Policyholder account balances Policyholder account balances relate to universal life-type contracts and investment contracts.
Investment contracts are long-duration contracts that do not incorporate significant insurance risk, i. e. there is no mortality and morbidity risk, or the mortality and morbidity risk associated with the insurance benefit features offered in the contract is of insignificant amount or remote probability. Amounts received as payment for investment contracts are reported as policyholder account balances. Related assets are included in general account assets except for investments for unit-linked and with-profit business, which are presented in a separate line item on the face of the balance sheet.
Premiums Property and casualty reinsurance premiums are recorded when written and include an estimate for written premiums receivable at period end. Premiums earned are generally recognised in income over the contract period in proportion to the amount of reinsurance provided. Unearned premiums consist of the unexpired portion of reinsurance provided. Life reinsurance premiums are earned when due. Related policy benefits are recorded in relation to the associated premium or gross profits so that profits are recognised over the expected lives of the contracts.
Subsequent events Subsequent events for the current reporting period have been evaluated up to 15 March 2017. This is the date on which the financial statements are available to be issued.
Recent accounting guidance In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09, “Revenue from Contracts with Customers”, which creates topic 606, “Revenue from Contracts with Customers”. ASU 2014-09 outlines the principles that an entity should follow to provide useful information about the amount, timing and uncertainty of revenue and cash flows arising from contracts with its customers. The standard requires an entity to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Insurance contracts and financial instruments are not in the scope of the new standard. The new requirements are effective for annual and interim periods beginning after 15 December 2017, and may be applied retrospectively to each prior period presented or with a cumulative effect adjustment to retained earnings as of the date of initial application. The Group is currently assessing the impact of the new requirements.
In November 2014, the FASB issued ASU 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity — a consensus of the FASB Emerging Issues Task Force”, an update to topic 815, “Derivatives and Hedging”. The ASU provides guidance on how to assess whether or not a derivative embedded in an instrument in the legal form of a share must be bifurcated and accounted for separately from its host contract. Entities are required to use “the whole instrument approach” to determine whether the nature of the host contract in a hybrid instrument issued in the form of a share is more akin to debt or to equity. Under this approach, an issuer or investor considers all stated and implied substantive terms and features of a hybrid instrument when determining the nature of the host contract. No single term or feature will necessarily determine the nature of the host contract. The Group adopted ASU 2014-16 on 1 January 2016. The adoption did not have a material effect on the Group’s financial statements.
In January 2015, the FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”, an update to subtopic 225-20, “Income Statement – Extraordinary and Unusual Items”. The ASU eliminates the separate presentation of extraordinary items, net of tax and the related earnings per share. Extraordinary items were events and transactions that were distinguished by their unusual nature and by the infrequency of their occurrence. The ASU does not affect the requirement to disclose material items that are unusual in nature or infrequently occurring. The Group adopted ASU 2015-01 on 1 January 2016 on a prospective basis. The adoption did not have a material effect on the Group’s financial statements.
In February 2015, the FASB issued ASU 2015-02, “Consolidation: Amendments to the Consolidation Analysis”, an amendment to topic 810, “Consolidation”. ASU 2015-02 (i) eliminates the indefinite deferral of the consolidation requirements for certain investment companies and similar entities, (ii) modifies how to evaluate partnerships and other entities under the VIE framework, (iii) eliminates the presumption that a general partner should consolidate a limited partnership, (iv) modifies consolidation analysis, particularly for decision-maker fee arrangements and related party relationships, (v) excludes from the scope of consolidation assessment the entities that are, or operate similar to, money market funds registered under the US Investment Company Act of 1940. The Group adopted ASU 2015-02 on 1 January 2016 following the modified retrospective method. The modified retrospective method does not require the restatement of prior periods. The adoption did not have a material effect on the Group’s financial statements; however, it led to an increase in VIEs disclosed in Note 20 Variable interest entities.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, an update to subtopic 835-30, “Interest — Imputation of Interest”. The ASU changes the presentation of debt issuance costs in financial statements by requiring that an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortisation of the costs is reported as interest expense. The Group adopted ASU 2015-03 on 1 January 2016 on a prospective basis. The adoption did not have an impact on the Group’s financial statements.
In May 2015, the FASB issued ASU 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”, an amendment to topic 820, “Fair Value Measurement”. ASU 2015-07 removes the requirement to categorise within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments for which the entity has elected to measure the fair value using that practical expedient. The Group adopted
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 adopted the annual disclosure requirements as of year-end 2016 which are provided in Note 5. The Group will adopt the interim disclosure requirements for the half-year ending on 30 June 2017.
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 applied by a lessor is largely unchanged from that applied under the current guidance. The new requirements are effective for the Group for annual and interim periods beginning after 15 December 2018. Early application of the ASU is permitted. The Group is currently assessing the impact of the new requirements.
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. The standard requires for financial instruments that are measured at amortised cost and available-for-sale debt securities that an entity recognises as an allowance its estimate of expected credit losses. This standard is effective for the Group for annual and interim periods beginning after 15 December 2020. Early adoption for interim and annual periods after 15 December 2018 is permitted. The Group is currently assessing the impact of the new requirements.
The Group presents four core operating business segments: Property & Casualty Reinsurance, Life & Health Reinsurance, Corporate Solutions and Life Capital (which includes the former Business Unit Admin Re®). The presentation of each segment’s balance sheet is closely aligned to the segment legal entity structure. The assignment of assets and liabilities for entities that span more than one segment is determined by considering local statutory requirements, legal and other constraints, the economic view of duration and currency requirements of the reinsurance business written, and the capacity of the segments to absorb risks. Interest expense is based on the segment’s capital funding position. The tax impact of a segment is derived from the legal entity tax obligations and the segmentation of the pre-tax result. While most of the tax items can be directly attributed to individual segments, the tax which impacts two or more segments is allocated to the segments on a reasonable basis. Property & Casualty Reinsurance and Life & Health Reinsurance share the same year-to-date effective tax rate as both business segments belong to the Reinsurance Business Unit.
As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly.
Corporate Solutions Corporate Solutions offers 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 customised solutions tailored to the needs of clients. Corporate Solutions serves customers from over 50 offices worldwide.
Expenses Claims and claim adjustment expenses –7 892 –1 955 –1 –9 848 Life and health benefits –8 012 –1 068 –9 080 Return credited to policyholders –60 –1 106 –1 166
Income/loss before interest and income tax expense 3 751 1 492 517 417 –200 –24 5 953 Interest expenses2 –272 –323 –24 –16 –23 24 –634 Income/loss before income tax expense/
3 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to Group items from the business segments. Comparative information for 2015 has been adjusted accordingly.
Business segments – income statement For the year ended 31 December 2016 USD millions
Fee income from policyholders 41 499 540 Net investment income – non-participating business 985 1 279 138 1 256 101 –98 3 661 Net realised investment gains/losses – non-participating business 770 232 51 503 –72 1 484 Net investment result – unit-linked and with-profit business 15 5 367 5 382
Expenses Claims and claim adjustment expenses –10 301 –2 263 –12 564 Life and health benefits –8 963 –1 896 –10 859 Return credited to policyholders –39 –5 060 –5 099
Income/loss before interest and income tax expense 2 890 1 350 157 798 –98 –119 4 978 Interest expenses –293 –301 –23 –29 –79 119 –606 Income/loss before income tax expense/
Income tax expense/benefit –479 –193 –1 –131 55 –749 Net income/loss before attribution of non-controlling interests 2 118 856 133 638 –122 0 3 623
Investments for unit-linked and with-profit business 818 27 423 28 241
Non-controlling interests 23 66 89 1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly.
2 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to Group items from the business segments. The resulted impact on the balance sheet has been adjusted accordingly for the comparative information 2015.
Business segments – balance sheet As of 31 December 2016 USD millions
Investments for unit-linked and with-profit business 548 31 630 32 178
Acquired present value of future profits 966 1 037 2 003
Operating expenses1,2 –664 –385 –149 –1 198 Total expenses before interest expenses –4 429 –6 577 –1 920 0 –12 926
Income before interest and income tax expense 1 663 25 476 1 587 3 751 Interest expenses1 –272 –272 Income before income tax expense 1 663 25 476 1 315 3 479 1 Letter of credit fees of USD 10 million in Property & Casualty Reinsurance have been reclassified from “Operating expenses” to “Interest expenses”. 2 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to Group Items from the Property & Casualty Reinsurance segment.
Operating expenses –665 –385 –154 –1 204 Total expenses before interest expenses –5 761 –8 319 –1 830 0 –15 910
FINANCIAL STATEMENTS Notes to the Group financial statements c) Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2015 USD millions Life Health Unallocated Total1
Expenses Life and health benefits –5 539 –2 473 –8 012 Return credited to policyholders –60 –60 Acquisition costs –1 260 –705 –1 965 Operating expenses2,3 –547 –227 –774 Total expenses before interest expenses –7 406 –3 405 0 –10 811
4 Net operating margin is calculated as “Income before interest and income tax expense” divided by “Total revenues” excluding “Net investment result – unit-linked and withprofit business”.
Fee income from policyholders 41 41 Net investment income – non-participating business 828 451 1 279 Net realised investment gains/losses – non-participating business 21 –4 215 232 Net investment result – unit-linked and with-profit business 15 15 Other revenues 5 5
Expenses Life and health benefits –6 093 –2 870 –8 963 Return credited to policyholders –39 –39 Acquisition costs –1 237 –706 –1 943 Operating expenses –536 –227 –763 Total expenses before interest expenses –7 905 –3 803 0 –11 708
Income before interest and income tax expense 783 352 215 1 350 Interest expenses –301 –301 Income/loss before income tax expense 783 352 –86 1 049
FINANCIAL STATEMENTS Notes to the Group financial statements 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
Europe (including Middle East and Africa) 10 333 10 928 192 Swiss Re 2016 Financial Report
Premiums earned and fees assessed against policyholders For the years ended 31 December 2015 USD millions
Retrocession to external parties –268 –1 420 –168 –30 –1 886
Retrocession to external parties 1 1 1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly.
Claims before receivables from retrocession to external parties –9 390 –9 387 –1 987 –1 854 –38 –22 656
Unpaid claims and claim adjustment expenses; life and health benefits before impact of retrocession to external parties 1 508 181 –187 763 37 2 302
Claims and claim adjustment expenses; life and health benefits –7 892 –8 012 –1 955 –1 068 –1 –18 928 2015 USD millions
Acquisition costs, thereof: Gross acquisition costs with external parties –3 898 –2 137 –492 –233 –6 760 Intra-group transactions (assumed and ceded) –6 –72 6 72 0
Acquisition costs For the year ended 31 December 2016 USD millions
Claims before receivables from retrocession to external parties –9 048 –10 509 –2 061 –2 907 –24 525
Claims and claim adjustment expenses; life and health benefits –10 301 –8 963 –2 263 –1 896 –23 423 2016 USD millions
FINANCIAL STATEMENTS Notes to the Group financial statements 4 Premiums written
Gross premiums written, thereof: Intra-group transactions (ceded) –192 –288 –600 1 080 0
Retrocession to external parties –204 –1 413 –160 –30 –1 807 2016 USD millions
Gross premiums written, thereof: Intra-group transactions (assumed) 287 546 139 –972 0
Amortisation of deferred expense on retroactive reinsurance and impact of commutations 27 –26
Paid related to: Current year –8 533 –9 720 Prior year –12 083 –12 808
Foreign exchange –2 619 –1 317 Effect of acquisitions, disposals, new retroactive reinsurance and other items 1 681 1 043 Net balance as of 31 December 50 913 53 100
Line of business: Property –539 –335 Casualty –571 –249 Specialty –284 –357 Life and health 268 131
At the end of 2016 the Group carried net reserves for US asbestos and environmental liabilities equal to USD 1 977 million. During 2016, the Group incurred net losses of USD 48 million and paid net against these liabilities of USD 164 million.
Claims development information and information on IBNR reserves are shown on a nominal basis, also for cases where the Group discounts claims liabilities for measurement under US GAAP. Information is shown per accident year and by reporting period. The number of years shown in the claims development tables differs by business segment: For Property & Casualty Reinsurance, the Group discloses data for ten accident years and reporting periods.
The Corporate Solutions business segment was created in 2012. Therefore, five accident years and reporting periods will be shown for this business unit. All but an immaterial portion of claims arising from accident years prior to 2012 relate to accident years which are over ten years ago and therefore out of the required range of disclosure. Business ceded to Property & Casualty Reinsurance prior to 2012 is included in the net claims development information reported by this segment.
Some of the information provided in the following tables, is Required Supplementary Information (RSI) under US GAAP. Therefore it does not form part of these consolidated audited financial statements. Claims development information for all periods except the current reporting period and any information derived from it — including average annual percentage payout of claims incurred — is considered RSI and is identified as RSI in the tables presented.
Non-life re/insurance contracts Cedents report their case reserves and their estimated IBNR to the Group. The Group develops and recognises its own estimate of IBNR claims, which includes circumstances in which the cedent has not reported any claims to the Group or where the Grouṕ s estimate of reserves needed to cover reported claims differs from the amounts reported by cedents. Reserving is done on portfolio or contract level depending on the features of the contract: For business reviewed on a portfolio level, the expected ultimate losses are set for most lines and types of business based on analysis performed using standard actuarial techniques. In general, contracts are aggregated into portfolios by combining contracts with similar features.
In most cases, these standard actuarial techniques encompass a number of loss development factor techniques applied to claim tables of paid and reported losses. Other actuarial techniques may be applicable to specific categories. For instance, the analysis of frequency and severity could be applied in all disaggregation categories. Life contingency techniques for projecting regular payments related to bodily injury claims are applied to motor proportional, motor non-proportional, liability proportional, liability non-proportional, accident and health and similar Corporate Solutions lines, where the information is available. In some cases, techniques specific to the projection of future payments for specific risks such as asbestos or pollution claims are applied to both proportional and non-proportional liability claims, also in Corporate Solutions (see also separate section “US asbestos and environmental claims exposure” on page 201).
In addition, the following applies to all non-life re/insurance business: ̤ For the most recent underwriting years, reliance may be made on the Grouṕ 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.
Life and health re/insurance contracts For the Life & Health Reinsurance long tail business, the liability for IBNR claims includes provision for “not yet reported claims” expected to have been incurred in respect of both already processed and not yet processed reinsurance accounts and generally includes provisions for the cost of claims that currently are within their deferred period. The IBNR reserving calculations have been made using appropriate techniques, such as chain ladder and/or Bornhuetter-Ferguson approaches, depending upon the level of detail available and the assumed level of development of the claim. For certain lines of business, IBNR claims reserves include reported but not admitted claims, allowing for expected rates of decline for these claims.
The liability for unpaid claims for property in Property & Casualty Reinsurance shows positive development on most recent years. Claims in accident year 2011 were at a high level due to several large natural catastrophes including the earthquake and tsunami in Japan, the earthquakes in Christchurch, New Zealand, and floods in Thailand. The negative development on accident year 2010 in calendar year 2016 was driven by a deterioration in loss estimates for the 2010 New Zealand earthquake. Negative IBNRs can be a feature for claims arising from Property exposure due to overestimated case reserves.
All liabilities before 2007 125 Liabilities for claims and claim adjustment expenses, net of reinsurance 5 454
The increase in incurred losses for accident year 2015 compared to other years is due to an increase in volume of business written. Liabilities before 2007 include reserves for historic US Asbestos and Environmental losses. In line with the Grouṕ s policy, cash flows under loss portfolio transfers are reported through claims paid. For longer tail lines and depending on the business volume written, timing of cash flows can lead to net inward payments across the whole portfolio in the first development year of the contract for some accident years.
All liabilities before 2007 3 125 Liabilities for claims and claim adjustment expenses, net of reinsurance 4 652
Claims development in non-proportional motor business is considered long-tailed as it is dominated by liability exposures leading to bodily injury claims which pay out for the lifetime of the claimant. For accident year 2011, negative claims paid in the first year are due to the commutation of external retrocession on acquired retroactive business. In line with the Group’s policy, cash flows under loss portfolio transfers are reported through claims paid. For longer tail lines and depending on the business volume written, timing of cash flows can lead to net inward payments across the whole portfolio in the first development year of the contract for some accident years.
Claims incurred increased due to general volume growth from accident year 2012 to 2016. Change in claim counts in 2013 and 2014 relate mostly to agriculture business written in 2013, leading to high claim counts in those years. Adverse experience for accident year 2015 is mainly due to a few large loss developments in casualty.
