Gross premiums earned by segment, 2018 (Total USD 4 472 million)
Gross premiums earned by regions, 2018 (Total USD 4 472 million)
Swiss Re Corporate Solutions Group Net income attributable to common shareholder –740 –447 –40
Combined ratio in % 132.9 119.3 Return on equity1 in % –30.5 –20.4 1 Return on equity is calculated by dividing net income attributable to common shareholder by average common shareholder’s equity.
Notes to the Group financial statements 10 Note 1 Organisation and summary of significant accounting policies 10 Note 2 Information on business segments 17 Note 3 Insurance information 21 Note 4 Unpaid claims and claim adjustment expenses 23 Note 5 Deferred acquisition costs (DAC) 33 Note 6 Investments 34 Note 7 Fair value disclosures 39 Note 8 Derivative financial instruments 44 Note 9 Acquisitions 46 Note 10 Debt 47 Note 11 Income taxes 48 Note 12 Benefit plans 51 Note 13 Related parties 52 Note 14 Variable interest entities 53 Report of the statutory auditor 55
Swiss Re Corporate Solutions Ltd 60 Annual Report 60 Income statement 64 Balance sheet 65 Notes 67 Proposal for allocation of disposable result 76 Report of the statutory auditor 77
Net premiums written 3 3 600 4 122 Change in unearned premiums 51 –197
Premiums earned 3 3 651 3 925 Net investment income 6 164 200 Net realised investment gains/losses1 6 105 15 Other revenues 5 2
Expenses Claims and claim adjustment expenses 3 –3 558 –3 241 Acquisition costs 3 –554 –607 Operating expenses –739 –834
Income/loss before interest and income tax expense/benefit –926 –540 Interest expenses –23 –24
Net income/loss before attribution of non-controlling interests –745 –451 Other comprehensive income/loss, net of tax: Change in net unrealised investment gains/losses 10 –75 Change in foreign currency translation 18 –50 Other comprehensive income/loss attributable to non-controlling interests –22
Reclassification out of accumulated other comprehensive income For the years ended 31 December 2017 Net unrealised investment Foreign currency Accumulated other comprehensive USD millions gains/losses1 translation income
Cash and cash equivalents (including 60 in 2017 and 244 in 2018 subject to securities lending) 621 763 Accrued investment income 42 44 Premiums and other receivables 2 371 2 321 Reinsurance recoverable on unpaid claims2 5 737 5 486 Funds held by ceding companies 105 140 Deferred acquisition costs 5 454 488 Goodwill 213 206 Income taxes recoverable 84 65 Deferred tax assets 11 363 566 Other assets2 753 908 1 Change due to ASU 2016-01. Please refer to Note 1 for more details. 2 The Group changed the presentation of its Long term care and Disability portfolio which is fully retroceded to an external party. Comparative information for 2017 has been adjusted accordingly.
Liabilities Unpaid claims and claim adjustment expenses 4 11 818 11 929 Liabilities for life and health policy benefits1 279 501 Unearned premiums 3 166 3 320 Funds held under reinsurance treaties 747 380 Reinsurance balances payable 264 116 Income taxes payable 18 23 Deferred and other non-current tax liabilities 11 243 256 Accrued expenses and other liabilities1 526 549 Long-term debt 10 497 798
Foreign currency translation, net of tax Balance as of 1 January –6 12 Impact of ASU 2018-021 3 Changes during the period 18 –50 Balance as of period end 12 –35
Balance as of 1 January 60 169 Transactions with non-controlling interests 114 Income/loss attributable to non-controlling interests –5 –4 Other comprehensive income attributable to non-controlling interests
Securities purchased/sold under agreement to resell/repurchase, net –80 77 Cash paid/received for acquisitions/disposals and reinsurance transactions, net 36 Net purchases/sales/maturities of other investments –191 –25
Interest paid was USD 23 million for 2017 and 2018. Tax paid was USD 22 million and USD 43 million for 2017 and 2018, respectively.
Cash and cash equivalents include restricted cash and cash equivalents, for instance pledged cash and cash equivalents (please refer to Note 6, ”Investments”).
10 Swiss Re Corporate Solutions Ltd 2018 Annual Report 1 Organisation and summary of significant accounting policies Nature of operations The Swiss Re Corporate Solutions Group, which is headquartered in Zurich, Switzerland, comprises Swiss Re Corporate Solutions Ltd (the parent company, referred to as “SRCS”) and its subsidiaries (collectively, the “Group”). The Group provides a wide range of traditional and non-traditional commercial insurance products and risk transfer solutions through a network of offices around the globe.
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 nonmonetary assets and liabilities are remeasured to the functional currency at historical rates. Remeasurement gains and losses on monetary assets and liabilities and trading securities are reported in earnings. Remeasurement gains and losses on available-for-
For fixed income securities AFS that are other-than-temporary impaired and for which there is not an intention to sell, the impairment is separated into (i) the estimated amount relating to credit loss, and (ii) the amount relating to all other factors. The estimated credit loss amount is recognised in earnings, with the remainder of the loss amount recognised in other comprehensive income. In cases where there is an intention or requirement to sell and the fair value is lower than cost expressed in functional currency terms, the cost of fixed income securities AFS is reduced to fair value, with a corresponding charge to realised investment losses. Subsequent recoveries are not recognised in earnings.
Equity investments are carried at fair value with unrealised gains and losses recognised in earnings, with the exception of equity method investments and investments that result in consolidation.
Other invested assets include deposits and time deposits, investments in affiliated companies, investments in equity accounted companies, investment real estate, derivative financial instruments, collateral receivables, securities purchased under agreement to resell, and investments without readily determinable fair value (including limited partnership investments). Investments in limited partnerships where the Group’s interest equals or exceeds 3% are accounted for using the equity method. Investments in limited partnerships where the Group’s interest is below 3% and equity investments in corporate entities which are not publicly traded are accounted for at estimated fair value with changes in fair value recognised in earnings.
