2007 Annual Report
Advancing Performance
We enable the risk-taking that is
essential to enterprise and progress.
Who we are
Swiss Re is a leading and
highly diversified global
reinsurer. We combine out-
standing financial strength
and unparalleled insurance
expertise with a committed
client focus.
What we do
We offer a comprehensive
range of reinsurance and
financial solutions to manage
risk and capital. Our aim
is to create sustainable
value for both clients and
shareholders.
How we do it
Our success is founded on
expertise, dialogue with clients
and sound governance. We
attract, develop and inspire
the best talent to advance
our performance and deliver
innovative solutions.
Cover: Swiss Re offices in Zurich.
From left: Martin Steiner, Client Markets Europe
Adrian Kärle, Globals & Large Risks
Christina Salvetti, Property & Specialty
Swiss Re 2007 Annual Report 2
Key information
Premiums earned1
Net income1
40 000
30 000
CHF millions
20 000
33 %
35%
36 %
37 %
40 %
10 000
0
67 %
65 %
64%
63%
2003
2004
2005
2006
Property & Casualty Life & Health
60%
2007
5 000
4 000
3 000
2 000
1 000
0
CHF millions
4 560
4 162
1 702
2 475
2 304
2003
2004
2005
2006
2007
Return on equity1
Shareholders’ equity1
20
15
10
5
0
13.6
16.3
13.5
30 000
in %
40 000
CHF millions
30 884
31 867
10.2
10.3
20 000
18 511
19 177
24 393
10 000
0
2003
2004
2005
2006
2007
2003
2004
2005
2006
2007
1 2005 – 2007 figures are based on US GAAP, and previous years on Swiss GAAP FER
Financial strength ratings
as of 22 February 2008
Rating
Outlook
Share information
as of 22 February 2008
Share price in CHF
Market capitalisation in CHF millions
Number of shares entitled to dividend
Share performance
in %
Swiss Re
Swiss Market Index
DJ Europe STOXX Insurance Index
S&P
AA–
stable
Moody’s
Aa2
stable
A.M. Best
A+
under review, negative
77.05
26 212
340 196 856
2003 – 22 February 2008 (p.a.)
–3.1
9.7
6.4
2007
–22.4
–3.4
–12.1
200
Share price in CHF
Annual performance in %
180
160
140
120
100
80
60
40
20
0
2003
2004
2005
2006
2007
2008
Swiss Re Swiss Market Index DJ Europe STOXX Insurance Index
40
20
0
–20
–40
Corporate highlights
Strong net income of CHF 4.2 billion with excellent underlying performance;
earnings per share of CHF 11.95; book value per share of CHF 92.00
Property & Casualty reported its best performance ever with operating income of
CHF 5.9 billion and a combined ratio of 90.2%, despite an increase in natural
catastrophe events compared to the previous year
Life & Health improved on a very strong prior year result with operating income of
CHF 2.7 billion and a return on operating revenues of 14.7%
Financial Markets activities delivered a solid return of investments of 4.9%
Mark-to-market loss on structured credit default swaps of CHF 1.2 billion reported
in fourth quarter
Shareholders’ equity increased 3% to CHF 31.9 billion on strong earnings
Return on equity remains above target at 13.5%
Total capital returned to shareholders in 2007 through dividend and share buy-back
was CHF 3.7 billion
2007 dividend increased to CHF 4.00 per share
Share buy-back programme increased to CHF 7.75 billion and expected to be
completed over the next 24 months
Financial highlights
CHF millions unless otherwise stated
Property & Casualty
Premiums earned
Combined ratio, traditional business in %
Life & Health
Premiums earned
Return on operating revenues in %
Financial Markets
Operating income
Return on investments in %
Group
Premiums earned
Net income
Earnings per share in CHF
Dividend per share in CHF
Shareholders’ equity
Return on equity in %
Number of employees2
¹ Subject to approval at the Annual General Meeting on 18 April 2008
² Permanent staff
2006
2007
Change in %
18 541
90.5
18 999
90.2
10 974
9.2
12 665
14.7
7 021
5.0
7 332
4.9
29 515
4 560
13.49
3.40
30 884
16.3
10 891
31 664
4 162
11.95
4.00¹
31 867
13.5
11 702
2
15
4
7
–9
–11
18
3
7
2007 Annual Report
Contents
Letter to shareholders
2
Profi le
6 Key events
8 Swiss Re at a glance
16 Strategic direction and vision
19
Talent and expertise
22 Knowledge and solutions
26 Corporate responsibility
Advancing performance
31 Advancing performance – The CEO’s view
34
Performance for Swiss Re
36
Performance for our clients
38
Performance for partnerships
40
Performance for the future
Financial year
42
Economic environment and industry trends
47 Group results
50 Summary of fi nancial statements
52
Property & Casualty
57
Life & Health
61
Financial Markets
64 Business outlook
Governance
66 Risk and capital management
80 Corporate governance and compensation report
Swiss Re shares
122
Financial statements
127 Contents
129 Group fi nancial statements
135 Notes to the Group fi nancial statements
199 Swiss Reinsurance Company, Zurich
216
Financial years 1998 – 2007
General information
217 Cautionary note on forward-looking statements
218 Glossary
224 Managing Directors
226 2007 awards
228 Business contact information
Corporate calendar
Swiss Re 2007 Annual Report 1
Letter to shareholders
Dear shareholders, ladies and gentlemen
As you are well aware, 2007 was a year of contrasts. Your company delivered the second-best
result in its 144-year-history, with net income of 4.2 billion (CHF 11.95 per share) and out-
standing performance across almost all areas of our business. However, in November we
suffered an isolated, yet very significant, loss from our credit underwriting activities. There is
no doubt that we failed to live up to your expectations, a fact we take very seriously.
But before we review the year in more detail and explain our outlook for your company’s future
success, allow us to recognise our employees for their achievements in delivering our 2007
results.
Outstanding results across the business
Our Property & Casualty segment had its best performance ever, achieving a combined ratio
of 90.2%. This resulted in an outstanding operating income of CHF 5.9 billion. We would
like to underline that this success reflects the quality of our underwriting and is not simply the
result of good luck. In 2007, the level of weather events was higher than in the previous year,
despite the low intensity of natural catastrophes in the US. Winter storm Kyrill in Germany,
a series of floods in the UK, storms in Australia, and Cyclone Gonu in the Middle East, among
others, caused industry-wide claims of USD 23 billion. While there is no room for complacency,
our underwriting and client teams can be very proud of their contribution to our success.
Life & Health also improved on an already very strong prior year result. The return on operating
revenues increased from 9.2% to 14.7% as we leveraged our position as the leading reinsurer
in this segment. We also benefited from our geographic diversity, as well as greater diversi-
fication by lines of business following the integration of the portfolio acquired from General
Electric. Operating income grew to CHF 2.7 billion, a 76% increase over 2006. New mortality
and critical illness business was slightly lower as a result of increased competition, but this
was more than offset by growth in our Admin Re® segment and the excellent development of
our variable annuity and longevity businesses.
The Financial Markets segment developed positively, despite a generally difficult market envi-
ronment. In 2007, we generated operating income of CHF 7.3 billion and a solid return on
investments of 4.9%. The quality of this result is demonstrated by the fact that it does not rely
on capital gains: net realised losses in 2007 were CHF 1.2 billion, compared to net realised
gains of CHF 0.8 billion in 2006. The investment portfolio quality is strong and impairments
were modest at 37 basis points of assets under management. New business written, in
particular in the Admin Re® and longevity areas, led to a sharp increase in managed assets to
CHF 176.0 billion, a rise of 9% since the end of 2006. In addition, we benefited from the credit
market dislocation, reinvesting our cash flow in higher-yielding but very high quality assets,
thus ensuring enhanced returns for the future.
Our insurance-related capital market capabilities enabled us to respond to clients’ needs with
broader, more comprehensive products. We leveraged our established strengths in this area
by extending our Successor programme, issuing the first-ever securitisations of Mediterranean
and Central American earthquake risks, and acting as an underwriter of catastrophe and
life securitisations for clients such as Allianz, Groupama and the Savings Bank Life Insurance
Company of Massachusetts (SBLI).
From left:
Peter Forstmoser
Chairman of the Board of Directors
Jacques Aigrain
Chief Executive Officer
2 Swiss Re 2007 Annual Report
Book value
Per common share (CHF), as of 31 December
59.64
61.78
73.87
86.21
92.00
2003
2004
2005
2006
2007
Letter to shareholders
In addition, we extended our capabilities by establishing the first catastrophe bond indices in
association with Standard & Poor’s, and by developing solutions for variable annuity, longevity
and environmental risks. Our capital market capabilities are a key part of our business, allowing
us to assign more capacity to natural catastrophe risks and improving our asset performance
with a wide range of hedging and equity overlay techniques, without increasing the volatility
of our earnings.
The integration of GE Insurance Solutions has advanced well, with synergies on track. Business
retention at the end of 2007 was 77%, significantly exceeding our expectations, and talent
retention was also strong, with 85% of targeted executives staying with Swiss Re. The quality
of the assets acquired was borne out by our ability to significantly reduce retrocession recover-
ables from CHF 10.2 billion at the date of acquisition to CHF 5.1 billion at the end of 2007. The
acquisition not only extended our market reach, it also allowed us to strengthen our expertise
in several areas, including health, engineering and marine.
The strong performance across almost all business segments clearly demonstrates the under-
lying strength of your company. In 2007, we delivered a return on equity of 13.5% and increased
your shareholders’ equity by CHF 1.0 billion to CHF 31.9 billion. Book value per share also rose
to CHF 92.00, a 7% increase over the end of 2006, despite the return of CHF 3.7 billion to
you in 2007, in the form of dividends and through our share buy-back programme. Based on
the Group’s strong capital position, the Board of Directors will propose an increased dividend
of CHF 4.00 per share.
These results show the significant cash value we added for you, our shareholders, but are also
a reflection of our success in serving clients across the world, helping them manage complex
risks and protecting them against uncertainty.
Actions in response to the loss in credit underwriting
As mentioned earlier, our fourth quarter result was impacted by a significant loss in our struc-
tured credit activities. This was triggered by two related transactions providing credit risk pro-
tection against the default of a basket of US mortgage-backed securities – a risk that was
considered to be remote at inception. Unprecedented action by the rating agencies in October
led to a rapid wave of downgrades of these securities. This resulted in a mark-to-market loss
for Swiss Re of CHF 1.2 billion before tax.
Regrettably, we remain exposed to continued fluctuation in the market value of the underlying
securities. We are working hard to mitigate the resulting risks. As of 31 December 2007, the
mark-to-market loss had not changed materially. Based on market movements as of 20 Febru-
ary 2008, we estimate a further mark-to-market impact of CHF 240 million. This change in
value is currently offset by positive developments in Swiss Re’s investment portfolio.
The structured credit activities of our Credit Solutions business had been successful for more
than a decade. While guidelines were respected, in this underwriting case, the business model
was pushed beyond its limit. In retrospect, the decision to underwrite this risk was unfortunate.
The wider impact of this event was far greater than the actual size of the write-down, and the
resulting loss of confidence has been plain to see. The responsibility for this ultimately lies with
the leadership of the firm.
Swiss Re 2007 Annual Report 3
Letter to shareholders
4 Swiss Re 2007 Annual Report
The business unit in which the loss occurred is marginal to our credit reinsurance business
and we have ceased writing structured credit derivative transactions, putting the existing port-
folio into run-off. We have learned from the mistake and are confident that we have a stronger
organisation as a result.
We took immediate action to strengthen the risk taking and supervision processes by intro-
ducing a more rigorous product approval process, and further enhancing our risk monitoring
and stress testing. We are focused on restoring trust in Swiss Re through decisive actions and
transparency.
It is a reflection of Swiss Re’s scale and quality that such a significant loss impacted our fourth
quarter earnings only – now a profit of CHF 170 million – and had no impact on the superior
ratings or capital strength of the firm.
Outlook for 2008 and beyond
Your company is strongly positioned to deliver continuous improvement in its earnings per
share over the near future. New product development, in particular in our life and health busi-
ness, is supporting the positive momentum in our revenues.
With property and casualty rates softening and client retentions increasing, the industry is en-
tering a more challenging business environment compared to the very favourable markets of
2006 and 2007. In these conditions, Swiss Re will not pursue premium growth; instead, we
will strictly apply the same approach to underwriting that has delivered the successful results
we are now sharing with you. Our disciplined underwriting and careful risk selection were
reflected in a 12% reduction in volume during the January 2008 renewals. Our focus continues
to be on achieving attractive margins and delivering strong earnings per share for you.
We have already taken steps to prepare for the changing property and casualty market by
extending our approach to the trading of insurance risk. In January 2008, we entered into a
significant quota share arrangement to increase your company’s operational leverage by
ceding a 20% share in our new and renewed property and casualty business. The agreement
includes a ceding commission of 14% after acquisition costs. It offers Swiss Re both downside
protection and upside flexibility, enabling us to further advance our capital management
and allowing us to increase capacity rapidly should underwriting conditions improve. This is
further evidence of our commitment to actively manage the insurance price cycle in the best
interest of our shareholders.
In 2007, we also accelerated our worldwide efforts to simplify and optimise our corporate
structure. In Europe, we are benefiting from the new Reinsurance Directive by consolidating
our EU business (excluding Admin Re®) into two entities in Luxembourg. Together with the
capital released by the quota share arrangement, these efforts will deliver significant improve-
ments in the Group’s capital flexibility, allowing us to increase our share buy-back or invest
the capital elsewhere for higher returns at a moment in the cycle when capital is in surplus.
With these opportunities in mind, we are confident in your company’s growth prospects. We
remain focused on our medium-term objective of 10% growth in earnings per share and have
increased our return on equity target to 14% over the cycle. Our earnings power is strong
and we look to the future with confidence.
Letter to shareholders
Talent is at the centre of our performance. Swiss Re can only deliver on its earnings ambition
through the skills and innovation of the professionals in its midst. In 2007, we launched
graduates@swissre, our new global training programme, attracting 49 outstanding university
graduates from Asia, the Americas and Europe. In 2008, we are targeting an influx of 150
graduates. This is the future of your company. Swiss Re could not have succeeded over its
144-year history without constantly nurturing fresh talent and ideas. Graduates@swissre
advances this proud tradition and extends it to a global level. Together with a strong intake of
new employees in 2007, our focus on talent will ensure the success of your firm over the
decades to come.
In the context of attracting talent, we are pleased to welcome Raj Singh, our new Chief Risk
Officer, to our Executive Committee. Raj joins us from Allianz, where he held the position of
Chief Risk Officer for more than five years. He takes over from Christian Mumenthaler, who
has moved to the frontline of our business and assumed worldwide responsibility for our Life
& Health segment.
We are also pleased that Raymond K.F. Ch’ien and Mathis Cabiallavetta have made themselves
available to join the Board of Directors. Their election will be proposed at the Annual General
Meeting on 18 April 2008. Mr Ch’ien is chairman of CDC Corporation and chairman of
the board of Hang Seng Bank. Among others, he also serves on the board of directors of the
Hongkong and Shanghai Banking Corporation. Mr Cabiallavetta is vice chairman of Marsh &
McLennan Companies and chairman of Marsh & McLennan International. He is also a former
chairman of the board of UBS AG.
Finally, we would like to thank our more than 11 000 employees around the world. The strong
result for 2007 would not have been possible without their hard work, dedication and exper-
tise. We are confident that their commitment to performance will continue to deliver strong,
sustainable value to our clients and, ultimately, to you, our shareholders in the year ahead.
Zurich, 29 February 2008
Peter Forstmoser
Chairman of the Board of Directors
Jacques Aigrain
Chief Executive Officer
Swiss Re 2007 Annual Report 5
Profile
Key events
Nordic Risk and Insurance Summit, Stockholm
China Knowledge Fair, Beijing
Product & Knowledge Fair, Zurich
2007
4 January
CO2 reduction programme
COyou2 programme launched worldwide to
support private emission reduction measures
by employees
13 March
Optimisation of EU entities
EU business (excluding Admin Re®) to be
consolidated into two Luxembourg-based
legal entities by 2009
16 January
Securitisation of extreme mortality risk
USD 705 million of extreme mortality risk
securitised and transferred to capital markets
via Vita Capital programme
27 March
UK hybrid securities
First placement of sterling hybrid securities
with total value of GBP 500 million
13 February
2007 renewals
Successful renewals grow non-life reinsur-
ance portfolio by CHF 1.3 billion
22 February
Sale of 30 St Mary Axe
London building sold for GBP 600 million
1 March
2006 annual results
Record earnings for 2006, with net income
up 98% to CHF 4.6 billion, earnings per
share (EPS) of CHF 13.49 and return on
equity of 16.3%
1 March
Share buy-back
Buy-back programme launched with a value
of CHF 6 billion over three years
3 April
2006 embedded value
Life and health embedded value earnings
grow 38% to CHF 2.4 billion; embedded
value increases 13% to CHF 22.6 billion
20 April
143rd Annual General Meeting
Shareholders approve share buy-back pro-
gramme and dividend of CHF 3.40 per share
27 April
Australian hybrid securities
Placement of Australian dollar hybrid
securities worth AUD 750 million
8 May
First quarter 2007 results
Net income of CHF 1.3 billion for the first
quarter (EPS: CHF 3.85)
6 Swiss Re 2007 Annual Report
Profile Key events
2008
1 June
Mediterranean earthquake bond
USD 100 million issued in first securitisation
of Mediterranean earthquake risk
27 September
Weather risk protection
Climate Adaptation Development Programme
launched to establish a weather risk transfer
market for emerging countries
7 January
Strategic partnership in Vietnam
Acquisition of 25% stake in Vietnam’s
leading reinsurance provider, Vietnam
National Reinsurance Corporation
4 June
Admin Re® longevity transaction
Agreement with Zurich Financial Services
to acquire a closed book of 220 000
annuity policies in return for assets worth
CHF 9.1 billion
20 June
Healthcare in India
Healthcare advisory company founded
to assist insurers in the rapidly expanding
Indian market
28 June
Swiss Re Cat bond indices
First performance indices for catastrophe
bonds developed in cooperation with
Standard & Poor’s
7 August
Second quarter 2007 results
Net income of CHF 1.2 billion for the second
quarter (EPS: CHF 3.50)
28 September
Admin Re® transaction with Conseco
Total assets of USD 3 billion acquired under
transaction with Conseco Insurance Group
6 November
Third quarter 2007 results
Net income of CHF 1.5 billion for the third
quarter (EPS: CHF 4.20)
19 November
Credit underwriting loss
CHF 1.2 billion mark-to-market loss from
credit underwriting activities
31 December
New business activities of GE Life UK sold
New business operations of the former
GE Life UK sold to Liverpool Victoria (LV=)
11 January
“Regulation XXX” transaction with SBLI
Agreement announced to fund up to
USD 175 million of peak “Regulation XXX”
reserve requirements for the Savings Bank
Life Insurance Company of Massachusetts
(SBLI) through a private securitisation
22 January
First Central American earthquake bond
USD 85 million issued in multi-peril securiti-
sation covering windstorm events in the US
as well as earthquakes in California and
Central America
23 January
P & C quota share arrangement
Five-year quota share agreement with
Berkshire Hathaway covering 20% of the
Group’s new and renewed P&C business;
the capital released by the contract will
be used to increase the share buy-back by
CHF 1.75 billion
Swiss Re 2007 Annual Report 7
Profile
Swiss Re at a glance
Our mission
We enable the risk-taking that is essential
to enterprise and progress.
Who we are
What we do
How we do it
Swiss Re is a leading and highly diversi-
fied global reinsurer. We combine out-
stand ing financial strength and unparal-
leled insurance expertise with a commit-
ted client focus.
We offer a comprehensive range of re-
insurance and financial solutions to man-
age risk and capital. Our aim is to create
sustainable value for both clients and
shareholders.
Our success is founded on expertise,
dialogue with clients and sound govern-
ance. We attract, develop and inspire the
best talent to advance our performance
and deliver innovative solutions.
Founded in Zurich, Switzerland, in 1863,
Swiss Re is a global reinsurance company,
providing risk and capital management solu-
tions to clients around the world.
We aim to be the port of call for all insurable
risks by offering our clients:
Security – based on financial strength,
diversification and resilience
Ability – based on established market ca-
pability, proven experience and innovation
Dedication – based on tailored solutions,
personal service and a passion for re-
sponding to the needs of clients
Trust – based on openness, integrity and
respect
Our core business activities are: risk transfer,
risk finance and proprietary asset manage-
ment.
Reinsurance is an indispensable part of the
insurance system. Our clients benefit from
the expertise, coverage and capital relief that
Swiss Re provides.
We diversify risk portfolios through our global
reach, allowing exposures to be covered more
efficiently and securely.
Swiss Re is also a leader in risk securitisation
and trading. We transfer exposures to the
capital markets to provide a new source of
capacity for the industry.
Swiss Re applies an integrated risk model to
ensure prudent risk taking and an efficient
allocation of capital. Our expertise in risk and
capital allows us to mitigate exposures and
identify business opportunities across the
risk landscape.
We work closely with clients to understand
their needs and develop effective solutions
that grow their business.
We are committed to best practice and con-
tinually advance our corporate governance
to ensure transparency for all stakeholders.
Our people drive our success. Their skills,
performance and commitment help us stay
ahead in the industry and deliver exceptional
solutions for our clients.
8 Swiss Re 2007 Annual Report
Profile Swiss Re at a glance
What makes us unique
Swiss Re’s combination of scale, integrated risk and capital management, and broad
insurance expertise is unparalleled in the industry.
Superior scale and financial capacity
to take on risk
We have a unique ability to write and diver-
sify all types of insurable risk. This is based
on the size and strength of our balance
sheet, our comprehensive product range
and our worldwide reach.
Integrated approach to risk and capital
management
We blend our risk expertise with capital
market capabilities to develop comprehen-
sive and creative insurance solutions for our
clients.
Expertise in anticipating and
understanding risk
Our experts analyse a broad range of trends
and apply the expertise of an industry leader
to understand risks, identify opportunities
and deliver powerful solutions for clients.
We combine the broad expertise of a global
leader with a deep understanding of local
needs.
We are a leader in structuring and trading
insurance risk. Since 1997, we have led the
deployment of insurance-linked securities,
underwriting 30% of all issues.
We have been an acknowledged pioneer
in identifying and tackling the challenges of
climate change for almost 20 years.
Our brand
Swiss Re’s success is built on a powerful, trusted brand, as well as a strong global
client franchise.
Over the past 144 years, we have built a reputation that stands for strength, expertise, innova-
tion, leadership and, most of all, reliability. Our leadership in managing risk and our strong
client-focused approach are the foundation of our clients’ trust.
Swiss Re’s market presence is unified under a single brand, expressing our Group-wide cohe-
sion and our global position. This is reflected in our common values and behaviour, as well
as in a distinctive visual design. Our brand is our most valuable asset and a powerful promise
to all our stakeholders.
Swiss Re 2007 Annual Report 9
Profile Swiss Re at a glance
How we add value
Swiss Re is committed to delivering value for
clients and attractive returns for shareholders.
Global reach
Swiss Re is a global company operating
from 79 offices around the world. Our clients
include leading insurers, Fortune Global 500
companies, governments and non-govern-
mental organisations in over 160 countries.
Understanding local market needs is key
to our success as a leading global reinsurer.
Proven experience in risk and
capital management
Comprehensive product and
service offering
Over 144 years, we have built comprehen-
sive expertise in managing risk and capital.
Our specialists combine their experience
with Swiss Re’s wealth of data, powerful
modelling tools and market insights to deliver
innovative solutions for clients.
We have a decade of experience in risk
securitisation and Admin Re® transactions.
This allows Swiss Re to offer new sources of
capacity and enables clients to optimise the
capital they require for their business.
As a recognised industry leader, we share
our experience and expertise with industry
bodies, regulators and governments.
Swiss Re offers a range of products and
solutions that is second to none. We support
clients across their entire risk landscape:
Traditional reinsurance for property,
liability, motor, accident, agriculture,
engineering, marine, aviation
Life and health products, as well as
Admin Re® for closed life books
Multi-line, multi-year solutions
Risk securitisation and capital market
solutions
Carbon emissions trading
Asset management and advisory services
Risk financing services
Powerful client focus
We engage closely with clients to under-
stand their priorities and needs across all
markets and lines of business.
Together, we develop integrated solutions
that deploy Swiss Re’s expertise in risk and
capital management to help clients achieve
their business goals.
We never forget that our clients’ success is
the key to our success.
10 Swiss Re 2007 Annual Report
Profile Swiss Re at a glance
Diversification across regions and lines of business
Diversification is at the core of Swiss Re’s value proposition. As a leading global reinsurer,
we are able to benefit from the diversification of business and investment risks across all
geographical regions and lines of business. This ensures a more efficient use of capital and
offers greater security and reliability for clients.
Net premiums earned by region1
Net premiums earned by product line1
47%
Americas
42%
Europe
(including Middle
East and Africa)
11%
Asia
36%
Life and health
24%
Casualty
20%
Property
14%
Specialty
4%
Admin Re®
2%
Non-traditional
1 As of 31 December 2007
Financial strength
Swiss Re’s products and services are backed by superior financial strength ratings. These
are among the best in the industry, reflecting our very strong capital base, business position,
financial flexibility and franchise, as well as prudent risk and capital management.
as of 22 February 2008
Rating
Outlook
S&P
AA–
stable
Moody’s
Aa2
stable
A.M. Best
A+
under review, negative
Resilience over the long-term
We are in the business of taking and managing risks. Over our 144-year history, Swiss Re has
always delivered on its obligations to clients, even in the face of extreme loss events. Recog-
nising the potential for exceptional events and maintaining the financial capacity to absorb
them is the foundation of our long-term stability and success. This resilience in times of adver-
sity has allowed us to emerge stronger and even better prepared to seize the opportunities
that lie ahead.
1863
Swiss Re
founded
1906
San Francisco
earthquake
and fire
1992
Hurricane
Andrew
1995
Typhoon Mireille
in Japan
1999
Winter storms
Lothar and
Martin in Europe
2001
Terrorist attack
in New York
2005
Hurricanes
Katrina, Rita
and Wilma
Swiss Re 2007 Annual Report 11
Profile Swiss Re at a glance
Group structure
Swiss Re is focused on delivering powerful
solutions to clients, responding boldly
to changing market needs and ensuring
profitable growth for shareholders.
In 2007, the Group realigned its Financial Services activities, integrating them into the Group’s
Client Markets and Products functions.
Board of Directors
Chairman
Vice Chairman
Members of the Board of Directors
Executive Committee and Executive Board
Chief Executive Officer
Members of the Executive Committee
Members of the Executive Board
Business Functions
Client Markets
Products
Europe
Americas
Asia
Globals & Large Risks
Global Admin Re®
& Run-off
(Re)Insurance Products
Property & Specialty
Casualty
Life & Health
Claims & Liability
Management
Financial Services Products
Credit & Rates
Equities
Alternative Investments
Third-party Asset
Management
Corporate Functions
Finance
Risk Management
Operations
Communications & HR
Global IT
Group Legal
12 Swiss Re 2007 Annual Report
Profile Swiss Re at a glance
Client Markets
Products
The Client Markets business function offers
clients a single point of access to the entire
range of Swiss Re’s solutions and capabilities.
Building on close relationships, it combines
a powerful client focus with global reach and
local knowledge.
Client Markets aims to be the port of call
for both the insurance and financial market
needs of our clients, delivering solutions
ranging from traditional reinsurance to
insurance-based capital market products.
The Products business function supports Client Markets by developing innovative solutions
to meet the increasingly complex requirements of clients. It integrates Swiss Re’s traditional
reinsurance and financial expertise, and ensures excellence in underwriting and claims
management.
(Re)Insurance Products
(Re)Insurance Products is Swiss Re’s centre
of competence for risk underwriting and
claims management. It actively steers the
Group’s insurance risk portfolio and manages
the insurance cycle to ensure economic
profit growth across markets and lines of
business.
Financial Services Products
Financial Services Products manages the
assets generated by our insurance business.
It also facilitates the securitisation and trans-
fer of insurance risks to the capital markets,
and develops derivative solutions for life
and health assets, as well as for specialised
non-life insurance.
Corporate functions
The Finance, Risk Management and Operations functions provide shared services to support
the business functions. The corporate functions manage Swiss Re’s common resources in-
cluding: capital, the risk portfolio, brand reputation, information technology, human resources,
as well as knowledge and skills.
Various corporate functions fulfil obligations to regulatory authorities and other stakeholders,
provide legal and compliance support, and ensure the protection of the Group by establishing
the corporate governance rules and processes under which Swiss Re operates.
Swiss Re 2007 Annual Report 13
Profile Swiss Re at a glance
Executive Committee
From left:
Roger W. Ferguson
Head of Financial
Services Products
Stefan Lippe
Head of (Re)Insurance
Products
George Quinn
Chief Financial Officer
Jacques Aigrain
Chief Executive Officer
Andreas Beerli
Chief Operating Officer
Michel M. Liès
Head of Client Markets
Christian Mumenthaler
Chief Risk Officer
until 31 December 2007
14 Swiss Re 2007 Annual Report
Profile Swiss Re at a glance
Executive Board
Client Markets
Products
Corporate functions
Michel M. Liès*
Head of Client Markets
Stefan Lippe*
Head of (Re)Insurance Products
Roger W. Ferguson*
Head of Financial Services Products
George Quinn*
Chief Financial Officer
Martin Albers
Europe
Brian Gray
Property & Specialty
Benjamin Meuli
Chief Investment Officer
Pierre L. Ozendo
Americas
Martin Oesterreicher
Casualty
David Godfrey
Financial Services Markets
as of 22 November 2007
Martyn Parker
Asia
Christian Mumenthaler
Life & Health
as of 17 September 2007
Agostino Galvagni
Globals & Large Risks
Jonathan Isherwood
Claims & Liability Management
W. Weldon Wilson
Global Admin Re® & Run-off
Christian Mumenthaler*
Chief Risk Officer
until 31 December 2007
Raj Singh*
Chief Risk Officer
as of 1 January 2008
Andreas Beerli*
Chief Operating Officer
Charlotte A. Gubler
Communications & HR
Yury Zaytsev
Global IT
until 31 December 2007
Markus Diethelm
Group Legal
* Member of the Executive Committee
Swiss Re 2007 Annual Report 15
Profile
Strategic direction and vision
Swiss Re is extending its leading position in
the risk transfer industry by enhancing its ability
to seize profitable opportunities across the
risk landscape.
Swiss Re’s strategy defines the building blocks for advancing the Group’s performance to the
advantage of clients and shareholders, and sets out Swiss Re’s long-term vision for benefiting
from the changing risk transfer landscape.
Strategic direction
Swiss Re’s ability to provide best-in-class customer service and higher sustainable returns for
shareholders rests on the four building blocks of the Group’s strategic direction:
Building blocks
Deliverables
Generate economic profit growth
Reduce earnings volatility
Enlarge market scope
Foundation of success
Talent, culture and organisational excellence
Best-in-class
customer service
Higher sustainable
shareholder returns
Generate economic profit growth
Swiss Re constantly seeks to redeploy its capital to areas of profitable growth, based on its
rigorous commitment to profitability throughout the insurance price cycle. The Group is com-
mitted to delivering economic profit growth for its shareholders by remaining a strong and
reliable partner for clients.
Reduce earnings volatility
On the basis of its disciplined underwriting practices, Swiss Re utilises a wide variety of tools
to reduce earnings volatility. These include issuing insurance-linked securities, hedging finan-
cial market risks and enterprise risk management.
Enlarge market scope
The changing risk landscape requires Swiss Re to grow new markets, work with new clients
and develop new products. Solvency II requirements, insurance risk trading, the demographic
shift and climate change are some of the most prominent developments that will create
opportunities for the Group to implement its expertise through innovative solutions.
16 Swiss Re 2007 Annual Report
Profile Strategic direction and vision
Talent, culture and organisational excellence
Swiss Re aspires to be the preferred employer in its industry by offering an exciting, interna-
tional environment for employees to develop their careers, as well as by providing attractive
rewards for personal achievement, innovation and teamwork. The Group strengthens its per-
formance culture by continuously developing employee talent in an efficient cross-functional
organisation.
The following table highlights examples of how Swiss Re advanced its strategic direction in
2007:
Generate economic profit growth
Reduce earnings volatility
Enlarge market scope
Talent, culture and organisational
excellence
Admin Re® transactions
Accelerated growth in large corporate and
commercial business
Large-line underwriting utilising capital market solutions
Active cycle management
Expanded hedging for natural catastrophe and extreme
mortality risks
Launch of catastrophe bond indices with
Standard & Poor’s to advance risk securitisation market
Broadened longevity and variable annuity transactions
Healthcare partnership in Asia
New product offerings for governments and NGOs
Launch of graduates@swissre programme
Organisational realignment to further strengthen focus on
clients and integrated solutions
Higher synergies and lower restructuring costs from
GE Insurance Solutions integration
Vision
The insurance industry is changing: the boundaries between risk assessment, risk bearing and
risk transfer are becoming increasingly blurred. Swiss Re seeks to build upon its leadership
position in the insurance industry and its ability to adapt to – and benefit from – the changing
risk transfer landscape.
Swiss Re will extend its leadership in risk management solutions by accelerating its origination,
transformation and trading of insurance risks, as well as by strengthening its ability to seize
profitable opportunities across the entire risk landscape.
The resulting business model advances the Group’s two fundamental objectives: providing
best-in-class service to insurance clients, and delivering higher sustainable returns to share-
holders. This is achieved by increasing the speed with which risks move onto the Group’s
balance sheet and are either held by Swiss Re, transformed or transferred to professional
counterparties, to increase capacity, reduce net exposure and enhance profitable growth.
Swiss Re 2007 Annual Report 17
Profile Strategic direction and vision
18 Swiss Re 2007 Annual Report
Four key elements drive this model and work together to achieve Swiss Re’s vision:
Be the port of call for managing
all insurable risks, irrespective
of origination channel
Establish leadership
in insurance risk
transformation,
syndication and
trading
Talent
and
culture
Be a bolder principal
to ensure focus on
profitable business and
investment opportunities
Port of call for all insurable risks
Swiss Re aims to be the partner of choice for clients and brokers, providing a reliable and
inte grated resource for their insurance needs. Being the port of call also means creating new
opportunities for managing insurable risks. Based on its long-standing experience in a broad
range of (re)insurance and specialised capital market solutions, Swiss Re is ideally positioned
to deliver solutions across the entire risk landscape and expand its successful partnerships
with clients.
Leadership in insurance risk transformation, syndication and trading
A unique combination of financial strength, reinsurance expertise and capital market capabili-
ties enables Swiss Re to deploy its capital and insurance underwriting capacity actively, flexibly
and efficiently. The Group’s experience in structuring insurance risk provides further opportu-
nities to optimise its own capital and risk management, and act as an insurance securitisation
intermediary for clients.
Bolder principal
The Group will extend its focus on seeking attractive opportunities and generating profitable
business. As a leading and highly diversified reinsurer, Swiss Re is in a unique position to
create value and pursue innovation through new products and business opportunities for in-
surable risks. Technical expertise and financial strength allow the Group to operate proactively
through all channels, according to the needs of clients and local markets.
Swiss Re’s scale, strength and expertise enable the Group to offer larger, more sophisticated
and more tailored solutions for our clients. This gives the Group the scope to operate competi-
tively across a broad product range, addressing clients’ changing capital requirements and
seizing opportunities for economic profit throughout the insurance price cycle.
Talent and culture
Employees are the central force that drives Swiss Re’s vision. The Group’s culture promotes
creativity and a strong focus on delivering solutions. Bringing together expertise from all areas
of insurance and financial services enables Swiss Re to act as one team to deliver integrated
client solutions.
Profile
Talent and expertise
Swiss Re attracts, develops and rewards
the best talent in a culture that promotes
performance, innovation and teamwork.
Net income generated per employee
in CHF thousands
437
388
296
259
214
Swiss Re’s people are exceptional in their expertise, performance and commitment to clients.
In 2007, net income generated per employee was close to CHF 0.4 million. This strong result
clearly reflects the expertise and value of the company’s employees, and confirms the perform-
ance of the previous four years, in which the Group’s workforce consistently ranked among
the top 10% of all Fortune Global 500 companies.
2003
2004
2005
20061
20072
¹ Excluding 463 employees transferred from GE Life UK
in the fourth quarter of 2006
² Excluding 987 employees transferred from Norwich
Union in the fourth quarter of 2007
Employees by region
As of 31 December 2007
67%
Europe
28%
Americas
5%
Asia
As a global organisation, Swiss Re is committed to extending the diversity of its workforce,
which currently includes over 80 nationalities based in 29 countries across the world. At the
end of 2007, the Group employed 11 702 people, including 987 Norwich Union employees
who joined Swiss Re as part of an Admin Re® agreement. Europe remains the largest region
with 67% of Swiss Re’s global workforce, while the Americas account for 28% and Asia for
5%. Staff working for the European region increased 12%, due to the transfer of staff as part
of the agreement with Norwich Union. In the Americas and Asia regions, overall numbers
remained stable, despite higher recruitment in emerging countries: the Latin American work-
force increased by 7% to support projected market growth.
Attracting and recruiting talent
Swiss Re’s future performance is based on its ability to employ the best minds in the financial
services industry. Attracting talented graduates and skilled specialists is a vital priority, and
the Group’s senior management dedicates significant efforts to expanding Swiss Re’s pool of
experts and potential leaders from a broad range of regions, experiences and educational
backgrounds.
The graduates@swissre global training programme recruits outstanding young people who
have distinguished themselves through excellent academic performance, international experi-
ence, extracurricular activities and language skills. Participants come from leading universities
around the world and undergo an intense 18-month programme with rotating assignments
that expose them to different regions, functions, product lines and operational units across
the Group. They have opportunities to meet with senior leaders, allowing them to explore the
company and find the most fitting career opportunities across the organisation (for more infor-
mation, see pages 40–41).
Swiss Re also recruits experienced professionals and experts from outside the company to
reinforce its strong knowledge base and performance-driven culture. This combination of new
talent and established industry expertise helps to create an excellently qualified, innovative
and diverse workforce.
Developing talent
Swiss Re fosters a learning culture that is based on a partnership between the individual and
the company. Employees at all levels are encouraged to develop the skills that advance the
Group’s strategy. By aligning business needs and personal goals, Swiss Re aims to enable
both employee and company to realise their full potential.
Swiss Re 2007 Annual Report 19
Profile Talent and expertise
20 Swiss Re 2007 Annual Report
In 2007, the Swiss Re Academy (see box below) launched a new learning and development
landscape that offers employees a roadmap of courses to suit individual career levels and
objectives. The new landscape aligns the curriculum more closely to business needs: it takes
a solution-focused approach to business training and integrates employee courses with client
workshops and seminars.
Swiss Re recognises that successful experts and leaders require a mix of business know-how
and human skills such as interpersonal, leadership and multi-cultural abilities. This mix is
reflected in the Academy’s courses and curriculum. The Group also provides an expert devel-
opment path to facilitate high-level promotion and career advancement for experienced under-
writers, actuaries and financial market specialists, enabling them to advance in the organisation
without taking on leadership responsibility.
As a diverse global company, Swiss Re encourages employees to broaden their professional
and personal experience by working outside their home countries and building an international
career. This also fosters the sharing of knowledge and expertise across the company. To en-
courage global mobility, the Group has a consistent compensation structure across all regions
as well as an international assignment programme to support employees and their families
with the moving process.
Swiss Re continually strengthens the quality of its management through a permanent Group-
wide process to identify, assess and develop high performers with leadership potential. In
2007, nearly 700 employees attended leadership training. Successful participants are added
to talent pools from which candidates for management positions are selected.
Promoting a performance culture
The Group’s success is built on the performance of teams and individuals across the organisa-
tion. Swiss Re fosters a working environment that emphasises individual responsibility and
rewards personal achievements, innovation and teamwork.
Swiss Re Academy
The Swiss Re Academy combines the Group’s staff and client training under a single global
provider. The Academy offers a broad curriculum to equip employees with the business
and leadership skills they need to advance their careers and deliver value for Swiss Re and
its clients.
Courses are held at five state-of-the-art training centres across the world: Zurich, Munich,
Hong Kong, Kansas City and Armonk. This regional training focus reflects the Group’s
commitment to developing local talent for local market needs. All locations are staffed by
dedicated training specialists and courses are given by experts from Swiss Re’s business
units as well as external specialists. A virtual campus extends this expertise beyond the
five physical locations, delivering web-based seminars to participants across the world.
The Swiss Re Academy is unique in providing a joint curriculum for employees and clients,
helping to build networks and promote effective knowledge transfer not only within the
Group but throughout the insurance industry.
Profile Talent and expertise
The Group’s performance management process systematically defines team and individual
objectives, and provides employees with regular feedback on their progress. Individual objec-
tives are aligned to the overall objectives of the business unit, and ultimately of the Group (for
more information, see section 5 of the corporate governance and compensation report, on
pages 110–115). This ensures that employee efforts contribute directly to the success of
Swiss Re’s business strategy. Systematic performance management helps employees focus
and develop their career, and also provides the basis for performance-related compensation.
Rewarding and retaining talent
To recruit, reward and retain the best talent in the financial services industry, Swiss Re offers
attractive financial compensation and benefits. The Group provides exceptional performers
with potential overall compensation that matches or exceeds the top tier of the industry. All
compensation includes a significant incentive component to reward innovation, and foster a
strong performance-based and team-focused culture.
A major portion of senior management compensation is tied to the organisation’s long-term
performance and is designed to correspond with the multi-year dynamics of Swiss Re’s busi-
ness. This ensures that compensation reflects sustainable achievements rather than short-
term results.
Currently, 85% of all employees worldwide participate in a voluntary stock compensation plan
that combines regular savings with the purchase of shares or tracking options. This promotes
entrepreneurial behaviour by giving employees a stake in the company’s success, and also
strengthens their identification with Swiss Re and its shareholders.
Swiss Re 2007 Annual Report 21
Profile
Knowledge and solutions
Swiss Re’s reputation is based on its ability
to extend its knowledge and apply its expertise
for the benefit of clients.
Success in the risk transfer business depends on strong know-how in risk management and
underwriting. Swiss Re has accumulated unique knowledge in all markets and lines of busi-
ness during its long experience as an industry leader. By applying and sharing that knowledge,
the Group creates innovative solutions for clients and value for shareholders.
Building knowledge
Swiss Re’s most valuable resource, its employees, includes experts from a broad range of
scientific and financial backgrounds. They pursue individual research and also work together
in Group-wide Knowledge Networks, such as DRIVE, a multi-disciplinary network studying
motor markets across the world.
Swiss Re gains a competitive advantage from its proprietary know-how, but it also collabo-
rates with external experts to further extend its knowledge and gain outside perspectives. The
Group has established close relationships with leading research institutions, such as the Swiss
Federal Institute of Technology (ETH) in Zurich, Beijing Normal University and Rice University
in Houston. In 2007, Swiss Re worked with the Earth Institute at Columbia University to develop
innovative triggers for weather risk transfer solutions in emerging markets (for more informa-
tion, see pages 38 – 39).
Dialogue with clients remains Swiss Re’s most important source of external expertise. The
Group’s experts engage with industry partners to learn more about market trends and risk
developments. Swiss Re’s executive management also devotes a significant amount of its
time to meeting clients and understanding their priorities.
Sharing knowledge
Swiss Re shares its knowledge through events, publications and tools, helping clients to man-
age their risks and grow their business. In 2007, Swiss Re held various client events tailored to
specific industries and regions. These included the second Nordic Risk and Insurance Summit
(NORIS) in Stockholm, where over 150 participants discussed the impacts of climate change
on Northern Europe and the transformation of social security systems. In Canada, a Swiss Re
roundtable brought together more than 20 chief financial officers of the Group’s largest clients
to share insights on financial market solutions and discuss new challenges for insurance
CFOs. A Product and Knowledge fair in Beijing presented Swiss Re’s region-specific product
development capabilities to 400 clients.
Swiss Re also shares knowledge through training workshops at the Swiss Re Academy centres
in Zurich, Munich, Hong Kong, Kansas City and Armonk (see box on page 20), as well as
events at the Swiss Re Centre for Global Dialogue in Rüschlikon, Switzerland. Both organisations
provide an open forum for exchanging views and ideas, fostering collaboration and dissemi-
nating expertise.
22 Swiss Re 2007 Annual Report
Profile Knowledge and solutions
Swiss Re‘s publication series – covering emerging risks, industry issues, analytical studies and
economic trends – help to stimulate dialogue and reinforce partnerships with industry associ-
ations, learning institutions, regulators, governments and international organisations. They
also position the Group as a thought leader in the broader risk transfer business. For example,
in 2007, China’s regulators invited Swiss Re to undertake an independent review of the na-
tion’s healthcare system and offer best practice recommendations for its future development.
Applying knowledge
Swiss Re works closely with clients to leverage its wide expertise in order to develop tangible
solutions for specific markets and client needs. In 2007, the Group formed a dedicated team
to help Chinese insurers increase profitability in motor insurance by improving risk and claims
management. This will enable these companies to fully benefit from growth in the Chinese
motor sector, where premiums are predicted to double to USD 25 billion by 2012. Swiss Re is
well positioned in the market and expects to benefit from the resulting increase in reinsurance
cessions.
Swiss Re has also combined its global market knowledge with in-depth expertise in marine
and liability lines to provide a new product for Asian companies exporting to the US and
Europe. Comprehensive Exporters’ Cover is an innovative solution that combines cargo and
product liability coverage for the first time. It offers significant potential in the fast-growing
Asian export markets and has also been adapted for use in other emerging markets, particu-
larly in Latin America.
In addition to applying its knowledge to create new products and solutions, Swiss Re offers its
clients a range of tools to help develop and expand their business. One example is Ricasso®, a
proprietary software that lets insurers model different reinsurance strategies and calculate the
amount of risk capital required for their portfolios. Another is Life Guide, an online underwriting
manual that represents the industry’s most comprehensive and up-to-date life underwriting
reference. This has now been translated and adapted for use in eight languages including,
most recently, Chinese.
Swiss Re launches Chinese version of Life Guide
In July 2007, Swiss Re launched the Chinese version of Life Guide, a comprehensive online
reference for life and health underwriting. More than 90 clients attended presentations in
Shanghai and Beijing, where Swiss Re experts introduced the key features and benefits of
the Chinese version.
Produced by Swiss Re’s global team of medical directors, researchers, statisticians and un-
derwriters, Life Guide has become an invaluable reference and decision-making tool for life
and health insurers. It includes the latest research results as well as rating calculators. More
than 10 000 users from clients around the world currently use it in one of its eight available
languages: English, German, French, Spanish, Italian, Dutch, Japanese and Chinese.
Swiss Re 2007 Annual Report 23
Profile Knowledge and solutions
Issue management at Swiss Re
Swiss Re’s business opportunities derive from the world’s changing risk landscape. Identifying
emerging issues and industry trends – and sharing Swiss Re’s knowledge to develop innova-
tive solutions – is essential for the Group’s success. The table below lists a selection of Swiss
Re’s Top Topics, with the Group’s related activities.
Climate change
Insurance-linked securities
Industry relevance
Swiss Re’s actions
and solutions
Insurance-linked securities
(ILS) are an effective risk
management tool to increase
capacity and transfer peak
and volume insurance risks
to the capital markets
ILS help reduce capital re-
quirements and increase
capital efficiency; they re-
duce earnings volatility and,
in the case of life insurance,
can monetise intangibles
Swiss Re has been a pioneer
in developing the ILS market,
having underwritten over
USD 13 billion of risks for
itself and third parties
During the recent financial
market turbulence, Swiss Re
underwrote over USD 1
billion in ILS; investors con-
tinue to be attracted to this
diversifying asset class with
only limited correlation to the
broader financial markets
Scientists and economists
predict that climate change
will have a severe impact
on society and the global
economy
Climate change represents
an opportunity as well as
a risk for the insurance indus-
try and capital markets alike
Climate change has become
an important element in
many companies’ long-term
risk management strategies
Swiss Re has been a leading
voice in the climate debate
for almost 20 years
Swiss Re has developed
innovative solutions related
to climate change, such as
risk securitisation, weather
derivatives and carbon insur-
ance
Swiss Re factors climate
change risks in its risk selec-
tion, pricing and capacity
deployment
Swiss Re is the first major
financial services company
to commit to becoming
greenhouse neutral
24 Swiss Re 2007 Annual Report
Profile Knowledge and solutions
Nanotechnology
Natural catastrophes
Solvency II
Terrorism
Nanotechnology has become
a major engine for economic
growth; as an enabling tech-
nology it encompasses many
disciplines and industries
The challenge is to master
an increasing variety of
nano-enabled products, and
identify potentially harmful
properties that are currently
neither well analysed,
described or understood, nor
regulated and differentiated
from safe properties
Swiss Re has dedicated re-
sources to assess the poten-
tial risks and manage possi-
ble exposures to nanotech-
nology
Based on its large know-how
and expertise, Swiss Re
promotes the development
of tailored risk management
principles and actively steers
its business accordingly
Swiss Re supports regulatory
efforts to prevent increased
nanotechnology exposure
and ensure a balanced
public dialogue on possible
new risks
Claims are increasing, mainly
due to higher insurance
penetration, technological
vulnerability and value con-
centrations in exposed areas
There is increasing evidence
that climate variability and
climate change are affecting
the catastrophe perils market
The insurance industry has
the financial strength to
respond to natural catastro-
phes; there is usually no
need for government action
to increase capacity
As a leading reinsurer,
Swiss Re diversifies the year-
on-year loss variability inher-
ent in natural catastrophe
business
Swiss Re’s strong capital
base and know-how enable
tailor-made solutions for our
clients
Swiss Re regularly adapts its
pricing models to reflect
changes in risk assessment
and economic development
Solvency II is a regulatory
project for enhanced insur-
ance solvency rules in the EU
The new regulation is ex-
pected to have a significant
impact on the industry by re-
defining capital requirements
and risk management prac-
tices
Primary insurers will benefit
from appropriate credit for
their risk transfer to reinsur-
ers based on the reinsurance
company’s capital strength
Swiss Re welcomes the
introduction of Solvency II
and encourages the use of
risk-management techniques
based on economic princi-
ples and internal models
Swiss Re is working with
regulators, analysts and
clients to help implement
appropriate capital models,
achieve meaningful disclo-
sure and promote the bene-
fits of reinsurance solutions
Terrorism risk is only privately
insurable to the extent that it
can be assessed and control-
led, and liabilities are limited
and adequately priced
Transparency is key for risk
management and pricing
Public-private partnership is
needed to provide meaning-
ful coverage
The challenge is to find the
most efficient way to achieve
such a partnership
Swiss Re supports perma-
nent market solutions based
on a risk partnership among
insureds, insurers, reinsurers,
capital markets and govern-
ments
Swiss Re is strongly engaged
in lobbying activities for long-
term public-private partner-
ships
Standalone covers maximise
Swiss Re’s capacity, since
they enable better accumula-
tion control and transparency
of coverage and premium
Swiss Re 2007 Annual Report 25
Profile
Corporate responsibility
Swiss Re is committed to creating sustainable
value for its stakeholders. In 2007, the Group
continued to launch innovative products
and initiatives that address key environmental
and social challenges.
For Swiss Re, being a responsible company means creating sustainable value for shareholders,
clients and society at large. The Group’s corporate responsibility framework is founded on the
three pillars of corporate governance, corporate sustainability and corporate citizenship. In all
three areas, Swiss Re pursues the highest standards.
Corporate sustainability
Many environmental and social risks currently threaten sustainable economic progress. Swiss
Re deploys its expertise in risk and capital management to prevent these risks from weakening
its own financial position, as well as to develop effective business solutions for private and
public sector clients.
Climate change
On a global scale, climate change is the biggest environmental challenge facing society.
Scientific evidence on its development and impact has been further strengthened by the recent
publication of the Fourth Assessment Report by the Intergovernmental Panel on Climate
Change. 2007 was one of only four years on record to see two category five Atlantic hurricanes.
Although the US was not impacted, the storms caused significant damage in Mexico and
Central America. Swiss Re’s own research clearly confirms a rising trend in the frequency and
intensity of weather events over the past two decades.
The Group has been an acknowledged leader in recognising and tackling the challenges of
climate change for almost 20 years. In 2007, Swiss Re launched two major initiatives: the
COYou2 Reduce and Gain Programme and the Climate Adaptation Development Programme.
Both were announced in the context of the Clinton Global Initiative, which Swiss Re was invited
to join in 2005, and which aims to address the world’s most pressing problems by bringing
together leading minds and problem-solvers in a shared commitment to concrete action.
Swiss Re Group CO2 emissions per employee (FTE)¹
2003
Power
Heating
Business travel
Total
kg/FTE
3 848
741
2 314
6 903
Share in %
55.8
10.7
33.5
100.0
2007
Share in %
37.0
11.3
51.7
100.0
Change from
base year
2003 in %
–50.4
–21.1
15.32
–25.3
kg/FTE
1 907
585
2 667
5 159
1 Employee numbers are based on full-time equivalents (FTE).
2 The significant rise in emissions relating to business travel is partly due to increased travel activity following the
acquisition of GE Insurance Solutions.
26 Swiss Re 2007 Annual Report
Profile Corporate responsibility
In 2003, Swiss Re became the first large financial services provider to commit itself to becom-
ing fully greenhouse neutral. The Group pledged to reduce per-capita CO2 emissions by 15%
within ten years, with investments to offset the remainder.
In 2007, Swiss Re reviewed and refined its CO2 reporting methodology to reflect the impact of
recent acquisitions, an increase in the number of non-permanent employees and new, more
accurate conversion factors recommended by the 2004 Greenhouse Gas Protocol for the cal-
culation of emissions. The review was independently assured by the auditors Pricewaterhouse-
Coopers, whose Assurance Report will be published as part of Swiss Re’s 2007 Corporate
Responsibility Report. As a result of this review, all previously reported emissions have been
restated. Based on the refined methodology, the CO2 baseline for 2003 was readjusted to
6 903 kilograms per full-time equivalent employee (FTE), while revised emissions for 2006
were 5 702 kilograms per FTE, a reduction of 17.4% since 2003. The effect of the Group’s
large-scale switch to renewable energy and of its various energy-saving measures, including
the consolidation of office locations, has thus been significantly larger than previously calcu-
lated. In 2007, emissions were reduced by a further 543 kilograms per FTE, to 25.3% against
the 2003 baseline.
Having achieved its 15% reduction earlier than expected, Swiss Re has decided to double
its 2013 target to 30%. In addition, the Group has bought and retired high-quality voluntary
emissions reduction certificates (VERs) for 230 000 tonnes of CO2 to compensate all emis-
sions caused since the start of the reduction programme. This effectively makes Swiss Re
greenhouse neutral from October 2003.
Carbon markets
Recently, several market mechanisms have been established to achieve cost-effective CO2
emission reductions. Under the Kyoto Protocol, the Clean Development Mechanism (CDM)
and Joint Implementation (JI) allow investors to gain carbon credits for emission-cutting
projects in developing and industrialised countries, respectively – so-called Certified Emission
Reductions (CERs) and Emission Reduction Units (ERUs). In Europe, the emission trading
system established by the EU also permits the trading of allowances issued to industry. In ad-
dition to these “compliance” markets, voluntary emission reduction (VER) markets have also
been established.
Climate Adaptation Development Programme
Even if carbon emissions were ended immediately, the process of global warming would
continue due to the effects of past emissions. Climate change adaptation measures are
therefore essential. The poorest nations are most at risk as they often lack infrastructure
and institutional frameworks, have limited financial resources and depend on agricultural
sectors that are strongly exposed to weather-related disasters.
Since 2004, Swiss Re has pioneered weather risk transfer instruments for emerging mar-
kets. In 2007, the Group launched the Climate Adaptation Development Programme, which
will provide structuring and pricing for weather risk transfer schemes, support research
activities, and develop and promote solutions. In a first phase, the Group entered into a
partnership with the Millennium Promise Alliance and Columbia University to develop three
innovative products providing drought cover for several African villages (for more informa-
tion, see pages 38 – 39).
Swiss Re 2007 Annual Report 27
Profile Corporate responsibility
28 Swiss Re 2007 Annual Report
Swiss Re strives to benefit from the opportunities offered by these new markets and has built
up a dedicated team. In 2007, it closed several CDM transactions in the end-user business,
which included project origination, distribution and the sale of structured insurance products
to guarantee carbon credits. The Group was also active in the trading of CERs, EU allowances
and VERs.
Asset management
Swiss Re has managed a dedicated sustainability portfolio for a number of years. It seeks out
investment opportunities in alternative energy, water, resource efficiency, carbon, forestry and
agriculture, drawing on know-how from an internal and external network of specialist partners.
The amount of invested and committed assets continued to grow strongly in 2007, including
investments in Brazil, China and Eastern Europe. The total value of the portfolio has increased
more than tenfold since 2004.
in CHF millions
Investments (at market value)
Closed but unfunded commitments
Total portfolio
2004
49
5
54
2005
69
81
150
2006
122
254
376
2007
286
330
616
Through its Conning Asset Management subsidiary, Swiss Re developed and successfully
closed the European Clean Energy Fund for third-party institutional clients. This mezzanine
vehicle invests in green energy projects across Europe – such as wind, solar, hydro-electric,
geothermal and waste-to-energy initiatives – many of which generate carbon credits or trad-
able renewable energy certificates. At its closing, commitments to the fund totalled EUR 354
million, with Swiss Re as a major Limited Partner.
