Swiss Reinsurance Co.
Annual Report 2011

Plain-text annual report

Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements Content 03 03 04 06 08 09 10 10 18 25 36 42 44 47 49 51 54 62 66 67 74 83 84 86 Group financial statements Income statement Balance sheet Statement of shareholders’ equity Statement of comprehensive income Statement of cash flow 88 Swiss Reinsurance Company Ltd 88 Annual Report 91 Income statement 92 Balance sheet 94 Notes 103 Proposal for allocation of disposable profit 104 Report of the statutory auditor 106 General information 106 Cautionary note on forward-looking statements 108 Note on risk factors 113 Corporate calendar and contact information Notes to the Group financial statements Note 1 Organisation and summary of significant accounting policies Note 2 Investments Note 3 Fair value disclosures Note 4 Derivative financial instruments Note 5 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) Note 6 Debt Note 7 Unpaid claims and claim adjustment expenses Note 8 Reinsurance information Note 9 Income taxes Note 10 Benefit plans Note 11 Share-based payments Note 12 Commitments and contingent liabilities Note 13 Information on business segments Note 14 Subsidiaries, equity investees and variable interest entities Note 15 Restructuring provision Note 16 Risk assessment Report of the statutory auditor Swiss Reinsurance Company Ltd Swiss Reinsurance Company Ltd is a leading and highly diversified global reinsurer and part of the Swiss Re group of companies. The company operates through offices in more than 20 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Reinsurance Company Ltd is rated AA– by Standard & Poor’s, A1 by Moody’s and A+ by A.M. Best. The new Swiss Re corporate structure will be reflected in the Group financial statements beginning with the first quarter of 2012. During the first half of 2012, Swiss Reinsurance Company Ltd will transfer Corporate Solutions and Admin Re® entities through a dividend in-kind to Swiss Re Ltd. These transfers are subject to the approval of our principal regulator, the Swiss Financial Market Supervisory Authority, FINMA. Following these transfers, the Corporate Solutions and Admin Re® entities will no longer be subsidiaries of Swiss Reinsurance Company Ltd and will instead become subsidiaries of Swiss Re Ltd. Swiss Reinsurance Company Consolidated 2011 Annual Report 1 Financial statements | Group financial statements This page intentionally left blank 2 Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Group financial statements Income statement For the years ended 31 December USD millions Revenues Premiums earned Fee income from policyholders Net investment income Net realised investment gains (total impairments for the years ended 31 December were 683 in 2010 and 439 in 2011, of which 423 and 258, respectively, were recognised in earnings) 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 before income tax expense Income tax expense Net income before attribution of non-controlling interests Income attributable to non-controlling interests Net income after attribution of non-controlling interests Convertible perpetual capital instrument Net income attributable to common shareholders The accompanying notes are an integral part of the Group financial statements. Note 8, 13 8, 13 2, 13 2, 13 13 8, 13 8, 13 13 8, 13 13 13 9 2010 2011 19 652 918 5 422 2 783 60 28 835 –7 254 –8 236 –3 371 –3 679 –2 526 –1 094 –26 160 2 675 –541 2 134 –154 1 980 –1 117 863 21 300 876 5 469 409 51 28 105 –8 810 –8 414 –61 –4 021 –3 115 –851 –25 272 2 833 –83 2 750 –172 2 578 0 2 578 Swiss Reinsurance Company Consolidated 2011 Annual Report 3 Financial statements | Group financial statements Balance sheet As of 31 December Assets USD millions Investments Fixed income securities: Available-for-sale, at fair value (including 5 157 in 2010 and 7 034 in 2011 subject to securities lending and repurchase agreements) (amortised cost: 2010: 79 443; 2011: 86 984) Trading (including 2 187 in 2010 and 620 in 2011 subject to securities lending and repurchase agreements) Equity securities: Available-for-sale, at fair value (including 0 in 2010 and 45 in 2011 subject to securities lending and repurchase agreements) (cost: 2010: 1 241; 2011: 1 907) Trading Policy loans, mortgages and other loans Investment real estate Short-term investments, at amortised cost which approximates fair value (including 1 319 in 2010 and 87 in 2011 subject to securities lending and repurchase agreements) Other invested assets Total investments Cash and cash equivalents (including 4 139 in 2010 and 36 in 2011 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 2010 2011 80 950 93 770 11 252 7 548 1 474 19 513 5 630 2 040 21 446 14 642 156 947 16 928 1 085 11 095 12 637 9 346 3 571 4 565 4 083 426 7 720 1 960 16 753 8 325 1 983 14 394 19 821 164 554 11 298 1 226 11 441 11 837 9 064 3 923 4 226 4 051 703 5 797 8 5, 8 5 Total assets 228 403 228 120 The accompanying notes are an integral part of the Group financial statements. 4 Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Group financial statements Liabilities and equity USD 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 Equity Common stock, CHF 0.10 par value 2010: 370 704 153; 2011: 370 706 931 shares authorised and issued Additional paid-in capital Treasury shares, net of tax Accumulated other comprehensive income: Net unrealised investment gains/losses, net of tax Other-than-temporary impairment, net of tax Cumulative translation adjustments, net of tax Accumulated adjustment for pension and post-retirement benefits, net of tax Total accumulated other comprehensive income Retained earnings Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity The accompanying notes are an integral part of the Group financial statements. Note 7 3, 8 8 6 6 2010 2011 64 690 39 551 36 478 6 305 4 399 4 376 708 1 716 10 798 14 049 18 427 201 497 35 10 530 –1 483 1 042 –169 –3 742 –522 –3 391 19 651 25 342 1 564 26 906 64 878 39 044 34 162 8 299 2 436 3 962 440 2 853 4 101 20 213 16 541 196 929 35 8 958 –1 134 4 223 –118 –3 924 –775 –594 22 229 29 494 1 697 31 191 228 403 228 120 Swiss Reinsurance Company Consolidated 2011 Annual Report 5 Financial statements | Group financial statements Statement of shareholders’ equity For the years ended 31 December USD millions Convertible perpetual capital instrument (CPCI) Balance as of 1 January Reclassification of convertible perpetual capital instrument1 Balance as of period end Common shares Balance as of 1 January Issue of common shares Balance as of period end Additional paid-in capital Balance as of 1 January Share-based compensation Realised gains/losses on treasury shares Sale of Swiss Re Specialised Investments Holdings (UK) Ltd2 Dividends on common shares4 Balance as of period end Treasury shares, net of tax Balance as of 1 January Purchase of treasury shares Issuance of treasury shares, including share-based compensation to employees Balance as of period end Net unrealised gains/losses, net of tax Balance as of 1 January Other changes during the period Cumulative effect of adoption of ASU No. 2009-173 Balance as of period end Other-than-temporary impairment, net of tax Balance as of 1 January Other changes during the period Balance as of period end Foreign currency translation, net of tax Balance as of 1 January Other changes during the period Balance as of period end Adjustment for pension and other post-retirement benefits, net of tax Balance as of 1 January Change during the period Balance as of period end Retained earnings Balance as of 1 January Net income after non-controlling interests Convertible perpetual capital instrument (net income)1 Dividends on common shares4 Cumulative effect of adoption of ASU No. 2009-173 Balance as of period end Shareholders’ equity Non-controlling interests Balance as of 1 January Change during the period Income attributable to non-controlling interests Balance as of period end Total equity 6 Swiss Reinsurance Company Consolidated 2011 Annual Report 2010 2011 2 670 –2 670 0 35 35 10 472 48 10 10 530 –1 477 –49 43 –1 483 –993 2 070 –35 1 042 –397 228 –169 –3 560 –182 –3 742 –453 –69 –522 19 047 1 980 –1 117 –319 60 19 651 25 342 0 1 410 154 1 564 26 906 0 0 35 35 10 530 –87 –421 –29 –1 035 8 958 –1 483 –270 619 –1 134 1 042 3 181 4 223 –169 51 –118 –3 742 –182 –3 924 –522 –253 –775 19 651 2 578 22 229 29 494 1 564 –39 172 1 697 31 191 Financial statements | Group financial statements 1 The CPCI was reclassified from equity to short-term debt upon termination on 4 November 2010. The final cash settlement was made in January 2011. 2 On 3 May 2011, Swiss Reinsurance Company Ltd sold its subsidiary Swiss Re Specialised Investments Holdings (UK) Limited to Swiss Re Ltd. As the transaction has been accounted for in a manner similar to a transaction between entities under common control, the difference between the proceeds received and the book value was accounted for as a capital transaction. 3 The Group adopted a new accounting pronouncement, ASU No. 2009-17 (FAS167), an update to Topic 810 – Consolidation, as of 1 January 2010, which resulted in the full consolidation of certain VIEs. This resulted in a transition impact to retained earnings of USD 60 million and to net unrealised gains/losses of USD –35 million. 4 In 2011, dividends to shareholders were paid in the form of a withholding tax exempt repayment of legal reserves from capital contributions. The accompanying notes are an integral part of the Group financial statements. Swiss Reinsurance Company Consolidated 2011 Annual Report 7 Financial statements | Group financial statements Statement of comprehensive income For the years ended 31 December USD millions Net income before attribution of non-controlling interests Other comprehensive income, net of tax: Change in unrealised gains/losses Change in other-than-temporary impairment Change in foreign currency translation Change in adjustment for pension benefits Total comprehensive income before attribution of non-controlling interests Comprehensive income attributable to non-controlling interests Total comprehensive income attributable to common shareholders 1 After interest on convertible perpetual capital instrument. The accompanying notes are an integral part of the Group financial statements. 2010 1 0171 2 035 228 –182 –69 3 029 –154 2 875 2011 2 750 3 181 51 –182 –253 5 547 –172 5 375 8 Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Group financial statements Statement of cash flow For the years ended 31 December USD millions Cash flows from operating activities Net income attributable to common shareholders Add net income attributable to non-controlling interests Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items1 Net realised investment gains/losses Convertible perpetual capital instrument Change in: Technical provisions, net1 Funds held by ceding companies and other reinsurance balances Reinsurance recoverable on unpaid claims and policy benefits 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/disposal of reinsurance transactions, net Net purchases/sales/maturities of other investments Net cash provided/used by investing activities Cash flows from financing activities Issuance/repayment of long-term debt Issuance/repayment of short-term debt Issuance Repayment Purchase/sale of treasury shares Interest on convertible perpetual capital instrument 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 Impact of adoption of ASU No. 2009-172 Cash and cash equivalents as of 30 September 2010 863 154 2 442 –2 783 1 117 –3 915 13 –1 366 –1 610 85 –265 1 452 –2 273 –6 086 2011 2 578 172 3 112 –409 –4 093 –1 501 275 –20 –546 –225 2 880 –785 1 438 137 361 –127 848 –10 621 142 952 –145 148 6 952 102 –923 –123 –2 052 2 351 –3 173 80 –454 3 560 1 052 –181 2 929 –7 094 –6 –323 –319 –3 761 –11 899 224 –11 675 27 810 793 16 928 114 –9 158 –270 –1 035 –10 530 –5 532 –98 –5 630 16 928 11 298 1 From 1 January 2011, the Group presents the amortisation of deferred acquisition cost in “Depreciation, amortisation and other non-cash items”. Comparatives for 2010 are presented accordingly. 2 As of 1 January 2010, the Group adopted ASU No. 2009-17 (FAS167), an update to Topic 810 – Consolidation, which resulted in the full consolidation of certain VIEs. Interest paid was USD 1 278 million and USD 1 099 million for the twelve months ended 31 December 2010 and 2011, respectively. Tax paid was USD 476 million and USD 706 million for the twelve months ended 31 December 2010 and 2011, respectively. The accompanying notes are an integral part of the Group financial statements. Swiss Reinsurance Company Consolidated 2011 Annual Report 9 Financial statements Notes to the Group financial statements 1  Organisation and summary of significant accounting policies Nature of operations The Swiss Reinsurance Company Group, which is headquartered in Zurich, Switzerland, comprises Swiss Reinsurance Company Ltd   (the parent company, referred to as “SRZ”) and its subsidiaries (collectively, the “Swiss Reinsurance Company Group” or the “Group”).   The Swiss Reinsurance Company Group is a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer.  Working through brokers and a network of more than 60 offices around the globe, its client base consists of insurance companies,   mid-to-large-sized corporations and public sector clients. Basis of presentation 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. All significant inter-company transactions and balances have been  eliminated on consolidation.  Effective 20 May 2011, SRZ became a subsidiary of Swiss Re Ltd, a new holding company formed through an exchange offer in which   SRZ shareholders were offered the opportunity to exchange their SRZ shares for shares of Swiss Re Ltd. On 8 December 2011, SRZ shares  were delisted from the SIX Swiss Exchange and effective 13 December 2011, SRZ became a wholly owned subsidiary of Swiss Re Ltd.  Consequently, in accordance with the relevant US GAAP guidance, no earnings per share disclosures were included in these financial  statements.  During the second quarter but prior to 20 May 2011, Swiss Re Specialised Investments Holdings (UK) Ltd (“SRSIH”) was transferred from  SRZ to Swiss Re Ltd and became a related party of the Swiss Reinsurance Company Group. As a result of the transfer, contractual relationships  between the Swiss Reinsurance Company Group and SRSIH (consisting mainly of other loans granted to SRSIH of USD 2 686 million and  accrued expenses and other liabilities in respect of SRSIH of USD 2 331 million as of 31 December 2011) are presented as external party  transactions in these financial statements. The Swiss Re Group (Swiss Re Ltd and its consolidated subsidiaries) is implementing a new organisational structure which will be   reflected in the financial statements of the Swiss Re Group beginning with the first quarter of 2012. During the first half of 2012,   Swiss Reinsurance Company Ltd will transfer Corporate Solutions and Admin Re® entities through a dividend in-kind to Swiss Re Ltd.   These transfers are subject to the approval of our principal regulator, FINMA. Following these transfers, the Corporate Solutions and   Admin Re® entities will cease to be subsidiaries of Swiss Reinsurance Company Ltd and, therefore, will no longer be part of the   Swiss Reinsurance Company Group; these entities will instead become subsidiaries of Swiss Re Ltd. The new Group reporting structure will be reflected in the Group financial statements from the first quarter of 2012. It will consist of the  Property & Casualty, the Life & Health and the Other segment. The Other segment will include mainly certain costs not allocated to the  Reinsurance business segments, certain Treasury activities as well as the remaining non-core activities which have been in run-off since  November 2007. Principles of consolidation The Group’s financial statements include the consolidated financial statements of Swiss Reinsurance Company Ltd and its subsidiaries.  Voting entities which Swiss Re Reinsurance Company directly or indirectly controls through holding a majority of the voting rights are  consolidated in the Group’s accounts. Variable interest entities (VIEs) are consolidated when the Group is the primary beneficiary. The Group  is the primary beneficiary when it has power over the activities that impact the VIE’s economic performance and at the same time has the  obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Companies which the Group does  not control, but over which the Group directly or indirectly exercises significant influence, are accounted for using the equity method and   are included in other invested assets. The Group’s share of net profit or loss in investments accounted for under the equity method is included  in net investment income. Equity and net income of these companies are adjusted as necessary to be in line with the Group’s accounting  policies. The results of consolidated subsidiaries and investments accounted for using the equity method are included in the financial  statements for the period commencing from the date of acquisition. Use of estimates in the preparation of financial statements 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 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. 10  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Foreign currency remeasurements and translation 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 US dollars are translated from the  functional currency to US dollars at closing rates. Revenues and expenses are translated at average exchange rates. Translation adjustments  are reported in shareholders’ equity. Valuation of financial assets 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 derivative instruments and  other over-the-counter financial assets. In determining the fair value of these financial instruments, the assessment of the Group’s exposure  to the credit risk of its counterparties incorporates consideration of existing collateral and netting arrangements entered into with each  counterparty. The measure of the counterparty credit risk is estimated 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. For assets or derivative structures at fair value, 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, there   is always a 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. As of 31 December 2011, the Group had not provided any collateral on  financial instruments in excess of its own market value estimates. Investments 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 cost of equity securities AFS is 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. Swiss Reinsurance Company Consolidated 2011 Annual Report  11 Financial statements | Notes to the Group financial statements For debt securities AFS which are other-than-temporary impaired and there is not an intention to sell, the impairment is separated into (i) the  estimated amount relating to credit loss, and (ii) the amount relating to all other factors. The estimated credit loss amount is recognised in  earnings, with the remainder of the loss amount recognised in other comprehensive income. In cases where there is an intention or requirement  to sell, the accounting of the other-than-temporary impairment is the same as for equity securities AFS described above. 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. Interest income is recognised in accordance with the effective yield  method. Investment in real estate that the Group intends to hold for the production of income is carried at depreciated cost, net of any write-downs  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. Derivative financial instruments and hedge accounting The Group uses a variety of derivative financial instruments including swaps, options, forwards and exchange-traded financial futures for   the Group’s trading and hedging strategy in line with the overall risk management strategy. Derivative financial instruments are primarily  used as a means of managing exposure to price, foreign currency and/or interest rate risk on planned or anticipated investment purchases,  existing assets or liabilities and also to lock in attractive investment conditions for funds which become available in the future. The Group  recognises all of its derivative instruments on the balance sheet at fair value. Derivatives that are not designated as hedging instruments are  adjusted to fair value through earnings. If the derivative is designated as a hedge of the fair value of assets or liabilities, changes in the fair value of the derivative are recognised in  earnings, together with changes in the fair value of the related hedged item. If the derivative is designated as a hedge of the variability in   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  12  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 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 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. Deferred acquisition costs 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 and similar products are amortised based on  the present value of estimated gross profits. Estimated gross profits are updated quarterly. 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. 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. Swiss Reinsurance Company Consolidated 2011 Annual Report  13 Financial statements | Notes to the Group financial statements Acquired present value of future profits The acquired present value of future profits (PVFP) of business in force is recorded in connection with the acquisition of life and/or health  business. 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. For  universal-life and similar products, PVFP is amortised in line with estimated gross profits, and estimated gross profits are updated quarterly.  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. Goodwill 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 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.  Capitalised software costs 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. Deferred income taxes 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. Unpaid claims and claim adjustment expenses 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. 14  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 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 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. 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% to 9%. 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, ie there is no mortality and morbidity   risk, or the mortality and morbidity risk associated with the insurance benefit features offered in the contract is of insignificant amount or  remote probability. Amounts received as payment for investment contracts are reported as policyholder account balances. Related assets   are included in general account assets.  Amounts assessed against policyholders for mortality, administration and surrender are shown as fee income. Amounts credited to  policyholders are shown as interest credited to 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 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. Swiss Reinsurance Company Consolidated 2011 Annual Report  15 Financial statements | Notes to the Group financial statements Premiums 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. Reinsurance ceded 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.  Receivables Premium and claims receivables which have been invoiced are accounted for at face value. Together with assets arising from the application  of the deposit method of accounting that meet the definition of financing receivables they are regularly assessed for impairment. Evidence   of impairment is ageing and financial difficulties of the counterparty. Allowances are set up on the net balance, meaning all balances related  to the same counterparty are considered. The amount of the allowance is set up in relation to the time a receivable has been due and financial  difficulties of the debtor, and can be as high as the outstanding net balance. Pensions and other post-retirement benefits 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. Share-based payment transactions 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 11. 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 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. Subsequent events Subsequent events for the current reporting period have been evaluated up to 15 March 2012. This is the date on which the financial  statements are available to be issued. 16  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Recent accounting guidance In January 2010, the FASB issued “Improving Disclosures about Fair Value Measurements” (ASU No. 2010-06), an update to Topic 820 –  Fair Value Measurements and Disclosures. This new standard implements additional disclosure requirements for the three fair value levels.  