Swiss Reinsurance Co.
Annual Report 2020

Plain-text annual report

Annual Report 2020 Annual Report 2020 Financial Report Financial Report Transforming Tomorrow Together TransformingTomorrowTogetherFinancial highlights Financial highlights For the years ended 31 December USD millions, unless otherwise stated Group Net income/loss attributable to common shareholders Gross premiums written Premiums earned and fee income Earnings per share in CHF Shareholders’ equity Return on equity in %1 Return on investments in % Net operating margin in %2 Number of employees3 Property & Casualty Reinsurance Net income/loss attributable to common shareholders Gross premiums written Premiums earned Combined ratio in % Net operating margin in %2 Return on equity in %1 Life & Health Reinsurance Net income attributable to common shareholders Gross premiums written Premiums earned and fee income Net operating margin in %2 Return on equity in %1 Corporate Solutions Net loss attributable to common shareholders Gross premiums written Premiums earned Combined ratio in % Net operating margin in %2 Return on equity in %1 Life Capital Net loss attributable to common shareholders Gross premiums written Premiums earned and fee income Gross premiums written – open books Net operating margin in %2 Return on equity in %1 2019 727 42 228 38 594 2.46 29 251 2.5 4.7 3.4 15 401 396 21 562 19 275 107.8 3.8 4.4 899 14 452 13 004 10.0 12.4 –647 4 974 4 166 127.9 –16.7 –34.1 –177 2 831 2 149 1 790 2.4 –3.4 2020 Change in % –878 42 951 40 770 –2.97 27 135 –3.1 3.5 –1.1 13 189 –247 21 512 20 832 109.0 0.1 –2.8 71 15 067 13 883 2.9 0.9 –350 4 839 4 047 116.5 –10.5 –17.4 –265 2 533 1 984 2 171 –6.6 –7.5 – 2 6 – –7 –14 – – 8 –92 4 7 46 –3 –3 –50 –11 –8 21 1 Return on equity is calculated by dividing net income/loss attributable to common shareholders by average common shareholders’ equity. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. 3 Regular staff. Our Annual Report Contents Our Annual Report consists of the Business Report and the Financial Report: Annual Report 2020 Business Report Annual Report 2020 Annual Report 2020 Financial Report Financial Report Transforming Tomorrow Together Transforming Tomorrow Together Financial Report This publication provides a more detailed account of our financial performance during the year and the market trends we observe. It also provides details on risk and capital management, as well as information on our governance and compensation. Financial year The global economy and financial markets Summary of financial statements Group results Reinsurance Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Swiss Re Institute Group Investments Share performance Economic Value Management EVM performance EVM financial information Independent Assurance Report For more information Risk and capital management See our online Annual Report at https://reports.swissre.com Overview Financial strength and capital management Liquidity management Risk management Risk assessment Corporate governance Overview Group structure and shareholders Capital structure Board of Directors Executive Management Shareholders’ participation rights Changes of control and defence measures Auditors Information policy Compensation Report from the Compensation Committee Compensation highlights in 2020 Compensation framework Compensation governance Performance outcomes 2020 Compensation disclosure and shareholdings 2020 Report of the statutory auditor Climate-related financial disclosures (TCFD) Overview Climate governance Climate strategy Climate risk management Climate metrics and targets Financial statements Group financial statements Notes to the Group financial statements Report of the statutory auditor Group financial years 2011–2020 Swiss Re Ltd General information Glossary Cautionary note on forward-looking statements Note on risk factors Contacts Corporate calendar 116 118 119 128 132 138 147 150 151 152 168 172 182 193 286 292 294 312 318 320 328 329 4 12 14 18 20 22 24 26 28 30 32 36 40 48 52 54 60 61 67 80 84 86 88 102 108 109 110 112 Swiss Re | Financial Report 2020 1 TransformingTomorrowTogetherTransformingTomorrowTogether Financial year Swiss Re reported strong underlying performance in 2020, despite large losses related to COVID-19, and reaffirmed its positive outlook. 2 Swiss Re | Financial Report 2020 Contents The global economy and financial markets Summary of financial statements Group results Reinsurance Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Swiss Re Institute Group investments Share performance 4 12 14 18 20 22 24 26 28 30 32 Swiss Re | Financial Report 2020 3 Financial year The global economy and financial markets A year of three Rs: Recession, Recovery and Resilience COVID-19 has triggered the deepest global recession since World War II and dealt a blow to economic resilience. Despite a fragile economic recovery, global equity markets have bounced back, supported by massive fiscal and monetary responses. Recession: first-half lockdown The world economy contracted by almost 4% in 2020, more than twice the decline during the global financial crisis of 2008– 2009 (–1.8%). The outbreak of COVID-19 led to government-mandated lockdowns that drastically reduced economic activity. The US economy (–3.5%) proved more resilient than the Euro area (–6.8%) and Japan (–4.7%) in 2020. China was the only major economy to grow in 2020 (+2.3%) after recovering quickly from the crisis and returning to growth in the second quarter. Other emerging markets were affected more severely; India contracted by 8.2%, Brazil by 5.0% and Russia by 3.1%. Inflation declined across major markets due to the crisis-driven blow to demand and oil prices (see the economic indicators table). This more than offset higher prices in segments that experienced scarcity or were affected by pandemic-related disruptions to supply chains. A huge monetary response to the global downturn put new pressure on already low interest rates. Major central banks quickly restarted extraordinary monetary policies in the first half of 2020, including extending or reintroducing asset purchase programmes. In addition, the US Federal Reserve (Fed) and the Bank of England cut interest rates to historic lows, while the European Central Bank expanded its quantitative easing programme and purchased assets totalling more than 11% of Euro area GDP. Central banks in major emerging markets including China, Brazil, India and Russia also reduced interest rates. GDP shortfall indices In addition, central banks took steps to directly support the real economy. This included measures to encourage banks to lend to households and businesses, as well as purchases of private sector assets. For example, the Fed bought corporate bonds for the first time. Fiscal and monetary authorities also increased their coordination. Many governments offered fiscal support for the new central bank monetary measures, while central bank sovereign bond purchases helped keep government funding costs low. Note: SRI GDP shortfall index, 7-day moving average, is calculated by multiplying the estimated GDP sensitivity to mobility by the Google Mobility Index, which represents the average change in frequency of visits to workplaces, public transportation, and retail centers. 4 Swiss Re | Financial Report 2020 05United StatesLatin AmericaJapanEuro areaChinaJanDezNovOctSeptAugJulyJuneMayAprilMarchFebJan05United StatesLatin AmericaJapanEuro areaChinaJanDezNovOktSeptAugJuliJuniMaiAprilMärzFebJan China  Euro area  Japan  Latin America  United Statesin %Source: Google, Apple, Wind, Swiss Re Institute50–5–10–15–20–25 China  Eurozone  Japan  Lateinamerika  USAin %Quelle: Google, Apple, Wind, Swiss Re Institute50–5–10–15–20–250.9% US 10-year Treasury bond yield Year-end 2020 –0.6% German 10-year Bund yield Year-end 2020 Long-term government bond yields trended lower in response to the stimulus (see the interest rate chart). The US 10-year yield closed the year at 0.9%, down by one percentage point compared with the previous year, while the UK 10-year yield dropped from 0.8% to 0.2% during the year. German and Swiss yields were already negative at the onset of the crisis. The German 10-year yield declined further to end the year at –0.6%, while Swiss and Japanese yields were broadly unchanged at –0.5% and 0% respectively. Interest rates for 10-year government bonds 2016–2020 Interest rates for 10-year government bonds 2016 – 2020 in % 4 3 2 1 0 –1 –2 2016 2017 2018 2019 2020 – United States – United Kingdom – Germany – Japan – Switzerland  United States  United Kingdom  Germany  Japan  Switzerland Source: Refinitiv, Swiss Re Institute Source: Refinitiv, Swiss Re Institute Stock markets 2016–2020 Stock markets 2016 – 2020 31 December 2011 = 100 200 180 160 140 120 100 80 60 2016 2017 2018 2019 2020 – United States (S&P 500) – United Kingdom (MSCI UK) – Europe (Euro Stoxx 50) – Japan (TOPIX)  United States (S & P 500)  United Kingdom (MSCI UK)  DJ Euro STOXX 50  Japan (TOPIX) – Switzerland (SMI)  Switzerland (SMI) Source: Refinitiv, Swiss Re Institute Source: Datastream Swiss Re | Financial Report 2020 5 Financial year The global economy and financial markets Recovery: fragile and uneven The economic rebound from the sharp contraction in the first half of 2020 began swiftly during the northern hemisphere summer as governments eased mobility restrictions and fiscal and monetary measures took effect. Economies did not return to full capacity, however (see the GDP shortfall indices chart). Momentum weakened at year-end as COVID-19 infection rates increased again, a sign of the fragility of the recovery. In the Euro area, lockdowns of the hospitality, leisure and entertainment sectors led to a double-dip contraction in the fourth quarter. Growth in China remained more robust than elsewhere, though the weak global backdrop weighed on external demand. After falling into bear markets as the pandemic took hold, global stock markets rallied for the rest of 2020 to recover most or all of their losses. The fiscal and monetary stimulus unleashed worldwide prompted major stock indices to rebound from falls of between 28% (Swiss Market Index (SMI)) and 38% (Eurostoxx 50). US stocks ended the year 16% above prior-year levels (see the stock markets chart), supported by a weaker US dollar exchange rate. Japanese stocks also gained 8%. The Eurostoxx 50 did not fully recover its lost value, closing 5% lower than the previous year, while the MSCI UK index ended 2020 down 16% due to uncertainty around Brexit negotiations. The SMI ended the year roughly unchanged (+1%). The US dollar depreciated against other major currencies in 2020 and ended the year 8% lower vs the euro, 9% lower vs the Swiss franc, 5% lower vs the Japanese yen and 3% lower vs the British pound. The key driver behind US dollar weakness was growing investor risk appetite after equity markets had troughed in March and the economic rebound in the summer turned out to be stronger than expected. This positive environment weighed on the US dollar, which is typically seen as a safe haven currency, strengthening in times of crisis and weakening in times of economic and financial market upswings. The sustained downward trend that started in late March more than offset the temporary strengthening of the US dollar exchange rate during the equity market sell-off. A more pronounced decline in US interest rates relative to other currencies added to US dollar weakness. USA Eurozone UK Japan China 2019 2.2 1.8 1.9 – 2020 –3.5 1.2 0.9 – 2019 1.3 1.2 –0.2 112 2020 –6.6 0.3 –0.6 122 2019 1.3 1.8 0.8 132 2020 –9.9 0.9 0.2 137 2019 0.7 0.5 0.0 0.92 2020 –4.7 –0.1 0.0 0.97 2019 2020 6.0 2.9 3.2 2.3 2.5 3.2 14.4 15.3 Economic indicators 2019–2020 Real GDP growth1 Inflation1 Long-term interest rate 2 USD exchange rate2,3 1 Yearly average 2 Year-end 3 USD per 100 units of foreign currency Source: Refinitiv, Swiss Re Institute 6 Swiss Re | Financial Report 2020 Resilience: the need to replenish The COVID-19 crisis has depleted global economic resilience further from an already weak level. The Swiss Re Institute Macroeconomic Resilience Index indicates that the world economy was less resilient at the onset of the pandemic than before the global financial crisis of 2008–2009 (see the economic resilience indices chart). We estimate global economic resilience decreased by another 20% during 2020 as stimulus packages reduced fiscal headroom. Diminished monetary policy buffers also contributed, although these were already largely exhausted ahead of the pandemic.1 The increase in public and private sector debt and deficits in 2020 is the largest and fastest since World War II. It accelerates the trend of rising corporate debt and declining credit quality seen since 2008. This could lead to higher corporate bankruptcies and, potentially, a credit crisis. Meanwhile, the number of “zombie companies” is likely to increase as access to cheap credit enables indebted and unprofitable companies to survive. While generous monetary and fiscal support helps to avoid a credit crisis in the short term, increasing “zombification” may weigh on growth in the long run. Economies and financial markets are also exposed to increased long-term inflation risks. While the immediate impact of the COVID-19 crisis has been disinflationary, a longer-term trend towards de-globalisation, including companies’ desire to diversify supply chains to become more resilient, could fuel inflationary pressure. There are also indications that central banks will tolerate higher inflation as they seek to keep interest rates low to facilitate the servicing of high public and private debt burdens. A scenario of high inflation coupled with such “financial repression” would be challenging for re/insurers. Replenishing economic resilience needs to be a top policy priority for societies. The global economy no longer has the luxury of relying on monetary and fiscal levers alone. Alternatives should include structural reforms that strengthen resilience, such as targeted investments into sustainable infrastructure, the digital economy and the transition towards a low-carbon economy. Governments should also work to limit inequality, foster human capital, deepen the liquidity and dynamism of financial markets and improve the efficiency of labour markets. Economic resilience indices and decomposition over time 0.80 0.60 0.40 0.20 0.00 2007 2018 2019 2020 2007 2018 2019 2020 Advanced economies Emerging economies Fiscal space Financial market development Banking industry backdrop Monetary policy space Low carbon economy Insurance penetration Human capital Economic complexity index Labour market efficiency World Source: Swiss Re Institute Macroeconomic Resilience Index, 2020 0,80 1 sigma Resilience Index 2020: global resilience put to the pandemic test, Swiss Re, September 2020; Emerging markets macro resilience: beware fading global tailwinds, Swiss Re, September 2020. 0,60 0,40 0,20 0,00 7 2007 2018 2019 2020 2007 2018 2019 2020 World Banking industry backdrop Labour market efficiency Economic complexity Human capital Financial market development Insurance penetration Low-carbond economy Fiscal space Monetary policy space World Banking industry backdrop Labour market efficiency Economic complexity Human capital Financial market development Insurance penetration Low-carbond economy Fiscal space Monetary policy space Swiss Re | Financial Report 2020Financial year The global economy and financial markets Primary non-life 2 500 Market size in USD billions Estimated global premium income in 2020 2% Market performance Estimated global premium growth in 2020 We estimate that overall profitability of the non-life insurance sector, measured by return on equity (ROE) was at 5% in 2020, down from an already low 7% in 2019, mostly driven by lower investment returns. Overall, underwriting results remained stable or even improved. On the one hand, the unprecedented pandemic containment measures caused estimated industry losses in the range of USD 50–80 billion1. These losse were almost entirely related to commercial lines of business and were largely attributed to business interruption covers triggered under communicable diseases clauses and to event cancellations. Trade credit insurance also experienced significant losses, as did liability lines (E&O, D&O, medical malpractice) and workers’ compensation for healthcare workers. Personal insurance lines experienced better underwriting results, mainly in motor insurance due to significantly reduced claims frequencies as a result of the lockdown measures. Outlook We see a recovery to 3.6% growth in 2021 and 2022, supported by rising economic strength (although output will not return to pre-pandemic levels), a hard market in commercial lines to a degree not seen since 2002–2003, and a rebound in most emerging regions. The profitability outlook remains challenging. We believe low interest rates are here to stay with 10-year US Treasury yields expected to remain below 2% over the next two years. As such, any improvement in sector profitability will depend on underwriting performance, suggesting a need for more rate increases and improved underwriting discipline. Market overview The global non-life industry generated around USD 2 500 billion of premium income in 2020, of which 22% came from emerging markets. Non-life insurance ranges from standardised motor and household covers to sophisticated tailor- made liability and property covers, including specialty, commercial and industrial risk insurance. Market performance On the back of the COVID-19 crisis, the global non-life insurance market proved much more resilient than previously expected. Amid the strongest economic decline since the Great Depression, global non-life premiums were up an estimated 2% in real terms, after a 3% gain in 2019. The main reason was stronger-than-expected rate hardening in commercial lines. At 2%, non-life premium growth in the advanced regions was unexpectedly resilient in 2020, again due to rate hardening in commercial lines. China remains the world’s fastest growing non-life insurance market: we estimate a 7% expansion in non-life premiums in 2020, coming from double-digit growth in the health business. Growth in the other emerging markets was negative, with the exception of Emerging Asia. Pricing in non-life commercial insurance lines strengthened again in 2020. This marked the sharpest rate increase since 2001/2002 after the 9/11 terror attack, with prices up 19% throughout the year. The upswing broadened across lines of business and across regions. There were strong price increases in Property (19%) and in Financial and Professional liability (FinPro) (+38% ) lines in almost all regions. For Property, rates were mainly driven by natural-catastrophe-related covers, and in FinPro by rising Directors and Officers liability (D&O) claims. Casualty business, which had remained soft until 2018, started to exhibit stronger, but still single-digit, price improvements. This was driven by improvements in the US and Europe, while Asia and Latin America remained sluggish. 1 Bottom-up reporting of companies is net of reinsurance, and often net of tax. Also, the list of companies is not comprehensive. The bottom-up reporting is therefore already closer to the top-down estimate than the figures suggest. This range includes estimates from four different sources. 8 Swiss Re | Financial Report 2020 Reinsurance non-life 210 Market size in USD billions Estimated global premium income in 2020 4% Market performance Estimated global premium growth in 2020 Market overview Global non-life reinsurance premiums totalled about USD 210 billion in 2020, with 28% coming from ceding companies in emerging markets. In general, reinsurance demand is a function of the size and capital resources of primary insurance companies, as well as of the risk profile of the insurance products provided. Market performance We estimate that global premiums in non-life reinsurance grew by around 4% in real terms in 2020, with moderate expansion and stable reinsurance demand in advanced markets and China. Other emerging markets suffered from lower exposure growth in the primary market. In terms of profitability, the reinsurance industry provided a subpar performance for the fourth year in a row, with return on equity of around 4% in 2020. This was a result of negative industry underwriting results and low investment returns. Preliminary data indicated a combined ratio of around 105% for 2020, deteriorating from 101% in 2018 and 2019, which was driven by elevated natural catastrophe losses and COVID-19 claims. The record North Atlantic hurricane season, which included 30 named storms, as well as upward revisions to loss estimates, pushed overall natural catastophe losses higher. We estimate that insured claims rose to roughly USD 89 billion for the year, well above the USD 63 billion loss total for the full year 2019. While COVID-19 claims are still unfolding, the reinsurance industry will take a significant share of the estimated industry loss of USD 50–80 billion1. The underlying, catastrophe-adjusted underwriting result improved. This was partly due to better reinsurance prices, which gained momentum through 2020, after a more moderate January 2020 renewal season. There were rate increases in loss-affected lines and regions, but little spillover into unaffected lines. Significant pricing improvements of 10–20%, however, were registered in the retrocession market, which was adversely affected by high losses between 2017 and 2019 and a significant capacity crunch due to the withdrawal of capital suppliers. The sector’s capital base remained very strong despite the capital markets turmoil in the first half of the year, allowing reinsurers to fulfill their role as the backbone of the insurance industry and to support societal resilience. The capital position of global reinsurance, including both the traditional source of reinsurance capacity as well as alternative capital, showed a slight decline of 2% during 2020. For the alternative capital sector, it was the second year of decline after 2019, which showed a decline in capacity of 7% after several years of soaring capital inflows.2 Market outlook For the renewal rounds in 2021, we expect a further increase of reinsurance price as a reflection of elevated losses from natural catastrophes since 2017 and from COVID-19 claims. Premium income of the reinsurance industry is expected to grow by 7% in 2021 and by 5% in 2022, mainly driven by higher prices. 1 See footnote on previous page 2 Source: Aon, Reinsurance Market Outlook, September 2019 Swiss Re | Financial Report 2020 9 Overall profitability of the global life insurance sector – as measured by GAAP return on equity (ROE) of listed life insurance companies – decreased significantly to 7%, compared with 10% in 2019. The impact of COVID-19 on mortality books was limited and the main driver of the decrease was life insurers’ investment results. These were impacted by the continued low interest rates, particularly in the US, and realised investment losses due to corporate bond and stock market volatility in the first half of the year. In North America, the weighted average ROE almost halved to 5.1% in the first half of 2020. Profitability in Europe and Asia also fell as the weighted average ROE of life insurers dropped to 6.3% in Europe and 9.4% in Asia Pacific. Market outlook We expect a rebound in 2021 as the economy recovers and risk awareness increases. For 2021 and 2022, global life premiums are expected to grow by around 6% per year, mainly driven by continued strong growth in the emerging markets (7%) and an improved situation in the advanced markets (5%). Market overview The global life insurance industry generated about USD 2 800 billion in premium income in 2020, of which 25% came from emerging markets. Around 80% of premium income in life insurance is derived from savings and retirement products. The protection business covers a broad spectrum of mortality and morbidity risks. Market performance We estimate that global life insurance premiums contracted by 4% in real terms in 2020. This was the result of rising unemployment in the COVID-19-induced recession, dwindling incomes leading to weaker demand, a slowdown in distribution activities due to lockdowns and even lower interest rates that made life insurance less attractive as a savings vehicle. Premium decline in the advanced markets was 5%. This was, however, unevenly distributed. The US and Canada were less affected, while Japan contracted by 8%. In light of the steep recession and because the savings business is by far the largest source of premium income for the sector, we estimate that life premiums in advanced EMEA declined by nearly 10% in 2020. In the emerging market segment, only China – which became the second largest life insurance market globally – succeeded in maintaining the positive momentum. It showed a 2% expansion due to increased risk awareness and the rapid adoption of digital distribution channels. Other emerging market regions experienced declines of between 4% for Emerging Asia and 8% for Latin America. Financial year The global economy and financial markets Primary life 2 800 Market size in USD billions Estimated global premium income in 2020 –4% Market performance Estimated global premium growth in 2020 10 Swiss Re | Financial Report 2020 Reinsurance life 105 Market size in USD billions Estimated global premium income in 2020 4% Market performance Estimated global premium growth in 2020 The operating margin of the life reinsurance industry fell to around 4% of revenues in 2020, down from 7–8% between 2015 and 2019. The contribution from investments declined further, due to the ongoing low interest rate environment, which was accentuated by the further expansionary monetary policy. The underwriting performance was in turn negatively impacted by elevated mortality claims due to COVID-19. Market outlook The continued recovery in primary insurance should support growth in life reinsurance revenues, including a recovery in traditional business. Premium growth will nonetheless likely remain moderate, especially in the large advanced markets. In real terms, we forecast global life reinsurance premiums will increase by around 2.5% in 2021 and 2022, while health reinsurance is expected to develop by around 6% annually. This will be mainly driven by the highly populated and growing economies in China and India. Market overview The size of the global life reinsurance business was about USD 105 billion in 2020. Around 75% of this is attributable to the US, Canada, the UK and China. Ceding companies from emerging markets accounted for 24% of global demand. Life reinsurers are increasingly diversifying away from the traditional mortality business. Market performance We estimate that global life and health reinsurance premiums grew by 4% in 2020. Expansion was unevenly distributed between segments and regions. Medical expense reinsurance from emerging markets was up more than 32%, mainly driven by China and India. Globally, this sector was up 17%, contrasting strongly with a more sluggish 1% increase in mortality and health-related reinsurance demand from life insurers. 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 has been longevity risk transfer. The availability of longevity reinsurance has become key to pricing annuity transactions as insurers offering those transactions to pension funds require reinsurance to hedge the longevity risk. Swiss Re | Financial Report 2020 11 Financial year Summary of financial statements Income statement 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 and with-profit business Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Return credited to policyholders Acquisition costs Operating expenses Total expenses before interest expenses Income/loss before interest and income tax expense Interest expenses Income/loss before income tax expense Income tax expense/benefit Net income/loss before attribution of non-controlling interests Income/loss attributable to non-controlling interests Net income/loss attributable to common shareholders Changes in equity USD millions Total shareholders’ equity as of 1 January Net income/loss attributable to common shareholders Dividends Change in unrealised gains/losses on securities, net of tax Change in foreign currency translation, net of tax Purchase/sale of treasury shares and share based payments Adjustment for pension and other post-retirement benefits, net Other changes in equity Total shareholders’ equity as of 31 December Non-controlling interests Total equity as of 31 December 12 Swiss Re | Financial Report 2020 2019 42 228 39 649 –1 675 37 974 620 4 171 1 580 4 939 30 49 314 –18 683 –13 087 –4 633 –7 834 –3 579 –47 816 1 498 –589 909 –140 769 –42 727 2019 27 930 727 –1 659 3 249 110 –925 –22 –159 29 251 1 786 31 037 2020 Change in % 42 951 39 827 494 40 321 449 2 988 1 730 –2 187 37 43 338 –19 838 –13 929 1 760 –8 236 –3 597 –43 840 –502 –588 –1 090 266 –824 –54 –878 2020 29 251 –878 –1 765 608 39 –174 42 12 27 135 123 27 258 2 – – 6 –28 –28 9 – 23 –12 6 6 – 5 1 –8 – – – – – 29 – Change in % 5 – 6 –81 –65 –81 – – –7 –93 –12 Summary balance sheet USD millions Assets Fixed income securities Equity securities Other investments Short-term investments Investments for unit-linked and with-profit business Cash and cash equivalents Deferred acquisition costs Acquired present value of future profits Reinsurance recoverable Other reinsurance assets Goodwill Other Assets held for sale1 Total assets Liabilities and equity Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Policyholder account balances Other reinsurance liabilities Short-term debt Long-term debt Other Liabilities held for sale1 Total liabilities Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1 Please refer to Note 10 “Acquisitions and disposals” for more details. 2019 2020 Change in % 81 573 2 993 12 892 5 768 520 7 562 7 838 1 042 5 898 24 743 3 945 9 354 74 439 238 567 72 373 19 836 5 405 17 775 185 10 138 13 232 68 586 207 530 29 251 1 786 31 037 83 018 4 899 16 231 16 082 463 5 470 8 230 928 5 892 26 660 4 021 10 728 182 622 81 258 22 456 5 192 19 552 153 11 584 15 169 155 364 27 135 123 27 258 238 567 182 622 2 64 26 179 –11 –28 5 –11 – 8 2 15 – –23 12 13 –4 10 –17 14 15 – –25 –7 –93 –12 –23 Swiss Re | Financial Report 2020 13 Financial year Group results Swiss Re reported a strong underlying performance for 2020, despite the large losses related to the COVID-19 pandemic. Christian Mumenthaler Group Chief Executive Officer Our Group has gone through this crisis with confidence and strength, and in our role as a shock absorber we are doing our part to help mitigate the challenges of the pandemic and improve resilience to future systemic risks. 14 Swiss Re | Financial Report 2020 Strategy and priorities Swiss Re took early steps to navigate the COVID-19 pandemic in 2020. Even in 2019, before COVID-19 became a pandemic, our experts were monitoring the situation and collecting data. As the situation unfolded, Swiss Re’s crisis management and robust IT infrastructure allowed business operations to continue uninterrupted. Swiss Re employees continued to conduct renewals, process claims, steer the asset portfolio, share knowledge and build long-term partnerships. Throughout 2020, Swiss Re showed a strong underlying performance across the Group. Excluding COVID-19 losses, Group net income increased to USD 2.2 billion for the year, up from USD 727 million in 2019. All Business Units executed on key strategic initiatives in 2020. Reinsurance achieved growth in its targeted areas. Corporate Solutions finished 2020 well ahead on its turnaround plan, while Life Capital successfully closed the sale of ReAssure and paid a USD 1.5 billion dividend to the Group. Against a backdrop of hardening prices in key lines of business, Property and Casualty Reinsurance (P&C Re) was able to grow its core business. It increased natural catastrophe exposure by 7% over the year, maintaining its market-leading position in North America. For Life and Health Reinsurance (L&H Re), there was growth in areas such as critical illness business in China and in the longevity portfolio in EMEA. Reinsurance saw demand for large transactions and tailored solutions, closing over 200 tailored reinsurance deals and increasing the number of new insurance propositions delivered to clients in 2020. Net premiums and fees earned Net premiums and fees earned by by business segment, 2020 business segment, 2020 Total: USD 40.8 billion 51% P&C 51% P&C Reinsurance Reinsurance 34% L&H Reinsurance 34% L&H 10% Corporate Solutions Reinsurance 5% Life Capital 10% Corporate Solutions 5% Life Capital P&C Re’s focus on underwriting quality and improved terms and conditions in recent renewals allow for an improved normalised1 combined ratio estimate of less than 95% in 2021. Corporate Solutions’ turnaround has been achieved through disciplined execution on the decisive management actions announced in 2019. At the end of 2020, portfolio pruning and gross cost reductions were largely completed and the unit delivered a normalised1 combined ratio of 96.8%, well ahead of the expected 105%. Corporate Solutions will target a normalised combined ratio of less than 97% in 2021, compared with the original 98% goal. Corporate Solutions is repositioning its product offering by focusing on segments with a clear competitive advantage. Other important strategic objectives include deploying proven technology to drive expansion, leveraging direct access to corporates for the Swiss Re Group and fostering a more disciplined and data-driven underwriting culture. iptiQ, Swiss Re’s global B2B2C digital insurance platform, achieved 76% premium growth in its core business in 2020, writing gross premiums in excess of USD 370 million for the year. iptiQ increased the number of distribution partners by 11 in 2020 to a total of 40. Following the successful sale of ReAssure, the Life Capital Business Unit was disbanded at the end of 2020. Corporate Solutions has assumed responsibility for elipsLife, while iptiQ is now operating as a standalone division. iptiQ’s growth is an example of the success of the Group-wide strategy to create new partnerships and develop Swiss Re’s position as a technology-driven risk knowledge company. Performance Swiss Re reported a net loss of USD 878 million for the year after booking claims and reserves related to COVID-19 of USD 3.9 billion. The vast majority of the Group’s COVID-19 losses was driven by affirmative non-damage business interruption, higher mortality claims as well as cancelled or postponed events. Excluding the after-tax impact of COVID-19- related losses, the Group’s net income would have been USD 2.2 billion, compared with USD 727 million for 2019. The Group’s net operating margin2 was –1.1%, compared with 3.4% in the prior year. Reinsurance reported a net loss of USD 176 million for the year, including COVID-19 claims impacts. Excluding the after-tax impact of COVID-19-related claims and reserves, the Business Unit’s net income would have been USD 2.1 billion compared with USD 1.3 billion in 2019. P&C Re reported a net loss of USD 247 million in 2020, including claims and reserves of USD 1.9 billion related to the COVID-19 crisis. Excluding the after-tax impacts of COVID-19-related claims and reserves, the Business Unit would have contributed USD 1.3 billion, up from USD 396 million in 2019. The result was supported by strong new business generation with higher premiums earned and price increases. This was adversely impacted by significant claims from large catastrophe losses of USD 1.7 billion, primarily caused by a record-breaking Atlantic hurricane season, Australian hailstorm and flooding events, as well as wildfires on the US West Coast. Large man-made losses were dominated by the Beirut port explosion. The net operating margin was 0.1%, compared with 3.8% in 2019. 1 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments as well as the COVID-19 impact. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. Swiss Re | Financial Report 2020 15 Financial year Group results 3.0 Net investment income in USD billions, 2020 (2019: USD 4.2 billion) 3.5% Group return on investments, 2020 (2019: 4.7%) 16 Swiss Re | Financial Report 2020 Shareholders’ equity, excluding non-controlling interests, decreased to USD 27.1 billion at the end of 2020, down from USD 29.3 billion at the end of 2019, mainly reflecting payments to shareholders of USD 2.0 billion for the 2019 regular dividend and the share buyback programme, as well as the current-year net loss, partly offset by unrealised gains on fixed income securities of USD 0.6 billion.The return on equity was –3.1% in 2020, compared with 2.5% in 2019. Earnings per share for 2020 were USD –3.04 or CHF –2.97, down from USD 2.46 or CHF 2.46 for 2019. Book value per share stood at USD 93.90 or CHF 83.00 at the end of 2020, compared with USD 100.64 or CHF 97.46 at the end of 2019. Book value per share is based on shareholders’ equity and excludes non-controlling interests. Business performance Net premiums earned and fee income for the Group amounted to USD 40.8 billion for 2020, an increase of 5.6% year-on-year. At constant exchange rates, net premiums earned and fee income increased by 5.5%. Gross premiums written increased by 1.7% to USD 43 billion in 2020, mainly reflecting large longevity deals and higher volumes in the open book businesses. L&H Re reported a net income of USD 71 million in 2020, including COVID-19 - related claims of USD 999 million, largely caused by higher mortality claims. Excluding the after-tax impact of COVID-19- related losses, L&H Re’s net income would have been USD 855 million in 2020, compared with USD 899 million in 2019. The result was supported by a strong investment result with a return on investments (ROI) of 3.7%. The net operating margin was 2.9% in 2020 and 10.0% in 2019. Corporate Solutions incurred a net loss of USD 350 million in 2020, with claims and reserves related to COVID-19 totalling USD 943 million in 2020. Excluding the after-tax impact of COVID-19-related losses, the Business Unit swung to a net income of USD 393 million, compared with a net loss of USD 647 million in 2019, benefitting from rate increases, lower large man-made losses, favourable prior accident years development and strict expense management. Life Capital reported a net loss of USD 265 million in 2020, compared with a net loss of USD 177 million in 2019, driven by ongoing investment into the open book businesses’ growth and elipsLife’s underperformance due to reserve strengthening and COVID-19 impacts. COVID-19-related losses for Life Capital were minimal at USD 27 million. The net operating margin declined to ‒6.6% in 2020 from 2.4% in the same period of the previous year. Following the successful deconsolidation of ReAssure, Life Capital paid a dividend of USD 1.5 billion to Swiss Re Group. Acquisition costs for the Group amounted to USD 8.2 billion in 2020, up from USD 7.8 billion in 2019. Operating expenses remained stable at USD 3.6 billion in both years. Interest expenses were USD 588 million in 2020, slightly down from USD 589 million in 2019. The Group reported a tax benefit of USD 266 million on a pre-tax loss of USD 1.1 billion for 2020, compared to a tax charge of USD 140 million on a pre-tax income of USD 909 million for 2019. This translated into an effective tax rate in the current and prior-year reporting periods of 24.4% and 15.4%, respectively. The tax rate in 2020 was largely driven by tax benefits from tax-exempt income and the release of valuation allowance on deferred tax assets, partially offset by tax charges from intra-entity transfers and foreign currency translation differences between statutory and US GAAP accounts. Net premiums earned by P&C Re were USD 20.8 billion, an increase from USD 19.3 billion in 2019, benefitting from large transactions and growth in the natural catastrophe business. At constant exchange rates, premiums earned increased by 8.0%. The P&C Re combined ratio increased to 109.0% in 2020 from 107.8% in the prior year, mainly driven by COVID-19 losses. Excluding the pre-tax impact of COVID-19-related losses, the combined ratio would have been 99.8%. L&H Re’s net premiums earned and fee income amounted to USD 13.9 billion, an increase from USD 13.0 billion in the prior- year period, supported by individual large transactions including longevity deals. At constant exchange rates, premiums earned and fee income increased by 6.7%. Corporate Solutions’ net premiums earned decreased slightly to USD 4.0 billion from USD 4.2 billion in the prior year, driven by the active portfolio pruning and less business activity due to COVID-19, partially offset by rate increases. At constant exchange rates, net premiums earned decreased by 2.5% year-on-year. The Corporate Solutions combined ratio decreased to 116.5% in 2020 from 127.9% in 2019. Excluding the pre-tax impact of COVID-19-related losses, the combined ratio would have been 93.2% for the year. The normalised combined ratio remains well ahead of the 105% estimate for 2020. Investment result and expenses Fundamentally, the portfolio performed well with insignificant impairments alongside gains generated from the fixed income portfolio, as well as market value gains on equity positions. The Group’s non-participating investment portfolio decreased from USD 134.5 billion at the end of 2019 to USD 125.7 billion in 2020, in part due to the sale of the ReAssure portfolio in July 2020. The ROI was 3.5% for 2020, compared with 4.7% for 2019. The strong investment result, although lower than in the prior year, was driven by timely and effective portfolio management actions throughout the global financial market turbulence. The Group’s non-participating net investment income was USD 3.0 billion in 2020, compared with USD 4.2 billion in 2019. The decrease was mainly driven by the impact of reinvestment into lower yields and reduced contribution from equity-accounted investments, as well as the absence of the ReAssure portfolio in the second half of the year. The Group’s running yield was 2.4% in 2020, compared with 2.8% in 2019, reflecting the impact of historically low reinvestment yields alongside de-risking actions. A high concentration of unrealised gains on long-maturity fixed income securities supports our running yield’s persistency looking forward. Life Capital’s net premiums earned and fee income were USD 2.0 billion, slightly below the prior-year period of USD 2.1 billion, as the growth in the open book business was offset by the impact from the deconsolidation of the ReAssure business. At constant exchange rates, premiums earned and fee income decreased by 9.2%. The Group reported non-participating net realised gains of USD 1.7 billion in 2020, compared with USD 1.6 billion in 2019. The increase reflects the fact that the prior year was impacted by the loss from the agreed sale of ReAssure and additional foreign exchange losses, while the current year reflects reduced gains from sales of fixed income securities. Swiss Re | Financial Report 2020 17 Financial year Reinsurance As windstorms, floods, earthquakes and wildfires continued to hit communities around the world, reinsurance again served as a key resilience tool. Moses Ojeisekhoba CEO Reinsurance Together with our clients, Reinsurance has navigated one of the most challenging years in our industry’s history. In 2020, we deployed our data and technological capabilities, transactional expertise and finanical strength to make sure our clients had the right solutions for their needs. 1 By NMG Consulting 18 Swiss Re | Financial Report 2020 Making the world more resilient 2020 was a year in which our clients and partners needed us more than ever to help mitigate the impact of COVID-19 – whether from the pure financial impact, support in their operations, underwriting, product development or claims assessment and payments. Our Reinsurance business responded by increasing our commitment to our clients. For example, we offered insurance companies across the world free access to Life Guide – the industry’s top-rated1 digital underwriting manual for individual health risks. This enabled clients to provide important life insurance coverage to individuals, based on improved criteria for current and past infections and guidelines for possible exposures. Across P&C Re, our strong product support helped European insurers to structure a workable affirmative disease product for business closures that excludes systemic accumulation such as pandemics. We also found ways to support clients who faced premium challenges linked to COVID-19. Through Swiss Re’s Insurance Response Centre, our free collaborative platform designed to accelerate the industry’s ability to tackle the challenges caused by COVID-19, our clients were able to upload portfolio data and layer on further information sources, such as hospital and ICU bed occupancy. By running statistical analyses and reports using the platform’s coding environments, clients could create new and more accurate models. This allows them to understand and forecast topics such as business interruption patterns and small business resilience. Summary Successful execution of our strategy has once again delivered value for our clients, partners and stakeholders. It has also allowed us to adapt quickly to rapidly changing environments. Looking ahead, we will continue to strengthen our partnerships across insurance and the wider ecosystem, remain relentless in our knowledge development and sharing, and draw on our global scale and capital strength to live up to our vision – to make the world more resilient. The right strategy In 2020, we confirmed our ambition to build on the three strategic pillars of Reinsurance: Core, Transactions and Solutions. We will continue to focus on strengthening our key assets: global scale and presence, risk diversification, deep risk knowledge, and client collaboration and access. By continuing to invest in these assets, we ensure that we provide the right support to our clients when it is most needed. Over the last year we saw progress in all areas of our strategy. In our core business, we grew our natural catastrophe exposure by 7% and maintained our market-leading position in North America. Reinsurance grew its critical illness book in China and longevity portfolio in EMEA. We increased our deployed capacity and premiums written in our life and health business, where we remained the number one provider of reinsurance globally. During 2020, L&H Re reinsured 235 million policies and paid out USD 10.8 billion in claims. In P&C Re, 3 223 clients benefitted from our support with USD 10.9 billion paid in claims. Transactions are tailor-made reinsurance structures that enable clients to achieve their objectives. Reinsurance engaged in over 200 deals in 2020. Our Transactions portfolio is spread across all lines of business and increasingly across all regions and markets, bringing attractive diversification within this business segment. Beyond traditional risk transfer, more clients used our Solutions offerings in 2020 than ever before. We have continued to grow our breadth of services to support clients in accessing and understanding new risk pools and opportunities in accelerated technology developments. In life and health markets, COVID-19 increased the demand for automated underwriting systems such as Magnum, which enables a faster and better assessment of risk by leveraging electronic health records. In property and casualty markets, we achieved our best year by far for SwiftRe®, our digital channel for automated single-risk reinsurance capacity that is available 24/7. The business placed through SwiftRe® grew by 20% in 2020 and we also saw a record number of new clients onboarded. In addition, we successfully concluded more than 400 solutions deals, including many innovative propositions such as digital and lean motor insurance aimed at millennials in the US and Asia Pacific region, and parametric earthquake products supporting the needs of small businesses. Swiss Re | Financial Report 2020 19 Financial year Reinsurance Property & Casualty Reinsurance Property & Casualty Reinsurance Property & Casualty Reinsurance (P&C Re)  reported a net loss for 2020 of  USD 247 million. The result included claims  and reserves related to the COVID-19 crisis  of USD 1.9 billion, reflecting affirmative  non-damage business interruption,  cancelled or postponed events, casualty  and credit & surety losses. COVID-19 losses  increased in the fourth quarter, mainly due  to business interruption claims. Excluding  the after-tax impact of these losses, net  income would have been USD 1.3 billion,  up from USD 396 million in 2019. P&C Re  delivered strong new business generation  with higher premiums earned, taking  advantage of price improvements,  particularly in April and July renewals. Natural catastrophe losses amounted to  USD 1.7 billion for 2020. This was largely  driven by the Atlantic hurricane season,  which included a record 30 named storms,  and secondary perils across the globe.  Large man-made losses were dominated   by the Beirut port explosion in the third  quarter. The result was further impacted by  prior-year development, the majority of  which was in the first quarter from higher  cedent-reported claims in casualty. In  comparison, 2019 was affected by a larger  natural catastrophe loss burden and late  claims development from Typhoon Jebi.  The investment portfolio made a strong  contribution with an ROI of 3.0% for 2020,  as the impact of global financial market  turbulence was partly mitigated by timely  and effective portfolio management actions  taken early on in the first half year.    Premiums Net premiums earned increased by 8.1% to  USD 20.8 billion, driven by strong new  business generation. This included growth  in natural catastrophe business, taking  advantage of price improvements. In  addition, the increase was supported by  large casualty transactions written in 2019.  Premiums written included portfolio mix  Property & Casualty Reinsurance results 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 before interest and income tax   expense Interest expenses Income/loss before income tax expense Income tax expense/benefit Net income/loss attributable to common shareholders Claims ratio in % Expense ratio in % Combined ratio in % 2019 2020 Change in % – –1 – 8  –17 –23 44  5  11  6  1  9  –99 –9 – – – 21 562  20 882  –1 607 19 275  1 419  883  18  21 595  21 512  20 636  196  20 832  1 178  683  26  22 719  –14 783 –4 810 –1 189 –20 782 –16 403 –5 104 –1 200 –22 707 813  –352 461  –65 396  76.7  31.1  107.8  12  –321 –309 62  –247 78.7  30.3  109.0  changes and active management actions  implemented in 2020. As a result,   gross premiums written were stable at  USD 21.5 billion in 2020. Combined ratio The P&C Re combined ratio was 109.0%   in 2020, compared with a reported  combined ratio of 107.8% in 2019. Excluding  the impact of COVID-19-related losses,   the combined ratio would have been  99.8%. This was above the expected level  for the year due to adverse large natural  catastrophe experience of 1.4% points and  the unfavourable prior-year development   of 1.5% points. The normalised1 combined  ratio was 96.9%, in line with the estimate   of 97% for the full year provided at the  beginning of 2020. Administrative expense ratio2 The administrative expense ratio decreased  to 5.8% in 2020, compared with 6.2% in  2019, due to higher net premiums earned,  while expenses had significant efficiency  gains, supported by lower travel activity. Lines of business The property combined ratio increased   to 109.4% in 2020, compared with 101.3%   a year earlier. While both periods were  impacted by large natural catastrophe  losses, the 2020 deterioration also included  COVID-19-related losses of 17.4% points  and the Beirut port explosion loss. This was  partly compensated by natural catastrophe  reserve releases. 1  Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments as well as the COVID-19 impact. 2  Operating expenses divided by premiums earned. 20 Swiss Re  |  Financial Report 2020 Premiums earned by   line of business, 2020 Premiums earned by line Total: USD 20.8 billion of business, 2020 46% Casualty    46%  Casualty 40% Property    40%  Property    14%  Specialty 14% Specialty Outlook Property business showed improving  margins, which enabled us to continue to  de-risk the portfolio from business most  exposed to climate change and non- modelled risks, and minimise infectious  disease business interruption coverage,  while meeting planned profit targets. Specialty lines, especially marine,  engineering and aviation, showed positive  momentum, and we continued to capitalise  on our leading franchise in these lines. For casualty, we further de-risked our  US liability portfolio with a clear focus   on profitability. We see increasing rate  momentum in several markets, which   is partially offset by loss trends and   yield reduction. P&C Re continues to see some good  opportunities for transactions and solutions  and participated in those that meet its  return requirements. Upcoming 2021  renewals will likely show further market  hardening, albeit with decreasing  momentum due to an increasingly  competitive environment. The casualty combined ratio was 111.8%   in 2020, compared with 116.6% in 2019.   This included COVID-19-related losses   of 3.2% points and an adverse casualty  experience, the majority of which was   in the first quarter of 2020. The specialty combined ratio deteriorated  to 98.7% in 2020, compared with 95.3%   in 2019. The current period included  COVID-19-related claims in credit & surety   of 5.3% points, partly compensated by  positive experience in marine business. Investment result The return on investments was 3.0%   for 2020, compared with 4.3% in 2019,  reflecting a decrease in the investment  result of USD 603 million. Net investment income decreased by   USD 267 million to USD 1 043 million for  2020, driven by declining yields on fixed  income securities. Net realised gains were USD 649 million   for 2020, compared with USD 985 million  for the prior period, as the prior year  benefitted from significant equity market  value gains.  Insurance-related investment results   and foreign exchange gains/losses are   not included in the figures above. Shareholders’ equity Shareholders’ equity increased to  USD 9.2 billion as of 31 December 2020  from USD 8.3 billion on 31 December 2019,  primarily driven by unrealised gains and the  impact from a restructure of internal loans.  This was compensated by the net loss and  the dividend paid to the Group. The return  on equity for 2020 was –2.8%, compared  with 4.4% in 2019. Excluding the after-tax  impact of COVID-19-related losses,   the ROE was 13.2%. Swiss Re  |  Financial Report 2020 21 Financial year Reinsurance Life & Health Reinsurance Life & Health Reinsurance results 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 and with-profit   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 Income tax expense Net income attributable to common shareholders Management expense ratio in % Net operating margin in % 2019 2020 Change in % 14 452  12 734  101  12 835  169  1 207  15 067  13 657  68  13 725  158  1 140  628  445  118  4  14 961  –32 4  15 440  –10 587 –162 –1 975 –746 –13 470 –12 204 5  –1 999 –786 –14 984 1 491  –445 1 046  –147 899  5.2  10.0  456  –367 89  –18 71  5.2  2.9  4  7  –33 7  –7 –6 –29 – – 3  15  – 1  5  11  –69 –18 –91 –88 –92 Lines of business Income before interest and income tax  (EBIT) for the life segment decreased   to USD –168 million in 2020, from  USD 581 million in the prior year. The  current-year result was impacted by  COVID-19-related losses of USD 889 million,  driven primarily by higher mortality claims  in the US and the UK. Excluding this impact,  the underlying result showed further   signs of continuous improvements in the  Americas mortality experience. EBIT for the health segment was  USD 221 million in 2020, compared with  USD 258 million in the prior-year period.  COVID-19 losses included in this result  amounted to USD 110 million, mainly  related to disability claims which emerged  in the second half of the year. Further  profitable growth of the health business  was partly muted by adverse experience  across various markets in Asia impacting  both years. Life & Health Reinsurance Life & Health Reinsurance (L&H Re)   reported a net income for 2020 of  USD 71 million. COVID-19-related claims  and reserves included in this result  amounted to USD 999 million (pre-tax),  driven primarily by higher mortality rates in  the US and the UK, as well as increased  disability claims mainly in ANZ. Excluding  the after-tax impact of COVID-19-related  losses, net income was USD 855 million in  2020, compared with USD 899 million in  2019. This result was supported by a strong  investment performance, which delivered   an ROI of 3.7%, despite the global financial  market volatility. The underwriting result  reflected continuous improvements   in the Americas mortality experience,  compensated by adverse morbidity  experience mainly in ANZ. The ROE, excluding the impact of COVID- 19-related losses, would have been 10.4%,  compared to 12.4% reported in 2019.   This was mainly due to the significantly  higher average equity base in 2020.  Reflecting the after-tax impact of COVID-19,  the ROE was 0.9% in 2020. Premiums  Net premiums earned and fee income  increased by 6.8% to USD 13.9 billion,  compared with USD 13.0 billion in 2019,  supported by individual large transactions,  including longevity deals. Gross premiums  written in 2020 increased by USD 0.6 billion,  or 4.3%, to USD 15.1 billion, compared   with USD 14.5 billion in 2019. Net operating margin  The net operating margin, excluding the  pre-tax impact of COVID-19-related losses,  would have been 9.4% in 2020, compared  with 10.0% reported in 2019. Both years  benefitted from a strong investment  performance. Management expense ratio The management expense ratio in 2020  was 5.2%, in line with prior year. An  increase in operating expenses was in   line with strong premium growth. 22 Swiss Re  |  Financial Report 2020 Outlook  While the current pandemic has led to  disruption in sales and claims activity for  insurers, L&H Re expects increases in life  and health treaty reinsurance new business  to remain driven by high-growth markets,  with more modest growth in mature  markets. However, the prolonged low  interest rate environment continues to have  an unfavourable impact on long-term life  business. Cession rates are expected to  remain broadly stable in major markets.  L&H Re sees a continued strong focus of  clients on capital, risk and balance sheet  optimisation in mature markets, leading to  ongoing opportunities for large transactions.  L&H Re will continue to pursue growth  opportunities in high-growth markets and   in large transactions, including longevity  deals. L&H Re is responding to the  expanding need for health protection driven  by ageing societies, and is applying its risk  knowledge to help reduce the protection  gap in all regions. Premiums earned by   line of business, 2020 Total: USD 13.7 billion 2020 Life Health 2019 Life Health 2020 Life Health 2019 Life Health 9192 4533 8648 4187 9192 4533 8648 4187 Investment result  The return on investments for 2020 was  3.7%, down from 5.0% in 2019, reflecting   a decrease in the investment result of  USD 323 million driven by the impact of  global financial market volatility. Net investment income decreased by  USD 74 million to USD 1 039 million in  2020 and was driven by recurring income  on the fixed income portfolio. The running  yield for 2020 was 3.0%, compared to  3.3% in 2019. Net realised gains were USD 438 million   for 2020, compared with USD 687 million  for the prior period. The decrease was  mainly due to fewer gains from sales of  fixed income securities, as well as lower  market value gains on equity securities.  Insurance-related investment results as well  as foreign exchange gains/losses are not  included in the figures above. Shareholders’ equity Shareholders’ equity decreased to  USD 7.4 billion as of 31 December 2020,  compared with USD 8.3 billion as of  31 December 2019. Positive change in net  unrealised gains was more than offset by  the dividend paid to the Group, as well as  foreign exchange and the impact from  restructuring of internal loans.  Return on equity, excluding the after-tax  impact of COVID-19-related losses,   was 10.4%. Swiss Re  |  Financial Report 2020 23 Financial year Corporate Solutions Corporate Solutions’ turnaround is ahead of plan at the end of 2020, reflecting the successful execution on the management actions and continued pricing momentum. Andreas Berger CEO Corporate Solutions Corporate Solutions’ underlying results for 2020 are the reward for all the hard work and discipline that has gone into turning the Business Unit around. We have made big steps to become a significant contributor to Swiss Re’s profitable growth ambitions. At the same time, we are making good progress in addressing customer pain points and industry inefficiencies. Strategy and priorities Corporate Solutions’ turnaround is ahead of plan, with pruning and gross cost reductions largely completed by the end of 2020. Portfolio repositioning, a low level of large man-made claims, together with efficiency improvements and improved momentum in insurance rates, helped Corporate Solutions to achieve a normalised1 combined ratio of 96.8%, well ahead of the estimate of 105% for 2020. The Business Unit will now target a normalised combined ratio of less than 97% in 2021, compared with the original 98% goal. While maintaining a strong focus on underwriting and operational performance, Corporate Solutions continues its longer-term strategic transformation as it invests in new capabilities and moves towards being a truly customer-focused, better diversified and more cycle- resilient commercial insurance provider. Performance Corporate Solutions’ net profit, excluding the COVID-19 impact, would have been USD 393 million in 2020 with a net operating margin of 11.6%, compared with a net loss of USD 647 million in 2019 with a net operating margin of –16.7%. The strong improvement in the result excluding COVID-19 impacts reflected the benefits of the management actions taken to improve profitability, as well as continued rate increases, favourable prior-year development and lower-than-expected large man-made losses. In addition, strict execution of the expense management actions laid out in 2019 helped the unit achieve almost all of the expense savings. Claims and reserves related to COVID-19 amounted to USD 943 million pre-tax, resulting in a net reported loss of USD 350 million for 2020. The investment performance contributed to the result, although to a lesser extent than in 2019. 1 Assumes an average large natural catastrophe loss burden and excludes prior-year reserve developments, as well as the COVID-19 impact. 24 Swiss Re | Financial Report 2020 Premiums Net premiums earned were USD 4.0 billion in 2020, a decrease of 2.9% year-on-year, as active portfolio pruning was cushioned by realised rate increases and higher volumes in targeted growth areas. Gross premiums written decreased by 2.7% to USD 4.8 billion in 2020, reflecting the pruning impacts, a more selective underwriting approach in credit & surety and reduced business activity due to the COVID-19 pandemic. These factors were partially offset by the strong pricing momentum which continued in 2020, with Corporate Solutions achieving an average price increases of 15%, as well as a higher volume of fronted business. Combined ratio The Business Unit’s combined ratio decreased to 116.5% in 2020 from 127.9% in 2019, mainly driven by strongly improved underlying business, a reduction in large man-made losses and favourable development from prior accident years, partially offset by COVID-19 impacts. The normalised1 combined ratio was 96.8%, reflecting the successful execution on the management actions to improve profitability, achieved rate increases, as well as lower- than-expected large man-made losses. Lines of business The property combined ratio for 2020 deteriorated by 12.2 percentage points to 128.8%, mainly driven by COVID-19 reserves related to event cancellation and non-damage business interruption. Excluding COVID-19 impacts, the combined ratio would have been 83.6%. The casualty combined ratio decreased to 108.1% in 2020, compared with 137.6% in 2019, reflecting the benefits of management actions previously taken. Excluding COVID-19 impacts, the combined ratio would have been 106.6%. The specialty combined ratio for 2020 improved by 19.3 percentage points to 109.9%, driven by management actions to improve profitability, partially offset by COVID-19-related losses on the credit & surety portfolio. Excluding COVID-19 impacts, the combined ratio would have been 89.7%. Corporate Solutions results 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 Loss before interest and income tax expense Interest expenses Loss before income tax expense Income tax expense/benefit Net loss before attribution of non-controlling interests Income/loss attributable to non-controlling interests Net loss attributable to common shareholders Claims ratio in % Expense ratio in % Combined ratio in % 2019 2020 Change in % –3 –10 – –3 –40 –54 – –7 –12 –8 –12 –12 –41 –23 –40 –5 –48 – –46 4 974 4 253 –87 4 166 234 162 5 4 567 4 839 3 824 223 4 047 140 74 5 4 266 –3 900 –640 –788 –5 328 –3 433 –592 –690 –4 715 –761 –40 –801 143 –658 11 –647 93.6 34.3 127.9 –449 –31 –480 136 –344 –6 –350 84.8 31.7 116.5 Investment result The return on investments was 2.6% for 2020, compared with 3.4% in 2019, reflecting a decrease in the investment result of USD 97 million. Net investment income decreased by USD 86 million to USD 154 million in 2020, mainly due to reinvestment into lower yields, as well as a lower average invested asset base. Net realised gains were USD 73 million in 2020, down from USD 84 million in 2019, reflecting lower market value gains on equity securities, partially offset by additional realised gains on sales of fixed income securities. Insurance-related derivative results and foreign exchange gains/losses are not included in the investment figures. Corporate Solutions offers insurance protection against weather perils and other risks, which is accounted for as derivatives. Insurance in derivative form reported a net realised loss of USD 8 million in 2020, compared with a net realised gain of USD 89 million in 2019. The current period was impacted by the mild winter temperatures in Europe. Shareholdersʼ equity Shareholdersʼ equity remained unchanged at USD 2.0 billion since the end of 2019, as the net loss for the period was offset by net unrealised gains and the conversion of a subordinated loan of USD 300 million from debt to equity in the second quarter of 2020. The ROE was –17.4% in 2020, compared with –34.1% in 2019. Excluding COVID-19 impacts, the ROE would have been 16.5%. Outlook The commercial insurance market experienced significant price gains through 2020, continuing the trend started in 2019. Swiss Re expects the positive momentum in commercial insurance to continue in 2021, but to potentially slow down by the end of the year as pricing deficiencies narrow and capital re-enters the market. Swiss Re | Financial Report 2020 25 Financial year Life Capital Life Capital achieved its key strategic milestone in 2020 with the sale of ReAssure and continued strong growth of its digital B2B2C business. Julien Descombes CEO Life Capital, ad interim In 2020, Life Capital delivered a strategic milestone by completing the sale of ReAssure while continuing to grow its open book businesses. In a difficult COVID-19 environment, iptiQ’s dynamic growth demonstrates the resilience of its B2B2C business and the strength of its operating model. 