Swiss Re has increasingly used environmental, social and governance-related (ESG) informa-
tion to guide investment decisions in its main equity portfolio. In 2007, a framework was
established to formally integrate ESG information into the equity analysis process. Underlining
Swiss Re’s commitment to incorporate ESG in its asset management, the Group signed the
United Nations Principles for Responsible Investment, which was developed by a group of
major institutional investors in cooperation with stakeholders from civil society and academia.
First year of the COYou2 Programme
The COYou2 Reduce and Gain Programme was announced in autumn 2006 as Swiss Re’s
annual commitment to the Clinton Global Initiative and is the first global corporate initiative
to support carbon-reducing investments by employees. Swiss Re employees are eligible
for a 50% subsidy up to a maximum of CHF 5 000, or the equivalent adjusted to the local
cost of living, for projects such as buying a hybrid car, installing solar panels or heat pumps,
or paid days off for participating in climate-related volunteer activities.
The programme was launched at the beginning of 2007 and has gained highly positive
reactions from Swiss Re staff. As of 22 February 2008, more than 530 employees had
been granted payouts, with subsidies for hybrid cars and public transport the most popular
measures. The COYou2 Programme also attracted strong interest from external audiences,
including extensive media coverage in Europe, North America and Australia, as well as
enquiries from a number of major corporations and other organisations interested in estab-
lishing similar schemes.
Profile Corporate responsibility
High-level dialogue
Swiss Re is an influential voice in the international debate on climate change. In 2007, the
Group’s experts and executive management were frequently asked to participate in high-level
meetings and conferences. In June, CEO Jacques Aigrain attended a meeting of business
leaders with British Prime Minister Tony Blair and California Governor Arnold Schwarzenegger
to discuss action on climate change. In September, Jacques Aigrain was one of four business
representatives invited by the United Nations Secretary-General to address a gathering of
world leaders on climate adaptation. In October, Swiss Re’s CEO took part in the Mayor of
Shanghai’s “International Business Leaders Advisory Council”, where he spoke on Swiss Re’s
experience in building a resource-conserving and environment-friendly enterprise. Executive
Committee member Roger Ferguson presented the Group’s perspective on the risks and op-
portunities of climate change at the C40 Large Cities Climate Summit in New York, an event
co-sponsored by Swiss Re.
Corporate citizenship
Swiss Re has recently tightened the focus of its corporate citizenship programme, structuring
its activities in two categories: solution building and community building.
Solution building
Swiss Re strives to promote workable solutions to major social and environmental challenges
by contributing risk management expertise as well as financial aid to key partnerships with
highly respected organisations. The target areas of the programme include natural catastrophes,
water and climate change, with a view both to providing relief and improving prevention.
After the devastating earthquakes in North-East Pakistan in 2005, Swiss Re entered into a
partnership with Caritas Switzerland to provide effective practical assistance. The building of
earthquake-proof schools was identified as a key target and substantial progress was made in
2007. A new project was launched in the Atitlán region of Guatemala, in cooperation with the
Vivamos Mejor foundation. The initiative aims to empower local communities to cope with
natural catastrophes, by providing education on risk awareness, supporting mitigation strategies
and helping to develop emergency plans.
In 2007, Swiss Re presented its fifth annual ReSource Award for Sustainable Watershed
Management. The first prize went to a project in Ethiopia that will set up rainwater harvesting
to secure local water supplies. The runner-up award went to a project in Jamaica to eliminate
harmful river poisoning from local fishing practices. The ReSource awards are now firmly es-
tablished and draw a large number of innovative entries from across the world. On International
Water Day, Swiss Re donated CHF 1 million from the corporate bonus pool to the International
Committee of the Red Cross for a project in North-Western Nepal to restore clean water sup-
plies to the rural population.
In the climate change area, Swiss Re established the Climate Adaptation Development
Programme and provided funds for its research activities (for more information, see box on
page 27).
Swiss Re 2007 Annual Report 29
Community building
With its community building initiatives, Swiss Re strives to support local institutions and foster
employee-initiated charity projects in the communities where it operates. One highlight in
2007 was an auction of art works to Swiss Re staff in Munich, Germany. The proceeds were
donated to the “Anna” association, a charity founded in 2003 by a Swiss Re employee to
improve conditions in Russian orphanages. 580 people, including 120 Swiss Re employees,
have since joined the association.
Employees in Switzerland donated more than CHF 140 000 during their annual Christmas
collection. This represents the largest amount since the collection was launched in 1933. The
proceeds collected are matched by an equivalent company contribution and used for various
charitable causes across Switzerland.
In the US, employees donated more than USD 270 000 to the United Way, a non-profit
umbrella organisation that helps fund over 1300 local charities. More than 200 colleagues in
Fort Wayne volunteered for the Habitat for Humanity initiative, which builds houses for families
in need. The project was also supported by a financial contribution from Swiss Re. The Boy
Scouts of America also recognised Swiss Re’s support of the organisation by honouring
Executive Committee Member Roger Ferguson and Executive Board Member Pierre Ozendo
at two regional events.
In Mexico, 120 employees planted more than 400 trees in the Tlalpan Forest as part of a
reforestation effort. Mexico City employees also donated food and water to victims of flooding
in the state of Tabasco and Chiapas and provided school supplies to a state school and hospital.
Employees in Canada donated gifts and food to the Salvation Army during an annual holiday
toy and food drive. Canada also provided a corporate donation to the George Hull Centre for
Children and Families, a leading children’s mental health centre in Ontario.
Staff in Bangalore continued their support for a local initiative to aid the victims of the 2004
Indian Ocean tsunami. This involves building a small township for the affected families to
help them re-establish their livelihood. Swiss Re volunteers helped to set up the project, and
employees visit the families on a regular basis to provide personal support. They also donated
funds and time to organise a Christmas party for 100 disadvantaged children together with
SOS Children’s Villages of India.
Profile Corporate responsibility
30 Swiss Re 2007 Annual Report
Advancing performance
Advancing performance – The CEO’s view
Jacques Aigrain shares his views on Swiss Re’s
strategic direction and explains how the new vision
will position the company for future success.
The theme of the 2007 Annual Report is “Advancing performance”. How has Swiss Re’s
performance advanced over the past twelve months?
2007 was a year of contrast. We made significant progress in many areas of our strategy and
are building a powerful foundation for the future, but we also experienced a setback when
we reported a significant loss which impacted our fourth quarter earnings. This was the result
of an isolated mistake, for which we have taken corrective action.
Let’s talk about the positive reinsurance results first. Was Swiss Re just lucky because
of a benign hurricane season?
Our results speak for themselves: 2007 saw a higher level of natural catastrophes than 2006,
yet our property and casualty teams significantly improved their profits and combined ratio
over the previous year. So, clearly, this was more than just luck. We are reaping the fruits of
years of disciplined underwriting and our focus on actively managing the insurance price
cycle. More importantly, our performance is not just driven by property and casualty business:
our life and health segment also had a great year.
How are you advancing performance on the life and health side?
I’d like to highlight the example of our Admin Re® business, which buys closed life insurance
portfolios. This area continues to offer great opportunities for economic profit growth. In 2007
alone, we signed three large transactions adding almost CHF 17 billion to our balance sheet,
including one of the largest-ever longevity deals with Zurich Financial Services. Another
success is the development of new risk transfer solutions for our clients in the field of variable
annuities, a fast-growing market segment.
Swiss Re 2007 Annual Report 31
Advancing performance The CEO’s view
In November, Swiss Re reported a significant loss in credit underwriting. How did
this happen?
That was our major disappointment in an otherwise excellent year. Like much of the financial
services industry, we were surprised by the unprecedented credit downgrades in October.
These led us to write down two structured credit default swaps by CHF 1.2 billion. The trans-
actions were at best marginal to the core business of Swiss Re.
Although the credit loss was significant, we have the financial strength and diversification to
absorb such impacts. In fact, it is no larger than our natural catastrophe claims in past years.
We also have the humility to learn from this tactical mistake and have ceased underwriting
new transactions. We have further strengthened our risk-taking and risk management
processes in the credit and financial market areas by implementing a more rigorous approval
process and enhancing our monitoring. And we are working to restore investors’ trust in Swiss
Re through our actions and transparency.
Is risk trading still a viable strategy given the current market turmoil?
Yes, the recent financial market turbulences confirmed that insurance-linked securities, of which
Swiss Re is the leading underwriter, have only limited correlation to broader credit and liquidity
risks. This makes them a particularly effective tool for diversifying risks and reducing volatility.
Catastrophe bonds are now widely accepted as an integral part of risk transfer programmes and
have a strong growth potential as the trend to securitise insurance risks accelerates.
However, insurance risk trading is not limited to the securitisation format. We recently
announced a quota share arrangement with Berkshire Hathaway which is also a form of risk
trading, providing operational leverage and capital efficiency.
Where do you see other growth opportunities?
In the life segment, variable annuity solutions and the entire value chain related to retirement
savings offer broad growth potential, as does the health business. Swiss Re has already com-
pleted variable annuity transactions in Japan, the US and the UK, and is looking at opportuni-
ties in other countries. We are also strengthening our position in the rapidly expanding health
markets of India and China.
We are enlarging our market scope with new products for – and partnerships with – govern-
ments and non-governmental organisations. In 2007, we concluded a transaction where we
used our weather risk transfer expertise to pioneer parametric crop coverage for rural commu-
nities in Kenya, Ethiopia and Mali.
In all instances, the most important growth opportunities for Swiss Re lie in anticipating long-
term changes in the insurance industry.
What are the key drivers for change?
On the regulatory side, the European Solvency II initiative is developing a new risk-based
regime founded on economic principles. This will affect the whole insurance industry and offer
new opportunities for Swiss Re, as clients optimise their reinsurance to meet changed capital
requirements. We also expect a greater need for our expertise and risk services. Solvency II
will also increase demand for capital market risk transfer, such as hedging and securitisation.
Swiss Re is also responding to another regulatory change, the European Reinsurance Direc-
tive, by consolidating the business of our EU entities (with the exception of Admin Re®) into
two legal entities in Luxembourg. This will result in more efficient capital management, while
reducing our administrative burden and advancing our organisational efficiency.
“ Catastrophe bonds
are an integral
part of risk transfer
programmes and
have strong growth
potential.”
32 Swiss Re 2007 Annual Report
“ We aim to become
the leading company
in sourcing, taking,
transforming and
trading insurable risks.”
Advancing performance The CEO’s view
On the business side, we are seeing continuing interaction between banking, reinsurance
and capital markets. We have new competitors in Bermuda, and hedge funds and investment
banks are selectively entering the reinsurance space. At the same time, clients are retaining
more risk because they have stronger balance sheets. While this creates challenges, it also
indicates that the reinsurance space is economically attractive: we must strive to apply our
competitive advantage and build on it.
How is Swiss Re responding to these challenges?
Over the last year we have been developing a vision to support Swiss Re’s earnings growth
over the medium term. We aim to become the leading company in sourcing, taking, trans-
forming and trading insurable risks. To achieve this, we are combining all our expertise and
skills in an integrated approach that will help us seize attractive opportunities in the market.
What does Swiss Re’s vision mean for clients?
Clients are at the centre of our business. We want to offer bold, comprehensive solutions that
add value for them across their insurance risk landscape. You can see this in our recent trans-
action with Allstate Corporation. Our leadership in risk securitisation allowed us take on a very
large share in Allstate’s property catastrophe programme: we were able to securitise half the
exposure and pass it on to capital market investors.
As part of our vision, we have integrated Financial Services into our Client Markets and Prod-
ucts organisations. Now, our client managers offer comprehensive access to all Swiss Re’s
expertise. This will allow them to create more powerful and innovative solutions for clients.
And what does the vision mean for your employees?
Great opportunities! Our strategic vision relies on outstanding talent, creativity and a culture of
teamwork. Through our new training centres in Switzerland, the US and China, we are investing
in the future of our company. As a global leader, Swiss Re offers exciting prospects for employ-
ees to develop their careers across regions and functions.
We go to great lengths to attract the right people and develop them. Asia is a key growth area
for us and that is why it plays an important role in the launch of our graduates@swissre pro-
gramme, in which we recruit and develop the best young talents worldwide to build a founda-
tion for Swiss Re’s future success.
Swiss Re’s share price doesn’t mirror the interesting opportunities you are talking about…
It definitely does not – and we are very intent on addressing this! Our announcement of a
mark-to-market loss on 19 November combined with the continuing turmoil in the financial
markets has resulted in a lack of confidence. We need to work hard to restore this confidence.
We also need to increase transparency and explain our business model better. We have to show
investors how we are reducing our earnings volatility by taking risks off our balance sheet and
placing them with professional counterparts – such as the recently announced quota share
arrangement with Berkshire Hathaway, the continuation of our Successor programme, which
we initiated in 2006 for natural catastrophe risks, and our Vita Capital programme for mortality
risks. We are also expanding our hedging activities in our investment portfolio. These measures
will all help to make our capital and earnings positions more predictable.
Our results show that our strategy is firmly on track and delivering sustainable benefits for
clients and shareholders. With our new vision we are building a powerful foundation to benefit
from the changing dynamics of the risk transfer business – and accelerate our performance in
the years ahead.
Swiss Re 2007 Annual Report 33
Advancing performance
Performance for Swiss Re
Admin Re® is a key element
of Swiss Re’s growth strategy.
In 2007, we completed one of
the largest-ever longevity deals,
adding significant scale and
embedded value to the Group.
34 Swiss Re 2007 Annual Report
Advancing performance Performance for Swiss Re
Swiss Re is a leading player in offering solutions
for closed life and health books, having com-
pleted over 50 Admin Re® transactions in the
US and UK over the past 10 years. Since 1998,
these deals have added more than CHF 75 bil-
lion in assets to the Group’s balance sheet.
On 4 June 2007, Swiss Re signed an agreement
with Zurich Financial Services to acquire a
closed book of 220 000 annuity policies in
return for assets worth CHF 9.1 billion. As one
of the largest-ever longevity transactions, this
transfer demonstrates Swiss Re’s ability to
respond to strong market demand and provide
solutions for clients in this area.
The deal offered a win-win outcome for both
companies, as it optimised their respective capi-
tal and risk structures. Zurich was able to reduce
its longevity exposure and free up regulatory
capital. At the same time, Swiss Re gained sub-
stantial embedded value, captured a significant
pool of assets, and boosted the scale and profit-
ability of its Admin Re® operations.
From left: Stuart Brown (London), Adrian Ricketts
(London), Richard Ellis (Telford), Man Chung Li (Armonk),
Michael Mitchell (London)
Swiss Re 2007 Annual Report 35
Advancing performance
Performance for our clients
Swiss Re’s financial strength
and capital market capabilities
enabled Allstate to grow its
business and reduce exposure
to natural catastrophe risks.
The Allstate Corporation is the largest pub-
licly held personal lines insurer in the US.
A Fortune 100 company, it provides insur-
ance products to more than 17 million
households. Since 2005, Allstate has in-
creased its reinsurance in order to reduce
exposure to natural catastrophe risk while
maintaining coverage for policyholders.
In early 2007, Allstate awarded Swiss Re
an exceptionally large USD 400 million
share in its two-year property catastrophe
programme. The transaction was placed
through Benfield, a global risk broker.
Swiss Re won the largest part of the USD
2 billion layer due to its superior
financial strength and capital market capa-
bilities, as well as the trust it has earned
through previous transactions with All-
state.
The coverage enables Allstate to grow its
business while reducing earthquake and
windstorm exposures in a single transac-
tion.
It also demonstrates Swiss Re’s ability to
better serve clients through a combination
of close cooperation with brokers, large-
line underwriting and capital market solu-
tions.
From left: Daniel McElvany (Swiss Re), Jeff Cooper
(Allstate), David Cameron (Benfield Group)
36 Swiss Re 2007 Annual Report
Advancing performance Performance for our clients
Swiss Re 2007 Annual Report 37
Advancing performance
Performance for partnerships
Swiss Re is expanding its
market reach by partnering
with governments and
NGOs to deliver innovative
solutions for weather risks in
emerging markets.
38 Swiss Re 2007 Annual Report
Advancing performance Performance for partnerships
Weather volatility poses a serious risk for the
economies of emerging markets, which are
strongly dependent on agriculture. Although
these countries produce 70% of the global food
supply, they only account for 20% of total agri-
cultural premiums. Swiss Re is leveraging its
expertise in weather risk transfer by pioneering
climate risk solutions for low-income markets.
In 2007, Swiss Re and Millennium Promise, a
non-governmental organisation (NGO), agreed
to provide weather risk protection for rural com-
munities in Kenya, Mali and Ethiopia. The cover
is based on a climate index developed by the
Earth Institute at Columbia University. This uses
a blend of satellite and weather data as an ob-
jective measure of crop production.
By protecting smallholders and communities
against drought-related crop failure, such trans-
actions facilitate access to credit and support
businesses along the agricultural value chain.
This can only be achieved through effective
public-private partnerships. Swiss Re is working
on a series of related solutions in other parts of
Africa, Asia and Latin America.
From left: Christina Ulardic (Swiss Re), Jeff Flug
(CEO, Millennium Promise)
Swiss Re 2007 Annual Report 39
Advancing performance
Performance for the future
Our graduate programme attracts
the brightest talent worldwide,
offering young professionals
a unique opportunity to shape
the future of a global leader
in reinsurance.
40 Swiss Re 2007 Annual Report
Advancing performance Performance for the future
As Swiss Re’s business grows in size, speed and
scope, we are seeking the best graduates from
a broad range of educational backgrounds to
shape the future of our industry and seize the
opportunities that lie ahead.
In 2007, 49 young talents from Europe, Asia
and the Americas joined graduates@swissre,
our global training programme. In 2008, we are
extending the programme to attract 150 gradu-
ates, offering them a unique opportunity to
realise their potential and develop a career in
one of the broadest, most exciting companies in
the financial services industry. Over 18 months,
participants undergo intense training, combin-
ing business skills with personal development.
They are inspired by a culture that rewards inno-
vation and teamwork, and encourages dynamic,
bold and integrated thinking to move Swiss Re
forward.
As a major growth area for Swiss Re’s business,
Asia plays a key role in our efforts to attract and
foster outstanding talent. We actively seek people
who understand the region and can connect
Swiss Re’s global expertise to the changing
needs of local clients.
Participants of the 2007 graduate programme at
the Swiss Re Centre for Global Dialogue in Rüschlikon,
Switzerland. From left: James Xu (Beijing), Qin Zhou
(Hong Kong), Yujin Ge (Beijing), Leo Poon (Hong Kong)
Swiss Re 2007 Annual Report 41
Financial year
Economic environment and industry trends
2007 was a good year for the global insurance
industry. Non-life underwriting results remained
solid, profiting from a below-average catastrophic
event burden. Life insurance saw robust growth.
Economy and financial markets
The subprime crisis, which arose from a steep rise in US mortgage defaults, has led to major
turmoil in global financial markets. Demand for securitised credit, which is very important
in financing US mortgages, has practically dried up, leading to a banking crisis of systemic
nature. Nevertheless, non-life and life insurance are not expected to be significantly affected
by the current financial market turmoil. Losses from subprime investments will not threaten
the industry and will be small relative to assets and shareholder capital.
The market turmoil, combined with a weakening housing market, slowed down the US economy
from an inflation-adjusted growth of 2.9% in 2006 to 2.1% in 2007. Outside the US, economies
continued to grow at solid rates in 2007, although growth in the Eurozone and Japan eased
slightly. Emerging markets grew at around 8%, led by the Chinese and Indian economies. In
China, rapid growth continued for most of 2007, while price pressure also intensified: towards
the end of the year consumer inflation exceeded 6%. In the other major markets, inflation was
stable during 2007.
Figure 1: Stock markets 2003 – 2007
220
200
180
160
140
120
100
80
31 December 2002 = 100
2003
2004
2005
2006
2007
United States (S & P 500) United Kingdom (FTSE 100) DJ Euro STOXX 50
Japan (TOPIX)
Switzerland (SMI)
Source: Datastream
42 Swiss Re 2007 Annual Report
Financial year Economic environment and industry trends
Figure 2: Interest rates for ten-year government bonds 2003 – 2007
6
5
4
3
2
1
0
in %
2003
2004
2005
2006
2007
United States United Kingdom Eurozone Japan Switzerland
Source: Datastream
Interest rates and stocks both rose initially but declined in the second half of the year. Except
for US government bond yields, year-end figures for equities and fixed interest were close to
the levels of 12 months earlier.
The US dollar continued to weaken against the major European currencies during 2007,
declining 10% against the Euro, 7% against the Swiss franc and 1% against the British pound.
Table 1: Economic indicators 2006 – 2007
Real GDP growth¹
Inflation¹
Long-term interest rates¹
Exchange rate, USD²
Exchange rate, CHF²
USA
2007
2.1
2.8
4.2
–
113
Eurozone
UK
Japan
2006
2.9
2.2
3.9
132
161
2007
2.6
2.0
4.0
147
167
2006
2.9
2.3
4.7
196
239
2007
2006
2007
2.1
2.4
3.2
0.1
0.2
2.3
1.7
1.7
4.7
199
0.90
0.84
225 1.02 1.01
2006
2.9
3.2
4.7
–
122
¹ Yearly average. Source: Swiss Re
² As of 31 December 2007. Per 100 units of foreign currency. Source: Datastream
Property and casualty insurance
The global property and casualty insurance industry fared well in 2007. As in 2006 (although
to a lesser extent), insurers profited from a low level of catastrophic loss events. Globally, prop-
erty insurers had a slightly better-than-average loss year in 2007 with only five events in the
billion-dollar range and total insured natural catastrophe claims of USD 23 billion, slightly below
the recent trend. Although Europe was hit by several costly catastrophes, including winter
storm Kyrill and UK floods, the US was spared major hurricane losses, as it was narrowly missed
by two category five storms that went on to cause damage in Mexico and Central America.
Swiss Re 2007 Annual Report 43
Financial year Economic environment and industry trends
Despite increased competition, underwriting results in the largest markets were mostly posi-
tive. The UK, however, suffered from the costliest floods in its history, and is expected to post a
negative result. Without the exceptional flood losses, the 2007 combined ratio would only
have risen slightly. In Germany, winter storm Kyrill generated significant claims, increasing the
combined ratio by approximately 5%. Also in Germany, the most competitive segments –
motor and industrial fire – are expected to post deteriorating underwriting results due to falling
rates. In other major European markets, preliminary information suggests much better results
with combined ratios near 95%. The US experienced a similar industry-wide combined ratio
of around 94%, up only slightly from 92% in 2006.
Figure 3: Insured losses 1970 – 2007
120
90
60
30
0
USD billions, at 2007 prices
1970
1975
1980
1985
1990
1995
2000
2005
Natural catastrophes Man-made catastrophes
Source: Swiss Re
The reinsurance sector enjoyed a comparably quiet year, with an industry-wide combined ratio
below 90%, similar to the low level of 2006. Full-year results are leading to lower ROE levels
than in 2006, due to a slight decrease in rate adequacy, strong capital growth, and the impact
of the credit crisis on investment results. Thanks to the sustained underwriting discipline of
recent years, the quality of current non-life profits is far superior to those seen in the second
half of the 1990s, when excellent results were driven by a booming stock market rather than
sound technical pricing.
Most mature markets experienced sluggish growth at lower rates than GDP, due to a gradual
weakening of premium rates. Premiums in the US, UK, and Continental Europe grew in the
low single-digit range. This contrasts with growth in emerging markets, where rising wealth
and incomes are leading consumers and corporations to discover the value of insurance.
Premium growth was especially firm in China, mainly reflecting robust consumer demand and
capital investment. In India, growth slowed to 6% on an inflation adjusted basis because of
detariffication in the non-life sector, implemented on 1 January 2007. Most Southeast Asian
markets also reported strong growth in premiums, as did Central and Eastern European coun-
tries. Latin America’s non-life insurance markets continued to grow at a rapid pace in 2007,
up almost 10% on an inflation-adjusted basis. While premium volumes in Mexico and Chile
soared, the Brazil market lagged behind GDP growth.
44 Swiss Re 2007 Annual Report
Financial year Economic environment and industry trends
The strong 2007 operating results further increased non-life capacity. Primary insurance
companies were able to release loss reserves, supporting earnings and adding to equity capital.
In 2007, insurers in the six largest markets increased their shareholders’ equity by about 7%,
while the major reinsurers saw an increase of 9%. Many companies accelerated their capital
management plans with share repurchases and special dividends. This will slow, but not pre-
vent, a further increase in capitalisation, bringing solvency ratios (capital funds as a percentage
of net premiums) up to levels last seen in the late 1990s.
Life insurance
Life insurance continued to expand in 2007: inflation-adjusted premium growth was around
4%, down 2% compared to 2006.
In the US, new business saw high single-digit growth, supported by strong sales of combined
savings-protection products with secondary guarantees and moderate demand for term life.
Sales of annuity products increased at a healthy pace, as robust demand for variable annuities
with guarantees more than offset the decline in fixed annuities. Guarantee products are ex-
pected to be especially attractive due to capital-market uncertainty.
Economic Research & Consulting and sigma
Swiss Re’s team of 20 economists based in Zurich, New York and Hong Kong constitutes
the Group’s centre of competence for economic analysis of risk transfer and risk financing
solutions, global business cycles and financial markets. Their flagship publication series,
the sigma studies, analyses market trends in the insurance and financial services industries
and has been a recognised source of market information for more than 30 years.
The recent sigma study on “Annuities: a private solution to longevity risk” discusses longevity
risk and the solutions currently offered by the insurance sector – primarily annuity products
– to help individuals provide for their financial needs in old age.
Current demographic projections suggest that over the coming decades people will in-
creasingly live to age 90 or above. This is good news in one respect, but anyone expecting
to live that long will also face the need to ensure that current savings and anticipated
pension income are sufficient to pay for late-life needs.
Insurers play a major role in providing private solutions for longevity. Contrary to common
belief, longer lives can offer enormous potential for profitable business, as long as the asso-
ciated risk management challenges are suitably mastered.
The sigma study analyses the risks insurers assume when writing annuity business – the
most relevant being the long-term interplay between financial and mortality/longevity
risks. It also considers how to mitigate such risks without stripping products of their core
protection against longevity risk, which is the insurance industry’s key competitive advan-
tage over other providers of financial solutions.
All the sigma studies can be downloaded electronically or ordered as a print copy in
English, German, French, Spanish, Italian, Japanese and Chinese from Swiss Re’s home-
page at www.swissre.com.
Swiss Re 2007 Annual Report 45
Financial year Economic environment and industry trends
In Europe, growth reached double digits in the UK. In Germany and France, after having been
boosted by one-off factors in 2006, premium income decreased by 1% and 4% respectively.
Sales of annuity and pension products moderated somewhat in 2007, although they are
expected to be robust in the long-term as private customers become increasingly aware of their
old age protection gap. Term insurance sales were sluggish in the UK, but strong in Southern
Europe, where mortgage-related products profited from the continuing buoyancy of the housing
market.
Life premium growth remained weak in Japan, where a volatile financial market undercut
demand for investment-linked products.
Growth of life insurance business in emerging Asian markets and Latin America continued to
be robust. In 2007, premiums are estimated to have risen by around 15%. The booming equity
markets in the first half of 2007 helped sustain life insurance demand in most markets.
Life and health reinsurance experienced robust growth in 2007. The market for the manage-
ment of closed blocks of business benefited from the continuing restructuring of the primary
life industry, particularly in the UK. There is also a developing market in reinsurance and capital
market solutions for longevity risk, variable annuity secondary guarantees, and various health
covers. On the other hand, premium growth in traditional mortality reinsurance was weak in
2007. In the US, cession rates declined slightly, as insurers continued to shift from quota share
to excess of loss covers and increased their use of alternative solutions, such as securitisation.
Insurance-linked securities
Issuance of insurance-linked securities (ILS) grew robustly, unaffected by global credit prob-
lems. Total issuance for 2007 was USD 14 billion, 40% above the 2006 figure. The outstanding
notional value of ILS at the end of 2007 was USD 38 billion, up from USD 26 billion in
December 2006. Spreads between ILS bonds and government securities were essentially
unaffected by credit market turbulence, because ILS only have limited correlation to the credit
and equity markets. This underlines their value to both sponsors and investors.
Outlook
Currently prevailing trends are expected to continue in 2008. In the absence of extraordinary
catastrophic losses, non-life underwriting results for the most important markets will remain
solid in most segments, despite sustained price pressure in many areas. Price pressure may,
however, keep primary insurance premium volumes subdued in industrialised countries,
although premium increases in emerging markets should outpace overall economic growth.
Barring an unexpected worsening of the financial markets leading to a widespread recession,
life insurance will continue to expand with robust growth rates. Growth in traditional mortality
reinsurance premiums is expected to lag slightly behind primary market premiums, due to
lower cession rates in the US and sluggish term sales in the UK. Other markets are expected to
grow in line with primary market growth. However, significant growth is expected in particular
segments, including the purchase of closed life books, as well as annuity and health reinsur-
ance.
46 Swiss Re 2007 Annual Report
Financial year
Group results
Net income of CHF 4.2 billion and earnings per
share of CHF 11.95 were supported by an out-
standing performance in the Property & Casualty
and Life & Health businesses, as well as a solid
investment result. The fourth quarter was impacted
by a significant mark-to-market loss in credit
underwriting activities.
Swiss Re reported annual net income of CHF 4.2 billion in 2007, down 9% compared to a
record result in the previous year. Earnings per share were CHF 11.95, 11% lower than 2006.
In the fourth quarter, net income was CHF 170 million, compared to CHF 1.3 billion in the prior
year period. The decrease was due to a significant mark-to-market loss in the credit under-
writing business. Earnings per share for the quarter were CHF 0.49.
The following discussion reflects changes in Swiss Re’s financial reporting segmentation due
to the realignment of the Group’s Financial Services activities.¹
In 2007, premiums earned increased 7% to CHF 31.7 billion. Property & Casualty premiums
grew 2% to CHF 19.0 billion, largely due to the inclusion of the acquired GE Insurance
Solutions business for the full year², partially offset by a reduction in new business as a result
of unsatisfactory price levels, mainly in certain US casualty lines, as well as higher client reten-
tions. The Property & Casualty result for 2006 and 2007 also includes credit reinsurance
activities, which were formerly part of the Financial Services segment. In the Life & Health
business, premiums and fee income from policyholders increased 15% to CHF 13.6 billion, also
as a result of the inclusion of GE Insurance Solutions for the full year, combined with the acqui-
sition of GE Life UK and a rise in new business written in North America.
The Group’s net investment income and net realised gains include the investment result from
assets backing unit-linked policies. These returns are credited to policyholders’ accounts and
therefore excluded from the following comments on the investment performance of the Group.
¹ In 2007, the Group realigned its Financial Services activities, integrating them into the Client Markets and Prod-
ucts functions. As a result, all returns from risk taking in proprietary assets are included in the investment result
while securitisation-related income and insurance or reinsurance revenues are reclassified to the relevant prod-
uct line in Property & Casualty or Life & Health. Other activities related to life and health business, such as variable
annuity solutions, are now included in the results for the Life & Health segment. Trading revenues have been
reclassified to net realised investment gains or to net investment income, as appropriate. Interest expense related
to the funding of trading activity is now included in interest expenses. Detailed information on changes in Swiss
Re’s financial reporting segmentation can be found in Note18 to the Group financial statements.
² The GE Insurance Solutions acquisition was completed on 9 June 2006 and is included in 2006 earnings as of
the date of acquisition.
Swiss Re 2007 Annual Report 47
Financial year Group results
48 Swiss Re 2007 Annual Report
Net investment income was CHF 9.9 billion, a 36% increase over the previous year. This rise
was due to growth in the overall portfolio resulting from acquisitions and new Admin Re®
transactions in 2007, as well as measures to take advantage of the market dislocation in the
second half of the year, increasing yields on fixed income securities.
Net realised investment losses for 2007 were CHF 1.3 billion, driven by the mark-to-market
loss on two related credit default swap transactions announced on 19 November, as well as
by losses from the effect of selling lower yielding investments and reinvesting in higher yielding
assets in order to increase future net income. These effects were partly offset by realised
gains from the sale of equities.
Other revenues were CHF 302 million, an increase of 8% compared to prior year.
Claims and claim adjustment expenses increased marginally by 2% to CHF 12.1 billion, despite
the first full-year inclusion of GE Insurance Solutions in 2007. This is the result of strict under-
writing and favourable claims experience. Losses from natural catastrophes were slightly lower
compared to 2006, with a very low claims burden from weather events. Including recovery,
claims from natural catastrophes amounted to CHF 0.6 billion, or 3.1% of premiums, compared
to CHF 0.7 billion or 3.8% of premiums in the prior year.
Life and health benefits increased 16% to CHF 11.1 billion, reflecting both the full-year inclusion
of GE Insurance Solutions and the acquisition of GE Life UK at the end of 2006.
Interest credited to policyholders decreased 25% to CHF 2.1 billion. This reflects lower realised
gains on the unit-linked assets, mainly in the second half of 2007.
Acquisition costs increased 7% to CHF 6.5 billion. The acquisition cost ratio was 20.5% in
2007 compared to 20.6% in 2006.
Other expenses were CHF 4.1 billion in 2007, an increase of 14% over 2006. This rise was
mainly due to the businesses acquired from General Electric in 2006 and their full-year inclu-
sion in 2007, resulting in a 15% increase in the Group’s expense base compared to 2006.
Variable compensation in the Property & Casualty and Life & Health segments was marginally
up compared to 2006, reflecting continuing outstanding performance in these businesses.
Interest expenses were CHF 1.8 billion, an increase of 77% over the prior year period. The
increase reflects costs related to the funding of the Insurance Solutions acquisition and two
hybrid securities issued in 2007.
The tax expense in 2007 was CHF 1.0 billion. This represents an effective tax rate of 19.8%,
compared to 22.1% in the prior year. The decrease in the tax rate in 2007 was primarily due
to a reduction in the legislated tax rates in both Germany and the UK, as well as the impact of
foreign exchange movements offset by the change in unrecognised tax benefits.
The Group’s operational activities resulted in a net operational cash outflow of 3.8 billion in
2007 compared to a net operational cash inflow of 1.5 billion in 2006. Increased funding of
discrete pools of operational leverage and financial intermediation assets resulted in an out-
flow in the operating cash flow for purchased assets, as well as an inflow in the financing cash
flow from debts issued to match the acquired assets.
Shareholders’ equity rose 3% to CHF 31.9 billion, despite the return of CHF 3.7 billion to share-
holders during the year through the dividend payment in April as well as through the share
Financial year Group results
Income reconciliation
CHF millions
Operating income
Property and Casualty
Life and Health
Financial Markets
Allocation
Total operating income
Corporate centre expenses
Items excluded from the segments:
Net investment income
Net realised investment gains/losses
Foreign exchange gains/losses
Financing costs
Restructuring costs
Other income /expenses
Net income before tax
2006
2007
Change in %
5 613
1 546
7 021
–7 001
7 179
5 948
2 719
7 332
–8 639
7 360
–324
–377
184
299
–196
–1 026
–117
–143
5 856
236
–202
–7
–1 649
–3
–171
5 187
6
76
4
23
3
16
28
–168
–96
61
–97
20
–11
buy-back programme and shares repurchased from General Electric in March. This amount
was more than offset by earnings generated during the year and an increase in unrealised
gains. Shareholders’ equity was also impacted by the weaker US dollar exchange rate and the
conversion of a mandatory convertible bond during 2007.
Return on equity decreased to 13.5% from 16.3% in 2006, resulting from lower earnings
compared to the record result in 2006.
Income reconciliation
The above table reconciles the income from Swiss Re’s segments and the operations of its
Corporate centre with the Group’s consolidated net income before tax. Net realised gains or
losses on certain financial instruments, certain currency exchange gains and losses and other
income and expenses – such as indirect taxes, capital taxes and interest charges – have been
excluded from the assessment of each segment’s performance.
Swiss Re 2007 Annual Report 49
Financial year
Summary of financial statements
Income statement
CHF millions
Revenues
Premiums earned
Fee income from policy holders
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Interest credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Income before income tax expense
Income tax expense
Net income
Earnings per share in CHF
Basic
Diluted
2006
2007
Change in %
29 515
879
7 991
2 106
280
40 771
–11 799
–9 594
–2 827
–6 079
–3 590
–1 026
–34 915
5 856
–1 296
4 560
31 664
955
10 692
–739
302
42 874
–12 065
–11 112
–2 120
–6 499
–4 077
–1 814
–37 687
5 187
–1 025
4 162
13.49
12.53
11.95
11.23
7
9
34
–135
8
5
2
16
–25
7
14
77
8
–11
–21
–9
–11
–10
Changes in shareholders’ equity
CHF millions
Balance as of 1 January
Net income
Change in unrealised gains/losses on securities, net
Change in foreign currency translation
Dividends
Purchase/sale of treasury shares and shares issued
under employee plans
Other changes in equity
Balance as of 31 December
2006
24 393
4 560
322
–1 176
–776
–63
3 624
30 884
2007
30 884
4 162
889
–2 349
–1 162
–1 268
711
31 867
Change in %
27
–9
176
100
50
1 913
–80
3
50 Swiss Re 2007 Annual Report
Financial year Summary of financial statements
Summary balance sheet
CHF millions
Assets
Investments
Fixed income securities
Equity securities
Policy loans, mortgages and other loans
Investment real estate
Short-term investments, at amortised cost which
approximates fair value
Other invested assets
Total investments
Cash and cash equivalents
Reinsurance assets
Deferred acquisition costs and other intangible assets
Goodwill
Other assets
Total assets
Liabilities
Unpaid claims and claim adjustment expenses
Liabilities for life and health policy benefits
Provisions for linked liabilities
Unearned premiums
Funds held under reinsurance treaties
Reinsurance balances payable
Income taxes payable
Deferred and other non-current taxes
Short-term debt
Accrued expenses and other liabilities
Long-term debt
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
Summary cash flow statement
CHF millions
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
Reclassification to short-term investments
Effect of foreign currency translation
Change in cash and cash equivalents
Cash and cash equivalents as of 1 January
Cash and cash equivalents as of 31 December
2006
2007
Change in %
137 789
33 347
8 074
4 227
9 757
11 044
204 238
13 606
47 681
12 820
4 838
8 117
291 300
95 011
44 899
42 834
8 025
10 531
6 832
866
2 685
9 118
24 877
14 738
260 416
30 884
291 300
2006
1 516
2 965
3 367
–2 451
–159
5 238
8 368
13 606
159 603
32 862
7 414
2 682
8 786
16 465
227 812
11 531
42 778
11 921
4 897
8 348
307 287
88 528
50 026
41 340
7 722
8 377
5 384
679
3 817
12 658
33 552
23 337
275 420
31 867
307 287
16
–1
–8
–37
–10
49
12
–15
–10
–7
1
3
5
–7
11
–3
–4
–20
–21
–22
42
39
35
58
6
3
5
2007
–3 764
–868
2 972
–
–415
–2 075
13 606
11 531
Change in %
–348
–129
–12
–
161
–140
63
–15
Swiss Re 2007 Annual Report 51
Financial year
Property & Casualty
Operating income increased to CHF 5.9 billion,
representing the best-ever result for Swiss Re’s
P&C segment. This reflects an excellent under-
writing performance as well as the full-year
inclusion of the Insurance Solutions acquisition.
Business developments
2007 was a strong year for the property and specialty lines of business, despite a higher level
of natural catastrophes than 2006. Significant events included winter storm Kyrill in Germany,
a series of floods in the United Kingdom, storms in Australia in both June and December,
flooding in Indonesia, and a category five cyclone in the Middle East which affected Oman
and the United Arab Emirates. Swiss Re continued to manage its natural catastrophe exposure
using various hedging instruments to reduce earnings volatility.
The value of a stable public-private partnership for terrorism risks was reconfirmed in discus-
sions between the insurance industry and political leaders. To complement insurance products,
state support has been extended for seven years in the USA (Terrorism Risk Insurance Program
Reauthorization Act, TRIPRA) and for two years in Germany. In Belgium, a legal framework
has been established for an enhanced terrorism risk-sharing pool to become operative during
2008.
All specialty lines of business produced strong results, based on disciplined underwriting in
recent years and modest claims activity. However, downward price pressure was evident in all
three lines.
In the casualty segment, pressure on both primary and reinsurance rates increased throughout
the year as competition continued to intensify. In addition to Bermudan carriers and start-up
companies diversifying into casualty lines, established players are also adopting an increasingly
aggressive stance. Competition was most intense in emerging markets and large treaty
business. So far, the focus has primarily been on prices, whereas terms and conditions have
remained generally stable. The softening cycle requires strong negotiating and underwriting
skills, and Swiss Re maintains a disciplined and active cycle management focus, leveraging
the Group’s capacity and risk appetite where economics remain attractive.
Swiss Re has encouraged stakeholders in European markets to develop insurance-based solu-
tions covering features of the new liability regime based on the EU Directive on Environmental
Liability (ELD). Such solutions have been introduced in some of the nine member states that
have already transposed the ELD into national law, including Germany and Spain. Swiss Re is
perceived as the leading expert and process driver in the European markets.
52 Swiss Re 2007 Annual Report
Financial year Property & Casualty
Although US tort cost developments showed favourable signs from 2006 on, they remained
under close scrutiny, as no clear trend was established. Factors relating to the subprime and
credit crisis, issues such as the backdating of options and potential liability effects stemming
from global warming are expected to influence future developments. In the Americas and
European markets, medical costs continued to rise. In Asia, the liability culture is still develop-
ing in various directions and at different speeds. Swiss Re actively seized opportunities in
emerging markets and adapted products to accommodate liability trends, in order to establish
an advantageous position when demand picks up.
Swiss Re applied its active cycle management across all property, specialty and casualty seg-
ments, in order to tackle the insurance price cycle and create result differentiation from market
inefficiency and the “naive” capacity it generates. The Group maintained a disciplined approach
to costing accuracy, and business origination was characterised by a clear view on the selling
price in relation to the cost of production. Swiss Re took advantage of a trend towards differ-
ential terms for individual reinsurers and adjusted capacity where target prices could not be
achieved.
Business results
The figures for 2006 and 2007 are presented according to the new organisational structure.
The specialty sub-segment now includes certain parts of the former Credit Solutions business,
such as credit reinsurance, financial guaranty business, bank trade finance and credit securiti-
sations.
Operating income increased from CHF 5.6 billion in 2006 to CHF 5.9 billion in 2007. The
main drivers for the improvement were a strong performance, mainly in the property and spe-
cialty lines of business, as well as the full-year inclusion of GE Insurance Solutions in 2007.
Property & Casualty results
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Acquisition costs
Other operating costs and expenses
Total expenses
Operating income
2006
2007
Change in %
18 541
3 753
379
58
22 731
18 999
4 458
–74
97
23 480
–11 799
–3 823
–1 496
–17 118
–12 065
–3 834
–1 633
–17 532
5 613
5 948
2
19
–120
67
3
2
0
9
2
6
Claims ratio in %, including unwind of discount
Expense ratio in %
Combined ratio in %, including unwind of discount
Combined ratio in %, excluding unwind of discount
63.2
27.3
90.5
89.6
62.2
28.0
90.2
88.9
Swiss Re 2007 Annual Report 53
Financial year Property & Casualty
Premiums earned 2007 by region
Total CHF 19.0 billion
43%
Americas
43%
Europe
14%
Asia
54 Swiss Re 2007 Annual Report
Despite a higher level of events, the impact of natural catastrophe claims, gross of retrocession
recovery, was lower in 2007 compared to 2006. Including recovery, claims from natural
catastrophes amounted to CHF 0.6 billion, or 3.1% of premiums, compared to CHF 0.7 billion
or 3.8% of premiums in the prior year. Underlying portfolio profitability increased as a result of
the tighter terms and conditions introduced in previous years. The credit reinsurance business,
included in the specialty segment for both years presented, favourably impacted the traditional
business in 2007. The combined ratio for the credit reinsurance unit was 81.0%, compared
to 89.9% in 2006.
The net investment result increased 6% to CHF 4.4 billion, reflecting the increase of the asset
portfolio due to the acquisition of GE Insurance Solutions. Claims development from prior
years was broadly neutral during 2007.
Premiums earned
Premiums earned increased 2%, reflecting the full-year inclusion of GE Insurance Solutions in
2007. The segment also benefited from the growth of the credit reinsurance portfolio, included
for both years. Credit reinsurance contributed 6% of the Property & Casualty premiums earned
in 2006 and 2007.
Premiums for non-traditional business decreased 28%, mainly reflecting the commutation of a
major contract in the US and the continuing weak demand for non-traditional products.
Traditional volumes benefited from a 7.3% increase in facultative business. The trend from
proportional to non-proportional business continued in 2007. The share of non-proportional
business in the overall book increased from 36% in 2006 to 43% in 2007.
Despite an abundance of capacity in the market, Swiss Re was able to renew its book profitably.
All markets reflected the trend towards higher client retentions due to better capital positions
and strong profitability levels. The Group’s renewals were marked by overproportional growth
in the most profitable lines of business, particularly in the property and specialty areas.
Combined ratio
Excellent underwriting performance further improved the combined ratio for traditional busi-
ness from 90.5% in 2006 to 90.2% in 2007. Natural catastrophe claims, before retrocession
recovery, were slightly higher in 2007 compared to 2006. Unfavourable liability experience
in 2007 negatively impacted the combined ratio compared to the previous year. This was par-
tially offset by positive development in specialty business, including credit reinsurance.
The discount of Property & Casualty reserves applied following the acquisition of GE Insurance
Solutions in 2006 was further amortised in 2007. The amortisation increased the combined
ratio by 1.3 percentage points in 2007, which was more than offset by the investment returns
on the assets backing the liabilities. The discount, net of capital cost, unwinds over the esti-
mated average duration of the reserves.
Financial year Property & Casualty
Property & Casualty results by line of business
2006
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment gains/
losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment
expenses
Acquisition costs
Other operating costs and
expenses
Total expenses
Property
traditional
Casualty
traditional
Specialty
traditional
Total
traditional
Non-
traditional
Total
6 096
620
–48
–20
6 648
7 542
2 232
4 223
552
17 861
3 404
680
349
18 541
3 753
305
10 079
74
52
4 901
331
32
21 628
48
26
1 103
379
58
22 731
–2 779
–1 074
–6 220
–1 404
–2 290 –11 289
–3 493
–1 015
–510 –11 799
–3 823
–330
–487
–4 340
–620
–8 244
–282
–1 389
–3 587 –16 171
–1 496
–107
–947 –17 118
Operating income
2 308
1 835
1 314
5 457
156
5 613
Claims ratio in %
Expense ratio in %
Combined ratio in %
45.6
25.6
71.2
82.5
26.8
109.3
54.2
30.7
84.9
63.2
27.3
90.5
2007
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment gains/
losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment
expenses
Acquisition costs
Other operating costs and
expenses
Total expenses
Property
traditional
Casualty
traditional
Specialty
traditional
Total
traditional
Non-
traditional
Total
6 464
533
–171
–7
6 819
7 446
3 205
4 600
372
18 510
4 110
489 18 999
4 458
348
52
10 703
6
104
5 082
–113
97
22 604
39
876
–74
97
23 480
–2 800
–1 143
–6 634
–1 417
–2 063 –11 497
–3 662
–1 102
–568 –12 065
–172 –3 834
–510
–4 453
–732
–8 783
–292
–1 534
–3 457 –16 693
–99 –1 633
–839 –17 532
Operating income
2 366
1 920
1 625
5 911
37
5 948
Claims ratio in %
Expense ratio in %
Combined ratio in %
43.3
25.6
68.9
89.1
28.9
118.0
44.8
30.3
75.1
62.2
28.0
90.2
Swiss Re 2007 Annual Report 55
Financial year Property & Casualty
56 Swiss Re 2007 Annual Report
Lines of business
Active cycle management and a diversified business mix contributed to excellent results in
2007. Most lines of business, except for liability and accident, contributed to the combined
ratio improvement.
Property
Premium growth was mainly due to the full-year contribution of GE Insurance Solutions in 2007.
Higher retentions by ceding companies in Europe and the US as well as softer market condi-
tions in the US partially offset this increase in volume.
An excellent underwriting performance and favourable claims experience in the US were the
main drivers of the improved combined ratio.
Casualty
Premium volume decreased, mainly driven by higher client retentions and softening market
conditions. This was mostly offset by the full-year inclusion of Insurance Solutions in 2007.
Liability claims rose to CHF 4.1 billion, resulting in a combined ratio of 123.9% compared to
107.4% in 2006. An increase in asbestos and environmental reserves, as well as an adjustment
to the tail factors applied to workers compensation business negatively impacted the second
half of the year. This, combined with unfavourable development in product liability claims,
resulted in an increase of 15 percentage points in the combined ratio, which was partially off-
set by a continuing improvement in the performance of the motor business.
Specialty lines
Premium volume for the specialty lines of business increased 9% to CHF 4.6 billion, reflecting
the full-year contribution of GE Insurance Solutions in 2007.
Overall, operating income grew significantly to CHF 1.6 billion compared to CHF 1.3 billion in
the previous year, also benefiting from the performance of the credit reinsurance business.
In 2007, underwriting results for the credit reinsurance business were CHF 93 million higher
than in the previous year, due to a low claims ratio. Continued strong underwriting and positive
reserve development led to an improved combined ratio for traditional speciality business
of 75.1%, compared to 84.9% in the prior-year period. Adverse development related to prior
underwriting years in the US negatively impacted the performance of the marine business.
Aviation volumes benefited from the inclusion of GE Insurance Solutions for the full year 2007.
Non-traditional business
The combined ratio is not a suitable measure for some non-traditional treaties, since the source
of profits typically arises from a combination of investment performance and underwriting
performance.
The reduction in non-traditional operating income from CHF 156 million in 2006 to CHF 37
million in 2007 reflects continuing weak demand for such covers and the commutation of
existing business.
Financial year
Life & Health
Operating income rose 76% to CHF 2.7 billion.
The business benefited from the successful
integration of GE Insurance Solutions and
GE Life UK.
Business developments
Swiss Re’s life and health segment continued to grow profitably, despite a reinsurance market
that remained very competitive. Although insurers have been reassessing their reinsurance
strategy and structures as a result of the recent regulatory changes, Swiss Re is not experienc-
ing any material reduction in overall cession rates.
In Europe, Swiss Re has maintained its strong market position. Specific areas of growth were
focused on life protection products linked to loans and mortgages, products sold through
banks and other financial institutions, and leading the market towards enhancing the segmen-
tation of insured lives. Throughout 2007, strong progress was achieved on these initiatives in
Italy, Germany and France. In the UK, the traditional reinsurance market is closely aligned with
the primary market as a result of high cession rates. Primary market protection sales were rela-
tively flat, due to a depressed mortgage market, uncertainty regarding the impact of regulatory
changes on the distribution of products and reduced confidence in equity markets returns.
In the US, Swiss Re continued to reclaim market share while life reinsurance cession rates
generally decreased. Overall pricing levels and treaty terms in this market have migrated to-
wards a more sustainable equilibrium over the past few years and, in the current environment,
Swiss Re’s financial strength, capacity and expertise are valued by clients.
Swiss Re supported clients by providing customised underwriting support and analysing
insured lives experience for the older-age life market, an increasingly important segment given
demographic trends. The Group also broadened its product offering by providing variable
annuity reinsurance and placing its first private life insurance-linked securitisation in the US in
early 2008. This transaction covered the “Regulation XXX” reserves of the Savings Bank Life
Insurance Company of Massachusetts (SBLI).
The Canadian market maintained stable cession rates; however, Swiss Re continued its strong
show ing in this competitive environment, achieving growth in both volume and profitability.
Growth in Asian markets continued at a solid pace. In Japan, Swiss Re closed a number of
variable annuity transactions. At the same time, sales of increasing term life products were
negatively affected by proposed tax changes, with a corresponding impact on the volume of
new reinsurance business.
In January 2007, Swiss Re transferred a further CHF 885 million of extreme mortality risk to
the capital markets through its Vita Capital securitisation programme. Interest was strong in
Swiss Re’s third mortality catastrophe bond, enabling peak mortality exposures to be managed
in a sustainable and capital-efficient manner. Part of the issuance was used to replace cover
provided by the first Vita Capital securitisation, which expired at the end of 2006.
Swiss Re 2007 Annual Report 57
Financial year Life & Health
58 Swiss Re 2007 Annual Report
In February 2007, the Group finalised the purchase of a 26% share in TTK Healthcare Services
Pvt Ltd, a regulated third-party administrator in India. Swiss Re also acquired Prestige Health-
care Services Pvt Ltd, which subsequently became Swiss Re Healthcare Services (India) Pvt Ltd,
a healthcare services advisory company. This infrastructure enabled Swiss Re to successfully
write new medical insurance business in the Indian market.
In 2007, Swiss Re concluded seven Admin Re® transactions in the UK and the US. These
include an agreement with Norwich Union in the UK to provide administration services for
approximately 3 million policies relating to legacy business; this was further extended to a
reinsurance contract incepting in 2008, which covers the majority of risks relating to the non-
profit and unit-linked policies covered by the administration agreement. In the US, Swiss Re
completed an Admin Re® transaction with Conseco to reinsure a block of deferred annuities
with total assets of CHF 3.7 billion.
In addition, Swiss Re concluded its first Admin Re® agreements to manage substantial lon-
gevity risk. The transactions were carried out in the UK, where assets and risks for large blocks
of annuity business were transferred to Swiss Re from primary insurers who had accumulated
significant longevity exposure. Transactions with Friends Provident, Zurich Financial Services
and Co-operative Financial Services resulted in the transfer of UK annuity portfolios with a
total value of CHF 17 billion.
In December 2007, Swiss Re sold the new business operations of Tomorrow (the recently re-
branded GE Life UK) to LV= (formerly known as Liverpool Victoria). LV= will invest in the people
and products required to grow these lines of business. This agreement honours the Group’s com-
mitment to the market, employees and customers to maintain the business as a going concern.
Business results
The figures for 2006 and 2007 are presented according to the new organisational structure.
The Life & Health segment now includes part of the insurance-linked securities (ILS) business
as well as the variable annuity business. Together with the new organisational structure,
the allocation of the investment return to the segments has changed and is now based on the
technical reserves and other information including duration of the underlying liabilities.
Operating income rose to CHF 2.7 billion in 2007, an increase of 76%. The overall Life & Health
return on operating revenues of 14.7% exceeded the previous year’s return by 5.5 percentage
points, reflecting the successful integration of the GE Insurance Solutions and GE Life UK
business.
In the traditional life business, operating income rose CHF 773 million to CHF 1.6 billion. The
underlying business performed in line with the Group’s higher expectations based on the full-
year inclusion of GE Insurance Solutions. The good result was also boosted by a favourable
change in claims assumptions in the UK, where the reserving practice was refined on a treaty-
by-treaty basis, resulting in a higher consistency in such practices across the Group. These
positive effects were partially offset by unfavourable actuarial reserve changes in the US,
where Swiss Re adjusted the valuation of its US life policy benefit reserves to a policy-by-policy
approach for certain blocks of business.
Operating income from the traditional health business improved by CHF 267 million, or 74%,
to CHF 626 million. This was partially due to the successful integration of GE Insurance Solutions,
as well as better-than-expected morbidity levels and improved termination rates. In addition,
the result was positively impacted by a favourable one-off change in claims assumptions in the
UK, which relates to the refined reserving practice in the Life & Health segment.
Financial year Life & Health
2006
2007
Change in %
10 974
879
3 686
1 667
17 206
12 665
955
5 441
863
5
19 929
–9 594
–2 827
–2 256
–983
–15 660
–11 112
–2 120
–2 665
–1 313
–17 210
1 546
2 719
15
9
48
–48
–
16
16
–25
18
34
10
76
99
Life & Health results
CHF millions
Revenues
Premiums earned
Fee income
Net investment income
Net realised investment gains/losses
Fees, commissions and other revenues
Total revenues
Expenses
Claims and claim adjustment expenses;
life and health benefits
Interest credited to policyholders
Acquisition costs
Other operating costs and expenses
Total expenses
Operating income
Operating result, excluding non-participating
net realised investment gains
1 381
2 744
Net investment income – unit-linked
Net realised investment gains/losses – unit-linked
Net realised investment gains/losses – non-participating
670
1 319
165
749
512
–25
12
–61
–115
Operating revenues¹
15 052
18 693
24
Management expense ratio in %
Return on operating revenues in %
6.5
9.2
7.0
14.7
¹ Operating revenues exclude net investment income and net realised investment gains from unit-linked business
as these are passed through to contract holders via interest credited to policyholders and therefore do not have
an impact on the operating result.
Admin Re® operating income increased 39% to CHF 473 million, mainly due to higher realised
investment gains, growth in the business portfolio driving higher net investment income and
contribution from GE Life UK in 2007. These effects were partially offset by less favourable
mortality in the US in the first half of the year.
