Expanding our global footprint Throughout 2018, Swiss Re took steps to strengthen its position in Asia in particular. In January, it launched its regional headquarters in Singapore and appointed a new regional Board of Directors.
Net premiums and fees earned by business segment, 2018 Total: USD 34.5 billion
Strengthens commitment to promoting sustainability Swiss Re continued and deepened its commitment to implementing policies that minimise sustainability risks. As of July 2018, the company ceased providing re/insurance to businesses with more than 30% exposure to thermal coal across all lines of business.
Business Report Leveraging risk knowledge to make the world more resilient.
Our people and culture 36 Board of Directors 38 Group Executive Committee 39 Financial highlights 40 Cautionary note 41 Contacts 43
As a risk knowledge company, we predict how events may impact communities across the globe, and help our clients prepare by creating risk mitigating solutions that make the world more resilient.
Net premiums earned and fee income by business segments (Total USD 34.5 billion)
Life Capital Life Capital manages closed and open life and health insurance books. It provides alternative access to the life and health risk pool, helping to generate stable returns and seize attractive new opportunities.
From an economic perspective, conditions may change to the extent that we could be confronted with an end to the remarkably long cycle of global growth we are currently experiencing. Moreover, we are likely nearing a time when the phase of extremely cheap money cannot continue without the risk of unintended consequences and politically unacceptable redistributive effects.
Walter B. Kielholz Chairman of the Board of Directors 4 Swiss Re 2018 Business Report
“ The imminent changes on the world stage will require close analysis and rapid adaptation. I believe we are very well prepared for these changes and we are, therefore, looking to the future with confidence.”
In comparison with the above-mentioned developments, our asset management activities were less prominent. Although we increased the share of alternative assets as well as that of corporate bonds in lieu of government bonds and cash, in view of our market assessments we considered it unwise to allocate significantly more capital to investment risk. We will see what 2019 has in store. We follow trends with active interest and are in a position to react swiftly.
As already announced, we are planning to withdraw at least partially from the closed book business in the United Kingdom and are preparing for a potential IPO for ReAssure, our UK subsidiary active in this business. The first steps in the latter process have already been taken. This is a capital allocation decision and has less to do with insurance risk than with investment risk, which is dominated by UK credit in this portfolio. If the closed-book business continues to grow – which we assume will happen – we would be pushing the boundaries of our risk appetite for UK credit. A partial withdrawal therefore represents the sensible option.
In September 2018, Russell Higginbotham took over as the new CEO of Reinsurance for the EMEA region and at the same time became a member of the Group Executive Committee. Russell Higginbotham succeeded Jean-Jacques Henchoz, who decided to leave Swiss Re last year.
We have the financial strength to support our clients, and society, in tough times Swiss Re’s extraordinary financial strength enables us to support our clients in these tough times, and in 2018 we absorbed USD 3.0 billion of large claims to lessen the hardship for those affected by the disasters. We are proud of that, as this is the purpose of our business.
The 2018 result for our Corporate Solutions Business Unit was, however, disappointing: we reported a net loss of USD 405 million. This result was impacted by low rates from previous years and also significantly affected by the man-made and natural catastrophe losses I mentioned earlier – an issue which the whole commercial insurance industry experienced. We took some tough underwriting actions last year and at the same time saw an upwards movement in rates throughout 2018, but more must and will be done this year. We also look forward to Andreas Berger joining us as our new CEO Corporate Solutions on 1 March 2019. Andreas brings more than 20 years of experience in the insurance industry, and his first priority will be developing actions to improve Corporate Solutions’ performance – we will share more on those actions along with our half-year 2019 results.
Technology is our enabler and diversifier in these transformative times Speaking of technology, in my shareholder letter last year I wrote about how important it is for our business, so let me give you an update on that – and share one point of contention. While I personally continue to be very excited about what we can achieve with technology, I think the topic of artificial intelligence (AI) is overhyped. It’s often weakly defined – anything that is digital is put into the “AI box” – and there’s a particularly concerning narrative going around, which is that AI will cause many of today’s jobs to disappear in the near future. When talking to business partners, the consensus view is quite different and significantly less alarming: yes, jobs will change as they have always done, but the pace will be slower than some people seem to anticipate, and new jobs will emerge around these new technologies.
We’ve invested significantly in technology at Swiss Re over the past years and I believe it will have a very positive impact on our business in the future. It will allow us to deliver better products to clients and help us build greater societal and financial resilience around the world. As I mentioned last year, it’s my priority to strongly position Swiss Re as a risk knowledge company, applying our immense knowledge and partnering with clients to protect more people – technology is our enabler and diversifier in these transformative times.
Work on what we can influence By looking at its own value chain and identifying what it can influence, the private sector has many opportunities to take more courageous actions against climate risk. But to fully address today’s challenge we need a global effort. It will take collaboration across industries and between the public and private sectors. Public-private partnerships (PPPs) are particularly crucial, given the need to develop a conducive regulatory and policy environment to address climate risk. Investments in critical infrastructure projects by the private sector can relieve government budgets while supporting the development of resilient infrastructure, a crucial requirement for accelerating the transition to a low-carbon economy.
For example, we’re rapidly growing iptiQ, our customisable B2B2C digital insurance solution. iptiQ brings together Swiss Re, primary insurers and other partners to sell life, health and property and casualty insurance. It has almost doubled its average weekly policy sale count over the past year and established itself as a leading platform in the digital insurance space. In this business, we have also developed an online virtual assistant called Eva, which will become the digital face of our partners’ brands. I’m really excited about this business and I believe that this partnership model could become a big part of who we are at Swiss Re. As many households still lack insurance cover in many areas, I see significant growth potential.
reported ROE 700 bps above 10-year US government bonds 14 Swiss Re 2018 Business Report
Monetary policy normalisation The US Fed increased rates four times in 2018, while the ECB stopped its asset purchases by year-end.
2.25–2.5% (Target range for the US federal funds rate, year-end 2018, source: Bloomberg)
Large catastrophic losses 2018 was again a catastrophe-prone year with estimated insured losses of USD 81 billion – considerably below USD 150 billion reported in 2017, but still one of the worst-affected years.
Rising trade tensions There has been a considerable increase in tariffs in 2018, particularly on US-China trade. Further escalation to global trade war is a key risk.
+60% (Increase in number of harmful trade interventions, 2018 versus 2017, source: Global Trade Alert)
Estimated global premium growth in 2018 2 900 (USD billions) Estimated global premium income in 2018
Estimated global premium growth in 2018 75 (USD billions) Estimated global premium income in 2018
How re/insurance works The re/insurance industry plays a pivotal social and economic role by protecting people and businesses against risk.
People and culture Our employees provide a wide range of skills and technical expertise. Their diverse backgrounds enable us to develop unique solutions to best support our clients.
̤ 22% of total net premiums earned (NPE) were generated in HGM. Asia contributed more than 50% of NPE in HGM; China remains a key driver of growth.
̤ In 2018, we continued to leverage technology to develop digital insurance solutions that address nascent risk pools. Pages 24–37 of the Business Report showcase examples of such developments.
Predict. Prepare. Protect. As a leading risk knowledge company with a culture of innovation, we measure and mitigate climate risk, expand protection through cutting-edge digital insurance solutions and build societal resilience at scale.
Technology can help us close the protection gap by improving awareness and offering simple and affordable products.
Our innovative predictive models help families and businesses prepare – and prevail – when the waters begin to rise.
What makes a society stronger? The security that comes from affordable healthcare, food security and sound infrastructure. Find out how Swiss Re provides the safety net.
24 Swiss Re 2018 Business Report24 Swiss Re 2018 Business Report
The result is a safety score that is specific to a vehicle in all of its available ADAS configurations. The higher the score, the safer the car.
The model uses manufacturer-reported safety specifications, data collected during real-world crash tests conducted by Swiss Re, computer simulations of various accident scenarios and claims portfolio analyses.
“ We want to drive innovation in the motor insurance sector, helping our clients to enhance their product suite. By encouraging customers to purchase ADAS, accidents will be reduced. It completely fits our vision to make the world more resilient.”
- Big Data machine learning - Behavioural patterns 1. GPS positions 2. Acceleration data 3. Weather conditions 4. Traffic conditions 5. Road conditions 6. Ambiance conditions
28 Swiss Re 2018 Business Report28 Swiss Re 2018 Business Report
A model based on over 400 000 extreme weather scenarios In the US, insurance provided through the National Flood Insurance Program (NFIP) covers only around 15 percent of homeowners, leaving a huge protection gap with a financially vulnerable population when extreme weather strikes. Historically, insurers have struggled to set adequate premiums for flood coverage, as slight variations in elevation could result in dramatic differences in losses sustained by adjacent properties.
Locke Burt, Chairman, Security First 30 Swiss Re 2018 Business Report
ca. USD 40bn is the estimated economic loss from major storms in 2018 (Source: Swiss Re Institute)
Broader adoption in the future The policies made possible by the model’s insights also protect customers who live inland along rivers and in cities with aging drainage infrastructure, where heavy rains often result in inundation.
Partners in prevention Worldwide, one in 11 adults is diabetic, costing the global community approximately USD 1.3 trillion annually. In Thailand, a staggering 4.2 million people are living with the disease.
Mothers-to-be download the app to their mobile device and consent to linking their e-health records. If the app deems the customer eligible, a blockchain-enabled “smart contract” policy is immediately generated. Upon diagnosis, the policyholder’s medical data triggers an automated benefit payment, with no further action required.
Scalable societal resilience The simplicity and efficiency of this blockchain-enabled solution creates a blueprint to address other noncommunicable diseases and chronic conditions. It offers greater inclusion to consumers looking to fulfil their protection needs. Innovations like these are made possible by Swiss Re’s close relationship with its clients, and our ability to collaborate with public and private partners to promote societal resilience around the world.
1 Gusto, a longitudinal baby study at NUH and the KK Women’s and Children’s Hospital (KKH) (Khalik, S. 2016)
On/Offline Community Support Digital care and protection services help patients reach a better health outcome.
Dynamic Risk Management Dynamic underwriting and pricing features incentivise behaviour change to prevent and manage risks.
Behaviour Change Change in lifestyle behaviour can significantly influence health outcome.
Biomarker Tracking The new generation of wellness trackers allow users to give insurers access to their clinical health data.
Distributed Ledger Technology project team At the cutting edge of technology
Unlocking the potential of blockchain Swiss Re formed the Distributed Ledger Technology (DLT) project team two years ago in an effort to better understand the potential applications of blockchain technology and cryptography in our industry.
Predicting and preparing for scenarios like this is the speciality of Swiss Re’s Special Risks Unit. Our global team tackles the hazards of a rapidly evolving risk pool: the live events market.
From left to right 1. Russell Higginbotham, CEO Reinsurance EMEA 2. Thomas Wellauer, Group COO 3. J. Eric Smith, CEO Reinsurance Americas 4. Edouard Schmid, Group CUO 5. Patrick Raaflaub, Group CRO 6. Christian Mumenthaler, Group CEO 7. John R. Dacey, Group CFO 8. Jayne Plunkett, CEO Reinsurance Asia 9. Guido Fürer, Group CIO 10. Thierry Léger, CEO Life Capital 11. Moses Ojeisekhoba, CEO Reinsurance 12. Agostino Galvagni, CEO Corporate Solutions
̤ changes in legislation and regulation, and the interpretations thereof by regulators and courts, affecting us or the Group’s ceding companies, including as a result of shifts away from multilateral approaches to regulation of global operations; ̤ the outcome of tax audits, the ability to realise tax loss carryforwards, 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 business models; ̤ failure of the Group’s hedging arrangements to be effective; ̤ the lowering or loss of one of the financial strength or other ratings of one or more Swiss Re Group companies, and developments adversely affecting the Group’s ability to achieve improved ratings; ̤ uncertainties in estimating reserves; ̤ policy renewal and lapse rates; ̤ uncertainties in estimating future claims 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; ̤ extraordinary events affecting the Group’s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events; ̤ legal actions or regulatory investigations or actions, including those in respect of industry requirements or business conduct rules of general applicability; ̤ changes in accounting standards; ̤ significant investments, acquisitions or dispositions, and any delays, unexpected costs, lower-thanexpected benefits, or other issues experienced in connection with any such transactions; ̤ changing levels of competition, including from new entrants into the market; and
̤ operational factors, including the efficacy of risk management and other internal procedures in managing the foregoing risks and the ability to manage cyber security risks.
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Share Register Telephone +41 43 285 6810 Fax +41 43 282 6810 share_register@swissre.com
Design: MerchantCantos, London Swiss Re Corporate Real Estate & Services/ Media Production, Zurich
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Combined ratio in % 111.5 104.0 Net operating margin in % –1.3 4.3 Return on equity in %1 –3.5 3.7 Life & Health Reinsurance Net income attributable to common shareholders 1 092 761 –30
Premiums earned and fee income 11 980 12 835 7 Net operating margin in % 13.1 9.4 Return on equity in %1 15.3 11.1 Corporate Solutions Net loss attributable to common shareholders –741 –405 –45
Business Units at a glance 2 Message from the Chairman 4 Statement from the Group CEO 10 How re/insurance works 16
The global economy and financial markets 20 Our strategy 28 Summary of financial statements 30 Group results 32 Group underwriting 34 Group investments 36 Reinsurance 38 Property & Casualty Reinsurance 40 Life & Health Reinsurance 42 Corporate Solutions 44 Life Capital 48 Share performance 52
Overview 72 Financial strength and capital management 74 Liquidity management 80 Risk management 81 Risk assessment 87
Group financial statements 192 Notes to the Group financial statements 202 Report of the statutory auditor 299 Group financial years 2009–2018 304 Swiss Re Ltd 306
Glossary 326 Cautionary note on forward-looking statements 333 Note on risk factors 334 Contacts 342 Corporate calendar 343
* For reference only, excludes the impact of the new US Generally Accepted Accounting Principles (GAAP) guidance on recognition and measurement of financial instruments, which was effective for the Group as of 1 January 2018 and was not retroactively applied.
We are facing the question of whether Europe’s geopolitical position of power, which it has held for centuries, is now reaching an end, with the possibility of liberal globalisation – which has benefited us greatly – increasingly giving way to trade and regulatory protectionism.
You may well ask what this assessment of the current global situation – brief but rather more pessimistic than my usual offerings – has to do with the business developments at Swiss Re in 2018. Firstly, I wanted to illustrate the environment in which we are currently operating, and secondly, these points are relevant to my further remarks below. Let me briefly describe our role as a reinsurer and explain the major moves of Swiss Re in recent years, with a focus on how we allocated shareholders’ capital, as well as what we intend to implement in the near future.
A business model focused on capital allocation We employ capital. This is at the heart of what we do at Swiss Re. We employ the capital made available to us by allocating it across a broad range of different risk pools. These pools are primarily insurance risks such as hurricanes in the North Atlantic, car insurance in Europe and mortality risks in the United States, and many more. In total, we manage around 50 of these risk pools, which we can consciously grow – either organically or through acquisitions – or, relatively quickly, reduce in size. We are able to reallocate capital extremely quickly as – unlike primary insurers – we do not have to maintain large sales organisations in individual markets.
Informed assessments, consistent decisions We assess the performance of various risk portfolios using our proprietary Economic Value Management (EVM) method, which allows us to identify the risk portfolios in which we have historically earned our cost of capital on the allocated risk capital – and those in which we have not. EVM also enables us to compare very different risk classes with each other.
The public and private sectors have a shared interest in establishing a solid macroeconomic environment. And the good news is that there are numerous steps governments and corporations can take to strengthen the global economy. These include, among others: Encourage private capital market solutions The private sector should step up to offer a stronger contribution to societal problems like the global retirement savings gap and healthcare costs, reducing government liability. The global retirement savings gap is estimated to be an unimaginable USD 400 trillion by 20502.
The re/insurance industry has a role to play in all of the above. On the one hand, insurance is an automatic stabiliser for households and businesses, facilitating a speedy recovery in the event of a loss. On the other, re/insurers are long-term investors that can act as shock absorbers in financial markets and deploy capital to productive areas of an economy. By being active on both sides, and by continuing to extensively research these topics, Swiss Re contributes to closing the global protection gap and strengthening the shock absorption capacity of societies.
1 See sigma 5/2018, “Global economic and insurance perspectives” 2 See WEF (2018), “We’ll Live to 100 – How Can We Afford It?” 3 McKinsey estimates global infrastructure financing needs of USD 3.3trn annually through 2030 just to support expected economic growth rates. See McKinsey
We have also established a business model for the management of our financial assets, which is not only of great help in risk assessment but also yields interesting insights. As we have largely outsourced portfolio management of individual risk investments to around 20 of the best asset managers in the world, we also have a first-class information network that provides the perfect complement to our core competence in the field of strategic asset allocation.
investments in China, South-East Asia, Africa and Brazil. These are very long-term investments but I am optimistic that they will deliver results.
So what is the next step? The renewal of our reinsurance business in P&C Re on 1 January 2019 has strengthened our conviction that things are starting to pick up again in the P&C business – not quite as strongly and decisively as we would like, but picking up all the same. Of course, it remains to be seen whether the market will attract an influx of new capital. We have, in any case, invested in organic growth again. It also remains to be seen whether certain market players will surrender and the sector will once again find itself in a consolidation phase. Should we identify attractive opportunities in this context, any decisions we make will be based on strategic considerations and ease to realise cost and, above all, capital synergies. However, huge acquisition premiums are definitely off the table.
In other areas, we are adopting a markedly more flexible approach. The imminent changes on the world stage will require close analysis and rapid adaptation. I believe we are very well prepared for these changes and we are therefore looking to the future with confidence.
Russell Higginbotham has been at Swiss Re for 24 years, in roles across multiple business areas and geographies. Most recently, he led Swiss Re’s Global Life & Health (L&H) Products Division, where he played a pivotal role in strengthening the company’s L&H solutions offering, boosting product innovation and maintaining the growth of large L&H reinsurance transactions. Previously, he served as CEO of Swiss Re UK & Ireland, as CEO of Swiss Re Australia and New Zealand and led the company’s L&H businesses in Japan and Korea.
I would like to take this opportunity to thank Jean-Jacques Henchoz and Agostino Galvagni on behalf of the Board of Directors for their commitment and valuable contribution to the success of Swiss Re over several decades.
I would also like to thank – and I am sure you will join me in this – all of our 14 943 employees across the globe for their tireless work over the last year. And warm thanks to you, our highly valued shareholders, for your trust, support and loyalty.
Wishing you all the very best for a happy and successful 2019.
“ We’ve invested significantly in technology at Swiss Re over the past years and I believe it will have a very positive impact on our business in the future.”
Devising solutions for a growing risk As a risk knowledge company, Swiss Re devotes a significant amount of brainpower to devising solutions to tackle this growing risk. Our claims and experience data we have collected over several decades and our refined natural catastrophe models facilitate risk assessment. They help raise risk awareness, and ultimately prepare and protect businesses and communities, strengthening their resilience. We have a long tradition of enabling sustainable progress by investing into the development of renewable energy sources like solar and wind, in addition to supporting sustainable investing by adopting ESG investment principles.
