2008 Annual Report
Key information
Premiums earned� (CHF millions)
08
14 379
11 090
07
06
05
04
18 977
18 541
12 665
10 974
16 346
9 638
18 336
10 205
Property & Casualty Life & Health
Net income� (CHF millions)
–864
08
07
06
05
04
2 304
2 475
Return on equity�
–3.4%
08
4 162
4 560
07
06
05
04
13.5%
16.3%
10.3%
13.6%
Shareholders’ equity� (CHF millions)
08
20 453
07
06
05
04
24 393
19 177
1 2005–2008 figures are based on US GAAP,
and 2004 on Swiss GAAP FER
Share price (CHF)
160
140
120
100
80
60
40
20
0
2004
2005
2006
2007
2008
2009
Swiss Re
Swiss Market Index
Dow Jones STOXX 600 Insurance
Premiums earned� (CHF millions)
08
14 379
11 090
07
18 977
12 665
04
9 638
10 974
18 541
18 336
10 205
16 346
06
Financial highlights
05
CHF millions, unless otherwise stated
Property & Casualty
Property & Casualty Life & Health
Premiums earned
Combined ratio, traditional business in %
Net income� (CHF millions)
–864
Life & Health
07
Premiums earned
06
Benefit ratio in %
05
2 304
08
4 162
4 560
04
2 475
Asset Management
Assets under management, in CHF billions
Return on investments in %
Return on equity�
–3.4%
08
07
Legacy
06
Operating loss
05
13.5%
16.3%
10.3%
04
13.6%
Group
Premiums earned
Net income/loss
Shareholders’ equity� (CHF millions)
20 453
08
Earnings per share, in CHF
Shareholders’ equity
Return on equity in %
Number of employees1 (31.12.2007/31.12.2008)
30 884
24 393
31 867
06
05
07
2007
2008
Change in %
18 977
90.1
14 379
97.9
12 665
87.0
11 090
85.5
160
5.3
125
4.7
–24
–12
–22
–1 505
–5 890
–
31 664
4 162
11.95
31 867
13.5
11 702
25 501
–864
–2.61
20 453
–3.4
11 560
–19
–
–
–36
–
–1
31 867
30 884
04
1 Permanent staff
19 177
1 2005–2008 figures are based on US GAAP,
and 2004 on Swiss GAAP FER
Share price (CHF)
Share performance
160
140
120
100
80
60
40
20
0
2004
2005
2006
2007
2008
2009
Swiss Re
Swiss Market Index
Dow Jones STOXX 600 Insurance
in %
Swiss Re
Swiss Market
Index
Dow Jones
STOXX 600
Insurance
2004–13 Feb 2009 (p.a.)
2008
–25.1 –61.54
–1.3
–37.65
–7.8
–52.56
Who we are: Swiss Re is a leading
and highly diversified global reinsurer.
We combine financial strength and
unparalleled insurance expertise with
real commitment to our clients.
What we do: We offer a comprehensive
range of reinsurance solutions to manage
risk. Our aim is to create sustainable
value for both clients and shareholders.
How we do it: Our strong business
position 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.
002
Letter to shareholders
006
Profile
034
Financial year
066
Risk and capital management
084
Corporate governance and compensation report
132
Financial statements
244
General information
Letter to shareholders
Peter Forstmoser
Jacques Aigrain
Stefan Lippe
Dear shareholders
In view of extreme financial market turbulence and a higher natural catastrophe burden faced
by the insurance industry, Swiss Re delivered a strong underwriting performance in our
Property & Casualty and Life & Health business. However, the result was severely impacted
by investment results. The sobering analysis is that even though we introduced corrective
measures during 2008, in retrospect, we should have acted faster to de-risk the asset side
of our balance sheet. All financial market activities that are not insurance-related have been
terminated or put in run-off. We continue to focus on reduction of risk in our investment
portfolio.
We are disappointed to have to report a loss for the year: 2008 ends with a net loss of
CHF 0.9 billion and a severe reduction in the book value per share to CHF 60.96.
However, we take to heart the criticism that we have to further de-risk our investment
portfolio. We must ensure the resilience of our balance sheet and protect the company’s
long-term financial strength. Our challenge is to ensure that we are taking the necessary
actions to build a stronger firm for the years to come.
We propose to take a number of measures to reinforce our capital position in order to
maintain the financial flexibility to capitalise on client opportunities. The total capital to be
raised is likely to amount up to CHF 5.0 billion.
While we take no pleasure in reporting these results, we do wish to recognise the enormous
effort of our employees to stay focused on delivering solid operational results and
taking advantage of business opportunities that present themselves in the current market
environment. Their dedication to meeting our clients’ needs should not go unmentioned.
2 Swiss Re 2008 Annual Report
Letter to shareholders
Business performance
Our Property & Casualty segment delivered superior underwriting discipline. It achieved an
excellent combined ratio of 97.9% for the fourth consecutive year, despite the impact of large
natural catastrophes and the lack of material benefit from prior year reserve development.
Our underwriting strength was rewarded by major new insurance transactions with clients
seeking innovative insurance risk solutions.
Life & Health produced a benefit ratio of 85.5% and it is encouraging that we expect higher
return on capital employed from the new business written. In a highly competitive market
for life reinsurance, we are proud to report that our market share of new business, coupled
with better pricing, improved in the Americas.
Reduce asset risk
We disbanded our former Financial Markets division to establish two new units: Asset
Management and Legacy. Asset Management has two core strategic mandates: to manage
the assets generated through (re)insurance activities and match them to the benchmark set
by reinsurance liabilities; and to work closely with the Client Markets and Products
Underwriting teams to provide insurance-related solutions to our clients.
Legacy manages specified products that Swiss Re no longer offers. These products comprise
Structured CDS, Portfolio CDS, Financial Guarantee Re and former trading activities. The
run-off or sale of discontinued businesses has been accelerated and we do not exclude the
possibility of future disposal of other businesses.
0.19
We took further decisive action to de-risk the asset portfolio during 2008 through a
combination of sales and hedging. Consequently, at the end of 2008 the portfolio was
composed of substantially more than 55% cash, short-term investments, treasuries or
government-backed instruments, and only 1% remained invested in equity securities. New
cash flow is invested in short-term investments, government and government-backed
securities.
Restore and maintain capital strength
In addition to reducing asset risk, we propose to raise capital to re-establish an appropriate
buffer given the continuing uncertainties in the financial markets. We want to be a strong
counterparty and retain the trust of our clients. The total amount of capital to be raised is likely
to be up to CHF 5.0 billion. Subject to your approval, Berkshire Hathaway will invest
CHF 3.0 billion in Swiss Re in the form of a convertible instrument. Subject to regulatory
approval, the Group has also agreed to enter into an arrangement with Berkshire
Hathaway to cover the potential effects of adverse developments, such as inflation, on its
Property & Casualty reserves.
Swiss Re 2008 Annual Report 3
Book value
Per share (CHF), as of 31 December
86.21
92.00
73.87
61.78
60.96
2004
2005
2006
2007
2008
Letter to shareholders
Letter to shareholders
4 Swiss Re 2008 Annual Report
We are further seeking your approval to increase capital to provide the Board of Directors
with the flexibility to raise up to CHF 2.0 billion. Given the need to strengthen the capital position
of the Group, we propose to reduce the dividend to CHF 0.10.
This combination of actions is expected to allow us to continue to benefit from improvements
in pricing in the reinsurance market, and to reinforce our capital strength.
Our fundamental business is solid
Our business model is sound: we deliver insurance solutions to our clients and invest the
premiums that we receive. Our vision has been based on fundamental trends such as primary
insurance market consolidation and broader insurance risk transfer needs; changing roles
of insurance brokers and intermediaries; and growing integration of capital and insurance
markets. Given the substantial dislocations that we have seen in 2008, it makes sense to
conduct a thorough review to make sure that we devote our resources to those areas where
we can maximise returns.
Appointments
On 11 February 2009, Swiss Re’s Board of Directors accepted the resignation of Jacques
Aigrain as Chief Executive Officer. The Board thanks Jacques Aigrain for his significant
contributions and personal commitment to Swiss Re. Under his leadership, Swiss Re
successfully completed several major acquisitions, including the Insurance Solutions
operations from General Electric.
On 12 February 2009, the Board announced that Stefan Lippe, former Deputy Chief
Executive Officer and Chief Operating Officer, assumes the position of Chief Executive
Officer. The Board is confident that Stefan’s proven track record in reinsurance will
support our efforts to focus on the core business, while at the same time ensuring operational
continuity.
The Board appointed Brian Gray, formerly Head of Property and Specialty Underwriting,
as Chief Underwriting Officer. Brian will ensure the continuity of Swiss Re’s underwriting
standards and focus on quality and selective underwriting.
We have also brought on board David Blumer, as our new Chief Investment Officer and
Head of Asset Management. David, who has extensive expertise in asset management, has
already been critical to a successful reorganisation of our Asset Management function.
Letter to shareholders
Outlook
Swiss Re is one of the largest worldwide (re)insurance companies. Our scale and global reach
mean that we are well positioned to assist our clients in achieving their ambitious goals in
terms of insurance risk-taking or insurance sales growth. Recent transactions demonstrate
Swiss Re’s strong reputation and outstanding execution capabilities. This is the basis for the
earnings power of the firm going forward.
Demand for reinsurance is growing as clients face capital constraints or pursue opportunities
for consolidation. The 2009 January renewals were promising with rates and volume
increasing. As the reinsurance premium cycle continues to harden, Swiss Re is well positioned
to provide clients with effective solutions.
Zurich, 19 February 2009
Peter Forstmoser
Chairman of
the Board of Directors
Jacques Aigrain
Chief Executive Officer
(until 11 February 2009)
Stefan Lippe
Chief Executive Officer
(as of 12 February 2009)
Swiss Re 2008 Annual Report 5
Profile
8 Swiss Re at a glance
10
Executive Committee
11 Swiss Re Group
12 Strategy
14
Innovation for our clients
18 Clients’ views
20 Changing risk landscape
24 Our talent
28 Delivering sustainable value
6 Swiss Re 2008 Annual Report
Our business is to reduce
the financial uncertainty
associated with risk. We
anticipate extreme scenarios,
just to be ready if and when
they occur. In other words,
we enable the risk taking
that is essential for progress
and prosperity.
Swiss Re 2008 Annual Report 7
Profile / Swiss Re at a glance
Swiss Re at a glance
How we operate
We offer traditional reinsurance for property and casualty and for life and health
businesses. We complement these with insurance-based capital market solutions and
services for comprehensive risk management.
Property & Casualty
Property & Casualty services encompass
traditional reinsurance as well as insurance
products for corporate clients. Combining
global expertise and local knowledge, we
provide clients with financially sound
reinsurance support in all lines of business.
Life & Health
Backed by our strong balance sheet and
global diversity, we are a leading provider
of reinsurance to life insurance companies
worldwide. Using specialist knowledge of
global mortality and morbidity trends, we
support clients with sustainable, pragmatic
solutions.
Asset Management
Asset Management is responsible for the
investment of Swiss Re’s asset portfolio.
Our approach is focused on asset-liability
matching. We also develop solutions for
our clients with insurance risks embedded
in capital market structures.
2008 net premiums earned by region
2008 net premiums earned by region
2008 investment portfolio
41% Americas
47% Europe
(including Middle
East and Africa)
12% Asia
52% Americas
40% Europe
(including Middle
East and Africa)
8% Asia
Asia
Europe
¥
47% Europe
(including Middle
East and Africa)
41% Americas
12% Asia
49% Cash, government
bonds&short-term
investments
20% Structured products
15% Corporate bonds
1% Equity
15% Other
14379 m
CHF
11090 m
CHF
160244 m
CHF
(excl. unit-linked and with-profit business)
2007: CHF 18 977 m
–24%
2007: CHF 12 665 m
–12%
2007: CHF 210 697 m
–24%
Cash, cash equivalents
Mortgages, Loans, Other
Short-term investments
Alternative investments
9%
9%
3%
5%
Other structured products 16%
Agency structured products 7%
Government bonds
Equities
Corporate bonds
31%
2%
18%
8 Swiss Re 2008 Annual Report
How we add value
Our clients demand value. This is real value beyond matching products and services
to what we perceive to be their needs. Clients want to better understand and manage
their own risks and capital. They want reinsurance products that help them pursue
greater business opportunities.
What clients are seeking
What clients can expect from Swiss Re
Clients want solutions
Our clients want a solution that will make a
difference to their specific business, not just
a standardised product or service. Having
unique needs, challenges, and goals, they
look for solutions that reflect their individual
risk and capital management strategy.
Clients want a relationship with us that
suits their style
Our clients may want a personal, customised
approach or prefer a more clear-cut,
conventional relationship. Results are what
matter – the method is flexible.
Clients want a strong partner
Our clients want to be sure that their chosen
partner can withstand market dislocations
and continue to deliver sustainable solutions
in exceptional economic circumstances.
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̤
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̤
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Expertise in all forms of insurable risk;
An integrated product offering, combining
risk and capital management elements;
Clear presentation of the true cost and
benefit of different options, based on firm
data and realistic models;
Superior scale and financial capacity to
take on risk; and
Ability to respond to changing risk
landscapes with sustainable solutions.
A lasting, effective relationship;
Delivery of excellent service through all
available channels, directly or in
conjunction with a broker; and
Client satisfaction. We continuously
measure individual areas of client
satisfaction.
A reputation for reliability and integrity
built up over the past 145 years;
Products and services backed by financial
strength ratings that are among the best
in the industry; and
Strong business and value proposition.
Profile / Swiss Re at a glance
2008 net premiums earned by product line
19% Property
20% Casualty
15% Specialty
2% P&C Non-traditional
31% Life
10% Health
3% Admin Re®
Property & Casualty channel distribution
54 %
46 %
Direct
Broker
A+
Aa3
A+
Standard & Poor’s
Moody’s
A.M. Best
Swiss Re 2008 Annual Report 9
Profile / Executive Committee
Executive Committee
From left:
Raj Singh
Andreas Beerli
Stefan Lippe
George Quinn
Jacques Aigrain
Brian Gray
Michel M. Liès
David J. Blumer
10 Swiss Re 2008 Annual Report
Profile / Swiss Re Group
/EC Member of the Executive Committee
/EB Member of the Executive Board
Swiss Re Group
Jacques Aigrain/EC
Chief Executive Officer
(until 11 February 2009)
Stefan Lippe/EC
Chief Executive Officer
(as of 12 February 2009)
Chief Operating Officer
Client Markets
Michel M. Liès/EC
Head of Client Markets
Martin Albers/EB
Europe
Pierre L. Ozendo/EB
Americas
Martyn Parker/EB
Asia
Agostino Galvagni/EB
Insurance & Specialty
W. Weldon Wilson/EB
Global Admin Re®
Products Underwriting
Brian Gray/EC
Chief Underwriting Officer
Matthias Weber/EB
Property & Specialty
Martin Oesterreicher/EB
Casualty
Christian Mumenthaler/EB
Life & Health
Operations
Stefan Lippe/EC
Chief Executive Officer
(as of 12 February 2009)
Chief Operating Officer
Markus Schmid/EB
Global IT
Hermann Geiger/EB
Group Legal
Jonathan Isherwood/EB
Claims & Liability
Management
Asset Management
Finance
Risk Management
Associated Units &
Special Projects
Communications & HR
David J. Blumer/EC
Chief Investment Officer
George Quinn/EC
Chief Financial Officer
Raj Singh/EC
Chief Risk Officer
Andreas Beerli/EC
Charlotte A. Gubler/EB
Swiss Re 2008 Annual Report 11
Profile / Strategy
We are an industry leader
in (re)insurance. We aim
to stay ahead by catering
to our clients’ needs and
focusing on what we do
best: writing insurance risk
and investing the premiums
we receive.
12 Swiss Re 2008 Annual Report
Strategy
2008 was a difficult year for Swiss Re.
Our core business – (re)insurance –
delivered excellent results both in
Property & Casualty as well as
Life & Health. However, this was more
than offset by the adverse impact of
the worst economic crisis for decades
on our financial market activities.
In response to this crisis, we de-risked our
balance sheet and disbanded our Financial
Markets division in 2008. Our priorities are
geared towards reinforcing our financial
strength to support our clients in a
challenging economic environment, further
reducing capital allocation to investments
and simplifying our business model.
Asset de-risking
A changing risk landscape and challenging
market conditions called for an adjustment
of our business focus in 2008. We reacted to
the worst financial market crisis for decades
by adopting measures to reduce our
investment risk. We hedged our corporate
credit exposure and reduced our exposure
to equities early in the year. New cash flows
were invested in short-term investments,
government or government-backed
securities. Notwithstanding these efforts,
we encountered significant losses on parts
of our non-insurance related financial market
activities. In response to these developments,
we disbanded our Financial Markets
division and created two new units, Asset
Management and Legacy.
Asset Management focuses on two main
mandates. The primary mandate is to manage
the assets generated through reinsurance
activities. The secondary mandate is to
provide capital market solutions for insurance
risks to our clients, complementary to our
traditional reinsurance solutions. Other capital
market activities have been discontinued or
put in run-off in the Legacy unit. The Legacy
unit focuses its efforts on accelerating the
natural run-off of these activities.
Profile / Strategy
Focus on profitable (re)insurance
business
In 2008, we continued our focus on strict
(re)insurance cycle management. As we
reduced risk in our investment portfolio,
we directed capacity to the most profitable
lines of business and transactions. Our
superior Property & Casualty combined ratio
is a result of these successful efforts. We
leveraged our size to write large lines – such
as a USD 1.5 billion gross reinsurance cover
with the California Earthquake Authority –
and to participate in several multi-year,
privately placed catastrophe programmes.
We also closed significant Admin Re®
transactions with Barclays Life and Phoenix.
January 2009 renewals were very strong
both in terms of volume and price. We were
able to win large new insurance transactions
such as a property quota share with Liberty
Mutual and a structured life reinsurance
treaty with Irish Life.
We further enhanced our (re)insurance
offering in 2008, notably in the areas of
health and longevity – segments in which we
have traditionally had only limited involvement.
To help satisfy the growing risk transfer
needs of our clients, we also provide capital
market instruments such as insurance-linked
securities (ILS), as well as life and retirement
solutions. Our know-how and execution
capabilities in these instruments give us a
strong competitive advantage. These capital
market instruments are firmly embedded in
our insurance underwriting.
Next steps
Our priorities are centred around our clients.
Subject to shareholder approval, we will raise
additional capital in order to support our
clients with the security they are seeking in
a difficult economic environment. We will
focus on what we do best, ie writing
insurance risk and investing the premiums
to match the underlying liabilities. We will
focus on deploying capital where it earns
the best returns and continue to shift capital
from investments to (re)insurance. We will
simplify our business model and our
organisation to achieve greater effectiveness
and efficiency.
Swiss Re 2008 Annual Report 13
Profile / Innovation for our clients
We recognise that our
clients have increasingly
complex (re)insurance
needs. Our 145-year track
record provides us with
the experience and skills
to develop innovative
products – from natural
catastrophe modelling to
insurance-linked securities
transactions – that help
our clients manage their
risk exposure.
14 Swiss Re 2008 Annual Report
Profile / Innovation for our clients
Innovation for our clients
Innovation is not an isolated process
at Swiss Re; it is integral to our daily
work. Our commitment to accurate
and timely identification of risk and
our cooperative approach to product
development – working with clients,
brokers and partners to develop
customised solutions – naturally
generate innovation. A changing world
constantly presents new risks and
opportunities – our job is to anticipate,
not just respond to them.
2008 saw a number of products and
tailored solutions introduced for new and
existing clients.
Extra Expense Protection
Our Aviation & Space team – whose global
services comprise direct insurance,
facultative reinsurance, proportional/
non-proportional treaty reinsurance and
alternative risk solutions – launched
Extra Expense Protection (ExEP).
The ExEP product protects our clients
against the financial consequences of a
major loss, such as a sudden increase in
insurance premiums. Traditional aviation
insurance markets tend to overreact
following a catastrophic loss, resulting in
such an increase the following year. An
analysis of 20 of the largest losses over
the past 13 years showed that the average
premium increase was 79%.
In addition to mitigating the additional cost
burden following a catastrophic aviation
event, ExEP protects our clients against
hidden costs not covered by traditional
insurance policies, including the use of
emergency services, consequential losses
and marketing/public relations efforts.
Title Insurance and Judicial Review
Insurance
In response to the growing risk appetite of
our clients in Europe and Asia, we adapted
for local use two reinsurance offerings
previously used in US and UK markets for
underlying Title Insurance (TI) and Judicial
Review Insurance (JRI) products.
The TI product covers losses arising from
disputed real estate titles, while JRI provides
cover for costs incurred when third-party
action causes a municipality or other local
government entity to revoke a building
permit or change a zoning plan. This
provides a cost-effective alternative to the
more expensive financial guarantees that
developers must often secure to get a
project started. Ideally offered to clients
through a quota share agreement, our
reinsurance products provide additional
capacity to cedents who adapt their TI and
JRI products to enter new geographical
markets.
Bancassurance
In Europe and Latin America we continued
to offer our clients support with their
bancassurance strategies – selling insurance
products to consumers through traditional
banks – via partnerships and complex,
high-volume deals.
Swiss Re 2008 Annual Report 15
Profile / Innovation for our clients
Innovation for our clients
Parametric solutions
The past few years have seen increasing
demand among clients for parametric
solutions to natural catastrophe protection –
that is, for policies that link cover to an
agreed parameter of event intensity, rather
than to individually assessed loss. A number
of different teams at Swiss Re are involved in
structuring and offering such products. This
year, we introduced a parametric earthquake
business interruption cover solution for
corporate clients in Japan.
The Japanese insurance market is mature,
yet only 4–5% of companies have
earthquake-related cover, despite their
obvious vulnerability to business interruption.
Such companies have found traditional cover
difficult to obtain because of the complexity
of risk assessment and measurement.
Swiss Re’s new parametric product is based
on the Shindo earthquake intensity scale.
It features a highly transparent trigger
point with the guarantee of a payout
without delay, and is designed to enable
customers to return to business quickly
after an earthquake-related loss.
In Italy, we secured an innovative placement
for fire and earthquake covers. These protect
real estate assets that serve as collateral for
reverse mortgages sold by a leading financial
institution. We also arranged a private
variable annuity placement – the first of its
kind in continental Europe – for a large
Italian insurance company.
In Bolivia, we joined with a local bank and a
third-party software administrator to offer
life insurance products in a market with
low insurance penetration but significant
growth potential. All these projects draw on
Swiss Re’s expertise in providing unique
solutions – from product design to policy
wording – that span the divide between
financial markets and insurance.
Agriculture
Our Environmental & Commodity Markets
unit continues to generate innovative ideas
in fields ranging from agricultural insurance
to emissions trading and weather derivatives,
effectively combining our global expertise
with local market needs.
Our offerings are tailored to the needs of the
various participants in the agricultural sector,
ranging from suppliers, growers and traders
to grain processors.
About 80% of the agro policies sold in the
US are revenue covers. Direct insurance
companies risk high losses if policyholder
revenues drop below 85% of the five-year
average yield multiplied by the future crop
prices in spring. To mitigate this risk, we
developed a product with additional price
risk protection for our clients.
16 Swiss Re 2008 Annual Report
Profile / Innovation for our clients
The value of client loyalty
Swiss Re firmly believes that listening carefully to our customers and working in
close partnership with them is critical to ensuring their long-term loyalty and
financial success. We conduct surveys, focus groups and one-on-one client visits
to constantly gauge the quality of the services we provide to clients, brokers and
business partners.
We measure our clientsʼ loyalty by using the Net Promoter® methodology, which asks the
question: “How likely are you to recommend us to a business associate or colleague?”. Using
this methodology, combined with qualitative analysis, we annually survey more than 20 000
customers worldwide to directly capture their feedback. The surveys give us insight into the
key drivers of customer service and loyalty and have led to internal improvement projects to
increase client satisfaction.
For example, one of our business units enhanced its processes to substantially reduce quote
turnaround time. It also implemented a programme called “Boost Industry Participation (BIP)”,
which challenges qualifying employees to assume leadership positions in the industry,
whether as a speaker at an industry meeting, a trade organisation committee member or as
the author of an industry magazine article. The BIP programme resulted in a significant
improvement in our knowledge and expertise scores from our clients.
This continued focus on our service to clients is beneficial to our customers and also to our
strategic objective of turning our customers into promoters of our business.
Net Promoter®, NPS and Net Promoter Score are registered trademarks of Bain & Company,
Inc., Satmetrix Systems, Inc., and Fred Reichheld.
Swiss Re 2008 Annual Report 17
Profile / Clients’ views
Clients’ views
Our clients want innovative solutions to support their risk and
capital management strategies. Two clients with unique challenges
and goals talk about the difference Swiss Re has made to their
business and provide insights into how we can further improve our
services to better respond to their needs.
Grupo Nacional Provincial (GNP) of
Mexico is one of Swiss Re’s most
important clients in Latin America: our
relationship with GNP dates back to the
1960s. In recent years, the firm has had
to cope with several natural catastrophe
losses, including Hurricane Wilma in
2005 – which caused the company to
re-evaluate its strategy for these risks.
Ignacio Gil AntÓn, GNP’s Commercial Lines
Head, called on Swiss Re’s expertise and
resources to develop a customised risk
transfer solution that allowed GNP to
decrease volatility of its results. The result:
a quota share arrangement in which
GNP transferred a large part of its natural
catastrophe risk to Swiss Re. This benefits
both companies in terms of market
participation and results stability.
How did Swiss Re help your company
achieve its financial targets?
We asked Swiss Re to help us optimise our
capital position following a spate of natural
catastrophes, combined with adverse
development from prior years. Our aim was
to reduce capital requirements and volatility
of our results. Their experts looked at our
books, our market position and our growth
potential and offered us proportional
reinsurance cover to mitigate the risk of
earthquake and hurricane.
18 Swiss Re 2008 Annual Report
The current global financial crisis is putting
pressure on everyone, but we at GNP have
been kept aware of Swiss Re’s capital
position throughout. We feel comfortable
transferring our risk to them. Whenever we
had queries about the financial strength of
the company and its asset risk profile, we
got almost immediate, transparent answers
from the Swiss Re team. It’s reassuring and
it also demonstrates the strength of our
relationship.
How would you summarise Swiss Re’s
service?
Reliable, innovative and customer focused.
Do you recommend Swiss Re to other
industry colleagues?
Absolutely. Swiss Re’s broad capabilities are
difficult to match.
Where could Swiss Re improve its
response to your needs?
We believe that the claims processing
function could be optimised. We are already
working with the local Swiss Re team to find
ways to improve claims assessment and
processing time that will ultimately benefit
GNP’s client base.
How can Swiss Re help you with the
challenges you face in 2009?
Our focus is on growth and profitability. We
will need to continue relying on Swiss Re’s
expertise to help us develop insurance and
reinsurance products – and channels – that
can increase our market penetration.
Ignacio Gil AntÓn, GNP’s Commercial Lines Head
But GNP’s relationship with Swiss Re goes
beyond pure risk transfer. Swiss Re is a
business partner with a truly holistic
approach; ours is a strong alliance in which
both parties benefit from each other. We rely
on Swiss Re’s financial strength, expertise
and capacity to achieve our financial and
growth targets.
Which of Swiss Re’s capabilities made
the most difference to you?
Swiss Re’s technical expertise, financial
strength and integrated approach to risk
management are undoubtedly valuable
assets. From the planning process to the
actual risk placement, we work together
to find a solution that suits our needs.
Profile / Clients’ views
Insurance Australia Group Limited (IAG)
has a portfolio of general insurance
businesses. It has leading and
established brands across its home
markets of Australia and New Zealand,
a growing presence in Asia, and other
specialist underwriting operations.
The company experienced two years of
natural perils that exceeded its allowances.
Specifically, in 2007/2008, IAG’s
businesses incurred AUD 502 million of
natural perils claims costs (with AUD 411
million the year before).
After discussions between senior executives
at IAG and the Head of Swiss Re’s Australia &
New Zealand unit, Swiss Re developed a
way to reduce the P & L effect of natural perils
losses without the financial impact of a
retention buy-down option on its catastrophe
cover. The result was an innovative multi-
year solution. The new cover enabled IAG to
reduce its maximum event retention whilst
ensuring it was not penalised for its recent
loss history.
How did Swiss Re help your company
achieve its financial targets?
IAG faced a year of varied challenges. Over
the course of the past 12 months, we looked
to Swiss Re for a number of solutions
including those that stabilised earnings,
aided in our capital management or
facilitated new product development. In
each case Swiss Re was able to respond
with a range of options or structures that
gave us the flexibility we desired.
Which of Swiss Re’s capabilities made
the most difference to you?
Innovation. Flexibility. Capacity.
How would you summarise Swiss Re’s
service?
Quality of products and services; global
capability.
Do you recommend Swiss Re to other
industry colleagues?
Yes, primarily due to the size, scale and
innovation that Swiss Re can provide.
Where could Swiss Re improve its
response to your needs?
Provide greater clarity over the pricing and
quotation process such that the exceptional
interaction over the year is not lost at the
point of transaction.
Assist in the training and development of
our staff. Reinsurance skill is a rare resource
and we would highly value training and
development assistance.
Michael Wilkins, IAG’s Managing Director and CEO
Recognise that, due to the size of our
relationship and the degree of transparency
that exists between us, Swiss Re is an
ambassador of the IAG brand, both within
Australia and globally.
How can Swiss Re help you with the
challenges you face in 2009?
With the impact of the current economic
environment and the particular nature of the
Australian investor base, we have for some
time been looking at protections that reduce
the volatility of our earnings. Given Swiss Re’s
intimate knowledge of our portfolio, we
would like to continue to work together to
model options that would assist us in doing
just that.
Swiss Re 2008 Annual Report 19
Profile / Changing risk landscape
Risk landscapes change.
That’s why we have
to manage them: from
detecting first signals,
through mapping and
modelling, to assessing
which risks may have
a major impact on our
clients’ businesses and
our own balance sheet.
20 Swiss Re 2008 Annual Report
Profile / Changing risk landscape
Changing risk landscape
The first step in assessing emerging risks is
to systematically review them and translate
them into quantifiable information. We
want to be anticipatory and pre-emptive
in our response, which means prioritising
risks, evaluating their impact and making
recommendations on how new insurance
products or mitigation can support our
clients’ business. The three key methodologies
we use within the SONAR framework are
described below.
Rapid Risk Research
Since early 2007, we have conducted 24
Rapid Risk Research studies on topics from
dam failures to food contamination, space
debris to Thames flooding. Here we shine a
spotlight on a specific risk, gather experts
and ask them what its impact could be on all
lines of business. Such focused investigations
also incorporate desk research, quantitative
analysis and a review of existing contract
wording. This proactive approach helps us
combine existing knowledge with creative
thinking to avoid surprises and spot new
business opportunities.
Using models alone to represent
emerging or complex risks creates a
danger of false certainty as well as
an unrealistic sense of control. That is
the reason we often take a scenario
approach: to explore how a risk situation
might unfold and see what could happen,
recognising that outcomes which at first
sight may seem implausible – may still
be possible.
Modelling and scenario development
combine to create our risk landscape:
Swiss Re’s snapshot of the world of risk in
which it does business. But we have to be
mindful of change. The risk landscape is
constantly evolving, at a rate that itself can
change suddenly and unpredictably. With
our worldwide portfolio of natural, technical,
economic and social risks, we must
constantly monitor this rate of change,
compare different perspectives and seek
to understand how risks interlink.
SONAR framework
Early warning and risk awareness are the
keys to Swiss Re’s profitability because our
opportunities and challenges both stem
from a changing global risk landscape.
SONAR, our framework for managing
emerging risks and addressing key industry
issues, takes a collaborative approach,
drawing on risk experts from across the
business to create a holistic picture of the
risks we face and to determine how we
should manage them.
Swiss Re 2008 Annual Report 21
Profile / Changing risk landscape
Changing risk landscape
Emerging risk scenarios
Building effective scenarios has become
a key part of understanding future risk
exposure, especially under the conditions
of rapid change or uncertainty. Through
definition of parameters and specific events,
insurance risks can be assessed in terms
of potential future loss patterns and their
knock-on effects or connection to other risks.
Output takes the form of recommendations
and guidance for business actions, from
changing contract wording to developing
new product opportunities.
Threat scenarios
Making the unthinkable thinkable is critical
to capturing potential emerging risks. Using
threat scenarios, we review risk from many
angles to seek out unexpected correlations,
sudden increases in loss potential or
previously unseen complexity in risk factors.
Managing the uncertainty of new situations
requires a disciplined approach combined
with innovation. It takes what appears to be
an unlikely threat and builds scenarios that
can test the established assumptions about
how the surrounding environment and the
threat itself might evolve.
Integrative risk management
The impact of hazardous events continues
to broaden, so our work on emerging risk
management must also be extended. In
addition to increased density of people and
infrastructure in catastrophe-prone areas,
climate change will lead to more severe
storms, floods and drought, but it will also
reduce agricultural yields.
Insurance has a role in answering the
challenge of interlinked risks. In the case of
climate change, we not only collaborate
with our clients to understand the risks and
mitigate the effects of global warming within
their risk portfolios, we are also actively
involved in clean energy funds and in
advising communities on how to deal with
the challenges of climate adaptation. In
agriculture, we are helping insurers create
new index-based products as well as
cooperating with governments and
international organisations to devise
parametric coverage that pays out, not
simply in response to individual loss, but
following defined trigger points in weather,
crop yield or price.
As an ultimate risk taker, Swiss Re is
particularly exposed to the consequences
of linked risks. More than ever, an all-hazard
approach is needed to implement effective
prevention and adaptation strategies. No
party can tackle this alone. We see a
paradigm shift towards a holistic “ex-ante”
or before-the-event approach to disaster
risk management.
By understanding the entire risk landscape
and prioritising the allocation of resources, it
is possible to improve disaster preparedness,
including the accumulation and availability
of funds as well as the collaborative
implementation of mechanisms before a loss
occurs. Aiming at a more resilient society,
this will result in an optimal balance of public
and private contribution to risk management.
One example of this approach is the proposed
inclusion of adaptation funding measures
within the post-Kyoto agreement, to be
finalised in Copenhagen in 2009. We
recognise that considerable efforts are
needed for societies to become more
resilient to the effects of global warming
in order to reduce potential loss and harm
in the long term.
22 Swiss Re 2008 Annual Report
Profile / Changing risk landscape
Global risks
Swiss Re contributes annually to the creation of the World Economic Forum
(WEF) Risk Map in collaboration with the WEF and other major partners.
Such dialogues with leading organisations increase our understanding of global
trends and risks. Our task is then to assess how our portfolio of reinsurance risks is
positioned and how this may influence our pricing and approach to capacity
allocation.
The changes in the 2009 Risk Map reflect the severe impact the financial crisis has
had on global risks. Many of the risks with high likelihood and severity are related to
the effects of the financial crisis: a sudden drop in Chinaʼs growth to 6% or below,
deteriorating government fiscal positions, potential asset price collapse, continued
retrenchment from globalisation, and global governance gaps.
We are also committed to financing a Chair
in Risk Management at the Swiss Federal
Institute of Technology (ETH) in Zurich.
The Risk Chair will act as a focal point in
the development, implementation and
dissemination of knowledge and tools
(eg risk maps) in integrated risk research.
Our Top Topics
It is essential for the Groupʼs success to
address emerging issues and industry trends
that are shaping the business and social
environment in which we operate, thus
sharing knowledge and helping to develop
innovative solutions.
Top Topics are the core of our issue
management approach. They allow us to
prioritise and translate the cutting-edge
knowledge and solutions generated by
our risk experts into consistent messages
relevant to key decision-makers in our
business environment. Top Topics cover a
range of issues from regulatory developments
to where we see potential for future business
growth and new risk management techniques
and risk transfer approaches.
The current Top Topics are:
̤
̤
̤
̤
̤
̤
̤
̤
̤
Agriculture
Climate change
Country risk management
Insurance-linked securities
Liability dynamics
Longevity
Natural catastrophes
Solvency II
US regulatory insurance reform
Swiss Re 2008 Annual Report 23
Profile / Our talent
Diversity drives our
company’s innovative
power and our relationships
with clients, business
partners and peers.
We attract talent from a
broad spectrum of
disciplines to help us fully
understand and meet
the needs of our clients.
24 Swiss Re 2008 Annual Report
Profile / Our talent
Our talent
Swiss Re enables the risk taking activities
that are essential to enterprise and
progress in today’s business world. To be
successful, we must know the risk inside
and out, and transform this knowledge
into business opportunities. Our people
deliver the expertise and creativity to
offer our clients solutions that best meet
their ever-changing risk needs.
Diversity drives innovation
The diversity of our staff continues to be
essential to securing a full view of our
business and creating a working environment
that encourages fresh ideas. We bring
together smart, dedicated people from
around the world who are all experts in their
field. A broad range of cultural backgrounds,
different viewpoints and various levels of
experience are equally important to us. We
currently employ more than 11000 people
from more than 80 nations around the world,
and have operations in nearly 30 countries.
Our employees are today more then ever a
source of vital skill and knowledge. An active
and respectful exchange of ideas is at the
heart of our way of finding competitive and
sustainable answers to key business issues.
The prospect of working in an organisation
which actively cultivates diversity is certainly
one reason why people decide to join our
company. Recent graduates and experienced
professionals alike are just as much attracted
by the intellectually stimulating work involved
in facing up to a wide range of current and
future challenges in our world – from
globalisation to climate change and the
ever-changing capital markets.
Naturally, diversity and expertise can only
ever be of any practical use in a collaborative
environment. That is why we actively
encourage staff to expand their global
network of contacts and increase their
exposure to other business areas within
Swiss Re. There are many options available
to our staff to do so through training, expert
networks or project teams. To be part of a
cross-disciplinary team developing cutting-
edge products is a challenge our staff are
eager to meet. This is diversity in action: it
drives innovation and allows us to develop
solutions that go beyond standard ways of
thinking.
A collaborative environment
We also make sure that collaboration does
not stop within the doors of our company.
We have a long-standing history of sharing
expertise with various stakeholders, and
actively promote cooperation with external
industry experts, risk analysts, business
managers, scientists and public institutions.
Swiss Re’s Centre for Global Dialogue
plays an important role in this knowledge
sharing strategy. The Centre regularly hosts
international and regional conferences on
a variety of global risk issues.
We gather different points of view to gain
a thorough understanding and we build
knowledge communities which play a crucial
role in our day-to-day work. The Swiss Re
Academy also continues its strong legacy of
providing industry-leading technical training
and learning opportunities to clients and
external partners.
Swiss Re 2008 Annual Report 25
Profile / Our talent
Our talent
Employees by region
As of 31 December 2008
66.1% Europe
28.4% America
5.5% Asia Pacific
26 Swiss Re 2008 Annual Report
Rewarding drive and achievement
We value the talent and motivation of our
people as one of our core assets. After all,
it is the productivity of our staff that moves
the company forward, and we honour
their achievements with more than just
competitive compensation, but also by
offering ample opportunities to further
develop their skills, build networks and
advance their careers.
We also strive to meet our employees’
expectations with regard to the company’s
active ethical, environmental and social
engagement. Over the past decade, we
have consciously stepped up our efforts
to be a leader in corporate responsibility.
The positive effects of our engagement
are a source of pride and inspiration for
our employees to use their expertise and
participate in the company’s projects
serving the public good.
It is not all about professional qualifications
and experience. We place just as much
emphasis on developing leadership,
multicultural competencies and interpersonal
skills. Various corporate learning programmes
are in place to ensure continuous learning,
sharing best practices, promoting
understanding of strategies and providing
networking platforms. In 2008, more than
10 000 participants attended people
management, leadership and social skills
courses and well over14 000 participants
attended technical professional programmes.
At Swiss Re we also use new learning
technology to provide various learning
platforms to reach our staff across the globe.
Classroom courses make up 54% of our
learning environment and 39% are online
e-Learning courses. With this blended
approach we meet the need for different
learning styles of our diverse workforce.
Hiring staff for their potential
We do not hire staff only for the abilities they
have, but also for the abilities they can
develop. We want everyone to be passionate
about personal development – their own
and that of their colleagues. We provide the
platform and processes for employees to
meet their career objectives. By aligning
business needs and personal goals, we aim
to create a development culture that enables
employees and the company to realise their
full potential.
Each year we identify high performers who
have the potential and interest to grow in a
changing global environment, and we foster
their development. Talent pools of graduates
and high-potential employees are always
considered when filling open key positions.
In 2008, about two-thirds of our vacancies
at Managing Director level were filled
internally. This proves that by investing in
outstanding talent today, we ensure the
sustainable development of the company in
the future.
This is why on-the-job training is an integral
part of any development plan – backed by
technical grounding, of course. Our staff can
expand their capabilities by working as a
part of a cross-functional project team, or
broaden their horizons and experience other
cultures by taking part in a job rotation.
Profile / Our talent
Building on our staffʼs talent and potential
At Swiss Re we promote diversity, networking and professional development to
create a work environment that attracts and motivates employees with diverse
knowledge backgrounds. Our employees drive our power of innovation.
Eliana Ortega
Graduates programme participant, New York
Born in Ecuador, Eliana graduated from Leonard N. Stern School of Business at New York
University in May 2008 with a dual concentration in finance and information systems. She
recently joined Swiss Re in New York City to participate in the graduates@swissre programme.
“My rotational programme here at Swiss Re helps me understand the various functions within
Operations both on a local and global level. As I progress among the different groups, I am
getting a deeper insight into how these groups work together. Whatʼs more, I can experience
directly how valuable cultural diversity is at Swiss Re: my on-the-job training programme will
take me to London, Zurich and Bratislava.”
Philippe Brahin
Head of Global Regulatory Affairs, Zurich
A French citizen, Philippe received a masterʼs degree in economics and finance from the
Sorbonne, Paris, in 1992.
“I joined Swiss Re in early 2000. Since then I had the chance to work in various functions first
in the UK, then in the USA and now in Switzerland. The cooperation and exchange with
colleagues from many different disciplines in such diverse cultural environments has greatly
influenced my professional and personal development.”
Swiss Re 2008 Annual Report 27
Profile / Delivering sustainable value
We strive to create
sustainable environmental
value for our stakeholders.
Our risk expertise allows us
to form effective responses
to major environmental
and social challenges. In
particular, we offer solutions
that help mitigate as well as
adapt to climate change;
and we are keen to engage
in innovative partnerships to
extend insurance cover in
less developed countries.
28 Swiss Re 2008 Annual Report
Profile / Delivering sustainable value
Delivering sustainable value
Swiss Re continued to respond in an
innovative way to key environmental and
social challenges, both in its business
and in cooperation with external
partners. Our focus areas were climate
change and insurance cover in emerging
countries.
For us, being a responsible company is
about contributing to sustainable, long-term
value creation for all stakeholders. We believe
there are three areas that are especially
important for the achievement of this goal:
corporate governance, corporate sustainability
and corporate citizenship. These are the pillars
of our corporate responsibility framework.
In 2008, we received major recognition for
our efforts to act responsibly when we
regained the position of sector leader in the
Dow Jones Sustainability Indexes (DJSI).
The DJSI count among the most important
sustainability indexes worldwide and assess
companies’ performance in economic,
environmental and social terms
(www.sustainability-indexes.com).
Corporate sustainability
A number of environmental and social issues
are endangering or hindering sustainable
economic development. We strive to address
sustainability challenges that are relevant to
our business in three ways: by developing
reinsurance solutions for our clients,
employing sustainability-specific risk
management tools and tackling the
environmental impact of our own operations.
Risk transfer and asset management
solutions
Climate change and poor insurance cover
in emerging countries are two focal points
of our sustainability efforts. There is a
far-reaching consensus today that climate
change increases the frequency and severity
of extreme weather events. Innovative
solutions are needed both to tackle climate
change and to adapt to some of its financial
consequences. Lacking risk cover against
volatile weather and other kinds of risk
presents a particular challenge in emerging
countries. Through public-private
partnerships and our Climate Adaptation
Development Programme, we strive to
develop effective responses to this serious
development obstacle.
We won a bidding process to become the
counterparty of the World Bank in a pilot
weather derivative project developed with
the government of Malawi. The solution
provides cover against shortfalls in maize
production due to droughts and works as an
option on a rainfall index: when rainfall drops
below a certain level, the World Bank pays
the government the projected loss in maize
production and is itself compensated by
Swiss Re.
Key achievements in 2008
̤
Developed innovative solutions to address
challenges such as climate change and
risk cover in emerging countries.
̤
Achieved further increase in the use of
the Sensitive Business Risks process, a
risk management tool specifically
developed to assess sustainability, ethical
and related concerns in business
transactions.
̤
Continued to make progress in reducing
our own CO2 emissions and granted
subsidies for emissions-cutting
investments to a total of 1 231 employees
since 2007.
̤
Sharpened the focus of our activities on
the prevention of humanitarian disasters
through risk education measures.
Swiss Re 2008 Annual Report 29
Profile / Delivering sustainable value
Delivering sustainable value
In 2008, we also became the lead reinsurer
of the World Bank’s Caribbean Catastrophe
Risk Insurance Facility (CCRIF). This facility
offers parametric hurricane and earthquake
cover to 16 governments in the Caribbean.
In parametric coverage, payouts are
automatically triggered when an event
reaches a certain level of intensity (eg wind
speed), so funds become immediately
available after a catastrophe has occurred.
Such “ex-ante” risk management strategies
are becoming increasingly popular because
they allow advance planning of responses to
natural disasters.
Further activities focused on the micro-
insurance sector, which aims to provide
essential insurance products to people with
low incomes in emerging and developing
countries. In Pakistan, we support the Aga
Khan Foundation and a local insurer in a
micro health insurance pilot project designed
to protect poor families against medical and
hospitalisation expenses. The Group also
developed an effective system with several
other organisations to offer protection
against weather risks to farmers in Malawi.
The carbon markets that have sprung up
around the flexible mechanisms introduced
under the Kyoto Protocol play an important
role in the fight against climate change.
Through the Clean Development Mechanism
(CDM), so-called carbon credits can be
earned by funding climate-friendly projects
in emerging countries, and through Joint
Implementation (JI) in countries which
themselves have reduction targets under the
protocol. In the European Union’s Emissions
Trading Scheme (EU ETS), major emitters
have been granted emissions allowances.
Both carbon credits and allowances can
be bought and sold. In addition to these
compliance markets, voluntary markets
have been established for companies or
individuals who want to offset their CO2
emissions.
Through our risk assessment capabilities,
we offer tailor-made products and services
for the carbon markets. We also launched
an innovative service, to be offered with
partner organisations, for retail customers
who want to offset their carbon emissions
voluntarily. A first product developed with
Mobiliar, Switzerland’s largest property
insurer, offers this service to car users.
On an internet portal, they can calculate
the yearly emissions they cause through
their car travel and pay in the corresponding
amount. We then purchase and retire
carbon credits from high-quality projects
that meet internationally recognised quality
standards.
In asset management, we have over several
years built up a sizeable sustainability
portfolio of investments in alternative energy,
water, resource efficiency, carbon and
sustainable forestry/agriculture. In 2008,
the portfolio was merged with the existing
infrastructure portfolio, in response to the
increasing need for low-carbon infrastructure
financing (eg in wind and solar power)
and the growing relevance of sustainability
criteria within traditional infrastructure.
At the end of 2008, the total amount of
investments and unfunded commitments in
the sustainability sector was CHF 695 million.
By far the largest new transaction was
the commitment of CHF 167 million to
Generation Investment Managementʼs
Climate Solutions fund, which invests in
companies providing solutions to address
climate change.
Sustainability portfolio (excluding traditional infrastructure)
CHF millions, as of 31 December
Investments (at market value)
Unfunded commitments
Total portfolio
2005
69
81
150
2006
122
254
376
2007
286
330
616
2008
256
439
695
30 Swiss Re 2008 Annual Report
Profile / Delivering sustainable value
Sensitive Business Risks
referrals 2008 by recommendation
8% Abstain
77% Proceed
8% Proceed with conditions
5% No final recommendation
2% Ongoing
Sensitive Business Risks
referrals 2008 by industry
Risk management
While we are keen to develop new business
solutions addressing sustainability and
related challenges, we also take
corresponding precautions in our risk
management. A key tool is the “Sensitive
Business Risks” (SBR) process. Originally
introduced in 2002, the SBR process offers
employees the possibility to request advice
from internal experts on any transaction
they think may violate the business principles
laid out in the Group Code of Conduct. Most
of the screened transactions were found
to constitute acceptable risk; the share
of negative recommendations in 2008
remained stable at 8%.