Net investment income in 2007 was CHF 5.4 billion, an increase of 48% compared to the pre-
vious year, reflecting the larger volume of invested assets as a result of the GE Insurance
Solutions and GE Life UK acquisitions, as well as the new allocation of the investment return to
the segments. Unit-linked contracts have no impact on the operating result, as the investment
result on such contracts is passed through to contract holders as interest credited to policy-
holders.
Acquisition costs increased to CHF 2.7 billion, due to the increased amortisation of the present
value of future profits (PVFP) recognised for the acquired policies.
Swiss Re 2007 Annual Report 59
Financial year Life & Health
Premiums earned and fee income
by region
Total CHF 13.6 billion
59%
North America
32%
Europe
9%
Rest of the world
60 Swiss Re 2007 Annual Report
The management expense ratio increased to 7.0%, partly due to one-off integration costs for
the GE Life UK business, as well as Admin Re® transactions completed in 2007.
Premiums earned and fee income
Premiums and fees increased 15% to CHF 13.6 billion. The increase was mainly driven by the
full integration of the GE Insurance Solutions and GE Life UK acquisitions.
Traditional life premiums and fees totalled CHF 8.4 billion in 2007, an increase of 6%, reflecting
new business written in all regions as well as the European life business acquired as part of
GE Insurance Solutions. Traditional health premiums grew from CHF 2.2 billion in 2006 to
CHF 3.0 billion in 2007, largely due to the full-year impact of the GE Insurance Solutions
acquisition. Admin Re® premiums and fees increased from CHF 1.7 billion in 2006 to 2.3 bil-
lion in 2007, primarily reflecting the full impact of the GE Life UK acquisition.
The premiums and fees earned by regions remained stable during 2007.
Life & Health results by line of business
2006
CHF millions
Operating revenues
Operating income
Operating result
Return on operating revenues in %
2007
CHF millions
Operating revenues
Operating income
Operating result
Return on operating revenues in %
Life
traditional
9 000
847
759
8.4
Life
traditional
10 372
1 620
1 710
16.5
Health
traditional
2 746
359
272
9.9
Health
traditional
3 606
626
612
17.0
Admin Re®
3 306
340
350
10.6
Admin Re®
4 715
473
422
9.0
Total
15 052
1 546
1 381
9.2
Total
18 693
2 719
2 744
14.7
The return on operating revenues for traditional life business rose from 8.4% in 2006 to 16.5%
in 2007, while the return for traditional health business grew from 9.9% to 17.0%. The strong
increase in the operating return was mainly driven by investment income, as well as the positive
impact of changes in claims assumptions in the UK. The underlying business without one-off
effects showed a solid performance.
The return on operating revenues for Admin Re® decreased from 10.6% in 2006 to 9.0% in
2007, mainly due to funding costs directly attributable to Admin Re® transactions, as well as
less favourable mortality in the first half of the year.
Financial year Financial Markets
Financial Markets
Solid Financial Markets performance resulted in a
return on investments of 4.9%.
Investment strategy
Swiss Re’s proprietary investment and trading activities are a core driver in the Group’s value
creation. Their objective is to generate economic profit growth by actively managing and trad-
ing the investments of the business units according to a liability-driven benchmark and within
a comprehensive risk limit framework. Particular consideration is given to earnings volatility
management, as well as the impact on rating agency and regulatory capital adequacy.
Investment result
Overall, the return on investments was 4.9%, compared to 5.0% in the prior year.
The investment portfolio grew 9% over the year, from CHF 160.9 billion to CHF 176.0 billion,
mainly due to Admin Re® transactions. At the end of 2007, Swiss Re’s overall gross asset allo-
cation was 87% in credit and rates, and 13% in equities and alternative investments.
Credit and rates
Swiss Re’s credit and rates portfolio rose to CHF 152.8 billion in 2007 from CHF 141.8 billion
in 2006, reflecting the Admin Re® transactions in 2007, partially offset by the weakening of
the US dollar compared to the Swiss franc.
Financial Markets results
2006
CHF millions
Net investment income
Net realised gains/losses
Fees, commissions and other revenues
Total revenues
Expenses
Total operating income
Return on investments in %
Credit and rates
6 327
–182
201
6 346
–556
5 790
Equities and alter-
native investments
575
904
1 479
–262
1 217
Other
–11
43
32
–18
14
2007
CHF millions
Net investment income
Net realised gains/losses
Fees, commissions and other revenues
Total revenues
Credit and rates
8 696
–1 518
125
7 303
Equities and alter-
native investments
696
1 631
Other
–1 294
2 327
–1 294
Expenses
Total operating income
–697
6 606
–283
2 044
– 24
–1 318
Return on investments in %¹
Total
6 891
765
201
7 857
–836
7 021
5.0
Total
9 392
–1 181
125
8 336
–1 004
7 332
4.9
¹ The return on investments includes currency exchange rate remeasurements and designated trading portfolios.
The designated trading portfolios comprise trading fixed income securities denominated in foreign currency,
which back certain liabilities denominated in foreign currency. The overal impact of the currency exchange
remeasurements was CHF –61 million in 2006 and CHF –476 million in 2007.
Swiss Re 2007 Annual Report 61
Financial year Financial Markets
Investments by currency
as of 31 December 2007
Total CHF 176.0 billion
49%
USD
21%
GBP
16%
EUR
6%
Other
5%
CAD
3%
CHF
62 Swiss Re 2007 Annual Report
Net investment income grew 37% to CHF 8.7 billion. Net realised losses on credit and rates
investments were CHF 1.5 billion in 2007, compared to net gains of CHF 0.2 billion in 2006.
Net realised losses in 2007 included mark-to-market losses on investments classified as trading,
impairments, as well as the replacement of lower yielding securities with higher yielding
investments. Net realised losses relating to assets backing liabilities were CHF –415 million in
2007. The average running yield on Swiss Re’s portfolio increased from 4.8% in 2006 to
5.2%.
Fees and expenses decreased in 2007 compared to 2006, as the prior year included Fox-Pitt,
Kelton which was sold on 28 June 2006.
Swiss Re provides asset management services for insurance clients under the Conning Asset
Management brand in the US, Canada, Bermuda and Europe. Third-party assets under man-
agement increased to CHF 92.8 billion at the end of 2007 from CHF 85.4 billion at the end of
2006.
Expenses increased CHF 141 million, in line with the growth in assets under management and
increased securities lending activity. Expenses in relation to proprietary assets under manage-
ment were 25 basis points in both 2006 and 2007. Net unrealised gains of CHF 1.1 billion at
the end of 2006 increased to CHF 1.9 billion at the end of 2007.
Equities and alternative investments
In 2007, Swiss Re increased its gross exposure from CHF 19.1 billion at the end of 2006 to
CHF 23.2 billion at the end of 2007, mainly in private equity investments and a diversified
portfolio of hedge funds. The net exposure was substantially lower as a result of active use of
equity derivative instruments.
Net investment income and net realised gains increased to CHF 2.3 billion from CHF 1.5 bil-
lion in 2006. This reflects the higher asset base, but also the excellent performance of public
and private equities and hedge funds, as well as the sale of the London office building at
30 St Mary Axe.
Expenses increased CHF 21 million, in line with the growth in assets under management. Net
unrealised gains on the balance sheet were CHF 3.1 billion at the end of 2006, compared to
CHF 3.0 billion at the end of 2007.
Other
Net realised losses relate to the mark-to-market loss on two related credit default swap trans-
actions which was announced in November 2007 and is discussed in more detail in the letter
to shareholders on pages 3 – 4.
Risk management
Swiss Re actively manages its exposure to financial market risks. At the end of 2007, the credit
spread exposure – as measured by a stress scenario – was reduced by means of credit default
swaps from a gross exposure of CHF 2.2 billion to a net stress exposure of CHF 1.7 billion.
Similarly, Swiss Re’s equity market exposure was actively reduced by means of equity deriva-
tives. Measured in terms of the equity market stress scenario that assumes a 30% fall in equity
markets with a simultaneous increase in volatility, the gross stress exposure of CHF 3.9 billion
was reduced to a net stress exposure of CHF 2.7 billion by the end of 2007.
Financial year Financial Markets
Asset-liability management at Swiss Re
Asset-liability management (ALM) is an integral part of how Swiss Re monitors and man-
ages financial market risk. It involves splitting Swiss Re’s economic balance sheet
into two virtual balance sheets: one exposed to insurance risk and the other to financial
market risk.
The insurance risk balance sheet shows the market-consistent value of insurance liabilities
and capital on the liability side and a notional “minimum risk portfolio” on the asset side.
This notional portfolio represents investments – typically cash and fixed income instruments
replicating the risk characteristics of future liability cash flows – that minimise financial
market risk relative to the liabilities.
The market risk balance sheet shows the Group’s actual investments on the asset side
and the minimum risk portfolio as a liability, which is then used as the basis for setting the
benchmark for Swiss Re’s investment activities. Combining both balance sheets repro-
duces the full Group balance sheet.
Group balance sheet
Insurance risk
Market risk
Assets
Liabilities
Minimum
risk
portfolio
=
Liabilities
Assets
+
Minimum
risk
portfolio
Capital
Capital
In particular, the Group monitors the potential impact from interest rate changes on its
investment and minimum risk portfolios. Interest rate exposure is measured in terms of the
change in value of interest rate-sensitive instruments from an upward shift of key interest
rates by 1 basis point. In addition, interest rate risk is assessed by scenario analysis, and
quantified in terms of Value at Risk (VaR) and Tail VaR (expected shortfall) for various confi-
dence levels and holding periods.
The Group manages its interest rate risk relative to the minimum risk portfolio. As of
31 December 2007, assets and liabilities were closely matched, resulting in moderate
interest rate risk for the Group.
Asset-liability match of Swiss Re Group as of 31 December 2007
Price value of 1 basis point
1
1
1
2
2
2
3
3
3
5
5
5
10
10
10
20
20
20
30
30
30
Investment risk portfolio Minimum risk portfolio Net
Maturity of key interest rates in years
Swiss Re 2007 Annual Report 63
Financial year
Business outlook
Active cycle management and a strong focus
on new business opportunities and innovation,
coupled with an efficient capital management
approach, are expected to result in attractive and
sustainable total shareholder returns.
Business developments
Swiss Re is well prepared for softening property and casualty rates in the reinsurance market.
The Group will not deviate from its strict focus on underwriting discipline and economic profit
growth. At the same time, Swiss Re will continue its share buy-back programme started in
March 2007 and expanded in January 2008. Due to current share price levels, combined
with reduced risk capital requirements resulting from lower premium volumes, the buy-back is
likely to be completed ahead of the original schedule. At the same time, Swiss Re is convinced
that upcoming Admin Re® transactions and growth in new lines of business, such as longevity
and variable annuity solutions, will offer further opportunities for attractive capital returns.
The January 2008 renewals of Swiss Re’s traditional non-life portfolio showed signs of price
softening in most sectors; however, margins in general are still at satisfactory levels. Overall,
prices on our renewed portfolio decreased 3%, but remained above the technical reference
price for both proportional and non-proportional business. Swiss Re’s disciplined underwriting
and careful risk selection is reflected in a reduction in volume of 12%.
Property and specialty market conditions are expected to soften further in the near-term. How-
ever, an increased focus on pricing transparency, a rising industry trend towards returning
surplus capital to shareholders and volatility in the investment markets might make the current
cycle shorter than in the past.
The casualty market will remain challenging. In 2008, Swiss Re expects the subprime and
credit crisis, which is currently focused on the US, to deteriorate further, with knock-on effects
outside the US. The crisis will also have an impact on professional liability insurance, although
it is still difficult to estimate the extent, and may potentially lead to legal reforms. Swiss Re will
continue to carefully manage exposures and take appropriate pre-emptive action. Since 2004,
the Group has materially reduced its exposure to US directors’ and officers’, errors and omis-
sions, and professional indemnity business. Swiss Re thus has a low exposure to possible
liability risks from the subprime and credit crisis.
Many EU member states are still reviewing their draft laws for transposing the Environmental
Liability Directive. These will be enacted in the course of 2008 and beyond, leading to an
increased demand for environmental insurance and reinsurance support.
The Group remains fully committed to capturing value across all property, casualty and
specialty lines through active cycle management, and reiterates its emphasis on quality over
quantity.
64 Swiss Re 2007 Annual Report
Financial year Business outlook
In life and health, Swiss Re anticipates a slowdown in sales of mortgage-linked protection
products in developed markets. The Group continues to expect lower reinsurance cession rates
in the US and UK, partly due to changes to regulatory capital requirements for primary insurers.
However, in some markets, notably the UK, the anticipated move to Solvency II is expected
to significantly increase demand for life and health reinsurance. The changing dynamic should
favour reinsurers with strong financial strength ratings, the ability to offer a variety of reinsur-
ance structures and strong services across the primary insurance value chain. Swiss Re’s
strength in these areas makes the Group ideally placed to offer effective solutions and respond
to the needs of clients in the changing marketplace.
In developed markets such as the US, Europe and Japan, Swiss Re expects strong sales of
accumulation and retirement products. The Group is actively addressing client needs for varia-
ble annuity solutions by offering reinsurance coverage and developing products that support
clients in entering the market. Swiss Re also offers a range of solutions to assist clients in man-
aging longevity exposure and anticipates continuing demand for longevity risk transfer prod-
ucts, not only from insurance companies, but also from defined benefit pension plans which
provide lifetime benefits. In both areas, Swiss Re focuses on hedging the embedded options
of those policies into the financial markets, thus reducing as much as possible its net financial
exposure in these areas.
Swiss Re continues to see strong demand for its medical insurance business in Asia. In 2008,
Swiss Re expects to further expand its healthcare business in India and plans to bring similar
capabilities to the Chinese market.
The Admin Re® segment will continue to see strong opportunities as primary insurers look to
find capital- and cost-efficient solutions for managing closed blocks of business.
The outlook for the financial markets is uncertain. Growth in the major economies is slowing
in 2008, particularly in the US. As a consequence, monetary policy has been easing in the
US and UK, substantially lowering yields on government bonds. Most of the decline in interest
rates is already priced into the market, but there is a likelihood of further rate reductions. The
European Central Bank may also lower rates in 2008, while in Japan, the ongoing threat
of deflation is expected to restrain any monetary tightening. The credit crisis will keep credit
spreads wide and equity markets volatile.
The greatest threat to global growth stems from a US recession, but this is already mostly priced
into the market. Other potential risks – a hard landing of the Chinese economy, an oil supply
disruption, a housing market collapse in some European countries, and a possible surge in
inflation – may also affect markets this year.
Financial targets
Swiss Re’s focus on generating higher sustainable shareholder returns is reflected in an increase
of the Group’s return on equity target to 14% over the cycle. The target for earnings per share
growth remains at 10% over the cycle.
Swiss Re 2007 Annual Report 65
Governance
Risk and capital management
Swiss Re’s risk and capital management ensures
controlled risk taking and adequate capitalisation,
maintaining the financial flexibility to benefit from
attractive business opportunities.
Risk management
Controlled risk taking requires a strong and independent risk management organisation and
comprehensive risk management processes to identify, assess and control the Group’s risk
exposures.
Risk management principles
At Swiss Re, risk management is based on four guiding principles that are applied throughout
the Group:
Controlled risk taking: financial strength and sustainable value creation are an integral part
of Swiss Re’s value proposition. As a result, the Group operates within a clearly defined risk
policy and risk control framework.
Clear accountability: Swiss Re operates on the principle of delegated and clearly defined
authority. Individuals are accountable for the risks they take on, and their incentives are
aligned with Swiss Re’s overall business objectives.
Independent risk controlling: to avoid conflicts of interest, dedicated specialised units moni-
tor risk-taking activities.
Open risk culture: risk transparency and responsiveness to change are integral to Swiss
Re’s risk control process. Swiss Re has institutionalised knowledge-sharing processes at all
levels.
Risk management organisation
The Board of Directors is ultimately responsible for the Group’s risk management principles
and policies, as well as for approving Swiss Re’s overall risk tolerance. The Board committees
dealing with risk management issues include the Finance and Risk Committee as well as the
Audit Committee.
The Executive Committee is responsible for implementing the risk management framework
through the following two committees:
The Group Capital and Capacity Allocation Committee is responsible for allocating capital
and capacity, and approving the investment risk limits, as well as changes to the internal
risk and capital methodology.
The Group Products and Limits Committee determines the Group’s product policy and
standards, grants reinsurance limits and decides on large or non-standard transactions.
The Chief Risk Officer leads the global Risk Management function, which is responsible for
risk controlling across the Group (see Figure 1).
The global Risk Management function is organised by risk categories with dedicated depart-
ments for credit and financial market risk, property and casualty risk, life and health risk, and
operational risk. Each of these departments is entrusted with Group-wide responsibility for
identifying, assessing and controlling their allocated risks.
66 Swiss Re 2007 Annual Report
Governance Risk and capital management
Figure 1: Risk management – overview of Swiss Re’s key bodies and functions
Board of Directors
Group Internal Audit
Chief Executive Officer
Chief Risk Officer
Chief Financial Officer
Credit & Financial Market
Risk Management
Life & Health
Risk Management
Group Capital
Management
Property & Casualty
Risk Management
Americas Insurance &
Reinsurance Risk Mgmt
Corporate Integrated
Risk Management
Group Operational
Risk Management
Corporate Actuarial
Sustainability
& Emerging Risk Mgmt
The Corporate Integrated Risk Management department is responsible for assessing the com-
bined impact of all risks and reporting on Swiss Re’s overall risk position. The Sustainabilty &
Emerging Risk Management unit coordinates the identification, monitoring and management
of emerging risks that may become significant for Swiss Re as well as the Group’s sustainability
activities. Finally, the Corporate Actuarial department assesses life and non-life insurance
liabilities from an accounting, statutory and economic perspective.
None of the Risk Management departments executes business. They oversee risk-taking activ-
ities and set the risk management guidelines and best practice standards that the business
units implement.
Group Internal Audit is an independent, objective assurance function that assesses the ade-
quacy and effectiveness of the Group‘s internal control systems. It monitors the execution of
processes within the Group, including those in risk management.
In late 2007, two significant changes were made to the internal structure of the Credit &
Financial Market Risk Management department as part of the realignment of Financial Services.
In order to ensure a consistent approach to credit risk, the Credit & Financial Market Risk
Management department is now organised by product areas: credit, rates, equity and equity-
linked, and alternative investments. At the same time, the independence of the transaction
evaluation function for the former Financial Services area was strengthened by separating the
function from the business organisation and integrating it into the Credit & Financial Market
Risk Management department.
In addition, the unprecedented credit market deterioration and the resulting mark-to-market
loss from two credit default swap transactions highlighted the importance of proactive risk
management. As a consequence, a review of the risk control and governance framework was
conducted. This led to the implementation of a more rigorous product approval process,
as well as enhanced risk monitoring and stress testing, which will further strengthen the risk
management in the financial services area.
Swiss Re 2007 Annual Report 67
Governance Risk and capital management
Figure 2: Categorisation of Swiss Re’s risk landscape
Operational risks
Other risks
Funding and liquidity
Reputational
People
Processes
Systems
External
Core risks
Insurance
Property and casualty
Life and health
Financial markets
Equity market
Interest rate
Foreign exchange
Credit spread
Real estate
Credit
Credit migration
Credit default
Swiss Re’s risk landscape
Risk management is essential to Swiss Re’s strategic planning and is embedded in the Group’s
management discipline. In addition to strategic risks, Swiss Re distinguishes three types of
risks: core risks, operational risks and other risks (see Figure 2).
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.
Financial market risk is the risk of assets and/or liabilities being negatively affected by
movements in financial market prices or rates, such as equity prices, interest rates, credit
spreads, foreign exchange rates or real estate prices.
Credit risk is the risk of incurring a financial loss due to diminished creditworthiness (eroding
credit ratings and, ultimately, counterparty default) among counterparties of Swiss Re and /
or third parties.
The risks classified under operational risks and other risks arise as a consequence of under-
taking business.
Operational risk, defined according to the Basel II causal categories, includes potential losses
or reputational damage arising from inadequate or failed internal processes, people, systems,
or from external events. This includes non-compliance with regulation resulting in regulatory
penalties. Management of operational risk is designed to reduce exposures to an acceptable
level, taking into account cost-benefit considerations, and to enhance operational excellence.
Other risks comprise:
Funding and liquidity risk is the risk that Swiss Re is unable to meet its short-term financial
obligations or raise funds in the markets to finance its commitments at a reasonable cost.
Reputational risk is the risk that a particular event or behaviour damages stakeholders’ per-
ception of Swiss Re, thus impairing its ability to operate effectively.
68 Swiss Re 2007 Annual Report
Governance Risk and capital management
Funding and liquidity risk may result from larger-than-expected cash outflows or smaller than
expected cash inflows and a restricted ability to raise short-term funds. In addition, sudden
liquidity requirements may arise if covenants are triggered under specific adverse circum-
stances, requiring the collateralisation of debt obligations and third-party guarantees with
assets of a specified quality.
Maintaining its reputation is key to Swiss Re’s business. Upholding the clear values defined
in the Group’s Code of Conduct mitigates reputational risk. These values are supported by pro-
cesses that enable early identification of potential problems.
In addition to the assessment of these known risks, the Group has a framework to identify,
evaluate and mitigate new or already known but potentially underestimated risks (so-called
emerging risks), as well as potential surprise factors affecting known loss potentials.
Integrated risk modelling
Swiss Re uses a proprietary internal integrated risk model to determine the capital required
to support the risks on its books and allocate risk-taking capacity to the different lines of busi-
ness. The model is continuously updated to reflect current best practice and meet regulatory
require ments. In 2007, Swiss Re took important steps to tailor its internal risk-based approach
to meet the specific requirements of the Swiss Solvency Test, the new solvency regime in
Switzerland.
Swiss Re’s risk model is based on two important principles. Firstly, it uses an asset liability
management (ALM) approach, measuring the net impact of risk on the economic value
of both assets and liabilities. Secondly, 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 model generates a probability distribution for the Group’s annual economic profit and
loss, specifying the likelihood that the profit or loss will fall within any given range. From this
distribution a base capital requirement is derived that captures the potential for severe, but
rare, aggregate losses over a one-year time horizon. Swiss Re monitors its capital adequacy
by comparing the ratio of available capital to required capital with the target ratio set by the
Board of Directors.
Frequently used measures for summarising the risk distribution and defining the base capital
requirement are 99% VaR, 99.5% VaR and 99% Tail VaR (expected shortfall). 99% VaR
measures the level of loss likely to be exceeded in only one year out of one hundred, while
99.5% VaR measures the loss likely to be exceeded in only one year out of two hundred.
99% Tail VaR estimates the average annual loss likely to occur with a frequency of less than
once in one hundred years. Swiss Re uses the more conservative 99% Tail VaR measure for
assessing its capital requirements internally.
Based on exposure data for the end of 2007, the Group’s 99% VaR amounted to CHF 11.5
billion, a 5% decrease compared to the end of 2006, while the 99.5% VaR amounted to CHF
13.8 billion, a 6% decrease, and the 99% Tail VaR amounted to CHF 16.6 billion, also a 6%
decrease.
Swiss Re 2007 Annual Report 69
Governance Risk and capital management
70 Swiss Re 2007 Annual Report
Table 1 provides information on 99% Tail VaR, a change from the 2006 Annual Report, where
the equivalent table showed information on the 99% VaR measure. In addition to the overall
99% Tail VaR for Swiss Re Group, the table also shows the respective figures for the sub-port-
folios property and casualty, life and health, financial market, credit, and funding and liquidity
risk. This clearly demonstrates the diversification effect, as the base capital requirement for
the overall portfolio is lower than the sum of the base capital requirements for the individual
sub-portfolios. By the end of 2007, the funding and liquidity risk was integrated into the overall
liquidity risk assessment, which measures Swiss Re’s ability to meet funding requirements
after a Group Tail VaR event. As a consequence, the funding and liquidity risk is no longer part
of the risk capital calculation.
Table 1: Base capital requirement using one-year 99% Tail VaR
CHF billions, as of 31 December
Property and casualty
Life and health
Financial market
Credit
Funding and liquidity
Simple sum
Diversification effect
Swiss Re Group base capital requirement
2006
10.0
6.5
7.7
2.1
0.3
26.6
–8.9
17.7
2007
8.6
5.9
7.7
2.8
–
25.1
–8.5
16.6
Swiss Re’s overall risk exposure based on 99% Tail VaR declined from CHF 17.7 billion at the
end of 2006 to CHF 16.6 billion at the end of 2007, as a result of lower insurance risk. The de-
cline in the property and casualty risk was mainly driven by changes in the exposure to natural
catastrophes. In addition to the increased hedging activities, the inward retrocession portfolio
of GE Insurance Solutions was discontinued and part of the traditional business was not re-
newed. Also, the rather conservative estimation of the risk resulting from the natural catastrophe
book of GE Insurance Solutions was revised downwards. Finally, improvements in the data
quality revealed that the risk of normal volatility in Swiss Re’s property and casualty business
was overestimated in 2006, leading to an additional reduction of the property and casualty
risk estimate. These downward developments were partially offset by an upward correction
of the generic liability exposure data and increased terrorism risk due to changes in the US
terrorism risk insurance act (TRIA).
The decline in life and health risk is mainly due to the new lethal pandemic model introduced
in 2007, which explicitly takes the medical, social and demographic environment into account,
allowing the effect of changes in these areas to be traced (for more information on the new
model, see box on page 71).
Swiss Re’s overall financial market risk at the end of 2007 did not change compared to the
prior year. Lower real estate risk was offset by higher credit spread risk related to the closing of
several Admin Re® transactions. These transactions were also the main driver of the increase
in credit risk, which measures the risks relating to default and migration events.
Stress scenario analyses complement the integrated risk model by providing information on
the economic implications of certain adverse situations. Some of these analyses appear in the
following sections.
Governance Risk and capital management
Influenza pandemic modelling
Swiss Re has developed a sophisticated epidemiological model to improve the under-
standing of the potential range of outcomes from an influenza pandemic. In April 2007,
the workings of the model were summarised, along with some key results, in a brief focus
report: “Influenza pandemics: Time for a reality check?”
In July 2007, a further Swiss Re publication, “Pandemic influenza: A 21st century model
for mortality shocks”, provided a comprehensive description for the model and its results,
along with an in-depth review of the overall pandemic landscape. This work and the asso-
ciated publications formed the basis for discussions with regulators, clients and profes-
sional associations.
Swiss Re’s model works by simulating thousands of pandemic scenarios and producing
an estimate of the resulting excess mortality. The simulations take into account the differ-
ent features of the three pandemics that took place in the last century and also allow for
advances in pharmaceutical and behavioural interventions.
It is possible to estimate the effect of each potential pandemic on an insurer’s portfolio by
applying weightings for exposures by age group and by country. This generates a complete
distribution model of potential additional mortality as well as the probability for each level
of excess mortality, enabling Swiss Re to calculate relevant risk measures, such as 99% VaR,
99% Tail VaR, and losses for various return periods.
Each simulated pandemic produces its own particular level of excess mortality. If these
are sorted from the lowest value to the highest, it is possible to gauge the probability that
mortality over a one-year period will exceed a certain level.
Based on its model, Swiss Re estimates that, in most developed countries, a 1-in-200 year
pandemic would produce an excess mortality of between 1 and 1.5 deaths per 1000 lives
within an insurance-aged portfolio. This is in line with the 1.5 per mille figure assumed for
mortality catastrophe risk in the third Quantitative Impact Study (QIS3), a consultation
exercise conducted by the Committee of European Insurance and Occupational Pensions
Supervisors (CEIOPS) to prepare for the proposed Solvency II Directive.
The model also shows that the influenza pandemic of 1918, the largest event in the past
420 years, would have a much lower impact on mortality today than it did in 1918. A key
difference is the present-day availability of antibiotics, vaccines and antivirals. Other factors
that would also reduce mortality include older populations, advances in medical knowl-
edge and treatment and greater capacity to implement non-pharmaceutical interventions.
The higher volume and speed of modern travel only affects the speed of spread, not the
overall level of mortality.
Swiss Re 2007 Annual Report 71
Governance Risk and capital management
72 Swiss Re 2007 Annual Report
Risk management per core risk category
Swiss Re’s risk tolerance represents the amount of risk the Group is willing to accept within
the constraints imposed by its capital resources, its strategy, its risk appetite, and the regulatory
and rating agency environment within which it operates. Risk tolerance and appetite at Group
level are defined by a set of limits approved by the Executive Committee and the Board of
Directors. The relevant Group bodies allocate capacity to lower levels. In addition to limits
designed to control risks in relation to capital adequacy, there are targets in place to control
earnings volatility.
Insurance risk management
Property and casualty risk arises predominantly from the property, casualty (including motor),
and specialty lines of business. The Group Property & Casualty Risk Guidelines in conjunction
with the Group Risk Management Guidelines establishes the risk governance framework for
property and casualty risk. Limits to prevent excessive exposure to any individual risk, or to the
same underlying risk, are monitored on a Group-wide basis. In addition, each underwriter is
given a specified limit per treaty programme and single risk. There is a well-defined escalation
process at various levels up to the Group Products and Limits Committee. These procedures
and limits define the underwriting process and are laid down in the Group Underwriting
Guidelines, which are approved by the Group Products and Limits Committee.
Property & Casualty Risk Management is responsible for Group-wide monitoring and reporting
of property and casualty risks. Underwriting systems across the Group provide timely report-
ing on risks assumed and capacity used. The global Products function plays a major role in
managing property and casualty risks by proposing the annual renewal strategy and closely
monitoring renewal business. Where appropriate, Swiss Re also uses insurance-linked securi-
ties, industry loss warranties, retrocession and risk swaps to balance its portfolio.
Table 2 reports the expected pre-tax claims of Swiss Re for major natural catastrophe loss
events, allowing for insurance-linked securities, industry loss warranties, retrocession and risk
swaps. The figures take into account the fact that an event can trigger claims in various lines
of business. For instance, the European windstorm scenario includes, among others, claims
from the motor line, and the California earthquake scenario also reflects – but is not limited to
– additional claims arising from workers’ compensation and general liability.
The economic impact of the top natural catastrophe loss scenarios has decreased greatly
since the end of 2006. This mainly reflects the above-mentioned increase in hedging activities
for Swiss Re’s top natural catastrophe risks, as well as changes in the respective exposure of
the GE Insurance Solutions book and its assessment. The economic impact for European
windstorm risk was reassessed, leading to a further decrease in the estimated impact of a
potential loss event.
Table 2: Natural catastrophe stress tests
Estimated economic impact of each single loss event in CHF billions as of 31 December
Atlantic hurricane (200-year return period)
European windstorm (200-year return period)
California earthquake (200-year return period)
Japanese earthquake (200-year return period)
2006
–5.7
–5.2
–4.0
–2.4
2007
–3.7
–2.2
–2.8
–2.0
Governance Risk and capital management
Swiss Re takes on life and health risk in the form of mortality and morbidity covers as well as
through the acquisition of run-off business (Admin Re®). A global limit is in place for the
acceptance of mortality risk, and local business units can write reinsurance within their capital
plans and within clearly defined limits, such as per life retention limits for individual business.
Maximum market exposure limits are in place for life and health catastrophe business. The
Group pays particular attention to accumulation risk in areas of high population density and
applies limits based upon expected maximum loss for exposures in individual buildings. Limits
are also in force to control and monitor business with exposure to long-tailed longevity risk.
Any business that falls outside of specified limits must be approved according to the risk
governance framework.
The Group Life & Health Risk Management Guidelines and Group Reinsurance Guidelines
articulate Swiss Re’s attitude and approach towards life and health risk taking by the business
units with oversight by Life & Health Risk Management. These guidelines include detailed
guidance on referral procedures and approval bodies.
All large and complex transactions are subject to independent review by the central Products
team and by Risk Management. An integrated approach to assurance and audit across the
business provides increased oversight by Swiss Re experts on the appropriateness of technical
processes and decisions.
Life & Health Risk Management is responsible for the Group-wide monitoring and reporting
of life and health risk. Swiss Re also uses 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.
Table 3 reports the expected pre-tax mortality claims of Swiss Re for a major lethal pandemic
loss event based on the new pandemic model. The scenario assumes that excess mortality will
vary with age in accordance with Swiss Re’s influenza pandemic model, but is conservative in
that it does not allow for the typically lower mortality experienced among insured populations.
There has been no material change over the year due to the offsetting effect of increases in US
mortality exposures and the decline in value of the US dollar relative to the Swiss franc.
Table 3: Life insurance stress test
Estimated economic impact of a single loss event in CHF billions as of 31 December
Lethal pandemic (200-year return period)
2006
–4.0
2007
–4.0
Financial market risk management
Financial market risk arises from three main sources: Swiss Re’s investment activities, the
financial market sensitivity of the economic value of liabilities, and the capital markets trading
activities. The overall risk limits framework is defined by the Group Capital and Capacity
Allocation Committee. All activities involving financial market risk are subject to one overall
limit for each major risk class, expressed in terms of both VaR and stress testing.
Financial Services Products, formerly known as Capital Management and Advisory (CMA) and
Proprietary Asset Management (PAM), determines a more detailed set of risk limits for their
businesses, including stop-loss triggers. The Group Credit & Financial Market Risk Guidelines
define minimum standards for managing financial market risk; these are supplemented by
Derivative Guidelines, Investment Guidelines and business-specific guidelines.
Swiss Re 2007 Annual Report 73
Governance Risk and capital management
74 Swiss Re 2007 Annual Report
Financial market risk is identified using a risk inventory of the various risk factors. The business
is responsible for measuring the financial market risk arising from its activities within 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 at Group level. The
“Report on Credit, Market Risk and ALM” summarises financial market risks at Group level.
Limits for the investment activities are monitored on a weekly basis, while the capital markets
trading uses a combination of daily and weekly reporting. These reports are the primary tools
used to track exposures and monitor usage of limits. Credit & Financial Market Risk Manage-
ment independently monitors limit usage. The limits are reported to the head of the business
unit, who is also ultimately responsible for risk steering. The business unit heads seek to
optimise their respective portfolios within their limits, including the use of cash and derivative
instruments.
Table 4 shows the pre-tax impact of market scenarios on available economic capital. The
equity scenario includes traded equities, equity derivatives, alternative investments, guaranteed
minimum death benefit products and funding obligations arising from equity holdings in
Swiss Re pension funds. The potential loss from a 30% fall in global equity markets slightly
increased to CHF 3.8 billion in 2007. Higher exposure from alternative investments were to a
large extent offset by lower exposure from listed equities. As Swiss Re’s assets are closely
matched to liabilities (see box on page 63), shifts in interest rates only have a minor impact.
Table 4: Market scenarios
Estimated economic impact of each single loss event in CHF billions as of 31 December
30% fall in global equity markets
100 basis point parallel increase in global yield curves
15% fall in global real estate markets
2006
–3.7
–0.1
–0.7
2007
–3.8
0.2
–0.6
Credit risk management
Credit risk exposure within the Group arises directly from Swiss Re’s investment activities as
well as its portfolio of assets and liabilities underwritten by the business units. Swiss Re distin-
guishes three types of exposure: the risk of issuer default from instruments in which Swiss Re
invests or trades, such as corporate bonds; counterparty exposure in a direct contractual
relationship, such as retrocession or over-the-counter (OTC) derivatives; in addition, Swiss Re
assumes risk with no direct contractual relationship, such as trade credit and surety reinsurance
business. All contribute to an overall credit risk portfolio governed by Group Credit & Financial
Market Risk Guidelines that are approved by the Group Capital and Capacity Allocation
Committee.
The guidelines mandate the assignment of aggregate credit limits by business unit, limits for
corporate counterparties and limits by country. Limits are based on a variety of factors including
the prevailing economic environment, the nature of the underlying credit exposures and, in
the case of corporate counterparties, a detailed assessment of the counterparty’s financial
strength, industry position and qualitative factors. The counterparty assessment generates an
internal counterparty-specific rating in one of 20 categories. Swiss Re constantly monitors
counterparty credit quality and exposures, compiling “watch lists” of those cases that merit
close attention.
Governance Risk and capital management
The reporting process is supported by the Group Credit Risk Exposure Reporting Management
and Information Tool that contains all relevant information including counterparty details,
ratings, credit risk exposures, credit limits and watch lists. It is accessible by all key credit prac-
titioners in the Group, thus providing essential transparency to allow for the successful imple-
mentation of active exposure management strategies for specific counterparties, industry
sectors and geographic regions.
Table 5 reports the estimated pre-tax impact of the credit default stress test on available eco-
nomic capital. The default scenario shows estimated unexpected losses due to adverse devel-
opment of defaults. The stress test is based on corporate default data from Moody’s between
1983 and 2003, and combines the worst default frequencies observed over 12 months for
each of the individual rating categories.
Table 5: Credit scenario
Estimated economic impact in CHF billions as of 31 December
Credit default stress test
2007
–2.9
Longevity risk
Swiss Re has exposure to longevity risk through its Admin Re® transactions and its own
pension funds. Based on its business analysis, industry data and in-house research, the
Group has begun to take a more active role in the reinsurance of longevity risk. The accept-
ance of this risk requires detailed analysis of the characteristics of the incoming business
and also of future mortality development.
So far, much of the longevity business written by Swiss Re has been transactional, involving
the purchase of closed books of business. This business is at the heart of our value propo-
sition, as it provides solutions which effectively mitigate and manage the risks that are of
concern to our clients.
The Group’s in-depth knowledge of mortality risk and future trends, together with its so-
phisticated expertise in asset management, enables it to offer both pure longevity protection
as well as annuity reinsurance including asset transfer. Swiss Re’s Admin Re® platform
completes the solution offering by providing cost-effective life book administration services
to clients.
Swiss Re gauges longevity risk using the same analytical technique as for all other life and
health risks: by separately assessing its parameter, trend, shock and volatility components.
Analysis of older age mortality shows that the main risk for longevity is misestimating future
improvement trends. Swiss Re has developed a capital calculation and allocation method-
ology that models future improvements stochastically and is calibrated by under lying
cause of death, including the possibility of extreme reduction in deaths from cardiovascular
disease and cancer. The resulting associated capital requirement is used to determine
Swiss Re’s aggregate risk appetite for longevity business.
Swiss Re 2007 Annual Report 75
Governance Risk and capital management
Operational risk management
The management of operational risk is an integral part of Swiss Re’s risk management frame-
work. In 2007, Swiss Re has taken significant steps towards focussing and streamlining its
Group-wide operational risk management methodology. Top-down and bottom-up assessments
are being integrated into a single process to provide comprehensive assessment and manage-
ment of the operational risk landscape. Progress in mitigating the most significant risks is
monitored regularly. In addition, a formal referral process allows the Executive Committee to
regularly review the top operational risks of the Group and their mitigation status.
Experts in specialised areas of operational risk management (such as IT Security and Business
Continuity Management) have integrated their activities into the overall risk governance
structure. Moreover, Group Internal Audit makes use of quantified risk landscapes provided by
Group Operational Risk Management in setting its priorities.
Emerging risk management
Swiss Re has extended its Group-wide Emerging Risk Management framework and implement-
ed a process to detect, assess and mitigate such risks as well as to identify and evaluate poten-
tial surprise factors affecting known loss potentials. This framework incorporates SONAR (Sys-
tematic Observation of Notions Associated with Risk), which is a systematic process to detect
emerging risks at an early stage in order to assess their potential consequences for Swiss Re.
Capital management
The primary task of the Capital Management unit is to ensure that Swiss Re is adequately
capitalised at all times and able to maintain its financial strength, even after a major loss event,
and that all legal entities comply with their respective capital requirements. In doing this, inter-
nal economic and accounting views, as well as rating agency and regulatory solvency models
are taken into account.
Capital management strategy
The Group aims to maximise sustainable risk-adjusted returns, subject to various constraints
arising from the capital adequacy requirements of key stakeholder groups. These capital con-
straints use differing calculation methods for defining both the available and required capital,
and are applied to the Group as well as to key legal entities. Figure 3 illustrates the focus areas
of the main stakeholder groups who have an influence on defining the Group’s capital position.
Figure 3: Requirements of key Swiss Re stakeholders
Swiss Re Group
Representa-
tives
Stakeholder
Group
Rating agencies
Regulators
Investors /analysts
Policyholders
Policyholders
Investors
Debt investors
Governments
Analysts
Aim
Fulfilment of
obligations
Protection against
consequences of
insolvency
Financial stability
High risk-adjusted
returns
76 Swiss Re 2007 Annual Report
Governance Risk and capital management
Capital views and related targets
Each of the three capital constraints is managed and monitored against Group targets set by
the Board of Directors. The overall risk tolerance target is to maintain the ability to continue the
risk transfer business after a year of extremely adverse loss events.
Rating agency view: to maintain superior financial strength ratings that are sufficiently
attractive from a client perspective (i.e. to maintain an acceptable rating after an extremely
adverse year). The current target rating is AA /Aa /A+.
Group Solvency I view: to ensure ongoing compliance with group regulatory capital
requirements after a 99% Tail VaR loss. The current target is 180% of the minimum regulatory
capital.
Swiss Re’s internal view: to be able to continue operations following an extremely adverse
year of losses. The target is to have an economic capital adequacy ratio (available capital
divided by required capital) in the range of 175 – 200%.
Capital Management actively works towards closing the gap between the rating, regulatory
and internal views on capital requirements. In this respect, Swiss Re has provided active
support for the development of Standard & Poor’s new insurance capital model, as well as for
current developments in Solvency II and the Swiss Solvency Test (SST).
Swiss Re’s internal capital adequacy based on 99% Tail VaR
Swiss Re determines the amount of economic capital it has available to cover adverse events
based on published shareholders’ equity and a number of adjustments net of tax. Thus, no
allowance is made for potential tax offsets due to future losses arising from adverse experience.
The calculation of available capital is shown in table 6.
Table 6: Calculation of available capital
CHF billions, as of 31 December
Shareholders‘ equity
Mark-to-market adjustments
Goodwill and intangibles
P&C and L&H valuation adjustments
Tax and other
Shareholders’ net worth
Hybrid capital
Swiss Re Group available capital
2006
30.9
1.6
–5.4
14.4
–2.8
38.7
8.1
46.8
2007
(estimate)
31.9
1.6
–5.5
14.3
–1.9
40.4
7.3
47.7
The calculation of required capital is shown in table 1 on page 70.
Dividing the available capital of CHF 47.7 billion by the capital requirements based on 99% Tail
VaR of CHF 16.6 billion results in a capital adequacy ratio (CAR) of 287% as of 31 December
2007, compared to 264% as of 31 December 2006 (see figure 4).
Swiss Re’s financial strength is central to its value proposition. Therefore, the Group aims to
hold sufficient capital to ensure that it is financially strong, even after an extreme loss event.
Swiss Re 2007 Annual Report 77
Figure 4: Available and required capital
at 99% Tail VaR
CHF billions, as of 31 December
50
40
30
20
10
0
46.8
264%
17.7
47.7
287%
16.6
2006
2007 (estimate)
Available capital
Required capital at 99% Tail VaR
Capital adequacy ratio
Governance Risk and capital management
78 Swiss Re 2007 Annual Report
Capital management actions
The Group’s approach to capital management is to either reinvest or pay back excess capital.
On 1 March 2007, Swiss Re announced a programme to buy back shares up to a maximum
value of CHF 6.0 billion over a three-year period. On 23 January 2008, this was increased by
CHF 1.75 billion to a total value of CHF 7.75 billion. The increase was due to the additional
capital expected to be released over a 24-month period as a result of a proportional reinsurance
contract with Berkshire Hathaway.
Major legal entity simplification projects are well advanced in Europe, the US, Canada and
Asia, with an expected combined capital relief of around CHF 2.5 billion.
In Europe, the project benefits from recent regulatory and legal developments that allow the
Group to simplify its entity structure in the EU (excluding Admin Re®) to two companies: a re-
insurance and a direct insurance carrier based in Luxembourg with branch operations in other
EU countries. Swiss Re will maintain its high level of service in European markets based on
the same business policies, product offering and financial strength. Local branches continue
to be responsible for client management. The Group started to migrate its legal structure on
1 January 2008, which will result in more efficient capital management, administration and
reporting.
In the US, Canada and Asia the legal entity simplification process primarily involves the merger
of existing risk carriers.
Other initiatives to optimise the use of capital include the use of surplus notes, guarantees as a
substitute for locally held capital, intra-Group retrocession to concentrate risk in the parent
company and life embedded value securitisations.
Credit ratings
Standard & Poor’s, Moody’s and A.M. Best rate Swiss Re’s financial strength based on interac-
tive relationships.
Swiss Re’s very strong capitalisation, business position, financial flexibility, as well as its out-
standing franchise, and prudent capital and risk management are reflected in superior insur-
ance financial strength ratings which are among the highest in the industry.
Table 7: Swiss Re’s financial strength ratings
As of 22 February 2008
Rating
Outlook
S&P
AA–
stable
Moody’s
Aa2
stable
A.M. Best
A+
under review, negative
On 7 November 2007, Moody’s affirmed Swiss Re’s Aa2 financial strength rating and revised
the outlook to stable from negative. In Moody’s view, Swiss Re’s business and financial char-
acteristics fully meet the expectations for a Aa2 rating, justifying the revision of the outlook to
stable.
Governance Risk and capital management
On 19 November 2007 and 20 November 2007, following Swiss Re’s announcement of a
CHF 1.2 billion mark-to-market loss arising from its exposure to two credit default swaps,
Standard & Poor’s and Moody’s affirmed Swiss Re’s financial strength ratings as AA– (stable
outlook) and Aa2 (stable outlook), respectively. On 20 November 2007, A.M. Best placed
Swiss Re’s A+ financial strength rating under review with negative implications.
On 7 September 2007 and 3 October 2007, S&P and Moody’s assigned to Swiss Re Europe
S.A. the Group’s AA– (stable outlook) and Aa2 (stable outlook) financial strength ratings, re-
spectively. The rating actions reflect Swiss Re Europe’s core status within the Group. This entity
plays a key role in the legal entity simplification process for the Group’s European reinsurance
business.
On 10 January 2008, Moody’s upgraded the financial strength rating of Swiss Re International
SE (formerly SR International Business Insurance Company plc) to Aa2 (stable outlook) from
Aa3, aligning the company’s rating with that of the Group. This concluded the review for
possible upgrade initiated on 3 October 2007. Swiss Re International SE will continue its role
as a primary insurance carrier for Fortune 2000 clients.
Swiss Re 2007 Annual Report 79
Governance
Corporate governance and compensation report
Swiss Re is committed to meeting the highest
standards of corporate governance and actively
pursues transparency towards shareholders
and other stakeholders.
Corporate governance is the framework comprising a company’s organisation, structure, man-
agement and assurance functions. Transparency is an important component of the framework,
designed to protect the interests of shareholders and create value for all stakeholders.
In the wake of major corporate failures and breakdowns, corporate governance, as well as
legislative and regulatory developments have been in the spotlight worldwide in recent years.
Swiss Re takes a proactive approach to aligning investors’ expectations and interests with its
own, and continues to conduct benchmarking against best practice standards.
Corporate governance is increasingly linked to corporate sustainability and corporate citizen-
ship. The integration of sustainability principles in core business activities strengthens a com-
pany’s ability to protect its assets and create value. The expertise of private sector companies
is becoming more important in society’s efforts to tackle sustainability and other key issues.
Assuming an active role in society reinforces the effectiveness of internal responses and cre-
ates goodwill among various stakeholders. Corporate sustainability and corporate citizenship
are therefore important drivers of continued business success, and are firmly embedded in
Swiss Re’s corporate responsibility framework, along with corporate governance (for more
information, see the corporate responsibility chapter on pages 26 – 30).
As a Swiss publicly listed company, Swiss Re’s governance is measured primarily against the
Swiss Code of Best Practice for Corporate Governance, issued by economiesuisse in July
2002, and its Appendix 1 from 2007 with updated recommendations on compensation for
Board of Directors and Executive Board. Swiss Re is also subject to the Directive on Information
relating to Corporate Governance and its Annex and Commentary, issued by SWX Swiss
Exchange, effective since 1 July 2002 and amended on 1 January 2007 (also referred to as
the “SWX Directive”).
On 1 January 2007, as an advance part of the ongoing revision of Swiss company law, the
new articles 663bbis and 663c para. 3 of the Swiss Code of Obligations came into force.
Above and beyond the SWX Directive in its previous form, these articles require, among others,
the detailed disclosure of remuneration to members of the governing bodies of listed compa-
nies. All aspects of this information are to be audited by the external auditor. The basic com-
pensation principles are set out in section 5 of this chapter (compensation, shareholdings and
loans), while the details are disclosed in note 13 of the Group financial statements on pages
172 – 177.
80 Swiss Re 2007 Annual Report
Governance Corporate governance and compensation report
Swiss Re also meets the requirements of the Provisions on Corporate Governance, Risk Man-
agement and the Internal Control System, issued by the Federal Office of Private Insurance
and enacted on 1 January 2007. Additionally, the Group complies with the applicable local
rules and regulations of all the countries in which it does business.
The information provided in this chapter of the Annual Report follows the structure of the SWX
Directive:
1 Group structure and shareholders, page 82
2 Capital structure, page 83
3 Board of Directors, page 88
4 Executive management, page 107
5 Compensation, shareholdings and loans, page 110
6 Shareholders’ participation rights, page 116
7 Changes of control and defence measures, page 117
8 Auditors, page 118
9 Information policy, page 120
Swiss Re 2007 Annual Report 81
Governance Corporate governance and compensation report
1.1 Group structure
1.1 Group structure
Operational Group structure
Please refer to page 12.
1 Group structure and shareholders
Listed Group companies
Swiss Reinsurance Company, the Group’s parent company, is a joint stock company, listed on
SWX Swiss Exchange, domiciled at Mythenquai 50/60 in 8022 Zurich and organised in
accordance with the laws of Switzerland. For details on share information, see the chapter on
“Swiss Re shares”, pages 122 –126. For the other listed Group companies, see the Group
financial statements, note 16 on “Subsidiaries, equity investees and variable interest entities”,
pages 186 – 191.
Non-listed Group companies
Please refer to the Group financial statements, note 16 on “Subsidiaries, equity investees and
variable interest entities”, pages 186 – 191.
1.2 Significant shareholders
1.2 Significant shareholders
As of 31 December 2007, there were two shareholders with a participation exceeding the 3%
threshold of Swiss Re’s share capital.
a. Swiss Reinsurance Company, Mythenquai 50/60, P.O. Box, 8022 Zurich, Switzerland,
held a total of 23 964 732 Swiss Re shares or 6.47% of the share capital. Of these shares,
6 280 930 shares were fully paid in shares held for general corporate purposes, 11 678 802
shares were paid in only at nominal value and reserved for general corporate purposes,
and 6 005 000 shares were acquired under the share buy-back programme and subject to
cancellation.
b. The Capital Group Companies, Inc., 333 South Hope Street, Los Angeles, CA 90071, USA
(Capital Group), announced on 4 December 2007 that they held, through acquisitions by
some of their Group companies, in the capacity of investment manager for mutual funds and
clients, 19 364 301 registered shares of Swiss Re. Capital Group thus has 5.23% of Swiss Re’s
voting rights, which can be exercised autonomously of the beneficial owners.
After 31 December 2007, and as of 22 February 2008, two additional shareholders held
more than 3% of Swiss Re’s share capital each.
c. Credit Suisse Group, Paradeplatz 8, 8070 Zurich, Switzerland, notified Swiss Re on
21 February 2008 that, as per 15 February 2008, it held, through acquisitions by a number of
its group companies, registered shares, conversion rights, share purchase rights and written
share sale rights conferring a total of 3.40% of the voting rights of Swiss Re.
d. Berkshire Hathaway Inc., 3555 Farnam Street, Omaha, NE 68131, USA, notified Swiss Re
on 22 January 2008 that, as of the same day, it held through its subsidiary Columbia Insurance
Company, 3024 Harney Street, Omaha, NE 68131, USA, 11 250 000 registered shares or
3.03% of the voting rights of Swiss Re.
1.3 Cross-shareholdings
1.3 Cross-shareholdings
There are no cross-shareholdings to report, as Swiss Re does not hold 5% or more of the
shares or voting rights of any company which, in turn, also owns 5% or more of Swiss Re’s
shares or voting rights.
82 Swiss Re 2007 Annual Report
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2 Capital structure
In accordance with the SWX Directive, the following information about Swiss Re’s capital
structure is provided for the listed parent company, Swiss Reinsurance Company, Zurich.
2.1 Capital
2.1 Capital
Please refer to note 9 on shareholders’ equity of the financial statements of Swiss Reinsurance
Company, Zurich, page 161.
2.2 Authorised and conditional capital
2.2 Authorised and conditional capital
With regard to the conditional capital created for bonds or similar financial instruments with a
conversion right, shareholders’ pre-emptive rights may be restricted or excluded by decision
of the Board of Directors, in order to finance or refinance the acquisition of companies, parts of
companies, holdings, or new investments planned by the Group, or to issue convertible bonds
and warrants. If pre-emptive rights are excluded, then (1) the bonds are to be placed at market
conditions, (2) the exercise period is not to exceed ten years from the date of issue for options
and twenty years for conversion rights, and (3) the conversion or the exercise price for the
new shares is to be set at least in line with the market conditions prevailing at the date on which
the bonds are issued.
With regard to the conditional capital for employee participation purposes, shareholders’
subscription rights are excluded. Such shares may be issued at a price below the current market
price. The Board of Directors shall specify the precise conditions of issue.
Swiss Re issued shares reserved for corporate purposes (“Vorratsaktien”) prior to the revision
of Swiss corporate law in 1992. These shares were paid in only at a nominal value of CHF 0.10
for a total amount of CHF 794 228 and are not entitled to dividend.
At the Annual General Meeting in 2001, the creation of conditional capital was approved as
follows: a maximum nominal amount of CHF 900 000 for conversion rights and warrants
granted in connection with convertible bonds or similar financial instruments issued by the
Group and CHF 700 000 for employee participation purposes.
No additional conditional capital and no authorised capital was created or approved in 2002
and 2003.
The Annual General Meeting in 2004 approved an increase of conditional capital from
CHF 900 000 to CHF 2 000 000, representing a maximum of 20 million registered shares,
payable in full, each with a nominal value of CHF 0.10, for the exercise of conversion rights
and warrants granted in connection with bonds or similar instruments issued by the Group.
No additional conditional capital and no authorised capital was created or approved in 2005.
At an Extraordinary General Meeting held on 27 February 2006, shareholders approved the
creation of CHF 9 000 000 of authorised capital as well as an increase of conditional capital
by CHF 2 000 000, relating to the acquisition of GE Insurance Solutions Corporation and for
general corporate purposes.
Swiss Re 2007 Annual Report 83
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The Annual General Meeting in 2007 approved a reduction of the conditional capital as per
art. 3a of the Articles of Association reserved for bonds or similar instruments in the maximum
nominal amount of CHF 3 100 000 by a nominal amount of CHF 496 072.50, corresponding
to 4 960 725 registered shares, each with a nominal value of CHF 0.10, to CHF 2 603 927.50.
Furthermore, the Annual General Meeting 2007 approved the cancellation of the conditional
capital as per art. 3c of the Articles of Association created in favour of General Electric Company
in the maximum nominal amount of CHF 900 000, which corresponds to 9 000 000 regis-
tered shares, each with a nominal value of CHF 0.10.
No additional conditional capital and no authorised capital was created or approved in 2007.
in CHF
31.12.2001
31.12.2002
31.12.2003
31.12.2004
31.12.2005
31.12.2006
31.12.2007
Authorised capital
1 105 337
1 105 337
Conditional capital
for bonds or instruments
with a conversion right
900 000
900 000
900 000
2 000 000
2 000 000
4 000 000
2 603 928
Conditional capital
for employee
participation purposes
682 027
663 052
663 052
662 222
659 565
649 560
604 388
In 2004, the company’s share capital remained at CHF 32 million. Total reserves increased
CHF 795 million to CHF 10.7 billion. The higher profit for the financial year of CHF 1.4 billion
(compared to CHF 1.2 billion in 2003) led to an increase of disposable profit from CHF 1.2 bil-
lion to CHF 1.5 billion. Total shareholders’ equity before allocation of profit increased from
CHF 11.2 billion to CHF 12.2 billion. At the Annual General Meeting, shareholders approved a
dividend payment of CHF 497 million, compared to CHF 341 million in the previous year. From
2002 to 2004, the company issued 198 054 shares from conditional capital for employee
participation purposes.
In 2005, the company’s share capital remained at CHF 32 million. Total reserves increased
CHF 952 million to CHF 11.7 billion. The lower profit for the 2005 financial year of CHF 1.1 bil-
lion (compared to CHF 1.4 billion in 2004) led to a decrease of disposable profit from CHF 1.5
billion to CHF 1.1 billion. Total shareholders’ equity before allocation of profit increased from
CHF 12.2 billion to CHF 12.8 billion. At the Annual General Meeting, shareholders approved a
dividend payment of CHF 776 million, compared to CHF 497 million in the previous year. In
2005, the company issued 26 568 shares from conditional capital for employee participation
purposes.
In 2006, the company’s share capital increased from CHF 32 million to CHF 37 million, mainly
due to shares issued to General Electric (GE) and to capital markets as a result of the acquisi-
tion of GE Insurance Solutions. Total reserves increased CHF 4.5 billion to CHF 16.2 billion.
