Swiss Reinsurance Company
Consolidated
Annual Report 2018
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
6
8
10
12
12
21
31
35
36
52
53
61
71
75
78
81
88
91
92
96
102
102
108
110
112
124
125
130
132
Financial statements
Group financial 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 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
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/loss attributable to common shareholder
Note
2017
2018
4
4
3
3
7
7
7
3
3
3
11
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
31 182
28 746
32
28 778
154
2 601
367
–33
75
31 942
–11 614
–10 287
–7
–6 029
–2 180
–30 117
1 825
–601
1 224
–176
1 048
–37
1 011
–41
970
1 Total impairments for the years ended 31 December of USD 5 million in 2017 and nil in 2018, respectively, were fully recognised in earnings.
2 Total impairments for the years ended 31 December of USD 39 million in 2017 and USD 11 million in 2018, respectively, were fully recognised in earnings.
The accompanying notes are an integral part of the Group financial statements.
2 Swiss Reinsurance Company Consolidated 2018 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 net 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, net of tax
Comprehensive income attributable to non-controlling interests
Total comprehensive income attributable to common shareholder
The accompanying notes are an integral part of the Group financial statements.
2017
114
–6
2
410
262
17
799
–67
–65
667
2018
1 048
–1 483
–267
–14
–20
–736
–41
–17
–794
Swiss Reinsurance Company Consolidated 2018 Annual Report 3
Financial statements
Group financial statements
RECLASSIFICATION OUT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
For the years ended 31 December
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
2018
USD millions
Balance as of 1 January
Impact of Accounting Standards Updates4
Change during the period
Amounts reclassified out of accumulated
other comprehensive income
Tax
Balance as of period end
Net unrealised
investment
gains/losses1
2 070
1 884
Other-than-
temporary
impairment1
–5
3
Foreign currency
translation1, 2
–5 262
278
Adjustment for
pension benefits3
–999
299
Credit risk of
financial liabilities at
fair value option
0
Accumulated other
comprehensive
income
–4 196
2 464
–1 858
–32
2 064
Net unrealised
investment
gains/losses1
2 064
111
–2 083
1
–2
–3
–20
152
–4 852
28
–65
–737
–1 849
53
–3 528
0
Other-than-
temporary
impairment1
–3
Foreign currency
translation1, 2
–4 852
–3
–172
Adjustment for
pension benefits3
–737
–17
–78
Credit risk of
financial liabilities at
fair value option
0
5
Accumulated other
comprehensive
income
–3 528
96
–2 333
182
418
692
15
–110
–5 122
61
3
–768
–3
258
311
–5 196
5
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’’.
4 Impact of ASU 2018-02, ASU 2016-16 and ASU 2016-01. Please refer to Note 1 for more details.
The accompanying notes are an integral part of the Group financial statements.
4 Swiss Reinsurance Company Consolidated 2018 Annual Report
This page is intentionally left blank.
Swiss Reinsurance Company Consolidated 2018 Annual Report 5
Financial statements
Group financial statements
ASSETS
As of 31 December
USD millions
Investments
Fixed income securities:
Available-for-sale (including 11 219 in 2017 and 10 245 in 2018 subject to securities
lending and repurchase agreements) (amortised cost: 2017: 65 694; 2018: 64 850)
Trading (including 1 761 in 2017 and 2 599 in 2018 subject to securities
lending and repurchase agreements)
Equity securities:
Available-for-sale (including 241 in 2017 subject to securities lending and
repurchase agreements) (cost: 2017: 2 993)1
Trading1
At fair value through earnings (including 407 in 2018 subject to securities lending and
repurchase agreements)1
Policy loans, mortgages and other loans
Investment real estate
Short-term investments (including 284 in 2017 and 456 in 2018 subject to securities
lending and repurchase agreements)
Other invested assets
Investments for unit-linked business (including equity securities trading: 585 in 2017, equity
securities at fair value through earnings: 424 in 2018)
Total investments
Note
7, 8, 9
2017
2018
68 682
65 881
2 538
3 414
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
2 450
2 883
2 240
3 815
4 550
424
85 657
3 695
632
11 983
12 740
10 894
6 940
842
3 731
363
4 152
2 460
Cash and cash equivalents (including 262 in 2017 and 466 in 2018 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
11
Total assets
150 118
144 089
1Change due to ASU 2016-01. Please refer to Note 1 for more details.
The accompanying notes are an integral part of the Group financial statements.
6 Swiss Reinsurance Company Consolidated 2018 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
2017: 344 052 565; 2018: 344 052 565 shares authorised and issued
Additional paid-in capital
Treasury shares, net of tax
Accumulated other comprehensive income:
Net unrealised investment gains/losses, net of tax
Other-than-temporary impairment, net of tax
Foreign currency translation, net of tax
Adjustment for pension and other post-retirement benefits, net of tax
Credit risk of financial liabilities at fair value option, 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
2017
2018
5
8
11
10
7
10
58 221
19 361
5 764
8 487
11 429
2 592
412
4 935
2 826
7 783
8 114
129 924
750
32
8 690
–17
2 064
–3
–4 852
–737
–3 528
12 335
18 262
1 932
20 194
58 652
18 969
5 574
8 248
10 262
1 879
453
4 952
4 955
6 941
6 491
127 376
32
8 701
–19
692
–3
–5 122
–768
5
–5 196
11 246
14 764
1 949
16 713
150 118
144 089
Swiss Reinsurance Company Consolidated 2018 Annual Report 7
Financial statements
Group financial 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 in 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
Impact of ASU 2018-022
Impact of ASU 2016-162
Impact of ASU 2016-012
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
Impact of ASU 2018-022
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
Impact of ASU 2018-022
Changes during the period
Balance as of period end
The accompanying notes are an integral part of the Group financial statements.
8 Swiss Reinsurance Company Consolidated 2018 Annual Report
2017
2018
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
750
–750
0
32
32
8 690
11
–3
3
8 701
–17
–2
–19
2 064
175
4
–68
–1 483
692
–3
–3
–4 852
–3
–267
–5 122
–737
–17
–14
–768
USD millions
Credit risk of financial liabilities at fair value option, net of tax
2017
2018
Balance as of 1 January
Impact of ASU 2016-012
Balance as of period end
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
Impact of ASU 2018-022
Impact of ASU 2016-162
Impact of ASU 2016-012
Balance as of period end
Shareholder’s equity
Non-controlling interests
Balance as of 1 January
Transactions with non-controlling interests
Income attributable to non-controlling interests
Other comprehensive income attributable to non-controlling interests
Balance as of period end
Total equity
1 In 2017, the Group sold three primary life and health insurance carriers to Swiss Re Life Capital Group.
2 Impact of Accounting Standards Update. Please refer to Note 1 for more details.
The accompanying notes are an integral part of the Group financial statements.
0
0
15 339
–45
–358
66
–67
–2 600
12 335
18 262
1 661
206
48
17
1 932
20 194
0
5
5
12 335
–7
1 011
–41
–1 950
–155
–10
63
11 246
14 764
1 932
37
–20
1 949
16 713
Swiss Reinsurance Company Consolidated 2018 Annual Report 9
Financial statements
Group financial statements
For the years ended 31 December
USD millions
Cash flows from operating activities
Net income/loss attributable to common shareholder
Add net income/loss 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.
Dividends paid to parent
Transactions with non-controlling interests
Net cash provided/used by financing activities
The accompanying notes are an integral part of the Group financial statements.
10 Swiss Reinsurance Company Consolidated 2018 Annual Report
2017
2018
–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
–2 600
200
–3 938
970
37
140
–309
44
1 487
489
186
–493
–274
107
2 384
39 402
4 214
–45 053
–1 176
1 676
–1 348
3 386
–910
75
266
–111
293
496
–750
–4
–1 950
–2 026
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
653
671
2017 and 2018, respectively. Tax paid was USD
million and USD
million (thereof USD
million and USD
507
2017
–2 877
265
–2 612
5 830
3 218
2018
624
–147
477
3 218
3 695
43
million for letter of credit fees) for
million and USD
49
439
million for 2017 and 2018, respectively.
Cash and cash equivalents include restricted cash and restricted cash equivalents, for instance pledged cash and cash equivalents
(please refer to Note 7, “Investments“).
The accompanying notes are an integral part of the Group financial statements.
Swiss Reinsurance Company Consolidated 2018 Annual Report 11
Financial statements
Notes to the Group financial statements
1 Organisation and summary of significant accounting policies
Nature of operations
The Swiss Reinsurance Company Group, which is headquartered in Zurich, Switzerland, comprises Swiss Reinsurance Company
Ltd (the parent company, referred to as “SRZ”) and its subsidiaries (collectively, the “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.
In the half-year 2018 report, the impact of the Accounting Standard Updates (ASUs) 2016-01, 2016-16 and 2018-02 was
reflected in the Group’s statement of comprehensive income. In the year-end 2018 report, the Group revised the presentation and
presented the statement of comprehensive income without the impact of these ASUs totalling USD 96 million. The revision had no
impact on the Group’s financial position, net income and cash flows. Please refer to the subsection ”Adoption of new accounting
standards” for more details about the ASUs.
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
12 Swiss Reinsurance Company Consolidated 2018 Annual Report
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.
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.
2018, 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 securities are classified as available-for-sale (AFS) or trading. Fixed income 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 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.
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 and the fair value is lower than cost expressed in functional
currency terms, the cost of fixed income securities AFS is reduced to fair value, with a corresponding charge to realised investment
losses. Subsequent recoveries are not recognised in earnings.
Equity investments are carried at fair value with unrealised gains and losses recognised in earnings, with the exception of equity
method investments and investments that result in consolidation.
Interest on fixed income securities is recorded in net investment income when earned and is adjusted for the amortisation of any
purchase premium or discount. Dividends on equity securities are recognised as investment income on the ex-dividend date.
Realised gains and losses on sales are included in earnings and are calculated using the specific identification method.
Policy loans, mortgages and other loans are carried at amortised cost. Interest income is recognised in accordance with the
effective yield method.
Swiss Reinsurance Company Consolidated 2018 Annual Report 13
Financial statements
Notes to the Group financial statements
Investment in real estate that the Group intends to hold for the production of income is carried at depreciated cost, net of any write-
downs for impairment in value. Depreciation on buildings is recognised on a straight-line basis over the estimated useful life of the
asset. Land is recognised at cost and not depreciated. Impairment in value is recognised if the sum of the estimated future
undiscounted cash flows from the use of the real estate is lower than its carrying value. 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.
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 in earnings.
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.
14 Swiss Reinsurance Company Consolidated 2018 Annual Report
Deferred acquisition costs
The Group incurs costs in connection with acquiring new and renewal reinsurance and insurance business. Some of these costs,
which consist primarily of commissions, are deferred as they are directly related to the successful acquisition of such business.
Deferred acquisition costs for short-duration contracts are amortised in proportion to premiums earned. Future investment income
is considered in determining the recoverability of deferred acquisition costs for short-duration contracts. Deferred acquisition costs
for long-duration contracts are amortised over the life of underlying contracts. Deferred acquisition costs for universal-life and
similar products are amortised based on the present value of estimated gross profits. Estimated gross profits are updated quarterly.
Modifications of insurance and reinsurance contracts
The Group accounts for modifications of insurance and reinsurance contracts that result in a substantially unchanged contract as a
continuation of the replaced contract. The associated deferred acquisition costs and present value of future profits (PVFP) will
continue to be amortised. The Group accounts for modifications of insurance and reinsurance contracts that result in a
substantially changed contract as an extinguishment of the replaced contract. The associated deferred acquisition costs or PVFP
are written off immediately through income and any new deferrable costs associated with the replacement contract are deferred.
Business combinations
The Group applies the acquisition method of accounting for business combinations. This method allocates the cost of the acquired
entity to the assets and liabilities assumed based on their estimated fair values at the date of acquisition.
The underlying assets and liabilities acquired are subsequently accounted for according to the relevant US 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
Swiss Reinsurance Company Consolidated 2018 Annual Report 15
Financial statements
Notes to the Group financial statements
recorded against deferred tax assets when it is deemed more likely than not that some or all of the deferred tax assets 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.
The Group releases stranded tax effects for unrealised gains/losses on AFS securities to earnings on a straight-line basis over the
average duration of the relevant AFS portfolio as an approximation of when the individual securities within the portfolio are sold or
mature. For adjustment for pension and other post-retirement benefits, stranded tax effects are released to earnings when the
relevant pension plan is terminated. For foreign currency translation, stranded tax effects are released to earnings in line with the
recycling of the underlying foreign currency translation amounts.
Unpaid claims and claim adjustment expenses
Liabilities for unpaid claims and claim adjustment expenses for property and casualty and life and health insurance and
reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims,
using reports and individual case estimates received from ceding companies. A provision is also included for claims incurred but
not reported, which is developed on the basis of past experience adjusted for current trends and other factors that modify past
experience. The establishment of the appropriate level of reserves is an inherently uncertain process involving estimates and
judgements made by management, and therefore there can be no assurance that ultimate claims and claim adjustment expenses
will not exceed the loss reserves currently established. These estimates are regularly reviewed, and adjustments for differences
between estimates and actual payments for claims and for changes in estimates are reflected in income in the period in which the
estimates are changed or payments are made.
The Group does not discount liabilities arising from prospective property and casualty insurance and reinsurance contracts,
including liabilities which are discounted for US statutory reporting purposes. Liabilities arising from property and casualty
insurance and reinsurance contracts acquired in a business combination are initially recognised at fair value in accordance with
the acquisition method of accounting. The Group does not discount life and health claim reserves except for disability income
claims in payment and mortality claims paid out in the form of an annuity. These claims 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.
16 Swiss Reinsurance Company Consolidated 2018 Annual Report
Funds held assets and liabilities
On the asset side, funds held by ceding companies consist mainly of amounts retained by the ceding company for business written
on a funds withheld basis. In addition, the account also includes amounts arising from the application of the deposit method of
accounting to ceded retrocession or reinsurance contracts.
On the liability side, funds held under reinsurance treaties consist mainly of amounts arising from the application of the deposit
method of accounting to inward insurance and reinsurance contracts. In addition, the account also includes amounts retained from
ceded business written on a funds withheld basis.
Funds withheld assets are assets that would normally be paid to the Group but are withheld by the cedent to reduce a potential
credit risk or to retain control over investments. In case of funds withheld liabilities, it is the Group that withholds assets related to
ceded business in order to reduce its credit risk or retain control over the investments.
The deposit method of accounting is applied to insurance and reinsurance contracts that do not indemnify the ceding company or
the Group against loss or liability relating to insurance risk. Under the deposit method of accounting, the deposit asset or liability is
initially measured based on the consideration paid or received. For contracts that transfer neither significant timing nor
underwriting risk, and contracts that transfer only significant timing risk, changes in estimates of the timing or amounts of cash
flows are accounted for by recalculating the effective yield. The deposit is then adjusted to the amount that would have existed had
the new effective yield been applied since the inception of the contract. The revenue and expense recorded for such contracts is
included in net investment income. For contracts that transfer only significant underwriting risk, once a loss is incurred, the deposit
is adjusted by the present value of the incurred loss. At each subsequent balance sheet date, the portion of the deposit attributable
to the incurred loss is recalculated by discounting the estimated future cash flows. The resulting changes in the carrying amount of
the deposit are recognised in claims and claim adjustment expenses.
Funds withheld balances are presented together with assets and liabilities arising from the application of the deposit method
because of their common deposit-type character.
Shadow adjustments
Shadow adjustments are 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 US GAAP reserves rather than using locked-in or current book yields. If the unlocked best estimate US
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
Swiss Reinsurance Company Consolidated 2018 Annual Report 17
Financial statements
Notes to the Group financial statements
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
is set up in relation to the time a receivable has been due and any 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 2018, 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 15 million for the year ended 31 December 2018.
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 2018, the accrual for share-based compensation plans in additional paid-in capital was USD 6 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 13 March 2019. This is the date on which the
financial statements are available to be issued.
Adoption of new accounting standards
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 adopted
ASU 2014-09 on 1 January 2018 together with the following ASUs related to topic 606: ASU 2016-08 ‘‘Principal versus Agent
Considerations (Reporting Revenue Gross versus Net)’’, ASU 2016-10 ‘‘Identifying Performance Obligations and Licensing’’, ASU
2016-12 ‘‘Narrow-Scope Improvements and Practical Expedients’’ and ASU 2016-20 ‘‘Technical Corrections and Improvements
to Topic 606’’. The retrospective adoption of ASU 2014-09 and related ASUs did not have a material impact on the Group’s
financial statements.
