Compensation for the members of the Board of Directors the following two tables illustrate (1) the individual compensation for the members of the Board of Directors for the reported financial years 2014 and 2015 and (2) the individual compensation for the members of the Board of Directors paid or payable for the term of office from aGm 2015 to aGm 2016.
(1) individual Board compensation for the reported financial years 2014 and 2015 was: Compensation Compensation desicions in 2015
(2) individual Board compensation for the term of office between the aGm 2015 and the aGm 2016.
Renato Fassbind, Vice Chairman, Chairman of the audit Committee1 789 525 350 875 Jakob Baer, former Chairman of the audit Committee2 217 n/a n/a n/a Raymund Breu, former member3 331 53 36 89
Raymond K.F. Ch’ien, member 349 204 136 340 John R. Coomber, former member2 113 n/a n/a n/a
Rajna Gibson Brandon, member 332 190 126 316 C. Robert Henrikson, Chairman of the Compensation Committee 460 277 185 462 malcolm D. Knight, former member2 95 n/a n/a n/a Hans Ulrich maerki, member 350 207 136 343 trevor manuel, member6 115 77 192
Walter B. Kielholz, Chairman 4 900 Renato Fassbind, Vice Chairman C m 225 500 175 900 mathis Cabiallavetta, member m m 225 100 325 Raymond K.F. Ch’ien, member m m 225 125 350
Rajna Gibson Brandon, member m m 225 100 325 C. Robert Henrikson, member C m 225 250 475 Hans Ulrich maerki, member m m 225 125 350 trevor manuel, member m 225 50 275
Jean-pierre Roth, member m 225 50 275 susan L. Wagner, member m C 225 350 575 Total compensation for the term of office from AGM 2015 to AGM 2016 10 5073
Shares held by members of the Board of Directors the number of shares held by members of the Board of Directors as of 31 December were: Vested options held by members of the Board of Directors swiss Re does not grant employee stock options to members of the Board of Directors. the stock options shown in the table below were awarded at a time when the recipients were still members of swiss Re’s executive management. the following table reflects vested options held by members of the Board of Directors as of 31 December: the underlying exercise prices for the outstanding option series have been adjusted for special dividend payouts. the vested options held by members of the Board of Directors expired in 2015.
Loans to members of the Board of Directors no loans were granted to current or former members of the Board in 2015 and no loans were outstanding as of 31 December 2015.
Related parties transactions Disclosure on compensation decisions in 2015 covers members of the Group eC and the Board of Directors as indicated, and for both include related parties to the extent applicable. such related parties cover spouses, partners, children and other dependents or closely linked persons. in 2015 no compensation was paid to any related party.
Rajna Gibson Brandon, member 27 787 20 216 C. Robert Henrikson, Chairman of the Compensation Committee 6 808 8 896 Hans Ulrich maerki, member 27 431 28 969 trevor manuel, member2 868
Board of Directors’ responsibility the Board of Directors is responsible for the preparation and overall fair presentation of the Compensation Report in accordance with swiss law and the ordinance against excessive Compensation at public Corporations (the ordinance). the Board of Directors is also responsible for designing the compensation system and defining individual compensation packages.
Expenses claims and claim adjustment expenses 3 –10 577 –9 848 life and health benefits 3 –10 611 –9 080 Return credited to policyholders –1 541 –1 166
Income before income tax expense 4 227 5 319 income tax expense 13 –658 –651 Net income before attribution of non-controlling interests 3 569 4 668 income attributable to non-controlling interests –3 Net income after attribution of non-controlling interests 3 569 4 665 interest on contingent capital instruments –69 –68 Net income attributable to common shareholders 3 500 4 597
Total comprehensive income before attribution of non-controlling interests 6 299 787 interest on contingent capital instruments –69 –68 comprehensive income attributable to non-controlling interests –3 Total comprehensive income attributable to common shareholders 6 230 716 2014 UsD millions
Other-than- temporary impairment1 Foreign currency translation1,2 adjustment from pension benefits3 accumulated other comprehensive income amounts reclassified out of accumulated other comprehensive income –1 398 –41 36 –1 403
Balance as of period end 5 418 –3 –4 675 –825 –85 2015 UsD millions
Balance as of 1 January 5 418 –3 –4 675 –825 –85 change during the period –2 166 –10 –870 –310 –3 356 amounts reclassified out of accumulated other comprehensive income –1 523 74 –1 449
Fixed income securities: available-for-sale, at fair value (including 12 677 in 2014 and 11 897 in 2015 subject to securities lending and repurchase agreements) (amortised cost: 2014: 77 867; 2015: 76 155) 84 450 79 435 trading (including 645 in 2014 and 1 729 in 2015 subject to securities lending and repurchase agreements) 2 219 2 896 equity securities: available-for-sale, at fair value (including 311 in 2014 and 605 in 2015 subject to securities lending and repurchase agreements) (cost: 2014: 3 133; 2015: 4 294) 4 024 4 719
Policy loans, mortgages and other loans 3 205 3 123 investment real estate 888 1 556 short-term investments, at fair value (including 3 217 in 2014 and 1 278 in 2015 subject to securities lending and repurchase agreements) 14 127 7 405 investments for unit-linked and with-profit business (including fixed income securities trading: 3 680 in 2014 and 4 069 in 2015, equity securities trading: 20 045 in 2014 and 22 783 in 2015) 25 325 28 241 cash and cash equivalents (including 65 in 2014 and 319 in 2015 subject to securities lending) 7 471 8 204 accrued investment income 1 049 983 Premiums and other receivables 12 265 11 709 Reinsurance recoverable on unpaid claims and policy benefits 6 950 6 578 Funds held by ceding companies 11 222 9 870 acquired present value of future profits 6 3 297 2 964 income taxes recoverable 212 191 158 Swiss Re 2015 Financial Report
Funds held under reinsurance treaties 3 385 3 320 income taxes payable 909 488 Deferred and other non-current tax liabilities 9 445 8 093 accrued expenses and other liabilities 6 873 7 948
Common shares Balance as of 1 January 35 35 issue of common shares Balance as of period end 35 35
Treasury shares, net of tax Balance as of 1 January –1 099 –1 185 Purchase of treasury shares –223 –584 issuance of treasury shares, including share-based compensation to employees 137 107 Balance as of period end –1 185 –1 662
Foreign currency translation, net of tax Balance as of 1 January –3 897 –4 675 changes during the period –778 –1 012 Balance as of period end –4 675 –5 687
Balance as of 1 January 25 111 changes during the period 86 –25 income attributable to non-controlling interests 3 Balance as of period end 111 89 1 Dividends to shareholders were paid in the form of a withholding tax-exempt repayment of legal reserves from capital contributions.
Cash flows from investing activities Fixed income securities: net purchases/sales/maturities of short-term investments2 5 921 6 103 equity securities: securities purchased/sold under agreement to resell/repurchase, net1 331 –2 089 cash paid/received for acquisitions/disposal and reinsurance transactions, net –257 404 net purchases/sales/maturities of other investments1.2 –1 642 2 264 net purchases/sales/maturities of investments held for unit-linked and with-profit business2 791 1 218 Net cash provided/used by investing activities 1 285 1 694
2 the Group changed the presentation of its investments related to unit-linked and with-profit business, and related deposits and withdrawals were reclassified from “technical provisions, net” in the operating cash flow to “Policyholder account balances, unit-linked and with-profit business” in the financing cash flow. comparatives are adjusted accordingly.
Foreign currency remeasurement and translation Transactions denominated in foreign currencies are remeasured to the respective subsidiary’s functional currency at average exchange rates. Monetary assets and liabilities are remeasured to the functional currency at closing exchange rates, whereas non-monetary 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.
Valuation of financial assets The fair value of the majority of the Group’s financial instruments is based on quoted prices in active markets or observable inputs. These instruments include government and agency securities, commercial paper, most investment-grade corporate debt, most high-yield debt securities, exchange-traded derivative instruments, most mortgage- and asset-backed securities and listed equity securities. In markets with reduced or no liquidity, spreads between bid and offer prices are normally wider compared to spreads in highly liquid markets. Such market conditions affect the valuation of certain asset classes of the Group, such as some asset-backed securities as well as certain derivative structures referencing such asset classes.
FINANCIAL STATEMENTS Notes to the Group financial statements 162 Swiss Re 2015 Financial Report
The Group enters into securities lending arrangements under which it loans certain securities in exchange for collateral and receives securities lending fees. The Group’s policy is to require collateral, consisting of cash or securities, equal to at least 102% of the carrying value of the securities loaned. In certain arrangements, the Group may accept collateral of less than 102% if the structure of the overall transaction offers an equivalent level of security. Cash received as collateral is recognised along with an obligation to return the cash. Securities received as collateral that can be sold or repledged are also recognised along with an obligation to return those securities. Securities lending fees are recognised over the term of the related loans.
Deferred acquisition costs for short-duration contracts are amortised in proportion to premiums earned. Future investment income is considered in determining the recoverability of deferred acquisition costs for short-duration contracts. Deferred acquisition costs for long-duration contracts are amortised over the life of underlying contracts. Deferred acquisition costs for universal-life and similar products are amortised based on the present value of estimated gross profits. Estimated gross profits are updated quarterly.
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 acquisition 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.
Shadow adjustments Shadow adjustments are recognised in other comprehensive income reflecting the offset of adjustments to deferred acquisition costs and PVFP, typically related to universal life-type contracts, and policyholder liabilities. The purpose is to reflect the fact that certain amounts recorded as unrealised investment gains and losses within shareholders’ equity will ultimately accrue to policyholders and not shareholders.
Insurance and reinsurance ceded The Group uses retrocession arrangements to increase its aggregate underwriting capacity, to diversify its risk and to reduce the risk of catastrophic loss on reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Group of its obligations to its ceding companies. The Group regularly evaluates the financial condition of its retrocessionaires and monitors the concentration of credit risk to minimise its exposure to financial loss from retrocessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are reported as reductions of premiums earned and claims and claim adjustment expenses. Amounts recoverable for ceded short- and long-duration contracts, including universal life-type and investment contracts, are reported as assets in the accompanying consolidated balance sheet.
an update to topic 323, “Investments — Equity Method and Joint Ventures”. The Low Income Housing Tax Credit, a program created under the US Tax Reform Act of 1986, offers US federal tax credits to investors that provide capital to facilitate the development, construction, and rehabilitation of low-income rental property. ASU 2014-01 modifies the conditions that must be met to present the pre-tax effects and related tax benefits of investments in qualified affordable housing projects as a component of income. Investors that do not qualify for “net” presentation under the new guidance will continue to account for such investments under the equity method or cost method, which results in losses recognised in pre-tax income and tax benefits recognised in income taxes. For investments that qualify for the “net” presentation of investment performance, the ASU introduces a “proportional amortization method” that can be elected to amortise the investment basis. The Group adopted ASU 2014-01 on 1 January 2015. The adoption did not have a material effect on the Group’s financial statements.
In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, an update to topics 205, “Presentation of Financial Statements” and 360, “Property, Plant and Equipment”. ASU 2014-08 amends the definition of a discontinued operation and requires entities to provide additional disclosures about disposal transactions that do not meet the discontinued-operations criteria. The new guidance eliminates two of the three existing criteria for classifying components of an entity as discontinued operations and instead requires discontinued operations treatment for disposals of a component or group of components that represents a strategic shift that has or will have a major impact on an entity’s operations or financial results. The ASU also expands the discontinued operations classification to include disposals of equity method investments and acquired businesses held for sale. The ASU also requires entities to reclassify assets and liabilities of a discontinued operation for all comparative periods presented in the statement of financial position. The Group is applying the new requirements on a prospective basis to transactions occurring after 1 January 2015. The adoption did not have an effect on the Group’s financial statements.
In June 2014, the FASB issued ASU 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”, an update to topic 860, “Transfers and Servicing”. ASU 2014-11 requires entities to account for repurchase-to-maturity transactions as secured borrowings rather than as sales with forward repurchase agreements and eliminates previously issued accounting guidance on linked repurchase financing transactions. The ASU includes new disclosure requirements for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. These requirements of ASU 2014-11 were adopted on 1 January 2015 and the adoption did not have an effect on the Group’s financial statements. In addition, for transactions accounted for as secured borrowings, including repurchase agreements and securities lending transactions, the ASU requires entities to provide disclosures that disaggregate the related gross obligation by class of collateral pledged, disclose the remaining contractual maturity of the agreements and to provide information on the potential risks of these arrangements and related collateral pledged. In line with the specific effective date provided in the ASU, the Group adopted the new disclosure requirements for the interim period ending 30 June 2015 and applicable portions of the new disclosure requirements are provided in Note 7.
separable from the loan before foreclosure. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance expected to be recovered from the guarantor. The Group adopted ASU 2014-14 on 1 January 2015. The adoption did not have an effect on the Group’s financial statements.
In May 2015, the FASB issued ASU 2015-09, “Disclosures about Short-Duration Contracts”, an update to topic 944, “Financial Services — Insurance”. ASU 2015-09 requires an insurance entity to provide additional information about insurance liabilities, including information on the nature, amount, timing, and uncertainty of future cash flows related to insurance liabilities and the effect of those cash flows on the statement of comprehensive income. Requirements include disaggregated incurred and paid claims development information by accident year, on a net basis after risk mitigation, for at least the most recent 10 years with the periods preceding the current period considered required supplementary information. In addition, for each accident year presented in the claims development tables, an insurer has to provide disaggregated information about claim frequency (unless impracticable) and the amounts of incurred-but-not-reported (IBNR) liabilities plus the expected development on reported claims. Required disclosures also include a description of the methods for determining both IBNR and expected development on reported claims as well as information about any significant changes in methods and assumptions used in the computation of the liability for unpaid claims and claim adjustment expenses, including reasons for the changes and the impact of the changes on the most recent reporting period in the financial statements. All aforementioned disclosures have to be provided on an annual basis. In addition, insurance entities must disclose the roll-forward of the liability for unpaid claims and claim adjustment expenses in both interim and annual periods. The Group will adopt the annual disclosure requirements for the annual reporting period ending on 31 December 2016, and the interim disclosure requirements for the quarter ending on 31 March 2017. The Group has set up a project to implement the new requirements.
FINANCIAL STATEMENTS Notes to the Group financial statements 170 Swiss Re 2015 Financial Report
In the fourth quarter of 2014, the Group entered into an agreement to sell Aurora National Life Assurance Company (Aurora), a US subsidiary, to Reinsurance Group of America, Incorporated (RGA). The sale was completed in the second quarter of 2015. For more details on the transaction and its impact on the Swiss Re Group financial statements, please refer to Note 10.
During 2015, a new Business Unit, Life Capital, was announced. This Business Unit includes the existing Admin Re® segment and will manage closed and open life and health insurance books. The change in segmentation is effective from 1 January 2016. The Group financial statements and related notes presented in this report are not impacted. For more details, please refer to the Q3 2015 news release of 29 October 2015 and the Investors’ Day presentation of 8 December 2015.
FINANCIAL STATEMENTS Notes to the Group financial statements 174 Swiss Re 2015 Financial Report
Expenses Claims and claim adjustment expenses –7 892 –1 955 –1 –9 848 Life and health benefits –8 290 –790 –9 080 Return credited to policyholders –60 –1 106 –1 166
Income/loss before income tax expense 3 440 1 134 471 397 –123 0 5 319 Income tax expense/benefit –443 –146 –129 25 42 –651 Net income/loss before attribution of non-controlling interests 2 997 988 342 422 –81 0 4 668
Acquired present value of future profits 1 294 2 003 3 297
FINANCIAL STATEMENTS Notes to the Group financial statements 178 Swiss Re 2015 Financial Report
Net investment income 1 097 Net realised investment gains/losses 445 Other revenues 45 Interest expenses –262 Income before income tax expense 3 440
c) Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2014 USD millions Life Health Total
Net realised investment gains/losses – non-participating business and excluding insurance-related derivatives –369 Interest expenses –438 Loss before income tax benefit –476
Management expense ratio in % 7.7 5.5 6.9 Operating margin1 in % –0.8 8.6 2.6 1 Operating margin is calculated as operating income divided by total operating revenues. Total operating revenues are total revenues excluding unit-linked and with-profit revenues.
FINANCIAL STATEMENTS Notes to the Group financial statements 180 Swiss Re 2015 Financial Report
Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2015 USD millions Life Health Total
Fee income from policyholders 49 49 Net investment income – non-participating business 866 465 1 331 Net investment income – unit-linked and with-profit business 38 38 Net realised investment gains/losses – unit-linked and with-profit business 4 4 Net realised investment gains/losses – insurance-related derivatives 90 42 132
Expenses Life and health benefits –5 563 –2 727 –8 290 Return credited to policyholders –60 –60 Acquisition costs –1 258 –728 –1 986 Other expenses –642 –261 –903 Total expenses before interest expenses –7 523 –3 716 –11 239
Net realised investment gains/losses – non-participating business and excluding insurance-related derivatives 178 Interest expenses –278 Income before income tax expense 1 134
Management expense ratio in % 8.0 6.1 7.3 1 Operating margin is calculated as operating income divided by total operating revenues. Total operating revenues are total revenues excluding unit-linked and with-profit revenues.
d) Net premiums earned and fee income from policyholders by geography Net premiums earned and fee income from policyholders by regions for the years ended 31 December
FINANCIAL STATEMENTS Notes to the Group financial statements 182 Swiss Re 2015 Financial Report
Premiums earned and fees assessed against policyholders For the year ended 31 December 2014 USD millions
Premiums earned before retrocession to external parties 16 076 12 461 3 607 544 32 688
Premiums earned and fees assessed against policyholders For the year ended 31 December 2015 USD millions
Premiums earned before retrocession to external parties 15 358 12 334 3 547 398 31 637
Gross fee income before retrocession to external parties 50 414 464
Unpaid claims and claim adjustment expenses; life and health benefits before impact of retrocession to external parties 2 057 –959 –531 451 –22 996
Retrocession to external parties –969 –39 –228 –19 –1 255 Net unpaid claims and claim adjustment expenses; life and health benefits 1 088 –998 –759 432 –22 –259
Claims paid, thereof: Gross claims paid to external parties –8 651 –9 415 –2 726 –1 826 –38 –22 656 Intra-group transactions (assumed and ceded) –739 –214 739 214 0
Change in unpaid claims and claim adjustment expenses; life and health benefits, thereof: Intra-group transactions (assumed and ceded) 941 –3 –941 3 0
Unpaid claims and claim adjustment expenses; life and health benefits before impact of retrocession to external parties 1 508 145 –187 799 37 2 302
FINANCIAL STATEMENTS Notes to the Group financial statements 186 Swiss Re 2015 Financial Report
Reinsurance receivables Reinsurance receivables as of 31 December were as follows: Policyholder dividends Policyholder dividends are recognised as an element of policyholder benefits. The relative percentage of participating insurance of the life and health policy benefits in 2014 and 2015 was 8% and 8%, respectively. The amount of policyholder dividend expense in 2014 and 2015 was USD 113 million and USD 126 million, respectively.
