New services can lower claims through, for example: ̤ Fraud detection
By putting a price on pandemic risk and by making funding more predictable, the PEF is expected to change how we respond to similar threats in the future, increasing accountability and efficiency and contributing to a more resilient world.
Health gaps in an ageing world Other health gaps build incrementally, such as those caused by a growing share of older people in our population. The working age group is shrinking and states will struggle to cope with the financial strain of a reduced work force, eventually pushing the risk to the insurance industry.
Continuous health care: embedded devices will help consumers monitor an ever-increasing set of health-related variables.
Reinsurance Reinsurance is Swiss Re’s largest business in terms of income, providing 86% of net premiums and fee income through two segments — Property & Casualty and Life & Health. Reinsurance aims to extend Swiss Re’s industry-leading position with disciplined underwriting, prudent portfolio management and diligent client service.
In the second half of 2016, the situation was greatly aggravated in many respects.
A We need to distinguish among the different Business Units, but the common denominator is that Swiss Re has always been one of the industry leaders,
Such examples illustrate the superior service and unique approach that we strive to deliver to our clients.
Life & Health Reinsurance accounted for net income of USD 807 million in 2016, down from USD 968 million in 2015, when the result benefited from more favourable valuation adjustments. Current year results were impacted by lower performance in the UK portfolio. The net operating margin decreased to 10.4% in 2016 from 12.2% in the previous year.
For accident year 2016, large man-made losses came in below the expected level, while 2015 was impacted by an above-average amount of large man-made losses due to the Tianjin loss in China.
Market environment and outlook Global exposure growth will continue to develop unevenly in line with economic trends. Loss trends in property and casualty are likely to accelerate in some markets. The property and casualty market is generally softening; however, given that prospective returns are approaching the cost of capital, rate decreases are slowing down in many lines of business.
In addition to a lack of standardisation, the project pipeline is slow and investor rights are weak. Strengthening investor rights is particularly important for investments with a long-term nature, such as infrastructure assets, which are prone to policy changes across political cycles. Possible ways forward could be a harmonised dispute resolution mechanism, international arbitration, and the use of bilateral investment treaties.
Expenses Claims and claim adjustment expenses –9 848 –12 564 28 Life and health benefits –9 080 –10 859 20 Return credited to policyholders –1 166 –5 099 –
Property & Casualty results USD millions 2015 2016 Change in %
We will continue to pursue our successful differentiation strategy while focusing on the bottom line under current market conditions. This means that we support key partners and expect they will also reflect the support in differential terms. This positions us to access the business we want and achieve above average rates.
Our proprietary approach enables our clients to grow and write business where there is little relevant experience. Our global presence and perspective also offers clients a more accurate view on risks globally, enabling better risk selection.
Life & Health results USD millions 2015 2016 Change in %
Net investment income increased by USD 11 million to USD 1 100 million in 2016, driven by the impact of large transactions which increased the invested asset base, partially offset by the impact of lower reinvestment yields. The fixed income running yield for 2016 was 3.4%.
The casualty combined ratio increased to 115.9% in 2016 compared to 103.5% in 2015, impacted by large man-made losses in North America.
Expenses Claims and claim adjustment expenses –1 955 –2 263 16 Acquisition costs –459 –517 13 Operating expenses –734 –760 4 Total expenses before interest expenses –3 148 –3 540 12
Claims ratio in % 57.9 64.6 Expense ratio in % 35.3 36.5 Combined ratio in % 93.2 101.1
Insurance-related derivative results and foreign exchange remeasurement are not included in the investment figures above.
Strategy and priorities Life Capital’s strategy is to create alternative access to attractive life and health risk pools and to profit from disruptive trends in the industry. By bringing together the closed books business with the open books business, Life Capital can leverage synergies of expertise and deeper pools of talent to drive growth and capture the complementary earnings of the various businesses. The ambition is to build a primary life and health powerhouse with attractive returns for shareholders through growth in both the open and closed books.
Central to our integration track record within our closed book business is our proven single administration platform, Alpha, to which we have successfully migrated over 5 million policies to date. Alpha is currently supporting over 25 000 different product variants and has allowed us to decommission over 40 legacy policy administration systems, with significant benefits in terms of efficiency and productivity. Successfully transferring staff is another example of our ability to retain key talent acquired through our transactions. Since 2005, we have dealt with over 2 000 employee transfers. Throughout 2016 a key focus has been delivering the integration of Guardian Financial Services, the company we acquired in January.
Rating agency capital requirements Rating agencies assign credit ratings to the obligations of Swiss Re and its rated subsidiaries.
