Swiss Re Corporate Solutions Group Net income attributable to common shareholder 290 393 36
Swiss Re Corporate Solutions Ltd A+ A1 AA‒ Swiss Re International SE A+ A1 AA‒ Westport Insurance Corporation A+ A1 AA‒ Other Corporate Solutions US entities (NAS, NAE, NAC, WIIC, FSIC)
Swiss Re Corporate Solutions Brasil Seguros Not rated Baa2 Not rated
Net premiums earned by line of business, 2014 (Total USD 3 444 million)
11% Latin America 57% North America 20% Speciality 11% Credit 30% Casualty 00 Swiss Re Corporate Solutions Ltd 2014 Annual Report
Statement of shareholder’s equity 6 Statement of cashflow 7 Notes to the Group financial statements
Note 7 Investments 22 Note 8 Fair value disclosures 26 Note 9 Derivative financial instruments
Income/loss attributable to non-controlling interests 1 Net income attributable to common shareholder 290 393
Balance as of 1 January 113 129 242 Change during the period 74 –19 55 Amounts reclassified out of accumulated other comprehensive income –99 –99
Investments 7,8,9 Fixed income securities, available-for-sale, at fair value (including 565 in 2013 and 352 in 2014 subject to securities lending and repurchase agreements) (amortised cost: 2013: 4 578; 2014: 5 116) 4 551 5 148 Equity securities, available-for-sale, at fair value (including 0 in 2013 and 121 in 2014 subject to securities lending and repurchase agreements) (cost: 2013: 791; 2014: 586) 966 732 Short-term investments, at fair value (including 852 in 2013 and 1088 in 2014 subject to securities lending and repurchase agreements) 1 587 2 348 Other invested assets 133 55
Funds held under reinsurance treaties 1 471 1 391 Reinsurance balances payable 233 406 Income taxes payable 74 101 Deferred and other non-current tax liabilities 11 267 425 Accrued expenses and other liabilities 527 541 Long-term debt 10 496
Net unrealised gains/losses, net of tax Balance as of 1 January 113 98 Changes during the period –15 18 Balance as of period end 98 116
Foreign currency translation, net of tax Balance as of 1 January 129 103 Changes during the period –26 –48 Balance as of period end 103 55
Balance as of 1 January 0 0 Change during the period 90 Income attributable to non-controlling interests –1 Balance as of period end 0 89 1 Dividends to the shareholder were paid in the form of a repayment of legal reserves from capital contributions. 2 During Q3 2014, Swiss Reinsurance Company Ltd transferred the shares of Swiss Re Corporate Solutions Brasil Seguros S.A. to Swiss Re Corporate Solutions Ltd, please refer to Note 1 "Organisation and summary of significant accounting policies".
Cash flows from operating activities Net income attributable to common shareholder 290 393 Add net income attributable to non-controlling interests –1
Total net cash provided/used –338 176 Effect of foreign currency translation –12 –12 Change in cash and cash equivalents –350 164 Cash and cash equivalents as of 1 January 754 404 Cash and cash equivalents as of 31 December 404 568
Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law. All significant intra-group transactions and balances have been eliminated on consolidation.
During the third quarter of 2014, Swiss Re Corporate Solutions completed the acquisition of the outstanding common shares of Swiss Re Corporate Solutions Brasil Seguros S.A. (“SRCSB”) from Swiss Reinsurance Company Ltd (“SRZ”). Following the acquisition, SRCSB ceased to be a subsidiary of SRZ, and therefore is no longer part of the Swiss Reinsurance Company Group (the “SRZ Group”). These financial statements were prepared as if SRCSB had been transferred to SRCS as of 1 January 2014. As the assets and liabilities of SRCSB were reflected in the SRZ Group’s financial statements for the year-end 2013, comparatives have not been restated.
