Swiss Reinsurance Company
Consolidated
2016 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 Debt and contingent capital instruments
Note 11 Income taxes
Note 12 Benefit plans
Note 13 Share-based payments
Note 14 Related parties
Note 15 Commitments and contingent liabilities
Note 16 Variable interest entities
Note 17 Disposals
Note 18 Subsequent events
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
50
51
59
70
74
76
80
88
90
94
95
99
100
102
108
108
114
116
118
130
131
136
136
138
Financial Statements I Group financial statements
Income statement
For the years ended 31 December
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
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 business
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses2
Total expenses before interest expenses
Income before interest and income tax expense
Interest expenses2
Income before income tax expense
Income tax expense
Net income before attribution of non-controlling interests
Income/loss 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
2015
2016
4
4
3
3
7
7
7
3
3
3
11
28 556
26 720
–581
26 139
145
2 787
1 028
42
57
30 198
–7 893
–8 559
–386
–5 865
–2 538
–25 241
4 957
–608
4 349
–524
3 825
–1
3 824
–68
3 756
31 667
29 715
–722
28 993
129
2 728
1 592
15
41
33 498
–10 299
–9 560
–358
–6 382
–2 473
–29 072
4 426
–581
3 845
–648
3 197
–18
3 179
–68
3 111
1 Total impairments for the years ended 31 December of USD 51 million in 2015 and USD 71 million in 2016, respectively, were fully recognised in earnings.
2 Letter of credit fees of USD 55 million for the year ended 31 December 2015 have been reclassified from “Operating expenses“ to “Interest expenses“.
The accompanying notes are an integral part of the Group financial statements.
2 Swiss Reinsurance Company Consolidated 2016 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
Other comprehensive income attributable to non-controlling interests
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
2015
3 825
–1 843
–7
–876
–191
908
–68
–1
839
2016
3 197
451
5
–125
–46
3
3 485
–68
–21
3 396
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
2016
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
Unrealised
investment
gains/losses1
1 619
1 178
–512
–215
2 070
Other-than-
temporary
impairment1
–3
–9
Foreign currency
translation
–4 261
–727
Adjustment from
pension benefits2
–762
–309
Accumulated other
comprehensive
income
–1 564
–2 430
2
–10
–149
–5 137
70
48
–953
–1 131
644
–4 481
Other-than-
temporary
impairment1
–10
5
Foreign currency
translation
–5 137
–58
Adjustment from
pension benefits2
–953
–113
Accumulated other
comprehensive
income
–4 481
1 012
2
–2
–5
–67
–5 262
60
7
–999
–450
–277
–4 196
1 Reclassification adjustment included in net income is presented in “Net realised investment gains/losses – non-participating business“.
2 Reclassification adjustment included in net income is presented in “Operating expenses“.
The accompanying notes are an integral part of the Group financial statements.
Swiss Reinsurance Company Consolidated 2016 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 (including 10 839 in 2015 and 9 056 in 2016 subject to securities
lending and repurchase agreements) (amortised cost: 2015: 59 137; 2016: 60 490)
Trading (including 1 729 in 2015 and 1 871 in 2016 subject to securities lending and
repurchase agreements)
Equity securities:
Available-for-sale (including 439 in 2015 and 19 in 2016 subject to securities lending and
repurchase agreements) (cost: 2015: 2 876; 2016: 2 063)
Trading
Policy loans, mortgages and other loans
Investment real estate
Short-term investments (including 417 in 2015 and 1 798 in 2016 subject to securities lending and
repurchase agreements)
Other invested assets
Investments for unit-linked business (equity securities trading: 818 in 2015 and 548 in 2016)
Total investments
Cash and cash equivalents (including 181 in 2015 and 747 in 2016 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
11
Note
7, 8, 9
2015
2016
61 134
63 250
2 896
2 695
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
2 258
60
4 618
1 711
7 527
7 217
548
89 884
5 830
657
10 987
4 083
8 854
5 756
1 543
3 663
125
4 922
2 307
Total assets
135 191
138 611
The accompanying notes are an integral part of the Group financial statements.
4 Swiss Reinsurance Company Consolidated 2016 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
2015: 344 052 565; 2016: 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
2015
2016
8
11
10
10
10
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
51 073
17 629
5 653
8 653
2 315
1 774
452
6 631
3 697
10 315
7 805
115 997
1 102
32
8 695
–19
2 070
–5
–5 262
–999
–4 196
15 339
20 953
1 661
22 614
135 191
138 611
Swiss Reinsurance Company Consolidated 2016 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 period1
Transactions with non-controlling interests
Income attributable to non-controlling interests
Comprehensive income
Balance as of period end
Total equity
2015
2016
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
1 102
1 102
32
32
8 730
–55
20
8 695
–21
2
–19
1 619
451
2 070
–10
5
–5
–5 137
–125
–5 262
–953
–46
–999
15 222
3 179
–68
–2 994
15 339
20 953
23
866
751
18
3
1 661
22 614
1 As of 1 January 2016 the Group adopted the new accounting guidance, ASU 2015-02 “Amendments to the Consolidation Analysis”, which required the additional inclusion
of non-controlling interests of USD 866 million.
The accompanying notes are an integral part of the Group financial statements.
6 Swiss Reinsurance Company Consolidated 2016 Annual Report
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, net
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, net
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, net
Cash paid/received for acquisitions/disposal and reinsurance transactions, net
Net purchases/sales/maturities of other investments
Net purchases/sales/maturities of investments held for unit-linked business
Net cash provided/used by investing activities
Cash flows from financing activities
Policyholder account balances, unit-linked business:
Deposits
Withdrawals
Issuance/repayment of long-term debt
Issuance/repayment of short-term debt
Purchase/sale of shares in Swiss Re Ltd
Transactions with non-controlling interests
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
2015
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
2016
3 111
18
380
–1 575
88
1 914
1 005
408
–43
115
–26
5 395
32 233
3 422
–36 665
–2 957
2 497
–1 380
763
1 060
135
–892
13
–170
–91
–1 471
2
733
–3 004
–3 988
515
–83
432
5 398
5 830
Interest paid was USD 709 million and USD 741 million (thereof USD 57 million and USD 51 million for letter of credit fees) for
the years ended 31 December 2015 and 2016, respectively. Tax paid was USD 981 million and USD 515 million for the years
ended 31 December 2015 and 2016, respectively.
The accompanying notes are an integral part of the Group financial statements.
Swiss Reinsurance Company Consolidated 2016 Annual Report 7
Financial Statements I Notes to the 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
Life Capital. 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 2016 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 2016, 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.
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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 9
Financial Statements I Notes to the Group financial statements
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.
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.
10 Swiss Reinsurance Company Consolidated 2016 Annual Report
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 PVFP, which could be positive or negative, 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.
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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 11
Financial Statements I Notes to the Group financial statements
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, which are
presented in a separate line item on the face of the balance sheet.
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
business which is presented in a separate line item on the face of the income statement. For unit-linked contracts, the investment
risk is borne by the policyholder. 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.
12 Swiss Reinsurance Company Consolidated 2016 Annual Report
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.
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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 13
Financial Statements I Notes to the Group financial statements
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 2016, the Group had a Leadership Performance Plan, stock option plans, restricted shares, and a Global
Share Participation Plan. These plans are described in more detail in Note 13. 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.
Subsequent events
Subsequent events for the current reporting period have been evaluated up to 15 March 2017. This is the date on which the
financial statements are available to be issued.
Recent accounting guidance
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-09,
“Revenue from Contracts with Customers”, which creates topic 606, “Revenue from Contracts with Customers”. ASU 2014-09
outlines the principles that an entity should follow to provide useful information about the amount, timing and uncertainty of
revenue and cash flows arising from contracts with its customers. The standard requires an entity to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled
in exchange for those goods or services. Insurance contracts and financial instruments are not in the scope of the new standard.
The new requirements are effective for annual and interim periods beginning after 15 December 2017, and may be applied
retrospectively to each prior period presented or with a cumulative effect adjustment to retained earnings as of the date of initial
application. The Group is currently assessing the impact of the new requirements.
In August 2014, the FASB issued ASU 2014-13, “Measuring the Financial Assets and the Financial Liabilities of a Consolidated
Collateralized Financing Entity – a consensus of the FASB Emerging Issues Task Force”, an update to topic 810, “Consolidation”.
The ASU applies to entities that are required to consolidate a collateralised financing entity (CFE) under the variable interest
entity (VIE) consolidation guidance when the entity measures all financial assets and financial liabilities of the CFE at fair value,
with changes in fair value recorded in earnings. Before the ASU became effective, if an entity would measure the fair value of
assets and liabilities separately following applicable US GAAP rules, the aggregate fair value might have differed. The new guidance
allows the use of the more observable of the fair value of the financial assets or the fair value of the financial liabilities of the
CFE to measure both. The Group adopted ASU 2014-13 on 1 January 2016. The adoption did not have a material effect on the
Group’s financial statements.
In August 2014, the FASB issued ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern”, an update to subtopic 205-40, “Presentation of Financial Statements – Going Concern”. The ASU requires an entity’s
management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about
the entity’s ability to continue as a going concern within one year after the date the financial statements are available to be
issued. When management identifies such conditions or events, footnote disclosures need to be provided on the relevant conditions
and events identified and on whether management’s plans to mitigate those conditions or events will alleviate the substantial doubt.
The Group adopted ASU 2014-15 as of year-end 2016. The adoption did not have an impact on the Group’s financial statements.
In November 2014, the FASB issued ASU 2014-16, “Determining Whether the Host Contract in a Hybrid Financial Instrument
Issued in the Form of a Share Is More Akin to Debt or to Equity – a consensus of the FASB Emerging Issues Task Force”, an
update to topic 815, “Derivatives and Hedging”. The ASU provides guidance on how to assess whether or not a derivative
embedded in an instrument in the legal form of a share must be bifurcated and accounted for separately from its host contract.
Entities are required to use “the whole instrument approach” to determine whether the nature of the host contract in a hybrid
14 Swiss Reinsurance Company Consolidated 2016 Annual Report
instrument issued in the form of a share is more akin to debt or to equity. Under this approach, an issuer or investor considers
all stated and implied substantive terms and features of a hybrid instrument when determining the nature of the host contract.
No single term or feature will necessarily determine the nature of the host contract. The Group adopted ASU 2014-16 on
1 January 2016. The adoption did not have a material effect on the Group’s financial statements.
In January 2015, the FASB issued ASU 2015-01, “Simplifying Income Statement Presentation by Eliminating the Concept of
Extraordinary Items”, an update to subtopic 225-20, “Income Statement–Extraordinary and Unusual Items”. The ASU eliminates
the separate presentation of extraordinary items, net of tax and the related earnings per share. Extraordinary items were events
and transactions that were distinguished by their unusual nature and by the infrequency of their occurrence. The ASU does not
affect the requirement to disclose material items that are unusual in nature or infrequently occurring. The Group adopted ASU
2015-01 on 1 January 2016 on a prospective basis. The adoption did not have a material effect on the Group’s financial statements.
In February 2015, the FASB issued ASU 2015-02, “Consolidation: Amendments to the Consolidation Analysis”, an amendment
to topic 810, “Consolidation”. ASU 2015-02 (i) eliminates the indefinite deferral of the consolidation requirements for certain
investment companies and similar entities, (ii) modifies how to evaluate partnerships and other entities under the VIE framework,
(iii) eliminates the presumption that a general partner should consolidate a limited partnership, (iv) modifies consolidation
analysis, particularly for decision-maker fee arrangements and related party relationships, (v) excludes from the scope of
consolidation assessment the entities that are, or operate similar to, money market funds registered under the US Investment
Company Act of 1940. The Group adopted ASU 2015-02 on 1 January 2016 following the modified retrospective method.
The modified retrospective method does not require the restatement of prior periods. The adoption did not have a material effect
on the Group’s financial statements; however, it led to an increase in VIEs disclosed in Note 16 Variable interest entities.
In April 2015, the FASB issued ASU 2015-03, “Simplifying the Presentation of Debt Issuance Costs”, an update to subtopic
835-30, “Interest – Imputation of Interest”. The ASU changes the presentation of debt issuance costs in financial statements by
requiring that an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than
as an asset. Amortisation of the costs is reported as interest expense. The Group adopted ASU 2015-03 on 1 January 2016 on a
prospective basis. The adoption did not have an impact on the Group’s financial statements.
In May 2015, the FASB issued ASU 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value per
Share (or Its Equivalent)”, an amendment to topic 820, “Fair Value Measurement”. ASU 2015-07 removes the requirement to
categorise within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical
expedient. The amendments also remove the requirement to make certain disclosures for all investments that are eligible to be
measured at fair value using the net asset value per share practical expedient. Rather, those disclosures are limited to investments
for which the entity has elected to measure the fair value using that practical expedient. The Group adopted ASU 2015-07
on 1 January 2016 and removed investments for which fair values are measured using the net asset value per share practical
expedient from the fair value hierarchy as of the adoption date. The amended disclosures are provided in Note 8 Fair value disclosures.
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 adopted the annual disclosure requirements as of year-end 2016 which are provided
in Note 5. The Group will adopt the interim disclosure requirements for the half-year ending on 30 June 2017.
In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments”, an
amendment to topic 805, “Business Combinations”. ASU 2015-16 is on adjustments to provisional amounts from business
combinations during the measurement periods. It requires that an acquirer recognises such adjustments in the reporting period
in which the adjustment amounts are determined. Further, the ASU requires that the acquirer records, in the same period’s
financial statements, the effect on earnings of changes in depreciation, amortisation, or other income effects, if any, as a result
of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The Group
adopted this guidance on 1 January 2016. The adoption did not have an effect on the Group’s financial statements.
Swiss Reinsurance Company Consolidated 2016 Annual Report 15
Financial Statements I Notes to the Group financial statements
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 DTAs 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.
In February 2016, the FASB issued ASU 2016-02 “Leases“, which creates topic 842, “Leases“. The core principle of topic 842 is
that a lessee should recognise the assets and liabilities that arise from leases. A lessee should recognise in the statement of
financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing the right to use the
underlying asset for the lease term. This accounting treatment applies to finance leases and operating leases. The accounting
applied by a lessor is largely unchanged from that applied under the current guidance. The new requirements are effective for the
Group for annual and interim periods beginning after 15 December 2018. Early application of the Update is permitted. The
Group is currently assessing the impact of the new requirements.
In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses”, an update to topic 326, “Financial Instruments –
Credit Losses”. ASU 2016-13 replaces the incurred loss impairment methodology in current US GAAP with a methodology that
reflects expected credit losses. The standard requires for financial instruments that are measured at amortised cost and available-
for-sale debt securities that an entity recognises as an allowance its estimate of expected credit losses. This standard is effective
for the Group for annual and interim periods beginning after 15 December 2020. Early adoption for interim and annual periods
after 15 December 2018 is permitted. The Group is currently assessing the impact of the new requirements.
In October 2016, the FASB issued ASU 2016-16, “Intra-Entity Transfers of Assets Other Than Inventory”, an update to topic 740,
“Income Taxes”. This ASU amends the current guidance which prohibits the recognition of current and deferred income taxes for
an intra-entity asset transfer until the asset has been sold to an outside party. This new standard requires that an entity should
recognise the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The
new requirements are effective for the Group for annual and interim periods beginning after 15 December 2017. The Group is
currently assessing the impact of the new requirements.
16 Swiss Reinsurance Company Consolidated 2016 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,
the primary life and health insurance business, 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 2016 Annual Report 17
Financial Statements I Notes to the Group financial statements
a) Business segments – income statement
For the year ended 31 December
2015
USD millions
Revenues
Gross premium written
Net premiums written
Change in unearned premiums
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 business
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses2,3
Total expenses before interest expenses
Income/loss before interest and income tax
expense/benefit
Interest expenses2
Income/loss before income tax expense/
benefit
Income tax expense/benefit
Net income/loss before attribution of
non-controlling interests
Income/loss 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 %
Net operating margin in %
Property & Casualty
Reinsurance
Life & Health
Reinsurance1
Other1
Consolidation
Total
–356
–6
–6
0
–6
6
0
0
0
0
28 556
26 720
–581
26 139
145
2 787
1 028
42
57
30 198
–7 893
–8 559
–386
–5 865
–2 538
–25 241
4 957
–608
4 349
–524
3 825
–1
3 824
–68
3 756
16 121
15 703
–613
15 090
11 942
10 529
38
10 567
49
1 097
1 330
311
42
4
12 303
–8 012
–60
–1 965
–774
–10 811
1 492
–323
1 169
–152
1 017
445
45
16 677
–7 892
–3 836
–1 198
–12 926
3 751
–272
3 479
–451
3 028
–1
849
488
–6
482
96
360
272
14
1 224
–1
–547
–326
–64
–566
–1 504
–280
–19
–299
79
–220
3 027
1 017
–220
–220
–19
3 008
52.3
33.4
85.7
22.5
–49
968
6.5
12.2
–22.9
16.4
1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the segment “Other” instead of the Life & Health Reinsurance
segment. Comparative information for 2015 has been adjusted accordingly.
2 Letter of credit fees of USD 45 million in Life & Health Reinsurance and USD 10 million in Property & Casualty Reinsurance have been reclassified from “Operating
expenses” to “Interest expenses”.
3 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to “Other” from the business segments. Comparative information for 2015
has been adjusted accordingly.
18 Swiss Reinsurance Company Consolidated 2016 Annual Report
Business segments – income statement
For the year ended 31 December
2016
USD millions
Revenues
Gross premium written
Net premiums written
Change in unearned premiums
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 business
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses
Total expenses before interest expenses
Income/loss before interest and income tax
expense/benefit
Interest expenses
Income before income tax expense/benefit
Income tax expense/benefit
Net income before attribution of
non-controlling interests
Income/loss attributable to non-controlling
interests
Net income after attribution of
non-controlling interests
Interest on contingent capital instruments
Net income attributable to
common shareholder
Claims ratio in %
Expense ratio in %
Combined ratio in %
Management expense ratio in %
Net operating margin in %
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
18 173
17 768
–760
17 008
985
770
37
18 800
–10 301
–4 405
–1 204
–15 910
2 890
–293
2 597
–479
2 118
1
2 119
–19
2 100
60.5
33.0
93.5
15.4
12 801
11 459
27
11 486
41
1 279
232
15
5
13 058
–8 963
–39
–1 943
–763
–11 708
1 350
–301
1 049
–193
856
856
–49
807
6.0
10.4
997
488
11
499
88
493
590
2
1 672
2
–597
–319
–34
–506
–1 454
218
–19
199
24
223
–19
204
204
–304
31 667
29 715
–722
28 993
129
–29
2 728
1 592
15
41
33 498
–10 299
–9 560
–358
–6 382
–2 473
–29 072
4 426
–581
3 845
–648
3 197
–18
3 179
–68
3 111
–3
–32
0
–32
32
0
0
0
0
13.0
13.2
Swiss Reinsurance Company Consolidated 2016 Annual Report 19
Financial Statements I Notes to the Group financial statements
Business segments – balance sheet
As of 31 December
2015
USD millions
Total assets2
Property & Casualty
Reinsurance
78 207
Life & Health
Reinsurance1
55 337
Other1
12 851
Consolidation
–11 204
Total
135 191
1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the segment “Other” instead of the Life & Health Reinsurance
segment. Comparative information for 2015 has been adjusted accordingly.
2 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to “Other” from the business segments. The resulted impact on the balance
sheet has been adjusted accordingly for the comparative information 2015.
2016
USD millions
Total assets
Property & Casualty
Reinsurance
79 263
Life & Health
Reinsurance
55 957
Other
14 029
Consolidation
–10 638
Total
138 611
20 Swiss Reinsurance Company Consolidated 2016 Annual Report
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Swiss Reinsurance Company Consolidated 2016 Annual Report 21
Financial Statements I Notes to the Group financial statements
b) Property & Casualty Reinsurance business segment – by line of business
For the year ended 31 December
2015
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
Premiums earned
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Acquisition costs
Operating expenses1,2
Total expenses before interest expenses
Income before interest and income tax expense
Interest expenses1
Income before income tax expense
Claims ratio in %
Expense ratio in %
Combined ratio in %
Property
Casualty
Specialty
Unallocated
Total
6 751
6 436
–344
6 092
6 802
6 767
–165
6 602
2 568
2 500
–104
2 396
6 092
6 602
2 396
–2 567
–1 198
–664
–4 429
1 663
1 663
42.1
30.6
72.7
–4 139
–2 053
–385
–6 577
25
25
62.7
36.9
99.6
–1 186
–585
–149
–1 920
476
476
49.5
30.6
80.1
1 097
445
45
1 587
0
1 587
–272
1 315
16 121
15 703
–613
15 090
1 097
445
45
16 677
–7 892
–3 836
–1 198
–12 926
3 751
–272
3 479
52.3
33.4
85.7
1 Letter of credit fees of USD 10 million in Property & Casualty Reinsurance have been reclassified from “Operating expenses” to “Interest expenses”.
