss Re | Business Report 2020 25
A. Swiss Re is actively engaged in discussions with governments, legislators, regulators and the insurance industry to share its experience in establishing new risk-sharing arrangements. As experts in parametric insurance solutions and technological innovation, this year Swiss Re successfully closed more than 30 new PPP transactions. In doing so, we participated in supporting food security in India, Vietnam and Kazakhstan, and enhancing disaster resilience in Morocco, Puerto Rico and Indonesia, as well as facilitating investment in housing through credit life products in Ghana.
The team continues to update Life Guide as more research emerges on COVID-19. For example, in the third quarter of 2020, we included new guidance for individuals participating in vaccine trials and considerations for broader antigen and antibody testing.
life and health insurers benefitted from accessing Life Guide days free period for Life Guide
The output and usage The model statistically analyses 50 000 different pandemic scenarios to see what the impact of a certain strength of a modelled pandemic might be on a certain portfolio.
Swiss Re’s pandemic model is an important tool for steering our business – and a cornerstone of our financial strength.
Created in 2006, the pandemic model was developed to allow us to stress test our portfolio as we do for large natural catastrophes. This understanding has allowed us to steer key decisions around risk appetite and our capital position. Since its inception in 2006, the model has received regulatory approval and is regularly audited.
Swiss Re Institute took early steps to make sure we had the data and resources to report on the true scale of the pandemic in a highly connected world. We took steps to secure access to reliable data on critical areas, such as the virus’s lethality, and the impact on both our business and that of our clients.
A. Clearly, we cannot stop learning. We know that a global pandemic is a one-in30 -year event, so clearly ongoing research, monitoring and preparation are essential. It is also vital that we incorporate the learnings – such as the economic impact of lockdowns – into our financial models and underwriting tools. We need to look at technical issues such as contract wordings. We also have to continue to develop the best possible risk management solutions to ensure the impact of a future pandemic is minimal and to partner with our clients. Only then can we be sure our underlying business is more resilient to future pandemics.
A. Demand has been strong. Since our business is based on understanding our clients’ needs, much of our team’s energy has been spent on gauging the right kind of expertise and information needed by different clients at different times.
Reaching out and talking to our clients through digital channels helped us to maintain a continuous dialogue despite the social distancing restrictions. In fact, in Asia alone, we connected with over 9 000 clients through our webinars.
Having access to this wealth of data and analytics creates a tremendous opportunity for academics, researchers and analysts. It provides the basis for new modelling, groundbreaking analyses and actionable solutions.
In October 2020, Swiss Re became part of The Trinity Challenge, a global coalition that aims to better predict and prevent disease outbreaks by harnessing the power of data and analytics.
Christoph Nabholz, Chief Research Officer at Swiss Re Institute, was one of the experts engaged in helping our clients learn about the COVID-19 pandemic and ensuring our research kept us abreast of developments.
As an example, our advanced flood modelling is based on innovative technologies and data that enable us to underwrite new risks.
Our tech strategy has four focus areas: first, we will make better use of our data, which enables us to build a competitive advantage. Then we aim to improve our own value chain, to simplify it and drive efficiency – and once we’ve done that, we do the same for our clients to improve their competitiveness. Lastly, we will get closer to risk in the primary insurance space and gain access to attractive risk pools through digital platforms.
Tech solutions are emerging across the risk landscape, from the health space to natural catastrophe covers for emerging economies. We must make full use of this unique set of tools to address the challenges that our industry and society face.
Data for disciplined underwriting When extending coverage to millions of previously uninsured people, a scientific and data-driven approach to new frontiers gives more certainty regarding the underlying insurance risk. In this way, insurers can reach into new markets without being blind to the potential liabilities.
Key Likelihood of a flood event: Low 1 in 500 years
Unique depth of data Specific locations face a variety of risks – ranging from windstorms, floods and wildfires through to earthquakes. Swiss Reʼs risk tools also extend to important new risks, such as declining biodiversity or climate change.High-quality data
Risk assessment for natural catastrophes in new markets is challenging. Swiss Reʼs CatNet helps bridge the knowledge gap, supporting quality underwriting in new and established markets.
Expanding the US flood market Each year, floods across the United States cause approximately USD 15 billion in damage. Despite that, just one in six US homes has flood insurance. Finding a way to increase this uptake, in partnership with our insurance clients, will therefore have a big impact on the resilience of businesses and households across the country.
From the massive US property market through to smaller emerging economies, millions of people are benefitting from improved technology tools to make their homes and businesses insurable.
Development and Cooperation, the Deutsche Gesellschaft für Internationale Zusammenarbeit (German Corporation for International Cooperation) and Swiss Re.
Satellite technologies are proving increasingly useful for public-private insurance partnerships. This is especially so for the agricultural sector, where the costs of assessing losses are a barrier to affordable coverage.
Rainfall cover in India In 2020, we created a new parametric insurance structure that covers the Indian state of Nagaland for excess rainfall that can lead to severe flooding.
Satellite-based protection in Vietnam In 2020, Swiss Re partnered with the Vietnam National Reinsurer (VINARE) to develop the first index-based rice insurance product adopted within a public scheme by the Association of Southeast Asian Nations (ASEAN).
The cover draws on satellite technologies to measure rice production and damage to fields and then uses an index-based trigger to enable swift payouts through a simplified claims process.
This fully digital solution is easily integrated into our clients’ underwriting processes. The comprehensive dataset and visualisation tools allow clients to model various risks, such as river flood, heavy rainfall and storm surge, at any location across the globe.
This solution is fuelling growth in the market. From 2018 to 2020, we saw a 300% increase in the number of flood programmes that we are supporting. The digital capabilities that have since evolved provide a true end-to-end solution for clients. They can now create their own flood products, develop ratings and underwriting guidelines and are even supported in their regulatory filings.
Digital solutions such as Swiss Re’s global inland flood and storm surge zones are helping the US private flood insurance market move out of its infancy. With an estimated USD 38 billion in potential premiums, there is a strong incentive for insurers to tackle a risk once deemed “uninsurable”.
Our partnership with Microsoft puts Swiss Re at the forefront of big data capabilities in the insurance industry. It provides us with data tools that open up new ways of doing business.
Data-driven risk knowledge platforms open up opportunities to apply our risk insights beyond today’s insurance and financial risk transfer mechanisms.
For example, the Center’s capabilities enable risk managers to get a data-driven understanding of how the loss of a ship’s cargo or unexpected breakdown may impact entire global supply chains. City planners and developers can also model how natural catastrophes will affect a government’s key infrastructure investments – and create real-time responses in preparation.
Our evolving global digital services are critical for individuals, communities and businesses today – and will become ever more so.
Digital communication was the key enabler of business continuity and connectivity during the COVID-19 lockdowns. However, it has also exposed businesses and individuals to increased cyber risks, meaning people need to take steps to better protect themselves and their businesses.
Cybercrime now results in losses of almost USD 1 trillion a year, according to a recent study by security software company McAfee. Cyber insurance market premiums, however, stood at only USD 5.5 billion in 2020, which is modest compared with more established insurance lines.
Easy and customised solutions To support clients in offering solutions to counter this growing risk, Swiss Reʼs Cyber & Digital Solutions team has developed a comprehensive and customisable cyber insurance product development toolkit for insurers wishing to develop their own cyber insurance offering. The toolkit includes support on policy wording, risk assessment and costing. In order to grow the cyber insurance portfolio sustainably, the Cyber Product Suite also comes with reinsurance capacity included in the package.
Affordable private cyber insurance In August 2020, Swiss Reʼs iptiQ and a leading Dutch financial comparison platform, Independer, announced the launch of a first-of-its-kind cyber insurance proposition for private individuals in the Netherlands. The product provides protection against the most common cyber risks from just EUR 4.10 per month for individuals and families.
Cyber combined with home insurance In 2020, Swiss Re and Alte Leipziger developed and launched a private cyber module as part of their home contents insurance. This gives consumers the opportunity to buy comprehensive protection against cyber risks at a relatively low price. The produce even includes professional support for young people against cyberbullying.
Since then, we have taken decisive actions to align our investments, underwriting and operations with our commitment to cutting carbon emissions.
We are also developing solutions that help others transition to a low-carbon world, for example by backing insurance products that de-risk new wind and solar energy projects.
In this section, we look at what it means to work towards a net-zero future.
Christian Mumenthaler Group Chief Executive Officer and Co-Chair of WEF’s Alliance of CEO Climate Leaders
A net-zero future is achievable. We are taking action to reduce our impact. And we will support others as they commit to reducing CO2 emissions.
How can we work together towards net zero? Swiss Re | Business Report 2020 35
Decarbonising our business model We have made three interlinked commitments to strive for net-zero emissions across the whole company: • For our underwriting, we were an early signatory to the UN Global Compact Business Ambition for 1.5°C; • For our investments, we are a founding member of the UN-convened Net-Zero Asset Owner Alliance; • For our own operations, we created a thought-leading CO2NetZero Programme.
This is only the beginning of our journey to decarbonise our business and we are already taking the next steps. These include developing risk transfer solutions to spur on the transition to a low-carbon economy, implementing our responsible investing strategy and actively reducing and removing our operational carbon footprint.
Swiss Re is supporting global efforts to limit greenhouse gas emissions. Our public commitments include signing the Paris Pledge for Action in 2015, which we have reinforced through our own company-wide targets and actions.
We have set interim targets and implemented measures to deliver on our net-zero ambition across our underwriting, investments and operations. We are also looking to drive the development of key technologies for the net-zero future. We provide a few highlights here.
Carbon removal Natural methods such as afforestation removes carbon dioxide from the atmosphere. New high-tech carbon capture technologies exist, but still require significant investment.
supporter of sustainable business practices, both as an insurer and as a global corporate citizen,” said Brian Beebe, Head of Origination North America, Weather and Energy, Swiss Re Corporate Solutions. “To our employees in those areas, we provide access to 100% impactful green power by entering a long-term contract with the Green River Wind Farm.”
Located in Illinois, the Green River Wind Farm became operational in November 2019 and has since generated an impressive 591 910 MWh – which is the equivalent electrical usage of approximately 65 000 Illinois homes. According to the United States Environmental Protection Agency’s Greenhouse Gas Equivalencies Calculator, Green River has already offset CO2 emissions by approximately 418 000 metric tonnes.
This collaboration brings Swiss Re closer to its ambition of net-zero carbon emissions by 2050. “Swiss Re has long been an avid equivalent of ~
In September 2020, Swiss Re Corporate Solutions and its data partner, kWh Analytics, successfully developed a ten-year Solar Revenue Put for an investor in large, utility-scale solar projects. The client was familiar with this Business Unit’s power-generation expertise and its claims experience from previous insurance transactions.
The Solar Revenue Put is an insurance product that guarantees up to 95% of a solar farm’s expected output, helping to mitigate a central risk of generating solar power – lack of sunshine. The client pays a premium for the product and, if the plant does not generate enough power, Swiss Re covers the lost revenue.
In the global quest to reduce CO2 emissions and eventually reach net zero, investment in clean energy plays a key role. Yet, as with any new and emerging segment, investors need to be convinced that it is worth investing in. Insurance has an important role to play in de-risking the investment.
Swiss Re has long been an avid supporter of sustainable business practices, both as an insurer and as a global corporate citizen.
We work on innovative new solutions that close protection gaps in all lines of business across the industry. For instance, we have partnered with key players from the automotive industry to make motor insurance more affordable and accessible for customers.
We are proud that several of our innovations today are linked to these ongoing collaborations. It is no coincidence, for example, that our ground-breaking work on diabetes management in 2020 was undertaken with one of our strongest long-term partners in the UK.
Swiss Re intends to integrate other major car brands into the ADAS platform, creating an industry standard for motor insurance.
On the road to successful risk scoring Vehicles equipped with Advanced Driver Assistance Systems (ADAS) help drivers to more easily avoid accidents. This should lead to more accurate insurance premiums for car owners. However, until recently, insurers had no way of knowing which vehicles were equipped with which safety features.
To address this issue, in 2019 Swiss Re and BMW Group launched the ADAS Risk Score, a vehicle-specific insurance rating. With this score, primary insurers worldwide can
Benefits include: OEMs Manufacturers have more leverage to sell ADASequipped vehicles.
Risk assessment know-how Enables car safety to be factored into insurance premiums
A. Sebastiaan Bongers: With the rise of e-mobility, automated driving and more flexible car usage, the automotive sector is undergoing a significant transformation. Our aim is to create a new international insurance intermediary where product development, pricing, marketing and servicing are closely aligned with the changing needs of car manufacturers and customers.
A. Andreas Roth: Daimler was looking for a solid partner to create a new insurance set-up. Its vision requires launching innovative insurance products across the globe – at high pace and frequency. To make that easier, we created Movinx in partnership with Swiss Re, so that Daimler only has to discuss its needs and ideas with one partner (Movinx). We jointly develop the customer journey and Movinx takes care of the insurance components such as the product development.
A. Andreas Roth: The openness and close collaboration is what really impressed me. We have a strong joint vision to transform motor insurance.
A. Sebastiaan Bongers: The other challenge was building a scalable global proposition right from the beginning.
Q. What makes Movinx unique? A. Andreas Roth: We are not just another white-label programme. Movinx is unique because it involves a strategic alliance between Daimler and Swiss Re that is purely dedicated to the new automotive and mobility era of connected, autonomous, shared and electric vehicles. The Movinx strategy is to eventually expand in order to form a closer and stronger cooperation between the wider insurance and automotive industry.
In October 2020, Swiss Re and Daimler Insurance Services jointly launched a new insurance company, Movinx, to cater to the changing needs of car manufacturers and customers. The aim is to enable Mercedes-Benz customers to conveniently purchase and manage motor insurance products online that are specifically tailored to their automobile model and usage type. For instance, the products are being developed based on characteristics such as a vehicleʼs safety features or whether an automobile will be owned or shared.
The incidence of type 2 diabetes is growing in the UK, with the number of people suffering from the condition set to grow to 4.5 million by 2025.
Gro Health is an app that helps people change their behaviour regarding nutrition, fitness, sleep and mental wellbeing. The user-friendly platform includes coaching, exercises and diet plans, among many other features.
Our partners provide the technology and consumer outreach to bring large numbers of people within the insurance safety net. Here are two examples.
The partnership focuses on providing industrial enterprises, financial institutions and governments with technological products and solutions, including the application of insurtech in the area of life and health insurance.
Q. Why is iptiQ important for Swiss Re and our industry?
A. iptiQ P&C onboarded six new distribution partners across Europe in 2020, offering a variety of products from cyber to motor to home insurance. It’s early days, but judging by the calibre of our partners, we’re on the right track.
Inclusion and diversity At Swiss Re, we are aware of the value that Inclusion & Diversity (I&D) brings to our company. We work hard to ensure that every employee feels that they belong and are able to contribute and thrive.
Mosaic was established in the US and Mexico in 2019. By the end of 2020, it had expanded beyond the Americas, with local branches established in South Africa, Switzerland and the UK.
These groups build awareness about I&D topics across the organisation and represent the voice of our employees by providing feedback, sharing ideas and co-creating impactful I&D solutions.
The result was uninterrupted service for our clients – in fact, our Asian Treaty team even increased the number of renewed contracts it processed versus 2019.
A. As a risk knowledge company, we need to enable continuous learning and development for our people to ensure we jointly shape the success of our company today and in the future. We want a culture where working for Swiss Re leads to fulfillment for our people and where they are able to continuously grow and realise their full potential.
A. Our overall mission remains to shape the culture of the company for business impact. Within this, one clear priority for 2021 and beyond is to push our Inclusion & Diversity agenda to the next level. We want to build on the strong foundation Swiss Re has and create an even more inclusive work environment, enabling everyone to be at their best and succeed.
Further action beyond 2020 We are committed to continuing on this path and further developing our employee support initiatives.
Pathways, Swiss Re’s mental health network, allows employees in all locations to raise their hands and become Mental Health Champions. By the end of 2020, we had over 200 Champions offering support such as mental health talks, mindfulness sessions and desk yoga.
The Champions raise awareness of mental health issues among employees, challenge mental health stigma and provide peer support to colleagues. They lend an ear to anyone in need of support, including those who are experiencing mental health issues or emotional distress. They also spread the word about the wellbeing support available.
After over 30 years at Swiss Re, including 12 years as Chairman of the Board of Directors, Walter B. Kielholz will retire in 2021. He discusses how Swiss Re has been able to maintain its superior capitalisation, grow in a volatile risk landscape and deliver a strong longterm return for shareholders.
Q. Can you give us an example of how this emphasis on superior capitalisation guided the management’s decision?
A. In the early 1990s, we were one of the largest direct insurance groups in Europe, with big businesses in Germany, Italy, Spain and the UK. When the asbestos crisis swept over the industry, to be able to increase our reserves and preserve strong capitalisation, we decided to sell these direct insurers and concentrate more exclusively on reinsurance, where the outlook was judged to be more favourable. As a consequence of this decision, our share price increased 500%. We became a much smaller company, much more focused, and also much more valuable.