An optimistic outlook, even in challenging conditions The prospect of what we can achieve with technology is not the only reason I’m optimistic about Swiss Re’s future. In the January 2019 renewals of our Property & Casualty Reinsurance business, we were able to grow while keeping our running costs flat – in our industry, size and diversification matter. We renewed USD 10 billion in premium volume, an increase of 19% compared to the year before. Price quality increased by 1% and we expect further price improvements in the renewals later this year as a result of the 2018 natural catastrophes. In the commercial insurance space, prices also increased by 3% and positive momentum continues. Furthermore, our Life & Health Reinsurance franchise continues to grow, with new business profits contributing to our capital generation. And we expect emerging markets, including China, to contribute to stronger growth for insurance markets in the long term. I’m confident in Swiss Re’s future sustainable economic earnings, which are the basis of the attractive capital management actions the Board will recommend at our upcoming Annual General Meeting.
For Swiss Re, risk pools represent the landscape of insurable risks worldwide. They evolve constantly, requiring close monitoring of their scope, frequency and magnitude. The cyclicality of natural catastrophes, new and emerging risks, such as cybersecurity, changes in the regulatory environment and insurance buying behaviour are all factors that affect the size and nature of risk pools worldwide. As a risk knowledge company, we actively seek access to those risk pools, directly or through our clients, to further diversify our risk portfolio.
The global economy and financial markets 20 Our strategy 28 Summary of financial statements 30 Group results 32 Reinsurance 38 Corporate Solutions 44 Life Capital 48 Share performance 52
Inflation continued to climb in most markets, driven by rising oil prices. Underlying inflation (excluding energy prices) remained more moderate. We saw signs of increasing price pressure, particularly in the US, where tight labour markets led to wage increases. US average hourly earnings growth, for example, reached 3.3% in October, a level last seen almost a decade ago, and stayed elevated through year-end.
Economic growth in emerging markets varied by country. The emerging Asia region continued to outperform as growth in India accelerated to 7.3% and the Chinese economy slowed only moderately to 6.6%. Growth in China was supported by accommodative monetary policy and fiscal measures intended to offset slowing external demand and adverse trade policies. Growth in EU member countries in Central and Eastern Europe slowed along with western European markets, while the Russian economy accelerated modestly. Political and economic crises triggered either a sharp growth slowdown or recession in some emerging economies, such as Turkey, Argentina and Venezuela. Only modest growth in Brazil also contributed to sub-par performance in Latin America.
Interest rates The major central banks normalised monetary policy to varying degrees during the course of 2018. The US Federal Reserve (Fed) proceeded on its gradual rate hiking path with four steps of 25 basis points each. The Bank of England raised interest rates once, while European Central Bank (ECB) interest rates remained in negative territory. The ECB tapered its asset purchases in 2018, and suspended them by the end of the year. The Bank of Japan continued its expansionary monetary policy, targeting long-term yields at a level close to zero.
Stock market performance The economic environment proved to be challenging for global stock markets, particularly in the final quarter of the year. Slowing growth, increasing (albeit still moderate) inflationary pressures, and the gradual end of expansionary monetary policy weighed on markets. Political and policy uncertainties added to the negative sentiment. Specifically, trade tensions between the US and China heated up over the summer, raising fears of a global trade war that could negatively affect global growth and trigger inflation. Meanwhile, a government coalition in Italy initially pursued a fiscal agenda after the Italian elections in May that was in breach of EU budget rules. Financial market contagion from the budget crisis in Italy was limited, though, and agreement with the EU was reached in December. Meanwhile, uncertainty around the UK’s exit from the European Union remained elevated throughout the year. Finally, political turmoil in some emerging markets, including Turkey and Argentina, triggered fears of a broader emerging market crisis. US stock markets benefited from strong domestic growth and corporate earnings boosted by tax cuts. US stocks were up almost 10% at the end of September before falling sharply in the final quarter, ending the year down 6%. Other major indices declined even more sharply. The Swiss Market Index lost 10% over the year, the MSCI UK 13%, the Eurostoxx50 was down 14% while the Japanese TOPIX fell 18% (see stock markets chart).
Economic risks affecting re/insurers Downside risks increased during the course of 2018 and remain elevated looking ahead. We see some upside potential from supportive fiscal policies and a de-escalation of trade conflicts. Overall, however, risks seem skewed to the downside.
The biggest longer-term risk is an escalation of current trade tensions to a global trade war. This would have a significant effect on growth. The US decision to impose higher trade tariffs on Chinese imports has increased the risk, once again, of a sharp slowdown in China. Before trade tensions escalated, sustained economic growth, progress in reducing corporate debt and de-risking of wealth- management products had lowered the risk. A “hard landing” in China could send shock waves across the global economy and financial markets.
Finally, there are numerous political risks that could affect the economic outlook. Brexit-related uncertainty continues to weigh on economic activity in the UK and negative effects could spread across Europe if the UK were to exit the European Union in a disorderly fashion. Also, upcoming EU parliament election could embolden eurosceptic parties across Europe. Coupled with a flaring up of the budget conflict in Italy, this could re-ignite Euro area break-up fears and destabilise financial markets.
USA Eurozone UK Japan China 1 Yearly average 2 Year-end 3 USD per 100 units of foreign currency
The capacity of several key global resilience factors, or shock buffers, has weakened over the last 10 years: ̤ Lower growth paths: Global economic trend growth has declined significantly. According to some estimates, the growth trend has decreased from around 5% in 2006 to just over 3% in 2018.1
̤ Higher debt: total debt ratios are much higher than 10 years ago, standing at 318% of GDP in the first quarter of 2018, compared with 282% in the first quarter of 2008, according to the Global Debt Monitor database of the Institute of International Finance.
̤ Financial market structure: central banks have become major actors in financial markets. We estimate that the Fed, ECB, Bank of England and Bank of Japan all own 20–45% of their domestic government bond markets. Bond prices have thus lost their price/risk signalling function.
̤ Less open economies: Some advanced economies have exhibited a tendency towards less open systems in the past years, for example by restricting trade and migration. Openness increases exposure to crisis via contagion but arguably, openness also allows stricken nations to bounce back more quickly.
We expect insurance protection gaps to grow further in absolute terms, as the economies expand. In relative terms, the insurance industry has made inroads to reduce protection gaps in certain regions and lines of business, but more is needed. Building risk awareness and encouraging consumers to take up insurance coverage is a key area of action in both the advanced and emerging markets. Insurers can gain insights from behavioural economics to better understand consumer buying behaviour. Digital technology can help streamline the sales process, and reduce distribution and administrative costs. This makes insurance more affordable and also accessible to lower income groups. Given its importance, resilience will be among the key research areas of the Swiss Re Institute in 2019.
1 See P. Alexander, Assessing Global Potential Output Growth, Bank of Canada Staff Analytical, 2017 2 Source: Swiss Re sigma 5/2018, Global economic and insurance outlook 2020.
Market performance Premiums have risen moderately in almost all countries/regions in 2018 due to stronger economic growth. Global non-life premiums were up an estimated 3% in real terms, after a 3% gain in 2017.
The global aggregate is being driven by the emerging markets, where we estimate 8% premium growth in 2018. Non-life business in China and India has been particularly strong, with combined premiums up 12% in real terms this year. Agriculture insurance has been a main growth driver in both countries. Alongside economic recovery, non-life sector growth dynamics in Latin America and Africa were improving, but with 3% still significantly below long-term trend.
Underwriting conditions have remained soft, particularly in commercial insurance, despite a moderate improvement in pricing in 2018. Marsh’s global insurance market index ticked up moderately throughout the year. Even so, stabilisation of the soft market trend of the last years has not been sufficient to significantly narrow the profitability gap that still besets the non-life insurance sector.
In terms of profitability outlook we expect, in the absence of clear direction on rates, underwriting results to remain stable at current levels, or to slightly improving. Positive rate dynamics and demand for new types of cover is expected to support premium growth in the coming years.
Market Size in USD billions Estimated global premium income in 2018
Market performance Global premiums in non-life reinsurance are estimated to have grown by around 5% in 2018 in real terms, mainly based on rapidly increasing cessions from emerging markets.
The impact from natural catastrophe losses is less severe after last year’s record global insured of USD 144 billion disaster-related losses. However, claims were mounting up and are estimated at more than USD 70 billion for the re/insurance industry. The largest natural catastrophe losses were from wildfires in California, hurricanes making landfall in the US (Michael, Florence), and from typhoons and floods in Japan.
Despite a trend towards higher interest rates in the US in 2018, the investment environment remained challenging with persistently low-investment yields and increased volatility of capital markets. Before this difficult background, the industry achieved only a 2.5%–3% investment result. As a result, the overall profitability was also at a low 6%–8% compared to historical standards.
The alternative capital (AC) sector on the other hand expanded again significantly from USD 75 billion by end of 2016 to around USD 90–100 billion at the end of 2018: the high loss burden in 2017 didn’t halt the massive capital inflow in the first half of the year, but towards the end of 2018, the were first signs of hesitancy among capital providers regarding further investing into this risk class. Two factors acted as potentially deterrent to investors: a) the mounting losses from wildfires in California for the third year in a row and b) from still gradually escalating losses (“loss creep”) from Hurricane Irma in 2017, which created increasing uncertainty regarding final loss numbers and prevented a smooth roll over of investments into new ventures.
In the low interest rate environment, overall profitability in the life insurance sector – as measured by ROE – remains low. According to part-year data, the trend in the US is upwards, slowly. With an estimated ROE of 12%, North American life insurers have performed solidly this year and outperformed peers in Europe and Asia, for which 2018 ROE is estimated at 9% and 10%, respectively.
Some central banks have taken their foot off the monetary policy accelerator and interest rates are rising slowly, but are still very low. This means savingstype business will remain stressed given the associated inability of life insurers to provide attractive returns, fund guarantees, future claims and benefits as well as offer attractive prices. Many business lines are of longer duration than available assets, and insurers still need to reinvest in lower-yielding assets and/ or take more asset risk, exposing their balance sheets to more financial risk.
Outlook For the next two years, the outlook for different regions is mixed. Emerging market premium growth will accelerate again to around 9%. There is expected to be a rebound in China, where the economic backdrop remains strong and as the one-off effect of this year’s WMP shock fades. Advanced market premiums are expected to remain stable with limited upside development.
̤ Expansion of Primary Lead capabilities: global network coverage for international programmes in over 120 countries.
̤ Growth in a gradually improving market environment whilst pruning underperforming segments.
̤ We have grown our workforce and now employ 14 943 employees in 30 countries, of which 17% are located in high growth markets.
Income before interest and income tax expense 1 091 1 105 1 Interest expenses –566 –555 –2 Income before income tax expense 525 550 5 Income tax expense –132 –69 –48 Net income before attribution of non-controlling interests 393 481 22
Interest on contingent capital instruments, net of tax –67 –41 –39 Net income attributable to common shareholders 331 421 27
Group results – Swiss Re’s net income significantly impacted by large losses and recent change in US GAAP accounting guidance on equity securities.
Reinsurance generated a net income of USD 1.1 billion, compared to USD 679 million in 2017.
Life & Health Reinsurance contributed a net income of USD 761 million in 2018, down from USD 1.1 billion in 2017, driven by a lower underwriting result due to unfavourable mortality experience as well as reduced investment performance. The net operating margin decreased to 9.4% in 2018 from 13.1% in the previous year.
Corporate Solutions incurred a net loss of USD 405 million in 2018, compared to a net loss of USD 741 million in 2017. Both years were significantly impacted by large natural catastrophes and man-made losses, totalling USD 0.7 billion in 2018 and USD 1.2 billion in 2017, net of retrocession and before tax. The net operating margin was –11.1% and –23.5% for 2018 and 2017, respectively.
Common shareholders’ equity, excluding non-controlling interests and the impact of contingent capital instruments, decreased to USD 27.9 billion at the end of 2018, down from USD 33.4 billion at the end of 2017. The decline mainly reflected a payment to shareholders of USD 2.9 billion for the 2017 regular dividend and the share buy-back programmes, as well as a decrease in unrealised investment gains of USD 2.8 billion.
Swiss Re achieved a return on equity of 1.4% for 2018, above the 2017 return of 1.0%. Excluding the impact of the recent change in US GAAP accounting guidance, the estimated return on equity would have been 2.9%.
Premiums earned and fee income for Life Capital increased by 14.1% to USD 1.6 billion, mainly driven by growth in the open book life and health insurance business combined with intra-group retrocessions. Life Capital continued to generate exceptional gross cash amounting to USD 818 million in 2018 compared to USD 998 million in 2017.
Investment result and expenses Swiss Re’s return on investments for 2018 was 2.8%, compared to 3.9% in 2017, reflecting a negative impact from the recent change in US GAAP accounting guidance. Non-participating net investment income increased to USD 4.1 billion in 2018 compared to USD 3.7 billion the prior year. The Group reported non-participating net realised investment gains of USD 0.1 billion in 2018, compared to USD 1.7 billion in 2017, as the prior year benefited from significant realised gains from sales within the equity portfolio versus market value losses in 2018.
Acquisition costs for the Group amounted to USD 6.9 billion in 2018, slightly down from USD 7.0 billion in 2017.
Edouard Schmid Group Chief Underwriting Officer 34 Swiss Re 2018 Financial Report
Likewise, our in-house biometric risk solution, Magnum, is a market-leading underwriting capability. Used by over 60 insurance clients, this automated underwriting solution processed more than 12 million applications in 26 countries in 2018, covering a full range life, health and medical expense products. It is the outcome of over 20 years’ experience and acknowledged industry knowledge leadership, constantly refreshed with new research. Magnum enables us to allocate a growing amount of capital to support our position in life and health insurance.
These are mature solutions, for mature risks. The same capabilities drive our ability to absorb risks that are less understood, such as cyber insurance. In previous years, Swiss Re adopted a cautious approach towards cyber risk, while others were more willing to underwrite this fundamentally new risk pool with questionable profitability. We deliberately shaped our capital allocation to maintain a watching, yet underweight market interest. In 2018, our R&D delivered a capability to track and contain the accumulated cyber risk – and we have deployed an increased appetite for a risk that has become addressable.
In 2018, Reinsurance made payments of ca. USD 10 billion to 3 300 clients in 150 countries, while Corporate Solutions’ payments totalled ca. USD 2.5 billion in over 50 000 payments to its insureds and third-party claimants. These payments helped people rebuild homes and supported communities to recover in the aftermath of catastrophes.
The 2018 large loss burden totalled USD 3.0 billion, driven by losses associated with the typhoons Jebi and Trami in Japan, hurricanes Florence and Michael, the Camp and Woolsey wildfires in the US and the Ituango dam collapse in Colombia.
Market environment and outlook We anticipate continuing, albeit slowing global economic expansion in 2019. Insurance premiums in advanced markets will likely increase, in line with this economic growth, while emerging market premiums will continue to outperform on the back of increasing penetration levels and solid growth, particularly in China. We continue to expand our potential market through ongoing work to reduce the protection gap, and to address the barriers to demand and supply that hinder insurance uptake.
The natural catastrophe events of 2017 led to an improvement in market discipline in 2018. Encouragingly, this discipline has begun to spread to other lines of business, including the underpriced US casualty insurance market. Increased discipline has led to improved pricing and the exit of several re/insurers from otherwise unsustainable markets. In our view, further such exits in the coming year would not come as a surprise. We believe this represents an opportunity for a long-term, stable and resilient re/insurer such as Swiss Re.
Our strong underwriting discipline and our strong capitalisation will support us in playing a leading role in making the world more resilient.
Financial markets overview Financial markets in 2018 were mainly driven by a series of political risks, monetary policy developments and late-cycle concerns in the US. In terms of politics, the US–China trade dispute, Brexit-related uncertainties and the Italian budget standoff weighed on investor sentiment, particularly in the fourth quarter.
In contrast to 2017, most asset classes saw heightened volatility in 2018. Early in the year, equity markets came under sharp pressure before rebounding again in spring. Tailwinds from the US tax stimulus led to outperformance from US equities relative to other major stock markets globally. Equity markets then sold off in Q4 amid concerns over a global growth slowdown as well as seasonally thin liquidity conditions in December, resulting in the S&P 500 index ending the year down 6%. While credit spreads were less affected by the aforementioned market turbulences for most of the year, investment-grade
“ In a year of considerable market volatility, we have continued to deliver strong value to the Group.”
Overall, global growth started to slow, though continues to remain above-trend. Inflation picked up slowly in many regions and central banks continued to normalise their monetary policies gradually, most notably in the US.
Find out more about Swiss Re’s commitment to sustainable investing in our online report at reports.swissre.com or by scanning the QR code with your smartphone camera.
Moderate global monetary policy tightening is set to continue, including by the Federal Reserve, whose hiking cycle and balance sheet reduction are approaching the final stages. Meanwhile, the European Central Bank is likely to keep its refinancing rate unchanged in 2019, having fully unwound its asset purchase programmes in 2018.
“ As always, we were there for our clients after hurricanes, typhoons, wildfires and hailstorms, fulfilling our promise to pay.”
The global protection gap is expected to grow due to demographic changes as well as the increasing impact of natural catastrophes. Swiss Re expects longer-term economic and development trends to continue to generate additional business opportunities in both highgrowth markets as well as those countries with more mature economies.
The result, an app-based telematics product, went live under the trade name Coloride. Coloride uses Swiss Re’s white-labelled phone app to record trips and score customers automatically, as they drive during the week. This data is then combined with the driver’s historical claims data to calculate the final score, used then for pricing adjustment at the end of the year.
By taking on the cost of research and development, Swiss Re makes it possible for clients such as Netherlands-based insurer Ansvar to use telematics to gain an edge on competitors without a major investment. Additionally, Coloride provides a means to build a stronger relationship with customers, reduce operational costs and improve the claims experience.
In addition to a customised policy at a fair price, Coloride provides feedback on driving behaviour and phone usage. Good drivers who keep their eyes off their phone and on the road earn points they can spend on iTunes or Amazon purchases, or use points to donate to pre-selected projects. Customers can also use the app to ask for assistance, and compare themselves to other drivers on a leaderboard or in a 1-1 duel.
Cars are a lot “smarter” than they used to be. Today, even standard cars can apply the brakes if they sense an obstacle in their path, keep you from drifting into another lane and sound an alarm if you nod off behind the wheel.
Property & Casualty Reinsurance reported a net income for 2018 of USD 370 million compared to a net loss of USD 413 million in 2017. Both years were affected by large natural catastrophe losses, while 2018 also saw a significant impact from large man-made losses. Estimated total large natural catastrophe and man-made losses amounted to USD 2.3 billion in 2018, mainly stemming from the Ituango dam collapse in Colombia, the Camp and Woolsey wildfires in California, hurricanes Michael and Florence in the Americas, floods and winter storms in Japan, also hit by typhoons Jebi and Trami, the Sydney hailstorm and a fire at a shipyard in Germany. The net operating margin was 4.3% in 2018, up from –1.3% in 2017.
The overall investment result was USD 1.4 billion in 2018 compared to USD 1.6 billion in 2017. Net investment income was USD 1.4 billion in 2018, reflecting the impact of rising interest rates. Net realised losses amounted to USD 16 million, compared to significant realised gains from equity sales in 2017. The losses were driven by market value losses and lower realised gains from fixed income securities. The return on investments was 2.4%.