In 2008, the largest number of SBR referrals
(about one third) related to the defence
industry and armaments. A further third
were projects and transactions that can have
significant environmental, social and
governance impacts, especially in the mining,
oil and gas industries or infrastructure
projects, such as dam building. Sustainability
risks associated with food exports emerged
as a new sensitive issue last year.
Reducing the Group’s environmental
impact
Reducing the environmental impact caused
by our business operations is a third key
activity in our sustainability efforts. When the
Greenhouse Neutral Programme was
launched in 2003, it was the first such
initiative launched by a large financial
services provider. The programme combined
a pledge to cut 15% from CO2 emissions
per employee by 2013 with the purchase
of carbon credits to offset the remaining
emissions. We already met this target in
2007, having achieved a 25% reduction in
CO2 emissions, mainly through a switch to
renewable energy sources at our major
business locations. In response, we doubled
our original reduction goal to 30%. At the
end of 2008, our reduction in emissions
slightly exceeded this target figure. Further
extending the use of renewable energy,
especially in the US, made an important
contribution. So did a decrease in emissions
from business travel between 2007 and
2008 (–2.5%), which may have been mainly
due to difficult market conditions, and may
thus not represent a permanent change.
39% Defence
17% Dams and Infrastructure
17% Extractive Industries
10% Medicine &Health
6% Heavy Industry & Manufacturing
4% Food
7% Other
Swiss Re Group CO2 emissions per employee (FTE)1
2003
2007
Power
Heating
Business travel
Total
kg/FTE
3 794
705
2 123
6 622
Share in %
57.3
10.6
32.1
100.0
kg/FTE
2 149
558
2 416
5 123
Share in %
41.9
10.9
47.2
100.0
1 Employee numbers are based on full-time equivalents (FTE).
2008 Change from
base year
2003 in %
–55.6
–17.4
10.9
–30.2
Share in %
36.5
12.6
50.9
100.0
kg/FTE
1 686
582
2 355
4 623
Swiss Re 2008 Annual Report 31
Profile / Delivering sustainable value
Delivering sustainable value
As an extension of our own efforts, in 2007
we launched the COYou2 Programme, which
grants employees subsidies of up to 50% for
emissions-reducing investments in their
private lives. By the end of 2008, a total of
1 231 contributions had been paid out,
equivalent to about 14% of the Group’s
workforce. The most popular investments
so far have been season tickets for public
transport (31.3%).
Corporate citizenship
For us, being a good corporate citizen means
supporting the development of solutions to
key environmental and social issues (“solution
building“), and benefiting the communities
we work in (“community building“).
Solution building
In cooperation with leading charitable
organisations, we promote viable solutions
to environmental and social challenges
related to our business. At present, natural
catastrophes, climate change and water are
the programme’s target areas. By contributing
risk expertise as well as financial aid to
projects, we aim to improve humanitarian
disaster prevention and to provide instant
relief.
Regarding the prevention of humanitarian
disasters, we have embarked on a new
project in Peru, one of Latin America’s most
disaster-prone countries. After the magnitude
eight earthquake of summer 2007 killed
several hundred people and destroyed more
than 100 000 houses in three rural provinces,
it became apparent that the rebuilding efforts
suffered from the same design errors that
had made the original structures vulnerable.
Managed in partnership with the SDC
(Swiss Agency for Development and
Cooperation), the project aims to build up
local capacity for earthquake-safe housing
construction. It will also provide direct
technical assistance for families without
access to the government’s reconstruction
programme.
We supported a second new project in
Honduras, in partnership with the Swiss Red
Cross. Honduras is not only the third poorest
country in Latin America, but also strongly
exposed to natural catastrophes, which can
set back development by years. Focusing on
the communities of San Esteban, Olancho,
the project aims to increase the risk
awareness of the local population and
authorities and to improve living conditions.
Measures include the mapping of risk zones,
education and strengthening of village
committees, reforestation and protection of
water resources, and training of Red Cross
volunteers in community-based first aid.
In the past year, both Myanmar and Sichuan
Province in China were hit by devastating
natural disasters – a massive tropical cyclone
and the strongest earthquake in the country
for 30 years respectively. Our donation of
CHF 300 000 to UNICEF and the Red Cross
was split between the two countries and
used to provide safe drinking water and food
as well as to arrange urgent medical care.
In continuing our efforts to address major
water issues, we presented our ReSource
Award for Sustainable Watershed
Management for the sixth time. There were
two joint winners, sharing prize money of
USD 150 000. In Yunnan Province in China a
project was selected for its integrated
reservoir watershed model with strong
involvement of the local community. And a
project in the Solomon Islands was
recognised for the way it protects a
watershed forest vital to the local community
against external logging interests. On the
occasion of the International Water Day, we
donated CHF 1000 000 to the International
Committee of the Red Cross (ICRC) for an
infrastructure project in Ethiopia which
provides clean water to communities and
displaced people in the country’s strife-torn
regions.
32 Swiss Re 2008 Annual Report
Profile / Delivering sustainable value
Working with Oxfam America
In cooperation with Oxfam America, Swiss Re recently launched a new risk management
initiative to help poor communities most vulnerable to the impacts of climate change. As part
of the initiative, we set up a pilot project funded by our corporate citizenship programme. This
project focuses on introducing weather risk insurance for a staple cereal crop in the Ethiopian
village of Adi Ha, which is highly drought-prone. Taking a holistic approach, the project also
examines risk reduction measures such as seasonal forecasting and improved agricultural
practices.
The new initiative was presented as a joint “Commitment to Action” at the annual meeting of
the Clinton Global Initiative (CGI), which strives to tackle major global issues through a focus
on concrete action. We are one of the CGI’s original sponsors and have previously made
successful commitments such as the European Clean Energy Fund, the COYou2 Programme
and the Climate Adaptation Development Programme.
spent a full day building an environmentally
friendly campsite. Further contributions are
planned to include youth mentoring activities
and support towards the construction of an
environmental learning centre. Continuing
a tradition stretching back 25 years, the
Kansas City location again took part in the
annual United Way Campaign, which raises
funds for a large number of local charities.
A full 96% of all employees made donations,
bringing the total, including our matching
contribution, to more than USD 220 000.
Our offices in Italy funded new diagnostic
equipment for the hospital of Ngozi in
Burundi. The contribution will assist efforts
by the Fondazione Pro-Africa and the
University of Verona to turn the hospital into
a regional centre of excellence for medical
treatment and training. In South Africa we
have been funding the construction of a
school hall at a primary school in Bosmont,
a Johannesburg suburb, for three years.
The final phase of building brick walls was
completed in 2008, and 1100 pupils, mostly
from less advantaged backgrounds, can
now benefit from the new school facility.
Community building
With our “community building” initiatives,
we support local institutions and foster
employee-initiated charity projects in the
communities where we operate.
The launch of the “Charity of the Year” (COTY)
programme in selected locations was a
highlight of 2008. Building on existing local
commitments, this Group-wide initiative will
provide a platform for employees in each
location to select charities and raise funds
for them. In London, employees raised a
substantial amount for the Alzheimer’s
Society, holding a charity quiz night and a
Christmas raffle. In Zurich, the local
Employees Association (“Angestellten-
vereinigung”), which had run the popular
Christmas Collection now subsumed under
the COTY programme, was presented with
a one-time donation of CHF 75 000 on the
occasion of its 100-year anniversary. The
money was used to support the “Rucksack-
schule” (“backpack school”), a Zurich-based
organisation that arranges environmental
education with simple equipment in the
outdoors – hence the term “backpack”.
Many of our locations carry out their own
community initiatives. In Armonk, for example,
we started a partnership with the local Girl
Scouts in support of their efforts to promote
environmental stewardship. Employees
Swiss Re 2008 Annual Report 33
Financial year
36 Market environment
42 Group results
46 Summary of financial statements
48
Property & Casualty
53
Life & Health
57 Asset Management
59
Legacy
60 Business outlook
62
Share performance
34 Swiss Re 2008 Annual Report
Key developments in 2008
̤
̤
̤
̤
Net loss of CHF 0.9 billion and earnings
per share of CHF –2.61 due to lower
investment performance.
Property & Casualty delivered strong
underwriting performance with combined
ratio of 97.9%.
Life & Health operating income reflected
difficult market conditions but improved
benefit ratio of 85.5%.
Return on investments, excluding Legacy,
was 4.7%. Total invested assets were
CHF 124.8 billion.
̤
Operating loss in Legacy was
CHF 5.9 billion.
Intense financial market
turbulence, a very high
natural catastrophe burden
and a considerable
reduction in the market
value of our investment
portfolio culminated in a net
loss in 2008. We have
therefore taken further
action to reduce the risk in
our investments as well as
to restore our capital
position to remain a strong
counterparty for our clients.
Swiss Re 2008 Annual Report 35
Financial year / Market environment
Market environment
The impact of the global financial crisis made 2008 a difficult year for the insurance
industry. Non-life underwriting results remained solid, however, despite high losses
from catastrophic events. Life insurance saw robust growth in most markets.
Economy and financial markets
The collapse of the US subprime mortgage market in 2007 brought major turmoil to global
financial markets. Demand for securitised credit virtually disappeared, producing a systemic
banking crisis. The situation worsened sharply in 2008: the banking system collapsed, world
stock markets plunged, and most major economies went into recession. The insurance
industry’s investment activities suffered as a result of these developments. However, in
contrast to the banking system, which is central to the supply of credit to the economy and
which is exposed to a short-term liquidity risk (ie a bank run), the insurance industry is not
facing a systemic crisis or causing systemic problems for the economy.
Stock markets 2004 – 2008
180
160
140
120
100
80
60
31 December 2003 = 100
2004
2005
2006
2007
2008
United States (S & P 500) United Kingdom (FTSE 100) DJ Euro STOXX 50
Japan (TOPIX)
Switzerland (SMI)
Source: Datastream
Interest rates for ten-year government bonds 2004 – 2008
6
5
4
3
2
1
0
in %
2004
2005
2006
2007
2008
United States United Kingdom Eurozone Japan Switzerland
Source: Datastream
Stock markets continued to decline during the first months of 2008. They fell further in
September 2008 as the financial crisis worsened following the bankruptcy of Lehman
Brothers investment bank and the US government bailout of American International Group Inc.
(AIG). By the end of 2008, the world’s major stock markets had all fallen between 40% and
50% from the end of 2007.
36 Swiss Re 2008 Annual Report
Financial year / Market environment
In response to the rapid deterioration of the economic outlook, central banks cut interest rates.
Government bond yields dropped sharply as investors shifted funds to more secure
investments.
After a slight devaluation of the US dollar and the British pound against the other major
currencies in the first half of 2008, foreign exchange rates showed high volatility during the
second half. By the end of the year, the Swiss franc had gained in value against the Euro (+6%),
the US dollar (+9%), and the British pound (+31%), and had lost in value against the very
strong Japanese yen (–16%).
2008 annual GDP growth figures do not fully reflect the real impact of the financial crisis on
the global economy. Recession only hit industrialised countries during the third quarter of
2008 and emerging markets are also weakening rapidly.
Economic indicators 2007 – 2008
Yearly average
Real GDP growth
Inflation
Long-term interest rate
USA
2008
1.3
3.8
2.3
Eurozone
2007
2.6
2.1
4.3
2008
1.0
3.4
2.9
2007
2.0
2.9
4.0
UK
2008
0.9
3.6
3.1
Japan
2007
2.4
0.1
1.5
2008
2007
0.1 11.9
4.8
1.5
4.7
1.2
China
2008
9.0
5.9
4.6
2007
3.0
2.3
4.5
Per 100 units of foreign currency, as of 31 December 2008
USD
CHF
–
113
147
167
–
107
142
152
199
225
146 0.90
156 1.01
1.10 13.7
1.18 15.5
14.7
15.7
Source: Economic Research & Consulting, Datastream
Property and casualty insurance
The global property and casualty insurance industry fared comparatively well in 2008,
although declining securities markets forced increased write-downs on invested assets and
impairments on fixed income portfolios. Investment returns were low or negative and
shareholders’ equity fell 10% to 15%. Fortunately, most insurance companies had entered the
crisis with healthy balance sheets.
Underwriting continued to post solid results despite an increasingly competitive market.
Results in the largest primary markets were mostly positive, delivering combined ratios below
100%. The main exception was the US, where third-quarter 2008 results suggested an
industry-wide combined ratio of around 103%, up from 95% in 2007. The main reasons were:
̤
high property claims, around USD 25 billion, due both to devastating hurricanes Gustav
and Ike, and to several mid-sized catastrophes during the first half of 2008;
significant underwriting losses by mortgage and financial guarantee insurers; and
competitive pricing in most lines of business, which reduced underlying underwriting
profitability.
̤
̤
Swiss Re 2008 Annual Report 37
Financial year / Market environment
Market environment
USD billions, indexed at 2008
Insured losses 1970 – 2008
120
110
50
40
30
20
10
0
1970
1975
1980
1985
1990
1995
2000
2005
Weather-related Nat Cats
Earthquake/tsunami
Man-made disasters
Source: Swiss Re
European insurance markets had a relatively benign year with few large natural catastrophes
and man-made disasters. Winter storm Emma, the only event in 2008 to exceed the billion-
dollar mark, cost the industry USD 1.4 billion. Compared to previous years, however,
underlying underwriting profitability deteriorated slightly due to lower prices and to a lesser
extent to higher claims.
The reinsurance sector reported positive underwriting results overall with a combined ratio of
around 97%, reinforcing the continued robust state of reinsurance markets. Nevertheless,
underwriting profitability declined in 2008 against 2007. The main reasons were:
̤
higher property losses stemming from natural catastrophes, most notably hurricanes
Gustav and Ike. An unusually high proportion of the losses were carried by primary
insurance companies as a result of extraordinarily high retentions; however, the loss burden
was significant, in particular for most Bermudian reinsurance companies;
a number of costly man-made disasters totalling USD 5 billion;
mounting losses in financial guarantee and credit reinsurance due to the financial crisis;
and
general softening of rates and underwriting terms and conditions, leading to a gradual
decrease in underwriting profitability.
̤
̤
̤
Growth was sluggish, below GDP growth, in most mature markets, due to a gradual
weakening of premium rates. Premiums in the US, the UK, Europe, and Japan grew in the low
single-digit range. Hong Kong, Taiwan, and Australia were also affected by further price
softening in major lines, lowering top-line premium growth. Emerging markets were an
important exception to this development. With wealth and income rising, consumers and
corporations increasingly discovered the value of insurance. Despite growing competition,
underwriting results in the largest emerging markets were mostly positive.
38 Swiss Re 2008 Annual Report
Financial year / Market environment
Insurance in emerging markets
Swiss Re’s sigma study on “Insurance in emerging markets: overview and prospects
for Islamic insurance“, published in December 2008, explores the latest
developments in the insurance sector of emerging market economies, with a special
focus on the growing market for takaful, a form of shariah-compliant insurance.
The first half of the study covers the latest developments in the insurance industry
in emerging markets. Since the turn of the century, growth in the insurance industry
has been solid in emerging markets, with double-digit annual growth rates. South
and East Asia are clearly leading in both consistency and pace. The financial crisis,
however, has clouded the near-term outlook. Insurance in emerging markets is
therefore expected to grow at a slower pace in 2009, although the longer-term
perspective remains positive.
The second half of the study is devoted to a discussion of takaful, a form of financial
protection based on mutual assistance and joint risk bearing that is widely accepted
by Islamic scholars.
Five markets are analysed in detail: Bahrain, Indonesia, Malaysia, Saudi Arabia and the
United Arab Emirates. The two takaful markets with the largest growth potential are
Saudi Arabia and Malaysia, although their insurance markets are at very different
stages of development. Commercial lines of business and non-life insurance dominate
the market in the Middle East; in Malaysia, however, life assurance and personal lines
of business are the most prevalent.
Takaful is set to grow in popularity because populations of Muslim countries are
growing rapidly and because shariah scholars agree that Muslims should refrain from
buying conventional insurance if a takaful operator is selling the same product and
offering similar benefits and services. Between 2004 and 2007, the average annual
growth rate for takaful was estimated at 25% (adjusted for inflation), compared to
10.2% in the conventional market. Many companies – global, regional and local –
have set up new takaful operations over the past five years and retakaful capacity is
also expanding.
This sigma study can be downloaded electronically or ordered as a print copy
in English, German, French, Spanish, Italian and Chinese at www.swissre.com.
Swiss Re 2008 Annual Report 39
Financial year / Market environment
Market environment
Life insurance
The worsening economic outlook and continuing financial crisis will have an impact on the life
and health sector, weakening life insurers’ balance sheets and eroding capital. Nevertheless,
the industry appears to be weathering the financial storm without major solvency problems,
thanks to the very strong capital positions it built up prior to the crisis and to sound risk
management.
Demand for life insurance has slowed and is expected to continue weakening as the
economic impact of the financial crisis deepens. In-force premiums stagnated in 2008, in
stark contrast to an outstanding 2007. The products most affected by the crisis are those
considered to be “discretionary” as well as unit-linked savings products, which are less
popular due to their poor returns and the continuing high volatility in the stock markets. This is
especially true in countries where single premium business prevails. While there was a revival
in fixed-benefit products, it did not compensate declines in unit-linked sales.
Most major markets have seen a downward trend in sales of traditional protection products. In
countries where mortgages are secured with term insurance, such as the UK, Ireland, Spain,
and to a lesser degree France, the decline has been substantial. In the US, where business is
not mortgage-related, term sales have dropped slightly. Group business is also losing
momentum due to weakened job and salary growth.
The marked slowdown in sales will reduce life industry profitability, especially since the other
main driver of profitability, investment returns, declined sharply in 2008. Falling equity
markets, widening credit spreads and exposure to subprime and Alt-A investments have
caused significant losses for some life insurers. Additionally, the low availability and high cost
of capital have impacted financing of XXX/AXXX business in the US. As a result, term rates
have stabilised and an upward trend is expected.
Life insurers in the US and Japan have been most exposed to the fall in stock markets and the
subsequent impairment of investments. In the US, realised capital losses reached USD 37
billion through the third quarter of 2008, or 12% of 2007 industry capital. In the UK, some
insurers also suffered as a result of their equity exposure. Continental European companies are
least affected, due to their limited exposure to impaired assets and stocks. Government
support for the insurance industry has been restricted to the few cases of large bancassurance
groups facing problems as a result of their banking activities.
The financial crisis has eroded life insurers’ shareholder equity, which declined by an average
of 20% to 25%, year-on-year, through the third quarter of 2008. Unrealised losses have
increased significantly; nevertheless, because life companies often hold securities to maturity
or until prices recover, some of these unrealised losses may reverse over time as financial
markets stabilise.
40 Swiss Re 2008 Annual Report
Financial year / Market environment
Innovative ways of financing retirement
Swiss Re’s sigma study “Innovative ways of financing retirement”, published in
October 2008, highlights solutions that help individuals and companies manage the
risks of retirement. The study addresses outsourcing pension plan risks and
transferring existing pension liabilities to (re)insurers. It notes how reinsurance and
capital market capabilities help companies and insurers provide these solutions.
The study highlights two solutions: variable annuities and long-term care insurance
(LTCI). Variable annuities, where payouts are linked to the performance of an
investment portfolio, are newer products that have grown in popularity in the US and
Japan, and have recently been introduced in other Asian countries and Europe. LTCI,
a solution designed to help people cope with the costs of nursing homes and other
types of long-term care, is still in the early stages of development but has vast market
potential. Sales of hybrid products that combine LTCI with life insurance are expected
to contribute to LTCI’s popularity.
Crucial to these and similar solutions is longevity risk, the risk to which a life insurance
company could be exposed as a result of higher than expected life expectancy among
policyholders, resulting in higher than estimated payout levels. Developing a liquid
longevity risk market would enable insurers to create innovative retirement solutions
for individuals and institutions. It would also provide a mechanism for pricing the risk
and a sizeable new class of investments whose return distribution differs from those
of existing major asset classes.
This sigma study can be downloaded electronically or ordered as a print
copy in English, German, French, Spanish, Italian, Japanese and Chinese at
www.swissre.com.
Insurance market outlook
Barring any extraordinary catastrophe losses, underwriting results in the most important
non-life primary markets will remain stable in 2009 or even improve in some segments.
Premium income is expected to be subdued because of the economic downturn. While some
investment-linked lines of business, such as engineering, will suffer significant declines,
premium income for most other business is expected to remain stable.
The challenges to the life sector from a slowing economy and continuing turbulence in
financial markets will persist into 2010. Profitability is likely to remain impaired because of
pressures from declining sales, lower investment returns, lower asset management fees from
equity-linked business, higher hedging costs of guarantees and possibly higher surrenders on
some products. We believe this negative impact will be temporary, however, with the industry
expected to return to growth in 2010‒2011. Long-term prospects are favourable in view of
ageing societies worldwide.
Swiss Re 2008 Annual Report 41
Financial year / Group results
Group results
42 Swiss Re 2008 Annual Report
Net loss of CHF 0.9 billion and earnings per share of CHF –2.61 were driven by lower
investment performance. Property & Casualty continued to deliver a solid underwriting
result. Life & Health performed in line with expectations. The fourth quarter of 2008
was impacted by impairment losses of CHF 2.2 billion.
Swiss Re reported an annual net loss of CHF 0.9 billion in 2008, down CHF 5.1 billion
from a strong result of CHF 4.2 billion income in the previous year. Earnings per share were
CHF –2.61, CHF 14.56 lower than in 2007.
In the fourth quarter of 2008, net income was CHF –1.7 billion, compared to CHF 170 million
in the prior year period. Significant impairment losses of CHF 2.2 billion were partially offset
by a good underwriting performance. Earnings per share for the quarter were CHF –5.34.
The following discussion reflects changes in Swiss Re’s financial reporting segmentation due
to the realignment of the Group’s Asset Management activities. Further, the methodology for
the allocation of the investment return to underwriting activities changed. Property & Casualty
and Life & Health segments received a benchmark investment return based on their
reinsurance reserves and risk-free rates. The changes are reflected in both years presented.
In 2008, premiums earned decreased 19% to CHF 25.5 billion. Property & Casualty premiums
declined 24% to CHF 14.4 billion, reflecting the quota share arrangement with Berkshire
Hathaway, disciplined underwriting and foreign currency effects. Financial Guarantee
Reinsurance, which was formerly part of Property & Casualty, is now included in the newly
created Legacy segment. In the Life & Health segment, premiums and fee income from
policyholders decreased 13% to CHF 11.9 billion, mainly due to foreign currency movements.
At constant foreign exchange rates, premiums and fees declined 2% mainly due to the sale of
the new business operations of Tomorrow (formerly GE Life UK) to LV= in December 2007
and lower fee income in 2008.
The Group’s net investment income and net realised gains include the investment result from
assets backing unit-linked and with-profit policies. These returns are credited to policyholders’
accounts and are therefore excluded from the following comments on the investment
performance of the Group.
Net investment income was CHF 6.9 billion, a 29% decrease from the previous year. This was
mainly due to a decline in running yield following a shift in allocation from corporate bonds to
government securities, generally lower interest rates, and losses on private equity and hedge
fund participations, accounted for at equity.
Financial year / Group results
Changes in financial reporting segmentation
In 2007, the Group realigned its Asset Management activities, integrating them into
the Client Markets and Products Underwriting functions.
During the course of 2008, the Group created a new unit, Legacy, which
encompasses non-core activities that have been discontinued. This unit is managed
separately from Asset Management.
Actual returns from proprietary assets are included in the investment results of Asset
Management and Legacy.
Property & Casualty and Life & Health receive a benchmark return based on net
reinsurance reserves and risk-free rates. Securitisation-related income and insurance
or reinsurance revenues are included in the relevant product line in Property & Casualty
or Life & Health. Other activities related to life and health business, such as variable
annuity solutions, are included in the results for the Life & Health segment.
Net realised investment losses for 2008 were CHF 4.7 billion, mainly driven by mark-to-
market losses as well as impairments and realised losses on the sale of the equity portfolio. In
addition, the 2007 result benefited from the one-off gain of CHF 268 million from the sale of
Swiss Re’s London office building.
Other revenues were CHF 270 million, a decrease of 10.6% compared to the prior year.
Claims and claim adjustment expenses decreased 17% to CHF 10.0 billion, or 11% at
constant foreign exchange rates, despite higher natural catastrophe losses in 2008. The
decrease is mainly the result of the Berkshire Hathaway quota share arrangement and strict
underwriting.
Life and health benefits decreased 18% to CHF 9.1 billion, or 9% at constant foreign exchange
rates, reflecting more favourable morbidity experience in the health segment, partially offset
by higher benefit reserves driven by a decline in policyholder account values in the current
market environment.
Return credited to policyholders reflects the investment performance on the underlying assets,
which is passed through to contract holders. In 2008, the return credited to policyholders
decreased CHF 4.9 billion to CHF 2.8 billion, reflecting realised losses on the unit-linked and
with-profit assets during 2008.
Swiss Re 2008 Annual Report 43
Acquisition costs decreased 17% to CHF 5.4 billion. The acquisition cost ratio was 21.0% in
2008 compared to 20.5% in 2007.
Other expenses were CHF 3.2 billion in 2008, a decrease of 21% from 2007, mainly driven by
lower variable compensation.
Interest expense was CHF 1.5 billion, a decrease of 17.3% from the prior year period. The
decrease reflected reduced borrowings as well as lower funding costs related to variable
interest debt denominated in USD.
For 2008, we report a tax benefit of CHF 486 million. This represents an effective tax rate of
36%, compared to a tax expense of 19.8% in the prior year. The increase in the tax rate in
2008 was primarily due to the reassessment of tax exposures based on the status of current
tax audits, including effectively settled issues.
Shareholders’ equity decreased 36% to CHF 20.5 billion. This was mainly due to credit spread
widening resulting in net unrealised losses of CHF 5.5 billion; foreign currency movements
of CHF –2.3 billion; share buy-backs of CHF 2.0 billion; and dividends of CHF 1.3 billion
paid to shareholders during the year. This decrease was partially offset by the conversion
of a mandatory convertible bond in December 2008 improving shareholders’ equity by
CHF 1.0 billion.
Return on equity decreased to –3.4% from 13.5% in 2007, resulting from lower earnings
compared to the strong results in 2007.
Financial year / Group results
Group results
44 Swiss Re 2008 Annual Report
Financial year / Group results
Income reconciliation
CHF millions
Operating income
Property & Casualty
Life & Health
Asset Management
Legacy
Allocation
Total operating income/loss
Corporate Centre expenses
Items excluded from the segments:
Net investment income
Net realised investment gains/losses
Foreign exchange gains/losses
Financing costs
Other income/expenses
Net income/loss before tax
2007
2008
Change in %
4 471
1 320
8 447
–1 505
–5 474
7 259
2 746
697
5 912
–5 890
–4 670
–1 205
–377
–295
469
300
–476
–1 814
–174
5 187
575
459
743
–1 501
–126
–1 350
–39
–47
–30
–
–15
–
–22
–
23
–
–
–17
–28
–
Income reconciliation
The table above reconciles the income from Swiss Re’s segments and the operations of the
company’s Corporate Centre with the Group’s consolidated net income/loss 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.
For 2007, the foreign exchange remeasurement for investment is included in the foreign
exchange gains/losses line item. The presentation is consistent with 2008.
Swiss Re 2008 Annual Report 45
Financial year / Summary of financial statements
Summary of financial statements
Income statement
CHF millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income1
Net realised investment gains/losses2
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Income/loss before income tax expense/benefit
Income tax expense/benefit
Net income/loss
2007
2008
Change in %
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
25 501
808
7 881
–9 482
270
24 978
–10 007
–9 065
2 822
–5 366
–3 211
–1 501
–26 328
–1 350
486
–864
–19
–15
–26
–
–11
–42
–17
–18
–
–17
–21
–17
–30
–
–
–
1 Including unit-linked and with-profit business of CHF 1 016 million for 2008 and CHF 1 060 million for 2007
2 Including unit-linked and with-profit business of CHF –4 793 million for 2008 and CHF 445 million for 2007
Changes in shareholders’ equity
CHF millions
Balance as of 1 January
Net income/loss
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
2007
30 884
4 162
889
–2 349
–1 162
–1 268
711
31 867
2008
31 867
–864
–5 493
–2 300
–1 331
–533
–893
20 453
Change in %
3
–
–
–2
15
–58
–
–36
46 Swiss Re 2008 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
Policyholder account balances
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 of cash flow statement
CHF millions
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
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
2007
2008
Change in %
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
2007
–3 330
–1 302
2 972
–415
–2 075
13 606
11 531
117 399
16 188
6 611
2 143
5 802
15 822
163 965
17 268
35 610
10 450
4 265
8 319
239 877
75 510
39 911
34 518
7 802
5 872
5 493
769
1 329
6 522
21 245
20 453
219 424
20 453
239 877
–26
–51
–11
–20
–34
–4
–28
50
–17
–12
–13
0
–22
–15
–20
–17
1
–30
2
13
–65
–48
–37
–12
–20
–36
–22
2008
–6 089
18 819
–6 910
–83
5 737
11 531
17 268
Change in %
83
–
–
–80
–
–15
50
Swiss Re 2008 Annual Report 47
Financial year / Property & Casualty
Property & Casualty
Business developments
Higher claims activity and a difficult market environment in 2008 combined to reduce
operating income for the Property & Casualty segment. Our strict underwriting discipline,
active cycle management and careful risk selection led to a decline in premiums earned.
On 1 January 2008, Swiss Re entered into a proportional reinsurance contract with
Berkshire Hathaway. Under this quota share arrangement, Berkshire Hathaway assumes
a 20% share of all Swiss Re’s new or renewed property and casualty business (excluding
credit reinsurance business) for five years.
Natural catastrophe claims strongly influenced results in the property and specialty lines of
business; these events included a snowstorm in China, floods in Queensland, Australia, and
hurricanes Gustav and Ike. We continued to hedge our natural catastrophe exposure, which
reduced earnings volatility. Using Vega, a new natural catastrophe protection programme, we
transferred USD 150 million of catastrophe risk to the capital markets. The notes issued under
the programme provide us with protection for low-layer earnings volatility for our peak natural
catastrophe perils over multiple events.
During the first three quarters of 2008, downward price pressure continued in most markets
and business segments. The turmoil in the financial markets, however, created market
opportunities in the fourth quarter of 2008 as capacity for peak catastrophe exposures
reduced significantly. This allowed us to write certain catastrophe excess of loss covers as
private placements at very attractive terms.
In late-2008, most property and casualty lines reached a turning point in the business cycle.
Rates had been relatively flat or slightly lower with stable terms and conditions during the first
half of the year. Global economic pressures have since produced an increase in demand and a
flight to solid capital, however, prompting a market upturn. We expect that our disciplined
underwriting approach and nimble cycle management will allow us to deploy the Group’s
capital where economic value is the most attractive.
Our Property & Casualty underwriters remain dedicated to delivering sustainable returns
to shareholders by actively managing the insurance cycle. We seek to achieve this goal by
separating selling from underwriting and by emphasising accurate and unbiased cost
calculation. We continuously monitor and seek to maintain the profitability of our book of
business through integrated pricing tools. We have strengthened our business origination,
allowing our client managers to provide clients with a full spectrum of products and services.
Our pipeline of product innovations is bearing fruit and has allowed us to enter profitable
niche markets.
48 Swiss Re 2008 Annual Report
Financial year / Property & Casualty
Business results
Operating income decreased 38.6% to CHF 2.7 billion in 2008 from CHF 4.5 billion in 2007.
The main drivers for this decline were lower investment returns, higher natural catastrophe
losses and a deterioration in credit reinsurance experience.
The impact of natural catastrophe claims, particularly from hurricane Ike, gross of retrocession
recovery, was higher in 2008 compared to 2007. Including recovery, claims from natural
catastrophes exceeding CHF 20 million amounted to CHF 0.9 billion, or 6.0% of premiums,
compared to CHF 0.5 billion or 2.6% of premiums in 2007. As a result of our continued
insistence on tight terms and conditions, underlying portfolio profitability remained strong.
Claims development from prior years was moderately positive during 2008.
The net investment result fell 15.2% to CHF 2.5 billion, reflecting market conditions and the
development of reserves.
Financial Guarantee Reinsurance is now reported in the Legacy segment. 2007 has been
restated accordingly.
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 expenses
Total expenses
Operating income
Claims ratio in %, including unwind of discount
Expense ratio in %
Combined ratio in %, including unwind of discount
Combined ratio in %, excluding unwind of discount
2007
2008
Change in %
–24
–18
–49
–44
–23
–18
–29
–4
–19
–39
18 977
3 188
–283
97
21 979
14 379
2 607
–145
54
16 895
–12 049
–3 826
–1 633
–17 508
–9 857
–2 730
–1 562
–14 149
4 471
2 746
61.9
28.2
90.1
88.8
68.9
29.0
97.9
96.1
Swiss Re 2008 Annual Report 49
Financial year / Property & Casualty
Property & Casualty
2008 net premiums earned
by region
Total CHF 14.4 billion
Net premiums earned
Net premiums earned declined 24.2%, reflecting the quota share arrangement with
Berkshire Hathaway and Swiss Re’s continued commitment to strict underwriting discipline.
At constant exchange rates, premiums decreased 18.4% in 2008 compared to 2007.
47% Europe
(including
Middle East
and Africa)
41% Americas
12% Asia
Premiums earned for non-traditional business were stable at CHF 0.5 billion.
The balance between proportional and non-proportional business was stable in 2008
compared to 2007. The share of non-proportional business in the overall book was 43%.
The premiums earned by regions in 2008 were similar to 2007, Asia increased by 1% which
was offset in the Americas.
Combined ratio
The combined ratio for traditional business increased to 97.9% in 2008 from 90.1% in 2007,
mainly due to higher natural catastrophe claims and deterioration in the credit reinsurance
business. The Casualty combined ratio increased slightly, although net prior year claims
experience was lower than in 2007.
The discount of Property & Casualty reserves applied following the acquisition of GE Insurance
Solutions in 2006 was further amortised in 2008. The amortisation increased the combined
ratio by 1.8 percentage points in 2008. The discount, net of capital cost, unwinds over the
estimated average duration of the reserves. Excluding this unwind, the combined ratio of
traditional business was 96.1%.
Lines of business
Active cycle management and a diversified business mix contributed to strong underwriting
results in 2008.
Property
Net premiums earned decreased 24.4% in 2008, reflecting the quota share arrangement with
Berkshire Hathaway and continued strict underwriting discipline.
The combined ratio increased to 76.6% in 2008 from 68.9% in 2007, reflecting the impact of
natural catastrophes and favourable loss experience, although at a lower level than in 2007.
Casualty
Net premiums earned decreased 30.3% in 2008, reflecting both the quota share arrangement
with Berkshire Hathaway and the effect of strict underwriting in a softening market.
The liability combined ratio was 126.9% in 2008 compared to 123.9% in 2007. The 2008
combined ratio was impacted by large losses especially in the energy and pharmaceutical
sectors, which affected prior years.
The motor combined ratio decreased to 92.0% in 2008 from 94.4% in 2007, mainly due to
more favourable claims development.
The accident combined ratio increased to 161.8% in 2008 from 141.1% in 2007. Prior year
development on workers’ compensation business continued to impact the combined ratio
negatively.
50 Swiss Re 2008 Annual Report
Financial year / Property & Casualty
Motor
traditional
Accident
traditional
Other Lines
Credit
traditional Total traditional Non-traditional
Total
Liability
traditional
Property
traditional
Property & Casualty results by line of business
2007
CHF millions
Revenues
Premiums earned
Net investment income
Net realised investment
gains/losses
Other revenues
Total revenues
–300
–7
6 653
6 464
496
4 266
1 293
2 120
413
1 060
230
1 034
49
3 667
428
5 559
2 533
1 290
57
1 140
55
4 150
18 611
2 909
–300
105
21 325
366
279
17
–8
654
18 977
3 188
–283
97
21 979
Expenses
Claims and claim
adjustment expenses
Acquisition costs
Other expenses
Total expenses
–2 800
–1 143
–510
–4 453
–4 059
–756
–470
–5 285
–1 418
–434
–150
–2 002
–1 157
–227
–112
–1 496
–244
–370
–57
–671
–1 833
–753
–269
–2 855
–11 511
–3 683
–1 568
–16 762
–538
–143
–65
–746
–12 049
–3 826
–1 633
–17 508
Operating income/loss
2 200
274
531
–206
469
1 295
4 563
–92
4 471
Claims ratio in %
Expense ratio in %
Combined ratio in %
43.3
25.6
68.9
95.2
28.7
123.9
66.9
27.5
94.4
109.1
32.0
141.1
23.6
41.3
64.9
50.0
27.9
77.9
61.9
28.2
90.1
2008
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
Liability
traditional
Motor
traditional
Accident
traditional
Other Lines
Credit
traditional Total traditional Non-traditional
Total
2 828
1 027
1 663
348
4 884
345
–153
696
283
15
1 206
50
22
5 076
3 855
2 011
994
1 278
2 609
384
15
3 008
13 886
2 437
–116
15
16 222
493
170
–29
39
673
14 379
2 607
–145
54
16 895
–2 654
–623
–463
–3 740
–2 510
–609
–471
–3 590
–1 148
–265
–117
–1 530
–887
–136
–103
–1 126
–872
–484
–87
–1 443
–1 495
–488
–187
–2 170
–9 566
–2 605
–1 428
–13 599
–291
–125
–134
–550
–9 857
–2 730
–1 562
–14 149
Operating income/loss
1 336
265
481
–132
–165
838
2 623
123
2 746
Claims ratio in %
Expense ratio in %
Combined ratio in %
54.4
22.2
76.6
88.7
38.2
126.9
69.0
23.0
92.0
127.4
34.4
161.8
72.4
47.3
119.7
57.3
25.9
83.2
68.9
29.0
97.9
Swiss Re 2008 Annual Report 51
Financial year / Property & Casualty
Property & Casualty
Specialty lines
Net premiums earned for the specialty lines of business decreased 18.8% to CHF 3.8 billion,
due to the quota share arrangement with Berkshire Hathaway and strict underwriting.
The combined ratio for specialty business increased to 94.7% in 2008 from 75.0% in 2007.
The credit reinsurance business was negatively impacted by deteriorating economic
conditions, especially in Spain. The combined ratio increased to 119.7% in 2008 from 64.9%
in 2007.
The other specialty combined ratio, which includes Marine, Aviation, Engineering, Agriculture
and Nuclear business, increased to 83.2% in 2008 from 77.9% in 2007. Partially offset by the
positive experience in Aviation, this increase was mainly due to the impact of natural
catastrophe claims on Marine business.
Non-traditional business
The increase in non-traditional operating income to CHF 123 million in 2008 from a loss of
CHF 92 million in 2007 reflected improved loss experience, including commutation effects,
compared to 2007.
52 Swiss Re 2008 Annual Report
Life & Health
Financial year / Life & Health
Business developments
New Life & Health business volumes remained stable in the US and Canada. US cession rates
continued to decline, albeit more slowly than in recent years; this was largely due to cedents
choosing to take up excess of retention reinsurance and using insurance-linked securities for
capital funding. Swiss Re’s market share grew as a result of an increase in requests for
mortality knowledge-based services.
New business volumes in the UK declined due to lower sales of life and critical illness
protection policies linked to mortgages in the primary insurance market. Sales did not fall as
low as new mortgage approvals, however, which suggests that financial advisers and
insurance companies have been successful in increasing sales of policies not linked to
mortgages.
New business volumes in continental Europe rose in 2008 – primarily in France, Italy and the
Nordic countries. Cession rates remained stable and profitability satisfactory.
Having started Swiss Re Healthcare Services Pvt. Ltd. in India in 2007, we continued to
expand into Asian medical insurance by establishing a third-party administrator in China.
Traditional life reinsurance maintained strong premium growth in Asia. Our life and health
business in Australia continued to expand, with a strong contribution from enhanced insured
benefits provided within superannuation funds, and with the completion of our first longevity
reinsurance transaction in the region.
Clients around the world are increasingly seeking to release the capital committed to their
in-force portfolios through structured reinsurance solutions. We completed several significant
transactions during the year, primarily in Europe and Asia.
We also concluded several new variable annuity reinsurance transactions in the US and Asia.
Prices have risen to reflect the increased cost of hedging the financial market risks embedded
in these products.
We completed the GBP 762 million acquisition of Barclays Life Assurance Company Ltd on
31 October 2008. The transaction provides further scale and infrastructure for our Admin Re®
business in the UK and confirms our role as a leading player in the origination, transfer and
trading of insurable risks.
Business results1
Life & Health operating income fell 47.2% to CHF 697 million in 2008 from CHF 1.3 billion in
2007. Strong performance from traditional mortality and morbidity products was offset by
adverse results arising from products that were directly affected by the volatile financial
markets.
1 The figures for 2008 and 2007 are presented consistently with the organisational structure adopted in 2007,
and include part of the insurance-linked securities (ILS) business as well as the variable annuity business. The
allocation of the investment return to the segments was modified in 2008 and is now based on a benchmark
applied to the technical reserves and other information including duration of the underlying liabilities.
Swiss Re 2008 Annual Report 53
Financial year / Life & Health
Life & Health
2008 premiums earned and fee
income by region
Total CHF 11.9 billion
52%
Americas
40%
Europe
8%
Asia
54 Swiss Re 2008 Annual Report
Premiums earned and fee income
Premiums and fees fell 12.6% to CHF 11.9 billion from CHF 13.6 billion in 2007. Excluding
currency exchange effects, premiums and fees decreased 2.4%. This decline was primarily
attributable to Admin Re® due to the sale of new business operations of Tomorrow to LV= in
December 2007, and lower fee income, partially offset by premium from the Barclays Life
transaction in 2008.
Traditional life premiums and fees were CHF 7.8 billion, compared to CHF 8.4 billion in 2007.
Excluding currency exchange effects, premiums and fees rose 3.5%, reflecting new business
written in all regions. Traditional health premiums fell to CHF 2.4 billion from CHF 3.0 billion in
2007, largely due to currency exchange effects, changes in cedents’ reporting dates and
commutations. Admin Re® premiums and fees declined to 1.6 billion from CHF 2.3 billion in
2007. Excluding currency exchange effects, premiums and fees fell 19.2%, primarily due to
the sale of new business operations of Tomorrow to LV= in December 2007, and lower fee
income from unit-linked business as a result of turbulent market conditions.
The geographical distribution of premiums and fees earned remained stable during 2008.
Net investment income for 2008 was CHF 3.6 billion, down 11.2% from 2007. Excluding
currency exchange effects, net investment income was unchanged year on year. Unit-linked
contracts do not affect the operating result, since their investment returns are passed straight
through to contract holders as return credited to policyholders.
Acquisition costs declined to CHF 2.6 billion from CHF 2.7 billion in 2007. Excluding currency
exchange effects, acquisition costs rose 9.8%, driven by new business in the traditional life
segment and amortisation of the present value of future profits (PVFP) recognised for the
acquired policies in the Admin Re® segment.
Benefit and expense ratios
The overall Life & Health benefit ratio declined 1.5 percentage points to 85.5%, reflecting more
favourable morbidity experience and the net positive effect of commutations of certain
personal accident treaties in our health business. The benefit ratio of 85.5% includes
approximately 3.8 percentage points of negative experience due to higher benefit reserves
underlying the guaranteed minimum death benefit (GMDB) products, driven by a decline in
policyholder account values in the current market environment.
Our management expense ratio declined to 6.6%, including lower one-off integration costs for
Admin Re® transactions, of which we completed 2 in 2008 compared with 7 in 2007.
Integration costs depend critically on the timing and stage of completion for each acquisition,
but are generally within expectations. In addition, refinements were made to the attribution
factors used to allocate expense between business segments, resulting in a slightly lower
allocation of total expenses to the Life & Health segment in 2008 compared to 2007.
Lines of business
A diversified geographical business mix and continued disciplined pricing contributed to a
strong fundamental business result, offset by the impact of a volatile market on products that
are directly affected by credit spreads and equity returns.
Traditional life
Operating income for traditional life business dropped to CHF 136 million from income of
CHF 793 million year on year, primarily due to financial market driven factors. This decline was
primarily attributable to unfavourable returns from the new variable annuity business
Financial year / Life & Health
2007
2008
Change in %
Life & Health results
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
Return credited to policyholders
Acquisition costs
Other expenses
Total expenses
12 665
955
4 106
799
5
18 530
–11 112
–2 120
–2 665
–1 313
–17 210
11 090
808
3 648
–5 022
10 524
–9 065
2 822
–2 626
–958
–9 827
Operating income/loss
1 320
697
Operating result, excluding non-participating net
realised investment gains/losses
966
926
Net investment income – unit-linked
Net investment income – with-profit business
Net investment income – non-participating
Net realised investment gains/losses – unit-linked
Net realised investment gains/losses – with-profit
business
Net realised investment gains/losses –
non-participating
749
311
3 046
512
–67
354
767
249
2 632
–4 052
–741
–229
–12
–15
–11
–
–
–43
–18
–
–1
–27
–43
–47
–4
2
–20
–14
–
–
–
Operating revenues1
16 671
14 530
–13
Management expense ratio in %
Benefit ratio2 in %
7.9
87.0
6.6
85.5
1 Operating revenues exclude net investment income and net realised investment gains/losses from unit-linked and with-
profit business as these are passed through to contract holders and therefore do not have an impact on the operating
result. Operating revenues also exclude net realised investment gains/losses from non-participating business.
2 The benefit ratio is calculated as claims divided by premiums earned, both of which exclude unit-linked and with-profit
business.
(CHF 208 million) compared to a gain in 2007, the pre-2000 GMDB contracts (CHF 163 million)
and from a decline in the fair value of embedded derivatives associated with treaties structured
on a modified coinsurance and funds withheld basis (CHF 297 million). Our hedging for expected
variable annuity cash flows performed within expected parameters given market circumstances,
but certain non-economic risk margins required under GAAP are not hedged – and these margins
increased as market conditions deteriorated. The change in the fair value of the embedded
derivatives represents a non-cash, unrealised loss and arose due to widening credit spreads on
the investment portfolios underlying certain funds withheld life reinsurance treaties. Overall,
mortality experience remained steady year on year and in line with expectations. Less favourable
mortality experience in the US and Canada in 2008 was offset by strong results in Europe.
Swiss Re 2008 Annual Report 55
Financial year / Life & Health
Life & Health
56 Swiss Re 2008 Annual Report
Traditional health
Operating income from the traditional health business fell CHF 55 million, or 15.8%, to
CHF 293 million. This was mainly due to unrealised losses from a decline in the fair value of
embedded derivatives associated with certain funds withheld health treaties CHF 243 million,
driven by widening credit spreads on the underlying cedent investment portfolios. This was
partially offset by gains arising from the commutation of certain personal accident treaties,
better-than-expected morbidity levels and improved termination rates. Our 2007 result
included a one-off boost from our change in UK claims assumptions.
Admin Re®
Admin Re® operating income rose CHF 89 million to a gain of CHF 268 million. This was
mainly due to unrealised gains associated with an increase in the fair value of embedded
derivatives associated with certain treaties that are ceded by Swiss Re on a funds withheld
basis CHF 182 million which resulted mainly from widening credit spreads on the underlying
investment portfolios. In addition, the 2008 results include the full-year contributions from
various acquisitions closed in 2007, the fourth-quarter impact from the closing of the Barclays
Life transaction and lower one-off integration costs, offset by lower investment returns and
fees. Higher realised investment losses, declining fees from unit-linked business, and generally
lower investment spreads all reflected difficult conditions in the financial markets. US mortality
was also slightly less favourable in 2008 than in 2007.
