This combination of actions is expected to allow us to continue to benefit from improvements in pricing in the reinsurance market, and to reinforce our capital strength.
We have also brought on board David Blumer, as our new Chief Investment Officer and Head of Asset Management. David, who has extensive expertise in asset management, has already been critical to a successful reorganisation of our Asset Management function.
12% Asia 8% Asia 40% Europe (including Middle East and Africa)
A lasting, effective relationship; ̤ Delivery of excellent service through all ̤ available channels, directly or in conjunction with a broker; and Client satisfaction. We continuously ̤ measure individual areas of client satisfaction.
Focus on profitable (re)insurance business In 2008, we continued our focus on strict (re)insurance cycle management. As we reduced risk in our investment portfolio, we directed capacity to the most profitable lines of business and transactions. Our superior Property & Casualty combined ratio is a result of these successful efforts. We leveraged our size to write large lines – such as a USD 1.5 billion gross reinsurance cover with the California Earthquake Authority – and to participate in several multi-year, privately placed catastrophe programmes. We also closed significant Admin Re® transactions with Barclays Life and Phoenix. January 2009 renewals were very strong both in terms of volume and price. We were able to win large new insurance transactions such as a property quota share with Liberty Mutual and a structured life reinsurance treaty with Irish Life.
For example, one of our business units enhanced its processes to substantially reduce quote turnaround time. It also implemented a programme called “Boost Industry Participation (BIP)”, which challenges qualifying employees to assume leadership positions in the industry, whether as a speaker at an industry meeting, a trade organisation committee member or as the author of an industry magazine article. The BIP programme resulted in a significant improvement in our knowledge and expertise scores from our clients.
How can Swiss Re help you with the challenges you face in 2009? Our focus is on growth and profitability. We will need to continue relying on Swiss Re’s expertise to help us develop insurance and reinsurance products – and channels – that can increase our market penetration.
Recognise that, due to the size of our relationship and the degree of transparency that exists between us, Swiss Re is an ambassador of the IAG brand, both within Australia and globally.
Top Topics are the core of our issue management approach. They allow us to prioritise and translate the cutting-edge knowledge and solutions generated by our risk experts into consistent messages relevant to key decision-makers in our business environment. Top Topics cover a range of issues from regulatory developments to where we see potential for future business growth and new risk management techniques and risk transfer approaches.
The current Top Topics are: Agriculture ̤ Climate change ̤ Country risk management ̤ Insurance-linked securities ̤ Liability dynamics ̤ Longevity ̤ Natural catastrophes ̤ Solvency II ̤ US regulatory insurance reform ̤
It is not all about professional qualifications and experience. We place just as much emphasis on developing leadership, multicultural competencies and interpersonal skills. Various corporate learning programmes are in place to ensure continuous learning, sharing best practices, promoting understanding of strategies and providing networking platforms. In 2008, more than 10 000 participants attended people management, leadership and social skills courses and well over14 000 participants attended technical professional programmes.
We also strive to meet our employees’ expectations with regard to the company’s active ethical, environmental and social engagement. Over the past decade, we have consciously stepped up our efforts to be a leader in corporate responsibility. The positive effects of our engagement are a source of pride and inspiration for our employees to use their expertise and participate in the company’s projects serving the public good.
At the end of 2008, the total amount of investments and unfunded commitments in the sustainability sector was CHF 695 million. By far the largest new transaction was the commitment of CHF 167 million to Generation Investment Managementʼs Climate Solutions fund, which invests in companies providing solutions to address climate change.
Our offices in Italy funded new diagnostic equipment for the hospital of Ngozi in Burundi. The contribution will assist efforts by the Fondazione Pro-Africa and the University of Verona to turn the hospital into a regional centre of excellence for medical treatment and training. In South Africa we have been funding the construction of a school hall at a primary school in Bosmont, a Johannesburg suburb, for three years. The final phase of building brick walls was completed in 2008, and 1100 pupils, mostly from less advantaged backgrounds, can now benefit from the new school facility.
Life insurers in the US and Japan have been most exposed to the fall in stock markets and the subsequent impairment of investments. In the US, realised capital losses reached USD 37 billion through the third quarter of 2008, or 12% of 2007 industry capital. In the UK, some insurers also suffered as a result of their equity exposure. Continental European companies are least affected, due to their limited exposure to impaired assets and stocks. Government support for the insurance industry has been restricted to the few cases of large bancassurance groups facing problems as a result of their banking activities.