EVM is an integrated economic accounting and steering framework based on market-consistent valuations and defines the method for measuring value creation for all business activities of Swiss Re.
Best estimates Swiss Re values assets and liabilities based on best estimates of underlying cash flows — premiums, claims, expenses, taxes, capital costs, etc — taking into consideration all the information available at inception of a contract. As with other valuation methods that depend on projections of future cash flows, EVM involves a significant degree of judgement in establishing what assumptions should be used. Swiss Re actively and carefully reviews its assumptions, seeking both to achieve consistency across business activities and to reflect all available information.
Group CRO Leads the Risk Management function and represents it within the Group EC; advises the Board and the Finance and Risk Committee
Independent risk controlling The Group Board of Directors is ultimately responsible for Swiss Re’s risk governance principles and policies. It defines fundamental risk management principles and the risk appetite framework comprising the Group’s risk appetite and risk tolerance; in addition, it approves the Group’s risk strategy. The Group Board of Directors mainly performs risk oversight and governance through three committees: ̤ The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews top risk issues and exposures of our assets and liabilities.
Risk management activities are complemented by Swiss Re’s Group Internal Audit and Compliance units: ̤ Group Internal Audit performs independent assessments of adequacy and effectiveness of internal control systems. It evaluates the execution of processes within Swiss Re, including those within Risk Management.
Swiss Re’s internal model is based on two important principles. First, it applies an asset-liability management approach, which measures the net impact of risk on the economic value of both assets and liabilities. Second, it adopts an integrated perspective, recognising that a single risk factor can affect different sub-portfolios and that different risk factors can have mutual dependencies.
The Group EC sets an aggregate credit limit at Group level, with additional limits assigned by Business Unit, corporate counterparty and country. These limits are based on multiple factors, including underlying credit exposures and a detailed assessment of the counterparty’s financial strength, industry position and other qualitative factors.
The Financial Risk Management unit monitors and reports credit exposure and limits for the Group and Business Units on a weekly basis. In addition, it is responsible for regularly monitoring corporate counterparty credit quality and exposures, and compiling watch lists of cases that merit close attention. The reporting process is supported by a Group-wide credit exposure information system that contains all relevant data, including counterparty details, ratings, credit risk exposures, credit limits and watch lists. Key credit practitioners across Swiss Re have access to this system, thus providing the necessary transparency to implement specific exposure management strategies for individual counterparties, industry sectors and geographic regions.
The Group’s framework for mitigating operational risk is based on its three lines of control, assigning primary responsibility for identifying and managing risks to individual risk takers, with independent oversight and control by the Risk Management and Compliance functions (second line of control) as well as Group Internal Audit (third line of control). This approach is designed to achieve a strong, coherent and Group-wide operational risk culture built on the overriding principles of ownership and accountability.
Regulatory risk Swiss Re is 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.
Model risk Swiss Re uses models throughout its business processes and operations, in particular to price insurance products, value financial assets and liabilities, assess reserves and portfolio cash flows, and estimate risk and capital requirements. Analytical or financial models that are used for costing, valuation and risk capital calculations are governed by Swiss Re’s Model and Tool Assurance Framework. Model owners have primary responsibility for model-related risks and are required to adhere to a robust tool development process, including testing, peer review, documentation and sign-off. A similar process also applies to model maintenance. The goal is to ensure that each material model has a clear scope, is based on sound mathematical and scientific concepts, has been implemented correctly and produces accurate results given the stated purpose.
The Board of Directors introduces a corporate governance framework which fosters sustainable oversight and management.
2016 key focus areas Enhanced corporate governance framework for SRLC and the Business Unit Life Capital Underscoring its evolution, SRLC’s and the Business Unit Life Capital’s corporate governance framework has been aligned where appropriate in 2016 to Group and other Business Units’ standards, requirements and processes. While the SRLC Board of Directors is responsible for oversight, it has delegated the management of SRLC and the Business Unit Life Capital to the Life Capital Executive Committee (Life Capital EC). The Life Capital EC has delegated certain responsibilities to individual Life Capital EC members, to the Life Capital Management team and the Life Capital Finance, Risk and Investment Committee.
̤ Mathis Cabiallavetta, Hans Ulrich Maerki and Jean-Pierre Roth did not stand for re-election.
Revised Code of Conduct implemented in 2016 Swiss Re believes that it can only accomplish sustainable success if our stakeholders recognise us as a trustworthy partner that pursues legitimate goals using legitimate means.