In January 2016, the FASB issued ASU 2016-01, ‘‘Recognition and Measurement of Financial Assets and Financial Liabilities’’, an
update to subtopic 825-10, ‘‘Financial Instruments --- Overall’’. The ASU requires the Group to carry investments in equity
securities, including partnerships, unincorporated joint ventures and limited liability companies at fair value through earnings, with
the exception of equity method investments, investments that result in consolidation or investments for which the measurement
alternative has been elected. The Group did not elect the measurement alternative for any of its investments. For financial liabilities
to which the fair value option has been applied, the ASU requires an entity to separately present the change in fair value
attributable to instrument-specific credit risk in other comprehensive income (OCI) 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
adopted ASU 2016-01 on 1 January 2018 together with ASU 2018-03, ‘‘Technical Corrections and Improvements to Financial
Instruments --- Overall (Subtopic 825-10)’’. The opening balance sheet impact from the adoption is a reclassification within
shareholder’s equity from net unrealised investment gains, net of tax, to retained earnings of USD 68 million. In addition,
USD 5 million were reclassified from retained earnings to credit risk of financial liabilities at fair value option, net of tax. These
18 Swiss Reinsurance Company Consolidated 2018 Annual Report
reclassifications can be found in the statement of shareholder’s equity. The impact on pre-tax earnings in 2018 due to the
adoption of ASU 2016-01 was an estimated net realised investment loss of USD 326 million.
In August 2016, the FASB issued ASU 2016-15, ‘‘Classification of Certain Cash Receipts and Cash Payments’’, a consensus of the
FASB Emerging Issues Task Force (EITF) to topic 230, ‘‘Statement of Cash Flows’’. ASU 2016-15 provides guidance on eight
issues related to the presentation and classification of cash receipts and cash payments in the statement of cash flows with the
objective of reducing existing diversity in practice. The Group adopted ASU 2016-15 retrospectively on 1 January 2018. The
adoption did not have a material impact on the Group’s statement of cash flows.
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 former guidance which prohibited the recognition of current and deferred income taxes for
an intra-entity asset transfer until the asset had been sold to an outside party. This new standard requires that an entity recognises
the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The Group
adopted ASU 2016-16 on 1 January 2018 on a modified retrospective basis through a cumulative-effect adjustment directly to
retained earnings as of the adoption date. The adoption resulted in an increase of net unrealised investment gains/losses, net of
tax, of USD 4 million, an increase of deferred tax of USD 6 million, and a reduction of retained earnings of USD 10 million. The
movements in equity related to the adoption of ASU 2016-16 can be found in the statement of shareholder’s equity. The impact
on earnings in 2018 due to the adoption of ASU 2016-16 was a tax benefit of USD 67 million.
In November 2016, the FASB issued ASU 2016-18, ‘‘Restricted Cash’’, a consensus of the FASB EITF to topic 230, ‘‘Statement of
Cash Flows’’. The update requires that the statement of cash flows explains the change during the period in the total of cash, cash
equivalents and restricted cash
included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on
the statement of cash flows. The Group adopted ASU 2016-18 retrospectively on 1 January 2018. The adoption did not have a
material impact on the Group’s financial statements.
and restricted cash equivalents. Restricted cash and restricted cash equivalents should be
In February 2017, the FASB issued ASU 2017-05, ‘‘Clarifying the Scope of Asset Derecognition Guidance and Accounting for
Partial Sales of Nonfinancial Assets’’, an update to subtopic 610-20, ‘‘Other Income --- Gains and Losses from the Derecognition of
Nonfinancial Assets’’. This update clarifies and provides guidance on the scope of subtopic 610-20 including financial assets
meeting the definition of an in-substance non-financial asset. The Group adopted ASU 2017-05 retrospectively on
1 January 2018. The adoption did not have an impact on the Group’s financial statements.
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic
Postretirement Benefit Cost’’, an update to topic 715, “Compensation – Retirement Benefits”. The amendments in this update
require that an employer separates other components of net benefit cost from the service cost component and presents these
components outside a subtotal of income from operations, if one is presented. Further, the ASU only allows the service cost
component of net benefit cost to be capitalised. The Group adopted ASU 2017-07 retrospectively on 1 January 2018. The
adoption did not have a material impact on the Group’s financial statements.
In May 2017, the FASB issued ASU 2017-09, “Scope of Modification Accounting’’, an update to topic 718, “Compensation – Stock
Compensation”. The amendments in this update provide guidance about which changes to the terms or conditions of a share-
based payment award require to apply modification accounting under topic 718. The Group adopted ASU 2017-09 on
1 January 2018. The adoption did not have an impact on the Group’s financial statements.
In February 2018, the FASB issued ASU 2018-02, “Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income”, an update to topic 220, “Income Statement – Reporting Comprehensive Income”. The ASU allows a reclassification from
accumulated other comprehensive income to retained earnings of stranded tax effects resulting from the Tax Cuts and Jobs Act.
The Group early adopted ASU 2018-02 on 1 January 2018. The adoption resulted in a reclassification within shareholder’s equity
of USD 155 million of stranded tax charges from accumulated other comprehensive income to retained earnings. The
reclassification can be found in the statement of shareholder’s equity.
Future adoption of new accounting standards
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 Group will adopt this ASU on
1
Further, deferred gains carried on the balance sheet and amortised over time under the existing sale-leaseback guidance
(estimated to be approximately USD 97 million as of 1 January 2019) will be released as a cumulative-effect adjustment to
opening retained earnings as of 1 January 2019.
2019. The expected impact from the adoption is a net balance sheet gross-up of approximately USD 0.25 billion.
January
Swiss Reinsurance Company Consolidated 2018 Annual Report 19
Financial statements
Notes to the Group 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 is permitted. The Group is currently assessing the
impact of the new requirements.
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 adoption of the ASU is permitted. The Group is currently
assessing the impact of the new requirements.
In August 2018, the FASB issued ASU 2018-12, “Targeted Improvements to the Accounting for Long-Duration Contracts“, an
update to topic 944,
“Financial Services—Insurance“. This ASU requires that the cash flows and net premium ratio will be updated
for changes in insurance assumptions (eg mortality, morbidity, terminations) when measuring the liability for future policy benefits
for non-participating traditional and limited-payment insurance and reinsurance contracts. The effect of updating cash flow
assumptions will be measured on a retrospective catch-up basis and presented separately from the ongoing policyholder benefit
expense in the statement of operations in the period the update is made. There will no longer be a provision for adverse deviation.
In addition, the discount rate used to reflect the time value of money in the calculation of the liability for future policy benefits will
be standardised. An upper-medium-grade fixed-income instrument yield will be required, which differs from the current
requirement to use a discount rate reflecting expected investment yields. Further, a locked-in rate will be used in the periodic
calculation of the net premium ratio and accretion of interest on the liability for income statement purposes. For balance sheet
remeasurement purposes, the discount rate will be updated at each reporting date, with the effect of discount rate changes on the
liability recorded immediately in OCI. The ASU requires deferred acquisition costs (DAC) relating to most long-duration contracts to
be amortised on a constant basis over the expected term of the contract, and the resulting amortisation amount should not be a
function of revenue or profit. The new standard also introduces a new category called market risk benefits, which are features that
protect the contract holder from capital market risk and expose the insurer to that risk. These features have to be measured at fair
value, with changes in own credit risk recognised in OCI, and presented separately in the primary financial statements. The ASU
also requires significant additional disclosures, including disaggregated roll forwards of the liability for future policy benefits,
policyholder account balances, market risk benefits and DAC. The ASU is effective for annual and interim periods beginning after
15 December 2020. Early adoption of the amendments is permitted. The new guidance relating to measurement of the traditional
and limited-payment contract liabilities and DAC amortisation has to be adopted under a modified retrospective transition
approach, with an option to elect a full retrospective transition if certain criteria are met. Under the modified retrospective
approach, for contracts in force at the transition date, an entity would continue to use the existing locked-in investment yield
interest rate assumptions to calculate the net premium ratio. However, for balance sheet measurement purposes, policyholder
liabilities are discounted at the upper-medium-grade fixed-income instrument yield at the transition date, with the impact of the
change recognised against accumulated OCI. The Group is currently assessing the impact of the new requirements.
20 Swiss Reinsurance Company Consolidated 2018 Annual Report
2 Information on business segments
The Group provides reinsurance and insurance throughout the world through its business segments. The business segments are
determined by the organisational structure and by the way in which management reviews the operating performance of the Group.
The Group presents four core operating business segments: Property & Casualty Reinsurance, Life & Health Reinsurance, Corporate
Solutions and Life Capital. 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 Unit 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, Reinsurance 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.
Group items
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.
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. This includes significant intra-group
reinsurance arrangements, recharge of trademark licence fees and intersegmental funding.
Swiss Reinsurance Company Consolidated 2018 Annual Report 21
Financial statements
Notes to the Group financial statements
a) 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/benefit
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
127
6
1
7
1
–50
–223
2
–263
2
–2
26
–487
–461
–724
–24
–748
116
–632
–48
–680
–680
16 569
16 031
636
16 667
1 017
613
48
18 345
13 313
11 826
25
11 851
129
1 308
591
81
3
13 963
–13 172
–9 211
–119
–2 064
–754
–18 584 –12 148
–4 253
–1 159
–239
–280
–519
125
–394
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
30 009
27 863
662
28 525
130
2 226
981
81
50
31 993
–49
–3
–52
–13 172
–9 209
–121
–6 291
–2 400
0 –31 193
–52
52
0
0
0
0
800
–567
233
–119
114
–48
66
–67
–1
2.5
22 Swiss Reinsurance Company Consolidated 2018 Annual Report
Business segments – income statement
For the year ended 31 December
2018
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/benefit
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
110
1
–1
2
48
36
42
128
–7
–2
28
–312
–293
–165
–10
–175
51
–124
–37
–161
–161
16 545
16 098
–3
16 095
1 380
–16
36
17 495
14 527
12 647
36
12 683
152
1 305
347
–33
1
14 455
–11 614
–10 280
–5
–2 045
–758
–16 740 –13 088
–4 012
–1 114
755
–313
442
–72
370
1 367
–410
957
–155
802
370
802
370
72.2
31.8
104.0
4.3
–41
761
5.4
9.4
31 182
28 746
32
28 778
154
2 601
367
–33
75
31 942
–132
–4
–136
–11 614
–10 287
–7
–6 029
4
–2 180
4 –30 117
–132
132
0
0
0
0
1 825
–601
1 224
–176
1 048
–37
1 011
–41
970
5.7
Swiss Reinsurance Company Consolidated 2018 Annual Report 23
Financial statements
Notes to the Group financial statements
Business segments – balance sheet
As of 31 December
2017
USD millions
Total assets
2018
USD millions
Total assets
Property & Casualty
Reinsurance
80 475
Life & Health
Reinsurance
64 559
Other Consolidation
–11 505
16 589
Total
150 118
Property & Casualty
Reinsurance
80 162
Life & Health
Reinsurance
61 574
Other Consolidation
–13 497
15 850
Total
144 089
24 Swiss Reinsurance Company Consolidated 2018 Annual Report
This page is intentionally left blank.
Swiss Reinsurance Company Consolidated 2018 Annual Report 25
Financial statements
Notes to the Group financial statements
b) 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
26 Swiss Reinsurance Company Consolidated 2018 Annual Report
Property & Casualty Reinsurance business segment – by line of business
For the year ended 31 December
2018
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
6 403
6 047
–18
6 029
7 595
7 548
116
7 664
2 547
2 503
–101
2 402
6 029
7 664
2 402
–4 284
–1 189
–547
–6 020
9
9
71.1
28.8
99.9
–5 860
–2 228
–388
–8 476
–812
–812
76.5
34.1
110.6
–1 470
–595
–179
–2 244
158
158
61.2
32.2
93.4
1 380
–16
36
1 400
0
1 400
–313
1 087
16 545
16 098
–3
16 095
1 380
–16
36
17 495
–11 614
–4 012
–1 114
–16 740
755
–313
442
72.2
31.8
104.0
Swiss Reinsurance Company Consolidated 2018 Annual Report 27
Financial statements
Notes to the Group financial statements
c) 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”.
28 Swiss Reinsurance Company Consolidated 2018 Annual Report
Life & Health Reinsurance business segment – by line of business
For the year ended 31 December
2018
USD millions
Revenues
Gross premiums written
Net premiums written
Change in unearned premiums
Premiums earned
Fee income from policyholders
Net investment income – non-participating business
Net realised investment gains/losses – non-participating business
Net investment result – unit-linked business
Other revenues
Total revenues
Expenses
Life and health benefits
Return credited to policyholders
Acquisition costs
Operating expenses
Total expenses before interest expenses
Income before interest and income tax expense
Interest expenses
Income/loss before income tax expense
Management expense ratio in %
Net operating margin1 in %
Life
Health
Unallocated
Total
10 356
8 606
29
8 635
152
1 001
59
–33
1
9 815
–7 128
–5
–1 449
–513
–9 095
720
720
5.2
7.3
4 171
4 041
7
4 048
304
–4
292
4 348
292
–3 152
–596
–245
–3 993
355
355
5.6
8.2
0
292
–410
–118
14 527
12 647
36
12 683
152
1 305
347
–33
1
14 455
–10 280
–5
–2 045
–758
–13 088
1 367
–410
957
5.4
9.4
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 2018 Annual Report 29
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
Switzerland
China
Japan
Canada
Germany
France
Republic of Korea
India
Other
Total
2017
15 350
8 752
6 791
30 893
2017
13 001
2 684
1 980
1 013
1 910
1 161
1 030
1 082
638
479
326
5 589
30 893
2018
15 033
9 472
7 031
31 536
2018
12 698
2 804
1 920
1 753
1 611
1 423
1 091
1 053
690
537
434
5 522
31 536
Gross premiums earned and fee income from policyholders are allocated by country, based on the underlying contract.
30 Swiss Reinsurance Company Consolidated 2018 Annual Report
3 Insurance information
Premiums earned and fees assessed against policyholders
For the years ended 31 December
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
2018
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
17 197
17 197
–530
16 667
0
55
13 287
13 342
–1 491
11 851
130
130
–1
129
128
128
–121
7
96
96
–95
1
55
30 612
0
30 667
–2 142
28 525
0
226
226
–96
130
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Total
16 601
16 601
–506
16 095
0
67
14 509
14 576
–1 893
12 683
153
153
–1
152
108
108
–108
0
98
98
–96
2
67
31 218
0
31 285
–2 507
28 778
0
251
251
–97
154
Swiss Reinsurance Company Consolidated 2018 Annual Report 31
Financial statements
Notes to the Group financial statements
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
–4 374
121
–4 253
–2 298
234
–2 064
–28
–28
54
26
–6 700
0
–6 700
409
–6 291
32 Swiss Reinsurance Company Consolidated 2018 Annual Report
Claims and claim adjustment expenses
For the year ended 31 December
2018
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
–11 122
–11 198
–302
–11 122
859
–10 263
–11 198
1 658
–9 540
–302
298
–4
–1 202
–758
70
–1 202
–149
–1 351
–758
18
–740
70
–73
–3
–22 622
0
–22 622
2 815
–19 807
–1 890
0
–1 890
–204
–2 094
Claims and claim adjustment expenses; life and health benefits
–11 614
–10 280
–7
–21 901
Acquisition costs
For the year ended 31 December
2018
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
–4 127
–2 332
–34
–4 127
115
–4 012
–2 332
287
–2 045
–34
62
28
–6 493
0
–6 493
464
–6 029
Swiss Reinsurance Company Consolidated 2018 Annual Report 33
Financial statements
Notes to the Group financial statements
Reinsurance assets and liabilities
The reinsurance assets and liabilities as of 31 December were as follows:
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
2018
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
2 541
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
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
2 345
2 156
4 359
4 784
6 046
–10
45 659
12 192
17 888
1 356
811
1 081
4 218
–10
12 740
6 940
58 652
18 969
5 574
Reinsurance recoverable on unpaid claims and policy benefits
As of 31 December 2017 and 2018, the Group had a reinsurance recoverable of USD
million,
respectively. The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire
Hathaway and subsidiaries accounted for 27% and 23% of the Group’s reinsurance recoverable as of year-end 2017 and 2018,
respectively.
million and USD
245
740
13
12
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
2017
2 296
1 227
144
–31
2018
2 275
466
120
–23
34 Swiss Reinsurance Company Consolidated 2018 Annual Report
4 Premiums written
For the years ended 31 December
2017
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
2018
USD millions
Gross premiums written, thereof:
Direct
Reinsurance
Intra-group transactions (assumed)
Gross premiums written
Intra-group transactions (ceded)
Gross premiums written before retrocession to
external parties
Retrocession to external parties
Net premiums written
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
16 569
55
13 258
16 569
13 313
16 569
–538
16 031
13 313
–1 487
11 826
127
127
127
–121
6
55
29 954
0
30 009
0
30 009
–2 146
27 863
0
Property & Casualty
Reinsurance
Life & Health
Reinsurance
Other
Consolidation
Total
16 545
67
14 460
16 545
14 527
16 545
–447
16 098
14 527
–1 880
12 647
110
110
110
–109
1
67
31 115
0
31 182
0
31 182
–2 436
28 746
0
Swiss Reinsurance Company Consolidated 2018 Annual Report 35
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 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
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
2017
51 073
−2 837
−211
−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
2018
58 221
–4 017
–240
53 964
21 809
–341
–41
21 427
–6 421
–13 386
–19 807
–1 598
724
54 710
3 773
169
58 652
36 Swiss Reinsurance Company Consolidated 2018 Annual Report
Prior-year development
Non-life claims development during 2018 on prior years includes favourable development on property and specialty, partially
offset by adverse development on casualty. The favourable development on property and specialty is mainly related to the natural
catastrophe events in North America and wildfires in California that occurred in 2017. Casualty includes adverse development for
motor and liability lines of business.
