Swiss Reinsurance Company
Consolidated
Annual Report 2017
Contents
Group financial statements
Income statement
Statement of comprehensive income
Balance sheet
Statement of shareholder’s equity
Statement of cash flows
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 Related parties
Note 14 Commitments and contingent liabilities
Note 15 Variable interest entities
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
8
10
10
18
29
33
34
51
52
60
72
76
79
82
91
94
95
99
104
104
110
112
114
126
127
132
134
Financial statements
Group financial statements
INANCIAL STATEMENTS
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 business1
Net realised investment gains/losses – non-participating business2
Net investment result – unit-linked
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 before interest and income tax expense
Interest expenses
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 of tax
Net income attributable to common shareholder
Note
2016
2017
4
4
3
3
7
7
7
3
3
3
11
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
30 009
27 863
662
28 525
130
2 226
981
81
50
31 993
–13 172
–9 209
–121
–6 291
–2 400
–31 193
800
–567
233
–119
114
–48
66
–67
–1
1 Total impairments for the years ended 31 December of nil in 2016 and USD 5 million in 2017, respectively, were fully recognised in earnings.
2 Total impairments for the years ended 31 December of USD 71 million in 2016 and USD 39 million in 2017, respectively, were fully recognised in earnings.
The accompanying notes are an integral part of the Group financial statements.
2 Swiss Reinsurance Company Consolidated 2017 Annual Report
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/loss 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
2016
3 197
451
5
–125
–46
3
3 485
–68
–21
3 396
2017
114
–6
2
410
262
17
799
–67
–65
667
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
2017
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
1 619
1 178
–512
–215
2 070
Unrealised
investment
gains/losses1
2 070
1 884
–1 858
–32
2 064
Other-than-
temporary
impairment1
–10
5
2
–2
–5
Foreign currency
translation1, 2
–5 137
–58
Adjustment from
pension benefits3
–953
–113
Accumulated other
comprehensive
income
–4 481
1 012
–67
–5 262
60
7
–999
–450
–277
–4 196
Other-than-
temporary
impairment1
–5
3
Foreign currency
translation1, 2
–5 262
278
Adjustment from
pension benefits3
–999
299
Accumulated other
comprehensive
income
–4 196
2 464
1
–2
–3
–20
152
–4 852
28
–65
–737
–1 849
53
–3 528
1 Reclassification adjustment included in net income is presented in “Net realised investment gains/losses – non-participating business”.
2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity.
3 Reclassification adjustment included in net income is presented in “Operating expenses”.
The accompanying notes are an integral part of the Group financial statements.
Swiss Reinsurance Company Consolidated 2017 Annual Report 3
Financial statements
Group financial statements
INANCIAL STATEMENTS
ASSETS
As of 31 December
USD millions
Investments
Fixed income securities:
Available-for-sale (including 9 056 in 2016 and 11 219 in 2017 subject to securities
lending and repurchase agreements) (amortised cost: 2016: 60 490; 2017: 65 694)
Trading (including 1 871 in 2016 and 1 761 in 2017 subject to securities
lending and repurchase agreements)
Equity securities:
Available-for-sale (including 19 in 2016 and 241 in 2017 subject to securities
lending and repurchase agreements) (cost: 2016: 2 063; 2017: 2 993)
Trading
Policy loans, mortgages and other loans
Investment real estate
Short-term investments (including 1 798 in 2016 and 284 in 2017 subject to securities
lending and repurchase agreements)
Other invested assets
Investments for unit-linked
(including equity securities trading: 548 in 2016 and 585 in 2017)
Total investments
Note
7, 8, 9
2016
2017
63 250
68 682
2 695
2 538
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
3 021
3
2 396
2 017
2 674
7 800
585
89 716
3 218
630
12 749
13 245
12 617
6 380
937
3 818
187
3 660
2 961
Cash and cash equivalents (including 747 in 2016 and 262 in 2017 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
6
6
Total assets
138 611
150 118
The accompanying notes are an integral part of the Group financial statements.
4 Swiss Reinsurance Company Consolidated 2017 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
2016: 344 052 565; 2017: 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
2016
2017
5
8
10
10
51 073
17 629
5 653
8 653
2 315
1 774
452
6 631
3 697
10 315
7 805
115 997
58 221
19 361
5 764
8 487
11 429
2 592
412
4 935
2 826
7 783
8 114
129 924
1 102
750
32
8 695
–19
2 070
–5
–5 262
–999
–4 196
15 339
20 953
1 661
22 614
32
8 690
–17
2 064
–3
–4 852
–737
–3 528
12 335
18 262
1 932
20 194
138 611
150 118
Swiss Reinsurance Company Consolidated 2017 Annual Report 5
Financial statements
Group financial statements
INANCIAL STATEMENTS
For the years ended 31 December
USD millions
Contingent capital instruments
Balance as of 1 January
Changes during the period
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
Contingent capital instrument issuance costs
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
Change in group structure1
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
Change in group structure1
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
6 Swiss Reinsurance Company Consolidated 2017 Annual Report
2016
2017
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
1 102
–352
750
32
32
8 695
8
–9
–4
8 690
–19
2
–17
2 070
–23
17
2 064
–5
2
–3
–5 262
12
398
–4 852
–999
262
–737
USD millions
Retained earnings
Balance as of 1 January
Change in group structure1
Transactions under common control
Net income after attribution of non-controlling interests
Interest on contingent capital instruments, net of tax
Dividends on common shares
Balance as of period end
Shareholder’s equity
Non-controlling interests
Balance as of 1 January
Changes during the period
Transactions with non-controlling interests
Income attributable to non-controlling interests
Other comprehensive income
Balance as of period end
Total equity
1 In January 2017, the Group sold three primary life and health insurance carriers to Swiss Re Life Capital Group.
The accompanying notes are an integral part of the Group financial statements.
2016
2017
15 222
3 179
–68
–2 994
15 339
20 953
23
866
751
18
3
1 661
22 614
15 339
–45
–358
66
–67
–2 600
12 335
18 262
1 661
206
48
17
1 932
20 194
Swiss Reinsurance Company Consolidated 2017 Annual Report 7
Financial statements
Group financial statements
INANCIAL STATEMENTS
For the years ended 31 December
USD millions
Cash flows from operating activities
Net income/loss 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/disposals 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 for unit-linked business:
Deposits
Withdrawals
Issuance/repayment of long-term debt
Issuance/repayment of short-term debt
Issuance/repayment of contingent capital instrument
Purchase/sale of shares in Swiss Re Ltd.
Transactions with non-controlling interests
Dividends paid to parent
Net cash provided/used by financing activities
8 Swiss Reinsurance Company Consolidated 2017 Annual Report
2016
2017
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
–1
48
321
–1 034
66
2 440
–309
31
607
–406
–125
1 638
38 756
4 291
–45 496
5 073
5 769
–6 077
–962
53
–2 051
67
–577
6
–97
–155
–941
–352
1
200
–2 600
–3 938
USD millions
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
Interest paid was USD
671
741
2016 and 2017, respectively. Tax paid was USD
million and USD
million (thereof USD
million and USD
515
2016
515
–83
432
5 398
5 830
2017
–2 877
265
–2 612
5 830
3 218
49
million for letter of credit fees) for
million and USD
51
507
million for 2016 and 2017, respectively.
The accompanying notes are an integral part of the Group financial statements.
Swiss Reinsurance Company Consolidated 2017 Annual Report 9
Financial statements
Group financial statements
1 Organisation and summary of significant accounting policies
Nature of operations
The Swiss Reinsurance Company Group, which is headquartered in Zurich, Switzerland, comprises Swiss Reinsurance Company
Ltd (the parent company, referred to as “SRZ”) and its subsidiaries (collectively, the “Group”). The Group is 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.
10 Swiss Reinsurance Company Consolidated 2017 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
estimates.
2017, the Group had not provided any collateral on financial instruments in excess of its own market value
December
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 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.
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 for which 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. The impairment loss is measured as the
amount by which the asset's carrying amount exceeds its fair value and is recognised in realised investment losses. 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 2017 Annual Report 11
Financial statements
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 contract 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 hedges 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.
12 Swiss Reinsurance Company Consolidated 2017 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
health business. The initial value is calculated as the difference between established reserves, which are set up in line with
US GAAP accounting policies and assumptions of the Group, and their fair value at the acquisition date. 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. Amortisation and accrual of interest are recognised in acquisition costs. 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, which are updated quarterly. The carrying value of PVFP is reviewed periodically for indicators of impairment in value.
Adjustments to PVFP reflecting impairment in value are recognised in acquisition costs 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. 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 recognises the effect of income tax positions only if sustaining those positions is more likely than not. Changes in
recognition or measurement are reflected in the period in which a change in judgement occurs.
Unpaid claims and claim adjustment expenses
Liabilities for unpaid claims and claim adjustment expenses for property and casualty and life and health insurance and
reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims,
Swiss Reinsurance Company Consolidated 2017 Annual Report 13
Financial statements
Group financial statements
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 level premium method,
based on assumptions as to investment yields, mortality, withdrawals, lapses and policyholder dividends. Assumptions are set at
the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. The assumptions are based
on projections from past experience, making allowance for possible adverse deviation. Interest 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 as AFS 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, ie there is no mortality and
morbidity risk, or the mortality and morbidity risk associated with the insurance benefit features offered in the contract is of
insignificant amount or remote probability. Amounts received as payment for investment contracts are reported as policyholder
account balances. Related assets are included in general account assets except for investments for unit-linked business, 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.
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.
14 Swiss Reinsurance Company Consolidated 2017 Annual Report
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 recognised 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 to 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 accompanying consolidated balance sheet.
The Group provides reserves for uncollectible amounts on reinsurance balances ceded, based on management’s assessment of
the collectability of the outstanding balances.
Receivables
Premium and claims receivables which have been invoiced are accounted for at face value. Together with assets arising from the
application of the deposit method of accounting that meet the definition of financing receivables they are regularly assessed for
impairment. Evidence of impairment is the age of the receivable and/or any financial difficulties of the counterparty. Allowances
are set up on the net balance, meaning all balances related to the same counterparty are considered. The amount of the allowance
Swiss Reinsurance Company Consolidated 2017 Annual Report 15
Financial statements
Group financial statements
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 2017, the Group has a Leadership Performance Plan, restricted shares, and a Global Share Participation Plan.
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. Total compensation cost for share-based
compensation plans recognised in net income was USD 19 million for the year ended 31 December 2017.
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. As
of 31 December 2017, the accrual for share-based compensation plans in additional paid-in capital was USD 9 million.
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 14 March 2018. 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 Group will adopt
ASU 2014-09 on 1 January 2018.
statements.
It is expected that the adoption will not have a material impact on the Group’s financial
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 partnerships, unincorporated joint ventures 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 measurement alternative. 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. 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 available-for-sale in combination with the entity’s other DTAs rather than separately
from other DTAs. The Group will adopt ASU 2016-01 on 1 January 2018. The expected main impact from the adoption is a
reclassification within shareholder’s equity from net unrealised gains, net of tax, to retained earnings of USD 0.1 billion.
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
annual and interim periods beginning after 15 December 2018. Early application of the ASU is permitted. The Group is currently
assessing the impact of the new requirements.
In March 2016, the FASB issued ASU 2016-05, “Effect of Derivative Contract Novations on Existing Hedge Accounting
Relationships”, an update to topic 815, “Derivatives and Hedging”. The amendments in this ASU clarify that a change in the
counterparty to a derivative instrument that has been designated as the hedging instrument under topic 815 does not require
dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The Group
adopted ASU 2016-05 on 1
January 2017. The adoption did not have an impact on the Group’s financial statements.
In March 2016, the FASB issued ASU 2016-06, “Contingent Put and Call Options in Debt Instruments”, an update to topic 815,
“Derivatives and Hedging”. This ASU clarifies the requirements for assessing whether contingent call or put options that can
accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the
16 Swiss Reinsurance Company Consolidated 2017 Annual Report
assessment under the amendments in this update is required to assess the embedded call or put options solely in accordance with
the four-step decision sequence as defined in the implementation guidance issued by the Derivatives Implementation Group (DIG).
The Group adopted ASU 2016-06 on 1
January 2017. The adoption did not have an impact on the Group’s financial statements.
In March 2016, the FASB issued ASU 2016-07, “Simplifying the Transition to the Equity Method of Accounting”, an update to topic
323, “Investments – Equity Method and Joint Ventures”. The amendments in this update eliminate the requirement to retroactively
adopt the equity method of accounting when an investment qualifies for use of the equity method as a result of an increase in the
level of ownership interest or degree of influence. Instead, the amendments require that the equity method investor adds the cost
of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopts the
equity method of accounting as of the date the investment qualifies for equity method accounting. The Group adopted
ASU
January 2017. The adoption did not have an impact on the Group’s financial statements.
2016-07 on 1
In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting”, an update to
topic 718, “Compensation – Stock Compensation”. This ASU is part of the Board’s Simplification Initiative and the areas for
simplification in this update involve several aspects of accounting for share-based payment transactions, including income tax
consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The Group
adopted ASU 2016-09 on 1
January 2017. The adoption did not have a material effect on the Group’s financial statements.
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. For financial instruments that are measured at amortised cost and available-for-sale debt securities,
the standard requires that an entity recognises its estimate of expected credit losses as an allowance. The ASU is effective for
annual and interim periods beginning after 15 December 2020. Early adoption for interim and annual periods after
2018 is permitted. The Group is currently assessing the impact of the new requirements.
15
December
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 recognise
the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Group will
adopt ASU 2016-16 on 1 January 2018. It is expected that the adoption will not have a material impact on the Group’s equity.
In October 2016, the FASB issued ASU 2016-17, “Interests Held through Related Parties That Are under Common Control”, an
update to topic 810, “Consolidation”. This ASU amends the consolidation guidance on how a reporting entity that is the single
decision maker of a variable interest entity (VIE) should treat indirect interests in the entity held through related parties that are
under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. Under the
amendments, a single decision maker is not required to consider indirect interests held through related parties that are under
common control with the single decision maker to be the equivalent of direct interests in their entirety. Instead, a single decision
maker is required to include those interests on a proportionate basis consistent with indirect interests held through other related
parties. The Group adopted ASU 2016-17 on 1
statements.
January 2017. The adoption did not have an impact on the Group’s financial
In January 2017, the FASB issued ASU 2017-01, “Clarifying the Definition of a Business”, an update to topic 805, “Business
Combinations”. The amendments in this update clarify the definition of a business in order to assist entities with evaluating
whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments stipulate
that when substantially all of the fair value of an integrated set of assets and activities ("set") acquired (or disposed of) is
concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. The Group early
adopted ASU 2017-01 on 1 July 2017. The adoption did not have an impact on the Group’s financial statements.
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment”, an update to topic 350,
“Intangibles – Goodwill and Other”. This ASU simplifies the subsequent measurement of goodwill and eliminates Step 2 from the
goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity has to perform procedures to
determine the fair value at the impairment testing date of its assets and liabilities (including unrecognised assets and liabilities)
following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a
business combination. Instead, under the amendments in this update, an entity should perform its regular goodwill impairment
test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognise an impairment charge for
the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognised should not exceed
the total amount of goodwill allocated to that reporting unit. The new requirements are effective for goodwill impairment tests in
annual and interim periods beginning after 15 December 2020. Early application of the ASU is permitted. The Group is currently
assessing the impact of the new requirements.
Swiss Reinsurance Company Consolidated 2017 Annual Report 17
Financial statements
Notes to the Group financial statements
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
stock and mutual insurance companies as well as public sector and governmental entities. In addition to traditional reinsurance
solutions, the business unit offers insurance-linked securities and other insurance-related capital market products in both
Property & Casualty and Life & Health.
Property & Casualty includes the business lines property, casualty (including motor) and specialty. Life & Health includes the life
and health lines of business.
Other
Items not allocated to the business segments are included in the “Other” column which encompasses non-core activities. The
“Other” column includes mainly certain costs not allocated to the Reinsurance business segments, certain Treasury activities, as
well as the remaining non-core activities which have been in run-off since November 2007.
As of January 2017 the Group’s primary life and health insurance business was sold to Swiss Re Life Capital Group. Comparative
information has not been adjusted.
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.