2 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to the segment “Other” from the Property & Casualty Reinsurance segment.
Comparative information for 2015 has been adjusted accordingly.
22 Swiss Reinsurance Company Consolidated 2016 Annual Report
Property & Casualty Reinsurance business segment – by line of business
For the year ended 31 December
2016
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
Premiums earned
Net investment income
Net realised investment gains/losses
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Acquisition costs
Operating expenses
Total expenses before interest expenses
Income/loss before interest and income tax expense
Interest expenses
Income/loss before income tax expense
Claims ratio in %
Expense ratio in %
Combined ratio in %
Property
Casualty
Specialty
Unallocated
Total
6 815
6 499
153
6 652
8 874
8 833
–830
8 003
2 484
2 436
–83
2 353
6 652
8 003
2 353
–3 745
–1 351
–665
–5 761
891
891
56.3
30.3
86.6
–5 466
–2 468
–385
–8 319
–316
–316
68.3
35.6
103.9
–1 090
–586
–154
–1 830
523
523
46.4
31.4
77.8
985
770
37
1 792
0
1 792
–293
1 499
18 173
17 768
–760
17 008
985
770
37
18 800
–10 301
–4 405
–1 204
–15 910
2 890
–293
2 597
60.5
33.0
93.5
Swiss Reinsurance Company Consolidated 2016 Annual Report 23
Financial Statements I Notes to the Group financial statements
c) Life & Health Reinsurance business segment – by line of business
For the year ended 31 December
2015
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
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 business
Other revenues
Total revenues
Expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses2, 3
Total expenses before interest expenses
Income before interest and income tax expense
Interest expenses2
Income/loss before income tax expense
Management expense ratio in %
Net operating margin4 in %
Life
Health
Unallocated
Total1
8 333
7 048
36
7 084
49
865
89
42
2
8 131
–5 539
–60
–1 260
–547
–7 406
725
725
6.8
9.0
3 609
3 481
2
3 483
465
42
2
3 992
–2 473
–705
–227
–3 405
587
587
5.7
14.7
11 942
10 529
38
10 567
49
1 330
311
42
4
12 303
–8 012
–60
–1 965
–774
–10 811
1 492
–323
1 169
6.5
12.2
180
180
0
180
–323
–143
1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the segment “Other” instead of the Life & Health Reinsurance
segment. Comparative information for 2015 has been adjusted accordingly.
2 Letter of credit fees of USD 45 million in Life & Health Reinsurance have been reclassified from “Operating expenses” to “Interest expenses”.
3 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to the segment “Other” from the Life & Health Reinsurance segment.
Comparative information for 2015 has been adjusted accordingly.
4 Net operating margin is calculated as “Income before interest and income tax expense” divided by “Total revenues” excluding “Net investment result –
unit-linked business”.
24 Swiss Reinsurance Company Consolidated 2016 Annual Report
Life & Health Reinsurance business segment – by line of business
For the year ended 31 December
2016
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
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 business
Other revenues
Total revenues
Expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses
Total expenses before interest expenses
Income before interest and income tax expense
Interest expenses
Income/loss before income tax expense
Management expense ratio in %
Net operating margin1 in %
Life
Health
Unallocated
Total
9 026
7 773
5
7 778
41
828
21
15
5
8 688
–6 093
–39
–1 237
–536
–7 905
783
783
6.2
9.0
3 775
3 686
22
3 708
451
–4
4 155
–2 870
–706
–227
–3 803
352
352
5.5
8.5
12 801
11 459
27
11 486
41
1 279
232
15
5
13 058
–8 963
–39
–1 943
–763
–11 708
1 350
–301
1 049
6.0
10.4
215
215
0
215
–301
–86
1 Net operating margin is calculated as “Income before interest and income tax expense” divided by “Total revenues” excluding “Net investment result –
unit-linked business”.
Swiss Reinsurance Company Consolidated 2016 Annual Report 25
Financial Statements I Notes to the 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
Japan
Germany
Canada
Switzerland
Ireland
France
Republic of Korea
Other
Total
2015
12 748
9 049
6 437
28 234
2015
10 020
2 773
2 504
1 544
967
1 070
1 053
791
767
672
456
5 617
28 234
2016
14 377
9 742
6 946
31 065
2016
11 904
3 036
2 401
1 823
1 094
1 044
1 009
940
812
652
482
5 868
31 065
Gross premiums earned and fee income from policyholders are allocated by country based on the underlying contract.
26 Swiss Reinsurance Company Consolidated 2016 Annual Report
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Swiss Reinsurance Company Consolidated 2016 Annual Report 27
Financial Statements I Notes to the Group financial statements
3 Insurance information
Premiums earned and fees assessed against policyholders
For the year ended 31 December
2015
USD millions
Premiums earned, thereof:
Direct
Reinsurance
Intra-group transactions (assumed and ceded)
Premiums earned before retrocession to external parties
Retrocession to external parties
Net premiums earned
Fee income from policyholders, thereof:
Direct
Reinsurance
Ceded
Net fee income
Property & Casualty
Reinsurance
Life & Health
Reinsurance1
15 614
15 614
–524
15 090
0
39
11 597
351
11 987
–1 420
10 567
50
–1
49
Claims and claim adjustment expenses
For the year ended 31 December
2015
USD millions
Claims paid, thereof:
Gross claims paid to external parties
Intra-group transactions (assumed and ceded)
Claims before receivables from retrocession to external parties
Retrocession to external parties
Net claims paid
Change in unpaid claims and claim adjustment expenses; life
and health benefits, thereof:
Gross - with external parties
Intra-group transactions (assumed and ceded)
Unpaid claims and claim adjustment expenses; life and health
benefits before impact of retrocession to external parties
Retrocession to external parties
Net unpaid claims and claim adjustment expenses; life and
health benefits
Property & Casualty
Reinsurance
Life & Health
Reinsurance1
–9 665
–9 665
815
–8 850
1 601
1 601
–643
958
–9 145
–242
–9 387
1 168
–8 219
215
–34
181
26
207
Other1
699
139
–351
487
–5
482
5
91
96
Other1
–862
242
–620
6
–614
34
34
68
–2
66
Total
738
27 350
0
28 088
–1 949
26 139
5
141
–1
145
Total
–19 672
0
–19 672
1 989
–17 683
1 850
0
1 850
–619
1 231
Claims and claim adjustment expenses; life and health benefits
–7 892
–8 012
–548
–16 452
Acquisition costs
For the year ended 31 December
2015
USD millions
Acquisition costs, thereof:
Property & Casualty
Reinsurance
Life & Health
Reinsurance1
Gross acquisition costs with external parties
Intra-group transactions (assumed and ceded)
Acquisition costs before impact of retrocession to external
parties
Retrocession to external parties
Net acquisition costs
–3 969
–3 969
133
–3 836
–2 138
–71
–2 209
244
–1 965
Other1
–135
71
–64
–64
Total
–6 242
0
–6 242
377
–5 865
1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the segment “Other” instead of the Life & Health Reinsurance
segment. Comparative information for 2015 has been adjusted accordingly.
28 Swiss Reinsurance Company Consolidated 2016 Annual Report
Premiums earned and fees assessed against policyholders
For the year ended 31 December
2016
USD millions
Premiums earned, thereof:
Direct
Reinsurance
Intra-group transactions (assumed and ceded)
Premiums earned before retrocession to external parties
Retrocession to external parties
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
2016
USD millions
Claims paid, thereof:
Gross claims paid to external parties
Intra-group transactions (assumed and ceded)
Claims before receivables from retrocession to external parties
Retrocession to external parties
Net claims paid
Change in unpaid claims and claim adjustment expenses; life
and health benefits, thereof:
Gross – with external parties
Intra-group transactions (assumed and ceded)
Unpaid claims and claim adjustment expenses; life and health
benefits before impact of retrocession to external parties
Retrocession to external parties
Net unpaid claims and claim adjustment expenses; life and
health benefits
Property & Casualty
Reinsurance
Life & Health
Reinsurance
17 474
17 474
–466
17 008
0
45
12 446
352
12 843
–1 357
11 486
41
41
Other
799
172
–352
619
–120
499
88
88
Total
844
30 092
0
30 936
–1 943
28 993
0
129
0
129
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Total
–9 242
–9 242
536
–8 706
–1 218
–1 218
–377
–1 595
–10 234
–275
–10 509
1 205
–9 304
–1 014
275
–739
53
–686
387
–29
358
–17
341
11
29
40
51
91
–20 490
0
–20 490
1 794
–18 696
–820
0
–820
–343
–1 163
Claims and claim adjustment expenses; life and health benefits
–10 301
–8 963
–595
–19 859
Acquisition costs
For the year ended 31 December
2016
USD millions
Acquisition costs, thereof:
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Gross acquisition costs with external parties
Intra-group transactions (assumed and ceded)
Acquisition costs before impact of retrocession to external
parties
Retrocession to external parties
Net acquisition costs
–4 530
–4 530
125
–4 405
–2 095
–58
–2 153
210
–1 943
Other
–107
58
–49
15
–34
Total
–6 732
0
–6 732
350
–6 382
Swiss Reinsurance Company Consolidated 2016 Annual Report 29
Financial Statements I Notes to the Group financial statements
Reinsurance assets and liabilities
The reinsurance assets and liabilities as of 31 December were as follows:
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
2016
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
Reinsurance1
Other1
Consolidation1
Total
2 872
2 051
39 366
1 652
3 020
9 468
15 472
1 368
188
13
1 073
1 308
3 990
–189
–189
–1
4 523
5 084
49 718
16 779
5 358
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
2 449
2 280
39 753
1 580
3 465
10 288
15 431
1 566
264
11
1 240
2 202
4 087
–210
–208
–4
4 083
5 756
51 073
17 629
5 653
1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the segment “Other” instead of the Life & Health Reinsurance
segment. Comparative information for 2015 has been adjusted accordingly.
Reinsurance recoverable on unpaid claims and policy benefits
As of 31 December 2015 and 2016, the Group had a reinsurance recoverable of USD 4 523 million and USD 4 083 million,
respectively. The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire
Hathaway and subsidiaries accounted for 69% of the Group’s reinsurance recoverable as of year-end 2015 and 67% as of
year-end 2016.
The Group cedes certain re/insurance contracts to affiliated companies within the Swiss Re Group, but outside of
Swiss Reinsurance Company Ltd and its subsidiaries (please refer to Note 14).
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
2015
1 103
126
169
–36
2016
1 204
103
137
–35
30 Swiss Reinsurance Company Consolidated 2016 Annual Report
4 Premiums written
For the years ended 31 December
2015
USD millions
Gross premiums written, thereof:
Direct
Reinsurance
Intra-group transactions (assumed)
Gross premiums written
Intra-group transactions (ceded)
Gross premiums written before retrocession
to external parties
Retrocession to external parties
Net premiums written
2016
USD millions
Gross premiums written, thereof:
Direct
Reinsurance
Intra-group transactions (assumed)
Gross premiums written
Intra-group transactions (ceded)
Gross premiums written before retrocession
to external parties
Retrocession to external parties
Net premiums written
Property & Casualty
Reinsurance
Life & Health
Reinsurance1
Other1
Consolidation1
Total
16 121
16 121
16 121
–418
15 703
40
11 546
356
11 942
11 942
–1 413
10 529
710
139
849
–356
493
–5
488
750
27 806
0
28 556
0
28 556
–1 836
26 720
–356
–356
356
0
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
18 173
18 173
18 173
–405
17 768
45
12 452
304
12 801
12 801
–1 342
11 459
825
172
997
–304
693
–205
488
870
30 797
0
31 667
0
31 667
–1 952
29 715
–304
–304
304
0
1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the segment “Other” instead of the Life & Health Reinsurance
segment. Comparative information for 2015 has been adjusted accordingly.
Swiss Reinsurance Company Consolidated 2016 Annual Report 31
Financial Statements I Notes to the Group financial statements
5 Unpaid claims and claim adjustment expenses
A reconciliation of the opening and closing reserve balances for 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
20151
52 177
–3 986
–14
48 177
17 501
–1 008
27
16 520
–6 785
–10 898
–17 683
–2 463
1 625
46 176
3 202
340
49 718
2016
49 718
–3 202
–340
46 176
21 622
–842
–26
20 754
–7 265
–11 433
–18 698
–1 265
1 058
48 025
2 837
211
51 073
1 The Group has adjusted its presentation of the reconciliation to include both non-life and life and health business lines for the current and the comparative reporting period.
32 Swiss Reinsurance Company Consolidated 2016 Annual Report
Prior-year development
Non-life claims development during 2016 on prior years continued to be driven by favourable experience on most lines of
business. Property includes adverse development from the New Zealand earthquakes that occurred in 2010 and 2011. Casualty
includes adverse development on US asbestos and environmental claims, while the more recent years were in some cases
strengthened in view of the unfavourable prevailing market conditions. Within specialty, the main reserve releases came from
marine and engineering business lines.
For life and health lines of business, claims development on prior year business was driven by adverse claim experience across
a number of lines of business and geographies. In particular, the UK critical illness portfolio strengthened reserves following
adverse trends. This was partially offset by Canadian mortality and disability portfolios which had reserve releases following
positive claims experience. Claims development related to prior years also includes an element of interest accretion for unpaid
claims reported at the estimated present value.
A summary of prior-year net claims and claim adjustment expenses development by lines of business is shown below:
USD millions
Line of business:
Property
Casualty
Specialty
Life and health
Total
2015
–455
–544
–223
214
–1 008
2016
–231
–370
–362
121
–842
Swiss Reinsurance Company Consolidated 2016 Annual Report 33
Financial Statements I Notes to the Group financial statements
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 2016 the Business Unit Reinsurance carried net reserves for US asbestos and environmental liabilities equal to
USD 1 759 million. During 2016, the Business Unit incurred net losses of USD 16 million and paid net against these liabilities of
USD 160 million.
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.
The Business Unit maintains an active commutation strategy to reduce exposure. When commutation payments are made, the
traditional “survival ratio” is artificially reduced by premature payments which should not imply a reduction in reserve adequacy.
34 Swiss Reinsurance Company Consolidated 2016 Annual Report
Short duration contract unpaid claims and claim adjustment expenses
Basis of presentation for claims development information
This section of the note provides claims development information on an accident year basis.
Claims development information and information on reserves for claims relating to insured events that have occurred but have
not yet been reported or not enough reported (“IBNR”) are generally presented by line of business for individually significant
categories. Starting from a line of business split, additional aggregation or disaggregation is provided where appropriate, necessary
and practicable (“disaggregation categories”). For instance, Reinsurance liability and motor lines of business are further
disaggregated into proportional and non-proportional treaty types to provide more specific information on claims development
whereas specialty is shown as one distinct category.
In the Property & Casualty Reinsurance segment, all contracts that transfer significant insurance risk are included in scope to the
extent they can be allocated to a disaggregation category. For many reinsurance contracts, proportional contracts in particular,
ceding companies do not report losses by accident year. In these cases, the Group has allocated reported losses by underwriting
year to accident year to produce the accident year tables. Similarly, IBNR is calculated on an underwriting year basis and then
the liabilities are allocated to accident years.
In the Life & Health Reinsurance segment, contracts classified as short duration include group life business, certain types of disability
and long-term care contracts, group accident, health coverage including critical illness and medical expenses. The Group provides
claims development information for Life & Health Reinsurance where reported accident year information is available and there
is potential for claims development. This primarily applies to the Group’s disability lines classified as short duration. This business
is generally considered to have relatively higher claims estimation uncertainty than other life and health lines such as group life,
due to longer claims development periods.
Amounts shown in the claims development tables are net of external retrocession and retrocession between business segments
to the extent a retrocession program can be allocated to a disaggregation category. Ceded retroactive reinsurance is not included
in the claims development table if it cannot be allocated on a reasonable basis to the disaggregation categories used to present
claims development information.
Claims development information and information on IBNR reserves are shown on a nominal basis, also for cases where the Group
discounts claims liabilities for measurement under US GAAP. Information is shown per accident year and by reporting period.
The number of years shown in the claims development tables differs by business segment:
For Property & Casualty Reinsurance, the Group discloses data for ten accident years and reporting periods.
For the Life & Health Reinsurance long tail category, the Group discloses data for nine accident years and reporting periods.
Disclosure of ten years of information is impracticable for all lines of business contained in this category as the Group historically
has not used accident-year based information for reserving purposes in all income protection business lines.
The current reporting period estimate of net claims liabilities for accident years older than the number of years shown in the
claims development tables is presented as a total after disclosure of cumulative paid claims.
The information presented in claims development tables is presented at current balance sheet foreign exchange rates as of the date
of these financial statements to permit an analysis of claims development excluding the impact of foreign exchange movements.
Some of the information provided in the following tables, is Required Supplementary Information (RSI) under US GAAP.
Therefore it does not form part of these consolidated audited financial statements. Claims development information for all
periods except the current reporting period and any information derived from it – including average annual percentage payout of
claims incurred – is considered RSI and is identified as RSI in the tables presented.
Swiss Reinsurance Company Consolidated 2016 Annual Report 35
Financial Statements I Notes to the Group financial statements
Methodology for determining the presented amounts of liabilities for IBNR claims
The liability for unpaid claims and claim adjustment expenses is based on an estimate of the ultimate cost of settling the claims
based on both information reported to us by ceding companies and internal estimates.
Non-life re/insurance contracts
Cedents report their case reserves and their estimated IBNR to the Group. The Group develops and recognises its own estimate
of IBNR claims, which includes circumstances in which the cedent has not reported any claims to the Group or where the
Group’s estimate of reserves needed to cover reported claims differs from the amounts reported by cedents. Reserving is done
on portfolio or contract level depending on the features of the contract:
For business reviewed on a portfolio level, the expected ultimate losses are set for most lines and types of business based on
analysis performed using standard actuarial techniques. In general, contracts are aggregated into portfolios by combining
contracts with similar features.
In most cases, these standard actuarial techniques encompass a number of loss development factor techniques applied to claim
tables of paid and reported losses. Other actuarial techniques may be applicable to specific categories. For instance, the analysis
of frequency and severity could be applied in all disaggregation categories. Life contingency techniques for projecting regular
payments related to bodily injury claims could be applied to motor proportional, motor non-proportional, liability proportional,
liability non-proportional and accident and health. In some cases, techniques specific to the projection of future payments for
specific risks such as asbestos or pollution claims are applied to both proportional and non-proportional liability claims (see also
separate section ”US asbestos and environmental claims exposure” on page 34).
Contract-level reserving is based on standard actuarial techniques but requires more detailed contract, pricing, claim and exposure
information than required for the business reviewed on a portfolio level.
In addition, the following applies to all non-life re/insurance business:
̤ For the most recent underwriting years, reliance may be made on the Group’s costing and underwriting functions for the initial
estimates of claims, although the initial reserving estimates may differ from these pricing estimates if there is good reason to
believe losses are likely to emerge higher or lower, and in light of the limited claims experience to date. Reviews of those initial
estimates are performed regularly, forming a basis for adjustments on both the current and prior underwriting years.
̤ The reserving process considers any information available in respect of either a specific case or a large loss event and the
impact of any unusual features in the technical accounting of information provided by cedents.
Life and health re/insurance contracts
For the Life & Health Reinsurance long tail business, the liability for IBNR claims includes provision for ”not yet reported claims”
expected to have been incurred in respect of both already processed and not yet processed reinsurance accounts and generally
includes provisions for the cost of claims that currently are within their deferred period. The IBNR reserving calculations have
been made using appropriate techniques, such as chain ladder and/or Bornhuetter-Ferguson approaches, depending upon the
level of detail available and the assumed level of development of the claim. For certain lines of business, IBNR claims reserves
include reported but not admitted claims, allowing for expected rates of decline for these claims.
36 Swiss Reinsurance Company Consolidated 2016 Annual Report
Claims frequency information
Claims frequency information is not available for the disaggregation categories of Property & Casualty Reinsurance, as cedents
do not report claims frequency information to the Group for most of the assumed reinsurance contract types. These contracts are
to be found in all disaggregation categories presented.
Life & Health Reinsurance reports claims frequency information based on individual incidence. The number of reported claims is
the actual number of claims booked. For Group income protection business, claims with multiple payments in a year are counted
as one claim with the corresponding amount annualised. Claims that are reported but not admitted are included in the claim count.