Registered shareholders by type as of 31 December 2016 67.6% Institutional shareholders 28.3% Individual shareholders 4.1% Swiss Re employees
Persons acquiring registered shares will, upon application, be entered in the share register without limitation as shareholders with voting power if evidence of the acquisition of the shares is provided and if they expressly declare that they have acquired the shares in their own name and for their own account and, where applicable, that they are compliant with the disclosure requirement stipulated by the Financial Markets Infrastructure Act (“FMIA”) of 19 June 2015. The Board of Directors is allowed to remove the entry of a shareholder with voting rights from the share register retroactively from the date of entry if the entry was obtained under false pretences or if the owner, whether acting alone or as part of a group, has breached notification rules.
External appointments ̤ Board member of Nestlé S.A. ̤ Board member of Kühne + Nagel
External appointments ̤ Board member of Invesco Ltd ̤ Board member of AmeriCares ̤ Member of the Boards of Trustees of Emory University, S.S. Huebner Foundation for Insurance Education and Indian Springs School
Susan L. Wagner was elected to the Board of Directors of Swiss Re Ltd in 2014. She chairs the Investment Committee and is a member of the Chairman’s and Governance Committee and the Finance and Risk Committee.
Qualifications The Board of Directors must assemble among its members the balance of managerial expertise and knowledge from different fields required for the fulfilment of the oversight responsibility as well as for sound independent decision-making in line with the needs of the business. Membership on the Board of Directors requires a special skill set including international, national, industry or sector specific experience. The prevalence of these skills ensures that Swiss Re Ltd has the relevant expertise required for active involvement and supervision of an international listed company. The Board of Directors needs to assemble the necessary qualifications, skills and diversity to perform all required responsibilities.
Jacques de Vaucleroy was a member of the Management Committee of AXA Group from 2010 to 2016, serving as CEO of North, Central and Eastern Europe and CEO of Global Life & Savings. He also held a number of positions in boards of directors and supervisory boards of AXA companies. Before that, he spent 24 years at ING where he held senior roles in banking, asset management and insurance. He was a member of the Executive Board of ING Group from 2006 to 2009, in charge of insurance and asset management in Europe.
Investment Committee Responsibilities The Investment Committee endorses the strategic asset allocation and reviews tactical asset allocation decisions. It reviews the monthly performance of all financial assets of the Swiss Re Group and endorses or is being informed on Participations and Principal Investments. It reviews the risk analysis methodology as well as the valuation methodology related to each asset class and ensures that the relevant management processes and controlling mechanisms in Asset Management are in place.
The above table provides an overview of the meetings of the Board of Directors and its committees held in 2016.
Board of Directors and Group EC: areas of responsibility Non-transferable duties The Board of Directors has the ultimate responsibility for the success and for delivering the sustainable interests of the Swiss Re Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of Swiss Re Ltd and the Group and the Group EC as well as for supervising compliance with applicable laws, rules and regulations. Such responsibility is non-transferable and rests with the entire Board.
Delegation of management The Board of Directors has delegated the management of Swiss Re Ltd and the Swiss Re Group to the Group EC (see section Executive Management, starting on page 108). Such delegated tasks are within the responsibility of the entire Group EC. The Group EC also supports the Board of Directors in fulfilling its duties and prepares proposals for consideration and decision-making by the Board of Directors related to the following key responsibilities with Group relevance: strategy, business plan, organisational structure, accounting principles, risk tolerance levels, share capital and any share repurchase programme, along with principles of financing through capital markets as well as for important strategic transactions. The following tables provide a summary of the key responsibilities of the Board of Directors and delegations to the Group EC. They are not to be understood as exhaustive.
Group Functions and Business Units. He augments the Business Unit’s activities with targeted initiatives including direct investments. He also systematically monitors and steers Group Strategy implementation.
Christian Mumenthaler Swiss 47 Group Chief Executive Officer David Cole Dutch, American 55 Group Chief Financial Officer John R. Dacey American 56 Group Chief Strategy Officer Guido Fürer Swiss 53 Group Chief Investment Officer Agostino Galvagni Italian, Swiss 56 CEO Corporate Solutions Jean-Jacques Henchoz Swiss 52 CEO Reinsurance Europe, Middle East and Africa
In 2001, he joined Swiss Re in Zurich as Head of the Globals Business, and in 2005 was appointed to the Executive Board to head the Globals & Large Risks Division within Client Markets. In 2009, Agostino Galvagni was appointed Chief Operating Officer and member of the Group Executive Committee. He was made Chief Executive Officer Corporate Solutions in October 2010.