As required by the update, the Group adopted some of the requirements as of 1 January 2010. The remaining requirements were adopted   as of 1 January 2011 and can be found in Note 3. In December 2010, the FASB issued “When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative  Carrying Amounts” (ASU No. 2010-28), an update to Topic 350 – Intangibles – Goodwill and Other. This update provides guidance under  what circumstances a company is required to perform step 2 of the goodwill impairment test for reporting units with zero or negative  carrying amounts. The Group adopted this guidance as of 1 January 2011. The adoption did not have an impact on the Group’s financial  statements. Also in December 2010, the FASB issued “Disclosure of Supplementary Pro Forma Information for Business Combinations” (ASU No. 2010-29),  an update to Topic 805 – Business Combinations. This update specifies that an entity should disclose revenue and earnings of the combined  entity as though the business combinations that occurred during the current year had occurred as of the beginning of the comparable prior  annual reporting period only. The Group adopted this update as of 1 January 2011. The adoption did not have an impact on the Group’s  financial statements. In April 2011, the FASB issued “A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring” (ASU No. 2011-02),  an update to Topic 310 – Receivables. This update provides clarifications on the determination whether a restructuring of debt constitutes   a troubled debt restructuring. The Group adopted this guidance as of 1 July 2011. The adoption did not have an impact on the Group’s   financial statements. In October 2010, the FASB issued “Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts” (ASU No. 2010-26),  an update to Topic 944 – Financial Services – Insurance. This new guidance limits the definition of deferrable acquisition costs to costs  directly related to the successful acquisition or renewal of insurance contracts. The Group will adopt ASU No. 2010-26 in the first quarter   of 2012. We do not expect that the adoption will have a material impact on the Group’s financial statements. Swiss Reinsurance Company Consolidated 2011 Annual Report  17 Financial statements | Notes to the Group financial statements 2  Investments Investment income Net investment income by source (including unit-linked and with-profit business) was as follows: USD 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 2010 4 031 509 428 188 88 –32 351 102 513 6 178 –591 –165 5 422 2011 3 688 662 770 213 104 –173 276 101 478 6 119 –551 –99 5 469 Dividends received from investments accounted for using the equity method were USD 86 million and USD 51 million for 2010 and 2011,  respectively. Net investment income includes income on unit-linked and with-profit business, which is credited to policyholders. USD millions Unit-linked investment income With-profit investment income 2010 593 145 2011 685 158 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: USD 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/losses on trading securities Other investments: Net realised/unrealised gains/losses Foreign exchange gains/losses Net realised investment gains/losses 2010 2011 2 193 –1 149 22 –1 –423 108 2 372 213 –552 2 783 2 599 –612 96 –234 –258 478 –1 063 –935 338 409 18  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Proceeds from sales of fixed income securities available-for-sale amounted to USD 118 947 million and USD 115 775 million for 2010   and 2011, respectively. Sales of equity securities available-for-sale were USD 105 million and USD 2 389 million for 2010 and 2011,  respectively. Net realised investment gains/losses include net realised gains/losses on unit-linked and with-profit business, which are credited to  policyholders. USD millions Unit-linked realised gains/losses With-profit realised gains/losses 2010 2 034 196 2011 –1 272 26 Impairment on fixed income securities related to credit losses Other-than-temporary impairments for debt securities are bifurcated between credit and non-credit components, with the credit component  recognised through earnings and the non-credit component recognised in other comprehensive income. The credit component of other- than-temporary impairments is defined as the difference between a security’s amortised cost basis and expected cash flows. Methodologies  for measuring the credit component of impairment are aligned to market observer forecasts of credit performance drivers. Management  believes that these forecasts are representative of median market expectations. For securitised products, cash flow projection analysis is conducted integrating forward-looking evaluation of collateral performance drivers,  including default rates, prepayment rates and loss severities, and deal-level features, such as credit enhancement and prioritisation among  tranches for payments of principal and interest. Analytics are differentiated by asset class, product type and security-level differences in  historical and expected performance. For corporate bonds and similar hybrid debt instruments, an expected loss approach based on default  probabilities and loss severities expected in the current and forecast economic environment is used for securities identified as credit-impaired  to project probability-weighted cash flows. Expected cash flows resulting from these analyses are discounted, and net present value is  compared to the amortised cost basis to determine the credit component of other-than-temporary impairments. A reconciliation of the other-than-temporary impairment related to credit losses recognised in earnings was as follows: USD millions Balance as of 1 January Credit losses for which an other-than-temporary impairment was not previously recognised Reductions for securities sold during the period  Increase of credit losses for which an other-than-temporary impairment has been recognised previously,  when the Group does not intend to sell, or more likely than not will not be required to sell before recovery Impact of increase in cash flows expected to be collected  Impact of foreign exchange movements Balance as of 31 December 2010 1 409 196 –775 96 –69 –28 829 2011 829 141 –418 54 –85 –6 515 Swiss Reinsurance Company Consolidated 2011 Annual Report  19 Financial statements | Notes to the Group financial statements Investments available-for-sale Amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as available-for-sale  as of 31 December were as follows: 2010  USD millions Debt securities issued by governments  and government agencies: US Treasury and other US government  corporations and agencies US Agency securitised products States of the United States and political  subdivisions of the states United Kingdom Canada Germany France Other Total Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Fixed income securities available-for-sale Equity securities available-for-sale 2011 USD millions Debt securities issued by governments  and government agencies: US Treasury and other US government  corporations and agencies US Agency securitised products States of the United States and political  subdivisions of the states United Kingdom Canada Germany France Other Total Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Fixed income securities available-for-sale Equity securities available-for-sale Amortised cost  or cost Gross   unrealised   gains Gross  unrealised  losses Other-than-temporary  impairments  recognised in other  comprehensive income Estimated   fair value 18 868 4 894 172 12 221 3 022 3 369 2 022 5 032 49 600 19 234 4 178 4 364 2 067 79 443 1 241 337 123 1 332 384 33 32 242 1 484 1 387 180 155 79 3 285 258 –539 –22 –7 –150 –18 –28 –21 –90 –875 –250 –155 –178 –66 –1 524 –25 18 666 4 995 166 12 403 3 388 3 374 2 033 5 184 50 209 20 359 4 020 4 304 2 058 80 950 1 474 –12 –183 –37 –22 –254 Amortised cost  or cost Gross   unrealised   gains Gross  unrealised  losses Other-than-temporary  impairments  recognised in other  comprehensive income Estimated   fair value 20 387 3 866 245 15 182 3 078 4 791 3 068 6 849 57 466 21 467 2 119 3 820 2 112 86 984 1 907 1 881 144 24 1 865 806 200 45 453 5 418 2 065 30 222 64 7 799 201 –1 –3 –6 –51 –2 –51 –52 –56 –222 –265 –154 –141 –54 –836 –148 22 267 4 007 263 16 996 3 882 4 940 3 061 7 245 62 661 23 254 1 885 3 863 2 107 93 770 1 960 –1 –1 –13 –110 –38 –15 –177 The “Other-than-temporary impairments recognised in other comprehensive income” column only includes securities with a credit-related  loss recognised in earnings. Subsequent recovery in fair value of securities previously impaired in other comprehensive income is presented  in the “Other-than-temporary impairments recognised in other comprehensive income” column. 20  Swiss Reinsurance Company Consolidated 2011 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: USD millions Debt securities issued by governments and government agencies Corporate debt securities Mortgage- and asset-backed securities Fixed income securities trading Equity securities trading 2010 8 324 2 497 431 11 252 19 513 2011 4 492 2 774 282 7 548 16 753 Fixed income securities and equity securities classified as trading as of 31 December include securities held for unit-linked and with-profit  business: USD millions Fixed income securities trading held for unit-linked business Fixed income securities trading held for with-profit business Fixed income securities trading Equity securities trading held for unit-linked business Equity securities trading held for with-profit business Equity securities trading 2010 2 302 1 648 3 950 17 405 1 135 18 540 2011 2 354 1 741 4 095 15 231 951 16 182 Maturity of fixed income securities available-for-sale The amortised cost or cost and estimated fair values of investments in fixed income securities available-for-sale by remaining maturity are shown  below. Fixed maturity investments are assumed not to be called for redemption prior to the stated maturity date. As of 31 December 2010  and 2011, USD 13 107 million and USD 10 274 million, respectively, of fixed income securities available-for-sale were callable. USD 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 2 342 16 601 14 628 30 604 15 268 79 443 2010 Estimated   fair value 2 379 16 891 15 189 31 360 15 131 80 950 Amortised   cost or cost 3 020 19 696 17 955 38 594 7 719 86 984 2011 Estimated   fair value 3 040 20 156 19 072 43 977 7 525 93 770 Assets pledged As of 31 December 2010 and 2011, investments with the carrying value of USD 1 769 million and USD 1 961 million, respectively, were   on deposit with regulatory agencies in accordance with local requirements. As of 31 December 2010 and 2011, investments (including cash and cash equivalents) with a carrying value of approximately   USD 8 573 million and USD 7 954 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities. As of 31 December 2010 and 2011, securities of USD 12 802 million and USD 7 823 million, respectively, were pledged as collateral   in securities lending transactions and repurchase agreements. The associated liabilities of USD 1 750 million and USD 8 681 million,  respectively, were recognised in accrued expenses and other liabilities. A real estate portfolio with a carrying amount of USD 266 million serves as collateral for short-term senior operational debt of   USD 695 million. Collateral accepted which the Group has the right to sell or repledge As of 31 December 2010 and 2011, the fair value of the government and corporate bond securities received as collateral was   USD 6 539 million and USD 4 241 million, respectively. Of this, the amount that was sold or repledged as of 31 December 2010 and 2011  was USD nil million and USD nil million, respectively. The sources of the collateral are typically highly rated banking market counterparties. Swiss Reinsurance Company Consolidated 2011 Annual Report  21   Financial statements | Notes to the Group financial statements Unrealised losses on securities available-for-sale 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 2010 and 2011. As of  31 December 2010 and 2011, USD 25 million and USD 144 million, respectively, of the gross unrealised loss on equity securities   available-for-sale relates to declines in value for less than 12 months and USD nil million and USD 4 million, respectively, to declines in value  for more than 12 months. 2010  USD millions Debt securities issued by governments  and government agencies: US Treasury and other US government  corporations and agencies US Agency securitised products States of the United States and political  subdivisions of the states United Kingdom Canada Germany France Other Total Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Total 2011 USD millions Debt securities issued by governments  and government agencies: US Treasury and other US government  corporations and agencies US Agency securitised products States of the United States and political  subdivisions of the states United Kingdom Canada Germany France Other Total Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Total Less than 12 months 12 months or more Total Fair value Unrealised losses Fair value Unrealised losses Fair value Unrealised losses 10 100 2 157 117 3 045 483 1 715 862 1 760 20 239 3 696 1 134 371 478 25 918 454 20 5 92 6 27 19 59 682 131 112 36 1 962 283 3 11 578 76 7 7 165 1 130 699 1 356 1 145 384 4 714 85 2 2 58 12 1 2 31 193 131 226 179 87 816 10 383 2 160 128 3 623 559 1 722 869 1 925 21 369 4 395 2 490 1 516 862 30 632 Less than 12 months 12 months or more 539 22 7 150 18 28 21 90 875 262 338 215 88 1 778 Total Fair value Unrealised losses Fair value Unrealised losses Fair value Unrealised losses 337 500 37 2 832 79 1 027 1 133 1 210 7 155 2 760 829 812 662 12 218 1 3 1 50 1 50 52 44 202 145 111 123 15 596 40 47 2 10 4 142 245 700 702 342 184 2 173 5 1 1 1 13 21 133 153 56 54 417 337 500 77 2 879 81 1 037 1 137 1 352 7 400 3 460 1 531 1 154 846 14 391 1 3 6 51 2 51 52 57 223 278 264 179 69 1 013 During the second quarter of 2011 the Group reviewed the categorisation of fixed income securities available-for-sale between those securities  that are in an unrealised loss position for less than 12 months and more than 12 months. Based on the review, the Group determined that the  split, as presented in prior-period financial statements starting in the second quarter 2010, had to be revised. The split for the 2010 year-end  comparative numbers is re-presented accordingly. As a result, additional fixed income securities with a fair value of USD 4 619 million and  unrealised losses of USD 788 million are now shown in the unrealised loss position for more than 12 months as of 31 December 2010. These  securities were presented in the unrealised loss position for less than 12 months in prior-period financial statements. The revision has no impact  on net income, net equity or the balance sheet classification of the Group. 22  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Mortgages, loans and real estate As of 31 December, the carrying values of investments in mortgages, policy and other loans, and real estate were as follows: USD millions Policy loans Mortgage loans Other loans Investment real estate 2010 3 658 1 337 635 2 040 2011 3 664 1 336 3 325 1 983 The fair value of the real estate as of 31 December 2010 and 2011 was USD 3 306 million and USD 3 324 million, respectively. The carrying  value of policy loans, mortgages and other loans approximates fair value. As of 31 December 2010 and 2011, the Group’s investment in mortgages and other loans included USD 270 million and USD 270 million,  respectively, of loans due from employees, and USD 356 million and USD 357 million, respectively, due from officers. These loans generally  consist of mortgages offered at variable and fixed interest rates. As of 31 December 2010 and 2011, investments in real estate included USD 6 million and USD 6 million, respectively, of real estate held   for sale. Depreciation expense related to income producing properties was USD 40 million and USD 39 million for 2010 and 2011, respectively.  Accumulated depreciation on investment real estate totalled USD 528 million and USD 558 million as of 31 December 2010 and 2011,  respectively. Substantially all mortgages, policy loans and other loan receivables are secured by buildings, land or the underlying policies.  Swiss Reinsurance Company Consolidated 2011 Annual Report  23 Financial statements | Notes to the Group financial statements This page intentionally left blank 24  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 3  Fair value disclosures Fair value, as defined by the Fair Value Measurements and Disclosures Topic, 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. The Fair Value Measurements and Disclosures Topic 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 (eg markets which have few transactions and where 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, and state, 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. 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 from assets and liabilities measured  at fair value using significant unobservable inputs are recognised in net realised gains and losses. For the year ended 31 December 2011,  these adjustments were non-material. 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. Swiss Reinsurance Company Consolidated 2011 Annual Report  25 Financial statements | Notes to the Group financial statements Valuation techniques US government securities typically have quoted market prices in active markets and are categorised as level 1 instruments in the fair value  hierarchy. Non-US government holdings are generally classified as level 2 instruments and are valued on the basis of the quotes provided   by pricing services, which are subject to the Group’s pricing validation reviews and pricing vendor challenge process. Valuations provided   by pricing vendors are generally based on the actual trade information as substantially all of the Group’s non-US government holdings are  traded in a transparent and liquid market. Corporate debt securities mainly include US and European investment-grade positions, which are priced on the basis of quotes provided   by third-party pricing vendors and first utilise valuation inputs from actively traded securities, such as bid prices, bid spreads to Treasury  securities, Treasury curves, and same or comparable issuer curves and spreads. Issuer spreads are determined from actual quotes and  traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call features. Where market data is not  available, valuations are developed based on the modelling techniques that utilise observable inputs and option-adjusted spreads and  incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure. Values of residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS) and other asset-backed  securities (Other ABS) are obtained both from third-party pricing vendors and through quoted prices, some of which may be based on the  prices of comparable securities with similar structural and collateral features. Values of certain ABS for which there are no significant  observable inputs are developed using benchmarks to similar transactions or indices. For both RMBS and CMBS, cash flows are derived  based on the transaction-specific information which incorporates priority in the capital structure and are generally adjusted to reflect  benchmark yields, market prepayment data, collateral performance (default rates and loss severity) for specific vintage and geography,  credit enhancements, and ratings. For certain RMBS and CMBS with low levels of market liquidity, judgments may be required to determine  comparable securities based on the loan type and deal-specific performance. CMBS terms may also incorporate lock-out periods that  restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities,   as compared to RMBS. The factors specifically considered in valuation of CMBS include borrower-specific statistics in a specific region,   such as debt service coverage and loan-to-value ratios, as well as the type of commercial property.  The category Other ABS primarily includes debt securitised by credit card, student loan and auto loan receivables. Pricing inputs for these  securities also focus on capturing, where relevant, collateral quality and performance, payment patterns, and delinquencies.  The Group uses third-party pricing vendor data to value agency securitised products, which mainly include collateralised mortgage obligations  (CMO) and MBS government agency securities. The valuations generally utilise observable inputs consistent with those noted above for  RMBS and CMBS. Equity securities held by the Group for proprietary investment purposes are mainly classified in levels 1 and 2. Securities classified in level 1  are traded on public stock exchanges for which quoted prices are readily available. Level 2 equities include equity investments fair valued  pursuant to the fair value option election and certain hedge fund positions; all valued based on primarily observable inputs.  The category Other assets mainly includes the Group’s private equity and hedge fund investments, which are made directly or via ownership  of funds. Substantially all these investments are classified as level 3 due to the lack of observable prices and significant judgment required   in valuation. Valuation of direct private equity investments requires significant management judgment due to the absence of quoted market  prices and the lack of liquidity. Initial valuation is based on the acquisition cost, and is further refined based on the available market information  for the public companies that are considered comparable to the Group’s holdings in the private companies being valued, and the private  company-specific performance indicators, both historic and projected. Subsequent valuations also reflect business or asset appraisals, as  well as market transaction data for private and public benchmark companies and the actual companies being valued, such as financing rounds  and mergers and acquisitions activity. The Group’s holdings in the private equity and hedge funds are generally valued utilising net asset  values (NAV), subject to adjustments, as deemed necessary, for restrictions on redemption (lock-up periods and amount limitations on  redemptions).  26  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements The Group holds both exchange-traded and over-the-counter (OTC) interest rate, foreign exchange, credit and equity derivative contracts for  hedging and trading purposes. The fair values of exchange-traded derivatives measured using observable exchange prices are classified   in level 1. Long-dated contracts may require adjustments to the exchange-traded prices which would trigger reclassification to level 2 in the  fair value hierarchy. OTC derivatives are generally valued by the Group based on the internal models, which are consistent with industry  standards and practices, and use both observable (dealer, broker or market consensus prices, spot and forward rates, interest rate and credit  curves and volatility indices) and unobservable inputs (adjustments for liquidity, inputs derived from the observable data based on the  Group’s judgments and assumptions).  The Group’s OTC interest rate derivatives primarily include interest rate swaps, futures, options, caps and floors, and are valued based on the  cash flow discounting models which generally utilise as inputs observable market yield curves and volatility assumptions. The Group’s OTC foreign exchange derivatives primarily include forward, spot and option contracts and are generally valued based on the  cash flow discounting models utilising as main inputs observable foreign exchange forward curves.  The Group’s investments in equity derivatives primarily include OTC equity option contracts on single or baskets of market indices and equity  options on individual or baskets of equity securities, which are valued using internally developed models (such as the Black-Scholes option  pricing model, various simulation models) calibrated with the inputs, which include underlying spot prices, dividend curves, volatility  surfaces, yield curves, and correlations between underlying assets. The Group’s OTC credit derivatives include index and single name credit default swaps, as well as more complex structured credit derivatives.  Plain vanilla credit derivatives, such as index and single-name credit default swaps, are valued by the Group based on the models consistent  with the industry valuation standards for these credit contracts, and primarily utilising observable inputs published by market data sources,  such as credit spreads and recovery rates. These valuation techniques warrant classification of plain vanilla OTC derivatives as level 2  financial instruments in the fair value hierarchy.  