A. To put it very simply, as a CEO and then a Board Member, I always wanted to sleep well at night. And to sleep well, we needed the strong capital base. Of course, there was nothing like the Swiss Solvency Test 30 years ago. Back then, the Swiss insurance regulator actually considered not regulating reinsurance companies. So, the way capitalisation is measured has definitely changed over the years, but our desire to be strongly capitalised was always the same, irrespective of regulation. At the end of the day, this gives us a strategic advantage – our clients want to work with a reinsurer whose capital strength is beyond any doubt.
Walter B. Kielholz addresses guests during Swiss Re’s 150-year anniversary event in London in 2013. Over the course of the year, more than 30 000 guests across the globe joined Swiss Re to celebrate this major milestone in the company’s history.
Q. Since that divesture of the direct insurance companies in the 1990s, Swiss Re has grown significantly. How was this achieved?
A. Now we’re reinvesting the money from the sale of ReAssure into the growth of our white-label digital insurance platform iptiQ, where we see great opportunities for the future. We also see attractive opportunities to invest our capital in the P&C Re business, now that we are finally in a hardening market after so many years of inadequate prices.
Q. Growing the dividend and repatriating excess capital to shareholders are the other two capital management priorities you mentioned. Can you elaborate on the developments over the past three decades?
A. With the exception of extraordinary loss events, such as the terrorist attack on 11 September 2001 or the losses in the global financial crisis, we continuously grew the ordinary dividend we pay to shareholders. This was also complemented by special dividend payments and share buybacks to return excess capital. Since 1993, Swiss Re repatriated nearly USD 38 billion to our shareholders through these measures. For 2020, even though the COVID-19 crisis has led us to report an annual loss, the Board of Directors is proposing an unchanged dividend of CHF 5.90 per share, underlining our capital strength and confidence in the future of Swiss Re.
Q. And how has Swiss Re’s share price developed over this time?
which constantly repatriates capital to shareholders, you have to look at the total return that investors get. Our long-term shareholders received a total return of 8% per annum since 1993. This is not something to be taken for granted. As a comparison, the MSCI World Index – which includes the largest companies across 23 developed countries and has been propelled higher and higher in recent years by the growth in technology stocks like Apple, Microsoft, Amazon or Google – returned 7% per year over the same period. The MSCI World Insurance Index returned 5% per year since it was first established in 1995.
Q. Why do you think Swiss Re has managed to outperform?
Swiss Re | Business Report 2020 49A discussion with Walter B. Kielholz
Swiss Re total shareholder return Two distinct phases: Growth until 2009 and disciplined capital repatriation to shareholders after 2009
Mr Kielholz continued to serve as Vice President of Swiss Re’s
Campus Mythenquai Swiss Re Next opened in 2017. The introduction of a flexible work culture would prove valuable for employees to adapt to the move to home office during the COVID-19 pandemic.
At the Annual General Meeting on 17 April 2020, Sergio P. Ermotti, Joachim Oechslin and Deanna Ong were elected as new members of the Board of Directors. Trevor Manuel and Eileen Rominger did not stand for re-election. Walter B. Kielholz was re-elected as member and Chairman of the Board of Directors for a one-year term of office. The shareholders also re-elected the following members of the Board of Directors for a one-year term of office: Renato Fassbind (Vice Chairman and Lead Independent Director), Raymond K.F. Ch’ien, Karen Gavan, Jay Ralph, Joerg Reinhardt, Philip K. Ryan, Sir Paul Tucker, Jacques de Vaucleroy, Susan L. Wagner and Larry Zimpleman.
Deanna Ong was elected to the Board of Directors of Swiss Re Ltd in 2020. She is a member of the Audit Committee. She is also a member of the Board of Directors and Chairperson of the Audit Committee of Swiss Re Asia Pte. Ltd.
the Group EC consists of 13 members; prior to that, it consisted of 14 members.
For further information, please see p. 102 of the Financial Report
Christian Mumenthaler was appointed Group Chief Executive Officer in July 2016. Prior to that, he held several leading positions within the company, including Chief Executive Officer Reinsurance, Head of Life & Health and Group Chief Risk Officer. He became a member of the Group Executive Committee in 2011.
Jonathan Isherwood was appointed Chief Executive Officer Reinsurance Americas as of 1 April 2020, and Regional President Americas and a member of the Group Executive Committee as of 14 August 2020. Prior to that, he served as Head Globals Reinsurance.
Andreas Berger joined Swiss Re in March 2019 as Chief Executive Officer Corporate Solutions and member of the Group Executive Committee. Prior to that, he held several leading positions at Boston Consulting Group, Gerling and Allianz Global Corporate & Specialty SE (AGCS).
Thierry Léger was appointed Chief Executive Officer Life Capital and a member of the Group Executive Committee as of January 2016. With effect from 1 September 2020, he assumed the role of Group Chief Underwriting Officer.
John R. Dacey joined Swiss Re in October 2012 and was appointed Group Chief Strategy Officer and a member of the Group Executive Committee in November 2012. He also served as Chairman Admin Re® from November 2012 to May 2015. He was appointed Group Chief Financial Officer with effect from April 2018.
Anette Bronder joined Swiss Re in June 2019 and was appointed Group Chief Operating Officer and a member of the Group Executive Committee effective July 2019. Before that, she held various leadership positions at Hewlett Packard, Vodafone, T-Systems International and Deutsche Telekom.
Moses Ojeisekhoba joined Swiss Re in February 2012 and was appointed Chief Executive Officer Reinsurance Asia, Regional President Asia and a member of the Group Executive Committee in March 2012. In July 2016, Moses Ojeisekhoba was appointed as Chief Executive Officer Reinsurance.
Nigel Fretwell joined Swiss Re as Group Chief Human Resources Officer in May 2013 and was appointed as a member of the Group Executive Committee effective July 2019. Prior to that, he held various senior roles at Barclays and HSBC.
markets, trade wars or other protectionist measures relating to international trade arrangements, adverse geopolitical events, domestic political upheavals or other developments that adversely impact global economic conditions; • increased volatility of, and/or disruption in, global capital and credit markets; • the Group’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of the Group’s financial strength or otherwise; • the Group’s inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their values recorded for accounting purposes; • the Group’s inability to generate sufficient investment income from its investment portfolio, including as a result of fluctuations in the equity and fixed income markets, the composition of the investment portfolio or otherwise;
for purposes of financial reporting, particularly with respect to large natural catastrophes and certain large man-made losses, as significant uncertainties may be involved in estimating losses from such events and preliminary estimates may be subject to change as new information becomes available; • legal actions or regulatory investigations or actions, including in respect of industry requirements or business conduct rules of general applicability; • the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings, and the overall impact of changes in tax regimes on the Group’s business model; • changes in accounting estimates or assumptions that affect reported amounts of assets, liabilities, revenues or expenses, including contingent assets and liabilities; • changes in accounting standards, practices or policies; • strengthening or weakening of foreign currencies; • reforms of, or other potential changes to, benchmark reference rates; • failure of the Group’s hedging arrangements to be effective; • significant investments, acquisitions or dispositions, and any delays, unforeseen liabilities or other costs, lower-thanexpected benefits, impairments, ratings action or other issues experienced in connection with any such transactions; • extraordinary events affecting the Group’s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events; • changing levels of competition; • the effects of business disruption due to
terrorist attacks, cyberattacks, natural catastrophes, public health emergencies, hostilities or other events; • limitations on the ability of the Group’s subsidiaries to pay dividends or make other distributions; and
New York 1301 Avenue of the Americas New York, NY 10019
Head office Swiss Re Ltd Mythenquai 50/60, P.O. Box, 8022 Zurich, Switzerland
Photography: Braschler/Fischer Cliffton Mandola Fredi Lienhardt Getty Images, Shutterstock Jeromy Knight Leonardo Finotti Marc Wetli Michael Gawthorne Simon Wachter Swiss Re 5th Avenue Digital
Return on equity in %1 2.5 –3.1 Return on investments in % 4.7 3.5 Net operating margin in %2 3.4 –1.1
Combined ratio in % 127.9 116.5 Net operating margin in %2 –16.7 –10.5 Return on equity in %1 –34.1 –17.4 Life Capital Net loss attributable to common shareholders –177 –265 –50
Premiums earned and fee income 2 149 1 984 –8 Gross premiums written – open books 1 790 2 171 21 Net operating margin in %2 2.4 –6.6 Return on equity in %1 –3.4 –7.5 1 Return on equity is calculated by dividing net income/loss attributable to common shareholders by average common shareholders’ equity. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. 3 Regular staff.
Our Annual Report Our Annual Report consists of the Business Report and the Financial Report: Financial Report This publication provides a more detailed account of our financial performance during the year and the market trends we observe. It also provides details on risk and capital management, as well as information on our governance and compensation.
Swiss Re reported strong underlying performance in 2020, despite large losses related to COVID-19, and reaffirmed its positive outlook.
In addition, central banks took steps to directly support the real economy. This included measures to encourage banks to lend to households and businesses, as well as purchases of private sector assets. For example, the Fed bought corporate bonds for the first time. Fiscal and monetary authorities also increased their coordination. Many governments offered fiscal support for the new central bank monetary measures, while central bank sovereign bond purchases helped keep government funding costs low.
COVID-19 has triggered the deepest global recession since World War II and dealt a blow to economic resilience. Despite a fragile economic recovery, global equity markets have bounced back, supported by massive fiscal and monetary responses.
Recession: first-half lockdown The world economy contracted by almost 4% in 2020, more than twice the decline during the global financial crisis of 2008– 2009 (–1.8%). The outbreak of COVID-19 led to government-mandated lockdowns that drastically reduced economic activity. The US economy (–3.5%) proved more resilient than the Euro area (–6.8%) and Japan (–4.7%) in 2020. China was the only major economy to grow in 2020 (+2.3%) after recovering quickly from the crisis and returning to growth in the second quarter. Other emerging markets were affected more severely; India contracted by 8.2%, Brazil by 5.0% and Russia by 3.1%.
Note: SRI GDP shortfall index, 7-day moving average, is calculated by multiplying the estimated GDP sensitivity to mobility by the Google Mobility Index, which represents the average change in frequency of visits to workplaces, public transportation, and retail centers.
Long-term government bond yields trended lower in response to the stimulus (see the interest rate chart). The US 10-year yield closed the year at 0.9%, down by one percentage point compared with the previous year, while the UK 10-year yield dropped from 0.8% to 0.2% during the year.
Recovery: fragile and uneven The economic rebound from the sharp contraction in the first half of 2020 began swiftly during the northern hemisphere summer as governments eased mobility restrictions and fiscal and monetary measures took effect. Economies did not return to full capacity, however (see the GDP shortfall indices chart). Momentum weakened at year-end as COVID-19 infection rates increased again, a sign of the fragility of the recovery. In the Euro area, lockdowns of the hospitality, leisure and entertainment sectors led to a double-dip contraction in the fourth quarter. Growth in China remained more robust than elsewhere, though the weak global backdrop weighed on external demand.
After falling into bear markets as the pandemic took hold, global stock markets rallied for the rest of 2020 to recover most or all of their losses. The fiscal and monetary stimulus unleashed worldwide prompted major stock indices to rebound from falls of between 28% (Swiss Market Index (SMI)) and 38% (Eurostoxx 50). US stocks ended the year 16% above prior-year levels (see the stock markets chart), supported by a weaker US dollar exchange rate.
Resilience: the need to replenish The COVID-19 crisis has depleted global economic resilience further from an already weak level. The Swiss Re Institute Macroeconomic Resilience Index indicates that the world economy was less resilient at the onset of the pandemic than before the global financial crisis of 2008–2009 (see the economic resilience indices chart). We estimate global economic resilience decreased by another 20% during 2020 as stimulus packages reduced fiscal headroom. Diminished monetary policy buffers also contributed, although these were already largely exhausted ahead of the pandemic.1
The increase in public and private sector debt and deficits in 2020 is the largest and fastest since World War II. It accelerates the trend of rising corporate debt and declining credit quality seen since 2008. This could lead to higher corporate bankruptcies and, potentially, a credit crisis. Meanwhile, the number of “zombie companies” is likely to increase as access to cheap credit enables indebted and unprofitable companies to survive. While generous monetary and fiscal support helps to avoid a credit crisis in the short term, increasing “zombification” may weigh on growth in the long run.
Replenishing economic resilience needs to be a top policy priority for societies. The global economy no longer has the luxury of relying on monetary and fiscal levers alone. Alternatives should include structural reforms that strengthen resilience, such as targeted investments into sustainable infrastructure, the digital economy and the transition towards a low-carbon economy. Governments should also work to limit inequality, foster human capital, deepen the liquidity and dynamism of financial markets and improve the efficiency of labour markets.
Market overview The global non-life industry generated around USD 2 500 billion of premium income in 2020, of which 22% came from emerging markets. Non-life insurance ranges from standardised motor and household covers to sophisticated tailormade liability and property covers, including specialty, commercial and industrial risk insurance.
We estimate that overall profitability of the non-life insurance sector, measured by return on equity (ROE) was at 5% in 2020, down from an already low 7% in 2019, mostly driven by lower investment returns.
These losse were almost entirely related to commercial lines of business and were largely attributed to business interruption covers triggered under communicable diseases clauses and to event cancellations. Trade credit insurance also experienced significant losses, as did liability lines (E&O, D&O, medical malpractice) and workers’ compensation for healthcare workers.
Personal insurance lines experienced better underwriting results, mainly in motor insurance due to significantly reduced claims frequencies as a result of the lockdown measures.
The profitability outlook remains challenging. We believe low interest rates are here to stay with 10-year US Treasury yields expected to remain below 2% over the next two years. As such, any improvement in sector profitability will depend on underwriting performance, suggesting a need for more rate increases and improved underwriting discipline.
Market performance Estimated global premium growth in 2020 1 Bottom-up reporting of companies is net of reinsurance, and often net of tax. Also, the list of companies is not comprehensive. The bottom-up reporting is therefore already closer to the top-down estimate than the figures suggest. This range includes estimates from four different sources.
In terms of profitability, the reinsurance industry provided a subpar performance for the fourth year in a row, with return on equity of around 4% in 2020. This was a result of negative industry underwriting results and low investment returns. Preliminary data indicated a combined ratio of around 105% for 2020, deteriorating from 101% in 2018 and 2019, which was driven by elevated natural catastrophe losses and COVID-19 claims.
The record North Atlantic hurricane season, which included 30 named storms, as well as upward revisions to loss estimates, pushed overall natural catastophe losses higher. We estimate that insured claims rose to roughly USD 89 billion for the year, well above the USD 63 billion loss total for the full year 2019. While COVID-19 claims are still unfolding, the reinsurance industry will take a significant share of the estimated industry loss of USD 50–80 billion1.
The sector’s capital base remained very strong despite the capital markets turmoil in the first half of the year, allowing reinsurers to fulfill their role as the backbone of the insurance industry and to support societal resilience. The capital position of global reinsurance, including both the traditional source of reinsurance capacity as well as alternative capital, showed a slight decline of 2% during 2020. For the alternative capital sector, it was the second year of decline after 2019, which showed a decline in capacity of 7% after several years of soaring capital inflows.2
Market outlook For the renewal rounds in 2021, we expect a further increase of reinsurance price as a reflection of elevated losses from natural catastrophes since 2017 and from COVID-19 claims.
Premium income of the reinsurance industry is expected to grow by 7% in 2021 and by 5% in 2022, mainly driven by higher prices.
In the emerging market segment, only China – which became the second largest life insurance market globally – succeeded in maintaining the positive momentum. It showed a 2% expansion due to increased risk awareness and the rapid adoption of digital distribution channels. Other emerging market regions experienced declines of between 4% for Emerging Asia and 8% for Latin America.
Market performance We estimate that global life and health reinsurance premiums grew by 4% in 2020. Expansion was unevenly distributed between segments and regions. Medical expense reinsurance from emerging markets was up more than 32%, mainly driven by China and India. Globally, this sector was up 17%, contrasting strongly with a more sluggish 1% increase in mortality and health-related reinsurance demand from life insurers.
Against this background, life reinsurers have sought to increase revenues through large, individual risk transfer transactions that help primary insurers stabilise income and/or bolster their balance sheets. The introduction of risk-based capital regimes has prompted much of this activity. Another area of growth has been longevity risk transfer. The availability of longevity reinsurance has become key to pricing annuity transactions as insurers offering those transactions to pension funds require reinsurance to hedge the longevity risk.
The operating margin of the life reinsurance industry fell to around 4% of revenues in 2020, down from 7–8% between 2015 and 2019. The contribution from investments declined further, due to the ongoing low interest rate environment, which was accentuated by the further expansionary monetary policy. The underwriting performance was in turn negatively impacted by elevated mortality claims due to COVID-19.