Thomas Wellauer joined Swiss Re in October 2010 as Group Chief Operating Officer and member of the Group Executive Committee.
The Board of Directors believes that the company’s best protection against potential unfriendly takeover attempts is a fair valuation of its shares.
Awareness raising and advocacy We regularly share our insights into the risks created by climate change through our publications and stakeholder events, and have supported efforts to form a reliable international policy framework, eg by taking part in the United Nations’ COP conferences.
Becoming more energy efficient in our own operations has been the second key measure of our Greenhouse Neutral Programme. Our goal is to continuously reduce energy intensity by at least 2% per year. Recently we stepped up our efforts to create flexible office environments that offer our employees optimal working conditions while at the same time using space and resources more effectively. In combination with moving into more energy-efficient buildings, this enabled us to further reduce our energy intensity by 3.8% in 2016, resulting in a decrease of 18.5% since 2013.
Our Sustainability Risk Framework is an advanced risk management instrument specifically designed to identify and address potentially negative effects of our transactions on local communities, workforces and the environment — helping us to safeguard our reputation in the process. The framework applies to all of our business transactions, re/insurance as well as investments, to the extent that we can influence their various aspects.
The online SBR assessment tool is now fully implemented. In 2016, our underwriters used it to carry out sustainability checks on 7 137 transactions. As the tool precisely identifies those transactions that require further assessment from our sustainability experts, the number of referrals has fallen since its introduction in mid-2015. Of the 219 transactions referred in 2016, we issued negative recommendations in 21 cases and positive recommendations with conditions attached in 20 cases.
Agile working Our future success depends on our ability to create a flexible, global workforce that is responsive and highly resilient in responding to the needs of our business. Swiss Re follows an integrated, future-focused strategy that brings together our physical workplace, technology and people management practices to take us to the next level. As part of our agile workplace initiative, line managers and employees are being trained in how to foster inclusiveness and engagement in teams working more flexibly.
1 Dividend payments are made in April of the following year. For 2016 an ordinary dividend of CHF 4.85 is proposed to the AGM 2017. In 2014 there was a special dividend per share of CHF 3.00.
US GAAP net income attributable to shareholders 3 500 4 597 3 558 of which paid out as dividend1 2 608 57% 1 561 27% 1 572 33% of which share buy-back 1 018 18% 1 0172 21% of which added to retained earnings within 1 FY 2014 includes a special dividend of USD 1.1 billion. FY 2016 is estimated based on average year-to-date CHF/USD FX rates as of February 2017. The dividend is subject to AGM approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend pay out.
The Corporate Solutions result was impacted by continued pricing pressure and large man-made losses, in particular casualty losses in North America. The Business Unit continued to pursue its disciplined growth strategy. In 2016, Corporate Solutions acquired IHC Risk Solutions, LLC (IHC) in the US, opened an office in Kuala Lumpur, obtained an insurance license in Hong Kong, and signed an agreement with Bradesco Seguros, which, once completed, will make Swiss Re a leading commercial large-risk insurer in Brazil. Premiums earned increased slightly compared to 2015, driven by the IHC acquisition.
Group EC members are covered by the Group’s standard defined-contribution pension plans.
̤ Further details can be found in the Corporate Governance section on pages 92–107 of this Financial Report.
High-level overview of topics discussed Variable compensation for the Group At Swiss Re, the compensation cycle begins in December and runs through to March/April of the following year. The Compensation Committee oversees each stage of the process, starting with deciding on the variable compensation pool for the prior performance year, reviewing these decisions, and setting targets for the upcoming year.
2 Covers 2015 equity sign-on awards which were not included in the 2015 Compensation Report.
AGM 2016 voting results At the AGM on 22 April 2016, shareholders approved for the second time the maximum aggregate prospective compensation of the members of the Board of Directors (88.3% approval). Shareholders also approved (i) the maximum aggregate prospective fixed compensation and variable long-term compensation and (ii) the aggregate retrospective variable short-term compensation of the Group EC. The outcomes were 89.5% and 90.3% approval respectively. As in previous years, the 2015 Compensation Report was subject to a consultative vote and was approved by 89.5% of the shareholder votes.
Liabilities Unpaid claims and claim adjustment expenses 5 55 518 57 355 Liabilities for life and health policy benefits 8 30 131 41 176
Liabilities for life and health policy benefits Liabilities for life and health policy benefits from reinsurance business are generally calculated using the net level premium method, based on assumptions as to investment yields, mortality, withdrawals, lapses and policyholder dividends. Assumptions are set at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. The assumptions are based on projections from past experience, making allowance for possible adverse deviation. Interest rate assumptions for life and health (re)insurance benefit liabilities are based on estimates of expected investment yields. Assumed mortality rates are generally based on experience multiples applied to the actuarial select and ultimate tables based on industry experience.
