Group net income attributable to common shareholders 4 201 4 444 6 Premiums earned and fee income 25 446 28 818 13 earnings per share in CHf 11.13 12.04 8 return on equity1 in % 13.4 13.7 return on investments in % 4.0 3.6
About the cover As part of our 150th anniversary celebrations, swiss Re led industry-wide dialogues and thoughtful discussions about the risks facing our communities today and for generations to come. the theme of the anniversary is “open minds connecting generations.”
Chairman’s and CEO’s messages swiss Re’s leaders reflect on an anniversary year
Our past, our future, our commitment 26 150 years of managing risk 28 open minds 32 Corporate responsibility 35 thought leadership 37 Knowledge experts 38 the swiss Re Foundation 39 our people
Our strength Building on our capital strength, expertise and innovation we enable the risk-taking upon which clients and progress in society depend.
Reinsurance is working smarter together with clients in Colombia see page 16
Admin Re® helps insurers adjust to changing conditions see page 24 2 Swiss Re 2013 Business Report
Earnings per share growth: 10% average annual growth rate over 5 years, adjusted for special dividends2 (in USD, base 2010)
Economic net worth per share growth plus dividend: 10% average annual growth rate over 5 years (in USD, base 2010)
HOW WE OPERATE Re/insurance creates stability. By managing risks and covering losses, we protect investments and enable economic growth.
MARKET FORCES A changing world of risk Longevity, climate change and threats to cybersecurity are just a few of the forces altering the risk landscape.
A resilient business model Over 150 years we have accumulated vast experience and expertise that we apply for the benefit of our clients. Alternative capital does not fundamentally challenge our business model. See page 17 of the Financial Report for our strategic view on alternative capital.
supporting growth and stability The core activities of insurance are fundamental to economic growth, and they are neither a source nor an amplifier of systemic risk. See pages 20 and 25 of the Financial Report for our view on regulatory reforms.
protecting societies We are proud of our long record of supporting generations when disaster strikes. That reliability — and the trust it has earned us — goes a long way toward explaining our durability. See page 26 for some highlights of Swiss Re’s relevance to society over the years.
profit we receive up-froNt premiums we iNvest uNtil moNey is Needed we compeNsAte for losses swiss re At A glANce | HOW WE OPERATE
I am pleased to propose these dividends in our 150th year. While the anniversary is an impressive testament to our endurance and strength, strong dividends are proof.
We have earned another very strong profit in 2013, but the business environment remains challenging. We face headwinds from a few sources, such as regulatory developments as well as the inflow of socalled alternative capital into re/insurance markets. I am confident that we have the right business model in place to withstand these pressures, but we need to watch these trends carefully, analyse what they mean for us and respond proactively.
Zurich, 20 February 2014 walter B. Kielholz Chairman of the Board of Directors w a lt e r B
In Admin Re®, we will focus on the UK market for further acquisitions of closed life books going forward. There we already have a robust platform in place to take on additional business, and thus the maximum leverage for generating operational efficiencies. We have our eyes open for suitable opportunities and remain open to raising third-party capital to fund them. We may also make use of leverage for new business funding.
We are not impervious to these forces. But in comparison to some small and medium-sized competitors, we believe we have more to offer than ‘just’ capacity. I am confident that we have an agile and flexible business model that will allow us to continue to profit in this challenging environment.
However, we need the best talent at hand. It is with regret that we say farewell to our Group Chief Financial Officer George Quinn, who has decided to pursue other opportunities from May 2014. We are grateful for the contribution George made over the last seven years. At the same time, I am pleased to announce that George can pass the baton to David Cole, our current Group Chief Risk Officer. With him, we could recruit an internal successor with the right skill profile for this key role, which underlines the quality of our own talent pool.
Board changes in 2013 The General Meeting of shareholders 2013 elected Mary Francis as a new member to the Board of Directors.
Group EC changes in 2013/2014 In December 2013 Swiss Re announced that Group Chief Financial Officer George Quinn will step down effective 30 April 2014 to pursue other professional interests. David Cole, Swiss Reʼs Group Chief Risk Officer since March 2011, has been appointed as Group Chief Financial Officer, effective 1 May 2014.
Corporate Solutions We offer innovative, high-quality insurance capacity to mid-sized and large multinational corporations.
OUR BUSINESS Swiss Re is a leader in wholesale reinsurance, insurance and risk transfer solutions. Our clients include insurance companies, corporations and public sector bodies. Our knowledge and capital strength enable the risk-taking on which economies depend.
DIVERSIFIED AND GLOBAL Net premiums earned in 2013 (Total: USD 28.8 billion)
We marked our 150th anniversary year by delivering a very strong net income for 2013. We launched our new brand, highlighting our longstanding commitment to working smarter together with our clients. Our fundamentals have not changed: by managing risks and covering losses, we protect investments and enable economic growth.
Performance Our very strong 2013 performance was supported by solid underwriting, low levels of natural catastrophe losses and reserve releases. All Business Units contributed to this excellent result, with a particularly strong performance from Property & Casualty Reinsurance and continued profitable growth from Corporate Solutions.
For details of Group financial performance, please see pages 22–23 of the 2013 Financial Report.
The environment for Life & Health Reinsurance continued to be challenging in 2013, with low yields pressuring reinvestment rates and investment income. Nevertheless the segment is strategically attractive. It is an integral part of Swiss Re’s business model and adds to the profits and diversification of the Group, enhances the value proposition to core clients and represents an attractive growth opportunity. Due to our recognised expertise, strong balance sheet, excellent track record and dedicated teams, we believe Swiss Re is the ideal partner for product development, large capital-driven transactions, longevity deals and structured solutions tailored to client needs.
“We wanted to show how our expertise could be applied directly to the challenges facing Suraʼs clients — in this case, small and medium-sized enterprises.”
Colombian insurer Sura has been a Swiss Re client for more than fifty years. And like a lot of our clients, they have gone from being a national insurer to a regional powerhouse over that period.
At Swiss Re we admire Sura’s ambition and are eager to help. In 2013 we invited them to Miami to explore ways to work together more closely. “Sura’s the market leader, but that’s not always an easy position,” says Francisco Majos, head of Swiss Re’s Colombian operations. “Achieving profitable growth becomes more and more challenging.”
Sura shared with us a far-sighted plan: to reach out to Colombia’s small and medium-sized enterprises (SMEs).
Swiss Re has a long, deep knowledge of risk and value drivers in the world economy — of international standards, productrelated exposures, natural catastrophe as well as man-made catastrophe exposures, to name a few.
The challenge is to put that knowledge into a form that Sura’s agents and Risk Management team can share with potential clients — quickly for the client, cost-efficiently for Sura.
To build long-term relationships in the SME sector, Sura needs to offer clear, simple products that match SME needs. The terms and coverages must be clear and predictable and the claims process must be clear.
01: Inside a textile factory in Colombia 02: Francisco Majos Regional Head, Swiss Re Colombia
For the online annual report see swissre.com 2013 IN REVIEW | REINSURANCE
Public entities and institutions in mature markets are also taking advantage of these solutions. Global Partnerships was able to offer a three-year programme for the Miami-Dade County Public School Districtʼs nearly USD 8 billion property programme. Such programmes provide much the same benefit to Miami-Dade officials as to the Pacific Islands — a tool for budget certainty, and an assurance of help in the event of a catastrophe.
Global Partnerships started the year by supporting the Pacific Catastrophe Risk Insurance Pilot, the first sovereign catastrophe risk transfer programme in the Asia-Pacific region. The governments of Marshall Islands, Samoa, Solomon Islands, Tonga and Vanuatu — home to almost 10 million people — are all taking part. The idea is to offer a way for these catastrophe-exposed governments to get around a difficult decision — tying up funds for an event that may not occur versus finding themselves without sufficient liquidity if disaster strikes.
left: Recovery efforts on Tonga following Cyclone Ian in January 2014.
The payment to Tonga comes less than a year since Swiss Re paid claims to the Mexicoʼs State Fund for Natural Disasters (Fonden), following the devastating hurricanes that hit that country both from the Atlantic and Pacific side. Swiss Re Global Partnerships is establishing a track record of reliability in helping governments to recover from such disasters. More nations are expected to join the Pacific Catastrophe Risk Insurance Pilot in 2014.
Offshore wind is among the most promising sources of renewable energy.
2013 IN REVIEW | corporate solutions 20 Swiss Re 2013 Business report
At the end of October Cyclone Christian generated sustained winds of over 140 kilometres per hour. The storm caused around USD 2 billion in damage and left hundreds of thousands of homeowners without power in France, Denmark, Germany and the United Kingdom.
not far off their coastlines, the operators of offshore windfarms had shut down their turbines, turning the giant blades to minimise resistance until the worst had passed. today’s windfarms generate power at windspeeds between 10 and 90 kilometres per hour. above this speed it’s safer to take the turbine offline until the wind settles.
From an insurance perspective, the underwriting is neither simple nor easy. “these facilities present very complex risks,” says Bob pfenninger, senior engineering underwriter at swiss re corporate solutions. “compared to traditional lines like motor, or even marine, there is no long history to refer to.”
corporate solutions’ offshore specialists are continually updating their understanding of these facilities and sharing that knowledge with clients and other insurers. >
a commitment to sustainable energy swiss re corporate solutions offers large capacity and world-class technical expertise to bringing renewable energy — like offshore wind — into reality and onto the grid.
01: Swiss Re Corporate Solutions’ Ursula Barnett and Bob Pfenninger in Swiss Re offices.
02: Technicians at work inside the rotor head of a wind turbine operated by E.ON.
> For example, swiss re chairs the european Wind turbine committee’s “offshore code of practice” initiative, which is developing risk management standards for offshore windfarm project risks.
in addition, swiss re employees work in a knowledge-sharing culture, and they tend to stay with the company for a long time. this bolsters a strong underwriting result even in relatively new territory, like offshore wind. that expertise is noticed by clients from a range of industries. “many of our clients take comfort in knowing that swiss re has evaluated and accepted their risks,” Bob adds. “it’s almost an endorsement.”
this careful approach was a selling point for Bernd patzwald, executive Vice president for new Build & risk engineering at e.on risk consulting GmbH. Bernd has been managing e.on’s risks for more than 20 years, now largely focusing on the direct construction and operation risks of their windfarms — a challenge for a company that’s planning to commission a new windfarm every 18 months through 2015. “swiss re corporate solutions is a
“Many of our clients take comfort in knowing that Swiss Re has evaluated and accepted their risks. It’s almost an endorsement.”
R e true partner,” says Bernd. “they ask good questions. they challenge us to take a fresh look at what we’re doing. in my line of work, that’s invaluable.”
E.ON plans to build a new offshore windfarm every 18 months through 2015.
more than 3 000 members joined Humberto in buying insurance for the 2012–2013 harvest, according to dilmar antonio peri of credicoamo. this brought the insured value to r$ 420 million.
according to Jose cullen of swiss re corporate solutions’ agricultural division, which helped to develop the policy for credicoamo, this type of insurance had never been sold in Brazil despite its success in other countries.
Beyond protecting individual farmers, such insurance programmes provide an overall support to society by enhancing the sustainability of farming, and thus food security.
it also helps my bottom line, because once Bob is satisfied, we can bring down the premium. i really appreciate the collaborative and expert approach.”
The road to sustainability there are certain to be many surprises on the road to a sustainable energy future, for operators and insurers alike. as governments shift their support from one source to another — subsidising solar one year, for example, while decommissioning nuclear the next — the economics of sustainable energy sector will continue to sway. meanwhile operators work on long investment horizons and have to reckon with this basic uncertainty. swiss re corporate solutions is committed to staying in the sector as a partner that can help operators manage these risks to get us to a sustainable energy future.
FuNdiNg loNger lives When Swiss Re was founded in 1863, a person born in the USA could expect to live for 43 years. Today US life expectancy is 79 years — almost twice as long.
results were illuminating. when asked to imagine a longer retirement, the greatest share of respondents (29.3%) said they would choose to rely on private savings and private pensions to ensure their financial security.
Yet when it came to healthcare, an even greater share saw this as the governments' responsibility — 43.4% thought all healthcare should be publicly funded and available to all.
Admin Re® acquires and administers books of life insurance that are closed to new business. The business is centred on acquiring blocks of life insurance at a discount, running them off and thereby freeing up the capital invested and generating cash for the Swiss Re Group.
there are several reasons why closed life books come to the market. regulatory changes may prompt insurance companies to rethink their capital allocation, leading some to sell parts of their closed, in-force businesses. under Basel iii regulations the insurance business may be less attractive to banks. volatile financial markets are also forcing some companies to concentrate on their core business.
Another market driver is potential growth in emerging markets. many european insurers would like to redeploy capital by selling a closed book in, for example, the uK, to reinvest the money into building up a market presence in, say, india.
Admin re® can help insurers adjust to such changing conditions by acquiring their closed or non-core in-force life insurance portfolios, allowing them to be more flexible in pursuing their strategic objectives.
Admin re® has created a dedicated uK-based service company to improve customer service, operational stability, regulatory compliance and cost efficiency. leveraging this streamlined and scalable platform, as well as its strong market presence in the uK, management remains focused on generating cash for reinvestment and paying dividends to the group.
The San Francisco earthquake strikes, and Swiss Re steps in. Almost half of the company's annual non-life premium income goes toward claims from the catastrophe, demonstrating its capital strength and consolidating its reputation worldwide.
Swiss Re signs its first contract in Japan: a fire reinsurance contract with Kobe Marine Transport & Fire Insurance (Kobe Kaijo Unso Kasai Hoken Kabushiki Kaisha).
Swiss Re pays out circa CHF 1 million for claims arising from the Spanish flu.
150 YEARS OF MANAGING RISKS Since 1863, together with our clients and partners, we’ve been learning and gathering the knowledge and expertise needed to manage diverse portfolios of risks all over the world.
Second World War and enables prisoners of war throughout the world to receive Red Cross supplies.
Swiss Re becomes one of the first companies to appoint a Chief Risk officer.
Swiss Re 2013 Business Report 27 oUR pAST, oUR FUTURe, oUR CoMMITMeNT
“Sustainable energy, funding longer lives, dealing with climate change and natural disasters, and partnering for food security are practical topics that affect all of us and that we all have a chance to affect.”
Our PaST, Our FuTurE, Our COMMiTMEnT | the risks ahead 28 Swiss re 2013 Business report
at the heart of our anniversary events lies our desire to thank our stakeholders for their loyalty and partnership, and to trigger dialogue about the risks facing today’s communities and generations beyond.
01: Bill Emmott moderating a dialogue session in London 02: Clients, brokers, other partners and Swiss re employees attend the Open Minds Forum.
> Crucially, most delegates sensed that 2050 is not as far ahead as it sounds — just 37 years, within most of their potential lifetimes. the chosen topics of sustainable energy, funding longer lives, dealing with climate change and natural disasters, and partnering for food security are also practical ones that affect all of us and that we all have a chance to affect. these days have been firmly participative: no sitting back and listening, but rather a welcome opportunity for everyone present to contribute, to come up with new ideas and to form conclusions. and to carry on the thinking and the conversation beyond the day itself.
Common themes have emerged. the importance of education to improve outcomes, and technology, to make desired outcomes possible. the need to think hard about legacy issues: revolutionary ideas in energy, or funding longevity, say, are vital if we are to leap
KalEB BElzEr Chief Development Officer, Bunge north america The Swiss re event was notable for intellectual curiosity, the breadth and depth of knowledge, and above all the genuine spirit of collaboration and mutual respect. i left the forum far better informed than when i arrived and greatly heartened by the capacity of private and public sector leaders to evaluate tough issues and propose imminently practical solutions. Well done, swiss re.
“How will we be more resilient in the future — especially as devastating events occur more and more frequently? Only collaborative thinking will take us further.“
allan Savory President of the Savory institute and Chairman of the africa Centre for Holistic Management Swiss re’s 150th anniversary gathering showed a genuine ray of light at the end of the tunnel down which humanity is accelerating. We began by focusing on four vital areas for discussion. the format encouraged full participation. two speakers zeroed in on agriculture as a grave source of vulnerability. this is something that swiss re, and the insurance industry in general, can act on starting now.
“i can’t imagine anyone left the event without a deeper appreciation of the nature of these risks and the relationships among them — along with a shot of optimism on how we’re going to address them.“
afteR Living up to our corporate responsibility hurricane sandy left a bitter impression on the City of new york. swiss Re applied its core expertise in helping to make the city more resilient.
the damage caused by hurricane sandy was enormous. over 650 000 homes were destroyed or damaged; more than eight million people lost power during the storm, of which 2.7 million were in new Jersey and 2.2 million in new york. three nuclear power stations were shut down, 19 729 flights cancelled and the new york stock exchange was closed for two days. and despite all the precautions taken, 44 people were killed in new york City, 160 people in the Us and more than 200 along sandy’s path.
Swiss Re 2013 Business Report 33 ouR paSt, ouR futuRe, ouR commitment | CoRpoRate ResponsiBility
above: part of a modular home unit is lifted into place at the site of a home destroyed by Hurricane Sandy. much of the damage has been repaired but some is still visible.
> it is against this background that swiss Re worked on behalf of the City of new york to develop a “Risk assessment for hurricane sandy” using the economics of Climate adaptation (eCa) methodology which we developed in collaboration with a range of partners. our job was to estimate the potential cost of losses to new york City from severe weather in the current climate, how they might increase in a future climate scenario and to assess how those costs could be reduced.
an eCa assessment is set up specifically for this purpose. it estimates the impact of climate change and then identifies effective measures to prevent some of the damage that would result from a natural catastrophe. We have applied the eCa methodology to more than 20 regions since 2008, from mali, to miami to maharashtra, india. these assessments have focused on a variety of perils, such as hurricanes or drought, to an equally wide range of consequences, such as to agriculture and health.
While efforts to reduce greenhouse gas emissions to combat climate change remain vital, swiss Re expects that the ability to adapt to its effects will become ever more important — and we are keen to provide communities with the means to do so.
further reading: Swiss Reʼs 2013 corporate Responsibility Report will be published in June 2014. it will be available on swissre.com/publications.
Cm sinCe 1900 full details on financial information see 2013 financial Report for information on managing climate and natural disaster risk see swissre.com 34 Swiss Re 2013 Business Report ouR paSt, ouR futuRe, ouR commitment | CoRpoRate ResponsiBility
Left: people gather along the banks of the pearl River in Guangzhou, Guangdong province, china.
But as a concentration of people and assets, new york is only becoming more common. in less than twenty years the list of ʼmegacitiesʼ like new york — meaning cities with more than 10 million inhabitants — will grow by more than half, from 23 to 37. nearly all of the worldʼs population growth over this period will take place in cities (both large and small). By 2050 75% of the worldʼs population is expected to live in cities. swiss Re is at the forefront of understanding and preparing for an urban future.
the growth of cities worldwide means increasing wealth, more industrial production and a larger workforce. all of this means growth for insurance.
the development of urban-industrial clusters will drive demand for commercial insurance. Rising levels of income and asset ownership drive strong growth in motor and homeowner insurance — a trend already well underway.
Urban lifestyles lead to more ʼurbanʼ diseases such as cardiovascular illness and lung cancer. the risk of transmission of communicable diseases is also greater in cities, where dense urban environments can give rise to pandemics. all these factors will drive growth in health insurance.
swiss Re is eager to meet the urban challenge head-on. primarily we do this by helping insurers manage their capital and risk exposure. We also work directly with public authorities in cities like new york and miami (see pages 19 and 32).