Life & Health results by line of business
2007
CHF millions
Operating revenues1
Operating income/loss
Operating result, excluding
non-participating net realised
investment gains/losses
Benefit ratio2 in %
2008
CHF millions
Operating revenues1
Operating income/loss
Operating result, excluding
non-participating net realised
investment gains/losses
Benefit ratio2 in %
Life traditional
9 216
793
Health
traditional
3 407
348
Admin Re®
4 048
179
Total
16 671
1 320
554
413
–1
966
87.0
Life traditional
8 662
136
Health
traditional
2 846
293
Admin Re®
3 022
268
Total
14 530
697
335
543
48
926
85.5
1 Operating revenues exclude net investment income and net realised investment gains/losses from unit-linked
and with-profit business as these are passed through to contract holders and therefore do not have an impact on
the operating result. Operating revenues also exclude net realised investment gains/losses from non-
participating business.
2 The benefit ratio is calculated as claims divided by premiums earned, both of which exclude unit-linked and with-
profit business.
Financial year / Asset Management
Asset Management
Strategic alignment
We have completed a review of our Financial Markets unit and defined two strategic
mandates: to manage the assets generated through (re)insurance activities and to develop
solutions with the Client Markets and Products Underwriting teams for our clients. As a result,
we renamed the unit Asset Management to reflect the focus on these two strategic mandates.
The focus of the Asset Management mandate is centred on core-asset-liability-matching
techniques. The primary goal is to match Swiss Re’s investment portfolio to the benchmark set
by our insurance liabilities. Second, Asset Management is expected to seek absolute returns
to generate additional economic value while rigorously adhering to the risk limits set by
Swiss Re.
As part of this alignment, we decided to identify and allocate non-core activities within Asset
Management to the Legacy portfolio, which includes certain activities formerly reported in the
Credit & Rates, and Equity & Alternative Investments classifications.
For comparative purposes, the corresponding Asset Management segment values have
been broken out and shown separately below from the Legacy segment as of the end of
December 2007.
Asset Management results
2007
CHF millions
Net investment income
Net realised investment gains/losses
Fees, commissions and other revenues
Total revenues
Expenses
Total operating income/loss
Return on investments in %
2008
CHF millions
Net investment income
Net realised investment gains/losses
Fees, commissions and other revenues
Total revenues
Expenses
Total operating income/loss
Return on investments in %1
Credit & Rates
7 390
–1 045
125
6 470
Equity &
Alternative
Investments
505
1 472
0
1 977
0
6 470
0
1 977
Credit & Rates
6 297
807
80
7 184
Equity &
Alternative
Investments
–937
–327
–8
–1 272
0
7 184
0
–1 272
Total
7 895
427
125
8 447
0
8 447
5.3
Total
5 360
480
72
5 912
0
5 912
4.7
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 currencies, which back
certain liabilities denominated in foreign currencies. The overall impact of the currency exchange remeasurements was
CHF 7 million in 2007 and CHF 1 338 million in 2008.
Swiss Re 2008 Annual Report 57
Financial year / Asset Management
Asset Management
Investments by currency
as of 31 December 2008
Total CHF 124.6 billion
Investment result
Overall, the return on investments, excluding Legacy, was 4.7% compared to 5.3% in the prior
year.
61% USD
19% GBP
10% EUR
5% CAD
2% CHF
3% Other
Total invested assets were CHF 124.6 billion at the end of December 2008, compared to
CHF 159.9 billion at the end of December 2007. The decrease was mainly due to net sales
and maturities in the fixed income portfolios, liquidation of the global equity portfolio, declines
in market values and the impact of changes in foreign currency valuation. We also increased
our allocation to cash and cash equivalents. At the end of 2008, Swiss Re’s overall gross asset
allocation was 31% in credit, 61% in rates, and 8% in equities and alternative investments.
Credit & Rates
Swiss Re’s Credit & Rates portfolio decreased to CHF 114.7 billion in 2008 from
CHF 138.7 billion in 2007 as a result of net sales and maturities in the portfolios, declines
in market values and the impact of foreign currency movements. Net investment income,
declined 15% to CHF 6.3 billion. The decrease was mainly due to the running yield declining
to 4.9% from 5.2% as a result of reducing the risk profile through increased allocation from
corporate to government securities and a general decline in interest rates. The net realised
gain on credit and rates investments was CHF 807 million in 2008, compared to a net loss of
CHF 1.0 billion in 2007. The net realised gain in 2008 related mainly to gains on government
bonds, offset by a decrease in the market value of the overall credit portfolio and impairments.
Expenses which are included in net investment income decreased CHF 217 million, representing
cost reductions in variable expenses.
Net unrealised loss in shareholders’ equity was CHF 2.4 billion at the end of 2008, compared
to a net unrealised gain of CHF 1.8 billion at the end of 2007. The decrease was mainly due to
credit spread widening and reclassification of assets from trading to available-for-sale.
Third-party assets under management decreased to CHF 76.8 billion at the end of 2008 from
CHF 92.8 billion at the end of 2007 as a result of a sale in the third-party asset management
business.
Equity & Alternative Investments
We reduced Swiss Re’s gross exposure to CHF 9.9 billion at the end of 2008 from
CHF 21.2 billion at the end of 2007, mainly due to the liquidation of the global equity
portfolio as we continued to reduce the Group’s risk exposure to the equity markets.
Net investment loss and a net realised loss was CHF 1.3 billion in 2008 compared to net
investment income and a net realised gain of CHF 2.0 billion in 2007, resulting from a decline
in market values of the underlying assets in private equity and hedge funds, and realised
losses on the sale of the global equity portfolio.
Expenses which are included in net investment income increased CHF 108 million, mainly
due to an increase in variable expenses.
58 Swiss Re 2008 Annual Report
Legacy
Financial year / Legacy
Strategic alignment
We have formed a new unit, Legacy, to manage specified products that Swiss Re no longer
offers and which are separately reported. The activities of the Legacy unit were formerly
reported in the Financial Markets or Property & Casualty segments.
The Legacy portfolio consists of Structured CDS, Portfolio CDS, Financial Guarantee Re and
former trading activities, including credit correlation, collateralised fund obligations, bonds
trading, swaps in trust, total return swaps relating to insurance-linked securities, natural gas
and other non-core activities.
Legacy segments
For comparative purposes, the corresponding Legacy segment values have been broken out
and shown separately below from the Asset Management segment as of the end of
December 2007.
Structured and Portfolio CDS
In 2008, net realised investment losses for Structured CDS increased to CHF 2.0 billion from
losses of CHF 1.3 billion in 2007. Net realised investment losses for Portfolio CDS were
CHF 563 million in 2008, compared to a gain of CHF 25 million in 2007. These declines
were mainly due to the mark-to-market impact on the Structured CDS and credit spread
widening affecting the valuation of the Portfolio CDS.
Financial Guarantee Re (FG Re)
FG Re was formerly included in Property & Casualty as part of the Credit segment in
Specialty. FG Re reported an operating loss of CHF 128 million in 2008 compared to an
operating loss of CHF 2 million in 2007, due to an increase in reported and expected claims
of CHF 134 million. FG Re has been in run-off since the beginning of 2008 and no new
business was written in the year. As a result, the combined ratio was 500.0% for 2008
compared to 109.1% for 2007.
Trading
The Legacy trading activities result increased to a CHF 3.3 billion loss in 2008 from a
CHF 185 million loss in 2007. This was mainly driven by the Total Return Swap (TRS)
portfolios relating to insurance-linked securities activities and a decrease in the market
value of positions resulting from illiquidity in the capital markets.
Net unrealised loss in shareholders’ equity increased to CHF 433 million at the end of 2008,
compared to CHF nil at the end of 2007. The decrease was mainly due to credit spread
widening and reclassification of assets from trading to available-for-sale.
Expenses
Expenses of CHF 78 million in 2008 are included in net investment income and mainly
represent investment expenses and variable compensation.
Total invested assets
Total net assets were CHF 3.8 billion at the end of December 2008, compared to
CHF 6.2 billion at the end of December 2007. The decrease was mainly due to net sales
and maturities, the decline in market values and the impact of changes in foreign currency
valuation.
Swiss Re 2008 Annual Report 59
Financial year / Business outlook
Business outlook
60 Swiss Re 2008 Annual Report
Property & Casualty
The January 2009 renewals showed the first signs of a hardening market. We expect this
hardening to intensify through the year, due primarily to the crisis in the financial markets. Both
increased cost of capital and reduced capacity in the retrocession markets should generate
higher reinsurance rates. At the same time, the surplus of many of our clients has been
reduced, increasing their need to seek capital relief by buying reinsurance.
Property and specialty renewals show the beginning of an upward price trend for some
business segments, most notably for catastrophe cover in the US. We expect this to continue
and extend to other products and markets. We are prepared for rapid growth in segments
where the market hardens; we also remain fully committed to capturing value through active
and disciplined cycle management. We will continue to focus on the areas in which we have a
competitive advantage, including writing large individual lines.
We have an underweight exposure to directors’ and officers’ liability and to professional
indemnity business, which we have reduced since 2004, particularly in regard to financial
institutions. We are managing any remaining subprime, liquidity or credit crisis risks through
terms, conditions and pricing. This allows us the flexibility to capitalise on other liability
opportunities that offer more attractive returns. Lower interest rate yields reinforce the need
for increased technical underwriting margins, particularly in long-tail lines of business. Thanks
to Swiss Re’s strong business position and established underwriting discipline, we believe we
are well positioned to benefit from a hardening market.
Life & Health
The slowdown in the global economy is likely to reduce demand for life and health insurance
into 2010, since sales of protection products are often linked to those of mortgages or
investment products.
In the US, 2008 ended with indicators that declining cession rates are reversing; quote activity
increased late in the year as demand for reinsurance grew along with higher capital costs and
lower yields. These same forces made it necessary for us to increase our prices. We anticipate
continued demand for reinsurance in 2009, with large transactions likely as cedents leverage
reinsurance for capital relief until stability returns to the financial markets.
In the UK, the sharp reduction in the mortgage market will present challenges for life insurers
as a large proportion of life and critical illness sales are linked to mortgages. Recent data,
however, indicates that, overall, sales of protection policies could be more resilient than sales
of mortgages and savings products – possibly because financial advisers are turning their
attention to protection products in the absence of sales opportunities in mortgages and
savings products.
We also expect a slowdown in primary insurance sales in the mature markets of Western and
Northern Europe, but growth should continue in developing markets in Eastern Europe, the
Middle East, and Latin America. Cession rates are likely to remain stable or even increase,
because many primary insurers will have less capital available for risk retention.
Financial year / Business outlook
Asia will see continued new business growth, particularly in health and wealth accumulation
products. Funding of healthcare costs will continue to be a priority for individuals, creating
increased demand among insurers for support in providing sustainable long-term solutions.
Life companies around the world face significant challenges; their capital bases have been
depleted by investment losses and the difficult capital markets environment has made it
increasingly difficult to raise funds. We therefore expect an increasing need among clients to
release capital from their in-force portfolios through Admin Re® or other structured
reinsurance solutions.
We expect increased demand for reinsurance of variable annuity products, both from existing
markets in the US and Japan, and new markets in Europe and Asia. The current cost of
hedging financial market risk, however, makes certain guarantees prohibitively expensive in
retail products. We are working actively with clients to make products more affordable
through redesigning guarantee structures. We are also seeing increased interest in
transferring longevity risk among life companies and pension funds.
Asset Management
We expect 2009 to be marked as a year of transition. The economic outlook remains
challenging with the fall-out from the global credit crisis taking its toll on the real economy. In
January 2009, this challenging outlook prompted the International Monetary Fund to revise
their global GDP projections sharply from 2.2% to 0.5%. With the advanced economies facing
what is possibly their deepest recession in the post-war period, the financial market outlook is
likely to lack certainty for some time. In this environment, investors may well remain averse to
taking risk.
A cautious investment approach is appropriate while global markets continue to suffer the
effects of unwinding leveraged positions. The markets’ flight for safety is unlikely to slow down
until the macro economic picture starts to brighten, particularly in the US housing market, and
until financial market stress begins to ease. Global policy efforts, in particular future actions
by the US Treasury and the Federal Reserve, could also be instrumental in driving the markets
towards the start of a recovery, perhaps as soon as in the second half of 2009.
Swiss Re 2008 Annual Report 61
Financial year / Share performance
Share performance
Swiss Re’s shares declined 37.6% in 2008, in line with the Swiss blue chip index
(SMI). In contrast, the index of European insurers fell 52.6%.
Swiss Re shares
Swiss Re had a market capitalisation of CHF 18.3 billion on 31 December 2008, with
363.5 million shares outstanding. Swiss Re shares are listed on the main board of the
SIX Swiss Exchange (SIX) and are traded on SWX Europe in its EU regulated segment
under the ticker symbol RUKN. Swiss Re shares are also traded over-the-counter in the
form of an American Depositary Receipt (ADR) level I programme (OTC symbol SWCEY).
General information on Swiss Re shares
Identification numbers
Swiss Security Number (Valorennummer)
ISIN (International Securities Identification Number)
Share
1233237
ADR level I1
–
CH0012332372 US8708872051
Ticker symbols
Share
ADR level I 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
Capital markets continued in 2008 where they left off in 2007, with downward pressure
on most share prices, especially in the financial sector. Swiss Re shares started the year at
CHF 80.45; following the publication of strong 2007 results, they climbed to the year’s
intraday high of CHF 93.95 on 2 April 2008. Our shares outperformed those of most of our
peers as well as the relevant indices during the first six months of 2008.
The second half of the year saw worries about subprime defaults expand into larger concerns
about asset valuations and then fear of worldwide recession as the credit crisis cut across
all industries. A number of banks and insurance companies sought state support and flagging
investor confidence drove down all major stock markets, with financial sector share prices
particularly affected. Swiss Re shares suffered significantly increased volatility during this period,
reaching an intraday low for the year of CHF 35.38 on 10 October 2008 before recovering
to CHF 50.30 at the year’s end. The 37.5% drop in Swiss Re’s share price over the year was
in line with the 34.8% fall in the Swiss blue chip index (SMI). Swiss Re outperformed our
benchmark, the Dow Jones STOXX 600 Insurance index, which fell 52.6%.
Share trading
The average daily trading volume for 2008 was 3.1 million shares on-exchange and 0.1 million
shares off-exchange. Trading volume peaked at 16 million shares on 23 January 2008 after
the announcement that Berkshire Hathaway had bought a 3% stake in Swiss Re. The week of
15 September 2008 also saw a significant volume of shares change hands as Wall Street
had its worst trading day since 11 September 2001, due to the Lehman Brothers bankruptcy
filing and the federal support provided to AIG, the largest US insurance company. Daily
volumes in the second half of the year were lower than in the first half as investors assumed
a wait-and-see position.
62 Swiss Re 2008 Annual Report
Financial year / Share performance
Swiss Re share price and trading volume in 2008
100
Closing price in CHF
2007 Annual results
(29 February)
Q1 results 2008
(6 May)
Q2 results 2008
(5 August)
Investors’ Day 2008
(25 September)
Investors’ meeting Monte Carlo
(8 September)
90
80
70
60
50
40
30
Volume in millions
Q3 results 2008
(4 November)
70
60
50
40
30
20
10
0
January
February
March
April
May
June
July
August
September
October
November
December
Closing price Volume on-exchange Volume off-exchange
Share buy-back programme
Swiss Re initially announced a share buy-back programme of up to CHF 6 billion on
1 March 2007 and on that date repurchased CHF 16.7 million of its shares from
General Electric Company (GE) that GE held as a result of Swiss Re’s acquisition of
GE Insurance Solutions. Swiss Re set up a second trading line on 10 August 2007 to enable
a tax efficient buy-back.
On 23 January 2008, following the announcement of the quota share reinsurance contract
with Berkshire Hathaway, the share buy-back programme was extended. This reinsurance
contract brought additional capital relief to the Group allowing the extension of the buy-back
programme by CHF 1.75 billion to CHF 7.75 billion. The buy-back continued until
4 November 2008 when we decided to suspend it due to the unprecedented capital market
conditions. By this date, CHF 4 billion worth of shares had been repurchased, representing
51.2% of the total buy-back programme. Authorisation for the second line buy-back remains
until April 2010.
Dividends
The Board of Directors will propose a dividend of CHF 0.10 per share for 2008. 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. Shareholders can download the
application form from Swiss Re’s website.
Swiss Re 2008 Annual Report 63
Financial year / Share performance
Share performance
Information for investors
More information on Swiss Re’s shares is available in the Investor Relations section on
Swiss Re’s website.
Shareholder structure
As of 31 December 2008
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
25.0
30.6
41.5
2.9
100
54.4
66.6
90.3
6.3
217.6
20.6
62.3
35.1
27.9
363.5
15.0
18.3
24.8
1.7
59.8
5.7
17.1
9.7
7.7
100
Index representation
In addition to its relevant industry indices, Swiss Re is also represented in various global,
European and Swiss indices – including the SMI, FTSEurofirst 300 Insurance and the Dow
Jones STOXX 600 Insurance. 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.
Weighting in indices
As of 31 December 2008
Swiss / blue chip indices
SMI
SPI
Insurance indices
Dow Jones STOXX 600 Insurance
Bloomberg Europe 500 Insurance
FTSEurofirst 300 Insurance
Sustainability indices
Dow Jones Sustainability World
Dow Jones Stoxx Sustainability
FTSE4Good Global
KLD Global Climate 100
Index weight (in %)
2.68
2.29
4.68
4.86
5.26
0.26
0.58
0.19
1.03
64 Swiss Re 2008 Annual Report
Financial year / Share performance
Key share statistics 2004 – 2008
As of 31 December
Shares outstanding1
of which reserved to underlie convertible bonds
and corporate purposes
of which repurchased via second trading line
(subject to cancellation)
Shares entitled to dividend
2004
322 066 174
2005
322 092 742
2006
374 440 378
2007
370 386 755
2008
363 516 036
11 678 802
11 678 802
16 184 149
17 715 789
17 715 789
310 387 372
310 413 940
358 256 229
6 005 000
346 665 966
8 881 000
335 665 775
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 (in CHF millions)
Market capitalisation3 (in CHF millions)
ADR price at year-end (in USD)
2004
1.10
1.4
8.00
61.78
81.10
97.05
66.35
104
26 120
71.80
2005
1.60
1.7
4.68
73.87
96.20
103.40
75.10
126
30 985
73.25
2006
2.50
2.4
13.49
86.21
103.60
108.50
79.60
153
38 792
85.25
2007
3.40
4.2
11.95
92.00
80.45
119.40
78.70
253
27 798
71.00
2008
4.00
8.0
—2.61
60.96
50.30
93.95
35.38
214
18 285
47.80
1 Nominal value of CHF 0.10 per share
2 Dividend divided by year-end share price of corresponding year
3 Based on outstanding shares
4 Figures for 2004 represent the previously applied accounting policy, Swiss GAAP FER; those for 2005 – 2008 are based on US GAAP.
Swiss Re 2008 Annual Report 65
Risk and capital management
68 Risk governance
68 Risk management view of the financial crisis
68 Risk management organisation
70 Swiss Re’s risk landscape
71
Integrated risk modelling
73 Risk assessment
73 Group capital requirement
74 Property and casualty insurance risk
75 Life and health insurance risk
76 Financial market risk
77 Credit risk
78 Operational risk
78 Reputational risk
79 Liquidity risk management
79 Liquidity management actions
79 Liquidity position of Swiss Reinsurance Company Ltd
81 Capital management
81 Capital adequacy
82 Capital management actions
83 Credit ratings
66 Swiss Re 2008 Annual Report
Key developments in 2008
̤
̤
̤
̤
̤
Internal capital adequacy of 207%
remains slightly above our target range,
despite significant capital depletion
due to unprecedented turbulence in
global financial markets.
Group capital requirement measured
by 99% Tail VaR decreased 10%
to CHF 14.9 billion, as higher financial
market and credit risk was more
than offset by lower insurance risk.
Enhanced our limit framework to
strengthen the alignment of business
capacity to our Group Risk Policy.
Strengthened our liquidity management
framework and proactively managed
the Group’s liquidity position in a difficult
market environment.
Completed major step in European
restructuring with the transfer of our
Denmark, France, Ireland, Italy,
Netherlands, Spain, and UK business into
branches of our Luxembourg entities.
The financial crisis has
demonstrated the importance
of a strong and independent
risk management function,
as well as the need for an
integrated approach to
assessing and controlling
risks. To this end, we
further enhanced our
risk management by
establishing a more robust
governance process,
intensifying our risk oversight
and strengthening our
liquidity management.
Swiss Re 2008 Annual Report 67
Risk and capital management
Risk governance
Swiss Re’s risk and capital management aims to ensure controlled risk taking as well
as adequate liquidity and capitalisation, in order to maintain the financial flexibility
to benefit from attractive business opportunities.
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.
Our risk management is based on four guiding principles that we strive to apply consistently
across all risk categories throughout the Group:
̤
Controlled risk taking: Financial strength and sustainable value creation are central to
Swiss Re’s value proposition. As a result, we operate within a clearly defined risk policy
and risk control framework.
Clear accountability: Our operations are based 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
monitor our risk-taking activities.
Open risk culture: Risk transparency and responsiveness to change are integral to our risk
control process. Swiss Re has institutionalised knowledge-sharing processes at all levels.
̤
̤
̤
Risk management view of the financial crisis
The unprecedented turbulence in the global financial markets has provided important lessons
on risk management for the financial services industry. First and foremost, recent events have
confirmed once again the importance of a strong and independent risk management function,
as well as the need for an integrated, company-wide approach to assessing and controlling
risks. In addition, risk management must be practised as a dynamic process, in which
scenarios, models and their parameters are continually adapted to changes in the
environment. This means that the results of quantitative controls should be supported by a
sound qualitative assessment of the underlying risks and assumptions.
̤
We have learnt from the recent crisis and enhanced our risk management in several key areas:
More robust governance processes for risk taking: In response to market developments,
̤
we have implemented a single Group-wide approval process, with greater accountability
and increased Risk Management involvement in reviewing and approving transactions.
Increased oversight: Risk Management has intensified its interaction with management
and the Board, including more detailed and frequent reporting on modelling results, limit
status and risk issues.
Enhanced liquidity management: We responded to the tightening funding environment
by strengthening spot liquidity, optimising funding across regulated carriers and increasing
stress testing for projected liquidity intervals (see pages 79 – 80).
̤
Risk management organisation
The Board of Directors is ultimately responsible for the Group’s risk management principles
and policies, as well as for approving our overall risk tolerance. The Board committees dealing
with risk management include:
̤
The Finance and Risk Committee, which is responsible for reviewing the Group Risk Policy
and capacity limits, as well as monitoring risk tolerance, and reviewing top risk issues and
exposures.
The Audit Committee, which is responsible for overseeing internal controls and compliance
procedures.
̤
68 Swiss Re 2008 Annual Report
Risk and capital management
The Executive Committee is responsible for implementing the risk management framework
through two further committees:
̤
The Group Risk and Capital Committee has responsibility for allocating capital and capacity,
approving investment risk limits, and deciding changes to the internal risk and capital
methodology.
The Group Products and Limits Committee determines Swiss Re’s product policy and
standards, grants reinsurance limits, and decides on large or non-standard transactions.
̤
The Chief Risk Officer is a member of the Executive Committee. He leads the global Risk
Management function, which is responsible for risk controlling across the Group.
The global Risk Management function is organised by risk categories, with dedicated
departments for property and casualty risk, life and health risk, and credit and financial market
risk. Each of these units is entrusted with Group-wide responsibility for identifying, assessing
and controlling their allocated risks, including operational risks which arise in their area of
control. They also work closely with other risk management units on transaction reviews and
issues which affect multiple risk categories. These units are supported by the Operational
Risk & Control Management department, which is responsible for maintaining our operational
risk framework, developing appropriate tools and training, and driving internal and
external dialogue on operational risk issues. In addition, the Business Risk Review department
conducts independent quality assessments of underwriting and pricing quality on
a transactional level, and also reviews authority processes and contract wordings.
Key risk management bodies and functions
Board of Directors
Group Internal Audit
Finance and
Risk Committee
Audit Committee
Executive Committee
Group Risk and Capital
Committee
Group Products
and Limits Committee
Chief Risk Officer
P & C Risk & Actuarial
Management
L & H Risk & Actuarial
Management
Business Risk Review
Group Risks & Analytics
Financial
Risk Management
Sustainability & Emerging
Risk Management
Operational Risk &
Control Management
Group Regulatory Affairs
Swiss Re 2008 Annual Report 69
Risk and capital management
Risk governance
70 Swiss Re 2008 Annual Report
In 2008, the insurance risk units were realigned to include both risk management and
actuarial functions. This combined expertise will strengthen independent review of large
transactions, new products, business plans, pricing accuracy and portfolio quality.
The Group Risks & Analytics department has global responsibility for risk reporting, risk
models, the validation of valuation models and risk infrastructure. In addition, it is responsible
for capital adequacy and liquidity risk management, as well as for the overall risk governance
framework. Sustainability & Emerging Risk Management manages environmental, social,
and political risks as well as the systematic detection, assessment and business application of
emerging and existing, but potentially underestimated, risks. Finally, the Group Regulatory
Affairs department steers our regulatory activities and positions, and leads the implementation
of major regulatory developments.
None of the Risk Management departments executes business. They oversee risk-taking
activities, 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
adequacy and effectiveness of our internal control systems. It monitors the execution of
processes within Swiss Re, including those in risk management.
Swiss Re’s risk landscape
Risk management is essential to our strategic planning and is embedded in our management
discipline. Our risk landscape comprises core risks as well as operational and other risks that
arise as a result of doing business.
Categorisation of Swiss Re’s risk landscape
Other risks
Liquidity
Reputational
Operational risks
People
Processes
Systems
External
Core risks
Insurance
Property and casualty
Life and health
Financial market
Equity market
Interest rate
Foreign exchange
Credit spread
Real estate
Credit
Credit migration
Credit default
Risk and capital management
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 that assets or liabilities may be 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, default) among counterparties of Swiss Re or of
third parties.
Further risks that arise as a result of doing business include operational, reputational and
liquidity risk:
̤
Operational risk, defined according to the Basel II recommendations, includes potential
losses or reputational damage arising from inadequate or failed internal processes, people
and systems, or from external events. This includes, for example, potential non-compliance
with regulation which might result in regulatory penalties.
Reputational risk is the risk that a particular event or behaviour damages stakeholders’
perception of Swiss Re, thus impairing our ability to operate effectively.
Liquidity risk is the risk that Swiss Re, though solvent, either does not have sufficient
resources available to meet its obligations when they fall due, or can secure them only
at excessive cost.
̤
̤
In addition to the assessment of known risks, we have a systematic framework to capture,
evaluate and mitigate emerging threats and opportunities across Swiss Re’s risk landscape,
including potential surprise factors that might affect known loss potentials. The framework
also comprises the Rapid Risk Research process, which provides a fast and flexible way
to investigate emerging issues and establish an initial estimate of their impact on Swiss Re
(see page 21).
Integrated risk modelling
We use a proprietary integrated risk model to determine the capital required to support the
risks on our books, as well as to allocate risk-taking capacity to the different lines of business.
This internal model is based on two important principles. First, it applies an asset-liability
management (ALM) approach, which measures the net impact of risk on the economic value
of both assets and liabilities. Second, 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, we derive a base capital requirement that captures the potential for severe,
but rare, aggregate losses over a one-year time horizon. We monitor our capital adequacy
by comparing the ratio of available capital to required capital with the target ratio set by the
Board of Directors.
Our risk model assesses the potential economic loss at a specific confidence level. There
is thus a possibility that actual losses may exceed the selected threshold. In addition,
the reliability of the model may be limited when future conditions are difficult to predict, for
example in an extremely volatile market environment. For this reason, we continuously
review and update the model and its parameters to reflect changes in the risk environment
as well as current best practice.
Swiss Re 2008 Annual Report 71
Risk and capital management
Risk governance
72 Swiss Re 2008 Annual Report
Since the onset of the financial crisis, we have implemented various model enhancements to
better reflect changes in the market environment. In particular, we have significantly improved
the modelling of asset-backed securities by increasing its granularity: the respective risk
factors are now more frequently updated to capture increased market volatility. In 2008, we
also enhanced our internal model to reflect Swiss Re’s legal entity structure and related Group
effects, such as intra-Group transactions and consequential effects from potential distress
situations. As part of the Swiss Solvency Test (SST), the new model is in the process of being
validated by the Swiss regulator. In addition, the property and casualty risk models were
improved by introducing enhanced event-set-based methods for assessing windstorm and
aviation risks.
We are confident that our model provides an important tool for managing our business as well
as a meaningful assessment of the risks to which Swiss Re is exposed. At the same time,
market developments have confirmed that risk models must be supported by a clear
understanding of the risks to which the business is exposed – and complemented by robust
internal controls.
Swiss Solvency Test
In July 2008, Swiss Re submitted its first solvency report for the Swiss Solvency Test
(SST). The new SST introduces an economic, principles-based approach to Swiss
insurance regulation and is thus a forerunner of the European Solvency II regime.
While the SST is based on projected figures, it uses a similar approach to our internal
capital adequacy assessment (see page 81), and the results of our first SST report
have affirmed the fundamentals of our own capital adequacy methodology.
An important aspect of the SST is its recognition of the fundamental economic
principle of diversification, taking legal structures and internal contracts into account.
We worked closely with the Swiss regulator to extend the Group’s internal model for
new SST requirements, including the modelling of intra-group transactions and their
impact on capital adequacy. This accelerated our existing efforts, helping us to further
enhance our Group-wide capital management.
The SST is an important step on the path towards a consistent, principles-based
solvency regime. It fosters sound risk management and governance across the
insurance industry – and thus helps to establish better risk and capital insight. We
strongly support this direction and are actively participating in the development of
Solvency II. Thanks to our experience in implementing the SST, we are well prepared
for future changes in European and global solvency regulation.
Risk assessment
Group capital requirement
under different risk measures
CHF billions, as of 31 December 2008
14.9
12.9
11.2
99% Tail VaR
99.5% VaR
99% VaR
Risk and capital management
Group capital requirement
Frequently used measures for summarising the risk distribution and defining the base capital
requirement are 99% value at risk (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.
0.19
According to the Group’s internal risk model, Swiss Re’s overall risk exposure based on
99% VaR was CHF 11.2 billion compared to CHF 12.9 billion for 99.5% VaR. This represents
a decrease of 3% and 6% respectively since the end of 2007. Over the same period,
99% Tail VaR decreased 10% to CHF 14.9 billion at the end of 2008. Swiss Re uses the more
conservative 99% Tail VaR measure for assessing the Group’s capital requirements internally,
as well as for liquidity stress testing (see pages 79 – 80).
The table below shows the standalone 99% Tail VaR for Swiss Re’s core risk categories.
The Group’s 99% Tail VaR was stable as higher financial market and credit risk was largely
offset by lower property and casualty risk. More information on developments within the
risk categories is provided later in this chapter.
Base capital requirement using one-year 99% Tail VaR
CHF billions, as of 31 December
Property & casualty
Life & health
Financial market
Credit
Simple sum
Diversification effect
Swiss Re Group
2007
8.6
5.9
7.7
2.8
25.1
–8.5
16.6
2008
7.9
5.2
8.0
3.0
24.0
–9.1
14.9
Change in %
–9
–12
3
6
–4
–
–10
Our internal model considers the level of correlation and diversification between individual
risks. The benefits of diversification can be seen in the table above, where the base capital
requirement for the Group’s overall portfolio is lower than the sum of the base capital
requirements for individual sub-portfolios. We strive to diversify the risks to which we are
exposed, not only to limit the impact of any single source of risk, but also to ensure that
positive developments in some businesses balance out potential negative developments in
others.
Stress scenario analyses complement the integrated risk model by providing information on
the potential economic impact of certain adverse situations. Some of these stress tests are
reported in the following sections.
Our risk tolerance represents the amount of risk we are willing to accept within the constraints
imposed by our capital resources, strategy and risk appetite, as well as the regulatory and
rating agency environment within which we operate. Risk tolerance and appetite at Group
level are defined by a set of limits approved by the Executive Committee and the Board of
Directors. In 2008, we further enhanced our limit framework to consistently break down our
Group Risk Policy to all risk categories. The framework applies an iterative process to test our
annual business plan, and thus aims to ensure that the resulting limits and business capacity
reflect our Group-wide policies on capital adequacy and risk accumulation.
Swiss Re 2008 Annual Report 73
Risk and capital management
Risk assessment
74 Swiss Re 2008 Annual Report
Property and casualty insurance risk
Property and casualty risk arises predominantly from our property and casualty business,
as well as from specialty lines, such as engineering, aviation and marine. The Group
Property & Casualty Risk Guideline, in conjunction with the Group Risk Management Guideline,
establishes the relevant risk governance framework. P & C Risk & Actuarial Management is
responsible for independent oversight of property and casualty risk taking.
Limits to prevent excessive exposure to any individual policy, or to the same underlying risk
factor, are monitored on a Group-wide basis. In addition, each underwriter is assigned an
underwriting authority per treaty programme and single risk. We have a well-defined
escalation process at various levels up to the Group Products and Limits Committee. Large
individual transactions that could materially impact Swiss Re Group must be independently
reviewed by Risk Management before they can be authorised.
The global Products Underwriting function plays a major role in managing property and
casualty risks by proposing the annual renewal strategy and closely monitoring renewal
business. Underwriting systems across the Group provide timely reporting on risks assumed
and capacity committed. Where appropriate, we also use insurance-linked securities, industry
loss warranties, retrocession and risk swaps to optimise Swiss Re’s risk and return profile.
In 2008, the Group’s property and casualty risk measured by 99% Tail VaR decreased 9% to
CHF 7.9 billion. The reduction in risk was mainly driven by the 20% quota share arrangement
with Berkshire Hathaway for new property and casualty business, which lowered net exposure
and thus decreased capital requirements across all lines. This effect was partly offset by
reductions in other protection instruments in order to optimise Swiss Re’s property and
casualty hedging portfolio. We also reduced our risk from directors’ and officers’ liability
(D & O) and auditors’ professional indemnity insurance through more selective underwriting
and a significant reduction in business written. Strict underwriting discipline led to a moderate
overall reduction in general liability business, especially in pharmaceutical product liability.
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)
2007
–3.7
–2.2
–2.8
–2.0
2008
–3.5
–2.1
–3.9
–1.7
The table above shows the results of our stress scenario analysis: Swiss Re’s expected pre-tax
claims for major natural catastrophe events, net of insurance-linked securities, industry loss
warranties, retrocession and risk swaps. The scenarios take account of the fact that an event
can trigger claims in various lines of business. For example, the European windstorm scenario
includes, among others, claims from motor business, while the California earthquake scenario
also reflects – but is not limited to – additional claims arising from workers’ compensation and
general liability.
The estimated impact for Swiss Re of the largest natural catastrophe loss events has generally
decreased since the end of 2007. This mainly reflects the impact of the Berkshire Hathaway
quota share arrangement, which is partly offset by the adjustment of other hedging
instruments mentioned above, as well as an increase in incoming business written. The rise in
California earthquake risk is due to significant business growth in the fourth quarter of 2008.
Risk and capital management
Life and health insurance risk
Swiss Re takes on life and health risk in the form of mortality (death), longevity (survivorship)
and morbidity (illness and disability) covers as well as through the acquisition of run-off
business (Admin Re®). The Group Life & Health Risk Standards and Group Risk Management
Guideline establish the governance framework for life and health risk taking by our business
units. These guidelines include detailed guidance on referral procedures and approval bodies.
L & H Risk & Actuarial Management is responsible for independent oversight of life and health
risk taking.
Our new limit framework introduces an aggregate Group limit governing the acceptance of all
life and health risks. Within this limit, our specific limit for mortality risk still applies. Local
business units can write reinsurance within their capital plans and within clearly defined
boundaries, such as per life retention limits for individual business. In addition, maximum
market exposure limits are in place for life and health catastrophe business. We pay particular
attention to accumulation risk in areas of high population density and apply limits based upon
expected maximum loss for exposures in individual buildings. Group limits are also in force
to control and monitor business with exposure to long-tailed longevity risk. Any transaction
that falls outside our specified limits requires individual approval under our risk governance
framework. All large and complex transactions are subject to independent review by the
central Products Underwriting team as well as by Risk Management.
In addition, we use insurance-linked securities as a means of reducing peak exposures.
The Vita index-linked security transactions, for example, were arranged to provide protection
against extreme mortality events. This is now a well-established programme.
Since the end of 2007, we have implemented a new longevity risk model which incorporates
our previously established longevity capital calculation and allocation methodologies, and
captures – among other sources of uncertainty – the impact of changes in mortality trends.
The model is calibrated by underlying cause of death, including the possibility of an extreme
reduction in deaths from cardiovascular disease and cancer.
In 2008, the Group’s life and health risk measured by 99% Tail VaR decreased 12% to
CHF 5.2 billion. This was mainly due to lower mortality and morbidity risk following the
strengthening of the Swiss franc against the currencies in which our exposures are mainly
denominated. In particular, the substantial weakening of the British pound had a significant
impact on life and health risk. These currency effects more than offset the impact of
introducing longevity risk into the Group risk model.
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)
2007
–4.0
2008
–3.5
The table above shows Swiss Re’s expected pre-tax mortality claims for a major lethal
pandemic loss event based on our proprietary pandemic model. The scenario assumes that
excess mortality will vary with age, but is conservative in that it does not allow for the
typically lower mortality experienced among insured populations. The decrease is due to the
depreciation of major currencies against the Swiss franc, which more than offset modest
overall growth in underlying business volumes.
Swiss Re 2008 Annual Report 75
Risk and capital management
Risk assessment
76 Swiss Re 2008 Annual Report
Financial market risk
Swiss Re’s financial market risk originates from two main sources: our investment activities
and the financial market sensitivity of the economic value of liabilities. The Group Credit &
Financial Market Risk Guideline defines minimum standards for managing financial market
risk; these are supplemented by the Group Derivative Guidelines, the Swiss Re Financial
Markets Policy and other, business-specific guidelines. Financial Risk Management is
responsible for Group-wide monitoring and reporting of financial market risks.
Our Group-wide risk limits are defined by the Group Risk and Capital Committee, based on a
proposal by Risk Management. In 2008, we enhanced our limit framework to reflect the
changed market environment: all activities involving financial market risk are subject to a first
limit set by risk factor and a second limit set by business group. Individual limits are expressed
in terms of 10-day VaR, stress testing and sensitivity analysis. Asset Management determines
a more detailed set of risk limits for its businesses, including stop-loss triggers.
Risks are captured using a classification of risk factors that is maintained and updated by
Financial Risk Management. In addition, we continuously review business activities to detect
any emerging risks. Our business units are responsible for measuring the financial market risk
arising from their activities according to the guidelines provided by Risk Management; the
results are captured in the Market Risk Aggregation & Reporting System, which is also used
for risk modelling and risk reporting.
We have increased the frequency of our risk reporting in response to the high market volatility.
Risks at Group level and limits for investment activities are now monitored and reported on
a weekly basis, while capital markets trading relies on a combination of daily and weekly
reporting. These reports are the primary tools for tracking exposures and documenting limit
usage, which is independently monitored by Financial Risk Management. The limits are
reported to the heads of the business unit, who seek to optimise their respective portfolios
within their limits, including the use of cash and derivative instruments.
In 2008, financial market risk measured by 99% Tail VaR increased 3% to CHF 8.0 billion,
mainly due to higher credit spread market volatility, which led to a substantial increase in
credit spread risk. This was mostly offset by a significant decrease in equity risk, as we
reduced our equity positions and increased our hedging in response to the market turmoil.
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
2007
–3.8
0.2
–0.6
2008
–2.5
0.1
–0.6
The table above shows the pre-tax impact of Swiss Re’s market scenarios on available
economic capital. The decline in major equity markets – all of which lost over 30% throughout
2008 – and the sharp corrections in many real estate markets have confirmed that these
scenarios provide a realistic prediction of exceptional conditions. Since the end of 2007,
the potential loss from a 30% fall in global equity markets has decreased by a third to
CHF 2.5 billion, as a result of a significant reduction in our equity portfolio as well as increased
hedging. The equity scenario includes traded equities, equity derivatives, alternative
investments, guaranteed minimum death benefit products (including variable annuities) and
funding obligations arising from equity holdings in Swiss Re pension funds. As our assets
are closely matched to our liabilities, shifts in interest rates only have a minor impact.
Risk and capital management
Credit risk
Credit risk arises directly from our investment activities as well as from liabilities underwritten
by our business units. We distinguish between three types of credit exposure: the risk of issuer
default from instruments in which Swiss Re invests or trades, such as through corporate
bonds; counterparty exposure in a direct contractual relationship, such as retrocession or over-
the-counter (OTC) derivatives; and risk assumed by Swiss Re through reinsurance contracts,
such as trade credit and surety reinsurance business. All contribute to an overall credit risk
portfolio governed by the Group Credit & Financial Market Risk Guideline that is approved by
the Group Risk and Capital Committee. Financial Risk Management is responsible for Group-
wide monitoring and reporting of credit risks.
The guideline requires the assignment of aggregate credit limits by business unit, limits for
corporate counterparties and limits by country. These 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. We regularly
monitor counterparty credit quality and exposures, and compile watch lists of cases that merit
close attention.
Credit exposure and limits are monitored and reported on a weekly basis. The reporting
process is supported by a Group-wide credit exposure information system that contains all
relevant data, including counterparty details, ratings, credit risk exposures, credit limits and
watch lists. All key credit practitioners in the Group have access to this system, thus providing
the transparency required for the successful implementation of active exposure management
strategies for specific counterparties, industry sectors and geographic regions.
In 2008, credit risk measured by 99% Tail VaR rose 6% to CHF 3.0 billion, mainly due to
deterioration in credit quality. This was partly offset by a reduction in credit exposure from
trading activities as well as by our efforts initiated in early September to hedge our corporate
bond portfolio.
Credit stress test
Estimated economic impact in CHF billions as of 31 December
Credit default stress test
2007
–2.9
2008
–3.0
The table above shows the pre-tax impact of our credit default stress test on available
economic capital. This scenario indicates estimated unexpected losses due to the adverse
development of defaults. It is based on historical corporate default data from Moody’s and
combines the worst default frequencies observed over 12 months for each of the individual
rating categories. Since the end of 2007, the impact of the credit default stress test has risen
slightly due to a deterioration in credit quality, which was largely offset by increased hedging.
Swiss Re 2008 Annual Report 77
Risk and capital management
Risk assessment
Operational risk
Swiss Re’s operational risk management (ORM) framework provides consistency of approach
and a comprehensive overview of potentially serious event scenarios, ensuring that
appropriate controls and contingency planning are in place. Our ORM is designed to reduce
the Group’s exposures to an acceptable level, taking into account the cost-benefit
considerations of risk mitigation, as well as to enhance operational excellence.
In 2008, we took two important steps to refine our approach to ORM:
̤
We further integrated the management of key operational risks into the overall risk
management framework. ORM experts are now based within the risk management units
with responsibility for core business activities. This ensures even greater focus on
maintaining the excellence of core processes such as pricing, accumulation control, claims
settlement, asset management and project management.
We achieved significant risk control synergies by combining our Sarbanes Oxley and ORM
responsibilities, as well as by establishing a shared process for audit and management
assurance planning.
̤
Reputational risk
Maintaining our reputation with clients, investors, employees and other stakeholders is vital
to continued business success. Environmental, social and ethical reputation risks may arise
from specific business transactions. In addition, Swiss Re’s reputation may be damaged by
operational failures.
We have a long-standing commitment to sustainable business practices, responsible
corporate citizenship and good governance. This is reflected in our participation in several
international initiatives and conventions. In March 2008, Swiss Re signed the Global
Compact, a United Nations initiative for businesses that are committed to human and labour
rights, as well as to environmental responsibility and anti-corruption.
We mitigate potential reputational risk through clear corporate values, robust internal controls
and active dialogue with external stakeholders. All employees are required to commit to and
comply with the values and rules of behaviour defined in the Group’s Code of Conduct. These
values are supported by processes that enable early identification of potential problems.
Transactions that could potentially compromise our values or impair Swiss Re’s reputation are
submitted to the Sensitive Business Risks process (for more information, see page 31). In
2008, this process became part of a wider reputational risk framework comprising industry
policies and specific country exclusions. In addition, potential reputational impact is a key
factor in assessing and controlling operational issues within our ORM framework.
78 Swiss Re 2008 Annual Report
Risk and capital management
Liquidity risk management
Our liquidity risk management aims to ensure that Swiss Re is able to meet its financial
obligations efficiently when they fall due.
As a reinsurance company, our core business generates liquidity largely through premium
income. Swiss Re’s exposure to liquidity risk stems mainly from regulatory constraints that
limit the flow of funds within the Group as well as from the funding of the Legacy portfolio
(described on page 59). To manage this risk, we have a range of liquidity policies and
measures in place. In particular, we aim to ensure that:
̤
sufficient excess liquidity, mainly in the form of unencumbered liquid assets, is held
centrally to meet Group liquidity requirements resulting from a range of potential stress
events;
funding is charged at an appropriate market rate through our internal transfer pricing;
diversified sources are used to meet Swiss Re’s residual funding needs;
Swiss Re’s long-term liquidity needs are taken into account as part of our asset-liability
management approach used to control financial market risk (as described on page 76).
̤
̤
̤
Liquidity management actions
In response to the extreme market conditions in 2008 and in anticipation of extended market
disruption, we enhanced our monitoring of liquidity risk and implemented a range of
measures to support Swiss Re’s excess liquidity position.
We put into run-off all financial market activities that did not directly support Swiss Re’s core
reinsurance or insurance business. Our Treasury unit enlarged the portfolio of liquid assets
that are earmarked for liquidity purposes. This included increasing the amount of cash held
centrally, while ensuring that these cash holdings were diversified across a group of core
issuers and types of cash instruments.
During 2008, we entered into a USD 1.5 billion long-term letter of credit facility with
JP Morgan to meet US regulatory collateral requirements on existing life reinsurance business.
Our acquisition of Barclays Life on 31 October 2008 was partly financed by external funding
at attractive rates.
Liquidity position of Swiss Reinsurance Company Ltd
We monitor Swiss Re’s liquidity position based on liquidity stress tests, as well as expected
funding gaps over intervals of three months to one year. Our core liquidity policy is to pre-fund
the potential funding requirements arising from various stress events. This is achieved by
maintaining excess liquidity in the form of unencumbered liquid assets and cash within a
central pool of entities, namely the “SRZ liquidity pool”. This pool comprises the Group’s
parent company – Swiss Reinsurance Company Ltd – as well as subsidiaries whose funds are
freely transferable to the parent company. This excess liquidity, referred to in the following
discussion as “spot liquidity”, is intended to allow Swiss Re to meet its funding obligations in a
liquidity crisis without having to rely on other asset sales or unsecured external funding – and
assuming a reduction in funding from new reinsurance business.
Swiss Re 2008 Annual Report 79
Risk and capital management
Liquidity risk management
The amount of spot liquidity held is largely based on internal liquidity stress tests, which
estimate the potential short-term cash and collateral requirements stemming from an extreme
insurance event or a financial market crisis. These cash and collateral requirements under
stress include:
̤
cash and collateral outflows, as well as potential capital and funding support required by
subsidiaries as a result of the assumed insurance or financial market event.
repayment or loss of all maturing unsecured debt and credit facilities. In the event of a
financial market crisis, it is assumed that secured funding is only available on government
and agency bonds.
additional collateral requirements associated with a potential ratings downgrade
of Swiss Re Group. In the case of a financial market crisis, a one-notch downgrade is
assumed.
further contingent funding requirements related to asset downgrades and existing
commitments to extend credit or funding, based on a probabilistic assessment.
other large committed payments, such as expenses, commissions, and tax.
̤
̤
̤
̤
Composition of spot liquidity in the
SRZ liquidity pool as of 31 December 2008
Total CHF 17.3 billion
Swiss Re’s liquidity stress tests are reviewed on a regular basis and their main assumptions
are approved by the Group Risk and Capital Committee.
The market value of spot liquidity within the SRZ liquidity pool was CHF 17.3 billion and
CHF 9.6 billion as of 31 December 2008 and 2007, respectively. In response to the
deterioration in financial market conditions, we substantially increased spot liquidity in
September 2008 by earmarking additional assets for liquidity purposes. As of 31 December
2008, we estimate Swiss Re held surplus spot liquidity based on our internal liquidity stress
tests.