Swiss Reinsurance Company Consolidated 2016 Annual Report 37
Financial Statements I Notes to the Group financial statements
Property & Casualty Reinsurance – Property
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
2 233
2008
2 167
2 617
RSI
2009
2 219
2 228
2 221
2010
2 181
2 090
2 241
2 489
2011
2 087
2 008
2 122
2 439
4 240
2012
2 121
2 006
2 079
2 314
4 308
2 637
2013
2 129
2 026
2 059
2 334
4 126
2 466
3 038
2014
2 127
2 017
2 056
2 423
4 187
2 273
3 050
2 681
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
447
2008
1 364
541
RSI
2009
1 897
1 389
494
2010
2 002
1 689
1 512
394
2011
2 049
1 811
1 817
1 491
662
2012
2 071
1 936
1 917
1 783
2 347
243
2013
2 088
1 969
1 965
1 891
3 141
1 551
536
2014
2 093
1 984
1 987
2 089
3 582
1 938
1 936
465
All liabilities before 2007
Liabilities for claims and claim adjustment expenses, net of reinsurance
Thereof
IBNR
–7
–14
1
–5
123
14
–3
57
405
2 044
2 615
2015
2 122
2 017
2 053
2 466
4 143
2 231
2 880
2 525
2 781
2015
2 094
1 989
1 996
2 243
3 870
2 055
2 425
1 677
467
2016
2 110
2 014
2 056
2 577
4 139
2 202
2 799
2 351
2 720
3 842
26 810
2016
2 095
1 990
2 006
2 390
3 972
2 097
2 614
2 052
1 632
633
21 481
125
5 454
Average annual percentage payout of incurred claims by age, net of reinsurance
Years
Property (RSI)
1
2
18.7% 46.9%
3
17.1%
4
6.1%
5
4.6%
6
2.4%
7
1.9%
8
0.3%
9
0.0%
10
0.0%
The liability for unpaid claims for property in Property & Casualty Reinsurance shows positive development on most recent years.
Claims in accident year 2011 were at a high level due to several large natural catastrophes including the earthquake and tsunami
in Japan, the earthquakes in Christchurch, New Zealand, and floods in Thailand. The negative development on accident year 2010
in calendar year 2016 was driven by a deterioration in loss estimates for the 2010 New Zealand earthquake. Negative IBNRs
can be a feature for claims arising from Property exposure due to overestimated case reserves.
38 Swiss Reinsurance Company Consolidated 2016 Annual Report
Property & Casualty Reinsurance – Liability, proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
1 464
2008
1 551
1 131
RSI
2009
1 482
1 112
762
2010
1 621
1 175
894
831
2011
1 519
1 240
1 008
975
633
2012
1 418
1 136
964
914
689
511
2013
1 382
1 033
958
894
714
594
719
2014
1 347
1 092
928
886
658
550
742
984
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
–6
2008
107
67
2009
334
140
–18
2010
498
286
125
30
2011
806
451
278
157
4
RSI
2012
921
535
400
315
106
13
2013
1 000
651
513
405
178
112
15
2014
1 053
758
619
512
247
178
124
24
All liabilities before 2007
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2015
1 350
1 090
939
889
616
522
749
974
1 251
2015
1 084
876
668
607
332
236
229
155
35
2016
1 346
1 108
948
878
613
495
745
986
1 299
1 705
10 123
Thereof
IBNR
45
88
90
148
139
115
238
518
872
1 398
3 651
2016
1 117
928
714
656
378
289
343
288
207
47
4 967
596
5 752
Years
Liability, proportional (RSI)
1
5
2.0% 13.6% 14.6% 12.6% 13.2%
2
4
3
6
9.7%
7
6.6%
8
6.5%
9
3.5%
10
2.5%
The increase in incurred losses from accident year 2013 to 2016 is driven by volume increases of business written. In view of
current market conditions the loss ratios for accident year 2015 were increased. In line with the Group’s policy, cash flows under
loss portfolio transfers are reported through claims paid. For longer tail lines and depending on the business volume written,
timing of cash flows can lead to net inward payments across the whole portfolio in the first development year of the contract for
some accident years.
Swiss Reinsurance Company Consolidated 2016 Annual Report 39
Financial Statements I Notes to the Group financial statements
Property & Casualty Reinsurance – Liability, non-proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
798
2008
787
676
RSI
2009
762
718
509
2010
718
668
520
511
2011
631
544
430
427
393
2012
582
502
428
393
422
322
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
–4
2008
27
6
RSI
2009
71
29
–2
2010
127
101
21
4
2011
213
131
41
11
3
2012
254
164
64
34
9
–1
All liabilities before 2007
Liabilities for claims and claim adjustment expenses, net of reinsurance
2013
537
469
387
368
457
340
399
2013
287
191
102
51
64
11
1
2014
529
437
354
346
419
301
380
425
2014
309
233
164
86
109
35
11
1
2015
523
412
329
325
376
273
346
429
1 709
2015
333
252
186
103
135
52
36
8
0
Thereof
IBNR
71
67
43
70
95
104
161
265
351
368
1 595
2016
537
391
315
317
343
252
291
398
1 747
571
5 162
2016
345
280
194
122
143
83
59
40
87
13
1 366
5 891
9 687
Average annual percentage payout of incurred claims by age, net of reinsurance
Years
Liability, non-proportional (RSI)
1
0.5%
2
3
4.2% 10.3%
4
8.4%
5
11.2%
6
8.4%
7
7.5%
8
3.8%
9
5.8%
10
2.2%
The increase in incurred losses for accident year 2015 compared to other years is due to an increase in volume of business
written. Liabilities before 2007 include reserves for historic US Asbestos and Environmental losses. In line with the Group’s
policy, cash flows under loss portfolio transfers are reported through claims paid. For longer tail lines and depending on
the business volume written, timing of cash flows can lead to net inward payments across the whole portfolio in the first
development year of the contract for some accident years.
40 Swiss Reinsurance Company Consolidated 2016 Annual Report
Property & Casualty Reinsurance – Accident & Health
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
457
2008
486
385
RSI
2009
490
412
343
2010
453
400
367
271
2011
439
411
344
223
225
2012
431
419
339
229
245
311
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
46
2008
142
51
RSI
2009
231
157
32
2010
265
208
135
25
2011
294
247
190
83
48
2012
309
263
215
114
119
72
All liabilities before 2007
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2013
409
408
336
217
242
321
334
2013
321
274
232
128
140
167
51
2014
396
406
327
215
234
306
342
297
2014
329
282
245
137
150
192
132
30
Thereof
IBNR
0
84
31
34
33
40
62
100
151
286
821
2015
390
405
322
217
237
297
329
329
428
2015
337
289
250
143
159
208
172
100
60
2016
379
410
314
209
231
294
320
322
426
587
3 492
2016
343
294
256
147
163
218
195
142
134
73
1 965
3 125
4 652
Years
Accident & Health (RSI)
1
3
14.4% 26.6% 13.9%
2
4
7.2%
5
4.8%
6
3.1%
7
2.2%
8
1.9%
9
1.7%
10
1.6%
The 2007 accident year includes the run-off of business written by entities acquired as part of the acquisition of General Electric
Insurance Solutions during 2006. This business was not renewed. The increase in incurred losses for accident years 2015 and
2016 compared to previous accident years is due to an increase in the volume of workers’ compensation written.
Swiss Reinsurance Company Consolidated 2016 Annual Report 41
Financial Statements I Notes to the Group financial statements
Property & Casualty Reinsurance – Motor, proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
802
2008
716
707
2009
831
573
640
2010
825
569
637
570
RSI
2011
832
640
700
631
972
2012
836
670
724
667
966
1 427
2013
825
646
711
673
938
1 419
1 502
2014
824
644
717
669
915
1 416
1 477
1 902
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
182
2008
562
322
2009
737
526
158
2010
767
599
391
195
2011
775
577
580
439
260
RSI
2012
784
588
613
522
651
460
2013
790
587
624
556
830
1 065
559
2014
796
599
653
581
850
1 218
1 132
816
All liabilities before 2007
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
Thereof
IBNR
–8
5
–17
–4
–17
44
30
26
219
1 190
1 468
2015
826
632
715
684
927
1 393
1 483
1 869
1 877
2015
800
603
669
612
879
1 265
1 308
1 482
781
2016
825
632
713
684
926
1 384
1 459
1 869
1 881
2 445
12 818
2016
803
606
676
627
898
1 295
1 354
1 699
1 413
812
10 183
316
2 951
Years
Motor, proportional (RSI)
1
3
34.2% 37.9% 15.7%
2
4
2.6%
5
2.2%
6
2.3%
7
1.8%
8
0.8%
9
0.5%
10
0.4%
Increase in the incurred losses from accident year 2010 onward is driven by new business volume across all regions.
Proportional motor business includes both longer tailed liability business and shorter tailed hull business. The negative IBNRs are
due to overestimated case reserves, mainly on the German business and 2011 includes the effects of an outwards proportional
contract in inwards non-proportional business.
42 Swiss Reinsurance Company Consolidated 2016 Annual Report
Property & Casualty Reinsurance – Motor, non-proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
401
2008
414
399
RSI
2009
402
469
360
2010
369
412
373
313
2011
366
317
270
277
387
2012
380
331
272
272
423
321
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
9
2008
49
16
RSI
2009
83
83
0
2010
114
121
37
6
2011
136
126
55
22
–8
2012
152
148
66
48
20
3
All liabilities before 2007
Liabilities for claims and claim adjustment expenses, net of reinsurance
2013
379
329
257
259
408
337
414
2013
175
165
79
66
55
24
7
2014
372
322
262
251
405
317
435
392
2014
186
176
93
82
77
49
80
5
Thereof
IBNR
85
52
78
43
114
101
123
161
217
345
1 319
2015
379
318
256
244
391
303
438
424
375
2015
192
186
103
98
101
84
142
58
–1
2016
376
313
254
236
385
305
423
420
396
455
3 563
2016
199
195
113
111
115
109
187
101
33
8
1 171
2 557
4 949
Average annual percentage payout of incurred claims by age, net of reinsurance
Years
Motor, non-proportional (RSI)
1
1.3%
2
3
11.8% 10.2%
4
7.1%
5
6.5%
6
5.1%
7
4.8%
8
3.4%
9
2.2%
10
1.9%
Claims development in non-proportional motor business is considered long-tailed as it is dominated by liability exposures leading
to bodily injury claims which pay out for the lifetime of the claimant. For accident year 2011, negative claims paid in the first
year are due to the commutation of external retrocession on acquired retroactive business. In line with the Group’s policy, cash
flows under loss portfolio transfers are reported through claims paid. For longer tail lines and depending on the business volume
written, timing of cash flows can lead to net inward payments across the whole portfolio in the first development year of the
contract for some accident years.
Swiss Reinsurance Company Consolidated 2016 Annual Report 43
Financial Statements I Notes to the Group financial statements
Property & Casualty Reinsurance – Specialty
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
1 686
2008
1 690
2 021
RSI
2009
1 897
2 025
1 489
2010
1 773
1 952
1 621
1 198
2011
1 771
1 906
1 442
1 210
1 259
2012
1 718
1 860
1 375
1 158
1 239
933
2013
1 700
1 829
1 347
1 136
1 157
991
1 065
2014
1 682
1 811
1 325
1 117
1 078
1 012
994
1 085
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2007
151
2008
587
246
RSI
2009
1 101
800
204
2010
1 273
1 280
639
193
2011
1 369
1 423
884
455
162
2012
1 437
1 534
983
642
549
122
2013
1 489
1 597
1 055
741
760
430
145
2014
1 518
1 640
1 111
817
860
661
407
172
All liabilities before 2007
Liabilities for claims and claim adjustment expenses, net of reinsurance
2015
1 678
1 818
1 308
1 084
1 125
996
956
1 081
1 208
2015
1 539
1 667
1 148
931
909
750
585
402
133
2016
1 672
1 804
1 292
1 064
1 123
997
923
983
1 195
1 266
12 319
Thereof
IBNR
20
31
21
27
42
52
79
165
369
840
1 646
2016
1 553
1 692
1 171
952
946
806
693
581
379
141
8 914
661
4 066
Average annual percentage payout of incurred claims by age, net of reinsurance
Years
Specialty (RSI)
1
13.9%
2
28.1%
3
21.7%
4
9.2%
5
5.8%
6
5.2%
7
2.6%
8
1.7%
9
1.3%
10
0.8%
This category includes credit and surety business, which was adversely affected by the financial crisis in 2007–2008. The
category also includes several individual large losses on marine, aviation and space lines, including the Costa Concordia
claims event.
44 Swiss Reinsurance Company Consolidated 2016 Annual Report
Cumulative
number
of reported
claims
(in nominals)
3 068
4 105
4 451
6 105
8 298
10 269
11 021
11 825
2 327
61 469
Thereof
IBNR
14
21
27
48
47
78
108
183
317
843
Life & Health Reinsurance, long tail
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
2008
91
2009
88
152
2010
88
157
188
2011
87
149
190
215
2012
90
150
185
224
266
2013
103
150
209
284
356
480
RSI
Cumulative paid claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
Total
Reporting year
2008
5
2009
21
7
RSI
2010
38
36
8
2011
49
55
40
19
2012
57
68
62
61
27
2013
64
77
80
99
86
37
All liabilities before 2008
Liabilities for Life and Health claims and claim adjustment expenses, net of reinsurance
2014
106
173
209
296
359
471
470
2014
68
84
93
123
138
120
32
2015
102
171
221
310
383
469
428
401
2015
72
90
104
144
176
183
107
35
2016
109
173
195
288
348
434
407
433
419
2 806
2016
76
98
114
164
208
244
195
105
13
1 217
272
1 861
Average annual percentage payout of incurred claims by age, net of reinsurance
Years
Life & Health Reinsurance,
long tail (RSI)
1
2
3
4
5
6
7
8
9
6.1% 16.6% 14.6% 10.0%
7.1%
5.8%
4.1%
4.1%
3.7%
In the reporting year 2013, the Group significantly strengthened IBNR claims liabilities in Australia for some lines of business.
In addition, for 2009, 2013 and 2014 the effect of business volume increase is discernible as well.
Swiss Reinsurance Company Consolidated 2016 Annual Report 45
Financial Statements I Notes to the Group financial statements
Reconciliation of gross liability for unpaid claims and claim adjustment expenses
The following table reconciles the Group’s net outstanding liabilities to the gross liabilities for unpaid claims and claim adjustment
expenses.
The net outstanding liabilities correspond to the total liabilities for unpaid claims and claim adjustment expenses, net of
reinsurance for each disaggregation category.
Other short duration contract lines includes reserves for business that is not material to the Group and where accident year information
is not available. For Life & Health Reinsurance, in certain markets, cedents do not provide sufficient information to reinsurers to
split claims incurred and claims paid by accident year. This is based on existing market practice. For these markets, an assessment
of available information from other sources was made along with investigating approximations that could be used to provide
claims development information by accident year. However, these alternate sources and estimates, based on currently available
data and methods, could not be used to generate meaningful and representative accident year information and therefore have
been excluded from disclosure. Other short duration contract lines also contain other treaties from Property & Casualty Reinsurance
which could not be allocated on a consistent basis to disaggregation categories or specific accident years.
Unallocated reinsurance recoverable on unpaid claims includes reinsurance recoverables which cannot be allocated on a
reasonable basis to disaggregation categories used to present claims development information.
For details on consolidation please refer to Note 2.
46 Swiss Reinsurance Company Consolidated 2016 Annual Report
For the year ended 31 December 2016:
USD millions
Net outstanding liabilities
Property & Casualty Reinsurance:
Property
Liability, proportional
Liability, non-proportional
Accident & Health
Motor, proportional
Motor, non-proportional
Specialty
Life & Health Reinsurance, long tail
Total net undiscounted outstanding liabilities excluding other short duration contract lines and before unallocated
reinsurance recoverable
Discounting impact on (Life & Health Reinsurance) short duration contracts
Impacts of acquisition accounting
Total net discounted outstanding liabilities excluding other short duration contract lines and before unallocated
reinsurance recoverable
Other short duration contract lines
Unallocated reinsurance recoverables on unpaid claims
Total net discounted outstanding short duration liabilities
Allocated reinsurance recoverables on unpaid claims
Property & Casualty Reinsurance:
Property
Liability, proportional
Liability, non-proportional
Accident & Health
Motor, proportional
Motor, non-proportional
Specialty
Life & Health Reinsurance (short tail and short-duration lines of business)
Impact of acquisition accounting
Other short duration contract lines
Unallocated reinsurance recoverables on unpaid claims
Total short duration reinsurance recoverables on outstanding liabilities
Exclusions
Unallocated claim adjustment expenses
Long duration contracts
Total other reconciling items
Total unpaid claims and claim adjustment expenses
2016
5 454
5 752
9 687
4 652
2 951
4 949
4 066
1 861
39 372
–241
–571
38 560
2 167
–394
40 333
378
426
364
247
87
237
286
–139
260
394
2 540
614
7 586
8 200
51 073
Swiss Reinsurance Company Consolidated 2016 Annual Report 47
Financial Statements I Notes to the Group financial statements
Discounting information
The following disclosure covers the discounting impact for the disaggregation categories included in the claims development
information. Discounting information for Life & Health Reinsurance long tail as of 31 December:
USD millions
Carrying amount of discounted claims
Aggregate amount of the discount
Interest accretion1
Range of interest rates
2015
1 158
–281
24
2.5%–3.7%
2016
1 117
–241
27
3.1%–3.6%
1 Interest accretion is shown as part of “Life and health benefits” in the income statement.
Please refer to Note 1 for more details about the Group’s discounting approach for unpaid claims and claim adjustment expenses.
48 Swiss Reinsurance Company Consolidated 2016 Annual Report
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Swiss Reinsurance Company Consolidated 2016 Annual Report 49
Financial Statements I Notes to the 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:
2015
USD millions
Opening balance as of 1 January
Effect of change in Group structure1
Deferred
Effect of acquisitions/disposals and retrocessions
Amortisation
Effect of foreign currency translation
Closing balance
2016
USD millions
Opening balance as of 1 January
Deferred
Amortisation
Effect of foreign currency translation
Closing balance
Property & Casualty
Reinsurance
1 756
4 132
7
–3 793
–51
2 051
Property & Casualty
Reinsurance
2 051
4 629
–4 379
–21
2 280
Life & Health
Reinsurance1
2 723
–12
1 018
2
–560
–151
3 020
Life & Health
Reinsurance
3 020
893
–312
–136
3 465
Other1
1
12
35
–34
–1
13
Other
13
34
–36
11
Total
4 480
0
5 185
9
–4 387
–203
5 084
Total
5 084
5 556
–4 727
–157
5 756
1 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the “Other” segment instead of the Life & Health Reinsurance
segment. Comparative information for 2015 has been adjusted accordingly.
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 change in unrealised gains/
losses
Effect of foreign currency translation
Closing balance
Life & Health
Reinsurance
1 294
–159
40
–41
1 134
Other
605
–28
1
9
587
2015
Total
1 899
–187
41
9
–41
1 721
Life & Health
Reinsurance
1 134
–132
36
–72
966
Other
587
–45
34
1
577
2016
Total
1 721
–177
70
1
–72
1 543
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%, 8% and 8%.