The higher profit for the 2006 financial year of CHF 2.1 billion (compared to CHF 1.1 billion in
2005) led to an increase of disposable profit from CHF 1.1 billion to CHF 2.2 billion. Total share-
holders’ equity before allocation of profit increased from CHF 12.8 billion to CHF 18.4 billion.
At the Annual General Meeting, shareholders approved a dividend payment of CHF 1.2 billion,
compared to CHF 776 million paid in the previous year. In 2006, the company issued
100 047 shares from conditional capital for employee participation purposes.
2.3 Changes in capital
2.3 Changes in capital
84 Swiss Re 2007 Annual Report
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In 2007, the company’s fully paid-in share capital remained roughly unchanged at CHF 37
million. Total reserves increased CHF 1.0 billion to CHF 17.2 billion. The profit for the 2007
financial year of CHF 1.7 billion (compared to CHF 2.1 billion in 2006) led to a decrease
in disposable profit from CHF 2.2 billion to CHF 1.8 billion. Total shareholders’ equity before
allocation of profit increased from CHF 18.4 billion to CHF 19.0 billion. At the Annual General
Meeting of 18 April 2008, shareholders will vote on a proposed dividend payment of
CHF 1.4 billion, compared to CHF 1.2 billion paid in the previous year. The company issued
451 724 shares from conditional capital for employee participation purposes, bringing the total
of shares issued for employee participation purposes to 956 123, from a total of 7 000 000
shares available.
In addition, the 2007 Annual General Meeting authorised the Board of Directors to buy back
the company’s own shares up to a total value of CHF 4.2 billion within a three-year period. As
of 31 December 2007, the Company had repurchased a total of 6 005 000 shares since the
inception of the second trading line in August 2007, at a volume weighted average price of
CHF 94.22. The Board of Directors will propose to the Annual General Meeting of 18 April 2008
the cancellation of the shares repurchased and the corresponding amendment of the Articles
of Association (reduction of share capital).
As of 31 December 2007, the share capital of Swiss Reinsurance Company, including shares
reserved for corporate purposes, amounted to CHF 37 038 675 or 370 386 755 fully paid-in
registered shares (each with a nominal value of CHF 0.10), of which 346 665 966 are entitled
to dividend. Other than the shares reserved for corporate purposes, which have no voting
power and are not entitled to dividend, there are no additional types of shares with a higher or
limited voting power, privileged dividend entitlement or any other preferential rights; nor are
there any other securities representing a part of the company’s share capital. Swiss Re’s capital
structure ensures equal treatment of all shareholders in accordance with the principle of “one
share, one vote”.
2.4 Shares
2.4 Shares
2.5 Profit-sharing certificates
2.5 Profit-sharing certificates
Profit-sharing certificates in the sense of the SWX Directive are particular types of non-voting
securities that substitute or complement shares. These do not exist at Swiss Re.
2.6 Limitations on transferability
2.6 Limitations on transferability
and nominee registrations
and nominee registrations
Free transferability
Swiss Reinsurance Company’s shares are freely transferable, without any limitations, provided
that the buyers declare they are the beneficial owners of the shares and comply with the
disclosure requirements of the Federal Act on Stock Exchanges and Securities Trading (“Stock
Exchange Act”) of 24 March 1995.
Admissibility of nominee registrations
Trustees or nominees who act as fiduciaries of shareholders are entered without further inquiry
in Swiss Reinsurance Company’s share register as shareholders with voting rights up to a
maximum of 2% of the outstanding share capital available at the time. Additional shares held
by such nominees, which exceed the limit of 2% of the outstanding share capital, are entered
in the share register with voting rights only if such nominees disclose the names, addresses
and shareholdings of the beneficial owners of the holdings amounting to or exceeding 0.5%
of the outstanding share capital. In addition, such nominees must comply with the disclosure
requirements of the Stock Exchange Act.
Swiss Re 2007 Annual Report 85
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Procedure and conditions for cancelling statutory privileges and limitations
on transferability
This point is not applicable, as no statutory privileges or limitations on transferability exist.
2.7 Convertible bonds and options
2.7 Convertible bonds and options
Convertible bonds
As stated in note 6 on “Debt” on pages 153 –156 of the Group financial statements, the
following convertible bonds are outstanding:
Tenor
2001 – 2021
2005 – 2008
2006 – 2009
Instrument
Convertible bond
Mandatory convertible bond
Mandatory convertible bond
Currency
USD
CHF
CHF
Nominal (millions)
1 150
1 000
610
Exchange terms
i
ii
iii
(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 (nominal value CHF 0.10 per share) 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 purchased
a call option to hedge the underlying shares. If bond holders exercise this convertible bond,
Swiss Re will exercise the hedge option to obtain the necessary shares without accessing
Swiss Re’s conditional capital.
(ii) The mandatory convertible bond (MCS), issued as a private offering to institutional
investors only, may, at the option of each holder, be converted into registered shares of Swiss
Reinsurance Company at any time from 24 January 2006 until 4.00 pm CET on the business
day before the 20th trading day prior to the maturity date on 15 December 2008. Holders
exercising such early conversion right will be entitled initially to receive 87 168 759 shares,
subject to adjustment, for each MCS of CHF 100 000 nominal value. Unless previously con-
verted, each MCS will be mandatorily converted on the maturity date into the number of regis-
tered shares of Swiss Reinsurance Company that equals the maturity conversion ratio. The
maturity con version ratio equals the arithmetic average of the 15 conversion ratios calculated
on the basis of the CHF closing prices of the shares on the virt-x (“closing price”) on each of
the 15 consecutive trading days ending on the third trading day prior to the maturity date. For
the purposes of calculating the arithmetic average, the conversion ratio for a given trading day
is determined as follows: (a) if the closing price is less than or equal to the minimum conversion
price of CHF 95.60, the conversion ratio shall be equal to the maximum conversion ratio of
initially 10 460 251 shares per MCS; (b) if the closing price is greater than or equal to the
maximum conversion price of CHF 114.72, the conversion ratio shall be equal to the minimum
conversion ratio of initially 87 168 759 shares per MCS; and (c) if the closing price is greater
than the minimum conversion price, but less than the maximum conversion price, the conver-
sion ratio shall be equal to CHF 100 000 divided by the closing price. Based on the closing
price, Swiss Re will be required to deliver between 8.7 million and 10.5 million shares created
from conditional capital, shares reserved for corporate purposes or other existing shares.
86 Swiss Re 2007 Annual Report
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(iii) Upon closing the acquisition of GE Insurance Solutions, Swiss Re issued CHF 610 million
of three-year mandatory convertible instruments to General Electric. The mandatory convertible
bond (MCS) issued as a private offering, may, at the option of each holder, be converted
into registered shares of Swiss Reinsurance Company at any time from 18 July 2006 until
4.00 pm CET on the business day before the 20th trading day prior to the maturity date on
8 June 2009. Holders exercising such early conversion right will be entitled initially to receive
102 414 923 shares, subject to adjustment, for each MCS of CHF 100 000 nominal value.
Unless previously converted, each MCS will be mandatorily converted on the maturity date
into the number of registered shares of Swiss Reinsurance Company that equals the maturity
conversion ratio. The maturity conversion ratio equals the arithmetic average of the 15 conver-
sion ratios calculated on the basis of the CHF closing prices of the shares on the virt-x (“closing
price”) on each of the 15 consecutive trading days ending on the third trading day prior to the
maturity date. For the purposes of calculating such arithmetic average, the conversion ratio
for a given trading day is determined as follows: (a) if the closing price is less than or equal to
the minimum conversion price of CHF 84.90610, the conversion ratio shall be equal to the
maximum conversion ratio of initially 117 777 168 shares per MCS of CHF 100 000 nominal
value; (b) if the closing price is greater than or equal to the maximum conversion price of
CHF 97.64202, the conversion ratio shall be equal to the minimum conversion ratio of initially
102 414 923 shares per MCS of CHF 100 000 nominal value; and (c) if the closing price is
greater than the minimum conversion price, but less than the maximum conversion price, the
conversion ratio shall be equal to CHF 100 000 divided by the closing price. Based on the
closing price, Swiss Re will be required to deliver between 6.25 million and 7.18 million shares
created from conditional capital, shares reserved for corporate purposes or other existing
shares.
Options
For details on stock options granted to Swiss Re employees, see note 12 on share-based pay-
ments, pages 169 –171, and note 9 on shareholders’ equity, page 161 of the Group financial
statements.
Swiss Re 2007 Annual Report 87
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From left:
Raymund Breu
Kaspar Villiger
Rajna Gibson Brandon
Bénédict G. F. Hentsch
Thomas W. Bechtler
Peter Forstmoser
Robert A. Scott
Walter B. Kielholz
Hans Ulrich Maerki
John F. Smith
John R. Coomber
Jakob Baer
3.1 Members of the Board of Directors
3.1 Members of the Board of Directors
as of 31 December 2007
as of 31 December 2007
Name
Peter Forstmoser
Nationality
Swiss
3 Board of Directors
Walter B. Kielholz
Swiss
Jakob Baer
Swiss
56
63
Age
64
Additional function
Chairman of the Board
Chairman of the GC
Vice Chairman of the Board
Member of the FRC and the GC
Chairman of the AC
Member of the FRC
58 Member of the CC
62 Member of the AC and the CC
58
45 Member of the AC and the FRC
59 Member of the GC
61 Member of the CC and the FRC
65
Chairman of the FRC
Swiss
Thomas W. Bechtler
Swiss
Raymund Breu
John R. Coomber
British
Rajna Gibson Brandon Swiss
Swiss
Bénédict G.F. Hentsch
Swiss
Hans Ulrich Maerki
British /
Robert A. Scott
Australian
US / Swiss 69 Member of the AC and the GC
66 Member of the FRC and the GC
Swiss
Chairman of the CC
Member of the AC and FRC
John F. Smith, Jr.
Kaspar Villiger
Initial
election
1990
Current
term ends
2010
1998
2010
2005
2009
1993
2003
2006
2000
1993
2007
2002
2003
2004
2009
2011
2009
2008
2009
2011
2010
2008
2008
AC = Audit Committee
CC = Compensation Committee
FRC = Finance and Risk Committee
GC = Governance Committee
Independence
Swiss Re requires a majority of the Board of Directors to be independent. To be considered
independent, a director may not be, and may not have been in the past three years, employed
as an executive officer of the Group. In addition, he or she must not have a material relationship
with any part of the Group – either directly or as a partner, director or shareholder of an
organisation that has a material relationship with the Group. Based on Swiss Re’s independ-
ence criteria, a strong majority of eleven of Swiss Re’s twelve directors qualify as independent.
Since John R. Coomber was Chief Executive Officer until 31 December 2005, he may not be
considered independent under the applicable criteria, although he no longer has an executive
status.
88 Swiss Re 2007 Annual Report
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Information about managerial positions and significant business connections
of non-executive directors
All members of the Board of Directors are non-executive. John R. Coomber was a member
of Swiss Re’s executive management and CEO until 31 December 2005. Walter B. Kielholz,
former Executive Vice Chairman and non-executive Vice Chairman since 2007, was Swiss
Re’s Chief Executive Officer from 1 January 1997 to 31 December 2002. Of the other ten
non-executive directors, none has ever held a management position in the Group.
No director has any significant business connection with Swiss Re or any of its Group
companies.
Peter Forstmoser
Peter Forstmoser
Chairman, non-executive
Chairman, non-executive
and independent
and independent
Mr Forstmoser, a Swiss citizen born in 1943, received a doctorate in law from the University of
Zurich in 1970, became an attorney-at-law in 1971 and earned a master’s degree in law from
Harvard Law School in 1972.
Walter B. Kielholz
Walter B. Kielholz
Vice Chairman, non-executive
Vice Chairman, non-executive
and independent
and independent
Mr Forstmoser has been a law professor at the University of Zurich since 1974 and a partner
of Niederer Kraft & Frey, Attorneys, in Zurich, since 1975. Mr Forstmoser was elected to Swiss
Re’s Board of Directors in 1990. His mandate was renewed in 1994 and 1998, each time for
a further four years. The Board of Directors elected him Chairman on 30 June 2000. He was
re-elected as Chairman in 2002 and 2006 for further four-year terms.
Mr Forstmoser is also chairman of the board of directors of Hesta AG and Hesta Tex AG, a
member of the boards of Mikron Holding AG, Bank Hofmann AG (until January 2007),
Ernst Basler AG, Remer Holding AG, and Hyos Invest Holding AG, as well as Vice Chairman of
Gebert Rüf Stiftung.
Mr Forstmoser is the author of numerous publications on a variety of law disciplines, such as
business, company, capital markets and data protection law. In the context of corporate
and investment fund legislation, he has been engaged in numerous expert committees, some
of which he presided as chairman.
Mr Kielholz, a Swiss citizen born in 1951, studied business administration at the University of
St. Gallen and graduated in 1976 with a master’s degree in business finance and accounting.
Mr Kielholz’s career began at the General Reinsurance Corporation, Zurich. After working in
the US, the UK and Italy, he assumed responsibility for the company’s European marketing. In
1986 he joined Credit Suisse, Zurich, where he was responsible for client relations with large
insurance groups in the multinational services department.
At the beginning of 1989, Mr Kielholz joined Swiss Re, Zurich. He became a member of the
Executive Board in January 1993 and was Swiss Re’s Chief Executive Officer from 1 January
1997 to 31 December 2002. In June 1998, he was elected to Swiss Re’s Board of Directors,
which at the same time appointed him Executive Director. Mr Kielholz was appointed Executive
Vice Chairman with effect from 1 January 2003 and Vice Chairman in 2007. His mandate
was renewed for a further four-year term in 2002 and 2006.
Mr Kielholz was elected to the board of directors of Credit Suisse Group in 1999. Since
1 January 2003 he has been Chairman of that company’s board of directors.
Swiss Re 2007 Annual Report 89
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In addition, Mr Kielholz is a member of the European Financial Roundtable (EFR), a member of
the board (president in 2006/2007) of the International Monetary Conference and a member
of the Institute of International Finance (IIF). Mr Kielholz is also chairman of the supervisory
board of Avenir Suisse and a member of the board and the committee of the Swiss Business
Federation (economiesuisse). In 2005, he was elected to the Insurance Hall of Fame, which
honours individuals who have exercised substantial influence on the insurance industry for the
benefit of society.
Furthermore, Mr Kielholz is a member of the Society of Zurich Friends of the Arts and chairman
of the Zurich Art Society.
Jakob Baer
Jakob Baer
Non-executive and independent director
Non-executive and independent director
Mr Baer, a Swiss citizen born in 1944, became an attorney-at-law in 1971 and graduated
from the University of Bern in 1973 with a doctorate in law.
Mr Baer began his career in the legal department of the Federal Finance Administration. In
1975, he joined Fides Trust Company. Following the successful planning and execution of a
management buyout of Fides’ advisory business, he became a member of the management
board of KPMG Switzerland in 1992. He was appointed CEO of KPMG Switzerland in 1994
and a member of KPMG’s European and international management boards. He retired from
KPMG in September 2004, having reached the statutory retirement age.
Mr Baer was elected to Swiss Re’s Board of Directors in May 2005. He also serves on the
boards of directors of Adecco S.A., Rieter Holding AG, Allreal Holding AG, Stäubli Holding AG,
and two small-sized companies.
Thomas W. Bechtler
Thomas W. Bechtler
Non-executive and independent director
Non-executive and independent director
Mr Bechtler, a Swiss citizen born in 1949, received a doctorate in law from the University of
Zurich in 1973 and a master’s degree in law from Harvard Law School in 1975.
Mr Bechtler has been chief executive officer of Hesta AG as well as Hesta Tex AG, Zug, since
1982.
Mr 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 years. Mr Bechtler also serves
on the boards of directors of Credit Suisse Group, Zurich, Bucher Industries, Sika AG and
Conzzeta Holding. From 1987 to 1999, he served as chairman of “Swisscontact”, a large
Swiss development foundation, and from 1987 to 2002 as chairman of the Zurich Art Society.
Since 2005 he has been chairman of the Zurich committee of Human Rights Watch.
Raymund Breu
Raymund Breu
Non-executive and independent director
Non-executive and independent director
Mr Breu, a Swiss citizen born in 1945, graduated from the Swiss Federal Institute of Technology
(ETH) in Zurich with a doctorate in mathematics.
Mr Breu is Chief Financial Officer of the Novartis Group and a member of that company’s
executive committee, positions he assumed when Novartis was created in December 1996.
He joined the group treasury of Sandoz, a predecessor company of Novartis, in 1975. Ten
years later, he was appointed CFO of Sandoz Corporation in New York. In 1990, he became
group treasurer of Sandoz Ltd and, in 1993, head of group finance and a member of the
Sandoz executive board.
Mr Breu was elected to Swiss Re’s Board of Directors in 2003. He was re-elected in 2007 for
a further four-year term of office. In addition, Mr Breu serves on the Swiss Takeover Board.
90 Swiss Re 2007 Annual Report
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John R. Coomber
John R. Coomber
Non-executive director
Non-executive director
Mr Coomber, a British citizen born in 1949, graduated in theoretical mechanics from
Nottingham University in 1970.
Mr Coomber started his career with the Phoenix Insurance Company. He joined Swiss Re in
1973. Having qualified as an actuary in 1974, he first specialised in the company’s life reinsur-
ance area. He was Swiss Re UK’s appointed actuary from 1983 to 1990. In 1987, he assumed
responsibility for the life division and, in 1993, was made head of the company’s UK operations.
Mr Coomber was appointed as a member of the Executive Board in April 1995, responsible
for the Group’s Life & Health Division. In June 2000, he became a member of the Executive
Committee. He was Swiss Re’s Chief Executive Officer from 1 January 2003 until 31 December
2005, when he retired after 33 years of employment with Swiss Re.
Mr Coomber was elected to Swiss Re’s Board of Directors at the Extraordinary General
Meeting of 27 February 2006 for a term ending at the Annual General Meeting of 2009.
Mr Coomber also serves as a member of the supervisory board of Euler Hermes, as a director
of Pension Insurance Corporation Holdings LLP, MH (GB) Limited, Parhelion Capital Ltd, telent
plc and as a trustee of The Climate Group.
Rajna Gibson Brandon
Rajna Gibson Brandon
Non-executive and independent director
Non-executive and independent director
Ms Gibson, a Swiss citizen born in 1962, studied business and economics at the University of
Geneva, graduating with a BA in 1982 and a PhD in economics and social sciences in 1987.
Ms Gibson has been a professor of financial economics at the Swiss Banking Institute of the
University of Zurich since March 2000 and was previously a professor of finance at the
University of Lausanne. She is also a director of the National Centre of Competence in Research
(NCCR) “Financial Valuation and Risk Management” research network, Director of Research
of the Swiss Finance Institute (SFI) and an adviser to scientific councils of various educational
institutions. She was a member of the Swiss Federal Banking Commission until the end of
2004. Ms Gibson was elected to Swiss Re’s Board of Directors in June 2000. Her mandate
was renewed in 2004 for a further four-year term.
Bénédict G.F. Hentsch
Bénédict G.F. Hentsch
Non-executive and independent director
Non-executive and independent director
Mr Hentsch, a Swiss citizen born in 1948, studied business administration at the University
of St. Gallen, Switzerland, graduating in 1972 with a master’s degree in business finance and
accounting.
Mr Hentsch was a general partner of Darier Hentsch & Cie, Private Bankers, Geneva from 1985
until 2001. He chaired the Swiss Private Bankers Association from 1998 to 2001. In 2004,
he founded GEM – Global Estate Managers – as well as Banque Bénédict Hentsch & Cie S.A.,
both entities dedicated to global wealth management.
Mr Hentsch was elected to Swiss Re’s Board of Directors in 1993. His mandate was renewed
in 1997, 2001 and 2005, each time for a further four-year term. He is also a member of the
board of the ISC Foundation and the MLE-Foundation, both at the University of St. Gallen.
Hans Ulrich Maerki
Hans Ulrich Maerki
Non-executive and independent director
Non-executive and independent director
Mr Maerki, a Swiss citizen born in 1946, graduated with a master’s degree in business
administration at the University of Basel in 1972.
Mr Maerki joined IBM Switzerland in 1973. After some years in the sales area, he was pro-
moted to a number of managerial positions in IBM’s Paris European Headquarters as well as
in IBM Switzerland. From 1993 to 1995, he led IBM’s business in Switzerland as General
Manager, before moving to IBM Europe in Paris to build the largest IT services business in the
market. In August 2001, he was appointed Chairman of the Board of Directors of IBM Europe,
Middle East and Africa (EMEA). From 2003 to 2005 he was also CEO of IBM EMEA.
Swiss Re 2007 Annual Report 91
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Mr Maerki was elected to Swiss Re’s Board of Directors at the Annual General Meeting of
20 April 2007 for a four-year term of office. He is also a member of the boards of ABB, Mettler-
Toledo International and the Menuhin Festival Gstaad. He serves on the board of trustees of
the Hermitage Museum in St. Petersburg as well as on the international advisory boards of
the Ecole des Hautes Etudes Commerciales (HEC) Paris, the IESE Business School University
of Navarra (IESE), the IMD Business School in Lausanne and Bocconi University in Milan.
Robert A. Scott
Robert A. Scott
Non-executive and independent director
Non-executive and independent director
Mr Scott, a British and Australian citizen born in 1942, was educated at Scots College,
Wellington, New Zealand. He has been a Senior Associate of the Australian and New Zealand
Institute of Insurance and Finance (ANZIIF) since 1965 and was made a Commander of the
British Empire (CBE) in 2002.
Mr Scott is a retired group chief executive of CGNU plc, now Aviva. In the 1990s, he was
group chief executive of General Accident and, following the merger with Commercial Union
in 1998, was appointed group chief executive of CGU plc. Following the merger in 2000 with
Norwich Union, Mr Scott became group chief executive of CGNU plc, retiring in May 2001.
Mr Scott was also chairman of the Association of British Insurers in 2000 – 2001, and a board
member in the previous four years.
Mr Scott joined Swiss Re’s Board of Directors in 2002 for a four-year term. He was re-elected
for a further four-year term in 2006. Mr Scott is also chairman of the board of directors of
Yell Group plc, a non-executive director of the Royal Bank of Scotland Group plc and Jardine
Lloyd Thompson Group plc. In addition, he is an adviser to Duke Street Capital and Pension
Insurance Corporation Holdings LLP.
John F. Smith, Jr.
John F. Smith, Jr.
Non-executive and independent director
Non-executive and independent director
Mr Smith, a US and Swiss citizen born in 1938, received a Bachelor of Business Administra-
tion from the University of Massachusetts in 1960 and a Master of Business Administration
from Boston University in 1965.
Mr Smith joined General Motors Corporation, Detroit, in 1961. He became the company’s
president in 1992, a position he held until 1998. He served as chief executive officer from
1992 to 2000 and was chairman of the board of directors from 1996 to April 2003.
Mr Smith joined Swiss Re’s Board of Directors in 2003. He was re-elected in 2007 for an
additional one-year term ending at the Annual General Meeting in 2008, when he will have
reached the statutory retirement age.
Mr Smith is also a director of The Procter & Gamble Company and serves as a member of the
chancellor’s executive committee of the University of Massachusetts.
Kaspar Villiger
Kaspar Villiger
Non-executive and independent director
Non-executive and independent director
Mr Villiger, a Swiss citizen born in 1941, graduated from the Swiss Federal Institute of
Technology (ETH) in Zurich with a degree in mechanical engineering in 1966.
As an entrepreneur, Mr Villiger co-owned and managed two businesses from 1966 until 1989.
Simultaneously, Mr Villiger had several political positions, first in the parliament of the canton
of Lucerne and, from 1982, in the Swiss Federal Parliament. He became a Federal Councillor
in 1989. He initially served as Defence Minister, with responsibility for the Federal Military
Department. He then became Finance Minister in 1995 as Head of the Federal Department of
Finance until the end of 2003. Mr Villiger was President of the Swiss Confederation in 1995
and 2002.
Mr Villiger joined Swiss Re’s Board of Directors in 2004 for a four-year term. He also serves as
non-executive director on the boards of Nestlé SA, and the newspaper “Neue Zürcher Zeitung”.
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Changes in the course of the 2007 business year
Dennis D. Dammerman retired from the Board of Directors at the Annual General Meeting of
20 April 2007. At the same time, the shareholders re-elected Raymund Breu and John F. Smith,
Jr., as members of the Board of Directors. Mr Breu was elected for another four-year term.
Mr Smith was elected for a one-year term only, as he will have reached the retirement age of
70 by the Annual General Meeting in 2008.
Nominations for the election at the Annual General Meeting of 18 April 2008
The Board of Directors has decided to nominate the following candidates for re-election to
the Board:
Rajna Gibson Brandon, for a further term;
Kaspar Villiger, for a further term.
The Board of Directors has further decided to nominate the following candidates for first-time
election to the Board:
Raymond K. F. Ch’ien
Mathis Cabiallavetta
Raymond K. F. Ch’ien, a Chinese citizen born in 1952, has been chairman of CDC Corporation
since 1999. He served as chief executive officer of the company in 2005 and as acting chief
executive officer in 2004. From 1984 to 1997, he was group managing director of Lam Soon
Hong Kong Group.
Mr Ch’ien also serves as chairman of the boards of directors of MTR Corporation Limited,
Hang Seng Bank Limited and HSBC Private Equity (Asia) Limited. He is also a member of the
board of directors of Inchcape plc, the Hongkong and Shanghai Banking Corporation Limited,
VTech Holdings Limited, Convenience Retail Asia Limited and The Wharf (Holdings) Limited.
In addition, Mr Ch’ien holds positions in several public service institutions: he is chairman of
the Hong Kong / European Union Business Cooperation Committee, a member of the
APEC Business Advisory Council, Hong Kong, and honorary president of the Federation of
Hong Kong Industries. Mr Ch’ien has recently been appointed to the Standing Committee of
the Tianjin Municipal Committee of the Chinese People’s Political Consultative Conference.
Mr Ch’ien studied at Rockford College and the University of Pennsylvania, graduating with a
PhD in economics in 1978. He became a Trustee of the University of Pennsylvania in 2006.
Mathis Cabiallavetta, a Swiss citizen born in 1945, is vice chairman of Marsh & McLennan
Companies, Inc. (MMC) and chairman of Marsh & McLennan International. He has been a
member of MMC’s international advisory board since 1994 and served as a director of MMC
from 2000 to 2004.
Prior to joining MMC in 1999, Mr Cabiallavetta was chairman of the board of UBS AG, after
having held several executive positions at the company since 1971. He became president of
the group executive board in 1996 and was elected chairman of UBS AG in 1998.
Mr Cabiallavetta is also a member of the boards of directors of Altria Group, Inc. and BlackRock,
Inc. In addition, he is a member of the advisory board of General Atlantic Partners in New York.
3.2 Other activities and functions
3.2 Other activities and functions
Please refer to the information provided in each director’s biography on pages 89 – 92.
3.3 Cross-involvement
3.3 Cross-involvement
The SWX Directive no longer requires cross-involvements to be listed separately. Please, refer
to the information provided in each director’s biography on pages 89 – 92.
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3.4 Elections and term of office
3.4 Elections and term of office
Election procedure
The members of the Board of Directors are elected at a General Meeting of shareholders.
The Governance Committee evaluates candidates for Board membership and makes recom-
mendations to the Board with regard to their nomination for election or re-election. The Board
submits nominations for new directors for election at the General Meeting that ensure an
adequate size and a well-balanced composition of the Board and comply with the requirement
that a majority of the Board is independent. At the General Meeting, each proposed election
or re-election is presented by the Chairman and voted upon separately.
The Chairman and Vice Chairman of the Board, as well as the chairpersons and members of
the Board Committees are elected by the Board of Directors.
Term
The regular term of office of a directorship is four years. It usually begins with the date of elec-
tion by a General Meeting of shareholders and ends on the fourth subsequent Annual General
Meeting. Members whose term has expired are immediately eligible for re-election.
The Board of Directors proposes to the Annual General Meeting of 18 April 2008 to reduce
the term of office for members of the Board of Directors from four to three years.
The age limit is 70. Members who reach the age of 70 during a regular term of office shall
tender their resignation at the Annual General Meeting following the attainment of that age.
The term of office of a committee member is one year, beginning with the Board meeting
following the Annual General Meeting and ending with the Board meeting following the sub-
sequent Annual General Meeting.
First election and remaining term of each director
Please refer to the table at the beginning of section 3 of this chapter.
The organisation of the Board of Directors is laid down in the Corporate Bylaws, which define
the responsibilities of the Board of Directors, its committees and the executive management,
as well as the reporting procedures. The Corporate Bylaws are reviewed periodically by both
the Governance Committee and the full Board with regard to expediency as well as to compli-
ance with domestic and applicable international laws, regulations and best practice standards.
Chairman of the Board of Directors
The Chairman of the Board of Directors exercises ultimate supervision of the executive man-
agement on behalf of the Board. He usually attends the meetings of the Executive Committee
and Executive Board and receives the documentation and minutes of all the meetings. He
ensures adequate reporting to the Board by the Board Committees, Executive Committee and
Executive Board. He is also responsible, with the Chairman of the Audit Committee, for Group
Internal Audit. He appoints the Head of Group Internal Audit, subject to confirmation by the
Audit Committee, and determines his or her compensation.
In addition, he convenes meetings of the Board and its committees, makes preparations for,
and presides at Board meetings. He coordinates the activities of Board committees and
ensures the Board is kept informed about their activities and findings. In cases of doubt, he
makes decisions regarding the authority of the Board or its committees and about the appli-
cation and interpretation of the Corporate Bylaws.
3.5 Organisational structure of the
3.5 Organisational structure of the
Board of Directors
Board of Directors
3.5.1 Allocation of tasks within the
3.5.1 Allocation of tasks within the
Board of Directors
Board of Directors
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He receives comments from the directors as to the Board’s performance, reports annually
to the Board with an assessment of its performance and ensures that newly elected Board
members receive a suitable introduction to their role.
He presides at General Meetings and represents the Group to shareholders.
If the Chairman of the Board is prevented from performing his duties, they are performed by
the Vice Chairman or another member of the Board.
Vice Chairman
The Vice Chairman liaises between the Board and executive management in matters not
reserved to the Chairman, supervises management’s preparation and execution of Board reso-
lutions in operational matters as well as management’s development of Group strategies, and
oversees management development for the Group’s senior executives.
Committees of the Board of Directors
The Board has delegated certain responsibilities, including the preparation and execution of
its resolutions, to four committees: Audit Committee, Compensation Committee, Finance and
Risk Committee, and Governance Committee. Any such committee must keep the Board
apprised on a timely basis of actions and determinations.
The committees may conduct or authorise special investigations, at any time and at their full
discretion, into any matters within their respective scope of responsibilities, as laid down in
their respective charters of duties, thereby taking into consideration relevant peer group practice
and general best practice. They are empowered to retain independent counsel, accountants
or other experts if deemed necessary, including for purposes of benchmarking best practice,
and shall receive appropriate funding for payment of compensation to such outside advisers.
Each committee is headed by a chairperson. He or she prepares and presides the committee
meetings and informs the Board on any committee’s actions and decisions.
Audit Committee
Responsibilities of the Audit Committee
The central task of the Audit Committee is to assist the Board in fulfilling its oversight responsi-
bilities as they relate to the integrity of the Group financial statements, the Group’s compliance
with legal and regulatory requirements, the external auditor’s qualifications and independence,
and the performance of the Group’s internal audit function and its external auditor.
The Committee serves as an independent and objective monitor of the Group’s financial
reporting process and system of internal control, and facilitates ongoing communication
between the external auditor, management, Group Internal Audit and the Board with regard to
the Group’s financial situation and course of business. The Audit Committee reviews its own
performance annually.
3.5.2 Committees of the Board of
3.5.2 Committees of the Board of
Directors: responsibilities and
Directors: responsibilities and
members
members
In fulfilling its responsibilities, the committee, among others,
reviews major changes to the Group’s accounting principles and practices;
reviews with the external auditor and the Head of Group Internal Audit the adequacy and
efficacy of the financial reporting process as well as the Group’s system of internal controls
over financial reporting and quality control procedures;
reviews, at least annually, the Group’s policies regarding publication of earnings and the
policies regarding communication of financial information provided to analysts and rating
agencies;
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reviews and discusses with management the quarterly and annual financial accounts of the
parent company and the Group, and approves quarterly accounts and reports of the Group;
exercises supervision of compliance-related matters by reviewing management’s reports
on legal, regulatory and compliance risks, including management’s identification of potential
fraud risks and implemented anti-fraud controls;
approves the appointment of the Head of Group Internal Audit, approves planned audit
services by Group Internal Audit and reviews annually the performance of Group Internal
Audit;
evaluates external auditors and recommends a firm to the Board of Directors for election at
the General Meeting, reviews annually the independence and the performance of the
external auditor as well as its quality control procedures, and approves the compensation
for external audit services;
periodically meets with Group Internal Audit and the external auditor to discuss their findings
and management’s responses.
Members of the Audit Committee
Jakob Baer, Chair
Raymund Breu
Rajna Gibson Brandon
Robert A. Scott
John F. Smith, Jr.
Independence and other qualifications
All members of the Audit Committee are non-executive and independent. In addition to the
independence criteria applicable for the Board members, members of the Audit Committee may
not accept any consulting, advisory, or other compensatory fee from the company. All members
must be financially literate. At least one member must have the attributes qualifying him/her
as an Audit Committee Financial Expert (as defined in the Corporate Bylaws and determined
by the Board). Furthermore, the Corporate Bylaws require that Audit Committee members
should not serve on audit committees of more than two other listed companies. They shall
advise the Chairman in advance of accepting any further invitation to serve on the audit com-
mittee of another listed company. No Board member held more than two additional audit
committee mandates in 2007.
Compensation Committee
Responsibilities of the Compensation Committee
The Compensation Committee, among others,
ensures the development of a set of Group compensation principles, submits them to
the Board for approval, monitors adherence to the principles and regularly discusses their
appropriateness;
keeps itself informed of industry and peer compensation practices;
recommends to the Board the remuneration of the members of the Board, the compensa-
tion of the Chief Executive Officer and the total amount available for compensation of the
other members of the Executive Board;
determines the individual compensation amounts of the members of the Executive Board
(other than the Chief Executive Officer), based on the Board’s determination of the total
amount available;
determines the total amount for bonus payments and related share deferral plans, on
the basis of achieved performance, and approves long-term incentive plans (subject to the
approval of the Board of Directors for new option plans);
reviews and approves the Group’s compensation and pension plans;
ensures compliance with any remuneration disclosure requirements;
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approves employment contracts with the Chairman, the Vice Chairman, the Chief Executive
Officer and the members of the Executive Committee and the Executive Board;
reviews its own performance annually.
Members of the Compensation Committee
Robert A. Scott, Chair
Thomas W. Bechtler
Raymund Breu
Dennis D. Dammerman (until 20 April 2007)
Hans Ulrich Maerki (as of 20 April 2007)
Independence
All members of the Compensation Committee are non-executive and independent.
Finance and Risk Committee
Responsibilities of the Finance and Risk Committee
The Finance and Risk Committee, among others,
annually reviews and recommends for approval to the Board of Directors the Group Risk
Policy, including Swiss Re’s risk tolerance targets regarding capital adequacy, risk concen-
tration, and earnings volatility;
regularly monitors the usage of limits set out in the Group Risk Policy and decides on
actions to be taken following breaches;
discusses with the Chief Risk Officer the top risk issues for the Group and corresponding
risk mitigation actions;
reviews the most important risk exposures in all major risk categories – insurance (including
reserve risk), financial market, credit, funding and liquidity, and operational – highlighting
significant risk concentrations;
reviews new products or strategic expansions of the Group’s areas of business, which
would result in a substantial change to the Group’s risk profile and provides comments to
the Board of Directors from a risk perspective;
reviews the assurance activities of the Risk Management function;
reviews critical principles used in internal risk measurement, valuation of assets and liabilities,
capital adequacy assessment, and economic performance measurement, and reviews their
implementation;
reviews the Group’s funding structure and capital adequacy;
reviews the Group’s treasury strategy, including cash and liquidity management;
discusses external risk mitigation activities (including retrocession, insurance bonds, and
investment hedging) and their impact on counterparty risk;
reviews reports on the Group-wide use of derivative instruments;
annually reviews its own performance.
Members of the Finance and Risk Committee
John R. Coomber, Chair
Jakob Baer
Dennis D. Dammerman (until 20 April 2007)
Rajna Gibson Brandon
Walter B. Kielholz
Hans Ulrich Maerki (as of 20 April 2007)
Robert A. Scott
Kaspar Villiger
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Governance Committee
Responsibilities of the Governance Committee
The Governance Committee, among others,
keeps itself informed on corporate governance developments, measures the Group’s gov-
ernance against relevant best practice standards and informs the Board of its findings and
emerging trends;
evaluates Board member candidates and makes recommendations to the Board with
regard to their nomination for election or re-election at a General Meeting, while ensuring
an adequate size and a well-balanced composition of the Board as well as the independ-
ence of the majority of the Board;
evaluates proposals of the Chief Executive Officer for the appointment and removal of
members of the Executive Committee and the Executive Board;
ensures the effectiveness of executive succession and emergency planning processes;
reviews compliance with corporate governance disclosure requirements;
annually reviews the company’s Articles of Association and the Corporate Bylaws, and
informs the Board of its findings and proposals;
reviews the Group’s communication policy;
periodically reviews the Group’s guiding principles, as well as the corporate citizenship and
corporate sustainability activities;
monitors investor relations activities and the relationship with rating agencies;
examines how public reports are perceived, especially with regard to whether they fulfil the
needs and expectations of international investors;
monitors the shareholder structure;
has initial responsibility for assessing any merger and take-over proposals submitted to the
Group;
has initial responsibility for reviewing material transactions with any of the Group’s signifi-
cant shareholders;
reviews its own performance annually.
Members of the Governance Committee
Peter Forstmoser, Chair
Dennis D. Dammerman (until 20 April 2007)
Bénédict G. F. Hentsch
Walter B. Kielholz
John F. Smith, Jr.
Kaspar Villiger
3.5.3 Work methods of the Board of
3.5.3 Work methods of the Board of
Directors and its committees
Directors and its committees
The Board and its committees meet at the invitation of the Chairman of the Board as often as
business requires. The Board has six regular two-day meetings a year. The first day is usually
reserved for the committees; on the second day, the full Board meets for as long as required,
mostly the whole day.
The regular Board meetings are normally held in early and late February, April, June, September
and December. Each regular Board meeting has a special focus, which is basically related to
Swiss Re’s reporting schedule. These areas of focus consist of strategic issues, financial state-
ments, analysis of internal results, the medium-term business plan and corporate governance.
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a. General work methods of the Board of Directors and its committees
Extraordinary meetings are called at short notice if and when required. Board members can
also join such meetings by video or telephone conference. A quorum is constituted when at
least half of the members of the Board or the Board committee are present in person or partic-
ipate using some alternative means of communication.
In addition to the regular and extraordinary meetings, the Board and its committees can make
decisions in writing. These resolutions by written agreement have equal validity to decisions
made in regular or extraordinary meetings. Resolutions by written agreement of the Board of
Directors may be adopted if no Board member calls for discussion of the motion. A quorum is
constituted when at least half of the members express their agreement or disagreement with
the resolution. Written resolutions of Board committees may be adopted if all committee
members express their agreement or disagreement with the resolution.
The Chairman of the Board is responsible for defining the agendas for the meetings of the
Board and its committees in close cooperation with the chairpersons of the committees and
in consultation with the Chief Executive Officer. A number of recurring issues are discussed
periodically at the regular meetings.
The members of the Board of Directors receive an invitation to Board and committee meetings
with a list of the agenda items approximately two weeks before each meeting. They also
receive written documentation on the items for discussion, so that they can prepare thoroughly.
The first set of pre-reading material is usually sent out with the invitation two weeks prior to
the meeting, followed by a second delivery one week later.
In the meeting, the agenda items are usually introduced by a presentation, followed by a dis-
cussion and, where necessary, a resolution on the item. The presentation is given by an expert
from the Executive Committee or Executive Board or by other employees having the requisite
specialist knowledge.
Specific subjects can be discussed in a closed session with a reduced number of participants.
Depending on the item being discussed, these closed sessions consist solely of Board mem-
bers (private session) or Board members and the Chief Executive Officer (executive session).
Minutes are kept of the discussions and the resolutions of each meeting and are approved
usually at the next Board or Board committee meeting.
b. Specific work methods of the Board of Directors
The Board meetings are attended by members of the Board and, in an advisory capacity, by
the members of the Executive Committee as well as the company secretary.
In 2007, there were eight regular and four extraordinary Board meetings, and the Board made
eight decisions in writing. The Board meetings lasted 5.5 hours on average. Between one and
14 agenda items were discussed per meeting, with an average of seven items per meeting.
The average attendance rate was 99.0% at the regular meetings throughout the year. Average
attendance including extraordinary meetings, which were often called at short notice, was
90.3%. Whenever possible, Board members who are unable to attend an extraordinary meet-
ing give their views on the agenda items to the Chairman before the meeting.
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c. Specific work methods of the Audit Committee
The Audit Committee normally meets eight times a year. The first two meetings of the year
mainly deal with the annual closing. In the subsequent meetings, the committee focuses on
topics such as embedded value, the internal control system, or legal, regulatory and compli-
ance issues. The committee receives a status report from Group Internal Audit about four
times a year. The meetings at the beginning of May, August and November are mainly dedi-
cated to the discussion and approval of the quarterly results.
Besides the committee members and the company secretary, selected individuals are invited
to attend Audit Committee meetings in an advisory capacity. In 2007, the following people
exercised an advisory role on the committee:
Peter Forstmoser, Chairman of the Board of Directors
Walter B. Kielholz, Vice Chairman of the Board of Directors
Jacques Aigrain, Chief Executive Officer
Ann F. Godbehere, Chief Financial Officer (until 28 February 2007)
George Quinn, Chief Financial Officer (as of 1 March 2007)
David Doyle, Head of Group Internal Audit (until 28 February 2007)
Clare Bousfield, Head of Group Internal Audit (as of 1 March 2007)
The two lead auditors representing the external auditor are also invited to Audit Committee
meetings. The Head of Group Internal Audit and the two lead auditors of the external auditor
are normally present in executive sessions of the committee.
In 2007, there were nine Audit Committee meetings, including one extraordinary meeting.
No resolutions were taken by written agreement. On average, the meetings lasted 2.5 hours.
Between one and ten agenda items were discussed per meeting, with an average of six items.
Average attendance was 95.0% at the regular meetings throughout the year and 91.1%
including the extraordinary meeting, which was called at short notice.
d. Specific work methods of the Compensation Committee
The Compensation Committee normally holds five regular meetings per year. The main purpose
of the January and February meetings is to set the total amount for bonus payments in the
organisation, including bonuses for Executive Board members, as well as to allocate benefits
from the long-term incentive plans. The June and September meetings are to review the com-
pensation principles and instruments. In December, the committee undertakes an initial
assessment of Executive Board members’ performance for the pending bonus allocation and
decides on any amendments to the compensation system for the following year.
Besides the committee members and minutes taker, selected individuals are invited to attend
Compensation Committee meetings in an advisory capacity. In 2007, the following people
exercised an advisory role on the committee:
Peter Forstmoser, Chairman of the Board of Directors
Walter B. Kielholz, Vice Chairman of the Board of Directors
Jacques Aigrain, Chief Executive Officer
The Compensation Committee enlisted the help of Mercer Human Resources Consulting to
provide support and advice for compensation issues during the reporting year. Mercer
supported the committee in organising benchmark studies and reviewing and amending the
compensation philosophy.
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In 2007, there were five regular meetings of the Compensation Committee. There were no
extraordinary meetings and no resolutions by written agreement. The meetings lasted on
average three hours. Between four and thirteen agenda items were discussed per meeting,
with an average of eight items. Average attendance was 85.0% during the reporting year.
e. Specific work methods of the Finance and Risk Committee
The Finance and Risk Committee normally holds six regular meetings per year. The topics dis-
cussed at committee meetings depend on current developments and corporate requirements.
In the reporting year, the committee reviewed derivative transactions, risk management in life
and credit business, the company’s reserving policy for life and non-life business, the optimal
approach to the insurance price cycle, treasury issues, climate change, the Group’s earthquake
exposure, investment policy and the internal risk identification process. The committee also
discusses the Chief Risk Officer’s latest written report at almost every meeting. This report
outlines the Group’s position in terms of the main quantitative risk metrics.
Besides the committee members and the company secretary, selected individuals are invited
to attend Finance and Risk Committee meetings in an advisory capacity. In 2007, the following
people acted in an advisory role on the committee:
Peter Forstmoser, Chairman of the Board of Directors
Jacques Aigrain, Chief Executive Officer
Ann F. Godbehere, Chief Financial Officer (until 28 February 2007)
George Quinn, Chief Financial Officer (as of 1 March 2007)
Christian Mumenthaler, Chief Risk Officer (until 31 December 2007)
Stefan Lippe, Head of (Re)Insurance Products
Roger W. Ferguson, Head of Financial Services Products
Benjamin Meuli, Chief Investment Officer
In 2007, 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. Between four and eight agenda items were discussed per meeting, with an
average of six items. Average attendance was 90.5% during the reporting year.
f. Specific work methods of the Governance Committee
The Governance Committee normally holds three regular meetings per year. The committee
usually spends its first meeting of the year discussing developments in corporate governance
and reviewing the Articles of Association, Corporate Bylaws and the Corporate Governance
section of the Annual Report. The committee’s other meetings address the media and investor
response to the annual results, the Group’s Guiding Principles, social commitment, approach
to sustainability, the activities of Investor Relations and shareholder structure.
Besides the committee members and the company secretary, selected individuals are invited
to attend Governance Committee meetings in an advisory capacity. In 2007, the following
people exercised an advisory role on the committee:
Jacques Aigrain, Chief Executive Officer
Ann F. Godbehere, Chief Financial Officer (until 28 February 2007)
George Quinn, Chief Financial Officer (as of 1 March 2007)
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In 2007, there were four Governance Committee meetings. There were no extraordinary meet-
ings and two resolutions by written agreement. On average, the meetings lasted one hour.
Between two and seven agenda items were discussed per meeting, with an average of five
items. Average attendance was 86.7% during the reporting year.
g. Meeting schedule in 2007
Dates
31 January
1 February
2 February
27 February
28 February
2 April
18 April
19 April
7 May
11 May
14 June
15 June
6 August
13 September
14 September
22 October
26 October
5 November
16 November
18 November
6 December
7 December
28 December
Board of
Directors
Audit
Committee
Compensation Finance and Risk
Committee
Committee
Governance
Committee
The meetings of 11 May, 22 October, 16 November, 18 November and 28 December were
extraordinary meetings.
3.6 Definition of areas of responsibility
3.6 Definition of areas of responsibility
of the Board of Directors and the
of the Board of Directors and the
Executive Committee
Executive Committee
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).
The Board of Directors, among others,
determines the risk tolerance level of the Group, monitors risk development and approves
the business principles to be applied in reinsurance and financial services, including asset
management;
defines the Group’s Guiding Principles, adopts the strategy of the Group and keeps itself
informed of the strategies of the business and corporate functions, as well as of the divisions;
approves consolidated medium- and short-term Group business plans based on the
Group’s strategic goals and the business plans of the business and corporate functions;
decides on high-level transactions in alternative investments, Admin Re®, debt issuances,
credit facilities or similar instruments and capital market transactions;
reviews periodic core business status reports as well as reports on major business trans-
actions and events;
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has overall responsibility for corporate governance matters;
approves the compensation principles of the Group upon recommendation of the Compen-
sation Committee;
reviews the Group’s adherence to legal, regulatory and compliance standards, as well as
the status of significant legal, regulatory or compliance matters, in conjunction with the
Audit Committee;
determines the structure of the Group, defines its business and corporate functions and
divisions, and decides on structural changes to the Group, as well as the business and
corporate functions;
appoints and removes members of the Executive Committee and the Executive Board upon
recommendation of the Governance Committee;
assesses, on an annual basis, the performance of the Chief Executive Officer as well as the
members of the Executive Committee and the Executive Board;
assesses, on an annual basis, the performance of the Board, its committees, and each of its
members;
determines the remuneration of the members of the Board, the compensation of the Chief
Executive Officer and the total amount available for compensation of the other members of
the Executive Board, upon recommendation of the Compensation Committee;
elects the Chairman of the Board, the Vice Chairman and the chairpersons and members of
the Board committees;
nominates Board member candidates for election or re-election by the General Meeting
upon recommendation of the Governance Committee;
establishes the methods and applicable standards for accounting, budgetary control and
financial planning;
reviews and approves annual reports of the parent company and the Group, subject to the
authority of the General Meeting;
makes preparations for and convenes General Meetings of shareholders and executes the
resolutions of General Meetings.
The Executive Committee has, in addition to its overall responsibility for the operational
management of the Group, the following key responsibilities:
submits proposals to the Board of Directors relating to all matters within the Board’s
responsibilities, for the Board’s consideration, such as the Group strategy, the business
plan, risk tolerances and accounting principles;
approves the strategies, structures and business plans of the business and corporate
functions and divisions;
establishes principles on financing through capital markets, the financing of Group
companies and the allocation of financial resources within the Group;
decides on transactions in alternative investments, Admin Re®, debt issuances and credit
facilities or similar instruments, while submitting proposals on high-limit transactions to the
Board of Directors;
establishes the performance targets for the Group, the business and corporate functions
and the divisions, monitors performance and takes any necessary action;
forms Group Committees, delegates to them authorities and responsibilities, and issues
binding Group guidelines;
decides on the underwriting authority of the business functions and divisions, and on
individual reinsurance transactions exceeding the underwriting authority limits;
exercises oversight responsibilities in respect of the Group‘s internal control evaluation and
certification process;
oversees the implementation of Group compliance procedures, monitors remediation of
identified regulatory and compliance deficiencies and ensures that appropriate risk
management committees are constituted;
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assumes responsibility for personnel planning and management development of the Group,
makes recommendations to the Chief Executive Officer on promotions for or removals of
Managing Directors, and appoints the Responsible Actuary.
The Executive Committee holds, as a rule, two meetings per month. In 2007, the Executive
Committee met 30 times.
The Executive Committee is supported by the larger Executive Board made up of 21 senior
executive officers (including the seven members of the Executive Committee). All members of
the Executive Board are appointed by the Board of Directors upon recommendation of the
Chief Executive Officer and after consultation with the Governance Committee. The Executive
Board supports the Executive Committee as a sounding forum. It met eight times in 2007.
One of those meetings covered strategic issues and stretched over three days.
3.7 Information and control instruments
3.7 Information and control instruments
of the Board vis-à-vis executive
of the Board vis-à-vis executive
management
management
Swiss Re maintains effective and consistent control of the Executive Committee through the
Board of Directors. The Board of Directors has a number of controlling and information-gather-
ing mechanisms in place to monitor the handling of responsibilities it has delegated to the
Executive Committee.
a. Participation of Board members at executive management meetings
Both the Chairman of the Board and the Vice Chairman are invited to all meetings of the
Executive Committee and the Executive Board; effectively, the Board of Directors was repre-
sented at 21 of the 30 meetings in 2007. The Chairman of the Board and the Vice Chairman
always receive the meeting documentation and minutes.
b. Involvement of executive management in meetings of the Board of Directors
As a matter of principle, all members of the Executive Committee are invited to all meetings of
the Board of Directors. The entire Executive Committee was present at all regular Board meet-
ings in 2007, with the exception of one Executive Committee member being absent from one
of the meetings.
c. Involvement of executive management in Board committee meetings
At the meetings of the Board committees, executive management members participate in an
advisory capacity. For a detailed listing of EC member participation in Board Committee
meetings, as well as the number of meetings and the meeting cycle, see the relevant sections
in 3.5.3.
d. Periodic reporting by executive management
At each regular Board meeting, the “Executive Report” is a standard agenda item, comprising
a comprehensive CEO report on the business development, including major business transac-
tions, claims, corporate development issues and key projects. The CEO’s report is accompa-
nied by detailed reports of the business function heads as well as the CFO and, if appropriate,
the CRO.
In addition, specific written reports focussing on issues such as risk exposure and risk man-
agement activities of the Group, economic results, investment operations, compliance, legal
aspects and economic outlook are provided to the members of the Board of Directors on a
regular basis.
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e. Management Information System
Up to ten times per year, Board members receive a printed “Monthly Business Update”, which
measures Swiss Re’s performance against its strategic and financial objectives. The content of
this report is extracted from Swiss Re’s Management Information System (MIS), a web-based
tool providing in-depth quantitative and qualitative analysis of the current performance of the
Group as well as detailed business information for all fields of activity. The MIS covers, besides
performance figures, a wide variety of aspects, such as capital adequacy, business renewals,
deal pipeline, investment results, claims development, costs, workforce, strategic initiatives,
project portfolio, findings of Group Internal Audit, compliance, competitors and shareholding
structure.
f. Risk management
Swiss Re’s governing bodies recognise the value of a high quality corporate Assurance Frame-
work. Swiss Re has therefore created a comprehensive management and controlling instrument
over the past few years to enhance its risk management capability. This instrument monitors
five main risk classes: insurance risk, financial market risk, credit risk, funding and liquidity risk,
and operational risk. These risk classes are subdivided into approximately 20 risk categories.
The framework defines associated responsibilities and reporting processes for each of the
categories. The Finance and Risk Committee received a detailed progress report and several
updates on the Assurance Framework in 2007. As governance standards continue to evolve,
the corresponding framework is subject to periodic reviews and improvements as required.
g. Duty to inform about extraordinary events
As soon as the Executive Committee hears about significant extraordinary business develop-
ments or events, it is obliged to inform the Board of Directors immediately, even if the Board is
not in session.
h. Supervision of the Executive Committee by the Vice Chairman of the Board
The Vice Chairman supervises the preparation and execution of Board resolutions by the
Executive Committee for all operational matters. In addition, he supervises the Executive
Committee’s development of Group strategy and oversees management development of the
Group’s senior executives.
i. Right to obtain information
At Board meetings, any member of the Board of Directors can demand information on any
aspect of the Group’s business. Any member may, in such meetings, request that books and
records be produced for timely inspection. Outside Board meetings, any member can direct a
request for production of business records to the Chairman of the Board. In the event the
request is denied, the Board decides whether such information shall be produced.
j. Special investigations
Each Board committee is entitled to undertake or commission special investigations at its own
discretion into any matters within its respective scope of responsibility. They may also enlist
assistance from independent legal advisers, auditors or other experts if deemed necessary.
Based on the authority to conduct special investigations, the Audit Committee initiated a review
of the mark-to-market loss from credit underwriting activities in November 2007.
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k. Group Internal Audit
Group Internal Audit (GIA) is an independent, objective assurance function, performing activi-
ties designed to assess the adequacy and effectiveness of the Group‘s internal control systems.
GIA helps the Group accomplish its objectives by applying a systematic, disciplined approach
to evaluate and improve the effectiveness of risk management, control, and governance
processes.
GIA staff govern themselves in accordance with the Code of Ethics established by the Institute
of Internal Auditors (IIA). The IIA’s “International Standards for the Professional Practice of
Internal Auditing” constitute the operating guidance for the department.
Authority is granted for full, free and unrestricted access to any and all of the Group’s property
and personnel relevant to any function under review. All employees are required to assist GIA
in fulfilling their duty. Group Internal Audit has no direct operational responsibility or authority
over any of the activities they review.
GIA applies a risk-based approach to auditing the Group’s control systems, performing its own
risk assessment and leveraging the risk assessments performed by the risk management func-
tions. GIA utilises the work done by the other assurance functions in the Group after reviewing
the quality of the assurance work performed. The GIA Audit Plan is determined annually and
updated on a quarterly basis. The results of the audits are reported to the Group’s Executive
Board and Audit Committee. Formal quarterly updates are provided to the Audit Committee
on the findings, resources and skills within GIA and on the changes in tools and methodologies
utilised by GIA.
GIA coordinates its activities with other assurance functions in the Group and the external
auditor.
l. External auditor
Please refer to section 8.
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4.1 Members of the Executive
4.1 Members of the Executive
Membership as of 31 December 2007
Committee
Committee
4 Executive management
Jacques Aigrain
Jacques Aigrain
Chief Executive Officer
Chief Executive Officer
Member of the Executive Committee
Member of the Executive Committee
Name
Jacques Aigrain
Andreas Beerli
Roger W. Ferguson
Michel M. Liès
Stefan Lippe
Christian Mumenthaler
George Quinn
Nationality
Swiss and French
Swiss
US
Luxembourg
German
Swiss
British
Age
53
56
56
53
52
38
41
Function
Chief Executive Officer
Chief Operating Officer
Head of Financial Services Products
Head of Client Markets
Head of (Re)Insurance Products
Chief Risk Officer
Chief Financial Officer
Mr Aigrain, a Swiss and French citizen born in 1954, received a PhD in economics in 1981 from
the Sorbonne in France and a master’s degree in economics from Paris-Dauphine University.
Mr Aigrain started his career with JP Morgan in 1981 and had various functions in investment
banking in London, Paris and New York. Immediately prior to joining Swiss Re, he was a man-
aging director and a member of JP Morgan‘s investment banking management committee,
where he was co-head of client coverage.