Combined ratio Property & Casualty Reinsurance reported a combined ratio of 104.0% for 2018, compared to 111.5% in 2017. The impact from natural catastrophes of USD 2.0 billion in 2018 was 5.0 percentage points above the expected level for the year, which was 7.1 percentage points. The favourable development of prior accident years improved the combined ratio by 0.9 percentage points in 2018, compared to a 3.3 percentage point improvement in 2017.
Administrative expense ratio The administrative expense ratio was 6.9% in 2018 compared to 7.0% in 2017, reflecting continuous focus on productivity measures.
Lines of business The Property combined ratio decreased to 99.9% in 2018, compared to 119.9% a year earlier. Both periods include a high loss burden, with 2017 impacted by events such as Cyclone Debbie, hurricanes Harvey, Irma and Maria in the Americas, two earthquakes in Mexico and wildfires in California.
Income/loss before interest and income tax expense/benefit –239 755 — Interest expenses –280 –313 12 Income/loss before income tax expense/benefit –519 442 — Income tax expense/benefit 125 –72 — Net income/loss before attribution of non-controlling interests –394 370 — Income/loss attributable to non-controlling interests Net income/loss after attribution of non-controlling interests –394 370 — Interest on contingent capital instruments, net of tax –19 — Net income/loss attributable to common shareholders –413 370 —
Insurance-related investment result and foreign exchange gains/losses are not included in the figures above.
We observed notable differences within Specialty lines with rate increases for loss-affected lines and markets, and otherwise stable terms and conditions. For Casualty, rates increased in segments where improvements were needed due to claims emergence. We continued to seize good opportunities for transactions,
For Property and Casualty we will increase our market share where prices, terms and conditions meet our expectations. Our differentiation model and the solutions we offer will allow us to access further attractive opportunities.
Management expense ratio The management expense ratio was 5.4%, a decrease from 5.7% in 2017, driven by higher premium volumes.
EBIT for the Health segment slightly increased to USD 355 million for 2018 from USD 345 million in the prior year. The 2018 result included unfavourable valuation updates in the health portfolio in Australia. The prior year included an increase in incurred but not reported (IBNR) claims in the UK critical illness business.
Expenses Life and health benefits –9 211 –10 280 12 Return credited to policyholders –119 –5 –96 Acquisition costs –2 064 –2 045 –1 Operating expenses –754 –758 1 Total expenses before interest expenses –12 148 –13 088 8
Income before interest and income tax expense 1 815 1 367 –25 Interest expenses –315 –410 30 Income before income tax expense 1 500 957 –36 Income tax expense –360 –155 –57 Net income before attribution of non-controlling interests 1 140 802 –30 Income/loss attributable to non-controlling interests Net income after attribution of non-controlling interests 1 140 802 –30 Interest on contingent capital instruments, net of tax –48 –41 –15 Net income attributable to common shareholders 1 092 761 –30
Net investment income increased slightly by USD 23 million to USD 1 128 million in 2018. The fixed income running yield for 2018 was 3.4%.
Outlook We expect life and health treaty reinsurance business to grow modestly in mature markets compared to a stronger increase in high growth markets. In mature markets, the prolonged low interest rate environment continues to have an unfavourable impact on long-term life business. Cession rates are expected to be broadly stable in major markets. We see a continued strong focus on capital, risk and balance sheet optimisation in mature markets, leading to ongoing opportunities for large transactions.
Shareholders’ equity Common shareholders’ equity decreased to USD 6.3 billion as of 31 December 2018 from USD 7.5 billion as of 31 December 2017. The decrease of USD 1.2 billion reflects a change in net unrealised gains and the dividends paid to the Group, partially offset by net income for the period.
Return on equity was 11.1% in 2018, compared to 15.3% in 2017.
Strategy and priorities During 2018, Corporate Solutions continued to make progress on its long-term strategy, with continued investments into its Primary Lead capabilities and an extension of its current global network coverage to over 120 countries.
Premiums Net premiums earned were USD 3.9 billion in 2018, an increase of 7.5% compared to 2017, driven by growth in Primary Lead business, which more than offset the active pruning of the US General Liability portfolio. Gross
Agostino Galvagni CEO, Corporate Solutions 44 Swiss Re 2018 Financial Report
The Casualty combined ratio increased slightly to 125.5% in 2018 compared to 122.0% in 2017. Both periods were impacted by large Liability losses in North America.
The Specialty combined ratio for 2018 increased by 4.9 percentage points to 106.5%, mainly due to higher large loss activity, primarily driven by a major satellite loss and the Ituango dam collapse. The prior-year was impacted by hurricanes Harvey, Irma and Maria.
Net investment income 161 207 29 Net realised investment gains/losses 128 16 –88 Other revenues 5 3 –40
Expenses Claims and claim adjustment expenses –3 558 –3 241 –9 Acquisition costs –554 –607 10 Operating expenses –759 –763 1 Total expenses before interest expenses –4 871 –4 611 –5
Income/loss before interest and income tax expense –926 –460 –50 Interest expenses –23 –24 4 Income/loss before income tax expense –949 –484 –49 Income tax expense/benefit 203 75 –63 Net income/loss before attribution of non-controlling interests –746 –409 –45 Income/loss attributable to non-controlling interests 5 4 –20 Net income/loss attributable to common shareholders –741 –405 –45
Claims ratio in % 97.4 82.6 Expense ratio in % 36 34.9 Combined ratio in % 133.4 117.5
Investment result The return on investments was 2.1% for 2018, compared to 3.4% in 2017, reflecting a reduction in the investment result of USD 101 million.
Net investment income increased by USD 41 million to USD 224 million in 2018, benefiting from a higher invested asset base and rising yields.
Corporate Solutions offers insurance protection against weather perils and other risks, which is accounted for as derivatives. Insurance in derivative form reported net realised gains of USD 30 million in 2018, compared to USD 12 million in 2017.
Outlook In 2018, the commercial insurance market was impacted by large natural catastrophe events and an exceptionally high severity and frequency of large man-made losses in industrial business lines across all geographies. While rates and terms and conditions have improved, commercial risks, particularly in the large corporate segment, remain inadequately priced and the industry continues to be unprofitable overall. Corporate Solutions expects continued market hardening and a reinforced focus on terms and conditions over the next 12 to 18 months.
PULSE enables our corporate clients to easily view latest risk data and manage complex insurance programs from a single dashboard, accessible on any device.
PULSE gives customers a dashboard view of all of their international programs and policies, allowing them to: ̤ Ensure their policies are issued and paid in full ̤ Initiate claims, upload supporting documentation and track claims processing and payments ̤ Download policies, proof-of-insurance certificates and other documents, and export detailed account data as Excel files ̤ See recommendations resulting from a site visit by Swiss Re experts and upload proof of compliance
One of our clients said that PULSE is “a differentiator” which has dramatically reduced the amount of time he spends managing his company’s policies.
Another user said: “It’s perfect – clean and easy to navigate and it contains all of the information I need.”
PULSE’s popularity is the result of Swiss Re Corporate Solutions’ commitment to close collaboration with our customers. Before building the platform, we conducted extensive interviews with corporate clients, asking them how we could make their jobs easier. Then we worked with interface design experts to turn their wish list into reality. The result is a platform that’s as elegant and intuitive as it is powerful.
And it’s only getting better: PULSE was designed to allow new features and functionality to be added over time, potentially providing even more value to our clients.
Life Capital seeks to optimise capital and asset management and to maximise cash generation and return on equity. In the closed book business, the focus remains on achieving operational efficiencies by leveraging its operating platform. In the open book business,
“ In 2018, Life Capital maintained strong growth in line with expectations as the unit continued its transition from a closed book to an open book business.”
Fee income from policyholders 457 434 –5 Net investment income – non-participating business 1 193 1 256 5 Net realised investment gains/losses – non-participating business 133 66 –50 Net investment result – unit-linked and with-profit business 3 234 –1 560 — Other revenues 2 —
Expenses Life and health benefits –1 872 –1 489 –20 Return credited to policyholders –3 179 1 038 — Acquisition costs –106 –255 141 Operating expenses –514 –549 7 Total expenses before interest expenses –5 671 –1 255 –78
Life Capital continues to prioritise its use of technology to enable both elipsLife and iptiQ to achieve efficiencies and growth opportunities in their respective businesses.
Performance In 2018, net income for Life Capital was USD 23 million, a decline from USD 161 million in 2017. The underlying performance in 2018 benefited from realised gains on sales of fixed income securities and favourable underwriting experience which was more than offset by the impact of UK investment market underperformance and increased investment in open book business.
The net operating margin in 2018 was 3.9% compared to 10.9% in the prior year, in line with movements in net income.
Life Capital generated exceptional gross cash of USD 818 million during 2018, compared to USD 998 million in the prior year. The gross cash generated in 2018 was driven by the strong underlying surplus on the ReAssure business, the proceeds from MS&AD’s initial 5% stake in ReAssure and the finalisation of the 2017 year-end Solvency II statutory valuation, partially offset by valuation changes.
Life Capital paid a dividend of USD 1.1 billion to the Group in June 2018, driven by the strong capital position of the ReAssure business.
Investment result The return on investments was 3.3% for 2018, compared to 3.4% in 2017, reflecting a decrease in the investment result of USD 84 million.
Net investment income decreased by USD 50 million to USD 844 million in 2018, mainly due to run-off within the closed book portfolios.
Net realised gains decreased by USD 34 million to USD 77 million in 2018, reflecting a reduction of gains from sales of fixed income securities.
Eva, currently available to some Swiss Re clients, makes purchasing life insurance online a more personal and conversational experience.
It’s safe to say that shopping for life insurance isn’t something that people look forward to. As if confronting one’s mortality wasn't hard enough, understanding different products and choosing the one that’s best for you can be complicated, particularly for online shoppers who can’t turn to a sales agent to ask questions or get advice.
In fact, 98% percent of people who begin the process of shopping for life insurance online quit before making a purchase. So, with more and more people gravitating towards online shopping, a growing number aren’t getting the coverage they need through online channels.
Eva may not have a pulse, but she is patient, empathetic and will act as the important digital “face” of iptiQ’s partner brands, answering questions in different languages and making the insurance customer journey a whole lot easier.
Dividends The Board of Directors proposes a regular dividend of CHF 5.60 per share for 2018. The dividend paid for 2018 will be subject to 35% Swiss withholding tax.
Public share buy-back programme On 7 May 2018, the Board of Directors launched the public share buy-back programme authorised by the 2018 AGM. This programme was completed on 15 February 2019.
Swiss Security Number (Valorennummer) 12688156 – ISIN (International Securities Identification Number) CH0126881561 US8708861088
Sustainability indices Dow Jones Sustainability Europe 0.78 Dow Jones Sustainability World 0.31 FTSE4Good Global 0.12 52 Swiss Re 2018 Financial Report
 Closing price  Volume on-exchange  Volume off-exchange is also a member of various sustainability indices, including the Dow Jones Sustainability World and Europe, FTSE4Good, Euronext Vigeo World 120, Bloomberg Gender Equality Index, MSCI
ESG Leaders and MSCI Global Socially Responsible (2019) index families. In May 2019, Swiss Re received a AAA rating on the MSCI ESG assessment.
Read online a description of the summary of significant EVM principles and sensitivities.
The EVM profit from previous years’ business amounted to USD 638 million in 2018 compared to an EVM loss of USD 148 million in 2017. The result was primarily driven by a previous years’ business profit in Property & Casualty Reinsurance, partially offset by large man-made losses in Corporate Solutions.
Economic net worth (ENW) 37 667 35 993 −4 Economic net worth per share in USD 119.74 119.96 0
Business segment performance Property & Casualty Reinsurance reported an EVM profit of USD 199 million in 2018 compared to a loss of USD 1.2 billion in 2017. The EVM loss on new business of USD 430 million was driven by large natural catastrophe and man-made losses, which included typhoons Jebi and Trami in Japan, hurricanes Florence and Michael as well as the Carr, Camp and Woolsey wildfires in the US. 2017 included large losses due to hurricanes Harvey, Irma and Maria (HIM), two earthquakes in Mexico and wildfires in California. EVM profit on previous years’ business was USD 698 million, driven by a net favourable development in expected claims payout patterns and ultimate claims estimates as well as lower capital costs. Investment activities generated an EVM loss of USD 68 million in 2018 compared to a profit of USD 212 million in 2017. The 2018 loss was driven by the impact of credit spread widening as well as losses from equities, partially offset by positive performance of alternative investments. The 2017 profit was driven by positive performance across equities and alternative investments, as well as credit investments.
Life Capital generated an EVM loss of USD 93 million in 2018 compared to a profit of USD 572 million in 2017. The 2018 loss reflected a negative investment performance of USD 533 million, impacted by credit spread widening and underperformance from implied equity exposure arising from the unit-linked business. This was partially offset by a favourable underwriting result. The 2017 profit reflected a strong investment performance of USD 420 million as well as a favourable underwriting result.
In 2018, an EVM loss of USD 649 million was reported in Group items compared to a loss of USD 128 million in 2017. The EVM loss from new business was USD 179 million in 2018, mainly driven by capital costs on excess capital and expenses, partially offset by trademark licence fees charged to the business segments. The previous years’ business loss was USD 72 million, driven by an increase in overhead expenses. Investment activities generated an EVM loss of USD 398 million in 2018 compared to a profit of USD 146 million in 2017, reflecting an unfavourable result from Principal Investments.
previous years’ business profit was USD 168 million. This included the positive impact of lower capital costs, partly offset by adverse experience in the US and several valuation and assumption updates. Investment activities generated an EVM loss of USD 625 million in 2018 compared to a profit of USD 627 million in 2017. The 2018 loss reflected the impact from unfavourable interest rate movements on the net duration position, as well as credit spread widening, while the prior year was positively impacted by credit spread tightening as well as performance from equity securities.
Profit margin − new business, % −10.2 8.6 −21.2 4.3 −4.1 Profit margin − previous years’ business, % 1.9 0.1 −18.3 1.0 −0.8
Profit margin − new business, % −3.1 8.2 −2.2 11.8 1.2 Profit margin − previous years’ business, % 11.7 1.8 −36.4 23.1 3.5 Profit margin − investments, % −2.4 −19.4 −11.9 −16.5 −18.3
Premiums and fees retention rate, % 97.5 97.9 Premiums and fees growth rate, % –12.4 7.5
Net underwriting result – new business 112 2 341 Taxes 18 −415 Capital costs −1 475 −1 570 EVM profit – new business −1 345 356 EVM profit – previous years’ business −148 638 EVM profit – underwriting −1 493 993 Investment result Mark-to-market investment result 5 132 895 Benchmark investment result −1 761 −1 702 Gross outperformance (underperformance) 3 371 −808
Expenses −253 −252 Net outperformance (underperformance) 3 243 −943 Taxes −747 167 Capital costs −1 012 −911 EVM profit – investments 1 484 −1 686 EVM profit −9 −693 Cost of debt −626 −67 Release of current year capital costs 2 792 3 059 Additional taxes −290 −133 Total contribution to ENW 1 867 2 166
Economic Value Management EVM financial information 60 Swiss Re 2018 Financial Report
Gross premiums and fees growth rate, %1 −4.8 −20.7 0.0 49.6 −11.4
Net underwriting result – new business −1 281 2 070 −740 175 −112 0 112
Taxes −162 −260 −35 −184 −106 −747 Capital costs −342 −231 −38 −194 −207 −1 012
Cost of debt −352 −170 −39 −40 −25 −626 Release of current year capital costs 881 871 186 382 472 2 792
Profit margin – new business, % −10.2 8.6 −21.2 4.3 −4.1 Profit margin – previous years’ business, %2 1.9 0.1 −18.3 1.0 −0.8 1 The Group revised its disclosure of gross premiums and fees to include assumed intra-group transactions. Comparative information for 2017 has been amended accordingly; this includes the gross premiums and fees growth rate and premiums and fees retention rate.
Gross premiums and fees growth rate, % 6.1 3.3 6.7 4.7 7.1
Premiums and fees retention rate, % 97.8 102.5 88.3 75.7 97.9 Premiums and fees growth rate, % 6.3 6.7 7.5 62.3 7.5
Investment result Mark-to-market investment result 1 046 −28 125 −137 −112 895 Benchmark investment result −707 −442 −164 −310 −77 −1 702 Gross outperformance (underperformance) 339 −470 −39 −447 −189 0 −808
̤ Reserving basis: For EVM, best- estimate current assumptions are used for all re/insurance reserves. Under US GAAP, life and health assumptions, including book yield discounting assumptions, are usually locked in and can include a provision for adverse deviation.
̤ Recognition differences: EVM considers the economic value related to annual management charges on unit-linked funds and adjusts for counterparty credit risk in the valuation of insurance-related net assets. In addition, EVM does not show minority interests on the balance sheet, but consolidates assets and liabilities based on the proportion of the interest held by Swiss Re.
Recognition differences 0.0 −0.2 −0.1 −0.1 0.0 −0.4 Goodwill and other intangibles −2.0 −1.8 −0.4 −0.2 −0.6 −4.9
We have been engaged to perform a reasonable assurance engagement on the Economic Value Management (‘EVM’) financial information of Swiss Re Ltd (the ‘Company’) for the year ended 31 December 2018 (the ‘EVM financial information’). The EVM financial information consists of the income statement, balance sheet, statement of economic net worth and information on business segments as set out on pages 60 to 67 in the Company’s 2018 Annual Report.
All other EVM information included in, or made available outside, the Company’s 2018 Annual Report was not subject to assurance procedures and, accordingly, we express no conclusion on this information.
Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the EVM financial information in accordance with the Company’s EVM principles, including data, valuation and accounting principles, assumptions and factors used and the related internal controls as determined necessary to enable the preparation of the EVM financial information that are free from material misstatement.
A reasonable assurance engagement involves performing procedures to obtain evidence about the execution of the valuation and accounting for the purpose of the EVM financial information in accordance with the Company’s EVM principles. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the EVM financial information, whether due to omissions, misrepresentation, fraud or error. In making those risk assessments, we consider internal controls relevant to the preparation of the EVM financial information in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing a conclusion on the effectiveness of the entity’s internal controls regarding the EVM financial information. A reasonable assurance engagement also includes evaluating the appropriateness of the policies used and reasonableness of significant estimates made, as well as evaluating the adequacy of the overall presentation of the EVM financial information in accordance with the Company’s EVM principles.
Enclosure: EVM financial information (income statement, balance sheet, statement of economic net worth and information on business segments)
In 2018, Swiss Re maintained its strong capitalisation despite large natural catastrophes and man-made events. Our long-term sustainable capital generation and controlled risk-taking support our attractive capital management actions.
Overview Our sustainable capital generation allows us to continue returning excess capital to shareholders. Despite the fourth-costliest year for the insurance industry, our Group SST ratio of 251% remains comfortably above the 220% target. This is supported by our diversified business model and disciplined risk-taking.
“ Risk Management enables sound risk-taking and makes us a reliable partner to our clients.”