But itʼs more than just an online atlas of natural hazards. the tool distils years of historical data — the same data that underpins our natural catastrophe underwriting. Catnet® is an ideal tool to transfer our in-house expertise not only to Chief Resilience officers, but to stimulate dialogue and debate on urban resilience among the public at large.
our 2013 publication “mind the Risk” used Catnet® to identify and quantify the natural catastrophe risk facing 616 urban areas globally in human and economic terms. the report covers 1.7 billion people and about UsD 34 trillion in economic value — or approximately a quarter of the global population and half of the gross world product. as the report found and 2013 loss figures would attest, flooding
puts more people in danger than any other natural peril. the cities most exposed to natural catastrophes (in both human and economic terms) are located in asia — the region that will also account for the lionʼs share of urban growth in the decades ahead.
the time is now our work in understanding the intersection of urbanisation, resilience and risk is protecting lives and assets today. this summer Catnet® was critical in supporting our insurance partners working in flood-affected towns and cities in Canada and Central europe. they could see the extent of the flood damage and anticipate incoming claims on a real-time basis. once the storms passed, it became all the clearer what affected cities should do to mitigate the impact of flooding in the future.
“River floods could affect 380 million people living in cities today, while some 280 million people could be impacted by severe earthquakes.”
above: Severine Rion, who leads Swiss Reʼs dedicated L&H research team, at her offices in Zurich knowLedGe expeRtS: longeR, healthieR lives How long will you live? for Life & Health Reinsurance (L&H), the ability to understand and model life expectancy is at the very centre of managing risk. even small moves in the average life expectancy can cause large shifts in the costs of funding peopleʼs retirements. a one-year increase in life expectancy could raise a pension fundʼs liabilities by 5%, or uSd 50 million for every uSd 1 billion in liabilities.
ageing is not just about the length of life. We also want people to be healthier longer. the insurance industry has a key role in ensuring appropriate funding for medical services, long-term care facilities and medication.
in order to fund healthier, longer lives, it is essential that swiss Reʼs models are up-to-date, or even ahead of the curve.
in 2013, swiss Reʼs dedicated l&h research team developed different forward-looking scenarios as to how
we will manage cancer in the future. the researchers looked at potential improvements in survival rates for a range of cancers due to new “high-potential” drugs, improved diagnosis and screening techniques, and even changes in lifestyle and diet. the project drew upon swiss Reʼs own in-house expertise in oncology, medicine, nursing, pharmaceuticals, genetics, underwriting and claims, as well as insights from external experts around the world.
the teamʼs conclusions will enhance the predictive value of our life and health models, improving our understanding of the future financial responsibilities that our clients will shoulder.
R e full details on financial information see 2013 financial Report for the online annual report see swissre.com
“at SwissRe Life & Health R&d we are a global, multidisciplinary team. we collaborate with thought leaders around the world to understand both individual and population risk, as well as the interaction between risk and behaviour. our innovative research aims to predict future trends and supports the development of new re/insurance products.”
By helping people make effective long-term use of improved skills and resources, the Swiss Re foundation sets out to empower the community. its grants address social, humanitarian and environmental problems and build local capacity to face them.
engaged in the business of change the foundation supports projects that build knowledge and capacity, paving the way for change. it also partners with academic institutions and social entrepreneurs to drive research and innovation in social and risk-related challenges.
partnering for effective action all of the foundationʼs projects and activities rely on external partners. together we are working to promote sustainable ways of living that can empower the community.
further reading: more on the foundationʼs partnerships and programmes in the Swiss Re foundation in 2013
Download the Swiss Re foundation in 2013 on swissrefoundation.org 38 Swiss Re 2013 Business Report ouR paSt, ouR futuRe, ouR commitment | the sWiss Re foUnDation
ouR peopLe: sUCCess aCRoss the geneRations open minds connecting generations. this is the theme of our 150th anniversary, and it could also apply to our people management approach at Swiss Re.
open minds open minds are a minimum requirement for maintaining our competitive advantage. as a knowledge company, diverse views and opinions are one of the few reliable sources of our success. our leaders recognise this and are working to make sure those views are brought forward.
Jean-Jacques henchoz, Ceo of Reinsurance emea, won the “inspirational leader of the year” award at the 2013 european Diversity awards for this work.
this sort of expertise is not acquired overnight. however it can be transferred by matching experienced staff with new joiners — in other words, through mentoring.
one of our mentors is Daniel Jaeger, a managing Director and our head of enterprise architecture. Daniel has been a mentor to valentina Donnarumma for the last year. valentina joined swiss Re as an analyst in our group Cfo office after finishing her ma in 2012. “mentoring helps me set and meet realistic goals within the organisation,” says valentina. and what was in it for Daniel? “mentoring goes both ways: helping a graduate find her way into the organisation gives me a completely different perspective on how my behaviour and the organisation could be improved,” says Daniel.
Swiss Re 2013 Business Report 39 ouR paSt, ouR futuRe, ouR commitment | oUR people
Swiss̤Re’s̤clients̤and̤other̤ counterparties,̤such̤as̤bankruptcies,̤ liquidations̤and̤other̤credit-related̤ events; Certain̤statements̤and̤illustrations̤ contained̤herein̤are̤forward-looking.̤ These̤statements̤(including̤as̤to̤plans,̤ objectives,̤targets̤and̤trends)̤and̤ illustrations̤provide̤current̤ expectations̤of̤future̤events̤based̤on̤ certain̤assumptions̤and̤include̤any̤ statement̤that̤does̤not̤directly̤relate̤to̤ a̤historical̤fact̤or̤current̤fact.
financial̤system̤and̤developments̤ related̤thereto; ̤̤ deterioration̤in̤global̤economic̤ conditions; ̤̤ Swiss̤Re’s̤ability̤to̤maintain̤ sufficient̤liquidity̤and̤access̤to̤ capital̤markets,̤including̤sufficient̤ liquidity̤to̤cover̤potential̤recapture̤ of̤reinsurance̤agreements,̤early̤ calls̤of̤debt̤or̤debt-like̤ arrangements̤and̤collateral̤calls̤due̤ to̤actual̤or̤perceived̤deterioration̤of̤ Swiss̤Re’s̤financial̤strength̤or̤ otherwise; ̤̤ the̤effect̤of̤market̤conditions,̤ including̤the̤global̤equity̤and̤credit̤ markets,̤and̤the̤level̤and̤volatility̤of̤ equity̤prices,̤interest̤rates,̤credit̤ spreads,̤currency̤values̤and̤other̤ market̤indices,̤on̤Swiss̤Re’s̤ investment̤assets; ̤̤ current,̤pending̤and̤future̤ legislation̤and̤regulation̤affecting̤ Swiss̤Re̤or̤its̤ceding̤companies̤ and̤the̤interpretation̤of̤legislation̤or̤ regulations; ̤̤ legal̤actions̤or̤regulatory̤ investigations̤or̤actions,̤including̤ those̤in̤respect̤of̤industry̤ requirements̤or̤business̤conduct̤ rules̤of̤general̤applicability; ̤̤ changes̤in̤accounting̤standards; ̤̤ significant̤investments,̤acquisitions̤
These̤factors̤are̤not̤exhaustive.̤ Swiss̤Re̤operates̤in̤a̤continually̤ changing̤environment̤and̤new̤risks̤ emerge̤continually.̤Readers̤are̤ cautioned̤not̤to̤place̤undue̤reliance̤ on̤forward-looking̤statements.̤ Swiss̤Re̤undertakes̤no̤obligation̤to̤ publicly̤revise̤or̤update̤any̤forwardlooking ̤statements,̤whether̤as̤a̤result̤ of̤new̤information,̤future̤events̤or̤ otherwise.
Calabasas 26050̤MureaṳRoad̤ Calabasas,̤CA̤91302̤̤ Telephone̤+1̤818̤878̤9500 são Paulo Avenida̤Paulista,̤500̤ Bela̤Vista̤ São̤Paulo,̤SP̤01310-000̤ Telephone̤+55̤11̤3371̤6570 europe (incl. middle east and africa)
Head office Swiss̤Re̤Ltd̤ Mythenquai̤50/60,̤P.O.̤Box,̤̤ 8022̤Zurich,̤Switzerland̤ Telephone̤+41̤43̤285̤2121 investor relations Telephone̤+41̤43̤285̤4444̤ Fax̤+41̤43̤282̤4444̤ investor_relations@swissre.com media relations Telephone̤+41̤43̤285̤7171̤ Fax̤+41̤43̤282̤7171̤ media_relations@swissre.com share register Telephone̤+41̤43̤285̤6810̤ Fax̤+41̤43̤282̤6810̤ share_register@swissre.com
Photography:̤̤ Getty̤Images̤(pgs̤1/02,03,04,05,̤14/02,03,̤ 04,̤17,̤18/01,̤19,̤20,̤22/02,̤23–25,̤32–36)̤̤ Geri̤Krischker̤(pgs̤1/01,̤7,̤9,̤10,̤11,̤37/02)̤ National̤Archives̤(165-WW-269B-25)̤(pg̤26/03)̤ Stiftung̤Swiss̤Ships̤(pg̤26/04)̤ Swiss̤Re̤(cover,̤pgs̤1/05,̤14/01,̤18/02,̤26/01,̤̤ 02,̤27/01–06,̤28–31)̤̤ Swiss̤Red̤Cross̤(pg̤38)̤ ©̤Victoria̤and̤Albert̤Museum,̤London̤̤ (pgs̤26̤–̤27̤(background))̤̤ Andy̤Wilson̤(pg̤22/01,̤39̤01/02)
Combined ratio in % 80.7 83.3 return on equity1 in % 26.7 26.4
aa− stable aa3 stable a+ stable 4.15 Proposed special dividend per share for 2013 (CHf)*
Risk and capital management 42 overview 44 capital management 47 economic Value Management 49 liquidity management 50 Risk management 52 Risk assessment
Corporate governance 64 overview 66 Group structure and shareholders 69 capital structure 72 Board of Directors 86 executive management 92 shareholders’ participation rights 93 changes of control and defence measures 94 auditors 96 Information policy
Corporate responsibility 100 Governance and reporting 100 sustainable business 101 our carbon footprint 103 our employees
Compensation 106 Report from the compensation committee 107 compensation context and highlights in 2013 109 compensation governance 113 compensation framework 120 compensation decisions in 2013
Financial statements 130 Group financial statements 138 notes to the Group financial statements 232 Report of the statutory auditor 234 Group financial years 2004–2013 236 swiss Re ltd
Admin Re® Admin Re® provides risk and capital management solutions by which Swiss Re acquires closed books of in-force life and health insurance business, entire lines of business, or the entire capital stock of life insurance companies. Admin Re® solutions help clients free up capital to redeploy to new business opportunities while reducing administrative burdens.
Our emphasis The organisation has settled well into the new Group structure created in 2011 with three distinct Business Units: Reinsurance, Corporate Solutions and Admin Re®. Higher transparency and higher accountability drive a positive business culture and allow for agility and flexibility. The Group’s principal goal is to ensure optimal capital and resource allocation across diversified insurance risks and businesses in order to maximise shareholder value.
Reinsurance is working smarter together with clients in Colombia see page 16 of the 2013 Business Report
Corporate Solutions supports sustainable energy see page 20 of the 2013 Business Report
Admin Re® helps insurers adjust to changing conditions see page 24 of the 2013 Business Report 2 Swiss Re 2013 Financial Report
About these targets The 2011–2015 financial targets remain our top priority. In 2013 we continued to make good progress toward achieving them. We are well ahead of schedule on our return on equity, our earnings per share and our economic net worth per share targets.
The Group continues to be an industry leader in underwriting quality. In Property & Casualty Reinsurance, working smarter
MARKET FORCES A changing world of risk Longevity, climate change, and threats to cybersecurity are just a few of the forces altering the risk landscape.
supporting growth and stability The core activities of insurance are fundamental to economic growth, and they are neither a source nor an amplifier of systemic risk. See pages 20 and 25 for our view on regulatory reforms.
Over 2013 our strategy remained unchanged. The point was execution. Execution led foremost to our excellent net income, led by another very strong performance by Property & Casualty Reinsurance with a 2013 net income of USD 3.3 billion. Corporate Solutions delivered continued profitable growth with a profit of USD 279 million. Admin Re® added USD 423 million to the Group result. Net income for Life & Health Reinsurance was USD 356 million.
We also executed against our two capital and asset management goals published at our Investorsʼ Day in June 2013. The first was to reduce our debt by USD 4 billion by 2016, thereby increasing return on equity and earnings per share. Here we are well ahead of schedule. The second was to rebalance our assets so that we invest in a greater share of high-quality credit and equities. This goal was achieved.
Meanwhile low interest rates have played a large role in driving pension funds, hedge funds and others toward reinsurance, where returns are perceived to be comparatively high and not correlated to other assets, while barriers to entry remain low. This inflow of so-called alternative capital intensifies competition and increases pressure on our industryʼs profit margins.
SwiSS Re at a glance | STATEMENT FROM THE GROUP CEO
̤ 63% EMEA ̤ 26% Americas ̤ 11% Asia-Pacific 1 as of 31 December 2013
Global economy US growth was restrained by tax increases and spending cuts, but even so, the economy remained resilient. the eurozone emerged from recession in the second quarter but growth was fragile. Some member states remained in recession with tight fiscal and credit conditions and deleveraging of the private sector weighing on economic activity. the Japanese economy gained momentum helped by expansionary fiscal and monetary policies which weakened the yen (see economic indicators table on page 15). the Uk economy also faced fiscal headwinds but managed to accelerate nonetheless.
Global growth remained moderate in 2013. Benchmark government bond yields increased from very low levels while stock markets performed well.
Source: Datastream interest rates Monetary policy remained highly accommodative through 2013. the european central Bank (ecB) lowered its benchmark rate twice to reach 0.25%. the Fed and the Bank of england (Boe) kept interest rates unchanged while attempting to steer expectations by providing guidance on their expectations of the future rate path. Meanwhile, the Bank of Japan (BoJ), in an effort to increase inflation to 2% by 2015, announced a doubling of the monetary base by March 2015.
Bank of Japan consumer price index inflation target 10-year US government bond yield (2012: 1.75%)
Currency movements the BoJ’s accommodative monetary stance also prompted a continued weakening of the Japanese yen, particularly during the first few months of the year. the yen ended the year down 17% versus the US dollar. Other foreign exchange moves were less pronounced. the US dollar strengthened a little against other key currencies in the first half of the year but reversed those gains in the second half. It ended the year 2%–4% weaker versus the Uk pound, the euro and the Swiss franc.
Global marine and aviation insurance premiums have roughly doubled over the past decade, reaching an estimated USD 44 billion in 2012. these premiums are projected to expand on average by 4% to 5.5% per year over the next decade.
Overall non-life insurance profitability remains subdued by historical standards. the return on equity (Roe) for the main non-life markets is estimated to have been about 7% in 2013, only slightly better than 2012 and well short of the industry’s cost of capital.
Primary non-life develop their understanding of marine and airline risks, especially with regard to accumulated losses from the same event.
Insurers are also innovating on the product side by offering new or amended types of cover, as well as novel product features. Swiss Re corporate Solutions is promoting aviation safety by discounting insurance for airlines that implement flight training and comprehensive threat mitigation strategies. Room for further technology enhancements is ample (eg, in tracking 16 Swiss Re 2013 Financial Report
the reinsurance industry’s capital base remains strong. any contraction from markto -market losses on fixed income securities and dividend payments was largely offset by retained earnings. So-called “alternative capacity” continued to grow, reaching a total of about USD 45 billion at the end of 2013, representing roughly 11% of the global property catastrophe reinsurance market (see box below).
Outlook Significant pressure on reinsurance pricing and rising retentions of primary insurers were evident at the January 2014 renewals. accordingly, premium growth is expected to slow down and, assuming average catastrophe losses, the reinsurance sector’s overall combined ratio is expected to rise to around 95% in 2014. the industry Roe will trend toward 9%.
alternative capital operates in commoditised markets and we believe it does not fundamentally threaten Swiss Re’s business model. Swiss Re is a knowledge company that offers tailored solutions, as well as a long track record of partnership and reliability to our clients.
Market overview the global life insurance industry generated about USD 2 700 billion in premium income in 2013, of which 16% came from emerging markets. about 85% of premium income in life insurance derives from savings and retirement products, while the protection business, which covers mortality and morbidity risks, accounts for about 15%.
Savings and retirement product demand was weak this year, due to a combination of constrained consumer spending, price increases and reduced product guarantees.
Outlook Premium income is expected to grow through 2014 in both advanced and emerging markets. the medium-term outlook will remain challenging for those advanced economies exposed to slow economic growth, low interest rates, volatile financial markets and regulatory change. In emerging markets, premium growth is expected to be over 8%, thanks to robust sales of savings products, particularly in asia and Latin america.
the relatively higher cost of living in urban areas should lead to higher demand for protection products. Better education and financial literacy associated with cities means more urban dwellers will be able to take advantage of complex insurance/ saving products such as wealth accumulation (eg, unit-linked insurance) or wealth distribution products (eg, annuities). the higher participation rate of women in the workforce further
Market overview Global life reinsurance premiums were around USD 55 billion in 2013, 70% of which originated in the US, canada and the Uk. ceding companies from emerging markets accounted for 6% of global demand. Life reinsurers are increasingly diversifying away from traditional mortality business.
It is important to highlight that this would not impact an economic balance sheet with fully matched assets and liabilities. However, under accounting regimes with book value liabilities (eg, US GaaP), a fairly small loss on the bond portfolio can mean a significant reduction in accounting shareholders’ equity.
Strongly capitalised life reinsurers can offer solutions to cope with stressed accounting balance sheets as we work through the legacy of low interest rates.
in July 2013, the international Association of insurance Supervisors (iAiS) and Financial Stability Board (FSB) announced a list of nine primary insurance groups considered global systemically important insurers (G-Siis). The designation of reinsurers has been delayed to July 2014.
the initiative to identify and designate global systemically important financial institutions (G-SIFIs) is led by the FSB under the authority of the G20. the FSB designates financial institutions that it considers to be large, complex and interconnected enough to disrupt the global financial system if they came into financial distress.
Highlights of iAiS policy measures for global systemically important insurers (G-Siis): enhanced supervision effective resolution Higher loss absorption (HlA)
̤ new entrants in primary insurance will offer substantial partnership opportunities. telecommunications and technology companies are already starting to enter primary insurance markets. these new entrants have access to a large customer base and interact with their customers frequently. Swiss Re is watching developments in this area and discussing strategic opportunities.
Going forward and taking these major strategic themes into account, we aim to apply our strong combination of capital, knowledge and brand to be the leading player across diversified re/insurance risks and businesses.
In this context we have identified a series of important developments affecting the re/insurance world that are likely to influence our strategy over the mid-term.
corporate Solutions delivered net income of USD 279 million compared to USD 196 million in 2012. 2013 reflected continued profitable growth.
admin Re® reported net income of USD 423 million compared to USD 183 million in 2012. the 2013 result was due to a better investment performance and the positive effect of changes in Uk tax. the 2012 result included a USD 399 million loss relating to the sale of the admin Re® US business.