26 Swiss Re | Financial Report 2020 Strategy and priorities Life Capital continued its strong growth in the open book businesses and achieved major strategic milestones with the completion of the ReAssure sale and the deconsolidation of the business. The completion of the sale of ReAssure to Phoenix Group on 22 July 2020 represented a significant strategic milestone for the Group. The transaction had valued ReAssure at GBP 3.25 billion, with Swiss Re receiving a cash payment of GBP 1.2 billion and shares representing a 13.3% stake in Phoenix. The successful deconsolidation of ReAssure allowed Life Capital to pay a dividend to Swiss Re Group of USD 1.5 billion in September 2020. In our open book businesses, Life Capital continued to further enhance Swiss Re’s access to primary risk pools. Through the use of technology, elipsLife and iptiQ demonstrated strong growth despite the headwinds created by COVID-19. In 2020, iptiQ’s gross premiums written in its core business increased by 76% compared to 2019 and elipsLife’s core gross premiums written increased by 22%. iptiQ currently operates with 40 partners globally, a net increase of 11 compared with 2019. The successful expansion into the EMEA property and casualty business in 2020 has contributed positively to the overall growth and development of the business. iptiQ currently provides protection to 668 000 customers globally. Continued progress was made for expansion into Asia with the intention to enter China in the near term. The continued dynamic growth of the business contributes to its positive standalone valuation. Performance Life Capital reported a net loss of USD 265 million in 2020. The result was driven by continued investment into the growth of our open book businesses, underperformance in the elipsLife unit and COVID-19 losses. Overall, COVID-19 losses of USD 27 million for Life Capital are within expectations, given the underlying businesses. The net operating margin in 2020 was –6.6%, compared with 2.4% in the prior year, in line with movements in income. Premiums Gross premiums written in the open book businesses increased by 22% during 2020 when measured at constant exchange rates. Overall, net premiums earned and fee income were at USD 2.0 billion for 2020, compared with USD 2.1 billion in 2019, driven by the deconsolidation of the ReAssure business for five months in 2020. This was partially offset by solid growth in the open book businesses. Investment result The return on investments was 3.4% for 2020, compared with 3.7% in 2019. In 2020, the investment portfolio return related to ReAssure Group plc was excluded from the ROI calculation for the Business Unit and the Group due to the interim classification of ReAssure Group plc as held for sale. Net investment income decreased by USD 674 million to USD 113 million in 2020, mainly due to the exclusion of the ReAssure investment portfolio from the investment result. Net realised gains decreased by USD 148 million to USD 43 million in 2020. The current period was largely driven by market value gains on equity securities. Insurance-related investment results as well as foreign exchange gains/losses are not included in the figures above. Operating expenses Operating expenses were USD 613 million in 2020, compared with USD 721 million in 2019. The decrease was driven by the deconsolidation of ReAssure for five months of the year, partially offset by the continued investment into the growth of the open book businesses. Life Capital results 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 and with-profit business Other revenues Total revenues Expenses Life and health benefits Return credited to policyholders Acquisition costs Operating expenses Total expenses before interest expenses Income/loss before interest and income tax expense Interest expenses Income/loss before income tax expense/benefit Income tax expense/benefit Net loss before attribution of non-controlling interests Loss attributable to non-controlling interests Net loss attributable to common shareholders 2019 2020 Change in % 2 831 1 780 –82 1 698 451 1 193 18 4 821 1 8 182 –2 500 –4 471 –409 –721 –8 101 81 –72 9 –133 –124 –53 –177 2 533 1 686 7 1 693 291 827 243 –2 155 1 900 –1 718 1 755 –527 –613 –1 103 –203 –55 –258 41 –217 –48 –265 –11 –5 – – –35 –31 – – – –89 –31 – 29 –15 –86 – –24 – – 75 –9 50 Shareholdersʼ equity Shareholdersʼ equity decreased by USD 3.5 billion to USD 1.8 billion, mainly driven by the USD 1.5 billion dividend payment as well as a reduction in unrealised gains related to the disposal of ReAssure and the net loss. Return on equity was –7.5% for 2020, compared with –3.4% for 2019. Outlook As of 1 January 2021, the Life Capital segment is officially disbanded, with the former Life Capital businesses reported in their new operating segments from the first quarter of 2021. Swiss Re will continue to increase access to the primary insurance risk pool through its global B2B2C digital platform iptiQ, which is becoming a standalone division. elipsLife will be reported as part of the Corporate Solutions segment. iptiQ currently writes property and casualty business in Europe and intends to launch operations in China in 2021. On the life and health front, iptiQ operates in Europe, the US, Australia and New Zealand, and is exploring other expansion opportunities in Asia. Although the outlook has improved, COVID-19 continues to shape our business environment in 2021. While the pandemic is clearly a challenge for society and insurers, it has significantly accelerated the shift toward digital insurance channels. This is of strategic importance for iptiQ. We have already witnessed an increased rate of flow and activity in digital interaction models and we expect this to continue further. This trend plays to iptiQ’s strengths, and we are well placed to help partners become closer to consumers as they increasingly use digital channels to purchase insurance. Swiss Re | Financial Report 2020 27 Financial year Swiss Re Institute Thierry Léger Chairman Swiss Re Institute & Group Chief Underwriting Officer Our research and development insights are the foundation for how we model and understand risk. 28 Swiss Re | Financial Report 2020 Underwriting performance in 2020 As a result of the COVID-19 pandemic and its unparalleled containment measures, the Group booked substantial claims and reserves for the event across the year, amounting to USD 3.9 billion. Most of these are incurred but not reported (IBNR) reserves, reflecting a developing situation. Besides higher mortality claims, reserves are primarily related to non-damage business interruption and event cancellations. Swiss Re’s large natural catastrophe and man-made large losses, excluding the impact of COVID-19, amounted to USD 2.4 billion in 2020. Natural catastrophe events were above expectations, predominantly from secondary perils across the globe. The largest man-made loss was the explosion in Beirut. While the impact of COVID-19, natural catastrophes and man-made losses are significant, our P&C businesses showed improved underlying performance following determined actions to strengthen the quality of our underwriting. We steered our portfolio mix to an increasingly attractive risk-return profile with continued growth in special lines, a cautious cycle management approach in credit and surety, and continuous updates to our natural catastrophe risk models to reflect recent events. Furthermore, we executed a focused de-risking of our P&C Re casualty business in North America. We continued Corporate Solutions’ exit from North America general liability. Our underwriting performance was supported by a hardening price environment to compensate for lower interest rates, continued negative loss trends and years of soft markets. Underwriting outlook: data and analytics at the core Underwriting excellence and discipline are the key success factors in a changing insurance landscape. We are evolving our underwriting capabilities through cutting- edge research, while putting emphasis on more and better data, advanced analytics and sharpening the skills of our people. Underwriting data at an individual contract level and live monitoring that enables real-time underwriting decisions are a cornerstone of our efforts. End-to-end digitisation of our contracts helps us track exposures and review wordings, aided by machine learning. We are strengthening geospatial risk insights for individual locations, risks and policies. These enhancements to our core underwriting will strengthen our portfolio quality further. They will be supported by an increasingly data-driven Target Liability Portfolio, including advanced scenario modelling. Underwriting discipline and covering the true cost of risk is imperative. Swiss Re is well-equipped to benefit from improving market conditions. We see a confluence of factors working towards further rate increases: growth in insurance demand alongside economic recovery, COVID-19- triggered risk awareness and widening protection gaps. We will remain focused on sharper risk assessment, application of tighter terms and conditions and working closely with our clients. Increasing rates and successful growth in natural catastrophe business helped P&C Re achieve a normalised combined ratio of 96.9%. L&H Re achieved a strong ROE of 10.4%, excluding the impact of COVID-19. This was supported by strict new business underwriting rules and careful capital deployment to disability business. Corporate Solutions delivered on its turnaround plans, with pruning and gross cost reductions largely completed. Together with significant rate increases and low large man-made loss activity, the decisive management actions resulted in a normalised combined ratio of 96.8%. Swiss Re underwriting and COVID-19 The COVID-19 pandemic has been a major mortality event for Swiss Re’s L&H portfolio. Despite the high human cost of COVID-19, the overall mortality impact is significantly below our modelled one-in-two-hundred- year pandemic event. The pandemic highlighted the need to increase the clarity of reinsurance contracts in order to manage our exposure to complex risk scenarios. We are engaging with clients to improve our insights into their products. This will ensure that all exposures transferred to us are understood and priced for and that we have content clarity in our reinsurance contracts. Looking forward, the arrival of vaccines is a cause for optimism and we are hopeful that the expected reopening of economies will provide a boost for our re/insurance business. The switch to digital working and home office will continue into the future, requiring new forms of cyber coverage at individual, business and platform levels. Swiss Re can support the development of cyber insurance from both the investment and underwriting sides of the business. An evolving natural catastrophe risk landscape The 2020 hurricane season saw a record number of hurricanes in the North Atlantic and significant insured losses from secondary perils. Severe convective storms, hail and tornados in Australia, Canada and the United States caused USD 36 billion in insured losses for the industry. Wildfires in Australia and in the United States caused total insured losses well exceeding USD 10 billion. A warming climate explains some of the increase in secondary perils. However, since 1980, a steady growth of losses associated with weather events has mainly been due to exposure accumulation that comes with economic growth and urbanisation. In 2020, we advanced our understanding of the contribution of climate change and other climate conditions to hurricane and typhoon activity. Climate data points to an ongoing elevated hurricane activity level for 2021. Through our research, we have continued to develop forward-looking models for new and emerging risks. In 2020, this led to significant revisions of underwriting risk views for multiple markets, most notably in Asia. These models allowed us to better reflect emerging risks in our underwriting, addressing the need for sustainable pricing. At the same time, we have applied our modelling insights to a range of new natural catastrophe risk transfer solutions, enabling our clients and partners to offer new insurance products. These include index-based cover schemes for communities and public entities. We have sharpened our focus on sustainability by steering our risk-taking away from carbon-intensive industries, expanding into sustainable industrial activities like renewable energy and developing sustainability metrics to steer our liability portfolios, alongside our financial metrics. Swiss Re | Financial Report 2020 29 Financial year Group Investments Guido Fürer Group Chief Investment Officer Asset Management’s proactive portfolio management helped successfully navigate exceptional financial market volatility, delivering a strong result for the Group. 30 Swiss Re | Financial Report 2020 Financial markets and investment strategy The COVID-19 pandemic as well as the ensuing monetary and fiscal policy responses were the key drivers of financial markets in 2020. In February/March, risk assets sold off sharply amid the first wave of COVID-19 infections, the related lockdown measures in many countries and the collapse in economic activity. However, decisive actions by central banks and governments to provide significant amount of stimulus contributed to an impressive recovery in equity and other asset classes that has continued. Swiss Re’s investment performance was strong in 2020, despite the global financial market volatility. The focus on high-quality fixed income assets helped to reduce the impact of the financial market turmoil, as did our industry-leading ESG approach. Active and timely portfolio management activities also contributed to the strong investment performance. Actions included the targeted and early reduction of sectors with high vulnerability to COVID-19-related market impacts, as well as dynamically managed portfolio hedging following the onset of the crisis. In terms of specific key market developments, US 10-year Treasury yields declined to just above 0.5% in August, a new all-time low. Since then, they have increased again amid the economic recovery. Meanwhile, credit spreads of investment grade corporate bonds moved to their widest levels since the Global Financial Crisis in March, before narrowing again to levels close to the beginning of the year, in part due to the Federal Reserve providing a backstop to credit markets. Our active portfolio management and emphasis on high-quality exposure resulted in minimal impairments. Finally, equities rose sharply after hitting multi-year lows in late March, with the S&P 500 reaching new record highs in December as the uncertainty surrounding the US election outcome dissipated and positive news emerged on the effectiveness of various COVID-19 vaccines. This led to notable market value gains in the equity portfolio. 3.0 Net investment income in USD billions, 2020 (2019: USD 4.2 billion) 3.5% Group return on investments 2020 (2019: 4.7%) 2.4% Group running yield 2020 (2019: 2.8%) Investment result Fundamentally, the portfolio performed well with insignificant impairments alongside gains generated from the fixed income portfolio, as well as market value gains on equity positions. The Group’s non-participating investment portfolio decreased from USD 134.5 billion at the end of 2019 to USD 125.7 billion in 2020, in part due to the sale of the ReAssure portfolio in July 2020. The ROI was 3.5% for 2020, compared with 4.7% for 2019. The strong investment result, although lower than in the prior year, was driven by timely and effective portfolio management actions throughout the global financial market turbulence. The Group’s non-participating net investment income was USD 3.0 billion in 2020, compared with USD 4.2 billion in 2019. The decrease was mainly driven by the impact of reinvestment into lower yields and reduced contribution from equity-accounted investments, as well as the absence of the ReAssure portfolio in the second half of the year. The Group’s running yield was 2.4% in 2020, compared with 2.8% in 2019, reflecting the impact from historically low reinvestment yields alongside de-risking actions. A high concentration of unrealised gains on long-maturity fixed income securities supports our running yield’s persistency looking forward. The Group reported non-participating net realised gains of USD 1.7 billion in 2020, compared with USD 1.6 billion in 2019. The increase reflects the fact that the prior year was impacted by the loss from the agreed sale of ReAssure and additional foreign exchange losses, while the current year reflects reduced gains from sales of fixed income securities. Outlook The global economy has seen a stronger-than-expected recovery after the pandemic-induced “sudden stop” in spring. However, renewed COVID-19 waves in both the US and Europe weighed on economic growth in the fourth quarter, resulting in global real GDP growth in 2020 that is still deeply negative. Looking ahead, the global economy is expected to recover in 2021, although not all economies are expected to reach pre-COVID-19 GDP levels this year. Inflationary pressure is expected to remain moderate even though base effects are likely to lead to a temporary increase in the very near term. In this environment, monetary policy is set to remain highly accommodative. Continued fiscal support is likely necessary to sustain the recovery. Our investment portfolio remains well diversified across asset classes and underlying sectors, with an ongoing focus on quality and ESG integration. We look to moderately increase our allocation to private markets, including investments in private debt and private equity, which will further diversify the overall investment portfolio. Subject to market conditions, we also plan to add to our credit and equity allocations. Additionally, we intend to further increase our focus on thematic investing, in light of a financial market outlook where differentiation within asset classes will become even more key to generating performance. We will also continue our efforts to apply technology, such as big data and smart analytics, across the investment process to enable continued outperformance. Lastly, we remain committed towards responsible investing, having incorporated ESG across the entire investment value chain. Swiss Re | Financial Report 2020 31 Financial year Share performance Swiss Re shares Swiss Re had a market capitalisation of CHF 26.5 billion on 31 December 2020, with 317.5 million shares outstanding, of which 289 million were entitled to dividends. Swiss Re shares are listed in accordance with the International Reporting Standard on the SIX Swiss Exchange (SIX) and are traded under the ticker symbol SREN. typically two working days after the ex-dividend date. The corresponding dates in 2021 are 20 and 22 April. Dividends The Board of Directors proposes a regular dividend of CHF 5.90 per share for 2020. The dividend paid for 2020 will be subject to 35% Swiss withholding tax. Public share buyback programme On 17 April 2020, shareholders authorized a new public share buyback programme of up to CHF 1 billion purchase value. At the post-AGM meeting, the Board of Directors decided that the share buyback programme will not be launched. For further information please visit www.swissre.com/investors/shares/ share_buyback/ American Depositary Receipts (ADR) In the US, Swiss Re maintains an ADR level I programme (OTC symbol SSREY). Share price performance Swiss Re shares opened the year at CHF 108.75. An intra-day high of CHF 117.05 was achieved on 19 February 2020. On 19 March 2020, the shares experienced an intra-day low of CHF 52.68. The year-end share price was CHF 83.34. During 2020, the STOXX Europe 600 Insurance index (SXIP) decreased by 13.8% and the broader index of Swiss blue chips (SMI) increased by 0.8%. The Swiss Re share decreased by 23.3%. Share trading The average on-exchange daily trading volume for 2020 was 1 million shares. Trading volume peaked at 8 million shares on 30 April 2020. Swiss Re’s dividend policy Swiss Re’s dividend policy is a central element of Swiss Re’s capital management priorities. The Group aims to ensure superior capitalisation at all times and to maximise financial flexibility, growing the regular dividend with long-term earnings and, at a minimum, maintaining it. Swiss Re will then deploy capital for business growth where it meets its strategy and profitability requirements and finally repatriate further excess capital to shareholders, with the preferred form of future capital repatriation being share buyback programmes. Weighting in indices As of 31 December 2020 Swiss/blue chip indices SMI SPI Insurance indices STOXX Europe 600 Insurance Bloomberg Europe 500 Insurance FTSEurofirst 300 Insurance Dow Jones Insurance Titans 30 Dividends are typically paid out of current earnings and Swiss Re pays its dividend annually. Shares are ex-dividend two working days after the Annual General Meeting (AGM). Dividend payment is Sustainability indices Dow Jones Sustainability Europe Dow Jones Sustainability World FTSE4Good Global Bloomberg Gender Equality 32 Swiss Re | Financial Report 2020 In line with the Group’s capital management priorities, the Board has decided not to seek approval at the AGM 2021 for a new share buyback programme. Index representation In addition to its relevant industry indices, Swiss Re is also represented in various Swiss, European and global indices, including the SMI and the SXIP. Swiss Re is also a member of various sustainability indices, including the Dow Jones Sustainability World and Europe, FTSE4Good, Euronext Vigeo Europe 120, Bloomberg Gender Equality Index, MSCI World ESG Leaders and MSCI World Socially Responsible (2020) index families. In November 2020, Swiss Re received a AAA rating on the MSCI ESG assessment. Information for investors More information is available on Swiss Re’s website: www.swissre.com/investors Index weight (in %) 2.26 1.58 4.87 4.76 5.80 2.56 0.60 0.24 0.07 0.20 General information on Swiss Re shares Identification numbers Share Swiss Security Number (Valorennummer) 12688156 ADR – ISIN (International Securities Identification Number) CH0126881561 US8708861088 Ticker symbols Share ADR1 Bloomberg SREN:SW SSREY:US Telekurs SREN SSREY Reuters SREN.SW SSREY.PK 1 Swiss Re’s ADR are not listed but traded over the counter; four ADRs correspond to one Swiss Re share. Swiss Re share price and trading volume in 2020 Swiss Re share price and trading volume in 2020 120 Closing price in CHF Volume in millions 12 1 2 543 6 7 8 100 80 60 40 20 0 10 8 6 4 2 0 January February March April May June July August September October November December  Closing price  Volume on-exchange  Volume off-exchange Closing price  Volume on-exchange  Volume off-exchange 1 A nnual results 2019 (20 February) 2 A nnual report 2019 (19 March) 3 E x dividend date (21 April) 4 D ividend payment (23 April) 5 Q 1 results 2020 (30 April) 6 H 1 results 2020 (31 July) 7 9M results 2020 (30 October) 8 I nvestors’ Day 2020 (20 November) Key share statistics 2015 – 2020 Swiss Re share price and trading volume in 2020 As of 31 December Shares outstanding1 120 2015 370 706 931 2016 360 072 561 2017 349 452 281 2018 338 619 465 2019 327 404 704 of which Treasury shares and shares reserved for corporate purposes Shares entitled to dividend 100 CHF unless otherwise stated Dividend paid per share 80 Dividend yield8 (in %) Earnings per share9 Book value per share10 60 Price per share year-end Price per share year high (intra-day) 40 Price per share year low (intra-day) Daily trading volume (in CHF millions) Market capitalisation11 (in CHF millions) 20 ADR price at year-end (in USD) 32 967 2262 337 739 705 34 093 8343 325 978 727 34 866 5164 314 585 765 38 575 3245 300 044 141 36 749 7626 290 654 942 4.257 4.33 12.93 96.04 98.15 99.75 74.95 134 36 385 24.5312 4.60 4.77 10.55 107.64 96.50 97.85 79.00 120 34 747 23.76 4.85 5.32 1.02 103.37 91.25 98.50 81.65 129 31 888 23.38 5.00 5.55 1.34 91.72 90.12 98.80 84.20 126 30 516 22.84 5.60 5.15 2.46 97.46 108.70 110.45 88.90 120 35 589 28.12 2020 317 497 306 12 28 520 907 288 976 399 10 5.90 8 7.08 –3.04 83.00 6 83.34 117.05 4 52.68 147 26 460 2 23.69 0 0 März Januar Februar 1 Nominal value of CHF 0.10 per share. 2 Includes 4.4m shares repurchased under the share buyback programme launched on 12 November 2015, which concluded on 2 March 2016. 3 Includes 5.5m shares repurchased under the share buyback programme launched on 4 November 2016, which concluded on 9 February 2017. 4 Includes 6.3m shares repurchased under the share buyback programme launched on 3 November 2017, which concluded on 16 February 2018.  Closing price  Volume on-exchange  Volume off-exchange 5 Includes 10.1m shares repurchased under the share buyback programme launched on 7 May 2018, which concluded on 15 February 2019. 6 Includes 9.9m shares repurchased under the share buyback programme launched on 6 May 2019, which concluded on 18 February 2020. 7 In addition to the regular dividend of CHF 4.25 per share, a special dividend of CHF 3.00 per share was paid in 2015. 8 Dividend divided by year-end share price of the corresponding year. 9 Calculated by dividing net income by the weighted average number of common shares outstanding. 10 Based on shareholders’ equity (excluding convertible perpetual capital instruments) divided by the number of external common shares entitled to a dividend. 11 Based on shares outstanding. 12 Since 15 June 2015, every Swiss Re ADR represents one quarter of a Swiss Re share. Prior to close of business on 12 June 2015, one ADR represented one Swiss Re share. September November Oktober August April Juni Mai Juli Dezember Swiss Re | Financial Report 2020 33 Economic Value Management Swiss Re’s 2020 economic result was impacted by COVID-19, partially offset by a strong contribution from investment activities. 34 Swiss Re | Financial Report 2020 Contents EVM performance EVM financial information 36 40 Independent Assurance Report 48 Swiss Re | Financial Report 2020 35 Economic Value Management EVM performance The economic result in Reinsurance and Corporate Solutions was impacted by the large losses related to the COVID-19 pandemic, partially offset by strong performance from investment activities. Economic Value Management (EVM) is Swiss Re’s proprietary integrated economic valuation and steering framework, which consistently measures economic performance across all businesses. Swiss Re reported a total contribution to economic net worth (ENW) of USD ‒434 million in 2020, compared to USD 2.9 billion in 2019. On a risk-adjusted basis, Swiss Re reported an EVM loss of USD 3.6 billion in 2020, compared to an EVM loss of USD 19 million in 2019. John R. Dacey Group Chief Financial Officer The strong underlying business performance in 2020, excluding COVID-19-related losses, resulted in economic net worth per share growth of 10.3%. 36 Swiss Re | Financial Report 2020  ‒3.6 EVM profit in USD billions, 2020 (2019: USD −19 million) ‒434 Total contribution to ENW in USD millions, 2020 (2019: USD 2.9 billion) ‒0.1% ENW per share growth over-the-cycle target: 10% (2019: 8.2%) 10.3% ENW per share growth (excl. COVID-19) Group performance The EVM loss of USD 3.6 billion in 2020 reflected the impact of COVID-19 claims and reserves of USD 3.7 billion (COVID-19- related impacts disclosed net of expenses, taxes and capital costs). Excluding COVID- 19-related impacts, Reinsurance and Corporate Solutions showed strong new business performance. The EVM profit on new business was USD 9 million in 2020, compared to USD 1.2 billion in 2019. Excluding the COVID-19 claims and reserves of USD 1.2 billion, the 2020 result was driven by strong renewals in Property & Casualty Reinsurance, transactional growth in Life & Health Reinsurance and good underwriting performance in Corporate Solutions. This was partially offset by continued investments in the open book businesses in Life Capital as well as overhead expenses in Group items. The EVM loss from previous years’ business amounted to USD 4.3 billion in 2020, compared to an EVM loss of USD 3.3 billion in 2019. Excluding COVID-19-related claims and reserves of USD 2.5 billion, the result mainly reflected the adverse impacts of capital cost updates for Life & Health Reinsurance and negative development for the US liability portfolio in Property & Casualty Reinsurance. Investment activities generated an EVM profit of USD 683 million in 2020, compared to a profit of USD 2.1 billion in 2019. The 2020 result reflected favourable interest rate impacts on a net long duration position and strong real estate performance. The 2019 result was driven by spread tightening on credit investments as well as strong performance across equities and alternative investments. ENW per share growth amounted to ‒0.1% in 2020, below the over-the-cycle target of 10%. Excluding COVID-19-related claims and reserves the ENW per share growth was 10.3%. Key information USD millions, unless otherwise stated EVM profit Total contribution to ENW Economic net worth (ENW) Economic net worth per share in USD Economic net worth per share growth, %1 Profit margin − new business, % Profit margin − previous years’ business, % Profit margin − investments, % Change in % − − −7 −6 2019 −19 2 932 36 138 124.33 8.2 3.0 −14.2 21.8 2020 −3 590 −434 33 652 116.45 −0.1 0.0 −16.1 5.9 1 ENW per share growth is calculated as follows: (current-year closing ENW per share + current year dividends per share) ÷ (prior-year closing ENW per share + current year opening balance sheet adjustments per share). Swiss Re | Financial Report 2020 37 unfavourable performance from the implied equity exposure arising from the unit-linked business. This was partially offset by positive performance of Phoenix shares following the sale of ReAssure and the related hedge as well as the favourable interest rate impacts on a net long duration position in Life Capital. Group items reported an EVM loss of USD 191 million in 2020, compared to a loss of USD 184 million in 2019. The EVM loss on new business was USD 238 million in 2020, mainly driven by overhead expenses and capital costs on excess capital, partially offset by trademark licence fees charged to the business segments. The EVM loss on previous years’ business was USD 169 million, mainly driven by an increase in overhead expenses and the impact of a business re-segmentation from Life & Health Reinsurance and Life Capital to Group items. Investment activities generated an EVM profit of USD 216 million in 2020, compared to a loss of USD 6 million in 2019, reflecting improved performance from Principal Investments. Economic Value Management EVM performance Business segment performance Property & Casualty Reinsurance reported an EVM loss of USD 2.0 billion in 2020, compared to a loss of USD 1.4 billion in 2019. EVM loss on new business of USD 433 million was driven by COVID-19- related claims and reserves of USD 1.2 billion. EVM profit excluding COVID-19-related impacts was USD 720 million with strong renewals from property natural catastrophe and specialty. The casualty business was impacted by lower interest rates, partially offset by volume and profitability improvements. EVM loss on previous years’ business was USD 1.5 billion due to COVID-19-related claims of USD 689 million, US liability experience and assumption updates, large natural catastrophe losses mainly in Australia as well as several man-made loss updates. This was partially compensated by reserve releases for large natural catastrophe losses. Investment activities generated an EVM loss of USD 91 million in 2020, compared to a profit of USD 627 million in 2019. The 2020 loss reflected the impact from declining interest rates on a net short duration position, partially offset by strong real estate performance. The 2019 EVM profit reflected strong performance across equity and alternative investments as well as the impact of credit spread tightening. Life & Health Reinsurance reported an EVM loss of USD 207 million in 2020 compared to a profit of USD 1.8 billion in 2019. EVM profit on new business of USD 1.0 billion reflected strong transactional business growth in EMEA, mainly due to large longevity transactions, as well as life transactions in the Americas. EVM loss on previous years’ business of USD 1.8 billion included the impact of COVID-19-related claims and reserves of USD 995 million, mainly driven by higher incurred and expected mortality claims in the US and the UK as well as higher disability claims mainly in Australia. In addition, the result was impacted by capital cost updates. Investment activities generated an EVM profit of USD 551 million in 2020, compared to USD 739 million in 2019. The 2020 EVM profit was driven by favourable interest rate impacts on a net long duration position. The 2019 EVM profit reflected the impact of credit spread tightening as well as positive equity performance. 38 Swiss Re | Financial Report 2020 Corporate Solutions reported an EVM loss of USD 706 million in 2020, compared to a loss of USD 805 million in 2019. The EVM loss on new business of USD 98 million was mainly driven by COVID-19-related claims and reserves, and losses on insurance in derivative form due to the mild winter in Europe. Excluding COVID-19-related impacts, the new business loss was USD 41 million. The EVM loss on previous years’ business of USD 624 million was significantly impacted by COVID-19-related claims and reserves, driven by anticipated claims for event cancellations, non-damage business interruption losses, and credit & surety claims. Excluding COVID-19-related impacts, the previous years’ business reported a profit of USD 156 million, a turnaround of USD 1.2 billion compared to 2019. The profit reflected the benefits of the management actions taken to improve profitability and low large man-made claims activity, partially offset by credit & surety recession-related anticipated losses on the existing portfolio, as well as a credit & surety premium takedown to account for future cancellations. Investment activities generated an EVM profit of USD 17 million in 2020, compared to a profit of USD 112 million in 2019, with results in 2020 driven by interest rates and equity performance, albeit lower than in the prior year. The 2019 EVM profit reflected the impact of credit spread tightening and favourable performance from equity investments. Life Capital generated an EVM loss of USD 511 million in 2020, compared to a profit of USD 591 million in 2019. The EVM loss on new business was USD 268 million, mainly driven by expenses for the open books and the running of Life Capital as well as capital costs, which more than offset the gross underwriting result generated by the open books. The EVM loss on previous years’ business was USD 233 million, impacted by a true-up to the gain on the sale of ReAssure mainly driven by an unfavourable movement in the Phoenix share price prior to the sale, underperformance in elipsLife and unfavourable persistency in the closed book US business. Investment activities generated an EVM loss of USD 10 million, compared to a profit of USD 596 million in 2019. The 2020 EVM loss was mainly related to ReAssure with unfavourable performance driven by spread widening on UK credit investments as well as Business segments – key information USD millions, unless otherwise stated 2019 EVM profit Total contribution to ENW Profit margin − new business, % Profit margin − previous years’ business, % Profit margin − investments, % 2020 EVM profit Total contribution to ENW Profit margin − new business, % Profit margin − previous years’ business, % Profit margin − investments, % Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items −1 396 −351 −1.1 −19.5 23.2 −1 975 −714 −2.7 −12.7 −3.8 1 775 2 656 7.8 −2.5 18.8 −207 820 4.6 −14.6 13.2 −805 −727 5.3 −88.8 20.5 −706 −513 −4.3 −42.4 3.1 591 937 7.2 −6.9 n/a −511 −302 −33.7 −17.3 n/a −184 417 n/a n/a −0.3 −191 276 n/a n/a 5.1 Total −19 2 932 3.0 −14.2 21.8 −3 590 −434 0.0 −16.1 5.9 Swiss Re | Financial Report 2020 39 Economic Value Management EVM financial information EVM income statement For the years ended 31 December USD millions, unless otherwise stated Underwriting result Gross premiums and fees Gross premiums and fees growth rate, % Premiums and fees Premiums and fees retention rate, % Premiums and fees growth rate, % Claims and benefits Commissions Other Gross underwriting result – new business Expenses Net underwriting result – new business Taxes Capital costs EVM profit – new business EVM profit – previous years’ business EVM profit – underwriting Investment result Mark-to-market investment result Benchmark investment result Gross outperformance (underperformance) Other Expenses Net outperformance (underperformance) Taxes Capital costs EVM profit – investments EVM profit Cost of debt Release of current year capital costs Additional taxes Total contribution to ENW Profit margin – new business, % Profit margin – previous years’ business, % Profit margin – investments, % 40 Swiss Re | Financial Report 2020 2019 2020 58 325 30.2 57 120 97.9 30.2 −40 913 −9 536 452 7 123 −3 639 3 485 −607 −1 672 1 206 −3 293 −2 087 9 565 −5 645 3 920 117 −249 3 788 −810 −910 2 068 −19 −841 2 911 881 2 932 3.0 −14.2 21.8 60 449 3.6 58 641 97.0 2.7 −43 488 −8 827 −44 6 282 −3 731 2 551 −573 −1 970 9 −4 282 −4 274 8 409 −6 143 2 265 123 −241 2 147 −469 −994 683 −3 590 −259 2 443 972 −434 0.0 −16.1 5.9 EVM balance sheet As of 31 December USD millions Assets Investments Cash and cash equivalents In-force business assets Retrocession assets Other assets Total assets Liabilities In-force business liabilities Retrocession liabilities Provision for capital costs Future income tax liabilities Debt Other liabilities Total liabilities Economic net worth Total liabilities and economic net worth Statement of economic net worth For the years ended 31 December USD millions Economic net worth as of 1 January Change in EVM methodology1 Adjusted economic net worth as of 1 January Total contribution to ENW Dividends and share buyback Other, including foreign exchange on economic net worth Economic net worth as of 31 December Common shares outstanding as of 31 December Economic net worth per share in USD as of 31 December 2019 2020 155 013 9 611 266 327 26 072 3 457 460 480 369 967 19 752 9 850 4 203 13 718 6 852 424 342 36 138 460 480 123 601 5 458 318 440 26 848 2 818 477 165 384 141 21 900 11 800 3 510 14 817 7 345 443 513 33 652 477 165 2019 2020 35 993 0 35 993 2 932 −2 590 −197 36 138 290 654 942 124.33 36 138 −492 35 646 −434 −1 956 395 33 652 288 976 399 116.45 1 The Group decided to adopt an intensity-based approach for modelling EVM capital of underwriting activities. The impact of the change in EVM methodology was recorded as an adjustment to the opening balance of 2020 economic net worth. Swiss Re | Financial Report 2020 41 Economic Value Management EVM financial information Business segments – EVM income statement For the year ended 31 December USD millions, unless otherwise stated Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 2019 Underwriting result Gross premiums and fees Gross premiums and fees growth rate, % Premiums and fees Premiums and fees retention rate, % Premiums and fees growth rate, % Claims and benefits Commissions Other Gross underwriting result – new business Expenses Net underwriting result – new business Taxes Capital costs EVM profit – new business EVM profit – previous years’ business EVM profit – underwriting Investment result Mark-to-market investment result Benchmark investment result Gross outperformance (underperformance) Other Expenses Net outperformance (underperformance) Taxes Capital costs EVM profit – investments EVM profit Cost of debt Release of current year capital costs Additional taxes Total contribution to ENW Profit margin – new business, % Profit margin – previous years’ business, %1 Profit margin – investments, % 24 174 27.1 23 540 97.4 26.5 −15 937 −5 873 14 1 745 −1 411 334 −209 −334 −209 −1 814 −2 023 3 370 −2 099 1 272 66 −103 1 234 −269 −338 627 −1 396 −273 931 386 −351 −1.1 −19.5 23.2 27 244 37.9 27 213 99.9 34.4 −21 021 −2 702 −6 3 484 −828 2 656 −417 −931 1 308 −272 1 036 3 388 −2 166 1 222 26 −71 1 178 −242 −197 739 1 775 −322 980 223 2 656 7.8 −2.5 18.8 4 767 6.2 4 071 85.4 2.8 −2 197 −626 59 1 307 −875 432 −90 −178 164 −1 081 −917 541 −357 185 11 −20 175 −38 −25 112 −805 −45 176 −52 −727 5.3 −88.8 20.5 2 656 92.9 2 296 86.5 120.4 −1 758 −334 380 584 −402 182 39 −88 133 −137 −4 1 870 −933 937 13 −28 922 −188 −139 596 591 −151 346 151 937 7.2 −6.9 n/a n/a n/a n/a 4 4 −123 −119 70 −140 −190 11 −179 395 −91 304 1 −26 278 −72 −211 −6 −184 −50 479 172 417 n/a n/a −0.3 −517 0 0 0 0 0 0 0 0 0 0 n/a n/a n/a 58 325 30.2 57 120 97.9 30.2 −40 913 −9 536 452 7 123 −3 639 3 485 −607 −1 672 1 206 −3 293 −2 087 9 565 −5 645 3 920 117 −249 3 788 −810 −910 2 068 −19 −841 2 911 881 2 932 3.0 −14.2 21.8 1 The overall previous years’ business profit margin for the Reinsurance Business Unit was –10.4%. 42 Swiss Re | Financial Report 2020 Business segments – EVM income statement For the year ended 31 December USD millions, unless otherwise stated Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 2020 Underwriting result Gross premiums and fees Gross premiums and fees growth rate, % Premiums and fees Premiums and fees retention rate, % Premiums and fees growth rate, % Claims and benefits Commissions Other Gross underwriting result – new business Expenses Net underwriting result – new business Taxes Capital costs EVM profit – new business EVM profit – previous years’ business EVM profit – underwriting Investment result Mark-to-market investment result Benchmark investment result Gross outperformance (underperformance) Other Expenses Net outperformance (underperformance) Taxes Capital costs EVM profit – investments EVM profit Cost of debt Release of current year capital costs Additional taxes Total contribution to ENW Profit margin – new business, % Profit margin – previous years’ business, %1 Profit margin – investments, % 23 853 −1.3 22 886 95.9 −2.8 −15 749 −5 595 14 1 555 −1 397 158 −133 −458 −433 −1 451 −1 884 2 763 −2 331 432 73 −99 405 −97 −399 −91 −1 975 −40 854 447 −714 −2.7 −12.7 −3.8 29 754 9.2 29 565 99.4 8.6 −23 461 −2 377 −13 3 714 −912 2 802 −559 −1 197 1 046 −1 804 −758 2 891 −1 872 1 019 29 −68 981 −202 −228 551 −207 −71 826 273 820 4.6 −14.6 13.2 4 604 −3.4 3 767 81.8 −7.5 −2 399 −506 −34 828 −814 13 −7 −104 −98 −624 −723 371 −314 57 11 −15 53 −10 −25 17 −706 37 137 19 −513 −4.3 −42.4 3.1 3 089 16.3 2 423 78.4 5.5 −1 878 −348 −3 193 −418 −225 48 −91 −268 −233 −501 1 694 −1 572 122 9 −30 101 −21 −89 −10 −511 −41 237 12 −302 −33.7 −17.3 n/a n/a n/a n/a −8 −8 −189 −197 79 −120 −238 −169 −407 690 −54 636 1 −29 607 −138 −253 216 −191 −144 389 221 276 n/a n/a 5.1 −851 0 0 0 0 0 0 0 0 0 0 n/a n/a n/a 60 449 3.6 58 641 97.0 2.7 −43 488 −8 827 −44 6 282 −3 731 2 551 −573 −1 970 9 −4 282 −4 274 8 409 −6 143 2 265 123 −241 2 147 −469 −994 683 −3 590 −259 2 443 972 −434 0.0 −16.1 5.9 1 The overall previous years’ business profit margin for the Reinsurance Business Unit was –13.7%. Swiss Re | Financial Report 2020 43 Economic Value Management EVM financial information Business segments – EVM balance sheet As of 31 December USD millions 2019 Assets Investments Cash and cash equivalents In-force business assets Retrocession assets Other assets Total assets Liabilities In-force business liabilities Retrocession liabilities Provision for capital costs Future income tax liabilities Debt Other liabilities Total liabilities Economic net worth Total liabilities and economic net worth Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 61 167 3 675 20 125 2 744 5 101 92 812 63 537 662 922 −93 6 968 10 681 82 676 10 136 92 812 39 811 1 697 250 985 37 957 3 208 333 658 249 676 38 753 7 231 4 635 15 216 3 260 318 772 14 887 333 658 8 027 1 696 2 564 6 741 1 058 20 087 14 870 1 390 257 −264 866 662 17 780 2 306 20 087 53 808 2 540 39 076 25 049 1 022 121 496 87 513 25 392 1 441 183 1 847 1 164 117 540 3 955 121 496 5 745 2 1 756 7 503 −13 544 −46 424 −46 419 −8 689 −115 075 776 −46 405 −46 445 −259 626 1 505 2 649 4 854 7 503 −11 807 −10 419 −115 075 0 −115 075 155 013 9 611 266 327 26 072 3 457 460 480 369 967 19 752 9 850 4 203 13 718 6 852 424 342 36 138 460 480 44 Swiss Re | Financial Report 2020 Business segments – EVM balance sheet USD millions 2020 Assets Investments Cash and cash equivalents In-force business assets Retrocession assets Other assets Total assets Liabilities In-force business liabilities Retrocession liabilities Provision for capital costs Future income tax liabilities Debt Other liabilities Total liabilities Economic net worth Total liabilities and economic net worth Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 72 541 2 941 20 967 2 589 5 694 104 732 73 095 919 1 206 −886 5 774 15 872 95 981 8 751 104 732 41 946 1 625 280 433 21 872 4 741 350 616 280 803 20 367 10 022 5 121 16 353 3 428 336 094 14 522 350 616 9 119 546 2 567 7 179 858 20 268 16 528 870 207 −425 538 457 18 175 2 093 20 268 4 707 294 15 486 636 822 21 945 18 465 535 361 110 66 606 20 142 1 803 21 945 8 230 53 177 4 223 12 683 1 084 5 −411 2 688 2 836 6 202 6 481 12 683 −12 943 −1 189 −5 428 −13 520 −33 080 −5 834 −790 −10 602 −15 854 −33 080 0 −33 080 123 601 5 458 318 440 26 848 2 818 477 165 384 141 21 900 11 800 3 510 14 817 7 345 443 513 33 652 477 165 Swiss Re | Financial Report 2020 45 Economic Value Management EVM financial information Business segments – statement of economic net worth For the year ended 31 December USD millions 2020 Economic net worth as of 1 January Change in EVM methodology1 Adjusted economic net worth as of 1 January Total contribution to ENW Dividends and share buyback Other, including foreign exchange on economic net worth Economic net worth as of 31 December Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Total 3 955 4 854 10 136 −183 9 953 −714 −470 −18 8 751 14 887 −344 14 543 820 −1 200 359 14 522 2 306 34 2 341 −513 3 955 −302 −1 487 266 2 093 −363 1 803 36 138 −492 35 646 −434 −1 956 395 33 652 4 854 276 1 201 150 6 481 1 The Group decided to adopt an intensity-based approach for modelling EVM capital of underwriting activities. The impact of the change in EVM methodology was recorded as an adjustment to the opening balance of 2020 economic net worth. 46 Swiss Re | Financial Report 2020 Comparison of EVM and US GAAP The most significant differences between EVM and US GAAP are as follows: • Discounting: For EVM, all future expected cash flows are discounted using risk-free interest rates. Under US GAAP, most property and casualty reserves are undiscounted (except for reserves acquired in business combinations), whereas life and health reserves are usually discounted based on book yields. • Investments and debt: For EVM, all investments and debt positions are carried at fair value. Under US GAAP, different treatment applies for certain investments (eg real estate is held at depreciated cost) and debt is carried at amortised cost rather than at fair value. • Reserving basis: For EVM, best- estimate current assumptions are used for all re/insurance reserves. Under US GAAP, life and health assumptions, including book yield discounting assumptions, are usually locked in and can include a provision for adverse deviation. • Recognition differences: EVM considers the economic value related to annual management charges on unit-linked funds and adjusts for counterparty credit risk in the valuation of insurance-related net assets. In addition, EVM does not show minority interests on the balance sheet, but consolidates assets and liabilities based on the proportion of the interest held by Swiss Re. • Goodwill and other intangibles: EVM excludes the recognition of potential future new business activities, including potential renewals. As a result, no goodwill or other intangible assets are carried in the EVM balance sheet. • Taxes: For EVM, deferred tax assets and liabilities are recognised for temporary differences between US GAAP and EVM. • Capital costs: EVM recognises opportunity costs for shareholders’ capital. The present value of capital costs allocated to existing contracts are recognised in the EVM balance sheet. Business segments – reconciliation to US GAAP As of 31 December USD millions 2019 US GAAP shareholders’ equity Discounting Investments and debt Reserving basis GAAP margins Other Recognition differences Goodwill and other intangibles Taxes Capital costs Other Total EVM valuation adjustments Economic net worth 2020 US GAAP shareholders’ equity Discounting Investments and debt Reserving basis GAAP margins Other Recognition differences Goodwill and other intangibles Taxes Capital costs Other Total EVM valuation adjustments Economic net worth Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Total 8 318 3 484 2 302 80 −30 −1 943 −1 043 −808 −224 1 818 10 136 9 168 1 220 2 401 −135 117 −1 978 −721 −1 108 −213 −417 8 751 8 253 −745 −2 305 20 796 −35 193 −1 847 −2 213 −7 187 −21 6 634 14 887 7 381 −981 −2 378 24 658 912 −955 −1 884 −2 312 −9 964 46 7 141 14 522 2 005 162 −34 850 −25 −342 −58 −230 −22 301 2 306 2 021 1 −19 608 −55 −299 20 −179 −5 72 2 093 5 289 −3 796 −39 3 162 −281 87 −31 570 −1 802 796 −1 334 3 955 1 751 −232 1 897 −96 −82 −59 −62 −360 47 52 1 803 5 386 491 −776 −515 139 129 −532 4 854 6 814 668 85 −938 −29 −489 246 −5 129 −333 6 481 29 251 −895 414 23 958 −163 225 −4 678 −2 605 −10 026 659 6 887 36 138 27 135 8 674 25 639 351 −1 004 −4 708 −2 830 −11 615 3 6 517 33 652 Swiss Re | Financial Report 2020 47 Independent Assurance Report on the Economic Value Management financial information as of 31 December 2020 to the Board of Directors of Swiss Re Ltd Zurich We have been engaged to perform a reasonable assurance engagement on the Economic Value Management (‘EVM’) financial information of Swiss Re Ltd (the ‘Company’) for the year ended 31 December 2020 (the ‘EVM financial information’). The EVM financial information consists of the income statement, balance sheet, statement of economic net worth and information on business segments as set out on pages 40 to 47 in the Company’s 2020 Annual Report. All other EVM information included in, or made available outside, the Company’s 2020 Annual Report was not subject to assurance procedures and, accordingly, we express no conclusion on this information. The reporting criteria used by the Company are described in the summary of significant EVM principles (hereafter referred to as “EVM principles”) as published on the Company’s website (swissre.com/EVM_principles). Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the EVM financial information in accordance with the Company’s EVM principles including data, valuation and accounting principles, assumptions and factors used and the related internal controls as determined necessary to enable the preparation of the EVM financial information that is free from material misstatement. Practitioner’s responsibility Our responsibility is to perform a reasonable assurance engagement to express a conclusion on the EVM financial information as set out on pages 40 to 47 in the Company’s 2020 Annual Report. We conducted our reasonable assurance engagement in accordance with International Standards on Assurance Engagements 3000 (Revised) ‘Assurance engagements other than audits or reviews of historical financial information’ issued by the International Auditing and Assurance Standards Board. This standard requires that we plan and perform this engagement to obtain reasonable assurance about the assurance conclusions. A reasonable assurance engagement involves performing procedures to obtain evidence about the execution of the valuation and accounting for the purpose of the EVM financial information in accordance with the Company’s EVM principles. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the EVM financial information, whether due to omissions, misrepresentation, fraud or error. In making those risk assessments, we consider internal controls relevant to the preparation of the EVM financial information in order to design assurance procedures that are appropriate in the circumstances, but not for the purpose of expressing a conclusion on the effectiveness of the entity’s internal controls regarding the EVM financial information. A reasonable assurance engagement also includes evaluating the appropriateness of the policies used and reasonableness of significant estimates made, as well as evaluating the adequacy of the overall presentation of the EVM financial information in accordance with the Company’s EVM principles. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our assurance conclusion. Our Independence and Quality Control We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants, which is founded on the fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behavior. Our firm applies International Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. PricewaterhouseCoopers Ltd, Birchstrasse 160, Postfach, CH-8050 Zurich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers Ltd is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity. 48 Swiss Re | Financial Report 2020 Conclusion In our opinion, the EVM financial information of the Company for the year ended 31 December 2020 as set out on pages 40 to 47 is prepared, in all material respects, in accordance with the Company’s EVM principles applied as published on the Company’s website (swissre.com/EVM_principles). PricewaterhouseCoopers Ltd Roy Clark Jasmine Chang Zurich, 17 March 2021 2 Swiss Re Ltd | Independent Assurance Report on the Economic Value Management financial information to the Board of Directors of Swiss Re Ltd Swiss Re | Financial Report 2020 49 Risk and capital management Swiss Re maintained its very strong capital position in 2020 despite the impact of COVID-19, while successfully deploying capital to attractive risk pools. 50 Swiss Re | Financial Report 2020 Contents Overview Financial strength and capital management Liquidity management Risk management Risk assessment 52 54 60 61 67 Swiss Re | Financial Report 2020 51 Risk and capital management Our resilient balance sheet protects our franchise and makes us a reliable partner for our clients. The Group’s capital position remains very strong with a Group SST ratio of 215% as of 1 January 2021, compared with a target range of 200–250%. This is supported by our diversified business model and disciplined risk-taking. Swiss Re’s overarching target is to maintain a very strong capital position that operates efficiently within constraints imposed by regulators and requirements from rating agencies, while giving the company maximum financial flexibility. Swiss Re’s capital allocation decisions are steered to make capital and liquidity fungible to the Group wherever possible, while complying with local regulations and client needs. Cash dividends paid by our Business Units to the Group’s parent holding company, Swiss Re Ltd, have amounted to USD 28.1 billion since 2013. Based on the Group’s capital strength, the Board of Directors proposes a 2020 regular dividend of CHF 5.90 per share. In accordance with the Group’s capital management priorities, the Board of Directors has not proposed a public share buyback programme for 2021. Liquidity Our core insurance and reinsurance operations generate liquidity primarily through premium income. Our exposure to liquidity risk stems mainly from two sources: the need to cover potential extreme loss events and regulatory constraints that limit the flow of funds within the Group. The amount of liquidity held is largely determined by internal liquidity stress tests, which estimate the potential funding requirements stemming from extreme loss events. Based on these internal liquidity stress tests, we estimate that Swiss Reinsurance Company Ltd, the most important legal entity of the Group from a liquidity perspective, currently holds significant surplus liquidity. John R. Dacey Group Chief Financial Officer The strength of our business model allows us to continue to offer an attractive dividend even in these unprecedented times. Financial strength Despite significant loss events during 2020, the Group’s capital position remains very strong with a Group Swiss Solvency Test (SST) ratio of 215% as of 1 January 2021, which is within Swiss Re’s 200–250% target Group capitalisation range. Rating agencies A.M. Best, Moody’s and Standard & Poor’s (S&P) rated Swiss Re’s financial strength “superior”, “excellent” and “very strong”, respectively. This capital strength enables Swiss Re to support its clients while continuing to return capital to shareholders. 52 Swiss Re | Financial Report 2020 Swiss Re also provides FINMA, its principal regulator, with a yearly report on its liquidity position, in accordance with FINMA Circular 13/5, “Liquidity — Insurers”. Risk Management Group Risk Management is key to the controlled risk-taking that underpins Swiss Re’s financial strength. Risk Management is mandated to ensure that the Group and its legal entities have the necessary expertise, frameworks and infrastructure to support good risk-taking. In addition, it monitors and ensures adherence to applicable frameworks and also performs reserving and reporting activities. Risk Management is embedded throughout Swiss Re’s business. The Group has dedicated Chief Risk Officers and risk teams for all major legal entities and regions. These are closely aligned to Swiss Re’s business structure, in order to ensure effective risk oversight, but remain part of the Risk Management function under the Group CRO, thus ensuring their independence as well as a consistent Group-wide approach to overseeing and controlling risks. They are supported in this by central risk teams that provide specialised risk expertise and oversight. The Group’s risk-taking is steered by Swiss Re’s Risk Appetite Framework, which consists of two interlinked components: risk appetite and risk tolerance. The risk appetite statement facilitates discussions about where and how Swiss Re should deploy its capital, liquidity and other resources under a risk/return view. The risk tolerance sets clear boundaries to risk-taking. Swiss Re’s proprietary integrated risk model provides a meaningful assessment of the risks to which the Group is exposed and represents an important tool for managing our business. It determines the capital requirements for internal purposes and forms the basis for regulatory reporting under the SST and under Solvency II for our legal entities in the European Economic Area (EEA) and the United Kingdom. Swiss Re continuously reviews and updates its internal model and parameters to reflect the Group’s experiences and changes in the risk environment and current best practice. Swiss Re’s risk profile In SST 2021, Swiss Re’s overall risk increases to USD 22.4 billion (compared to USD 21.3 billion in SST 2020), driven by higher insurance risk, offset partly by lower financial market and credit risk. The higher weight of insurance risk leads to increased diversification at risk category level. The increase in property and casualty risk is mainly driven by a rise in non-life claims inflation risk reflecting the heightened probability of extreme inflation outcomes, as well as an increase in costing and reserving risk mainly due to COVID-19- related reserves. Higher life and health risk mainly reflects the business growth in Asia and the US, resulting in higher exposure to mortality trend, lethal pandemic and critical illness risk. The decrease in financial market risk and credit risk is driven mainly by the sale of ReAssure Group Plc and an increase in credit hedges. Patrick Raaflaub Group Chief Risk Officer Swiss Re’s resilience to the impact of COVID-19 reflects our financial strength and disciplined approach to risk-taking. Swiss Re | Financial Report 2020 53 Risk and capital management Financial strength and capital management Swiss Re’s capital position remains very strong, demonstrating resilience to large losses and market volatility. Solid capitalisation enabling market opportunities Swiss Re’s policy of ensuring superior capitalisation at all times has meant that even after four consecutive years with large insurance losses, our very strong capital position and high financial flexibility enabled us to respond to market opportunities and therefore create sustainable long-term shareholder value by maintaining the regular dividend. Swiss Re’s capital management priorities aim to ensure the ability to continue operations following an extremely adverse year of losses from insurance and/or financial market events. Swiss Re’s Board of Directors has also defined an SST capitalisation target range of 200–250% for the Swiss Re Group. The below subsections describe Swiss Re’s capitalisation according to the SST and the financial strength ratings. Swiss Solvency Test (SST) Swiss Re is supervised by FINMA at the Group level as well as for its regulated legal entities domiciled in Switzerland. FINMA supervision comprises minimum solvency requirements, along with a wide range of qualitative assessments and governance standards. 1 4 Ensure superior capitalisation at all times and maximise financial flexibility 2 Grow the regular dividend with long-term earnings, and at a minimum maintain it Capital management priorities Repatriate further excess capital to shareholders 3 Deploy capital for business growth where it meets our strategy and profitability targets 54 Swiss Re | Financial Report 2020 SST 2021 SST RBC – MVM SST TC – MVM 19 308 215% SST 2020 SST RBC – MVM SST TC – MVM 18 021 232% 41 504 41 873 41 504 19 308 SST 2021 SST RTK – MVM SST ZK – MVM 215% SST 2020 SST ratio SST RTK – MVM (2021) SST ZK – MVM The SST ratio is calculated as SST risk- bearing capital (SST RBC) minus market value margin (MVM), divided by SST target capital (SST TC) minus MVM. The Group SST 2021 report will be filed with FINMA in April 2021. Accordingly, the information presented below is based on currently available information and may differ from the final Group SST 2021 figures. Despite a challenging year, Swiss Re Group maintains a very strong solvency level of 215% in SST 2021. The decrease of 17pp compared to SST 2020 is mainly driven by COVID-19-related claims and reserves, the significant decline in interest rates and higher financial market volatilities. These effects are partly offset by the sale of ReAssure Group Plc, a positive investment and underwriting performance (excluding COVID-19) and higher supplementary capital. The Group SST 2021 ratio lies within the new target range of 200–250%, which replaces the fixed Group SST target to better align with market practice. 215% Swiss Re Group SST Ratio 41 873 18 021 232% USD millions SST risk-bearing capital – market value margin SST target capital – market value margin SST ratio SST 2020 41 873 18 021 232% SST 2021 41 504 19 308 215% Change –370 1 287 –17pp SST risk-bearing capital (SST RBC) The SST RBC is derived from the SST net asset value (SST NAV), which represents the difference between the market consistent value of assets and best estimate of liabilities, according to the valuation methodology prescribed under SST. For this purpose, the SST NAV is adjusted for the items in the table below. Changes to the SST NAV mainly include economic capital generation or depletion due to underwriting and investment SST risk-bearing capital USD millions SST net asset value Deductions SST core capital Supplementary capital SST risk-bearing capital Market value margin SST risk-bearing capital – market value margin activities, foreign exchange movements, and capital management actions (such as dividend payments and share buyback programmes). The decrease in SST NAV to USD 48.8 billion is mainly driven by underwriting contribution, dividends paid and share buyback programmes, partly offset by positive investment contribution and foreign exchange movements. SST 2020 49 231 –3 174 46 057 5 239 51 295 9 422 41 873 SST 2021 48 804 –2 433 46 370 6 914 53 284 11 780 41 504 Change –427 741 314 1 675 1 989 2 359 –370 Swiss Re | Financial Report 2020 55 Risk and capital management Financial strength and capital management The overall contribution from underwriting activities is negative, mainly reflecting underwriting contributions from Property & Casualty Reinsurance, Corporate Solutions and Life Capital, partly offset by positive underwriting contribution from Life & Health Reinsurance: • The Property & Casualty Reinsurance negative contribution is mainly driven by losses related to COVID-19, adverse experience and assumption updates mainly in US liability business as well as by large natural catastrophe losses mainly in Australia and several man-made loss updates. This is partially compensated by natural catastrophe reserve releases for typhoons Jebi and Hagibis, Hurricane Dorian and strong renewals from property natural catastrophe and specialty. • The Life & Health Reinsurance positive contribution reflects profitable transactional business growth across all regions, in particular in EMEA, mainly due to large longevity transactions, as well as life transactions in the Americas. This is partly offset by losses related to COVID-19 mainly driven by higher incurred and expected mortality claims in the US and the UK as well as higher disability claims mainly in Australia. • The Corporate Solutions negative contribution mainly reflects losses related to COVID-19. This is partly offset by management actions taken to improve profitability and by low large man-made loss activity. • The Life Capital underwriting contribution to SST NAV is negative, driven by the loss on the sale of ReAssure Group Plc to Phoenix Group Holdings Plc, expenses for open books, underperformance in elipsLife as well as unfavourable persistency in the closed book US business. The contribution from investment activities is positive, mainly driven by favourable interest rate impact on the net duration position and strong real estate performance. Positive foreign exchange movements are driven by the appreciation of major currencies against the US dollar. 56 Swiss Re | Financial Report 2020 Dividend payments and the completion of the last tranche of the 2019 share buyback programme resulted in a decline in the SST NAV of USD 2.0 billion. No share buyback programmes have been launched after Q1 2020 following the BoD decision of the post-AGM 2020 meeting. Deductions mainly reflect projected dividends (to be paid in 2021 and subject to AGM 2021 approval and subsequent BoD approval) as well as deferred taxes on real estate. No share buyback programmes are included. Supplementary capital is recognised as risk bearing under SST. The change in SST supplementary capital of USD 1.7 billion mainly reflects the issuance of two new subordinated debt instruments. A description of the change in market value margin, which represents the capital costs for the run-off period, is provided together with the SST target capital comments below. SST target capital (SST TC) Swiss Re uses an internal risk model to determine the economic capital required to support the risks on the Group’s book, as well as to allocate risk-taking capacity to the different lines of business. The model also provides the basis for capital cost allocation in Swiss Re’s EVM framework, which is used for pricing, profitability evaluation and compensation decisions. In addition to these internal purposes, the model is used to determine regulatory capital requirements under economic solvency frameworks such as SST and Solvency II. In 2017, FINMA approved Swiss Re’s internal model and its components for SST reporting purposes under their revised model review process. Since SST 2020, two major model changes have been implemented; both changes were approved by FINMA in October 2020: • Market value margin – To improve market consistency and more adequately reflect differences between interest rates of different currencies, two changes have been made: discounting in original currencies and using forward rates to discount to future years. These changes reduce the MVM and increases the Group’s SST ratio. • Lapse risk – The model has been further strengthened by including additional dependencies and correlations, as well as anti-selective lapses for lapse trend. These changes result in minor increases of lapse and mortality trend shortfall and have no material impact on the Group’s total risk or market value margin. The risk exposure basis for SST is a projection for the period from 1 January 2021 to 31 December 2021 and is based on the economic balance sheet as of 31 December 2020 and adjustments to reflect 1 January 2021 business shifts. To derive SST TC, total risk is adjusted for the line item Other impacts as shown below. SST TC increases to USD 31.1 billion due to an increase in the market value margin (reflected under Other impacts) and higher total risk driven by increased insurance risk (see Risk assessment p. 67 for details). Other impacts mainly reflect run-off capital costs (MVM) – which are deducted again from target capital to calculate the ratio – as well as the impact from business development over the forecasting period and requirements from FINMA that are not included in total risk as they are not consistent with Swiss Re’s own risk view. The increase in MVM is mainly driven by the impact of lower interest rates. SST Target Capital USD millions Total risk Other impacts SST target capital Market value margin SST target capital – market value margin SST 2020 21 332 6 110 27 443 9 422 18 021 SST 2021 22 353 8 735 31 088 11 780 19 308 Change 1 021 2 625 3 645 2 359 1 287 21.7 Distribution to shareholders since 2013, in USD billions External dividends to shareholders Based on the Group’s very strong capital position and positive market outlook, the Board of Directors proposes a regular dividend of CHF 5.90 per share for the 2020 financial year, maintaining the dividend per share paid for the 2019 financial year. Business Unit structure and capital allocation Our peer-leading capital repatriation is supported by strong dividend payments from our Business Units. The cash dividends paid to Swiss Re Ltd since 2013 totalled USD 28.1 billion, while the total amount of capital returned to shareholders in the same period is USD 21.7 billion. The Group also reinvested in the business by redeploying capital into the Business Units. The majority of this capital was allocated to grow profitable business. Capital returned to shareholders since 2013 Capital returned to shareholders since 2013 Capital created by each business unit Cash dividends paid from each business unit to SRL (USD$bn) (USD billions) 14.4 Reinsurance P&C 14.4 Reinsurance P&C 4.4 Reinsurance L&H 4.4 Reinsurance L&H 1.8 Corporate Solutions 1.8 Corporate Solutions 5.7 Life Capital 5.7 Life Capital $28.1bn USD28.1bn total cash dividends total capital created for paid to Swiss Re Ltd1 Swiss Re Ltd1 $21.7bn USD21.7 bn distribution to shareholders2 distribution to shareholders2 1 Principal Investments has paid to the Group dividends of USD 1.7 billion between January 2013 and December 2020. 