18 Swiss Reinsurance Company Consolidated 2017 Annual Report
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Swiss Reinsurance Company Consolidated 2017 Annual Report 19
Financial statements
Notes to the Group financial statements
a) Business segments – income statement
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
Claims and claim adjustment 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 before income tax expense
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 of tax
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
12 801
11 459
27
11 486
41
1 279
232
15
5
13 058
–10 301
–4 405
–1 204
–15 910
–8 963
–39
–1 943
–763
–11 708
2 890
–293
2 597
–479
2 118
1
2 119
–19
2 100
60.5
33.0
93.5
15.4
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
–29
–3
–32
0
–32
32
0
0
0
0
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
13.0
13.2
20 Swiss Reinsurance Company Consolidated 2017 Annual Report
Business segments – income statement
For the year ended 31 December
2017
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
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
Interest expenses
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 of tax
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
Reinsurance
Other Consolidation
Total
16 569
16 031
636
16 667
1 017
613
48
18 345
–13 172
–4 253
–1 159
–18 584
–239
–280
–519
125
–394
13 313
11 826
25
11 851
129
1 308
591
81
3
13 963
–9 211
–119
–2 064
–754
–12 148
1 815
–315
1 500
–360
1 140
–394
1 140
–19
–413
79.0
32.5
111.5
–1.3
–48
1 092
5.7
13.1
127
6
1
7
1
–50
–223
2
–263
2
–2
26
–487
–461
–724
–24
–748
116
–632
–48
–680
–680
30 009
27 863
662
28 525
130
2 226
981
81
50
31 993
–13 172
–9 209
–121
–6 291
–2 400
–31 193
800
–567
233
–119
114
–48
66
–67
–1
–49
–3
–52
0
–52
52
0
0
0
0
275.3
2.5
Swiss Reinsurance Company Consolidated 2017 Annual Report 21
Financial statements
Notes to the Group financial statements
Business segments – balance sheet
As of 31 December
2016
USD millions
Total assets
2017
USD millions
Total assets
Property & Casualty
Reinsurance
79 263
Life & Health
Reinsurance
55 957
Other Consolidation
–10 638
14 029
Total
138 611
Property & Casualty
Reinsurance
80 475
Life & Health
Reinsurance
64 559
Other Consolidation
–11 505
16 589
Total
150 118
22 Swiss Reinsurance Company Consolidated 2017 Annual Report
T
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Swiss Reinsurance Company Consolidated 2017 Annual Report 23
Financial statements
Notes to the Group financial statements
b) 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
24 Swiss Reinsurance Company Consolidated 2017 Annual Report
Property & Casualty Reinsurance business segment – by line of business
For the year ended 31 December
2017
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
6 527
6 115
140
6 255
7 715
7 665
435
8 100
2 327
2 251
61
2 312
6 255
8 100
2 312
–5 635
–1 228
–636
–7 499
–6 041
–2 414
–356
–8 811
–1 244
–711
–1 244
–711
90.1
29.8
119.9
74.6
34.2
108.8
–1 496
–611
–167
–2 274
38
38
64.7
33.7
98.4
1 017
613
48
1 678
0
1 678
–280
1 398
16 569
16 031
636
16 667
1 017
613
48
18 345
–13 172
–4 253
–1 159
–18 584
–239
–280
–519
79.0
32.5
111.5
Swiss Reinsurance Company Consolidated 2017 Annual Report 25
Financial statements
Notes to the Group financial statements
c) 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 business1
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 margin2 in %
Life
Health
Unallocated
Total
9 026
7 773
5
7 778
41
912
21
15
5
8 772
–6 093
–39
–1 237
–536
–7 905
867
867
6.1
9.9
3 775
3 686
22
3 708
367
–4
215
4 071
215
–2 870
–706
–227
–3 803
268
268
5.6
6.6
0
215
–301
–86
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
1 The Group revised the methodology for allocating investment return to lines of business. Comparative information for 2016 has been adjusted accordingly.
2 Net operating margin is calculated as "Income before interest and income tax expense" divided by "Total revenues" excluding "Net investment result – unit-linked business".
26 Swiss Reinsurance Company Consolidated 2017 Annual Report
Life & Health Reinsurance business segment – by line of business
For the year ended 31 December
2017
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 before income tax expense
Management expense ratio in %
Net operating margin1 in %
Life
Health
Unallocated
Total
9 525
8 138
79
8 217
129
1 023
57
81
3
9 510
–6 491
–119
–1 432
–533
–8 575
935
935
5.7
9.9
3 788
3 688
–54
3 634
285
–1
535
3 918
535
–2 720
–632
–221
–3 573
345
345
5.6
8.8
0
535
–315
220
13 313
11 826
25
11 851
129
1 308
591
81
3
13 963
–9 211
–119
–2 064
–754
–12 148
1 815
–315
1 500
5.7
13.1
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 2017 Annual Report 27
Financial statements
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 region 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
Australia
China
Japan
Germany
Canada
Switzerland
France
Spain
Republic of Korea
Other
Total
2016
14 377
9 742
6 946
31 065
2016
11 904
3 036
1 823
2 401
1 094
1 044
1 009
940
652
461
482
6 219
31 065
2017
15 350
8 752
6 791
30 893
2017
13 001
2 684
1 980
1 910
1 161
1 082
1 030
1 013
638
509
479
5 406
30 893
Gross premiums earned and fee income from policyholders are allocated by country, based on the underlying contract.
28 Swiss Reinsurance Company Consolidated 2017 Annual Report
3 Insurance information
Premiums earned and fees assessed against policyholders
For the years 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
Net fee income
2017
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
Gross fee income before retrocession to external parties
Retrocession to external parties
Net fee income
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Total
17 474
17 474
–466
17 008
45
12 446
352
12 843
–1 357
11 486
799
172
–352
619
–120
499
0
41
41
88
88
844
30 092
0
30 936
–1 943
28 993
0
129
129
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Total
17 197
17 197
–530
16 667
55
13 287
13 342
–1 491
11 851
130
130
–1
129
0
128
128
–121
7
96
96
–95
1
55
30 612
0
30 667
–2 142
28 525
0
226
226
–96
130
Swiss Reinsurance Company Consolidated 2017 Annual Report 29
Financial statements
Notes to the Group financial statements
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
Other
Total
–9 242
–9 242
536
–8 706
–10 234
–275
–10 509
1 205
–9 304
–1 014
275
–739
53
–686
–20 490
0
–20 490
1 794
–18 696
–1 218
–1 218
–377
–1 595
387
–29
358
–17
341
11
29
40
51
91
–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
Other
Total
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
–107
58
–49
15
–34
–6 732
0
–6 732
350
–6 382
30 Swiss Reinsurance Company Consolidated 2017 Annual Report
Claims and claim adjustment expenses
For the year ended 31 December
2017
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
Other
Total
–10 232
–9 846
–302
–10 232
468
–9 764
–9 846
1 277
–8 569
–302
302
0
–3 412
–586
61
–3 412
4
–3 408
–586
–56
–642
61
–59
2
–20 380
0
–20 380
2 047
–18 333
–3 937
0
–3 937
–111
–4 048
Claims and claim adjustment expenses; life and health benefits
–13 172
–9 211
2
–22 381
Acquisition costs
For the year ended 31 December
2017
USD millions
Acquisition costs, thereof:
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Total
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
–4 374
–2 298
–28
–4 374
121
–4 253
–2 298
234
–2 064
–28
54
26
–6 700
0
–6 700
409
–6 291
Swiss Reinsurance Company Consolidated 2017 Annual Report 31
Financial statements
Notes to the Group financial statements
Reinsurance assets and liabilities
The reinsurance assets and liabilities as of 31 December were as follows:
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
2017
USD millions
Assets
Reinsurance recoverable on unpaid claims and policy benefits
Deferred acquisition costs
Liabilities
Unpaid claims and claim adjustment expenses
Liabilities for life and health policy benefits
Policyholder account balances
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
2 449
2 280
1 580
3 465
264
11
39 753
10 288
15 431
1 566
1 240
2 202
4 087
–210
–208
–4
4 083
5 756
51 073
17 629
5 653
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
2 541
2 146
4 638
4 234
6 077
–11
45 276
12 129
18 230
1 574
829
1 131
4 190
–13
13 245
6 380
58 221
19 361
5 764
Reinsurance recoverable on unpaid claims and policy benefits
As of 31 December 2016 and 2017, the Group had a reinsurance recoverable of USD 4 083 million and USD 13 245 million,
respectively. The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire
Hathaway and subsidiaries accounted for 67% and 27% of the Group’s reinsurance recoverable as of year-end 2016 and 2017,
respectively.
The Group cedes certain re/insurance contracts to affiliated companies within the Swiss Re Group, but outside of the Group
(please refer to Note 13).
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
2016
1 204
103
137
–35
2017
2 296
1 227
144
–31
32 Swiss Reinsurance Company Consolidated 2017 Annual Report
4 Premiums written
For the years ended 31 December
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
2017
USD millions
Gross premiums written, thereof:
Direct
Reinsurance
Intra-group transactions (assumed)
Gross premiums written
Intra-group transactions (ceded)
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
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other Consolidation
Total
16 569
55
13 258
127
16 569
13 313
127
55
29 954
0
30 009
0
30 009
–2 146
27 863
Gross premiums written before retrocession to external parties
Retrocession to external parties
Net premiums written
16 569
–538
16 031
13 313
–1 487
11 826
127
–121
6
0
Swiss Reinsurance Company Consolidated 2017 Annual Report 33
Financial statements
Notes to the Group financial statements
5 Unpaid claims and claim adjustment expenses
A reconciliation of the opening and closing reserve balances for non-life unpaid claims and claim adjustment expenses for the
years ended 31 December is presented as follows:
USD millions
Balance as of 1 January
Reinsurance recoverable
Deferred expense on retroactive reinsurance
Net balance as of 1 January prior to effect of change in group structure
Effect of change in group structure
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 period end
Reinsurance recoverable
Deferred expense on retroactive reinsurance
Balance as of period end
2016
49 718
−3 202
−340
46 176
0
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
2017
51 073
−2 837
−211
48 025
−281
47 744
22 824
−813
−5
22 006
−5 971
−12 362
−18 333
2 496
51
53 964
4 017
240
58 221
34 Swiss Reinsurance Company Consolidated 2017 Annual Report
Prior-year development
Non-life claims development during 2017 on prior years continued to be driven by favourable experience on most lines of
business. Property was mainly driven by positive claims development across the most recent accident years. Casualty includes
adverse development on motor. Within specialty, the main reserve releases came from marine and engineering business lines,
partially offset with adverse credit and surety experience.
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 and US life portfolios strengthened reserves
following adverse trends. This was partially offset by positive experience in Continental Europe, in particular in German disability
and life portfolios. 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 claims development by lines of business for the years ended 31 December is shown below:
USD millions
Line of business:
Property
Casualty
Specialty
Life and health
Total
2016
2017
–231
–370
–362
121
–842
–588
–187
–234
196
–813
Swiss Reinsurance Company Consolidated 2017 Annual Report 35
Financial statements
Notes to the Group financial statements
US asbestos and environmental claims exposure
The Group’s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims
arising out of policies written prior to 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 2017, the business unit Reinsurance carried net reserves for US asbestos and environmental liabilities equal to
USD 1 620 million. During 2017, the business unit incurred net losses of USD 42 million and paid net against these liabilities of
USD 180 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.
36 Swiss Reinsurance Company Consolidated 2017 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 year.
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.
For Property & Casualty Reinsurance and for Life & Health Reinsurance long-tail, the Group discloses data for ten accident years
and reporting periods.
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 2017 Annual Report 37
Financial statements
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
For reinsurance business, 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 for insurance business is performed similarly, except that the Group estimates case reserves as well. 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 are 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 36).
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 on disability contracts 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.
38 Swiss Reinsurance Company Consolidated 2017 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 2017 Annual Report 39
Financial statements
Notes to the Group financial statements
Property & Casualty Reinsurance – Property
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
2017
Total
2008
2 715
2009
2 286
2 427
2010
2 150
2 442
2 639
2011
2 068
2 320
2 575
4 433
2012
2 065
2 276
2 446
4 497
2 772
2013
2 087
2 255
2 472
4 313
2 600
3 269
2014
2 078
2 252
2 562
4 377
2 396
3 281
2 831
2015
2 078
2 250
2 606
4 329
2 352
3 100
2 666
2 940
RSI
2016
2 076
2 252
2 720
4 325
2 322
3 012
2 483
2 870
4 055
2017
2 073
2 220
2 692
4 344
2 307
2 988
2 448
2 697
3 773
6 166
31 708
thereof
IBNR
16
4
–70
122
–3
4
11
112
378
3 387
3 961
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reporting year
2008
600
2009
1 433
583
RSI
2010
1 751
1 666
409
2011
1 877
1 996
1 576
688
2012
2 007
2 103
1 890
2 465
251
2013
2 041
2 154
2 006
3 297
1 640
562
2014
2 056
2 177
2 216
3 756
2 043
2 085
481
2015
2 062
2 187
2 375
4 056
2 167
2 613
1 770
483
All liabilities before 2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2016
2 063
2 198
2 526
4 164
2 211
2 815
2 168
1 717
659
2017
2 071
2 180
2 572
4 289
2 231
2 877
2 300
2 257
2 295
1 017
24 089
153
7 772
Years
Property (RSI)
1
18.7%
2
47.4%
3
16.6%
4
6.2%
5
4.5%
6
2.4%
7
2.4%
8
0.8%
9
–0.4%
10
0.4%
The liability for unpaid claims and claim adjustment expenses for property in Property & Casualty Reinsurance shows positive
development on most recent accident 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 2017 claims incurred are higher due to natural catastrophes, mainly stemming from cyclone Debbie, hurricanes
Harvey, Irma and Maria in the Americas, the two earthquakes in Mexico and the wildfires in California.
Negative IBNRs can be a feature for claims arising from property exposure, due to overstated case reserves. The IBNR reserves for
2010 and 2011 are affected by allocations of IBNR for proportional treaty business in respect of several natural catastrophe
events that occurred in those years.
40 Swiss Reinsurance Company Consolidated 2017 Annual Report
Property & Casualty Reinsurance – Liability, proportional
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
2017
Total
2008
1 140
2009
1 164
730
2010
1 234
865
843
2011
1 306
989
991
648
2012
1 196
945
931
706
529
2013
1 094
941
910
729
612
738
2014
1 156
920
907
676
568
762
1 007
2015
1 155
932
910
635
539
769
997
1 279
RSI
2016
1 172
942
899
631
511
764
1 010
1 327
1 730
2017
1 162
936
863
608
513
768
993
1 411
1 759
1 983
10 996
thereof
IBNR
55
60
105
103
98
173
386
736
1 097
1 569
4 382
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reporting year
2008
56
2009
175
–66
RSI
2010
323
85
29
2011
490
239
161
2
2012
577
364
321
110
13
2013
696
479
413
184
119
14
2014
806
588
523
254
186
130
24
2015
925
639
618
340
246
238
162
35
2016
979
686
668
386
300
353
298
214
48
All liabilities before 2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2017
1 021
722
688
403
332
423
404
404
227
51
4 675
606
6 927
Years
Liability, proportional
(RSI)
1
2
3
4
5
6
7
8
9
10
1.6%
14.7%
14.3%
12.5%
11.1%
9.3%
5.9%
5.9%
4.2%
3.6%
The increase in the incurred losses for accident years 2013 to 2017 is driven by volume increases of business being written. The
increases in the incurred losses in reporting year 2017 for accident years 2015 and 2016 are driven by US business.
In line with the Group‘s policy, cash flows under loss portfolio transfers are reported through claims paid. For longer-tailed 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 2017 Annual Report 41
Financial statements
Notes to the Group financial statements
Property & Casualty Reinsurance – Liability, non-proportional
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
2017
Total
RSI
2008
697
2009
739
521
2010
685
532
536
2011
557
440
449
412
2012
512
438
412
441
337
2013
478
399
386
479
355
417
2014
446
365
364
439
315
398
442
2015
420
339
343
394
287
362
447
1 843
2016
398
325
334
361
265
306
414
1 884
597
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reporting year
2008
–9
2009
27
–14
RSI
2010
100
12
1
2011
130
33
11
1
2012
165
56
36
10
–4
2013
192
96
53
66
11
–2
2014
234
161
88
114
35
11
–2
2015
254
184
106
140
53
37
8
0
2016
283
192
125
148
85
60
40
94
14
All liabilities before 2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
thereof
IBNR
55
34
49
64
72
112
200
260
298
424
1 568
2017
390
323
320
347
258
276
370
1 852
560
502
5 198
2017
297
202
161
172
108
83
74
203
158
–2
1 456
5 768
9 510
Years
Liability,
non-proportional (RSI)
1
2
3
4
5
6
7
8
9
10
–0.7%
7.4%
10.3%
8.4%
10.1%
8.8%
7.7%
6.3%
5.3%
3.6%
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 2008 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-tailed 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.
