Business Units at a glance Working across diversified insurance risks and businesses to maximise shareholder value.
1 The 10% ENW per share growth target is calculated as follows: (current-year closing ENW per share + current-year dividends per share) / (prior-year closing ENW per share + current-year opening balance sheet adjustments per share). This target applies since 1 January 2016. The reported figures for 2014 and 2015 have been adjusted for consistency with the target definition and are provided for reference purposes only.
Diverging economic growth While fiscal stimulus boosted US real GDP growth in 2018, growth slowed in many other economies.
Introducing the ADAS Risk Score: Swiss Re and BMW Group’s partnership for safer roads As vehicles become increasingly autonomous, Swiss Re is enabling insurers to take ADAS into account in motor insurance products.
This infographic does not represent the highest definition our Flood Toolkit model can offer
Sohila Kwan, Asia Head of Health & Medical Solutions, Swiss Re
The team is diverse — members hail from Europe, Asia, Africa and the Americas, and represent a wide range of skills and experience — but they all have at least two things in common: an open mind and a determination to transform our business.
Changes in 2018/2019 John R. Dacey, formerly Group Chief Strategy Officer, assumed the role of Group Chief Financial Officer (CFO) on 1 April 2018, succeeding former Group CFO David Cole. On 1 September 2018, Russell Higginbotham became CEO Reinsurance EMEA, succeeding Jean-Jacques Henchoz who has decided to pursue an opportunity outside Swiss Re. On 1 November 2018, Group COO Thomas Wellauer announced he was to retire at the end of June 2019. Anette Bronder was appointed Group COO, effective 1 July 2019. On 1 March 2019, Andreas Berger assumed the role of CEO Corporate Solutions, succeeding Agostino Galvagni who decided to step down at the end of 2018. As of the date of this publication, the Group EC consisted of 12 members.
Investor Relations Telephone +41 43 285 4444 Fax +41 43 282 4444 investor_relations@swissre.com
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Combined ratio in % 133.4 117.5 Net operating margin in % –23.5 –11.1 Return on equity in %1 –32.2 –19.4 Life Capital Net income attributable to common shareholders 161 23 –86
Our net income in our Property & Casualty Reinsurance segment was USD 370 million, mostly impacted by the natural catastrophes and the US GAAP accounting change. Amid the still challenging market, it was crucial that we maintained our disciplined underwriting approach, ensuring adequate prices for the protection we provide. In our Life & Health Reinsurance segment, I’m pleased that we were able to deliver strong growth driven especially by large transactions. In this segment, we reported net income of USD 761 million in 2018 – evidence
When Swiss Re first published a study identifying climate change as an emerging risk thirty years ago, the topic was lauded for its environmental importance, but was not yet perceived as a material business issue.
Growth accelerated in the US, but slowed in other major economies. Long-term bond yields increased modestly in the US along with central bank interest rates, while yields were unchanged or slightly lower elsewhere. Global equity markets ended the year in negative territory.
– United States (S&P 500) – United Kingdom (MSCI UK) – DJ Euro STOXX 50 – Japan (TOPIX) – Switzerland (SMI) Source: Datastream
Re/insurers could be affected by volatility in asset prices and slower growth in the affected markets. A “flight to quality” could lead to a sustained drop in interest rates and exacerbate the challenges from the persistent low yield environment. A scenario of unexpectedly high inflation, however, could have a sizeable impact on re/insurance claims, especially in casualty lines. A more positive scenario of stronger growth and contained inflation would be beneficial for the re/insurance industry. Investment yields would improve, albeit only slowly, and premium volumes would rise along with economic activity. China could maintain growth of near 7% rather than slow gradually, benefiting Asia overall and global commodity exporters in particular.
Reinsurance capital will remain abundant and capitalisation of the industry will remain strong going forward. Nonetheless, reinsurance pricing which has stabilised in 2018 is expected to not further soften in 2019.
Life Capital delivered a net income of USD 23 million in 2018, compared to USD 161 million in 2017, impacted by unfavourable UK investment market performance. As a result, Life Capital’s net operating margin declined to 3.9% in 2018, compared to 10.9% for 2017.