For the life and health business, the adverse claims development on prior-year business was across a number of lines of business,
in particular the individual life and disability portfolios in the US and the group disability portfolio in Australia. This was partially
offset by positive experience in other regions, including Continental Europe and Asia. Claims development related to prior years
also includes an element of interest accretion for unpaid claims reported at the estimated present value.
A summary of prior-year net claims and claim adjustment expenses development by lines of business for the years ended
31
December is shown below:
USD millions
Line of business:
Property
Casualty
Specialty
Life and health
Total
2017
2018
–588
–187
–234
196
–813
–437
241
–288
143
–341
Swiss Reinsurance Company Consolidated 2018 Annual Report 37
Financial statements
Notes to the Group financial statements
US asbestos and environmental claims exposure
The Groupʼs 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 2018 the Group carried net reserves for US asbestos and environmental liabilities equal to USD 1 634 million.
During 2018, the Group incurred net losses of USD 114 million and paid net against these liabilities of USD 100 million. Incurred
claims include a settlement with one cedent on reported asbestos and environmental claims.
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.
38 Swiss Reinsurance Company Consolidated 2018 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 2018 Annual Report 39
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.
For reinsurance business, case reserves and estimated IBNR reported by cedents to the Group have been accounted for as case
reserves in previous years. For the year-end 2018, IBNR reported by cedents are presented together with the Group's own estimate
of IBNR as IBNR in the claims development tables. 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 38).
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.
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.
40 Swiss Reinsurance Company Consolidated 2018 Annual Report
Property & Casualty Reinsurance – Property
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
2 341
2010
2 356
2 521
2011
2 237
2 469
4 303
2012
2 194
2 338
4 354
2 696
2013
2 172
2 357
4 168
2 524
3 130
2014
2 170
2 441
4 222
2 324
3 146
2 732
2015
2 168
2 483
4 174
2 281
2 972
2 572
2 830
2016
2 170
2 590
4 169
2 252
2 887
2 393
2 764
3 902
RSI
2017
2 141
2 563
4 187
2 236
2 865
2 361
2 594
3 627
6 032
2018
2 148
2 523
4 224
2 237
2 849
2 358
2 562
3 333
5 937
4 656
32 827
thereof
IBNR
12
29
13
8
1
4
67
40
598
2 604
3 376
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
559
2010
1 608
389
RSI
2011
1 924
1 511
671
2012
2 026
1 805
2 394
239
2013
2 076
1 914
3 197
1 591
541
2014
2 097
2 110
3 635
1 981
1 999
464
2015
2 107
2 263
3 917
2 101
2 504
1 708
467
2016
2 118
2 405
4 018
2 144
2 698
2 089
1 654
636
All liabilities before
2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2017
2 103
2 448
4 138
2 164
2 758
2 218
2 172
2 210
980
2018
2 110
2 461
4 159
2 175
2 780
2 262
2 338
2 842
3 672
634
25 433
139
7 533
Years
Property (RSI)
1
17.4%
2
48.6%
3
17.0%
4
6.2%
5
3.8%
6
2.2%
7
2.4%
8
0.9%
9
-0.1%
10
0.3%
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 accident year 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. The 2018
accident year claims incurred are lower than 2017 but include a higher level of natural catastrophes than 2012 to 2016.
Swiss Reinsurance Company Consolidated 2018 Annual Report 41
Financial statements
Notes to the Group financial statements
Property & Casualty Reinsurance – Liability, proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
2009
726
2010
861
835
2011
980
982
639
2012
937
921
696
519
2013
932
901
720
603
727
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
RSI
2014
910
897
668
559
750
994
2015
921
901
625
530
757
984
1 264
2016
930
889
621
503
752
996
1 312
1 709
2017
926
854
598
505
757
980
1 397
1 737
1 964
2018
880
829
584
487
747
969
1 467
1 759
2 072
1 898
11 692
thereof
IBNR
38
82
77
71
135
277
606
899
1 483
1 714
5 382
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
-60
2010
88
28
RSI
2011
241
159
2
2012
365
317
107
13
2013
478
408
180
115
14
2014
586
516
249
182
126
23
2015
635
612
335
240
232
157
34
2016
682
661
381
294
347
291
209
46
2017
717
681
399
328
418
400
400
223
50
All liabilities before 2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2018
720
707
428
364
493
546
627
497
252
52
4 686
908
7 914
Years
Liability, proportional
(RSI)
1
2
3
4
5
6
7
8
9
10
1.4%
14.7%
14.9%
13.0%
12.7%
9.8%
5.5%
4.2%
3.6%
0.3%
The increase in the incurred losses for accident years 2013 to 2018 is driven by volume increases of business being written. The
increases in the incurred losses in reporting year 2018 for accident years 2015 to 2017 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.
42 Swiss Reinsurance Company Consolidated 2018 Annual Report
Property & Casualty Reinsurance – Liability, non-proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
RSI
2009
509
2010
520
521
2011
426
436
401
2012
425
400
430
329
2013
385
375
467
347
406
2014
351
354
426
308
388
432
2015
327
333
382
280
353
437
1 754
2016
313
324
349
259
298
405
1 793
585
2017
311
311
336
251
270
362
1 762
540
494
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
–14
2010
12
1
RSI
2011
32
11
1
2012
55
35
9
–4
2013
93
52
65
11
–2
2014
155
87
111
35
11
–2
2015
178
104
138
53
36
8
0
2016
186
123
145
84
59
40
89
13
2017
195
158
168
106
82
73
193
145
–2
All liabilities before 2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
thereof
IBNR
27
39
56
59
89
146
199
250
326
428
1 619
2018
304
315
332
241
252
342
1 787
524
508
450
5 055
2018
202
160
181
136
118
118
345
106
18
–1
1 383
5 179
8 851
Years
Liability, non-
proportional (RSI)
1
2
3
4
5
6
7
8
9
10
-0.5%
7.0%
7.3%
8.8%
11.1%
10.3%
8.2%
5.9%
1.8%
2.3%
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 2009 include reserves for historic US Asbestos and Environmental losses.
In line with the Group´s policy, cash flows under loss portfolio transfers are reported through claims paid. For longer tail lines and
depending on the business volume written, timing of cash flows can lead to net inward payments across the whole portfolio in the
first development year of the contract for some accident years.
Swiss Reinsurance Company Consolidated 2018 Annual Report 43
Financial statements
Notes to the Group financial statements
Property & Casualty Reinsurance – Accident & Health
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
2009
347
2010
370
274
2011
347
226
228
2012
342
231
248
324
2013
338
220
245
334
344
2014
329
217
236
319
351
302
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
RSI
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
31
2010
136
25
RSI
2011
192
84
48
2012
216
115
120
77
2013
234
130
142
177
54
2014
247
138
152
203
139
30
All liabilities before 2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
thereof
IBNR
24
24
28
33
48
61
75
202
354
376
1 225
2015
324
219
239
310
338
335
434
2015
253
145
161
219
180
103
62
2016
317
211
234
306
328
327
432
592
2016
258
149
165
229
203
145
138
74
2017
311
206
234
300
321
316
410
626
733
2017
262
156
175
238
216
173
190
178
96
2018
310
202
230
298
318
305
400
621
767
723
4 174
2018
265
158
177
242
224
190
223
271
232
98
2 080
2 865
4 959
Years
Accident & Health
(RSI)
1
2
3
4
5
6
7
8
9
10
14.9%
25.8%
13.3%
7.1%
4.4%
3.0%
2.4%
2.0%
1.1%
1.0%
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 2009 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.
44 Swiss Reinsurance Company Consolidated 2018 Annual Report
Property & Casualty Reinsurance – Motor, proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
650
2010
646
591
2011
711
652
998
2012
736
691
994
1 487
2013
723
697
965
1 477
1 554
2014
719
695
922
1 461
1 528
1 996
2015
721
697
925
1 449
1 535
1 959
1 916
2016
719
697
924
1 440
1 509
1 958
1 916
2 478
RSI
2017
718
695
922
1 438
1 502
1 941
1 920
2 594
2 373
2018
716
695
914
1 435
1 497
1 931
1 924
2 644
2 391
2 032
16 179
thereof
IBNR
–5
–1
–23
28
14
–2
25
147
476
1 149
1 808
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
141
2010
385
198
RSI
2011
585
453
266
2012
619
537
670
474
2013
631
573
852
1 104
573
2014
682
651
885
1 265
1 170
738
2015
691
660
904
1 314
1 352
1 468
795
2016
693
669
913
1 345
1 397
1 714
1 440
821
All liabilities before 2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2017
696
673
921
1 366
1 428
1 790
1 682
1 816
759
2018
699
676
924
1 378
1 444
1 826
1 783
2 163
1 526
624
13 043
322
3 458
Years
Motor, proportional
(RSI)
1
2
3
4
5
6
7
8
9
10
32.2%
37.8%
15.2%
4.2%
3.5%
2.4%
1.1%
0.4%
0.4%
0.4%
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 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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 45
Financial statements
Notes to the Group financial statements
Property & Casualty Reinsurance – Motor, non-proportional
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
2009
375
2010
390
325
2011
283
288
407
2012
284
283
445
332
2013
270
269
424
349
432
2014
275
262
422
329
454
408
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
RSI
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
1
2010
39
5
RSI
2011
58
22
-10
2012
70
48
20
2
2013
83
67
56
25
7
2014
96
83
79
50
85
4
All liabilities before 2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
thereof
IBNR
66
33
107
65
70
88
118
199
276
392
1 414
2015
269
255
407
313
457
441
388
2015
107
100
103
85
149
60
–1
2016
267
246
401
315
440
436
409
470
2016
117
113
117
111
194
104
34
8
2017
259
243
390
298
427
435
445
585
579
2017
121
120
133
136
220
144
92
65
9
2018
261
245
416
307
432
428
441
549
611
489
4 179
2018
125
130
144
157
248
187
157
127
59
4
1 338
2 877
5 718
Years
Motor, non-proportional
(RSI)
1
2
3
4
5
6
7
8
9
10
0.7%
10.4%
10.5%
9.1%
7.0%
6.0%
5.1%
3.1%
2.8%
1.5%
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.
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.
46 Swiss Reinsurance Company Consolidated 2018 Annual Report
Property & Casualty Reinsurance – Specialty
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
1 542
2010
1 673
1 229
2011
1 485
1 241
1 292
2012
1 416
1 186
1 270
959
2013
1 384
1 160
1 185
1 019
1 095
2014
1 361
1 141
1 102
1 040
1 021
1 108
2015
1 346
1 110
1 148
1 021
981
1 100
1 237
2016
1 330
1 088
1 144
1 021
945
999
1 219
1 286
RSI
2017
1 303
1 090
1 159
1 008
935
972
1 205
1 274
1 613
2018
1 293
1 081
1 152
994
912
956
1 196
1 228
1 535
1 646
11 993
thereof
IBNR
2
21
8
15
34
60
116
221
501
1 194
2 172
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
209
2010
659
197
RSI
2011
910
467
165
2012
1 011
659
561
127
2013
1 085
759
778
444
148
2014
1 143
837
881
679
417
173
2015
1 181
952
931
770
600
409
135
2016
1 205
973
967
827
710
590
387
143
2017
1 218
992
1 031
869
765
688
692
477
181
All liabilities before 2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
Average annual percentage payout of incurred claims by age, net of reinsurance
2018
1 230
1 004
1 054
903
801
744
853
722
580
185
8 076
658
4 575
Years
Specialty (RSI)
1
14.2%
2
28.3%
3
20.5%
4
10.1%
5
5.8%
6
5.3%
7
3.5%
8
1.9%
9
1.1%
10
0.9%
This category contains several individual large losses on engineering, marine, aviation and space lines, including the Costa
Concordia event in accident year 2012. The 2017 accident year claims incurred is higher due to natural catastrophes mainly
stemming from hurricanes Harvey, Irma and Maria in the Americas which have reduced in reporting year 2018. The 2018
accident year claims incurred include natural catastrophes and man-made losses.
Swiss Reinsurance Company Consolidated 2018 Annual Report 47
Financial statements
Notes to the Group financial statements
Life & Health Reinsurance, long tail
Incurred claims and allocated claim adjustment expenses, net of reinsurance
USD millions
Reporting year
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
2009
148
2010
154
184
2011
146
185
210
2012
147
181
219
260
2013
147
204
277
347
468
2014
169
204
289
350
460
458
2015
168
216
302
374
458
418
391
2016
169
191
281
339
423
398
424
411
RSI
Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance
USD millions
Accident year
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Total
Reporting year
2009
7
2010
36
8
RSI
2011
54
39
18
2012
67
61
59
26
2013
75
78
96
84
36
2014
83
91
120
134
117
31
2015
88
102
140
171
178
104
34
2016
96
111
160
203
237
190
102
13
All liabilities before 2009
Liabilities for claims and claim adjustment expenses, net of reinsurance
2017
163
187
275
341
422
399
409
426
419
2018
164
190
276
338
424
422
410
413
424
389
3 450
thereof
IBNR
16
20
29
29
33
51
64
126
208
297
873
Cumulative
number
of reported
claims
(in nominals)
4 305
4 722
6 621
9 069
11 528
13 134
15 528
12 106
11 126
3 677
91 816
2017
102
119
175
225
276
250
181
83
11
2018
108
125
188
243
302
285
229
152
72
11
1 715
230
1 965
Average annual percentage payout of incurred claims by age, net of reinsurance
Years
Life & Health Reinsurance,
long tail (RSI)
1
2
3
4
5
6
7
8
9
10
5.5% 16.7% 15.2% 10.9%
7.7%
6.1%
4.6%
4.6%
3.4%
3.7%
In the reporting year 2013, the Group significantly strengthened IBNR claims liabilities in Australia for some lines of business. In
addition, for 2013 and 2014 the effect of business volume increases is discernible as well. In 2018 the first year incurred claims
are below 2017 due to lower volume in Australia.
48 Swiss Reinsurance Company Consolidated 2018 Annual Report
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.
For details on consolidation please refer to Note 2.
Swiss Reinsurance Company Consolidated 2018 Annual Report 49
Financial statements
Notes to the Group financial statements
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
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
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
2018
7 533
7 914
8 851
4 959
3 458
5 718
4 575
1 965
44 973
–291
–450
44 232
1 819
46 051
571
324
266
215
76
237
594
–98
181
2 366
681
9 554
10 235
58 652
50 Swiss Reinsurance Company Consolidated 2018 Annual Report
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
2017
1 262
–291
28
2.9% –3.6%
2018
1 223
–291
35
3.0% –3.6%
1 Interest accretion is shown as part of “Life and health benefits” in the income statement.
Please refer to Note 1 for more details about the Group‘s discounting approach for unpaid claims and claim adjustment expenses.
Swiss Reinsurance Company Consolidated 2018 Annual Report 51
Financial statements
Notes to the Group financial statements
6 Deferred acquisition costs (DAC) and
acquired present value of future profits (PVFP)
As of 31 December, the DAC were as follows:
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
2018
USD millions
Opening balance as of 1 January
Deferred
Amortisation
Effect of foreign currency translation and other changes
Closing balance
Property & Casualty
Reinsurance
2 280
Life & Health
Reinsurance
3 465
4 068
–4 255
53
2 146
Property & Casualty
Reinsurance
2 146
4 048
–4 012
–26
2 156
1 294
–5
–508
–12
4 234
Life & Health
Reinsurance
4 234
1 235
–496
–189
4 784
Other
11
–11
0
Other
0
0
Total
5 756
–11
5 362
–5
–4 763
41
6 380
Total
6 380
5 283
–4 508
–215
6 940
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
966
–135
52
38
921
Other
577
–562
3
–1
–1
16
2017
Total
1 543
–562
–132
51
–1
38
937
Life & Health
Reinsurance
921
–140
45
–22
804
2018
Total
937
0
–135
44
18
–22
842
Other
16
5
–1
18
38
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 15%, 14%, 13%, 12% and 10%.
52 Swiss Reinsurance Company Consolidated 2018 Annual Report
7 Investments
Investment income
Net investment income by source (excluding unit-linked business) was as follows:
USD millions
Fixed income securities
Equity securities
Policy loans, mortgages and other loans
Investment real estate
Short-term investments
Other current investments
Share in earnings of equity-accounted investees
Cash and cash equivalents
Net result from deposit-accounted contracts
Deposits with ceding companies
Gross investment income
Investment expenses
Interest charged for funds held
Net investment income – non-participating business
2017
1 887
63
127
201
53
49
53
18
121
372
2 944
–331
–387
2 226
2018
2 017
61
144
220
47
104
89
35
111
542
3 370
–357
–412
2 601
Dividends received from investments accounted for using the equity method were USD
and 2018, respectively.
119
million and USD
133
million for 2017
Share in earnings of equity-accounted investees included impairments of the carrying amount of equity-accounted investees 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 gains1
Gross realised losses1
Other-than-temporary impairments
Net realised investment gains/losses on equity securities1
Change in net unrealised investment gains/losses on equity securities1
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
1 Change due to ASU 2016-01. Please refer to Note 1 for more details.
2017
2018
552
–133
623
–23
–28
29
3
76
76
–194
981
445
–194
–4
15
–228
–68
39
113
64
185
367
Net realised/unrealised gains/losses on insurance-related activities included impairments of USD 11 million and USD 7 million for
2017 and 2018, respectively.