All liabilities before 2012 716 Liabilities for claims and claim adjustment expenses, net of reinsurance 4 598
All liabilities before 2008 272 Liabilities for Life and Health claims and claim adjustment expenses, net of reinsurance 1 861
Unallocated reinsurance recoverable on unpaid claims includes reinsurance recoverable which cannot be allocated on a reasonable basis to disaggregation categories used to present claims development information
Net outstanding liabilities Property & Casualty Reinsurance: Liability, proportional 5 752 Liability, non-proportional 9 687 Accident & Health 4 652 Motor, proportional 2 951 Motor, non-proportional 4 949
Allocated reinsurance recoverables on unpaid claims Property & Casualty Reinsurance: Property 378 Liability, proportional 426 Liability, non-proportional 364 Accident & Health 247 Motor, proportional 87 Motor, non-proportional 237 Specialty 286
Corporate Solutions 5 156 Life & Health Reinsurance, long tail Consolidation –4 087 Impact of acquisition accounting –157 Other short duration contract lines 417 Unallocated reinsurance recoverable on unpaid claims 394 Total short duration reinsurance recoverable on outstanding liabilities 3 748
Exclusions Unallocated claim adjustment expenses 824 Long duration contracts 7 825 Total other reconciling items 8 649
Carrying amount of discounted claims 1 158 1 117 Aggregate amount of the discount –281 –241 Interest accretion1 24 27 Range of interest rates 2.5%–3.7% 3.1%–3.6%
FINANCIAL STATEMENTS Notes to the Group financial statements 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
Effect of foreign currency translation –51 –151 –1 –203 2016 USD millions
Opening balance as of 1 January 2 051 3 020 387 13 5 471
Effect of foreign currency translation –21 –136 –1 –158 1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly.
Share in earnings of equity-accounted investees includes an impairment of the carrying amount of an equity-accounted investee of USD 83 million and USD 66 million for 2015 and 2016, respectively.
Realised gains and losses Realised gains and losses for fixed income, equity securities and other investments (excluding unit-linked and with-profit business) were as follows: USD millions 2015 2016
Equity securities 105 98 Policy loans, mortgages and other loans 128 156 Investment real estate 158 184 Short-term investments 77 54 Other current investments 155 153 Share in earnings of equity-accounted investees 52 41 Cash and cash equivalents 35 28 Net result from deposit-accounted contracts 95 118 Deposits with ceding companies 462 441
Investment expenses –362 –397 Interest charged for funds held –22 –21 Net investment income – non-participating business 3 436 3 661
Equity securities available-for-sale: Gross realised gains 372 371 Gross realised losses –69 –122
Net investment result on unit-linked and with-profit business credited to policyholders was as follows: Impairment on fixed income securities related to credit losses Other-than-temporary impairments for debt securities are bifurcated between credit and non-credit components, with the credit component recognised through earnings and the non-credit component recognised in other comprehensive income. The credit component of other-than-temporary impairments is defined as the difference between a security’s amortised cost basis and the present value of expected cash flows. Methodologies for measuring the credit component of impairment are aligned to market observer forecasts of credit performance drivers. Management believes that these forecasts are representative of median market expectations.
Investment income – fixed income securities 90 77 100 134 Investment income – equity securities 556 28 735 69
Total investment income – unit-linked and with-profit business 678 121 863 216 Realised gains/losses – fixed income securities –75 –58 135 174 Realised gains/losses – equity securities 124 –19 3 631 321 Realised gains/losses – other 28 15 53 –11 Total realised gains/losses – unit-linked and with-profit business 77 –62 3 819 484 Total net investment result – unit-linked and with-profit business 755 59 4 682 700
Mortgage- and asset-backed securities 4 900 125 –30 –5 4 990 Fixed income securities available-for-sale 85 171 6 136 –721 –5 90 581 Equity securities available-for-sale 2 897 561 –83 3 375 222 Swiss Re 2016 Financial Report
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 2015 and 2016, USD 12 725 million and USD 14 640 million, respectively, of fixed income securities available-for-sale were callable.
As of 31 December 2015 and 2016, securities of USD 15 828 million and USD 16 059 million, respectively, were transferred to third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding liabilities of USD 995 million and USD 1 010 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.
Collateral accepted which the Group has the right to sell or repledge As of 31 December 2015 and 2016, the fair value of the equity securities, government and corporate debt securities received as collateral was USD 7 030 million and USD 7 666 million, respectively. Of this, the amount that was sold or repledged as of 31 December 2015 and 2016 was USD 2 429 million and USD 3 469 million, respectively. The sources of the collateral are securities borrowing, reverse repurchase agreements and derivative transactions.
Total investments for unit-linked and with-profit business 25 327 2 914 27 083 5 095
Mortgage- and asset-backed securities with no fixed maturity 4 723 4 800 4 580 4 667 Total fixed income securities available-for-sale 76 155 79 435 85 171 90 581
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 it has been 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”, “Investments for unit-linked and with-profit business” and “Accrued expenses and other liabilities”.
Gross amount of recognised liabilities for repurchase agreements and securities lending 5 310
States of the United States and political subdivisions of the states 494 18 8 2 502 20
Mortgages, loans and real estate As of 31 December, the carrying values of investments in mortgages, policy and other loans, and real estate (excluding unit-linked and with-profit business) were as follows: The fair value of mortgage loans as of 31 December 2015 and 2016 was USD 1 946 million and USD 2 411 million, respectively. The fair value of other loans as of 31 December 2015 and 2016 was USD 1 086 million and USD 1 202 million, respectively. The fair value of the real estate as of 31 December 2015 and 2016 was USD 3 211 million and USD 3 576 million, respectively. The carrying value of policy loans approximates fair value.
Certain financial instruments are classified within level 3 of the fair value hierarchy because they trade infrequently and therefore have little or no price transparency. Such instruments include private equity, less liquid corporate debt securities and certain asset-backed securities. Certain over-the-counter (OTC) derivatives trade in less liquid markets with limited pricing information, and the determination of fair value for these derivatives is inherently more difficult. Such instruments are classified within level 3 of the fair value hierarchy. Pursuant to the election of the fair value option, the Group classifies certain liabilities for life and health policy benefits in level 3 of the fair value hierarchy. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads, and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management’s best estimate is used.
The category “Other invested assets” includes the Group’s private equity and hedge fund investments which are made directly or via ownership of funds. 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 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). These investments are included under investments measured at net asset value as a practical expedient.
The Group holds both exchange-traded and OTC interest rate, foreign exchange 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 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).
Assets Fixed income securities held for proprietary investment purposes 12 900 69 038 393 82 331
Debt securities issued by US government and government agencies 12 900 1 922 14 822 US Agency securitised products 2 952 2 952 Debt securities issued by non-US governments and government agencies 27 877 27 877
Liabilities for life and health policy benefits –165 –165 Accrued expenses and other liabilities –812 –2 524 –3 336 Total liabilities at fair value –836 –4 098 –746 1 477 –4 203 1 The netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists between two counterparties. A master netting agreement provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the termination of any one contract.
FINANCIAL STATEMENTS Notes to the Group financial statements 2016 USD millions
Debt securities issued by US government and government agencies 13 078 2 076 15 154 US Agency securitised products 3 423 3 423 Debt securities issued by non-US governments and government agencies 29 797 29 797
Liabilities for life and health policy benefits –144 –144 Accrued expenses and other liabilities –384 –4 084 –4 468 Total liabilities at fair value –389 –6 025 –808 1 568 –5 654 1 The netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists between two counterparties. A master netting agreement provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the termination of any one contract.
Realised/unrealised gains/losses: Included in net income 4 –12 –2 –10 190 22 212 Included in other comprehensive income –14 –5 –42 –61 0
Closing balance as of 31 December 393 34 447 1 595 2 469 –581 –165 –746 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Closing balance as of 31 December 1 182 4 461 209 496 2 352 –664 –144 –808 1 Impact of ASU 2015-02 (Investment real estate and Derivative liabilities) and ASU 2015-07 (Other invested assets). Please refer to Note 1 for more details. 2 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
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: Quantitative information about level 3 fair value measurements Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows: USD millions 2015 2016
Private placement corporate debt 241 506 Corporate Spread Matrix Credit spread 62 bps–661 bps (181 bps)
Derivative equity contracts 334 341 OTC equity option referencing correlated equity indices 334 341 Proprietary Option Model Correlation –45%–100% (27.5%)1
440–3890 (1896) HDD/CAT2 1 Represents average input value for the reporting period. 2 Heating Degree Days (HDD); Cumulative Average Temperature (CAT).
Sensitivity of recurring level 3 measurements to changes in unobservable inputs The significant unobservable input used in the fair value measurement of the Group’s private placement corporate debt securities is credit spread. A significant increase (decrease) in this input in isolation would result in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value measurement of the Group’s private placement credit tenant leases is illiquidity premium. A significant increase (decrease) in this input in isolation would result in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value measurement of the Group’s infrastructure loans is valuation spread. A significant increase (decrease) in this input in isolation would result in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Group’s weather contracts are risk margin, correlation, volatility and index value. Where the Group has a long position, a significant increase (decrease) in the risk margin input in isolation would result in a significantly higher (lower) fair value measurement. Where the Group has a long volatility or correlation position, a significant increase (decrease) in the correlation and volatility inputs would result in a significantly higher (lower) fair value measurement. Where the Group has a long index position, an increase (decrease) in the index value input in isolation would result in a significantly higher (lower) fair value measurement. Where the Group has a short position, a significant increase (decrease) in the risk margin input in isolation would result in a significantly lower (higher) fair value measurement. Where the Group has a short volatility or correlation position a significant increase (decrease) in the correlation and volatility inputs would result in a significantly lower (higher) fair value measurement. Where the Group has a short index position, an increase (decrease) in the index value input in isolation would result in a significantly lower (higher) fair value measurement.
Other invested assets measured at net asset value Other invested assets measured at net asset value as of 31 December were as follows: The hedge fund investments employ a variety of strategies, including global macro, relative value, event-driven and long/short equity across various asset classes.
Other derivative liabilities For operational efficiencies, the Group elected the fair value option on a hybrid financial instrument, where the host contract is a debt instrument and the embedded derivative is pegged to the performance of the fund’s real estate portfolio. The liability is carried at fair value and changes in fair value are reported as a component of earnings. In the balance sheet and the following fair value disclosures, this item is included under “Accrued expenses and other liabilities”.
Private equity funds 686 562 125 non-redeemable n.a. Hedge funds 135 106 redeemable1 45‒95 days2
Assets and liabilities measured at fair value pursuant to election of the fair value option Pursuant to the election of the fair value option for the items described, the balances as of 31 December were as follows: Changes in fair values for items measured at fair value pursuant to election of the fair value option Gains/losses included in earnings for items measured at fair value pursuant to election of the fair value option including foreign exchange impact for the years ended 31 December were as follows: Fair value changes from other invested assets and funds held by ceding companies are reported in “Net investment income — non-participating business”. Fair value changes from investments for unit-linked and with-profit business are reported in “Net investment result — unit-linked and with-profit”. Fair value changes from accrued expenses and other liabilities are reported in “Net realised investment gains/losses — non-participating business”. Fair value changes from the GMDB reserves are shown in “Life and health benefits”.
Assets of which at fair value pursuant to the fair value option 449 442 Funds held by ceding companies 9 870 8 184 of which at fair value pursuant to the fair value option 245 225 Investments for unit-linked and with-profit business 32 178 of which at fair value pursuant to the fair value option 42 Liabilities Liabilities for life and health policy benefits –30 131 –41 176 of which at fair value pursuant to the fair value option –165 –144 Accrued expenses and other liabilities –9 811 of which at fair value pursuant to the fair value option –161
Other invested assets –32 –19 Funds held by ceding companies 7 6 Investments for unit-linked and with-profit business 9 Liabilities for life and health policy benefits 21 20 Accrued expenses and other liabilities 17 Total –4 33
Investments in real estate are fair valued primarily by external appraisers based on proprietary discounted cash flow models that incorporate applicable risk premium adjustments to discount yields and projected market rental income streams based on marketspecific data. These fair value measurements are classified in level 3 in the fair value hierarchy.
The Group uses a variety of derivative financial instruments including swaps, options, forwards, credit derivatives and exchange- traded financial futures in its trading and hedging strategies, in line with the Group’s overall risk management strategy. The objectives include managing exposure to price, foreign currency and/or interest rate risk on planned or anticipated investment purchases, existing assets or liabilities, as well as locking in attractive investment conditions for future available funds.
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 “Investments for unit-linked and with-profit business”, 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 2015 and 2016.
Amount offset Where a right of set-off exists –1 162 1 162 Due to cash collateral –791 315 Total net amount of derivative financial instruments 760 –702 58 2016 USD millions
Amount offset Where a right of set-off exists –1 122 1 122 Due to cash collateral –458 446 Total net amount of derivative financial instruments 1 221 –1 042 179 240 Swiss Re 2016 Financial Report
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 — non-participating business” and “Net investment result — unit-linked and with-profit business” in the income statement. For the years ended 31 December, the gains and losses of derivative financial instruments not designated as hedging instruments were as follows: 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 2015 and 2016, 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 of its issued debt positions and 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 ― non-participating business” in the income statement. For the years ended 31 December, the gains and losses attributable to the hedged risks were as follows: Cash flow hedges The Group entered into a cross-currency swap to reduce the exposure to foreign exchange and interest rate volatility for a long-term debt instrument issued in the second quarter of 2016. These derivative instruments are designated as cash flow hedging instruments.
As of 31 December 2016, the maximum length of time over which the Group hedged its exposure to the variability in future cash flows for forecasted transactions, excluding those forecasted transactions related to the payment of variable interest on existing financial instruments, was six years.
Derivatives not designated as hedging instruments Interest rate contracts 51 391 Foreign exchange contracts 435 –116 Equity contracts –192 –217 Credit contracts –5 –1 Other contracts 247 181 Total gains/losses recognised in income 536 238
USD millions Gains/losses on derivatives 2015 Gains/losses on hedged items Gains/losses on derivatives 2016 Gains/losses on hedged items
The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 106 million and USD 107 million as of 31 December 2015 and 2016, respectively. For derivative financial instruments containing credit risk-related contingent features, the Group posted collateral of nil as of 31 December 2015 and 2016, respectively. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 107 million additional collateral would have had to be posted as of 31 December 2016. The total equals the amount needed to settle the instruments immediately as of 31 December 2016.
IHC Risk Solutions, LLC On 31 March 2016, the Group acquired IHC Risk Solutions, LLC (IHC), a leading US employer stop loss company and the direct employer stop loss business of Independence Holding Company. The cost of the acquisition was USD 153 million. The transaction includes IHC’s operations, its team of experts and business portfolio, including in-force, new and renewal business and is reflected in the Corporate Solutions Business Unit results. This acquisition broadens the Group’s current employer stop loss capabilities in the small- and middle-market self-funded healthcare benefits segment.
The transaction has further demonstrated progress against the strategy of the Group’s Business Unit Life Capital (formerly Admin Re®) as a leading closed life book consolidator in the UK, adding approximately 900 000 policies including a mixture of annuities, life insurance and pensions. As a result, the policyholder and asset base of the Group has expanded and Life Capital has diversified its current business mix, with a total of approximately four million policies under administration.
Determination and allocation of the purchase price The total cost of acquisition as of 6 January 2016 was USD 2.3 billion in cash, paid in the form of the following components: USD millions Weighted – average amortisation period Carrying value
Share purchase 1 211 Debt repayment 1 118 Total cost of acquisition 2 329 Goodwill 153 Total net assets acquired 2 176
The purchase price has been allocated based on estimated fair values of assets acquired and liabilities assumed as of the date of acquisition. The allocation required significant judgement. The estimated fair values of assets acquired and liabilities assumed as of the date of the acquisition were as follows: USD millions 2016
Total net assets acquired 2 176 1 Due to new information obtained in Q2 2016, based on facts and circumstances existing as of the date of acquisition, reinsurance recoverable and liabilities for life and health policy benefits have been adjusted in Q2 2016 with no impact on goodwill. As of Q1 2016, the estimated reinsurance recoverable and liabilities for life and health policy benefits were USD 1 751 million and USD 16 535 million, respectively.
Receivables Receivables acquired consisted of the following: The receivables are expected to be collectible.
The pro forma financial information are presented for informational purposes and in order to illustrate the financial effect on the Group’s income statement only. Consequently, they neither reflect the results that would have occurred had the acquisition been closed on the assumed date, nor necessarily indicate future results.
Aurora National Life Assurance Company 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. 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.
FINANCIAL STATEMENTS Notes to the Group financial statements 11 Debt and contingent capital instruments
Long-term debt – financial and operational debt 10 978 9 787
USD millions 2015 2016 1 Balance was reclassified to short-term debt.