Return on investments was 3.6%, compared to 4.0% for 2012, with the difference mainly attributable to lower realised gains in the current year.
Shareholders’ equity decreased to USD 33.0 billion at the end of 2013 from USD 34.0 billion at the end of 2012 reflecting the ordinary and special dividends to shareholders and unrealised losses on investments driven by increasing interest rates, partially offset by the strong net income for the year. Return on equity was 13.7% for 2013 compared to 13.4% for 2012.
Book value per common share decreased to USD 93.08 or cHF 82.76 at the end of 2013, compared to USD 95.87 or cHF 87.76 at the end of 2012. Book value per common share is based on common shareholders’ equity and excludes non-controlling interests and the impact of contingent capital instruments.
̤ 50% P & c Reinsurance ̤ 35% L & H Reinsurance ̤ 10% corporate Solutions ̤ 5% admin Re®
the Group’s non-participating net investment income decreased to USD 3.9 billion, compared to USD 4.5 billion in 2012, largely driven by the impact of the sale of the admin Re® US business in 2012. the Group running yield was 3.2% in 2013, in line with the prior year.
the Property & casualty Reinsurance combined ratio was 83.3% compared to 80.7% in 2012. the ratio increased due to higher man-made losses and lower net reserve releases from prior years.
the corporate Solutions combined ratio for 2013 was 95.1% compared to 96.2% in 2012, mainly driven by continued profitable growth across most lines of business and lower natural catastrophe losses. Both periods benefited from positive prior-year development.
Life & Health Reinsurance benefits increased 19% to USD 8.1 billion over 2012 reflecting higher business volumes, the impact of business recaptured in the first quarter of 2013 and reserve strengthening for australian group disability business. the operating margin was 5.2% in 2013 compared to 8.6% for 2012, and the decrease was primarily due to the items mentioned above.
the Group reported a tax expense of USD 312 million on a pre-tax income of USD 4.8 billion in 2013, compared to an expense of USD 1.1 billion on a pre-tax income of USD 5.5 billion for 2012. this translates into an effective tax rate in the current and prior-year reporting periods of 6.5% and 20.4%, respectively. the particularly low effective tax rate in the current year mainly reflects the conclusion of audits, rulings and revised tax opinions and the enactment of lower tax rates and the transition to a new tax regime in the Uk.
Strategy Swiss Re continued to move its asset allocation in 2013 within its mid-term plan, in line with an economic outlook of improving but moderate global growth. the now completed portfolio re-balancing mainly saw additions of higher quality credit exposure and, to a lesser extent, allocation to listed equities. Swiss Re also established a short duration position in anticipation of higher interest rates. the net impact was a reduction in government bonds and an increase in corporate bonds, where we are now close to the upper end of the mid-term plan’s range. the equity allocation also increased, including the contribution from Principal Investments. Principal Investments is managed in line with Swiss Re’s high growth markets strategy and the mid-term plan.
Financial markets overview for 2013 Systemic risks receded in 2013 in part due to the continued accommodative stance of central banks. the Bank of Japan introduced inflation targeting and a “US Fed-style” quantitative monetary easing. Positive steps were also taken in europe with progress on the eU banking union front. Starting from the second quarter, policies and politics were the key market drivers, ranging from elections in Italy and Germany to the bailout of cyprus, the debt ceiling debate, expectations of “tapering” of asset purchases in the US and reform announcements in china. Market risk appetite generally improved over 2013, as US growth continued to recover and the euro area exited recession in the third quarter. Despite the concern of a “hard landing” in mid-year, china’s growth remained stable at around 7.5% in 2013.
equities in developed markets were the best performers in 2013, helped by a moderate growth recovery and abundant liquidity. Meanwhile, volatility in the US treasury market picked up. Having reached a low of 1.63% in May, US 10-year treasury yields rose to a high of 3% in September due to “tapering” expectations of asset purchases in the US. credit spreads also widened in the second quarter before falling again to offset some of the rise in US treasury yields.
investment result the size of the Group’s investment portfolio, excluding unit-linked and withprofit investments, decreased to USD 130.1 billion at the end of December 2013 compared to USD 137.4 billion at the end of December 2012. the decrease was largely due to a reduction in unrealised gains stemming from higher interest rates, the effect of which was partially offset by the impact of tighter credit spreads and rising equity values in 2013.
the Group’s non-participating net investment income decreased to USD 3.9 billion in 2013 compared to USD 4.5 billion in 2012, mostly driven by the impact of the sale of the admin Re® US business in 2012. the re-balancing of the investment portfolio across the Group helped offset the overall impact of lower reinvestment rates. On a full-year basis, the Group running yield of 3.2% was in line with 2012.
the Group reported non-participating net realised investment gains of USD 766 million in 2013, mainly as a result of gains from the sale of investments related to the re-balancing of the investment portfolio as well as from active management of the listed equity portfolio. this compares to USD 947 million in 2012, which included significantly higher realised gains in the investment portfolio offset by losses related to the sale of the admin Re® US business.
Long-term investors are important to the global economic recovery, especially in an environment of high public deficits and volatile financial markets. the re/insurance sector is well-suited to take part in that recovery given its business model and liability structure as well as its USD 24 trillion in assets in the OecD (see chart 1).
Infrastructure loans/debt meet several institutional investor needs, such as regular cash flows, attractive risk-adjusted yields, and generally lower default risk beyond the construction phase. the high credit quality of infrastructure debt has been largely demonstrated in the Moody’s report on infrastructure default and recovery rates1.
– Investment funds – Insurance companies – Pension funds – Other Source: G20/OecD, 2013
Chart 1: Total assets by institutional investors in the OeCD (in USD trn)
Source: Swiss Re, Mckinsey, Dealogic, IMF, OecD, aSce. Global infrastructure spending expected to grow at 3% p.a. to reach total of USD 60trn through 2030 total USD 2.6trn total USD 4.3trn actual infrastructure spending (est. 2013)
̤ RoW ̤ asia & Pacific ̤ north america ̤ eU
total shareholders’ equity as of 1 January 29 590 34 002 15 net income attributable to common shareholders 4 201 4 444 6 change in unrealised gains/losses on securities, net 184 –2 785 – change in other-than-temporary impairment, net of tax 90 22 –76 change in foreign currency translation 332 –288 –
contingent capital instruments 1 102 0 – Purchase/sale of treasury shares and shares issued under employee plans –11 –102 – Other changes in equity –352 419 – Total shareholders’ equity as of 31 December 34 002 32 952 –3 non-controlling interests 24 25 4 Total equity as of 31 December 34 026 32 977 –3 income statement USD millions 2012 2013 change in %
Income attributable to non-controlling interests –141 –2 –99 net income after attribution of non-controlling interests 4 257 4 511 6
Policy loans, mortgages and other loans 2 299 2 895 26 Investment real estate 777 825 6 Short-term investments, at amortised cost which approximates fair value 18 645 20 989 13
Investments for unit-linked and with-profit business 25 501 27 215 7 cash and cash equivalents 10 837 8 072 –26
Income taxes payable 604 660 9 Deferred and other non-current taxes 9 442 8 242 –13 accrued expenses and other liabilities 11 617 8 152 –30 non-controlling interests 24 25 4
life & Health the environment for Life & Health Reinsurance (L&H) continued to be challenging in 2013, with low yields pressuring reinvestment rates and investment income. In addition, clients in mature markets are retaining more protection risks due to the diversification benefits recognised in economic solvency models. Most in-force portfolios are performing in line with or above expectations, although the performance of a few in-force books — in particular US pre-2004 individual life business and australia group disability income portfolios — has negatively impacted US GaaP profits and Roe. Management is committed to improving the performance of these portfolios and (combined with other initiatives on asset and capital management) to delivering 10%–12% Roe by 2015.
L&H saw increased underlying demand in high growth markets in 2013, particularly in health. there were also a number of important large transactions in developed markets. One example of Swiss Re’s expertise in health was a very large inforce transaction with a major client. this was won thanks to an extraordinary effort of a highly dedicated team of Swiss Re experts across four countries and three continents. this deal is expected to contribute substantially to our revenues and earnings for many years.
Outlook We believe that we are well positioned to capture the market opportunities ahead of us. We expect that our capitalisation will allow for continued business growth and the payment of dividends to the holding company.
We expect natural catastrophe business to grow globally. Despite an increase in alternative capacity, particularly in the US, we believe we will continue to achieve attractive returns on the property business we write. We also see growth opportunities in casualty. In L&H we will continue to actively manage our in-force book to increase profitability and develop new solutions to grow in both mature and developing markets.
the underwriting result for 2013 increased by 2% largely due to better than expected natural catastrophe experience, as well as increased premium volume, partially offset by higher acquisition costs, largely due to the expiry of a major quota share retrocession agreement at the end of 2012 and increased expenses.
net premiums earned net premiums earned increased 18.0% to USD 14.5 billion in 2013, compared to USD 12.3 billion in 2012, mainly driven by the expiry of the quota share retrocession agreement and new business written in the americas.
the composition of gross premiums earned by region only changed slightly year on year, with the americas having a higher share of premiums in 2013 compared to 2012.
Based on gross premiums written before intra-group retrocession, the share of proportional business remained unchanged compared to 2012 at 61%.
Specialty lines the specialty combined ratio increased to 74.5% in 2013, compared to 68.0% in 2012, mainly due to large man-made losses in marine and less favourable prior-year developments.
lines of business Property the property combined ratio improved to 71.8% in 2013, compared to 74.2% in 2012. Both periods benefited from benign natural catastrophe loss experience and favourable prior-year claims experience. 2013 included further positive development on Hurricane Sandy (2012) and on the floods in thailand (2011).
Total expenses before interest expenses –9 947 –12 117 22 net realised investment gains/losses 259 184 –29 Other revenues 95 61 –36 Interest expenses –111 –207 86 income before income tax expenses 4 076 3 561 –13 Income tax expense –934 –249 –73 Income attributable to non-controlling interests –134 –1 –99 Interest on contingent capital instruments –18 –19 6 net income attributable to common shareholders 2 990 3 292 10 claims ratio in % 51.2 54.2 expense ratio in % 29.5 29.1 combined ratio in % 80.7 83.3 30 Swiss Re 2013 Financial Report
Premiums earned by line of business, 2013 (total USD 14.5 billion)
the Regional & national (R&n) client segment, comprised of insurers that focus on a specific geography or niche, has long been the bedrock of the P&c portfolio. the large number of comparably smaller companies within our R&n client portfolio provides us with a buffer from the volatility inherent in the reinsurance industry. additionally, the diversity of clients and their needs means we can provide innovative solutions and further build competitive advantage.
the R&n segment also plays an important role in our growth aspirations. Opportunity is significant in all geographies, with the US standing out as the largest R&n market. Growth will be driven by deepening relationships with existing clients and increasing opportunities for transactions with new clients.
Operating income is calculated as a net of total revenues (before non-participating realised gains/losses) and total expenses before interest expenses.
Premiums earned and fee income Premiums earned and fee income increased 9.9% to USD 10.0 billion for 2013, compared to USD 9.1 billion for 2012. the increase was primarily driven by the business recaptured in the first quarter of 2013, rate increases in the yearly-renewable term business in the US and higher health premiums in europe and asia, including a new large health transaction in asia.
Operating margin the operating margin was 5.2% for 2013 compared to 8.6% for 2012. the decrease was primarily due to reserve strengthening for the australian group disability business and the adverse performance of the US individual life business recaptured in the first quarter of 2013.
Operating income for the Health segment declined 55.1% to USD 211 million for 2013, compared to USD 470 million for 2012. this was primarily driven by the reserve strengthening in the australian group disability business, partially offset by less unfavourable morbidity experience in 2013.
expense ratio the management expense ratio increased marginally to 8.3%, compared to 7.9% in 2012, reflecting higher expenses for growth initiatives.
lines of business Operating income for the Life segment declined 8.2% to USD 381 million for 2013, compared to an income of USD 415 million in 2012. the lower result in 2013 was driven primarily by the business recaptured in the first quarter of 2013 and by mortality experience which was less favourable than expected in 2013 as compared to 2012. this was mostly offset by year-on-year favourable experience on variable annuities and the pre-2004 GMDB business, the positive impact from recaptures in europe and the gradually improving but still unfavourable pre-2004 US individual life results.
Life & Health life & Health results USD millions 2012 2013 change in %
Investment-related net realised gains were USD 386 million in 2013, mainly from mark-to-market gains on hedging positions and favourable movements in foreign exchange remeasurement. this compared to USD 709 million in 2012.
Shareholders’ equity Return on equity was 5.4% for 2013 compared to 8.9% in 2012.
Shareholders’ equity declined to USD 6.2 billion as of 31 December 2013 from USD 8.3 billion as of 31 December 2012, mainly due to dividends of USD 966 million being paid to Group and a USD 1.4 billion increase in unrealised losses on available for sale securities, partially offset by net income.
Swiss Re is working closely with local and global insurers to develop affordable solutions to help minimise the gap for everyone, from the affluent to those below the poverty line. Product innovation is one way to address the issue. technology solutions such as Magnum, our automated underwriting engine, can also help. In high growth markets, both reinsurance and local market expertise are crucial to building sustainable insurance markets. Swiss Re is committed to investing in and developing local talent in order to allow these markets to thrive.
Strategy and priorities corporate Solutions’ strategy is to serve mid-sized and large corporations as a lean global player. the product offerings range from traditional property and casualty insurance to highly customised solutions tailored to the needs of clients globally. By executing this strategy, corporate Solutions aims to increase its gross written premium net of intra-group transactions from USD 2.4 billion in 2010 to USD 4–5 billion by 2015 with a return on equity between 10% and 15%.
the unique value proposition of corporate Solutions continues to be the combination of large net capacity and innovation capabilities, underpinned by disciplined cycle management and superior underwriting. the Business Unit aims to leverage its value proposition and bring itself closer to clients by expanding its business, organically and inorganically, into new countries, as well as by growing its portfolio in those countries where it is already present with a broader product offering.
reflecting continued profitable growth over the year and slightly lower than expected natural catastrophe losses in 2013, compared to higher than normal losses in 2012 including Hurricane Sandy.
net premiums earned net premiums earned increased by 27.9% to USD 2.9 billion in 2013 compared to USD 2.3 billion in 2012, driven by successful organic growth across most lines of business and the expiry of a major quota share retrocession agreement at the end of 2012. Gross premiums written of USD 3.6 billion, net of intra-group transactions, are on track to reach USD 4–5 billion by 2015.
Revenues net investment income 109 98 –10 net realised investment gains 142 150 6 expenses claims and claim adjustment expenses –1 448 –1 773 22 acquisition costs –300 –406 35 Other expenses –449 –601 34 Interest expenses 0 –1 –
investment result the return on investments for 2013 was 2.4%, compared to 3.2% in 2012, reflecting a reduction in the investment result of USD 38 million, mainly driven by unfavourable movements in foreign exchange from the strengthening of the US dollar in 2013. excluding the effect of foreign exchange remeasurement, the investment result was generally in line with 2012 as the re-balancing of the investment portfolio helped offset the impact of lower overall reinvestment rates.
Investment-related net investment income decreased by USD 6 million to USD 111 million in 2013, mainly due to higher investment expenses, partially offset by the re-balancing of the investment portfolio.
Return on equity Return on equity was 9.6% in 2013, compared to 7.4% in 2012. Shareholders’ equity decreased slightly to USD 2.8 billion in 2013, primarily due to a USD 489 million dividend to the Group.
Outlook Pricing trends for commercial insurance are moderately softening with only a few pockets showing increases. Differences in quality between geographies and types of business exist. corporate Solutions continues to believe it is well positioned to capture opportunities thanks to its value proposition, strong balance sheet and expanding geographic reach.
at corporate Solutions, we offer a range of products that have a special relevance for corporations operating in HGMs including natural catastrophe cover, agriculture, infrastructure and credit and surety. In addition, we also promote public-private partnerships, whereby innovative risk-transfer and other insurance-based solutions provide immediate financial relief. Governments in HGMs are increasingly integrating such solutions in their risk mitigation plans, as in Mexico, where we provide protection against natural disaster risk.
Strategy and priorities admin Re® aims to enhance business profitability by applying a three-pronged strategy to leverage its core competencies of selective growth, value extraction and operational excellence.
Performance admin Re® generated gross cash of USD 521 million, significantly higher than the USD 392 million generated in 2012 (net of the USD 804 million relating to the sale of the admin Re® US business).
admin Re® reported net income of USD 423 million in 2013 compared with USD 183 million in 2012. the 2013 result included realised gains following the re-balancing of the investment portfolio, favourable Uk tax impacts driven by a reduction in the corporation tax rate and favourable investment market movements in the Uk. the 2012 figure included a
Overall investment-related net investment income decreased by USD 345 million to USD 889 million in 2013, primarily due to lower income following the sale of the admin Re® US business, partially offset by the impact of portfolio re-balancing.
expenses administrative expenses decreased by USD 16 million to USD 441 million in 2013, primarily driven by lower costs following the sale of the admin Re® US business, partly offset by one-off transaction-related costs incurred in 2013.
investment result the return on investments for 2013 was 5.1%, compared to 4.9% in 2012. as the portfolio is primarily comprised of fixed income assets, the result for 2013 was driven by net investment income on corporate and government bonds. Re-balancing of the portfolio from government bonds to corporate bonds also led to realised gains, which contributed positively to the return on investments.
Revenues Premiums earned 992 844 –15 Fee income from policyholders 713 486 –32 net investment income – non-participating 1 548 1 180 –24 net realised investment gains/losses – non-participating –89 201 – net investment result – unit-linked and with-profit 2 348 3 098 32 Other revenues 3 1 –67 expenses Life and health benefits –2 086 –1 506 –28 Return credited to policyholders –2 688 –3 392 26 acquisition costs –142 –30 –79 Other expenses –457 –441 –4 Interest expenses –53 –46 –13 income before income tax benefit 89 395 – Income tax benefit 101 28 –72 Income attributable to non-controlling interests –7 0 – net income attributable to common shareholders 183 423 131 36 Swiss Re 2013 Financial Report
Swiss Re shares Swiss Re had a market capitalisation of cHF 30.4 billion on 31 December 2013, with 370.7 million shares outstanding, of which 342.2 million are entitled to dividends. Swiss Re shares are listed in accordance with the main standard on the SIX Swiss exchange (SIX) and are traded under the ticker symbol SRen. the shares are also traded over the counter as part of an american Depositary Receipt (aDR) level I programme (Otc symbol SSReY).
Share price performance Swiss Re shares opened the year at cHF 65.90. On 24 June 2013 the shares experienced an intra-day low of cHF 66.10. an intra-day high of cHF 84.75 was achieved on 11 november 2013. the year-end share price was cHF 82.05.
Weighting in indices as of 31 December 2013 Index weight (in %)
Sustainability indices Dow Jones Sustainability europe 0.67 Dow Jones Sustainability World 0.33 FtSe4Good Global 0.21 MScI Global climate 1.02 38 Swiss Re 2013 Financial Report
Swiss Re share price and trading volume in 2013 Volume in millionsClosing price in CHF
Swiss Re 2013 Financial Report 41 42 Overview 44 capital management 47 economic Value management 49 liquidity management 50 Risk management 52 Risk assessment
liquidity our core insurance and reinsurance operations generate liquidity primarily through premium income. our 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 Group.