42 Swiss Reinsurance Company Consolidated 2017 Annual Report
Property & Casualty Reinsurance – Accident & Health
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
2008
385
2009
423
352
2010
412
375
276
2011
423
352
228
231
2012
432
346
234
252
334
2013
421
342
222
247
344
352
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
RSI
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reporting year
2008
51
2009
160
32
RSI
2010
214
138
25
2011
254
194
85
48
2012
271
219
116
121
81
2013
281
237
131
143
184
55
All liabilities before 2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
thereof
IBNR
88
26
28
32
34
52
77
91
149
277
854
2014
419
333
219
239
328
358
306
2014
290
250
140
154
211
143
30
2015
418
328
221
242
319
345
340
439
2015
297
256
147
163
227
184
105
63
2016
423
320
213
236
315
334
331
437
597
2016
302
261
150
167
237
208
147
140
75
2017
425
315
208
236
309
327
320
414
631
737
3 922
2017
306
266
158
177
246
221
175
193
180
96
2 018
2 896
4 800
Years
Accident & Health
(RSI)
1
2
3
4
5
6
7
8
9
10
14.7%
26.4%
12.7%
7.2%
4.2%
2.9%
2.4%
2.4%
1.4%
0.9%
The increase in incurred losses from accident year 2015 onwards is due to an increase in the volume of workers‘ compensation
written on a proportional basis. The 2008 and prior accident years include the run-off of business written by entities acquired as
part of the acquisition of General Electric Insurance Solutions during 2006. This business which generally had a longer payment
pattern was not renewed.
Swiss Reinsurance Company Consolidated 2017 Annual Report 43
Financial statements
Notes to the Group financial statements
Property & Casualty Reinsurance – Motor, proportional
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
2017
Total
2008
787
2009
669
685
2010
667
679
621
2011
744
747
682
1 046
2012
776
772
723
1 041
1 565
2013
750
759
729
1 010
1 555
1 625
2014
741
755
727
966
1 537
1 598
2 088
2015
738
757
729
968
1 525
1 604
2 048
1 989
RSI
2016
738
755
729
967
1 515
1 577
2 048
1 992
2 580
2017
737
754
727
965
1 513
1 570
2 030
1 996
2 698
2 453
15 443
thereof
IBNR
33
-15
-2
-21
37
19
1
60
205
1 202
1 519
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reporting year
2008
340
2009
586
149
2010
667
405
208
2011
639
615
475
278
RSI
2012
651
650
562
702
500
2013
649
662
599
893
1 164
599
2014
670
716
681
927
1 332
1 224
773
2015
673
726
691
946
1 383
1 414
1 536
826
All liabilities before 2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2016
676
727
700
956
1 416
1 461
1 793
1 495
853
2017
678
731
704
964
1 437
1 492
1 872
1 748
1 889
785
12 300
321
3 464
Years
Motor, proportional
(RSI)
1
2
3
4
5
6
7
8
9
10
33.8%
37.9%
14.9%
2.8%
3.4%
2.1%
1.6%
0.4%
0.5%
0.3%
The increase in the incurred losses from accident year 2010 onwards is driven by new business volume across all regions.
Proportional motor business includes both longer-tailed liability business and shorter-tailed hull business. The increase in incurred
claims and claim adjustment expenses in reporting year 2017 for accident year 2016 is due to US business.
The negative IBNRs are due to overstated case reserves, mainly on the German business, and accident year 2011 includes the
effects of an outwards proportional contract in inwards non-proportional business.
44 Swiss Reinsurance Company Consolidated 2017 Annual Report
Property & Casualty Reinsurance – Motor, non-proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
2008
425
2009
497
389
2010
438
405
336
2011
335
295
300
424
2012
350
297
294
465
346
2013
348
282
280
444
364
451
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
RSI
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reporting year
2008
16
2009
90
2
RSI
2010
129
41
6
2011
133
60
23
–11
2012
156
72
49
21
2
2013
174
86
68
58
25
7
All liabilities before 2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
thereof
IBNR
54
71
38
96
66
79
123
170
276
388
1 361
2014
341
287
273
442
342
474
423
2014
186
100
85
82
50
88
4
2015
337
281
265
427
326
475
457
400
2015
196
111
102
106
86
154
62
–1
2016
331
278
256
420
326
457
452
423
485
2016
206
121
115
121
112
200
107
34
9
2017
329
270
252
409
309
443
451
459
605
599
4 126
2017
210
126
123
137
139
225
147
94
67
9
1 277
2 978
5 827
Years
Motor, non-proportional
(RSI)
1
2
3
4
5
6
7
8
9
10
1.1%
11.9%
10.5%
7.1%
6.5%
6.0%
4.2%
3.3%
2.4%
1.2%
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 an external retrocession on acquired
retroactive business. The increase in claims incurred in reporting year 2017 for accident years 2015 and 2016 are due to an
adverse development on the US business and to the Ogden discount changes on the UK business. These developments also
affected accident year 2017.
In line with the Group‘s policy, cash flows under loss portfolio transfers are reported through claims paid. For longer-tailed 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 2017 Annual Report 45
Financial statements
Notes to the Group financial statements
Property & Casualty Reinsurance – Specialty
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
2017
Total
2008
2 141
2009
2 136
1 586
2010
2 063
1 717
1 258
2011
2 019
1 522
1 268
1 319
2012
1 970
1 451
1 213
1 297
985
2013
1 936
1 420
1 188
1 213
1 047
1 128
2014
1 916
1 396
1 168
1 130
1 066
1 054
1 141
2015
1 925
1 381
1 136
1 178
1 048
1 012
1 135
1 265
RSI
2016
1 910
1 364
1 114
1 174
1 047
975
1 031
1 255
1 325
2017
1 899
1 337
1 115
1 189
1 033
964
1 003
1 241
1 313
1 648
12 742
thereof
IBNR
14
3
21
28
36
48
91
195
457
1 063
1 956
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
Reporting year
2008
259
RSI
2009
847
214
2010
1 356
676
201
2011
1 508
932
479
169
2012
1 623
1 036
675
573
131
2013
1 690
1 112
778
796
456
153
2014
1 734
1 171
857
900
697
431
182
2015
1 763
1 210
973
952
790
619
423
140
2016
1 792
1 235
995
989
848
732
610
399
148
All liabilities before 2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2017
1 809
1 248
1 014
1 054
891
788
710
712
491
185
8 902
678
4 518
Years
Specialty (RSI)
1
14.2%
2
28.4%
3
21.1%
4
9.2%
5
5.8%
6
5.1%
7
3.2%
8
1.7%
9
1.2%
10
0.9%
This category includes credit and surety business, which was adversely affected by the financial crisis in 2007–2008. The
category also contains several individual large losses on marine, aviation and space lines, including the Costa Concordia event in
accident year 2012. The 2017 claims are higher due to natural catastrophes mainly stemming from hurricanes Harvey, Irma and
Maria in the Americas.
46 Swiss Reinsurance Company Consolidated 2017 Annual Report
Cumulative
number of
reported
thereof
claims (in
IBNR
nominals)
14
3 139
18
4 203
20
4 599
36
6 389
8 759
44
44 11 076
58 12 386
107 14 254
9 779
202
364
4 144
907 78 728
Life & Health Reinsurance, long tail
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
2008
98
2009
96
164
2010
95
170
203
2011
95
161
205
232
2012
98
162
200
243
288
2013
111
162
226
307
385
519
2014
114
187
226
320
388
509
508
Accident
year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
RSI
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
Reporting year
2008
5
2009
23
8
RSI
USD millions
Accident
year
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total
2010
41
39
9
2011
53
60
43
20
2012
62
74
67
66
29
2013
70
83
87
107
93
40
2014
74
91
101
133
149
130
34
All liabilities before
2008
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2015
111
185
239
335
414
507
462
433
2015
78
98
113
155
190
198
115
38
2016
118
187
211
311
376
469
440
469
454
2016
83
106
123
177
225
262
211
113
14
2017
116
180
207
305
379
467
442
452
471
463
3 482
2017
86
113
132
194
249
306
277
201
92
13
1 663
273
2 092
Years
Life & Health
Reinsurance,
long tail
(RSI)
1
2
3
4
5
6
7
8
9
10
5.8%
16.9%
15.3%
10.8%
7.6%
6.1%
4.4%
4.1%
4.1%
2.6%
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 increases is discernible as well.
Swiss Reinsurance Company Consolidated 2017 Annual Report 47
Financial statements
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.
48 Swiss Reinsurance Company Consolidated 2017 Annual Report
For the year ended 31 December
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
Impact 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 recoverable 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
Impact of acquisition accounting
Other short duration contract lines
Unallocated reinsurance recoverable on unpaid claims
Total short duration reinsurance recoverable on outstanding liabilities
Exclusions:
Unallocated claim adjustment expenses
Long duration contracts
Total other reconciling items
Total unpaid claims and claim adjustment expenses
2017
7 772
6 927
9 510
4 800
3 464
5 827
4 518
2 092
44 910
–291
–511
44 108
1 832
–411
45 529
596
373
337
238
83
248
214
–118
192
411
2 574
696
9 422
10 118
58 221
Swiss Reinsurance Company Consolidated 2017 Annual Report 49
Financial statements
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 was as follows:
USD millions
Carrying amount of discounted claims
Aggregate amount of the discount
Interest accretion1
Range of interest rates
2016
1 117
–241
27
3.1% –3.6%
2017
1 262
–291
28
2.9% –3.6%
1Interest 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.
50 Swiss Reinsurance Company Consolidated 2017 Annual Report
6 Deferred acquisition costs (DAC) and
acquired present value of future profits (PVFP)
As of 31 December, the DAC were as follows:
2016
USD millions
Opening balance as of 1 January
Deferred
Amortisation
Effect of foreign currency translation
Closing balance
2017
USD millions
Opening balance as of 1 January
Change in group structure1
Deferred
Effect of acquisitions/disposals and retrocessions
Amortisation
Effect of foreign currency translation and other changes
Closing balance
Property &
Casualty
Reinsurance
2 051
4 629
–4 379
–21
2 280
Property &
Casualty
Reinsurance
2 280
4 068
–4 255
53
2 146
Life & Health
Reinsurance
3 020
893
–312
–136
3 465
Life & Health
Reinsurance
3 465
1 294
–5
–508
–12
4 234
Other
13
34
–36
11
Other
11
–11
0
Total
5 084
5 556
–4 727
–157
5 756
Total
5 756
–11
5 362
–5
–4 763
41
6 380
1 In January 2017, the Group sold three primary life and health insurance carriers to the Swiss Re Life Capital Group.
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
Effect of acquisitions/disposals and retrocessions
Amortisation
Interest accrued on unamortised PVFP
Effect of change in unrealised gains/losses
Effect of foreign currency translation
Closing balance
Life & Health
Reinsurance
1 134
–132
36
–72
966
2016
Total
1 721
0
–177
70
1
–72
1 543
Life & Health
Reinsurance
966
–135
52
38
921
Other
587
–45
34
1
577
2017
Total
1 543
–562
–132
51
–1
38
937
Other
577
–562
3
–1
–1
16
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 14%, 13%, 12%, 11% and 11%.
Swiss Reinsurance Company Consolidated 2017 Annual Report 51
Financial statements
Notes to the Group financial statements
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
2016
1 886
70
188
184
42
69
30
21
113
452
3 055
–318
–9
2 728
2017
1 887
63
127
201
53
49
53
18
121
372
2 944
–331
–387
2 226
Dividends received from investments accounted for using the equity method were USD
and 2017, respectively.
118
million and USD
119
million for 2016
Share in earnings of equity-accounted investees included an impairment of the carrying amount of an equity-accounted investee of
USD 5 million for 2017.
Realised gains and losses
Realised gains and losses for fixed income securities, 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 on other investments
Net realised/unrealised gains/losses on insurance-related activities
Foreign exchange gains/losses
Net realised investment gains/losses – non-participating business
2016
2017
590
–161
292
–96
–71
121
–14
32
22
877
1 592
552
–133
623
–23
–28
29
3
76
76
–194
981
Net realised/unrealised gains/losses on insurance-related activities included impairments of USD 11 million for 2017.
52 Swiss Reinsurance Company Consolidated 2017 Annual Report
Investment result – unit-linked business
The net investment result on unit-linked business credited to policyholders amounted to gains of USD
USD
million for 2016 and 2017, respectively, mainly originating from gains/losses on equity securities.
81
15
million and
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, 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
2016
129
12
–44
7
–6
–4
94
2017
94
6
–17
4
–3
3
87
Swiss Reinsurance Company Consolidated 2017 Annual Report 53
Financial statements
Notes to the Group financial statements
Investments available-for-sale
Amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as
available-for-sale as of 31 December were as follows:
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
2017
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
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
–5
–5
Amortised cost
or cost
Gross
unrealised
gains
Gross
unrealised
losses
Other-than-temporary
impairments
recognised in other
comprehensive income
11 182
5 796
1 213
4 034
3 630
2 956
1 784
1 925
6 695
39 215
23 060
3 419
65 694
2 993
168
18
91
758
539
222
196
16
227
2 235
1 175
76
3 486
75
–147
–66
–5
–18
–28
–21
–10
–3
–68
–366
–112
–18
–496
–47
–2
–2
Estimated
fair value
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
Estimated
fair value
11 203
5 748
1 299
4 774
4 141
3 157
1 970
1 938
6 854
41 084
24 123
3 475
68 682
3 021
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.
54 Swiss Reinsurance Company Consolidated 2017 Annual Report
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
2016
2 538
45
112
2 695
60
2017
2 414
38
86
2 538
3
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 2016
and 2017, these amounted to USD
million, respectively.
million and USD
548
585
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 2016 and 2017, USD
million, respectively, of fixed income securities
million and USD
available-for-sale were callable.
954
913
14
11
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
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
Amortised
cost or cost
5 916
22 063
11 152
23 466
3 097
65 694
2017
Estimated
fair value
5 918
22 155
11 427
26 027
3 155
68 682
Assets pledged
As of 31 December 2017, investments with a carrying value of USD
accordance with local requirements, and investments with a carrying value of USD
pledged to secure certain reinsurance liabilities, including pledged investments in subsidiaries.
588
893
10
6
million were on deposit with regulatory agencies in
million were placed on deposit or
As of 31 December 2016 and 2017, securities of USD
third parties under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding
liabilities of USD
obligation to return collateral that the Group has the right to sell or repledge.
million, respectively, were recognised in accrued expenses and other liabilities for the
million, respectively, were transferred to
million and USD
million and USD
989
491
767
010
13
13
1
As of 31 December 2017, a real estate portfolio with a carrying value of USD
allowing the Group to withdraw funds up to CHF 500 million.
192
million serves as collateral for a credit facility,
Collateral accepted which the Group has the right to sell or repledge
As of 31 December 2016 and 2017, the fair value of the equity securities, government and corporate debt securities received as
collateral was USD
million, respectively. Of this, the amount that was sold or repledged as of
11
31 December 2016 and 2017 was USD
7
securities borrowing, reverse repurchase agreements and derivative transactions.
million, respectively. The sources of the collateral are
million and USD
million and USD
9
255
443
453
947
3
Swiss Reinsurance Company Consolidated 2017 Annual Report 55
Financial statements
Notes to the Group financial statements
Offsetting of derivatives, financial assets and financial liabilities
Offsetting of derivatives, financial assets and financial liabilities as of 31 December was as follows:
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 Net amount
1 060
0
0
1 060
–3 037
–169
–3 206
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 Net amount
–772
8
–3
527
–26
454
–801
989
2017
USD millions
Derivative financial instruments – assets
Reverse repurchase agreements
Securities borrowing
Total
Gross amounts of
recognised
financial assets
1 797
5 956
1 589
9 342
Collateral set-off
in the balance sheet
–1 176
–2 995
–524
–4 695
Net amounts of financial
assets presented
in the balance sheet
621
2 961
1 065
4 647
Related financial
instruments not set-off
in the balance sheet Net amount
603
–18
0
–2 961
0
–1 065
603
–4 044
2017
USD millions
Derivative financial instruments – liabilities
Repurchase agreements
Securities lending
Total
Gross amounts of
recognised
financial liabilities
–1 858
–2 631
–1 878
–6 367
Collateral set-off
in the balance sheet
1 342
2 471
1 049
4 862
Net amounts of financial
liabilities presented
in the balance sheet
–516
–160
–829
–1 505
Related financial
instruments not set-off
in the balance sheet Net amount
–468
48
0
160
–64
765
–532
973
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”.