In June 2001, he joined Swiss Re as Head of the Financial Services business group and mem-
ber of the Executive Committee. In August 2004, the Board of Directors appointed him Deputy
CEO in addition to his Financial Services role, a task that included a number of coordination
functions across the firm, in particular regulatory affairs. He was appointed CEO effective as of
1 January 2006.
Mr Aigrain is a member of the Supervisory Board of Deutsche Lufthansa AG, a member of the
Board of Directors of Swiss International Air Lines Ltd., Basel, and a member of various advisory
committees of a regional or financial nature.
Andreas Beerli
Andreas Beerli
Chief Operating Officer
Chief Operating Officer
Head of Operations
Head of Operations
Member of the Executive Committee
Member of the Executive Committee
Mr Beerli, a Swiss citizen born in 1951, graduated in law in 1976 and received a doctorate in
law from the University of Basel in 1983. He joined Swiss Re in 1979, serving in various
marketing functions until 1984. He then worked for Credit Suisse in private banking and for
the Baloise Insurance Group, where he served in the company’s foreign operations.
Roger W. Ferguson
Roger W. Ferguson
Head of Financial Services Products
Head of Financial Services Products
Member of the Executive Committee
Member of the Executive Committee
He rejoined Swiss Re in 1993 as chief of staff. Two years later, he assumed marketing respon-
sibilities for Austria, Italy and Switzerland. In 1997, he was appointed managing director of
Swiss Re Italia SpA in Rome, successfully restructuring and integrating the newly acquired
Italian reinsurance company Uniorias. In 1998, he assumed an additional position as Head
of the Global Clients unit. He served as Head of the Americas Division from January 2000 to
December 2005 and took on a new role as Chief Operating Officer on 1 January 2006.
A US citizen born in 1951, Mr Ferguson received a PhD in economics in 1981, a JD in law in
1979 and a BA in economics in 1973, all from Harvard University. Prior to his employment at
Swiss Re, Mr Ferguson served as Vice Chairman of the Board of Governors of the US Federal
Reserve System from 1999 to 2006 and, from 1984 to 1997, was an Associate and Partner at
McKinsey & Company, where he managed a variety of studies for financial institutions, and
was Director of Research and Information Services. From 1981 to 1984, he was an attorney at
the New York City office of Davis Polk & Wardwell, where he worked on syndicated loans,
public offerings, mergers and acquisitions, and product development.
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Michel M. Liès
Michel M. Liès
Head of Client Markets
Head of Client Markets
Member of the Executive Committee
Member of the Executive Committee
Mr Ferguson joined Swiss Re in June 2006 from the US Federal Reserve Board as Chairman
of Swiss Re America Holding. In October 2006, he was appointed Head of Financial Services
and a member of Swiss Re’s Executive Committee. In November 2007, the Financial Services
and Products business functions were aligned and Mr Ferguson assumed the title of Head of
Financial Services Products.
Mr Ferguson is a member of the Board of Overseers of Harvard University and of the Board
of Trustees of the Institute for Advanced Study. He is also a member of the Council on Foreign
Relations and the Group of Thirty.
Mr Liès, a citizen of Luxembourg born in 1954, gained a degree in mathematics from the
Swiss Federal Institute of Technology (ETH) in Zurich in 1974.
In 1978, he joined the Life department of Swiss Re in Zurich and was mainly active in the
Latin American market. From 1983 to 1993, he was responsible for France and the Iberian
Peninsula, and coordinated Swiss Re‘s life strategy across the European Community.
In 1994, he transferred to the non-life sector of the Southern Europe / Latin America depart-
ment, where he was initially responsible for the Spanish market. He was appointed head of
the same department at the beginning of 1997. He became a member of the Executive Board
and Head of Latin America Division in 1998. On 1 April 2000, he was named Head of Europe
Division, and from 2002 to the end of 2004 he assumed the role of Chief Executive Officer of
Swiss Re Germany. He was appointed to his current position in September 2005.
Stefan Lippe
Stefan Lippe
Head of (Re)Insurance Products
Head of (Re)Insurance Products
Member of the Executive Committee
Member of the Executive Committee
Mr Lippe, a German citizen born in 1955, graduated in mathematics and business administra-
tion from the University of Mannheim in 1982. He obtained his doctorate in 1982 while working
as scientific assistant to the chair of insurance business management, being awarded the
Kurt Hamann foundation prize for his thesis.
In October 1983, he joined Bavarian Re as a team member of a business analysis project.
He was appointed deputy member of the board of management in 1988 and a full member in
1991, when he assumed general responsibility for the company‘s operations in the German-
speaking area. In 1993, he became chairman of the board of management of Bavarian Re.
Since 2001, he has been chairman of the board of directors of the renamed Swiss Re Germany
Holding AG.
Mr Lippe was appointed a member of Swiss Re‘s Executive Board in 1995, as Head of the
Bavarian Re Group. In 2001, he was assigned as Head of the Property & Casualty Business
Group and appointed a member of the Executive Committee. In September 2005, he assumed
the position of Head of the Products business function. In November 2007, the Financial
Services and Products business functions were aligned and Mr Lippe assumed the title of
Head of (Re)Insurance Products.
Mr Mumenthaler, a Swiss citizen born in 1969, received a PhD from the Institute of Molecular
Biology and Biophysics at the Swiss Federal Institute of Technology (ETH) in Zurich. He started
his professional career in 1997 as an Associate at the Boston Consulting Group before joining
Swiss Re in 1999 as manager in Group Strategic Planning.
Between 1999 and 2002, Mr Mumenthaler was responsible for a number of key company
projects, including securitisation solutions for the Group. In 2002, he established a new unit,
Group Retro & Syndication, which was responsible for optimising the Group‘s risk and capital
base through retrocession and securitisation. He was appointed Group Chief Risk Officer and
Christian Mumenthaler
Christian Mumenthaler
Chief Risk Officer
Chief Risk Officer
Head of Global Risk Management
Head of Global Risk Management
(until 31 December 2007)
(until 31 December 2007)
Head of Life & Health
Head of Life & Health
(as of 17 September 2007)
(as of 17 September 2007)
Member of the Executive Committee
Member of the Executive Committee
(until 31 December 2007)
(until 31 December 2007)
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Head of Risk & Knowledge Division effective as of 1 January 2005. At the same time, he
became a member of the Executive Committee. In September 2005, he became Head of Global
Risk Management. In September 2007, Mr Mumenthaler was appointed Head of Life & Health;
he relinquished his duties as Chief Risk Officer at the end of 2007.
Mr Mumenthaler’s commitments in organisations outside Swiss Re include memberships in
the International Risk Governance Council (IRGC) as Vice Chairman, the World Business
Council for Sustainable Development (WBCSD) and the Young Global Leaders at the World
Economic Forum (WEF).
George Quinn
George Quinn
Chief Financial Officer
Chief Financial Officer
Head of Finance
Head of Finance
Member of the Executive Committee
Member of the Executive Committee
Mr Quinn, a British citizen born in 1966, holds a degree in engineering from University of
Strathclyde and is a member of the Institute of Chartered Accountants in England and Wales.
He started his career at KPMG in London where he held a number of positions as adviser and
consultant to insurance and reinsurance companies.
Mr Quinn joined Swiss Re in 1999 as Chief Accounting Officer, based in Zurich. In 2003, he
was appointed Chief Financial Officer for the Financial Services business group. He moved
to New York in 2005 as Regional Chief Financial Officer for Swiss Re Americas. On 1 March
2007, Mr Quinn became Chief Financial Officer of Swiss Re Group.
He is also a board member of IMD, a leading international business school.
Changes in the course of the 2007 business year
In March, George Quinn succeeded Ann F. Godbehere as Chief Financial Officer and member
of the Executive Committee.
In September, it was announced that Christian Mumenthaler would assume the responsibility
of Head of Life & Health with immediate effect. In October, it was announced that Raj Singh
would succeed him as Chief Risk Officer and member of the Executive Committee as of
1 January 2008.
Mr Singh is a US citizen born in 1962 and holds a Bachelor of Science degree from the Winona
State University, Minnesota, as well as an MBA from the Thunderbird American School for
International Management, Arizona. He joins Swiss Re from Allianz SE, where he held
the position of Group Chief Risk Officer from 2002. From 1989 to 2001, Mr Singh worked for
Citigroup in the US and Europe, where he held a number of senior positions, mainly in the
area of credit, structured finance, and mergers and acquisitions.
Mr Singh has played a key management role in various European banking and credit-related
associations, and has served on the boards of various financial companies and professional
associations. He was Chairman of the International Financial Risk Institute and founding Chair-
man of the Chief Risk Officers Forum.
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.
4.2 Other activities and
4.2 Other activities and
vested interests
vested interests
4.3 Management contracts
4.3 Management contracts
Swiss Re has not entered into reportable management contracts with any third party.
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5 Compensation, shareholdings and loans
This section contains descriptive elements of the compensation paid to Swiss Re’s Board of
Directors and Executive Committee. In compliance with articles 663bbis and 663c para. 3
of the Swiss Code of Obligations, all required financial information on compensation, share-
holdings and loans of members of the Board and the Executive Committee can be found in
note 13 to the Group financial statements, on pages 172 –177.
Furthermore, this section displays the overview on Swiss Re’s compensation philosophy, guid-
ing principles and governance in order to provide the comprehensive picture of performance
and reward practiced in Swiss Re across all operational and executive levels.
Compensation philosophy and guiding principles
To attract, motivate and retain the qualified talent necessary for its success, Swiss Re, as a
global company, aims to provide remuneration that is competitive in the labour markets in which
it operates.
Swiss Re takes a holistic view of rewards, including both direct financial compensation, such
as base salary, annual incentives and equity, as well as other tangible and intangible benefits,
including health coverage, pension and development opportunities.
Swiss Re strives to provide exceptional performers with total earning opportunities approaching
the top tier of the industry. Each compensation element is designed to encourage individual
performance, company achievement and shareholder alignment. To that end, annual and
long-term incentives are balanced to reflect the performance on Group, business or corporate
function and personal level.
While the variable portion of the total compensation increases as an individual progresses
in the organisation, virtually all employees have at least some of their compensation “at risk” to
sharpen the focus on performance and reinforce teamwork and collaboration.
Swiss Re’s incentive programmes are designed to reflect the long-term dynamics of its business
and are applied across all hierarchical levels. A significant portion of higher management’s
compensation is tied to the organisation’s long-term performance, ensuring that compensation
is given for solid, sustainable achievement as opposed to short-term annual results.
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The total reward offering comprises the following elements:
Base salary and benefits
Set in relation to market median
Annual
Performance
Incentive
Cash
component
Paid annually
Employees can elect to receive blocked shares
Value
Alignment
Incentive
component
Measured against prior-year development
Applies above a certain threshold
Paid after three years
Long-term Incentive
Shareholder value-aligned performance units
3-year measurement period
Base salary
Base salary is a compensation for the function and scope of the job performed. Swiss Re aims
to position the base salary around the market median for equivalent positions in comparable
companies. It reviews pay against market benchmarks on a regular basis to ensure that com-
petitive pay is maintained and undesired fluctuation minimised. Base salary is primarily driven
by the markets where the company competes for talent, but factors such as individual expertise
are also considered when making any salary-related decision.
Annual Performance Incentive (API)
The Annual Performance Incentive (API) is a discretionary, variable component of Swiss Re’s
total cash compensation package for employees. The API, together with the base salary, is
intended to provide an income around the market median for total cash compensation when
performance targets are achieved. Where exceptional performance justifies it, the API pro-
vides an opportunity for additional income.
The Annual Performance Incentive pool for the company is determined by the Compensation
Committee of the Board based on company performance measured against a set of pre-
defined targets. Group performance levels must be considered before function, division or
individual performance levels are determined and compensated for. The API for a year’s
service is paid after the publication of the Group’s result, in March of the following year.
When the variable compensation level for an employee exceeds a pre-defined amount, the
variable pay is split into two components: a cash payment and a Value Alignment Incentive
(VAI). The VAI is intended to align behaviour and decision making to the longer-term nature of
the reinsurance business. Each VAI cycle runs for three years, tracking the development of the
business over that period. With the VAI, Swiss Re ensures that a significant portion of variable
pay is tied to the longer-term financial results of the company.
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As of 2008, employees will have the opportunity to take some or all of their cash API in the
form of Swiss Re shares. This bonus shares programme encourages employee ownership by
allowing employees to use API funds to purchase shares of the company at a discount of
10% to the open market. At the end of a one-year blocking period, the employee assumes full
ownership of the purchased shares.
Long-term Incentive (LTI)
The Long-term Incentive plan is a discretionary grant for a select group of key executives at
Managing Director, Executive Board and Executive Committee level, over and above their
annual cash remuneration. The intention is to achieve competitive total compensation for top
executive talents by offering the participant a long-term incentive opportunity.
The LTI is based on a three-year rolling financial plan approved by the Board, and focuses on
the achievement of three-year goals for return on equity and growth in earnings per share.
A performance scale around a pre-defined target for both measures determines the level of
reward earned at the end of each three-year performance cycle.
The LTI is offered each year and is denominated in units that are calculated as the grant
amount divided by the share price at the grant date. The final payout will be the number of
units multiplied by the share price at the end of the three-year period, as well as by a factor
that can vary between 0% and 200% based on a matrix of average return on equity and
compound earnings per share growth over the three-year period.
The LTI plan is reviewed by the Compensation Committee on an annual basis to ensure that it
remains market-competitive, and that the measures and performance targets are well-aligned
with the goals of the company.
Benefits
Swiss Re’s aim is to provide an appropriate package of employee benefits for each distinct
operating environment. Employee benefits are one component in Swiss Re’s total reward
offering and should contribute to achieving competitive advantage, relative to general local
market employment conditions, in recruiting, motivating and retaining talent. The primary
purpose is to establish a level of security for the employee and their dependents in respect of
major events in their lives in the areas of age, health, disability and death.
Focus on performance
Swiss Re is a performance-oriented, global company. It achieves this through aligning the
goals of each employee with Swiss Re Group targets derived from the strategic priorities. The
compensation delivered to Swiss Re employees through base salary, annual performance
incentives and other programmes is the tangible result of a performance management that
provides a clear linkage between performance and rewards.
To create and maintain this high-performance culture, a globally consistent performance
management process is in place to ensure that:
individual goals with challenging performance benchmarks are aligned to the business
strategy;
transparent information is provided on an individual’s contribution to the business success,
using clear qualitative and quantitative performance measurement criteria.
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Performance management in Swiss Re is multidimensional. An employee’s individual
performance is determined by:
performance in the current position, based on a set of objectives, and assessed in terms of
timeliness, quality and quantity of achievement;
ability to build trust and confidence, as well as to coach and transfer knowledge to enable
others to succeed in broader positions;
demonstration of competencies in the areas of thought, results, people and personal
leadership.
5.1 Content and method of determining
5.1 Content and method of determining
the compensation and shareholding
the compensation and shareholding
programmes
programmes
Employee rewards are driven by performance at all levels (Group, function/division, individual),
supported by a robust performance management structure as a key factor in the decision
making process.
Governance of the compensation process
In 2007, the Compensation Committee recommended to the Board the remuneration of the
members of the Board, other than the Chairman and the Vice Chairman, for whom it deter-
mined compensation based on their respective roles and contributions. The Compensation
Committee determined the compensation for the CEO and the members of the Executive Board
on the basis of overall company, business/function and individual performance. In 2008, the
governance process has been slightly amended. From 2008 on, the Board of Directors deter-
mines the remuneration of its members (including the Chairman and Vice Chairman) and of
the Chief Executive Officer upon recommendation of the Compensation Committee. The Board
of Directors also determines the total amount available for compensation of the other members
of the Executive Board based on a recommendation of the Compensation Committee. The
individual compensation amounts of the members of the Executive Board (other than the Chief
Executive Officer) are determined by the Compensation Committee.
The Committee also approves the total remuneration philosophy of the company as well as
annual and long-term incentive plans for executives. It ensures the development of a set of
Group-wide compensation principles and compliance with remuneration disclosure require-
ments. It determines the total amount for Annual Performance Incentive payments and related
deferral plans, and regularly reviews and approves the Group’s compensation and pension
plans. The Committee’s work is governed by its charter, which is set forth in the Corporate
Bylaws of Swiss Re.
Bob Scott succeeded George Farr as committee chairman in January and Hans Ulrich Maerki
joined the Committee in April, succeeding Dennis Dammerman. The Head of Group Reward &
Policies acted as committee secretary during 2007. Mercer is the external adviser to the Com-
mittee. In this role, Mercer provides information on market competitive pay and remuneration
trends and provides timely advice on executive compensation issues. Mercer is engaged
directly by the Compensation Committee.
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The Chairman, Vice Chairman, Chief Executive Officer and the Executive Board member re-
sponsible for Human Resources are normally invited to attend the meetings, except when their
own executive pay matters are being discussed and decided. Each meeting starts and ends
with a private session, in which the committee members can raise and discuss questions
among themselves. The Committee held five meetings during 2007, four quarterly meetings
that coincide with the meetings of the full Board of Directors and a fifth meeting to approve
the incentive compensation and spending related to the company’s Long-term Incentive plan.
The Committee has a planned agenda to ensure that the important reviews take place at the
appropriate time throughout the year. Furthermore, the Committee has established a periodic
self-review procedure which ensures that a high level of effectiveness is maintained over time.
Additional information on the Compensation Committee can be found in sections 3.5.2
(responsibilities, members) and 3.5.3 (work methods).
Important changes to remuneration policy and structure
In early 2007, in connection with the Annual Performance Incentive (API) payment for 2006,
the Group introduced the Value Alignment Incentive (VAI) as a new variable compensation
element. The VAI links a significant part of the API to the development of prior-year economic
performance indicators related to each plan cycle over a three-year period. Key drivers of plan
success include property and casualty reserving accuracy, stable life and health actuarial
performance, and sustainability of assets under management. The part of the API which is
allocated to the VAI is multiplied by a factor that varies between 62.5% and 187.5%. The factor
is linked to the surplus or deficiency of the claims provisions set at the end of the current
financial year after a three-year development period or alternatively the relevant key indicators
of the specific unit (e.g. for third-party asset management, the difference between the initial
amount of assets under management and the amount three years later). The VAI is paid in
cash at the end of the three-year period.
On 1 January 2007, pension plans in Switzerland were changed from defined benefit to de-
fined contribution plans. Under the new regime, retirement benefits payable from the pension
plan depend on the employee and company contributions that are paid into each employee’s
individual account, as well as the yearly interest credited to these accounts and the rate used
to convert the account balances into annuities at retirement. A one-time allowance was paid
to the pension plan in favour of entitled employees to partially compensate for the shortfall in
expected annuities at the age of 60.
Summary of Swiss Re’s compensation at Board and Executive Committee level
The members of the Board of Directors receive an honorarium of CHF 325 000 per annum. A
minimum of 40% of the honorarium must be taken in Swiss Re shares with a four-year deferral
period. The Chairman and Vice Chairman of the Board, as well as the chairpersons of the Au-
dit Committee, the Compensation Committee and the Finance and Risk Committee receive a
higher compensation to reflect their increased responsibilities and engagements.
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The members of the Executive Committee are remunerated under the same scheme as all
other Swiss Re employees. The members of the Executive Committee are paid a fixed base
salary in cash. For 2007, this base salary (including miscellaneous allowances) amounted to
CHF 8.87 million. Furthermore, Executive Committee members receive a variable Annual Per-
formance Incentive (API) which was CHF 25.33 million for the 2007 performance year (com-
pared to CHF 34.25 million in 2006). A material part of the API – 45% for Executive Commit-
tee members and 60% for the CEO – is deferred through the Value Alignment Incentive plan
(VAI) for three years, while the remaining API can be taken either in cash or in bonus shares.
All Executive Committee members also participate in the Long-term Incentive plan (LTI).
For 2007, an overall LTI value of CHF 19.12 million was granted to members of the Executive
Committee (compared to CHF 14.54 million in 2006).
The Chief Executive Officer and all Executive Committee members – with one exception –
have standard employment contracts without incentive guarantees, resignation entitlements
or priviledges such as company cars etc. The one contract where a minimum level of incentive
compensation is guaranteed stretches only into 2009. There are no specific changes in con-
trol or retention agreements in place with members of the Executive Committee, other than
those provisions applicable to all Swiss Re employees.
Executives employed in Switzerland are covered by the standard defined contribution pension
plan of the company. The Swiss legal salary cap on insurable salaries of CHF 795 600 applies
and no additional provisions have been made. Executives employed abroad are also covered
through local standard plans.
Further details on the Board of Directors and Executive Committee compensation, sharehold-
ings and loans can be found in note 13 to the Group financial statements.
Mercer conducts an annual review of total compensation of the Executive Committee relative
to an identified group of reference companies within the financial services industry to ensure
that market competitiveness is maintained.
Swiss Re does not grant employee stock options on a regular basis, but reserves the right to
provide ad hoc grants based on events such as exceptional business cycles, significant
acquisitions or the replacement of forfeited equity for new executive hires. No such grants
were made in 2007.
This section is not applicable to Swiss Re as a Swiss domiciled company.
Swiss Re 2007 Annual Report 115
5.2 Transparency of the compensations,
5.2 Transparency of the compensations,
shareholdings and loans pertaining
shareholdings and loans pertaining
to issuers domiciled abroad
to issuers domiciled abroad
Governance Corporate governance and compensation report
6 Shareholders’ participation rights
6.1 Voting right restrictions and
6.1 Voting right restrictions and
representation
representation
Voting right restrictions, statutory group clauses, exception rules
There are no voting right restrictions, no statutory group clauses and thus no rules on making
exceptions.
Reasons for making exceptions in the year under review
No exceptions were made.
Procedure and conditions for cancelling statutory voting right restrictions
As there are no voting right restrictions, there is neither a procedure nor a condition for their
cancellation.
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.
The Articles of Association do not provide for any statutory quorums. Any General Meeting of
shareholders passes resolutions without regard to the number of shareholders present or
shares represented by an absolute majority of the votes validly cast, subject to the compulsory
exceptions provided by law. The Chairman of the General Meeting shall determine the voting
procedure. As a rule, voting is usually carried out electronically. When this is not the case,
votes shall be cast by ballot if more than 50 of the shareholders present so demand by a show
of hands.
The statutory rules on the convocation of the General Meeting of shareholders correspond
with the legal provisions. Accordingly, the General Meeting of shareholders is summoned by
the Board of Directors at least 20 days before the date of the meeting by notice published in
the Swiss Official Gazette of Commerce.
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.
The Board of Directors announces the agenda. Shareholders with voting powers whose com-
bined holdings represent shares with a nominal value of at least CHF 100 000 may, no later
than 45 days before the date of the meeting, demand that matters be included in the agenda.
Such demands must be in writing and must specify the items and the proposals to be submitted.
There is no statutory rule on the deadline for registering shareholders in connection with the
attendance of the General Meeting. In recent years, Swiss Re acknowledged the voting rights
of shares which were registered at least two working days before the General Meeting. In
2007, the qualifying date for the Annual General Meeting held on Friday, 20 April 2007 was
Wednesday, 18 April 2007.
6.2 Statutory quorums
6.2 Statutory quorums
6.3 Convocation of the General
6.3 Convocation of the General
Meeting of shareholders
Meeting of shareholders
6.4 Agenda
6.4 Agenda
6.5 Registrations in the share register
6.5 Registrations in the share register
116 Swiss Re 2007 Annual Report
Governance Corporate governance and compensation report
7.1 Duty to make an offer
7.1 Duty to make an offer
7 Changes of control and defence measures
Swiss Re has not taken any defence measures against take-over attempts. The governing
bodies are of the opinion that the best protection is a fair valuation of the shares. They believe
in the efficiency of a free market rather than relying on defence measures that normally have
a long-term negative effect on the share price development.
There are no statutory rules on “opting up” or “opting out”. “Opting up” is a statutory rule
based on which the triggering threshold would be lifted to a higher percentage than 33⅓ %
of all voting rights, while “opting out” is a statutory rule waiving the legal duty to submit an
offer when reaching the threshold of 33⅓ % of all voting rights. Should a shareholder reach
the threshold of 33⅓ % of all voting rights, then, under the Swiss Stock Exchange Act, the
shareholder would be required to submit a general take-over offer.
7.2 Clauses on change of control
7.2 Clauses on change of control
Unvested bonus shares, share options, and certain other employee benefit programmes
would vest upon a change of control. Rights of members of the governing bodies are identical
to those of employees.
Swiss Re 2007 Annual Report 117
Governance Corporate governance and compensation report
8.1 Duration of the mandate and term
8.1 Duration of the mandate and term
of office of the lead auditors
of office of the lead auditors
8 Auditors
PricewaterhouseCoopers AG (PwC), formerly known as Revisuisse Price Waterhouse AG,
were elected as Swiss Re’s auditors at the Annual General Meeting of 25 November 1991
and, since then, have been re-elected annually. At the Annual General Meeting of shareholders
on 20 April 2007, based on the proposal of the Audit Committee and recommended by the
Board of Directors, PwC were re-elected as Swiss Re’s statutory auditors and auditors of the
consolidated financial statements for a term of one year.
Mr David J.A. Law and Ms Dawn M. Kink took up office as lead auditors responsible for the
existing auditing mandate as of 1 January 2004 and 1 September 2006, respectively.
8.2 Auditing honorarium
8.2 Auditing honorarium
The following summarises fees (including VAT) for professional services for the year ended
31 December 2007.
8.3 Additional honorarium
8.3 Additional honorarium
Audit fees
PricewaterhouseCoopers
Audit-related fees
PricewaterhouseCoopers
CHF 36.6 million
CHF 4.9 million
Audit-related fees comprise, among other things, amounts for comfort letters, accounting
advice, information systems reviews and reviews on internal controls.
In addition to the fees described above, aggregate fees of CHF 6.0 million were billed
by PricewaterhouseCoopers during the year ended 31 December 2007, primarily for the
following:
Income tax compliance and related tax services
Other fees
CHF 1.3 million
CHF 4.7 million
Other fees include permitted advisory work related to a range of projects and due diligence.
8.4 Supervisory and control instruments
8.4 Supervisory and control instruments
vis-à-vis the external auditor
vis-à-vis the external auditor
The Audit Committee evaluates the external auditor annually and recommends one audit firm
to the Board of Directors for election at the following Annual General Meeting of shareholders.
The external auditor is accountable to the Audit Committee, the Board of Directors and ulti-
mately to the shareholders.
The external auditor, PricewaterhouseCoopers AG, is responsible for performing an independent
audit of the consolidated financial statements in accordance with generally accepted auditing
standards. The Audit Committee liaises closely with the elected external auditor. In particular,
it discusses with the auditor any significant risks, contingencies or other obligations of the
company; it reviews and approves the planned audit services to be provided by Group Internal
Audit and the external auditor and discusses the audits with them; it approves in advance
non-audit services expected to be provided by the external auditor, and reviews and approves
other non-audit services that have been pre-approved by the Chairman of the Audit Committee
between committee meetings; it reviews major changes to the company’s accounting principles
and practices; it reviews the adequacy and efficacy of the financial reporting process, the
system of internal controls and quality control procedures, as well as any significant findings
and recommendations made by the external auditor.
118 Swiss Re 2007 Annual Report
Governance Corporate governance and compensation report
The Audit Committee meets at least annually with the external auditor to review any significant
matters or disagreement between management and the auditor, if and when such disagree-
ments arise. It discusses with the auditor the results of the annual audit, in particular their
report on the financial statements, necessary changes to the audit plan, all critical accounting
policies, all alternative accounting treatments of financial information that have been discussed
with management and other material written communications with management, such as
management letters or schedules of unadjusted differences.
The auditor is requested to supply a formal written statement at least once a year, delineating
all relationships with the company that might affect auditor independence. The Audit Com-
mittee actively engages in a dialogue with the auditor in respect of any disclosed relationships
or services that might impact the auditor’s objectivity and independence, and recommends to
the Board of Directors appropriate action in response to the auditors’ statement to satisfy itself
of the external auditor’s independence; it obtains from the auditor and reviews, at least annually,
a report describing the auditor’s own quality control procedures, and any material issues raised
by the most recent internal reviews, or inquiries or investigations by governmental or profes-
sional authorities within the preceding five years and any steps taken to deal with any such
issues. In addition, it reviews the audit fees to consider whether the level of fees is appropriate,
as well as any fees paid to the auditor in respect of non-audit services.
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.
Swiss Re 2007 Annual Report 119
Governance Corporate governance and compensation report
9 Information policy
One of the core values of Swiss Re’s guiding principles is integrity through an uncompromising
commitment to transparency and ethical principles. As a result, the Group’s information policy
goes beyond legal requirements, aiming to meet best practice standards.
Swiss Re maintains a close relationship with the financial community and the broader public
by using all available communication channels. Important corporate news is announced on an
ad-hoc basis. The Group’s website includes full details of its corporate disclosure.
The Investor Relations unit at Swiss Re is responsible for managing all contacts with investors
and analysts. Meetings are held regularly with institutional investors and analysts to discuss
important corporate news or specific topics. These meetings can also be followed by private
shareholders via telephone conference or on the Swiss Re website. In 2007, Swiss Re held an
investors’ day on capital management and its Financial Services business. Presentations and
conference call recordings are made available to the public on the Group’s website.
In 2007, Swiss Re published its first comprehensive Corporate Responsibility Report which
has evolved from the previous Sustainability Report. While Swiss Re has a tradition of pursuing
high standards in corporate governance, corporate sustainability and corporate citizenship,
this report provides a complete overview of the Group’s efforts in all three areas. This volun-
tary publication contains detailed information on how the company strives to create long-term
value and how it addresses key sustainability challenges.
In 2007, the Group began to report its financial performance on a quarterly basis. Following
the release of Swiss Re’s Annual Results, all shareholders registered in the Swiss Re share
register automatically receive the Shareholders’ letter along with an order form. Shareholders
can elect to receive a copy of the Annual as well as Quarterly Reports published throughout
the year. Further, all registered Swiss Re shareholders also automatically receive an invitation
to the Group’s Annual General Meeting.
Swiss Re is strongly committed to treating all investors equally. The Group prevents selective
disclosure by observing ad-hoc publicity rules and a policy of restrictions for the so-called
“close period”, during which quarterly and annual financial results information is finalised.
With the introduction of quarterly reporting, Swiss Re has changed its close period regime
and newly subjects all employees globally to the corresponding trading restrictions in Swiss
Re securities. The close period commences on a given date preceding the official publication
of the financial information and ends after a “cooling off” period following the public release.
No meetings are held with analysts or investors during this period.
Important dates for 2008
29 February
31 March
18 April
6 May
5 August
25 September
4 November
2007 annual results and analysts’ meeting
EVM teach-in, conference call
144th Annual General Meeting
First quarter 2008 results and 2007 EVM, conference call
Second quarter 2008 results, conference call
Investors’ Day
Third quarter 2008 results, conference call
The corporate calendar as well as regularly updated information are available on Swiss Re’s
website: www.swissre.com/investorrelations
120 Swiss Re 2007 Annual Report
Governance Corporate governance and compensation report
Corporate news in 2007 and method of dissemination
Date
16 January
13 February
1 March
1 March
13 March
27 March
3 April
20 April
27 April
8 May
1 June
7 August
11 September
26 October
6 November
19 November
11 December
News
Placement of USD 750 million
of extreme mortality risk protection
through Vita Capital programme
Reporting of January 2007
non-life renewals
2006 annual results
Completion of first step in a CHF
6 billion share buy-back programme –
approximately 17 million shares
repurchased from General Electric
Announcement of optimisation
of legal entities in EU
Placement of GBP 500 million of
hybrid debt securities
Reporting of life and health
embedded value 2006
143rd Annual General Meeting
Placement of AUD 750 million of
hybrid debt securities
First quarter 2007 results
Placement of USD 100 million of
Mediterranean earthquake protection
through a retrocession agreement
with MedQuake Ltd.
Second quarter 2007 results
Method of dissemination
News release
News release and telephone conference
News release, press conference and
analysts’ meeting in Zurich (including
telephone conference and web cast)
News release
News release
News release
News release and telephone conference
Meeting in Zurich and news release
News release
News release and telephone conference
News release
News release, press conference and
analysts’ meeting in Zurich (including
telephone conference and web cast)
News release, press conference and
analysts’ meeting in Monte Carlo
News release
Investors’ presentation on
upcoming renewals
Appointment of Raj Singh as
Chief Risk Officer and member of the
Executive Committee, effective as of
1 January 2008; appointment of
Christian Mumenthaler as Head of
Life & Health
Third quarter 2007 results
Announcement of CHF 1.2 billion
mark-to-market loss arising from
credit underwriting activities
Investors’ Day on capital management Meeting in London and telephone
and Financial Services business
conference
News release and telephone conference
News release
Swiss Re 2007 Annual Report 121
Swiss Re shares
Swiss Re’s share price declined 22.4% in 2007.
The CHF 7.75 billion share buy-back programme
is expected to be completed within the next
24 months.
Swiss Re shares
On 31 December 2007, Swiss Re’s market capitalisation was CHF 29.8 billion, with 370.4
million shares outstanding. Swiss Re’s shares are listed on the main board of the SWX Swiss
Exchange (SWX) and traded on virt-x in its EU regulated segment under the ticker symbol
”RUKN”.
From 1 February 1996, Swiss Re’s shares are also traded in the form of an American Depository
Receipt (ADR) level 1 programme in cooperation with Morgan Guaranty Trust Company of
New York.
Table 1: General information on Swiss Re shares
Identification numbers
Swiss Security Number (Valorennummer)
ISIN (International Securities Identification Number)
Share
1233237
ADR level 11
–
CH0012332372 US8708872051
Ticker symbols
Share
ADR level 1
Bloomberg
RUKN VX
SWCEY US
Telekurs
RUKN
SWCEY
Reuters
RUKN.VX
SWCEY.US
¹ Swiss Re’s ADR are not listed but traded over-the-counter; one ADR corresponds to one Swiss Re share.
Share price performance
2007 was a year of contrast for global equity markets in general and financial stocks in partic-
ular. Although markets developed well in the first half of the year, subprime mortgage defaults
in the US led to a much more volatile environment in the second half. Swiss Re’s main bench-
mark indices – the Swiss Market Index and the Dow Jones EURO STOXX Insurance Index –
decreased 3.4% and 12.1% respectively.
Swiss Re’s share price fell 22.4% in 2007, from CHF 103.60 on 1 January to CHF 80.45 on
31 December. It reached its high for the year of CHF 119.40 on 4 June and its low of
CHF 78.70 on 27 November. Swiss Re shares outperformed most peers and indices in the
first months of the year, when the company reported very strong earnings for 2006 and the
first quarter of 2007, and announced a share buy-back programme of CHF 6 billion over three
years. However, Swiss Re’s share price fell in line with the vast majority of financial stocks
from mid-June, and further declined after 19 November when the Group reported a pre-tax
mark-to-market loss of CHF 1.2 billion from its credit underwriting activities.
122 Swiss Re 2007 Annual Report
Swiss Re shares
Volume in millions
Q3 results
(6 November)
Mark-to-market loss from
credit underwriting
activities (19 November)
Investors’ meeting Monte Carlo
(11 September)
Investors’ Day
(11 December)
70
60
50
40
30
20
10
0
Figure 1: Swiss Re share price and trading volume in 2007
130
Closing price in CHF
2006 Annual results
(1 March)
Q2 results
(7 August)
Q1 results
(8 May)
120
110
100
90
80
70
60
January
February
March
April
May
June
July
August
September
October
November
December
Closing price Volume on-exchange Volume off-exchange
In the US, Swiss Re’s ADRs fell 16.7% year-on-year, reflecting the continued depreciation of
the US dollar against the Swiss franc in 2007 (exchange rate adjusted: –22.1%).
The development of the Swiss Re share price and trading volume is shown in figure 1, together
with selected key events for 2007.
Share trading
The average daily trading volume for 2007 was 2.6 million shares on-exchange and
0.7 million shares off-exchange. The highest volume traded on-exchange was on 19 November,
when Swiss Re announced a CHF 1.2 billion write-down from its credit underwriting activities,
with 15.1 million shares changing ownership. The publication of the 2006 annual results on
1 March marked the most active day off-exchange, with 21.3 million shares traded. This also
marked the day with the highest cumulative volume throughout the year.
Share buy-back programme
On 1 March 2007, Swiss Re announced a share buy-back programme of up to CHF 6.0 billion
within a three-year period. This was based on very strong results in 2006, continued commit-
ment to underwriting discipline and anticipated benefits from streamlining the Group’s legal
entity structure. In an update on its capital position at the Investors’ Day on 11 December 2007,
Swiss Re indicated that it expects to complete the buy-back ahead of the original schedule.
On 23 January 2008, Swiss Re announced that it had entered into a proportional reinsurance
contract with Berkshire Hathaway and that the capital released as a result of this contract would
be used to buy back shares. This additional buy-back of up to CHF 1.75 billion is expected
to be completed over the next 12–24 months as the capital relief resulting from the quota
share arrangement is achieved. As a result, Swiss Re now targets a total buy-back of up to
CHF 7.75 billion.
Swiss Re 2007 Annual Report 123
Swiss Re shares
Figure 2: Share buy-back programme
Closing price in CHF
Volume in millions
120
110
100
90
80
70
60
50
40
August 2007
September 2007
October 2007
November 2007
December 2007
January 2008
February 2008
First trading line closing price Second trading line volume-weighted average price (VWAP) Second trading line volume
4
3.5
3
2.5
2
1.5
1
0.5
0
As a first step, Swiss Re repurchased 16.7 million of its shares from General Electric Corporation
(GE) on 1 March 2007 for CHF 1.7 billion. The shares were held by GE as a result of the acqui-
sition of GE Insurance Solutions in June 2006.
At the Annual General Meeting on 20 April 2007, Swiss Re’s shareholders approved a further
buy-back of shares for cancellation of up to CHF 4.2 billion over three years.
Swiss Re set up a second trading line on virt-x on 10 August 2007 to enable a tax-efficient
buy-back (ticker symbol is “RUKNE”). The repurchased shares will be formally cancelled
following an amendment of the company’s Articles of Association, subject to approval at the
subsequent Annual General Meeting. As of 22 February 2008, 14.6 million shares have been
repurchased for approximately CHF 1.2 billion via the second trading line.
Weekly updates on the progress of the share buy-back programme are provided on Swiss Re’s
Investor Relations homepage. Figure 2 illustrates the daily trading flows on the second trading
line since it was opened in August 2007.
Shareholder base
Table 2 shows that Swiss Re’s shareholder base is highly diversified, both geographically and
between private and institutional investors.
Institutional shareholders, including nominee accounts, represent roughly two-thirds of Swiss
Re’s share capital. These shareholders are geographically diverse: 27% are based in Switzerland,
33% in Europe (excluding Switzerland), 36% in North America and 4% throughout the rest
of the world. The top ten institutional shareholders hold 22% of Swiss Re’s shares, down 11%
from the previous year; the top 100 institutional investors hold 48% of total outstanding shares.
On 31 December 2007, Swiss Re had 47 689 registered private shareholders; 91% of these
hold fewer than 2 000 shares. The vast majority of Swiss Re’s private shareholders are domi-
ciled in Switzerland.
124 Swiss Re 2007 Annual Report
Swiss Re shares
Table 2: Shareholder structure
As of 31 December 2007
Institutional investors
Switzerland
Europe (excluding Switzerland)
North America
Rest of world
Total institutional investors
Additional shares held in nominee form
(within Share Register)
Private shareholders registered (total)
Unassigned shares
(including retail investors and trading positions)
Shares reserved
Total amount of shares outstanding
Holdings
(CHF millions)
in %
in % of
free float
26.8
33.0
36.0
4.2
100
53.5
65.7
71.8
8.4
199.4
45.8
59.6
41.9
23.7
370.4
14.4
17.7
19.4
2.3
53.8
12.4
16.1
11.3
6.4
100.0
Index representation
In addition to the relevant industry indices, Swiss Re is also represented in various global,
European and Swiss indices – including the SMI, Financial Times Stock Exchange (FTSE),
Eurotop 100 and S&P GLOBAL 100. The composition of these indices is usually based on free-
float market capitalisation. Swiss Re is also a member of various sustainability indices, including
the Dow Jones Sustainability and FTSE4Good index families.
Table 3: Weighting in indices
Swiss / blue chip indices
SMI
SPI
FTSE Eurotop 100
Insurance indices
DJ Europe STOXX Insurance
Bloomberg Europe 500 Insurance
FTSE E300 Insurance
Sustainability indices
Dow Jones Sustainability World
Dow Jones Stoxx Sustainability
FTSE4Good Global
KLD Global Climate 100 Index
Index weight (in %)
as of 31 December 2007
3.00
2.51
0.37
3.97
4.33
4.17
0.24
0.48
0.18
1.00
Swiss Re 2007 Annual Report 125
Swiss Re shares
Table 4: Key share statistics 2003 – 2007
As of 31 December
Shares outstanding1
of which reserved to underline convertible
bonds and corporate purposes
of which repurchased via second trading line
(subject to cancellation)
Shares entitled to dividend
2003
322 057 870
2004
322 066 174
2005
322 092 742
2006
374 440 378
2007
370 386 755
11 678 802
11 678 802
11 678 802
16 184 149
17 715 789
310 379 068
310 387 372
310 413 940
358 256 229
6 005 000
346 665 966
CHF, unless otherwise stated
Dividend paid per share
Dividend yield2 (in %)
Earnings per share3,4
Book value per share3,4
Price per share, year-end
Price per share, year high (intraday)
Price per share, year low (intraday)
Daily trading volume (CHF millions)
Market capitalisation3 (CHF millions)
ADR price at year-end (USD)
2003
1.00
1.2
5.48
59.64
83.50
108.00
49.60
115
25 917
67.40
2004
1.10
1.4
8.00
61.78
81.10
97.05
66.35
104
25 172
71.80
2005
1.60
1.7
4.68
73.87
96.20
103.40
75.10
126
29 862
73.25
2006
2.50
2.4
13.49
86.21
103.60
108.50
79.60
153
37 115
85.25
2007
3.40
4.2
11.95
92.00
80.45
119.40
78.70
253
27 889
71.00
¹ Nominal value of CHF 0.10 per share
² Dividend divided by year-end share price of corresponding year
³ Based on shares entitled to dividend
⁴ Figures for 2003 and 2004 represent the previously applied accounting policy, Swiss GAAP FER; 2005 – 2007 are based on US GAAP
Dividend policy and payment
Dividend growth reflects progress in earnings: Swiss Re’s policy is to focus on sustainable
dividend payout and active capital management while maintaining superior capital adequacy
and credit ratings. Dividends are typically paid out of current earnings. Swiss Re pays its
dividend annually, three working days after the Annual General Meeting; as of that day, the
share price is ex-dividend.
Share custody
Swiss Re offers its shareholders the opportunity to deposit shares in their own names with the
Share Register in Zurich. Share custody is free of charge. The application form can be down-
loaded from Swiss Re’s homepage at: www.swissre.com
Investor Relations homepage
More information on Swiss Re’s shares and the share buy-back programme is available at:
www.swissre.com / investorrelations
126 Swiss Re 2007 Annual Report
Financial statements Group financial statements
Financial statements
Contents
Group financial statements
129
Income statement
130 Balance sheet
132 Statement of shareholders’ equity
133 Statement of comprehensive income
134 Statement of cash flow
Notes to the Group financial
statements
135 Note 1 Organisation and summary of significant accounting policies
143 Note 2 Investments
149 Note 3 Derivative financial instruments
151 Note 4 Acquisitions
152 Note 5 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
153 Note 6 Debt
157 Note 7 Unpaid claims and claim adjustment expenses
159 Note 8 Reinsurance information
161 Note 9 Shareholders’ equity
162 Note 10 Income taxes
165 Note 11 Benefit plans
169 Note 12 Share-based payments
172 Note 13 Compensation, participations and loans of members of governing bodies
178 Note 14 Commitments and contingent liabilities
179 Note 15 Information on business segments
186 Note 16 Subsidiaries, equity investees and variable interest entities
192 Note 17 Restructuring provision
193 Note 18 Changes to Group presentation and disclosure
196 Note 19 Subsequent Event
197 Report of the Group Auditors
Swiss Reinsurance Company, Zurich
199 Annual report
201
Income statement
202 Balance sheet
204 Notes
214
Proposal for allocation of profit
215 Report of the Statutory Auditors
Financial years 1998 – 2007
216
Swiss Re 2007 Annual Report 127
Financial statements Group financial statements
128 Swiss Re 2007 Annual Report
Income statement
For the years ended 31 December
CHF millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Interest credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Income before income tax expense
Income tax expense
Net income
Earnings per share in CHF
Basic
Diluted
The accompanying notes are an integral part of the Group financial statements.
Please refer to Note 18 for a description of the changes in presentation and disclosure.
Financial statements Group financial statements
Note
2006
2007
8,15
8,15
2,15
2,15
7,8,15
8,15
15
8,15
15
10
9
9
29 515
879
7 991
2 106
280
40 771
–11 799
–9 594
–2 827
–6 079
–3 590
–1 026
–34 915
5 856
–1 296
4 560
31 664
955
10 692
–739
302
42 874
–12 065
–11 112
–2 120
–6 499
–4 077
–1 814
–37 687
5 187
–1 025
4 162
13.49
12.53
11.95
11.23
Swiss Re 2007 Annual Report 129
Financial statements Group financial statements
Balance Sheet
As of 31 December
Assets
CHF millions
Investments
Fixed income securities:
Available-for-sale, at fair value (including 18 744 in 2006 and 9 045 in 2007 subject to securities
lending and repurchase agreements) (amortised cost: 2006: 92 151; 2007: 105 995)
Trading (including 10 980 in 2006 and 15 000 in 2007 subject to securities lending and
repurchase agreements)
Equity securities:
Available-for-sale, at fair value (including 923 in 2006 and 1 528 in 2007 subject to securities lending
and repurchase agreements) (cost: 2006: 8 839 ; 2007: 9 039)
Trading
Policy loans, mortgages and other loans
Investment real estate
Short-term investments, at amortised cost which approximates fair value
Other invested assets
Total investments
Cash and cash equivalents
Accrued investment income
Premiums and other receivables
Reinsurance recoverable on unpaid claims and policy benefits
Funds held by ceding companies
Deferred acquisition costs
Acquired present value of future profits
Goodwill
Income taxes recoverable
Other assets
Notes
2,3
2006
2007
93 127
107 810
44 662
51 793
10 845
22 502
8 074
4 227
9 757
11 044
204 238
13 606
1 966
14 771
18 699
14 211
5 270
7 550
4 838
714
5 437
10 759
22 103
7 414
2 682
8 786
16 465
227 812
11 531
2 139
14 341
14 232
14 205
5 152
6 769
4 897
1 049
5 160
8
5,8
5
Total assets
291 300
307 287
The accompanying notes are an integral part of the Group financial statements.
Please refer to Note 18 for a description of the changes in presentation and disclosure.
130 Swiss Re 2007 Annual Report
Financial statements Group financial statements
Liabilities and shareholders’ equity
CHF millions
Liabilities
Unpaid claims and claim adjustment expenses
Liabilities for life and health policy benefits
Provisions for linked liabilities
Unearned premiums
Funds held under reinsurance treaties
Reinsurance balances payable
Income taxes payable
Deferred and other non-current taxes
Short-term debt
Accrued expenses and other liabilities
Long-term debt
Total liabilities
Shareholders‘ equity
Common stock, CHF 0.10 par value
2006: 374 440 378; 2007: 370 386 755 shares authorised and issued
Additional paid-in capital
Treasury shares
Accumulated other comprehensive income:
Net unrealised investment gains, net of deferred taxes
Cumulative translation adjustments
Accumulated adjustment for pension and post-retirement benefits
Total accumulated other comprehensive income
Retained earnings
Total shareholders’ equity
Notes
2006
2007
7,8
8
8
10
6
6
95 011
44 899
42 834
8 025
10 531
6 832
866
2 685
9 118
24 877
14 738
260 416
88 528
50 026
41 340
7 722
8 377
5 384
679
3 817
12 658
33 552
23 337
275 420
37
37
11 136
–272
2 230
–205
–724
1 301
18 682
30 884
11 208
–1 540
3 119
–2 554
–115
450
21 712
31 867
Total liabilities and shareholders’ equity
291 300
307 287
The accompanying notes are an integral part of the Group financial statements.
Swiss Re 2007 Annual Report 131
Financial statements Group financial statements
Statement of shareholders’ equity
For the years ended 31 December
CHF millions
Common shares
Balance as of 1 January
Issue of common shares
Balance as of period end
Additional paid-in capital
Balance as of 1 January
Issue of common shares
Share based compensation
Realised gains/losses on treasury shares
Balance as of period end
Treasury shares
Balance as of 1 January
Purchase of treasury shares
Sale of treasury shares
Balance as of period end
Net unrealised gains/losses, net of tax
Balance as of 1 January
Change during the year
Balance as of period end
Foreign currency translation
Balance as of 1 January
Change during the year
Balance as of period end
Adjustments for pension and other post-retirement benefits
Balance as of 1 January
Change during the year
Balance as of period end
Retained earnings
Balance as of 1 January
Net income
Dividends on common shares
Cumulative effect of adoption of FIN 48
Balance as of period end
Total shareholders’ equity
The accompanying notes are an integral part of the Group financial statements.
132 Swiss Re 2007 Annual Report
2006
2007
32
5
37
6 852
4 234
57
–7
11 136
–209
–284
221
–272
1 908
322
2 230
971
–1 176
–205
–59
–665
–724
14 898
4 560
–776
18 682
37
37
11 136
38
–18
52
11 208
–272
–2 574
1 306
–1 540
2 230
889
3 119
–205
–2 349
–2 554
–724
609
–115
18 682
4 162
–1 162
30
21 712
30 884
31 867
Financial statements Group financial statements
Statement of comprehensive income
For the years ended 31 December
CHF millions
Net income
Other comprehensive income, net of tax:
Change in unrealised gains/losses (tax:178 in 2006 and 213 in 2007)
Change in foreign currency translation (tax: 38 in 2006 and –201 in 2007)
Change in adjustment for pension benefits (tax: 210 in 2006 and –194 in 2007)
Comprehensive income
The accompanying notes are an integral part of the Group financial statements.
2006
4 560
322
–1 176
–665
3 041
2007
4 162
889
–2 349
609
3 311
Swiss Re 2007 Annual Report 133
Financial statements Group financial statements
Statement of cash flow
For the years ended 31 December
CHF millions
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided /used by operating activities:
Depreciation, amortisation and other non-cash items
Net realised investment gains/losses
Change in:
Technical provisions, net
Funds held by ceding companies and other reinsurance balances
Other assets and liabilities, net
Income taxes payable/recoverable
Income from equity-accounted investees, net of dividends received
Trading positions, net
Securities purchased /sold under agreement to resell /repurchase, net
Net cash provided/used by operating activities
Cash flows from investing activities
Fixed income securities:
Sales and maturities
Purchases
Net purchase/sale/maturities of short-term investments
Equity securities:
Sales
Purchases
Cash paid/received for acquisitions/disposals and reinsurance transactions, net
Net purchases/sales/maturities of other investments
Net cash provided/used by investing activities
Cash flows from financing activities
Issuance of long-term debt
Issuance/repayment of short-term debt
Equity issued
Purchase/sale of treasury shares
Dividends paid to shareholders
Net cash provided/used by financing activities
Total net cash provided/used
Reclassification to short-term investments
Effect of foreign currency translation
Change in cash and cash equivalents
Cash and cash equivalents as of 1 January
Cash and cash equivalents as of 31 December
2006
2007
4 560
4 162
886
–2 106
–2 140
524
2 512
910
–375
–10 966
7 711
1 516
676
739
–6 434
–449
2 436
672
–407
–13 094
7 935
–3 764
59 045
–46 105
–4 149
51 584
–53 537
980
7 873
–8 799
–3 506
–1 394
2 965
3 925
–1 042
1 323
–63
–776
3 367
7 848
–2 451
–159
5 238
8 368
13 606
6 495
–6 244
1 615
–1 761
–868
4 342
2 057
38
–2 303
–1 162
2 972
–1 660
–415
–2 075
13 606
11 531
The accompanying notes are an integral part of the Group financial statements.
Interest paid during 2007 was CHF 2 018 million. The Group has reclassified CHF 2 451 million from cash to short-term investments related
to the assumption of matched funding business of Insurance Solutions in 2006. The Group settled a mandatory convertible bond totalling
CHF 1 024 million with equity, reducing treasury shares by the same amount.
Please refer to Note 18 for a description of the changes in presentation and disclosure.
134 Swiss Re 2007 Annual Report
Financial statements
Notes to the Group financial statements
Nature of operations
Nature of operations
Basis of presentation
Basis of presentation
Principles of consolidation
Principles of consolidation
Use of estimates in the preparation
Use of estimates in the preparation
of financial statements
of financial statements
Foreign currency remeasurement
Foreign currency remeasurement
and translation
and translation
1 Organisation and summary of significant accounting policies
The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss Rein-
surance Company (the parent company, referred to as “Swiss Re Zurich”) and its subsidiaries
(collectively, the “Swiss Re Group” or the “Group”). The Group provides reinsurance and other
related products and services to insurance companies, clients and others worldwide, through
a network of offices in over 25 countries as well as through reinsurance brokers.
The accompanying consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (US GAAP) and
comply with Swiss law. The Group’s financial statements are stated in Swiss francs (CHF), the
currency of the country in which Swiss Re Zurich is incorporated. All significant inter-company
transactions and balances have been eliminated on consolidation.
To reflect the integration of the Financial Services business segment into the Group structure,
the way in which certain disclosures are presented in the financial statements has been
changed. The main changes include the reclassification of Financial Services assets, liabilities
and trading revenues into existing balance sheet and income statement line items. The cash
flow statement and the presentation of the business segments has been adjusted accordingly.
Please refer to Note 18 for further details of the changes.
The Group’s financial statements include the consolidated financial statements of Swiss Re
Zurich and its subsidiaries. Entities which Swiss Re Zurich directly or indirectly controls
through holding a majority of the voting rights are consolidated in the Group accounts. The
Group also consolidates variable interest entities where Swiss Re is the primary beneficiary.
Companies which Swiss Re Zurich does not control, but over which Swiss Re Zurich directly
or indirectly exercises significant influence, are accounted for using the equity method and
are included in other invested assets. The Swiss Re Group’s share of net profit or loss in invest-
ments 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
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.
The preparation of financial statements requires management to make significant estimates
and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses
as well as the related disclosure including contingent assets and liabilities. The Swiss Re
Group’s liabilities for unpaid claims and claim adjustment expenses and policy benefits for life
and health include estimates for premium, claim and benefit data not received from ceding
companies at the date of the financial statements. In addition, the Group uses certain financial
instruments and invests in securities of certain entities for which exchange trading does not
exist. The Group determines these estimates on the basis of historical information, actuarial
analyses, financial modelling and other analytical techniques. Actual results could differ signif-
icantly from the estimates described above.
Transactions denominated in foreign currencies are remeasured to the respective subsidiary’s
functional currency at average quarterly exchange rates. Monetary assets and liabilities are
remeasured to the functional currency at closing exchange rates, whereas non-monetary
assets and liabilities are remeasured to the functional currency at historical rates. Remeasure-
ment gains and losses on monetary assets and liabilities and trading securities are reported
in earnings. Remeasurement gains and losses on available-for-sale securities, investments in
Swiss Re 2007 Annual Report 135
Financial statements Notes to the Group financial statements
consolidated subsidiaries and investments accounted for using the equity method are reported
in shareholders’ equity.
For consolidation purposes, assets and liabilities of subsidiaries with functional currencies
other than Swiss francs are translated from the functional currency to Swiss francs at closing
rates. Revenues and expenses are translated at average exchange rates. Translation adjust-
ments are reported in shareholders’ equity.
The fair value of the majority of the Group’s financial instruments is based on quoted prices
in active markets or observable inputs. These instruments include government and agency
securities, commercial paper, most investment-grade corporate debt, most high-yield debt
securities, exchange traded derivative instruments, most mortgage-backed and asset-backed
securities and listed equity securities.
In markets with reduced or no liquidity, spreads between bid and offer prices are normally
wider compared to spreads in highly liquid markets. There can also be differences between
the market values implied by collateral requested by counterparties and the prices observed in
the markets. Such market conditions affect the valuation of certain asset classes of the Group,
such as some asset-backed securities as well as certain derivative structures referencing such
asset classes. For these assets or derivative structures, the Group uses market prices or inputs
derived from market prices. A separate internal price verification process, independent of the
trading function provides an additional control over the market prices or market input used
to determine the fair values of such assets. Whilst management consider appropriate values
have been ascribed to such assets, current market conditions increase the level of uncertainty
and judgment over these valuations. Subsequent valuations could differ significantly from the
results of the process described above.
The Group’s investments in fixed income and equity securities are classified as available-for-
sale (AFS) or trading. Fixed income securities AFS and equity securities AFS are carried at fair
value, based on quoted market prices, with the difference between original cost and fair value
being recognised in shareholders’ equity. Trading fixed income and equity securities are car-
ried at fair value with unrealised gains and losses being recognised in earnings.
The costs of fixed income and equity securities are reduced to fair value, with a corresponding
charge to realised investment losses if the decline in value, expressed in functional currency
terms, is other than temporary. Subsequent recoveries of previously recognised impairments
are not recognised.