The Group also holds complex structured credit contracts, such as collateralised debt securities (CDS) referencing MBS, certain types of  collateralised debt obligation (CDO) transactions, and the products sensitive to correlation between two or more underlying parameters  (CDO-squared), all of which are classified within level 3 of the fair value hierarchy. A CDO is a debt instrument collateralised by various debt  obligations, including bonds, loans and CDS of differing credit profiles. In a CDO-squared transaction, both the primary instrument and   the underlying instruments are represented by CDOs. Generally, for CDO and CDO-squared transactions, the observable inputs such as   CDS spreads and recovery rates are modified to adjust for correlation between the underlying debt instruments. The correlation levels are  modelled at the portfolio level and calibrated at a transaction level to liquid benchmark rates. Swiss Reinsurance Company Consolidated 2011 Annual Report  27 Financial statements | Notes to the Group financial statements Assets and liabilities measured at fair value on a recurring basis As of 31 December 2010 and 2011, the fair values of assets and liabilities measured on a recurring basis by level of input were as follows: As of 31 December 2010  USD millions Assets Fixed income securities Debt securities issued by US government  and government agencies US Agency securitised products Debt securities issued by non-US   governments and government agencies Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Equity securities Equity securities backing unit-linked and   with-profit life and health policies Equity securities held for proprietary   investment purposes Derivative financial instruments Interest rate contracts Foreign exchange contracts Derivative equity contracts Credit contracts Other contracts Other assets Total assets at fair value Liabilities Derivative financial instruments Interest rate contracts Foreign exchange contracts Derivative equity contracts Credit contracts Other contracts 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  and liabilities   (Level 1) Significant other  observable  inputs  (Level 2) Significant   unobservable  inputs  (Level 3) Impact of   netting1 16 043 74 278 1 881 16 043 19 972 18 495 1 477 579 389 40 142 8 20 36 614 –577 –402 –41 –123 –11 –398 –975 3 041 5 011 34 438 21 108 4 210 4 427 2 043 812 45 767 6 850 4 000 1 098 1 170 369 213 –12 81 928 –5 649 –3 579 –1 103 –531 –317 –119 –1 290 –6 939 1 748 7 3 123 203 203 2 417 839 162 1 214 202 1 411 5 912 –4 532 –825 –72 –56 –1 007 –2 572 –271 –6 560 –6 560 5 772 –4 803 5 772 Total 92 202 19 084 5 011 34 438 22 856 4 217 4 430 2 166 20 987 18 540 2 447 3 286 5 228 1 300 1 312 1 583 423 1 419 117 894 –4 986 –4 806 –1 216 –710 –1 324 –2 702 –271 –1 688 –6 945 1  The netting of derivative receivables and derivative payables is permitted 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. 28  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements As of 31 December 2011 USD millions Assets Fixed income securities Debt securities issued by US government  and government agencies US Agency securitised products Debt securities issued by non-US   governments and government agencies Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Equity securities Equity securities backing unit-linked and   with-profit life and health policies Equity securities held for proprietary   investment purposes Derivative financial instruments Interest rate contracts Foreign exchange contracts Derivative equity contracts Credit contracts Other contracts Other assets Total assets at fair value Liabilities Derivative financial instruments Interest rate contracts Foreign exchange contracts Derivative equity contracts Credit contracts Other contracts 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  and liabilities   (Level 1) Significant other  observable  inputs  (Level 2) Significant   unobservable  inputs  (Level 3) Impact of   netting1 20 383 79 796 1 139 20 383 18 161 16 173 1 988 50 3 40 7 2 773 41 367 –33 –16 –4 –6 –7 –2 926 –2 959 2 194 4 018 40 558 24 917 2 031 3 962 2 116 483 9 474 7 010 4 147 866 1 400 391 206 1 860 89 149 –4 902 –3 439 –764 –376 –238 –85 –3 546 –8 448 1 111 4 8 16 69 69 2 646 1 512 112 986 36 2 041 5 895 –5 875 –1 191 –66 –54 –1 075 –3 489 –341 –2 331 –8 547 –7 252 –7 252 5 950 5 950 Total 101 318 22 577 4 018 40 558 26 028 2 035 3 970 2 132 18 713 16 182 2 531 2 454 5 659 981 1 440 1 377 249 6 674 129 159 –4 860 –4 646 –834 –436 –1 313 –3 581 –341 –8 803 –14 004 1  The netting of derivative receivables and derivative payables is permitted 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 Reinsurance Company Consolidated 2011 Annual Report  29 Financial statements | Notes to the Group financial statements Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) As of 31 December 2010 and 2011, the reconciliation of the fair values of assets and liabilities measured on a recurring basis using  significant unobservable inputs were as follows: 2010  USD millions Assets Balance as of 1 January 2010 Cumulative effect of adoption of ASU No. 2009-17 Realised/unrealised gains/losses: Included in net income  Included in other comprehensive income Purchases, issuances, and settlements Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2010 Liabilities Balance as of 1 January 2010 Realised/unrealised gains/losses: Included in net income Included in other comprehensive income Purchases, issuances, and settlements Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2010 Debt securities  issued by non-US   governments and   government agencies Corporate debt  securities Residential   mortgage-backed   securities Commercial   mortgage-backed   securities Other   asset-backed   securities Equity securities held  for proprietary  Derivative interest  Derivative foreign   Derivative equity   Derivative credit   Other derivative   investment purposes rate contracts exchange contracts contracts contracts contracts Other assets Total 82 2 085 1 302 199 19 –5 –115 106 –85 –2 0 115 7 –77 87 –440 –29 1 748 –4 29 –73 90 –1 3332 –4 7 1 –4 44 –238 1 3 2 047 –84 –36 55 –1 430 176 –600 –5 123 170 –27 –2 65 –3 203 1 162 –58 –206 91 –148 –2 839 –293 22 3 54 48 56 1 162 –948 123 57 21 –88 10 –41 –31 0 1 214 –788 –314 –54 –2 2 316 283 1 321 –45 19 2 –48 –9 202 731 –35 129 64 31 –97 –2 1 411 –95 –220 11 027 –84 –784 214 –2 111 693 –2 989 –54 5 912 748 –220 Liabilities for life and  Derivative interest  Derivative foreign   Derivative equity   Derivative credit   Other derivative   health policy benefits rate contracts exchange contracts contracts contracts contracts Total –1 738 –2 257 –5 331 –271 –825 –72 –56 –1 007 –2 572 –4 803 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer. 2  The Group has mainly transferred residential mortgage-backed securities with a maturity longer than 20 years from level 3 to level 2 as the valuation of those products is based  on observable inputs. 30  Swiss Reinsurance Company Consolidated 2011 Annual Report 2010  USD millions Assets Balance as of 1 January 2010 Cumulative effect of adoption of ASU No. 2009-17 Realised/unrealised gains/losses: Included in net income  Included in other comprehensive income Purchases, issuances, and settlements Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2010 Liabilities Balance as of 1 January 2010 Realised/unrealised gains/losses: Included in net income Included in other comprehensive income Purchases, issuances, and settlements Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2010 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer. 2  The Group has mainly transferred residential mortgage-backed securities with a maturity longer than 20 years from level 3 to level 2 as the valuation of those products is based  on observable inputs. Financial statements | Notes to the Group financial statements Debt securities  issued by non-US   governments and   government agencies securities securities securities Corporate debt  mortgage-backed   mortgage-backed   Residential   Commercial   Other   asset-backed   securities Equity securities held  for proprietary  investment purposes Derivative interest  rate contracts Derivative foreign   exchange contracts Derivative equity   contracts Derivative credit   contracts Other derivative   contracts Other assets Total 82 2 085 1 302 199 19 –5 –115 106 –85 –2 0 115 7 –77 87 –440 –29 1 748 –4 29 –73 90 –4 7 –1 3332 –238 1 –4 44 1 3 2 047 –84 –36 55 –1 430 176 –600 –5 123 170 –27 –2 65 –3 203 1 162 –58 –206 91 –148 –2 839 3 54 48 56 1 162 57 21 –88 10 –788 –314 0 1 214 –45 19 2 –48 –9 202 –35 129 64 31 –97 –2 1 411 2 316 283 1 321 Liabilities for life and  health policy benefits Derivative interest  rate contracts Derivative foreign   exchange contracts Derivative equity   contracts Derivative credit   contracts Other derivative   contracts 11 027 –84 –784 214 –2 111 693 –2 989 –54 5 912 Total –293 22 –948 123 –41 –31 –54 –2 –1 738 –2 257 –5 331 731 –95 –220 748 –220 –271 –825 –72 –56 –1 007 –2 572 –4 803 Swiss Reinsurance Company Consolidated 2011 Annual Report  31 Financial statements | Notes to the Group financial statements 2011 USD millions Assets Balance as of 1 January 2011 Realised/unrealised gains/losses: Included in net income  Included in other comprehensive income Purchases2 Issuances2 Sales2 Settlements2 Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2011 Liabilities Balance as of 1 January 2011 Realised/unrealised gains/losses: Included in net income Included in other comprehensive income Purchases2 Issuances2 Sales2 Settlements2 Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2011 Corporate debt  securities Residential   mortgage-backed   securities Commercial   mortgage-backed   securities US Agency  securitised  products Other   asset-backed   securities Equity securities held  for proprietary  Derivative interest  Derivative foreign   Derivative equity   Derivative credit   Other derivative   investment purposes rate contracts exchange contracts contracts contracts contracts Other assets 1 748 –1 –1 76 –670 –147 223 –99 –18 1 111 7 –4 4 –3 4 –3 –1 4 3 –5 49 –30 17 –28 2 8 0 10 –10 0 123 –15 –15 163 –218 –12 10 –21 1 16 839 851 206 –397 13 1 512 –825 –413 46 1 0 1 11 –1 –11 0 –56 2 162 –63 95 –85 3 112 –72 13 –7 1 214 –77 163 –239 –23 –52 986 202 –48 –134 20 –4 36 1 411 39 20 1 136 –501 –1 9 –70 –2 2 041 –158 –771 90 1 8 –154 Total 5 912 716 12 1 930 –2 471 –153 264 –294 –21 5 895 –1 396 –7 144 –152 Liabilities for life and  Derivative interest  Derivative foreign   Derivative equity   Derivative credit   Other derivative   Accrued expenses  health policy benefits rate contracts exchange contracts contracts contracts contracts and other liabilities Total –1 007 –2 572 –2 349 –7 152 –1 191 –66 –54 –3 489 –1 –1 075 18 –2 331 16 –8 547 203 38 4 21 –196 1 –2 69 –271 –69 –1 –341 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer. 2  ASU No. 2010-06, gross presentation of activity within level 3 roll forward, presenting separately information about purchases, issuances, sales, and settlements.  The standard needs to be applied prospectively. 32  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 2011 USD millions Assets Balance as of 1 January 2011 Realised/unrealised gains/losses: Included in net income  Included in other comprehensive income Purchases2 Issuances2 Sales2 Settlements2 Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2011 Liabilities Balance as of 1 January 2011 Realised/unrealised gains/losses: Included in net income Included in other comprehensive income Purchases2 Issuances2 Sales2 Settlements2 Transfers into level 31 Transfers out of level 31 Impact of foreign exchange movements Closing balance as of 31 December 2011 Corporate debt  mortgage-backed   mortgage-backed   securities securities securities Residential   Commercial   US Agency  securitised  products Other   asset-backed   securities Equity securities held  for proprietary  investment purposes Derivative interest  rate contracts Derivative foreign   exchange contracts Derivative equity   contracts Derivative credit   contracts Other derivative   contracts Other assets 1 748 –1 –1 76 –670 –147 223 –99 –18 1 111 7 –4 4 –3 4 –3 –1 4 3 –5 49 –30 17 –28 2 8 0 10 –10 0 123 –15 –15 163 –218 –12 10 –21 1 16 203 38 4 21 –196 1 –2 69 839 851 206 –397 13 1 512 162 –63 95 –85 3 112 0 1 11 –1 –11 0 1 214 –77 163 –239 –23 –52 986 202 –48 –134 20 –4 36 1 411 39 20 1 136 –501 –1 9 –70 –2 2 041 Liabilities for life and  health policy benefits Derivative interest  rate contracts Derivative foreign   exchange contracts Derivative equity   contracts Derivative credit   contracts Other derivative   contracts Accrued expenses  and other liabilities Total 5 912 716 12 1 930 –2 471 –153 264 –294 –21 5 895 Total –271 –69 –1 –341 –825 –413 46 1 –56 2 –72 13 –7 –1 007 –2 572 –2 349 –7 152 –158 –771 90 1 8 –154 –1 396 –7 144 –152 –1 191 –66 –54 –1 –1 075 –3 489 18 –2 331 16 –8 547 1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer. 2  ASU No. 2010-06, gross presentation of activity within level 3 roll forward, presenting separately information about purchases, issuances, sales, and settlements.  The standard needs to be applied prospectively. Swiss Reinsurance Company Consolidated 2011 Annual Report  33 Financial statements | Notes to the Group financial statements Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3) The gains and losses relating to the assets and liabilities measured at fair value using significant unobservable inputs (level 3) were as  follows: USD 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 2010 –36 –825 2011 –680 –1 286 Other assets measured at net asset value Other assets measured at net asset value as of 31 December 2010 and 2011 were as follows: USD millions Private equity funds Hedge funds Private equity direct Real estate funds Total 2010  Fair value 646 332 232 168 1 378 2011 Fair value 679 1 030 171 172 2 052 Unfunded  commitments 351 66 417 Redemption frequency  (if currently eligible) Redemption   notice period non-redeemable na redeemable1 90 – 180 days2 non-redeemable non-redeemable3 na na 1 The redemption frequency varies from once a month to once every three years. 2 Cash distribution can be delayed for up to three years depending on the sale of the underlyings. 3 One exception is a real estate fund that can be redeemed annually based on a 90-day notice period. This fund was fully redeemed in the second quarter of 2011. The hedge fund investments employ a variety of strategies including global macro, relative value, and event-driven strategies across various  asset classes including long/short equity and credit investments. The private equity direct portfolio consists of equity and equity-like investments directly in other companies. These investments have no  contractual term and are generally held based on financial or strategic intent. Private equity and real estate funds generally have limitations imposed on the amount of redemptions from the fund during the redemption  period due to illiquidity of the underlying investments. Fees may apply for redemptions or transferring of interest to other parties.  Distributions are expected to be received from these funds as the underlying assets are liquidated over the life of the fund, which is generally  from ten to twelve years. The redemption frequency of hedge funds varies depending upon the manager as well as the nature of the underlying product. Additionally,  certain funds may impose lock-up periods and redemption gates as defined in the terms of the individual investment agreement. Fair value option The fair value option under the Financial Instruments Topic 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 The Group elected the fair value option for the 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 were 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. In the second quarter of 2010, these fixed income securities matured. 34  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Equity securities trading 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. Liabilities for life and health policy benefits The Group elected the fair value option for existing 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. 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 2010 and 2011 were as follows: USD 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 2010 2011 11 252 01 19 513 475 7 548 0 16 753 455 –39 551 –271 –39 044 –341 1 These fixed income securities matured in the second quarter of 2010. Related changes in fair values are presented in the table below. Changes in fair values for items measured at fair value pursuant to election of the fair value option Gains/losses included in earnings for items measured at fair value pursuant to election of the fair value option including foreign exchange  impact were as follows: USD millions Fixed income securities trading Equity securities trading Liabilities for life and health policy benefits Total 2010 –23 –17 22 –18 2011 0 –20 –71 –91 Fair value changes, interest and dividends from fixed income securities trading and equity securities trading are reported in net realised  investment gains/losses. Fair value changes from liabilities for life and health policy benefits are shown in life and health benefits. Swiss Reinsurance Company Consolidated 2011 Annual Report  35 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 gross fair values 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 setoff in the event  of default, which substantially reduces credit exposure. 36  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Fair values and notional amounts of derivative financial instruments As of 31 December 2010 and 2011, the fair values and notional amounts of the derivatives outstanding were as follows: As of 31 December 2010  USD millions Derivatives not designated as hedging instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Total Derivatives designated as hedging instruments Interest rate contracts Foreign exchange contracts Total Notional amount   assets/liabilities Fair value   assets Fair value   liabilities Carrying value   assets/liabilities 452 349 41 372 13 450 53 087 28 949 589 207 4 582 3 012 7 594 4 646 1 270 1 312 1 583 423 9 234 582 30 612 –4 796 –1 201 –710 –1 324 –2 702 –10 733 –10 –15 –25 –150 69 602 259 –2 279 –1 499 572 15 587 Total derivative financial instruments 596 801 9 846 –10 758 –912 Amount offset Where a right of setoff exists  Due to cash collateral Total net amount of derivative financial instruments –5 437 –1 123 3 286 5 437 335 –4 986 –1 700 As of 31 December 2011 USD millions Derivatives not designated as hedging instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Total Derivatives designated as hedging instruments Interest rate contracts Foreign exchange contracts Total Notional amount   assets/liabilities Fair value   assets Fair value   liabilities Carrying value   assets/liabilities 153 706 28 714 9 338 45 241 24 039 261 038 2 914 2 077 4 991 4 780 981 1 440 1 377 249 8 827 879 879 –4 642 –766 –436 –1 313 –3 581 –10 738 –4 –68 –72 138 215 1 004 64 –3 332 –1 911 875 –68 807 Total derivative financial instruments 266 029 9 706 –10 810 –1 104 Amount offset Where a right of setoff exists  Due to cash collateral Total net amount of derivative financial instruments –5 756 –1 496 2 454 5 756 194 –4 860 –2 406 The notional amounts of derivative financial instruments give an indication of the Group’s volume of derivative activity. The fair value assets  are included in other invested assets and the fair value liabilities are included in accrued expenses and other liabilities. The fair value amounts  that were not offset were nil as of 31 December 2010 and 2011, respectively. Swiss Reinsurance Company Consolidated 2011 Annual Report  37 Financial statements | Notes to the Group financial statements Non-hedging activities The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of derivative financial  instruments not designated as hedging instruments are recorded in net realised investment gains/losses in the income statement. For the  years ended 31 December 2010 and 2011, the gains and losses of derivative financial instruments not designated as hedging instruments  were as follows: USD millions Derivatives not designated as hedging instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Total gain/loss recognised in income 2010 –64 494 –2 –73 –116 239 2011 18 361 143 –219 –799 –496 Hedging activities The Group designates certain derivative financial instruments as hedging instruments. The designation of derivative financial instruments is  primarily used for overall portfolio and risk management strategies. As of 31 December 2010 and 2011, the following hedging relationships  were outstanding: Fair value hedges The Group enters into interest rate and foreign exchange swaps to reduce the exposure to interest rate and foreign exchange volatility for  certain of its issued debt positions. These derivative instruments are designated as hedging instruments in qualifying fair value hedges.  Gains and losses on derivative financial instruments designated as fair value hedging instruments are recorded in net realised investment  gains/losses in the income statement. For the years ended 31 December 2010 and 2011, the gains and losses attributable to the hedged  risks were as follows: USD millions Fair value hedging relationships Interest rate contracts Foreign exchange contracts Total gain/loss recognised in income Gains/losses   on derivatives 2010 Gains/losses on   hedged items  Gains/losses   on derivatives 2011 Gains/losses on   hedged items  183 –57 126 –147 116 –31 406 –69 337 –398 74 –324 Hedges of the 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. For the years ended 31 December 2010 and 2011, the Group recorded an accumulated net unrealised foreign currency remeasurement  gain of USD 171million and a gain of USD 397 million, respectively, in shareholders’ equity. These offset translation gains and losses on   the hedged net investment. 38  Swiss Reinsurance Company Consolidated 2011 Annual Report   Financial statements | Notes to the Group financial statements Maximum potential loss In consideration of the rights of setoff and the qualifying master netting arrangements with various counterparties, the maximum potential  loss as of 31 December 2010 and 2011 was approximately USD 4 409 million and USD 3 950 million, respectively. The maximum potential  loss is based on the positive market replacement cost, assuming non-performance of all counterparties, net of cash collateral. Credit risk-related contingent features Certain derivative instruments held by the Group contain provisions that require its debt to maintain an investment-grade credit rating. If the  Group’s credit rating were downgraded or no longer rated, the counterparties could request immediate payment, guarantee or an ongoing  full overnight collateralisation on derivative instruments in net liability positions. The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 1 975 million and  USD 1 538 million as of 31 December 2010 and 2011, respectively. For derivative financial instruments containing credit risk-related  contingent features, the Group posted collateral of USD 335 million and USD 194 million as of 31 December 2010 and 2011, respectively.  In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 1 344 million additional collateral   would have had to be posted as of 31 December 2011. The total equals the amount needed to settle the instruments immediately as of   31 December 2010 and 2011, respectively. Credit derivatives written/sold The Group writes/sells credit derivatives, including credit default swaps, credit spread options and credit index products, and total return  swaps. The total return swaps, for which the Group assumes asset risk mainly of variable interest entities, qualify as guarantees under   FASB ASC Topic 460. 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. The following tables show the fair values and the maximum potential payout of the credit derivatives written/sold as of 31 December 2010  and 2011, categorised by the type of credit derivative and credit spreads, which were 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. 