Principles of consolidation The Group’s financial statements include the consolidated financial statements of SRCS and its subsidiaries. Voting entities which SRCS directly or indirectly controls through holding a majority of the voting rights are consolidated in the Group’s accounts. Companies which the Group does not control, but over which it directly or indirectly exercises significant influence, are accounted for using the equity method or the fair value option and are included in other invested assets. The Group’s share of net profit or loss in investments accounted for under the equity method is included in net investment income. Equity and net income of these companies are adjusted as necessary to be in line with the Group’s accounting policies. The results of consolidated subsidiaries and investments accounted for using the equity method are included in the financial statements for the period commencing from the date of acquisition.
As of 1 January 2014, the Group measures its short-term investments at fair value with changes in fair value recognised in net income. Previously, the Group carried short-term investments at amortised cost, which approximated fair value. The impact of this change is immaterial and comparatives have therefore not been restated. The Group considers highly liquid investments with a remaining maturity at the date of acquisition of one year or less, but greater than three months, to be short-term investments.
Other invested assets include affiliated companies, equity accounted companies, investment real estate, derivative financial instruments, collateral receivables, securities purchased under agreement to resell, and investments without readily determinable fair value (including limited partnership investments). Investments in limited partnerships where the Group’s
Unpaid claims and claim adjustment expenses Liabilities for unpaid claims and claim adjustment expenses for insurance and reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims, using reports and individual case estimates received from ceding companies. A provision is also included for claims incurred but not reported, which is developed on the basis of past experience adjusted for current trends and other factors that modify past experience. The establishment of the appropriate level of reserves is an inherently uncertain process involving estimates and judgments made by management, and therefore there can be no assurance that ultimate claims and claim adjustment expenses will not exceed the loss reserves currently established. These estimates are regularly reviewed, and adjustments for differences between estimates and actual payments for claims and for changes in estimates are reflected in income in the period in which the estimates are changed or payments are made.
Reinstatement premiums are due where coverage limits for the remaining life of the contract are reinstated under pre-defined contract terms. The recognition of reinstatement premiums as written depends on individual contract features. Reinstatement
Financial Statements I Notes to the Group Financial Statements premiums are either recognised as written at the time a loss event occurs or in line with the recognition pattern of premiums written of the underlying contract. The accrual of reinstatement premiums is based on actuarial estimates of ultimate losses. Reinstatement premiums are generally earned in proportion to the amount of insurance and reinsurance provided.
The Group provides reserves for uncollectible amounts on insurance and reinsurance balances ceded, based on management’s assessment of the collectability of the outstanding balances.
Recent accounting guidance In February 2013, the FASB issued ASU 2013-04, “Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date”, an update to Topic 405, “Liabilities”. ASU 2013-04 requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The Group adopted ASU 2013-04 on 1 January 2014. The adoption did not have an effect on the Group’s financial statements.
Financial Statements I Notes to the Group Financial Statements 2 Information on business segments
The Group provides innovative insurance capacity to mid-sized and large multinational corporations across the globe. Offerings range from standard risk transfer covers and multi-line programmes to customized solutions tailored to the needs of clients. The business segments are determined by the organisational structure and the way in which management reviews the operating performance of the Group.
Net investment income 89 Net realised investment gains/losses 158 Interest expenses –8 Income before income tax expenses 587
Financial Statements I Notes to the Group Financial Statements b) Gross premiums earned by geography Gross premiums earned by regions for the years ended 31 December
Insurance receivables Insurance receivables as of 31 December were as follows: USD millions 2013 2014
Financial Statements I Notes to the Group Financial Statements 4 Unpaid claims and claim adjustment expenses
Reinsurance recoverable –9 063 –7 836 Net balance as of 1 January 3 008 3 528
Paid related to: Current year –368 –398 Prior year –832 –898
Foreign exchange –3 –88 Effect of acquisitions, disposals, new retroactive reinsurance and other items 20 115 Net balance as of 31 December 3 528 4 287
Prior-year development In 2014, claims development on prior years was driven by favourable experience in all lines except liability and accident & health. The largest favourable experience came from property. For property, most of the releases were from the US and were spread among the more recent treaty years.