50 Swiss Reinsurance Company Consolidated 2016 Annual Report
7 Investments
Investment income
Net investment income by source (excluding unit-linked 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
2015
1 926
77
147
158
68
67
106
32
66
478
3 125
–328
–10
2 787
2016
1 886
70
188
184
42
69
30
21
113
452
3 055
–318
–9
2 728
Dividends received from investments accounted for using the equity method were USD 176 million and USD 118 million for
2015 and 2016, respectively,
Realised gains and losses
Realised gains and losses for fixed income, equity securities and other investments (excluding unit-linked 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
Foreign exchange gains/losses
Net realised investment gains/losses – non-participating business
2015
611
–270
262
–51
–51
62
–31
116
108
272
1 028
2016
590
–161
292
–96
–71
121
–14
32
22
877
1 592
Swiss Reinsurance Company Consolidated 2016 Annual Report 51
Financial Statements I Notes to the Group financial statements
Investment result – unit-linked business
The net investment result on unit-linked business credited to policyholders amounted to gains of USD 42 million and
USD 15 million for 2015 and 2016, 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
2015
131
27
–22
7
–10
–4
129
2016
129
12
–44
7
–6
–4
94
52 Swiss Reinsurance Company Consolidated 2016 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:
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
Australia
Other
Total
Corporate debt securities
Mortgage- and asset-backed securities
Fixed income securities available-for-sale
Equity securities available-for-sale
2016
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
Australia
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
9 981
2 761
913
4 462
3 730
2 789
1 861
1 532
5 491
33 520
21 287
4 330
59 137
2 876
507
28
39
486
518
232
189
21
169
2 189
621
88
2 898
375
–94
–27
–11
–43
–13
–27
–16
–3
–140
–374
–482
–32
–888
–160
10 394
2 762
941
4 905
4 235
2 994
2 034
1 550
5 520
35 335
21 416
4 383
61 134
3 091
–10
–3
–13
Amortised cost
or cost
Gross
unrealised
gains
Gross
unrealised
losses
Other-than-temporary
impairments
recognised in other
comprehensive income
Estimated
fair value
11 409
3 298
993
3 815
3 729
2 849
1 804
1 905
5 607
35 409
21 130
3 951
60 490
2 063
381
21
48
662
515
324
240
18
202
2 411
938
68
3 417
276
–183
–52
–14
–77
–24
–15
–10
–4
–89
–468
–158
–26
–652
–81
11 607
3 267
1 027
4 400
4 220
3 158
2 034
1 919
5 720
37 352
21 910
3 988
63 250
2 258
–5
–5
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 2016 Annual Report 53
Financial Statements I Notes to the Group financial statements
Investments trading
The carrying amounts of fixed income securities and equity securities classified as trading (excluding unit-linked 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 business
Equity securities trading – non-participating business
2015
2 710
52
134
2 896
68
2016
2 538
45
112
2 695
60
Investments held for unit-linked business
The carrying amounts of investments held for unit-linked business consist of equity securities trading. As of 31 December 2015
and 2016, these amounted to USD 818 million and USD 548 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 2015 and 2016, USD 10 893 million and USD 11 913 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
3 261
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
Amortised
cost or cost
4 879
14 951
14 009
23 020
3 631
60 490
2016
Estimated
fair value
4 920
15 223
14 448
24 994
3 665
63 250
Assets pledged
As of 31 December 2016, investments with a carrying value of USD 6 236 million were on deposit with regulatory agencies in
accordance with local requirements, and investments with a carrying value of USD 11 389 million were placed on deposit
or pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
As of 31 December 2015 and 2016, securities of USD 13 605 million and USD 13 491 million, respectively, were transferred to
third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding
liabilities of USD 995 million and USD 1 010 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 2016, a real estate portfolio with a carrying value of USD 219 million serves as collateral for a credit facility
allowing the Group to withdraw funds up to CHF 650 million.
Collateral accepted which the Group has the right to sell or repledge
As of 31 December 2015 and 2016, the fair value of the equity securities, government and corporate debt securities received as
collateral was USD 10 732 million and USD 11 453 million, respectively. Of this, the amount that was sold or repledged as
of 31 December 2015 and 2016 was USD 6 125 million and USD 7 255 million, respectively. The sources of the collateral are
securities borrowing, reverse repurchase agreements and derivative transactions.
54 Swiss Reinsurance Company Consolidated 2016 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:
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
Net amount
765
7
0
772
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
–536
0
–44
–580
2016
USD millions
Derivative financial instruments – assets
Reverse repurchase agreements
Securities borrowing
Total
Gross amounts of
recognised
financial assets
2 640
7 023
483
10 146
Collateral set off
in the balance sheet
–1 580
–3 986
–314
–5 880
Net amounts of financial
assets presented
in the balance sheet
1 060
3 037
169
4 266
Related financial
instruments not set off
in the balance sheet
–3 037
–169
–3 206
Net amount
1 060
0
0
1 060
2016
USD millions
Derivative financial instruments – liabilities
Repurchase agreements
Securities lending
Total
Gross amounts of
recognised
financial liabilities
–2 348
–3 991
–1 319
–7 658
Collateral set off
in the balance sheet
1 568
3 461
839
5 868
Net amounts of financial
liabilities presented
in the balance sheet
–780
–530
–480
–1 790
Related financial
instruments not set off
in the balance sheet
8
527
454
989
Net amount
–772
–3
–26
–801
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 it has been 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 2016 Annual Report 55
Financial Statements I Notes to the 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 and 2016, 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.
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
2016
USD millions
Repurchase agreements
Debt securities issued by governments and government agencies
Total repurchase agreements
Securities lending
Debt securities issued by governments and government agencies
Corporate debt securities
Equity securities
Total securities lending
Gross amount of recognised liabilities for repurchase agreements and
securities lending
Overnight and
continuous
Up to 30 days
Remaining contractual maturity of the agreements
Greater than 90
days
30–90 days
Total
370
3
373
217
217
2 136
24
2 160
0
176
176
501
501
135
135
433
433
2 817
27
2 844
1 151
1 151
3 995
Overnight and
continuous
Up to 30 days
Remaining contractual maturity of the agreements
Greater than 90
days
30–90 days
Total
219
219
237
13
18
268
3 023
3 023
415
415
334
334
3 991
3 991
367
258
426
367
258
426
1 288
13
18
1 319
5 310
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.
56 Swiss Reinsurance Company Consolidated 2016 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 2015
and 2016. As of 31 December 2015 and 2016, USD 126 million and USD 44 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 34 million and USD 37 million,
respectively, to declines in value for more than 12 months.
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
Australia
Other
Total
Corporate debt securities
Mortgage- and asset-backed securities
Total
2016
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
Australia
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
Fair value
Total
Unrealised
losses
4 516
1 408
339
1 067
930
825
500
1 059
2 008
12 652
9 201
2 150
24 003
93
22
10
42
11
25
13
3
104
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
1 059
2 202
13 237
9 584
2 337
25 158
94
27
11
43
13
27
16
3
140
374
492
35
901
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Fair value
Total
Unrealised
losses
5 570
2 490
332
1 331
1 637
1 321
703
442
2 509
16 335
5 773
1 391
23 499
183
52
12
67
22
15
10
2
73
436
134
21
591
14
8
56
6
100
123
236
543
316
170
1 029
0
2
10
2
0
2
16
32
24
10
66
5 570
2 504
340
1 387
1 643
1 421
703
565
2 745
16 878
6 089
1 561
24 528
183
52
14
77
24
15
10
4
89
468
158
31
657
Swiss Reinsurance Company Consolidated 2016 Annual Report 57
Financial Statements I Notes to the Group financial statements
Mortgages, loans and real estate
As of 31 December, the carrying values of investments in mortgages, policy and other loans, and real estate (excluding unit-
linked business) were as follows:
USD millions
Policy loans
Mortgage loans
Other loans
Investment real estate
2015
80
1 389
2 363
1 550
2016
86
1 947
2 585
1 711
The fair value of mortgage loans as of 31 December 2015 and 2016 was USD 1 389 million and USD 1 950 million, respectively.
The fair value of other loans as of 31 December 2015 and 2016 was USD 2 363 million and USD 2 596 million, respectively.
The fair value of the real estate as of 31 December 2015 and 2016 was USD 3 205 million and USD 3 362 million, respectively.
The carrying value of policy loans approximates fair value.
Depreciation expense related to income-producing properties was USD 36 million and USD 42 million for 2015 and 2016,
respectively. Accumulated depreciation on investment real estate totalled USD 504 million and USD 525 million as of
31 December 2015 and 2016, respectively.
Substantially all mortgages, policy loans and other loan receivables are secured by buildings, land or the underlying policies.
58 Swiss Reinsurance Company Consolidated 2016 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 2016, 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 2016 Annual Report 59
Financial Statements I Notes to the Group financial statements
Valuation techniques
US government securities typically have quoted market prices in active markets and are categorised as level 1 instruments in the
fair value hierarchy. Non-US government holdings are generally classified as level 2 instruments and are valued on the basis of
the quotes provided by pricing services, which are subject to the Group’s pricing validation reviews and pricing vendor challenge
process. Valuations provided by pricing vendors are generally based on the actual trade information as substantially all of the
Group’s non-US government holdings are traded in 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. 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 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). These investments
are included under investments measured at net asset value as a practical expedient.
60 Swiss Reinsurance Company Consolidated 2016 Annual Report
The Group holds both exchange-traded and OTC interest rate, foreign exchange 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 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.
Governance around level 3 fair valuation
The Asset Valuation Committee, endorsed by the Swiss Re 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 2016 Annual Report 61
Financial Statements I Notes to the 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:
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 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 companies
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
Total
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
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.
62 Swiss Reinsurance Company Consolidated 2016 Annual Report
2016
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 business
Short-term investments held for proprietary
investment purposes
Derivative financial instruments
Interest rate contracts
Foreign exchange contracts
Equity contracts
Other contracts
Other invested assets
Funds held by ceding companies
Total assets at fair value
Liabilities
Derivative financial instruments
Interest rate contracts
Foreign exchange contracts
Equity contracts
Other contracts
Quoted prices in
active markets for
identical assets
and liabilities
(Level 1)
Significant
other
observable
inputs
(Level 2)
Significant
unobservable
inputs
(Level 3)
Investments
measured at net
asset value as a
practical expedient
Impact of
netting1
11 332
54 265
348
11 332
2 317
548
3 742
18
14
4
266
18 223
–3
–3
1 542
3 307
23 709
21 614
4 093
3 785
2 163
964
766
433
183
225
60 621
–1 905
–685
–651
–569
Total
65 945
12 874
3 307
23 709
21 955
4 100
2 318
548
7 527
1 060
978
766
778
118
1 336
225
78 959
–780
–688
–651
–608
–401
–144
–5 704
–6 628
341
7
1
459
–1 580
341
118
160
968
–1 580
–440
1 568
–39
–401
–144
–1 236
–1 820
1 568
727
727
Liabilities for life and health policy benefits
Accrued expenses and other liabilities
Total liabilities at fair value
–384
–387
–4 084
–5 989
1 The netting of derivative receivables and derivative payables is permitted when a legally enforceable master netting agreement exists between two counterparties. A master
netting agreement provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default or on the
termination of any one contract.
Swiss Reinsurance Company Consolidated 2016 Annual Report 63
Financial Statements I Notes to the Group financial statements
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3)
As of 31 December, the reconciliation of the fair values of assets and liabilities measured on a recurring basis using significant
unobservable inputs was as follows:
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
7
–3
–72
15
11
464
–71
134
–441
70
–13
1 013
–86
150
0
–490
–107
126
0
–14
1 826
–10
1
65
–1
–497
–165
85
–1 474
187
0
0
–10
1
65
–1
0
85
–2 136
1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
2016
USD millions
Assets and liabilities
Balance as of 1 January
Impact of Accounting Standards
Updates1
Realised/unrealised gains/losses:
Included in net income
Included in other
comprehensive income
Purchases
Issuances
Sales
Settlements
Transfers into level 32
Transfers out of level 32
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
338
11
464
1 013
1 826
–497
–165
–1 474
–2 136
–895
–895
18
–18
3
199
20
1
5
–20
–15
6
–10
1
459
6
42
–2
10
4
160
2
162
0
–58
–70
16
–16
–2
968
–81
20
–76
–5
–440
1
–144
238
–1 236
0
219
0
0
–81
20
–76
–5
0
239
–1 820
3
–5
115
–36
–55
–6
–6
348
1 Impact of ASU 2015-07. Please refer to Note 1 for more details.
2 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
64 Swiss Reinsurance Company Consolidated 2016 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
2015
216
47
2016
222
88
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
Private placement credit tenant leases
Infrastructure loans
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.
2015
Fair value
2016
Fair value Valuation technique Unobservable input
Range (weighted
average)
325
241
51
32
334
334
–38
–38
–605
–567
341
177
Corporate
Spread Matrix
48 Discounted Cash
Flow Model
116 Discounted Cash
Flow Model
Credit spread 62 bps–661 bps
(172 bps)
75 bps–175 bps
(132 bps)
Valuation spread 98 bps–230 bps
(150 bps)
Illiquidity
premium
341
341
–39
–39
–545
Proprietary
Option Model
Correlation
–45%–100%
(27.5%)1
Proprietary
Option Model
Correlation
–45%–100%
(27.5%)1
–500 Discounted Cash
Flow Model
Risk margin
Volatility
Lapse
Mortality
adjustment
Withdrawal rate
4% (n.a.)
4%–42%
0.5%–33%
–10%–0%
0%–90%
Swiss Reinsurance Company Consolidated 2016 Annual Report 65
Financial Statements I Notes to the Group financial statements
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
is credit 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 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
loans 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 the 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.
66 Swiss Reinsurance Company Consolidated 2016 Annual Report
Other invested assets measured at net asset value
Other invested assets measured at net asset value as of 31 December were as follows:
USD millions
Private equity funds
Hedge funds
Private equity direct
Real estate funds
Total
2015
Fair value
550
135
31
203
919
2016
Fair value
431
106
1
189
727
Unfunded
commitments
Redemption
frequency
(if currently eligible)
89 non-redeemable
redeemable1
non-redeemable
49 non-redeemable
138
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:
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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 67
Financial Statements I Notes to the Group financial statements
Assets and liabilities measured at fair value pursuant to election of the fair value option
Pursuant to the election of the fair value option for the items described, the balances as of 31 December 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 option
Liabilities
Liabilities for life and health policy benefits
of which at fair value pursuant to the fair value option
2015
2016
7 861
92
10 668
245
–16 779
–165
7 217
108
8 854
225
–17 629
–144
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 companies
Liabilities for life and health policy benefits
Total
2015
4
7
21
32
2016
–18
6
20
8
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”.
68 Swiss Reinsurance Company Consolidated 2016 Annual Report
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:
2015
USD millions
Assets
Policy loans
Mortgage loans
Other loans
Investment real estate
Total assets
Liabilities
Debt
Total liabilities
2016
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)
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
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs (Level 3)
86
1 950
2 596
3 362
7 994
0
Total
86
1 950
2 596
3 362
7 994
–6 900
–6 900
–6 370
–6 370
–13 270
–13 270
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, whilst the
fair value of some other positions do not differ materially from the carrying amount. Considering these circumstances for these
positions, the Group presents the carrying amount as an approximation for the fair value. For certain commercial mortgage
loans and infrastructure loans, which are included in mortgage loans and other loans respectively, the fair value can be estimated
using discounted cash flow models which are based on discount curves and spread inputs that require management’s judgement.
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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 69
Financial Statements I Notes to the 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.
70 Swiss Reinsurance Company Consolidated 2016 Annual Report
Total derivative financial instruments
117 615
2 752
–2 090
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
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
Amount offset
Where a right of set-off exists
Due to cash collateral
Total net amount of derivative financial instruments
2016
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
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
–1 162
–791
799
1 162
315
–613
43 013
19 542
12 333
15 822
90 710
10 019
10 019
978
348
778
118
2 222
418
418
–688
–572
–608
–401
–2 269
–79
–79
Notional amount
assets/liabilities
Fair value
assets
Fair value
liabilities
Carrying value
assets/liabilities
516
81
335
–17
–290
625
37
37
662
186
290
–224
170
–283
–47
339
339
292
280
Total derivative financial instruments
100 729
2 640
–2 348
Amount offset
Where a right of set-off exists
Due to cash collateral
Total net amount of derivative financial instruments
–1 122
–458
1 060
1 122
446
–780
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 2015 and 2016.
Swiss Reinsurance Company Consolidated 2016 Annual Report 71
Financial Statements I Notes to the Group financial statements
Non-hedging activities
The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of
derivative financial instruments not designated as hedging instruments are recorded in “Net realised investment gains/losses —
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 gains/losses recognised in income
2015
68
433
–191
–5
212
517
2016
–16
–121
–164
8
150
–143
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 2015 and 2016,
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 gains/losses recognised in income
Gains/losses
on derivatives
2015
Gains/losses on
hedged items
Gains/losses
on derivatives
2016
Gains/losses on
hedged items
119
119
–119
–119
250
250
–250
–250
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 years ended 31 December 2015 and 2016, the Group recorded an accumulated net unrealised foreign currency
remeasurement gain of USD 1 075 million and a gain of USD 1 311 million, respectively, in shareholder’s equity. These offset
translation gains and losses on the hedged net investment.
72 Swiss Reinsurance Company Consolidated 2016 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 2015 and 2016 was approximately USD 1 590 million and USD 1 518 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 51 million and USD 79 million as of 31 December 2015 and 2016, respectively. For derivative financial instruments
containing credit risk-related contingent features, the Group posted collateral of nil as of 31 December 2015 and 2016,
respectively. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 79 million
additional collateral would have had to be posted as of 31 December 2016. The total equals the amount needed to settle
the instruments immediately as of 31 December 2016.
Swiss Reinsurance Company Consolidated 2016 Annual Report 73
Financial Statements I Notes to the Group financial statements
10 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 2017
Due in 2018
Due in 2019
Due in 2020
Due in 2021
Due after 2021
Total carrying value
1 Balance was reclassified to short-term debt.
2015
2 285
751
1 069
4 105
2 880
467
3 607
2 720
9 674
2016
2 734
420
543
3 697
2 249
423
2 884
2 249
7 805
13 779
15 327
11 502
13 270
2015
1 143
0
1 855
204
210
6 262
9 674
2016
01
0
1 666
195
209
5 735
7 805
74 Swiss Reinsurance Company Consolidated 2016 Annual Report
Senior long-term debt
Instrument
Maturity
Senior notes1
2019
Senior notes
2022
EMTN
2024
Senior notes1
2026
EMTN
2027
Senior notes1
2030
Senior notes
2042
Various
Payment undertaking agreements
Total senior long-term debt as of 31 December 2016
Total senior long-term debt as of 31 December 2015
1 Assumed in the acquisition of GE Insurance Solutions.
Subordinated long-term debt
Maturity
2024
2042
2045
2057
Instrument
Subordinated contingent write-off loan note
Subordinated fixed-to-floating rate loan note
Subordinated contingent write-off securities
Subordinated private placement
(amortising, limited recourse)
Subordinated perpetual loan note
Perpetual Subordinated Fixed-to-Floating Rate
Callable Loan Note
Total subordinated long-term debt as of 31 December 2016
Total subordinated long-term debt as of 31 December 2015
Issued in
1999
2012
2014
1996
2015
2000
2012
various
Currency
USD
USD
CHF
USD
CHF
USD
USD
USD
Nominal in
millions
234
250
250
397
250
193
500
353
Interest rate
6.45%
2.88%
1.00%
7.00%
0.75%
7.75%
4.25%
various
Book value in
USD millions
254
249
245
497
247
268
489
423
2 672
3 347
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
795
522
195
Issued in
2013
2012
2013
2007
2007
GBP
GBP
1 819
500
4.92%
6.30%
2019
2015
EUR
750
2.60%
2025
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
2015
104
13
213
137
467
In addition to the above, interest expense on contingent capital instruments classified as equity was USD 68 million and
USD 68 million for the years ended 31 December 2015 and 2016, respectively.
Long-term debt issued in 2016
No long-term debt was issued in the year ended 31 December 2016.
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 an “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 2016 Annual Report 75
2 250
617
754
5 133
6 327
2016
100
10
156
122
388
Financial Statements I Notes to the Group financial statements
11 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
2015
317
207
524
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
Statutory rate change
Change in liability for unrecognised tax benefits including interest and penalties
Other, net
Total
2015
913
265
–182
–52
–26
–315
–97
18
524
2016
613
35
648
2016
807
125
–27
–24
–210
–2
46
–112
45
648
The Group reported a tax charge of USD 648 million on a pre-tax income of USD 3 845 million for 2016, compared to a charge
of USD 524 million on a pre-tax income of USD 4 349 million for 2015. This translates into an effective tax rate in the current and
prior year reporting periods of 16.9% and 12.0%, respectively.
The tax rate in 2016 was largely driven by benefits from the effective settlement of tax audits in certain jurisdictions and releases
of valuation allowance on net operating losses partially offset by tax on profits earned in higher tax jurisdictions. The lower rate
in 2015 was largely driven by a tax benefit arising from a local statutory accounting adjustment for restructuring of subsidiaries
and higher tax benefits from foreign currency translation differences between statutory and US GAAP accounts.
76 Swiss Reinsurance Company Consolidated 2016 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
2015
2016
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
320
613
340
2 607
271
1 132
5 283
–339
–22
4 922
–191
–546
–120
–909
–2 726
–641
–250
–444
–589
–6 416
–215
–6 631
Net deferred and other non-current taxes
–1 502
–1 709
As of 31 December 2016, 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 1.8 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 2016, the Group had USD 7 978 million net operating tax loss carryforwards, expiring as follows:
USD 25 million in 2018, USD 47 million in 2019, USD 13 million in 2020, USD 7 580 million in 2021 and beyond, and
USD 313 million never expire.
The Group also had capital loss carryforwards of USD 41 million, expiring as follow: USD 36 million in 2020, USD 5 million in 2021.
