Swiss Reinsurance Company
Consolidated
2015 Annual Report
Contents
Group financial statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of shareholder’s equity
Statement of cash flow
Notes to the Group financial statements
Note 1 Organisation and summary of significant accounting policies
Note 2 Information on business segments
Note 3 Insurance information
Note 4 Premiums written
Note 5 Unpaid claims and claim adjustment expenses
Note 6 Deferred acquisition costs (DAC) and acquired present value
of future profits (PVFP)
Note 7 Investments
Note 8 Fair value disclosures
Note 9 Derivative financial instruments
Note 10 Disposals
Note 11 Debt and contingent capital instruments
Note 12 Income taxes
Note 13 Benefit plans
Note 14 Share-based payments
Note 15 Related parties
Note 16 Commitments and contingent liabilities
Note 17 Variable interest entities
Note 18 Restructuring provision
Report of the statutory auditor
Swiss Reinsurance Company Ltd
Annual Report
Income statement
Balance sheet
Notes
Proposal for allocation of disposable profit
Report of the statutory auditor
General Information
Cautionary note on forward-looking statements
Note on risk factors
2
2
3
4
6
7
8
8
17
28
31
32
34
35
43
56
60
61
64
68
76
79
82
83
87
88
90
90
96
98
100
112
113
114
114
116
Financial Statements I Group Financial Statements
Income statement
For the years ended 31 December
USD millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income – non-participating business
Net realised investment gains/losses – non-participating business1
Net investment result – unit-linked and with-profit business
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
Interest on contingent capital instruments
Net income attributable to common shareholder
Note
2014
2015
3
3
7
7
7
3
3
3
12
26 992
163
3 187
550
75
60
31 027
–8 523
–9 602
–450
–5 920
–2 458
–713
–27 666
3 361
–395
2 966
–1
2 965
–69
2 896
26 139
145
2 787
1 028
42
57
30 198
–7 893
–8 559
–386
–5 865
–2 593
–553
–25 849
4 349
–524
3 825
–1
3 824
–68
3 756
1 Total impairments for the years ended 31 December were USD 35 million in 2014 and USD 51 million in 2015, of which USD 35 million and USD 51 million, respectively,
were recognised in earnings.
The accompanying notes are an integral part of the Group financial statements.
2 Swiss Reinsurance Company Consolidated 2015 Annual Report
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 investment 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
Interest on contingent capital instruments
Comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to common shareholder
Reclassification out of accumulated other comprehensive income
For the years ended 31 December
2014
2 966
2 721
3
–734
–291
4 665
–69
–1
4 595
2015
3 825
–1 843
–7
–876
–191
908
–68
–1
839
2014
USD millions
Balance as of 1 January
Change during the period
Amounts reclassified out of accumulated other
comprehensive income
Tax
Balance as of period end
Unrealised
investment
gains/losses1
741
4 846
–1 107
–1 018
3 462
Other-than-
temporary
impairment1
–6
4
Foreign currency
translation1,2
–3 527
–498
Adjustment from
pension benefits3
–471
–417
Accumulated other
comprehensive
income
–3 263
3 935
–1
–3
–41
–195
–4 261
31
95
–762
–1 117
–1 119
–1 564
The accompanying notes are an integral part of the Group financial statements.
2015
USD millions
Balance as of 1 January
Change during the period
Amounts reclassified out of accumulated other
comprehensive income
Tax
Balance as of period end
Unrealised
investment
gains/losses1
3 462
–1 385
–1 201
743
1 619
Other-than-
temporary
impairment1
–3
–9
Foreign currency
translation1,2
–4 261
–727
Adjustment from
pension benefits3
–762
–309
Accumulated other
comprehensive
income
–1 564
–2 430
2
–10
–149
–5 137
70
48
–953
–1 131
644
–4 481
1 Reclassification adjustment included in net income is presented in the "Net realised investment gains/losses – non-participating business" line.
2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign
entity.
3 Reclassification adjustment included in net income is presented in the "’Other expenses" line.
The accompanying notes are an integral part of the Group financial statements.
Swiss Reinsurance Company Consolidated 2015 Annual Report 3
Financial Statements I Group Financial Statements
Balance sheet
As of 31 December
Assets
USD millions
Investments
Fixed income securities:
Available-for-sale, at fair value (including 12 325 in 2014 and 10 839 in 2015 subject to
securities lending and repurchase agreements)
(amortised cost: 2014: 60 600; 2015: 59 137)
Trading (including 645 in 2014 and 1 729 in 2015 subject to securities lending and
repurchase agreements)
Equity securities:
Available-for-sale, at fair value (including 190 in 2014 and 439 in 2015 subject to securities
lending and repurchase agreements) (cost: 2014: 1 975; 2015: 2 876)
Trading
Policy loans, mortgages and other loans
Investment real estate
Short-term investments, at fair value (including 2 025 in 2014 and 417 in 2015 subject to
securities lending and repurchase agreements)
Other invested assets
Investments for unit-linked and with-profit business (equity securities trading: 894 in 2014 and
818 in 2015)
Total investments
Cash and cash equivalents (including 45 in 2014 and 181 in 2015 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
Deferred tax assets
Other assets
3
6
6
12
Note
7, 8, 9
2014
2015
65 127
61 134
2 219
2 896
2 396
65
3 908
881
10 520
7 353
894
93 363
5 855
721
10 340
5 346
12 173
4 480
1 899
3 916
109
5 206
2 895
3 091
68
3 832
1 550
4 662
7 861
818
85 912
5 398
670
9 747
4 523
10 668
5 084
1 721
3 756
112
5 269
2 331
Total assets
146 303
135 191
The accompanying notes are an integral part of the Group financial statements.
4 Swiss Reinsurance Company Consolidated 2015 Annual Report
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 tax liabilities
Short-term debt
Accrued expenses and other liabilities
Long-term debt
Total liabilities
Equity
Contingent capital instruments
Common shares CHF 0.10 par value
2014: 344 052 565; 2015: 344 052 565 shares authorised and issued
Additional paid-in capital
Shares in Swiss Re Ltd, net of tax
Accumulated other comprehensive income:
Net unrealised investment gains/losses, net of tax
Other-than-temporary impairment, net of tax
Foreign currency translation, net of tax
Adjustment for pension and other post-retirement benefits, net of tax
Total accumulated other comprehensive income
Retained earnings
Shareholder’s equity
Non-controlling interests
Total equity
Total liabilities and equity
The accompanying notes are an integral part of the Group financial statements.
Note
2014
2015
8
12
11
11
11
52 177
19 284
6 610
7 825
3 083
1 966
802
7 490
4 959
8 016
11 265
123 477
1 102
32
8 823
–10
3 462
–3
–4 261
–762
–1 564
14 421
22 804
22
22 826
49 718
16 779
5 358
8 044
3 041
1 858
272
6 771
4 105
8 964
9 674
114 584
1 102
32
8 730
–21
1 619
–10
–5 137
–953
–4 481
15 222
20 584
23
20 607
146 303
135 191
Swiss Reinsurance Company Consolidated 2015 Annual Report 5
Financial Statements I Group Financial Statements
Statement of shareholder’s equity
For the years ended 31 December
USD millions
Contingent capital instruments
Balance as of 1 January
Issued
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
Balance as of period end
Shares in Swiss Re Ltd, net of tax
Balance as of 1 January
Change of shares in Swiss Re Ltd
Balance as of period end
Net unrealised investment gains/losses, net of tax
Balance as of 1 January
Changes during the period
Balance as of period end
Other-than-temporary impairment, net of tax
Balance as of 1 January
Changes during the period
Balance as of period end
Foreign currency translation, net of tax
Balance as of 1 January
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
Changes during the period
Balance as of period end
Retained earnings
Balance as of 1 January
Net income after attribution of non-controlling interests
Interest on contingent capital instruments, net of tax
Dividends on common shares and dividends-in-kind
Balance as of period end
Shareholder’s 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
The accompanying notes are an integral part of the Group financial statements.
6 Swiss Reinsurance Company Consolidated 2015 Annual Report
2014
2015
1 102
1 102
32
32
8 853
–35
5
8 823
–148
138
–10
741
2 721
3 462
–6
3
–3
–3 527
–734
–4 261
–471
–291
–762
14 660
2 965
–69
–3 135
14 421
22 804
25
–4
1
22
22 826
1 102
1 102
32
32
8 823
16
–109
8 730
–10
–11
–21
3 462
–1 843
1 619
–3
–7
–10
–4 261
–876
–5 137
–762
–191
–953
14 421
3 824
–68
–2 955
15 222
20 584
22
1
23
20 607
Statement of cash flow
For the years ended 31 December
USD millions
Cash flows from operating activities
Net income attributable to common shareholder
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 items
Net realised investment gains/losses
Income from equity-accounted investees, net of dividends received
Change in:
Technical provisions and other reinsurance assets and liabilities, net1
Funds held by ceding companies and under reinsurance treaties
Reinsurance recoverable on unpaid claims and policy benefits
Other assets and liabilities, net
Income taxes payable/recoverable
Trading positions, net1,2
Net cash provided/used by operating activities
Cash flows from investing activities
Fixed income securities:
Sales
Maturities
Purchases
Net purchases/sales/maturities of short-term investments
Equity securities:
Sales
Purchases
Securities purchased/sold under agreement to resell/repurchase, net1
Cash paid/received for acquisitions/disposal and reinsurance transactions, net
Net purchases/sales/maturities of other investments1,2
Net purchases/sales/maturities of investments held for unit-linked and with-profit business2
Net cash provided/used by investing activities
Cash flows from financing activities
Policyholder account balances, unit-linked and with-profit business:2
Deposits
Withdrawals
Issuance/repayment of long-term debt
Issuance/repayment of short-term debt
Purchase/sale of shares in Swiss Re Ltd
Dividends paid to parent
Net cash provided/used by financing activities
Total net cash provided/used
Effect of foreign currency translation
Change in cash and cash equivalents
Cash and cash equivalents as of 1 January
Cash and cash equivalents as of 31 December
2014
2015
2 896
1
322
–588
1
–1 092
557
972
–218
–58
–8
2 785
48 287
3 384
–59 378
6 545
5 985
–2 428
219
39
–572
76
2 157
6
–121
37
–1 501
32
–3 120
–4 667
275
–303
–28
5 883
5 855
3 756
1
455
–1 032
70
–200
927
654
–152
–478
319
4 320
39 166
3 721
–47 708
5 106
1 256
–2 010
–2 046
177
2 623
32
317
21
–93
200
–1 945
–2
–2 961
–4 780
–143
–314
–457
5 855
5 398
1 The Group reviewed the nature of certain items within the statement of cash flow. "Securities purchased/sold under agreement to resell/repurchase, net" were reclassified
from the operating cash flow to the investing cash flow, and certain investment related cash flows were reclassified from "Trading positions, net" in the operating cash flow to
"Net purchases/sales/maturities of other investments" in the investing cash flow. Comparatives are adjusted accordingly.
2 The Group changed the presentation of its investments related to unit-linked and with-profit business, and related deposits and withdrawals were reclassified from
"Technical provisions, net" in the operating cash flow to "Policyholder account balances, unit-linked and with-profit business" in the financing cash flow. Comparatives are
adjusted accordingly.
Interest paid was USD 891 million and USD 652 million for years ended 31 December 2014 and 2015, respectively.
Tax paid was USD 444 million and USD 981 million for the years ended 31 December 2014 and 2015, respectively.
The accompanying notes are an integral part of the Group financial statements.
Swiss Reinsurance Company Consolidated 2015 Annual Report 7
Financial Statements I Group Financial Statements
Notes to the Group financial statements
1 Organisation and summary of significant accounting policies
Nature of operations
Swiss Reinsurance Company Ltd (“SRZ”) and its subsidiaries (collectively, the “Group”) are a wholesale provider of reinsurance,
insurance and other insurance-based forms of risk transfer. Working through brokers and a network of offices around the globe,
the Group serves a client base made up of insurance companies and public sector clients.
SRZ is a wholly owned subsidiary of Swiss Re Ltd. Swiss Re Ltd is the ultimate parent company of the Swiss Re Group, which
consists of four business segments: Property & Casualty Reinsurance, Life & Health Reinsurance, Corporate Solutions and Admin
Re®. The presentation of each segment’s balance sheet is closely aligned with the segment legal entity structure.
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 intra-group transactions and
balances have been eliminated on consolidation.
Principles of consolidation
The Group’s financial statements include the consolidated financial statements of SRZ and its subsidiaries. Voting entities which
SRZ 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 it directly or indirectly exercises significant influence, are accounted for using the equity method or the
fair value option 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.
Foreign currency remeasurement and translation
Transactions denominated in foreign currencies are remeasured to the respective subsidiary’s functional currency at average
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 shareholder’s 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 shareholder’s equity.
8 Swiss Reinsurance Company Consolidated 2015 Annual Report
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- 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. Although management considers that appropriate values
have been ascribed to such assets, there is always a level of uncertainty and judgement 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 2015, 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
the applicable measure of cost and fair value being recognised in shareholder’s equity. Trading fixed income and equity
securities are carried at fair value with unrealised gains and losses being recognised in earnings. A trading classification is used
for securities that are bought and held principally for the purpose of selling them in the near term or for securities where the
Group has decided to apply the fair value option.
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 in earnings.
For fixed income securities AFS that 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 recognised as investment income on 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.
Swiss Reinsurance Company Consolidated 2015 Annual Report 9
Financial Statements I Group Financial Statements
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. Depreciation on buildings is recognised on a straight-line basis over the estimated useful
life of the asset. Land is recognised at cost and not depreciated. 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 measured at fair value with changes in fair value recognised in net income. 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, deposits and time deposits, 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 shareholder’s equity.
The Group enters into securities 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. Securities 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 existing 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. Changes in fair value on derivatives that are not designated as hedging instruments are recorded in income.
If the derivative is designated as a hedge of the fair value of assets or liabilities, changes in the fair value of the derivative are
recognised in earnings, together with changes in the fair value of the related hedged item. If the derivative is designated as a
hedge of the variability in expected future cash flows related to a particular risk, changes in the fair value of the derivative are
reported in other comprehensive income until the hedged item is recognised in earnings. The ineffective portion of the hedge
is recognised in earnings. When hedge accounting is discontinued on a cash flow hedge, the net gain or loss remains in
accumulated other comprehensive income and is reclassified to earnings in the period in which the formerly hedged transaction
is reported in earnings. When the Group discontinues hedge accounting because it is no longer probable that a forecasted
transaction will occur within the required time period, the derivative continues to be carried on the balance sheet at fair value,
and gains and losses that were previously recorded in accumulated other comprehensive income are recognised in earnings.
The Group recognises separately derivatives that are embedded within other host instruments if the economic characteristics
and risks are not clearly and closely related to the economic characteristics and risks of the host instrument and if it meets the
definition of a derivative if it were a free-standing contract.
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 and 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 and derivative monetary financial instruments and translation gains and losses
on the hedged net investment are reported as translation gains and losses in shareholder’s equity.
10 Swiss Reinsurance Company Consolidated 2015 Annual Report
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
The Group incurs costs in connection with acquiring new and renewal reinsurance and insurance business. Some of these costs,
which consist primarily of commissions, are deferred as they are directly related to the successful acquisition of such business.
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.
Modifications of insurance and reinsurance contracts
The Group accounts for modifications of insurance and reinsurance contracts that result in a substantially unchanged contract
as a continuation of the replaced contract. The associated deferred acquisition costs and present value of future profits (PVFP)
will continue to be amortised. The Group accounts for modifications of insurance and reinsurance contracts that result in a
substantially changed contract as an extinguishment of the replaced contract. The associated deferred acquisition costs or
PVFP are written off immediately through income and any new deferrable costs associated with the replacement contract
are deferred.
Business combinations
The Group applies the acquisition 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.
The underlying assets and liabilities acquired are subsequently accounted for according to the relevant GAAP guidance. This
includes specific requirements applicable to subsequent accounting for assets and liabilities recognised as part of the acquisition
method of accounting, including present value of future profits, goodwill and other intangible assets.
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. The earned rate corresponds to either the current earned rate or the original earned rate
depending on the business written. The rate is consistently applied for the entire life of the applicable business. 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 or in other comprehensive
income for shadow loss recognition.
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, prepaid reinsurance premiums, receivables related to
investing activities, real estate for own use, other classes of 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.
Real estate for own use as well as other classes of property, plant and equipment are carried at depreciated cost. Depreciation
on buildings is recognised on a straight-line basis over the estimated useful life of the asset. Land is recognised at cost and not
depreciated.
Swiss Reinsurance Company Consolidated 2015 Annual Report 11
Financial Statements I Group Financial Statements
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.
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.
The Group recognizes the effect of income tax positions only if sustaining those positions is more likely than not. Changes in
recognition or measurement are reflected in the period in which a change in judgement occurs.
Unpaid claims and claim adjustment expenses
Liabilities for unpaid claims and claim adjustment expenses for property and casualty and life and health insurance and
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 judgements made by management, and therefore there can be no assurance that ultimate claims and claim
adjustment expenses will not exceed the loss reserves currently established. These estimates are regularly reviewed, and
adjustments for differences between estimates and actual payments for claims and for changes in estimates are reflected in
income in the period in which the estimates are changed or payments are made.
The Group does not discount liabilities arising from prospective property and casualty insurance and reinsurance contracts,
including liabilities which are discounted for US statutory reporting purposes. Liabilities arising from property and casualty
insurance and reinsurance contracts acquired in a business combination are initially recognised at fair value in accordance with
the acquisition method of accounting. The Group does not discount life and health claim reserves except for disability income
claims in payment which are recognised at the estimated present value of the remaining ultimate net costs of the incurred
claims.
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 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 rate assumptions for life
and health (re)insurance benefit liabilities are based on estimates of expected investment yields. Assumed mortality rates are
generally based on experience multiples applied to the actuarial select and ultimate tables based on industry experience.
Liabilities for life and health policy benefits are increased with a charge to earnings if it is determined that future cash flows,
including investment income, are insufficient to cover future benefits and expenses. Where assets backing liabilities for policy
benefits are held at available for sale these liabilities for policyholder benefits are increased by a shadow adjustment, with a
charge to other comprehensive income, where future cash flows at market rates are insufficient to cover future benefits and
expenses.
Policyholder account balances
Policyholder account balances relate to universal life-type contracts and investment contracts.
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, i.e. 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 except for investments for unit-linked and with-profit
business, which are presented in a separate line item on the face of the balance sheet.
12 Swiss Reinsurance Company Consolidated 2015 Annual Report
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 except for unit-linked
and with-profit business which is presented in a separate line item on the face of the income statement.
Unit-linked and with-profit business are presented together as they are similar in nature. For unit-linked contracts, the investment
risk is borne by the policyholder. For with-profit contracts, the majority of the investment risk is also borne by the policyholder,
although there are certain guarantees that limit the down-side risk for the policyholder, and a certain proportion of the returns
may be retained by Swiss Re Group (typically 10%). Additional disclosures are provided in Note 7.
Funds held assets and liabilities
On the asset side, funds held by ceding companies consist mainly of amounts retained by the ceding company for business
written on a funds withheld basis. In addition, the account also includes amounts arising from the application of the deposit
method of accounting to ceded retrocession or reinsurance contracts.
On the liability side, funds held under reinsurance treaties consist mainly of amounts arising from the application of the deposit
method of accounting to inward insurance and reinsurance contracts. In addition, the account also includes amounts retained
from ceded business written on a funds withheld basis.
Funds withheld assets are assets that would normally be paid to the Group but are withheld by the cedent to reduce a potential
credit risk or to retain control over investments. In case of funds withheld liabilities, it is the Group that withholds assets related to
ceded business in order to reduce its credit risk or retain control over the investments.
The deposit method of accounting is applied to insurance and reinsurance contracts that do not indemnify the ceding company
or the Group against loss or liability relating to insurance risk. Under the deposit method of accounting, the deposit asset or
liability is initially measured based on the consideration paid or received. For contracts that transfer neither significant timing nor
underwriting risk, and contracts that transfer only significant timing risk, changes in estimates of the timing or amounts of cash
flows are accounted for by recalculating the effective yield. The deposit is then adjusted to the amount that would have existed
had the new effective yield been applied since the inception of the contract. The revenue and expense recorded for such
contracts is included in net investment income. For contracts that transfer only significant underwriting risk, once a loss is
incurred, the deposit is adjusted by the present value of the incurred loss. At each subsequent balance sheet date, the portion of
the deposit attributable to the incurred loss is recalculated by discounting the estimated future cash flows. The resulting changes
in the carrying amount of the deposit are recognised in claims and claim adjustment expenses.
Funds withheld balances are presented together with assets and liabilities arising from the application of the deposit method
because of their common deposit type character.
Shadow adjustments
Shadow adjustments are recognized in other comprehensive income reflecting the offset of adjustments to deferred acquisition
costs and PVFP, typically related to universal life-type contracts, and policyholder liabilities. The purpose is to reflect the fact that
certain amounts recorded as unrealised investment gains and losses within shareholder’s equity will ultimately accrue to
policyholders and not the shareholder.
Shadow loss recognition testing becomes relevant in low interest rate environments. The test considers whether the hypothetical
sale of AFS securities and the reinvestment of proceeds at lower yields would lead to negative operational earnings in future
periods, thereby causing a loss recognition event. For shadow loss recognition testing, the Group uses current market yields to
determine best estimate GAAP reserves rather than using locked in or current book yields. If the unlocked best estimate GAAP
reserves based on current market rates are in excess of reserves based on locked in or current book yields, a shadow loss
recognition reserve is set up. These reserves are recognised in other comprehensive income and do not impact net income.
In addition, shadow loss recognition reserves can reverse up to the amount of losses recognised due to past loss events.
Swiss Reinsurance Company Consolidated 2015 Annual Report 13
Financial Statements I 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.
Reinstatement premiums are due where coverage limits for the remaining life of the contract are reinstated under pre-defined
contract terms. The recognition of reinstatement premiums as written depends on individual contract features. Reinstatement
premiums are either recognised as written at the time a loss event occurs or in line with the recognition pattern of premiums
written of the underlying contract. The accrual of reinstatement premiums is based on actuarial estimates of ultimate losses.
Reinstatement premiums are generally earned in proportion to the amount of reinsurance provided.
Insurance and 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 balance sheet.
The Group provides reserves for uncollectible amounts on reinsurance balances ceded, based on management’s assessment
of the collectability 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 the age of the receivable and/or any 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
As of 31 December 2015, the Group had a Leadership Performance Plan, stock option plans, restricted shares, an Employee
Participation Plan, and a Global Share Participation Plan. These plans are described in more detail in Note 14. The Group
accounts for share-based payment transactions with employees using the fair value method. Under the fair value method,
the fair value of the awards is recognised in earnings over the vesting period.