Financial strength Swiss Re maintained a market-leading capital position during 2018 despite natural catastrophes and large man-made losses. The Group’s Swiss Solvency Test (SST) ratio of 251% remains comfortably above Swiss Re’s target capitalisation of 220%. Rating agencies A.M. Best, Moody’s and Standard & Poor’s (S&P) rated Swiss Re’s financial strength ‘superior’, ‘excellent’ and ‘very strong’, respectively. This capital strength enables Swiss Re to support its clients in difficult times while continuously returning capital to shareholders.
Based on the Group’s capital strength, the Board of Directors proposes a 2018 regular dividend of CHF 5.60 per share. In addition, the Board of Directors proposes a further public share buyback programme at the discretion of the Board of Directors and subject to obtaining all necessary legal and regulatory approvals.
The Group’s risk-taking is steered by Swiss Re's Risk Appetite Framework, which consists of two interlinked components: risk appetite and risk tolerance. 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. The risk tolerance sets clear boundaries to risk-taking.
Robust capitalisation despite large events Swiss Re’s policy of ensuring superior capitalisation at all times has meant that even in the face of large insurance losses in two consecutive years, the Group maintains a very strong capital position and high financial flexibility. Swiss Re’s financial strength enables the Group to stay committed to creating sustainable long-term shareholder value by growing the regular dividend.
Swiss Re’s capital management priorities aim to ensure the ability to continue operations following an extremely adverse year of losses from insurance and/or financial market events.
Swiss Re’s Group Board of Directors has also defined an SST capitalisation target of 220% for the Swiss Re Group.
Based on current SST rules introduced in 2017, the ratio is calculated as SST risk-bearing capital (SST RBC) minus the market value margin (MVM), divided by SST target capital (TC) minus the MVM.
The Group SST 2019 report will be filed with FINMA in April 2019. Accordingly, the information presented below is based on currently available figures and may differ from the information included in the final Group SST 2019 report.
Changes to the SST NAV mainly include economic capital generation or depletion due to underwriting and investment activities, foreign exchange movements,
and capital management actions (such as paying dividends and share repurchases).
SST risk-bearing capital – market value margin 46 345 40 637 –5 708
The overall contribution from underwriting activities is positive, mainly reflecting underwriting contributions from Property & Casualty Reinsurance, Life & Health Reinsurance and Life Capital, partly offset by negative underwriting contribution from Corporate Solutions, due to large natural catastrophe and man-made losses: ̤ The Property & Casualty Reinsurance contribution to the SST NAV is mainly driven by a net favourable development in expected claims payout patterns and ultimate claims estimates. The positive impacts are partly offset by adverse large loss experience from natural catastrophe and man-made losses.
̤ The Life & Health Reinsurance contribution is driven by large transactions in Asia and strong core business in the US, partly offset by adverse experience, as well as valuation and assumption updates (mainly in the US and EMEA).
̤ The Corporate Solutions underwriting contribution is negatively impacted by large natural catastrophes in the US as well as the high severity and frequency of large man-made losses.
Deductions mainly reflect projected dividends and share repurchases (to be paid in 2019 and subject to AGM 2019 approval) as well as deferred taxes on real estate. These items decrease by USD 103 million compared to SST 2018.
In order to derive SST TC, total risk is adjusted for the line item Other impacts as shown in the table below.
SST TC remains broadly stable at USD 23.2 billion as minor changes in total risk and other impacts offset each other (see Risk assessment p. 87 for details).
In 2017, FINMA approved Swiss Re’s internal model and its components for use of SST reporting purposes under their revised model review process. In 2018, FINMA conducted a material review of Swiss Re’s credit risk model, which was approved for use of SST 2019 though it will require minor adjustments for later reporting periods.
̤ Critical illness, income protection and hospital cash risk – The introduction of the new health model resulted in an increase in required capital.
Find more information about Swiss Re’s risk model in the interactive online report.
Business Unit structure and capital allocation Our peer-leading capital repatriation is supported by strong dividend payments from our Business Units. The cash dividends paid to Swiss Re Ltd since 2013 totalled USD 22.0 billion, while the total amount of capital returned to shareholders in the same time period is USD 17.2 billion.
Rating agency Rating agencies assign credit ratings to the obligations of Swiss Re and its rated subsidiaries. The agencies evaluate Swiss Re based on a set of criteria that include an assessment of our capital adequacy. Each rating agency uses a different methodology for this assessment.
On 13 December 2018, A.M. Best confirmed the Group Swiss Re Financial Strength Rating of A+ (Superior) with stable outlook. The rating reflect A.M. Best’s assessment of Swiss Re’s “strongest” balance sheet strength, strong operating performance, very favourable business profile and very sophisticated enterprise risk management.
4 Core capital of Swiss Re Group is defined as economic net worth (ENW). 5 Senior debt plus LOCs divided by total capital. 6 Subordinated debt divided by sum of subordinated debt and ENW.
As a re/insurance group, Swiss Re’s core business generates liquidity primarily through premium income. The Group’s exposure to liquidity risk stems mainly from two sources: the need to cover potential extreme loss events and regulatory constraints that limit the flow of funds within the organisation.
The funding requirements under stress include: ̤ Cash and collateral outflows, as well as potential capital and funding support required by subsidiaries as a result of loss events
̤ Other large committed payments, such as expenses, commissions and tax
The stress tests also assume that funding from assets is subject to conservative haircuts, intra-Group funding is not available if subject to regulatory approval, no new unsecured funding is available and funding from new re/insurance business is reduced.
The primary liquidity stress test is based on a one-year time horizon, a loss event corresponding to 99% tail value at risk (see pages 87–88), and a three-notch ratings downgrade.
Risk management Risk Management provides independent oversight and applies an integrated approach to managing current and emerging risks.
Group Finance and Risk Committee outline the ultimate authority for risk management, assigning responsibilities to the Group Board of Directors and the Group Executive Committee.
̤ The lowest level comprises risk management methodology and process documentation.
̤ Transparency – Risk transparency, knowledge-sharing and responsiveness to change are integral to the risk control process. The central goal of risk transparency is to create a culture of mutual trust, and reduce the likelihood of surprises in the source and potential magnitude of losses.
Group Board of Directors ̤ Responsible for the Group’s governance principles and policies ̤ Acts through the Finance and Risk Committee, Investment Committee and Audit Committee
Legal entity CROs ̤ Responsible for risk oversight and establishing risk governance in their respective legal entities ̤ Supported by functional, regional and subsidiary CROs as well as dedicated risk teams
Risk management activities are complemented by Swiss Re’s Group Internal Audit and Compliance units: ̤ Group Internal Audit performs independent, objective assessments of the adequacy and effectiveness of internal control systems. It evaluates the execution of processes within Swiss Re, including those within Risk Management.
̤ Risk measurement – enables Swiss Re to understand the magnitude of its risks and to set quantitative controls that limit its risk-taking.
̤ Risk limit framework – allows Swiss Re to control its risk-taking decisions and total risk accumulations, including the passive risk we are exposed to through our operations.
̤ Valuation assurance – assesses the quality of valuations for financial instrument prices and reserves.
̤ Insurance risk reviews – assess the quality of decision-making in the taking of insurance risks by performing independent evaluations of underwriting, costing, pricing and claims handling.
The Group’s risk tolerance is based on three objectives: ̤ To protect the shareholders’ franchise by ensuring that the Group is able to continue operating the business following an extreme loss event
The risk tolerance respectability criteria for the Swiss Re Group are set out in the Group Risk Policy. The Group Board is responsible for approving the risk tolerance criteria, as well as for monitoring and reviewing risk tolerance through its Finance and Risk Committee. Breaches or anticipated breaches of limits established to control the risk tolerance criteria must be communicated to the Group Finance and Risk Committee.
The risk appetite framework establishes the overall approach through which Swiss Re practices controlled risk-taking throughout the Group. The framework is set out in the Group Risk Policy and consists of two interlinked components: risk appetite and risk tolerance.
Find more information about Swiss Re’s risk appetite framework in the interactive online report.
Risk assessment In SST 2019, total risk remains broadly stable, as higher underwriting and credit risks are more than offset by a decrease in financial market risk.
Alternative risk measurements – 99% and 99.5% VaR – remained broadly stable at USD 14.8 billion and USD 17.5 billion, respectively.
Find more information about Swiss Re’s internal risk model in the interactive online report.
Swiss Re is exposed to insurance and financial risks that are calculated in its internal risk model, as well as other risks that are not explicitly part of the economic capital requirement but are actively monitored and controlled due to their significance for Swiss Re. These include operational, liquidity, model, valuation, regulatory, political, strategic and sustainability risks (see Swiss Re’s risk landscape, p. 88).
Swiss Re’s risk landscape The risk categories shown in the table below are discussed on the following pages. Across these categories we identify and evaluate emerging threats and opportunities through a systematic framework that includes the assessment of potential surprise factors that could affect known loss potentials. Liquidity risk management is discussed on page 80.
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.
The risk landscape also includes other risks that are not explicitly part of the Group’s economic capital requirement but are actively monitored and controlled due to their significance for Swiss Re: ̤ Liquidity risk represents the possibility that Swiss Re will not be able to meet expected and unexpected cash flow and collateral needs without affecting either daily operations or Swiss Re’s financial condition.
̤ Model risk reflects the potential impact of model errors or the inappropriate use of model outputs. It may arise from data errors or limitations, operational or simulation errors, or limitations in model specification, calibration or implementation; model risk may also be caused by insufficient knowledge of the model and its limitations, in particular by management and other decision-makers.
Risk developments The increase in property and casualty risk is driven by growth in property business, which increases both natural catastrophe and terrorism exposure. Costing and reserving risk decreases, reflecting claims payment and reserve releases related to the 2017 natural catastrophes, partly offset by reserve increases for the 2018 large losses.
Management The legal entity CROs are responsible for overseeing all property and casualty exposures written in their areas. In addition, Group Risk Management monitors and controls accumulated exposures across Swiss Re to ensure that they remain within the defined risk tolerance level.
The first line of control for property and casualty risks lies within Swiss Re’s underwriting units. In general, all transactions must be reviewed by at least two authorised individuals, and are subject to authority limits. Each underwriter is assigned an individual authority based on technical skills and experience. In addition, capacity limits are allocated to local teams; any business that exceeds this authority or is otherwise complex or unusual triggers an escalation process that extends up to the Group Executive
Committee. Certain single risks and specified renewable treaty classes with non-material changes can be authorised by only one individual underwriter with the necessary authority − but these risks and treaties are subject to checks after acceptance.
All transactions that could materially impact the risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they are authorised. This is part of a three-signature principle, under which key transactions must be approved by Client Markets, Underwriting and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through an individual review.
Risk developments Overall life and health risk increases due to business growth in Asian markets increasing critical illness and lethal pandemic exposure. Mortality trend risk also increases reflecting an update on external retrocession cashflow. The increase is further driven by the introduction of an improved health model, which assumes higher dependencies between different health products and mortality trend risk.
In addition to underwriting and capacity limits, Swiss Re’s limit framework includes separate limits for key risks such as mortality, longevity and lethal pandemic risk. 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.
Atlantic hurricane 5 854 Californian earthquake 3 751 European windstorm 2 336 Japanese earthquake 3 351 Lethal pandemic 2 799
INSURANCE RISK STRESS TESTS: ANNUALISED LOSSES WITH A 200-YEAR RETURN PERIOD
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 CRO,
Risk developments Financial market risk decreases mainly driven by significantly lower credit spread risk and to a lesser extent by lower equity risk. The decrease in credit spread and equity risk is driven by adverse market developments during 2018. The increased minority investment of MS&AD into ReAssure leads to a further reduction, in particular for credit spread risk.
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 weekly Financial Market Risk Council.
All activities with financial market and credit risk are subject to limits at various levels of the organisation (eg Group, lines of business and legal entities). At the highest level, the 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 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.
Management Credit risk is monitored and controlled by experts within the Financial Risk Management team. Financial Risk Management regularly monitors and reports on credit exposures and limits. In addition, it is responsible for regularly monitoring corporate counterparty credit quality and exposures, and compiling watch lists of cases that merit close attention. These reports are presented and discussed with those responsible for the relevant business line at the weekly Credit Council.
The matrix is also used to assess residual exposures against Swiss Re’s tolerance limits for operational risk. This limit represents the level of operational risk that the Board of Directors and executive management teams are willing to accept. Material risks that exceed or are approaching risk tolerance are reported to executive management and Boards of Directors at Group and legal entity level. In addition, mitigation strategies are required for all risks that are outside of operational risk limits in order to bring them within tolerance.
Processes have been finetuned to meet new requirements (eg, Data Subject Rights, Data Protection Impact Assessment, Personal Data Breach Notification) with further strengthening of Swiss Re internal control system and increased awareness of expected behaviors in respect of data protection.
Regulatory risk Swiss Re is strongly engaged in the regulatory debate and interaction, striving to mitigate potentially negative impacts while supporting reforms that could enhance the overall health of the sector, facilitate convergence of regulatory standards or generate business opportunities.
Regulatory developments and related risks that may affect Swiss Re and its subsidiaries are identified, assessed and monitored as part of regular oversight activities. Periodic reports and recommendations on regulatory issues are provided to executive management and the Board at Group and legal entity level.
Technology regulation is increasing in importance. While this is mainly targeted at technology companies, it also has a significant effect on insurers and reinsurers where it concerns access to and usability of data. Insurance regulators have also to examine the use of data. If efforts at data regulation are not coordinated between jurisdictions, they could impact Swiss Re’s future use of data-linked technologies on a global basis.
Swiss Re seeks to raise awareness of political risk within the insurance industry and the broader public, and actively engages in dialogue with clients, media and other stakeholders. The Group also builds relationships that expand the company’s access to information and intelligence, and allow Swiss Re to further enhance its methodologies and standards. For example, Swiss Re participates in specialist events hosted by institutions such as the International Institute of Strategic Studies, the Geneva Center for Security Policy, or the Risk Management Association, and maintains relationships with political risk specialists in other industries, think tanks and universities, as well as with governmental and non-governmental organisations.
Swiss Re’s model governance is based on Group-wide standards for model assurance. These standards seek to ensure that each material 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. This requires the appropriateness of models to be assessed in an independent end-to-end validation process that includes specification, algorithms, calibration, implementation, results and testing. 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 at Group and legal entity level.
Swiss Re is currently developing a carbon risk steering mechanism that will help to guide the Group’s business towards a low-carbon world and support Swiss Re’s clients in their transition. In July 2018, Swiss Re launched a first element of the carbon steering mechanism in the form of a new thermal coal policy. The new policy is part of Swiss Re’s Sustainability Risk Framework and applies across all lines of direct, facultative and treaty business.
Reflecting the Group’s strong overall commitment to corporate responsibility, Swiss Re continued to be included in leading sustainability indexes and rankings such as FTSE4Good, Euronext Vigeo World 120, Ethibel Excellence Global, oekom Prime Investment and the Dow Jones Sustainability Index. For more information on Swiss Re’s sustainability practices, see also the Corporate Responsibility section on page 174 as well as Swiss Re’s 2018 Corporate Responsibility Report.
To further advance risk awareness across the industry and beyond, Swiss Re continues to participate actively in strategic risk initiatives such as the CRO Forum’s Emerging Risk Initiative and the International Risk Governance Council.
Our governance standards and procedures apply throughout the Swiss Re Group.
Our Board of Directors closely monitors corporate governance developments globally, with a particular focus on trends in Switzerland, the United States and the European Union. Institutional investors in particular are increasingly focused on greater transparency and greater accountability to shareholders on a broad range of corporate governance issues. Expectations of boards are shifting considerably, with the clearest example being the increased demands of shareholders for more meaningful and more frequent engagement with management and boards of directors. A key trend in engagement efforts is in the area of ESG – environmental, social and governance – matters.
Information on compensation, shareholdings and loans of the members of the Board of Directors and the Group Executive Committee (Group EC) are included in the Compensation Report beginning on page 142 of this Financial Report.
Swiss Re’s corporate governance framework Swiss Re Ltd’s Board of Directors is responsible for oversight, while the Group EC is responsible for managing operations. This structure maintains effective mutual checks and balances between these top corporate bodies. Our corporate governance principles and procedures are defined in several documents governing the oversight, organisation and management of the company. These include at the Group level: ̤ The Group Code of Conduct, outlining our compliance framework and setting out the basic ethical and legal principles and policies we apply globally
̤ The Board Committee Charters, outlining the duties and responsibilities of the Board committees
Swiss Reinsurance Company Ltd (SRZ), Swiss Re Corporate Solutions Ltd (SRCS) and Swiss Re Life Capital Ltd (SRLC), defining the legal and organisational framework of the Business Unit (BU) top-level companies SRZ, SRCS and SRLC
̤ The SRZ, SRCS, SRLC Bylaws, defining the governance framework of the legal entities SRZ, SRCS and SRLC, their interactions with the respective BU Reinsurance, Corporate Solutions and Life Capital from a functional responsibility point of view, including the responsibilities and authorities of the SRZ, SRCS and SRLC Boards of Directors, the SRZ, SRCS and SRLC Board Committees and the SRZ, SRCS and SRLC Executive Committees, as well as the relevant reporting procedures
̤ the SIX Swiss Exchange’s Directive on Information Relating to Corporate Governance (including its annex) of May 2018; ̤ the principles of the Swiss Code of Best Practice for Corporate Governance (Swiss Code) of September 2014, issued by economiesuisse, the Swiss business federation; and
Swiss Re’s corporate governance furthermore complies with applicable local rules and regulations in all jurisdictions where it conducts business.
Enhanced Group Sustainability Strategy Swiss Re has formulated an enhanced Group Sustainability Strategy. This supports Swiss Re in maintaining its position as a leading re/insurer, being a responsible company and achieving a long-term competitive advantage. The Group Sustainability Strategy links Swiss Re’s vision to the Sustainability Mission, its Ambitions, Strategic Pillars and Fundamentals: ̤ Our Sustainability Mission: We insure, invest and share our knowledge to tackle sustainability challenges and create long-term value.
(iii) Quantify sustainability performance and impact 102 Swiss Re 2018 Financial Report
Board of Directors Composition ̤ Karen Gavan, Eileen Rominger and Larry Zimpleman were elected as new members to the Board of Directors by the shareholders at the Annual General Meeting, which took place in Zurich on 20 April 2018.
Network for Innovative Corporate Governance Swiss Re and the University of St.Gallen (HSG) have entered into a strategic research cooperation The Network’s purpose is to integrally develop corporate governance from a theoretical as well as practical perspective. Swiss Re will contribute to the development of a modern corporate governance responding to various stakeholder interests. The Network provides companies with solutions for the implementation of its insights. This Network is under the leadership of Professor Dr Michèle Sutter-Rüdisser (HSG) and Dr Felix Horber, Company Secretary of Swiss Re Ltd.
̤ Since 1 April 2018, the Group EC consists of 12 members (prior to that it had 13 members).
Legal structure — listed and non-listed Group companies Swiss Re Ltd, the Group’s holding company, is a joint stock company, listed in accordance with the International Reporting Standard on SIX Swiss Exchange (ISIN CH0126881561), domiciled at Mythenquai 50/60 in 8022 Zurich, and organised under the laws of Switzerland.
Information on its market capitalisation is provided on page 53 of this Financial Report. No other Group companies have shares listed. More information on the
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 the holder will not be voted.