Gross premiums written, thereof: Intra-group transactions (assumed) 342 273 303 –918 0
Retrocession to external parties –206 –1 243 –145 –42 –1 636 2015 USD millions
Gross premiums written before retrocession to external parties 15 907 12 295 3 654 393 32 249
Retrocession to external parties –204 –1 413 –160 –30 –1 807
Amortisation of deferred expense on retroactive reinsurance and impact of commutations 17 27
Paid related to: Current year –2 193 –2 245 Prior year –8 693 –8 352
Foreign exchange –2 224 –1 892 Effect of acquisitions, disposals, new retroactive reinsurance and other items 199 1 433 Net balance as of 31 December 41 873 40 577
Prior-year development In 2015, claims development on prior years was driven by favourable experience on most lines of business. In particular liability, within the casualty line of business, showed a consistent level of releases throughout the year and across all regions. Favourable development on more recent accident years more than offset increases for US asbestos and environmental losses. Following large commutation and positive claim experience, accident and health claims developed favourably, contributing to the overall positive claims development on casualty. This was partially offset by the motor line of business, which experienced adverse trends in the US on most recent underwriting years. The European motor claims were also adversely impacted following improvements to the reserving models for French and German business. On property, claims development was favourable across all regions. Similar to last year, specialty lines showed a favourable trend. Experience has been significantly below what was expected, enabling reserves to be released.
A summary of prior-year claims development by lines of business is shown below: US asbestos and environmental claims exposure The Group’s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1986, in particular in the area of US asbestos and environmental liability.
At the end of 2015 the Group carried net reserves for US asbestos and environmental liabilities equal to USD 2 094 million. During 2015, the Group incurred net losses of USD 128 million and paid net against these liabilities of USD 173 million.
Note that during 2015, USD 76 million of existing reserves were reclassified as asbestos following a detailed review of historic cedent accounts by our claims department. The above mentioned incurred amount (USD 128 million) does not show this amount as incurred during 2015.
Opening balance as of 1 January 1 591 2 845 319 1 4 756
Opening balance as of 1 January 1 756 2 723 360 1 4 840
Effect of foreign currency translation –51 –152 –203 Closing balance as of 31 December 2 051 3 032 387 1 5 471
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 277 million and USD 254 million for 2014 and 2015, respectively.
Other-than-temporary impairments –40 –57 Net realised investment gains/losses on trading securities 46 64 Change in net unrealised investment gains/losses on trading securities 120 –30 Net realised/unrealised gains/losses on other investments –340 85 Net realised/unrealised gains/losses on insurance-related activities –331 143 Gain/Loss related to sale of Aurora National Life Assurance Company –247 9 Foreign exchange gains/losses 174 83 Net realised investment gains/losses – non-participating business 567 1 206
FINANCIAL STATEMENTS Notes to the Group financial statements 192 Swiss Re 2015 Financial Report
A reconciliation of other-than-temporary impairments related to credit losses recognised in earnings was as follows: USD millions Unit-linked With-profit Unit-linked With-profit
Balance as of 1 January 228 137 Credit losses for which an other-than-temporary impairment was not previously recognised 9 30 Reductions for securities sold during the period –78 –23 Increase of credit losses for which an other-than-temporary impairment has been recognised previously, when the Group does not intend to sell, or more likely than not will not be required to sell before recovery 7 Impact of increase in cash flows expected to be collected –23 –10 Impact of foreign exchange movements 1 –5
Investments trading The carrying amounts of 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 The carrying amounts of 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 2014 and 2015, USD 11 579 million and USD 12 725 million, respectively, of fixed income securities available-for-sale were callable.
Assets pledged As of 31 December 2015, investments with a carrying value of USD 6 914 million were on deposit with regulatory agencies in accordance with local requirements, and investments with a carrying value of USD 9 601 million were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
As of 31 December 2014 and 2015, securities of USD 16 915 million and USD 15 828 million, respectively, were transferred to third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding liabilities of USD 1 951 million and USD 995 million, respectively, were recognised in accrued expenses and other liabilities for the obligation to return collateral that the Group has the right to sell or repledge.
As of 31 December 2015, a real estate portfolio with a carrying value of USD 224 million serves as collateral for short-term senior operational debt of USD 250 million.
Due in one year or less 4 749 4 757 4 874 4 911 Due after one year through five years 17 920 18 459 19 370 19 671 Due after five years through ten years 17 300 18 329 16 577 17 101
Offsetting of derivatives, financial assets and financial liabilities Offsetting of derivatives, financial assets and financial liabilities as of 31 December was as follows: Collateral pledged or received between two counterparties with a master netting arrangement in place, but not subject to balance sheet netting is disclosed at fair value. The fair values represent the gross carrying value amounts at the reporting date for each financial instrument received or pledged by the Group. Management believes that master netting agreements provide for legally enforceable set-off in the event of default, which substantially reduces credit exposure. Upon occurrence of an event of default the non-defaulting party may set off the obligation against collateral received regardless if offset on the balance sheet prior to the defaulting event. The net amounts of the financial assets and liabilities presented on the balance sheet were recognised in “Other invested assets”, and “Accrued expenses and other liabilities”, respectively.
Related financial instruments not set off in the balance sheet Net amount 2015 USD millions
Recognised gross liability for the obligation to return collateral that the Group has the right to sell or repledge As of 31 December 2015, the gross amounts of liabilities related to repurchase agreements and securities lending by the class of securities transferred to third parties and by the remaining maturity are shown below. The liabilities are recognised for the obligation to return collateral that the Group has the right to sell or repledge.
Securities lending Debt securities issued by governments and government agencies 217 501 433 1 151
FINANCIAL STATEMENTS Notes to the Group financial statements 198 Swiss Re 2015 Financial Report
The category “Other invested assets” includes the Group’s private equity and hedge fund investments which are made directly or via ownership of funds. Substantially all of these investments are classified as level 3 due to the lack of observable prices and significant judgement required in valuation. Valuation of direct private equity investments requires significant management judgement due to the absence of quoted market prices and the lack of liquidity. Initial valuation is based on the acquisition cost, and is further refined based on the available market information for the public companies that are considered comparable to the Group’s holdings in the private companies being valued, and the private company-specific performance indicators; both historic and projected. Subsequent valuations also reflect business or asset appraisals, as well as market transaction data for private and public benchmark companies and the actual companies being valued, such as financing rounds and mergers and acquisitions activity. The Group’s holdings in the private equity and hedge funds are generally valued utilising net asset values (naV), subject to adjustments, as deemed necessary, for restrictions on redemption (lock-up periods and amount limitations on redemptions).
The Group holds both exchange-traded and (OTC) interest rate, foreign exchange, credit and equity derivative contracts for hedging and trading purposes. The fair values of exchange-traded derivatives measured using observable exchange prices are classified in level 1. Long-dated contracts may require adjustments to the exchange-traded prices which would trigger reclassification to level 2 in the fair value hierarchy. OTC derivatives are generally valued by the Group based on the internal models, which are consistent with industry standards and practices, and use both observable (dealer, broker or market consensus prices, spot and forward rates, interest rate and credit curves and volatility indices) and unobservable inputs (adjustments for liquidity, inputs derived from the observable data based on the Group’s judgements and assumptions).
The Group’s investments in equity derivatives primarily include OTC equity option contracts on single or baskets of market indices and equity options on individual or baskets of equity securities, which are valued using internally developed models (such as the Black-Scholes type option pricing model and various simulation models) calibrated with the inputs, which include underlying spot prices, dividend curves, volatility surfaces, yield curves, and correlations between underlying assets.
Governance around level 3 fair valuation The asset Valuation Committee, endorsed by the Group Executive Committee, has a primary responsibility for governing and overseeing all of the Group’s asset and derivative valuation policies and operating parameters (including level 3 measurements). The asset Valuation Committee delegates the responsibility for implementation and oversight of consistent application of the Groupʼs pricing and valuation policies to the Pricing and Valuation Committee.
a formal IPV process is undertaken monthly by members of the Valuation Risk Management team within the Financial Risk Management function. The process includes monitoring and in-depth analyses of approved pricing methodologies and valuations of the Group’s financial instruments aimed at identifying and resolving pricing discrepancies.
FInanCIaL STaTEMEnTS notes to the Group financial statements 202 Swiss Re 2015 Financial Report
2 The Group revised the scope of the fair value option disclosure to include certain assets held under three of its reinsurance agreements. These assets have been managed on a fair value basis since inception.
Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) The gains and losses relating to the assets and liabilities measured at fair value using significant unobservable inputs (level 3) for the years ended 31 December were as follows: Assets and liabilities measured at fair value on a non-recurring basis In accordance with the provisions of FaSB Codification Topic 323, Investments-Equity Method and Joint Ventures, an equity method investment with a carrying amount of USD 268 million was written down to its fair value of USD 185 million resulting in an impairment charge of USD 83 million, which was included in earnings for the period in “net investment income – non-participating business”. This non-recurring fair value measurement was based on level 3 unobservable inputs using a discounted cash flow approach. The Group has performed an impairment analysis which suggests that, although the expected future cash flows (i.e. future dividend payments) could ultimately recover the current carrying value over approximately ten years, the recent decline in dividends as well as the forward outlook indicate that the decline in fair value is not temporary.
Gains/losses included in net income for the period 483 202 Whereof change in unrealised gains/losses relating to assets and liabilities still held at the reporting date 167 –12
Private placement corporate debt 317 241 Corporate Spread Matrix Illiquidity premium 5 bps–186 bps (49 bps)
Infrastructure loan 86 Discounted Cash Flow Model Valuation spread 176 bps–191 bps (180 bps)
Derivative equity contracts 396 334 OTC equity option referencing correlated equity indices 396 334 Proprietary Option Model Correlation –60%–100% (20%)1
–639 –567 Discounted Cash Flow Model Risk margin 4% (n.a.) Volatility 4%–42% Lapse 0.5%–33% Mortality adjustment –10%–0% Withdrawal rate 0%–90%
Other invested assets 50 –32 Funds held by ceding companies1 1 7 Liabilities for life and health policy benefits –41 21 Total 10 –4 1 The Group revised the scope of the fair value option disclosure to include certain assets held under three of its reinsurance agreements. These assets have been managed on a fair value basis since inception.
Assets and liabilities not measured at fair value but for which the fair value is disclosed assets and liabilities not measured at fair value but for which the fair value is disclosed as of 31 December, were as follows: Policy loans, other loans and certain mortgage loans are classified as level 3 measurements, as they do not have an active exit market. Some of these positions need to be assessed in conjunction with the corresponding insurance business. Considering these circumstances, the Group presents the carrying amount as an approximation for the fair value.
Debt positions, which are fair valued based on executable broker quotes or based on the discounted cash flow method using observable inputs, are classified as level 2 measurements. Fair value of the majority of the Group’s level 3 debt positions is judged to approximate carrying value due to the highly tailored nature of the obligation and short-notice termination provisions.
Fair values and notional amounts of derivative financial instruments as of 31 December, the fair values and notional amounts of the derivatives outstanding were as follows: The notional amounts of derivative financial instruments give an indication of the Group’s volume of derivative activity. The fair value assets are included in “Other invested assets” and the fair value liabilities are included in “accrued expenses and other liabilities”. The fair value amounts that were not offset were nil as of 31 December 2014 and 2015.
FInanCIaL STaTEMEnTS notes to the Group financial statements 212 Swiss Re 2015 Financial Report
For the years ended 31 December 2014 and 2015, the Group recorded an accumulated net unrealised foreign currency remeasurement gain of USD 894 million and a gain of USD 1 631 million, respectively, in shareholders’ equity. These offset translation gains and losses on the hedged net investment.
Derivatives not designated as hedging instruments Interest rate contracts –225 51 Foreign exchange contracts 42 435 Equity contracts –172 –192 Credit contracts 9 –5 Other contracts –312 247 Total gain/loss recognised in income –658 536
Acquisitions On 6 January 2016, the Group acquired 100% of the shares of Guardian Holdings Europe Limited, the holding company for operations trading under the name Guardian Financial Services (“Guardian”) from private equity company Cinven. The total cost of acquisition was GBP 1.6 billion in cash. Guardian provides life insurance solutions to financial institutions and insurance companies, either through the acquisition of closed books of business or through entering reinsurance agreements with its customers.
apart from transaction costs of USD 21 million, the Group financial statements and related notes presented in this report are not impacted.
Disposals In the fourth quarter of 2014, the Group entered into an agreement to sell aurora national Life assurance Company (aurora), a US subsidiary, to Reinsurance Group of america, Incorporated (RGa). aurora primarily consists of bonds and policyholder liabilities. an expected pre-tax loss of USD 247 million (including the impact of net unrealised gains and shadow loss reserve that will be reclassified from equity into the income statement) on the disposition of the net assets was recognised in the fourth quarter of 2014.
In the second quarter of 2015, the Group completed the sale following the receipt of all necessary regulatory approvals. The purchase price included a cash payment of USD 184 million. The Group adjusted the initial loss on the transaction by a pre-tax gain of USD 9 million on a year to date basis. The gain was reflected in “net realised investment gains/losses — non-participating” in the income statement of the admin Re® segment.
Liabilities Unpaid claims and claim adjustment expenses 15 22 Liabilities for life and health policy benefits 1 494 1 479 accrued expenses and other liabilities 292 315
The Groupʼs debt as of 31 December was as follows: The Group uses debt for general corporate purposes and to fund discrete pools of operational leverage and financial intermediation assets. Operational leverage and financial intermediation are subject to asset and liability matching, resulting in little to no risk that the assets will be insufficient to service and settle the liabilities. Debt used for operational leverage and financial intermediation is treated as operational debt and excluded by the rating agencies from financial leverage calculations. Certain debt positions are limited- or non-recourse, meaning the debtorsʼ claims are limited to assets underlying the financing. as of 31 December 2014 and 2015, debt related to operational leverage and financial intermediation amounted to USD 4.7 billion (thereof USD 3.4 billion limited- or non-recourse) and USD 4.0 billion (thereof USD 3.0 billion limited- or non-recourse), respectively.
Maturity of long-term debt as of 31 December, long-term debt as reported above had the following maturities: USD millions 2014 2015
FInanCIaL STaTEMEnTS notes to the Group financial statements 216 Swiss Re 2015 Financial Report
Subordinated perpetual loan note 2007 GBP 500 6.30% 2019 736 Subordinated perpetual loan note 2007 aUD 300 7.64% 2017 218
Long-term debt issued in 2015 In January 2015, Swiss Reinsurance Company Ltd issued senior notes due 2027. The notes have a face value of CHF 250 million, with a fixed coupon of 0.75% per annum.
In these financial statements, the facility fee is classified as interest expense. notes, when issued under the facility, will be classified as subordinated debt. as of 31 December 2015, no notes have been issued under the facility.
Both instruments may be converted, at the option of the issuer, into Swiss ReSwiss Re Ltd shares at any time through at market conversion using the retrospective five-day volume weighted average share price with a 3% discount or within six months following a solvency event at a pre-set floor price (CHF 26 for the instrument with face value of CHF 320 million and USD 32 for the instrument with face value of USD 750 million, respectively). These instruments are referred to in these financial statements as “contingent capital instruments”.
Senior financial debt 120 118 Senior operational debt 16 13 Subordinated financial debt 300 236 Subordinated operational debt 231 137
Dividends are declared in Swiss francs. During the years ended 31 December 2014 and 2015, the Group declared regular dividends per share of CHF 3.85 and CHF 4.25, respectively, as well as additional special dividends of CHF 4.15 and CHF 3.00, respectively. all dividends were paid in the form of withholding tax exempt repayments of legal reserves from capital contributions.
Basic earnings per share non-controlling interests 0 –3 Interest on contingent capital instruments1 –69 –68 net income attributable to common shareholders 3 500 4 597 Weighted average common shares outstanding 342 213 498 341 951 654 Net income per share in USD 10.23 13.44 Net income per share in CHF2 9.33 12.93
Effect of dilutive securities Change in income available to common shares due to contingent capital instruments1 69 68 Change in average number of shares due to contingent capital instruments 35 745 192 35 745 192 Change in average number of shares due to employee options 2 198 904 2 241 636
Diluted earnings per share net income assuming debt conversion and exercise of options 3 569 4 665 Weighted average common shares outstanding 380 157 594 379 938 482 Net income per share in USD 9.39 12.28 Net income per share in CHF2 8.56 11.81 1 Please refer to note 11 “Debt and contingent capital instruments”. 2 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
financial statements notes to the Group financial statements 13 income taxes the Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the Group operates. the components of the income tax charge were: Tax rate reconciliation the following table reconciles the expected tax expense at the swiss statutory tax rate to the actual tax expense in the accompanying income statement: the Group reported a tax charge of UsD 651 million on a pre-tax income of UsD 5 319 million for 2015, compared to a charge of UsD 658 million on a pre-tax income of UsD 4 227 million for 2014. this translates into an effective tax rate in the current and prior-year reporting periods of 12.2% and 15.6%, respectively. the lower tax rate in 2015 was largely driven by a tax benefit arising from a local statutory adjustment for the restructuring of subsidiaries, higher tax benefits from foreign currency translation differences between statutory and GaaP accounts, and the release of valuation allowances partially offset by tax on profits earned in higher tax jurisdictions.