In addition to spot liquidity, a sizeable portfolio of other unencumbered assets are held within
the SRZ liquidity pool. We target holding total unencumbered assets, including spot liquidity,
that would provide sufficient funds if pledged or sold to meet the liquidity requirements
stemming from an aggregate extreme loss event corresponding to 99% Tail VaR (see page
73). In addition to the cash and collateral requirements resulting from such a loss, we assume
a two-notch ratings downgrade within 90 days and a four-notch downgrade within one year.
We also assume that funding from assets is subject to conservative haircuts (discounts); that
intra-Group funding is not available if it is subject to regulatory approval; that no new
unsecured funding is available; and that funding from new reinsurance business is reduced.
The estimated total liquidity sources available over a one-year horizon within the SRZ liquidity
pool amounted to CHF 25.6 billion and CHF 37.5 billion as of 31 December 2008 and 2007,
respectively. This decrease was mainly due to the significant reduction in assets funded by
repurchase agreements, which improved net liquidity, as well as the transfer of the European
branches from Swiss Reinsurance Company Ltd to Swiss Re Europe S.A. There is a risk that
Swiss Re’s liquidity position could be impaired if the Group were unable to access the capital
markets over a one-year time horizon following the occurrence of such an extreme loss event.
Swiss Re also maintains a variety of other committed facilities not reflected in the above
liquidity stress tests. As of 31 December 2008, Swiss Re had a total of CHF 2.1 billion of
unutilised credit facilities and a further CHF 1.9 billion of unutilised committed repurchase
agreement facilities.
36% Cash and bank deposits
31% G7 and Swiss government bonds
22% Agency and municipal bonds
11% Other developed market government
and supranational bonds
80 Swiss Re 2008 Annual Report
Risk and capital management
Capital management
Our capital management aims to ensure the Group and all its subsidiaries are adequately
capitalised at all times. The level of capitalisation and capital structure are determined by
regulatory capital requirements (both for the Group and individual legal entities), requirements
for our target rating, as well as the management’s view of risks and opportunities arising from
our business operations.
Capital adequacy
We are actively working towards closing the gaps between regulatory, rating and internal
views on capital adequacy. We have had an active dialogue with Standard & Poor’s (S & P),
providing feedback on their new Insurance Capital Model, and will continue to participate
fully in the development of Solvency II.
Swiss Re’s external capital adequacy
Regulatory capital requirements
On 1 January 2009, the former Federal Office of Private Insurance (FOPI), the Swiss Federal
Banking Commission (SFBC) and the Anti-Money Laundering Control Authority were merged
to form the Swiss Financial Market Supervisory Authority, FINMA. FINMA exercises integrated
supervision of banks, insurance companies, reinsurers, other financial institutions and
intermediaries in Switzerland.
Swiss Re is supervised by FINMA both at Group level and with regard to its legal entities
domiciled in Switzerland. The supervision comprises minimum solvency capital, a wide range
of qualitative assessments and risk governance requirements.
With the introduction of the SST, Switzerland became one of the first countries in Europe to
implement an economic, principles-based approach similar to the planned Solvency II regime.
Swiss Re implemented the SST in 2008, when all Swiss-based reinsurers were required
to submit a first SST calculation. The SST target capital, however, only becomes a binding
measure for regulatory solvency from 2011 onwards.
Many of our subsidiaries are regulated by their respective home regulators and subject to
their respective capital requirements.
Rating agency capital requirements
Rating agencies assign credit ratings to the obligations of Swiss Reinsurance Company Ltd
and its rated subsidiaries. The agencies evaluate Swiss Re based on a set of criteria, which
include an assessment of our capital adequacy. Each rating agency uses a different
methodology for this assessment; for example, Standard & Poor’s and A.M. Best base their
evaluation on their own proprietary capital models.
Swiss Re’s internal capital adequacy based on 99% Tail VaR
Our internal capital adequacy view aims to maintain Swiss Re’s ability to continue operations
following an extremely adverse year of losses from insurance or financial market events.
Our target is to have an economic capital adequacy ratio (available capital divided by required
capital) in the 175% – 200% range at least.
At the end of 2008, our internal capital adequacy ratio was 207%. Despite the significant
financial markets event of 2008, which resulted in the substantial decline of invested assets,
our internal ratio remains in excess of our target range.
Swiss Re 2008 Annual Report 81
Risk and capital management
Capital management
Available and required capital
at 99% Tail VaR
CHF billions, as of 31 December 2008
Swiss Re determines the amount of available capital based on Economic Value Management
(EVM) economic net worth, adjusted for additional risk-bearing items in line with the
SST requirements. Required capital is based on 99% Tail VaR, as discussed on page 73.
299%
49.7
207%
30.9
internal target range
175% –200%
16.6
14.9
50
40
30
20
10
0
2007
2008
Available capital
Required capital at 99% Tail VaR
Capital adequacy ratio
Capital management actions
On 4 November 2008, with the publication of our third-quarter results, we announced the
suspension of the share buy-back programme as a consequence of the high volatility in
the financial markets and a significant increase in client demand for reinsurance. As of this
date, the Group had completed 51.2% of the total buy-back programme.
Major legal entity simplification projects continue in Europe, the US, Canada and Asia, with
an expected combined statutory capital relief of around CHF 2.5 billion.
In Europe, our simplification of the legal entity structure is well advanced. The project benefits
from recent regulatory and legal developments that have allowed us to simplify our entity
structure in the EU (excluding Admin Re®) into two companies: a reinsurance and a direct
insurance carrier based in Luxembourg with branch operations in other EU countries. During
2008, business from a number of entities and branches in the UK, Ireland, Denmark,
Netherlands, Spain, Italy and France was successfully integrated into the new Luxembourg
carriers. At the same time, we consistently maintained our high level of service in all our
European markets. Further, our product offerings and financial strength have remained
unchanged. Local branches continue to be responsible for client management.
EVM economic net worth
EVM economic net worth (ENW) is the difference between the market value of assets
and the market value of liabilities.
For liquidly traded assets and liabilities, the market value is obtained from current
market prices. For insurance contracts and other assets and liabilities where no
reliable market value is available, market-consistent valuation techniques are applied.
This means that best estimates of future expected cash flows are replicated using
liquidly traded financial market instruments. The market value of this replicating
portfolio therefore corresponds to the economic value of future expected cash flows,
such as premiums, claims commissions, expenses, taxes and estimated frictional
capital costs. Frictional capital costs are required by the shareholder as a
compensation for risk and regulatory capital costs.
The ENW is based on a “closed book” approach which implies that no value is
recognised for future expected new business. As a result, no credit is taken for
intangible items such as goodwill. For more information on EVM and the economic
valuation of insurance contracts, please refer to Swiss Re’s EVM Report, published in
May 2008.
82 Swiss Re 2008 Annual Report
Risk and capital management
Credit ratings
Standard & Poor’s (S & P), Moody’s and A.M. Best rate Swiss Re’s financial strength based
upon interactive relationships.
Swiss Re’s very strong business position, financial flexibility, as well as our outstanding
franchise, and prudent risk management are reflected in superior insurance financial strength
ratings.
Swiss Re’s financial strength ratings
As of 18 February 2009
Rating
Outlook
S & P
A+
Stable
Moody’s
Aa3
Under review for
possible downgrade negative implications
A.M. Best
A+
Under review with
On 18 February 2009, S&P lowered Swiss Re’s financial strength ratings from AA– to A+.
The outlook on the ratings is stable.
On 5 February 2009, S&P had placed Swiss Re’s financial strength ratings (AA–) on
CreditWatch with negative implications. On the same day, A.M. Best placed Swiss Re’s
financial strength ratings (A+) under review with negative implications. On 6 February 2009,
Moody’s lowered Swiss Re’s financial strength ratings from Aa2 to Aa3 and placed the
ratings under review for possible downgrade. These rating actions followed Swiss Re’s
announcement on 5 February 2009 that it expected to report a net loss of approximately
CHF 1 billion for 2008 and a reduction in shareholders’ equity of approximately
CHF 4 – 5 billion in the fourth quarter of 2008.
On 19 December 2008, A.M. Best affirmed Swiss Re’s financial strength ratings
(A+, Superior) and revised the outlook from stable to negative.
On 5 November 2008, Moody’s affirmed Swiss Re’s financial strength ratings (Aa2) and
revised the outlook from stable to negative.
Swiss Re 2008 Annual Report 83
Corporate governance
and compensation report
86 Corporate governance
88 Group structure and shareholders
90 Capital structure
94 Board of Directors
114 Executive management
118 Compensation, shareholdings and loans
125 Shareholders’ participation rights
126 Changes of control and defence measures
127 Auditors
129
Information policy
Key developments in 2008
̤
In addition to the existing four
committees, the Board of Directors
established the new Investment
Committee to ensure a stronger
contribution to and closer supervision of
investment and asset management.
̤
The charters of the Board committees
have been refined to optimise interaction
and efficiency between and among them.
84 Swiss Re 2008 Annual Report
Corporate governance
is about more than just
fine words. It is about
transparency and
integrity in everything
we do.
Swiss Re 2008 Annual Report 85
Corporate governance and compensation report
Corporate governance
Corporate governance is the framework comprising a company’s organisation,
structure, management and assurance functions.
Checks and balances
Good corporate governance implies an effective system of mutual checks and balances
among the top corporate bodies. Swiss Re maintains a dual board structure. It thus
distinguishes clearly between the members of the Board of Directors as the supervisory body
and those of management. From 1 January 2009, the Board of Directors consists entirely of
non-executive and independent members. It increasingly performs its supervisory function
through its committees, thus ensuring competence and effectiveness. The newly established
Investment Committee, for example, allows more focused monitoring of the Group’s
investment and asset management operation. Joint sessions among the Board committees
enhance interaction and foster interdisciplinary exchange. In general, the Board of Directors
has taken a greater role in the supervision of decision-making, not least because of the effects
of financial market turbulence on the Group’s business.
Transparency
Transparency is an important component of the governance framework designed to protect
the interests of shareholders and create value for all stakeholders. Last year Swiss Re
continued to provide Economic Value Management (EVM) reporting to analysts and investors.
Unlike other calculation models, EVM includes capital costs and allows a comparison of the
Group’s different business operations. This increases the transparency of Swiss Re’s business.
In 2008, particular weight was placed on informing stakeholder groups about the
repercussions of the financial crisis on Swiss Re.
Overall context of corporate governance
Corporate governance is increasingly linked to corporate sustainability and corporate
citizenship. The integration of sustainability principles in core business activities strengthens a
company’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 creates 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 “Delivering sustainable value”, pages 28 – 33).
86 Swiss Re 2008 Annual Report
Corporate governance and compensation report
Legal requirements and best practice
Swiss Reinsurance Company Ltd, the parent company of Swiss Re Group, is listed in
Switzerland, so its corporate governance is assessed primarily in terms of the Swiss Code of
Best Practice for Corporate Governance, issued by economiesuisse in July 2002, as well as its
2007 Appendix. Swiss Re is also subject to the Directive on Information relating to Corporate
Governance (including its Annex), issued by SIX Swiss Exchange, effective since 1 July 2002
and amended on 1 January 2007 (also referred to as the “SIX Directive”). Moreover, Swiss Re
meets the requirements of the Provisions on Corporate Governance, Risk Management and
the Internal Control System, issued by the Federal Office of Private Insurance (FOPI) and
enacted on 1 January 2007. FOPI became part of the Swiss Financial Market Supervisory
Authority FINMA on 1 January 2009. Last but not least, 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 SIX
Directive.
Swiss Re 2008 Annual Report 87
Corporate governance and compensation report
1 Group structure and shareholders
1.1 Group structure
Operational Group structure
Board of Directors
Chairman
Vice Chairman
Members of the Board of Directors
Executive Board
Chief Executive Officer
Members of the Executive Committee
Members of the Executive Board
Associated Units & Special Projects
Communications & Human Resources
Global Functions
Client Markets
̤
̤
̤
̤
̤
Europe
Americas
Asia
Insurance & Specialty
Global Admin Re®
Asset
Management
̤
̤
Capital Markets
Insurance Solutions
Conning Asset
Management
Products Underwriting
̤
Property & Specialty
̤
Casualty
̤
Life & Health
Finance
Risk Management
Operations
̤
̤
̤
̤
̤
Global IT
Group Legal
Claims & Liability
Management
Global Technical
Accounting &
Services
Group Logistics
Listed Group companies
Swiss Reinsurance Company Ltd, the Group’s parent company, is a joint stock company, listed
on the SIX Swiss Exchange, domiciled at Mythenquai 50/60 in 8022 Zurich and organised in
accordance with Swiss laws. For detailed share information, see the “Share performance”
section on pages 62 – 65. For the other listed Group companies, see the Group financial
statements, note 18 on “Subsidiaries, equity investees and variable interest entities”, on pages
208 – 217.
Non-listed Group companies
Please refer to the Group financial statements, note 18 on “Subsidiaries, equity investees and
variable interest entities”, pages 208 – 217.
88 Swiss Re 2008 Annual Report
Corporate governance and compensation report
1.2 Significant shareholders
As of 31 December 2008, there were four shareholders with participation exceeding the 3%
threshold of Swiss Re’s share capital.
a. Swiss Reinsurance Company Ltd, Mythenquai 50/60, P. O. Box, 8022 Zurich, Switzerland,
held a total of 28 521 789 Swiss Re shares or 7.85% of the share capital. Of these shares,
6 036 987 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,
8 881 000 shares were acquired under the share buy-back programme and subject to
cancellation, and 1 925 000 were acquired under the first trading line of the share buy-back
programme.
b. Dodge & Cox, 555 California Street, 40th Floor, San Francisco, CA 94104, USA, announced
on 31 October 2008 that they held, on behalf of the Dodge & Cox International Stock Fund,
through an acquisition, 10 766 995 registered shares of Swiss Re. Dodge & Cox thus has
a voting right of 3.05% in Swiss Re which can be exercised autonomously of the beneficial
owners.
c. 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.
d. Franklin Resources, Inc., 500 E. Broward Blvd., Ft. Lauderdale, FL 33394, USA, known as
Franklin Templeton Investments, notified Swiss Re on 6 December 2008 that it holds as of
4 December 2008, through an acquisition by a number of its Group companies, in the
capacity of investment manager for mutual funds and clients, 10 970 364 registered shares of
Swiss Re. Franklin Templeton Investments now holds 3.11% of the voting rights.
1.3 Cross-shareholdings
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.
Swiss Re 2008 Annual Report 89
Corporate governance and compensation report
2 Capital structure
In accordance with the SIX Directive, the following information about Swiss Re’s capital
structure is provided for the listed parent company, Swiss Reinsurance Company Ltd.
2.1 Capital
Please refer to the statement of earnings per share on page 176 of the Group financial
statements.
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.
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 in 2002 and 2003.
At the Annual General Meeting in 2004, an increase in conditional capital from CHF 900 000
to CHF 2 000 000 was approved, 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 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 in conditional capital of
CHF 2 000 000, relating to the acquisition of GE Insurance Solutions Corporation and for
general corporate purposes.
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 2007 Annual General Meeting 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 registered shares, each with a nominal value of CHF 0.10.
No additional conditional capital and no authorised capital was created in 2008.
2.2 Authorised and conditional capital
90 Swiss Re 2008 Annual Report
2.3 Changes in share capital
Corporate governance and compensation report
in CHF
31.12.2001
31.12.2002
31.12.2003
31.12.2004
31.12.2005
31.12.2006
31.12.2007
31.12.2008
Authorised capital
1 105 337
1 105 337
1
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
1 557 920
Conditional capital
for employee
participation purposes
682 027
663 052
663 052
662 222
659 565
649 560
604 388
602 567
1 The authorised capital created in February 2006 has expired
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 billion (compared to CHF 1.4 billion in 2004) led to a decrease in 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
acquisition 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 in disposable profit from CHF 1.1 billion to
CHF 2.2 billion. Total shareholders’ 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.
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, shareholders approved a 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 by way of a second trading line. Any shares repurchased via the second trading line are
intended to be cancelled. As of 31 December 2007, the company had repurchased a total of
6 005 000 shares since inception of the second trading line in August 2007.
In 2008, the company’s fully paid-in share capital decreased from CHF 37 million to
CHF 36 million. This change was due to the cancellation of CHF 1 734 900 of share capital
consisting of 17 349 000 shares repurchased via the second trading line, as approved by
shareholders at Swiss Re’s 2008 Annual General Meeting, and the creation of 10 460 076
Swiss Re 2008 Annual Report 91
Corporate governance and compensation report
2 Capital structure
shares from conditional capital in connection with the conversion of the mandatory
convertible bond (MCS) as described below. Total reserves decreased CHF 0.2 billion
to CHF 17.0 billion. The profit for the financial year 2008 of CHF 15 million, compared to
CHF 1.7 billion in 2007, led to a decrease in disposable profit to CHF 0.1 billion
from CHF 1.8 billion. Total shareholders’ equity before allocation of profit decreased to
CHF 17.1 billion in 2008 from CHF 19.0 billion in 2007. The company issued 18 205 shares
from conditional capital for employee participation purposes, bringing the total of shares
issued for employee participation purposes to 974 328, from a total of 7 000 000 shares
available. In connection with the conversion of the CHF 1 billion MCS in December 2008
issued by Swiss Re Treasury Luxembourg S.A., the company issued 10 460 076 shares from
conditional capital for bonds or instruments with a conversion right, from a total of 26 039 275
shares available. At the Annual General Meeting of 13 March 2009, shareholders will vote on
a proposed dividend payment of CHF 33.6 million, compared to CHF 1.3 billion distributed in
the previous year.
In January 2008, Swiss Re announced, in connection with its entry into a retrocession
agreement with Berkshire Hathaway, that the company intended, in addition to the previously
announced share buy-back programme through a second trading line, to acquire its own
shares by way of its first trading line for general treasury purposes up to a total value of
CHF 1.75 billion. On 4 November 2008 the company announced its intention to suspend
both buy-back programmes due to prevailing market conditions.
As of 31 December 2008, the share capital of Swiss Reinsurance Company Ltd, including
11 678 802 shares reserved for corporate purposes, amounted to CHF 36 351 604 or
363 516 036 fully paid-in registered shares (each with a nominal value of CHF 0.10), of which
335 665 775 are entitled to a dividend payment. Other than the shares reserved for corporate
purposes, which have no voting power and are not entitled to a dividend payment, 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
2.5 Profit-sharing certificates
According to the SIX Directive, profit-sharing certificates are particular types of non-voting
securities that substitute or complement shares. Such certificates do not exist at
Swiss Reinsurance Company Ltd.
2.6 Limitations on transferability and
nominee registrations
Free transferability
Swiss Reinsurance Company Ltd’s shares are freely transferable, without any limitations,
provided that the buyers declare that they are the beneficial owners of the shares and comply
with the disclosure requirements of the Swiss Federal Act on Stock Exchanges and Securities
Trading (“Stock Exchange Act”) of 24 March 1995.
Admissibility of nominee registrations
Trustees or nominees who act as fiduciaries of shareholders are entered without further
inquiry in Swiss Reinsurance Company Ltd’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.
92 Swiss Re 2008 Annual Report
Corporate governance and compensation report
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
Convertible bonds
As stated in note 7 on “Debt” on pages 168 – 170 of the Group financial statements, the
following convertible bonds are outstanding:
Tenor
2001 – 2021
2006 – 2009
Instrument
Convertible bond
Mandatory convertible bond
Currency
USD
CHF
Nominal (millions) Terms of conversion
i
ii
1 150
610
(i) Holders may convert the bonds, due in 2021 and issued in denominations of USD 10 000
principal amount and integral multiples thereof, into registered shares of Swiss Reinsurance
Company Ltd at any time on and after 22 November 2001, and prior to the close of business
on 21 November 2011, at a conversion price of CHF 207.19 per share and a fixed exchange
rate of USD 1 = CHF 1.6641. The exercise of this convertible bond will not affect Swiss Re’s
conditional capital, as Swiss Reinsurance Company Ltd purchased a call option to hedge the
underlying shares. If bond holders convert the bond, Swiss Re will exercise the hedge option
to obtain the necessary shares without accessing Swiss Re’s conditional capital.
(ii) Upon closing the acquisition of GE Insurance Solutions, Swiss Re issued CHF 610 million
of three-year MCS to General Electric. The MCS issued as a private offering, may, at the option
of each holder, be converted into registered shares of Swiss Reinsurance Company Ltd 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 1 024.2 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 Ltd that equals the maturity conversion ratio. The maturity conversion ratio equals
the arithmetic average of the 15 conversion ratios calculated on the basis of the closing prices
of Swiss Reinsurance Company Ltd’s shares 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 1 177.8 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 1 024.2 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
6.2 million and 7.2 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 14 on “Share-based
payments” on pages 186 – 188 of the Group financial statements.
Swiss Re 2008 Annual Report 93
Corporate governance and compensation report
3 Board of Directors
From left:
Jakob Baer
Hans Ulrich Maerki
Raymond K. F. Ch’ien
John R. Coomber
Rajna Gibson Brandon
Kaspar Villiger
Walter B. Kielholz
Mathis Cabiallavetta
Peter Forstmoser
Thomas W. Bechtler
Bénédict G. F. Hentsch
Robert A. Scott
Raymund Breu
3.1 Members of the Board of Directors
as of 31 December 2008
Name
Peter Forstmoser
Nationality
Swiss
Walter B. Kielholz
Swiss
Jakob Baer
Thomas W. Bechtler
Raymund Breu
Mathis Cabiallavetta
Swiss
Swiss
Swiss
Swiss
Raymond K. F. Ch’ien
John R. Coomber
Chinese
British
Rajna Gibson Brandon Swiss
Bénédict G. F. Hentsch Swiss
Swiss
Hans Ulrich Maerki
British /
Robert A. Scott
Australian
Swiss
Kaspar Villiger
Age
65
57
64
Additional function
Chairman of the Board
Chairman of the GC
Vice Chairman of the Board
Member of the FRC and GC
Chairman of the AC
Member of the FRC
59 Member of the AC, CC and IC
63 Member of the AC and IC
Chairman of the IC
63
Member of the CC
56 Member of the CC and IC
Chairman of the FRC
59
Member of the GC
46 Member of the FRC and IC
60 Member of the AC and IC
62 Member of the CC and FRC
Chairman of the CC
66
Member of the AC and FRC
67 Member of the FRC and GC
Initial
election
1990
Current
term ends
2010
1998
2010
2005
2009
1993
2003
2008
2008
2006
2000
1993
2007
2002
2009
2011
2011
2011
2009
2011
2009
2011
2010
2004
2011
AC = Audit Committee
CC = Compensation Committee GC = Governance Committee
FRC = Finance and Risk Committee
IC = Investment 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 – directly or as a partner, director or shareholder of an
organisation that has a material relationship with the Group. Based on Swiss Re’s
independence criteria, in 2008 twelve of Swiss Re’s thirteen directors qualified as
independent.
94 Swiss Re 2008 Annual Report
Corporate governance and compensation report
Since John R. Coomber was Chief Executive Officer until 31 December 2005, he may not be
considered to have been independent in 2008 under the applicable criteria, although he no
longer has an executive status.
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 Chief Executive Officer 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 eleven 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.
Skills, experience and expertise
The Board aims to attain the requisite balance of skills, knowledge, and tenure for today’s
business needs among its members. Potential new candidates are assessed against Board
approved selection criteria including integrity, skill, qualifications, experience, communication
capabilities and community standing. In addition to their managerial skills and expertise,
Swiss Re’s Board members have a sound knowledge of today’s key areas, such as accounting,
legislation, insurance/reinsurance, finance and risk, and capital markets, thus providing a solid
foundation for decision making. It is ensured that every newly elected Board member receives
an adequate general introduction. In the course of the year, the Board and its committees also
receive educational sessions from business experts on emerging business trends and risks.
Peter Forstmoser
Chairman, non-executive and independent
Peter 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.
Peter Forstmoser was a law professor at the University of Zurich from 1974 to 2008 and has
been a partner of Niederer Kraft & Frey, Attorneys, in Zurich, since 1975. Peter Forstmoser was
elected to Swiss Re’s Board of Directors in 1990. His mandate was renewed by the Annual
General Meeting of shareholders in 1994, 1998, 2002 and 2006 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 a further four-year term.
Peter 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, Ernst Basler AG, Remer Holding AG and Hyos
Invest Holding AG, as well as Vice Chairman of Gebert Rüf Stiftung.
Peter 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 over as Chairman.
Walter B. Kielholz
Vice Chairman, non-executive
and independent
Walter B. 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.
Swiss Re 2008 Annual Report 95
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3 Board of Directors
Walter B. 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, Walter B. 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. Walter B. Kielholz was
appointed Executive Vice Chairman with effect from 1 January 2003 and Vice Chairman in
2007. His mandate was renewed in 2002 and 2006 for a further four-year term.
Walter B. 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.
In addition, Walter B. 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). Walter B. 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, Walter B. Kielholz is Chairman of the Zurich Art Society.
Jakob Baer
Non-executive and independent director
Jakob 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.
Jakob 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 Chief Executive Officer 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.
Jakob 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
Non-executive and independent director
Thomas W. 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.
Thomas W. Bechtler has been Chief Executive Officer of Hesta AG as well as Hesta Tex AG,
Zug, since 1982.
Thomas W. Bechtler joined Swiss Re’s Board of Directors in November 1993. His mandate
was renewed in 1997, 2001 and 2005, each time for a further four-year term. Thomas W.
Bechtler also serves on the Boards of Directors of Credit Suisse Group, Bucher Industries, Sika
AG and Conzzeta Holding AG. From 1987 to 1999, he served as Chairman of “Swisscontact”,
96 Swiss Re 2008 Annual Report
Corporate governance and compensation report
a large Swiss development foundation, and from 1987 to 2002 as Chairman of the Zurich Art
Museum (Kunsthaus). Since 2005 he has been chairman of the Zurich committee of Human
Rights Watch.
Raymund Breu
Non-executive and independent director
Raymund Breu, a Swiss citizen born in 1945, graduated from the Swiss Federal Institute of
Technology (ETH) in Zurich with a doctorate in mathematics.
Raymund 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 Chief Financial Officer 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.
Raymund Breu was elected to Swiss Re’s Board of Directors in 2003. He was re-elected in
2007 for a further four-year term. In addition, Raymund Breu serves on the Swiss Takeover
Board.
Mathis Cabiallavetta
Non-executive and independent director
Mathis Cabiallavetta, a Swiss citizen born in 1945, graduated from the University of Montreal
with a bachelor’s degree in economics and from the Queen’s University, Kingston, Ontario
with a master’s degree in economics.
Mathis Cabiallavetta is a member of the Board of Philip Morris International and BlackRock,
Inc. He serves as Chairman of Marsh & McLennan Companies, Inc. (MMC) International
Advisory Board and is also a member of the Executive Advisory Board of General Atlantic
Partners (GAP) in New York.
He was Vice Chairman of MMC from May 1999 to August 2008. Prior to joining MMC in
1999, Mathis Cabiallavetta was Chairman of the Board of Directors of UBS AG, having held
several senior positions in the company since 1971. He became President of the Group
Executive Board in 1996 and was elected Chairman of UBS AG in 1998.
He is a former member of the Bank Council of the Swiss National Bank and a past Vice
Chairman of the Board of Directors of the Swiss Bankers Association. He was also a member
of the Committee of the Board of Directors of the Swiss Stock Exchange and the International
Capital Markets Advisory Committee of the Federal Reserve Bank of New York.
Mathis Cabiallavetta was elected to Swiss Re’s Board of Directors at the Annual General
Meeting of 18 April 2008, with effect from 1 September 2008, for a three-year term of office.
Raymond K. F. Ch’ien
Non-executive and independent director
Raymond K. F. Ch’ien, a Chinese citizen born in 1952, graduated from the University of
Pennsylvania with a PhD in economics in 1978. He became a Trustee of the University of
Pennsylvania in 2006.
Raymond K. F. Ch’ien 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.
Raymond K. F. 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 Hong Kong and Shanghai Banking
Corporation Limited, Convenience Retail Asia Limited and The Wharf (Holdings) Limited. In
Swiss Re 2008 Annual Report 97
Corporate governance and compensation report
3 Board of Directors
addition, Raymond K. F. 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 and a member of the Standing Committee of the Tianjin Municipal
Committee of the Chinese People’s Political Consultative Conference.
Raymond K. F. Ch’ien was elected to Swiss Re’s Board of Directors at the Annual General
Meeting of 18 April 2008 for a three-year term of office.
John R. Coomber
Non-executive director
John R. Coomber, a British citizen born in 1949, graduated in theoretical mechanics from
Nottingham University in 1970.
John R. 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
reinsurance 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. John R. 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.
John R. 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.
John R. Coomber also serves as a member of the supervisory board of Euler Hermes, as a
director of Pension Insurance Company Ltd, MH (GB) Limited, Parhelion Capital Ltd, telent Ltd,
and Qatar Insurance Services. He is also a trustee of The Climate Group, and a member of the
Deutsche Bank Climate Advisory Panel. John R. Coomber is an Honorary Fellow of the
Chartered Insurance Institute.
Rajna Gibson Brandon
Non-executive and independent director
Rajna Gibson Brandon, 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.
Rajna Gibson Brandon is currently professor of finance at the University of Geneva. She was a
professor of financial economics at the University of Zurich from March 2000 until July 2008
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 advisor to scientific councils of various educational institutions. She was
a member of the Swiss Federal Banking Commission until the end of 2004. Rajna Gibson
Brandon was elected to Swiss Re’s Board of Directors in June 2000. Her mandate was
renewed in 2004 and again in 2008 for a three-year term.
Bénédict G. F. Hentsch
Non-executive and independent director
Bénédict G.F. 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.
Bénédict G.F. 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 Banque Bénédict Hentsch & Cie S. A., a private bank dedicated to global
wealth management.
98 Swiss Re 2008 Annual Report
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Bénédict G. F. 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
Non-executive and independent director
Hans Ulrich Maerki, a Swiss citizen born in 1946, graduated with a master’s degree in
business administration from the University of Basel in 1972.
Hans Ulrich Maerki joined IBM Switzerland in 1973. After some years in the sales area, he
was promoted 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 Chief
Executive Officer of IBM EMEA. He retired from IBM after 35 years of service in April 2008.
Hans Ulrich 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 Ltd, Mettler-Toledo International and the Menuhin Festival AG Gstaad. He serves on the
Foundation Board of Schulthess-Klinik in Zurich, 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
Non-executive and independent director
Robert A. 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.
Robert A. 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, Robert A. Scott became Group Chief Executive of CGNU plc,
retiring in May 2001. Robert A. Scott was also Chairman of the Association of British Insurers
from 2000 to 2001, and a Board member in the previous four years.
Robert A. 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. Robert A. Scott is also Chairman of the Board of
Directors of Yell Group plc and a non-executive Director of the Royal Bank of Scotland Group
plc. In addition, he is an adviser to Duke Street Capital and Pension Insurance Corporation
Holdings LLP.
Kaspar Villiger
Non-executive and independent director
Kaspar 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, Kaspar Villiger co-owned and managed two businesses from 1966 until
1989. Simultaneously, Kaspar 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. Kaspar Villiger was President of the Swiss
Confederation in 1995 and 2002.
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3 Board of Directors
Kaspar Villiger joined Swiss Re’s Board of Directors in 2004 for a four-year term. His mandate
was renewed in 2008 for a further three-year term. He also serves as non-executive Director
on the Boards of Nestlé SA, and the newspaper “Neue Zürcher Zeitung”.
Changes in the course of the 2008
business year
John F. Smith, Jr. retired from the Board of Directors at the Annual General Meeting of 18 April
2008. At the same time, the shareholders re-elected Rajna Gibson Brandon and Kaspar
Villiger members of the Board of Directors for a three-year term. Additionally, Mathis
Cabiallavetta and Raymond K. F. Ch’ien were elected new members of the Board of Directors.
Nominations for the election at the
Annual General Meeting of 13 March
2009
The Board of Directors has decided to nominate the following candidates for re-election to the
Board for a further term:
̤
̤
Jakob Baer
John R. Coomber
3.2 Other activities and functions
Please refer to the information provided in each director’s biography on pages 95 – 100.
3.3 Cross-involvement
Please refer to the information provided in each director’s biography on pages 95 – 100.
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
recommendations 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 has been reduced from four to three years, based
on the decision taken at the Annual General Meeting of 18 April 2008. It usually begins with
the date of election by a General Meeting of shareholders and ends on the third subsequent
Annual General Meeting. Members whose term has expired are immediately eligible for re-
election. 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
subsequent Annual General Meeting.
First election and remaining term of each director
Please refer to the table provided on page 94.
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
compliance with domestic and applicable international laws, regulations and best practice
standards.
3.5 Organisational structure of the Board
of Directors
100 Swiss Re 2008 Annual Report
3.5.1 Allocation of tasks within the Board
of Directors
Corporate governance and compensation report
Chairman of the Board of Directors
The Chairman of the Board of Directors exercises ultimate supervision of the executive
management 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
application and interpretation of the Corporate Bylaws.
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
resolutions 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 five committees: Audit Committee, Compensation Committee, Finance and
Risk Committee, Governance Committee and Investment Committee. The Investment
Committee was established in 2008 and held its first meeting in December 2008.
Each committee is headed by a chairperson. He or she prepares and presides over the
committee meetings. 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.
The Board has an assessment process in place, giving the members the opportunity to assess
the effectiveness of the Board and its committees on an annual basis.
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3 Board of Directors
3.5.2 Committees of the Board of
Directors: responsibilities and
members
Audit Committee
Responsibilities of the Audit Committee
The central task of the Audit Committee is to assist the Board in fulfilling its oversight
responsibilities 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 Audit 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.
In fulfilling its responsibilities, the Audit Committee, among other things,
̤
̤
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;
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
Thomas W. Bechtler (as of 18 April 2008)
Raymund Breu
Rajna Gibson Brandon (until 18 April 2008)
Bénédict G. F. Hentsch (as of 18 April 2008)
Robert A. Scott
John F. Smith, Jr. (until 18 April 2008)
Independence and other qualifications
All members of the Audit Committee are non-executive and independent. In addition to the
independence criteria applicable to 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
102 Swiss Re 2008 Annual Report
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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 committee of another listed company. No member of the Audit Committee held more
than two additional audit committee mandates in 2008.
Compensation Committee
Responsibilities of the Compensation Committee
The Compensation Committee, among other things,
̤
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
compensation 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;
approves employment contracts with the Chairman, the Vice Chairman, the Chief Executive
Officer and the members of the Executive Committee and the Executive Board.
̤
̤
̤
̤
̤
̤
̤
Members of the Compensation Committee
Robert A. Scott, Chair
Thomas W. Bechtler
Raymund Breu (until 18 April 2008)
Mathis Cabiallavetta (as of 1 September 2008)
Raymond K. F. Ch’ien (as of 18 April 2008)
Hans Ulrich Maerki
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 other things,
̤
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
concentration, 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;
̤
̤
̤
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3 Board of Directors
̤
̤
̤
̤
̤
̤
̤
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.
Members of the Finance and Risk Committee
John R. Coomber, Chair
Jakob Baer
Rajna Gibson Brandon
Walter B. Kielholz
Hans Ulrich Maerki
Robert A. Scott
Kaspar Villiger
Governance Committee
Responsibilities of the Governance Committee
The Governance Committee, among other things,
̤
keeps itself informed on corporate governance developments, measures the Group’s
governance 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
independence 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;
periodically 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 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
significant shareholders.
̤
̤
̤
̤
̤
̤
̤
̤
̤
̤
̤
̤
104 Swiss Re 2008 Annual Report
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Members of the Governance Committee
Peter Forstmoser, Chair
John R. Coomber (as of 18 April 2008)
Bénédict G. F. Hentsch (until 18 April 2008)
Walter B. Kielholz
John F. Smith, Jr. (until 18 April 2008)
Kaspar Villiger
Investment Committee
Responsibilities of the Investment Committee
The Investment Committee, among other things,
̤
̤
reviews the quarterly performance of all financial assets of the Group;
reviews the valuation methodology and the risk analysis methodology for each investment
asset class;
approves the strategic asset allocation and reviews the tactical asset allocation;
ensures compliance of risk limits with approved limits;
decides on investments for private equity, real estate, hedge funds or third-party fund
manager allocation if in excess of any delegated authority, and reviews the strategic
investment portfolio;
conducts liquidity reviews relating to investment activities.
̤
̤
̤
̤
Members of the Investment Committee
Mathis Cabiallavetta, Chair
Thomas W. Bechtler
Raymund Breu
Raymond K. F. Ch’ien
Rajna Gibson Brandon
Bénédict G. F. Hentsch
3.5.3 Work methods of the Board
of 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 necessary,
mostly the whole day.
The regular Board meetings are normally held in early and late February, April, May or June,
early October 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 statements, analysis of internal results, the medium-term business plan and
corporate governance.
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 the members of the Board or the Board committee are present in person or
participate 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
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3 Board of Directors
constituted when at least half 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
discussion 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
members (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
usually approved 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 2008, there were eight regular and three extraordinary Board meetings, and the Board
made three decisions in writing. The Board meetings lasted 6.5 hours on average. Between
one and 14 agenda items were discussed per meeting, with an average of eight items per
meeting. The average attendance rate was 97.9% at the regular meetings throughout the year.
Average attendance including extraordinary meetings, which were often called at short
notice, was 96.4%. Whenever possible, Board members who are unable to attend an
extraordinary meeting 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
compliance 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
dedicated 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 2008, the following people
exercised an advisory role on the committee:
̤
̤
̤
̤
̤
Peter Forstmoser, Chairman of the Board of Directors
Walter B. Kielholz, Vice Chairman
Jacques Aigrain, Chief Executive Officer
George Quinn, Chief Financial Officer
Clare Bousfield, Head of Group Internal Audit
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 2008, there were eight Audit Committee meetings and no extraordinary meetings. No
resolutions were taken by written agreement. On average, the meetings lasted three hours.
Between four and ten agenda items were discussed per meeting, with an average of seven
items. Average attendance was 92.5% at the meetings throughout the year.
d. Specific work methods of the Compensation Committee
The Compensation Committee normally holds four 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 October meeting is to review the
compensation 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 2008, the following people
exercised an advisory role on the Committee:
̤
̤
̤
Peter Forstmoser, Chairman of the Board of Directors
Walter B. Kielholz, Vice Chairman
Jacques Aigrain, Chief Executive Officer
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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3 Board of Directors
In 2008, there were four regular meetings of the Compensation Committee. There were no
extraordinary meetings and five resolutions by written agreement. The meetings lasted on
average three hours. Between six and nine agenda items were discussed per meeting, with an
average of eight items. Attendance was 100% 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
discussed at committee meetings depend on current developments and corporate
requirements. In the reporting year, the Committee focused mainly on the implications of the
financial crisis for the Group’s risk management. Amongst others, the Committee reviewed the
Group’s capital adequacy, capital management initiatives, financial market and credit risks,
liquidity issues, longevity and variable annuities activities, life and health key risks, reserving
policy for life and non-life business, the optimal approach to the insurance price cycle and
treasury issues. 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 main risk issues as
well as related risk management actions and recommendations.
Besides the committee members and the company secretary, selected individuals are invited
to attend Finance and Risk Committee meetings in an advisory capacity. In 2008, the
following people acted in an advisory role on the Committee:
̤
Peter Forstmoser, Chairman of the Board of Directors
̤
Jacques Aigrain, Chief Executive Officer
̤
David J. Blumer, Head of Asset Management (as of 1 May 2008)
̤
Brian Gray, Chief Underwriting Officer (as of 1 September 2008)
̤
George Quinn, Chief Financial Officer
̤
Stefan Lippe, Deputy Chief Executive Officer and Chief Operating Officer
̤
Raj Singh, Chief Risk Officer
̤
Roger W. Ferguson, Head of Financial Services Products (until 30 April 2008)
̤
Benjamin Meuli, Chief Investment Officer (until 13 August 2008)
In 2008, there were six regular meetings of the Finance and Risk Committee. There were no
extraordinary meetings and no resolutions by written agreement. On average, the meetings
lasted 2.5 hours. Seven or eight agenda items were discussed per meeting. Average
attendance was 97.6% during the reporting year.
f. Specific work methods of the Governance Committee
The Governance Committee normally holds four 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. In 2008, one
meeting was dedicated to an initiative which aims at improving the search for and promotion
of talent as well as internal collaboration.
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Besides the committee members and the company secretary, selected individuals are invited
to attend Governance Committee meetings in an advisory capacity. In 2008, the following
people exercised an advisory role on the Committee:
̤
̤
Jacques Aigrain, Chief Executive Officer
George Quinn, Chief Financial Officer
In 2008, there were four regular and one extraordinary meetings of the Governance
Committee. There were no resolutions by written agreement. On average, the meetings lasted
1.5 hours. Between two and six agenda items were discussed per meeting, with an average of
five items. Attendance was 100% during the reporting year.
g. Specific work methods of the Investment Committee
The Investment Committee was established in autumn 2008. It held its first and only meeting
in December 2008. The meeting, which was attended by all six committee members, lasted
2.5 hours and covered 9 agenda items. Main focus was on strategy, asset management
activities, investment performance, valuation methodologies and organisational matters.
There were no resolutions by written agreement.
h. Meeting schedule in 2008
Dates
30 January
31 January
1 February
27 February
28 February
26 March
16 April
17 April
5 May
15 May
16 May
9 July
4 August
19 September
21 September
2 October
3 October
3 November
4 December
5 December
13 December
Board of
Directors
Audit
Committee
Compensation
Committee
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Finance and Risk
Committee
Governance
Investment
Committee Committee
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The Board meetings of 19 and 21 September, as well as 13 December and the meeting of the
Governance Committee of 2 October were extraordinary.
Swiss Re 2008 Annual Report 109
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3 Board of Directors
3.6 Definition of areas of responsibility
of the Board of Directors and the
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 other things,
̤
determines the risk tolerance level of the Group, monitors risk development and approves
the business principles to be applied in reinsurance and 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
transactions and events;
has overall responsibility for corporate governance matters;
approves the compensation principles of the Group upon recommendation of the
Compensation 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 and its committees;
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.
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110 Swiss Re 2008 Annual Report
Corporate governance and compensation report
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;
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.
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The Executive Committee holds, as a rule, two meetings per month. In 2008, the Executive
Committee held 20 regular meetings plus numerous ad hoc telephone conferences.
The Executive Committee is supported by the larger Executive Board comprising 20 senior
executive officers (including the eight 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 held four regular meetings in
2008 and one extended meeting lasting several days and devoted to strategic issues. Several
telephone conferences were held in addition at regular intervals.
3.7 Information and control instruments
of the Board with respect to executive
management
Swiss Re maintains effective and consistent control of executive management through the
Board of Directors. The Board of Directors has a number of controlling and information-
gathering mechanisms in place to monitor the handling of responsibilities it has delegated to
the executive management.
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 management and the Executive Board; effectively, the Board of Directors was
represented at 18 of the 20 regular Executive Committee meetings and three of the four
regular Executive Board meetings in 2008. The Chairman of the Board and the Vice Chairman
always receive the meeting documentation and minutes.
Swiss Re 2008 Annual Report 111
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3 Board of Directors
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
meetings in 2008, with the exception of two Executive Committee members who were
absent from one of the meetings each.
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 Executive Committee 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 report on the business development, including major business transactions,
claims, corporate development issues and key projects.
In addition, specific written reports focusing on issues such as risk exposure and risk
management 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.
e. Management Information System
Several times a year, Board members receive a printed “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 an 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
Risk Management provides regular risk reports to the Board of Directors, which are discussed
by the Finance and Risk Committee. These reports cover Swiss Re’s compliance with the
Group’s risk tolerance criteria, major changes in risk and capital adequacy measures and a
description of the Group’s main risk issues, including related risk management actions and
recommendations. In addition, the Board of Directors received the Assurance Report 2008,
which provides a qualitative summary of assurance activities.
g. Duty to inform about extraordinary events
As soon as the Executive Committee hears about significant extraordinary business
developments 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.
112 Swiss Re 2008 Annual Report
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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.
k. Group Internal Audit
Group Internal Audit (GIA) is an independent, objective assurance function, performing
activities 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. GIA 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 making use of risk assessments performed by the risk management and
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 GIA uses.
GIA coordinates its activities with other assurance functions in the Group and the external
auditor.
l. External auditor
Please refer to pages 127 – 128.
Swiss Re 2008 Annual Report 113
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4 Executive management
4.1 Members of the Executive Committee
Membership as of 31 December 2008
Name
Jacques Aigrain
Stefan Lippe
Nationality
Swiss and French
German
Andreas Beerli
Swiss
David J. Blumer
Brian Gray
Michel M. Liès
George Quinn
Raj Singh
Swiss
Canadian
Luxembourg
British
US
Age
54
53
57
40
46
54
42
46
Function
Chief Executive Officer
Chief Operating Officer
Deputy Chief Executive Officer
Head of Associated Units
and Special Projects
Head of Asset Management
Chief Underwriting Officer
Head of Client Markets
Chief Financial Officer
Chief Risk Officer
Jacques Aigrain
Chief Executive Officer
Jacques 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.
He started his career with J. P. 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
Managing Director and a member of J.P. Morganʼs 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
member of the Executive Committee. In August 2004, the Board of Directors appointed him
Deputy Chief Executive Officer 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 Chief Executive Officer effective as of 1 January 2006.
Jacques 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., Basle, and a member of various
advisory committees of a regional or financial nature.
Stefan Lippe
Chief Operating Officer
Deputy Chief Executive Officer
Stefan Lippe, a German citizen born in 1955, graduated in mathematics with business
administration from the University of Mannheim. He obtained his doctorate in 1982 while
working as a 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.
From 1985, he was involved in the casualty department’s operations in the German-speaking
area. In 1986, he became Head of the non-proportional underwriting department.
114 Swiss Re 2008 Annual Report
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He was appointed deputy member of the Board in 1988 and a full member of the Board 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.
Stefan 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 2008, he took
over as Chief Operating Officer and was also appointed Deputy Chief Executive Officer.
Andreas Beerli
Head of Associated Units and Special
Projects
Andreas Beerli, a Swiss citizen born in 1951, graduated in law in 1976 and received a
doctorate in law from the University of Basle 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.
He rejoined Swiss Re in 1993 as Chief of Staff. Two years later, he assumed marketing
responsibilities 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.
Andreas Beerli served as Head of the Americas division from January 2000 to December
2005 and Chief Operating Officer from January 2006 to August 2008. Until his announced
retirement in 2009, he will remain a member of the Executive Committee in charge of
Associated Units and Special Projects.
David J. Blumer
Head of Asset Management
David J. Blumer, a Swiss citizen born in 1968, holds a degree in economics from the
University of Zurich.
Before joining Swiss Re, he worked at Credit Suisse from 1993 to 2008 and held a number of
positions in Zurich, London and New York. In private banking, he established an industry-
leading alternative investment platform. He was appointed Head of Trading and Sales in 2004
and headed Asset Management at Credit Suisse from 1 January 2006. He held the position
of Chief Executive Officer of Asset Management and was a member of the Executive Board of
Credit Suisse.
He joined Swiss Re in 2008 and was appointed Head of Asset Management and member of
the Executive Committee.
His commitments to organisations outside Swiss Re include his membership of the Forum of
Young Global Leaders at the World Economic Forum (WEF).
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4 Executive management
Brian Gray
Chief Underwriting Officer
Brian Gray, a Canadian citizen born in 1962, has a degree in economics from Wilfrid Laurier
University and an MBA from the University of Toronto, and is a Fellow of the Insurance
Institute of Canada.
He joined Swiss Re in 1985 and worked in a variety of underwriting and marketing roles in
Toronto. In 1994, he moved to Zurich where he held positions in the former Asia-Pacific/Africa
division, as well as corporate integrated risk management functions. In 1997, he returned to
Canada where he assumed responsibility for Underwriting, Claims and Special Lines activities.
He was appointed President and Chief Executive Officer of Swiss Re Canada in March 2001.
Brian Gray became a member of the Executive Board in September 2005 as Head of Property
and Specialty. In September 2008, he was appointed to the Executive Committee as Chief
Underwriting Officer.
Michel M. Liès
Head of Client Markets
Michel M. 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, Michel M. Liès 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
department, where he was initially responsible for the Spanish market. He was appointed
Head of the Southern Europe/Latin America department at the beginning of 1997.