Swiss Reinsurance Company Consolidated 2018 Annual Report 53
Financial statements
Notes to the Group financial statements
Investment result – unit-linked business
The net investment result on unit-linked business credited to policyholders amounted to gains of USD
USD
million for 2017 and 2018, respectively, mainly originating from gains/losses on equity securities.
33
81million and to losses of
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
2017
94
6
–17
4
–3
3
87
2018
87
5
–12
2
–3
–2
77
54 Swiss Reinsurance Company Consolidated 2018 Annual Report
Investments available-for-sale
Amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as
available-for-sale as of 31 December were as follows:
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
Germany
Canada
France
Australia
Other
Total
Corporate debt securities
Mortgage- and asset-backed securities
Fixed income securities available-for-sale
Equity securities available-for-sale
2018
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
Germany
Canada
France
Australia
Other
Total
Corporate debt securities
Mortgage- and asset-backed securities
Fixed income securities available-for-sale
Amortised cost
or cost
Gross
unrealised
gains
Gross
unrealised
Other-than-temporary
impairments
recognised in other
losses comprehensive income
11 182
5 796
1 213
4 034
2 956
3 630
1 784
1 925
6 695
39 215
23 060
3 419
65 694
2 993
168
18
91
758
222
539
196
16
227
2 235
1 175
76
3 486
75
–147
–66
–5
–18
–21
–28
–10
–3
–68
–366
–112
–18
–496
–47
–2
–2
Amortised cost
or cost
Gross
unrealised
gains
Gross
unrealised
Other-than-temporary
impairments
recognised in other
losses comprehensive income
9 416
6 192
1 186
3 795
2 523
2 294
1 495
1 514
8 255
36 670
24 751
3 429
64 850
131
17
45
575
211
191
159
14
202
1 545
445
52
2 042
–148
–130
–16
–57
–6
–24
–6
–2
–133
–522
–434
–54
–1 010
–1
–1
Estimated
fair value
11 203
5 748
1 299
4 774
3 157
4 141
1 970
1 938
6 854
41 084
24 123
3 475
68 682
3 021
Estimated
fair value
9 399
6 079
1 215
4 313
2 728
2 461
1 648
1 526
8 324
37 693
24 762
3 426
65 881
The “Other-than-temporary impairments recognised in other comprehensive income” column includes only securities with a
credit-related loss recognised in earnings. Subsequent recovery in fair value of securities previously impaired in other
comprehensive income is also presented in the “Other-than-temporary impairments recognised in other comprehensive income”
column.
Swiss Reinsurance Company Consolidated 2018 Annual Report 55
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 2017 and
2018.
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
Germany
Canada
France
Australia
Other
Total
Corporate debt securities
Mortgage- and asset-backed securities
Total
2018
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
Germany
Canada
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
7 402
3 753
259
535
685
1 749
209
1 013
2 687
18 292
5 390
1 429
25 111
114
37
4
9
18
27
8
3
52
272
83
13
368
1 368
993
39
258
44
262
7
57
319
3 347
860
394
4 601
33
29
1
9
3
1
2
0
16
94
29
7
130
8 770
4 746
298
793
729
2 011
216
1 070
3 006
21 639
6 250
1 823
29 712
147
66
5
18
21
28
10
3
68
366
112
20
498
Less than 12 months
Unrealised
losses
Fair value
12 months or more
Unrealised
losses
Fair value
Total
Unrealised
losses
Fair value
913
993
111
991
104
278
381
489
2 273
6 533
10 008
1 104
17 645
42
11
2
42
3
3
5
2
68
178
227
15
420
4 367
3 689
392
247
137
855
15
13
1 142
10 857
5 231
1 566
17 654
106
119
14
15
3
21
1
0
65
344
207
40
591
5 280
4 682
503
1 238
241
1 133
396
502
3 415
17 390
15 239
2 670
35 299
148
130
16
57
6
24
6
2
133
522
434
55
1 011
As of 31 December 2017, USD
value for less than 12 months and USD
37
million of the gross unrealised loss on equity securities available-for-sale relates to declines in
10
million to declines in value for more than 12 months.
56 Swiss Reinsurance Company Consolidated 2018 Annual Report
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 2017 and 2018, USD
million, respectively, of fixed income securities
million and USD
available-for-sale were callable.
888
954
15
14
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
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
Amortised
cost or cost
7 753
19 119
11 646
23 368
2 964
64 850
2018
Estimated
fair value
7 691
19 098
11 644
24 480
2 968
65 881
Investments trading and at fair value through earnings
The carrying amounts of fixed income securities classified as trading and equity securities classified as trading and at fair value
through earnings (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 business1
Equity securities at fair value through earnings – non-participating business1
1 Change due to ASU 2016-01. Please refer to Note 1 for more details.
2017
2 414
38
86
2 538
3
2018
3 314
37
63
3 414
2 450
Investments held for unit-linked business
As of 31 December 2017, the carrying amounts of investments held for unit-linked business consist of equity securities trading of
USD
securities at fair value through earnings of USD
million. As of 31 December 2018, the carrying amounts of investments held for unit-linked business consist of equity
million. Please refer to Note 1 for details on changes related to ASU 2016-01.
585
424
Mortgage, policy and other loans and investment real estate
As of 31 December, the carrying and respective fair values of investments in mortgage, policy and other loans and investment real
estate (excluding unit-linked) were as follows:
USD millions
Policy loans
Mortgage loans
Other loans
Investment real estate
Carrying value
86
1 526
784
2 017
2017
Fair value
86
1 529
794
3 895
Carrying value
78
1 817
988
2 240
2018
Fair value
78
1 806
998
4 136
Depreciation expense related to investment real estate was USD
Accumulated depreciation on investment real estate totalled USD
2018, respectively.
49
585
million and USD
57
million and USD
million for 2017 and 2018, respectively.
million as of 31 December 2017 and
609
Substantially all mortgage, policy and other loan receivables are secured by buildings, land or the underlying policies.
Swiss Reinsurance Company Consolidated 2018 Annual Report 57
Financial statements
Notes to the Group financial statements
Other financial assets and liabilities by measurement category
As of 31 December 2017 and 2018, ‘‘Other invested assets’’ and ‘‘Accrued expenses and other liabilities’’ by measurement
category were as follows:
2017
USD millions
Other invested assets
Derivative financial instruments
Reverse repurchase agreements
Securities lending/borrowing
Equity-accounted investments
Other
Other invested assets
Accrued expenses and other liabilities
Derivative financial instruments
Repurchase agreements
Securities lending
Securities sold short
Other
Accrued expenses and other
liabilities
2018
USD millions
Other invested assets
Derivative financial instruments
Reverse repurchase agreements
Securities lending/borrowing
Equity-accounted investments
Other
Other invested assets
Accrued expenses and other liabilities
Derivative financial instruments
Repurchase agreements
Securities lending
Securities sold short
Other
Accrued expenses and other
liabilities
1 Amounts do not relate to financial assets or liabilities.
Investments
measured at net
asset value as
Fair value practical expedient
Amortised
cost or cost
Equity-accounted
Not in scope1
Total
607
607
621
776
111
60
1 568
516
778
1 947
3 241
0
2 961
1 065
369
4 395
160
51
627
838
1 230
1 230
621
2 961
1 841
1 341
1 036
7 800
516
160
829
1 947
4 331
0
3 704
0
3 704
7 783
Investments
measured at net
asset value as
Fair value practical expedient
Amortised
cost or cost
Equity-accounted
Not in scope1
Total
656
302
18
47
1 023
569
302
1 538
631
631
1 031
11
410
1 452
581
58
798
1 444
1 444
0
3 095
656
1 031
313
1 462
1 088
4 550
569
581
360
1 538
3 893
2 409
0
1 437
0
3 095
6 941
58 Swiss Reinsurance Company Consolidated 2018 Annual Report
Offsetting of derivatives, financial assets and financial liabilities
Offsetting of derivatives, financial assets and financial liabilities as of 31 December was as follows:
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
Related financial
assets presented instruments not set-off
in the balance sheet
–18
–2 961
–1 065
–4 044
in the balance sheet
621
2 961
1 065
4 647
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
Related financial
liabilities presented instruments not set-off
in the balance sheet
in the balance sheet
48
–516
160
–160
765
–829
973
–1 505
2018
USD millions
Derivative financial instruments – assets
Reverse repurchase agreements
Securities borrowing
Total
Gross amounts of
recognised
financial assets
1 708
4 265
110
6 083
Collateral set-off
in the balance sheet
–1 052
–3 234
–99
–4 385
Net amounts of financial
Related financial
assets presented instruments not set-off
in the balance sheet
–23
–1 031
–11
–1 065
in the balance sheet
656
1 031
11
1 698
2018
USD millions
Derivative financial instruments – liabilities
Repurchase agreements
Securities lending
Total
Gross amounts of
recognised
financial liabilities
–1 492
–3 334
–940
–5 766
Collateral set-off
in the balance sheet
923
2 753
580
4 256
Net amounts of financial
Related financial
liabilities presented instruments not set-off
in the balance sheet
in the balance sheet
21
–569
581
–581
339
–360
941
–1 510
Net amount
603
0
0
603
Net amount
–468
0
–64
–532
Net amount
633
0
0
633
Net amount
–548
0
–21
–569
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 the 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”, “Investments for unit-linked business” and “Accrued expenses and other liabilities”.
Assets pledged
As of 31 December 2017 and 2018, investments with a carrying value of USD
were on deposit with regulatory agencies in accordance with local requirements, of which USD
respectively, were cash and cash equivalents. As of 31 December 2017 and 2018, investments with a carrying value of
748
USD
liabilities, including pledged investments in subsidiaries, of which USD
million, respectively, were cash
and cash equivalents. Cash and cash equivalents pledged include some instances where cash is legally restricted from usage or
withdrawal.
million, respectively, were placed on deposit or pledged to secure certain reinsurance
million, respectively,
million,
216
million and USD
million and USD
million and USD
million and USD
840
588
382
893
247
126
10
11
6
4
As of 31 December 2017 and 2018, 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
767
941
173
13
14
As of 31 December 2017 and 2018, a real estate portfolio with a carrying value of USD
191
respectively, served as collateral for a credit facility, allowing the Group to withdraw funds up to CHF 500 million.
million and USD
192
million,
Swiss Reinsurance Company Consolidated 2018 Annual Report 59
Financial statements
Notes to the Group financial statements
Collateral accepted which the Group has the right to sell or repledge
As of 31 December 2017 and 2018, the fair value of the equity securities, government and corporate debt securities received as
million and USD
9
collateral was USD
31 December 2017 and 2018 was USD
3
securities borrowing, reverse repurchase agreements and derivative transactions.
million, respectively. Of this, the amount that was sold or repledged as of
million, respectively. The sources of the collateral are
million and USD
5
947
443
396
914
3
Recognised gross liability for the obligation to return collateral that the Group has the right to sell or repledge
As of 31 December 2017 and 2018, 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
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
354
139
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
Remaining contractual maturity of the agreements
2018
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
Total securities lending
Overnight and
continuous
Up to 30 days
30–90 days
Greater than
90 days
149
9
158
110
7
117
2 894
41
2 935
146
4
150
100
100
141
141
242
431
242
431
Gross amount of recognised liabilities for repurchase agreements
and securities lending
Total
3 284
50
3 334
929
11
940
4 274
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.
60 Swiss Reinsurance Company Consolidated 2018 Annual Report
8 Fair value disclosures
Fair value, as defined by the Fair Value Measurements and Disclosures Topic, is the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Fair Value Measurements and Disclosures Topic requires all assets and liabilities that are measured at fair value to be
categorised within the fair value hierarchy. This three-level hierarchy is based on the observability of the inputs used in the fair
value measurement. The levels of the fair value hierarchy are defined as follows:
Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the Group has the ability to access. Level 1
inputs are the most persuasive evidence of fair value and are to be used whenever possible.
Level 2 inputs are market-based inputs that are directly or indirectly observable, but not considered level 1 quoted prices. Level 2
inputs consist of (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical assets or liabilities
in non-active markets (eg markets which have few transactions and where prices are not current or price quotations vary sub-
stantially); (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 (ABS). 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
2018, these adjustments were not material. Whenever the underlying assets or liabilities are reported in a specific business
segment, the valuation adjustment is allocated accordingly. Valuation adjustments not attributable to any business segment are
reported in Other.
In certain situations, the Group uses inputs to measure the fair value of asset or liability positions that fall into different levels of the
fair value hierarchy. In these situations, the Group will determine the appropriate level based on the lowest level input that is
significant to the determination of the fair value.
Swiss Reinsurance Company Consolidated 2018 Annual Report 61
Financial statements
Notes to the Group financial statements
Valuation techniques
US government securities typically have quoted market prices in active markets and are categorised as level 1 instruments in the
fair value hierarchy. Non-US government holdings are generally classified as level 2 instruments and are valued on the basis of the
quotes provided by pricing services, which are subject to the Group’s pricing validation reviews and pricing vendor challenge
process. Valuations provided by pricing vendors are generally based on the actual trade information as substantially all of the
Group’s non-US government holdings are traded in a transparent and liquid market.
Corporate debt securities mainly include US and European investment-grade positions, which are priced on the basis of quotes
provided by third-party pricing vendors and first utilise valuation inputs from actively traded securities, such as bid prices, bid
spreads to Treasury securities, Treasury curves and same or comparable issuer curves and spreads. Issuer spreads are determined
from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call
features. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable
inputs and option-adjusted spreads and incorporate considerations of the security’s seniority and 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
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. Sub-
sequent 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, credit and equity derivative contracts for hedging
and trading purposes. The fair values of exchange-traded derivatives measured using observable exchange prices are classified in
level 1. Long-dated contracts may require adjustments to the exchange-traded prices which would trigger reclassification to level 2
in the fair value hierarchy. OTC derivatives are generally valued by the Group based on the internal models, which are consistent
with industry standards and practices, and use both observable (dealer, broker or market consensus prices, spot and forward rates,
interest rate and credit curves and volatility indices) and unobservable inputs (adjustments for liquidity, inputs derived from the
observable data based on the Group’s judgements and assumptions).
62 Swiss Reinsurance Company Consolidated 2018 Annual Report
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. 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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 63
Financial statements
Notes to the Group financial statements
Assets and liabilities measured at fair value on a recurring basis
As of 31 December, the fair values of assets and liabilities measured on a recurring basis by level of input were as follows:
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
practical
expedient
Impact of
netting1
10 820
60 039
361
10 820
3 024
585
699
47
4
43
765
15 940
–20
–2
–18
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
354
7
387
5
283
99
171
–1 176
919
–1 176
–269
1 342
–31
–238
–126
607
607
–91
–939
–1 050
–1 712
–1 785
–5 066
–395
1 342
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 2018 Annual Report
2018
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
practical
expedient
Impact of
netting1
8 974
59 858
463
8 974
2 450
424
951
7
6
1
286
13 092
–11
–3
–8
1 668
6 327
24 038
24 342
3 483
2 864
1 276
440
410
425
1
16
206
64 220
–1 184
–325
–325
–533
–1
457
6
425
6
338
81
65
–1 052
953
–1 052
923
–297
–3
–43
–251
–120
631
631
–102
–302
–415
–1 377
–1 538
–4 099
–417
923
Total
69 295
10 642
6 327
24 038
24 799
3 489
2 450
424
3 815
656
452
410
764
1
81
998
206
77 844
–569
–331
–325
–584
–1
–251
–120
–1 479
–1 840
–4 008
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 2018 Annual Report 65
Financial statements
Notes to the Group financial statements
Assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (level 3)
As of 31 December, the reconciliations of the fair values of assets and liabilities measured on a recurring basis using significant
unobservable inputs were as follows:
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.
2018
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
361
0
387
171
919
–269
–126
0
–395
47
–18
29
45
6
–11
165
–6
–35
–11
463
38
–6
–41
0
425
–11
203
0
–93
–76
0
–3
–15
953
–49
–1
–19
–3
–1
–297
–81
–3
–4
65
–120
0
51
0
0
–49
–1
–19
–3
0
–1
–417
1 Transfers are recognised at the date of the event or change in circumstances that caused the transfer.
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
2017
213
161
2018
80
37
66 Swiss Reinsurance Company Consolidated 2018 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
Private placement corporate debt
Private placement credit tenant
leases
Derivative equity contracts
OTC equity option referencing
correlated equity indices
Liabilities
Derivative equity contracts
OTC equity option referencing
correlated equity indices
Other derivative contracts and
liabilities for life and health policy
benefits
Variable annuity and fair valued
GMDB contracts
2017
2018
Fair value Fair value
Valuation technique
Unobservable input
Range (weighted average)
354
215
91
46
283
283
457
359 Discounted cash flow model
56
Corporate spread matrix
42 Discounted cash flow model
Valuation spread
Credit spread
Illiquidity premium
118–250 bps (187 bps)
131–254bps (181 bps)
125–150 bps (146 bps)
338
338
Proprietary option model
Correlation
–35–40% (2.5%)1
–31
–31
–43
–43
–364 –371
Proprietary option model
Correlation
–20–40% (10%)1
–325 –329 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.