Unpaid claims and claim adjustment expenses Liabilities for unpaid claims and claim adjustment expenses for insurance and reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims, using reports and individual case estimates received from ceding companies. A provision is also included for claims incurred but not reported, which is developed on the basis of past experience adjusted for current trends and other factors that modify past experience. The establishment of the appropriate level of reserves is an inherently uncertain process involving estimates and judgements made by management, and therefore there can be no assurance that ultimate claims and claim adjustment expenses will not exceed the loss reserves currently established. These estimates are regularly reviewed, and adjustments for differences between estimates and actual payments for claims and for changes in estimates are reflected in income in the period in which the estimates are changed or payments are made.
Reinstatement premiums are due where coverage limits for the remaining life of the contract are reinstated under pre-defined contract terms. The recognition of reinstatement premiums as written depends on individual contract features. Reinstatement premiums are either recognised as written at the time a loss event occurs or in line with the recognition pattern of premiums written of the underlying contract. The accrual of reinstatement premiums is based on actuarial estimates of ultimate losses. Reinstatement premiums are generally earned in proportion to the amount of insurance and reinsurance provided.
Share-based payment transactions As of 31 December 2018, the Group has a Leadership Performance Plan, restricted shares and a Global Share Participation Plan. The Group accounts for share-based payment transactions with employees using the fair value method. Under the fair value method, the fair value of the awards is recognised in earnings over the vesting period.
For share-based compensation plans which are settled in cash, compensation costs are recognised as liabilities, whereas for equity-settled plans, compensation costs are recognised as an accrual to additional paid-in capital within shareholder’s equity.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities”, an update to subtopic 825-10, “Financial Instruments – Overall”. The ASU requires the Group to carry investments in equity securities,
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”, an update to topic 740, “Income Taxes”. This ASU amends the former guidance which prohibited the recognition of current and deferred income taxes for an intra-entity asset transfer until the asset had been sold to an outside party. This new standard requires that an entity recognises the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Group adopted ASU 2016-16 on 1 January 2018 on a modified retrospective basis. The adoption did not have a material impact on the Group’s financial statements.
In November 2016, the FASB issued ASU 2016-18, “Restricted Cash”, a consensus of the FASB EITF to topic 230, “Statement of Cash Flows”. The update requires that the statement of cash flows explains the change during the period in the total of cash, cash equivalents and restricted cash and restricted cash equivalents. Restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The Group adopted ASU 2016-18 retrospectively on 1 January 2018. The adoption did not have a material impact on the Group’s financial statements.
In February 2017, the FASB issued ASU 2017-05, “Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets”, an update to subtopic 610-20, “Other Income – Gains and Losses from the Derecognition of Nonfinancial Assets”. This update clarifies and provides guidance on the scope of subtopic 610-20 including financial assets meeting the definition of an in-substance non-financial asset. The Group adopted ASU 2017-05 retrospectively on 1 January 2018. The adoption did not have an impact on the Group’s financial statements.
In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting”, an update to topic 718, “Compensation – Stock Compensation”. The amendments in this update provide guidance about which changes to the terms or conditions of a sharebased payment award require to apply modification accounting under topic 718. The Group adopted ASU 2017-09 on 1 January 2018. The adoption did not have an impact on the Group’s financial statements.
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, an update to topic 220, “Income Statement – Reporting Comprehensive Income”. The ASU allows a reclassification from accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the Tax Cuts and Jobs Act. The Group early adopted ASU 2018-02 on 1 January 2018. The adoption resulted in a reclassification within shareholder’s equity of USD 4 million of stranded tax charges from accumulated other comprehensive income to retained earnings. The reclassification can be found in the statement of shareholder’s equity.
Future adoption of new accounting standards In February 2016, the FASB issued ASU 2016-02, “Leases”, which creates topic 842, “Leases”. The core principle of topic 842 is that a lessee should recognise the assets and liabilities that arise from leases. A lessee should recognise in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing the right to use the underlying asset for the lease term. This accounting treatment applies to finance leases and operating leases. The accounting
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses”, an update to topic 326, “Financial Instruments – Credit Losses”. ASU 2016-13 replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. For financial instruments that are measured at amortised cost and available-for-sale debt securities, the standard requires that an entity recognises its estimate of expected credit losses as an allowance. The ASU is effective for annual and interim periods beginning after 15 December 2020. Early adoption is permitted. The Group is currently assessing the impact of the new requirements.
2 Information on business segments The Group provides innovative insurance capacity to mid-sized and large multinational corporations across the globe. Offerings range from standard risk transfer covers and multi-line programmes to customized solutions tailored to the needs of clients. The business segments are determined by the organisational structure and the way in which management reviews the operating performance of the Group.
Property The Property segment includes insurance for fire, wind, water damage and vandalism. It also provides cover for flood, earthquake, tsunami and terrorism. Business interruption insurance is complementary to property insurance. Agriculture is also covered in this segment.
Accident & Health The Accident & Health segment includes accident and health insurance, primarily consisting of employers stop loss. Employers stop loss policies provide specific and aggregate coverage for self-funded medical benefit plans. Additionally, reserves for run off workers compensation business are held and maintained, though this business is no longer actively written.
Other liability The Other liability segment includes liability and motor. The Group’s liability insurance products provide coverage against legal liability exposure of a business including product, professional, directors’ and officers’ (D&O) and environmental liability insurance.