FINANCIAL STATEMENTS Notes to the Group financial statements 2 Information on business segments
Business segments – balance sheet As of 31 December 2015 USD millions
Net investment income 985 985 Net realised investment gains/losses 770 770 Other revenues 37 37
Management expense ratio in % 6.8 5.7 6.5 Net operating margin4 in % 9.0 14.7 12.2 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 and claim adjustment expenses For the year ended 31 December
Acquisition costs For the year ended 31 December 2015 USD millions
Change in unpaid claims and claim adjustment expenses; life and health benefits, thereof: Gross – with external parties –2 014 392 257 833 –532 Intra-group transactions (assumed and ceded) 702 –34 –702 34 0
Reinsurance recoverable –5 103 –4 265 Deferred expense on retroactive reinsurance –14 –340 Net balance as of 1 January 52 837 50 913
A summary of prior-year net claims and claim adjustment expenses development by lines of business is shown below: USD millions 2015 2016
All liabilities before 2007 661 Liabilities for claims and claim adjustment expenses, net of reinsurance 4 066 212 Swiss Re 2016 Financial Report
Corporate Solutions 4 598 Life & Health Reinsurance, long tail 1 861 Total net undiscounted outstanding liabilities excluding other short duration contract lines and before unallocated reinsurance recoverable 43 970 Discounting impact on (Life & Health Reinsurance) short duration contracts –241 Impact of acquisition accounting –704 Total net discounted outstanding liabilities excluding other short duration contract lines and before unallocated reinsurance recoverable 43 025 Other short duration contract lines 2 327 Unallocated reinsurance recoverable on unpaid claims –394 Total net discounted outstanding short duration liabilities 44 958
Mortgage- and asset-backed securities 4 970 118 –38 –3 5 047 Fixed income securities available-for-sale 76 155 4 279 –985 –14 79 435 Equity securities available-for-sale 4 294 632 –207 4 719 2016 USD millions
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 13 162 481 –179 13 464
Related financial instruments not set off in the balance sheet Net amount 224 Swiss Re 2016 Financial Report
Level 2 inputs are market-based inputs that are directly or indirectly observable, but not considered level 1 quoted prices. Level 2 inputs consist of (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical assets or liabilities in non-active markets (e. g. markets which have few transactions and where prices are not current or price quotations vary substantially); (iii) inputs other than quoted prices that are observable (e. g. interest rates, yield curves, volatilities, prepayment speeds, credit risks and default rates); and (iv) inputs derived from, or corroborated by, observable market data.
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December, the reconciliation of the fair values of assets and liabilities measured on a recurring basis using significant unobservable inputs was as follows: 2015 USD millions
Weather contracts –82 –41 Proprietary Option Model Risk Margin 8%–11% (9.7%) Correlation –59%–48%
The following table presents details of acquired intangible assets subject to amortisation as of the date of acquisition: The goodwill of USD 65 million relates to the Corporate Solutions Business Unit. The goodwill is expected to be deductible for tax purposes.
Guardian Holdings Europe Limited On 6 January 2016, the Group acquired 100% of the shares of Guardian Holdings Europe Limited, the holding company for operations trading under the name Guardian Financial Services (“Guardian”) from private equity company Cinven. Guardian provides insurance solutions to financial institutions and insurance companies, either through the acquisition of closed books of business or through entering reinsurance agreements with its customers.
Long-term debt issued in 2016 In May 2016, Swiss Re Admin Re Ltd issued senior notes due 2023. The notes have a face value of EUR 750 million, with a fixed coupon of 1.375% per annum.
Diluted earnings per share Net income assuming debt conversion and exercise of options 4 665 3 626 Weighted average common shares outstanding 379 938 482 369 281 060 Net income per share in USD 12.28 9.82 Net income per share in CHF2 11.81 9.66 1 Please refer to Note 11 “Debt and contingent capital instruments“. 2 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates.
Effect of settlement, curtailment and termination 0 Exchange rate gain/loss recognised during the year –22 –22 Total recognised in other comprehensive income, gross of tax 246 –23 12 235 Total recognised in net periodic benefit cost and other comprehensive income, gross of tax 355 –9 13 359
Effect of settlement, curtailment and termination 0 Exchange rate gain/loss recognised during the year –42 –42 Total recognised in other comprehensive income, gross of tax –11 129 22 140 Total recognised in net periodic benefit cost and other comprehensive income, gross of tax 88 135 24 247
The fair value of the insurance contract is based on the fair value of the assets backing the contract.