Revenues Gross premiums written 42 228 42 951 2 Net premiums written 39 649 39 827 – Change in unearned premiums –1 675 494 – Premiums earned 37 974 40 321 6 Fee income from policyholders 620 449 –28 Net investment income – non-participating business 4 171 2 988 –28 Net realised investment gains/losses – non-participating business 1 580 1 730 9 Net investment result – unit-linked and with-profit business 4 939 –2 187 –
Income/loss before interest and income tax expense 1 498 –502 – Interest expenses –589 –588 – Income/loss before income tax expense 909 –1 090 – Income tax expense/benefit –140 266 – Net income/loss before attribution of non-controlling interests 769 –824 –
Total shareholders’ equity as of 1 January 27 930 29 251 5 Net income/loss attributable to common shareholders 727 –878 – Dividends –1 659 –1 765 6 Change in unrealised gains/losses on securities, net of tax 3 249 608 –81 Change in foreign currency translation, net of tax 110 39 –65 Purchase/sale of treasury shares and share based payments –925 –174 –81 Adjustment for pension and other post-retirement benefits, net –22 42 – Other changes in equity –159 12 – Total shareholders’ equity as of 31 December 29 251 27 135 –7 Non-controlling interests 1 786 123 –93 Total equity as of 31 December 31 037 27 258 –12
Assets Fixed income securities 81 573 83 018 2 Equity securities 2 993 4 899 64 Other investments 12 892 16 231 26 Short-term investments 5 768 16 082 179 Investments for unit-linked and with-profit business 520 463 –11 Cash and cash equivalents 7 562 5 470 –28 Deferred acquisition costs 7 838 8 230 5 Acquired present value of future profits 1 042 928 –11
Throughout 2020, Swiss Re showed a strong underlying performance across the Group. Excluding COVID-19 losses, Group net income increased to USD 2.2 billion for the year, up from USD 727 million in 2019.
Against a backdrop of hardening prices in key lines of business, Property and Casualty Reinsurance (P&C Re) was able to grow its core business. It increased natural catastrophe exposure by 7% over the year, maintaining its market-leading position in North America. For Life and Health Reinsurance (L&H Re), there was growth in areas such as critical illness business in China and in the longevity portfolio in EMEA.
Reinsurance saw demand for large transactions and tailored solutions, closing over 200 tailored reinsurance deals and increasing the number of new insurance propositions delivered to clients in 2020.
Our Group has gone through this crisis with confidence and strength, and in our role as a shock absorber we are doing our part to help mitigate the challenges of the pandemic and improve resilience to future systemic risks.
P&C Re’s focus on underwriting quality and improved terms and conditions in recent renewals allow for an improved normalised1 combined ratio estimate of less than 95% in 2021.
Corporate Solutions is repositioning its product offering by focusing on segments with a clear competitive advantage. Other important strategic objectives include deploying proven technology to drive expansion, leveraging direct access to corporates for the Swiss Re Group and fostering a more disciplined and data-driven underwriting culture.
iptiQ, Swiss Re’s global B2B2C digital insurance platform, achieved 76% premium growth in its core business in 2020, writing gross premiums in excess of USD 370 million for the year. iptiQ increased the number of distribution partners by 11 in 2020 to a total of 40.
iptiQ’s growth is an example of the success of the Group-wide strategy to create new partnerships and develop Swiss Re’s position as a technology-driven risk knowledge company.
Performance Swiss Re reported a net loss of USD 878 million for the year after booking claims and reserves related to COVID-19 of USD 3.9 billion. The vast majority of the Group’s COVID-19 losses was driven by affirmative non-damage business interruption, higher mortality claims as well as cancelled or postponed events. Excluding the after-tax impact of COVID-19related losses, the Group’s net income would have been USD 2.2 billion, compared with USD 727 million for 2019. The Group’s net operating margin2 was –1.1%, compared with 3.4% in the prior year.
L&H Re reported a net income of USD 71 million in 2020, including COVID-19 related claims of USD 999 million, largely caused by higher mortality claims. Excluding the after-tax impact of COVID-19related losses, L&H Re’s net income would have been USD 855 million in 2020, compared with USD 899 million in 2019. The result was supported by a strong investment result with a return on investments (ROI) of 3.7%. The net operating margin was 2.9% in 2020 and 10.0% in 2019.
Corporate Solutions incurred a net loss of USD 350 million in 2020, with claims and reserves related to COVID-19 totalling USD 943 million in 2020. Excluding the after-tax impact of COVID-19-related losses, the Business Unit swung to a net income of USD 393 million, compared with a net loss of USD 647 million in 2019, benefitting from rate increases, lower large man-made losses, favourable prior accident years development and strict expense management.
Shareholders’ equity, excluding non-controlling interests, decreased to USD 27.1 billion at the end of 2020, down from USD 29.3 billion at the end of 2019, mainly reflecting payments to shareholders of USD 2.0 billion for the 2019 regular dividend and the share buyback programme, as well as the current-year net loss, partly offset by unrealised gains on fixed income securities of USD 0.6 billion.The return on equity was –3.1% in 2020, compared with 2.5% in 2019.
Earnings per share for 2020 were USD –3.04 or CHF –2.97, down from USD 2.46 or CHF 2.46 for 2019.
Net investment income in USD billions, 2020 (2019: USD 4.2 billion)
Net premiums earned by P&C Re were USD 20.8 billion, an increase from USD 19.3 billion in 2019, benefitting from large transactions and growth in the natural catastrophe business. At constant exchange rates, premiums earned increased by 8.0%. The P&C Re combined ratio increased to 109.0% in 2020 from 107.8% in the prior year, mainly driven by COVID-19 losses. Excluding the pre-tax impact of COVID-19-related losses, the combined ratio would have been 99.8%.
L&H Re’s net premiums earned and fee income amounted to USD 13.9 billion, an increase from USD 13.0 billion in the prior- year period, supported by individual large transactions including longevity deals. At constant exchange rates, premiums earned and fee income increased by 6.7%.
Corporate Solutions’ net premiums earned decreased slightly to USD 4.0 billion from USD 4.2 billion in the prior year, driven by the active portfolio pruning and less business activity due to COVID-19, partially offset by rate increases. At constant exchange rates, net premiums earned decreased by 2.5% year-on-year. The Corporate Solutions combined ratio decreased to 116.5% in 2020 from 127.9% in 2019. Excluding the pre-tax impact of COVID-19-related losses, the combined ratio would have been 93.2% for the year. The normalised combined ratio remains well ahead of the 105% estimate for 2020.
Life Capital’s net premiums earned and fee income were USD 2.0 billion, slightly below the prior-year period of USD 2.1 billion, as the growth in the open book business was offset by the impact from the deconsolidation of the ReAssure business. At constant exchange rates, premiums earned and fee income decreased by 9.2%.
The Group’s non-participating investment portfolio decreased from USD 134.5 billion at the end of 2019 to USD 125.7 billion in 2020, in part due to the sale of the ReAssure portfolio in July 2020. The ROI was 3.5% for 2020, compared with 4.7% for 2019. The strong investment result, although lower than in the prior year, was driven by timely and effective portfolio management actions throughout the global financial market turbulence.
The Group reported non-participating net realised gains of USD 1.7 billion in 2020, compared with USD 1.6 billion in 2019. The increase reflects the fact that the prior year was impacted by the loss from the agreed sale of ReAssure and additional foreign exchange losses, while the current year reflects reduced gains from sales of fixed income securities.
Acquisition costs for the Group amounted to USD 8.2 billion in 2020, up from USD 7.8 billion in 2019.
As windstorms, floods, earthquakes and wildfires continued to hit communities around the world, reinsurance again served as a key resilience tool.
Making the world more resilient 2020 was a year in which our clients and partners needed us more than ever to help mitigate the impact of COVID-19 – whether from the pure financial impact, support in their operations, underwriting, product development or claims assessment and payments.
Across P&C Re, our strong product support helped European insurers to structure a workable affirmative disease product for business closures that excludes systemic accumulation such as pandemics. We also found ways to support clients who faced premium challenges linked to COVID-19.
The right strategy In 2020, we confirmed our ambition to build on the three strategic pillars of Reinsurance: Core, Transactions and Solutions. We will continue to focus on strengthening our key assets: global scale and presence, risk diversification, deep risk knowledge, and client collaboration and access. By continuing to invest in these assets, we ensure that we provide the right support to our clients when it is most needed.
Over the last year we saw progress in all areas of our strategy. In our core business, we grew our natural catastrophe exposure by 7% and maintained our market-leading position in North America. Reinsurance grew its critical illness book in China and longevity portfolio in EMEA. We increased our deployed capacity and premiums written in our life and health business, where we remained the number one provider of reinsurance globally. During 2020, L&H Re reinsured 235 million policies and paid out USD 10.8 billion in claims. In P&C Re, 3 223 clients benefitted from our support with USD 10.9 billion paid in claims.
Beyond traditional risk transfer, more clients used our Solutions offerings in 2020 than ever before. We have continued to grow our breadth of services to support clients in accessing and understanding new risk pools and opportunities in accelerated technology developments. In life and health markets, COVID-19 increased the demand for automated underwriting systems such as Magnum, which enables a faster and better assessment of risk by leveraging electronic health records. In property and casualty markets, we achieved our best year by far for SwiftRe®, our digital channel for automated single-risk reinsurance capacity that is available 24/7. The business placed through SwiftRe® grew by 20% in 2020 and we also saw a record number of new clients onboarded. In addition, we successfully concluded more than 400 solutions deals, including many innovative propositions such as digital and lean motor insurance aimed at millennials in the US and Asia Pacific region, and parametric earthquake products supporting the needs of small businesses.
The investment portfolio made a strong contribution with an ROI of 3.0% for 2020, as the impact of global financial market turbulence was partly mitigated by timely and effective portfolio management actions taken early on in the first half year.
Combined ratio The P&C Re combined ratio was 109.0% in 2020, compared with a reported combined ratio of 107.8% in 2019. Excluding the impact of COVID-19-related losses, the combined ratio would have been 99.8%. This was above the expected level for the year due to adverse large natural catastrophe experience of 1.4% points and the unfavourable prior-year development of 1.5% points. The normalised1 combined ratio was 96.9%, in line with the estimate of 97% for the full year provided at the beginning of 2020.
Lines of business The property combined ratio increased to 109.4% in 2020, compared with 101.3% a year earlier. While both periods were impacted by large natural catastrophe losses, the 2020 deterioration also included COVID-19-related losses of 17.4% points and the Beirut port explosion loss. This was partly compensated by natural catastrophe reserve releases.
Interest expenses –352 –321 –9 Income/loss before income tax expense 461 –309 – Income tax expense/benefit –65 62 – Net income/loss attributable to common shareholders 396 –247 –
The casualty combined ratio was 111.8% in 2020, compared with 116.6% in 2019. This included COVID-19-related losses of 3.2% points and an adverse casualty experience, the majority of which was in the first quarter of 2020.
The specialty combined ratio deteriorated to 98.7% in 2020, compared with 95.3% in 2019. The current period included COVID-19-related claims in credit & surety of 5.3% points, partly compensated by positive experience in marine business.
Net investment income decreased by USD 267 million to USD 1 043 million for 2020, driven by declining yields on fixed income securities.
Net realised gains were USD 649 million for 2020, compared with USD 985 million for the prior period, as the prior year benefitted from significant equity market value gains.
For casualty, we further de-risked our US liability portfolio with a clear focus on profitability. We see increasing rate momentum in several markets, which is partially offset by loss trends and yield reduction.
Net operating margin The net operating margin, excluding the pre-tax impact of COVID-19-related losses, would have been 9.4% in 2020, compared with 10.0% reported in 2019. Both years benefitted from a strong investment performance.
Fee income from policyholders 169 158 –7 Net investment income – non-participating business 1 207 1 140 –6 Net realised investment gains/losses – non-participating business 628 445 –29 Net investment result – unit-linked and with-profit
Expenses Life and health benefits –10 587 –12 204 15 Return credited to policyholders –162 5 –
Income before interest and income tax expense 1 491 456 –69 Interest expenses –445 –367 –18 Income before income tax expense 1 046 89 –91 Income tax expense –147 –18 –88 Net income attributable to common shareholders 899 71 –92
Management expense ratio in % 5.2 5.2 Net operating margin in % 10.0 2.9
Investment result The return on investments for 2020 was 3.7%, down from 5.0% in 2019, reflecting a decrease in the investment result of USD 323 million driven by the impact of global financial market volatility.
Shareholders’ equity Shareholders’ equity decreased to USD 7.4 billion as of 31 December 2020, compared with USD 8.3 billion as of 31 December 2019. Positive change in net unrealised gains was more than offset by the dividend paid to the Group, as well as foreign exchange and the impact from restructuring of internal loans.
L&H Re sees a continued strong focus of clients on capital, risk and balance sheet optimisation in mature markets, leading to ongoing opportunities for large transactions. L&H Re will continue to pursue growth opportunities in high-growth markets and in large transactions, including longevity deals. L&H Re is responding to the expanding need for health protection driven by ageing societies, and is applying its risk knowledge to help reduce the protection gap in all regions.
In addition, strict execution of the expense management actions laid out in 2019 helped the unit achieve almost all of the expense savings. Claims and reserves related to COVID-19 amounted to USD 943 million pre-tax, resulting in a net reported loss of USD 350 million for 2020.
Corporate Solutions’ underlying results for 2020 are the reward for all the hard work and discipline that has gone into turning the Business Unit around. We have made big steps to become a significant contributor to Swiss Re’s profitable growth ambitions. At the same time, we are making good progress in addressing customer pain points and industry inefficiencies.
1 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments, as well as the COVID-19 impact.
Premiums Net premiums earned were USD 4.0 billion in 2020, a decrease of 2.9% year-on-year, as active portfolio pruning was cushioned by realised rate increases and higher volumes in targeted growth areas. Gross premiums written decreased by 2.7% to USD 4.8 billion in 2020, reflecting the pruning impacts, a more selective underwriting approach in credit & surety and reduced business activity due to the COVID-19 pandemic. These factors were partially offset by the strong pricing momentum which continued in 2020, with Corporate Solutions achieving an average price increases of 15%, as well as a higher volume of fronted business.
The casualty combined ratio decreased to 108.1% in 2020, compared with 137.6% in 2019, reflecting the benefits of management actions previously taken. Excluding COVID-19 impacts, the combined ratio would have been 106.6%.
The specialty combined ratio for 2020 improved by 19.3 percentage points to 109.9%, driven by management actions to improve profitability, partially offset by COVID-19-related losses on the credit & surety portfolio. Excluding COVID-19 impacts, the combined ratio would have been 89.7%.
Investment result The return on investments was 2.6% for 2020, compared with 3.4% in 2019, reflecting a decrease in the investment result of USD 97 million.
Net investment income decreased by USD 86 million to USD 154 million in 2020, mainly due to reinvestment into lower yields, as well as a lower average invested asset base.
Net realised gains were USD 73 million in 2020, down from USD 84 million in 2019, reflecting lower market value gains on equity securities, partially offset by additional realised gains on sales of fixed income securities.
Corporate Solutions offers insurance protection against weather perils and other risks, which is accounted for as derivatives. Insurance in derivative form reported a net realised loss of USD 8 million
Net investment income 234 140 –40 Net realised investment gains/losses 162 74 –54 Other revenues 5 5 –
Expenses Claims and claim adjustment expenses –3 900 –3 433 –12 Acquisition costs –640 –592 –8 Operating expenses –788 –690 –12 Total expenses before interest expenses –5 328 –4 715 –12
Loss before interest and income tax expense –761 –449 –41 Interest expenses –40 –31 –23 Loss before income tax expense –801 –480 –40 Income tax expense/benefit 143 136 –5 Net loss before attribution of non-controlling interests –658 –344 –48 Income/loss attributable to non-controlling interests 11 –6 – Net loss attributable to common shareholders –647 –350 –46
Claims ratio in % 93.6 84.8 Expense ratio in % 34.3 31.7 Combined ratio in % 127.9 116.5 in 2020, compared with a net realised gain of USD 89 million in 2019. The current period was impacted by the mild winter temperatures in Europe.
Shareholdersʼ equity Shareholdersʼ equity remained unchanged at USD 2.0 billion since the end of 2019, as the net loss for the period was offset by net unrealised gains and the conversion of a subordinated loan of USD 300 million from debt to equity in the second quarter of 2020.
Outlook The commercial insurance market experienced significant price gains through 2020, continuing the trend started in 2019. Swiss Re expects the positive momentum in commercial insurance to continue in 2021, but to potentially slow down by the end of the year as pricing deficiencies narrow and capital re-enters the market.
The completion of the sale of ReAssure to Phoenix Group on 22 July 2020 represented a significant strategic milestone for the Group. The transaction had valued ReAssure at GBP 3.25 billion, with Swiss Re receiving a cash payment of GBP 1.2 billion and shares representing a 13.3% stake in Phoenix.
The successful deconsolidation of ReAssure allowed Life Capital to pay a dividend to Swiss Re Group of USD 1.5 billion in September 2020. In our open book businesses, Life Capital continued to further enhance Swiss Re’s access to primary risk pools. Through the use of technology, elipsLife and iptiQ demonstrated strong growth despite the headwinds created by COVID-19. In 2020, iptiQ’s gross premiums written in its core business increased by 76% compared to 2019 and elipsLife’s core gross premiums written increased by 22%.