Significant shareholders and shareholder structure Under the Financial Markets Infrastructure Act (FMIA), anyone holding shares in a company listed on SIX Swiss Exchange is required to notify the company and SIX Swiss Exchange if its direct or indirect holding reaches, falls below or exceeds the following thresholds: 3%, 5%, 10%, 15%, 20%, 25%, 33⅓%, 50% or 66⅔% of the voting rights pursuant to the entry into the commercial register, whether or not the
The following table provides a summary of the disclosure notifications of major shareholders holding more than 3% of the voting rights: In addition, Swiss Re Ltd and Swiss Reinsurance Company Ltd held, as of 31 December 2018, directly and indirectly, 38 575 324 shares, which includes 10 050 442 shares repurchased under the public share buy-back programme Swiss Re Ltd launched on 7 May 2018. This represents 11.4% of voting rights and share capital. The public share buy-back programme was completed on 15 February 2019. Neither Swiss Re Ltd nor the Group companies can exercise the voting rights of these shares. All notifications received in 2018 are published at www.swissre.com/investors/shares/disclosure_of_shareholdings/
Shareholder1 Number of shares % of voting rights and share capital
More information is provided in the sections “Conditional and authorised capital in particular” below and “Changes in capital” on page 108 of this Financial Report.
Authorised capital As of 31 December 2018, the authorised capital of Swiss Re Ltd was as presented in the table on page 108.
According to the Articles of Association, the Board of Directors is authorised to increase the share capital of the company at any time up to 21 April 2019 by an amount not exceeding CHF 8 500 000 through the issue of up to 85 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10. Increases by underwriting as well as partial increases are permitted. The Board of Directors determines the date of issue, the issue price, the type of contribution and any possible acquisition of assets, the date of dividend entitlement as well as the expiry or allocation of non-exercised subscription rights.
Existing shareholders’ subscription rights are excluded. The then current holders of the conversion and/or option rights granted in connection with Equity-Linked Financing Instruments shall be entitled to subscribe for the new registered shares. Subject to the Articles of Association, the Board of Directors may decide to restrict or exclude existing shareholders’ advance subscription rights with regard to these Equity-Linked Financing Instruments. Such a decision may be made in order to issue EquityLinked Financing Instruments on national and/or international capital markets or by way of private placements in connection with (i) mergers, acquisitions (including takeover) of companies, parts of companies, equity stakes (participations) or new investments planned by the company and/or Group companies, financing or re-financing of such mergers, acquisitions or new investments, or (ii) improving the regulatory capital position of the company or Group companies.
On 20 April 2018 the Annual General Meeting authorised the Board of Directors to repurchase up to a maximum of CHF 1 billion purchase value of Swiss Re Ltd’s own shares prior to the Annual General Meeting 2019 by way of a buy-back programme for cancellation purposes. The programme was launched on 7 May 2018 and completed on 15 February 2019. The purchase value of the repurchased own shares corresponded to CHF 999 999 983.08.
The reduction of the ordinary share capital could only take place after the required three notices to creditors had been published in the Swiss Gazette of Commerce as stipulated in Article 733 of the Swiss Code of Obligations. The reduction of the ordinary share capital approved by the Annual General Meeting on 21 April 2017 was published in the Swiss Gazette of Commerce on 25 July 2017.
On 21 April 2017 the Annual General Meeting authorised the Board of Directors to repurchase up to a maximum of CHF 1 billion purchase value of
Swiss Re Ltd’s own shares prior to the Annual General Meeting 2018 by way of a buy-back programme for cancellation purposes. The programme was launched on 3 November 2017 and completed on 16 February 2018. The purchase value of the repurchased own shares corresponded to CHF 999 999 975.78.
Changes in previous years Information about changes in share capital of Swiss Re Ltd as well as of our former parent company Swiss Reinsurance Company Ltd for earlier years is provided in the Annual Reports of these companies for the respective years. For details please visit: www.swissre.com/ investors/financial_information/
The company cannot exercise the voting rights of treasury shares. As of 31 December 2018, shareholders had registered 175 680 523 shares for the purpose of exercising their voting rights, out of a total of 338 619 465 shares issued. As of 31 December 2018, 300 044 141 shares were entitled to dividend payment.
The company may issue its registered shares in the form of single certificates, global certificates and intermediated securities. The company may convert its registered shares from one form into another at any time and without the approval of the shareholders. The shareholders have no right to demand a conversion into a specific form of registered shares.
Admissibility of nominee registrations Persons not expressly declaring in their application for entry in the share register that they are holding shares for their own account (nominees) are entered without further inquiry in the share register of Swiss Re Ltd as shareholders with voting rights up to a maximum of 2% of the outstanding share capital available at the time. Additional shares held by such nominees that exceed the limit of 2% of the outstanding share capital are entered in the share register with voting rights only if such nominees disclose the names, addresses and shareholdings of any persons for whose account the nominee is holding 0.5% or more of the outstanding share capital. In addition, such nominees must comply with the disclosure requirements of the FMIA.
Options Valid exercise of stock options granted to Swiss Re employees are either cash or physically settled (with treasury shares). The number of issued shares will not be affected. For details on stock options granted to Swiss Re employees, see Note 15 to the Group financial statements on pages 285–286 of this Financial Report.
From left to right: Philip K. Ryan, Sir Paul Tucker, Raymond K.F. Ch’ien, Jacques de Vaucleroy, Eileen Rominger, Joerg Reinhardt, Walter B. Kielholz, Renato Fassbind, Susan L. Wagner, Trevor Manuel, Jay Ralph, Larry Zimpleman, Karen Gavan 110 Swiss Re 2018 Financial Report
External appointments ̤ Chairman of the Board of Directors of Hang Seng Bank Ltd ̤ Board member of China Resources
Karen Gavan was elected to the Board of Directors of Swiss Re Ltd in 2018. She is a member of the Audit Committee. She is also a member of the Board of Directors of Swiss Re America Holding Corporation.
Professional experience Karen Gavan started her career in finance roles at Prudential Insurance, Imperial Life and Canada Life. She joined Transamerica Life Canada in 1992 as Chief Financial Officer and added responsibilities over her tenure becoming Executive Vice President and Chief Financial Officer from 2000 to 2002 of Transamerica Life Canada/AEGON Canada, and from 2003 to 2005 the company’s Chief Operating Officer. Until her retirement in November 2016, she served for five years as President and Chief Executive Officer at Economical Insurance, preparing the company for its initial public offering. During her leader- ship, the company also launched SONNET, Canada’s first fully digital insurer.
Joerg Reinhardt was elected to the Board of Directors of Swiss Re Ltd in 2017. He is a member of the Compensation Committee.
Professional experience Joerg Reinhardt has been Chairman of the Board of Directors of Novartis since 2013. He was Chairman of the Board of Management and the Executive Committee of Bayer Health Care from 2010 to 2013 and, prior to that, held various executive positions at Novartis. He was Chief Operating Officer from 2008 to 2010, headed the Vaccines and Diagnostics Division from 2006 to 2008 and held a number of other senior roles, primarily in research and development, in the preceding years. Joerg Reinhardt started his career at Sandoz Pharma Ltd, a predecessor company of Novartis, in 1982.
Eileen Rominger was elected to the Board of Directors of Swiss Re Ltd in 2018. She is a member of the Investment Committee.
External appointments ̤ Operating Partner Corsair Capital ̤ Member of the Advisory Board of
̤ BA in Mathematics and Philosophy, Trinity College, Cambridge, United Kingdom
Professional experience Jacques de Vaucleroy was a member of the Management Committee of AXA Group from 2010 to 2016, serving as Chief Executive Officer of North, Central and Eastern Europe and Chief Executive Officer of Global Life & Savings. He also held a number of positions in boards of directors and supervisory boards of AXA companies. Before that, he spent 24 years at ING, where he held senior roles in banking, asset management and insurance. He was a member of the Executive Board of ING Group from 2006 to 2009, in charge of insurance and asset management in Europe.
̤ Member of the Board of Trustees of Wellesley College, USA
USA ̤ MBA, Drake University, USA ̤ Fellow, Society of Actuaries, USA
Corporate governance Board of Directors investment companies, equity partnerships or limited liability partnerships are not subject to the above limitations. No member of the Board of Directors may hold more than 5 mandates as set out in (ii) above and not more than 15 mandates as set out in (iii) above. Mandates shall mean mandates in the supreme governing body of a legal entity which is required to be registered in the commercial register or a comparable foreign register. Mandates in different legal entities that are under joint control are deemed one mandate.
The Board of Directors ensures that in any event the number of external mandates held by members of the Board of Directors does not conflict with their commitment, availability, capacity and independence required in fulfilling their role as Board member. All Board members comply with the requirements on external mandates set out in the Articles of Association.
Any activities of Board members in governing and supervisory bodies of important Swiss and foreign organisations, institutions and foundations, as well as permanent management and consultancy functions for important Swiss and foreign interest groups and official functions and political posts, are stated in each of the directors’ biographies, which can be found on pages 111–115.
Election, succession planning, qualifications 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 of shareholders for a term of office until completion of the next Annual General Meeting of shareholders.
Succession planning Succession planning is of high relevance to the Board of Directors. It regularly analyses its composition to confirm that its members’ qualifications, skills and experience correspond to the Board’s needs and requirements. The Board of Directors initiates the evaluation of potential new Board members timely with the continued aim to obtain among its members the desired qualifications and experience as well as to further diversify and renew its composition. The Chairman’s and Governance Committee evaluates candidates for Board membership and makes recommendations to the Board of Directors for election or re-election proposals. The Board of Directors nominates candidates for Board membership for election at the General Meeting of shareholders, ensuring that the Board retains an adequate size and well-balanced composition and that at
The goal is to strike the right balance between stability and consistency on the one hand and renewals on the other. Out of the 13 current members only 3 have been members of the Board of Directors already in 2013. The remaining ten members have joined since 2014.
R. Ch’ien S. Wagner P. Ryan P. Tucker J. de Vaucleroy L. Zimpleman J. Ralph
Qualifications The Board of Directors needs to assemble 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 decision-making in line with the needs of the business.
The Board of Directors defines the selection criteria against which candidates for Board membership are assessed. The requirements which potential Board members have to meet in terms of knowledge in various key areas and the industry are constantly increasing.
Board members’ training The Board of Directors has a unique role in the company oversight. The company therefore strives on building a strong and effective Board culture, supported by ongoing learning, which is an important component to foster Board effectiveness. Newly elected Board members receive a comprehensive onboarding programme consisting of a total of 21 hours of sessions in order to gain a sound understanding of the Group’s organisation, business and its environment. Additionally, the Board members update and enhance their knowledge of emerging business trends and risks through regular meetings with internal and external experts throughout the year. One-to-one educational sessions are offered any time through the year with our top executives and experts.
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 of shareholders. Members whose term has expired are immediately eligible for re-election.
C apital m arkets Know-how of rele va nt m ar ke ts
Chairman of the Board of Directors The Chairman of the Board of Directors leads the Board of Directors, convenes the Board and committee meetings, establishes the agendas and presides over Board meetings. The Chairman coordinates the work of the Board Committees together with the respective Chairpersons and ensures that the Board is kept informed about the committees’ activities and findings. In cases of doubt, the Chairman makes decisions about the authority of the Board or its committees and about interpreting and applying the SRL Bylaws.
The Chairman arranges introduction for new Board members and appropriate training for all Board members.
Committees of the Board of Directors As determined by applicable 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 which support the Board in fulfilling its duties. The Board of Directors has delegated certain responsibilities, including the preparation and execution of its resolutions, to the following five committees: ̤ the Chairman’s and Governance
Chairman’s and Governance Committee Responsibilities The Chairman’s and Governance Committee’s primary function is to act as counsellor to the Chairman and to address corporate governance issues affecting the Group and impacting the legal and organisational structure. It is in charge of the succession planning at the Board of Directors level and oversees the annual performance assessment and self-assessment at both the Board of Directors and the Group EC level.
Members ̤ Walter B. Kielholz, Chair ̤ Renato Fassbind ̤ Philip K. Ryan ̤ Jacques de Vaucleroy ̤ Susan L. Wagner
Compensation Committee Responsibilities The Compensation Committee supports the Board of Directors in establishing and reviewing Swiss Re Ltd’s compensation framework and guidelines and performance criteria as well as in preparing the proposals to the General Meeting of shareholders regarding the compensation of the Board of Directors and of the Group EC. It proposes compensation principles in line with legal and regulatory requirements and the Articles of Association for the Swiss Re Group to the Board of Directors for approval and, within those approved principles, determines the establishment of new (and amendments to existing) compensation plans, and determines, or proposes as appropriate, individual compensation as outlined in its Charter. The Compensation Committee also ensures that compensation plans do not encourage inappropriate risk-taking within the Swiss Re Group and that all aspects of compensation are fully compliant with applicable laws, rules and regulations.
Members ̤ Philip K. Ryan, Chair ̤ Jay Ralph ̤ Sir Paul Tucker ̤ Susan L. Wagner ̤ Larry Zimpleman
Audit Committee Responsibilities The central task of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities as they relate to the integrity of Swiss Re’s and the Group’s financial statements, the Swiss Re Group’s compliance with legal and regulatory requirements, the external auditor’s qualifications and independence, and the performance of Group Internal Audit (GIA) and the Group’s external auditor. The Audit Committee monitors independently and objectively Swiss Re’s and the Group’s financial reporting process and system of internal control, and facilitates ongoing communication between the external auditor, Group EC, Business Units, GIA and the Board with regard to the Swiss Re Group’s financial situation.
Independence and other qualifications All members of the Audit Committee are non-executive and independent. In addition to the independence criteria applicable to Board members in general, additional independence criteria apply to members of the Audit Committee. They are required to possess such additional attributes as the Board of Directors may, from time to time, specify. Each member of the Audit Committee has to be financially literate. At least one member must qualify as an Audit Committee financial expert, as determined appropriate by the Board of Directors. Members of the Audit Committee should not serve on audit committees of more than four listed companies outside the Swiss Re Group. Audit Committee members have to advise the Chairman of Swiss Re Ltd before accepting any further invitation to serve on an audit committee of another listed company outside the Group and observe the limitations set in the Articles of Association in relation to external mandates (see other mandates, activities and functions on page 115).
Walter B. Kielholz X (chair) Renato Fassbind X X (chair) X Raymond K.F. Ch’ien X X Karen Gavan X Trevor Manuel X X Jay Ralph X Joerg Reinhardt X Eileen Rominger X Philip K. Ryan X X X (chair) Sir Paul Tucker X X Jacques de Vaucleroy X X (chair) X Susan L. Wagner X X X (chair) Larry Zimpleman X
The table on the next page provides an overview of the meetings of the Board of Directors and its committees held in 2018.
Body Number of meetings Average duration Invitees in advisory capacity, in addition to members
Chairman’s and Governance Committee 7 meetings Group CEO, Company Secretary 2 hours
Compensation Committee 6 meetings2 Group CEO, Group COO, Chief Human Resources Officer, Head Reward, advisors3 3¼ hours Finance and Risk Committee 6 meetings Group CEO, Group CFO, Group CRO, Group CUO, Group CIO, Group COO,
Group CEO, Group CFO, Group CRO, Group CIO, Head Financial Risk Management, Group Treasurer, Co-Head Client Solutions & Analytics (Asset Management), Company Secretary 1 In addition, one decision by circular resolution. 2 In addition, five decisions by circular resolution. 3 The human resources consulting firm Mercer and the law firm Niederer Kraft & Frey Ltd (NKF) provided support and advice for compensation issues during the reporting year. Representatives of Mercer and NKF participated in all committee meetings in 2018. Mercer and NKF have further mandates with Swiss Re.
ATTENDANCE RATES1 OF BOARD MEMBERS2: BOARD OF DIRECTORS AND BOARD COMMITTEE MEETINGS IN 2018
Attendance in % Number of Board members2 95–99.9 6 90–94.9 3 1 The attendance rates are calculated taking into account the duration of all meetings the Board members were required to attend.
INDIVIDUAL ATTENDANCE RATES1 OF BOARD MEMBERS2: BOARD OF DIRECTORS AND BOARD COMMITTEE MEETINGS IN 2018
Self-assessment An open, transparent and critical board room culture forms the basis for the Board of Directors’ annual review of its own performance and effectiveness. The Board of Directors evaluates its work on one hand and the performance of the Chairman on the other. It conducts the self-assessment on the basis of questionnaires, which deal with the Board’s composition, organisation and processes, the Board’s responsibilities governed by the SRL Bylaws as well as with the focus areas and goals of the year under review. The topics are discussed and take-aways defined to be incorporated in the goals for the upcoming year. In addition, each Board committee annually reviews the adequacy of its composition, organisation and processes as well as the scope of its responsibilities, assesses their accomplishments and evaluates the achievement of the goals set and its performance.
̤ Approves the capital allocation plan for both Underwriting and Asset Management
̤ Approves the Swiss Re Group Risk Strategy and Risk Policy, which defines the Group’s Risk Appetite and Tolerance, key principles for risk-taking and control and key capital structuring principles based on endorsement by the Finance and Risk Committee
̤ Approves significant Corporate Transactions, Participations and Principal Investments and approves an annual capital expenditure plan
̤ Approves all matters where such decisions exceed the authorities delegated to the Board committees, the Group CEO, the Group EC and individual Group EC members and overrules decisions if necessary
̤ Approves the applicable proprietary economic reporting and performance measurement standard (EVM)
̤ Approves an annual budget and a mid-term financial plan based on both the accounting and the internal economic standards
Appointment and removal of Group EC members and further key executives, People Strategy: ̤ Appoints and removes Group EC
members and the Company Secretary; reviews their performance and plans their succession
Board of Directors and Group EC: areas of responsibility Non-transferable duties The Board of Directors has the ultimate responsibility for the success and for delivering the sustainable interests of SRL and the Swiss Re 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 responsibility is inalienable and non-transferable and rests with the entire Board.
Delegation of management The Board of Directors has delegated the management of Swiss Re Ltd and the Swiss Re Group to the Group EC (see section on Executive Management, starting on page 128). Such delegated tasks are within the responsibility of the entire Group EC. The Group EC supports the Board of Directors in fulfilling its duties and prepares proposals for consideration and decision-making by the Board of Directors related to the following key responsibilities with Group relevance: strategy, business plan, organisational structure, accounting principles, risk tolerance levels, share capital and any share repurchase programmes, along with principles of financing through capital markets as well as for important strategic transactions.
The tables on pages 124–125 provide a summary of the key responsibilities of the Board of Directors and delegations to the Group EC. They are not to be understood as exhaustive.
Group’s strategy; and ̤ decides on legal, financial and management structures, as delegated by the Board of Directors.
Planning ̤ prepares and proposes the Group business plan to the Board of Directors for approval and reviews the Business Units’ business plans.
Risk management ̤ establishes the principles for external retrocession and the balancing of Group-wide catastrophe and accumulated risk; and
Periodic reports to Board of Directors and its committees The Executive Management regularly provides the Board of Directors with different types of reports, in particular the following reports: Executive Report This comprehensive report gives an update on current business developments, covering the Group Functions and the Business Units, including major business transactions, claims, corporate development and key projects.