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 to credit derivatives. As of 31 December 2010 and  2011, the total purchased credit protection based on notional values was USD 30 304 million and USD 26 367 million, respectively. Thereof  USD 12 025 million and USD 8 159 million, respectively, were 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 established with non-identical  offsetting positions. The maximum potential payout is based on notional values of the credit derivatives. The Group enters into total return swaps mainly with  variable interest entities which issue insurance-linked and credit-linked securities. Swiss Reinsurance Company Consolidated 2011 Annual Report  39 Financial statements | Notes to the Group financial statements As of 31 December 2010 and 2011, the fair values and maximum potential payout of the written credit derivatives outstanding were as  follows: As of 31 December 2010  USD millions Credit Default Swaps Credit spread in basis points 0–250 251–500 501–1 000 Greater than 1 000 No credit spread available Total Credit Index Products Credit spread in basis points 0–250 251–500 501–1 000 Greater than 1 000 Total Total Return Swaps Credit spread in basis points No credit spread available Total Total fair values   of credit   derivatives   written/sold   Maximum potential payout (time to maturity) 0–5 years 5–10 years Over 10 years Total maximum  potential payout 29 –43 –9 –307 –330 –273 29 43 1 –200 95 95 5 223 285 301 85 200 6 094 1 436 2 814 48 4 298 1 485 1 485 2 416 2 416 9 061 128 29 10 9 228 581 581 185 562 747 0 0 7 639 470 301 647 200 9 257 10 497 2 942 77 10 13 526 2 066 2 066 Total credit derivatives written/sold –435 11 877 12 225 747 24 849 40  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements As of 31 December 2011 USD millions Credit Default Swaps Credit spread in basis points 0–250 251–500 501–1 000 Greater than 1 000 No credit spread available Total Credit Index Products Credit spread in basis points 0–250 251–500 501–1 000 Greater than 1 000 Total Total Return Swaps Credit spread in basis points No credit spread available Total Total fair values   of credit   derivatives   written/sold  Maximum potential payout (time to maturity) 0–5 years 5–10 years Over 10 years Total maximum  potential payout –89 –40 –17 –331 –477 –280 –57 –47 –56 –440 100 100 3 874 95 145 154 4 268 11 778 12 11 790 997 997 1 692 5 1 697 134 106 71 116 427 0 17 143 37 495 692 0 0 5 583 238 182 654 0 6 657 11 912 106 83 116 12 217 997 997 Total credit derivatives written/sold –817 17 055 2 124 692 19 871 Swiss Reinsurance Company Consolidated 2011 Annual Report  41 Financial statements | Notes to the Group financial statements 5  Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) For the years ended 31 December, the DAC and PVFP were as follows: 2010 USD millions Opening balance as of 1 January 2010 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 Closing balance as of 31 December 2010 2011 USD millions Opening balance as of 1 January 2011 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 Closing balance as of 31 December 2011 Non-Life 869 1 734 –1 805 –6 792 Non-Life 792 2 432 –10 –1 985 –2 Life & Health 3 025 313 –212 –365 DAC Total 3 894 2 047 –212 –2 170 18 12 2 779 3 571 Life & Health 2 779 254 –314 –23 DAC Total 3 571 2 686 –10 –2 299 –25 1 227 2 696 3 923 PVFP 6 054 –1 154 –449 247 –75 –58 4 565 PVFP 4 565 247 –631 231 –20 –166 4 226 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 8%, 8%, 7%, 7% and 7%. 42  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements This page intentionally left blank Swiss Reinsurance Company Consolidated 2011 Annual Report  43 Financial statements | Notes to the Group financial statements 6  Debt The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing.  The Group defines short-term debt as debt having a maturity at the balance sheet date of less than one year and long-term debt as having   a maturity of greater than one year. Interest expense is classified accordingly.  The Group’s debt as of 31 December was as follows: USD millions Senior financial debt Senior financial debt – convertible perpetual capital instrument 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 Total carrying value Total fair value Maturity of long-term debt As of 31 December, long-term debt as reported above had the following maturities: USD millions Due in 2012 Due in 2013 Due in 2014 Due in 2015 Due in 2016 Due after 2016 Total carrying value  1 Balance was reclassified to short-term debt. 2010 33 3 966 5 018 1 781 10 798 2 590 6 976 3 634 5 227 18 427 29 225 28 017 2010 2 310 1 621 1 773 697 2 456 9 570 18 427 2011 279 3 822 4 101 2 976 4 854 3 587 5 124 16 541 20 642 19 996 2011 01 1 605 1 735 691 2 304 10 206 16 541 44  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Senior long-term debt Instrument Maturity EMTN 2013 EMTN 2013 Insurance-linked placements 2013 EMTN 2014 EMTN 2014 EMTN 2014 EMTN 2014 EMTN 2015 EMTN 2015 Credit-linked note 2016 EMTN 2017 Senior note1 2019 Senior note1 2026 Senior note1 2030 Various Payment undertaking agreements Total senior debt as of 31 December 2011 Total senior debt as of 31 December 2010 1 Assumed in the acquisition of Insurance Solutions. Issued in 2009 2009 2007 2009 2009 2009 2010 2001 2010 2007 2011 1999 1996 2000 various Currency CHF USD USD EUR CHF CHF  CHF  CHF CHF USD CHF USD USD USD USD Nominal in millions 700 750 47 600 500 50 250 150 500 235 600 400 600 350 732 Interest rate 4.25% 4.13% various 7.00% 3.25% 2.94% 1.75% 4.00% 2.00% 1M Libor 2.13% 6.45% 7.00% 7.75% various Book value in USD millions 756 773 47 806 543 53 267 161 531 235 636 514 888 585 1 035 7 830 9 566 Swiss Reinsurance Company Consolidated 2011 Annual Report  45 Financial statements | Notes to the Group financial statements 2 225 2 899 1 294 752 774 767 8 711 8 861 2011 80 283 230 256 849 2016 2016 2019 2017 2010 75 349 266 248 938 Subordinated long-term debt Maturity 2047 2057 Instrument Subordinated private placement   (amortising, limited recourse) Subordinated private placement   (amortising, limited recourse) Subordinated perpetual loan note Subordinated perpetual loan note Subordinated perpetual loan note 2 subordinated perpetual loan notes Total subordinated debt as of 31 December 2011 Total subordinated debt as of 31 December 2010 Issued in Currency Nominal in millions Interest rate… … first call in Book value  in USD millions 2007 2007 2006 2006 2007 2007 GBP GBP EUR USD GBP AUD 1 432 4.90% 1 866 1 000 752 500 750 4.78% 5.25% 6.85% 6.30% various Interest expense on long-term debt Interest expense on long-term debt for the periods ended 31 December was as follows: USD millions Senior financial debt Senior operational debt Subordinated financial debt Subordinated operational debt Total Long-term debt issued in 2011 In December 2011, the Group issued CHF 600 million under the EMTN programme, due in 2017 with a coupon of 2.125%. 46  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 7  Unpaid claims and claim adjustment expenses The liability for unpaid claims and claim adjustment expenses is analysed as follows: USD millions Non-Life Life & Health Total 2010 53 345 11 345 64 690 2011 53 827 11 051 64 878 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: USD 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 2010 57 015 –6 307 –455 50 253 7 255 –240 66 7 081 –1 202 –8 501 –9 703 –562 158 47 227 5 717 401 53 345 2011 53 345 –5 717 –401 47 227 10 322 –1 735 73 8 660 –1 694 –7 899 –9 593 –441 1 044 46 897 6 610 320 53 827 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 Reinsurance Company Consolidated 2011 Annual Report  47 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 2011, the Group carried net reserves for US asbestos, environmental and other long-latent health hazards equal to   USD 2 214 million. During 2011, the Group incurred net losses of USD 128 million and paid net against these liabilities USD 183 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 were driven by favourable experience in property, liability, credit and other specialty lines. Some reserve  strengthening was absorbed in the overall number, on US Workers’ Compensation business, UK Motor business and an increase for   US asbestos and environmental losses. The adverse development cover with Berkshire Hathaway, which covers losses from 2008 or   earlier, remains in place but had no impact on the result for 2011, as it was already recognised at the minimum commutation value at   year-end 2010 and remains recognised at that value. 48  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 8  Reinsurance information For the years ended 31 December Premiums written, premiums earned and fees assessed against policyholders USD 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 and claim adjustment expenses USD millions Claims paid Gross Retro Net Change in unpaid claims and claim  adjustment expenses;  life and health benefits Gross Retro Net Claims and claim adjustment expenses; life and health benefits Acquisition costs USD millions Acquisition costs Acquisition costs, gross Acquisition costs, retro Acquisition costs, net Non-Life Life & Health 1 760 12 023 –3 114 10 669 1 721 12 157 –2 985 10 893 1 222 9 751 –2 209 8 764 1 220 9 752 –2 213 8 759 682 254 –18 918 Non-Life Life & Health –11 460 1 757 –9 703 –10 475 1 831 –8 644 2010 Total 2 982 21 774 –5 323 19 433 2 941 21 909 –5 198 19 652 682 254 –18 918 2010 Total –21 935 3 588 –18 347 Non-Life Life & Health 1 940 15 241 –3 610 13 571 1 837 13 539 –3 301 12 075 1 169 10 314 –2 186 9 297 1 165 10 251 –2 191 9 225 650 238 –12 876 Non-Life Life & Health –11 401 1 808 –9 593 –11 241 2 381 –8 860 2011 Total 3 109 25 555 –5 796 22 868 3 002 23 790 –5 492 21 300 650 238 –12 876 2011 Total –22 642 4 189 –18 453 3 285 –836 2 449 –79 487 408 3 206 –349 2 857 194 589 783 535 –89 446 729 500 1 229 –7 254 –8 236 –15 490 –8 810 –8 414 –17 224 Non-Life Life & Health –2 739 886 –1 853 –2 155 329 –1 826 2010 Total –4 894 1 215 –3 679 Non-Life Life & Health –3 050 1 015 –2 035 –2 330 344 –1 986 2011 Total –5 380 1 359 –4 021 Swiss Reinsurance Company Consolidated 2011 Annual Report  49 Financial statements | Notes to the Group financial statements Reinsurance assets and liabilities The reinsurance assets and liabilities as of 31 December were as follows: USD 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 5 717 793 6 920 2 778 53 345 11 345 39 551 36 478 2010 Total 12 637 3 571 64 690 39 551 36 478 Non-Life Life & Health 6 610 1 227 5 227 2 696 53 827 11 051 39 044 34 162 Reinsurance receivables Reinsurance receivables as of 31 December were as follows: USD millions Premium receivables invoiced Receivables invoiced from ceded re/insurance business Assets arising from the application of the deposit method of accounting  and meeting the definition of financing receivables Recognised allowance 2010 1 598 695 568 –152 2011 Total 11 837 3 923 64 878 39 044 34 162 2011 1 916 512 707 –132 Sales inducements Sales inducements are offered to contract holders of certain universal life and annuity products. The amounts deferred equal the sum of  persistency bonuses credited to the account value plus the non-interest related increase in the persistency bonus liability. These costs are  amortised in constant proportion to estimated gross profits over the life of the contract, using the credited interest rates as the discount rate.  Sales inducements as of 31 December were as follows: USD millions Balance as of 1 January Sales inducements deferred Sales inducements amortised Impact of foreign exchange and other movements Unamortised balance of sales inducements 2010 1 035 234 –219 –31 1 019 2011 1 019 265 –257 –7 1 020 Policyholder dividends Policyholder dividends are recognised as an element of policyholder benefits. The relative percentage of participating insurance of the life  and health policy benefits was 7% in 2010 and 2011. The amount of policyholder dividend expense in 2010 and 2011 was USD 110 million  and USD 134 million, respectively. 50  Swiss Reinsurance Company Consolidated 2011 Annual Report Financialstatements| Notes to the Group financial statements 9 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: USD millions Current taxes Deferred taxes Incometaxexpense 2010 696 –155 541 Taxratereconciliation The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the accompanying income statement: USD millions Income tax at the Swiss statutory tax 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 Change in liability for unrecognised tax benefits including interest and penalties Life tax adjustments Other, net Total 2010 562 39 65 2 –47 68 14 –50 14 –126 541 2011 112 –29 83 2011 596 138 –38 7 –45 –143 –368 –122 99 –9 –32 83 For 2011, the Group reported a tax expense of USD 83 million. This represents an effective tax rate of 2.9%, compared to an effective tax rate of 20.2% in the prior year. The decrease in the tax rate was primarily due to a non-recurring benefit from the change in tax basis in a subsidiary based on a write-down in the value of a Group subsidiary required in 2011 local statutory statements, changes in local country tax rates and the release of valuation allowances.  SwissReinsuranceCompanyConsolidated2011 Annual Report 51 Financialstatements| Notes to the Group financial statements Deferredandothernon-currenttaxes The components of deferred and other non-current taxes were as follows: USD millions Deferredtaxassets Income accrued /deferred Technical provisions Unrealised losses on investments Pension provisions Benefit on loss carryforwards Currency translation adjustments Other Grossdeferredtaxasset Valuation allowance Total Deferredtaxliabilities Present value of future profits Income accrued /deferred Bond amortisation Deferred acquisition costs Technical provisions Unrealised gains on investments Untaxed realised gains Foreign exchange provisions DFI losses Other Total Deferredincometaxes Liabilityforunrecognisedtaxbenefitsincludinginterestandpenalties Deferredandothernon-currenttaxes 2010 2011 606 785 63 243 4 222 483 1 004 7 406 –1 602 5 804 –1 059 –591 –184 –538 –1 642 –529 –336 –416 –99 –930 –6 324 599 1 531 10 292 3 965 481 1 368 8 246 –1 337 6909 –1 082 –629 –139 –687 –2 446 –1 932 –373 –418 –17 –783 –8506 –520 –1597 –1 196 –1256 –1 716 –2853 As of 31 December 2011, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised, amount to approximately USD 3 850 million. In the remote scenario in which these temporary differences were to reverse simultaneously, the resulting tax liabilities would be very limited due to participation exemption rules. As of 31 December 2011, the Group had USD 12 829 million net operating tax loss carryforwards, expiring as follows: USD 8 million in 2012, USD 218 million in 2015, USD 1 million in 2016, USD 7 169 million in 2017 and beyond, and USD 5 433 million never expire. The Group also had capital loss carryforwards of USD 46 million, expiring as follows: USD 1 million in 2013 and USD 45 million in 2014. Net operating tax losses of USD 730 million were utilised or expired during the period ended 31 December 2011. Income taxes paid in 2011 and 2010 were USD 707 million and USD 476 million, respectively. 52 SwissReinsuranceCompanyConsolidated2011 Annual Report Financialstatements| Notes to the Group financial statements Unrecognisedtaxbenefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: USD 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 Lapse of statute of limitations Balanceasof31December 2010 1 138 69 –126 46 –147 980 2011 980 373 9 –219 –1 –95 1047 The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective tax rate were approximately USD 630 million and USD 726 million at 31 December 2010 and 2011, respectively. Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such benefit for the period ending 31 December 2011 was USD 6 million (USD 21 million for the period ending 31 December 2010). As of 31 December 2010 and 2011, USD 216 million and USD 209 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2011 is included within the deferred and other non-current taxes section reflected above and in the statement of financial position. The balance of gross unrecognised tax benefits as of 31 December 2011 presented in the table above is less than the liability for unrecognised tax benefits reflected in the deferred and other non-current taxes section due to the removal of interest expense (USD 209 million). During the year, certain tax positions and audits in Switzerland, the UK and the US were effectively settled. 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 jurisdictions and tax years that remain subject to examination: Australia Brazil Canada China Denmark France Germany Hong Kong India Ireland Israel Italy Japan 2004 – 2011 2007– 2011 2006 – 2011 2003 – 2011 2008 – 2011 2007– 2011 2007– 2011 1994 – 2011 2005 – 2011 2010 – 2011 2008 – 2011 2007– 2011 2008 – 2011 Korea Malaysia Mexico Netherlands New Zealand Singapore Slovakia South Africa Spain Switzerland United Kingdom United States 2008 – 2011 2005 – 2011 2007– 2011 2009 – 2011 2006 – 2011 2004 – 2011 2007– 2011 2010 – 2011 2007– 2011 2007– 2011 2003, 2004, 2008 – 2011 2009 – 2011  SwissReinsuranceCompanyConsolidated2011 Annual Report 53 Financialstatements| Notes to the Group financial statements 10 Benefit plans Definedbenefitpensionplansandpost-retirementbenefits 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. The Group also provides certain healthcare and life insurance benefits for retired employees and their dependants. Employees become eligible for these benefits when they become eligible for pension benefits. The measurement date of these plans is 31 December for each year presented. 2010 USD millions Benefit obligation as of 1 January 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 Benefitobligationasof31December Fair value of plan assets as of 1 January Actual return on plan assets Company contribution Benefits paid Employee contribution Acquisitions /disposals /additions Effect of foreign currency translation Fairvalueofplanassetsasof31December Fundedstatus Swiss plan 2 688 82 84 Foreign plans 1 915 12 101 157 –149 20 3 317 3 202 2 723 128 73 –149 20 3 306 3 104 –98 –18 –61 1 –4 –44 1 902 1 670 149 58 –61 –38 1 778 –124 Other benefits 305 6 13 –7 12 –13 –3 17 330 15 –14 –1 0 –330 Total 4 908 100 198 –7 151 –223 20 –2 –1 290 5 434 4 393 277 146 –224 20 2 268 4 882 –552 54 SwissReinsuranceCompanyConsolidated2011 Annual Report Financialstatements| Notes to the Group financial statements 2011 USD millions Benefit obligation as of 1 January 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 Benefitobligationasof31December Fair value of plan assets as of 1 January Actual return on plan assets Company contribution Benefits paid Employee contribution Acquisitions /disposals /additions Effect of foreign currency translation Fairvalueofplanassetsasof31December Fundedstatus Swiss plan 3 202 113 91 –39 118 –163 25 1 –20 3328 3 104 –71 91 –163 25 1 –4 2983 –345 Foreign plans 1 902 10 102 Other benefits 330 5 13 31 –69 –24 1952 1 778 73 58 –69 –26 1814 –138 32 –15 –2 363 15 –15 0 –363 Amounts recognised in the balance sheet, as of 31 December 2010 and 2011, respectively, were as follows: 2010 USD millions Non-current assets Current liabilities Non-current liabilities Netamountrecognised 2011 USD millions Non-current assets Current liabilities Non-current liabilities Netamountrecognised Swiss plan –98 –98 Swiss plan –345 –345 Foreign plans 96 –1 –219 –124 Foreign plans 78 –2 –214 –138 Other benefits –15 –315 –330 Other benefits –16 –347 –363 Total 5 434 128 206 –39 181 –247 25 0 1 –46 5643 4 882 2 164 –247 25 1 –30 4797 –846 Total 96 –16 –632 –552 Total 78 –18 –906 –846  SwissReinsuranceCompanyConsolidated2011 Annual Report 55 Financialstatements| Notes to the Group financial statements Amounts recognised in accumulated other comprehensive income, gross of tax, in 2010 and 2011, respectively, were as follows: 2010 USD millions Net gain /loss Prior service cost /credit Total 2011 USD millions Net gain /loss Prior service cost /credit Total Swiss plan 671 44 715 Swiss plan 951 –1 950 Foreign plans 224 224 Other benefits –143 –122 –265 Foreign plans 271 271 Other benefits –100 –111 –211 Componentsofnetperiodicbenefitcost The components of pension and post-retirement cost for the years ended 31 December 2010 and 2011, respectively, were as follows: 2010 USD 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 Netperiodicbenefitcost 2011 USD 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 Netperiodicbenefitcost Swiss plan 82 84 –126 Foreign plans 12 101 –106 Other benefits 6 13 10 6 3 59 16 –1 22 –11 –11 –1 –4 Swiss plan 113 91 –128 Foreign plans 10 102 –106 Other benefits 5 13 37 6 1 120 17 23 –11 –11 –2 –6 Total 752 –78 674 Total 1 122 –112 1010 Total 100 198 –232 15 –5 1 77 Total 128 206 –234 43 –5 –1 137 56 SwissReinsuranceCompanyConsolidated2011 Annual Report Financialstatements| Notes to the Group financial statements Other changes in plan assets and benefit obligations recognised in other comprehensive income were as follows: 2010 USD millions Net gain /loss Prior service cost /credit Amortisation of: Net gain /loss Prior service cost Exchange rate gain /loss recognised during the year Totalrecognisedinothercomprehensiveincome,grossoftax Totalrecognisedinnetperiodicbenefitcost andothercomprehensiveincome,grossoftax 2011 USD millions Net gain /loss Prior service cost /credit Amortisation of: Net gain /loss Prior service cost Exchange rate gain /loss recognised during the year Totalrecognisedinothercomprehensiveincome,grossoftax Totalrecognisedinnetperiodicbenefitcost andothercomprehensiveincome,grossoftax Swiss plan 155 Foreign plans –61 Other benefits 11 –7 –10 –6 139 198 Swiss plan 317 –39 –37 –6 235 355 –19 –8 –88 –66 11 11 26 22 Foreign plans 64 Other benefits 32 –17 –1 46 69 11 11 54 48 Total 105 –7 –18 5 –8 77 154 Total 413 –39 –43 5 –1 335 472 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 in 2012 are USD 54 million and USD nil 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 in 2012 was USD 7 million and USD 11 million, respectively. The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 5 035 million and USD 5 185 million as of 31 December 2010 and 2011, respectively. Pension plans with an accumulated benefit obligation in excess of plan assets were as follows: USD millions Projected benefit obligation Accumulated benefit obligation Fair value of plan assets 2010 4 607 4 562 4 290 2011 4 275 4 235 3 717  SwissReinsuranceCompanyConsolidated2011 Annual Report 57 Financialstatements| Notes to the Group financial statements Principalactuarialassumptions Assumptionsusedtodetermine obligationsattheendoftheyear Discount rate Rate of compensation increase Assumptionsusedtodetermine netperiodicpensioncostsfor theyearended Discount rate Expected long-term return on plan assets Rate of compensation increase Assumedmedicaltrendrates atyearend Medical trend – initial rate Medical trend – ultimate rate Year that the rate reaches the ultimate trend rate Swiss plan Foreign plans weighted average Other benefits weighted average 2010 2011 2010 2011 2010 2011 2.8% 2.3% 3.3% 4.5% 2.3% 2.4% 2.3% 2.8% 4.0% 2.3% 5.4% 2.5% 5.6% 6.4% 3.5% 4.9% 2.2% 5.4% 6.0% 2.5% 4.0% 4.1% 3.5% 3.9% 4.5% 4.0% 4.1% 4.1% 6.5% 4.7% 2015 6.3% 4.7% 2015 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 healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have had the following effects for 2011: USD millions Effect on total of service and interest cost components Effect on post-retirement benefit obligation 1 percentage point increase 1 29 1 percentage point decrease –1 –24 58 SwissReinsuranceCompanyConsolidated2011 Annual Report Financialstatements| Notes to the Group financial statements Planassetallocationbyassetcategory The actual asset allocation by major asset category for defined benefit pension plans as of the respective measurement dates in 2010 and 2011, is as follows: Assetcategory Equity securities Debt securities Real estate Other Total Swiss plan allocation Foreign plans allocation 2010 2011 Targetallocation 2010 2011 Targetallocation 30% 41% 18% 11% 100% 27% 44% 20% 9% 100% 25% 48% 21% 6% 100% 40% 54% 2% 4% 100% 36% 54% 2% 8% 100% 38% 56% 2% 4% 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 USD 4 million (0.1% of total plan assets) and USD 3 million (0.1% of total plan assets) as of 31 December 2010 and 2011, 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. Assetsmeasuredatfairvalue For a description of the different fair value levels and valuation techniques see Note 3 Fair value disclosures. Certain items reported as pension plan assets at fair value in the table below are not within the scope of Note 3, namely two positions: real estate and an insurance contract. Real estate positions classified as level 1 and level 2 are exchange-traded real estate funds where a market valuation is readily available. Real estate reported on level 3 is property owned by the pension funds. These positions are accounted for at the capitalised income value. The capitalisation based on sustainable recoverable earnings is conducted at interest rates that are determined individually for each property, based on the property’s location, age and condition. If properties are intended for disposal, the estimated selling costs and taxes are recognised in provisions. Sales gains or losses are allocated to income from real estate when the contract is concluded. The fair value of the insurance contract is based on the fair value of the assets backing the contract. Other assets classified within level 3 mainly consist of private equity investments valued with the same methodology as mentioned in Note 3.  