Actual returns from proprietary assets are included in the investment results of Asset Management and Legacy.
1 Including unit-linked and with-profit business of CHF 1 016 million for 2008 and CHF 1 060 million for 2007 2 Including unit-linked and with-profit business of CHF –4 793 million for 2008 and CHF 445 million for 2007
Policy loans, mortgages and other loans 7 414 6 611 –11
Premiums earned for non-traditional business were stable at CHF 0.5 billion.
Acquisition costs declined to CHF 2.6 billion from CHF 2.7 billion in 2007. Excluding currency exchange effects, acquisition costs rose 9.8%, driven by new business in the traditional life segment and amortisation of the present value of future profits (PVFP) recognised for the acquired policies in the Admin Re® segment.
Investment result Overall, the return on investments, excluding Legacy, was 4.7% compared to 5.3% in the prior year.
In the UK, the sharp reduction in the mortgage market will present challenges for life insurers as a large proportion of life and critical illness sales are linked to mortgages. Recent data, however, indicates that, overall, sales of protection policies could be more resilient than sales of mortgages and savings products – possibly because financial advisers are turning their attention to protection products in the absence of sales opportunities in mortgages and savings products.
Core risks are split into three broad categories: Insurance risk is the risk of incurring a financial loss as a result of a property, casualty, life ̤ or health insurance event.
Group capital requirement under different risk measures CHF billions, as of 31 December 2008 99% Tail VaR 99.5% VaR
In addition, we use insurance-linked securities as a means of reducing peak exposures. The Vita index-linked security transactions, for example, were arranged to provide protection against extreme mortality events. This is now a well-established programme.
Risks are captured using a classification of risk factors that is maintained and updated by Financial Risk Management. In addition, we continuously review business activities to detect any emerging risks. Our business units are responsible for measuring the financial market risk arising from their activities according to the guidelines provided by Risk Management; the results are captured in the Market Risk Aggregation & Reporting System, which is also used for risk modelling and risk reporting.
Reputational risk Maintaining our reputation with clients, investors, employees and other stakeholders is vital to continued business success. Environmental, social and ethical reputation risks may arise from specific business transactions. In addition, Swiss Re’s reputation may be damaged by operational failures.
The amount of spot liquidity held is largely based on internal liquidity stress tests, which estimate the potential short-term cash and collateral requirements stemming from an extreme insurance event or a financial market crisis. These cash and collateral requirements under stress include: cash and collateral outflows, as well as potential capital and funding support required by ̤ subsidiaries as a result of the assumed insurance or financial market event. repayment or loss of all maturing unsecured debt and credit facilities. In the event of a ̤ financial market crisis, it is assumed that secured funding is only available on government and agency bonds.
Swiss Re’s very strong business position, financial flexibility, as well as our outstanding franchise, and prudent risk management are reflected in superior insurance financial strength ratings.
Free transferability Swiss Reinsurance Company Ltd’s shares are freely transferable, without any limitations, provided that the buyers declare that they are the beneficial owners of the shares and comply with the disclosure requirements of the Swiss Federal Act on Stock Exchanges and Securities Trading (“Stock Exchange Act”) of 24 March 1995.
(i) Holders may convert the bonds, due in 2021 and issued in denominations of USD 10 000 principal amount and integral multiples thereof, into registered shares of Swiss Reinsurance Company Ltd at any time on and after 22 November 2001, and prior to the close of business on 21 November 2011, at a conversion price of CHF 207.19 per share and a fixed exchange rate of USD 1 = CHF 1.6641. The exercise of this convertible bond will not affect Swiss Re’s conditional capital, as Swiss Reinsurance Company Ltd purchased a call option to hedge the underlying shares. If bond holders convert the bond, Swiss Re will exercise the hedge option to obtain the necessary shares without accessing Swiss Re’s conditional capital.
Thomas W. Bechtler joined Swiss Re’s Board of Directors in November 1993. His mandate was renewed in 1997, 2001 and 2005, each time for a further four-year term. Thomas W. Bechtler also serves on the Boards of Directors of Credit Suisse Group, Bucher Industries, Sika AG and Conzzeta Holding AG. From 1987 to 1999, he served as Chairman of “Swisscontact”,
First election and remaining term of each director Please refer to the table provided on page 94.