18 Swiss Re Corporate Solutions Ltd 2018 Annual Report a) Business segments – income statement For the year ended 31 December 2017 Accident & USD millions Property Health Other liability Specialty Credit Total
Expenses Claims and claim adjustment expenses –1 708 –226 –928 –538 –158 –3 558 Acquisition costs –176 –29 –117 –115 –117 –554 Operating expenses –260 –61 –212 –124 –82 –739
Claims ratio in % 138.2 69.9 94.8 82.9 34.0 97.5 Expense ratio in % 35.3 27.9 33.6 36.8 42.9 35.4 Combined ratio in % 173.5 97.8 128.4 119.7 76.9 132.9
Total expenses before interest expenses –1 586 –446 –1 392 –956 –302 –4 682
Net investment income 200 Net realised investment gains/losses 15 Other revenues 2 Interest expenses –24
Claims ratio in % 83.2 77.0 98.6 91.9 29.5 82.6 Expense ratio in % 35.1 31.0 34.0 43.1 43.6 36.7 Combined ratio in % 118.3 108.0 132.6 135.0 73.1 119.3
20 Swiss Re Corporate Solutions Ltd 2018 Annual Report b) Gross premiums earned by geography Gross premiums earned by region for the years ended 31 December
North America 2 487 2 627 Latin America 489 456 Europe (including Middle East and Africa) 937 998 Asia-Pacific 337 391
Premiums written, thereof: Direct 3 279 3 648 Reinsurance 939 1 046 Ceded –618 –572
Change in unpaid claims and claim adjustment expenses, thereof: Gross –1 003 –505 Ceded –353 –239
Reinsurance recoverable on unpaid claims As of 31 December 2017 and 2018, the Group had a reinsurance recoverable of USD 5 737 million and USD 5 486 million, respectively. The Group changed the presentation of its Long term care and Disability portfolio which is fully retroceded to an external party. Comparative information for 2017 has been adjusted accordingly. The concentration of credit risk is regularly monitored and evaluated.
Reinsurance receivables Reinsurance receivables as of 31 December were as follows: Premium receivables invoiced 856 902 Receivables invoiced from ceded re/insurance business 126 116 Recognised allowance –41 –34
Prior-year development During 2018, property, accident & health and other liability experienced overall adverse development on prior accident years. The unfavourable development on other liability reflects large man-made losses across all regions, especially in North America within general liability lines. The adverse development on property mainly came from small-to-medium sized losses, which were partially offset by favourable development related to natural catastrophe events in North America. Accident & health experienced adverse development due to small-to-medium sized losses in North America.
A summary of prior-year net claims and claim adjustment expenses development by lines of business for the years ended 31 December is shown below: Line of business: Property 30 96 Accident & Health 17 51 Other liability 106 141 Specialty 1 Credit 54 –7
US asbestos and environmental claims exposure The Groupʼs obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1986 as well as out of such business acquired subsequently through reinsurance arrangements to other Swiss Re Group Companies, in particular in the area of US asbestos and environmental liability.
At the end of 2018, the Group carried net reserves for US asbestos and environmental liabilities equal to USD 226 million. During 2018, the Group incurred net losses of USD 26 million and paid net against these liabilities of USD 11 million. Incurred claims include a settlement with one cedent on reported asbestos and environmental claims.
Short duration contract unpaid claims and claim adjustment expenses Basis of presentation for claims development information This section provides claims development information on an accident year basis.
Claims development information and information on reserves for claims relating to insured events that have occurred but have not yet been reported or not enough reported (“IBNR”) is presented by the five core operating business segments (“disaggregation categories”). Amounts shown are net of external retrocession and ceded re/insurance contracts to affiliated companies within the Swiss Re Group, but outside the Swiss Re Corporate Solutions Group. Claims development information and information on IBNR reserves are shown on a nominal basis, also for cases where the Group discounts claim liabilities from acquisition accounting.
In addition, the following applies to all business: For the most recent underwriting years, reliance may be made on the Group‘s costing and underwriting functions for the initial estimates of claims, although the initial reserving estimates may differ from these pricing estimates if there is good reason to believe losses are likely to emerge higher or lower, and in light of the limited claims experience to date. Reviews of those initial estimates are performed regularly, forming a basis for adjustments on both the current and prior underwriting years.
Property Incurred claims and allocated claim adjustment expenses, net of reinsurance
Liabilities for claims and claim adjustment expenses, net of reinsurance 1 765
The incurred claims and allocated claim adjustment expenses for Property show favourable development on accident years 2016 and prior. Accident years 2012, 2014 and 2016 are primarily impacted by large losses from natural catastrophes in Asia and North America, as well as large man-made losses in North America. Accident years 2017 and 2018 were significantly impacted by hurricanes and wildfires in North America. Negative IBNRs can be a feature for claims arising from Property exposure, due to overstated case reserves.
Accident & Health Incurred claims and allocated claim adjustment expenses, net of reinsurance
Liabilities for claims and claim adjustment expenses, net of reinsurance 2 695
Recent accident years were impacted by large general liability losses in North America and volume growth.
The incurred claims and allocated claim adjustment expenses for Specialty show favorable prior year development on accident years 2015 and prior, this was slightly offset by adverse development from 2016 and 2017.
Credit Incurred claims and allocated claim adjustment expenses, net of reinsurance
Liabilities for claims and claim adjustment expenses, net of reinsurance 150
Credit volume has been increasing since 2012. Credit business tends to have an initial payout and subsequent recovery from the insured. Therefore, payments can exceed incurred amounts. The claims development on accident years 2014, 2015 and 2016 is driven by several large losses.