56 Swiss Reinsurance Company Consolidated 2017 Annual Report
Recognised gross liability for the obligation to return collateral that the Group has the right to sell or repledge
As of 31 December 2016 and 2017, the gross amounts of liabilities related to repurchase agreements and securities lending by the
class of securities transferred to third parties and by the remaining maturity are shown below. The liabilities are recognised for the
obligation to return collateral that the Group has the right to sell or repledge.
Remaining contractual maturity of the agreements
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
Overnight and
continuous
Up to 30 days
30–90 days
Greater than
90 days
219
219
237
13
18
268
3 023
3 023
415
415
334
334
367
258
426
367
258
426
Gross amount of recognised liabilities for repurchase agreements and
securities lending
Total
3 991
3 991
1 288
13
18
1 319
5 310
Remaining contractual maturity of the agreements
2017
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
Corporate debt securities
Equity securities
Total securities lending
Overnight and
continuous
Up to 30 days
30–90 days
Greater than
90 days
31
31
244
6
5
255
2 091
16
2 107
354
139
354
139
567
614
442
567
614
442
Gross amount of recognised liabilities for repurchase agreements and
securities lending
Total
2 615
16
2 631
1 867
6
5
1 878
4 509
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.
Swiss Reinsurance Company Consolidated 2017 Annual Report 57
Financial statements
Notes to the Group financial statements
Unrealised losses on securities available-for-sale
The following table shows the fair value and unrealised losses of the Group’s fixed income securities, aggregated by investment
category and length of time that individual securities were in a continuous unrealised loss position as of 31 December 2016 and
2017. As of 31 December 2016 and 2017, USD
securities available-for-sale relates to declines in value for less than 12 months and USD
respectively, to declines in value for more than 12 months.
million, respectively, of the gross unrealised loss on equity
million and USD
million and USD
million,
44
37
37
10
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
2017
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
Total
Unrealised
losses
Fair value
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
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Total
Unrealised
losses
Fair value
7 402
3 753
259
535
1 749
685
209
1 013
2 687
18 292
5 390
1 429
25 111
114
37
4
9
27
18
8
3
52
272
83
13
368
1 368
993
39
258
262
44
7
57
319
3 347
860
394
4 601
33
29
1
9
1
3
2
0
16
94
29
7
130
8 770
4 746
298
793
2 011
729
216
1 070
3 006
21 639
6 250
1 823
29 712
147
66
5
18
28
21
10
3
68
366
112
20
498
58 Swiss Reinsurance Company Consolidated 2017 Annual Report
Mortgages, loans and real estate
As of 31 December, the carrying and respective fair 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
Carrying value
86
1 947
2 585
1 711
2016
Fair value
86
1 950
2 596
3 362
Carrying value
86
1 526
784
2 017
2017
Fair value
86
1 529
794
3 895
Depreciation expense related to income-producing properties was USD
respectively. Accumulated depreciation on investment real estate totalled USD
31 December 2016 and 2017, respectively.
42
million and USD
49
million for 2016 and 2017,
525
million and USD
585
million as of
Substantially all mortgages, policy loans and other loan receivables are secured by buildings, land or the underlying policies.
Swiss Reinsurance Company Consolidated 2017 Annual Report 59
Financial statements
Notes to the Group financial statements
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 (eg markets which have few transactions and where prices are not current or price quotations vary
substantially); (iii) inputs other than quoted prices that are observable (eg interest rates, yield curves, volatilities, prepayment
speeds, credit risks and default rates); and (iv) inputs derived from, or corroborated by, observable market data.
Level 3 inputs are unobservable inputs. These inputs reflect the Group’s own assumptions about market pricing using the best
internal and external information available.
The types of instruments valued, based on 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
2017, 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.
60 Swiss Reinsurance Company Consolidated 2017 Annual Report
Valuation techniques
US government securities typically have quoted market prices in active markets and are categorised as level 1 instruments in the
fair value hierarchy. Non-US government holdings are generally classified as level 2 instruments and are valued on the basis of the
quotes provided by pricing services, which are subject to the Group’s pricing validation reviews and pricing vendor challenge
process. Valuations provided by pricing vendors are generally based on the actual trade information as substantially all of the
Group’s non-US government holdings are traded in a transparent and liquid market.
Corporate debt securities mainly include US and European investment-grade positions, which are priced on the basis of quotes
provided by third-party pricing vendors and first utilise valuation inputs from actively traded securities, such as bid prices, bid
spreads to Treasury securities, Treasury curves, and same or comparable issuer curves and spreads. Issuer spreads are determined
from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call
features. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable
inputs and option-adjusted spreads and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate
structure.
Values of 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.
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 the internal models, which are consistent
with industry standards and practices, and use both observable (dealer, broker or market consensus prices, spot and forward rates,
interest rate and credit curves and volatility indices) and unobservable inputs (adjustments for liquidity, inputs derived from the
observable data based on the Group’s judgements and assumptions).
Swiss Reinsurance Company Consolidated 2017 Annual Report 61
Financial statements
Notes to the Group financial statements
The Group’s OTC interest rate derivatives primarily include interest rate swaps, futures, options, caps and floors, and are valued
based on the cash flow discounting models which generally utilise as inputs observable market yield curves and volatility
assumptions.
The Group’s OTC foreign exchange derivatives primarily include forward, spot and option contracts and are generally valued based
on the cash flow discounting models, utilising as main inputs observable foreign exchange forward curves.
The Group’s investments in equity derivatives primarily include OTC equity option contracts on single or baskets of market indices
and equity options on individual or baskets of equity securities, which are valued using internally developed models (such as the
Black-Scholes type option pricing model and various simulation models) calibrated with the inputs, which include underlying spot
prices, dividend curves, volatility surfaces, yield curves and correlations between underlying assets.
The Group’s OTC credit derivatives can include index and single-name credit default swaps, as well as more complex structured
credit derivatives. Plain vanilla credit derivatives, such as index and single-name credit default swaps, are valued by the Group
based on the models consistent with the industry valuation standards for these credit contracts, and primarily utilise observable
inputs published by market data sources, such as credit spreads and recovery rates. These valuation techniques warrant
classification of plain vanilla OTC derivatives as level 2 financial instruments in the fair value hierarchy.
Governance around level 3 fair valuation
The Asset Valuation Committee, endorsed by the Swiss Re Group Executive Committee, has a primary responsibility for governing
and overseeing all of 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 a 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.
62 Swiss Reinsurance Company Consolidated 2017 Annual Report
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:
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
netting1 practical expedient
Impact of
11 332
54 265
348
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
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 2017 Annual Report 63
Financial statements
Notes to the Group financial statements
2017
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
Funds held under reinsurance treaties
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)
Investments
measured at net
asset value as
netting1 practical expedient
Impact of
10 820
60 039
361
10 820
3 024
585
699
47
4
43
765
15 940
–20
–2
–18
–91
–939
–1 050
1 847
5 877
24 954
23 807
3 554
1 975
1 363
534
337
478
14
12
206
63 595
–1 569
–419
–436
–635
–79
–1 712
–1 785
–5 066
354
7
387
5
283
99
171
–1 176
919
–1 176
–269
1 342
–31
–238
–126
–395
1 342
607
607
Total
71 220
12 667
5 877
24 954
24 161
3 561
3 024
585
2 674
621
543
337
804
14
99
1 555
206
79 885
–516
–421
–436
–684
–79
–238
–126
–1 803
–2 724
–5 169
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.
64 Swiss Reinsurance Company Consolidated 2017 Annual Report
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 were as follows:
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 Derivative
assets
securities
Other
invested
assets
Total Derivative
liabilities
assets
Liabilities
for life
and health
policy
benefits
Accrued
expenses
and other
liabilities
Total
liabilities
338
11
464
1 013
–895
1 826
–895
–497
–165 –1 474 –2 136
0
3
–5
115
–36
–55
–6
–6
348
18
–18
3
199
20
219
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
0
0
–81
20
–76
–5
0
239
238
–144 –1 236 –1 820
1
1 Impact of ASU 2015-07. Please refer to Note 1 of the 2016 Annual Report.
2 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
2017
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 Derivative
assets
securities
Other
invested
assets
Total Derivative
liabilities
assets
Liabilities
for life
and health
policy
benefits
Accrued
expenses
and other
liabilities
Total
liabilities
348
1
459
160
968
–440
–144 –1 236 –1 820
1
–4
92
–7
–81
1
11
361
–23
32
–2
–79
–1
0
387
–22
216
19
16
–6
1
171
12
124
0
–9
–166
1
–1
12
919
–38
2
–9
1 286
–269
–1
–126
–50
0
235
0
0
–38
2
1 277
0
0
–51
–395
1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
Swiss Reinsurance Company Consolidated 2017 Annual Report 65
Financial statements
Notes to the Group financial statements
Gains and losses on assets and liabilities measured at fair value on a recurring basis using significant unobservable
inputs (level 3)
The gains and losses relating to the assets and liabilities measured at fair value using significant unobservable inputs (level 3)
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
2016
222
88
2017
213
161
66 Swiss Reinsurance Company Consolidated 2017 Annual Report
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
Infrastructure loans
2016
Fair value
2017
Fair value Valuation technique
Unobservable input
Range
(weighted average)
341
116
354
215 Discounted Cash Flow Model
Valuation spread
73 bps–232 bps
(151 bps)
37 bps–246 bps
(124 bps)
75 bps–175 bps
(133 bps)
–45%–100%
(27.5%)1
–45%–100%
(27.5%)1
Private placement corporate debt
177
91 Corporate Spread Matrix
Credit spread
Private placement credit tenant leases
48
46 Discounted Cash Flow Model
Illiquidity premium
Derivative equity contracts
OTC equity option referencing
correlated equity indices
Liabilities
Derivative equity contracts
OTC equity option referencing
correlated equity indices
341
341
283
283 Proprietary Option Model
Correlation
–39
–39
–31
–31 Proprietary Option Model
Correlation
Other derivative contracts and liabilities for
life and health policy benefits
–545
–364
Variable annuity and fair valued
GMDB contracts
–500
–325 Discounted Cash Flow Model
Risk margin
Volatility
Lapse
Mortality adjustment
Withdrawal rate
4% (n.a.)
4%–42%
0.5%–33%
–10%–0%
0%–90%
1 Represents average input value for the reporting period.
Swiss Reinsurance Company Consolidated 2017 Annual Report 67
Financial statements
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 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 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 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
(ie 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.
68 Swiss Reinsurance Company Consolidated 2017 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
2016
Fair value
431
106
1
189
727
2017
Fair value
381
128
1
97
607
Unfunded
commitments
82
32
114
Redemption frequency
(if currently eligible)
non-redeemable
redeemable1
non-redeemable
non-redeemable
Redemption
notice period
n.a.
45–95 days2
n.a.
n.a.
1 The redemption frequency varies by position.
2 Cash distribution can be delayed for an extended period depending on the sale of the underlyings.
The hedge fund investments employ a variety of strategies, including global macro, relative value, event-driven and long/short
equity across various asset classes.
The private equity direct portfolio consists of equity and equity-like investments directly in other companies. These investments
have no contractual term and are generally held based on financial or strategic intent.
Private equity and real estate funds generally have limitations imposed on the amount of redemptions from the fund during the
redemption period due to illiquidity of the underlying investments. Fees may apply for redemptions or transferring of interest to
other parties. Distributions are expected to be received from these funds as the underlying assets are liquidated over the life of
the fund, which is generally from 10 to 12 years.
The redemption frequency of hedge funds varies depending on the manager as well as the nature of the underlying product.
Additionally, certain funds may impose lock-up periods and redemption gates as defined in the terms of the individual
investment agreement.
Fair value option
The fair value option under the Financial Instruments Topic permits the choice to measure specified financial assets and liabilities
at fair value on an instrument-by-instrument basis. The Group elected the fair value option for positions in the following line items:
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.
Funds held under reinsurance treaties
For operational efficiencies, the Group elected the fair value option for funds held under reinsurance treaties under some of its
reinsurance agreements. The liabilities are carried at fair value and changes in fair value are reported as a component of earnings.
Swiss Reinsurance Company Consolidated 2017 Annual Report 69
Financial statements
Notes to the Group financial statements
Assets and liabilities measured at fair value pursuant to election of the fair value option
Pursuant to the election of the fair value option for the items described, the balances as of 31 December 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
Funds held under reinsurance treaties
of which at fair value pursuant to the fair value option
2016
2017
7 217
108
8 854
225
–17 629
–144
7 800
111
12 617
206
–19 361
–126
–11 429
–1 803
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
Funds held under reinsurance treaties
Total
2016
–18
6
20
8
2017
2
19
–49
–28
Fair value changes from other invested assets, funds held by ceding companies and funds held under reinsurance treaties are
reported in “Net investment income --- non-participating business”. Fair value changes from the GMDB reserves are shown in “Life
and health benefits”.
70 Swiss Reinsurance Company Consolidated 2017 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:
2016
USD millions
Assets
Policy loans
Mortgage loans
Other loans
Investment real estate
Total assets
Liabilities
Debt
Total liabilities
2017
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)
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
Significant other
observable inputs
(Level 2)
Significant
unobservable
inputs (Level 3)
86
1 529
794
3 895
6 304
0
Total
86
1 529
794
3 895
6 304
–6 149
–6 149
–6 825
–6 825
–12 974
–12 974
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 does 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 2017 Annual Report 71
Financial statements
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.
72 Swiss Reinsurance Company Consolidated 2017 Annual Report
Total derivative financial instruments
100 729
2 640
–2 348
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
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
Amount offset
Where a right of set-off exists
Due to cash collateral
Total net amount of derivative financial instruments
2017
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
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
–1 122
–458
1 060
1 122
446
–780
37 655
19 021
18 767
4 894
11 737
92 074
14 426
14 426
543
227
804
14
99
1 687
110
110
–421
–152
–684
–79
–238
–1 574
–284
–284
Notional amount
assets/liabilities
Fair value
assets
Fair value
liabilities
Carrying value
assets/liabilities
290
–224
170
0
–283
–47
339
339
292
280
122
75
120
–65
–139
113
–174
–174
–61
105
Total derivative financial instruments
106 500
1 797
–1 858
Amount offset
Where a right of set-off exists
Due to cash collateral
Total net amount of derivative financial instruments
–801
–375
621
801
541
–516
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 2016 and 2017.
Swiss Reinsurance Company Consolidated 2017 Annual Report 73
Financial statements
Notes to the Group financial statements
Non-hedging activities
The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of
derivative financial instruments not designated as hedging instruments are recorded in “Net realised investment gains/losses —
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
2016
2017
–16
–121
–164
8
150
–143
56
256
–186
–21
251
356
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 2016 and 2017, 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 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
2016
Gains/losses on
hedged items
Gains/losses
on derivatives
2017
Gains/losses on
hedged items
250
250
–250
–250
–570
–570
570
570
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 2016 and 2017, the Group recorded an accumulated net unrealised foreign currency
remeasurement gain of USD 1 311 million and USD 737 million, respectively, in shareholder’s equity. These offset translation gains
and losses on the hedged net investment.
74 Swiss Reinsurance Company Consolidated 2017 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 2016 and 2017 was approximately USD 1 518 million and USD 996 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
and USD 66 million as of 31 December 2016 and 2017, respectively. For derivative financial instruments containing credit risk-
related contingent features, the Group posted collateral of nil as of 31 December 2016 and 2017, respectively. In the event of a
reduction of the Group’s credit rating to below investment grade, a fair value of USD 66 million additional collateral would have
had to be posted as of 31 December 2017. The total equals the amount needed to settle the instruments immediately as of 31
December 2017.