Besides the committee members and minutes taker, selected individuals are invited to attend Compensation Committee meetings in an advisory capacity. In 2008, the following people exercised an advisory role on the Committee: Peter Forstmoser, Chairman of the Board of Directors ̤ Walter B. Kielholz, Vice Chairman ̤ Jacques Aigrain, Chief Executive Officer ̤
In 2008, there were six regular meetings of the Finance and Risk Committee. There were no extraordinary meetings and no resolutions by written agreement. On average, the meetings lasted 2.5 hours. Seven or eight agenda items were discussed per meeting. Average attendance was 97.6% during the reporting year.
The Board of Directors exercises the ultimate authority of the Group. It has delegated the responsibility for managing the Group’s operations to the Executive Committee (see section 4 below).
Stefan Lippe Chief Operating Officer Deputy Chief Executive Officer 4 Executive management
In July, Andreas Beerli announced that he would retire in the course of 2009. The Board of Directors appointed Stefan Lippe to succeed him as Chief Operating Officer with effect from September 2008, conferring on him, in addition, the title of Deputy Chief Executive Officer. The Board of Directors also appointed Brian Gray as Chief Underwriting Officer and member of the Executive Committee, effective 1 September 2008.
Changes in 2009 On 11 February 2009, Jacques Aigrain resigned as Chief Executive Officer; the Board of Directors appointed Stefan Lippe as his successor, effective 12 February 2009.
To the extent that members of the Executive Committee are engaged in activities in governing and supervisory bodies, institutions and foundations, or perform permanent management and consultancy functions for important interest groups or accepted official functions and political posts, such information is included in the curricula vitae under 4.1 above.
5.1 Content and method of determining the compensation and shareholding programmes
Total compensation The total reward offering comprises the following elements: Set in relation to market median ̤Base salary and benefits
Jakob Baer, Chairman of the Audit Committee 785 480 320 800
Statutory rules on participating in the General Meeting of shareholders if differing from legal provisions In line with the legal provisions, any shareholder with voting rights may have his/her shares represented at any General Meeting by another person authorised in writing or by corporate bodies, independent proxies or proxies for deposited shares. Such representatives need not be shareholders.
Extraordinary General Meetings may be called by resolution of the General Meeting or the Board of Directors, or by shareholders with voting powers, provided they represent at least 10% of the share capital.
Corporate governance and compensation report 7 Changes of control and defence measures
In accordance with the Swiss Federal Act on the Licensing and Oversight of Auditors, and to ensure independence of the external auditor, the lead audit partner rotates from his or her role after seven years.
Net income/loss 4 162 –864 Other comprehensive income, net of tax: Change in unrealised gains/losses (tax: 213 in 2007 and –963 in 2008) 889 –5 526 Change in foreign currency translation (tax: –201 in 2007 and –238 in 2008) –2 349 –2 300 Change in adjustment for pension benefits (tax: –194 in 2007 and –123 in 2008) 609 –414
Interest paid during 2008 was CHF 1 644 million including interest paid on repurchase agreements. The Group settled a mandatory convertible bond totalling CHF 996 million with equity.
Other assets include deferred expenses on retroactive reinsurance, separate account assets, prepaid reinsurance premiums, receivables related to investing activities, real estate for own use, property, plant and equipment, accrued income, certain intangible assets and prepaid assets.
The Group has a long-term incentive plan, a fixed option plan, a restricted share plan, and an employee participation plan. These plans are described in more detail in Note 14. The Group accounts for share-based payment transactions with employees using the fair value method. Under the fair value method, the fair value of the awards is recognised in earnings over the vesting period.
Fixed income securities, which remain in the trading category, include assets related to unit-linked and with-profit business and assets designated to match monetary liabilities to balance the foreign exchange remeasurement impact under SFAS No. 52 “Foreign Currency Translation”.
The fair values of assets are adjusted to incorporate the counterparty risk of non-performance. Similarly, the fair values of liabilities reflect the risk of non-performance of the Group, captured by the Group’s credit spread. These valuation adjustments have resulted in a net realised gain from assets and liabilities measured at fair value using significant unobservable inputs. Whenever the underlying assets or liabilities are reported in a specific business segment, the valuation adjustment is allocated accordingly. Valuation adjustments not attributable to any business segment are reported in Group Items.