UsD millions 2014 2015 income tax at the swiss statutory tax rate of 21.0% 888 1 117 increase (decrease) in the income tax charge resulting from: foreign income taxed at different rates 137 303 impact of foreign exchange movements –86 –180 tax exempt income/dividends received deduction –105 –93 change in valuation allowance 99 –72 Basis differences in subsidiaries –155 –306 change in liability for unrecognised tax benefits including interest and penalties –207 –126 Other, net 87 8 220 Swiss Re 2015 financial Report
as of 31 December 2015, the Group had UsD 10 200 million net operating tax loss carryforwards, expiring as follows: UsD 26 million in 2018, UsD 54 million in 2019, UsD 14 million in 2020, UsD 8 123 million in 2021 and beyond, and UsD 1 983 million never expire.
income taxes paid in 2014 and 2015 were UsD 509 million and UsD 1 190 million, respectively.
Gross deferred tax asset 7 077 6 794 Valuation allowance –935 –789 Unrecognised tax benefits offsetting benefits on loss carryforwards –24 –35 Total deferred tax assets 6 118 5 970
Unrecognised tax benefits a reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: the amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately UsD 539 million and UsD 345 million at 31 December 2014 and 31 December 2015, respectively.
the balance of gross unrecognised tax benefits as of 31 December 2015 presented in the table above excludes accrued interest and penalties (UsD 72 million).
the Group continually evaluates proposed adjustments by taxing authorities. the Group believes that it is reasonably possible (more than remote and less than likely) that the balance of unrecognised tax benefits could increase or decrease over the next 12 months due to settlements or expiration of statutes. However, quantification of an estimated range cannot be made at this time.
the following table summarises jurisdictions and tax years that remain subjects to examination: australia 2010-2015 Japan 2009-2015 Belgium 2013-2015 Korea 2013-2015 Brazil 2011-2015 luxembourg 2011-2015 canada 2011-2015 malaysia 2013-2015 china 2005-2015 mexico 2009-2015
Balance as of 1 January 1 013 579 additions based on tax positions related to current year 26 35 additions based on tax positions related to prior years 71 115 Reduction for tax positions of current year –137 –1 Reductions for tax positions of prior years –248 –265 settlements –90 –98 Other (including foreign currency translation) –56 –22 Balance as of 31 December 579 343 financial statements notes to the Group financial statements 222 Swiss Re 2015 financial Report
The measurement date of these plans is 31 December for each year presented.
Benefits paid –129 –75 –17 –221 Employee contribution 27 27 Acquisitions/disposals/additions –4 –4 Effect of settlement, curtailment and termination 1 –24 –23 Effect of foreign currency translation –418 –146 –22 –586 Benefit obligation as of 31 December 3 685 2 389 371 6 445
Fair value of plan assets as of 1 January 3 661 2 245 0 5 906 Actual return on plan assets 281 266 547
Amendments 0 Actuarial gains/losses 236 –67 –2 167 Benefits paid –189 –74 –16 –279 Employee contribution 26 26 Acquisitions/disposals/additions 2 2 Effect of settlement, curtailment and termination 2 2 Effect of foreign currency translation –36 –131 –5 –172 Benefit obligation as of 31 December 3 877 2 206 363 6 446
Fair value of plan assets as of 1 January 3 535 2 354 0 5 889 Actual return on plan assets 36 7 43
Expected return on assets –112 –111 –223 Amortisation of: Prior service cost –5 –3 –11 –19 Effect of settlement, curtailment and termination 1 –2 –1 Net periodic benefit cost 103 14 –6 111
Expected return on assets –113 –95 –208 Amortisation of: Prior service cost –9 –10 –19 Effect of settlement, curtailment and termination 2 2 Net periodic benefit cost 109 14 1 124
Net gain/loss 313 21 –2 332 Prior service cost/credit 0 Amortisation of: Net gain/loss –76 –22 4 –94
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have had the following effects for 2015: Swiss plan Foreign plans weighted average Other benefits weighted average
Assumed medical trend rates at year end medical trend – initial rate 6.0% 6.1% medical trend – ultimate rate 4.5% 4.6% Year that the rate reaches the ultimate trend rate 2019 2020
Effect on total of service and interest cost components 1 –1 Effect on post-retirement benefit obligation 26 –22
Plan asset allocation by asset category The actual asset allocation by major asset category for defined benefit pension plans as of the respective measurement dates in 2014 and 2015 was as follows: Actual asset allocation is determined by a variety of current economic and market conditions and considers specific asset class risks.
Certain items reported as pension plan assets at fair value in the following table are not within the scope of Note 8, namely two positions: real estate and an insurance contract.
Swiss plan allocation Foreign plans allocation 2014 2015 Target allocation 2014 2015 Target allocation
FINANCIAl STATEmENTS Notes to the Group financial statements 228 Swiss Re 2015 Financial Report
Assets Fixed income securities: Debt securities issued by the US government and government agencies 9 146 155 Debt securities issued by non-US governments and government agencies 890 890
Equity securities: Equity securities held for proprietary investment purposes 976 684 1 660
Total assets at fair value 1 056 3 964 717 5 737
Balance as of 1 January 631 132 763 Realised/unrealised gains/losses: Relating to assets still held at the reporting date 5 5 Relating to assets sold during the period 14 14
Purchases, issuances and settlements 12 6 18 Impact of foreign exchange movements –4 –7 –11 Closing balance as of 31 December 596 142 738
FINANCIAl STATEmENTS Notes to the Group financial statements 230 Swiss Re 2015 Financial Report
As of 31 December 2014 and 2015, the Group had the share-based compensation plans as described below.
Stock option plans No options were granted under stock option plans from 2007 onwards. Options issued vest at the end of the fourth year and have a maximum life of ten years.
Leadership Performance Plan The leadership Performance Plan (lPP) awards are expected to be settled in shares, and the requisite service as well as the maximum contractual term are three years. For lPP 2014 and lPP 2015 awards, an additional two-year holding period applies for all members of the Group EC and GmDs. At grant date the award is split equally into two underlying components — Restricted Share Units (RSUs) and Performance Share Units (PSUs). The RSUs are measured against a ROE performance condition and will vest within a range of 0–100%. The PSUs are based on relative total shareholder return, measured against a pre-defined group of peers and will vest within a range of 0–200%. The fair values of both components are measured separately, based on stochastic models.
Unrecognised compensation costs As of 31 December 2015, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based compensation awards was USD 56 million and the weighted average period over which that cost is expected to be recognised is 1.8 years.
Employee Participation Plan The Group’s Employee Participation Plan consists of a savings scheme lasting two or three years. Employees combine regular savings with the purchase of either actual or tracking options. The Group contributes to the employee savings over the period of the plan.
The disclosure requirements under Swiss Company law in respect of participations of members of the Board of Directors and the Group Executive Committee, as well as closely related persons, are detailed on pages 260–261 of the Annual Report of Swiss Re ltd.
The Group defines the following as related parties to the Group: subsidiaries of Swiss Re ltd, entities in which the Group has significant influence, pension plans, members of the Board of Directors (BoD) and the Group Executive Committee (EC) and their close family members, and entities which are directly and indirectly controlled by members of governing bodies of the Group and their close family members.
Share ownership and loans extended to members of BoD and Group EC are disclosed in Note 16 Compensation, participations and loans of members of governing bodies. The total number of shares, options and related instruments held by members of the BoD and the Group EC and persons closely related to, amounts to less than 1% of the shares issued by Swiss Re ltd. None of the members of BoD and the Group EC has any significant business connection with Swiss Re ltd or any of its Group companies. The Group BoD members mathis Cabiallavetta and Susan l. Wagner are also board members of BlackRock, Inc. BlackRock, Inc is acting as external asset manager for the Group.
Share in earnings and dividends received from equity-accounted investees for the years ended 31 December, were as follows: USD millions 2014 2015
Share in earnings of equity-accounted investees 321 52 Dividends received from equity-accounted investees 277 254
FINANCIAl STATEmENTS Notes to the Group financial statements 236 Swiss Re 2015 Financial Report
Belgium Swiss Re Treasury (Belgium) N.V., Brussels EUR 426 100 f
Guernsey Pension Corporation Group limited, St. Peter Port GBP 925 5 fv
Luxembourg Swiss Re Europe Holdings S.A., luxembourg EUR 105 100 f Swiss Re Europe S.A., luxembourg EUR 350 100 f Swiss Re Finance (luxembourg) S.A., luxembourg EUR 0 100 f Swiss Re Funds (lux) I, Senningerberg1 EUR 11 345 100 f Swiss Re International SE, luxembourg EUR 182 100 f
Barbados European Finance Reinsurance Company ltd., Bridgetown USD 5 100 f European International Reinsurance Company ltd., Bridgetown USD 1 100 f milvus I Reassurance limited, Bridgetown USD 397 100 f Swiss Re (Barbados) Finance limited, Bridgetown GBP 0 100 f
Bermuda Ark Insurance Holdings limited, Hamilton USD 6 4 fv CORE Reinsurance Company limited, Hamilton USD 0 100 f Swiss Re Global markets limited, Hamilton USD 0 100 f
Brazil Swiss Re Brasil Resseguros S.A., São Paulo BRl 194 100 f
Cayman Islands Ampersand Investments (UK) limited, George Town GBP 0 100 f FWD Group ltd, George Town USD 0 15 e PEP SR I Umbrella l.P., George Town USD 750 100 f Swiss Re Strategic Investments UK limited, George Town GBP 0 100 f
Colombia Compañía Aseguradora de Fianzas S.A. Confianza, Bogota COP 224 003 51 f
FINANCIAl STATEmENTS Notes to the Group financial statements 238 Swiss Re 2015 Financial Report
South Africa Swiss Re life and Health Africa limited, Cape Town ZAR 2 100 f
from the entity that could potentially be significant to the VIE.
Debt financing vehicles Debt financing vehicles issue preference shares or loan notes to provide the Group with funding. The Group is partially exposed to the asset risk by holding equity rights or by protecting some of the assets held by the VIEs via guarantees or derivative contracts. The assets held by the VIEs consist primarily of investment-grade securities, but also structured products, hedge fund units and derivatives.
Other The VIEs in this category were created for various purposes. Generally, the Group is exposed to the asset risk of the VIEs by holding an equity stake in the VIE or by guaranteeing a part or the entire asset value to third-party investors. A significant portion of the Group’s exposure is either retroceded or hedged. The assets held by the VIEs consist mainly of residential real estate and other.
Fixed income securities available-for-sale 4 200 4 200 3 876 3 876
Premiums and other receivables 34 34 Deferred acquisition costs 9 9
Unpaid claims and claim adjustment expenses 53 53 Unearned premiums 26 26 Reinsurance balances payable 2 2 Deferred and other non-current tax liabilities 177 177 96 96 Accrued expenses and other liabilities 7 7 17 17
FINANCIAl STATEmENTS Notes to the Group financial statements 242 Swiss Re 2015 Financial Report
In 2015, the Group set up a provision of USD 13 million for restructuring costs, and released USD 2 million.
For the years ended 31 December, restructuring provision developed as follows: USD millions
Increase in provision 16 16 Release of provision –3 –3 Costs incurred –15 –3 –18 Effect of foreign currency translation –5 –1 –6 2015 USD millions
Release of provision –2 –2 Costs incurred –28 –1 –1 –1 –31 Effect of foreign currency translation –3 –3
Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the accompanying consolidated financial statements of Swiss Re ltd and its subsidiaries (the “Company”), which comprise the consolidated balance sheet as of 31 December 2015, and the related consolidated income statement, statement of comprehensive income, statement of shareholders’ equity, statement of cash flow and notes (pages 156 to 244) for the year ended 31 December 2015.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made, as well as evaluating the over-all presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Income/loss before income tax expense 4 670 4 313 –1 074 920 2 675 2 875 5 523 4 825 4 227 5 319 Income tax expense –1 033 –853 411 –221 –541 –77 –1 125 –312 –658 –651 Net income/loss before attribution of non-controlling interests 3 637 3 460 –663 699 2 134 2 798 4 398 4 513 3 569 4 668
FINANCIAl STATEmENTS Notes to the Group financial statements 248 Swiss Re 2015 Financial Report
Net realised investment gains/losses 1 679 –615 –8 677 875 2 783 388 2 688 3 325 1 059 1 220
Earnings/losses per share in USD 10.75 9.94 –2.00 1.46 2.52 7.68 11.85 12.97 10.23 13.44 Earnings/losses per share in CHF 13.49 11.95 –2.61 1.49 2.64 6.79 11.13 12.04 9.33 12.93 1 The Group changed its reporting currency from CHF into USD in 2010. Periods prior to 2010 have been translated to USD for informational purposes only based on the Group’s average exchange rates for the income statements and year-end rates for the balance sheets.
financial statements swiss Re ltd annual Report swiss Re ltd swiss Re ltd (the company), domiciled in Zurich, switzerland, is the ultimate holding company of the swiss Re Group. its principal activity is the holding of investments in swiss Re Group companies.
Assets total assets increased from cHf 20 843 million as of 31 December 2014 to cHf 21 840 million as of 31 December 2015.
short-term investments increased from cHf 159 million as of 31 December 2014 to cHf 1 917 million as of 31 December 2015 mainly due to reinvestment of dividends and loan repayments received from subsidiaries.
loans to subsidiaries and affiliated companies, which consist of loans granted to swiss Reinsurance company ltd, decreased from cHf 3 250 million as of 31 December 2014 to cHf 2 287 million as of 31 December 2015, mainly to contribute to the funding of the share buy-back programme and a capital contribution to swiss Re capital ltd related to the acquisition of Guardian financial services in January 2016.
Liabilities total liabilities increased from cHf 340 million as of 31 December 2014 to cHf 371 million as of 31 December 2015.
legal reserves from capital contributions decreased from cHf 2 682 million as of 31 December 2014 to cHf 192 million as of 31 December 2015, reflecting the payment of dividends to shareholders of cHf 2 490 million.
Own shares (directly held by the company) increased from cHf 956 million as of 31 December 2014 to cHf 1 430 million as of 31 December 2015 which was mainly due to a share buy-back programme of cHf 430 million and other net purchases of own shares of cHf 44 million.
Expenses administrative expenses 3 –142 –112 investment expenses 2 0 –1 Other expenses –16 –20 Total expenses –158 –133
Receivables from subsidiaries and affiliated companies 64 49 Other receivables and accrued income 0 0 loans to subsidiaries and affiliated companies 3 250 2 287
Non-current assets investments in subsidiaries and affiliated companies 5 17 340 17 561 Total non-current assets 17 340 17 561 252 Swiss Re 2015 financial Report
the accompanying notes are an integral part of swiss Re ltd’s financial statements.
Legal reserves from capital contributions 10 2 682 192 Other legal capital reserves – 65 legal capital reserves 2 682 257
Time period the financial year 2015 comprises the accounting period from 1 January 2015 to 31 December 2015.
Foreign currency translation assets and liabilities denominated in foreign currencies are converted into swiss francs at year-end exchange rates with the exception of participations, which are maintained in swiss francs at historical exchange rates. income and expenses in foreign currencies are converted into swiss francs at average exchange rates for the reporting year.
Cash and cash equivalents cash and cash equivalents include cash at bank, short-term deposits and certain investments in money market funds with an original maturity of three months or less. such current assets are held at nominal value.
Short-term investments short-term investments contain investments with an original maturity between three months and one year. such investments are carried at cost, less necessary and legally permissible depreciation.
Accrued income accrued income consists of both other expenditures incurred during the financial year but relating to a subsequent financial year, and revenues relating to the current financial year but receivable in a subsequent financial year.
the provision for currency fluctuation comprises the net effect of foreign exchange gains and losses arising from the yearly revaluation of the opening balance sheet and the translation adjustment of the income statement from average to closing exchange rates at year-end. these net impacts are recognised in the income statement over a period of up to three years. Where the provision for currency fluctuation is insufficient to absorb net foreign exchange losses for the financial year, the provision for currency fluctuation is reduced to zero and the excess foreign exchange loss is recognised in the income statement.
Reserve for own shares (indirectly held by subsidiaries) Reserve for own shares is accounted for at the book value of those shares in the statutory financial statements of the respective subsidiary.
Foreign exchange transaction gains and losses foreign exchange gains and losses arising from foreign exchange transactions are recognised in the income statement and reported in other expenses or other revenues, respectively.
Subsequent events subsequent events for the current reporting period have been evaluated up to 15 march 2016. this is the date on which the financial statements are available to be issued.
4 securities lending as of 31 December 2015, securities of cHf 545 million were lent to Group companies under securities lending agreements, whereas in 2014 securities of cHf 117 million were lent to Group companies. as of 31 December 2015 and 2014, there were no securities lent to third parties.
Realised losses on sale of investments 0 0 investment management expenses 0 1 Other interest expenses 0 0 Investment expenses 0 1 256 Swiss Re 2015 financial Report
as of 31 December 2015 and 2014, swiss Re ltd held directly the following investments in subsidiaries and affiliated companies: further disclosures in respect of investments in significant indirect subsidiaries and affiliated companies are detailed in note 19 “significant subsidiaries and equity investees” on pages 237 to 239 in the notes to the Group financial statements, where the voting interests are equal to the affiliations disclosed.
as of 31 December 2015, swiss Re ltd and its subsidiaries held 32 967 226 (2014: 28 508 013) of swiss Re ltd’s own shares, of which swiss Re ltd owned directly 32 755 754 (2014: 28 395 225) shares.
in the year under report, 6 035 389 (2014: 4 348 768) own shares were purchased at an average price of cHf 92.91 (2014: cHf 74.66); thereof 4 420 000 own shares are related to the share buy-back programme which were purchased at an average price of cHf 97.27. in the same time period 1 575 654 (2014: 4 352 775) own shares were sold at an average price of cHf 93.31 (2014: cHf 79.99).