For share-based compensation plans which are settled in cash, compensation costs are recognised as liabilities, whereas for
equity-settled plans, compensation costs are recognised as an accrual to additional paid-in capital within shareholder’s equity.
Shares in Swiss Re Ltd
Shares in Swiss Re Ltd are reported at cost in shareholder’s equity. Shareholder’s equity also includes stand-alone derivative
instruments indexed to the Swiss Re Ltd shares held by the Group that meet the requirements for classification in shareholder’s
equity.
Subsequent events
Subsequent events for the current reporting period have been evaluated up to 15 March 2016. This is the date on which the
financial statements are available to be issued.
14 Swiss Reinsurance Company Consolidated 2015 Annual Report
Recent accounting guidance
In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-01,
“Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force)”, an
update to topic 323, “Investments — Equity Method and Joint Ventures”. The Low Income Housing Tax Credit, a program created
under the US Tax Reform Act of 1986, offers US federal tax credits to investors that provide capital to facilitate the development,
construction, and rehabilitation of low-income rental property. ASU 2014-01 modifies the conditions that must be met to
present the pre-tax effects and related tax benefits of investments in qualified affordable housing projects as a component of
income. Investors that do not qualify for “net” presentation under the new guidance will continue to account for such investments
under the equity method or cost method, which results in losses recognised in pre-tax income and tax benefits recognised in
income taxes. For investments that qualify for the “net” presentation of investment performance, the ASU introduces a
“proportional amortization method” that can be elected to amortise the investment basis. The Group adopted ASU 2014-01
on 1 January 2015. The adoption did not have a material effect on the Group’s financial statements.
In January 2014, the FASB issued ASU 2014-04, “Reclassification of Residential Real Estate Collateralized Consumer Mortgage
Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force)”, an update to subtopic 310-40, “Receivables —
Troubled Debt Restructurings by Creditors”. ASU 2014-04 applies to creditors who obtain physical possession resulting from an
in substance repossession or foreclosure of residential real estate property collateralising a consumer mortgage loan in
satisfaction of a receivable. Existing guidance requires a creditor to reclassify a collateralised mortgage loan with the result that
the loan is derecognised and the collateral asset recognised when there has been in substance repossession or foreclosure by
the creditor. The ASU provides additional guidance on when a creditor is considered to have received physical possession from
an in substance repossession. The Group adopted ASU 2014-04 on 1 January 2015. The adoption did not have an effect on the
Group’s financial statements.
In April 2014, the FASB issued ASU 2014-08, “Reporting Discontinued Operations and Disclosures of Disposals of Components
of an Entity”, an update to topics 205, “Presentation of Financial Statements” and 360, “Property, Plant and Equipment”. ASU
2014-08 amends the definition of a discontinued operation and requires entities to provide additional disclosures about disposal
transactions that do not meet the discontinued-operations criteria. The new guidance eliminates two of the three existing criteria
for classifying components of an entity as discontinued operations and instead requires discontinued operations treatment for
disposals of a component or group of components that represents a strategic shift that has or will have a major impact on an
entity’s operations or financial results. The ASU also expands the discontinued operations classification to include disposals of
equity method investments and acquired businesses held for sale. The ASU also requires entities to reclassify assets and
liabilities of a discontinued operation for all comparative periods presented in the statement of financial position. The Group is
applying the new requirements on a prospective basis to transactions occurring after 1 January 2015. The adoption did not have
an effect on the Group’s financial statements.
In June 2014, the FASB issued ASU 2014-11, “Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”,
an update to topic 860, “Transfers and Servicing”. ASU 2014-11 requires entities to account for repurchase-to-maturity
transactions as secured borrowings rather than as sales with forward repurchase agreements and eliminates previously issued
accounting guidance on linked repurchase financing transactions. The ASU includes new disclosure requirements for
transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the
economic return on the transferred financial assets throughout the term of the transaction. These requirements of ASU 2014-11
were adopted on 1 January 2015 and the adoption did not have an effect on the Group’s financial statements. In addition, for
transactions accounted for as secured borrowings, including repurchase agreements and securities lending transactions, the
ASU requires entities to provide disclosures that disaggregate the related gross obligation by class of collateral pledged, disclose
the remaining contractual maturity of the agreements and to provide information on the potential risks of these arrangements
and related collateral pledged. In line with the specific effective date provided in the ASU, the Group adopted the new disclosure
requirements for the interim period ending 30 June 2015 and applicable portions of the new disclosure requirements are
provided in Note 7.
In June 2014, the FASB issued ASU 2014-12, “Accounting for Share-Based Payments When the Terms of an Award Provide That
a Performance Target Could Be Achieved after the Requisite Service Period”, an update to topic 718, “Compensation – Stock
Compensation”. ASU 2014-12 states that a performance target that affects vesting of a share-based payment and that could be
achieved after the requisite service period is a performance condition, and therefore, the target is not reflected in the estimation
of the award’s grant date fair value. Compensation cost for such an award would be recognised over the required service period
if it is probable that the performance condition will be achieved. The Group adopted ASU 2014-12 on 1 January 2015. The
adoption did not have an effect on the Group’s financial statements.
Swiss Reinsurance Company Consolidated 2015 Annual Report 15
Financial Statements I Group Financial Statements
In August 2014, the FASB issued ASU 2014-14, “Classification of Certain Government-Guaranteed Mortgage Loans upon
Foreclosure”, an update to subtopic 310-40, “Receivables — Troubled Debt Restructurings by Creditors”. ASU 2014-14 affects
creditors that hold government-guaranteed mortgage loans. The ASU requires that a mortgage loan be derecognised and that a
separate other receivable be recognised upon foreclosure if specific conditions are met, including that the guarantee is not
separable from the loan before foreclosure. Upon foreclosure, the separate other receivable should be measured based on the
amount of the loan balance expected to be recovered from the guarantor. The Group adopted ASU 2014-14 on 1 January 2015.
The adoption did not have an effect on the Group’s financial statements.
In May 2015, the FASB issued ASU 2015-09, “Disclosures about Short-Duration Contracts”, an update to topic 944, “Financial
Services — Insurance”. ASU 2015-09 requires an insurance entity to provide additional information about insurance liabilities,
including information on the nature, amount, timing, and uncertainty of future cash flows related to insurance liabilities and the
effect of those cash flows on the statement of comprehensive income. Requirements include disaggregated incurred and paid
claims development information by accident year, on a net basis after risk mitigation, for at least the most recent 10 years with
the periods preceding the current period considered required supplementary information. In addition, for each accident year
presented in the claims development tables, an insurer has to provide disaggregated information about claim frequency (unless
impracticable) and the amounts of incurred-but-not-reported (IBNR) liabilities plus the expected development on reported
claims. Required disclosures also include a description of the methods for determining both IBNR and expected development on
reported claims as well as information about any significant changes in methods and assumptions used in the computation of
the liability for unpaid claims and claim adjustment expenses, including reasons for the changes and the impact of the changes
on the most recent reporting period in the financial statements. All aforementioned disclosures have to be provided on an annual
basis. In addition, insurance entities must disclose the roll-forward of the liability for unpaid claims and claim adjustment
expenses in both interim and annual periods. The Group will adopt the annual disclosure requirements for the annual reporting
period ending on 31 December 2016, and the interim disclosure requirements for the quarter ending on 31 March 2017. The
Group has set up a project to implement the new requirements.
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities“,
an update to subtopic 825-10, “Financial Instruments – Overall“. The ASU requires an entity to carry investments in equity
securities, including other ownership interests and limited liability companies at fair value through net income, with the exception
of equity method investments, investments that result in consolidation or investments for which the entity has elected the
practicability exception to fair value measurement. The practicability exception can only be applied by certain entities and only to
equity investments without a readily determinable fair value. Investments under the practicability exception will be subject to an
indicator-based impairment test. For financial liabilities to which the fair value option has been applied, the ASU also requires an
entity to separately present the change in fair value attributable to instrument-specific credit risk in other comprehensive income
rather than in net income. Specific exceptions apply to this requirement. In addition, the ASU requires an entity to assess whether
a valuation allowance is needed on a deferred tax asset (DTA) related to fixed income securities AFS in combination with the
entity‘s other DTA‘s rather than separately from other DTAs. The ASU also introduces changes to disclosure requirements for
financial instruments not measured at fair value and introduces new requirements for equity instruments where the practicability
exception to fair value measurement is applied. The new requirements are effective for annual and interim periods beginning
after 15 December 2017 with early adoption permitted for requirements relating to the presentation of the impact of instrument-
specific credit risk on qualifying financial liabilities in other comprehensive income. The Group is currently assessing the impact
of the new requirements.
16 Swiss Reinsurance Company Consolidated 2015 Annual Report
2 Information on business segments
The Group provides reinsurance and insurance 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 performance of
the Group.
The Group presents two core operating business segments: Property & Casualty Reinsurance and Life & Health Reinsurance. The
presentation of each segment’s balance sheet is closely aligned to the segment legal entity structure. The assignment of assets
and liabilities for entities that span more than one segment is determined by considering local statutory requirements, legal and
other constraints, the economic view of duration and currency requirements of the reinsurance business written, and the
capacity of the segments to absorb risks. Interest expense is based on the segment’s capital funding position. The tax impact of
a segment is derived from the legal entity tax obligations and the segmentation of the pre-tax result. While most of the tax items
can be directly attributed to individual segments, the tax which impacts two or more segments is allocated to the segments on
a reasonable basis. Property & Casualty Reinsurance and Life & Health Reinsurance share the same year-to-date effective tax rate
as both business segments belong to the Reinsurance Business Unit.
Accounting policies applied by the business segments are in line with those described in the summary of significant accounting
policies (please refer to Note 1).
The Group operating segments are outlined below.
Property & Casualty Reinsurance and Life & Health Reinsurance
Reinsurance consists of two segments, Property & Casualty and Life & Health. The Reinsurance business operates globally, both
through brokers and directly with clients, and provides a large range of solutions for risk and capital management. Clients include
insurance companies and mutual as well as public sector and governmental entities. As well as traditional reinsurance solutions,
the business unit offers insurance linked securities and other insurance related capital market products in both
Property & Casualty and Life & Health.
Property & Casualty includes the business lines property, casualty (including motor), and specialty. Life & Health includes the life
and health lines of business.
Other
Items not allocated to the business segments are included in the “Other” column which encompasses non-core activities. The
“Other” column includes 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.
Consolidation
Segment information is presented net of external and internal retrocession and other intra-group arrangements. The Group
total is obtained after elimination of intra-group transactions in the “Consolidation” column. In the periods presented, significant
intra-group transactions related to intra-group reinsurance arrangements and certain treasury-related activities are included.
Swiss Reinsurance Company Consolidated 2015 Annual Report 17
Financial Statements I Group Financial Statements
a) Business segments – income statement
For the year ended 31 December
2014
USD millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income –
non-participating business
Net realised investment gains/losses –
non-participating business
Net investment result –
unit-linked and with-profit business
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Income/loss before income tax expense
Income tax expense/benefit
Net income/loss before attribution of non-
controlling interests
Income attributable to non-controlling interests
Net income/loss after attribution of
non-controlling interests
Interest on contingent capital instruments
Net income/loss attributable to
common shareholder
Claims ratio in %
Expense ratio in %
Combined ratio in %
Management expense ratio in %
Operating margin in %
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
182
110
545
106
15
958
–32
–406
–351
–49
–398
–22
–1 258
–300
94
–206
–206
–206
26 992
163
3 187
550
75
60
31 027
–8 523
–9 602
–450
–5 920
–2 458
–713
–27 666
3 361
–395
2 966
–1
2 965
–69
2 896
22
–24
–2
2
–2
2
2
0
0
0
0
15 598
1 076
699
69
17 442
–8 493
–3 382
–1 175
–255
–13 305
4 137
–552
3 585
–1
3 584
–20
3 564
54.5
29.2
83.7
11 212
53
1 544
–255
75
12 629
–9 194
–99
–2 489
–885
–438
–13 105
–476
63
–413
–413
–49
–462
6.9
2.6
18 Swiss Reinsurance Company Consolidated 2015 Annual Report
Business segments – income statement
For the year ended 31 December
2015
USD millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income –
non-participating business
Net realised investment gains/losses –
non-participating business
Net investment result –
unit-linked and with-profit business
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
Income/loss before income tax expense
Income tax expense/benefit
Net income/loss before attribution of non-
controlling interests
Income attributable to non-controlling interests
Net income/loss after attribution of
non-controlling interests
Interest on contingent capital instruments
Net income/loss attributable to
common shareholder
Claims ratio in %
Expense ratio in %
Combined ratio in %
Management expense ratio in %
Operating margin in %
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
135
96
359
273
13
876
–1
–269
–326
–43
–443
–19
–1 101
–225
65
–160
–160
–160
15 090
10 914
49
1 097
1 331
445
310
45
16 677
–7 892
–3 836
–1 247
–262
–13 237
3 440
–443
2 997
–1
2 996
–19
2 977
52.3
33.7
86.0
42
5
12 651
–8 290
–60
–1 986
–903
–278
–11 517
1 134
–146
988
988
–49
939
7.3
9.9
26 139
145
2 787
1 028
42
57
30 198
–7 893
–8 559
–386
–5 865
–2 593
–553
–25 849
4 349
–524
3 825
–1
3 824
–68
3 756
–6
–6
6
6
0
0
0
0
Swiss Reinsurance Company Consolidated 2015 Annual Report 19
Financial Statements I Group Financial Statements
Business segments – balance sheet
As of 31 December
2014
USD millions
Total assets
2015
USD millions
Total assets
Property & Casualty
Reinsurance
80 745
Life & Health
Reinsurance
57 121
Other
15 595
Consolidation
–7 158
Total
146 303
Property & Casualty
Reinsurance
78 176
Life & Health
Reinsurance
55 703
Other
11 897
Consolidation
–10 585
Total
135 191
20 Swiss Reinsurance Company Consolidated 2015 Annual Report
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Swiss Reinsurance Company Consolidated 2015 Annual Report 21
Financial Statements I Group Financial Statements
b) Property & Casualty Reinsurance business segment – by line of business
For the year ended 31 December
2014
USD millions
Premiums earned
Expenses
Claims and claim adjustment expenses
Acquisition costs
Other expenses
Total expenses before interest expenses
Property
6 783
Casualty
6 437
Specialty
2 378
Total
15 598
–3 013
–1 049
–669
–4 731
–4 513
–1 831
–355
–6 699
–967
–502
–151
–1 620
–8 493
–3 382
–1 175
–13 050
Underwriting result
2 052
–262
758
2 548
Net investment income
Net realised investment gains/losses
Other revenues
Interest expenses
Income before income tax expense
Claims ratio in %
Expense ratio in %
Combined ratio in %
1 076
699
69
–255
4 137
54.5
29.2
83.7
44.4
25.3
69.7
70.1
34.0
104.1
40.6
27.5
68.1
22 Swiss Reinsurance Company Consolidated 2015 Annual Report
Property & Casualty Reinsurance business segment – by line of business
For the year ended 31 December
2015
USD millions
Premiums earned
Expenses
Claims and claim adjustment expenses
Acquisition costs
Other expenses
Total expenses before interest expenses
Underwriting result
Net investment income
Net realised investment gains/losses
Other revenues
Interest expenses
Income before income tax expense
Claims ratio in %
Expense ratio in %
Combined ratio in %
Property
6 092
Casualty
6 602
Specialty
2 396
Total
15 090
–2 567
–1 198
–689
–4 454
1 638
–4 139
–2 053
–401
–6 593
–1 186
–585
–157
–1 928
–7 892
–3 836
–1 247
–12 975
9
468
2 115
1 097
445
45
–262
3 440
52.3
33.7
86.0
42.1
31.0
73.1
62.7
37.2
99.9
49.5
31.0
80.5
Swiss Reinsurance Company Consolidated 2015 Annual Report 23
Financial Statements I Group Financial Statements
c) Life & Health Reinsurance business segment – by line of business
For the year ended 31 December
2014
USD millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income – non-participating
Net investment income – unit-linked and with-profit
Net realised investment gains/losses – unit-linked and with-profit
Net realised investment gains/losses – insurance-related derivatives
Total revenues before non-participating realised gains/losses
Expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Other expenses
Total expenses before interest expenses
Life
Health
Total
7 166
53
944
37
38
121
8 359
–5 890
–99
–1 808
–628
–8 425
4 046
600
–7
4 639
–3 304
–681
–257
–4 242
11 212
53
1 544
37
38
114
12 998
–9 194
–99
–2 489
–885
–12 667
Operating income/loss
–66
397
331
Net realised investment gains/losses – non-participating business and
excluding insurance-related derivatives
Interest expenses
Loss before income tax benefit
Management expense ratio in %
Operating margin1 in %
7.7
–0.8
5.5
8.6
–369
–438
–476
6.9
2.6
1 Operating margin is calculated as operating income divided by total operating revenues. Total operating revenues are total revenues excluding unit-linked and with-profit
revenues.
24 Swiss Reinsurance Company Consolidated 2015 Annual Report
Life & Health Reinsurance business segment – by line of business
For the year ended 31 December
2015
USD millions
Revenues
Premiums earned
Fee income from policyholders
Net investment income – non-participating
Net investment income – unit-linked and with-profit
Net realised investment gains/losses – unit-linked and with-profit
Net realised investment gains/losses – insurance-related derivatives
Other revenues
Total revenues before non-participating realised gains/losses
Expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Other expenses
Total expenses before interest expenses
Life
Health
Total
7 114
49
866
38
4
90
3
8 164
–5 563
–60
–1 258
–642
–7 523
3 800
465
42
2
4 309
–2 727
–728
–261
–3 716
10 914
49
1 331
38
4
132
5
12 473
–8 290
–60
–1 986
–903
–11 239
Operating income
641
593
1 234
Net realised investment gains/losses – non-participating business and
excluding insurance-related derivatives
Interest expenses
Income before income tax expense
Management expense ratio in %
Operating margin1 in %
8.0
7.9
6.1
13.8
178
–278
1 134
7.3
9.9
1 Operating margin is calculated as operating income divided by total operating revenues. Total operating revenues are total revenues excluding unit-linked and with-profit
revenues.
Swiss Reinsurance Company Consolidated 2015 Annual Report 25
Financial Statements I Group Financial Statements
d) Gross premiums earned and fee income from policyholders by geography
Gross 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
Gross premiums earned and fee income from policyholders by country for the years ended 31 December
USD millions
United States
United Kingdom
China
Australia
Germany
Canada
Japan
Switzerland
Ireland
France
Republic of Korea
Other
Total
2014
11 865
9 952
7 556
29 373
2014
9 253
2 746
3 053
2 014
1 294
1 213
1 051
770
894
857
430
5 798
29 373
2015
12 748
9 049
6 437
28 234
2015
10 020
2 773
2 504
1 544
1 070
1 053
967
791
767
672
456
5 617
28 234
Gross premiums earned and fee income from policyholders are allocated by country based on the underlying contract.
26 Swiss Reinsurance Company Consolidated 2015 Annual Report
This page is intentionally left blank.
Swiss Reinsurance Company Consolidated 2015 Annual Report 27
Financial Statements I Group Financial Statements
3 Insurance information
Premiums earned and fees assessed against policyholders
For the year ended 31 December
2014
USD millions
Premiums earned, thereof:
Direct
Reinsurance
Ceded
Net premiums earned
Fee income from policyholders, thereof:
Direct
Reinsurance
Ceded
Net fee income
Claims and claim adjustment expenses
For the year ended 31 December
2014
USD millions
Claims paid, thereof:
Gross
Ceded
Net claims paid
Property & Casualty
Reinsurance
Life & Health
Reinsurance
16 556
–958
15 598
0
758
11 703
–1 249
11 212
54
–1
53
Property & Casualty
Reinsurance
Life & Health
Reinsurance
–10 749
1 168
–9 581
–9 357
1 161
–8 196
Change in unpaid claims and claim adjustment expenses; life
and health benefits, thereof:
Gross
Ceded
Net unpaid claims and claim adjustment expenses; life and
health benefits
2 030
–942
1 088
–962
–36
–998
Other
36
156
–10
182
20
90
110
Other
–501
12
–489
52
–1
51
Total
794
28 415
–2 217
26 992
20
144
–1
163
Total
–20 607
2 341
–18 266
1 120
–979
141
Claims and claim adjustment expenses; life and health benefits
–8 493
–9 194
–438
–18 125
Acquisition costs
For the year ended 31 December
2014
USD millions
Acquisition costs, thereof:
Gross
Ceded
Net acquisition costs
Property & Casualty
Reinsurance
Life & Health
Reinsurance
–3 588
206
–3 382
–2 682
193
–2 489
Other
–49
–49
Total
–6 319
399
–5 920
28 Swiss Reinsurance Company Consolidated 2015 Annual Report
Premiums earned and fees assessed against policyholders
For the year ended 31 December
2015
USD millions
Premiums earned, thereof:
Direct
Reinsurance
Ceded
Net premiums earned
Fee income from policyholders, thereof:
Direct
Reinsurance
Ceded
Net fee income
Claims and claim adjustment expenses
For the year ended 31 December
2015
USD millions
Claims paid, thereof:
Gross
Ceded
Net claims paid
Property & Casualty
Reinsurance
Life & Health
Reinsurance
15 614
–524
15 090
0
736
11 598
–1 420
10 914
50
–1
49
Property & Casualty
Reinsurance
Life & Health
Reinsurance
–9 665
815
–8 850
–9 629
1 168
–8 461
Change in unpaid claims and claim adjustment expenses; life
and health benefits, thereof:
Gross
Ceded
Net unpaid claims and claim adjustment expenses; life and
health benefits
1 601
–643
958
145
26
171
Other
2
138
–5
135
5
91
96
Other
–378
6
–372
104
–2
102
Total
738
27 350
–1 949
26 139
5
141
–1
145
Total
–19 672
1 989
–17 683
1 850
–619
1 231
Claims and claim adjustment expenses; life and health benefits
–7 892
–8 290
–270
–16 452
Acquisition costs
For the year ended 31 December
2015
USD millions
Acquisition costs, thereof:
Gross
Ceded
Net acquisition costs
Property & Casualty
Reinsurance
Life & Health
Reinsurance
–3 969
133
–3 836
–2 230
244
–1 986
Other
–43
–43
Total
–6 242
377
–5 865
Swiss Reinsurance Company Consolidated 2015 Annual Report 29
Financial Statements I Group Financial Statements
Reinsurance assets and liabilities
The reinsurance assets and liabilities as of 31 December were as follows:
2014
USD millions
Assets
Reinsurance recoverable on unpaid claims and
policy benefits
Deferred acquisition costs
Liabilities
Unpaid claims and claim adjustment expenses
Liabilities for life and health policy benefits
Policyholder account balances
2015
USD millions
Assets
Reinsurance recoverable on unpaid claims and
policy benefits
Deferred acquisition costs
Liabilities
Unpaid claims and claim adjustment expenses
Liabilities for life and health policy benefits
Policyholder account balances
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
3 648
1 756
41 233
1 689
2 723
10 177
16 442
1 473
25
1
784
2 842
5 137
–16
–17
5 346
4 480
52 177
19 284
6 610
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
2 872
2 051
39 366
1 652
3 032
9 653
15 472
1 368
14
1
715
1 307
3 990
–15
–16
4 523
5 084
49 718
16 779
5 358
Reinsurance recoverable on unpaid claims and policy benefits
As of 31 December 2014 and 2015, the Group had a reinsurance recoverable of USD 5 346 million and USD 4 523 million,
respectively. The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire
Hathaway and subsidiaries accounted for 70% of the Group’s reinsurance recoverable as of year-end 2014 and 69% as of
year-end 2015.