The net operating margin in 2020 was –6.6%, compared with 2.4% in the prior year, in line with movements in income.
Premiums Gross premiums written in the open book businesses increased by 22% during 2020 when measured at constant exchange rates. Overall, net premiums earned and fee income were at USD 2.0 billion for 2020, compared with USD 2.1 billion in 2019, driven by the deconsolidation of the ReAssure business for five months in 2020. This was partially offset by solid growth in the open book businesses.
Net investment income decreased by USD 674 million to USD 113 million in 2020, mainly due to the exclusion of the ReAssure investment portfolio from the investment result.
Net realised gains decreased by USD 148 million to USD 43 million in 2020. The current period was largely driven by market value gains on equity securities.
Outlook As of 1 January 2021, the Life Capital segment is officially disbanded, with the former Life Capital businesses reported in their new operating segments from the first quarter of 2021. Swiss Re will continue to increase access to the primary insurance risk pool through its global B2B2C digital platform iptiQ, which is becoming a standalone division. elipsLife will be reported as part of the Corporate Solutions segment.
Fee income from policyholders 451 291 –35 Net investment income – non-participating business 1 193 827 –31 Net realised investment gains/losses – non-participating business 18 243 – Net investment result – unit-linked and with-profit business 4 821 –2 155 – Other revenues 1 1 –
Expenses Life and health benefits –2 500 –1 718 –31 Return credited to policyholders –4 471 1 755 – Acquisition costs –409 –527 29 Operating expenses –721 –613 –15 Total expenses before interest expenses –8 101 –1 103 –86
Income/loss before interest and income tax expense 81 –203 – Interest expenses –72 –55 –24 Income/loss before income tax expense/benefit 9 –258 – Income tax expense/benefit –133 41 – Net loss before attribution of non-controlling interests –124 –217 75 Loss attributable to non-controlling interests –53 –48 –9 Net loss attributable to common shareholders –177 –265 50 iptiQ currently writes property and casualty business in Europe and intends to launch operations in China in 2021. On the life and health front, iptiQ operates in Europe, the US, Australia and New Zealand, and is exploring other expansion opportunities in Asia.
Thierry Léger Chairman Swiss Re Institute & Group Chief Underwriting Officer
Swiss Re’s large natural catastrophe and man-made large losses, excluding the impact of COVID-19, amounted to USD 2.4 billion in 2020. Natural catastrophe events were above expectations, predominantly from secondary perils across the globe. The largest man-made loss was the explosion in Beirut.
Our research and development insights are the foundation for how we model and understand risk.
The switch to digital working and home office will continue into the future, requiring new forms of cyber coverage at individual, business and platform levels. Swiss Re can support the development of cyber insurance from both the investment and underwriting sides of the business.
A warming climate explains some of the increase in secondary perils. However, since 1980, a steady growth of losses associated with weather events has mainly been due to exposure accumulation that comes with economic growth and urbanisation.
At the same time, we have applied our modelling insights to a range of new natural catastrophe risk transfer solutions, enabling our clients and partners to offer new insurance products. These include index-based cover schemes for communities and public entities.
We have sharpened our focus on sustainability by steering our risk-taking away from carbon-intensive industries, expanding into sustainable industrial activities like renewable energy and developing sustainability metrics to steer our liability portfolios, alongside our financial metrics.
Swiss Re’s investment performance was strong in 2020, despite the global financial market volatility. The focus on high-quality fixed income assets helped to reduce the impact of the financial market turmoil, as did our industry-leading ESG approach. Active and timely portfolio management activities also contributed to the strong investment performance. Actions included the targeted and early reduction of sectors with high vulnerability to COVID-19-related market impacts, as well as dynamically managed portfolio hedging following the onset of the crisis.
In terms of specific key market developments, US 10-year Treasury yields declined to just above 0.5% in August, a new all-time low. Since then, they have increased again amid the economic recovery. Meanwhile, credit spreads of investment grade corporate bonds moved to their widest levels since the Global Financial Crisis in March, before narrowing again to levels close to the beginning of the year, in part due to the Federal Reserve providing a backstop to credit markets. Our active portfolio management and emphasis on high-quality exposure resulted in minimal impairments. Finally, equities rose sharply after hitting multi-year lows in late March, with the S&P 500 reaching new record highs in December as the uncertainty surrounding the US election outcome dissipated and positive news emerged on the effectiveness of various COVID-19 vaccines. This led to notable market value gains in the equity portfolio.
Asset Management’s proactive portfolio management helped successfully navigate exceptional financial market volatility, delivering a strong result for the Group.
Outlook The global economy has seen a stronger-than-expected recovery after the pandemic-induced “sudden stop” in spring. However, renewed COVID-19 waves in both the US and Europe weighed on economic growth in the fourth quarter, resulting in global real GDP growth in 2020 that is still deeply negative.
Looking ahead, the global economy is expected to recover in 2021, although not all economies are expected to reach pre-COVID-19 GDP levels this year. Inflationary pressure is expected to remain moderate even though base effects are likely to lead to a temporary increase in the very near term. In this environment, monetary policy is set to remain highly accommodative. Continued fiscal support is likely necessary to sustain the recovery.
typically two working days after the ex-dividend date. The corresponding dates in 2021 are 20 and 22 April.
Swiss Re shares Swiss Re had a market capitalisation of CHF 26.5 billion on 31 December 2020, with 317.5 million shares outstanding, of which 289 million were entitled to dividends. Swiss Re shares are listed in accordance with the International Reporting Standard on the SIX Swiss Exchange (SIX) and are traded under the ticker symbol SREN.
The Group aims to ensure superior capitalisation at all times and to maximise financial flexibility, growing the regular dividend with long-term earnings and, at a minimum, maintaining it. Swiss Re will then deploy capital for business growth where it meets its strategy and profitability requirements and finally repatriate further excess capital to shareholders, with the preferred form of future capital repatriation being share buyback programmes.
Weighting in indices As of 31 December 2020 Index weight (in %)
Insurance indices STOXX Europe 600 Insurance 4.87 Bloomberg Europe 500 Insurance 4.76 FTSEurofirst 300 Insurance 5.80 Dow Jones Insurance Titans 30 2.56
Sustainability indices Dow Jones Sustainability Europe 0.60 Dow Jones Sustainability World 0.24 FTSE4Good Global 0.07 Bloomberg Gender Equality 0.20
Index representation In addition to its relevant industry indices, Swiss Re is also represented in various Swiss, European and global indices, including the SMI and the SXIP. Swiss Re is also a member of various sustainability indices, including the Dow Jones Sustainability World and Europe, FTSE4Good, Euronext Vigeo Europe 120, Bloomberg Gender Equality Index, MSCI World ESG Leaders and MSCI World Socially Responsible (2020) index families. In November 2020, Swiss Re received a AAA rating on the MSCI ESG assessment.
2 Includes 4.4m shares repurchased under the share buyback programme launched on 12 November 2015, which concluded on 2 March 2016. 3 Includes 5.5m shares repurchased under the share buyback programme launched on 4 November 2016, which concluded on 9 February 2017. 4 Includes 6.3m shares repurchased under the share buyback programme launched on 3 November 2017, which concluded on 16 February 2018. 5 Includes 10.1m shares repurchased under the share buyback programme launched on 7 May 2018, which concluded on 15 February 2019. 6 Includes 9.9m shares repurchased under the share buyback programme launched on 6 May 2019, which concluded on 18 February 2020. 7 In addition to the regular dividend of CHF 4.25 per share, a special dividend of CHF 3.00 per share was paid in 2015. 8 Dividend divided by year-end share price of the corresponding year. 9 Calculated by dividing net income by the weighted average number of common shares outstanding. 10 Based on shareholders’ equity (excluding convertible perpetual capital instruments) divided by the number of external common shares entitled to a dividend. 11 Based on shares outstanding.
1 Annual results 2019 (20 February) 2 Annual report 2019 (19 March) 3 Ex dividend date (21 April)
EVM profit −19 −3 590 − Total contribution to ENW 2 932 −434 − Economic net worth (ENW) 36 138 33 652 −7 Economic net worth per share in USD 124.33 116.45 −6
Life & Health Reinsurance reported an EVM loss of USD 207 million in 2020 compared to a profit of USD 1.8 billion in 2019. EVM profit on new business of USD 1.0 billion reflected strong transactional business growth in EMEA, mainly due to large longevity transactions, as well as life transactions in the Americas. EVM loss on previous years’ business of USD 1.8 billion included the impact of COVID-19-related claims and reserves of USD 995 million, mainly driven by higher incurred and expected mortality claims in the US and the UK as well as higher disability claims mainly in Australia. In addition, the result was impacted by capital cost updates. Investment activities generated an EVM profit of USD 551 million in 2020, compared to USD 739 million in 2019. The 2020 EVM profit was driven by favourable interest rate impacts on a net long duration position. The 2019 EVM profit reflected the impact of credit spread tightening as well as positive equity performance.
Corporate Solutions reported an EVM loss of USD 706 million in 2020, compared to a loss of USD 805 million in 2019. The EVM loss on new business of USD 98 million was mainly driven by COVID-19-related claims and reserves, and losses on insurance in derivative form due to the mild winter in Europe. Excluding COVID-19-related impacts, the new business loss was USD 41 million. The EVM loss on previous years’ business of USD 624 million was significantly impacted by COVID-19-related claims and reserves, driven by anticipated claims for event cancellations, non-damage business interruption losses, and credit & surety claims. Excluding COVID-19-related impacts, the previous years’ business reported a profit of USD 156 million, a turnaround of USD 1.2 billion compared to 2019. The profit reflected the benefits of the management actions taken to improve profitability and low large man-made claims activity, partially offset by credit & surety recession-related anticipated losses on the existing portfolio, as well as a credit & surety premium takedown to account for future cancellations. Investment activities generated an EVM profit of USD 17 million in 2020, compared to a profit of USD 112 million in 2019, with results in 2020 driven by interest rates and equity performance, albeit lower than in the prior year. The 2019 EVM profit reflected the impact of credit spread tightening and favourable performance from equity investments.
Profit margin − previous years’ business, % −19.5 −2.5 −88.8 −6.9 n/a −14.2
Profit margin − new business, % −2.7 4.6 −4.3 −33.7 n/a 0.0 Profit margin − previous years’ business, % −12.7 −14.6 −42.4 −17.3 n/a −16.1
Profit margin – new business, % 3.0 0.0 Profit margin – previous years’ business, % −14.2 −16.1 Profit margin – investments, % 21.8 5.9
Premiums and fees retention rate, % 97.4 99.9 85.4 86.5 n/a 97.9 Premiums and fees growth rate, % 26.5 34.4 2.8 120.4 n/a 30.2
Premiums and fees retention rate, % 95.9 99.4 81.8 78.4 n/a 97.0 Premiums and fees growth rate, % −2.8 8.6 −7.5 5.5 n/a 2.7
Net underwriting result – new business 158 2 802 13 −225 −197 0 2 551
Taxes −97 −202 −10 −21 −138 −469 Capital costs −399 −228 −25 −89 −253 −994
Total liabilities and economic net worth 104 732 350 616 20 268 21 945 12 683 −33 080 477 165
Other, including foreign exchange on economic net worth −18 359 266 −363 150 395 Economic net worth as of 31 December 8 751 14 522 2 093 1 803 6 481 33 652 1 The Group decided to adopt an intensity-based approach for modelling EVM capital of underwriting activities. The impact of the change in EVM methodology was recorded as an adjustment to the opening balance of 2020 economic net worth.
Recognition differences 117 −955 −55 −82 −29 −1 004 Goodwill and other intangibles −1 978 −1 884 −299 −59 −489 −4 708
Independent Assurance Report on the Economic Value Management financial information as of 31 December 2020 to the Board of Directors of Swiss Re Ltd
Our resilient balance sheet protects our franchise and makes us a reliable partner for our clients.
Swiss Re’s overarching target is to maintain a very strong capital position that operates efficiently within constraints imposed by regulators and requirements from rating agencies, while giving the company maximum financial flexibility. Swiss Re’s capital allocation decisions are steered to make capital and liquidity fungible to the Group wherever possible, while complying with local regulations and client needs. Cash dividends paid by our Business Units to the Group’s parent holding company, Swiss Re Ltd, have amounted to USD 28.1 billion since 2013.
Based on the Group’s capital strength, the Board of Directors proposes a 2020 regular dividend of CHF 5.90 per share. In accordance with the Group’s capital management priorities, the Board of Directors has not proposed a public share buyback programme for 2021.
Financial strength Despite significant loss events during 2020, the Group’s capital position remains very strong with a Group Swiss Solvency Test (SST) ratio of 215% as of 1 January 2021, which is within Swiss Re’s 200–250% target Group capitalisation range. Rating agencies A.M. Best, Moody’s and Standard & Poor’s (S&P) rated Swiss Re’s financial strength “superior”, “excellent” and “very strong”, respectively. This capital strength enables Swiss Re to support its clients while continuing to return capital to shareholders.
Risk Management Group Risk Management is key to the controlled risk-taking that underpins Swiss Re’s financial strength. Risk Management is mandated to ensure that the Group and its legal entities have the necessary expertise, frameworks and infrastructure to support good risk-taking. In addition, it monitors and ensures adherence to applicable frameworks and also performs reserving and reporting activities.
The decrease in financial market risk and credit risk is driven mainly by the sale of ReAssure Group Plc and an increase in credit hedges.
Solid capitalisation enabling market opportunities Swiss Re’s policy of ensuring superior capitalisation at all times has meant that even after four consecutive years with large insurance losses, our very strong capital position and high financial flexibility enabled us to respond to market opportunities and therefore create sustainable long-term shareholder value by maintaining the regular dividend.
The below subsections describe Swiss Re’s capitalisation according to the SST and the financial strength ratings.
Swiss Solvency Test (SST) Swiss Re is supervised by FINMA at the Group level as well as for its regulated legal entities domiciled in Switzerland. FINMA supervision comprises minimum solvency requirements, along with a wide range of qualitative assessments and governance standards.
The SST ratio is calculated as SST riskbearing capital (SST RBC) minus market value margin (MVM), divided by SST target capital (SST TC) minus MVM.
The Group SST 2021 report will be filed with FINMA in April 2021. Accordingly, the information presented below is based on currently available information and may differ from the final Group SST 2021 figures.
The Group SST 2021 ratio lies within the new target range of 200–250%, which replaces the fixed Group SST target to better align with market practice.
SST risk-bearing capital (SST RBC) The SST RBC is derived from the SST net asset value (SST NAV), which represents the difference between the market consistent value of assets and best estimate of liabilities, according to the valuation methodology prescribed under SST. For this purpose, the SST NAV is adjusted for the items in the table below.
The decrease in SST NAV to USD 48.8 billion is mainly driven by underwriting contribution, dividends paid and share buyback programmes, partly offset by positive investment contribution and foreign exchange movements.
SST risk-bearing capital – market value margin 41 873 41 504 –370 SST target capital – market value margin 18 021 19 308 1 287 SST ratio 232% 215% –17pp
The overall contribution from underwriting activities is negative, mainly reflecting underwriting contributions from Property & Casualty Reinsurance, Corporate Solutions and Life Capital, partly offset by positive underwriting contribution from Life & Health Reinsurance: • The Property & Casualty Reinsurance negative contribution is mainly driven by losses related to COVID-19, adverse experience and assumption updates mainly in US liability business as well as by large natural catastrophe losses mainly in Australia and several man-made loss updates. This is partially compensated by natural catastrophe reserve releases for typhoons Jebi and Hagibis, Hurricane Dorian and strong renewals from property natural catastrophe and specialty.
• The Life Capital underwriting contribution to SST NAV is negative, driven by the loss on the sale of ReAssure Group Plc to Phoenix Group Holdings Plc, expenses for open books, underperformance in elipsLife as well as unfavourable persistency in the closed book US business.
The contribution from investment activities is positive, mainly driven by favourable interest rate impact on the net duration position and strong real estate performance.
Deductions mainly reflect projected dividends (to be paid in 2021 and subject to AGM 2021 approval and subsequent BoD approval) as well as deferred taxes on real estate. No share buyback programmes are included.
SST target capital (SST TC) Swiss Re uses an internal risk model to determine the economic capital required to support the risks on the Group’s book, as well as to allocate risk-taking capacity to the different lines of business. The model also provides the basis for capital cost allocation in Swiss Re’s EVM framework, which is used for pricing, profitability evaluation and compensation decisions. In addition to these internal purposes, the model is used to determine regulatory capital requirements under economic solvency frameworks such as SST and Solvency II.
In 2017, FINMA approved Swiss Re’s internal model and its components for SST reporting purposes under their revised model review process.
• Lapse risk – The model has been further strengthened by including additional dependencies and correlations, as well as anti-selective lapses for lapse trend. These changes result in minor increases of lapse and mortality trend shortfall and have no material impact on the Group’s total risk or market value margin.