Maturity Instrument Issued in Currency Nominal in millions Interest rate First call in Book value in USD millions 2024 Subordinated contingent write-off loan note 2013 USD 750 6.38% 2019 795 2042 Subordinated fixed-to-floating rate loan note 2012 EUR 500 6.63% 2022 522 2044 Subordinated fixed rate resettable callable loan note 2014 USD 500 4.50% 2024 497 2045 Subordinated contingent write-off securities 2013 CHF 175 7.50% 2020 195
Subordinated private placement (amortising, limited recourse) 2007 GBP 1 819 4.92% 2 250 Subordinated perpetual loan note 2007 GBP 500 6.30% 2019 617 Perpetual subordinated fixed-to-floating rate callable loan note 2015 EUR 750 2.60% 2025 754
In June 2016, Swiss Re Ltd established a subordinated debt facility with a termination date of 15 August 2027. The facility allows Swiss Re Ltd to issue at any time subordinated fixed-to-floating rate callable notes with a face value of up to USD 800 million, having a first optional redemption date of 15 August 2027 and a scheduled maturity date of 15 August 2052. Swiss Re Ltd pays a fee of 3.67% per annum on the available commitment under the facility. Notes issued under the facility have a fixed coupon of 5.625% per annum until the first optional redemption date and a floating rate coupon thereafter.
In these financial statements, the facility fees are classified as interest expense. Notes, when issued under these facilities, will be classified as subordinated debt. As of 31 December 2016, no notes have been issued under either facility.
Senior financial debt 118 121 Senior operational debt 13 10 Subordinated financial debt 236 179 Subordinated operational debt 137 122 248 Swiss Re 2016 Financial Report
Non-controlling interests –3 3 Interest on contingent capital instruments1 –68 –68 Net income attributable to common shareholders 4 597 3 558 Weighted average common shares outstanding 341 951 654 331 767 651 Net income per share in USD 13.44 10.72 Net income per share in CHF2 12.93 10.55
The tax rate in 2016 was largely driven by benefits from the effective settlement of tax audits in certain jurisdictions and releases of valuation allowance on net operating losses partially offset by tax on profits earned in higher tax jurisdictions. The lower rate in 2015 was largely driven by a tax benefit arising from a local statutory accounting adjustment for restructuring of subsidiaries and higher tax benefits from foreign currency translation differences between statutory and US GAAP accounts.
Current taxes 582 728 Deferred taxes 69 21 Income tax expense 651 749
The Group also had capital loss carryforwards of USD 1 030 million, expiring as follows: USD 82 million in 2019, USD 37 million in 2020, USD 4 million in 2021 and USD 907 million never expire.
Income taxes paid in 2015 and 2016 were USD 1 190 million and USD 755 million, respectively.
Gross deferred tax asset 6 794 6 430 Valuation allowance –789 –505 Unrecognised tax benefits offsetting benefits on loss carryforwards –35 –23 Total deferred tax assets 5 970 5 902
Deferred tax liabilities Present value of future profits –514 –336 Income accrued/deferred –923 –600 Bond amortisation –639 –124 Deferred acquisition costs –914 –961 Technical provisions –2 685 –3 547 Unrealised gains on investments –702 –1 072 Untaxed realised gains –224 –393 Foreign exchange provisions –352 –527 Other –760 –778 Total deferred tax liabilities –7 713 –8 338
Liability for unrecognised tax benefits including interest and penalties –380 –245 Total deferred and other non-current tax liabilities –8 093 –8 583
The balance of gross unrecognised tax benefits as of 31 December 2016 presented in the table above excludes accrued interest and penalties (USD 52 million).
During the year, certain tax positions and audits in Switzerland, Germany, Italy, France, United Kingdom, Canada and the United States were effectively settled.
The following table summarises jurisdictions and tax years that remain subjects to examination: USD millions 2015 2016
Australia 2010–2016 Japan 2012–2016 Belgium 2010–2016 Korea 2013–2016 Brazil 2011–2016 Luxembourg 2012–2016 Canada 2008–2016 Malaysia 2013–2016 China 2007–2016 Mexico 2011–2016 Colombia 1999, 2009, 2014–2016 Netherlands 2012–2016 Denmark 2010–2016 New Zealand 2009–2016 France 2008,2012–2016 Singapore 2013–2016 Germany 2014–2016 Slovakia 2012–2016 Hong Kong 2010–2016 South Africa 2011–2016 India 2004–2016 Spain 2011–2016 Ireland 2012–2016 Switzerland 2013–2016 Israel 2008–2016 United Kingdom 2008, 2011–2016 Italy 2012–2016 United States 2011–2016 252 Swiss Re 2016 Financial Report
Benefit obligation as of 1 January 3 877 2 206 363 6 446
Fair value of plan assets as of 1 January 3 479 2 235 0 5 714 Actual return on plan assets 128 256 384
Benefits paid –140 –72 –16 –228 Employee contribution 25 25 Acquisitions/disposals/additions 0 Effect of settlement, curtailment and termination 1 1 Effect of foreign currency translation –56 –224 –280 Fair value of plan assets as of 31 December 3 532 2 257 0 5 789 Funded status –384 –101 –369 –854
Non-current assets 232 232 Current liabilities –3 –15 –18 Non-current liabilities –398 –200 –348 –946 Net amount recognised –398 29 –363 –732
Non-current assets 140 140 Current liabilities –2 –15 –17 Non-current liabilities –384 –239 –354 –977 Net amount recognised –384 –101 –369 –854 254 Swiss Re 2016 Financial Report
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows: Components of net periodic benefit cost The components of pension and post-retirement cost for the years ended 31 December were as follows: USD millions Swiss plan Foreign plans Other benefits Total
The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 6 016 million and USD 6 205 million as of 31 December 2015 and 2016, respectively.
Net gain/loss 313 21 –2 332 Amortisation of: Net gain/loss –76 –22 4 –94
Assumed medical trend rates at year end Medical trend – initial rate 6.1% 5.1% Medical trend – ultimate rate 4.6% 3.8% Year that the rate reaches the ultimate trend rate 2020 2021
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 2015 and 2016 was as follows: Actual asset allocation is determined by a variety of current economic and market conditions and considers specific asset class risks.
Swiss plan allocation Foreign plans allocation 2015 2016 Target allocation 2015 2016 Target allocation
Assets Fixed income securities: Debt securities issued by the US government and government agencies 34 149 183 Debt securities issued by non-US governments and government agencies 799 799
Residential mortgage-backed securities 16 16 Commercial mortgage-backed securities 1 1 Other asset-backed securities 4 4
Assets Fixed income securities: Debt securities issued by US government and
Debt securities issued by non-US governments and government agencies 348 348
Assets measured at fair value using significant unobservable inputs (level 3) For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs were as follows: Expected contributions and estimated future benefit payments The employer contributions expected to be made in 2017 to the defined benefit pension plans are USD 151 million and to the post-retirement benefit plan are USD 15 million.
Purchases, issuances and settlements 12 6 18 Transfers in and/or out of level 3 0 Impact of foreign exchange movements –4 –7 –11 Closing balance as of 31 December 596 142 738
Total compensation cost for share-based compensation plans recognised in net income was USD 61 million and USD 66 million in 2015 and 2016, respectively. The related tax benefit was USD 13 million and USD 14 million, respectively.
A summary of the activity of the Group’s stock option plans for the year ended 31 December 2016 is as follows: The total intrinsic value of the options sold was CHF 1 million. The fair value of the option grant was estimated on the date of grant using a binomial option-pricing model. The underlying strike price for the outstanding options has been adjusted for the special dividend payout in 2013, 2014 and 2015.
Outstanding as of 1 January 82 100 000 Options sold 82 –100 000 Outstanding as of 31 December 0 Exercisable as of 31 December 0
Weighted average grant date fair value in CHF1 Number of shares
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, LPP 2015 and LPP 2016 awards, an additional two-year holding period applies for all members of the Group EC and other key executives. 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.
The fair value assumptions included in the grant valuation are based on market estimates for dividends (and an additional special dividend of CHF 4.00 for the LPP 2013, a special dividend of CHF 4.15 for the LPP 2014, and a special dividend of CHF 3.00 for the LPP 2015 respectively) and the risk free rate based on the average of the 5-year US government bond rate (for LPP 2013, LPP 2014 and LPP 2015) and the average of the 10-year US government bond rate (for LPP 2016) taken monthly over each year in the performance period. This resulted in risk free rates between 1.0% and 3.1% for all LPP plans.
For the year ended 31 December 2016, the outstanding units were as follows: Unrecognised compensation costs As of 31 December 2016, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based compensation awards was USD 57 million and the weighted average period over which that cost is expected to be recognised is 1.9 years.
The number of shares authorised for the Group’s share-based payments to employees was 3 554 592 and 3 665 794 as of 31 December 2015 and 2016, respectively. The Group’s policy is to ensure that sufficient treasury shares are available at all times to settle share-based compensation plans.
The disclosure requirements under Swiss Company Law in respect of compensation and loans to the members of the Board of Directors and of the Group Executive Committee, as well as closely related persons, are detailed in the Compensation report on pages 155–160 of the Financial Report of the Swiss Re Group.
Contributions made to defined benefit pension plans and post-retirement benefit plans are disclosed in Note 14 Benefit plans. Plan assets of the defined benefit pension plans include Swiss Re common stock of USD 6 million (0.1% of total plan assets) and USD 7 million (0.1% of total plan assets) as of 31 December 2015 and 2016, respectively.
Share in earnings and dividends received from equity-accounted investees for the years ended 31 December, were as follows: USD millions 2015 2016
Other commitments As a participant in limited and other investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnerships for periods of up to ten years. The total commitments remaining uncalled as of 31 December 2016 were USD 1 234 million.
Legal proceedings In the normal course of business operations, the Group is involved in various claims, lawsuits and regulatory matters. In the opinion of management, the disposition of these matters is not expected to have a material adverse effect on the Group’s business, consolidated financial position, results of operations or cash flows.
Total operating lease commitments 597 Less minimum non-cancellable sublease rentals 23 Total net future minimum lease commitments 574 266 Swiss Re 2016 Financial Report
Method of consolidation fv fair value 1 Net asset value instead of share capital
Ireland Ark Life Assurance Company dac, Dublin EUR 19 100 f
Bermuda CORE Reinsurance Company Limited, Hamilton USD 0 100 f Swiss Re Global Markets Limited, Hamilton USD 0 100 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 671 100 f Swiss Re Strategic Investments UK Limited, George Town GBP 0 100 f
Colombia Compañía Aseguradora de Fianzas S.A. Confianza, Bogotá COP 224 003 51 f 268 Swiss Re 2016 Financial Report
United States Claret Re Inc., Burlington USD 5 100 f Facility Insurance Holding Corporation, Dallas USD 0 100 f First Specialty Insurance Corporation, Jefferson City USD 5 100 f North American Capacity Insurance Company, Manchester USD 4 100 f North American Elite Insurance Company, Manchester USD 4 100 f North American Specialty Insurance Company, Manchester USD 13 100 f Pecan Re Inc., Burlington USD 5 100 f Pillar RE Holdings LLC, Wilmington USD 0 100 f SR Corporate Solutions America Holding Corporation, Wilmington USD 0 100 f Sterling Re Inc., Burlington USD 219 100 f Swiss Re America Holding Corporation, Wilmington USD 0 100 f Swiss Re Capital Markets Corporation, New York USD 0 100 f Swiss Re Corporate Solutions Global Markets Inc., New York USD 0 100 f Swiss Re Financial Markets Corporation, Wilmington USD 0 100 f Swiss Re Financial Products Corporation, Wilmington USD 2 116 100 f Swiss Re Life & Health America Holding Company, Wilmington USD 0 100 f Swiss Re Life & Health America Inc., Jefferson City USD 4 100 f Swiss Re Management (US) Corporation, Wilmington USD 0 100 f Swiss Re Partnership Holding, LLC, Dover USD 308 100 f Swiss Re Risk Solutions Corporation, Wilmington USD 0 100 f Swiss Re Treasury (US) Corporation, Wilmington USD 0 100 f Swiss Reinsurance America Corporation, Armonk USD 10 100 f Washington International Insurance Company, Manchester USD 4 100 f Westport Insurance Corporation, Jefferson City USD 6 100 f
South Africa Swiss Re Life and Health Africa Limited, Cape Town ZAR 2 100 f
The Group enters into arrangements with VIEs in the normal course of business. The involvement ranges from being a passive investor to designing, structuring and managing the VIEs. The variable interests held by the Group arise primarily as a result of the Group’s involvement in certain insurance-linked securitisations, life and health funding transactions, swaps in trusts, debt financing, investment, senior commercial mortgage and infrastructure loans as well as other entities, which meet the definition of a VIE.
The party that has a controlling financial interest is called a primary beneficiary and consolidates the VIE. The party is deemed to have a controlling financial interest if it has both of the following:
̤ the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and ̤ the obligation to absorb the entity’s losses that could potentially be significant to the VIE or the right to receive benefits from
The Group consolidates a debt-financing vehicle created to borrow locally part of the funding for a strategic investment. The Group established and capitalised the entity, decided terms of its debt and provides debt guarantee to the lender, thereby satisfying both criteria for a controlling financial interest: power over activities most significant to the vehicle’s economic performance and potentially significant economic interest.
As part of a broader run-off transaction, the Group holds equity in and borrows funds from a VIE. The assets held by the VIE consist primarily of investment grade securities and the majority of their returns is absorbed by a third party, minimising the Group’s maximum exposure. The Group is not a primary beneficiary of the VIE, because it does not have power over most significant activities of the VIE and its interests are not potentially significant.
The Group’s variable interests in investment partnerships arise through ownership of the limited partner interests. Many investment partnerships are VIEs under ASU 2015-02, because the limited partners as a group lack kick-out or participating rights. The Group does not hold the general partner interest in the limited partnerships and therefore does not direct investment activities of the entity. Therefore, the Group lacks power over the relevant activities of the vehicles and, consequently, does not qualify as the primary beneficiary. The Group is exposed to losses when the values of the investments held by the investment vehicles decrease. The Group’s maximum exposure to loss equals the Group’s share of the investment.
Investment vehicles (unit-linked business) Additionally, the Group invests on behalf of the policyholders as a passive investor in a variety of investment funds across various jurisdictions. By design, many of these funds meet a VIE definition. While the Group may have a potentially significant variable interest in some of these entities due to its share of the fund’s total net assets, it never has power over the fund’s investment decisions, or unilateral kick-out rights relative to the decision maker.
Fixed income securities available-for-sale 3 876 3 715 Investment real estate 209 Short-term investments 88 128 Other invested assets 26 Cash and cash equivalents 147 42 Accrued investment income 42 33 Premiums and other receivables 34 33 Deferred acquisition costs 9 9 Deferred tax assets 38 94 Other assets 8 12
Unpaid claims and claim adjustment expenses 53 65 Unearned premiums 26 25 Reinsurance balances payable 2 6 Deferred and other non-current tax liabilities 96 213 Accrued expenses and other liabilities 17 178
Investments for unit-linked and with-profit business 8 770 Premiums and other receivables 3
Life and health funding vehicles 2 1 1 777 2 1 1 948
Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the consolidated financial statements of Swiss Re Ltd and its subsidiaries (the ‘Company’), which comprise the consolidated balance sheet as of 31 December 2016, and the related consolidated income statement, statement of comprehensive income, statement of shareholders’ equity, statement of cash flow and notes (pages 164 to 274) for the year ended 31 December 2016.
In relation to the matters set out opposite, our substantive testing procedures included the following: ̤ Evaluating the methodology and assumptions, in particular,
the yield curves, discounted cash flows, perpetual growth rates and liquidity premiums used in the valuation models.
̤ Testing the operation of data integrity and change management controls relating to the models.
The valuation of actuarially determined P&C loss reserves involves a high degree of subjectivity and complexity. Reserves for losses and loss adjustment expenses represent estimates of future payments of reported and unreported claims for losses and related expenses at a given date. The Company uses a range of actuarial methodologies and methods to estimate these provisions. 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 assumptions include, but are not limited to, interest rates, inflation trends, claims trends, regulatory decisions, historical claims information and the growth of exposure.
In relation to the matters set out opposite, our substantive testing procedures included the following: ̤ Testing the completeness and accuracy of underlying
̤ Assessing the process and related judgements of management in relation to natural catastrophes and other large losses, including using our industry knowledge to assess the reasonableness of market loss estimates and other significant assumptions.
How our audit addressed the key audit matter We assessed and tested the design and operating effectiveness of selected key controls relating to the application of actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by management in the valuation of actuarially determined L&H reserves.
data by vouching against the source documentation. ̤ Testing the migration of actuarial data from legacy systems
and/or spreadsheets to the new actuarial systems for completeness and accuracy.
