Allocation to other reserves – 720 000 000 1 The number of registered shares eligible for dividend at the dividend payment date decreased since the proposal for allocation of profit, dated 19 February 2009, due to the transfer of 10 330 shares for employee participation purposes from eligible to not eligible for dividend. This resulted in a lower dividend of CHF 1 033 compared to the Board of Directors’ proposal, and in higher retained earnings brought forward from the previous year by the same amount.
2 Board of Directors’ proposal to the Annual General Meeting of 7 April 2010, subject to the actual number of shares outstanding and eligible for dividend.
If the Board of Directors’ proposal for allocation of disposable profit is accepted, a dividend of CHF 1.00 per share will be paid.
Opinion In our opinion, the financial statements for the year ended 31 December 2009 comply with Swiss law and the company’s articles of incorporation.
Expenses Claims and claim adjustment expenses –12 153 –16 266 –14 485 –14 898 –13 853 –14 758 –11 799 –12 065 –10 007 –9 083
Income/loss before income tax expense 3 655 –104 36 2 336 3 367 2 559 5 856 5 187 –1 350 954 Income tax expense –689 –61 –127 –634 –892 –255 –1 296 –1 025 486 –231 Net income/loss on ordinary activities 2 966 –165 –91 1 702 2 475 2 304 4 560 4 162 –864 723
With over 60 office locations in more than 20 countries, Swiss Re operates in a highly dynamic environment. In 2009, we optimised our market presence by establishing local offices focused solely on servicing clients. We have concentrated expertise in key locations and centralised support functions in shared service centres.
256 Cautionary note on forward-looking statements 257 Note on risk factors 261 Glossary 267 Business contact information 268 Corporate calendar
Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed or implied by such statements. Such factors include, among others: ̤ further instability affecting the global financial system and developments related thereto; ̤ changes in global economic conditions; ̤ Swiss Re’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls under derivative contracts due to actual or perceived deterioration of Swiss Re’s financial strength; ̤ the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets; ̤ changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions; ̤ uncertainties in valuing credit default swaps and other credit-related instruments; ̤ possible inability to realise amounts on sales of securities on Swiss Re’s balance sheet equivalent to its mark-to-market values recorded for accounting purposes; ̤ the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings; ̤ the possibility that hedging arrangements may not be effective; ̤ the lowering or loss of one of the financial strength or other ratings of one or more companies in the Group; ̤ the cyclicality of the reinsurance industry; ̤ uncertainties in estimating reserves; ̤ the frequency, severity and development of insured claim events; ̤ acts of terrorism and acts of war; ̤ mortality and morbidity experience; ̤ policy renewal and lapse rates; ̤ extraordinary events affecting Swiss Re’s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events; ̤ current, pending and future legislation and regulation affecting Swiss Re or its ceding companies, and regulatory or legal actions; ̤ changes in accounting standards; ̤ significant investments, acquisitions or dispositions, and any delays, unexpected costs or other issues experienced in connection with any such transactions, including, in the case of acquisitions, issues arising in connection with integrating acquired operations; ̤ changing levels of competition; and ̤ operational factors, including the efficacy of risk management and other internal procedures in managing the foregoing risks.
General impact of adverse market conditions Beginning in 2007, the global financial markets experienced extreme volatility and disruption, due in large part to turmoil affecting the liquidity of the banking system and the market reaction thereto. The impact of the turmoil in the financial markets was exacerbated by adverse macroeconomic trends affecting a number of the principal economies. Volatility and disruption reached unprecedented levels. It is difficult to predict what the impact of market and economic conditions would be on the Group from a general business perspective or from a capital or liquidity perspective were conditions to again deteriorate.
Swiss Re and its subsidiaries are regulated in a number of jurisdictions in which they conduct business. New legislation as well as changes to existing legislation have been proposed in a number of jurisdictions that seek to alter, in a variety of ways, the manner in which the financial services industry is regulated. Although it is difficult to predict which proposals will become law, it is likely that aspects of existing regulatory regimes governing financial services will change. These may include changes as to which governmental bodies regulate financial institutions, changes in the way financial institutions generally are regulated, enhanced governmental authority to take control over operations of financial institutions, restrictions on the conduct of certain lines of business, changes in the way financial institutions account for transactions and securities positions, changes in disclosure obligations and changes in the way rating agencies rate the creditworthiness and financial strength of financial institutions. Changes, for example, could impact capital requirements or have other direct or indirect effects on the Group. Changes may also occur in areas of broader application, such as competition policy and tax laws. Any number of these changes could apply to the Group and its operations. These changes could increase the costs of doing business, limit the scope of business or affect the competitive balance, or could make reinsurance less attractive to primary insurers.