The risk exposure basis for SST is a projection for the period from 1 January 2021 to 31 December 2021 and is based on the economic balance sheet as of 31 December 2020 and adjustments to reflect 1 January 2021 business shifts.
SST TC increases to USD 31.1 billion due to an increase in the market value margin (reflected under Other impacts) and higher total risk driven by increased insurance risk (see Risk assessment p. 67 for details).
The increase in MVM is mainly driven by the impact of lower interest rates.
SST target capital – market value margin 18 021 19 308 1 287
Cash dividends paid from each business unit to SRL (USD billions)
External dividends to shareholders Based on the Group’s very strong capital position and positive market outlook, the Board of Directors proposes a regular dividend of CHF 5.90 per share for the 2020 financial year, maintaining the dividend per share paid for the 2019 financial year.
The Group also reinvested in the business by redeploying capital into the Business Units. The majority of this capital was allocated to grow profitable business.
On 6 May 2020, Moody’s affirmed Swiss Re’s insurance financial strength rating and outlook as “Aa3” stable. The rating reflects Swiss Re’s excellent market position, extensive diversification by line of business and geography, very strong capital adequacy and good reserve adequacy.
Funding activities During 2020, Swiss Re took advantage of attractive market conditions to execute the following planned funding activities: • In May 2020, Swiss Re Finance (UK) Plc issued EUR 800 million of subordinated fixed rate reset step-up callable notes with a coupon of 2.714%. The notes, which are guaranteed on a subordinated basis by Swiss Re Ltd, have a first call date in June 2032 and a scheduled maturity in June 2052.
• In June 2020, Swiss Re Finance (UK) Plc issued SGD 350 million of subordinated fixed rate reset callable notes with a coupon of 3.125%. The notes, which are guaranteed on a subordinated basis by Swiss Re Ltd, have a first call date in July 2025 and a scheduled maturity in July 2035.
In addition, Swiss Re also undertook the following activities in connection with management of its funding platform: • In April 2020, in connection with the pending sale (and deconsolidation) of the ReAssure Group Plc to Phoenix Group Holdings Plc in July 2020, Swiss Re
• In December 2020, in connection with the announced reorganisation of the legal entity structure of the Group, Swiss Reinsurance Company Ltd was substituted as the issuer of the USD 500 million subordinated fixed rate resettable callable loan notes with a scheduled maturity in 2024 in place of Swiss Re Corporate Solutions Ltd following a noteholder consent process.
The USD 2.7 billion undrawn, off-balance sheet pre-fundedsubordinated debt facilities, add further strength to the Group’s financial flexibility.
2 Funded subordinated debt and contingent capital instruments, excluding non-recourse positions. 3 Core capital of Swiss Re Group is defined as economic net worth (ENW). 4 Total on-balance sheet senior and subordinated debt and contingent capital, including utilised LOCs, divided by total capitalisation.
• long-term liquidity needs are taken into account in the Group’s planning process and in the management of financial market risk.
The primary liquidity stress test is based on a one-year time horizon and a loss event corresponding to 99% tail value at risk (see page 67).
Swiss Re’s liquidity stress tests are reviewed regularly and their main assumptions are approved by the Group Executive Committee. Swiss Re provides FINMA with a yearly report on its liquidity position, in accordance with FINMA circular 13/5, “Liquidity — Insurers.”
In 2020, the amount of surplus liquidity increased. This increase was largely due to changes to intra-Group retrocession agreements, the decrease in interest rates, and changes in foreign exchange rates, which more than offset the negative impact associated with COVID-19 losses.
Taking and managing risk is central to Swiss Re’s business. All risk-related activities, regardless of the legal entity in which they are undertaken, are subject to the Group’s risk management framework. Consequently, the framework is applied at Group level and cascaded to all legal entity levels.
• Risk category standards describe how risk practices are implemented for a specific category.
• Risk taker – executes an objective within the authority delegated by the risk owner; risk takers are required to provide the respective risk controller with all information required to monitor and control their risks.
The Group Executive Committee is responsible for developing and implementing Swiss Re’s Group-wide risk management framework. It also sets and monitors major risk limits, oversees the Economic Value Management framework, determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group Executive Committee has delegated various risk management responsibilities to the Group Chief Risk Officer (Group CRO) as well as to certain legal entity CROs.
Executive Committee • Reports to Board as well as to Group CEO
Board of Directors of Swiss Re Ltd • Responsible for the Group’s governance principles and policies • Acts through the Finance and Risk Committee, Investment Committee and Audit Committee
The central risk teams oversee Group liquidity and capital adequacy and maintain the Group frameworks for controlling these risks throughout Swiss Re. They also support CROs at Group and legal entity level in discharging their oversight responsibilities. They do so by providing services, such as: • Financial risk management • Specialised risk category expertise and accumulation control • Risk modelling and analytics • Regulatory relations management • Maintaining the central risk governance framework
Risk Management is also in charge of actuarial reserving and monitoring of reserve holdings for Corporate Solutions business while for Reinsurance business the setting of the reserves is performed by valuation actuaries within the P&C and L&H Business Management units.
• The Compliance function oversees Swiss Re’s compliance with applicable laws, regulations, rules and the Code of Conduct. It also assists the Group Board, Group Executive Committee and other management bodies in identifying, mitigating and managing compliance risks.
Risk Appetite Framework In the context of business strategy and planning, the risk appetite statement facilitates discussions about where and how Swiss Re should deploy its capital, liquidity and other resources under a risk/return view, while the risk tolerance sets clear boundaries to risk-taking.
Swiss Re’s risk appetite outlines the Group’s principles on acceptable risks and provides key directions for risk-taking and risk controlling as part of implementing Swiss Re’s strategy: achieving targeted performance, providing liquidity and financial flexibility, managing capital adequacy, and protecting and growing franchise value.
The Group Board further details Swiss Re’s risk appetite through its approval or review of the following key steering frameworks as part of the Group’s planning process: target liability portfolio, strategic asset allocation and the Group’s target capital structure.
Swiss Re’s risk tolerance describes the extent to which the Group and SRZ Boards have authorised executive management to assume risk. It represents the amount of risk that Swiss Re is willing to accept within the constraints imposed by its capital and liquidity resources, its strategy, and the regulatory and rating agency environment within which it operates.
Swiss Re’s risk tolerance is based on the following objectives: • To maintain Group capital at a level that safeguards respectability with clients and regulators.
• To ensure the resilience of SRZ as the main operating entity from a capital and liquidity perspective.
• To avoid material operational risks that could subject the Group to large operational losses with corresponding consequences from an economic, reputational or regulatory perspective.
O p tim is e ri sk /r et ur n p o rt fo lio
Swiss Re’s internal model provides a meaningful assessment of the risks to which the company is exposed and is an important tool for managing the business. It is used to measure the Group’s risk position and related capital requirements as well as for defining the risk tolerance, risk limits and liquidity stress tests.
Property and casualty insurance risk is mainly driven by underlying risks inherent in the business Swiss Re underwrites, in particular natural catastrophe risk, non-life claims inflation, costing and reserving and man-made risk. The main drivers of life and health insurance risk are mortality trend and lethal pandemic risk.
The Group’s financial risk derives from financial market risk as well as from credit risk. Key drivers of financial market risk are credit spread and equity risk. Credit risk is mainly driven by the credit and surety business and default risk of capital market products.
Swiss Re is exposed to a broad landscape of risks. These include risks that are actively taken as part of insurance or asset management operations, and are calculated in the internal risk model as part of the Group’s economic capital requirement as well as to allocate risk-taking capacity: • Property and casualty insurance risk arises from coverage provided for property, liability, motor, and accident risks, as well as for specialty risks such as engineering, agriculture, aviation and marine. It includes underlying risks inherent in the business Swiss Re underwrites, such as inflation or uncertainty in pricing and reserving.
• Credit risk reflects the potential financial loss that may arise due to diminished creditworthiness or default of counterparties of Swiss Re or of third parties; credit risk arises from investment and treasury activities, structured transactions and retrocession, as well as from liabilities underwritten by credit and surety insurance units.
• Regulatory risk arises from changes to insurance regulations and supervisory regimes as well as from interactions with regulatory authorities and supervisory regimes of the jurisdictions in which Swiss Re operates.
• Sustainability risk comprises the environmental, social and ethical risks that may arise from individual business transactions or the way Swiss Re conducts its operations.
• Across all risk categories, Swiss Re actively identifies emerging risks and threats as part of its risk identification process; this includes new risks as well as changes to previously known risks that could create new risk exposures, or increase the potential exposure or interdependency between existing risks.
Some of these risks are reflected indirectly in the risk model, as their realisations may be contained in the historical data and scenarios used to calibrate some of the risk factors. In addition, output from the model is used in measuring liquidity risk under stressed conditions. As separate risk categories, these risks are an integral part of Swiss Re’s risk landscape. They are monitored and managed within the Risk Management organisation, and included in risk reports to executive management and the Board at Group and legal entity level.
Risk developments The increase in property and casualty risk is mainly driven by a rise in non-life claims inflation risk reflecting the heightened probability of extreme inflation outcomes, as well as an increase in costing and reserving risk mainly due to COVID-19-related reserves.
Swiss Re’s limit framework for property and casualty exposures includes risk limits for major natural catastrophe scenarios and other key risks, such as terrorism, claims inflation, reserving and liability.
Risk Management also provides independent assurance throughout the business cycle, starting with the annual business planning process. It reviews underwriting standards, costing models and large transactions, and monitors exposures, reserves and limits.
Swiss Re’s Group limit framework includes risk limits for major insurance exposures that guard against risk accumulations and ensure that risk-taking remains within Swiss Re’s risk tolerance. At the entity level, underwriting and capacity limits are assigned that are used to steer the business, and ensure adherence to the Group’s risk limits and SST capitalisation targets.
Management Legal entity CROs are responsible for overseeing all life and health exposures written in their respective areas. Accumulated exposures across Swiss Re are monitored and controlled by Group Risk Management to ensure that they remain at an acceptable level for the Group.
Swiss Re’s limit framework for life and health exposures includes risk limits for key risks, such as mortality, longevity, lethal pandemic, critical illness and income protection. Market exposure limits are in place for catastrophe and stop loss business. Swiss Re pays particular attention to densely populated areas and applies limits for individual buildings to guard against risk exposure accumulations.
In SST 2021, the largest natural catastrophe exposure for Swiss Re Group derives from the Atlantic hurricane scenario with a USD 5.8 billion loss. The lethal pandemic loss is estimated to be at USD 3.6 billion.
Swiss Re’s central Financial Risk Management team oversees all activities that generate financial market or credit risk. Its mandate covers internally and externally managed assets, strategic participations, treasury activities, and credit and market risks that derive from Swiss Re’s underwriting and retrocession activities, including structured transactions, credit insurance and surety business. The Head of Financial Risk Management reports to the Group Chief Risk Officer, with a secondary reporting line to the Group Chief Investment Officer.
All activities with financial market and credit risk are subject to limits at various levels of the organisation (eg Group, legal entities and lines of business). At the highest level, the Group Board of Directors sets a financial risk concentration limit which defines how much of the Group’s risk exposure can derive from financial risk. The Group Executive Committee establishes the principal risk limits for aggregate financial market and credit risk at Group level. Where required, additional risk limits are established by Risk Management for legal entities, key business lines, individual counterparties and countries. Furthermore, as part of the planning process, the risk-taking functions employ capacity limits to control the amount of risk mandated from the risk owner to the risk takers. Limits may be expressed in terms of notional value of policies, losses in a stress scenario, value at risk based on historic market moves, linear sensitivities to a particular risk factor or different methodologies of exposure aggregation.
Risk developments The decrease in financial market risk is driven mainly by the sale of ReAssure Group Plc and an increase in credit hedges, which reduced credit spread risk. This is partly offset by higher financial market volatilities resulting from the COVID-19-related market turbulence, as well as by the appreciation of major currencies against the US dollar.
Management Financial market risk is monitored and controlled by dedicated experts within the Group’s Financial Risk Management team. Financial Risk Management regularly reports on key financial market risks and risk aggregations, as well as on specific limits for internally and externally managed investment mandates. These reports track exposures, document limit usage and provide information on key risks that could affect the portfolio. The reports are presented and discussed with those responsible for the relevant business line at the Financial Market Risk Council.
Interest rates +50bps 12pp Interest rates –50bps –14pp Spreads +50bps –5pp Spreads –50bps 5pp Equity values +25% 3pp Equity values –25% –4pp Real estate values +25% 6pp Real estate values –25% –7pp
Credit default1 2 228 1 Excluding the impact of earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event.
COVID-19 has impacted many aspects of our risk and control landscape, in particular around outsourcing, financial reporting and data security. The Group did not experience any major operational or compliance failings thanks to early lessons from our Asia operations, and the resilience and pragmatism of our employees in adapting to a new work environment. In addition, effective communications and collaboration across teams, and between business and risk functions, enabled us to maintain all our critical processes throughout the crisis.
Regulatory efforts are becoming increasingly forward-looking, aimed at a broad range of emerging risks, both actual and perceived. If new regulation is not based on clearly understood risks, the resulting requirements may create an excessive burden for both insurers and policyholders. It remains a key priority for Swiss Re to highlight the negative impacts of market access restrictions or impediments to global diversification towards regulators. At the same time, such risks are mitigated by seeking solutions that reduce the negative impact on Swiss Re and its clients.
Swiss Re consistently advocates the removal or reduction of market access barriers, so that policyholders, governments and national economies can fully benefit from international diversification and reliable, sound and affordable risk cover and transfer.
Swiss Re’s model governance is based on Group-wide standards for model assurance. These standards seek to ensure that each model has a clear scope, is based on sound mathematical and scientific concepts, has been implemented correctly and produces appropriate results given the stated purpose. Furthermore, the calibration of model parameters (and the data on which calibration relies) must be trustworthy, while expert judgments are required to be sensible, documented and evidenced.
Analytical or financial models that are used for costing, valuation and risk capital calculations are governed by Swiss Re’s Model and Tool Assurance Framework. Material models used for costing, valuation of reserves and assets, as well as Swiss Re’s internal risk model, are validated by dedicated teams within Risk Management. These teams provide independent assurance that the framework has been adhered to, and also conduct independent validations. Swiss Re’s risk model is also subject to regulatory scrutiny.
Model-related incidents are captured within Swiss Re’s operational risk framework. In addition, material model developments, incidents and risks are reported in regular risk updates to executive management and the Board of Directors at Group and legal entity level.
Swiss Re is a founding signatory of the UN Principles for Sustainable Insurance (UN PSI) and is currently a board member of this initiative. The UN PSI seeks to promote sustainable insurance, which is intended, among other goals, to contribute to environmental, social and economic sustainability. Swiss Re has been actively contributing to the initiative for several years. During 2020, Swiss Re and the UN PSI convened four virtual events for insurers to continue work on promoting sustainable insurance.
Reflecting the Group’s strong overall commitment to sustainability, Swiss Re continued to be included in leading sustainability indices and rankings, such as FTSE4Good, Euronext Vigeo World 120, Ethibel Excellence Global, oekom Prime Investment and the Dow Jones Sustainability Index. For more information on Swiss Re’s sustainability practices, see the Sustainability Report 2020.
For this purpose, Swiss Re’s risk identification processes are supported by a systematic framework that identifies, assesses and monitors emerging risks and opportunities across all areas of Swiss Re’s risk landscape. This framework combines a bottom-up approach driven by employee input with regional experts on emerging risk. The resulting information is complemented with insights from external parties such as think tanks, academic networks and international organisations, as well as from interaction with clients.
Findings are reported to management and internal stakeholders, including a prioritised overview of newly identified emerging risks and an estimate of their potential impact on Swiss Re’s business. Swiss Re also publishes an annual emerging risk report (Swiss Re SONAR) to raise awareness across the industry.
Cyber risk – Edge computing An emerging aspect of cyber risk is related to data processing at the periphery or edge of a network which is increasingly relevant with the prevalence of the Internet of Things (IoT). An important example is autonomous vehicles where time-lags in signal transmission and processing can prove fatal. Edge computing involves minimising latency in data transactions by adding computing power close to connected end-devices. It is playing a pivotal role in innovating and maintaining digital ecosystems across manufacturing, utilities, robotics and other spheres. In addition to such benefits, there are also inherent risks.
Climate change – Moving to a low carbon future To meet the objectives of the Paris agreement, global warming needs to stay below 2˚C compared to pre-industrial levels. To achieve this, the target is to reduce greenhouse gas emissions to net-zero by 2050. A rapid transition to a low carbon economy is required. The changes are needed across all industries and entail an entire cluster of new risks which need to be understood, assessed and where possible mitigated. Swiss Re, and the insurance industry in general, regularly assesses the changing risk landscape and can help accelerate this transition through risk transfer products and as a long-term investor.
Potential business impact A prolonged large-scale power blackout can lead to widespread property damage, business interruption, financial market impacts and operational disruptions. Importantly, it is likely that business impacts will increase non-linearly the longer a power blackout lasts. This could lead to catastrophic economic losses. Loss exposure for the insurance industry could be significant, though many of these risks remain uninsured.