̤ Challenging the Company’s methodology and methods, focusing on changes to L&H actuarial methodology and methods during the year, by applying our industry knowledge and experience to check whether the methodology and methods are consistent with recognised actuarial practices and reporting requirements.
On the basis of the work performed, we consider that the methodology, assumptions and underlying data used in the valuation of actuarially determined L&H reserves to be reasonable and in line with financial reporting requirements and accepted industry practice.
In relation to the matters set out opposite, our substantive testing procedures included the following: ̤ Critically reviewing the ‘more-likely-than-not’ tax
̤ Assessing how the Company had considered new information or changes in tax law or case law, and assessing the Company’s judgement of how these impact the Company’s position or measurement of the required provision.
Expenses Claims and claim adjustment expenses –10 035 –9 222 –8 336 –7 254 –8 810 –7 763 –9 655 –10 577 –9 848 –12 564
Net realised investment gains/losses –615 –8 677 875 2 783 388 2 688 3 325 1 059 1 220 5 787
Other operating costs and expenses –4 900 –4 358 –3 976 –3 620 –3 902 –3 953 –4 268 –3 876 –3 882 –3 964
Interest on contingent capital instruments –203 –1 117 –56 –67 –69 –68 –68 Net income/loss attributable to common shareholders 3 460 –663 496 863 2 626 4 201 4 444 3 500 4 597 3 558
Earnings/losses per share in USD 9.94 –2.00 1.46 2.52 7.68 11.85 12.97 10.23 13.44 10.72 Earnings/losses per share in CHF 11.95 –2.61 1.49 2.64 6.79 11.13 12.04 9.33 12.93 10.55 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.
The Company earned trademark licence fees of CHF 339 million and other revenues of CHF 263 million, mainly consisting of net realised foreign exchange gains of CHF 252 million. In addition, the Company incurred administrative expenses of CHF 147 million, of which CHF 143 million were charges for services provided by Swiss Re Management Ltd and Swiss Reinsurance Company Ltd, and other expenses of CHF 70 million, due to financing costs related to subordinated debt facilities of CHF 63 million and capital and indirect taxes of CHF 7 million.
Assets Total assets increased from CHF 21 840 million as of 31 December 2015 to CHF 23 173 million as of 31 December 2016.
Current assets decreased by CHF 683 million to CHF 3 596 million as of 31 December 2016, mainly driven by a decrease in short-term investments due to the funding of the acquisition of Guardian Financial Services.
Share capital decreased by CHF 1 million to CHF 36 million as of 31 December 2016 and legal profit reserves decreased by CHF 903 million to CHF 8 265 million as of 31 December 2016 resulting from the cancellation of own shares.
Legal capital reserves decreased by CHF 65 million to CHF 192 million as of 31 December 2016 due to the cancellation of own shares of CHF 96 million, partially offset by net realised gains on sale of own shares of CHF 31 million.
Income before income tax expense 3 892 3 997 Income tax expense –27 –25
The accompanying notes are an integral part of Swiss Re Ltd’s financial statements.
Non-current assets Loans to subsidiaries and affiliated companies 0 103 Investments in subsidiaries and affiliated companies 5 17 561 19 474 Total non-current assets 17 561 19 577 284 Swiss Re 2016 Financial Report
Liabilities Short-term liabilities Payables to subsidiaries and affiliated companies 0 40 Other liabilities and accrued expenses 118 199 Total short-term liabilities 118 239
Basis of presentation The financial statements are prepared in accordance with Swiss Company Law.
Use of estimates in the preparation of annual accounts The preparation of the annual accounts requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the related disclosures. Actual results could differ from these estimates.
Investments in subsidiaries and affiliated companies These assets are carried at cost, less necessary and legally permissible depreciation.
As of 31 December 2016, securities of CHF 1 034 million were lent to Group companies under securities lending agreements, whereas in 2015 securities of CHF 545 million were lent to Group companies. As of 31 December 2016 and 2015, there were no securities lent to third parties.
In November 2015, the Company established a subordinated debt facility with a termination date of 15 August 2025. The facility allows the Company to issue at any time subordinated fixed-to-floating rate callable notes with a face value of up to USD 700 million, having a first optional redemption date of 15 August 2025 and a maturity date of 15 August 2050. The Company pays a fee of 3.53% per annum on the available commitment under the facility. Notes issued under the facility have a fixed coupon of 5.75% per annum until the first optional redemption date. Notes, when issued under the facility, will be classified as subordinated debt. As of 31 December 2016, no notes have been issued under the facility.
In November 2015, the Company entered into a subordinated funding facility with its subsidiary Swiss Reinsurance Company Ltd under which Swiss Reinsurance Company Ltd has the right, among others, to issue subordinated notes to the Company of up to USD 700 million at any time before August 2030. For its various rights, Swiss Reinsurance Company Ltd owes the Company an unconditional fixed commitment fee, payable in annual instalments calculated as 5.80% on the total facility amount. Annually, Swiss Reinsurance Company Ltd receives a partial reimbursement of the commitment fee equal to 2.22% per annum on the undrawn facility amount. As of 31 December 2016, the facility was undrawn.
In April 2016, the Company established a subordinated debt facility with a termination date of 15 February 2031. The facility allows the Company to issue at any time subordinated fixed rate callable notes with a face value of up to USD 400 million, having a first optional redemption date of 15 February 2031 and a scheduled maturity date of 15 February 2056. The Company pays a fee of 3.92% per annum on the available commitment under the facility. Notes issued under the facility have a fixed coupon of 6.05% per annum. Notes, when issued under the facility will be classified as subordinated debt. As of 31 December 2016, no notes have been issued under the facility.
In April 2016, the Company entered into a subordinated funding facility with its subsidiary Swiss Reinsurance Company Ltd under which Swiss Reinsurance Company Ltd has the right, among others, to issue subordinated notes to the Company of up to USD 400 million at any time before February 2036. For its various rights, Swiss Reinsurance Company Ltd owes the Company an unconditional fixed commitment fee, payable in annual instalments calculated as 6.10% on the total facility amount. Annually, Swiss Reinsurance Company Ltd receives a partial reimbursement of the commitment fee equal to 2.13% per annum on the undrawn facility amount. As of 31 December 2016, the facility was undrawn.
In June 2016, the Company established a subordinated debt facility with a termination date of 15 August 2027. The facility allows the Company to issue at any time subordinated fixed-to-floating rate callable notes with a face value of up to USD 800 million, having a first optional redemption date of 15 August 2027 and a scheduled maturity date of 15 August 2052. The Company pays a fee of 3.67% per annum on the available commitment under the facility. Notes issued under the facility have a fixed coupon of 5.625% per annum until the first optional redemption date and a floating rate coupon thereafter. Notes, when issued under the facility will be classified as subordinated debt. As of 31 December 2016, no notes have been issued under the facility.
Allocations relating to the dividend paid 3 865 –3 865 0 Dividend for the financial year 2015 –1 525 –1 525 Net income for the financial year 3 972 3 972 Share buy-back programme 20151 –570 –570
Share buy-back programme 20162 –521 –521 Other movements in own shares 31 –1 –34 –4
Allocations relating to the dividend paid –2 490 6 600 –4 110 0 Dividend for the financial year 2014 –2 490 –2 490 Net income for the financial year 3 865 3 865 Share buy-back programme 20151 –430 –430 Other movements in own shares 65 –9 9 –44 21 1 At the 151st Annual General Meeting held on 21 April 2015, the Group’s shareholders authorised the Group Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of the Group’s own shares prior to the 2016 Annual General Meeting through a public share buy-back programme for cancellation purposes. The buy-back programme was completed on 2 March 2016. The total number of shares repurchased amounted to 10.6 million, of which 4.4 million and 6.2 million shares were repurchased by 31 December 2015 and between 1 January and 2 March 2016, respectively. On 22 April 2016, the 152nd Annual General Meeting resolved the cancellation of the repurchased 10.6 million shares by way of share capital reduction. The shares were cancelled on 18 July 2016, after completion of the procedure in respect of a share capital reduction as set forth in Article 732 et seqq. of the Swiss Code of Obligation.
2 At the 152nd Annual General Meeting held on 22 April 2016, the Group’s shareholders authorised the Group Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of the Group’s own shares prior to the 2017 Annual General Meeting through a public share buy-back programme for cancellation purposes.
As of 31 December 2016, 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 2016, directly and indirectly 34 093 834 (2015: 32 967 226) own shares, representing 9.47% (2015: 8.89%) of voting rights and share capital. Swiss Re Ltd cannot exercise the voting rights of own shares held.
10 Legal reserves from capital contributions 11 Release of undisclosed reserves
Opening balance of legal reserves from capital contributions 2 682 192 Reclassification to voluntary profit reserves for dividend payments –2 490 0 Legal reserves from capital contributions as of 31 December 192 192 thereof confirmed by the Swiss Federal Tax Administration1 1 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.
Share ownership The number of shares held as of 31 December were: Members of the Group EC 2015 2016
2 Term of office expired at the AGM of 22 April 2016 and did not stand for re-election. 3 Elected to Swiss Re’s Board of Directors at the AGM of 21 April 2015. 4 Elected to Swiss Re’s Board of Directors at the AGM of 22 April 2016.
Renato Fassbind, Vice Chairman, Chairman of the Audit Committee3 350 3 955 359 4 110 Raymund Breu, former Member4 36 403 n/a n/a
Jean-Pierre Roth, former Member5 107 1 209 33 380 Philip K. Ryan, Chairman of the Finance and Risk Committee6 168 1 894 239 2 740 Sir Paul Tucker, Member7 n/a n/a 91 1 036 Susan L. Wagner, Chairman of the Investment Committee 197 2 218 229 2 626 1 Represents the portion (40%) of the total fees for the members of the Board of Directors that is delivered in Swiss Re Ltd shares, with a four-year blocking period. 2 The number of shares is calculated by dividing the portion (40%) of the total fees with the average closing price of the shares on the SIX Swiss Exchange during the ten trading days preceding the AGM less the amount of any dividend resolved by the AGM. 3 Acting also as the Lead Independent Director. 4 Term of office expired at the AGM of 21 April 2015 and did not stand for re-election. 5 Term of office expired at the AGM of 22 April 2016 and did not stand for re-election. 6 Elected to Swiss Re’s Board of Directors at the AGM of 21 April 2015. 7 Elected to Swiss Re’s Board of Directors at the AGM of 22 April 2016.
Vested options For the years ended 31 December 2015 and 2016, neither the members of the Board of Directors nor the members of the Group EC held any vested options.
Proposal for allocation of disposable profit The Board of Directors proposes to the Annual General Meeting to be held in Zurich on 21 April 2017 to approve the following allocations and dividend payment: Dividend If the Board of Directors’ proposal for allocations and dividend payment is accepted, an ordinary dividend of CHF 4.85 per share will be paid on 27 April 2017 from voluntary profit reserves.
Voluntary profit reserves brought forward 9 550 11 890 Allocation from retained earnings 3 865 3 972 Ordinary dividend payment out of voluntary profit reserves –1 5251 –1 5812
Voluntary profit reserves after allocation and dividend payment 11 890 14 281 1 Since the Board of Directors’ proposal for allocation of disposable profit, included in the Annual Report 2015, the number of registered shares eligible for dividend, at the dividend payment date of 28 April 2016, decreased due to the share buy-back programme of 6 214 370 shares and transfer of 39 300 shares for employee participation purposes from not eligible to eligible for dividend. This resulted in a lower dividend of CHF 29 million, compared to the Board of Directors’ proposal, and higher voluntary profit reserves by the same amount.
2 The Board of Directors’ proposal to the Annual General Meeting of 21 April 2017, is subject to the actual number of shares outstanding and eligible for dividend.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the 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 of the 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 the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements for the year ended 31 December 2016 comply with Swiss law and the Company’s Articles of Association.
In the current year, the Company provided capital contributions to a subsidiary for the funding of acquisitions; as a result, the underlying business structure was newly set up in the business year. Accordingly, the approach to determining fair value for the impairment assessment for this particular subsidiary was revised by management.
̤ Assessing whether the model applied for each subsidiary is reasonable.
On the basis of the work performed, we consider the methods and assumptions used by management to be reasonable. We agree with their conclusion that the book value for all investments in subsidiaries is recoverable.
Headquartered in Zurich, Switzerland, Swiss Re has operations across the globe. Our success is built on our solid client relationships, capital strength and risk knowledge company approach. We make the world more resilient.
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.
Such factors include, among others: ̤ further instability affecting the global financial system and developments related thereto; ̤ further deterioration in global economic conditions; ̤ the Group’s ability to maintain sufficient liquidity and access to capital markets, including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls due to actual or perceived deterioration of the Group’s financial strength or otherwise; ̤ the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on the Group’s investment assets; ̤ changes in the Group’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions; ̤ uncertainties in valuing credit default swaps and other credit-related instruments; ̤ possible inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their mark-to-market values recorded for accounting purposes; ̤ the outcome of tax audits, the ability to realise tax loss carryforwards and the ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings; ̤ the possibility that the Group’s hedging arrangements may not be effective; Forward-looking statements typically are identified by words or phrases such as “anticipate”, “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase” and “may fluctuate” and similar expressions or by future or conditional verbs such as “will”, “should”, “would” and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the Group’s actual results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects to be materially different from any future results of operations, financial condition, solvency ratios, capital or liquidity positions or prospects expressed or implied by such statements or cause the Group to not achieve its published targets.
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 group supervision and Swiss Re’s subsidiaries are also 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 Group is subject to the Swiss Solvency Test and, through its legal entities organised in the EEA, Solvency II.
There is an evolving focus on classifying certain insurance companies as systemically important as well. The Group could be designated as a global systemically important financial institution (“SIFI”) under the framework for SIFIs developed by the Financial Stability Board, or as a systemically important non-bank financial company by the Financial Stability Oversight Council (“FSOC”) in the United States. Separately, the International Association of Insurance Supervisors, an international body that represents insurance regulators and supervisors, has published and since refined its methodology for identifying global systemically important insurers (“G-SIIs”) and also published a framework for supervision of internationally active insurance groups. If and when reinsurers are included in the list of G-SIIs, the Group could be so designated. Were the Group to be designated as a G-SII, it could be subject to one or both of the resulting regimes, once implemented, including capital standards under both regimes (the basic capital requirement for G-SIIs and the insurance capital standard for internationally active insurance groups), which would have various implications for the Group, including additional compliance costs and reporting obligations as well as heightened regulatory scrutiny in various jurisdictions. In addition, the Group ultimately will be subject to oversight of its Swiss regulator in respect of recovery and resolution planning.
The Group cannot predict which legislative and/or regulatory initiatives 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. The Group may be subject to changes in views of its regulators in respect of the models that the Group uses for capital and solvency purposes, and could be adversely affected if, for example, it is required to use standard models rather than internal models. Generally, legal and regulatory changes could have a material impact on the Group’s business. Uncertainty triggered by the outcome of the UK referendum on EU membership could also impact the legislative and/or regulatory regimes to which the Group is subject, both in the United Kingdom and in the European Union.
Market risk Volatility and disruption in the global financial markets could 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.
The Group is exposed to changes in the level and volatility of equity prices, as they affect the value of equity securities themselves as well as the value of securities or instruments that derive their value from a particular equity security, a basket of equity securities or a stock index. The Group is also subject to equity price risk to the extent that the values of life-related benefits under certain products and life contracts, most notably variable annuity business, are tied to financial market values; to the extent market values fall, the financial exposure on guarantees related to these contracts would increase to the extent this exposure is not hedged. While the Group has an extensive hedging programme covering its existing variable annuity business that it believes is sufficient, certain risks cannot be hedged, including actuarial risks, basis risk and correlation risk. Exposure to foreign exchange risk arises from exposures to changes in spot prices and forward prices as well as to volatile movements in exchange rates.
These risks can have a significant effect on investment returns and market values of securities positions, which in turn may affect both the Group’s results of operations and financial condition. The Group continues to focus on asset-liability management for its investment portfolio, but pursuing even this strategy has its risks — including possible mismatch — that in turn can lead to reinvestment risk. The Group seeks to manage the risks inherent in its investment portfolio by repositioning the portfolio from time to time, as needed, and to reduce risk and fluctuations through the use of hedges and other risk management tools.
Counterparty risks The Group is exposed to the risk of defaults, or concerns about defaults, by its counterparties. Securities trading counterparties, counterparties under swaps and other derivative contracts, and financial intermediaries may default on their obligations due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operational failure, fraud or other reasons, which could have a material adverse effect on the Group.