2 Reflects total external dividend and public share buyback programmes between January 2013 and December 2020. Swiss Re | Financial Report 2020 57 Risk and capital management Financial strength and capital management Rating agencies Rating agencies assign credit ratings to the obligations of Swiss Re and its rated subsidiaries. The agencies evaluate Swiss Re based on a set of criteria that include an assessment of our capital adequacy, governance and risk management. Each rating agency uses a different methodology for this assessment. On 6 May 2020, Moody’s affirmed Swiss Re’s insurance financial strength rating and outlook as “Aa3” stable. The rating reflects Swiss Re’s excellent market position, extensive diversification by line of business and geography, very strong capital adequacy and good reserve adequacy. On 17 July 2020, A.M. Best confirmed the Group Swiss Re financial strength Rating of A+ (Superior) with stable outlook. The rating reflects A.M. Best’s assessment of Swiss Re’s balance sheet strength as “strongest”, strong operating performance, very favourable business profile and very strong enterprise risk management. A.M. Best, Moody’s and S&P rate Swiss Re’s financial strength based upon interactive relationships. The insurance financial strength ratings are shown in the table below. On 25 November 2020, S&P affirmed the AA– financial strength of Swiss Re and its core subsidiaries. The outlook on the rating is “negative”. The rating reflects Swiss Re’s very strong capital adequacy, its excellent franchise and diversified product suite across non-life and life reinsurance. Swiss Re’s financial strength ratings As of 31 December 2020 Standard & Poor’s Moody’s A.M. Best Financial strength rating AA– Aa3 A+ Outlook Negative Stable Stable Last update 25 November 2020 6 May 2020 17 July 2020 58 Swiss Re | Financial Report 2020 Funding activities During 2020, Swiss Re took advantage of attractive market conditions to execute the following planned funding activities: • In May 2020, Swiss Re Finance (UK) Plc issued EUR 800 million of subordinated fixed rate reset step-up callable notes with a coupon of 2.714%. The notes, which are guaranteed on a subordinated basis by Swiss Re Ltd, have a first call date in June 2032 and a scheduled maturity in June 2052. • In June 2020, Swiss Re Finance (UK) Plc issued SGD 350 million of subordinated fixed rate reset callable notes with a coupon of 3.125%. The notes, which are guaranteed on a subordinated basis by Swiss Re Ltd, have a first call date in July 2025 and a scheduled maturity in July 2035. In addition, Swiss Re also undertook the following activities in connection with management of its funding platform: • In April 2020, in connection with the pending sale (and deconsolidation) of the ReAssure Group Plc to Phoenix Group Holdings Plc in July 2020, Swiss Re Finance (UK) Plc was substituted as the issuer of the EUR 750 million senior notes due 2023 in place of Swiss Re Finance (Jersey) Ltd following a noteholder consent process. The notes are guaranteed by Swiss Re Ltd. • In September 2020, Swiss Reinsurance Company Ltd exercised its option to early redeem its CHF 175 million subordinated contingent write-off notes. • In December 2020, in connection with the announced reorganisation of the legal entity structure of the Group, Swiss Reinsurance Company Ltd was substituted as the issuer of the USD 500 million subordinated fixed rate resettable callable loan notes with a scheduled maturity in 2024 in place of Swiss Re Corporate Solutions Ltd following a noteholder consent process. As of 31 December 2020, the Group’s total leverage ratio was 24%. The USD 2.7 billion undrawn, off-balance sheet pre-fundedsubordinated debt facilities, add further strength to the Group’s financial flexibility. Financial flexibility strengthened through reduced leverage USD billions USD bn 36.6 37.7 36.0 36.1 28% 26% 24% 24% 24% 33.7 Additional USD 2.7bn pre-funded subordinated debt available on demand. 5.0 5.2 4.1 4.4 4.6 4.1 4.0 4.1 3.5 6.7 3.1 1.9 6.6 3.2 1.0 2016 2017 2018 2019 2020 LOC1 Core capital4 Senior debt Senior debt3 Total subordinated incl. contingent capital2 Total hybrid incl. contingent capital2 Core capital3 LOC1 Total leverage ratio5 Total leverage ratio4 1 Utilised unsecured LOC and related instruments. 2 Funded subordinated debt and contingent capital instruments, excluding non-recourse positions. 3 Core capital of Swiss Re Group is defined as economic net worth (ENW). 4 Total on-balance sheet senior and subordinated debt and contingent capital, including utilised LOCs, divided by total capitalisation. in Milliarden USD 36,6 37,7 28% 26% 36,0 36,1 33,7 24% 24% 24% Swiss Re | Financial Report 2020 59 5,0 5,2 4,1 4,4 4,6 4,1 4,0 4,1 3,5 6,7 3,1 1,9 6,6 3,2 1,0 2016 2017 2018 2019 2020 Core capital4 Senior debt3 Total hybrid incl. contingent capital2 LOC1 Total leverage ratio5 Risk and capital management Liquidity management The active management of liquidity risks ensures the Group’s ability to satisfy its financial obligations. As a re/insurance group, Swiss Re’s core business generates liquidity primarily through premium income. The Group’s exposure to liquidity risk stems mainly from two sources: the need to cover potential extreme loss events and regulatory constraints that limit the flow of funds within the organisation. A range of liquidity policies and measures are in place to manage these risks, in particular to ensure that • sufficient liquidity is held to meet funding requirements under current conditions as well as adverse circumstances; • funding is charged and credited at an appropriate market rate through Swiss Re’s internal transfer pricing; • diversified sources are used to meet the Group’s residual funding needs; and • long-term liquidity needs are taken into account in the Group’s planning process and in the management of financial market risk. Liquidity risk management Swiss Re’s core liquidity policy is to retain access to sufficient liquidity in the form of unencumbered liquid assets, cash and pre-funded facilities, to meet potential funding requirements arising from a range of possible stress events. To allow for regulatory restrictions on intra-Group funding, liquidity is managed from a legal entity perspective. The amount of liquidity held is determined by internal liquidity stress tests, which estimate the potential funding requirements stemming from extreme loss events. The funding requirements under stress include: • Cash and collateral outflows, as well as potential capital and funding support required by subsidiaries as a result of loss events • Repayment or loss of all maturing unsecured debt and credit facilities • Additional collateral requirements associated with a potential ratings downgrade • Further contingent funding requirements related to asset downgrades • Other large committed payments, such as expenses, commissions and tax The stress tests also assume that funding from assets is subject to conservative haircuts, intra-Group funding is not available if subject to regulatory approval, no new unsecured funding is available and funding from new re/insurance business is reduced. The primary liquidity stress test is based on a one-year time horizon and a loss event corresponding to 99% tail value at risk (see page 67). Swiss Re’s liquidity stress tests are reviewed regularly and their main assumptions are approved by the Group Executive Committee. Swiss Re provides FINMA with a yearly report on its liquidity position, in accordance with FINMA circular 13/5, “Liquidity — Insurers.” Liquidity position of Swiss Reinsurance Company Ltd (SRZ) From a liquidity perspective, SRZ is the most important legal entity of the Group. The estimated total liquidity sources in SRZ available within one year, after haircuts and net of short-term loans from Swiss Re Ltd and securities lending, amounted to USD 26.7 billion as of 31 December 2020, compared with USD 21.7 billion as of 31 December 2019. Based on the internal liquidity stress tests described above, we estimate that SRZ holds surplus liquidity after dividends to Swiss Re Ltd. In 2020, the amount of surplus liquidity increased. This increase was largely due to changes to intra-Group retrocession agreements, the decrease in interest rates, and changes in foreign exchange rates, which more than offset the negative impact associated with COVID-19 losses. 60 Swiss Re | Financial Report 2020 Risk management Risk Management provides independent oversight and applies an integrated approach to managing current and emerging risks. Embedded throughout the business, the Group Risk Management function ensures an integrated approach to managing current and emerging threats. Risk Management plays a key role in business strategy and planning discussions, where Swiss Re’s risk appetite framework facilitates risk/return discussions and sets boundaries to Group-wide risk-taking. Swiss Re applies a differentiated governance approach at the legal entity level, depending on the materiality of individual entities. Major legal entities within the Group that are designated as so-called “Level I entities”, are subject to enhanced governance, which includes the following requirements: • Develop and maintain corporate and risk governance documentation that governs the responsibilities of the legal entity Board, committees and management • Establish an Audit Committee as well as a Finance and Risk Committee to support the legal entity Board in performing its oversight responsibility for risk and capital steering • Designate a Chief Risk Officer and Chief Financial Officer Taking and managing risk is central to Swiss Re’s business. All risk-related activities, regardless of the legal entity in which they are undertaken, are subject to the Group’s risk management framework. Consequently, the framework is applied at Group level and cascaded to all legal entity levels. The risk management framework sets out how Swiss Re organises and applies its risk management practices to ensure that all activities are conducted in line with the principles and limits mandated by the Group Risk Policy. The framework comprises the following major elements: • Risk governance documentation, including Group Risk Policy • Key risk management principles • Fundamental roles for delegated risk-taking • Risk culture and behaviour • Organisation of risk management, including responsibilities at Board and executive level • Risk control framework • Risk appetite framework, including limits Swiss Re | Financial Report 2020 61 Risk and capital management Risk management Risk governance documentation Swiss Re’s risk management framework is set out in risk governance documentation at Group and legal entity level. Risk governance is the subset of corporate governance that describes the risk management framework and documents risk management practices. Group-level risk documents form the basis for all risk governance across Swiss Re. Additional risk governance for legal entities is prepared as an addendum to the Group or parent entity document. Group risk governance documents are organised hierarchically across five levels, which are mirrored by equivalent documents at legal entity (LE) level: • The Bylaws define Swiss Re’s governance framework and include the responsibilities of the Board of Directors and the Group Executive Committee and their members, including the responsibilities related to risk management. • The Group Risk Policy is defined by the Group Board and articulates Swiss Re’s risk appetite framework (risk appetite and tolerance) as well as fundamental risk and capital structure principles. • The Group Risk Management Standards outline how the Group organises and applies its risk management practices. • Risk category standards describe how risk practices are implemented for a specific category. • The lowest level comprises risk management methodology and process documentation. Key risk management principles Swiss Re’s risk management is based on four fundamental principles. These apply consistently across all risk categories at Group and legal entity level: • Controlled risk-taking – Financial strength and sustainable value creation are central to Swiss Re’s value proposition. The Group thus operates within a clearly defined risk policy and risk control framework. Fundamental roles for delegated risk-taking In order to ensure clear control, accountability and independent monitoring for all risks, Swiss Re’s risk governance distinguishes between three fundamental roles in the risk-taking process: • Risk owner – establishes a strategy, delegates execution and control, and retains ultimate responsibility for the outcomes. • Clear accountability – Swiss Re’s • Risk taker – executes an objective operations are based on the principle of delegated and clearly defined authority. Individuals are accountable for the risks they take on, and their incentives are aligned with Swiss Re’s overall business objectives. • Independent risk controlling – Dedicated units within Risk Management control all risk-taking activities. These are supported by Compliance and Group Internal Audit functions. • Transparency – Risk transparency, knowledge-sharing and responsiveness to change are integral to the risk control process. The central goal of risk transparency is to create a culture of mutual trust, and reduce the likelihood of surprises in the source and potential magnitude of losses. within the authority delegated by the risk owner; risk takers are required to provide the respective risk controller with all information required to monitor and control their risks. • Risk controller – is tasked by the risk owner with independent oversight of risk-taking activities to mitigate potential conflicts of interest between the risk owner and risk taker; risk controllers are responsible for escalating relevant concerns. Risk-taking activities are typically subject to three lines of control. The first line comprises the day-to-day risk control activities performed by risk takers in the business as well as in Group functions, including identification of risks and design of effective controls. Independent oversight performed by functions such as Risk Management and Compliance represents the second line of control. The third line consists of independent audits of processes and procedures carried out by Group Internal Audit or by external auditors. This approach is designed to achieve a strong, coherent and Group-wide risk culture built on the principles of ownership and accountability. Risk Governance documentation hierarchy Level 0 ‒ Risk management tasks of Boards and Executive Management Level 1 ‒ Risk Appetite Framework incl. risk and capital principles SRL Bylaws LE bylaws Group Risk Policy LE risk appetite Level 2 ‒ Risk-taking oversight throughout the Group Group Risk Management Standards Level 3 ‒ Risk-taking oversight for specific risk categories Group risk category standards LE risk management standards Level 4 ‒ Method and process documentation Documentation on specific topics LE specific topics 62 Swiss Re | Financial Report 2020 Key risk takers across Swiss Re are a particular focus in promoting good risk- and control-related behaviours. The relevant positions are identified in a regular process, and those who hold them are subject to additional behavioural objectives and assessments. Risk culture is directly linked to Swiss Re’s performance management, which is based not only on business results but also on behaviours. Swiss Re’s compensation framework aims to foster compliance and support sensible risk-taking. Swiss Re also has a range of incentive programmes that reflect the long-term nature of its business by rewarding sustained performance rather than short-term results. This helps to align shareholder and employee interests. Swiss Re’s compensation principles and framework are captured within the Swiss Re Group Compensation Policy. The Group’s Finance and Risk Committee conducts a regular risk assessment for all changes to this policy. Risk culture Swiss Re fosters and maintains a strong risk culture to promote risk awareness and discipline across all its activities. This risk culture stands for the risk- and control- related values, knowledge and behaviour shared by all employees. Its principal components are summarised in a framework that builds on the Group’s Code of Conduct as well as on key risk management principles in the Group Risk Policy. The risk culture framework serves to influence appropriate risk-taking behaviour in four key aspects, which are assessed annually for all employees in the performance and compensation process: • Leadership in providing clear vision and direction • Consideration of risk-relevant information in decision-making • Risk governance and accountability of risk takers as well as transparent flow of risk information • Embedding of risk management skills and competencies Swiss Re’s risk culture provides the foundation for the efficient and effective application of its Group-wide risk management framework. Group Risk Management reinforces the risk culture by ensuring risk transparency and fostering open discussion and challenge in the Group’s risk-taking and risk management processes. Swiss Re | Financial Report 2020 63 Risk and capital management Risk management Key Risk Management bodies and responsibilities Board of Directors of Swiss Re Ltd • Responsible for the Group’s governance principles and policies • Acts through the Finance and Risk Committee, Investment Committee and Audit Committee Group Executive Committee • Develops and implements risk management framework • Sets and monitors risk limits • Some responsibilities delegated to Group CRO and major legal entities Group CRO • Principal independent Central Risk Management units • Oversight of financial market, Group Internal Audit • Independent risk risk controller • Heads the Risk Management function • Member of Group Executive Committee • Reports to Board as well as to Group CEO credit and liquidity risk • Shared risk expertise: risk modelling and governance, as well as political, sustainability and emerging risks • Strategic control services: operational and regulatory risk management controller • Assesses adequacy and effectiveness of internal control systems Legal entity management • Manages underwriting decisions and operational risks in its area Legal entity CROs • Responsible for risk oversight and establishing risk governance in their respective legal entities • Supported by functional, regional and subsidiary CROs as well as dedicated risk teams Compliance • Compliance with applicable laws, Code of Conduct • Manages compliance risks Organisation of risk management The Board of Directors of Swiss Re Ltd (the Group Board) is ultimately responsible for Swiss Re’s overall risk governance principles and policies. It defines basic risk management principles and the risk appetite framework, including the Group’s risk appetite and risk tolerance; in addition, it approves the Group’s risk strategy. The Group Board mainly performs risk oversight and governance through three committees: • 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. • 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. • Audit Committee − oversees internal controls and compliance procedures. The Group Executive Committee is responsible for developing and implementing Swiss Re’s Group-wide risk management framework. It also sets and monitors major risk limits, oversees the Economic Value Management framework, determines product policy and underwriting standards, and manages regulatory interactions and legal obligations. The Group Executive Committee has delegated various risk management responsibilities to the Group Chief Risk Officer (Group CRO) as well as to certain legal entity CROs. The Group CRO is appointed as the principal independent risk controller of Swiss Re. He is a member of the Group Executive Committee 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 Executive Committee, 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 dedicated risk teams for legal entities and regions, as well as central teams that provide specialised risk expertise and oversight. 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 CROs remain part of the 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. Legal entity risk teams are led by dedicated CROs who report directly or indirectly to their top-level entity CRO, with a secondary reporting line to their respective legal entity CEO. These legal entity CROs are responsible for risk oversight in their respective entities, as well as for establishing the proper risk governance to ensure efficient risk identification, assessment and control. They are supported by functional, regional and subsidiary CROs who are responsible for overseeing risk management issues that arise at regional or subsidiary level. 64 Swiss Re | Financial Report 2020 The central risk teams oversee Group liquidity and capital adequacy and maintain the Group frameworks for controlling these risks throughout Swiss Re. They also support 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 Risk Management is also in charge of actuarial reserving and monitoring of reserve holdings for Corporate Solutions business while for Reinsurance business 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, objective assessments of the adequacy and effectiveness of internal control systems. It evaluates the execution of processes within Swiss Re, including those within Risk Management. • The Compliance function oversees Swiss Re’s compliance with applicable laws, regulations, rules and the Code of Conduct. It also assists the Group Board, Group Executive Committee and other management bodies in identifying, mitigating and managing compliance risks. Risk control framework Swiss Re operates within a clearly defined risk control framework. This is set out in the Group Risk Management Standards and comprises a body of standards that establish an internal control system for taking and managing risk. These standards set responsibilities for risk takers and risk controllers. The risk control framework defines key tasks, which are the core components of Swiss Re’s risk management cycle: • Risk tolerance and appetite assessment of plan – ensures that the risk implications of plans are understood, and determines whether business and investment plans adhere to the risk appetite framework (risk appetite and tolerance). • Risk identification – ensures that all risks to which Swiss Re is exposed are transparent in order to make them controllable and manageable. • Risk measurement – enables Swiss Re to understand the magnitude of its risks and to set quantitative controls that limit its risk-taking. • Risk limit framework – allows Swiss Re to control its risk-taking decisions and total risk accumulations, including the passive risk we are exposed to through our operations. • Risk reporting – creates internal risk transparency and enables Swiss Re to meet external disclosure requirements. In addition, Risk Management performs the following risk control activities: • Model and tool assurance – ensures that models or tools used for costing, valuation and risk capital determination are based on sound scientific concepts, have been implemented and calibrated correctly, and produce accurate results. • Valuation assurance – assesses the quality of valuations for financial instrument prices and reserves. • Insurance risk reviews – assess the quality of decision-making in the taking of insurance risks by performing independent evaluations of underwriting, costing, pricing and claims handling. Swiss Re has implemented a principle- based integrated internal control system to mitigate identified operational risks including financial reporting and compliance risks, as well as risks that could impair the effectiveness and efficiency of operations. This control system represents a subset of Swiss Re’s risk control framework and is based on international standards established by COSO (the Committee of Sponsoring Organisations of the Treadway Commission). It is applied on multiple organisational levels, including Group, functions, regions and legal entities. Risk transfer To efficiently manage capital across the Group and ensure that risk-taking in individual legal entities is well diversified, the Group employs internal retrocession and funding agreements. These serve to improve the fungibility of capital and consequently Group-wide diversification. In addition, the Group aims to maximise the amount of funds available centrally by optimising the excess capital held within its subsidiaries and branches. Swiss Re also manages and mitigates insurance risk through external retrocession, insurance risk swaps or by transferring risk to capital markets through insurance-linked securities, industry loss warranties or other derivatives. This provides protection against extreme catastrophic events, further diversifies risk, stabilises economic results and releases underwriting capacity. In addition, Swiss Re uses financial market derivative instruments as well as financial market securities to hedge financial market and credit risks arising from investments and insurance liabilities. Interest rate risk from insurance liabilities is managed through investments in fixed-income instruments whose pricing is sensitive to changes in government yields, such as government bonds. Swiss Re | Financial Report 2020 65 To meet the first objective, the Risk Policy defines respectability limits to ensure that the Group has enough resources to meet capital requirements at Group level as well as respectability and liquidity requirements for all legal entities. These limits ensure that Swiss Re has adequate capital and liquidity above minimum requirements to be considered a respectable counterparty by external stakeholders. To meet the second objective, Swiss Re's risk tolerance criteria includes resilience limits for SRZ to ensure that the main operating entity is able to withstand capital and liquidity stresses. To meet the third objective, the Group has established a Group-wide risk matrix methodology in which key operational risks are assessed against an acceptable level of expected losses. Any operational risk exposure that exceeds the Group’s operational risk tolerance limit is subject to a mitigation plan that is monitored by the Group's Finance and Risk Committee. The risk tolerance respectability criteria for the Swiss Re Group are set out in the Group Risk Policy. The Group and SRZ Boards are responsible for approving the risk tolerance criteria, as well as for monitoring and reviewing risk tolerance. Breaches or anticipated breaches of limits established to control the risk tolerance criteria must be communicated to the Finance and Risk Committee. Swiss Re’s risk-taking is governed by a limit framework in order to ensure that accumulation risk and large losses remain at an acceptable level, as well as to steer the allocation of available risk capacity. The limit framework is rooted in the risk appetite and risk tolerance objectives set in the Group Risk Policy and helps to translate these objectives into concrete, measurable criteria. In addition, lower level limits are implemented to allocate scarce capacity. The limit framework also allows for risk monitoring and thus supports risk controlling during the execution of the plan. Risk and capital management Risk management Risk Appetite Framework The risk appetite framework establishes the overall approach through which Swiss Re practices controlled risk-taking throughout the Group. The framework is set out in the Group Risk Policy and consists of two interlinked components: risk appetite and risk tolerance. Risk appetite Risk tolerance Risk appetite statement Risk tolerance objectives and limits Target liability portfolio and strategic asset allocation Risk capacity limits s e r u s o p x e k s i r l o r t n o C Group Risk Policy Group strategic plan o i l o f t r o p n r u t e r / k s i r e s i m i t p O Annual planning process Business plans Operational limits Risk Appetite Framework In the context of business strategy and planning, the risk appetite statement facilitates discussions about where and how Swiss Re should deploy its capital, liquidity and other resources under a risk/return view, while the risk tolerance sets clear boundaries to risk-taking. During strategic planning and target- setting, Risk Management provides an opinion on the proposed strategy and targets to the Group Executive Committee and ultimately the Group Board. The opinion focuses on the risk impact of the proposed strategy and the risks related to its implementation. The strategic plan, risk appetite and capital allocation ambition are expressed in a target portfolio for the Group’s assets and liabilities, which should ultimately deliver the Group’s targeted performance. Swiss Re’s risk appetite outlines the Group’s principles on acceptable risks and provides key directions for risk-taking and risk controlling as part of implementing Swiss Re’s strategy: achieving targeted performance, providing liquidity and financial flexibility, managing capital adequacy, and protecting and growing franchise value. The Group Board further details Swiss Re’s risk appetite through its approval or review of the following key steering frameworks as part of the Group’s planning process: target liability portfolio, strategic asset allocation and the Group’s target capital structure. Swiss Re’s risk tolerance describes the extent to which the Group and SRZ Boards have authorised executive management to assume risk. It represents the amount of risk that Swiss Re is willing to accept within the constraints imposed by its capital and liquidity resources, its strategy, and the regulatory and rating agency environment within which it operates. Swiss Re’s risk tolerance is based on the following objectives: • To maintain Group capital at a level that safeguards respectability with clients and regulators. • To ensure the resilience of SRZ as the main operating entity from a capital and liquidity perspective. • To avoid material operational risks that could subject the Group to large operational losses with corresponding consequences from an economic, reputational or regulatory perspective. 66 Swiss Re | Financial Report 2020 Risk assessment In SST 2021, total risk increases to USD 22.4 billion driven by higher insurance risk, offset partly by lower financial market and credit risk. Swiss Re’s internal model provides a meaningful assessment of the risks to which the company is exposed and is an important tool for managing the business. It is used to measure the Group’s risk position and related capital requirements as well as for defining the risk tolerance, risk limits and liquidity stress tests. Swiss Re is exposed to insurance and financial risks that are calculated in its internal risk model, as well as other risks that are not explicitly part of the economic capital requirement but are actively monitored and controlled due to their significance for Swiss Re. These include operational, liquidity, model, valuation, regulatory, political, strategic and sustainability risks (see Swiss Re’s risk landscape, p. 68). Property and casualty insurance risk is mainly driven by underlying risks inherent in the business Swiss Re underwrites, in particular natural catastrophe risk, non-life claims inflation, costing and reserving and man-made risk. The main drivers of life and health insurance risk are mortality trend and lethal pandemic risk. The Group’s financial risk derives from financial market risk as well as from credit risk. Key drivers of financial market risk are credit spread and equity risk. Credit risk is mainly driven by the credit and surety business and default risk of capital market products. Total risk is based on 99% tail value-at-risk (tail VaR) and represents the average unexpected loss that occurs with a frequency of less than once in 100 years over a one-year time horizon. Total risk increases to USD 22.4 billion driven by higher insurance risk, offset partly by lower financial market and credit risk. The higher weight of insurance risk leads to increased diversification at risk category level. Group capital requirement based on one-year 99% tail VaR USD millions Property and casualty Life and health Financial market Credit1 Diversification Total risk SST 2020 11 708 9 857 11 218 3 496 –14 945 21 332 SST 2021 12 895 11 852 10 594 3 186 –16 174 22 353 cross reference information see page 70 see page 71 see page 72 see page 73 Change 1 187 1 996 –624 –310 –1 228 1 021 1 Credit comprises credit default and credit migration risk from both asset management and underwriting. Credit spread risk falls under financial market risk. Swiss Re’s internal risk model takes account of the accumulation and diversification between individual risks. The effect of diversification at the category level is demonstrated in the table above, which represents the difference between the Group 99% tail VaR and the sum of standalone tail VaR amounts in the individual risk categories. The extent of diversification is largely determined by the selected level of aggregation – the higher the aggregation level, the lower the diversification effect. Alternative Risk Measurements for Swiss Re Group USD billions 99% VaR1 99.5% VaR1 SST 2020 16.1 19.0 SST 2021 17.2 20.1 Change in % 7 6 1 For the alternative risk measurements, the same risk exposure and data basis is applied as for the SST calculation. Alternative risk measurements — 99% and 99.5% VaR — increase to USD 17.2 billion and USD 20.1 billion, respectively. Swiss Re | Financial Report 2020 67 Risk and capital management Risk assessment Swiss Re’s risk landscape The risk categories shown in the table below are discussed on the following pages. Across these categories we identify and evaluate emerging threats and opportunities through a systematic framework that includes the assessment of potential surprise factors that could affect known loss potentials. Liquidity risk management is discussed on page 60. Core risks in Swiss Re’s internal model Insurance risk Financial risk Property & Casualty • Natural catastrophe • Man-made • Costing and reserving • Claims inflation Life & Health • Lethal pandemic • Mortality trend • Longevity • Critical illness • Income protection • Lapse Credit • Default risk • Migration risk Financial market • Credit spread • Equity • Foreign exchange • FM inflation • Interest rate • Real estate Other significant risks Operational Regulatory Liquidity Political Model Valuation Strategic Sustainability Emerging risks • Financial market risk represents the potential impact on assets or liabilities that may arise from movements in financial market prices or rates, such as equity prices, interest rates, credit spreads, hedge fund prices, real estate prices, commodity prices or foreign exchange rates. Financial market risk originates from two main sources: investment activities and the sensitivity of the economic value of liabilities to financial market fluctuations. • Credit risk reflects the potential financial loss that may arise due to diminished creditworthiness or default of counterparties of Swiss Re or of third parties; credit risk arises from investment and treasury activities, structured transactions and retrocession, as well as from liabilities underwritten by credit and surety insurance units. The risk landscape also includes other risks that are not explicitly part of the Group’s economic capital requirement but are actively monitored and controlled due to their significance for Swiss Re: • Liquidity risk represents the possibility that Swiss Re will not be able to meet expected and unexpected cash flow and collateral needs without affecting either daily operations or Swiss Re’s financial condition. • Operational risk represents the potential economic, reputational or compliance impact of inadequate or failed internal processes, people and systems or from external events, including legal risk and the risk of a material misstatement in financial reporting. Swiss Re has implemented a capital model for operational risk, which is used for Solvency II purposes. • Strategic risk represents the possibility that poor strategic decision-making, execution or response to industry changes or competitor actions could harm Swiss Re’s competitive position and thus its franchise value. Swiss Re is exposed to a broad landscape of risks. These include risks that are actively taken as part of insurance or asset management operations, and are calculated in the internal risk model as part of the Group’s economic capital requirement as well as to allocate risk-taking capacity: • Property and casualty insurance risk arises from coverage provided for property, liability, motor, and accident risks, as well as for specialty risks such as engineering, agriculture, aviation and marine. It includes underlying risks inherent in the business Swiss Re underwrites, such as inflation or uncertainty in pricing and reserving. • Life and health insurance risk arises from coverage provided for mortality (death), longevity (annuity) and morbidity (illness and disability). In addition to potential shock events (such as a severe pandemic), it includes underlying risks inherent in life and health contracts that arise when mortality, morbidity, or lapse experience deviates from expectations. 68 Swiss Re | Financial Report 2020 • Regulatory risk arises from changes to insurance regulations and supervisory regimes as well as from interactions with regulatory authorities and supervisory regimes of the jurisdictions in which Swiss Re operates. • Political risk comprises the consequences of political events or actions that could have an adverse impact on Swiss Re’s business or operations. • Model risk reflects the potential impact of model errors or the inappropriate use of model outputs. It may arise from data errors or limitations, operational or simulation errors, or limitations in model specification, calibration or implementation; model risk may also be caused by insufficient knowledge of the model and its limitations, in particular by management and other decision-makers. • Valuation risk represents uncertainty around the appropriate value of assets or liabilities. It may arise from product complexity, parameter uncertainty, quality and consistency of data, valuation methodology, or changes in market conditions and liquidity. Swiss Re is exposed to financial valuation risk from investment assets it holds as well as reserve valuation risk from insurance liabilities that result from the coverage it underwrites. • Sustainability risk comprises the environmental, social and ethical risks that may arise from individual business transactions or the way Swiss Re conducts its operations. • Across all risk categories, Swiss Re actively identifies emerging risks and threats as part of its risk identification process; this includes new risks as well as changes to previously known risks that could create new risk exposures, or increase the potential exposure or interdependency between existing risks. Some of these risks are reflected indirectly in the risk model, as their realisations may be contained in the historical data and scenarios used to calibrate some of the risk factors. In addition, output from the model is used in measuring liquidity risk under stressed conditions. As separate risk categories, these risks are an integral part of Swiss Re’s risk landscape. They are monitored and managed within the Risk Management organisation, and included in risk reports to executive management and the Board at Group and legal entity level. Reputational risk is not considered a separate risk category but rather represents a possible consequence of any risk type in addition to the potential financial and compliance impact. Swiss Re | Financial Report 2020 69 Risk and capital management Risk assessment Insurance risk Insurance risk management involves identifying, assessing and controlling risks that Swiss Re takes through its underwriting activities, including related risks such as inflation or uncertainty in pricing and reserving. Risk Management also provides independent assurance throughout the business cycle, starting with the annual business planning process. It reviews underwriting standards, costing models and large transactions, and monitors exposures, reserves and limits. Swiss Re’s Group limit framework includes risk limits for major insurance exposures that guard against risk accumulations and ensure that risk-taking remains within Swiss Re’s risk tolerance. At the entity level, underwriting and capacity limits are assigned that are used to steer the business, and ensure adherence to the Group’s risk limits and SST capitalisation targets. Regular internal reports ensure transparency across the Group, providing management with quantitative and qualitative risk assessments. Swiss Re’s insurance risk landscape and related governance processes are regularly discussed and reviewed by the Senior Risk Council and other insurance risk oversight bodies in order to assist and advise the Group CRO in the risk oversight. Swiss Re also manages and mitigates insurance risk through external retrocession, insurance risk swaps or by transferring risk to capital markets. This provides protection against extreme catastrophic events, further diversifies risk, stabilises economic results and releases underwriting capacity. Property and casualty risk +10% Change since SST 2020 Risk developments The increase in property and casualty risk is mainly driven by a rise in non-life claims inflation risk reflecting the heightened probability of extreme inflation outcomes, as well as an increase in costing and reserving risk mainly due to COVID-19-related reserves. otherwise complex or unusual triggers an escalation process that extends up to the Group Executive Committee. Certain single risks and specified renewable treaty classes with non-material changes can be authorised by only one individual underwriter with the necessary authority − but these risks and treaties are subject to checks after acceptance. Management Legal entity CROs are responsible for overseeing all property and casualty exposures written in their areas. In addition, Group Risk Management monitors and controls accumulated exposures across Swiss Re to ensure that they remain within the defined risk tolerance level. The first line of control for property and casualty risks lies within Swiss Re’s underwriting units. In general, all transactions must be reviewed by at least two authorised individuals, and are subject to authority limits. Each underwriter is assigned an individual authority based on technical skills and experience. In addition, capacity limits are allocated to local teams; any business that exceeds this authority or is All transactions that could materially impact the risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they are authorised. This is part of a three- signature principle, under which key transactions must be approved by Client Markets, Underwriting and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through an individual review. Swiss Re’s limit framework for property and casualty exposures includes risk limits for major natural catastrophe scenarios and other key risks, such as terrorism, claims inflation, reserving and liability. 70 Swiss Re | Financial Report 2020 Insurance risk stress tests with a 200-year return period Annualised unexpected loss, 99.5% VaR in USD millions1 Atlantic hurricane Californian earthquake European windstorm Japanese earthquake Lethal pandemic SST 2021 5 826 4 739 2 345 4 101 3 616 1 Excluding the impact of earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event. In SST 2021, the largest natural catastrophe exposure for Swiss Re Group derives from the Atlantic hurricane scenario with a USD 5.8 billion loss. The lethal pandemic loss is estimated to be at USD 3.6 billion. Life and health risk +20% Change since SST 2020 Risk developments Higher life and health risk mainly reflects the business growth in Asia and the US, resulting in higher exposure to mortality trend, lethal pandemic and critical illness risk. The increase is further driven by the impact of lower interest rates and the appreciation of the Canadian dollar and the British pound against the US dollar. Management Legal entity CROs are responsible for overseeing all life and health exposures written in their respective areas. Accumulated exposures across Swiss Re are monitored and controlled by Group Risk Management to ensure that they remain at an acceptable level for the Group. Costing actuaries represent the first line of control for life and health risks. All transactions that could materially change risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they can be authorised. This is part of a three-signature principle, under which key transactions must be approved by Client Markets, Products and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through a review of the individual transaction. Swiss Re’s limit framework for life and health exposures includes risk limits for key risks, such as mortality, longevity, lethal pandemic, critical illness and income protection. Market exposure limits are in place for catastrophe and stop loss business. Swiss Re pays particular attention to densely populated areas and applies limits for individual buildings to guard against risk exposure accumulations. Swiss Re | Financial Report 2020 71 Risk and capital management Risk assessment Financial risk Financial risk management involves identifying, assessing and controlling risks inherent in the financial markets as well as counterparty credit risks, while monitoring compliance with Swiss Re’s risk appetite and risk management standards. Swiss Re’s central Financial Risk Management team oversees all activities that generate financial market or credit risk. Its mandate covers internally and externally managed assets, strategic participations, treasury activities, and credit and market risks that derive from Swiss Re’s underwriting and retrocession activities, including structured transactions, credit insurance and surety business. The Head of Financial Risk Management reports to the Group Chief Risk Officer, with a secondary reporting line to the Group Chief Investment Officer. Financial Risk Management controls exposure accumulation for financial market and credit risks. In addition, the team is responsible for assurance activities related to asset valuation and financial risk models, as well as for reporting Swiss Re’s financial risks. These responsibilities are exercised through defined governance processes, including regular reviews by Swiss Re’s Senior Risk Council and other financial risk oversight bodies. All activities with financial market and credit risk are subject to limits at various levels of the organisation (eg Group, legal entities and lines of business). At the highest level, the Group Board of Directors sets a financial risk concentration limit which defines how much of the Group’s risk exposure can derive from financial risk. The Group Executive Committee establishes the principal risk limits for aggregate financial market and credit risk at Group level. Where required, additional risk limits are established by Risk Management for legal entities, key business lines, individual counterparties and countries. Furthermore, as part of the planning process, the risk-taking functions employ capacity limits to control the amount of risk mandated from the risk owner to the risk takers. Limits may be expressed in terms of notional value of policies, losses in a stress scenario, value at risk based on historic market moves, linear sensitivities to a particular risk factor or different methodologies of exposure aggregation. Financial market risk –6% Change since SST 2020 Risk developments The decrease in financial market risk is driven mainly by the sale of ReAssure Group Plc and an increase in credit hedges, which reduced credit spread risk. This is partly offset by higher financial market volatilities resulting from the COVID-19-related market turbulence, as well as by the appreciation of major currencies against the US dollar. Management Financial market risk is monitored and controlled by dedicated experts within the Group’s Financial Risk Management team. Financial Risk Management regularly reports on key financial market risks and risk aggregations, as well as on specific limits for internally and externally managed investment mandates. These reports track exposures, document limit usage and provide information on key risks that could affect the portfolio. The reports are presented and discussed with those responsible for the relevant business line at the Financial Market Risk Council. The reporting process is complemented by regular risk discussions between Financial Risk Management, Asset Management and the Group’s external investment managers, as well as by regular interactions with other key units that take financial market risk, such as Principal Investments and Acquisitions, Treasury, and the respective business teams that write transactions. 72 Swiss Re | Financial Report 2020 Financial Market SST ratio sensitivities Impact on SST ratio Interest rates +50bps Interest rates –50bps Spreads +50bps Spreads –50bps Equity values +25% Equity values –25% Real estate values +25% Real estate values –25% SST 2021 12pp –14pp –5pp 5pp 3pp –4pp 6pp –7pp Among financial market sensitivities, the Group is most sensitive to a 50-basis point decrease in interest rates, leading to an estimated decrease in the SST ratio of 14 percentage points. Credit risk stress test with a 200-year return period Annualised unexpected loss, 99.5% VaR in USD millions Credit default1 SST 2021 2 228 1 Excluding the impact of earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event. Credit risk –9% Change since SST 2020 Risk developments Credit risk decreases mainly due to the sale of ReAssure Group Plc and the increase in credit hedges. Management Credit risk is monitored and controlled by experts within the Financial Risk Management team. Financial Risk Management regularly monitors and reports on counterparty credit quality, credit exposures and limits. In addition, it is responsible for regularly monitoring corporate counterparty credit quality and exposures, and for compiling watch lists of cases that merit close attention. These reports are presented and discussed with those responsible for the relevant business line at the Credit Council. The reporting process is supported by a Group-wide credit exposure information system that contains all relevant data, including counterparty details, ratings, credit risk exposures, credit limits and watch lists. Key credit practitioners across Swiss Re have access to this system, thus providing the necessary transparency to implement specific exposure management strategies for individual counterparties, industry sectors and geographic regions. Credit risks are aggregated by country in order to monitor and control risk accumulation to specific risk drivers, such as economic, sovereign, and political risks. Swiss Re | Financial Report 2020 73 Risk and capital management Risk assessment Management of other significant risks Operational risk The Group has implemented an internal control system to mitigate operational risks through three lines of control. This system assigns primary responsibility for identifying and managing operational risks to individual risk takers (first line of control), with independent oversight and control by the Risk Management and Compliance functions (second line of control) as well as Group Internal Audit (third line of control). Members of the Group Executive Committee are required to certify the effectiveness of the internal control system for their area of responsibility on a quarterly basis. Operational risk is inherent within Swiss Re’s business processes. As the company does not receive an explicit financial return for such risks, the approach to managing operational risk differs from the approach applied to other risk categories. The purpose of Operational Risk Management is not to eliminate risks but rather to identify and cost-effectively mitigate operational risks that approach or exceed Swiss Re’s tolerance. Risk Management is responsible for monitoring and controlling operational risks based on a centrally coordinated methodology. This includes a pre-defined taxonomy that is used for identifying, classifying and reporting operational risks, as well as a matrix in which risks are assessed according to their estimated probability and impact. Risks are assessed for their residual economic, financial reporting, reputational and compliance impact, taking into account existing mitigation and controls. The matrix is also used to assess residual exposures against Swiss Re’s tolerance limits for operational risk. This limit represents the level of operational risk that the Board of Directors and executive management teams are willing to accept. Material risks that exceed or are approaching risk tolerance are reported to executive management and Boards of Directors at Group and legal entity level. In addition, mitigation strategies are required for all risks that are outside of operational risk limits in order to bring them within tolerance. 74 Swiss Re | Financial Report 2020 Operational events and issues are recorded and managed in a central Operational Risk Management system in order to address the identified problems and avoid the recurrence of similar events. The results are reviewed by the relevant CRO and reported to the company’s management team and Board of Directors. COVID-19 has impacted many aspects of our risk and control landscape, in particular around outsourcing, financial reporting and data security. The Group did not experience any major operational or compliance failings thanks to early lessons from our Asia operations, and the resilience and pragmatism of our employees in adapting to a new work environment. In addition, effective communications and collaboration across teams, and between business and risk functions, enabled us to maintain all our critical processes throughout the crisis. Strategic risk Overall responsibility for managing strategic risk lies with the Group Board, which establishes Swiss Re’s overall strategy. The Boards of legal entities are responsible for the strategic risk inherent in their specific strategy development and execution. Strategic risks are addressed by examining multi-year scenarios, considering the related risks, as well as monitoring the implementation of the chosen strategy year by year in terms of the annual business plan. As part of their independent oversight role, Risk Management, Compliance and Group Internal Audit are responsible for controlling the risk-taking arising from the implementation of the strategy. Regulatory risk Regulatory developments and related risks that may affect Swiss Re and its subsidiaries or branches are identified, assessed and monitored as part of regular oversight activities. Swiss Re is actively engaged in a dialogue with relevant regulators to improve mutual understanding of the implications arising from new regulatory proposals. Periodic reports and recommendations on regulatory issues are provided to executive management and the Board of Directors at Group and legal entity level. The regulatory environment of the insurance industry continues to evolve on the national, regional and international level. While some regulatory changes create new business opportunities, others come with significant costs and business restrictions. Growing regulatory complexity, increased national protectionism and a fragile global economy are persistent themes affecting regulation and the way Swiss Re operates worldwide. Regulatory efforts are becoming increasingly forward-looking, aimed at a broad range of emerging risks, both actual and perceived. If new regulation is not based on clearly understood risks, the resulting requirements may create an excessive burden for both insurers and policyholders. It remains a key priority for Swiss Re to highlight the negative impacts of market access restrictions or impediments to global diversification towards regulators. At the same time, such risks are mitigated by seeking solutions that reduce the negative impact on Swiss Re and its clients. Several regulators, particularly in Europe and Asia, have developed specific expectations of how climate risks should be managed and are translating these expectations into concrete regulations. New climate-related regulations are expected, even in jurisdictions which have thus far been hesitant to act. Swiss Re supports such measures and will continue to advocate for a harmonised and gradual implementation of these requirements in line with international standards, such as those recommended by the Financial Stability Board Task Force for Climate- related Financial Disclosure (TCFD), in order to avoid regulatory fragmentation and improve comparability. Swiss Re consistently advocates the removal or reduction of market access barriers, so that policyholders, governments and national economies can fully benefit from international diversification and reliable, sound and affordable risk cover and transfer. The ongoing pandemic presents challenges not only for the insurance industry, but for the entire global economic system. Swiss Re is a strong proponent of coordinated responses to COVID-19 as it believes that only through collaboration among governments, regulators and industry, can societies effectively manage events of such magnitude. Political risk Political developments can threaten Swiss Re’s operating model but also open up opportunities for developing the business. The Group adopts a holistic view of political risk and analyses developments in individual markets and jurisdictions, as well as cross-border issues such as war, terrorism, energy-related issues and international trade controls. Dedicated political risk analysts identify, monitor, and assess political developments across the world. Swiss Re’s political risk experts also exercise oversight and control functions for named political risks, such as in the political risk insurance business; this includes monitoring political risk exposures, providing recommendations on particular transaction referrals and risk reporting. In addition, the Political Risk team provides specific country ratings that cover political, economic and security-related country risks; these ratings complement sovereign credit ratings and are used to support risk control activities and inform underwriting or other decision-making processes throughout the Group. model parameters (and the data on which calibration relies) must be trustworthy, while expert judgments are required to be sensible, documented and evidenced. Analytical or financial models that are used for costing, valuation and risk capital calculations are governed by Swiss Re’s Model and Tool Assurance Framework. Material models used for costing, valuation of reserves and assets, as well as Swiss Re’s internal risk model, are validated by dedicated teams within Risk Management. These teams provide independent assurance that the framework has been adhered to, and also conduct independent validations. Swiss Re’s risk model is also subject to regulatory scrutiny. Model-related incidents are captured within Swiss Re’s operational risk framework. In addition, material model developments, incidents and risks are reported in regular risk updates to executive management and the Board of Directors at Group and legal entity level. Valuation risk Financial valuation risk is managed by internal and external portfolio managers, who ensure that valuations remain in line with the market. In addition, Swiss Re has a function within Financial Risk Management that independently assesses valuations and valuation techniques; this team performs independent price verification for financial risk positions to confirm that valuations are reasonable and ensure there are no material misstatements of fair value in Swiss Re’s financial reports. The results of the independent price verification process are reviewed by the Asset Valuation Committee. Summary results are regularly reported to executive management and the Board of Directors at Group and legal entity level. In addition, Swiss Re’s external auditor conducts quarterly reviews as well as a comprehensive year-end audit of controls, methodology and results. In addition to identifying and assessing the impact of political risk on its business, the Group seeks to raise awareness of political risk issues within the industry and among the broader public, through active dialogue with clients, the media and other stakeholders. The Group also builds relationships that expand its access to information and intelligence, and allow Swiss Re to further enhance its methodologies and standards. For example, Swiss Re participates in specialist events hosted by institutions such as industry and risk management associations, and maintains relationships with political risk specialists in other industries, think tanks and universities, as well as with governmental and non-governmental organisations. Swiss Re continues to operate in the UK mainly through the UK branches of its Luxembourg entities. From 1 January 2021, Swiss Re’s UK branches are operating under the UK’s Temporary Permissions Regime which, subject to certain conditions, allows third country branches to carry on insurance and reinsurance business in the UK until licences are granted by UK regulators. Applications for licenses for third country branches have been submitted and Swiss Re is in regular contact with the UK’s Prudential Regulatory Authority to progress the applications. Model risk Swiss Re uses models throughout its business processes and operations, in particular to price insurance products, value financial assets and liabilities, assess reserves and portfolio cash flows, and estimate risk and capital requirements. Model owners have primary responsibility for model-related risks and are required to adhere to a robust tool development process, including testing, peer review, documentation and sign-off. A similar process also applies to model maintenance. Swiss Re’s model governance is based on Group-wide standards for model assurance. These standards seek to ensure that each model has a clear scope, is based on sound mathematical and scientific concepts, has been implemented correctly and produces appropriate results given the stated purpose. Furthermore, the calibration of Swiss Re | Financial Report 2020 75 Risk and capital management Risk assessment Reserve valuation risk is managed by Swiss Re’s Actuarial Control function, with dedicated teams for property and casualty, and for life and health valuations. These teams ensure that Swiss Re’s reserve setting process uses an appropriate governance framework, including defined accountabilities and decision-making processes for risk takers (as the first line of control) as well as for Actuarial Control. The framework ensures that there is independent assurance on the data, assumptions, models and processes used for valuation purposes; for all property and casualty business and selected life and health portfolios, it also includes an independent valuation of coverage provided to ensure that reserves are within an adequate range. Regular deep-dive investigations are performed into selected portfolios in order to review the appropriateness of both the reserves and the applied reserving approach. In addition, Swiss Re’s external auditor conducts quarterly reviews as well as a comprehensive year-end audit of controls, methodology and results. Sustainability risk Swiss Re’s continued business success depends on the successful management of sustainability risks, thus helping to maintain the trust of its stakeholders. The Group has a long-standing commitment to sustainable business practices, active corporate citizenship, as well as good, transparent governance. All employees are required to commit to and comply with Swiss Re’s values and sustainability policies. Potential sustainability risks are mitigated through clear corporate values, active dialogue and engagement with affected external stakeholders, and robust internal controls. These include a Group-wide Sustainability Risk Framework to identify and address sustainability risks across Swiss Re’s business activities. The framework comprises sustainability-related policies − with pre-defined exclusions, underwriting criteria and quality standards − as well as a central due diligence process for related transactional risks. Sustainability risks are monitored and managed by dedicated experts in Swiss Re’s Group Sustainability Risk team, which is also responsible for maintaining the Sustainability Risk Framework. In addition, this unit supports Swiss Re’s management and business strategy through tailored risk assessments and risk portfolio reviews. It fosters risk awareness through internal training, and facilitates development of innovative solutions to address sustainability issues. Finally, it represents and advocates Swiss Re’s position on selected sustainability risk topics to external stakeholders. Swiss Re is a founding signatory of the UN Principles for Sustainable Insurance (UN PSI) and is currently a board member of this initiative. The UN PSI seeks to promote sustainable insurance, which is intended, among other goals, to contribute to environmental, social and economic sustainability. Swiss Re has been actively contributing to the initiative for several years. During 2020, Swiss Re and the UN PSI convened four virtual events for insurers to continue work on promoting sustainable insurance. As a signatory of the Paris Pledge for Action, the Group reinforced its support by committing to reach net-zero emissions for our insurance and investment portfolios by 2050 and for our own operations by 2030. Swiss Re is developing a methodology to assess the carbon footprint of our underwriting business. This will serve as a basis for carbon risk steering and will support Swiss Re and our clients in their transition. In this context, Swiss Re has contributed to a CRO Forum publication on methodologies to measure and eventually disclose the carbon footprint of insurance portfolios. Reflecting the Group’s strong overall commitment to sustainability, Swiss Re continued to be included in leading sustainability indices and rankings, such as FTSE4Good, Euronext Vigeo World 120, Ethibel Excellence Global, oekom Prime Investment and the Dow Jones Sustainability Index. For more information on Swiss Re’s sustainability practices, see the Sustainability Report 2020. Emerging risk Anticipating possible developments in the risk landscape is a central element of Enterprise Risk Management. Swiss Re promotes pre-emptive thinking on risk in all areas of the business in order to reduce uncertainty and diminish the volatility of the Group’s results, while also identifying new business opportunities and raising awareness for emerging risks. For this purpose, Swiss Re’s risk identification processes are supported by a systematic framework that identifies, assesses and monitors emerging risks and opportunities across all areas of Swiss Re’s risk landscape. This framework combines a bottom-up approach driven by employee input with regional experts on emerging risk. The resulting information is complemented with insights from external parties such as think tanks, academic networks and international organisations, as well as from interaction with clients. Findings are reported to management and internal stakeholders, including a prioritised overview of newly identified emerging risks and an estimate of their potential impact on Swiss Re’s business. Swiss Re also publishes an annual emerging risk report (Swiss Re SONAR) to raise awareness across the industry. To further advance risk awareness across the industry and beyond, Swiss Re maintains regular exchanges on emerging risks with its clients and continues to participate actively in strategic risk initiatives such as the CRO Forum’s Emerging Risk Initiative and the International Risk Governance Council. The following significant long-term emerging risks are deemed particularly important for Swiss Re’s business: 76 Swiss Re | Financial Report 2020 Cyber risk – Edge computing An emerging aspect of cyber risk is related to data processing at the periphery or edge of a network which is increasingly relevant with the prevalence of the Internet of Things (IoT). An important example is autonomous vehicles where time-lags in signal transmission and processing can prove fatal. Edge computing involves minimising latency in data transactions by adding computing power close to connected end-devices. It is playing a pivotal role in innovating and maintaining digital ecosystems across manufacturing, utilities, robotics and other spheres. In addition to such benefits, there are also inherent risks. Potential business impact Edge computing can lead to an increased cyber risk for the devices themselves but also to the network they are connected to. Heightened exposure can be a result of poor implementation and maintenance of edge computing devices. Such devices may not be designed and operated following the same security principles as for an e-banking system or a smartphone. The security focus on Operational Technology is still not the same as on Business IT. This emerging cyber risk is relevant to Swiss Re both as an operational threat and as a subject for insurance and reinsurance solutions for clients. Mitigation measures Swiss Re’s Digital Governance Framework considers all activities where digital services are introduced, irrespective of whether it is Business IT or Operational Technology. Therefore, minimum baseline standards are being ensured for the secure usage of edge computing devices. Swiss Re regularly monitors and reassesses cyber security robustness against latest standards and threats, including the maintenance of an inventory of IoT devices. Prolonged large-scale power blackout Long-lasting power blackouts can be triggered by natural catastrophes (eg solar storms), and intentional (eg cyber risk) or unintentional man-made events. Power blackout becomes more likely as energy grids are increasingly operating at capacity limits and are not always well maintained. Adding to the complexity and interdependency are alternative energy supplies and the digitisation of parts of the grid interacting with older installed infrastructure. All of these can trigger or exacerbate power blackouts. Potential business impact A prolonged large-scale power blackout can lead to widespread property damage, business interruption, financial market impacts and operational disruptions. Importantly, it is likely that business impacts will increase non-linearly the longer a power blackout lasts. This could lead to catastrophic economic losses. Loss exposure for the insurance industry could be significant, though many of these risks remain uninsured. Mitigation measures Swiss Re actively addresses prolonged power blackout risk through scenario assessment to estimate the potential business impact. As an example of such a scenario assessment, Swiss Re looked at direct and indirect loss potentials from a long-duration power blackout in the US triggered by a solar storm. Enriched by findings from vulnerability assessments for the US energy industry, as well as from internal exposure data, this also provided insights for underwriting. Swiss Re maintains a risk dialogue with governmental bodies, power suppliers and other stakeholders to discuss power blackout risk and potential mitigation measures. Considerations include preventive measures, possibilities for public-private partnerships to create insurance pool solutions and other approaches to improve resilience. Climate change – Moving to a low carbon future To meet the objectives of the Paris agreement, global warming needs to stay below 2˚C compared to pre-industrial levels. To achieve this, the target is to reduce greenhouse gas emissions to net-zero by 2050. A rapid transition to a low carbon economy is required. The changes are needed across all industries and entail an entire cluster of new risks which need to be understood, assessed and where possible mitigated. Swiss Re, and the insurance industry in general, regularly assesses the changing risk landscape and can help accelerate this transition through risk transfer products and as a long-term investor. Potential business impact The insurance sector is exposed to transition risks which may arise as a result of policy, legal, technology and market changes that are required to facilitate the transition to a low-carbon economy. For insurers and reinsurers, investment risks arising from this transition are mainly linked to the potential re-pricing of carbon-intensive financial assets, and the speed at which any such re-pricing might occur. To a lesser extent, insurers and reinsurers may also need to adapt to potential impacts on insurance resulting from, for example, reductions in insurance premium volumes from carbon- intensive sectors or coverage of new technologies without established loss histories, which may increase uncertainties in lines of business such as property and engineering. Mitigation measures Swiss Re is taking proactive measures to reduce potential business impacts on our investment and insurance portfolios, for example, reducing exposure to assets with the potential to be stranded in carbon- intense energy infrastructure (eg thermal coal). More generally, climate change requires global risk mitigation actions and Swiss Re is dedicated to supporting decarbonisation pathways. Swiss Re underwrites renewable energy risk and is actively adapting existing products, as well as developing new risk transfer solutions. A new focus area for the future will be the risk cluster related to innovations in carbon removal which will be an integral part of reaching net-zero. For more information about emerging risk, see the Swiss Re SONAR report. Swiss Re | Financial Report 2020 77 Corporate governance Swiss Re’s strong governance supports the Board of Directors’ and the Group Executive Committee’s leadership during the COVID-19 crisis. 