Financial Statements I Notes to the Group Financial Statements 5 Deferred acquisition costs (DAC)
Swiss Re Corporate Solutions Brasil Seguros SA During the third quarter of 2014, Swiss Re Corporate Solutions completed the acquisition of the outstanding common shares of Swiss Re Corporate Solutions Brasil Seguros SA (referred to as “SRCSB”) from Swiss Reinsurance Company Ltd. The results of the operations of SRCSB have been included in the consolidated financial statements of the Group as of 1 January 2014.
Financial Statements I Notes to the Group Financial Statements 7 Investments
Investment income Net investment income by source was as follows: Realised gains and losses Realised gains and losses for fixed income, equity securities and other investments were as follows: USD millions 2013 2014
Equity securities available-for-sale: Gross realised gains 80 97 Gross realised losses –1 –7
Assets pledged As of 31 December 2014, investments with a carrying value of USD 1 055 million were on deposit with regulatory agencies in accordance with local requirements, and investments with a carrying value of USD 197 million were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
Due in one year or less 461 463 544 536 Due after one year through five years 2 012 2 020 1 832 1 829 Due after five years through ten years 1 002 973 1 335 1 339 Due after ten years 622 607 938 971 Mortgage- and asset-backed securities with no fixed maturity 481 488 467 473 Total fixed income securities available-for-sale 4 578 4 551 5 116 5 148
Unrealised losses on securities available-for-sale The following table shows the fair value and unrealised losses of the Group’s fixed income securities, aggregated by investment category and length of time that individual securities were in a continuous unrealised loss position as of 31 December 2013 and 2014. As of 31 December 2013 and 2014, USD 2 million and USD 13 million, respectively, of the gross unrealised loss on equity securities available-for-sale relates to declines in value for less than 12 months and USD 1 million and USD 2 million, respectively, to declines in value for more than 12 months.
Less than 12 months 12 months or more Total 2013 USD millions Fair value Unrealised losses Fair value Unrealised losses Fair value Unrealised losses
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 797 18 797 18 US Agency securitised products 147 2 147 2 States of the United States and political subdivisions of the states 214 15 214 15
Less than 12 months 12 months or more Total 2014 USD millions Fair value Unrealised losses Fair value Unrealised losses Fair value Unrealised losses
Financial Statements I Notes to the Group Financial Statements 8 Fair value disclosures
The fair values of assets are adjusted to incorporate the counterparty risk of non-performance. Similarly, the fair values of liabilities reflect the risk of non-performance of the Group, captured by the Group’s credit spread. These valuation adjustments from assets and liabilities measured at fair value using significant unobservable inputs are recognised in net realised gains and losses. For 2014, these adjustments were not material.
The category “Other invested assets” includes the Group’s private equity funds investments which are made via ownership of funds. Substantially all these investments are classified as level 3 due to the lack of observable prices and significant judgement required in valuation. The Group’s holdings in private equity funds are generally valued utilising net asset values (NAV), subject to adjustments, as deemed necessary, for restrictions on redemption (lock-up periods and amount limitations on redemptions).
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December, the reconciliation of the fair value of assets and liabilities measured on a recurring basis using significant unobservable inputs was as follows: Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) The gains and losses relating to the assets and liabilities measured at fair value using significant unobservable inputs (level 3) for the years ended 31 December were as follows: 2013 USD millions
Sales –1 –4 –5 0 Settlements –15 –15 0 Transfers into level 3 0 0 Transfers out of level 3 0 0 Impact of foreign exchange movements 0 0
Realised/unrealised gains/losses: Included in net income 25 –4 21 15 15 Included in other comprehensive income –1 4 3 0
Transfers into level 3 0 0 Transfers out of level 3 0 0 Impact of foreign exchange movements 0 0
Closing balance as of 31 December 13 11 21 45 –72 –72
The Group enters into various financial contracts covering risks such as weather, weather-contingent price risks and outage contingent power price risks that are accounted for as derivative financial instruments (also referred to as Environmental Commodity Markets and Weather business, or “ECM/Weather”). The Group also uses derivatives to manage exposure to foreign currency risks. Derivative positions are carried at fair value, generally by obtaining quoted market prices or through the use of valuation models, with changes in fair value recorded in the income statement. The Group currently does not apply hedge accounting.