SwissReinsuranceCompanyConsolidated2011 Annual Report 59 Financialstatements| Notes to the Group financial statements For the years ended 31 December, the fair values of pension plan assets by level of input were as follows: 2010 USD millions Assets Fixed income securities: Debt securities issued by the US government and government agencies Debt securities issued by non-US governments and government agencies Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Equity securities: Equity securities held for proprietary investment purposes Derivative financial instruments Real estate Other assets Totalassetsatfairvalue Cash Totalplanassets 2011 USD millions Assets Fixed income securities: Debt securities issued by the US government and government agencies Debt securities issued by non-US governments and government agencies Corporate debt securities Residential mortgage-backed securities Commercial mortgage-backed securities Other asset-backed securities Equity securities: Equity securities held for proprietary investment purposes Derivative financial instruments Real estate Other assets Totalassetsatfairvalue Cash Totalplanassets Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) 2 204 27 996 1 046 113 7 15 612 38 49 2 903 2 903 1 042 57 28 2 1 129 198 1 327 539 113 652 652 Quoted prices in active markets for identical assets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) 2 355 40 1 140 1 116 50 5 4 650 41 48 3094 3094 804 –47 51 2 810 225 1035 549 119 668 668 Total 2 204 27 996 1 046 113 7 15 1 654 57 605 164 4 684 198 4 882 Total 2 355 40 1 140 1 116 50 5 4 1 454 –47 641 169 4572 225 4797 60 SwissReinsuranceCompanyConsolidated2011 Annual Report Financialstatements| Notes to the Group financial statements Assetsmeasuredatfairvalueusingsignificantunobservableinputs(Level3) For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs were as follows: 2010 USD millions Balance as of 1 January Realised /unrealised gains /losses: Relating to assets still held at the reporting date Relating to assets sold during the period Purchases, issuances and settlements Transfers in and /or out of Level 3 Impact of foreign exchange movements Closingbalanceasof31December 2011 USD millions Balance as of 1 January Realised /unrealised gains /losses: Relating to assets still held at the reporting date Relating to assets sold during the period Purchases, issuances and settlements Transfers in and /or out of Level 3 Impact of foreign exchange movements Closingbalanceasof31December Real estate 465 Other assets 95 16 5 53 539 8 12 –2 113 Real estate 539 Other assets 113 6 7 –3 549 –9 1 16 –2 119 Total 560 24 0 0 17 51 652 Total 652 –3 1 23 0 –5 668 Expectedcontributionsandestimatedfuturebenefitpayments The employer contributions expected to be made in 2012 to the defined benefit pension plans are USD 150 million and to the post-retirement benefit plan are USD 16 million. As of 31 December 2011, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows: USD millions 2012 2013 2014 2015 2016 Years 2017–2021 Swiss plan 149 148 153 152 159 818 Foreign plans 70 72 74 77 80 450 Other benefits 16 17 18 18 19 108 Total 235 237 245 247 258 1 376 Definedcontributionpensionplans 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 2010 and 2011 was USD 39 million and USD 58 million, respectively.  SwissReinsuranceCompanyConsolidated2011 Annual Report 61 Financialstatements| Notes to the Group financial statements 11 Share-based payments Group Compensation awards settled in equity are settled in Swiss Re Ltd shares. As of 31 December 2010 and 2011, the Group had the share-based compensation plans described below. Total compensation cost for share-based compensation plans recognised in net income was USD 129 million and USD 52 million in 2010 and 2011, respectively. The related tax benefit was USD 34 million and USD 16 million, respectively. Stockoptionplans Stock option plans include a fixed-option plan and an additional grant to certain members of executive management. No options were granted under these plans from 2007 onwards. 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: 2011 Outstanding as of 1 January Options sold Options forfeited or expired Reclassification to liabilities Outstandingasof31December Exercisableasof31December Weighted average exercise price in CHF 116 73 186 88 109 109 Number of shares 5 255 044 –51 350 –990 960 –1 849 000 2363734 2 363 734 The following table summarises the status of stock options outstanding as of 31 December 2011: Range of exercise prices in CHF 67–100 144 - 166 67–166 Number of options 1 152 252 1 211 482 2363734 Weighted average remaining contractual life in years 2.3 1.0 1.7 Weighted average exercise price in CHF 72 145 109 All stock options outstanding are also exercisable and the status of these exercisable options is reflected in the table above. The fair value of each option grant was estimated on the date of grant using a binomial option pricing model. 62 SwissReinsuranceCompanyConsolidated2011 Annual Report Financialstatements| Notes to the Group financial statements Restrictedshares The Group issued 3 727 and 14 834 restricted shares to selected employees in 2010 and 2011, respectively. Moreover, as an alternative to the Group’s cash bonus programme, 234 560 and 425 154 shares were issued during 2010 and 2011, respectively. A summary of the movements in shares relating to outstanding awards granted under the restricted share plans as of 31 December 2011 is as follows: Non-vested at 1 January Granted Delivery of restricted shares Outstandingasof31December Number of shares 1 303 913 439 988 –963 713 780188 Weighted average grant date fair value in CHF 65 58 76 48 The weighted average fair value of restricted shares, which equals the market price of the shares on the date of the grant, was CHF 65 and CHF 48 in 2010 and 2011, respectively. Performanceshareplan In 2009 and 2010, the Group granted a share plan for the Chairman and Vice Chairman of the Board of Directors. The Group did not grant a further plan in 2011. The plans have a requisite service period of three years and are settled in shares. The plans are measured based on Swiss Re’s Total Shareholder Return (TSR), representing the share price performance plus paid dividend in any performance period, against a selected peer group. The final number of shares to be released upon vesting can vary between 0% and 150% of the original grant. The fair value of the 2009 and 2010 plans were based on the share price as of the date of grant, which was CHF 36.00 and CHF 53.60, respectively. 111 111 and 83 957 units were issued under these plans in 2009 and 2010, respectively, and the same number of units remains outstanding as of 31 December 2011. Long-termIncentiveplan The Group annually grants a Long-term Incentive plan (LTI) to selected employees with a three-year vesting period. The requisite service period as well as the maximum contractual term for each plan is three years and the final payment, if any, occurs at the end of this performance measurement period. The plan includes a payout factor which is derived from return on equity (ROE) and earnings per share (EPS) targets over the vesting period. The payout ratio can vary between 0 and 2 and the final payment for each plan will depend on whether the performance targets have been achieved over the plan period. The fair value of the plans are based on stochastic models which consider the likelihood of achieving performance targets and the impact of dividends. Each of the plan grants that were outstanding during 2011 is described below. The 2008 LTI grant was expected to be settled in cash. The payout factors are driven by average ROE and EPS compound annual growth over the vesting period. The LTI grant from 2008 vested in March 2011 and there was no payout as the plan performance targets were not achieved. The LTI plan granted in 2009 is expected to be settled in shares. The payout factor is driven by average ROE and EPS compound annual growth over the vesting period. At grant, the plan was expected to be settled in cash; however, the Group subsequently changed its intention to settle in shares. As a result, the share price used for measurement was CHF 42.40 which was set as of the date the share settlement decision was made in November 2009.  SwissReinsuranceCompanyConsolidated2011 Annual Report 63 Financialstatements| Notes to the Group financial statements The LTI plans granted in 2010 and 2011 are expected to be settled in shares. The payout factors are driven by average ROE and average EPS over the vesting period. The share price used for measurement is based on the date of grant and was CHF 48.15 and CHF 39.39 for the 2010 and 2011 plans, respectively. Valuealignmentincentive In 2009, the Group issued a compensation plan to selected employees. The plan has a requisite service period of three years and is expected to be settled in cash and shares. The settlement is based on a three-year risk-free interest rate, the Swiss Re share price performance and dividend yield over the vesting period. The grant price was based on the closing share price as of 19 February 2009 of CHF 16.74. A total of 140 570 units were outstanding as of 1 January 2011, and after forfeitures during 2011, 131 361 units were outstanding as of 31 December 2011. Stockappreciationrights In 2006, the Group issued 3 million stock appreciation rights (SAR) as an extraordinary grant following the Insurance Solutions acquisition. The plan was expected to be settled in cash. The requisite service period was two years, while the maximum contractual term was five years. The plan vested in 2008; however, holders of the award were still able to exercise their rights until the maximum contractual period expired, in 2011. The fair value of the appreciation rights were estimated at date of grant using a binomial option-pricing model and was revised at every balance sheet date until exercise. The plan expired in 2011 with no value. Unrecognisedcompensationcosts As of 31 December 2011, the total unrecognised compensation cost (net of expected forfeitures) related to non-vested, share-based compensation awards was USD 31 million, and the weighted average period over which that cost is expected to be recognised was 1.7 years. The number of shares authorised for the Group’s share-based payments to employees was 12 619 829 and 11 351 951 as of 31 December 2010 and 2011, respectively. Employeeparticipationplan The Group’s employee participation plan consists of a savings scheme lasting two or three years. Employees combine regular savings with the purchase of either actual or tracking options. 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 2010 and 2011, 656 569 and 1 878 895 options, respectively, were issued to employees and the Group contributed USD 67 million and USD 77 million, respectively, to the plan. 64 SwissReinsuranceCompanyConsolidated2011 Annual Report Financialstatements| Notes to the Group financial statements This page intentionally left blank  SwissReinsuranceCompanyConsolidated2011 Annual Report 65 Financial statements | Notes to the Group financial statements 12  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 2011 2012 2013 2014 2015 2016 After 2016 Total operating lease commitments Less minimum non-cancellable sublease rentals Total net future minimum lease commitments USD millions 75 76 71 68 60 395 745 –63 682 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): USD millions Minimum rentals Sublease rental income Total 2010 52 –3 49 2011 60 –3 57 Other commitments 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 2011 were  USD 1 243 million. The Group enters into a number of contracts in the ordinary course of reinsurance and financial services 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. 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 is not expected to have a material adverse effect on the Group’s business,  consolidated financial position or results of operations. 66  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 13  Information on business segments The Group provides reinsurance, insurance and capital market solutions for clients that complement its 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. The Group presents three operating business segments: Property & Casualty, Life & Health and Asset Management. Items not allocated to  these three 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 Property & Casualty business segment includes Property & Casualty insurance-linked securities,  Environmental & Commodity Markets business and, in the Specialty traditional sub-segment, Credit Reinsurance, Bank Trade Finance, and  Credit securitisations.  The Life & Health segment consists of the following sub-segments: Life traditional, Health traditional and Admin Re®. The Life & Health  business segment includes variable annuity business and Life & Health insurance-linked securities. The Asset Management business segment includes two separate sub-segments, Credit & Rates and Equity & 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. 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. From   1 January 2011 non-core activities which are largely in run-off (formerly presented in the business segment Legacy) are being reported  within Group items. 2010 comparatives are presented accordingly. 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 re /insurance liabilities. The  allocation 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. The accounting policies of the business segments are in line with those described in the summary of significant accounting policies   (see Note 1). Swiss Reinsurance Company Consolidated 2011 Annual Report  67 Financial statements | Notes to the Group financial statements a) Business segment results For the years ended 31 December 2010  USD millions Revenues Premiums earned Fee income from policyholders Net investment income /loss 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 Group items Allocation Total 3 639 808 25 4 472 10 871 1 738 110 8 759 918 3 052 2 331 12 719 15 060 –7 200 –1 859 –1 184 –8 236 –3 371 –1 826 –817 –10 243 –14 250 0 22 319 –466 35 –90 –54 6 –525 –1 094 –1 667 19 652 918 5 422 2 783 60 28 835 –15 490 –3 371 –3 679 –2 526 –1 094 –26 160 –3 326 –3 326 0 Operating income /loss 2 476 810 4 472 –1 757 –3 326 2 675 2011 USD millions Revenues Premiums earned Fee income from policyholders Net investment income /loss 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 Group items Allocation Total 3 750 1 264 25 5 039 12 046 1 421 48 2 13 517 –8 812 –2 027 –1 389 9 225 876 3 081 –1 230 11 952 –8 414 –61 –1 986 –1 025 –12 228 –11 486 0 29 225 327 24 605 2 –8 –701 –851 –1 558 21 300 876 5 469 409 51 28 105 –17 224 –61 –4 021 –3 115 –851 –25 272 –3 008 –3 008 0 Operating income /loss 1 289 466 5 039 –953 –3 008 2 833 The allocation is based on technical reserves and other information, including duration of the underlying liabilities, and was allocated in the  years ended 31 December 2010 and 2011 as follows: USD millions, for the year ended 31 December 2010 Net investment income /loss USD millions, for the year ended 31 December 2011 Net investment income /loss Property & Casualty 1 588 Life & Health  Asset Management 0 1 738 Property & Casualty 1 310 Life & Health  Asset Management 0 1 698 Allocation –3 326 Allocation –3 008 68  Swiss Reinsurance Company Consolidated 2011 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 2010  USD 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 % Expense ratio in % Combined ratio in % 2011 USD 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 4 575 115 –80 –2 4 608 –2 904 –571 –489 –3 964 644 63.4 23.2 86.6 3 292 1 202 4 494 –2 692 –655 –424 –3 771 723 81.8 32.8 114.6 2 621 266 103 2 990 –1 346 –551 –220 –2 117 873 51.4 29.4 80.8 10 488 1 583 23 –2 12 092 –6 942 –1 777 –1 133 –9 852 2 240 66.2 27.7 93.9 383 155 87 2 627 –258 –82 –51 –391 236 10 871 1 738 110 0 12 719 –7 200 –1 859 –1 184 –10 243 2 476 Property   traditional Casualty   traditional Specialty   traditional Total traditional Non-traditional Total 5 220 71 –52 5 239 –5 088 –623 –542 –6 253 3 875 1 001 2 568 182 3 11 663 1 254 –49 4 876 2 753 12 868 –2 566 –804 –491 –3 861 –920 –516 –297 –1 733 383 167 97 2 649 –238 –84 –59 –381 268 12 046 1 421 48 2 13 517 –8 812 –2 027 –1 389 –12 228 1 289 –8 574 –1 943 –1 330 –11 847 1 021 73.5 28.1 101.6 Operating income /loss –1 014 1 015 1 020 Claims ratio in % Expense ratio in % Combined ratio in % 97.5 22.3 119.8 66.2 33.4 99.6 35.8 31.7 67.5 Swiss Reinsurance Company Consolidated 2011 Annual Report  69 Financial statements | Notes to the Group financial statements c) Life & Health business segment – by line of business For the year ended 31 December 2010 USD 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 Operating income /loss 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 % Life traditional Health traditional Admin Re® Total 5 869 64 668 97 6 698 –4 492 –69 –1 244 –377 –6 182 516 36 632 –23 120 6 565 5.7 2 110 303 –3 2 410 –1 543 –355 –149 –2 047 363 303 –3 2 413 6.2 780 854 2 081 2 237 5 952 –2 201 –3 302 –227 –291 –6 021 –69 557 145 1 379 2 057 196 –16 3 013 9.7 8 759 918 3 052 2 331 15 060 –8 236 –3 371 –1 826 –817 –14 250 810 593 145 2 314 2 034 196 101 11 991 6.8 88.7 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. Operating revenues also exclude net realised investment gains /losses from non-participating business.  2  The benefit ratio is calculated as claims paid and claims adjustment expenses in relation to premiums earned, both of which exclude unit-linked and with-profit business.  Additionally, the impact of guaranteed minimum death benefit (GMDB) products is excluded, as this ratio is not indicative of the operating performance of such products. 70  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Life & Health business segment – by line of business For the year ended 31 December 2011 USD 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 Operating income /loss 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 Life traditional Health traditional Admin Re® Total 6 071 64 640 –20 6 755 –4 871 –6 –1 250 –415 –6 542 213 30 610 –55 35 2 363 274 –8 791 812 2 167 –1 202 9 225 876 3 081 –1 230 2 629 2 568 11 952 –1 632 –446 –162 –2 240 –1 911 –55 –290 –448 –2 704 –8 414 –61 –1 986 –1 025 –11 486 389 –136 466 655 158 1 354 –1 217 26 –11 685 158 2 238 –1 272 26 16 274 –8 Operating revenues1 6 745 2 637 2 957 12 339 Management expense ratio in % Benefit ratio2 in % 6.2 6.1 15.2 8.3 87.9 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. Operating revenues also exclude net realised investment gains /losses from non-participating business. 2  The benefit ratio is calculated as claims paid and claims adjustment expenses in relation to premiums earned, both of which exclude unit-linked and with-profit business.  Additionally, the impact of guaranteed minimum death benefit (GMDB) products is excluded, as this ratio is not indicative of the operating performance of such products. Swiss Reinsurance Company Consolidated 2011 Annual Report  71 Financial statements | Notes to the Group financial statements d) Asset Management For the years ended 31 December 2010  USD millions Revenues Net investment income Net realised investment gains /losses Other revenues Total revenues Operating income 2011 USD millions Revenues Net investment income Net realised investment gains /losses Other revenues Total revenues Operating income Credit & Rates Equity & Alternative  Investments 3 316 769 4 085 4 085 323 39 25 387 387 Credit & Rates Equity & Alternative  Investments 3 397 1 368 4 765 4 765 353 –104 25 274 274 Total 3 639 808 25 4 472 4 472 Total 3 750 1 264 25 5 039 5 039 72  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements e) Net premiums earned and fee income from policyholders by geography Net premiums earned and fee income from policyholders by regions for the years ended 31 December USD millions Americas Europe (including Middle East and Africa) Asia-Pacific Total Net premiums earned and fee income from policyholders by country for the years ended 31 December USD millions United States United Kingdom Australia China Canada Germany France Japan Italy Netherlands Switzerland Other Total 2010 9 105 8 476 2 989 20 570 2010 7 244 2 921 1 111 684 1 107 945 718 574 581 452 417 3 816 20 570 2011 9 275 8 613 4 288 22 176 2011 7 205 2 925 1 511 1 383 1 237 1 109 770 643 504 458 446 3 985 22 176 Swiss Reinsurance Company Consolidated 2011 Annual Report  73 Financial statements | Notes to the Group financial statements 14  Subsidiaries, equity investees and variable interest entities 14  Subsidiaries, equity investees and variable interest entities Subsidiaries and equity investees Europe Belgium Swiss Re Treasury (Belgium) N.V., Brussels Denmark Swiss Re Denmark Services A /S, Copenhagen France Protegys Assurance, Paris Germany ASS Assekuranz, Service-und Sachverständigengesellschaft mbH,   Sundern EXTREMUS Versicherungs-Aktiengesellschaft, Cologne Paarl Grundbesitzverwaltung GmbH & Co. KG Objekt Köln Sterrenhofweg,   Munich ROLAND Partner Beteiligungsverwaltung GmbH, Cologne Swiss Re Germany AG, Unterföhring bei München Hungary Swiss Re Treasury (Hungary) Group Financing Limited Liability Company,  Budapest Ireland Swiss Re International Treasury (Ireland) Ltd., Dublin Liechtenstein Elips Life AG, Vaduz Elips Versicherungen AG, Vaduz Luxembourg Swiss Re Europe Holdings S.A., Luxembourg Swiss Re Europe S.A., Luxembourg Swiss Re Finance (Luxembourg) S.A., Luxembourg Swiss Re Funds (Lux) I, Senningerberg1 Swiss Re International SE, Luxembourg Share capital  (USD millions) Share capital  (CHF millions) Affiliation in % as of  31.12.2011 Method of  consolidation 0 0 32 0 65 6 0 58 0 0 13 5 0 0 30 0 61 6 0 55 0 0 12 5 136 454 0 10 410 236 127 425 0 9 735 221 100 100 34 100 15 22 20 100 100 100 100 100 100 100 100 100 100 f f e e e e e f f f f f f f f f f Method of consolidation f  full e   equity 1  Net asset value instead of share capital 74  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Share capital  (USD millions) Share capital  (CHF millions) Affiliation in % as of  31.12.2011 Method of  consolidation Netherlands Algemene Levensherverzekering Maatschappij N.V., Amsterdam Switzerland European Reinsurance Company of Zurich Ltd, Zurich Swiss Re Asset Management Geneva SA, Geneva Swiss Re Corporate Solutions Ltd, Zurich Swiss Re Life Capital Ltd, Zurich Tertianum AG, Zurich United Kingdom Admin Re UK Limited, Shropshire Banian Investments UK Limited, St. Helier BL Telford Limited, Shropshire European Credit and Guarantee Insurance PCC Limited, St. Peter Port NM Insurance Holdings Limited, Shropshire NM Life Group Limited, Shropshire NM Life Limited, Shropshire NM Pensions Limited, Shropshire Reassure Life Limited, London Reassure Limited, Shropshire Reassure UK Life Assurance Company Limited, London SR Delta Investments (UK) Limited, London Swiss Re BHI Limited, London Swiss Re Capital Markets Limited, London Swiss Re Frankona LM Limited, London Swiss Re GB Limited, London Swiss Re Services Limited, London Swiss Re Specialty Insurance (UK) Limited, London The Mercantile & General Reinsurance Company Limited, Glasgow The Palatine Insurance Company Limited, London 1 274 0 119 0 10 114 0 47 0 204 233 148 209 23 409 43 6 0 60 11 0 4 28 0 12 1 256 0 111 0 10 106 0 44 0 191 218 138 195 22 382 40 5 0 56 10 0 3 26 0 11 Americas and Caribbean Barbados European Finance Reinsurance Company Ltd., Bridgetown European International Holding Company Ltd., Bridgetown European International Reinsurance Company Ltd., Bridgetown Gasper Funding Corporation, Bridgetown Milvus I Reassurance Limited, Bridgetown 3 089 0 1 17 0 2 888 0 1 16 0 100 100 100 100 100 21 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 f f f f f e f f f f f f f f f f f f e f e f f f f f f f f f f Swiss Reinsurance Company Consolidated 2011 Annual Report  75 Financial statements | Notes to the Group financial statements Bermuda CORE Reinsurance Company Limited, Hamilton Old Fort Insurance Company, Ltd., Hamilton Swiss Re Global Markets Limited, Hamilton Swiss Re Capital Management (Bermuda) Ltd., Hamilton Swiss Re Investments (Bermuda) Ltd., Hamilton Brazil UBF Seguros S.A., Sao Paulo Canada 7547552 Canada Inc., Toronto SwissRe Holdings (Canada) Inc., Toronto Cayman Islands Ampersand Investments (UK) Limited, George Town SR Alternative Financing II SPC, George Town SR Cayman Holdings Ltd, George Town Swiss Re Strategic Investments UK Limited, George Town United States Facility Insurance Corporation, Austin Facility Insurance Holding Corporation, Dallas First Specialty Insurance Corporation, Jefferson City North American Capacity Insurance Company, Manchester North American Elite Insurance Company, Manchester North American Specialty Insurance Company, Manchester Reassure America Life Insurance Company, Fort Wayne Rialto Re I Inc, Burlington SR Corporate Solutions America Holding Corporation, Wilmington Sterling Re Inc., Burlington Swiss Re America Holding Corporation, Wilmington Swiss Re Atrium Corporation, Wilmington Swiss Re Capital Markets Corporation, New York Swiss Re Financial Products Corporation, Wilmington Swiss Re Financial Services Corporation, Wilmington Swiss Re Life & Health America Holding Company, Wilmington Swiss Re Life & Health America Inc., Hartford Swiss Re Partnership Holding, LLC, Dover Swiss Re Solutions Holding Corporation, Wilmington Swiss Re Treasury (US) Corporation, Wilmington Swiss Reinsurance America Corporation, Armonk Washington International Insurance Company, Manchester Westport Insurance Corporation, Jefferson City Share capital  (USD millions) Share capital  (CHF millions) Affiliation in % as of  31.12.2011 Method of  consolidation 0 0 0 0 0 48 0 0 932 0 0 0 0 0 5 4 4 13 3 0 0 0 0 1 0 2 116 0 0 4 368 9 0 6 4 6 0 0 0 0 0 45 0 0 872 0 0 0 0 0 5 4 3 12 2 0 0 0 0 0 0 1 979 0 0 4 344 8 0 6 4 6 100 100 100 100 100 84 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 f f f f f f e e 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 76  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Share capital  (USD millions) Share capital  (CHF millions) Affiliation in % as of  31.12.2011 Method of  consolidation Australia Swiss Re Australia Ltd, Sydney Swiss Re Life & Health Australia Limited, Sydney Africa South Africa Eastern Foreshore Investments Limited, Cape Town Swiss Re Life and Health Africa Limited, Cape Town Asia China Beijing Prestige Health Consulting Services Company Limited, Beijing 21 159 19 149 1 0 6 1 0 6 Vietnam Vietnam National Reinsurance Corporation, Hanoi 48 45 100 100 100 100 100 25 f f f f e e Swiss Reinsurance Company Consolidated 2011 Annual Report  77 Financial statements | Notes to the Group financial statements Variable interest entities The 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 as a result of the  Group’s involvement in a modified coinsurance agreement, certain insurance-linked and credit-linked securitisations, swaps in trusts, debt  financing and other entities which meet the definition of a VIE. When analysing the status of an entity, the Group mainly assesses if (1) the equity is sufficient to finance the entity’s activities without  additional subordinated financial support, (2) the equity holders 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,  the entity is considered a VIE and needs to be assessed for consolidation under the VIE section of the Consolidation Topic.  