Balance as of period end 169 143 1 Impact of Accounting Standards Update. Please refer to Note 1 for more details.
In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”, a consensus of the FASB Emerging Issues Task Force (EITF) to topic 230, “Statement of Cash Flows”. ASU 2016-15 provides guidance on eight issues related to the presentation and classification of cash receipts and cash payments in the statement of cash flows with the objective of reducing existing diversity in practice. The Group adopted ASU 2016-15 retrospectively on 1 January 2018. The adoption did not have a material impact on the Group’s statement of cash flows.
Total expenses before interest expenses –2 144 –316 –1 257 –777 –357 –4 851
Specialty business may have a moderate reporting lag between the accident date and the date reported to the Group. The reported claim counts have been trending up from 2012 to 2017, which is similar to the incurred losses. For all recent years, there will be moderate increases in reported claim counts over time, which will narrow the gap of claim counts.
5 Deferred acquisition costs (DAC) As of 31 December, the DAC were as follows: Opening balance as of 1 January 444 454 Deferred 553 634 Effect of acquisitions/disposals and retrocessions 2 Amortisation –549 –595 Effect of foreign currency translation 4 –5
Debt securities issued by governments and government agencies: US Treasury and other US government corporations and agencies 218 0 1 922 18 2 140 18 US Agency securitised products 20 0 18 1 38 1 States of the United States and political subdivisions of the states 13 0 140 4 153 4 Canada 271 5 271 5 Australia 20 0 8 1 28 1 Other 34 0 119 5 153 5
Other invested assets measured at net asset value As of 31 December 2017 and 2018, other assets measured at net asset value were USD 8 million. Additionally there were USD 1 million of unfunded commitments as of 31 December 2018.
44 Swiss Re Corporate Solutions Ltd 2018 Annual Report 8 Derivative financial instruments The Group enters into various financial contracts covering risks such as weather, weather-contingent price risks, outage contingent power price risks and industry loss warrants, that are accounted for as derivative financial instruments (also referred to as Environmental Commodity Markets and Weather business, or “ECM/Weather contracts/ ILW”). The Group also uses derivatives to manage exposure to foreign currency and credit risks. Derivative positions are carried at fair value, generally by obtaining quoted market prices or through the use of valuation models, with changes in fair value recorded in the income statement.
Total derivative financial instruments 2 353 22 –93 –71 2018 Notional amount assets/liabilities
Derivatives not designated as hedging instruments Foreign exchange contracts 461 3 –5 –2 ECM/Weather contracts/ILW 1 190 8 –121 –113 Credit contracts 205 –1 –1
46 Swiss Re Corporate Solutions Ltd 2018 Annual Report 9 Acquisitions Bradesco Seguros, S.A. On 3 July 2017, the Group and Bradesco Seguros, S.A. (Bradesco) entered into a partnership combining the large commercial risk business of Bradesco with Swiss Re Corporate Solutions Brasil Seguros S.A. (SRCSB). Upon closing this transaction, SRCSB became one of the leading insurers in the commercial large-risk insurance market in Brazil. The acquisition cost was BRL 210 million paid in cash and 40% shares of SRCSB. The transaction includes Bradesco’s related operations, its team of experts and a business portfolio, including existing, new and renewal business.
Gross deferred tax assets 376 581 Valuation allowance –11 –15 Unrecognised tax benefits offsetting benefits on loss carryforwards –2
Group contributions for 2018 For the year ended 31 December 2018, the Group contributed USD 25 million to the aforementioned pension plans. The Group contributes into a number of defined contribution plans. The amount expensed in 2018 was USD 15 million.
52 Swiss Re Corporate Solutions Ltd 2018 Annual Report 13 Related parties The Group assumes and cedes certain re/insurance contracts from/to affiliated companies within the Swiss Re Group, but outside the Group. The Group also conducts various investing activities, including derivatives, with affiliated companies in the Swiss Re Group. The Group enters into financing activities where it borrows funds from affiliated companies in the Swiss Re Group. In addition, the Group enters into various arrangements with affiliated companies in the Swiss Re Group for the provision of services. These activities result in the following related party transactions on the income statement and balance sheet: Revenues Gross premiums written 137 99
None of the members of BoD and the Group EC has any significant business connection with the Group or any of its Group companies.
Report of the statutory auditor on the consolidated financial statements As statutory auditor, we have audited the accompanying consolidated financial statements of Swiss Re Corporate Solutions Ltd and its subsidiaries (the ‘Company’), which comprise the consolidated balance sheet as of 31 December 2018, and the related consolidated income statement, statement of comprehensive income, statement of shareholder’s equity, statement of cash flows and notes for the year ended 31 December 2018.
Comparing the assumptions used against appropriate benchmarks and investigating significant differences.
Moreover, not all natural catastrophe events and significant man-made losses can be modelled using traditional actuarial methodologies, which increases the degree of judgement needed in establishing reserves for these events.
Examining material movements within the uncertain tax positions in each jurisdiction.
Investment result Net investment result amounted to CHF -6 million, compared to CHF 56 million in the prior year. The decrease in investment income in 2018 was driven by lower dividend income from a subsidiary compared to prior year.
Risk Assessment The Company’s Board of Directors has issued a mandate to establish a Risk Management function to provide independent risk taking oversight for the Company and its subsidiaries. In executing this task, Corporate Solutions’ Risk Management function is supported by the Swiss Re Group Risk Management organisation. Significant parts of risk exposure identification, assessment, control and reporting for Swiss Re Corporate Solutions Ltd on a stand-alone basis are integrated in Group Risk Management processes.
Financial and reinsurance assets Assets in derivative financial instruments 2 4 Funds held by ceding companies 3 1 567 486 Cash and cash equivalents 16 18 Reinsurance recoverable from unpaid claims 3 97 251 Reinsurance recoverable from unearned premiums 3 11 12 Reinsurance recoverable on technical provisions retroceded 108 263 Deferred acquisition costs 3 449 336 Intangible assets 39 40 Premiums and other receivables from reinsurance 3 1 410 1 176 Other receivables 99 293 Other assets 3 2 Accrued income 4 6 Total financial and reinsurance assets 3 697 2 624
Operating expenses Operating expenses exclude unallocated loss adjustment expenses (ULAE) which are reclassed to internal claim expenses.
Unexpected liquidity needs (including to meet collateral calls) could require the Group to incur indebtedness or liquidate investments or other assets. The Group may not be able to secure new sources of liquidity or funding, should projected or actual liquidity fall below levels it requires. The ability to meet liquidity needs through asset sales may be constrained by market conditions and the related stress on valuations, and through third-party funding may be limited by constraints on the general availability of credit and willingness of lenders to lend. In addition, the Group’s ability to meet liquidity needs may also be constrained by regulatory requirements that require regulated entities to maintain or increase regulatory capital, or that restrict intra-group transactions, the timing of dividend payments from subsidiaries or the fact that certain assets may be encumbered or otherwise non-tradable. Failure to meet covenants in lending arrangements could give rise to collateral-posting or defaults, and further constrain access to liquidity. Finally, any adverse ratings action could trigger a need for further liquidity (for example, by triggering termination provisions or collateral delivery requirements in contracts to which the Group is a party) at a time when the Group’s ability to obtain liquidity from external sources is limited by such ratings action.