The Group cedes certain re/insurance contracts to affiliated companies within the Swiss Re Group, but outside the
Swiss Reinsurance Company Ltd and its subsidiaries (please refer to Note 15).
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
2014
1 031
265
777
–61
2015
1 103
126
169
–36
30 Swiss Reinsurance Company Consolidated 2015 Annual Report
4 Premiums written
For the years ended 31 December
2014
USD millions
Gross premiums written, thereof:
Direct
Reinsurance
Ceded
Net premiums written
2015
USD millions
Gross premiums written, thereof:
Direct
Reinsurance
Ceded
Net premiums written
Property & Casualty
Reinsurance
Life & Health
Reinsurance
16 678
–537
16 141
768
11 666
–1 243
11 191
Property & Casualty
Reinsurance
Life & Health
Reinsurance
16 121
–418
15 703
748
11 547
–1 413
10 882
Other
36
156
–10
182
Other
2
138
–5
135
Total
804
28 500
–1 790
27 514
Total
750
27 806
–1 836
26 720
Swiss Reinsurance Company Consolidated 2015 Annual Report 31
Financial Statements I Group Financial Statements
5 Unpaid claims and claim adjustment expenses
The liability for unpaid claims and claim adjustment expenses as of 31 December is analysed as follows:
USD millions
Non-Life
Life & Health
Total
2014
41 270
10 907
52 177
2015
39 366
10 352
49 718
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 balance as of 1 January
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 balance as of 31 December
Reinsurance recoverable
Deferred expense on retroactive reinsurance
Balance as of 31 December
2014
45 756
–4 873
–56
40 827
9 189
–759
17
8 447
–1 796
–7 797
–9 593
–2 142
85
37 624
3 632
14
41 270
2015
41 270
–3 632
–14
37 624
9 019
–1 222
27
7 824
–1 723
–7 167
–8 890
–1 766
1 377
36 169
2 857
340
39 366
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.
32 Swiss Reinsurance Company Consolidated 2015 Annual Report
Prior-year development
In 2015, claims development on prior years was driven by favourable experience on most lines of business. For property, there
was positive development across all regions. Similarly, within casualty, liability showed a consistent level of releases across all
regions. Favourable development on more recent accident years more than offset increases for asbestos and environmental
losses. Following large commutations and positive claims experience, accident and health claims developed favourably. Adverse
experience in motor was driven by unfavourable trends in the US and revisions to motor reserving models in Europe. For
specialty, there was positive development across all lines of business.
A summary of prior year claims development by lines of business is shown below:
USD millions
Line of business:
Property
Casualty
Specialty
Total
2014
–139
–158
–462
–759
2015
–455
–544
–223
–1 222
US asbestos and environmental claims exposure
The Business Unit‘s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury
claims arising out of policies written prior to 1986 as well as out of such business acquired subsequently through reinsurance
arrangements to other Swiss Re Group Companies, in particular in the area of US asbestos and environmental liability.
At the end of 2015 the Business Unit Reinsurance carried net reserves for US asbestos and environmental liabilities equal to
USD 1 903 million. During 2015, the business unit incurred net losses of USD 98 million and paid net against these liabilities of
USD 147 million.
Note that during 2015, USD 66 million of existing reserves were reclassified as asbestos following a detailed review of historic
cedent accounts by our claims department. The above mentioned incurred amount (USD 98 million) does not show this amount
as incurred during 2015.
Estimating ultimate asbestos and environmental liabilities is particularly complex for a number of reasons relating in part
to the long period between exposure and manifestation of claims, and in part to other factors, which include risks and lack
of predictability inherent in complex litigation, changes in projected costs to resolve, and in the projected number of, asbestos
and environmental claims, the effect of bankruptcy protection, insolvencies, and changes in the legal, legislative and regulatory
environment. As a result, the Group believes that projection of exposures for asbestos and environmental claims is subject to
far less predictability relative to non-environmental and non-asbestos exposures. Management believes that its reserves for
asbestos and environmental claims are appropriately established based upon known facts and the current state of the law.
However, reserves are subject to revision as new information becomes available and as claims develop. Additional liabilities
may arise for amounts in excess of reserves, and the Group‘s estimate of claims and claim adjustment expenses may change.
Any such additional liabilities or increases in estimates cannot be reasonably estimated in advance but could result in charges
that could be material to operating results.
Swiss Reinsurance Company Consolidated 2015 Annual Report 33
Financial Statements I Group Financial Statements
6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
As of 31 December, the DAC were as follows:
2014
USD millions
Opening balance as of 1 January
Deferred
Effect of acquisitions/disposals and retrocessions
Amortisation
Effect of foreign currency translation
Closing balance as of 31 December
2015
USD millions
Opening balance as of 1 January
Deferred
Effect of acquisitions/disposals and retrocessions
Amortisation
Effect of foreign currency translation
Closing balance as of 31 December
Property & Casualty
Reinsurance
1 591
3 563
–3 332
–66
1 756
Property & Casualty
Reinsurance
1 756
4 132
7
–3 793
–51
2 051
Life & Health
Reinsurance
2 845
490
–28
–448
–136
2 723
Life & Health
Reinsurance
2 723
1 053
2
–594
–152
3 032
Other
–12
49
13
–49
1
Other
1
1
Total
4 424
4 102
–15
–3 829
–202
4 480
Total
4 480
5 185
9
–4 387
–203
5 084
Retroceded DAC 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.
As of 31 December, the PVFP was as follows:
USD millions
Opening balance as of 1 January
Amortisation
Interest accrued on unamortised PVFP
Effect of foreign currency translation
Effect of change in unrealised gains/losses
Closing balance as of 31 December
Life & Health
Reinsurance
1 451
–156
44
–45
Other
634
–33
4
2014
Total
2 085
–189
48
–45
Life & Health
Reinsurance
1 294
–159
40
–41
1 294
605
1 899
1 134
2015
Total
1 899
–187
41
–41
9
1 721
Other
605
–28
1
9
587
Retroceded 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 10%, 10%, 9%, 9% and 8%.
34 Swiss Reinsurance Company Consolidated 2015 Annual Report
7 Investments
Investment income
Net investment income by source (excluding 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
Net result from deposit-accounted contracts
Deposits with ceding companies
Gross investment income
Investment expenses
Interest charged for funds held
Net investment income – non-participating business
2014
2 098
74
158
144
102
47
170
36
108
591
3 528
–331
–10
3 187
2015
1 926
77
147
158
68
67
106
32
66
478
3 125
–328
–10
2 787
Dividends received from investments accounted for using the equity method were USD 171 million and USD 176 million for
2014 and 2015, respectively,
Realised gains and losses
Realised gains and losses for fixed income equity securities and other investments (excluding 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
Net realised/unrealised gains/losses other investments
Net realised/unrealised gains/losses on insurance-related activities
Gain/loss related to sale of Aurora National Life Assurance Company
Foreign exchange gains/losses
Net realised investment gains/losses – non-participating business
2014
602
–210
564
–77
–35
45
120
–314
–360
–247
462
550
2015
611
–270
262
–51
–51
62
–31
116
99
9
272
1 028
Swiss Reinsurance Company Consolidated 2015 Annual Report 35
Financial Statements I Group Financial Statements
Investment result – unit-linked and with-profit business
The net investment result on unit-linked and with-profit business credited to policyholders amounted to gains of USD 75 million
and USD 42 million for 2014 and 2015, respectively, mainly originating from gains/losses on equity securities.
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 the
present value of 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, a cash flow projection analysis is conducted by 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 hybrid debt
instruments, an expected loss approach based on default probabilities and loss severities expected in the current and forecasted
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 the present value is compared to the amortised cost basis to
determine the credit component of other-than-temporary impairments.
A reconciliation of other-than-temporary impairments 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
2014
218
9
–75
–21
131
2015
131
27
–22
7
–10
–4
129
36 Swiss Reinsurance Company Consolidated 2015 Annual Report
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:
2014
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
Mortgage- and asset-backed securities
Fixed income securities available-for-sale
Equity securities available-for-sale
2015
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
Mortgage- and 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
9 994
2 989
825
4 750
2 619
4 314
2 654
7 014
35 159
20 489
4 952
60 600
1 975
904
46
68
743
621
358
311
320
3 371
1 335
170
4 876
472
–4
–23
–2
–1
–1
–29
–18
–108
–186
–139
–20
–345
–51
10 894
3 012
891
5 492
3 239
4 643
2 947
7 226
38 344
21 683
5 100
65 127
2 396
–2
–2
–4
Amortised cost
or cost
Gross
unrealised
gains
Gross
unrealised
losses
Other-than-temporary
impairments
recognised in other
comprehensive income
Estimated
fair value
9 981
2 761
913
4 462
3 730
2 789
1 861
7 023
33 520
21 287
4 330
59 137
2 876
507
28
39
486
518
232
189
190
2 189
621
88
2 898
375
–94
–27
–11
–43
–13
–27
–16
–143
–374
–482
–32
–888
–160
10 394
2 762
941
4 905
4 235
2 994
2 034
7 070
35 335
21 416
4 383
61 134
3 091
–10
–3
–13
The “Other-than-temporary impairments recognised in other comprehensive income” column includes only securities with
a credit-related loss recognised in earnings. Subsequent recovery in fair value of securities previously impaired in other
comprehensive income is also presented in the “Other-than-temporary impairments recognised in other comprehensive
income” column.
Swiss Reinsurance Company Consolidated 2015 Annual Report 37
Financial Statements I Group Financial Statements
Investments trading
The carrying amounts of fixed income securities and equity securities classified as trading (excluding unit-linked and with-profit
business) 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 – non-participating
Equity securities trading – non-participating
2014
1 997
60
162
2 219
65
2015
2 710
52
134
2 896
68
Investments held for unit-linked and with-profit business
The carrying amounts of investments held for unit-linked business consist of equity securities trading. As of 31 December 2014
and 2015, these amounted to USD 894 million and USD 818 million, respectively.
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 2014 and 2015, USD 9 781 million and USD 10 893 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
3 221
13 972
13 843
24 787
4 777
60 600
2014
Estimated
fair value
3 233
14 327
14 562
28 081
4 924
65 127
Amortised
cost or cost
3 261
14 508
13 039
24 246
4 083
59 137
2015
Estimated
fair value
3 309
14 695
13 364
25 631
4 135
61 134
Assets pledged
As of 31 December 2015, investments with a carrying value of USD 5 844 million were on deposit with regulatory agencies in
accordance with local requirements, and investments with a carrying value of USD 8 377 million were placed on deposit or
pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
As of 31 December 2014 and 2015, securities of USD 15 230 million and USD 13 605 million, respectively, were transferred to
third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding
liabilities of USD 1 951 million and USD 995 million, respectively, were recognised in accrued expenses and other liabilities for
the obligation to return collateral that the Group has the right to sell or repledge.
As of 31 December 2015, a real estate portfolio with a carrying value of USD 224 million serves as collateral for short-term
senior operational debt of USD 250 million.
Collateral accepted which the Group has the right to sell or repledge
As of 31 December 2014 and 2015, the fair value of the equity securities, government and corporate debt securities received as
collateral was USD 7 165 million and USD 10 732 million, respectively. Of this, the amount that was sold or repledged as
of 31 December 2014 and 2015 was USD 3 738 million and USD 6 125 million, respectively. The sources of the collateral are
securities borrowing, reverse repurchase agreements and derivative transactions.
38 Swiss Reinsurance Company Consolidated 2015 Annual Report
Offsetting of derivatives, financial assets and financial liabilities
Offsetting of derivatives, financial assets and financial liabilities as of 31 December was as follows:
2014
USD millions
Derivative financial instruments - assets
Reverse repurchase agreements
Securities borrowing
Total
Gross amounts of
recognised
financial assets
4 420
3 254
87
7 761
Collateral set off
in the balance sheet
–3 530
–1 303
–4 833
Net amounts of financial
assets presented
in the balance sheet
890
1 951
87
2 928
Related financial
instruments not set off
in the balance sheet
–188
–1 951
–87
–2 226
2014
USD millions
Derivative financial instruments - liabilities
Repurchase agreements
Securities lending
Total
Gross amounts of
recognised
financial liabilities
–3 840
–1 353
–1 901
–7 094
Collateral set off
in the balance sheet
2 969
1 003
300
4 272
Net amounts of financial
liabilities presented
in the balance sheet
–871
–350
–1 601
–2 822
Related financial
instruments not set off
in the balance sheet
141
350
1 475
1 966
2015
USD millions
Derivative financial instruments - assets
Reverse repurchase agreements
Securities borrowing
Total
Gross amounts of
recognised
financial assets
2 752
6 358
452
9 562
Collateral set off
in the balance sheet
–1 953
–3 000
–4 953
Net amounts of financial
assets presented
in the balance sheet
799
3 358
452
4 609
Related financial
instruments not set off
in the balance sheet
–34
–3 351
–452
–3 837
2015
USD millions
Derivative financial instruments - liabilities
Repurchase agreements
Securities lending
Total
Gross amounts of
recognised
financial liabilities
–2 090
–2 844
–1 151
–6 085
Collateral set off
in the balance sheet
1 477
2 475
525
4 477
Net amounts of financial
liabilities presented
in the balance sheet
–613
–369
–626
–1 608
Related financial
instruments not set off
in the balance sheet
77
369
582
1 028
Net amount
702
0
0
702
Net amount
–730
0
–126
–856
Net amount
765
7
0
772
Net amount
–536
0
–44
–580
Collateral pledged or received between two counterparties with a master netting arrangement in place, but not subject to
balance sheet netting is disclosed at fair value. The fair values represent the gross carrying value amounts at the reporting date
for each financial instrument received or pledged by the Group. Management believes that master netting agreements provide
for legally enforceable set-off in the event of default, which substantially reduces credit exposure. Upon occurrence of an event
of default the non-defaulting party may set off the obligation against collateral received regardless if offset on balance sheet prior
to the defaulting event. The net amounts of the financial assets and liabilities presented on the balance sheet were recognised
in “Other invested assets”, and “Accrued expenses and other liabilities”, respectively.
Swiss Reinsurance Company Consolidated 2015 Annual Report 39
Financial Statements I Group Financial Statements
Recognised gross liability for the obligation to return collateral that the Group has the right to sell or repledge
As of 31 December 2015, the gross amounts of liabilities related to repurchase agreements and securities lending by the class
of securities transferred to third parties and by the remaining maturity are shown below. The liabilities are recognised for the
obligation to return collateral that the Group has the right to sell or repledge.
Remaining contractual maturity of the agreements
Overnight and
continuous Up to 30 days
30–90 days
Greater than 90
days
2015
USD millions
Repurchase agreements
Debt securities issued by governments and government agencies
Corporate debt securities
Total repurchase agreements
Securities lending
Debt securities issued by governments and government agencies
Total securities lending
Gross amount of recognised liabilities for repurchase agreements and
securities lending
370
3
373
217
217
2 136
24
2 160
0
176
176
501
501
Total
2 817
27
2 844
135
135
433
433
1 151
1 151
3 995
The programme is structured in a conservative manner within a clearly defined risk framework. Yield enhancement is conducted
on a non-cash basis, thereby taking no re-investment risk.
40 Swiss Reinsurance Company Consolidated 2015 Annual Report
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 2014 and
2015. As of 31 December 2014 and 2015, USD 39 million and USD 126 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 12 million and USD 34 million,
respectively, to declines in value for more than 12 months.
2014
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
Mortgage- and asset-backed securities
Total
2015
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
Mortgage- and asset-backed securities
Total
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Total
Unrealised
losses
Fair value
1 501
965
66
53
254
816
308
1 263
5 226
3 273
1 356
9 855
3
12
1
1
1
26
17
71
132
88
11
231
63
462
16
2
67
15
826
1 451
985
276
2 712
1
11
1
3
1
37
54
53
11
118
1 564
1 427
82
53
256
883
323
2 089
6 677
4 258
1 632
12 567
4
23
2
1
1
29
18
108
186
141
22
349
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Total
Unrealised
losses
Fair value
4 516
1 408
339
1 067
930
825
500
3 067
12 652
9 201
2 150
24 003
93
22
10
42
11
25
13
107
323
426
27
776
6
226
6
14
10
113
16
194
585
383
187
1 155
1
5
1
1
2
2
3
36
51
66
8
125
4 522
1 634
345
1 081
940
938
516
3 261
13 237
9 584
2 337
25 158
94
27
11
43
13
27
16
143
374
492
35
901
Swiss Reinsurance Company Consolidated 2015 Annual Report 41
Financial Statements I 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 (excluding unit-
linked and with-profit business) were as follows:
USD millions
Policy loans
Mortgage loans
Other loans
Investment real estate
2014
241
1 248
2 419
881
2015
80
1 389
2 363
1 550
The fair value of the real estate as of 31 December 2014 and 2015 was USD 2 475 million and USD 3 205 million, respectively.
The carrying value of policy loans, mortgages and other loans approximates fair value.
Depreciation expense related to income-producing properties was USD 26 million and USD 36 million for 2014 and 2015,
respectively. Accumulated depreciation on investment real estate totalled USD 539 million and USD 504 million as of
31 December 2014 and 2015, respectively.
Substantially all mortgages, policy loans and other loan receivables are secured by buildings, land or the underlying policies.
42 Swiss Reinsurance Company Consolidated 2015 Annual Report
8 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 (e.g. 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 (e.g. 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 unadjusted 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 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 (OTC) 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 liabilities for life and health
policy benefits in 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 2015, these adjustments were not 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 Other.
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 appropriate level based on the lowest level input that
is significant to the determination of the fair value.
Swiss Reinsurance Company Consolidated 2015 Annual Report 43
Financial Statements I 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 transparent and liquid markets.
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 mortgage- and asset-backed securities 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 asset-backed securities (ABS) for which there are no significant observable inputs are developed using benchmarks
to similar transactions or indices. For both residential mortgage-backed securities (RMBS) and commercial mortgage-backed
securities (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, judgements 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, 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. Mortgage- and asset-backed securities also
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 mortgage-backed 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 level 1. Securities classified in
level 1 are traded on public stock exchanges for which quoted prices are readily available.
The category “Other invested assets” includes the Group’s private equity and hedge fund investments which are made directly
or via ownership of funds. Substantially all of these investments are classified as level 3 due to the lack of observable prices and
significant judgement required in valuation. Valuation of direct private equity investments requires significant management
judgement 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).
44 Swiss Reinsurance Company Consolidated 2015 Annual Report
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 judgements 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 type option pricing model and 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 can 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 utilise 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.
Governance around level 3 fair valuation
The Asset Valuation Committee, endorsed by the Group Executive Committee, has a primary responsibility for governing and
overseeing all of the Group’s asset and derivative valuation policies and operating parameters (including level 3 measurements).
The Asset Valuation Committee delegates the responsibility for implementation and oversight of consistent application of the
Groupʼs pricing and valuation policies to the Pricing and Valuation Committee.
The Pricing and Valuation Committee, which is a joint Risk Management & Finance management control committee, is
responsible for the implementation and consistent application of the pricing and valuation policies. Key functions of the Pricing
and Valuation Committee include: oversight over the entire valuation process, approval of internal valuation methodologies,
approval of external pricing vendors, monitoring of the independent price verification (IPV) process and resolution of significant
or complex valuation issues.
A formal IPV process is undertaken monthly by members of the Valuation Risk Management team within the Financial Risk
Management function. The process includes monitoring and in-depth analyses of approved pricing methodologies and
valuations of the Group’s financial instruments aimed at identifying and resolving pricing discrepancies.
The Risk Management function is responsible for independent validation and ongoing review of the Group’s valuation models.
The Product Control group within Finance is tasked with reporting of fair values through the vendor- and model-based valuations,
the results of which are also subject to the IPV process.
Swiss Reinsurance Company Consolidated 2015 Annual Report 45
Financial Statements I Group Financial Statements
Assets and liabilities measured at fair value on a recurring basis
As of 31 December, the fair values of assets and liabilities measured on a recurring basis by level of input were as follows:
2014
USD millions
Assets
Fixed income securities held for proprietary
investment purposes
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
Mortgage- and asset-backed securities
Equity securities held for proprietary
investment purposes
Equity securities backing unit-linked and
with-profit business
Short-term investments held for proprietary
investment purposes
Derivative financial instruments
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Other invested assets
Funds held by ceding companies2
Total assets at fair value
Liabilities
Derivative financial instruments
Interest rate contracts
Foreign exchange contracts
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
10 974
55 984
388
10 974
2 457
894
4 484
40
40
907
19 756
–13
–5
–8
–1 035
–1 048
1 419
3 028
24 920
21 368
5 249
6 036
3 843
2 625
272
889
1
56
562
273
66 698
–3 110
–2 117
–407
–561
–2
–23
–864
–3 974
375
13
4
537
–3 530
396
141
1 289
2 218
–3 530
–717
2 969
–130
–10
–577
–187
–1 559
–2 463
2 969
Total
67 346
12 393
3 028
24 920
21 743
5 262
2 461
894
10 520
890
2 625
272
1 325
1
197
2 758
273
85 142
–871
–2 122
–407
–699
–12
–600
–187
–3 458
–4 516
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.
2 The Group revised the scope of the fair value option disclosure to include certain assets held under three of its reinsurance agreements. These assets have been managed on
a fair value basis since inception.
46 Swiss Reinsurance Company Consolidated 2015 Annual Report
2015
USD millions
Assets
Fixed income securities held for proprietary
investment purposes
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
Mortgage- and asset-backed securities
Equity securities held for proprietary
investment purposes
Equity securities backing unit-linked and
with-profit business
Short-term investments held for proprietary
investment purposes
Derivative financial instruments
Interest rate contracts
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Other invested assets
Funds held by ceding companies2
Total assets at fair value
Liabilities
Derivative financial instruments
Interest rate contracts
Foreign exchange contracts
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
10 695
52 997
338
10 695
3 148
818
1 795
22
6
16
579
17 057
–17
–5
–12
–812
–829
1 450
2 776
23 124
21 143
4 504
2 867
2 266
1 304
319
617
1
25
49
245
58 424
–1 576
–789
–201
–582
–4
–2 524
–4 100
325
13
11
464
–1 953
334
1
129
1 013
1 826
–1 953
–497
1 477
–38
–19
–440
–165
–1 474
–2 136
1 477
Total
64 030
12 145
2 776
23 124
21 468
4 517
3 159
818
4 662
799
1 310
319
967
2
154
1 641
245
75 354
–613
–794
–201
–632
–19
–444
–165
–4 810
–5 588
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.