78 Swiss Re | Financial Report 2020 Contents Overview 80 Group structure and shareholders 84 Capital structure Board of Directors Executive Management 86 88 102 Shareholders’ participation rights 108 Changes of control and defence measures Auditors Information policy 109 110 112 Swiss Re | Financial Report 2020 79 Corporate governance Overview The global pandemic has forced companies to better articulate their corporate strategies and to explain how their boards and management teams are furthering those strategies in fraught times. Walter B. Kielholz Chairman of the Board of Directors The Board of Directors’ dedicated commitment and strong leadership are key to navigate through a crisis. 80 Swiss Re | Financial Report 2020 COVID-19 Governance Swiss Re has navigated the crisis very successfully and ensured seamless continuity of business operations. To address the crisis, the Board of Directors and its Board committees increased the frequency of their meetings, demonstrating their commitment to decisive leadership and providing critical support for the Group Executive Committee (Group EC). The Board of Directors received regular updates on the spread of the pandemic, its impact on Swiss Re’s employees, operations and business, as well as the mitigating efforts put in place. The Board of Directors was informed of how management handled the evolving pandemic and its effect on client interactions, writing new business and managing claims, as well as the many reporting necessities. The Board committees dealt with COVID-19-related topics based on their respective competencies and responsibilities. Their tasks are described in the section on the Board committees (see page 98). Swiss Re’s Group Crisis Management Team (GCMT), under the lead of the Group CRO and the Group COO as deputy, held weekly meetings between February and May 2020. The GCMT is composed of Group EC members (Group CFO, Group CIO, Group CUO, Group HRO, Group CLO) as well as further senior management members, such as the Head Group Communications, Head Investor Relations and Head IT. The GCMT took the lead in developing and coordinating the implementation of business continuity measures across the Swiss Re Group to protect the health and safety of our employees. Measures included work-from- home protocols, guidelines on travel and the closure of our premises. Coordination was handled through local incident management teams. The GCMT reported to the Group EC after each of its meetings. Beginning in May, the Group EC held regular calls to address pandemic-related matters. GCMT and Group EC directives and actions were in line with the recommendations and guidelines set by the Swiss Federal Council and Switzerland's Federal Office of Public Health and all local directives. Cyber Risk The cyber threat landscape is constantly evolving, and Swiss Re’s Board of Directors continues to closely monitor the company’s cyber threat resilience. The Board of Directors were updated on important cyber security developments, in particular the increase of Covid-19 related attacks across the globe and the wide-ranging SolarWinds cyber incident. Swiss Re’s IT infrastructure and cyber defence measures proved to be resilient and no breaches were reported. Besides the ever-changing cyber threat landscape, Swiss Re’s exposure and digital footprint is expanding due to our digitalisation efforts, the move of critical business applications to the cloud and our business transformation with the development of new markets and new innovative products. The Finance and Risk Committee received an in-depth report on cloud security with the focus on protecting Swiss Re and client data related to public cloud services. In April 2020 the Finance and Risk Committee also reviewed the annual cyber risk assessment report, which evaluates Swiss Re’s cyber risk exposure and cyber threat resilience. The regular re-assessment enables the Board members to understand how well the company’s assets are protected against the evolving risks of intrusions, data breaches, and loss of access. Members of the Finance and Risk Committee regularly share their cyber expertise with Management and the topic of cyber risk remains a standing item on the Finance and Risk Committee agenda. The company’s cyber risk strategy will continue to be a key focus area for the Board and its Committees. Corporate Governance Trends Sustainability remains top priority Legislators, regulators, asset managers, shareholders and other stakeholders are increasingly looking to corporate governance as a means of improving transparency and accountability for sustainability. In particular, companies are now expected to have appropriate governance structures and governance priorities to address environmental, social and governance (ESG) issues. Corporate governance objectives over which boards have assumed greater oversight responsibility in recent years, such as diversity, better alignment of executive compensation and stakeholder engagement, are increasingly seen as having ESG aspects, making these topics even more important. ESG is figuring more prominently particularly in Europe, but also in the United States and in other key jurisdictions, in investment decisions and in corporate disclosure. We expect to see an increased focus on corporate disclosure, particularly around climate change. Europe is taking the lead on climate-related disclosures, and there is an emerging consensus on the need for greater standardisation of climate disclosures and performance measures. We also expect that demonstrating leadership on ESG topics will be seen by asset managers, shareholders and others, including employees and customers, as a differentiating factor, providing advantages across a range of areas for those able to demonstrate a commitment to, and significant transparency around, ESG themes. Please continue reading for more information on our sustainability highlights 2020/2021. For more information on our sustainability governance please refer to the next page. Sustainability Highlights 2020/21 Sustainability-related targets and KPIs linked to compensation As part of our Group Sustainability Strategy implementation, we introduced sustainability as an additional qualitative assessment dimension for determining our Group Annual Performance Incentive (API) pool. This establishes a clear connection between sustainability targets and compensation for all employees, including the Group EC. The sustainability assessment for 2020 is primarily based on qualitative key performance indicators (KPIs) and targets. These are aligned with our 2030 Sustainability Ambitions and our net-zero commitments. In the course of 2020, we further enhanced the framework by defining quantitative KPIs and respective targets, which will form the basis for the 2021 performance assessment. Swiss Re will continue refining sustainability-related KPIs and targets to ensure we are reaching our ambitious sustainability commitments. For a description of the Group API pool funding process see our Financial Report 2020 on page 121. For performance outcomes on the qualitative assessment, including sustainability aspects, in 2020, please see our Financial Report 2020, page 133, as well as our Sustainability Report, pages 16–21. For more information on Swiss Re’s approach regarding sustainability, please refer to pages 148–179 of this Financial Report as well as to our separate Sustainability Report: https://reports.swissre.com/ sustainability-report/2020 Swiss Re | Financial Report 2020 81 Corporate governance Overview Our Sustainability Governance Swiss Re has a well-defined governance framework to develop, enhance, implement and monitor its Group Sustainability Strategy. At Swiss Re’s highest governance level, the Board of Directors is responsible for overseeing the development and adoption of the Group Sustainability Strategy and related policies. It has assigned detailed responsibilities to four Board committees: • The Chairman’s and Governance Committee monitors and reviews general progress toward achievement of the Group’s Sustainability Strategy, including all sustainability-related external engagements, based on regular updates from management and the sustainability team. • The Compensation Committee establishes and reviews the compensation framework, guidelines and performance criteria. Performance criteria include sustainability-related topics. • The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews all top risk issues and exposures, including those with a specific sustainability dimension. • The Investment Committee reviews Swiss Re’s Asset Management activities and, as part of this, receives regular updates on Group Asset Management’s approach to enhancing responsible investing. While the Board of Directors is responsible for oversight, the Group EC ensures the implementation of the Group Sustainability Strategy. It therefore approves detailed sustainability policies, such as the oil and gas policy updated in 2020. For further details please refer to page 38 in our Sustainability Report, available at: https://reports.swissre.com/sustainability- report/2020 Furthermore, it sets and monitors risk capacity limits (including for natural catastrophes) and determines product policy and underwriting standards. The Group EC members have explicit responsibilities related to sustainability, which include but are not limited to the following: 82 Swiss Re | Financial Report 2020 Sustainability Governance Group level Business level2 Board of Directors Board committees1 Chairman’s & Governance Committee Compensation Committee Finance & Risk Committee Investment Committee Group Executive Committee Group Functions2 Verwaltungsrat Verwaltungsratsausschüsse1 Präsidial- und Governanceausschuss Vergütungs - ausschuss Finanz- und Risikoausschuss Anlage - ausschuss Geschäftsleitung Gruppenfunktionen2 Group Finance Group Risk Management Swiss Re Institute Group Asset Management Group Operations Group Human Resources Group Finance Group Risk Management Swiss Re Institute Group Asset Management Group Operations Group Human Resources Group Sustainability Council Group Sustainability Council Reinsurance Corporate Solutions iptiQ3 Public Sector Solutions Reinsurance Corporate Solutions iptiQ3 Public Sector Solutions 1 Only those Board committees with allocated responsibilities related to sustainability are listed. 2 Dedicated sustainability roles, networks and/or committees in all Group Functions and on Business level. 3 The Division iptiQ has been in place since 1 January 2021. The Business Unit Life Capital was disbanded at the end of December 2020. • The Group Chief Underwriting Officer (Group CUO) is responsible for Swiss Re Institute’s research agenda which includes sustainability and resilience- related topics. • The Group Chief Operating Officer (Group COO) is responsible for the Corporate Real Estate & Services (CRES) division which steers and monitors the reduction of Swiss Re’s direct environmental footprint and is in charge of Swiss Re’s Greenhouse Neutral Programme to reduce our own CO2 emissions as well as the commitment to reach net-zero CO2 emissions in our operations by 2030. • The Group Chief Risk Officer (Group CRO) is responsible for establishing the Group’s Risk Management Framework for all risk categories, including risks related to sustainability. In addition, the Group CRO chairs the Group Sustainability Council (GSC). In this role, he guides the GSC’s sustainability activities across the Swiss Re Group. • The Group Chief Investment Officer (Group CIO) is responsible for ensuring consistent integration of ESG aspects across the investment process. The Group CIO is responsible for investment decisions within the Strategic Asset Allocation implementation, including those related to responsible investing, and is informed of ESG updates through various channels, including the Asset Management Investment Committee. • The Group Chief Financial Officer (Group CFO) is responsible for Swiss Re’s investor relations and public disclosures, including the Group Annual Report, which includes our climate-related financial disclosures. Find out more For more information please visit: www.swissre.com/sustainability Key Focus Area 2020/2021 Changes to the Group structure The Business Unit Life Capital, which combined the closed book business of ReAssure with the open book businesses of elipsLife and iptiQ, was disbanded by the end of December 2020, following the completion of the sale of ReAssure to Phoenix Group Holdings plc. Effective 1 September 2020, the CEO Life Capital ceased to be a member of the Group Executive Committee. The Business Unit Corporate Solutions assumed responsibility for elipsLife as of 1 October 2020, which provides life and health insurance solutions and services for corporate clients, allowing it to better leverage this Business Units relationships with corporates and brokers. Swiss Re’s white-labelling digital insurance platform iptiQ became a standalone division reporting to the Group CEO, effective 1 January 2021, enabling a greater focus on this business. On 25 September 2020, we announced that we would further streamline the legal entity structure of the Swiss Re Group. Swiss Re intends to reorganise the legal entity structure of its Corporate Solutions Business. As part of the changes, Swiss Re intends to make Swiss Reinsurance Company Ltd the sole direct wholly-owned operating subsidiary of Swiss Re Ltd. Swiss Reinsurance Company Ltd would in turn have separate holding companies for the Reinsurance and Corporate Solutions Business Units, as well as the Division iptiQ. The streamlining of the Group’s legal entity structure will not change the fact that these businesses continue to operate independently. It is expected that the target legal entity structure will be implemented by the end of 2021, subject to receipt of the required regulatory approvals. Swiss Re’s Corporate Governance Framework The Board of Directors has ultimate responsibility for the success of Swiss Re Ltd and the Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of Swiss Re Ltd and the Group and of the Group EC, as well as for supervising compliance with applicable laws, rules and regulations. Such responsibilities cannot be delegated and therefore rest with the entire Board. The Board of Directors has delegated the management of Swiss Re Ltd and the Group to the Group EC. This corporate governance framework ensures sustainability, fosters transparency and facilitates a quality assessment of the Swiss Re Group’s organisation and business. Swiss Re’s Governance Documents Swiss Re’s Code of Conduct provides key principles that guide Swiss Re in making responsible decisions and achieving results using the highest ethical standards. It is built on the five Swiss Re Corporate Values: Integrity, Team Spirit, Passion to Perform, Agility and Client Centricity. The Corporate Governance Guidelines set out Swiss Re’s harmonised governance principles and standards, ensuring a consistent and tailored corporate governance approach across the Group. The Articles of Association define the legal and organisational framework of Swiss Re Ltd as the Group’s holding company. The Bylaws define Swiss Re’s governance framework and include the responsibilities of the Board of Directors and the Group EC and their members. The Board Committee Charters outline the duties and responsibilities of the Board Committees and form part of the Bylaws. The Bylaws and the Board Committee Charters are not publicly available. For Swiss Re’s governance documents please visit: Group Code of Conduct files.swissre.com/codeofconduct/ Corporate Governance Guidelines www.swissre.com/ corporategovernanceguidelines Articles of Association (Swiss Re Ltd) www.swissre.com/articlesofassociation Swiss Re’s corporate governance adheres to: • The SIX Swiss Exchange’s Directive on Information Relating to Corporate Governance (including its annex) dated 20 June 2019, effective as of 2 January 2020. • The Swiss Code of Best Practice for Corporate Governance (Swiss Code) of 28 August 2014, issued by economiesuisse, the Swiss business federation. • The Swiss Financial Market Supervisory Authority FINMA provisions on corporate governance, risk management and internal control system at insurers. Swiss Re’s corporate governance also complies with applicable local rules and regulations in all jurisdictions where it conducts business. Information on compensation Information on compensation and shareholdings of, and loans to, the members of the Board of Directors and the Group EC are included in the Compensation Report beginning on page 114 this Financial Report. Swiss Re | Financial Report 2020 83 Corporate governance Group structure and shareholders Operational Group structure Group CEO Americas EMEA Asia Regional Presidents Group CFO Group Finance Group CRO Group Risk Management Group CUO Swiss Re Institute (SRI) Group CIO Group Asset Management Group COO Group Operations Group CHRO Group Human Resources Group CLO* Group Legal** Group Functions and Group Legal Business Unit Reinsurance Property & Casualty Life & Health Business Unit Corporate Solutions Business Unit Life Capital*** * The Group CLO reports with a dual reporting line to the Group CEO and the Group COO. ** Group Legal is not a Group Function. *** Disbanded at the end of December 2020. Effective 1 January 2021: Division iptiQ. For more details please refer to page 83. Legal structure — listed and non-listed Group companies Swiss Re Ltd, the Group’s holding company, is a joint stock company, listed in accordance with the International Reporting Standard on SIX Swiss Exchange (ISIN CH0126881561, Swiss Security Number 12688156), domiciled at Mythenquai 50/60 in 8022 Zurich, and organised under the laws of Switzerland. Information on its market capitalisation is provided on pages 32–33 of this Financial Report. No other Group companies have shares listed. More information on the Group companies is provided in Note 20 to the Group financial statements on pages 278–280. Swiss Re Ltd has a level I American Depositary Receipts (ADR) programme in the US. The ADR are traded over the counter (OTC) (ISIN US8708861088, OTC symbol SSREY). One Swiss Re Ltd share equals four ADR. Neither the ADR nor the underlying Swiss Re Ltd shares are listed on a securities exchange in the US. Shares represented by ADR for which no specific voting instructions are received by the depositary from an ADR holder, are not voted at shareholder meetings. 84 Swiss Re | Financial Report 2020 Significant shareholders The following table provides a summary of the disclosure notifications of major shareholders holding more than 3% of voting rights: Shareholder BlackRock, Inc. Number of shares 15 995 446 % of voting rights and share capital 5.04 Creation of the obligation to notify 31 December 2020 For the detailed disclosure notification please visit: www.swissre.com/disclosureofshareholdings Registered shareholdings by type Registered shareholdings by type As of 31 December 2020 Shareholder structure Registered — unregistered1 shares 62.0% Institutional 62.0% Institutional shareholders shareholders 33.9% Individual 33.9% Individual shareholder shareholders 4.1% Swiss Re 4.1% Swiss Re employees employees As of 31 December 2020 Registered shares2 Unregistered shares2 Shares held by Swiss Re Share buy-back programme Total shares issued Shares 174 237 358 114 739 041 28 520 907 0 317 497 306 in % 54.9 36.1 9.0 0.0 100.0 1 “Unregistered” shares refers to shares for which no application has been received by the owner to enter the shares in the share register. 2 Without Swiss Re’s holdings. Registered shares with voting rights by shareholder type As of 31 December 2020 Individual shareholders Swiss Re employees Total individual shareholders Institutional shareholders Total Shareholders 90 579 6 671 97 250 3 934 101 184 Registered shares with voting rights by country As of 31 December 2020 Switzerland UK US Other Total Shareholders 87 417 969 1 405 11 393 101 184 in % 89.5 6.6 96.1 3.9 100.0 in % 86.4 0.9 1.4 11.3 100.0 Shares 59 109 999 7 146 975 66 256 974 107 980 384 174 237 358 Shares 106 990 760 33 128 665 17 782 985 16 334 948 174 237 358 Registered shares with voting rights by size of holding As of 31 December 2020 Holdings of 1–2 000 shares Holdings of 2 001–200 000 shares Holdings of > 200 000 shares Total Shareholders 94 671 6 437 76 101 184 in % 93.6 6.3 0.1 100.0 Shares 34 781 138 58 905 181 80 551 039 174 237 358 in % 33.9 4.1 38.0 62.0 100.0 in % 61.4 19.0 10.2 9.4 100.0 in % 20.0 33.8 46.2 100.0 Cross-shareholdings Swiss Re has no cross-shareholdings in excess of 5% of capital or voting rights with any other company. Registered shareholdings by country Registered shareholdings by country As of 31 December 2020 61.4% Switzerland 61.4% Switzerland 19.0% UK 19.0% UK 10.2% US 10.2% USA 9.4% Other registered 9.4% Other registered shareholders More information More information on the Swiss Re Ltd shares, such as the price performance and trading volume in 2020, Swiss Re’s dividend policy and dividends, the share buy-back programmes and an overview of the key share statistics since 2014, is included in the section “Share performance” on pages 32–33 of this Financial Report. Swiss Re | Financial Report 2020 85 Corporate governance Capital structure Capital As a result of the cancellation of shares repurchased under the share buy-back programme that was completed on 18 February 2020, the fully paid-in share capital of Swiss Re Ltd as of 31 December 2020 amounted to CHF 31 749 730.60. It is divided into 317 497 306 registered shares, each with a par value of CHF 0.10. Conditional and authorised capital in particular Conditional capital for Equity-Linked Financing Instruments The conditional capital of Swiss Re Ltd as of 31 December 2020 amounts to CHF 5 000 000, permitting the issuance of a maximum of 50 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, corresponding to 15.74% of the existing share capital. Such shares are issued through the voluntary or mandatory exercise of conversion and/or option rights granted by the company or Group companies in connection with bonds or similar instruments, including loans or other financial instruments (Equity-Linked Financing Instruments). Authorised capital The authorised capital of Swiss Re Ltd as of 31 December 2020 amounts to CHF 8 500 000. The Board of Directors is authorised to increase the share capital of the company at any time up to 17 April 2021 through the issue of up to 85 000 000 registered shares, payable in full, each with a nominal value of CHF 0.10, corresponding to 26.77% of the existing share capital. For more information on the terms and conditions of the conditional capital and the authorised capital please refer to articles 3a and 3b of the Articles of Association. The Articles of Association are available at: www.swissre.com/articlesofassociation Changes in capital Changes in 2020 The Annual General Meeting 2020 approved the reduction of the ordinary share capital by CHF 990 739.80 from CHF 32 740 470.40 to CHF 31 749 730.60 by cancelling 9 907 398 shares with a nominal value of CHF 0.10 each repurchased by Swiss Re Ltd on a second trading line on the SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 9 907 398 shares were repurchased under the share buy-back programme launched on 6 May 2019 until its completion on 18 February 2020. In line with the requirements of article 733 of the Swiss Code of Obligations, this reduction of the ordinary share capital was published in the Swiss Gazette of Commerce (Schweizerisches Handelsamtsblatt) on 28 July 2020. On 17 April 2020 the Annual General Meeting authorised a public share buy-back programme for cancellation purposes of up to CHF 1 billion purchase value for the Board of Directors to repurchase Swiss Re Ltd’s shares prior to the 2021 Annual General Meeting. The Board of Directors concluded at its meeting following the Annual General Meeting that the share buy-back programme will not be launched due to the volatility in the financial markets and the global economic situation precipitated by the COVID-19 pandemic. Changes in 2019 The Annual General Meeting 2019 approved the reduction of the ordinary share capital by CHF 1 121 476.10 from CHF 33 861 946.50 to CHF 32 740 470.40 by cancelling 11 214 761 shares with a nominal value of CHF 0.10 each repurchased by Swiss Re Ltd on a second trading line on the SIX Swiss Exchange, via Cantonal Bank of Zurich as agent. The 11 214 761 shares were repurchased under the share buy-back programme launched on 7 May 2018 until its completion on 15 February 2019. The purchase value of the repurchased own shares corresponded to CHF 999 999 983.08. In line with the requirements of article 733 of the Swiss Code of Obligations, this reduction of the ordinary share capital was published in the Swiss Gazette of Commerce (Schweizerisches Handelsamtsblatt) on 16 July 2019. On 17 April 2019 the Annual General Meeting authorised a public share buy-back programme for cancellation purposes consisting of two tranches of up to CHF 1 billion purchase value each for the Board of Directors to repurchase Swiss Re Ltd’s shares prior to the 2020 Annual General Meeting. The first tranche of the programme was launched on 6 May 2019 and completed on 18 February 2020. The purchase value of the repurchased own shares corresponded to CHF 999 999 970.00. Together with the third quarter 2019 results, which were published on 31 October 2019, the Board of Directors announced that it had decided not to launch the second tranche of the share buy-back programme due to the capital deployment, significant natural catastrophe losses in 2019 and the decision to suspend the initial public offering of ReAssure. Share capital Conditional capital 31 December 2019 31 December 2020 Capital in CHF 32 740 470.40 In % of the share capital 100% Shares 327 404 704 Capital in CHF 31 749 730.60 In % of the share capital 100% Shares 317 497 306 for Equity-Linked Financing Instruments Authorised capital 5 000 000.00 8 500 000.00 15.27% 25.96% 50 000 000 85 000 000 5 000 000.00 8 500 000.00 15.74% 26.77% 50 000 000 85 000 000 86 Swiss Re | Financial Report 2020 For further details on the share buy-back programmes, please visit: www.swissre.com/sharebuyback Furthermore, the Annual General Meeting 2019 renewed the authorised capital (until 17 April 2021) and made further amendments to the provisions of the Articles of Association concerning authorised and conditional capital (re-setting several sub-limits, and amending the description of permitted cases of an exclusion of subscription or advance subscription rights). Changes in previous years Information about changes in share capital of Swiss Re Ltd as well as of our former parent company Swiss Reinsurance Company Ltd for earlier years is provided in the Annual Reports of these companies for the respective years. For details please visit: www.swissre.com/investors/financial- information.html Shares All shares issued by Swiss Re Ltd are fully paid-in registered shares, each with a par value of CHF 0.10. Each share carries one vote. The shares rank equally among each other in all respects (including in respect of entitlements to dividends and liquidation proceeds). There are no categories of shares with a higher or limited voting power, privileged dividend entitlement or any other preferential rights, nor are there any other securities representing a part of the company’s share capital. The company cannot exercise the voting rights of treasury shares. As of 31 December 2020, shareholders had registered 174 237 358 shares with the share register for the purpose of exercising their voting rights, out of a total of 317 497 306 shares issued. Profit-sharing and participation certificates Swiss Re Ltd has not issued any profit- sharing and participation certificates. Limitations on transferability and nominee registrations Free transferability The company maintains a share register for the registered shares, in which owners and usufructuaries are entered. Persons acquisition registered shares will, upon application, be entered in the share register without limitation as shareholder with voting power if evidence of the acquistion of the shares is provided and if they expressly declare that they have acquired the shares in their own name and for their own account. Admissibility of nominee registrations Persons not expressly declaring in their application for entry in the share register that they are holding shares for their own account (nominees) are entered without further inquiry in the share register of Swiss Re Ltd as shareholders with voting rights up to a maximum of 2% of the outstanding share capital available at the time. Additional shares held by such nominees that exceed the limit of 2% of the outstanding share capital are entered in the share register with voting rights only if such nominees disclose the names, addresses and shareholdings of any persons for whose account the nominee is holding 0.5% or more of the outstanding share capital. In addition, such nominees must comply with the disclosure requirements of the FMIA. For more information on the transfer of shares please refer to article 4 of the Articles of Association. The Articles of Association are available at: www.swissre.com/articlesofassociation The Articles of Association are available at: www.swissre.com/articlesofassociation Convertible bonds and options Convertible bonds As of 31 December 2020, except as provided below, neither Swiss Re Ltd nor any of its subsidiaries has any bonds outstanding that are convertible into equity securities of Swiss Re Ltd. On 6 June 2018, Swiss Re Ltd placed with the market via a repackaging vehicle USD 500 000 000 of six-year exchange- able notes, which may be stock-settled at the option of Swiss Re Ltd. Subject to the conditions of the notes, noteholders may exchange their notes for ordinary shares of Swiss Re Ltd at a conversion price of USD 106.6067 (adjusted from the initial exchange price of USD 115.2593 and the subsequently adjusted exchange price of USD 111.6987). The exchange price is subject to further adjustment in certain circumstances described in the conditions of the notes. To economically offset the settlement of a noteholder-initiated exchange, Swiss Re Ltd purchased matching call options on Swiss Re Ltd shares with a portion of the proceeds. Consequently, no new Swiss Re Ltd shares will be issued upon a noteholder-initiated exchange. The settlement and delivery of these notes took place on 13 June 2018. For further details please see Note 7 to the financial statements on page 302 of this Financial Report. Assuming all of the notes were exchanged at the request of noteholders, 4 690 136 registered shares of Swiss Re Ltd would have to be delivered (corresponding to 1.48% of the existing share capital). Shares Vesting of share awards to Swiss Re employees are physically settled (with treasury shares). The number of issued shares will not be affected. For details on shares granted to Swiss Re employees and for more information on the quantitative impact of vested shares please see Note 16 to the Group financial statements on page 273 of this Financial Report. Assuming maximum vesting of all share awards granted as of 31 December 2020, 2 990 046 registered shares of Swiss Re Ltd would have to be delivered (corres-ponding to 0.94% of the existing share capital). Swiss Re | Financial Report 2020 87 Corporate governance Board of Directors The Board of Directors is ultimately responsible for the success of Swiss Re Ltd and the Group. Members of the Board of Directors According to Article 14 of the Articles of Association, the Board of Directors of Swiss Re Ltd, the holding company of the Group, shall consist of at least seven members. As of 31 December 2020, the Board of Directors consisted of the following members: Name Walter B. Kielholz (Chairman) Renato Fassbind (Vice Chairman, Lead Independent Director) Raymond K.F. Ch’ien Sergio P. Ermotti Karen Gavan Joachim Oechslin Deanna Ong Jay Ralph Joerg Reinhardt Philip K. Ryan Sir Paul Tucker Jacques de Vaucleroy Susan L. Wagner Larry Zimpleman Nationality Swiss Swiss Chinese Swiss Canadian Swiss Singaporean American, Swiss German American British Belgian American American Age 69 65 68 60 59 50 49 61 64 64 62 59 59 69 Initial election 19981 2011 20081 2020 2018 2020 2020 2017 2017 2015 2016 2017 2014 2018 1 Initially elected to the Board of Directors of Swiss Reinsurance Company Ltd, the Group’s former parent company, and subsequently elected to the Board of Directors of Swiss Re Ltd in 2011. The following two members of the Board of Directors did not stand for re-election at the AGM 2020: Name Trevor Manuel Eileen Rominger Nationality South African American Age 64 66 Initial election 2015 2018 For the biographies of former Board members, please refer to: www.swissre.com/formerboardmembers Felix Horber Group Company Secretary Felix Horber, attorney-at-law, has been Group Company Secretary of Swiss Re since 2007. He holds a PhD in Law and an Executive Master in European and International Business Law. He is a Certified Director for Board Effectiveness and a Lecturer in Law at the University of St. Gallen (HSG), Switzerland. 88 Swiss Re | Financial Report 2020 Walter B. Kielholz Chairman, non-executive Born: 1951 Nationality: Swiss Renato Fassbind Vice Chairman and Lead Independent Director, non-executive and independent Born: 1955 Nationality: Swiss Raymond K.F. Ch’ien Member, non-executive and independent Born: 1952 Nationality: Chinese Walter B. Kielholz was elected to the Board of Directors of Swiss Reinsurance Company Ltd in 1998 and to the Board of Directors of Swiss Re Ltd in connection with its formation in 2011. He was Vice Chairman from 2003 to April 2009 and has been Chairman of the Board of Directors since May 2009. He chairs the Chairman’s and Governance Committee. Professional experience Walter B. Kielholz began his career at the General Reinsurance Corporation, Zurich, in 1976, where he held several positions in the US, in the UK and Italy before assuming responsibility for the company’s European marketing. In 1986, he joined Credit Suisse, where he was responsible for relationships with large insurance groups. He joined Swiss Re in 1989, where he became an Executive Board member in 1993 and was Chief Executive Officer from 1997 to 2002. He was also a member of the Board of Directors of Credit Suisse Group Ltd from 1999 to 2014 and served as Chairman from 2003 to 2009. Educational background • Business Finance and Accounting degree, University of St. Gallen, Switzerland Renato Fassbind was elected to the Board of Directors of Swiss Re Ltd in 2011. He was appointed Vice Chairman in 2012 and Lead Independent Director in 2014. He chairs the Nomination Committee and the Audit Committee and is a member of the Chairman’s and Governance Committee and the Compensation Committee. Professional experience After two years with Kunz Consulting AG, Renato Fassbind joined F. Hoffmann-La Roche Ltd in 1984, becoming Head of Internal Audit in 1988. From 1986 to 1987, he worked as a public accountant with Peat Marwick in New Jersey, USA. In 1990, he joined ABB Ltd as Head of Corporate Staff Audit and, from 1997 to 2002, was Chief Financial Officer and a member of the Group Executive Committee. In 2002, he joined Diethelm Keller Holding Ltd as Group Chief Executive Officer. From 2004 to 2010, he was Chief Financial Officer and a member of the Executive Board of Credit Suisse Group Ltd. Educational background • PhD in Economics, University of Zurich, Switzerland • Certified Public Accountant (CPA), Denver, USA External mandates • Vice Chairman of the Institute of International Finance External mandates • Board member of Nestlé S.A.* • Board member of Kühne + Nagel • Member of the European Financial International Ltd* Services Round Table • Chairman of the Zurich Art Society Raymond K.F. Ch’ien was elected to the Board of Directors of Swiss Reinsurance Company Ltd in 2008 and to the Board of Directors of Swiss Re Ltd in connection with its formation in 2011. He is a member of the Compensation Committee and the Investment Committee. He is also a member of the Board of Directors of Swiss Re Asia Pte. Ltd. Professional experience Raymond K.F. Ch’ien was Group Managing Director of Lam Soon Hong Kong Group from 1984 to 1997. From 1999 to 2011, he was Chairman of CDC Corporation, a software development company, and from 2003 to 2015 Chairman of MTR Corporation Limited, which operates a major public transport network in Hong Kong. From 1997 to 2020, Raymond K.F. Ch’ien also served as an Independent Non- executive Director of the Hongkong and Shanghai Banking Corporation Limited. Educational background • PhD in Economics, University of Pennsylvania, USA External mandates • Chairman of the Board of Directors of Hang Seng Bank Ltd* • Board member of China Resources Power Holdings Company Ltd* • Honorary President of the Federation of Hong Kong Industries * Listed company Swiss Re | Financial Report 2020 89 Corporate governance Board of Directors Sergio P. Ermotti Member, non-executive and independent Born: 1960 Nationality: Swiss Karen Gavan Member, non-executive and independent Born: 1961 Nationality: Canadian Joachim Oechslin Member, non-executive and independent Born: 1970 Nationality: Swiss Sergio P. Ermotti was elected to the Board of Directors of Swiss Re Ltd in 2020. Professional experience Sergio P. Ermotti was Group Chief Executive Officer and a member of the Group Executive Board of UBS Group from 2011 to 31 October 2020. Before joining UBS, he was Head of the Markets & Investment Banking Division as of December 2005, and Group Deputy Chief Executive Officer from 2007 to 2010 at UniCredit Group, responsible for Corporate and Investment Banking and Private Banking. Between 1987 and 2004, he held various positions at Merrill Lynch & Co. in the areas of equity derivatives and capital markets. He became Co-Head of Global Equity Markets and a member of the Executive Management Committee for Global Markets & Investment Banking in 2001. Educational background • Swiss-certified banking expert • Advanced Management Programme, University of Oxford, United Kingdom External mandates • Chairman of Investindustrial Acquisition Corp.* (as of 1 January 2021) Karen Gavan was elected to the Board of Directors of Swiss Re Ltd in 2018. She is a member of the Audit Committee and the Compensation Committee. She is also a member of the Board of Directors of Swiss Re America Holding Corporation. Professional experience Karen Gavan started her career in finance roles at Prudential Insurance, Imperial Life and Canada Life. She joined Transamerica Life in 1992 as Chief Financial Officer and added responsibilities over her tenure becoming Executive Vice President and Chief Financial Officer from 2000 to 2002 of Transamerica Life Canada/AEGON Canada, and from 2003 to 2005 the company’s Chief Operating Officer. From 2005, Karen Gavan assumed a number of non-executive board mandates. She joined the Board of Economical Insurance in 2008 and, until her retirement in November 2016, also served for five years as President and Chief Executive Officer at Economical Insurance, preparing the company for its initial public offering. During her leadership, the company also launched Sonnet, Canada’s first fully digital insurer. Educational background • Honours Bachelor of Commerce, Lakehead University, Canada • Fellow of the Institute of Chartered Accountants of Ontario, Canada External mandates • Board member of Mackenzie Financial Corporation • Board member of HSBC Bank Canada Joachim Oechslin was elected to the Board of Directors of Swiss Re Ltd in 2020. He is a member of the Finance and Risk Committee and the Investment Committee. Professional experience Joachim Oechslin started his professional career in 1998 as a consultant at McKinsey & Company, specialising in the financial services sector. In 2001, he joined Winterthur Insurance, Switzerland, where he was Chief Risk Officer of Winterthur Life & Pensions until 2003 and Group Chief Risk Officer of Winterthur Group from 2003 to 2006. Joachim Oechslin became a member of the Executive Committee of Winterthur Group in 2006. Following the acquisition of Winterthur Group by AXA in 2006, he assumed the position of Deputy Group Chief Risk Officer of AXA Group. In 2007, he joined Munich Re Group as Group Chief Risk Officer and a member of the Group Committee. In 2013, he moved to Credit Suisse Group, where he was Group Chief Risk Officer and a member of the Group Executive Board from January 2014 to February 2019. Currently, Joachim Oechslin serves as Senior Advisor at Credit Suisse Group. Educational background • Degree in Electrical Engineering, Higher Technical Institute (HTL), Winterthur, Switzerland • Master of Science in Mathematics, Swiss Federal Institute of Technology (ETH), Zurich, Switzerland External mandates • None * Listed company 90 Swiss Re | Financial Report 2020 Deanna Ong Member, non-executive and independent Born: 1971 Nationality: Singaporean Jay Ralph Member, non-executive and independent Born: 1959 Nationality: American and Swiss Joerg Reinhardt Member, non-executive and independent Born: 1956 Nationality: German Deanna Ong was elected to the Board of Directors of Swiss Re Ltd in 2020. She is a member of the Audit Committee. She is also a member of the Board of Directors and Chairperson of the Audit Committee of Swiss Re Asia Pte. Ltd. Professional experience Deanna Ong has been Chief People Officer and a member of the Group Executive Committee at GIC, a sovereign wealth fund established by the Government of Singapore, since 2017, and Managing Director since 2008. Deanna Ong joined GIC in 1994 and held various finance roles covering public and private market assets until 2009. From 2009 to 2014, she was Director Finance, responsible for financial management across GIC’s portfolio. In 2012, she also took on responsibility for Human Resources & Organisation and Corporate Governance. Prior to joining GIC, she was a tax accountant with Arthur Andersen & Co. Educational background • Bachelor of Accountancy, Nanyang Technological University, Singapore • Stanford Executive Program, Stanford University, USA External mandates • Board member of the International Forum of Sovereign Wealth Funds Jay Ralph was elected to the Board of Directors of Swiss Re Ltd in 2017. He is a member of the Finance and Risk Committee and the Investment Committee. Professional experience Jay Ralph was a member of the Board of Management of Allianz SE from 2010 to 2016, where he also served on a number of boards of directors of Allianz SE subsidiaries. He was Chief Executive Officer of Allianz Re from 2007 to 2009 and President and Chief Executive Officer of Allianz Risk Transfer from 1997 to 2006. Before joining Allianz, he was an auditor at Arthur Andersen & Co., Investment Officer at Northwestern Mutual Life Insurance Company, President at Centre Re Bermuda Ltd and a member of the Executive Board of Zurich Re. Educational background • MBA in Finance and Economics, University of Chicago, USA • BBA in Finance and Accounting, University of Wisconsin, USA • Certified Public Accountant (CPA), Chartered Financial Analyst (CFA) and Fellow of the Life Management Institute (FLMI) Joerg Reinhardt was elected to the Board of Directors of Swiss Re Ltd in 2017. He is a member of the Nomination Committee and the Compensation Committee. Professional experience Joerg Reinhardt has been Chairman of the Board of Directors of Novartis since 2013. He was Chairman of the Board of Management and the Executive Committee of Bayer HealthCare AG from 2010 to 2013 and, prior to that, held various executive positions at Novartis. He was Chief Operating Officer from 2008 to 2010, headed the Vaccines and Diagnostics Division from 2006 to 2008 and held a number of other senior roles, primarily in research and development, in the preceding years. Joerg Reinhardt started his career at Sandoz Pharma Ltd, a predecessor company of Novartis, in 1982. Educational background • PhD in Pharmaceutical Sciences, Saarland University, Germany External mandates • Chairman of the Board of Directors of Novartis Inc.* External mandates • Member of the Siemens Pension • Chairman of the Board of Trustees of the Novartis Foundation Advisory Board • Treasurer and member of the Georgia O’Keeffe Museum Board of Trustees and member of the O’Keeffe Innovations Board * Listed company Swiss Re | Financial Report 2020 91 Corporate governance Board of Directors Philip K. Ryan Member, non-executive and independent Born: 1956 Nationality: American Sir Paul Tucker Member, non-executive and independent Born: 1958 Nationality: British Jacques de Vaucleroy Member, non-executive and independent Born: 1961 Nationality: Belgian Philip K. Ryan was elected to the Board of Directors of Swiss Re Ltd in 2015. He chairs the Finance and Risk Committee and is a member of the Chairman’s and Governance Committee and the Audit Committee. He is also Chairman of Swiss Re America Holding Corporation. Professional experience Philip K. Ryan held various positions with Credit Suisse from 1985 to 2008, including Chairman of the Financial Institutions Group, Chief Financial Officer of Credit Suisse Group Ltd, Chief Financial Officer of Credit Suisse Asset Management, and Managing Director of CSFB Financial Institutions Group. He was Chief Financial Officer of the Power Corporation of Canada from 2008 to 2012. In that capacity, he was a director of IGM Financial Inc., Great-West Lifeco Inc. and several of their subsidiaries, including Putnam Investments. Educational background • MBA, Kelley School of Business, Indiana University, USA • Bachelor’s degree in Industrial and System Engineering, University of Illinois, USA External mandates • Operating Partner Corsair Capital • Operating Partner MKB Growth Equity • Member of the Advisory Board of Sir Paul Tucker was elected to the Board of Directors of Swiss Re Ltd in 2016. He is a member of the Finance and Risk Committee and the Investment Committee. Professional experience Sir Paul Tucker was the Deputy Governor of the Bank of England from 2009 to 2013. He held various senior roles at the Bank of England from 1980 onwards, including as a member of the Monetary Policy Committee, Financial Policy Committee, Prudential Regulatory Authority Board and Court of Directors. He also served as a member of the Steering Committee of the G20 Financial Stability Board and as a member of the Board of the Bank for International Settlements. In 2014, he was granted a knighthood for his services to central banking. Sir Paul Tucker is the author of Unelected Power: The Quest for Legitimacy in Central Banking and the Regulatory State (Princeton University Press, 2018). Educational background • BA in Mathematics and Philosophy, Trinity College, Cambridge, United Kingdom External mandates • Chairman of the Systemic Risk Council • Research Fellow at the Harvard Kennedy School of Government • Board member of the Financial Services NY Green Bank Volunteers Corps • Member of the Smithsonian • Senior Fellow at the Harvard Center National Board for European Studies • Governor of the Ditchley Foundation • President of the UK’s National Institute of Economic and Social Research Jacques de Vaucleroy was elected to the Board of Directors of Swiss Re Ltd in 2017. He chairs the Compensation Committee and is a member of the Chairman’s and Governance Committee, the Nomination Committee and the Investment Committee. He is also Chairman of Swiss Re Europe S.A. and Swiss Re International SE. Professional experience Jacques de Vaucleroy was a member of the Management Committee of AXA Group from 2010 to 2016, serving as Chief Executive Officer for North, Central and Eastern Europe and Chief Executive Officer of Global Life & Savings. He also held a number of positions in boards of directors and supervisory boards of AXA companies. Before that, he spent 24 years at ING, where he held senior roles in banking, asset management and insurance. He was a member of the Executive Board of ING Group from 2006 to 2009, in charge of insurance and asset management in Europe. Educational background • Master’s degree in Law, Université Catholique de Louvain, Belgium • Master’s degree in Business Law, Vrije Universiteit Brussel, Belgium External mandates • Chairman of Kazidomi SRL • Board member of Colt Technology Services Group plc, Fidelity International Limited, Eight Roads Holdings Limited and Zabka Polska SA • Board member of the Simõn I. Patiño Foundation and the TADA non-profit organisation 92 Swiss Re | Financial Report 2020 Susan L. Wagner Member, non-executive and independent Born: 1961 Nationality: American Larry Zimpleman Member, non-executive and independent Born: 1951 Nationality: American Susan L. Wagner was elected to the Board of Directors of Swiss Re Ltd in 2014. She chairs the Investment Committee and is a member of the Chairman’s and Governance Committee, the Nomination Committee and the Finance and Risk Committee. Professional experience Susan L. Wagner is a co-founder of BlackRock, where she served as Vice Chairman and a member of the Global Executive and Operating Committees before retiring in 2012. Previously, Susan L. Wagner served as Chief Operating Officer, Head of Strategy and Corporate Development, and Head of the Alternative Investment and International Client Businesses. Prior to founding BlackRock, Susan L. Wagner was a Vice President at Lehman Brothers, supporting the investment banking and capital markets activities of mortgage and savings institutions. Educational background • BA in English and Economics, Wellesley College, USA • MBA in Finance, University of Chicago, USA External mandates • Board member of Apple Inc.* • Board member of BlackRock, Inc.* • Board member of Color Health, Inc. • Board member of Samsara Networks, Inc. • Member of the Board of Trustees of Wellesley College, USA Larry Zimpleman was elected to the Board of Directors of Swiss Re Ltd in 2018. He is a member of the Audit Committee and the Finance and Risk Committee. Professional experience Larry Zimpleman started his career in 1971 as an actuarial intern at The Principal Financial Group, an investment management company that offers insurance solutions, asset management and retirement services to individual and institutional clients. From 1976 to 2006, he held various senior management and leadership positions at The Principal. He became President and Chief Executive Officer in 2008 and Chairman in 2009. In August 2015, Larry Zimpleman stepped down as President and CEO. His membership in the Board of Directors ended in May 2016. Educational background • Bachelor of Science, Drake University, USA • MBA, Drake University, USA • Fellow of the Society of Actuaries, USA External mandates • Member of the Board of Trustees of the Drake University • Member of the Board of Trustees of the Iowa Clinic Independence At least three-quarters of the members of the Board of Directors must be independent members. Swiss Re Ltd defines independence in line with best practice corporate governance standards. To be considered independent a Board member may not be, and may not have been in the past five years, employed as a member of the Group EC, or by any subsidiary of the Group, or may not have a material relationship with any part of the Group (either directly or as a partner, director or shareholder of an organisation that has a material relationship with the Group) other than serving as an independent board member in any subsidiary. In addition, the Board agrees on other criteria that disqualify a Board member from being considered independent, taking into consideration provisions of applicable law, regulations and best practice. The Board members annually need to confirm that they meet additional criteria. For an overview on all the independence criteria that apply to our Board members please refer to: www.swissre.com/board-independence All the members of the Board of Directors meet our independence criteria, with the exception of our Chairman. As a full-time Chairman he is not considered independent. Conflicts of interest The members of the Board of Directors are also subject to procedures to avoid any action, position or interest that conflicts with an interest of Swiss Re Ltd or the Group or gives the appearance of a conflict. Each member must disclose any conflict of interest relating to a matter to be discussed at a meeting, as soon as the member becomes aware of the conflict, to the Chairman. The respective member must not participate in the discussion and decision- making involving the interest at stake. The Chairman informs the Board of Directors of the existence of the conflict and it is reflected in the meeting minutes. Each member must disclose any conflict of interest generally arising to the Group CLO, or in his absence to the Group Chief Compliance Officer (Group CCO). The Group CLO (or in his absence the Group CCO) ensures that such a reported conflict of interest is dealt with accordingly. * Listed company Swiss Re | Financial Report 2020 93 t e g o v e r n ance Hu o r a atters C or p corporat e r e anag e m ility / m s p o n sibility Tech e n t Risk m a n r e s o n ol o u r c g y e s / / m a d c n i o s uran c e a g Rei n g i t a l i s a t i o n m p e n s a t i o n e m e n t y r o t a l u g e R b a n i a t s u S m t e s s A C E x p e r i e n c a p a i t l Fin Insura n ce ance / ac c o u arkets Know-ho w o f r e in listed company board m e rie n c e in CEO role e l e v a nt markets n ting p x E Board of Directors skills and competencies o r a t e g o v e r n ance Hu atters C or p s p o n sibility Tech corporat e r e e n t Risk anag e m s uran Rei n ility m c / m e m y r o t a u g e R l b a n i a t s u S t e s s m a n r e s n ol o o u r c a n a g g y e s / / d c i o g i t a l i s a t i o n m p e n s a t i o n e m e n t C a E x p p i t e r i e n c e o A m a l Fin Insura n ce n ting ance / ac c o u arkets Know-ho w o f r n listed company board E x p e rie n ce in CEO role e l e v a nt markets a r o o r p Corp or a t e R nage m emen C h e T eit/ k t e G o v ernance Hu e s p o nsibility Te m a n R n t e Risiko r sich e c h n e s o o l o u r c e g s m a n i e / e r a g u e ck v ü R h c s i r o t a l u g e R ig t l a h h c a N a M t e s s A n g g m e n t g slegung E r s tversic h e run E r f a K a p i t F i n a h r u a l m n g a ls V R- nzen / Rech n u n ärkte Knowhow d e r r a v e l e Mitglied einer kotierten G e s e ll s h c nten Märkte a ft Erfahrung als C / V e r g ü t u n g O E D i g i t a l i s a t i o n l h e T h c s i r o t a u g e R emen C a r o o r p Corp or a t e R nage m t e G o v ernance Hu e s p o nsibility Tec m a n R n t e Risiko r sich e e r e s o h n o l o u r c m a g i e e s / n / a D V u i E r s tversic h e run i g t a l i s i e r u n g e r g ü t u n g O E g e m e n t n g g g slegung ck v ü R eit/ k ig t l a h h c a N a M t e s s A E r f a K a p i t F i n a h r u a l m n g a ls V R- nzen / Rech n u n ärkte Know-How d e r r a v e l e Mitglied einer kotierten G e s e ll s h c nten Märkte a ft Erfahrung als C Sir Paul Tucker, Jacques de Vaucleroy, Susan L. Wagner and Larry Zimpleman were individually re-elected by the Annual General Meeting 2020 for a further one-year term of office as members of the Board of Directors. The Board of Directors now consists of 14 members, it consisted of 13 members up to the Annual General Meeting 2020. The Annual General Meeting 2020 also re/elected Renato Fassbind, Raymond K.F. Ch’ien, Karen Gavan (new), Joerg Reinhardt and Jacques de Vaucleroy as members of the Compensation Committee for a one-year term of office. Election, succession planning, qualifications, training and term of office Election procedure Members of the Board of Directors and the Chairman of the Board of Directors are elected individually by the Annual General Meeting for a term of office until completion of the next Annual General Meeting. Succession planning Succession planning is of significant importance to the Board of Directors. It regularly analyses its composition to confirm that its members’ qualifications, skills and experience correspond to the Board’s needs and requirements. The Board of Directors initiates the evaluation of potential new Board members in a timely manner with the continued aim to ensure its members have the desired qualifications and experience as well as to further diversify and renew its composition. The Nomination Committee evaluates candidates for Board membership and makes recommendations to the Board of Directors for election or re-election proposals. The Board of Directors nominates candidates for Board membership for election at the Annual General Meeting, ensuring that the Board retains an adequate size and well-balanced composition and that at least three-quarters of its members are independent. With regard to its succession planning, the Board of Directors aims to safeguard the stability of its composition while also renewing the Board in a sensible way. Qualifications The Board of Directors needs to secure the necessary qualifications, skills and diversity to perform all required responsibilities. It must assemble among its members the balance of managerial expertise and knowledge from different fields required for the fulfilment of the oversight responsibility as well as for sound, independent decision- making in line with the needs of the business. The Board of Directors defines the selection criteria against which candidates for Board membership are assessed. The requirements that potential Board members have to meet in terms of knowledge in various key areas and the industry are constantly increasing. Corporate governance Board of Directors Information about managerial positions and significant business connections of non-executive directors Walter B. Kielholz, Chairman of the Board of Directors since 1 May 2009, was Swiss Re’s CEO from 1 January 1997 to 31 December 2002. In line with Swiss Re Ltd’s independence criteria, Walter B. Kielholz, being a full-time Chairman, is not considered independent. No other director has ever held a management position within the Group. None of the members of the Board of Directors has, or represents a company or organisation that has, any significant business connections with Swiss Re Ltd or any of the Group companies, other than as disclosed in Note 18 to the Group financial statements on page 276 of this Financial Report. Other mandates, activities and functions Article 26 of the Articles of Association governs the requirements regarding the external mandates held by Board members. The Articles of Association are availabe under: www.swissre.com/ articlesofassociation In addition, no member of the Board of Directors may serve on the board of directors of a listed company in which another member of the Board of Directors holds an executive function, or where a member of the Board of Directors is able to determine the compensation of another member of the Board of Directors. All Board members comply with the requirements on external mandates set out in the Articles of Association. Any activities of Board members in governing and supervisory bodies of important Swiss and foreign organisations, institutions and foundations, as well as permanent management and consultancy functions for important Swiss and foreign interest groups and official functions and political posts, are stated in each of the directors’ biographies, which can be found on pages 89–93. Changes in 2020 Sergio P. Ermotti, Joachim Oechslin and Deanna Ong were elected as new members to the Board of Directors by the share- holders at the Annual General Meeting, which took place in Zurich on 17 April 2020. Trevor Manuel and Eileen Rominger did not stand for re-election. The Annual General Meeting 2020 re-elected Walter B. Kielholz for a one-year term of office as a member and Chairman of the Board of Directors. Renato Fassbind (Vice Chairman and Lead Independent Director), Raymond K.F. Ch’ien, Karen Gavan, Jay Ralph, Joerg Reinhardt, Philip K. Ryan, 94 Swiss Re | Financial Report 2020 Membership on the Board of Directors requires experience in key sectors such as insurance and reinsurance, finance, accounting, capital markets, risk management and regulatory matters as well as leadership and decision-making experience in a large, complex financial institution. Further details are provided on the previous page. The mandate also demands significant commitment, integrity and intercultural communication competence. The prevalence of these qualifications and skills ensures that the Board of Directors has the relevant expertise required for active involvement and supervision of an international listed company. A Board member may not have any management or executive function within the Group. Board members’ training The Board of Directors has a unique role in the company oversight. The company therefore strives to build a strong and effective Board culture, supported by ongoing learning, which is an important component to foster Board effectiveness. Upon election new Board members undergo a comprehensive onboarding programme in order to gain a sound understanding of the Group’s organisation, business and environment. The programme encompasses the study of detailed pre-reading materials, as well as a total of 24 hours of sessions with key management functions and topic experts over a period of nine months. Additionally, the Board members update and enhance their knowledge of emerging business trends and risks through regular meetings with internal and external experts throughout the year. Board of Directors diversity In addition to the skill sets and competencies of the members of the Board of Directors, the principles of gender and age diversity, inclusion, nationality, race, ethnicity, regional representation, transparency and the avoidance of conflicts of interest play an important role in the composition of the Board of Directors. The Board of Directors proposes, based on a recommendation by the Nomination Committee, that Sergio P. Ermotti be elected as new Chairman of the Board of Directors to succeed Walter B. Kielholz. As announced by Swiss Re on 3 March 2020, Walter