9 major shareholders as of 31 December 2015, there was one shareholder with a participation exceeding the 3% threshold of swiss Re ltd’s share capital: in addition, swiss Re ltd held, as of 31 December 2015, directly and indirectly 32 967 226 (2014: 28 508 013) own shares, representing 8.89% (2014: 7.69%) of voting rights and share capital. swiss Re ltd cannot exercise the voting rights of own shares held.
11 Release of undisclosed reserves in 2015, no net undisclosed reserves were released. in 2014, the net release of undisclosed reserves amounted to cHf 426 million.
Opening balance of legal reserves from capital contributions 5 423 2 682 Reclassification to voluntary profit reserves for dividend payments –2 741 –2 490 Legal reserves from capital contributions as of 31 December 2 682 192 thereof confirmed by the Swiss Federal Tax Administration1 2 490 1 1 Under current swiss tax legislation, the amount of legal reserves from capital contributions, which has been confirmed by the swiss federal tax administration, can be paid out as dividends exempt from swiss withholding tax, and for swiss resident individual shareholders holding shares in private wealth also exempt from swiss income taxes.
Renato Fassbind, Vice Chairman and Chairman of the Audit Committee 11 889 15 844 Raymund Breu, former Member1 37 764 n/a
Rajna Gibson Brandon, Member 27 787 20 216 C. Robert Henrikson, Chairman of the Compensation Committee 6 808 8 896 Hans Ulrich Maerki, Member 27 431 28 969 Trevor Manuel, Member2 868
FInAnCIAL STATEMEnTS Swiss Re Ltd 260 Swiss Re 2015 Financial Report
Share-based compensation The share-based compensation for the members of the Board of Directors for 2014 and 2015 was: Restricted shares For the year ended 31 December 2014 and 2015, neither the members of the Group EC nor the members of the Board of Directors held any restricted shares.
Vested options The following vested options were held by members of Group governing bodies as of 31 December: The vested options held by members of Group governing bodies as of 31 December 2014 expired in 2015. The underlying strike price for the outstanding option series has been adjusted for special dividend payouts. The stock options shown in the table above for the member of the Board of Directors was awarded at a time when the recipient was still a member of Swiss Re’s executive management.
Weighted average strike price in CHF 74.34 n/a Michel Liès, Group CEO 15 000 0 Matthias Weber, Group Chief Underwriting Officer 3 500 0
Jakob Baer, former Chairman of the Audit Committee4 87 1 165 n/a n/a
C. Robert Henrikson, Chairman of the Compensation Committee 184 2 469 185 2 088 Malcolm D. Knight, former Member4 38 510 n/a n/a
Retained earnings brought forward 4 4 Net income for the financial year 4 110 3 865
1 The Board of Directors’ proposal to the Annual General Meeting of 22 April 2016 is subject to the actual number of shares outstanding and eligible for dividend.
FINANCIAl STATeMeNTS Swiss Re ltd 262 Swiss Re 2015 Financial Report
Report of the statutory auditor to the General Meeting of Swiss Re ltd Zurich
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of financial statements according to the instructions of the Board of Directors.
Glossary 266 Cautionary note on forward-looking statements 272 note on risk factors 274 Contacts 280 Corporate calendar 281
that portion of an insurance premium which represents the cost of obtaining the insurance business: it includes the intermediaries’ commission, the company’s sales expense and other related expenses.
Business Unit through which Swiss Re acquires closed blocks of in-force life and health insurance business, either through reinsurance or corporate acquisition, and typically assumes responsibility for administering the underlying policies.
management of an insurance business in a way that coordinates investment-related decisions on assets and liabilities. Specifically, the ongoing process of formulating, implementing, monitoring and revising investment strategies related to assets and liabilities in an attempt to achieve financial objectives, while managing exposure to financial market risks, such as interest rates, credit spreads and currency movements.
the ratio of ordinary shareholders’ equity to the number of common shares entitled to dividend.
type of insurance – mainly comprising accident and liability business – which is separate from property, engineering and life insurance.
Difference in yield between a fixed income security which has default risk and one which is considered to be risk-free, such as U.S. treasury securities.
liability insurance for directors and officers of an entity, providing cover for their personal legal liability towards shareholders, creditors, employees and others arising from wrongful acts such as errors and omissions.
insurance against the incapacity to exercise a profession as a result of sickness or other infirmity.
Portion of a company’s profit allocated to each outstanding share of common stock. earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period.
a feature of variable annuity business. the benefit is a predetermined minimum amount that the beneficiary will receive upon the death of the insured.
Provision for claims incurred but not reported by the balance sheet date. in other words, it is anticipated that an event will affect a number of policies, although no claims have been made so far, and is therefore likely to result in liability for the insurer.
Security for which the payment of interest and/or principal depends on the occurrence or severity of an insurance event. the underlying risk of the security is a peak or volume insurance risk.
insurance for damages that a policyholder is obliged to pay because of bodily injury or property damage caused to another person or entity based on negligence, strict liability or contractual liability.
the risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. increasing life expectancy trends among policyholders and pensioners can result in payout levels that are higher than originally expected.
form of reinsurance in which coverage is not in direct proportion to the original insurer’s loss; instead the reinsurer is liable for a specified amount which exceeds the insurer’s retention; also known as “excess of loss reinsurance”.
the operating margin is calculated as operating result divided by total operating revenues. the operating result is before interest expenses, taxes and net realised gains/losses.
insurance covering the liability of the manufacturer or supplier of goods for damage caused by their products.
liability insurance cover which protects professional specialists such as physicians, architects, engineers, lawyers, accountants and others against third-party claims arising from activities in their professional field; policies and conditions vary according to profession.
insurance which lowers the risk carried by primary insurance companies. Reinsurance includes various forms such as facultative, financial, non-proportional, proportional, quota share, surplus and treaty reinsurance.
amount required to be carried as a liability in the financial statements of an insurer or reinsurer to provide for future commitments under outstanding policies and contracts.
amount of risk which the policyholder or insurer does not insure or reinsure but keeps for its own account.
net investment income on long-term fixed income positions, including coupon income and amortisation, as a percentage of the average market value of the long-term fixed income portfolio.
form of reinsurance that protects the ceding insurer against an aggregate amount of claims over a period, in excess of either a stated amount or a specified percentage of estimated benefit costs. an example of this is employer stop-loss (eSl) coverage, which is used by US companies to cap losses on self-funded group health benefit programmes. the stop-loss can apply to specific conditions or aggregate losses.
an economic and risk-based insurance regulation, similar to the objectives of Solvency ii to which all insurance and reinsurance companies writing business in Switzerland are subject. Since 1 January 2011, the SSt-based target capital requirement is in force and companies must achieve economic solvency.
an investment strategy process which analyses trends in the global economy and the associated impact on financial markets to assess the overall financial market outlook as well as their implications for various asset classes and risk exposures.
investment related operating income plus the change in unrealised gains/losses on available-for-sale securities as well as the fair value of real estate and certain loans as a percentage of invested assets. invested assets include investments, securities in transit, certain financial liabilities and exclude policy loans, minority interests, cash and cash equivalents, as well as assets related to securities lending, repurchase agreements and collateral balances.
Swiss Re uses some of the term definitions provided by the glossary of the international association of insurance Supervisors (iaiS).
With fewer options available to policymakers and concerns generally over the absence of realistic confidence-building measures, and with heightened risk that volatility or depressed conditions in one sector, one market, one country or one region could have far broader implications, volatility can be expected to continue. further adverse developments or the continuation of adverse trends that in turn have a negative impact on financial markets and economic conditions could limit our ability to access the capital markets and bank funding markets, could adversely affect the ability of counterparties to meet their obligations to us and could adversely affect the confidence of the ultimate buyers of insurance. any such developments and trends could also have an adverse effect on the Group’s investment results, which in the current low interest rate environment and soft insurance cycle could have a material adverse effect on the Group’s overall results, make it difficult to determine the value of certain assets in the Group’s portfolio and/or make it difficult to acquire suitable investments to meet the Group’s risk and return criteria.
Regulatory changes Swiss Re and its subsidiaries operate in a highly regulated environment and are subject to group supervision. Swiss Re’s subsidiaries are subject to applicable regulation in each of the jurisdictions in which they conduct business, particularly Switzerland, the United States, the United Kingdom, luxembourg and Germany. the regulatory regimes to which members of the Group are subject have changed significantly in recent years and are expected to continue to evolve as a result of global efforts following the credit crisis.
although early regulatory efforts following the credit crisis were focused primarily on banking institutions, there has been a noticeable trend in recent years to extend the scope of reforms and oversight beyond such institutions to cover insurance and reinsurance operations. legislative initiatives directly impacting the Group’s industry include the establishment of a pan-european regulator for insurance companies,
the european insurance and Occupational Pension authority (the “eiOPa”), which has the power to overrule national regulators in certain circumstances. in addition, the Group is subject to the Swiss Solvency test and, through its legal entities organised in the european economic area, Solvency ii, which entered into force on 1 January 2016. the Group is also monitoring the impact of the Swiss federal act on financial market infrastructure (which became effective 1 January 2016 and introduced new regulations for over-the-counter derivatives trading in line with international standards) and the proposed Swiss federal financial Services act and financial institutions act (which contain rules for financial services providers that are based on the eU markets in financial instruments Directive (“mifiD”) regulations). in the United States, as a possible step towards federal oversight of insurance, the US Congress created the federal insurance Office within the Department of treasury. in addition, provisions of the Wall Street Reform and Consumer Protection act of 2010, as well as provisions in the proposed european market infrastructure Regulation and proposed changes to mifiD, in respect of derivatives could have a significant impact on the Group.
Significant policy decisions on a range of regulatory changes that could affect the Group and its operations remain undecided. the Group cannot predict which legislative and regulatory initiatives ultimately will be enacted or promulgated, what the scope and content of these initiatives ultimately will be, when they will be effective and what the implications will be for the industry, in general, and for the Group, in particular. Certain of these initiatives could have a material impact on the Group’s business.
in addition, regulatory changes could occur in areas of broader application, such as competition policy and tax laws. Changes in tax laws, for example, could increase the taxes the Group pays, the attractiveness of products offered by the Group, the Group’s investment activities and the value of deferred tax assets. any number of these changes could apply to the Group and its operations. these changes, or inconsistencies between the various regimes that apply to the Group, could increase the costs of doing business, reduce access to liquidity, limit the scope of business or affect the competitive balance, or could make reinsurance less attractive to primary insurers.
Market risk Volatility and disruption in the global financial markets can expose the Group to significant financial and capital markets risk, including changes in interest rates, credit spreads, equity prices and foreign currency exchange rates, which may adversely impact the Group’s financial condition, results of operations, liquidity and capital position. the Group’s exposure to interest rate risk is primarily related to the market price and cash flow variability associated with changes in interest rates. in general, a low interest rate environment, such as the one experienced in recent years, poses significant challenges to the insurance and reinsurance industries, with earnings capacity under stress unless lower investment returns from fixed income assets can be offset by lower combined ratios or higher returns from other asset classes. economic weakness, fiscal tightening and monetary policies are keeping government yields low, which impacts investment yields and affects the profitability of life savings products with interest rate guarantees. exposure to credit spreads primarily relates to market price and cash flow variability associated with changes in credit spreads. When credit spreads widen, the net unrealised loss position of the Group’s investment portfolio can increase, as could other-than-temporary impairments.
Credit risk if the credit markets were again to deteriorate and further asset classes were to be impacted, the Group could experience further losses. Changes in the market value of the underlying securities and other factors impacting their price could give rise to market value losses. if the credit markets were to deteriorate again, the Group could also face further write-downs in other areas of its portfolio, including other structured instruments, and the Group and its counterparties could once again face difficulties in valuing credit-related instruments. Differences in opinion with respect to valuations of credit-related instruments could result in legal disputes among the Group and its counterparties as to their respective obligations, the outcomes of which are difficult to predict and could be material.
Liquidity risks the Group’s business requires, and its clients expect, that it has sufficient capital and sufficient liquidity to meet its re/insurance obligations, and that this would continue to be the case following the occurrence of any foreseeable event or series of events, including extreme catastrophes, that would trigger insurance or reinsurance coverage 276 Swiss Re 2015 financial Report
the Group manages liquidity and funding risks by focusing on the liquidity stress that is likely to result from extreme capital markets scenarios or from extreme loss events or combinations of the two. Generally, the ability to meet liquidity needs could be adversely impacted by factors that the Group cannot control, such as market dislocations or interruptions, adverse economic conditions, severe disruption in the financial and worldwide credit markets and the related increased constraints on the availability of credit; changes in interest rates, foreign exchange rates and credit spreads; or by perceptions among market participants of the extent of the Group’s liquidity needs.
as claims paying and financial strength ratings are key factors in establishing the competitive position of reinsurers, a decline in ratings alone could make reinsurance provided by the Group less attractive to clients relative to reinsurance from competitors with similar or stronger ratings. a decline in ratings could also cause the loss of clients who are required by either policy or regulation to purchase reinsurance only from reinsurers with certain ratings. Certain larger reinsurance contracts contain terms that would allow the ceding companies to cancel the contract if the Group’s ratings or those of its subsidiaries are downgraded beyond a certain threshold. moreover, a decline in ratings could impact the availability and terms of unsecured financing and obligate the Group to provide collateral or other guarantees in the course of its reinsurance business or trigger early termination of funding arrangements potentially resulting in a need for additional liquidity. as a ratings decline could also have a material adverse impact on the Group’s costs of borrowing or ability to access the capital markets, the adverse implications of a downgrade could be more severe.
Legal and regulatory risks in the ordinary course of business, the Group is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which determine rights and obligations under insurance, reinsurance and other contractual agreements. from time to time, the Group may institute, or be named as a defendant in, legal proceedings, and the Group may be a claimant or respondent in arbitration proceedings. these proceedings could involve coverage or other disputes with ceding companies, disputes with parties to which the Group transfers risk under reinsurance arrangements, disputes with other counterparties or other matters. the Group cannot predict the outcome of any of the foregoing, which could be material for the Group.
Use of models; accounting matters the Group is subject to risks relating to the preparation of estimates and assumptions that management uses, for example, as part of its risk models as well as those that affect the reported amounts of assets, liabilities, revenues and expenses in the Group’s financial statements, including assumed and ceded business. for example, the Group estimates premiums pending receipt of actual data from ceding companies, which actual data could deviate from the estimates. in addition, particularly with respect to large natural catastrophes, it may be difficult to estimate losses, and preliminary estimates may be subject to a high degree of uncertainty and change as new information becomes available. Deterioration in market conditions could have an adverse impact on assumptions used for financial reporting purposes, which could affect possible impairment of present value of future profits, fair value of assets and liabilities, deferred acquisition costs or goodwill. to the extent that management’s estimates or assumptions prove to be incorrect, it could have a material impact on underwriting results (in the case of risk models) or on reported financial condition or results of operations, and such impact could be material.
the Group’s results may be impacted by changes in accounting standards, or changes in the interpretation of accounting standards. the Group’s results may also be impacted if regulatory authorities take issue with any conclusions the Group may reach in respect of accounting matters. Changes in accounting standards could impact future reported results or require restatement of past reported results.
the Group uses non-GaaP financial measures in its external reporting, including in this report. these measures are not prepared in accordance with US GaaP or any other comprehensive set of accounting rules or principles, and should not be viewed as a substitute for measures prepared in accordance with US GaaP. moreover, these may be different from or otherwise inconsistent with non-GaaP financial measures used by other companies. these measures have inherent limitations, are not required to be uniformly applied and are not audited.
Risks related to the Swiss Re corporate structure Swiss Re is a holding company, a legal entity separate and distinct from its subsidiaries, including Swiss Reinsurance Company ltd. as a holding company with no operations of its own, Swiss Re is dependent upon dividends and other payments from Swiss Reinsurance Company ltd and its other principal operating subsidiaries.
Overland Park 5200 metcalf avenue Overland Park, KS 66202 telephone +1 913 676 5200 new York 55 east 52nd Street new York, nY 10055 telephone +1 212 317 5400 toronto 150 King Street West toronto, Ontario m5H 1J9 telephone +1 416 408 0272 mexico City insurgentes Sur 1898, Piso 8 torre Siglum Colonia florida méxico, D.f. 01030 telephone +52 55 5322 8400
Sydney international towers Sydney, tower two level 36, 200 Barangaroo avenue, Barangaroo Sydney, nSW 2000 telephone +61 2 8295 9500
Cape town 2nd floor Beechwood House the Boulevard Searle Street Cape town, 7925 telephone +27 21 469 8400 madrid Paseo de la Castellana, 95 edificio torre europa 28046 madrid telephone +34 91 598 1726
Paris 11–15, rue Saint-Georges 75009 Paris telephone +33 1 43 18 30 00
Rome Via dei Giuochi istmici, 40 00135 Rome telephone +39 06 323931
Media Relations telephone +41 43 285 7171 fax +41 43 282 7171 media_relations@swissre.com
Head office Swiss Re ltd mythenquai 50/60, P.O. Box, 8022 Zurich, Switzerland telephone +41 43 285 2121 fax +41 43 285 2999 280 Swiss Re 2015 financial Report
Second quarter 2016 results third quarter 2016 results investors’ Day in Zurich
Printing: multicolor Print aG, Baar this report is printed on sustainably produced paper and climate neutral. the wood used comes from forests certified to 100% by the forest Stewardship Council (fSC).
The COP21 Climate Change Conference in Paris was lauded a landmark success: It brought a legally binding agreement to cap global warming at 2°C over pre-industrial levels or less. We supported the negotiation process both before and during the conference. You can read about our contribution to COP21 on page 41 and about our various climate change activities throughout the report.