2 The Group revised the scope of the fair value option disclosure to include certain assets held under three of its reinsurance agreements. These assets have been managed on
a fair value basis since inception.
Swiss Reinsurance Company Consolidated 2015 Annual Report 47
Financial Statements I Group Financial Statements
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3)
As of 31 December, the reconciliation of the fair values of assets and liabilities measured on a recurring basis using significant
unobservable inputs was as follows:
2014
USD millions
Assets and liabilities
Balance as of 1 January
Realised/unrealised gains/losses:
Included in net income
Included in other
comprehensive income
Purchases
Issuances
Sales
Settlements
Transfers into level 31
Transfers out of level 31
Impact of foreign exchange
movements
Fixed
income
securities
Equity
securities
Derivative
assets
Other
invested
assets
Total
assets
Derivative
liabilities
Liabilities
for life and
health
policy
benefits
Accrued
expenses
and other
liabilities
Total
liabilities
619
1
7
10
–21
–227
–1
11
2
–1
–3
–4
–1
4
505
1 791
2 926
–994
–145
–1 656
–2 795
125
128
302
–39
44
28
–58
–24
42
–29
76
–523
–2
32
–130
–23
130
28
–605
–253
74
–135
–91
97
–31
263
0
0
–91
97
–31
0
0
–51
1 289
–52
2 218
537
–717
–3
–187
97
–1 559
94
–2 463
Closing balance as of 31 December
388
1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
2015
USD millions
Assets and liabilities
Balance as of 1 January
Realised/unrealised gains/losses:
Included in net income
Included in other
comprehensive income
Purchases
Issuances
Sales
Settlements
Transfers into level 31
Transfers out of level 31
Impact of foreign exchange
movements
Closing balance as of 31 December
Fixed
income
securities
Equity
securities
Derivative
assets
Other
invested
assets
Total
assets
Derivative
liabilities
Liabilities
for life and
health
policy
benefits
Accrued
expenses
and other
liabilities
Total
liabilities
388
4
537
1 289
2 218
–717
–187
–1 559
–2 463
4
–14
9
–46
–35
33
–1
338
–20
45
29
165
22
–1
8
–71
134
–441
70
7
–3
–72
15
–86
150
0
–490
–107
126
0
–10
1
65
–1
187
0
0
–10
1
65
–1
0
11
464
–13
1 013
–14
1 826
–497
–165
85
–1 474
85
–2 136
1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
48 Swiss Reinsurance Company Consolidated 2015 Annual Report
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) for
the years ended 31 December 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
2014
391
90
2015
216
47
Swiss Reinsurance Company Consolidated 2015 Annual Report 49
Financial Statements I Group Financial Statements
Quantitative information about level 3 fair value measurements
Unobservable inputs for major level 3 assets and liabilities as of 31 December were as follows:
USD millions
Assets
Corporate debt securities
Private placement corporate debt
2014
Fair value
2015
Fair value
375
304
325
241
Valuation technique
Unobservable input
Range (weighted
average)
Corporate Spread Matrix
Illiquidity premium
Private placement credit tenant leases
71
51 Discounted Cash Flow Model
Illiquidity premium
5 bps–186 bps
(49 bps)
75 bps–175 bps
(132 bps)
176 bps (n.a.)
–60%–100%
(20%)1
–60%–100%
(20%)1
32 Discounted Cash Flow Model
Valuation spread
396
396
–130
–46
334
334
–38
–38
–764
–605
Proprietary Option Model
Correlation
Proprietary Option Model
Correlation
–639
–567 Discounted Cash Flow Model
Risk margin
Volatility
Lapse
Mortality adjustment
Withdrawal rate
4% (n.a.)
4%–42%
0.5%–33%
–10%–0%
0%–90%
Infrastructure loan
Derivative equity contracts
OTC equity option referencing correlated
equity indices
Liabilities
Derivative equity contracts
OTC equity option referencing
correlated equity indices
Other derivative contracts and liabilities for
life and health policy benefits
Variable annuity and fair valued GMDB
contracts
1 Represents average input value for the reporting period.
50 Swiss Reinsurance Company Consolidated 2015 Annual Report
Sensitivity of recurring level 3 measurements to changes in unobservable inputs
The significant unobservable input used in the fair value measurement of the Group’s private placement corporate debt securities
and private placement credit tenant leases is illiquidity premium. A significant increase (decrease) in this input in isolation would
result in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value
measurement of the Group’s infrastructure loan is valuation spread. A significant increase (decrease) in this input in isolation
would result in a significantly lower (higher) fair value measurement.
The significant unobservable input used in the fair value measurement of the Group’s OTC equity option referencing correlated
equity indices is correlation. Where the Group is long correlation risk, a significant increase (decrease) in this input in isolation
would result in a significantly higher (lower) fair value measurement. Where the Group is short correlation risk, a significant
increase (decrease) in this input in isolation would result in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Group’s variable annuity and fair valued
guaranteed minimum death benefit (GMDB) contracts are: risk margin, volatility, lapse, mortality adjustment rate and withdrawal
rate. A significant increase (decrease) in isolation in each of the following inputs: risk margin, volatility and withdrawal rate would
result in a significantly higher (lower) fair value of the Group’s obligation. A significant increase (decrease) in isolation in a lapse
rate for in-the-money contracts would result in a significantly lower (higher) fair value of the Group’s obligation, whereas for
out-of-the-money contracts, an isolated increase (decrease) in a lapse assumption would increase (decrease) fair value of the
Group’s obligation. Changes in the mortality adjustment rate impact fair value of the Group’s obligation differently for living-
benefit products, compared to death-benefit products. For the former, a significant increase (decrease) in the mortality
adjustment rate (i.e. increase (decrease) in mortality, respectively) in isolation would result in a decrease (increase) in fair value
of the Group’s liability. For the latter, a significant increase (decrease) in the mortality adjustment rate in isolation would result
in an increase (decrease) in fair value of the Group’s liability.
Swiss Reinsurance Company Consolidated 2015 Annual Report 51
Financial Statements I Group Financial Statements
Other invested assets measured at net asset value
Other invested assets measured at net asset value as of 31 December, respectively, were as follows:
USD millions
Private equity funds
Hedge funds
Private equity direct
Real estate funds
Total
2014
Fair value
657
344
33
203
1 237
2015
Fair value
550
135
31
203
919
Unfunded
commitments
103
57
160
Redemption frequency
(if currently eligible)
non-redeemable
redeemable1
non-redeemable
non-redeemable
Redemption
notice period
n.a.
45-95 days2
n.a.
n.a.
1 The redemption frequency varies by position.
2 Cash distribution can be delayed for an extended period depending on the sale of the underlyings.
The hedge fund investments employ a variety of strategies, including global macro, relative value, event-driven and long/short
equity across various asset classes.
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 10 to 12 years.
The redemption frequency of hedge funds varies depending on 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:
Other invested assets
The Group elected the fair value option for certain investments classified as equity method investees within other invested assets
in the balance sheet. The Group applied the fair value option, as the investments are managed on a fair value basis. The changes
in fair value of these elected investments are recorded in earnings.
Funds held by ceding companies
For operational efficiencies, the Group elected the fair value option for funds held by the cedent under three of its reinsurance
agreements. The assets are carried at fair value and changes in fair value are reported as a component of earnings.
Liabilities for life and health policy benefits
The Group elected the fair value option for existing 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.
52 Swiss Reinsurance Company Consolidated 2015 Annual Report
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 were as follows:
USD millions
Assets
Other invested assets
of which at fair value pursuant to the fair value option
Funds held by ceding companies
of which at fair value pursuant to the fair value option1
Liabilities
Liabilities for life and health policy benefits
of which at fair value pursuant to the fair value option
2014
2015
7 353
50
12 173
273
–19 284
–187
7 861
92
10 668
245
–16 779
–165
1 The Group revised the scope of the fair value option disclosure to include certain assets held under three of its reinsurance agreements. These assets have been managed on
a fair value basis since inception.
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 for the years ended 31 December were as follows:
USD millions
Other invested assets
Funds held by ceding companies1
Liabilities for life and health policy benefits
Total
2014
2
1
–41
–38
2015
4
7
21
32
1 The Group revised the scope of the fair value option disclosure to include certain assets held under three of its reinsurance agreements. These assets have been managed on
a fair value basis since inception.
Fair value changes from other invested assets and funds held by ceding companies are reported in “Net investment income -
non-participating business”. Fair value changes from the GMDB reserves are shown in “Life and health benefits”.
Swiss Reinsurance Company Consolidated 2015 Annual Report 53
Financial Statements I Group Financial Statements
Assets and liabilities not measured at fair value but for which the fair value is disclosed
Assets and liabilities not measured at fair value but for which the fair value is disclosed as of 31 December were as follows:
2014
USD millions
Assets
Policy loans
Mortgage loans
Other loans
Investment real estate
Total assets
Liabilities
Debt
Total liabilities
2015
USD millions
Assets
Policy loans
Mortgage loans
Other loans
Investment real estate
Total assets
Liabilities
Debt
Total liabilities
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs (Level 3)
241
1 248
2 419
2 475
6 383
0
Total
241
1 248
2 419
2 475
6 383
–9 441
–9 441
–8 694
–8 694
–18 135
–18 135
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs (Level 3)
80
1 389
2 363
3 205
7 037
0
Total
80
1 389
2 363
3 205
7 037
–8 190
–8 190
–7 137
–7 137
–15 327
–15 327
Policy loans, other loans and certain mortgage loans are classified as level 3 measurements, as they do not have an active
exit market. Some of these positions need to be assessed in conjunction with the corresponding insurance business. Considering
these circumstances, the Group presents the carrying amount as an approximation for the fair value.
Investments in real estate are fair valued primarily by external appraisers based on proprietary discounted cash flow models
that incorporate applicable risk premium adjustments to discount yields and projected market rental income streams based on
market-specific data. These fair value measurements are classified in level 3 in the fair value hierarchy.
Debt positions, which are fair valued based on executable broker quotes or based on the discounted cash flow method using
observable inputs, are classified as level 2 measurements. Fair value of the majority of the Group’s level 3 debt positions is
judged to approximate carrying value due to the highly tailored nature of the obligation and short-notice termination provisions.
54 Swiss Reinsurance Company Consolidated 2015 Annual Report
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Swiss Reinsurance Company Consolidated 2015 Annual Report 55
Financial Statements I Group Financial Statements
9 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 set-off in the event of default, which substantially reduces credit exposure.
56 Swiss Reinsurance Company Consolidated 2015 Annual Report
Total derivative financial instruments
141 750
4 420
–3 840
Fair values and notional amounts of derivative financial instruments
As of 31 December, the fair values and notional amounts of the derivatives outstanding were as follows:
Notional amount
assets/liabilities
Fair value
assets
Fair value
liabilities
Carrying value
assets/liabilities
2014
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
Foreign exchange contracts
Total
Amount offset
Where a right of set-off exists
Due to cash collateral
Total net amount of derivative financial instruments
2015
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
Foreign exchange contracts
Total
83 942
12 924
20 173
450
21 491
139 980
2 770
2 770
2 625
223
1 325
1
197
4 371
49
49
–2 122
–400
–699
–12
–600
–3 833
–7
–7
–2 554
–976
890
2 554
415
–871
66 787
14 273
16 374
188
17 842
115 464
2 151
2 151
1 310
282
967
2
154
2 715
37
37
–794
–201
–632
–19
–444
–2 090
0
Notional amount
assets/liabilities
Fair value
assets
Fair value
liabilities
Carrying value
assets/liabilities
503
–177
626
–11
–403
538
42
42
580
19
516
81
335
–17
–290
625
37
37
662
186
Total derivative financial instruments
117 615
2 752
–2 090
Amount offset
Where a right of set-off exists
Due to cash collateral
Total net amount of derivative financial instruments
–1 162
–791
799
1 162
315
–613
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 2014 and 2015.
Swiss Reinsurance Company Consolidated 2015 Annual Report 57
Financial Statements I 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 —
non-participating business” in the income statement. For the years ended 31 December, 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
2014
–207
49
–172
9
–358
–679
2015
68
433
–191
–5
212
517
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 2014 and 2015, the
following hedging relationships were outstanding:
Fair value hedges
The Group enters into foreign exchange swaps to reduce the exposure to foreign exchange volatility for certain of its issued debt
positions and fixed income securities. 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 — non-participating business” in the income statement. For the years ended 31 December,
the gains and losses attributable to the hedged risks were as follows:
USD millions
Fair value hedging relationships
Foreign exchange contracts
Total gain/loss recognised in income
Gains/losses
on derivatives
2014
Gains/losses on
hedged items
Gains/losses
on derivatives
2015
Gains/losses on
hedged items
122
122
–120
–120
119
119
–119
–119
Hedges of the net investment in foreign operations
The Group designates derivative and non-derivative monetary financial instruments as hedging the foreign currency exposure
of its net investment in certain foreign operations.
For the year ended 31 December 2014 and 2015, the Group recorded an accumulated net unrealised foreign currency
remeasurement gain of USD 525 million and a gain of USD 1 075 million, respectively, in shareholder’s equity. These offset
translation gains and losses on the hedged net investment.
58 Swiss Reinsurance Company Consolidated 2015 Annual Report
Maximum potential loss
In consideration of the rights of set-off and the qualifying master netting arrangements with various counterparties,
the maximum potential loss as of 31 December 2014 and 2015 was approximately USD 1 866 million and
USD 1 590 million, respectively. The maximum potential loss is based on the positive market replacement cost
assuming non-performance of all counterparties, excluding 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 112 million and USD 51 million as of 31 December 2014 and 2015, respectively. For derivative financial instruments
containing credit risk-related contingent features, the Group posted collateral of USD 6 million and nil as of 31 December 2014
and 2015, respectively. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of
USD 51 million additional collateral would have had to be posted as of 31 December 2015. The total equals the amount
needed to settle the instruments immediately as of 31 December 2015.
Swiss Reinsurance Company Consolidated 2015 Annual Report 59
Financial Statements I Group Financial Statements
10 Disposals
In the fourth quarter of 2014, the Group entered into an agreement to sell Aurora National Life Assurance Company (Aurora),
a US subsidiary, to Reinsurance Group of America, Incorporated (RGA). Aurora primarily consists of bonds and policyholder
liabilities. An expected pre-tax loss of USD 247 million (including the impact of net unrealised gains and shadow loss reserve
that will be reclassified from equity into the income statement) on the disposition of the net assets was recognised in the fourth
quarter of 2014.
In the second quarter of 2015, the Group completed the sale following the receipt of all necessary regulatory approvals.
The purchase price included a cash payment of USD 184 million. The Group adjusted the initial loss on the transaction by a
pre-tax gain of USD 9 million on a year to date basis. The gain was reflected in the “Net realised investment gains /losses –
non-participating” in the income statement of the “Other” segment.
The major classes of assets and liabilities held for sale as of 31 December 2014 and disposed in the second quarter of 2015
were as follows:
USD millions
Assets
Fixed income securities available-for-sale
Policy loans, mortgages and other loans
Short-term investments
Cash and cash equivalents
Accrued investment income
Premiums and other receivables
Reinsurance recoverable on unpaid claims and policy benefits
Other assets
Total assets
Liabilities
Unpaid claims and claim adjustment expenses
Liabilities for life and health policy benefits
Policyholder account balances
Accrued expenses and other liabilities
Total liabilities
2014
2015
3 456
157
6
23
37
6
7
1
3 693
15
1 494
1 151
292
2 952
3 496
154
1
19
33
9
8
1
3 721
22
1 479
1 130
315
2 946
60 Swiss Reinsurance Company Consolidated 2015 Annual Report
11 Debt and contingent capital instruments
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 not greater than one year
and long-term debt as having a maturity of greater than one year. For subordinated debt positions, maturity is defined as the first
optional redemption date (notwithstanding that optional redemption could be subject to regulatory consent). Interest expense is
classified accordingly.
The Group’s debt as of 31 December was as follows:
USD millions
Senior financial debt
Senior operational debt
Subordinated financial debt
Short-term debt – financial and operational debt
Senior financial debt
Senior operational debt
Subordinated financial debt
Subordinated operational debt
Long-term debt – financial and operational debt
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 2016
Due in 2017
Due in 2018
Due in 2019
Due in 2020
Due after 2020
Total carrying value
1 Balance was reclassified to short-term debt.
2014
3 925
1 034
4 959
2 659
713
4 990
2 903
11 265
16 224
18 135
2014
1 984
1 215
0
1 922
212
5 932
11 265
2015
2 285
751
1 069
4 105
2 880
467
3 607
2 720
9 674
13 779
15 327
2015
01
1 143
0
1 855
204
6 472
9 674
Swiss Reinsurance Company Consolidated 2015 Annual Report 61
Financial Statements I Group Financial Statements
Senior long-term debt
Instrument
EMTN
Senior notes1
Senior notes
EMTN
Senior notes1
EMTN
Senior notes1
Senior notes
Payment undertaking agreements
Maturity
2017
2019
2022
2024
2026
2027
2030
2042
Various
Total senior long-term debt as of 31 December 2015
Total senior long-term debt as of 31 December 2014
1 Assumed in the acquisition of GE Insurance Solutions.
Subordinated long-term debt
Issued in
2011
1999
2012
2014
1996
2015
2000
2012
various
Currency
CHF
USD
USD
CHF
USD
CHF
USD
USD
USD
Nominal in
millions
600
234
250
250
397
250
193
500
383
Interest rate
2.13%
6.45%
2.88%
1.00%
7.00%
0.75%
7.75%
4.25%
various
Book value in USD millions
599
263
248
248
508
251
274
489
467
3 347
3 372
Currency
USD
EUR
CHF
Nominal in
millions
750
500
175
Interest rate
6.38%
6.63%
7.50%
First call in
2019
2022
2020
Book value
in USD millions
813
537
204
GBP
GBP
AUD
1 845
500
300
4.87%
6.30%
7.64%
6 months
BBSW+1.17%
2019
2017
2017
2007
AUD
450
2015
EUR
750
2.60%
2025
2 720
736
218
327
772
6 327
7 893
Maturity Instrument
2024 Subordinated contingent write-off loan note
2042 Subordinated fixed-to-floating rate loan note
2045 Subordinated contingent write-off securities
Subordinated private placement (amortising,
limited recourse)
Subordinated perpetual loan note
Subordinated perpetual loan note
2057
Issued in
2013
2012
2013
2007
2007
2007
Subordinated perpetual loan note
Perpetual subordinated fixed-to-floating rate
callable loan note
Total subordinated long-term debt as of 31 December 2015
Total subordinated long-term debt as of 31 December 2014
62 Swiss Reinsurance Company Consolidated 2015 Annual Report
Interest expense on long-term debt and contingent capital instruments
Interest expense on long-term debt for the years ended 31 December was as follows:
USD millions
Senior financial debt
Senior operational debt
Subordinated financial debt
Subordinated operational debt
Total
2014
110
16
293
231
650
2015
104
13
213
137
467
In addition to the above, interest expense on contingent capital instruments classified as equity was USD 69 million and
USD 68 million for the years ended 31 December 2014 and 2015, respectively.
Long-term debt issued in 2015
In January 2015, SRZ issued senior notes due 2027. The notes have a face value of CHF 250 million, with a fixed coupon of
0.75% per annum.
In April 2015, SRZ issued EUR 750 million face amount of perpetual subordinated fixed-to-floating rate callable loan notes with a
first optional redemption date on 1 September 2025. The notes bear interest through the first optional redemption date at 2.60%
per annum. The notes were issued in connection with a concurrent exchange of part of the EUR 1 billion 5.252% Perpetual
Subordinated Step-Up Loan Notes issued by SRZ.
Contingent capital instruments
In February 2012, SRZ issued a perpetual subordinated instrument with stock settlement. The instrument has a face value of
CHF 320 million, with a fixed coupon of 7.25% per annum until the first optional redemption date (1 September 2017).
In March 2012, SRZ issued a perpetual subordinated capital instrument with stock settlement. The instrument has a face value
of USD 750 million, with a fixed coupon of 8.25% per annum until the first optional redemption date (1 September 2018).
Both instruments may be converted, at the option of the issuer, into Swiss Re Ltd shares at any time through at market conversion
using the retrospective five-day volume weighted average share price with a 3% discount or within six months following a
solvency event at a pre-set floor price (CHF 26 for the instrument with face value of CHF 320 million and USD 32 for the
instrument with face value of USD 750 million, respectively). These instruments are referred to in these financial statements
as “contingent capital instruments”.
Swiss Reinsurance Company Consolidated 2015 Annual Report 63
Financial Statements I Group Financial Statements
12 Income taxes
The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the
Group operates. The components of the income tax charge were:
USD millions
Current taxes
Deferred taxes
Income tax expense
2014
1 002
–607
395
Tax rate reconciliation
The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the
accompanying income statement:
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
Tax exempt income/dividends received deduction
Change in valuation allowance
Basis differences in subsidiaries
Change in liability for unrecognised tax benefits including interest and penalties
Other, net
Total
2014
706
77
–176
–55
–28
14
–197
54
395
2015
317
207
524
2015
913
265
–182
–52
–26
–315
–97
18
524
The Group reported a tax charge of USD 524 million on a pre-tax income of USD 4 349 million for 2015, compared to a charge
of USD 395 million on a pre-tax income of USD 3 361 million for 2014. This translates into an effective tax rate in the current and
prior year reporting periods of 12.0% and 11.8%, respectively. The higher tax rate in 2015 was largely driven by tax on profits
earned in higher tax jurisdictions, tax benefit arising from a local statutory adjustment for the restructuring of subsidiaries and
higher tax benefits from foreign currency translation differences between statutory and GAAP accounts.