Net outstanding liabilities Corporate Solutions: Property 1 765 Accident & Health 947 Other liability 2 695 Specialty 917 Credit 150
Total net undiscounted outstanding liabilities excluding other short duration contract lines 6 474 Impact of acquisition accounting –103
Total net discounted outstanding liabilities excluding other short duration contract lines 6 371 Other short duration contract lines 260
Allocated reinsurance recoverables on unpaid claims Corporate Solutions: Property 171 Accident & Health 1 286 Other liability 2 420 Specialty 263 Credit 20
Impact of acquisition accounting –12 Other short duration contract lines 354
Gross investment income 210 240 Investment expenses –31 –23 Interest charged for funds held –15 –17
Realised gains and losses Realised gains and losses for fixed income securities, equity securities and other investments were as follows: Fixed income securities available-for-sale: Gross realised gains 17 4 Gross realised losses –7 –22
Other-than-temporary impairments –4 Net realised investment gains/losses on equity securities1 6 Change in net unrealised investment gains/losses on equity securities1 –13 Net realised investment gains/losses on trading securities –1 Net realised/unrealised gains/losses on other investments –4 Net realised/unrealised gains/losses on insurance-related activities 12 29 Foreign exchange gains/losses –1 11
Net realised investment gains/losses 105 15 1 Change due to ASU 2016-01. Please refer to Note 1 for more details.
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 3 059 9 –14 3 054 US Agency securitised products 81 81 States of the United States and political subdivisions of the states 414 11 –3 422 Canada 324 4 –2 326 Brazil 224 2 0 226 Australia 140 –1 139 Other 213 1 –8 206
Total 576 5 2 207 29 2 783 34 Corporate debt securities 822 13 638 21 1 460 34 Mortgage- and asset-backed securities 73 0 164 4 237 4
Other financial assets and liabilities by measurement category As of 31 December 2017 and 2018, ‘‘Other invested assets’’ and ‘‘Accrued expenses and other liabilities’’ by measurement category were as follows: Investments measured at net asset value as Amortised Cost USD millions Fair value practical expedient or cost Equity-accounted Not in scope1 Total
Other invested assets Derivative financial instruments 22 22 Reverse repurchase agreements 97 97 Equity-accounted investments 1 931 1 931 Other 8 44 52
Investments measured at net asset value as Amortised Cost USD millions Fair value practical expedient or cost Equity-accounted Not in scope1 Total
Accrued expenses and other liabilities 127 0 65 0 357 549 1 Amounts do not relate to financial assets or liabilities. 2 The Group changed the presentation of its Long term care and Disability portfolio which is fully retroceded to an external party. Please refer to the Balance sheet. Comparative information for 2017 has been adjusted accordingly.
Gross amounts of Net amounts of financial Related financial 2017 recognised Collateral set-off liabilities presented instruments not set-off USD millions financial liabilities in the balance sheet in the balance sheet in the balance sheet Net amount
Gross amounts of Net amounts of financial Related financial 2018 recognised Collateral set-off assets presented instruments not set-off USD millions financial assets in the balance sheet in the balance sheet in the balance sheet Net amount
Assets pledged As of 31 December 2017 and 2018, investments with a carrying value of USD 792 million and USD 924 million, respectively, were on deposit with regulatory agencies in accordance with local requirements, of which USD 21 million and USD 61 million, respectively, were cash and cash equivalents. As of 31 December 2017 and 2018, investments with a carrying value of USD 241million and USD 259 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities, of which nil and USD 3 million, respectively, were cash and cash equivalents. Cash and cash equivalents pledged include some instances where cash is legally restricted from usage or withdrawal.
As of 31 December 2017 and 2018, securities of USD 1 916 million and USD 1 639 million, respectively, were transferred to third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. There were no associated liabilities.
Level 2 inputs are market based inputs that are directly or indirectly observable, but not considered level 1 quoted prices. Level 2 inputs consist of (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical assets or liabilities in non-active markets (eg markets which have few transactions and where prices are not current or price quotations vary substantially ); (iii) inputs other than quoted prices that are observable (eg interest rates, yield curves, volatilities, prepayment speeds, credit risks and default rates); and (iv) inputs derived from, or corroborated by, observable market data.
The fair values of assets are adjusted to incorporate the counterparty risk of non-performance. Similarly, the fair values of liabilities reflect the risk of non-performance of the Group, captured by the Group’s credit spread. These valuation adjustments from assets and liabilities measured at fair value using significant unobservable inputs are recognised in net realised gains and losses. For 2018, these adjustments were not material.
Values of mortgage and asset-backed securities are obtained both from third-party pricing vendors and through quoted prices, some of which may be based on the prices of comparable securities with similar structural and collateral features. Values of certain ABS for which there are no significant observable inputs are developed using benchmarks to similar transactions or indices. For both residential mortgage-backed securities (RMBS) and commercial mortgage-backed securities (CMBS), cash flows are derived based on the transaction-specific information, which incorporates priority in the capital structure, and are generally adjusted to reflect benchmark yields, market prepayment data, collateral performance (default rates and loss severity) for specific vintage and geography, credit enhancements and ratings. For certain RMBS and CMBS with low levels of market liquidity, judgements may be required to determine comparable securities based on the loan type and deal-specific performance. CMBS terms may also incorporate lock-out periods that restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities, compared to RMBS. The factors specifically considered in valuation of CMBS include borrower-specific statistics in a specific region, such as debt service coverage and loan-to-value ratios, as well as the type of commercial property. Mortgage- and asset-backed securities also includes debt securitised by credit card, student loan and auto loan receivables. Pricing inputs for these securities also focus on capturing, where relevant, collateral quality and performance, payment patterns and delinquencies.
Equity securities held by the Group for proprietary investment purposes are mainly classified in level 1. Securities classified in level 1 are traded on public stock exchanges for which quoted prices are readily available.