Dear stakeholders It is a pleasure to introduce Swiss Re’s 2015 Corporate Responsibility Report. With this yearly publication we want to give you a comprehensive overview of the measures we take to act as a responsible company. “Playing our part in enabling sustainable progress” is one of our key objectives – as we express it in our value framework. This commitment continues to guide our actions as a responsible company and helps us to pursue our vision of making the world more resilient.
Below, we would like to draw your attention to some of our main achievements in 2015.
In risk management, our goal as a responsible company is to identify and avoid certain risks we do not want to underwrite, be it for ethical reasons or because they might lead to losses, or both. In 2015, we made an important change to our Sustainability Risk Framework: By integrating an online assessment tool into the “Sensitive Business Risks” process, we have enabled our underwriters to quickly spot potential environmental and social risks of transactions themselves, further strengthening our due diligence capabilities. In the emerging risks section, we again spotlight a topic that may create significant challenges for re/insurance in the future; this time the “Internet of Things”. In the regulatory sphere, we describe the active role we play in a major initiative recently launched to develop financial disclosure requirements on climate risks.
The Swiss Re Foundation in 2015 – Seeds of resilience This separate report describes how the Swiss Re Foundation helps communities to build resilience to risk.
As Swiss Re is not an industrial company, our own environmental footprint is relatively small. Yet, our commitment to finding further possibilities to reduce this is as strong as ever. In 2015, we introduced an integrated, ISO 14001-certified environmental management system, spanning all our operations and employees around the world. Previously, our policy had been to certify individual locations. Both our pioneering climaterelated initiatives – the Greenhouse Neutral Programme and COyou2 Programme – are now well into their second cycles and continue to produce results. We also report on the steady progress we are making with Swiss Re Next, our new headquarter building in Zurich, which will set a benchmark for sustainable construction.
In recognition of our efforts in all these areas over many years, we were again ranked the sector leader in the prestigious Dow Jones Sustainability Indices (DJSI). This is the ninth time we achieved this over the last ten years – a track record that fills us with pride and satisfaction, because it shows that many of the actions we have taken are seen as relevant.
Swiss Re at a glance Swiss Re is a leader in wholesale reinsurance, insurance and risk transfer solutions. Our success is built on our solid client relationships, capital strength and knowledge company approach. We make the world more resilient.
Headquartered in Zurich, Switzerland, Swiss Re has operations across the globe. At the end of 2015, we had 75 offices in more than 30 countries. Based on “net premiums earned and fee income from policyholders”, our ten biggest markets in 2015 were: the United States, the United Kingdom, China, Australia, Germany, Canada, Japan, Ireland, France and Switzerland. They accounted for 78.4% of the Group’s total business over the year.
You can get detailed information on our strategy in the 2015 Business Report at: reports.swissre.com/2015/businessreport /our-strategy/strategy-in-action. html
Corporate Solutions serves mid-sized and large corporations, with product offerings ranging from traditional property and casualty insurance to highly customised solutions. Corporate Solutions serves customers from over 50 offices worldwide.
Admin Re® provides risk and capital management solutions by which Swiss Re acquires closed books of inforce life and health insurance business, entire lines of business, or the entire capital stock of life insurance companies. As of 1 January 2016, the open and closed life insurance books of the Group, including Admin Re®, are managed under a new business unit called Life Capital.
How we operate Swiss Re is a knowledge company. We apply that knowledge to help clients, shareholders and society.
In simplified terms, our business models works as follows: We provide tailor-made solutions through traditional reinsurance or insurance-based capital market instruments. At the core of our expertise is the costing, pricing and diversification of non-life and life risks.
Key financial data The table below provides an overview of some of the Swiss Re Group’s key financial data.
Claims and claim adjustment expenses 10 577 9 848 Life and health benefits 10 611 9 080 Income tax expense 658 651
Earnings per share in CHF (basic) 9.33 12.93 Dividends paid to shareholders 3 129 2 608 Return on equity in % 10.5 13.7 1 Total debt expressed as total carrying value 2 Net income attributable to common shareholders
Net premiums earned and fee income by Business Unit (Total USD 30.2 billion)
It is also in our own best interest, though: it strengthens our capabilities to identify, and address, both risks and opportunities manifesting themselves in the longer run and, as a consequence, to retain our licence to operate.
̤ UNEP FI Principles for Sustainable Insurance (PSI): for our Public Disclosure of Progress, see page 80
We first began to address a specific sustainability issue almost 30 years ago when we drew attention to the potential risks created by climate change. Building on this, we gradually began to form a commitment to sustainable, long-term value creation and identified the areas of our business we considered relevant to supporting this goal. We first gave this formal expression through our Sustainability Mission Statement and, in parallel, began to provide specific information in dedicated reports, starting with a “Corporate Environmental Report” covering the business year of 1998.
Our general commitment to 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 agencies and the general public – with respect and integrity. In particular, we aim to take a long-term view and to play our part in enabling sustainable progress.
Insights from our internal risk expertise As a leading re/insurer, we act as ultimate risk taker in society. This requires us to have a very sound understanding of the risk landscape. This deep understanding of re/insurance markets and the risk expertise embedded in our company also provide us with a solid foundation to identify material sustainability issues. In many areas of our business, we have special teams, functions and processes to identify and address issues relevant to sustainable development.
Insights from dialogue with our stakeholders Being an ultimate risk-taker in society, we have an intrinsic interest in maintaining active and ongoing dialogue with our key stakeholders. Generally speaking, this dialogue works in both directions: our partners expect us to share our risk expertise, thus helping them – and society at large – to form effective responses. In turn, we benefit from this exchange to sharpen our understanding of key risk, including ESG issues, and to set priorities.
With regard to sustainability issues, our principal stakeholders are: ̤ Financial community: sustainability investors/shareholders, rating agencies, shareholder associations and stock exchanges in addressing sustainability concerns; ̤ Clients: Cedents, brokers and corporate clients; ̤ Employees; ̤ Political and legal entities: Multilateral organisations (UN), governments, regulators, standard-setting boards; ̤ Civil society: general public, NGOs, media, academia.
The Centre for Global Dialogue near Zurich is our own in-house conference centre. Providing us with a tailor-made dialogue platform, it allows us to actively manage and encourage collaboration with our stakeholders. In 2015, we held or hosted approximately 120 stakeholder events at the Centre. Our publications form a second important element of our stakeholder dialogue: in 2015, we published more than 20 new expertise publications and around 30 new fact sheets.
To process the resulting information from these three key sources we use a process with the following steps: ̤ Expert analysis by our Group
̤ Advancing our knowledge and understanding of climate change risks, quantifying and integrating them into our risk management and underwriting frameworks where relevant; ̤ Developing products and services to mitigate or adapt to climate risk; ̤ Raising awareness about climate change risks through dialogue with clients, employees and the public, and advocating a worldwide policy framework for climate change; ̤ Tackling our own carbon footprint and ensuring transparent, annual emissions reporting.
A hurricane wreaking havoc in the Caribbean. Natural catastrophes and the impact of climate change remain key topics for us and our partners.
Key material issues Based on the insights gained through this process, we currently consider the following sustainability or ESG topics as the most material in the context of our own business: ̤ Climate change: – Managing climate and natural disaster risk
Advancing sustainable energy solutions ̤ Use our capacity and technical expertise to provide effective risk covers for complex offshore wind farm projects; ̤ Obtain 100% of power used for our own operations from renewable sources by 2020.
Partnering for food security ̤ In cooperation with key stakeholders, create solutions to improve food security by giving farmers protection against natural perils; ̤ Through commitment to the Grow Africa Partnership, offer up to 1.4 million smallholder farmers in Africa protection against weather risks (target met in 2014).
Supporting financial resilience ̤ Actively participate in the financial reform dialogue to promote policies supporting financial resilience and sustainable economic growth.
Managing sustainability risks ̤ Consistently identify potential sustainability risks in our business transactions and abstain from them if warranted, and engage with clients and industry partners on how to address such risks.
Empowering our people ̤ Continue to build an organisation of diverse people that have a passion to make the world more resilient; ̤ Achieve a top-quartile employee engagement score (EES >72%).
Managing climate and natural disaster risk pages 16–22 pages 26–31 pages 40–41 pages 47–57 SRF
Independent assurance This is the third year that the main chapters of the report have received independent assurance from PricewaterhouseCoopers. Their assurance statement is included on pages 76–77.
On an operational level, various divisions, departments and units are involved in implementing Swiss Re’s commitment to corporate responsibility in daily business. The Group Sustainability Risk unit drives the development of Group risk policies and related strategic projects and coordinates communication, dialogue and engagement efforts across the Group. In addition, it is responsible for producing Swiss Re’s Corporate Responsibility Report.
Disclosure and accountability We have voluntarily reported on our performance as a responsible company since 1998. Over the years, the range of topics covered in these yearly reports has gradually widened. While early editions had a strong focus on environmental concerns, later editions gradually extended their focus to social and governance issues. Since 2007, we have published a comprehensive Corporate Responsibility Report, guided by best practice in corporate responsibility reporting.
̤ Although we engage strongly in dialogue with our stakeholders, we do not currently have a formalised process for them to comment on our selection of the GRI’s “material aspects” and hence neither on the content of our Corporate Responsibility Report.
One of our overarching goals is to create solutions that suit the special needs of emerging and developing countries. If governments and communities have financial protection against risks such as windstorms, earthquakes, drought and flooding, they can better cope with the immediate consequences of a disaster.
But, just as importantly, re/insurance protection safeguards investments, allows governments to stabilise budgets and gives people the financial stability required to get loans. In this way, our solutions help to create the conditions for sustained social and economic development.
Natural catastrophes are a key risk in our Property & Casualty (P&C) business. The damage caused by floods, storms, earthquakes and other natural disasters can affect millions of lives and the economies of entire countries. In 2015, the total worldwide economic losses from natural and man-made catastrophes were estimated at USD 92 billion – of these, USD 37 billion were insured. Having access to effective re/insurance protection against natural catastrophes creates significant benefits for our clients – as well as society at large. In 2015, we received USD 2.6 billion of P&C Reinsurance premiums for natural catastrophe covers (for losses larger than USD 20 million), which was equivalent to 17% of total premiums in this business segment.
To assess our Property & Casualty business accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the effect of climate change. This is why we invest in proprietary, state-of-the-art natural catastrophe models and regularly collaborate with universities and scientific institutions.
USD 2.6 bn Natural catastrophe premiums in our P&C Reinsurance business
Our ECA study found that Barisal’s total climate risk due to economic development and climate change (under a moderate scenario) must be expected to roughly triple by 2030, but that 60% of the expected damage can be avoided by taking appropriate adaptation measures. The most effective of these include reinforcing river embankments, planting flood-resilient crops and improving solid waste management.
Our ECA study for San Salvador found that further improving river bank reinforcements such as these can significantly reduce damage from flooding and protect vulnerable houses.
CatNet®: free natural hazard information for our clients The CatNet® tool offers our clients natural hazard information combined with Google mapsTM and satellite imagery. Its functions and data facilitate a professional overview and assessment of natural hazard exposure for any location worldwide. This makes CatNet® a valuable tool in preparing local, regional and cross-regional risk profiles. Its three main features are a natural hazard atlas, country-specific insurance data and a link to disaster statistics. More information is available at swissre.com/catnet.
Hereafter, we describe some key transactions and initiatives strengthening risk resilience in which we were involved during 2015. Covering natural disaster, weather and pandemic risks, they help communities become more resilient to such shocks by ensuring that adequate funding is in place for quick and effective responses.
Strengthening earthquake resilience in Turkey In Turkey we supported the Turkish Catastrophe Insurance Pool (TCIP ) to further improve insurance protection against earthquakes in Istanbul. With a population of 14 million, the metropolis generates a significant share of Turkey’s GDP, while living under the constant threat of severe earthquakes.
Originally set up in response to the strong Kocaeli and Duzce earthquakes of 1999, TCIP has done much over the years to improve insurance protection in the country. In addition to the support we provide through traditional reinsurance, in 2015 Swiss Re Capital Markets co-structured a USD 100 million catastrophe bond sponsored by the TCIP. Covering Istanbul’s large metropolitan area, the three-year bond has a parametric trigger that will pay out if the specified earthquake conditions are met. It was well received by investors and ensures that TCIP will have access to additional reconstruction funds in the event of a major earthquake.
In 2015, our registered broker-dealer subsidiaries arranged non-life ILS worth USD 825 million, all of them for clients. In addition, they arranged USD 410 million of extreme mortality ILS, both for clients and Swiss Re.
Through ARC’s in-house risk modelling platform, Africa RiskView, the participating governments can assess the drought risk they face and decide how much of it they want to insure at what loss threshold. Based on satellite rainfall data, payouts are then made automatically to the governments when the agreed drought thresholds are exceeded. To take part in the scheme, countries need to have contingency plans in place that show how payouts will be used to support the affected population.
In its initial 2014/2015 season, ARC offered drought insurance for a total of USD 129 million to four governments: Kenya, Mauritania, Niger and Senegal. Less than a year into the programme, the latter three received payouts totalling more than USD 26 million, following a severe drought in the Sahel. In the 2015/16 season, further countries joined the risk pool, thereby increasing total coverage.
Although ten years have passed since a major hurricane last made landfall in Florida, the FHCF recognises that it is only a matter of time until one strikes again. As the 2005 hurricane season showed, the financial consequences for local insurers, and ultimately homeowners, can be severe. It is the task of the FHCF to ensure that insurers can pay claims from such extreme events and to reduce the impact on taxpayers.
Florida has one of the highest coastal value concentrations anywhere in the world but, at the same time, faces a significant hurricane risk. By providing reinsurance protection to the Florida Hurricane Catastrophe Fund, we help strengthen the area’s economic resilience in the face of such disasters.
We also signed a Memorandum of Cooperation with the provincial government of Heilongjiang on the future rollout of an index-based insurance pilot covering natural disaster risks to its agricultural sector. This builds on previous efforts we have undertaken to improve insurance protection in Heilongjiang, which, as China’s biggest crop producer, is key to its food security.
To develop a sustainable product that meets actual needs, the scheme has pursued a holistic approach from the beginning, involving all key stakeholders in a public-private partnership. Stakeholders include various government ministries, the Vietnam National Reinsurance Corporation (in the role of aggregator and bridge between the government and local insurers), local insurers and their branch offices, as well as local people’s committees and authorities. The scheme has got off to a promising start and the intention is to expand it rapidly to other provinces.
Helping to develop a Pandemic Emergency Facility Just like an earthquake, hurricane or other natural disaster, the outbreak of a pandemic is an actual catastrophe that requires a quick, effective response. However, when the Ebola crisis broke out in West Africa in 2014, it took the affected countries and the international community several months to mobilise the resources necessary for an adequate response. The World Bank has made it a priority to address this situation and has mandated Swiss Re and Munich Re as the partners to support the development of a Pandemic Emergency Facility (PEF).
Building on these experiences, we made a significant commitment to the United Nations at its Climate Summit in September 2014. Personally addressing the government leaders present at the summit, our Group CEO Michel M. Liès made the following pledge: “By the year 2020, Swiss Re commits to having advised 50 sovereigns and sub-sovereigns on climate risk resilience and to have offered them USD 10 billion against this risk.”
Working together with different partners, we helped to bring weather insurance to 1.6 million smallholder farmers in 11 Sub-Saharan countries by the end of 2015. The fact that this is less than the 2 million recorded in the previous year is mainly due to changes in how one country participating in the African Risk Capacity has structured its coverage under the programme. It has substantially revised its assumptions on the drought exposure of its farmers and reduced the percentage of farmers covered by the scheme.
Swiss Re Corporate Solutions takes a special interest in offshore wind as it has both the large capacity and the technical expertise to help manage the associated risks. We are continually enhancing our understanding of these risks and share our insights with our clients as well as other insurers. As a result, we are now considered a “lead market” for offshore wind risks.
In the last five years, Swiss Re Corporate Solutions has participated in more than 30 offshore wind projects, including wind farms, standalone offshore substations and standalone export cables. In the 2015, we were involved in 18 offshore wind farm projects worldwide and were the lead re/insurer in eight of them.
Block Island: first offshore wind farm in the US In 2015, we insured a number of offshore wind projects in different countries, including the Block Island Wind Farm in the US (dwwind.com/ project/block-island-wind-farm). Developed by Deepwater Wind, this is the country’s first-ever offshore wind facility. The project is situated in the Atlantic Ocean, approximately three miles from Block Island, off the coast of Rhode Island, where there are strong
Climate change mitigation By facilitating the construction of offshore wind farms, these solutions support efforts to reduce CO2 emissions and hence mitigate climate change.
and steady winds. Thanks to its expertise and proximity to the client, Swiss Re Corporate Solutions was appointed as the project’s lead insurer and provides both a construction all risk (CAR) and a delay in start-up (DSU) cover.
Construction of the wind farm is underway and is scheduled to be completed by the end of 2016. Our client, GE Wind (formerly Alstom), is building five powerful, highly efficient turbines that will generate a total capacity of 30 megawatts. The wind farm will give approximately 17 000 households on Block Island access to reliable as well as renewable electricity for the first time. To date, they have had to use diesel generators, which are inefficient and cause substantial air pollution. The power not used on Block Island will be transmitted to the mainland through a 21-mile long cable under the ocean floor.
Longevity transaction with Heineken UK With life expectancy rising, pension schemes face the risk that they will not be able to meet all their commitments. Longevity transactions cover this risk by insuring the schemes’ liabilities in case their members live longer than expected. In 2015, we participated in four major longevity transactions. One of them concerned the pension plan of brewing firm Scottish & Newcastle, part of Heineken since 2008 and now called Heineken UK.
By completing a longevity swap transaction with Friends Life (now part of the Aviva Group), Heineken received longevity insurance for defined benefit liabilities of GBP 2.4 billion, covering around 19 000 pensioners. As the deal’s reinsurance partner, we assumed part of this risk from Aviva. Swiss Re is in a position to write such large deals because we have a natural offset through our mortality business, the capacity to write the business to our own balance sheet and the expertise to create tailor-made solutions.