Fair values and notional amounts of derivative financial instruments As of 31 December 2014, the fair values and notional amounts of the derivatives outstanding were as follows: The notional amounts of derivative financial instruments give an indication of the Group’s volume of derivative activity and are presented without set off. The fair value assets are included in “Other invested assets” and the fair value liabilities are included in “Accrued expenses and other liabilities”.
Derivative financial instruments Foreign exchange contracts –6 ECM/Weather contracts 47 Total gain/loss recognised in income 41
Financial Statements I Notes to the Group Financial Statements 10 Debt
Current taxes 74 77 Deferred taxes 23 118 Income tax expense 97 195
Deferred and other non-current taxes The components of deferred and other non-current taxes were as follows: As of 31 December 2014, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised amount to approximately USD 135 million. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.
Deferred tax assets Deferred acquisition costs 16 38 Income accrued/deferred 31 23 Unearned premium reserve 25 14 Technical provisions 3 37 Benefit on loss carryforwards 18 13 Currency translation adjustments 34 34 Tax credits 79 61
Deferred tax liabilities Deferred acquisition costs –13 –36 Present value of future profits –49 –72 Property amortisation –23 –25 Income accrued/deferred –15 –30 Technical provisions –32 –75 Unrealised gains on investments –52 –68 Foreign exchange provision –8 –27 Currency translation adjustments –40 –51 Other –22 –31 Total deferred tax liabilities –254 –415
During the year certain tax positions and audits in Germany were effectively settled.
Insurance activities The Group assumes and cedes certain re/insurance contracts from/to affiliated companies outside the Group but within the Swiss Re Group, resulting in the following related party transactions on the income statement and balance sheet: Investment activities The Group conducts various investing activities with affiliated companies outside the Group but within the Swiss Re Group. These include loans, funding agreements and derivatives and result in the following related party transactions on the income statement and balance sheet: Operating transactions The Group enters into various arrangements with affiliated companies outside the Group but within the Swiss Re Group for the provision of services. These activities result in the following related party transactions on the income statement and balance sheet: For the years ended 31 December USD millions 2013 2014
Claims and claim adjustment expenses –298 33 Acquisition costs –57 –24 Total expenses –355 9
Premiums and other receivables 378 220 Reinsurance recoverable on unpaid claims 6 209 5 835 Deferred acquisition costs 49 –3 Other assets 96 177
Brazil Swiss Re Corporate Solutions Brasil Seguros S.A., Sao Paulo BRL 108 100 f
Financial Statements I Notes to the Group Financial Statements 14 Risk assessment
The monitoring of reserves for the three Business Units is provided by a dedicated Actuarial Control Unit within Risk Management. In addition, actuarial management for Corporate Solutions and Admin Re® is part of Risk Management, whereas in Reinsurance the setting of the reserves is performed by valuation actuaries within the P&C and L&H Business Management units.
Risk management activities are also supported by our Group Internal Audit and Compliance units. Group Internal Audit performs independent, objective assessments of adequacy and effectiveness of internal control systems. It evaluates execution processes of Swiss Re, including those within Risk Management. Our Compliance function oversees Swiss Re’s compliance with applicable laws, regulations, rules, and the Group’s Code of Conduct. In addition, it assists the Board of Directors, the Group EC and management in identifying, mitigating and managing compliance risks.
Board of Directors’ responsibility for the consolidated financial statements The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Swiss Re Corporate Solutions Ltd and its subsidiaries at 31 December 2014, and the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America and comply with Swiss law.
Reinsurance and sub-holding company Swiss Re Corporate Solutions Ltd (the Company), domiciled in Zurich, Switzerland, performs a dual role within the Swiss Re Group as both a reinsurance company and a sub-holding company for the Corporate Solutions Business Unit. The Company is a wholly-owned subsidiary of Swiss Re Ltd, the ultimate parent company domiciled in Zurich, Switzerland.