The Group uses non-GAAP financial measures in its external financial 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 substitutes 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.
The Group also publishes, on an annual basis, a report of its results, including financial statements and an accompanying independent assurance report, prepared in accordance with the Group’s proprietary economic value management (“EVM”) principles (“EVM report”). Financial information included in the EVM report contains non-GAAP financial measures. The EVM principles differ significantly from US GAAP and, accordingly, the Group’s results prepared in accordance with US GAAP will differ from its EVM results, and those differences could be material. The Group’s annual EVM results can be more volatile than the US GAAP results because, among other things, assets and liabilities are measured on a market-consistent basis, profit recognition on new contracts is recognised at inception rather than over the lifetime of the contract, and life and health actuarial assumptions are on a best estimate basis as opposed to generally being locked-in. The Groupʼs EVM financial statements should not be viewed as a substitute for the Group’s US GAAP financial statements.
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. The Group expects that, over time, its structure will continue to evolve, and while to date all of the Group’s principal operations remain wholly owned, in the future it may elect to partner with minority investors in or within one or more of the Group’s Business Units or sub-groups within its Business Units, which could alter historical approaches taken in respect of capital, liquidity, funding and/or dividends, as well as other governance matters, including strategy for such Business Unit or sub-group.
Contacts Swiss Re has more than 80 office locations in more than 30 countries. For a full list of our office locations and service offerings, please visit www.swissre.com.
Americas Armonk 175 King Street Armonk, New York 10504 Telephone +1 914 828 8000
Toronto 150 King Street West Toronto, Ontario M5H 1J9 Telephone +1 416 408 0272
Westlake Village 112 South Lakeview Canyon Road, Suite 220 Westlake Village, CA 91362 Telephone +1 805 728 8300
Cape Town 2nd Floor Beechwood House The Boulevard Searle Street Cape Town, 7925 Telephone +27 21 469 8400
Paris 11–15, rue Saint-Georges 75009 Paris Telephone +33 1 4318 3000
Asia-Pacific Hong Kong 61/F Central Plaza 18 Harbour Road G.P.O. Box 2221 Wanchai, HK Telephone +852 2827 4345
Singapore Asia Square Tower 2 12 Marina View Singapore 018961 Telephone +65 6532 2161
Guangdong Province is one of China’s most important economic hubs, but is heavily exposed to natural disasters. In 2016, we helped to launch a major pilot scheme offering insurance protection against tropical cyclones and excessive rainfall in the province. You can read about this and other solutions building risk resilience on pages 18–27.
The Principles for Sustainable Insurance (PSI): Our Public Disclosure of Progress 86
GRI Content Index, with UN Global Compact Communication on Progress (COP) references 87
Dear stakeholders Welcome to the 2016 edition of our Corporate Responsibility Report. With this annual publication, we seek to explain what being a responsible company means to us and give you an account of our key activities and achievements. Swiss Re’s overall vision is to make the world more resilient, which requires tackling significant environmental, social and governance (ESG) topics. In 2016, we carried out a review of the most relevant ESG topics facing our company, based on our own risk know-how and insights from dialogue with our stakeholders. We have condensed the findings into a graphic Corporate Responsibility Map, which you can view on page 13.
As in recent years, the current report also serves as our official disclosure document for two commitments we have made to the United Nations: the UN Global Compact and the UNEP Principles for Sustainable Insurance (PSI). We remain committed to both of these important initiatives. In 2016, we also played an active role in developing the Financial Stability Board’s Climaterelated Financial Disclosures. We have started to integrate these new disclosure requirements in the “Corporate responsibility” chapter of our 2016 Financial Report and invite you to read this in parallel with the present publication.
The Swiss Re Foundation in 2016 – Shared skills, resilient futures This separate report describes how the Swiss Re Foundation helps communities to build resilience to risk.
While our re/insurance solutions aim to improve resilience to specific risks, in risk management our goal as a responsible company is to recognise and avoid certain risks we do not want to underwrite – because of their loss potential, ethical concerns or both. Through our Sustainability Risk Framework, we carried out due diligence checks on more than 7 000 potentially sensitive transactions, abstaining or proceeding with conditions if warranted. We also sharpened guidance for our underwriters on how to spot and deal with potential antibribery and corruption risks. Our highly regarded SONAR publication again presented our insights on selected emerging risks; in this Corporate Responsibility Report, you can read a case study about human-induced earthquakes.
As we said at the beginning, ongoing and open dialogue with you, dear stakeholders, gives us important insights on the issues we should tackle to help make the world more resilient. In 2016, we continued to foster dialogue on topics we also address through our re/insurance solutions, ie climate and natural disaster risks, food security, funding longer lives, and sustainable energy. A highlight among several new publications we published was a three-part report produced together with the World Energy Council and Marsh & McLennan Companies on “financing resilient energy infrastructure”. We also hosted many events at our Centre for Global Dialogue, including our fourth data protection symposium focusing on ethics and e-health in insurance – an important topic raised by digitalisation.
Swiss Re is a knowledge company. As such, the environmental impact of our operations is relatively small. Nevertheless, we believe that minimising our environmental footprint is an important aspect of being a responsible company. Indeed, as part of our Greenhouse Neutral Programme we roughly halved our CO2 emissions per employee since 2003 and have offset the remainder. Our current goal is to combine our growth strategy in new markets with keeping our percapita emissions steady. We have committed to using 100% renewable energy by 2020 and are currently building a large solar power plant at our US headquarters in Armonk. In our supply chain, we have started to implement EcoVadis, a collaborative platform that will allow us to screen the sustainability performance of our suppliers more systematically.
Headquartered in Zurich, Switzerland, Swiss Re has operations across the world. At the end of 2016, we had over 80 office locations in more than 30 countries. Based on “net premiums earned and fee income from policyholders ”, our ten biggest markets in 2016 were: the United States, the United Kingdom, China, Australia,
Our strategic framework Our Group strategy helps us to meet our financial targets and to make the world more resilient.
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 more than 50 offices worldwide.
Life Capital manages closed and open life and health insurance books. The Business Unit provides alternative access to the life and health risk pool, helping to generate stable returns and seize attractive new opportunities. For our clients and partners, it provides a primary insurance balance sheet, efficient policy administration services, life and health expertise and knowledge for reaching more markets and offering new products.
Total expenses –30 395 –39 414 Claims and claim adjustment expenses –9 848 –12 564 Life and health benefits –9 080 –10 859
̤ UN Global Compact: for our Communication on Progress, see pages 87–91
Sustainability as a guiding principle: Sustainable progress – or sustainability – can be described as development that meets the needs of the present without compromising the ability of future generations to meet their needs. To be sustainable, progress must improve economic efficiency, protect and restore ecological systems, and enhance social wellbeing. In all our main activities aimed at implementing corporate responsibility, the principle of sustainability is a key criterion.
In order to identify our most relevant “Corporate Responsibility Topics”, we use both our internal risk expertise and ongoing dialogue with our stakeholders.
Insights from our internal risk expertise As a leading re/insurer, we act as ultimate risk taker in society, which requires us to have a very sound understanding of the risk landscape. This risk expertise embedded in our company and the deep understanding of re/insurance markets also give us 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.
In our core re/insurance business there are special units, such as our Global Partnerships function in the Group or the Environmental & Commodity Markets department in our Corporate Solutions Business Unit, that identify underinsured markets and risks, and seek to expand re/insurance protection through commercially viable solutions.
We also maintain a formal process to identify emerging risks called SONAR (“Systematic observation of notions associated with risk”). This enables us to spot, at an early stage, newly developing or changing risks that may have an impact on our business, including risks related to environmental, social and governance (ESG) issues.
Insights from dialogue with our stakeholders Our role as ultimate risk taker in society means that 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 also benefit from this exchange, because it helps us to sharpen our understanding of key risks, including ESG issues, and to set priorities.
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.
Complementing the insights we gain directly through dialogue with our stakeholders, we also evaluate and use data provided by specialised thirdparty organisations such as RepRisk (www.reprisk.com), Sigwatch (www.sigwatch.com), MSCI (www.msci.com) and Sustainalytics (www.sustainalytics.com) as well as the results of academic research.
Sustainability Risk unit; ̤ Interviews with key internal decision makers, our sustainability risk stakeholders (eg investor meetings, events at the Centre for Global Dialogue, project and business related interactions) and external experts (academia, NGOs, consulting firms); ̤ Validation of final topics by the Group Sustainability Risk unit; ̤ Approval and endorsement by the Risk Management Executive Team, Group Executive Committee, Board of Directors; ̤ List of material topics finalised by Group Sustainability Risk unit; ̤ Development/adjustment of sustainability strategy based on final Corporate Responsibility Map.
Based on the sequence of steps described above, we conducted a comprehensive review of the key Corporate Responsibility Topics we are faced with as a global re/insurer, and have developed a graphic Corporate Responsibility Map on this basis. All in all, the survey has revealed a high degree of continuity, but has also resulted in some important adjustments to the topics we want to address: ̤ Seven topics we identified in the past remain highly relevant to our efforts as a responsible company; ̤ For the topic “Empowering our people” we have chosen the more comprehensive description “Engaging our people”; ̤ The topic “Empowering communities” has been added to the map to account for all the activities carried out by the Swiss Re Foundation; Our Corporate Responsibility Map: ̤ Two topics we have so far addressed under other headings now appear as entries in their own right (“Investing responsibly” and “Reducing our environmental footprint”); ̤ Finally, our review has led us to specify two new topics, “Advancing access to insurance” and “Navigating the digital transformation”.
Reflecting our two main insight sources and in line with current best practice, eg the recommendations of the Global Reporting Initiative (www.globalreporting.org), our Corporate Responsibility Map is structured along the two axes of “Stakeholder expectations” and “Relevance for Swiss Re” – in terms of the risks as well as the opportunities they may create. We have positioned all our Corporate Responsibility Topics within this map and classified them into “exploration”, “management” and “priority”.
Management: Topics recognised as being relevant and for which we have well-established management procedures. Stakeholder interest in them varies, though.
Commitment to the UN Sustainable Development Goals (SDGs) Swiss Re endorses the UN Agenda 2030. Many of our activities described in the present report contribute to one or several of the agenda’s 17 global goals, in particular: ̤ Ensuring access to affordable, reliable, sustainable and modern energy (SDG 7); ̤ Taking action to combat climate change and its impacts (SDG 13); ̤ Ensuring sustainable consumption and production patterns (SDG 12); ̤ Partnering for the goals (SDG 17).
We are currently exploring how we can further align our activities with the SDGs.
Managing climate and natural disaster risk ̤ For general strategic objectives, see special section on our climate change strategy on page 12; ̤ Based on our commitment made to the UN, offer
USD 10 billion protection against climate risks to 50 sovereigns and sub-sovereigns 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 our commitment to the Grow Africa Partnership, offer up to 1.4 million smallholder farmers in SubSaharan Africa protection against weather risks by 2017.
Engaging 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
Ensuring good corporate governance and compliance ̤ Continuously assess our corporate governance against best practices and new stakeholder demands; ̤ Regularly update our compliance policies as appropriate, oversee effective implementation thereof and deliver meaningful training and communication to our employees.
Swiss Re Foundation: Empowering communities ̤ Contribute to resilient societies by increasingly engaging
Navigating the digital transformation ̤ Refine our understanding of societal challenges related to the digital transformation.
Governance and compliance By adhering to the highest standards of governance and compliance, we seek to maintain effective checks and balances between the top corporate bodies and to ensure the application of laws and ethical standards in our business. Swiss Re’s commitment to sustainability is fully integrated into the Code of Conduct.
The overview on the right shows in which implementation areas we addressed which Corporate Responsibility Topics in 2016, and where you can find corresponding information in the present publication or in “The Swiss Re Foundation in 2016” report. The overview reflects our new Corporate Responsibility Map and thus comprises all our Corporate Responsibility Topics, including those singled out, added and newly included at the “exploration” stage.
Overview: where and how we have addressed our Corporate Responsibility (CR) Topics
Managing climate and natural disaster risk pages 18–25 page 35 pages 45–46, 48, 50 pages 52–61 SRF
Advancing sustainable energy solutions pages 26–27 pages 43–44 pages 54–55 SRF
SRF = “The Swiss Re Foundation in 2016 – Shared skills, resilient futures” report
Content definition The structure of the present report reflects the “implementation areas” in which we address our Corporate Responsibility Topics: each of these areas is covered by an individual chapter – with one exception: Our role as an active citizen in society is described in a separate report published by the Swiss Re Foundation (see pages 78–79). Thus, the report includes the following six main chapters: ̤ Creating solutions for sustainability ̤ Extending our risk intelligence ̤ Exploring and shaping the risk landscape ̤ Reducing our environmental footprint ̤ Engaging our people ̤ Ensuring good corporate governance and compliance
The content presented in these chapters primarily reflects our Corporate Responsibility Topics, as shown in the overview table on page 15.
Scope and publishing rhythm Our Corporate Responsibility Report covers the whole Swiss Re Group as it was organised by 31 December 2016, ie the publicly listed holding company Swiss Re Ltd, its three Business Units Reinsurance, Corporate Solutions and Life Capital, and all directly or indirectly held subsidiaries. Our new Life Capital Business Unit was established on 1 January 2016, comprising the existing Admin Re® business. There were no other changes to the Group’s organisational structure during the year.
Independent assurance All the main chapters of the 2016 Corporate Responsibility Report have received independent assurance from PricewaterhouseCoopers. Their assurance report is included on pages 82–83.
Note on our implementation of the GRI G4 Guidelines In this edition of our Corporate Responsibility Report, we include Standard Disclosures of the G4 Guidelines of the Global Reporting Initiative (GRI), as far as is practical for a business-to-business company in financial services. The way we identify material issues has important implications for how we do this: ̤ Our understanding of materiality is based on the risk expertise embedded in our business, our broad, interactive stakeholder dialogue and the view of various standard setters. We have selected the GRI’s “material aspects” accordingly and refer to the associated indicators as far as we see fit for a re/insurer and can provide the data.
Note on Indicators G4-21 and G4-22 on internal and external “aspect boundaries”: Of the "material aspects" to which we refer in the present report, we regard most as material "inside the organization". Those aspects that are also or primarily "material outside the organization" relate to our supply chain (supplier assessments regarding environment, labour practices, human rights and impacts on society), the human rights performance of our investees and re/insurance clients (investment, freedom of association and collective bargaining, child labour, forced or compulsory labour, and assessment) and the environmental and social performance of our investees (active ownership).
Furthermore, we include the two aspects "water" and "effluents and waste" of the environmental category in our reporting, even though they are not highly material for a non-industrial company. However, many rating organisations expect information and data on them from companies in the financial services sector, too.
As a rule, all the material aspects we cover in the report are “material for all entities within the organization”, that is, for the Swiss Re holding company and all three of its Business Units. This statement only needs to be qualified for two indicators of the Financial Services Sector Supplement: FS7 and FS8 on products with a specific social or environmental benefit are not relevant for our Life Capital Business Unit.
If governments and communities are financially protected against risks such as windstorms, earthquakes, drought and flooding, they can better cope with the immediate consequences of a disaster.
Just as importantly, our solutions help to create the conditions for sustained social and economic development, as they help to safeguard investments, allow governments to stabilise budgets and give people the financial stability required to build and maintain businesses.
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 2016, the total worldwide economic losses from natural and man-made catastrophes were estimated at USD 175 billion – of these, USD 54 billion were insured. Having access to effective re/insurance protection against natural catastrophes creates significant benefits for our clients and for society at large. In 2016, we received USD 2.5 billion of P&C Reinsurance premiums for natural catastrophe covers (for losses larger than USD 20 million), which was equivalent to approximately 15% of total premiums in this business segment.
USD 2.5 bn Natural catastrophe premiums in our P&C Reinsurance business
Natural catastrophe data In our 2016 Financial Report we provide detailed quantitative information on natural catastrophe perils: the four perils with the highest expected annual losses (page 125) and the liquidity requirements stemming from four extreme loss scenarios (“insurance risk stress tests”, page 73).
A coastline in the US being battered by a hurricane. Understanding the impact of climate change on the frequency and intensity of natural catastrophes is vital for our business.
We completely overhauled our CatNet® tool in 2016. It is browser-based and available free of charge to our clients. You can find more information by visiting swissre.com/catnet
Insurance-linked securities We are a leading player in the insurance-linked securities (ILS) sector. ILS are capital market instruments, typically in bond or derivative format, designed to meet the risk or capital management needs of a transaction sponsor. In exchange for a coupon or premium payment, the sponsor receives single or multi-year collateralised protection for specified risk events. If such an event occurs, the sponsor receives all or part of the principal; otherwise this is paid back to the investors in full at maturity.