Assets Fixed income securities held for proprietary investment purposes 2 569 3 695 6 264
Debt securities issued by US government and government agencies 2 569 404 2 973 US Agency securitised products 220 220 Debt securities issued by non-US governments and government agencies 948 948 Corporate debt securities 1 797 1 797 Mortgage- and asset-backed securities 326 326
Equity securities held for proprietary investment purposes 167 13 180 Short-term investments held for proprietary investment purposes 176 217 393 Derivative financial instruments 2 6 6 14 Other invested assets 8 8
Total assets at fair value 2 914 3 931 6 8 6 859
2018 Derivative Total Derivative Total USD millions assets assets liabilities liabilities
Realised/unrealised gains/losses: Included in net income 0 30 30 Included in other comprehensive income 0 0
Closing balance as of 31 December 6 6 –121 –121 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows: 2017 2018 USD millions Fair value Fair value Valuation technique Unobservable input Range (weighted average)
Assets and liabilities not measured at fair value but for which the fair value is disclosed
The Group's debt position classified as level 2 measurement is fair valued based on executable broker quotes. The Group's level 3 debt position is judged to approximate carrying value due to the highly tailored nature of the obligation and due to the resetting interest rate.
Derivatives designated as hedging instruments Foreign exchange contracts 149 3 3
Non-hedging activities The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of derivative financial instruments not designated as hedging instruments are recorded in “Net realised investment gains/losses” in the income statement. The gains and losses of derivative financial instruments not designated as hedging instruments for the years ended 31 December were as follows: Derivatives not designated as hedging instruments Foreign exchange contracts 14 –16 ECM/Weather contracts/ILW 10 30 Credit contracts –4
Hedging activities The Group designates certain derivative financial instruments as hedging instruments. The designation of derivative financial instruments is primarily used for overall portfolio and risk management strategies. As of 31 December 2018, the following hedging relationships were outstanding: Fair value hedges The Group enters into foreign exchange swaps to reduce the exposure to foreign exchange volatility for certain fixed income securities. These derivative instruments are designated as hedging instruments in qualifying fair value hedges. Gains and losses on derivative financial instruments designated as fair value hedging instruments are recorded in “Net realised investment gains/losses” in the income statement. For the year ended 31 December, the gains and losses attributable to the hedged risks were as follows: USD millions
Fair value hedging relationships Foreign exchange contracts –6 6 13 –13
Maximum potential loss The maximum potential loss as of 31 December 2017 and 2018 was approximately USD 22 million and USD 14 million. The maximum potential loss is based on the positive market replacement cost assuming non-performance of all counterparties.
The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 36 million and USD 47 million as of 31 December 2017 and 2018, respectively. For derivative financial instruments containing credit riskrelated contingent features, the Group posted collateral of nil as of 31 December 2017 and 2018. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 47 million additional collateral would have had to be posted as of 31 December 2018. The total equals the amount needed to settle the instruments immediately as of 31 December 2018.
Maturity Instrument Issued in Currency Nominal in millions Interest rate First call in Book value in USD millions 2028 Subordinated floating rate callable loan 2018 USD 300 5.75% 2023 300 2044 Subordinated fixed rate resettable callable loan
Total –204 –113 1 Other, net includes tax return to tax provision adjustments from various jurisdictions.
Deferred tax liabilities Deferred acquisition costs –34 –71 Present value of future profits –51 –48 Property amortisation –3 –1 Income accrued/deferred –24 –7 Technical provisions –38 –18 Unrealised gains on investments –6 –10 Foreign exchange provisions –21 –25 Currency translation adjustments –45 –48 Other –18 –24
Liability for unrecognised tax benefits including interest and penalties –3 –4
As of 31 December 2018, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised amount to approximately USD 228 million. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules.
For the year ended 31 December 2018, USD 3 million net operating losses and nil net capital losses were utilised.
For the years ended 31 December 2017 and 2018, income taxes paid were USD 22 million and USD 43 million, respectively.
Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: Balance as of 1 January 5 4 Additions for tax positions of current year 1 Reductions for tax positions of prior years –1 Statute expiration –1
As of 31 December 2017 and 2018 the amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 4 million and USD 4 million, respectively.
In December 2018, Swiss Re Ltd granted a USD 300 million subordinated floating rate callable loan to Swiss Re Corporate Solutions Ltd due in 2028 with a first optional redemption date on 19 December 2023. The loan bears interest at a floating rate of 6 month Libor plus 2.85%. The 6 month Libor rate is reset every 6 months.
When one of these criteria is not met, the entity is considered a VIE and is assessed for consolidation under the VIE section of the Consolidation Topic.
Non-consolidated VIEs The following table shows the total assets on the Group’s balance sheet related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: Equity securities available-for-sale 32 Equity securities at fair value through earnings 27 Other invested assets 1 937 1 951
Report of the statutory auditor to the General Meeting of Swiss Re Corporate Solutions Ltd Zurich, Switzerland
Other matter Accounting principles generally accepted in the United States of America require that the supplementary information based on the requirements of ASU 2015-09, Disclosures about Short-Duration Contracts, on pages 27 to 31 be presented to supplement the consolidated financial statements. Such information, although not part of the consolidated financial statements, is required by the Financial Accounting Standards Board, which considers it an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management’s responses to our inquiries, the consolidated financial statements and other knowledge we obtained during our audit of the consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
The Company uses a range of actuarial methodologies and methods to estimate these reserves. Actuarially determined P&C loss reserves require significant judgement relating to certain factors and assumptions. Among the most significant reserving assumptions are the A-priori loss ratios, which typically drive the estimates of P&C loss reserves for the most recent contract years. Other key factors and assumptions include, but are not limited to, interest rates, inflation trends, claims trends, regulatory decisions, historical claims information and the growth of exposure.
Applying IT audit techniques to analyse claims through the recalculation of claims triangles.
Evaluating the appropriateness of management's assessment of completeness of the uncertain tax provisions.