Risk management Swiss Re’s Risk Management function forms an integral part of our business model. Risk Management is involved in all of Swiss Re’s risk-taking activities and is mandated to support both the Group and the Business units. Risk Management is embedded throughout our business, through dedicated risk functions and chief Risk officers for each Business unit. each of them has a duty to analyse and challenge business decisions; their independence is maintained by a direct reporting line to the Group chief Risk officer. they apply a consistent enterprise Risk Management approach to ensure a fully integrated view of risk, thus sustaining long-term stability and growth.
Regulation the regulatory agenda continued to accelerate in 2013. Swiss Re remains actively engaged in regulatory discussions and is well prepared to implement new regulatory requirements such as Solvency II, capital market reforms, the own Risk and Solvency Assessment and group supervision that are approaching implementation in most markets.
Optimising the capital structure Swiss Re’s level of capitalisation and its capital structure are driven by regulatory and rating capital requirements, and management’s view of risks and opportunities arising from our underwriting and investing activities. As announced at the June 2013 Investor’s day, we continue to implement a target capital structure that aims to operate efficiently within these constraints by maximising financial flexibility. the implementation of the target capital structure focuses on the reduction of senior leverage, including Locs, and the
issuance of contingent capital to replace traditional subordinated debt. these actions are expected to reduce total leverage by more than uSd 4 billion by the end of 2016, while increasing returns to shareholders by improving Roe and earnings per share.
contingent capital Swiss Reinsurance company Ltd issued two contingent capital instruments in 2013. these incorporate a full write-off of principal upon the occurrence of specified triggers. the first instrument, issued in March, has a face value of uSd 750 million. Principal is written off if the issuer’s SSt ratio falls below 125%. the second, issued in october, has a face value of cHF 175 million and principal is written off if the issuer’s SSt ratio falls below 135%, or an Atlantic hurricane causes insured industry losses above those of a 1-in-200 year event (subject to an annual reset assessment to adjust for changes in insured values while neutralising any impact due to model changes). these instruments are structured to qualify for regulatory capital credit and thus increase the Group’s capital resources and flexibility.
contingent — — target capital structure expected to reduce leverage by more than USd 4 billion by 2016e
• Senior leverage plus lOc target range2 =15%–25% (Ye 2012: 32%) • Subordinated leverage ratio target range3 =15%–25% (Ye 2012: 14%)
2016e target capital structure and how we plan to achieve it capital Structure Ye 2012 target capital Structure Ye 2016e 1 core capital of Swiss Re Group is defined as economic net Worth (enW) 2 Senior debt plus Locs divided by total capital 3 Subordinated debt divided by sum of subordinated debt and enW
Swiss Re groupʼs capital adequacy Regulatory capital requirements Swiss Re is supervised at Group level and for its regulated legal entities domiciled in Switzerland by the Swiss Financial Market Supervisory Authority (FInMA). FInMA supervision comprises minimum solvency requirements, along with a wide range of qualitative assessments and governance standards.
Swiss Re’s capital adequacy Swiss Re holds excess capital under all relevant capital adequacy requirements such as the SSt (see chart), Solvency I and Standard & Poor’s AA rating.
SSt target capital reflects a 12-month forward-looking view. 2 SSt 2/2013 as filed with FInMA at the end of october 2013, consolidated Group view based on a projection for mid-2013 to mid-2014. the impact of March 2013 uSd 750 million and october 2013 cHF 175 million subordinated contingent write-off securities are not reflected in SSt 2/2013.
Rating agency capital requirements Rating agencies assign credit ratings to the obligations of Swiss Reinsurance company Ltd (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.
A.M. Best, Moody’s and S&P rate Swiss Re’s financial strength based upon interactive relationships. the insurance financial strength ratings are shown in the table below.
on 10 december 2013, Moody’s upgraded Swiss Reinsurance company Ltd’s insurance financial strength rating to Aa3. the outlook on the rating is “stable”. this upgrade reflects Swiss Re Group’s improved financial profile, notably with respect to profitability and financial flexibility, whilst maintaining an overall excellent market position and strong business diversification.
on 18 december 2013, S&P affirmed the AA- financial strength of Swiss Reinsurance company Ltd (Swiss Re) and its core subsidiaries. the outlook on the rating is “stable”. the rating affirmation predominantly reflects S&P’s view that the Group continues to have an extremely strong competitive position and capital adequacy.
on 31 January 2014, A.M. Best affirmed the A+ financial strength rating of Swiss Reinsurance company Ltd and its subsidiaries. the outlook for the rating is “stable”. the rating reflects the Swiss Re Group’s excellent consolidated riskadjusted capitalisation, strong operating performance and superior business profile as a leading global reinsurer.
economic Value management (eVm) is Swiss Re’s integrated economic valuation framework for planning, pricing, reserving and steering the business. Since 2003, Swiss Re has used the eVm framework as a tool to support business and strategic financial decisions, including compensation decisions. eVm also provides the basis for determining available capital under the Swiss Solvency test (SSt) and, in the future, Solvency ii.
performance split of insurance underwriting and investment activities evM values underwriting and investment activities separately. underwriting activities create value by raising funds on insurance markets at a lower cost than through other sources. the investment functions are assessed on a risk-adjusted basis. this makes possible a like-for-like comparison of underwriting and investment activities.
closed-book approach evM recognises all cash flows associated with a new contract at inception, and any changes in estimates as they occur. In comparison, the deferral and matching principle under uS GAAP postpones recognition of revenues until they are earned and matches expenses to those revenues. evM excludes the recognition of all potential future new business activities, as well as potential renewals.
performance measurement after capital costs evM explicitly recognises opportunity costs for shareholder capital. cost-ofcapital charges include the base cost of capital and frictional capital costs. the base cost of capital is reflected through a charge for risk-free returns on available capital and market risk premiums. Market risk premiums compensate for systematic, non-diversifiable risk exposure, mainly assumed through investing activities. Frictional capital costs compensate for agency costs, costs of potential financial distress and regulatory (illiquidity) costs; they are reflected through a 4% charge on available capital and an average 2% charge on leverage.
economic net worth (enW) is defined as the difference between the market value of assets and the market consistent value of liabilities. enW is the evM measure of shareholders’ equity and the starting point in determining available capital for SSt calculations.
Life & Health 9.0 8.9 –1 admin Re® 4.9 4.8 –2 consolidation –2.7 –2.4 –11 eVm results for 2013 the 2013 eVm Report, showing Swiss Re’s results for the full year 2013, is available on swissre.com/ investors/financial_ information economic net worth in 2013 48 Swiss Re 2013 Financial Report
Swiss Re’s liquidity stress tests are reviewed regularly and their main assumptions are approved by the Group Risk and capital committee. Swiss Re provides FInMA with a yearly report on its liquidity position, in accordance with FInMA’s circular 13/5,“Liquidity – Insurers.”
liquidity position of the SRZ liquidity pool the SRZ pool is the primary liquidity pool of the Group. the estimated total liquidity sources in the SRZ liquidity pool available within one year, after haircuts and net of short-term loans from Swiss Re Ltd, amounted to uSd 18.3 billion as of 31 december 2013, compared with uSd 22.5 billion on 31 december 2012. this total includes uSd 12.7 billion of liquid assets and cash, referred to as “spot liquidity”, compared with uSd 18.3 billion in 2012. Based on the internal liquidity stress tests described above, we estimate that the SRZ liquidity pool holds surplus liquidity.
In 2013, the surplus liquidity of the SRZ liquidity pool after dividends to Swiss Re Ltd was deployed mainly to reduce leverage and to facilitate an increase in investment risk.
Composition of spot liquidity in the central liquidity pool as of 31 December 2011 Total USD 18.5 billion composition of spot liquidity in the Swiss Reinsurance company ltd liquidity pool as of 31 december 2013 (total uSd 12.7 billion)
and reverse repos ̤ 23% other developed market government bonds investment grade ̤ 3% developed market supranational, agencies and municipal bonds
̤ open risk culture: Risk transparency, knowledge sharing and responsiveness to change are integral to our risk control process.
̤ the Audit committee is responsible for overseeing internal controls and compliance procedures.
We fully embed risk management in our business to enable controlled risk-taking and efficient, riskadjusted capital allocation.
Finance and Risk committee Audit committee 50 Swiss Re 2013 Financial Report
For Swiss Re’s major legal entities, the Business unit cRos are supported by designated legal entity cRos who are responsible for overseeing specific risk management issues that arise at the legal entity level.
Senior managers of Business and corporate units are responsible for managing operational risks in their areas of activity, based on a centrally coordinated methodology. their self-assessments are reviewed and challenged by dedicated operational risk managers. Risk management experts also review Swiss Re’s underwriting decision processes.
the compliance function is principally responsible for overseeing Swiss Re’s compliance with applicable laws, regulations, rules, and the code of conduct, as well as managing compliance risk. It assists the Board of directors, the Group ec and management in discharging their respective duties to identify, mitigate, and manage compliance risks.
Risk tolerance and limit framework Swiss Re’s risk tolerance is an expression of the extent to which the Board of directors has authorised the Group and Business units’ executive management to assume risk. It represents the maximum amount of risk that Swiss Re is willing to accept within the constraints imposed by its capital and liquidity resources, its strategy, its risk appetite, and the regulatory and rating agency environment within which it operates. Risk tolerance criteria are specified for the Group and Business units, as well as for the major legal entities.
A key responsibility of Risk Management is to ensure that Swiss Re’s risk tolerance is applied throughout the business. As part of this responsibility, Risk Management ensures that our risk tolerance targets are a key basis for our business planning processes. Furthermore, both our risk tolerance and risk appetite – the types and level of risk we seek to take within our risk tolerance – are clearly reflected in a limit framework across all risk categories. the limit framework is approved at the Group ec level through the Group Risk and capital committee. the individual limits are established through an iterative process to ensure that the overall framework complies with our Group-wide policies on capital adequacy and risk accumulation.
̤ the Group Asset-Liability committee oversees the management of Swiss Re’s balance sheet, in particular its liquidity, capital, and funding positions and related policies.
each of these Business unit departments has a dedicated chief Risk officer who reports directly to the Group cRo, with a secondary reporting line to the respective
Swiss Re uses its internal risk model to measure the Group’s capital requirements, as well as for defining risk tolerance, risk limits, and liquidity stress tests (see box on page 58). According to the internal risk model, Swiss Re’s overall risk exposure based on 99% tail vaR (expected shortfall) increased to uSd 20.0 billion in 2013, up 21% from uSd 16.6 billion in 2012. Alternative risk measures — 99% and 99.5% vaR — showed our risk increasing by 22% to uSd 14.7 billion and by 23% to uSd 17.7 billion, respectively.
the Group capital requirement table on page 53 shows the 99% tail vaR on a standalone basis for each of Swiss Re’s core risk categories: ̤ Financial market risk rose by 27% to uSd 13.3 billion in 2013, reflecting the re-balancing of Swiss Re’s investment portfolio (see Group investments on page 24).
̤ Property and casualty risk rose by 17% to uSd 9.1 billion reflecting growth in natural catastrophe business and the expiry of a major quota share retrocession agreement.
̤ Life and health risk decreased by 10% to uSd 6.6 billion primarily as a result of increased long-term interest rates.
our model and its parameters are continuously refined and updated to reflect our experience, changes in the risk and regulatory environment, and advances in current best practice.
Higher overall risk in 2013 results from the re-balancing of our investment portfolio and increased exposure to natural catastrophe risks.
Financial market ̤ credit spread ̤ equity market ̤ Foreign exchange ̤ Interest rate ̤ Inflation ̤ Real estate core risks
property and casualty risk developments in 2013 change from 2012 99% tail VaR
Property and casualty (P&c) insurance risk arises from the coverage that Swiss Re provides for property, liability, motor, and accident risks through its Reinsurance and corporate Solutions Business units, as well as for specialty risks such as engineering, aviation, and marine. We classify and model our property and casualty risks in three categories at Group and Business unit level: natural catastrophes (eg, earthquakes and windstorms), man-made risks (eg liability and fire), and geopolitical risks (eg terrorism). We also monitor and manage underlying risks inherent in the business we underwrite, such as inflation or uncertainty in pricing and reserving.
Swiss Re’s property and casualty risk increased by 17% in 2013. Some natural catastrophe risks increased significantly above that while other risks, like those associated with reserves and general liability, moved to a lesser extent thereby reducing the overall impact on property and casualty 99% tail vaR.
the expiry of a major quota share retrocession agreement, which was only partly replaced by other hedges, was a key driver of the overall increase in risk.
Swiss Re writes property and casualty business using the four-eye principle across all Business units: every transaction must be approved by at least two authorised individuals — with the exception of single risk acceptances, which can be authorised by one underwriter with the four-eye principle taken care of by spot checks after acceptance. each underwriter is assigned an individual underwriting authority based on technical skills and experience; any business exceeding this authority triggers a well-defined escalation process that extends up to the Group Products and Limits committee.
the strong increase in the natural catastrophe stress tests shown in the table on page 55 were mainly driven by a reduction in effective hedging, some shifts in business mix from proportional to nonproportional business growth as well as parameter updates for Atlantic hurricane and californian earthquake.
Insurance risk the risk management function is embedded in our business process. Before any business is written, Risk Management is involved in annual business planning; it also reviews underwriting guidelines, pricing models, and large individual transactions. total risk exposure is monitored against agreed risk limits.
life and health risk developments in 2013 management change from 2012 99% tail VaR
these developments are only partially offset by the increase in new business for both life and health portfolios. Lethal pandemic risk, the other major contributor to life and health risk, increased (see above table) mostly due to new business growth in group life insurance. Group life business, unlike individual life business, is renewed annually and is exposed to the shock of a lethal pandemic, but is not exposed to mortality trend risk which develops over time.
insurance risk stress tests: Single event losses with a 200-year return period1 Pre-tax impact on economic capital in uSd billions, as of 31 december 2012 2013 change in %
natural catastrophes Atlantic hurricane –2.8 –4.5 60 californian earthquake –2.4 –3.5 47 european windstorm –2.6 –3.8 44 Japanese earthquake –2.9 –3.3 16 life insurance Lethal pandemic –2.6 –2.9 11 1 Single event losses with a 200-year return period show for example that there is a 0.5% probability over the next year that the loss from a single Atlantic hurricane event could exceed uSd 4.5 billion. the impact excludes earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event.
Financial market risk developments in 2013 management change from 2012 99% tail VaR
In 2013, Swiss Re’s overall financial market tail vaR increased by 27% (see table on page 53) as a result of the re-balancing of the Group’s investment portfolio, mainly due to additional investments in listed equities, exchange traded funds and corporate bonds and the implementation of a substantial short duration position during 2013.
Financial Risk Management regularly reviews and updates the risk framework. the unit is also responsible for monitoring financial market risk in accordance with our risk management standards. daily and increased, as a result of additional investments, along with growth in the asset value of existing holdings. the equity scenario includes listed and private equities, hedge funds, equity derivatives, equity exposure embedded in insurance liabilities (eg guaranteed minimum death benefit products, including variable annuities), fee income related to equities in unit-linked business, and funding obligations from equity holdings in Swiss Re pension funds. the sensitivity to credit spread widening increased due to additional investments in credit products.
this process is complemented by regular risk discussions between Financial Risk Management, Asset Management and the Group’s external fund managers.
group-wide financial market and credit risk management involves identifying, assessing, and controlling risks inherent in the financial and credit markets, while monitoring compliance with our risk management standards. Both risk categories are managed by our Financial Risk management team.
Risk Management monitors and reports credit exposure and limits for the Group and its Business units on a weekly basis. the reporting process is supported by a Group-wide credit exposure information system that contains all relevant data, including corporate counterparty details, ratings, credit risk exposures, credit limits, and watch lists. All key credit practitioners in the Group and Business units have access to this system, thus providing the necessary transparency to implement specific exposure management strategies for individual counterparties, industry sectors, and geographic regions.
Operational risk operational risk is defined as the expected and unexpected economic impact of inadequate or failed internal processes, from people and systems, or from external events. the definition includes legal and regulatory risks (see also page 60), as well as financial reporting risk, defined as the risk that a material misstatement is made by the Group in its financial statements, causing significant reputational damage.
Members of Swiss Re’s Group Management Board and executive committee are required to assess and certify the effectiveness of the internal control system for their particular Business unit or corporate or enabling Function on a quarterly basis.
Reputational risk Swiss Re’s continued business success depends on maintaining our reputation with clients, investors, employees, and other stakeholders. environmental, socioeconomic and related ethical risks to reputation may arise from individual business transactions; our reputation could also be damaged by operational failures.
We have a long-standing commitment to sustainable business practices, active corporate citizenship, and good governance. We mitigate potential damage to our reputation through clear corporate values, robust internal controls, and active dialogue with external stakeholders. All our employees are required to commit to and comply with the values and rules of behaviour defined in the Group code of conduct and further internal Swiss Re policies and guidelines. We support these values with processes that enable us to identify potential problems early.
We have a formal framework to manage environmental, socio-economic, and related ethical risks that may be inherent in some of our business transactions. currently, this framework contains eight policies for sectors or issues, each with pre-defined exclusions, criteria and quality standards. transactions that could potentially compromise these standards need to be submitted to our Sensitive Business Risks process for review by our sustainability experts. We also consider the potential impact on Swiss Re’s reputation when assessing and controlling operational risk.
emerging risks Anticipating possible developments in Swiss Re’s risk landscape is an important element of our integrated approach to enterprise risk management. We encourage pre-emptive thinking on risk in all areas of our business, combining our broad claims experience and risk expertise with a structured horizon-scanning process. the key objectives are to reduce uncertainty and help diminish the volatility of the Group’s results, while also identifying new business opportunities and raising awareness both within the Group and across the industry.
to further advance risk awareness across the industry and beyond, Swiss Re continues to participate actively in strategic risk initiatives such as the World economic Forum’s Risk Response network, the International Risk Governance council, and the cRo Forum’s emerging Risk Initiative. We contributed to several publications on emerging risk topics in 2013, including the World economic Forum’s annual Global Risks Report and a cRo Forum position paper, “Food and its impact on the risk landscape.”
Swiss Re’s corporate governance adheres to the SIX Swiss exchange’s directive on Information Relating to corporate Governance, including its annex. It is also in line with the principles of the Swiss code of Best Practice for corporate Governance (Swiss code) issued in 2002 by economiesuisse, the Swiss business federation. An additional appendix was issued in 2007 which deals with compensation principles. Swiss Re, moreover, conforms to the Swiss Financial Market Supervisory Authority (FInMA) provisions on corporate governance, risk management and internal control systems, which came into effect on 1 January 2009. Swiss Re’s corporate governance also complies with applicable local rules and regulations in all jurisdictions where it conducts business. the Board of directors assesses the Group’s corporate governance on an annual basis against relevant best practice standards. It monitors corporate governance developments globally. It receives updates on developments affecting corporate governance from selected jurisdictions and considers the relevant studies and surveys on corporate governance. Information on compensation, shareholdings of and loans to members of the Board of directors and the Group executive committee (Group ec) is provided on pages 105–127 and in the notes to the Group financial statements included in this report.