Michel M. Liès became a member of the Executive Board in 1998 and was appointed Head of
the Latin America division. In April 2000, he became Head of Europe division of the
Property & Casualty Business Group. In September 2005, he assumed the position of Head of
Client Markets.
George Quinn
Chief Financial Officer
George Quinn, a British citizen born in 1966, holds a degree in engineering from the
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. He 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, George Quinn became Chief
Financial Officer of Swiss Re Group.
He is also a Board member of IMD, a leading international business school.
116 Swiss Re 2008 Annual Report
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Raj Singh
Chief Risk Officer
Raj Singh, a US citizen born in 1962, holds a Bachelor of Science degree from the Winona
State University, Minnesota, and an MBA from the Thunderbird American School for
International Management, Arizona.
He worked for Citigroup from 1989 to 2001, where he held a number of senior positions,
mainly in the area of credit and structured finance. Last he was Managing Director Risk/
Merger & Acquisitions for Citibank Northern Europe and with site responsibility for Citibank
Belgium. He joined Allianz SE, where he held the position of Group Chief Risk Officer from
2002 to 2007. He joined Swiss Re as Chief Risk Officer in 2008.
Raj Singh is a member of the International Financial Risk Institute, founding Chairman of the
Chief Risk Officers Forum and an associate of the American Banking Association.
Changes in the course of the 2008 business year
In April, it was announced that David J. Blumer would join Swiss Re as Head of Asset
Management and member of the Executive Committee on 1 May 2008. He succeeded Roger
Ferguson, who left Swiss Re to assume a senior position at a major financial institution.
In July, Andreas Beerli announced that he would retire in the course of 2009. The Board of
Directors appointed Stefan Lippe to succeed him as Chief Operating Officer with effect from
September 2008, conferring on him, in addition, the title of Deputy Chief Executive Officer.
The Board of Directors also appointed Brian Gray as Chief Underwriting Officer and member
of the Executive Committee, effective 1 September 2008.
Changes in 2009
On 11 February 2009, Jacques Aigrain resigned as Chief Executive Officer; the Board of
Directors appointed Stefan Lippe as his successor, effective 12 February 2009.
4.2 Other activities and vested interests
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.
4.3 Management contracts
Swiss Re has not entered into reportable management contracts with any third party.
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5 Compensation, shareholdings and loans
5.1 Content and method of determining
the compensation and shareholding
programmes
This section provides an overview of Swiss Re’s governance, compensation philosophy and
guiding principles and descriptive elements of the compensation paid to the Board of
Directors and Executive Committee, in order to give a comprehensive picture of performance
and reward practices in Swiss Re.
Governance
The Compensation Committee of the Board of Directors 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 requirements. It determines the total amount for Annual
Performance Incentive (API) 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.
Mercer is the external adviser to the Committee. In this role, they provide information on
market competitive pay and remuneration trends, as well as timely advice on executive
compensation issues. Mercer is engaged directly by the Compensation Committee. Mercer
also conducts an annual review of the 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.
The Chairman, Vice Chairman, Chief Executive Officer and the Executive Board member
responsible for Human Resources are normally invited to attend the meetings of the
Compensation Committee, 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 four
meetings during 2008 after which a summary of decisions was submitted to the full Board of
Directors for approval. The Committee has a predetermined agenda to ensure that important
reviews take place at the appropriate time throughout the year. Furthermore, the
Compensation Committee has established a periodic self-review procedure which ensures
that a high level of effectiveness is maintained over time.
Approval process
The API pool for the Executive Committee is funded in light of financial performance and
qualitative assessment. Financial performance is measured against the following key
performance indicators: economic value measures, return on equity, GAAP net income and
earnings per share growth.
118 Swiss Re 2008 Annual Report
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Decision on
Total amount for annual
performance incentive payments
Total amount for
Long-term Incentive plans
Remuneration of the members
of the Board of Directors (incl.
Chairman and Vice Chairman)
Compensation of the
Chief Executive Officer
Individual compensation of the
members of the Executive Board
(excl. CEO)
Recommendation
CEO
Authority
Compensation Committee
CEO
Compensation Committee
Compensation Committee
Board of Directors
Compensation Committee
Board of Directors
CEO
Compensation Committee
based on Board’s
determination of the total
amount available
Additional information on the Compensation Committee can be found in sections 3.5.2
(responsibilities, members) and 3.5.3 (work methods).
Compensation philosophy and guiding principles
Philosophy
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, API and equity-related plans, as well as other tangible and intangible benefits,
including health coverage, pension and development opportunities.
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 directly
correlated with the company’s success, 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. The Long-term Incentive plan (LTI) and in particular the Value Alignment
Incentive plan (VAI), as described further, support this goal.
Focus on performance
Swiss Re is performance-oriented, and as such aligns the goals of each employee with the
Group’s strategic targets. Our performance management measures each employee’s
achievement and behaviour, and ensures that the compensation paid through base salary,
annual incentives and other programmes is commensurate with the respective employee’s
performance.
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5 Compensation, shareholdings and loans
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.
̤
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Swiss Re strives to offer exceptional performers total earning opportunities approaching the
top tier in 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.
Total compensation
The total reward offering comprises the following elements:
Base salary and benefits
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Set in relation to market median
Annual
Performance
Incentive
Cash
component
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Paid annually
Bonus
shares
Value
Alignment
Incentive
component
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Employees can elect to receive blocked shares
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Measured against prior-year development
Applies above a certain threshold
Paid after three years
Long-term Incentive
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Shareholder value-aligned performance units
Three-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 total compensation, of which base salary is an element, around the market
median for equivalent positions in comparable companies. It reviews pay against market
benchmarks on a regular basis to ensure that competitive 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.
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Annual Performance Incentive
The API is a discretionary, variable component of Swiss Re’s total cash compensation package
for employees. The API, together with the base salary, provides an income around the market
median for total cash compensation when performance targets are achieved. Where
exceptional performance justifies it, the API provides an opportunity for additional income.
The cash 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 delivered through two components: a cash payment and a VAI.
Bonus shares
From 2008, employees 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.
Value Alignment Incentive
The objective of the VAI is to complement the Swiss Re incentive compensation structure by
introducing a time component which supports the business model of the firm and by aligning
the API with the long tail factor of the reinsurance business model, which is inherently volatile.
Its aim is to promote accurate and commercially sound cash flow projections through all
stages of the business acquisition, underwriting and valuation process.
The VAI has now been in place for three years and supports the company’s aims by providing
a “claw-back” mechanism.
Target group
Employees above threshold
Executive Board
Chief Executive Officer
API in cash
75%
55%
40%
Deferred VAI
25%
45%
60%
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. The final VAI payment can vary from 50% to 150% of
the original value of the VAI with a mark-up of 25% on this value. In case of termination before
date of payment, forfeiture rules apply.
Long-term Incentive
The LTI is a discretionary grant for all Executive Board and Executive Committee members and
a select group of key executives at Managing Director level, over and above their annual cash
remuneration. The intention is to:
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achieve competitive total compensation for top executive talent by offering the participant
a long-term incentive opportunity;
focus participants on growth and capital efficiency, both of which are critical to long-term
shareholder value creation;
assist with retention.
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5 Compensation, shareholdings and loans
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.
Our report for 2007 was based on value expectations for the outstanding LTI grants which
have since proved unfounded. The line item “Change in fair value of plans vesting over several
years” in the compensation tables on the following pages reflects the disappointing
performance of the company during 2008 and as a result the LTI granted in 2006 will not
yield any value when it vests in March 2009. Similarly, the LTI grants made in 2007 and 2008
will also suffer a significant adverse effect.
The Compensation Committee reviews the LTI on an annual basis to ensure that it remains
competitive, and that the measures and performance targets are well aligned with the
company’s goals.
Employee benefits
Swiss Re aims 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 order to recruit, motivate and retain 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.
Stock grants
Swiss Re does not grant employee stock options or restricted stock units (RSUs) 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.
Summary of compensation at Board level
The members of the Board of Directors receive a fixed honorarium of CHF 325 000 per annum.
The Chairman and Vice Chairman of the Board, as well as the chairpersons of Committees,
receive a higher compensation to reflect their increased responsibilities and engagements.
Unlike the API for the Executive Committee, which is determined in arrears based on the results
of the performance year, the honorarium is determined in advance at the start of the financial
year. The honorarium is reviewed to ensure that it remains appropriate going forward. A minimum
of 40% of the honorarium must be taken in Swiss Re shares with a four-year deferral period.
Compensation, participations and loans of the members of the Board of Directors
(extract from note 15 to the Financial statements)
CHF thousands
Honorarium and cash allowances
Honorarium shares
Funding of pension benefits
Total
2007
5 761
4 248
223
10 232
2008
5 772
4 561
167
10 500
122 Swiss Re 2008 Annual Report
Corporate governance and compensation report
Individual compensation of 14 members of the Board of Directors in 2008
CHF thousands
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
Total 2007
3 267
2 893
Honorarium,
pension and
allowances
1 980
1 469
Honorarium
shares Total 2008
3 300
1 320
2 713
1 244
Prospective
total 2009
1650
1350
Honorariums are set at the beginning of each year and as such are not subject to the
performance of the company. In recognition of the difficulties faced by the company in the
current financial environment, the Chairman and the Vice Chairman have each elected to
forego 50% of their 2008 honorarium in 2009.
CHF thousands
Jakob Baer, Chairman of the Audit Committee
Thomas W. Bechtler, Member
Raymund Breu, Member
Mathis Cabiallavetta,
Chairman of the Investment Committee1
Raymond K. F. Ch’ien, Member2
John R. Coomber,
Chairman of the Finance and Risk Committee
Rajna Gibson Brandon, Member
Bénédict G. F. Hentsch, Member
Hans Ulrich Maerki, Member
Robert A. Scott,
Chairman of the Compensation Committee
John F. Smith, Jr., Former member3
Kaspar Villiger, Member
Honorarium,
pension and
allowances
480
195
Total 2007
785
325
325
Honorarium
shares Total 2008
800
320
325
130
325
325
200
137
395
195
195
195
255
48
195
133
91
260
130
130
130
170
48
130
333
228
655
325
325
325
425
96
325
587
325
325
227
425
325
325
1 Elected to the Board of Directors at the Annual General Meeting of 18 April 2008, with effect as of 1 September 2008
2 Elected to the Board of Directors at the Annual General Meeting of 18 April 2008
3 Retired from the Board of Directors at the Annual General Meeting of 18 April 2008
Summary of compensation at Executive Committee level
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. Furthermore, Executive Committee members receive a variable API, which
totalled CHF 12.34 million for 2008 (compared to CHF 25.33 million in 2007). As explained
above, a material part of the API is deferred through the 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 LTI.
Compensation of
EC members in 2008
Total CHF 39 345 thousand
44% Long-term Incentive plan grant
21% Base salary and allowances
14% Cash variable pay for performance
11% Value Alignment Incentive
6% Shares
3% Funding of pension benefits
The Chief Executive Officer and all Executive Committee members have standard employment
contracts without severance payment agreements. There are no specific “change in control”
or retention agreements in place with members of the Executive Committee, other than those
provisions applicable to all Swiss Re employees. Executives 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.
Swiss Re 2008 Annual Report 123
Corporate governance and compensation report
5 Compensation, shareholdings and loans
All required financial information on compensation, shareholdings and loans of members of
the Board of Directors, the Executive Committee and the highest paid member of the
Executive Committee can be found in note 15 to the Financial statements, on
pages 189 – 197.
Compensation of members of the Executive Committee
(extract from note 15 to the Financial statements)
CHF thousands
Base salary and allowances
Cash variable pay for performance
Total cash
Value Alignment Incentive (VAI)1
Shares
Long-term Incentive plan grant (LTI)2
Subtotal
Compensation due to member leaving
Contractual commitments due to new members
Funding of pension benefits
Total
Change in fair value of plans vesting over several years
2007
8 868
10 229
19 097
12 243
2 862
16 000
50 202
2 280
1 494
53 976
4 671
2008
8 417
5 625
14 042
4 219
2 500
17 500
38 261
9 124
1 084
48 469
–53 087
1 Includes 25% uplift on nominal value, which will be paid out at vesting after three years.
2 For 2007 disclosure, the LTI plan granted was presented net of grant which included an adjustment to fair value as at
balance sheet date. For 2008 and going forward, the amounts for LTI represent the grant value of the plan for the
respective year and the changes in the fair value of the LTI plan as at balance sheet date are reflected in the line
“Change in fair value of plans vesting over several years”. 2007 numbers have been revised accordingly.
Compensation of the Chief Executive Officer
(extract from note 15 to the Financial statements)
Jacques Aigrain, Chief Executive Officer
CHF thousands
Base salary and allowances
Cash variable pay for performance
Total cash
Value Alignment Incentive (VAI)1
Long-term Incentive plan grant (LTI)2
Subtotal
Funding of pension benefits
Total
Change in fair value of plans vesting over several years
2007
1 475
2 600
4 075
4 875
5 000
13 950
223
14 173
1 557
2008
1 486
1 486
5 000
6 486
167
6 653
–16 900
1 Includes 25% uplift on nominal value, which will be paid out at vesting after three years.
2 For 2007 disclosure, the LTI plan granted was presented net of grant which included an adjustment to fair value
as at balance sheet date. For 2008 and going forward, the amounts for LTI represent the grant value of the plan
for the respective year and the changes in the fair value of the LTI plan as at balance sheet date are reflected in the line
“Change in fair value of plans vesting over several years”. 2007 numbers have been revised accordingly.
5.2 Transparency of compensations,
shareholdings and loans pertaining
to issuers domiciled abroad
This section is not applicable to Swiss Re, as Swiss Reinsurance Company Ltd, the parent
company of the Group, is domiciled in Switzerland.
124 Swiss Re 2008 Annual Report
Corporate governance and compensation report
6 Shareholders’ participation rights
6.1 Voting right restrictions and
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 irrespective of 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.
6.2 Statutory quorums
6.3 Convocation of the General Meeting
of shareholders
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.
6.4 Agenda
6.5 Registrations in the share register
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
combined 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
2008, the qualifying date for the Annual General Meeting held on Friday, 18 April 2008 was
Wednesday, 16 April 2008.
Swiss Re 2008 Annual Report 125
Corporate governance and compensation report
7 Changes of control and defence measures
7.1 Duty to make an offer
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
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.
126 Swiss Re 2008 Annual Report
Corporate governance and compensation report
8 Auditors
8.1 Duration of the mandate and term
of office of the lead 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 18 April 2008, 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
The following summarises fees (including VAT) for professional services for the year ended
31 December 2008.
8.3 Additional honorarium
Audit fees
PricewaterhouseCoopers AG CHF 32.8 million
Audit-related fees
PricewaterhouseCoopers AG CHF 4.2 million
Audit-related fees comprise, among other things, amounts for letters of comfort, accounting
advice, information systems reviews and reviews of internal controls.
In addition to the fees described above, aggregate fees of CHF 2.5 million were billed by
PricewaterhouseCoopers AG during the year ended 31 December 2008, primarily for the
following:
̤
̤
̤
Income tax compliance and related tax services CHF 0.4 million
Other fees CHF 2.1 million
Other fees include permitted advisory work related to a range of projects including due
diligence.
8.4 Supervisory and control instruments
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
ultimately 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.
Swiss Re 2008 Annual Report 127
Corporate governance and compensation report
8 Auditors
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
disagreements 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
Committee 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 professional 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.
128 Swiss Re 2008 Annual Report
Corporate governance and compensation report
9 Information policy
One of Swiss Re’s core values 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 2008, Swiss Re held an
investors’ day on its Life & Health business and at the same time gave an update on market
exposures. Presentations and conference call recordings are made available to the public on
the Group’s website.
In 2008, Swiss Re published its first Economic Value Management (EVM) report. EVM is
Swiss Re’s framework used for planning, pricing, reserving and managing the business. On
31 March 2008 Swiss Re held an EVM teach-in and disclosed EVM figures for 2006. In the
analyst and investor conference call on 6 May 2008 Swiss Re published its EVM results
for 2007.
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.
Swiss Re 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 public release.
Swiss Re 2008 Annual Report 129
Corporate governance and compensation report
9 Information policy
The corporate calendar as well as regularly updated information are available on Swiss Re’s
website: www.swissre.com/investorrelations
Corporate news in 2008 and method of distribution
News
Swiss Re enters into strategic
partnership with the largest
domestic reinsurer in Vietnam
Swiss Re successfully places
EUR 200 million in a French
windstorm securitisation for the
benefit of Groupama SA
World Economic Forum event;
Global Risk Report 2008
Swiss Re successfully closes
USD 175 million private XXX
transaction with The Savings
Bank Life Insurance Company
of Massachusetts
Swiss Re successfully places first
ever bond linked to Central American
earthquakes
Berkshire Hathaway acquires
a 3% stake in Swiss Re
To extend its leading influence in
the risk transfer industry, Swiss Re
continues to sharpen its business
model
Annual Results 2007
Method of dissemination
News release
News release
News release and press conference
in London
News release
News release
News release
News release
News release, press conference and
analysts’ meeting in Zurich (including
telephone conference and web cast)
News release
Swiss Re to establish full-service third News release
party administrator in China – move
underlines commitment to Chinese
medical insurance industry
Swiss Re appoints David J. Blumer
as Chief Investment Officer and
Member of the Executive Committee
144th Annual General Meeting
First quarter 2008 and
EVM 2007 results
Swiss Re recognised as Admitted
Reinsurer to Brazilian reinsurance
market
Swiss Re obtains USD 150 million
of natural catastrophe protection
through Vega capital programme
News release
Meeting in Zurich and news release
News release and press and analysts’
telephone conference in Zurich
News release
Date
7 January
7 January
9 January
11 January
22 January
23 January
29 February
29 February
2 April
2 April
18 April
6 May
26 May
30 June
130 Swiss Re 2008 Annual Report
Corporate governance and compensation report
Corporate news in 2008 and method of distribution
Date
10 July
5 August
News
Swiss Re names Stefan Lippe as
Deputy CEO and Chief Operating
Officer and Brian Gray as Chief
Underwriting Officer; Andreas Beerli
to retire in 2009
Second quarter 2008 results
19 August
Walter Bell to join Swiss Re as
Chairman of Swiss Re America
Holding Corporation
“Les Rendez-Vous de Septembre
2008”, (re)insurance industry event
in Monte Carlo
25 September Swiss Re hosts Investors’ Day in
8 September
Method of dissemination
News release
News release, press conference in
Zurich and analystsʼ telephone
conference
News release
News release, press conference and
analysts’ meeting in Monte Carlo
News release, press conference and
analysts’ meeting in Zurich
20 October
31 October
4 November
9 December
Zurich: The Group provides update
on its Life & Health business and its
investment portfolio
Swiss Re enters into a weather
derivative contract with the World
Bank covering drought in Malawi
Swiss Re completes GBP 762 million News release
acquisition of Barclays Life Assurance
Company Ltd
Third quarter 2008 results
News release
Swiss Re’s Economic Forum 2008:
The financial crisis and its effects
on global insurance
News release, press conference in
Zurich and analystsʼ telephone
conference
News release and press conference in
London (including telephone conference)
Important dates for 2009
19 February
13 March
7 May
5 August
3 November
9 December
2008 annual results
145th Annual General Meeting
First quarter 2009 results
Second quarter 2009 results
Third quarter 2009 results
Investors’ Day
Swiss Re 2008 Annual Report 131
Financial statements
132 Swiss Re 2008 Annual Report
Financial statements
Financial statements
Contents
Group financial statements
135
Income statement
Notes to the Group financial
statements
136
Balance sheet
138
Statement of shareholders’ equity
139
Statement of comprehensive income
140
Statement of cash flow
141 Note 1 Organisation and summary of significant accounting policies
150 Note 2 Investments
156 Note 3 Fair value disclosures
161 Note 4 Derivative financial instruments
165 Note 5 Acquisitions
167 Note 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
168 Note 7 Debt
171 Note 8 Unpaid claims and claim adjustment expenses
173 Note 9 Reinsurance information
175 Note 10 Financial guarantee reinsurance
176 Note 11 Earnings per share
177 Note 12 Income taxes
180 Note 13 Benefit plans
186 Note 14 Share-based payments
189 Note 15 Compensation, participations and loans of members of governing bodies
198 Note 16 Commitments and contingent liabilities
200 Note 17 Information on business segments
208 Note 18 Subsidiaries, equity investees and variable interest entities
218 Note 19 Restructuring provision
219 Note 20 Risk Assessment
220 Note 21 Subsequent event
222
Report of the statutory auditor
Swiss Reinsurance Company Ltd
225
Annual report
227
Income statement
228
Balance sheet
230 Notes
240
Proposal for allocation of profit
241
Report of the statutory auditor
Financial years 1999 – 2008
243
Swiss Re 2008 Annual Report 133
Financial statements
134 Swiss Re 2008 Annual Report
Financial statements / Group financial statements
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
Return credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Income/loss before income tax expense/benefit
Income tax expense/benefit
Net income/loss
Earnings per share in CHF
Basic
Diluted
The accompanying notes are an integral part of the Group financial statements.
Note
9, 17
9, 17
2, 17
2, 17
17
9, 17
9, 17
17
9, 17
17
17
2007
2008
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
25 501
808
7 881
–9 482
270
24 978
–10 007
–9 065
2 822
–5 366
–3 211
–1 501
–26 328
–1 350
486
–864
11
11
11.95
11.23
–2.61
–2.61
Swiss Re 2008 Annual Report 135
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 9 045 in 2007 and 8 188 in 2008 subject to
securities lending and repurchase agreements) (amortised cost: 2007: 105 995; 2008:
106 216)
Trading (including 15 000 in 2007 and 33 in 2008 subject to securities lending
and repurchase agreements)
Equity securities:
Available-for-sale, at fair value (including 1 528 in 2007 and 9 in 2008 subject to securities
lending and repurchase agreements) (amortised cost: 2007: 9 039; 2008: 675)
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 (including 0 in 2007 and 2 477 in 2008
subject to securities lending)
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
Note
2, 3, 4
2007
2008
107 810
103 438
51 793
13 961
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
833
15 355
6 611
2 143
5 802
15 822
163 965
17 268
1 449
12 446
11 934
11 230
4 311
6 139
4 265
757
6 113
9
6, 9
6
Total assets
307 287
239 877
The accompanying notes are an integral part of the Group financial statements.
136 Swiss Re 2008 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
Policyholder account balances
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
2007: 370 386 755; 2008: 363 516 036 shares authorised and issued
Additional paid-in capital
Treasury shares
Accumulated other comprehensive income:
Net unrealised investment gains/losses, net of deferred taxes
Cumulative translation adjustments, net of deferred taxes
Accumulated adjustment for pension and post-retirement benefits, net of deferred taxes
Total accumulated other comprehensive income
Retained earnings
Total shareholders’ equity
Note
2007
2008
8
9
9
12
7
7
88 528
50 026
41 340
7 722
8 377
5 384
679
3 817
12 658
33 552
23 337
275 420
37
11 208
–1 540
3 119
–2 554
–115
450
21 712
31 867
75 510
39 911
34 518
7 802
5 872
5 493
769
1 329
6 522
21 245
20 453
219 424
36
10 776
–1 640
–2 407
–4 854
–529
–7 790
19 071
20 453
Total liabilities and shareholders’ equity
307 287
239 877
The accompanying notes are an integral part of the Group financial statements.
Swiss Re 2008 Annual Report 137
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
Cancellation of shares bought back
Balance as of period end
Additional paid-in capital
Balance as of 1 January
Issue of common shares1
Cancellation of shares bought back
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
Cancellation of shares bought back
Sales of treasury shares
Balance as of period end
Net unrealised gains/losses, net of tax
Balance as of 1 January
Change during the period
Cumulative effect of adoption of SFAS 159
Balance as of period end
Foreign currency translation
Balance as of 1 January
Change during the period
Balance as of period end
Adjustment for pension and other post-retirement benefits
Balance as of 1 January
Change during the period
Balance as of period end
Retained earnings
Balance as of 1 January
Net income/loss
Dividends on common shares
Cumulative effect of adoption of FIN 48
Cumulative effect of adoption of SFAS 158
Cumulative effect of adoption of SFAS 159
Deferred income tax on cross-border business transfer2
Balance as of period end
2007
2008
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
37
1
–2
36
11 208
992
–1 453
78
–49
10 776
–1 540
–2 032
1 453
479
–1 640
3 119
–5 493
–33
–2 407
–2 554
–2 300
–4 854
–115
–414
–529
21 712
–864
–1 331
–31
–7
–408
19 071
Total shareholders’ equity
31 867
20 453
1 This balance represents the premium from the conversion of a mandatory convertible bond that matured in December 2008.
2 The novation of certain treaties from Swiss Re’s Bermuda branches to Swiss Re Zurich resulted in a net deferred tax liability transfer to Swiss Re Zurich. The respective increase
in deferred tax liability is due to different jurisdictional tax rates. The transfer of the net deferred tax liability does not impact the Group’s net income or effective tax rate.
The accompanying notes are an integral part of the Group financial statements.
138 Swiss Re 2008 Annual Report
Financial statements / Group financial statements
Statement of comprehensive income
For the years ended 31 December
CHF millions
Net income/loss
Other comprehensive income, net of tax:
Change in unrealised gains/losses (tax: 213 in 2007 and –963 in 2008)
Change in foreign currency translation (tax: –201 in 2007 and –238 in 2008)
Change in adjustment for pension benefits (tax: –194 in 2007 and –123 in 2008)
Comprehensive income/loss
The accompanying notes are an integral part of the Group financial statements.
2007
4 162
889
–2 349
609
3 311
2008
–864
–5 526
–2 300
–414
–9 104
Swiss Re 2008 Annual Report 139
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
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
2007
4 162
676
739
–6 434
–449
3 107
672
–407
–13 331
7 935
–3 330
2008
–864
871
9 482
–11 687
3 191
–3 407
–1 213
1 031
4 721
–8 214
–6 089
59 324
–61 711
980
89 219
–81 530
4 020
6 495
–6 244
1 615
–1 761
–1 302
4 342
2 057
38
–2 303
–1 162
2 972
–1 660
–415
–2 075
13 606
11 531
9 137
–1 440
170
–757
18 819
1 327
–5 354
1
–1 553
–1 331
–6 910
5 820
–83
5 737
11 531
17 268
The accompanying notes are an integral part of the Group financial statements.
Interest paid during 2008 was CHF 1 644 million including interest paid on repurchase agreements. The Group settled a mandatory
convertible bond totalling CHF 996 million with equity.
For 2007 comparatives fixed income securities designated as trading assets have been reclassified from operating cash flows to investing
cash flows according to the nature and purpose for which those assets are held as per the amendment to FAS 95 “Statement of Cash Flows”.
140 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Notes to the Group financial statements
Nature of operations
Basis of presentation
Principles of consolidation
Use of estimates in the
preparation of financial
statements
Foreign currency
remeasurements and
translation
1 Organisation and summary of significant accounting policies
The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss
Reinsurance Company Ltd (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, direct clients and
others worldwide through reinsurance brokers and a network of offices in over 25 countries.
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.
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’s 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
investments accounted for under the equity method is included in net investment income.
Equity and net income of these companies are adjusted as necessary to be in line with
the Group’s accounting policies. The results of consolidated subsidiaries and investments
accounted for using the equity method are included in the financial statements for the period
commencing from the date of acquisition.
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 based on historical information, actuarial
analyses, financial modelling, and other analytical techniques. Actual results could differ
significantly 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. Remeasurement
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
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
adjustments are reported in shareholders’ equity.
Swiss Re 2008 Annual Report 141
Financial statements / Notes to the Group financial statements
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. 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.
The Group considers both the credit risk of its counterparties, and own risk of non-performance
in the valuation of certain financial instruments. In determining the fair value of the financial
instruments, the assessment of the Group’s exposure to the credit risk of our counterparties
incorporates consideration of existing collateral and netting arrangements entered into with
each counterparty. The measure of the counterparty credit risk is estimated for derivative
instruments and other over-the-counter financial assets with incorporation of the observable
credit spreads, where available, or credit spread estimates derived based on the benchmarking
techniques where market data is not available. The impact of the Group’s own risk of
non-performance is analysed in the manner consistent with the aforementioned approach;
with consideration of the Group’s observable credit spreads. The value representing such
risk is incorporated into the fair value of the financial instruments (primarily derivatives),
in a liability position as of the measurement date. The change in this adjustment from period
to period is reflected in realised gains and losses in the income statement.
There can also be differences between the market values implied by collateral requested by
counterparties and the prices observed in the markets. The Group has provided collateral on
all financial instruments, including the structured credit default swap, in excess of the market
value estimate of CHF 391 million. 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
considers that 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 may
become aware of counterparty valuations, either directly through the exchange of information
or indirectly, for example, through collateral demands. Any implied differences are considered
in the independent price verification process and may result in adjustments to initially indicated
valuations.
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 carried at fair value with unrealised gains and losses being recognised in earnings.
The Group only transfers investments from the trading into the available-for-sale category
under rare circumstances. Transfers are accounted for at fair value at the date of transfer, which
becomes the new cost basis. As of 1 October 2008 the Group reclassified fixed income
securities from the trading into the available-for-sale category. Refer to Note 2 Investments
for more detail.
Valuation of financial assets
Investments
142 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
The cost 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
securities 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 sale
is carried at the lower of cost or fair value, less estimated selling costs, and is not depreciated.
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, collateral receivables, securities purchased under agreement to resell,
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 partnerships
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.
Swiss Re 2008 Annual Report 143
Derivative financial
instruments and hedge
accounting
Financial statements / Notes to the Group financial statements
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 expected 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 comprehensive 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.
The Group recognises separately derivatives that are embedded within other host instruments
if the economic characteristics and risks are not clearly and closely related to the economic
characteristics and risks of the host contract and if it meets the definition of a derivative if it
were stand-alone.
Derivative financial instrument assets are generally included in other invested assets and
derivative financial instrument liabilities are generally included in accrued expenses and other
liabilities.
The Group also designates non-derivative monetary financial instruments as a hedge of the
foreign 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-derivative monetary financial instruments and translation gains and losses on the hedged
net investment are reported as translation gains and losses in shareholders’ equity.
Cash and cash equivalents include cash on hand, short-term deposits, certain short-term
investments in money market funds, and highly liquid debt instruments with a remaining
maturity at the date of acquisition of three months or less.
Acquisition costs, which vary with, and are primarily related to, the production of new
insurance 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 acquisition 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.
Cash and cash equivalents
Deferred acquisition costs
Business combinations
The Group applies the purchase method of accounting for business combinations. This
method allocates the cost of the acquired entity to the assets and liabilities assumed based
on their estimated fair values at the date of acquisition.
144 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Admin Re® blocks of business can be acquired in different legal forms, either through an
acquisition 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
statement 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 the 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 connection
with the acquisition of life and/or health operations. The initial value is determined actuarially
by discounting estimated future gross profits as a measure of the value of business acquired.
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 reflect impairment
in value are recognised in earnings during the period in which the determination 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
impairment in value. Adjustments to reflect impairment in value are recognised in earnings
in the period in which the determination of impairment is made.
Other assets include deferred expenses on retroactive reinsurance, separate account assets,
prepaid reinsurance premiums, receivables related to investing activities, real estate for own
use, property, plant and equipment, accrued income, certain intangible assets and prepaid
assets.
The 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
interest, dividends, realised gains and losses and changes in unrealised gains and losses) of
separate 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
internal use, payroll and payroll-related costs for employees directly associated with
software development 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.
Swiss Re 2008 Annual Report 145
Acquired present value
of future profits
Goodwill
Other assets
Capitalised software costs
Financial statements / Notes to the Group financial statements
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
reinsurance 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 judgments made by management, and therefore
there can be no assurance that ultimate claims and claim adjustment expenses will not exceed
the loss reserves currently established. These estimates are regularly reviewed, and adjustments
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 payments are made.
The Group does not discount liabilities arising from prospective property and casualty insurance
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 accordance 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 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
is issued or, in the case of contracts acquired by purchase, at the purchase date. The
assumptions 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 11%. 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
estimated present value of the remaining ultimate net costs of incurred claims. The active life
reserves include unearned premiums and additional reserves. The additional reserves are
computed on the net level premium method using assumptions for future investment yield,
mortality and morbidity experience. The assumptions are based on projections of past
experience and include provisions for possible adverse deviation.
Deferred income taxes
Unpaid claims and claim
adjustment expenses
Liabilities for life and health
policy benefits
146 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Policyholder account
balances
Policyholder account balances relate to universal life-type contracts and investment contracts.
Interest crediting rates for policyholder account balances range from 2.5% to 8.5%.
Funds held assets and
liabilities
Premiums
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 if 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 return credited to
policyholders. 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
application 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.
Property and casualty reinsurance premiums are recorded when written and include an
estimate for written premiums receivable at period end. Premiums earned are generally
recognised 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 associated premium or gross profits so that profits are recognised over the
expected lives of the contracts.
Life and health reinsurance premiums for group coverages 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.
Swiss Re 2008 Annual Report 147
Financial statements / Notes to the Group financial statements
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
retrocessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are
reported 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.
The Group accounts for its pension and other post-retirement benefit costs using the accrual
method of accounting. Amounts charged to expense are based on periodic actuarial
determinations.
The Group has a long-term incentive plan, a fixed option plan, a restricted share plan, and an
employee participation plan. These plans are described in more detail in Note 14. The Group
accounts for share-based payment transactions with employees using the fair value method.
Under the fair value method, the fair value of the awards is recognised in earnings over the
vesting period.
For share-based compensation plans which are settled in cash, compensation costs are
recognised 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.
Basic earnings per common share are determined by dividing net income available to
shareholders 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.
In September 2006, the Financial Accounting Standards Board issued SFAS No. 158
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” (SFAS
158). SFAS 158 requires an employer to recognise the overfunded or underfunded 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 SFAS 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 employers’
fiscal year end statement of financial condition. The Group adopted the final provision as of
1 January 2008. Refer to Note 13 for further information.
Reinsurance ceded
Pensions and other
post-retirement benefits
Share-based payment
transactions
Treasury shares
Earnings per common share
Recent accounting guidance
148 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group 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 frame work
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
adopted SFAS 157 as of 1 January 2008. Refer to Note 3 for further information.
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
entities 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 instruments and certain other items for which fair value measurement was not
previously permitted. The Group adopted SFAS 159 and applied the fair value option as of
1 January 2008. Refer to Note 3 for further information.
In April 2007, the Financial Accounting Standards Board issued FSP FIN 39-1 “Amendment
of FASB Interpretation No. 39” (FIN 39-1). FIN 39-1 impacts master netting arrangements,
which are part of derivative transactions, by allowing net derivative positions to be offset
against the fair value of amounts (or amounts that approximate fair value) recognised as
the right to reclaim cash collateral or the obligation to return cash collateral under those
arrangements. The Group adopted FIN 39-1 as of 1 January 2008. Refer to Note 4 for further
information.
In May 2008, the Financial Accounting Standards Board issued SFAS No. 163 “Accounting
for Financial Guarantee Insurance Contracts”. This standard changes the measurement and
disclosure requirements for financial guarantee insurance contracts. It has become effective
for the Group on 1 January 2009. As required by the standard, the Group adopted for the
third quarter 2008 disclosure requirements about risk management practices and exposures
that have experienced credit deterioration. Refer to Note 10 for further information.
In September 2008, the Financial Accounting Standards Board issued FSP FAS 133-1 and
FIN 45-4 “Disclosures about Credit Derivatives and Certain Guarantees – An Amendment of
FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective
Date of FASB Statement No. 161” (FSP FAS 133-1 and FIN 45-4). This FSP requires
disclosures by sellers of credit derivatives and about the current status of the payment/
performance risk of guarantees. The Group adopted FSP FAS 133-1 and FIN 45-4 as of
31 December 2008. Refer to Note 4 for further information.
On 10 October 2008, the Financial Accounting Standards Board issued FSP FAS 157-3
“Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active”
(FSP FAS 157-3). FSP FAS 157-3 clarifies the application of SFAS No. 157 “Fair Value
Measurements” in a market that is not active. FSP FAS 157-3 is effective upon issuance. The
Group has reviewed FSP FAS 157-3 and concluded that it is consistent with the valuation
guidance applied by the Group. Refer to Note 3 for further information.
In December 2008, the Financial Accounting Standards Board issued FSP FAS 140-4 and
FIN 46(R)-8 “Disclosures about Transfers of Financial Assets and Interests in VIEs” (FSP FAS
140-4 and FIN 46(R)-8). This FSP requires additional disclosures about a company’s
involvement with variable interest entities (VIEs) and its continuing involvement with transferred
financial assets. The Group adopted FSP FAS 140-4 and FIN 46(R)-8 as of 31 December
2008. Refer to Notes 2 and 18 for further information.
Swiss Re 2008 Annual Report 149
Financial statements / Notes to the Group financial statements
Investment income
Net investment income by source (including unit-linked and with-profit business) was as
follows:
2 Investments
CHF millions
Fixed income securities
Equity securities
Policy loans, mortgages and other loans
Investment real estate
Short-term investments
Other current investments
Share 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
2007
7 516
888
604
221
494
539
448
351
777
11 838
–612
–534
10 692
2008
6 788
767
541
232
275
409
–944
332
595
8 995
–732
–382
7 881
Dividends received from investments accounted for using the equity method were
CHF 26 million and CHF 87 million for 2007 and 2008, respectively. The Group revised the
classification of share in earnings and dividends from equity-accounted investments for
2007 and 2008.
Net investment income includes income on unit-linked business and with-profit business,
which are credited to policyholders.
CHF millions
Unit-linked investment income
With-profit investment income
2007
749
311
2008
767
249
150 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Realised gains and losses
Realised gains and losses for fixed income, equity securities and other investments
(including unit-linked and with-profit business) 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
Foreign exchange gains/losses
Net realised investment gains/losses
2007
2008
621
–670
1 714
–159
–647
–917
298
356
–1 335
–739
1 416
–2 443
927
–1 250
–2 868
–2 689
–5 712
1 799
1 338
–9 482
Proceeds from the sales of fixed income securities available-for-sale amounted to
CHF 44 356 million and CHF 77 491 million for 2007 and 2008, respectively. Sales of equity
securities available-for-sale were CHF 6 668 million and CHF 8 916 million for 2007 and
2008, respectively.
For 2007, foreign exchange gains and losses on investments are included in the respective
line items. For 2008, all foreign exchange gains and losses on remeasurement are included in
the line item “Foreign exchange gains/losses”.
Net realised investment gains/losses include income on unit-linked and with-profit business,
which are credited to policyholders.
CHF millions
Unit-linked realised gains/losses
With-profit realised gains/losses
2007
512
–67
2008
–4 052
–741
Swiss Re 2008 Annual Report 151
Financial statements / Notes to the Group financial statements
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 2007
CHF millions
Debt securities issued by governments
and government agencies:
US Treasury and other US govern-
ment 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 2008
CHF millions
Debt securities issued by governments
and government agencies:
US Treasury and other US govern-
ment 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 un-
realised gains
Gross un-
realised 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
46
261
1 040
50
11
281
2 367
650
–11
–65
–4
–22
–24
–41
–263
–747
1 452
11 292
4 744
2 256
1 183
7 533
51 785
25 020
31 197
246
–438
31 005
105 995
9 039
3 263
2 205
–1 448
–485
107 810
10 759
Amortised cost
or cost
Gross un-
realised gains
Gross un-
realised losses
Estimated fair
value
22 545
2 962
–339
25 168
45
10 302
3 620
1 193
1 302
8 060
47 067
24 781
488
478
92
93
391
4 504
411
–4
–278
–180
–16
–14
–269
–1 100
–2 535
41
10 512
3 918
1 269
1 381
8 182
50 471
22 657
34 368
319
–4 377
30 310
106 216
675
5 234
184
–8 012
–26
103 438
833
152 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Investments trading
Fixed income securities and equity securities classified as trading as of 31 December were
as follows:
Reclass of fixed income
securities from trading to
available-for-sale
Maturity of fixed income
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
2007
14 738
18 894
18 161
51 793
22 103
2008
9 026
3 429
1 506
13 961
15 355
SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” requires
that investments are classified into one of three categories: trading, available-for-sale, and
held-to-maturity. The criterion for classification is management’s plan for holding or disposing
of the investment, rather than the characteristics of the asset. Reclassification between
categories is only possible under rare circumstances.
As a reaction to the current unprecedented market turmoil, Swiss Re revised its business
strategy and therefore its related investment strategy. Under the revised strategy, the majority
of the fixed income securities classified as trading are no longer held for the purpose of selling
or repurchasing over the short term. To reflect this change, as of 1 October 2008, the Group
transferred CHF 22 441 million of fixed income securities from the trading into the available-
for-sale category.
Fixed income securities, which remain in the trading category, include assets related to
unit-linked and with-profit business and assets designated to match monetary liabilities to
balance the foreign exchange remeasurement impact under SFAS No. 52 “Foreign Currency
Translation”.
The amortised cost or cost and estimated fair values of investments in fixed income securities
available-for-sale by remaining maturity are shown below. Fixed maturity investments are
assumed not to be called for redemption prior to the stated maturity date. As of 31 December
2007 and 2008, CHF 5 169 million and CHF 8 648 million, respectively, of fixed income
securities available-for-sale 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 and asset-backed securities
with no fixed maturity
Total fixed income securities
available-for-sale
Amortised
cost or cost
6 643
20 156
17 819
30 180
2007
Estimated
fair value
4 149
23 241
18 075
31 340
Amortised
cost or cost
6 369
15 468
17 931
36 291
2008
Estimated
fair value
6 384
15 095
17 506
37 510
31 197
31 005
30 157
26 943
105 995
107 810
106 216
103 438
Assets on deposit or pledged
As of 31 December 2007 and 2008, investments with the carrying value of
CHF 1 438 million and 1 566 CHF million, respectively, were on deposit with regulatory
agencies in accordance with local requirements.
As of 31 December 2007 and 2008, investments (including cash and cash equivalents)
with a carrying value of approximately CHF 9 262 million and CHF 8 689 million, respectively,
were placed on deposit or pledged to secure certain reinsurance liabilities.
Swiss Re 2008 Annual Report 153
Financial statements / Notes to the Group financial statements
As of 31 December 2008, securities of CHF 10 707 million are pledged as collateral
in securities lending transactions and repurchase agreements. The associated liabilities of
CHF 4 465 million are recognised in accrued expenses and other liabilities.
As of 31 December 2007 and 2008, the fair value of the government and corporate bond
securities received as collateral, was CHF 13 969 million and CHF 8 272 million, respectively.
Of this, the amount that has been sold or repledged as of 31 December 2007 and 2008
was CHF 7 995 million and CHF 2 554 million, respectively, which is used to settle short
Government bond positions. The sources of the collateral are typically highly rated banking
market counterparties.
The Group has revised the presentation of collateral, which can be sold or repledged, for
2007. The revision has no impact on balance sheet items, shareholders’ equity or net income.
The following table shows the fair value and unrealised losses of the Group’s fixed income
securities, aggregated by investment category and length of time that individual securities
were in a continuous unrealised loss position, as of 31 December 2007 and 2008. 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 2007 and 2008, the
gross unrealised loss on equity securities available-for-sale of CHF 485 million, respectively,
and CHF 26 million relates to declines in value for less than 12 months.
As of 31 December 2007
CHF millions
Debt securities issued by
governments and
government agencies
Corporate debt securities
Mortgage and
asset-backed securities
Total
As of 31 December 2008
CHF millions
Debt securities issued
by governments and
government agencies
Corporate debt securities
Mortgage 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
6 960
9 379
11 044
27 383
79
432
317
828
6 349
3 495
4 573
14 417
184
315
121
620
13 309
12 874
15 617
41 800
263
747
438
1 448
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Total
Unrealised
losses
Fair value
11 266
11 511
13 033
35 810
864
1 605
3 240
5 709
867
3 080
5 061
9 008
236
930
12 133
14 591
1 137
2 303
18 094
44 818
1 100
2 535
4 377
8 012
The unprecedented market volatility and relative illiquidity in certain asset sectors had an
adverse impact on the valuation of certain of the Group’s investments.
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
Collateral accepted which
the Group has the right to
sell or repledge
Unrealised losses on
securities available-for-sale
154 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
performance and outlook for the economic environment and industry in which the issuer
operates; (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. Considering these factors, the Group deems the unrealised loss of
CHF 8 012 million on fixed income securities available-for-sale to be temporary, as it has the
ability and the intent as of 31 December 2008 to hold these securities until recovery of
fair value. 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
statement.
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
circumstance that occur after the balance sheet date. As a result, the Group recognises the
associated realised losses in the period in which the decision to sell the securities is taken.
Mortgages, loans and real
estate
As of 31 December, investments in mortgages and other loans and real estate comprised
the following:
CHF millions
Policy loans, mortgages and other loans
Investment real estate
Carrying value
7 414
2 682
2007
Fair value
7 414
3 937
Carrying value
6 611
2 143
2008
Fair value
6 611
3 093
As of 31 December 2007 and 2008, the Group’s investment in mortgages and other loans
included CHF 216 million and CHF 200 million, respectively, of loans due from employees
and CHF 415 million and CHF 444 million, respectively, due from officers. These loans
generally consist of mortgages offered at variable and fixed interest rates.
As of 31 December 2007 and 2008, investments in real estate included CHF 64 million
and CHF 9 million, respectively, of real estate held for sale.
Depreciation expense related to income-producing properties was CHF 57 million and
CHF 38 million for 2007 and 2008, respectively. Accumulated depreciation on investment
real estate totalled CHF 508 million and CHF 493 million as of 31 December 2007 and
2008, 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.
Swiss Re 2008 Annual Report 155
Financial statements / Notes to the Group financial statements
3 Fair value disclosures
As of 1 January 2008, the Swiss Re Group adopted SFAS No.157 “Fair Value Measurements”
(SFAS 157). SFAS 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. It requires disclosures of the Group’s
assets and liabilities that are measured at fair value.
Fair value, as defined by SFAS 157, is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the
measurement date.
SFAS 157 requires all assets and liabilities that are measured at fair value to be categorised
within the fair value hierarchy. This three-level hierarchy is based on the observability of the
inputs used in the fair value measurement. The levels of the fair value hierarchy are defined as
follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the
Group has the ability to access. Level 1 inputs are the most persuasive evidence of fair value
and are to be used whenever possible.
Level 2 inputs are market-based inputs that are directly or indirectly observable but not
considered level 1 quoted prices. Level 2 inputs consist of (i) quoted prices for similar assets
or liabilities in active markets; (ii) quoted prices for identical assets or liabilities in non-active
markets (e.g. markets which have few transactions and prices are not current or price
quotations vary substantially); (iii) inputs other than quoted prices that are observable (eg
interest rates, yield curves, volatilities, prepayment speeds, credit risks and default rates);
and (iv) inputs derived from, or corroborated by, observable market data.
Level 3 inputs are unobservable inputs. These inputs reflect the Group’s own assumptions
about market pricing using the best internal and external information available.
The types of instruments valued based on quoted market prices in active markets include
most US government and sovereign obligations, active listed equities and most money market
securities. Such instruments are generally classified within level 1 of the fair value hierarchy.
The Group does not adjust the quoted price for such instruments, even in situations where it
holds a large position and a sale could reasonably impact the quoted price.
The types of instruments that trade in markets that are not considered to be active, but are
valued based on quoted market prices, broker or dealer quotations, or alternative pricing
sources with reasonable levels of price transparency include most government agency
securities, investment-grade corporate bonds, certain mortgage and asset-backed products,
less liquid listed equities, state and municipal and provincial obligations. Such instruments are
generally classified within level 2 of the fair value hierarchy.
Exchange-traded derivative instruments typically fall within level 1 or level 2 of the fair value
hierarchy depending on whether they are considered to be actively traded or not.
156 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Certain financial instruments are classified within level 3 of the fair value hierarchy because
they trade infrequently and therefore have little or no price transparency. Such instruments
include private equity, less liquid corporate debt securities and certain asset-backed
securities. Certain over-the-counter derivatives trade in less liquid markets with limited pricing
information, and the determination of fair value for these derivatives is inherently more
difficult. Such instruments are classified within level 3 of the fair value hierarchy. Pursuant to
the election of the fair value option, the Group classifies certain Life & Health policy reserves
to level 3 of the fair value hierarchy. When appropriate, valuations are adjusted for various
factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are
generally based on available market evidence. In the absence of such evidence,
management’s best estimate is used.