Swiss Re’s strong governance supports the Board of Directors’ and the Group Executive Committee’s leadership during the COVID-19 crisis.
The global pandemic has forced companies to better articulate their corporate strategies and to explain how their boards and management teams are furthering those strategies in fraught times.
Corporate Governance Trends Sustainability remains top priority Legislators, regulators, asset managers, shareholders and other stakeholders are increasingly looking to corporate governance as a means of improving transparency and accountability for sustainability. In particular, companies are now expected to have appropriate governance structures and governance priorities to address environmental, social and governance (ESG) issues. Corporate governance objectives over which boards have assumed greater oversight responsibility in recent years, such as diversity, better alignment of executive compensation and stakeholder engagement, are increasingly seen as having ESG aspects, making these topics even more important. ESG is figuring more prominently particularly in Europe, but also in the United States and in other key jurisdictions, in investment decisions and in corporate disclosure. We expect to see an increased focus on corporate disclosure, particularly around climate change. Europe is taking the lead on climate-related disclosures, and there is an emerging consensus on the need for greater standardisation of climate disclosures and performance measures. We also expect that demonstrating leadership on ESG topics will be seen by asset managers, shareholders and others, including employees and customers, as a differentiating factor, providing advantages across a range of areas for those able to demonstrate a commitment to, and significant transparency around, ESG themes. Please continue reading for more information on our sustainability highlights 2020/2021. For more information on our sustainability governance please refer to the next page. For more information on Swiss Re’s approach regarding sustainability, please refer to pages 148–179 of this Financial Report as well as to our separate Sustainability Report: sustainability-report/2020
Sustainability Highlights 2020/21 Sustainability-related targets and KPIs linked to compensation As part of our Group Sustainability Strategy implementation, we introduced sustainability as an additional qualitative assessment dimension for determining our Group Annual Performance Incentive (API) pool. This establishes a clear connection between sustainability targets and compensation for all employees, including the Group EC. The sustainability assessment for 2020 is primarily based on qualitative key performance indicators (KPIs) and targets. These are aligned with our 2030 Sustainability Ambitions and our net-zero commitments. In the course of 2020, we further enhanced the framework by defining quantitative KPIs and respective targets, which will form the basis for the 2021 performance assessment. Swiss Re will continue refining sustainability-related KPIs and targets to ensure we are reaching our ambitious sustainability commitments. For a description of the Group API pool funding process see our Financial Report 2020 on page 121. For performance outcomes on the qualitative assessment, including sustainability aspects, in 2020, please see our Financial Report 2020, page 133, as well as our Sustainability Report, pages 16–21.
Our Sustainability Governance Swiss Re has a well-defined governance framework to develop, enhance, implement and monitor its Group Sustainability Strategy. At Swiss Re’s highest governance level, the Board of Directors is responsible for overseeing the development and adoption of the Group Sustainability Strategy and related policies. It has assigned detailed responsibilities to four Board committees: • The Chairman’s and Governance Committee monitors and reviews general progress toward achievement of the Group’s Sustainability Strategy, including all sustainability-related external engagements, based on regular updates from management and the sustainability team.
• The Investment Committee reviews Swiss Re’s Asset Management activities and, as part of this, receives regular updates on Group Asset Management’s approach to enhancing responsible investing.
While the Board of Directors is responsible for oversight, the Group EC ensures the implementation of the Group Sustainability Strategy. It therefore approves detailed sustainability policies, such as the oil and gas policy updated in 2020. For further details please refer to page 38 in our Sustainability Report, available at: report/2020 Furthermore, it sets and monitors risk capacity limits (including for natural catastrophes) and determines product policy and underwriting standards. The Group EC members have explicit responsibilities related to sustainability, which include but are not limited to the following: • The Group Chief Risk Officer (Group CRO) is responsible for establishing the Group’s Risk Management Framework for all risk categories, including risks related to sustainability. In addition, the Group CRO chairs the Group Sustainability Council (GSC). In this role, he guides the GSC’s sustainability activities across the Swiss Re Group.
• The Group Chief Financial Officer (Group CFO) is responsible for Swiss Re’s investor relations and public disclosures, including the Group Annual Report, which includes our climate-related financial disclosures.
• The Group Chief Underwriting Officer (Group CUO) is responsible for Swiss Re Institute’s research agenda which includes sustainability and resiliencerelated topics.
Group level Business level2 1 Only those Board committees with allocated responsibilities related to sustainability are listed. 2 Dedicated sustainability roles, networks and/or committees in all Group Functions and on Business level. 3 The Division iptiQ has been in place since 1 January 2021. The Business Unit Life Capital was disbanded at the end of December 2020.
Swiss Re’s Governance Documents Swiss Re’s Code of Conduct provides key principles that guide Swiss Re in making responsible decisions and achieving results using the highest ethical standards. It is built on the five Swiss Re Corporate Values: Integrity, Team Spirit, Passion to Perform, Agility and Client Centricity. The Corporate Governance Guidelines set out Swiss Re’s harmonised governance principles and standards, ensuring a consistent and tailored corporate governance approach across the Group. The Articles of Association define the legal and organisational framework of Swiss Re Ltd as the Group’s holding company. The Bylaws define Swiss Re’s governance framework and include the responsibilities of the Board of Directors and the Group EC and their members. The Board Committee Charters outline the duties and responsibilities of the Board Committees and form part of the Bylaws. The Bylaws and the Board Committee Charters are not publicly available.
Information on compensation Information on compensation and shareholdings of, and loans to, the members of the Board of Directors and the Group EC are included in the Compensation Report beginning on page 114 this Financial Report.
Swiss Re Ltd has a level I American Depositary Receipts (ADR) programme in the US. The ADR are traded over the counter (OTC) (ISIN US8708861088, OTC symbol SSREY). One Swiss Re Ltd share equals four ADR. Neither the ADR nor the underlying Swiss Re Ltd shares are listed on a securities exchange in the US. Shares represented by ADR for which no specific voting instructions are received by the depositary from an ADR holder, are not voted at shareholder meetings.
Registered — unregistered1 shares As of 31 December 2020 Shares in %
Shares held by Swiss Re 28 520 907 9.0 Share buy-back programme 0 0.0 1 “Unregistered” shares refers to shares for which no application has been received by the owner to enter the shares in the share register. 2 Without Swiss Re’s holdings.
Registered shareholdings by type As of 31 December 2020 62.0% Institutional shareholders 33.9% Individual shareholders 4.1% Swiss Re employees
More information More information on the Swiss Re Ltd shares, such as the price performance and trading volume in 2020, Swiss Re’s dividend policy and dividends, the share buy-back programmes and an overview of the key share statistics since 2014, is included in the section “Share performance” on pages 32–33 of this Financial Report.
Changes in capital Changes in 2020 The Annual General Meeting 2020 approved the reduction of the ordinary share capital by CHF 990 739.80 from CHF 32 740 470.40 to CHF 31 749 730.60 by cancelling 9 907 398 shares with a nominal value of CHF 0.10 each repurchased by Swiss Re Ltd on a second trading line on the SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 9 907 398 shares were repurchased under the share buy-back programme launched on 6 May 2019 until its completion on 18 February 2020.
On 17 April 2020 the Annual General Meeting authorised a public share buy-back programme for cancellation purposes of up to CHF 1 billion purchase value for the Board of Directors to repurchase Swiss Re Ltd’s shares prior to the 2021 Annual General Meeting. The Board of Directors concluded at its meeting following the Annual General Meeting that the share buy-back programme will not be launched due to the volatility in the financial markets and the global economic situation precipitated by the COVID-19 pandemic.
Changes in 2019 The Annual General Meeting 2019 approved the reduction of the ordinary share capital by CHF 1 121 476.10 from CHF 33 861 946.50 to CHF 32 740 470.40 by cancelling 11 214 761 shares with a nominal value of CHF 0.10 each repurchased by Swiss Re Ltd on a second trading line on the SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 11 214 761 shares were repurchased under the share buy-back programme launched on 7 May 2018 until its completion on 15 February 2019. The purchase value of the repurchased own shares corresponded to CHF 999 999 983.08.
In line with the requirements of article 733 of the Swiss Code of Obligations, this reduction of the ordinary share capital was published in the Swiss Gazette of Commerce (Schweizerisches Handelsamtsblatt) on 16 July 2019.
On 17 April 2019 the Annual General Meeting authorised a public share buy-back programme for cancellation purposes consisting of two tranches of up to CHF 1 billion purchase value each for the Board of Directors to repurchase Swiss Re Ltd’s shares prior to the 2020 Annual General Meeting. The first tranche of the programme was launched on 6 May 2019 and completed on 18 February 2020. The purchase value of the repurchased own shares corresponded to CHF 999 999 970.00. Together with the third quarter 2019 results, which were published on 31 October 2019, the Board of Directors announced that it had decided not to launch the second tranche of the share buy-back programme due to the capital deployment, significant natural catastrophe losses in 2019 and the decision to suspend the initial public offering of ReAssure.
Conditional capital for Equity-Linked Financing Instruments 5 000 000.00 15.27% 50 000 000 5 000 000.00 15.74% 50 000 000
For more information on the transfer of shares please refer to article 4 of the Articles of Association. The Articles of Association are available at: www.swissre.com/articlesofassociation
Shares Vesting of share awards to Swiss Re employees are physically settled (with treasury shares). The number of issued shares will not be affected. For details on shares granted to Swiss Re employees and for more information on the quantitative impact of vested shares please see Note 16 to the Group financial statements on page 273 of this Financial Report. Assuming maximum vesting of all share awards granted as of 31 December 2020, 2 990 046 registered shares of Swiss Re Ltd would have to be delivered (corres-ponding to 0.94% of the existing share capital).
The following two members of the Board of Directors did not stand for re-election at the AGM 2020: Name Nationality Age Initial election
Educational background • Business Finance and Accounting degree, University of St. Gallen, Switzerland
Renato Fassbind was elected to the Board of Directors of Swiss Re Ltd in 2011. He was appointed Vice Chairman in 2012 and Lead Independent Director in 2014. He chairs the Nomination Committee and the Audit Committee and is a member of the Chairman’s and Governance Committee and the Compensation Committee.
External mandates • Board member of Nestlé S.A.* • Board member of Kühne + Nagel
Holdings Company Ltd* • Honorary President of the Federation of Hong Kong Industries * Listed company
Sergio P. Ermotti was elected to the Board of Directors of Swiss Re Ltd in 2020.
Joachim Oechslin was elected to the Board of Directors of Swiss Re Ltd in 2020. He is a member of the Finance and Risk Committee and the Investment Committee.
Professional experience Joachim Oechslin started his professional career in 1998 as a consultant at McKinsey & Company, specialising in the financial services sector. In 2001, he joined Winterthur Insurance, Switzerland, where he was Chief Risk Officer of Winterthur Life & Pensions until 2003 and Group Chief Risk Officer of Winterthur Group from 2003 to 2006. Joachim Oechslin became a member of the Executive Committee of Winterthur Group in 2006. Following the acquisition of Winterthur Group by AXA in 2006, he assumed the position of Deputy Group Chief Risk Officer of AXA Group. In 2007, he joined Munich Re Group as Group Chief Risk Officer and a member of the Group Committee. In 2013, he moved to Credit Suisse Group, where he was Group Chief Risk Officer and a member of the Group Executive Board from January 2014 to February 2019. Currently, Joachim Oechslin serves as Senior Advisor at Credit Suisse Group.
Chartered Financial Analyst (CFA) and Fellow of the Life Management Institute (FLMI)
External mandates • Operating Partner Corsair Capital • Operating Partner MKB Growth Equity • Member of the Advisory Board of
External mandates • Board member of Apple Inc.* • Board member of BlackRock, Inc.* • Board member of Color Health, Inc. • Board member of Samsara Networks, Inc. • Member of the Board of Trustees of
Larry Zimpleman was elected to the Board of Directors of Swiss Re Ltd in 2018. He is a member of the Audit Committee and the Finance and Risk Committee.
Professional experience Larry Zimpleman started his career in 1971 as an actuarial intern at The Principal Financial Group, an investment management company that offers insurance solutions, asset management and retirement services to individual and institutional clients. From 1976 to 2006, he held various senior management and leadership positions at The Principal. He became President and Chief Executive Officer in 2008 and Chairman in 2009. In August 2015, Larry Zimpleman stepped down as President and CEO. His membership in the Board of Directors ended in May 2016.
USA • MBA, Drake University, USA • Fellow of the Society of Actuaries, USA
External mandates • Member of the Board of Trustees of the Drake University • Member of the Board of Trustees of the Iowa Clinic
Election, succession planning, qualifications, training and term of office Election procedure Members of the Board of Directors and the Chairman of the Board of Directors are elected individually by the Annual General Meeting for a term of office until completion of the next Annual General Meeting.
Qualifications The Board of Directors needs to secure the necessary qualifications, skills and diversity to perform all required responsibilities. It must assemble among its members the balance of managerial expertise and knowledge from different fields required for the fulfilment of the oversight responsibility as well as for sound, independent decisionmaking in line with the needs of the business.
A ss et m an ag em ent Risk m anag em en t
u st ai n ab ili ty /c or po rat e re spons ibility Technology/dig italisatio n
A Board member may not have any management or executive function within the Group.
In 2020 the Board members spent time further educating themselves on natural catastrophe (re)insurance risks and the impact of climate change.
Term of office The members of the Board of Directors are elected for a term of office until completion of the next Annual General Meeting. Members whose term has expired are immediately eligible for re-election.
First election date The initial election year of each member is stated in the table on page 88.
Organisational structure of the Board of Directors The Board of Directors constitutes itself at the first meeting following the Annual General Meeting. It is the Annual General Meeting though, which elects the Chairman and the members of the Compensation Committee. The Board of Directors elects from among its independent members a Vice Chairman and a Lead Independent Director. The same member may act in both roles. The Board of Directors also elects the chairpersons and members of the Board committees (other than the members of the Compensation Committee) as proposed by the Chairman’s and Governance Committee. The Board of Directors may remove members from any such special function at any time. The Board of Directors also appoints its secretaries, who do not need to be members of the Board of Directors.
Committees of the Board of Directors As determined by the applicable Swiss Corporate Law and the Articles of Association, the Board of Directors has inalienable and non-transferable responsibilities and authorities. The Board of Directors has established Board committees that support the Board in
Working methods of the Board of Directors and its committees Convening meetings and invitation The entire Board of Directors and its committees meet at the invitation of the Chairman of the Board of Directors as often as business requires or at least quarterly. Any member of the Board of Directors or the Group EC may, for a specific reason, require the Chairman to call an extraordinary Board of Directors or committee meeting. The Chairman defines the agenda for each meeting and therefore works closely with the chairpersons of the committees and the Group CEO.
Reinsurance Executive Committee Corporate Solutions Executive Committee Life Capital Executive Committee***
For more information on the responsibilities of the Chairman, the Vice Chairman and the Lead Independent Director, please refer to: www.swissre.com/board-lead
Allocation of tasks within the Board of DirectorsThe agenda, along with any supporting documents, is delivered to the participants, as a rule, at least ten calendar days in advance of a meeting in order to allow enough preparation time. The Chairman may determine that a Board of Directors meeting be held on an ad hoc basis, if circumstances require.
The Board of Directors and its committees can also adopt resolutions by written agreement if no member of the Board of Directors requests a discussion of the motion. A decision may only be taken by circular resolution if all the members sign the circular resolution or respond to the email, respectively. A circular resolution is adopted if the majority of the total number of Board members (or Board committee members) express their agreement with the resolution.
• Sustainability: Oversaw the enhanced Group Sustainability Strategy, including the introduction of quantitative sustainability KPIs and targets which will be embedded in the qualitative assessment for the purpose of the Group API pool funding process for 2021
• Change in reporting basis: Oversaw the set-up of the IFRS project organisation to enable Swiss Re to adopt IFRS as of 1 January 2024 and to simplify its financial reporting landscape
• Transition of external audit: Oversaw audit transition procedures including independence of incoming auditor, governance model and timeline of key activities
• Finance Transformation: Led the creation of the Global Finance Transformation (GFT) Programme by merging the three BU Finance Transformation projects with one core platform for the target finance landscape to ensure harmonisation and IFRS delivery
• Extraordinary topic: Assessed the impact of COVID-19 on Compensation Plans and monitored developments (eg market practice, shareholder expectations)
• COVID-19: Closely monitored the impact of COVID-19 on the business, in particular with regards to claims management, underwriting processes and operational resilience
• Underwriting risk and capital management: Focused on developing tool to improve allocation of risk and capital • Social inflation: Monitored the impact of social inflation trends on the casualty business • Cyber: Continued to oversee cyber risk preparedness and improve data security
Board of Directors and Group EC Areas of responsibility Non-transferable duties The Board of Directors has the ultimate responsibility for the success of Swiss Re Ltd and the Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of Swiss Re Ltd and the Group and the Group EC as well as for supervising compliance with applicable laws, rules and regulations. Such responsibilities are non-transferable and rest with the entire Board. For an overview on the key responsibilities of the Board of Directors, please refer to www.swissre.com/boardresponsibilities
Board of Directors 13 meetings2 3¾ hours Group EC members3, Group Company Secretary
Investment Committee 6 meetings7 2¾ hours Group CEO, Group CFO, Group CRO, Group CIO, Head Financial Risk Management, Group Treasurer, CFO Asset Management, Group Company Secretary 1 All invitees are requested to attend all meetings (please also see next page). 2 In addition, two decisions by circular resolution.
