Net income before attribution of non-controlling interests 411 170 Other comprehensive income, net of tax: Change in unrealised investment gains/losses –144 40 Change in foreign currency translation –68 7
Principles of consolidation The Group’s financial statements include the consolidated financial statements of SRCS and its subsidiaries. Voting entities which SRCS directly or indirectly controls through holding a majority of the voting rights are consolidated in the Group’s accounts. Variable interest entities (VIEs) are consolidated when the Group is the primary beneficiary. The Group is the primary beneficiary when it has power over the activities that impact the VIE’s economic performance and at the same time has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Companies which the Group does not control, but over which it directly or indirectly exercises significant influence, are accounted for using the equity method or the fair value option and are included in other invested assets. The Group’s share of net profit or loss in investments accounted for under the equity method is included in net investment income. Equity and net income of these companies are adjusted as necessary to be in line with the Group’s accounting policies. The results of consolidated subsidiaries and investments accounted for using the equity method are included in the financial statements for the period commencing from the date of acquisition.
In August 2014, the FASB issued ASU 2014-13, “Measuring the Financial Assets and the Financial Liabilities of a Consolidated Collateralized Financing Entity – a consensus of the FASB Emerging Issues Task Force”, an update to topic 810, “Consolidation”. The ASU applies to entities that are required to consolidate a collateralised financing entity (CFE) under the variable interest entity (VIE) consolidation guidance when the entity measures all financial assets and financial liabilities of the CFE at fair value, with changes in fair value recorded in earnings. Before the ASU became effective, if an entity would measure the fair value of assets and liabilities separately following applicable US GAAP rules, the aggregate fair value might have differed. The new guidance allows the use of the more observable of the fair value of the financial assets or the fair value of the financial liabilities of the CFE to measure both. The Group adopted ASU 2014-13 on 1 January 2016. The adoption did not have a material effect on the Group’s financial statements.
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 Update is permitted. The Group is currently assessing the impact of the new requirements.
Liabilities Derivative financial instruments –8 –106 –114 Total liabilities at fair value –8 0 –106 –114 2016 USD millions
The Group’s debt as of 31 December was as follows: Interest expense on long-term debt Interest expense on long-term debt for the years ended 31 December was as follows: Long-term debt In 2014, Swiss Re Corporate Solutions Ltd issued a 30-year subordinated fixed rate resettable callable loan note with a first optional redemption date on 11 September 2024 and a scheduled maturity in 2044. The note has a face value of USD 500 million, with a fixed coupon of 4.5% per annum until the first optional redemption date.
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 entity that could potentially be significant to the VIE.
Key audit matter Given the ongoing market volatility and macroeconomic uncertainty, investment valuation continues to be an area of inherent risk. The risk is not the same for all investment types and is greatest for those listed below, where the investments are more difficult to value because quoted prices are not always available: ̤ Fixed income securitised products ̤ Fixed income mortgage and asset-backed securities ̤ Other derivatives and insurance-related financial products
Provisions for profit commissions gross 3 21 35 Equalisation provision gross 3 183 183 Total technical provisions gross 4 818 5 481
Deferred acquisition costs Deferred acquisition costs consist principally of commissions and are related to the generation of new reinsurance business. Property and casualty deferred acquisition costs are generally amortised in proportion to premiums earned. The amortisation schedule can also be calculated to be in line with the expected profits of the business, so no statutory profits are shown until the deferred acquisition costs are fully amortised.
To secure the technical provisions at the 2016 balance sheet date, securities with a value of CHF 453 million (2015: CHF 431 million) were deposited in favour of ceding companies. There were no security deposits to external third parties in 2015 and 2016.
In 2016, net undisclosed reserves were released by an amount of CHF 77 million (2015: no release).
Given the ongoing market volatility and macroeconomic uncertainty, determination of market values, where no observable market price exist, investment valuation continues to be an area of inherent risk. The risk is not the same for all investment types and is greatest for derivatives – rates, where the investments are more difficult to value because quoted prices are not always available.
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 could also be adversely affected by the insolvency of, or other credit constraints affecting, counterparties in its insurance operations. Moreover, the Group could be adversely affected by liquidity issues at ceding companies or at third parties to whom the Group has retroceded risk, and such risk could be exacerbated to the extent any such exposures are concentrated.
The Group uses non-GAAP financial measures in its external reporting. 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.