The fair values of assets are adjusted to incorporate the counterparty risk of non-performance.
Similarly, the fair values of liabilities reflect the risk of non-performance of the Group, captured
by the Group’s credit spread. These valuation adjustments have resulted in a net realised gain
from assets and liabilities measured at fair value using significant unobservable inputs.
Whenever the underlying assets or liabilities are reported in a specific business segment, the
valuation adjustment is allocated accordingly. Valuation adjustments not attributable to any
business segment are reported in Group Items.
In certain situations, the Group uses inputs to measure the fair value of asset or liability
positions that fall into different levels of the fair value hierarchy. In these situations, the Group
will determine the level in which the fair value falls based upon the lowest level input that is
significant to the determination of the fair value.
As of 31 December 2008, the fair values of assets and liabilities measured on a recurring
basis by level of input were as follows:
CHF millions
Assets
Fixed income securities
Equity securities
Derivative financial
instruments
Other assets
Total assets at fair value
Liabilities
Derivative financial
instruments
Liabilities for life and
health policy benefits
Accrued expenses and
other liabilities
Total liabilities at fair
value
Quoted prices in
active markets
for identical
assets (Level 1)
Significant other
observable
inputs
(Level 2)
Significant
unobservable
inputs (Level 3)
Impact of
netting1
11 646
15 185
382
36
27 249
94 232
783
80 897
175 912
11 521
220
14 917
1 580
28 238
–88 174
–88 174
Total
117 399
16 188
8 022
1 616
143 225
–416
–76 358
–18 547
85 750
–9 571
–607
–58
–494
–494
–665
–1 023
–76 416
–19 041
85 750
–10 730
1 FIN 39 permits the netting of derivative receivables and derivative payables when a legally enforceable master netting
agreement exists between two counterparties. A master netting agreement provides for the net settlement of all
contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the
termination of any one contract.
Swiss Re 2008 Annual Report 157
Assets and liabilities
measured at fair value on a
recurring basis
Financial statements / Notes to the Group financial statements
CHF millions
Assets
Opening balance as of 1 January 2008
Realised/unrealised gains/losses:
Included in net income
Included in other comprehensive
income
Purchases, issuances, and settlements
Transfers in and/or out of Level 3
Impact of foreign exchange movements
Closing balance as of
31 December 2008
Liabilities
Opening balance as of 1 January 2008
Realised/unrealised gains/losses:
Included in net income
Included in other comprehensive
income
Purchases, issuances, and settlements
Transfers in and/or out of Level 3
Impact of foreign exchange movements
Closing balance as of
31 December 2008
Fixed
income
securities
Equity
securities
Derivative
financial
instruments Other assets
Total
8 887
140
9 389
1 498
19 914
–1 554
116
3 878
–324
2 116
–2 689
1 733
5 877
–733
19
–236
273
–92
1 723
106
–179
–248
187
493
–26
–2 918
3 407
6 749
–1 030
11 521
220
14 917
1 580
28 238
Liabilities
for life and
health policy
benefits
Derivative
financial
instruments
Accrued
expenses
and other
liabilities
Total
–102 –10 200
–170 –10 472
–376
–7 074
10
–1 391
14
94
–16
–7 450
10
–1 246
48
69
145
34
–9
–494 –18 547
0 –19 041
The gains and losses relating to the assets and liabilities measured at fair value using
significant unobservable inputs (Level 3) for the twelve months ended 31 December 2008
were as follows:
CHF millions
Gains/losses included in net income for the period
Whereof change in unrealised gains/losses relating to assets
and liabilities still held at the reporting date
Net realised investment
gains/losses
–5 334
–3 605
Assets and liabilities
measured at fair value on a
recurring basis using
significant unobservable
inputs (Level 3)
Gains and losses on assets
and liabilities measured at
fair value on a recurring basis
using significant
unobservable inputs (Level 3)
158 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Fair value option
SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities”, permits
the choice to measure specified financial assets and liabilities at fair value on an instrument-
by-instrument basis.
The Group elected the fair value option for positions in the following line items in the balance
sheet:
Fixed income securities trading
In the second quarter of 2008, the Group elected the fair value option for specific investments
acquired within a transaction. These securities are classified as debt securities under the
Group’s accounting policies. Upon election of the fair value option the securities are classified
as trading, with changes in fair value recorded in earnings. The primary reason for electing the
fair value option is to mitigate volatility in earnings as a result of using different measurement
attributes.
Equity securities trading
As of 1 January 2008, the Group elected the fair value option for an investment previously
classified as available-for-sale within other invested assets in the balance sheet. The Group
economically hedges the investment with derivative instruments that offset this exposure. The
changes in fair value of the derivatives are recorded in earnings. Electing the fair value option
eliminates the mismatch previously caused by the economic hedging of the investment and
reduces the volatility in the income statement. According to the nature of the investment, the
Group revised the presentation in the current period and included it in equity securities held
for trading.
Liabilities for life and health policy benefits
As of 1 January 2008, the Group elected the fair value option for existing SOP 03-01
guaranteed minimum death benefit (GMDB) reserves related to certain variable annuity
contracts which are classified as universal life-type contracts. The Group has applied the
fair value option as the equity risk associated with those contracts is managed on a fair value
basis, and it is economically hedged with derivative options in the market.
Cumulative effect due
to initial adoption of the
fair value option
The initial adoption of the fair value option for existing transactions had a one-time effect
on the corresponding balance sheet positions and retained earnings. The following table
shows the adjustment for each balance sheet item as of 1 January 2008:
As of 1 January 2008
CHF millions
Assets
Equity securities trading1
Carrying value
prior to adoption
Impact upon
adoption
Fair value
after adoption
576
576
Liabilities
Liabilities for life and health policy benefits
–108
–40
–148
1 Prior to the election of the fair value option, the investment was reported in other invested assets.
The net impact on retained earnings from the fair value elections described above was an
increase of CHF 33 million and a decrease of CHF 40 million, respectively.
Swiss Re 2008 Annual Report 159
Financial statements / Notes to the Group financial statements
Assets and liabilities
measured at fair value
pursuant to election
of the fair value option
Pursuant to the election of the fair value option for the items described, the balances as
of 31 December 2008 were as follows:
As of 31 December
CHF millions
Assets
Fixed income securities trading
of which at fair value pursuant to the fair value option
Equity securities trading
of which at fair value pursuant to the fair value option
Liabilities
Liabilities for life and health policy benefits
of which at fair value pursuant to the fair value option
2008
13 961
681
15 355
121
–39 911
–494
Changes in fair values for
items measured at fair
value pursuant to election
of the fair value option
Total losses included in earnings for the year ended 31 December 2008, including foreign
exchange impact, were CHF 1 150 million.
Fair value changes from fixed income securities trading (CHF –349 million) and equity
securities trading (CHF –455 million) are reported in net realised investment gains/losses.
Fair value changes from the guaranteed minimum death benefit reserves (CHF –346 million)
are shown in life and health benefits.
160 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
4 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 investment purchases, existing assets or liabilities, as well as locking in attractive
investment conditions 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 provide for legally enforceable set-off in the event of default, which
substantially reduces credit exposure.
The fair value of derivatives outstanding as of 31 December 2007 and 31 December 2008
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
Other
Total
Other derivatives
Credit derivatives
Catastrophe derivatives
Weather derivatives
Other
Total
Total derivative
financial instruments
Positive
fair value
As of 31 December 2007
Carrying value
Negative
assets /liabilities
fair value
Positive
fair value
As of 31 December 2008
Carrying value
Negative
assets /liabilities
fair value
88
5 330
101
5 519
–396
–5 483
–101
–5 980
–308
–153
–461
253
–333
15 354 –15 292
–432
16 356 –16 057
749
670
2 763
290
57
3 780
–672
–1 997
–131
–11
–2 811
–2
766
159
46
969
311
3 360
10
21
3 702
–265
–1 220
–138
–23
–1 646
407
2 034
–359
–2 821
48
–787
2 441
–3 180
–739
396
2 118
25
2 539
–286
–3 363
–18
–3 667
4 011
1
3
40
4 055
–4 071
–11
–12
–97
–4 191
–60
–10
–9
–57
–136
15 710 –15 008
–1
–1 284
–3 986
17 503 –20 279
2
1 130
661
–80
62
317
299
46
2 140
–128
–2
2 056
110
–1 245
7
–1 128
702
1
–154
–3 325
–2 776
15 795 –16 162
–367
40 100 –41 649
–1 549
Swiss Re 2008 Annual Report 161
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 a right of offset under master netting agreements
exists.
According to FIN 39-1, the fair value amounts recognised for the right to reclaim cash
collateral or the obligation to return cash collateral that have been offset are
CHF 2 748 million for assets and CHF 2 548 million for liabilities as of 31 December 2007,
and CHF 6 189 million for assets and CHF 3 765 million for liabilities as of 31 December
2008, respectively. The fair value amounts that have not been offset are CHF 302 million and
nil as of 31 December 2007 and 31 December 2008, respectively.
The maximum potential loss assuming non-performance by all counterparties, and based
on the market replacement cost as of 31 December 2007 and 31 December 2008,
approximated CHF 6 713 million and CHF 14 032 million, respectively. These values are net
of amounts offset pursuant to rights of set-off and qualifying master netting arrangements
with various counterparties.
As of 31 December 2007 and 31 December 2008, other invested assets included
derivative financial instruments with a fair value of CHF 6 168 million and CHF 8 022 million,
respectively.
As of 31 December 2007 and 31 December 2008, other accrued expenses and other
liabilities included derivative financial instruments with a fair value of CHF 6 535 million and
CHF 9 571 million, respectively.
These derivative financial instruments include cash flow hedges with a fair value of
CHF 21 million and CHF 6 million as of 31 December 2007 and 31 December 2008,
respectively.
Hedges of net investment in
foreign operations
The Group designates non-derivative monetary financial instruments as hedging the foreign
currency exposure of its net investment in certain foreign operations.
Credit derivatives
written/sold
For the year ended 31 December 2007 and 31 December 2008, the Group recorded net
unrealised foreign currency remeasurement losses in shareholders’ equity of CHF 668 million
and CHF 210 million, respectively. This offsets translation gains and losses on the hedged
net investment.
The Group writes/sells credit derivatives, including credit default swaps, credit spread options
and credit index products, and total return swaps. The credit derivatives, which protect the
counterparty against credit risk, are classified as credit derivatives under FAS 133-1. The total
return swaps, for which the Group assumes asset risks mainly of variable interest entities,
qualify as guarantees under FIN 45-4. These activities are part of the Group’s overall portfolio
and risk management strategies. The events that could require the Group to perform include
bankruptcy, default, obligation acceleration or moratorium of the credit derivative’s
underlying.
162 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
The table below shows the fair values and the maximum potential payout of the written/sold
credit derivatives as of 31 December 2008, categorised by the type of the credit derivative
and credit spreads which are based on external market data. The fair values represent the
gross carrying values, excluding the effects of netting under ISDA master agreements and
cash collateral netting. The maximum potential payout is based on the notional values of the
derivatives and represents the gross undiscounted future payments the Group would be
required to make, assuming the default of all credit derivatives’ underlyings.
CHF millions
Credit Default Swaps
Credit spread in basis points
0 – 250
251 – 500
501 – 1000
Greater than 1000
No credit spread available
Total
Credit Spread Options
Credit spread in basis points
0 – 250
Total
Credit Index Products
Credit spread in basis points
0 – 250
No credit spread available
Total
Total Return Swaps4
Credit spread in basis points
No credit spread available
Total
Total credit derivatives
written/sold
Total fair valu-
es of written/
sold credit
derivatives
Maximum potential payout (time to maturity)1
0 – 5 years
5 –10 years Over 10 years
Total maxi-
mum potential
payout
As of 31 December 2008
–2 310
–1 233
–1 795
–6 373
–149
–11 860
38 109
19 464
12 965
13 029
2 685
86 252
20 7842
1 943
1 448
587
330
25 092
1 180
115
85
3 3923
173
4 945
60 073
21 522
14 498
17 008
3 188
116 289
–35
–35
2 372
2 372
0
0
2 372
2 372
–4 290
116
–4 174
16 849
44
16 893
23 572
439
24 011
134
493
627
40 555
976
41 531
–534
–534
7 227
7 227
716
716
7 943
7 943
0
–16 603
112 744
49 819
5 572
168 135
1 The maximum potential payout is based on notional values of the credit derivatives.
2 Including Corporate Portfolio CDS, which consists predominantly of large investment grade and SME corporate loans.
3 Including Structured CDS.
4 The Group enters total return swaps mainly with variable interest entities which issue insurance-linked and credit-linked
securities.
Swiss Re 2008 Annual Report 163
Financial statements / Notes to the Group financial statements
The fair values of the credit derivatives written/sold do not represent the Group’s effective
net exposure, as the ISDA master agreement and the cash collateral netting are excluded.
The Group has purchased protection to manage the performance/payment risks related
with credit derivatives. As of 31 December 2008, the total purchased credit protection was
CHF 169 682 million based on notional values. Thereof CHF 90 491 million was related
to identical underlyings for which the Group sold credit protection. For tranched indexes and
baskets only matching tranches of the respective index were determined as identical. In
addition to the purchased credit protection, the Group manages the performance/payment
risks through a correlation hedge, which is performed with non-identical offsetting positions.
164 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Determination
of purchase price
5 Acquisitions
On 31 October 2008, the Group completed the acquisition of Barclays Life Assurance
Company Ltd in a GBP 762 million cash transaction. The Group acquired 100% of the equity
share capital of Barclays Life Assurance Company Ltd. The total cost of investment amounted
to GBP 765 million, including GBP 3 million transaction cost.
The Group has acquired approximately 760 000 life insurance and pension policies and
annuity contracts, representing approximately GBP 5.9 billion in invested assets. The Barclays
Life book comprises unit-linked life and pension policies, non-linked annuity policies and a
smaller block of protection business, including term life and permanent health insurance. The
acquisition provides further scale and infrastructure for the Group’s Admin Re® business in
the United Kingdom.
CHF millions
Cash
Transaction cost
Total cost of investment
As of 31 October 2008
CHF
1 439
5
1 444
GBP
762
3
765
Allocation of purchase price
The purchase price has been allocated based on the fair value of assets acquired and
liabilities at the date of acquisition. The allocation of the purchase price included adjustments
to the following assets and liabilities:
CHF millions
Net assets acquired
Adjustments to assets acquired and liabilities assumed
Present value of future profits (PVFP)
Liabilities for policy benefits for Life & Health
Tax impact of above adjustments and other tax adjustments
Total cost of investment
As of 31 October 2008
688
969
73
–286
1 444
Swiss Re 2008 Annual Report 165
Financial statements / Notes to the Group financial statements
Investments
Present value of future
profits and Life & Health
policy benefits
Fair values have been attributed to investments mainly according to quoted market prices.
If quoted market prices were not available, valuation models were applied.
The present value of future profits (PVFP) has been estimated based on the best estimate
of expected future profits. As of the purchase date the PVFP amounted to a value of
CHF 969 million with an amortisation period of 50 years. The Life & Health policy benefit
reserves have been adjusted based on best estimate assumptions at the time of the
acquisition.
Restructuring provision
The Group has not recognised any restructuring provision related to the acquisition.
Deferred taxes
Deferred tax has been recognised on the fair value adjustments summarised above.
Historic deferred tax assets and liabilities have been adjusted to the expected payable and
recoverable amounts which the Group expects to realise.
Pro forma financial result
(unaudited)
The unaudited pro forma financial information as of 31 December 2008 is presented to
illustrate the effect on the Group’s income statement of the acquisition.
The unaudited pro forma result is based on the estimated revenues and net income of
the acquired business in 2007 and 2008 and includes estimates for the impact of purchase
accounting. This pro forma information is not necessarily indicative of what would have
occurred had the acquisition and related transactions been made on the dates indicated, or
of future results of the company.
Unaudited pro forma results after the Barclays acquisition
CHF millions (except share data)
Total revenues
Net income/loss
Net income/loss per share in CHF – basic
Net income/loss per share in CHF – diluted
2007
44 227
4 237
12.17
11.42
As of 31 December
2008
23 311
–810
–2.45
–2.45
166 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
6 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 period end
DAC
5 270
4 123
–3 984
–257
5 152
2007
PVFP
7 550
265
–977
382
–458
7
6 769
DAC
5 152
2 719
–2 842
–718
4 311
2008
PVFP
6 769
1 204
–926
330
–1 143
–95
6 139
The amortisation of DAC in 2008 represents CHF 2 676 million and CHF 166 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
recoveries 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 7%, 7%, 6%, 6%, 6%.
Swiss Re 2008 Annual Report 167
Financial statements / Notes to the Group financial statements
7 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
having a maturity of greater than one year. Interest expense is classified accordingly. The
Group’s debt as of 31 December 2007 and 2008 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
2007
1 254
10 478
926
12 658
1 367
8 074
6 330
7 566
23 337
2008
1 4371
5 085
6 522
415
9 467
5 474
5 097
20 453
Total debt
35 995
26 975
1 A mandatory convertible bond matured in December 2008, which converted to Swiss Re shares using the
conversion rate of CHF 95.6. This balance now includes one other mandatory convertible bond issued in June 2006,
due in June 2009, with a book value of CHF 610 million.
Maturity of long-term debt
As of 31 December 2007 and 2008, long-term debt as reported above had the following
maturities:
CHF millions
Due in 2009
Due in 2010
Due in 2011
Due in 2012
Due in 2013
Due after 2013
Total carrying value
Total fair value
1 Balance was reclassified to short-term debt.
2 007
2 381
1 245
1 730
1 167
37
16 777
23 337
23 266
2008
01
1 474
1 742
1 098
38
16 101
20 453
19 360
The Group uses debt for general corporate purposes and to fund discrete pools of oper ational
leverage and financial intermediation assets. Operational leverage and financial
intermediation 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 2007 and 2008,
operational leverage and financial intermediation liabilities amounted to CHF 52.4 billion
(thereof CHF 9.8 billion non-recourse) and CHF 34.2 billion (thereof CHF 5.2 billion non-
recourse), respectively.
168 Swiss Re 2008 Annual Report
Senior long-term debt
Financial statements / Notes to the Group financial statements
Maturity
2010
2010
2010
2010
2010
2011
2011
2011
2011
2012
2013
2015
2016
2019
2026
2028
2028
2030
2032
Various
Instrument
Senior note1
EMTN (amortising bond)
2 EMTN
EMTN
EMTN
Credit-linked note
EMTN
Insurance-linked placement
EMTN
Credit-linked note
Credit-linked note
EMTN (straight bond)
Credit-linked note
Senior note1
Senior note1
Senior note2
Senior note2
Senior note1
Principal protected
structured note
Payment undertaking
agreements
Issued in
2000
2003
2005
2005
2008
Currency
USD
GBP
CHF
CZK
USD
Nominal in
millions
350
20
625
300
280
2006
2007
2007
2008
2007
2008
2001
2007
1999
1996
2005
2008
2000
2007
USD
CHF
EUR
EUR
USD
USD
CHF
USD
USD
USD
GBP
GBP
USD
USD
735
250
110
25
980
2
150
621
400
600
100
240
350
35
Interest rate
7.50%
4.38%
various
2.88%
3M Libor
3M Libor –
95.51bp
3.13%
3.83%
4.73%
3M Libor –
89.87bp
3M Libor +
50bp
4.00%
3M Libor
6.45%
7.00%
1M Libor
4.98%
7.75%
zero coupon
Book value
in CHF mil-
lions
421
31
625
17
298
782
250
59
37
1 043
2
151
1 769
543
931
153
367
605
37
various
USD
932
various
1 761
Total senior debt as of 31 December 2008
Total senior debt as of 31 December 2007
1 Assumed in the acquisition of GE Insurance Solutions.
2 Reclassified from internal to external debt in 2008.
9 882
9 441
Swiss Re 2008 Annual Report 169
Financial statements / Notes to the Group financial statements
Subordinated long-term debt
Maturity Instrument
2021 Convertible bond
2047
2057
Subordinated private placement
(amortising)1
Subordinated private placement
(amortising)1
Subordinated perpetual loan
Subordinated perpetual bond
(SUPERBs)
Subordinated perpetual loan note
Subordinated perpetual loan note
Subordinated perpetual loan note
2 subordinated perpetual loan
notes
Issued in Currency
2001
Nominal
in millions
USD 1 150
Interest
rate …
… first
call in
3.25% 2 011
Book va-
lue in CHF
millions
1 209
2007
GBP 1 537
4.96%
2007
1998
GBP 1 796
110
DEM
1999
CHF
600
2 010
4.79%
6M
Libor +
45bp
3.75% 2 011
2006
2006
2007
2007
EUR 1 000
752
USD
500
GBP
750
AUD
5.25% 2 016
6.85% 2 016
6.30% 2 019
various 2 017
2 352
2 745
83
596
1 471
800
761
554
10 571
13 896
Total subordinated debt as of 31 December 2008
Total subordinated debt as of 31 December 2007
1 This debt position resulted from a single transaction and is non-recourse.
Interest expense on long-
term debt
Interest expense on long-term debt for the years ended 31 December 2007 and 2008,
respectively, was as follows:
CHF millions
Senior financial debt
Senior operational debt
Subordinated financial debt
Subordinated operational debt
Total
2 007
83
424
327
163
997
2008
36
324
330
323
1 013
Long-term debt issued in
2008
In January 2008, the Group issued a credit-linked note of USD 2 million, due in 2013,
bearing interest of three-month USD Libor plus 50 basis points.
In May 2008, the Group issued a structured EMTN of USD 280 million, due in 2010, bearing
interest of three-month USD Libor, and a EUR 25 million EMTN with a three-year maturity and
a coupon of 4.73%.
In November 2008, the Group deconsolidated an entity, which provided funding to other
Group companies. Prior to the deconsolidation, two existing loans were classified as
intercompany transactions and therefore not reported as liabilities to external parties.
Subsequent to deconsolidation, the Group shows these positions as Senior notes which
mature in 2028, one note with a nominal value of GBP 240 million and the other with
a nominal of GBP 100 million, bearing interest of 4.98% and one-month GBP Libor flat,
respectively.
Additional funding resources
As additional resources to meet funding requirements, the Group has access to the US
commercial 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.
170 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
8 Unpaid claims and claim adjustment expenses
The liability for unpaid claims and claim adjustment expenses is analysed as follows:
CHF millions
Non-life
Life & Health
Total
2007
73 171
15 357
88 528
2008
62 802
12 708
75 510
A reconciliation of the opening and closing reserve balances for non-life unpaid claims and
claim adjustment expenses for the period 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
2007
80 391
–7 622
–875
71 894
11 945
–205
92
11 832
2008
73 171
–5 041
–723
67 407
10 092
–462
125
9 755
–1767
–12285
–14 052
–1 521
–12 131
–13 652
–2567
–6 527
300
578
67 407
5041
723
73 171
57 561
4 701
540
62 802
The Group does not discount liabilities arising from prospective property and casualty
insurance 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 accordance with the purchase method of accounting.
Swiss Re 2008 Annual Report 171
Financial statements / Notes to the Group financial statements
Asbestos and environmental
claims exposure
The Group’s obligation for claims payments and claims settlement charges also includes
obligations 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,
however, the Group cannot exclude the need to make further additions to these provisions in
the future.
At the end of 2008 the Group carried net reserves for US asbestos, environmental and
other long-latent health hazards equal to CHF 2 280 million. During 2008, the Group incurred
net losses of CHF 137 million and paid net against these liabilities CHF 266 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
Claims development on prior years was favourable during 2008. Adverse developments in
America were balanced by favourable development in Europe and the rest of the world.
Reserves for asbestos and environmental pollution claims in the US were increased slightly
during 2008. Experience on the workers’ compensation line of business again showed
adverse development for which the Group strengthened its reserves. Financial Guarantee Re
also showed adverse development during 2008.
The favourable development arose mostly from Property, Marine, Engineering and Aviation
from 2001 and subsequent years.
172 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
9 Reinsurance information
For the years ended 31 December
Premiums written, premiums
earned and fees assessed
against policyholders
Claims and claim adjustment
expenses
Acquisition costs
CHF millions
Premiums written
Direct
Assumed
Ceded
Total premiums written
Premiums earned
Direct
Assumed
Ceded
Total premiums earned
Fee income from policyholders
Direct
Assumed
Ceded
Total fee income from
policyholders
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
Acquisition costs
Acquisition costs, gross
Acquisition costs, retro
Acquisition costs, net
Non-Life Life & Health
2007
Total
Non-Life Life & Health
2008
Total
2 742
17 436
–1 539
18 639
2 147
12 029
–1 598
12 578
4 889
29 465
–3 137
31 217
2 204
16 280
–3 886
14 598
1 520
10 847
–1 306
11 061
3 724
27 127
–5 192
25 659
2 838
17 537
–1 376
18 999
2 148
12 101
–1 584
12 665
4 986
29 638
–2 960
31 664
2 201
15 418
–3 208
14 411
1 519
10 851
–1 280
11 090
3 720
26 269
–4 488
25 501
798
293
–136
798
293
–136
654
271
–117
654
271
–117
955
955
808
808
–17 897 –10 971 –28 868 –15 749 –12 226 –27 975
3 526
2 097
–9 587 –23 639 –13 652 –10 797 –24 449
3 845
–14 052
1 429
5 229
1 384
4 846
–1 810
3 036
3 813
2 928
6 741
–2 859
285
–2 574
–168
–1 196
–1 364
1 987
–1 525
462
3 645
1 732
5 377
–12 065 –11 112 –23 177 –10 007
–9 065 –19 072
–3 901
67
–3 834
–3 021
356
–2 665
–6 922
423
–6 499
–3 532
792
–2 740
–3 128
502
–2 626
–6 660
1 294
–5 366
Swiss Re 2008 Annual Report 173
Financial statements / Notes to the Group financial statements
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
2007
Total
Non-Life Life & Health
2008
Total
5 041
1 417
9 191
3 735
14 232
5 152
4 701
1 189
7 233
3 122
11 934
4 311
73 171
15 357
50 026
41 340
88 528
50 026
41 340
62 802
12 708
39 911
34 518
75 510
39 911
34 518
174 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
10 Financial guarantee reinsurance
For reporting periods ending on or after 1 January 2009, the Swiss Re Group will fully adopt
SFAS No. 163 “Accounting for Financial Guarantee Insurance Contracts” (SFAS 163) as
per the Statement requirements. For the reporting period ended 31 December 2008, SFAS
163 requires selected disclosures about financial guarantee reinsurance business based
on existing accounting policies. The disclosures relate to risk management practices and
exposures that have experienced credit deterioration.
The Group reinsures monoline insurers against the risk of default on insured financial obligations.
The Group’s exposure encompasses public finance and structured finance exposures.
In total, the notional exposure as of 31 December 2008 amounted to CHF 15 857 million,
whereof 24% is attributable to structured finance. The main driver of the Group’s exposure
is the credit risk of the underlying insured obligation.
The Group tracks and monitors credit deterioration in insured financial obligations. This is
based on the surveillance activities of its cedents and internal reviews of its reinsured portfolio.
Each cedent maintains a process for identifying credits that require higher levels of scrutiny
or intervention. The cedent is required to notify the Swiss Re Group when a transaction falls
under increased scrutiny.
The Group maintains a watch list based on the information provided by the cedents and the
Group’s internal monitoring activities. Obligations with credit deterioration are split into two
categories. Category 1 (Special mention) encompasses transactions that are still currently
performing, but where indicators point to an increased risk of default. Category 2 (Workout)
includes insured financial obligations that are characterised as non-performing and a reserve
has been reported by the cedent. A default may have occurred or is seen as likely to occur in
the future. As of 31 December 2008, the notional exposures and claims liabilities allocated
to categories 1 and 2 were as follows:
As of 31 December 2008
CHF millions
Category 1
Category 2
% of total notional
Notional exposure
728
607
(CHF 15 857 million) Claims liabilities
7
5%
142
4%
As of 31 December 2008, total technical provisions for financial guarantee reinsurance
amounted to CHF 512 million, which includes unpaid claims and claims adjustment expenses
of CHF 149 million and unearned premiums of CHF 363 million.
Swiss Re 2008 Annual Report 175
Financial statements / Notes to the Group financial statements
11 Earnings per share
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 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 2007 and 2008,
the Group’s dividends per share were CHF 3.40 and CHF 4.00, respectively.
CHF millions (except share data)
Basic earnings per share
Income/loss available to common shares
Weighted average common shares outstanding
Net income/loss per share in CHF
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
Diluted earnings per share
Net income assuming debt conversion and exercise of options
Weighted average common shares outstanding
Net income/loss per share in CHF
2007
2008
4 162
–864
348 214 512 331 024 378
–2.61
11.95
143
35 261 146
4 305
383 475 658
11.23
–2.61
The effects of debt conversion and the issuance of employee options have not been
included in the 2008 earnings/losses per share. The resulting change of 26 887 844 shares
for the year ended 31 December 2008 was anti-dilutive.
At the company’s 144th Ordinary General Meeting held on 18 April 2008, the shareholders
approved the cancellation of 17.3 million shares with a total value of CHF 1.45 billion. These
shares were repurchased under the share buy-back programme agreed at the 2007 Ordinary
General Meeting. The shares were cancelled in accordance with Article 733 of the Swiss
Code of Obligations.
176 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
12 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 tax expense
Deferred tax expense/benefit
Income tax expense/benefit
2007
482
543
1 025
2008
560
–1 046
–486
Tax rate reconciliation
The following table reconciles the expected tax expense at the Swiss statutory tax rate to the
actual tax benefit in the accompanying income statement:
CHF millions
Income tax at the Swiss statutory rate of 21.0%
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 valuation allowance
Basis differences in subsidiaries
Change in statutory tax rates
FIN 48 including interest and penalties
Business restructuring
Life tax adjustments
Other, net
Total
2007
1 089
247
–125
75
–141
–41
–21
–170
83
45
–15
–1
1 025
2008
–284
384
–30
9
–39
604
–517
–21
–88
–250
–79
–175
–486
Swiss Re 2008 Annual Report 177
Financial statements / Notes to the Group financial statements
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
Unrealised losses on investments
Pension provisions
Benefit on loss carryforwards
Currency translation adjustments
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
DFI losses
Other
Total
2007
2008
667
1849
191
148
2084
265
941
6145
–994
5 151
–1710
–500
–203
–632
–1113
–553
–446
–277
–1 705
–7 139
509
651
650
264
4 396
574
1 388
8 432
–2 007
6 425
–1586
–147
–223
–724
–840
–169
–666
–389
–1 561
–6 305
Deferred income taxes
–1 988
120
FIN 48 liabilities including interest and penalites
–1 829
–1 449
Deferred and other non-current taxes
–3 817
–1 329
Deferred taxes have not been recognised on the undistributed earnings of certain foreign
subsidiaries 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
2008 was approximately 6 769 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 2008, the Group had CHF 14 231 million net operating tax loss
carryforwards, including mark to market losses, expiring as follows: CHF 25 million in 2009,
CHF 28 million in 2010, CHF 45 million in 2011, CHF 14 million in 2012, CHF 1 484 million
in 2013, CHF 6 931 million after 2013 and CHF 5 704 million do not expire. The Group also
had capital loss carryforwards of CHF 453 million, expiring as follows: CHF 113 million
in 2009, CHF 46 million in 2011, CHF 17 million in 2012, CHF 275 million in 2013, and
CHF 2 million never expire. Net operating losses of CHF 726 million were utilised or expired
during the period ended 31 December 2008.
178 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Income taxes paid in 2007, as revised from prior report, and through 31 December 2008
were CHF 376 million and 147 million, respectively.
FIN 48
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 current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Settlements
Balance as of 31 December 2008
2007
1667
233
259
–89
–106
1964
2008
1964
123
33
–538
–174
1408
The amount of gross unrecognised tax benefits within the tabular reconciliation that,
if recognised, would affect the effective tax rate were approximately CHF 1 535 million and
CHF 856 million as of 1 January 2008 and 31 December 2008, respectively. Interest
and penalties related to unrecognised tax benefits are recorded in income tax expense. Such
expense for the period ending 31 December 2008 was CHF 63 million. As of 1 January 2008
and 31 December 2008, CHF 240 million and CHF 268 million, respectively, has been
accrued for the payment of interest (net of tax benefits) and penalties. The 31 December
2008 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 2008 balance of gross unrecognised tax benefits presented in the table
above is less 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 227 million)
and the removal of interest expense (CHF 268 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.
During the year, the Group had met the effectively settled definition within FIN 48 for various
tax positions and audits in Switzerland, the United Kingdom and the United States.
The Group continually evaluates proposed adjustments by taxing authorities. The Group
believes that it is reasonably possible (more than remote and less than likely) that the balance
of unrecognised tax benefits could increase or decrease over the next 12 months due to
settlements or expiration 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 – 2008
1997 – 2008
2005 – 2008
2005 – 2008
2002 – 2008
Swiss Re 2008 Annual Report 179
Financial statements / Notes to the Group financial statements
Defined benefit pension
plans and post-retirement
benefits
13 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.
In June 2008, the Group communicated its intention to change the structure of its Swiss
other post-retirement benefits plan. The change is effective as of 1 July 2009 and results in
a decrease of the accumulated benefit obligation of CHF 130 million in the current period.
Effective as of 1 January 2007, Swiss Re Group 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 benefit plan under US GAAP.
The Group also provides certain healthcare and life insurance benefits for retired employ ees
and their dependants. Employees become eligible for these benefits when they become
eligible for pension benefits.
The measurement date of these plans is 30 September (except for one UK pension plan
with a measurement date as of 31 December) for the year 2007, and 31 December for the
year 2008.
180 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
CHF millions
Benefit obligation as
of 1 January
Adjustment to retained
earnings
Service cost
Interest cost
Amendments
Actuarial gains/losses
Benefits paid
Employee contribution
Acquisitions/disposals/
additions
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
Adjustment to retained
earnings
Actual return on plan
assets
Company contribution
Benefits paid
Employee contribution
Acquisitions/disposals/
additions
Effect of foreign currency
translation
Fair value of plan assets
as of 31 December
Funded status
Swiss plans
pension benefits
2008
2007
Foreign plans
pension benefits
2008
2007
Other benefits
2007
2008
2 893
2 743
2 349
2 212
670
462
28
20
–231
–13
11
15
17
–130
–22
–15
98
88
–209
–158
16
15
48
98
93
27
–204
22
70
122
–183
–73
1
8
–2
39
54
115
–235
–83
1
6
–27
–80
–440
–12
–13
2 743
2 827
2 212
1 642
462
325
2 920
3 169
1 543
1 970
38
–432
83
–204
22
275
116
–158
16
29
–294
172
–83
1
146
410
–73
1
10
–29
–67
–404
13
–13
15
–15
3 169
426
2 676
–151
1 970
–242
1 362
–280
–462
–325
Amounts recognised in the balance sheet in 2008 consist of:
CHF millions
Non current assets
Current liabilities
Non current liabilities
Net amount recognised
Swiss plan
–151
–151
Foreign
plans
93
–373
–280
Other
benefits
–14
–311
–325
Total
93
–14
–835
–756
Swiss Re 2008 Annual Report 181
Financial statements / Notes to the Group financial statements
Amounts recognised in accumulated other comprehensive income, gross of tax, in 2008
consist of:
Net gain/loss
Prior service cost/credit
Total
Swiss plan
710
63
773
Foreign
plans
242
242
Other
benefits
–170
–153
–323
Total
782
–90
692
Components of net periodic
benefit cost
Components of net periodic benefit cost and other amounts recognised in other
comprehensive 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
2008
2007
Foreign plans
pension benefits
2008
2007
Other benefits
2007
2008
98
88
–141
98
93
–152
17
7
15
84
7
46
70
122
–101
28
1
–2
118
54
115
–118
6
–9
48
28
20
–7
–8
15
17
–10
–11
33
11
Other changes in plan assets and benefit obligations recognised in other comprehensive
income consist of:
CHF millions
Adjustment to retained
earnings
Net gain/loss
Prior service cost/credit
Amortisation of:
Net gain/loss
Prior service cost
Exchange rate gain/loss
recognised during the year
Total recognised in other
comprehensive
income, gross of tax
Total recognised in net
periodic benefit cost and
other comprehensive
income, gross of tax
Swiss plan
Foreign plans
Other benefits
–2
610
–7
–2
177
–4
–54
4
–22
–130
10
11
2
601
117
–125
Total
0
765
–130
6
4
–52
593
647
165
–114
698
182 Swiss Re 2008 Annual Report
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 12 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 10 million and CHF 14 million, respectively.
The accumulated benefit obligation (the current value of accrued benefits excluding future
salary increases) for pension benefits was CHF 4 642 million and CHF 4 282 million as of
31 December 2007 and 2008, 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
2007
1 096
981
784
2008
3 634
3 512
3 149
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
2008
2007
Foreign plans
pension benefits
weighted average
2008
2007
Other benefits
weighted average
2008
2007
3.5%
2.3%
3.3%
2.3%
5.8%
4.7%
5.9%
3.3%
4.5%
4.5%
4.6%
4.1%
3.2%
3.5%
5.2%
5.8%
3.9%
4.5%
5.0%
2.3%
5.0%
2.3%
6.4%
4.5%
6.4%
4.7%
4.5%
4.5%
7.1%
4.6%
7.2%
4.5%
2015
2015
Swiss Re 2008 Annual Report 183
Principal actuarial
assumptions
Financial statements / Notes to the Group financial statements
The expected long-term rates of return on plan assets are based on long-term expected
inflation, 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 2008:
CHF millions
Effect on total of service and interest cost components
Effect on post-retirement benefit obligation
1 percentage
point increase
2
34
1 percentage
point decrease
–2
–27
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 2007 and 2008, are as follows:
Asset category
Equity securities
Debt securities
Real estate
Other
Total
Swiss plans actual allocation
Foreign plans actual allocation
Swiss plans
Foreign plans
2007
2008
2007
2008
Target allocation
34%
45%
14%
7%
100%
12%
52%
18%
18%
100%
51%
46%
1%
2%
100%
35%
60%
2%
3%
100%
30%
42%
18%
10%
100%
39%
57%
3%
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 11 million (0.2% of total plan assets)
and CHF 3 million (0.1% of total plan assets) as of 31 December 2007 and 2008,
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.
The employer contributions expected to be made in 2009 to the defined benefit pension
plans are CHF 190 million and to the post-retirement benefit plan are CHF 14 million.
Expected contributions
and estimated future benefit
payments
184 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
As of 31 December 2008, the projected benefit payments, which reflect expected future
service, not adjusted for transfers in and for employees voluntary contributions, are as follows:
CHF millions
2009
2010
2011
2012
2013
Years 2014 – 2018
Swiss plans
pension benefits
127
132
142
135
137
764
Foreign plans
pension benefits
61
63
67
71
75
447
Other
benefits
14
16
17
18
19
111
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 2007 and in 2008 was
CHF 48 million and CHF 48 million, respectively.
The Group changed the measurement date for its employee benefit plans from 30 September
to 31 December for its 2008 financial statements in accordance with new generally accepted
accounting guidance effective as of 1 January 2008. The corresponding adjustment to
the opening balance of retained earnings and accumulated other comprehensive income was
CHF 31 million and nil, respectively.
Defined contribution pension
plans
Impact of new accounting
guidance
Swiss Re 2008 Annual Report 185
Financial statements / Notes to the Group financial statements
14 Share-based payments
As of 31 December 2007 and 2008, the Group had the share-based compensation plans
described below.
Total compensation cost for share-based compensation plans recognised in net income was
CHF 31 million and CHF 41 million in 2007 and 2008, respectively. The related tax benefit
was CHF 7 million and CHF 9 million, respectively.
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 and 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 plans is as follows:
Outstanding as of 1 January
Options exercised
Options sold
Options forfeited or expired
Outstanding as of 31 December
Weighted average
exercise price in CHF
123
68
105
147
120
2008
Number of
Shares
7 936 234
–10 000
–94 700
–850 492
6 981 042
Exercisable as of 31 December
127
5 853 192
No options were granted under this plan from 2007 onwards.
The following table summarises the status of stock options outstanding as of 31 December
2008:
Range of exercise
prices in CHF
67 – 99
128 – 187
67 – 187
Number of
options
3 345 994
3 635 048
6 981 042
Weighted average remaining
contractual life in years
7.0
10.3
8.7
Weighted average exercise
price in CHF
82
155
120
The fair value of each option grant was 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.
186 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Options exercisable
The status of stock options exercisable as of 31 December 2008 is summarised as follows:
Restricted shares
Long-term Incentive plan
Stock appreciation rights
Range of exercise
prices in CHF
67 – 99
128 – 187
67 – 187
Number exercisable (vested)
2 218 144
3 635 048
5 853 192
Weighted average remaining
contractual life in years
6.5
7.8
7.3
Weighted average exercise
price in CHF
81
155
127
The Group introduced a restricted-share plan during 2004 to complement the fixed-option
plan. In 2007 and 2008, nil and 772 248 restricted shares were issued under this plan,
respectively. In addition, restricted bonus shares were issued during 2007 and 2008 of
69 770 and 389 506 shares, respectively.
A summary of shares relating to outstanding awards granted under the above-mentioned
plans as of 31 December 2008 is presented below:
Non-vested at January 1
Granted
Delivery of restricted shares
Forfeited
Outstanding as of 31 December
Number of shares
665 885
1 161 754
–139 509
–25 877
1 662 253
Weighted average
grant date fair value
79
82
93
85
84
The weighted average fair value of restricted shares, which equals the market price of the
shares on the date of the grant, was CHF 108 and CHF 84 in 2007 and 2008, respectively.
Starting in 2006, the Group annually grants a Long-term Incentive plan (LTI) to selected
employees with a three-year vesting period. The plans are expected to be settled in cash.
The requisite service periods as well as the maximum contractual term for each plan is three
years. The method to estimate fair value is based on a risk neutral approach that 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 following key performance indicators are also taken into
consideration: three-year average return on equity (ROE) and three-year earnings per share
compound annual growth rate (EPS CAGR). Fair value is revised at every balance sheet date.
In 2006, the Group issued 3 million stock appreciation rights (SAR) as an extraordinary grant
following the Insurance Solutions acquisition. The plan will be settled in cash. The requisite
service period is 2 years, which vested in June 2008, while the maximum contractual term is
5 years. The fair value of the appreciation rights are estimated at date of grant using a
binomial option-pricing model and is revised at every balance sheet date until exercise.
Swiss Re 2008 Annual Report 187
Financial statements / Notes to the Group financial statements
Unrecognised compensation
costs
As of 31 December 2008, the total unrecognised compensation cost (net of expected
forfeitures) related to non-vested, share-based compensation awards was CHF 15 million and
the weighted average period over which that cost is expected to be recognised was 2.1
years.
The number of shares authorised for the Group’s share-based payments to employees was
1 204 155 and 649 773 as of 31 December 2007 and 2008, respectively.
For the Groups outstanding LTI plans, the unrecognised compensation costs are based on
the fair value that is revised at every balance sheet date. Based on the calculated fair value as
at 31 December 2008, the Group does not expect to recognise further compensation costs
related to outstanding LTI plans.
Employee participation plan
The Groups employee participation plan consists of a savings scheme lasting two or
three years. Employees combine regular savings with the purchase of either actual or tracking
options. The Group contributes to the employee savings over the period of the plan.
At maturity, either the employee receives shares or cash equal to the accumulated savings
balance, or the employee may elect to exercise the options.
In 2007 and 2008, 980 711 and 1 222 339 options, respectively, were issued to employees
and the Group contributed CHF 19 million and CHF 18 million, respectively, to the plan.
188 Swiss Re 2008 Annual Report
Compensation for acting
members of governing bodies
Board of Directors
Financial statements / Notes to the Group financial statements
15 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 Group’s Board of
Directors and Executive Committee, as well as 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 by individual. For a description of the elements of this compensation, please see
page 118 in the corporate governance and compensation report.
Members of the Board of Directors 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. Prior to 2008, the Chairman and Vice Chairman were remunerated
through a fixed honorarium and a variable bonus. The share price as of 2 March 2007 of
CHF 107.90 and the share price as of 29 February 2008 of CHF 84.10 have been used for
calculating the number of shares awarded based upon the amount of the honorarium
received in shares. There was one exception for an honorarium granted in September 2008
where the share price of CHF 64.00 was used to calculate the number of shares awarded.
Total compensation of the members of the Board of Directors was as follows:
CHF thousands
Honorarium and cash allowances
Honorarium shares
Funding of pension benefits
Total
2007
5 761
4 248
223
10 232
2008
5 772
4 561
167
10 500
Individual compensation of the Chairman and the Vice Chairman of the Board of Directors
for 2007 was as follows:
2007
CHF thousands
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
Total
Honorarium and
cash allowances
2 600
1 288
3 888
Honorarium
shares
667
1 382
2 049
Pension
223
223
Total
3 267
2 893
6 160
Swiss Re 2008 Annual Report 189
Financial statements / Notes to the Group financial statements
Individual compensation of the remaining members of the Board of Directors for 2007 was
as follows:
2007
CHF thousands
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, Former 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
392
195
Honorarium
shares
393
130
325
354
59
163
195
255
97
163
1 873
233
39
162
130
227
170
228
162
2 199
Total
785
325
325
587
98
325
325
227
425
325
325
4 072
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.
Individual compensation of the Chairman and the Vice Chairman of the Board of Directors
granted in 2008 was as follows:
2008
CHF thousands
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
Total
Honorarium and
cash allowances
1 980
1 302
3 282
Honorarium
shares
1 320
1 244
2 564
Pension
167
167
Total
3 300
2 713
6 013
Honorariums are set at the beginning of each year and as such are not subject to the
performance of the company. In recognition of the difficulties faced by the company in the
current financial environment, the Chairman and the Vice Chairman have each elected to
forego 50% of their 2008 honorarium in 2009.
190 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Individual compensation of the remaining members of the Board of Directors granted in 2008
was as follows:
2008
CHF thousands
Jakob Baer, Chairman of the Audit Committee
Thomas W. Bechtler, Member
Raymund Breu, Member
Mathis Cabiallavetta, Chairman of the Investment
Committee1
Raymond K.F. Ch’ien, Member2
John R. Coomber, Chairman of the Finance
and Risk Committee
Rajna Gibson Brandon, Member
Bénédict G.F. Hentsch, Member
Hans Ulrich Maerki, Member
Robert A. Scott, Chairman of the
Compensation Committee
John F. Smith, Jr., Former member3
Kaspar Villiger, Member
Total
Honorarium and
cash allowances
480
195
Honorarium
shares
320
130
325
200
137
395
195
195
195
255
48
195
2 490
133
91
260
130
130
130
170
48
130
1 997
Total
800
325
325
333
228
655
325
325
325
425
96
325
4 487
1 Elected to the Board of Directors at the Annual General Meeting of 18 April 2008, with effect as of 1 September 2008.
2 Elected to the Board of Directors at the Annual General Meeting of 18 April 2008.
3 Retired from the Board of Directors at the Annual General Meeting of 18 April 2008.
Executive Committee
Total compensation for members of the Executive Committee was as follows:
CHF thousands
Base salary and allowances
Cash variable pay for performance
Total cash
Value alignment incentive (VAI)1
Shares
Long-term Incentive plan grant (LTI) 2
Subtotal
Compensation due to member leaving
Contractual commitments due to new members
Funding of pension benefits
Total
Change in fair value of plans vesting over several years
2007
8 868
10 229
19 097
12 243
2 862
16 000
50 202
2 280
1 494
53 976
4 671
2008
8 417
5 625
14 042
4 219
2 500
17 500
38 261
9 124
1 084
48 469
–53 087
1 Includes 25% uplift on nominal value, which will be paid out at vesting after three years.
2 For 2007 disclosure, the LTI plan granted was presented net of grant which included an adjustment to fair value as
at balance sheet date. For 2008 and going forward, the amounts for LTI represent the grant value of the plan for the
respective year and the changes in the fair value of the LTI plan as at balance sheet date are reflected in the
line “Change in fair value of plans vesting over several years”. 2007 numbers have been revised accordingly.