Representatives of NKF participated in six committee meetings in 2020, representatives of Mercer in three meetings. Mercer and NKF have further mandates with Swiss Re. 6 Until August 2020. 7 In addition, one decision by circular resolution.
Attendance rates1 of Board members: Board of Directors and Board committee meetings in 2020
Attendance in % Number of Board members 95–99.9 0 90–94.9 1 1 The attendance rates are calculated taking into account the duration of all meetings the Board members were required to attend. The Board members are required to attend (i) all Board meetings as well as (ii) all the meetings of the Board committees where they are a member.
Individual attendance rates1 of Board members: Board of Directors and Board committee meetings in 2020
Involvement of the Group EC in meetings of the Board of Directors The Group EC members attend Board meetings as deemed appropriate by the Chairman and the other Board members. The presence of the entire Group EC was required for five Board meetings in 2020, and selected members were invited to eight further Board meetings. The Group EC members do not attend the constituent meeting of the Board of Directors following the Annual General Meeting and the Board self-assessment session.
Involvement of the Group EC in Board committee meetings As a matter of principle, selected members of the Group EC as well as further senior management members participate in Board committee meetings as advisors. The attendance rate of the Group EC members at Board and Board committee meetings was 97.6% in 2020 (the attendance rate represents the total actual attendance time of all members at all meetings in the year under review, 2020, in relation to the corresponding target attendance time). A detailed summary of Group EC and further senior management participation in Board committee meetings is provided on the previous page.
EVM Board Report (annually) The report provides factual financial highlights from an economic perspective, with a focus on historical value creation.
Global Outlook for Insurance, Reinsurance and Financial Markets (quarterly) The report describes trends and provides forecasts regarding the economic environment, the property & casualty/ life & health (re)insurance markets and the financial markets. Two additional reports have been provided during the reporting year to address COVID-19 topics: The Recession update as well as the Global Outlook in times of COVID-19.
Swiss Re Liquidity Report (annually) The report describes the liquidity position of the Group in current and in stressed market conditions.
Treasury Activities (quarterly) • Global Regulatory Risk Report (annually) • Financial Risk Management Update
Group Internal Audit GIA is an independent assurance function, assisting the Board of Directors and Group EC to protect the assets, reputation and sustainability of the organisation. GIA assesses the adequacy and effectiveness of the Group’s internal control system and adds value by improving the Group’s operations.
GIA staff govern themselves by following the Code of Ethics (Code) issued by the Institute of Internal Auditors (IIA). The IIA’s International Standards for the Professional Practice of Internal Auditing constitute the operating guidance for the department. The Code is available at: special-promotion/PublicDocuments/ Code%20of%20Ethics.pdf
External auditor For information regarding the external auditors, please refer to pages 110–111.
Under the leadership of the Group CEO, the Group Executive Committee is responsible for the management of Swiss Re Ltd and the Group.
Members of the Group Executive Committee The Group Executive Committee (Group EC) consisted of the following 13 members as of 31 December 2020: Name Nationality Age Function Appointed in current role
Urs Baertschi Swiss, German 45 CEO Reinsurance Europe, Middle East and Africa (EMEA)/ Regional President EMEA
Thierry Léger French, Swiss 54 Group Chief Underwriting Officer September 20207
J. Eric Smith American 63 CEO Reinsurance Americas/Regional President Americas 13 August 2020
Professional experience Christian Mumenthaler started his career in 1997 as an associate at Boston Consulting Group. He joined Swiss Re in 1999 and was responsible for key company projects. In 2002, he established and headed the Group Retro and Syndication unit. Christian Mumenthaler served as Group Chief Risk Officer between 2005 and 2007 and was Head of Life & Health between 2007 and 2010. In January 2011, he was appointed Chief Marketing Officer Reinsurance and member of the Group Executive Committee and became Chief Executive Officer Reinsurance in October 2011. In July 2016, Christian Mumenthaler was appointed Group Chief Executive Officer.
Reinsurance Advisory Board • Co-Chair of WEF Alliance of CEO Climate
Pacific Insurance Co. Ltd.* (subject to approval by the China Banking and Insurance Regulatory Commission (CBIRC))
• Associate of the Chartered Institute of Bankers * Listed company
Professional experience Guido Fürer commenced his career at Swiss Bank Corporation/O’Connor & Associates in 1990, where he held leading positions in option trading at its capital market division. He joined Swiss Re in 1997 as Managing Director at Swiss Re New Markets, and from 2001 to 2004 he worked for Swiss Re’s Private Equity unit. In 2004, he joined Asset Management with responsibility for tactical asset allocation prior to assuming the role of Head of Strategic Asset Allocation. Guido Fürer has led Swiss Re Group Asset Management since his appointment as Group Chief Investment Officer and a member of the Group Executive Committee in November 2012. In 2019, he additionally assumed the roles of Swiss Re Country President Switzerland and Chairman of the Swiss Re Strategic Council.
Russell Higginbotham Chief Executive Officer Reinsurance Asia/ Regional President Asia Born: 1967 Nationality: British
Jonathan Isherwood Chief Executive Officer Reinsurance Americas/Regional President Americas Born: 1966 Nationality: British
Professional experience Jonathan Isherwood started his career in 1991 with Ernst & Young, and moved to GE Capital as an audit/consulting leader in 1994. In 2000, he joined GE Insurance Solutions to build the Risk Management team and thereafter led the Global Property division. In 2005, he became CEO of GE Frankona AG and Chairman of the Board of ERC Copenhagen. In addition, he had global responsibility as President of Product Strategy of GE Insurance Solutions. Following the acquisition of GE Insurance Solutions by Swiss Re in 2006, Jonathan Isherwood joined Swiss Re as Head of Product Integration. From 2007 he led the Claims, Accounting & Liability Management division, and in 2013 assumed the role of Head Globals Reinsurance. Jonathan Isherwood was appointed as Chief Executive Officer Reinsurance Americas with effect from 1 April 2020, and Regional President Americas and member of the Group Executive Committee as of 14 August 2020.
Thierry Léger, former Chief Executive Officer Life Capital, was appointed Group Chief Underwriting Officer with effect from 1 September 2020. He succeeded Edouard Schmid, who decided to step down from his role as Chairman Swiss Re Institute & Group Chief Underwriting Officer effective 31 August 2020.
Other mandates, activities and vested interests Article 26 of the Articles of Association governs the requirements regarding external mandates held by Group EC members (please see: www.swissre. com/articlesofassociation). All Group EC members comply with these requirements. Information on external mandates held by the Group EC members is provided in their biographies (pages 103–107).
Professional experience Patrick Raaflaub began his career as an economist at Credit Suisse. He then was a founding member of a consulting start-up and research fellow at the University of St. Gallen. He joined Swiss Re in 1994 and was appointed Chief Financial Officer of Swiss Re Italia SpA in 1997, and then was Divisional Controller Americas Division from 2000. He worked as Head of Finance Zurich from 2003, then Regional Chief Financial Officer Europe and Asia from 2005. From 2006, he was Head of Group Capital Management, where he was responsible for capital management at Group level and global regulatory affairs. In 2008, he joined the Swiss Financial Market Supervisory Authority FINMA as Chief Executive Officer. Patrick Raaflaub returned to Swiss Re as Group Chief Risk Officer and a member of the Group Executive Committee in September 2014.
Key responsibilities of the Group Executive Committee members The Board of Directors has delegated the management of Swiss Re Ltd and the Group to the Group EC. Such delegated tasks are within the responsibility of the entire Group EC. The Group EC discharges its responsibilities as a joint body, except for responsibilities delegated to the Group CEO and further Group EC members. For an overview of the individual Group EC members’ key responsibilities please refer to: www.swissre.com/groupecmembersresponsibilities
Swiss Re Ltd’s Articles of Association allow any shareholder with voting rights to have his or her shares represented at any General Meeting of shareholders by another person authorised in writing or by the Independent Proxy.
Please refer to article 11 of the Articles of Association of Swiss Re Ltd for further details on the right to vote and shareholder proxies. The Articles of Association are available at: www.swissre.com/ articlesofassociation
Statutory quorums The General Meeting of shareholders may pass resolutions without regard to the number of shareholders present at the meeting or shares represented by proxy.
Extraordinary General Meetings of shareholders may be called by a resolution of the General Meeting of shareholders or the Board of Directors, or by one or more shareholders with voting rights whose combined holdings represent at least 10% of the share capital.
Swiss Re Ltd’s Articles of Association contain neither an “opting out” nor an “opting up” provision.
Unvested deferred compensation may vest and employee participation plan rules may be amended upon a change of control (if the Board of Directors so decides; see below). In such an event, the rights of members of the Board of Directors and the Group EC, as well as of further Executive Management members, are identical to those of all other employees.
Duration of the mandate and term of office of the lead auditors PricewaterhouseCoopers Ltd (PwC) was appointed as the external auditor of Swiss Re Ltd when the company was founded on 2 February 2011. PwC had been elected as the external auditor of the previous parent company of the Group, Swiss Reinsurance Company Ltd, at its Annual General Meeting 1991 and had been re-elected annually since then. The Annual General Meeting 2020, following the proposal of the Board of Directors, based on the recommendation by the Audit Committee, re-elected PwC as external auditor for the financial year 2020.
Cooperation and flow of information between the auditor and the Audit Committee The Audit Committee liaises closely with the external auditor. The lead auditors participate as advisors at all Audit Committee meetings. For more information, see page 99.
PwC provided reports on selected topics at each of the Audit Committee meetings during the reporting year 2020: at the 30 January meeting, PwC provided the External Auditor Update, which covered the PwC Quality, Performance and 2019 Assurance Report as well as the auditrelated, tax and non-audit services. At the 18 February Audit Committee meeting, it provided the Full-Year Audit Report and on 18 March, the PwC 2019 Final Board Report as well as the EVM review findings. At the meeting on 15 April, PwC provided the 2019 US GAAP and EVM control reports and the PwC Quality Assessment. At the Audit Committee meeting on 29 April, it provided the Q1 2020 PwC Report and at the 30 July meeting, the H1/Q2 2020 PwC Report. Furthermore, PwC provided the 2020 Audit Plan PwC/Fees Report at the 22 September meeting and the 9M/Q3 2020 PwC Report on 29 October.
The external auditor shares with the Audit Committee its findings on the adequacy of the financial reporting process and the efficacy of the internal controls.
Fees paid to the auditor The fees (excluding value added taxes) for professional services provided by PwC in 2020 were as follows: USD millions 2019 2020 Audit fees 31.0 30.7 Non-audit fees 12.3 3.5
Audit-related assurance services 11.0 0.9 Services relating to corporate finance transactions 0.3 0.3 Tax related services 0.3 0.3 Other non-audit services 0.7 2.0
Auditor rotation 2021 Considering that PwC has carried out the mandate as external auditor for the Swiss Re Group since 1991, the Board of Directors proposed to the shareholders at the AGM 2020 the election of KPMG as the Group’s new external auditor for the financial year starting on 1 January 2021.
On the Group’s website (www.swissre.com), visitors can find a host of news and research, publications, videos and podcasts as well as discussion and analysis related to Swiss Re and the broader re/insurance industry. The financial calendar displayed below is also available online, and includes, among other things, access details for analyst conference calls as well as video recordings of annual and half-year results’ presentations and Q1/Q3 key financial figures.
The Chairman conducts an annual corporate governance roadshow to visit and engage in an ongoing dialogue with Swiss Re’s largest shareholders. Throughout the year, our Investor Relations team, often joined by our Executive Management, holds regular meetings with institutional investors and analysts, including roadshows, conferences and calls. In 2020, due to COVID-19, most of these interactions took place virtually.
Swiss Re’s compensation framework rewards sustainable long-term performance and aligns the interests of employees and shareholders.
Swiss Re’s vision, we make the world more resilient, has proven to be even more relevant. The Compensation Committee has worked to support this vision through the lens of compensation.
Group business performance 2020 Key factors for annual compensation decisions covered a combination of US GAAP and Economic Value Management (EVM) based business results, qualitative factors and Swiss Re’s pay-for-performance approach. Compensation decisions were made considering Swiss Re’s overall performance for the reporting year in which the Group’s US GAAP and economic performance was significantly impacted by the COVID-19 pandemic.
Pay for performance 2020 As a leading re/insurance provider, Swiss Re is a shock absorber for society and aims to improve the world’s resilience to systemic risk. The Group’s compensation framework is designed accordingly and tailored to the long-tail business environment of the re/insurance industry. As such, Swiss Re aims for positive but not excessive variable compensation payouts in relatively benign environments while making lower but proportionate payouts in adverse environments.
For 2020, the Group Annual Performance Incentive (API) pool is significantly below target as a consequence of negative financial results while at the same time having performed above target across all six qualitative assessment dimensions. Upon careful consideration, the Board of Directors has applied a degree of discretion and made a limited upward adjustment to the Group API pool. This decision took into consideration that the Swiss Re Group successfully navigated through the COVID-19 pandemic and that the financial results would have been well above the prior year’s result when excluding the COVID-19 impact. Further, business continued as normal with all processes running timely and without disruptions, employees showed great personal resilience and demonstrated extraordinary efforts, and no salary cuts, furloughs nor layoffs or government support were needed due to COVID-19.
Shareholder engagement and Annual General Meeting The Compensation Committee proactively considers shareholders’ expectations on Swiss Re’s compensation framework and decisions. Shareholder support at the AGM 2020 for Swiss Re’s compensation framework remained strong. Swiss Re’s shareholders approved all compensationrelated motions and the 2019 Compensation Report received a positive outcome in the consultative vote.
Consistent with last year and in line with Swiss Re Ltd’s Articles of Association, shareholders will again be asked to approve the following amounts at the AGM 2021: • Maximum aggregate amount of
compensation for the members of the Board of Directors for the term of office from the AGM 2021 to the AGM 2022.
• Maximum aggregate amount of fixed compensation and variable long-term compensation for the members of the Group EC for the financial year 2022.
78% Base salary 17% Cash API1 2% VAI1 3% LPP1 31% Base salary 20% Cash API1 17% VAI1 32% LPP1 26% Base salary 20% Cash API1 20% VAI1 34% LPP1
1 Variable/performance-related, whereby VAI and LPP are deferred 78% Grundsalär 17% Bar-API1 2% VAI1 3% LPP1 31% Grundsalär 20% Bar-API1 17% VAI1 32% LPP1 26% Grundsalär 20% Bar-API1 20% VAI1 34% LPP1
US GAAP net income 421 727 73% –878 – EVM profit –693 –19 – –3 590 – Regular dividend payments (CHF)1 5.60 5.90 5% 5.90 – Financial Strength Rating (Standard & Poor’s) AA– AA– AA–
USD millions (unless otherwise stated) 2018 % 2019 % 2020 %
approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend payout.
As a leading re/insurance provider, Swiss Re is a shock absorber for society and aims to improve the world’s resilience to systemic risk. Volatility is inherent in the nature of Swiss Re’s business and to ensure that the right decisions are taken for the company, shareholders, clients and communities, Swiss Re continues to underwrite risks even when the circumstances are challenging.
Compensation Policy Building on the overarching compensation principles included in Swiss Re Ltd‘s Articles of Association, the compensation framework is captured within the Swiss Re Group Compensation Policy (Compensation Policy). The Compensation Policy is implemented globally to the extent possible. Variations may apply at the regional and Business Unit level to accommodate specific requirements, eg talent management and compliance with local regulations.
• The Risk Management function annually reviews risks related to the Compensation Policy and reports its findings to the Compensation Committee.
Any use of personal hedging strategies or remuneration and liability-related insurance that could undermine the risk alignment effects and economic exposure embedded in compensation arrangements is prohibited.
The Board of Directors has approved an authority matrix that defines the limits to which each level of management can authorise compensation payments. The Group CEO, the Compensation Committee or the Board of Directors, as applicable, approves all compensation that exceeds the preset limits. The Group CEO is not involved in decision-making concerning his own compensation.
Diversity, Equity & Inclusion Swiss Re is committed to ensuring equal pay for equal work regardless of gender, race, ethnicity, sexual orientation or other personal characteristics and has a nondiscriminatory approach to determining compensation and benefits at all levels.
This approach includes, for example, having compensation ranges defined by job family or specialisation in the local market and strict governance around compensation decision-making and approvals. Every year, individual salaries and target incentives are reviewed to ensure and maintain internal pay equity and pay for performance. For large locations, regular statistical analysis is carried out in collaboration with external consultants to identify and address any potential risks of bias in compensation setting. In addition to equal pay analysis through a gender lens, in countries where the data is available, Swiss Re also conducts equal pay analysis through an ethnicity lens.