The financial year under review was mainly characterised by the increase of business volume, reflecting growth of external business as well as internal reinsurance from Corporate Solutions’ subsidiaries.
The Company paid an ordinary dividend in cash of CHF 265 million. An extraordinary dividend in cash of CHF 393 million was paid in the 4th quarter, following a subordinated debt issuance of CHF 497 million in the previous quarter.
Reinsurance result Reinsurance result amounted to CHF 192 million in 2014, compared to CHF 135 million in 2013.
Claims and claim adjustment expenses increased by 30% to CHF 1 420 million in 2014. At constant foreign exchange rates the increase was 33%. The increase reflected the higher property and liability business volume and several man-made losses, but also benefited from lower natural catastrophe losses.
Operating costs amounted to CHF 194 million, representing mainly cost recharges from Swiss Re Group companies for administration and other services rendered to the Company. This is an increase of CHF 27 million compared to the prior year.
Investment result Net investment result amounted to CHF 135 million, compared to CHF 3 million in the prior year.
In 2014, investment income was mainly driven by higher realised gains on sale of investments of CHF 37 million and higher dividend income of CHF 29 million from a subsidiary, compared to prior year. In addition, investment expenses decreased due to lower valuation adjustments on fixed income securities and shares in investments funds.
Result from other income and expenses Result from other income and expenses was driven by foreign exchange gains in 2014, mainly due to the strengthening of the US dollar against the Swiss franc, compared to foreign exchange losses in 2013.
In 2014, the Company acquired 100% of Swiss Re Corporate Solutions Brasil Seguros S.A. and a 51% stake in Compañia Aseguradora de Fianzas S.A. Confianza.
Shareholder’s equity Shareholder’s equity decreased from CHF 2 154 million as of 31 December 2013 to CHF 1 784 million as of 31 December 2014.
The decrease resulted from the ordinary dividend in cash of CHF 265 million and an extraordinary dividend in cash of CHF 393 million to Swiss Re Ltd, partly offset by the net income for 2014 of CHF 288 million.
Investments 3 Investment income 129 199 Investment expenses –98 –31 Allocated investment return –28 –33 Investment result 3 135
Other income and expenses Other interest income 0 0 Other interest expenses – –6 Other income – 37 Other expenses –53 –26 Result from other income and expenses –53 5
Balance sheet Swiss Re Corporate Solutions Ltd As of 31 December
Investments Investments in subsidiaries and affiliated companies 1 284 1 435 Loans to subsidiaries and affiliated companies 934 944 Fixed income securities 434 879 Shares in investment funds 115 40 Short-term investments 639 1 269
Current assets Premiums and other receivables from reinsurance 4 857 1 233 Funds held by ceding companies 4 327 486 Deferred acquisition costs 4 218 336 Cash and cash equivalents 41 33 Other receivables 86 10 Accrued income 4 9
Non-technical provisions Provision for taxation 0 30 Provision for currency fluctuation – 72 Other provisions 1 4 Total non-technical provisions 1 106
Reinsurance balances payable 5 7 21 Other liabilities 67 3 Accrued expenses 0 8
Time period The financial year 2014 comprises the accounting period from 1 January 2014 to 31 December 2014.
Foreign currency translation Assets and liabilities denominated in foreign currencies are converted into Swiss francs at year-end exchange rates with the exception of participations, which are maintained in Swiss francs at historical exchange rates.
Income and expenses in foreign currencies are converted into Swiss francs at average exchange rates for the reporting year.
Zero-coupon bonds reported under fixed income securities are measured at their amortised cost values.
Loans to subsidiaries and affiliated companies are carried at nominal value. Value adjustments are recorded where the expected recovery value is lower than the nominal value.
Short-term investments contain investments with an original duration between three months and one year. Such investments are generally held until maturity and are maintained at their amortised cost values.
Deferred acquisition costs Deferred acquisition costs consist principally of commissions and are related to the generation of new reinsurance business. Deferred acquisition costs are amortised in proportion to premiums earned.