ILS are particularly well-suited to provide protection against peak risks – events that happen infrequently but tend to lead to large losses, for example earthquakes or windstorms. ILS are used for both risk and capital management purposes in the P&C and the L&H business. For reinsurers they are attractive because they free up scarce capital; for insurers and corporate clients they provide multiyear collateralised protection; and for investors they offer attractive diversification possibilities, as they are relatively uncorrelated with other asset classes.
In 2016, our registered broker-dealer subsidiaries arranged non-life ILS worth USD 1.33 billion, all of them for clients. This was equivalent to about a fifth of total new issuance in the nonlife ILS market.
Climate change adaptation Our solutions offering re/insurance protection against extreme weather events and weather volatility help communities to adapt to climate change by making them more resilient against such risks.
Based on a partnership between the UK government and the insurance industry, Flood Re manages a central fund that allows insurers to pass on the flood risk of individual policies. When a homeowner suffers damage from flooding and makes a valid claim, the scheme reimburses the respective insurer out of this fund. This reduces insurance premiums for flood-prone homes.
Many towns in the north of England have been hit by major floods in recent years. In 2016, we started to support Flood Re, a pioneering scheme set up to offer vulnerable UK homeowners more affordable flood insurance.
Ramping up natural disaster insurance in China In 2016, we helped to establish two significant insurance pilot programmes against natural disaster risks in China. Both offer protection of up to around USD 350 million, which makes them the largest commercial natural disaster insurance schemes in China to date. Furthermore, both use parametric triggers, which means they can pay out quickly in the event of a disaster.
The first of the two programmes involves the government of Heilongjiang Province and the Sunlight Agriculture Mutual Insurance Company of China. It protects farmers in 28 poor rural counties of the province against the financial consequences of natural catastrophes, specifically floods, excessive rain, drought and low temperatures. Combining a weather index product and a satellite-based parametric product, the programme covers harm to lives and property as well as loss of income.
In the second pilot, we act as sole reinsurer to protect ten prefectures of Guangdong Province against damage from tropical cyclones and excessive rainfall, in cooperation with local insurers, including the People’s Insurance Company of China (PICC, www.picc.com). This, too, is a parametric product, using rainfall and wind speed indices to allow for faster payouts. Having quick access to emergency funding after a natural disaster is particularly important in Guangdong. It is one of China’s most important economic hubs and home to many global companies, but faces a severe natural disaster risk.
As a result of these efforts, the scheme was approved for a milestone budget of THB 3 billion (approximately USD 90 million) in 2016, with the goal of covering two million rice farmers. The plan for the future is to extend the scheme to further crops and to widen the policy covers.
Enabling MFIs in Indonesia to cope with earthquakes The provinces of Aceh and West Sumatra in Indonesia are highly prone to earthquakes. The devastation caused by the tsunami of 2004, which was triggered by a magnitude 9.1 earthquake, is still in everybody’s minds. Five years later, in 2009, an earthquake with a magnitude of 7.6 occurred 55 kilometres west of Padang, the capital of West Sumatra Province. It is estimated to have caused total losses of approximately USD 2.5 billion, of which only USD 55 million were insured.
Such earthquakes not only cost many lives and destroy homes and buildings, they also have serious consequences for economic growth and development in the region. Responding to this threat, we have partnered with PT Asuransi Wahana Tata (Aswata, www.aswata.co.id) and Mercy Corps (www.mercycorps.org.uk) in Indonesia to develop the first parametric insurance solution benefiting microfinance institutions (MFIs) in the area. It is triggered by the measured strength of an earthquake and then pays out automatically.
Protecting Kenyan livestock farmers against drought Droughts are responsible for approximately 75% of livestock deaths in the Horn of Africa, repeatedly leaving herders, their families and entire communities destitute. To protect pastoralists against this persistent threat, we helped to launch the Kenya Livestock Insurance Program (KLIP), the first-ever government livestock insurance scheme in Africa.
KLIP was successfully piloted in late 2015 in Wajir and Turkana, two counties in the country’s north, and is now being scaled up to benefit herders in remote areas across the whole of Kenya. It is an index-based livestock insurance scheme that uses satellite imagery to assess the state of grazing conditions by measuring deviation in the colour of ground vegetation. When a certain threshold is reached, the insured herders automatically receive a lump sum payment, allowing them to provide their livestock with feed and water.
The programme was developed with the support of Kenya’s Ministry of Agriculture (www.mygov.go.ke), the World Bank (www.worldbank.org), local insurers and the International Livestock Research Institute (www.ilri.org) in Nairobi, with Swiss Re acting as the main reinsurance provider. Wholly funded by the Kenyan government, the programme involves preselection of beneficiaries from vulnerable households by county governments under the Hunger Safety Net Program (www.hsnp.or.ke). It covers up to five animals per household, but herders can choose to insure more animals at their own expense.
Helping to insure small businesses in Guatemala After the devastating earthquake that struck Haiti in 2010, Swiss Re helped set up the Microinsurance Catastrophe Risk Organisation, or MiCRO for short (www.microrisk.org). Combining the capital efficiency of the reinsurance market with donor capital, MiCRO specialises in developing attractive and affordable insurance solutions for lowincome populations, especially microentrepreneurs and smallholder farmers.
In southern China, Typhoon Haima fortunately had a less severe human toll but destroyed many houses and crops. The city of Shanwei in Guangdong Province is one of the prefectures that earlier in the year had signed up to our parametric insurance programme against natural disaster risks and so received a payout less than a week after the impact.
We have agreed with the United Nations to report publicly on the progress we make on this commitment. By the end of 2016, we had advised 26 sovereigns and sub-sovereigns on climate risk resilience and offered them a total of USD 3.9 billion in re/insurance protection.
... to the Grow Africa Partnership In our work to bring risk protection to underinsured communities, in recent years we have put a focus on the African continent, in particular Sub-Saharan Africa. In 2012, we made a commitment to the Grow Africa Partnership (www.growafrica.org), an initiative launched by a number of organisations to promote public-private collaboration and investment in African agriculture. As most smallholder farmers in Sub-Saharan Africa have had no access to insurance protection to date, addressing this problem is crucial to protect families’ livelihoods, facilitate economic development and reduce poverty.
USD 3.9 billion Total amount of climate protection offered to sovereigns and sub-sovereigns since 2014 1 million Smallholder farmers benefiting from the Grow Africa Partnership in 2016
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
In the last five years, Swiss Re Corporate Solutions has participated in 35 offshore wind projects, including wind farms, standalone offshore substations and standalone export cables. In 2016, we were involved in nine offshore wind farm projects worldwide and were the lead insurer in five of them.
Rentel offshore wind farm These five projects include two we signed in 2016 as co-lead insurer. One of them is Rentel (www.rentel.be) in the Belgian North Sea, situated approximately 34 km from Zeebrugge and 40 km from Ostend. It is being developed by a consortium of eight Belgian shareholders with a strong track record in offshore wind, who joined forces in a strategic competence centre. The insurance cover offers Rentel compensation for material damage and loss of profit, both in the construction phase and the first three years of the farm’s operational phase.
In practice, the new product pays Infigen Energy a fixed amount for each megawatt hour of energy production lost due to low wind, below a specified trigger across its entire 557 megawatt Australian portfolio of six wind farms. This helps our client to raise cash flow predictability and to reduce earnings volatility. As renewable energy investment continues to grow, we expect demand for effective risk management solutions such as this to increase substantially over the next few years. We already won this award in 2015 for a solar hedge for photovoltaic power plants in China, underlining our ability to respond to this demand.
Longevity and health insurance remained two of our strategic priorities in the L&H business. The demand for longevity solutions is expected to grow further as demographics shift. We have invested in research and development to improve our ability to predict mortality and longevity trends.
Risk management is an integral part of Swiss Re’s business model and key to the controlled risk-taking that underpins our financial strength. It is embedded throughout our business and ensures that the Group and the three Business Units have the necessary expertise, frameworks and infrastructure to support good risk-taking (see 2016 Financial Report, pages 54–55 and 63–79).
Sound risk management is essential for a re/insurer. Tight control of our exposures guarantees that we can fulfil our role in society as ultimate risk-taker and be a reliable partner to our clients when they need us. The core categories of our risk landscape comprise insurance risk (property and casualty, life and health) as well as financial market and credit risk. In addition, we consider it essential for a responsible company to pay attention to further significant risks we may be exposed to, especially in the longer term.
For companies this situation can create dilemmas. A specific business transaction may be economically beneficial and in compliance with all legal and regulatory requirements, yet may have significant environmental or social downsides. Swiss Re recognises that such dilemmas exist and develops effective responses through a welldefined approach and by taking decisions based on ethical principles.
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 communities, workforces and the environment. This framework applies to all of our business transactions in re/insurance as well as investments, to the extent that we can influence their various aspects.
You can read a summary of the main concerns they currently address on page 30.
The Sensitive Business Risk process Each of the two umbrella policies and seven sector guidelines of our Sustainability Risk Framework contains criteria and qualitative standards which define precisely when a transaction may present a “sustainability risk”. We assess such transactions through our Sensitive Business Risk (SBR) process, which consists of two due diligence
Illegal, uncertified or insensitive logging can have serious consequences on local environments and on the climate. A dedicated policy of our Sustainability Risk Framework clearly states when our underwriters need to carry out due diligence checks.
If the initial screening reveals any potential issues, our underwriters carry out further due diligence measures. Finally, they transfer the most critical transactions through the SBR referral tool to our team of sustainability experts, who conduct targeted research to decide whether the transaction at hand is acceptable on ethical grounds.
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.
This guidance specifies both the countries and industries with a heightened risk of bribery and corruption, and instructs our underwriters how to carry out additional due diligence in order to assess the risk. In grave cases, our due diligence procedure leads to an automatic requirement to abstain from the transaction. If there is disagreement about this, the transaction needs to be discussed with our internal legal and compliance team who can provide additional advice.
Company exclusions Our Sustainability Risk Framework policies specify certain criteria that may lead us to exclude a company from both 219 Sensitive business transactions referred to our team of sustainability experts 7 137 Due diligence checks carried out by our underwriters to detect potential sustainability risks
 Proceed  Proceed with conditions  Abstain  Not materialised 2016*2015*20142013
 Proceed  Proceed with conditions  Abstain  Not materialised * Starting in mid-2015, we have refined our SBR process, which has led to a decrease in the number of referrals
Independent internal assurance In 2016, we further strengthened our internal procedures to monitor compliance with the Sustainability Risk Framework. This is now part of the remit of Group Internal Audit (GIA), an independent body whose responsibility is to ensure that internal control processes and risk management are operating effectively.
In 2016, we developed a new eLearning course for our in-house training. While this continues to be compulsory for all our employees who work in underwriting and with our clients, it is now mandatory for all our new entrants, as well. In total, 2 712 employees completed the mandatory training course in 2016.
Complementing this eLearning course, we provided instructor-led training personally or via web-based conference to 205 experienced underwriters and graduates.
In 2016, our sustainability risk management unit decided in 20 SBR assessments to proceed with conditions. In most cases, these conditions required the particular underwriter to engage with the client on specific questions about human rights issues or environmental protection, in line with the requirements
Sustainability Risk Framework The revised version of our publication on the Sustainability Risk Framework explains how we define such risks, provides a detailed description of the framework’s policies and guidelines, and illustrates how we apply these in practice. swissre.com/library/archive/ sustainability_risk_ framework_sustainable_ business_is_good_business.
Sustainability Risk Framework of the Ruggie Framework. In addition, we engaged with strategic clients that have a comparatively low sustainability performance. This open dialogue allowed us to explain our own positions on human rights and environmental protection, and draw attention to specific practices we consider problematic.
In 2016, we participated in a practical follow-up event held in Munich, entitled “Insuring for sustainable development: Making it happen”. Its key objective was to assess and discuss progress on the initiatives launched after the 2015 roundtable to further mainstream sustainability across the insurance value chain.
Supporting our efforts to promote best practices in sustainable risk management, we updated and expanded our publication on the Sustainability Risk Framework in 2016.
Political risks In today’s increasingly integrated world we need to be aware of any political developments, actions and decisions that may affect our business. Within our risk management organisation, we have a team of specialists who look at a wide range of political risks at global, country and business transaction levels.
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. They pay particular attention to developments in high growth markets and to crossborder issues such as terrorism, energy, multi-national institutions or international trade.
Regulatory risks Regulatory risk represents the potential impact of changes in the regulatory and supervisory regimes of the jurisdictions in which Swiss Re operates. In 2016, Swiss Re remained strongly engaged in the regulatory debate, striving to mitigate potentially negative impacts while supporting reforms that could enhance the overall health of the sector, facilitate convergence of regulatory standards or generate business opportunities.
While Solvency II took effect in 2016 and applies across the European Economic Area, national discretions and different supervisory interpretations (eg the recognition of reinsurance) distort a level playing field. The European Commission will review Solvency II in 2018, in part to address such inconsistencies. Additionally, the European Insurance and Occupational Pensions Authority intends to add a macro-prudential framework for insurance to Solvency II, to regulate systemic risks across the insurance industry.
Such initiatives form part of a wider effort by public-sector bodies to integrate sustainable development criteria into the financial system. Recent examples include the G20’s proposal to establish a Green Finance Study Group and the EU’s announcement to develop a strategy on sustainable finance.
Reflecting governments’ growing concern over the implications of climate change, the Financial Stability Board (FSB) has recently established 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.
We were also present at the launch event of the Sustainable Insurance Forum for Supervisors, held by the California Department for Insurance and the UN Environment Programme. The Forum’s goal is to promote cooperation on critical sustainable insurance challenges, such as climate change. Increasingly, insurance regulators and supervisors are exploring how these factors impact upon their goals of ensuring the safety, soundness and accountability of the sector. For the first time, the Forum provides them with an international platform to share experience and explore common approaches.
Emerging risks Re/insurers operate in an ever more complex and rapidly changing risk landscape. New demographic, economic, technological, socio-political, regulatory and environmental developments are all capable of changing risks or creating new ones. In addition, 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. People’s risk perceptions are shifting, liability and regulatory regimes continue to evolve and stakeholder expectations are growing.
The SONAR process involves several steps. An interactive intranet platform serves as a first level, enabling our employees to share and discuss so-called 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 the early signals flagged through the SONAR platform 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.
Our emerging risk specialists periodically cluster and further assess these risk notions for their potential impact on our business. Based on this, they subsequently carry out more indepth investigations of selected topics. In 2016, one of the focus topics was human-induced earthquakes (see case study on page 37). To share some of our key insights on this and other emerging risks with external audiences, we published the fourth edition of our comprehensive Swiss Re SONAR report.
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/SwissRe_ SONAR_2016.pdf
Earthquakes are the most natural of natural disasters, one would think, as they seem to occur entirely detached from human involvement or interference. While this may have held true in the past, recently a strong increase in drilling activity to extract natural gas (“hydrofracking”) or to carry out large-scale geothermal exploration has changed the picture.
In the US, in particular, there is an increasing likelihood of litigation/class actions against hydrofracking operators, with a significant accumulation risk for re/insurers when events trigger claims on the property and casualty side.
Further activities on emerging risks identified in the past The emerging risks we previously examined in more detail and featured in our Corporate Responsibility Reports since 2007 were: 2007: Electromagnetic fields 2008: Critical infrastructure 2009: Carbon nanotubes 2010: Smart grids 2011: Cyber attacks 2012: 3D printing 2013: New forms of mobility 2014: Electronic cigarettes 2015: The Internet of Things
Since we first identified these emerging risks, we have followed up on several of them together with our stakeholders. In 2016, we focused on the three risks below: Strategic risk initiatives Identifying and addressing emerging risks can be challenging. Their novelty and interconnectedness makes it difficult for anyone 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.
Asset-liability management (ALM) is the cornerstone of our investment philosophy. To meet future claims and benefits, we invest the premiums generated by our underwriting activities in assets whose cash flows match the durations and currencies of our re/insurance liabilities. Generally, we invest more in higher-quality fixed income securities with stable long-term returns. At the end of 2016, such investments accounted for 75% of our total assets under management1.
We are committed to investing our assets responsibly via a controlled and structured investment process, integrating environmental, social and governance (ESG) criteria. Such criteria can have a positive impact on the long-term financial performance of our investment portfolio. Thus, we apply sustainability-related risk information consistently across our entire investment portfolio.
1 Asset classes considered are government bonds (incl. agency), corporate bonds, securitised products, and mortgages and other loans.