64 Swiss Reinsurance Company Consolidated 2015 Annual Report
Deferred and other non-current taxes
The components of deferred and other non-current taxes were as follows:
USD millions
Deferred tax assets
Income accrued/deferred
Technical provisions
Pension provisions
Benefit on loss carryforwards
Currency translation adjustments
Other
Gross deferred tax asset
Valuation allowance
Unrecognised tax benefits offsetting benefits on loss carryforwards
Total deferred tax assets
Deferred tax liabilities
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
Other
Total deferred tax liabilities
Liability for unrecognised tax benefits including interest and penalties
Total deferred and other non-current tax liabilities
2014
2015
247
583
257
3 517
367
898
5 869
–639
–24
5 206
–277
–877
–370
–694
–2 545
–1 188
–238
–185
–492
–6 866
–624
–7 490
265
665
309
3 072
321
1 225
5 857
–553
–35
5 269
–214
–894
–638
–868
–2 351
–496
–94
–269
–579
–6 403
–368
–6 771
Net deferred and other non-current taxes
–2 284
–1 502
As of 31 December 2015, 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 3.9 billion. 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 2015, the Group had USD 9 223 million net operating tax loss carryforwards, expiring as follows:
USD 26 million in 2018, USD 47 million in 2019, USD 12 million in 2020, USD 8 084 million in 2021 and beyond, and
USD 1 054 million never expire.
The Group also had capital loss carryforwards of USD 72 million, expiring 2020.
Net operating tax losses of USD 1 388 million and net capital tax losses of USD 92 million were utilised during the period ended
31 December 2015.
Income taxes paid in 2014 and 2015 were USD 444 million and USD 981 million, respectively.
Swiss Reinsurance Company Consolidated 2015 Annual Report 65
Financial Statements I Group Financial Statements
Unrecognised tax benefits
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 related to the current year
Additions for tax positions related to the prior years
Reductions for tax positions of current year
Reductions for tax positions of prior years
Settlements
Other (including foreign currency translation)
Balance as of 31 December
2014
952
22
49
–137
–215
–84
–51
536
2015
536
34
113
–233
–97
–22
331
The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective
tax rate were approximately USD 497 million and USD 327 million at 31 December 2014 and 2015, respectively.
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense in 2015 was
USD 40 million (USD 19 million in 2014). As of 31 December 2014 and 2015, USD 112 million and USD 72 million, respectively,
were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December
2015 is included within the deferred and other non-current taxes section reflected above and in the balance sheet.
The balance of gross unrecognised tax benefits as of 31 December 2015 presented in the table above excludes accrued interest
and penalties (USD 72 million).
During the year, certain tax positions and audits in Switzerland, France and Germany 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
Belgium
Brazil
Canada
China
Columbia
Denmark
France
Germany
Hong Kong
India
Ireland
Israel
Italy
Japan
Korea
Luxembourg
2010 - 2015
2013 - 2015
2011 - 2015
2011 - 2015 Malaysia
2005 - 2015 Mexico
2013 - 2015
2011 - 2015
2008 - 2009, 2012 - 2015
2007 - 2015
2009 - 2015
2005 - 2015
2011 - 2015
2008 - 2015
2012 - 2015
Netherlands
New Zealand
Singapore
Slovakia
South Africa
Spain
Switzerland
United Kingdom
United States
2012 - 2015
2013 - 2015
2011 - 2015
2013 - 2015
2010 - 2015
2011 - 2015
2009 - 2015
2011 - 2015
2011 - 2015
2011 - 2015
2011 - 2015
2013 - 2015
2008, 2011 - 2015
2009 - 2015
66 Swiss Reinsurance Company Consolidated 2015 Annual Report
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Swiss Reinsurance Company Consolidated 2015 Annual Report 67
Financial Statements I Group Financial Statements
13 Benefit plans
Defined benefit pension plans and post-retirement benefits
The Swiss Re 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 Swiss Re 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.
2014
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 settlement, curtailment and termination
Effect of foreign currency translation
Benefit obligation as of 31 December
Fair value of plan assets as of 1 January
Actual return on plan assets
Company contribution
Benefits paid
Employee contribution
Acquisitions/disposals/additions
Effect of settlement, curtailment and termination
Effect of foreign currency translation
Fair value of plan assets as of 31 December
Funded status
Swiss plan
3 530
100
76
–90
587
–129
27
1
–418
3 684
3 660
281
101
–129
27
1
–407
3 534
–150
Foreign plans
1 805
7
76
Other benefits
341
5
12
193
–60
–4
–24
–114
1 879
1 742
217
65
–60
–24
–117
1 823
–56
52
–17
–22
371
0
17
–17
0
–371
Total
5 676
112
164
–90
832
–206
27
–4
–23
–554
5 934
5 402
498
183
–206
27
0
–23
–524
5 357
–577
68 Swiss Reinsurance Company Consolidated 2015 Annual Report
2015
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 settlement, curtailment and termination
Effect of foreign currency translation
Benefit obligation as of 31 December
Fair value of plan assets as of 1 January
Actual return on plan assets
Company contribution
Benefits paid
Employee contribution
Acquisitions/disposals/additions
Effect of settlement, curtailment and termination
Effect of foreign currency translation
Fair value of plan assets as of 31 December
Funded status
Swiss plan
3 684
111
42
Foreign plans
1 879
7
61
Other benefits
371
5
10
236
–189
26
2
–36
3 876
3 534
36
94
–189
26
2
–25
3 478
–398
–49
–60
2
–103
1 737
1 823
7
61
–60
1
–108
1 724
–13
–2
–16
–5
363
0
16
–16
0
–363
Amounts recognised in „Other assets“ and „Accrued expenses and other liabilities“ in the Group‘s balance sheet as of
31 December were as follows:
2014
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
2015
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
Swiss plan
–150
–150
Swiss plan
–398
–398
Foreign plans
185
–3
–238
–56
Foreign plans
188
–3
–198
–13
Other benefits
–15
–356
–371
Other benefits
–15
–348
–363
Total
5 934
123
113
0
185
–265
26
2
2
–144
5 976
5 357
43
171
–265
26
1
2
–133
5 202
–774
Total
185
–18
–744
–577
Total
188
–18
–944
–774
Swiss Reinsurance Company Consolidated 2015 Annual Report 69
Financial Statements I Group Financial Statements
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows:
2014
USD millions
Net gain/loss
Prior service cost/credit
Total
2015
USD millions
Net gain/loss
Prior service cost/credit
Total
Swiss plan
897
–87
810
Swiss plan
1 134
–78
1 056
Foreign plans
323
1
324
Foreign plans
303
1
304
Other benefits
–45
–77
–122
Other benefits
–43
–67
–110
Components of net periodic benefit cost
The components of pension and post-retirement cost for the years ended 31 December were as follows:
2014
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
Net periodic benefit cost
2015
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
Net periodic benefit cost
Swiss plan
100
76
–112
Foreign plans
7
76
–84
Other benefits
5
12
43
–5
1
103
19
–3
–2
13
–12
–11
–6
Swiss plan
111
42
–113
Foreign plans
7
61
–71
Other benefits
5
10
76
–9
2
109
17
14
–4
–10
1
Total
1 175
–163
1 012
Total
1 394
–144
1 250
Total
112
164
–196
50
–19
–1
110
Total
123
113
–184
89
–19
2
124
70 Swiss Reinsurance Company Consolidated 2015 Annual Report
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended
31 December were as follows:
2014
USD millions
Net gain/loss
Prior service cost/credit
Amortisation of:
Net gain/loss
Prior service cost
Effect of settlement, curtailment and termination
Exchange rate gain/loss recognised during the year
Total recognised in other comprehensive income, gross of tax
Total recognised in net periodic benefit cost
and other comprehensive income, gross of tax
2015
USD millions
Net gain/loss
Prior service cost/credit
Amortisation of:
Net gain/loss
Prior service cost
Effect of settlement, curtailment and termination
Exchange rate gain/loss recognised during the year
Total recognised in other comprehensive income, gross of tax
Total recognised in net periodic benefit cost
and other comprehensive income, gross of tax
Swiss plan
418
–90
Foreign plans
60
–4
Other benefits
52
–43
5
290
393
–19
3
–19
21
34
12
11
75
69
Swiss plan
313
Foreign plans
15
Other benefits
–2
–76
9
246
355
–17
–18
–20
–6
4
10
12
13
Total
530
–94
–50
19
0
–19
386
496
Total
326
0
–89
19
0
–18
238
362
The estimated net loss and prior service credit for the defined benefit pension plans that will be amortised from accumulated
other comprehensive income into net periodic benefit cost in 2016 are USD 85 million and USD 9 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 2016 are USD 4 million and USD 9 million,
respectively.
The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits
was USD 5 469 million and USD 5 546 million as of 31 December 2014 and 2015, respectively.
Pension plans with an accumulated benefit obligation in excess of plan assets as of 31 December were as follows:
USD millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2014
4 769
4 720
4 379
2015
4 881
4 840
4 282
Swiss Reinsurance Company Consolidated 2015 Annual Report 71
Financial Statements I Group Financial Statements
Principal actuarial assumptions
Assumptions used to determine
obligations at the end of the year
Discount rate
Rate of compensation increase
Assumptions used to determine net
periodic pension costs for the year ended
Discount rate
Expected long-term return
on plan assets
Rate of compensation increase
Assumed medical trend rates
at year end
Medical trend – initial rate
Medical trend – ultimate rate
Year that the rate reaches
the ultimate trend rate
Swiss plan
Foreign plans weighted average
Other benefits weighted average
2014
2015
2014
2015
2014
2015
1.1%
2.3%
2.3%
3.3%
2.3%
0.8%
2.0%
1.1%
3.3%
2.3%
3.4%
2.8%
4.4%
5.1%
3.2%
3.6%
2.8%
3.4%
4.2%
2.8%
2.7%
2.1%
2.7%
2.1%
3.5%
2.7%
2.1%
2.1%
6.0%
4.5%
2019
6.1%
4.6%
2020
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 2015:
USD millions
Effect on total of service and interest cost components
Effect on post-retirement benefit obligation
1 percentage point
increase
1
26
1 percentage point
decrease
–1
–22
72 Swiss Reinsurance Company Consolidated 2015 Annual Report
Plan asset allocation by asset category
The actual asset allocation by major asset category for defined benefit pension plans as of the respective measurement dates in
2014 and 2015 is as follows:
Asset category
Equity securities
Debt securities
Real estate
Other
Total
Swiss plan allocation
Foreign plans allocation
2014
2015 Target allocation
2014
2015 Target allocation
28%
46%
18%
8%
100%
26%
47%
21%
6%
100%
25%
47%
20%
8%
100%
27%
67%
0%
6%
100%
22%
71%
1%
6%
100%
22%
70%
1%
7%
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 6 million (0.1% of total plan assets) and USD 6 million (0.1 % of total
plan assets) as of 31 December 2014 and 2015, 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.
Assets measured at fair value
For a description of the different fair value levels and valuation techniques see Note 8 “Fair value disclosures”.
Certain items reported as pension plan assets at fair value in the table below are not within the scope of Note 8, 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 8.
Swiss Reinsurance Company Consolidated 2015 Annual Report 73
Financial Statements I Group Financial Statements
As of 31 December, the fair values of pension plan assets by level of input were as follows:
2014
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
Total assets at fair value
Cash
Total plan assets
2015
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
Total assets at fair value
Cash
Total plan assets
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
9
976
–3
53
21
1 056
146
1 202
146
864
1 846
22
2
1
483
11
59
3 434
4
3 438
578
139
717
717
Quoted prices in
active markets for
identical assets
(Level 1)
Significant other
observable inputs
(Level 2)
Significant
unobservable inputs
(Level 3)
34
917
–9
129
19
1 090
71
1 161
149
775
1 890
16
1
4
384
9
79
3 307
–4
3 303
596
142
738
738
Total
155
864
1 846
22
2
1
1 459
–3
642
219
5 207
150
5 357
Total
183
775
1 890
16
1
4
1 301
–9
734
240
5 135
67
5 202
74 Swiss Reinsurance Company Consolidated 2015 Annual Report
Assets measured at fair value using significant unobservable inputs (Level 3)
For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs
were as follows:
2014
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
Impact of foreign exchange movements
Closing balance as of 31 December
2015
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
Impact of foreign exchange movements
Closing balance as of 31 December
Real estate
631
Other assets
132
5
14
–4
–8
139
13
–66
578
Real estate
578
Other assets
139
10
12
–4
596
–13
17
6
–7
142
Total
763
5
14
9
–74
717
Total
717
–3
17
18
–11
738
Expected contributions and estimated future benefit payments
The employer contributions expected to be made in 2016 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 2015, the projected benefit payments, which reflect expected future service, not adjusted for transfers in
and for employees’ voluntary contributions, are as follows:
USD millions
2016
2017
2018
2019
2020
Years 2021–2025
Swiss plan
204
197
196
195
191
905
Foreign plans
61
65
67
70
72
385
Other benefits
16
16
17
18
19
104
Total
281
278
280
283
282
1394
Defined contribution pension plans
The Group sponsors a number of defined contribution plans to which employees and the Group make contributions. The
accumulated balances are paid as a lump sum at the earlier of retirement, termination, disability or death. The amount expensed
in 2014 and in 2015 was USD 73 million and USD 70 million, respectively.
Swiss Reinsurance Company Consolidated 2015 Annual Report 75
Financial Statements I Group Financial Statements
14 Share-based payments
Since 2012 compensation arrangements are part of Swiss Re Group arrangements. Compensation awards for the Group,
including those granted prior to 2012, settle in shares of Swiss Re Ltd. Performance measures of the compensation awards are
measured at the Swiss Re Group level.
As of 31 December 2014 and 2015, the Group had the share-based compensation plans described below.
Total compensation cost for share-based compensation plans recognised in net income was USD 69 million and USD 56 million
in 2014 and 2015, respectively. The related tax benefit was USD 15 million and USD 12 million, respectively.
Stock option plans
No options were granted under stock option plans from 2007 onwards. 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 for the year ended 31 December 2015 is as follows:
Outstanding as of 1 January
Outstanding as of 31 December
Exercisable as of 31 December
Weighted average
exercise price in CHF
84
82
82
Number of options
100 000
100 000
100 000
The weighted remaining contractual life is 0.3 years and all stock options outstanding are also exercisable. The fair value of each
option grant was estimated on the date of grant using a binomial option-pricing model. The underlying strike price for the
outstanding option series has been adjusted for the special dividend payout in 2013, 2014 and 2015.
Restricted shares
The Group granted 25 153 and 7 776 restricted shares to selected employees in 2014 and 2015, respectively. Moreover, as an
alternative to the Group’s cash bonus programme, 302 260 and 288 125 shares were delivered during 2014 and 2015,
respectively, which are not subject to forfeiture risk.
A summary of the movements in shares relating to outstanding awards granted under the restricted share plans for the year
ended 31 December 2015 is as follows:
Non-vested at 1 January
Granted
Delivery of restricted shares
Outstanding as of 31 December
1 Equal to the market price of the shares on the date of grant.
Weighted average
grant date fair value in CHF1
73
87
75
79
Number of shares
578 836
295 901
–343 719
531 018
76 Swiss Reinsurance Company Consolidated 2015 Annual Report
Leadership Performance Plan
The Leadership Performance Plan (LPP) awards are expected to be settled in shares, and the requisite service as well as the
maximum contractual term are three years. For LPP 2014 and LPP 2015 awards an additional two-year holding period applies
for all members of the Group EC and GMDs. At grant date the award is split equally into two underlying components - Restricted
Share Units (RSUs) and Performance Share Units (PSUs). The RSUs are measured against a ROE performance condition and will
vest within a range of 0–100%. The PSUs are based on relative total shareholder return, measured against a pre-defined group
of peers and will vest within a range of 0–200%. The fair values of both components are measured separately, based on
stochastic models.
The fair value assumptions included in the grant valuation are based on market estimates for dividends (and an additional special
dividend of CHF 4.00 for the LPP 2013, a special dividend of CHF 4.15 for the LPP 2014, and a special dividend of CHF 3.00 for
the LPP 2015 respectively) and the risk free rate based on the average of the 5-year US government bond rate taken monthly
over each annual period in the performance period. This resulted in risk free rates between 1.0% and 3.1% for all LPP plans.
For the year ended 31 December 2015, the outstanding units were as follows:
RSUs
Non-vested at 1 January
Granted
Forfeitures
Vested
Outstanding as of 31 December
Grant date fair value in CHF
PSUs
Non-vested at 1 January
Granted
Forfeitures
Vested
Outstanding as of 31 December
Grant date fair value in CHF
LPP 2012
439 870
LPP 2013
334 650
LPP 2014
359 620
–1 610
–438 260
0
42.00
–4 790
–5 530
329 860
61.19
354 090
60.85
518 585
389 465
363 430
–1 900
–516 685
0
35.60
–5 585
–5 590
383 880
52.59
357 840
60.21
LPP 2015
327 875
–3 185
324 690
67.65
361 590
–3 510
358 080
61.37
Swiss Reinsurance Company Consolidated 2015 Annual Report 77
Financial Statements I Group Financial Statements
Unrecognised compensation costs
As of 31 December 2015, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based
compensation awards was USD 56 million and the weighted average period over which that cost is expected to be recognised
is 1.8 years.
The number of shares authorised for the Group’s share-based payments to employees was 3 930 229 and 3 554 592 as of
31 December 2014 and 2015, respectively. The Group’s policy is to ensure that sufficient treasury shares are available at all
times to settle future share-based compensation plans.
Employee Participation Plan
The 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.
From 2013 onwards, the Employee Participation Plan was discontinued and no more options were issued. In 2014 and 2015,
the Group contributed USD 8 million and USD 1 million, respectively.
Global Share Participation Plan
In June 2013, the Swiss Re Group introduced the Global Share Participation Plan, which is a share purchase plan that
was rolled out globally for the benefit of employees of companies within the Swiss Re Group. The Group makes a financial
contribution to participants in the Plan, by matching the commitment that they make during the plan cycle with additional
Swiss Re Ltd shares.
If the employee is still employed by the Group at the end of a plan cycle, the employee will receive an additional number of
shares equal to 30% of the total number of purchased and dividend shares held at that time. In 2014 and 2015, the Group
contributed USD 7 million and USD 9 million to the plans and authorised 109 461 and 211 472 shares as of 31 December 2014
and 2015, respectively.
78 Swiss Reinsurance Company Consolidated 2015 Annual Report
15 Related parties
The Group assumes and cedes certain re/insurance contracts from/to affiliated companies within the Swiss Re Group, but
outside the Group. The Group also conducts various investing activities, including loans, funding agreements and derivatives,
with affiliated companies in the Swiss Re Group. The Group enters into various financing activities where it borrows funds from
affiliated companies in the Swiss Re Group. In addition, the Group enters into various arrangements with affiliated companies in
the Swiss Re Group for the provision of services. These activities result in the following related party transactions on the income
statement and balance sheet:
2014
USD millions
Premiums earned
Net investment income – non-participating business
Net realised investment income – non-participating business
Other revenues
Total revenues
Corporate Solutions
–158
40
–34
11
–141
Claims and claim adjustment expenses
Life and health benefits
Acquisition costs
Other expenses
Interest expenses
Total expenses
–32
27
462
457
2015
USD millions
Premiums earned
Net investment income – non-participating business
Net realised investment income – non-participating business
Other revenues
Total revenues
Corporate Solutions
57
35
–16
13
89
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Other expenses
Interest expenses
Total expenses
204
–6
472
670
Admin Re®
272
14
19
305
–231
–2
20
–213
Admin Re®
244
11
255
–240
–2
–1
17
–226
Other
32
11
–63
–20
–16
–13
–145
–31
–205
Other
10
–78
1
–67
–199
–36
–235
Total
146
65
–97
30
144
–48
–231
12
337
–31
39
Total
301
45
–94
25
277
204
–240
–2
–7
290
–36
209
Swiss Reinsurance Company Consolidated 2015 Annual Report 79
Financial Statements I Group Financial Statements
2014
USD millions
Policy loans, mortgages and other loans
Other invested assets
Accrued investment income
Premiums and other receivables
Reinsurance recoverable on unpaid claims and policy benefits
Funds held by ceding companies
Deferred acquisition costs
Other assets
Total assets
Unpaid claims and claim adjustment expenses
Liabilities for life and health policy benefits
Unearned premiums
Funds held under reinsurance treaties
Reinsurance balances payable
Short-term debt
Accrued expenses and other liabilities
Total liabilities
2015
USD millions
Policy loans, mortgages and other loans
Other invested assets
Accrued investment income
Premiums and other receivables
Reinsurance recoverable on unpaid claims and policy benefits
Funds held by ceding companies
Deferred acquisition costs
Other assets
Total assets
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
Short-term debt
Accrued expenses and other liabilities
Total liabilities
Corporate Solutions
Admin Re®
32
115
486
1 337
4
232
2 206
5 835
153
1
222
14
6 225
24
1
3
28
6
–22
42
26
Corporate Solutions
Admin Re®
22
102
390
816
5
162
1 497
4 730
131
1
215
17
5 094
14
4
18
4
6
133
61
204
Other
1 902
29
4
11
7
6
1 959
31
18
1
6
3 802
1 632
5 490
Other
1 792
24
4
37
1 857
2 787
1 531
4 318
Total
1 902
61
4
150
486
1 338
11
241
4 193
5 872
–22
171
2
228
3 802
1 688
11 741
Total
1 792
46
4
116
390
816
5
203
3 372
4 734
6
133
131
1
215
2 787
1 609
9 616
Instrument
Issued in
Senior loan
2005
Senior loan
2008
2015
Senior loan
Total short-term debt as of 31 December 2015
Maturity
2028
2028
2016
Currency
GBP
GBP
USD
Nominal in millions
100
240
2 285
Interest rate
1 month LIBOR
4.98%
3 month LIBOR +0.30%
Book value in USD millions
147
355
2 285
2 787
80 Swiss Reinsurance Company Consolidated 2015 Annual Report
As of 31 December 2014 and 2015, the Group’s investment in mortgages and other loans included USD 285 million and
USD 287 million, respectively, of loans due from employees, and USD 210 million and USD 196 million, respectively, due from
officers. These loans generally consist of mortgages offered at variable and fixed interest rates.
In November 2015, SRZ entered into a subordinated funding facility with its parent company Swiss Re Ltd under which SRZ has
the right, among others, to issue subordinated notes to Swiss Re Ltd of up to USD 700 million at any time before August 2030.
For its various rights, SRZ owes Swiss Re Ltd an unconditional fixed commitment fee, payable in annual installments calculated
as 5.80% on the total facility amount. Annually, SRZ receives a partial reimbursement of the commitment fee equal to 2.22% per
annum on the undrawn facility amount. As of 31 December 2015, the facility was undrawn.
Swiss Reinsurance Company Consolidated 2015 Annual Report 81
Financial Statements I Group Financial Statements
16 Commitments and contingent liabilities
Leasing commitments
As part of its normal business operations, the Group enters into a number of lease agreements. As of 31 December, such
agreements, which are operating leases, total the following obligations for the next five years and thereafter:
USD millions
2016
2017
2018
2019
2020
After 2020
Total operating lease commitments
Less minimum non-cancellable sublease rentals
Total net future minimum lease commitments
2015
87
81
64
47
42
257
578
30
548
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
2014
68
0
68
2015
62
0
62
Other commitments
As a participant in limited and other 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 2015 were USD 1 342 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 matters is not expected to have a material adverse effect on the Group’s
business, consolidated financial position or results of operations.