Based on the work performed, we determined management’s assessment of uncertain tax items to be appropriate.
As a consequence of the new tax regime in the US, effective as of 31 December 2017, the Company restructured its assumed intragroup retrocession programs with the affiliated Westport Insurance Company and its subsidiaries. In 2018, these restructurings led to a net impact of CHF 884 million in the reinsurance result.
The Company paid an ordinary dividend in cash of CHF 48 million.
Reinsurance result Reinsurance result amounted to CHF -410 million in 2018, compared to CHF -870 million in 2017.
In 2018, the Company did not change the equalisation provision. The equalisation provision of CHF 183 million was released in the previous year.
Acquisition costs decreased by 37.6% to CHF 545 million in 2018 (2017: CHF 873 million). The decrease was mainly driven by the change of the intragroup retrocession program with Westport Insurance Corporation.
Liabilities Total liabilities decreased by 3.5% to CHF 7 542 million at 31 December 2018 (31 December 2017: CHF 7 814 million). Excluding the effects of foreign exchange movements, total liabilities increased by 3.4%.
Technical provisions gross decreased from CHF 6 711 million at 31 December 2017 to CHF 6 308 million at 31 December 2018, mainly driven by the recapture of unearned premiums reserves of previous underwriting years business following the change in the intragroup retrocession program with Westport Insurance Corporation.
The nominal share capital of the Company remained unchanged at CHF 100 million at 31 December 2018.
Outlook In 2018, the commercial insurance market was impacted by large natural catastrophe events and an exceptionally high severity and frequency of large man-made losses in industrial business lines across all geographies. While rates and terms and conditions have improved, commercial risks, particularly in the large corporate segment, remain inadequately priced and the industry continues to be unprofitable overall. Corporate Solutions expects an accelerated market hardening and a reinforced focus on terms and conditions over the next 12 to 18 months.
Investments Strategy and priorities Financial investments are managed in accordance with Swiss Re‘s Targeted Standard on Asset Management and the Company‘s investment guidelines, which are intended to ensure compliance with regulatory requirements. The general principle governing investment management in the Company is the creation of economic value on the basis of returns relative to the liability benchmark, while adhering to the investment guidelines and the general prudence principle. The liability benchmark is determined by approximating an investable benchmark from projected liability cash flows. A cash benchmark is used for the economic surplus.
Outlook Global economic growth has peaked and is expected to slow in 2019, particularly in advanced markets. In the US and Euro, tighter financial conditions, the waning US fiscal stimulus and lingering political concerns, are likely to weigh on growth. Economic growth in emerging Asia will slow moderately, but remains the strongest region globally, while Latin America will see a modest growth recovery, albeit from a low base. In contrast to last year’s outlook, the balance of risks is seen as skewed to the down side, amid increasing protectionism (e.g. US-China trade conflict), ongoing monetary policy tightening, late cycle concerns (especially in the US) and uncertain (geo)politics (such as Brexit, European Parliament election, or elections in India, South Africa and Argentina).
The Board of Directors of Swiss Re Corporate Solutions Ltd sets the Company’s risk tolerance. In this role, it is advised by the Board of Directors of the Swiss Re Group, which defines the Group’s basic risk management principles and risk appetite framework including the Group risk tolerance. The Board of Directors of the Swiss Re Group mainly performs risk oversight and governance through three committees: ̤ The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews top risk issues and exposures.
The Group Executive Committee (Group EC) is responsible for developing and implementing Swiss Re’s Group-wide risk management framework. It also sets and monitors risk capacity limits, oversees the Economic Value Management framework, determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group EC has delegated various risk management responsibilities to the Group Chief Risk Officer (Group CRO) as well as to certain legal entity CROs, including the Company CRO.
Legal entity risk teams of the Company and its subsidiaries are led by dedicated CROs who report directly or indirectly to their top-level entity CRO (Company CRO), who reports directly to the Group CRO, with a secondary reporting line to the Company CEO. These legal entity CROs are responsible for risk oversight in their respective legal entities, as well as for establishing the proper risk governance to ensure efficient risk identification, assessment and control.
While the risk management organisation is closely aligned to Swiss Re’s business structure in order to ensure effective risk oversight, all embedded teams and dedicated CROs remain part of the central Group Risk Management function under the Group CRO, thus ensuring their independence as well as a consistent Group-wide approach to overseeing and controlling risks.
Risk Management is also in charge of actuarial reserving and monitoring of reserve holdings. Business Unit Corporate Solutions and Group Risk Management activities are complemented by Swiss Re’s Group Internal Audit and Compliance units: ̤ Group Internal Audit performs independent assessments of adequacy and effectiveness of internal control systems. It evaluates the execution of processes within Swiss Re, including those within Risk Management.
Income statement Swiss Re Corporate Solutions Ltd For the years ended 31 December
Other reinsurance revenues 2 21 Allocated investment return 55 59 Total revenues from reinsurance business 2 855 1 880
Claims paid and claim adjustment expenses gross –1 519 –1 729 Claims paid and claim adjustment expenses retroceded 7 4 Claims paid and claim adjustment expenses net –1 512 –1 725 Change in unpaid claims gross –1 398 54 Change in unpaid claims retroceded 61 152 Change in unpaid claims net –1 337 206 Claims and claim adjustment expenses –2 849 –1 519 Change in equalisation provision 183 – Claims incurred –2 666 –1 519 Acquisition costs gross –878 –545 Acquisition costs retroceded 5 0 Acquisition costs net –873 –545 Operating costs –185 –226 Acquisition and operating costs –1 058 –771 Other reinsurance expenses –1 0 Total expenses from reinsurance business –3 725 –2 290
Investments Investments in subsidiaries and affiliated companies 1 513 1 525 Fixed income securities 1 168 987
Non-technical provisions Tax provisions 1 1 Provision for currency fluctuation 0 17 Other provisions 43 35 Total non-technical provisions 44 53
Shareholder’s equity 4 Share capital 100 100 Legal reserves from capital contributions 2 344 1 439 Other legal capital reserves 52 52
Voluntary profit reserves 46 903 Retained earnings brought forward 14 –890 Net loss for the financial year –904 –498
Loans are carried at nominal value. Value adjustments are recorded where the expected recovery value is lower than the nominal value. Infrastructure loans are carried at their amortised cost.