“Minder” ordinance the “ordinance Against excessive compensation at Public corporations” (the ordinance) entered into effect on 1 January 2014. Swiss Re is undertaking the steps necessary to ensure timely compliance with the ordinance’s requirements. the requirement of electronic voting had already been introduced at the Annual General Meeting 2013. to the extent necessary amendments to the Articles of Association will be proposed to the Annual General Meeting 2014 for approval. Furthermore, starting with the Annual General Meeting 2014, the shareholders will elect annually and individually for a one-year term all the members of the Board of directors, the chairman of the Board of directors as well as the members of the compensation committee. the Annual General Meeting 2014 will also elect the Independent Proxy.
̤ the Board of directors nominated Susan L. wagner to be proposed to the Annual General Meeting 2014 for election as new Board member.
̤ david cole, Swiss Re’s Group chief Risk officer since March 2011, was appointed Group cFo as of 1 May 2014.
̤ the Group’s corporate Governance Guidelines (Guidelines), which have been effective since 1 January 2013, have been reviewed by the chairman’s and Governance committee and reviewed and amended by the Board of directors to ensure even smoother corporate Governance processes and to achieve efficiency.
̤ Swiss Re will ensure timely adherence to the ordinance’s requirements.
Association will be proposed to Annual General Meeting 2014 for approval; – Annual General Meeting must elect for a one-year term Board of directors members, Board of directors chairman and members to the compensation committee individually; – Annual General Meeting must elect Independent Proxy (an independent voting representative for shareholders).
Swiss Re Ltd has a level I American depositary Receipts (AdRs) programme in the uS. the AdRs are traded over the counter (ISIn uS8708861088, otc symbol SSReY). neither the AdRs, nor the underlying Swiss Re shares, are listed on a securities exchange in the uS.
the voting rights entered into the commercial register, whether or not the voting rights can be exercised. notifications must also include financial instruments, regardless of whether cash or physically settled, constituting a purchase or a sale position. upon receipt of such notifications, the company is required to inform the public by publishing within two trading days the notification on the electronic platform of the SIX Swiss exchange. the following table provides a summary of the current disclosure notifications.
Solutions ̤ operations ̤ corporate development admin Re® ̤ origination &
group chief executive officer group executive committee enabling Unitscorporate Functions Business Units group Underwriting group asset Management group operations ̤ human Resources ̤ Legal & compliance ̤ Information technology ̤ communications ̤ Global Service operations ̤ corporate Real estate & Logistics group Strategy group Risk Management group Finance
In addition, Swiss Re Ltd and Group companies held, as of 31 december 2013, directly and indirectly, 28 512 910 shares, representing 7.7% of voting rights and share capital. neither the company nor the Group companies can exercise the voting rights of the own shares they hold themselves. All notifications received in 2013 are published at
Shareholder1,2 number of shares % of voting rights and share capital creation of the obligation to notify warren e. Buffett and Berkshire hathaway Inc. 11 262 000 3.10 10 June 2011 BlackRock, Inc. 11 134 246 3.09 26 September 2011 1 In the context of Swiss Reinsurance company Ltd’s issuance of Perpetual Subordinated capital Instruments in 2012 with a face value of uSd 750 million with a stock settlement in registered shares of Swiss Re Ltd, Aquarius + Investments plc (“Aquarius”) reported in compliance with SeStA and the ordinance of the Swiss Financial Market Supervisory Authority on Stock exchanges and Securities trading (Stock exchange ordinance – FInMA, SeSto-FInMA) a disclosable purchase and a sales position. each corresponding to 6.32% of the voting rights. Aquarius does not hold any registered shares of Swiss Re Ltd.
̤ 73.1% Institutional shareholders ̤ 23.6% Individual shareholders ̤ 3.3% Swiss Re employees
As of 31 december 2013 Shareholders in % Shares in %
Swiss Re 2013 Financial Report 67 coRpoRate goveRnance | GRouP StRuctuRe And ShARehoLdeRS
68 Swiss Re 2013 Financial Report coRpoRate goveRnance | GRouP StRuctuRe And ShARehoLdeRS
Authorised capital capital As of 31 december 2013, the fully paid-in share capital of Swiss Re Ltd amounted to chF 37 070 693.10. It was divided into 370 706 931 registered shares, each with a par value of chF 0.10.
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 decision may be made in order to issue equity-Linked Financing Instruments on national and/or international capital markets (including private placements to selected strategic investors), and/or to finance or re-finance the acquisition of companies, parts of companies, participations or new investments planned by the company and/or Group companies.
the acquisition of registered shares through the exercise of conversion or option rights and any further transfers of registered shares shall be subject to the restrictions specified in the Articles of Association.
authorised capital As of 31 december 2013, the authorised capital of Swiss Re Ltd was as presented in the table below.
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 10 April 2015 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.
Joint provision for conditional capital for equity-Linked Financing Instruments and for the above-mentioned authorised capital the total of registered shares issued from the authorised capital, where the existing shareholders’ subscription rights were excluded, and from the shares issued from conditional capital, where the existing shareholders’ advance subscription rights on the equity-Linked Financing Instruments were excluded, may not exceed 74 000 000 registered shares up to 10 April 2015.
the Annual General Meeting of shareholders 2013 also approved that the authority to issue registered shares from authorised capital as set forth in the Articles of Association be extended to 10 April 2015 and that the limitation included in the Articles of Association to issue registered shares from authorised capital where the existing shareholders’ subscription rights were excluded, be extended to 10 April 2015 and the maximum number of registered shares under that provision be set to 74 000 000 from 74 140 927 previously.
the Annual General Meeting of shareholders furthermore approved the cancellation of the authorised capital created for the use as consideration for any remaining minority shareholders of Swiss Reinsurance company Ltd for any voluntary or mandatory surrendering of their shares in Swiss Reinsurance company Ltd after the execution of the public exchange offer at any time up to 20 May 2013 by an amount not exceeding chF 4 005 061.30 through the issue of up to 40 050 613 registered shares, payable in full, each with a nominal value of chF 0.10.
changes in 2011 and previous years Information about changes in share capital in 2011 is provided on pages 59 and 60 of the 2011 Annual Report. Information about changes in share capital of Swiss Reinsurance company Ltd for earlier years is provided in the Annual Reports of our predecessor Swiss Reinsurance company Ltd for the respective years.
the Board of directors may exclude or restrict the subscription rights of existing shareholders with respect to a maximum of chF 3 500 000 through the issue of up to 35 000 000 registered shares, payable in full, each with a nominal value of chF 0.10, out of the total amount of authorised capital. Such exclusion or restriction relates to the use of shares in connection with mergers, acquisitions (including take-over) of companies, parts of companies or holdings, participations or new investments planned by the company and/or Group companies, financing or re-financing of such mergers, acquisitions or new investments, the conversion of loans, securities or equity securities. exclusion and restriction may also relate to improving the regulatory capital position of the company or Group companies, including private placements, in a fast and expeditious manner if the Board of directors deems it appropriate or prudent to do so.
the subscription and acquisition of the new registered shares, as well as each subsequent transfer of registered shares, shall be subject to the restrictions specified in the Articles of Association.
70 Swiss Re 2013 Financial Report coRpoRate goveRnance | cAPItAL StRuctuRe
profit-sharing and participation certificates Swiss Re Ltd has not issued any profitsharing and participation certificates.
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 certain form of registered shares. each shareholder may, however, at any time request a written confirmation from the company of the registered shares held by such shareholder, as reflected in the company’s share register.
during 2012, Swiss Reinsurance company Ltd issued chF 320 000 000 of 7.25% perpetual subordinated notes and uSd 750 000 000 of 8.25% perpetual subordinated capital instruments both with stock settlement (collectively the “subordinated securities”), which provide Swiss Reinsurance company Ltd with options to initiate settlement of the subordinated securities by delivery of shares of Swiss Re Ltd.
Members of the Board of Directors According to the Articles of Association, the Board of directors of Swiss Re Ltd, the holding company of the Swiss Re Group, consists of at least seven members. As of 31 december 2013 the Board of directors consisted of the following members: BoARd oF dIRectoRS
walter B. Kielholz Swiss 62 1998 (chairman) Mathis cabiallavetta Swiss 68 2008 (vice chairman) Renato Fassbind Swiss 58 2011 (vice chairman) Jakob Baer Swiss 69 2005 Raymund Breu Swiss 68 2003 Raymond K.F. ch’ien chinese 61 2008 John R. coomber British 64 2006 Mary Francis British 65 2013 Rajna Gibson Brandon Swiss 51 2000 c. Robert henrikson American 66 2012 Malcolm d. Knight canadian 69 2010 hans ulrich Maerki Swiss 67 2007 carlos e. Represas Mexican 68 2010 Jean-Pierre Roth Swiss 67 2010 * the members were initially elected to the Board of directors of Swiss Reinsurance company Ltd, the Group’s former parent company; all members were subsequently elected to the Board of directors of the Group’s new holding company, Swiss Re Ltd, on 17 February 2011 with the exception of the following members who were elected to the Board of directors of Swiss Re Ltd as follows; Renato Fassbind was elected on 15 April 2011, c. Robert henrikson was elected on 13 April 2012 and Mary Francis was elected on 10 April 2013.
Independence Swiss Re’s Group Bylaws stipulate that the Board of directors consists of at least a majority of independent members. to be considered independent, a director may not be employed as an executive officer of the Group, or have been employed in such function for the previous three years. Moreover, he or she must not have a material relationship with any part of the Group, directly or as a partner, director, or shareholder of an organisation that has a material relationship with the Group. All members of the Board of directors meet our independence criteria.
the members of the Board of directors are also subject to procedures to avoid any conflict of interest.
̤ Member of the Board of trustees of Avenir Suisse, the liberal Swiss think tank
Mathis cabiallavetta (1945), Swiss vice chairman, non-executive and independent career Mathis cabiallavetta held several positions at uBS AG from 1971, including President of the Group executive Board in 1996 and chairman in 1998. he joined Marsh & McLennan companies in 1999 and was vice chairman of the company from 2001 to 2004. he was elected to Swiss Re’s Board of directors in 2008 and became vice chairman in 2009. he chairs the Finance and Risk committee as well as the Investment committee and is a member of the chairman’s and Governance committee.
̤ Past committee member of the Board of directors of SIX Swiss exchange
̤ Past member of the International capital Markets Advisory committee of the Federal Reserve Bank of new York educational background ̤ Bachelor’s degree in economics, university of Montreal, canada
Audit oversight Authority educational background ̤ Phd in economics, university of Zurich,
Jakob Baer (1944), Swiss Member, non-executive and independent career Jakob Baer began his career with the Swiss Federal Finance Administration. he joined Fides trust company in 1975, then following a buyout became a member of KPMG Switzerland’s Management Board in 1992. he was appointed chief executive officer of KPMG Switzerland in 1994 and became a member of KPMG’s european and international Management Boards. he retired from KPMG in 2004. Jakob Baer was elected to Swiss Re’s Board of directors in 2005. he chairs the Audit committee and is a member of the chairman’s and Governance committee.
educational background ̤ Attorney-at-Law, Bern, Switzerland ̤ Phd in Law, university of Bern,
Raymund Breu (1945), Swiss Member, non-executive and independent career Raymund Breu started in group treasury at Sandoz in 1975, rising to chief Financial officer of Sandoz corporation in new York in 1985. In 1990, he became Group treasurer of Sandoz Ltd and in 1993 head of Group Finance and a member of the executive Board. From 1996 to 2010, he was chief Financial officer and member of the executive committee of novartis. Raymund Breu was elected to Swiss Re’s Board of directors in 2003 and is a member of the Finance and Risk committee and the Investment committee.
external appointments ̤ Board member of nobel Biocare holding AG ̤ Member of the Swiss takeover Board educational background ̤ Phd in Mathematics, Swiss Federal
̤ Board member of the hong Kong and Shanghai Banking corporation Ltd, convenience Retail Asia Ltd, china Resources Power holdings company Ltd, the wharf (holding) Ltd and uGL Ltd
John R. coomber (1949), British Member, non-executive and independent career John R. coomber has been the chief executive officer of Pension Insurance corporation Limited since 2008. he joined Swiss Re in the uK in 1973. From 1987, he led the Life division and, in 1993, was made head of the uK operations. he was appointed a member of the Group executive Board in 1995, responsible for the Life & health division. he became a member of the executive committee in 2000 and was Swiss Re’s chief executive officer from 2003 to 2005. he was elected to the Group’s Board of directors in 2006. he is a member of the chairman’s and Governance committee, the Audit committee and the compensation committee.
Rajna gibson Brandon (1962), Swiss Member, non-executive and independent career Rajna Gibson Brandon is a Professor of Finance at the university of Geneva and director of the Geneva Finance Research Institute.
external appointments ̤ Senior independent director of centrica plc ̤ Board member of ensco plc ̤ Senior advisor to chatham house educational background ̤ Masters of Arts, newnham college, university of cambridge, united Kingdom
Standards council ̤ Member of the Board of Patrons of the european Association for Banking and Financial history
external appointments ̤ Board member of ABB Ltd and Mettlertoledo International Inc. ̤ Member of the Foundation Board of the
Schulthess-Klinik Zurich ̤ Member of the international advisory boards of the École des hautes Études commerciales (edhec), Paris, the IeSe Business School university of navarra and Bocconi university Milan educational background ̤ Master of Science in Business
Information about managerial positions and significant business connections of non-executive directors All members of the Board of directors are non-executive and independent. walter B. Kielholz, chairman of the Board of directors since 1 May 2009, was Swiss Re’s ceo from 1 January 1997 to 31 december 2002. John R. coomber was ceo from 1 January 2003 to 31 december 2005.
changes in 2013 At the Annual General Meeting on 10 April 2013, Mary Francis was elected as a new non-executive and independent member of the Board of directors for a three-year term of office. At the same time, the shareholders re-elected walter B. Kielholz, Malcolm d. Knight, carlos e. Represas and Jean-Pierre Roth for a three-year term of office as members of the Board of directors. due to the “ordinance“ requirements, which foresee that going forward the members of the Board of directors will be elected annually, the terms will end at the Annual General Meeting 2014.
educational background ̤ economics degree, national university of Mexico, Mexico ̤ Industrial economics degree, national
the chairman’s and Governance committee evaluates candidates for Board membership and makes recommendations to the Board for election or re-election proposals. the Board nominates candidates for Board membership for election at the shareholders’ meeting, ensuring that the Board retains an adequate size and well-balanced composition and that the majority of the Board remains independent.
the Board aims to assemble among its members the requisite balance of managerial expertise and knowledge from different fields required for sound independent decision-making according to business needs. Potential new candidates are assessed against Board approved selection criteria, which include: integrity, selected skills and qualifications, experience, communication ability and community standing. Swiss Re’s Board members represent a wide range of backgrounds and capabilities in such key areas as insurance and reinsurance, finance, accounting, capital markets, risk management and regulatory topics. the company aims to constantly develop further the abilities of its Board members. newly elected Board members receive a comprehensive introduction in order to gain a sound understanding of the Group’s organisation and business, allowing them to perform their duties effectively. All Board members update and enhance their knowledge of emerging business trends and risks through regular meetings with internal and external experts throughout the year.
term of office historically, the regular term of a directorship was three years. It began with the date of election at the Annual General Meeting and ended at the third subsequent Annual General Meeting. effective with the Annual General Meeting of shareholders 2014, the term will be one year.
First election date and remaining term of each director In line with good corporate governance, Swiss Re’s Board of directors’ terms were composed in a way that they would lead to a staggered renewal of the Board. Going forward the ordinance requires an annual re-election. the initial election year as well as the end of the current term of office of each member are stated in the table on page 72.
the Board of directors proposes that the following Board members be re-elected for a one-year term: ̤ walter B. Kielholz ̤ Mathis cabiallavetta ̤ Renato Fassbind ̤ Raymund Breu ̤ Raymond K.F. ch’ien ̤ Mary Francis ̤ Rajna Gibson Brandon ̤ c. Robert henrikson ̤ hans ulrich Maerki ̤ carlos e. Represas ̤ Jean-Pierre Roth
Furthermore, the Board of directors has nominated ̤ Susan L. wagner to be proposed to the Annual General Meeting in 2014 for first-time election as member of the Board of directors for a one-year term. Susan L. wagner is cofounder and director of BlackRock Inc., where she served as vice chairman and a member of the Global executive and operating committees before retiring in mid-2012. over the course of her nearly 25 years at the firm, Susan L. wagner served as chief operating officer, head of Strategy, corporate development, Investor Relations, Marketing and communications, Alternative Investments and International client Business. Susan L. wagner is American and graduated from wellesley college with a BA in english and economics, and earned an MBA in finance from the university of chicago.
allocation of tasks within the Board of Directors chairman of the Board of Directors the chairman of the Board of directors exercises ultimate supervision of the Group on behalf of the Board. he has the right to attend the meetings of the Group ec and the Business units and receives all corresponding documentation and minutes. he ensures adequate reporting by the Group ceo and the Group ec to the Board of directors and facilitates their communication with the Board. he is also responsible, with the chairperson of the Audit committee, for overseeing Group Internal Audit and appoints its head, subject to confirmation by the Audit committee.
the chairman convenes meetings of the Board and its committees and makes preparations for, and presides over, Board meetings. the chairman coordinates the activities of Board committees 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 Group Bylaws.
the chairman presides at General Meetings of Shareholders and represents the Group vis-à-vis shareholders and other stakeholders such as regulatory and political authorities, industry associations, or the media.
vice chairmen one of the vice chairmen will act in place of the chairman in the latter’s absence or in the event of a conflict of interest of the chairman. A vice chairman may prepare and execute Board resolutions on request of the Board and liaises between the Board and the Group ec in matters not reserved to the chairman.
Investment committee walter B. Kielholz (chair) Mathis cabiallavetta (chair) (chair) Renato Fassbind
Raymund Breu Raymond K.F. ch’ien John R. coomber Mary Francis Rajna Gibson Brandon c. Robert henrikson (chair) Malcolm d. Knight hans ulrich Maerki carlos e. Represas Jean-Pierre Roth
Board committee memberships committees of the Board of Directors the Board has delegated certain responsibilities, including the preparation and execution of its resolutions, to five committees: the chairman’s and Governance committee, the Audit committee, the compensation committee, the Finance and Risk committee and the Investment committee.
each committee consists of a chairperson and at least two other members elected from among the Board of directors. the term of office of a Board committee member is one year, beginning with the appointment at the Board meeting following an Annual General Meeting and ending at the Board meeting following the subsequent Annual General Meeting.
each committee is governed by a charter which defines the committee’s responsibilities. the committees operate in line with the Group Bylaws and according to their respective charters. the committees have the following overall responsibilities: Swiss Re 2013 Financial Report 79 coRpoRate goveRnance | BoARd oF dIRectoRS
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 for other committee memberships, members of the Audit committee may not accept any consulting, advisory, or other compensation fee from the Swiss Re Group, and will be required to possess such additional attributes as the Board may, from time to time, specify. each member of the Audit committee has to be financially literate. At least one member must possess the attributes to qualify as an Audit committee financial expert, as determined by the Board of directors. Members of the Audit committee should not serve on audit committees of more than two listed companies outside the Swiss Re Group. Audit committee members have to advise the chairman before accepting any further invitation to serve on an audit committee of another listed company outside the Group.