Sustainability, political, regulatory and emerging risks are particularly relevant in this respect. We have developed instruments and know-how that help us to identify and assess all of them. This allows us to determine those risks we think should be avoided – because of their loss potential, for ethical reasons, or both.
In a market environment, profitable business activities create economic value. Occasionally, however, they may also adversely affect the environment and certain vulnerable groups. If such impacts are ignored, they may pose a threat to societies’ long-term sustainable development.
Our Sustainability Risk Framework is an advanced risk management instrument, specifically designed to identify and address the potentially negative effects of our transactions on local
Sustainability risks We define sustainability risks as ethical concerns related to potential environmental and socio-economic impacts of our business transactions, and the reputational risks they may entail.
The Sustainability Risk Framework consists of: ̤ An overarching human rights and environmental protection policy plus seven policies on sensitive sectors or issues; ̤ The Sensitive Business Risk (SBR) process comprising an online assessment tool and a referral tool – due diligence mechanisms to assess our business transactions; ̤ Company exclusions; and ̤ Country exclusions beyond mere compliance with international trade controls.
We regularly review these policies to ensure they reflect new developments. The key concerns currently addressed by the eight policies of our Sustainability Risk Framework are listed on page 28.
Mines can potentially have significant impacts on the environment and local communities. Our Sustainability Risk Framework includes a policy that clearly specifies the risks we examine before underwriting mining projects.
The online tool is easy to access, provides clear guidance to our underwriters about what to assess in further detail and ensures consistent documentation in our standard underwriting tools. At the same time, it enables our central sustainability management unit to adjust key policy parameters and make them effective “at the push of a button”. We believe the tool has thus further strengthened due diligence of potential sustainability risks in our core business. In the first six months since its launch, our underwriters used it to carry out checks on 3 550 transactions.
The accessibility and clarity of our new online assessment tool led to a decrease in the number of transactions referred to our sustainability experts for an assessment – from 454 in the previous year to 309 in 2015. Of these, we issued negative recommendations in 32 cases and positive recommendations with conditions in 24 cases.
When making these decisions, we refer to internationally recognised ethical principles. Swiss Re is a signatory to the UN Global Compact, which derives its human rights principles from the Universal Declaration of Human Rights, its labour principles from the ILO Declaration on Fundamental Principles and Rights at Work, its environment principles from the Rio Declaration on Environment and Development and its anti-corruption principles from the United Nations Convention against Corruption.
This web of ethical principles helps us to make decisions that are aligned with universal fundamental rights. However, this is not sufficient for decisions in a business context. We also need to consider the social and economic implications of our decisions in their respective cultural contexts and, last but not least, the implications for our business. Balancing these different aspects requires us to carefully and consistently assess transactions and their local effects, often in collaboration and dialogue with external experts and local stakeholders.
Company exclusions Our Sustainability Risk Framework policies specify certain criteria that may lead us to exclude a company from both our re/insurance transactions and our investments, to the extent that such an exclusion is permissible (eg by virtue of mandatory law or internal policies) and possible (eg if existing documentation relating to such re/ insurance transactions and investments provide for it). These criteria include: involvement in prohibited war material; verifiable complicity in systemic, repeated and severe human rights violations; causing repeated, severe and unmitigated damage to the environment; unregulated proliferation of nuclear weapons; and unethical/cruel animal testing practices.
Number of Sensitive Business Risk referrals 18% Excluded /critical country 17% Oil and gas 10% Other industry/issue 4% Human rights 3% Forestry, pulp & paper and oil palm 2% Animal testing 1% Environmental degradation 1% Multi-issue 1% Nuclear weapons proliferation Proceed
During 2015, we revised the methodology we use to identify the countries to be excluded from our business transactions. Specifically, we started to apply two independently compiled human rights indexes for our assessments. As a result, the list of excluded countries has widened and now comprises the Central African Republic, South Sudan, DR Congo and Chad, in addition to North Korea, Somalia, Sudan (North) and Syria. We implemented the revised list at the beginning of 2016 and will update it annually.
As the Sustainability Risk Framework is based on the principles of respecting human rights and protecting the environment, the SBR process with its two due diligence tools and the company and country exclusions are our principal means to ensure compliance with the UN Global Compact in our core business.
On an industry-wide basis, we have played a major role in establishing and advancing the Principles for Sustainable Insurance (PSI) introduced in 2012 by the UN Environment Programme Finance Initiative, UN EPFI (www.unepfi. org/psi). We were one of the initiative’s original signatories and currently act as one of its board members. The PSI address environmental, social and governance (ESG) issues in the re/insurance industry, spanning risk management, underwriting, product and service development, claims management, sales and marketing, and investment management. Our Public Disclosure of Progress for 2015 is included in this report on page 80.
These specialists identify, assess and monitor political risks on an ongoing basis, so the Group understands their implications and can initiate appropriate mitigation measures if required. Particular attention is paid to developments in high growth markets and to cross-border issues such as terrorism, energy, multi-national institutions or international trade.
Furthermore, we seek to raise awareness of political risk within the re/insurance industry and among the broader public, and engage in dialogue with our clients and other stakeholders. We also distil our ongoing assessments of political risks into several political and sustainability risk ratings at country level, which support our underwriting and investment decisions.
Swiss Re remained fully engaged in the regulatory debate throughout 2015, supporting regulatory convergence as well as increased application of economic and risk-based principles. At the same time, we strive to mitigate developments that may adversely affect the re/insurance industry’s ability to foster financial and economic stability.
For example, we share the broad concerns of the re/insurance industry regarding the cumulative and crosssectoral impacts of some of the proposed reforms. Regulatory fragmentation is a key issue, particularly in Europe, with the lack of harmonisation in introducing Solvency II, but also in the context of cross-border business and protectionist measures introduced in several growth and mature markets.
Many countries impose restrictions on the transaction of reinsurance business. The Global Reinsurance Forum, which Swiss Re is currently chairing, actively promotes the advantages of open and competitive markets, in particular the greater choice of reinsurers, products and prices, as well as benefits from diversification through the spreading of risk and increased financial stability.
During the COP21 negotiations, it was also announced that the Financial Stability Board (FSB) would establish a Task Force on Climate-Related Financial Disclosures, TCFD (www.fsb-tcfd.org). The FSB is an international body that monitors and makes recommendations about the global financial system, coordinating national financial authorities and international standardsetting bodies. Starting from the premise that climate change creates physical, liability and transition risks, the TCFD aims to develop consistent and effective financial disclosures that will allow stakeholders to properly assess the climate risks faced by companies and to take appropriate actions. Swiss Re supports the task force and provides one of its members.
Re/insurers operate in a risk landscape that is changing faster today than ever before. New economic, technological, socio-political, regulatory and environmental developments are all capable of changing risks or creating new ones. Moreover, growing interdependencies between these developments can lead to accumulations of risk and create significant knock-on effects. The general business environment is undergoing significant changes, as well. Liability and regulatory regimes continue to evolve, stakeholder expectations are growing and people’s risk perceptions are shifting.
Swiss Re SONAR: New emerging risk insights The Swiss Re SONAR report features emerging risk themes that have the potential to impact the insurance industry in the future. These topics were mainly derived from our SONAR process and were assessed by our emerging risk management experts. media.swissre.com/ documents/SONAR_2015_ WEB.pdf
The SONAR process involves two steps. Firstly, we have an interactive intranet platform, which enables our employees to share and discuss risk notions on all main areas of the emerging risk landscape quickly and easily and to stay up-to-date on new developments. While many of these early signals will never actually turn into emerging risks, others may well do so. As it is impossible to anticipate which signals will fall into which category, all of them warrant equal attention. The SONAR platform allows for peer reviews and bottom-up discussions of early signals.
As individuals and households, we are becoming ever more equipped and connected with electronic devices and, ultimately, with semi-autonomous networks of communicating objects – the Internet of Things (IoT). Imagine, for example, your refrigerator automatically reordering milk and other items according to your user preferences via the internet and organising home delivery. Or your refrigerator might advise you on your diet, taking into account the sports activity data retrieved from your smart phone or health wearable device. Other examples are individualised temperature, lighting and air ventilation systems that optimise room climate via sensors, shades, heaters and air conditioning. Such integrated and self-regulating digital systems allow for increased resource efficiency, healthier lives and better comfort.
The IoT also raises important questions about the use and distribution of personal data, the protection of privacy and, ultimately, how these matters should be regulated. As knowledge gathering, communication and decision-making activities shift from humans to machines, traditional regimes of accountability and responsibility will be challenged.
The Internet of Things (IoT) makes it possible to operate home appliances remotely via mobile devices. While the benefits of this are obvious, ever-growing interconnectivity also creates risks concerning network and data security. This is why we treat the IoT as an “emerging risk”.
By the end of 2015, four of these risks had become sufficiently relevant for our business that we continued to address them together with our stakeholders. We describe the activities we organised in 2015 in the present edition of our Corporate Responsibility Report, in addition to information provided in the 2014 edition.
Strategic risk initiatives Identifying and addressing emerging risks can be challenging. Their novelty and interconnectedness makes it difficult to determine when a particular risk notion must be considered an emerging risk. Timing is thus of crucial importance: If measures to exclude a particular risk are taken too early, we can offer our clients less insurance protection; if measures are taken too late, we may end up with increased loss potential.
In 2015, we contributed to the “IRGC Guidelines for Emerging Risk Governance”: www.irgc.org/risk-governance/ emerging-risk/a-protocol-for-dealingwith -emerging-risks/
Asset-liability management (ALM) is the cornerstone of our investment philosophy. Premiums generated by our underwriting activities are invested in assets whose cash flows match the durations and currencies of our re/insurance liabilities, to meet future claims and benefits. As a result, we invest more in higher-quality fixed income securities with stable long-term returns. At the end of 2015, such investments accounted for 73% of our total assets under management1.
Responsible investment framework Our asset management has a welldefined framework, which considers ESG criteria consistent with the Group’s Code of Conduct, and is a commitment to sustainability. This pledge is further outlined in the Group Asset Management Responsible Investment Policy, which describes our approach and principles in relation to sustainability in the management of Swiss Re’s investments, as well as the roles and responsibilities to ensure the integration of ESG considerations. This is complemented by the Swiss Re Asset Management Voting Policy, which provides guiding principles that apply to all our voting activities. With this approach, we ensure a comprehensive commitment to responsible investment in our day-to-day asset management activities.
1 Asset classes considered consist of government bonds (including agency), corporate bonds, securitised products, and mortgages and other loans.
All PRI signatories are required to provide in-depth reporting on their responsible investment activities. The reports are available on the PRI website at www.unpri.org/explore/?q=&hd=on& hg=on&he=on&ptv=&tv=76&sp=pub&s c=line&se=start
Swiss Re’s Asset Management unit applies these criteria to the vast majority of our investment assets, excluding companies and countries if they do not meet the pre-defined criteria and qualitative standards.
Sustainability and climate change are essential topics for us. We actively contribute to financing a more low carbon economy by investing in the growing SSA3 green bond market, primarily relying on the “Green Bond Principles”.
As part of our commitment to sustainability, we also invest in related assets like green bonds in our credit mandates, and renewables and social infrastructure in our infrastructure private debt mandates.
Real estate Our investment portfolio consists of direct investments in property, principally in Switzerland and in Germany, as well as in the US. Comprising buildings for residential, industrial and commercial use, the market value of the portfolio was USD 3.2 billion at the end of 2015.
comfort. When an existing building in the portfolio is due for renovation, this standard is applied whenever it is feasible from an architectural, technical and financial point of view.
Voting As an asset owner, and in particular as a shareholder, we recognise our rights and responsibilities as an integral part of our commitment to responsible investment.
We believe that ESG considerations, and especially good corporate governance and transparency towards shareholders, are key drivers for sustainable value creation. Last year, in addition to our periodic review, we conducted a thorough analysis of our voting principles to keep them in line with best practice.
In the case of internally managed assets, we use our influence as a responsible shareholder by directly exercising our voting rights, and with externally managed portfolios, by facilitating the relevant portfolio managers to execute our proxy votes and related engagement activities.
In 2015, we exercised 97% of our voting rights of our listed equity portfolio4. We voted on 6 878 ballots through our external managers. We voted in favour of the respective management resolution in 5 977 cases (87%) and against it in 693 cases (10%). In 208 cases (3%), we abstained or withheld from voting.
In addition to shares in listed companies, investments in our equity portfolio include equity exchange-traded-funds (ETFs). The fund managers cast votes on these ETFs for all investors in accordance with the fund managers’ own voting policies and processes.
4 We vote in the vast majority of countries, with the exception of a few where voting process and regulatory obligations require a high level of administrative coordination.
Our notable achievements in 2015: ̤ Together with the World Energy
Life and health reinsurance is part of our core business, and we are the world’s largest reinsurer of mortality risk. Consequently, we are a natural home for the longevity and health risks associated with ageing societies, and have the financial strength to take on risks across a person’s whole lifespan. Swiss Re has a broad base of expertise to help insurers understand the medical and social factors that affect longevity, mortality and morbidity, and we can bring new insights from experience in markets around the world. We want to help clients create solutions that better support people as they age.
Our notable achievements in 2015: ̤ We continued to host the Asia Health
Symposia series, which is an information-sharing platform to gather a cross-section of key stakeholders and create a forum for sharing information and encouraging discussion, collaboration and exchange; ̤ We published the 2015 European Insurance Report – a study of more than 13 000 people in 13 European countries which, for the first time, measured a EUR 750 billion disability income gap. This gap is considered to be the amount of protection missing between the annual income required by people in the event they are injured or have poor health and the amount available through private, employer and/or state provisions; ̤ We contributed several industry presentations and participated in panel discussions on various topics related to healthy ageing and the urgent need for innovative solutions in this space.
By financing measures to mitigate disaster risks and adapt to climate change, we can strengthen the resilience of businesses, local and national economies and societies. As insurance puts a price tag on risk, it helps to create an incentive to invest in prevention measures.
The impact of climate change on sovereign ratings In 2015, we partnered with Standard & Poor’s in a special project to quantify the impact of natural catastrophes and climate change on sovereign ratings. Based on a sample of 38 countries, our simulations indicate that natural disasters (earthquakes, tropical storms, floods and winter storms) of a severity that is likely to occur once every 250 years can indeed weaken the affected sovereign’s rating.
Moreover, we found that climate change can be expected to increase this impact by 20% on average. The expected effect is strongest in emerging countries and especially in the event of earthquakes and tropical storms. The most severe of these disasters could lead to a downgrade of around 1.5 notches. However, our joint study also found that this potential effect can be significantly reduced by catastrophe insurance.
In December 2015, ministers and negotiators from 195 countries gathered over two weeks in Paris for the COP21 UN Climate Change Conference (www.cop21.gouv.fr). Finally, after 20 years of repeated disappointments, a legally binding agreement to fight climate change was adopted, and by consensus. The agreement not only aims to cap global warming at 2°C over pre-industrial levels – but if possible to go further, with a new target of 1.5°C. The agreement was lauded a landmark success.
In the run-up to COP21, Group CEO Michel M. Liès signed the Paris Pledge for Action (www.parispledgeforaction. org), together with 77 other CEOs of Fortune 500 companies. This pledge states that: “… we, the undersigned, affirm our strong commitment to a safe and stable climate in which temperature rise is limited to under 2 degrees Celsius.
An earlier version of this pledge was published as an open letter in the Financial Times on the eve of the 2015 World Bank Spring Meeting, under the heading “Let’s partner on climate action. Now”.
̤ Our research partnership with Standard & Poor’s on the impact of climate change on sovereign ratings →page 40
Our Group CEO Michel M. Liès addresses the participants of Action Day at the COP21 Climate Change Conference in Paris.
Most farming in the world is still carried out by small-scale subsistence farmers, who feed their families and sell a small surplus on local markets. This needs to change as more and more people are living in cities. Recently, the urban population exceeded the rural one for the first time ever, which means that cities are becoming increasingly dependent on the remaining farmers for their food.
Our notable achievements in 2015: ̤ We looked at the whole food value chain from “farm to fork” by providing for the first time our research insights on food security in the publication “Food safety in a globalised world”, which we launched at the EXPO in Milan (www.expo2015.org); ̤ We published seven more fact sheets providing key data on insurance in African countries and also explored new types of coverage in our publications on livestock and aquaculture; ̤ We strengthened the spread of index insurance products in countries across the globe by sharing our knowhow at the Global Index Insurance Conference (www.
Supporting financial resilience Re/insurance supports financial resilience by acting as a shock absorber and promoting growth through its core businesses. This is particularly important in a challenging and volatile macroeconomic environment.
The Swiss Re Centre for Global Dialogue (the “Centre”) is an important platform for interaction with our external stakeholders. Located near Zurich, this state-of-the-art conference centre hosts client and expert events. It allows us to present our thinking on some of the key issues confronting our industry and society at large, while exploring topics that are critical to a better understanding of the risk landscape we are facing.
Our Centre for Global Dialogue reflects our commitment to being a knowledge company. We believe that by openly exchanging and sharing this knowledge we, our clients and stakeholders can be “smarter together”. Below you can read summaries of three events organised by the Centre in 2015: Financial repression: the unintended consequences It is widely recognised that the extent of the global financial crisis has warranted swift implementation of a number of extraordinary measures to mitigate a deep recession. While these policies have been necessary to support the global economy, the time has come to take note of their possible implications for the financial system. To discuss and further analyse these implications, we held an executive roundtable with senior private and public sector representatives at the Centre. Ahead of the event, we had published the report “Financial repression: The unintended consequences” (see pages 42 and 46).
A second worry is that institutional investors have been driven by requirements and incentives into holding government debt instruments, meaning that they have less money available for productive investment, such as infrastructure projects. As one participant said, there is a global search for yield, which possibly leads to a misallocation of resources. Further distortions have been caused by the unprecedented active participation of public institutions in financial markets: Crowding out private investors may result in less diversification of funding sources and weaken a key element of financial stability.