79
million
Swiss Reinsurance Company Consolidated 2017 Annual Report 75
Financial statements
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 Groupʼs 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 2018
Due in 2019
Due in 2020
Due in 2021
Due in 2022
Due after 2022
Total carrying value
2016
2 734
420
543
3 697
2 249
423
2 884
2 249
7 805
2017
2 826
2 826
2 244
390
3 110
2 370
8 114
11 502
13 270
10 940
12 974
2016
0
1 666
195
209
771
4 964
7 805
2017
0
1 699
197
213
845
5 160
8 114
76 Swiss Reinsurance Company Consolidated 2017 Annual Report
Senior long-term debt
Instrument
Maturity
2019 Senior notes1
2022 Senior notes
2024 EMTN
2026 Senior notes1
2027 EMTN
2030 Senior notes1
2042 Senior notes
Various Payment undertaking agreements
Total senior long-term debt as of 31 December 2017
Total senior long-term debt as of 31 December 2016
1 Assumed in the acquisition of GE Insurance Solutions.
Subordinated long-term debt
Instrument
Maturity
2024 Subordinated contingent write-off loan note
2042 Subordinated fixed-to-floating rate loan note
2045 Subordinated contingent write-off securities
Subordinated private placement
(amortising, limited recourse)
Subordinated perpetual loan note
Perpetual subordinated fixed-to-floating rate
callable loan note
2057
Total subordinated long-term debt as of 31 December 2017
Total subordinated long-term debt as of 31 December 2016
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
338
Interest rate
6.45%
2.88%
1.00%
7.00%
0.75%
7.75%
4.25%
various
Book value
in USD millions
245
249
255
486
257
262
490
390
2 634
2 672
Issued in
2013
2012
2013
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
778
596
197
2007
2007
GBP
GBP
1 751
500
5.06%
6.30%
2019
2015
EUR
750
2.60%
2025
2 370
676
863
5 480
5 133
Swiss Reinsurance Company Consolidated 2017 Annual Report 77
Financial statements
Notes to the Group financial statements
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
In addition to the above, interest expense on contingent capital instruments classified as equity was USD
USD
million for the years ended 31 December 2016 and 2017, respectively.
67
2016
100
10
156
122
388
2017
89
11
144
114
358
68
million and
Long-term debt issued in 2017
No long-term debt was issued in the year ended 31 December 2017.
Contingent capital instruments
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).
The instrument may be converted, at the option of the issuer, into Swiss Re Ltd shares at any time through “at market“ conversion
using the retrospective five-day volume weighted average share price with a 3% discount or within six months following a solvency
event at a pre-set floor price of USD 32. The instrument is referred to in these financial statements as “contingent capital
instrument”.
In February 2012, SRZ issued a contingent capital instrument accounted for as equity with a face value of CHF 320 million and a
fixed coupon at a rate of 7.25% per annum. This capital instrument was redeemed on 1 September 2017.
78 Swiss Reinsurance Company Consolidated 2017 Annual Report
11 Income taxes
The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which it
operates. The components of the income tax expense were:
USD millions
Current taxes
Deferred taxes
Income tax expense
2016
613
35
648
2017
457
–338
119
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
Non deductible expenses
Change in valuation allowance
Change in statutory rate
Change in liability for unrecognised tax benefits including interest and penalties
Other, net1
Total
1 Other, net includes tax return to tax provision adjustments from various jurisdictions.
2016
807
125
–27
–24
57
–210
46
–112
–14
648
2017
49
61
103
–48
51
–78
–81
9
53
119
For the year ended 31 December 2017, the Group reported a tax charge of USD 119 million on a pre-tax income of
USD 233 million for 2017, compared to a charge of USD 648 million on a pre-tax income of USD 3 845 million for 2016. This
translates into an effective tax rate in the current and prior-year reporting periods of 51.1% and 16.9%, respectively.
For the year ended 31 December 2017, the tax rate was largely driven by tax on profits in higher jurisdictions and tax charges from
foreign currency translation differences between statutory and US GAAP accounts, partially offset by tax benefits from US tax laws
changes. For the year ended 31 December 2016, the lower tax 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.
At 31 December 2017, the tax rate includes a tax benefit of USD 97 million from US tax reform impact. The impact is included
within the change in statutory rate and change in valuation allowance components of the tax rate reconciliation. The benefit arises
from revaluing the US deferred tax assets and liabilities to the new US statutory tax rate of 21% (from 35%).
Swiss Reinsurance Company Consolidated 2017 Annual Report 79
Financial statements
Notes to the Group financial statements
Deferred and other non-current taxes
The components of deferred and other non-current taxes were as follows:
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
2016
2017
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
163
454
286
1 786
430
853
3 972
–293
–19
3 660
–73
–425
–241
–877
–1 409
–484
–152
–448
–630
–4 739
–196
–4 935
Net deferred and other non-current taxes
–1 709
–1 275
As previously noted in the tax rate reconciliation, a tax benefit of USD 97 million arises from revaluing the US deferred tax assets
and liabilities to the new US tax rate of 21% (from 35%). Accordingly, the revaluing reduced the US deferred tax assets by
USD 1 159 million and the US deferred tax liabilities by USD 1 256 million (net USD 97 million).
As of 31 December 2017, 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 2.8 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 2017, the Group had USD 8 055 million net operating tax loss carryforwards, expiring as follows:
USD 17 million in 2018, USD 47 million in 2019, USD 13 million in 2020, USD 10 million in 2021, USD 7 511 million in
2022 and beyond, and USD 457 million never expire.
As of 31 December 2017, the Group also had capital loss carryforwards of USD 14 million, expiring as follows: USD 4 million in
2020, USD 4 million in 2021 and USD 6 million in 2022.
Net operating tax losses of USD 876 million and net capital tax losses of USD 27 million were utilised during the period ended
31 December 2017.
Income taxes paid in 2016 and 2017 were USD 515 million and USD 507 million, respectively.
80 Swiss Reinsurance Company Consolidated 2017 Annual Report
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
Change in group structure1
Additions based on tax positions related to current year
Additions based on tax positions related to prior years
Reduction for tax positions of current year
Reductions for tax positions of prior years
Statute expiration
Settlements
Other (including foreign currency translation)
Balance as of 31 December
2016
331
36
20
–101
–44
–53
189
2017
189
–3
20
8
–1
–12
–9
–29
7
170
1 In January 2017, the Group sold three primary life and health insurance carriers to the Swiss Re Life Capital Group.
As of 31 December 2016 and 2017 the amount of gross unrecognised tax benefits within the tabular reconciliation that, if
recognised, would affect the effective tax rate were approximately USD 188 million and USD 170 million, respectively.
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. Such expense in 2017 was nil
(USD 23 million in 2016). As of 31 December 2016 and 2017, USD 48 million and USD 45 million, respectively, were accrued for
the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2017 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 2017 presented in the table above excludes accrued interest
and penalties (USD 45 million).
During the year, certain tax positions and audits in France and Switzerland 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 subjects to examination:
Australia
Brazil
Canada
China
Denmark
France
Germany
Hong Kong
India
Ireland
Israel
Italy
Japan
2013–2017
2011–2017
2010–2017
2006–2017
2011–2017
2015–2017
2008–2017
2009–2017
2006–2017
2012–2017
2009–2017
2012–2017
2010–2017
Korea
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Singapore
Slovakia
South Africa
Spain
Switzerland
United Kingdom
United States
2014–2017
2013–2017
2009–2017
2012–2017
2013–2017
2012–2017
2011–2017
2012–2017
2012–2017
2013–2017
2014–2017
2008, 2011–2017
2011–2017
Swiss Reinsurance Company Consolidated 2017 Annual Report 81
Financial statements
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.
82 Swiss Reinsurance Company Consolidated 2017 Annual Report
The measurement date of these plans is 31 December for each year presented.
2016
USD millions
Benefit obligation as of 1 January
Service cost
Interest cost
Actuarial gains/losses
Benefits paid
Employee contribution
Effect of settlement, curtailment and termination
Effect of foreign currency translation
Benefit obligation as of 31 December
Fair value of plan assets as of 1 January
Actual return on plan assets
Company contribution
Benefits paid
Employee contribution
Effect of settlement, curtailment and termination
Effect of foreign currency translation
Fair value of plan assets as of 31 December
Funded status
2017
USD millions
Benefit obligation as of 1 January
Service cost
Interest cost
Amendments
Actuarial gains/losses
Benefits paid
Employee contribution
Effect of settlement, curtailment and termination
Effect of foreign currency translation
Benefit obligation as of 31 December
Fair value of plan assets as of 1 January
Actual return on plan assets
Company contribution
Benefits paid
Employee contribution
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
Swiss plan
3 916
111
24
–55
–57
–185
26
2
166
3 948
3 532
264
95
–185
26
2
153
3 887
–61
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
Foreign plans
1 819
7
55
–2
–60
–20
125
1 924
1 771
132
59
–60
–20
130
2 012
88
–2
369
0
16
–16
0
–369
Other benefits
369
4
9
–3
42
–17
9
413
0
17
–17
0
–413
Total
5 976
125
101
272
–214
25
1
–182
6 104
5 202
316
165
–214
25
1
–192
5 303
–801
Total
6 104
122
88
–58
–17
–262
26
–18
300
6 285
5 303
396
171
–262
26
–18
283
5 899
–386
Swiss Reinsurance Company Consolidated 2017 Annual Report 83
Financial statements
Notes to the Group financial statements
Amounts recognised in “Other assets” and “Accrued expenses and other liabilities” in the Group’s balance sheet as of
31 December were as follows:
2016
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
2017
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
Swiss plan
–384
–384
Swiss plan
–61
–61
Foreign plans
140
–3
–185
–48
Foreign plans
262
–3
–171
88
Other benefits
–15
–354
–369
Other benefits
–18
–395
–413
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows:
2016
USD millions
Net gain/loss
Prior service cost/credit
Total
2017
USD millions
Net gain/loss
Prior service cost/credit
Total
Swiss plan
1 114
–69
1 045
Swiss plan
805
–115
690
Foreign plans
345
1
346
Other benefits
–30
–58
–88
Foreign plans
271
1
272
Other benefits
13
13
Total
140
–18
–923
–801
Total
262
–21
–627
–386
Total
1 429
–126
1 303
Total
1 089
–114
975
84 Swiss Reinsurance Company Consolidated 2017 Annual Report
Components of net periodic benefit cost
The components of pension and post-retirement cost for the years ended 31 December were as follows:
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 an termination
Net periodic benefit cost
2017
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
113
31
–113
Foreign plans
7
60
–66
Other benefits
5
10
76
–9
1
99
9
10
–4
–9
2
Swiss plan
111
24
–90
Foreign plans
7
55
–59
Other benefits
4
9
77
–9
2
115
21
24
–1
–61
–49
Total
125
101
–179
81
–18
1
111
Total
122
88
–149
97
–9
–59
90
Swiss Reinsurance Company Consolidated 2017 Annual Report 85
Financial statements
Notes to the Group financial statements
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended
31 December were as follows:
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
2017
USD millions
Net gain/loss
Prior service cost/credit
Amortisation of:
Net gain/loss
Prior service cost
Effect of settlement, curtailment and termination
Exchange rate gain/loss recognised during the year
Total recognised in other comprehensive income, gross of tax
Total recognised in net periodic benefit cost and other comprehensive
income, gross of tax
Swiss plan
56
Foreign plans
70
Other benefits
9
–76
9
–11
88
–9
–19
42
52
4
9
22
24
Swiss plan
–231
–55
Foreign plans
–75
Other benefits
42
–3
–77
9
–354
–239
–21
22
–74
–50
1
61
101
Total
135
–81
18
–19
53
164
Total
–264
–58
–97
9
61
22
–327
52
–237
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 2018 are USD 65 million and
USD 15 million, respectively. The estimated net gain/loss and prior service cost/credit for the other defined post-retirement
benefits that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2018 are nil.
The Group and affiliated companies‘ accumulated benefit obligation (the current value of accrued benefits excluding future salary
increases) for pension benefits was USD 5 665 million and USD 5 794 million as of 31 December 2016 and 2017, respectively.
Pension plans with an accumulated benefit obligation in excess of plan assets as of 31 December were as follows:
USD millions
Projected benefit obligation
Accumulated benefit obligation
Fair value of plan assets
2016
4 938
4 901
4 367
2017
5 068
5 022
4 833
86 Swiss Reinsurance Company Consolidated 2017 Annual Report
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
2016
2017
2016
2017
2016
2017
0.6%
1.8%
0.6%
1.8%
3.0%
2.9%
2.8%
2.8%
2.4%
2.1%
2.1%
2.1%
0.8%
3.3%
2.0%
0.6%
2.5%
1.8%
3.6%
3.9%
2.8%
3.0%
3.3%
2.9%
2.7%
2.4%
2.1%
2.1%
5.1%
3.8%
5.6%
3.8%
2021
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 2017:
USD millions
Effect on total of service and interest cost components
Effect on post-retirement benefit obligation
1 percentage point
increase
1
29
1 percentage point
decrease
0
–25
Swiss Reinsurance Company Consolidated 2017 Annual Report 87
Financial statements
Notes to the Group financial statements
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
2016 and 2017 was as follows:
Asset category
Equity securities
Debt securities
Real estate
Other
Total
Swiss plan allocation
Foreign plans allocation
2016
2017
Target allocation
2016
2017
Target allocation
27%
44%
22%
7%
100%
29%
41%
23%
7%
100%
25%
47%
20%
8%
100%
19%
48%
0%
33%
100%
17%
77%
0%
6%
100%
17%
78%
1%
4%
100%
Actual asset allocation is determined by a variety of current economic and market conditions and considers specific asset
class risks.
Equity securities include Swiss Re common stock of USD 7 million (0.1% of total plan assets) and USD 6 million (0.1% of total
plan assets) as of 31 December 2016 and 2017, respectively.
The Groupʼs 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 following table 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.
88 Swiss Reinsurance Company Consolidated 2017 Annual Report
As of 31 December, the fair values of pension plan assets by level of input were as follows:
2016
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
2017
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
Significant
Investments
measured
unobservable at net asset value as
practical expedient
inputs (Level 3)
Quoted prices in
active markets
for identical
assets (Level 1)
Significant other
observable
inputs (Level 2)
28
145
314
1 792
26
4
6
338
–6
514
3 133
–2
3 131
9
97
612
718
718
1 004
1 032
94
1 126
328
328
328
Significant
Investments
measured
unobservable at net asset value as
practical expedient
inputs (Level 3)
Quoted prices in
active markets
for identical
assets (Level 1)
Significant other
observable
inputs (Level 2)
30
681
735
1 546
23
1
1
347
–38
78
3 374
3 374
10
103
692
805
805
1 141
1 171
99
1 270
450
450
450
Total
173
314
1 801
26
4
6
1 439
–6
612
842
5 211
92
5 303
Total
711
735
1 556
23
1
1
1 591
–38
692
528
5 800
99
5 899
Swiss Reinsurance Company Consolidated 2017 Annual Report 89
Financial statements
Notes to the Group financial statements
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:
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
2017
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
596
Other assets
142
17
8
–9
612
–14
13
21
–53
–3
106
Real estate
612
Other assets
106
34
19
27
692
–26
19
11
3
113
Total
738
3
13
29
–53
–12
718
Total
718
8
19
30
30
805
Expected contributions and estimated future benefit payments
The employer contributions expected to be made in 2018 to the defined benefit pension plans are USD 112 million and to the
post-retirement benefit plan are USD 18 million.
As of 31 December 2017, the projected benefit payments, which reflect expected future service, not adjusted for transfers in
and for employees’ voluntary contributions, are as follows:
USD millions
2018
2019
2020
2021
2022
Years 2023-2027
Swiss plan
216
208
205
201
196
932
Foreign plans
86
91
94
97
99
534
Other benefits
18
19
20
20
21
110
Total
320
318
319
318
316
1 576
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
2016 and in 2017 was USD 65 million and USD 75 million, respectively.
90 Swiss Reinsurance Company Consolidated 2017 Annual Report
13 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:
2016
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
Premiums earned
Net investment income – non-participating business
Net realised investment gains/losses –
non-participating business
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses
Interest expenses
Total expenses
2017
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
Premiums earned
Fee income from policyholders
Net investment income/loss – non-participating business
Net realised investment gains/losses –
non-participating business
Other revenues
Total revenues
Expenses
Claims and claim adjustment expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses
Interest expenses
Total expenses
Corporate
Solutions
Life Capital
Other
312
149
–35
114
9
–22
10
111
202
–20
61
243
242
242
242
4
43
10
299
–203
18
–1
21
3
–162
10
–77
1
–66
–1 400
–101
–1 501
Total
554
391
–35
356
23
–56
21
344
202
–203
18
–21
–1 318
–98
–1 420
Corporate
Solutions
Life Capital
Other
Total
283
146
–5
141
9
–2
8
156
184
–20
60
224
526
263
–67
196
–95
–479
13
22
–343
–30
322
43
2
337
6
–72
1
–65
–1 497
–145
–1 642
809
409
–72
337
–95
–464
–61
31
–252
184
–30
322
23
–1 435
–145
–1 081
Swiss Reinsurance Company Consolidated 2017 Annual Report 91
Financial statements
Notes to the Group financial statements
2016
USD millions
Assets
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
Liabilities
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
2017
USD millions
Assets
Policy loans, mortgages and other loans
Other invested assets
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
Other assets
Total assets
Liabilities
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
Other
Total
12
72
293
713
2
306
1 398
3 943
141
32
128
3
4 247
70
22
21
113
11
19
232
262
1 573
4
4
13
1 594
2 564
1 678
4 242
1 573
86
4
94
293
713
2
340
3 105
3 954
19
141
32
128
2 564
1 913
8 751
Corporate
Solutions
Life Capital
Other
Total
28
194
282
652
–1
339
1 494
3 723
124
56
95
4
4 002
66
128
1 350
9 152
2 859
4
–549
282
13 292
382
2 688
83
8 771
1 466
762
14 152
73
56
222
351
2 826
1 360
4 186
139
212
1 544
9 434
3 511
3
–549
843
15 137
4 105
2 688
207
8 827
1 561
2 826
2 126
22 340
Issued in
Instrument
Senior Loan
2016
Senior Loan
2017
Senior Loan
2017
Senior Loan
2017
Senior Loan
2017
2017
Senior Loan
Total short-term debt as of 31 December 2017
Maturity
2018
2018
2018
2018
2018
2018
Currency
USD
USD
USD
USD
GBP
USD
Nominal in millions
1 485
305
500
250
25
252
Interest rate
3mLIBOR+0.65%
3mLIBOR+0.65%
3mLIBOR+0.65%
3mLIBOR+0.65%
3mLIBOR+0.22%
1.495%
Book value in USD
millions
1 485
305
500
250
34
252
2 826
92 Swiss Reinsurance Company Consolidated 2017 Annual Report
As of 31 December 2016 and 2017, the Group’s investment in mortgages and other loans included USD 292 million and
USD 301 million, respectively, of loans due from employees, and USD 184 million and USD 181 million, respectively, due from
officers. These loans generally consist of mortgages offered at variable and fixed interest rates.