Book value per common share stood at USD 93.09 or CHF 91.72 at the end of 2018, compared to USD 106.09 or CHF 103.37 at the end of 2017. Book value per common share is based on common shareholders’ equity and excludes non-controlling interests and the impact of contingent capital instruments.
In contrast to last year’s outlook, which was more balanced, the balance of risks is skewed to the downside, amid increasing protectionism (e.g. US–China trade conflict) and ongoing monetary policy tightening. Late-cycle concerns (especially in the US) and the political climate (including Brexit and the European Parliament election as well as elections in India, South Africa and Argentina) add to the uncertainty. We thus continue to maintain a welldiversified and high-quality investment portfolio, braced for further bouts of market volatility in the coming year.
Net investment income increased by USD 352 million to USD 1.3 billion for 2018, mainly due to a higher invested asset base alongside the impact of rising interest rates.
Management expense ratio in % 5.7 5.4 Net operating margin in % 13.1 9.4
reflecting a decrease in the investment result of USD 244 million.
Shareholdersʼ equity Common shareholdersʼ equity decreased by USD 0.6 billion to USD 1.8 billion at the end of 2018, driven by the net loss for the period, a change in unrealised losses of USD 82 million and a dividend of USD 50 million paid to the Group. The return on equity was –19.4% in 2018, compared to –32.2% in 2017.
At Swiss Re Corporate Solutions, we’re always looking for ways to make our innovative technology available to our clients. We aim to make it easy for them to get the information, services and support they need, when they need it. Our latest innovation is PULSE, an all-in-one platform that gives our international corporate clients a simple, user-friendly way to get their latest risk data and manage complex insurance programs at any time, on any device.
Eva is available to Swiss Re clients as a white-label app that can plug into existing systems, allowing them to dramatically improve customer service without committing to a costly system upgrade. She also helps reduce the cost of acquisition and improve online conversion rates because – unlike agents – Eva can have multiple conversations at once and is available to assist customers day and night. Eva’s vocabulary can align with a clients’ specific branding and products, and she can adapt to a client’s local culture.
Premiums and fees retention rate, %1 97.7 99.2 87.6 48.8 97.5 Premiums and fees growth rate, % −5.1 −21.1 −0.6 79.3 −12.4
2 The overall previous years’ business profit margin for the Business Unit Reinsurance was 0.8%.
Cost of debt −58 −40 36 −2 −3 −67 Release of current year capital costs 908 1 060 200 398 493 3 059 Additional taxes 299 −272 −37 −38 −86 −133
Profit margin – new business, % −3.1 8.2 −2.2 11.8 1.2 Profit margin – previous years’ business, %1 11.7 1.8 −36.4 23.1 3.5 Profit margin – investments, % −2.4 −19.4 −11.9 −16.5 −18.3 1 The overall previous years’ business profit margin for the Business Unit Reinsurance was 5.7%.
SST risk-bearing capital (SST RBC) The SST RBC is derived from the SST net asset value (NAV), which represents the difference between the market consistent value of assets and liabilities, according to the valuation methodology prescribed under SST. For this purpose, the SST NAV is adjusted for the items in the table below.
Compared to the previous reporting period, the SST NAV decreases by USD 3.6 billion. The decrease is mainly driven by dividends paid and share repurchases, negative foreign exchange movements in 2018 and negative investment contributions. These effects are partly offset by positive contributions from underwriting activities.
A description of the change in market value margin, which represents the capital costs for the run-off period, is provided together with the SST TC comments below.
External dividends to shareholders Based on the Group’s solid economic earnings, the Board of Directors proposes a regular dividend of CHF 5.60 per share for the 2018 financial year, up from CHF 5.00 in 2017.
Maintenance of target capital structure Having achieved the Group’s target capital structure in 2016, the focus is now on maintaining it.
Liquidity position of Swiss Reinsurance Company Ltd (SRZ) From a liquidity perspective, SRZ is the most important legal entity of the Group. The estimated total liquidity sources in SRZ available within one year, after haircuts and net of short-term loans from Swiss Re Ltd and securities lending, amounted to USD 15.0 billion as of 31 December 2018, compared with USD 17.9 billion as of 31 December 2017. Based on the internal liquidity stress tests described above, we estimate that SRZ holds surplus liquidity after dividends to Swiss Re Ltd.