B. Kielholz, Chairman of the Board of Directors, will not stand for re-election at the Annual General Meeting 2021. Sergio P. Ermotti’s biography is available on page 90. The Board of Directors furthermore proposes, based on recommendations by the Nomination Committee, that Raymond K.F. Ch’ien, Renato Fassbind, Karen Gavan, Joerg Reinhardt and Jacques de Vaucleroy be re-elected as members of the Compensation Committee. In 2020 the Board members spent time further educating themselves on natural catastrophe (re)insurance risks and the impact of climate change. Additionally, one-to-one training sessions are offered at any time through the year with our top executives and experts. Term of office The members of the Board of Directors are elected for a term of office until completion of the next Annual General Meeting. Members whose term has expired are immediately eligible for re-election. First election date The initial election year of each member is stated in the table on page 88. Nominations for re-/election by the Annual General Meeting of 16 April 2021 The shareholders annually elect the members of the Board of Directors, the Chairman of the Board of Directors and the members of the Compensation Committee, individually and separately, for one-year terms, until completion of the next Annual General Meeting. The Board of Directors proposes, based on recommendations by the Nomination Committee, that each of the following Board members be re-elected for a one-year term: • Renato Fassbind • Raymond K.F. Ch’ien • Sergio P. Ermotti • Karen Gavan • Joachim Oechslin • Deanna Ong • Jay Ralph • Joerg Reinhardt • Philip K. Ryan • Sir Paul Tucker • Jacques de Vaucleroy • Susan L. Wagner • Larry Zimpleman Gender diversity 11 Male 3 Female Gender diversity Gender diversity Regional representation Regional representation 11 Male 11 Male 3 Female 3 Female 5 US/Canada 4 Switzerland 2 Europe 2 Asia 1 UK 5 US/Canada 4 Switzerland 2 Europe 2 Asia 1 UK Regional representation Swiss Re | Financial Report 2020 95 5 US/Canada 4 Switzerland 2 Europe 2 Asia 1 UK Corporate governance Board of Directors Swiss Re’s governance framework Swiss Re Ltd Shareholders Board of Directors Chairman’s and Governance Committee Nomination Committee Audit Committee Finance and Risk Committee Compensation Committee Investment Committee Group Executive Committee Swiss Reinsurance Company Ltd (Business Unit Reinsurance) Swiss Re Corporate Solutions Ltd (Business Unit Corporate Solutions) Swiss Re Life Capital Ltd (Business Unit Life Capital)* Board of Directors Board of Directors Board of Directors Audit Committee Finance and Risk Committee Audit Committee Finance and Risk Committee Audit Committee** Finance and Risk Committee** Reinsurance Executive Committee Corporate Solutions Executive Committee Life Capital Executive Committee*** * Disbandment of the BU Life Capital at the end of December 2020. For more details, please refer to page 83. ** Disbanded as of 31 December 2020. *** The members of the Life Capital EC resigned as of 1 January 2021. Organisational structure of the Board of Directors The Board of Directors constitutes itself at the first meeting following the Annual General Meeting. It is the Annual General Meeting though, which elects the Chairman and the members of the Compensation Committee. The Board of Directors elects from among its independent members a Vice Chairman and a Lead Independent Director. The same member may act in both roles. The Board of Directors also elects the chairpersons and members of the Board committees (other than the members of the Compensation Committee) as proposed by the Chairman’s and Governance Committee. The Board of Directors may remove members from any such special function at any time. The Board of Directors also appoints its secretaries, who do not need to be members of the Board of Directors. Committees of the Board of Directors As determined by the applicable Swiss Corporate Law and the Articles of Association, the Board of Directors has inalienable and non-transferable responsibilities and authorities. The Board of Directors has established Board committees that support the Board in fulfilling its duties. The Board has delegated certain responsibilities, including the preparation and execution of its resolutions, to the following six committees: • Chairman’s and Governance Committee • Nomination Committee • Audit Committee • Compensation Committee • Finance and Risk Committee • Investment Committee Each committee consists of a chairperson and at least three other members elected from among the Board of Directors. The members of the Compensation Committee are elected annually by the Annual General Meeting. The term of office of a Board committee member is one year, beginning with the appointment at the constituting Board meeting following an Annual General Meeting and ending at the Board meeting following the subsequent Annual General Meeting. For Compensation Committee members, the term of office begins with the election at the Annual General Meeting until completion of the next Annual General Meeting. Depending on the responsibility, the Board committees have decision-making powers or act in an advisory capacity. Please refer to page 98 for an overview of the key focus areas of the Board committees in 2020. The Board members’ committee memberships are reflected in their biographies, which can be found on pages 89–93. For an overview of the Board committees’ composition and responsibilities, please refer to: www.swissre.com/board-committees Working methods of the Board of Directors and its committees Convening meetings and invitation The entire Board of Directors and its committees meet at the invitation of the Chairman of the Board of Directors as often as business requires or at least quarterly. Any member of the Board of Directors or the Group EC may, for a specific reason, require the Chairman to call an extraordinary Board of Directors or committee meeting. The Chairman defines the agenda for each meeting and therefore works closely with the chairpersons of the committees and the Group CEO. 96 Swiss Re | Financial Report 2020 The agenda, along with any supporting documents, is delivered to the participants, as a rule, at least ten calendar days in advance of a meeting in order to allow enough preparation time. The Chairman may determine that a Board of Directors meeting be held on an ad hoc basis, if circumstances require. Resolutions and quorum A Board meeting has a quorum if at least the Chairman, the Vice Chairman or the Lead Independent Director and the majority of the members of the Board of Directors are present in person, by telephone or by video conference. A Board committee has a quorum if the majority of the Board committee members are present or participate by telephone or video conference. Resolutions are adopted by majority vote. In the event of a tie at Board meetings, the Chairman’s vote is decisive. In the event of a tie at Board committee meetings, the item shall be submitted to a vote by the entire Board of Directors. Board and committee meetings deal with the items on the agenda incorporating presentations by members of the Group EC and, where needed, by subject matter experts or external advisors. For every meeting of the Board of Directors, it is considered whether an executive session should be held for discussions between the Board of Directors and the Group CEO. Furthermore, private sessions are held for discussions involving all members of the Board of Directors only. The Board of Directors and its committees can also adopt resolutions by written agreement if no member of the Board of Directors requests a discussion of the motion. A decision may only be taken by circular resolution if all the members sign the circular resolution or respond to the email, respectively. A circular resolution is adopted if the majority of the total number of Board members (or Board committee members) express their agreement with the resolution. Each committee provides a report on its activities and recommendations following a committee meeting at the next Board of Directors meeting. If any significant topic arises, the committees contact the Board of Directors immediately. It is the responsibility of each committee to keep the full Board of Directors informed on a timely basis, as deemed appropriate. Allocation of tasks within the Board of Directors Chairman of the Board of Directors The Chairman of the Board of Directors leads the Board of Directors, convenes the Board and committee meetings, establishes the agendas and presides over Board meetings. The Chairman coordinates the work of the Board committees together with the respective Chairpersons and ensures that the Board is kept informed about the committees’ activities and findings. He ensures adequate reporting by the Group EC and the Group CEO to the Board of Directors and facilitates their communication with the Board. The Chairman presides over General Meetings of shareholders and represents the Group towards its shareholders, in industry associations and in the interaction with other stakeholders such as the media, political and regulatory authorities, governmental officials and the general public. Specifically, the Chairman keeps regular contact with the Group’s regulator FINMA. Minutes are kept of the discussions and resolutions taken at each meeting of the Board of Directors and its committees. The table on page 99 provides an overview of the meetings of the Board of Directors and its committees held in 2020. Self-assessment An open, transparent and critical board room culture forms the basis for the Board of Directors’ annual review of its own performance and effectiveness. The Board of Directors evaluates its work and the performance of the Chairman. It conducts the self-assessment on the basis of questionnaires, which deal with the Board’s composition, organisation and processes, the Board’s responsibilities as well as with the focus areas and goals of the year under review. The topics are discussed and take-aways defined to be incorporated in the goals for the upcoming year. In addition, each Board committee annually reviews the adequacy of its composition, organisation and processes as well as the scope of its responsibilities, assesses their accomplishments and evaluates the achievement of the goals set and its performance. Vice Chairman The Vice Chairman performs the duties of the Chairman if the Chairman is prevented from performing his duties or in a potential conflict-of-interest situation. The Vice Chairman may prepare and execute Board resolutions at the request of the Board and liaises between the Board and the Group EC in matters not reserved to the Chairman. Lead Independent Director The Vice Chairman or another member of the Board of Directors may also assume the role of Lead Independent Director. The Lead Independent Director acts as an intermediary between the Group and its shareholders and stakeholders in the absence of the Chairman or, in particular, when a senior independent member of the Board is required. He may convene and chair sessions where the Chairman is not present. He will communicate the outcome of these sessions to the Chairman. For more information on the responsibilities of the Chairman, the Vice Chairman and the Lead Independent Director, please refer to: www.swissre.com/board-lead In addition, an independent external consultant had been engaged in 2019 to assess the effectiveness of the Board through one-on-one interviews with the Board members, with a focus on priority setting, committee work, relationship of the Board with senior management and Board culture. The advisor’s report served as a basis for the self-assessment discussion of the Board at the end of the year. The findings were considered for the preparation of the self-assessment conducted in 2020. The self-assessments also form the basis for the Board’s succession planning, comprising the evaluation of the skills needed among the members of the Board of Directors and Board committees. Please refer to page 94 for an overview of the Board of Directors’ skills and competencies. Swiss Re | Financial Report 2020 97 Corporate governance Board of Directors Board committees: 2020 key focus areas Chairman’s and Governance Committee • COVID-19 crisis: Oversaw detailed COVID-19 business and operational updates with the Group EC, including emergency scenarios and increased the number of meetings of the Board of Directors and Board committees meeting frequency • Sustainability: Oversaw the enhanced Group Sustainability Strategy, including the introduction of quantitative sustainability KPIs and targets which will be embedded in the qualitative assessment for the purpose of the Group API pool funding process for 2021 • Proxy voting: Oversaw top investors’ feedback provided at the Chairman’s annual roadshow and during the AGM 2020 proxy solicitation and steered further improvements to ESG-related disclosures • Public Affairs: Led the launch of an effective global Public Affairs Strategy and organisation • Performance and self-assessments: Led the annual performance assessment and the annual self-assessment processes for the Board of Directors and the Group EC Nomination Committee • Succession planning: Steered the succession planning process for the Board members who are elected by the Annual General Meeting, including the composition of the Compensation Committee Audit Committee • P&C Reserving Process: Jointly with the Finance and Risk Committee led the review and benchmarking of Swiss Re's P&C reserving philosophy, process and governance and the implementation of the identified improvement measures • Change in reporting basis: Oversaw the set-up of the IFRS project organisation to enable Swiss Re to adopt IFRS as of 1 January 2024 and to simplify its financial reporting landscape • Transition of external audit: Oversaw audit transition procedures including independence of incoming auditor, governance model and timeline of key activities • Finance Transformation: Led the creation of the Global Finance Transformation (GFT) Programme by merging the three BU Finance Transformation projects with one core platform for the target finance landscape to ensure harmonisation and IFRS delivery • Recognition of COVID-19 impact in terms of complexity of losses, as well as successful adjustments to work policies, procedures and sign-offs Compensation Committee • Compensation Framework and Compensation Plan design: 1. Monitored the effectiveness of the Compensation Framework and its alignment with both shareholders’ interests and long-term business strategy addressing i) pay for performance principles at the business and individual level, ii) performance differentiation and iii) gender pay equity 2. Reviewed and assessed the current Compensation Framework with a focus on the 2021 incentive compensation architecture • Legal and regulatory developments: Monitored legal and regulatory developments, including continued compliance with the Ordinance against Excessive Compensation at Public Corporations • Extraordinary topic: Assessed the impact of COVID-19 on Compensation Plans and monitored developments (eg market practice, shareholder expectations) Finance and Risk Committee • COVID-19: Closely monitored the impact of COVID-19 on the business, in particular with regards to claims management, underwriting processes and operational resilience • Underwriting risk and capital management: Focused on developing tool to improve allocation of risk and capital • Social inflation: Monitored the impact of social inflation trends on the casualty business • Cyber: Continued to oversee cyber risk preparedness and improve data security Investment Committee • Investment positioning: Reviewed SAA positioning, risk usage and performance in the context of financial markets and Business Unit developments • Reviewed ESG integration in investment process and choice of benchmarks, as well as the efforts to achieve net zero carbon emissions in the investment portfolio by 2050 • Monitored operational resilience of investment activities in light of COVID-19 98 Swiss Re | Financial Report 2020 Board of Directors and Board committee meetings in 2020 Body Board of Directors Number and average duration of meetings 13 meetings2 3¾ hours Invitees in advisory capacity1, in addition to members Group EC members3, Group Company Secretary Chairman’s and Governance Committee 6 meetings 2 hours Group CEO, Group Company Secretary Nomination Committee Audit Committee Compensation Committee 4 meetings ¾ hour 10 meetings 21/2 hours 7 meetings4 2¾ hours Finance and Risk Committee 8 meetings Investment Committee 3 hours 6 meetings7 2¾ hours Chairman Board of Directors, Group Company Secretary Group CEO, Group CFO, Group CLO, Group Chief Compliance Officer, Head Group Internal Audit, Chief Accounting Officer, lead auditors of external auditor, Group Company Secretary Group CEO, Group Chief Human Resources Officer, Head Reward, advisors5 Group CEO, Group CFO, Group CRO, Group CUO, Group CIO, Group COO, Group CLO, Group Treasurer, CEO Reinsurance, CEO Corporate Solutions, CEO Life Capital6, Group Company Secretary Group CEO, Group CFO, Group CRO, Group CIO, Head Financial Risk Management, Group Treasurer, CFO Asset Management, Group Company Secretary All invitees are requested to attend all meetings (please also see next page). In addition, two decisions by circular resolution. 1 2 3 The Group EC members attend Board meetings as deemed appropriate by the Chairman and the other Board members. 4 In addition, eight decisions by circular resolution. 5 The law firm Niederer Kraft Frey Ltd (NKF) and the human resources consulting firm Mercer provided support and advice for compensation issues during the reporting year. Representatives of NKF participated in six committee meetings in 2020, representatives of Mercer in three meetings. Mercer and NKF have further mandates with Swiss Re. 6 Until August 2020. 7 In addition, one decision by circular resolution. Board of Directors and Group EC Areas of responsibility Non-transferable duties The Board of Directors has the ultimate responsibility for the success of Swiss Re Ltd and the Group within a framework of effective and prudent controls. It is responsible for the overall direction, supervision and control of Swiss Re Ltd and the Group and the Group EC as well as for supervising compliance with applicable laws, rules and regulations. Such responsibilities are non-transferable and rest with the entire Board. For an overview on the key responsibilities of the Board of Directors, please refer to www.swissre.com/board- responsibilities Delegation of management The Board of Directors has delegated the management of Swiss Re Ltd and the Group to the Group EC (see section on Executive Management, starting on page 102). Such delegated tasks are within the responsibility of the entire Group EC. The Board of Directors based the delegated responsibilities on authority levels, including monetary thresholds and limits. Attendance rates1 of Board members: Board of Directors and Board committee meetings in 2020 Body Board of Directors Chairman’s and Governance Committee Nomination Committee Audit Committee Compensation Committee Finance and Risk Committee Investment Committee Overall attendance rate Attendance rate of Board members in % 99.5 100 100 100 100 97.7 100 99.5 Individual attendance rates1 of Board members: Board of Directors and Board committee meetings in 2020 Attendance in % 100 95–99.9 90–94.9 Number of Board members 13 0 1 1 The attendance rates are calculated taking into account the duration of all meetings the Board members were required to attend. The Board members are required to attend (i) all Board meetings as well as (ii) all the meetings of the Board committees where they are a member. Swiss Re | Financial Report 2020 99 Corporate governance Board of Directors Key responsibilities of the Group EC Under the leadership of the Group CEO, the Group EC has management responsibility for matters concerning Swiss Re Ltd as a legal entity. Additionally, the Group EC has management and functional responsibility for Group matters. In particular, the Group EC focuses on (the control of) the implementation of Swiss Re Group’s Strategy, as promulgated and approved by the Board of Directors. In particular, it includes the responsibilities addressing Group Strategy, including strategic and financial targets for the Business Units; decisions on Group-wide steering and control; allocation of capital and resources to business opportunities; asset and liability management, treasury, Group funding and capital management; finance and risk management, governance, compliance, legal and regulatory affairs; human resources, talent management as well as reputational issues and branding. For further details on the Group EC’s responsibilities please refer to: www.swissre.com/management- responsibilities Board supervision of Executive Management The Board of Directors maintains effective and consistent oversight and monitors the execution of responsibilities it has delegated to the Group EC through the following control and information instruments. Participation of Board members at Executive Management meetings The Chairman is invited to all meetings of the Group EC and Business Unit Executive Committees and receives the corresponding documentation and minutes. Special investigations The Board committees are entitled to conduct or authorise special investigations at any time and at their full discretion into any matters within their respective scope of responsibilities, taking into consideration relevant peer group practice and general best practice. The committees are empowered to retain independent counsel, accountants or other experts if deemed necessary. No special investigations were conducted in the reporting year 2020. Group Performance Management Report (semi-annually) The report tracks the actual performance of the Group and the segments against pre-defined financial targets, analyses the impact of management actions and provides information on current challenges. Global Outlook for Insurance, Reinsurance and Financial Markets (quarterly) The report describes trends and provides forecasts regarding the economic environment, the property & casualty/ life & health (re)insurance markets and the financial markets. Two additional reports have been provided during the reporting year to address COVID-19 topics: The Recession update as well as the Global Outlook in times of COVID-19. Swiss Solvency Test Report (annually) The report provides the legally required update on the assessment of solvency according to the Swiss Solvency Test (SST) of the Group, Swiss Reinsurance Company Ltd, Swiss Re Corporate Solutions Ltd and Swiss Re Life Capital Reinsurance Ltd1. Swiss Re Liquidity Report (annually) The report describes the liquidity position of the Group in current and in stressed market conditions. In addition, reports are submitted to the Board committees, such as: • Regular updates on claims • Regular updates on reserving/reserve movements • Group Legal Report (quarterly) • Compliance Report (quarterly) • Group Internal Audit Report (quarterly) • Group Tax Report (annually) • Group Risk Update (quarterly) • Derivative Use Update (semi-annually) • Report on Capital, Liquidity and Treasury Activities (quarterly) • Global Regulatory Risk Report (annually) • Financial Risk Management Update (quarterly) • Own Risk and Solvency Assessment Report (ORSA) (annually) Involvement of the Group EC in meetings of the Board of Directors The Group EC members attend Board meetings as deemed appropriate by the Chairman and the other Board members. The presence of the entire Group EC was required for five Board meetings in 2020, and selected members were invited to eight further Board meetings. The Group EC members do not attend the constituent meeting of the Board of Directors following the Annual General Meeting and the Board self-assessment session. Involvement of the Group EC in Board committee meetings As a matter of principle, selected members of the Group EC as well as further senior management members participate in Board committee meetings as advisors. The attendance rate of the Group EC members at Board and Board committee meetings was 97.6% in 2020 (the attendance rate represents the total actual attendance time of all members at all meetings in the year under review, 2020, in relation to the corresponding target attendance time). A detailed summary of Group EC and further senior management participation in Board committee meetings is provided on the previous page. Periodic reports to Board of Directors and its committees The Group EC and further senior management members regularly provide the Board of Directors with different types of reports, in particular the following reports: Executive Report (quarterly) This comprehensive report gives an update on current business developments, covering the Group Functions and the Business Units, including major business transactions, claims, corporate development and key projects. US GAAP Board Report (quarterly) The report provides factual financial highlights from an accounting perspective, with a focus on historical development of the business as an informational basis before the publication of results. EVM Board Report (annually) The report provides factual financial highlights from an economic perspective, with a focus on historical value creation. 1 As of 24 November 2020, this entity was renamed to “Swiss Re Nexus Reinsurance Company Ltd.” 100 Swiss Re | Financial Report 2020 Duty to inform on extraordinary events As soon as the Group CEO or other members of the Group EC become aware of any significant extraordinary business development or event, they are obliged to inform the Board of Directors immediately. Right to obtain information The Board of Directors has complete and open access to the Group CEO and the other members of the Group EC, the Chief Compliance Officer and the Head of Group Internal Audit (GIA). Any member of the Board of Directors who wishes to have access to any other officer or employee of the Group will coordinate such access through the Chairman. The Vice Chairman and the chairpersons may approach the Group EC members as well as further key executives directly if they require information to support their respective (Board committee’s) duties. Any member of the Board of Directors may request at Board meetings to obtain information on any aspect of the Group’s business. Outside Board meetings, any member can direct a request for the provision of information and business records to the Chairman. Risk management Embedded throughout the business, the Group Risk Management function ensures an integrated approach to managing current and emerging threats. Risk Management plays a key role in the business strategy and planning process, where Swiss Re’s risk appetite framework facilitates risk/return discussions and sets boundaries to Group-wide risk-taking. The Board of Directors keeps itself abreast of key risk themes and receives the following annual reports from Group Risk Management: the Swiss Solvency Test Report, the Swiss Re Liquidity Report, the SONAR Report on emerging risks, the Sustainability Report, as well as the Own Risk and Solvency Assessment Report. In addition, Group Risk Management provides the Finance and Risk Committee with regular group risk updates from the Group CRO, semi-annual reports on derivate use, as well as annual reports on global regulatory risk. The Investment Committee receives quarterly reports on financial risk management. These reports cover compliance with the Group’s risk tolerance criteria, major changes in risk and capital adequacy measures and a description of the Group’s main risk issues, including related risk management actions. The Finance and Risk Committee regularly reports to the entire Board of Directors. For further information on Swiss Re’s Risk Management, please see the Risk and Capital Management Report on pages 50–77 (for Risk Management in particular pages 61–77). Group Internal Audit GIA is an independent assurance function, assisting the Board of Directors and Group EC to protect the assets, reputation and sustainability of the organisation. GIA assesses the adequacy and effectiveness of the Group’s internal control system and adds value by improving the Group’s operations. GIA applies a risk-based approach, performing its own risk assessment as well as making use of risk assessments performed by the Group’s Risk Management and other assurance functions (after reviewing the quality of the assurance work performed). Based on the results of the risk assessment, GIA produces an annual audit plan for review and approval by the Audit Committee. The audit plan is updated on a quarterly basis according to the Group’s evolving needs. GIA provides formal quarterly updates on its activities to the Audit Committee, which include audit results, the status of management actions required, the appropriateness of the resources and skills of GIA and any changes in the tools and methodologies it uses. The Head of GIA meets at least once per quarter with the Audit Committee and immediately reports any issue that could have a potentially material impact on the business of the Group to the Chair of the Audit Committee. GIA has unrestricted access to any of the Group’s property and employees relevant to any function under review. All employees are required to assist GIA in fulfilling its duty. GIA has no direct operational responsibility or authority over any of the activities it reviews. GIA staff govern themselves by following the Code of Ethics (Code) issued by the Institute of Internal Auditors (IIA). The IIA’s International Standards for the Professional Practice of Internal Auditing constitute the operating guidance for the department. The Code is available at: https://na.theiia.org/ special-promotion/PublicDocuments/ Code%20of%20Ethics.pdf External auditor For information regarding the external auditors, please refer to pages 110–111. Swiss Re | Financial Report 2020 101 Corporate governance Executive Management Under the leadership of the Group CEO, the Group Executive Committee is responsible for the management of Swiss Re Ltd and the Group. Members of the Group Executive Committee The Group Executive Committee (Group EC) consisted of the following 13 members as of 31 December 2020: Name Nationality Christian Mumenthaler Swiss Urs Baertschi Swiss, German Andreas Berger Anette Bronder John R. Dacey Nigel Fretwell Guido Fürer Hermann Geiger Russell Higginbotham Jonathan Isherwood German German American British Swiss German British British Thierry Léger French, Swiss Moses Ojeisekhoba Nigerian, British Patrick Raaflaub Swiss, Italian Age 51 45 54 53 60 58 57 57 53 54 54 54 55 Function Group Chief Executive Officer CEO Reinsurance Europe, Middle East and Africa (EMEA)/ Regional President EMEA CEO Corporate Solutions Group Chief Operating Officer Group Chief Financial Officer Group Chief Human Resources Officer Group Chief Investment Officer Group Chief Legal Officer CEO Reinsurance Asia/Regional President Asia CEO Reinsurance Americas/Regional President Americas Group Chief Underwriting Officer CEO Reinsurance Group Chief Risk Officer Appointed in current role July 20161 September 2019 March 2019 July 2019 April 20182 May 20133 November 2012 January 20094 July 20195 April 20206 September 20207 July 20168 September 2014 Member of the Group EC since: 1 January 2011, 2 November 2012, 3, 4 July 2019, 5 September 2018, 6 Jonathan Isherwood was appointed as Regional President Americas and a member of the Group EC with effect from 14 August 2020, 7 January 2016, 8 March 2012. The following two Group EC members stepped down during 2020: Edouard Schmid Swiss J. Eric Smith American 56 63 Chairman Swiss Re Institute & Group Chief Underwriting Officer 31 August 2020 CEO Reinsurance Americas/Regional President Americas 13 August 2020 For the biographies of former Group EC members, please refer to: www.swissre.com/formergroupecmembers Stepped down 102 Swiss Re | Financial Report 2020 Christian Mumenthaler Group Chief Executive Officer Born: 1969 Nationality: Swiss Urs Baertschi Chief Executive Officer Reinsurance EMEA/ Regional President EMEA Born: 1975 Nationality: Swiss and German Andreas Berger Chief Executive Officer Corporate Solutions Born: 1966 Nationality: German Professional experience Urs Baertschi began his career at Swiss Re Capital Partners and Securitas Capital in a variety of private equity and corporate development roles. In 2001, he joined Cutlass Capital, a private equity firm focused on the health care industry, where he was appointed a Principal in 2006. In 2008, Urs Baertschi rejoined Swiss Re as the Head of US Direct Private Equity and was appointed Head of Principal Investments and Acquisitions Americas in 2010. In this role, he was responsible for the financial and strategic direct investments as well as corporate development transactions in the Americas. In 2016 Urs Baertschi became the President of Reinsurance, Latin America, with overall responsibility for the business in the region. In September 2019, he assumed the role of Chief Executive Officer Reinsurance EMEA and Regional President EMEA and became a member of the Group Executive Committee. Educational background • Bachelor’s degree in Economics, University of Pennsylvania, USA • Bachelor’s degree in International Relations, University of Pennsylvania, USA Professional experience Christian Mumenthaler started his career in 1997 as an associate at Boston Consulting Group. He joined Swiss Re in 1999 and was responsible for key company projects. In 2002, he established and headed the Group Retro and Syndication unit. Christian Mumenthaler served as Group Chief Risk Officer between 2005 and 2007 and was Head of Life & Health between 2007 and 2010. In January 2011, he was appointed Chief Marketing Officer Reinsurance and member of the Group Executive Committee and became Chief Executive Officer Reinsurance in October 2011. In July 2016, Christian Mumenthaler was appointed Group Chief Executive Officer. Educational background • PhD in Physics, Swiss Federal Institute of Technology (ETH), Zurich, Switzerland External mandates • Chairman of Insurance Europe’s Reinsurance Advisory Board • Co-Chair of WEF Alliance of CEO Climate Leaders • Vice Chairman of the Geneva Association • Board member of economiesuisse and the Swiss American Chamber of Commerce • Member of the Pan-European Insurance Forum, the IMD Foundation Board, the Global Reinsurance Forum, the Steering Board Insurance Development Forum, the Board of Trustees of Avenir Suisse and the Board of Trustees of the St. Gallen Foundation for International Studies Professional experience Andreas Berger started his insurance career in 1995 as a leadership trainee at Gerling Group, followed by various leadership positions at Boston Consulting Group. He returned to Gerling in 2004 as Head of Commercial Business and International Programs and Affinity Business. When Allianz Global Corporate & Specialty SE (AGCS) was created in 2006, Andreas Berger became its Global Head of Market Management & Communication, where he established an overall market management function for the corporate client segment and served as AGCS spokesperson. In 2009, he was appointed AGCS Chief Executive Officer, Regional Unit London, with responsibility for UK, Ireland, South Africa, the Middle East and Benelux. In 2011 Andreas Berger joined the AGCS Board of Management as Chief Regions & Market Officer (Central & Eastern Europe, Mediterranean, Africa and Asia). In addition, he assumed responsibility for the Global Broker Channel Distribution for the Allianz Group. Andreas Berger joined Swiss Re in March 2019 as Chief Executive Officer Corporate Solutions and member of the Group Executive Committee. Educational background • Master’s degree in Law, Justus Liebig University Giessen, Germany • Master’s degree in Business Administration, Université de Paris- Dauphine (IX), France/Justus Liebig University Giessen, Germany External mandates • Member of the Executive Committee of the International Insurance Society • Honorary appointment as member of the selection committee of the Collège des Ingénieurs • Board member of the Latin American Chamber of Commerce in Switzerland (subject to election by the Annual General Meeting in 2021) Swiss Re | Financial Report 2020 103 Corporate governance Executive Management Anette Bronder Group Chief Operating Officer Born: 1967 Nationality: German John R. Dacey Group Chief Financial Officer Born: 1960 Nationality: American Nigel Fretwell Group Chief Human Resources Officer Born: 1962 Nationality: British Professional experience Anette Bronder started her career at Hewlett Packard GmbH, where she held several senior management positions, including Director Software Services for Central & Eastern Europe and Director HP Consulting Germany. In 2010, she was appointed Director of Enterprise Technology at Vodafone GmbH in Germany. In 2013, she assumed worldwide responsibility for the Enterprise Delivery and Operations division of Vodafone Group and was based in London. In 2015, Anette Bronder joined T-Systems International as Managing Director Digital Division, where she oversaw the new growth areas Internet of Things, Public Cloud and Healthcare for Deutsche Telekom worldwide. In 2017, she took on additional responsibility for Deutsche Telekom’s global Security Portfolio and Security Operations. Anette Bronder joined Swiss Re in June 2019 and was appointed Group Chief Operating Officer and a member of the Group Executive Committee effective July 2019. Educational background • Master’s degree in Economics and Professional experience John R. Dacey started his career in 1986 at the Federal Reserve Bank of New York. From 1990 to 1998, he was a consultant and subsequently Partner at McKinsey & Company. He joined Winterthur Insurance in 1998 and was its Chief Financial Officer from 2000 to 2004 as well as a member of its Group Executive Board until 2007. From 2005 to 2007, he was Chief Strategy Officer and a member of its risk and investment committees. He joined AXA in 2007 as Group Regional Chief Executive Officer and Group Vice Chairman for Asia-Pacific as well as a member of their Group Executive Committee. John R. Dacey joined Swiss Re in October 2012 and was appointed Group Chief Strategy Officer and a member of the Group Executive Committee in November 2012. He also served as Chairman Admin Re® from November 2012 to May 2015. He was appointed Group Chief Financial Officer with effect from April 2018. Educational background • Bachelor’s degree in Economics, Washington University, St. Louis, USA Social Sciences, University of Stuttgart, Germany • Master’s degree in Public Policy, Harvard University, Cambridge, USA External mandates • Member of the Board of Directors Air Liquide S.A.* External mandates • Member of the Board of Directors China Pacific Insurance Co. Ltd.* (subject to approval by the China Banking and Insurance Regulatory Commission (CBIRC)) Professional experience Nigel Fretwell started his career at Barclays PLC, where he held various management roles over 25 years. His last role was as Group Employee Relations Director, leading the development and delivery of key Group-wide People Strategy, Industrial Relations and Employment Policy initiatives. In 2005 he joined HSBC as Human Resources Director for the worldwide operations of HSBC Insurance Brokers Limited. He then served from 2008 to 2011 as Regional Head of Human Resources, Asia Pacific, and from 2009 concurrently as Global Head of Human Resources, Commercial Banking, and finally from 2011 to 2013 as Global Head of Human Resources for Retail Banking and Wealth Management, which included HSBC Insurance and HSBC Asset Management. Nigel Fretwell joined Swiss Re as Group Chief Human Resources Officer in May 2013 and was appointed as a member of the Group Executive Committee effective July 2019. Educational background • Master’s degree in Strategic Human Resource Management, Kingston University, United Kingdom • Associate of the Chartered Institute of Bankers * Listed company 104 Swiss Re | Financial Report 2020 Guido Fürer Group Chief Investment Officer Born: 1963 Nationality: Swiss Hermann Geiger Group Chief Legal Officer Born: 1963 Nationality: German Professional experience Guido Fürer commenced his career at Swiss Bank Corporation/O’Connor & Associates in 1990, where he held leading positions in option trading at its capital market division. He joined Swiss Re in 1997 as Managing Director at Swiss Re New Markets, and from 2001 to 2004 he worked for Swiss Re’s Private Equity unit. In 2004, he joined Asset Management with responsibility for tactical asset allocation prior to assuming the role of Head of Strategic Asset Allocation. Guido Fürer has led Swiss Re Group Asset Management since his appointment as Group Chief Investment Officer and a member of the Group Executive Committee in November 2012. In 2019, he additionally assumed the roles of Swiss Re Country President Switzerland and Chairman of the Swiss Re Strategic Council. Educational background • Master’s degree in Economics, University of Zurich, Switzerland • PhD in Financial Risk Management, University of Zurich, Switzerland • Executive MBA from INSEAD, Fontainebleau, France Professional experience Hermann Geiger started his professional career in 1990 as a law clerk and qualified attorney at law, working with various major law firms, specialising in financial services transactions and regulation, capital markets, corporate and litigation. In 1995, he joined GE Insurance Solutions where he served as General Counsel Europe & Asia in the insurance business of General Electric. Following the acquisition of GE Insurance Solutions by Swiss Re in 2006, Hermann Geiger joined Swiss Re as Regional General Counsel Europe. In 2009, he assumed the global position as Head Legal & Compliance and Group Chief Legal Officer. As of 1 July 2019, Hermann Geiger was appointed as a member of the Group Executive Committee. Educational background • PhD in Law, University of Constance, Germany • PhD in Economics and Political Sciences, University of the German Federal Armed Forces Munich, Germany • LL.M. (Master of Laws), University of Birmingham, United Kingdom External mandates • Member of the Board of Directors External mandates • Board member of the European General Russell Higginbotham Chief Executive Officer Reinsurance Asia/ Regional President Asia Born: 1967 Nationality: British Professional experience Russell Higginbotham started his career in 1986 at a UK life insurer and, in 1991, he joined Munich Re as a Senior marketing Analyst. Russell Higginbotham joined Swiss Re in 1994 and served in various roles in the Life & Health Reinsurance development and strategy teams. Between 2002 and 2005, he was Life & Health Country Manager for Japan and subsequently for South Korea. In 2006, he moved to Sydney and served as Chief Executive Officer of Swiss Re’s Australia and New Zealand operations. From 2010 to 2015, he assumed the role of Chief Executive Officer Reinsurance UK & Ireland, based in London, and was named Head of Life & Health Products Reinsurance in 2016. He was appointed Chief Executive Officer Reinsurance EMEA, Regional President EMEA and a member of the Group Executive Committee in September 2018. With effect from July 2019, Russell Higginbotham assumed the role of Chief Executive Officer Reinsurance Asia and Regional President Asia. Educational background • Bachelor’s degree (Hons) in Business, University of Hertfordshire, United Kingdom • Master’s degree in Business FWD Group Ltd • Member of the Board of Directors FWD Ltd • Member of the Advisory Board of the Department of Banking and Finance, University of Zurich, Switzerland • Member of the Board of Trustees of G&B Schwyzer-Winiker Stiftung Counsel Association • Advisory Board member of ARIAS Europe • Member of the Swiss-American Chamber Administration, Henley Management College, United Kingdom of Commerce’s legal committee Swiss Re | Financial Report 2020 105 Corporate governance Executive Management Jonathan Isherwood Chief Executive Officer Reinsurance Americas/Regional President Americas Born: 1966 Nationality: British Thierry Léger Group Chief Underwriting Officer Born: 1966 Nationality: French and Swiss Moses Ojeisekhoba Chief Executive Officer Reinsurance Born: 1966 Nationality: Nigerian and British Professional experience Jonathan Isherwood started his career in 1991 with Ernst & Young, and moved to GE Capital as an audit/consulting leader in 1994. In 2000, he joined GE Insurance Solutions to build the Risk Management team and thereafter led the Global Property division. In 2005, he became CEO of GE Frankona AG and Chairman of the Board of ERC Copenhagen. In addition, he had global responsibility as President of Product Strategy of GE Insurance Solutions. Following the acquisition of GE Insurance Solutions by Swiss Re in 2006, Jonathan Isherwood joined Swiss Re as Head of Product Integration. From 2007 he led the Claims, Accounting & Liability Management division, and in 2013 assumed the role of Head Globals Reinsurance. Jonathan Isherwood was appointed as Chief Executive Officer Reinsurance Americas with effect from 1 April 2020, and Regional President Americas and member of the Group Executive Committee as of 14 August 2020. Educational background • Master’s degree in Economics, Professional experience Thierry Léger started his career in the civil construction industry before joining Swiss Re as an engineering underwriter in 1997. In 2001, he moved to Swiss Re New Markets, providing non-traditional solutions to insurance clients. Between 2003 and 2005, he was a member of the executive team in France as leader of the sales team. From 2006, Thierry Léger assumed increasing responsibility for Swiss Re’s largest clients, ultimately becoming the Head of the newly created Globals Division in 2010 and a member of the then existing Group Management Board. In 2013, Thierry Léger became Head of Life & Health Products Reinsurance. As of January 2016, he was appointed Chief Executive Officer Life Capital and a member of the Group Executive Committee. With effect from 1 September 2020, Thierry Léger assumed the role of Group Chief Underwriting Officer. Educational background • Master’s degree in Civil Engineering, Swiss Federal Institute of Technology (ETH), Zurich, Switzerland Cambridge University, United Kingdom • Executive MBA, University of St. Gallen, Switzerland Professional experience Moses Ojeisekhoba started his career in insurance as a registered representative and agent of The Prudential Insurance Company of America in 1990. From 1992 to 1996, he was a Risk and Underwriting Manager at Unico American Corporation. He then joined the Chubb Group of Insurance Companies as regional Underwriting Manager and, in 1999, became Corporate Product Development Manager in New Jersey and thereafter moved to London as Strategic Marketing Manager for Chubb Europe. In 2002, he was appointed International Field Operations Officer for Chubb Personal Insurance before becoming Head Asia- Pacific in 2009, a position he remained in until he joined Swiss Re. Moses Ojeisekhoba joined Swiss Re in February 2012 and was appointed Chief Executive Officer Reinsurance Asia, Regional President Asia and a member of the Group Executive Committee in March 2012. In July 2016, Moses Ojeisekhoba was appointed as Chief Executive Officer Reinsurance. Educational background • Master’s degree in Management, London Business School, United Kingdom • Bachelor of Science in Statistics, University of Ibadan, Nigeria 106 Swiss Re | Financial Report 2020 Patrick Raaflaub Group Chief Risk Officer Born: 1965 Nationality: Swiss and Italian Professional experience Patrick Raaflaub began his career as an economist at Credit Suisse. He then was a founding member of a consulting start-up and research fellow at the University of St. Gallen. He joined Swiss Re in 1994 and was appointed Chief Financial Officer of Swiss Re Italia SpA in 1997, and then was Divisional Controller Americas Division from 2000. He worked as Head of Finance Zurich from 2003, then Regional Chief Financial Officer Europe and Asia from 2005. From 2006, he was Head of Group Capital Management, where he was responsible for capital management at Group level and global regulatory affairs. In 2008, he joined the Swiss Financial Market Supervisory Authority FINMA as Chief Executive Officer. Patrick Raaflaub returned to Swiss Re as Group Chief Risk Officer and a member of the Group Executive Committee in September 2014. Educational background • PhD in Political Science, University of St. Gallen, Switzerland External mandates • Member of the Board of Directors CSS Holding AG • Member of the Managing Board Swiss Insurance Association (SIA) Other mandates, activities and vested interests Article 26 of the Articles of Association governs the requirements regarding external mandates held by Group EC members (please see: www.swissre. com/articlesofassociation). All Group EC members comply with these requirements. Information on external mandates held by the Group EC members is provided in their biographies (pages 103–107). Management contracts Swiss Re Ltd has not entered into any management contracts with any third parties. Changes in 2020 Jonathan Isherwood, previously Head of Globals Reinsurance, was appointed CEO Reinsurance Americas with effect from 1 April 2020, and Regional President Americas and a member of the Group Executive Committee effective 14 August 2020. He succeeded J. Eric Smith, who retired on 13 August 2020. Thierry Léger, former Chief Executive Officer Life Capital, was appointed Group Chief Underwriting Officer with effect from 1 September 2020. He succeeded Edouard Schmid, who decided to step down from his role as Chairman Swiss Re Institute & Group Chief Underwriting Officer effective 31 August 2020. The Group EC consists of 13 members since 1 September 2020; prior to that, it consisted of 14 members. Key responsibilities of the Group Executive Committee members The Board of Directors has delegated the management of Swiss Re Ltd and the Group to the Group EC. Such delegated tasks are within the responsibility of the entire Group EC. The Group EC discharges its responsibilities as a joint body, except for responsibilities delegated to the Group CEO and further Group EC members. For an overview of the individual Group EC members’ key responsibilities please refer to: www.swissre.com/groupecmembers- responsibilities Swiss Re | Financial Report 2020 107 Corporate governance Shareholders’ participation rights The Annual General Meeting elects the Independent Proxy who represents shareholders’ votes. Voting right restrictions, statutory group clauses and exception rules Swiss Re Ltd does not have any voting right restrictions or statutory group clauses (other than the limitations on nominee registrations set out on page 87) in place. Therefore, there are no procedures or conditions for cancelling restrictions and no rules on making exceptions to them. Accordingly, no such exceptions were granted in 2020. Statutory rules on participating in the General Meeting of shareholders Owners, usufructuaries or nominees entered in the share register as having voting rights on a specific qualifying day determined by the Board of Directors are entitled to one vote per share held at the General Meeting of shareholders. Swiss Re Ltd’s Articles of Association allow any shareholder with voting rights to have his or her shares represented at any General Meeting of shareholders by another person authorised in writing or by the Independent Proxy. The Independent Proxy is elected by the Annual General Meeting for a term of office until completion of the next ordinary General Meeting of shareholders. Please refer to article 11 of the Articles of Association of Swiss Re Ltd for further details on the right to vote and shareholder proxies. The Articles of Association are available at: www.swissre.com/ articlesofassociation Statutory quorums The General Meeting of shareholders may pass resolutions without regard to the number of shareholders present at the meeting or shares represented by proxy. Resolutions are passed by an absolute majority of votes validly cast (excluding blank and invalid ballots), except where the law requires otherwise. The Chairman of the General Meeting of shareholders determines the voting procedure. Provided that the voting is not done electronically, voting shall take place openly based on a show of hands or by written ballot. Convocation of the General Meeting of shareholders In accordance with Swiss Re Ltd’s Articles of Association, the Board of Directors convenes the General Meeting of shareholders through a notice published in the Swiss Official Gazette of Commerce at least 20 days before the date of the meeting. The notice must state the day, time and place of the General Meeting of shareholders, along with the agenda and proposals, which will be submitted by the Board of Directors. Extraordinary General Meetings of shareholders may be called by a resolution of the General Meeting of shareholders or the Board of Directors, or by one or more shareholders with voting rights whose combined holdings represent at least 10% of the share capital. 108 Swiss Re | Financial Report 2020 Agenda The Board of Directors announces the agenda items and the proposals for the General Meeting of shareholders. Shareholders with voting rights whose combined holdings represent shares with a nominal value of at least CHF 100 000 may, no later than 45 days before the date of the meeting, request in writing that a particular item, together with the relevant proposals, be included on the agenda. Registrations in the share register Any share whose owner, usufructuary or nominee is entered in the share register as having voting rights through said share on a specific qualifying day (record date) designated by the Board of Directors entitles its holder to one vote at the General Meeting of shareholders. In 2020, Swiss Re Ltd recognised the voting rights of shares registered no later than four working days before the Annual General Meeting of shareholders. The 2020 Annual General Meeting of Swiss Re Ltd took place pursuant to the provisions of the Federal Council’s Ordinance 2 on Measures to Combat the Coronavirus (COVID-19-Ordinance-2). As a result, shareholders could not attend the Annual General Meeting in person. Shareholders were able to exercise their right to vote and to participate in elections indirectly, via representation by the Independent Proxy. Changes of control and defence measures Swiss Re Ltd’s Articles of Association contain neither an “opting out” nor an “opting up” provision. Duty to make an offer Swiss Re Ltd has not put in place any specific measures to defend against potential unfriendly takeover attempts. The Board of Directors believes that the company’s best protection is a fair valuation of its shares and that the efficiency of a free market is preferable to artificial obstacles, which can have a negative impact on the share price in the long term. Clauses on changes of control The mandates and employment contracts of the members of the Board of Directors, Group EC and further Executive Management members do not contain any provisions such as severance payments, notice periods of more than 12 months, additional pension fund contributions or the treatment of deferred compensation that would benefit them in a change of control situation. In accordance with the Financial Markets Infrastructure Act (FMIA), any party who acquires Swiss Re Ltd shares which, added to those already owned, exceed the threshold of 33⅓% of Swiss Re Ltd shares, either directly, indirectly or in concert with third parties, and regardless of whether these voting rights of such Swiss Re Ltd shares are exercisable or not, triggers a mandatory takeover offer for the outstanding Swiss Re Ltd shares owned by all other shareholders. The FMIA allows companies to include an “opting up” provision in their articles of association, which raises the mandatory takeover offer threshold up to 49%, or an “opting out” provision, which waives the mandatory offer. Swiss Re Ltd’s Articles of Association contain neither of these provisions. Unvested deferred compensation may vest and employee participation plan rules may be amended upon a change of control (if the Board of Directors so decides; see below). In such an event, the rights of members of the Board of Directors and the Group EC, as well as of further Executive Management members, are identical to those of all other employees. The Articles of Association provide that the Board of Directors (or to the extent delegated to it, the Compensation Committee) may decide on the continuation, acceleration, amendment or removal of any vesting, blocking or exercise conditions for the payment or grant of deferred compensation. The Board of Directors may also decide to replace the award with shares of the entity assuming control. For more information on the quantitative impact of vested shares, please refer to page 87 of this Corporate Governance Report under the paragraph entitled “Shares”. Swiss Re | Financial Report 2020 109 Corporate governance Auditors The AGM 2020 elected KPMG as Swiss Re’s new external auditor – effective for the financial year starting on 1 January 2021. Duration of the mandate and term of office of the lead auditors PricewaterhouseCoopers Ltd (PwC) was appointed as the external auditor of Swiss Re Ltd when the company was founded on 2 February 2011. PwC had been elected as the external auditor of the previous parent company of the Group, Swiss Reinsurance Company Ltd, at its Annual General Meeting 1991 and had been re-elected annually since then. The Annual General Meeting 2020, following the proposal of the Board of Directors, based on the recommendation by the Audit Committee, re-elected PwC as external auditor for the financial year 2020. In line with the Swiss Code of Obligations and to foster external auditor independence, each of the two group audit engagement leaders rotates out of his or her role after seven years. Roy Clark has undertaken this role since April 2018 and Jasmine Chang since July 2020. Information tools pertaining to the external audit Responsibilities The external auditor is accountable to the Audit Committee, the Board of Directors and ultimately to the shareholders. The Board of Directors reviews the external auditor’s professional qualifications and is assisted in its oversight by the Audit Committee. Cooperation and flow of information between the auditor and the Audit Committee The Audit Committee liaises closely with the external auditor. The lead auditors participate as advisors at all Audit Committee meetings. For more information, see page 99. PwC provided reports on selected topics at each of the Audit Committee meetings during the reporting year 2020: at the 30 January meeting, PwC provided the External Auditor Update, which covered the PwC Quality, Performance and 2019 Assurance Report as well as the audit- related, tax and non-audit services. At the 18 February Audit Committee meeting, it provided the Full-Year Audit Report and on 18 March, the PwC 2019 Final Board Report as well as the EVM review findings. At the meeting on 15 April, PwC provided the 2019 US GAAP and EVM control reports and the PwC Quality Assessment. At the Audit Committee meeting on 29 April, it provided the Q1 2020 PwC Report and at the 30 July meeting, the H1/Q2 2020 PwC Report. Furthermore, PwC provided the 2020 Audit Plan PwC/Fees Report at the 22 September meeting and the 9M/Q3 2020 PwC Report on 29 October. The Audit Committee reviews and approves all planned audit services and any non-audit services provided by the external auditor. It discusses the results of annual audits with the external auditor, including reports on the financial statements, necessary changes to the audit plans and critical accounting issues. The external auditor shares with the Audit Committee its findings on the adequacy of the financial reporting process and the efficacy of the internal controls. Fees paid to the auditor The fees (excluding value added taxes) for professional services provided by PwC in 2020 were as follows: USD millions Audit fees Non-audit fees Audit-related assurance services Services relating to corporate finance transactions Tax related services Other non-audit services Total fees 2019 31.0 12.3 11.0 0.3 0.3 0.7 43.3 2020 30.7 3.5 0.9 0.3 0.3 2.0 34.2 In 2020, audit related assurance services included programme and control assessments as well as assurance mandates required by Swiss Re's regulators. Services relating to corporate finance transactions contained the arrangement and administration of a financing programme, tax-related services included advice on a number of tax matters and other non-audit services covered a variety of permitted advisory services primarily related to the recently launched IFRS programme. 110 Swiss Re | Financial Report 2020 It informs the Audit Committee about any differences of opinion between the external auditor and management encountered during the audits or in connection with the preparation of the financial statements. Evaluation of the external auditor It is the Audit Committee that is responsible for recommending an audit firm to the Board of Directors for election at the Annual General Meeting. Unlike in the European Union, there is no law in Switzerland that provides for a mandatory rotation of the external auditor after a certain number of years. The Audit Committee closely monitors regulatory developments in the EU and elsewhere on this topic. In order to be able to select and recommend an audit firm for election by the shareholders and in line with good corporate governance, the Audit Committee thoroughly evaluates the credentials of the current external auditor annually based on the following main criteria: Investment in the client relationship, quality of delivery, quality of the people and services and focus on client value. The Audit Committee presents the findings of the evaluation to the entire Board of Directors. PwC has a proven record of professionalism and efficiency and fully meets the high demands made by Swiss Re as a global re/insurance Group. The Audit Committee’s assessment of the external auditor is furthermore based on the external auditor’s qualifications, independence and performance. The Audit Committee also evaluates annually the performance of the lead auditors. Qualifications At least once a year, the external auditor submits a report to the Audit Committee describing the external auditor’s own quality control procedures, including any material issues raised by its most recent internal reviews or inquiries or investigations by governmental or professional authorities within the preceding five years, as well as any steps taken to deal with any such issues. Independence At least once a year, the external auditor provides a formal written statement delineating all relationships with the company that might affect its independence. Any disclosed relationships or services that might interfere with the external auditor’s objectivity and independence are reviewed by the Audit Committee, which then recommends appropriate action to be taken by the Board. Performance This assessment measures the external auditor’s performance against a number of criteria, including: understanding of Swiss Re’s business; technical knowledge and expertise; comprehensiveness of the audit plans; quality of the working relationship with management and clarity of communication. It is compiled based on the input of key people involved in the financial reporting process and the observations of the Audit Committee members. Auditor rotation 2021 Considering that PwC has carried out the mandate as external auditor for the Swiss Re Group since 1991, the Board of Directors proposed to the shareholders at the AGM 2020 the election of KPMG as the Group’s new external auditor for the financial year starting on 1 January 2021. In September 2018, the Audit Committee had decided to launch a tender process in the first quarter of 2019 for a new external auditor of the Group. After a thorough tender process, the Board of Directors had decided, as proposed by the Audit Committee and in line with the main criteria mentioned in the chapter on the evalution of the external auditor (far left of this page), to propose KPMG to the AGM 2020 for election as the new external audit firm to replace PwC for the financial year starting on 1 January 2021. On 31 July 2019, Swiss Re publicly announced the Board of Director’s decision to nominate KPMG as the new auditor as part of the news release on the first-half 2019 US GAAP results. For the news release, please refer to: www.swissre.com/media/news-releases/ nr-20190731-hy-2019-news-release.html The AGM 2020 elected KPMG as the new external auditor for a one-year term of office for the financial year starting on 1 January 2021. Following this election, KPMG became fully independent as of 1 July 2020 and started their work. Activities included the review of PwC’s US GAAP workpapers for the 2019 audit in Switzerland and other key regions, process walkthroughs, as well as the shadowing of PwC’s 2020 audit work. In parallel, KPMG conducted audit planning sessions with key departments and stakeholders within Swiss Re and established regular updates with Swiss Re management. Despite restrictions in travel and face-to-face interactions due to COVID-19, the audit transition has proceeded according to plan and KPMG will present its 2021 audit plan to the Audit Committee during the second quarter of 2021. Audit fees The Audit Committee annually reviews the audit fees as well as any fees paid to the external auditor for non-audit services based on recommendations by the Group CFO. Special Auditor Swiss Re Ltd’s Articles of Association foresee that the Annual General Meeting may elect a Special Auditor for a term of three years which would be responsible for the special audit reports that are required by Swiss law in connection with changes in capital. Currently there is no Special Auditor elected. Swiss Re | Financial Report 2020 111 Corporate governance Information policy As a global company, Swiss Re strives to inform its stakeholders openly, consistently and in a transparent manner – beyond the minimum legal information requirements. Swiss Re maintains open lines of communication with stakeholders on matters related to its financial and business performance, strategy and business activities through analyst and media conferences and calls, road shows, news releases and corporate reports. The latter encompass the company’s Annual Report and the Half-Year Report, which are made available both in print and digitally. Additionally, Swiss Re publishes the Financial Condition Report, the Sustainability Report, solvency reports for the regulated entities and key quarterly financial information online. On the Group’s website (www.swissre.com), visitors can find a host of news and research, publications, videos and podcasts as well as discussion and analysis related to Swiss Re and the broader re/insurance industry. The financial calendar displayed below is also available online, and includes, among other things, access details for analyst conference calls as well as video recordings of annual and half-year results’ presentations and Q1/Q3 key financial figures. At www.swissre.com/media/contacts, interested parties – internal or external – can subscribe to the Media Relations mailing list to receive ad hoc disclosures and relevant corporate news via email. Contact details are provided on page 328. The Swiss Official Gazette of Commerce (Schweizerisches Handelsamtsblatt) is Swiss Re’s official medium for prescribed announcements and official information. The Chairman conducts an annual corporate governance roadshow to visit and engage in an ongoing dialogue with Swiss Re’s largest shareholders. Throughout the year, our Investor Relations team, often joined by our Executive Management, holds regular meetings with institutional investors and analysts, including roadshows, conferences and calls. In 2020, due to COVID-19, most of these interactions took place virtually. On 20 November 2020, Swiss Re held its virtual Investors' Day. Group CEO, Christian Mumenthaler, provided an update on the Group strategy, John R. Dacey, the Group CFO, on Swiss Re’s financial strength and capital management, and the Group CIO, Guido Fürer, on the Group’s asset management. Thierry Léger, the Group CUO, spoke about how underwriting excellence is key to Swiss Re’s success. Moses Ojeisekhoba and Andreas Berger, the CEOs of the Business Units Reinsurance and Corporate Solutions, then gave a strategic update on their businesses. The webcast was attended by a wide range of external participants including portfolio managers, buy-side and sell-side analysts. The presentations as well as the conference call recordings from these events are available at: www.swissre.com/investors/presentations Swiss Re strictly observes close periods around the publication of the Group’s financial results. Close periods apply through the preparation of results or key financial data, and include a cooling-off period after their release. During such close periods, Swiss Re employees and members of the Board of Directors are not allowed to trade Swiss Re shares or financial instruments related to such shares. Important dates in 2021 19 February Annual results 2020 18 March Publication of Annual Report 2020 and 2020 EVM results as well as the AGM 2021 invitation 16 April 30 April 30 July 157th Annual General Meeting Release of first quarter 2021 key financial data Half-year 2021 results 29 October Release of nine months 2021 key financial data 1 December Investors’ Day, Zurich 112 Swiss Re | Financial Report 2020 This page intentionally left blank. Swiss Re | Financial Report 2020 113 Compensation Swiss Re’s compensation  framework rewards sustainable  long-term performance and  aligns the interests of  employees and shareholders. 