Shares in investment funds 1 – – 1 Short-term investments 4 – 0 4 Alternative investments – – 0 0
Investment expenses Subsidiaries and affiliated companies – – 0 0 Fixed income securities – – –3 –3 Equity securities – – 0 0 Loans – – – – Shares in investment funds – – – – Short-term investments – – 0 0 Alternative investments – – – – Other investments – – 0 0 Investment management expenses –8 – – –8 Investment expenses –8 0 –3 –11
Shares in investment funds 1 0 – 1 Short-term investments 3 – 0 3 Alternative investments – – – –
Investment expenses Subsidiaries and affiliated companies – – – – Fixed income securities – – –1 –1 Equity securities – – – 0 Loans – – – – Shares in investment funds – – – – Short-term investments – – 0 0 Alternative investments – – – –
The Company is part of the Swiss Re value added tax (VAT) group and is therefore jointly liable for existing and future VAT claims from the Swiss Federal Tax Administration.
7 Securities lending As of 31 December 2018, securities of CHF 509 million (2017: CHF 744 million) were lent to Swiss Reinsurance Company Ltd under securities lending agreements. As of 31 December 2018 and 2017, there were no securities lent to third parties.
Premiums and other receivables from reinsurance 1 400 10 1 410 1 163 13 1 176
Provisions for profit commissions 50 – 50 51 – 51 1 Reported under “Reinsurance recoverable on technical provisions retroceded” on page 65. 2 Includes prior year corrections resulting in an increase of reserves of CHF 10.7 million.
CHF millions Share Capital Legal capital reserves Voluntary profit reserves Loss brought forward Net loss for the financial year Total Shareholder’s equity
Allocation to voluntary profit reserves – – 170 – –170 – Allocation to retained earnings – – – 6 –6 – Dividend for the financial year 2016 – – –150 – – –150 Net result for the year – – – – –904 –904
Allocation to voluntary profit reserves – –905 905 – – – Allocation to retained earnings – – – –904 904 – Dividend for the financial year 2017 – – –48 – – –48 Net result for the year – – – – –498 –498
9 Public placed debentures As of 31 December 2018, the following public placed debentures were outstanding: 10 Deposit arrangements The following balances were related to deposit accounted reinsurance contracts: 11 Claims on and obligations towards affiliated companies 12 Release of undisclosed reserves In 2018, CHF 23 million of net undisclosed reserves were released (2017: none).
14 Auditor‘s fees In 2018, the Swiss Re Group incurred total auditor‘s fees of CHF 31.3 million (2017: CHF 30 million) and additional fees of CHF 6.9 million (2017: CHF 2 million), of which CHF 0.7 million (2017: CHF 0.5 million) incurred for the Company solely relating to auditor’s fees and none (2017: CHF 0.1 million) relating to additional fees.
Funds held by ceding companies 1 566 486 Premiums and other receivables from reinsurance 1 300 1 069 Other receivables 90 293 Reinsurance balances payable 470 342 Other liabilities 54 24 Subordinated liabilities – 2961 1 The subordinated liabilities were against the parent company Swiss Re Ltd. There were no other outstanding claims on and obligations towards the parent company Swiss Re Ltd at the end of the period 2018 and 2017.
Financial statements Swiss Re Corporate Solutions Ltd 15 Investments in subsidiaries As of 31 December 2018 and 2017, Swiss Re Corporate Solutions Ltd held the following direct and indirect investments in subsidiaries and affiliated companies.
Flint Hills Insurance Agency, LLC United States Overland Park 100% 100% Swiss Re Accident and Health Risk Solutions, LLC United States Delaware 100% 100% Swiss Re Corporate Solutions Global Markets Inc United States New York 100% 100% Westport Insurance Corporation United States Jefferson City 100% 100%
First Specialty Insurance Corporation United States Jefferson City 100% 100% North American Capacity Insurance Company United States Manchester 100% 100% North American Elite Insurance Company United States Manchester 100% 100% North American Specialty Insurance Company United States Manchester 100% 100% Washington International Insurance Company United States Manchester 100% 100% Westport Insurance Corporation - Escritório de Representação no Brasil Ltda. Brazil São Paulo 100% 100%
Wing RE III Inc. United States Missouri 100% 100% Swiss Re Corporate Solutions Brasil Seguros S.A. Brazil São Paulo 60% 60% Compania Aseguradora de Fianzas S.A. Confianza Colombia Bogotá 51% 51% Swiss Re Corporate Solutions Advisors South Africa (Pty) Ltd South Africa Johannesburg 100% 100% Swiss Re Corporate Solutions Investment Holding Company Ltd Switzerland Zurich 100% 100%
16 Personnel information and administrative expenses As of 31 December 2018, the Company employed a worldwide staff at an average of 296 (2017: 303) full time equivalents.
Personnel expenses for the 2018 financial year amounted to CHF 100 million (2017: CHF 94 million).
Proposal for allocation of disposable result The Board of Directors proposes to the Annual General Meeting of the Company, to be held on 27 March 2019, to approve the following allocation: Retained earnings
Retained earnings brought forward 14 –890 Net result for the financial year –904 –498 Disposable result –890 –1 388 Allocation to voluntary profit reserves – – Retained earnings after allocation –890 –1 388
Report of the statutory auditor on the financial statements As statutory auditor, we have audited the financial statements of Swiss Re Corporate Solutions Ltd (the ‘Company’), which comprise the income statement, balance sheet and notes (pages 64 to 75) for the year ended 31 December 2018.