Changes in the market value of the underlying securities and other factors impacting their price could give rise to market value losses. If the credit markets were to deteriorate again, the Group could face further write-downs in other areas of its portfolio, including other structured instruments, and the Group and its counterparties could once again face difficulties in valuing credit-related instruments.
The Group becomes aware of counterparty valuations either directly, through the exchange of information, or indirectly, for example, through demands to post collateral. These valuations may differ significantly from the Group’s estimates. Counterparty valuation estimates for collateral purposes are considered during the independent price verification process and may result in adjustments to initially indicated valuations. Resolution of any dispute in relation to asset valuation in which the Group may become involved with counterparties, in a manner adverse to it, could have a material adverse effect on the Group’s financial condition and results of operations.
The Group could also be adversely affected by the insolvency of, or other credit constraints affecting, counterparties in its reinsurance operations. Moreover, the Group could be adversely affected by liquidity issues at ceding companies or at third parties to whom the Group has retroceded risk, and such risk could be exacerbated to the extent any such exposures are concentrated. The Group’s most significant single counterparty risk is in respect of Berkshire Hathaway Inc., with which it has a quota share arrangement, an adverse development cover and a retrocession arrangement in respect of a closed block of US individual life reinsurance business.
Risks relating to credit rating downgrades Ratings are an important factor in establishing the competitive position of reinsurance companies, and market conditions could increase the risk of downgrade. Third-party rating agencies assess and rate the financial strength of reinsurers and insurers, such as Swiss Re. These ratings are intended to measure a company’s ability to repay its obligations and are based upon criteria established by the rating agencies. The Group’s ratings came under pressure due to the additional asset write-downs it recorded for the fourth quarter of 2008 and the resulting impact on the Group’s capital position.
The Group’s ratings reflect the current opinion of the relevant rating agencies. One or more of its ratings could be downgraded or withdrawn in the future. Rating agencies may heighten their scrutiny of rated companies, increase the frequency and scope of ratings reviews, revise their criteria or take other actions that may negatively impact the Group’s ratings, which cannot be predicted.
Insurance, operational and other risks As part of the Group’s ordinary course operations, the Group is subject to a variety of risks, including risks that reserves may not adequately cover future claims and benefits, risks that catastrophic events (including hurricanes, windstorms, floods, earthquakes, explosions, fires and pandemics) may expose the Group to unexpected large losses, competitive conditions, cyclicality of the industry, risks related to emerging claims and coverage issues, risks arising from the Group’s dependence on policies, procedures and expertise of ceding companies, and risks related to the failure of operational systems and infrastructure. In addition, the occurrence of future risks that the Group’s risk management procedures fail to identity or anticipate could have a material adverse effect on the Group.
The ratio of ordinary shareholders' equity (excluding convertible perpetual capital instrument) to the number of common shares entitled to dividend.
Operating income as a percentage of average invested assets. Invested assets include investments, cash and cash equivalents, securities in transit, financial liabilities and exclude policy loans and Legacy assets.
Switzerland already introduced an economic and risk-based insurance regulation, similar to the objectives of the Solvency II project in the EU. Since 2008, all (re)insurance companies writing business in Switzerland have had to implement the SST, and as of 1 January 2011, the SST-based target capital requirement will be in force and companies must achieve economic solvency.
Premiums earned less the sum of claims paid, change in the provision for unpaid claims and claim adjustment expenses and expenses (acquisition costs and other operating costs and expenses).
A life insurance contract which provides policyholder funds which are linked to an underlying investment product or fund. The performance of the policyholder funds is borne by the policyholder.
United States Generally Accepted Accounting Principles are the accounting rules, as issued by the Financial Accounting Standards Board (FASB), its predecessors and other bodies, used to prepare financial statements for publicly traded companies in the United States.
Maximum possible loss in market value of an asset portfolio within a given time span and at a given confidence level. 99% VaR measures the level of loss likely to be exceeded in only one year out of a hundred, while 99.5% VaR measures the loss likely to be exceeded in only one year out of two hundred. 99% Tail VaR estimates the average annual loss likely to occur with a frequency of less than once in one hundred years.
Swiss Re uses some of the term definitions provided by the glossary of the International Association of Insurance Supervisors (IAIS). For additional insurance terms, see Swiss Re’s online glossary of technical terms at www.swissre.com.
The web version of the 2009 Annual Report is available at: www.swissre.com/annualreport