114 Swiss Re  |  Financial Report 2020 Contents Report from the  Compensation Committee  Compensation highlights in 2020  Compensation framework   Compensation governance   Performance outcomes 2020   Compensation disclosure  and shareholdings 2020   Report of the statutory auditor   116 118 119 128 132 138 147 Swiss Re  |  Financial Report 2020 115 Compensation Report from the Compensation Committee Jacques de Vaucleroy Chair Compensation Committee Swiss Re’s vision, we make the world   more resilient, has proven to be even more  relevant. The Compensation Committee   has worked to support this vision through  the lens of compensation.   116 Swiss Re  |  Financial Report 2020 Dear shareholders, The year 2020 has been an extraordinary  year and Swiss Re’s vision “we make   the world more resilient” has proven to   be even more relevant. The Compensation  Committee has worked to support this  vision through the lens of compensation.  Against this background, I am pleased to  present the 2020 Compensation Report,  which informs you on the compensation  outcomes and key decisions taken in 2020. Compensation Committee activities During 2020, the Compensation Committee  met seven times (including one extraordinary  meeting) and passed eight decisions   by circular resolution. The Compensation  Committee assessed the impact of  COVID-19 on compensation and closely  monitored market developments, company  and employee needs as well as shareholder  and other external stakeholder expectations.  Further, the Compensation Committee: • reviewed the compensation framework  and plan design to ensure continued fit  for purpose as well as alignment with  shareholders’ interests and long-term  business strategy: an outlook on the  changes that will come into effect as of  performance year 2021 is provided on  page 124 of this Financial Report; • reviewed the Committee’s meeting  architecture: changes were made   to its working processes, tasks and  responsibilities starting in 2021 to  ascertain ongoing effectiveness, sound  governance and focus on key topics; • monitored compensation decisions in  view of pay for performance, pay equity,  shareholder alignment and long-term  business strategy; and • monitored legal and regulatory  developments and confirmed compliance. Compensation framework changes for performance year 2020 While Swiss Re’s compensation framework  remained stable overall, an additional  performance metric for the Leadership  Performance Plan (LPP) came into effect for  the first time in 2020 as a consequence of   a decision taken by the Group in 2019: as of  2020 grants, absolute economic net worth  growth complements the already existing  metrics return on equity (ROE) and relative  total shareholder return. This strengthens  the focus on growth in terms of operating  value as an incentive driver. Further details  on the LPP 2020 plan design are provided  on pages 123–124 of this Financial Report. Group business performance 2020 Key factors for annual compensation  decisions covered a combination of US  GAAP and Economic Value Management  (EVM) based business results, qualitative  factors and Swiss Re’s pay-for-performance  approach. Compensation decisions were  made considering Swiss Re’s overall  performance for the reporting year in which  the Group’s US GAAP and economic  performance was significantly impacted   by the COVID-19 pandemic. However, excluding COVID-19-related  losses, the Group’s business performance  was strong with an ROE of 7.3% and net  income of USD 2.2 billion. Property &  Casualty Reinsurance delivered significant  new business generation with 8% higher  premiums earned, supported by price  increases. The normalised combined ratio  was in line with the estimate of 97%  provided at the beginning of 2020.  Life & Health Reinsurance’s performance,  excluding COVID-19 losses, was solid with  an ROE within the target range of 10–12%.  This was supported by a strong investment  result and enabled a positive contribution   to the Group’s net result, despite COVID-19- related losses. Corporate Solutions’  turnaround is ahead of plan; results excluding  COVID-19-related losses reflect the benefits  of portfolio repositioning, rate increases  achieved for new business and lower large  man-made losses compared to 2019.   Life Capital continued to invest into the  growth of the open books business and  achieved a strategic milestone with the   sale of ReAssure.  Pay for performance 2020 As a leading re/insurance provider,  Swiss Re is a shock absorber for society   and aims to improve the world’s resilience  to systemic risk. The Group’s compensation  framework is designed accordingly and  tailored to the long-tail business environment  of the re/insurance industry. As such,  Swiss Re aims for positive but not excessive  variable compensation payouts in relatively  benign environments while making lower  but proportionate payouts in adverse  environments. For 2020, the Group Annual Performance  Incentive (API) pool is significantly below  target as a consequence of negative  financial results while at the same time  having performed above target across all six  qualitative assessment dimensions. Upon  careful consideration, the Board of Directors  has applied a degree of discretion and  made a limited upward adjustment to the  Group API pool. This decision took into  consideration that the Swiss Re Group  successfully navigated through the  COVID-19 pandemic and that the financial  results would have been well above the  prior year’s result when excluding the  COVID-19 impact. Further, business  continued as normal with all processes  running timely and without disruptions,  employees showed great personal resilience  and demonstrated extraordinary efforts,  and no salary cuts, furloughs nor layoffs or  government support were needed due   to COVID-19. No in-flight changes to awards, metrics or  targets nor additional incentive awards   have been made to mitigate the impact of  COVID-19. As the 2020 LPP grants were  determined based on a share price of  CHF 104.20 on 21 February 2020   (ie largely unimpacted by any COVID-19- related stock market developments), the  Compensation Committee concluded that  no windfall gains will occur. Details on the  2020 performance outcomes are provided  on pages 132–137, and information on  compensation disclosure and shareholdings  for 2020 is detailed on pages 138–145 of  this Financial Report. Shareholder engagement and Annual General Meeting The Compensation Committee proactively  considers shareholders’ expectations on  Swiss Re’s compensation framework and  decisions. Shareholder support at the   AGM 2020 for Swiss Re’s compensation  framework remained strong. Swiss Re’s  shareholders approved all compensation- related motions and the 2019  Compensation Report received a positive  outcome in the consultative vote. The Group recognised opportunities to  further develop its disclosure practice   and a number of changes are incorporated  into this Compensation Report, including  further transparency on Swiss Re’s process  for determining the Group API pool and on   the use of and rationale for discretion as  part of this process. Shareholders   valued Swiss Re’s deep commitment to  sustainability/environment, social and  governance (ESG) matters, diversity and  inclusion. Additional details on how this  commitment is reflected in the compensation  framework are also included in this  Compensation Report. Consistent with last year and in line with  Swiss Re Ltd’s Articles of Association,  shareholders will again be asked to approve  the following amounts at the AGM 2021: • Maximum aggregate amount of  compensation for the members of the  Board of Directors for the term of office  from the AGM 2021 to the AGM 2022. • Maximum aggregate amount of fixed  compensation and variable long-term  compensation for the members of the  Group EC for the financial year 2022. • Aggregate amount of variable short-term  compensation for the members of the  Group EC for the financial year 2020. Shareholders will also be asked to support  this Compensation Report in a consultative  vote. The Compensation Committee is  satisfied that this Compensation Report  complies with applicable laws, rules   and regulations. Zurich, 18 March 2021  Jacques de Vaucleroy  Chair Compensation Committee Swiss Re  |  Financial Report 2020 117   Compensation Compensation highlights in 2020 Pay for performance The Compensation Committee ensures that Group EC compensation is linked to the business performance of Swiss Re by delivering a substantial portion of compensation in the form of performance- related incentives. The Compensation Committee monitors how compensation is aligned with specific business metrics, including US GAAP net income and EVM profit. All employees Group EC Group CEO 78% Base salary 17% Cash API1 2% VAI1 3% LPP1 31% Base salary 20% Cash API1 17% VAI1 32% LPP1 26% Base salary 20% Cash API1 20% VAI1 34% LPP1 1 Variable/performance-related, whereby VAI and LPP are deferred Alle Mitarbeitenden USD millions (unless otherwise stated) US GAAP net income EVM profit Regular dividend payments (CHF)1 Financial Strength Rating (Standard & Poor’s) Total equity Regular staff worldwide Aggregate compensation for all employees (CHF millions)2, 3 Group EC members4 78% Grundsalär Aggregate Group EC compensation 17% Bar-API1 (CHF thousands)2, 4 2% VAI1 3% LPP1 2018 Mitglieder der Geschäftsleitung 421 –693 5.60 2019 727 –19 5.90 change 73% – 5% 2020 Group CEO –878 –3 590 5.90 AA– 28 727 14 943 AA– 31 037 15 401 2 001 14 31% Grundsalär 20% Bar-API1 44 253 17% VAI1 32% LPP1 2 086 16 47 002 8% 4% 6% AA– 27 258 13 189 1 937 15 26% Grundsalär 20% Bar-API1 20% VAI1 34% LPP1 45 043 change – – – –12% –7% –4% 1 Dividend payments are made in April of the following year. For 2020, an ordinary dividend of CHF 5.90 is proposed to the AGM 2021. 1 Variabel/leistungsabhängig, wobei VAI und LPP aufgeschoben sind. 2 Disclosure includes all awards for a reporting year, ie the 2020 aggregated compensation values include the fair value of the Leadership Performance Plan (LPP) granted in April 2020. The total Annual Performance Incentive (API) for 2020 for members of the Group EC is subject to approval by the shareholders at the AGM 2021. For individuals who left the Group EC during or before the reporting period, disclosure also includes legally or contractually required payments for the period when the individual was no longer in a Group EC position (eg base salary when on garden leave). 3 2018 and 2019 figures for aggregate compensation for all employees restated to conform to 2020 presentation. 4 Including the Group CEO as well as individuals holding a Group EC position at one point during a reporting year. In 2020, 15 individuals held a Group EC position at one point in 2020 (16 in 2019), of whom 12 were active on the Group EC for the full year (nine in 2019). Attribution of group income to key stakeholders USD millions (unless otherwise stated) Income before tax and variable compensation Variable compensation Income tax expense US GAAP net income attributable to shareholders of which paid out as dividend2 of which share buyback of which added to retained earnings within shareholders’ equity % 2018 2019 863 100% 1 215 3481 43% 373 140 8% 69 % 100% 29% 12% 2020 –797 347 –266 % 100% – – 421 1 659 1 020 727 192% 1 766 118% 1 010 –878 145% 1 925 – 83% –2 258 – –2 049 – –2 803 – – – 1 Restated to reflect final approved figure. 2 FY 2020 is estimated based on the average monthly CHF/USD FX rate as of January 2021. The dividend is subject to AGM approval and the amount depends on the final number of dividend eligible shares and FX rates upon dividend payout. 118 Swiss Re | Financial Report 2020Compensation  framework Guiding principles Swiss Re’s compensation framework   is designed to add to the success of the  business by: • Supporting a culture of sustainable   high performance with a focus on  risk-adjusted financial results. • Ensuring alignment of compensation to  long-term business results and individual  contribution, and recognising both what  was achieved and how it was achieved. • Supporting Swiss Re’s commitment to  attract, motivate and retain the qualified  talent the Group needs to succeed globally. • Aligning the interests of employees with  those of Swiss Re’s shareholders and  society at large. • Fostering compliance, supporting  appropriate and controlled risk-taking in  line with Swiss Re’s business and risk  strategy, and avoiding conflict of interest. Swiss Re’s total compensation is well  balanced in terms of fixed versus variable  compensation and short-term versus  long-term incentives. This encourages  sustainable long-term performance and  supports shareholder alignment.  Complemented by pension plans and  benefits, the total reward package is  competitive in local labour markets. As a leading re/insurance provider, Swiss Re  is a shock absorber for society and aims to  improve the world’s resilience to systemic  risk. Volatility is inherent in the nature of  Swiss Re’s business and to ensure that the  right decisions are taken for the company,  shareholders, clients and communities,  Swiss Re continues to underwrite risks even  when the circumstances are challenging.  To incentivise employees to do the right  thing for these stakeholders, it is important  that we smooth this volatility within the  Group’s compensation framework. This is  designed and tailored to reflect the nature  of the business. Consequently, volatility in  incentive plans, and in particular our Annual  Performance Incentive (API), requires some  limitations. This safeguards that awards   are capped in years without large events  when positive performance outcomes are  not entirely in the hands of the company   or employees. At the same time, in eventful  years where Swiss Re’s employees duly  perform according to the nature of the  business, the downside needs to be  proportionate (see page 121 of this  Financial Report for details on the Group  API pool funding process).  Compensation Policy Building on the overarching compensation  principles included in Swiss Re Ltd‘s  Articles of Association, the compensation  framework is captured within the Swiss Re  Group Compensation Policy (Compensation  Policy). The Compensation Policy is  implemented globally to the extent possible.  Variations may apply at the regional and  Business Unit level to accommodate specific  requirements, eg talent management and  compliance with local regulations. The Compensation Policy governs the  compensation structure and processes   and is regularly reviewed: • The Human Resources function conducts   a regular self-assessment and assesses  the Compensation Policy against FINMA  requirements and other relevant  regulations as appropriate. • The Compensation Committee reviews  the self-assessment and reports on the  effectiveness of the compensation  decisions, and identifies potential areas  for improvement. • The Risk Management function annually  reviews risks related to the Compensation  Policy and reports its findings to the  Compensation Committee.  Any use of personal hedging strategies or  remuneration and liability-related insurance  that could undermine the risk alignment  effects and economic exposure embedded  in compensation arrangements   is prohibited. The Board of Directors has approved an  authority matrix that defines the limits to  which each level of management can  authorise compensation payments. The  Group CEO, the Compensation Committee  or the Board of Directors, as applicable,  approves all compensation that exceeds the  preset limits. The Group CEO is not involved  in decision-making concerning his own  compensation. Diversity, Equity & Inclusion Swiss Re is committed to ensuring equal  pay for equal work regardless of gender,  race, ethnicity, sexual orientation or other  personal characteristics and has a non- discriminatory approach to determining  compensation and benefits at all levels.  This approach includes, for example, having  compensation ranges defined by job family  or specialisation in the local market and  strict governance around compensation  decision-making and approvals. Every year,   individual salaries and target incentives are  reviewed to ensure and maintain internal  pay equity and pay for performance. For  large locations, regular statistical analysis   is carried out in collaboration with external  consultants to identify and address any  potential risks of bias in compensation  setting. In addition to equal pay analysis  through a gender lens, in countries where  the data is available, Swiss Re also  conducts equal pay analysis through an  ethnicity lens.   Swiss Re  |  Financial Report 2020 119 Compensation Compensation framework Overview of key compensation and benefits components for Group EC members and other employees Fixed compensation Variable compensation Base salary All employees All employees Benefits Attract and  retain Risk protection, market  competitiveness,  connection to   Swiss Re values (short-term) Cash API All employees (long-term) VAI (deferral from the API) LPP Employees with an API at or above USD 100 000 Group EC members and  other key employees  Pay for performance Pay for sustained   performance Alignment with future   performance and  shareholders Alignment  with  shareholders Participation plan (long-term) GSPP All employees Role and   experience Cash   (immediate) Market practice Pension, insurances,  cash Business and  individual performance Cash  3 years Business performance 3 years 5 years for Group EC  members and other key  executives* (including a  2-year holding period);   3 years for remaining  participants Business performance Cash (deferred) Shares Shares Business and   individual   performance 1 year Measurement of the   economic impact of   profit/loss from previous  years’ business 3 years Return on Equity (ROE) Economic Net Worth  (ENW) growth Relative TSR (rTSR) 3 years 0 to 2 × TAPI  (on total API granted)** 50% to 150% of deferred  API Eligibility Purpose Plan duration Drivers Settlement Performance KPIs Performance period Payout range Share price impact Forfeiture rules Clawback rules No No No No In certain plans No Yes Yes No Yes Yes *  Certain members of Business Unit Executive Committees (BU ECs) and all Group Managing Directors (GMDs). **     For Group EC members, the API payout range is additionally capped at 3 × annual base salary. PSUs (ROE, ENW  growth): 0% to 100% PSUs (rTSR): 0% to 200% Yes Yes Yes Yes Yes   (on match) Yes (on match) Swiss Re aims for total compensation that is competitive in the market. Swiss Re also seeks to ensure that total compensation is well balanced in terms of fixed versus variable compensation and in terms of short- term versus long-term incentives. Base salary Base salary is the fixed compensation paid to employees for carrying out their role and   is established based on the following factors: • Scope and responsibilities of the role, and qualifications required to perform the role. • Market value of the role in the location in which Swiss Re competes for talent.  • Skills and expertise of the individual in the role. Benefits Swiss Re aims to provide a competitive package of employee benefits. Benefits are  designed and implemented under a global framework, while appropriately reflecting  differing local employment market conditions. The key objectives of Swiss Re’s benefits packages are to: • Be competitive in the markets where Swiss Re competes for talent. • Provide a degree of financial resilience for employees as it relates to pension,   health matters, disability and death. • Connect with Swiss Re values and enhance engagement.  Additionally, forfeiture provisions apply in certain benefit plans. 120 Swiss Re  |  Financial Report 2020 Annual Performance Incentive Purpose The Annual Performance Incentive (API) is   a performance-based, variable component  of compensation. Combined with the base  salary, it provides competitive total cash  compensation for achievements against both  business and individual performance targets  and demonstration of desired behaviours. Structure Swiss Re operates a Target API (TAPI) system  along with a performance management  framework for all employees, whereby  results-oriented and behaviour-related  performance criteria are equally weighted.  A TAPI is set based on multiple factors, but  primarily on the role being performed, internal  calibration and market benchmarks. The  employee’s total compensation and pay mix  are taken into account when setting the TAPI. The possible payout for the API ranges from  0 to 2 × TAPI. For Group EC members an  additional cap applies, which is 3 × annual  base salary. For details on the TAPI for the  Group CEO, the aggregate TAPIs of Group EC  members and API outcomes, please refer to  pages 140–141 of this Financial Report. Funding Swiss Re uses a three-step process to  assess business performance for the  purposes of determining the overall   Group API pool.  The starting point is the Group TAPI Pool, in  principle derived in a bottom-up approach  from the individual TAPIs (pro rata where  needed) for all eligible employees.  Group API pool funding process The assessment process (as shown in   the chart below) comprises a financial, a  qualitative and an overall assessment.  The financial assessment covers four equally  weighted Key Performance Indicators (KPIs)  as approved by the Compensation  Committee of the Board of Directors, for  which targets are defined on an annual basis:  Return on Equity (ROE), net operating margin,  Economic Value Management (EVM) profit  (% of Economic Net Worth/ENW) and ENW  growth per share measured for both the  Group and each Business Unit individually.  Also, multi-year comparisons and an  assessment of the quality of earnings   are considered. The qualitative assessment is based on six  dimensions, which are assessed for the  Group as well as for each Business Unit/ Group Function: client and service quality,  risk and control behaviour, franchise building,  human capital and talent management,  strategic initiatives, and sustainability/ environmental, social and governance (ESG)  considerations. Within the six dimensions,  Swiss Re considers a number of measures  including, for example, client satisfaction,  employee engagement survey results, risk  management and diversity & inclusion KPIs. The financial and qualitative assessment  each result in a performance factor (Financial  Performance Factor/FPF and Qualitative  Performance Factor/QPF). The FPF is  floored at 0.7 and capped at 1.3, while the  QPF is floored at 0.8 and capped at 1.2.   The caps and floors in FPF and QPF serve   to avoid excessive upward or downward  volatility in the Group API Pool and build  upon the guiding principles of Swiss Re’s  compensation framework (see page 119 of  this Financial Report). As such, they are  reflective of the long-tail nature of Swiss Re’s  business and support the Group’s  longstanding practice of making positive but  not excessive variable compensation payouts  in relatively benign environments while  making lower but proportionate payouts in  adverse environments. The FPF and QPF are multiplied and the result  can then be adjusted upward or downward  based on the overall assessment. In this step,  the result of the financial and qualitative  assessment is reviewed considering a  number of different perspectives, including  pay for performance linkage, reasonableness  in the market context, affordability and  proportionality of value-sharing among  employees and shareholders. Combined, the  three assessment steps allow for determining  a Group Business Performance Factor   (Group BPF) based on the following formula:  Group BPF = (FPF × QPF) +/– Assessment           Overall         Result The Group API Pool is subsequently  determined by multiplying the Group TAPI  Pool with the Group BPF.  As part of the process, the Compensation  Committee can apply discretion to make   an upward or downward adjustment   to the Group BPF and Group API Pool  recommended for approval to the Board of  Directors. For information on the calculation  of the 2020 BPF and the discretion applied   in 2020, please refer to page 134 of this  Financial Report.  Step 1 Financial assessment Step 2 Qualitative assessment Step 3 Overall assessment Group Target API Pool Six dimensions: 1.   Client and service  quality 2.   Risk and control   behaviour 3.  Franchise building 4.   Human capital and   talent management 5.  Strategic initiatives 6.  Sustainability/ESG × + – Four equally weighted  KPIs: 1.  ROE 2.  Net operating margin 3.   EVM profit   (% of ENW) 4.   ENW growth per   share Includes assessment   of the financial  performance versus  targets, a multi-year  view and review of the  quality of earnings that  then impacts the overall  assessment. Series of overarching  tests including pay for  performance linkage,  assessment of market  competitiveness and  affordability checks. Overall Group assessment and proposal from management to the Compensation Committee. Approved Group API Pool = The Compensation Committee reviews, may request adjustment to any of the steps and recommends the final pool for approval to the full Board of Directors. Results in Financial Performance Factor floored at 0.7 and capped at 1.3 Results in Qualitative Performance Factor floored at 0.8 and capped at 1.2 Allows for discretionary upward or downward adjustment based on all information available Based on Steps 1, 2 and 3, results in Group Business Performance Factor Swiss Re  |  Financial Report 2020 121                                                     Compensation Compensation framework Allocation The approved Group API pool is further split  in pools for the Group EC, other senior  executives, and for different Business Units/ Group Functions. This allocation is  determined by the Group CEO based on   the assessment of financial and qualitative  performance of the respective Business  Unit/Group Function. The API for each individual employee is  determined considering their TAPI, business  and individual performance. Individual  performance is assessed against the  individual’s established goals and  Swiss Re’s behaviour expectations and  corporate values. Settlement API is settled in cash. When the total API  level for an employee exceeds a pre-defined  amount, a portion is deferred into the Value  Alignment Incentive (VAI) and remains  subject to performance conditions over the  VAI plan duration of three years. The  non-deferred portion is settled in immediate  cash (cash API).  Forfeiture of unsettled awards and  clawback provisions for settled awards  apply in a range of events, enabling  Swiss Re to seek repayment where  appropriate. Examples of such events   are acts which can be considered as  malfeasance, fraud or misconduct. Value Alignment Incentive Value Alignment Incentive Purpose When the total API level for an employee  exceeds a pre-defined amount, a portion of  the API is mandatorily deferred into the VAI.  The VAI thereby introduces a time  component to the performance-based,  variable compensation. This supports the  Group’s business model by aligning a  portion of variable compensation with  sustainable long-term results. The aim is   to ensure that the ultimate value of the  deferred variable compensation is affected  by the longer-term performance of the  relevant Business Unit and the Group. Plan duration The VAI reflects a longer-term perspective  by linking awards to performance over a  three-year period. Performance measurement The performance measurement calculation  uses the three-year average of the  published EVM previous years’ business  profit margin.  EVM is Swiss Re’s proprietary integrated  economic valuation and steering framework,  consistently measuring performance   across all businesses (please refer to the  EVM section on pages 34–47 of this  Financial Report). EVM previous years’ business profit  measures the economic performance of  existing contracts in comparison to the  valuation assumptions set in the past; ie  under-reserving (over-reserving) in the past  leads to a negative (positive) EVM previous  years’ business performance when reserves  are adjusted in the current year. The  performance factor is a linear function,  whereby payout ranges from 50% to 150%. Portion of API that is deferred Group CEO Other Group EC members Other key executives All other employees Deferral into VAI 50% of API 45% of API 40% of API 50% of the API amount exceeding USD 100 000 with a  minimum deferral amount of USD 5 000 at   USD 100 000 and up to a maximum of 40% of API VAI award Measurement of the economic impact of profit/loss  from previous years’ business, over three years Total API  Cash API payment VAI vesting and payout 150% 100% 50% Payout  between  50% and  150% of  award 2021 2022 2023 2024 2029 Performance period/forfeiture conditions Clawback conditions 122 Swiss Re  |  Financial Report 2020     Structure The higher the API granted, the greater the  amount of compensation that remains at  risk through deferral into the VAI, as shown  on the previous page. Funding The VAI is not funded as a separate pool.  The Group API pool includes amounts paid  in cash and amounts to be deferred into   the VAI. Leadership Performance Plan Purpose The purpose of the Leadership Performance  Plan (LPP) is to provide an incentive for  Swiss Re’s senior management (including  the members of the Group EC) to achieve  sustainable company performance over   the long term. The LPP is a forward-looking  instrument awarded to incentivise decision- making that is also in the shareholders’  interest. Settlement At the end of the deferral period, the VAI   is settled in cash. For the full three-year  performance measurement period,  forfeiture conditions apply.  Additionally, clawback provisions apply in a  range of events as defined in the VAI plan  rules (please refer to page 125 of this  Financial Report for details on termination  and clawback provisions). For VAI performance outcomes over past  years, please refer to page 135 of this  Financial Report. The design of the LPP aims to: • Focus participants’ energies on earnings,  capital efficiency and Swiss Re’s position  against peers, all of which are critical to  sustain shareholder value creation. • Focus participants on long-term goals. • Attract and retain individuals with  exceptional skill. • Provide competitive compensation that  rewards long-term performance. LPP 2020 changes The LPP has been in operation for more  than eight years, supports Swiss Re’s strong  pay for performance culture and is aligned  to market practice. During 2019, the LPP  KPIs were reviewed to ensure that the  defined purpose as outlined above can   be fulfilled. As a result of the review, a third metric,  absolute economic net worth (ENW)  growth, was added to complement the  already existing metrics return on equity  (ROE) and relative total shareholder return  (rTSR). Absolute ENW growth measures the  generation of new business, links capital  generation, regulatory capital and dividend  capacity, and neutralises the impact of  share buy-backs. Outstanding awards (grants prior to 2020)  have not been affected by this change. Grant The amounts disclosed under LPP in the  section “Compensation disclosure and  shareholdings 2020” reflect the grants  made in April 2020. The LPP 2020   will be measured over the period from  1 January 2020 to 31 December 2022 and  vests in 2023. Grant levels are determined  based on multiple factors including the role  being performed and market benchmarks. The individual grant level for each member  of the Group EC is based on a stable grant  amount which in any year cannot exceed  1.5 × annual base salary for each member   of the Group EC, excluding the Group CEO,  and 2 × annual base salary for the Group CEO. Leadership Performance Plan ROE Performance  Share Units   (1/3) Performance condition:  ROE, annually measured,   vesting after three years Total LPP award ENW Performance  Share Units  (1/3) Performance condition: absolute  ENW growth, annually measured,  vesting after three years rTSR Performance  Share Units  (1/3) Performance condition:   rTSR, measured over three years,  vesting after three years s r a e y e e r h t r e t f a g n i t s e V 100% 0% 100% 0% 200% 0% i r o f d o i r e p g n d o h r a e y - o w l t l a n o i t i d d A s e v i t u c e x e y e k r e h t o d n a C E p u o r G 2020 2021 2022 2023 2024‒2025 2028 Performance period/forfeiture conditions Clawback conditions Swiss Re  |  Financial Report 2020 123                     Risk-free rate* Risk-free rate* + 700 basis points ROE Risikofreier Risikofreier Zinssatz* Zinssatz* + 700 Basispunkte ROE r o t c a f g n i t s e V 100% 75% 50% 25% 0% r o t c a f g n i t s e V 200% 150% 100% 50% 0% 50th percentile 75th percentile PSU vesting curve: ENW rTSR r o t c a f g n i t s e V 100% 75% 50% 25% 0% 0% 10% absolute ENW growth 100% 75% 50% Performance Share Units: rTSR The third PSU performance condition is  r o rTSR measured over three years. The PSUs  t c a vest within a range of 0% to 200%. Vesting  f g starts at the 50th percentile of TSR relative  n i t s to peers with 50% vesting and is capped   e V at the 75th percentile relative to peers with  200%** vesting. In case of a negative   Risk-free rate* + TSR over three years, the Compensation  700 basis points Committee retains the discretion to   trigger vesting at a lower level of TSR. Risk-free rate* 25% ROE 0% PSU vesting curve: rTSR r o t c a f g n i t s e V 200% 150% 100% 50% 0% 100% 50th percentile 75th percentile 75% rTSR r o t k a F - g n i t s e 100% V 50% Risikofreier Zinssatz* + 700 Basispunkte 0% ROE 25% 25% 75% 50% Swiss Re’s three-year TSR performance   is assessed relative to the TSR of the  pre-defined peer group for the same period.  r o This peer group consists of companies   t c a Risikofreier that are similar in scale and have a global  f g Zinssatz* n footprint or a similar business mix to  i t s Swiss Re. The peer group, which is set at  e V the beginning of the plan period, includes  Allianz SE, American International Group  Inc, Aviva PLC, AXA SA, Chubb Limited,  Everest Re Group Ltd, Hannover Rueck SE,  MetLife Inc, Muenchener Rueckversiche- rungs-Gesellschaft AG, Prudential PLC,  QBE Insurance Group Ltd, Reinsurance  Group of America Inc, RenaissanceRe  Holdings Ltd, SCOR SE and Zurich  Insurance Group Ltd. absolute ENW growth r o t k a F - g n i t s e V 200% 100% 150% 50% 10% 0% 0% 0% 50. Perzentil 75. Perzentil rTSR Compensation Compensation framework Plan duration The vesting period, during which  performance is measured, is three years.  For LPP awards granted to Group EC  members and other key executives, the  duration of the LPP is five years, comprising  a three-year vesting and performance  measurement period and an additional  two-year holding period. Structure At the grant date, the award amount is split  equally into three underlying Performance  Share Unit (PSU) components. A valuation  by a third party is used to determine the  number of PSUs granted. Performance Share Units: ROE The performance condition for the first PSU  component is ROE with a linear vesting line.  Vesting is at 0% for an ROE at the risk-free  rate* and at 100% for an ROE at a pre- defined premium above the risk-free rate.  The premium is set at the beginning of the  plan period. To align with external financial  targets, the premium for the LPP 2020 has  been set at 700 basis points above the  risk-free rate. At the end of each year, the  performance against the ROE condition is  assessed and one third of the PSUs are  locked in within a range of 0% to 100%.  Vesting occurs only at the end of the full  three-year plan period (capped at 100%**). PSU vesting curve: ROE r o t c a f g n i t s e V 100% 75% 50% 25% 0% Risk-free rate* Risk-free rate* + 700 basis points ROE 150% 200% r o t c a f g n i t s e V Performance Share Units: ENW The performance condition for the second  PSU component is the growth of absolute  ENW (the difference between the market- consistent value of assets and liabilities).  Vesting is at 0% for an ENW growth of 0%  and at 100% for an ENW growth of 10%. At  the end of each year, the performance on  absolute ENW growth is assessed and one  third of the PSUs are locked in within a  range of 0% to 100%. Vesting occurs only  50th at the end of the full three-year plan period  percentile (capped at 100%**).  75th percentile 100% 50% 0% rTSR r o t k a F - g n i t s e V 100% 75% 50% 25% 0% r o t k a F - g n i t s e V 200% 150% 100% 50% 0% 50. Perzentil 75. Perzentil rTSR r o t k a F - g n i t s e V 50% Funding The LPP pool granted each year is reviewed  in the context of sustainable business  performance and affordability, and funded  as part of the Group’s total variable  compensation pool. 100% 75% 25% Settlement At the end of the three-year measurement  period, PSUs will be settled in shares,  unless there are legal or regulatory  0% restrictions.  absolutes ENW-Wachstum 0% 10% 100% Forfeiture and clawback provisions apply   in a range of events as defined in the LPP  plan rules (please see page 125 of this  Financial Report for termination and  clawback provisions in long-term plans). 75% 50% r o t k a F - g n i t s e V 25% Swiss Re also makes it possible for   all LPP participants to have shares sold or  automatically settled on a net basis as  Risikofreier Risikofreier Zinssatz* applicable, to cover statutory tax and social  Zinssatz* + 700 Basispunkte security liabilities that may arise at vesting.  0% ROE For LPP performance outcomes over past  years, please refer to page 136. 150% 200% Outlook for 2021 During 2020, a thorough review of   Swiss Re’s compensation framework was  undertaken to ensure the Plan’s continued  effectiveness and pay-for-performance  alignment. As a result, the LPP will be  renamed to Leadership Share Plan (LSP). r o t k a F - g n i t s e V 100% 50% 0% As a consequence of this change to the  global plan, the following key changes  apply to grants as of 2021: • The vesting factors for all performance  50. Perzentil 75. Perzentil rTSR conditions will be harmonised  (0% to 150% for ENW, ROE and rTSR  PSUs). 100% 75% • In case of negative absolute TSR, vesting  will be capped at maximum 100% even if  Swiss Re meets or exceeds the rTSR peer  50% group performance.   25% r o t k a F - g n i t s e V 0% 0% No other material changes have been made  to plan duration, structure and settlement  10% for Group EC members compared to the  absolutes ENW-Wachstum LPP and the above-mentioned changes  apply to all participants that are granted  PSUs under the LSP. Current unvested LPP  awards (grants prior to 2021) are  unaffected by this change.  More details on the LSP will be included in  the 2021 Compensation Report. *  The annual risk-free rate is determined as the average of 12 monthly rates for ten-year US Treasury bonds of the corresponding performance year. **   Maximum vesting percentage refers to the maximum number of granted PSUs that can vest.   Swiss Re  |  Financial Report 2020 124 r o t c a f g n i t s e V 100% 75% 50% 25% 0% r o t k a F - g n i t s e V 100% 75% 50% 25% 0% 0% 10% absolute ENW growth 0% 10% absolutes ENW-Wachstum Global Share Participation Plan Swiss Re offers its employees an  opportunity to directly participate in the  long-term success of the Group by  purchasing shares (for up to a maximum of  CHF 7 000 per year of a plan cycle and  capped at 10% of base salary), through the  Global Share Participation Plan (GSPP).  Swiss Re provides a 30% match on the  number of shares held by employees at the  end of the three-year plan cycle. The match  is subject to forfeiture in case of termination  of employment before the end of the   plan cycle.  The GSPP has the same core design in   all locations. Long-term compensation termination and clawback provisions Termination reason VAI LPP GSPP Voluntary resignation Unvested awards are forfeited pro rata   and the performance factor is capped   at 100% as of the date of termination   of the employment relationship. Unvested awards are forfeited as   of the date of termination of the  employment relationship. Matching Share awards are forfeited   as of the date of termination of the  employment relationship. Redundancy Retirement Unvested awards shall vest on   the regular vesting date, subject   to performance. Unvested awards shall vest on   the regular vesting date, subject   to performance. Matching Share awards shall vest as of   the date of termination of the employment  relationship.  Unvested awards shall vest   on the regular vesting date, subject   to performance. Unvested awards shall vest   on the regular vesting date, subject   to performance. Matching Share awards shall vest as of   the date of termination of the employment  relationship.  Termination for cause Unvested awards are forfeited as   of the date of termination of the  employment relationship. Unvested awards are forfeited   as of the date of termination of the  employment relationship. Matching Share awards are forfeited as of   the date of termination of the employment  relationship.  Health/disability Death Mutual agreement Unvested awards shall vest on the   regular vesting date, subject to  performance. Unvested awards shall vest on the   regular vesting date, subject to  performance. Matching Share awards shall vest as of   the date of termination of the employment  relationship.  Unvested awards shall vest immediately  using the performance factor as   presented during the latest Compensation  Committee meeting. Unvested awards shall vest immediately  using the performance factors as  presented during the latest Compensation  Committee meeting. Matching Share awards shall vest  immediately.  Unvested awards may vest at Swiss Re’s  sole discretion. The final decision is  subject to the review and approval of   the Business Head, Head Reward, Group  Chief Human Resources Officer and, if  applicable, the Compensation Committee. Unvested awards may vest at Swiss Re’s  sole discretion. The final decision is  subject to the review and approval of   the Business Head, Head Reward, Group  Chief Human Resources Officer and, if  applicable, the Compensation Committee. Matching Share awards may vest   if stated in the agreement between   Swiss Re and the employee.  In events of malfeasance, fraud, misconduct, or as deemed appropriate by the Compensation Committee, awards are subject to clawback  rules where Swiss Re is entitled to seek repayment of all or part of any awards paid, vested, settled or released, for a period of five years  after settlement.  Swiss Re  |  Financial Report 2020 125 Compensation Compensation framework Supplementary information on Group EC members Performance assessment The Compensation Committee assesses the  performance of the Group EC, including the  Group CEO, against a set of quantitative and  qualitative objectives. These objectives are  agreed at the beginning of the year and are  aligned with the Group’s strategy. Compensation approval The determination of compensation for   the Group EC, including the Group CEO, is  ultimately subject to AGM approval, as  outlined in the Articles of Association. Benchmarking The external compensation advisor to the  Compensation Committee conducts an  annual review of the compensation of the  Group EC relative to a group of reference  companies to ensure that market  competitiveness is maintained. The  reference companies are regularly reviewed  by the Compensation Committee to ensure  their relevance. The core peer group  consists of the following globally active  primary insurance and reinsurance firms:  AIA Group Ltd, Allianz  SE, American  International Group Inc, Aviva PLC, AXA SA,  Chubb Limited, Hannover Rueck SE,  Insurance Australia Group Ltd, MetLife Inc,  Muenchener Rueckversicherungs- Gesellschaft AG, Prudential PLC, QBE  Insurance Group Ltd, Reinsurance Group of  America Inc, SCOR SE and Zurich Insurance  Group Ltd. 126 Swiss Re  |  Financial Report 2020 Stock Ownership Guidelines Swiss Re has stock ownership guidelines  which articulate the levels of stock  ownership expected of the Group EC  members, including the Group CEO.   The guidelines are designed to increase   the alignment of the interests of senior  management and shareholders. The guidelines define target ownership by  role and the ownership levels required are: • Group CEO – 3 × annual base salary. • Other Group EC members – 2 × annual  base salary. Stock ownership guidelines also apply to  the senior executives below the Group EC  members (1 × annual base salary). Members have a five-year timeframe to  achieve these targets. In case of non- compliance and because Swiss Re believes  that a meaningful stock ownership position  is essential for alignment with the interests  of shareholders, restrictions on the cash  portion of the API and/or the vested VAI  amounts will apply. These amounts may be  settled in shares, then bought against  market conditions.  All vested shares that are owned directly or  indirectly by the relevant Group EC member  and related parties will be included in the  assessment of whether the guidelines have  been met or not.  Employment conditions and change of control provisions The Group EC members, including the  Group CEO, have open-ended employment  agreements with notice periods of 12  months for termination either by the  company or the individual. Their  employment agreements do not contain  severance clauses (“golden parachutes”),  special provisions on the cancellation of  contractual arrangements, agreements  concerning special notice periods, waivers  of lock-up periods for options, shorter  vesting periods, additional contributions   to pension funds or any other provisions  protecting the individuals concerned  against changes of control.  With regard to deferred compensation,   in the event of a change of control, the  rights of members of the Group EC and  other members of senior management are  identical to those of all other employees.  Both the VAI and LPP Plan Rules include  provisions governing change of control  events.  Specifically, the Board of Directors   (or to the extent delegated to it, the  Compensation Committee) may decide   at its discretion on the continuation,  acceleration, amendment or removal of   any vesting, blocking or exercise conditions  for the payment or grant of deferred  compensation. It may also decide to replace  any LPP award with shares of the entity  assuming control. In addition, it may apply  any other measure which it considers  equitable and reasonable, provided this  does not constitute impermissible  compensation pursuant to the Ordinance  against Excessive Compensation at Public  Corporations. Should the Board of Directors  decide to accelerate vesting, performance  factors will generally be based on the latest  performance estimates available. Information on “change of control” clauses  is also covered in the Corporate Governance  section on page 109 of this Financial Report.  For more information on the quantitative  impact of vested shares, please refer to  page 87 of this Financial Report and Note  16 to the Group financial statements on  page 273 of this Financial Report. Group EC members are covered by the  Group’s standard defined contribution  pension plans. Compensation framework for the Board of Directors The objective in compensating members   of the Board of Directors is to attract and  retain experienced individuals who are  highly motivated to perform a critical role   in the strategic oversight of Swiss Re and   to contribute their individual business  experience and expertise. The structure of  fees for members of the Board of Directors  takes account of the way their contribution  to the success of Swiss Re differs from that  of the members of the Group EC.  The fee components are structured to  achieve a strong alignment with the  interests of Swiss Re Ltd´s shareholders:  • Fees are delivered 60% in cash and 40%  in shares. The shares have a four-year  blocking period. • The Board members do not receive  variable or performance-based  compensation.  • The fee level for each Board member,  subject to their re-election, is reviewed  annually. • The maximum aggregate amount of  compensation for the members of the  Board of Directors is approved by the  Annual General Meeting (AGM) in  advance of the term of office for which  the Board members are (re-)elected. Fee approval In line with Swiss law, and as outlined   in the Articles of Association, the aggregate  compensation for the members of the  Board of Directors for the next term of office  is subject to shareholder approval at   the AGM. Subsidiary boards of directors The majority of the board members at  subsidiary level are Swiss Re executives  who do not receive any additional  compensation for their services in these  roles. The non-executive members of the  subsidiary boards receive their fees 100%  in cash. When a member of the Board of  Directors of Swiss Re Ltd also serves   on the board of a subsidiary, the aggregate  compensation of the Board of Directors  proposed to the AGM for approval also  includes any subsidiary board fees. Outlook for 2021 As per 1 January 2021, a minimum Swiss  pension fund solution was set up for those  members of the Board of Directors who are  not exempted from mandatory occupational  benefit plans in Switzerland. This will be  offered by an established external provider  and applies only to a limited number   of members of the Board of Directors  depending on their personal situation due  to which local law imposes such pension  solution. The external provider was chosen  to ensure independence of the Board of  Directors from Swiss Re’s pension fund.  Pension contributions are split equally  between Swiss Re and the respective  members of the Board of Directors.  Contributions made by Swiss Re for the  period from 1 January 2021 until the   AGM 2021 are included in the table  “Individual Board compensation for the  period from the AGM 2020 to the   AGM 2021” (refer to page 144 of this  Financial Report).     Roles and time commitment Swiss Re Ltd’s Board of Directors has a  special skill set including experience in key  areas such as insurance and reinsurance,  finance, accounting, capital markets, risk  management and regulatory matters, as  well as leadership and decision-making  experience in large, complex financial  institutions. The mandate also demands  significant commitment, high integrity and  intercultural communication competence.  The fees for the members of the Board of  Directors reflect different responsibilities  and committee memberships. The  individual level of pay therefore varies. Certain committees, such as the Audit  Committee, meet more frequently or hold  longer meetings, and hence have higher  workloads reflected in their fees. The table  on page 99 of this Financial Report provides  an overview of the meetings of the Board of  Directors and its committees held in 2020. The Chairman of the Board of Directors  devotes himself full-time to his role. In  defining the position of Chairman as a  full-time role, Swiss Re applies best practice  for regulated, complex financial institutions.  The Vice Chairman, who is also the Lead  Independent Director, acts as a deputy of  the Chairman if the Chairman is prevented  from performing his duties or in potential  conflict of interest situations. The Vice  Chairman may prepare and execute Board  resolutions on request of the Board and  liaises between the Board and the Group EC  in matters not reserved to the Chairman.  The Lead Independent Director acts as an  intermediary between the Group and its  shareholders and stakeholders in the  absence of the Chairman or, in particular,  when a senior independent member of the  Board is required. He may convene and  chair sessions where the Chairman is not  present. He will communicate the outcome  of these sessions to the Chairman. For further details on the duties and  required expertise of the members of the  Board of Directors (including the Chairman  and Vice Chairman), please refer to pages  94–95 in the Corporate Governance  chapter of this Financial Report.  Swiss Re  |  Financial Report 2020 127 Compensation Compensation governance Authority for decisions related to compensation at the Board and Group EC level is governed by the Articles of Association and the Bylaws of Swiss Re Ltd, including the Charter of the Compensation Committee. The main responsibilities of the Compensation Committee are summarised in the table on the right. Roles and responsibilities in respect of compensation Function Description of roles and responsibilities Board of Directors • Establishes and periodically reviews Swiss Re’s compensation  framework, including guidelines and performance criteria. • Prepares the proposals to the AGM regarding Board of Directors   and Group EC compensation. • Further details can be found in the Corporate Governance section  on pages 78–112 of this Financial Report. Compensation Committee • Consists of at least four independent members of the Board of  Directors. Each member of the Compensation Committee is elected  individually at the AGM for a term of office until completion of the  next AGM. • Is governed by a Charter approved by the Board of Directors, which  defines the purpose, composition and procedural rules of the  Compensation Committee, including its responsibilities and authorities  for making proposals and decisions related to compensation of the  members of the Board of Directors and the Group EC. • Assesses the individual performance of the members of the   Group EC, including the Group CEO, and periodically reviews the  effectiveness of the performance management process. • Is responsible for making recommendations to the Board of  Directors and overseeing the design and implementation of  compensation principles, policies, framework, plans and disclosure. • Reviews compensation principles, policies and share-based plans  annually to ensure that these remain in line with Swiss Re’s  objectives and strategy, shareholders’ interests and legal and  regulatory requirements. • Further details can be found in the Corporate Governance section  on pages 82 and 98 of this Financial Report. Management • The Group CEO and the Group Chief Human Resources Officer  Secretary External Advisors participate in the Compensation Committee meetings. • Other members of senior management may attend as deemed  appropriate by the Compensation Committee and upon invitation   by the Chair of the Compensation Committee. • No individual may attend any part of a meeting where their own  compensation is discussed. • The Head Reward serves as the Secretary to the Compensation  Committee and attends its meetings (excluding the executive  sessions). • Mercer provides information about remuneration trends, market  benchmarking and advice on executive compensation issues. • Niederer Kraft  Frey Ltd provides legal advice, mainly about specific  aspects of compliance, plan rules and disclosure matters regarding  compensation. • These advisors are retained by the Compensation Committee and  provide the Compensation Committee with an external perspective.  They may also have other mandates with Swiss Re. The Articles of Association of Swiss Re Ltd include rules on • The annual and binding approval by  the AGM of the maximum aggregate  amounts of compensation of members  of the Board of Directors and of the  Group EC (Article 22). • The supplementary amount for  changes in the Group EC (Article 23)   if the maximum aggregate amount   of compensation approved by the  AGM is not sufficient to also cover  compensation of a new Group EC  member. • The compensation principles for both  the members of the Board of Directors  and of the Group EC covering short- term and long-term elements,  performance-related pay, payment in  shares, financial instruments or units,  compensation in kind or other types   of benefits (Article 24). • The agreements with members of the  Board of Directors and the Group EC,  external mandates and credits and  loans (Articles 25 to 27).  The Articles of Association are available  on the Swiss Re website at:   www.swissre.com/articlesofassociation Download the PDF to   your mobile by scanning  the QR code with your  smartphone camera. 128 Swiss Re  |  Financial Report 2020   Compensation approvals The table below shows the approval processes for key compensation decisions: Compensation item Maximum aggregate amount of compensation   for the members of the Board of Directors for   the next term of office Maximum aggregate amount of fixed compensation   and long-term variable compensation for the   members of the Group EC Aggregate amount of variable short-term  compensation for the members of the Group EC Compensation for the Chairman of   the Board of Directors Individual compensation for the members of   the Board of Directors (excl. Chairman of the Board   of Directors) Variable short-term compensation pools and   long-term incentive pools for the Group   and Group EC Compensation for Group CEO Variable short-term compensation pools for   the Control Functions Individual compensation for the   Heads of the Control Functions Individual compensation for the members of the   Group EC (excl. Group CEO)  Proposed Compensation Committee Endorsed Chairman of the Board of Directors,   Board of Directors Approved AGM Group CEO Group CEO Chairman of the Board of Directors,   Board of Directors,   Compensation Committee Chairman of the Board of Directors,   Board of Directors,   Compensation Committee AGM AGM Compensation Committee Board of Directors1 Compensation Committee Chairman of the Board of Directors Board of Directors1 Group CEO Chairman of the Board of Directors,  Compensation Committee Board of Directors1 Chairman of the Board   of Directors Group CEO Group CEO Group CEO Compensation Committee Board of Directors2 Compensation Committee,   Chairs of the Audit Committee and the  Finance and Risk Committee Compensation Committee,   Chairs of the Audit Committee and the  Finance and Risk Committee Chairman of the Board of Directors,  Compensation Committee Board of Directors Board of Directors Board of Directors2 1  Within the maximum aggregate amount of compensation approved by the AGM. 2  Within the maximum aggregate amount of compensation approved by the AGM and the additional amount available for changes in the Group EC after the AGM as per the Articles of  Association, respectively. Compensation Committee’s time allocation to key topics in 2020 28% Review of compensation framework  28% Pay for performance   for the Group 8% Pay for performance   for Group EC members 12% Compliance and regulatory 13% Executive sessions  11% Other topics Compensation Committee activities   The Compensation Committee operates   as the Group’s compensation committee  and oversees the compensation framework  applied at all entities of the Swiss Re Group. The Compensation Committee has an  annual agenda to ensure that important  reviews take place at the right times  throughout the year. The Compensation  Committee also commits time to executive  sessions and conducts a periodic   self-evaluation to preserve its high level   of effectiveness. During 2020, the  Compensation Committee architecture   (ie Compensation Committee governance  processes, tasks and responsibilities) was  reviewed to ensure that the Compensation  Committee is entrusted with appropriate  responsibilities, material topics and has  sufficient capacity to dedicate to their tasks.  The Compensation Committee held six  regular meetings during 2020 and provided  updates to the Board of Directors on topics  discussed, decisions made and items for  approval after each of these meetings. In addition, the Compensation Committee  held one extraordinary meeting and passed  eight decisions by circular resolution   during 2020. A high-level overview of topics dealt with  during the year is shown on page 130 of  this Financial Report. Swiss Re  |  Financial Report 2020 129    Compensation Compensation governance High-level overview of topics discussed by the Compensation Committee At Swiss Re, the compensation cycle begins in December and runs through to April of the following year. The Compensation Committee  oversees each stage of the process, starting with deciding on the variable compensation pool for the prior performance year, reviewing  this decision and setting targets for the upcoming year.  Outlined below is an overview of the main topics discussed during the seven Compensation Committee meetings held in 2020: January February April June September November December Performance assessment process   and variable compensation pool Review of decisions of prior  compensation cycle Performance factors for deferred  compensation awards LPP pool for upcoming year Performance  targets for  upcoming year Group EC performance assessment Group EC compensation  benchmarking Group EC  individual  compensation  proposals Investor and  Proxy Advisor  feedback Upcoming  performance  cycle discussion Upcoming  performance  cycle discussion Board fees for  upcoming  compensation  period Review of  subsidiary board  compensation Board  compensation  benchmarking  and policy Annual Benefits  Review; Stock  Ownership  Guidelines Compensation  Policy Compensation framework review  (API, VAI and LPP design,   API pool funding) Pay equity  approach Integration of  sustainability  performance  target COVID-19 impact Compensation  Report and AGM  feedback Role and mandate  of external  advisors Review of   CC goals CC architecture Compliance and regulatory developments Compensation  approval authority  matrix Integration of  sustainability  performance  target Compensation  Report CC self-evaluation  and review   of CC goals CC architecture Past performance cycle Upcoming performance cycle Group EC compensation and performance Board compensation Compensation plans & principles Compensation Report Compliance, regulatory & other governance topics Compensation  Committee (CC)  goals 130 Swiss Re  |  Financial Report 2020 The role of the Control Functions in compensation The role of Swiss Re’s Control Functions  (defined as Group Risk Management,  Compliance and Group Internal Audit) in  compensation matters is well established. Independence of the Control Functions In order to ensure the continued  independence of Control Functions, their  compensation approval processes differ   in that key annual compensation decisions   for these functions are approved at the  Board level. This includes the approval of  the aggregate API pools of the Control  Functions and the approval of the   individual compensation for the Head   of each Control Function. Risk and control-related behaviour assessment Swiss Re bears risks in the course of its  business activities, including market, credit  and liquidity, underwriting, operational  (including legal and compliance) and  reputational risk. The Control Functions  annually perform an independent  assessment of risk and control-related  behaviours of the Group and each of the  business functions, and of Swiss Re’s   Key Risk Takers individually.  These reports are delivered to key  executives including the Group Chief Risk  Officer and the Group Chief Human  Resources Officer on an annual basis. Key Risk Takers Swiss Re’s Key Risk Takers are executives   in core risk-taking positions who decide on  business and people strategies, approve  budgets and can materially influence  financial results or expose Swiss Re to  significant operational or reputational risks.  As per 31 December 2020, Swiss Re  identified 168 individuals (including the  13 members of the Group EC as per  31 December 2020), who qualify as Key  Risk Takers. In addition to the members   of the Group EC, this group consists of  Business Unit EC members, other key  executives and roles with core risk-taking  authority. The list of Key Risk Takers is  reviewed on a regular basis by Group Risk  Management and Human Resources. Influence of the behavioural assessment on compensation The risk and control-related behaviour  assessment of Group and Business Units/ Group Functions provides additional input   to determine the Group API pool and its  allocation to each Business Unit/Group  Function. The assessment of each Key Risk  Taker serves as additional input when  considering individual performance and  compensation outcomes. Desired behaviours Swiss Re’s performance management  approach supports a high-performance  culture. Individual and team goals, as well  as behaviours, are aligned to Swiss Re’s  purpose and business strategy. Swiss Re’s  “leadership from every seat” philosophy, as  part of which desired behaviours are clearly  articulated, is embedded in the continuous  performance management and feedback  discussions. This allows for forward-looking  conversations that foster real-time  improvement and faster adaptation to  business needs and in doing so, arrive at   a robust performance differentiation and  transparent pay for performance. Influence of sustainability on compensation Since 2020, sustainability-related  performance targets are defined for the  Group as well as for each Business Unit and  Group Function. Targets are grouped  around several sustainability-related themes  such as sustainability-related indices,  climate change, sustainable business, and  stakeholder engagement. The KPIs and  targets are aligned to Swiss Re’s Group  Sustainability Strategy and take into account  Swiss Re’s sustainability ambitions and  identified risks (see pages 16–21 in the  Sustainability Report 2020 for details on  sustainability performance targets and pages  36–43 for details on sustainability risks).  At the end of the year, the Group, Business  Units and Group Functions report on their  performance against such performance  targets. The outcome of this reporting is  considered as one of the six qualitative  assessment dimensions in the Group API  pool funding process (see page 121 of   this Financial Report for details on the  Group API pool funding process and   pages 132–134 of this Financial Report   for performance outcomes 2020).  Swiss Re  |  Financial Report 2020 131 Compensation Performance  outcomes 2020 Key considerations for Swiss Re’s annual compensation decisions cover US GAAP and EVM based business results, qualitative factors and Swiss Re’s pay for performance approach. 132 Swiss Re  |  Financial Report 2020 The outcomes of the financial, qualitative  and overall assessment, all part of  Swiss Re’s three-step funding process   (as described on page 121 of this Financial  Report), determined the Group API pool for  2020. In line with Swiss Re’s established  processes, key performance indicators  (KPIs) and targets for the Group API pool  were approved by the Compensation  Committee at the beginning of 2020 and  have not been modified in the wake of   the COVID-19 pandemic.  Financial assessment (step 1) Swiss Re Group and Business Units In 2020, the Group’s US GAAP and  Economic Value Management (EVM) results  were significantly impacted by COVID-19- related losses, affecting the performance of  all Business Units in the Group. The vast  majority of the Group’s COVID-19 losses  was driven by affirmative non-damage  business interruption, higher mortality  claims as well as cancelled or postponed  events. Throughout 2020, Swiss Re  showed a strong underlying performance  across the Group. Property & Casualty  Reinsurance delivered strong new business  generation with higher premiums earned  and price increases and a strong investment  result supported Life & Health Reinsurance’s  solid performance. Corporate Solutions’  turnaround is ahead of plan and Life Capital  successfully closed the ReAssure sale.  