None of the members of BoD and the Group EC has any significant business connection with the Group or any of its Group
companies.
The Company has entered into subordinated funding facilities with its parent company Swiss Re Ltd under which the Company has
the right, among others, to issue subordinated notes to Swiss Re Ltd at any time. For its various rights, the Company owes Swiss Re
Ltd an unconditional fixed commitment fee on the total facility amount, payable in annual instalments. Annually, the Company
receives a partial reimbursement of the commitment fee on the undrawn facility amount. As of 31 December 2017, the facilities
were undrawn.
An overview of the subordinated funding facilities is provided in the following table:
Instrument
Subordinated funding facility
Subordinated funding facility
Subordinated funding facility
Lender
Swiss Re Ltd
Swiss Re Ltd
Swiss Re Ltd
Issued in
2015
2016
2016
Maturity
2030
2036
2032
Currency
USD
USD
USD
Nominal value
in millions
700
400
800
Commitment fee
(on total facility amount)
5.80%
6.10%
5.68%
Partial reimbursement of
commitment fee
(on undrawn amount)
2.22%
2.13%
1.95%
Swiss Reinsurance Company Consolidated 2017 Annual Report 93
Financial statements
Notes to the Group financial statements
14 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
2018
2019
2020
2021
2022
After 2022
Total operating lease commitments
Less minimum non-cancellable sublease rentals
Total net future minimum lease commitments
2017
63
62
52
29
28
171
405
6
399
Minimum rentals for all operating leases (except those with terms of one month or less that were not renewed) for the years ended
31 December 2016 and 2017 were USD
million, respectively. Sublease rental income for the years ended
31 December 2016 and 2017 was nil and USD
million, respectively.
million and USD
36
29
2
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 ten years. The total commitments remaining uncalled
as of 31 December 2017 were USD 2 114 million.
In 2016, the Group entered into a real estate construction contract. Total commitments under the contract amount to
USD 52 million over the next three 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 2017 Annual Report
15 Variable interest entities
The Group enters into arrangements with variable interest entities (VIEs) in the normal course of business. The involvement ranges
from being a passive investor to designing, structuring and managing the VIEs. The variable interests held by the Group arise
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.
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.
Swiss Reinsurance Company Consolidated 2017 Annual Report 95
Financial statements
Notes to the Group financial statements
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 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 and 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 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 for 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.
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.
96 Swiss Reinsurance Company Consolidated 2017 Annual Report
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 2017 that it was not previously contractually required to
provide.
Consolidated VIEs
The following table shows the total assets and liabilities in the Group’s balance sheet related to VIEs of which the Group is the
primary beneficiary as of 31 December:
USD millions
Fixed income securities available-for-sale
Short-term investments
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
Liabilities for life and health policy benefits
Unearned premiums
Reinsurance balances payable
Deferred and other non-current tax liabilities
Accrued expenses and other liabilities
Long-term debt
Total liabilities
2016
3 715
128
22
33
33
9
94
8
4 042
65
25
6
213
14
2 249
2 572
2017
3 974
62
12
34
29
4
41
15
4 171
84
1
12
17
133
20
2 369
2 636
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 2017 Annual Report 97
Financial statements
Notes to the Group financial statements
Non-consolidated VIEs
The following table shows the total assets and liabilities on 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
2016
415
466
764
1 419
163
3 227
78
78
2017
412
656
848
1 167
180
3 263
67
67
The following table shows the Group’s assets, liabilities and maximum exposure to loss related to VIEs in which the Group held a
variable interest but was not the primary beneficiary as of 31 December:
USD millions
Insurance-linked securitisations
Life and health funding vehicles
Swaps in trusts
Investment vehicles
Investment vehicles for unit-linked business
Senior commercial mortgage and infrastructure loans
Total
Total assets
336
2
164
1 728
163
834
3 227
2016
Maximum
exposure to
loss1
331
1 948
–2
1 729
834
–2
Total
liabilities
1
77
78
2017
Maximum
exposure to
loss1
314
2 052
–2
1 772
949
–2
Total
liabilities
1
66
67
Total assets
311
27
25
1 771
180
949
3 263
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 2017 Annual Report
Report of the statutory auditor
to the General Meeting of
Swiss Reinsurance Company Ltd
Zurich
Report of the statutory auditor on the consolidated financial statements
As statutory auditor, we have audited the accompanying consolidated financial statements of Swiss Reinsurance Company Ltd and
its subsidiaries (the ‘Company’), which comprise the consolidated balance sheet as of 31 December 2017, and the related
consolidated income statement, statement of comprehensive income, statement of shareholder’s equity, statement of cash flows
and notes for the year ended 31 December 2017.
Board of Directors’ responsibility
The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America and the requirements of Swiss law. This
responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair
presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The
Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting
estimates that are reasonable in the circumstances.
Auditor’s responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit
in accordance with Swiss law, Swiss Auditing Standards and auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers the internal control system relevant to the Company’s preparation and fair presentation of the consolidated financial
statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control system. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of 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 2017, 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 40 to 47 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.
Swiss Reinsurance Company Consolidated 2017 Annual Report 99
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
Investment valuation continues to be an area with inherent risk
for certain level 2 and 3 investments that have unobservable or
interpolated inputs. The risk is not the same for all investment
types and is greatest for those listed below. These investments
are more difficult to value because quoted prices are not
always available and valuation requires unobservable or
interpolated inputs and complex valuation models:
Fixed income securitised products
Fixed income mortgage and asset-backed securities
Private placements and infrastructure loans
Private equities
Derivatives
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 around the valuation
models for level 2 and 3 investments, including the Company’s
independent price verification process. We also tested
management’s data integrity and change management
controls relating to the valuation models.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
Challenging the Company’s 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.
Engaging our own valuation experts to perform
independent valuations of selected investments.
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 2017.
100 Swiss Reinsurance Company Consolidated 2017 Annual Report
Valuation of actuarially determined Property & Casualty (‘P&C’) loss reserves
Key audit matter
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
reserves. 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 key factors and 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, loss reserves for ‘long tail’ lines of business (for
example, the Liability, US Asbestos and Environmental, Motor
Liability and Workers’ Compensation portfolios) 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
claim settlements are often less frequent but of higher
magnitude. 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.
Moreover, not all natural catastrophe events and significant
man-made losses can be modelled using traditional actuarial
methodologies, which increases the degree of judgement
needed in establishing reserves for these events.
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
independently test management’s estimates of P&C loss
reserves, and evaluate 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
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 tests to determine the impact of
selected key assumptions.
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 Consolidated 2017 Annual Report 101
Valuation of actuarially determined Life & Health (‘L&H’) loss 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, methods, 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.
102 Swiss Reinsurance Company Consolidated 2017 Annual Report
Completeness and valuation of uncertain tax items
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 management’s assessment
whether deferred tax assets are more likely than not to be
realised. In recent years there have been releases of uncertain
tax positions as a result of the completion of audits by tax
authorities. Changes 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 in place to determine
the completeness of the uncertain tax items and
management’s assessment of the items for recognition and
valuation.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
Involving our own tax specialists to critically review
management’s ‘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.
Examining tax audit documentation to validate the
appropriateness of releases of uncertain tax provisions.
On the basis of the work performed, we consider
management’s assessment relating to the valuation of the
uncertain tax items to be appropriate.
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
Bret Griffin
Alex Finn
Audit expert
Auditor in charge
Zurich, 14 March 2018
Swiss Reinsurance Company Consolidated 2017 Annual Report 103
Financial statements
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 2017, the Company employed
a worldwide staff at an average of 1 930 full time equivalents.
Financial year 2017
The Company further aligned the legal entity structure with the management view and thus transferred risks allocated to the
Life Capital Business Unit to Swiss Re Life Capital Re Ltd via novation and retrocession transactions, effective 1 January 2017.
In addition, the Company was affected by several intragroup transactions in preparation of the redomiciliation of Swiss Re Asia
Ltd from Switzerland to Singapore per year-end 2017. Effective 1 October 2017, the Company assumed the Canadian life and
health business, which was previously novated from Swiss Re Asia Ltd to Swiss Re Life Capital Re Ltd. Furthermore, the
Company entered into a new intragroup agreement with Swiss Re Asia Ltd to cover the property and casualty business originally
written in the Asian branches of the Company and retroceded to Swiss Re Asia Ltd.
The aforementioned intragroup transactions were all performed at Swiss statutory book value and hence did not impact the
Company’s net income at inception, but significantly affected various balance sheet and income statement positions in 2017.
Net income for 2017 amounted to CHF 1 209 million, benefiting from a very strong investment result of CHF 2 546 million, partly
offset by several large natural catastrophe losses, namely the three hurricane events Harvey, Irma and Maria as well as the
California Wildfires. These events amounted to direct incurred losses of CHF 1 597 million and additionally triggered claims of
CHF 842 million from stop loss programmes with affiliated companies. These impacts were partly absorbed by a subsequent
release of the equalisation provision of CHF 1 323 million.
With CHF 10 821 million the total shareholder’s equity of the Company remained strong as at 31 December 2017.
104 Swiss Reinsurance Company Ltd 2017 Annual Report
Reinsurance result
Reinsurance result amounted to CHF 227 million in 2017, compared to CHF 1 238 million in 2016. Property and Casualty
Reinsurance result decreased from CHF 1 522 million in 2016 to CHF 354 million in 2017, significantly impacted by large natural
catastrophe losses and the deterioration on large casualty transactions in the US, partly absorbed by a subsequent release of the
equalisation provision. Life & Health Reinsurance result experienced a loss of CHF 127 million in 2017, compared to a loss of
CHF 284 million in 2016. This loss in 2017 was driven by negative impacts from Swiss Re Life & Health Australia Ltd, due to a
true-up of the modified coinsurance balance as at 31 December 2016, as well as by a large transaction in Europe.
Premiums earned decreased from CHF 17 580 million in 2016 to CHF 17 421 million in 2017. Property and casualty premiums
earned increased from CHF 11 237 million in 2016 to CHF 11 312 million in 2017. The increase was predominately driven by the
growth in the US casualty business, partly offset by a volume decrease in the agriculture business in Asia as well as negative
cedent updates in Europe. Life and health premiums earned decreased from CHF 6 343 million in 2016 to CHF 6 109 million in
2017. This was stemming from the lower business volume renewed in Europe, as well as the impact of the business novated to
Swiss Re Life Capital Re Ltd in 2017.
Other reinsurance revenue increased from CHF 1 003 million in 2016 to CHF 1 439 million in 2017. The increase was driven by
favourable fair value adjustments in the Canadian life and health business and higher interest income on cash deposit from life
and health transactions in the US.
Claims incurred increased from CHF 12 042 million in 2016 to CHF 13 098 million in 2017, mainly due to large natural
catastrophe losses, partly absorbed by a subsequent release of the equalisation provision in 2017. The comparison of the
individual claims line items was affected by large intragroup restructurings as well as new large life and health transactions,
creating substantial changes year-over-year. In aggregate, these various movements fully offset each other.
Property and casualty claims paid and claims adjustment expenses net increased from CHF 389 million in 2016 to
CHF 3 922 million in 2017, driven by a new intragroup retrocession agreement with Swiss Re Asia Ltd as well as the growth in
motor, accident and health businesses and higher loss ratio in large casualty transactions in the US. The aforementioned
restructuring impacts were fully offset in change in unpaid claims net for the property and casualty business, which in
consequence decreased from CHF 6 278 million in 2016 to CHF 5 393 million in 2017, despite the large natural catastrophe
events mostly in property business.
As a consequence of property and casualty losses in 2017, driven by the large natural catastrophe events, the equalisation
provision was reduced by CHF 1 323 million.
Life and health benefits net changed from a loss of CHF 3 653 million in 2016 to a gain of CHF 3 492 million in 2017, mainly due
to the intragroup retrocession restructurings, primarily with Swiss Re Life Capital Re Ltd and Swiss Re Asia Ltd, as well as large
transactions with external cedents. These aforementioned restructuring and large transaction impacts were fully offset in life and
health claims paid and claims adjustment expenses net, which changed from a gain of CHF 241 million in 2016 to a loss of
CHF 8 814 million in 2017, as well as in change in unpaid claims, which changed from a loss of CHF 1 963 million in 2016 to a
gain of CHF 216 million in 2017.
Acquisition costs net increased from CHF 4 150 million in 2016 to CHF 4 333 million in 2017, mainly in life and health business,
driven by a profit commission adjustment in Australia and the new business in the US with exceptionally high commission ratio.
Other reinsurance expenses increased from CHF 646 million in 2016 to CHF 878 million in 2017, driven by interest on cash
deposits paid to Swiss Re Life Capital Re Ltd and an unfavourable day-one impact of a large transaction bound in Europe in 2017.
Swiss Reinsurance Company Ltd 2017 Annual Report 105
Financial statements
Swiss Reinsurance Company Ltd
Investment result
Investment income increased from CHF 1 779 million in 2016 to CHF 3 246 million in 2017. The increase was mainly driven by
the dividend from Swiss Re Reinsurance Holding Company Ltd of CHF 974 million and the distribution of the retained income
from shares in investment funds of CHF 568 million. In addition, the year under report benefitted by CHF 227 million from
one-off value readjustments on fixed income securities up to amortised cost, following the new accounting policy introduced in
2017.
Investment expenses decreased from CHF 695 million in 2016 to CHF 317 million in 2017, which was mainly related to higher
value adjustments on fixed income securities in 2016, driven by market deteriorations.
Other income and expenses
The increase in other net expenses from CHF 158 million in 2016 to CHF 479 million in 2017 was mainly due to lower net
realised foreign exchange gains in 2017, compared to the prior year.
Extraordinary income and expenses
The 2017 net income contained an extraordinary expense of CHF 226 million, which was caused by a correction of an
overstatement of the 2016 income statement in the same amount. The overstatement in 2016 resulted from an incorrect
recognition of foreign exchange rate adjustments on cross currency interest rate swaps through the income statement instead of
adjusting only the notional of these derivative financial instruments on the balance sheet.
Assets
Total assets increased from CHF 101 291 million as of 31 December 2016 to CHF 113 052 million as of 31 December 2017.
Total investments increased slightly from CHF 54 295 million to CHF 54 410 million in 2017, mainly driven by the increase in
shares in investment funds of CHF 2 904 million, mostly in connection with proceeds reinvested from the change in the structure
of reinsurance intragroup retrocession agreements with affiliated companies. This was largely offset by the decrease in short-term
investments of CHF 2 484 million, mainly related to the partial funding of the dividend to the parent company and net repayments
of loans CHF 659 million primarily from intragroup companies.
Assets in derivative financial instruments decreased from CHF 1 108 million to CHF 822 million in 2017, mainly driven by less held
hedge instruments in connection with the life and health variable annuities business due to the run-off of a closed book and the
positive market performance of the underlying business.
Funds held by ceding companies increased from CHF 18 840 million to CHF 20 913 million in 2017, mainly related to the
property and casualty business in the US, as a result of the business volume growth, higher fund withheld percentage on
intragroup treaty and large losses. In addition, life and health funds held increased, mainly due to a new intragroup transaction
with Swiss Re Life Capital Re Ltd covering the Canadian in-force business.