As of 31 December 2015 and 2016, the Group had the share-based compensation plans as described below.
A summary of the movements in shares relating to outstanding awards granted under the restricted share plans for the year ended 31 December 2016 is as follows: Weighted average exercise price in CHF
The disclosure requirements under Swiss Company Law in respect of participations of members of the Board of Directors and the Group Executive Committee, as well as closely related persons, are detailed on pages 292–293 of the Annual Report of Swiss Re Ltd.
Brazil Sul America S.A., Rio de Janeiro BRL 2 320 15 e Swiss Re Brasil Resseguros S.A., São Paulo BRL 295 100 f
Investment vehicles for unit-linked and with-profit business 8 770 Commercial mortgage/infrastructure loans 1 053 1 053 1 Maximum exposure to loss is the loss the Group would absorb from a variable interest in a VIE in the event that all of the assets of the VIE are deemed worthless. 2 The maximum exposure to loss for swaps in trusts cannot be meaningfully quantified due to their derivative character.
Opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of the Company at 31 December 2016, the results of their operations and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America and comply with Swiss law.
̤ Involving our own life insurance actuarial specialists to test the methodology and assumptions used by management, with particular consideration of industry studies, the Company’s experience and management’s liability adequacy test procedures.
Key audit matter The Company is carrying a provision for uncertain tax items on its books. The valuations of these items are based on management’s estimates and ‘more-likely-than-not’ tax assessments. Fluctuations in the estimates of uncertain tax items have an impact (through income tax expense) on the results.
How our audit addressed the key audit matter We assessed and tested the design and operating effectiveness of selected key controls of the completeness of the uncertain tax items and management’s assessment of them.
Valuation of uncertain tax items — initial probability assessment 278 Swiss Re 2016 Financial Report
Liabilities Unpaid claims and claim adjustment expenses 78 195 70 944 68 412 64 690 64 878 63 670 61 484 57 954 55 518 57 355 Liabilities for life and health policy benefits 44 187 37 497 39 944 39 551 39 044 36 117 36 033 33 605 30 131 41 176
Income statement Net income for 2016 amounted to CHF 3 972 million (2015: CHF 3 865 million) and was mostly driven by cash dividends from subsidiaries and affiliated companies of CHF 3 517 million.
Long-term liabilities decreased by CHF 140 million to CHF 113 million as of 31 December 2016, mainly due to a reduction in the provision for currency fluctuations of CHF 154 million, partially offset by an increase in the tax provision of CHF 14 million.
Own shares held by subsidiaries 112 788 211 472 Own shares held by Swiss Re Ltd direct 28 395 225 32 755 754
Share-based compensation The share-based compensation for the members of the Board of Directors for 2015 and 2016 was: Members of the Board of Directors Fees in blocked shares1
Glossary 300 Cautionary note on forward-looking statements 306 Note on risk factors 308 Contacts 316 Corporate calendar 317
Amount of risk which the policyholder or insurer does not insure or reinsure but keeps for its own account.
Head office Swiss Re Ltd Mythenquai 50/60, P.O. Box, 8022 Zurich, Switzerland Telephone +41 43 285 2121 Fax +41 43 285 2999
You can get more information on our strategy in the 2016 Business Report at: reports.swissre.com/2016/businessreport /our-strategy.html
̤ Task Force on Climate-related Financial Disclosures (FSB-TCFD): see page 17 and 2016 Financial Report, pages 123–130
Since detecting the long-term threat posed by climate change almost 30 years ago, we have been an acknowledged thought leader on the topic. To tackle the issue, we pursue a comprehensive strategy with four pillars. These are described below: The four pillars of our climate change strategy
Our footprint We apply best-practice standards of resource management to our properties and logistic operations as well as guidelines to our sourcing activities. In doing so, we continually reduce Swiss Re’s direct environmental impact.
On an operational level, various divisions, departments and units are involved in implementing Swiss Re’s commitment to corporate responsibility in daily business. The Group Sustainability Risk unit drives the development of Group risk policies and related strategic projects and coordinates communication, dialogue and engagement efforts across the Group. In addition, it is responsible for producing Swiss Re’s Corporate Responsibility Report, which is reviewed by senior management and approved by the Board of Directors.