US GAAP financial performance Property & Casualty Reinsurance’s  performance was heavily driven by COVID- 19-related losses as well as large natural  catastrophe events and man-made losses,  partially offset by strong new business  generation with increased premiums earned,  supported by increased prices. Life & Health  Reinsurance’s performance benefited from  realised gains on fixed income securities and  solid underwriting results due to active  portfolio management, while still significantly  impacted by COVID-19 losses. The strong improvement of Corporate  Solutions’ ex-COVID-19 result reflected the  strict execution of management actions  announced in 2019, including 85% of the  planned portfolio pruning and a substantial  expense ratio reduction. Pricing momentum  combined with lower than expected large  man-made losses and a favourable claims  development from prior accident years  contributed further to the technical result. Life Capital’s result was driven by the  continued investment into growth of the  open book businesses. Gross premiums  written in the open book businesses  increased by 22% during 2020 when  measured at constant exchange rates.   The completion of the ReAssure sale and  successful deconsolidation of the business  marks a key achievement for Life Capital.  For further details on the US GAAP financial  performance, refer to pages 182–293 of  this Financial Report. EVM financial performance The underwriting result of Property &  Casualty Reinsurance was primarily driven  by COVID-19-related impacts, US liability  experience and assumption updates, large  natural catastrophe and man-made losses.  This was partially offset by strong renewals  from property natural catastrophe and  specialty as well as reserve releases for  natural catastrophe losses. The Life & Health  Reinsurance underwriting result was driven  by COVID-19-related claims and reserves   as well as by capital costs updates, partially  offset by new business transactional  business growth in EMEA and the Americas.  The investment profit was mainly driven by  favourable interest rate impacts on the net  duration position. Corporate Solutions’ underwriting loss was  primarily driven by COVID-19-related losses  more than offsetting otherwise good  underwriting results reflecting the benefits of  the management actions taken to improve  profitability and low large man-made claims  activity across all lines of business. The unfavourable underwriting result of  Life Capital was primarily driven by  expenses to grow the open book businesses  as well as a true-up to the gain on the sale  of ReAssure, underperformance in elipsLife  and unfavourable persistency in the closed  book US business. For further details on   the EVM financial performance, refer to the  EVM chapter on pages 34–47 of this  Financial Report. Since the performance across all four  financial KPIs was more than 30% below  target, the FPF was set at 0.7 (floor)   in line with Swiss Re’s Group API pool  funding process.   Qualitative assessment (step 2) The year 2020 was heavily marked by the  COVID-19 pandemic for Swiss Re and its  employees. Despite this unprecedented  situation, the Group performed above  expectations across the six qualitative  assessment dimensions and related   goals considered in the Group API pool  funding process.   Strategic initiatives  Business Units and Group Functions jointly  delivered on key strategic initiatives, including  the completion of the sale of ReAssure to  Phoenix Group and the establishment of a  roadmap for streamlining the Group’s legal  entity structure. Swiss Re has further  expanded its risk-sharing platform, eg  through a private sidecar transaction with  Dutch pension investor PGGM and through  a newly created standalone fund offering  investors an efficient way to participate in  Swiss Re’s natural catastrophe business. In  Corporate Solutions, achievements focusing  on the unit’s unique value proposition   as a corporate insurer stood out.   Franchise building Having joined forces with public and private  partners to deploy innovative solutions   and strengthen its franchise, Swiss Re is  proud of its collaborative achievements,   for example: • Acting as a thought leader to foster  learnings from the COVID-19 pandemic:  the Group’s client webinars, dedicated  web and social media content reached  above-benchmark engagement and  made Swiss Re the most visible reinsurer  on COVID-19 response.  • Putting its pioneering Risk Resilience  Centre platform, which provides access  to the world’s richest data on COVID-19,  at the service of global health by opening  it to participants of The Trinity Challenge  (a coalition of universities, foundations  and leading companies with the aim of  better protecting the world against health  emergencies).  • Establishing many other new solutions and  partnerships, such as Movinx together  with Daimler and the Granular Insurance  Company together with Verily, an Alphabet  company; Movinx develops fully digital  automotive and mobility insurance  products and the Granular Insurance  Company combines innovative health  technology solutions with novel insurance  and payment models.   Client & service quality  Swiss Re’s client and service quality is  assessed on an annual basis through  leading external benchmarks. Both clients  and non-clients perceived Swiss Re as a  leading brand in property and casualty, and  life and health reinsurance. Client  satisfaction remained strong and clients  commended the uninterrupted service and  availability of their Swiss Re contacts during  the pandemic.  Human capital & talent management The Group’s employee engagement survey  results were above the financial services  benchmark and at their highest level since  the start of measurement in 2015, with  notable increases on agility and the  perception of having an inclusive work  environment. Swiss Re did note early signs  of a decrease in employees’ personal  resilience and has quickly taken mitigation  actions, eg by establishing a new initiative  with mental health champions and a  programme leveraging learnings from the  COVID-19 pandemic. Considering a diverse  and inclusive workforce as integral to its  success, the Group has further increased  female representation in senior management  and launched a new network to promote  awareness and inclusion of people of colour  in the workplace. Risk and control behaviour  Reinsurance and risk are intrinsically linked.  Assessment scores based on the continuous  assessment by Swiss Re’s Control Functions,  including Group Internal Audit as an  independent assurance function, have   gone up compared to the prior year,  demonstrating a robust risk governance  framework with a defined risk appetite and  accountability for managing risk. A clear   tone from the top encouraged an effective  and open risk culture. Sustainability  2020 was the first year for which  sustainability was considered as a separate  assessment dimension in the Group API pool  funding process. Sustainability-related  performance targets focused on the Group’s  ranking in the Dow Jones Sustainability  Index (DJSI), the alignment of its business  goals with the Paris Agreement and the  increase in the share of sustainable business  volume and services. Swiss Re has  accomplished notable achievements, for  example reaching a leading score in the  DJSI, which makes it the only reinsurer  represented in the top 10 in this index. The  Group also continued to co-lead the Net-Zero  Asset Owner Alliance and established an  internal triple-digit carbon levy to support the  transition to net-zero emissions in operations  by 2030. For further details on sustainability  governance and sustainability performance  targets, please refer to pages 82 and 16–21  of the Sustainability Report.   Considering the Group’s performance across  all six defined dimensions and established  qualitative performance goals, the Board of  Directors agreed a Qualitative Performance  Factor of 1.05.   Overall assessment (step 3) In line with Swiss Re’s Group API pool  funding process, the overall assessment  allows for considering additional factors on  top of the established KPIs and dimensions  in the financial and qualitative assessments.  Both the Compensation Committee and the  full Board of Directors assessed in depth the  2020 performance of Swiss Re Group and  recognised its successful navigation of   the COVID-19 pandemic. Excluding the  COVID-19 impact, the Group’s 2020  financial results would have been well  above the prior year’s results. Swiss Re’s  incident management teams around the  globe ensured the health and safety of all  employees, which enabled business to  continue as normal. All processes ran timely  and without disruptions, and employees  showed great personal resilience. Swiss Re  did not impose any salary cuts or furloughs,  nor did it lay off any employees or request  government support due to COVID-19.  Swiss Re  |  Financial Report 2020 133 Compensation Performance outcomes 2020 134 Swiss Re  |  Financial Report 2020 In view of the elements outlined on the previous pages, recognising employees’  extraordinary efforts in the wake of the pandemic and considering aspects such as pay  positioning and key talent retention risk, the Board of Directors has applied positive  discretion in the overall assessment and adjusted the outcome of financial and qualitative  assessments upwards by 0.105.  The Board of Directors considers this limited use of discretion appropriate in the context of  2020. It keeps the Group API pool significantly below target and as such, is in line with the  majority of re/insurance organisations, which have projected incentive pools below target  levels for 2020. It is also a continuation of Swiss Re’s long-standing practice of having  positive but not excessive variable compensation payouts in relatively benign environments  and conversely, lower but proportionate variable compensation payouts in adverse  environments. This practice is based on Swiss Re considering its role as that of a shock  absorber for society, which mitigates excessive volatility and does its part to improve  resilience to future systemic risks.  In line with Swiss Re’s established Group API pool funding process, a Group Business  Performance Factor (Group BPF) is calculated by multiplying FPF and QPF, and  subsequently adding or subtracting any adjustment from the overall assessment. For 2020,  this results in a Group BPF of 0.84 (0.7 x 1.05 + 0.105). The Group API pool is in principle  derived by multiplying the Group Target API (TAPI) pool with the Group BPF. The resulting  Group API pool for 2020 is significantly below target but still proportionate.  Performance targets used for the financial assessment are considered to be commercially  sensitive and disclosure of such may provide an unfair advantage to Swiss Re’s competitors.  However, to further increase transparency on the Group API pool funding process, results  for each of the financial KPIs are disclosed.  Group API pool outcome 2020 Key performance indicator Weighting Achievement versus target l a i c n a n F i t n e m s s e s s a ) ROE  1 p e t s ( Net operating margin  EVM profit (% of ENW)  ENW growth per share 25%  25%  25%  25% Resulting Financial Performance Factor (FPF): e v i t a t i l a u Q t n e m s s e s s a ) 2 p e t s ( Client and service quality  Risk and control behaviour  Franchise building  Human capital and talent management  Strategic initiatives  Sustainability Resulting Qualitative Performance Factor (QPF): FPF*QPF: l l a r e v O t n e m s s e s s a ) 3 p e t s ( Overall assessment of Group API Pool from   a number of different perspectives, eg  normalised results, labour market, capital  market, compensation competitiveness and  retention Result –3.1%  –1.1%  –10.4%  –0.1% 0.70 Overall   slightly above  target (see  commentary  on page 133) 1.05 0.735 +0.105 Resulting Group Business Performance Factor (BPF)1: 0.84 Group API Pool approved by the Board of Directors 1  Based on (FPF 0.70 x QPF 1.05) + overall assessment 0.105 = Group BPF 0.84.           Value Alignment Incentive VAI performance is measured for the Group and each underlying business area. The  performance factor for each participant is determined based on the business area that the  participant worked for on 31 December of the year preceding the award (see pages  122–123 of this Financial Report for a detailed description of the VAI). The VAI 2017  (awarded 2018) performance factor of 94.0% for the Swiss Re Group is based on the  three-year average previous years’ business performance for years 2018, 2019 and 2020.  The main drivers were previous years’ business losses, mainly driven by reserve increases,  especially for losses related to COVID-19 for Reinsurance and Corporate Solutions in 2020,  and US casualty in Corporate Solutions and Property & Casualty Reinsurance. Business  area performance factors for the VAI 2017 (awarded 2018) ranged from 62.6% to 99.8%. VAI plan year 2011 (awarded 2012) 2012 (awarded 2013) 2013 (awarded 2014) 2014 (awarded 2015) 2015 (awarded 2016) 2016 (awarded 2017) 2017 (awarded 2018) 2018 (awarded 2019) 2019 (awarded 2020) Performance period remaining   as of 31 December 2020 Closed Closed Closed Closed Closed Closed – 1 year 2 years Swiss Re Group performance factor 103.0% 101.5% 100.3% 99.9% 100.0% 97.4% 94.0% to be determined in 2022 to be determined in 2023 Illustrative example of realised performance for the VAI 2017 (awarded 2018) Granted and realised VAI are shown below for a grant of CHF 100 000 on the VAI 2017  (awarded 2018). For illustrative purposes, this example considers only the Group  performance factor. For disclosure of actual realised compensation 2020 for the  Group CEO, please refer to page 142 of this Financial Report. Performance achievement VAI awarded in April 2018 CHF 100 000 Three-year average   of the EVM previous  years’ business profit  margin: –8.9% Performance factor: VAI realised in March 2021 94.0% CHF 94 000 Swiss Re  |  Financial Report 2020 135 Compensation Performance outcomes 2020 Leadership Performance Plan The LPP award is consistently linked to the Group’s future achievement of multi-year  performance conditions (ROE, ENW and rTSR), keeping the focus on the long-term success  of the Group. Swiss Re made LPP grants in 2020 consistent with this rationale. The LPP is  generally part of total compensation (see pages 123–124 for a detailed description of the LPP). In line with Swiss Re’s existing methodology, the 2020 LPP grant was based on a share  price of CHF 104.20 on the date after publication of the 2019 annual results  (21 February 2020, ie prior to the stock market downturn in the wake of the COVID-19  pandemic) to determine the 2020 LPP grant allocation values. As such, the Compensation  Committee concluded that no windfall gains will occur.  Awards prior to 2020 are split equally into Restricted Share Units (RSUs) and PSUs. The  RSU component for such in-flight plan cycles (ie granted in 2018 and 2019) is measured  against an ROE performance condition. At the end of each year, the performance is  assessed and one third of the RSUs is locked in within a range of 0% to 100%. At the end   of the three-year period, the total number of units locked may vest. For the LPP 2018, the  average performance factor for the RSUs was 1.67% for the three-year period. The PSU  component is based on rTSR, measured against a pre-defined basket of peers, and vests  within a range of 0% to 200%. For the LPP 2018, the performance factor for the PSUs was  146% for the three-year period. The table below gives an overview of the RSU and PSU  performance achievement for the previous LPP plan years: LPP plan year 2012 2013 2014 2015 2016 2017 2018 2019 2020 Performance period remaining   as of 31 December 2020 Closed Closed Closed Closed Closed Closed – 1 year 2 years RSU average performance factor  for the three-year period 99.7% 99.7% 99.7% 66.7% 32.3% 1.67% 1.67% to be determined in 2022 to be determined in 2023 PSU performance factor   for the three-year period  200.0% 60.0% 81.0% 0.0% 0.0% 0.0% 146.0% to be determined in 2022 to be determined in 2023 2018 RSU performance outcomes 2018 2019 2020 11.9% 11.1% 9.8% 1.4% 2.5% –3.1% Average performance factor:  2018   Target ROE  11,9% Realised ROE 1,4%         1.67% 2018 PSU performance outcomes Swiss Re TSR 2018–2020: 9.1%       72nd percentile  0%     TSR positioning relative to peers   100% Performance factor 146.0% 2019 2020 11,1% 9,8% 2,5% –3,1% 136 Swiss Re  |  Financial Report 2020      Illustrative example of realised performance for the LPP 2018–2021 Granted and realised LPP 2018–2021 are shown below for a sample grant of   CHF 100 000 of the LPP 2018. This is a simplified representation for illustrative purposes  only. The number of RSUs and PSUs has been rounded up to the nearest full number. For  the disclosure of actual realised compensation for the Group CEO, please refer to page 142  of this Financial Report. LPP granted in April 2018 (fair value) Units granted Performance achievement Units vesting Share price performance LPP realised in March 2021 (estimated2 market value) RSU: CHF 50 000  Fair value per  unit: CHF 70.18 RSUs: 713 Performance factor: 1.67% RSUs: 12 –15.2% Share   price   at grant  valuation  date1: Share   price at  year-end  20202: RSU: CHF 1 000 CHF 71 339 CHF 100 000 PSU: CHF 50 000  Fair value per  unit: CHF 86.62 PSUs: 578 Performance factor: 146.0% PSUs: 844 CHF 98.22 CHF 83.34 PSU: CHF 70 339 1  The LPP 2018 grant was based on a grant valuation share price of CHF 98.22 (as of 26 February 2018, ie the next trading day after publication of the 2017 annual results). 2  Since vesting of LPP 2018 will occur after the publication of this report, the closing share price at year-end 2020 was used to estimate the realised value. Swiss Re  |  Financial Report 2020 137   Compensation Compensation disclosure  and shareholdings 2020 Aggregate compensation of the Swiss Re Group The aggregate compensation for the performance years 2019 and 2020 for all employees was as follows: Category Base salaries Pensions and benefits Cash Annual Performance Incentive3 Value Alignment Incentive3 Long-term variable compensation – Granted in units subject to performance conditions4 – Granted in units not subject to performance conditions Other payments – Severance payments5 – Sign-on payments Total6 Performance year 20191, 2 Performance year 20201, 2 Number of employees 15 401 15 401 14 395 524 Values (in CHF millions) 1 378 284 306 36 Number of employees 13 189 13 189 11 941 598 Values (in CHF millions) 1 289 257 274 33 453 1 387 127 52 1 24 5 2 086 469 43 401 150 50 2 27 5 1 937 1  Regular employees (excludes contractors) per 31 December, compensation on actual FTE basis; 2019 reporting adjusted to conform to 2020 presentation. ReAssure employees are included  for 2019 but not for 2020 as the sale of ReAssure to Phoenix Group was completed during 2020.  2  Foreign currency conversions calculated using December 2020 year-to-date FX rates for 2020 figures and December 2019 year-to-date FX rates for 2019 figures (where relevant). 3  For 2019, includes separate variable short-term compensation and deferral schemes for ReAssure; for 2020, includes separate cash variable compensation scheme for one line of business.   4  Includes LPP; for 2019, also includes separate variable long-term compensation scheme for ReAssure.   5  Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and   (iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in  respect of amount, nature or duration. No severance payments were made to members of the Group EC.  6  Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with  applicable laws, which amounted to CHF 225m in 2019 and CHF 190m in 2020. As of 31 December 2020, the Group had 13 189 regular employees worldwide, compared to 15 401 regular employees at the end of 2019.  The total compensation of the Group for 2020 amounted to CHF 1937 million (compared to CHF 2086 million in 2019), whereof   CHF 1885 million has been or will be paid in cash (compared to CHF 2033 million in 2019) and CHF 52 million has been granted in  share-based awards (compared to CHF 53 million in 2019). The 2019 figures have been adjusted to conform to the 2020 presentation.  The value of all outstanding deferred compensation for all employees at 31 December 2020 amounted to CHF 228 million (compared to  CHF 239 million in 2019), whereof CHF 90 million will be payable in cash (compared to CHF 103 million in 2019) and CHF 138 million in  shares (compared to CHF 136 million in 2019). The figure for outstanding deferred compensation is determined based on the value at  grant for both cash-based and share-based compensation. In 2020 and 2019, a reduction of expenses amounting to CHF 6 million and CHF 1 million respectively, was recognised for compensation  in previous financial years. 138 Swiss Re  |  Financial Report 2020 Aggregate compensation for Key Risk Takers The aggregate compensation of the individuals that held a key risk-taking position as of 31 December of the performance years 2019 and  2020 was as follows (this table excludes members of the Group EC; members of the Group EC also qualify as Key Risk Takers and their  compensation is disclosed separately in the table on page 140 of this Financial Report): Category Base salaries Pensions and benefits Cash Annual Performance Incentive3 Value Alignment Incentive3 Long-term variable compensation – Granted in units subject to performance conditions4 – Granted in units not subject to performance conditions Other payments – Severance payments5 – Sign-on payments Total6 Performance year 20191, 2 Performance year 20201, 2 Number of employees 148 148 144 135 Values (in CHF millions) 48 14 29 15 Number of employees 155 155 151 144 Values (in CHF millions) 53 16 30 15 139 1 0 12 22 1 0 3 132 146 0 5 13 23 0 1 1 139 1  Disclosure excludes members of the Group EC who were in office as of 31 December of the reporting year; 2019 reporting adjusted to conform to current presentation. Group EC  compensation is disclosed separately in the table on page 140. Disclosure includes Key Risk Takers in ReAssure for 2019 but not for 2020 as the sale of ReAssure to Phoenix Group was  completed during 2020.  2  Foreign currency conversions calculated using December 2020 year-to-date FX rates for 2020 figures and December 2019 year-to-date FX rates for 2019 figures (where relevant). Reported  figures include Key Risk Takers who were in office as of 31 December of the reporting year and are full-year amounts, except for individuals hired during the year, for whom partial-year figures  are reported. 3  For 2019, includes separate variable short-term compensation and deferral schemes for ReAssure; for 2020, includes separate cash variable compensation scheme for one line of business.  4  Includes LPP; for 2019, also includes separate variable long-term compensation scheme for ReAssure.   5  Severance payments in the table above include (i) payments under standard severance packages, (ii) other payments that are over and above what is contractually or legally required, and  (iii) voluntary supplementary departure payments, but exclude similar legally permitted payments or garden leave which are aligned with local market practice for comparable positions in  respect of amount, nature or duration.  6  Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with  applicable laws, which amounted to CHF 6m in 2019 and CHF 6m in 2020. Swiss Re  |  Financial Report 2020 139 Compensation Compensation disclosure and shareholdings 2020 Compensation decisions for members of governing bodies The section below is in line with Swiss law and specifically with Articles 14 to 16 of the Ordinance against Excessive Compensation at  Public Corporations (the Ordinance), which require disclosure of compensation granted to members of the Board of Directors and the  Group EC. Compensation to members of the Board of Directors and the highest-paid member of the Group EC is shown separately. At the  AGM 2019 and the AGM 2020, the shareholders approved the maximum aggregate compensation amounts for the Board of Directors  and Group EC for the prospective periods. For the reconciliation of these aggregate amounts to what was awarded, please refer to  page 146 of this Financial Report. Compensation decisions for the Group EC The number of Group EC positions decreased during 2020 from 14 to 13 (the position of CEO Life Capital was discontinued per  1 September 2020 due to the disbanding of the Business Unit Life Capital following the completion of the sale of ReAssure to Phoenix  Group). The 2020 figures in the following table cover payments to 15 individuals who held a Group EC position at one point in 2020 (of  whom 12 were active on the Group EC for the full year). The 2019 figures cover payments to 16 individuals who held a Group EC position  at one point in 2019 (of whom nine were active on the Group EC for the full year) and legally or contractually required payments made in  2019 to an individual who stepped down from the Group EC in 2018. For 2020, the total of the aggregate TAPIs for the members of the Group EC (pro-rata amount in relation to the active period on the Group  EC) amounted to CHF 16.3 million (CHF 15.02 million in 2019), including the Group CEO. The increase in aggregate TAPIs is primarily due  to the higher number of Group EC members who were active for the full year in 2020 (ie for individuals who joined the Group EC in 2019,  only a pro-rata amount was included for 2019). For the Group CEO, the TAPI was CHF 2.5 million (no change compared to 2019). 140 Swiss Re  |  Financial Report 2020 16 members15 membersCHF thousands120192020Base salaries12 27912 848Allowances2812734Funding of pension benefits33 0982 808Total fixed compensation416 18916 390Cash Annual Performance Incentive4, 57 6718 187Value Alignment Incentive4, 56 4746 908Leadership Performance Plan613 52513 250Total variable compensation27 67028 345Total fixed and variable compensation43 85944 735Compensation due to members leaving73 143308Total compensation847 00245 0431 Foreign currency conversions calculated using December 2020 year-to-date FX rates for 2020 figures and December 2019 year-to-date FX rates for 2019 figures (where relevant).2 Benefits or allowances, eg housing, schooling, lump sum expenses, relocation expenses and taxes, child and similar allowances. Also included is an amount of CHF 21 421 for 276 matching shares received by Group EC members participating in Swiss Re’s Global Share Participation Plan in 2020 (2019: CHF 24 045 for 242 matching shares).3 Swiss Re’s Pension Fund has amended its regulations with effect from 1 January 2019, including some adjustments to the benefits provided to insureds in Switzerland. In consideration of those amendments (which apply both to Group EC members insured in Switzerland and all other employees insured in Switzerland), the figures disclosed for 2019 and 2020 include higher employer pension contributions and contributions to mitigate the effects of lower conversion rates. 4 Covers payments reflecting the time in the role as Group EC member.5 For 2020, subject to shareholder approval at the AGM 2021. For 2019, based on shareholders’ approval at the AGM 2020 of the aggregate amount of short-term variable compensation. Disclosure includes pro-rata payments in relation to the active period on the Group EC for individuals who joined or left the Group EC.6 Disclosure reflects all awards for a reporting year, ie the 2019 value reflects the fair value of LPP awards granted in April 2019 and the 2020 value reflects the fair value of LPP awards granted in April 2020. Any awards granted in 2020 and then forfeited at a later point in the same year are not included. The LPP for 2019 is split equally into two underlying components (50% RSUs and 50% PSUs). The award for 2020 is split equally into three underlying PSU components.7 For individuals leaving the Group EC during or before the reporting period, this only covers legally or contractually required payments for the period when the individual was no longer in the Group EC position (eg base salary when on garden leave).8 Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with applicable laws, which amounted to CHF 1 971 899 in 2019 and CHF 1 953 251 in 2020 (for the individuals who joined the Group EC during the reporting year, the figure excludes employer social security contributions made during the period prior to joining the Group EC).Overall, total variable compensation for individual members of the Group EC (including the Group CEO) who were active on the Group EC  for the full year 2020 ranged from 138% to 246% of total fixed compensation.  The proposed total API (including VAI) amount for 2020 for the Group EC (including the Group CEO) is CHF 15.1 million and includes pro-rata  payments in relation to the active period on the Group EC for individuals who joined or left the Group EC in 2020. After carefully considering the performance of the Group EC in 2020, the Compensation Committee and the Board of Directors concluded  that the proposed amount of CHF 15.1 million is proportionate given the overall business environment for the Swiss Re Group and the  qualitative achievements. This amount still remains significantly below target levels (see page 140 for further information). It represents an  increase of CHF 1 million compared to the approved total API (including VAI) amount for 2019 for the Group EC (including the Group CEO),  which was CHF 14.1 million. This increase is primarily driven by the increase in aggregate TAPIs (which, as explained on the previous page,  is due to the higher number of Group EC members who were active for the full year in 2020 compared to 2019), and partially offset by the  effect of lower business performance (ie lower Group BPF). Compensation decisions for the highest-paid member of the Group EC The table below shows the compensation paid to Christian Mumenthaler, Group CEO (in the role since 1 July 2016): CHF thousands Base salary Allowances1 Funding of pension benefits2 Total fixed compensation Cash Annual Performance Incentive3 Value Alignment Incentive3 Leadership Performance Plan4 Total variable compensation Total compensation5 2019 1 500 35 221 1 756 1 088 1 088 2 000 4 176 5 932 2020 1 500 34 222 1 756 1 155 1 155 2 000 4 310 6 066 1  Benefits or allowances paid in cash. Includes healthcare and accident insurance benefits, lump sum expenses, transportation, and child and similar allowances. 2  Swiss Re’s Pension Fund has amended its regulations with effect from 1 January 2019, including some adjustments to the benefits provided to insureds in Switzerland. In consideration of  those amendments (which apply to the Group CEO and Group EC members insured in Switzerland as well as all other employees insured in Switzerland), the figures disclosed for 2019 and  2020 include higher employer pension contributions and contributions to mitigate the effects of lower conversion rates. 3  For 2020, subject to shareholder approval at the AGM 2021. For 2019, as part of the aggregate amount of short-term variable compensation approved by the shareholders at the AGM 2020. 4  Disclosure reflects all awards for a reporting year, ie the 2019 value reflects the fair value of the LPP award granted in April 2019 and the 2020 value reflects the fair value of the LPP award  granted in April 2020. The LPP for 2019 is split equally into two underlying components (50% RSUs and 50% PSUs). The award for 2020 is split equally into three underlying PSU  components. 5  Amounts are gross before deduction of employee social security contributions. Additional and not included are company contributions to social security systems paid by Swiss Re in line with  applicable laws, which amounted to CHF 264 515 in 2019 and to CHF 246 040 in 2020. Swiss Re  |  Financial Report 2020 141 Compensation Compensation disclosure and shareholdings 2020 Realised compensation for the highest-paid member of the Group EC The chart below shows the compensation granted to and realised by Christian Mumenthaler, Group CEO (in the role since   1 July 2016) during 2020. CHF thousands  Granted 1 756 Fixed compensation  2020 1155 Cash API1  2020 1 155 VAI 2020  (awarded 2021)1 2 000 LPP 2020  Realised 1 756 Fixed compensation  2020  1155 Cash API1  2020  761 VAI 2017  (awarded 2018) 1 425 LPP 20182  1  For 2020, subject to shareholder approval at the AGM 2021. 2  The LPP 2018 grant took place on 1 April 2018 and was based on a share price of CHF 98.22 (at the grant valuation date of 26 February 2018). Since vesting of the LPP 2018  will occur after the publication of this report, the closing share price at year-end 2020 of CHF 83.34 was used to estimate the realised value. The performance of the Group CEO is evaluated against both quantitative targets (as defined in the Group Plan approved by the Board of  Directors) and qualitative goals agreed between the Board of Directors and the Group CEO, designed to support the long-term business  strategy and drive sustainable performance across the Swiss Re Group.  While the Group’s financial performance in 2020 was below target, the Board of Directors saw Swiss Re’s performance as broadly in line  with peers. It also recognised the encouraging underlying result excluding the COVID-19 impact, the outstanding investment result and  the successful completion of the sale of ReAssure to Phoenix Group in a challenging business environment.  The Board of Directors was satisfied with the Group CEO’s decisive leadership of the Group during the COVID-19 pandemic, an impressive  turnaround in Corporate Solutions and Swiss Re’s initiatives and external visibility on Sustainability and Environmental, Social and  Governance (ESG) topics. In addition, it recognised that the Group CEO has built a very strong leadership team, which lays the ground for  future success.  Overall, the Board of Directors was pleased with the Group CEO’s effective management of the Group despite challenging conditions in the  wake of the COVID-19 pandemic.  Additional information on compensation decisions For US GAAP and statutory reporting purposes, VAI and LPP awards are accrued over the period during which they are earned. For the  purpose of the disclosure required in this Compensation Report, the value of awards granted is included as compensation in the year of  performance for the years 2019 and 2020, respectively. Each member of the Group EC, including the Group CEO, participates in a defined contribution pension scheme. The funding of pension  benefits shown in the previous two tables reflects the actual employer contributions. Other payments to members of the Group EC During 2020, no payments (or waivers of claims) other than those set out in the section “Compensation disclosure and shareholdings in  2020” were made to current members of the Group EC or persons closely related. 142 Swiss Re  |  Financial Report 2020 Shares held by members of the Group EC The following table reflects Swiss Re share ownership by members of the Group EC as of 31 December: Members of the Group EC Christian Mumenthaler, Group Chief Executive Officer Urs Baertschi, CEO Reinsurance EMEA /Regional President EMEA  Andreas Berger, CEO Corporate Solutions  Anette Bronder, Group Chief Operating Officer  John R. Dacey, Group Chief Financial Officer Nigel Fretwell, Group Chief Human Resources Officer  Guido Fürer, Group Chief Investment Officer Hermann Geiger, Group Chief Legal Officer  Russell Higginbotham, CEO Reinsurance Asia/Regional President Asia Jonathan Isherwood, CEO Reinsurance Americas/Regional President Americas Thierry Léger, Group Chief Underwriting Officer Moses Ojeisekhoba, CEO Reinsurance  Patrick Raaflaub, Group Chief Risk Officer  Edouard Schmid, former Chairman Swiss Re Institute & Group Chief Underwriting Officer1 J. Eric Smith, former CEO Reinsurance Americas/Regional President Americas2 Total 1  The number of shares held on 31 August 2020 when Edouard Schmid stepped down from the Group EC was 31 935. 2  The number of shares held on 13 August 2020 when J. Eric Smith stepped down from the Group EC was 25 355. 2019 75 305 546 34 0 29 809 12 272 53 983 49 318 4 662 n/a 56 167 40 704 16 590 31 794 25 262 396 446 Leadership Performance Plan units held by members of the Group EC The following table reflects total unvested LPP units (RSUs and PSUs) held by members of the Group EC as of 31 December: Members of the Group EC Christian Mumenthaler, Group Chief Executive Officer Urs Baertschi, CEO Reinsurance EMEA /Regional President EMEA  Andreas Berger, CEO Corporate Solutions  Anette Bronder, Group Chief Operating Officer  John R. Dacey, Group Chief Financial Officer Nigel Fretwell, Group Chief Human Resources Officer  Guido Fürer, Group Chief Investment Officer Hermann Geiger, Group Chief Legal Officer  Russell Higginbotham, CEO Reinsurance Asia/Regional President Asia Jonathan Isherwood, CEO Reinsurance Americas/Regional President Americas Thierry Léger, Group Chief Underwriting Officer Moses Ojeisekhoba, CEO Reinsurance  Patrick Raaflaub, Group Chief Risk Officer  Edouard Schmid, former Chairman Swiss Re Institute & Group Chief Underwriting Officer J. Eric Smith, former CEO Reinsurance Americas/Regional President Americas Total 2019 100 734 10 076 11 293 11 293 50 369 30 222 62 960 31 476 31 808 n/a 50 369 50 369 50 369 44 095 40 295 575 728 2020 83 157 1 371 125 135 30 346 12 436 54 203 49 756 8 546 51 196 56 343 40 831 24 063 n/a n/a 412 508 2020 81 031 14 134 24 858 24 858 40 517 24 689 50 645 27 072 31 402 28 740 41 647 43 531 40 517 n/a n/a 473 641 Loans to members of the Group EC As per Article 27 of the Articles of Association, credits and loans to members of the Group EC may be granted at employee conditions  applicable for the Swiss Re Group, with a cap on the total amount of such credits and loans outstanding per member (currently   CHF 3 million per member of the Group EC). During 2019, any outstanding loans and mortgages to current and former Group EC members  were transferred to an external party. No loans or mortgages were granted to current or former members of the Group EC in 2020.  Swiss Re  |  Financial Report 2020 143 Compensation Compensation disclosure and shareholdings 2020 Compensation for members of the Board of Directors The following two tables illustrate (1) the individual compensation for the members of the Board of Directors for the reported financial  years 2019 and 2020 and (2) the individual compensation for the members of the Board of Directors paid or payable for the term of office  from AGM 2020 to AGM 2021. Figures are in CHF thousands and foreign currency conversions are calculated using December 2020  year-to-date FX rates for 2020 and 2021 figures, and December 2019 year-to-date FX rates for 2019 figures, where relevant. (1) Individual Board compensation for the reported financial years 2019 and 2020 Members of the Board of Directors Walter B. Kielholz, Chairman Renato Fassbind, Vice Chairman, Lead Independent Director, Chair  Audit and Nomination Committees Raymond K.F. Ch’ien, member1 Sergio P. Ermotti, member2 Karen Gavan, member3 Trevor Manuel, former member4 Joachim Oechslin, member2 Deanna Ong, member1, 2 Jay Ralph, member Joerg Reinhardt, member Eileen Rominger, former member4 Philip K. Ryan, member, Chair Finance and Risk Committee3 Sir Paul Tucker, member Jacques de Vaucleroy, member, Chair Compensation Committee5 Susan L. Wagner, member, Chair Investment Committee Larry Zimpleman, member6 Total compensation for the reported financial years7, 8 Total 2019 Fees and allowances in cash 2 288 3 808 Fees in blocked shares 1 520 Total 2020 3 808 826 441 n/a 433 351 n/a n/a 276 296 275 898 325 718 595 296 9 538 496 305 91 332 70 131 213 186 184 55 642 195 517 363 258 6 326 330 130 60 133 47 87 80 123 122 37 240 130 202 242 130 3 613 826 435 151 465 117 218 293 309 306 92 882 325 719 605 388 9 939 1  Includes fees for duties on the board of Singapore Group companies. 2  Elected to Swiss Re’s Board of Directors at the AGM of 17 April 2020. 3  Includes fees received for duties on the board of US Group companies. 4  Term of office expired after the completion of the AGM of 17 April 2020 and did not stand for re-election. 5  Includes fees for duties on the board of Luxembourg Group companies. 6  Includes fees for duties on the board of ReAssure Group companies from January to July 2020. 7  Compensation for the members of the Board of Directors includes fixed fees (cash and shares) and minimal allowances. No sign-on or severance payments have been made. 8  Amounts are gross and include social security contributions of the Board member. Additionally and not included are company contributions to social security systems paid by Swiss Re in line  with applicable laws which amounted to CHF 392 690 in 2019 and CHF 418 024 in 2020. For Board members domiciled outside of Switzerland, company social security contributions are  refunded, if bilateral social security agreements between Switzerland and the country of domicile apply and provide for such refund. (2) Individual Board compensation for the term of office between AGM 2020 and AGM 2021 The table below provides more detailed information on the compensation paid or payable to each Board member against the maximum  aggregate amount of CHF 10.3 million, as approved by the AGM 2020: Base  fees Audit  Committee  fees Compensation  Committee  fees 50 50 50 425 225 225 225 225 225 225 225 225 Members of the Board of Directors Walter B. Kielholz, Chairman Renato Fassbind, Vice Chairman, Lead  Independent Director, Chair Audit and  Nomination Committees Raymond K.F. Ch’ien, member Sergio P. Ermotti, member Karen Gavan, member Joachim Oechslin, member Deanna Ong, member Jay Ralph, member Joerg Reinhardt, member Philip K. Ryan, member, Chair Finance  and Risk Committee Sir Paul Tucker, member Jacques de Vaucleroy, member, Chair  Compensation Committee Susan L. Wagner, member, Chair  Investment Committee Larry Zimpleman, member Total compensation for the term of office from AGM 2020 to AGM 20213 225 225 225 225 225 75 75 75 75 50 200 Finance and  Risk Committee  fees Investment  Committee  fees Nomination  Committee fees Additional  fees1 50 50 50 50 50 300 50 50 300 50 50 50 30 30 30 125 108 132 122 282 214 47 Total2 3 800 825 433 225 482 325 422 325 305 882 325 719 605 397 10 092 1    Including Vice Chairman or subsidiary fees (converted at 2020 average exchange rates where applicable). 2    Excluding company contributions to social security systems paid by Swiss Re in line with applicable laws. 3    Including an amount of approximately CHF 17 000 for minimal benefits and CHF 4 500 for estimated employer pension contributions (as of 1 January 2021) as mandatory under Swiss law. 144 Swiss Re  |  Financial Report 2020 Shares held by members of the Board of Directors The number of shares held by members of the Board of Directors as of 31 December were: Members of the Board of Directors Walter B. Kielholz, Chairman1 Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and Nomination Committees Raymond K.F. Ch’ien, member Sergio P. Ermotti, member2 Karen Gavan, member3 Trevor Manuel, former member4 Joachim Oechslin, member2 Deanna Ong, member2 Jay Ralph, member Joerg Reinhardt, member Eileen Rominger, former member4 Philip K. Ryan, member, Chair Finance and Risk Committee Sir Paul Tucker, member Jacques de Vaucleroy, member, Chair Compensation Committee Susan L. Wagner, member, Chair Investment Committee Larry Zimpleman, member Total 2 019 423 878 31 143 21 345 n/a 2 803 7 065 n/a n/a 3 299 25 684 1 997 15 693 5 403 4 835 13 920 1 997 559 062 2 020 399 005 35 513 18 067 874 4 587 n/a 1 263 1 166 4 950 27 300 n/a 18 871 7 125 7 511 17 125 3 745 547 102 1  Walter B. Kielholz reported in the reporting period the purchase of 300 call options for a total of 30 000 shares, if exercised. For further details, please refer to:   www.swissre.com/investors/shares/management-transactions 2  Elected to Swiss Re’s Board of Directors at the AGM of 17 April 2020. 3  Shareholdings include 2 500 American Depository Receipts (ADRs), equivalent to 625 shares.  4  Term of office expired after the completion of the AGM of 17 April 2020 and did not stand for re-election. Loans to members of the Board of Directors No loans were granted to current or former members of the Board in 2020 and no loans were outstanding as of 31 December 2020. Related parties transactions Disclosure on compensation decisions in 2020 covers members of the Board of Directors and the Group EC as indicated, and for both  includes related parties to the extent applicable. Such related parties cover spouses, partners, children and other dependents or closely  linked persons. In 2020, no compensation was paid to any related party. Compensation for former members of governing bodies During 2020, payments in the total amount of CHF 0.22 million were made to nine former members of the Group EC. This amount is made  up of company contributions payable by Swiss Re to governmental social security systems in line with applicable laws, matching shares  awarded in the context of outstanding Global Share Participation Plan cycles, risk benefits, pension contributions and company  commitments for tax-related services in line with contractual obligations. Swiss Re  |  Financial Report 2020 145 Compensation Compensation disclosure and shareholdings 2020 Reconciliation of AGM resolutions Group EC compensation Financial year 2020  CHF millions  34.0 29.9 Maximum aggregate amount approved for  fixed compensation and variable long-term  compensation 34,0 34.0 29,9 29.9 Amount paid/granted 34,0 34.0 10.3 10.1 29,9 29.9 34.0 29.9 34,0 Board of Directors  Term of office: AGM 2020–AGM 2021  34,0 CHF millions 10,3 10.3 10,1 10.1 29,9 29,9 10,3 10.3 Maximum aggregate amount approved 10,1 10.1 10.3 10.1 10,3 Amount paid/granted 10,1 10,3 10,1 Shareholder compensation resolutions and awarded compensation The following explanations give an overview of the applicable framework of Swiss Re Ltd’s  Articles of Association based on the Ordinance, the approvals by the shareholders at   the AGM 2020 of the respective motions proposed by the Board of Directors and the  reconciliation of the shareholders’ resolutions with the compensation awarded in the  reporting year 2020. Framework of the Articles of Association In accordance with Article 22 of the Articles of Association, the Shareholders’ Meeting shall  approve annually and with binding effect the proposals of the Board of Directors in relation to:  a) The maximum aggregate amount of compensation of the Board of Directors for the next  term of office.  b) The maximum aggregate amount of fixed compensation and variable long-term  compensation of the Group EC for the following financial year.  c) The aggregate amount of short-term compensation of the Group EC for the preceding  completed financial year. AGM 2020 voting results At the AGM on 17 April 2020, shareholders approved the maximum aggregate prospective  compensation of the members of the Board of Directors (84.7% approval). Shareholders  also approved for the Group EC (i) the maximum aggregate prospective fixed  compensation and variable long-term compensation and (ii) the aggregate retrospective  variable short-term compensation. The outcomes were 85.5% and 86.4% approval,  respectively. As in previous years, the 2019 Compensation Report was subject to a  consultative vote and was approved by 87.7% of the shareholder votes. Reconciliation of AGM 2019 resolutions for Group EC compensation1 At the AGM 2019, shareholders approved a prospective maximum aggregate amount of  CHF 34.0 million for fixed compensation and variable long-term compensation for the  financial year 2020 for the members of the Group EC expected at the time of the AGM  2019 to hold such position in 2020.  The amount of fixed compensation and variable long-term compensation effectively  granted to the 15 individuals who held a Group EC position at one point during the   financial year 2020 amounts to CHF 29.9 million and includes compensation and  associated costs in relation to the period in a Group EC position for one individual who  joined the Group EC during the year (this appointment was not known at the time of   the AGM 2019).  Reconciliation of AGM 2020 resolution for Board of Directors’ compensation1 At the AGM 2020, the shareholders approved a maximum aggregate amount of  compensation of CHF 10.3 million for the members of the Board of Directors for the   term of office from the AGM 2020 to the AGM 2021. As shown on page 144 of this Financial Report, the compensation paid to the 14 members  of the Board of Directors for their term of office from the AGM 2020 to the AGM 2021 is  CHF 10.1 million and therefore within the approved amount. AGM 2021 motion for variable short-term compensation for the Group EC for the financial year 2020 At the AGM 2021, the Board of Directors will propose to the shareholders to approve an  aggregate amount of CHF 15 094 666 for variable short-term compensation in relation   to the completed financial year 2020 for the 15 individuals who were members of the  Group EC at one point during the financial year 2020. This amount has been included in   the items “Cash Annual Performance Incentive” and “Value Alignment Incentive” in the  table for Group EC compensation on page 140 of this Financial Report. It includes pro-rata  payments in relation to the active period on the Group EC for individuals who joined or left  the Group EC in 2020.  146 Swiss Re  |  Financial Report 2020 1  Reconciliations calculated using December 2020 year-to-date FX rates where applicable.     Report of the statutory auditor to the General Meeting of Swiss Re Ltd Zurich Report of the statutory auditor on the Compensation Report We have audited the accompanying Compensation Report included in this 2020 Financial Report of Swiss Re Ltd (the ‘Com- pany’) for the year ended 31 December 2020. The audit was limited to the information according to Articles 14-16 of the Or- dinance against Excessive Compensation at Public Corporations (the ‘Ordinance’) contained in the tables on pages 140 to 146 of the Compensation Report. Board of Directors’ responsibility The Board of Directors is responsible for the preparation and overall fair presentation of the Compensation Report in accord- ance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the compensation frame- work and defining individual compensation packages. Auditor’s responsibility Our responsibility is to express an opinion on the accompanying Compensation Report. We conducted our audit in accord- ance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and per- form the audit to obtain reasonable assurance about whether the Compensation Report complies with Swiss law and articles 14–16 of the Ordinance. An audit involves performing procedures to obtain audit evidence on the disclosures made in the Compensation Report with regard to compensation, loans and credits in accordance with articles 14–16 of the Ordinance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the Compensation Re- port, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of compensation, as well as assessing the overall presentation of the Compensation Report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the Compensation Report included in the 2020 Financial Report of the Company for the year ended 31 De- cember 2020 complies with Swiss law and articles 14–16 of the Ordinance. PricewaterhouseCoopers Ltd Roy Clark Audit expert Auditor in charge Zurich, 17 March 2021 Michael Staempfli Audit expert PricewaterhouseCoopers Ltd, Birchstrasse 160, Postfach, CH-8050 Zurich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers Ltd is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity. Swiss Re  |  Financial Report 2020 147 Climate-related financial disclosures Our climate-related financial disclosures summarise the steps we have taken to manage climate-related risks and opportunities, and achieve our commitments towards net-zero carbon emissions. 148 Swiss Re | Financial Report 2020 Contents Overview Climate governance Climate strategy Climate risk management Climate metrics and targets 150 151 152 168 172 Swiss Re | Financial Report 2020 149 Climate-related financial disclosures Overview The climate-related financial disclosures provide a foundation to improve investors’ and other stakeholders’ ability to appropriately assess and price climate-related risk and opportunities. Swiss Re has a long-standing commitment to sustainable, long-term value creation. Through our Group Sustainability Strategy, we have sharpened this commitment and have clearly defined sustainability as a strategic, long-term value driver. We apply this approach throughout our re/insurance value chain, comprising both the liability and the asset sides of our balance sheet, our own operations and dialogue with our stakeholders. Mitigating climate risk and advancing the energy transition: one of our top priorities Climate change is an essential element in our Group Sustainability Strategy. “Mitigating climate risk and advancing the energy transition” is one of our three overarching 2030 Sustainability Ambitions. The 2030 Sustainability Ambitions cover three focus areas where we can have a significant positive impact in terms of supporting sustainability and strengthening resilience. Swiss Re first detected the potential long-term challenges posed by climate change some 30 years ago, and this topic is now at the centre of our sustainability efforts. As a re/insurer, climate change is a key issue because it leads to an increase in the severity and a change in the patterns of natural catastrophes such as windstorms, floods, excessive rainfall, heatwaves and drought. In combination with growing asset concentrations in exposed areas and more widespread insurance protection, climate change will cause a steady rise in losses. For this reason, we have developed a Climate Action Plan (see Climate strategy, page 152). Climate-related financial disclosures (TCFD) Starting from the premise that climate change creates physical, liability and transition risks, the Task Force on Climate- related Financial Disclosures (TCFD) aims to offer consistent and effective financial disclosures that allow investors and other stakeholders to assess the climate risks faced by companies and to take appropriate action. We have played an active role in the TCFD since its creation by the Financial Stability Board, and began to implement the TCFD recommendations in our 2016 Financial Report. Since then, we have continued to expand our climate-related disclosures. Tackling climate change and advancing the energy transition is challenging. In line with the Paris Agreement, we have committed to achieving net-zero CO2 emissions (see box). Climate-related financial disclosures of the Financial Stability Board Our climate-related financial disclosures summarise the steps we have taken to achieve our commitments to net-zero CO2 emissions. This chapter follows the structure of the TCFD recommendations (see table below). In each section, we focus on physical risks in our re/insurance business, transition risks in our re/insurance business, and transition risks in our investments. Achieving net-zero CO2 emissions1 Swiss Re has committed to achieving net-zero CO2 emissions: • Across the Group by 2050, by signing the UN Global Compact “Business Ambition for 1.5°C”2 • In our investment portfolio by 2050, as a founding member of the UN- convened Net-Zero Asset Owner Alliance • In our operations by as early as 2030 You can read more about our Group Sustainability Strategy and our climate- related activities in our Sustainability Report 2020 at: https://reports.swissre.com/ sustainability-report/2020 Governance Strategy Risk management Metrics and targets A) Board oversight A) Climate-related risks and opportunities A) Processes for identifying and assessing climate- related risks A) Metrics to assess climate- related risks and opportunities B) Management’s role B) Impact of climate-related risks and opportunities B) Process for managing climate-related risks B) Scope 1, 2 and 3 green- house gas emissions Source: TCFD C) Resilience of strategy and climate-related scenarios C) Integration into overall risk C) Targets management 1 Net-zero emissions means that for every tonne of CO2 that cannot be reduced, a tonne needs to be removed from the atmosphere and permanently removed through so-called carbon removal approaches. 2 This includes a commitment to setting science-based targets through the Science Based Targets initiative (SBTi). 150 Swiss Re | Financial Report 2020 Climate governance Swiss Re’s governance around climate-related risks and opportunities At Swiss Re’s highest governance level, four Board of Directors committees are charged with overseeing the implementation and execution of Swiss Re’s Group Sustainability Strategy and Climate Action Plan. The Chairman’s and Governance Committee, presided over by the Chairman, has the overall responsibility for monitoring and reviewing the Group’s strategic priorities on enabling sustainable progress, including initiatives and actions specifically addressing climate change. The Compensation Committee establishes and reviews the compensation framework, guidelines and performance criteria. Performance criteria include sustainability and climate change-related topics. The Finance and Risk Committee defines the Group Risk Policy, reviews risk capacity limits, monitors adherence to risk tolerance, and reviews all key risk issues and exposures, including those with a specific climate dimension. The Investment Committee reviews Swiss Re’s asset management-related activities and, as part of this, receives regular updates on Group Asset Management’s Responsible Investing Strategy and implementation, including in the area of climate change. The Board of Directors oversees the development and adoption of sustainability policies and Swiss Re’s climate strategies, while the Group Executive Committee (Group EC) ensures their implementation. To optimise coordination and alignment at the Group level and to monitor progress on the implementation of the Group Sustainability Strategy, the Group EC has established the Group Sustainability Council (GSC), chaired by the Group Chief Risk Officer. The GSC is an advisory body to the Group EC. It is composed of Group EC members and other senior management representatives. Group Functions also have specific responsibilities relating to climate change: a team located within Group Risk Swiss Re’s sustainability and climate-related governance Group level Business level2 Board of Directors Board committees1 Chairman’s & Governance Committee Compensation Committee Finance & Risk Committee Investment Committee Group Executive Committee Group Finance Group Risk Management Group Functions2 Group Asset Management Swiss Re Institute Group Operations Group Human Resources Group Sustainability Council Reinsurance Corporate Solutions iptiQ3 Public Sector Solutions 1 Only Board committees with allocated responsibilities related to sustainability and climate change are listed. 2 Dedicated sustainability and climate change roles, networks and/or committees in all Group Functions and on Business level. 3 The iptiQ Division has been in place since 1 January 2021. The Business Unit Life Capital was disbanded at the end of December 2020. Management is responsible for coordinating sustainability-related activities across the Group. Group Risk Management is responsible for maintaining a suitable risk policy framework, including sustainability and climate-related risks. Swiss Re Institute, which is headed by our Group Chief Underwriting Officer, provides the basis for pricing and, more specifically, all weather- related physical risks, eg through a dedicated natural catastrophes team and proprietary natural catastrophe models. Group Asset Management is responsible for developing and implementing the Group’s Responsible Investing Strategy, which includes a dedicated approach to climate change. Group Operations implements the net-zero strategy to manage the firm’s operational carbon footprint. At the business level, the Business Units Reinsurance and Corporate Solutions, the iptiQ Division and Public Sector Solutions implement the Group Sustainability Strategy, including the Climate Action Plan. Sustainability and climate change- related KPIs linked to compensation We have introduced sustainability as an additional assessment dimension for determining our Group Annual Performance Incentive (API) pool. This establishes a clear connection between sustainability and climate change-related targets and compensation for all employees, including Group EC members. The sustainability assessment in 2020 is primarily based on qualitative key performance indicators (KPIs) and targets. In 2021, the assessment will be expanded to include quantitative KPIs and targets. Our KPIs and targets are aligned with our 2030 Sustainability Ambitions and net-zero commitments. Please see pages 120‒121 of this Financial Report for details on the API pool funding process, and pages 133‒134 for details on performance outcomes of the qualitative assessment. You can read more about our sustainability governance in our Sustainability Report 2020, page 82. Swiss Re | Financial Report 2020 151 Climate-related financial disclosures Climate strategy We regularly assess the actual and potential impacts of climate-related risks and opportunities on our business, strategy and financial planning. There is clear empirical evidence that the global climate has been changing and a far-reaching scientific consensus that this change has been due to human activity, primarily from the burning of fossil fuels and agriculture. Swiss Re recognises that climate change, if not mitigated, will potentially have disastrous effects on society and the global economy. In view of this, we are committed to playing an active role in the transition to a net-zero emissions economy and to supporting our private and public-sector clients in this transition and adaptation to unavoidable climate change. Natural catastrophes are a key risk in our re/insurance business. The damage caused by storms, floods, droughts and other natural catastrophe perils (including wildfires) can affect millions of lives and the economies of entire countries. In 2020, our clients paid USD 4.1 billion of premiums3 for natural catastrophe covers exceeding losses of USD 20 million. This represents approximately 10% of total premiums, which shows the importance our clients place on obtaining re/insurance protection against natural catastrophe risks. On average, insured losses due to natural catastrophes have increased steadily over the past 20 years. The key reasons have been economic development, population growth, urbanisation and a higher concentration of assets in exposed areas. At the same time, the protection gap, ie the difference between insured and total economic losses, has remained substantial in all regions (see graph on page 173). In view of the significance of climate change for our business, we have developed a Climate Action Plan as part of our Group Sustainability Strategy. Our Climate Action Plan Building on our Group Sustainability Strategy and our commitments and initiatives of recent years, our Climate Action Plan combines three objectives: 1. We aim to become the leading re/ insurance company on physical climate risk. 2. We aim to become a leading provider of re/insurance solutions for low- carbon transition opportunities. 3. We build partnerships to develop scalable solutions to mitigate and adapt to climate change. As our Climate Action Plan indicates, understanding the risks posed by climate change as well as identifying the potential to create and adapt suitable products and services for our clients continue to be priorities for Swiss Re. Our Climate Action Plan serves as Swiss Re’s climate strategy. Climate-related risks Physical risks Physical risks posed by climate change could potentially affect four areas of our business. They can: • Influence modelling and pricing of weather-related natural perils • Impact the economic viability of re/ insurance for risks exposed to extreme weather events • Impact real assets exposed to weather- related natural perils • Reduce/disrupt our operations Modelling and pricing of weather- related perils Climate change will impact the frequency and severity of losses and consequently, our modelling and pricing of insurance risks need to be adjusted on a regular basis. By constantly assessing the climate-related physical and transition risks, the insurance industry plays an important role in keeping such risks insurable and affordable wherever possible. Reducing emissions as much as possible (by managing transition risks and accelerating related solutions) and adapting to unavoidable climate change (through, eg risk transfer solutions and other means) is essential. We assess the near-term materiality of potential climatic changes to our underwriting risk based on our proprietary loss modelling framework, with which we calculate the annual expected losses (AEL) and loss-frequency distributions of major natural catastrophes. The weather-related perils with the largest AEL for property insurance at present are disclosed on page 172 (North Atlantic hurricane, US tornado, European windstorm, Japanese cyclone, and European flood). Furthermore, the geographic distribution and peril split of Swiss Re’s annual expected natural catastrophe losses for property insurance are shown in the figure on page 153. The largest contribution to Swiss Re’s AEL for the most material weather-related perils comes from the North America region (46%), mainly dominated by hurricane risk, while Asia accounts for 19% of the AEL, with a significant contribution from typhoon risk. EMEA, where the major driver is European winter storms, and Latin America contribute with 17%, and 10%, respectively. Please refer to page 172 (Climate metrics and targets) for additional natural catastrophe risk metrics. 3 In previous years, we reported natural catastrophe premiums for our Property & Casualty (P&C) Reinsurance business only, but have now switched to Group-wide figures to provide a more complete picture. 152 Swiss Re | Financial Report 2020 Annual expected loss (AEL) for weather-related natural catastrophes As a percentage of most material perils in North America, Latin America, Europe, Asia and Oceania (all numbers have been rounded). 