Base salary Base salary is the fixed compensation paid to employees for carrying out their role and is established based on the following factors: • Scope and responsibilities of the role, and qualifications required to perform the role. • Market value of the role in the location in which Swiss Re competes for talent. • Skills and expertise of the individual in the role.
health matters, disability and death. • Connect with Swiss Re values and enhance engagement.
Overview of key compensation and benefits components for Group EC members and other employees
at or above USD 100 000 Group EC members and other key employees
Return on Equity (ROE) Economic Net Worth (ENW) growth Relative TSR (rTSR)
Payout range 0 to 2 × TAPI (on total API granted)**
* Certain members of Business Unit Executive Committees (BU ECs) and all Group Managing Directors (GMDs). ** For Group EC members, the API payout range is additionally capped at 3 × annual base salary.
Structure Swiss Re operates a Target API (TAPI) system along with a performance management framework for all employees, whereby results-oriented and behaviour-related performance criteria are equally weighted.
A TAPI is set based on multiple factors, but primarily on the role being performed, internal calibration and market benchmarks. The employee’s total compensation and pay mix are taken into account when setting the TAPI.
The possible payout for the API ranges from 0 to 2 × TAPI. For Group EC members an additional cap applies, which is 3 × annual base salary. For details on the TAPI for the Group CEO, the aggregate TAPIs of Group EC members and API outcomes, please refer to pages 140–141 of this Financial Report.
The assessment process (as shown in the chart below) comprises a financial, a qualitative and an overall assessment.
The financial assessment covers four equally weighted Key Performance Indicators (KPIs) as approved by the Compensation Committee of the Board of Directors, for which targets are defined on an annual basis: Return on Equity (ROE), net operating margin, Economic Value Management (EVM) profit (% of Economic Net Worth/ENW) and ENW growth per share measured for both the Group and each Business Unit individually. Also, multi-year comparisons and an assessment of the quality of earnings are considered.
The qualitative assessment is based on six dimensions, which are assessed for the Group as well as for each Business Unit/ Group Function: client and service quality, risk and control behaviour, franchise building, human capital and talent management, strategic initiatives, and sustainability/ environmental, social and governance (ESG) considerations. Within the six dimensions, Swiss Re considers a number of measures including, for example, client satisfaction, employee engagement survey results, risk management and diversity & inclusion KPIs.
compensation framework (see page 119 of this Financial Report). As such, they are reflective of the long-tail nature of Swiss Re’s business and support the Group’s longstanding practice of making positive but not excessive variable compensation payouts in relatively benign environments while making lower but proportionate payouts in adverse environments.
Results in Qualitative Performance Factor floored at 0.8 and capped at 1.2
Allows for discretionary upward or downward adjustment based on all information available
The Compensation Committee reviews, may request adjustment to any of the steps and recommends the final pool for approval to the full Board of Directors.
Allocation The approved Group API pool is further split in pools for the Group EC, other senior executives, and for different Business Units/ Group Functions. This allocation is determined by the Group CEO based on the assessment of financial and qualitative performance of the respective Business Unit/Group Function.
Forfeiture of unsettled awards and clawback provisions for settled awards apply in a range of events, enabling Swiss Re to seek repayment where appropriate. Examples of such events are acts which can be considered as malfeasance, fraud or misconduct.
Value Alignment Incentive Purpose When the total API level for an employee exceeds a pre-defined amount, a portion of the API is mandatorily deferred into the VAI. The VAI thereby introduces a time component to the performance-based, variable compensation. This supports the Group’s business model by aligning a portion of variable compensation with sustainable long-term results. The aim is to ensure that the ultimate value of the deferred variable compensation is affected by the longer-term performance of the relevant Business Unit and the Group.
Structure The higher the API granted, the greater the amount of compensation that remains at risk through deferral into the VAI, as shown on the previous page.
The design of the LPP aims to: • Focus participants’ energies on earnings,
• Focus participants on long-term goals. • Attract and retain individuals with
LPP 2020 changes The LPP has been in operation for more than eight years, supports Swiss Re’s strong pay for performance culture and is aligned to market practice. During 2019, the LPP KPIs were reviewed to ensure that the defined purpose as outlined above can be fulfilled.
Outstanding awards (grants prior to 2020) have not been affected by this change.
vests in 2023. Grant levels are determined based on multiple factors including the role being performed and market benchmarks.
The individual grant level for each member of the Group EC is based on a stable grant amount which in any year cannot exceed 1.5 × annual base salary for each member of the Group EC, excluding the Group CEO, and 2 × annual base salary for the Group CEO.
Structure At the grant date, the award amount is split equally into three underlying Performance Share Unit (PSU) components. A valuation by a third party is used to determine the number of PSUs granted.
Performance Share Units: ENW The performance condition for the second PSU component is the growth of absolute ENW (the difference between the marketconsistent value of assets and liabilities). Vesting is at 0% for an ENW growth of 0% and at 100% for an ENW growth of 10%. At the end of each year, the performance on absolute ENW growth is assessed and one third of the PSUs are locked in within a range of 0% to 100%. Vesting occurs only at the end of the full three-year plan period (capped at 100%**).
Settlement At the end of the three-year measurement period, PSUs will be settled in shares, unless there are legal or regulatory restrictions.
conditions will be harmonised (0% to 150% for ENW, ROE and rTSR PSUs).
No other material changes have been made to plan duration, structure and settlement for Group EC members compared to the LPP and the above-mentioned changes apply to all participants that are granted PSUs under the LSP. Current unvested LPP awards (grants prior to 2021) are unaffected by this change.
In events of malfeasance, fraud, misconduct, or as deemed appropriate by the Compensation Committee, awards are subject to clawback rules where Swiss Re is entitled to seek repayment of all or part of any awards paid, vested, settled or released, for a period of five years after settlement.
Redundancy Unvested awards shall vest on the regular vesting date, subject to performance.
Health/disability Unvested awards shall vest on the regular vesting date, subject to performance.
Matching Share awards shall vest as of the date of termination of the employment relationship.
Unvested awards may vest at Swiss Re’s sole discretion. The final decision is subject to the review and approval of the Business Head, Head Reward, Group Chief Human Resources Officer and, if applicable, the Compensation Committee.
Benchmarking The external compensation advisor to the Compensation Committee conducts an annual review of the compensation of the Group EC relative to a group of reference companies to ensure that market competitiveness is maintained. The reference companies are regularly reviewed by the Compensation Committee to ensure their relevance. The core peer group consists of the following globally active primary insurance and reinsurance firms: AIA Group Ltd, Allianz SE, American International Group Inc, Aviva PLC, AXA SA, Chubb Limited, Hannover Rueck SE, Insurance Australia Group Ltd, MetLife Inc, Muenchener RueckversicherungsGesellschaft AG, Prudential PLC, QBE Insurance Group Ltd, Reinsurance Group of America Inc, SCOR SE and Zurich Insurance Group Ltd.
Employment conditions and change of control provisions The Group EC members, including the Group CEO, have open-ended employment agreements with notice periods of 12 months for termination either by the company or the individual. Their employment agreements do not contain severance clauses (“golden parachutes”), special provisions on the cancellation of contractual arrangements, agreements concerning special notice periods, waivers of lock-up periods for options, shorter vesting periods, additional contributions to pension funds or any other provisions protecting the individuals concerned against changes of control.
Stock Ownership Guidelines Swiss Re has stock ownership guidelines which articulate the levels of stock ownership expected of the Group EC members, including the Group CEO. The guidelines are designed to increase the alignment of the interests of senior management and shareholders.
Compensation framework for the Board of Directors The objective in compensating members of the Board of Directors is to attract and retain experienced individuals who are highly motivated to perform a critical role in the strategic oversight of Swiss Re and to contribute their individual business experience and expertise. The structure of fees for members of the Board of Directors takes account of the way their contribution to the success of Swiss Re differs from that of the members of the Group EC.
For further details on the duties and required expertise of the members of the Board of Directors (including the Chairman and Vice Chairman), please refer to pages 94–95 in the Corporate Governance chapter of this Financial Report.
Subsidiary boards of directors The majority of the board members at subsidiary level are Swiss Re executives who do not receive any additional compensation for their services in these roles. The non-executive members of the subsidiary boards receive their fees 100% in cash. When a member of the Board of Directors of Swiss Re Ltd also serves on the board of a subsidiary, the aggregate compensation of the Board of Directors proposed to the AGM for approval also includes any subsidiary board fees.
Outlook for 2021 As per 1 January 2021, a minimum Swiss pension fund solution was set up for those members of the Board of Directors who are not exempted from mandatory occupational benefit plans in Switzerland. This will be offered by an established external provider and applies only to a limited number of members of the Board of Directors depending on their personal situation due to which local law imposes such pension solution. The external provider was chosen to ensure independence of the Board of Directors from Swiss Re’s pension fund.
• The supplementary amount for changes in the Group EC (Article 23) if the maximum aggregate amount of compensation approved by the AGM is not sufficient to also cover compensation of a new Group EC member.
• The compensation principles for both the members of the Board of Directors and of the Group EC covering shortterm and long-term elements, performance-related pay, payment in shares, financial instruments or units, compensation in kind or other types of benefits (Article 24).
• The agreements with members of the Board of Directors and the Group EC, external mandates and credits and loans (Articles 25 to 27).
The Articles of Association are available on the Swiss Re website at: www.swissre.com/articlesofassociation
• Establishes and periodically reviews Swiss Re’s compensation framework, including guidelines and performance criteria.
• Consists of at least four independent members of the Board of Directors. Each member of the Compensation Committee is elected individually at the AGM for a term of office until completion of the next AGM.
• Assesses the individual performance of the members of the Group EC, including the Group CEO, and periodically reviews the effectiveness of the performance management process.
• Further details can be found in the Corporate Governance section on pages 82 and 98 of this Financial Report.
• Other members of senior management may attend as deemed appropriate by the Compensation Committee and upon invitation by the Chair of the Compensation Committee.
Compensation Committee activities The Compensation Committee operates as the Group’s compensation committee and oversees the compensation framework applied at all entities of the Swiss Re Group.
The Compensation Committee has an annual agenda to ensure that important reviews take place at the right times throughout the year. The Compensation Committee also commits time to executive sessions and conducts a periodic self-evaluation to preserve its high level of effectiveness. During 2020, the Compensation Committee architecture (ie Compensation Committee governance processes, tasks and responsibilities) was reviewed to ensure that the Compensation
for Group EC members 12% Compliance and regulatory 13% Executive sessions 11% Other topics
Compensation Committee Chairman of the Board of Directors Board of Directors1
Variable short-term compensation pools and long-term incentive pools for the Group and Group EC
Committee is entrusted with appropriate responsibilities, material topics and has sufficient capacity to dedicate to their tasks.
The Compensation Committee held six regular meetings during 2020 and provided updates to the Board of Directors on topics discussed, decisions made and items for approval after each of these meetings.
In addition, the Compensation Committee held one extraordinary meeting and passed eight decisions by circular resolution during 2020.
A high-level overview of topics dealt with during the year is shown on page 130 of this Financial Report.
Outlined below is an overview of the main topics discussed during the seven Compensation Committee meetings held in 2020: January February April June September November December
As per 31 December 2020, Swiss Re identified 168 individuals (including the 13 members of the Group EC as per 31 December 2020), who qualify as Key Risk Takers. In addition to the members of the Group EC, this group consists of Business Unit EC members, other key executives and roles with core risk-taking authority. The list of Key Risk Takers is reviewed on a regular basis by Group Risk Management and Human Resources.
Influence of the behavioural assessment on compensation The risk and control-related behaviour assessment of Group and Business Units/ Group Functions provides additional input to determine the Group API pool and its allocation to each Business Unit/Group Function. The assessment of each Key Risk Taker serves as additional input when considering individual performance and compensation outcomes.
At the end of the year, the Group, Business Units and Group Functions report on their performance against such performance targets. The outcome of this reporting is considered as one of the six qualitative assessment dimensions in the Group API pool funding process (see page 121 of this Financial Report for details on the Group API pool funding process and pages 132–134 of this Financial Report for performance outcomes 2020).
Key considerations for Swiss Re’s annual compensation decisions cover US GAAP and EVM based business results, qualitative factors and Swiss Re’s pay for performance approach.
combined with lower than expected large man-made losses and a favourable claims development from prior accident years contributed further to the technical result.
EVM financial performance The underwriting result of Property & Casualty Reinsurance was primarily driven by COVID-19-related impacts, US liability experience and assumption updates, large natural catastrophe and man-made losses. This was partially offset by strong renewals from property natural catastrophe and specialty as well as reserve releases for natural catastrophe losses. The Life & Health Reinsurance underwriting result was driven by COVID-19-related claims and reserves as well as by capital costs updates, partially offset by new business transactional business growth in EMEA and the Americas. The investment profit was mainly driven by favourable interest rate impacts on the net duration position.
Considering the Group’s performance across all six defined dimensions and established qualitative performance goals, the Board of Directors agreed a Qualitative Performance Factor of 1.05.
In line with Swiss Re’s Group API pool funding process, the overall assessment allows for considering additional factors on top of the established KPIs and dimensions in the financial and qualitative assessments. Both the Compensation Committee and the full Board of Directors assessed in depth the 2020 performance of Swiss Re Group and recognised its successful navigation of the COVID-19 pandemic. Excluding the COVID-19 impact, the Group’s 2020 financial results would have been well above the prior year’s results. Swiss Re’s incident management teams around the globe ensured the health and safety of all employees, which enabled business to continue as normal. All processes ran timely and without disruptions, and employees showed great personal resilience. Swiss Re did not impose any salary cuts or furloughs, nor did it lay off any employees or request government support due to COVID-19.
Since the performance across all four financial KPIs was more than 30% below target, the FPF was set at 0.7 (floor) in line with Swiss Re’s Group API pool funding process.
Strategic initiatives Business Units and Group Functions jointly delivered on key strategic initiatives, including the completion of the sale of ReAssure to Phoenix Group and the establishment of a roadmap for streamlining the Group’s legal entity structure. Swiss Re has further expanded its risk-sharing platform, eg through a private sidecar transaction with Dutch pension investor PGGM and through a newly created standalone fund offering investors an efficient way to participate in Swiss Re’s natural catastrophe business. In Corporate Solutions, achievements focusing on the unit’s unique value proposition as a corporate insurer stood out.
learnings from the COVID-19 pandemic: the Group’s client webinars, dedicated web and social media content reached above-benchmark engagement and made Swiss Re the most visible reinsurer on COVID-19 response.
In view of the elements outlined on the previous pages, recognising employees’ extraordinary efforts in the wake of the pandemic and considering aspects such as pay positioning and key talent retention risk, the Board of Directors has applied positive discretion in the overall assessment and adjusted the outcome of financial and qualitative assessments upwards by 0.105.
In line with Swiss Re’s established Group API pool funding process, a Group Business Performance Factor (Group BPF) is calculated by multiplying FPF and QPF, and subsequently adding or subtracting any adjustment from the overall assessment. For 2020, this results in a Group BPF of 0.84 (0.7 x 1.05 + 0.105). The Group API pool is in principle derived by multiplying the Group Target API (TAPI) pool with the Group BPF. The resulting Group API pool for 2020 is significantly below target but still proportionate.
Q u a li ta ti ve a ss e ss m e n t
Client and service quality Risk and control behaviour Franchise building Human capital and talent management Strategic initiatives Sustainability
Overall assessment of Group API Pool from a number of different perspectives, eg normalised results, labour market, capital market, compensation competitiveness and retention
Resulting Financial Performance Factor (FPF): Resulting Qualitative Performance Factor (QPF): FPF*QPF: Resulting Group Business Performance Factor (BPF)1: Result
Value Alignment Incentive VAI performance is measured for the Group and each underlying business area. The performance factor for each participant is determined based on the business area that the participant worked for on 31 December of the year preceding the award (see pages 122–123 of this Financial Report for a detailed description of the VAI). The VAI 2017 (awarded 2018) performance factor of 94.0% for the Swiss Re Group is based on the three-year average previous years’ business performance for years 2018, 2019 and 2020.
VAI plan year Performance period remaining as of 31 December 2020 Swiss Re Group performance factor 2018 (awarded 2019) 1 year to be determined in 2022 2019 (awarded 2020) 2 years to be determined in 2023
2019 1 year to be determined in 2022 to be determined in 2022 2020 2 years to be determined in 2023 to be determined in 2023
Leadership Performance Plan The LPP award is consistently linked to the Group’s future achievement of multi-year performance conditions (ROE, ENW and rTSR), keeping the focus on the long-term success of the Group. Swiss Re made LPP grants in 2020 consistent with this rationale. The LPP is generally part of total compensation (see pages 123–124 for a detailed description of the LPP).
In line with Swiss Re’s existing methodology, the 2020 LPP grant was based on a share price of CHF 104.20 on the date after publication of the 2019 annual results (21 February 2020, ie prior to the stock market downturn in the wake of the COVID-19 pandemic) to determine the 2020 LPP grant allocation values. As such, the Compensation Committee concluded that no windfall gains will occur.