In view of these implications, the participants at the roundtable agreed to continue working together to build the foundation for stronger and sustainable economic growth, benefiting individual savers, long-term investors and society at large.
The autonomous car 2015: Risks and opportunities for the re/insurance industry Autonomous cars – or new forms of mobility – are regarded as a highly disruptive technology, with significant implications for the re/insurance industry. As such, the topic appeared on the radar of our emerging risk specialists a few years ago, and we first drew attention to it with a special feature in our 2013 Corporate Responsibility Report. In 2014, our Centre for Global Dialogue held a two-day conference in Switzerland and, in 2015, followed this up with a one-day event at our Armonk office in the US, bringing together experts from car manufacturing and technology, safety and legal specialists.
The momentum around self-driving vehicles is astonishing. Whether we are fully prepared for them or not, autonomous cars have arrived. Almost all major carmakers are currently testing first-generation prototypes, while Google already has semi- and fully autonomous cars on the roads in California. When they start to appear in larger numbers on our roads, this will present many new challenges to the way we do business and how we view and manage risk, retail insurance and liability.
The conference in Armonk offered the following key takeaways: 1. Autonomous cars will improve safety; 2. The sharing economy will drive autonomous car adoption; 3. They are more climatefriendly and can reduce energy reliance; 4. Consumers will begin to embrace the technology; 5. Regulation and the law will adapt, slowly; 6. Cyber risk will increase; and 7. Autonomous cars will affect liability and tort cases. Although it is uncertain how legal and regulatory issues will play out, it is clear that our role as re/insurers will change considerably. Many of these changes will also create new opportunities for businesses who quickly adapt and diversify their products and services so as to target new market segments.
As this, too, is seen as a disruptive technology, we have a strong interest in understanding the potential implications for the re/insurance industry. Our emerging risk specialists already took a closer look at the topic some years ago and we included a case study in our across different industries and whether it would be possible to clearly identify the source of any losses. The conclusion was that 3D printing will require new underwriting approaches but that it will also create significant opportunities to provide additional cover to small, medium and large enterprises.
Our work with (inter-)governmental agencies to promote effective sustainability responses ̤ In Europe, we have continued to raise awareness of the important role insurers play in mitigating climate risk through different interactions with policy makers. This includes speaking at industry conferences (Insurance Europe and the ABI), presenting at the European Commission’s DG Climate Action’s working group on Climate Adaptation and bilateral engagement with the European Commission and national governments. We also remain engaged in the debate via our trade association memberships (eg the Reinsurance Advisory Board); ̤ In the US, we have maintained regular dialogue with the National Association of Insurance Commissioners (NAIC), principally on climate change and natural catastrophes; ̤ In Switzerland, we have provided a committee member of the OcCC (Organe consultatif sur les changements climatiques), an advisory body on climate change set up by the Swiss Federal Administration.
̤ For our participation in the FSB Task Force on Climate-Related Financial Disclosures, see page 31.
Our work with (inter-)governmental agencies to share risk management expertise ̤ With Global Partnerships, we have a team that works strategically with public-sector bodies to improve risk resilience: – directly with sovereigns or subsovereigns and their agencies, recently eg with the Florida Hurricane Catastrophe Fund to strengthen risk resilience, the Turkish Catastrophe Insurance Pool to improve re/insurance protection against earhquakes, the government of Uruguay to create a solution providing cover for drought conditions that affect hydropower generation or through the Pacific Catastrophe Risk Insurance Pilot; – with the United Nation’s International Strategy for Disaster Reduction (UNISDR) in a consulting role; – with development agencies such as the United States Agency for International Development (USAID), the UK’s Department for International Development (DFID), the Swiss Agency for Development and Cooperation (SDC), the World Bank, the Asian Development Bank (ADB), the Inter-American Development Bank (IADB) or the German Development Bank (KfW).
Copyright © 2013 ESRI, i-cubed, GeoEye Map based on SHARE project (Seismic Hazard Harmonization in Europe)
Historical Tsunami Run-up ■ 0-1m or Unknown ■ 1–2m ■ 2–5m ■ 5–10m ■ 10+ m
Seismic Hazard Pseudo Spectral Acceleration 475y ■ Extreme ■ Very High to Extreme ■ Very High ■ High to Very High ■ High ■ Signifi cant ■ Moderate ■ Low to Moderate ■ Low ■ Very Low
Agro insurance hotspot: Uganda As one of the most fertile countries in Africa, Uganda has a strong agricultural sector. It is one of the few net exporters of food in Africa. Tea, coffee, cotton and sugar are the most important exports, while plantain and bananas are grown as the main staples for the local population. This great wealth is exposed to many perils of which drought is number one by impact.
For our core re/insurance business, climate change represents a key material issue. Reflecting this, we have been focusing on our own CO2 emissions and energy consumption for many years. Our pioneering initiatives include the Greenhouse Neutral Programme and the COyou2 Programme. Both are now into their second cycles, running from 2013 to 2020.
Until 2013, our policy was to have our largest locations certified according to the ISO 14001 environmental management standard (www.iso.org). We since decided to move to a centralised approach and have the whole Corporate Real Estate & Logistics division certified globally according to ISO 14001. This certification process was successfully completed in 2015. All our operations and employees are now covered by an ISO 14001-certified environmental management system.
Reducing our environmental footprint We want to lead by example and work to minimise the environmental impact of our operations. Tackling our CO2 emissions and reducing energy consumption are key targets across the Group.
Climate change has been a strategic priority for Swiss Re for more than 20 years. It is a key material topic for a re/insurer, because it is likely to cause more extreme and more frequent weather events, resulting in rising damages and insurance losses. Our strategy to tackle climate change rests on four pillars, one of which is our pledge to reduce our own CO2 emissions (see page 11).
Over the course of the ten years, we gradually raised our reduction target from 15% to 45% per employee. By the end of the programme’s first cycle in 2013, we had achieved a total reduction in CO₂ emissions per employee of 49.3% compared to the base year 2003.
RECs, GOs, residual mix 1 All Swiss electricity producers are required by law to declare the quality and quantity of the electricity produced. Swiss Re buys 100% green labelled electricity (naturemade star). 2 In the US, we cover our total energy consumption by buying green-e labelled Renewable Energy Certificates
The goal of this initiative is to unite 100 of the world’s largest companies in a shared commitment to use 100% renewable power by 2020. To achieve this, the group approaches policymakers and regulators at national and sub-national level to make renewable energy more available. RE100 grew substantially in 2015 and now includes some of the world’s largest companies.
In making these quality assessments and selecting suitable sources, we have relied on a “minimum standard” that clearly states how we define renewable power and what requirements it needs to meet. At our Zurich headquarters, for example, we only buy “naturemade star” electricity (www.naturemade.ch), which meets high ecological quality standards in its production, beyond those required by environmental legislation. In Munich, we purchase our electricity from NaturEnergie (www.naturenergie.de), one of German’s premier suppliers of renewable energy.
Taking things into our own hands, we installed a solar power plant on the roof of our Folkestone office in the South of England. The idea was initially conceived during the ISO 14001 certification process completed in 2015 (see page 47). With a peak power of 40 kWp, the plant can cover approximately 17% of the building’s power consumption over the whole year. It also makes good bottom-line sense, as the initial capital investment of GBP 56 000 is expected to have a payback time of merely seven years.
87% Share of total power consumption from renewable sources in 2015
A solar power plant we installed on the roof of our Folkestone office can cover approximately 17% of its power consumption over the year.
For the second phase of our Greenhouse Neutral Programme (base year 2013), our commitment is to continuously reduce energy intensity by 2% per year. As a matter of fact, our energy intensity was 16.5% lower at the end of 2015 than in 2013. Partly, we achieved this by decommissioning existing office buildings and moving into more energyefficient ones.
For instance, our new “Arabeska” office building in Munich has been built with environmentally friendly materials and meets very high standards in terms of energy efficiency. By using renewables such as geothermal energy for heating and cooling, it consumes at least 50% less energy than the limit set by current building laws.
Minimising business travel As a result of the substantial cuts we have achieved in CO2 emissions from power consumption and heating since 2003, business travel easily constitutes Swiss Re’s largest emissions source today. Since the business trips our employees take are ultimately driven by client needs, they are difficult to influence. However, we have taken several measures to reduce the need for business travel and to curb unnecessary business trips: For a start, we have built up a dense network of video conferencing equipment across the Group. Recently, we partly replaced these facilities with state-of-the-art telepresence technology, which creates a real-time, life-size virtual meeting experience in specially designed rooms. By the end of 2015, we had 63 video conferencing rooms and 64 telepresence facilities worldwide.
Offsetting our remaining CO₂ emissions The second commitment of our Greenhouse Neutral Programme is to compensate all CO₂ emissions we cannot avoid. For the seven emissions sources covered in the second phase of our Greenhouse Neutral Programme, we bought and retired VERs for a total of 70 600 tonnes of CO2e in 2015.
We are keen to ensure that the VERs we buy are of a high environmental standard. Therefore, we have developed a set of criteria to select projects that generate certificates. In particular, we give priority to those which create strong social side-effects and benefit the poorest regions. In 2015, we involved 14 representatives from our top management (“Growth Market Ambassadors”), chaired by one of our key executives, in the decision on how to offset our remaining CO2 emissions. You can read more about the project they selected on page 53.
Paper, water and waste In the second phase of our Greenhouse Neutral Programme, we expanded the scope of our emissions accounting to include copy paper use, water consumption and waste disposal, and are committed to offsetting these emissions.
The overview of all our emissions sources (see table on page 49) shows that paper, water and waste are of much less significance in our business than other environmental impacts. Furthermore, it is difficult for us to influence water use and waste generation at locations where we rent office space. However, in the office buildings we own we ensure appliances meet high standards of water efficiency.
Paper use, on the other hand, is much more responsive to managerial action. Although we have not set any quantitative targets, we have taken a number of measures to reduce the average amount of paper used by our employees in recent years. Through our Group Document Induction Process, employees can use a coordinated scanning service wherever they need it, and double-sided printing is set as the default option on our computers. Furthermore, by using a “gamification” approach in 2014, we encouraged our employees to compete as teams against each other to see who could achieve the biggest cut in paper consumption. In total, we managed to reduce our paper use by 11.5% per employee since 2014, and by 32.4% since 2013.
External verification of our CO₂ reporting Right from the start of our Greenhouse Neutral Programme in 2003, we have disclosed our CO₂ emissions, their principal sources and relative performance over time. The method we use to calculate our emissions is based on the guidelines of the Greenhouse Gas Protocol, the most widely-used emissions accounting standard (www. ghgprotocol.org).
Before our emission figures are published, PricewaterhouseCoopers checks them to verify our calculations. Their complete assurance report is included on pages 76–77.
In 2015, we supported one major offsetting programme through our Voluntary Emissions Reductions, a “Gold Standard” project providing biogas digesters in Vietnam. Biogas digesters decompose animal manure and toilet waste to produce biogas, which can replace petrol, coal, wood or agricultural residues as a fuel for cooking, heating and lighting.
The award-winning project is active in 52 of Vietnam’s 63 provinces and municipalities. Until 2011, it had supported the construction of 110 000 plants; in its current Phase 2 it aims to support another 140 000 plants, benefiting a total of 840 000 people. The emissions reductions it achieved in 2015 were approximately 167 000 tonnes of CO2e.
We consider environmental criteria relating to materials and ingredients, production methods, recycling and waste. For some sourcing categories, we have developed “minimum standards” that further specify our requirements. Besides power (see page 49) and paper (see page 52), these cover cleaning services and agents, refrigerant agents and building materials. Each standard lists objectives, ecological aspects, ecological minimum standards, exceptions, controlling and labels.
The key benefit of this new cooling agent is that it has a very low global warming potential and thus a negligible climate change effect. Furthermore, it is less dangerous for humans in the event of an accident such as a leakage. As a result of switching to a new cooling agent, the Swiss Re Next planning team had to adjust the security and safety concepts together with the local authorities. As this new cooling agent will be used for the first time in Zurich, finding appropriate solutions was a considerable challenge.
Swiss Re Next online Extensive background information on the Swiss Re Next project and its progress is available on a special website at next.swissre.com.
Tackling our carbon footprint is one of four pillars of our climate change strategy (see page 11). In 2007, we launched the COyou2 Programme because we wanted to make our commitment more tangible for our employees and help them to become more aware of climate change. The programme offers subsidies for a range of investments through which our employees can reduce their private carbon footprints. To our knowledge, it was the first global corporate initiative of its kind at the time.
Amongst the largest Swiss Re locations, uptakes per employee were highest in Slovakia, China, Germany and Switzerland. Our office in Slovakia has witnessed particularly strong growth recently and many new employees made use of the opportunity to claim subsidies in 2015. In Europe, in general, mobility is a popular category, with electric-powered vehicles and bicycles the most common subsidy types.
China is another location that has seen strong growth and, consequently, a high rate of subsidies. Energy efficient home appliances were particularly popular there, as elsewhere in Asia.
The purpose of the Swiss Climate Foundation is to collect these funds and to use them to support various climatefriendly projects undertaken by small and medium-sized companies (SMEs) in Switzerland. In 2012, the Foundation broadened its scope and started to collaborate with the LIFE Climate Foundation Liechtenstein, generating more partner companies and enabling SMEs in Liechtenstein to benefit from the funds, too. By the end of 2015, 28 renowned financial service providers from Switzerland and Liechtenstein were partner companies of the Swiss Climate Foundation.
In addition to paying our net levy reimbursement, Swiss Re has been sponsoring the Foundation’s managing director position since it was established in 2008.
Our goal is to make Swiss Re a place where the spirit of collaboration is “Let’s be smarter together”, since together we can achieve more than we could on our own. Where we build the foundation for the changing needs of the future, drawing on the know-how and experience of a diverse, multigenerational group of people. Where a flexible and inclusive culture is the norm and everyone can contribute to an organisation that is constantly looking for new ways to improve the wellbeing of society. Where there is trust, respect, cooperation and responsibility. Where how we achieve results is as important as what we achieve.
Swiss Re is a global company with a presence in all major markets. As of 31 December 2015, we employed 12 767 people (regular staff) from 89 nationalities: 60.2% of them were working in Europe (including the Middle East and Africa), 26.4% in the Americas and 13.4% in the Asia-Pacific region.
Our vision is to build an attractive organisation with a clear purpose, staffed by a flexible, global workforce of diverse talents, which embraces an inclusive culture that enables individuals to progress and develop. We want to attract the best people and to develop the best leaders who are passionate about “making the world more resilient”.
̤ Develop our leaders: We expect our leaders to have the skills to inspire and engage our people. Therefore, we have continued to develop our leadership development architecture, introducing new solutions to develop leadership skills and doubling the hours of leadership training we deliver.
̤ New employer brand to attract the best talent: Our brand promise “Let’s be smarter together” reflects the renewed energy and aspirations that Swiss Re has. It signals our ambition as a best-in-class employer to create an even better workplace by building on our strengths, while seeking opportunities to evolve and differentiating ourselves from our competitors.
Where will the money come from to fund the health, care and fi nancial needs of our world’s growing ageing population? What can be done to promote sustainable economic growth? How can we make societies more resilient to natural disaster? These are just some of the global issues that make life so challenging and a job at a Swiss Re so rewarding. Developing innovative solutions demands smart people. No wonder we’re always on the lookout for talent to join our team and positively impact critical business and societal challenges. Graduates who aren’t just skilled in their own discipline, but who will thrive in an environment that encourages people to share their expertise, insights and passions and enables them to unleash their potential. Could this be you? Let’s be smarter together.
In terms of key strengths, the survey revealed that our people feel they can accomplish something at work, are encouraged to take the initiative, able to express their views openly, and are empowered to complete their work autonomously.
The survey also highlighted a number of changes employees want us to implement to better support our People Strategy: more clarity on our business strategy, easier access to senior leadership and more career development opportunities within the company.
Diversity and inclusion One of the key aspirations of our People Strategy is to attract and engage talented employees from different generational and cultural backgrounds by living a flexible, inclusive and open culture where dialogue and different perspectives are valued. This aspiration is reflected in our diversity and inclusion (D&I) vision: “See, feel and live diversity – diversity of gender, race, ethnicity, generation, sexual orientation (LGBT), physical abilities, personalities and experiences – at all levels, functions and regions of Swiss Re”.
Advancing gender equality Over the last four years, Swiss Re has made progress in increasing gender balance at senior management level. To accelerate this trend, we stepped up our commitment in 2015 by joining forces with EDGE, Economic Dividends for Gender Equality (www.edge-cert.org), to pursue a rigorous gender equality assessment. Based on our commitment to assess ourselves and act on the findings, in 2015 we received the firstlevel EDGE certification for our Switzerland-based operations. We are using the insights we gained from EDGE to develop a global gender equality strategy, with a special focus on women in leadership.
Bridging generations Generational diversity is strong at Swiss Re. With a share of 45%, Generation X (born 1966–1980) makes up the largest share
Executive/senior management positions* 21.5 21.4 22.1 All management positions* 31.1 31.5 32.2 * “Executive/senior management positions” comprises the management levels of Director/Senior Vice President upwards. “All management positions” refers to Vice President and above. For more information see swissre.com/about_us/diversity/
Agile working Our future success depends on our ability to create a flexible, global workforce that is responsive and highly resilient in responding to the needs of our business. Swiss Re is following an integrated, future-focused strategy that brings together our physical workplace, technology and people management practices to take us to the next level.
We have made considerable efforts in ensuring our employees own the way they work and can effectively collaborate in an agile and flexible working environment. This is reflected in a variety of formal and informal flexible working arrangements that focus on performance outcomes versus face time. Our trademarked programme, Own the Way You WorkTM, is a cultural change initiative, which gives managers and employees autonomy to decide how, when and where work is carried out, in compliance with the applicable laws, rules and regulations of their particular region. This has become a differentiating part of Swiss Re’s employee value proposition.