In 2016, MiCRO launched a new product in Guatemala offering insurance protection against losses resulting from excessive rainfall, severe drought or earthquakes. It is an index-based solution, paying out automatically according to predetermined parameters and event data from objective sources, including NASA satellites. Local partners Banrural (www.banrual.com.gt) and Aseguradora Rural (www.aseguradorarural.com.gt) sell the policies. Swiss Re provided technical assistance during product development and reinsures the risks.
A mother and daughter team preparing fresh black tortillas for a small restaurant in the northwest of Guatemala. Working together with MiCRO and other partners, we help to insure small businesses and smallholder farmers in the country against natural disaster and weather risks that may threaten their livelihoods.
Rentel will comprise 42 wind turbines of 7.35 megawatts each, in total producing 309 megawatts at peak. The turbines are connected to an offshore transformer station, from which the power will be transmitted to an onshore substation at Zeebrugge and fed into the grid. The electricity generated by the wind farm will supply approximately 285 000 households with climate-friendly energy. Construction started in early 2017 and is expected to be completed by the end of 2018.
(19 000 members plus partners) ̤ One of AkzoNobel’s pension funds
Main concerns in key sectors Respecting human rights and protecting the environment ̤ Human rights violations and abuses such as murder, torture, deprivation of liberty, forced labour or harmful child labour; ̤ Countries that lack an operational, effective and internationally recognised government; ̤ Companies that are causing ongoing, severe and unmitigated damage to the environment, flora and fauna of a particular place and biodiversity in general, especially in industries and activities that have had a problematic track record in this area in the past.
our re/insurance transactions and our investments, to the extent that such an exclusion is permissible (eg by virtue of mandatory law or internal policies) and possible (eg if existing documentation relating to such re/insurance transactions and investments provide for it). These criteria include: involvement in prohibited war material; verifiable complicity in systemic, repeated and severe human rights violations; causing repeated, severe and unmitigated damage to the environment; unregulated proliferation of nuclear weapons; and unethical/cruel animal testing practices.
Country exclusions Swiss Re also excludes certain countries from its business that have particularly poor human rights records. This step goes further than compliance with international trade controls (ITCs). Our goal is to refrain from directly underwriting risks or making investments in entities that are based in these countries. At the end of 2016, the list of excluded countries comprised the Central African Republic, Chad, DR Congo, North Korea, Somalia, Sudan (both North and South) and Syria. We review this list annually based on independent human rights assessments and update it if warranted. The review carried out in 2016 did not produce any changes.
There is evidence that hydrofracking itself creates earthquakes of very small magnitude. These are generally not felt at the surface, but they have been linked to the stimulation of larger earthquakes. Moreover, the common practice of disposing of hazardous wastewater by injecting it at high pressure into deep ground changes the tectonic stress conditions within the rock. This adds to the likelihood of higher-magnitude earthquakes.
Rates products Rates products2 constitute the largest asset class in our investment portfolio, with a share of 51% at the end of 2016. At 37% of total assets under management, government bonds (incl. agency) are the largest holding within rates products.
As long-term investors, re/insurers could play a pivotal role in bridging the emerging infrastructure financing gap, which, in turn, would contribute to a healthier economic environment. But for that to happen, the right framework needs to be put in place. Standardisation of infrastructure investments would be an important step forward, while infrastructure debt as a tradable asset class would certainly make infrastructure more attractive for long-term investors.
Agricultural and Natural Catastrophe Insurance Forum Natural disasters occur frequently in China and are widely scattered. They affect individuals, businesses and governments alike. Up until recently, however, those at risk have largely ignored the potential financial impact of natural disasters when accounting for their financial and fiscal liabilities. Moreover, they have not set aside any contingent capital to prepare for such liabilities. For government bodies, in particular, this protection gap is highly significant as it could grow exponentially in coverage and scale in the future.
Our 4th Symposium on Data Protection looked at one particular aspect of the digital transformation: “Ethics and e-health in insurance”. Capturing new and personalised health data sets, such as real-time monitoring of fitness and exercise data through wearable devices and mobile apps, has clear benefits for individuals as it helps them to maintain a healthy lifestyle. Likewise, it would also have advantages for life and health insurers, enabling them to spot upcoming problems their clients may be facing and to give them corresponding advice. It might even make it possible to provide cover to people so far considered “uninsurable”.