Members ̤ c. Robert henrikson, chair ̤ Renato Fassbind ̤ John R. coomber (as of 11 April 2013) ̤ hans ulrich Maerki ̤ carlos e. Represas
Group ceo, Group cFo, Group cRo, Group coo, Group General counsel, chief compliance officer, head Group Internal Audit, chief Accounting officer, Lead auditors of external auditor, company Secretary compensation committee 6 meetings Group ceo, Group coo, chief human Resources officer, 3 hours head compensation, Benefits & International Mobility, Advisers2
Board of directors immediately. It is the responsibility of each committee to keep the full Board of directors informed on a timely basis as deemed appropriate.
Swiss Re 2013 Financial Report 81 coRpoRate goveRnance | BoARd oF dIRectoRS
governance ̤ Supervises the Swiss Re Group ̤ Retains overall responsibility for corporate governance ̤ Prepares for and convenes General
Strategy and structure ̤ Approves the Group’s strategy and endorses the strategies of the Business units
̤ determines the basic organisational structure of the Group planning ̤ Approves the Group’s consolidated short- and medium-term business plan and endorses the business plans of the Business units
̤ Appoints the members of the Group executive committee (Group ec)
Group’s strategy ̤ decides on legal, financial and management structures, subject to delegation 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 risks
Board supervision of executive management Swiss Re’s Board of directors maintains effective and consistent oversight and monitors the execution of responsibilities it has delegated to executive management through the following control and information instruments.
Special investigations the Board committees are entitled to conduct or authorise special investigations at any time and at their full discretion into any matters within their respective scope of responsibilities, taking into consideration relevant peer group practice and general best practice. the committees are empowered to retain independent counsel, accountants or other experts if deemed necessary.
periodic reports to Board of Directors A comprehensive executive Report on business developments, including major business transactions, claims, corporate development and key projects, is provided to the Board of directors at each of its regular meetings.
executive management furthermore regularly provides the Board of directors with specific written reports containing: ̤ risk management issues and related actions; ̤ the legally required update on the solvency of the Swiss Re Group, Swiss Reinsurance company Ltd, european Reinsurance company of Zurich Ltd and Swiss Re corporate Solutions Ltd; ̤ a detailed analysis of the loss reserves development of the major Group companies; ̤ the use of derivative financial instruments within the Group; ̤ an overview of the activities of the assurance work of operational Risk Management and by the Business Risk Review, by Group Internal Audit and compliance – including key risk indicators and significant losses and issues; ̤ major pending legal matters such as litigation and arbitration, investigations and inquiries, as well as information about key legal developments and risks; ̤ material compliance matters, including assessments of compliance risks and related mitigation efforts; ̤ an update on the most important regulatory issues and supervisory developments; as well as
Any member of the Board of directors may demand at Board meetings to obtain information on any aspect of the Group’s business. Any member may, in such meetings, request that books and records be produced for timely inspection. outside Board meetings, any member can direct a request for production of information and business records to the chairman.
84 Swiss Re 2013 Financial Report coRpoRate goveRnance | BoARd oF dIRectoRS
Swiss Re 2013 Financial Report 85 coRpoRate goveRnance | BoARd oF dIRectoRS
Africa (eMeA)/Regional President eMeA christian Mumenthaler Swiss 44 ceo Reinsurance Moses ojeisekhoba nigerian, American 47 ceo Reinsurance Asia/Regional
̤ Board member of Geneva Association ̤ Board member of Global Risk Forum ̤ Board member of Insurance europe’s
Reinsurance Advisory Board (RAB) ̤ Board member of IMd Foundation Board ̤ Board member of Pan-european
Insurance Forum (PeIF) ̤ Board member of Swiss American chamber of commerce ̤ voting member of the conference Board educational background ̤ Master of Science in Mathematics,
external appointments ̤ chairman of the cRo Forum 2012 and 2013 educational background ̤ Bachelor of Business Administration, university of Georgia, uSA ̤ International Business Program, nyenrode universiteit, the netherlands
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 their Group executive Board until 2007. From 2005 to 2007, he was chief Strategy officer and member of their risk and investment committees. he joined AXA in 2007 as Group Regional ceo and Group vice chairman for Asia-Pacific as well as member of their Group executive committee. John joined Swiss Re in october 2012 and was appointed Group chief Strategy officer and chairman Admin Re® as well as member of the Group executive committee in november 2012.
educational background ̤ Bachelor of Arts in economics, washington university, St. Louis, uSA ̤ Master in Public Policy, harvard university, uSA
Swiss Re 2013 Financial Report 87 coRpoRate goveRnance | eXecutIve MAnAGeMent
Professional experience Before joining Swiss Re, Guido Fürer worked for eight years in leading positions for the Swiss Bank corporation/ o’connor & Associates in option trading and structured capital markets transactions. Guido joined the new Markets division of Swiss Re in 1997, focusing on Alternative Risk transfer. Between 2001 and 2004, he worked for Swiss Re capital Partners with responsibility for european strategic participations. he was named head of the chief Investment office in 2008, with responsibility for Global Asset Allocation, Portfolio Steering and Portfolio Analytics. Guido became Group chief Investment officer and member of the Group executive committee in november 2012. In addition, he is head Asset Management Reinsurance.
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 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 was appointed to the executive Board to head the Globals & Large Risks division within client Markets. In 2009, Agostino was appointed chief operating officer and member of the Group executive committee. he was made ceo corporate Solutions in october 2010.
Jean-Jacques Henchoz (1964), Swiss chief executive officer Reinsurance europe, Middle east and Africa (eMeA) / Regional President eMeA
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. he served as Group chief Risk officer between 2005 and 2007 and was head of Life & health between 2007 and 2010. In January 2011, christian was appointed chief Marketing officer Reinsurance and member of the Group executive committee until he became chief executive officer Reinsurance that october.
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 joined Swiss Re in February 2012 and was appointed chief executive officer Asia, Regional President Asia and member of the Group executive committee in March 2012.
educational background ̤ Bachelor’s degree in engineering, university of Strathclyde, united Kingdom
Professional experience J. eric Smith worked in various roles in property and casualty insurance with country Financial for more than 20 years, then joined Allstate in 2003 where he rose to the rank of President, Financial Services. he moved to uSAA in 2010 as President uSAA Life Insurance co. eric joined Swiss Re in July 2011 as chief executive officer of Swiss Re Americas and as a member of the Group Management Board. eric was appointed Regional President Americas and member of the Group executive committee in January 2012.
̤ MBA, university of Zurich, Switzerland 90 Swiss Re 2013 Financial Report coRpoRate goveRnance | eXecutIve MAnAGeMent
other activities and vested interests Any activities of members of the Group ec 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, which are material, are stated in each of the Group ec members’ biographies on pages 87–90.
Swiss Re 2013 Financial Report 91 coRpoRate goveRnance | eXecutIve MAnAGeMent
convocation of the general Meeting of shareholders In accordance with Swiss Re’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.
extraordinary General Meetings of shareholders may be called by a resolution of the General Meeting of shareholders or the Board of directors, or by one or more shareholders with voting powers whose combined holdings represent at least 10% of the share capital.
Registrations in the share register In recent years, Swiss Re has acknowledged the voting rights of shares registered no later than two working days before the General Meeting of shareholders.
Duty to make an offer Swiss Re 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.
the SeStA allows companies to include an “opting up” provision in their articles of association, which raises the mandatory takeover offer threshold up to 49%, or an “opting out” provision, which waives the mandatory offer. Swiss Re’s Articles of Association contain neither of these provisions.
the Board of directors believes 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.
change of control clauses unvested incentive shares, share options and certain other employee benefit programmes would vest upon a change of control. In such an event, the rights of members of the Board of directors and the Group executive committee (Group ec) as well as of further members of senior management are identical to those of all other employees.
dawn M. Kink and Alex Finn became lead auditors responsible for the auditing mandate of the former parent company, Swiss Reinsurance company Ltd, on 1 September 2006 and 23 September 2011, respectively. with Swiss Re Ltd becoming the new holding company of the Group, they also became lead auditors for the Swiss Re Ltd audit mandate. with the completion of the audit 2012, dawn M. Kink had been on this audit mandate for seven years in a row. In line with the Swiss code of obligations she was therefore replaced at the Annual General Meeting on 10 April 2013 by Bret Griffin as new lead auditor, together with Alex Finn.
auditing fees Pwc fees (excluding vAt) for professional services during the year ended 31 december 2013 were: ̤ Audit fees: uSd 30.7 million ̤ Audit-related fees: uSd 7.9 million ̤ corporate Finance Services: uSd 7.4 million
the Audit committee reviews and approves in advance all planned audit services and any non-audit services provided by the external auditor. It discusses the results of annual audits with the external auditor, including reports on the financial statements, necessary changes to the audit plans and critical accounting issues.
the external auditor shares with the Audit committee its findings on the adequacy of the financial reporting process and the efficacy of the system of internal controls. It informs the Audit committee about any differences of opinion between the external auditor and management encountered during the audits or in connection with the preparation of the financial statements.
Special auditor the extraordinary General Meeting of shareholders of Swiss Re Ltd, held on 20 May 2011, elected oBt AG, Zurich, as special auditor for a term of three years. According to the Articles of Association, the special auditor is responsible for conducting special audits as required by law in connection with changes in capital. In line with best practice in ensuring the independence of external auditors, special audit reports are prepared by an auditor different from the external auditor responsible for the conduct of the statutory audits and the audit of the consolidated financial statements.
the official medium for publications of the company is the Swiss official Gazette of commerce (Schweizerisches Handelsamtsblatt). In addition, we use our website to provide comprehensive, timely news and information on our activities as well as background discussion and analysis of issues relating to Swiss Re’s business and the broader insurance and reinsurance industries. Investors and other stakeholders can subscribe to receive ad hoc disclosures and other corporate news automatically at swissre.com/media. our contact details are provided on page 272.
our Investor Relations team holds regular meetings with institutional investors and analysts. Private investors, too, can follow these meetings by telephone conference or through the Swiss Re website. In 2013, Swiss Re held a special Investors’ day to discuss a Group strategy update, the Life & health Reinsurance business and the Group’s capital management. the presentations and conference call recordings from this event are also available on our website: presentations.
Swiss Re observes strict close periods around the publications of the Group’s quarterly and annual results. the close periods apply throughout the preparation of the results and provide for an appropriate cooling-off period after the release of the results. during such close periods, employees of Swiss Re and members of the Board of directors and Group ec are prohibited from trading in Swiss Re securities.
Swiss Re 2013 Financial Report 99 100 Governance and reporting 100 Sustainable business 101 Our carbon footprint 103 Our employees corporate Responsibility corporate Responsibility expresses Swiss Re’s commitment to being an open, honest and transparent organisation that treats all its stakeholders – employees, shareholders, clients, government regulators and the general public – with respect and integrity. We aim to take a long-term view, playing our part in enabling sustainable progress.
the Sustainability & political Risk Management unit carries out coordination tasks and is responsible for the full corporate Responsibility Report. We have voluntarily reported on our performance as a responsible company since 1998. the range of topics covered in the yearly reports has gradually widened from a focus on environmental topics to include social and governance issues.
Sustainable business Sustainable progress — or sustainability — can be described as development that meets the needs of the present without compromising the ability of future generations to meet their needs. to be sustainable, progress must improve economic efficiency, protect and restore ecological systems and enhance social well-being.
Swiss Re’s business model helps to create stability. by managing risks and covering losses, we protect investments and enable economic growth. We seek to ensure that specific issues posing a potential threat to sustainability are adequately addressed.
effects on human rights or the environment. potentially sensitive business risks (SbRs) are referred to and handled through a tailor-made SbR process. In 2013 there were 210 SbR referrals. certain countries (in 2013: north Korea, Somalia and Sudan) and companies (such as those involved in particularly cruel weapons that inflict indiscriminate and disproportionate harm) are excluded from consideration outright.
We keep abreast of newly emerging risks through another structured process: “Systematic observation of notions associated with Risk,” or SonaR, is a Group-wide framework that allows us to identify and assess emerging risks and to incorporate the resulting insights into the relevant decision-making processes. In 2013 more than 100 “risk notions” were fed into SonaR, including driverless cars and oil drilling in remote areas. While many of the early signals will never actually turn into emerging risks, many may well do so. We also meet with other organisations to gain a better understanding of emerging risks, such as the World economic Forum, the cRo Forum’s emerging Risk Initiative and the International Risk Governance council.
Since 2012, we have been reporting our progress against the principles for Sustainable Insurance (pSI). the pSI initiative was launched in 2012 at the un conference on Sustainable development, after a worldwide consultation process that culminated in a meeting at our centre for Global dialogue. It presents a reporting framework that aims to ensure that “all activities in the insurance value chain, including interactions with stakeholders, are done in a responsible and forwardlooking way by identifying, assessing, managing and monitoring risks and opportunities associated with environmental, social and governance issues.” We are one of the original signatories of the pSI and we played an active role in its development. the pSI progress report will again be included in our 2013 corporate Responsibility Report.
this coincides with another global framework for the financial sector, the principles for Responsible Investing (pRI), which we signed in 2007. as a natural extension of our Sustainability Risk Framework, we integrate sustainabilityrelated risk information consistently across our entire investment portfolio. We consider environmental, social and governance (eSG) factors as an integral part of our investment management activities and decisions – also in the belief that these factors can have an impact on the financial performance of the investment portfolio in the long run. our Responsible Investment policy, issued by the Group chief Investment officer, defines Swiss Re’s approach as a responsible investor to follow high standards in its investment process. For key aspects of our investment activities — including sovereign fixed income investments, the engagement of external managers, the exercise of voting rights and direct real estate investments — we have developed specific requirements to ensure eSG criteria are duly taken into consideration. this creates both ethical and business value: we believe that eSG factors are a core element of long-term sustainable risk-adjusted economic value creation.
Swiss Re has over 60 offices in more than 20 countries; we also own and construct buildings, primarily in Switzerland, as part of the real estate component of our investment portfolio. In all these, we apply stringent building standards, including the use of environmentally sound, durable materials, low energy consumption and low maintenance and running costs. our construction and renovation projects in Switzerland conform to the MIneRGIe® standard of energy efficiency and superior user comfort, using where applicable its most stringent level, MIneRGIe-p-eco®, which incorporates the use of passive heat sources for ultra-low energy consumption.
In 2013, work continued on Swiss Re next, our new Zurich headquarters. a full environmental briefing on the project, including biweekly reports of its construction-related emissions, is available at
We invite our employees to engage with Swiss Re’s commitment to the environment through the global coyou2 programme, which subsidises private emission-cutting investments with the goal to reduce employees’ own carbon footprint. Investments range from energy-efficient home infrastructure and appliances to more sustainable transport options such as bicycles. Subsidies cover 50% of eligible investments, up to a locally predefined total subsidy allowance. Since the launch of this innovative programme in 2007, more than 9 000 subsidies have been paid out to our employees throughout the world. due to this resounding success, Swiss Re decided to renew the programme for another seven years, starting in January 2014 and closing in line with the next phase of the climate strategy in 2020.
Our responsibility towards Swiss Re employees Swiss Re’s goal is to attract talented people from a broad range of disciplines and backgrounds by providing our employees with a working environment conducive to their personal and professional development. We nurture a culture of diversity and inclusion across the company, offer excellent training opportunities, and provide a range of health and other benefits. We take active steps to promote mentoring, gender balance, career planning and overall employee well-being.
We work to mitigate the impact of natural catastrophes, first by issuing re/insurance covers and insurance-linked securities, but also by offering our clients and others access to our strategic expertise. this include our wide range of expert publications, our catnet® online hazard information system, and our economics of climate adaptation (eca) studies. a collaborative project informed by an advisory group of leading academics, eca looks at the costs to governments and associated investment implications of adapting to climate change. With a time horizon of 2030, the eca’s fact-based risk management approach enables national and local leaders to understand the impact of climate on their economies and to identify actions to minimise that impact at the lowest cost to society, thus integrating adaptation to climate change with economic development and sustainable growth. the initial eca studies covered eight widely varying locations to test the relevance of the approach and the robustness of the results. In 2013, we had the chance to apply the methodology in collaboration with the city of new york, an area potentially at great risk from climate change (please see page 33 of the business Report for a full description).
Compensation 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 elements. It comprises core components such as base salary, pensions and other benefits, as well as a combination of short- and long-term incentives. Swiss Re is committed to a performance-oriented and balanced compensation system that aligns the interests of employees and shareholders.
the Compensation Committee continues to review and monitor the overall compensation framework at Swiss Re in light of business needs, existing and new regulatory requirements and market developments. the implementation of the revised compensation framework that was started in 2011 was completed in early 2013. there were no material changes to compensation governance and principles, which are outlined in the following pages.
– Inclusion of the overarching compensation principles in the articles of association.
– adjustments to the Compensation Report in line with the new requirements under the ordinance as of the reporting year 2014.
– adjustments to employment contracts of the Group eC members in line with the provisions of the ordinance.
these changes strengthen the responsibilities of shareholders in compensation matters. Current governance at Swiss Re is already well aligned to the recent developments. this includes the non-binding vote on the Compensation Report (introduced in 2010) and the regular efforts to ensure transparent disclosure and communication about compensation.
the Compensation Committee is satisfied that this Compensation Report provides a comprehensive view of the compensation framework at Swiss Re. In addition, the Compensation Report provides disclosure for 2013 compensation decisions. the Report is divided into four sections: ̤ Compensation context and highlights in 2013
C. Robert henrikson Chairman of the Compensation Committee 106 Swiss Re 2013 Financial Report
uS Gaap net income attributable to shareholders 2 626 4 201 4 444 of which paid out as dividend (incl. special dividend) 1 134 37% 2 760 47% 3 0361 58%
Split of 2013 Group income (in USD million) Split of 2013 Group income (in USDm)
uSd million (unless otherwise stated) 2011 2012 change 2013 change dividend payments to shareholders (ChF)1 3.00 3.50 17% 3.85 10%
Group eC members2,3 9 16 12 aggregate Group eC compensation (ChF)3 35 50 43% 45 –10%
1 dividend payments are made in april of the following year. For 2013 a special dividend of ChF 4.15 is proposed. distributions made in the form of Swiss withholding tax exempt distributions out of legal reserves from capital contributions.
̤ Full implementation of tapI. eligible employees have now been communicated a target incentive that influences the level of payout when business and individual objectives are achieved.
Specific compensation plans ̤ For the lpp, introduction of an additional two-year holding period for members of the Group eC and Group management Board (GmB) starting with the 2014 award.
̤ Introduction of the GSpp in order to encourage participation in Swiss Re’s future and to increase alignment with shareholders’ interests.
Regulatory oversight ̤ Continued interaction with FInma in 2013. ̤ Continued monitoring of Solvency II
developments to ensure alignment of our compensation framework with the current draft requirements.
̤ preparation of an implementation plan with regard to the ordinance.
̤ at the annual General meeting on 11 april 2014, the Compensation Report 2013 will be subject to a consultative vote.
outlook 2014 In 2014, the Compensation Committee will continue implementing the provisions of the ordinance, focusing on: ̤ Yearly individual election of the members of the Board of directors and of the Compensation Committee, as well as the Chairman of the Board of directors, by the annual General meeting of shareholders.
̤ Inclusion of the overarching compensation principles in the articles of association.
̤ Introduction of the binding shareholders’ vote on compensation at the annual General meeting in 2015.