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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 67
Financial statements
Notes to the Group financial statements
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
2017
Fair value
381
128
1
97
607
2018
Fair value
391
196
1
43
631
Unfunded
commitments
341
30
371
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 relative value and event-driven 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. The liability is carried at fair
value and changes in fair value attributable to instrument-specific credit risk are reported on other comprehensive income and all
other changes in fair value are reported as a component of earnings.
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.
68 Swiss Reinsurance Company Consolidated 2018 Annual Report
Assets and liabilities measured at fair value pursuant to election of the fair value option
Pursuant to the election of the fair value option for the items described, the balances as of 31 December were as follows:
USD millions
Assets
Other invested assets
of which at fair value pursuant to the fair value option
Funds held by ceding companies
of which at fair value pursuant to the fair value 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
2017
2018
7 800
111
12 617
206
–19 361
–126
–11 429
–1 803
4 550
18
10 894
206
–18 969
–120
–10 262
–1 479
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
Liabilities for life and health policy benefits
Funds held under reinsurance treaties
Total
2017
2
19
–49
–28
2018
–9
6
67
64
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”.
Swiss Reinsurance Company Consolidated 2018 Annual Report 69
Financial statements
Notes to the Group financial statements
Assets and liabilities not measured at fair value but for which the fair value is disclosed
Assets and liabilities not measured at fair value but for which the fair value is disclosed as of 31 December were as follows:
2017
USD millions
Assets
Policy loans
Mortgage loans
Other loans
Investment real estate
Total assets
Liabilities
Debt
Total liabilities
2018
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
1 529
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
Significant other
observable inputs
(level 2)
Significant
unobservable
inputs
(level 3)
78
1 806
998
4 136
7 018
0
Total
78
1 806
998
4 136
7 018
–5 750
–5 750
–7 264
–7 264
–13 014
–13 014
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 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.
70 Swiss Reinsurance Company Consolidated 2018 Annual Report
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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 71
Total derivative financial instruments
119 010
1 797
–1 858
Financial statements
Notes to the Group financial statements
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
2017
USD millions
Derivatives not designated as hedging instruments
Interest rate contracts1
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
2018
USD millions
Derivatives not designated as hedging instruments
Interest rate contracts1
Foreign exchange contracts
Equity contracts
Credit contracts
Other contracts
Total
Derivatives designated as hedging instruments
Foreign exchange contracts
Total
50 165
19 021
18 767
4 894
11 737
104 584
14 426
14 426
543
227
804
14
99
1 687
110
110
–421
–152
–684
–79
–238
–1 574
–284
–284
–801
–375
621
801
541
–516
52 540
23 213
13 451
584
10 220
100 008
15 503
15 503
452
195
764
1
81
1 493
215
215
–331
–176
–584
–1
–251
–1 343
–149
–149
Notional amount
assets/liabilities
Fair value
assets
Fair value
liabilities
Carrying value
assets/liabilities
122
75
120
–65
–139
113
–174
–174
–61
105
121
19
180
0
–170
150
66
66
216
87
Total derivative financial instruments
115 511
1 708
–1 492
Amount offset
Where a right of set-off exists
Due to cash collateral
Total net amount of derivative financial instruments
–623
–429
656
623
300
–569
1 During 2018, the Group revised its methodology on the calculation of notional amounts for interest rate derivatives. The revision has no impact on the income
statement or balance sheet of the Group. Comparative information for 2017 has been adjusted accordingly.
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 2017 and 2018.
72 Swiss Reinsurance Company Consolidated 2018 Annual Report
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
2017
2018
56
256
–186
–21
251
356
–167
–5
20
–7
54
–105
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 2017 and 2018, 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
–570
–570
2017
Gains/losses on
hedged items
Gains/losses
on derivatives
2018
Gains/losses on
hedged items
570
570
412
412
–412
–412
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 2017 and 2018, the Group recorded an accumulated net unrealised foreign currency
remeasurement gain of USD
and losses on the hedged net investment.
million, respectively, in shareholder’s equity. These offset translation gains
million and USD
166
737
1
Swiss Reinsurance Company Consolidated 2018 Annual Report 73
Financial statements
Notes to the Group financial statements
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 2017 and 2018 was approximately USD
maximum potential loss is based on the positive market replacement cost assuming non-performance of all counterparties,
excluding cash collateral.
million, respectively. The
million and USD
085
996
1
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.
60
The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD
million as of 31 December 2017 and 2018, respectively. For derivative financial instruments containing credit risk-
and USD
related contingent features, the Group posted collateral of nil as of 31 December 2017 and 2018, respectively. In the event of a
reduction of the Group’s credit rating to below investment grade, a fair value of USD
million additional collateral would have
had to be posted as of 31 December 2018. The total equals the amount needed to settle the instruments immediately as of 31
December 2018.
60
66
million
74 Swiss Reinsurance Company Consolidated 2018 Annual Report
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
Subordinated financial debt1
Contingent capital instruments classified as financial debt1
Short-term debt
Senior financial debt
Senior operational debt
Subordinated financial debt1
Subordinated operational debt
Contingent capital instruments classified as financial debt1
Long-term debt
Total carrying value
Total fair value
2017
2 826
2 826
2 244
390
2 135
2 370
975
8 114
2018
3 557
637
761
4 955
1 979
388
1 824
2 112
188
6 491
10 940
12 974
11 446
13 014
1 Certain items previously described within the disclosure table as subordinated financial debt are now included as contingent capital instruments classified as financial debt.
Comparative information for 2017 has been amended accordingly.
Maturity of long-term debt
As of 31 December, long-term debt as reported above had the following maturities:
USD millions
Due in 2019
Due in 2020
Due in 2021
Due in 2022
Due in 2023
Due after 2023
Total carrying value
2017
1 699
197
213
845
2
5 158
8 114
2018
0
188
219
817
432
4 835
6 491
Swiss Reinsurance Company Consolidated 2018 Annual Report 75
Financial statements
Notes to the Group financial statements
Senior long-term debt
Instrument
Maturity
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 2018
Total senior long-term debt as of 31 December 2017
1 Assumed in the acquisition of GE Insurance Solutions.
Subordinated long-term debt
Issued in
2012
2014
1996
2015
2000
2012
various
Currency
USD
CHF
USD
CHF
USD
USD
USD
Nominal in
millions
250
250
397
250
193
500
344
Interest rate
2.88%
1.00%
7.00%
0.75%
7.75%
4.25%
various
Instrument
Maturity
2042 Subordinated fixed-to-floating rate loan note
2043 Subordinated fixed-to-floating rate loan
2057 Subordinated private placement (amortising, limited recourse)
Perpetual subordinated fixed-to-floating rate callable loan note
Issued in
2012
2018
2007
2015
Currency
EUR
USD
GBP
EUR
Nominal in
millions
500
430
1 658
750
Interest rate
6.63%
5.75%
5.28%
2.60%
First call in
2022
2023
2025
Total subordinated long-term debt as of 31 December 2018
Total subordinated long-term debt as of 31 December 20171
Book value
in USD millions
249
253
476
254
257
490
388
2 367
2 634
Book value
in USD millions
568
430
2 112
826
3 936
4 505
1 Certain items previously described within the disclosure table as subordinated long-term debt are now included as contingent capital instruments classified as long-term debt.
Comparative information for 2017 has been amended accordingly.
Contingent capital instruments classified as long-term debt
Instrument
Maturity
2045 Subordinated contingent write-off securities
Total contingent capital instruments classified as long-term debt as of 31 December 2018
Total contingent capital instruments classified as long-term debt as of 31 December 20171
Currency
CHF
Issued in
2013
Nominal in
millions
175
Interest rate
7.50%
First call in
2020
Book value
in USD millions
188
188
975
1 Certain items previously described within the disclosure table as subordinated long-term debt are now included as contingent capital instruments classified as long-term debt.
Comparative information for 2017 has been amended accordingly.
76 Swiss Reinsurance Company Consolidated 2018 Annual Report
Interest expense on long-term debt and contingent capital instruments classified as equity
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 debt1
Subordinated operational debt
Contingent capital instruments classified as financial debt1
Total
2017
89
11
106
114
38
358
2018
77
11
99
118
28
333
1 Certain items previously described within the disclosure table as subordinated financial debt are now included as contingent capital instruments classified as financial debt.
Comparative information for 2017 has been amended accordingly.
In addition to the above, interest expense on contingent capital instruments classified as equity was USD
USD
million for the years ended 31 December 2017 and 2018, respectively.
41
67
million and
Long-term debt issued in 2018
In June 2018, Swiss Re Ltd granted a USD 430 million subordinated fixed-to-floating rate callable loan to Swiss Reinsurance
Company Ltd due in 2043 with a first optional redemption date on 13 June 2023. The loan bears interest through the first optional
redemption date at 5.75% per annum.
Contingent capital instruments classified as equity
In March 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated capital instrument with issuer stock
settlement, a face value of USD 750 million and a fixed coupon of 8.25% per annum. This capital instrument was redeemed on
1 September 2018.
Swiss Reinsurance Company Consolidated 2018 Annual Report 77
Financial statements
Notes to the Group financial statements
11 Income taxes
The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which it
operates. The components of the income tax expense were:
USD millions
Current taxes
Deferred taxes
Income tax expense
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
Intra-entity transfers
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.
2017
49
61
103
–48
51
–78
–81
24
9
29
119
2018
361
–185
176
2018
257
141
–79
–56
56
–128
–67
64
–12
176
For the year ended 31 December 2018, the Group reported a tax charge of USD 176 million on a pre-tax income of
USD 1 224 million, compared to a charge of USD 119 million on a pre-tax income of USD 233 million for 2017. This translates into
an effective tax rate in the current and prior-year reporting periods of 14.4% and 51.1%, respectively.
For the year ended 31 December 2018, the tax rate was largely driven by tax benefits from foreign currency translation differences
between statutory and US GAAP accounts, the releases of valuation allowances on net operating losses and tax benefits from
intra-entity transfers, partially offset by the impact of different rates in various jurisdictions and tax charges from unrecognised tax
benefits. The higher rate in the year ended 31 December 2017 was largely driven by tax charges from currency translation
differences between statutory and US GAAP accounts, impacts from unrecognised tax benefits and recognition of deferred tax
charges from intra-entity transfers, partially offset by tax benefits from US tax law changes.
78 Swiss Reinsurance Company Consolidated 2018 Annual Report
Deferred and other non-current taxes
The components of deferred and other non-current taxes were as follows:
USD millions
Deferred tax assets
Income accrued/deferred
Technical provisions
Pension provisions
Benefit on loss carryforwards
Currency translation adjustments
Other
Gross deferred tax asset
Valuation allowance
Unrecognised tax benefits offsetting benefits on loss carryforwards
Total deferred tax assets
Deferred tax liabilities
Present value of future profits
Income accrued/deferred
Investment valuation in income
Deferred acquisition costs
Technical provisions
Unrealised gains on investments
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
2017
2018
163
454
286
1 786
430
853
3 972
–293
–19
3 660
–73
–425
–393
–877
–1 409
–484
–448
–630
–4 739
–196
–4 935
105
474
274
2 025
350
1 101
4 329
–156
–21
4 152
–61
–171
–317
–990
–1 805
–269
–517
–577
–4 707
–245
–4 952
As of 31 December 2018, 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 2018, the Group had USD 9 393 million net operating tax loss carryforwards, expiring as follows:
USD 13 million in 2020, USD 4 million in 2021, USD 2 million in 2022, USD 5 606 million in 2023 and beyond, and
USD
million never expire.
768
3
As of 31 December 2018, the Group had capital loss carryforwards of USD 30 million, expiring as follows: USD 3 million in 2020,
USD 4 million in 2021 and USD 23 million in 2023.
For the year ended 31 December 2018, net operating tax losses of USD 422 million and net capital tax losses of nil were utilised.
Income taxes paid in 2017 and 2018 were USD 507 million and USD 439 million, respectively.
Swiss Reinsurance Company Consolidated 2018 Annual Report 79
Financial statements
Notes to the Group financial statements
Unrecognised tax benefits
A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as
follows:
USD millions
Balance as of 1 January
Change in group structure1
Additions based on tax positions related to current year
Additions based on tax positions related to prior years
Reductions 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
2017
189
-3
20
8
–1
–12
–9
–29
7
170
2018
170
36
56
–5
–13
–17
–6
–6
215
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 2017 and 2018, the amount of gross unrecognised tax benefits within the tabular reconciliation that, if
recognised, would affect the effective tax rate were approximately USD 170 million and USD 215 million, respectively.
Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. For the years ended
31 December 2017 and 2018, such expenses were nil and USD 7 million, respectively. For the years ended
31 December 2017 and 2018, USD 45 million and USD 51 million, respectively, were accrued for the payment of interest (net of
tax benefits) and penalties. The accrued interest balance as of 31 December 2018 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 2018 presented in the table above excludes accrued interest
and penalties (USD 51 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 subject to examination:
Australia
Brazil
Canada
China
Colombia
Denmark
France
Germany
Hong Kong
India
Ireland
Israel
Italy
Japan
2013–2018
2013–2018
2011–2018
2009–2018
2012–2016
2013–2018
2017–2018
2014–2018
2013–2018
2006–2018
2014–2018
2014–2018
2013–2018
2013–2018
Korea
Luxembourg
Malaysia
Mexico
Netherlands
New Zealand
Singapore
Slovakia
South Africa
Spain
Switzerland
United Kingdom
United States
2013–2018
2014–2018
2009–2018
2013–2018
2014–2018
2013–2018
2013–2018
2014–2018
2014–2018
2014–2018
2015–2018
2011–2018
2011–2018
80 Swiss Reinsurance Company Consolidated 2018 Annual Report
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.
The measurement date of these plans is 31 December for each year presented.
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
2018
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
3 916
111
24
–55
–57
–185
26
2
166
3 948
3 532
264
95
–185
26
2
153
3 887
–61
Swiss plan
3 948
120
23
–43
–202
25
4
–43
3 832
3 887
–73
162
–202
25
4
–43
3 760
–72
Foreign plans
1 819
7
55
0
–2
–60
Other benefits
369
4
9
–3
42
–17
–20
125
1 924
1 771
132
59
–60
–20
130
2 012
88
9
413
0
17
–17
0
–413
Foreign plans
1 924
7
53
1
–45
–72
Other benefits
413
5
9
–61
–25
–18
–71
1 797
2 012
–29
14
–72
–79
1 846
49
–4
319
0
18
–18
0
–319
Total
6 104
122
88
–58
–17
–262
26
–18
300
6 285
5 303
396
171
–262
26
–18
283
5 899
–386
Total
6 285
132
85
–60
–113
–292
25
4
–118
5 948
5 899
–102
194
–292
25
4
–122
5 606
–342
Swiss Reinsurance Company Consolidated 2018 Annual Report 81
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:
2017
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
2018
USD millions
Non-current assets
Current liabilities
Non-current liabilities
Net amount recognised
Swiss plan
–61
–61
Swiss plan
–72
–72
Foreign plans
262
–3
–171
88
Foreign plans
218
–2
–167
49
Other benefits
–18
–395
–413
Other benefits
–17
–302
–319
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows:
2017
USD millions
Net gain/loss
Prior service cost/credit
Total
2018
USD millions
Net gain/loss
Prior service cost/credit
Total
Swiss plan
805
–115
690
Swiss plan
864
–100
764
Foreign plans
271
1
272
Other benefits
13
13
Foreign plans
299
2
301
Other benefits
–12
–61
–73
Components of net periodic benefit cost
The components of pension and post-retirement cost for the years ended 31 December were as follows:
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
2018
USD millions
Service cost (net of participant contributions)
Interest cost
Expected return on assets
Amortisation of:
Net gain/loss
Prior service cost
Effect of settlement, curtailment and termination
Net periodic benefit cost
Swiss plan
111
24
–90
Foreign plans
7
55
–59
Other benefits
4
9
77
–9
2
115
21
24
–1
–61
–49
Swiss plan
120
23
–93
Foreign plans
7
53
–65
Other benefits
5
9
64
–15
4
103
12
7
14
Total
262
–21
–627
–386
Total
218
–19
–541
–342
Total
1 089
–114
975
Total
1 151
–159
992
Total
122
88
–149
97
–9
–59
90
Total
132
85
–158
76
–15
4
124
82 Swiss Reinsurance Company Consolidated 2018 Annual Report
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended
31 December were as follows:
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
2018
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
–231
–55
Foreign plans
–75
Other benefits
42
–3
–77
9
–354
–239
–21
22
–74
–50
1
61
101
Total
–264
–58
–97
9
61
22
–327
52
–237
Swiss plan
123
Foreign plans
49
1
Other benefits
–25
–61
–64
15
74
177
–12
–9
29
36
–86
–72
Total
147
–60
–76
15
0
–9
17
141
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 2019 are USD 53 million and USD 15
million, respectively. The estimated net gain and prior service credit for the other defined post-retirement benefits that will be
amortised from accumulated other comprehensive income into net periodic benefit cost in 2019 are USD 2 million and USD 15
million, respectively.