Group Performance Management Report The report tracks actual performance of the Group and the segments against predefined financial targets, analyses the impact of management actions and provides information on current challenges.
Swiss Solvency Test Report The report provides the legally required update on the assessment of the solvency according to the Swiss Solvency Test (SST) of the Swiss Re Group, Swiss Reinsurance Company Ltd, Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Reinsurance Ltd.
Swiss Re Liquidity Report The report describes the liquidity position of the Swiss Re Group in current and in stressed market conditions.
In addition, reports are submitted to the Board committees, such as: ̤ Actuarial Report ̤ Claims Report ̤ Legal Report ̤ Compliance Report ̤ Group Internal Audit Report ̤ Group Tax Report ̤ Group Risk Update ̤ Derivative Use Update ̤ Report on Capital, Liquidity and
Treasury Activities ̤ Global Regulatory Risk Report ̤ Financial Risk Management Update ̤ Own Risk and Solvency Assessment
Duty to inform on extraordinary events As soon as the Group CEO or the Group EC become aware of any significant extraordinary business development or event, they are obliged to inform the Board of Directors immediately. The Board has specific reporting procedures in place.
Right to obtain information The Board of Directors has complete and open access to the Group CEO and the other members of the Group EC, the Group CLO, the Chief Compliance Officer and the Head of GIA. Any member of the Board of Directors who wishes to have access to any other officer or employee of the Group will coordinate such access through the Chairman. The chairpersons may approach the Group EC members as well as further key executives directly should they require information supporting the respective Board committee’s duties. Any member of the Board of Directors may demand at Board meetings to obtain information on any aspect of the Group’s business. Outside Board meetings, any member can direct a request for production of information and business records to the Chairman.
Professional experience Christian Mumenthaler started his career in 1997 as associate with the 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 that October. In July 2016, Christian Mumenthaler was appointed Group Chief Executive Officer.
Association, of economiesuisse, of the Swiss American Chamber of Commerce and of the Society for the Promotion of the Institute of Insurance Economics, St.Gallen
Professional experience John R. Dacey started his career in 1986 at the Federal Reserve Bank of New York. From 1990 to 1998, he was a consultant and subsequently Partner at McKinsey & Company. He joined Winterthur Insurance in 1998 and was its Chief Financial Officer from 2000 to 2004 as well as member of its Group Executive Board until 2007. From 2005 to 2007, he was Chief Strategy Officer and member of its risk and investment committees. He joined AXA in 2007 as Group Regional Chief Executive Officer and Group Vice Chairman for Asia-Pacific as well as member of their Group Executive Committee. John R. Dacey joined Swiss Re in October 2012 and was appointed Group Chief Strategy Officer and member of the Group Executive Committee as of 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 1 April 2018.
Washington University, St. Louis, USA ̤ Master’s degree in Public Policy,
Professional experience Guido Fürer commenced his career at Swiss Bank Corporation/O’Connor & Associates in 1990. During the following seven-year period, he held leading positions in option trading and at its capital market division in Chicago, New York, London and Zurich. Guido Fürer joined Swiss Re in 1997 as Managing Director at Swiss Re New Markets, focusing on alternative risk transfer. From 2001 to 2004, he worked for Swiss Re’s Private Equity unit with responsibility for the European strategic participations. In 2004, he joined Asset Management, first taking over responsibility for tactical asset allocation prior to assuming the role of Head of Swiss Re’s Chief Investment Officer Office with responsibility for strategic asset allocation and additionally Chief Investment Officer for the Business Units Reinsurance and Corporate Solutions. Guido Fürer has led Swiss Re Group Asset Management since his appointment as Group Chief Investment Officer and member of the Group Executive Committee in November 2012.
Professional experience Agostino Galvagni joined Bavarian Re, a former Swiss Re subsidiary, in 1985 as a trainee in the fields of underwriting and marketing. He joined Swiss Re New Markets in New York in 1998. Agostino Galvagni returned to Bavarian Re in 1999 as a member of the Management Board. In 2001, he joined Swiss Re in Zurich as Head of the Globals Business, and in 2005 he was appointed to the Executive Board to head the Globals & Large Risks Division within Client Markets. In 2009, Agostino Galvagni was appointed Chief Operating Officer and member of the Group Executive Committee. He was made Chief Executive Officer Corporate Solutions in October 2010. Agostino Galvagni stepped down from Swiss Re at the end of 2018.
Thierry Léger Chief Executive Officer Life Capital Born: 1966 Nationality: French and Swiss
Professional experience Thierry Léger started his career in the civil construction industry before joining Swiss Re as an engineering underwriter in 1997. In 2001, he moved to Swiss Re New Markets, providing non-traditional solutions to insurance clients. Between 2003 and 2005, he was a member of the executive team in France as leader of the sales team. From 2006, Thierry Léger assumed increasing responsibility for Swiss Re’s largest clients, ultimately becoming the Head of the newly-created Globals Division in 2010 and a member of the Group Management Board. In 2013, Thierry Léger became Head of Life & Health Products Reinsurance. As of January 2016, he was appointed Chief Executive Officer Life Capital and member of the Group Executive Committee.
Professional experience Moses Ojeisekhoba started his career in insurance as a registered representative and agent of The Prudential Insurance Company of America in 1990. From 1992 to 1996, he was a Risk and Underwriting Manager at Unico American Corporation. He then joined the Chubb Group of Insurance Companies as regional Underwriting Manager and in 1999 became Corporate Product Development Manager in New Jersey and thereafter moved to London as Strategic Marketing Manager for Chubb Europe. In 2002, he was appointed International Field Operations Officer for Chubb Personal Insurance before becoming Head Asia-Pacific in 2009, a position he remained in until he joined Swiss Re. Moses Ojeisekhoba joined Swiss Re in February 2012 and was appointed Chief Executive Officer Reinsurance Asia, Regional President Asia and member of the Group Executive Committee in March 2012. In July 2016, Moses Ojeisekhoba was appointed as Chief Executive Officer Reinsurance.
Jayne Plunkett Chief Executive Officer Reinsurance Asia / Regional President Asia Born: 1970 Nationality: American
Professional experience Patrick Raaflaub began his career as an economist at Credit Suisse. He then was a founding member of a consulting start-up and research fellow at the University of St.Gallen. He joined Swiss Re in 1994 and was appointed Chief Financial Officer of Swiss Re Italia SpA in 1997, and then was Divisional Controller Americas Division from 2000. He worked as Head of Finance Zurich from 2003, then Regional Chief Financial Officer Europe and Asia from 2005. From 2006, he was Head of Group Capital Management, where he was responsible for capital management at Group level and global regulatory affairs. In 2008, he joined the Swiss Financial Markets Supervisory Authority FINMA as Chief Executive Officer. Patrick Raaflaub returned to Swiss Re as Group Chief Risk Officer and member of the Group Executive Committee in September 2014.
̤ Member of the global Executive Board of the International Chamber of Commerce (ICC)
The Group EC consists of 12 members since 1 April 2018, whereas it was composed of 13 members before.
Changes in 2019 Anette Bronder (previously a member of the Management Board at T-Systems International) was appointed Group Chief Operating Officer and a member of the Group EC with effect from 1 July 2019, succeeding Thomas Wellauer, who will retire on 30 June 2019.
Andreas Berger (former Chief Regions & Markets Officer and Member of the Board of Management of Allianz Global Corporate & Specialty SE) was appointed CEO Corporate Solutions and a member of the Group EC with effect from 1 March 2019. He succeeds Agostino Galvagni, who had decided to step down from Swiss Re at the end of 2018.
Other mandates, activities and vested interests In line with Swiss Re Ltd’s Articles of Association the members of the Group EC may not hold more than five additional mandates, of which no more than one additional mandate can be with listed companies. Mandates (i) in companies which are controlled by Swiss Re Ltd or which control Swiss Re Ltd, (ii) mandates held at the request of Swiss Re Ltd or companies controlled by Swiss Re Ltd as well as (iii) mandates in associations, charitable organisations, foundations, trusts, employee welfare foundations, investment companies, equity partnerships or limited liability partnerships are not subject to the above limitations. No member of the Group EC may hold more than 5 mandates as set out in (ii) above and not more than 15 mandates as set out in (iii) above. Mandates shall mean mandates in the supreme governing body of a legal entity which is required to be registered in the commercial register or a comparable foreign register. Mandates in different legal entities that are under joint control are deemed one mandate.
All Group EC members comply with the requirements on external mandates set out in the Articles of Association.
Group Chief Executive Officer The Group CEO is responsible for overseeing the operational management of the Group. This responsibility covers the Group Functions and the three Business Units Reinsurance, Corporate Solutions and Life Capital. He leads and manages the Group EC, its processes, including succession planning and its cost, and is responsible for its performance. He oversees the work of the Group Function heads and the Business Unit CEOs and gives them guidance on the execution of their tasks. He develops the Group Strategy together with the Group EC and submits it to the Board of Directors for approval. Once approved, he focuses on the Group Strategy’s implementation and its further development. The Group CEO oversees the Swiss Re Institute, comprising Swiss Re’s internal research coordination and external research partnerships.
Functions. He augments the Business Units’ activities with targeted initiatives as well as systematically monitors and steers the Group Strategy implementation.
Group Chief Investment Officer The Group CIO is responsible for the Group-wide Asset Management function and its investment results. He manages the investment portfolio, advises the Business Units on defining their strategic asset allocation (SAA), and implements the Group and Business Units SAAs within the risk limits set by the Group EC. The Group CIO retains responsibility for decisions on investment tactics and also provides financial market advice on strategic projects and transactions. In addition, the Group CIO is responsible for the Asset Management organisation and operational and compliance risks pertinent to his responsibilities.
Group Chief Underwriting Officer The Group CUO is responsible for steering capital to the most attractive areas in underwriting leading themes that are of strategic importance for the Swiss Re Group’s underwriting, and providing research and development for selected investment portfolios that improves both capital allocation and risk selection.
Shareholders’ participation rights Shareholders may have their shares represented at the shareholders meetings by a third person or the Independent Proxy.
Convocation of the General Meeting of shareholders In accordance with Swiss Re Ltd’s Articles of Association, the Board of Directors convenes the General Meeting of shareholders through a notice published in the Swiss Official Gazette of Commerce at least 20 days before the date of the meeting. The notice must state the day, time and place of the General Meeting of shareholders, along with the agenda and proposals which will be submitted by the Board of Directors.
Registrations in the share register In 2018, Swiss Re Ltd recognised the voting rights of shares registered no later than four working days before the Annual General Meeting of shareholders.
Changes of control and defence measures Swiss Re Ltd’s Articles of Association neither contain an “opting up” nor an “opting out” provision.
Duty to make an offer Swiss Re Ltd has not put in place any specific measures to defend against potential unfriendly takeover attempts. The Board of Directors believes that the company’s best protection is a fair valuation of its shares, and that the efficiency of a free market is preferable to artificial obstacles, which can have a negative impact on the share price in the long term.
In accordance with the Financial Markets Infrastructure Act (FMIA), whosoever acquires equity securities which added to equity securities already owned exceed the threshold of 33⅓% of Swiss Re Ltd shares with voting rights, either directly, indirectly or in concert with third parties, and regardless of whether these rights are exercisable or not, triggers a mandatory takeover offer for the outstanding Swiss Re Ltd shares owned by all other shareholders.
The Articles of Association provide that the Board of Directors (or to the extent delegated to it, the Compensation Committee) may decide on continuation, acceleration, amendment or removal of any vesting, blocking or exercise conditions for the payment or grant of deferred compensation. The Board of Directors may also decide to replace the award with shares of the entity assuming control.
Alex Finn became lead auditor responsible for the auditing mandate of the former parent company, Swiss Reinsurance Company Ltd, on 23 September 2011. With Swiss Re Ltd becoming the new holding company of the Group, he also became lead auditor for the Swiss Re Ltd audit mandate. In line with the Swiss Code of Obligations and to foster external auditor independence, the lead audit partner rotates out from his or her role after seven years. Alex Finn therefore handed over to Roy Clark following the election of PwC as external auditors by the Annual General Meeting 2018. The second lead auditor, Bret Griffin, was appointed following the election of PwC as external auditors by the Annual General Meeting 2014. He handed over to Frank Trauschke in May 2018.
Audit-related fees included transaction-related support as well as assurance services required by Swiss Re’s regulators and by management on a large programme. Tax fees comprised support for the transfer pricing documentation process and advice on a number of tax assignments. Other non-audit fees included permitted advisory services related to various projects.
Swiss Re maintains open lines of communication with stakeholders on matters related to its financial and business performances, strategy and business activities through analyst and media conferences and calls, roadshows, news releases and corporate reports. The latter encompass the company’s Annual Report, the Half-Year Report and the Corporate Responsibility Report, which are made available both in print and digitally. Additionally, Swiss Re publishes the Financial Condition Report and key quarterly financial information online.
On the Group’s website www.swissre.com, visitors can find a host of news and research, publications, video and podcasts as well as discussion and analysis related to Swiss Re and the broader re/insurance industry. The financial calendar displayed on the next page is also available online, and includes, amongst other, access details to analyst conference calls as well as on-demand video recordings of annual and half-year results’ events.
The Swiss Official Gazette of Commerce (Schweizerisches Handelsamtsblatt) is Swiss Re’s official media for prescribed announcements and official information.
News release 10 April A Swiss Re sigma study reported global insured losses from disaster events of USD 144 billion in 2017, the highest ever recorded
News release, sigma study 20 April Swiss Re shareholders approve all proposals put forward by the Board of Directors at the company’s Annual General Meeting
News release, publication 2 July Swiss Re establishes thermal coal policy to support transition to a low-carbon economy
News release 30 July Swiss Re’s partnership with homeowners insurer expands flood insurance protection in the US
News release 3 August Swiss Re reports solid half-year 2018 net income of USD 1.0 billion; improved P&C underwriting results and selected premium growth
News release, sigma study 22 August Russell Higginbotham to become new Swiss Re CEO Reinsurance EMEA, Regional President EMEA and Group Executive Committee member; Jean-Jacques Henchoz to leave Swiss Re
News release 23 September Agostino Galvagni to step down; Andreas Berger to succeed as CEO Corporate Solutions and member of the Group Executive Committee
News release, conference call 20 November Global economic growth is solid but slowing, and emerging Asia will continue to power the insurance market
News release, sigma study 18 December Swiss Re continues exploration of ReAssure IPO, appoints Mark Hodges as new CEO
Report from the Compensation Committee 144 Compensation highlights in 2018 146 Compensation framework 147 Compensation governance 156 Performance outcomes 2018 160 Compensation disclosure and
compensation framework with shareholders’ interests and with our long-term business and risk strategy.
“ During the past year, the Compensation Committee continued to monitor the alignment of Swiss Re’s compensation framework with shareholders’ interests and with our long-term business and risk strategy.”
̤ The competitiveness of compensation for the Board of Directors, Group Executive Committee (Group EC) and other key executives.
̤ Legal and regulatory developments, including the continued compliance of the Board of Directors and Group EC compensation with the Ordinance against Excessive Compensation at Public Corporations (the Ordinance).
̤ Life & Health Reinsurance met its US GAAP return on equity (ROE) target and delivered a strong EVM new business profit, partially offset by a negative EVM investment result.
Group Annual Performance Incentive 2018 In years with relatively benign natural catastrophe experience, variable compensation payouts were positive but not excessive. Conversely, in adverse environments, the negative impact shall be substantive but also proportionate, given the need to carefully manage key talent retention risk and the Group’s willingness to underwrite risk. Swiss Re’s US GAAP performance was below target, but higher than last year, and would have been even better without the impact of the new US GAAP accounting guidance on equity investments. This backdrop, in conjunction with the qualitative performance assessment, led the Compensation Committee and the Board of Directors to grant variable compensation payouts that are below target levels but higher than last year.
Compensation framework Swiss Re’s compensation framework is designed to promote long-term sustainable performance for the Group and its shareholders through a mix of fixed and variable compensation components. It comprises fixed components such as base salary, pension and other benefits, as well as a combination of variable short- and long-term incentives as outlined later in this Compensation Report. The Compensation Committee continues to review and monitor the compensation framework of Swiss Re considering business strategy, targets, risk awareness and corporate values. External factors with respect to regulatory requirements and legal developments, the international context in which we operate and relevant market data are also taken into account.
There were no material changes to our compensation framework in 2018.
AGM 2019 The Compensation Committee remains committed to recommending compensation policies and programmes to the Board of Directors that support our business strategy and align the interests of our employees with those of our shareholders. We are therefore keen to maintain regular interactions with shareholders and other key stakeholders.
̤ Maximum aggregate amount of fixed compensation and variable long-term compensation for the members of the Group EC for the financial year 2020.
Separately from this and as in the past, shareholders will also be asked to support this Compensation Report in a consultative vote. The Compensation Committee is satisfied that this Compensation Report complies with applicable laws, rules and regulations and provides a comprehensive view of the compensation framework at Swiss Re and the 2018 compensation decisions.
2 Disclosure includes all awards for a reporting year, ie the 2018 aggregated compensation values include the fair value of the Leadership Performance Plan (LPP) granted in April 2018. The Annual Performance Incentive (API) for 2018 for members of the Group EC is subject to approval by the shareholders at the AGM 2019.
USD millions (unless otherwise stated) 2016 % 2017 % 2018 %
of which paid out as dividend1 1 559 33% 1 592 196% 1 692 196% of which share buy-back 1 006 21% 1 032 127% 1 0222 118% of which added to retained earnings within 1 FY 2018 is estimated based on average year-to-date CHF/USD FX rates as of February 2019. The dividend is subject to AGM approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend payout.
2 Includes shares bought back between 7 May 2018 and 15 February 2019 as part of the buy-back programme authorised at the AGM 2018. The total amount represents an estimate translated at the 2018 average CHF/USD FX rate.
Swiss Re is required to assess the Compensation Policy against the requirements of Group regulator FINMA. As part of this process, the Board’s Finance and Risk Committee is required to review risks related to the Compensation Policy. A comprehensive risk analysis of the Compensation Policy is therefore conducted on an annual basis.
The aim is to provide total compensation that is competitive in local labour markets and to ensure that our employees focus on delivering outstanding results while supporting appropriate and controlled risk-taking. A balanced compensation package is complemented by competitive pension plans and benefits.
̤ Ensuring alignment of compensation to business results, individual contribution and recognising what was achieved and how it was achieved.
̤ Supporting Swiss Re’s commitment to attract, motivate and retain key talent.
̤ Aligning the interests of employees with those of Swiss Re’s shareholders.
In addition, Swiss Re seeks to ensure that total compensation is well balanced in terms of fixed versus variable compensation and in terms of short-term versus long-term incentives. This is to encourage sustainable long-term performance and appropriate risk-taking in line with the business and risk strategy.
Swiss Re has several incentive programmes that reflect the long-term nature of the business: both the Value Alignment Incentive (VAI), as the deferred part of the Annual Performance Incentive (API), and the Leadership Performance Plan (LPP) aim to reward sustainable long-term performance rather than short-term results. These programmes support closer alignment of the interests of shareholders and employees.
The Compensation Committee has also approved an authority matrix that defines the limits to which each level of management can authorise compensation payments. The Group CEO or the Compensation Committee, as applicable, approves all compensation that exceeds the preset limits. The Group CEO is not involved in decision-making concerning his own compensation.