The Responsible Investment Policy also describes the roles and accountabilities to ensure the integration of ESG considerations: The overall responsibility for sustainable investing lies with the Group Chief Investment Officer, who is advised by the Asset Management Executive Team and the Asset Management Investment Committee. Furthermore, an ESG Advisory Group, formed by representatives of all investment units, legal, compliance and risk management and steered by the Head Responsible Investing, conducts our responsible investment activities and monitors their progress. Through this governance structure, we ensure a comprehensive commitment to responsible investment in our day-to-day asset management activities.
6 % Cash and cash equivalents 8 % Short-term investments 37% Government bonds 31% Corporate bonds 4% Securitised products 5% Equities*
3% Mortgages and other loans 6% Other investments incl. policy loans
Credit products, equities and hedge funds At the end of 2016, approximately 44% of our investment portfolio was managed externally. This portfolio comprises mainly credit products, equities and hedge funds. PRI signatories manage more than 97% of these assets. Furthermore, all of our external asset managers have contractual provisions with Swiss Re that specifically relate to responsible investing.
2 Rates products consist of cash, short-term investments and government bonds (incl. agency).
We work closely with the external managers to ensure they consider ESG aspects in their investment processes. Before external managers are appointed, we perform thorough due diligence to confirm their compliance with our responsible investment principles. This includes ESG considerations in investment decisions and monitoring, as well as a review of the managers’ commitment to responsible investing. After being mandated, the managers’ individual performances are monitored in line with our Responsible Investment Policy and measured against ESGrelated benchmarks. The managers are required to report regularly on their responsible investment activities.
For more systematic and regular monitoring of the actual integration of ESG factors into our externally managed portfolio, we have engaged the services of a leading ESG research company. Every year, we conduct an in-depth assessment based on ratings provided by them to analyse the quality of the portfolio and to gain further insight into ESG risk exposures.
As part of our commitment to sustainability, we also invest in related assets like renewables and social infrastructure in our infrastructure private debt mandates, and green bonds in our credit and rates products mandates. For the latter, we rely primarily on the “Green Bond Principles”. For further information, please refer to www.swissre.com/about_us/about_ our_business/asset_management/ responsible_investing_in_practice.html
By the end of 2016, the combined value of our MINERGIE®-certified buildings reached USD 0.4 billion, or 22% of our Swiss portfolio of direct real estate investments. The total energy consumption surface in accordance with the MINERGIE® standard was 82 497 m2 at the end of 2016. In addition, more than 59 000 m2 had been sold on to third parties.
Voting We recognise our rights and responsibilities as an asset owner, and in particular as a shareholder, as an integral part of our commitment to responsible investment.
In the case of internally managed equities, 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 2016, we exercised 99% of our voting rights of our listed equity portfolio3. We voted on 7 103 voting items through our external managers. We voted in favour of the respective management resolution in 6 305 cases (89%) and against it in 585 cases (8%). In 213 cases (3%), we abstained or withheld from voting.
3 We vote in all countries, with the exception of a few where voting process and regulatory obligations require a high level of administrative coordination.
 89% Voted with management  8% Voted against management  3% Abstained
Our Top Topics Via Group Issue Management, Swiss Re identifies topics that are strategically important to us, our clients and society at large. These Top Topics denote the global challenges we want to help address and set an important focus for our global stakeholder dialogue.
In 2016, we continued to focus on our Top Topics in our stakeholder dialogue: ̤ Advancing sustainable energy solutions ̤ Funding longer lives ̤ Managing climate and natural disaster risk ̤ Partnering for food security ̤ Supporting financial resilience
We worked on these Top Topics with many partners from the public and private sectors. In the following sections we introduce each topic, explain why we consider it to be important and give examples of our communications activities.
Our notable achievements in 2016: ̤ Together with the World Energy
Council (www.worldenergy.org) and Marsh & McLennan Companies (www.mmc.com), we published two new reports on financing resilient energy infrastructure. Following up on the report published in 2015 on extreme weather, they focus on the energy-water-food nexus and cyber threats (see special section on page 44); ̤ As a founding member of the RE100 initiative (www.theRE100.org), we continued to work towards our goal of obtaining 100% of our energy from renewable sources. By increasing demand for clean power in a joint effort with our partners, we expect RE100 to make it more viable for energy companies in challenging markets to build renewable energy plants (see page 54); ̤ Through Swiss Re Corporate Solutions’ partnership with Solar Impulse (www.solarimpulse.com), we supported the first round-the-world flight powered by solar energy only. The mission was successfully completed in July 2016, underscoring our commitment to cutting-edge innovations in clean energy.
Modern energy infrastructures are highly vulnerable to cyber attacks. Three recent reports we produced together with partners look at the key risks that need to be addressed to make energy infrastructure more resilient.
In 2016, the World Energy Council (WEC, www.worldenergy.org), Swiss Re Corporate Solutions and Marsh & McLennan Companies (www.mmc.com) presented the findings of their report “The road to resilience: financing resilient energy infrastructure”, ahead of the World Energy Congress. The publication summarises three comprehensive studies focusing on key risks the global energy sector needs to manage: extreme weather, energy-water-food dependencies and cyber crime.
These risks impact both the physical structures and the capital returns needed to reach a more sustainable energy future.
Extreme weather Events such as hurricanes, storm surges, heat waves and ice storms are growing in frequency and severity. Hurricane Sandy or Typhoon Haiyan for example illustrated that energy infrastructure is often entirely inadequate to handle disruptions of such magnitude. In general, insured losses from severe convective storms have increased by more than 40% over the last 20 years.
Modern energy infrastructures are evolving into complex systems with many interdependent parts, and disruptions to any of these can have truly dramatic consequences. The summary report offers seven recommended action items for governments, business leaders and the finance sector to improve the financing of resilient energy infrastructure.
The role of insurance Throughout the report, the authors emphasise the role of insurance in achieving resilience. The insurance industry is already helping energy companies cope with the risks identified in the studies. Pioneering insurance transactions illustrate that protection against unfavourable weather is available for wind, solar and hydroelectric facilities. Advanced cyber solutions combine comprehensive insurance protection with risk mitigation and remediation services.
On our website you can learn more about the reports and their recommendations: swissre.com/rethinking/sustainable_ energy/financing_resilient_energy_ infrastructure_recommendations.html
Funding longer lives People are living longer today than ever before, but the share of the working population is shrinking. At the same time, more of the financial responsibility is shifting from public to private balance sheets. This could have significant financial consequences for individuals, insurers, employer pension funds and society in general. Public-private partnerships are needed to overcome this challenge.
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 our experience in markets around the world. We want to help clients create solutions that better support people across the different phases of ageing and retirement.
̤ We hired a dedicated Head of Ageing to prioritise Swiss Re’s efforts in this area and lead a global team of experts from various functions. Our immediate priority is to better understand the needs of elderly consumers across different markets and share lessons learned in an increasingly complex social, economic and regulatory environment.
Managing climate and natural disaster risk Losses from floods, storms, earthquakes and other natural catastrophes can have a dramatic impact on the citizens and economies of entire countries. Insurance helps people, businesses and societies to get back on their feet after disaster strikes.
Partnering for food security 805 million people – one in 11 – are chronically hungry and malnourished on the planet today. By 2050, the world’s population is expected to grow to an estimated 9 billion people, which will further aggravate the situation. Meeting this demand for food will be particularly challenging, as supply is constrained by factors such as climate change, depleted agricultural soils and the distribution of land, water and energy.
Small-scale subsistence farmers who feed their families and sell a small surplus on local markets provide food to the majority of people on the globe. 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.
Italy has experienced an increase in serious flooding over the last decade. One of the expertise publications we published in 2016 describes a new approach to improve insurance protection in the country against this risk.
Our notable achievements in 2016: ̤ We discussed with a range of stakeholders how we insured farmers in 28 counties in Helongjiang Province in China against risks of flood, excessive rain, drought and low temperatures (see page 21); ̤ We continued to provide data and information on agricultural insurance through our fact sheet series for African countries. In addition, we published the first such publication on an Asian country (Sri Lanka), looked at protecting cotton farmers in China and how big data can help crop insurance in the US; ̤ We hosted the conference “Insuring food safety: What’s on the menu?” at our Centre for Global Dialogue, inviting industry experts to discuss operational risk management and insurance solutions to the challenges previously raised in our publication “Food safety in a globalised world” (see page 48).
When the Chinese State Council carried out a review of the insurance industry a few years ago, it identified this challenge and issued a mandate to formulate and promote natural catastrophe schemes. In response, Swiss Re worked together with the Development Research Center of the State Council (www.en.drc.gov.cn/) to report on “Parametric Insurance and Reform of Natural Disaster Relief Systems in China”. This was subsequently discussed with high-level officials and led to the development of two pilot programmes in the provinces of Heilongjiang and Guangdong, which were successfully launched in 2016 (see pages 21–22).
The Centre reflects our commitment to being a knowledge company. As of 1 March 2017, it forms part of the newly established Swiss Re Institute.
In response, food producers have already sought to raise their safety standards, but incidents of food contamination and costly product recalls have still increased in number. Bringing together participants from food producers, food safety organisations, academic institutions and the re/insurance industry, this event at the Centre discussed what the food industry can do to further improve food safety and how re/insurers can help to mitigate risks.
A key theme was the need to improve transparency and traceability along the entire supply chain. This can be
Both these events focused on topics we had previously identified as emerging risks and presented as case studies in past editions of our Corporate Responsibility Report: “Cyber attacks” (2011) and “Challenges of the Internet of Things” (2015).
Collaboration with (inter-) governmental and academic institutions In recent years, we have collaborated with various (inter-)governmental and academic institutions both to promote effective approaches to sustainability challenges and to share our expertise on managing specific risks.
The publications and other media we produce in-house or in cooperation with our partners play an important role in our efforts to help clients and society form effective responses to key risks. Listed below are publications mentioned in this chapter. Further Swiss Re publications are displayed on pages 80–81.
Sub-Saharan Africa and its insurance markets are growing. Our projections foresee strong and continued market growth in both life and non-life business. The spread of innovative solutions, for example in micro-insurance, increases the insurance uptake and fuels growth for the future. Swiss Re is proud to be part of this process.
̤ Through the investment of premium and capital, insurers and reinsurers provide capital to the real economy to support the production and provision of goods and services.
̤ As holders of risk, insurers and reinsurers offer solutions and perspectives to strengthen resilience to natural catastrophes and climate change, understand new technologies and support the development of sustainable energy.
Swiss Re China delivers first low temperature weather index insurance (WII) programme for cotton. The scheme solves the problem of reduced crop yields from cold weather not addressed by traditional multi-peril agriculture insurance (MPAI) products.
Earthquake California Insurance today relies on models to predict earthquake- triggered losses on the US west coast. But there is a lurking danger. Many do not consider the variability of model outcomes. As research by Swiss Re reveals, this can lead to an underestimation of ensuing losses.
Agro insurance hotspot: Sri Lanka Agriculture employs one in three persons in Sri Lanka and contributes over ten percent to export income. This important sector of the economy relies on rain - a resource that will become increasingly unpredictable with global warming. Protecting farmers against future floods and droughts is paramount to keep employment and income from this economic pillar growing.
We operate an integrated global management system (GMS) at our Corporate Real Estate & Services (CRES) division, which interlinks quality and environmental management and ensures that similar processes are seamlessly managed. Through a systematic, Groupwide reporting process, we monitor our environmental performance and implement appropriate improvement measures.
Environmental objectives and targets are defined centrally at our headquarters, but responsibility for implementing improvement measures also lies with the CRES departments in our regions and individual locations. Some of them define additional environmental targets that reflect specific local conditions and challenges.
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.
Our Greenhouse Neutral Programme has been the principal initiative to achieve this goal. Originally launched in 2003 for a ten-year period, it combined two commitments: firstly, to reduce our CO2 emissions per employee (fulltime equivalent or FTE) by a specified amount; secondly, to fully offset all the remaining emissions by purchasing high-quality emission reduction credits, thus making the company greenhouse neutral for the whole period between 2003 and 2013.
2 Calculation based on a market-based approach taking into account the purchase of renewable energy instruments, with the exception of the UK where the government requires companies to report an average grid factor (see table at the bottom for our reporting of emissions from electricity).
Waste kg/FTE 181 159 144 –9.4 –20.4 1 The figures for 2013 and 2015 have been restated to account for company acquisitions.
4 Our next biggest power consumption is in Slovakia with 2.8% and in India with 2.4% of the Group’s total.
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.
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 18.5% lower at the end of 2016 than in 2013. Partly, we achieved this by decommissioning existing office buildings and moving into more energyefficient ones.
We have also continued our efforts to create more flexible and modern office environments that offer our employees optimal working conditions while, at the same time, using space and resources more effectively. The spread of digital communication and devices makes it possible to work seamlessly across different locations and devices, creating the foundation for a more flexible and informal workplace set-up that encourages team work. At Swiss Re Next, for example, this open workplace concept is a key feature (for details, see page 59). Although further reducing our environmental footprint is not the primary driver of these efforts, their potential to lower the energy intensity of our locations is nevertheless substantial.
In 2016, we also signed up to the EP100 initiative, launched by the Climate Group (www.theclimategroup.org) and the Global Alliance for Energy Productivity (www.globalproductivity.org). This is a shared commitment by leading global companies to double their energy productivity or, in other words, to get more economic output from each unit of energy.
A rendering of the solar power plant we are constructing at our US headquarters in Armonk, New York State. The installation will supply more than 60% of the site’s power requirements.
Photovoltaic installations not only have substantial environmental benefits, they are also becoming economically viable. With a capital investment of USD 7 million, we expect our solar power facility at Armonk to have a payback time of less than seven years. On top of that, it will also enable us to add battery storage in the future and make our operations more resilient in the event of a power outage.
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 2016, we had a total of 148 video conferencing and telepresence facilities worldwide.
Paper, water and waste In the second phase of our Greenhouse Neutral Programme, we have expanded the scope of our emissions accounting to include copy paper use, water consumption and waste disposal, and are committed to offsetting these emissions.
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 for the whole Corporate Responsibility Report is included on pages 82–83.
In India as a whole, over 60% of the population uses firewood for cooking, and for approximately 170 million families it is the main source of fuel. The traditional way of cooking over an open flame with wood exposes family members inside the home to a high concentration of toxic fumes, which causes a range of respiratory problems and is estimated to contribute to approximately 500 000 premature deaths per year. Moreover, the reliance on firewood has led to widespread and accelerating deforestation.
Nadhu and Karnataka spend about three hours per day collecting firewood.
Village dwellers in India using an efficient cooking stove that reduces smoke and toxic emissions, cuts firewood consumption and saves time. Purchase of the stoves was subsidised through a carbon offsetting scheme from which we bought our Voluntary Emissions Reductions for 2016.
In 2016, we started to implement the platform in our Corporate Real Estate Sourcing category, covering more than 50% of our expenditure in this area. Going forward, we plan to fully incorporate the platform into our sourcing processes across all sourcing categories. We have set ourselves the goal of including our tier 1 and tier 2 vendors in the EcoVadis platform by 2020.
Open workspace concept As Swiss Re Next is nearing completion, one important feature is becoming more and more visible: its open, transparent workspace concept. This has been a key element of the planning process since its beginning, reflecting two important goals we pursue with Swiss Re Next: to support and further strengthen our communicative work culture based on team work and knowledge exchange; and to provide the flexibility to cater for the varying work situations typically encountered today.
Such an open, flexible workspace concept has a further advantage. Because it allows us to use available space more effectively (with 1 100 employees sharing 800 workplaces), it comes with a substantially smaller environmental footprint. And this is fully in line with the ambitious sustainability goals we have set ourselves with Swiss Re Next.
Amongst the large Swiss Re locations, uptakes per employee were highest in Slovakia, China, Germany, Switzerland and India. Our office in Slovakia has witnessed particularly strong growth in recent years and many new employees made use of the opportunity to claim subsidies, eg for highly energy-efficient fridges and washing machines as well as bicycles for their daily commute to work. In Europe, in general, mobility remains a popular category, with bicycles the most common type of subsidy.
Since becoming operational in 2009, the Swiss Climate Foundation has supported more than 1 300 SMEs in Switzerland and Liechtenstein with CHF 15 million in total. In 2016, 219 SMEs were supported with a total of CHF 1.55 million. These projects are expected to help avoid more than 50 000 tonnes of CO₂ emissions over the next ten years.
To fulfil this ambition, we are committed to building a diverse organisation in which our leaders inspire and engage their teams to unleash their full potential.
Our People Strategy We regard our new People Strategy as our “North Star”: It provides us with clarity and direction, is embedded in everything we do and defines our ambition for the future of Swiss Re.
In 2016, we brought our People Strategy to life through a number of changes that were positively recognised by our internal and external stakeholders: ̤ 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 differentiate ourselves from our competitors.