The party that has a controlling financial interest is called the primary beneficiary and consolidates the VIE. An enterprise is deemed to have  a controlling financial interest if it has both of the following:  ̤ the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and  ̤ the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity  that could potentially be significant to the VIE.  The Group assesses for all its variable interests in VIEs whether it has a controlling financial interest in these entities and, thus, is the primary  beneficiary. For this, the Group identifies the activities that most significantly impact the entity’s performance and determines whether the  Group has the power to direct those activities. In conducting the analysis, the Group considers the purpose, the design, and the risks that the  entity was designed to create and pass through to its variable interest holders. In a second step, the Group assesses if it has the obligation   to absorb losses or if it has the right to receive benefits of the VIE that could potentially be significant to the entity. If both criteria are met, the  Group has a controlling financial interest in the VIE and consolidates the entity. Whenever facts and circumstances change, a review is undertaken of the impact these changes could have on the consolidation assessment  previously performed. When the assessment might be impacted, a reassessment to determine the primary beneficiary is performed. 78  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Modified coinsurance agreement The Group assumes insurance risk via a modified coinsurance agreement from a direct insurer which qualifies as a VIE. The Group assumes  the majority of the mortality and investment risk in the VIE. In addition, the Group has the power over the investment management and  policyholder administration. As these are the activities that most significantly impact the entity’s economic performance, the Group qualifies  as the primary beneficiary and consolidates the entity. The Group will incur losses if mortality risk or the investment returns of the entity  develop unfavourably.  The total assets of the modified coinsurance vehicles in which the Group is the primary beneficiary were USD 3 473 million as of   31 December 2011. 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 assumes the insurance risk  through insurance or derivative contracts. In credit-linked securitisations, the securitisation vehicle assumes the credit risk through credit  default swaps. The securitisation vehicle generally retains the issuance proceeds as collateral. The collateral held predominantly consists   of investment-grade securities.  Typically, the variable interests held by the Group arise through ownership of insurance-linked and credit-linked securities, or through  protection provided under a total return swap for the principal of the collateral held by the securitisation vehicle.  Generally, the activities of a securitisation vehicle are pre-determined at formation. There are substantially no ongoing activities during the  life of the VIE that could significantly impact the economic performance of the vehicle. Consequently, the main focus to identify the primary  beneficiary is on the activities performed and decisions made when the VIE was designed. Typically, the Group is considered the primary  beneficiary of a securitisation vehicle when the Group acts as a sponsor of risk passed to the VIE and enters at the same time in a total return  swap with the VIE to protect the VIE’s assets from market risk. Under the total return swap, the Group would incur losses when some or all   of the securities held as collateral in the securitisation vehicle decline in value or default. Therefore, the Group’s maximum exposure to loss  equals the principal amount of the collateral protected under the total return swap. As of 31 December 2011, the total assets of the insurance-linked and credit-linked securitisation vehicles in which the Group holds variable  interests but is not the primary beneficiary were USD 2 587 million. The total assets of the vehicles in which the Group is the primary  beneficiary were USD 730 million. Swaps in trusts The Group provides risk management services to certain asset securitisation trusts which qualify as VIEs. As the involvement of the Group   is limited to interest rate and foreign exchange derivatives, the Group does not have power to direct any activities of the trusts and therefore  does not qualify as primary beneficiary of any of these trusts. These activities are in run-off. Debt financing vehicles Debt financing vehicles issue preference shares or loan notes to provide the Group with funding. The 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, derivatives and others. The Group consolidates certain debt financing vehicles as it has power over the investment management in the vehicles, which is considered  to be the activity that most significantly impacts the entities’ economic performance. In addition, the Group absorbs the variability of the  investment return so that both criteria for a controlling financial interest are met. The total assets of the debt financing vehicles in which the Group is the primary beneficiary were USD 7 051 million as of 31 December 2011. Swiss Reinsurance Company Consolidated 2011 Annual Report  79 Financial statements | Notes to the Group financial statements Other 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 Group’s exposure is  either retroceded or hedged. The assets held by the VIEs consist mainly of private equity investments, residential real estate and others.  As of 31 December 2011, the total assets of other VIEs in which the Group holds variable interests but is not the primary beneficiary were  USD 3 684 million. The total assets of the vehicles in which the Group is the primary beneficiary were USD 712 million. The Group did not provide financial or other support to any VIEs during 2011 that it was not previously contractually required to provide.  Consolidated VIEs The following table shows the total assets and liabilities on the Group’s balance sheet relating to VIEs of which the Group is the primary  beneficiary as of 31 December:  USD millions Fixed income securities: Available-for-sale  Policy loans, mortgages and other loans  Short-term investments  Other invested assets  Cash and cash equivalents  Accrued investment income  Premiums and other receivables  Reinsurance recoverable on unpaid claims and policy benefits  Funds held by ceding companies  Income taxes recoverable  Acquired present value of future profits  Other assets  Total assets Unpaid claims and claim adjustment expenses  Liabilities for life and health policy benefits  Policyholder account balances  Funds held under reinsurance treaties  Reinsurance balances payable Deferred and other non-current taxes  Short-term debt  Accrued expenses and other liabilities  Long-term debt  Total liabilities 2010 Carrying value Whereof restricted: 2011 Carrying value Whereof restricted: 8 842 596 1 329 2 045 968 82 10 11 6 19 36 63 14 007 8 842 203 1 329 195 966 82 10 11 6 19 36 63 11 762 9 254 191 998 202 928 78 9 7 2 1 23 273 11 966 9 254 191 998 202 928 78 9 7 2 1 23 253 11 946 Carrying value 23 1 182 1 440 133 8 76 3 200 530 5 938 12 530 Whereof  limited recourse: 23 1 182 1 440 133 8 76 1 485 136 5 938 10 421 Carrying value 15 1 165 1 365 Whereof  limited recourse: 15 1 165 1 365 5 180 973 633 5 172 9 508 5 180 973 633 5 172 9 508 As of 31 December 2011, the consolidation of the VIEs resulted in non-controlling interests in the balance sheet of USD 414 million   (31 December 2010: USD 402 million). The net non-controlling interests in income were USD 6 million and USD 12 million net of tax for  2010 and 2011, respectively. 80  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements Non-consolidated VIEs The following table shows the total assets and liabilities in the Group’s balance sheet related to VIEs in which the Group holds a variable  interest but is not the primary beneficiary as of 31 December: USD millions Fixed income securities: Available-for-sale Trading Other invested assets Premiums and other receivables Reinsurance recoverable Deferred acquisition costs Total assets Funds held under reinsurance treaties Short-term debt Accrued expenses and other liabilities Total liabilities 2010 60 9 1 406 2 1 631 2 3 110 1 614 406 885 2 905 2011 99 20 680 799 393 509 902 The following table shows the Group’s assets, liabilities and maximum exposure to loss which are related to VIEs in which the Group holds a  variable interest but is not the primary beneficiary as of 31 December: USD millions Insurance-linked / credit-linked  securitisations Swaps in trusts Debt financing Other Total Total assets Total liabilities  Maximum   exposure to loss 2010 Difference between  exposure  and liabilities Total assets Total liabilities Maximum exposure  to loss 2011 Difference between  exposure  and liabilities 1 890 423 468 329 3 110 1 665 643 597 2 905 2 197 –1 126 1 184 –1 532 – 126 587 – 261 212 326 799 316 586 902 1 168 –1 1 152 –1 1 168 – 566 – 1 The maximum exposure to loss for swaps in trusts cannot be meaningfully quantified due to their derivative character. In 2011, an insurance-linked securitisation vehicle in which the Group held a variable interest, but was not the primary beneficiary, was  restructured in order to unwind the related structure. As a result, the vehicle no longer qualified as a VIE and was consolidated as a voting  interest entity from the third quarter of 2011.  A further unconsolidated insurance-linked securitisation vehicle was being unwound as of end  of December 2011, at which time the Swiss Re Group no longer had any variable interests in the entity. Consequently, neither vehicle was  part of the VIE disclosures as of 31 December 2011. The assets and liabilities for the swaps in trusts represent the positive and negative fair values of the derivatives the Group has entered into  with the trusts. Liabilities of USD 586 million recognised for the “Other” category relate mainly to collateral received. Swiss Reinsurance Company Consolidated 2011 Annual Report  81 Financial statements | Notes to the Group financial statements This page intentionally left blank 82  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements 15  Restructuring provision In 2011, the Group set up total provisions of USD 26 million, related to the cost savings and efficiency programmes announced in early  2010, and released USD 7 million. The increase of the provision in the Property & Casualty and the Life & Health business segments of USD 10 million and USD 14 million,  respectively, in 2011 are related to leaving benefits, office structure simplification costs and cost for the concentration of support resources  allocated to the Property & Casualty and the Life & Health business segments. Changes in restructuring provisions are disclosed in the “Other expenses” line in the Group’s income statement. For the years ended 31 December, restructuring provision developed as follows: 2010                                                                                                                                       USD millions Balance as of 1 January  Increase in provision Release of provision Costs incurred Balance as of 31 December 2011                                                                                                                                       USD millions Balance as of 1 January  Increase in provision Release of provision Costs incurred Balance as of 31 December Property & Casualty 87 55 –9 –73 60 Property & Casualty 60 10 –3 –30 37 Life & Health 24 27 –5 –41 5 Life & Health 5 14 –1 –17 1 Asset Management 45 11 –2 –22 32 Asset Management 32 2 –3 –15 16 Total 156 93 –16 –136 97 Total 97 26 –7 –62 54 Swiss Reinsurance Company Consolidated 2011 Annual Report  83 Financial statements | Notes to the Group financial statements 16  Risk assessment Article 663b sub-para. 12 of the Swiss Code of Obligations requires disclosure of information on the performance of a risk assessment. The bodies and committees mentioned below belong to the Swiss Re Group as the identification, assessment and control of risk exposures of the  Swiss Reinsurance Company Group is integrated in and covered by the Group risk management organisation and processes of Swiss Re Group. The Board of Directors of Swiss Re Ltd is ultimately responsible for the Group’s governance principles and policies, including approval of the  Group’s overall risk tolerance. The Board mainly deals with risk management through two committees:  ̤ The Finance and Risk Committee is responsible for reviewing the Group Risk Policy and capacity limits, as well as for monitoring risk  tolerance and reviewing top risk issues and exposures.  ̤ The Audit Committee is responsible for overseeing internal controls and compliance procedures. The Group Executive Committee (Group EC) is responsible for implementing the risk management framework through four further committees:  ̤ The Group Risk and Capital Committee has responsibility for allocating capital and insurance risk capacity, approving investment risk  limits, and determining changes to the internal risk and capital methodology.  ̤ The Group Asset-Liability Committee oversees the management of Swiss Re’s balance sheet, in particular its liquidity, capital and funding  positions and related policies.  ̤ The Group Products and Limits Committee determines Swiss Re’s product policy and standards, sets reinsurance and counterparty credit  risk limits, and decides on large or non-standard transactions.  ̤ The Group Regulatory Committee is the central information and coordination platform for regulatory matters and compliance. It ensures a  consistent approach to external communication on regulatory issues. The Group Chief Risk Officer, who is a member of the Group EC, reports directly to the Group CEO as well as to the Board’s Finance and   Risk Committee. The Group Chief Risk Officer participates in the four committees described above and chairs both the Group Risk and  Capital Committee and the Group Regulatory Committee. In addition, the Group Chief Risk Officer leads the global Risk Management  function, which is responsible for risk oversight and control across the Group. The global Risk Management function operates through dedicated units for property and casualty risk, life and health risk, and financial  market and credit risk. Each unit is entrusted with Group-wide responsibility for identifying, assessing and controlling their allocated risks  and for risk governance at the risk category level. The units also work closely with each other, where necessary, on transaction reviews and  other cross-category issues. Actuarial management is an integral part of the insurance risk units, ensuring reserving adequacy. Senior managers of business and corporate units are responsible for managing operational risks in their area of activity, based on a centrally  coordinated methodology. Their self-assessments are reviewed and challenged by operational risk specialists in partnership with the dedicated  risk management units. Risk management experts also review the Group’s underwriting decision processes. Liquidity risk, capital adequacy, and emerging risks are managed at Group level. Risk management activities that are also performed globally  at Group level, across all risk categories include risk governance, risk modelling, risk reporting and the steering of the Group’s regulatory  activities. Swiss Re’s Group Internal Audit department carries out independent, objective assessments of the adequacy and effectiveness of  internal control systems. It evaluates the execution of processes within Swiss Re, including those within Risk Management. The Compliance function is principally responsible for overseeing Swiss Re’s compliance with applicable laws, regulations, rules and   the Code of Conduct, as well as management of Compliance Risk. It serves to assist the Board of Directors, the Executive Committee and  Management in discharging their respective duties to effectively identify, mitigate and manage Compliance Risks. The Risk Management function continuously reviews Swiss Re’s organisation in order to ensure alignment with the Group’s structure. 84  Swiss Reinsurance Company Consolidated 2011 Annual Report Financial statements | Notes to the Group financial statements This page intentionally left blank Swiss Reinsurance Company Consolidated 2011 Annual Report  85 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 3 to 85)   for the year ended 31 December 2011. 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 2011 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. 86  Swiss Reinsurance Company Consolidated 2011 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 Dawn M Kink  Alex Finn   Audit expert  Auditor in charge Zurich, 15 March 2012 Swiss Reinsurance Company Consolidated 2011 Annual Report  87                     Financial statements Annual Report Swiss Reinsurance Company Ltd Reinsurance and sub-holding company Swiss Reinsurance Company Ltd (the Company), domiciled in Zurich, Switzerland, performs a dual role within the Swiss Re Group as both a  reinsurance company and a sub-holding company.   In conjunction with the restructuring of the Swiss Re Group, Swiss Re Ltd was incorporated on 2 February 2011 and established as the new  ultimate holding company of the Swiss Re Group through an exchange offer. Swiss Reinsurance Company Ltd shareholders were offered the  opportunity to exchange their shares in Swiss Reinsurance Company Ltd for shares in Swiss Re Ltd on a one-for-one basis. Effective  20 May 2011, Swiss Re Ltd became the ultimate holding company of the Swiss Re Group, and hence Swiss Reinsurance Company Ltd  became a fully owned subsidiary of Swiss Re Ltd. The shares of Swiss Reinsurance Company Ltd were delisted from the SIX Swiss Exchange  on 8 December 2011.  Financial year 2011 The after-tax loss for the 2011 financial year amounted to CHF 63 million, compared to a profit of CHF 380 million in the previous year. The business year under report was characterised by the establishment of the new corporate structure. Hence, the Company’s investment  portfolio in subsidiaries and affiliated companies showed considerable movements, as well as impacted the corresponding income  statement lines. Along with the restructuring, the technical result was impacted by various recaptures of reinsurance treaties by affiliated  companies of the Company in the life and health business. Property and casualty was significantly impacted by the extraordinary accumulation of natural catastrophe events but benefited from  successful renewals and new business written following these losses. In 2011, the Swiss franc fluctuated against the majority of the main currencies which markedly affected the comparison of year-on-year  reported income statement and balance sheet figures. Reinsurance result The total reinsurance result amounted to a gain of CHF 3.0 billion, compared to a gain of CHF 1.3 billion in 2010. Premiums earned decreased from CHF 12.2 billion to CHF 8.8 billion in the year under report. Without the effect of foreign exchange  movements, total premiums earned amounted to CHF 10.1 billion in 2011. Property and casualty premiums earned declined from  CHF 6.3 billion in 2010 to CHF 5.6 billion in 2011, mainly driven by a weakening of most of our underlying business currencies against the  Swiss franc resulting in a negative impact of CHF 0.8 billion. This deterioration was partially offset by successful renewals and new business  written, notably with large clients in Asia. Premium volume for life and health business decreased significantly from CHF 5.9 billion in 2010 to CHF 3.2 billion in 2011, driven by non- recurring initial premiums received in 2010 for the integration of the life and health portfolio of a subsidiary of the Company into a branch of  Swiss Reinsurance Company Ltd. Excluding this one-off transaction and foreign exchange movements, life and health premiums earned  increased by 4%. Claims and claim adjustment expenses increased significantly from CHF 7.8 billion in 2010 to CHF 10.0 billion in 2011. Without the effect of  foreign exchange movements, total claims and claim adjustment expenses amounted to CHF 11.6 billion in 2011. This financial year was  driven by extraordinary natural catastrophe losses including floods and cyclones in Australia, earthquakes in New Zealand, earthquakes and  tsunami in Japan, tornados and hurricane Irene in the US, and floods in Thailand. Nevertheless, claims and claim adjustment expenses for  property and casualty decreased during 2011 by CHF 1.0 billion to CHF 3.1 billion benefiting from more retrocession coverage, positive claims  experience as well as the deterioration of most currencies against the Swiss franc with an impact of CHF 0.5 billion. Life and health claims and claim adjustment expenses rose by CHF 3.2 billion to CHF 6.9 billion in 2011, primarily driven by recaptures of  reinsurance treaties with affiliated companies of the Company, but partially offset by the recapture of the external retrocession treaty with  ALPSII. In return, these transactions reduced the Company’s liability for life and health benefits, partially offset by less favourable mortality, of  CHF 6.4 billion. In the financial year 2010, life and health claims and claim adjustment expenses as well as life and health benefits, included  in the result of the initial recognition of the technical provisions assumed at the inception of a portfolio from a subsidiary of the Company,  offset the initial premium received.  88  Swiss Reinsurance Company Ltd 2011 Annual Report   Financial statements | Swiss Reinsurance Company Ltd Investment result The net investment result declined by CHF 2.6 billion to a loss of CHF 2.3 billion in 2011. Investment income increased by CHF 1.6 billion to CHF 4.9 billion. This increase was mostly driven by higher dividend income and higher  realised gains on derivative financial instruments which hedged the life and health variable annuity business. In 2011, investment expenses increased by CHF 4.5 billion to CHF 6.6 billion, mainly as a result of valuation adjustments on investments in  subsidiaries and affiliated companies in conjunction with the restructuring of the Swiss Re Group and higher valuation adjustments on  derivative financial instruments related to reinsurance business. Other income and expenses Other net expenses decreased by CHF 0.5 billion to CHF 0.6 billion in 2011. The decrease mainly consisted of the one-time termination  expense in 2010 for the convertible perpetual capital instrument (CPCI) issued to National Indemnity Company, a subsidiary of Berkshire  Hathaway Inc., and reduced trademark license fee income. Since the establishment of the new ultimate holding company,  Swiss Reinsurance Company Ltd did not receive any trademark license fee income, but paid license fees to Swiss Re Ltd instead. The Company has revised the classification between certain income statement categories. Specifically, the capital tax and indirect taxes of  CHF 68 million were reclassified in 2011 from tax expense to other expenses. Therefore, the previously reported 2010 figures of tax expense  and other expenses with a respective amount of CHF 60 million have been reclassified accordingly. Assets Compared to 2010, total assets decreased 12% to CHF 83.9 billion. Without the effect of foreign exchange movements, total assets  amounted to CHF 84.1 billion. As a result of the restructuring, investments in subsidiaries and affiliated companies increased by CHF 1.2 billion reflecting various capital  contributions, partially offset by valuation adjustments as well as capital repayments.  