The framework comprises the following major elements: ̤ Risk governance documentation, including Group Risk Policy ̤ Key risk management principles ̤ Fundamental roles for delegated risk-taking ̤ Risk culture ̤ Organisation of risk management, including responsibilities at Board and executive level
̤ The Group Risk Management Standards outline how the Group organises and applies its risk management practices.
Risk control framework Swiss Re operates within a clearly defined risk control framework. This is set out in the Group Risk Management Standards and comprises a body of standards that establish an internal control system for taking and managing risk. These standards set responsibilities for risk takers and risk controllers. The risk control framework defines key tasks, which are the core components of Swiss Re’s risk management cycle: ̤ Risk tolerance and appetite assessment of plan – ensures that the risk implications of plans are understood, and determines whether business and investment plans adhere to the risk appetite framework (risk appetite and tolerance).
In addition, Risk Management performs the following risk control activities: ̤ Model and tool assurance – ensures that models or tools used for costing, valuation and risk capital determination are based on sound scientific concepts, have been implemented and calibrated correctly, and produce accurate results.
̤ To maintain capital and liquidity at respectability levels that are sufficiently attractive from a client perspective, and that meet regulatory requirements and expectations
̤ Valuation risk represents uncertainty around the appropriate value of assets or liabilities. It may arise from product complexity, parameter uncertainty, quality and consistency of data, valuation methodology, or changes in market conditions and liquidity. Swiss Re is exposed to financial valuation risk from investment assets it holds as well as reserve valuation risk from insurance liabilities that result from the coverage it underwrites.
Cyber risk and information security are a key focus of Swiss Re’s operational risk controls. The Group performs an annual cyber risk assessment to determine the current maturity of controls; this is based on internationally recognised standards defined by the Information Security Forum. The results of the assessment are shared with senior management and integrated into Swiss Re’s Group-wide cybersecurity programme. This programme focuses on five key areas: security culture, critical information, technology defence, incident response and supplier governance.
Swiss Re works closely with industry peers to develop and share best practices for assessing and managing model-related risks. In this context, Swiss Re is actively participating in a CRO Forum working group that provides a platform for such exchanges and are working on frameworks for model risk.
Swiss Re is a founding signatory to the UN Principles for Sustainable Insurance (UN PSI) and is currently a board member of this initiative. The UN PSI provide a global framework for managing environmental, social and governance challenges. Swiss Re has been actively contributing to the initiative for several years, co-chaired it from 2013 to 2015 and publicly reports progress against the principles in its annual Corporate Responsibility Report; the 2018 edition has been published together with the 2018 Financial Report.
̤ The Board Committee Charters, outlining the duties and responsibilities of the SRZ, SRCS and SRLC Board Committees
Management Board at T-Systems International) was appointed Group Chief Operating Officer and a member of the Group EC with effect from 1 July 2019, succeeding Thomas Wellauer, who will retire on 30 June 2019.
Shares held by Swiss Re 28 524 882 8.4 Share buy-back programme 10 050 442 3.0 1 Without Swiss Re’s holdings.
Profit-sharing and participation certificates Swiss Re Ltd has not issued any profitsharing and participation certificates.
Educational background ̤ Business Finance and Accounting degree, University of St.Gallen, Switzerland
External appointments ̤ Chairman of the Board of Directors of Novartis Inc. ̤ Chairman of the Board of Trustees of the Novartis Foundation
Jacques de Vaucleroy was elected to the Board of Directors of Swiss Re Ltd in 2017. He chairs the Compensation Committee and is a member of the Chairman’s and Governance Committee and the Investment Committee. He is also Chairman of Swiss Re Europe S.A. and Swiss Re International SE.