Opinion In our opinion, the financial statements for the year ended 31 December 2018 comply with Swiss law and the Company’s Articles of Association.
̤ Engaging our own valuation experts to perform independent valuations of selected investments.
Based on the work performed, we consider the methodology and assumptions used by management in determing the valuation to be appropriate.
̤ Involving PwC’s internal actuarial specialists to independently test management’s estimates of P&C loss reserves, and evaluate the reasonableness of the methodology and assumptions used by comparing them with recognised actuarial practices and by applying our industry knowledge and experience.
Key audit matter The Company applies group valuation method when a close business link exists and a similarity in nature is given.
̤ Assessing whether the method applied for each subsidiary is reasonable.
Forward-looking statements typically are identified by words or phrases such as “anticipate,” “assume,” “believe,” “continue,” “estimate,” “expect,” “foresee,” “intend,” “may increase” and “may fluctuate” and similar expressions or by future or conditional verbs such as “will,” “should,” “would” and “could.” These forwardlooking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results of operations, financial condition, liquidity position or prospects to be materially different from any future results of operations, financial condition, liquidity position or prospects expressed or implied by such statements. Among the key factors that have a direct bearing on our results of operations, financial condition, liquidity position or prospects are: ̤ further instability affecting the global financial system and developments related thereto, including as a result of concerns over, or adverse developments relating to, sovereign debt of eurozone countries; ̤ further deterioration in global economic conditions; ̤ our ability to maintain sufficient liquidity and access to capital; ̤ the effect of market conditions, including the global equity and credit markets, and the level and volatility of interest rates, credit spreads, equity prices, currency values and other market indices, on our investment assets; ̤ changes in our investment result as a result of changes in our investment policy or the changed composition of our investment assets, and the impact of the timing of any such changes relative to changes in market conditions; ̤ possible inability to realise amounts on sales of securities on our balance sheet equivalent to their mark-to-market values recorded for accounting purposes; ̤ mortality, morbidity and longevity rates; ̤ policy renewal and lapse rates; ̤ uncertainties in estimating reserves; Cautionary note on forwardlooking statements
While some regulation is national in scope, the global nature of the Group’s business means that its operations are subject in effect to a patchwork of global, national and regional standards. Swiss Re and its subsidiaries are subject to applicable regulation in each of the jurisdictions in which they conduct business, particularly Switzerland, the United States, the United Kingdom, countries in the European Union (including Luxembourg), Australia, Japan, Canada, Singapore and Dubai. In addition, the Group could be affected by regulatory changes or developments affecting the overall Swiss Re group, comprising Swiss Re Ltd (“SRL”) and its consolidated subsidiaries, of which the Group is a part (the “Swiss Re Group”).
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. These changes, or inconsistencies between the various regimes that apply to the Group, could increase the costs of doing business (including due to increased capital requirements), reduce access to liquidity, limit the scope of current or future business or affect the competitive balance, or could make insurance less attractive to primary insurers.
The Group’s ratings reflect the current opinion of the relevant rating agencies. One or more of its ratings could be downgraded or withdrawn in the future, and market conditions could increase the risk of downgrade. Rating agencies may increase the frequency and scope of ratings reviews, revise their criteria or take other actions that may negatively impact the Group’s ratings and/or the ratings of its key legal entities. In addition, changes to the process or methodology of issuing ratings, or the occurrence of events or developments affecting the Group, could make it more difficult for the Group to achieve improved ratings which it would otherwise have expected.
The Group is also involved, from time to time, in investigations and regulatory proceedings, which could result in adverse judgments, settlements, fines and other outcomes. The number of these investigations and proceedings involving the financial services industry has increased in recent years, and the potential scope of these investigations and proceedings has also increased, not only in respect of matters covered by the Group’s direct regulators, but also in respect of compliance with broader business conduct rules, including those in respect of market abuse, bribery, money laundering, trade sanctions and data protection and privacy. Aggressive tax enforcement is becoming a higher priority for many tax authorities, and the Group also is subject to audits and challenges from time to time by tax authorities, which could result in increases in tax costs, changes to internal structures and interest and penalties.
Insurance, operational and other risks As part of the Group’s ordinary course operations, the Group is subject to a variety of risks, including risks that reserves may not adequately cover future claims and benefits; risks that catastrophic events (including natural disasters, such as hurricanes, windstorms, floods, earthquakes, and man-made disasters, such as acts of terrorism and other disasters such as industrial accidents, explosions, and fires, and pandemics) are inherently unpredictable in terms of both their frequency and severity and have exposed, and may expose, the Group to unexpected large losses (and related uncertainties in estimating future claims in respect of such events); competitive conditions (including as a result of consolidation and the availability of significant levels of alternative capacity); cyclicality of the industry; risks related to emerging claims and coverage issues; macro developments giving rise to emerging risks, such as climate change and technological developments (including greater exposure to cyber risks (where accumulation risk is yet to be fully understood, but also risks relating to wearable health devices and autonomous cars), which could have a range of consequences from operational disruption, to loss of proprietary or customer data, to greater regulatory burdens and potential liability); risks arising from the Group’s dependence on policies, procedures and expertise of the Group’s clients; risks related to investments in emerging markets; and risks related to the failure of, or attacks directed at, the Group’s operational systems and infrastructure, including its information technology networks and systems. Any of the foregoing, as well as the occurrence of future risks that the Group’s risk management procedures fail to identify or anticipate, could have a material adverse effect on the Group, and could also give rise to reputational risk.
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