̤ Reviews and approves the compensation framework and related matters as proposed and endorsed by the Compensation Committee
̤ authorised to propose, approve or endorse compensation changes as defined in its Charter
̤ Responsible for making recommendations and overseeing the design and implementation of compensation principles, policy, framework, plans and disclosure
̤ proposes the targets set for future compensation plans and the performance factors for plans that are due to vest
̤ acts on behalf of the Board of directors in reviewing and approving, as appropriate, compensation proposals for senior management, ensuring that they comply with the Compensation policy
̤ provides regular updates on its activities to the full Board of directors
̤ Further details can be found in the Corporate Governance section on pages 80–81 management ̤ the Group Chief executive officer (Ceo), Group Chief operating officer and Chief human Resources officer are normally invited to attend Compensation Committee meetings
̤ other members of senior management may attend as deemed appropriate by the Compensation Committee
̤ no individual may attend any part of a meeting where his or her own compensation is discussed
̤ mercer – provide information about remuneration trends and advice on executive compensation issues
Roles and responsibilities authority for decisions related to compensation are governed by the articles of association, the Corporate Bylaws and the Compensation Committee Charter (Charter). the main responsibilities of the Compensation Committee are summarised in the table on the right.
Compensation Committee activities the Compensation Committee has a predetermined annual agenda to ensure that important reviews take place at the appropriate times throughout the year. the Compensation Committee also conducts periodic self-assessments to ensure its continued high level of effectiveness and spends some time at each meeting in executive sessions. It held six meetings during 2013 and provided an update to the Board of directors on
Compensation approval the table on the right shows the role of the Compensation Committee in approving compensation.
these authority levels will change with the implementation of the ordinance, considering that the shareholders will approve the aggregate compensation of the members of the Board of directors and the Group eC through a binding vote, starting at the annual General meeting in 2015.
̤ Financial review and confirmation of the apI pool funding methodology december
̤ performance assessment process and proposal of the apI pool for the prior business year January and February
̤ Review of the decisions made during the prior compensation cycle June items relating to the upcoming performance cycle
̤ Setting of the performance targets for variable and long-term compensation for the upcoming year February
̤ analysis of Group eC members’ compensation relative to external peers June
̤ analysis of GmB members’ compensation relative to external peers december
Compensation of the Board of Directors the compensation of the Board of directors is reviewed annually and the Compensation Committee formulates proposals for the attention of the Board of directors accordingly.
̤ Fees of the Board of directors for the following compensation period February and april
̤ Review of the Board of directors compensation policy June, September and december
Compensation principles and plans ̤ Compensation framework: review and approval of proposals related to the implementation of the revised framework January, February and June ̤ annual benefits review June ̤ Review of the Group Compensation policy September
Compliance and regulatory the Compensation Committee spends a considerable amount of time reviewing materials relating to regulatory or statutory reporting. In addition, the structure of the Compensation Committee and its advisors is reviewed on an ongoing basis.
the role of the Control Functions in compensation the role of Swiss Re's Control Functions (defined as Risk management, Group Internal audit and Compliance) in compensation matters is well established. their activities include providing management with information on risk and control awareness.
the Control Functions together with senior management review the list of Key Risk takers on an annual basis.
Since Key Risk takers are responsible for managing substantial risk, their performance in this task needs to be assessed. the Control Functions assess the risk performance of each Key Risk taker and deliver a report to the business and human Resources on an annual basis. this assessment serves as an additional factor when considering the individual performance and compensation review.
Compensation policy Swiss Re’s guiding principles and compensation framework are captured within the global Swiss Re Group Compensation policy. the Compensation policy governs the compensation structure and processes across all functions and locations at Swiss Re and is reviewed annually.
In order to reflect best practices, the Compensation policy prohibits the use of any personal hedging strategies or remuneration and liability-related insurance that could undermine the risk alignment effects and economic exposure embedded in compensation arrangements.
Global Share participation plan Swiss Re offers its employees an opportunity to directly participate in the long-term success of the company by purchasing Swiss Re shares, through the GSpp. the company provides a 30% match on the number of shares held by employees at the end of the three-year period. the match is subject to forfeiture rules in case of termination of employment before the end of the plan cycle. the GSpp has the same core design in all locations.
the plan was rolled out in 2013 as part of the overall compensation framework review and replaced the previous employee participation plan (epp) which has been discontinued.
Benefits Swiss Re also aims to provide a proper degree of protection to employees and their dependents through pension, health, disability and death benefits in line with local market conditions.
Base salary Cash api Vai (deferred api) Lpp GSpp iSp Benefits eligibility all employees all employees employees with an apI at or above uSd 100 000 upon Group Ceo invitation all employees all employees all employees purpose attract and retain pay for performance pay for performance pay for performance alignment to shareholders alignment to shareholders protection against risks plan duration 3 years 5 years for eC and GmB members. 3 years for all other participants 3 years 1 year
incentive Share plan (iSp) employees also have the opportunity to take some or all of their cash apI in the form of Swiss Re shares at a discount of 10% and subject to a one-year blocking period (the Incentive Share plan), encouraging alignment with shareholder interests. after one year, the employee assumes full ownership of the shares.
Funding of the annual performance incentive and Leadership performance plan pools the Compensation Committee focuses primarily on financial results and qualitative criteria in determining global variable compensation pools.
annual performance incentive the apI is a discretionary, variable component of compensation. Combined with the base salary, it provides competitive total cash compensation when both business and individual performance targets are achieved.
Includes assessment of the financial performance versus targets as well as a multi-year view and review of the quality of earnings that then impacts the overall assessment. KpIs include uS Gaap, eVm results, economic net worth and return on equity
Combining a series of overarching tests: includes assessment of market competitiveness as well as affordability checks
management VaI each year to set annual payout factors. the annual payout factors are then averaged over the three-year measurement period to determine the final payout factor. the payout factor is still a linear function that ranges from 50% to 150%.
Settlement at the end of the deferral period, VaI will be settled in cash. For the full three-year performance measurement period, forfeiture conditions apply. additionally, clawback provisions apply in the event of any downward financial restatement which is caused or partially caused by the VaI participant’s fraud or misconduct. In this case, the company is entitled to seek repayment of any vested and settled award.
VaI awards granted prior to 2012 contained an additional mark-up element as compensation for the time value of money. this mark-up has been eliminated for awards starting with the VaI 2011 (awarded in 2012) onwards.
Value alignment incentive purpose the VaI is a mandatory deferral of a portion of the apI adding a time component to variable compensation. this supports the Group’s business model by aligning a substantial portion of variable compensation with sustained long-term results. the aim is to ensure that the ultimate value of the deferred variable compensation through VaI, though awarded for short-term performance, is significantly affected by the longer- term performance of the line of business and the Group.
the payout factor of the VaI is based on the underwriting year eVm results. eVm is used to evaluate, price, reserve and steer the business decisions within Swiss Re. as eVm recognises all cash flows associated with a contract upfront, measuring the VaI over the following three years enables a reduction of VaI if performance is lower than expected; conversely, if performance is higher than expected, a premium will portion of api that remains at risk deferral into VaI
economic impact of reserving accuracy for decisions taken in 2013 measured over 3 years
Vai payout total apI award based on Business and Individual performance measurement period 116 Swiss Re 2013 Financial Report
Restricted Share Units the performance condition for RSus is return on equity (Roe) with a linear vesting line. Vesting is at 0% for an Roe at risk free rate* and at 100% for an Roe at a predefined premium above risk free rate. the premium is set at the beginning of the plan period and for lpp 2014 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 from 0% to 100%. at the end of the three-year period, the total number of units locked in at each measurement period will vest.
performance Share Units the performance condition for pSus is relative total shareholder return (tSR) measured over three years. the pSu vesting curve starts with 50% vesting at the 50th percentile of tSR relative to peers and is capped at 200% vesting at the 75th percentile. the pSus vest within a range of 0%–200%. In the case of a negative tSR over three years, the Compensation Committee retains the right to reduce the level of vesting.
Swiss Re’s tSR performance is assessed relative to the tSR of the peer group. the defined peer group consists of companies that are similar in scale, have a global footprint or have a similar business mix as Swiss Re. the peer group which is set at the beginning of the plan period is aCe * annual risk free rate is defined as the average of 12 monthly rates for 5-year uS treasury Bonds of the corresponding performance year.
ltd, allianz Se, american International Group Inc, amlin plC, axa Sa, Catlin Group ltd, everest Re Group ltd, hannover Rueck Se, muenchener Rueckversicherungs -Gesellschaft aG, partnerRe ltd, Reinsurance Group america Inc, RenaissanceRe holding ltd, SCoR Se, xl Group plC and Zurich Insurance Group aG.
Final settlement at the end of the three-year measurement period, both components will typically be settled in Swiss Re shares. For Group eC and GmB members, an additional twoyear holding is required. For the full threeyear performance measurement period, forfeiture conditions apply.
Swiss Re also offers the possibility for all lpp participants to have shares sold to cover statutory tax and social security liabilities that may arise at vesting.
performance period performance condition: Roe, measured after each year performance condition: Relative tSR, measured over 3 years p S
V e st in g a ft e r 3 y e a rs
the guidelines define target ownership by role and the ownership levels required are outlined below: ̤ Group Ceo — 3x annual base salary ̤ Group eC members — 2x annual base salary ̤ GmB members — 1x annual base salary members have a five-year timeframe to achieve these targets. In addition, because Swiss Re believes that a meaningful stock ownership position is essential, restrictions on the cash portion of apI delivered will apply if these levels are not met within the specified timeframe.
unlike the apI for the Group eC, which is determined in arrears based on the results of the performance year, the fees for the Board of directors are determined in advance for the term of office they are elected for. the fee level for each Board member is reviewed annually to ensure that it remains appropriate.
Compensation structure Group fees for the members of the Board of directors are delivered as 60% in cash, and a mandatory 40% in Swiss Re shares, with a four-year blocking period.
the degree of in-depth oversight requires from each Board member a high level of professional experience and expertise in their respective field. Furthermore, the demands on the Chairs of the respective committees continue to increase. Swiss Re is confident that the skill set of its Board of directors is well-balanced, which in turn ensures an effective level of supervision.
Subsidiary boards of directors the majority of the members of the boards at the subsidiary level are Swiss Re executives and they receive no additional fees for their services in this role. the non-executive members of the boards receive their fees 100% in cash.
Long term incentive the performance hurdles for the ltI award defined in 2011 were centred on an average return on equity (Roe) target of 10.2% and average earnings per share (epS) target of uSd 6.60. Considerations which led to the respective targets were the market outlook, the level of uncertainty and the clear priority set by the Board to de-risk the balance sheet.
the ltI plan has been discontinued and the last award of ltI was granted in march 2011. the last grant of ltI was disclosed in the 2010 Compensation Report. the table below reflects the units awarded and subsequently vested across all ltI plan years.
aggregate compensation for Key Risk takers the aggregate compensation of the individuals that held a key risk-taking position during the performance years 2012 and 2013 was: performance Year 2012 performance Year 2013
2 a post-award adjustment was made in 2013 in respect of two employees for the 2012 performance year. the incremental amount was ChF 280 000 which is not included in the table above.
Fixed compensation Base salaries 125 53 140 55 pensions, social security and benefits 125 22 140 28 annual performance Incentive
̤ 30% Base salary and allowances ̤ 23% Cash apI ̤ 20% VaI (paid after 3 years) ̤ 27% lpp (paid after 5 years)
ChF millions economic value at grant accrued grant value Fair value mark-up total expense
Base salary and allowances2,3 12 985 12 984 Funding of pension benefits 1 656 1 914
4 For 2012, does not include sign-on bonuses in the amount of ChF 1.4 million as payments were made prior to joining the Group eC. these amounts were however included in both “aggregate compensation” tables on page 121 for 2012.
5 a post-award adjustment was made in 2013 in respect of one employee for the 2012 performance year. this incremental amount of ChF 220 000 related to duties prior to joining the Group eC which is not included in the table above. please also see “aggregate compensation” tables on page 121.
7 Includes payments reflecting the time in the role as Group eC members. 8 Covers legally or contractually required payments for members who were in the role for only a part of the reporting period. 9 Represents incumbents and not positions.
the lpp 2013 represents the fair value of the lpp award granted in march 2013. this lpp may lead to a payment in march 2016, subject to return on equity and relative total shareholder return performance conditions from 2013 to 2015. In the same way, the lpp 2014 represents the fair value of the lpp award granted in march 2014, which may (subject to the performance conditions from 2014 to 2016) lead to vesting in march 2017. the lpp is described in detail on page 117.
other payments to members of the executive Committee during 2013, no payments (or waivers of claims) other than those set out in the “Compensation decision” tables were made to current members of the Group eC.
Cash annual performance Incentive 1 450 1 600 1 the company contributions to social security systems paid by Swiss Re in line with applicable laws amounted to ChF 613 490 in 2012 and ChF 491 381 in 2013. the table shows gross amounts.
2 For 2012, includes one month for the former Group Ceo, Stefan lippe, and 11 months for the current Group Ceo, michel m. liès.
Shares held by members of the Group eC the following table reflects total current Swiss Re share ownership by members of the Group eC as of 31 december: Unvested restricted share units held by members of the Group eC prior to the introduction of the lpp, Swiss Re did not grant restricted share units (RSus) on a regular basis, except for events such as exceptional business cycles, significant acquisitions or the replacement of forfeited equity for new executive hires.
the following table reflects unvested restricted share unit ownership by members of the Group eC as of 31 december: Vested options held by members of the Group eC the following table reflects total vested option ownership by members of the Group eC as of 31 december: Swiss Re granted options to senior management in the past and the last grant was made in 2006. the underlying exercise price for the outstanding option series has been adjusted for the special dividend payout in 2013. the remaining vested options held by active members of the Group eC will expire between 2014 and 2015, and have a weighted average exercise price of ChF 83.92 (within a range between ChF 78.52 and ChF 88.13) after the adjustment.
Long term incentive units held by members of the Group eC the following table reflects total unvested long term Incentive units held by members of the Group eC as of 31 december. this includes both awards under the previous ltI and the current lpp: Loans to members of the Group eC In general, credit is secured against real estate or pledged shares. the terms and conditions of loans and mortgages are typically the same as those available to all employees of the Swiss Re Group in their particular locations to the extent possible. For example, in Switzerland fixed-rate mortgages have a maturity of five years and interest rates that correspond to the five-year Swiss franc swap rate plus a margin of 10 basis points.
Compensation for former members of the Group eC during 2013, payments in the total amount of ChF 1.1 million were made to seven former members of the Group eC. this amount is made up of a pro-rata base salary payment, company contributions to social security and pension systems paid by Swiss Re in line with applicable laws, benefits in the context of the outstanding mortgages and loans not at market rates above, risk benefits as well as company commitments for tax related services.
ChF thousands 2013 total mortgages and loans to members of the Group eC 3 956 highest mortgages and loans to an individual member of the Group eC: Christian mumenthaler 1 919 total mortgages and loans not at market conditions to former members of the Group eC 4 300 michel liès, Group Ceo 108 795 david Cole, Group Chief Risk officer 69 280 John R. dacey, Group Chief Strategy officer, Chairman admin Re® 17 685 Guido Fürer, Group Chief Investment officer 47 760 agostino Galvagni, Ceo Corporate Solutions 77 825 Jean-Jacques henchoz, Ceo Reinsurance emea 47 740 Christian mumenthaler, Ceo Reinsurance 77 825 moses ojeisekhoba, Ceo Reinsurance asia 34 915 George Quinn, Group Chief Financial officer 86 375 J. eric Smith, Ceo Swiss Re americas 34 915 matthias weber, Group Chief underwriting officer 65 005 thomas wellauer, Group Chief operating officer 77 825
Raymond K.F. Ch’ien, member 360 212 141 353 mary Francis, member6 — 120 80 200 Rajna Gibson Brandon, member 335 197 131 328 C. Robert henrikson, Chairman of the Compensation Committee7 306 257 171 428 hans ulrich maerki, member 328 197 131 328
Jean-pierre Roth, member 284 166 111 277 Robert a. Scott, former Chairman of the Compensation Committee9 145 1 Compensation for the members of the Board of directors includes fixed fees and allowances both in cash and shares. no sign-on or severance payments are made.
5 Chairman of the Finance and Risk Committee until 13 april 2012. 6 elected to Swiss Re’s Board of directors at the annual General meeting of 10 april 2013. 7 elected to Swiss Re’s Board of directors at the annual General meeting of 13 april 2012. 8 Includes fees for duties on the board of uS Group companies.
9 term of office expired as of 13 april 2012 and did not stand for re-election due to retirement.
as of 31 december no performance shares for the members of the Board of directors were outstanding.
Related parties transactions disclosure on compensation decisions in 2013 covers members of the Group eC and the Board of directors as indicated, and for both including related parties to the extent applicable. Such related parties cover spouses, partners, children and other dependents or closely linked persons. In 2013 no compensation was paid to any related party.
weighted average exercise price in ChF 83.04 walter B. Kielholz, Chairman 40 000 John R. Coomber, member 130 000
equity 136 statement of cash flow 236 Swiss Re Ltd 236 annual Report 237 income statement 238 Balance sheet 253 Proposal for allocation of
179 note 6 Debt and contingent capital instruments 182 note 7 Unpaid claims and claim adjustment expenses 184 note 8 insurance information 189 note 9 Premiums written 190 note 10 earnings per share 191 note 11 income taxes 194 note 12 Benefit plans 202 note 13 share-based payments 205 note 14 compensation, participations
equity investees 224 note 19 Variable interest entities 228 note 20 Restructuring provision 229 note 21 Risk assessment 232 Report of the statutory auditor 234 Group financial years 2004–2013 fiNaNciaL StatemeNtS | intRODUctiOn
Fee income from policyholders 8 785 542 net investment income – non-participating 2 4 473 3 947 net realised investment gains/losses – non-participating business (total impairments for the years ended 31 December were 215 in 2012 and 41 in 2013, of which 162 and 41, respectively, were recognised in earnings) 2 947 766 net investment result – unit-linked and with-profit 2 2 570 3 347 Other revenues 188 24 expenses claims and claim adjustment expenses 8 –7 763 –9 655 life and health benefits 8 –8 878 –9 581 Return credited to policyholders –2 959 –3 678
130 Swiss Re 2013 Financial Report fiNaNciaL StatemeNtS | GROUP Financial statements
UsD millions 2012 2013 net income before attribution of non-controlling interests 4 398 4 513 Other comprehensive income, net of tax: change in unrealised gains/losses (tax: 59 in 2012 and 1 106 in 2013) 184 –2 785 change in other-than-temporary impairment (tax: –47 in 2012 and –12 in 2013) 90 22 change in foreign currency translation (tax: 28 in 2012 and 39 in 2013) 332 –288 change in adjustment for pension benefits (tax: 59 in 2012 and –119 in 2013) –178 419 total comprehensive income before attribution of non-controlling interests 4 826 1 881 interest on contingent capital instruments –56 –67 attribution of value to option on redeemable non-controlling interest1 –132 comprehensive income attributable to non-controlling interests –141 –2 total comprehensive income attributable to common shareholders 4 497 1 812 1 in 2000, swiss Re and the shareholders of new california Holdings, inc. entered into a put/call agreement for the acquisition of new california Holdings, inc. by swiss Re. the put/call agreement was considered a redeemable non-controlling interest, however, a value was not assigned to this instrument as the exercise was contingent on several items occurring to complete the transaction. During the second quarter of 2012, the majority of the contingencies had been resolved and the exercise of the put/call option at the predetermined price became probable. in accordance with Us GaaP requirements, the difference between the carrying value of the minority interest and the redemption price, UsD 132 million, was recorded against shareholders’ equity and as a reduction in the net income attributable to common shareholders for the purposes of calculating earnings per share.