82 Swiss Reinsurance Company Consolidated 2015 Annual Report
17 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 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.
Swiss Reinsurance Company Consolidated 2015 Annual Report 83
Financial Statements I Group Financial Statements
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 from a sponsor through insurance or derivative contracts. In credit-linked securitisations, the securitisation
vehicle assumes the credit risk from a sponsor 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,in
which case maximum loss equals to the Group’s investment balance.
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.
Life and health funding vehicles
The Group participates in certain structured transactions that retrocede longevity and mortality risks to captive reinsurers with
an aim to provide regulatory capital credit to a transaction sponsor through creation of funding notes by a funding vehicle which
is generally considered a VIE. The Group’s participation in these transactions is generally limited to providing contingent funding
support via a financial contract to a funding vehicle, which represents a potentially significant variable interest. The Group does
not have power to direct activities of the funding vehicles and therefore is not a primary beneficiary of the funding vehicles in
these transactions. The Group’s maximum exposure in these transactions equals either the total contract notional or funding
notes issued by the vehicle, depending on the specific contractual arrangements.
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, it 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 primarily of investment-grade securities, but also structured products, hedge fund
units and derivatives.
The Group consolidates a debt financing vehicle as it has power over the investment management in the vehicle, 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.
Investment vehicles
Investment vehicles are private equity limited partnerships, in which the Group is invested as part of its investment strategy.
Typically, the Group’s variable interests arise through limited partner ownership interests in the vehicles. The Group does not own
the general partners of the limited partnerships, and does not have any significant kick-out or participating rights. Therefore
the Group lacks power over the relevant activities of the vehicles and, consequently, does not qualify as the primary beneficiary.
The Group is exposed to losses when the values of the investments held by the vehicles decrease. The maximum exposure to
loss equals the carrying amount of the ownership interest.
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.
The Group did not provide financial or other support to any VIEs during 2015 that it was not previously contractually required
to provide.
84 Swiss Reinsurance Company Consolidated 2015 Annual Report
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
Short-term investments
Other invested assets
Cash and cash equivalents
Accrued investment income
Premiums and other receivables
Deferred acquisition costs
Deferred tax assets
Other assets
Total assets
Unpaid claims and claim adjustment expenses
Unearned premiums
Reinsurance balances payable
Deferred and other non-current tax liabilities
Accrued expenses and other liabilities
Long-term debt
Total liabilities
2014
Carrying value Whereof restricted
4 200
95
2015
Carrying value Whereof restricted
3 876
88
4 200
95
16
25
38
19
16
4 409
3 876
88
26
147
42
34
9
38
8
4 268
147
42
34
9
38
4 234
25
38
19
4 377
Carrying value
Whereof limited
recourse
177
7
2 903
3 087
177
7
2 903
3 087
Carrying value
53
26
2
96
17
2 720
2 914
Whereof
limited recourse
53
26
2
96
17
2 720
2 914
Swiss Reinsurance Company Consolidated 2015 Annual Report 85
Financial Statements I 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 held a
variable interest but was not the primary beneficiary as of 31 December:
USD millions
Fixed income securities available-for-sale
Policy loans, mortgages and other loans
Other invested assets
Total assets
Accrued expenses and other liabilities
Total liabilities
2014
69
84
880
1 033
167
167
2015
52
1
918
971
45
45
The following table shows the Group’s assets, liabilities and maximum exposure to loss related to VIEs in which the Group held a
variable interest but was not the primary beneficiary as of 31 December:
USD millions
Insurance-linked/credit-
linked securitisations
Life and health funding
vehicles
Swaps in trusts
Investment vehicles
Other
Total
Total assets
Total
liabilities
Maximum
exposure
to loss1
2014
Difference between
exposure
and liabilities
Total assets
Total
liabilities
Maximum
exposure
to loss1
2015
Difference between
exposure
and liabilities
70
35
845
83
1 033
68
1 683
–2
845
883
–2
82
85
167
68
1 683
–
845
798
–
52
2
146
771
971
52
1 777
–2
773
–2
1
44
45
52
1 776
–
773
–
1Maximum exposure to loss is the loss the Group would absorb from a variable interest in a VIE in the event that all of the assets of the VIE are deemed worthless.
2The maximum exposure to loss for swaps in trusts cannot be meaningfully quantified due to their derivative character.
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.
86 Swiss Reinsurance Company Consolidated 2015 Annual Report
18 Restructuring provision
In 2015, the Group set up a provision of USD 12 million for restructuring costs, and released USD 2 million.
The increase of the provision in the Property & Casualty Reinsurance business segment of USD 11 million is mostly related to
leaving benefits.
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:
2014
USD millions
Balance as of 1 January
Increase in provision
Release of provision
Costs incurred
Effect of foreign currency translation
Balance as of 31 December
2015
USD millions
Balance as of 1 January
Increase in provision
Release of provision
Costs incurred
Effect of foreign currency translation
Balance as of 31 December
Property & Casualty
Reinsurance
64
16
–3
–15
–5
57
Property & Casualty
Reinsurance
57
11
–2
–28
–3
35
Other
0
0
Other
0
1
–1
0
Total
64
16
–3
–15
–5
57
Total
57
12
–2
–29
–3
35
Swiss Reinsurance Company Consolidated 2015 Annual Report 87
Financial Statements I 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 accompanying consolidated financial statements of Swiss Reinsurance Company Ltd
and its subsidiaries (the “Company”), which comprise the consolidated balance sheet as of 31 December 2015, and the related
consolidated income statement, statement of comprehensive income, statement of shareholder’s equity, statement of cash flow
and notes (pages 2 to 87) for the year ended 31 December 2015.
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 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 about 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 judgement, 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 Company’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 Company’s internal control system. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of significant 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 referred to above present fairly, in all material respects, the financial position
of the Company at 31 December 2015, the results of their operations and their cash flows for the year then ended in accordance
with accounting principles generally accepted in the United States of America and comply with Swiss law.
88 Swiss Reinsurance Company Consolidated 2015 Annual Report
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 Ltd
Alex Finn
Audit expert
Auditor in charge
Bret Griffin
Zurich, 15 March 2016
Swiss Reinsurance Company Consolidated 2015 Annual Report 89
Financial Statements I Swiss Reinsurance Company Ltd
Annual Report
Swiss Reinsurance Company Ltd
The management report follows the regulations as outlined in article 961c of the Swiss Code of Obligations.
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 for the Reinsurance Business Unit. The Company is
a wholly-owned subsidiary of Swiss Re Ltd, the ultimate parent company, domiciled in Zurich, Switzerland. In 2015, the
Company employed a worldwide staff at an average of 4 018 full time equivalents.
Financial year 2015
Net income for 2015 amounted to CHF 6 432 million, compared to CHF 1 666 million in the prior year. The financial year was
impacted by an ongoing internal realignment of the legal entity structure of the Reinsurance Business Unit to strengthen its
regional footprint. As a consequence, the Company sold its subsidiary European Reinsurance Company of Zurich Ltd and
contributed its subsidiaries, Swiss Re America Holding Corporation and Swiss Re Europe Holdings S.A., to a newly established
subsidiary Swiss Re Reinsurance Holding Company Ltd. The sale generated a one-off realised gain of CHF 6 383 million, which
was partly offset by a value adjustment on the investment in Swiss Re America Holding Corporation of CHF 1 821 million prior to
its contribution to Swiss Re Reinsurance Holding Company Ltd.
The Life & Health Reinsurance result improved from a loss in the prior year of CHF 390 million to a gain of CHF 481 million in
2015. The improvement reflected primarily the gain from the recapture of pre-2004 US individual life business by Swiss Re
Life & Health America Inc. The Property & Casualty Reinsurance result decreased from CHF 1 753 million to CHF 1 153 million in
the current year, despite benign natural catastrophe losses in both years. The prior year benefited from reserve releases that
were not repeated in 2015.
90 Swiss Reinsurance Company Ltd 2015 Annual Report
Reinsurance result
Reinsurance result amounted to CHF 1 634 million in 2015, compared to CHF 1 363 million in 2014.
Premiums earned increased from CHF 10 311 million in 2014 to CHF 12 568 million in 2015. Excluding the effect of foreign
exchange movements, total premiums earned amounted to CHF 12 684 million in 2015.
Property and casualty premiums earned increased from CHF 6 793 million in 2014 to CHF 7 712 million in 2015. The increase
was driven by renewed business previously written on Swiss Reinsurance America Corporation.
Life and health premiums earned increased from CHF 3 518 million in 2014 to CHF 4 856 million in 2015. Prior to the accounting
policy change for life and health portfolio transfers in 2015, as disclosed in the significant accounting principles, the
consideration for the assumption or release of the liability for life and health policy benefits was accounted as premiums written.
Applying the new accounting policy in 2014, life and health premiums earned would have amounted to CHF 4 775 million.
Thus, the reported increase in the income statement resulted from non-recurring portfolio transfers in 2014, namely the novation
of business to an affiliated company and management actions related to the pre-2004 US individual life business. This was partly
offset by a portfolio entry related to a quota share increase of business assumed from an affiliated company.
Other reinsurance revenues of CHF 1 209 million included primarily the gain from the recapture of pre-2004 US individual life
business by Swiss Re Life & Health America Inc. and income from funds held by ceding companies related to life and health
business.
Claims paid and claim adjustment expenses net and change in unpaid claims net increased from CHF 7 564 million in 2014 to
CHF 9 442 million in 2015. Excluding the effect of foreign exchange movements, total claims paid and claim adjustment
expenses net and change in unpaid claims net amounted to CHF 9 370 million in 2015.
Property and casualty claims paid and claim adjustment expenses net and change in unpaid claims net increased from
CHF 3 166 million in 2014 to CHF 4 046 million in 2015, mainly driven by the renewed business previously written on Swiss Re
America Corporation.
Life and health claims paid and claim adjustment expenses net and change in unpaid claims net increased by CHF 998 million to
CHF 5 396 million in 2015. The increase was mainly driven by the recapture of pre-2004 US individual life business in 2015,
reflecting a payable to Swiss Re Life & Health America Inc. This impact was offset by the effect in life and health benefits net, due
to the reserve release.
Positive life and health benefits net of CHF 1 647 million were driven by the reserve release related to the recapture of the
pre-2004 US individual life business by Swiss Re Life & Health America Inc. The prior year included the reserve release related to
a novation of business to an affiliated company, partly offset by a non-recurring portfolio transfer, combined with higher volume
retroceded from an affiliated company.
The Company further strengthened its reserves by increasing the equalisation provision by CHF 344 million.
Acquisition costs net increased from CHF 2 282 million to CHF 3 026 million in 2015, mainly related to volume increase of
property and casualty business.
Investment result
Investment result amounted to CHF 5 833 million in 2015, compared to CHF 1 485 million in 2014.
The increase reflected the realised gain on the sale of the subsidiary European Reinsurance Company of Zurich Ltd of
CHF 6 383 million.
In contrast, the year under review showed higher investment expenses, mostly driven by the value adjustment on the investment
in Swiss Re America Holding Corporation of CHF 1 821 million and higher value adjustments on fixed income securities
CHF 112 million.
Swiss Reinsurance Company Ltd 2015 Annual Report 91
Financial Statements I Swiss Reinsurance Company Ltd
Assets
Total assets increased by 3% to CHF 90 263 million as of 31 December 2015, compared to the prior year. Excluding the effect
of foreign exchange movements, total assets amounted to CHF 92 782 million as of 31 December 2015.
Total investments increased by CHF 1 054 million to CHF 51 507 million as of 31 December 2015. The increase was mainly
driven by the issuance of a loan to Swiss Re Reinsurance Holding Company Ltd of CHF 6 727 million, to fund the purchase
of the subsidiary European Reinsurance Company of Zurich Ltd, partly offset by net repayments of intragroup loan assets of
CHF 1 475 million. Thereof CHF 789 million was related to a cashless hybrid subordinated loan repayment against the current
account payable with the same subsidiary. Further, investments in subsidiaries and affiliated companies decreased net by
CHF 2 054 million, mostly as a result of the value adjustment on the investment in Swiss Re America Holding Corporation of
CHF 1 821 million prior to its contribution to Swiss Re Reinsurance Holding Company Ltd. In addition, the decrease in short-term
investments was mainly related to the funding of the partial repayment of credit facility drawdowns of CHF 963 million from and
the dividend payment in cash to its parent company Swiss Re Ltd.
Funds held by ceding companies decreased by CHF 1 383 million to CHF 13 639 million, mainly driven by the commutation of
two large property and casualty treaties.
Reinsurance recoverable on technical provisions retroceded decreased from CHF 8 871 million to CHF 7 996 million. This was
driven by lower retroceded property and casualty business from the Company’s branches in Japan and Australia as well as
higher retained business as a result of the 2012 expiry of a large retrocession treaty.
The increase in other assets by CHF 3 464 million to CHF 5 715 million mainly reflected higher receivables from securities
lending collateral and reverse repurchase transactions.
Liabilities
Total liabilities decreased by 1% to CHF 76 003 million as of 31 December 2015. Excluding the effect of foreign exchange
movements, total liabilities amounted to CHF 79 084 million as of 31 December 2015. Technical provisions gross decreased by
CHF 1 272 million to CHF 50 626 million as of 31 December 2015, mostly due to the strengthening of the Swiss francs against
most major currencies, in particular Australian dollar, Great Britain pound and the Euro.
Excluding the foreign exchange movements, unpaid claims gross increased by CHF 853 million, mainly due to the acquisition
of a casualty run-off portfolio in the United Kingdom and the renewed business previously written on Swiss Re America
Corporation. This impact was partly offset by the commutation of a large treaty and favourable claims development in affiliated
companies. Liabilities for life and health policy benefits gross decreased by CHF 1 735 million, mainly due to the reserve release
related to the recapture of pre-2004 US individual life business by Swiss Re Life & Health America Inc.
In addition, the equalisation provision was increased by CHF 344 million in 2015.
The decrease in debt from CHF 5 127 million as of 31 December 2014 to CHF 3 888 million as of 31 December 2015 was driven
by a partial repayment of credit facility drawdowns from the parent company of CHF 963 million.
Funds held under reinsurance treaties decreased by CHF 998 million, due to the strengthening of the Swiss francs against major
currencies, in particular Canadian dollar. Excluding the effect of foreign exchange movement, funds held under reinsurance
treaties decreased by CHF 353 million. This reflected mainly the novation of life and health business to an affiliated company.
Other liabilities increased net by CHF 2 123 million to CHF 5 369 million as of 31 December 2015, mainly based on higher
intragroup payables under securities lending agreements and securities sold under agreement to repurchase. This was partly
offset by a net decrease in an intragroup current account payable of CHF 649 million, mostly driven by the cashless hybrid
subordinated loan repayment of CHF 789 million with the same intragroup company.
Shareholder’s equity
Shareholder’s equity increased from CHF 10 707 million as of 31 December 2014 to CHF 14 260 million as of
31 December 2015.
The increase reflected the net income for the financial year 2015 of CHF 6 432 million, partly offset by the dividend payment in
cash of CHF 2 879 million to its parent company Swiss Re Ltd.
92 Swiss Reinsurance Company Ltd 2015 Annual Report
Future prospects and business development
Structural changes
New legal entity structure in the Reinsurance Business Unit
Over the coming years, the Reinsurance Business Unit intends to continue to align its legal entity structure to its regional footprint
and further strengthen its presence in Asia. As a further step and following the legal entity restructuring in 2015, European
Reinsurance Company of Zurich Ltd will novate its European business to the Company effective as of 1 January 2016, resulting
in a one-off increase in the Company‘s assets and liabilities of approximatively CHF 8 billion.
Transfer of employees and carve-out of Swiss Re Management Ltd
The Company established in 2015 the subsidiary Swiss Re Management Ltd. Swiss Re Management Ltd and its subsidiaries and
branches serve as the employing company for Swiss Re’s Group Functions employees located in Switzerland, the United
Kingdom, India, Slovakia and the United States. The Swiss Re Management Ltd group will be transferred to the parent company
Swiss Re Ltd by way of distribution of an ordinary dividend in-kind for the financial year 2015.
The creation of Swiss Re Management Ltd and the establishment of a separate holding company structure for Swiss Re‘s Group
Functions employees is part of Swiss Re‘s efforts to align its legal entity structure to the Swiss Re Group‘s operating model
launched in 2012. It corresponds to best practice corporate governance and is intended to foster transparency and
accountability.
Together with related assets and liabilities, Swiss Re’s Group Functions employees in Switzerland employed by the Company
were transferred to Swiss Re Management Ltd and Corporate Solutions employees in Switzerland employed by the Company
were transferred to Swiss Re Corporate Solutions Ltd. This change of employing legal entities was effective as of 1 January 2016
and will not affect or alter the way Swiss Re conducts business or the way in which it operates with its clients.
Macroeconomic environment
The global economy is still expected to improve modestly in 2016 and 2017, with slightly higher growth in many regions,
including the US, the UK and the Eurozone. Downside risks have increased along with market volatility. The main challenges
are the tightening of monetary policy in the US, China’s transition from an investment- to a consumption-driven economy, low
commodity prices and a plethora of political issues such as Middle East turmoil and associated refugee crisis, Ukraine and a
possible Brexit. The biggest risks are a hard landing in China, followed by an emerging market crisis and a stagnation in Europe
as a consequence of political paralysis.
Property and Casualty business
Market environment
The reinsurance industry experienced in 2015 a fourth year of solid underwriting results, which benefited from reserve releases
and below average natural catastrophe losses. However, reinsurance prices in property have been softening since mid-2013 and
this trend has recently spilled over into other lines of business. In general, rates in casualty have been more stable than in
property. Premium growth in the non-life reinsurance sector is expected to weaken in 2016 and 2017.
Strategy and priorities
The Company is committed to deliver long-term profitability and economic growth, in spite of a continued challenging property
and casualty environment. Growth aspirations are focused on selected areas, with dedicated strategic initiatives in place, such as
high-growth markets, casualty, regional and national clients and transactional growth. Additionally, differentiation continues to
be key, through financial strength, client interaction model and a knowledge company approach.
January renewals
Similarly to the past several years, the January renewals in 2016 were completed under soft market conditions, characterised
by abundant capacity and continued price erosion on most lines of business, especially in property. The Company has
accomplished significant successes locally, due to active differentiation in new business and completion of new large
transactions.
Swiss Reinsurance Company Ltd 2015 Annual Report 93
Financial Statements I Swiss Reinsurance Company Ltd
Life and Health Business
Market environment
Premiums in traditional life reinsurance globally are expected to increase only marginally over the next two years. Life reinsurers
are likely to continue to seek non-traditional or less-developed areas of growth. In the next few years, many primary insurers
might look for solutions to manage the capital strain that the macroeconomic environment and changes in regulation will inflict,
creating potential new opportunities for reinsurers. Additionally, life reinsurers are increasingly developing solutions to take
longevity risk from primary firms with annuity business, and from private and public pension plans.
Strategy and priorities
The Company remains focused on profitable growth, notably through the development of its health business and its business in
high-growth markets. Following the current market trends towards non-traditional products, the Company continues to develop
tailor-made solutions while remaining focused on traditional mortality business.
Investments
Strategy and priorities
Financial investments are managed in accordance with Swiss Re‘s asset management policy and the Company‘s investment
guidelines, which are intended to ensure compliance with regulatory requirements. The general principle governing investment
management in the Company is the creation of economic value on the basis of returns relative to the liability benchmark, while
adhering to the investment guidelines and the general prudence principle. The liability benchmark is determined by
approximating an investable benchmark from projected liability cash flows. A cash benchmark is used for the economic surplus.
Outlook
In terms of economic outlook, the Company‘s baseline assumptions remain for the moderate global growth environment to
continue in 2016, led by the US economy. The cyclical Eurozone recovery is also expected to carry on, but remain modest and
uneven. Meanwhile, growth in China is set to slow further in 2016 amid the country‘s difficult transition to a more consumer-
driven economy.
Regarding the investment outlook for 2016, government bond yields are forecast to rise moderately. The preference remains for
high-quality corporate credit, while maintaining a neutral outlook for equities in the longer-term. Due to the various downside
risks, asset price volatility is expected to be elevated in 2016.
94 Swiss Reinsurance Company Ltd 2015 Annual Report
Risk assessment
The bodies and committees mentioned below belong to the Swiss Re Group as the identification, assessment and control of risk
exposures of Swiss Reinsurance Company Ltd on a stand-alone basis is integrated in and covered by the Group risk management
organisation and processes of the Swiss Re Group.
The Board of Directors of Swiss Reinsurance Company Ltd is responsible for the company‘s overall risk tolerance. In this role they
are advised by the Board of Directors of the Swiss Re Group, which is ultimately responsible for the Group’s governance
principles and policies, including approval of the Group’s overall risk tolerance. It mainly performs risk oversight and governance
through three committees:
̤ The Finance and Risk Committee defines the Group Risk Policy and reviews risk capacity limits, monitors adherence to risk
tolerance, and reviews top risk issues and exposures.
̤ The Investment Committee reviews the financial risk analysis methodology and valuation related to each asset class and
ensures that the relevant management processes and controlling mechanisms are in place.
̤ The Audit Committee oversees internal controls and compliance procedures.
The Group Executive Committee (Group EC) is responsible for developing and implementing Swiss Re’s Group-wide risk
management framework. It also sets and monitors risk capacity limits, oversees the Economic Value Management framework,
determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group EC
has delegated various risk management responsibilities to the Group Chief Risk Officer (CRO) as well as to the Business Units.
The Group CRO, who is a member of the Group EC, reports directly to the Group CEO, and advises the Group EC, the Chairman or
the respective Group Board Committees, in particular the Finance and Risk Committee, on significant matters arising in their area
of responsibility. The Group CRO leads the Group Risk Management function, which is responsible for risk oversight and control
across Swiss Re. The Group Risk Management function is comprised of central risk management units providing shared services,
along with dedicated teams for the Reinsurance, Corporate Solutions, and Admin Re® (Life Capital since 1 January 2016)
Business Units.
The three Business Unit risk teams are led by dedicated Chief Risk Officers, who report directly to the Group CRO and have a
secondary reporting line to their respective Business Unit CEO. The Business Unit CROs are responsible for risk oversight in their
respective Business Unit, as well as for establishing proper risk governance to ensure efficient risk identification, assessment and
control. They are supported by functional, regional and legal entity CROs, who are responsible for overseeing risk management
issues that arise in their respective areas.