Net operating tax losses of USD 1 297 million and net capital tax losses of USD 31 million were utilised during the period ended
31 December 2016.
Income taxes paid in 2015 and 2016 were USD 981 million and USD 515 million, respectively.
Swiss Reinsurance Company Consolidated 2016 Annual Report 77
Financial Statements I Notes to the 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 current year
Additions based on tax positions related to prior years
Reductions for tax positions of prior years
Statute expiration
Settlements
Other (including foreign currency translation)
Balance as of 31 December
2015
536
34
113
–233
–97
–22
331
2016
331
36
20
–101
–44
–53
189
The amount of gross unrecognised tax benefits within the tabular reconciliation that, if recognised, would affect the effective
tax rate were approximately USD 327 million and USD 188 million at 31 December 2015 and 2016, respectively.
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense in 2016 was
USD 23 million (USD 40 million in 2015). As of 31 December 2015 and 2016, USD 72 million and USD 48 million, respectively,
were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December
2016 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 2016 presented in the table above excludes accrued interest
and penalties (USD 48 million).
During the year, certain tax positions and audits in Switzerland, Germany, Italy, France and the United States 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
Denmark
France
Germany
Hong Kong
India
Ireland
Israel
Italy
Japan
Korea
Luxembourg
2010–2016
2011–2016
2011–2016 Malaysia
2011–2016 Mexico
2007–2016
2012–2016
2008,2012–2016
2014–2016
2010–2016
2004–2016
2012–2016
2008–2016
2012–2016
2012–2016
Netherlands
New Zealand
Singapore
Slovakia
South Africa
Spain
Switzerland
United Kingdom
United States
2013–2016
2012–2016
2013–2016
2011–2016
2012–2016
2009–2016
2013–2016
2012–2016
2011–2016
2011–2016
2013–2016
2008, 2011–2016
2011–2016
78 Swiss Reinsurance Company Consolidated 2016 Annual Report
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Swiss Reinsurance Company Consolidated 2016 Annual Report 79
Financial Statements I Notes to the Group financial statements
12 Benefit plans
Defined benefit pension plans and post-retirement benefits
SRZ is a wholly owned subsidiary of Swiss Re Ltd. Swiss Re Ltd is the ultimate parent company of the Swiss Re Group.
SRZ and its subsidiaries sponsor various pension plans, in which the Group and affiliated companies participate. Employers
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.
2015
USD millions
Benefit obligation as of 1 January
Service cost
Interest cost
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
Employers 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
236
–189
26
2
–36
3 876
3 534
36
94
–189
26
2
–25
3 478
–398
Foreign plans
1 879
7
61
–49
–60
Other benefits
371
5
10
–2
–16
2
–103
1 737
1 823
7
61
–60
1
–108
1 724
–13
–5
363
0
16
–16
0
–363
Total
5 934
123
113
185
–265
26
2
2
–144
5 976
5 357
43
171
–265
26
1
2
–133
5 202
–774
The measurement date of these plans is 31 December for each year presented.
80 Swiss Reinsurance Company Consolidated 2016 Annual Report
2016
USD millions
Benefit obligation as of 1 January
Service cost
Interest cost
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
Employers 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
3 876
113
31
71
–139
25
1
–62
3 916
3 478
128
95
–139
25
1
–56
3 532
–384
Foreign plans
1 737
7
60
192
–59
Other benefits
363
5
10
9
–16
–118
1 819
1 724
188
54
–59
–136
1 771
–48
–2
369
16
–16
0
–369
Amounts recognised in “Other assets” and “Accrued expenses and other liabilities” in the Group‘s balance sheet as of
31 December were as follows:
2015
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
2016
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
Swiss plan
–398
–398
Swiss plan
–384
–384
Foreign plans
188
–3
–198
–13
Foreign plans
140
–3
–185
–48
Other benefits
–15
–348
–363
Other benefits
–15
–354
–369
Total
5 976
125
101
272
–214
25
0
1
–182
6 104
5 202
316
165
–214
25
0
1
–192
5 303
–801
Total
188
–18
–944
–774
Total
140
–18
–923
–801
Swiss Reinsurance Company Consolidated 2016 Annual Report 81
Financial Statements I Notes to the Group financial statements
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows:
2015
USD millions
Net gain/loss
Prior service cost/credit
Total
2016
USD millions
Net gain/loss
Prior service cost/credit
Total
Swiss plan
1 134
–78
1 056
Swiss plan
1 114
–69
1 045
Foreign plans
303
1
304
Foreign plans
345
1
346
Other benefits
–43
–67
–110
Other benefits
–30
–58
–88
Total
1 394
–144
1 250
Total
1 429
–126
1 303
Components of net periodic benefit cost
For the years ended 31 December, the components of pension and post-retirement cost for the Group and affiliated companies
were as follows:
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
2016
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
111
42
–113
Foreign plans
7
61
–71
Other benefits
5
10
76
–9
2
109
17
14
–4
–10
1
Swiss plan
113
31
–113
Foreign plans
7
60
–66
Other benefits
5
10
76
–9
1
99
9
10
–4
–9
2
Total
123
113
–184
89
–19
2
124
Total
125
101
–179
81
–18
1
111
82 Swiss Reinsurance Company Consolidated 2016 Annual Report
For the years ended 31 December, other changes in plan assets and benefit obligations recognised in other comprehensive
income for the Group and affiliated companies were as follows:
2015
USD millions
Net gain/loss
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
2016
USD millions
Net gain/loss
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
313
Foreign plans
15
Other benefits
–2
–76
9
246
355
–17
–18
–20
–6
4
10
12
13
Swiss plan
56
Foreign plans
70
Other benefits
9
–76
9
–11
88
–9
–19
42
52
4
9
22
24
Total
326
–89
19
0
–18
238
362
Total
135
–81
18
0
–19
53
164
The Group and affiliated companies’ 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 2017 are USD 91 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 2017 are USD 2 million and
USD 9 million, respectively.
The Group and affiliated companies’ accumulated benefit obligation (the current value of accrued benefits excluding future salary
increases) for pension benefits was USD 5 546 million and USD 5 665 million as of 31 December 2015 and 2016, respectively.
Pension plans with an accumulated benefit obligation in excess of plan assets for the Group and affiliated companies as of
31 December were as follows:
USD millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2015
4 881
4 840
4 282
2016
4 938
4 901
4 367
Swiss Reinsurance Company Consolidated 2016 Annual Report 83
Financial Statements I Notes to the 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
2015
2016
2015
2016
2015
2016
0.8%
2.0%
0.6%
1.8%
3.6%
2.8%
3.0%
2.9%
2.7%
2.1%
2.4%
2.1%
1.1%
3.3%
2.3%
0.8%
3.3%
2.0%
3.4%
4.2%
2.8%
3.6%
3.9%
2.8%
2.7%
2.7%
2.1%
2.1%
6.1%
4.6%
5.1%
3.8%
2020
2021
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 2016:
USD millions
Effect on total of service and interest cost components
Effect on post-retirement benefit obligation
1 percentage point
increase
1
27
1 percentage point
decrease
–1
–23
84 Swiss Reinsurance Company Consolidated 2016 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
2015 and 2016 is as follows:
Asset category
Equity securities
Debt securities
Real estate
Other
Total
Swiss plan allocation
Foreign plans allocation
2015
2016 Target allocation
2015
2016 Target allocation
26%
47%
21%
6%
100%
27%
44%
22%
7%
100%
25%
47%
20%
8%
100%
22%
71%
1%
6%
100%
19%
48%
0%
33%
100%
19%
50%
1%
30%
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 7 million (0.1% of total
plan assets) as of 31 December 2015 and 2016, 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 2016 Annual Report 85
Financial Statements I Notes to the Group financial statements
As of 31 December, the fair values of pension plan assets by level of input were as follows:
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)
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
2016
USD millions
Assets
Fixed income securities:
Debt securities issued by 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)
Investments
measured at net
asset value as
practical expedient
28
1 004
1 032
94
1 126
145
314
1 792
26
4
6
338
–6
514
3 133
–2
3 131
9
97
612
718
718
328
328
328
Total
183
775
1 890
16
1
4
1 301
–9
734
240
5 135
67
5 202
Total
173
314
1 801
26
4
6
1 439
–6
612
842
5 211
92
5 303
86 Swiss Reinsurance Company Consolidated 2016 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:
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
Transfers in and/or out of level 3
Impact of foreign exchange movements
Closing balance as of 31 December
2016
USD millions
Balance as of 1 January
Realised/unrealised gains/losses:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases, issuances and settlements
Transfers in and/or out of level 3
Impact of foreign exchange movements
Closing balance as of 31 December
Real estate
578
Other assets
139
10
12
–4
596
–13
17
6
–7
142
Real estate
596
Other assets
142
17
8
–9
612
–14
13
21
–53
–3
106
Total
717
–3
17
18
0
–11
738
Total
738
3
13
29
–53
–12
718
Expected contributions and estimated future benefit payments
The employers contributions expected to be made by the Group and affiliated companies in 2017 to the defined benefit pension
plans are USD 148 million and to the post-retirement benefit plans are USD 15 million.
As of 31 December 2016, the projected benefit payments for the Group and affiliated companies, which reflect expected future
service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows:
USD millions
2017
2018
2019
2020
2021
Years 2022–2026
Swiss plan
196
193
186
185
180
847
Foreign plans
60
63
66
68
70
378
Other benefits
15
15
16
17
18
101
Total
271
271
268
270
268
1326
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 2015 and in 2016 was USD 70 million and USD 65 million, respectively.
Swiss Reinsurance Company Consolidated 2016 Annual Report 87
Financial Statements I Notes to the Group financial statements
13 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 2015 and 2016, the Group had the share-based compensation plans described below.
Total compensation cost for share-based compensation plans recognised in net income was USD 56 million and USD 13 million
in 2015 and 2016, respectively. The related tax benefit was USD 12 million and USD 3 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 2016 is as follows:
Outstanding as of 1 January
Options sold
Outstanding as of 31 December
Exercisable as of 31 December
Weighted average
exercise price in CHF
82
82
Number of options
100 000
–100 000
0
0
The total intrinsic value of the options sold was CHF 1 million. The fair value of the 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 7 776 and 30 477 restricted shares to selected employees in 2015 and 2016, respectively. Moreover, as
an alternative to the Group’s cash bonus programme, 288 125 and 114 083 shares were delivered during 2015 and 2016,
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 2016 is as follows:
Non-vested at 1 January
Effect of change in Group structure2
Granted
Delivery of restricted shares
Forfeited
Outstanding as of 31 December
Weighted average
grant date fair value in CHF1
79
81
88
78
62
88
Number of shares
531 018
–168 419
144 560
–339 103
–11 420
156 636
1 Equal to the market price of the shares on the date of grant.
2 Reflects moves of employees from SRZ consolidated Group to other wholly owned subsidiaries of Swiss Re Ltd as part of the set-up of Group service companies
as of 1 January 2016.
88 Swiss Reinsurance Company Consolidated 2016 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, LPP 2015 and LPP 2016 awards an additional two-year holding period applies
for all members of the Group EC and other key executives. 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 (for LPP 2013,
LPP 2014 and LPP 2015) and the average of the 10-year US government bond rate (for LPP 2016) taken monthly over each year
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 2016, the outstanding units were as follows:
RSUs
Non-vested at 1 January
Effect of change in Group structure1
Granted
Forfeitures
Other2
Vested
Outstanding as of 31 December
Grant date fair value in CHF
PSUs
Non-vested at 1 January
Effect of change in Group structure1
Granted
Forfeitures
Other2
Vested
Outstanding as of 31 December
Grant date fair value in CHF
LPP 2013
329 860
LPP 2014
354 090
–198 285
LPP 2015
324 690
–192 080
–1 235
–11 655
142 915
60.85
–1 480
–10 730
120 400
67.65
–329 860
0
61.19
383 880
357 840
–200 365
358 080
–211 805
–1 250
–11 770
144 455
60.21
–1 635
–11 830
132 810
61.37
–383 880
0
52.59
LPP 2016
171 062
–2 211
–31 230
137 621
67.91
232 091
–2 999
–42 376
186 716
50.04
1 Reflects moves of employees from SRZ consolidated Group to other wholly owned subsidiaries of Swiss Re Ltd as part of the set-up of Group service companies
as of 1 January 2016.
2 Reflects moves of employees from SRZ consolidated Group to other wholly owned subsidiaries of Swiss Re Ltd.
Unrecognised compensation costs
As of 31 December 2016, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based
compensation awards was USD 23 million and the weighted average period over which that cost is expected to be recognised
is 1.9 years.
The number of shares authorised for the Group’s share-based payments to employees was 3 554 592 and 1 549 684 as of
31 December 2015 and 2016, respectively. The Group’s policy is to ensure that sufficient treasury shares are available at
all times to settle share-based compensation plans.
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 2015 and 2016, the Group
contributed USD 9 million and USD 4 million to the plans and authorised 211 472 and 178 233 shares as of 31 December 2015
and 2016, respectively.
Swiss Reinsurance Company Consolidated 2016 Annual Report 89
Financial Statements I Notes to the Group financial statements
14 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:
2015
USD millions
Gross premiums written
Net premiums written
Change in unearned premiums
Premiums earned
Net investment income – non-participating business
Net realised investment income – non-participating business
Other revenues
Total revenues
Claims and claim adjustment expenses
Life and health benefits
Interest credited to policyholders
Acquisition costs
Operating expenses
Interest expenses
Total expenses
2016
USD millions
Gross premiums written
Net premiums written
Change in unearned premiums
Premiums earned
Net investment income – non-participating business
Net realised investment income – non-participating business
Other revenues
Total revenues
Claims and claim adjustment expenses
Life and health benefits
Interest credited to policyholders
Acquisition costs
Operating expenses
Interest expenses
Total expenses
Corporate Solutions
311
96
–39
57
35
–16
13
89
204
–6
472
670
Corporate Solutions
312
149
–35
114
9
–22
10
111
202
–20
61
243
Life Capital
244
244
244
11
255
–240
–2
–1
17
–226
Life Capital
242
242
242
4
43
10
299
–203
18
–1
21
3
–162
Other
10
–78
1
–67
–199
–36
–235
Other
10
–77
1
–66
–1 400
–101
–1 501
Total
555
340
–39
301
45
–94
25
277
204
–240
–2
–7
290
–36
209
Total
554
391
–35
356
23
–56
21
344
202
–203
18
–21
–1 318
–98
–1 420
90 Swiss Reinsurance Company Consolidated 2016 Annual Report
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
2016
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
Corporate Solutions
Life Capital
22
102
390
816
5
162
1 497
4 730
131
1
215
17
5 094
14
4
18
4
6
133
61
204
Corporate Solutions
Life Capital
12
72
293
713
2
306
1 398
3 943
141
32
128
3
4 247
70
22
21
113
11
19
232
262
Other
1 792
24
4
37
1 857
2 787
1 531
4 318
Other
1 573
4
4
13
1 594
2 564
1 678
4 242
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
Total
1 573
86
4
94
293
713
2
340
3 105
3 954
19
141
32
128
2 564
1 913
8 751
Instrument
Issued in
Senior Loan
2005
Senior Loan
2008
Senior Loan
2016
Senior Loan
2016
2016
Senior Loan
Total short-term debt as of 31 December 2016
Maturity
2028
2028
2018
2018
2018
Currency
GBP
GBP
USD
USD
USD
Nominal in millions
100
240
1 485
337
322
Interest rate
1mLIBOR+0.00%
4.98%
3mLIBOR+0.65%
3mLIBOR+0.65%
3mLIBOR+0.65%
Book value in USD
millions
124
296
1 485
337
322
2 564
Swiss Reinsurance Company Consolidated 2016 Annual Report 91
Financial Statements I Notes to the Group financial statements
As of 31 December 2015 and 2016, the Group’s investment in mortgages and other loans included USD 287 million and
USD 292 million, respectively, of loans due from employees, and USD 196 million and USD 184 million, respectively, due from
officers. These loans generally consist of mortgages offered at variable and fixed interest rates.
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 2016 and 2015, the
facility was undrawn.
In April 2016, 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 400 million at any time before
February 2036. For its various rights, the Company owes Swiss Re Ltd an unconditional fixed commitment fee, payable in annual
instalments calculated as 6.10% on the total facility amount. Annually, the Company receives a partial reimbursement of the
commitment fee equal to 2.13% per annum on the undrawn facility amount. As of 31 December 2016, the facility was undrawn.
In June 2016, 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 800 million at any time before
August 2032. For its various rights, the Company owes Swiss Re Ltd an unconditional fixed commitment fee, payable in annual
instalments calculated as 5.68% on the total facility amount. Annually, the Company receives a partial reimbursement of the
commitment fee equal to 1.95% per annum on the undrawn facility amount. As of 31 December 2016, the facility was undrawn.
92 Swiss Reinsurance Company Consolidated 2016 Annual Report
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Swiss Reinsurance Company Consolidated 2016 Annual Report 93
Financial Statements I Notes to the Group financial statements
15 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
2017
2018
2019
2020
2021
After 2021
Total operating lease commitments
2016
27
23
21
20
20
165
276
Minimum rentals for all operating leases (except those with terms of a month or less that were not renewed) for the years ended
31 December 2015 and 2016 were USD 62 million and USD 29 million, respectively.
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 2016 were USD 1 044 million.
The Group entered into a real estate construction contract. The commitments under the contract amount to USD 92 million over
the next 4 years.
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, results of operations or cash flows.
94 Swiss Reinsurance Company Consolidated 2016 Annual Report
16 Variable interest entities
The adoption of ASU 2015-02 as of 1 January 2016 led to an increase in the number of variable interest entities (VIEs), mainly
due to the evaluation of partnerships and investment funds.
The Group enters into arrangements with 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 primarily as a result of the
Group’s involvement in certain insurance-linked securitisations, life and health funding transactions, swaps in trusts, debt financing,
investment, senior commercial mortgage and infrastructure loans as well as other entities, which meet the definition of a VIE.
When analysing whether the entity is a VIE, 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 is assessed for consolidation under the VIE section of the
Consolidation Topic.
The party that has a controlling financial interest is called a primary beneficiary and consolidates the VIE. The party 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 the entity’s losses 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.
For all its variable interests in VIEs, the Group assesses whether it has a controlling financial interest in these entities and, thus,
is the primary beneficiary. 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. Additionally, 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.
The Group monitors changes to the facts and circumstances of the existing involvement with legal entities to determine whether
they require reconsideration of the entity’s designation as a VIE or voting interest entity. For VIEs, the Group reassesses regularly
the primary beneficiary determination.
Insurance-linked securitisations
The insurance-linked securitisations transfer pre-existing insurance risk to investors through the issuance of insurance-linked
securities. In insurance-linked securitisations, the securitisation vehicle assumes the insurance risk from a sponsor through
insurance or derivative contracts. The securitisation vehicle generally retains the issuance proceeds as collateral, which consists
of investment-grade securities. The Group does not have potentially significant variable interest in these vehicles and therefore
is not a primary beneficiary.
Typically, the variable interests held by the Group arise through ownership of insurance-linked securities, in which case the
Group’s maximum loss equals the principal amount of the securities held by the Group.
Swiss Reinsurance Company Consolidated 2016 Annual Report 95
Financial Statements I Notes to the Group financial statements
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 separate 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 with a funding vehicle, which represents a potentially significant variable interest in the
funding vehicle. 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 outstanding balance of the funding notes issued by the vehicle, depending on the specific contractual arrangements.
Swaps in trusts
The Group provides interest rate and foreign exchange risk hedges to certain asset securitisation trusts which qualify as VIEs.
As the Group’s involvement 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
The Group consolidates a debt-financing vehicle created to collateralise reinsurance coverage provided by the Group. The Group
manages the asset portfolio in the vehicle and absorbs the variability of the investment return of the vehicle’s portfolio thereby
satisfying both criteria for a controlling financial interest: power over activities most significant to the vehicle’s economic performance
and significant economic interest.
Investment vehicles
The Group’s variable interests in investment partnerships arise through ownership of the limited partner interests. Many investment
partnerships are VIEs under ASU 2015-02, because the limited partners as a group lack kick-out or participating rights. The Group
does not hold the general partner interest in the limited partnerships and therefore does not direct investment activities of the
entity. 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 investment vehicles decrease. The
Group’s maximum exposure to loss equals the Group’s share of the investment.