The Group and affiliated companies‘ accumulated benefit obligation (the current value of accrued benefits excluding future salary
increases) for pension benefits was USD 5 794 million and USD 5 570 million as of 31 December 2017 and 2018, 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
2017
5 068
5 022
4 833
2018
4 895
4 854
4 654
Swiss Reinsurance Company Consolidated 2018 Annual Report 83
Financial statements
Notes to the Group financial statements
Principal actuarial assumptions
Assumptions used to determine obligations
at the end of the year
Discount rate
Rate of compensation increase
Assumptions used to determine net periodic
pension costs for the year ended
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Assumed medical trend rates at year end
Medical trend – initial rate
Medical trend – ultimate rate
Year that the rate reaches
the ultimate trend rate
Swiss plan
Foreign plans weighted average
Other benefits weighted average
2017
2018
2017
2018
2017
2018
0.6%
1.8%
0.8%
1.8%
2.8%
2.8%
3.0%
2.8%
2.1%
2.1%
2.2%
2.1%
0.6%
2.5%
1.8%
0.6%
2.5%
1.8%
3.0%
3.3%
2.9%
2.8%
3.5%
2.8%
2.4%
2.1%
2.1%
2.1%
5.6%
3.8%
4.7%
3.6%
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 2018:
USD millions
Effect on total of service and interest cost components
Effect on post-retirement benefit obligation
1 percentage point
increase
0
18
1 percentage point
decrease
0
–15
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
2017 and 2018 was as follows:
Asset category
Equity securities
Debt securities
Real estate
Other
Total
Swiss plan allocation
Foreign plans allocation
2017
2018
Target allocation
2017
2018
Target allocation
29%
41%
23%
7%
100%
23%
46%
24%
7%
100%
23%
45%
24%
8%
100%
17%
77%
0%
6%
100%
14%
80%
0%
6%
100%
16%
79%
0%
5%
100%
Actual asset allocation is determined by a variety of current economic and market conditions and considers specific asset
class risks.
Equity securities include Swiss Re common stock of USD 6 million (0.1% of total plan assets) and USD 4 million (0.1% of total
plan assets) as of 31 December 2017 and 2018, 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.
84 Swiss Reinsurance Company Consolidated 2018 Annual Report
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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 85
Financial statements
Notes to the Group financial statements
As of 31 December, the fair values of pension plan assets by level of input were as follows:
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
181
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)
32
201
1 112
1 669
23
1
1
347
–38
78
3 374
3 374
10
103
692
805
805
450
450
450
1 147
1 625
16
1
7
3
257
5
–13
78
3 327
3 327
10
721
731
731
545
545
545
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
Agency securitised products
Other asset-backed securities
Equity securities:
Equity securities held for proprietary investment
purposes
1 141
Short-term investments
Derivative financial instruments
Real estate
Other assets
Total assets at fair value
Cash
Total plan assets
1 171
99
1 270
2018
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
Agency securitised products
Other asset-backed securities
Equity securities:
Equity securities held for proprietary investment
purposes
901
Short-term investments
Derivative financial instruments
Real estate
Other assets
Total assets at fair value
Cash
Total plan assets
933
70
1 003
86 Swiss Reinsurance Company Consolidated 2018 Annual Report
Total
211
1 112
1 679
23
1
0
1
1 591
0
–38
692
528
5 800
99
5 899
Total
233
1 147
1 635
16
1
7
3
1 158
5
–13
721
623
5 536
70
5 606
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:
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
2018
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
612
Other assets
106
34
19
27
692
–26
19
11
3
113
Real estate
692
Other assets
113
27
10
–8
721
–14
27
–11
–103
–2
10
Total
718
8
19
30
0
30
805
Total
805
13
27
–1
–103
–10
731
Expected contributions and estimated future benefit payments
The employer contributions expected to be made in 2019 to the defined benefit pension plans are USD 119 million and to the
post-retirement benefit plan are USD 17 million.
As of 31 December 2018, the projected benefit payments, which reflect expected future service, not adjusted for transfers in
and for employees’ voluntary contributions, are as follows:
USD millions
2019
2020
2021
2022
2023
Years 2024–2028
Swiss plan
214
210
204
200
194
934
Foreign plans
71
75
78
80
82
433
Other benefits
17
17
17
17
18
89
Total
302
302
299
297
294
1 456
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 2017 and 2018 was USD 75 million and USD 63 million, respectively.
Swiss Reinsurance Company Consolidated 2018 Annual Report 87
Financial statements
Notes to the Group financial statements
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:
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
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
2018
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
88 Swiss Reinsurance Company Consolidated 2018 Annual Report
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
809
409
–72
337
–95
–464
–61
31
–252
184
–30
322
23
–1 435
–145
–1 081
6
–72
1
–65
–1 497
–145
–1 642
Corporate
Solutions
Life Capital
Other
Total
276
177
–17
160
10
–37
11
144
86
–4
77
–1
158
1 151
469
469
–96
–313
–26
33
67
–270
310
4
9
53
1 427
646
–17
629
–96
–311
–25
44
241
86
–270
310
0
–1 282
–198
–1 354
–8
38
30
–1 368
–197
–1 565
2017
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
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
2018
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
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
Long-term debt
Accrued expenses and other liabilities
Total liabilities
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
0
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
Corporate
Solutions
Life Capital
Other
Total
30
96
527
298
9
336
1 296
3 674
106
83
92
66
143
860
8 917
1 643
24
–528
30
11 155
422
2 530
78
7 424
855
328
4 283
483
11 792
60
84
1
126
271
3 322
430
895
4 647
126
257
1
956
9 444
1 941
33
–528
492
12 722
4 096
2 530
184
7 507
947
3 322
430
1 706
20 722
Swiss Reinsurance Company Consolidated 2018 Annual Report 89
Financial statements
Notes to the Group financial statements
Share in earnings and dividends received from equity-accounted investees for the years ended 31 December, were as follows:
USD millions
Share in earnings of equity-accounted investees
Dividends received from equity-accounted investees
2017
53
119
2018
89
133
An overview of the financing activities between the Group and affiliated companies is shown below:
Maturity
2019
2019
2020
2043
Total debt as of 31 December 2018
Instrument
Senior Loan
Senior Loan
Senior Loan
Subordinated Loan
Issued in
2018
2018
2018
2018
Currency
USD
USD
USD
USD
Nominal in millions
222
2 600
500
430
Interest rate
2.47%
3mLIBOR+0.35%
3mLIBOR+0.53%
5.75%
Book value in USD
millions
222
2 600
500
430
3 752
As of 31 December 2017 and 2018, the Group’s investment in mortgages and other loans included USD 301 million and
USD 373 million, respectively, of loans due from employees, and USD 181 million and USD 212 million, respectively, due from
officers. These loans generally consist of mortgages offered at variable and fixed interest rates.
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 2018, 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%
None of the members of BoD and the Group EC has any significant business connection with the Group or any of its Group
companies.
90 Swiss Reinsurance Company Consolidated 2018 Annual Report
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 2018, such
agreements, which are operating leases, total the following obligations for the next five years and thereafter:
USD millions
2019
2020
2021
2022
2023
After 2023
Total operating lease commitments
Less minimum non-cancellable sublease rentals
Total net future minimum lease commitments
2018
34
31
27
26
23
135
276
4
272
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 2017 and 2018 were USD
million, respectively. Sublease rental income for the years ended
31 December 2017 and 2018 was 2 million and USD
million, respectively.
million and USD
36
35
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 2018 were USD 1 862 million.
The Group enters into a number of contracts in the ordinary course of reinsurance and financial services business which, if the
Group’s credit rating and/or defined statutory measures decline to certain levels, would require the Group to post collateral or
obtain guarantees. The contracts typically provide alternatives for recapture of the associated business.
Legal proceedings
In the normal course of business operations, the Group is involved in various claims, lawsuits and regulatory matters. In the
opinion of management, the disposition of these matters is not expected to have a material adverse effect on the Group’s
business, consolidated financial position, results of operations or cash flows.
Swiss Reinsurance Company Consolidated 2018 Annual Report 91
Financial statements
Notes to the Group financial statements
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:
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 regularly reassesses
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.
92 Swiss Reinsurance Company Consolidated 2018 Annual Report
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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 93
Financial statements
Notes to the Group financial statements
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 2018 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
2017
3 974
62
12
34
29
4
41
15
4 171
84
1
12
17
133
20
2 369
2 636
2018
3 444
79
18
30
26
3
206
16
3 822
66
8
15
174
15
2 112
2 390
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.
94 Swiss Reinsurance Company Consolidated 2018 Annual Report
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
Equity securities at fair value through earnings
Policy loans, mortgages and other loans
Other invested assets
Investments for unit-linked business
Total assets
Accrued expenses and other liabilities
Total liabilities
2017
412
656
848
1 167
180
3 263
67
67
2018
749
205
1 056
1 413
141
3 564
58
58
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
311
27
25
1 771
180
949
3 263
2017
Maximum
exposure to
loss1
314
2 052
–2
1 772
949
–2
Total
liabilities
1
66
67
2018
Maximum
exposure to
loss1
462
2 174
–2
1 517
1 358
–2
Total
liabilities
58
58
Total assets
447
25
76
1 517
141
1 358
3 564
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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 95
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 2018, 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 2018.
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 2018, the results of operations and the 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 41 to 48 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.
96 Swiss Reinsurance Company Consolidated 2018 Annual Report
Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated
financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial
statements as a whole and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Unobservable or interpolated inputs used for the valuation of certain level 2 and 3 investments
Key audit matter
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 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 level 2 and 3
investments.
Based on the work performed, we consider the methodology
and assumptions used by management in determining the
valuation to be appropriate.
Swiss Reinsurance Company Consolidated 2018 Annual Report 97
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.
Furthermore, on a regular basis, the Company enters into large
and/or structured transactions which often have material or
complex financial reporting and reserving consequences. The
reserving for such transactions is subject to increased risk of
error due to the non-routine nature of transactions and the
judgemental nature of reserving.
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 may be reported as well as the fact that
claim settlements are often less frequent but of higher
magnitude. 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, which are
applicable for both the standard reserving and large and/or
structured transactions:
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.
Evaluating the appropriateness of the recognition,
accounting, and disclosures for large and/or structured
transactions.
Based on the work performed, we consider the methodologies
and assumptions used by management in the valuation of
actuarially determined P&C loss reserves to be appropriate.
98 Swiss Reinsurance Company Consolidated 2018 Annual Report
Valuation of actuarially determined Life & Health (‘L&H’) reserves
Key audit matter
The Company’s valuation of liabilities for L&H policy benefits
and policyholder account balances involves complex
judgements about future events affecting the business.
Actuarial assumptions selected by the Company with respect
to interest rates, inflation trends, 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.
Furthermore, on a regular basis, the Company enters into large
and/or structured transactions which often have material or
complex financial reporting and reserving consequences. The
reserving for such transactions is subject to increased risk of
error due to the non-routine nature of transactions and the
judgemental nature of reserving.
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, which are
applicable for both the standard reserving and large and/or
structured transactions:
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.
Involving our own life insurance actuarial specialists to
perform independent model validation procedures,
including detailed testing of models, independent
recalculations and back testing.
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.
Evaluating the appropriateness of the recognition,
accounting, and disclosures for large and/or structured
transactions.
Based on the work performed, we consider the methodologies
and assumptions used by management in the valuation of
actuarially determined L&H reserves to be appropriate.
Swiss Reinsurance Company Consolidated 2018 Annual Report 99
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. 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 and 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.
Evaluating the appropriateness of management's
assessment of completeness of uncertain tax provisions.
Examining material movements within the uncertain tax
positions in each jurisdiction.
Based on the work performed, we determined management’s
assessment of 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
Roy Clark
Audit expert
Auditor in charge
Zurich, 13 March 2019
Frank Trauschke
100 Swiss Reinsurance Company Consolidated 2018 Annual Report
This page is intentionally left blank.
Swiss Reinsurance Company Ltd 2018 Annual Report 101
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 2018, the Company employed
a worldwide staff at an average of 1 842 full time equivalents.
Financial year 2018
The financial year 2018 was characterised by large intercompany transactions impacting both the Company’s income statement
and balance sheet. To further align the legal entity structure with the management view, the Company sold the assets and
liabilities of its Singapore branch to Swiss Re Asia Pte. Ltd. With this sale the Company transferred related rights and obligations
of the branch, including the entire reinsurance business as well as the employees, employed by the branch. Following the sale,
a new retrocession agreement for the life and health business transferred was setup from Swiss Re Asia Pte. Ltd. with a negative
day-one impact on the Company’s Life & Health Reinsurance result of CHF 297 million.
Further, the Company sold its fully owned direct subsidiary Swiss Re Australia Ltd to Swiss Re Asia Holding Pte. Ltd. domiciled in
Singapore generating a one-off realised gain of CHF 545 million. In order to finance the sale, the Company provided a capital
contribution to Swiss Re Asia Holding Pte. Ltd. of CHF 1 236 million. This contribution increased the book value of the Company’s
direct subsidiary Swiss Re Reinsurance Holding Company Ltd in the same amount.
As a consequence of the new tax regime in the US, effective as of 31 December 2017, the Company restructured its assumed
intragroup retrocession agreements with the affiliated companies Swiss Reinsurance America Corporation and Swiss Re Life &
Health America Inc. In 2018, these restructurings led to a one-off net gain of CHF 643 million in the Life & Health Reinsurance
result.
In the last quarter of 2018, the Company restructured its intragroup retrocession agreement with Swiss Re Life Capital
Reinsurance Ltd for the Canadian life and health business, moving from a full funds withheld structure to a partial funds withheld
and new securities lending agreements structure.
Net income for 2018 amounted to CHF 1 231 million driven by a strong investment result of CHF 1 914 million and a moderate
Property & Casualty Reinsurance result, impacted by several large natural catastrophe and man-made losses. Life & Health
Reinsurance result closed negatively, due to assumptions updates and day-one impacts from large transactions, more than
offsetting the one-off gain from the restructuring of the intragroup retrocession agreements with Swiss Re Life & Health
America Inc.
With CHF 10 192 million the total shareholder’s equity of the Company remained strong as at 31 December 2018.
102 Swiss Reinsurance Company Ltd 2018 Annual Report
Reinsurance result
Reinsurance result amounted to CHF 411 million in 2018, compared to CHF 227 million in 2017. Property & Casualty Reinsurance
result increased from CHF 354 million in 2017 to CHF 642 million in 2018. The current year experienced a modest Property &
Casualty Reinsurance result impacted by several new large natural catastrophe losses in Asia and Americas and by man-made
losses compared to an exceptionally large loss burden in 2017. Life & Health Reinsurance result deteriorated from a loss of
CHF 127 million in 2017, to a loss of CHF 231 million in 2018, mainly due to day-one impacts originating from several new large
transactions as well as unfavourable reserves development, predominantly in Israel. In addition, Life & Health Reinsurance result
was affected by restructurings of intragroup retrocession agreements with Swiss Re Life & Health America Inc. leading to a net
gain of CHF 643 million and with Swiss Re Asia Pte. Ltd. generating a loss of CHF 297 million.
Premiums earned decreased from CHF 17 421 million in 2017 to CHF 15 798 million in 2018. The decrease was primarily driven
by the restructuring of several intragroup retrocession agreements with US affiliated companies. The decrease was additionaly
driven by the non-renewal of a large quota share treaty with an external US client in property and casualty, partly offset by higher
assumed life and health Canadian business, new Life Capital business as well as continued growth in Asia.
Other reinsurance revenues increased from CHF 1 439 million in 2017 to CHF 1 933 million in 2018, mainly driven by the gain
from the recapture of the Swiss Re Life & Health America Inc intragroup retrocession agreements.
Claims incurred decreased from CHF 13 098 million in 2017 to CHF 11 789 million in 2018, mostly reflecting the large natural
catastrophes in 2017. The comparison of the individual claims line items is 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 3 922 million in 2017 to
CHF 7 317 million in 2018, reflecting the new intragroup retrocession agreement with Swiss Re Asia Pte. Ltd. established in
2017, fully offset in change in unpaid claims. Property and casualty change in unpaid claims net decreased from an expense
of CHF 5 393 million in 2017 to an income of CHF 793 million in 2018 due to the quota share reduction of the intragroup
retrocession agreement with Swiss Re America Corporation and the settlement of outstanding claims to Swiss Re Asia Pte. Ltd.
related to 2017 intragroup retrocession agreements as well as settlement of large losses reported in 2017.
Life and health claims paid and claims adjustment expenses net and change in unpaid claims net decreased from
CHF 8 598 million in 2017 to CHF 6 818 million in 2018, driven by several intragroup retrocession agreements restructurings,
in 2018 the recapture from Swiss Re Life & Health America Inc and in 2017 the new agreement with Swiss Re Life Capital
Reinsurance Ltd, as well as by large transactions in both years. These aforementioned restructurings and large transactions
impacts were fully offset in life and health benefits net. Furthermore, claims paid and claims adjustment expenses net and
change in unpaid claims net movements were mainly driven by Swiss Re Life Capital Reinsurance Ltd intragroup retrocession
agreements for the Canadian business, as well as for the new Life Capital business.