The fair values of the Value Alignment Incentive (VAI) granted in the current year are based
on the nominal amount of the grant and a mark-up of 25% on nominal value. Subsequently,
the fair values of VAI’s granted are updated based on actual results for the years covered by
the grants. For a description of the VAI plans, see page121 of the corporate governance and
compensation report.
Swiss Re 2008 Annual Report 191
Financial statements / Notes to the Group financial statements
Amounts reported under shares relate to bonus shares and restricted stock units granted.
The bonus plan stipulates that Executive Committee members decide on the split between
cash and bonus shares and the shares granted are subject to a one-year blocking period.
Members of the Executive Committee are granted Long-term Incentive (LTI) plans. The plans
are expected to be settled in cash and the requisite service periods as well the maximum
contractual term for each plan is three years. The method to estimate fair value is based on a
risk neutral approach that 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 following key performance
indicators are also taken into consideration: three-year average return on equity (ROE) and
three-year earnings per share compound annual growth rate (EPS CAGR). The fair values of
the LTI plans were based on the actual results for those years and the forecast years covered
by the plans. For further information on LTI plans, see page 121 of the corporate governance
and compensation report.
For US GAAP reporting purposes, the cost of the bonus shares, VAI and LTI awards are
accrued over the period during which they are earned. For the current compensation
disclosure purposes the value of awards granted is included as compensation in the year of
grant and the change in the fair value of both current and prior-year awards are reflected
separately from the grant value.
Contractual commitments due to new members represent long-term incentives granted to
replace agreements with former employers that were forgone upon joining Swiss Re Group.
As of 1 January 2007, Swiss Re Group converted the pension fund in Switzerland from a
defined benefit plan to a defined contribution plan (as defined under Swiss Law), requiring
actuarially 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 approximately CHF 4.8 million in total for the Board of Directors and the Executive
Committee. Therefore, certain members of the Board of Directors and the Executive
Committee 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.
192 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Highest paid member of
the Executive Committee
In 2007, Jacques Aigrain, Chief Executive Officer, was the highest paid member of the
Executive Committee. In 2008, the highest paid member was David J. Blumer, Head of Asset
Management. Their respective compensation was as follows:
Jacques Aigrain, Chief Executive Officer
CHF thousands
Base salary and allowances
Cash variable pay for performance
Total cash
Value alignment incentive (VAI)1
Long-term Incentive plan grant (LTI) 2
Subtotal
Funding of pension benefits
Total
Change in fair value of plans vesting over several years
2007
1 475
2 600
4 075
4 875
5 000
13 950
223
14 173
1 557
2008
1 486
1 486
5 000
6 486
167
6 653
–16 900
1 Includes 25% uplift on nominal value, which will be paid out at vesting after three years.
2 For 2007 disclosure, the LTI plan granted was presented net of grant which included an adjustment to fair value as at
balance sheet date. For 2008 and going forward, the amounts for LTI represent the grant value of the plan for the
respective year and the changes in the fair value of the LTI plan as at balance sheet date are reflected in the line “Change
in fair value of plans vesting over several years”. 2007 numbers have been revised accordingly.
David J. Blumer, Head of Asset Management
CHF thousands
Base salary and allowances
Cash variable pay for performance
Total cash
Shares
Long-term Incentive plan grant
Subtotal
Contractual commitments1
Funding of pension benefits
Total
Change in fair value of plans vesting over several years
2008
854
1 500
2 354
2 500
2 500
7 354
6 998
111
14 463
–2 500
1 Represents long-term incentives granted by the former employer which were replaced in the form of Swiss Re shares
at a value of CHF 86.40 per share.
Compensation of former
members of governing bodies
The compensation of former members of the Executive Committee relates to residual
payments made to a former member.
CHF thousands
Former members of the Executive Committee
Total
2007
530
530
2008
10
10
Share ownership, options
and related instruments
The disclosure below follows article 663c para. 3 of the Swiss Code of Obligations which
requires disclosure of share ownership, options and related instruments individually for each
member of the Board of Directors and Executive Committee, including shares, options
and related instruments held by persons closely related to, and by companies controlled by
members of the Board of Directors and Executive Committee.
Swiss Re 2008 Annual Report 193
Financial statements / Notes to the Group financial statements
The numbers of shares held as of 31 December 2007 and 2008 were as follows:
Members of the Board of Directors
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
Jakob Baer, Chairman of the Audit Committee
Thomas W. Bechtler, Member
Raymund Breu, Member
Mathis Cabiallavetta, Chairman of the Investment Committee
Raymond K.F. Ch’ien, Member
John R. Coomber, Chairman of the Finance and Risk Committee
Rajna Gibson Brandon, Member
Bénédict G.F. Hentsch, Member
Hans Ulrich Maerki, Member
Robert A. Scott, Chairman of the Compensation Committee
John F. Smith, Jr., Former Member
Kaspar Villiger, Member
Total
Members of the Executive Committee
Jacques Aigrain, Chief Executive Officer
Stefan Lippe, Deputy Chief Executive Officer and
Chief Operating Officer
Andreas Beerli, Head of Associated Units and Special Projects
Brian Gray, Chief Underwriting Officer1
Michel M. Liès, Head of Client Markets
George Quinn, Chief Financial Officer
Christian Mumenthaler, Former Chief Risk Officer2
Total
1 Appointed to the Executive Committee on 1 September 2008.
2 Stepped down from the Executive Committee on 31 December 2007.
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
2008
132 398
155 301
14 141
13 081
16 072
1 961
1 086
116 633
12 986
11 301
7 762
11 271
6 379
500 372
2007
236 275
2008
249 620
39 100
30 828
48 093
14 929
2 419
371 644
55 371
38 178
3 207
51 482
17 145
415 003
Restricted shares
In 2004 and 2005, the beneficiaries of the Long-term equity award programme received, as
an alternative to 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.
194 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
The following unvested restricted shares were held by members of governing bodies as
of 31 December 2007 and 2008:
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
Average share price in CHF
as of grant date
Jacques Aigrain,
Chief Executive Officer
Stefan Lippe,
Deputy Chief Executive Officer
and Chief Operating Officer
Andreas Beerli,
Head of Associated Units
and Special Projects
David J. Blumer,
Head of Asset Management
Brian Gray,
Chief Underwriting Officer
Michel M. Liès,
Head of Client Markets
Raj Singh,
Chief Risk Officer
Christian Mumenthaler,
Former Chief Risk Officer
Total
As of 31 December 2007
2005
2004
As of 31 December 2008
2005
93.00
10 000
82.85
5 000
82.85
5 000
As of 31 December 2007
2005
2004
As of 31 December 2008
2008
2005
93.00
82.85
82.85
86.29
13 750
13 750
9 125
8 750
7 500
7 500
7 500
750
3 750
3 750
81 000
4 000
1 250
8 750
5 000
39 125
34 500
85 000
Swiss Re 2008 Annual Report 195
Financial statements / Notes to the Group financial statements
Unvested options
The following unvested options were held by members of governing bodies as of
31 December 2007 and 2008:
Members of the Board of Directors
Average strike price in CHF as of grant date
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
John R. Coomber, Chairman of the Finance and Risk Committee
Total
Members of the Executive Committee
Average strike price in CHF as of grant date
Jacques Aigrain, Chief Executive Officer
Stefan Lippe, Deputy Chief Executive Officer and Chief Operating
Officer
Brian Gray, Chief Underwriting Officer
Michel M. Liès, Head of Client Markets
George Quinn, Chief Financial Officer
Total
2007
87.12
20 000
40 000
130 000
190 000
Number of options
2008
82.85
20 000
20 000
70 000
110 000
2007
92.95
150 000
Number of options
2008
93.51
100 000
41 000
42 000
25 000
258 000
3 000
15 000
10 000
128 000
Options have a four-year vesting period, during which there is a risk of forfeiture, and
an exercise 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.
The range of expiry years for unvested options held by members of governing bodies
was 2014 to 2015 as of 31 December 2007 and 2015 as of 31 December 2008.
196 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Vested options
The following vested options were held by members of governing bodies as of
31 December 2007 and 2008:
Members of the Board of Directors
Average strike price in CHF as of grant date
Peter Forstmoser, Chairman
Walter B. Kielholz, Vice Chairman
John R. Coomber, Chairman of the Finance and Risk Committee
Total
Members of the Executive Committee
Average strike price in CHF as of grant date
Jacques Aigrain, Chief Executive Officer
Stefan Lippe, Deputy Chief Executive Officer
and Chief Operating Officer
Andreas Beerli, Head of Associated Units and Special Projects
Brian Gray, Chief Underwriting Officer
Michel M. Liès, Head of Client Markets
George Quinn, Chief Financial Officer
Christian Mumenthaler, Former Chief Risk Officer
Total
2007
111.68
30 000
337 950
207 000
574 950
Number of options
2008
129.72
30 000
230 000
256 000
516 000
Number of options
2008
114.94
140 000
2007
123.53
90 000
86 400
103 600
104 000
24 600
2 000
410 600
112 400
101 200
16 200
123 000
39 600
532 400
The range of expiry years for vested options held by members of governing bodies as of
31 December 2007 and 2008 was 2008 to 2013 and 2009 to 2014, respectively.
Loans to members of
governing bodies
The following loans were granted to members of governing bodies as of 31 December 2007
and 2008:
CHF thousands
Mortgages and loans to members of the Board of Directors
Walter B. Kielholz, Vice Chairman
Total mortgages and loans to members of the Executive Committee
Highest mortgages and loans to an individual member of the
Executive Committee
2007
2008
2 000
8 585
2 000
6 004
Andreas Beerli, Head of Associated Units and Special Projects
3 000
3 000
Total mortgages and loans not at market conditions to former
members of the Executive Committee
4184
4 528
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 of Swiss Re Groups 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 mortgages have no agreed maturity dates. The basic preferential interest
rates equal the corresponding 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.
Swiss Re 2008 Annual Report 197
Financial statements / Notes to the Group financial statements
16 Commitments and contingent liabilities
Leasing commitments
As part of its normal business operations, the Group enters into a number of lease
agreements. Such agreements, which are operating leases, total the following obligations
for the next five years and thereafter:
As of 31 December 2008
2009
2010
2011
2012
2013
After 2013
Total operating lease commitments
Less minimum non-cancellable sublease rentals
Total net future minimum lease commitments
CHF millions
78
73
65
57
48
509
830
–95
735
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
2007
69
–3
66
2008
74
–4
70
As a participant in limited investment partnerships, the Group commits itself to making
available 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 2008 were
CHF 2 757 million.
The Group enters into a number of contracts in the ordinary course of reinsurance
and asset management 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.
On 27 February 2008, a putative securities class action complaint was filed in the United
States District Court for the Southern District of New York against Swiss Re Zurich and certain
executive officers alleging false and misleading statements in connection with the two credit
default swaps in violation of the antifraud provisions of the U.S. securities laws. The original
complaint purports to be brought on behalf of U. S. purchasers of our stock between 8 May
2007 and 19 November 2007. On 28 July 2008, the court appointed Plumbers’ Union Local
No. 12 Pension Fund as the lead plaintiff for the class action. On 10 September 2008, an
amended complaint was filed which, among other things, seeks to expand the class period to
1 March 2007 through 19 November 2007. On 10 November 2008, Swiss Re Zurich filed
a motion seeking to dismiss the amended complaint on legal grounds. The lead plaintiff filed
its response to the motion on 9 January 2009, and Swiss Re Zurich’s reply brief is due in
February 2009. We intend to vigorously defend against the action.
Other commitments
Putative class action suit
198 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Legal proceedings
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.
Swiss Re 2008 Annual Report 199
Financial statements / Notes to the Group financial statements
17 Information on business segments
The Group provides reinsurance, insurance and capital market solutions for clients that
complement our (re)insurance offering throughout the world through its business segments.
The business segments are determined by the organisational structure and by the way in
which management reviews the operating result of the Group.
As a reaction to the current unprecedented market turmoil, Swiss Re had to reassess its
business strategy with respect to its Asset Management function and the way this impacts
its reportable segments.
The former Financial Markets Segment has been split into two areas: Asset Management
which focuses on generating stable risk adjusted investment returns on assets generated
through (re)insurance activities and the provision of certain specific capital markets insurance
solutions and Legacy which contains discontinued activities formerly in Financial Markets or
Property and Casualty.
Following the new structure, the Group presents four operating business segments:
Property & Casualty, Life & Health, Asset Management and Legacy. Items not allocated to
these four business segments are included in the “Group items” column.
The Property & Casualty segment consists of the following sub-segments: Property traditional,
Casualty traditional, Specialty traditional and non-traditional business. The Specialty
traditional sub-segment includes certain parts of the former Credit Solutions business, Credit
Reinsurance, Bank Trade Finance, and Credit securitisations. Certain parts of the former
Financial Markets unit are included in the Property & Casualty business segment, including
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 Financial Markets unit
are now included in the Life & Health business segment, including variable annuity business.
The Asset Management business segment includes two separate sub-segments “
Credit & Rates” and “Equity and Alternative Investments” resulting from the aggregation of
Asset Management Risk Stripes. The Asset Management business segment includes
proprietary returns on the Group’s invested fixed income securities, equity securities and
alternative investments. Third-party asset management is included in Credit & Rates.
200 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Non-core activities have been consolidated into the new segment Legacy. These activities,
which have been in run-off since November 2007, are managed separately from the Asset
Management division. Legacy includes Financial Guarantee Re business, SCDS, PCDS and
further assets in the former Group’s trading book including Credit Correlation, Collateralised
Fund Obligations and other non-core activities.
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 and other items not considered 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 Asset Management business segment and directly allocated to the
Property & Casualty and Life & Health business segments.
The allocation of investment result to Property & Casualty and Life & Health is determined
based on US GAAP reinsurance liabilities. The new methodology applies a risk-free return to
the nominal net reserves at the end of the prior quarter. The risk-free interest rate applied
to the reserves is determined by currency and duration of the underlying Property & Casualty
and Life & Health reserves. The Allocation column eliminates the calculated investment result
allocated to either the Property & Casualty or the Life & Health business segments.
2007 information is disclosed accordingly to 2008 segments presentation basis.
The accounting policies of the business segments are in line with those described in the
summary of significant accounting policies (see Note 1).
Swiss Re 2008 Annual Report 201
Financial statements / Notes to the Group financial statements
a) Business segment results
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
Return credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Property &
Casualty
Life & Health
Asset
Management
Legacy
Group items
Allocation
Total
18 977
3 188
–283
97
21 979
12 665
955
4 106
799
5
18 530
7 895
427
125
8 447
–12 049
–3 826
–1 633
–11 112
–2 120
–2 665
–1 313
22
3
–1 506
–1 481
–16
–8
–17 508
–17 210
0
–24
469
–176
75
368
–4 969
–4 969
–626
–1 814
–2 440
–505
–505
31 664
955
10 692
–739
302
42 874
–23 177
–2 120
–6 499
–4 077
–1 814
–37 687
Operating income/loss
4 471
1 320
8 447
–1 505
–2 072
–5 474
5 187
2008
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
Return credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Property &
Casualty
Life & Health
Asset
Management
Legacy
Group items
Allocation
Total
14 379
2 607
–145
54
16 895
–9 857
–2 730
–1 562
11 090
808
3 648
–5 022
10 524
–9 065
2 822
–2 626
–958
5 360
480
72
5 912
32
231
–5 997
4
–5 730
–150
–10
–14 149
–9 827
0
–160
575
1 202
140
1 917
–4 540
–4 540
–561
–1 501
–2 062
–130
–130
25 501
808
7 881
–9 482
270
24 978
–19 072
2 822
–5 366
–3 211
–1 501
–26 328
Operating income/loss
2 746
697
5 912
–5 890
–145
–4 670
–1 350
202 Swiss Re 2008 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
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
Property
traditional
Casualty
traditional
Specialty
traditional
Total traditional
Non-traditional
Total
6 464
496
–300
–7
6 653
–2 800
–1 143
–510
–4 453
7 446
1 936
9 382
–6 634
–1 417
–732
–8 783
4 701
477
112
5 290
–2 077
–1 123
–326
–3 526
18 611
2 909
–300
105
21 325
–11 511
–3 683
–1 568
–16 762
366
279
17
–8
654
–538
–143
–65
–746
18 977
3 188
–283
97
21 979
–12 049
–3 826
–1 633
–17 508
Operating income/loss
2 200
599
1 764
4 563
–92
4 471
Claims ratio in %
Expense ratio in %
Combined ratio in %
43.3
25.6
68.9
89.1
28.9
118.0
44.2
30.8
75.0
61.9
28.2
90.1
Property
traditional
Casualty
traditional
Specialty
traditional
Total traditional
Non-traditional
Total
2008
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
4 884
345
–153
5 187
1 658
15
5 076
6 860
–2 654
–623
–463
–3 740
–4 545
–1 010
–691
–6 246
Operating income/loss
1 336
614
Claims ratio in %
Expense ratio in %
Combined ratio in %
54.4
22.2
76.6
87.6
32.8
120.4
3 815
434
22
15
4 286
–2 367
–972
–274
–3 613
673
62.0
32.7
94.7
13 886
2 437
–116
15
16 222
–9 566
–2 605
–1 428
–13 599
493
170
–29
39
673
–291
–125
–134
–550
14 379
2 607
–145
54
16 895
–9 857
–2 730
–1 562
–14 149
2 623
123
2 746
68.9
29.0
97.9
Swiss Re 2008 Annual Report 203
Financial statements / Notes to the Group financial statements
c) Life & Health business segment – by line of business
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
Return credited to policyholders
Acquisition costs
Other expenses
Total expenses
Life traditional Health traditional
Admin Re®
Total
8 311
48
963
–182
5
9 145
–6 226
255
–1 697
–684
–8 352
2 950
457
–65
1 404
907
2 686
1 046
3 342
6 043
–2 239
–596
–159
–2 994
–2 647
–2 375
–372
–470
–5 864
12 665
955
4 106
799
5
18 530
–11 112
–2 120
–2 665
–1 313
–17 210
Operating income/loss
793
348
179
1 320
Operating result, excluding non-participating net realised investment gains/
losses
Net investment income – unit-linked
Net investment income – with-profit business
Net investment income – non-participating
Net realised investment gains/losses – unit-linked
Net realised investment gains/losses – with-profit business
Net realised investment gains/losses – non-participating
Operating revenues1
Management expense ratio in %
Benefit ratio2 in %
413
–1
966
554
111
852
–421
457
239
–65
638
311
1 737
933
–67
180
749
311
3 046
512
–67
354
9 216
3 407
4 048
16 671
7.4
4.7
11.6
7.9
87.0
1 Operating revenues exclude net investment income and net realised investment gains/losses from unit-linked and with-profit business as these are passed through to contract holders
and therefore do not have an impact on the operating result. Operating revenues also exclude net realised investment gains/losses from non-participating business.
2 The benefit ratio is calculated as claims divided by premiums earned, both of which exclude unit-linked and with-profit business.
204 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Life & Health business segment – by line of business
For the years ended 31 December
2008
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
Return credited to policyholders
Acquisition costs
Other expenses
Total expenses
Life traditional Health traditional
Admin Re®
Total
7 773
66
943
–1 225
2 434
412
–250
883
742
2 293
–3 547
11 090
808
3 648
–5 022
7 557
2 596
371
10 524
–6 162
884
–1 663
–480
–7 421
–1 671
–453
–179
–2 303
–1 232
1 938
–510
–299
–103
–9 065
2 822
–2 626
–958
–9 827
Operating income/loss
136
293
268
697
Operating result, excluding non-participating net realised investment
gains/losses
Net investment income – unit-linked
Net investment income – with-profit business
Net investment income – non-participating
Net realised investment gains/losses – unit-linked
Net realised investment gains/losses – with-profit business
Net realised investment gains/losses – non-participating
Operating revenues1
Management expense ratio in %
Benefit ratio2 in %
543
48
926
335
120
823
–1 026
412
–199
–250
647
249
1 397
–3 026
–741
220
767
249
2 632
–4 052
–741
–229
8 662
2 846
3 022
14 530
5.5
6.3
9.9
6.6
85.5
1 Operating revenues exclude net investment income and net realised investment gains/losses from unit-linked and with-profit business as these are passed through to contract holders
and therefore do not have an impact on the operating result. Operating revenues also exclude net realised investment gains/losses from non-participating business.
2 The benefit ratio is calculated as claims divided by premiums earned, both of which exclude unit-linked and with-profit business.
Swiss Re 2008 Annual Report 205
Financial statements / Notes to the Group financial statements
d) Asset Management
For the years ended 31 December
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
Operating income/loss
2008
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
206 Swiss Re 2008 Annual Report
Credit & Rates
Equity & Alternative
Investments
7 390
–1 045
125
6 470
505
1 472
1 977
Total
7 895
427
125
8 447
0
0
0
6 470
1 977
8 447
Credit & Rates
Equity & Alternative
Investments
6 297
807
80
7184
–937
–327
–8
–1272
Total
5 360
480
72
5912
0
0
0
7 184
–1 272
5 912
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
Australia
France
Italy
Switzerland
Spain
Netherlands
Japan
Other
Total
2007
13 387
4 788
1 983
1 314
997
1 220
994
832
704
623
563
5 214
32 619
2008
10 558
3 677
1 486
1 069
943
896
849
713
642
632
521
4 323
26 309
Swiss Re 2008 Annual Report 207
Financial statements / Notes to the Group financial statements
18 Subsidiaries, equity investees and variable interest entities
Subsidiaries and equity
investees
Subsidiaries and equity investees
Europe
Denmark
Swiss Re Denmark Holding ApS
Swiss Re Denmark Reinsurance A/S
France
Frasecur Société d’Investissement à Capital Variable 1
Protegys Assurance
Germany
ROLAND Partner Beteiligungsverwaltung GmbH
Swiss Re Frankona Rückversicherungs AG
Swiss Re Germany AG
Swiss Re Germany Holding GmbH
Hungary
Swiss Re Treasury (Hungary) Ltd
Ireland
Swiss Re International Treasury (Ireland) Ltd
Swiss Reinsurance Ireland Ltd
Liechtenstein
Elips Life AG
Luxembourg
Swiss Re Europe S. A.
Swiss Re Finance (Luxembourg) S. A.
Swiss Re Funds (LUX) I 1
Swiss Re Management (Luxembourg) S. A.
Swiss Re Treasury (Luxembourg) S. A.
Swiss Re International SE
Malta
Swiss Re Finance (Malta) Ltd
Swiss Re Treasury (Malta) Ltd
Method of consolidation
f full
e equity
1 Net asset value instead of share capital
Netherlands
Algemene Levensherverzekering Maatschappij N. V.
Atradius
Swiss Re Nederland Holding B.V.
208 Swiss Re 2008 Annual Report
Share capital
(CHF millions)
Affiliation
in % as of
31.12.2008
Method of
consolidation
0
0
170
37
0
74
67
38
100
100
99
34
20
100
100
100
0
100
0
118
100
100
15
48
518
0
12 171
294
155
196
740
740
7
84
1
100
100
100
100
100
100
100
100
100
25
100
f
f
f
e
e
f
f
f
f
f
f
e
f
f
f
f
f
f
f
f
f
e
f
Financial statements / Notes to the Group financial statements
Switzerland
European Reinsurance Company of Zurich
SR Institutional Funds 1
Tertianum AG
United Kingdom
Admin Re UK Ltd
Banian Investments UK Ltd
Calico Leasing (GB) Ltd
Cyrenaic Investments (UK) Ltd
Dex Name Ltd
European Credit and Guarantee Insurance PCC Ltd
NM Insurance Holdings Ltd
NM Life Group Ltd
NM Life Ltd
NM Pensions Ltd
PRO Insurance Solutions Ltd
Reassure UK Life Assurance Company Ltd
SR Delta Investments (UK) Ltd
SRNY Ltd
Swiss Re BHI Ltd
Swiss Re Capital Markets Ltd
Swiss Re Financial Services Ltd
Swiss Re Frankona LM Ltd
Swiss Re GB Plc
Swiss Re Life & Health Ltd
Swiss Re Services Ltd
Swiss Re Specialised Investments Holdings (UK) Ltd
Swiss Re Specialty Insurance (UK) Ltd
Swiss Reinsurance Company UK Ltd
The Mercantile & General Reinsurance Company Ltd
The Palatine Insurance Company Ltd
Windsor Life Assurance Company Ltd
XSMA Ltd
Share capital
(CHF millions)
Affiliation
in % as of
31.12.2008
Method of
consolidation
312
0
10
112
1
54
918
18
9
201
229
145
230
1
590
15
51
0
64
11
11
977
0
4
2
28
0
29
11
402
23
100
0
20
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
e
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
Swiss Re 2008 Annual Report 209
Financial statements / Notes to the Group financial statements
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 Ltd
Englewood Ltd
Old Fort Insurance Company Ltd
Swiss Re Global Markets Ltd
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
Epping Funding Ltd
Kilgallon Finance Ltd
Swiss Re Alternative Financing I SPC
Swiss Re Alternative Financing II SPC
SR Cayman Holdings Ltd
SR York Ltd
Swiss Re Strategic Investments (UK) Ltd
Share capital
(CHF millions)
Affiliation
in % as of
31.12.2008
Method of
consolidation
17
5
5
3 282
3 277
18
1
17
0
0
1
0
0
0
0
101
98
0
918
0
0
0
0
0
0
0
77
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
f
f
f
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
210 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
United States
Conning & Company
Core Insurance Holdings Inc.
Facility Insurance Corporation
Facility Insurance Holding Corporation
First Specialty Insurance Coporation
Industrial Risk Insurers
North American Capacity Insurance Company
North American Elite Insurance Company
North American Specialty Insurance Company
Reassure America Life Insurance Company
Rialto Re I Inc.
SR IS North America Group
SR PA Finance Inc.
Swiss Re America Holding Corporation
Swiss Re Atrium Corporation
Swiss Re Capital Markets Corporation
Swiss Re Financial Products Corporation
Swiss Re Financial Services Corporation
Swiss Re Solutions Holding Corporation
Swiss Re Life & Health America Holding Company
Swiss Re Life & Health America Inc.
Swiss Re Partnership Holding, LLC
Swiss Re Treasury (US) Corporation
Swiss Reinsurance America Corporation
Washington International Insurance Company
Westport Insurance Corporation
Australia
Swiss Re Australia Ltd
Swiss Re Life & Health Australia Ltd
Africa
South Africa
Swiss Re Africa Ltd
Swiss Re Life & Health Africa Ltd
Share capital
(CHF millions)
Affiliation
in % as of
31.12.2008
Method of
consolidation
0
0
0
0
5
0
4
4
5
3
151
7
280
0
1
0
0
0
9
5
4
392
0
12
9
7
15
115
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
1
0
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
Swiss Re 2008 Annual Report 211
Financial statements / Notes to the Group financial statements
Share capital
(CHF millions)
Affiliation
in % as of
31.12.2008
Method of
consolidation
Middle East
United Arab Emirates
GlobeMed Gulf FZ-LLC
Asia
China
Beijing Prestige Health Consulting Services
Company Ltd
Singapore
ERC Asia Pacific Pte Ltd
3
6
4
39
100
100
Vietnam
Vietnam National Reinsurance Corporation
31
25
e
e
f
e
212 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Variable interest entities
Swiss Re Group enters into arrangements with variable interest entities (VIEs) in the normal
course of business. The involvement ranges from being a passive investor to designing,
structuring, and managing the VIEs. The variable interests held by the Group arise due to a
modified coinsurance agreement, certain insurance-linked and credit-linked securitisations,
private equity limited partnerships, hedge funds, debt financing and other entities, which
meet the definition of a VIE.
When analysing the status of an entity, Swiss Re Group mainly assesses if (1) the equity is
sufficient to finance the entity’s activities without additional subordinated financial support,
(2) the equity owners have the right to make significant decisions affecting the entity’s
operations, and (3) the holders of the voting rights substantively participate in the gains and
losses of the entity. When one of these criteria is not met, these entities need to be assessed
for consolidation under FIN46(R).
The party that will absorb the majority of the expected losses, receive the majority of the
expected residual return, or both, is considered the primary beneficiary according to
FIN46(R). To determine the primary beneficiary of a VIE, a qualitative analysis is performed in
which the nature and design, capital structure, contractual terms and relationships among
the variable interest holders are evaluated. When the qualitative analysis is not conclusive, a
quantitative analysis is performed. For this, the Group determines under various probability-
weighted scenarios the cash flows that the variable interest holders will receive based on the
explicit and implicit variable interests they hold. Swiss Re Group consolidates a VIE when it
is the primary beneficiary.
The assessment if Swiss Re Group is the primary beneficiary is reviewed whenever
circumstances qualify as a reconsideration event under FIN 46(R). These events include:
̤
the VIE’s governing documents or contractual arrangements are changed in a manner
that changes the characteristics of the Group’s involvement;
the Group’s assumption of additional variable interests; and
the Group’s sale or disposal of variable interests, or the issuance of variable interests
by the VIE to unrelated parties.
̤
̤
In general, third parties invested in consolidated VIEs do not have recourse to the Group in
the event of a default, except in cases where the Group has protected the assets with a
derivative contract or has provided a guarantee. In these cases, the recourse is limited to the
notional of the guarantee or the value of the assets protected by the derivative contract.
Modified coinsurance agreement
Swiss Re Group assumes insurance risk via a modified coinsurance agreement from a direct
insurer, which qualifies as a VIE. Swiss Re Group takes the majority of the mortality risk,
which makes the Group the primary beneficiary. Consequently, Swiss Re Group will incur
losses when mortality risk develops unfavourably.
Insurance-linked and credit-linked securitisations
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.
Swiss Re 2008 Annual Report 213
Financial statements / Notes to the Group financial statements
The securitisation vehicle generally retains the issuance proceeds as collateral. To determine
if Swiss Re Group is the primary beneficiary or has a significant variable interest, the
Group considers the insurance or credit risk assumed by the bondholders of the vehicles, the
investment risk of the securities held as collateral, and any derivative contracts or other
guarantees Swiss Re Group has entered into with the VIE. Typically, the variable interests held
by the Group arise through ownership of insurance-linked and credit-linked securities, or
through protection provided for the value of the collateral held.
The collateral held predominantly consists of investment grade securities. Swiss Re Group
would incur losses when some or all of these securities drop in value or default. The Group’s
maximum exposure 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.
Investment vehicles
Investment vehicles include private equity limited partnerships and hedge funds, in which the
Group invested as part of its investment strategy. The Group’s variable interests arise through
an ownership interest in the vehicle. To determine if the Group is the primary beneficiary or
holds a significant portion of the variable interests, the Group assesses its ownership share
in relation to the total equity outstanding. The Group is exposed to losses when the values of
the investments held by the vehicles decrease. The maximum exposure to loss equals the
carrying amount of the ownership interest.
Debt financing vehicles
Debt financing vehicles issue preference shares or loan notes to provide the Group with
funding. Swiss Re Group is partially exposed to the asset risk by holding equity rights or by
protecting some of the assets held by the VIEs via guarantees or derivative contracts. The
assets held by the VIEs consist of investment grade securities, structured products, hedge
fund units and others.
Others
The VIEs in this category were created for various purposes. Generally, the Group is exposed
to the asset risk of the VIEs by holding an equity stake in the VIE or by guaranteeing a part or
the entire asset value to third-party investors. A significant portion of the exposure of Swiss Re
Group is either retroceded or hedged. The assets held by the VIEs consist of investment grade
securities, private equity investments, residential real estate and others.
The Group did not provide financial or other support to any VIEs during the year that it was
not previously contractually required to provide.
214 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
The following table shows the total assets and liabilities in the Group’s balance sheet related
to VIEs of which the Group is the primary beneficiary:
As of 31 December
CHF millions
Fixed income securities:
Available-for-sale (whereof restricted 8 144)
Trading
Policy loans, mortgages and other loans
(whereof restricted 260)
Other invested assets (whereof restricted 162)
Cash and cash equivalents (whereof restricted 411)
Acquired present value of future profits
(whereof restricted 84)
Accrued investment income (whereof restricted 80)
Other assets (whereof restricted 33)
Total assets
Liabilities for life and health policy benefits
Policyholder account balances
Deferred and other non-current taxes
Accrued expenses and other liabilities
Long-term debt
Net unrealised investment gains/losses, net of deferred taxes
Cumulative translation adjustments, net of deferred taxes
Additional paid in capital
Retained earnings
Total liabilities and equity
2008
8 953
131
260
162
411
84
80
33
10 114
1 327
1 718
162
525
5 155
–187
1 204
241
–31
10 114
For investment vehicles, the assets and liabilities above are presented net of minority interest.
The total assets of VIEs of which the Group is the primary beneficiary, but does not hold a
majority voting interest for periods ended 31 December 2007 and 2008, respectively, were
as follows:
As of 31 December
CHF millions
Insurance-linked/Credit-linked securitisations
Investment vehicles
Debt financing
Modified coinsurance agreement
Other
Total
2007
241
7 766
4 022
1
12 030
2008
163
162
6 097
3 830
34
10 286
Swiss Re 2008 Annual Report 215
Financial statements / Notes to the Group financial statements
The following table shows the total assets and liabilities in the Group’s balance sheet related
to VIEs in which the Group holds a significant variable interest:
As of 31 December 2008
CHF millions
Other invested assets
Accrued expenses and other liabilities
Total
Assets
2 166
2 166
Liabilities
752
752
The total assets of VIEs of which the Group holds a significant variable interest for periods
ended 31 December 2007 and 2008, respectively, were as follows:
As of 31 December
CHF millions
Insurance-linked/Credit-linked securitisations
Investment vehicles
Debt financing
Other
Total
2007
10 874
17 684
7 753
1 690
38 001
2008
6 510
3 939
5 074
1 721
17 244
The following table shows the Group’s maximum exposure to loss and the liabilities related
to VIEs in which the Group holds a significant variable interest:
As of 31 December
CHF millions
Insurance-linked/Credit-linked
securitisations
Investment vehicles
Debt financing
Other
Total
Maximum
exposure to loss
2007
Maximum
exposure to
loss 2008
Total liabilities
2008
Difference
2008
10 874
2 089
526
1 137
14 626
6 255
1 664
266
991
9 176
865
213
1 078
5 390
1 664
266
778
8 098
The liabilities of CHF 865 million for insurance-linked and credit-linked securitisations
represent the negative fair value of the total return swaps Swiss Re Group has entered into
with the securitisation vehicles. The negative fair value is caused by a decrease of value
of some of the assets held as collateral by the vehicles.
When the net asset values of the investment vehicles decrease, the carrying amount of
the investment is adjusted accordingly and a loss is recognised in the income statement.
Consequently, no liabilities are set up for investment vehicles when losses occur.
216 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
The liabilities of CHF 213 million for the debt financing and the other categories represent
the decline in value of VIE assets which are guaranteed by Swiss Re Group. For VIEs where
the variable interests consist in an equity stake, a loss is recognised in the income statement
rather than a liability is set up when the net asset value declines.
As of 31 December 2008, the consolidation of the VIEs resulted in a minority interest in
the balance sheet of CHF 420 million (2007: CHF 435 million). The minority interest is
included in accrued expenses and other liabilities. The net minority interest in income was
CHF 37 million and CHF 10 million net of tax for the years ended 31 December 2007
and 2008, respectively. The income statement impacts are generally included in the relevant
segment with the underlying movement in income or expenses.
Reconsideration events under FIN 46(R) required the review of the consolidation assessment
of certain VIEs. As a result, the Group consolidated and deconsolidated some VIEs. The effect
of this on the financial statements is immaterial.
Swiss Re 2008 Annual Report 217
Financial statements / Notes to the Group financial statements
19 Restructuring provision
In 2008, the Property & Casualty and the Life & Health business segments set up provisions
of CHF 72 million and CHF 19 million, respectively, related to the German offices and
alignment of IT activities. The Property & Casualty business segment released provisions of
CHF 24 million, mostly related to the business acquired from Insurance Solutions, and
utilised CHF 14 million related to IT activities.
The Asset Management business segment increased the provision by CHF 46 million
following the realignment of the former Financial Markets unit announced in 2007. Costs
of CHF 39 million were charged against the provision.
2008
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
43
72
–24
–14
–4
73
Life & Health
10
19
–1
–12
–1
15
Asset
Management
28
46
–1
–39
–4
30
Total
81
137
–26
–65
–9
118
218 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
20 Risk assessment
The section below follows article 663b para. 12 of the Swiss Code of Obligations, which
requires disclosure of the Group’s performance of a risk assessment.
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 include two committees:
̤
The Finance and Risk Committee, which is responsible for reviewing the Group Risk Policy,
monitoring risk tolerance and capacity limits, and reviewing top risk issues and exposures.
The Audit Committee, which is responsible for overseeing internal controls and compliance
procedures.
̤
The Executive Committee is responsible for implementing the risk management framework
through two further committees. The Group Risk and Capital Committee has responsibility
for allocating capital and capacity, approving investment risk limits, and deciding changes to
the internal risk and capital methodology. The Group Products and Limits Committee
determines Swiss Re’s product policy and standards, grants reinsurance limits, and decides
on large or non-standard transactions.
The Chief Risk Officer is a member of the Executive Committee. He leads the global Risk
Management function, which is responsible for risk controlling across the Group.
The global Risk Management function is organised by risk categories, with dedicated
departments for property and casualty risk, life and health risk, and credit and financial market
risk. Each of these units is entrusted with Group-wide responsibility for identifying, assessing
and controlling their allocated risks, including operational risks which arise in their area of
control.
Swiss Re 2008 Annual Report 219
Financial statements / Notes to the Group financial statements
21 Subsequent event
Swiss Re Group and Berkshire Hathaway Inc. have agreed in principle, as announced on
5 February 2009, that Berkshire Hathaway Inc. will invest CHF 3 billion in Swiss Re Group.
The final closing of the investment is subject to the shareholder approval.
The investment is expected to be in the form of a subordinated convertible perpetual capital
instrument issued by Swiss Reinsurance Company Ltd or one of its subsidiaries with a 12%
coupon. At the holder’s option, it will be convertible after three years into Swiss Re shares, at
a price of CHF 25 per share (subject to adjustments).
220 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Swiss Re 2008 Annual Report 221
Financial statements / Notes to the Group financial statements
Report of the statutory auditor
Report of the statutory auditor
to the General Meeting of
Swiss Reinsurance Company Ltd
Zurich
Report of the statutory auditor on the Consolidated Financial Statements
As statutory auditor, we have audited the consolidated financial statements of Swiss Re Group,
which comprise the income statement, balance sheet, statement of shareholders’ equity,
statement of comprehensive income, statement of cash flow and notes (pages 135 to 220),
for the year ended 31 December 2008.
Board of Directors’ Responsibility
The Board of Directors is responsible for the preparation and fair presentation of the
consolidated financial statements in accordance with accounting principles generally
accepted in the United States of America (US GAAP) and the requirements of Swiss law. This
responsibility includes designing, implementing and maintaining an internal control system
relevant to the preparation and fair presentation of consolidated financial statements that are
free from material misstatement, whether due to fraud or error. The Board of Directors is
further responsible for selecting and applying appropriate accounting policies and making
accounting estimates that are reasonable in the circumstances.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based
on our audit. We conducted our audit in accordance with Swiss law, Swiss Auditing Standards
and auditing standards generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable assurance whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the consolidated financial statements. The procedures selected depend on
the auditor’s judgment, including the assessment of the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers the internal control system relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design
audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the entity’s internal control system. An audit
also includes evaluating the appropriateness of the accounting policies used and the
reasonableness of accounting estimates made, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that the audit evidence we have obtained
is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements for the year ended 31 December 2008
present fairly, in all material respects, the financial position, the results of operations and the
cash flows in accordance with accounting principles generally accepted in the United States
of America (US GAAP) and comply with Swiss law.
222 Swiss Re 2008 Annual Report
Financial statements / Notes to the Group financial statements
Report on other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor
Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there
are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890,
we confirm that an internal control system exists which has been designed for the preparation
of consolidated financial statements according to the instructions of the Board of Directors.
We recommend that the consolidated financial statements submitted to you be approved.
PricewaterhouseCoopers AG
David JA Law
Audit expert
Auditor in charge
Dawn M Kink
Audit expert
Zurich, 18 February 2009
Swiss Re 2008 Annual Report 223
Financial statements / Swiss Reinsurance Company Ltd
224 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
Annual report
Swiss Reinsurance Company Ltd
Reinsurance and holding company
Swiss Reinsurance Company Ltd, domiciled in Zurich, Switzerland, performs a dual role within
the Swiss Re Group as both a reinsurance company and a holding company. The assessment
of the market position, profitability and financial strength of Swiss Re’s worldwide organisation
must focus primarily on the consolidated financial statements.
The following commentary on the 2008 financial year of the parent company thus
complements the review of the financial year of the Swiss Re Group.
Financial year 2008
In 2008, the Company reported an after-tax gain of CHF 15 million, compared to a gain of
CHF 1.7 billion in the previous year.
Reinsurance result
The reinsurance business continued to perform well and delivered a gain of CHF 1.8 billion.
The investment result, however, suffered from the current financial markets crisis.
The business year was characterised by a number of transactions in connection with the
simplification of the Group’s entity structure in the EU and the consolidation of its EU business.
During 2008, the Company transferred assets and liabilities from its French, Italian and
Spanish branches to the respective branch operations of a reinsurance carrier based in
Luxembourg by way of contribution in kind. In addition, the life and health business written by
the Company’s German branch was transferred into the German branch of a Luxembourg
entity by way of portfolio transfer.
Furthermore, the termination of the Group’s Bermuda operations led to the assumption of
a considerable life and health reinsurance portfolio by the Company.
In 2008, the Swiss franc increased significantly against the US dollar, the British pound and
the euro. The currency fluctuations markedly affect the comparison of year-on-year reported
income statement and balance sheet figures.
Net premiums earned increased slightly to CHF 20.3 billion. Property and casualty premiums
decreased mainly due to a quota share arrangement with Berkshire Hathaway, which had an
impact on both the retroceded premiums and the premiums assumed from the Swiss Re
Group companies via quota share agreements. In addition, the transfer of the business from
the European branches of the Company to a Luxembourg carrier led to a considerable
reduction in premiums earned. This decrease was offset by the initial premium consideration
received at inception of a life and health portfolio being recorded as a written premium.
The development of the claims and claim adjustment expenses, life and health benefits and
acquisition costs was principally affected by the portfolio transactions described above.
Operating costs allocated to reinsurance operations decreased mainly as a result of the
change of the reporting classification of unallocated management expenses. The overall
management expenses decreased as well due to lower personnel expenses incurred in
the year under report.
Investment result
The investment result declined to a loss of CHF 0.7 billion.
Both the realised gains and valuation adjustments increased significantly mostly driven by
extended volume of the derivative financial instruments in connection with variable annuity
business.
Swiss Re 2008 Annual Report 225
Financial statements / Swiss Reinsurance Company Ltd
In addition, higher valuation adjustments were necessary on the alternative investments
and on own shares. Furthermore, a CHF 1.8 billion valuation adjustment on a subsidiary was
recognised to reflect losses from the structured credit default swaps. Realised losses
increased due to the substantial reduction of the equity portfolio, as well as sales of fixed
income securities.
These negative effects were partly offset by a compensation received on the basis of an
intragroup profit allocation agreement. The agreement stipulates the compensation for
Swiss Re Group entities participating in the trading, structuring and treasury operations of
Swiss Re’s Asset Management division, based on the residual profit split method.
The increase in other expenses is mainly due to losses assumed in the context of the
merger with a Swiss Re Group subsidiary. Furthermore, administrative expenses which cannot
be directly allocated to reinsurance or investment operations are newly reported under
“Other expenses”.
Other income and expenses
Assets
Total assets decreased by 2% to CHF 103.3 billion. At constant foreign exchange rates total
assets would amount to CHF 110.9 billion.
During 2008, the Company substantially reduced its equity portfolio. Loans to subsidiaries
and affiliated companies increased due to intragroup financing transactions. Increased volume
of the assets in derivative financial instruments is mainly driven by the foreign currency swaps.
Furthermore, the Company absorbed a subsidiary holding the majority of the Group’s
alternative investments. The corresponding assets, composed mainly of investments in hedge
funds and private equity investments, are reported under the new line item “Alternative
investments”.
Total liabilities remained at the previous year level and amounted to CHF 86.2 billion. The
technical provisions decreased by 8% to CHF 60.2 billion mainly due to the weakening of the
US dollar, the British pound and the euro against the Swiss franc. The movement in the
provision for currency fluctuation reflects considerable foreign exchange rate fluctuations in
2008. The liabilities from derivative financial instruments increased mainly driven by the
foreign currency swaps and the derivatives in connection with the variable annuity business.
As of 31 December 2007, shareholders’ equity amounted to CHF 19.0 billion before allocation
of the profit. After the dividend payment of CHF 1 331 million for 2007, the cancellation
of shares from the share buy-back programme, the issuance of new shares and the inclusion
of the profit for the 2008 financial year, shareholders’ equity decreased to CHF 17.1 billion
at the end of 2008.
Other reserves decreased by CHF 364 million to CHF 14.9 billion in 2008, due to the net result
of the increase of the reserve for own shares, the allocation of the profit for the 2007 financial
year, the cancellation of shares from the share buy-back programme, the creation of new
shares for the conversion of a mandatory convertible bond and newly issued shares from
options being exercised.
The nominal share capital of the Company decreased slightly due to the net effect from the
cancellation of 17 349 000 shares, based on a 2008 General Meeting resolution, the creation
of 10 460 076 new shares from the conditional capital for the conversion of a mandatory
convertible bond, and 18 205 newly issued shares from the conditional capital in connection
with employee participation programmes. As of 31 December 2008, the nominal share capital
amounted to CHF 36 million.
Liabilities
Shareholders’ equity
226 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
Income statement
Swiss Reinsurance Company Ltd
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
2007
2008
18 883
–13 663
77
–300
–3 949
983
–1 101
1 326
2 256
20 327
–13 331
–3 382
–
–2 895
898
–941
1 136
1 812
2
5 437
–4 175
–1 326
–64
9 482
–9 007
–1 136
–661
348
–524
226
–297
–247
1 945
–248
1 697
313
–554
213
–848
–876
275
–260
15
Swiss Re 2008 Annual Report 227
Financial statements / Swiss Reinsurance Company Ltd
Balance sheet
Swiss Reinsurance Company Ltd
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
Alternative 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
2007
2008
1 098
17 092
13 737
749
7 461
22 860
1 497
–
1 713
66 207
772
63
1 116
17 403
16 188
756
1 314
18 205
2 470
3 473
2 987
63 912
732
59
67 042
64 703
9 615
20 115
1 085
4 041
1 382
590
1 224
38 052
8 322
21 292
837
3 422
3 878
543
270
38 564
105 094
103 267
3
3
3
228 Swiss Re 2008 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 Ltd
Notes
2007
2008
4
4
4
4
4
4
4
5
48 469
11 053
4 832
617
550
65 521
41 579
13 550
4 064
474
550
60 217
179
948
518
1 645
5 757
3 060
8 817
2 849
3 713
2 417
949
202
191
2 040
363
2 594
4 094
4 109
8 203
2 327
3 307
6 523
2 839
178
86 113
86 188
37
1 297
650
15 235
65
1 697
18 981
36
1 446
650
14 871
61
15
17 079
105 094
103 267
Swiss Re 2008 Annual Report 229
Financial statements / Swiss Reinsurance Company Ltd
Notes
Swiss Reinsurance Company Ltd
Significant accounting principles
Basis of presentation
The financial statements are prepared in accordance with Swiss Company Law.
Time period
The 2008 financial year comprises the accounting period from 1 January to
31 December 2008.
Foreign currency translation
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.
Investments
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
Alternative investments
Assets in derivative financial instruments
These assets are generally not subject to revaluation. The valuation rules prescribed by the
Swiss Financial Market Supervisory Authority FINMA 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
acquisition of one year or less, but greater than three months.
Loans to subsidiaries and affiliated companies, mortgages and other loans are carried
at nominal value. Value adjustments are recorded where the recovery value is lower than
the nominal value.
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
amortised in proportion to premiums earned. Deferred acquisition costs for long duration
contracts are amortised over the life of the underlying contracts.