The Board of Directors proposes that the following Board members be re-elected for a one-year term: ̤ Walter B. Kielholz ̤ Renato Fassbind ̤ Raymond K.F. Ch’ien ̤ Karen Gavan ̤ Trevor Manuel ̤ Jay Ralph ̤ Joerg Reinhardt ̤ Eileen Rominger ̤ Philip K. Ryan ̤ Sir Paul Tucker ̤ Jacques de Vaucleroy ̤ Susan L. Wagner ̤ Larry Zimpleman
Each committee provides a report of its activities and recommendations following a committee meeting at the next Board of Directors meeting. If any significant topic comes up, the committees contact the Board of Directors immediately. It is the responsibility of each committee to keep the full Board of Directors informed on a timely basis, as deemed appropriate.
Board of Directors 17 meetings1 Group EC members, Group CLO, Company Secretary 3¼ hours
2 Includes members who stepped down from the Board of Directors during the year.
Duration of the mandate and term of office of the lead auditors PricewaterhouseCoopers Ltd (PwC) was appointed as the external auditor of Swiss Re Ltd when the company was founded on 2 February 2011. PwC had been elected as the external auditor of the previous parent company of the Group, Swiss Reinsurance Company Ltd, at its Annual General Meeting 1991 and had been re-elected annually since then. The Annual General Meeting 2018, following the proposal of the Board of Directors, based on the recommendation by the Audit Committee, re-elected PwC for a term of one year as external auditors.
Fees (excluding value added taxes) for professional services provided by PwC in 2018 were as follows: in USD m
In 2019, Swiss Re will host Management Dialogues with investors and analysts in London on 23 May to discuss current topics and will organise an Investors’ Day in Zurich on 25 November.
News release 4 May Swiss Re reported first quarter 2018 net income of USD 457 million (ROE of 5.6%), net of USD 280 million due to a change in US GAAP accounting; CHF 1.0 billion share buy-back programme to commence on 7 May 2018
News release, media conference call 26 June Swiss Re launches “Responsible Investments – the next steps in our journey” to share its experience one year after implementation of ESG benchmarks
earnings, capital efficiency and Swiss Re’s position against peers, all of which are critical to sustain shareholder value creation.
The individual grant level for each member of the Group EC is based on a stable CHF amount which in any year cannot exceed 1.5 × annual base salary for each member of the Group EC, excluding the Group CEO, and 2 × annual base salary for the Group CEO. In 2018, the total of the LPP grants awarded to members of the Group EC, including the Group CEO, amounted to CHF 13.2 million. The LPP grant awarded to the Group CEO amounted to CHF 2.0 million.
1 XL Group Ltd has now been integrated into AXA SA with effect from 12 September 2018.
The maximum aggregate amount of compensation for the members of the Board of Directors is approved by the AGM in advance of the term of office for which the Board members are elected. The Board members receive no variable or performance-based compensation. The fee level for each Board member, subject to their re-election, is reviewed annually.
̤ Review and confirm appropriateness of the LPP in the current market context June, September and December
The following table reflects total mortgages and loans for members of the Group EC as of 31 December: CHF thousands 2017 2018
Compensation for members of the Board of Directors The following two tables illustrate (1) the individual compensation for the members of the Board of Directors for the reported financial years 2017 and 2018 and (2) the individual compensation for the members of the Board of Directors paid or payable for the term of office from AGM 2018 to AGM 2019.
Shares held by members of the Board of Directors The number of shares held by members of the Board of Directors as of 31 December were: Loans to members of the Board of Directors No loans were granted to current or former members of the Board in 2018 and no loans were outstanding as of 31 December 2018.
Related parties transactions Disclosure on compensation decisions in 2018 covers members of the Board of Directors and the Group EC as indicated, and for both includes related parties to the extent applicable. Such related parties cover spouses, partners, children and other dependents or closely linked persons. In 2018, no compensation was paid to any related party.
Climate-related financial disclosures Among issues that may threaten sustainable progress, climate change represents a key concern for the re/insurance business. This is why we play an active part in a task force set up by the Financial Stability Board to develop climate-related financial disclosures (TCFD, www.fsb-tcfd.org).
On average, insured losses due to natural catastrophes have increased steadily over the past 20 years. The key reasons have been economic development, population growth, urbanisation and a higher concentration of assets in exposed areas. At the same time, the protection gap, ie the difference between insured and total economic losses, has remained substantial in all regions (see graph on page 185).