Purpose Attract and retain Risk protection, market competitiveness, connection to Swiss Re values
Plan duration 3 years 5 years for Group EC members and other key executives* and 3 years for remaining participants 3 years 1 year
No Yes Yes Yes No No * 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. *** Has been discontinued from 2019.
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.
The key objectives of Swiss Re’s benefits packages are to: ̤ Provide a degree of security for employees as it relates to pension, health matters,
Annual Performance Incentive Purpose The API is a performance-based, variable component of compensation. Combined with the base salary, it provides competitive total cash compensation when both business and individual performance targets are achieved.
A TAPI is set based on multiple factors, but primarily on the role being performed and market benchmarks. Similar to the determination of the base salary, the employee’s total compensation and overall pay mix are taken into account when setting the TAPI. The possible payout for the API ranges from 0 to 2 × TAPI.
In 2018, for the members of the Group EC including the Group CEO, the total of the aggregate TAPIs amounted to CHF 15.52 million. This is a slight decrease from the prior year, which is due to the number of Group EC members being reduced from 13 to 12 in 2018. For the Group CEO, the TAPI was CHF 2.5 million for the same year. The Group CEO’s TAPI has increased by 11% (from CHF 2.25 million) to account for his greater experience in the role.
Funding Swiss Re uses a three-step process to assess business performance to help determine the overall Group API pool. The process comprises a financial, a qualitative and an overall assessment. The financial assessment covers four equally weighted performance factors: ROE, net operating margin, EVM profit (% of economic net worth/ENW) and ENW growth 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 the achievement of key objectives that aim to reinforce the success of Swiss Re’s strategy. For each Business Unit/Group Function, an
assessment is made considering five defined dimensions: client and service quality, risk and control behaviour, franchise building, human capital and talent management and strategic initiatives. The preliminary Group API pool is then reviewed considering a number of different perspectives including pay for performance linkage, reasonableness in the market context and proportionality of value sharing among employees and shareholders. The chart below gives more detail on the criteria used to determine the size of the pool.
Allocation The approved Group API pool is further allocated to the Senior Leadership pool and to pools of different Business Units/Group Functions. This allocation is agreed by the Group CEO based on the assessment of financial and qualitative performance factors for the respective business area.
Basis: four equally weighted KPIs: 1. ROE 2. Net operating margin 3. EVM profit (% of ENW) 4. ENW growth
3. Franchise building 4. Human capital and talent management 5. Strategic initiatives
Basis: series of overarching tests including assessment of market competitiveness and affordability checks.
Settlement API is generally settled in cash. When the total API level for an employee exceeds a predefined amount, the award is split into two components: an immediate cash incentive payment (cash API) and a deferred API (VAI).
Performance measurement Starting with the 2015 award, the performance measurement calculation has been simplified to increase transparency. This was achieved by
EVM is Swiss Re’s proprietary integrated economic valuation and steering framework, consistently measuring performance across all businesses (please refer to the EVM section on pages 56–67 of this Financial Report). The performance factors of the VAI are calculated based on the three-year average of the published EVM previous years’ business profit margin.
A higher EVM previous years’ business profit margin (for all prior underwriting years) results in a higher performance factor. Conversely, a lower EVM previous years’ business profit margin results in a lower performance factor. The performance factor is a linear function whereby payout generally ranges from
Structure The higher the API granted, the greater the amount of compensation that remains at risk through deferral into the VAI, as shown in the table below.
Funding The VAI is not funded as a separate pool. The Group API pool includes amounts paid in cash and amounts to be deferred into the VAI.
For VAI performance outcomes over past years, please refer to page 162.
Fo rf ei tu re c o n d iti o n s
A d d iti o n al t w o -y ea r h o ld in g
The design of the LPP aims to: ̤ Focus participants’ energies on
Structure At the grant date, the award amount is split equally into two underlying components: Restricted Share Units (RSUs) and Performance Share Units (PSUs). A fair value methodology executed by a third party determines the number of RSUs and PSUs granted.
Restricted Share Units The performance condition for RSUs is ROE with a linear vesting line. Vesting is at 0% for an ROE at the risk-free rate* and at 100% for an ROE at a predefined premium above the risk-free rate. The premium is set at the beginning of the plan period, and for LPP 2018, this premium has been set at 900 basis points above the risk-free rate. At the end of each year, the performance against the ROE condition is assessed and one third of the RSUs are locked in within a range of 0% to 100%. At the end of the three-year period, the total number of units locked in at each measurement period will vest (capped at 100%**).
Settlement At the end of the three-year measurement period, both RSUs and PSUs will typically be settled in shares.
Forfeiture and clawback provisions apply in a range of events (the same as outlined in the VAI section) as defined in the LPP plan rules, enabling Swiss Re to seek repayment where appropriate.
At the end of the one-year period, the employee assumes full ownership of the shares. The ISP has been discontinued from 2019, given that there is some overlap with the GSPP.
Compensation approval The determination of compensation for the Group EC, including the Group CEO, is ultimately subject to AGM approval, as outlined in the Articles of Association.
Group EC members are covered by the Group’s standard defined contribution pension plans.
The guidelines define target ownership by role and the ownership levels required are: ̤ Group CEO – 3 × annual base salary. ̤ Group EC members – 2 × annual
Compensation structure Fees for the members of the Board of Directors are delivered 60% in cash and 40% in shares. The shares have a four-year blocking period.
Roles and time commitment The requirements for memberships of boards of directors of complex, international, listed financial institutions, in terms of qualifications and skills, are constantly increasing. Swiss Re Ltd’s Board of Directors has a special skill set including experience in key sectors such as insurance and reinsurance, finance, accounting, capital markets, risk management and regulatory matters as well as leadership and decision-making experience in large, complex financial institutions. The mandate also demands significant commitment, integrity and intercultural communication competence. The prevalence of these qualifications and skills ensures that Swiss Re Ltd has the relevant expertise required for active involvement and supervision of an international listed company. The fees for the members of the Board of Directors reflect different responsibilities and committee memberships. The individual levels of pay therefore vary.
The Chairman of the Board of Directors devotes himself full-time to his role. In defining the position of Chairman as a full-time role, Swiss Re applies best practice for regulated, complex financial institutions. In particular, he leads the Board of Directors, coordinates the work of the Board of Directors and its committees, convenes the Board and committee meetings, establishes the agendas and presides over Board meetings. The Chairman also leads the Chairman’s and Governance Committee, which develops and continually adapts Swiss Re’s governance to regulatory and corporate requirements. The Chairman presides over General Meetings of Shareholders and represents the
Swiss Re Group towards its shareholders in industry associations and in the interaction with other stakeholders such as the media, political and regulatory authorities, government officials and the general public. The Chairman keeps regular contact with our Group regulator FINMA.
The Vice Chairman, who is also the Lead Independent Director, acts as a deputy of the Chairman, if the Chairman is prevented from performing his duties or in potential conflict of interest situations. The Board of Directors may assign further tasks to the Vice Chairman.
̤ the compensation principles for both the members of the Board of Directors and of the Group EC covering short-term and long-term elements, performancerelated pay, payment in shares, financial instruments or units, compensation in kind or other types of benefits (Art. 24); and
̤ Prepares the proposals to the AGM regarding Board of Directors and Group EC compensation.
̤ 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.
̤ Is governed by a Charter approved by the Board of Directors, which defines the purpose, composition and procedural rules of the Compensation Committee, including its responsibilities and authorities for making proposals and decisions related to compensation of the members of the Board of Directors and the Group EC.
̤ No individual may attend any part of a meeting where their own compensation is discussed.
̤ Mercer provides information about remuneration trends, market benchmarking and advice on executive compensation issues.
̤ Niederer Kraft Frey Ltd provides legal advice, mainly about specific aspects of compliance and disclosure matters regarding compensation.
̤ These advisors are retained by the Compensation Committee and provide the Compensation Committee with an external perspective. They may also have other mandates with Swiss Re.
THE ARTICLES OF ASSOCIATION OF SWISS RE LTD INCLUDE RULES ON
Group CEO Chairman of the Board of Directors, Board of Directors, Compensation Committee
Compensation Committee2, 3 1 Within the maximum aggregate amount of compensation approved by the AGM. 2 Within the maximum aggregate amount of compensation approved by the AGM and the additional amount available for changes in the Group EC after the AGM as per
The Compensation Committee has an annual agenda to ensure that important reviews take place at the appropriate times throughout the year. The Compensation Committee also
Outlined below is an overview of the main topics discussed during 2018: Items relating to the past performance cycle Meeting
̤ Review of the decisions made during the prior compensation cycle April and June
̤ Review and recommendation of the LPP pool for the upcoming year January and February
Compensation and performance of the Group EC The review of Group EC compensation follows the same cycle as that for the Group. Again, the Compensation Committee is fully involved through all stages of the process, and all decisions are taken by the Compensation Committee and the Board of Directors.
̤ Approval of individual compensation proposals for the Group EC1 February
Compensation of the Board of Directors The compensation of the Board of Directors is reviewed annually, and the Compensation Committee formulates proposals for the approval of the Board of Directors accordingly.2
̤ Review and update of the Entity Board Compensation Guidelines June
̤ Review and update of the VAI and LPP plan rules December
Risk and control-related behaviour assessment of Group and business functions The focus on risk and control-related behaviours continues. The Control Functions annually perform an independent assessment of risk and control-related behaviours and summarise the outcomes in a consolidated report.
Risk and control-related behaviour assessment of Key Risk Takers Swiss Re bears risks in the course of its business activities, including market, credit and liquidity, underwriting, operational (including legal and compliance) and reputational risk. Swiss Re’s Key Risk Takers are executives in core risk-taking positions who decide on business and people strategies, approve budgets, and can materially influence financial results or expose Swiss Re to significant operational or reputational risks.
The Control Functions assess the risk and control-related behaviour of each Key Risk Taker and deliver a report to key executives, including the Group Chief Risk Officer and the Chief Human Resource Officer on an annual basis. This assessment serves as an additional factor when considering individual performance and compensation outcomes.
Key considerations for Swiss Re’s annual compensation decisions continue to cover US GAAP and EVM based business results, qualitative factors and Swiss Re’s pay for performance approach.
Corporate Solutions reported a net loss, reflecting the impact of a combination of large natural catastrophe events and man-made losses. Corporate Solutions is focused on its long-term strategy by continuing to invest in its Primary Lead capabilities and extending its global network coverage. Premiums earned increased compared to 2017, primarily attributable to growth in the Primary Lead business.
Life Capital’s result reflects the unfavourable UK investment market performance in 2018. This was partially offset by net realised investment gains and favourable underwriting experience. The strong gross cash generation was driven by the proceeds from MS&AD’s investment in ReAssure, the underlying surplus on the ReAssure business as well as the favourable finalisation of the 2017 Solvency II position.
For further details and discussion on the US GAAP financial performance, refer to pages 192–305 of this Financial Report.
Corporate Solutions generated an EVM underwriting loss primarily driven by large natural catastrophe events and man-made losses. A loss on investment activities added to the unfavourable result, driven by the impact of credit spread widening and unfavourable performance from equity investments.
investment activities due to credit spread widening and underperformance from the implied equity exposure arising from unit-linked business. For further details on the EVM financial performance, refer to the EVM chapter on pages 56–67 of this Financial Report.
In 2018, Swiss Re again performed well on its qualitative dimension: the Group grew transaction volumes, optimised business retention, strengthened the franchise value and provided client solutions.
Swiss Re’s clients and service quality is assessed on an annual basis through leading external benchmarks. Clients positively perceive Swiss Re’s engagement and client advisory beyond the traditional risk transfer. Thought leadership at major industry events (such as the G20 and World Economic Forum) in the field of mitigating climate risk, building societal resilience and driving digital insurance solutions continues to establish Swiss Re as the go-to provider for solving resilience challenges.
Reinsurance and risk are intrinsically linked. The continuous assessment by Swiss Re’s Assurance functions keeps the Group focused: there is a robust risk governance framework with a clear risk appetite and accountability for managing risk. A strong tone at the top supports an effective culture for risk management activities, such as open discussion and effective challenge within the decisionmaking process where risk and options are evaluated.
The labour market review concluded that Swiss Re is acting in line with the majority of reinsurance organisations, which have projected an increase in their annual incentive pools, though pool levels are still below target levels. The capital market review highlighted that the proportionality of proposed value sharing in terms of revenue sharing with employees is below peers’ historical three-year median levels, giving a higher percentage distribution to shareholders.
in a n ci a l a ss e ss m e n t
O ve ra ll a ss e ss m e n t
VAI plan year Performance period remaining as of 31 December 2018 Swiss Re Group performance factor 2016 (awarded 2017) 1 year to be determined 2017 (awarded 2018) 2 years to be determined 162 Swiss Re 2018 Financial Report
Leadership Performance Plan The LPP award is consistently linked to the Group’s future achievement of multi-year performance conditions (ROE and relative TSR), keeping the focus on the long-term success of the Group. Swiss Re made LPP grants in 2018 consistent with this rationale. The LPP is generally part of total compensation (see pages 151–153 for a detailed description of the LPP).
2017 1 year to be determined to be determined 2018 2 years to be determined to be determined
Aggregate compensation of the Swiss Re Group The aggregate compensation for the performance years 2017 and 2018 for all employees was as follows: As of 31 December 2018, the Group had 14 943 employees worldwide, compared to 14 485 employees at the end of 2017.
In 2018 and 2017, a reduction of expenses amounting to CHF 3 million and CHF 5 million respectively, was recognised for compensation in previous financial years.
Pensions, social security and benefits 14 485 467 14 943 443
Annual Performance Incentive Cash Annual Performance Incentive2 13 277 261 13 877 300
At the AGMs 2017 and 2018, the shareholders approved the maximum aggregate compensation amounts for the Board of Directors and Group EC for the prospective periods. For the reconciliation of these aggregate amounts to what was awarded, please refer to page 170.
The proposed total API amount for 2018 for the Group EC (including the Group CEO) is CHF 14.3 million, which represents a 10.0% increase when compared to 2017 (CHF 13.0 million). This increase should be seen in the context of a very substantial API decrease of circa 29% in 2017 for the Group EC (again including the Group CEO) compared to the previous year. The Compensation Committee and the Board of Directors carefully considered the performance of the Group EC in 2018 and concluded that, given the overall business environment context for the Swiss Re Group and the significant qualitative achievements, a modest API increase compared to last year is warranted. Nevertheless, this amount overall still remains below target levels.
̤ 31% Base salary ̤ 20% Cash API ̤ 16% VAI (paid after 3 years) ̤ 33% LPP (paid after 5 years)
2 For 2018, subject to shareholder approval at the AGM 2019. For 2017, based on shareholders’ approval at the AGM 2018 of the aggregate amount of short-term variable compensation.
4 Covers payments reflecting the time in the role as Group EC members. 5 For Group EC members leaving during the reporting period, this only covers legally or contractually required
Overall, the Board of Directors is very satisfied with how effectively the Group CEO is steering the Group despite very challenging conditions.
Additional information on compensation decisions For US GAAP and statutory reporting purposes, VAI and LPP awards are accrued over the period during which they are earned. For the purpose of the disclosure required in this Compensation Report, the value of awards granted is included as compensation in the year of performance for the years 2017 and 2018 respectively.
Other payments to members of the Group EC During 2018, no payments (or waivers of claims) other than those set out in the section “Compensation disclosure and shareholdings in 2018” were made to current members of the Group EC or persons closely related.
at the AGM 2018. 3 Disclosure reflects all awards for a reporting year, ie the 2017 value reflects the fair value of the LPP award granted in April 2017 and the 2018 value reflects the fair value of
(2) Individual Board compensation for the term of office between AGM 2018 and AGM 2019 (figures in CHF thousands) The table below provides more detailed information on the compensation paid or payable to each Board member against the maximum aggregate amount of CHF 9 900 000 as approved by the AGM 2018: Members of the Board of Directors Total 2017 Fees and allowances
Renato Fassbind, Vice Chairman, Chair Audit Committee1 825 496 330 826 Raymond K.F. Ch’ien, Member2 316 309 130 439 Mary Francis, former Member3 375 70 47 117
Rajna Gibson Brandon, former Member3 317 66 43 109 C. Robert Henrikson, former Chair Compensation Committee3 462 95 63 158
by Swiss Re in line with applicable laws which amounted to CHF 706 811 in 2017 and CHF 414 704 in 2018. For Board members domiciled outside of Switzerland, company social security contributions are refunded, if bilateral social security agreements between Switzerland and the country of domicile apply and provide for such refund.
Walter B. Kielholz, Chairman 3 800 Renato Fassbind, Vice Chairman Chair Audit Committee
Sir Paul Tucker, Member 225 50 50 325 Jacques de Vaucleroy, Member Chair Compensation Committee
Larry Zimpleman, Member 225 50 275 Total compensation for the term of office from AGM 2018 to AGM 20194 9 435 1 Including Vice Chairman or subsidiary fees.
next term of office. b) The maximum aggregate amount of fixed compensation and variable long-term
compensation of the Group EC for the following financial year. c) The aggregate amount of short-term compensation of the Group EC for the
At the AGM 2017, shareholders approved a prospective maximum aggregate amount of CHF 34.0 million for fixed compensation and variable long-term compensation for the financial year 2018 for the 13 members of the Group EC known at the time of the AGM 2017 to hold such position in 2018.
The amount of fixed compensation and variable long-term compensation effectively granted to the 14 members of the Group EC during the financial year 2018 amounted to CHF 29.9 million and included the adjustment in the compensation of an existing member of the Group EC as a result of his appointment as per 1 April 2018 to Group Chief Financial Officer and contractual payments due to leaving members of the Group EC. It also included compensation and related costs to Russell Higginbotham who was promoted to the Group EC as Regional President and Chief Executive Officer Reinsurance EMEA as from 1 September 2018 (this appointment was not known at the time of the AGM 2017).
At the AGM 2018, the shareholders approved a maximum aggregate amount of compensation of CHF 9.9 million for the 13 members of the Board of Directors for the term of office from the AGM 2018 to the AGM 2019.
As shown on page 168, the compensation paid to the 13 members of the Board of Directors for their term of office from the AGM 2018 to the AGM 2019 was CHF 9.4 million and therefore within the approved amount.
An audit involves performing procedures to obtain audit evidence on the disclosures made in the Compensation Report with regard to compensation, loans and credits in accordance with Articles 14 to 16 of the Ordinance. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatements in the Compensation Report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the Compensation Report.
Climate-related financial disclosures (TCFD) 174 Climate governance 175 Climate strategy 176 Climate risk management 182 Climate metrics and targets 184
This approach is also in our own best interest: it strengthens our capabilities to identify, and address, both risks and opportunities manifesting themselves in the longer run and, as a consequence, to retain our licence to operate.
You can read more about our sustainability governance in our 2018 Corporate Responsibility Report, page 10.
Furthermore, climate change remains the focus of two of our Corporate Responsibility (CR) Topics: “Managing climate and natural disaster risk” and “Advancing sustainable energy solutions”. You can find out more about these and our other CR Topics in the 2018 Corporate Responsibility Report, pages 11–15. As our climate strategy shows, understanding the risks posed by climate change and spotting the potential to create suitable products and services have both been priorities for Swiss Re.