Pursuant to the election of the fair value option for the items described, the balances as of 31 December 2008 were as follows: Total losses included in earnings for the year ended 31 December 2008, including foreign exchange impact, were CHF 1 150 million.
The fair value of derivatives outstanding as of 31 December 2007 and 31 December 2008 was as follows: As of 31 December 2007 As of 31 December 2008
As of 31 December 2007 and 31 December 2008, other accrued expenses and other liabilities included derivative financial instruments with a fair value of CHF 6 535 million and CHF 9 571 million, respectively.
Deferred tax assets Income accrued/deferred 667 509 Technical provisions 1849 651 Unrealised losses on investments 191 650 Pension provisions 148 264 Benefit on loss carryforwards 2084 4 396 Currency translation adjustments 265 574
The Groups employee participation plan consists of a savings scheme lasting two or three years. Employees combine regular savings with the purchase of either actual or tracking options. The Group contributes to the employee savings over the period of the plan.
Jacques Aigrain, Chief Executive Officer 236 275 249 620 Stefan Lippe, Deputy Chief Executive Officer and
The range of expiry years for unvested options held by members of governing bodies was 2014 to 2015 as of 31 December 2007 and 2015 as of 31 December 2008.
The former Financial Markets Segment has been split into two areas: Asset Management which focuses on generating stable risk adjusted investment returns on assets generated through (re)insurance activities and the provision of certain specific capital markets insurance solutions and Legacy which contains discontinued activities formerly in Financial Markets or Property and Casualty.
Ireland Swiss Re International Treasury (Ireland) Ltd 0 100 f Swiss Reinsurance Ireland Ltd 118 100 f
The assessment if Swiss Re Group is the primary beneficiary is reviewed whenever circumstances qualify as a reconsideration event under FIN 46(R). These events include: the VIE’s governing documents or contractual arrangements are changed in a manner ̤ that changes the characteristics of the Group’s involvement; the Group’s assumption of additional variable interests; and ̤ the Group’s sale or disposal of variable interests, or the issuance of variable interests ̤ by the VIE to unrelated parties.
The following table shows the total assets and liabilities in the Group’s balance sheet related to VIEs in which the Group holds a significant variable interest: The total assets of VIEs of which the Group holds a significant variable interest for periods ended 31 December 2007 and 2008, respectively, were as follows: The following table shows the Group’s maximum exposure to loss and the liabilities related to VIEs in which the Group holds a significant variable interest: The liabilities of CHF 865 million for insurance-linked and credit-linked securitisations represent the negative fair value of the total return swaps Swiss Re Group has entered into with the securitisation vehicles. The negative fair value is caused by a decrease of value of some of the assets held as collateral by the vehicles.
Swiss Re Group and Berkshire Hathaway Inc. have agreed in principle, as announced on 5 February 2009, that Berkshire Hathaway Inc. will invest CHF 3 billion in Swiss Re Group. The final closing of the investment is subject to the shareholder approval.
Investments in subsidiaries and affiliated companies 17 092 17 403 Loans to subsidiaries and affiliated companies 13 737 16 188 Mortgages and other loans 749 756
1 The number of registered shares eligible for dividend at the dividend payment date decreased since the proposal for allocation of profit, dated 29 February 2008, due to the net effect from the share buy-back of 13 980 000 shares and the issuance of 16 100 new registered shares from options being exercised. This resulted in a lower dividend of CHF 55 855 600 compared to the Board of Directors’ proposal, and in higher retained earnings brought forward from the previous year by the same amount.
Provision for claims incurred but not reported by the balance sheet date. In other words, it is anticipated that an event will affect a number of policies, although no claims have been made so far, and is therefore likely to result in liability for the insurer.
“During turbulent times, any temporary stable market condition must be taken advantage of. Thanks to meticulous organisation, Swiss Re successfully launched its inaugural benchmark Sterling hybrid Tier 1 notes at short notice when windows of stability were identified.” (“The Banker”, May 2008)
Swiss Re maintains over 65 office locations in over 25 countries. For a full list of office locations and service offerings, please visit our website at www.swissre.com