Management and Economics project at the Swiss Federal Institute of Technology (ETH) Zurich, which aims to advance a holistic approach to managing risks and educate a new generation of researchers; ̤ We have supported the integrated research activities conducted by Swiss-based ProClim – the Forum for Climate and Global Change – and received access to the latest scientific findings; ̤ We support the “20th Century Reanalysis” project of the NOAA Earth System Research Laboratory and the University of Colorado, Boulder. It contains objectively-analysed fourdimensional weather maps and their uncertainty from the late 19th to the 21st century.
Change in % since 2013 1 The figures for 2013 and 2015 have been restated to account for company acquisitions and changes in emission factors.
Goals of Phase 2 of our Greenhouse Neutral Programme: ̤ Maintain the emissions reductions we achieved between 2003 and 2013 regarding power consumption, heating and business travel; ̤ Fully offset the remaining emissions; ̤ Continuously reduce energy intensity (power consumption and heating) by 2% per year (kWh/FTE); ̤ Obtain 100% of power from renewable sources by 2020.
In 2016, total CO2 emissions per employee (FTE) increased by 6.2% and were thus 3.9% higher than in 2013. The main reason was a significant rise in business travel, which outweighed further gains in our energy intensity (see on the right). A second factor was that we created jobs in countries where power consumption is relatively carbon intensive, eg in India. This situation is one of the reasons why we helped to establish the Climate Group’s RE100 initiative (see box on the left).
Recently, we signed up for EcoVadis, a collaborative platform for sustainable supply chain management, which covers a wide range of screening criteria across the topics of environmental impacts, human rights, labour practices and impacts on society. This will allow us to assess the sustainability performance of our suppliers more systematically with the help of key performance indicators and to engage them in improvements, thus also reducing potential sustainability risks in our supply chain.
A model showing the open, flexible workspaces we are creating at Swiss Re Next, our new headquarter building in Zurich. Along with facilitating collaboration and supporting different work situations, this concept will also reduce the building’s environmental footprint. You can watch a video about the new working environment at next.swissre.com/en/#workspaces
Swiss Re Next Under the title of Swiss Re Next, we are currently constructing a replacement building for the former Neubau (“new building”) at the Group’s Zurich headquarters. From the start, sustainability was defined as one of the key features of the project. Our goal is to be awarded the MINERGIE-P-ECO® certificate as well as the highest certification level of the US LEED system (usgbc.org/leed) – LEED Platinum.
The COyou2 Programme Tackling our carbon footprint is one of four pillars of our climate change strategy (see page 12). In 2007, we launched the COyou2 Programme because we wanted to make our commitment more tangible for our employees and help them to become more aware of climate change. The programme offers subsidies for a range of investments through which our employees can reduce their private carbon footprints. To our knowledge, it was the first global corporate initiative of its kind at the time.
To help our people stay fit, we provide onsite fitness centres or classes and encourage employees to join the local gym. For instance, in Switzerland we provide fitness rooms where employees can work out or join lessons such as yoga or spinning. We also have a sport complex with a swimming pool, tennis courts and soccer court where our employees, their partners and children have unrestricted, free access. Our employees regularly enjoy spending quality time there, especially over the summer period when a number of social events take place.
Our approach has allowed us to better clarify behavioural expectations, simplify processes and make the tools more flexible. 2016 was the second consecutive year we successfully applied the two-dimensional approach to all eligible employees and which significantly helped us to differentiate performance.
Swiss Re considers good corporate governance as one of the preconditions to ensure sustainability throughout all the Group’s activities and indispensable to maintaining long-lasting, valuable relationships with its stakeholders. We recognise that transparent disclosure of our governance structure fosters assessment of the quality of our organisation and business conduct.
Training All new permanent and temporary employees joining Swiss Re must undergo mandatory eLearning training on the Code. Completion of the training is tracked and instances of non-completion are escalated until resolution. The Code eLearning course was updated in 2015, putting the focus on ethical behaviour in accordance with the principles of the Code and its relationship to Swiss Re’s values. It has an interactive character and requires employees to assess behaviour and actions in various scenarios.
Our core goals: Empower communities to become more resilient to risk and adapt to a changing natural and social environment
Engage Swiss Re employees as local volunteers and as expert consultants in our global programmes
The Swiss Re Foundation in 2016 – Shared skills, resilient futures This report presents the Swiss Re Foundation’s approach, a focus section on employee engagement, its awards and an overview of its programmes.
RE100 The Climate Group is partnering with CDP to encourage the world’s most influential businesses to join RE100 and commit to going 100% renewable. The aim is for at least 100 companies to make a global 100% renewable commitment with a clear timeframe for reaching their goal. www.theRE100.org
Energy G4-EN3 Direct energy consumption 7, 8 53 G4-EN4 Indirect energy consumption