Interest on fixed income securities is recorded in net investment income when earned and
is adjusted for the amortisation of any purchase premium or discount. Dividends on equity
se curities are recorded on the basis of the ex-dividend date. Realised gains and losses on
sales are included in earnings and are calculated using the specific identification method.
Policy loans, mortgages and other loans are carried at amortised cost (effective yield method),
net of any allowance for the estimated uncollectible amounts.
Investment in real estate that the Group intends to hold for the production of income is carried
at depreciated cost, net of any write-down for impairment in value. Impairment in value is
recognised if the sum of the estimated future undiscounted cash flows from the use of the
real estate is lower than its carrying value. Impairment in value, depreciation and other related
charges or credits are included in net investment income. Investment in real estate held for
Valuation of financial assets
Valuation of financial assets
Investments
Investments
136 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
sale is carried at the lower of cost or fair value, less estimated selling costs, and is not depre-
ciated. Reductions in the carrying value of real estate held for sale are included in realised
investment losses.
Short-term investments are carried at amortised cost, which approximates fair value. The
Group considers highly liquid investments with a remaining maturity at the date of acquisition
of one year or less, but greater than three months, to be short-term investments.
Other invested assets include affiliated companies, equity accounted companies, derivative
financial instruments and investments without readily determinable fair value (including limited
partnership investments). Investments in limited partnerships where the Group’s interest
equals or exceeds 3% are accounted for using the equity method. Investments in limited part-
nerships where the Group’s interest is below 3% and equity investments in corporate entities
which are not publicly traded are accounted for at estimated fair value with changes in fair
value recognised as unrealised gains/losses in shareholders’ equity.
The Group enters into security lending arrangements under which it loans certain securities
in exchange for collateral and receives securities lending fees. The Group’s policy is to require
collateral, consisting of cash or securities, equal to at least 102% of the carrying value of the
securities loaned. In certain arrangements, the Group may accept collateral of less than 102%,
if the structure of the overall transaction offers an equivalent level of security. Cash received
as collateral is recognised along with an obligation to return the cash. Securities received as
collateral that can be sold or repledged are also recognised along with an obligation to return
those securities. Security lending fees are recognised over the term of the related loans.
The Group uses a variety of derivative financial instruments including swaps, options, forwards
and exchange-traded financial futures for the Group’s trading and hedging strategy in line
with the overall risk management strategy. Derivative financial instruments are primarily used
as a means of managing exposure to price, foreign currency and/or interest rate risk on
planned or anticipated investment purchases, existing assets or liabilities and also to lock in
attractive investment conditions for funds which become available in the future. The Group
recognises all of its derivative instruments on the balance sheet at fair value. Derivatives that
are not designated as hedging instruments are adjusted to fair value through earnings.
If the derivative is designated as a hedge of the fair value of assets or liabilities, changes in the
fair value of the derivative are recognised in earnings, together with changes in the fair value
of the related hedged item. If the derivative is designated as a hedge of the variability in ex-
pected future cash flows related to a particular risk, changes in the fair value of the derivative
are reported in other comprehensive income until the hedged item is recognised in earnings.
The ineffective portion of the hedge is recognised in earnings. When hedge accounting is
discontinued on a cash flow hedge, the net gain or loss remains in accumulated other com-
prehensive income and is reclassified to earnings in the period in which the formerly hedged
transaction is reported in earnings. When the Group discontinues hedge accounting because
it is no longer probable that a forecasted transaction will occur within the required time period,
the derivative continues to be carried on the balance sheet at fair value, and gains and losses
that were previously recorded in accumulated other comprehensive income are recognised
in earnings.
Derivative financial instrument assets are generally included in other invested assets and de-
rivative financial instrument liabilities are generally included in accrued expenses and other
liabilities.
Swiss Re 2007 Annual Report 137
Derivative financial instruments and
Derivative financial instruments and
hedge accounting
hedge accounting
Financial statements Notes to the Group financial statements
The Group also designates non-derivative monetary financial instruments as hedging the for-
eign currency exposure of its net investment in certain foreign operations. From the inception
of the hedging relationship, remeasurement gains and losses on the designated non-deriva-
tive monetary financial instruments and translation gains and losses on the hedged net invest-
ment are reported as translation gains and losses in shareholders’ equity.
Cash and cash equivalents include cash on hand, short-term deposits, certain short-term in-
vestments in money market funds, and highly liquid debt instruments with a remaining matu-
rity at the date of acquisition of three months or less.
Acquisition costs, which vary with, and are primarily related to, the production of new insur-
ance and reinsurance business, are deferred to the extent they are deemed recoverable from
future gross profits. Deferred acquisition costs consist principally of commissions. Deferred
acquisition costs for short-duration contracts are amortised in proportion to premiums earned.
Future investment income is considered in determining the recoverability of deferred acquisi-
tion costs for short-duration contracts. Deferred acquisition costs for long-duration contracts
are amortised over the life of underlying contracts. Deferred acquisition costs for universal life-
type contracts are amortised based on the present value of estimated gross profits.
The Group applies the purchase method of accounting for business combinations. This meth-
od allocates the cost of the acquired entity to the assets and liabilities assumed based on their
estimated fair values at the date of acquisition.
Admin Re® blocks of business can be acquired in different legal forms, either through an ac-
quisition of an entity’s share capital or through a reinsurance transaction. The Group’s policy
is to treat these transactions consistently regardless of the form of acquisition. Accordingly the
Group records the acquired assets and liabilities directly to the balance sheet. Premiums, life
and health benefits and other income statement items are not recorded in the income state-
ment on the date of the acquisition.
The underlying liabilities and assets acquired are subsequently accounted for according to the
relevant GAAP guidance, including specific guidance applicable to subsequent accounting for
assets and liabilities recognised as part of purchase method of accounting, including present
value of future profit, goodwill and other intangible assets.
The acquired present value of future profits (PVFP) of business in force is recorded in connec-
tion with the acquisition of life and/or health operations. The initial value is determined actuar-
ially by discounting estimated future gross profits as a measure of the value of business ac-
quired. The resulting asset is amortised on a constant yield basis over the expected revenue
recognition period of the business acquired, generally over periods ranging up to 30 years,
with the accrual of interest added to the unamortised balance at the earned rate. The carrying
value of PVFP is reviewed periodically for indicators of impairment in value. Adjustments to re-
flect impairment in value are recognised in earnings during the period in which the determina-
tion of impairment is made.
The excess of the purchase price of acquired businesses over the estimated fair value of net
assets acquired is recorded as goodwill, which is reviewed periodically for indicators of im-
pairment in value. Adjustments to reflect impairment in value are recognised in earnings in the
period in which the determination of impairment is made.
Cash and cash equivalents
Cash and cash equivalents
Deferred acquisition costs
Deferred acquisition costs
Business combinations
Business combinations
Acquired present value of
Acquired present value of
future profits
future profits
Goodwill
Goodwill
138 Swiss Re 2007 Annual Report
Other assets
Other assets
Capitalised software costs
Capitalised software costs
Deferred income taxes
Deferred income taxes
Unpaid claims and claim
Unpaid claims and claim
adjustment expenses
adjustment expenses
Financial statements Notes to the Group financial statements
Other assets include deferred expenses on retroactive reinsurance, separate account assets,
prepaid reinsurance premiums, real estate for own use, property, plant and equipment, ac-
crued income, certain intangible assets and prepaid assets.
The excess of estimated liabilities for claims and claim adjustment expenses payable over
consideration received in respect of retroactive property and casualty reinsurance contracts
is recorded as a deferred expense. The deferred expense on retroactive reinsurance contracts
is amortised through earnings over the expected claims-paying period.
Separate account assets are carried at fair value. The investment performance (including inter-
est, dividends, realised gains and losses and changes in unrealised gains and losses) of sepa-
rate account assets and the corresponding amounts credited to the contract holder are offset
to zero in the same line item in earnings.
Real estate for own use, property, plant and equipment are carried at depreciated cost.
External direct costs of materials and services incurred to develop or obtain software for inter-
nal use, payroll and payroll-related costs for employees directly associated with software de-
velopment and interest cost incurred while developing software for internal use are capitalised
and amortised on a straight-line basis through earnings over the estimated useful life.
Deferred income tax assets and liabilities are recognised based on the difference between
financial statement carrying amounts and the corresponding income tax bases of assets and
liabilities using enacted income tax rates and laws. A valuation allowance is recorded against
deferred tax assets when it is deemed more likely than not that some or all of the deferred tax
asset may not be realised.
Liabilities for unpaid claims and claim adjustment expenses for property and casualty rein-
surance contracts are accrued when insured events occur and are based on the estimated
ultimate cost of settling the claims, using reports and individual case estimates received from
ceding companies. A provision is also included for claims incurred but not reported, which is
developed on the basis of past experience adjusted for current trends and other factors that
modify past experience. The establishment of the appropriate level of reserves is an inherently
uncertain process involving estimates and judgements made by management, and therefore
there can be no assurance that ultimate claims and claim adjustment expenses will not ex-
ceed the loss reserves currently established. These estimates are regularly reviewed, and ad-
justments for differences between estimates and actual payments for claims and for changes
in estimates are reflected in income in the period in which the estimates are changed or pay-
ments are made.
The Group does not discount liabilities arising from prospective property and casualty insur-
ance and reinsurance contracts, including liabilities which are discounted for US statutory
reporting purposes. Liabilities arising from property and casualty insurance and reinsurance
contracts acquired in a business combination are initially recognised at fair value in accor-
dance with the purchase method of accounting.
Experience features which are directly linked to a reinsurance asset or liability are classified
in a manner that is consistent with the presentation of that asset or liability.
Liabilities for life and health policy
Liabilities for life and health policy
benefits
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
Swiss Re 2007 Annual Report 139
Financial statements Notes to the Group financial statements
is issued or, in the case of contracts acquired by purchase, at the purchase date. The assump-
tions are based on projections from past experience, making allowance for possible adverse
deviation. Interest assumptions for life and health reinsurance benefits liabilities range from
1% to 13%. Assumed mortality rates are generally based on experience multiples applied to
the actuarial select and ultimate tables based on industry experience. Liabilities for policy
benefits are increased if it is determined that future cash flows, including investment income,
are insufficient to cover future benefits and expenses.
The liability for accident and health policy benefits consists of active life reserves and the esti-
mated present value of the remaining ultimate net costs of incurred claims. The active life re-
serves include unearned premiums and additional reserves. The additional reserves are com-
puted on the net level premium method using assumptions for future investment yield, mortal-
ity and morbidity experience. The assumptions are based on projections of past experience
and include provisions for possible adverse deviation.
Policyholder account balances
Policyholder account balances
Policyholder account balances relate to universal life-type contracts and investment contracts.
Interest crediting rates for policyholder account balances range from 3% to 10%.
Universal life-type contracts are long-duration insurance contracts, providing either death or
annuity benefits, with terms that are not fixed and guaranteed.
Investment contracts are long-duration contracts that do not incorporate significant insurance
risk. This means that there is no mortality and morbidity risk, or the mortality and morbidity
risk associated with the insurance benefit features offered in the contract is of insignificant
amount or remote probability. Amounts received as payment for investment contracts are
reported as policyholder account balances. Related assets are included in general account
assets.
Amounts assessed against policyholders for mortality, administration and surrender are shown
as fee income. Amounts credited to policyholders are shown as interest credited to policy-
holders. Investment income and realised investment gains and losses allocable to policyholders
are included in net investment income and net realised investment gains/losses.
Funds held assets and liabilities include amounts retained by the ceding company or the
Group for business written on a funds withheld basis, and amounts arising from the applica-
tion of the deposit method of accounting to insurance and reinsurance contracts that do not
indemnify the ceding company or the Group against loss or liability relating to insurance risk.
Under the deposit method of accounting, the deposit asset or liability is initially measured
based on the consideration paid or received. For contracts that transfer neither significant
timing nor underwriting risk, and contracts that transfer only significant timing risk, changes
in estimates of the timing or amounts of cash flows are accounted for by recalculating the
effective yield. The deposit is then adjusted to the amount that would have existed had the
new effective yield been applied since the inception of the contract. The revenue and expense
recorded for such contracts is included in net investment income. For contracts that transfer
only significant underwriting risk, once a loss is incurred, the deposit is adjusted by the
present value of the incurred loss. At each subsequent balance sheet date, the portion of the
deposit attributable to the incurred loss is recalculated by discounting the estimated future
cash flows. The resulting changes in the carrying amount of the deposit are recognised in
claims and claim adjustment expenses.
Funds held assets and liabilities
Funds held assets and liabilities
140 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Premiums
Premiums
Reinsurance ceded
Reinsurance ceded
Property and casualty reinsurance premiums are recorded when written and include an esti-
mate for written premiums receivable at period end. Premiums earned are generally recog-
nised in income over the contract period in proportion to the amount of reinsurance provided.
Unearned premiums consist of the unexpired portion of reinsurance provided. Life reinsurance
premiums are earned when due. Related policy benefits are recorded in relation to the associ-
ated premium or gross profits so that profits are recognised over the expected lives of the con-
tracts.
Life and health reinsurance premiums for group coverage’s are generally earned over the term
of the coverage. For group contracts that allow experience adjustments to premiums, such
premiums are recognised as the related experience emerges.
The Group uses retrocession arrangements to increase its aggregate underwriting capacity,
to diversify its risk and to reduce the risk of catastrophic loss on reinsurance assumed. The
ceding of risks to retrocessionaires does not relieve the Group of its obligations to its ceding
companies. The Group regularly evaluates the financial condition of its retrocessionaires and
monitors the concentration of credit risk to minimise its exposure to financial loss from retro-
cessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are report-
ed as reductions of premiums earned and claims and claim adjustment expenses. Amounts
recoverable for ceded short- and long-duration contracts, including universal life-type and
investment contracts, are reported as assets in the accompanying consolidated balance sheet.
The Group provides reserves for uncollectible amounts on reinsurance balances ceded, based
on management’s assessment of the collectibility of the outstanding balances.
Pensions and other post-retirement
Pensions and other post-retirement
benefits
benefits
The Group accounts for its pension and other post-retirement benefit costs using the accrual
method of accounting. Amounts charged to expenses are based on periodic actuarial determi-
nations.
Share-based payment transactions
Share-based payment transactions
Treasury shares
Treasury shares
Earnings per common share
Earnings per common share
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 12. 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.
For share-based compensation plans which are settled in cash, compensation costs are rec-
ognised as liabilities, whereas for equity-settled plans, compensation costs are recognised as
an accrual to additional paid-in capital within shareholders’ equity.
Treasury shares are reported at cost in shareholders’ equity. Treasury shares also include
stand-alone derivative instruments indexed to the Group’s shares that meet the requirements
for classification in shareholders’ equity as well as embedded derivative instruments indexed
to the Group’s shares, which are bifurcated from the host contract and meet the requirements
for classification in shareholders’ equity.
Basic earnings per common share are determined by dividing net income available to share-
holders by the weighted average number of common shares entitled to dividends during the
year. Diluted earnings per common share reflect the effect on earnings and average common
shares outstanding associated with dilutive securities.
Swiss Re 2007 Annual Report 141
Financial statements Notes to the Group financial statements
New accounting pronouncements
New accounting pronouncements
In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48, “Ac-
counting for Uncertainty in Income Taxes” (FIN 48). FIN 48 clarifies the accounting for income
taxes by prescribing a minimum recognition threshold that a tax position is required to meet
before being recognised in the financial statements. FIN 48 also provides guidance on derec-
ognition, measurement, classification, interest and penalties, accounting in interim periods,
disclosure and transition. The Company adopted FIN 48 as of 1 January, 2007. The impact of
the provisions of FIN 48 is described within Note 10.
In September 2006, the Financial Accounting Standards Board issued SFAS No. 158 “Em-
ployers Accounting for Defined Benefit Pension and Other Post Retirement Plans” (SFAS 158).
SFAS 158 requires an employer to recognise the over-funded or under-funded status of a
defined benefit post-retirement plan as an asset or liability and to recognise changes in that
funded status in the year in which the changes occur through comprehensive income. The
Group adopted the provisions of FAS 158 for the year ended 31 December 2006 except for
the provision to measure plan assets and benefit obligations as of the date of the employer’s
fiscal year end statement of financial conditions. The Group will adopt this final provision in
the first quarter of 2008.
In September 2005, the AICPA released SOP 05-1 “Accounting by Insurance Enterprises for
Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Con-
tracts” (SOP 05-1). The adoption of SOP 05-1 from 1 January 2007 did not have a material
impact on the Group’s financial statements.
In September 2006, the Financial Accounting Standards Board issued SFAS No. 157 “Fair
Value Measurements” (SFAS 157). SFAS 157 establishes a new definition and framework for
determining fair value and expands the required disclosures for assets and liabilities recorded
at fair value. This statement applies to all assets and liabilities measured at fair value which
are required or allowed by other standards with limited exceptions. The Group will adopt SFAS
157 in the first quarter of 2008.
In February 2007, the Financial Accounting Standards Board issued SFAS No. 159 “The Fair
Value Option for Financial Assets and Financial Liabilities” (SFAS 159). SFAS 159 enables en-
tities to elect to measure specified financial assets and liabilities at fair value on an instrument-
by-instrument basis and expands the ability to use fair value measurements with financial in-
struments and certain other items not currently permitted to be measured at fair value. SFAS
159 also provides for financial statement presentation guidance and disclosure requirements.
The Group will adopt SFAS 159 in the first quarter of 2008.
142 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
2 Investments
Please refer to Note 18 for a description of the changes in presentation and disclosure.
Investment income
Investment income
Net investment income by source was as follows:
CHF millions
Fixed income securities
Equity securities
Policy loans, mortgages and other loans
Investment real estate
Short-term investments
Other current investments
Equity in earnings of equity-accounted investees
Cash and cash equivalents
Deposits with ceding companies
Gross investment income
Investment expenses
Interest charged for funds held
Net investment income
2006
5 732
721
618
156
355
48
389
294
680
8 993
–404
–598
7 991
2007
7 516
888
604
221
494
577
410
351
777
11 838
–612
–534
10 692
Dividends received from investments accounted for using the equity method were CHF 14 mil-
lion and CHF 3 million in 2006 and 2007, respectively.
Net investment income includes income on unit-linked business of CHF 670 million and
CHF 749 million in 2006 and 2007, respectively, which is credited to unit-linked policyholders.
Swiss Re 2007 Annual Report 143
Financial statements Notes to the Group financial statements
Realised gains and losses
Realised gains and losses
Realised gains and losses for fixed income, equity securities and other investments were as
follows:
CHF millions
Fixed income securities available-for-sale
Gross realised gains
Gross realised losses
Equity securities available-for-sale
Gross realised gains
Gross realised losses
Other-than-temporary impairments
Net realised investment gains /losses on trading securities
Change in net unrealised investment gains on trading securities
Other investments
Gross realised /unrealised gains/losses
Exchange gains /losses
Net realised investment gains /losses
2006
2007
922
–591
1 151
–189
–156
439
1 763
621
–670
1 714
–159
–647
–917
298
56
–1 289
2 106
356
–1 335
–739
Proceeds from fixed income securities available-for-sale amounted to CHF 44 356 million
in 2007 (2006: CHF 53 720 million) and sales of equity securities available-for-sale amounted
to CHF 6 668 million in 2007 (2006: CHF 7 881 million).
Net realised investment gains/losses include income on unit-linked business of CHF 1 319 mil-
lion and CHF 512 million in 2006 and 2007, respectively, which is credited to unit-linked policy-
holders.
144 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Investments available-for-sale
Investments available-for-sale
Amortised cost or cost and estimated fair values of investments in fixed income and equity
securities classified as available-for-sale were as follows:
As of 31 December 2006
CHF millions
Debt securities issued by governments
and government agencies:
US Treasury and other US government
corporations and agencies
States of the United States and
political subdivisions of the states
United Kingdom
Canada
Germany
France
Other
Total
Corporate debt securities
Mortgage-backed and asset-backed
securities
Fixed income securities available-for-sale
Equity securities available-for-sale
As of 31 December 2007
CHF millions
Debt securities issued by governments and
government agencies:
US Treasury and other US government
corporations and agencies
States of the United States and political
subdivisions of the states
United Kingdom
Canada
Germany
France
Other
Total
Corporate debt securities
Mortgage-backed and asset-backed
securities
Fixed income securities available-for-sale
Equity securities available-for-sale
Amortised
cost or cost
Gross unreal-
ised gains
Gross unreal-
ised losses
Estimated
fair value
29 555
190
–598
29 147
676
5 280
3 239
2 293
1 537
7 455
50 035
26 836
15 280
92 151
8 839
34
87
755
4
12
212
1 294
921
102
2 317
2 268
–2
–54
–12
–28
–18
–66
–778
–373
–190
–1 341
–262
708
5 313
3 982
2 269
1 531
7 601
50 551
27 384
15 192
93 127
10 845
Amortised
cost or cost
Gross unreal-
ised gains
Gross unreal-
ised losses
Estimated
fair value
22 743
678
–96
23 325
1 417
11 096
3 708
2 228
1 196
7 293
49 681
25 117
31 197
105 995
9 039
46
261
1 040
50
11
281
2 367
650
246
3 263
2 205
–11
–65
–4
–22
–24
–41
–263
–747
1 452
11 292
4 744
2 256
1 183
7 533
51 785
25 020
–438
–1 448
–485
31 005
107 810
10 759
After the balance sheet date, the Group took a decision to sell and has sold a substantial part
of its proprietary equity securities available-for-sale portfolio in response to recent market de-
velopments.
Swiss Re 2007 Annual Report 145
Financial statements Notes to the Group financial statements
Investments trading
Investments trading
Fixed income securities and equity securities classified as trading were as follows:
Maturity of fixed income
Maturity of fixed income
securities available-for-sale
securities available-for-sale
CHF millions
Debt securities issued by governments and government agencies
Corporate debt securities
Mortgage-backed and asset-backed securities
Fixed income securities trading
Equity securities trading
2006
14 609
17 911
12 142
44 662
22 502
2007
14 738
18 894
18 161
51 793
22 103
The amortised cost or cost and estimated fair values of investments in fixed income securities
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 2006 and 2007,
CHF 5 426 million and CHF 5 169 million, respectively, of fixed income securities were callable.
As of 31 December
CHF millions
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed and asset-backed
securities with no fixed maturity
Total fixed income securities
available-for-sale
Amortised
cost or cost
5 768
26 196
19 224
25 683
2006
Estimated
fair value
5 804
26 171
19 129
26 831
Amortised
cost or cost
6 643
20 156
17 819
30 180
2007
Estimated
fair value
4 149
23 241
18 075
31 340
15 280
15 192
31 197
31 005
92 151
93 127
105 995
107 810
Assets on deposit or pledged
Assets on deposit or pledged
As of 31 December 2006 and 2007, investments with the carrying value of CHF 1 565 million
and CHF 1 438 million, respectively, were on deposit with regulatory agencies in accordance
with local requirements.
As of 31 December 2006 and 2007, investments (including cash and cash equivalents) with
a carrying value of approximately CHF 14 728 million and CHF 9 262 million, respectively,
were placed on deposit or pledged to secure certain reinsurance liabilities.
The Group has adjusted the classification of investments placed on deposit or repledged to
secure certain reinsurance liabilities for 2006. The revision has no impact on reported balance
sheet items, shareholders’ equity or net income.
As of 31 December 2006 and 2007, the fair value of the government and corporate bond
securities received as collateral, was CHF 6 502 million and CHF 17 142 million, respectively.
Of this, the amount that has been sold or repledged as of 31 December 2006 and 2007 was
CHF 5 450 million and CHF 16 802 million, respectively, which was used to settle short gov-
ernment bond positions. The sources of the collateral are highly rated banking market counter-
parties.
Collateral accepted which the Group
Collateral accepted which the Group
has the right to sell or repledge
has the right to sell or repledge
146 Swiss Re 2007 Annual Report
Unrealised losses on fixed income
Unrealised losses on fixed income
securities available-for-sale
securities available-for-sale
Financial statements Notes to the Group financial statements
The following table shows the fair value and unrealised losses of the Group’s fixed income se-
curities, aggregated by investment category and length of time that individual securities were
in a continuous unrealised loss position, as of 31 December 2006 and 2007. A continuous
decline in the value of equity securities available-for-sale for longer than twelve months is
considered other-than-temporary and recognised as net realised investment gains/losses in
the income statement. Therefore, as of 31 December 2006 and 2007, the gross unrealised
loss on equity securities available-for-sale of CHF 262 million and CHF 485 million relates to
declines in value for less than 12 months.
As of 31 December 2006
CHF millions
Debt securities issued by govern-
ments and government agencies
Corporate debt securities
Mortgage-backed and asset-backed
securities
Total
As of 31 December 2007
CHF millions
Debt securities issued by govern-
ments and government agencies
Corporate debt securities
Mortgage-backed and asset-backed
securities
Total
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Total
Unrealised
losses
Fair value
20 633
6 362
4 939
31 934
295 13 443
2 618
104
483 34 076
8 980
269
778
373
51
4 138
450 20 199
139
9 077
891 52 133
190
1 341
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Total
Unrealised
losses
Fair value
6 960
9 379
79
432
6 349
3 495
184 13 309
315 12 874
263
747
11 044
27 383
317
4 573
828 14 417
121 15 617
620 41 800
438
1 448
An assessment of whether an other-than-temporary decline in the value of equity and fixed
income securities available-for-sale has occurred as of the balance sheet date is based on a
case-by-case evaluation of the reasons behind the decline in value. This evaluation includes:
(a) an assessment of the duration and extent of the decline in value; (b) review of the financial
performance and outlook for the economic environment and industry in which the issuer op-
erates; (c) review of the financial performance and outlook for the issuer compared to industry
peers; and (d) analysis of any other factors, including credit rating, that may adversely affect
the Group’s intent and ability to hold the investment long enough to allow for any anticipated
recovery. Other-than-temporary declines in the value of equity and fixed income securities
available-for-sale are recognised as net realised investment gains/losses in the income state-
ment.
The Group may sell available-for-sale equity or fixed income securities at a loss in subsequent
periods having previously asserted the intent and ability to hold such securities until recovery.
Such sales may only take place in response to changes in market conditions or other circum-
stances that occur after the balance sheet date. As a result, the Group recognises the associat-
ed realised losses in the period in which the decision to sell the securities is taken.
Swiss Re 2007 Annual Report 147
Financial statements Notes to the Group financial statements
Mortgages, loans and real estate
Mortgages, loans and real estate
As of 31 December 2006 and 2007, investments in mortgages and other loans and real es-
tate comprised the following:
CHF millions
Policy loans, mortgages and other loans
Investment real estate
Carrying value
8 074
4 227
2006
Fair value
8 074
5 389
Carrying value
7 414
2 682
2007
Fair value
7 414
3 937
As of 31 December 2006 and 2007, the Group’s investment in mortgages and other loans
included CHF 231 million and CHF 216 million, respectively, of loans due from employees and
CHF 388 million and CHF 415 million, respectively, due from officers. These loans generally
consist of mortgages offered at variable and fixed interest rates.
As of 31 December 2006 and 2007, investments in real estate included CHF 67 million and
CHF 64 million, respectively, of real estate held for sale.
Depreciation expense related to income-producing properties was CHF 34 million and CHF
57 million for 2006 and 2007, respectively. Accumulated depreciation on investment real
estate totalled CHF 444 million and CHF 508 million as of 31 December 2006 and 2007,
respectively.
Substantially all mortgages and other loans receivable are secured by buildings, land or the
underlying policies. The ultimate collectibility of the receivables is evaluated regularly and an
appropriate allowance for uncollectible amounts is established.
148 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
3 Derivative financial instruments
The Group uses a variety of derivative financial instruments including swaps, options, forwards,
credit derivatives and exchange-traded financial futures in its trading and hedging strategies,
in line with the Group’s overall risk management strategy. The objectives include managing
exposure to price, foreign currency and/or interest rate risk on planned or anticipated invest-
ment purchases, existing assets or liabilities, as well as locking in attractive investment condi-
tions for future available funds.
The fair values represent the gross carrying value amounts at the reporting date for each class
of derivative contract held or issued by the Group. The fair values below are not an indication
of credit risk, as many over-the-counter transactions are contracted and documented under
ISDA master agreements or their equivalent. Management believes that such agreements pro-
vide for legally enforceable set-off in the event of default, which substantially reduces credit
exposure.
The maximum potential loss assuming non-performance by all counterparties, and based on
the market replacement cost as of 31 December 2006 and 2007 approximated CHF 2 220
million and CHF 6 713 million, respectively. These values are net of amounts offset pursuant
to rights of set-off and qualifying master netting arrangements with various counterparties.
The fair value of derivatives outstanding as of 31 December 2006 and 2007 was as follows:
CHF millions
Interest rate contracts
Forwards and futures
Swaps
Other
Total
Equity and index contracts
Forwards and futures
Options
Swaps
Other
Total
Foreign currency
Options
Swaps
Total
Other derivatives
Credit derivatives
Catastrophe derivatives
Weather derivatives
Other
Total
Total derivative financial
instruments
Positive
fair value
Negative
fair value
2006
Carrying value
assets/liabilities
Positive
fair value
Negative
fair value
2007
Carrying value
assets/liabilities
24
–71
2 863 –3 062
–47
–199
2 887 –3 133
–246
88
–396
5 330 –5 483
–101
–5 980
101
5 519
260
–343
1 999 –2 146
–148
–11
2 461 –2 648
202
–83
–147
54
–11
–187
670
–672
2 763 –1 997
–131
–11
3 780 –2 811
290
57
279
–284
1 286 –1 496
1 565 –1 780
–5
–210
–215
407
–359
2 034 –2 821
2 441 –3 180
1 427 –1 041
95
133
–124
–205
1 655 –1 370
386
–29
–72
285
4 011 –4 071
–11
–12
–97
4 055 –4 191
1
3
40
–308
–153
–461
–2
766
159
46
969
48
–787
–739
–60
–10
–9
–57
–136
8 568 –8 931
–363
15 795 –16 162
–367
Swiss Re 2007 Annual Report 149
Financial statements Notes to the Group financial statements
The Group offsets derivative assets and liabilities including certain derivative related collateral
contracts in the balance sheet, for which there is a right of offset under master netting agree-
ments.
As of 31 December 2006 and 2007, other invested assets included derivative financial instru-
ments with a fair value of CHF 2 804 million and CHF 6 168 million, respectively.
As of 31 December 2006 and 2007, other accrued expenses and other liabilities included
derivative financial instruments with a fair value of CHF 3 167 million and CHF 6 535 million,
respectively.
These derivative financial instruments include cash flow hedges with a fair value of CHF 31 mil-
lion and CHF 21 million as of 31 December 2006 and 2007, respectively.
Hedges of the net investment
Hedges of the net investment
in a foreign operation
in a foreign operation
The Group designates non-derivative monetary financial instruments as hedging the foreign
currency exposure of its net investment in certain foreign operations.
For the years ended 31 December 2006 and 2007, the Group recorded net unrealised foreign
currency remeasurement losses in shareholders’ equity of CHF 96 million and CHF 668 million,
respectively. This offsets translation gains and losses on the hedged net investment.
150 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
4 Acquisitions
On 9 June 2006, Swiss Re completed the acquisition of 100% of the outstanding common
shares of GE Insurance Solutions Corporation, excluding its US life and health operation and
certain other assets and liabilities, from General Electric Company.
The purchase price has been allocated based on a preliminary estimate of the fair value of
assets acquired and liabilities assumed at the date of acquisition.
Property and casualty reserves, both assumed and ceded, have been adjusted based on an
estimate of their fair value as of the date of the acquisition. Such estimates include the best
estimate of the ultimate claims payments and receipts and the timing of those payments.
The estimated payments have been discounted and adjusted for the expected cost of holding
capital to support the reinsurance assets and liabilities.
In conjunction with the acquisition, Swiss Re had identified certain areas, mainly with respect
to property and casualty reserves, where more information was required. Having obtained this
information, Swiss Re has revised the initial estimate in line with the established methodology
described above.
The revised estimate resulted in an increase in property and casualty reserves, net of tax, of
CHF 333 million, partly offset by other revisions to assets acquired and liabilities assumed,
with a net increase in goodwill of CHF 249 million in the second quarter 2007, compared to
year end 2006.
Swiss Re 2007 Annual Report 151
Financial statements Notes to the Group financial statements
5 Deferred acquisition costs (DAC) and acquired present value
of future profits (PVFP)
CHF millions
Balance as of 1 January
Deferred
Effect of acquisitions /disposals and
retrocessions
Amortisation
Interest accrued on unamortised PVFP
Effect of foreign currency translation
Effect of change in unrealised gains/losses
Balance as of 31 December
DAC
5 393
4 161
–4 100
–184
5 270
2006
PVFP
6 535
1 443
–790
413
–245
194
7 550
DAC
5 270
4 123
–3 984
–257
5 152
2007
PVFP
7 550
265
–977
382
–458
7
6 769
The amortisation of DAC in 2007 represents CHF 3 784 million and CHF 200 million for the
Property & Casualty and Life & Health business segments, respectively.
Retroceded DAC and PVFP may arise on retrocession of reinsurance portfolios, including
reinsurance undertaken as part of a securitisation. The associated potential retrocession re-
coveries are determined by the nature of the retrocession agreements and by the terms of
the securitisation.
The percentage of PVFP which is expected to be amortised in each of the next five years is
6%, 6%, 5%, 5% and 5%, respectively.
152 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
6 Debt
The Group enters into long- and short-term debt arrangements to obtain funds for general
corporate use and specific transaction financing. The Group defines short-term debt as debt
having a maturity at the balance sheet date of less than one year and long-term debt as hav-
ing a maturity of greater than one year. The Group’s debt as of 31 December 2006 and 2007
was as follows:
CHF millions
Senior financial debt
Senior operational debt
Subordinated financial debt
Short-term debt – financial and operational debt
Senior financial debt
Senior operational debt
Subordinated financial debt
Subordinated operational debt
Long-term debt – financial and operational debt
2006
1 917
7 201
9 118
2 482
6 765
5 491
14 738
2007
1 254
10 478
926
12 658
1 367
8 074
6 330
7 566
23 337
Total debt
23 856
35 995
Maturity of long-term debt
Maturity of long-term debt
As of 31 December 2006 and 2007, long-term debt as reported above had the following
maturities:
CHF millions
Due in 2008
Due in 2009
Due in 2010
Due in 2011
Due in 2012
Due after 2012
Total carrying value
Total fair value
¹ This balance was reclassified to short-term debt.
2006
1 935
1 818
1 201
917
56
8 811
14 738
15 081
2007
0¹
2 381
1 245
1 730
1 167
16 814
23 337
23 266
Swiss Re 2007 Annual Report 153
Financial statements Notes to the Group financial statements
Senior long-term debt
Senior long-term debt
Maturity Instrument
2009 3 EMTN
2009 EMTN
2009 3 EMTN (zero coupon notes)
2009 EMTN
2009 EMTN
2009 EMTN
2009 EMTN
2009 Private placement
2009 Mandatory convertible bond
2009 EMTN
2009 EMTN
2009 EMTN
2009 EMTN
2009 EMTN
Senior notes¹
2010
EMTN (amortising bond)
2010
2 EMTN
2010
EMTN
2010
Credit-linked note
2011
EMTN
2011
Insurance-linked placement
2011
Credit-linked note
2012
EMTN (straight bond)
2015
Credit-linked note
2016
Credit-linked note
2017
2019
Senior notes¹
2026 Senior notes¹
2030 Senior notes¹
2032 Principal protected structured
Issued in Currency
EUR
JPY
USD
CHF
JPY
CHF
CHF
CHF
CHF
JPY
JPY
USD
GBP
EUR
USD
GBP
CHF
CZK
USD
CHF
EUR
USD
CHF
USD
USD
USD
USD
USD
USD
2004
2004
2004
2005
2005
2006
2006
2006
2006
2007
2007
2007
2007
2007
2000
2003
2005
2005
2006
2007
2007
2007
2001
2007
2000
1999
1996
2000
2007
Interest
Nominal in
rate
millions
various
20
0.81%
5 000
various
37
1.25%
300
0.41%
3 000
3M Libor + 0.5bp
300
2.50%
200
2.59%
175
9.80%
610
6M Libor + 3bp
5 000
0.32%
8 000
3M Libor –15bp
30
3M Libor + 2bp
100
3M Euribor + 3bp
150
7.50%
350
4.38%
30
various
625
300
2.88%
735 3M Libor – 95.51bp
3.13%
250
110
3.83%
980 3M Libor – 89.87bp
4.00%
150
3M Libor
295
various
39
6.45%
400
7.00%
600
350
7.75%
zero coupon
35
Book value in
CHF millions
33
51
41
300
30
301
203
175
609
51
80
34
225
248
441
68
625
19
832
250
35
1 110
151
335
1
485
770
476
40
note
Various Payment undertaking
agreements
various various various
various
1 422
Total senior debt as of 31 December 2007
Total senior debt as of 31 December 2006
¹ Assumed in the acquisition of GE Insurance Solutions
9 441
9 247
154 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Subordinated long-term debt
Subordinated long-term debt
Maturity Instrument
2021 Convertible bond
2047 Subordinated private placement
Issued in Currency
USD
2001
Nominal
in millions
1 150
Interest
rate...
... first
call in
3.25% 2011
Book value
in CHF
millions
1 285
(amortising)1
2007
GBP
1 584
4.96%
3 569
2057 Subordinated private placement
(amortising)1
Subordinated perpetual loan
2007
1998
GBP
DEM
1 774
4.79%
110 6M Libor
+ 45bp
3.75% 2011
2010
600
3 997
93
594
1999
CHF
2006
EUR
1 000
5.25% 2016
1 645
2006
USD
752
6.85% 2016
851
2007
GBP
500
6.30% 2019
1 121
2007
AUD
750
variable
2017
741
Subordinated perpetual bond
(SUPERBs)
Subordinated perpetual loan
note
Subordinated perpetual loan
note
Subordinated perpetual loan
note
Subordinated perpetual loan
note
Total subordinated debt as of 31 December 2007
Total subordinated debt as of 31 December 2006
¹ This debt is resulting from a single transaction and is non-recourse.
13 896
5 491
Swiss Re uses debt for general corporate purposes and to fund discrete pools of operational
leverage and financial intermediation assets. Operational leverage and financial intermedia-
tion are subject to strong asset and liability matching resulting in little to no risk that the assets
will be insufficient to service and settle the liabilities. Debt used for operational leverage and
financial intermediation is treated as operational debt and excluded by the rating agencies
from financial leverage calculations. As of 31 December 2006 and 2007, operational leverage
and financial intermediation liabilities amounted to CHF 32.4 billion (thereof CHF 2.5 billion
non-recourse) and CHF 52.4 billion (thereof CHF 9.8 billion non-recourse), respectively.
Interest expense on long-term debt
Interest expense on long-term debt
Interest expense on long-term debt for the years ended 31 December 2006 and 2007, respec-
tively, was as follows:
CHF millions
Senior financial debt
Senior operational debt
Subordinated financial debt
Subordinated operational debt
Total
2006
121
216
221
558
2007
83
424
327
163
997
Swiss Re 2007 Annual Report 155
Financial statements Notes to the Group financial statements
Long-term debt issued in 2007
Long-term debt issued in 2007
In January 2007, the Group issued insurance-linked securities of EUR 110 million, bearing
interest at the rate of 3.83% and due in four years.
In March 2007, the Group issued GBP 500 million subordinated step-up loan notes with a
perpetual term bearing interest at the rate of 6.30%.
In April 2007, the Group issued AUD 750 million subordinated step-up loan notes with a per-
petual term, AUD 300 million bearing interest at the rate of 7.64% and AUD 450 million bear-
ing interest at the rate of six-month Australian bank bill short-term rate plus 117 basis points.
In order to achieve favourable capital treatment from regulators and rating agencies, both in-
struments require Swiss Re, in specified circumstances (which relate to changes in the finan-
cial condition of Swiss Re) either to defer interest otherwise payable or to settle such interest
through the issue of its shares or certain other types of securities.
Further, the Group issued a subordinated private placement of GBP 1 620 million, bearing
interest at the rate of 4.96% with forty years maturity.
In June 2007, under the EMTN programme, the Group issued JPY 5 000 million with a two-
year maturity and a coupon of six-month Libor plus 3 basis points, JPY 8 000 million with a
two-year maturity and a coupon of 0.32%, and CHF 250 million with a four-year maturity and
a coupon of 3.13%. Further, the Group issued a credit linked note of USD 980 million, due in
June 2012, bearing interest of three-month Libor minus 89.87 basis points.
In July 2007, the Group issued EUR 150 million under the EMTN programme, with a two-year
maturity and a coupon of three-month Euribor plus 3 basis points, GBP 100 million with a
two-year maturity and a coupon of three-month Libor plus 2 basis points.
In September 2007, the Group issued a credit linked note of USD 295 million, due in 2016,
bearing interest of three-month USD Libor flat.
In October 2007, the Group issued a principal protected structured note of USD 35 million,
due in 2032, with zero percent coupon.
In November 2007, the Group issued a subordinated private placement of GBP 1 770 million,
bearing interest at the rate of 4.79% with a fifty years maturity.
In December 2007, the Group issued a structured EMTN of USD 30 million, due in 2009,
bearing interest of three-month USD Libor less 15 basis points.
Additional funding resources
Additional funding resources
As additional resources to meet funding requirements, Swiss Re has access to the US com-
mercial paper market through its USD 1.5 billion programme, as well as back-up credit lines
and committed repurchase facilities in place with various banks.
156 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
7 Unpaid claims and claim adjustment expenses
The liability for unpaid claims and claim adjustment expenses is analysed as follows:
CHF millions
Non-life
Life and Health
Total
2006
80 391
14 620
95 011
2007
73 171
15 357
88 528
A reconciliation of the beginning and ending reserve balances for non-life unpaid claims and
claim adjustment expenses for the periods is presented as follows:
CHF millions
Balance as of 1 January
Reinsurance recoverable
Deferred expense on retroactive reinsurance
Net
Incurred related to:
Current year
Prior year
Amortisation of deferred expense on retroactive reinsurance
and impact of commutations
Total incurred
Paid related to:
Current year
Prior year
Total paid
Foreign exchange
Effect of acquisitions, disposals, new retroactive reinsurance
and other items
Net
Reinsurance recoverable
Deferred expense on retroactive reinsurance
Balance as of 31 December
2006
59 104
–2 555
–1 057
55 492
12 292
–593
100
11 799
2007
80 391
–7 622
–875
71 894
11 945
–205
92
11 832
–2 853
–10 538
–13 391
–1 767
–12 285
–14 052
–1 796
–2 567
19 790
300
71 894
7 622
875
80 391
67 407
5 041
723
73 171
The Group does not discount liabilities arising from prospective property and casualty insur-
ance and reinsurance contracts, including liabilities which are discounted for US statutory
reporting purposes. Liabilities arising from property and casualty insurance and reinsurance
contracts acquired in a business combination are initially recognised at fair value in accord-
ance with the purchase method of accounting.
Swiss Re 2007 Annual Report 157
Financial statements Notes to the Group financial statements
Asbestos and environmental claims
Asbestos and environmental claims
exposure
exposure
The Group’s obligation for claims payments and claims settlement charges also includes ob-
ligations for long-latent injury claims arising out of policies written prior to 1985, in particular
in the area of US asbestos and environmental liability.
Due to the inherent uncertainties and assumptions on which these estimates are based, the
Group cannot exclude the need to make further additions to these provisions in the future.
At the end of 2007 the Group carried net reserves for US asbestos, environmental and other
long-latent health hazards equal to CHF 2 560 million. During 2007, the group incurred net
losses of CHF 439 million and paid net against these liabilities CHF 204 million.
The Group maintains an active commutation strategy to reduce exposure. When commutation
payments are made, the traditional “survival ratio” is artificially reduced by premature payments
which should not imply a reduction in reserve adequacy.
Prior year development
Prior year development
Claims development on prior years was broadly neutral during 2007. Adverse developments
related to 2001 and prior underwriting years were balanced by the underwriting years 2002
to 2006, which continue to develop very favourably.
Reserves for asbestos and environmental pollution claims in the U.S. were increased during
2007. Experience on workers’ compensation line of business continues to develop negatively,
and industry statistics are showing a longer development pattern. The Group revised its reserves
accordingly during the second half of 2007. The casualty line of business was negatively im-
pacted by adverse development in product liability business and medical malpractice claims.
158 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Premiums written, premiums
Premiums written, premiums
earned and fees assessed
earned and fees assessed
against policyholders
against policyholders
8 Reinsurance information
CHF millions
Premiums written
Direct
Assumed
Ceded
Total premiums written
Premiums earned
Direct
Assumed
Ceded
Total premiums earned
Non-life Life & Health
2006
Total
Non-life Life & Health
2007
Total
2 256
16 896
–979
18 173
1 594
11 050
–1 738
10 906
3 850
27 946
–2 717
29 079
2 147
4 889
2 742
12 029 29 465
17 436
–1 539 –1 598 –3 137
31 217
12 578
18 639
2 242
17 653
–1 354
18 541
1 594
11 116
–1 736
10 974
3 836
28 769
–3 090
29 515
2 838
4 986
2 148
17 537 12 101 29 638
–1 376 –1 584 –2 960
31 664
12 665
18 999
Fee income from policyholders
Direct
Assumed
Ceded
Total fee income from
policyholders
756
262
–139
756
262
–139
798
293
–136
798
293
–136
879
879
955
955
The Group has revised the classification of premiums written, premiums earned and fees
assessed against policyholders between direct and assumed for 2006. The revision has no
impact on total revenues, net income or net equity.
Swiss Re 2007 Annual Report 159
Financial statements Notes to the Group financial statements
Claims and claim adjustment expenses
Claims and claim adjustment expenses
CHF millions
Claims
Claims paid, gross
Claims paid, retro
Claims paid, net
Change in unpaid claims and
claim adjustment expenses;
life and health benefits, gross
Change in unpaid claims and
claim adjustment expenses;
life and health benefits, retro
Change in unpaid claims and
claim adjustment expenses; life
and health benefits, net
Claims and claim
adjustment expenses;
life and health benefits
Non-life Life & Health
2006
Total
Non-life Life & Health
2007
Total
–16 825
3 434
–13 391
–9 631 –26 456 –17 897 –10 971 –28 868
5 229
3 845
–7 900 –21 291 –14 052 –9 587 –23 639
1 384
5 165
1 731
3 720
–1 922
1 798
4 846
–1 810
3 036
–2 128
228
–1 900
–2 859
285
–2 574
1 592
–1 694
–102
1 987
–1 525
462
–11 799
–9 594 –21 393 –12 065 –11 112 –23 177
Acquisition costs
Acquisition costs
Acquisition costs
Acquisition costs, gross
Acquisition costs, retro
Acquisition costs, net
–3 970
147
–3 823
–2 596
340
–2 256
–6 566
487
–6 079
–3 901 –3 021 –6 922
423
–6 499
67
–3 834
356
–2 665
Reinsurance assets and liabilities
Reinsurance assets and liabilities
CHF millions
Assets
Reinsurance recoverable
Deferred acquisition costs
Liabilities
Unpaid claims and claim
adjustment expenses
Life and health policy benefits
Policyholder account balances
Non-life Life & Health
2006
Total
Non-life Life & Health
2007
Total
7 622
1 440
11 077
3 830
18 699
5 270
5 041
1 417
9 191 14 232
5 152
3 735
80 391
14 620
44 899
42 834
95 011
44 899
42 834
73 171 15 357 88 528
50 026 50 026
41 340 41 340
160 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
9 Shareholders’ equity
All of the Group‘s companies prepare statutory financial statements based on local laws and
regulations. Most jurisdictions require reinsurers to maintain a minimum amount of capital in
excess of a statutory definition of net assets or maintain certain minimum capital and surplus
levels. In addition, some jurisdictions place certain restrictions on amounts that may be loaned
or transferred to the parent company. The Group‘s ability to pay dividends may be restricted
by these requirements.
Dividends are declared in Swiss francs. For the years ended 31 December 2006 and 2007
the Group‘s dividends per share were CHF 2.50 and CHF 3.40, respectively.
CHF millions (except share data)
Basic earnings per share
Income available to common shares
Weighted average common shares outstanding
Net income per share in CHF
Years ended 31 December
2007
2006
4 560
337 961 019
13.49
4 162
348 214 512
11.95
Effect of dilutive securities
Change in income available to common shares due to
convertible bonds
Change in average number of shares due to convertible bonds
and employee options
140
143
37 275 628
35 261 146
Diluted earnings per share
Net income assuming debt conversion and exercise of options
Weighted average common shares outstanding
Net income per share in CHF
4 700
375 236 647
12.53
4 305
383 475 658
11.23
Swiss Re 2007 Annual Report 161
Financial statements Notes to the Group financial statements
10 Income taxes
The Group is generally subject to corporate income taxes based on the taxable net income in
various jurisdictions in which the Group operates. The components of the income tax charge
were:
CHF millions
Current taxes
Deferred taxes
Income tax expense
2006
581
715
1 296
2007
482
543
1 025
Tax rate reconciliation
Tax rate reconciliation
The following table reconciles the expected tax expense at the Swiss statutory tax rate to the
actual tax expense in the accompanying income statement:
CHF millions
Income tax at the Swiss statutory tax rate of 21.3% and
21.0%, respectively
Increase/decrease in the income tax charge resulting from:
Foreign income taxed at different rates
Impact of foreign exchange movements
Disallowed expenses
Tax exempt income/dividends received deduction
Change in the valuation allowance
Change in statutory tax rates
FIN 48 including interest and penalties
Other, net
Total
2006
2007
1 247
1 089
421
35
36
–262
–228
–16
0
63
1 296
247
–125
75
–141
–41
–170
83
8
1 025
162 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Deferred and other non-current taxes
Deferred and other non-current taxes
The components of deferred and other non-current taxes were as follows:
CHF millions
Deferred tax assets
Income accrued/deferred
Technical provisions
Pension provisions
Benefit on loss carryforwards
Other
Gross deferred tax asset
Valuation allowance
Total
Deferred tax liabilities
Present value of future profits
Income accrued/deferred
Bond amortisation
Deferred acquisition costs
Technical provisions
Unrealised gains on investments
Foreign exchange provisions
Other
Total
2006
2007
720
1 941
348
2 063
1 410
6 482
–1 162
5 320
–2 469
–767
–230
–746
–1 577
–649
–374
–1 193
–8 005
667
1 849
148
2 084
1 397
6 145
–994
5 151
–1 710
–500
–203
–632
–1 113
–553
–446
–1 982
–7 139
Deferred income taxes
–2 685
–1 988
FIN 48 liabilities including interest and penalties
0
–1 829
Deferred and other non-current taxes
–2 685
–3 817
Deferred taxes have not been recognised on the undistributed earnings of certain foreign sub-
sidiaries to the extent the Company considers such earnings as being indefinitely reinvested
abroad and does not expect to repatriate these earnings in the foreseeable future. The amount
of such earnings included in consolidated retained earnings as of 31 December 2007 was
approximately 6 430 million CHF. It is not practicable to estimate the amount of additional tax
that might be payable if such earnings were not reinvested indefinitely.
As of 31 December 2007, the Group had CHF 6 526 million foreign net operating tax loss
carryforwards, expiring as follows: CHF 56 million in 2008, CHF 30 million in 2009, CHF 36
million in 2010, CHF 48 million in 2011, CHF 27 million in 2012 and CHF 6 329 million after
2012. The Group also had capital loss carryforwards of CHF 337 million, expiring as follows:
CHF 6 million in 2008, CHF 279 million in 2009, CHF 8 million in 2010, CHF 26 million in
2011 and CHF 18 million after 2012. Net operating losses of CHF 1 540 million were utilised
or expired during 2007.
Income taxes paid in 2006 and 2007 were CHF 742 million and CHF 570 million, respectively.
Swiss Re 2007 Annual Report 163
Financial statements Notes to the Group financial statements
FIN 48
FIN 48
The Group adopted FIN 48 on 1 January 2007 and recognised a decrease of CHF 30 million
in the liability for unrecognised tax benefits. The decrease was reported as an adjustment
to the opening balance of retained earnings. A reconciliation of the beginning and ending
amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows:
CHF millions
Balance as of 1 January
Additions based on tax positions of the current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Reductions due to lapse of applicable statute of limitations
Balance as of 31 December
2007
1 667
233
259
–89
–106
–
1 964
The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recog-
nised, would affect the effective tax rate were approximately CHF 1 400 million and CHF 1 535
million at 1 January 2007 and 31 December 2007, respectively. Interest and penalties related
to unrecognised tax benefits are recorded in income tax expense. Such expense for the year
ending 31 December 2007 was CHF 131 million. As at 1 January 2007 and 31 December
2007, CHF 150 million and CHF 240 million, respectively, has been accrued for the payment
of interest (net of tax benefits) and penalties. The 31 December 2007 accrued interest balance
is included within the deferred and other non-current taxes section reflected above and in the
statement of financial position.
The 31 December 2007 balance of gross unrecognised tax benefits presented in the table
above is greater than the FIN 48 liability reflected in the deferred and other non-current taxes
section due to the impact of tax positions which offset loss carryforwards (CHF 375 million)
and the removal of interest expense (CHF 240 million). Unrecognised tax benefits which have
created certain loss carryforwards are net, whereby the statement of financial position does
not reflect a deferred tax asset for the attribute or a liability for the unrecognised tax benefit.
The Group continually evaluates proposed adjustments by taxing authorities. The Group be-
lieves that it is reasonably possible (more than remote and less than likely) that the balance of
unrecognised tax benefits could decrease over the next 12 months due to settlements or expi-
ration of statutes. However, quantification of an estimated range cannot be made at this time.
The following table summarises tax years that remain subject to examination in jurisdictions
of significance to the Group:
Switzerland
Germany
United States
United Kingdom
Canada
2004 – 2007
1997 – 2007
2002 – 2007
2005 – 2007
2002 – 2007
164 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Defined benefit pension plans
Defined benefit pension plans
and post-retirement benefits
and post-retirement benefits
11 Benefit plans
The Group sponsors various funded defined benefit pension plans. Employer contributions to
the plans are charged to income on a basis which recognises the costs of pensions over the
expected service lives of employees covered by the plans. The Group’s funding policy for
these plans is to contribute annually at a rate that is intended to maintain a level percentage
of compensation for the employees covered. A full valuation is prepared at least every three
years.
Effective from 1 January 2007, Swiss Re has changed the structure of its Swiss pension plan
to a defined contribution scheme. The plan will continue to be accounted for as a defined ben-
efit plan under US GAAP.
The Group also provides certain health-care and life insurance benefits for retired employees
and their dependants. Employees become eligible for these benefits when they become eli-
gible for pension benefits.
The measurement date of these plans is 30 September for each year presented (except for
one UK pension plan with a measurement date as of 31 December).
CHF millions
Benefit obligation as of 1 January
Service cost
Interest cost
Amendments
Actuarial gains/losses
Benefits paid
Employee contribution
Acquisitions/disposals
Effect of curtailment and
termination benefits
Effect of foreign currency translation
Benefit obligation as of 31 December
Fair value of plan assets
as of 1 January
Actual return on plan assets
Company contribution
Benefits paid
Employee contribution
Acquisitions/disposals
Effect of foreign currency translation
Fair value of plan assets
as of 31 December
Swiss plans
pension benefits
2007
2 893
98
88
2006
2 803
115
83
50
–81
–80
–209
–158
16
3
15
2 893
2 743
2 678
207
115
–80
2 920
275
116
–158
16
Other benefits
2007
670
28
20
2006
620
38
23
–12
–13
–231
–13
28
–14
670
–12
462
13
–13
13
–13
Foreign plans
pension benefits
2007
2 349
70
122
2006
1 712
63
92
106
–52
416
–7
19
2 349
1 191
105
76
–52
215
8
–183
–73
1
8
–2
–80
2 212
1 543
146
410
–73
1
10
–67
2 920
3 169
1 543
1 970
Funded status
27
426
–806
–242
–670
–462
Actuarial gains arising from experience adjustments as well as changes in actuarial assump-
tions for the benefit obligation resulted in an unrealised gain in 2007 of CHF 623 million net
of deferred tax impact.