While the risk management organisation is closely aligned to the business organisation in order to ensure effective risk oversight,
all embedded teams and CROs remain part of the Group Risk Management function under the Group CRO. This ensures their
independence as well as a consistent Group-wide approach to overseeing and controlling risks. The central risk management
units support the CROs at Group, Business Unit and lower levels in discharging their oversight responsibilities. They do so by
providing services such as:
̤ Financial risk management
̤ Specialised risk category expertise and accumulation control
̤ Risk modelling and analytics
̤ Regulatory relations management
̤ Maintaining the central risk governance framework
The central risk management units also oversee Group liquidity and capital adequacy and maintain the Group frameworks for
controlling these risks throughout Swiss Re.
Group Risk Management is also in charge of actuarial reserving and monitoring of the reserve holdings of the
Corporate Solutions and Admin Re® Business Units, whereas in Reinsurance the setting of the reserves is performed by valuation
actuaries within the P&C and L&H Business Management units.
Risk management activities are supported by the Group Internal Audit and Compliance units. Group Internal Audit performs
independent, objective assessments of adequacy and effectiveness of internal control systems. It evaluates the execution of
processes, including those within Risk Management. The Compliance function oversees Swiss Re’s compliance with applicable
laws, regulations, rules and the Group’s Code of Conduct. In addition, it assists the Board of Directors, the Group EC and
management in identifying, mitigating and managing compliance risks.
Swiss Reinsurance Company Ltd 2015 Annual Report 95
Financial Statements I Swiss Reinsurance Company Ltd
Income statement
Swiss Reinsurance Company Ltd
For the years ended 31 December
Income statement
CHF millions
Reinsurance
Premiums written gross
Premiums written retroceded
Premiums written net
Change in unearned premiums gross
Change in unearned premiums retroceded
Change in unearned premiums net
Premiums earned
Other reinsurance revenues
Allocated investment return
Total revenues from reinsurance business
Claims paid and claim adjustment expenses gross
Claims paid and claim adjustment expenses retroceded
Claims paid and claim adjustment expenses net
Change in unpaid claims gross
Change in unpaid claims retroceded
Change in unpaid claims net
Life and health benefits gross
Life and health benefits retroceded
Life and health benefits net
Claims and claim adjustment expenses and life and health benefits
Change in equalisation provision
Claims incurred
Acquisition costs gross
Acquisition costs retroceded
Acquisition costs net
Operating costs
Acquisition and operating costs
Other reinsurance expenses
Total expenses from reinsurance business
Note
2014
2015
15 608
–4 675
10 933
–288
–334
–622
10 311
923
387
11 621
–10 252
2 939
–7 313
–145
–106
–251
1 200
93
1 293
–6 271
–400
–6 671
–3 577
1 295
–2 282
–753
–3 035
–552
–10 258
17 448
–4 403
13 045
–518
41
–477
12 568
1 209
324
14 101
–11 244
2 825
–8 419
–475
–548
–1 023
1 515
132
1 647
–7 795
–344
–8 139
–4 350
1 324
–3 026
–847
–3 873
–455
–12 467
Reinsurance result
1 363
1 634
96 Swiss Reinsurance Company Ltd 2015 Annual Report
CHF millions
Investments
Investment income
Investment expenses
Allocated investment return
Investment result
Other financial income and expenses
Other financial income
Other financial expenses
Operating result
Interest expenses on debt and subordinated liabilities
Other income and expenses
Other income
Other expenses
Income before income tax expense
Income tax expense
Net income
Note
2
2014
2015
2 306
–434
–387
1 485
500
–1 093
8 575
–2 418
–324
5 833
456
–1 065
2 255
6 858
–78
–88
168
–275
2 070
–404
1 666
93
–348
6 515
–83
6 432
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2015 Annual Report 97
Financial Statements I Swiss Reinsurance Company Ltd
Balance sheet
Swiss Reinsurance Company Ltd
As of 31 December
Assets
CHF millions
Investments
Investments in subsidiaries and affiliated companies
Fixed income securities
Loans
Mortgages
Equity securities
Shares in investment funds
Short-term investments
Alternative investments
Other investments
Total investments
Financial and reinsurance assets
Assets in derivative financial instruments
Funds held by ceding companies
Cash and cash equivalents
Reinsurance recoverable from unpaid claims
Reinsurance recoverable from liabilities for life and health policy benefits
Reinsurance recoverable from unearned premiums
Reinsurance recoverable from provisions for profit commissions
Reinsurance recoverable on technical provisions retroceded
Tangible assets
Deferred acquisition costs
Intangible assets
Premiums and other receivables from reinsurance
Other receivables
Other assets
Accrued income
Total financial and reinsurance assets
Note
2014
2015
15 388
16 859
6 610
794
672
3 942
4 857
1 331
10 130
50 453
251
15 022
2 172
5 258
1 253
2 310
50
8 871
59
842
65
6 847
649
2 251
366
37 395
13 334
17 031
11 764
806
590
4 786
2 625
571
7 982
51 507
276
13 639
1 917
4 446
1 202
2 300
48
7 996
61
1 287
79
7 320
232
5 715
234
38 756
3
3
3
3
3
3
Total assets
87 848
90 263
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
98 Swiss Reinsurance Company Ltd 2015 Annual Report
Liabilities and shareholder’s equity
CHF millions
Liabilities
Technical provisions gross
Unpaid claims
Liabilities for life and health policy benefits
Unearned premiums
Provisions for profit commissions
Equalisation provision
Total technical provisions gross
Non-technical provisions
Tax provisions
Provision for currency fluctuation
Other provisions
Total non-technical provisions
Debt
Liabilities from derivative financial instruments
Funds held under reinsurance treaties
Reinsurance balances payable
Other liabilities
Accrued expenses
Subordinated liabilities
Total liabilities
Shareholder’s equity
Share capital
Legal reserves from capital contributions
Legal capital reserves
Legal profit reserves
Voluntary profit reserves
Retained earnings brought forward
Net income for the financial year
Total shareholder’s equity
Note
2014
2015
3
3
3
3
3
3
4
31 592
13 228
5 621
257
1 200
51 898
337
821
444
1 602
5 127
552
5 634
2 948
3 246
214
5 920
31 365
11 493
5 986
238
1 544
50 626
46
921
486
1 453
3 888
588
4 636
3 532
5 369
202
5 709
77 141
76 003
34
8 057
8 057
650
272
28
1 666
10 707
34
6 778
6 778
650
272
94
6 432
14 260
Total liabilities and shareholder’s equity
87 848
90 263
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2015 Annual Report 99
Financial Statements I Swiss Reinsurance Company Ltd
Notes
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 for the Reinsurance Business Unit. The Company is a
wholly-owned subsidiary of Swiss Re Ltd, the ultimate parent company domiciled in Zurich, Switzerland.
1 Significant accounting principles
Basis of presentation
On 1 January 2013, the new Swiss accounting and financial reporting legislation entered into force based on partial revisions of
the Swiss Code of Obligations (SCO), which required implementation in 2015. Swiss Reinsurance Company Ltd adopted the
new regulation for the financial statements 2015 and chose to adapt the presentation of the 2014 financial statements to be
comparable with 2015.
The Company is a reinsurance company and has, based on Art. 111b of the Ordinance on the supervision of private insurance
companies (AVO), also to follow the Insurance Supervisory Ordinance-FINMA (AVO-FINMA), that took effect
15 December 2015. This AVO-FINMA contains specific guidance for presentation of the balance sheet, the income statement
and the notes of insurance companies and overrides the general guidance of the SCO.
With the first time application of the new regulation set in the SCO as well as in the AVO-FINMA, some of the prior year‘s
information were amended in order to have the same sorting order for comparison reasons. Although the structure and some
positions were amended, there was no restatement of prior year figures and as such the net income as well as the total
shareholder‘s equity remained unchanged.
Time period
The 2015 financial year comprises the accounting period from 1 January 2015 to 31 December 2015.
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 participations, which are maintained in Swiss francs at historical exchange rates. Income and expenses in foreign
currencies are converted into Swiss francs at average exchange rates for the reporting year.
Investments
The following assets are carried at cost, less necessary and legally permissible depreciation:
̤ Investments in subsidiaries and affiliated companies
̤ Fixed income securities (other than zero-coupon bonds)
̤ Equity securities
̤ Shares in investment funds
̤ Alternative investments
Subsequent recoveries of previously recorded downward value adjustments may be recognised up to the lower of cost or market
value at the balance sheet date. The valuation rules prescribed by the Swiss Financial Market Supervisory Authority FINMA are
observed.
100 Swiss Reinsurance Company Ltd 2015 Annual Report
The Company‘s investments in subsidiaries and affiliated companies are summarised as a group for valuation purposes, when a
close business link exists and a similarity in nature is given.
Zero-coupon bonds reported under fixed income securities are measured at their amortised cost values.
Loans and mortgages are carried at nominal value. Value adjustments are recorded where the expected recovery value is lower
than the nominal value.
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.
Assets in derivative financial instruments
Assets in derivative financial instruments include reinsurance contracts or features embedded in reinsurance contracts that fulfil
the characteristics of derivative financial instruments and are accounted based on the lower of cost or market principle.
Funds held by ceding companies
Funds held by ceding companies consist mainly of assets that belong to the Company but are withheld by the cedant due to
regulatory or legal requirements, or to retain control over investments and reduce a potential credit risk. Assets are initially
measured based on the consideration received. Subsequently the funds held by ceding companies are measured at the
consideration received or market value of the underlying assets.
Cash and cash equivalents
Cash and cash equivalents include cash at bank, short-term deposits and certain investments in money-market funds with an
original maturity of three months or less. Such current assets are held at nominal value.
Reinsurance recoverable on technical provisions retroceded
Reinsurance recoverable on technical provisions represents the retroceded part of the technical provisions. The respective
accounting principle per technical provision category is described further under ”Technical provisions gross”.
Tangible assets
Tangible assets are carried at cost, less individually scheduled straight-line depreciation over their useful lives. Items of minor
value are not capitalised.
Deferred acquisition costs
Deferred acquisition costs consist principally of commissions and are related to the generation of new reinsurance business.
Property and casualty deferred acquisition costs are generally amortised in proportion to premiums earned. Life and health
deferred acquisition costs will run-off on a prudent basis, typically linearly in a shorter term than the liabilities. The amortisation
schedule can also be determined to be in line with the expected profits of the business, so no statutory profits are shown until the
deferred acquisition costs are fully amortised.
Intangible assets
Intangible assets, consisting of capitalised development costs for software for internal use, are measured at cost less straight-line
amortisation over the estimated useful life of software.
Premiums and other receivables from reinsurance
Premiums and other receivables from reinsurance are carried at nominal value after deduction of known credit risks if applicable.
The position mainly consists of receivables from insurance companies and brokers.
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 rights in connection with securities lending collateral and reverse repurchase
transactions, which are carried at nominal value.
Swiss Reinsurance Company Ltd 2015 Annual Report 101
Financial Statements I Swiss Reinsurance Company Ltd
Technical provisions gross
Unpaid claims are recognised 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 business written directly by the Company, or via a branch of the Company, liabilities are based on gross
premium valuation or the cedant-reported information. Reference is made to cedant-reported information given the importance
of deposit reserves in Europe. If the data the Company receives is sufficiently granular, however, a prospective gross premium
valuation approach can also be adopted using assumptions based on estimates of own experience drawn from internal studies.
With respect to the business ceded by the Company’s subsidiaries, a prospective gross premium valuation is applied. The
method is prospective as it takes into account expected future cash flows inherent in the reinsurance contract from the valuation
date until expiry of the contract obligations. The assumptions used in the valuation are based on estimates on experience studies.
Cash flows include primarily premiums, claims, commissions and expenses, with margins 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 at the reinsurance treaty level, with the exception of a prudent allowance for deferred
acquisition costs on financing treaties.
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 proportionally 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 for property and casualty business 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 and consideration in connection with portfolio transfers are established through the respective lines in the income
statement. Outstanding claims and liabilities are recorded as change in unpaid claims and life and health benefits, with the
consideration being recognised as claims paid. The impact on unearned premiums is established through the change in
unearned premiums, with the respective consideration accounted as premiums written. Any profit or loss on the portfolio
transfer is reflected in other reinsurance revenues or other reinsurance expenses, respectively.
For property and casualty transfers of retroactive treaties, the initial set up of assets and liabilities is accounted as a balance
sheet transaction.
Non-technical provisions
The provision for currency fluctuation comprises the net effect of foreign exchange gains and losses arising from the yearly
revaluation of the opening balance sheet and the translation adjustment of the income statement from average to closing
exchange rates at year-end. These net impacts are recognised in the income statement over a time period of up to nine years,
based on the average duration of the technical provisions. Where the provision for currency fluctuation is insufficient to absorb
net foreign exchange losses for the financial year, the provision for currency fluctuation is reduced to zero and the excess foreign
exchange loss is recognised in the income statement.
Other provisions are determined according to business principles and are based on estimated needs and the tax provision in
accordance with tax regulations.
102 Swiss Reinsurance Company Ltd 2015 Annual Report
Debt
Debt is 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
generally not realised until expiration or settlement of the contract and are deferred respectively.
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 hedging instruments are in place.
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. The position mainly consists of payables to insurance companies
and brokers.
Other liabilities
Other liabilities include rights in connection with repurchase agreements and securities lending transactions, which are held at
redemption value.
Subordinated liabilities
Subordinated liabilities are held at redemption values.
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 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.
Foreign exchange transaction gains and losses
Foreign exchange gains and losses arising from foreign exchange transactions are recognised in the income statement and
reported net in other expenses or other income, respectively.
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.
Change in accounting policy
The Company revised its accounting policy for the presentation of the income statement in connection with life and health
portfolio transfers. In previous years, the consideration for life and health policy benefits was accounted as premiums written.
As of 1 January 2015, the consideration is accounted as claims paid. Any profit or loss on the portfolio transfer is reflected in
other reinsurance revenues or other reinsurance expenses, respectively.
Swiss Reinsurance Company Ltd 2015 Annual Report 103
Financial Statements I Swiss Reinsurance Company Ltd
2 Investment result
CHF millions
Investment income
Investments in subsidiaries and affiliated companies
Fixed income securities
Loans
Mortgages
Equity securities
Shares in investment funds
Short-term investments
Alternative investments
Other investments
Income from investment services
Investment income
CHF millions
Investment expenses
Investments in subsidiaries and affiliated companies
Fixed income securities
Loans
Equity securities
Shares in investment funds
Short-term investments
Alternative investments
Other investments
Investment management expenses
Investment expenses
Allocated investment return
Investment result
Income
21
656
125
7
19
192
43
132
367
108
1 303
Value
readjustments
Realised
gains
1
112
–
–
9
35
–
19
54
–
176
6 383
224
–
–
107
64
4
314
382
–
7 096
Expenses
Value
adjustments
Realised
losses
–
–
–
–
–
–
–
–
–156
–156
–1 821
–189
–8
–30
–36
–
–28
–64
–
–2 112
–
–55
–
–59
–
–1
–35
–36
–
–150
2015
Total
6 405
992
125
7
135
291
47
465
803
108
8 575
2015
Total
–1 821
–244
–8
–89
–36
–1
–63
–100
–156
–2 418
–324
5 833
104 Swiss Reinsurance Company Ltd 2015 Annual Report
CHF millions
Investment income
Real Estate
Investments in subsidiaries and affiliated companies
Fixed income securities
Loans
Mortgages
Equity securities
Shares in investment funds
Short-term investments
Alternative investments
Other investments
Income from investment services
Investment income
CHF millions
Investment expenses
Investments in subsidiaries and affiliated companies
Fixed income securities
Loans
Equity securities
Shares in investment funds
Short-term investments
Alternative investments
Other investments
Investment management expenses
Investment expenses
Allocated investment return
Investment result
Income
0
319
702
117
10
36
4
43
172
219
103
1 506
Value
readjustments
Realised
gains
–
–
–
–
–
–
–
–
–
–
–
–
0
1
178
–
–
331
150
2
138
290
–
800
Expenses
Value
adjustments
Realised
losses
–
–
–
–
–
–
–
–
–170
–170
–5
–76
–2
–26
–
–
–57
–57
–
–166
–1
–57
–
–37
–1
–2
0
–3
–
–98
2014
Total
0
320
880
117
10
367
154
45
310
509
103
2 306
2014
Total
–6
–133
–2
–63
–1
–2
–57
–60
–170
–434
–387
1 485
Swiss Reinsurance Company Ltd 2015 Annual Report 105
Financial Statements I Swiss Reinsurance Company Ltd
3 Assets and liabilities from reinsurance
CHF millions
Deferred acquisition costs
Premiums and other receivables from reinsurance
Deferred expenses on retroactive reinsurance policies2
Unpaid claims
Liabilities for life and health policy benefits
Unearned premiums
Provisions for profit commissions
Equalisation provision
Reinsurance balances payable
Gross
1 547
6 446
4
31 592
13 228
5 621
257
1 200
1 820
Retro
–705
401
–30
–5 2581
–1 2531
–2 3101
–501
–
1 128
2014
Net
842
6 847
–26
26 334
11 975
3 311
207
1 200
2 948
Gross
2 044
6 713
331
31 365
11 493
5 986
238
1 544
1 876
Retro
–757
607
–26
–4 4461
–1 2021
–2 3001
–481
–
1 656
2015
Net
1 287
7 320
305
26 919
10 291
3 686
190
1 544
3 532
1 Reported under "Reinsurance recoverable on technical provisions retroceded" on page 98.
2 Reported under "Other assets" on page 98.
4 Change in shareholder’s equity
CHF millions
Shareholder’s equity 1.1.2014
Allocations relating to the dividend paid
Dividend for the financial year 2013
Net income for the financial year
Shareholder’s equity 31.12.2014
Shareholder’s equity 1.1.2015
Allocations relating to the dividend paid
Dividend for the financial year 2014
Net income for the financial year
Shareholder’s equity 31.12.2015
Share
capital
34
Legal capital
reserves
8 057
Legal profit
reserves
650
Voluntary profit
reserves
928
2 100
–2 756
Retained earnings
brought forward
37
–9
Net income for
the financial year
2 091
–2 091
34
34
8 057
8 057
–1 279
650
650
272
272
2 879
–2 879
34
6 778
650
272
28
28
66
94
1 666
1 666
1 666
–1 666
6 432
6 432
Total shareholder’s
equity
11 797
–
–2 756
1 666
10 707
10 707
–
–2 879
6 432
14 260
5 Share capital and major shareholder
The share capital of the Company amounted to CHF 34 million. It is divided into 344 052 565 registered shares, each with a
nominal value of CHF 0.10. The shares were fully paid-in and held directly by Swiss Re Ltd. As of 31 December 2015 and 2014,
the Company was a fully owned subsidiary of Swiss Re Ltd.
6 Contingent liabilities
Swiss Reinsurance Company Ltd has issued a number of guarantees to several of its subsidiaries and affiliated companies 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 1 000 million
(2014: CHF 896 million) of debt issued by certain affiliated companies and letter of credit facilities benefiting various
subsidiaries and affiliated companies of which no amount was utilised as of 31 December 2015 and 2014, respectively.
In the context with the establishment of a new real estate subsidiary of Swiss Reinsurance Company Ltd in 2013 and hence
following the Merger Act article 75 the Company remains liable for claims arising before this transaction for a period of three
years by a joint-and-several liability with a subsidiary, unless waived by the counterparties.
106 Swiss Reinsurance Company Ltd 2015 Annual Report
7 Securities lending and repurchase agreements
To enhance the performance of its investment portfolio, the Company enters into securities lending and repurchase transactions.
In the context of such transactions, securities are transferred to the counterparty.
Further, the Company performs the role of the collateral clearer for the Swiss Re Group, centrally managing collateral for the
Swiss Re Group, providing funding diversification, enabling secured cash investment and yield enhancement. 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.
An overview of the fair value of securities transferred under securities lending and 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
8 Security deposits
2014
16 851
18 112
34 963
2015
15 887
18 155
34 042
To secure the technical provisions at the 2015 balance sheet date, securities with a book value of CHF 13 017 million
(2014: CHF 14 048 million) were deposited in favour of ceding companies, of which CHF 4 584 million
(2014: CHF 4 603 million) referred to affiliated companies.
9 Commitments
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 2015, total
commitments remaining uncalled were CHF 885 million (2014: CHF 1 313 million).
In November 2015, the Company entered into a subordinated funding facility with its parent company Swiss Re Ltd under which
the Company has the right, among others, to issue subordinated notes to Swiss Re Ltd of up to USD 700 million at any time
before August 2030. For its various rights, the Company owes Swiss Re Ltd an unconditional fixed commitment fee, payable in
annual instalments calculated as 5.80% on the total facility amount. Annually, the Company receives a partial reimbursement of
the commitment fee equal to 2.22% per annum on the undrawn facility amount. As of 31 December 2015, the facility was
undrawn.
10 Leasing contracts
Total off-balance-sheet commitments from operating leases for the next five years and there after are as follows:
CHF millions
2015
2016
2017
2018
2019
After 2020
Total operating leases, net
2014
25
23
19
15
9
13
104
2015
–
24
20
16
9
17
86
These operating lease 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 with a net book value of CHF 4 million was recognised
on the Company‘s 2014 balance sheet, which was fully repaid in 2015.
Swiss Reinsurance Company Ltd 2015 Annual Report 107
Financial Statements I Swiss Reinsurance Company Ltd
11 Investments in subsidiaries and affiliated companies
As of 31 December 2015 and 2014, Swiss Reinsurance Company Ltd held the following direct and material indirect investments
in subsidiaries and affiliated companies:
As of 31 December 2015
Elips Life AG
European Finance Reinsurance Company Ltd
Gasper Funding Corporation
SCP de Milo S.à.r.l.
Swiss Brokers México, Intermediario de Reaseguro, S.A. de C.V.
Swiss Re Australia Ltd
Swiss Re Life & Health Australia Limited
Swiss Re Brasil Resseguros S.A.
Swiss Re GB Limited
Swiss Re Services Limited
Swiss Re Investments Ltd
Swiss Re Life and Health Africa Limited
Swiss Re Management Ltd
Swiss Re Private Equity Partners SGP Limited
Swiss Re Reinsurance Holding Company Ltd
European Reinsurance Company of Zurich Ltd
Swiss Re America Holding Corporation
Swiss Re Capital Markets Corporation
Swiss Re Financial Products Corporation
Swiss Re Life & Health America Holding Company
Swiss Re Treasury (US) Corporation
Swiss Reinsurance America Corporation
Swiss Re Europe Holdings S.A.
Swiss Re Europe S.A.
Swiss Re Germany AG
Swiss Re Treasury (Belgium) N.V.