Currency exchange rates in CHF per 100 units of foreign currency Closing rate Average rate Closing rate Average rate
Accrued income Accrued income includes other expenditures incurred during the financial year but relating to a subsequent financial year, and revenues relating to the current financial year but which are receivable in a subsequent financial year.
Technical provisions Unpaid claims are based on information provided by clients and own estimates of expected claims experience, which are drawn from empirical statistics. These include provisions for claims incurred but not reported. Unpaid insurance obligations are set aside at the full expected amount of future payment.
The provision for currency fluctuation comprises the net effect of foreign exchange gains and losses arising from the yearly revaluation of the opening balance sheet and the translation adjustment of the income statement from average to closing exchange rates at year-end. These net impacts are recognised in the income statement over a time period of up to three years, based on the average duration of the technical provisions. Where the provision for currency fluctuation is insufficient to absorb net foreign exchange losses for the financial year, the provision for currency fluctuation is reduced to zero and the excess foreign exchange loss is recognised in the income statement.
Other provisions are determined according to business principles and are based on estimated needs and in accordance with tax regulations.
Reinsurance balances payable Reinsurance balances payable are held at redemption value.
Other reinsurance income and expenses 3 – 3 3 – 3
Investment management expenses –8 –18 Realised losses on sale of investments –4 –8 Valuation adjustments on investments –86 –5 Investment expenses –98 –31
The nominal share capital of the Company amounted to CHF 100 million. It is divided into 100 000 shares, each with a nominal value of CHF 1 000.
As of 31 December 2014, the following public placed debenture was outstanding: 10 Contingent liabilities
As of 31 December 2014, the Company has issued a limited guarantee of CHF 242 million (2013: nil) to a subsidiary in support of its business activities or specific transactions.
To secure the technical provisions at the 2014 balance sheet date, securities with a value of CHF 562 million (2013: CHF 436 million) were deposited in favour of ceding companies. Thereof CHF 150 million referred to external parties and CHF 412 million to Swiss Re Group companies. In 2013 the full amount was with Swiss Re Group companies.
The following balances were related to deposit accounted reinsurance contracts: 14 Claims on and obligations towards Swiss Re Group companies 15 Personnel information and administrative expenses
Reinsurance result 3 2 Premiums and other receivables from reinsurance 2 1 Reinsurance balances payable 4 2
Premiums and other receivables from reinsurance 842 1 089 Funds held by ceding companies 327 486 Other receivables 85 4 Reinsurance balances payable 4 2 Other liabilities 67 3
The identification, assessment and control of risk exposures of Swiss Re Corporate Solutions Ltd on a stand-alone basis are integrated and covered by Swiss Re’s Group risk management organisation and processes.
In order to comply with the Swiss Code of Obligations, dividends must meet the capital protection requirements in CHF. In addition, it requires also that maximum amounts must be approved by the Annual General Meeting. For 2014, the Board of Directors proposes to set this maximum amount to CHF 210 million. This CHF 210 million shall be funded by CHF 210 million from the retained earnings as shown in the tables below.
Other reserves brought forward – – Allocation from retained earnings 90 210 Reclassification of legal reserves from capital contributions to other reserves 175 – Dividend payment out of other reserves –265 – Other reserves before proposed allocation of legal reserves from capital contributions and ordinary cash dividend
Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company’s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.
These factors are not exhaustive. The Group operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. The Group undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
General impact of adverse market conditions Pessimistic global growth forecasts, particularly in respect of Europe, and heightened volatility due to the constraints inherent in current monetary policies of the world’s principal central banks, among other factors, highlight the continued uncertainties around the post-crisis recovery and the risks that the world economy continues to face, notwithstanding positive macroeconomic trends in the United States. The International Monetary Fund recently reduced its forecast for global economic growth and reports that the risk of a recession and deflation in the eurozone has risen sharply. In the European Union, it remains unclear whether proposals for a single resolution mechanism and other components of a banking union in the European Union, as well as actions of the European Central Bank, will create the conditions necessary for increased bank lending and greater economic growth. Uncertainty around economic growth could be compounded by domestic political considerations in various EU member states.