Swiss Re 2007 Annual Report 165
Financial statements Notes to the Group financial statements
Amounts recognised in the balance sheet in 2007 consist of:
CHF millions
Non current assets
Current liabilities
Non current liabilities
Net amount recognised
Swiss plan
426
426
Foreign plans
101
–4
–339
–242
Other
benefits
–13
–449
–462
Total
527
–17
–788
–278
Amounts recognised in accumulated other comprehensive income, gross of tax, in 2007 con-
sists of:
Net gain/loss
Prior service cost/credit
Total
98
71
169
125
1
126
–162
–37
–199
61
35
96
Components of net periodic benefit cost and other amounts recognised in other comprehen-
sive income consist of:
CHF millions
Service cost
(net of participant contributions)
Interest cost
Expected return on assets
Amortisation of:
Net gain/loss
Prior service cost
Effect of settlement, curtailment
and termination
Net periodic benefit cost
Swiss plans
pension benefits
2007
2006
Foreign plans
pension benefits
2007
2006
Other benefits
2007
2006
115
83
–126
98
88
–141
37
3
3
115
17
7
15
84
63
92
–76
25
1
-3
102
70
122
–101
28
1
–2
118
38
23
2
–8
28
20
–7
–8
55
33
Other changes in plan assets and benefit obligations recognised in other comprehensive
income consist of:
CHF millions
Net gain/loss
Prior service cost/credit
Amortisation of:
Net gain/loss
Prior service cost
Total recognised in other
comprehensive income,
gross of tax
Total recognised in net periodic
benefit cost and other com-
prehensive income, gross of tax
Swiss plan
–343
Foreign plans
–242
–17
–7
–367
–28
–1
–271
Other
benefits
–231
7
8
–216
Total
–816
–38
–854
–283
–153
–183
–619
166 Swiss Re 2007 Annual Report
Principal actuarial assumptions
Principal actuarial assumptions
Financial statements Notes to the Group financial statements
The estimated net loss and prior service cost for the defined benefit pension plans that will be
amortised from accumulated other comprehensive income into net periodic benefit cost over
the next fiscal year are CHF 9 million and CHF 7 million, respectively. The estimated net gain
and prior service credit for the other defined post-retirement benefits that will be amortised
from accumulated other comprehensive income into net periodic benefit cost over the next
fiscal year is CHF 9 million and CHF 7 million, respectively.
The accumulated benefit obligation (the current value of accrued benefits excluding future
salary increases) for pension benefits was CHF 4 882 million and CHF 4 642 million as of
31 December 2006 and 2007, respectively.
Pension plans with an accumulated benefit obligation in excess of plan assets consist of:
CHF millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2006
2 078
1 814
1 220
2007
1 096
981
784
Assumptions used to determine
obligations at the end of the year
Discount rate
Rate of compensation increase
Assumptions used to determine net
periodic pension costs for the year ended
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Assumed medical trend rates at
year end
Medical trend – initial rate
Medical trend – ultimate rate
Year that the rate reaches the ultimate
trend rate
Swiss plans
pension benefits
2007
2006
Foreign plans
pension benefits
weighted average
2007
2006
Other benefits
weighted average
2007
2006
3.2%
2.3%
3.5%
2.3%
5.2%
4.5%
5.8%
4.7%
3.9%
4.5%
4.5% 4.5%
3.0% 3.2% 5.2%
6.5%
5.0%
5.0%
4.8%
2.3%
2.3%
5.2%
6.4%
4.5%
3.7%
3.9%
4.5%
4.5%
7.1%
4.4%
7.1%
4.6%
2014
2015
The expected long-term rates of return on plan assets are based on long-term expected infla-
tion, interest rates, risk premiums and targeted asset category allocations. The estimates take
into consideration historical asset category returns.
Assumed health-care cost trend rates have a significant effect on the amounts reported for
the health-care plans. A one percentage point change in assumed health-care cost trend rates
would have had the following effects for 2007:
CHF millions
Effect on total of service and interest cost components
Effect on post-retirement benefit obligation
1 percentage
point increase
8
69
1 percentage
point decrease
–6
–54
Swiss Re 2007 Annual Report 167
Financial statements Notes to the Group financial statements
Plan asset allocation by asset category
Plan asset allocation by asset category
The actual asset allocation by major asset category for defined benefit pension plans as of the
respective measurement dates in 2006 and 2007, are as follows:
Asset category
Equity securities
Debt securities
Real estate
Other
Total
Swiss plans actual
allocation
2007
2006
Foreign plans actual
allocation
2007
2006
Swiss
plans
Foreign
plans
Target allocation
34%
45%
14%
7%
100%
34%
45%
14%
7%
100%
56%
42%
2%
100%
51%
46%
1%
2%
100%
35%
41%
20%
4%
100%
48%
49%
2%
1%
100%
Actual asset allocation is determined by a variety of current economic and market conditions
and considers specific asset class risks.
Equity securities include Swiss Re common stock of CHF 20 million (0.4% of total plan
assets) and CHF 11 million (0.2% of total plan assets) as of 31 December 2006 and 2007,
respectively.
The Group’s pension plan investment strategy is to match the maturity profiles of the assets
and liabilities in order to reduce the future volatility of pension expense and funding status
of the plans. This involves balancing investment portfolios between equity and fixed income
securities. Tactical allocation decisions that reflect this strategy are made on a quarterly basis.
Expected contributions and estimated
Expected contributions and estimated
future benefit payments
future benefit payments
The employer contributions expected to be made in 2008 to the defined benefit pension
plans are CHF 213 million and to the post-retirement benefit plan CHF 14 million.
As of 31 December 2007, the projected benefit payments, which reflect expected future
service, not adjusted for transfers in and for employees voluntary contributions, are as follows:
CHF millions
2008
2009
2010
2011
2012
Years 2013 – 2017
Swiss plans
pension benefits
127
128
131
140
139
736
Foreign plans
pension benefits
69
71
76
82
87
534
Other benefits
13
14
16
17
19
116
Defined contribution pension plans
Defined contribution pension plans
The Group sponsors a number of defined contribution plans to which employees and the
Group make contributions. The accumulated balances are paid as a lump sum at the earlier of
retirement, termination, disability or death. The amount expensed in 2006 and in 2007 was
CHF 28 million and CHF 48 million, respectively.
168 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
12 Share-based payments
As of 31 December 2006 and 2007, the Group had the share-based compensation plans
described below.
Total compensation cost for share-based compensation plans recognised in net income was
CHF 58 million and CHF 31 million in 2006 and 2007, respectively. The related tax benefit
was CHF 13 million and CHF 7 million, respectively.
Stock option plans
Stock option plans
Stock option plans include the long-term equity award programme, the fixed-option plan and
an additional grant to certain members of executive management.
The long-term equity award programme was provided to members of the Executive Board and
certain members of management. Under the scheme, the beneficiary was allowed to choose
between the fixed-option plan or a restricted-share plan.
Under the fixed-option plan, the exercise price of each option is equal to the market price of the
shares on the date of the grant. Options issued vest at the end of the fourth year and have a
maximum life of ten years.
A summary of the activity of the Group’s stock option plan is as follows:
Outstanding as of 1 January
Options granted
Options exercised
Options sold
Options forfeited or expired
Outstanding as of 31 December
Exercisable as of 31 December
Weighted average
exercise price in CHF
122
2007
Number of shares
9 054 382
68
141
111
123
–350 273
–698 525
–69 350
7 936 234
137
5 639 884
The weighted average fair value of options granted per share was CHF 13 in 2006. No options
were granted in 2007.
The following table summarises the status of stock options outstanding as of 31 December
2007:
Range of exercise
price in CHF
67 – 99
128 – 187
67 – 187
Number of
options
3 489 802
4 446 432
7 936 234
Weighted average
remaining contractual
life in years
7.0
3.5
5.0
Weighted average
exercise price in CHF
82
155
123
The fair value of each option grant is estimated on the date of grant using a binomial option-
pricing model, with the following weighted average assumptions used for grants in 2006:
dividend yield of 3.8%; expected volatility of 20.0%; risk-free interest rate of 2.4%; expected
life of 6.0 years. No new stock options were granted in 2007.
Swiss Re 2007 Annual Report 169
Financial statements Notes to the Group financial statements
Options exercisable
Options exercisable
The status of stock options exercisable as of 31 December 2007 is summarised as follows:
Range of
exercise prices
67 – 128
133 – 187
67 – 187
Number
exercisable (vested)
2 065 192
3 574 692
5 639 884
Weighted average
remaining contractual
life in years
4.7
3.6
4.0
Weighted average
exercise price in CHF
94
161
136
The Group introduced a restricted-share plan during 2004 to complement the fixed-option
plan. No new shares were granted under this plan in 2007.
Additionally, restricted bonus shares were issued during 2006 and 2007.
122 070 and 69 770 restricted shares were granted in 2006 and 2007. The shares issued
vest at the end of the fourth year.
A summary of shares relating to outstanding awards granted under the above mentioned
plans as of December 2007 is presented below:
Non-vested at January
Granted
Forfeited
Outstanding as of 31 December
Number of shares
612 732
67 770
–14 617
665 885
Weighted average
grant date fair value
76
108
87
79
The weighted average fair value of restricted shares, which equals the market price of the
shares on the date of the grant, was CHF 95 and CHF 108 in 2006 and 2007, respectively.
In 2006 and 2007, the Group granted a Long-term Incentive plan (LTI) to selected employees
with a three year vesting period. The plan is expected to be settled in cash. The requisite
service periods as well the maximum contractual term is 3 years. The method to estimate fair
value is based on a risk neutral approach which uses the current share price as an estimate of
the share price at the end of the vesting period. In order to determine the fair value the follow-
ing key performance indicators are also taken into consideration: 3 year average return on
equity (ROE) and 3 year earnings per share compounds annual growth rate (EPS CAGR). Fair
value is revised at every balance sheet date.
In 2006 the Group has issued 3 million stock appreciation rights as an extraordinary grant
following the Insurance Solutions acquisition. The plan will be settled in cash. The requisite
service periods is 2 years while the maximum contractual term is 5 years. The fair value of the
appreciation rights is estimated at date of grant using a binomial option-pricing model and is
revised at every balance sheet date.
Restricted shares
Restricted shares
Long-term incentive plan
Long-term incentive plan
Stock appreciation rights
Stock appreciation rights
170 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Unrecognised compensation cost
Unrecognised compensation cost
As of 31 December 2007, the total unrecognised compensation cost (net of expected for-
feitures) related to non-vested share-based compensation awards and the weighted average
period over which that cost is expected to be recognised is as follows:
Name of plan
Stock option plans
Restricted shares
Long-term incentive plan
Stock appreciation rights
Total
Unrecognised
compensation cost
CHF million
7
21
61
3
92
Weighted
average period
1.0
2.5
1.8
0.5
1.9
The number of shares authorised for the Group’s share-based payments to employees was
806 179 and 1 204 155 as of 31 December 2006 and 2007, respectively.
Employee participation plan
Employee participation plan
Swiss Re‘s 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.
Swiss Re contributes to the employee savings over the period of the scheme.
At maturity, the employee either receives shares or cash equal to the accumulated savings
balance, or the employee may elect to exercise the options.
In 2006 and 2007, 519 991 and 980 711 options, respectively, were issued to employees and
the Group contributed CHF 14 million and CHF 19 million, respectively, to the plan.
Swiss Re 2007 Annual Report 171
Financial statements Notes to the Group financial statements
13 Compensation, participations and loans of members
of governing bodies
The section below follows articles 663bbis and 663c para. 3 of the Swiss Code of Obligations,
which require disclosure of the elements of compensation paid to Swiss Re’s Board of Directors
and Executive Committee, as well their shareholdings and loans.
Article 663bbis of the Swiss Code of Obligations requires disclosure of total compensation
paid to members of the Board of Directors and the Executive Committee. Compensation to
members of the Board of Directors and the highest paid member of the Executive Committee
are shown individually. For a description of the elements of this compensation, please see
page 110 of the corporate governance and compensation report.
Compensation for acting members
Compensation for acting members
of governing bodies
of governing bodies
Board of Directors
Board of Directors
Total compensation of 13 members of the Board of Directors was as follows:
CHF thousands
Honorarium and cash allowances
Honorarium shares
Funding of pension benefits
Total
Individual compensation of members of the Board of Directors is as follows:
CHF thousands
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
Jakob Baer, Chairman of the Audit Committee
Thomas W. Bechtler, Member
Raymund Breu, Member
John R. Coomber, Chairman
of the Finance and Risk Committee
Dennis D. Dammerman, Member1
Rajna Gibson Brandon, Member
Bénédict G. F. Hentsch, Member
Hans Ulrich Maerki, Member2
Robert A. Scott, Chairman of the
Compensation Committee
John F. Smith, Jr., Member
Kaspar Villiger, Member
Total
Honorarium and
cash allowances
2 600
1 288
392
195
Honorarium
shares
667
1 382
393
130
325
Pension
223
354
59
163
195
255
97
163
5 761
233
39
162
130
227
170
228
162
4 248
223
¹ Retired from the Board of Directors at the Annual General Meeting of 20 April 2007.
² Elected to the Board of Directors at the Annual General Meeting of 20 April 2007.
2007
5 761
4 248
223
10 232
Total
3 267
2 893
785
325
325
587
98
325
325
227
425
325
325
10 232
172 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Members of the Board of Directors, except for the Chairman and Vice Chairman, received
an honorarium, a mandatory 40% of which is in the form of shares; the remainder may be
taken either in the form of cash or shares with a four-year deferral period. The share price on
2 March 2007 of CHF 107.90 has been used for calculating the number of shares awarded
based upon the amount of the honorarium received in shares. For the Chairman and the Vice
Chairman, the same approach as for the Executive Committee applies.
The Compensation Committee of the Board of Directors decided to remunerate the Chairman
and Vice Chairman going forward through a fixed honorarium rather than a variable bonus.
Executive Committee
Executive Committee
Total compensation for 8 members of the Executive Committee was as follows:
CHF thousands
Base salary and allowances
Variable pay for performance year 2007
Cash bonus
Bonus shares
Value Alignment Incentive 2007 grant1
Compensation due to member leaving
Subtotal
Long-term Incentive plan 2007 grant2
Funding of pension benefits
Total
Change in 2007 fair value of plans vesting over several years
2007
8 868
25 334
10 229
2 862
12 243
2 280
36 482
19 115
1 494
57 091
1 556
1 Includes 25% uplift on nominal value, which will be paid out at vesting after three years, adjusted for change in fair value.
2 The Long-term Incentive will be paid out after the three-year vesting period. For further details on the Value Alignment
Incentive and Long-term Incentive please refer to the text in the highest paid member of Executive Committee – Jacques
Aigrain (Chief Executive Officer) section and to page 110 of the corporate governance and compensation report.
Swiss Re 2007 Annual Report 173
Financial statements Notes to the Group financial statements
Highest paid member of
Highest paid member of
Executive Committee – Jacques Aigrain
Executive Committee – Jacques Aigrain
(Chief Executive Officer)
(Chief Executive Officer)
CHF thousands
Base salary and allowances
Variable pay for 2007 performance year
Cash bonus
Value Alignment Incentive 2007 grant1
Subtotal
Long-term Incentive plan 2007 – grant2
Funding of pension benefits
Total
Change in 2007 fair value of plans vesting over several years
2007
1 475
7 475
2 600
4 875
8 950
5 966
223
15 139
591
¹
²
Includes 25% uplift on nominal value, which will be paid out at vesting after three years, adjusted for change in fair value
The Long-term Incentive will be paid out after the three-year vesting period. For further details on the Value Alignment
Incentive and Long-term Incentive please refer to the text below and to page 110 of the corporate governance and com-
pensation report.
In this annual report, the fair value of the Value Alignment Incentive (VAI) is based on the nom-
inal amount of the grant and the uplift of 25% on nominal value. The fair value of VAI granted
in 2006 is updated based on actual results in 2007. The fair values will change based upon
the actual results in 2008 and 2009. The amounts included in respect of the VAI are the fair
value of awards during the year plus the change in fair value of prior-year awards. For a de-
scription of the Value Alignment Incentive plan, see page 111 of the corporate governance
and compensation report.
As of 31 December 2007, the fair value of the Long-term Incentive (LTI) plans that were grant-
ed in 2006 and 2007 was based on the actual results for 2006 and 2007and the forecast
results for 2008 and 2009. It will change based upon the actual results in 2008 and 2009.
The amounts included in respect of the LTI are the fair value of awards during the year as well
the change in fair value of prior years’ awards. For a description of the Long-term Incentive
plan, see page 112 of the corporate governance and compensation report.
Shares awarded to the members of the Executive Committee are subject to a one-year block-
ing period. The bonus plan stipulates that Executive Committee members decide on the split
between cash and shares. The shares are awarded at a discount to the open market. The
share price on 31 December 2007 of CHF 80.45, net of discount, has been used for calculat-
ing the number of shares awarded based upon the amount of the bonus received in shares.
For US GAAP reporting purposes, the cost of the bonus shares, VAI and LTI awards are ac-
crued over the period during which they are earned. For the current compensation disclosure
purposes the full fair value of awards granted is included as compensation in the year of grant
together with the change in fair value of prior-year awards.
174 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
As of 1 January 2007, Swiss Re converted the employee pension fund in Switzerland from a
defined benefit plan to a defined contribution plan (as defined under Swiss Law) requiring ac-
tuarially determined one-off contributions to the plan which did not give rise to higher pension
entitlement. The remuneration for 2007 disclosed above excludes these one-off contributions
arising from the conversion. The actuarially determined contribution amounts were approxi-
mately CHF 4.8 million in total for the Board of Directors and Executive Committee. Therefore,
certain members of the Executive Committee and the Board of Directors are now in a defined
contribution scheme and their pension funding compensation in the remuneration tables
above reflects the actual employer contributions. Where defined benefit arrangements persist
the funding is determined on an actuarial basis which can vary substantially from year to year
depending on age and years of service of the benefiting Executive Committee members.
Compensation to former members
Compensation to former members
of governing bodies
of governing bodies
CHF thousands
Former members of the Executive Committee
Former members of the Board of Directors
Total
2007
530
–
530
Share ownership, options and
Share ownership, options and
related instruments
related instruments
The compensation to former members of the Executive Committee relates to social security on
compensation of prior years and preferential interest rates on loans.
The disclosure below follows article 663c para. 3 of the Swiss Code of Obligations which re-
quires disclosure of share ownership, options and related instruments individually for each
member of the Board of Directors and Executive Committee, including shares, options and re-
lated instruments held by persons closely related to, and by companies controlled by mem-
bers of the Board of Directors and Executive Committee.
Members of the Board of Directors
Peter Forstmoser
Walter B. Kielholz
Jakob Baer
Thomas W. Bechtler
Raymund Breu
John R. Coomber
Rajna Gibson Brandon
Bénédict G. F. Hentsch
Hans Ulrich Maerki
Robert A. Scott
John F. Smith, Jr.
Kaspar Villiger
Total
Function
Chairman
Vice Chairman
Chairman of the Audit Committee
Member
Member
Chairman of the Finance and Risk Committee
Member
Member
Member
Chairman of the Compensation Committee
Member
Member
Members of the Executive Committee
Jacques Aigrain
Andreas Beerli
Roger W. Ferguson
Michel M. Liès
Stefan Lippe
Christian Mumenthaler
George Quinn
Total
Function
Chief Executive Officer
Chief Operating Officer
Head of Financial Services Products
Head of Client Markets
Head of (Re)Insurance Products
Chief Risk Officer
Chief Financial Officer
Number of shares held as
of 31 December 2007
98 775
123 775
10 336
17 673
12 208
113 541
11 440
9 755
3 819
9 249
9 878
4 833
425 282
Number of shares held as
of 31 December 2007
236 275
30 828
–
48 093
39 100
2 419
14 929
371 644
Swiss Re 2007 Annual Report 175
Financial statements Notes to the Group financial statements
Restricted shares
Restricted shares
In 2004 and 2005, the beneficiaries of the long-term equity award programme received, as
an alternative to the stock options, the right to opt for restricted shares. The applicable ratio
of stock options to restricted shares was four to one. The restricted shares vest after four years.
During the vesting period, there is a risk of forfeiture.
The following unvested restricted shares were held by members of governing bodies as of
31 December 2007.
Members of the Board of Directors
Grant year
Share price in CHF as of grant date
Peter Forstmoser, Chairman
Members of the Executive Committee
Grant year
Share price in CHF as of grant date
Jacques Aigrain
Andreas Beerli
Michel M. Liès
Stefan Lippe
Christian Mumenthaler
Total
Chief Executive Officer
Chief Operating Officer
Head of Client Markets
Head of (Re)Insurance Products
Chief Risk Officer
2004
93
10 000
2004
93
7 500
1 250
8 750
2005
83
5 000
2005
83
13 750
7 500
3 750
9 125
5 000
39 125
Unvested options
Unvested options
The following unvested options were held by members of governing bodies on 31December
2007.
Members of the Board of Directors
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
John R. Coomber
Total
Members of the Executive Committee
Jacques Aigrain
Michel M. Liès
Stefan Lippe
George Quinn
Total
Number of
options
20 000
40 000
130 000
190 000
Number of
options
150 000
42 000
41 000
25 000
258 000
Average strike
price in CHF
82.9
87.9
87.5
87.1
Average strike
price in CHF
95.3
89.4
91.7
86.7
92.9
Exercise years
2015
2014 – 2015
2014 – 2015
Exercise years
2014 – 2015
2014 – 2015
2011 – 2014
2011 – 2015
Options have a four-year vesting period, during which there is a risk of forfeiture, and an exer-
cise period of six years. The exchange ratio is 1:1, meaning each option entitles the beneficiary
to purchase one share at a non-adjustable strike price.
176 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Vested options
Vested options
The following vested and privately purchased options were held by members of governing
bodies as of 31December 2007.
Members of the Board of Directors
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
John R. Coomber
Total
Members of the Executive Committee
Jacques Aigrain
Andreas Beerli
Michel M. Liès
Stefan Lippe
Christian Mumenthaler
George Quinn
Total
Number of
options
30 000
337 950
207 000
574 950
Number of
options
90 000
103 600
104 000
86 400
2 000
24 600
410 600
Average strike
price in CHF
67.7
Exercise
years
2013
133.4 2008 – 2012
128.4 2008 – 2013
128.2
Exercise
Average strike
years
price in CHF
101.7
2012 – 2013
130.8 2008 – 2013
136.4 2008 – 2013
2008 – 2013
118.4
144.3
2012
135.0 2009 – 2013
123.5
Loans to members of governing bodies
Loans to members of governing bodies
The following loans were granted to members of governing bodies:
Mortgages and loans to members of the Board of Directors
Walter B. Kielholz, Vice Chairman
Total mortgages and loans to 4 members of the Executive Committee
Highest mortgages and loans to an individual member of the Executive Committee
Andreas Beerli, Chief Operating Officer
Total mortgages and loans not at market conditions
to 3 former members of the Executive Committee
CHF thousands
2 000
8 585
3 000
4 184
All credit is secured against real estate or pledged shares. The terms and conditions of loans
and mortgages are the same as those available to all Swiss Re employees in the respective
locations. Fixed-rate mortgages have a maturity of five years and interest rates that correspond
to the five-year Swiss franc swap rate plus a margin of 10 basis points. Adjustable-rate mort-
gages have no agreed maturity dates. The basic preferential interest rates are equal to the cor-
responding interest rates applied by the Zurich Cantonal Bank minus one percentage point.
To the extent that fixed or adjustable interest rates are preferential, such values have been
factored into the compensation sums given to the governing body members in accordance
with section 5.1 of the corporate governance and compensation report for acting members
of governing bodies.
Swiss Re 2007 Annual Report 177
Financial statements Notes to the Group financial statements
14 Commitments and contingent liabilities
Leasing commitments
Leasing commitments
As part of its normal business operations, the Group enters into a number of lease agree-
ments. Such agreements, which are operating leases, total the following obligations for the
next five years and thereafter:
As of 31 December 2007
2008
2009
2010
2011
2012
After 2012
Total operating lease commitments
Less minimum non-cancellable sublease rentals
Total net future minimum lease commitments
CHF millions
97
87
80
73
68
711
1 116
–94
1 022
The following schedule shows the composition of total rental expenses for all operating leases
as of 31 December (except those with terms of a month or less that were not renewed):
CHF millions
Minimum rentals
Sublease rental income
Total
2006
66
–9
57
2007
69
–3
66
As a participant in limited investment partnerships, the Group commits itself to making avail-
able certain amounts of investment funding, callable by the partnerships for periods of up to
10 years. The total commitments remaining uncalled as of 31 December 2006 and 2007
were CHF 1 212 million and CHF 1 837 million, respectively. The comparative amount of total
commitments uncalled as of 31 December 2006 has been revised compared to the number
published in the Annual Report 2006.
The Group enters into a number of contracts in the ordinary course of reinsurance and financial
market business which, if the Group’s credit rating and/or defined statutory measures decline
to certain levels, would require the Group to post collateral or obtain guarantees. The contracts
typically provide alternatives for recapture of the associated business.
In the normal course of business operations, the Group is involved in various claims, lawsuits
and regulatory matters. In the opinion of management, the disposition of these or any other
legal matters, except as disclosed in this note, is not expected to have a material adverse effect
on the Group’s business, consolidated financial position or results of operations.
Other commitments
Other commitments
Legal proceedings
Legal proceedings
178 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
15 Information on business segments
The Group provides reinsurance, insurance and financial services throughout the world through
three business segments. The business segments are determined by the organisational struc-
ture and by the way in which management reviews the operating result of the Group. The
busi ness segments in place are Property & Casualty, Life & Health and Financial Markets. Group
items include items which are not allocated to operating segments including foreign exchange
remeasurement, the mark to market of trading portfolios designated to match foreign currency
reinsurance net liabilities, financing costs for operational and financial debt and corporate
entre expenses. The comparative business segment information is represented accordingly.
Net investment income and net realised gains which are attributable to either Property and
Casualty or Life and Health are directly allocated to these business segments. This includes
income and charges on cedent deposits, reinsurance derivatives, income on unit-linked and
with-profit business and other items. These returns are excluded from the Financial Market
segment. Net investment income and realised investment gains/losses generated in the
Financial Markets segment, including return on fixed income securities, equity securities and
alternative investments, are allocated to the Property & Casualty and Life & Health business seg-
ments based on tech nical reserves and other information including duration of the underlying
liabilities as a key for the allocation.
The accounting policies of the business segments are in line with those described in the sum-
mary of significant accounting policies (see Note 1).
Please refer to Note 18 for a description of the changes in presentation and disclosure.
Swiss Re 2007 Annual Report 179
Financial statements Notes to the Group financial statements
a) Business segment results
For the years ended 31 December
2006
CHF millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses; life and health benefits
Interest credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Financial
Markets
6 055
765
201
7 021
Property & Casualty
Life & Health
18 541
3 753
379
58
22 731
–11 799
–3 823
–1 496
10 974
879
3 686
1 667
17 206
–9 594
–2 827
–2 256
–983
–17 118
–15 660
0
Group items
Allocation
Total
184
103
21
308
–5 687
–808
–6 495
–605
–1 026
–1 631
–506
–506
29 515
879
7 991
2 106
280
40 771
–21 393
–2 827
–6 079
–3 590
–1 026
–34 915
Operating income/loss
5 613
1 546
7 021
–1 323
–7 001
5 856
2007
CHF millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses; life and health benefits
Interest credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Financial
Markets
8 388
–1 181
125
7 332
Property & Casualty
Life & Health
18 999
4 458
–74
97
23 480
12 665
955
5 441
863
5
19 929
–12 065
–3 834
–1 633
–11 112
–2 120
–2 665
–1 313
–17 532
–17 210
0
Group items
Allocation
Total
236
-209
75
102
–7 831
–138
–7 969
–626
–1 649
–2 275
–505
–165
–670
31 664
955
10 692
–739
302
42 874
–23 177
–2 120
–6 499
–4 077
–1 814
–37 687
Operating income/loss
5 948
2 719
7 332
–2 173
–8 639
5 187
180 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
b) Property & Casualty business segment – by line of business
For the years ended 31 December
2006
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Acquisition costs
Other expenses
Total expenses
Property
traditional
Casualty
traditional
Specialty
traditional
Total
traditional
Non-
traditional
6 096
620
–48
–20
6 648
–2 779
–1 074
–487
–4 340
7 542
2 232
305
10 079
–6 220
–1 404
–620
–8 244
4 223
552
74
52
4 901
17 861
3 404
331
32
21 628
–2 290
–1 015
–282
–3 587
–11 289
–3 493
–1 389
–16 171
680
349
48
26
1 103
–510
–330
–107
–947
Total
18 541
3 753
379
58
22 731
–11 799
–3 823
–1 496
–17 118
Operating income/loss
2 308
1 835
1 314
5 457
156
5 613
Claims ratio in %
Expense ratio in %
Combined ratio in %
2007
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Acquisition costs
Other expenses
Total expenses
45.6
25.6
71.2
82.5
26.8
109.3
54.2
30.7
84.9
63.2
27.3
90.5
Property
traditional
Casualty
traditional
Specialty
traditional
Total
traditional
Non-
traditional
6 464
533
–171
–7
6 819
–2 800
–1 143
–510
–4 453
7 446
3 205
52
10 703
–6 634
–1 417
–732
–8 783
4 600
372
6
104
5 082
18 510
4 110
–113
97
22 604
489
348
39
876
Total
18 999
4 458
–74
97
23 480
–2 063
–1 102
–292
–3 457
–11 497
–3 662
–1 534
–16 693
–568
–172
–99
–839
–12 065
–3 834
–1 633
–17 532
Operating income/loss
2 366
1 920
1 625
5 911
37
5 948
Claims ratio in %
Expense ratio in %
Combined ratio in %
43.3
25.6
68.9
89.1
28.9
118.0
44.8
30.3
75.1
62.2
28.0
90.2
Swiss Re 2007 Annual Report 181
Financial statements Notes to the Group financial statements
c) Life & Health business segment – by line of business
For the years ended 31 December
2006
CHF millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses; life and health benefits
Interest credited to policyholders
Acquisition costs
Other expenses
Total expenses
Operating income/loss
Operating result, excluding non-participating net realised investment gains/losses
Net investment income – unit-linked
Net realised investment gains/losses – unit-linked
Net realised investment gains/losses – non-participating
Operating revenues1
Management expense ratio in %
Return on operating revenues in %
Life
traditional
Health
traditional
Admin Re®
Total
7 851
38
1 213
505
2 243
518
72
880
841
1 955
1 090
10 974
879
3 686
1 667
9 607
2 833
4 766
17 206
–6 081
–569
–1 607
–503
–8 760
847
759
109
410
88
–1 763
–550
–161
–2 474
359
272
87
–1 750
–2 258
–99
–319
–4 426
–9 594
–2 827
–2 256
–983
–15 660
340
350
561
909
–10
1 546
1 381
670
1 319
165
9 000
2 746
3 306
15 052
5.6
8.4
5.9
9.9
9.6
10.6
6.5
9.2
¹ Operating revenues exclude net investment income and net realised investment gains from unit-linked business as these are passed through to contract holders via interest credited to
policyholders and therefore do not have an impact on the operating result.
182 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
For the years ended 31 December
2007
CHF millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses; life and health benefits
Interest credited to policyholders
Acquisition costs
Other expenses
Total expenses
Operating income/loss
Operating result, excluding non-participating net realised investment gains/losses
Net investment income – unit-linked
Net realised investment gains/losses – unit-linked
Net realised investment gains/losses – non-participating
Operating revenues1
Management expense ratio in %
Return on operating revenues in %
Life
traditional
Health
traditional
Admin Re®
Total
8 311
48
1 769
–161
5
9 972
–6 226
255
–1 697
–684
–8 352
1 620
1 710
111
–421
–90
2 950
724
–54
1 404
907
2 948
1 078
3 620
6 337
12 665
955
5 441
863
5
19 929
–2 239
–596
–159
–2 994
626
612
14
–2 647
–2 375
–372
–470
–5 864
–11 112
–2 120
–2 665
–1 313
–17 210
473
422
638
933
51
2 719
2 744
749
512
–25
10 372
3 606
4 715
18 693
6.6
16.5
4.4
17.0
10.0
9.0
7.0
14.7
¹ Operating revenues exclude net investment income and net realised investment gains from unit-linked business as these are passed through to contract holders via interest credited to
policyholders and therefore do not have an impact on the operating result.
Swiss Re 2007 Annual Report 183
Financial statements Notes to the Group financial statements
d) Financial Markets
For the years ended 31 December
2006
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Acquisition costs
Other expenses
Total expenses
Operating income/loss
2007
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Acquisition costs
Other expenses
Total expenses
Credit & Rates
Equity &
Alternative
Investments
Other
Total
5 771
–182
201
5 790
313
904
1 217
–29
43
14
0
0
5 790
1 217
0
14
6 055
765
201
7 021
0
0
0
0
7 021
Credit & Rates
Equity &
Alternative
Investments
Other
Total
7 999
–1 518
125
6 606
413
1 631
–24
–1 294
2 044
–1 318
8 388
–1 181
125
7 332
0
0
0
0
0
0
0
Operating income/loss
6 606
2 044
–1 318
7 332
184 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
e) Net premiums earned and fees income from policyholders by country
CHF millions
United States
United Kingdom
Germany
Canada
France
Australia
Italy
Switzerland
Spain
Other
Total
2006
12 320
3 513
2 560
1 235
1 137
979
804
705
626
6 515
30 394
2007
13 387
4 788
1 983
1 314
1 220
997
994
832
704
6 400
32 619
Swiss Re 2007 Annual Report 185
Financial statements Notes to the Group financial statements
Subsidiaries and equity investees
Subsidiaries and equity investees
Share capital
(CHF millions)
Affiliation in %
as of 31.12.2007
Method of
consolidation
16 Subsidiaries, equity investees and variable interest entities
Europe
Denmark
Swiss Re Denmark Holding ApS2
Swiss Re Denmark Reinsurance A/S2
France
Frasecur Société d‘Investissement à Capital Variable1
Protegys Assurance
Germany
Swiss Re Frankona Management Service GmbH2
Swiss Re Frankona Rückversicherungs AG2
Swiss Re Germany AG
Swiss Re Germany Holding GmbH2
Hungary
Swiss Re Treasury (Hungary) Ltd.
Ireland
Swiss Re International Treasury (Ireland) Ltd.
Swiss Re Ireland Ltd.
Swiss Re Life & Health (Ireland) Ltd.
Swiss Reinsurance Ireland Limited2
Luxembourg
Swiss Re Europe S.A.
Swiss Re Finance (Luxembourg) S.A.
Swiss Re Funds (LUX) I
Swiss Re Management (Luxembourg) S.A.
Swiss Re Treasury (Luxembourg) S.A.
Malta
Swiss Re Finance (Malta) Ltd.
Swiss Re Treasury (Malta) Limited
Method of consolidation:
f
full
e equity
1 Net asset value instead of share capital
2 From acquisition of GE Insurance Solutions
Netherlands
Algemene Levensherverzekering Maatschappij N.V.
Atradius
Calam C.V.
Reassurantie Maatschappij Nederland N.V.
Swiss Re Life & Health Nederland N.V.
Swiss Re Nederland Holding B.V.
186 Swiss Re 2007 Annual Report
54
43
97
14
0
83
74
42
0
0
166
1
166
114
0
3 505
329
174
3 173
828
8
94
0
12
6
1
100
100
99.96
34
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
34.95
100
100
100
100
f
f
f
e
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
e
f
f
f
f
Financial statements Notes to the Group financial statements
Share capital
(CHF millions)
Affiliation in %
as of 31.12.2007
Method of
consolidation
Switzerland
D Holding
European Reinsurance Company of Zurich
SR Institutional Funds1
Swiss Re Asset Management Funds (Switzerland) AG
Swiss Re Partnership Holding AG
Tertianum AG
9
312
12 269
1
0
10
48.14
100
85.93
100
100
23.2
United Kingdom
Admin Re UK Limited
Banian Investments UK Ltd.
Calico Leasing (GB) Ltd.
Cyrenaic Investments (UK) Ltd.
Dex Name Ltd.
European Credit and Guarantee Insurance PCC Ltd.
Life Assurance Holding Corporation Ltd.
NM Insurance Holdings Limited
NM Life Group Limited
NM Life Limited
NM Pensions Limited
Reassure UK Life Assurance Company Ltd.
SR Delta Investments (UK) Ltd.
SR International Business Insurance Company Ltd.
SRNY Limited
Swiss Re BHI Limited
Swiss Re Capital Markets Ltd.
Swiss Re Financial Services Ltd.
Swiss Re Frankona LM Limited2
Swiss Re Frankona Reinsurance Ltd.2
Swiss Re GB Plc
Swiss Re Life & Health Limited
Swiss Re Properties Ltd.
Swiss Re Services Ltd.
Swiss Re Specialised Investments Holdings (UK) Ltd.
Swiss Re Specialty Insurance (UK) Ltd.2
Swiss Reinsurance Company UK Ltd.
The Mercantile & General Reinsurance Company Ltd.
The Palatine Insurance Company Limited
Windsor Life Assurance Company Ltd.
XSMA Ltd.
12
1
79
1 352
26
10
165
296
337
214
304
870
16
288
75
0
68
16
16
0
1 439
428
0
5
2
41
1 068
0
17
7
34
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
e
f
f
f
f
e
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
e
f
f
f
f
f
f
f
f
f
f
f
f
Swiss Re 2007 Annual Report 187
Financial statements Notes to the Group financial statements
Share capital
(CHF millions)
Affiliation in %
as of 31.12.2007
Method of
consolidation
North America and Caribbean
Barbados
Accra Holdings Corporation
Atlantic International Reinsurance Company Ltd.
European Finance Reinsurance Company Ltd.
European International Holding Company Ltd.
European International Reinsurance Company Ltd.
Gasper Funding Corporation
Stockwood Reinsurance Company, Ltd.
Underwriters Reinsurance Company (Barbados) Ltd.
Bermuda
CORE Reinsurance Company Limited
Englewood Ltd.
Life Re International, Ltd.
Old Fort Insurance Company Ltd.
Swiss Re Global Markets Limited
SwissRe Capital Management (Bermuda) Ltd.
SwissRe Finance (Bermuda) Ltd.
SwissRe Investments (Bermuda) Ltd.
Canada
Swiss Re Holdings (Canada) Inc.
Swiss Re Life & Health Canada
Swiss Reinsurance Company Canada
Cayman Islands
Ampersand Investments (UK) Ltd.
Cobham Funding Ltd.
Dunstanburgh Finance (Cayman) Ltd.
Farnham Funding Ltd.
Kilgallon Finance Ltd.
SR Alternative Financing I SPC
SR Alternative Financing II SPC
SR Cayman Holdings Ltd.
SR York Limited
Swiss Re Dorus Investment Ltd.
Swiss Re Funding (UK) Ltd.
Swiss Re Hedge Funds SPC
Swiss Re Strategic Investments (UK) Ltd.
SV Corinthian Investments Ltd.
18
5
6
1 466
1 804
19
1
18
0
0
0
0
0
0
0
0
135
130
12
0
23
0
5
23
0
0
0
113
0
0
0
0
0
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
188 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
Share capital
(CHF millions)
Affiliation in %
as of 31.12.2007
Method of
consolidation
United States
Conning & Company
Core Insurance Holdings Inc.2
Employers Reinsurance Corporation2
Facility Insurance Corporation
Facility Insurance Holding Corporation
First Specialty Insurance Corporation2
Industrial Risk Insurers2
Life Re Capital Trust I
North American Capacity Insurance Company
North American Elite Insurance Company
North American Specialty Insurance Company
Reassure America Life Insurance Company
Southwestern Life Holdings, Inc.
SR PA Finance Inc
Swiss Re America Holding Corporation
Swiss Re Asset Management (Americas) Inc.
Swiss Re Atrium Corporation
Swiss Re Capital Markets Corporation
Swiss Re Financial Products Corporation
Swiss Re Financial Services Corporation
Swiss Re Solutions Holding Corporation2
Swiss Re Life & Health America Holding Company
Swiss Re Life & Health America Inc.
Swiss Re Management Corporation
Swiss Re Partnership Holding, LLC
Swiss Re Treasury (US) Corporation
Swiss Reinsurance America Corporation
Washington International Insurance Company
Westport Insurance Corporation2
Australia
Swiss Re Australia Ltd.
Swiss Re Life & Health Australia Ltd.
The Mercantile and General Reinsurance Company
of Australia Ltd.
Africa
South Africa
Swiss Re Africa Ltd.
Swiss Re Life & Health Africa Ltd.
Asia
Singapore
ERC Asia Pacific Pte Ltd
0
0
7
1
0
6
3
4
5
4
5
6
1
0
0
0
1
0
0
0
10
5
5
1
0
0
12
5
6
20
154
0
2
0
4
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
f
Swiss Re 2007 Annual Report 189
Financial statements Notes to the Group financial statements
Variable interest entities
The Group holds a variable interest in various entities due to a modified coinsurance agree-
ment, certain insurance-linked and credit-linked securitisations, private equity limited partner-
ships, hedge funds, debt financing and other entities, which meet the definition of a variable
interest entity (VIE).
The insurance-linked and credit-linked securitisations transfer pre-existing insurance or credit
risk to the capital markets through the issuance of insurance-linked or credit-linked securities.
In insurance-linked securitisations, the securitisation vehicle initially assumes the insurance risk
through insurance contracts. In credit-linked securitisations, the securitisation vehicle initially
assumes the credit risk through credit default swaps.
The securitisation vehicle generally retains the issuance proceeds as collateral. The Group’s
variable interests arise through ownership of insurance-linked and credit-linked securities, or
through protection provided for the value of the collateral held. The Group’s maximum expo-
sure to loss equals the higher of the carrying amount of the collateral protected or the carrying
amount of the insurance-linked or credit-linked securities held. The collateral held usually
consists of investment grade securities.
Commercial paper conduit vehicles issue commercial paper to finance the purchase of assets.
The Group assumes the risks and rewards of a portion of the assets held by the vehicle through
a total return swap. The maximum exposure to loss equals the carrying amount of the assets
underlying the total return swap.
Investment vehicles include private equity limited partnerships and hedge funds. The Group’s
variable interests arise through an ownership interest in the vehicle or a guarantee of the value
of the assets held by the vehicle. The maximum exposure to loss equals the carrying amount
of the ownership interest or the maximum amount payable under the guarantee.
Debt financing vehicles issue loan notes to provide Swiss Re with funding. The maximum
potential loss is limited to the lower of the total assets excluding the funding provided to
Swiss Re and the carrying amount of Swiss Re’s ownership interest.
190 Swiss Re 2007 Annual Report
Financial statements Notes to the Group financial statements
The following table shows the total assets of VIEs of which the Group is the primary beneficiary,
but does not hold a majority voting interest:
As of 31 December
CHF millions
Modified coinsurance agreement
Investment vehicles
Other
Total
2006
5 324
447
6
5 777
2007
4 022
8 007
1
12 030
As of 31 December 2007, the consolidation of the VIEs resulted in a minority interest in the
balance sheet of CHF 435 million (31 December 2006: CHF 702 million). The minority inter-
est is included in accrued expenses and other liabilities. The net minority interest in income
was CHF 39 million and CHF 37 million net of tax in years ended 31 December 2006 and
2007, respectively. The income statement impacts are generally included in the relevant seg-
ment with the underlying movement in income or expenses.
The following table shows the total assets of and maximum exposure to loss in VIEs in which
the Group holds a significant variable interest:
As of 31 December
CHF millions
Insurance-linked/credit-linked securitisations
Commercial paper conduit vehicles
Investment vehicles
Debt financing
Other
Total
Total
Assets
7 861
3 699
3 487
2 683
795
18 525
2006
Maximum
exposure to loss
7 786
3 699
1 952
250
777
14 464
Total
Assets
10 874
17 684
7 753
1 690
38 001
2007
Maximum
exposure to loss
10 874
2 089
526
1 137
14 626
Swiss Re 2007 Annual Report 191
Financial statements Notes to the Group financial statements
17 Restructuring provision
In 2007 the Group has charged expenses of CHF 31 million against the provision for Insurance
Solution activities and CHF 46 million for the existing Swiss Re activities.
2007
CHF millions
Balance as of 1 January
Increase in provision
Release of provision
Costs incurred
Effect of foreign currency translation
Balance as of 31 December
Property
& Casualty
99
5
–3
–55
–3
43
Life
& Health
30
1
–6
–14
–1
10
Financial
Markets
38
1
–1
–8
–2
28
Total
167
7
–10
–77
–6
81
192 Swiss Re 2007 Annual Report
Segment disclosure
Allocated investment return
Financial statements Notes to the Group financial statements
18 Changes to Group presentation and disclosure
In 2007, the Group changed the organisational structure resulting in a more complete integra-
tion of Financial Services business within Swiss Re. Following the new structure, the Group
presents three operating business segments – Property & Casualty, Life & Health and Financial
Markets. Items not allocated to these three business segments are included in the “Group
items” column.
The operating segments are determined by the organisational structure and by the way in
which management reviews the operating result of the Group.
The Property & Casualty segment consists of the following sub-segments: Property traditional,
Casualty traditional, Specialty traditional and non-traditional business. The Specialty tradition-
al sub-segment includes certain parts of the former Credit Solutions business; Credit Reinsur-
ance, Financial Guaranty business, Bank Trade Finance and Credit securitisations.
Certain parts of the former Capital Management and Advisory business are now included
in the Property & Casualty business segment, including revenues and expenses related to
Property & Casualty insurance-linked securities.
The Life & Health segment continues to consist of the following sub-segments: Life traditional,
Health traditional and Admin Re.
Certain parts of the former Capital Management and Advisory business are now included in
the Life & Health business segment, including variable annuity business.
The Financial Markets business segment consists of the following sub-segments: Credit and
Rates, Equities and Alternative Investments and Other.
The Financial Markets business segment includes proprietary returns on the Group’s invested
fixed income securities, equity securities and alternative investments. Third-party asset man-
agement is included in Credit and Rates.
The sub-segment Other includes mark-to-market gains/losses on structured credit products.
Group items include certain costs of corporate centre functions not allocated to the business
segments, certain foreign exchange items, interest expenses on operating and financial debt
(except for directly allocated interest expenses to the segments) and other items not consid-
ered for the performance of the operating segments.
With the new segment structure, the allocation of investment results has been revised. Certain
investment results, including investment income and realised gains on unit-linked business,
with-profit business and reinsurance derivatives are excluded from the performance of the
Financial Markets business segment and directly allocated to the Property & Casualty and
Life & Health business segments.
Proprietary return reported in Financial Markets is allocated to the Property & Casualty or Life
& Health business segments. The allocation is now based on technical reserves and other in-
formation, including duration of the underlying liabilities.
The investment result of the Other sub-segment in Financial Markets is not allocated to the
Property & Casualty or Life & Health segments.
Swiss Re 2007 Annual Report 193
Financial statements Notes to the Group financial statements
The “Allocation” column eliminates Financial Markets investment result as well as other reve-
nues and/or expenses directly allocated to either the Property & Casualty or the Life & Health
business segments.
As a consequence of the integration of Financial Services within the Group Structure business
segment, Financial Services assets and Financial Services liabilities are no longer disclosed
separately in the balance sheet. The respective positions have been incorporated within exist-
ing balance sheet line items. The information on the funding business is still available (see
note 6).
The following table shows the result of the integration as of 31 December 2006:
As of 31 December 2006
CHF millions
Assets
Fixed income securities, trading
Equity securities, trading
Policy loans, mortgages and other loans
Short-term investments
Other invested assets
Accrued investment income
Premiums and other receivables
Other assets
Before change in
Group structure
Reclassifications
After change in
Group structure
22 622
20 828
7 058
9 464
4 336
1 782
14 726
5 045
22 040
1674
1 016
293
6 708
184
45
392
44 662
22 502
8 074
9 757
11 044
1 966
14 771
5 437
Financial Services assets – fixed income securities,
trading
Other Financial Services assets
23 714
8 638
–23 714
–8 638
0
0
Assets not affected by the reclassifications1
Total assets
Liabilities
Short-term debt
Accrued expenses and other liabilities
Long-term debt
Financial Services liabilities – short-term debt
Financial Services liabilities – long-term debt
Other Financial Services liabilities
Liabilities not affected by the reclassifications1
Total liabilities
Total shareholders’ equity
173 087
291 300
1 917
6 470
7 973
7 201
6 765
18 407
211 683
260 416
30 884
0
0
173 087
291 300
7 201
18 407
6 765
–7 201
–6 765
–18 407
9 118
24 877
14 738
0
0
0
0
0
0
211 683
260 416
30 884
Total liabilities and shareholders’ equity
291 300
0
291 300
¹ Other assets and other liabilities in this overview include all assets and liabilities that are not subject to reclassifications.
Financial Services assets and liabilities
194 Swiss Re 2007 Annual Report
Trading revenues
Financial statements Notes to the Group financial statements
Amounts allocated to other invested assets include securities purchased under agreement to
resell, derivative financial instruments according to FAS 133, and other investments. Amounts
allocated to accrued expenses and other liabilities include repurchase agreements, derivative
financial instruments according to FAS 133, securities sold short, and other creditors.
Trading revenues were generated by the trading activities of the Financial Services business
segment. Trading revenues have been allocated to the respective line items in the Group’s in-
come statement to be consistent with the change in the Group’s organisational structure and
to reflect the new balance sheet structure.
Trading revenues generated from Financial Services assets and liabilities are reported in net
investment income, net realised gains/losses and interest expenses lines depending on the
nature of the revenue and/or expense.
For the year ended 31 December 2006
CHF millions
Net investment income
Net realised gains/losses
Trading revenues
Revenues not affected by the reclassifications2
Total revenues
Before change in
Group structure
6 990
1 948
654
30 674
40 266
Reclassifications
1 001
158
–654
0
505
After change in
Group structure
7 991
2 106
0
30 674
40 771
Expenses
Interest expenses
Expenses not affected by the reclassifications2
Total expenses
Income before income tax expenses
Income tax expenses
Net income
–521
–33 889
–34 410
5 856
–1 296
4 560
–505
0
–505
0
0
0
–1 026
–33 889
–34 915
5 856
–1 296
4 560
²
These categories summarise revenues and expenses in the Groups’ income statement not affected by the
reclassifications.
Cash flow statement
In accordance with the changes in the balance sheet and the income statement, the cash flow
line items changed. Cash flows originated from financial service assets and liabilities are real-
located according to the origin of the cash flow (operating/investing/financing).
Swiss Re 2007 Annual Report 195
Financial statements Notes to the Group financial statements
19 Subsequent Event
On 27 February 2008 a putative securities class action complaint was filed in the US District
Court for the Southern District of New York against Swiss Re Zurich and various of its executive
officers alleging false and misleading statements in connection with the mark-to-market loss,
announced on 19 November 2007. The Company intends to vigorously defend against the
action.
196 Swiss Re 2007 Annual Report
Financial statements Group financial statements
Report of the Group Auditors
Report of the Group Auditors
to the General Meeting of
Swiss Reinsurance Company
Zurich
As Auditors of the Group, we have audited the consolidated financial statements of the Swiss Re
Group for the year ended 31 December 2007 (comprising consolidated balance sheet, income
statement, statement of shareholders’ equity, statement of comprehensive income, statement
of cash flow and notes), set out on pages 129 to 196.
These consolidated financial statements are the responsibility of the Board of Directors. Our
responsibility is to express an opinion on these consolidated financial statements based on our
audit. We confirm that we meet the legal requirements concerning professional qualification
and independence.
We conducted our audit in accordance with Swiss Auditing Standards and with auditing stan-
dards generally accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and significant estimates made,
as well as evaluating the overall consolidated financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects,
the financial position of the Swiss Re Group, the results of its operations and its cash flows
in accordance with accounting principles generally accepted in the United States of America
and comply with Swiss law.
We recommend that the consolidated financial statements submitted to you be approved.
PricewaterhouseCoopers AG
David JA Law
Auditor in charge
Dawn M Kink
Zurich, 28 February 2008
Swiss Re 2007 Annual Report 197
198 Swiss Re 2007 Annual Report
Financial statements Swiss Reinsurance Company, Zurich
Annual report
Swiss Reinsurance Company, Zurich
Reinsurance and holding company
Reinsurance and holding company
Swiss Reinsurance Company, Zurich, performs a dual role within the Swiss Re Group as both
a reinsurance company and a holding company. The assessment of the market position, profit-
ability and financial strength of Swiss Re’s worldwide organisation must focus primarily on the
consolidated financial statements.
The following commentary on the 2007 financial year of the parent company thus comple-
ments the review of the financial year of the Swiss Re Group.
Financial year 2007
Financial year 2007
The after-tax profit for the financial year, based on Swiss Company Law, amounted to
CHF 1.7 billion, compared to CHF 2.1 billion in the previous year.
The business year was characterised by a substantially improved reinsurance result, mainly
due to the increased business volume and benign losses incurred. The investment result de-
creased mainly due to higher valuation adjustments on investments.
Reinsurance result
Reinsurance result
Gross premiums written increased by CHF 3.9 billion to CHF 23.8 billion, benefiting mainly
from the acquisition of GE Insurance Solutions in 2006.
Investment result
Investment result
Claims and claim adjustment expenses increased, reflecting the extended business volume
in general and the losses incurred in Europe and Asia in the first half of the year.
The reduction of acquisition costs reflects the non-recurring impact of the change in the valua-
tion methodology for determining the liabilities for life and health policy benefits in 2006.
Investment income remained almost unchanged at CHF 5.4 billion. Investment expenses in-
creased from CHF 2.6 billion in 2006 to CHF 4.2 billion, mainly due to statutory depreciation
of CHF 1.5 billion on fixed income and equity securities.
The investment return allocated to reinsurance operations increased due to higher technical
provisions and a slight increase in interest rates.
Other income and expenses
Other income and expenses
The increase in interest income and expenses is due to financing transactions within Swiss Re
Group. Furthermore, higher interest expenses reflect the issuance of perpetual subordinated
step-up loans in 2007.
Assets
Assets
Liabilities
Liabilities
Total assets rose by 14% to CHF 105.1 billion. This increase is mainly reflected in higher invest-
ed assets, loans to subsidiaries and affiliated companies and fixed income securities. Within
current assets, reinsurance related items increased mainly due to extended business and new
contracts on a funds withheld basis.
Liabilities rose by CHF 12.3 billion to CHF 86.1 billion. In 2007, Swiss Reinsurance Company,
Zurich, issued perpetual subordinated step-up loan notes in connection with the placement
of GBP 500 million and AUD 750 million hybrid capital. In addition, loans to subsidiaries and
affiliated companies increased due to intragroup financing transactions. The increase in tech-
nical provisions, reflected mainly in higher unpaid claims, was predominantly due to increased
business volume.
The equalisation provision for future claims fluctuations and for large and catastrophe losses
increased by CHF 300 million to CHF 550 million.
Swiss Re 2007 Annual Report 199
Financial statements Swiss Reinsurance Company, Zurich
Shareholders’ equity
Shareholders’ equity
As of 31 December 2006, shareholders’ equity amounted to CHF 18.4 billion before alloca-
tion of the profit. After the dividend payment of CHF 1 162 million for 2006, the issuance of
new shares and the inclusion of the profit for the 2007 financial year, shareholders’ equity in-
creased to CHF 19.0 billion at the end of 2007.
Other reserves decreased by CHF 0.3 billion to CHF 15.2 billion in 2007, due to the net result
of the increase of the reserve for own shares, the allocation of the profit for the 2006 financial
year and the issuance of new shares from options being exercised.
The nominal share capital of the company decreased slightly due to the net effect from the
cancellation of 4 505 347 shares, based on a 2007 General Meeting resolution, and 451 724
newly issued shares from the conditional capital in connection with employee participation
programmes. As of 31 December 2007, the nominal share capital amounted to CHF 37 million.
200 Swiss Re 2007 Annual Report
Financial statements Swiss Reinsurance Company, Zurich
Income statement
Swiss Reinsurance Company, Zurich
For the years ended 31 December
CHF millions
Reinsurance
Premiums earned
Claims and claim adjustment expenses
Life and health benefits
Change in equalisation provision
Acquisition costs
Other reinsurance result
Operating costs
Allocated investment return
Reinsurance result
Investments
Investment income
Investment expenses
Allocated investment return
Investment result
Other income and expenses
Other interest income
Other interest expenses
Other income
Other expenses
Result from other income and expenses
Income before tax expense
Tax expense
Net income
The accompanying notes are an integral part of the financial statements.
Notes
1
2006
2007
16 083
–11 210
1 112
–250
–5 786
972
–1 379
1 095
637
18 883
–13 663
77
–300
–3 949
983
–1 269
1 326
2 088
2
5 431
–2 634
–1 095
1 702
5 437
–4 175
–1 326
–64
244
–301
122
–190
–125
2 214
–70
2 144
348
–524
226
–129
–79
1 945
–248
1 697
Swiss Re 2007 Annual Report 201
Financial statements Swiss Reinsurance Company, Zurich
Balance sheet
Swiss Reinsurance Company, Zurich
As of 31 December
Assets
CHF millions
Non-current assets
Investments
Investment real estate
Investments in subsidiaries and affiliated companies
Loans to subsidiaries and affiliated companies
Mortgages and other loans
Equity securities
Fixed income securities
Short-term investments
Assets in derivative financial instruments
Total investments
Tangible assets
Intangible assets
Total non-current assets
Current assets
Premiums and other receivables from reinsurance
Funds held by ceding companies
Deferred acquisition costs
Cash and cash equivalents
Other receivables
Other assets
Accrued income
Total current assets
Total assets
The accompanying notes are an integral part of the financial statements.
Notes
2006
2007
970
17 249
8 859
762
8 956
19 204
1 709
562
58 271
871
59
1 098
17 092
13 737
749
7 461
22 860
1 497
1 713
66 207
772
63
59 201
67 042
7 295
17 698
1 103
2 158
3 134
677
955
33 020
9 615
20 115
1 085
4 041
1 382
590
1 224
38 052
92 221
105 094
3
3
3
202 Swiss Re 2007 Annual Report
Liabilities and shareholders’ equity
CHF millions
Liabilities
Technical provisions
Unpaid claims
Liabilities for life and health policy benefits
Unearned premiums
Provisions for profit commissions
Equalisation provision
Total technical provisions
Non-technical provisions
Provision for taxation
Provision for currency fluctuation
Other provisions
Total non-technical provisions
Debt
Debentures
Loans
Total debt
Funds held under reinsurance treaties
Reinsurance balances payable
Liabilities from derivative financial instruments
Other liabilities
Accrued expenses
Total liabilities
Shareholders’ equity
Share capital
Reserve for own shares
Other legal reserves
Other reserves
Retained earnings brought forward
Profit for the financial year
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of the financial statements.