Our vision is to be an attractive, inclusive organisation with a clear purpose, staffed by a flexible, global workforce of diverse talents. We want to attract and retain the best people and to develop the best leaders who are passionate about “making the world more resilient”.
̤ New recruiting experience: Attracting the right talent and delivering a positive recruiting experience for our candidates and line managers is key for our success and our employer brand. Our new recruiting experience leverages digital technologies such as video recruiting in Bangalore, and will be further embedded in 2017, enabling candidates and hiring managers to interact seamlessly and effectively.
̤ Develop our leaders: We expect our leaders to have the skills to inspire and engage our people. Therefore, we have spent considerable time embedding our Leadership Imperatives (Swiss Re’s behavioural principles) and developed critical leadership skills through excellence programmes and master classes.
In the following sections, we provide more insights on how our new People Strategy is embedded in everything we do, from our culture of diversity and inclusion, to the way we develop and mentor our people.
We progressed significantly in the improvement areas we identified in the 2015 survey: Improve job rotation opportunities and opportunities across geographies, increase transparency around rewards and focus on retaining key talent – all went up 10–14%. Now our aim is to meet or exceed the high performance norm by retaining the gains we have achieved and continuing our progress in priority areas.
In 2016, we were recognised by our engagement survey providers Aon Hewitt as a Best Employer in several countries and the whole Europe region.
benchmark and 80% of participants agree that they are given the flexibility to balance work and personal life. Finally, 76% agree that their job is a good fit, and 71% feel a strong sense of accomplishment in their work.
Our engagement survey provider Aon Hewitt (www.aon.com) has a well-established and globally recognised Best Employer programme. This measures employer excellence worldwide by analysing survey results and benchmarking them against their other client companies. In 2016, Swiss Re was recognised as Aon Best Employer in nine out of 17 eligible countries: Australia, France, Germany, Italy, Japan, Mexico, Slovakia, South Africa and Switzerland. In addition, the overall region Europe has qualified for the Aon Best Employer regional recognition.
Diversity and inclusion One of the key aspirations of our People Strategy is to attract and engage talented employees from different 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”.
We are committed to this vision because it supports an environment in which our employees value each other’s differences and where they can all bring their authentic selves to the workplace – an environment in which our inclusive culture enables us to truly live our “smarter together” brand promise.
Living up to this promise, our global D&I community, a committed group of business D&I Champions, local D&I Councils and employee networks, continued their strong efforts to ensure our diversity and inclusion framework is firmly embedded in our corporate culture. These efforts are reflected in our 2016 employee engagement results, which tell us that our employees are positive about Swiss Re’s open and inclusive culture, and that they see the value we place on diversity.
Executive/senior management positions* 21.4 22.1 22.9 All management positions* 31.5 32.2 32.9 * “Executive/senior management positions” comprises the management levels of Director/Senior Vice President upwards. “All management positions” refers to Vice President and above.
Bridging generations To ensure Swiss Re attracts and retains the talent needed for the future and remains an employer of choice, it is important we understand the diverse needs of the multiple generations making up our workforce. Swiss Re’s generational diversity is expected to increase across all our locations, and our new employer brand reflects our aspirations to embrace a balanced workforce.
In particular, we are focusing on building dialogue across different age groups to break the stereotypes attached to generational preferences and workstyles. In 2016, we held workshops across the Asia-Pacific, Americas and EMEA regions. Combining internal dialogue with external trends, we are working on creating workplace solutions that take into account employee life cycles (eg parents, retirement, career starters) and the increasing demand for flexible work solutions.
We have made considerable efforts to ensure 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
Our Centre for Global Dialogue near Zurich provided the stage for the 2016 Annual Conference of “Advance - Empowering Women in Swiss Business”. Under the heading of “The Future of Work”, the event focused on how to create attractive working conditions meeting women's expectations.
In 2016, Swiss Re increased its focus on sexual orientation inclusion by forming a worldwide LGBT (Lesbian, Gay, Bi-sexual, Transgender) steering group. For the first time, we participated in the Workplace Pride 2016 Global Benchmarking (www.workplacepride.org) that scores international companies on their LGBT inclusion policies and practices across the globe. These insights and our close collaboration with best practice companies and LGBT associations, such as Stonewall (www.stonewall.org.uk) and OUTstanding (www.out-standing.org), are shaping our future strategy.
After the very successful launch of the UK LGBT ally and network programme, Together with Pride, and building on the long-standing Swiss LGBT chapter Woolf n’Wilde, LGBT initiatives were launched in the Asia-Pacific and Americas region. Swiss Re is proud to have celebrated this year the 15-year anniversary of our Swiss Woolf n’Wilde LGBT club with members, allies and several members of our global senior leadership. As part of Together with Pride, Woolf n’Wilde is one of the first LGBT networks established in a Swiss company and acts as a local employee resource group open to everyone at Swiss Re.
Swiss Re employees attending the Workplace Pride 2016 International Conference in Amsterdam. We have recently launched several initiatives focusing on LGBT inclusion at Swiss Re.
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 expectations of how managers can foster an inclusive work environment for all employees. To make these principles tangible for all our employees, we embedded them in our Leadership and Personal Imperatives.
We design and organise events as well as face-to-face and web-based training so that employees can participate in dialogues to increase their self-awareness of unconscious biases, such as those related to generations, sexual orientation and gender. Our leadership development and management training also highlights the importance of overcoming unconscious bias in all kinds of decisionmaking situations in people processes, such as recruiting, talent nomination and performance evaluation.
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 Code of Conduct, of which we published an updated version in 2016 (see pages 76–77), 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 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.
Development and training The effective development of our people and leaders is key for our enduring success. For this reason we have continued to significantly invest in this area during 2016 by reinforcing our 70/20/10 approach to development and upgrading our leadership development architecture. The 70/20/10 approach advocates a shift from formal training (10% of activity) to actions that reflect “on-the-job experiences” (70%) and “learning from others” (20%).
Leadership and management development Our ambition is to accelerate the development of leadership and managerial skills in order to inspire a multi-generational workforce. Our leadership development architecture supports the execution of our ambition through focused development of critical leadership and management skills. We have significantly increased our investment in developing managerial and leadership skills (+27% compared to 2014) and spent considerable time embedding our Leadership and Personal Imperatives to drive a high performance and feedback culture. Given our focus on this area, we are pleased to see evidence of an improved feedback culture and quality of development conversations, as supported by a +20% increase in our 2016 Employee Engagement Survey results. Thus, our employees feel significantly more positive about their career opportunities.
Going forward, we will further strengthen the capabilities of our line managers and prepare them to meet the challenges of a rapidly changing environment. We will integrate our existing programme offerings into a new leadership development architecture with a manager curriculum at every management level, complemented by our specific programmes suited to develop our talent pipeline.
Therefore, we made a number of changes to more effectively embed our 70/20/10 approach to development and growth.
We introduced a new initiative, PersonalGrowth@SwissRe, highlighting the role line managers and employees play in supporting personal growth and career development. In support of this new development, we launched an online support tool called e-Zine for the EMEA region to spur more direct ownership of individual development. We also introduced social learning through the use of technology at our Bratislava and Bangalore offices, where the average employee age is lower than in the Group as a whole.
We also offered new skill development solutions for leaders, including revamping our Talent Broker platform, to provide more visibility and simpler access to job rotations. In 2016, around 800 employees per month used the platform and around 100 rotation opportunities were advertised. We also piloted reverse mentoring with 13 members of the Reinsurance Management Team, which will be expanded across other business areas in 2017 (see www.youtube.com/ watch?v=Bs-e1Q9pC38). In addition, we continued our “speed mentoring” offers.
A total of 836 employees participated in sales training during 2016, with the average feedback score of 4.45 (out of 5). This standard exceeds industry benchmarks. We recommend that employees who work directly with our clients invest at least two days per year in formal sales training. Also in 2016, we launched a tailored threeyear development plan “Reinsurance Finance: Own your development” for our finance employees. These courses were attended by more than 1 500 employees in 2016.
In line with our flexible development and training philosophy, the Swiss Re Academy intranet site gives our employees easy access to our global learning catalogue, links to regional learning offerings and a multimedia library. Close to 78% of our training is delivered through eLearning formats. This reduces the need for our employees to travel and spend time away from the office, while supporting our commitment to reducing our carbon footprint.
Embedding the behaviours we need for the future Our Leadership Imperatives 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. However, we are aware that this cannot be achieved by simply communicating them to employees. For this reason, we continue to embed them and systemically integrate them into other human capital processes.
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.
In 2016, Swiss Re won the award for “Top Company for Graduates to Work for in the Accountancy & Insurance Sector” for the second time in a row. We received this award from TheJobCrowd (www.thejobcrowd.com), a popular graduate job review website in the UK.
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. In 2016, we hired 15 ADP interns to join the programme running from April/May to August. Those students worked in Fort Wayne (9), Armonk (5) or Dallas (1).
In three locations we offer a Junior Power programme. Originally launched in Zurich in 1981, the programme was extended to Munich in 2008 and to London in 2014. In total, we have trained over 650 apprentices and trainees through the programme. Currently, 100 apprentices and trainees, aged between 15 and 25, 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.
In turn, our apprentices and trainees contribute to the success of their respective teams, add new perspectives to Swiss Re and challenge established practices. We offer training for business roles, computer specialists, chefs, hotel housekeepers, waiters and media specialists. About 20–25% of all our former apprentices and trainees are still working at Swiss Re.
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 care and diverse engagement activities.
The Parents@Swiss Re brochure provides parents with important information on pregnancy and parenthood. From how to inform their line manager to balancing family and work, the brochure contains helpful background information on labour law and the solutions Swiss Re offers.
In general, our employees can count on diverse options such as additional family allowance, one-off childbirth allowance, additional paid maternity and paternity leave, or the option to take unpaid leave. These benefits are tailored to the local needs of our workforce and therefore differ from region to region. In Bratislava – one of our high growth locations – we introduced the concept of “maternity buddies” in 2015: Every mother on maternity leave has a maternity buddy who informs her about current activities in the team while she is on maternity leave. In 2016, we increased the communication flow to maternity leavers providing them with regular updates about news concerning the organisation as well as open positions to encourage their return. Furthermore, we are currently evaluating the feasibility of establishing a kindergarten in the new Swiss Re premises.
In 2016, we organised two events in Singapore that were dedicated to families. We held a “Kids at Work” workshop where children could experience a day in the office with their parent and join in various fun activities with other children. Furthermore, employees and their children could enjoy a range of activities at the “Family Day” event, which our CEO Reinsurance Asia also joined.
Our smaller branches in Europe (eg in France, Italy, Luxembourg and Denmark) also have Works Councils or Staff Delegates, depending on the size of the branch and local regulations.
At our Zurich headquarters, where almost a third of our total workforce is employed, we work closely with the Personnel Committee (PECO). Representing the interests of all Zurich employees, PECO aims to create and maintain a positive working environment. It is involved in changes or adaptions to the General Working Conditions or other important policies such as the Social Plan. The Committee also seeks to ensure the de facto equality of men and women, and places special emphasis on the challenges faced by employees with family obligations.
Swiss Re uses additional incentive programmes which reflect the longerterm nature of our business: Both the Value Alignment Incentive Plan (VAI), which is the deferred part of the API, and the Leadership Performance Plan (LPP) aim to reward sustained performance and long-term company success, rather than short-term results. This helps to align shareholder and employee interests more closely. The VAI applies to employees who have a total API in excess of a defined threshold, and the LPP is awarded to our senior executives and select key employees.
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 whenever they wish.
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. Health benefits and financial protection in case of ill-health are also an important part of our overall packages. We provide medical, life and disability insurance in excess of state provisions in many of our locations. Furthermore, we support employees in accumulating retirement benefits to supplement any state provisions.
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 60).
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 also conforms to the Swiss Financial Market Supervisory Authority (FINMA) provisions on corporate governance, risk management and internal control systems. Swiss Re’s corporate governance furthermore complies with applicable local rules and regulations in all jurisdictions where it conducts business.
Our key focus areas in 2016 were the enhancement of Swiss Re Life Capital Ltd’s and the Business Unit Life Capital’s corporate governance framework and the comprehensive revision of the Bylaws.
In our Corporate Responsibility Report, we highlight key elements of Swiss Re’s corporate governance, in particular with respect to its structure, the independence of the Board of Directors, conflicts of interest procedures and shareholder rights. Comprehensive information on Swiss Re’s corporate governance is available in the 2016 Financial Report on pages 80–119.
Voting right restrictions, statutory group clauses and exception rules There are no voting right restrictions and no statutory group clauses (other than the limitations on nominee registrations). 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 2016.
Changes of control and defence measures Swiss Re Ltd has not put in place any specific measures to defend against potential unfriendly takeover attempts. Swiss Re Ltd’s Articles of Association neither contain an “opting up” nor an “opting out” provision. The Board of Directors believes that the company’s best protection is a fair valuation of its shares, and that the efficiency of a free market is preferable to artificial obstacles, which can have a negative impact on the share price in the long term.
Topics and policies Our new Code addresses the following key compliance topics under two headings, “Our responsibility towards one another and Swiss Re” and “Our responsibility towards our business partners and society”: Our responsibility towards one another and Swiss Re ̤ Business information and information technology ̤ Communication ̤ Conflicts of interest ̤ Diversity & inclusion and fair and equal treatment ̤ Fraud ̤ Health, safety and security ̤ Intellectual property
Bribery and corruption The Code addresses our position on bribery and corruption. It clearly states that “we conduct business fairly without accepting or offering benefits intended to improperly influence decision-making”.
By adhering to the highest compliance standards, we ensure legal and ethical behaviour across the Group.
We also contribute thought leadership on data protection by conducting expert sessions during insurance industry events and hosting symposium events at our Centre for Global Dialogue to look at the future of regulations, cross-border data processing, big data, ethics and e-health in insurance (see pages 48–49).
Our Anti-money Laundering Standards 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, the options are described in the Code and 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.
Our initiatives address the causes and effects of risks in four areas – climate, natural hazards, water and society – both in emerging and developing countries and in regions where Swiss Re has offices.
Earn the respect of our stakeholders, creating measurable value for society and for Swiss Re 78 Swiss Re 2016 Corporate Responsibility Report
On a Community Day in Switzerland, Swiss Re volunteers and a refugee tune up a used bike for shipment to a needy community in Madagascar.
Closing the protection gap – Disaster risk financing: smart solutions for the public sector
Vietnam is one of the important high growth economies in Asia, but the country’s major cities are prone to flooding due to being located on the coast or on flood plains. This publication examines these issues and offers solutions.
Food safety in a globalised world Keeping our food safe in the 21st century
Our publications provide the gateway to Swiss Re’s broad knowledge base and expertise. They cover a wide range of topics: from technical reinsurance issues and emerging risks to natural perils, economic trends and strategic issues in our industry. This is a selection of recent publications, in addition to those featured on page 51.
With its exceptional size, perpendicular track to the coast and record-breaking low pressure, Sandy is generally regarded as a 1-in-500-year event. The storm offered many new insights to modellers, underwriters and coastal communities, but it should not be the only catastrophe benchmark in the quest for improved resilience. This publication draws on hurricanes of greater magnitude to paint a scenario that will help plan for the future.
Forests are a vital resource for life on our planet but remain largely uninsured today. Swiss Re believes the re/insurance industry can make a big difference for forestry stakeholders by helping them close the protection gap with viable forest management solutions.
This publication analyses severe weather events in the late 19th century and their potential impact on insurance today.
For more than three decades, the sigma series has been a trusted source of market information for managers and specialists in direct insurance companies worldwide. To ensure a truly global readership, sigma appears in six languages: English, German, French, Spanish, Japanese and Chinese.
Discover how a small after shock in Christchurch, NZ – a city not considered an earthquake hotspot – triggered one of the largest insurance losses ever. Our report points to soil liquefaction as a contributing factor and considers the potential for similar scenarios in Tianjin, Jakarta, Vancouver and Singapore.
The big one: The East Coast’s USD 100 billion hurricane event 01 Executive summary 02 Introduction 04 Key technology developments impacting life insurers 13 Impacts on life insurance industry 26 Strategic implications 31 New challenges 39 Conclusion
Keeping tabs on the typhoon threat Over the last 30 years, only very few major tropical cyclones have caused severe insurance loss in the Pearl River Delta region and Shanghai, the two main exposure clusters along China’s southeast coast. Several storms have made landfall in China every year but most struck areas with relatively low insured values. That said, there is no guarantee that this pattern will remain unchanged in the future. And given the exponential growth in population and physical assets the region has experienced during the same period, there is certainly no room for complacency. Should a severe typhoon hit one of China’s big urban centres today, the economic and insured loss could be substantial.