Swiss Re Services India Private Ltd
Swiss Re Shared Services (India) Private Ltd
Swiss Re Treasury (UK) Plc
Swiss Reinsurance America Corporation
- Escritório de Representação no Brasil Ltda
Swiss Reinsurance Company Ltd
- Escritório de Representação no Brasil Ltda
Swiss Re Finance Limited
Vietnam National Reinsurance Corporation
Country
Liechtenstein
Barbados
Barbados
Luxembourg
Mexico
Australia
Australia
Brazil
United Kingdom (UK)
United Kingdom (UK)
Switzerland
South Africa
Switzerland
Cayman Islands
Switzerland
Switzerland
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
Luxembourg
Luxembourg
Germany
Belgium
India
India
United Kingdom (UK)
City
Triesen
Bridgetown
Bridgetown
Luxembourg
Mexico City
Sydney
Sydney
São Paulo
London
London
Zurich
Cape Town
Adliswil
George Town
Zurich
Zurich
Wilmington
New York
Wilmington
Wilmington
Wilmington
Armonk
Luxembourg
Luxembourg
Munich
Brussels
Mumbai
Bangalore
London
%
Equity interest
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
100%
%
Voting interest
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
100%
Brazil
São Paulo
Brazil
Cayman Islands
Vietnam
São Paulo
George Town
Hanoi
20%
93%
65%
25%
20%
93%
100%
25%
108 Swiss Reinsurance Company Ltd 2015 Annual Report
As of 31 December 2014
Eastern Foreshore Investments Limited
Elips Life AG
European Finance Reinsurance Company Ltd
Gasper Funding Corporation
SCP de Milo S.à.r.l.
Swiss Brokers México, Intermediario de Reaseguro, S.A. de C.V.
Swiss Re Australia Ltd
Swiss Re Life & Health Australia Limited
Swiss Re Brasil Resseguros S.A.
Swiss Re GB Limited
Swiss Re Services Limited
Swiss Re Investments Ltd
Swiss Re Life and Health Africa Limited
Swiss Re Private Equity Partners SGP Limited
European Reinsurance Company of Zurich Ltd
Swiss Re America Holding Corporation
Swiss Re Capital Markets Corporation
Swiss Re Financial Products Corporation
Swiss Re Life & Health America Holding Company
Swiss Re Treasury (US) Corporation
Swiss Reinsurance America Corporation
Swiss Re Europe Holdings S.A.
Swiss Re Europe S.A.
Swiss Re Germany AG
Swiss Re Treasury (Belgium) N.V.
Swiss Re Services India Private Ltd
Swiss Re Shared Services (India) Private Ltd
Swiss Re Treasury (UK) Plc
Swiss Reinsurance America Corporation
- Escritório de Representação no Brasil Ltda
Swiss Reinsurance Company Ltd
- Escritório de Representação no Brasil Ltda
Swiss Re Finance Limited
Vietnam National Reinsurance Corporation
Swiss Re Holdings (Canada) Inc.
Swiss Re Serviços de Consultoria em Seguros e Resseguros Ltda
Beijing Prestige Health Consulting Services Company Limited
"Auf Walthersburg" Aarau
Country
South Africa
Liechtenstein
Barbados
Barbados
Luxembourg
Mexico
Australia
Australia
Brazil
United Kingdom (UK)
United Kingdom (UK)
Switzerland
South Africa
Cayman Islands
Switzerland
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
Luxembourg
Luxembourg
Germany
Belgium
India
India
United Kingdom (UK)
City
Cape Town
Triesen
Bridgetown
Bridgetown
Luxembourg
Mexico City
Sydney
Sydney
São Paulo
London
London
Zurich
Cape Town
George Town
Zurich
Wilmington
New York
Wilmington
Wilmington
Wilmington
Armonk
Luxembourg
Luxembourg
Munich
Brussels
Mumbai
Bangalore
London
%
Equity interest
100%
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
100%
%
Voting interest
100%
100%
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
100%
Brazil
São Paulo
20%
20%
Brazil
Cayman Islands
Vietnam
Canada
Brazil
China
Switzerland
São Paulo
George Town
Hanoi
Toronto
São Paulo
Beijing
Aarau
93%
65%
25%
100%
100%
100%
33%
93%
100%
25%
100%
100%
100%
33%
Swiss Reinsurance Company Ltd 2015 Annual Report 109
Financial Statements I Swiss Reinsurance Company Ltd
12 Debt and subordinated liabilities
The Company had outstanding debt and subordinated liabilities at the 2015 balance sheet date of CHF 9 597 million
(2014: CHF 11 047 million). Thereof CHF 7 236 million (2014: CHF 9 494 million) were due within one to five years and
CHF 2 361 million (2014: CHF 1 553 million) were due after five years.
As of 31 December 2015, the following public placed debentures were outstanding:
Instrument
Subordinated bond1
Subordinated bond
Senior bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Senior bond
Subordinated bond1
Senior bond
Issued in
2006
2012
2011
2007
2007
2012
2013
2007
2013
2012
2014
2015
2015
Currency
EUR
CHF
CHF
AUD
AUD
USD
USD
GBP
CHF
EUR
CHF
EUR
CHF
Nominal
in millions
292
320
600
300
450
750
750
500
175
500
250
750
250
Interest rate
5.252%
7.250%
2.125%
7.635%
3.538%
8.250%
6.375%
6.302%
7.500%
6.625%
1.000%
2.600%
0.750%
Maturity/
First call in
2016
2017
2017
2017
2017
2018
2019
2019
2020
2022
2024
2025
2027
Book value
CHF millions
318
320
600
218
328
750
750
738
175
544
250
816
250
1 In April 2015, the Company issued EUR 750 million face amount of perpetual subordinated fixed-to-floating rate callable loan notes with a first optional redemption date on
1 September 2025. The notes bear interest through the first optional redemption date at 2.60% per annum. The notes were issued in connection with a concurrent exchange
of part of the EUR 1 billion 5.252% perpetual subordinated step-up loan notes issued by the Company.
13 Deposit arrangements
The following balances were related to deposit accounted reinsurance contracts:
CHF millions
Other reinsurance revenues
Claims paid and claim adjustment expenses gross
Claims paid and claim adjustment expenses retroceded
Operating costs
Other reinsurance expenses
Funds held by ceding companies
Premiums and other receivables from reinsurance
Reinsurance balances payable
14 Claims on and obligations towards affiliated companies
CHF millions
Loans
Assets in derivative financial instruments
Funds held by ceding companies
Premiums and other receivables from reinsurance
Other receivables
Other assets
Debt
Liabilities from derivative financial instruments
Funds held under reinsurance treaties
Reinsurance balances payable
Other liabilities
Subordinated liabilities
110 Swiss Reinsurance Company Ltd 2015 Annual Report
2014
176
18
–13
–4
–135
728
867
1 759
2014
6 499
247
9 502
1 698
85
188
3 777
372
5 487
1 059
2 112
747
2015
109
2
2
–3
–99
58
1 735
2 000
2015
11 751
–
8 946
2 145
32
1 827
2 788
347
4 507
1 988
4 229
752
15 Release of undisclosed reserves
In the year under report, undisclosed reserves on investments or on provisions were released by a net amount of CHF 949 million
(2014: no net release).
16 Obligations towards employee pension fund
As of 31 December 2015, other liabilities included CHF 4 million (2014: CHF 6 million) payable to the employee pension fund.
17 Personnel information
As of 31 December 2015, the Company employed a worldwide staff at an average of 4 018 (2014: 3 956) full time equivalents.
Personnel expenses for the 2015 financial year amounted to CHF 1 079 million (2014: CHF 1 027 million).
18 Management fee contribution
In 2015, management expenses of CHF 710 million (2014: CHF 775 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”.
19 Auditor‘s fees
In 2015, the Swiss Re Group incurred total auditor’s fees of CHF 35 million and additional fees of CHF 5 million, of which
CHF 17 million (2014: CHF 16 million) and CHF 3 million (2014: CHF 4 million), respectively, were accounted for at the
Company level.
Swiss Reinsurance Company Ltd 2015 Annual Report 111
Financial Statements I Swiss Reinsurance Company Ltd
Proposal for allocation of disposable profit
The Board of Directors proposes to the Annual General Meeting of the Company, to be held on 30 March 2016, to approve the
following allocation and payments of a cash dividend of USD 2 900 million, which must not exceed CHF 3 200 million, translated
into CHF at spot rate on the settlement date, and a dividend in-kind of Swiss Re Management Ltd of CHF 100 million. The cash
dividend and the dividend in-kind are paid to its sole shareholder Swiss Re Ltd out of voluntary profit reserves on 22 April 2016.
In order to comply with the Swiss Code of Obligations, dividends paid in foreign currencies must meet the capital protection
requirements in CHF. In addition, maximum amounts in CHF must be approved by the Annual General Meeting. The Board of
Directors proposes to set this maximum amount to CHF 3 200 million, which shall be fully funded from the disposable profit as
presented in the table below.
As such the effective cash dividend amount, translated into CHF at spot rate on the settlement date, must not exceed
CHF 3 200 million. This threshold of CHF 3 200 million is presented in the below table and reflects the maximum amount
in CHF to be paid.
Retained earnings
CHF millions
Retained earnings brought forward
Net income for the financial year
Disposable profit
Allocation to voluntary profit reserves
Retained earnings after allocation
Legal reserves from capital contributions
CHF millions
Legal reserves from capital contributions brought forward
Allocation to voluntary profit reserves in connection with the ordinary cash dividend
Legal reserves from capital contributions after allocation to voluntary profit reserves
1 The 2014 figure was recalculated based on the final cash dividend converted into CHF at spot rate on the settlement date.
Voluntary profit reserves
CHF millions
Voluntary profit reserves brought forward
Allocation from retained earnings
Voluntary profit reserves before allocation of legal reserves from capital contributions,
proposed cash dividend and dividend in-kind
Allocation from legal reserves from capital contributions
Proposed cash dividend (maximal amount in CHF of the proposed dividend in USD translated into CHF)
Proposed dividend in-kind of Swiss Re Management Ltd
Voluntary profit reserves after allocation of legal reserves from capital contributions,
proposed cash dividend and dividend in-kind
2014
28
1 666
1 694
–1 600
94
2014
8 057
–1 2791
6 778
2014
272
1 600
1 872
1 2792
–2 8792
–
2015
94
6 432
6 526
–6 500
26
2015
6 778
–
6 778
2015
272
6 500
6 772
–
–3 2001
–100
272
3 472
1 The translation into CHF at spot rate on the settlement date may result in a lower cash dividend by a respective amount on the settlement date.
2 The 2014 figures were recalculated based on the final cash dividend converted into CHF at spot rate on the settlement date.
Zurich, 15 March 2016
112 Swiss Reinsurance Company Ltd 2015 Annual Report
Report of the statutory auditor
Report of the statutory auditor
to the General Meeting of
Swiss Reinsurance Company Ltd
Zurich
Report of the statutory auditor on the Financial Statements
As statutory auditor, we have audited the financial statements of Swiss Reinsurance Company Ltd (the “Company”), which
comprise the income statement, balance sheet and notes (pages 96 to 111), for the year ended 31 December 2015.
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 Association. 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 judgement, 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 Company’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 Company’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 2015 comply with Swiss law and the Company’s
Articles of Association.
Report on other legal requirements
We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence
(article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.
In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control
system exists which has been designed for the preparation of financial statements according to the instructions of the Board of
Directors.
We further confirm that the proposal for allocation of disposable profit complies with Swiss law and the Company’s Articles of
Association. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers Ltd
Alex Finn
Audit expert
Auditor in charge
Zurich, 15 March 2016
Bret Griffin
Swiss Reinsurance Company Ltd 2015 Annual Report 113
Financial Statements I Swiss Reinsurance Company Ltd
Cautionary note on forward-looking
statements
Certain statements and illustrations contained herein are forward-looking. These
statements (including as to plans, objectives, targets and trends) 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, capital or liquidity positions or prospects to be materially different
from any future results of operations, financial condition, solvency ratios, capital or
liquidity positions or prospects expressed or implied by such statements. Such
factors include, among others:
̤ instability affecting the global financial system and developments related thereto;
̤ 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 one or more Group
companies, and developments adversely affecting the Group’s ability to achieve
improved ratings;
̤ the cyclicality of the reinsurance industry;
̤ uncertainties in estimating reserves;
114 Swiss Reinsurance Company Ltd 2015 Annual Report
̤ 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, morbidity and longevity 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; and
̤ operational factors, including the efficacy of risk management and other internal
procedures in managing the foregoing risks.
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 2015 Annual Report 115
Financial Statements I Group Financial Statements
Note on risk factors
General impact of adverse market conditions
The operations of Swiss Reinsurance Company Ltd (“Swiss Re”) and its subsidiaries
(the “Group”) as well as its investment returns are subject to market volatility and
macro-economic factors, which are outside of the Group’s control and are often
inter-related.
Despite signs of moderate increase in global growth forecasts and positive
macro-economic trends in the United States, growth forecasts among the principal
global economies remain uneven and uncertain, and that uncertainty has been
compounded by significant volatility in equity, currency and commodities markets.
Slower growth rates in China, together with the actions taken on its currency, and
drastic reductions in the price of oil, together with volatility in foreign currency and
investment markets caused by interest rate action in the United States; continued
concerns over the implications of austerity-driven economic policies in Europe
and the ability of the European Union to address significant ongoing structural
challenges; concerns over a possible exit of the United Kingdom from the
European Union; deceleration in GDP growth and other negative trends in emerging
markets; and geopolitical instability, reflecting the political and military situations in
the Middle East and North Africa, the rise of the Islamic State, concerns over further
terrorist attacks across the globe and the political, economic and social crises
caused by massive waves of migration into and through Europe, have contributed to
downward pressure on the capital markets and, in turn, on market capitalization of
many listed companies, call into question the likelihood of continued recovery of the
global economies and are beginning to raise the spectre of another global recession.
With fewer options available to policymakers and concerns generally over the
absence of realistic confidence-building measures, and with heightened risk that
volatility or depressed conditions in one sector, one market, one country or one
region could have far broader implications, volatility can be expected to continue.
Further adverse developments or the continuation of adverse trends that in turn have
a negative impact on financial markets and economic conditions could limit our
ability to access the capital markets and bank funding markets, could adversely
affect the ability of counterparties to meet their obligations to us and could adversely
affect the confidence of the ultimate buyers of insurance. Any such developments
and trends could also have an adverse effect on the Group’s investment results,
which in the current low interest rate environment and soft insurance cycle could
have a material adverse effect on the Group’s overall results, make it difficult to
determine the value of certain assets in the Group’s portfolio and/or make it difficult
to acquire suitable investments to meet the Group’s risk and return criteria.
Regulatory changes
Swiss Re and its subsidiaries operate in a highly regulated environment and are
subject to applicable regulation in each of the jurisdictions in which they conduct
business, particularly Switzerland, the United States, the United Kingdom,
Luxembourg and Germany. The regulatory regimes to which members of the
Group are subject have changed significantly in recent years and are expected
to continue to evolve as a result of global efforts following the credit crisis.
Although early regulatory efforts following the credit crisis were focused primarily
on banking institutions, there has been a noticeable trend in recent years
to extend the scope of reforms and oversight beyond such institutions to cover
insurance and reinsurance operations. Legislative initiatives directly impacting the
Group’s industry include the establishment of a pan-European regulator for insurance
companies, the European Insurance and Occupational Pensions Authority (the
116 Swiss Reinsurance Company Consolidated 2015 Annual Report
“EIOPA”), which has the power to overrule national regulators in certain
circumstances. In addition, Swiss Re is subject to the Swiss Solvency Test, and,
through its legal entities organized in the European Economic Area, Solvency II,
which entered into force on 1 January 2016. The Group is also monitoring the
impact of the Swiss Federal Act on Financial Market Infrastructure (which became
effective 1 January 2016 and introduced new regulations for over-the-counter
derivatives trading in line with international standards) and the proposed Swiss
Federal Financial Services Act and Financial Institutions Act (which contain rules
for financial services providers that are based on the EU Markets in Financial
Instruments Directive (“MiFID”) regulations). In the United States, as a possible
step towards federal oversight of insurance, the US Congress created the Federal
Insurance Office within the Department of Treasury. In addition, provisions of the
Wall Street Reform and Consumer Protection Act of 2010, as well as provisions in
the proposed European Market Infrastructure Regulation and proposed changes
to MiFID, in respect of derivatives could have a significant impact on the Group.
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 or its securities. Changes are particularly likely
to impact financial institutions designated as “systemically important,” a designation
which is expected to result in enhanced regulatory supervision and heightened
capital, liquidity and diversification requirements under evolving reforms.
There is an emerging focus on classifying certain insurance companies as
systemically important as well. The Group could be designated as a global
systemically important financial institution (SIFI) under the framework for
systemically important financial institutions developed by the Financial Stability
Board, or as a systemically important non-bank financial company by the Financial
Stability Oversight Council (the FSOC) in the United States. Separately, the
International Association of Insurance Supervisors, an international body that
represents insurance regulators and supervisors, published a methodology for
identifying global systemically important insurers (“G-SIIs”) and on a framework
for supervision of internationally active insurance groups. Initial designation of
insurers as G-SIIs took place in July 2013, and initial designation of reinsurers
as G-SIIs has been postponed pending further development of the methodology
due by November 2015, to be applied in 2016. If and when reinsurers are included
in the list of G-SIIs, the Group could be so designated. Were the Group to be
designated as a G-SII, it could be subject to one or both of the resulting regimes,
once implemented, including capital standards under both regimes (the Basic
Capital Requirement for G-SIIs and the Insurance Capital Standard for Internationally
Active Insurance Groups (“IAIGs”)). In addition, the Group ultimately will be subject
to oversight of its Swiss Regulator in respect of recovery and resolution planning.
Significant policy decisions on a range of regulatory changes that could affect
the Group and its operations remain undecided. The Group cannot predict which
legislative and regulatory initiatives ultimately will be enacted or promulgated,
what the scope and content of these initiatives ultimately will be, when they will
be effective and what the implications will be for the industry, in general, and for
the Group, in particular. Certain of these initiatives could have a material impact
on the Group’s business.
In addition, regulatory changes could occur in areas of broader application, such as
competition policy and tax laws. Changes in tax laws, for example, 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, or
inconsistencies between the various regimes that apply to the Group, 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.
Swiss Reinsurance Company Consolidated 2015 Annual Report 117
Financial Statements I Group Financial Statements
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. In
general, a low interest rate environment, such as the one experienced in recent
years, poses significant challenges to the insurance and reinsurance industries, with
earnings capacity under stress unless lower investment returns from fixed income
assets can be offset by lower combined ratios or higher returns from other asset
classes. Economic weakness, fiscal tightening and monetary policies are keeping
government yields low, which impacts investment yields and affects the profitability
of life savings products with interest rate guarantees. 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.
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 that it believes
is sufficient, 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.
Credit risk
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 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.
118 Swiss Reinsurance Company Consolidated 2015 Annual Report
Liquidity risks
The Group’s business requires, and its clients expect, that it has sufficient capital
and sufficient liquidity to meet its re/insurance obligations, and that this would
continue to be the case following the occurrence of any foreseeable 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 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. In addition, the Group 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 is exposed to the risk of defaults, or concerns about defaults, by its
counterparties. Securities 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 have a material
adverse effect on the Group.
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.
Swiss Reinsurance Company Consolidated 2015 Annual Report 119
Financial Statements I Group Financial Statements
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. 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. Certain larger reinsurance contracts contain
terms that would allow the ceding companies to cancel the contract if the Group’s
ratings or those of its subsidiaries are downgraded beyond a certain threshold.
Moreover, a decline in ratings could 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 potentially resulting in a need for additional liquidity. As a ratings
decline could also have a material adverse impact on the Group’s costs of borrowing
or ability to access the capital markets, the adverse implications of a downgrade
could be more severe.
Legal and regulatory risks
In the ordinary course of business, the Group is involved in lawsuits, arbitrations and
other formal and informal dispute resolution procedures, the outcomes of which
determine rights and obligations under insurance, reinsurance and other contractual
agreements. From time to time, the Group may institute, or be named as a defendant
in, legal proceedings, and the Group may be a claimant or respondent in arbitration
proceedings. These proceedings could involve coverage or other disputes with ceding
companies, disputes with parties to which the Group transfers risk under reinsurance
arrangements, disputes with other counterparties or other matters. The Group cannot
predict the outcome of any of the foregoing, which could be material for the Group.
The Group is also involved, from time to time, in investigations and regulatory
proceedings, certain of which could result in adverse judgements, 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 the Group’s direct regulators, but also in
respect of compliance with broader business conduct rules, including those in
respect of market abuse, bribery, money laundering, trade sanctions and data
protection and privacy. The Group also is subject to audits and challenges from time
to time by tax authorities, which could result in increases in tax costs, changes to
internal structures and interest and penalties. 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 and malfeasance, such as
undertaking or facilitating cyber attacks on internal systems. 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 affect its business.
120 Swiss Reinsurance Company Consolidated 2015 Annual Report
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, acts of terrorism, man-made disasters such as industrial accidents,
explosions, and fires, and pandemics) may expose the Group to unexpected large
losses (and related uncertainties in estimating future claims in respect of such
events); changes in the insurance industry that affect ceding companies, particularly
those that further increase their sensitivity to counterparty risk; competitive
conditions (including as a result of consolidation and the availability of significant
levels of alternative capacity); cyclicality of the industry; risks related to emerging
claims and coverage issues (including, for example, trends to establish stricter
building standards, which can lead to higher industry losses for earthquake cover
based on higher replacement values); 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, or attacks directed at, the
Group’s operational systems and infrastructure. Any of the foregoing, as well 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, and 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.
Swiss Reinsurance Company Consolidated 2015 Annual Report 121
Financial Statements I Group Financial Statements
Risks related to the Swiss Re corporate structure
Following the realignment of the corporate structure of Swiss Re Ltd (“SRL”) in 2012,
the asset base, liquidity position, capital profile and other characteristics of the
Group of relevance to its counterparties changed. Swiss Re is a wholly owned
subsidiary of SRL, and the Group represents only two of the four principal operating
segments of the SRL group. Capital, funding, reserve and cost allocations are made
at the SRL level across the four operating segments based principally on business
plans as measured against U.S. GAAP and Economic Value Management metrics.
Decisions at the SRL level in respect of the broader group could have an adverse
impact on the Group’s financial condition, including its capital and liquidity levels,
as well as on its SST ratio. As part of SRL’s focus on efficient capital allocation, the
Group expects to be paying dividends to SRL. Decisions on dividends payable by
each of the operating segments, including the Group, are made at the SRL level
based on legal, capital and liquidity considerations.
While further changes to the overall SRL group structure may not have a financial
statement impact on an SRL consolidated basis, they would impact the Group to
the extent that operations are transferred into or from the Group, or as a result of
intra-group transactions to the extent the Group is a counterparty to any such
transactions. The process of optimizing the structure as between SRL and its
operating segments will continue to evolve over time.
122 Swiss Reinsurance Company Consolidated 2015 Annual Report
Swiss Reinsurance Company Ltd
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