Life and health benefits net decreased from a gain of CHF 3 492 million in 2017 to a gain of CHF 1 554 million in 2018, mainly
driven by several intragroup retrocession restructurings, in 2018 the recapture with Swiss Re Life & Health America Inc and in
2017 the new agreement with Swiss Re Life Capital Reinsurance Ltd, as well as large transactions in both years. These
aforementioned restructurings and large transactions impacts were fully offset in life and health claims paid and claims
adjustment expenses net and change in unpaid claims net. In addition, 2018 was negatively impacted in line with the volume
update and new business in Asia, mainly in Japan as well as reserves strengthening in Israel.
Acquisition costs net decreased from CHF 4 333 million in 2017 to CHF 3 664 million in 2018, mainly in property and casualty,
in line with the premium development. This was driven by the quota share reduction of the intragroup retrocession agreement
from Swiss Reinsurance America Corporation and the non-renewal of a large quota share treaty with an external US client, partly
offset by the new volume from the intragroup retrocession agreement with Swiss Re Asia Pte. Ltd.
Other reinsurance expenses increased from CHF 878 million in 2017 to CHF 1 545 million in 2018, reflecting the day-one losses
from the new life and health intragroup retrocession from Swiss Re Asia Pte. Ltd. and from large transactions retroceded from
Swiss Re Life & Health Australia Limited.
Swiss Reinsurance Company Ltd 2018 Annual Report 103
Financial statements
Swiss Reinsurance Company Ltd
Investment result
Investment income decreased from CHF 3 246 million in 2017 to CHF 2 777 million in 2018. The decrease was driven by
lower distributions from investment funds of CHF 153 million and lower realised gains on equity securities of CHF 120 million
compared to prior year. Furthermore, the introduction of the new accounting policy to account fixed income securities at
amortised cost resulted in a one-off value readjustment in 2017 of CHF 227 million.
In 2018, the Company received less income from subsidiaries and affiliated companies by CHF 536 million. This decrease was
offset by a one-off realised gain on investments in subsidiaries and affiliated companies of CHF 563 million, mostly related to the
sale of Swiss Re Australia Ltd.
Investment expenses increased from CHF 317 million in 2017 to CHF 466 million in 2018. The increase was mainly related to
higher value adjustments on equity securities and shares in investment funds, driven by market deteriorations in 2018.
Other income and expenses
The decrease in other net expenses from CHF 479 million in 2017 to CHF 334 million in 2018 was mainly related to a change
in allocation of management expenses and to the loss from the sale of assets and liabilities of the Company’s Singapore branch
which was recognised in 2017.
Assets
Total assets decreased from CHF 113 052 million as of 31 December 2017 to CHF 106 285 million as of 31 December 2018.
Total investments increased from CHF 54 410 million to CHF 57 431 million in 2018. This was mainly due to the increase in
investments in subsidiaries and affiliated companies by CHF 2 146 million, mostly related to the capital contributions to
subsidiaries of Swiss Re Reinsurance Holding Company Ltd of CHF 2 895 million to fund their capital needs, primarily from the
legal entity restructuring in Asia and the restructuring of several intragroup retrocession agreements with US affiliated companies.
The increase was partly offset by the sale of Swiss Re Australia Ltd.
The increase in short-term investments of CHF 1 746 million was mainly related to reinvestments of fixed income securities
proceeds in connection with the restructuring of the Company’s life and health Canadian business, which led mostly to the
decrease in fixed income securities of CHF 958 million. Further, short-term investments increased following the strategic asset
allocation.
Funds held by ceding companies decreased from CHF 20 913 million to CHF 15 684 million in 2018. Property and casualty funds
held by ceding companies decreased mainly driven by the quota share reduction of the intragroup retrocession agreement from
Swiss Reinsurance America Corporation and by the partial return of funds related to the restructure of the intragroup retrocession
agreement with Westport Insurance Corporation. Life and health funds held by ceding companies decreased due to the recapture
of intragroup retrocession agreements with Swiss Re Life & Health America Inc and the restructure of the intragroup retrocession
agreement with Swiss Re Swiss Re Life Capital Reinsurance Ltd for the Canadian business.
Deferred acquisition costs decreased from CHF 2 220 million to CHF 2 055 million in 2018, mostly driven by property and
casualty business related to the reduction of the intragroup quota share retrocession agreement from Swiss Reinsurance
America Corporation, partly offset by new transactions retroceded from Swiss Re Life & Health Australia Limited.
Reinsurance recoverable on technical provisions retroceded increased from CHF 13 380 million to CHF 13 860 million in 2018,
mainly in property and casualty business, due to large recoveries from Swiss Re Asia Pte. Ltd. reflecting large losses in Japan,
partly offset by the commutation of a large adverse development cover.
Premiums and other receivables from reinsurance decreased from CHF 12 615 million to CHF 10 785 million in 2018. The
decrease was primarily driven by the restructure of several intragroup retrocession agreements with US affiliated companies. In
addition, the decrease in property and casualty was driven by the transfer of the Company’s Singapore branch to Swiss Re Asia
Pte. Ltd., partly offset by growth in life and health business in Asia and business from Swiss Re Life Capital Reinsurance Ltd.
Accrued income decreased from CHF 1 258 million to CHF 225 million in 2018, mainly related to the settlement of the dividend
from Swiss Re Reinsurance Holding Company Ltd in 2018.
104 Swiss Reinsurance Company Ltd 2018 Annual Report
Liabilities
Total liabilities decreased from CHF 102 231 million as of 31 December 2017 to CHF 96 093 million as of 31 December 2018.
Technical provisions gross decreased from CHF 70 798 million to CHF 65 826 million in 2018. The decrease was primarily driven
by the restructuring of several intragroup retrocession agreements with US affiliated companies. In addition, the decrease related
to the settlement of outstanding claims from Swiss Re Asia Pte. Ltd. mainly for a new 2017 intragroup treaty and the transfer of
the Company’s Singapore branch to Swiss Re Asia Pte. Ltd., partly offset by reserves strengthening in Israel.
Funds held under reinsurance treaties decreased from CHF 8 050 million to CHF 6 866 million in 2018, mostly in life and health
business, reflecting the restructure of the intragroup retrocession agreement with Swiss Re Swiss Re Life Capital Reinsurance Ltd
for the Canadian business.
Debt decreased by CHF 312 million to CHF 4 817 million in 2018, mainly reflecting the partial repayment of a loan to Swiss Re
Reinsurance Holding Company Ltd of CHF 831 million, partly offset by the net increase of an existing loan facility from Swiss Re
Ltd of CHF 552 million.
Other liabilities increased from CHF 5 572 million to CHF 6 394 million in 2018, mainly reflecting higher intragroup current
account payables.
The decrease in subordinated liabilities of CHF 384 million to CHF 3 374 million in 2018 was mainly driven by the maturity of an
external subordinated debt, partly offset by the issurance of an intragroup subordinated debt with Swiss Re Ltd of
CHF 424 million.
Shareholder’s equity
Shareholder’s equity decreased from CHF 10 821 million as of 31 December 2017 to CHF 10 192 million as of 31 December 2018.
The decrease reflected the dividend payment in cash of CHF 1 860 million, partly offset by the net income for the financial year
2018 of CHF 1 231 million.
Future prospects and business development
Large transactions
In order to further align the legal entity structure with the management view, the Company is going to sell the assets and liabilities of
its Korea branch to Swiss Re Asia Pte. Ltd., Korea branch, effective 1 January 2019. With this sale the Company will transfer related
rights and obligations of the branch to Swiss Re Asia Pte. Ltd., Korea branch, including the entire reinsurance business as well as
the employees, employed by the branch of the Company. Furthermore, the Company plans to sell its remaining Asian branches to
Swiss Re Asia Pte. Ltd. in the upcoming years.
Following the new tax regime in the US, effective as of 31 December 2017, the Company will further restructure its intragroup
retrocession agreements with the affiliated companies through a taxable presence in the US.
Swiss Reinsurance Company Ltd 2018 Annual Report 105
Financial statements
Swiss Reinsurance Company Ltd
Property & Casualty Reinsurance business
Market environment
Global non-life reinsurance industry has experienced slight growth in 2018, driven by the emerging markets. Growth in
advanced markets is attributable to strong economic momentum, especially in North America, and more favourable general
market conditions, especially in Nat Cat and casualty lines. Non-life premium development will be stable across the global,
advanced and emerging markets over the next two years. With the stabilization of rates in 2019, underwriting result for the
global non-life sector is expected to remain slightly positive. Overall profitability of the global property/casualty insurance
remains at moderate levels, also driven by continuing low investment returns.
Strategy and priorities
The Company has benefitted from an improved non-life reinsurance market environment, with price increases and increasing
interest rates impacting positively our long tail lines of business.
In the context of these favourable market conditions, the Company is applying its selective growth strategy, specifically focused
on portfolios with long-term profitability. Additionally, a differentiation approach is continuously applied and clients’ needs are
addressed through the development of innovative, structured transactions. Further, the Company is diversifying its access to
various risk pools through the contribution of its three main pillars (core, transactions and solutions).
Life & Health Reinsurance business
Market environment
The life reinsurance industry registered a 2% increase in 2018. Underlying reinsurance premium growth in traditional reinsurance
areas such as mortality and morbidity risk has again remained relatively subdued, but also other kinds of reinsurance transactions
were sluggish this year. In mature markets, slow increases in the US were contrasted by healthy growth in Europe and Asia.
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. Another area of growth for reinsurers has been longevity risk transfer.
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 around 2% in 2019 and 2020. Premiums in the advanced
markets are projected to expand by below 1% annually, 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 markets in Asia.
Strategy and priorities
The Company has experienced material growth of its life reinsurance portfolio, mostly reflecting the increasing diversification of
its sources of earnings, through a larger mix of products lines and markets.
The Company is diversifying its access to various risk pools through the contribution of its three main pillars (core, transactions and
solutions). With this differentiation strategy, the Company is aiming to deliver sustainable profitability.
Investments
Strategy and priorities
Financial investments are managed in accordance with Swiss Re‘s Targeted Standard on Asset Management 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
Global economic growth has peaked and is expected to slow in 2019, particularly in advanced markets. In the US and Euro area,
tighter financial conditions, the waning US fiscal stimulus and lingering political concerns are likely to weigh on growth.
Economic growth in emerging Asia will slow moderately, but remains the strongest region globally, while Latin America will see
a modest growth recovery, albeit from a low base. In contrast to last year’s outlook, the balance of risks is seen as skewed to the
down side, amid increasing protectionism (e.g. US-China trade conflict), ongoing monetary policy tightening, late cycle concerns
(especially in the US) and uncertain (geo)politics (such as Brexit, European Parliament election, or elections in India, South Africa
and Argentina).
106 Swiss Reinsurance Company Ltd 2018 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 2018 Annual Report 107
Financial statements
Swiss Reinsurance Company Ltd
Income statement
Swiss Reinsurance Company Ltd
For the years ended 31 December
Income statement
CHF millions
Reinsurance
Premiums written gross
Premiums written retroceded
Premiums written net
Change in unearned premiums gross
Change in unearned premiums retroceded
Change in unearned premiums net
Premiums earned
Other reinsurance revenues
Allocated investment return
Total revenues from reinsurance business
Claims paid and claim adjustment expenses gross
Claims paid and claim adjustment expenses retroceded
Claims paid and claim adjustment expenses net
Change in unpaid claims gross
Change in unpaid claims retroceded
Change in unpaid claims net
Life and health benefits gross
Life and health benefits retroceded
Life and health benefits net
Claims and claim adjustment expenses and life and health benefits
Change in equalisation provision
Claims incurred
Acquisition costs gross
Acquisition costs retroceded
Acquisition costs net
Operating costs
Acquisition and operating costs
Other reinsurance expenses
Total expenses from reinsurance business
Note
2017
2018
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
18 277
–4 041
14 236
1 602
–40
1 562
15 798
1 933
397
18 128
–18 010
3 350
–14 660
631
686
1 317
1 562
–8
1 554
–11 789
-
–11 789
–4 659
995
–3 664
–719
–4 383
–1 545
–17 717
Reinsurance result
227
411
108 Swiss Reinsurance Company Ltd 2018 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
2017
2018
3 246
–317
–383
2 546
2 300
–2 559
2 514
–408
73
–552
–226
1 401
–192
1 209
2 777
–466
–397
1 914
1 356
–1 539
2 142
–421
82
–416
-
1 387
–156
1 231
19
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2018 Annual Report 109
Financial statements
Swiss Reinsurance Company Ltd
Balance sheet
Swiss Reinsurance Company Ltd
As of 31 December
Assets
CHF millions
Investments
Investments in subsidiaries and affiliated companies
Fixed income securities
Loans
Mortgages
Equity securities
Shares in investment funds
Short-term investments
Alternative investments
Other investments
Total investments
Financial and reinsurance assets
Assets in derivative financial instruments
Funds held by ceding companies
Cash and cash equivalents
Reinsurance recoverable from unpaid claims
Reinsurance recoverable from liabilities for life and health policy benefits
Reinsurance recoverable from unearned premiums
Reinsurance recoverable from provisions for profit commissions
Reinsurance recoverable on technical provisions retroceded
Tangible assets
Deferred acquisition costs
Intangible assets
Premiums and other receivables from reinsurance
Other receivables
Other assets
Accrued income
Total financial and reinsurance assets
Note
2017
2018
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
15 321
16 387
8 631
813
927
11 569
3 100
683
15 352
57 431
896
15 684
866
6 450
5 554
1 813
43
13 860
10
2 055
110
10 785
277
4 086
225
48 854
3
3
3
3
3
3
18
Total assets
113 052
106 285
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
110 Swiss Reinsurance Company Ltd 2018 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
2017
2018
3
3
3
3
3
3
4
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
44 569
14 131
6 366
539
221
65 826
292
870
153
1 315
4 817
1 080
6 866
6 278
6 394
143
3 374
102 231
96 093
34
6 778
6 778
650
2 099
51
1 209
10 821
34
6 778
6 778
650
1 439
60
1 231
10 192
Total liabilities and shareholder’s equity
113 052
106 285
The accompanying notes are an integral part of Swiss Reinsurance Company Ltd’s financial statements.
Swiss Reinsurance Company Ltd 2018 Annual Report 111
Financial statements
Swiss Reinsurance Company Ltd
Notes
Swiss Reinsurance Company Ltd
Reinsurance and sub-holding company
Swiss Reinsurance Company Ltd (the Company), domiciled in Zurich, Switzerland, performs a dual role within the Swiss Re Group
as both a reinsurance company and a sub-holding company for the Reinsurance Business Unit. The Company is a wholly-owned
subsidiary of Swiss Re Ltd, the ultimate parent company domiciled in Zurich, Switzerland.
1 Significant accounting principles
Basis of presentation
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 2018 financial year comprises the accounting period from 1 January 2018 to 31 December 2018.
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 carried at their amortised cost, less necessary depreciation to address other than temporary market
value decreases.
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. Infrastructure loans are carried at their amortised cost, less necessary depreciation to address other than
temporary market value decreases.
112 Swiss Reinsurance Company Ltd 2018 Annual Report
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 are
recorded at market value.
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 2018 Annual Report 113
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.
114 Swiss Reinsurance Company Ltd 2018 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 2018 Annual Report 115
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
441
521
278
5
28
420
20
51
491
131
1 895
Value
readjustments
Realised
gains
–
–
–
–
4
–
–
10
10
–
14
563
208
0
–
53
42
0
2
44
–
868
Expenses
Value
adjustments
Realised
losses
–
–
–
–
–
–
–
–
–174
–174
–41
–6
0
–110
–36
–
–22
–58
–
–215
0
–50
–
–12
–14
–1
0
–15
–
–77
2018
Total
1 004
729
278
5
85
462
20
63
545
131
2 777
2018
Total
–41
–56
0
–122
–50
–1
–22
–73
–174
–466
–397
1 914
116 Swiss Reinsurance Company Ltd 2018 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
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
Swiss Reinsurance Company Ltd 2018 Annual Report 117
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
2 833
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
12 615
209
40 219
10 280
6 164
534
221
6 378
Gross
2 673
9 412
165
44 569
14 131
6 366
539
221
3 472
Retro
–618
1 373
–19
–6 4501
–5 5541
–1 8131
–431
–
2 806
2018
Net
2 055
10 785
146
38 119
8 5773
4 553
496
221
6 278
1 Reported under "Reinsurance recoverable on technical provisions retroceded" on page 110.
2 Reported under "Other assets" on page 110.
3 Changes mainly in modelling and assumptions resulting in a reserve increase of CHF 196 million impacted business from all years. Thereof CHF 144 million related to
modelling changes for the Israel Medex business.
4 Change in shareholder’s equity
CHF millions
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
Shareholder’s equity 1.1.2018
Allocations relating to the dividend paid
Dividend for the financial year 2017
Net income for the financial year
Shareholder’s equity 31.12.2018
Share
capital
34
Legal capital
reserves
6 778
Legal profit
reserves
650
Voluntary profit
reserves
3 839
850
–2 590
Retained earnings
brought forward
26
25
Net income for
the financial year
875
–875
34
34
6 778
650
2 099
6 778
650
2 099
1 200
–1 860
34
6 778
650
1 439
51
51
9
60
1 209
1 209
1 209
–1 209
1 231
1 231
Total shareholder’s
equity
12 202
–
–2 590
1 209
10 821
10 821
–
–1 860
1 231
10 192
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 2018 and 2017,
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 1 921 million
(2017: CHF 974 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 2018 and 2017, respectively.