Although early regulatory efforts following the credit crisis in 2008 were focused primarily on banking institutions, there has been a noticeable trend in recent years to extend the scope of reforms and oversight beyond such institutions to cover insurance and reinsurance operations. Legislative initiatives directly impacting the Group’s industry include the establishment of a panEuropean regulator for insurance companies, the European Insurance and Occupational Pensions Authority (the “EIOPA”), which has the power to overrule national regulators in certain circumstances. In addition, the Group is subject to the Swiss Solvency Test, and will be subject to Solvency II, which will enter into force 1 January 2016. The Group is also monitoring the proposed Swiss Federal Act on Financial Market Infrastructure (which will introduce new regulations for over-the-counter derivatives trading in line with international standards) and the proposed Swiss Federal Financial Services Act and Financial Institutions Act (which contain rules for financial services providers that are based on the EU Markets in Financial Instruments Directive (“MiFID”) regulations). In the United States, as a possible step towards federal oversight of insurance, the US Congress created the Federal Insurance Office within the Department of Treasury. In addition, provisions of the Wall Street Reform and Consumer Protection Act of 2010, as well as provisions in the proposed European Market Infrastructure Regulation and proposed changes to MiFID, in respect of derivatives could have a significant impact on the Group.
General Information I Note on risk factors requirements and operating costs, payment of principal and interest on outstanding indebtedness and funding of acquisitions. The Group also enters into contracts or trading arrangements that could give rise to significant short-term funding obligations and, in connection with the Group’s trading operations, it could be subject to unexpected calls to deliver collateral or unwind trading positions at a net cost to it. The Group also has unfunded capital commitments in its private equity and hedge fund investments, which could result in funding obligations at a time when it is subject to liquidity constraints.
Risks relating to credit rating downgrades Ratings are an important factor in establishing the competitive position of insurance companies, and market conditions could increase the risk of downgrade. Third-party rating agencies assess and rate the financial strength insurers such as Corporate Solutions. These ratings are intended to measure a company’s ability to repay its obligations and are based upon criteria established by the rating agencies.
Legal and regulatory risks The Group could be named, from time to time, as a defendant in legal actions in connection with its operations. The Group is also involved, from time to time, in investigations and regulatory proceedings, certain of which could result in adverse judgments, settlements, fines and other outcomes. The number of these investigations and proceedings involving the financial services industry has increased in recent years, and the potential scope of these investigations and proceedings has also increased, not only in respect of matters covered by our direct regulators, but also in respect of compliance with broader business conduct rules including those in respect of market abuse, bribery, money laundering, trade sanctions and data protection and privacy. The Group could be subject to risks arising from alleged, or actual, violations of any of the foregoing, and could also be subject to risks arising from potential employee misconduct, including non-compliance with internal policies and procedures. Substantial legal liability could materially adversely affect the Group’s business, financial condition or results of operations or could cause significant reputational harm, which could seriously affect its business.
Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that management uses, for example, as part of its risk models as well as those that affect the reported amounts of assets, liabilities, revenues and expenses in the Group’s financial statements. Particularly with respect to large natural catastrophes, it may be difficult to estimate losses, and preliminary estimates may be subject to a high degree of uncertainty and change as new information becomes available. Deterioration in market conditions could have an adverse impact on assumptions used for financial reporting purposes, which could affect possible impairment of present value of future profits, fair value of assets and liabilities, deferred acquisition costs or goodwill. To the extent that management’s estimates or assumptions prove to be incorrect, it could have a material impact on underwriting results (in the case of risk models) or on reported financial condition or results of operations, and such impact could be material.
The Group uses non-GAAP financial measures in its external reporting. These measures are not prepared in accordance with US GAAP or any other comprehensive set of accounting rules or principles, and should not be viewed as a substitute for measures prepared in accordance with US GAAP. Moreover, these may be different from or otherwise inconsistent with non-GAAP financial measures used by other companies. These measures have inherent limitations, are not required to be uniformly applied and are not audited.