Foreign currency translation1,2 adjustment from pension benefits3 accumulated other comprehensive income
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 the “Other expenses” line.
Swiss Re 2013 Financial Report 131 fiNaNciaL StatemeNtS | GROUP Financial statements
Premiums and other receivables 11 529 12 276 Reinsurance recoverable on unpaid claims and policy benefits 10 109 8 327 Funds held by ceding companies 13 245 12 400 acquired present value of future profits 5 3 023 3 537 income taxes recoverable 467 490 132 Swiss Re 2013 Financial Report fiNaNciaL StatemeNtS | GROUP Financial statements
Liabilities Unpaid claims and claim adjustment expenses 63 670 61 484 liabilities for life and health policy benefits 3 36 117 36 033
Funds held under reinsurance treaties 3 642 3 551 income taxes payable 604 660 Deferred and other non-current tax liabilities1 9 442 8 242 accrued expenses and other liabilities 11 617 8 152 equity common stock, cHF 0.10 par value additional paid-in capital 7 721 4 963 treasury shares, net of tax –995 –1 099 accumulated other comprehensive income: net unrealised investment gains/losses, net of tax 4 407 1 622 Other-than-temporary impairment, net of tax –28 –6 cumulative translation adjustments, net of tax –3 609 –3 897 accumulated adjustment for pension and post-retirement benefits, net of tax –953 –534 total accumulated other comprehensive income –183 –2 815 non-controlling interests 24 25 total liabilities and equity 221 503 213 520 1 the Group updated its balance sheet presentation of deferred tax assets and liabilities. Deferred tax assets and liabilities are presented on a gross basis as per the first quarter 2013. the comparative period has been adjusted accordingly and is consistent with the relevant income tax disclosure in the notes to the financial statements in the prior year.
UsD millions 2012 2013 contingent capital instruments Balance as of 1 January 0 1 102
Balance as of period end 1 102 1 102 common shares Balance as of 1 January 35 35 issue of common shares Balance as of period end 35 35 additional paid-in capital contingent capital instruments’ issuance costs –18 share-based compensation –29 14 Realised gains/losses on treasury shares –83 –12 Dividends on common shares1 –1 134 –2 760 Balance as of period end 7 721 4 963 treasury shares, net of tax Balance as of 1 January –1 096 –995 Purchase of treasury shares –147 –290 issuance of treasury shares, including share-based compensation to employees 248 186 Balance as of period end –995 –1 099
Other changes during the period 184 –2 785 Balance as of period end 4 407 1 622
Other-than-temporary impairment, net of tax Balance as of 1 January –118 –28 Other changes during the period 90 22 Balance as of period end –28 –6 foreign currency translation, net of tax Balance as of 1 January –3 941 –3 609 Other changes during the period 332 –288 Balance as of period end –3 609 –3 897 adjustment for pension and other post-retirement benefits, net of tax Balance as of 1 January –775 –953 change during the period –178 419 Balance as of period end –953 –534
which required the release of UsD 24 million of deferred acquisition costs against retained earnings. 3 in 2000, swiss Re and the shareholders of new california Holdings, inc. entered into a put/call agreement for the acquisition of new california Holdings, inc. by swiss Re.
the put/call agreement was considered a redeemable non-controlling interest; however, a value was not assigned to this instrument as the exercise was contingent on several items occurring to complete the transaction. During the second quarter of 2012, the majority of the contingencies had been resolved and the exercise of the put/call option at the predetermined price became probable. in accordance with Us GaaP requirements, the difference between the carrying value of the minority interest and the redemption price, UsD 132 million, was recorded against shareholders’ equity and as a reduction in the net income attributable to common shareholders for the purposes of calculating earnings per share. in august 2012, the put/call option was exercised and new california Holdings inc. was acquired.
4 the sale of swiss Re Private equity Partners aG, the management company of swiss Re’s private equity fund-of-fund business, to BlackRock, inc. was closed on 4 september 2012. the sale resulted in the deconsolidation of a number of private equity funds, which led to a reduction in non-controlling interests of UsD 1 400 million. in addition, new california Holdings, inc. was acquired for UsD 548 million in cash on 29 august 2012. as of acquisition date, swiss Re also fully owned aurora national life assurance company and consequently no longer reports any non-controlling interest related to this subsidiary.
Swiss Re 2013 Financial Report 135 fiNaNciaL StatemeNtS | GROUP Financial statements
Net cash provided/used by operating activities 4 503 2 283 cash flows from investing activities Fixed income securities: net purchase/sale/maturities of short-term investments –5 073 –2 017 equity securities: cash paid/received for acquisitions/disposal and reinsurance transactions, net1 106 net purchases/sales/maturities of other investments 10 –96 Net cash provided/used by investing activities –3 531 –344 cash flows from financing activities issuance/repayment of long-term debt 740 40 issuance/repayment of short-term debt –2 200 –1 593 Proceeds from the issuance of contingent capital instruments, net of issuance cost 1 084 Purchase/sale of treasury shares –133 –227 Dividends paid to shareholders –1 134 –2 760 Net cash provided/used by financing activities –1 643 –4 540 total net cash provided/used –671 –2 601 effect of foreign currency translation 101 –164 change in cash and cash equivalents –570 –2 765 cash and cash equivalents as of 1 January 11 407 10 837 cash and cash equivalents as of 31 December 10 837 8 072 1 swiss Re closed the sale of the admin Re® Us business to Jackson national life insurance co in the third quarter 2012. the purchase price included a cash payment of UsD 589 million. in addition, new california Holdings, inc. was acquired for UsD 548 million in cash. also in 2012, swiss Re Private equity Partners aG, swiss Re’s private equity fund-of-fund business, was sold to BlackRock, inc. for UsD 65 million in cash. swiss Re continues to be invested as a limited partner in the funds.
interest paid was UsD 887 million and UsD 929 million for the years ended 31 December 2012 and 2013, respectively.
tax paid was UsD 123 million and UsD 447 million for the years ended 31 December 2012 and 2013, respectively.
Swiss Re 2013 Financial Report 137 fiNaNciaL StatemeNtS | GROUP Financial statements
Nature of operations the swiss re Group, which is headquartered in Zurich, switzerland, comprises swiss re ltd (the parent company) and its subsidiaries (collectively, the “swiss re Group” or the “Group”). the swiss re Group is a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Working through brokers and a network of more than 60 offices around the globe, the Group serves a client base made up of insurance companies, mid- to large-sized corporations and public sector clients.
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.
Principles of consolidation the Group’s financial statements include the consolidated financial statements of swiss re ltd and its subsidiaries. Voting entities which swiss re ltd directly or indirectly controls through holding a majority of the voting rights are consolidated in the Group’s accounts. Variable interest entities (Vies) are consolidated when the swiss re Group is the primary beneficiary. the Group is the primary beneficiary when it has power over the activities that impact the Vie’s economic performance and at the same time has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the Vie. 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 swiss re 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.
Use of estimates in the preparation of financial statements the preparation of financial statements requires management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the related disclosure, including contingent assets and liabilities. the swiss re Group’s liabilities for unpaid claims and claim adjustment expenses and policy benefits for life and health include estimates for premium, claim and benefit data not received from ceding companies at the date of the financial statements. in addition, the Group uses certain financial instruments and invests in securities of certain entities for which exchange trading does not exist. the Group determines these estimates based on historical information, actuarial analyses, financial modelling and other analytical techniques. actual results could differ significantly from the estimates described above.
Foreign currency remeasurements and translation transactions denominated in foreign currencies are remeasured to the respective subsidiary’s functional currency at average quarterly exchange rates. monetary assets and liabilities are remeasured to the functional currency at closing exchange rates, whereas nonmonetary assets and liabilities are remeasured to the functional currency at historical rates. remeasurement gains and losses on monetary assets and liabilities and trading securities are reported in earnings. remeasurement gains and losses on available-for-sale securities, investments in consolidated subsidiaries and investments accounted for using the equity method are reported in shareholders’ equity.
for consolidation purposes, assets and liabilities of subsidiaries with functional currencies other than us dollars are translated from the functional currency to us dollars at closing rates. revenues and expenses are translated at average exchange rates. translation adjustments are reported in shareholders’ equity.
the Group considers both the credit risk of its counterparties and own risk of non-performance in the valuation of derivative instruments and other over-the-counter financial assets. in determining the fair value of these financial instruments, the assessment of the Group’s exposure to the credit risk of its counterparties incorporates consideration of existing collateral and netting arrangements entered into with each counterparty. the measure of the counterparty credit risk is estimated with incorporation of the observable credit spreads, where available, or credit spread estimates derived based on the benchmarking techniques where market data is not available. the impact of the Group’s own risk of non-performance is analysed in the manner consistent with the aforementioned approach, with consideration of the Group’s observable credit spreads. the value representing such risk is incorporated into the fair value of the financial instruments (primarily derivatives), in a liability position as of the measurement date. the change in this adjustment from period to period is reflected in realised gains and losses in the income statement.
investments the Group’s investments in fixed income and equity securities are classified as available-for-sale (afs) or trading. fixed income securities afs and equity securities afs are carried at fair value, based on quoted market prices, with the difference between original cost and fair value being recognised in shareholders’ equity. trading fixed income and equity securities are carried at fair value with unrealised gains and losses being recognised in earnings.
for debt securities afs which are other-than-temporary impaired and there is not an intention to sell, the impairment is separated into (i) the estimated amount relating to credit loss, and (ii) the amount relating to all other factors. the estimated credit loss amount is recognised in earnings, with the remainder of the loss amount recognised in other comprehensive income. in cases where there is an intention or requirement to sell, the accounting of the other-than-temporary impairment is the same as for equity securities afs described above.
policy loans, mortgages and other loans are carried at amortised cost. interest income is recognised in accordance with the effective yield method.
investment in real estate that the Group intends to hold for the production of income is carried at depreciated cost, net of any writedowns for impairment in value. impairment in value is recognised if the sum of the estimated future undiscounted cash flows from the use of the real estate is lower than its carrying value. impairment in value, depreciation and other related charges or credits are included in net investment income. investment in real estate held for sale is carried at the lower of cost or fair value, less estimated selling costs, and is not depreciated. reductions in the carrying value of real estate held for sale are included in realised investment losses.
short-term investments are carried at amortised cost, which approximates fair value. 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, 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 interest equals or exceeds 3% are accounted for using the equity method. investments in limited partnerships where the Group’s interest is below 3% and equity investments in corporate entities which are not publicly traded are accounted for at estimated fair value with changes in fair value recognised as unrealised gains/losses in shareholders’ equity.
if the derivative is designated as a hedge of the fair value of assets or liabilities, changes in the fair value of the derivative are recognised in earnings, together with changes in the fair value of the related hedged item. if the derivative is designated as a hedge of the variability in expected future cash flows related to a particular risk, changes in the fair value of the derivative are reported in other comprehensive income until the hedged item is recognised in earnings. the ineffective portion of the hedge is recognised in earnings. When hedge accounting is discontinued on a cash flow hedge, the net gain or loss remains in accumulated other comprehensive income and is reclassified to earnings in the period in which the formerly hedged transaction is reported in earnings. When the Group discontinues hedge accounting because it is no longer probable that a forecasted transaction will occur within the required time period, the derivative continues to be carried on the balance sheet at fair value, and gains and losses that were previously recorded in accumulated other comprehensive income are recognised in earnings.
the Group recognises separately derivatives that are embedded within other host instruments if the economic characteristics and risks are not clearly and closely related to the economic characteristics and risks of the host contract and if it meets the definition of a derivative if it were stand-alone.
the Group also designates non-derivative monetary financial instruments as a hedge of the foreign currency exposure of its net investment in certain foreign operations. from the inception of the hedging relationship, remeasurement gains and losses on the designated non-derivative monetary financial instruments and translation gains and losses on the hedged net investment are reported as translation gains and losses in shareholders’ equity.
acquired present value of future profits the acquired present value of future profits (pVfp) of business in force is recorded in connection with the acquisition of life and/or health business. the initial value is determined actuarially by discounting estimated future gross profits as a measure of the value of business acquired. the resulting asset is amortised on a constant yield basis over the expected revenue recognition period of the business acquired, generally over periods ranging up to 30 years, with the accrual of interest added to the unamortised balance at the earned rate. the earned rate encompasses both, the current earned rate or the original earned rate depending on the business written. the rate is consistently applied for the entire life of the applicable business. for universal-life and similar products, pVfp is amortised in line with estimated gross profits, and estimated gross profits are updated quarterly. the carrying value of pVfp is reviewed periodically for indicators of impairment in value. adjustments to reflect impairment in value are recognised in earnings during the period in which the determination of impairment is made or to other comprehensive income for shadow loss recognition.
Goodwill the excess of the purchase price of acquired businesses over the estimated fair value of net assets acquired is recorded as goodwill, which is reviewed periodically for indicators of impairment in value. adjustments to reflect impairment in value are recognised in earnings in the period in which the determination of impairment is made.
Deferred income taxes Deferred income tax assets and liabilities are recognised based on the difference between financial statement carrying amounts and the corresponding income tax bases of assets and liabilities using enacted income tax rates and laws. a valuation allowance is recorded against deferred tax assets when it is deemed more likely than not that some or all of the deferred tax asset may not be realised.
Unpaid claims and claim adjustment expenses liabilities for unpaid claims and claim adjustment expenses for property and casualty and life and health 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.
the Group does not discount liabilities arising from prospective property and casualty insurance and reinsurance contracts, including liabilities which are discounted for us statutory reporting purposes. liabilities arising from property and casualty insurance and reinsurance contracts acquired in a business combination are initially recognised at fair value in accordance with the purchase method of accounting. the Group does not discount life and health claim reserves except for disability income claims in payment which are recognised at the estimated present value of the remaining ultimate net costs of the incurred claims.
experience features which are directly linked to a reinsurance asset or liability are classified in a manner that is consistent with the presentation of that asset or liability.
amounts assessed against policyholders for mortality, administration and surrender are shown as fee income. amounts credited to policyholders are shown as interest credited to policyholders. investment income and realised investment gains and losses allocable to policyholders are included in net investment income and net realised investment gains/losses except for unit-linked and with-profit business which is presented in a separate line item on the face of the income statement.
unit-linked and with-profit business are presented together as they are similar in nature. for unit-linked contracts, the investment risk is borne by the policyholder. for with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the down-side risk for the policyholder, and a certain proportion of the returns may be retained by swiss re Group (typically 10%). additional disclosures are provided in Note 2.
Funds held assets and liabilities on the asset side, funds held by ceding companies’ consist mainly of amounts retained by the ceding company for business written on a funds withheld basis. in addition, amounts arising from the application of the deposit method of accounting to ceded retrocession or reinsurance contracts are included.
Premiums property and casualty reinsurance premiums are recorded when written and include an estimate for written premiums receivable at period end. premiums earned are generally recognised in income over the contract period in proportion to the amount of reinsurance provided. unearned premiums consist of the unexpired portion of reinsurance provided. life reinsurance premiums are earned when due. related policy benefits are recorded in relation to the associated premium or gross profits so that profits are recognised over the expected lives of the contracts.
the Group provides reserves for uncollectible amounts on reinsurance balances ceded, based on management’s assessment of the collectability of the outstanding balances.
Receivables premium and claims receivables which have been invoiced are accounted for at face value. together with assets arising from the application of the deposit method of accounting that meet the definition of financing receivables they are regularly assessed for impairment. evidence of impairment is the age of the receivable and/or any financial difficulties of the counterparty. allowances are set up on the net balance, meaning all balances related to the same counterparty are considered. the amount of the allowance is set up in relation to the time a receivable has been due and financial difficulties of the debtor, and can be as high as the outstanding net balance.
for share-based compensation plans which are settled in cash, compensation costs are recognised as liabilities, whereas for equitysettled plans, compensation costs are recognised as an accrual to additional paid-in capital within shareholders’ equity.
earnings per common share Basic earnings per common share are determined by dividing net income available to shareholders by the weighted average number of common shares entitled to dividends during the year. Diluted earnings per common share reflect the effect on earnings and average common shares outstanding associated with dilutive securities.
Subsequent events subsequent events for the current reporting period have been evaluated up to 17 march 2014. this is the date on which the financial statements are available to be issued.
investment income Net investment income by source (excluding unit-linked and with-profit business) was as follows: Dividends received from investments accounted for using the equity method were usD 128 million and usD 198 million for 2012 and 2013, respectively.
proceeds from sales of fixed income securities available-for-sale amounted to usD 101 046 million and usD 79 815 million for 2012 and 2013, respectively. sales of equity securities available-for-sale were usD 1 494 million and usD 2 604 million for 2012 and 2013, respectively.
a reconciliation of other-than-temporary impairment related to credit losses recognised in earnings was as follows: usD millions unit-linked With-profit unit-linked With-profit investment income – fixed income securities 128 97 117 97 investment income – equity securities 531 32 511 26 total investment income – unit-linked and with-profit business 677 153 653 136 realised gains/losses – fixed income securities 65 88 –133 –105 realised gains/losses – equity securities 1 679 89 2 711 136 realised gains/losses – other –149 –32 1 –52 total realised gains/losses – unit-linked and with-profit business 1 595 145 2 579 –21 total net investment result – unit-linked and with-profit business 2 272 298 3 232 115 usD millions 2012 2013
investments available-for-sale amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as availablefor -sale as of 31 December were as follows: the “other-than-temporary impairments recognised in other comprehensive income” column includes only securities with a creditrelated loss recognised in earnings. subsequent recovery in fair value of securities previously impaired in other comprehensive income is presented in the “other-than-temporary impairments recognised in other comprehensive income” column.
Gross unrealised losses other-than-temporary impairments recognised in other comprehensive income estimated fair value
Debt securities issued by governments and government agencies: us treasury and other us government corporations and agencies 13 375 746 –26 14 095 states of the united states and political subdivisions of the states 85 19 104 residential mortgage-backed securities 911 46 –23 –14 920
Fixed income securities available-for-sale 80 594 6 665 –244 –41 86 974 equity securities available-for-sale 2 789 373 –60 3 102 2013 usD millions amortised cost or cost
investments trading fixed income securities and equity securities classified as trading (excluding unit-linked and with-profit business) as of 31 December were as follows: investments held for unit-linked and with-profit business investments held for unit-linked and with-profit business as of 31 December were as follows: maturity of fixed income securities available-for-sale the amortised cost or cost and estimated fair values of investments in fixed income securities available-for-sale by remaining maturity are shown below. fixed maturity investments are assumed not to be called for redemption prior to the stated maturity date. as of 31 December 2012 and 2013, usD 9 958 million and usD 11 476 million, respectively, of fixed income securities available-for-sale were callable.
assets pledged as of 31 December 2013, investments with a carrying value of usD 8 445 million were on deposit with regulatory agencies in accordance with local requirements, and investments with a carrying value of usD 11 849 million were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
a real estate portfolio with a carrying value of usD 261 million serves as collateral for short-term senior operational debt of usD 731 million.