Financial statements Swiss Reinsurance Company, Zurich
Notes
2006
2007
4
4
4
4
4
4
4
5
42 972
11 459
4 248
552
250
59 481
48 469
11 053
4 832
617
550
65 521
205
905
570
1 680
4 319
620
4 939
2 574
2 851
939
1 193
155
179
948
518
1 645
5 757
3 060
8 817
2 849
3 713
2 417
949
202
73 812
86 113
37
31
650
15 539
8
2 144
18 409
37
1 297
650
15 235
65
1 697
18 981
92 221
105 094
Swiss Re 2007 Annual Report 203
Financial statements Swiss Reinsurance Company, Zurich
Notes
Swiss Reinsurance Company, Zurich
Significant accounting principles
Basis of presentation
Basis of presentation
The financial statements are prepared in accordance with Swiss Company Law.
Time period
Time period
The 2007 financial year comprises the accounting period from 1 January to 31 December
2007.
Foreign currency translation
Foreign currency translation
Investments
Investments
Assets and liabilities denominated in foreign currencies are translated into Swiss francs at
year-end exchange rates. Participations are maintained in Swiss francs at historical exchange
rates.
Revenues and expenses are translated into Swiss francs at average exchange rates of the year
under report.
All exchange rate differences arising from the revaluation of the opening balance sheet, the
adjustments from application of year-end or average rates and foreign-exchange transactions
are booked via a corresponding provision.
The following assets are carried at cost, less necessary and legally permissible depreciation:
Investment real estate
Investments in subsidiaries and affiliated companies
Equity securities
Fixed income securities
Investments in funds
Short-term investments
Assets in derivative financial instruments
These assets are generally not subject to revaluation. The valuation rules prescribed by the
Swiss insurance supervisory authority are observed.
Assets in derivative financial instruments include reinsurance contracts or features embedded
in reinsurance contracts that fulfil the characteristics of derivative financial instruments.
Short-term investments contain investments with a remaining maturity at the date of acquisi-
tion of one year or less, but greater than three months.
Loans to subsidiaries and affiliated companies, mortgages and other loans are carried at nom-
inal value. Value adjustments are recorded where the recovery value is lower than the nominal
value.
Tangible assets
Tangible assets
Property for own use is valued at the purchase or construction cost less necessary and legally
permissible depreciation.
Other tangible assets are carried at cost, less individually scheduled straight-line depreciation
over their useful lives. Items of minor value are not capitalised.
Intangible assets, consisting of capitalised development costs for software for internal use, are
stated at cost less straight-line amortisation over the estimated useful lives.
Deferred acquisition costs consist principally of commissions and are related to the production
of new reinsurance business. Deferred acquisition costs for short duration contracts are amor-
tised in proportion to premiums earned. Deferred acquisition costs for long duration contracts
are amortised over the life of the underlying contracts.
Intangible assets
Intangible assets
Deferred acquisition costs
Deferred acquisition costs
204 Swiss Re 2007 Annual Report
Other assets
Other assets
Other current assets
Other current assets
Technical provisions
Technical provisions
Financial statements Swiss Reinsurance Company, Zurich
Other assets include deferred expenses on retroactive reinsurance policies, which are amor-
tised through earnings over the expected claims-paying period.
Other current assets are carried at nominal value in the balance sheet, after deduction of
known credit risks if applicable.
Unpaid claims are based on information provided by clients and own estimates of expected
claims experience, which are drawn from empirical statistics. These include provisions for
claims incurred but not reported. Unpaid insurance obligations are set aside at the full expect-
ed amount of future payment.
Liabilities for life and health policy benefits are determined on the basis of actuarially calculat-
ed present values taking experience into account. For external business, liabilities are the
greater of cedent-reported information and estimates of own experience drawn from internal
studies. With respect to the business ceded by the Company’s life and health subsidiaries,
a prospective gross premium valuation is applied taking into account expected future cash
flows inherent in the reinsurance contract from the valuation date until expiry of the contract
obligations. Cash flows include premiums, claims, commissions, investment income and ex-
penses, with a margin added for prudence to reflect the uncertainties of the underlying best
estimates. The gross premium valuation approach could result in a negative liability provision,
which is typically set to zero.
Accounting principles for life and health business require that no contract is treated as an as-
set on the balance sheet, with the exception of specific contracts (for example modified coin-
surance type of treaties), where an offsetting amount has been paid and is recoverable from
the ceding company.
Premiums written relating to future periods are stated as unearned premiums and are normal-
ly calculated by statistical methods. The accrual of commissions is determined corresponding-
ly and is reported in the line item deferred acquisition costs.
Provisions for profit commissions are based on contractual agreements with clients and de-
pend on the results of reinsurance treaties.
The equalisation provision is established to achieve a protection of the balance sheet and to
break peaks of incurred claims in individual financial years with an exceptionally high claims
burden by releasing appropriate amounts from the provision.
The shares of technical provisions pertaining to retroceded business are determined or esti-
mated according to the contractual agreement and the underlying gross business data per
treaty.
Non-technical provisions
Non-technical provisions
The provision for taxation contains taxes on the basis of the financial year just ended.
The provision for currency fluctuation comprises all currency differences arising from the
revaluation of the opening balance sheet, the adjustments from application of year-end or
average rates and foreign-exchange transactions.
Other provisions are determined according to business principles and are based on estimated
needs and in accordance with tax regulations.
Swiss Re 2007 Annual Report 205
Financial statements Swiss Reinsurance Company, Zurich
DebtDebt
Debt is held at redemption value.
Funds held under reinsurance treaties
Funds held under reinsurance treaties
Funds held under reinsurance treaties mainly contain cash deposits withheld from retroces-
sionaires, which are stated at redemption value.
Reinsurance balances payable
Reinsurance balances payable
Reinsurance balances payable are held at redemption value.
Liabilities from derivative financial
Liabilities from derivative financial
instruments
instruments
Liabilities from derivative financial instruments are generally maintained at the highest commit-
ment amount as per a balance sheet date during the life of the underlying contracts. Premiums
received in respect of derivative financial instruments are not realised until expiration or settle-
ment of the contract.
Deposit arrangements
Deposit arrangements
Included in this position are reinsurance contracts or features embedded in reinsurance con-
tracts that fulfil the characteristics of derivative financial instruments. For such contracts, pre-
miums received may be recognised as income prior to contract expiration or settlement in
cases, where the recorded commitment has already reached the maximum liability amount
potentially payable under the terms of the respective contracts.
Contracts which do not meet risk transfer requirements, defined as transferring a reasonable
probability of a significant loss to the reinsurer, are accounted for as deposit arrangements.
Deposit amounts are adjusted for payments received and made, as well as for amortisation or
accretion of interest.
Allocated investment return
Allocated investment return
The allocated investment return contains the calculated interest generated on the investments
covering the technical provisions. The interest rate reflects the currency-weighted, five-year
average yield on five-year government bonds.
Management expenses
Management expenses
Tax expense
Tax expense
The overall management expenses are allocated to the reinsurance business and the invest-
ment business on an imputed basis.
The tax expense relates to the financial year and includes taxes on income and capital as well
as indirect taxes. Value-added taxes are included in the respective expense lines in the income
statement.
206 Swiss Re 2007 Annual Report
Financial statements Swiss Reinsurance Company, Zurich
Notes
Swiss Reinsurance Company, Zurich
Additional information on the financial statements
1. Reinsurance result
CHF millions
Premiums written
Change in unearned premiums
Premiums earned
Claims paid and claim adjustment expenses
Change in unpaid claims
Claims and claim adjustment expenses
Gross
19 891
–632
19 259
–8 181
–4 752
–12 933
Retro
–3 579
403
–3 176
1 796
–73
1 723
2006
Net
16 312
–229
16 083
Gross
23 788
–1 160
22 628
Retro
–4 106
361
–3 745
2007
Net
19 682
–799
18 883
–6 385
–4 825
–11 210
–8 276
–7 177
–15 453
1 684
106
1 790
–6 592
–7 071
–13 663
Life and health benefits
1 853
–741
1 112
–271
348
77
Change in equalisation provision
–250
–
–250
–300
–
–300
Fixed commissions
Profit commissions
Acquisition costs
Other reinsurance income and expenses
Result from cash deposits
Other reinsurance result
Operating costs
Allocated investment return
Reinsurance result
–6 116
–370
–6 486
150
1 057
1 207
657
43
700
–69
–166
–235
–5 459
–327
–5 786
–4 210
–385
–4 595
–7
1 187
1 180
81
891
972
–1 379
1 095
637
579
67
646
–36
–161
–197
–3 631
–318
–3 949
–43
1 026
983
–1 269
1 326
2 088
Swiss Re 2007 Annual Report 207
Financial statements Swiss Reinsurance Company, Zurich
2. Investment result
CHF millions
Income from investment real estate
Income from subsidiaries and affiliated companies
Income from equity securities
Income from fixed income securities, mortgages and other loans
Income from short-term investments
Income from investment services
Realised gains on sale of investments
Investment income
Investment management expenses
Valuation adjustments on investments
Realised losses on sale of investments
Investment expenses
Allocated investment return
Investment result
3. Assets from reinsurance
CHF millions
Premiums and other receivables from reinsurance
Funds held by ceding companies
Deferred acquisition costs
Assets from reinsurance
2006
90
2 234
574
789
47
66
1 631
5 431
–195
–695
–1 744
–2 634
–1 095
1 702
2007
93
2 109
817
905
56
88
1 369
5 437
–235
–2 432
–1 508
–4 175
–1 326
–64
Gross
7 039
17 698
1 256
25 993
Retro
256
–
–153
103
2006
Net
7 295
17 698
1 103
26 096
Gross
9 464
20 115
1 367
30 946
Retro
151
–
–282
–131
2007
Net
9 615
20 115
1 085
30 815
208 Swiss Re 2007 Annual Report
Financial statements Swiss Reinsurance Company, Zurich
4. Liabilities from reinsurance
CHF millions
Unpaid claims
Liabilities for life and health policy benefits
Unearned premiums
Provisions for profit commissions
Equalisation provision
Funds held under reinsurance treaties
Reinsurance balances payable
Liabilities from reinsurance
Gross
46 777
12 449
5 202
565
250
–
1 217
66 460
Retro
–3 805
–990
–954
–13
–
2 574
1 634
–1 554
2006
Net
42 972
11 459
4 248
552
250
2 574
2 851
64 906
Gross
52 433
12 189
6 129
656
550
403
1 506
73 866
Retro
–3 964
–1 136
–1 297
–39
–
2 446
2 207
–1 783
2007
Net
48 469
11 053
4 832
617
550
2 849
3 713
72 083
5. Shareholders’ equity
Change in shareholders’ equity
CHF millions
Shareholders’ equity as of 1 January
Dividend paid for the previous year
Capital increase including premium
Profit for the financial year
Shareholders’ equity on 31 December before allocation of profit
Dividend payment
Shareholders’ equity on 31 December after allocation of profit
2006
12 802
–776
4 239
2 144
18 409
–1 218
17 191
2007
18 409
–1 162
37
1 697
18 981
–1 3871
17 594
¹ Board of Directors’ proposal to the Annual General Meeting of 18 April 2008, subject to the actual number of shares outstanding and eligible for dividend.
The difference between the proposed dividend payment in the previous year and the actual dividend payment in the year under report is described on page 214.
Sources of shareholders’ equity after allocation of profit
CHF millions
From nominal capital
From share premium
From profit allocation
From other allocations
Shareholders’ equity on 31 December after allocation of profit
2006
37
10 008
6 847
299
17 191
2007
37
10 045
7 213
299
17 594
Swiss Re 2007 Annual Report 209
Financial statements Swiss Reinsurance Company, Zurich
Contingent liabilities
Contingent liabilities
As of 31 December 2007, contingent liabilities, mainly towards Group companies, amounted
to CHF 8 608 million (2006: CHF 3 076 million). In addition, there were 43 unlimited guaran-
tees; 41 of these are for obligations of Group companies. No payments are currently expected
under these guarantees.
Leasing contracts
Leasing contracts
Total off-balance sheet commitments from operating leases for the next five years and there-
after are as follows:
CHF millions
2007
2008
2009
2010
2011
After 2012
2006
13
8
3
2
1
–
2007
–
16
8
5
2
12
These commitments pertain to the non-cancellable contract periods and refer primarily to
office and apartment space rented by the company.
In addition, a financial lease of IT hardware is recognised on the balance sheet. The corre-
sponding asset and liability of CHF 13 million (2006: CHF 19 million) are included in tangible
assets and other liabilities, respectively.
To secure the technical provisions on the 2007 balance sheet date, securities with a value
of CHF 10 428 million (2006: CHF 11 286 million) were deposited in favour of ceding com-
panies, of which CHF 5 839 million (2006: CHF 6 906 million) was to Group companies.
As of 31 December 2007, securities of CHF 5 845 million (2006: CHF 5 503 million) were
lent under securities lending agreements, with the right to be sold or pledged by the borrow-
ing entity. CHF 4 154 million (2006: CHF 3 362 million) of these was lent to Group compa-
nies. The securities which were held and lent by the Swiss Re Institutional Fund, a separate
legal entity, are excluded.
Equity securities of CHF 5 681 million (2006: CHF 5 789 million) and fixed income securities
of CHF 5 333 million (2006: CHF 4 607 million) were held in investment funds, which are
fully owned by Swiss Re Group companies and the Swiss Re Pension Fund. The securities in
these funds and their revenues are reported in the corresponding asset category.
Security deposits
Security deposits
Securities lending
Securities lending
Investment funds
Investment funds
Fire insurance value of tangible assets
Fire insurance value of tangible assets
As of 31 December 2007, the insurance value of tangible assets, comprising the real estate
portfolio and other tangible assets, amounted to CHF 2 508 million (2006: CHF 2 364 million).
Obligations towards employee
Obligations towards employee
pension funds
pension funds
Other liabilities include CHF 7 million (2006: CHF 6 million) payable to the employee pension
funds.
A provision of CHF 37 million was established as of 31 December 2006 for transitional obliga-
tions concerning the change in the pension plan structure from a defined benefit scheme to a
defined contribution scheme effective as of 1 January 2007. This provision was fully released
in 2007.
210 Swiss Re 2007 Annual Report
Financial statements Swiss Reinsurance Company, Zurich
Debentures
Debentures
As of 31 December 2007, the following debentures were outstanding:
Instrument
Subordinated perpetual bond
Issued in Currency
CHF
1999
Nominal
in millions
First
Interest
call in
rate
600 3.75% 2011
Book value
CHF millions
600
Investments in subsidiaries
Investments in subsidiaries
Details on the Swiss Re Group‘s subsidiaries are disclosed on pages 186 to 191.
Treasury shares
Treasury shares
As of 31 December 2007, the Group held 12 334 212 treasury shares (2006: 287 624).
In the year under report, 25 277 897 treasury shares (2006: 2 262 854) were purchased
at an average price of CHF 101.41 (2006: CHF 95.21) and 13 231 309 treasury shares
(2006: 2 181 679) were sold at an average price of CHF 99.19 (2006: CHF 94.50).
Deposit account
Deposit account
Deposit arrangements generated the following balances, which are included in:
Claims on and obligations towards
Claims on and obligations towards
Group companies
Group companies
Conditional capital and authorised capital
Conditional capital and authorised capital
CHF millions
Reinsurance result
Premiums and other receivables from reinsurance
Funds held by ceding companies
Funds held under reinsurance treaties
Reinsurance balances payable
CHF millions
Premiums and other receivables from reinsurance
Funds held by ceding companies
Other receivables
Funds held under reinsurance treaties
Reinsurance balances payable
Loans
Other liabilities
2006
31
287
182
–
566
2006
2 569
13 714
2 996
331
1 198
345
673
2007
–76
677
162
403
644
2007
3 353
13 830
1 137
213
1 712
2 785
445
As of 31 December 2007, Swiss Reinsurance Company‘s total conditional capital outstanding
amounted to CHF 3 208 316 (2006: CHF 4 649 560). CHF 2 603 928 was reserved for the
exercise of conversion rights and warrants granted in connection with bonds and similar in-
struments and CHF 604 388 for employee participation purposes.
In addition, authorised capital with shareholders’ subscription rights amounted to CHF
1 105 337 at the end of 2007.
The Extraordinary General Meeting, held on 27 February 2006, approved the creation of au-
thorised capital of CHF 9 000 000 and an increase of conditional capital by CHF 2 000 000.
As of 31 December 2006, CHF 900 000 was reserved for the exercise of conversion rights
and warrants granted in connection with bonds and similar instruments for General Electric
Company, that was fully exercised in 2007.
Change in undisclosed reserves
Change in undisclosed reserves
In the year under report, no net undisclosed reserves on investments and on provisions were
released (2006: net decrease of CHF 159 million).
Swiss Re 2007 Annual Report 211
Financial statements Swiss Reinsurance Company, Zurich
Major shareholders
Major shareholders
As of 31 December 2007, there were two shareholders with a participation exceeding the 3%
threshold of Swiss Reinsurance Company’s share capital.
a. Swiss Reinsurance Company, Mythenquai 50/60, 8022 Zurich, Switzerland, held a total of
23 964 732 Swiss Re shares or 6.47% of the share capital. Of these shares, 6 280 930 shares
were fully paid in shares held for general corporate purposes, 11 678 802 shares were paid in
only at nominal value and reserved for general corporate purposes, and 6 005 000 shares
were acquired under the share buy-back programme and subject to cancellation.
b. The Capital Group Companies, Inc., 333 South Hope Street, Los Angeles, CA, USA (Capital
Group), announced on 4 December 2007 that they held, through acquisitions by some of
their Group companies, in the capacity of investment manager for mutual funds and clients,
19 364 301 registered Swiss Re shares. Capital Group thus has 5.23% of Swiss Reinsurance
Company’s voting rights, which can be exercised autonomously of the beneficial owners.
After 31 December 2007, and as of 22 February 2008, two additional shareholders held
more than 3% of Swiss Reinsurance Company’s share capital each.
c. Credit Suisse Group, Paradeplatz 8, 8070 Zurich, Switzerland, notified Swiss Reinsurance
Company on 21 February 2008 that, as per 15 February 2008, it held, through acquisitions
by a number of its group companies, registered shares, conversion rights, share purchase
rights and written share sale rights conferring a total of 3.40% of the voting rights of
Swiss Reinsurance Company.
d. Berkshire Hathaway Inc., 3555 Farnam Street, Omaha, NE 68131, USA, notified Swiss Re-
insurance Company on 22 January 2008 that, as of the same day, it held through its subsid-
iary Columbia Insurance Company, 3024 Harney Street, Omaha, NE 68131, USA, 11 250 000
registered shares or 3.03% of the voting rights of Swiss Reinsurance Company.
Personnel information
Personnel information
Swiss Reinsurance Company, Zurich, employed a worldwide staff of 3 802 on the balance
sheet date (2006: 3 745). Personnel expenses for the 2007 financial year amounted to
CHF 1 009 million (2006: CHF 1 187 million).
Management compensation
Management compensation
In connection with the integration of GE Insurance Solutions, restructuring charges of CHF 59
million were recognised in 2006. As of 31 December 2007, a respective restructuring provision
of CHF 4 million (2006: CHF 34 million) remained on the Company’s books.
The new disclosure requirements under Swiss Company Law in respect of management com-
pensation to the members of the Board of Directors and of the Executive Committee of
Swiss Reinsurance Company, Zurich, as well as to closely related persons, are detailed on
pages 172 to 177.
Management fee contribution
Management fee contribution
In 2007, management expenses of CHF 152 million (2006: CHF 170 million) were recharged
to Group companies and reported net under operating costs and investment expenses.
Change of accounting policy for liabilities
Change of accounting policy for liabilities
for life and health policy benefits
for life and health policy benefits
The valuation methodology for determining the liabilities for life and health policy benefits
was modified in 2006 to ensure consistency of the Company’s liabilities and thus to improve
accuracy and comparability of valuations among different lines. The transition impact of
CHF 92 million is included in the 2006 income statement.
212 Swiss Re 2007 Annual Report
Financial statements Swiss Reinsurance Company, Zurich
Life and health application landscape
Life and health application landscape
alignment
alignment
In 2007, the Company implemented a new system for technical accounting and financial re-
porting of life and health business, which is aligned to the existing application landscape of
the property and casualty segment. Consequently, the disclosure of estimates in the balance
sheet has changed.
In the previous years, estimates of written premiums, claims and commissions were reported
net under receivables from reinsurance or reinsurance balances payable. As of 2007, estimates
for expected claims and profit commissions are reported under provisions for claims incurred
but not reported and provisions for profit commissions, respectively. This led to an increase
of unpaid claims by CHF 734 million, of provisions for profit commissions by CHF 105 million,
and to a corresponding increase in the sum of receivables from reinsurance and reinsurance
balances payable of CHF 839 million. Estimates for written premiums and fixed commissions
accounted continue to be reported under receivables from reinsurance or reinsurance balances
payable.
The modification of estimation models and assumptions resulted in no material transition im-
pact. No restatement of previously reported 2006 figures is made.
6 Subsequent Event
On 27 February 2008 a putative securities class action complaint was filed in the US District
Court for the Southern District of New York against Swiss Re Zurich and various of its executive
officers alleging false and misleading statements in connection with the mark-to-market loss,
announced on 19 November 2007. The Company intends to vigorously defend against the
action.
Swiss Re 2007 Annual Report 213
Financial statements Swiss Reinsurance Company, Zurich
Proposal for allocation of profit
The Annual General Meeting, to be held in Zurich on 18 April 2008, has at its disposal the
following profit:
in CHF
Retained earnings brought
forward from the previous year
Profit for the financial year
Disposable profit
Share structure
For the financial year 2007:
– eligible for dividend
– not eligible for dividend
Total shares issued
2006
2007
7 895 490
2 144 273 601
2 152 169 091
64 760 537
1 697 024 261
1 761 784 798
Number of
registered shares
Nominal
capital in CHF
346 665 966
23 720 789
370 386 755
34 666 596
2 372 079
37 038 675
The Board of Directors proposes to the Annual General Meeting to allocate this profit as follows:
in CHF
Dividend
Allocation to other reserves
Balance carried forward
Disposable profit
2006
1 162 408 5541
925 000 000
64 760 5371
2 152 169 091
2007
1 386 663 8642
370 000 000
5 120 934
1 761 784 798
¹
²
The number of registered shares eligible for dividend at the dividend payment date decreased since the proposal for
allocation of profit, dated 1 March 2007, due to the net effect from the share buy-back of General Electric 16 650 479
shares and the issuance of 279 119 new registered shares from options being exercised. This resulted in a lower dividend
of CHF 55 662 625 compared to the Board of Directors’ proposal, and in higher retained earnings brought forward from
the previous year by the same amount.
Board of Directors’ proposal to the Annual General Meeting of 18 April 2008, subject to the actual number of shares
outstanding and eligible for dividend.
Dividend
Dividend
If the Board of Directors’ proposal for allocation of profit is accepted, a dividend of CHF 4.00
per share will be paid.
After deduction of Federal Withholding Tax of 35%, the dividend will be paid from 23 April
2008 by means of dividend order to shareholders recorded in the Share Register or to their
deposit banks.
Zurich, 28 February 2008
214 Swiss Re 2007 Annual Report
Financial statements Swiss Reinsurance Company, Zurich
Report of the Statutory Auditors
To the Annual General Meeting of
Swiss Reinsurance Company
Zurich
As Statutory Auditors, we have audited the accounting records and the financial statements
(income statement, balance sheet and notes/pages 201 to 213) of Swiss Reinsurance Company
for the year ended 31 December 2007.
These financial statements are the responsibility of the Board of Directors. Our responsibility
is to express an opinion on these financial statements based on our audit. We confirm that we
meet the legal requirements concerning professional qualification and independence.
Our audit was conducted in accordance with Swiss Auditing Standards, which require that an
audit be planned and performed to obtain reasonable assurance about whether the financial
statements are free from material misstatement. We have examined on a test basis evidence
supporting the amounts and disclosures in the financial statements. We have also assessed
the accounting principles used, significant estimates made and the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and financial statements and the proposed appropria-
tion of available earnings comply with Swiss law and the company’s Articles of Association.
We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers AG
David JA Law
Auditor in charge
Dawn M Kink
Zurich, 28 February 2008
Swiss Re 2007 Annual Report 215
Financial statements
Financial years 1998 – 2007
CHF millions
Income statement
Revenues
Premiums earned
Fee income
Net investment income
Net realised investment gains/losses
Trading revenues
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Interest credited to policyholders
Acquisition costs
Amortisation of goodwill
Other operating costs and expenses
Total expenses
19981
19991
20001
20011
20021
20031
20041
2005
20062
2007
16 727
18 051
22 081
25 219
29 058
30 740
29 439
3 131
2 509
3 846
3 588
4 802
4 275
5 765
2 665
286
22 653
246
25 731
395
31 553
455
34 104
5 494
–730
228
365
34 415
4 606
376
472
236
36 430
4 857
1 116
438
243
36 093
26 891
881
6 137
3 474
346
283
38 012
29 515
879
7 991
2106
31 664
955
10 692
–739
280
40 771
302
42 874
–8 514 –9 333 –12 153 –16 266 –14 485 –14 898 –13 853 –14 758 –11 799 –12 065
–9 594 –11 112
–4 881 –6 200 –7 478
–2 827
–2 120
–6 079 –6 499
–8 668
–3 019
–5 927
–8 532 –10 084
–9 085
–9 331
–3 661 –3 973 –4 883
–310
–211
–2 698 –2 785 –3 074
–91
–5 658
–368
–3 384
–6 220
–350
–3 240
–6 854
–315
–2 942
–6 325
–277
–2 940
–5 891
–19 845 –22 502 –27 898 –34 208 –34 379 –34 094 –32 726 –35 453 –34 915 –37 687
–3 081
–4 616
Income/loss before income tax expense
Income tax expense
Net income/loss on ordinary activities
Extraordinary income
Extraordinary charges
2 808
–647
2 161
3 229
–783
2 446
450
–450
3 655
–689
2 966
–104
–61
–165
36
–127
–91
2 336
–634
1 702
3 367
–892
2 475
2 559
–255
2 304
5 856
–1 296
4 560
5 187
–1 025
4 162
Net income/loss
2 161
2 446
2 966
–165
–91
1 702
2 475
2 304
4 560
4 162
Balance sheet
Assets
Investments
Other assets
Total assets
69 589
38 748
90 653 108 023 130 601 204 238 227 812
79 475
90 698
79 045
108 337 130 200 142 640 170 230 161 857 169 698 184 440 221 299 291 300 307 287
95 888
74 342
86 728
75 129
89 584
53 056
85 684
44 516
87 062
76 417
Liabilities
Unpaid claims and claim adjustment
expenses
45 866
Liabilities for life and health policy benefits 15 143
Unearned premiums
3 174
19 142
Other liabilities
Long-term debt
5 049
Total liabilities
88 528
50 026
7 722
97 743 105 807
23 337
14 738
88 374 105 368 119 853 147 632 145 171 151 187 165 263 196 906 260 416 275 420
59 600
29 300
6 131
19 764
5 058
54 072
23 279
4 251
18 819
4 947
68 618
41 370
6 399
24 200
7 045
62 652
37 269
6 754
32 833
5 663
63 474
37 244
6 457
39 205
4 807
61 619
43 239
5 748
49 361
5 296
71 759
31 081
6 563
81 651
5 852
95 011
44 899
8 025
Shareholders’ equity
19 963
24 832
22 787
22 598
16 686
18 511
19 177
24 393
30 884
31 867
Earnings/losses per share in CHF
7.35*
8.55*
10.39*
–0.57
–0.29
5.48
8.00
7.44
13.49
11.95
* Adjusted by 20-for-1 share split
1 Numbers are based on the Group’s previous accounting standards
2 Trading revenues are included in net investment income; long-term debt also includes debt positions from Financial Markets
216 Swiss Re 2007 Annual Report
General information
Cautionary note on forward-looking statements
Certain statements and illustrations contained herein are forward-looking. These statements
and illustrations provide current expectations of future events based on certain assumptions
and include any statement that does not directly relate to a historical fact or current fact.
Forward-looking statements typically are identified by words or phrases such as “anticipate“,
“assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and
“may fluctuate“ and similar expressions or by future or conditional verbs such as “will“,
“should“, “would“ and “could“. These forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause Swiss Re‘s actual results, performance,
achievements or prospects to be materially different from any future results, performance,
achievements or prospects expressed or implied by such statements. Such factors include,
among others:
changes in global economic conditions and the risk of a global economic downturn;
direct and indirect impact of continuing deterioration in the credit markets, and further
adverse rating actions by credit rating agencies in respect of structured credit products
or other credit-related exposures and of monoline insurance companies;
the occurrence of other unanticipated market developments or trends;
the ability to maintain sufficient liquidity and access to capital markets;
the cyclicality of the reinsurance industry;
uncertainties in estimating reserves;
the effect of market conditions, including the global equity and credit markets, and the level
and volatility of equity prices, interest rates, currency values and other market indices;
expected changes in our investment results as a result of the changed composition of our
investment assets or changes in our investment policy;
the frequency, severity and development of insured claim events;
acts of terrorism and acts of war;
mortality and morbidity experience;
policy renewal and lapse rates;
changes in rating agency policies or practices;
the lowering or loss of one of the financial or claims-paying ratings of one or more of our
subsidiaries;
political risks in the countries in which we operate or in which we insure risks;
extraordinary events affecting our clients and other counterparties, such as bankruptcies,
liquidations and other credit-related events;
risks associated with implementing our business strategies;
the impact of current, pending and future legislation, regulation and regulatory and legal
actions;
the impact of significant investments, acquisitions or dispositions, and any delays,
unexpected costs or other issues experienced in connection with any such transactions,
including, in the case of acquisitions, issues arising in connection with integrating acquired
operations;
changing levels of competition; and
operational factors, including the efficacy of risk management and other internal proce-
dures in managing the foregoing risks.
These factors are not exhaustive. We operate in a continually changing environment and
new risks emerge continually. Readers are cautioned not to place undue reliance on forward-
looking statements. We undertake no obligation to publicly revise or update any forward-
looking statements, whether as a result of new information, future events or otherwise.
Swiss Re 2007 Annual Report 217
General information
Glossary
Accident insurance
Accident insurance
Accumulation risk
Accumulation risk
Acquisition costs
Acquisition costs
Admin Re®
Admin Re®
Insurance of individuals or groups against economic risks in the event of death or temporary
or permanent disability by accident. A branch of casualty insurance.
Risk that arises when a large number of individual risks are correlated such that a single event
will affect many or all of these risks.
That portion of an insurance premium which represents the cost of obtaining the insurance
business: it includes the intermediaries’ commission, the company’s sales expense and other
related expenses.
Acceptance of a closed block of in-force life and health insurance business either through
acquisition or reinsurance, typically assuming the responsibility to administer the underlying
policies. Admin Re® can also extend to the acquisition of an entire life insurance company.
Asset-backed securities
Asset-backed securities
Securities backed by notes or receivables against assets such as auto loans, credit cards,
royalties, student loans and insurance.
Management of a business in a way that coordinates decisions on assets and liabilities. Spe-
cifically, the ongoing process of formulating, implementing, monitoring and revising strategies
related to assets and liabilities in an attempt to achieve financial objectives for a given set of
risk tolerances and constraints.
Insurance of accident and liability risks, as well as hull damage, connected with the operation
of aircraft.
Insurance covering the loss of earnings resulting from, and occurring after, destruction of
property; also known as “loss of profits” or “business income protection insurance”.
Maximum amount of risk that can be accepted in insurance. Capacity also refers to the
amount of insurance coverage allocated to a particular policyholder or in the marketplace in
general.
Branch of insurance – mainly comprising accident and liability business – which is separate
from property, engineering and life insurance.
Risk-based securities that allow (re)insurance companies to transfer peak insurance risks,
including natural catastrophes, to institutional investors in the form of bonds. Catastrophe
bonds help to spread peak exposures (see insurance-linked securities).
Insurance that is reinsured: the passing of the insurer’s risks to the reinsurer against payment
of a premium. The insurer is referred to as the ceding company or cedent.
Demand by an insured for indemnity under an insurance contract.
Activities in connection with the investigation, settlement and payment of claims from the
time of their occurrence until settlement.
Asset-liability management (ALM)
Asset-liability management (ALM)
Aviation insurance
Aviation insurance
Business interruption
Business interruption
Capacity
Capacity
Casualty insurance
Casualty insurance
Catastrophe bonds
Catastrophe bonds
Cession
Cession
ClaimClaim
Claims handling
Claims handling
218 Swiss Re 2007 Annual Report
General information Glossary
Claims incurred and claim adjustment
Claims incurred and claim adjustment
expenses
expenses
All claims payments plus the adjustment in the outstanding claims provision of a business
year and claim adjustment expenses.
Claims ratio
Claims ratio
Coinsurance
Coinsurance
Combined ratio
Combined ratio
Commission
Commission
Commutation
Commutation
Cover
Cover
Credit insurance
Credit insurance
Sum of claims paid, change in the provisions for unpaid claims and claim adjustment expenses
in relation to premiums earned.
Arrangement by which a number of insurers and/or reinsurers share a risk.
Combination of the non-life claims ratio and the expense ratio.
Remuneration paid by the insurer to its agents, brokers or intermediaries, or by the reinsurer to
the insurer, for costs in connection with the acquisition and administration of insurance business.
Transaction in which policyholders or insurers surrender all rights and are relieved from all ob-
ligations under an insurance or reinsurance contract in exchange for a single current payment.
Insurance and reinsurance protection based on a contractual agreement.
Insurance against financial losses sustained through the failure, for commercial reasons, of
policyholders’ clients to pay for goods or services supplied to them.
Directors’ and officers’ liability
Directors’ and officers’ liability
insurance (D&O)
insurance (D&O)
Liability insurance for directors and officers of an entity, providing cover for their personal legal
liability towards shareholders, creditors, employees and others arising from wrongful acts such
as errors and omissions.
Disability insurance
Disability insurance
Expense ratio
Expense ratio
Insurance against the incapacity to exercise a profession as a result of sickness or other
infirmity.
Sum of acquisition costs and other operating costs and expenses, in relation to premiums
earned.
Guaranteed minimum death benefit
Guaranteed minimum death benefit
(GMDB)
(GMDB)
A feature of variable annuity business. The benefit is a predetermined minimum amount that
the beneficiary will receive upon the death of the insured.
Health insurance
Health insurance
Generic term applying to all types of insurance indemnifying or reimbursing for losses caused
by bodily injury or sickness or for expenses of medical treatment necessitated by sickness or
accidental bodily injury.
Incurred but not reported (IBNR)
Incurred but not reported (IBNR)
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.
Industry loss warranties (ILW)
Industry loss warranties (ILW)
Index-linked catastrophe contracts with a dual trigger that require a minimum industry loss to
occur before the coverage responds to the individual company loss.
Impairment charge
Impairment charge
Adjustment in the accounting value of an asset.
Swiss Re 2007 Annual Report 219
General information Glossary
Insurance-linked securities (ILS)
Insurance-linked securities (ILS)
Bonds for which the payment of interest and/or principal depends on the occurrence or severity
of an insurance event. The underlying risk of the bond is a peak or volume insurance risk.
Layer
Layer
Liability insurance
Liability insurance
Life insurance
Life insurance
Marine insurance
Marine insurance
Section of cover in a non-proportional reinsurance programme in which total coverage is
divided into a number of consecutive layers starting at the retention or attachment point of the
ceding company up to the maximum limit of indemnity. Individual layers may be placed with
different (re)insurers.
Insurance for damages that a policyholder is obliged to pay because of bodily injury or property
damage caused to another person or entity based on negligence, strict liability or contractual
liability.
Insurance that provides for the payment of a sum of money upon the death of the insured. In
addition, life insurance can be used as a means of investment or saving.
Line of insurance which includes coverage for property in transit (cargo), means of transporta-
tion (except aircraft and motor vehicles), offshore installations and valuables, as well as liabilities
associated with marine risks and professions.
Mandatory convertible bond
Mandatory convertible bond
Bond that has a compulsory conversion or redemption feature. Either on or before a contractual
conversion date, the holder must convert the mandatory convertible into the underlying stock.
Motor insurance
Motor insurance
Net reinsurance assets
Net reinsurance assets
Line of insurance which offers coverage for property, accident and liability losses involving
motor vehicles.
Receivables related to deposit accounting contracts (contracts which do not meet risk transfer
requirements) less payables related to deposit contracts.
Non-life insurance
Non-life insurance
All classes of insurance business excluding life insurance.
Non-proportional reinsurance
Non-proportional reinsurance
Form of reinsurance in which coverage is not in direct proportion to the original insurer’s loss;
instead the reinsurer is liable for a specified amount which exceeds the insurer’s retention;
also known as “excess of loss reinsurance”.
Nuclear energy insurance
Nuclear energy insurance
Property and liability insurance for atomic reactors, power stations or any other plant related to
the production of atomic energy or its incidental processes.
Operating revenues
Operating revenues
Premiums earned plus net investment income plus other revenues.
Operational risk
Operational risk
Premium
Premium
Risk arising from failure of operational processes, internal procedures and controls leading to
financial loss.
The payment, or one of the periodical payments, a policyholder agrees to make for an insurance
policy.
220 Swiss Re 2007 Annual Report
General information Glossary
Premiums earned
Premiums earned
Premiums an insurance company has recorded as revenues during a specific accounting
period.
Premiums written
Premiums written
Premiums for all policies sold during a specific accounting period.
Product liability insurance
Product liability insurance
Insurance covering the liability of the manufacturer or supplier of goods for damage caused
by their products.
Professional indemnity insurance
Professional indemnity insurance
Liability insurance cover which protects professional specialists such as physicians, architects,
engineers, lawyers, accountants and others against third-party claims arising from activities in
their professional field; policies and conditions vary according to profession.
Property insurance
Property insurance
Proportional reinsurance
Proportional reinsurance
Collective term for fire and business interruption insurance as well as burglary, fidelity guarantee
and allied lines.
Form of reinsurance in which the premiums and claims of the insurer are shared proportionally
by the insurer and reinsurer.
Present value of future profits (PVFP)
Present value of future profits (PVFP)
Intangible asset primarily arising from the purchase of life and health insurance companies
or portfolios.
Quota-share reinsurance
Quota-share reinsurance
Form of proportional reinsurance in which a defined percentage of all risks held by the insurer
in a specific line is reinsured.
Reinsurance
Reinsurance
Reserves
Reserves
Retention
Retention
Retrocession
Retrocession
Insurance which lowers the risk carried by primary insurance companies. Reinsurance includes
various forms such as facultative, financial, non-proportional, proportional, quota-share, surplus
and treaty reinsurance.
Amount required to be carried as a liability in the financial statements of an insurer or reinsurer
to provide for future commitments under outstanding policies and contracts.
Amount of risk which the policyholder or insurer does not insure or reinsure but keeps for its
own account.
Amount of the risk accepted by the reinsurer which is then passed on to other reinsurance
companies.
Return on equity
Return on equity
Net income as a percentage of time-weighted shareholders’ equity.
Return on investments
Return on investments
Investment result as a percentage of average invested assets. Invested assets include
investments, funds held by ceding companies, net cash equivalents and net reinsurance
assets. Average invested assets are calculated as opening balance plus one half of the
net asset turnover.
Swiss Re 2007 Annual Report 221
General information Glossary
Return on operating revenues
Return on operating revenues
Life and health business operating result (operating income excluding non-participating
realised gains and losses) as a percentage of operating revenue (premiums earned, net invest-
ment income and participating realised gains and losses) plus other revenues.
RiskRisk
Risk management
Risk management
Securitisation
Securitisation
Solvency II
Solvency II
Stop-loss reinsurance
Stop-loss reinsurance
Condition in which there is a possibility of loss; also used by insurance practitioners to indicate
the property insured or the peril insured against.
Management tool for the comprehensive identification and assessment of risks based on
knowledge and experience in the fields of natural sciences, technology, economics and
statistics.
Financial transaction, in which future cash flows from assets (or insurable risks) are pooled,
converted into tradable securities and transferred to capital market investors. The assets are
commonly sold to a special-purpose entity, which purchases them with cash raised through
the issuance of beneficial interests (usually debt instruments) to third-party investors.
Initiative launched by the European Commission to revise current EU insurance solvency
rules. Solvency II focuses on capital requirements, risk modelling, prudential rules, supervisory
control, market discipline and disclosure.
Form of reinsurance that protects the ceding insurer against an aggregate amount of claims
over a period, in excess of either a stated amount or a specified percentage of estimated benefit
costs. An example of this is employer stop loss (ESL) coverage, which is used by US companies
to cap losses on self-funded group health benefit programmes. The stop-loss can apply to
specific conditions or aggregate losses.
Surety insurance
Surety insurance
Sureties and guarantees issued to third parties for the fulfilment of contractual liabilities.
Surplus reinsurance
Surplus reinsurance
Form of proportional reinsurance in which risks are reinsured above a specified amount.
Tail VaR
Tail VaR
See “Value at risk”.
Treaty reinsurance
Treaty reinsurance
Underwriting result
Underwriting result
US GAAP
US GAAP
Participation of the reinsurer in certain sections of the insurer’s business as agreed by treaty,
as opposed to single risks.
Premiums earned less the sum of claims paid, change in the provision for unpaid claims and
claim adjustment expenses and expenses (acquisition costs and other operating costs and
expenses).
United States Generally Accepted Accounting Principles are the accounting rules, as issued
by the Financial Accounting Standards Board (FASB), its predecessors and other bodies, used
to prepare financial statements for publicly traded companies in the United States.
222 Swiss Re 2007 Annual Report
General information Glossary
Value at risk (VaR)
Value at risk (VaR)
Maximum possible loss in market value of an asset portfolio within a given time span and at
a given confidence level. 99% VaR measures the level of loss likely to be exceeded in only one
year out of a hundred, while 99.5% VaR measures the loss likely to be exceeded in only one
year out of two hundred. 99% Tail VaR estimates the average annual loss likely to occur with a
frequency of less than once in one hundred years.
Some of the terms included in the glossary are explained in more detail in note 1 to the Group
financial statements.
Swiss Re uses some of the term definitions provided by the glossary of the International
Association of Insurance Supervisors (IAIS). For additional insurance terms, see Swiss Re’s
online glossary of technical terms at www.swissre.com
Swiss Re 2007 Annual Report 223
General information
Managing Directors
The following persons were Managing Directors
of Swiss Re as of 26 February 2008.
A
Albert, Luc
Anderson, William
Andrews, Kathleen
Antal, Peter
Arbenz, Peter
Arnold, Neal
Attey, John
B
Badanes, Alan
Bächler, Beat
Bassi, David
Baxter, David Jonathan
Baxter, John
Beacock, Alan
Bebié, Marcel
Beck, Nikolaj
Bernegger, Stefan
Besdziek, Norbert
Besner, Rejean
Bieri, Christian
Bisping, Martin
Bitzer, Christoph
Blasberg, Walter
Bousfield, Clare
Bovair, Vesta
Brohm, Axel
Buckingham, Brenda
Buckle, Tony
Buff, Herbert
Burgess, Nicola
Burns, Gay
Bütikofer, Peter
C
Cameron, David Thomas
Carroll, Timothy J.
Chatagny, Jean-Michel
Choka, Theresa
Cliff, John
Cobben, Jos
Connolly, Llewellyn
Conti, Benedetto
Correnti, Salvatore
D
Datoo, Fazli
Dietlmaier, Peter
Dishart, Stephen
Donnell, William
E
Eckert, Raymond
Emblin, Peter
Engler, Walter
Eudy, Dan
Eugster, Markus A.
Eves, Michael
F
Flunger, Rudolf
Flury, Benno
Frazer, William
Froehlich, Theresa
Fürer, Guido
G
Ganzoni, Gian Paul
Gavlin, James
Geiger, Hermann
Gentile, Giovanni
Giambo, Robert
Gisin, Sandra
Gocksch, Andreas
Goda, Takashi
Gomez, David
Gott, David W.
Gujer, Peter E.
H
Hahn, Franz-Josef
Halter, Adrian
Hammesfahr, Robert W.
Hansen, Matthew
Haynes, Frederick
Heck, Jürgen
Heiser, Glenn
Held, Eduard
Henchoz, Jean-Jacques
Herzog, Christian
Hess, Jürg
Hess, Thomas
Hess, Todd
Hett, Annabelle
Higginbotham, Russell
Hill, Anthony
Hodkinson, Bruce
Hohl, Andreas
Holliday, Susan
Horber, Felix
Howe, Robert William
Huber, Paul Philip
Huber, Thomas
Huff, John
Hux, Ivo
Hyatte, Thomas
K
Kärle, Adrian
Kälin, Oskar
Kapur, Rishi
Kaufmann, Manfred
Kaufmann, Marcel
Kehl, Guido
Kelner, Steven
Kinnaird, Donna
Kirr, Martin
Kleiner, Hans Ulrich
Kleiterp, Fred
Koch, Luigi
Koch Medina, Pablo
Kräuchi, Markus
L
Léger, Thierry
Lipowsky, Ursula
Lippe-Holst, Gabriela
Locher, Christoph
Lörtscher, Thomas
Luning, Thomas
Lüthi, Beat
Lyons, Michael Patrick
224 Swiss Re 2007 Annual Report
General information Managing Directors
M
Mailloux, Patrick
Mann, Judy
Marley, Trevor
Martinsohn, Udo
Maureder, Kurt
McKechnie, Christopher
Mckie, Alison
Meeusen, Paul
Mehn, Hans A.
Menn, Christoph
Menzinger, Ivo
Meyer, Seth
Mitchell, Michael J.
Moore, William
Muldoon, Ann Mary
Müller, Martin
Murphy, William
Murray, Paul
Murray, Richard
N
Neubert, Manfred
Newall, Peter N.
Nicholls, Hazel
Nidds, Gary
Niederer, Alan
Nordquist, Randy
Nussbaum, Urs
O
Olgiati, Giovanni
O’Neill, Frank
O’Sullivan, David Gerard
Ozizmir, Danyal
P
Peduto, Robert
Peters, Ronald
Petrilli, Robert
Plunkett, Jayne
T
Thomas, Daniela
Thomsen, Torben
Thornton, Craig James
Triantafilidis, Steve
Tröber, Serge
Trüb, Jürg
Turra, René
V
Van Eeden, Loraine
Vetter, Daniel
W
Wahrenberger, Daniel
Weber, Andreas
Weber, Matthias
Weihs, Christopher
Wiest, Robert
Wild, Walter
Witting, Thomas
Wyatt, Robyn
Y
Yates, Jonathan James
Yeung, Clarence
Z
Zahnd, Craig
Zank, Günther
Zaugg, Bernhard
Zen-Ruffinen, Dominique
Zingg, Martin
Zutter, Peter
Zwyssig, Markus
R
Raaflaub, Patrick
Ratcliffe, Robert
Regazzoni, Philippe
Reichelt, Frank
Remy, Uwe Eberhard
Richards, Jason Marc David
Richardson, David
Romano, James
Ronan, Frank
Rotman, Jason
Rushton-Turner, Martin
S
Sakai, Atsuhito
Schaad, Werner
Scherer, Tom
Schläpfer, Werner
Schmid, Edouard
Schmid, Markus
Schmidt, Peter
Schnidrig, Thomas
Schraft, Andreas
Schurdak, John
Scott, Gordon Waddell
Scott, Keith
Sega, Richard
Skinner, James
Solari, Antonio
Solitro, Robert
Sonlin, Stephen
Spieler, Adrian
Splitt, Andrea
Starbuck, Robert
Steele, Gregory
Steiger, Jürg
Steilen, William
Steinmann, Sylvia
Stellwagen, Donald
Sterneck, Robin
Stewart, Kenneth
Strebel, Beat Markus
Stutz, Felix
Swallow, Mark
Sydenham, Peter Barrie
Swiss Re 2007 Annual Report 225
General information
2007 awards
Swiss Re received a broad range of awards
in 2007. They are a confirmation of the Group’s
best-in-class customer service as well as its
ambition to develop innovative solutions for clients.
Reactions Global Awards
Reactions Global Awards
Best global reinsurance company
Best global reinsurance company for casualty/liability
Best global reinsurance company for life
Reinsurance CEO of the year (Jacques Aigrain)
“The Reactions Awards are designed to recognise and reward the corporate and individual
achievers of the insurance and reinsurance markets. Each year we poll our readers to hear
from them which firms, deals and initiatives as well as industry figures are performing a cut
above the rest.” (Reactions magazine, July / August 2007)
Reinsurance Readers’ Awards
Reinsurance Readers’ Awards
Reinsurer of the year
Life reinsurer of the year
”Praise was heaped on Switzerland’s finest … with readers commenting on the company’s
innovation, wide-ranging products and professional, market-leading approach. (…) Swiss Re’s
sheer size and focus on clients’ needs were taken into account by our readers.” (reinsurance,
December 2007 / January 2008)
The Review Worldwide Reinsurance
The Review Worldwide Reinsurance
Awards
Awards
Reinsurer of the year
Life reinsurance company of the year
7
7
“The fact that Swiss Re has carried off two of the major accolades at this year’s Worldwide
Reinsurance Awards is testimony to its excellent performance during the past 12 months. (…)
Swiss Re has contributed more than anyone else in product development.”
“For the second year running the world’s largest reinsurer has been awarded the accolade of
being the best life player in the secondary market. (…) Swiss Re continues to think completely
differently about life reinsurance business compared to everyone else. (…) They are simply
streets ahead when it comes to innovation.” (The Review, September 2007)
Risk Awards
Risk Awards
Insurance risk manager of the year
Aw a r d s
Aw a r d s
20 0 7
20 0 7
“Swiss Re has revolutionised risk transference in the reinsurance industry. Over the past
12 months, the Zurich-based reinsurer has offloaded risks linked to life span, multi-peril, wind,
earthquake and credit exposure worth a whopping $7 billion.” (Risk, January 2007)
226 Swiss Re 2007 Annual Report
General information 2007 Awards
Asia Insurance Industry Awards
Asia Insurance Industry Awards
Life reinsurer of the year
“This year saw Swiss Re celebrate its 51st year of physical presence in Asia-Pacific. (…)
The company continued to demonstrate its in-depth knowledge of market needs. (…) When it
comes to innovation, leadership and education in the life reinsurance sector, the Swiss reinsurer
once again leads the field.” (Asia Insurance Review, November 2007)
Energy Risk Awards
Energy Risk Awards
Weather house of the year
“The environmental and commodity markets arm of global reinsurer Swiss Re is the deserving
recipient of the 2007 award for weather house of the year. (…) Swiss Re has consistently
delivered innovative, client-focused solutions. Swiss Re’s team claims a 30% share of the
weather derivatives over-the-counter business, based on PricewaterhouseCoopers’ annual
weather market survey, but it was the scope of the firm’s product offering that convinced the
panel.” (Energy Risk magazine, May 2007)
Euromoney’s Borrower Awards
Euromoney’s Borrower Awards
Best insurance borrower
“In a little over a year, as part of a multi-billion dollar acquisition financing package, the
re insurer conducted four hybrid benchmarks in textbook fashion. Furthermore, it reopened the
US hybrid market, for which it deserves kudos as it was considered a brave move by market
participants at the time.” (Euromoney, June 2007)
KangaNews Awards
KangaNews Awards
Kangaroo deal of the year
Swiss Re was recognised for its inaugural hybrid issue due to “a measured build-up to a debut
deal involving roadshowing ... and a willingness to listen and respond to investor input.”
“Swiss Re’s transaction stood out for its A$750 million (US$659 million) size and the speed
with which it was completed following roadshow …” (KangaNews, December 2007 / January
2008; February 2008)
Lipper Fund Awards
Lipper Fund Awards
Best fund over the past five years
Lipper commended the Swiss Re Capital Fund with its “Best Fund over the past Five Years”
award in the category “Mixed Asset CHF Balanced” for its consistently good performance.
CNBC
CNBC
Top 50 low carbon pioneers
“Swiss Re views global warming as a fiduciary risk. It has been very instrumental in raising
public awareness through the Swiss Re Centre for Global Dialogue in Rüschlikon, and through
the global TV documentary The Great Warming. The brand’s image has benefited.” (CNBC,
January 2007)
Swiss Re 2007 Annual Report 227
General information
Business contact information
Swiss Re maintains more than 75 office locations in over 25 countries. For a full list of office
locations and service offerings, please visit our website at: www.swissre.com
Head Office
Swiss Reinsurance Company
Mythenquai 50/60
P.O. Box
8022 Zurich
Switzerland
Telephone +41 43 285 2121
Investor Relations
Susan Holliday
Telephone +41 43 285 4444
Fax +41 43 285 5555
investor_relations@swissre.com
Media Relations
Simone Lauper
Telephone +41 43 285 7171
Fax +41 43 285 2023
media_relations@swissre.com
Share Register
Karl Haas
Telephone +41 43 285 3294
Fax +41 43 285 3480
share_register@swissre.com
Americas
Europe (incl. Middle East and Africa)
Asia
Armonk
175 King Street
Armonk, New York 10504
Telephone +1 914 828 8000
Bogotá
Carrera 7 No. 71-21, Torre B, Piso 15
Bogotá, D.C.
Telephone +57 1 313 6000
Calabasas
26050 Mureau Road
Calabasas, CA 91302
Telephone +1 818 878 9500
Mexico City
Insurgentes Sur 1898, Piso 8
Torre Siglum
Colonia Florida
México, D.F. 01030
Telephone +52 55 5322 8400
New York
55 East 52nd Street
New York, NY 10055
Telephone +1 212 317 5400
São Paulo
Alameda Santos, 1940 - 10° andar
CEP 01418-200
São Paulo SP
Telephone +55 11 3371 6570
Toronto
150 King Street West
Toronto, Ontario M5H 1J9
Telephone +1 416 408 0272
228 Swiss Re 2007 Annual Report
Johannesburg
24 Fricker Road
Illovo Corner
Illovo, 2196
Johannesburg/Gauteng
Telephone +27 11 502 5000
London
30 St Mary Axe
London
EC3A 8EP
Telephone +44 20 7933 3000
Luxembourg
2a, rue Albert Borschette
1246 Luxembourg
Telephone +352 26 12 16
Madrid
Paseo de la Castellana, 95 planta 18
Edificio Torre Europa
28046 Madrid
Telephone +34 91 598 1726
Munich
Dieselstraße 11
85774 Unterföhring bei München
Telephone +49 89 3844-0
Paris
7, rue de Logelbach
75847 Paris Cedex 17
Telephone +33 1 43 18 30 00
Zurich
Mythenquai 50/60
8022 Zurich
Telephone +41 43 285 2121
Beijing
23rd Floor, East Tower, Twin Towers,
No. B12, Jian Guo Men Wai Avenue
Chao Yang District
Beijing 100022
Telephone +86 10 6563 8888
Hong Kong
61 / F Central Plaza
18 Harbour Road
G.P.O. Box 2221
Wanchai, HK
Telephone +852 2827 4345
Mumbai
9th floor, Essar House
11 K Khadye Marg
Mahalaxmi
Mumbai 400 034
Telephone +91 22 6661 2121
Singapore
1 Raffles Place
OUB Centre
Singapore 048616
Telephone +65 6532 2161
Sydney
Level 29, 363 George Street
Sydney NSW 2000
Telephone +61 2 8295 9500
Tokyo
Otemachi First Square 9F
5 –1 Otemachi 1 chome
Chiyoda-ku
Tokyo 100-0004
Telephone +81 3 3272 287
Corporate calendar
31 March 2008
EVM teach-in
18 April 2008
144th Annual General Meeting
6 May 2008
First quarter results and 2007 EVM
5 August 2008
Second quarter results
25 September 2008
Investors’ Day
4 November 2008
Third quarter results
19 February 2009
2008 annual results
©2008
Swiss Reinsurance Company
Title:
2007 Annual Report
Advancing Performance
Design:
Addison Corporate Marketing, London
Photographs:
Marc Wetli (cover, inside cover,
pp 2, 14, 15, 31, 34 – 41, 88)
David Ausserhofer (p 6)
Swiss Re (p 6)
Stefan Baumgartner (p 6)
Markus Bühler (p 15)
Willy Spiller (p 15)
Stefan Walter (p 15)
Printing:
NZZ Fretz AG, Schlieren
This report is printed on sustainably produced paper.
The wood used comes from forests certified to
100 per cent by the Forest Stewardship Council (FSC).
Original version in English
The 2007 Annual Report is also available in
German and French.
The web version of the 2007 Annual Report is
available at: www.swissre.com/annualreport
Order no: 1490793_08_en
CCHCC, 3/08, 14 000 en
Swiss Reinsurance Company
Mythenquai 50/60
P.O. Box
8022 Zurich
Switzerland
Telephone +41 43 285 2121
Fax +41 43 285 2999
www.swissre.com