118 Swiss Reinsurance Company Ltd 2018 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
2017
15 439
18 657
34 096
2018
16 066
16 960
33 026
To secure the technical provisions at the 2018 balance sheet date, securities with a book value of CHF 12 863 million
(2017: CHF 12 927 million) were deposited in favour of ceding companies, of which CHF 3 726 million (2017: CHF 3 513 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 2018, total commitments
remaining uncalled were CHF 987 million (2017: CHF 1 305 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 2018
and 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 Ltd 2018 Annual Report 119
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
2018
2019
2020
2021
2022
After 2023
Total operating leases, net
2017 1
12
12
10
7
6
2
49
2018
–
10
7
4
3
2
26
1 Operating leasing for a branch was overstated in 2017 by CHF 72 million. Therefore, the previously reported 2017 figures have been changed accordingly.
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 2018 and 2017, Swiss Reinsurance Company Ltd held the following direct and material indirect investments
in subsidiaries and affiliated companies:
Country
Barbados
Barbados
As of 31 December 2018
European Finance Reinsurance Company Ltd
Gasper Funding Corporation
Swiss Brokers México, Intermediario de Reaseguro, S.A. de C.V. Mexico
Swiss Re Brasil Resseguros S.A.
Swiss Re Investments Ltd
Swiss Re Africa Limited 1
Swiss Re Mexico Servicios, S. de R.L. de C.V.
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.
Swiss Re Australia Ltd
Swiss Re Life & Health Australia Limited
Swiss Re Capital Markets Corporation
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
Brazil
Switzerland
South Africa
Mexico
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
Australia
Australia
United States (USA)
Luxembourg
Luxembourg
Germany
United Kingdom (UK)
India
United Kingdom (UK)
Brazil
Cayman Islands
Vietnam
Brazil
City
Bridgetown
Bridgetown
Mexico City
São Paulo
Zurich
Cape Town
Mexico City
Zurich
Zurich
Wilmington
New York
Wilmington
Wilmington
Wilmington
Wilmington
Armonk
Singapore
Singapore
Sydney
Sydney
New York
Luxembourg
Luxembourg
Munich
London
Mumbai
London
%
Equity interest
100%
100%
100%
99%
100%
100%
98%
100%
100%
100%
77%
100%
100%
100%
100%
100%
100%
100%
100%
100%
23%
100%
100%
6%
100%
100%
100%
%
Voting interest
100%
100%
100%
99%
100%
100%
98%
100%
100%
100%
77%
100%
100%
100%
100%
100%
100%
100%
100%
100%
23%
100%
100%
6%
100%
100%
100%
São Paulo
20%
20%
São Paulo
George Town
Hanoi
93%
100%
25%
93%
100%
25%
1 Swiss Re Life and Health Africa Limited, prior to its renaming in 2018
120 Swiss Reinsurance Company Ltd 2018 Annual Report
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.
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
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%
Swiss Reinsurance Company Ltd 2018 Annual Report 121
Financial statements
Swiss Reinsurance Company Ltd
12 Debt and subordinated liabilities
The Company had outstanding debt and subordinated liabilities at the 2018 balance sheet date of CHF 8 191 million
(2017: CHF 8 888 million). Thereof CHF 6 846 million (2017: CHF 7 510 million) were due within one to five years and
CHF 1 345 million (2017: CHF 1 378 million) were due after five years.
As of 31 December 2018, the following public placed debentures were outstanding:
Instrument
Subordinated bond
Subordinated bond
Subordinated bond
Subordinated bond
Senior bond
Subordinated bond
Senior bond
Issued in
2013
2007
2013
2012
2014
2015
2015
Currency
USD
GBP
CHF
EUR
CHF
EUR
CHF
Nominal
in millions
750
500
175
500
250
750
250
Interest rate
6.375%
6.302%
7.500%
6.625%
1.000%
2.600%
0.750%
Maturity/
First call in
2019
2019
2020
2022
2024
2025
2027
Book value
CHF millions
739
628
175
563
250
845
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
2017
66
3
2
–3
–38
86
842
1 385
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
Subordinated liabilities
2017
8 025
15 051
6 798
21
1 9081
4 6292
149
7 913
5 335
4 6043
–4
1 Thereof at the 2018 balance sheet date CHF 75 million (2017: CHF 2 million) were towards the parent company Swiss Re Ltd.
2 Thereof at the 2018 balance sheet date CHF 3 273 million (2017: CHF 2 720 million) were towards the parent company Swiss Re Ltd.
3 Thereof at the 2018 balance sheet date CHF 323 million (2017: CHF 733 million) were towards the parent company Swiss Re Ltd.
4 Thereof at the 2018 balance sheet date CHF 424 million (2017: none) were towards the parent company Swiss Re Ltd.
2018
87
12
–1
–2
–60
26
634
1 556
2018
8 321
8 126
5 606
36
2 8071
4 3172
109
6 757
5 578
4 9113
4244
122 Swiss Reinsurance Company Ltd 2018 Annual Report
15 Release of undisclosed reserves
In 2018, no net release of undisclosed reserves (2017: no net release).
16 Obligations towards employee pension fund
As of 31 December 2018, other liabilities included CHF 1 million (2017: CHF 1 million) payable to the employee pension fund.
17 Personnel information
As of 31 December 2018, the Company employed a worldwide staff at an average of 1 842 (2017: 1 930) full time equivalents.
Personnel expenses for the 2018 financial year amounted to CHF 447 million (2017: CHF 440 million).
18 Accrued income from subsidiaries and affiliated companies
The 2017 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, paid by the subsidiary in 2018, was already recorded in the 2017 Company‘s financial statements.
19 Extraordinary income and expenses
The 2017 net income contained 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 2018, the Swiss Re Group incurred total auditor’s fees of CHF 31 million (2017: CHF 30 million) and additional fees of
CHF 7 million (2017: CHF 2 million), of which CHF 2 million (2017: CHF 3 million) and CHF 0 million (2017: CHF 1 million),
respectively, incurred for the Company.
Swiss Reinsurance Company Ltd 2018 Annual Report 123
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 27 March 2019, to approve the
following allocation and payment of a cash dividend of USD 1 670 million, which must not exceed CHF 1 800 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 2019.
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 1 800 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 1 800 million. This threshold of CHF 1 800 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
2017
51
1 209
1 260
–1 200
60
2017
2 099
1 200
3 299
–1 8602
1 439
2018
60
1 231
1 291
–1 250
41
2018
1 439
1 250
2 689
–1 8001
889
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 2017 figure was recalculated based on the final cash dividend converted into CHF at spot rate on the settlement date.
Zurich, 13 March 2019
124 Swiss Reinsurance Company Ltd 2018 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 108 to 123) for the year ended 31 December 2018.
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 2018 comply with Swiss law and the Company’s
Articles of Association.
Swiss Reinsurance Company Ltd 2018 Annual Report 125
Financial statements
Swiss Reinsurance Company Ltd
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 certain 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 complex valuation models:
̤ Fixed income securitised products
̤ Fixed income mortgage and asset-backed securities
̤ Private placements
̤ 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.
Based on the work performed, we consider the methodologies
and assumptions used by management in the determination of
the valuation to be appropriate.
126 Swiss Reinsurance Company Ltd 2018 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.
Furthermore, on a regular basis, the Company enters into large
and/or structured transactions which often have material or
complex financial reporting and reserving consequences. The
reserving for such transactions are subject to increased risk of
error due to the non-routine nature of transactions and the
judgemental nature of reserving.
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, which are
applicable for both the standard reserving and large and/or
structured transactions:
̤ 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 protfolios.
For these portfolios, 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
estimate.
̤ Evaluating the appropriateness of the recognition,
accounting, and disclosures for large and/or structured
transactions
Based of the work performed, we consider that the
methodologies and assumptions used by management in the
valuation of actuarially determined P&C loss reserves to be
appropriates.
Swiss Reinsurance Company Ltd 2018 Annual Report 127
Financial statements
Swiss Reinsurance Company Ltd
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, inflation trends, 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.
Furthermore, on a regular basis, the Company enters into large
and/or structured transactions which often have material or
complex financial reporting and reserving consequences. The
reserving for such transactions are subject to increased risk of
error due to the non-routine nature of transactions and the
judgemental nature of reserving.
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, which are
applicable for both the standard reserving and large and/or
structured transactions:
̤ 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.
̤ Involving our life insurance actuarial specialists to perform
independent model validation procedures, including
detailed testing of models, independent recalculations and
back testing.
̤ 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
̤ Evaluating the appropriateness of the recognition,
accounting, and disclosures for large and/or structured
transactions.
Based on the work performed, we consider that the
methodologies and assumptions used by management in the
valuation of actuarially determined L&H reserves to be
appropriate.
128 Swiss Reinsurance Company Ltd 2018 Annual Report
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.
Based on the work performed, we consider the methods and
assumptions used by management 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 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
Roy Clark
Audit expert
Auditor in charge
Frank Trauschke
Zurich, 13 March 2019
Swiss Reinsurance Company Ltd 2018 Annual Report 129
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;
130 Swiss Reinsurance Company Consolidated 2018 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 2018 Annual Report 131
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.
Financial, credit and foreign exchange markets are experiencing continued periods
of volatility reflecting a range of political, economic and other uncertainties, some of
the more significant of which are inter-related. These include the planned withdrawal
of the United Kingdom from the European Union and significant uncertainty
regarding the basis of that withdrawal and the future relationship between the
United Kingdom and the European Union; the possible emergence of trade barriers
and other protection policies across a range of economies, including a sustained
trade war between the United States and China; geopolitical tensions more broadly;
a prolonged slowdown in one or more of the principal global economies, particularly
in China, and possible recession; continued challenges faced by the Eurozone; the
tightening of monetary policy; sustained challenges to multilateral institutions and
frameworks; the domestic political situation in the United States, various member
states of the European Union and potentially other countries; and heightened
scrutiny of technology companies.
Further adverse developments or the continuation of adverse trends that, in turn,
have a negative impact on financial markets and economic conditions could limit the
Group’s ability to access the capital markets and bank funding markets, could
adversely affect the ability of counterparties to meet their obligations to the Group
and could adversely affect the confidence of the ultimate buyers of reinsurance.
Any of the foregoing factors, developments and trends could have an adverse effect
on the Group’s investment results, which in the current low interest rate environment
and soft insurance cycle could have a material adverse effect on the Group’s overall
results, make it difficult to determine the value of certain assets in the Group’s
portfolio, make it more difficult to acquire suitable investments to meet its risk and
return criteria and otherwise have a material adverse effect on its business and
operations.
132 Swiss Reinsurance Company Consolidated 2018 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. The Group is
subject to the Swiss Solvency Test and, through its legal entities organised in the
EEA, Solvency II. 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 Group could be designated as a global
systemically important financial institution (“SIFI”) under the framework for SIFIs
developed by the Financial Stability Board, or as a systemically important insurer
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 its
methodology for identifying global systemically important insurers (“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, reporting obligations, capital costs (in the form of capital charges
or high loss absorption capacity) 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 UK and the EU 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 2018 Annual Report 133
General information
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. Changes to the US tax
regime enacted in early 2018 prompted us to modify our operating model for our 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 insurance and reinsurance industries, with
earnings capacity under stress unless lower investment returns from fixed income
assets can be offset by lower combined ratios or higher returns from other asset
classes. 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, basis
and correlation risks. 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.
134 Swiss Reinsurance Company Consolidated 2018 Annual Report
Credit risk
If the credit markets were again to deteriorate and further asset classes were to be
impacted, the Group could experience losses. Changes in the market value of the
underlying securities and other factors impacting their price could give rise to market
value losses. If the credit markets were to deteriorate again, the Group could also
face write-downs in other areas of its portfolio, including other structured instruments,
and the Group and its counterparties could face difficulties in valuing credit-related
instruments. Differences in opinion with respect to valuations of credit-related
instruments could result in legal disputes among the Group and its counterparties
as to their respective obligations, the outcomes of which are difficult to predict and
could be material.
Liquidity risks
The Group’s business requires, and its clients expect, that it has sufficient capital and
sufficient liquidity to meet its re/insurance obligations, and that this would continue
to be the case following the occurrence of any foreseeable event or series of events,
including extreme catastrophes, that would trigger insurance or reinsurance
coverage obligations. The Group’s uses of funds include obligations arising in its
reinsurance business (including claims and other payments as well as insurance
provision repayments due to portfolio transfers, securitisations and commutations),
which may include large and unpredictable claims (including catastrophe claims),
funding of capital requirements and operating costs, payment of principal and
interest on outstanding indebtedness and funding of acquisitions. The Group also
has unfunded capital commitments in its private equity and hedge fund investments,
which could result in funding obligations at a time when it is subject to liquidity
constraints. In addition, the Group has potential collateral requirements in
connection with a number of reinsurance arrangements, the amounts of which may
be material and the meeting of which could require the Group to liquidate cash
equivalents or other securities.
The Group manages liquidity and funding risks by focusing on the liquidity stress that
is likely to result from extreme capital markets scenarios or from extreme loss events
or combinations of the two. Generally, the ability to meet liquidity needs could be
adversely impacted by factors that the Group cannot control, such as market
dislocations or interruptions, adverse economic conditions, severe disruption in the
financial and worldwide credit markets and the related increased constraints on the
availability of credit; changes in interest rates, foreign exchange rates and credit
spreads; or by perceptions among market participants of the extent of the Group’s
liquidity needs.
Unexpected liquidity needs (including to meet collateral calls) could require the
Group to incur indebtedness or liquidate investments or other assets. The Group may
not be able to secure new sources of liquidity or funding, should projected or actual
liquidity fall below levels it requires. The ability to meet liquidity needs through asset
sales may be constrained by market conditions and the related stress on valuations,
and through third-party funding may be limited by constraints on the general
availability of credit and willingness of lenders to lend. In addition, the Group’s ability
to meet liquidity needs may also be constrained by regulatory requirements that
require regulated entities to maintain or increase regulatory capital, or that restrict
intra-group transactions, the timing of dividend payments from subsidiaries or the
fact that certain assets may be encumbered or otherwise non-tradable. Failure to
meet covenants in lending arrangements could give rise to collateral-posting or
defaults, and further constrain access to liquidity. Finally, any adverse ratings action
could trigger a need for further liquidity (for example, by triggering termination
provisions or collateral delivery requirements in contracts to which the Group is a
party) at a time when the Group’s ability to obtain liquidity from external sources is
limited by such ratings action.
Swiss Reinsurance Company Consolidated 2018 Annual Report 135
General information
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. 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 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.
136 Swiss Reinsurance Company Consolidated 2018 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. The
Group also is subject to audits and challenges from time to time by tax authorities,
which could result in increases in tax costs, changes to internal structures and
interest and penalties. Tax authorities may also actively pursue additional taxes
based on retroactive changes to tax laws. The Group could be subject to risks arising
from alleged, or actual, violations of any of the foregoing, and could also be subject
to risks arising from potential employee misconduct, including non-compliance with
internal policies and procedures and malfeasance, such as undertaking or facilitating
cyber attacks on internal systems. Substantial legal liability could materially
adversely affect the Group’s business, financial condition or results of operations or
could cause significant reputational harm, which could seriously affect its business.
Insurance, operational and other risks
As part of the Group’s ordinary course operations, the Group is subject to a variety
of risks, including risks that reserves may not adequately cover future claims and
benefits; risks that catastrophic events (including hurricanes, windstorms, floods,
earthquakes, acts of terrorism, man-made disasters such as industrial accidents,
explosions, and fires, and pandemics) may expose the Group to unexpected large
losses (and related uncertainties in estimating future claims in respect of such
events); changes in the insurance industry that affect ceding companies, particularly
those that further increase their sensitivity to counterparty risk; competitive
conditions (including as a result of consolidation and the availability of significant
levels of alternative capacity); cyclicality of the industry; risks related to emerging
claims and coverage issues; macro developments giving rise to emerging risks, such
as climate change and technological developments (including greater exposure to
cyber risks, which could have a range of consequences from operational disruption,
to loss of proprietary or customer data, to greater regulatory burdens and potential
liability); risks arising from the Group’s dependence on policies, procedures and
expertise of ceding companies; risks related to investments in emerging markets;
and risks related to the failure of, or attacks directed at, the Group’s operational
systems and infrastructure, 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
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.
Swiss Reinsurance Company Consolidated 2018 Annual Report 137
General information
Note on risk factors
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 financial reporting,
including in this report. These measures are not prepared in accordance with US
GAAP or any other comprehensive set of accounting rules or principles, and should
not be viewed as 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
Swiss Re is a wholly owned subsidiary of SRL, and the Group represents 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. 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 or dispositions. To the
extent it undertakes acquisitions, it is subject to the risks inherent in acquiring and
integrating new operations.
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.
138 Swiss Reinsurance Company Consolidated 2018 Annual Report
Swiss Reinsurance Company Ltd
Mythenquai 50/60
P.O. Box
8022 Zurich
Switzerland
Telephone +41 43 285 2121
Fax +41 43 285 2999
www.swissre.com
© 2019 Swiss Re. All rights reserved.