Our own operations According to our in-house catastrophe loss models, severe weather risks are potentially of importance for some of our operations, mainly in Florida and on the northeastern coast of the US. However, even assuming an extreme climate change scenario, we do not expect any of these locations to be exposed to risk levels that would question their economic viability. In 2012, Hurricane Sandy in New York showed that some of Swiss Re’s offices are already exposed to severe weather risks today. In response, we have sharpened the Group’s business continuity management to minimise property losses and business interruption. Thanks to these investments, we are able to swiftly transfer work tasks to unaffected areas if required and to keep potential financial impacts minimal.
Modelling and pricing of weather-related perils Based on our proprietary loss modelling, we calculate the annual expected losses (AEL) and loss-frequency distributions of the major weather-related natural catastrophes; the four perils with the largest AEL at present are disclosed on page 184 (North Atlantic hurricane, US tornado, European windstorm, Japanese tropical cyclone). Our models show that with the current climate, the dominant factor is natural variability affecting both the frequency and severity of extreme weather events in all regions. We expect this to remain the case both in the short and medium term (ie 2025 and 2030), in line with the latest scientific findings (see the IPCC Fifth Assessment Report, chapter 11, and the IPCC Special Report 15).
Impact on the economic viability of re/insurance protection An increase in the frequency and severity of extreme weather events can restrict the affordability of re/insurance in certain regions, especially in coastal areas, by requiring a rise in premiums. While climate projections are associated with a large range of uncertainty, especially when it comes to storms making landfall, increases in the frequency and severity of tropical storms are likely. Natural variability is expected to remain the dominant factor in the short and medium term (2025 and 2030). In the longer term (2040), though, sea level rise will lead to non-linear increases in the storm surge risk for coastal areas. Additionally, warmer temperatures will lead to more extreme rainfall events that may increase flood risk.
If rises in re/insurance premiums necessitated by increasing extreme weather risks remain modest, ie re/insurance protection remains economically viable for our clients, the overall premium volume will actually grow. Larger increases, however, will reverse this effect eventually by pushing re/insurance prices for certain exposed risks beyond the limits of economic viability. This is particularly relevant for areas with inadequate construction planning and development. In addition, timing is also of crucial importance: if measures to exclude a particular risk are taken too early and without broader market support, we can offer our clients less insurance protection and may lose significant market share; if measures are taken too late, we may end up with increased loss potential. Finally, the overall size of the re/insurance market will depend on future economic growth rates.
In line with independent external studies, we have shown through a series of scenario assessments (Economics of Climate Adaptation studies, ECA) that in many regions, climate adaptation measures need to be taken to limit expected increases in natural catastrophe damages and thus to ensure the economic viability of re/insurance in the future. This is a key reason why Swiss Re actively engages with the United Nations, the public sector, clients, industry peers and employees to advocate cost-effective adaptation to climate change.
Impact on real assets exposed to weather-related perils Real assets such as real estate are exposed to natural perils, eg hurricanes, tropical cyclones and floods. In addition to considering physical risk when acquiring new properties, we analyse these exposures across the portfolio based on Swiss Re’s proprietary modelling capabilities used for our re/insurance underwriting. This analysis has been extended and refined recently, and results suggest a very low exposure to natural perils in general and to climate-related perils, in particular.
Transition risks in our re/insurance business Transition risks may arise as a result of the extensive policy, legal, technology and market changes that are required to make the transition to a low-carbon economy. We have carefully assessed the two transition risks that may potentially affect our business: ̤ Climate-related litigation risks ̤ Risks from technological and market shifts
As a result, Swiss Re has not faced any claims from climate-related litigations in recent years and the results of the litigations, which have remained in favour of the defendants, suggest that this trend will continue.
Technological and market shifts The re/insurance sector is likely to experience the technological transition in two ways. Firstly, new technologies by definition do not have loss histories and thus may be challenging to cost accurately. Thus, research and development is required to develop possible loss scenarios and the related expenses. Once these are developed and tested, though, new technologies are likely to present the sector with an opportunity to offer new solutions (see “Climate-related opportunities”, page 180).
This transition does not automatically translate into a financial risk for Swiss Re, though. To illustrate, motor insurance is the most important business line of the re/insurance sector, globally: According to Swiss Re’s sigma database, it currently represents 44% of all non-life gross premiums of the total property and casualty insurance market and is expected to grow by a further 6% until 2027.
To address the residual risk, we have recently started to develop a carbon risk steering mechanism. Its key component will be a carbon risk model designed to measure our carbon intensity and associated risks embedded in our re/insurance business.
As a first step, in 2018 we introduced a thermal coal policy for our underwriting, pledging not to provide re/insurance to businesses with more than 30% exposure to thermal coal utilities or mining. The policy is fully integrated into our Sustainability Risk Framework. It applies to both old and new thermal coal projects and across all lines of business (direct, facultative and treaty). While it is easier to implement this policy in some parts of our business, for others the transition will take some time and require a continued and constructive dialogue with our clients.
Conclusion: Overall, the transition to a low-carbon economy does not present a significant financial risk for Swiss Re. Mainly due to the annual renewal of contracts, the associated risks can be managed effectively.
Transition risks in our investments Climate-related risks can also impact the value of our investments. A key risk for asset owners is that a changing environment for a particular company or industry sector may lead to stranded assets in investment portfolios, eg the devaluation of investments due to unfavourable changes, such as regulations or taxes. With regard to climate change, the market environment could shift to address mitigation and adaptation requirements to limit global warming to 2°C or less.
Industries and companies that are particularly exposed to changes in policy and legal as well as technological developments show elevated risk exposures either in the production process, in raw materials, in transportation/ logistics or distribution and store operations due to high carbon footprints in these areas. Furthermore, the industries and companies may face increased costs due to higher or more volatile energy prices, compliance costs in the production and distribution process, and cost from product demand substitution. All these changes may cause increased price volatility of the underlying assets.
Opportunities related to transition risks in our re/insurance business While Swiss Re is active in all types of renewable energy re/insurance, we have recently become recognised as a lead market for offshore wind risks. Swiss Re Corporate Solutions has continuously built up and refined the technical expertise required to understand and manage these risks and, in 2015, opened a Centre of Competence for Wind Power in Copenhagen. Over the next decade, we expect many new development opportunities to arise, which will create demand for re/insurance protection in numerous business lines (credit, engineering, property, liability, etc).
Real estate For investment real estate in Switzerland, we apply the following sustainability criteria: analysis of energy sources as a percentage of market value and MINERGIE® certifications. MINERGIE® is a Swiss sustainability label for new and refurbished buildings. By the end of 2018, the combined value of our MINERGIE®-certified buildings reached USD 0.4 billion, or 23% of our Swiss portfolio of direct real estate investments by value, which corresponds to a gross floor area of 82 497 m2.
In the US, our approach to sustainability includes some of the most recognised certificates and guidelines, such as “GreenGuide: Sustainable Property Operations”, a best-practice guideline for sustainable and efficient real estate operations; and the LEED certification of the US Green Building Council (USGBC).
You can read about our involvement in some new offshore wind farm projects as well as a pioneering solar revenue put in our 2018 Corporate Responsibility Report, pages 24–25.
The transition to a low-carbon economy also creates opportunities for specific asset classes: Green bonds Green bond proceeds are used to exclusively finance environmentally sustainable projects that address key areas of concern including climate change, but also natural resources depletion, loss of biodiversity and/or pollution control. With the movement towards a low-carbon economy, the green bond market saw an impressive increase from about USD 11 billion in 2013 to USD 167 billion in 20182. Currently, the market shows an annual growth rate of more than 70%, with a growing variety of issuers besides supranationals, sovereigns and agencies (SSA). In 2018, we achieved our target of having a green bond portfolio worth at least USD 1.5 billion.
Looking at climate effects in isolation would mean ignoring all the other factors that will shape Swiss Re’s future re/insurance book and thus also our future AEL. These include the company’s strategy and risk appetite, market conditions, capital costs, insurance penetration, storm hardening and other climate adaptation measures. Since our re/insurance book and current AEL are the result of a complex interaction between all these factors, any future scenario would have to consider all of them, in the process obliterating the effect of climate change on the resulting AEL.
Moreover, the future AEL for Swiss Re’s weather-related re/insurance book can be seen as a compound assessment of the company’s future market share and scenario projections of overall future business volume and profitability. Independent studies have shown a wide uncertainty range for future market volumes, though (see eg Kunreuther et. al., 2012)3.
Sound risk management, underwriting and asset management lie at the core of the re/insurance business. This enables us to use our existing processes and instruments to address climaterelated risks.
For the other types of transition risks described on page 180 we also have risk management systems in place. Technological developments are monitored through Swiss Re’s respective underwriting units and pricing of associated covers is reviewed on an annual basis.
General sustainability risks in our re/insurance business We consistently use our Sustainability Risk Framework to identify and address potential sustainability risks in all our underwriting and investment transactions (see 2018 Corporate Responsibility Report, pages 27–31). This framework continuously evolves to reflect scientific knowledge and internal standards. With respect to climate change, this framework prevents us from offering any re/insurance cover to offshore drilling activities in the Arctic and using predefined quality criteria to screen transactions in the areas of oil sands, fracking and shale oil.
Swiss Re is committed to investing its assets responsibly via a controlled and structured investment process, integrating ESG criteria. As part of our continuous improvement, in 2017 we switched to benchmarks composed of higher ESG-rated companies for our active listed equity and credit portfolios. For more information about our approach to ESG integration, see our publication “Responsible investments – The next steps in our journey”, launched in 2018 and available at swissre.com (www. swissre.com/our-business/managingour -assets/responsible-investmentsnext -steps-in-our-journey.html).
For our dedicated approach towards climate risk management, we review our credit and listed equity portfolio along the development of our carbon footprint on an ongoing basis. We also monitor our portfolio on coal and tar sands related investments that are below the set thresholds. As part of our active risk management, we stopped investing in coal and tar sands related companies that are above the thresholds (for details, see page 179).
Further actions to support the transition to a low-carbon economy are described in the section “Opportunities for our investments” on page 180.
We assess and manage climate-related risks and opportunities in our re/insurance business (the liability side), our own operations and our investments.
Re/insurance Annual expected losses (AEL) AEL for weather-related natural perils can be used as an indicator for our average current climate-related risk exposure, while they do not capture the potential losses in years with intense natural catastrophe activity like 2018 and 2017 (on page 91 you can see our risk exposures to four major natural catastrophe scenarios, ie single-event losses with a 200-year return period). The figures are the compound result of the expected weather activities, the vulnerability of insured objects, their values and the volume and structure of our insurance products. Changes in the AEL figures will show the evolution of our climate risk exposure. This could be due to climate change, but also due to changes in the vulnerability of insured objects, their values or changes in our business strategy. AEL figures are updated on an annual basis.
Climate protection offered to (sub-)sovereigns Cover against natural catastrophes accounts for approximately 14% of premiums in our P&C Reinsurance business. As we regularly update our risk models to reflect any changes in the underlying parameters and renew contracts annually, we are in a position to offer our clients effective re/insurance protection against current climate-related risks.
Number of (sub-)sovereigns advised 26 66 96 Amount of climate protection offered (in USD) 3.9 billion 5.3 billion 8.2 billion
Uninsured loss in m USD, inflated sumofInsured loss in m USD, inflated
Carbon footprint of our investment portfolio In line with TCFD guidelines, we monitor the carbon footprint of our corporate credit and listed equity portfolio on an ongoing basis as we have extended our internal tools to allow for interactive day-to-day analysis. We also evaluated the size of our private equity investments in coal-related activities. For the carbon footprint, we use the metric “Weighted average carbon intensity”, which defines the portfolio carbon intensity based on relative investment share.
The US credit portfolio was closely aligned with the corresponding benchmark in terms of weighted average carbon intensity.
Since the previous year, the UK portfolio carbon intensity decreased by 20 units, while the corresponding index reduced by more than 130 units. The reduction in the index carbon intensity was mainly caused by a constituent update towards more sustainable issuers in the utility sector.
US IG Credit PortfolioUS Corp IG ESG BB+ Benchmark t CO₂ / Mio. USD Umsatz
WEIGHTED AVERAGE CARBON INTENSITY COMPARISON OF THE UK CREDIT PORTFOLIO VERSUS CORRESPONDING BENCHMARKS PER END OF 2018
Since the end of 2015, carbon intensities in both the credit and the listed equity portfolio decreased substantially as part of our thermal coal divestment of more than USD 1.3 billion. In the second half of 2018, investments in emerging market equities led to a modest increase in the weighted average carbon intensity of our listed equity portfolio.
CO2 tn / USD m Revenue t CO₂ / Mio. USD Umsatz
WEIGHTED AVERAGE CARBON INTENSITY COMPARISON OF THE LISTED EQUITY PORTFOLIO VERSUS CORRESPONDING BENCHMARK PER END OF 2018
Forward-looking carbon indicators Companies may mitigate exposure to climate risk through adaptation to market forces or adherence to new and evolving requirements. We therefore undertook efforts to get a better understanding of the details behind carbon intensities and to further improve our monitoring based on that. For that reason we started to review the listed equities and corporate credit portfolios using forward-looking indicators related to carbon emissions. The analysis focused on the more carbon-intense sectors, responsible for the vast majority of the portfolio carbon intensity.
Swiss Re Ltd 306 Annual Report 306 Income statement 307 Balance sheet 308 Notes 310 Proposal for allocation of disposable profit 320 Report of the statutory auditor 321
Net premiums written 4 32 316 34 042 Change in unearned premiums 803 –167
Income before income tax expense 525 550 Income tax expense 13 –132 –69
Earnings per share in CHF3 Basic 12 1.02 1.34 Diluted 12 1.01 1.34 1 Total impairments for the years ended 31 December of USD 46 million in 2017 and nil in 2018, respectively, were fully recognised in earnings. 2 Total impairments for the years ended 31 December of USD 57 million in 2017 and USD 16 million 2018, respectively, were fully recognised in earnings. 3 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
Net income before attribution of non-controlling interests 393 481 Other comprehensive income, net of tax: Change in net unrealised investment gains/losses 287 –2 389 Change in other-than-temporary impairment 3 –1 Change in cash flow hedges –3 15 Change in foreign currency translation 526 –408 Change in adjustment for pension benefits 315 –4 Impact of sale to non-controlling shareholder –259 Other comprehensive income attributable to non-controlling interests 72
Interest on contingent capital instruments, net of tax –67 –41 Comprehensive income attributable to non-controlling interests 5 –91
Total comprehensive income attributable to common shareholders 1 459 –2 625
For the years ended 31 December 2017 Net unrealised investment Other-thantemporary Cash flow Foreign currency Adjustment for pension
Balance as of 1 January 4 459 –5 –7 –6 074 –1 135 0 –2 762 Change during the period 2 755 4 30 347 348 3 484 Amounts reclassified out of accumulated other comprehensive income –2 372 1 –33 –17 43 –2 378 Tax –96 –2 196 –76 22
USD millions gains/losses1 impairment1 hedges1 translation1, 2 benefits3 fair value option income
Balance as of 1 January 4 746 –2 –10 –5 548 –820 0 –1 634 Impact of sale to non-controlling shareholder –325 1 52 13 –259 Impact of Accounting Standards Updates4 –127 –17 5 –139 Change during the period –3 129 –1 25 –303 –75 –3 483 Amounts reclassified out of accumulated other comprehensive income 154 –10 8 68 220 Tax 586 –113 3 476
Balance as of period end 1 905 –3 6 –5 904 –828 5 –4 819 1 Reclassification adjustment included in net income is presented in “Net realised investment gains/losses – non-participating business”. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. 3 Reclassification adjustment included in net income is presented in “Operating expenses”. 4 Impact of ASU 2018-02, ASU 2016-16 and ASU 2016-01. Please refer to Note 1 for more details.
Investments 7, 8, 9 Fixed income securities: Available-for-sale (including 12 969 in 2017 and 11 502 in 2018 subject to securities lending and repurchase agreements) (amortised cost: 2017: 93 278; 2018: 89 673) 99 248 92 538 Trading (including 1 761 in 2017 and 2 599 in 2018 subject to securities lending and repurchase agreements) 2 538 3 414
Policy loans, mortgages and other loans 4 110 4 542 Investment real estate 2 220 2 411 Short-term investments (including 411 in 2017 and 552 in 2018 subject to securities lending and repurchase agreements) 4 846 5 417 Other invested assets 9 904 6 398 Investments for unit-linked and with-profit business (including fixed income securities trading: 5 209 in 2017 and 4 938 in 2018, equity securities trading: 28 783 in 2017, equity securities at fair value through earnings: 23 123 in 2018) 35 166 29 546
Cash and cash equivalents (including 322 in 2017 and 717 in 2018 subject to securities lending, and 1 878 in 2017 and 1 175 in 2018 backing unit-linked and with-profit contracts) 6 806 5 985 Accrued investment income 1 095 1 052 Premiums and other receivables 13 834 13 789 Reinsurance recoverable on unpaid claims and policy benefits 7 942 7 058 Funds held by ceding companies 9 155 9 009 Deferred acquisition costs 6 6 871 8 217 Acquired present value of future profits 6 1 989 1 818 Goodwill 4 172 4 071 Income taxes recoverable 378 526 Deferred tax assets 13 4 817 5 411 Other assets 3 570 3 332 1 Change due to ASU 2016-01. Please refer to Note 1 for more details.
Treasury shares, net of tax Balance as of 1 January –1 763 –1 842 Purchase of treasury shares –1 161 –1 454 Cancellation of shares bought back 1 006 1 032 Issuance of treasury shares, including share-based compensation to employees2 76 –27 Balance as of period end –1 842 –2 291
Net unrealised investment gains/losses, net of tax Balance as of 1 January 4 459 4 746 Impact of sale to non-controlling shareholder1 –325 Impact of ASU 2018-023 176 Impact of ASU 2016-163 44 Impact of ASU 2016-013 –347 Changes during the period 287 –2 389 Balance as of period end 4 746 1 905
Foreign currency translation, net of tax Balance as of 1 January –6 074 –5 548 Impact of sale to non-controlling shareholder1 52 Changes during the period 526 –408 Balance as of period end –5 548 –5 904
Adjustment for pension and other post-retirement benefits, net of tax Balance as of 1 January –1 135 –820 Impact of sale to non-controlling shareholder1 13 Impact of ASU 2018-023 –17 Changes during the period 315 –4 Balance as of period end –820 –828
Credit risk of financial liabilities at fair value option, net of tax Balance as of 1 January 0 0 Impact of ASU 2016-013 5 Balance as of period end 0 5
Dividends to non-controlling interests –152 Balance as of period end 170 797 1 In 2018, MS&AD Insurance Group Holdings Inc (MS&AD) acquired a 15% non-controlling interest in ReAssure, a subsidiary of the Group. 2 In 2018, the Group performed a review of the carrying values of treasury shares, resulting in an increase of USD 65 million in treasury shares and a corresponding increase of the same amount in additional paid-in capital. The reclassification has no impact on net income or net equity of the Group.
3 Impact of Accounting Standards Update. Please refer to Note 1 for more details.