The repayment of the CPCI to National Indemnity Company in early 2011 resulted in higher balances of cash and short-term investments as  of 2010, compared to the year under report. Various recaptures of reinsurance treaties in the life and health business caused the funds held to decrease by CHF 6.3 billion to  CHF 11.4 billion. The increase in other assets related mostly to security lending collateral and reverse repurchase transactions. Liabilities In comparison to 2010, total liabilities decreased 13% to CHF 66.2 billion. Without the effect of foreign exchange movements, total liabilities  amounted to CHF 66.4 billion.  Technical provisions declined 13% to CHF 37.9 billion. Life and health policy benefits decreased significantly, mainly as a result of the  recaptures of reinsurance treaties by affiliated companies of the Company, partially offset by the recapture of the retrocession treaty with  ALPSII. Life and health unpaid claims remained stable compared to 2010. Property and casualty gross unpaid claims increased by 8%  mainly due to the 2011 natural catastrophe events. As a result of these losses the equalisation provision of CHF 0.6 billion was completely  released in the year under report. Debts decreased significantly to CHF 7.0 billion as a result of the redemption of the CPCI issued in 2009 to National Indemnity Company.  The redemption agreement was signed effective 2010 with a repayment of CHF 3.7 billion in early 2011. Liabilities from derivative financial  instruments increased mainly due to derivatives in connection with the life and health variable annuity business. Swiss Reinsurance Company Ltd 2011 Annual Report  89 Financial statements | Swiss Reinsurance Company Ltd Shareholder’s equity As of 31 December 2010, shareholder’s equity amounted to CHF 18.8 billion before allocation of the disposable profit. After the dividend  payment of CHF 943 million for 2010, and the inclusion of the loss for the 2011 financial year, shareholder’s equity decreased to  CHF 17.8 billion at the end of 2011. As a result of guidance issued by the Swiss Federal Tax Administration in connection with the capital contribution principle introduced in  Swiss Tax Law, which became effective as of 1 January 2011, the Annual General Meeting on 15 April 2011 approved a reclassification of  reserves of CHF 9 762 million from other reserves to legal reserves from capital contributions on the Company’s stand-alone balance sheet  as of 31 December 2010. As of 31 December 2011, legal reserves from capital contributions decreased to CHF 8 995 million due to the net effect of the dividend  payment of CHF 943 million, the inclusion of additional reserves from newly issued shares and a reclassification from other reserves to legal  reserves from capital contributions of issuance costs related to capital increases in previous years. The nominal share capital of the Company increased slightly due to newly issued shares from the conditional capital for employee  participation programmes. As of 31 December 2011, the nominal share capital amounted to CHF 37 million. 90  Swiss Reinsurance Company Ltd 2011 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 income tax expense Income tax expense Net income /loss Notes  1   2010 2011 2 12 173 –7 774 –1 868  – –1 584 412 –912 858 1 305 3 327 –2 151 –858 318 67 –792 655 –984 –1 054 569 –189 380 8 825 –9 970 4 538 550 –867 271 –914 592 3 025 4 927 –6 648 –592 –2 313 67 –410 69 –330 –604 108 –171 –63 The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements. Swiss Reinsurance Company Ltd 2011 Annual Report  91                                               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 Notes 2010 2011 1 130 21 389 4 227 705 1 585 17 109 6 714 2 335 120 55 314 711 35 1 095 22 552 4 636 714 1 708 17 179 3 726 2 430 214 54 254 696 26 56 060 54 976 5 067 17 655 565 6 247 3 591 5 837 165 5 865 11 385 592 3 527 2 981 4 422 173 39 127 28 945 95 187 83 921 3 3 3 The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements. 92  Swiss Reinsurance Company Ltd 2011 Annual Report                                                 Financial statements | Swiss Reinsurance Company Ltd Liabilities and shareholder’s 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 Shareholder’s equity Share capital Other legal reserves Reserve for own shares Legal reserves from capital contributions Other reserves Retained earnings brought forward Profit /loss for the financial year Total shareholder’s equity Total liabilities and shareholder’s equity Notes 2010 2011 4 4 4 4 4 4 4 5 27 548 12 658 2 677 162 550 43 595 128 1 465 513 2 106 8 214 2 109 10 323 4 801 2 785 2 637 10 013 170 26 895 7 892 3 002 143 – 37 932 53 1 735 441 2 229 4 459 2 571 7 030 4 029 2 686 3 466 8 613 185 76 430 66 170 37 650 1 449 9 762 6 429 50 380 37 650 748 8 995 7 334 50 –63 18 757 17 751 95 187 83 921 The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements. Swiss Reinsurance Company Ltd 2011 Annual Report  93                                                 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 2011 financial year comprises the accounting period from 1 January 2011 to 31 December 2011. Use of estimates in the preparation of annual accounts The preparation of the annual accounts requires management to make significant estimates and assumptions that affect the reported  amounts of assets, liabilities, income and expenses as well as the related disclosures. Actual results could differ significantly from these  estimates. Foreign currency translation Assets and liabilities denominated in foreign currencies are converted into Swiss francs at year-end exchange rates with the exception of  significant participations which are maintained in Swiss francs at historical exchange rates. Income and expenses are converted into Swiss francs at average exchange rates for the reporting year. 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 to the provision for currency fluctuation. Recognition through the income  statement only occurs when the provision is not sufficient to absorb a negative difference. Investments 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 (other than zero bonds)  ̤ Investments in funds  ̤ Alternative investments  ̤ Assets in derivative financial instruments Subsequent recoveries of previously recorded downward value adjustments may be recognised up to the lower of historical cost or market  value at the balance sheet date. The valuation rules prescribed by the Swiss Financial Market Supervisory Authority FINMA are observed. Zero bonds reported under fixed income securities are valued at their amortised cost values. 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 an original duration between three months and one year. Such investments are generally  held until maturity and are maintained at their amortised cost values. Loans to subsidiaries and affiliated companies, mortgages and other loans are carried at nominal value. Value adjustments are recorded  where the expected 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 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. 94  Swiss Reinsurance Company Ltd 2011 Annual Report Financial statements | Swiss Reinsurance Company Ltd Deferred acquisition costs 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. Other assets Other assets include deferred expenses on retroactive reinsurance policies, which are amortised through earnings over the expected   claims-paying period, as well as receivables in connection with securities lending collateral and reverse repurchase transactions, which are  carried at nominal value. Other current assets Other current assets are carried at nominal value after deduction of known credit risks if applicable. Technical provisions 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 where an offsetting amount has been paid and is recoverable from the ceding company. Modified coinsurance arrangements are treated on a gross basis with the separate recognition of the funds withheld, as well as the liabilities  for life and health policy benefits. 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 under “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 lines in the  income statement. The initial recognition of 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. The initial set up of assets and liabilities in respect of property and casualty retroactive treaties with external counterparties is accounted for  as a balance sheet transaction. Swiss Reinsurance Company Ltd 2011 Annual Report  95 Financial statements | Swiss Reinsurance Company Ltd Non-technical provisions The provision for taxation reflects the related tax expense for the financial year under report. 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. 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. Decreases in the liability amounts prior to expiration or settlement are only recognised as income for contracts for which hedges  are in place. Other liabilities Other liabilities include payables in connection with repurchase agreements and securities lending transactions, which are held at  redemption value. Deposit arrangements 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 Overall management expenses are allocated to the reinsurance business, the investment business and to other expenses on an imputed basis. Capital and indirect taxes Capital and indirect taxes related to the financial year are included in other expenses. Value-added taxes are included in the respective  expense lines in the income statement. Income tax expense The income tax expense relates to the financial year under report. Income statement classification The Company has revised the classification between certain income statement categories. Specifically, the capital tax and indirect taxes  were reclassified from tax expense to other expenses. Therefore, the previously reported 2010 figures of tax expense and other expenses  have been changed accordingly. 96  Swiss Reinsurance Company Ltd 2011 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 15 541 –20 15 521 –7 568 157 –7 411 Retro –3 486 138 –3 348 –152 –211 –363 2010 Net 12 055 118 12 173 –7 720 –54 –7 774 Gross 13 850 –1 244 12 606 –13 930 –2 220 –16 150 Retro –4 696 915 –3 781 3 528 2 652 6 180 2011 Net 9 154 –329 8 825 –10 402 432 –9 970 Life and health benefits –3 825 1 957 –1 868 5 751 –1 213 4 538 Change in equalisation provision  –  –  – 550 – 550 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 2  Investment result CHF millions Income from real estate investment Income from subsidiaries and affiliated companies Income from equity securities Income from fixed income securities, mortgages and other loans Income from derivative financial instruments Income from short-term investments Income from alternative investments Income from investment services Valuation readjustments on investments Realised gains on sale of investments Investment income Expenses from derivative financial instruments Investment management expenses Valuation adjustments on investments Realised losses on sale of investments Investment expenses Allocated investment return Investment result –2 323 –276 –2 599 248 863 1 111 975 40 1 015 –81 –618 –699 –1 717 –242 –1 959 148 574 722 1 052 40 1 092 –51 –400 –451 –1 348 –236 –1 584 167 245 412 –912 858 1 305 2010 100 556 13 621 72 52 46 71 440 1 356 3 327  – –300 –1 527 –324 –2 151 –858 318 –665 –202 –867 97 174 271 –914 592 3 025 2011 98 2 335 33 638 23 65 61 40 29 1 605 4 927 –13 –268 –6 082 –285 –6 648 –592 –2 313 Swiss Reinsurance Company Ltd 2011 Annual Report  97 Financial statements | Swiss Reinsurance Company Ltd 3  Assets from reinsurance CHF millions Premiums and other receivables from reinsurance Funds held by ceding companies Deferred acquisition costs Assets from reinsurance 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  Shareholder’s equity Change in shareholder’s equity Gross 5 007 17 655 850 23 512 Gross 31 427 16 073 3 799 211 550 2 1 155 53 217 Retro 60 – –285 –225 Retro –3 879 –3 415 –1 122 –49 – 4 799 1 630 –2 036 2010 Net 5 067 17 655 565 23 287 2010 Net 27 548 12 658 2 677 162 550 4 801 2 785 51 181 Gross 5 668 11 385 1 324 18 377 Retro 197 – –732 –535 Gross 33 597 9 987 5 146 176 – 1 769 49 676 Retro –6 702 –2 095 –2 144 –33 – 4 028 1 917 –5 029 2011 Net 5 865 11 385 592 17 842 2011 Net 26 895 7 892 3 002 143 – 4 029 2 686 44 647 CHF millions Shareholder’s equity as of 1 January Dividend paid for the previous year Capital increase including premium Profit /Loss for the financial year Shareholder’s equity on 31 December before dividend payments Dividend payments Shareholder’s equity on 31 December after dividend payments 2010 18 720 –343 0 380 18 757 –9421 17 815 2011 18 757 –9431 0 –63 17 751 –6 8382 10 913 1  The number of registered shares eligible for dividend at the dividend payment date increased since the proposal for allocation of profit, dated 22 March 2011, due to the issuance  of 2 778 new registered shares from options being exercised and the transfer of 347 512 shares for employee participation purposes from not eligible to eligible for dividend. This  resulted in a higher dividend of CHF 963 298 compared to the Board of Directors’ proposal. 2  Details on the dividend payments for the financial year 2011 are disclosed on page 103. 98  Swiss Reinsurance Company Ltd 2011 Annual Report Financialstatements| Swiss Reinsurance Company Ltd 6 Further notes to the financial statements Contingentliabilities Swiss Reinsurance Company Ltd has issued a number of guarantees to several 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 Swiss Re Group’s financing structure, the Company has guaranteed CHF 5 678 million (2010: CHF 6 020 million) of debt issued by certain subsidiaries and letter of credit facilities benefiting various subsidiaries of which no amount was utilised as of 31 December 2011 and 2010, respectively. Unfundedcommitments As a participant in limited investment partnerships, the Company commits itself to making available certain amounts of investment funding, callable by the partnerships in general for periods of up to 10 years. As of 31 December 2011, total commitments remaining uncalled were CHF 660 million (2010: CHF 854 million). Leasingcontracts Total off-balance-sheet commitments from operating leases for the next five years and there after are as follows: CHF millions 2011 2012 2013 2014 2015 After 2016 Totaloperatingleases,net 2010 17 13 12 11 10 14 77 2011 – 22 21 18 15 35 111 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 10 million (2010: CHF 16 million) are included in tangible assets and other liabilities, respectively. Securitydeposits To secure the technical provisions at the 2011 balance sheet date, securities with a value of CHF 9 486 million (2010: CHF 9 858 million) were deposited in favour of ceding companies, of which CHF 9 200 million (2010: CHF 9 297 million) referred to affiliated companies of the Company. In addition, a real estate portfolio with a carrying amount of CHF 673 million (2010: CHF 676 million) serves as collateral for short-term senior operational debt of CHF 650 million with an external counterparty. Securitieslendingandrepurchaseagreements To enhance the performance of its investment portfolio, the Company enters into securities lending and reverse repurchase transactions. In the context of such transactions securities are transferred to the counterparty. Additionally, the Company performs the role of the collateral clearer for the Swiss Re Group, centrally managing and reducing counterpart credit exposure for the asset holding entities, providing funding diversification and enabling secured cash investment. As such the Company acts as principal in collateral transactions, borrowing securities from its affiliated companies and entering into lending and borrowing as well as repurchase and reverse repurchase agreements with third parties. As a matter of policy, the Company requires that collateral, consisting of cash or securities, is provided to cover the assumed counterparty risk associated with such transactions.  SwissReinsuranceCompanyLtd2011 Annual Report 99 Financialstatements| Swiss Reinsurance Company Ltd An overview of the fair value of securities transferred under securities lending and borrowing as well as repurchase agreements is provided in the following table as of 31 December: CHF millions Fair value of securities transferred to third parties Fair value of securities transferred to affiliated companies Total 2010 954 – 954 2011 5646 5682 11328 These securities were transferred with the right to be sold or pledged by the borrowing entity. The securities which were held and lent by investment funds are excluded from the table above. Investmentfunds As of 31 December 2011, fixed income securities of CHF 4 581 million (2010: CHF 5 881 million) were held in investment funds, which are owned by its affiliated companies. The securities in these funds and their revenues are reported in the corresponding asset category. Fireinsurancevalueoftangibleassets As of 31 December 2011, the insurance value of tangible assets, comprising the real estate portfolio and other tangible assets, amounted to CHF 2 555 million (2010: CHF 2 563 million). Obligationstowardsemployeepensionfund Other liabilities include CHF 5 million (2010: CHF 5 million) payable to the employee pension fund. Publicplaceddebentures As of 31 December 2011, the following public placed debentures were outstanding: Instrument Senior bond Senior bond Senior bond Issued in 2011 2010 2009 Currency CHF CHF CHF Nominal in millions 600 500 700 Interest rate 2.125% 2.000% 4.250% Maturity/ First call in 2017 2015 2013 Book value CHF millions 600 500 700 Investmentsinsubsidiaries Details on the Company’s subsidiaries are disclosed on pages 74 to 77. Ownshares As of 31 December 2011, the Swiss Re Group held 370 706 931 Swiss Reinsurance Company Ltd shares, of which Swiss Re Ltd owned 344 052 565 shares and the Company owned directly 26 654 366 shares. In connection with the exchange offer Swiss Reinsurance Company Ltd contributed all its own shares to Swiss Re Ltd in exchange for an equivalent number of new Swiss Re Ltd shares. The total of contributed shares was 26 654 366, including 20 000 Swiss Reinsurance Company Ltd shares that were contributed by a third party on behalf of Swiss Reinsurance Company Ltd, with a total book value of CHF 747 830 958. This book value consisted of 11 678 802 shares contributed with a par value of CHF 0.10 per share and 14 975 564 shares contributed with an average price of CHF 49.86 per share. Depositaccount Deposit arrangements generated the following balances, which are included in: CHF millions Reinsurance result Premiums and other receivables from reinsurance Funds held by ceding companies Funds held under reinsurance treaties Reinsurance balances payable 100 SwissReinsuranceCompanyLtd2011 Annual Report 2010 80 469 66 2 617 2011 41 263 55 1 396 Financialstatements| Swiss Reinsurance Company Ltd ClaimsonandobligationstowardsaffiliatedcompaniesoftheCompany CHF millions Premiums and other receivables from reinsurance Funds held by ceding companies Other receivables Other assets Loans Funds held under reinsurance treaties Reinsurance balances payable Other liabilities 2010 986 15 524 2 435 1 347 1 459 3 189 962 7 404 2011 1183 9074 2836 77 1921 3862 1330 6519 Conditionalcapitalandauthorisedcapital At Swiss Reinsurance Company Ltd’s Annual General Meeting, held in Zurich 15 April 2011, shareholders approved the adaptation of the conditional capital and authorised capital structure as described below. As of 31 December 2011, the Company has therefore the following conditional capital and authorised capital: ConditionalcapitalforEquity-LinkedFinancingInstruments The share capital of the Company shall be increased by an amount not exceeding CHF 5 000 000 through the issuance of a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10 through the voluntary or mandatory exercise of conversion and /or option rights granted in connection with bonds or similar instruments including loans or other financial instruments by the Company or Group companies of Swiss Reinsurance Company Ltd (hereinafter collectively the “Equity-Linked Financing Instruments”). Existing shareholders’ subscription rights are excluded. Authorisedcapital The Board of Directors is authorised to increase the share capital of the Company at any time up to 20 May 2013 by an amount not exceeding CHF 8 500 000 through the issuance of up to 85 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10. Increases by underwriting as well as partial increases are permitted. The date of issue, the issue price, the type of contribution and any possible acquisition of assets, the date of dividend entitlement as well as the expiry or allocation of non exercised subscription rights will be determined by the Board of Directors. With respect to a maximum of CHF 5 000 000 through the issuance of up to 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10 out of the total amount of authorised capital referred to above, the subscription rights of shareholders may not be excluded. With respect to a maximum of CHF 3 500 000 through the issuance of up to 35 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10 out of the total amount of authorised capital referred to above, the Board of Directors may exclude or restrict the subscription rights of the existing shareholders for the use of shares in connection with (i) mergers, acquisitions (including take-over) of companies, parts of companies or holdings, equity stakes (participations) or new investments planned by the Company and /or Group companies of Swiss Reinsurance Company Ltd, financing or re-financing of such mergers, acquisitions or new investments, the conversion of loans, securities or equity securities, and /or (ii) improving the regulatory capital position of the Company or Group companies of Swiss Reinsurance Company Ltd in a fast and expeditious manner if the Board of Directors deems it appropriate or prudent to do so (including by way of private placements).  SwissReinsuranceCompanyLtd2011 Annual Report 101 Financialstatements| Swiss Reinsurance Company Ltd Releaseofundisclosedreserves In the year under report, no net undisclosed reserves on investments or on provisions were released (2010: CHF 88 million). Majorshareholders As of 31 December 2011, the Company was a fully owned subsidiary of Swiss Re Ltd. Personnelinformation As of 31 December 2011, Swiss Reinsurance Company Ltd employed a worldwide staff of 3 654 (2010: 3 513). Personnel expenses for the 2011 financial year amounted to CHF 885 million (2010: CHF 967 million). Managementfeecontribution In 2011, management expenses of CHF 282 million (2010: CHF 171 million) were recharged to affiliated companies of the Company and invoiced to third parties. These recharges were reported net under “Operating costs”, “Investment expenses” and “Other expenses”. Riskassessment Article 663b sub-para. 12 of the Swiss Code of Obligations requires disclosure of information on the performance of a risk assessment. The identification, assessment and control of risk exposures of Swiss Reinsurance Company Ltd on a stand-alone basis are integrated in and covered by Swiss Re’s Group risk management organisation and processes. Details are disclosed on page 84. Outlook2012 As a result of the new Swiss Re Group corporate structure, during the first half of 2012, Swiss Reinsurance Company Ltd will transfer its investments in Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Ltd through a dividend in-kind to Swiss Re Ltd. These transfers are subject to the approval of Swiss Re’s principal regulator, Swiss Financial Market Supervisory Authority FINMA. Following these transfers, Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Ltd will no longer be subsidiaries of Swiss Reinsurance Company Ltd and will instead become direct subsidiaries of Swiss Re Ltd. 102 SwissReinsuranceCompanyLtd2011 Annual Report Financialstatements| Swiss Reinsurance Company Ltd Proposal for allocation of disposable profit/loss The Annual General Meeting of Swiss Reinsurance Company Ltd to be held in Zurich on 19 March 2012 has at its disposal the following loss: In CHF Retained earnings brought forward Profit /loss for the financial year Disposableprofit/loss 2010 50 211 859 380 219 312 430 431 171 2011 50431171 –63439410 –13008239 The Board of Directors proposes to the Annual General Meeting of Swiss Reinsurance Company Ltd to allocate the disposable loss and to pay dividends as follows: In CHF Balance carried forward Allocati on to other reserves Withdrawal from other reserves for dividend payments Reclassification of legal reserves from capital contributions to other reserves Dividend payment out of other reserves Dividend in-kind of Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Ltd out of other reserves2 Disposableprofit/loss 2010 50 431 171 380 000 000 –942 206 4381 942 206 4381 – 430 431 171 2011 –13008239 – – –6837899198 – 1028209497 5809689701 –13008239 1 The number of registered shares eligible for dividend at the dividend payment date increased since the proposal for allocation of profit, dated 22 March 2011, due to the issuance of 2 778 new registered shares from options being exercised and the transfer of 347 512 shares for employee participation purposes from not eligible to eligible for dividend. This resulted in a higher dividend of CHF 963 298 compared to the Board of Directors’ proposal. 