Intangible assets
Deferred acquisition costs
230 Swiss Re 2008 Annual Report
Other assets
Other current assets
Technical provisions
Financial statements / Swiss Reinsurance Company Ltd
Other assets include deferred expenses on retroactive reinsurance policies, which are
amortised 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
expected amount of future payment.
Liabilities for life and health policy benefits are determined on the basis of actuarially
calculated 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 expenses, 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 asset on the balance sheet, with the exception of specific contracts (for example modified
coinsurance 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 normally
calculated by statistical methods. The accrual of commissions is determined correspondingly
and is reported in the line item “Deferred acquisition costs”.
Provisions for profit commissions are based on contractual agreements with clients and
depend 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
estimated according to the contractual agreement and the underlying gross business data
per treaty.
Liabilities assumed and consideration provided in connection with portfolio transactions are
established through the respective income statement line items. The initial recognition of
the assumed outstanding claims is recorded as change in unpaid claims, with the consideration
being recognised as negative claims paid. The assumption of the provision for unearned
premiums is established through the change in unearned premiums, with the respective
consideration accounted for as premiums written. The liability for life and health policy
benefits is established as a charge against life and health benefits, with the initial premium
consideration recorded as premiums written.
Swiss Re 2008 Annual Report 231
Financial statements / Swiss Reinsurance Company Ltd
Non-technical provisions
The provision for taxation contains taxes on the basis of the financial year just ended.
The initial set up of assets and liabilities in respect of property and casualty retroactive treaties
with Group external counterparties is accounted for as a balance sheet transaction.
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.
Debt
Debt is held at redemption value.
Funds held under reinsurance treaties
Funds held under reinsurance treaties mainly contain cash deposits withheld from
retrocessionaires, which are stated at redemption value.
Reinsurance balances payable
Reinsurance balances payable are held at redemption value.
Liabilities from derivative financial
instruments
Liabilities from derivative financial instruments are generally maintained at the highest
commitment 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 settlement of the contract.
Deposit arrangements
Included in this position are reinsurance contracts or features embedded in reinsurance
contracts that fulfil the characteristics of derivative financial instruments. For such contracts,
premiums 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
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
Tax expense
The overall management expenses are allocated to the reinsurance business, the investment
business and to other expenses 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.
232 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
Notes
Swiss Reinsurance Company Ltd
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
23 788
–1 160
22 628
–8 276
–7 177
–15 453
Retro
–4 106
361
–3 745
2007
Net
19 682
–799
18 883
Gross
23 899
418
24 317
1 684
106
1 790
–6 592
–7 071
–13 663
–19 677
3 508
–16 169
Retro
–3 832
–158
–3 990
4 364
–1 526
2 838
2008
Net
20 067
260
20 327
–15 313
1 982
–13 331
Life and health benefits
–271
348
77
–3 115
–267
–3 382
Change in equalisation provision
–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
–4 210
–385
–4 595
–7
1 187
1 180
579
67
646
–36
–161
–197
–3 424
–380
–3 804
139
913
1 052
–3 631
–318
–3 949
–43
1 026
983
–1 101
1 326
2 256
–
855
54
909
–25
–129
–154
–
–2 569
–326
–2 895
114
784
898
–941
1 136
1 812
Swiss Re 2008 Annual Report 233
2007
93
2 109
817
905
56
–
88
–
1 369
5 437
–235
–2 432
–1 508
–4 175
–1 326
–64
Gross
9 464
20 115
1 367
30 946
Retro
151
–
–282
–131
2007
Net
9 615
20 115
1 085
30 815
Gross
8 204
21 292
1 072
30 568
Retro
118
–
–235
–117
2008
100
1 790
17
892
47
6
64
795
5 771
9 482
–225
–6 196
–2 586
–9 007
–1 136
–661
2008
Net
8 322
21 292
837
30 451
Financial statements / Swiss Reinsurance Company Ltd
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 alternative investments
Income from investment services
Income from intragroup profit allocation agreement
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
234 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
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
5. Shareholders’ equity
Change in shareholders’ equity
CHF millions
Shareholders’ equity as of 1 January
Dividend paid for the previous year
Capital increase/decrease 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
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
Gross
43 788
14 504
5 136
510
550
392
1 519
66 399
Retro
–2 209
–954
–1 072
–36
–
1 935
1 788
–548
2008
Net
41 579
13 550
4 064
474
550
2 327
3 307
65 851
2007
18 409
–1 162
37
1 697
18 981
–1 387
17 594
2008
18 981
–1 331
–586
15
17 079
–341
17 045
1 Board of Directors’ proposal to the Annual General Meeting of 13 March 2009, 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 240.
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
2007
37
10 045
7 213
299
17 594
2008
36
9 459
7 251
299
17 045
Swiss Re 2008 Annual Report 235
Financial statements / Swiss Reinsurance Company Ltd
Contingent liabilities
Putative class action suit
Unfunded commitments
Swiss Reinsurance Company Ltd has issued a number of guarantees to various of its
subsidiaries in support of their business activities by securing either their overall capital
positions or specific transactions. These guarantees are generally not limited by a nominal
amount but rather by the exposure of the underlying business.
In addition, as a component of the Group’s financing structure, Swiss Reinsurance Company
Ltd has guaranteed CHF 4 798 million (2007: CHF 7 069 million) of debt issued by certain of
its subsidiaries and letter of credit facilities benefiting various subsidiaries of which an amount
of CHF 4 537 million (2007: CHF 4 980 million) was drawn as of the balance sheet date.
Currently the Company or one of its subsidiaries expect to provide funding of USD 1.5 billion
to a Swiss Re Group subsidiary in 2009 under the terms of a guarantee.
On 27 February 2008, a putative securities class action complaint was filed in the United
States District Court for the Southern District of New York against Swiss Re Zurich and certain
executive officers alleging false and misleading statements in connection with the two credit
default swaps in violation of the antifraud provisions of the U.S. securities laws. The original
complaint purports to be brought on behalf of U.S. purchasers of our stock between
8 May 2007 and 19 November 2007. On 28 July 2008, the court appointed Plumbers’ Union
Local No. 12 Pension Fund as the lead plaintiff for the class action. On 10 September 2008,
an amended complaint was filed which, among other things, seeks to expand the class period
to 1 March 2007 through 19 November 2007. On 10 November 2008, Swiss Re Zurich filed
a motion seeking to dismiss the amended complaint on legal grounds. The lead plaintiff filed
its response to the motion on 9 January 2009, and Swiss Re Zurich’s reply brief is due in
February 2009. We intend to vigorously defend against the action.
As a participant in limited investment partnerships, Swiss Reinsurance Company Ltd commits
itself to making available certain amounts of investment funding, callable by the partnerships
for periods of up to 10 years. As of 31 December 2008, total commitments remaining
uncalled were CHF 2 309 million. These commitments were assumed in the context of the
absorption of a subsidiary in 2008.
Leasing contracts
Total off-balance sheet commitments from operating leases for the next five years and
there after are as follows:
CHF millions
2008
2009
2010
2011
2012
After 2013
2007
16
8
5
2
12
–
2008
–
18
15
10
5
18
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
corresponding asset and liability of CHF 27 million (2007: CHF 13 million) are included in
tangible assets and other liabilities, respectively.
236 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
Security deposits
Securities lending
Investment funds
To secure the technical provisions on the 2008 balance sheet date, securities with a value
of CHF 11 646 million (2007: CHF 10 428 million) were deposited in favour of ceding
com panies, of which CHF 7 519 million (2007: CHF 5 839 million) was to Group companies.
As of 31 December 2008, securities of CHF 878 million (2007: CHF 5 845 million) were lent
under securities lending agreements, with the right to be sold or pledged by the borrowing
entity. In 2008, no securities were lent to Group companies (2007: CHF 4 154 million). The
securities which were held and lent by the investment funds are excluded.
Equity securities of CHF 2 million (2007: CHF 5 681 million) and fixed income securities of
CHF 1 811 million (2007: CHF 5 333 million) were held in investment funds, which are
fully owned by Swiss Re Group companies. The securities in these funds and their revenues
are reported in the corresponding asset category.
Fire insurance value of tangible assets
As of 31 December 2008, the insurance value of tangible assets, comprising the real estate
portfolio and other tangible assets, amounted to CHF 2 515 million (2007: CHF 2 508 million).
Obligations towards employee
pension funds
Other liabilities include CHF 6 million (2007: CHF 7 million) payable to the employee pension
funds.
Debentures
As of 31 December 2008, the following debentures were outstanding:
Instrument
Subordinated perpetual bond
Issued in
1999
Currency
CHF
Nominal
in millions
First
Interest
call in
rate
600 3.75% 2011
Book value
CHF millions
600
Investments in subsidiaries
Details on the Swiss Re Group‘s subsidiaries are disclosed on pages 208 to 217.
Treasury shares
As of 31 December 2008, the Group held 16 973 828 treasury shares (2007: 12 334 212).
In the year under report, 25 495 057 treasury shares (2007: 25 277 897) were purchased
at an average price of CHF 77.18 (2007: CHF 101.41) and 20 855 441 treasury shares
(2007: 13 231 309) were sold at an average price of CHF 84.03 (2007: CHF 99.19).
Deposit account
Deposit arrangements generated the following balances, which are included in:
Claims on and obligations towards
Group companies
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
2007
–76
677
162
403
644
2007
3 353
13 830
1 137
213
1 712
2 785
445
2008
50
570
211
392
484
2008
3 665
18 035
3 733
77
1 523
3 534
2 362
Swiss Re 2008 Annual Report 237
Financial statements / Swiss Reinsurance Company Ltd
Conditional capital and authorised capital
As of 31 December 2008, Swiss Reinsurance Company Ltd‘s total conditional capital
outstanding amounted to CHF 2 160 487 (2007: CHF 3 208 316). CHF 1 557 920 was
reserved for the exercise of conversion rights and warrants granted in connection with
bonds and similar instruments and CHF 602 567 for employee participation purposes.
In addition, no authorised capital with shareholders’ subscription rights was outstanding
at the end of 2008 (2007: CHF 1 105 337).
Change in undisclosed reserves
In the year under report, no net undisclosed reserves on investments and on provisions
were released (2007: no net release).
Major shareholders
As of 31 December 2008, there were four shareholders with a participation exceeding the
3% threshold of Swiss Reinsurance Company Ltd’s share capital.
a. Swiss Reinsurance Company Ltd, Mythenquai 50/60, 8022 Zurich, Switzerland, held a
total of 28 521 789 Swiss Re shares or 7.85% of the share capital. Of these shares, 6 036 987
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, 8 881 000 shares
were acquired under the share buy-back programme and subject to cancellation, and
1 925 000 were acquired under the first trading line of the share buy-back programme.
b. Dodge & Cox, 555 California Street, San Francisco, CA, USA, announced on 31 October
2008 that they held, on behalf of the Dodge & Cox International Stock Fund, through an
acquisition, 10 766 995 registered Swiss Re shares. Dodge & Cox thus has a voting right of
3.05% in Swiss Reinsurance Company Ltd which can be exercised autonomously of the
beneficial owners.
c. Berkshire Hathaway Inc., 3555 Farnam Street, Omaha, NE, USA, notified Swiss Reinsurance
Company Ltd on 22 January 2008 that, as of the same day, it held through its subsidiary
Columbia Insurance Company, 3024 Harney Street, Omaha, NE, USA, 11 250 000 registered
shares or 3.03% of the voting rights of Swiss Reinsurance Company Ltd.
d. Franklin Resources, Inc., 500 E. Broward Blvd., Ft. Lauderdale, FL, USA, known as Franklin
Templeton Investments, notified Swiss Reinsurance Company Ltd on 6 December 2008
that it holds as of 4 December 2008, through an acquisition by a number of its Group
companies, in the capacity of investment manager for mutual funds and clients, 10 970 364
registered Swiss Re shares. Franklin Templeton Investments now holds 3.11% of the voting
rights of Swiss Reinsurance Company Ltd.
Personnel information
As of 31 December 2008, Swiss Reinsurance Company Ltd employed a worldwide
staff of 3 568 (2007: 3 802). Personnel expenses for the 2008 financial year amounted to
CHF 892 million (2007: CHF 1 009 million).
In connection with the integration of GE Insurance Solutions, restructuring charges of
CHF 59 million were recognised in 2006. As of 31 December 2008, a respective restructuring
provision of CHF 1 million (2007: CHF 4 million) remained on the Company’s books.
The disclosure requirements under Swiss Company Law in respect of management
compensation to the members of the Board of Directors and of the Executive Committee of
Swiss Reinsurance Company Ltd, as well as to closely related persons, are detailed on pages
189 to 197.
Management compensation
238 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
Management fee contribution
In 2008, management expenses of CHF 173 million (2007: CHF 152 million) were recharged
to Group companies and reported net under “Operating costs” and “Investment expenses”.
Allocation of management expenses
In 2008, Swiss Reinsurance Company Ltd has revised the basis for the reporting of
management expenses that cannot be clearly allocated to the reinsurance or investment
business. Such unallocated expenses of CHF 179 million (2007: CHF 168 million) are newly
reported under “Other expenses”. In previous years, those expenses were included in the
line item “Operating costs” within the reinsurance result. The comparative 2007 figures are
adjusted accordingly.
Risk assessment
Article 663b lit.12 of Swiss Company Law requires disclosure of information on the
performance of a risk assessment.
Major transactions
Subsequent event
The identification, assessment and control of risk exposures of the Swiss Reinsurance
Company Ltd on a stand-alone basis are integrated in and covered by the Swiss Re’s Group risk
management organisation and processes.
Details are disclosed on page 219.
On 1 January 2008, the reinsurance business of the Company’s German branch was integrated
into the German branch of a Luxembourg based reinsurance carrier of the Swiss Re Group
by way of a portfolio transfer. Both assets and liabilities of CHF 1.0 billion were transferred.
On 1 October 2008, the Company contributed its French, Italian and Spanish branch to the
respective branch operations of a reinsurance carrier based in Luxembourg by way of
contribution in kind. The final aggregate value of these contributions has been determined as of
30 September 2008 at EUR 301 million. Both assets and liabilities of CHF 9.0 billion were
transferred.
Due to the termination of the Swiss Re Group’s Bermuda operations, the majority of the
reinsurance business previously written by the Bermuda branch of a Swiss Re Group’s
subsidiary was novated into the Company as per 31 December 2008. The Company assumed
both assets and liabilities of CHF 7.9 billion and paid ceding commissions of CHF 1.2 billion.
On 1 October 2008, the Company absorbed a subsidiary holding the majority of the Swiss Re
Group’s alternative investments. In connection with the merger the Company assumed both
assets and liabilities of CHF 4.4 billion. The merger has been executed per 1 October 2008.
The Swiss Financial Market Supervisory Authority FINMA has given approval to the transaction
and the notification to the register of commerce has been performed subsequently.
Swiss Re Group and Berkshire Hathaway Inc. have agreed in principle, as announced on
5 February 2009, that Berkshire Hathaway Inc. will invest CHF 3.0 billion in Swiss Re Group.
The final closing of the investment is subject to shareholder approval.
The investment is expected to be in the form of a subordinated convertible perpetual capital
instrument issued by Swiss Reinsurance Company Ltd or one of its subsidiaries with a 12%
coupon. At the holder’s option, it will be convertible after three years into Swiss Re shares, at
a price of CHF 25 per share (subject to adjustments).
Swiss Re 2008 Annual Report 239
Financial statements / Swiss Reinsurance Company Ltd
Proposal for allocation of profit
The Annual General Meeting, to be held in Zurich on 13 March 2009, 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 2008:
– eligible for dividend
– not eligible for dividend
Total shares issued
2007
2008
64 760 537
1 697 024 261
1 761 784 798
60 976 534
15 441 566
76 418 100
Number of
registered shares
Nominal
capital in CHF
335 665 775
27 850 261
363 516 036
33 566 578
2 785 026
36 351 604
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
2007
1 386 663 8641
370 000 000
5 120 9341
1 761 784 798
2008
33 566 5782
–
42 851 522
76 418 100
1 The number of registered shares eligible for dividend at the dividend payment date decreased since the proposal for
allocation of profit, dated 29 February 2008, due to the net effect from the share buy-back of 13 980 000 shares and
the issuance of 16 100 new registered shares from options being exercised. This resulted in a lower dividend of
CHF 55 855 600 compared to the Board of Directors’ proposal, and in higher retained earnings brought forward from
the previous year by the same amount.
2 Board of Directors’ proposal to the Annual General Meeting of 13 March 2009, subject to the actual number of shares
outstanding and eligible for dividend.
Dividend
If the Board of Directors’ proposal for allocation of profit is accepted, a dividend of CHF 0.10
per share will be paid.
After deduction of Federal Withholding Tax of 35%, the dividend will be paid from
18 March 2009 by means of dividend order to shareholders recorded in the Share Register
or to their deposit banks.
Zurich, 18 February 2009
240 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
Report of the statutory auditor
Report of the statutory auditor
to the General Meeting of
Swiss Reinsurance Company Ltd
Zurich
Report of the statutory auditor on the Financial Statements
As statutory auditor, we have audited the financial statements of Swiss Reinsurance Company
Ltd, which comprise the income statement, balance sheet and notes (pages 227 to 239), for
the year ended 31 December 2008.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation of the financial statements in
accordance with the requirements of Swiss law and the company’s articles of incorporation.
This responsibility includes designing, implementing and maintaining an internal control
system relevant to the preparation of financial statements that are free from material
misstatement, whether due to fraud or error. The Board of Directors is further responsible for
selecting and applying appropriate accounting policies and making accounting estimates
that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Swiss law and Swiss Auditing Standards.
Those standards require that we plan and perform the audit to obtain reasonable assurance
whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditor’s
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditor
considers the internal control system relevant to the entity’s preparation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control system. An audit also includes evaluating the appropriateness of the accounting
policies used and the reasonableness of accounting estimates made, as well as evaluating
the overall presentation of the financial statements. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements for the year ended 31 December 2008 comply with
Swiss law and the company’s articles of incorporation.
Swiss Re 2008 Annual Report 241
Financial statements / Swiss Reinsurance Company Ltd
Report on other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor
Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there
are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890,
we confirm that an internal control system exists which has been designed for the preparation
of financial statements according to the instructions of the Board of Directors.
We further confirm that the proposal for allocation of profit complies with Swiss law and the
company’s articles of incorporation. We recommend that the financial statements submitted
to you be approved.
PricewaterhouseCoopers AG
David JA Law
Audit expert
Auditor in charge
Dawn M Kink
Audit expert
Zurich, 18 February 2009
242 Swiss Re 2008 Annual Report
Financial statements / Swiss Reinsurance Company Ltd
Financial years 1999 – 2008
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
Return credited to policyholders
Acquisition costs
Amortisation of goodwill
Other operating costs and expenses
Total expenses
1999¹
2000¹
2001¹
2002¹
2003¹
2004¹
2005
2006²
2007²
2008²
18 051
22 081
25 219
29 058
30 740
29 439
3 846
3 588
4 802
4 275
5 765
2 665
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
2 106
31 664
955
10 692
25 501
808
7 881
–739 –9 482
280
40 771
302
42 874
270
24 978
–9 333 –12 153 –16 266 –14 485 –14 898 –13 853 –14 758 –11 799 –12 065 –10 007
–6 200 –7 478 –8 532 –10 084 –9 085 –9 331 –8 668 –9 594 –11 112 –9 065
2 822
–3 973 –4 883 –5 658 –6 220 –6 854 –6 325 –5 927 –6 079 –6 499 –5 366
–3 019 –2 827 –2 120
–211
–310
–368
–350
–315
–277
–2 785 –3 074 –3 384 –3 240 –2 942 –2 940 –3 081 –4 616 –5 891 –4 712
–22 502 –27 898 –34 208 –34 379 –34 094 –32 726 –35 453 –34 915 –37 687 –26 328
Income/loss before income tax expense
Income tax expense
Net income/loss on ordinary activities
Extraordinary income
Extraordinary charges
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
5 856
–255 –1 296 –1 025
4 162
4 560
2 304
5 187 –1 350
486
–864
Net income/loss
2 446
2 966
–165
–91
1 702
2 475
2 304
4 560
4 162
–864
Balance sheet
Assets
Investments
Other assets
Total assets
Liabilities
Unpaid claims and claim adjustment
expenses
Liabilities for life and health policy benefits
Unearned premiums
Other liabilities
Long-term debt
Total liabilities
85 684
44 516
90 653 108 023 130 601 204 238 227 812 163 965
75 912
79 045
130 200 142 640 170 230 161 857 169 698 184 440 221 299 291 300 307 287 239 877
95 888
74 342
86 728
75 129
89 584
53 056
79 475
87 062
76 417
90 698
54 072
23 279
4 251
18 819
4 947
75 510
39 911
7 802
75 748
20 453
105 368 119 853 147 632 145 171 151 187 165 263 196 906 260 416 275 420 219 424
88 528
50 026
7 722
97 743 105 807
23 337
14 738
68 618
41 370
6 399
24 200
7 045
59 600
29 300
6 131
19 764
5 058
62 652
37 269
6 754
32 833
5 663
63 474
37 244
6 457
39 205
4 807
71 759
31 081
6 563
81 651
5 852
61 619
43 239
5 748
49 361
5 296
95 011
44 899
8 025
Shareholders’ equity
24 832
22 787
22 598
16 686
18 511
19 177
24 393
30 884
31 867
20 453
Earnings/losses per share in CHF
8.55*
10.39*
–0.57
–0.29
5.48
8.00
7.44
13.49
11.95
–2.61
* 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 former Financial Markets
Swiss Re 2008 Annual Report 243
General information
General information
245 Cautionary note on forward-looking statements
247 Note on risk factors
252 Glossary
257 Key events
250 2008 awards
262 Business contact information
263 Corporate calendar
244 Swiss Re 2008 Annual Report
General information / Cautionary note on forward-looking statements
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:
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the direct and indirect impact of the continuing deterioration in the financial markets and
the efficacy of efforts to strengthen financial institutions and stabilise the credit markets
and the broader financial system;
changes in global economic conditions and the effects of the global economic downturn;
the occurrence of other unanticipated market developments or trends;
Swiss Re’s ability to maintain sufficient liquidity and access to capital markets, including
sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of
debt or debt-like arrangements and collateral calls under derivative contracts due to actual
or perceived deterioration of Swiss Re’s financial strength;
the effect of market conditions, including the global equity and credit markets, and the
level and volatility of equity prices, interest rates, credit spreads, currency values and other
market indices, on Swiss Re’s investment assets;
changes in Swiss Re’s investment result as a result of changes in its investment policy
or the changed composition of Swiss Re’s investment assets, and the impact of the timing
of any such changes relative to changes in market conditions;
uncertainties in valuing credit default swaps and other credit-related instruments;
possible inability to realise amounts on sales of securities on Swiss Re’s balance sheet
equivalent to its mark-to-market values recorded for accounting purposes;
the outcome of tax audits, the ability to realise tax loss carryforwards and the ability
to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction
or deemed change of control), which could negatively impact future earnings;
the possibility that Swiss Re’s hedging arrangements may not be effective;
the lowering or loss of one of the financial strength or other ratings of one or more
companies in the Group;
risks associated with implementing Swiss Re’s business strategies;
the cyclicality of the reinsurance industry;
uncertainties in estimating reserves;
the frequency, severity and development of insured claim events;
acts of terrorism and acts of war;
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Swiss Re 2008 Annual Report 245
General information / Cautionary note on forward-looking statements
Cautionary note on forward-looking statements
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mortality and morbidity experience;
policy renewal and lapse rates;
extraordinary events affecting Swiss Re’s clients and other counterparties, such as
bankruptcies, liquidations and other credit-related events;
political risks in the countries in which Swiss Re operates or in which it insures risks;
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
procedures 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.
246 Swiss Re 2008 Annual Report
General information / Note on risk factors
Note on risk factors
Current market conditions
The global financial markets have experienced extreme volatility and disruption for more
than 18 months, due in large part to the turmoil affecting the liquidity of the banking system
and the market reaction thereto. The impact of the turmoil in the financial markets has been
exacerbated by adverse macroeconomic trends affecting an increasing number of the
principal economies that have moved toward, or are now in, recession. Volatility and disruption
have reached unprecedented levels.
Governments in a number of countries have undertaken initiatives to stabilise the financial
markets. It remains to be seen whether these initiatives will be sufficient to positively impact or
stabilise the volatility in the financial markets. Failure of these or other initiatives to stabilise
and improve the performance of the financial markets could result in continued constraints on
the liquidity available to the banking system and financial markets and increased pressure
on securities prices of financial institutions. Moreover, government intervention may have a
distorting impact on the markets, ranging from changes to the competitive landscape to capital
support for ceding companies, thus reducing their need for reinsurance, as well as having a
distorting impact on the debt capital markets.
It is unclear whether the severity of the downturn in the global financial markets and/or
economic conditions will continue to worsen, or when conditions might improve. It is also
unclear what the impact of further deterioration in the financial markets is likely to be on
the financial condition of market participants (from a capital, liquidity or other perspective)
and on investor confidence. If current levels of market disruption and volatility continue
or worsen, at the very least, there can be no assurance that the Group will not be required
to record further write-downs and impairments on assets over and above those announced
to date, and more broadly, it is difficult to predict what the impact of continued market
turbulence will be on the Group from a general business perspective or from a capital or
liquidity perspective.
Market risk
As a result of the extreme and unprecedented volatility and disruption in the global financial
markets, the Group is exposed to significant financial and capital markets risk, including
changes in interest rates, credit spreads, equity prices and foreign currency exchange rates,
which may adversely impact the Group’s financial condition, results of operations and liquidity.
The Group’s exposure to interest rate risk is primarily related to the market price and cash flow
variability associated with changes in interest rates. Exposure to credit spreads primarily
relates to market price and cash flow variability associated with changes in credit spreads.
With widening of credit spreads, the net unrealised loss position of the Group’s investment
portfolio has increased, as have other-than-temporary impairments. With respect to equity
prices, the Group is exposed to changes in the level and volatility of equity prices, as they
affect the value of equity securities themselves as well as the value of securities or instruments
that derive their value from a particular equity security, a basket of equity securities or a
stock index. Exposure to foreign exchange risk arises from exposures to changes in spot
prices, forward prices and volatilities of currency rates.
Swiss Re 2008 Annual Report 247
General information / Note on risk factors
Note on risk factors
These risks can have a significant effect on investment returns, which in turn affects both
results of operations and financial condition. The Group is focused on asset-liability
management for its investment portfolio, but pursuing even this strategy has its risks,
including possible mismatch, that in turn can lead to reinvestment risk. As interest rates have
dropped significantly in line with reductions in central bank rates, which trend is exacerbated
by the effects of unprecedented government intervention and the corresponding need for
governments to raise debt to finance rescue efforts, the Group may be unable to successfully
match, or come close to, historical parameters.
The Group seeks to manage the risks inherent in its investment portfolio by repositioning
the portfolio from time to time, as needed, and to reduce risk and fluctuations through the use
of hedges and other risk management tools. The Group has moved to reduce risk to the
portfolio by repositioning the components of the portfolio and, as a result, profitability will
potentially be impacted, and unless offset by underwriting returns, will be reduced.
Credit risk
Like other financial institutions, the Group has been adversely impacted by the deterioration in
the credit markets, and further market fluctuations and volatility could have a material adverse
effect on the Group’s business, financial condition and results of operations. For 2008, the
Group reported a net loss of CHF 0.9 billion, which was due principally to mark-to-market
losses recognised in income and CHF 2.9 billion of impairments on the investment portfolio.
Total mark-to-market losses were approximately CHF 3.2 billion excluding unit-linked
investments and with-profit business, which included approximately CHF 2.5 billion
attributable to two related structured CDS contracts written by the Group’s former Credit
Solutions business. Shareholders’ equity in 2008 decreased to CHF 20.5 billion. This was
mainly due to credit spread widening resulting in net unrealised losses of CHF 5.5 billion,
foreign exchange movements of CHF –2.3 billion, share buy-back of CHF 2.0 billion and
dividend of CHF 1.3 billion paid to shareholders during the year.
The unprecedented and severe ratings downgrades that the Group and others have
experienced over the past 18 months, and the absence of a liquid market for credit-related
and other securities, have resulted in a significant and material reduction in the value of the
underlying assets. With respect to the credit default swaps, the Group remains exposed to
continued fluctuations in the market value of the underlying securities and could be required
to report further mark-to-market losses. Changes in the market value of the underlying
securities and other factors impacting their price could give rise to market value losses. If the
credit markets continue to deteriorate, the Group could face further losses in other areas of
its portfolio, including other structured instruments.
More generally, the continued deterioration of the credit markets and related developments
have had, and can be expected to have (at least in the near term), an adverse impact on the
ability of market participants, including the Group and its counterparties, to value credit
default swaps and other credit-related instruments. In the absence of a liquid market, various
methodologies may be available to value securities positions. Valuation is a complex process
248 Swiss Re 2008 Annual Report
General information / Note on risk factors
involving quantitative modelling and management judgment, which is also impacted by
external factors including default rates, rating agency action, financial strength of
counterparties and prices of observable comparable market transactions. In addition, to the
extent institutions sell assets as part of national rescue efforts, such sales may establish
new valuation benchmarks.
Valuation processes can produce significantly different outcomes, which could create additional
uncertainty and differences of opinion among counterparties to swaps and other similar
instruments as to obligations in respect of collateral and other terms of such instruments. These
differences in opinion, in turn, could result in legal disputes among counterparties as to their
respective obligations, the outcomes of which are difficult to predict and could be material.
The Group becomes aware of counterparty valuations either directly, through the exchange of
information, or indirectly, for example, through demands to post collateral. These valuations
may differ significantly from the Group’s estimates. Counterparty valuation estimates for
collateral purposes are considered during the independent price verification process and may
result in adjustments to initially indicated valuations. Resolution of any dispute in relation
to asset valuation in which the Group may become involved with counterparties, in a manner
adverse to it could have a material adverse effect on the Group’s financial condition and
results of operations.
Liquidity risks
The Group’s business requires, and its clients expect, that it has sufficient capital and sufficient
liquidity to meet its reinsurance obligations, and that that would continue to be the case
following the occurrence of any event or series of events, including extreme catastrophes, that
would trigger insurance or reinsurance coverage obligations. The Group’s uses of funds
include obligations arising in its reinsurance business (including claims and other payments
as well as insurance provision repayments due to portfolio transfers, securitisations and
commutations), which may include large and unpredictable claims (including catastrophe
claims), funding of capital requirements and operating costs, payment of principal and interest
on outstanding indebtedness and funding of acquisitions. The Group also enters into contracts
or trading arrangements that could give rise to significant short-term funding obligations and,
in connection with the Group’s trading operations, it could be subject to unexpected calls to
deliver collateral or unwind trading positions at a net cost to it. The Group also has unfunded
capital commitments in its private equity and hedge fund investments, which could result in
funding obligations at a time when it is subject to liquidity constraints.
The Group manages liquidity and funding risks by focusing on the liquidity stress that is likely
to result from extreme capital markets scenarios or from extreme insurance events or
combinations of the two. Generally, the ability to meet liquidity needs could be adversely
impacted by factors that the Group cannot control, such as market dislocations or interruptions,
the economic downturn, continued severe disruption in the financial and worldwide credit
markets and the related increased constraints on the availability of credit, changes in interest
rates and credit spreads, or by perceptions among market participants of the extent of the
Group’s liquidity needs.
Swiss Re 2008 Annual Report 249
General information / Note on risk factors
250 Swiss Re 2008 Annual Report
The Group may not be able to secure new sources of liquidity or funding, should projected or
actual liquidity fall below levels it requires. In addition, the Group’s ability to meet liquidity
needs may be further constrained by regulatory requirements that require regulated entities to
maintain regulatory capital or that restrict intra-group transactions, the timing of dividend
payments from subsidiaries or the fact that certain assets may be encumbered or otherwise
non-tradeable. Finally, any adverse ratings action could trigger a need for further liquidity (for
example, by triggering termination provisions or collateral delivery requirements in contracts
to which we are a party) at a time when the Group’s ability to obtain liquidity from external
sources is limited by such ratings action.
Counterparty risks
In the current financial crisis and in view of the impact it is having, or may have, on market
participants, the Group’s general exposure to counterparty risk is heightened and this risk
could be exacerbated to the extent defaults, or concerns about possible defaults, by certain
market participants trigger more systemic concerns about liquidity. Losses due to defaults by
counterparties, including issuers of investment securities (which include structured securities)
or derivative instrument counterparties, could adversely affect the Group. In addition, trading
counterparties, counterparties under swaps and other derivative contracts and financial
intermediaries may default on their obligations due to bankruptcy, insolvency, lack of liquidity,
adverse economic conditions, operational failure, fraud or other reasons, which could also
have a material adverse impact on the Group.
The Group could also be adversely affected by the insolvency of, or other credit constraints
affecting, counterparties in its reinsurance operations.
Risks relating to credit rating downgrades
Ratings are an important factor in establishing the competitive position of reinsurance
companies, and market conditions could increase the risk of downgrade. Third-party rating
agencies assess and rate the financial strength of reinsurers and insurers, such as Swiss Re.
These ratings are intended to measure a company’s ability to repay its obligations and are
based upon criteria established by the rating agencies. The Group’s ratings have come under
pressure due to the additional asset write-downs it recorded for the fourth quarter of 2008
and the resulting impact on the Group’s capital position.
As claims paying and financial strength ratings are key factors in establishing the competitive
position of reinsurers, a decline in ratings alone could make reinsurance provided by the
Group less attractive to clients relative to reinsurance from competitors with similar or stronger
ratings. A decline in ratings could also cause the loss of clients who are required by either
policy or regulation to purchase reinsurance only from reinsurers with certain ratings. A further
decline in ratings could also obligate the Group to provide collateral or other guarantees in
the course of its reinsurance business or trigger early termination of funding arrangements.
Any rating downgrades could also have a material adverse impact on the Group’s costs of
borrowing and limit its access to the capital markets. Further negative ratings action could
also impact reinsurance contracts.
General information / Note on risk factors
Insurance and operational risks
As part of the Group’s ordinary course operations, the Group is subject to a variety of risks,
including risks that reserves may not adequately cover future claims and benefits, risks that
catastrophic events may expose the Group to unexpected large losses, competitive conditions,
cyclicality of the industry, risks related to emerging claims and coverage issues, risks arising
from the Group’s dependence on policies, procedures and expertise of ceding companies,
and risks related to the failure of operational systems and infrastructure. In addition, the
occurrence of future risks that the Group’s risk management procedures fail to identity or
anticipate could have a material adverse effect on the Group.
Legal and regulatory risks
The Group has been named, from time to time, as a defendant in various legal actions in
connection with its operations. The Group is also involved from time to time in investigations
and regulatory proceedings, certain of which could result in adverse judgments, settlements,
fines and other outcomes. The number of these investigations and proceedings involving
the financial services industry has increased in recent years. The Group could also be subject
to risk from potential employee misconduct, including non-compliance with internal policies
and procedures. Substantial legal liability could materially adversely affect the Group’s
business, financial condition or results of operations or could cause significant reputational
harm, which could seriously harm its business.
A number of lawsuits have been filed against financial service firms raising claims tied to the
unprecedented market turmoil. Swiss Re is already subject to one such action, which is a
putative securities class action filed in the United States District Court for the Southern District
of New York in February 2008 against it and certain of its executive officers alleging false
and misleading statements in connection with the mark-to-market loss, announced on
November 19, 2007. The Group cannot predict whether it could be subject to further claims
arising out of the market turmoil.
Swiss Re 2008 Annual Report 251
General information / Glossary
Glossary
Accident insurance
Accumulation risk
Acquisition costs
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
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.
Specifically, 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)
Aviation insurance
Business interruption
Capacity
Casualty insurance
Catastrophe bonds
Cession
Claim
Claims handling
252 Swiss Re 2008 Annual Report
General information / Glossary
Claims incurred and claim adjustment
expenses
All claims payments plus the adjustment in the outstanding claims provision of a business
year and claim adjustment expenses.
Claims ratio
Coinsurance
Combined ratio
Commission
Commutation
Cover
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 obligations 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
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
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
(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
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)
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)
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
Adjustment in the accounting value of an asset.
Swiss Re 2008 Annual Report 253
General information / Glossary
Glossary
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
Liability insurance
Life 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.
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.
Marine insurance
Motor insurance
Net reinsurance assets
Line of insurance which includes coverage for property in transit (cargo), means of
transportation (except aircraft and motor vehicles), offshore installations and valuables, as well
as liabilities associated with marine risks and professions.
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
All classes of insurance business excluding life insurance.
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
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
Premiums earned plus net investment income plus other revenues.
Operational risk
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.
254 Swiss Re 2008 Annual Report
General information / Glossary
Premiums earned
Premiums an insurance company has recorded as revenues during a specific accounting
period.
Premiums written
Premiums for all policies sold during a specific accounting period.
Product liability insurance
Insurance covering the liability of the manufacturer or supplier of goods for damage caused
by their products.
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
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)
Intangible asset primarily arising from the purchase of life and health insurance companies
or portfolios.
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
Reserves
Retention
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
Net income as a percentage of time-weighted shareholders’ equity.
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 2008 Annual Report 255
General information / Glossary
Glossary
Risk
Risk management
Securitisation
Solvency II
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 tradeable 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
Sureties and guarantees issued to third parties for the fulfilment of contractual liabilities.
Surplus reinsurance
Form of proportional reinsurance in which risks are reinsured above a specified amount.
Tail VaR
See “Value at risk”.
Treaty reinsurance
Underwriting result
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 other 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.
256 Swiss Re 2008 Annual Report
General information / Glossary
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 2008 Annual Report 257
General information / Key events
Key events
CEO Jacques Aigrain announces initiative with Oxfam
Swiss Re establishes third-party administrator in China
Swiss Re’s Pierre Ozendo honoured by Insurance
Industry Charitable Foundation
29 February
2007 annual results
Net income of CHF 4.2 billion and a return
on equity of 13.5%
2 April
Comprehensive third-party healthcare
administrator established in China
Swiss Re received approval to establish
a consulting company in China to provide
full-service third-party administrator and
related consulting services to hospitals,
insurers, policyholders and employers
18 April
144th Annual General Meeting
Shareholders approved an 18% increase in
dividend to CHF 4.00 per share
6 May
First quarter 2008 results
Net income of CHF 624 million for the first
quarter (EPS: CHF 1.84)
7 May
GlobeCat transaction named Deal of
the Year
“Energy Risk” magazine named Swiss Re’s
USD 85 million GlobeCat transaction,
covering windstorm events in the US and
earthquakes in California and Central
America, Deal of the Year
26 May
Swiss Re recognised as admitted
reinsurer in Brazil
Swiss Reinsurance America Corporation and
Swiss Reinsurance Company Ltd recognised
as admitted reinsurers with the ability to
sell reinsurance in the newly de-regulated
Brazil marketplace
11 June
Joint operations for electronic data
exchange in accounting and settlement
launched
Swiss Re and global insurance broker Guy
Carpenter successfully implemented joint
operations for electronic data exchange in
accounting and settlement
2008
7 January
Strategic partnership in Vietnam
Acquisition of 25% stake in Vietnam’s
leading reinsurance provider, Vietnam
National Reinsurance Corporation
11 January
“Regulation XXX” transaction with SBLI
USD 175 million of peak “Regulation XXX”
reserve requirements for the Savings Bank
Life Insurance Company of Massachusetts
(SBLI) funded through private securitisation
22 January
First Central American earthquake bond
USD 85 million issued in multi-peril
securitisation covering windstorm events in
the US and earthquakes in California and
Central America
23 January
Property & Casualty quota-share
arrangement
Five year quota-share agreement with
Berkshire Hathaway covering 20% of the
Group’s new and renewed Property &
Casualty business
258 Swiss Re 2008 Annual Report
General information / Key events
30 June
USD 150 million in natural catastrophe
protection
Swiss Re obtained USD 150 million
protection against North Atlantic hurricane,
European windstorm, Californian earthquake
and Japanese typhoon through a natural
catastrophe protection programme named
Vega Capital Ltd
30 September
Swiss Re entered into partnership with
CelsiusPro
Partnership with CelsiusPro, the first Europe-
based weather derivative online sales
platform, to offer weather risk transfer
solutions. Swiss Re provides risk capacity
and expertise to support CelsiusPro’s online
platform
5 August
Second quarter 2008 results
Net income of CHF 0.6 billion for the second
quarter (EPS: CHF 1.70)
26 September
Swiss Re and Oxfam America launched
joint risk management initiative for
farmers in Tigray, Ethiopia
Swiss Re and Oxfam America announced a
joint Commitment to Action at the Clinton
Global Initiative 2008 meeting in New York.
The collaboration is aimed at helping
communities most vulnerable to climate
variability and change
31 October
GBP 762 million acquisition of Barclays
Life Assurance Company Ltd completed
The transaction, announced on 5 August
2008, received all the required regulatory
approvals. The transaction provides further
scale and infrastructure for Swiss Re’s Admin
Re® business in the United Kingdom
4 November
Third quarter 2008 results
Net loss of CHF 304 million for
the third quarter (EPS: CHF –0.93)
2009
5 February
Swiss Re announced preliminary and
unaudited 2008 results – Warren Buffett
to invest CHF 3 billion in Swiss Re via
Berkshire Hathaway Inc.
Swiss Re Group announced that it expected
to report a net loss for the full year 2008 of
approximately CHF 1 billion. The Group is
raising CHF 3 billion of capital from Berkshire
Hathaway Inc. and will consider further
equity raising of up to CHF 2 billion, both of
which are subject to shareholder approval
12 February
Swiss Re’s Board of Directors appointed
Stefan Lippe as new Chief Executive
Officer
Swiss Re’s Board of Directors announced
that it had accepted the resignation of
Jacques Aigrain as Chief Executive Officer,
and had appointed Stefan Lippe as his
successor
Swiss Re 2008 Annual Report 259
General information / 2008 awards
2008 awards
Swiss Re received a broad range of awards in 2008. They confirm our strict client
focus as well as our ability to develop customised solutions for clients.
Reactions Global Awards
̤ Best Global Reinsurance Company
̤
Best Reinsurance Company for Life
“Swiss Re remains one of the most innovative in the business and embodies the convergence
of the industry with the capital markets through its Swiss Re Capital Markets division.(…) In
2008, Swiss Re demonstrated that it too is committed to being disciplined when it comes to
rates and terms and conditions.” (“Reactions” magazine, August 2008)
The Review Worldwide Reinsurance
Awards
̤ Life reinsurance company of the year
̤
Professional service provider of the year
“For the third year running the world’s largest reinsurer has been awarded the accolade of
being the best life player in the secondary market.
In Asia, the main focus of Swiss Re’s push to grow health business will be in offering
reinsurance solutions that combine risk taking, professional risk management and professional
third party administration (for example, in India and China) to promote the sustainable
development of the primary medical industry”. (“The Review” magazine, September 2008)
Asia Insurance Industry Awards
̤ General Reinsurer of the Year
“With 11 offices across the region, Swiss Re has continued to understand and stay close to
client and market needs. (...) The reinsurer takes the honour for its customer focus, innovation
in the area of parametric covers and claims, and contribution towards India’s medical
insurance market.” (“Asia Insurance Review”, November 2008)
Risk & Insurance
̤ 2008 Risk Innovators: Financial Institutions & Services
“The Farmers Insurance Exchange deal was the first broadly syndicated transaction to
combine an insurance event, in this case a hurricane, with the issuance of regulatory capital.
The concept created “just-in-time” capital that would be available if a major natural disaster
loss occurred rather than holding additional, and expensive, equity on its balance sheet or
purchasing more reinsurance to cover remote events.” (“Risk & Insurance”, September 2008)
Reactions London Market Awards
̤ Best Reinsurance Company Underwriting Marine
“Swiss Re is a dominant player in all lines of business. And the judges felt it led the way for
marine risks. (…) Swiss Re impressed the judges with its expertise. (…) The firm’s marine
underwriters have worked together as a team for many years and have made Swiss Re in the
UK a respected London market lead for both proportional and non-proportional treaty
business.” (“Reactions” London Market Awards, June 2008)
260 Swiss Re 2008 Annual Report
General information / 2008 awards
Global Broker London Market Awards
̤ Marine Reinsurer of the Year 2008
“Swiss Re was voted as top of the market in this category. ‘It is efficient and responsive,’
said one broker.” (“Global Broker & Underwriter”, May/June 2008)
The Banker
̤ Deal of the Year 2008
“During turbulent times, any temporary stable market condition must be taken advantage
of. Thanks to meticulous organisation, Swiss Re successfully launched its inaugural
benchmark Sterling hybrid Tier 1 notes at short notice when windows of stability were
identified.” (“The Banker”, May 2008)
Dow Jones Sustainability Indexes
̤ 2008 leadership position (Insurance sector)
”Today, the world’s leading companies are integrating sustainability considerations into
their core business. They are accounting for general as well as industry-specific sustainability
risks and opportunities. And they do so by setting and achieving clear and quantifiable
objectives. At the same time, there remains significant room for improvement and thus wide
scope for a continued strong sustainability momentum.” Alexander Barkawi, Managing
Director, SAM Indexes (SAM media release, September 2008)
Energy Risk Awards
̤ Weather House of the Year
“Philanthropy is rarely an innovator in capitalism but it is sometimes a by-product. In the
case of global reinsurer Swiss Re, the attention of the panel was captured by the ability
of its environmental and commodities markets (ECM) arm to combine these two philosophies,
leading it once again to being voted Weather House of the Year for 2008.” (“Energy Risk
magazine”, June 2008)
Energy Risk
̤ Deal of the Year 2008
“At the end of 2007, Swiss Re Capital Markets launched a catastrophe bond with a difference
– not only was it the first cat bond to offer protection against earthquakes in Central America,
it was also the blueprint for a new concept allowing charities or governments to leverage
donations to pay for the coupon of the bond.” (“Energy Risk”, Spring 2008)
Swiss Re 2008 Annual Report 261
Corporate calendar
13 March 2009
145th Annual General Meeting
7 May 2009
First quarter 2009 results
5 August 2009
Second quarter 2009 results
3 November 2009
Third quarter 2009 results
9 December 2009
Investors’ Day
General information / Corporate calendar
©2009
Swiss Reinsurance Company Ltd
Title:
2008 Annual Report
Design:
Addison Corporate Marketing, London
Saffron Brand Consultants
Photographs:
JWT International (cover, back cover)
Marc Wetli (pp 2, 10, 94)
Glowimages; John Foxx; Alan Schein/zefa/Corbis
(p 8, left to right)
Keystone; Belinda Lawley/Panos Pictures; Thomas
Northcut (p 13 top to bottom)
Gettyimages; Glowimages; Keystone/STR (p 15 top
to bottom)
Sigrid Olsson/Getty Images (p 17)
Swiss Re, Gerrit Fokkema (p 18 –19)
Yva Momatiuk & John Eastcott, Minden/Geographic
Image Collection, Chris Hondros/Gettyimages,
Winfield Parks/National Geographic Image Collection
(p 21 top to bottom)
Swiss Re, Reza Estakhrian/Gettyimages, Swiss Re
(p 25 top to bottom)
Swiss Re (p 27)
Andres Leighton/Keystone; Jon Hrusa/Keystone;
DEZA (p 29 top to bottom)
K tembien pictures/Oxfam America (p 33)
Todd France, Swiss Re, Jeannette Seifert (p 258 left
to right)
Printing:
NZZ Fretz AG, Schlieren
This report is printed on sustainably produced paper
and climate neutral. The wood used comes from
forests certified to 100% by the Forest Stewardship
Council (FSC).
Original version in English.
The 2008 Annual Report is also available in German.
The web version of the 2008 Annual Report
is available at: www.swissre.com/annualreport
Order no: 1490793_09_en
CCHCC, 2/09, 13 000 en
Swiss Re 2008 Annual Report 263
General information / Business contact information
Business contact information
Swiss Re maintains over 65 office locations in over 25 countries. For a full list of office
locations and service offerings, please visit our website at www.swissre.com
Head Office
Swiss Reinsurance Company Ltd
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
262 Swiss Re 2008 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
Swiss Reinsurance Company Ltd
Mythenquai 50/60
P.O. Box
8022 Zurich
Switzerland
Telephone +41 43 285 2121
Fax +41 43 285 2999
www.swissre.com