Deferred acquisition costs increased from CHF 1 595 million to CHF 2 220 million in 2017, mostly driven by a new property and
casualty intragroup retrocession agreement with Swiss Re Asia Ltd.
Reinsurance recoverable on technical provisions retroceded increased from CHF 8 708 million to CHF 13 380 million in 2017,
mainly in life and health business, due to a new intragroup retrocession agreement with Swiss Re Life Capital Re Ltd for the Life
Capital business.
Premiums and other receivables from reinsurance increased from CHF 8 473 million to CHF 12 615 million in 2017, reflecting the
decommissioning of the asset and liability netting process in 2017. In 2016, this process reduced the receivable and the payable
balances by CHF 2 645 million, mainly related to intragroup transactions.
Accrued income increased from CHF 336 million to CHF 1 258 million in 2017, mainly related to the dividend from Swiss Re
Reinsurance Holding Company Ltd, to be paid by the subsidiary in 2018.
106 Swiss Reinsurance Company Ltd 2017 Annual Report
Liabilities
Total liabilities increased from CHF 89 089 million as of 31 December 2016 to CHF 102 231 million as of 31 December 2017.
Technical provisions gross increased from CHF 64 322 million to CHF 70 798 million in 2017, mainly in property and casualty
business, driven by large natural catastrophe losses, net of the equalisation provision release, as well as the business volume
growth and the deterioration on motor loss ratio in the US. Further, technical provisions also increased as a result of the new
intragroup retrocession agreements with affiliated companies.
Liabilities in derivative financial instruments decreased from CHF 1 877 million to CHF 1 313 million in 2017, mainly driven by
less held derivative financial instruments in connection with the life and health variable annuities business due to the run-off of a
closed book and the positive market performance of the underlying business.
Funds held under reinsurance treaties increased from CHF 3 789 million to CHF 8 050 million in 2017, mostly in life and health
business, reflecting a new intragroup retrocession agreement with Swiss Re Life Capital Re Ltd covering the Life Capital
business.
Reinsurance balances payable increased from CHF 2 898 million to CHF 6 378 million in 2017, reflecting the decommissioning
of the asset and liability netting process in 2017. In 2016, this process reduced the receivable and the payable balances by
CHF 2 645 million, mainly related to intragroup transactions.
Debt increased by CHF 1 424 million to CHF 5 130 million in 2017, mainly reflecting the net change of a new loan facility from
Swiss Re Reinsurance Holding Company Ltd of CHF 1 876 million and an existing loan facility from Swiss Re Ltd of
CHF 542 million, partly offset by the maturity of an external debt of CHF 600 million.
Other liabilities decreased from CHF 6 396 million to CHF 5 572 million in 2017, mainly reflecting the reduction of intragroup
payables under securities lending agreements and securities sold under agreement to repurchase, partly offset by higher
intragroup current account payables.
The decrease in subordinated liabilities of CHF 781 million to CHF 3 758 million in 2017 was mainly driven by the maturity of
external subordinated debts.
Shareholder’s equity
Shareholder’s equity decreased from CHF 12 202 million as of 31 December 2016 to CHF 10 821 million as of 31 December 2017.
The decrease reflected the dividend payment in cash of CHF 2 590 million partly offset by the net income for the financial year
2017 of CHF 1 209 million.
Future prospects and business development
Subsequent event
In the context of the “Tax Cuts and Jobs Act of 2017” in the US, the Company is currently reassessing its intercompany structure
with the affiliated companies Swiss Reinsurance America Corporation and Swiss Re Life & Health America Inc and their
subsidiaries. It is expected that several intragroup retrocession agreements will either be recaptured, novated or not renewed in the
course of 2018. While the financial impact can not be quantified at the date of approving the Company’s 2017 financial statements,
it is assumed that significant impacts to the Company’s balance sheet and income statement are expected in 2018.
Large transactions
Following the redomiciliation of Swiss Re Asia Ltd from Switzerland to Singapore per year-end 2017, the Company is going to sell
any assets and liabilities of its Singapore branch to Swiss Re Asia Ltd, effective 1 January 2018. With this sale the Company will
transfer any related rights and obligations of the branch to Swiss Re Asia Ltd, including the entire reinsurance business as well as
the employees, employed by the branch. Furthermore, the Company will sell its remaining Asian branches to Swiss Re Asia Ltd in
the upcoming years.
Swiss Reinsurance Company Ltd 2017 Annual Report 107
Financial statements
Swiss Reinsurance Company Ltd
Property & Casualty Reinsurance business
Market environment
The capital position of global reinsurers was more or less stable over the recent years. Capital growth has been managed
increasingly via dividend payments and share buy-back programmes, hence returning almost all of the industry´s net income to
shareholders. Nevertheless, there was still some excess capital in traditional reinsurance by mid 2017, and this has been
significantly reduced by the losses from hurricanes Harvey, Irma and Maria.
Strategy and priorities
The three major hurricane events of 2017 led to rate hardening for both for loss-affected accounts, and to a lesser extent for
loss-free accounts at the January 2018 renewals. Capital abundance in traditional reinsurance has been reduced, and alternative
capacity will require additional funds from investors to operate at the same level as before the hurricane losses.
In 2018, advanced markets non-life reinsurance premium growth will likely reflect a hardening of rates and slightly stronger
nominal growth in the primary market. Demand should also be supported by new solvency regulations: non-life reinsurance has
become more attractive for European insurers under Solvency II, since it better reflects the risk mitigating effect of reinsurance.
Life & Health Reinsurance business
Market environment
The life reinsurance industry registered a 4% increase in premiums written in 2017. Underlying reinsurance premium growth in
traditional reinsurance areas like mortality and morbidity risk has remained relatively subdued this year with an estimated growth
rate of 1% in real terms in 2017. In mature markets, slight contractions in the US and UK were set off by positive developments in
Canada, Japan, Australia, and Continental Europe. In the emerging markets, premiums grew by 11%, driven largely by China, with
other emerging markets seeing more modest growth.
Against this background, life reinsurers have sought to increase revenues through large, individual risk transfer transactions that
help primary insurers stabilise income and/or bolster their balance sheets. The introduction of risk-based capital regimes has
prompted much of this activity. In Europe, for example, Solvency II has underpinned interest in reinsurance to boost available
capital, reduce required regulatory capital or to economise on reserves.
Strategy and priorities
Continued recovery in primary insurance should support growth in life reinsurance revenues, including a recovery in traditional
renewable business. Premium growth will nonetheless likely remain modest, especially in the large advanced markets. In real
terms, global life reinsurance premiums are forecast to increase by just over 1% in 2018. Premiums in the advanced markets are
projected to decline after adjusting for inflation, driven by developments in the US where cession rates continue their long-term
down trend and growth in the primary market remains weak. In Western Europe, where cession rates are usually lower,
reinsurance premiums are forecast to grow by about 1%. The strongest contribution to real growth in the advanced markets will
likely come from developed Asia.
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 economic outlook, the moderate global growth environment is set to continue during 2018, both in developed
and emerging market economies, while inflation is forecast to modestly increase globally. From a regional perspective, growth is
set to stay solid in the Eurozone and the US where it is supported by expected improvements in US corporate earnings from the
recently passed tax reform legislation, while growth for China is expected to slow somewhat in 2018. For the UK, growth is
expected to be more modest amid continued Brexit-related uncertainty.
108 Swiss Reinsurance Company Ltd 2017 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 for the Company and its subsidiaries. In executing this task, the 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.
̤ 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 certain legal
entity CROs, including the CRO of Swiss Reinsurance Company Ltd.
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 comprises risk teams for legal entities and regions as well as central
teams that provide specialised risk expertise and oversight.
Legal entity risk teams of the Company and its subsidiaries are led by dedicated CROs who report directly or indirectly to their
top-level CRO (Company CRO), who reports to the Group CRO, with a secondary reporting line to the Company CEO. These legal
entity CROs are responsible for risk oversight in their respective legal entities, as well as for establishing the proper risk
governance to ensure efficient risk identification, assessment and control.
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 dedicated 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 dedicated CROs at Group and legal entity level 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 Company and its subsidiaries, the setting of the reserves is performed by valuation actuaries within the P&C and L&H
Business Management units. 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 Group Board of Directors, Executive Committees and other management bodies in identifying,
mitigating and managing compliance risks.
Swiss Reinsurance Company Ltd 2017 Annual Report 109
Financial statements
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
2016
2017
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
22 529
–3 822
18 707
–918
–368
–1 286
17 421
1 439
383
19 243
–10 547
–2 189
–12 736
–6 289
1 112
–5 177
–408
3 900
3 492
–14 421
1 323
–13 098
–5 421
1 088
–4 333
–707
–5 040
–878
–19 016
Reinsurance result
1 238
227
110 Swiss Reinsurance Company Ltd 2017 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
Extraordinary income and expenses
Income before income tax expense
Income tax expense
Net income
Note
2
2016
2017
1 779
–695
–297
787
1 906
–2 254
1 677
–418
247
–405
–
1 101
–226
875
3 246
–317
–383
2 546
2 300
–2 559
2 514
–408
73
–552
–226
1 401
–192
1 209
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2017 Annual Report 111
Financial statements
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
2016
2017
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
13 175
17 345
8 093
809
906
12 101
1 354
627
14 082
54 410
822
20 913
884
5 877
5 592
1 863
48
13 380
14
2 220
106
12 615
158
6 272
1 258
58 642
3
3
3
3
3
3
18
Total assets
101 291
113 052
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
112 Swiss Reinsurance Company Ltd 2017 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
2016
2017
3
3
3
3
3
3
4
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
46 096
15 872
8 027
582
221
70 798
190
679
162
1 031
5 129
1 313
8 050
6 378
5 572
202
3 758
89 089
102 231
34
6 778
6 778
650
3 839
26
875
12 202
34
6 778
6 778
650
2 099
51
1 209
10 821
Total liabilities and shareholder’s equity
101 291
113 052
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2017 Annual Report 113
Financial statements
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 changes
Swiss Re Group restructured its Canadian life and health business in 2017. This business is originally ceded from external parties
to the Canada branch of the Company. Prior to the restructuring, the branch retroceded a large share of this business to Swiss Re
Asia Ltd. With the restructuring, Swiss Re Asia Ltd novates this business to Swiss Re Life Capital Re Ltd, which then retrocedes
the majority of this received business to the Company by applying the same terms and conditions. As such on a legal entity view,
the Company discloses this business in its 2017 financial statements on a gross basis. Hence, both, the assumed external and
the assumed internal business as well as the internal retroceded business are reflected on various balance sheet and income
statement positions.
The same gross presentation is used for a newly set up intragroup property and casualty retrocession agreement between
Swiss Re Asia Ltd and the Company in connection with business originally written in the Asian branches of the Company and
retroceded to Swiss Re Asia Ltd.
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 2017 financial year comprises the accounting period from 1 January 2017 to 31 December 2017.
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
Investments in subsidiaries and affiliated companies are carried at cost, less necessary and legally permissible depreciation.
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.
Fixed income securities are measured at their amortised cost for the first time in 2017. Until the year-end 2016, fixed income
securities were carried at cost, less necessary and legally permissible depreciation. The effect of this change as of 1 January
2017 was CHF 227 million.
114 Swiss Reinsurance Company Ltd 2017 Annual Report
The following assets are carried at cost or lower market value:
̤ Equity securities
̤ Shares in investment funds
̤ Alternative investments
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 measured at their amortised cost.
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.
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. However,
for back-to-back deals where the Company enters into two identical, but opposite directed derivatives, both derivatives were
recorded at market value for the first time in 2017. The effect of this change amounted to CHF 264 million in 2017.
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”.
Reinsurance business written by branches of the Company that is retroceded to affiliated companies, which is then retroceded
back to the Company is presented on a gross basis.
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.
Swiss Reinsurance Company Ltd 2017 Annual Report 115
Financial statements
Swiss Reinsurance Company Ltd
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.
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.
Reinsurance business written by branches of the Company that is retroceded to affiliated companies, which is then retroceded
back to the Company is presented on a gross basis.
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.
116 Swiss Reinsurance Company Ltd 2017 Annual Report
Debt
Debt is held at redemption value.
Liabilities from derivative financial instruments
Liabilities from derivative financial instruments are generally maintained at the highest commitment amount as per a balance
sheet date during the life of the underlying contracts. Premiums received in respect of derivative financial instruments are
generally not realised until expiration or settlement of the contract and are deferred respectively.
Included in this position are reinsurance contracts or features embedded in reinsurance contracts that fulfil the characteristics
of derivative financial instruments. For such contracts, premiums received may be recognised as income prior to contract
expiration or settlement, in cases where the recorded commitment has already reached the maximum liability amount potentially
payable under the terms of the respective contracts. Decreases in the liability amounts prior to expiration or settlement are
only recognised as income for contracts for which hedging instruments are in place.
Funds held under reinsurance treaties
Funds held under reinsurance treaties mainly contain cash deposits withheld from retrocessionaires, which are stated at
redemption value.
Reinsurance balances payable
Reinsurance balances payable are held at redemption value. The position mainly consists of payables to insurance companies
and brokers.
Other liabilities
Other liabilities include rights in connection with repurchase agreements and securities lending transactions, which are held at
redemption value.
Subordinated liabilities
Subordinated liabilities are held at redemption value.
Deposit arrangements
Contracts which do not meet risk transfer requirements, defined as transferring a reasonable probability of a significant loss to
the reinsurer, are accounted 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.
Swiss Reinsurance Company Ltd 2017 Annual Report 117
Financial statements
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
978
515
216
5
20
573
18
39
630
142
2 506
Value
readjustments
Realised
gains
–
226
0
–
9
63
–
19
82
–
317
0
162
–
–
173
88
0
0
88
–
423
Expenses
Value
adjustments
Realised
losses
–
–
–
–
–
–
–
–
–196
–196
0
0
–7
–19
–7
–
–11
–18
–
–44
–
–66
–
–9
–
–2
0
–2
–
–77
2017
Total
978
903
216
5
202
724
18
58
800
142
3 246
2017
Total
0
–66
–7
–28
–7
–2
–11
–20
–196
–317
–383
2 546
118 Swiss Reinsurance Company Ltd 2017 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
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
Swiss Reinsurance Company Ltd 2017 Annual Report 119
Financial statements
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
2 334
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 4733
180
34 633
14 021
4 924
492
1 544
2 8983
Gross
2 833
11 491
231
46 096
15 872
8 027
582
221
3 768
Retro
–613
1 124
–22
–5 8771
–5 5921
–1 8631
–481
–
2 610
2017
Net
2 220
12 6153
209
40 219
10 280
6 164
534
221
6 3783
1 Reported under "Reinsurance recoverable on technical provisions retroceded" on page 112.
2 Reported under "Other assets" on page 112.
3 In 2017, the netting process of assets and liabilities from reinsurance towards the same counterparty was decommissioned. This led to a gross-up of the receivables from
reinsurance as well as the reinsurance balances payable. The effect of such a gross-up in 2016 was CHF 2 645 million.
4 Change in shareholder’s equity
CHF millions
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
Shareholder’s equity 1.1.2017
Allocations relating to the dividend paid
Dividend for the financial year 2016
Net income for the financial year
Shareholder’s equity 31.12.2017
Share
capital
34
Legal capital
reserves
6 778
Legal profit
reserves
650
Voluntary profit
reserves
272
6 500
–2 933
Retained earnings
brought forward
94
–68
Net income for
the financial year
6 432
–6 432
34
34
6 778
650
3 839
6 778
650
3 839
850
–2 590
34
6 778
650
2 099
26
26
25
51
875
875
875
–875
1 209
1 209
Total shareholder’s
equity
14 260
–
–2 933
875
12 202
12 202
–
–2 590
1 209
10 821
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 2017 and 2016,
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.
The Company is part of the Swiss Re value added tax (VAT) group and is therefore jointly liable for existing and future VAT claims
from the Swiss Federal Tax Administration.
In addition, as a component of the Swiss Re Group’s financing structure, the Company has guaranteed CHF 974 million
(2016: CHF 1 016 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 2017 and 2016, respectively.
120 Swiss Reinsurance Company Ltd 2017 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
2016
16 336
16 066
32 402
2017
15 439
18 657
34 096
To secure the technical provisions at the 2017 balance sheet date, securities with a book value of CHF 12 927 million
(2016: CHF 14 009 million) were deposited in favour of ceding companies, of which CHF 3 513 million (2016: CHF 4 088 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 2017, total commitments
remaining uncalled were CHF 1 305 million (2016: CHF 495 million).