Regarding the long-term time horizon (2040), we expect a substantial need to adjust some of our weather risk models, based on current scientific knowledge. We are confident, however, that future research will continue to give us sufficient guidance on the magnitude and direction of these adjustments. The potential impact of climate change, including natural variability, is already being assessed and integrated into our risk view today, eg through regular updates of tropical cyclone frequencies. In addition, we conduct internal research and collaborate with academia to study the impact on extreme weather events in the near and medium term.
The weighted average carbon intensity of the UK credit portfolio was lower than that of the US portfolio, but above its corresponding ESG benchmark at the end of 2018.
Listed equities in Swiss Re’s portfolio continued to be much less carbon-intensive compared to their corresponding benchmark due to the active reduction of companies that exceeded the threshold of 30% in coal-related revenues and the single name selection of less carbon-intensive names across industries. In 2018, investments in emerging market equities partly offset prior reductions.
206 Swiss Re 2018 Financial Report recorded against deferred tax assets when it is deemed more likely than not that some or all of the deferred tax assets may not be realised.
Net premiums written 8 138 3 688 11 826 Change in unearned premiums 79 –54 25
Retrocession to external parties –348 –1 306 –296 –414 –2 364
Discounting information The following disclosure covers the discounting impact for the disaggregation categories included in the claims development information. Discounting information for Life & Health Reinsurance long tail as of 31 December was as follows: Carrying amount of discounted claims 1 262 1 223 Aggregate amount of the discount –291 –291 Interest accretion1 28 35 Range of interest rates 2.9% –3.6% 3.0% –3.6%
As of 31 December, the DAC were as follows: 2017 Property & Casualty Life & Health Corporate USD millions Reinsurance Reinsurance Solutions Life Capital Total
Total investment income – unit-linked and with-profit business 794 200 800 202
Total realised gains/losses – unit-linked and with-profit business 2 110 211 –2 199 –396
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 2017 and 2018, USD 17 742 million and USD 18 601 million, respectively, of fixed income securities available-for-sale were callable.
Total fixed income securities available-for-sale 93 278 99 248 89 673 92 538
Weather contracts –35 –77 Proprietary option model Risk margin 5–11% (9.3%) Correlation –71–56% (–0.5%) Volatility (power/gas) 28–117% (57.3%) Volatility (temperature) 96–775 (268) HDD/CAT2 Index value (temperature) 800–4366 (2451)
Equity securities include Swiss Re common stock of USD 6 million (0.1% of total plan assets) and USD 4 million (0.1% of total plan assets) as of 31 December 2017 and 2018, respectively.
Equity securities: Equity securities held for proprietary investment purposes 1 141 414 103 1 658
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: 2017 USD millions Real estate Other assets Total
Earnings/losses per share in CHF 1.49 2.64 6.79 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.
Assets Total assets increased from CHF 24 971 million as of 31 December 2017 to CHF 25 360 million as of 31 December 2018.
Current assets increased by CHF 198 million to CHF 4 156 million as of 31 December 2018, mainly driven by an increase in loans to subsidiaries and affiliated companies, partially offset by a decrease in receivables from subsidiaries and affiliated companies.
Receivables from subsidiaries and affiliated companies/Other receivables also include derivative financial instruments which are carried at the lower of cost or market value.
Payables to subsidiaries and affiliated companies/Other liabilities also include derivative financial instruments which are carried at the lower of cost or market value.
Trademark licence fees Trademark licence fees are charged by the Company to its direct and indirect subsidiaries and their branches that benefit from the use of the Swiss Re brand.
Capital and indirect taxes Capital and indirect taxes related to the financial year are included in other expenses. Value-added taxes are included in the respective expense lines in the income statement.
As of 31 December 2018, Swiss Re Ltd had outstanding debts of CHF 493 million (2017: CHF 0) due after five years.
Allocations relating to the dividend paid 4 043 –4 043 0 Dividend for the financial year 2017 –1 551 –1 551 Net income for the financial year 3 077 3 077 Share buy-back programme 20171 –415 –415
The impairment assessment is considered a key audit matter due to the considerable judgement in the valuation model and inputs and adjustments applied.
Insurance against financial losses sustained through the failure, for commercial reasons, of policyholders’ clients to pay for goods or services supplied to them.