2 Subject to FINMA approval Dividends If this Board of Directors’ proposal for allocation is accepted, the following dividends will be paid: ̤ a cash dividend of CHF 1 028 209 497 out of other reserves ̤ a dividend in-kind of Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Ltd of total CHF 5 809 689 701 out of other reserves Zurich, 15 March 2012  SwissReinsuranceCompanyLtd2011 Annual Report 103 Financialstatements| Swiss Reinsurance Company Ltd Report of the statutory auditor Report of the statutory auditor to the General Meeting of Swiss Reinsurance Company Ltd Zurich ReportofthestatutoryauditorontheFinancialStatements As statutory auditor, we have audited the financial statements of Swiss Reinsurance Company Ltd, which comprise the income statement, balance sheet and notes (pages 91 to 102), for the year ended 31 December 2011. 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 2011 comply with Swiss law and the company’s articles of incorporation. Reportonotherlegalrequirements 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 disposable profit/loss complies with Swiss law and the company’s articles of incorporation. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers AG Alex Finn Audit expert Auditor in charge Zurich, 15 March 2012 Dawn M Kink 104 SwissReinsuranceCompanyLtd2011 Annual Report Financialstatements| Swiss Reinsurance Company Ltd This page is intentionally left blank  SwissReinsuranceCompanyLtd2011 Annual Report 105 General information Cautionary note on forward-looking  statements Certain statements and illustrations contained herein are forward-looking. These statements  and illustrations provide current expectations of future events based on certain assumptions  and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as “anticipate”,  “assume”, “believe”, “continue”, “estimate”, “expect”, “foresee”, “intend”, “may increase” and  “may fluctuate” and similar expressions or by future or conditional verbs such as “will”,  “should”, “would” and “could“. These forward-looking statements involve known and  unknown risks, uncertainties and other factors, which may cause the Group’s actual results  of operations, financial condition, solvency ratios, liquidity position or prospects to be  materially different from any future results of operations, financial condition, solvency ratios,  liquidity position or prospects expressed or implied by such statements. Such factors  include, among others:  ̤ further instability affecting the global financial system and developments related thereto,  including as a result of concerns over, or adverse developments relating to, sovereign  debt of euro area countries;  ̤ further deterioration in global economic conditions;  ̤ the Group’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 due to actual or perceived  deterioration of the Group’s financial strength or otherwise;  ̤ 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 the Group’s investment assets;  ̤ changes in the Group’s investment result as a result of changes in its investment policy or  the changed composition of its 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 the Group’s balance sheet  equivalent to their 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 the Group’s hedging arrangements may not be effective;  ̤ the lowering or loss of financial strength or other ratings of Group companies, and  developments adversely affecting the Group’s ability to achieve improved ratings; 106  Swiss Reinsurance Company Consolidated 2011 Annual Report  General information | Cautionary note on forward-looking statements  ̤ the cyclicality of the reinsurance industry;  ̤ uncertainties in estimating reserves;  ̤ uncertainties in estimating future claims for purposes of financial reporting, particularly  with respect to large natural catastrophes, as significant uncertainties may be involved in  estimating losses from such events and preliminary estimates may be subject to change  as new information becomes available;  ̤ the frequency, severity and development of insured claim events;  ̤ acts of terrorism and acts of war;  ̤ mortality and morbidity experience;  ̤ policy renewal and lapse rates;  ̤ extraordinary events affecting the Group’s clients and other counterparties, such as  bankruptcies, liquidations and other credit-related events;  ̤ current, pending and future legislation and regulation affecting the Group or its ceding  companies;  ̤ legal actions or regulatory investigations or actions, including those in respect of industry  requirements or business conduct rules of general applicability;  ̤ changes in accounting standards;  ̤ significant investments, acquisitions or dispositions, and any delays, unexpected costs or  other issues experienced in connection with any such transactions;  ̤ changing levels of competition;   ̤ operational factors, including the efficacy of risk management and other internal  procedures in managing the foregoing risks; and  ̤ challenges in implementation, adverse responses of counterparties, regulators or rating  agencies, or other issues arising from, or otherwise relating to, the changes in the Group’s  corporate structure. These factors are not exhaustive. The Group operates in a continually changing environment  and new risks emerge continually. Readers are cautioned not to place undue reliance on  forward-looking statements. The Group undertakes no obligation to publicly revise or update  any forward-looking statements, whether as a result of new information, future events or  otherwise. Swiss Reinsurance Company Consolidated 2011 Annual Report  107 General information Note on risk factors General impact of adverse market conditions and deterioration in global financial markets The euro area sovereign debt crisis, coupled with weak demand and mild fiscal contraction  in the US, is slowing global growth. Recession cannot be ruled out for a number of  developed economies, and emerging markets, while continuing to expand, are doing so at a  slower pace than in 2011, or than expected. Economic developments, in the form of adverse  growth trends, and the political environment, in the form of fiscal tightening,  accommodative monetary policy and governance challenges, are resulting in low interest  rates, threats to holders of sovereign debt and holders of debt of financial institutions with  exposure to sovereign debt, and adverse trends in emerging markets.  Concerns are increasing about rising sovereign debt burdens, possible sovereign defaults  and the future of the euro, which in turn could affect economic growth rates, interest rates  and inflation. Failure to reach an early resolution of the euro area sovereign debt crisis, and  continued uncertainty over the stability of the euro and the European Monetary Union, could  increase the severity and duration of economic recession, cause more economic turmoil in  the near term, cause further disruptions in the global financial markets and impact foreign  currency exchange rates. These developments in turn could have an adverse impact on our  investment results, our ability to access the capital markets and the bank funding market,  the ability of counterparties to meet their obligations to us and the short-term outlook for the  life insurance industry, particularly in North America and Europe, with a corresponding  negative impact on our Life & Health business. Concerns over the stability of the euro could  also have a broad effect on contractual arrangements denominated in, or otherwise tied to,  the euro.  The foregoing developments could have material adverse effects on our industry and on us. Regulatory changes Swiss Reinsurance Company Ltd (“Swiss Re”) and its subsidiaries (collectively, the “Group”)  are regulated in a number of jurisdictions in which they conduct business. New legislation as  well as changes to existing legislation have been proposed and/or recently adopted in a  number of jurisdictions that are expected to alter, in a variety of ways, the manner in which  the financial services industry is regulated. Although it is difficult to predict which proposals  will become law and when and how new legislation ultimately will be implemented by  regulators (including in respect of the extraterritorial effect of reforms), it is likely that  significant aspects of existing regulatory regimes governing financial services will change.  These may include changes as to which governmental bodies regulate financial institutions,  changes in the way financial institutions generally are regulated, enhanced governmental  authority to take control over operations of financial institutions, restrictions on the conduct  of certain lines of business, changes in the way financial institutions account for transactions  and securities positions, changes in disclosure obligations and changes in the way rating  agencies rate the creditworthiness and financial strength of financial institutions.  Legislative initiatives directly impacting our industry include the establishment of a pan- European regulator for insurance companies, the European Insurance and Occupational  Pension Authority, which gained its regulatory powers on 1 January 2011 and will be able   to overrule national regulators in certain circumstances. In addition, Swiss Re is subject to  the Swiss Solvency Test, and Solvency II is currently expected to be transposed into law in  January 2013, but will not be binding on insurers until a year later in January 2014. In the  US, as a possible step towards federal oversight of insurance, the US Congress created the  Federal Insurance Office within the Department of Treasury.  Other changes are focused principally on banking institutions, but some could have direct  applicability to insurance or reinsurance operations and others could have a general impact  on the regulatory landscape for financial institutions, which might indirectly impact capital  requirements and/or required reserve levels or have other direct or indirect effects on   the Group. Changes are particularly likely to impact financial institutions designated as  108  Swiss Reinsurance Company Consolidated 2011 Annual Report  General information | Note on risk factors “systemically important”, which designation is expected to result in enhanced regulatory  supervision and heightened capital, liquidity and diversification requirements under evolving  reforms. Although, to date, the focus of reforms in respect of systemically important financial  institutions principally has been on banks, there is an emerging focus on insurance companies  as well. Swiss Re could be designated as a global systemically important financial institution.  In addition, there appears to be a trend towards a more coordinated, centralised and stricter  approach to insurance regulation specifically, in both the EU and the US.  Regulatory changes may also occur in areas of broader application, such as competition  policy and tax laws. Changes in tax laws could increase the taxes the Group pays, the  attractiveness of products offered by the Group, the Group’s investment activities and the  value of deferred tax assets. Any number of these changes could apply to the Group   and its operations. These changes could increase the costs of doing business, reduce  access to liquidity, limit the scope of business or affect the competitive balance, or could  make reinsurance less attractive to primary insurers. Market risk Volatility and disruption in the global financial markets can expose the Group 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, liquidity and capital position. 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. When  credit spreads widen, the net unrealised loss position of the Group’s investment portfolio  can increase, as could 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. The Group is also subject to equity price risk to the extent that the values of life- related benefits under certain products and life contracts, most notably variable annuity  business, are tied to financial market values; to the extent market values fall, the financial  exposure on guarantees related to these contracts would increase to the extent this  exposure is not hedged. While the Group has discontinued writing new variable annuity  business and has an extensive hedging programme covering its existing variable annuity  business, certain risks cannot be hedged, including actuarial risks, basis risk and correlation  risk. Exposure to foreign exchange risk arises from exposures to changes in spot prices and  forward prices as well as to volatile movements in exchange rates. These risks can have a significant effect on investment returns and market values of  securities positions, which in turn may affect both the Group’s results of operations and  financial condition. The Group continues to focus 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. 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 reduced risk to the portfolio by repositioning the  components of the portfolio and, as a result, profitability could potentially be impacted and,  unless offset by underwriting returns, reduced. Credit risk Although the Group has taken significant steps to de-risk its portfolio and reposition its  assets, if the credit markets were again to deteriorate and further asset classes were to be  impacted, the Group could experience further 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 were to deteriorate again, the Group could also face further  write-downs in other areas of its portfolio, including other structured instruments, and the  Swiss Reinsurance Company Consolidated 2011 Annual Report  109 General information | Note on risk factors Group and its counterparties could once again face difficulties in valuing credit-related  instruments. Differences in opinion with respect to valuations of credit-related instruments  could result in legal disputes among the Group and its counterparties as to their respective  obligations, the outcomes of which are difficult to predict and could be material. 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 this 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 also has potential collateral requirements in connection with  a number of reinsurance arrangements, the amounts of which may be material and the  meeting of which could require the Group to liquidate cash equivalents or other securities. 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 loss 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, adverse economic conditions, severe disruption in the financial and worldwide  credit markets and the related increased constraints on the availability of credit; changes in  interest rates, foreign exchange rates and credit spreads, or by perceptions among market  participants of the extent of the Group’s liquidity needs. The Group may not be able to secure new sources of liquidity or funding, should projected or  actual liquidity fall below levels it requires. The ability to meet liquidity needs through asset  sales may be constrained by market conditions and the related stress on valuations, and  through third-party funding may be limited by constraints on the general availability of credit  and willingness of lenders to lend. In addition, the Group’s ability to meet liquidity needs may  also be constrained by regulatory requirements that require regulated entities to maintain or  increase regulatory capital, or that restrict intra-Group transactions, the timing of dividend  payments from subsidiaries or the fact that certain assets may be encumbered or otherwise  non-tradable. Failure to meet covenants in lending arrangements could give rise to collateral- posting or defaults, and further constrain access to liquidity. Finally, any adverse ratings action  could trigger a need for further liquidity (for example, by triggering termination provisions or  collateral delivery requirements in contracts to which the Group is a party) at a time when the  Group’s ability to obtain liquidity from external sources is limited by such ratings action. Counterparty risks The Group’s general exposure to counterparty risk was heightened during the credit crisis,  and this risk could still 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.  110  Swiss Reinsurance Company Consolidated 2011 Annual Report  General information | Note on risk factors The Group could also be adversely affected by the insolvency of, or other credit constraints  affecting, counterparties in its reinsurance operations. Moreover, the Group could be  adversely affected by liquidity issues at ceding companies or at third parties to whom the  Group has retroceded risk, and such risk could be exacerbated to the extent any such  exposures are concentrated. The Group’s most significant single counterparty risk is in  respect of Berkshire Hathaway Inc., with which it has a quota share arrangement, an  adverse development cover and a retrocession arrangement in respect of a closed block of  US individual life reinsurance business.  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 reflect the current opinion of the relevant rating agencies. One or more  of its ratings could be downgraded or withdrawn in the future. Rating agencies may increase  the frequency and scope of ratings reviews, revise their criteria or take other actions that  may negatively impact the Group’s ratings. In addition, changes to the process or methodology  of issuing ratings, or the occurrence of events or developments affecting the Group, could  make it more difficult for the Group to achieve improved ratings which it would otherwise  have expected. 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 decline in ratings could also impact the availability and terms of unsecured  financing and 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. 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, and the potential scope of these  investigations and proceedings has also increased, not only in respect of matters covered by  our direct regulators, but also in respect of compliance with broader business conduct rules  such as market abuse regulations, anti-bribery legislation, anti-money laundering legislation  and trade sanctions legislation. The Group could be subject to risks arising from alleged,   or actual, violations of any of the foregoing, and could also be subject to risks arising 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. Insurance, operational and other 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 (including hurricanes, windstorms, floods, earthquakes, industrial  accidents, explosions, industrial actions, fires and pandemics) may expose the Group to  Swiss Reinsurance Company Consolidated 2011 Annual Report  111 General information | Note on risk factors unexpected large losses, changes in the insurance industry that affect ceding companies,  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, risks related to investments in emerging markets, 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 identify or anticipate  could have a material adverse effect on the Group. Any of the foregoing, as well as other  concerns in respect of the Group’s business, could also give rise to reputational risk. Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that  management uses, for example, as part of its risk models as well as those that affect the  reported amounts of assets, liabilities, revenues and expenses in the Group’s financial  statements, including assumed and ceded business. For example, the Group estimates  premiums pending receipt of actual data from ceding companies, which actual data could  deviate from the estimates. In addition, particularly with respect to large natural catastrophes,  it may be difficult to estimate losses, and preliminary estimates may be subject to a high  degree of uncertainty and change as new information becomes available. Deterioration in  market conditions could have an adverse impact on assumptions used for financial reporting  purposes, which could affect possible impairment of present value of future profits, fair value  of assets and liabilities, deferred acquisition costs or goodwill. To the extent that management’s  estimates or assumptions prove to be incorrect, it could have a material impact on  underwriting results (in the case of risk models) or on reported financial condition or results  of operations, and such impact could be material. The Group’s results may be impacted by changes in accounting standards, or changes in   the interpretation of accounting standards. The Group’s results may also be impacted if  regulatory authorities take issue with any conclusions the Group may reach in respect of  accounting matters. Changes in accounting standards could impact future reported results  or require restatement of past reported results. The Group uses non-GAAP financial measures in its external reporting, including in this  report. These measures are not prepared in accordance with US GAAP or any other  comprehensive set of accounting rules or principles, and should not be viewed as a  substitute for measures prepared in accordance with US GAAP. Moreover, these may be  different from or otherwise inconsistent with non-GAAP financial measures used by other  companies. These measures have inherent limitations, are not required to be uniformly  applied and are not audited. Risks related to realignment of the Swiss Re corporate structure As Swiss Re Ltd moves to fully implement the realignment of its corporate structure in 2012  by separating the Corporate Solutions business unit and the Admin Re® business unit from  the Reinsurance business unit, the Reinsurance business unit (comprised of Swiss Re and  the legal entities remaining in the Group following the separation) could face operational  risks relating to the implementation of the new structure. Following full implementation, with  a changed legal entity profile, the Reinsurance business unit and its constituent subsidiaries  will be impacted differently than would have been the case under Swiss Re’s historical  structure, including, without limitation, in respect of legal and regulatory requirements  (including as to capital and liquidity), ratings considerations, and lender and other counterparty  considerations. Among other things, the realigned Group’s asset base will change, and  capital, funding, reserve and cost allocations will be adjusted across the three business  units, as a result of which the realigned Group’s liquidity and capital profiles will likely  change and Swiss Re’s SST risk ratio may change.  112  Swiss Reinsurance Company Consolidated 2011 Annual Report  General information Corporate calendar   and contact information Corporate calendar 13 April 2012  Annual General Meeting Swiss Re Ltd 4 May 2012  First quarter 2012 results 9 August 2012  Second quarter 2012 results 8 November 2012  Third quarter 2012 results Contact information Investor Relations Telephone +41 43 285 4444 Fax +41 43 282 4444 investor_relations@swissre.com Media Relations Telephone +41 43 285 7171 Fax +41 43 282 7171 media_relations@swissre.com Share Register Telephone +41 43 285 3294 Fax +41 43 282 3294 share_register@swissre.com © 2012 Swiss Re. All rights reserved. Title: Swiss Reinsurance Company Consolidated 2011 Annual Report  Production: Logistics /Media Production This report is available only at: www.swissre.com  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 

Continue reading text version or see original annual report in PDF format above