The Company has entered into subordinated funding facilities with its parent company Swiss Re Ltd under which the Company
has the right, among others, to issue subordinated notes to Swiss Re Ltd at any time. For its various rights, the Company owes
Swiss Re Ltd an unconditional fixed commitment fee on the total facility amount, payable in annual instalments. Annually, the
Company receives a partial reimbursement of the commitment fee on the undrawn facility amount. As of 31 December 2017
and 2016, the facilities were undrawn.
An overview of the subordinated funding facilities is provided in the following table:
Instrument
Subordinated funding facility
Subordinated funding facility
Subordinated funding facility
Lender
Swiss Re Ltd
Swiss Re Ltd
Swiss Re Ltd
Issued in
2015
2016
2016
Maturity
2030
2036
2032
Currency
USD
USD
USD
Nominal value
in millions
700
400
800
Commitment fee
(on total facility
amount)
5.80%
6.10%
5.68%
Partial reimbursement
of commitment fee
(on undrawn amount)
2.22%
2.13%
1.95%
Swiss Reinsurance Company Ltd 2017 Annual Report 121
Financial statements
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
2017
2018
2019
2020
2021
After 2022
Total operating leases, net
2016
11
6
4
4
4
6
35
2017
–
39
38
29
7
8
121
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 2017 and 2016, Swiss Reinsurance Company Ltd held the following direct and material indirect investments
in subsidiaries and affiliated companies:
Country
Barbados
Barbados
As of 31 December 2017
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 Investments Ltd
Swiss Re Life and Health Africa Limited
Swiss Re Mexico Servicios, S. de R.L. de C.V.
Swiss Re Private Equity Partners SGP Limited
Swiss Re Reinsurance Holding Company Ltd
Swiss Pillar Investments 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 Holding Pte. Ltd.
Swiss Re Asia Pte. Ltd.1
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
Switzerland
South Africa
Mexico
Cayman Islands
Switzerland
Switzerland
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
United States (USA)
Singapore
Singapore
Luxembourg
Luxembourg
Germany
United Kingdom (UK)
India
United Kingdom (UK)
Brazil
Cayman Islands
Vietnam
Brazil
1 Former Swiss Re Asia Ltd, Switzerland, Zurich, prior to its redomiciliation to Singapore as at 31 December 2017
122 Swiss Reinsurance Company Ltd 2017 Annual Report
City
Bridgetown
Bridgetown
Mexico City
Sydney
Sydney
São Paulo
Zurich
Cape Town
Mexico City
George Town
Zurich
Zurich
Wilmington
New York
Wilmington
Wilmington
Wilmington
Wilmington
Armonk
Singapore
Singapore
Luxembourg
Luxembourg
Munich
London
Mumbai
London
São Paulo
São Paulo
George Town
Hanoi
%
Equity interest
100%
100%
100%
100%
100%
99%
100%
100%
98%
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%
99%
100%
100%
98%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
94%
100%
100%
100%
20%
93%
100%
25%
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%
Swiss Reinsurance Company Ltd 2017 Annual Report 123
Financial statements
Swiss Reinsurance Company Ltd
12 Debt and subordinated liabilities
The Company had outstanding debt and subordinated liabilities at the 2017 balance sheet date of CHF 8 888 million
(2016: CHF 8 245 million). Thereof CHF 7 510 million (2016: CHF 5 978 million) were due within one to five years and
CHF 1 378 million (2016: CHF 2 267 million) were due after five years.
As of 31 December 2017, the following public placed debentures were outstanding:
Instrument
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Senior bond
Subordinated bond
Senior bond
Issued in
2012
2013
2007
2013
2012
2014
2015
2015
Currency
USD
USD
GBP
CHF
EUR
CHF
EUR
CHF
Nominal
in millions
750
750
500
175
500
250
750
250
Interest rate
8.250%
6.375%
6.302%
7.500%
6.625%
1.000%
2.600%
0.750%
Maturity/
First call in
2018
2019
2019
2020
2022
2024
2025
2027
Book value
CHF millions
731
731
659
175
585
250
878
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
2016
96
1
0
–3
–47
110
514
923
14 Claims on and obligations towards affiliated companies
CHF millions
Loans
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
2016
8 743
13 533
2 7191
86
1 9412
2 6053
300
3 664
1 8611
4 9374
1 In 2017, the netting process of assets and liabilities from reinsurance towards the same counterparty was decommissioned. This led to
a gross-up of the receivables from reinsurance as well as the reinsurance balances payable. The effect of such a gross-up for intercompany
balances in 2016 was CHF 2 377 million.
2 Thereof at the 2017 balance sheet date CHF 2 million (2016: none) were towards the parent company Swiss Re Ltd.
3 Thereof at the 2017 balance sheet date CHF 2 720 million (2016: CHF 2 178 million) were towards the parent company Swiss Re Ltd.
4 Thereof at the 2017 balance sheet date CHF 733 million (2016: CHF 127 million) were towards the parent company Swiss Re Ltd.
2017
66
3
2
–3
–38
86
842
1 385
2017
8 025
15 051
6 7981
21
1 9082
4 6293
149
7 913
5 3351
4 6044
124 Swiss Reinsurance Company Ltd 2017 Annual Report
15 Release of undisclosed reserves
In 2017, no net release of undisclosed reserves (2016: CHF 253 million).
16 Obligations towards employee pension fund
As of 31 December 2017, other liabilities included CHF 1 million (2016: CHF 1 million) payable to the employee pension fund.
17 Personnel information
As of 31 December 2017, the Company employed a worldwide staff at an average of 1 930 (2016: 1 846) full time equivalents.
Personnel expenses for the 2017 financial year amounted to CHF 440 million (2016: CHF 440 million).
18 Accrued income from subsidiaries and affiliated companies
Accrued income mainly consists of the dividend income of CHF 974 million from Swiss Re Reinsurance Holding Company Ltd in
accordance with the resolution of the shareholder‘s Annual General Meeting of 12 March 2018. Based on the economic view
this dividend, to be paid by the subsidiary in 2018, was already recorded in the Company‘s financial statements as of 2017.
19 Extraordinary income and expenses
The 2017 net income contains extraordinary expenses of CHF 226 million, which was caused by a correction of an
overstatement of the 2016 income statement in the same amount. The overstatement in 2016 resulted from an incorrect
recognition of foreign exchange rate adjustments on cross currency interest rate swaps through the income statement instead of
adjusting only the notional of these derivative financial instruments on the balance sheet.
20 Auditor’s fees
In 2017, the Swiss Re Group incurred total auditor’s fees of CHF 30 million (2016: CHF 33 million) and additional fees of
CHF 2 million (2016: CHF 4 million), of which CHF 3 million (2016: CHF 3 million) and CHF 1 million (2016: CHF 1 million),
respectively, incurred for the Company.
21 Subsequent events
In the context of the “Tax Cuts and Jobs Act of 2017” in the US, the Company is currently reassessing its intercompany structure
with the affiliated companies Swiss Reinsurance America Corporation and Swiss Re Life & Health America Inc and their
subsidiaries. It is expected that several intragroup retrocession agreements will either be recaptured, novated or not renewed in the
course of 2018. While the financial impact can not be quantified at the date of approving the Company’s 2017 financial statements,
it is assumed that significant impacts to the Company’s balance sheet and income statement are expected in 2018.
Swiss Reinsurance Company Ltd 2017 Annual Report 125
Financial statements
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 26 March 2018, to approve the
following allocation and payment of a cash dividend of USD 1 950 million, which must not exceed CHF 2 100 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 28 March 2018.
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 2 100 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 2 100 million. This threshold of CHF 2 100 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)
Voluntary profit reserves after proposed cash dividend
2016
26
875
901
–850
51
2016
3 839
850
4 689
–2 5902
2 099
2017
51
1 209
1 260
–1 200
60
2017
2 099
1 200
3 299
–2 1001
1 199
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 2016 figure was recalculated based on the final cash dividend converted into CHF at spot rate on the settlement date.
Zurich, 14 March 2018
126 Swiss Reinsurance Company Ltd 2017 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 110 to 125) for the year ended 31 December 2017.
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 about 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 2017 comply with Swiss law and the Company’s
Articles of Association.
Swiss Reinsurance Company Ltd 2017 Annual Report 127
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.
Investment valuation continues to be an area with inherent risk
for investments with no observable market price. 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 and valuation
requires unobservable or interpolated inputs and complex
valuation models:
̤ Fixed income securitised products
̤ Fixed income mortgage and asset-backed securities
̤ Public placements and infrastructure loans
̤ Private equities
̤ Derivatives
̤ 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 around the valuation
models for certain investments, including the Company’s
independent price verification process. We also tested
management’s data integrity and change management
controls relating to the valuation models.
In relation to the matters set out opposite, our substantive
testing procedures included the following:
̤ Challenging the Company’s 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.
̤ Engaging our own valuation experts to perform
independent valuations of selected investments.
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 2017.
Risk of inappropriate Swiss statutory financial reporting over investments
Key audit matter
Based on the derivative financial instrument error in 2016,
which led to an overstatement of the income statement by
CHF 226 million (as disclosed in note 19), we identified a
significant risk in regards of inappropriate Swiss statutory
financial reporting over investments. There is a risk of
overstatement of the net income due to inappropriate
treatment of investment gains based on the statutory
accounting principles.
How our audit addressed the key audit matter
In relation to the matters set out opposite, our testing
procedures included the following:
̤ Assessing and testing of the US GAAP to statutory walks.
̤ Critically reviewing the derivative portfolio as well as the
gains and losses booked for US GAAP and statutory
reporting.
̤ Testing application of adjusted accounting principles in
regards of the back-to-back derivatives which are now
valued at fair value in line with US GAAP.
̤ Assessing appropriate disclosure of error correction and
change in accounting principles.
̤ Testing of the investment reconciliations.
On the basis of the work performed, we note proper reporting
of the investment balances as of 31 December 2017.
128 Swiss Reinsurance Company Ltd 2017 Annual Report
Valuation of actuarially determined Property & Casualty (‘P&C’) loss reserves
Key audit matter
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 reserves. 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 key factors and 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, loss reserves for ‘long tail’ lines of business (for
example, the Liability, US Asbestos and Environmental, Motor
Liability and Workers’ Compensation portfolios) 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
claim settlements are often less frequent but of higher
magnitude. 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.
Moreover, not all natural catastrophe events and significant
man-made losses can be modelled using traditional actuarial
methodologies, which increases the degree of judgement
needed in establishing reserves for these events.
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
independently test management’s estimates of P&C loss
reserves, and evaluate 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
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 to determine the impact of
selected key assumptions.
̤ 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, methods, assumptions and underlying data
used in the valuation of actuarially determined P&C loss
reserves are reasonable and in line with financial reporting
requirements and accepted industry practice.
Swiss Reinsurance Company Ltd 2017 Annual Report 129
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, methods, 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 valuation-method
inputs.
The impairment assessment is considered a key audit matter
due to the considerable judgement in the valuation model and
inputs applied.
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.
̤ Engaging our internal valuation specialists to assist in the
testing of key assumptions and inputs.
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 values for all
investments in subsidiaries is recoverable.
130 Swiss Reinsurance Company Ltd 2017 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. We recommend that the financial statements submitted to you be approved.
PricewaterhouseCoopers Ltd
Alex Finn
Audit expert
Auditor in charge
Bret Griffin
Zurich, 14 March 2018
Swiss Reinsurance Company Ltd 2017 Annual Report 131
General information
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;
132 Swiss Reinsurance Company Consolidated 2017 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.
This communication is not intended to be a recommendation to buy, sell or hold
securities and does not constitute an offer for the sale of, or the solicitation of an offer
to buy, securities in any jurisdiction, including the United States. Any such offer will
only be made by means of a prospectus or offering memorandum, and in compliance
with applicable securities laws.
Swiss Reinsurance Company Consolidated 2017 Annual Report 133
General information
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.
Growth forecasts among the principal global economies remain uneven and
uncertain in an environment of elevated political uncertainty. The planned
withdrawal of the United Kingdom from the European Union has created uncertainty
not only for the United Kingdom but for the rest of the European Union, and
negotiations over withdrawal will likely continue to contribute to volatility and pose
significant challenges for the European Union and the United Kingdom. The long-
term effects of a withdrawal of the United Kingdom from the European Union 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 in the context of a broader economic slowdown were it to occur. 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 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 (albeit hardening) 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.
134 Swiss Reinsurance Company Consolidated 2017 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”).
While certain regulatory processes are designed in part to foster convergence and
achieve recognition of group supervisory schemes, the Group continues to face risks of
extra-territorial application of regulations, particularly as to group supervision and
group solvency requirements. 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.
While in recent years there has been an evolving focus on classifying certain insurance
companies as systemically important, it is unclear whether and, if so, in what form
reforms will be enacted. The Swiss Re Group could be designated as a global
systemically important insurer (“G-SIIs”) 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. The International Association of
Insurance Supervisors, an international body that represents insurance regulators and
supervisors, has published and since refined the methodology for identifying G-SIIs.
Were the Group to be designated as a G-SII, it could be subject to one or both of the
resulting regimes, including capital standards (the basic capital requirement for G-SIIs),
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 regarding the future
relationship between the United Kingdom and the European Union could also impact
the legislative and/or regulatory regimes to which the Group is subject, both in the
United Kingdom and in the European Union.
Swiss Reinsurance Company Consolidated 2017 Annual Report 135
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Note on risk factors
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. Recently enacted
changes to the US tax regime is prompting the Group to consider modifications to its
operating model for its US business. These changes, or inconsistencies between the
various regimes that apply to the Group, could increase the costs of doing business
(including due to increased capital requirements), 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 reinsurance industry, 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.
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.
136 Swiss Reinsurance Company Consolidated 2017 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 reinsurance 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 businesses (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 2017 Annual Report 137
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Note on risk factors
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 and/or the ratings of its key legal entities.
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 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 the Group’s 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.
138 Swiss Reinsurance Company Consolidated 2017 Annual Report
The Group is also involved, from time to time, in investigations and regulatory
proceedings, which could result in adverse judgments, settlements, fines and other
outcomes. The number of these investigations and proceedings involving the
financial services industry has increased in recent years, and the potential scope of
these investigations and proceedings has also increased, not only in respect of
matters covered by 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.
Aggressive tax enforcement is becoming a higher priority for many tax authorities
and 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 risk
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 natural disasters, such as
hurricanes, windstorms, floods, earthquakes, and man-made disasters, such as acts
of terrorism and other disasters such as industrial accidents, explosions, and fires,
and pandemics) are inherently unpredictable in terms of both their frequency and
severity and have exposed, and 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; macro developments giving rise to emerging risks, such as climate
change and technological developments (including greater exposure to cyber risks
(where accumulation risk is yet to be fully understood, but also risks relating to
wearable health devices and autonomous cars), 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, including its
information technology networks and systems. 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, including as part of its risk models as well as those that
affect the reported amounts of assets, liabilities, revenues and expenses in the
Group’s financial statements, including assumed and ceded business. For example,
the Group estimates premiums pending receipt of actual data from ceding
companies, which actual data could deviate from the estimates. In addition,
particularly with respect to large natural catastrophes, it may be difficult to estimate
losses, and preliminary estimates may be subject to a high degree of uncertainty and
change as new information becomes available. Deterioration in market conditions
could have an adverse impact on assumptions used for financial reporting purposes,
which could affect possible impairment of present value of future profits, fair value of
assets and liabilities, deferred acquisition costs or goodwill. Moreover, regulators
could require the use of standard models instead of permitting the use of internal
Swiss Reinsurance Company Consolidated 2017 Annual Report 139
General information
Note on risk factors
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 and the creation of
separate business units 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’s structure provides flexibility in the way in which it finances operations and
the Swiss Re Group expects that its structure will continue to evolve over time. In
2017, the Swiss Re Group entered into a transaction with MS&AD Insurance Group
Holdings Inc. (“MS&AD”) pursuant to which MS&AD agreed to invest in closed
books segment of the Swiss Re Group’s Life Capital business unit. While to date the
Group remains wholly owned by SRL, in the future, the Swiss Re Group may partner
(for purposes of acquisitions or otherwise) with other investors in, or within, one or
more of its business units or sub-groups within its business units (including the
Group), which, subject to applicable regulatory requirements, have the potential to
alter its 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 and board composition at the relevant corporate level. The Group’s
structure could also change in connection with acquisitions.
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.
140 Swiss Reinsurance Company Consolidated 2017 Annual Report
Swiss Reinsurance Company Ltd
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