The Group is a passive investor in structured securitisation vehicles issuing residential and commercial mortgage-backed securities
(RMBS and CMBS, respectively) and other asset-backed securities (ABS). The Group’s investments in RMBS, CMBS and other
ABS are passive in nature and do not obligate the Group to provide any financial or other support to the issuer entities. By design,
RMBS, CMBS and ABS securitisation entities are not adequately capitalised and therefore considered VIEs. The Group is not
the primary beneficiary, because it does not have power to direct most significant activities. These investments are accounted for
as available-for-sale as described in the investment note 7 and are not included in the tables below.
The Group consolidates an investment vehicle, because the Group holds the entire interest in the entity and makes investment
decisions related to the entity. The investment vehicle is a VIE under ASU 2015-02, because it is structured as an umbrella
company comprised of multiple sub-funds. The majority of the investments held in this vehicle are accounted for as available-for-
sale and are disclosed in the investment note and not included in the tables below.
Investment vehicles (unit-linked business)
Additionally, the Group invests on behalf of the policyholders as a passive investor in a variety of investment funds across various
jurisdictions. By design, many of these funds meet a VIE definition. While the Group may have a potentially significant variable
interest in some of these entities due to its share of the fund’s total net assets, it never has power over the fund’s investment
decisions, or unilateral kick-out rights relative to the decision maker.
The Group is not exposed to losses in the aforementioned investment vehicles, as the investment risk is borne by the policyholder.
96 Swiss Reinsurance Company Consolidated 2016 Annual Report
Senior commercial mortgage and infrastructure loans
The Group also invests in structured commercial mortgage and infrastructure loans, which are held for investment.
The commercial mortgage loans are made to non-recourse special purpose entities collateralised with commercial real estate.
The entities are adequately capitalised and generally structured as voting interest entities. Occasionally, the borrower entities can
be structured as limited partnerships where the limited partners do not have kick-out or participating rights, which results in the
VIE designation.
The infrastructure loans are made to non-recourse special purpose entities collateralised with infrastructure project assets. Some
borrower entities may have insufficient equity investment at risk, which results in the VIE designation.
The Group does not have power over the activities most significant to the aforementioned borrower entities designated as VIEs
and therefore does not consolidate them.
The Group’s maximum exposure to loss from its investments equals the loan outstanding amount.
Other
The Group consolidates a vehicle providing reinsurance to its members, because it serves as a decision maker over the entity’s
investment and underwriting activities, as well as provides retrocession for the majority of the vehicle’s insurance risk and
receives performance-based fees. Additionally, the Group is obligated to provide the vehicle with loans in case of a deficit. The
vehicle is a VIE, primarily because its total equity investment at risk is insufficient and the members lack decision-making rights.
The Group did not provide financial or other support to any VIEs during 2016 that it was not previously contractually required
to provide.
Consolidated VIEs
The following table shows the total assets and liabilities on the Group’s balance sheet relating to VIEs of which the Group is the
primary beneficiary as of 31 December:
USD millions
Fixed income securities available-for-sale
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
2015
3 876
88
26
147
42
34
9
38
8
4 268
53
26
2
96
17
2 720
2 914
2016
3 715
128
22
33
33
9
94
8
4 042
65
25
6
213
14
2 249
2 572
The assets of the consolidated VIEs may only be used to settle obligations of these VIEs and to settle any investors’ ownership
liquidation requests. There is no recourse to the Group for the consolidated VIEs’ liabilities. The assets of the consolidated
VIEs are not available to the Group’s creditors.
Swiss Reinsurance Company Consolidated 2016 Annual Report 97
Financial Statements I Notes to the Group financial statements
Non-consolidated VIEs
The following table shows the total assets and liabilities in the Group’s balance sheet related to VIEs in which the Group held a
variable interest but was not the primary beneficiary as of 31 December:
USD millions
Fixed income securities available-for-sale
Equity securities available-for-sale
Policy loans, mortgages and other loans
Other invested assets
Investments for unit-linked business
Total assets
Accrued expenses and other liabilities
Total liabilities
2015
52
1
918
971
45
45
2016
415
466
764
1 419
163
3 227
78
78
The following table shows the Group’s assets, liabilities representing variable interests and maximum exposure to loss related to
the VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December:
USD millions
Insurance-linked securitisations
Life and health funding vehicles
Swaps in trusts
Investment vehicles
Investment vehicles for unit-linked business
Commercial mortgage / infrastructure loans
Total
Total
liabilities
1
44
Total assets
52
2
146
771
2015
Maximum
exposure
to loss1
52
1 777
–2
773
971
45
–2
Total assets
336
2
164
1 728
163
834
3 227
Total
liabilities
1
77
78
2016
Maximum
exposure
to loss1
331
1 948
–2
1 729
–
834
–2
1 Maximum 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.
2 The 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.
98 Swiss Reinsurance Company Consolidated 2016 Annual Report
17 Disposals
Aurora National Life Assurance Company
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. 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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 99
Financial Statements I Notes to the Group financial statements
18 Subsequent events
In January 2017, the Group sold three primary life and health insurance carriers to Swiss Re Life Capital Ltd. The sale is in line
with the changes presented to the segmental reporting from 1 January 2016 onwards. Based on the year-end 2016 balance sheet,
the assets and liabilities transferred to Life Capital amounted to approximately USD 1.9 billion and USD 1.9 billion, respectively.
100 Swiss Reinsurance Company Consolidated 2016 Annual Report
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Swiss Reinsurance Company Consolidated 2016 Annual Report 101
Report of the statutory auditor
Report of the statutory auditor
to the General Meeting of
Swiss Reinsurance Company Ltd
Zurich
Report of the statutory auditor on the consolidated financial statements
As statutory auditor, we have audited the consolidated financial statements of Swiss Reinsurance Company Ltd and its subsidiaries
(the ‘Company’), which comprise the consolidated balance sheet as of 31 December 2016, and the related consolidated
income statement, statement of comprehensive income, statement of shareholder’s equity, statement of cash flow and notes
(pages 2 to 100) for the year ended 31 December 2016.
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 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 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 accompanying consolidated financial statements present fairly, in all material respects, the financial position
of the Company at 31 December 2016, 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.
Other matter
Accounting principles generally accepted in the United States of America require that the supplementary information based
on the requirements of ASU 2015-09, Disclosures about Short-Duration Contracts, on pages 38 to 45 be presented to supplement
the consolidated financial statements. Such information, although not part of the consolidated financial statements, is required
by the Financial Accounting Standards Board, which considers it an essential part of financial reporting for placing the consolidated
financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures
to the required supplementary information in accordance with auditing standards generally accepted in the United States of
America, which consisted of inquiries of management about the methods of preparing the information and comparing the
information for consistency with management’s responses to our inquiries, the consolidated financial statements and other
knowledge we obtained during our audit of the consolidated financial statements. We do not express an opinion or provide any
assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion
or provide any assurance.
102 Swiss Reinsurance Company Consolidated 2016 Annual Report
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Unobservable or interpolated inputs used for the valuation of certain level 2 and 3 investments
Key audit matter
Given the ongoing market volatility and macroeconomic
uncertainty, investment valuation continues to be an area
of inherent risk. The risk is not the same for all investment
types and is greatest for those listed below, where the
investments are more difficult to value because quoted
prices are not always available:
̤ Fixed income securitised products
̤ Fixed income mortgage and asset-backed securities
̤ Private placements
̤ Private equity
̤ Derivatives — equity funds
̤ Derivatives — credit contracts
̤ Derivatives — rates
̤ Other derivatives and insurance-related financial products
How our audit addressed the key audit matter
We assessed and tested the design and operating effectiveness
of selected key controls of the valuation models for level 2
and 3 investments, including the Company’s independent price
verification process.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Evaluating the methodology and assumptions, in particular,
the yield curves, discounted cash flows, perpetual growth
rates and liquidity premiums used in the valuation models.
̤ Comparing the assumptions used against appropriate
benchmarks and investigating significant differences.
̤ Testing the operation of data integrity and change
management controls relating to the models.
̤ Engaging our own valuation experts to perform
independent valuations, where applicable.
On the basis of the work performed, we consider the
assumptions used by management to be appropriate and that
the investments classified as level 2 and 3 are properly valued
as of 31 December 2016.
Swiss Reinsurance Company Consolidated 2016 Annual Report 103
Valuation of actuarially determined Property & Casualty (‘P&C’) loss reserves
Key audit matter
The valuation of actuarially determined P&C loss reserves
involves a high degree of subjectivity and complexity.
Reserves for losses and loss adjustment expenses represent
estimates of future payments of reported and unreported
claims for losses and related expenses at a given date. The
Company uses a range of actuarial methodologies and
methods to estimate these provisions. Actuarially determined
P&C loss reserves require significant judgement relating to
certain factors and assumptions. Among the most significant
reserving assumptions are the A-priori loss ratios, which
typically drive the estimates of P&C loss reserves for the most
recent contract years. Other assumptions include, but are not
limited to, interest rates, inflation trends, claims trends,
regulatory decisions, historical claims information and the
growth of exposure.
In particular, ‘long tail’ lines of business (for example, Liability,
US Asbestos and Environmental, Motor Liability and Workers’
Compensation) are generally more difficult to project. This is
due to the protracted period over which claims can be reported
as well as the fact that claims settlements are often less
frequent but of higher impact. They are also subject to greater
uncertainties than claims relating to ‘short-tail’ business.
Long-tailed lines of business generally rely on many
assumptions based on experts’ judgement.
How our audit addressed the key audit matter
We assessed and tested the design and operating effectiveness
of selected key controls relating to the application of the
actuarial methodology, data collection and analysis, as well as
the processes for determining the assumptions used by
management in the valuation of actuarially determined P&C
loss reserves.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Testing the completeness and accuracy of underlying data
utilised by the Company’s actuaries in estimating P&C
loss reserves.
̤ Applying IT audit techniques to analyse claims through the
recalculation of claims triangles.
̤ Involving PwC’s internal actuarial specialists to test
independently management’s estimates of P&C loss reserves,
and evaluating the reasonableness of the methodology and
assumptions used by comparing them with recognised
actuarial practices and by applying our industry knowledge
and experience.
̤ Performing independent projections of selected product
lines. For these product lines, we compared our calculations
of projected reserves with those of the Company taking into
account the available corroborating and contrary evidence
and challenging management’s assumptions as appropriate.
̤ Assessing the process and related judgements of
Moreover, not all natural catastrophe events and/or significant
man-made losses can be modelled using traditional actuarial
methodologies, which increases the degree of judgement
needed in establishing reserves for these events.
management in relation to natural catastrophes and other
large losses, including using our industry knowledge to
assess the reasonableness of market loss estimates and
other significant assumptions.
̤ Performing sensitivity testing and evaluating the
appropriateness of any significant adjustments made by
management to P&C loss reserve estimates.
On the basis of the work performed, we consider that the
methodology, assumptions and underlying data used in the
valuation of actuarially determined P&C loss reserves to be
reasonable and in line with financial reporting requirements
and accepted industry practice.
104 Swiss Reinsurance Company Consolidated 2016 Annual Report
Valuation of actuarially determined Life & Health (L&H) reserves
Key audit matter
The Company’s valuation of liabilities for L&H policy benefits
and policyholder account balances involves complex
judgements about future events affecting the business.
Actuarial assumptions selected by the Company with respect
to interest rates, investment returns, mortality, morbidity,
lapse in coverage, longevity, persistency, expenses, stock
market volatility and future policyholder behaviour may result in
material impacts on the valuation of L&H reserves. The
methodology and methods used can also have a material
impact on the valuation of actuarially determined L&H reserves.
The valuation of actuarially determined L&H reserves depends
on the use of complex models. The Company continues to
migrate actuarial data and models from legacy systems and/or
spreadsheets to new actuarial modelling systems. At the same
time, management is validating models to ensure that new
models are fit for use. Moving from one modelling platform to
another is a complex and time-consuming process, frequently
taking several years. Any resulting adjustments to reserves
need to be assessed in terms of appropriateness and classified
as changes in estimates or as an out-of-period adjustment.
How our audit addressed the key audit matter
We assessed and tested the design and operating effectiveness
of selected key controls relating to the application of actuarial
methodology, data collection and analysis, as well as
the processes for determining the assumptions used by
management in the valuation of actuarially determined
L&H reserves.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Testing the completeness and accuracy of the underlying
data by vouching against the source documentation.
̤ Testing the migration of actuarial data from legacy systems
and/or spreadsheets to the new actuarial systems for
completeness and accuracy.
̤ Performing independent model validation procedures,
including detailed testing of models, independent
recalculations and back testing.
̤ Involving our own life insurance actuarial specialists to test
the methodology and assumptions used by management,
with particular consideration of industry studies, the
Company’s experience and management’s liability
adequacy test procedures.
̤ Challenging the Company’s methodology and methods,
focusing on changes to L&H actuarial methodology and
methods during the year, by applying our industry
knowledge and experience to check whether the
methodology and methods are consistent with recognised
actuarial practices and reporting requirements.
On the basis of the work performed, we consider that the
methodology, assumptions and underlying data used in
the valuation of actuarially determined L&H reserves to be
reasonable and in line with financial reporting requirements
and accepted industry practice.
Valuation of uncertain tax items – initial probability assessment
Key audit matter
The Company is carrying a provision for uncertain tax items
on its books. The valuations of these items are based on
management’s estimates and ‘more-likely-than-not’ tax
assessments. Fluctuations in the estimates of uncertain
tax items have an impact (through income tax expense) on
the results.
How our audit addressed the key audit matter
We assessed and tested the design and operating effectiveness
of selected key controls of the completeness of the uncertain
tax items and management’s assessment of them.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Critically reviewing the ‘more-likely-than-not’ tax
assessments to evaluate the Company’s judgements and
estimates of the probabilities and the amounts.
̤ Assessing how the Company had considered new information
or changes in tax law or case law, and assessing the
Company’s judgement of how these impact the Company’s
position or measurement of the required provision.
Swiss Reinsurance Company Consolidated 2016 Annual Report 105
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 2017
106 Swiss Reinsurance Company Consolidated 2016 Annual Report
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Swiss Reinsurance Company Consolidated 2016 Annual Report 107
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 2016, the Company employed
a worldwide staff at an average of 1 846 full time equivalents.
Financial year 2016
Following the legal entity restructuring in 2015, Swiss Re Asia Ltd, formerly European Reinsurance Company of Zurich Ltd,
novated its European intragroup business to the Company effective as of 1 January 2016. The novation was performed at Swiss
statutory book values resulting in a one-off increase in the Company‘s assets and liabilities of CHF 8 048 million without
impacting the net income at inception. In addition, the Company successfully increased its transactional business, notably in the
US, with the completion of a casualty quota share treaty and the assumption of in-force life blocks of business.
Net income amounted to CHF 875 million in 2016, compared to CHF 6 432 million in 2015. The prior year was significantly
impacted by the legal entity restructuring. The Company sold its subsidiary Swiss Re Asia Ltd to Swiss Re Reinsurance Holding
Company Ltd and generated a one-off realised gain of CHF 6 383 million in 2015, 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. This net impact mainly led to the higher investment result of CHF 5 833 million in 2015,
compared to CHF 787 million in 2016.
108 Swiss Reinsurance Company Ltd 2016 Annual Report
Reinsurance result
Reinsurance result amounted to CHF 1 238 million in 2016, compared to CHF 1 634 million in 2015. The Life & Health Reinsurance
result experienced a loss of CHF 284 million, compared to a gain of CHF 481 million in 2015, reflecting mainly the decline of
interest rates leading to an increase in reserves. The business volume increase was driven by the novated European treaties and
transactional business. The Property & Casualty Reinsurance result increased from CHF 1 153 million to CHF 1 522 million in
2016, due to the novated European business and solid underwriting results, partly offset by a higher large loss burden, compared
to the prior year, and a lower contribution from positive prior-year developments.
Property and casualty premiums earned increased from CHF 7 712 million in 2015 to CHF 11 237 million in 2016. The increase
was driven by the novated European business, which impacted all lines of business, especially property, motor and casualty, and
by large and tailored transactions in the US and Europe.
Life and health premiums earned increased from CHF 4 856 million in 2015 to CHF 6 343 million in 2016. Higher premiums
earned were stemming from large transactions in the US and in Asia and the novated European business.
Property and casualty claims paid and claim adjustment expenses net and change in unpaid claims net increased from
CHF 4 046 million to CHF 6 667 million in 2016, mostly reflecting business volume growth. In addition, the Company has
experienced a higher loss burden in 2016, with more large property and agriculture losses. Further, prior-year developments
have been less favourable than in 2015, especially in motor and casualty.
Life and health benefits net changed from a gain of CHF 1 647 million to a loss of CHF 3 653 million in 2016, mainly due to the
assumptions of large in-force life blocks of business in the US and the set-up of reserves for the novation of the European
business. The prior year was impacted by the reserve release for the one-off recapture of reinsurance treaties. These movements
were offset in life and health claims paid and claim adjustment expenses net and change in unpaid claims net, which decreased
by CHF 3 674 million in 2016. The lower expenses were primarily driven by the considerations received in 2016, respectively
paid in 2015, for the aforementioned transactions. In addition, life and health benefits net increased due to the decline in interest
rates in 2016, primarily in Europe and in Japan.
Acquisition costs net increased from CHF 3 026 million in 2015 to CHF 4 150 million in 2016, mainly related to the business
volume increase in Europe and in the Americas, especially for casualty and life and health.
Investment result
Investment income decreased from CHF 8 575 million to CHF 1 779 million in 2016. The decrease was driven by lower realised
gains on investments in subsidiaries and affiliated companies of CHF 6 381 million, mostly related to the sale of its subsidiary
Swiss Re Asia Ltd to Swiss Re Reinsurance Holding Company Ltd which generated a one-off realised gain of CHF 6 383 million
in 2015. The decrease in realised gains on and income from alternative investments were primarily driven by the sale of private
equities to a subsidiary in 2015. In addition, the prior year benefited from the distribution of retained income from shares in
investment funds.
Investment expenses decreased from CHF 2 418 million to CHF 695 million in 2016. The decrease was mainly related to lower
value adjustments on subsidiaries and affiliated companies of CHF 1 640 million, primarily reflecting the non-recurring value
adjustment on the investment in Swiss Re America Holding Corporation of CHF 1 821 million in 2015 prior to its contribution to
Swiss Re Reinsurance Holding Company Ltd. Higher realised losses in equity securities and alternative investments in 2015
were mainly due to the vesting of a share based compensation plan and the sale of private equities to a subsidiary, respectively.
In 2016, higher value adjustments on fixed income securities were driven by market deterioration.
Other income and expenses
The decrease in other net expenses from CHF 255 million in 2015 to CHF 158 million in 2016 was mainly related to lower net
realised foreign exchange losses.
Swiss Reinsurance Company Ltd 2016 Annual Report 109
Financial Statements I Swiss Reinsurance Company Ltd
Financial Statements I Swiss Reinsurance Company Ltd
Assets
Total assets increased from CHF 90 263 million as of 31 December 2015 to CHF 101 291 million as of 31 December 2016.
Total investments increased from CHF 51 507 million to CHF 54 295 million in 2016. The increase was mainly due to the transfer
of shares in investment funds from Swiss Re Asia Ltd of CHF 4 142 million in connection with the novation of the European
business to the Company. This was partly offset by net repayments of intragroup loans of CHF 3 008 million, primarily from
Swiss Re Reinsurance Holding Company Ltd, which were mainly reinvested in short-term investments.
Assets in derivative financial instruments increased from CHF 276 million to CHF 1 108 million in 2016, mainly as a result of
the transfer of hedge instruments in connection with the life and health variable annuities business by US subsidiaries to the
Company. The transferred assets mainly consisted of foreign exchange swaps and forwards and other derivative financial
instruments on equity securities.
Funds held by ceding companies increased from CHF 13 639 million to CHF 18 840 million in 2016, mainly as a result of large
casualty and life and health transactions in the US and the novated European business.
Reinsurance recoverable on technical provisions retroceded increased from CHF 7 996 million to CHF 8 708 million in 2016.
This was due to higher retroceded property and casualty business from the Company’s branches in Japan and Canada, experiencing
large natural catastrophe events and increased life and health business retroceded from the Company’s Beijing branch.
Premiums and other receivables from reinsurance increased from CHF 7 320 million to CHF 8 473 million in 2016, reflecting the
higher business volume stemming from the novated European treaties and transactional business.
Liabilities
Total liabilities increased from CHF 76 003 million as of 31 December 2015 to CHF 89 089 million as of 31 December 2016.
Technical provisions gross increased from CHF 50 626 million to CHF 64 322 million in 2016, mainly driven by the novated
European business. In addition, unpaid claims increased due to a higher loss burden in property and casualty and life and health
policy benefits as a consequence of lower interest rates combined with higher business volume stemming from large transactions.