Inclusive culture Given the important role each of our managers plays in fostering an inclusive culture and benefiting from its strengths, inclusive leadership behaviours are essential at Swiss Re. We have developed clear standards that describe exactly what behaviours we expect of our leaders and managers to foster an inclusive work environment for all employees. These are firmly embedded in our Leadership Imperatives and our leadership development curriculum.
To make these principles tangible for all our employees, we have also included them in our Personal Imperatives.
Unconscious bias A key aspect of our People Strategy is to prevent stereotyping of individuals based on any and all dimensions of diversity. It centres on raising awareness of the “unconscious bias” that every one of us has and which can unintentionally influence our decision-making and our behaviour towards others.
Code of Conduct In line with Swiss Re’s policy of fostering diversity, we have strong provisions in place to penalise any infringing behaviour. Our Group Code of Conduct clearly states that discrimination in the workplace against any employee or job applicant based on the person’s age, (dis)ability, origin, gender, religion or sexual orientation (or any other characteristic protected by local law) is not tolerated under any circumstances. We encourage our employees to report violations of the Group Code of Conduct, laws, rules or regulations, and make it clear to them that reporting in good faith is treated with discretion and that retaliation will not be tolerated (see pages 70–71).
Development and training Implementing effective programmes to further develop and train our employee and leaders lies at the heart of our People Strategy. This is also something that employees really want, as reflected in the Employee Engagement Survey results, where respondents asked for more development opportunities at Swiss Re.
These changes include introducing new skill development solutions for leaders called “masterclasses”, revamping and improving our Talent Broker platform which facilitates internal rotations, piloting “reverse mentoring” and continuing with our “speed mentoring” offers.
In addition, we invested significant time in embedding the Leadership and Personal Imperatives we need from our people to ensure the future success of Swiss Re.
Senior management development and growth Our ambition is to accelerate the development of leadership and managerial skills in order to inspire a multi-generational workforce. This is vital to ensure our leaders can inspire and engage through honest discussions across all levels in the organisation. They need to be able to give and be open to receiving timely and constructive feedback to improve individual, team and Group results.
We also developed a growth survey tool involving a 360° process. This survey is designed to provide feedback on the effectiveness of leaders and experts as well as to identify areas for further development. In 2015, 144 leaders participated in the survey as part of their enrolment process for our in-house leadership programmes.
Mentoring We also offer our employees a mentoring programme. This is a confidential relationship outside the reporting line that helps individuals develop their skills, knowledge and behaviours as well as to move successfully through times of change and transition. Our VCC includes a special search tool that helps our employees identify potential mentors. Currently, around 500 people have registered their interest in being mentored or acting as a mentor.
In 2015, we piloted “reverse mentoring”, enabling senior leaders to learn new skills and hear fresh perspectives from younger employees. The pilot is currently running with 16 mentors and mentees (including our Group CEO). If the pilot is adopted, this will help us bridge generation gaps and support our efforts to develop a truly diverse and inclusive culture throughout the company.
Formal training Formal training at Swiss Re combines technical, professional and leadership skills training. We design our training internally or in collaboration with leading external partners and deliver it through our long-established Swiss Re Academy. Our courses are well received by our employees; for instance, in leadership skills training we scored 4.35 out of 5 in 2015 (highest score ever recorded).
Swiss Re Academy has developed extensive professional and personal development curricula to respond to changing business needs. Currently, we offer more than 960 different training courses. Our employees attend training in areas as diverse as underwriting, finance, sales and negotiation, leadership, diversity and inclusion, interpersonal skills, project management, office tools and language skills. Certain courses, such as legal & compliance training, are mandatory. We recommend that employees who work directly with our clients invest at least two days per year in formal sales training.
Learning hours per employee 14.1 13.1 15.5 Learning costs per employee (in USD) 1 800 1 500 1 024
Embedding the behaviours we need for the future Our Leadership and Personal Imperatives set out the behaviours we need and expect from our leaders and employees. Embedding them into our culture and processes is key in our view. However, we are aware that this cannot be achieved by simply communicating them to employees. For this reason, we have set out to embed them gradually over time through a change management approach and to systemically integrate them into other human capital processes. As a result, over the last two years, our Human Resources department has partnered with line managers to deliver more than 200 leader-led dialogue sessions to our employees.
In 2015, Swiss Re was recognised with the award for “Top Accountancy & Insurance Company for Graduates to Work For” in 2015/2016. We received this award from TheJobCrowd (www. thejobcrowd.com), a popular graduate job review website in the UK.
Two members of our Human Resources team were present at TheJobCrowd awards ceremony in London to collect our award for “Top Accountancy & Insurance Company for Graduates to Work For”.
Our Early Joiners programmes Each year, the graduates@swissre programme provides entry positions for around 50 university graduates who have little or no work experience. It offers an excellent opportunity for young talents to discover the exciting world of a leading global re/insurer.
Our Actuarial Development Programme (ADP) is designed to provide students with work assignments and projects that are challenging, educational and promote personal and professional development. We view superior actuarial expertise as a vital factor for our success. That’s why we place great emphasis on recruiting top talents for our programme. We help develop actuaries in many ways – from study allowances to mentoring and career development. Every year, we hire approximately 12 college students to join the programme running from May to August, followed by possible full-time employment.
In three locations we offer a Junior Power programme. Originally launched in Zurich in 1981, the programme was extended to Munich in 2008 and, in 2014, to London. In total, we have trained over 550 apprentices and trainees through the programme. Currently, 95 apprentices and trainees, aged between 15 and 25, participate in it and are being trained in a broad range of occupations. We provide them with an innovative and high-quality learning environment that enables them to build up the competencies and skills they need for the labour market. In this way, we also make a positive contribution to youth employment.
Our employees’ wellbeing We set high standards in terms of caring for the physical and mental wellbeing of our employees and offer a broad range of solutions on topics like crisis intervention, counselling, health prevention and diverse engagement activities.
Health and wellbeing We aim to provide a healthy workplace that helps our employees take a constructive approach to their own wellbeing, while improving and retaining their ability to perform.
We also provide relaxation rooms in our offices, where employees can take time out and recharge their batteries.
Parents@Swiss Re It is important to us that our employees can always put their families first. Therefore, we offer a range of programmes, services and support in a number of locations.
In the UK, Swiss Re has an Employee Liaison Group (ELG), made up of representatives from across all functions, who are elected by employees for a twoyear term. The ELG provides a forum for employee representatives and managers to discuss company policy and practices which affect all employees. It is legally recognised as the collective consultation body for redundancy purposes. When a business unit is likely to be affected by proposed collective redundancies, the respective employee representatives are consulted.
Our smaller branches in Europe (eg France, Italy, Luxembourg, and Denmark) also have Works Councils or Staff Delegates, depending on the size of the branch and local regulations.
Alumni networks Our former employees have helped to make Swiss Re what it is today and form an essential part of our extended employee community. They remain important stakeholders for Swiss Re. Furthermore, as many of our alumni work for our clients, they also help to deepen our client relationships.
Number of employees who have recorded absence due to illness 1 893 1 900 1 979 Average number of sick days 7.0 7.4 7.2
Through the Swiss Re Alumni Network, we offer our former employees the opportunity to continue sharing their knowledge and experience, and to keep in contact with colleagues. Currently, we have more than 3 500 active members.
We also encourage our employees to own Swiss Re shares by providing the Global Share Participation Plan and the Incentive Share Plan. Our employees can get a comprehensive overview of all their incentive plans online.
The balanced compensation package is generally complemented by competitive pension plans and other employee benefits. Such benefits include, for example, the Continuous Contribution Award, which recognises the loyalty, commitment and continuous contribution of our employees by offering them opportunities at defined milestones to enjoy additional, paid time off.
In addition, the COYou2 Programme continues to offer our employees the opportunity to claim subsidies from the company for a range of emissions cutting investments they want to make in their private lives (see page 56).
Simplifying performance management We have undertaken significant work recently to simplify our performance management process, with the aim of focusing on what people achieve and how they achieve their goals.
We are leveraging our Leadership and Personal Imperatives to create more focus on the outcome of performance management through improved employee discussions, better performance differentiation and more transparent pay-for-performance.
Our new approach was rolled out gradually, allowing us to clarify the behavioural expectations, strengthen the change management effort and simplify processes and tools. As planned, the new approach was rolled out to all employees by mid 2015, supported by a series of change management activities. We assessed all eligible employees based on the twodimensional approach during the 2015 year-end process, and this significantly helped us to differentiate performance.
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) of September 2014, issued by economiesuisse, the Swiss business federation. 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.
In our Corporate Responsibility Report, we highlight key elements of Swiss Re’s corporate governance concerning the structure and independence of the Board of Directors and shareholder rights. Comprehensive information following the structure of the SIX Directive is available in the 2015 Financial Report, pages 74–113.
Binding AGM votes on Board of Directors and Group Executive Committee compensation The Annual General Meeting 2014 had approved the amendments to the Articles of Association required to comply with the “Ordinance Against Excessive Compensation at Public Corporations” (Ordinance) which became effective on 1 January 2014. Based on the new provisions, the Annual General Meeting 2015 was asked to vote with a binding effect on the compensation for the Board of Directors and the Group EC. It approved all compensation-related motions with overwhelming majorities. For the detailed voting results of the Annual General Meeting 2015, please refer to: www.swissre.com/investors/ events/151st_Annual_General_ Meeting.html
Swiss Re’s corporate governance framework Swiss Re has a dual board structure: the Board of Directors is responsible for oversight, while the Group Executive Committee (Group EC) is responsible for managing operations. This structure maintains effective mutual checks and balances between the top corporate bodies.
Independence of the Board of Directors Swiss Re’s Group Bylaws stipulate that at least three-quarters of the members of the Board of Directors must be independent. Independence is defined
in line with best practice corporate governance standards. To be considered independent, a Group Board member may not be, and may not have been in the past three years, employed as a member of the Group EC, or by any Subsidiary of the Swiss Re Group or may not have a material relationship with any part of the Swiss Re Group (either directly or as a partner, director or shareholder of an organisation that has a material relationship with the Swiss Re Group) other than serving as an independent board member in any Subsidiary. All the members of the Board of Directors meet our independence criteria with the exception of our Chairman. As a full-time Chairman he is not considered independent.
The Board has established Board committees to assist it in fulfilling its duties and has delegated certain responsibilities, including the preparation and execution of its resolutions, to the following five committees: the Chairman’s and Governance Committee, the Audit Committee, the Compensation Committee, the Finance and Risk Committee and the Investment Committee.
Audit Committee The central task of the Audit Committee is to assist the Board of Directors in fulfilling its oversight responsibilities as they relate to the integrity of Swiss Re’s and the Group’s financial statements, the Swiss Re Group’s compliance with legal and regulatory requirements, the external auditor’s qualifications and independence, and the performance of GIA and the Group’s external auditor.
Shareholders’ participation rights Shares All shares issued by Swiss Re Ltd are fully paid-in registered shares, each with a par value of CHF 0.10. Each share carries one vote. There are no categories of shares with a higher or limited voting power, privileged dividend entitlement or any other preferential rights, nor are there any other securities representing a part of the company’s share capital. The company cannot exercise the voting rights of treasury shares.
Voting right restrictions, statutory group clauses and exception rules There are no voting right restrictions and no statutory group clauses. Therefore, there are no procedures or conditions for cancelling restrictions and no rules on making exceptions to them. Accordingly, no such exceptions were made in 2015.
The Code is supported by detailed policies and guidelines that document Swiss Re’s requirements in line with applicable laws and regulations.
The current Code is available to our employees in six languages: English, German, French, Italian, Spanish and Portuguese. The revised version will be published in two additional languages, bringing the total to eight.
Bribery and corruption The Code addresses our position on bribery and corruption. This clearly states that “Swiss Re pursues a ‘zero tolerance’ policy with respect to bribery and corruption” and that “bribing governmental agents, regulators or other officials is a crime”.
Our Anti-money Laundering Guidelines set out in detail key principles and guidance in relation to our anti-money laundering and counter terrorism financing efforts, including obligations concerning “know your counterparty” and the reporting of any suspicious activities.
Whistleblowing There are several ways in which alleged violations of the Code can be reported, both by internal and external sources. For our employees, these include a whistleblowing hotline, which they can use anonymously or with identification. The hotline is operated independently by an external vendor and includes translation services into numerous languages. The specific policies regarding whistleblowing differ between our offices, based on the applicable national laws of the respective country.
All permanent and temporary employees need to complete a Code of Conduct Acknowledgement every two years. The latest acknowledgement round was completed in 2015; it used a similar approach to the eLearning module, putting the focus on ethical behaviour and requiring our employees to apply the Code to a specific scenario.
Who we are The Swiss Re Foundation reflects the social and humanitarian values of Swiss Re. We empower vulnerable communities to become more resilient to risk and to adapt to changing circumstances. Our programmes address the underlying causes and challenging effects of changes in the natural and social environment. Swiss Re’s core competencies are thus directly relevant to our work.
Research and innovation We fund efforts to develop new risk management approaches that can work in areas often thought uninsurable.
Social entrepreneurship We support entrepreneurs whose ideas and connections can provide innovative solutions to critical social and environmental problems.
This publication provides a comprehensive analysis of natural disaster risk in locations around the world.
The big one: The East Coast’s USD 100 billion hurricane event
Farmers in Sub-Saharan Africa are heavily exposed to weather-related events like flood or drought. If they are hit by a natural catastrophe, they often abandon their land. Insurance can help to keep farmers in business and contribute to a more resilient society.
Ten years after the first tropical cyclone ever recorded in the South Atlantic, we investigate the possibility and potential impact of another event like it. The study by Swiss Re and the Swiss Federal Institute of Technology (ETH) explores the main atmospheric conditions that lead to the development of tropical cyclones in the South Atlantic.
Compagnie Suisse de Réassurances SA Mythenquai 50/60 Boîte postale 8022 Zurich Suisse
Performance Indicators for the Financial Industry” published by the Verein für Umweltmanagement in Banken, Sparkassen und Versicherungen e.V. (VfU) published in 1997 and 2011; ̤ “The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition)” published in 2001 by the World Resources Institute and the World Business Council for Sustainable Development; ̤ The framework document “Environmental Performance Indicators Reporting at Swiss Re”, version 1.1 from August 2014 including Annex; and
Our responsibility We conducted our limited assurance engagement in accordance with International Standard on Assurance Engagements 3000, Assurance Engagements other than Audits or Reviews of Historical Financial Information’, and, in respect of greenhouse gas emissions, International Standard on Assurance Engagements 3410, Assurance Engagements on Greenhouse Gas Statements, issued by the International Auditing and Assurance Standards Board. These standards require that we plan and perform this engagement to
Independent assurance report to the management of Swiss Re Ltd, Zurich (“Swiss Re”)
obtain limited assurance about whether the identified CR indicators are free from material misstatement.
Performing tests on a sample basis of evidence supporting selected CR data and information (sensitive business risk process, management of emerging risks, responsible investment, HR data and information, diversity and inclusion, development & training, sustainable energy solutions, the commitments to the United Nations and to the Grow Africa Partnership) to assess their completeness, accuracy, adequacy and consistency; ̤ Review of the documentation
FSB Task Force on Climate-Related Financial Disclosures The Financial Stability Board (FSB) is an international body that monitors and makes recommendations about the global financial system. Its Task Force on Climate-related Financial Disclosures (TCFD) will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. www.fsb-tcfd.org
The Climate Group The Climate Group is an independent, not-for-profit organisation working internationally with government and business leaders to advance smart policies and technologies to cut global emissions and accelerate a clean industrial revolution. www.theclimategroup.org
Employer of the Year award at the 2014 Asia Insurance Industry Awards We won the inaugural edition of this award for our talent development and diversity initiatives.
Ethisphere World’s Most Ethical Companies 2014 Swiss Re was once again listed as one of the world’s leading ethical firms by Ethisphere, a leading international think tank.
Key actions taken in 2015: a) for business solutions, see achievements described on pages 16–25; b) for risk management, see achievements described on pages 26–34; c) for asset management, see achievements described on pages 34–37.
As described in our “approach to corporate responsibility”, we engage in regular dialogue with our clients and other stakeholders, and apply ESG guidelines in our sourcing activities (see page 12).
We plan to achieve this by: a) interacting with clients and taking an active role in industry initiatives to advance sustainable business practices; b) sharing and advancing our risk expertise with a special focus on five Top Topics, supported by our own dialogue platform, the Centre for Global Dialogue; c) applying overarching guidelines and specific “minimum standards” in our sourcing activities.
Key actions taken in 2015: a) for client and industry cooperation, see achievements described on page 30; b) for general risk dialogue, see achievements described on pages 38–46; c) for sourcing guidelines, see achievements described on page 54.
→ We plan to achieve this by: sharing and advancing our risk expertise with a special focus on five Top Topics, supported by our own dialogue platform, the Centre for Global Dialogue.
G4-11 Collective bargaining agreements 3 66 G4-12 Description of supply chain 54 G4-13 Organisational changes 6, 14 G4-14 Precautionary principle 8–11, 16–22, 32–34 G4-15 External charters and principles 8, 78–79 G4-16 Memberships 78–79
FR = 2015 Financial Report 82 Swiss Re 2015 Corporate Responsibility Report
Report profile G4-28 Reporting period 14 G4-29 Most recent previous report 14 G4-30 Reporting cycle 14 G4-31 Contact point 86 G4-32 GRI content index 81–85 G4-33 External assurance 76–77
Disclosure on management approach: Our management approach to the economic category is primarily disclosed in our 2015 Financial Report. Specific aspects (“implications of climate change” and “indirect economic impacts”) are disclosed in this report in the “Who we are and what we do”, “Creating solutions for sustainability” and “Exploring and shaping the risk landscape” chapters.
Disclosure on management approach: We provide information on our management approach for the “local communities” aspect in the report of the Swiss Re Foundation and the “Creating solutions for sustainability” chapter; for “anti-corruption” in the “Ensuring good governance and compliance” chapter; and for our supply chain in the “Reducing our environmental footprint” chapter.