Liabilities in derivative financial instruments increased from CHF 588 million to CHF 1 877 million in 2016, mainly as a result of
the transfer of hedge instruments in connection with the life and health variable annuities business by US subsidiaries to the
Company. The transferred liabilities mainly consisted of foreign exchange swaps and forwards and other derivative financial
instruments on equity securities.
Funds held under reinsurance treaties decreased from CHF 4 636 million to CHF 3 789 million in 2016, due to a restructuring of
the intragroup retrocession between the Company’s Beijing branch and Swiss Re Asia Ltd.
Other liabilities increased from CHF 5 369 million to CHF 6 396 million in 2016, mainly reflecting higher intragroup payables
under securities lending agreements and securities sold under agreement to repurchase.
The decrease in subordinated liabilities of CHF 1 170 million to CHF 4 539 million in 2016 was mainly driven by the repayment
of an intragroup hybrid loan and the maturity of an external subordinated debt.
Shareholder’s equity
Shareholder’s equity decreased from CHF 14 260 million as of 31 December 2015 to CHF 12 202 million as of 31 December 2016.
The decrease reflected the dividend payment in cash of CHF 2 833 million and the dividend in-kind of Swiss Re Management Ltd
of CHF 100 million, partly offset by the net income for the financial year 2016 of CHF 875 million.
110 Swiss Reinsurance Company Ltd 2016 Annual Report
Future prospects and business development
Large transaction
In order to further align the management view and legal entity structure, the Company will transfer risks allocated to the Life Capital
Business Unit to an affiliated company via novation and retrocession transactions, effective as of 1 January 2017, at Swiss
statutory book values. For the retrocession, the Company sets up a reinsurance recoverable on technical provisions retroceded
and funds held under reinsurance treaties, respectively, which will lead to an increase of assets and liabilities. This increase
will be partly offset by a release of the technical provisions gross and the transfer of corresponding assets for the novated business.
The net impact of the aforementioned will result in a one-off increase in the Company’s assets and liabilities of approximatively
CHF 4.2 billion without impacting the net income at inception.
Property & Casualty Reinsurance business
Market environment
In 2016, the non-life reinsurance industry experienced a fifth year of strong, albeit lower, underwriting results. Reinsurance
prices have continued to soften during 2016, but at a slower pace. Global premiums in non-life reinsurance are expected to grow
in 2017 in real terms, based on increasing cessions from emerging markets. Advanced markets premium growth will reflect a
moderation in rate pressures, slowing growth in the primary market and accelerating inflation.
Strategy and priorities
While natural catastrophe property rates still experienced pressure due to relatively low loss occurrence and abundant capital in
the markets, rate decreases have started to slow down. The Company deployed less natural catastrophe capacity and will
continue to do so where price levels fall below the Company’s return hurdles. Specialty lines experienced rate pressure with
notable differences by lines of business and markets. Casualty rates overall remained more stable with varying trends based on
market and product.
The Company will continue to pursue its successful differentiation strategy while focusing on the bottom line under current
market conditions. This means that the Company supports key partners and expects they will also reflect the support in differential
terms. This positions the Company to access the business it wants and achieves above average rates.
Life & Health Reinsurance business
Market environment
Global premiums in traditional life reinsurance, consisting of mortality and morbidity, are estimated to have grown by 1.5% in real
terms in 2016. In advanced markets, a 0.5% increase was driven by positive developments in Canada, the UK, Japan and
Australia, while premiums in the US contracted as a result of lower cession rates and weakness in protection sales. In the emerging
markets, premiums are estimated to have grown by 9%, driven largely by China. World premiums in traditional life reinsurance are
expected to increase only marginally over the next two years, driven by the emerging markets, especially China. Premiums in the
advanced markets will be roughly flat. Large transactions and longevity risk transfer will remain a growth area for life reinsurers.
Strategy and priorities
The Company expects life and health reinsurance business to be relatively flat in mature markets and to increase in high growth
markets. In mature markets the prolonged low interest rate environment continues to have an unfavourable impact on primary
sales. Cession rates in the US have decreased and have now generally flattened as primary insurers retain more risk. However,
the Company sees a strong focus on capital, risk and balance sheet optimisation in mature markets, leading to positive
opportunities for large transactions.
Recent political instability has given rise to uncertainty for growth in many regions of the world that could last two years or more.
Market volatility is increasing in the short-term, with uncertain impact on Swiss Re’s new business overall. The Company believes
high growth markets will continue to see strong increases in primary life and, in particular, health volumes, while cession rates
are expected to be stable.
The Company will continue to pursue growth opportunities in high growth markets and in large transactions, including longevity
deals. The Company is responding to the expanding need for health protection driven by ageing societies and the Company
will apply its experience to help reduce the protection gap in all regions.
Swiss Reinsurance Company Ltd 2016 Annual Report 111
Financial Statements I Swiss Reinsurance Company Ltd
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 the investment outlook for 2017, government bond yields are expected to rise from current levels, in particular in the
US with smaller rises in the UK and Germany. The outlook is neutral for corporate bonds, with modest spread widening expected
in the US while Eurozone corporate bonds remain tight, supported by the European Central Bank asset purchase program. The
outlook is similarly neutral for equities with a preference for the US given better near-term earnings outlook.
112 Swiss Reinsurance Company Ltd 2016 Annual Report
Risk assessment
The Company’s Board of Directors has issued a mandate to establish a Risk Management function to provide independent
risk taking oversight within the Business Unit Reinsurance. In executing this task, Reinsurance’s Risk Management function
is supported by the Swiss Re Group Risk Management organisation. Significant parts of risk exposure identification,
assessment, control and reporting for Swiss Reinsurance Company Ltd on a stand-alone basis are integrated in Group Risk
Management processes.
The Board of Directors of Swiss Reinsurance Company Ltd sets the Company’s risk tolerance. In this role, it is advised by the
Board of Directors of the Swiss Re Group, which defines the Group’s basic risk management principles and risk appetite
framework including the Group risk tolerance. The Board of Directors of the Swiss Re Group mainly performs risk oversight
and governance through three committees:
̤ The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk
tolerance, and reviews top risk issues and exposures of the Company’s assets and liabilities.
̤ 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 (Group CRO) as well as to
the Business Units.
The Group CRO is appointed as the principal independent risk controller of Swiss Re. The Group CRO is a member of the
Group EC and reports directly to the Group CEO as well as to the Board’s Finance and Risk Committee. The Group CRO also
advises the Group EC, the Chairman or the respective Group Board Committees, in particular the Finance and Risk Committee,
on significant matters arising in his area of responsibility. The Group CRO leads the independent Risk Management function,
which is responsible for risk oversight and control across Swiss Re. It thus forms an integral part of Swiss Re’s business model
and risk management framework. The Risk Management function is comprised of central teams providing specialised risk
expertise and oversight, as well as dedicated risk teams for the Reinsurance, Corporate Solutions, and Life Capital (formerly
Admin Re®) Business Units.
The Business Unit Reinsurance Risk Management teams are led by a dedicated Chief Risk Officer who reports directly to the
Group CRO, with a secondary reporting line to the CEO Reinsurance. The Business Unit Reinsurance CRO is responsible for
risk oversight within the Business Unit Reinsurance, as well as for establishing the proper risk governance to ensure efficient risk
identification, assessment and control. The CRO Reinsurance is supported by functional, regional and legal entity CROs who
are responsible for overseeing risk management issues that arise at regional or legal entity level.
While the risk management organisation is closely aligned to Swiss Re’s business structure, in order to ensure effective risk
oversight, all embedded teams and functional CROs remain part of the central Group Risk Management function under the
Group CRO, thus ensuring their independence as well as a consistent Group-wide approach to overseeing and controlling risks.
The central teams 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 departments also oversee Group liquidity and capital adequacy and maintain the Group frameworks for controlling
these risks throughout Swiss Re.
For the Business Unit Reinsurance and its subsidiaries, the setting of the reserves is performed by valuation actuaries within the
P&C and L&H Business Management units. Business Unit Reinsurance and Group Risk Management activities are complemented
by Swiss Re’s Group Internal Audit and Compliance units:
̤ Group Internal Audit performs independent assessments of adequacy and effectiveness of internal control systems.
It evaluates the execution of processes within Swiss Re, including those within Risk Management.
̤ The Compliance function oversees Swiss Re’s compliance with applicable laws, regulations, rules, and the Group Code of
Conduct. It also assists the Business Unit and the Group Board of Directors, Executive Committees and other management
bodies in identifying, mitigating and managing compliance risks.
Swiss Reinsurance Company Ltd 2016 Annual Report 113
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
2015
2016
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
22 976
–4 207
18 769
–1 112
–77
–1 189
17 580
1 003
297
18 880
–2 523
2 375
–148
–8 545
304
–8 241
–4 101
448
–3 653
–12 042
–
–12 042
–5 373
1 223
–4 150
–804
–4 954
–646
–17 642
Reinsurance result
1 634
1 238
114 Swiss Reinsurance Company Ltd 2016 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
2015
2016
8 575
–2 418
–324
5 833
456
–749
7 174
–404
93
–348
6 515
–83
6 432
1 779
–695
–297
787
1 906
–2 254
1 677
–418
247
–405
1 101
–226
875
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2016 Annual Report 115
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
2015
2016
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
13 094
17 382
8 752
808
611
9 197
3 838
613
13 648
54 295
1 108
18 840
2 226
4 732
1 707
2 223
46
8 708
15
1 595
100
8 473
183
5 412
336
46 996
3
3
3
3
3
3
Total assets
90 263
101 291
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
116 Swiss Reinsurance Company Ltd 2016 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
2015
2016
3
3
3
3
3
3
4
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
39 365
15 728
7 147
538
1 544
64 322
209
938
215
1 362
3 706
1 877
3 789
2 898
6 396
200
4 539
76 003
89 089
34
6 778
6 778
650
272
94
6 432
14 260
34
6 778
6 778
650
3 839
26
875
12 202
Total liabilities and shareholder’s equity
90 263
101 291
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2016 Annual Report 117
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.
Structural change
The new group wide service company Swiss Re Management Ltd, as a wholly-owned subsidiary of Swiss Re Ltd, started its
operating activities as a provider for Swiss Re’s Group Functions as of 1 January 2016. At that date, together with related assets
and liabilities, employees which were formerly employed by the Company and provided services in the Swiss Re’s Group
Functions, were transferred to the newly established service company. This transfer led to a significant decrease of both, the
number of employees and personnel expenses in the Company, and in return to higher service expenses of the Company for
services provided newly by Swiss Re Management Ltd. As a result of the transfer, various line items of the Financial Statements
as well as disclosure notes, such as outstanding leasing commitments, management fee contribution and auditor’s fees, were
impacted in 2016.
1 Significant accounting principles
Basis of presentation
In general, the financial statements are prepared in accordance with Swiss Company Law. As a reinsurance company and based
on Art. 111b of the Ordinance on the supervision of private insurance companies (ISO), the Company is also required to follow
the Insurance Supervisory Ordinance-FINMA (ISO-FINMA). The ISO-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 Swiss
Code of Obligations (SCO).
Time period
The 2016 financial year comprises the accounting period from 1 January 2016 to 31 December 2016.
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.
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.
118 Swiss Reinsurance Company Ltd 2016 Annual Report
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 cedent 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 2016 Annual Report 119
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. Generally 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 drawn from experience studies. Cash flows include primarily
premiums, claims, commissions, profit commissions and expenses, with provisions for adverse deviations added for prudence to
reflect the uncertainties of the underlying best estimates. The gross premium valuation approach may 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. A loss ratio approach can be taken, mainly for Group business, and for individual risk premium
lump sum business, where either information is limited or a gross premium valuation is not possible due to practical constraints.
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.
Debt
Debt is held at redemption value.
120 Swiss Reinsurance Company Ltd 2016 Annual Report
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.
Income statement classification
Interest expenses on debt were reclassified from other financial expenses to interest expenses on debt and subordinated
liabilities. Therefore, the previously reported 2015 figures of other financial expenses and interest expenses on debt
and subordinated liabilities with a respective amount of CHF 316 million have been changed accordingly.
Swiss Reinsurance Company Ltd 2016 Annual Report 121
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
290
648
218
6
22
11
11
30
52
118
1 354
Value
readjustments
Realised
gains
–
115
–
–
10
–
–
7
7
–
132
2
193
–
–
61
20
1
16
37
–
293
Expenses
Value
adjustments
Realised
losses
–
–
–
–
–
–
–
–
–179
–179
–181
–215
–
–20
–28
–
–21
–49
–
–465
–
–44
–
–6
–
–1
0
–1
–
–51
2016
Total
292
956
218
6
93
31
12
53
96
118
1 779
2016
Total
–181
–259
–
–26
–28
–1
–21
–50
–179
–695
–297
787
122 Swiss Reinsurance Company Ltd 2016 Annual Report
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
Swiss Reinsurance Company Ltd 2016 Annual Report 123
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
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
Gross
2 334
8 414
209
39 365
15 728
7 147
538
1 544
1 278
Retro
–739
59
–29
–4 7321
–1 7071
–2 2231
–461
–
1 620
2016
Net
1 595
8 473
180
34 633
14 021
4 924
492
1 544
2 898
1 Reported under "Reinsurance recoverable on technical provisions retroceded" on page 116.
2 Reported under "Other assets" on page 116.
4 Change in shareholder’s equity
CHF millions
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
Shareholder’s equity 1.1.2016
Allocations relating to the dividend paid
Dividend for the financial year 2015
Net income for the financial year
Shareholder’s equity 31.12.2016
Share
capital
34
Legal capital
reserves
8 057
–1 279
Legal profit
reserves
650
Voluntary profit
reserves
272
2 879
–2 879
Retained earnings
brought forward
28
66
Net income for
the financial year
1 666
–1 666
34
34
6 778
650
272
6 778
650
272
6 500
–2 933
94
94
–68
34
6 778
650
3 839
26
6 432
6 432
6 432
–6 432
875
875
Total shareholder’s
equity
10 707
–
–2 879
6 432
14 260
14 260
–
–2 933
875
12 202
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 2016 and 2015,
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 1 016 million
(2015: CHF 1 000 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 2016 and 2015, respectively.
124 Swiss Reinsurance Company Ltd 2016 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
2015
15 887
18 155
34 042
2016
16 336
16 066
32 402
To secure the technical provisions at the 2016 balance sheet date, securities with a book value of CHF 14 009 million
(2015: CHF 13 017 million) were deposited in favour of ceding companies, of which CHF 4 088 million (2015: CHF 4 584 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 2016, total commitments
remaining uncalled were CHF 495 million (2015: CHF 885 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 2016 and 2015, the
facility was undrawn.
In April 2016, 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 400 million at any time before
February 2036. For its various rights, the Company owes Swiss Re Ltd an unconditional fixed commitment fee, payable in annual
instalments calculated as 6.10% on the total facility amount. Annually, the Company receives a partial reimbursement of the
commitment fee equal to 2.13% per annum on the undrawn facility amount. As of 31 December 2016, the facility was undrawn.
In June 2016, 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 800 million at any time before
August 2032. For its various rights, the Company owes Swiss Re Ltd an unconditional fixed commitment fee, payable in annual
instalments calculated as 5.68% on the total facility amount. Annually, the Company receives a partial reimbursement of the
commitment fee equal to 1.95% per annum on the undrawn facility amount. As of 31 December 2016, the facility was undrawn.
Swiss Reinsurance Company Ltd 2016 Annual Report 125
Financial Statements I Swiss Reinsurance Company Ltd
10 Leasing contracts
Total off-balance-sheet commitments from operating leases for the next five years and there after are as follows:
CHF millions
2016
2017
2018
2019
2020
After 2021
Total operating leases, net
2015
24
20
16
9
9
8
86
2016
–
11
6
4
4
10
35
These operating lease commitments pertain to the non-cancellable contract periods and refer primarily to office and apartment
space rented by the Company.
11 Investments in subsidiaries and affiliated companies
As of 31 December 2016 and 2015, Swiss Reinsurance Company Ltd held the following direct and material indirect investments
in subsidiaries and affiliated companies:
Country
Liechtenstein
Barbados
Barbados
As of 31 December 2016
Elips Life AG
European Finance Reinsurance Company Ltd
Gasper Funding Corporation
Swiss Brokers México, Intermediario de Reaseguro, S.A. de C.V. Mexico
Swiss Re Australia Ltd
Swiss Re Life & Health Australia Limited
Swiss Re Brasil Resseguros S.A.
Swiss Re GB Limited
Swiss Re Investments Ltd
Swiss Re Life and Health Africa Limited
Swiss Re Private Equity Partners SGP Limited
Swiss Re Reinsurance Holding Company Ltd
Swiss Re America Holding Corporation
Swiss Re Capital Markets Corporation
Swiss Re Financial 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 Asia Ltd
Swiss Re Europe Holdings S.A.
Swiss Re Europe S.A.
Swiss Re Germany GmbH
Swiss Re Services Limited
Swiss Re 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
Australia
Australia
Brazil
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)
United States (USA)
Switzerland
Luxembourg
Luxembourg
Germany
United Kingdom (UK)
India
United Kingdom (UK)
Brazil
Cayman Islands
Vietnam
Brazil
City
Triesen
Bridgetown
Bridgetown
Mexico City
Sydney
Sydney
São Paulo
London
Zurich
Cape Town
George Town
Zurich
Wilmington
New York
Wilmington
Wilmington
Wilmington
Wilmington
Armonk
Zurich
Luxembourg
Luxembourg
Munich
London
Mumbai
London
São Paulo
São Paulo
George Town
Hanoi
%
Equity interest
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
20%
93%
65%
25%
%
Voting interest
100%
100%
100%
100%
100%
100%
99%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
20%
93%
100%
25%
126 Swiss Reinsurance Company Ltd 2016 Annual Report
Country
Liechtenstein
Barbados
Barbados
Luxembourg
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. Mexico
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
Swiss Re America Holding Corporation
Swiss Re Capital Markets Corporation
Swiss Re Financial 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 Asia Ltd
Swiss Re Europe Holdings S.A.
Swiss Re Europe S.A.
Swiss Re Germany GmbH
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
Australia
Australia
Brazil
United Kingdom (UK)
United Kingdom (UK)
Switzerland
South Africa
Switzerland
Cayman Islands
Switzerland
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
Switzerland
Luxembourg
Luxembourg
Germany
Belgium
India
India
United Kingdom (UK)
Brazil
Cayman Islands
Vietnam
Brazil
City
Triesen
Bridgetown
Bridgetown
Luxembourg
Mexico City
Sydney
Sydney
São Paulo
London
London
Zurich
Cape Town
Adliswil
George Town
Zurich
Wilmington
New York
Wilmington
Wilmington
Wilmington
Wilmington
Armonk
Zurich
Luxembourg
Luxembourg
Munich
Brussels
Mumbai
Bangalore
London
São Paulo
São Paulo
George Town
Hanoi
%
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%
100%
94%
100%
100%
100%
100%
20%
93%
65%
25%
%
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%
100%
94%
100%
100%
100%
100%
20%
93%
100%
25%
Swiss Reinsurance Company Ltd 2016 Annual Report 127
Financial Statements I Swiss Reinsurance Company Ltd
12 Debt and subordinated liabilities
The Company had outstanding debt and subordinated liabilities at the 2016 balance sheet date of CHF 8 245 million
(2015: CHF 9 597 million). Thereof CHF 5 978 million (2015: CHF 7 236 million) were due within one to five years and
CHF 2 267 million (2015: CHF 2 361 million) were due after five years.
As of 31 December 2016, the following public placed debentures were outstanding:
Instrument
Subordinated bond
Senior bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Senior bond
Subordinated bond
Senior bond
Issued in
2012
2011
2007
2007
2012
2013
2007
2013
2012
2014
2015
2015
Currency
CHF
CHF
AUD
AUD
USD
USD
GBP
CHF
EUR
CHF
EUR
CHF
Nominal
in millions
320
600
300
450
750
750
500
175
500
250
750
250
Interest rate
7.250%
2.125%
7.635%
2.015%
8.250%
6.375%
6.302%
7.500%
6.625%
1.000%
2.600%
0.750%
Maturity/
First call in
2017
2017
2017
2017
2018
2019
2019
2020
2022
2024
2025
2027
Book value
CHF millions
320
600
221
331
762
762
628
175
536
250
804
250
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
1 Thereof at the 2016 balance sheet date CHF 2 178 million (2015: CHF 2 287 million) were towards the parent company Swiss Re Ltd.
2 Thereof at the 2016 balance sheet date CHF 127 million (2015: CHF 8 million) were towards the parent company Swiss Re Ltd.
2015
109
2
2
–3
–99
58
1 735
2 000
2015
11 751
–
8 946
2 145
32
1 827
2 7881
347
4 507
1 988
4 2292
752
2016
96
1
0
–3
–47
110
514
923
2016
8 743
–
13 533
2 719
86
1 941
2 6051
300
3 664
1 861
4 9372
–
128 Swiss Reinsurance Company Ltd 2016 Annual Report
15 Release of undisclosed reserves
In 2016, net undisclosed reserves were released by an amount of CHF 253 million (2015: CHF 949 million).
16 Obligations towards employee pension fund
As of 31 December 2016, other liabilities included CHF 1 million (2015: CHF 4 million) payable to the employee pension fund.
17 Personnel information
As of 31 December 2016, the Company employed a worldwide staff at an average of 1 846 (2015: 4 018) full time equivalents.
Personnel expenses for the 2016 financial year amounted to CHF 440 million (2015: CHF 1 079 million).
18 Management fee contribution
In 2016, management expenses of CHF 152 million (2015: CHF 710 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 2016, the Swiss Re Group incurred total auditor’s fees of CHF 33 million (2015: CHF 35 million) and additional fees of
CHF 4 million (2015: CHF 5 million), of which CHF 3 million (2015: CHF 17 million) and CHF 1 million (2015: CHF 3 million),
respectively, incurred for the Company.
Swiss Reinsurance Company Ltd 2016 Annual Report 129
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 24 March 2017, to approve the
following allocation and payment of a cash dividend of USD 2 600 million, which must not exceed CHF 2 900 million, translated
into CHF at spot rate on the settlement date. The cash dividend is paid to its sole shareholder, Swiss Re Ltd, out of voluntary
profit reserves on 30 March 2017.
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 2 900 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 2 900 million. This threshold of CHF 2 900 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
Voluntary profit reserves
CHF millions
Voluntary profit reserves brought forward
Allocation from retained earnings
Voluntary profit reserves before proposed cash dividend
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 proposed cash dividend
2015
94
6 432
6 526
–6 500
26
2015
272
6 500
6 772
–2 8332
–100
3 839
2016
26
875
901
–850
51
2016
3 839
850
4 689
–2 9001
–
1 789
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 2015 figure was recalculated based on the final cash dividend converted into CHF at spot rate on the settlement date.
The Board of Directors further proposes to the Annual General Meeting to approve the intragroup retrocession (IGR) novation
and the new retrocession pursuant to the novation and retrocession agreements, effective as of 1 January 2017, between,
among others, the Company and Swiss Re Life Capital Reinsurance Ltd (being an indirect subsidiary of the Company’s sole
shareholder, Swiss Re Ltd), such transactions being conducted based on Swiss statutory book values of the transferring assets
and liabilities, which implies that the difference between the Swiss statutory book value and the higher fair market value
(where applicable) of the transferring assets, as well as expectations of future profits associated with the novation and retrocession
agreements, are transferred by the Company to Swiss Re Life Capital Reinsurance Ltd without compensation.
Zurich, 15 March 2017
130 Swiss Reinsurance Company Ltd 2016 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 114 to 129) for the year ended 31 December 2016.
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 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 2016 comply with Swiss law and the Company’s
Articles of Association.
Swiss Reinsurance Company Ltd 2016 Annual Report 131
Report on a key audit matter based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole
and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Unobservable or interpolated inputs used for the valuation of certain investments
Key audit matter
Investments are generally valued at lower of cost or market
value (prudence principle). In addition to the lower of cost or
market value, amortised cost must also be considered for fixed
income securities, which is in accordance with the Insurance
Supervision Ordinance.
Accordingly market values have to be observed to assess the
appropriate application of the prudence principle.
Given the ongoing market volatility and macroeconomic
uncertainty, determination of market values, where no
observable market price exist, investment valuation continues
to be an area of inherent risk. The risk is not the same for all
investment types and is greatest for those listed below, where
the investments are more difficult to value because quoted
prices are not always available:
̤ Fixed income securitised products
̤ Fixed income mortgage and asset-backed securities
̤ Public placements
̤ Private equity
̤ Derivatives — equity contracts
̤ Derivatives — credit contracts
̤ Derivatives — rates
̤ Other derivatives and insurance-related financial products
How our audit addressed the key audit matter
We assessed and tested the design and operating
effectiveness of selected key controls of the valuation models
for certain investments, including the Company’s independent
price verification process.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Evaluating the methodology and assumptions, in particular,
the yield curves, discounted cash flows, perpetual growth
rates and liquidity premiums used in the valuation models.
̤ Comparing the assumptions used against appropriate
benchmarks and investigating significant differences.
̤ Testing the operation of data integrity and change
management controls relating to the models.
̤ Engaging our own valuation experts to perform
independent valuations, where applicable.
On the basis of the work performed, we consider the
assumptions used by management to be appropriate and that
investments are properly valued as of 31 December 2016.
132 Swiss Reinsurance Company Ltd 2016 Annual Report
Valuation of actuarially determined Property & Casualty (‘P&C’) loss reserves
Key audit matter
The valuation of actuarially determined P&C loss reserves
involves a high degree of subjectivity and complexity.
Reserves for losses and loss adjustment expenses represent
estimates of future payments of reported and unreported
claims for losses and related expenses at a given date. The
Company uses a range of actuarial methodologies and
methods to estimate these provisions. Actuarially determined
P&C loss reserves require significant judgement relating to
certain factors and assumptions. Among the most significant
reserving assumptions are the A-priori loss ratios, which
typically drive the estimates of P&C loss reserves for the most
recent contract years. Other assumptions include, but are not
limited to, interest rates, inflation trends, claims trends,
regulatory decisions, historical claims information and the
growth of exposure.
In particular, ‘long tail’ lines of business (for example, Liability,
US Asbestos and Environmental, Motor Liability and Workers’
Compensation) are generally more difficult to project. This is
due to the protracted period over which claims can be
reported as well as the fact that claims settlements are often
less frequent but of higher impact. They are also subject to
greater uncertainties than claims relating to ‘short-tail’
business. Long-tailed lines of business generally rely on many
assumptions based on experts’ judgement.
How our audit addressed the key audit matter
We assessed and tested the design and operating effectiveness
of selected key controls relating to the application of the
actuarial methodology, data collection and analysis, as well as
the processes for determining the assumptions used by
management in the valuation of actuarially determined P&C
loss reserves.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Testing the completeness and accuracy of underlying data
utilised by the Company’s actuaries in estimating P&C
loss reserves.
̤ Applying IT audit techniques to analyse claims through the
recalculation of claims triangles.
̤ Involving PwC’s internal actuarial specialists to test
independently management’s estimates of P&C loss
reserves, and evaluating the reasonableness of the
methodology and assumptions used by comparing them
with recognised actuarial practices and by applying our
industry knowledge and experience.
̤ Performing independent projections of selected product
lines. For these product lines, we compared our calculations
of projected reserves with those of the Company taking into
account the available corroborating and contrary evidence
and challenging management’s assumptions as appropriate.
̤ Assessing the process and related judgements of
Moreover, not all natural catastrophe events and/or significant
man-made losses can be modelled using traditional actuarial
methodologies, which increases the degree of judgement
needed in establishing reserves for these events.
management in relation to natural catastrophes and other
large losses, including using our industry knowledge to
assess the reasonableness of market loss estimates and
other significant assumptions.
̤ Performing sensitivity testing and evaluating the
appropriateness of any significant adjustments made by
management to P&C loss reserve estimates.
On the basis of the work performed, we consider that the
methodology, assumptions and underlying data used in the
valuation of actuarially determined P&C loss reserves to be
reasonable and in line with financial reporting requirements
and accepted industry practice.
Swiss Reinsurance Company Ltd 2016 Annual Report 133
Valuation of actuarially determined Life & Health (L&H) reserves
Key audit matter
The Company’s valuation of liabilities for L&H policy benefits
and policyholder account balances involves complex
judgements about future events affecting the business.
Actuarial assumptions selected by the Company with respect
to interest rates, investment returns, mortality, morbidity, lapse
in coverage, longevity, persistency, expenses, stock market
volatility and future policyholder behaviour may result in
material impacts on the valuation of L&H reserves. The
methodology and methods used can also have a material
impact on the valuation of actuarially determined L&H reserves.
The valuation of actuarially determined L&H reserves depends
on the use of complex models. The Company continues to
migrate actuarial data and models from legacy systems and/or
spreadsheets to new actuarial modelling systems. At the same
time, management is validating models to ensure that new
models are fit for use. Moving from one modelling platform to
another is a complex and time-consuming process, frequently
taking several years. Any resulting adjustments to reserves
need to be assessed in terms of appropriateness and classified
as changes in estimates or as an out-of-period adjustment.
How our audit addressed the key audit matter
We assessed and tested the design and operating effectiveness
of selected key controls relating to the application of
actuarial methodology, data collection and analysis, as well
as the processes for determining the assumptions used
by management in the valuation of actuarially determined
L&H reserves.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Testing the completeness and accuracy of the underlying
data by vouching against the source documentation.
̤ Testing the migration of actuarial data from legacy systems
and/or spreadsheets to the new actuarial systems for
completeness and accuracy.
̤ Performing independent model validation procedures,
including detailed testing of models, independent
recalculations and back testing.
̤ Involving our own life insurance actuarial specialists to test
the methodology and assumptions used by management,
with particular consideration of industry studies, the
Company’s experience and management’s liability
adequacy test procedures.
̤ Challenging the Company’s methodology and methods,
focusing on changes to L&H actuarial methodology and
methods during the year, by applying our industry
knowledge and experience to check whether the
methodology and methods are consistent with recognised
actuarial practices and reporting requirements.
On the basis of the work performed, we consider that the
methodology, assumptions and underlying data used in the
valuation of actuarially determined L&H reserves to be
reasonable and in line with financial reporting requirements
and accepted industry practice.
Impairment assessment of investments in subsidiaries and affiliated companies
Key audit matter
The Company applies group valuation method when a
close business link exists and a similarity in nature is given
in accordance with Swiss Accounting Law.
How our audit addressed the key audit matter
In relation to the matter set out opposite, our substantive
testing procedures included the following:
̤ Assessing whether the group valuation method is still
In performing impairment assessments of investments in
subsidiaries and affiliated companies, management uses
considerable judgement in determining different valuation-
method inputs.
The impairment assessment is considered a key audit matter
due to the considerable judgement in performing the
impairment assessment.
appropriate.
̤ Assessing whether the method applied for each subsidiary
is reasonable.
̤ Understanding changes in the approach and discussing
these with management to ensure they are in accordance
with our own expectation based on our knowledge of the
business and industry.
On the basis of the work performed, we consider the methods
and assumption used by management to be reasonable.
We agree with their conclusion that the book value for all
investments in subsidiaries are recoverable.
134 Swiss Reinsurance Company Ltd 2016 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 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 and the additional proposal of the Board of Directors to approve the Novation and Retrocession Transaction (as
described in the proposal for allocation of disposable profit) does not contradict with the Swiss law or the Company’s Articles of
Association related to capital protection. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers Ltd
Alex Finn
Audit expert
Auditor in charge
Bret Griffin
Zurich, 15 March 2017
Swiss Reinsurance Company Ltd 2016 Annual Report 135
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:
̤ further instability affecting the global financial system and developments
related thereto;
̤ further deterioration in global economic conditions;
̤ the Group’s ability to maintain sufficient liquidity and access to capital markets,
including sufficient liquidity to cover potential recapture of reinsurance
agreements, early calls of debt or debt-like arrangements and collateral calls due
to actual or perceived deterioration of the Group’s financial strength or otherwise;
̤ the effect of market conditions, including the global equity and credit markets,
and the level and volatility of equity prices, interest rates, credit spreads, currency
values and other market indices, on the Group’s investment assets;
̤ changes in the Group’s investment result as a result of changes in its investment
policy or the changed composition of its investment assets, and the impact of the
timing of any such changes relative to changes in market conditions;
̤ uncertainties in valuing credit default swaps and other credit-related instruments;
̤ possible inability to realise amounts on sales of securities on the Group’s balance
sheet equivalent to their mark-to-market values recorded for accounting purposes;
̤ the outcome of tax audits, the ability to realise tax loss carryforwards and the
ability to realise deferred tax assets (including by reason of the mix of earnings
in a jurisdiction or deemed change of control), which could negatively impact
future earnings;
̤ the possibility that the Group’s hedging arrangements may not be effective;
̤ the lowering or loss of financial strength or other ratings of 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;
136 Swiss Reinsurance Company Ltd 2016 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 2016 Annual Report 137
Financial Statements I Notes to the 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
(collectively, 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.
Market sentiment is dominated in large part by concerns over the trends exemplified
by the outcome of the US presidential election and the UK referendum on European
Union (EU) membership. Growth forecasts among the principal global economies
remain uneven and uncertain in an environment of elevated political uncertainty.
Stable, but uneven growth, in the Eurozone could suffer as a result of the potential
impact of populism and anti-globalisation sentiments on upcoming elections in the
Netherlands, France and Germany, and potentially Italy, during 2017. The planned
withdrawal of the United Kingdom from the EU has created uncertainty not only for
the United Kingdom but for the rest of the EU, and negotiations over withdrawal will
likely continue to contribute to volatility and pose significant challenges for the EU,
while also calling into question the ability of the EU to address significant ongoing
structural challenges. The long-term effects of a withdrawal of the United Kingdom
from the EU will depend in part on any agreements the United Kingdom makes to
retain access to the single market within the European Economic Area (EEA)
following such withdrawal, the scope and nature of which currently remain highly
uncertain. As China’s economy undergoes structural changes, recent near-term
growth stabilisation may be reversed. Growth in China remains heavily dependent
on government stimulus and credit expansion; it continues to face significant capital
outflows, reflecting concerns over foreign currency, and its banking sector could be
adversely impacted by rising interest rates. The foregoing may be exacerbated by
geopolitical tensions, fears over security and migration, and uncertainty created
generally by the policy pronouncements that have been, and may in the coming
months be, announced by the new US administration on a range of trade, security,
foreign policy, environmental protection and other issues having global implications,
as well as by the consequences of the implementation of such policy pronouncements.
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 the
Group’s ability to access the capital markets and bank funding markets, could
adversely affect the ability of counterparties to meet their obligations to the Group
and could adversely affect the confidence of the ultimate buyers of reinsurance.
Any of the foregoing factors, developments and trends could 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,
make it more difficult to acquire suitable investments to meet its risk and return
criteria and otherwise have a material adverse effect on its business and operations.
138 Swiss Reinsurance Company Consolidated 2016 Annual Report
Regulatory changes
Swiss Re and its subsidiaries operate in a highly regulated environment. The regulatory
regimes to which members of the Group are subject have changed significantly in
recent years and are expected to continue to evolve. During this period, there has
been a noticeable trend to extend the scope of reforms and oversight, which initially
targeted banks, beyond such institutions to cover reinsurance operations.
While some regulation is national in scope, the global nature of the Group’s business
means that its operations are subject in effect to a patchwork of global, national and
regional standards. Swiss Re and its subsidiaries 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. In addition, the
Group could be affected by regulatory changes or developments affecting the overall
Swiss Re group, comprising Swiss Re Ltd (“SRL”) and its consolidated subsidiaries,
of which the Group is a part (the “Swiss Re Group”).
In addition, regulators in jurisdictions beyond those where the Group has core
operations increasingly are playing a far greater oversight role, requiring more
localised resources and, despite a predominantly local focus, also raise issues of
a cross-border nature. Furthermore, evolving regulatory schemes and requirements
may be inconsistent or may conflict with each other, thereby subjecting the Group,
particularly in light of the increasing focus on legal entities in isolation, to higher
compliance and legal costs, as well as the possibility of higher operational, capital
and liquidity costs. The effect of these trends could be exacerbated to the extent that
the current political environment results in a return to more bilateral, and less
harmonised, cross-border regulatory efforts.
There is an evolving 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 SIFIs developed by the Financial
Stability Board, or as a systemically important non-bank financial company by the
Financial Stability Oversight Council (“FSOC”) in the United States. Separately, the
International Association of Insurance Supervisors, an international body that
represents insurance regulators and supervisors, has published and since refined
its methodology for identifying global systemically important insurers (“G-SIIs”) and
also published a framework for supervision of internationally active insurance
groups. 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), which would have various
implications for the Group, including additional compliance costs and reporting
obligations as well as heightened regulatory scrutiny in various jurisdictions. In addition,
the Group ultimately will be subject to oversight of its Swiss regulator in respect of
recovery and resolution planning.
The Group cannot predict which legislative and/or regulatory initiatives 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. The Group may be subject to changes in
views of its regulators in respect of the models that the Group uses for capital and
solvency purposes, and could be adversely affected if for example it is required to
use standard models rather than internal models. Generally, legal and regulatory
changes could have a material impact on the Group’s business. Uncertainty
triggered by the outcome of the UK referendum on EU membership could also
impact the legislative and/or regulatory regimes to which the Group or the broader
Swiss Re Group is subject, both in the United Kingdom and in the European Union.
Swiss Reinsurance Company Consolidated 2016 Annual Report 139
Financial Statements I Notes to the Group financial statements
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 current or
future business or affect the competitive balance, or could make reinsurance less
attractive to primary insurers.
Market risk
Volatility and disruption in the global financial markets could 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 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.
140 Swiss Reinsurance Company Consolidated 2016 Annual Report
Credit risk
If the credit markets were again to deteriorate and further asset classes were to be
impacted, the Group could experience 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 write-downs in other areas of its portfolio, including other structured instruments,
and the Group and its counterparties could face difficulties in valuing credit-related
instruments. Differences in opinion with respect to valuations of credit-related
instruments could result in legal disputes among the Group and its counterparties as
to their respective obligations, the outcomes of which are difficult to predict and
could be material.
Liquidity risks
The Group’s business requires, and its clients expect, that it has sufficient capital and
sufficient liquidity to meet its 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.
Unexpected liquidity needs (including to meet collateral calls) could require the
Group to incur indebtedness or liquidate investments or other assets. 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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 141
Financial Statements I Notes to the Group financial statements
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.
Risks relating to credit rating downgrades
Ratings are an important factor in establishing the competitive position of
reinsurance companies. 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. Ratings may be revised downward or revoked at the sole
discretion of 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, and market
conditions could increase the risk of downgrade. 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 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.
142 Swiss Reinsurance Company Consolidated 2016 Annual Report
The Group is also involved, from time to time, in investigations and regulatory
proceedings, 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. Tax authorities may also actively pursue additional taxes
based on retroactive changes to tax laws. 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.
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); macro developments giving rise to emerging
risks, such as climate change and technological developments (including greater
exposure to cyber risks, which could have a range of consequences from operational
disruption, to loss of proprietary or customer data, to greater regulatory burdens and
potential liability); 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 as 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.
Swiss Reinsurance Company Consolidated 2016 Annual Report 143
Financial Statements I Notes to the Group financial statements
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. Moreover, regulators could require the use of standard models
instead of permitting the use of internal models. 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. Changes in accounting
standards could impact future reported results or require restatement of past reported
results. 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.
The Group uses non-GAAP financial measures in its external reporting. 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
substitutes for measures prepared in accordance with US GAAP. Moreover, these
may be different from, or otherwise inconsistent with, non-GAAP financial measures
used by other companies. These measures have inherent limitations, are not required
to be uniformly applied and are not audited.
Risks related to the Swiss Re corporate structure
Following the realignment of the corporate structure of 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 Swiss Re
Group. Capital, funding, reserve and cost allocations are made at the Swiss Re Group
level across the four operating segments based principally on business plans as
measured against US GAAP and economic value management metrics. Decisions at
the Swiss Re Group level in respect of the broader Swiss Re 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 the Swiss Re Group’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 Swiss Re Group level based on legal entity, regulatory, capital and liquidity
considerations. The Swiss Re Group expects that, over time, its structure will continue
to evolve, and while to date all of the Swiss Re Group’s principal operations, including
the Group, remain wholly owned, in the future the Swiss Re Group may elect to
partner with minority investors in or within one or more of the Swiss Re Group’s
business units or sub-groups within its business units, which could alter historical
approaches taken in respect of capital, liquidity, funding and/or dividends, as well as
other governance matters, including strategy for such business unit or sub-group.
While further changes to the overall Swiss Re Group structure may not have a
financial statement impact on a Swiss Re Group 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 (from the perspective of the Swiss Re
Group) to the extent the Group is a counterparty to any such transactions.
144 Swiss Reinsurance Company Consolidated 2016 Annual Report
Swiss Reinsurance Company Ltd
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P.O. Box
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Switzerland
Telephone +41 43 285 2121
Fax +41 43 285 2999
www.swissre.com
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