17% EMEA USD 360m (2019: 330m) 46% North America USD 1 005m (2019: 890m) 10% Latin America USD 215m (2019: 180m) 19% Asia USD 415m (2019: 330m) 8% Oceania USD 175m (2019: 240m) North America Latin America EMEA Asia Oceania Source: Swiss Re 28% Tropical cyclone 11% Convective storms 4% Flood 2% Windstorm 1% All other perils 8% Tropical cyclone 1% Flood <1% All other perils 8% Windstorm 5% Flood 2% Convective storms 1% All other perils 14% Tropical cyclone 4% Flood <1% Convective storms <1% All other perils 2% Convective storms 2% Tropical cyclone 2% Flood 2% All other perils 46% Nordamerika 1005 Mio.USD (2019: 890 Mio.) 10% Lateinamerika 215 Mio. USD (2019: 180 Mio.) Swiss Re | Financial Report 2020 153 17% EMEA 360 Mio. USD (2019: 330 Mio.) 19% Asien 415 Mio. USD (2019: 330 Mio.) 8% Ozeanien 175 Mio. USD (2019: 240 Mio.) Nordamerika Lateinamerika EMEA Asien Ozeanien 28% Tropischer Wirbelsturm 11% Konvektive Stürme 4% Überschwemmung 2% Windsturm 1% Alle anderen Gefahren 8% Tropischer Wirbelsturm 1% Überschwemmung <1% Alle anderen Gefahren 8% Windsturm 5% Überschwemmung 2% Konvektive Stürme 1% Alle anderen Gefahren 14% Tropischer Wirbelsturm 4% Überschwemmung <1% Konvektive Stürme <1% Alle anderen Gefahren 2% Konvektive Stürme 2% Tropischer Wirbelsturm 2% Überschwemmung 2% Alle anderen Gefahren Climate-related financial disclosures Climate strategy In addition to property insurance, physical climate risks play an important role in a number of other areas. Agriculture insurance is one of those areas where perils like drought, excess rainfall, frost and hail play an important role. For both property and agriculture lines of business, our models show that with the current climate, the dominant factor for Swiss Re’s weather-related risk exposure remains natural variability, affecting both the frequency and severity of extreme events in all regions. We expect this to remain the case both in the short and medium term (ie 2025 and 2030), in line with the most recent scientific findings from the Intergovernmental Panel on Climate Change (IPCC).4 Swiss Re closely monitors climatic trends and other macro risk factors that are potentially material for the insurance industry over various time horizons. Physical climate change risks that affect our assessment and management of weather-related risks are summarised in the table below. Classification of climate-change effects and their relevance for the re/insurance industry Driver for change Effects/ perils Time horizon Insurance impact, focus on property catastrophe t c e r i D t c e r i d n I e s n o p s e r g n m r a w i l a b o G l High confidence Increasing mean temperature Increasing temperature variability Increased moisture capacity in atmosphere due to higher temperatures Melting of glaciers and ice caps, thermal expansion: sea level rise/storm surge Reduced permafrost/slope stability: landslides Longer/more frequent heat waves, droughts, water scarcity, wildfires, health issues, increased mortality, potential political conflicts More frequent extreme rainfall and river floods Slow but steady increase over coming decades Heat waves/droughts: already observable and increasing trends over coming decades Increasing regional trends already observable and medium-severe impact likely by mid/end of century Impact on climate cycles (eg ENSO, AMO, NAO) More frequent severe tropical cyclones Severe impact likely by mid/end of century Confidence barrier Increased convection Change of frequency/ severity of winter storms Increased hail and tornado risk Reduced confidence Low-medium property insurance impact: no sudden/unprecedented events (adaptation!). Localised effects in coastal and flooding zones Frequency perils, mostly affecting primary insurance, quota share and stop-loss reinsurance. Impact on insurance earnings, rather than capital. Impact strongly varies due to heterogeneous original covers, with considerable protection gap in flood insurance Limited insurance impact as of today where climate risk is managed actively. Mid/end of century significant impact on re/insurance covers, both for severity (affecting capital) and frequency (affecting earnings), in particular where associated flood risk is covered in full Source: Swiss Re sigma 2/2020 4 See IPCC Fifth Assessment Report, chapter 11, and the IPCC Special Report on the impacts of global warming of 1.5°C. 154 Swiss Re | Financial Report 2020 Confidence about observed and future climate trends is highest for risks related to the increase in global temperatures. For example, the melting of glaciers and ice caps, and thermal expansion of water in warmer temperatures are leading to rising sea levels. These can directly increase the magnitude of storm surges, a long-term risk for coastal regions. To date, the rise in sea levels has been relatively slow and will likely remain so in the near future, allowing time for measures to mitigate the risk of coastal flooding. The insurance impact today is limited to the property line of business, and is mostly localised in coastal and flooding zones (see the case study on sea level rise on page 156). There is lower confidence in the understanding of trends for atmospheric and oceanographic circulation changes. These affect, for example, the frequency and intensity of tropical cyclones or European winter storms. While warmer sea surface temperatures will increase the probability of tropical cyclone formation and intensification, higher wind shear can offset this. These complex interactions introduce a “confidence barrier” that renders any insurance-related quantification of climate- change effects on high-severity perils like hurricanes very uncertain. Given their material impact, Swiss Re performs internal research and collaborates with leading scientists to tackle this challenge. Another outcome of climate change for which there is high confidence is increased temperature extremes, which have brought longer and/or more frequent heat waves, droughts and periods of water scarcity. Heat waves affect agriculture, workforce productivity, infrastructure, water resources, health and mortality. In addition, hot and dry conditions exacerbate drought and wildfire risk, as seen in different regions in recent years (eg California, Portugal and Australia), with severe consequences for exposures in the wildland-urban interface. As losses from frequency perils often remain below the retention rates of reinsurance programmes, wildfire risk mostly affects primary insurers. The impact of wildfire risk and other frequency perils on a reinsurer is mostly through proportional covers such as quota shares and/or non-proportional aggregate covers. Furthermore, rising temperatures allow the atmosphere to hold more water vapour, thus (on average) increasing the risk of extreme rainfall (including tropical cyclone- induced rainfall). However, there is less confidence in estimating the impact of rising temperatures on river flood risk, which is also impacted by other factors. Regional trends are already observable, but the insurance impact for flood-related losses is limited due to still-large protection gaps for this peril. While several climate-change factors are beginning to affect the natural catastrophe risk landscape, we expect weather risks to remain assessable by scientific methods. This means we can continue to update our loss models now and in the future to assure adequate costing of extreme weather events. The in-house development of risk models for weather-related perils ensures full modelling transparency and the ability to efficiently assess and update models if new scientific evidence becomes available (see also page 168, Climate risk management). Furthermore, since most of the re/insurance contracts with our clients have a duration of one year, updated risk views are quickly reflected in the costing of natural catastrophe risks. Regarding the long-term time horizon (20505), we expect a need for substantial adjustments to some of our weather risk models, based on evolving scientific knowledge. We are confident, however, that future research will continue to give us sufficient guidance on the magnitude and direction of these adjustments. Impact on the economic viability of re/insurance protection An increase in the frequency and severity of extreme weather events can restrict the affordability of re/insurance in certain regions, especially in coastal areas, by requiring a rise in premiums. While there is significant uncertainty associated with climate projections, especially when it comes to storms making landfall, increases in the frequency and severity of tropical storms are likely. Natural variability is expected to remain the dominant factor in the short and medium term (2025 and 2030). In the longer term (2050), a rise in sea levels will lead to non-linear increases in storm surge risk for coastal areas. Additionally, warmer temperatures will lead to more extreme rainfall events that may increase flood risk. If rises in re/insurance premiums necessitated by increasing extreme weather risks remain modest, ie re/ insurance protection remains economically viable for our clients, the overall premium volume will potentially grow. Larger increases, however, will eventually reverse this effect by pushing re/insurance prices for certain exposed risks beyond the limits of economic viability. This is particularly relevant for areas with inadequate construction planning and development. In addition, timing is of crucial importance: if measures to exclude a particular risk are taken too early, we may offer our clients less insurance protection; if measures are taken too late, we may end up with higher claims. Finally, the overall size of the re/insurance market will depend on future economic growth rates. In line with independent external studies, we have shown through a series of scenario assessments (Economics of Climate Adaptation studies, ECA) that in many regions, climate adaptation measures need to be taken to limit expected increases in natural catastrophe damage and thus to ensure the economic viability of re/insurance in the future. This is one of the key reasons why Swiss Re actively engages with the United Nations, the public sector, clients, industry peers and employees to advocate cost-effective adaptation to climate change. 5 In climate science, long-term often refers to a time horizon until 2100. However, to align with our net-zero commitments and the Paris Agreement, we chose to use “long-term” to mean until 2050. Swiss Re | Financial Report 2020 155 Climate-related financial disclosures Climate strategy Case Study: Sea level rise Sea level rise is a direct consequence of a warming climate: caused by thermal expansion of water and the melting of glaciers and ice caps, sea level rise will directly increase the magnitude of storm surges and pose a long-term chronic risk for low-lying coastal regions. The relatively slow rise of sea levels allows time for the adaptation and implementation of flood-protection infrastructure that can reduce the risk of catastrophic coastal flooding. Up to 2050, the uncertainty range for climate change-driven sea level rise is relatively small with an expected rise of approximately 0.25 metres for a warming scenario that is aligned with the goals of the Paris Agreement (RCP2.6) and approximately 0.3 metres in a scenario where greenhouse gas emissions continue to rise throughout this century (RCP8.5).1 Sea level rise is expected to accelerate significantly during the second half of the 21st century, especially if no adequate mitigation measures are implemented to limit global warming. For the re/insurance industry, the impact of sea level rise on resource- rich coastal cities and large agriculture deltas is of particular relevance. Adequate adaptation measures will be important to protect coastal exposures.2 Such adaptation measures, including climate-resilient infrastructure, will help to ensure the availability and affordability of insurance in exposed coastal areas. Largest population centres at risk of storm surge today and expected population growth by 2060 Amsterdam – Rotterdam 5.1m New York – Newark 1.5m Miami 2.3m Alexandria 1.5m Osaka – Kobe 3.1m Nagoya 3.0m Tokyo – Yokohama 2.7m Pearl River Delta 12.3m Shanghai 8.6m Expected regional population growth by 2060* >100% 61–80% 41–60% 21–40% 1–20% –10–0% * Aggregated population growth is shown for the following regions: Europe, North America, Sub-Saharan Africa, North Africa and West Asia, Central and Southern Asia, East and Southeast Asia, Latin America and the Caribbean, Australia and New Zealand, Oceania. Urban population at risk in millions (today) 7–12m 4–6m 1–3m <–1m Source: Swiss Re; United Nations Population Division, Department of Economic and Social Affairs, World Population Prospects 2019 From a re/insurance perspective, the most material risk associated with sea level rise is storm surge in large coastal cities. Today, approximately 230 million people, roughly 3% of the world’s population, are exposed to storm surge risk. Storm surges cause, on average, more than USD 10 billion of losses per year, of which the majority remains uninsured today. The largest urban areas that are currently exposed to significant storm surge risk are shown on the map above. 1 RCP: Representative Concentration Pathway. RCP scenarios represent possible future concentration trajectories of greenhouse gases. The scenarios are named after the resulting radiative forcing at the end of the 21st century, eg 8.5W/m2 for RCP8.5, where no mitigation measures nor technical innovation will limit temperature increases. 2 For more details, see also IPCC Special Report on the Ocean and Cryosphere in a Changing Climate, Sea Level Rise and Implications for Low-Lying Islands, Coasts and Communities (2019), Figure 4.3. 156 Swiss Re | Financial Report 2020 According to the IPCC Special Report on the Ocean and Cryosphere in a Changing Climate (2019), population growth, urbanisation and a further rise in global mean sea levels of 21cm by 2060 would increase the global population living below the hundred-year extreme sea level (ESL) from about 190 million in 2000 to between 316 and 411 million in 2060. The largest absolute changes are in South and Southeast Asia, while the largest relative changes are expected in Africa, as shown on the map on page 156. Swiss Re manages its exposure to sea level rise by developing up-to-date risk models and by managing its risk accumulation in the most exposed areas to ensure a well-diversified underwriting portfolio. Swiss Re’s Global Storm Surge Zones help us and our clients to pinpoint storm surge risks globally in a quantitative way thanks to high-resolution data. Estimate of insured property exposure in coastal storm-surge zones (as percentage of total insured property exposure) 50-year zone 100-year zone 250-year zone 500-year zone 1000-year zone 0.68% 0.60% 0.79% 0.73% 0.55% 0.50% 0.47% 0.42% 2020 2019 Modelled without flood protection measures. Source: Swiss Re 50-Jahres-Zone 100-Jahres-Zone 250-Jahres-Zone 500-Jahres-Zone 1000-Jahres-Zone 0,68% 0,60% 0,79% 0,73% 0,55% 0,50% 0,47% 0,42% 2020 2019 3.23% 3.85% 3,23% 3,85% Swiss Re | Financial Report 2020 157 Climate-related financial disclosures Climate strategy Impact on real assets exposed to weather-related perils Real assets such as real estate or infrastructure are exposed to natural perils, such as hurricanes, tropical cyclones and floods. In addition to considering physical risks when acquiring new properties, we analyse these exposures across the investment portfolio based on our proprietary modelling capabilities used for our re/insurance underwriting. In the reporting year, we have extended this analysis to our private debt investments, including infrastructure loans and commercial mortgage lending, as well as commercial mortgage-backed securities. The results of both analyses suggest a very low exposure of our real asset holdings to natural perils in general and to climate- related perils in particular. Our own operations According to our in-house catastrophe loss models, severe weather risks are potentially of importance for some of our operations, mainly in Florida and on the northeastern coast of the US. However, even assuming an extreme climate change scenario, we do not expect any of these office locations to be exposed to risk levels that would undermine their economic viability. Additionally, robust and regularly tested business continuity plans are in place to mitigate the risk of climate-related disruptions. Strategies include transferring work and/or employees to unaffected Swiss Re locations, and providing temporary alternative office space. Working from home can also be a viable and effective alternative, as has been demonstrated during the COVID-19 pandemic, during which the majority of employees worked from home for many months. Physical risks conclusion: Although the physical risks arising from climate change can have significant economic consequences over time, especially from a wider societal perspective, they represent a limited and manageable risk for Swiss Re. 158 Swiss Re | Financial Report 2020 Transition risks in our re/insurance business Transition risks may arise as a result of the extensive policy, legal, technology and market changes that are required to make the transition to a low-carbon and ultimately, a net-zero economy. We have assessed the most relevant transition risks that may potentially affect our business: • Policy and legal risks • Technology risks • Market and reputational risks majority of the cases remain in favour of the defendants, suggest that this trend may continue. However, this warrants ongoing monitoring, especially as the analytical capabilities for allocation of responsibility for greenhouse gas emitters could further develop with potential regulatory changes. Technology risks The re/insurance sector is likely to experience the technological transition in two ways. For a re/insurer, financial risks arising from the transition to a low-carbon economy are mainly linked to the potential re-pricing of carbon-intensive financial assets, and the speed at which any such re-pricing might occur. To a lesser extent, re/insurers may also need to adapt to potential impacts on the liability side resulting from reductions in insurance premiums in carbon-intensive sectors. Firstly, new technologies by definition do not have loss histories and thus may be challenging to cost accurately. Research and development is thus required to develop possible loss scenarios and the related expenses. Once these are developed and tested, new technologies are likely to present the sector with an opportunity for growth (see Climate-related opportunities, pages 161–162). Policy and legal risks As the move towards achieving a net-zero emissions economy by mid-century or earlier gains momentum in both the public and private sector, material policy-triggered changes are expected for the real economy (eg power and energy, materials and processes, logistics and transportation, and agroforestry and land-use practices). Such policy changes may include regulations to increase energy and material efficiency, mandates to rapidly scale up renewable energy and clean mobility, the removal of fossil fuel subsidies, the introduction of carbon pricing, policies addressing land-use change and agricultural practices, as well as the scaling up of carbon removal technologies. This requires a solid understanding of the related policy and legal risks as well as the proactive management of related risks and opportunities. Certain policy risks might also influence the risk quality of some underlying assets in the mid- to long-term (eg due to increased cost pressure and reduced asset maintenance). Climate-related litigation risks We identified potential climate-related litigation risks as an emerging risk over a decade ago and assessed its potential relevance through our own research. Climate change litigation activities against large greenhouse gas emitters have increased in recent years without any significant impact on insurance. As a result, we have not faced any new claims from climate-related litigation in recent years and the results of the litigation, which in the Secondly, new low-carbon technologies are likely to gradually displace traditional, fossil fuel-based ones. This will alter the market and, as a result, gradually change the nature of re/insured assets. This transition does not, however, automatically translate into a financial risk for us. For example, motor insurance is one of the most important business lines of the primary insurance sector globally. According to Swiss Re’s sigma database, in 2020 it represented approximately 21% of global non-life direct premiums written, but for the reinsurance sector the share is much lower at 14%. Driven by intensifying efforts to curb climate change, the global motor vehicle inventory will shift from combustion to electric engines. In a Swiss Re study on the casualty risk trends in the automotive industry, we noted that the move from conventional (pure combustion engine) cars to more electrically-based mobility is a transition that is likely to intensify in the coming years. This development will entail the implementation of a variety of new technologies, from new lightweight materials to advanced battery systems. Consequently, while the automotive industry as a whole is undergoing significant change, the impact on insurance portfolios is expected to be gradual. As motor insurance contracts are renewed annually, re/insurers will be able to develop the appropriate underwriting experience, loss adjustment and claims handling. To address the residual risk, we have started to develop a carbon risk steering mechanism. Its key component will be a carbon risk model designed to measure our carbon intensity and the associated risks embedded in our re/insurance business. For further information about the mechanism and related policies, see page 168, Climate risk management, and page 172, Climate metrics and targets. Market and reputational risks With policy, legal and technological changes as a backdrop, consumer and investment preferences will further shift toward less carbon-intensive products and services over time. Changes in market volumes will be reflected in the demand for insurance. In addition, to support their decision-making, investors and other stakeholders will expect greater transparency and more information regarding re/insurers’ exposure to emission-intensive sectors as well as their contribution to low emissions-related risk transfer solutions. Finally, particularly in fossil fuel-dependent societies, a late and sudden transition without appropriate mitigation measures may result in setbacks such as social unrest leading to an overall market decline. Non-investment transition risks for the real economy and their relevance for the re/insurance industry Transition risks Financial impacts on real economy Impacts on insurance liabilities Policy and legal • Removal of fossil fuel subsidies and introduction of CO2 taxes • CO2 regulation and mandates • Exposure to litigation for historical and current CO2 emissions • Emission disclosure requirements • Write-offs, asset impairment, and early retirement of existing assets due to policy changes (ie stranded assets) • Climate policy-induced economic effects may lead to higher claims for certain lines of business (eg credit insurance) • Increased operating costs (eg higher compliance costs, increased insurance premium) • Increased costs and/or reduced demand for products and services resulting from fines and judgments against CO2-intensive sectors • Increased regulatory pressure for disclosure • Increased operating risk and lower risk quality for impaired assets may impact property insurance (eg due to increased cost pressure and reduced asset maintenance) • Increased litigation risks may become relevant for casualty insurance (eg general liability, D&O insurance) • Requirements to disclose climate-related impacts of insurance business activities Technology • Substitution of existing products and services with lower emissions options • Costs to transition to lower emissions technology • Write-offs, early retirement of existing • Shift in predominant energy technologies assets • Research and development (R&D) expenditures in new and alternative technologies could lead to a change in the liability structure and diversification for insurers • New technologies without established loss histories may increase uncertainties in property and engineering lines of business Market and reputation • Uncertainty in market signals and in client behaviour • Increased stakeholder concern Source: Swiss Re, adapted from TCFD • Reduced demand for goods and services due to shift in consumer preferences • Change in revenue mix and sources, resulting in decreased revenues • Reduction in capital availability • Increased reputational risk for high- emission sectors • Premium volume in engineering and property insurance will shift from CO2-intensive assets and activities to CO2-efficient ones • Reputational risk for insurers via insured emissions (eg insurance of thermal coal) may further intensify • Potential societal backlash due to transition in fossil fuel-dependent societies causing market decline (eg due to political unrest) Transition risks in our re/insurance business conclusion: Overall, it is our view that the transition to a low-carbon economy is not likely to present a significant financial risk for Swiss Re’s re/insurance business. We expect that the associated risks can be managed effectively, primarily due to the annual renewal of contracts. Swiss Re | Financial Report 2020 159 emissions economy may be challenging and costly, we consider the developments as identified to be encouraging. Since 2015, Swiss Re has taken decisive action to actively manage our climate- related risks and take advantage of related opportunities, such as the avoidance of coal-related investments or investing into green, social and sustainability bonds. Actions taken are described in detail in the chapters on Climate risk management (pages 170–171) and Climate metrics and targets (pages 174–175). Transition risks in our investments conclusion: While regulators and governments have started implementing policy and legal adjustments, we do not consider the transition to a net-zero emissions economy to pose a significant financial risk for Swiss Re’s investment portfolio. This view is based on having proactively implemented a strong mitigation strategy, which is regularly reviewed and adjusted, as well as the constant monitoring of our portfolio. Climate-related financial disclosures Climate strategy Transition risks in our investments Climate-related risks can impact the value of our investments and are therefore considered an important part of our Responsible Investing strategy. One of the key risks faced by asset owners is that a changing regulatory environment may result in a specific company or a particularly exposed industry becoming a stranded asset in investment portfolios, ie the devaluation of investments driven by unfavourable changes, such as increased taxes or new regulations. The market environment is expected to shift to address climate change mitigation and adaptation requirements to limit the global rise in temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase even further to 1.5°C. Governments and regulators have accelerated the development of proposals to steer and transition climate change- related market activities towards more sustainable alternatives. Japan and China’s net-zero emissions pledges and the UK’s Ten Point Plan for a Green Industrial Revolution, which aims to make the UK the number one centre for green technology and finance, are just three recent examples. We continue to focus on policy and legal risks, as well as technology risks, as we mainly expect changes within these two dimensions to potentially impact asset values. Hence, we aim to identify those industries and groups of companies that are most exposed to these risks and may thus require adjustments in the near to medium term. Industries and companies that are particularly exposed to policy and legal changes, as well as technological developments, have elevated risk exposures either in their production process, their raw materials, their transportation/logistics or distribution and store operations due to high carbon footprints in these areas. Furthermore, industries may face increased compliance costs in the production and distribution process, as well as costs arising from product demand substitution. All of these changes may cause increased price volatility of the underlying assets. At Swiss Re, we have been measuring the weighted average carbon intensity of our corporate bond and listed equity portfolio since the end of 2015, and of our government bond portfolio since 2020.6 Detailed measurement results are presented in the Climate metrics and targets section (pages 176–177). Consistent with reaching net-zero greenhouse gas (GHG) emissions by 2050, the Intergovernmental Panel on Climate Change (IPCC)7 developed model emission pathways and corresponding development ranges for CO2 emissions and related indicators. The reduction of the carbon intensities of our corporate bond and listed equity portfolio achieved since 2015 is well aligned with the CO2 emission reduction required according to IPCC in order to limit global warming to 1.5°C. To enhance how we assess the alignment of our portfolio with the 1.5°C target, we have further strengthened our approach, taking additional forward-looking indicators into account. Companies may mitigate exposure to climate risk by adapting to market forces or adhering to new and evolving requirements. The forward-looking indicators allow us to analyse climate risk-exposed industries down to the issuer level. They inform us about the preparedness of companies for a transition to a net-zero emissions economy and identify potential leaders and laggards in such a transition. Although aware of the limitations related to data quality and coverage, we assess the sectoral temperature alignment of our corporate bond and listed equity portfolio. The evaluation of the companies’ alignment is based on the pre-defined 1.5°C carbon budget considering their reported as well as modelled future emissions. This informs us about the sectoral trajectory related to the transition to a net-zero emissions economy and hence the alignment with the 1.5°C target. While many issuers have set carbon reduction targets, are actively working towards lowering their energy consumption or are already on a pathway consistent with the targeted temperature trajectory, others continue to contribute substantially to excess emissions not consistent with the 1.5°C target. Even though our analyses show that a transition to a net-zero 6 Corporate bond and listed equities: weighted average carbon intensity = (company CO2e emissions/company revenue) * (investment/portfolio); government bonds: 7 weighted average carbon intensity = (country CO2e emissions /country GDP PPP-adjusted) * (investment/portfolio). IPCC (2018) "Global Warming of 1.5°C: An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and efforts to eradicate poverty": https://www.ipcc.ch/sr15/chapter/spm/ 160 Swiss Re | Financial Report 2020 Business solutions that tackle physical climate risk Examples of recent transactions that tackle physical climate risk include: Climate-related opportunities Climate change does not just create risks, but also presents new opportunities. Developing corresponding products and services is a core part of our Group Sustainability Strategy, 2030 Sustainability Ambitions and Climate Action Plan. With our offerings, we pursue two different but complementary objectives: adapting to the effects of climate change and supporting the transition to a low-carbon economy. Opportunities related to physical risks in our re/insurance business Since most of our re/insurance contracts are renewed on an annual basis, we can offer our clients effective natural catastrophe protection that can help them cope with current climate risks. The same applies to our weather insurance solutions. In addition, we undertake special efforts to help expand re/insurance protection by focusing on non-traditional clients (in particular from the public sector), underdeveloped markets and innovative risk transfer instruments. Protecting the Netherlands from storm surge: Swiss Re is insuring the refurbishment, required for climate adaptation, of the almost 90-year-old, 32-kilometre Afsluitdijk dam in the Netherlands, which protects large parts of the country against sea level rise and storm surge. In addition, the Afsluitdijk will serve as a test centre for renewable tidal energy where water emptied from Lake Ijssel meets the Wadden Sea. Making India’s Nagaland state resilient to excess rainfall: Swiss Re provided India’s Nagaland State Disaster Management Authority (NSDMA) with parametric reinsurance protection during the 2020 monsoon season. Using rainfall intensity data derived from satellite observations, payouts are made to regions in proportion to the amount of recorded rainfall, which mirrors the anticipated levels of loss. Providing flood protection in Germany: In 2020, iptiQ, Swiss Re’s B2B2C business, entered into a partnership with one of Germany’s leading broker pool providers specialising in homeowner’s insurance to provide flood protection for properties located in the country’s highest flood risk zone (ZÜRS 4). Protecting farmers’ livelihoods from drought: Swiss Re has partnered with a provider of satellite-based soil moisture data to develop the Soil Moisture Deficit Index, which in turn is used as a parametric trigger to determine payouts to farmers when soil moisture levels fall below a pre-determined level. This innovative, yet easy to use insurance solution is providing a growing number of farmers in Europe with affordable access to financial protection from drought. Helping Mexico become more resilient to natural catastrophes: In March 2020, the World Bank issued four tranches of catastrophe bonds providing the Government of Mexico with financial protection of up to a record USD 485 million against losses from natural catastrophes – of which USD 250 million was allocated to named storms and the remainder to earthquakes – with Swiss Re acting as the transformer between Mexico’s state-owned insurer and the World Bank. In addition, proceeds of the catastrophe bonds are used to finance sustainable development projects supported by the World Bank. You can read more about these solutions in the Sustainability Report, pages 24–35. Swiss Re | Financial Report 2020 161 Climate-related financial disclosures Climate strategy Business solutions that tackle energy transition risks Examples of recent transactions that tackle energy transition risks include: 162 Swiss Re | Financial Report 2020 Opportunities related to transition risks in our re/insurance business The transition to a net-zero emissions economy offers business opportunities for a re/insurer across a range of sectors such as power and energy, materials and processes, logistics and transport, and agroforestry and food. While Swiss Re is active in all types of renewable energy re/insurance, over the years we have become a recognised lead market for offshore wind risks. In 2015, Swiss Re Corporate Solutions established a Centre of Competence for Wind Power and, through this focused investment, we have built up and refined the technical expertise required to understand and manage these risks. For example, in 2020, we were the lead insurer for the construction of the 640-megawatt Yunlin wind project eight kilometres off the coast of Taiwan. Thanks to our involvement in this project and our expertise in offshore wind, we have also been selected as the preferred insurer for the construction of the 350-megawatt Guanyin offshore wind project near the Taipei airport, which is set to enter the construction phase in 2022. In addition, we insured the Changfang and Xidao offshore wind farm off the coast of Taiwan. Over the next decade, we expect many new development opportunities to arise, which are likely to create demand for re/insurance protection in numerous lines of business, such as credit, engineering, property, and liability. Promoting greener shipping technologies with marine insurance: In 2020, Spain’s leading shipping company unveiled its first fast ferry powered by liquefied natural gas, which generates up to 30% less CO2 emissions, 99% less sulphur, and up to 85% less nitrogen oxide than the heavy fuel oil typically used in the shipping industry. Swiss Re’s Global Marine division provided reinsurance cover for the construction of this ship as well as hull reinsurance, supporting efforts to meet the International Maritime Organization’s target to reduce the industry’s overall greenhouse gas emissions by 50% relative to 2008 levels, by 2050. Enabling the expansion of offshore wind in Taiwan: Swiss Re Corporate Solutions and Reinsurance joined forces to provide both primary and reinsurance cover for a 640-megawatt offshore wind project off the coast of Taiwan. Construction of the wind farm began in 2020, and once it is completed in 2021, the Yunlin wind farm will consist of 80 wind turbines, which are expected to power approximately 605 000 households. Protecting solar panels in Puerto Rico: Swiss Re Corporate Solutions provided a leading residential solar and energy storage service provider with parametric named storm coverage for its solar panels in Puerto Rico. In addition to providing protection against the risk of physical damage caused by storms, the insurance solution offered protection against the risk of a downed power grid that would prevent the transfer of excess energy from the solar panels into the grid as well as the risk that customers might miss their lease payments following a devastating hurricane. Financing solar utility-scale projects in the US: Swiss Re Corporate Solutions and its data partner, kWh Analytics, successfully developed a ten-year Solar Revenue Put for an investor in large, utility-scale solar projects. The Solar Revenue Put is an insurance product that guarantees up to 95% of a solar farm’s expected output, helping to mitigate a central risk of generating solar power – lack of sunshine. It was the first time that this product was used in the financing or refinancing of solar projects within the US private-placement debt market. Green bonds Opportunities for our investments We expect our consistent and broad-based integration of environmental, social and governance (ESG) criteria along the investment process to contribute to an improved risk/return relationship in our investment portfolio, particularly over the longer term. We address sustainability risks such as climate change to make the portfolio more resilient against financial market shocks. This is of crucial importance as such risk factors are not yet fully reflected in current market valuations. As part of our adaptation strategy, we consider investment opportunities that enable the transition to a net-zero emissions economy. Green bond proceeds are used exclusively to finance environmentally sustainable projects that address key areas of concern, including not only climate change, but also natural resource conservation, biodiversity conservation, and pollution prevention and control. We support the transition to a net-zero emissions economy by investing in green bonds following the ICMA Green Bond Principles. As of 31 December 2020, we held USD 2.3 billion of green bonds and are targeting a portfolio1 of USD 4.0 billion by the end of 2024. We have embraced the opportunity to participate in the impressive average market growth of 54% p.a. since 2014.2,3 19.5% Sovereign 17.3% Agency 14.7% Supranational 10.9% Regional governments 3.6% Agency securitised 0.9% Municipals 20.5% Financials 6.9% Utilities 2.0% Information technology 1.9% Non-cyclical services 0.9% Basic industries 0.3% General industrials 0.3% Non-cyclical consumer goods 0.2% Resources 0.1% Cyclical services 1 Consisting of green, social and sustainability bonds. 2 Moody’s, “Sustainable Finance – Global: Sustainable bond volumes to top USD 650 billion in 2021”, 4 February 2021. 3 Moody’s – Green bonds: Key numbers and trends, 2018. Renewable and social infrastructure loans For our infrastructure loan allocation, we work with best-in-class managers to gain access to, and provide financing for, renewable energy projects that reflect our risk appetite, generate attractive long-term returns and help build a more sustainable energy supply for the future. As of 31 December 2020, we held 23% Renewable energy infrastructure 23% Social infrastructure 54% Others 49% 51% 49% 51% 23% Renewable energy infrastructure 23% Social infrastructure 54% Others 23% Erneuerbare Energieinfrastruktur 23% Soziale Infrastruktur 54% Sonstiges 49% 51% 24% 23% Erneuerbare Energieinfrastruktur 23% Soziale Infrastruktur 54% Sonstiges 49% 51% 24% USD 468 million of renewables, making up approximately 23% of our infrastructure loan portfolio, of which 51% are in solar panels and 49% in wind farms. In 2020, we established a new target to deploy an additional USD 750 million to renewable and social infrastructure loans by the end of 2024. Swiss Re | Financial Report 2020 163 Climate-related financial disclosures Climate strategy Real estate Our real estate investment portfolio comprises commercial and residential buildings with a total market value of USD 5.4 billion as of 31 December 2020. These are predominantly located in Switzerland, the US, Germany, Australia, the UK, and Central and Eastern Europe (CEE). As sustainability considerations are a key pillar of long-term sustainable value creation, we incorporate them into decision-making throughout the whole operating model, including external investment manager due diligence. New property investments are evaluated from an environmental and social perspective, which includes both a property’s current and potential future status as it relates to energy efficiency, Energy sources public transport connectivity, use of sustainable materials, occupier well-being and community engagement. Ongoing business plan execution and asset management of properties already in the portfolio always incorporate different ways to improve sustainability characteristics, as economically and financially sensible. For real estate investments in Switzerland, we apply the following sustainability criteria: analysis of energy sources as a percentage of market value and MINERGIE® certifications. MINERGIE® is a Swiss sustainability label for new and refurbished buildings. By the end of 2020, the combined market value of our MINERGIE®-certified buildings reached USD 0.6 billion, or 27% of our Swiss portfolio of direct real estate investments by value, which corresponds to an energy consumption floor area of 87 075m2. The Swiss portfolio is gradually shifting away from fossil fuels as a heating source to either renewable energy (26%) or district heating (14%). Whenever this is not possible, gas (39%) is considered as an alternative, given its smaller carbon footprint compared to oil (18%). Switzerland USD 429m / 82 497m2 27% MINERGIE®- certified 73% No certification 27% MINERGIE®- zertifiziert 73% Keine Zertifizierung 3% Others1 39% Gas 26% Renewable energy 18% Oil 14% District heating Includes wood pellets, projects under construction, land and non-heated assets. 1 Energiequellen 100% 39% Gas 26% Erneuerbare Energie 18% Öl 14% Fernwärme 3% Übrige1 100% 164 Swiss Re | Financial Report 2020 The externally managed real estate portfolio is predominantly invested in Australia, CEE, the UK and the US, and contains 50% green buildings based on regional energy labels. The Australian portfolio is the most advanced, followed by the UK portfolio. Australia UK US 53% NABERS Energy 5 31% NABERS Energy 4/4.5 16% NABERS Energy < 4 or not certified 24% BREEAM “Excellent” 25% BREEAM “Very Good” 51% Not certified 13% LEED “Gold” 30% LEED “Silver” 57% Not certified In the US, our approach to sustainability includes some of the most recognised certificates and guidelines such as the LEED certification Grossbritannien of the US Green Building Council (USGBC). We also benchmark our US portfolio against GRESB, an industry-driven organisation transforming the way capital markets assess ESG performance of real assets.1 Australien USA 1 Due to a change in our investment setup, the 2020 GRESB Assessment does not reflect the portfolio’s performance appropriately for 2020. 53% NABERS Energie 5 31% NABERS Energie 4/4.5 16% NABERS Energie < 4 oder nicht zertifiziert 24% BREEAM «Ausgezeichnet» 25% BREEAM «Sehr gut» 51% Nicht zertifiziert 13% LEED «Gold» 30% LEED «Silber» 57% Nicht zertifiziert Swiss Re | Financial Report 2020 165 Climate-related financial disclosures Climate strategy Swiss Re’s climate resilience under different scenarios The TCFD requests that companies describe the resilience of their strategy, taking into account different climate-related scenarios including a 2°C or lower increase. Swiss Re aligns its scenario analysis for physical climate risks with the Representative Concentration Pathway (RCP) and Shared Socio-Economic Pathway (SSP) scenarios adopted by the Intergovernmental Panel on Climate Change (IPCC).8 Differences between projected physical impacts across various scenarios in the near- to mid-term are minor, but a considerable divergence is expected for the second half of the 21st century. Furthermore, there is significant uncertainty within a single scenario, mainly caused by different modelling assumptions used in various climate models.9 In principle, it would be possible for Swiss Re to compute the potential long-term effects caused by climate change on AEL based on today’s re/insurance book. However, given the many factors that shape our future re/insurance books, a stand-alone climate-change scenario analysis would be incomplete for the following reasons: Looking at climate effects in isolation would mean ignoring the other factors that will shape Swiss Re’s future re/insurance book and thus also our future AEL. These factors include our strategy and risk appetite How we ensure resilience of our underwriting business in a changing climate (which can be redefined during the annual renewal process of property re/insurance business), market conditions, capital costs, insurance penetration, storm hardening and other climate adaptation measures. Since our re/insurance book and current AEL are the result of a complex interaction between all of these factors, any future scenario would have to consider all of them, in the process rendering the effect of climate change on the resulting AEL marginal. Moreover, the future AEL for Swiss Re’s weather-related re/insurance book will depend both on our future market share and scenario projections of overall business volume.10 Independent studies have shown a wide range for future market business volumes, thus rendering long-term projections very challenging. The complex dynamics become apparent when considering that over the next decades, significant population growth is expected in Asia and Africa. At the same time, the population in Europe and North America is unlikely to grow considerably or may even start to decline, as projected by the United Nations Department of Economics and Social Affairs. Over the same time period, real GDP per capita is expected to increase by more than 45% in the United States and will likely more than double in China by 2050 based on Swiss Re estimates. Global urbanisation will increase from approximately 56% today to almost 70% by mid-century.11 These socio-economic dynamics will lead to vast changes of insured value distributions and the re/insurance landscape in general. From a re/insurance perspective, socio-economic dynamics will often overshadow slowly evolving climate trends and thus limit the decision-power of quantitative climate scenario analyses and stress tests in which only changes to climatic conditions of natural hazards are considered. For example, based on climate projections, the overall frequency of North Atlantic hurricanes is expected to decrease by more than 10% for a global mean temperature increase of 2°C. At the same time, the frequency of the most intense hurricanes (category 4 and 5 hurricanes) is expected to increase by about 10%.12 These climatic changes to the most material natural perils for the re/insurance industry need to be analysed in conjunction with vast socio-economic changes that occur over the same timeframes. It is important to state that in a warming climate there is significant uncertainty around projected changes to severe weather events such as hurricanes, as also outlined in the section on modelling and pricing of weather-related perils (pages 152–155). Therefore, Swiss Re relies on several processes and strategies to minimise the impact of such uncertainty on its underwriting business. 4. A qualitative scenario process to assess the most material impacts of climatic and socio-economic trends that affect insured risks. This is supported by quantitative assessments on the likely range of expected changes to assess their materiality over different time horizons and emission pathways. 1. Diversification of insured natural hazards with regard to regions, lines of business, sectors and clients. 2. Flexible management and steering of weather-related exposure through limited duration of re/insurance contracts (typically one-year contracts for property insurance). 3. Regular updates of Swiss Re’s in-house risk models to ensure adequate costing of natural hazards for the current and near-term climate and socio-economic environment. 8 RCP scenarios represent possible future concentration trajectories of greenhouse gases. The scenarios are named after the resulting radiative forcing at the end of the 21st century, eg 8.5W/m2 for RCP8.5, where no mitigation measures nor technical innovation will limit temperature increases. SSP narratives describe alternative pathways for future society. IPCC Fifth Assessment Report (AR5), Chapter 11, 2013. 9 10 See, eg Kunreuther, Howard; Michel-Kerjan, Erwann; and Ranger, Nicola, “Insuring Future Climate Catastrophes” (2012). Published Articles & Papers. Paper 171. 11 United Nations, Department of Economic and Social Affairs, Population Division (2018). World Urbanization Prospects: The 2018 Revision. 12 Knutson, T., and Co-authors, 2020: Tropical Cyclones and Climate Change Assessment: Part II: Projected Response to Anthropogenic Warming. Bull. Amer. Meteor. Soc., 101, E303–E322. 166 Swiss Re | Financial Report 2020 Qualitative scenarios help us focus our attention and modelling improvements on relevant factors that will affect the physical risk landscape. Relevant regional key risks and potential for risk reduction through adaptation were identified by IPCC in the Fifth Assessment Report (AR5).13 For the regions where Swiss Re is most exposed to weather-related risks (see AEL figure, page 153), a noticeable increase in flood damage is expected, especially beyond 2040 if no adequate adaptation measures are taken. Wildfire hazards in different regions have already reached medium-to-high risk levels and will continue to contribute to increasing economic and insured losses. Drought conditions will affect crop productivity and agriculture insurance and can lead to more land subsidence affecting property insurance. Swiss Re discussed the increasing relevance of these secondary perils in the face of climate change in recent sigma publications (sigma 2/2019, sigma 2/2020). On a societal level, our Economics of Climate Adaptation studies have shown that climate change can lead to an increase of economic losses in specific locations due to weather risks of up to 30% within the next 25 years. More importantly though, economic development, urbanisation, higher population densities and asset concentrations in flood plains are expected to be the dominant factors in increasing weather-related economic losses. As these factors become more pronounced, our models will gradually factor in this trend, since they are updated and refined at regular intervals. In addition, we have also started to assess different transition risk and opportunity scenarios that are relevant to the transition to a low, and ultimately net-zero, carbon economy. We focus on reducing our carbon intensity in both our investments and insurance activities and explore ways to accelerate this transition by allocating our investments and providing risk transfer solutions accordingly. Scenario analysis conclusion: We do not consider climate change to be a single factor posing a fundamental threat to the resilience of our business. It is one of many important factors we need to take into consideration when shaping our future business strategy. A key condition for our ability to continue acting as an ultimate risk-taker is diversification with regard to regions, lines of business, sectors and clients. In a world of strong or unmitigated climate change, however, the proportion of weather-related risks we could re/insure would decline and the protection gap would likely increase further. In light of the above, we are developing qualitative scenarios for physical and transition risks to be considered as part of our strategic business planning. 13 See eg Figure SPM.8 in IPCC AR5 Synthesis Report: Climate Change, Summary for Policymakers (2014). Swiss Re | Financial Report 2020 167 Climate-related financial disclosures Climate risk management The processes we use to identify, assess and manage climate-related risks are integrated into our risk management, underwriting and asset management. Sound risk management, underwriting and asset management lie at the core of the re/insurance business. This enables us to use our existing processes and instruments to address climate-related risks. Physical risks To assess our P&C businesses accurately and to structure sound risk transfer solutions, we need to clearly understand the economic impact of natural catastrophes and the potential effect of climate change on their frequency and severity. Natural catastrophes constitute one of the core risks modelled in Swiss Re’s risk landscape. Besides man-made risks, natural catastrophe risks are the key risk category in our P&C re/insurance risk landscape. We have an internal property risk modelling team that builds, maintains and updates sophisticated models for all relevant natural catastrophe risks (flood, tropical cyclones, windstorms, earthquakes). The models are based on current scientific knowledge and are regularly updated to include new scientific findings – including from our research collaborations with academic institutions – and to make use of advances in computing and modelling capabilities. Swiss Re’s proprietary and fully integrated risk models are important tools for managing the business: we use them to determine the economic capital required to support the risks on our books as well as to allocate risk-taking capacity to our different lines of business. Transition risks in our re/insurance business To ensure appropriate risk identification of transition risks and assess potential impacts on our business, we continue to monitor and identify such risks in risk management and casualty underwriting, as well as for relevant legal developments. For all types of transition risks described on pages 158 and 159, we have risk monitoring in place. Technological developments are monitored through Swiss Re’s respective underwriting units and pricing of associated covers is reviewed on an annual basis. General sustainability risks in our re/insurance business Our Sustainable Business Risk (SBR) Framework is an advanced risk management instrument that allows us to identify, assess and address social and environmental risks associated with our transactions, both on the underwriting and investment side. Two policies of our SBR Framework are particularly relevant in the context of climate change: the thermal coal policy and the oil and gas policy. In 2018, we introduced a thermal coal policy, pledging not to provide re/insurance to businesses with more than 30% exposure to thermal coal utilities or mining. The policy applies to both old and new thermal coal projects and across all lines of business. While it is easier to implement this policy in some parts of our business, for others the transition will take some time and require a continued and constructive dialogue with our clients. In 2020, we continued to implement the thermal coal policy for treaty business (see also Climate metrics and targets, pages 172–173). In this context, we had over 400 engagements with insureds, brokers, investors and regulators across all regions on the topic of thermal coal. 168 Swiss Re | Financial Report 2020 Phasing out the most severe oil and gas transition risks We implemented a project with the Norwegian energy research company Rystad Energy where we have studied the value chain CO2 intensities associated with the production of the world’s oil and gas companies. We found that the carbon emission intensities over the value chain of various hydrocarbons (naturally-occurring compounds that form the basis of crude oil, natural gas, coal and other important energy sources) can vary substantially. This analysis provided the basis for our updated oil and gas policy. Read more about this in our Sustainability Report 2020, page 39. To learn more about our SBR Framework, carbon risk steering mechanism and thermal coal and oil and gas policies, please visit our Sustainability Report 2020, pages 36–43. In addition, we started implementing our updated oil and gas policy to shift away from highly carbon-intensive oil and gas production (see box). From July 2021, we will no longer provide individual insurance covers for those oil and gas companies that are responsible for the world’s 5% most carbon-intensive oil and gas production. From July 2023, we will no longer provide individual insurance covers for those oil and gas companies that are responsible for the world’s 10% most carbon-intensive oil and gas production. Our oil and gas policy also prevents us from offering any re/insurance cover for offshore drilling activities in the Arctic. Our climate-related policies are initial steps towards the development of a comprehensive carbon-risk steering mechanism to manage and reduce the carbon intensity and associated risks embedded in our re/insurance business. In 2020, we made progress in applying a carbon footprinting methodology we had previously helped develop in a project with peers via the CRO Forum in our direct and facultative liability portfolios. This methodology will support our carbon risk steering towards reaching net-zero emissions on the liability side of our business by 2050. For further information on the carbon footprint of our direct insurance portfolio, see Climate metrics and targets, page 172. Swiss Re | Financial Report 2020 169 Our dedicated approach to climate risk management involves the systematic monitoring of the carbon footprint of our government bond, corporate bond and listed equity portfolio. For our corporate bond and listed equity portfolio, we also track related forward-looking indicators. In 2020, we further strengthened our approach to assessing the alignment of our portfolio with a 1.5°C target by evaluating the temperature alignment of our corporate bond and listed equity portfolio. As part of our active risk management, we no longer invest in coal and oil sands-related companies that are above the set thresholds, and monitor related investments that are below these thresholds (for specific information on the thresholds please refer to page 175). And consistent with our Group-wide Sustainable Business Risk Framework, we have defined further fossil fuel-related guidelines, such as avoiding investments in the 10% most carbon intensive oil and gas companies (for details, see page 169). Additional actions to support the transition to a net-zero emissions economy are described in Opportunities for our investments (pages 163–165) and Climate metrics and targets (pages 174–175). Climate-related financial disclosures Climate risk management Investments Swiss Re is a long-term investor. As a result, it is important that we also take a long-term view on the risk factors that may have an adverse impact on our portfolio, such as climate change. Together with sustainability, climate change is therefore a core topic for our Asset Management. We are committed to investing our assets responsibly in a controlled and structured way by integrating ESG considerations along the entire investment process. For more information on our approach to ESG integration, refer to our Responsible Investing homepage (www.swissre.com/ responsible-investing) as well as pages 45–51 of our Sustainability Report 2020. As a founding member of the UN-convened Net-Zero Asset Owner Alliance (AOA) launched in 2019, we have committed to having a net-zero emissions investment portfolio by 2050 in accordance with Article 2.1c of the Paris Agreement (www.swissre.com/ri-climate-action-aoa). Our commitment includes supporting the net-zero transition of economic sectors by advocating for and engaging on corporate and industry action. We consider engagement with investee companies to be a particularly effective instrument for enabling them to strengthen their long-term business performance. Swiss Re was instrumental to the development of the Alliance Inaugural 2025 Target Setting Protocol (TSP)14, a guide for individual and collective target setting and reporting by AOA members for the period from 2020 to 2025. In accordance with the TSP, we have defined targets for financing the transition, our engagement activities, the sub-portfolio, and investments in the coal sector, taking scientific evidence into account to the extent possible (for details, see Climate metrics and targets, pages 174–175). 14 https://www.unepfi.org/wordpress/wp-content/uploads/2021/01/Alliance-Target-Setting-Protocol-2021.pdf 170 Swiss Re | Financial Report 2020 Our investment-related climate strategy Set targets1 Take actions Measure Report Define targets to reach net-zero emissions in alignment with 1.5°C by 2050 at the latest Actively manage transition and physical risks, and support real economy transition to net zero Measure and monitor trajectory of needed development towards net zero Inform shareholders and other stakeholders transparently on developments • Financing targets • Renewable infrastructure • Renewable infrastructure loan investment target2 and implementation • Green bond investment target3 and implementation loan investments • Green bond investments • Financial Report: TCFD • Voting & engagement targets • Exercise voting rights & • Voting & engagement engage records • Sub-portfolio targets • Corporate bonds • Listed equities • Real estate • Sector targets • Corporate bonds & listed equities coal phase-out & coal expansion restriction • Infrastructure loan & private placement fossil fuel4 guidelines • Carbon Footprint • Corporate bonds • Listed equities • Real estate • Government bonds • Fossil fuel exposure • Forward-looking indicators In alignment with the Net-Zero Asset Owner Alliance Inaugural 2025 Target Setting Protocol. Investment target also includes social infrastructure loans. Investment target also includes social and sustainability bonds. 1 2 3 4 Fossil fuel: coal, oil & gas (including oil sands). Source: Swiss Re • Sustainability Report • Responsible Investing homepage • Assessments and questionnaires (eg PRI, CDP) Swiss Re | Financial Report 2020 171 Climate-related financial disclosures Climate metrics and targets We use a number of metrics and targets to assess and manage relevant climate-related risks and opportunities. We assess and manage climate-related risks and opportunities in our re/insurance business, our investments and in our own operations. Re/insurance Annual expected losses (AEL) AEL for weather-related natural perils can be used as an indicator for our average current climate-related risk exposure. However, AEL figures do not, by definition, provide an adequate measure for the potential risk of individual years with exceptionally intense natural catastrophe losses. Adequate metrics for the risk of individual rare natural catastrophes are Value at Risk (VaR) or Tail Value at Risk (Tail VaR). For example, the 99.5% VaR measures the loss likely to be exceeded in only one year out of two hundred, see also page 71, where the results of insurance risk stress tests are provided for peak insurance risks. The AEL figures are the result of expected weather activities, the vulnerability of insured assets and operations, their values and the volume and structure of our insurance products. Changes in the AEL figures will show the evolution of our climate risk exposure. This could be due to climate change, but also due to changes in the vulnerability of insured assets and operations, their values or changes in our business strategy. AEL figures are updated on an annual basis. The five weather-related perils with the highest gross AEL for our business as of the end of 2020 are indicated in the diagram on the right. 172 Swiss Re | Financial Report 2020 First steps to align our underwriting portfolio with the Paris Agreement We have started to develop a carbon risk steering mechanism with the goal to align our underwriting portfolio with the Paris Agreement and decarbonise it by 2050. The first step was the introduction of a thermal coal policy, followed by the revision of our oil and gas policy (see page 169, Climate risk management, for details). In 2020, we applied for the first time the carbon footprinting methodology we had previously co-developed with the CRO Forum to underwriting. We applied the methodology in our direct insurance portfolios. Based on this methodology, we estimate the weighted average carbon intensity of our direct insurance portfolios at 120 tonnes of CO2 equivalent per million USD of revenue (120 tonnes CO2e/USDm revenue). We will gradually expand the scope of this metric. Once fully implemented, this will help us steer the overall carbon footprint embedded in our re/insurance businesses. Ultimately, it will support us in reaching net-zero emissions by 2050 on the liability side of our balance sheet. Annual expected losses for weather-related perils, Swiss Re Group (USD m) 500 680 770 500 680 770 North Atlantic hurricane US Tornado European windstorm Japanese tropical cyclone Flood Europe Source: Swiss Re Wirbelsturm im Nordatlantik Tornado in den USA Windsturm in Europa Tropischer Wirbelsturm in Japan Über- schwemmung in Europa 230 220 240 150 150 180 130 140 210 80 90 100 2018 2019 2020 230 220 240 150 150 180 130 140 210 80 90 100 2018 2019 2020 Weather-related catastrophes: insured vs uninsured losses There is a substantial protection gap between total economic losses from weather-related catastrophes and insured losses in all regions. This data does not represent a company-specific metric but is an important overall risk indicator (see table below). in USD bn, at 2020 prices 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Uninsured loss in m USD, inflated Insured loss in m USD, inflated Continent 300 250 200 150 100 50 0 a i s A e p o r u E a c i r f A s a c i r e m A a i s A e p o r u E a c i r f A s a c i r e m A Z N A / a n a e c O i Z N A / a n a e c O i a i s A e p o r u E a c i r f A s a c i r e m A Z N A / a n a e c O i a i s A e p o r u E a c i r f A s a c i r e m A a i s A e p o r u E a c i r f A s a c i r e m A Z N A / a n a e c O i Z N A / a n a e c O i a i s A e p o r u E a c i r f A s a c i r e m A Z N A / a n a e c O i a i s A e p o r u E a c i r f A s a c i r e m A a i s A e p o r u E a c i r f A s a c i r e m A Z N A / a n a e c O i Z N A / a n a e c O i a i s A e p o r u E a c i r f A s a c i r e m A Z N A / a n a e c O i a i s A e p o r u E a c i r f A s a c i r e m A a i s A e p o r u E a c i r f A s a c i r e m A Z N A / a n a e c O i Z N A / a n a e c O i Insured loss Uninsured loss Source: Swiss Re Institute Another important step we took in 2020 to advance our carbon steering mechanism was the development of an exit strategy for thermal coal in our treaty business. This complements the policies we have already developed with a focus on our direct and 2012 facultative business. Together, they put us on course to reach our Group-wide target of completely phasing out our thermal coal business in OECD countries by 2030, and in the rest of the world by 2040. in Mrd. USD, zu Preisen von 2020 2010 2011 300 250 200 150 100 Our approach defines thresholds for coal exposures in treaties across our property, engineering, casualty, credit and surety and marine cargo lines of business. The initial coal exposure thresholds will become effective in 2023 and vary depending on the line of business and the geographical area. These thresholds will then be gradually lowered until the final phase-out targets are reached. 0 50 These coal-related actions in our treaty business are important steps on our path to reaching a net-zero emissions re/insurance portfolio by 2050. They are also in line with the commitment we made in 2019 by becoming a member of the Powering Past Coal Alliance. 2016 2015 2013 2014 Climate-related commitments to the United Nations and the Insurance Development Forum Reflecting our efforts to help expand re/insurance protection by working with public-sector clients, we made a commitment to the United Nations to advise up to 50 sovereigns and sub-sovereigns on climate risk resilience and to offer them USD 10 billion of insurance cover against this risk by 2020. You can see the progress we have made against this goal in the table below. 2018 2019 2020 In addition, Swiss Re and a number of our industry peers have endorsed the joint Tripartite Agreement between the Insurance Development Forum (IDF), the UN Development Programme, and the government of Germany, in which they 2017 commit to increasing insurance protection in climate-exposed countries. Industry members collectively committed to offer up to USD 5 billion of risk capacity for climate risk insurance to contribute to the G7 InsuResilience target of protecting 500 million individuals against climate risk by 2025. In 2020, the Tripartite formed 13 country teams, with three more in the exploration phase. Swiss Re contributed to the projects alongside ten other industry members. Uninsured loss in m USD, inflated Insured loss in m USD, inflated Continent i i r r f f A A Total climate protection offered to (sub-)sovereigns since 2014 i r e m A i r e m A i r e m A i r e m A i r f A i r f A i r f A i s A i s A i s A i s A i i i i a k * a k n e a k * a k n e a k * a k n e a k a k a k n e n e * a k * a k i r f A a p o r u E Z N A / n e n a e z O Number of (sub-)sovereigns advised Z N A / n e n a e z O a p o r u E i r e m A i s A a p o r u E Z N A / n e n a e z O a p o r u E Z N A / n e n a e z O i a p o r u E Z N A / n e n a e z O n e i s A a p o r u E a k i r f A * a k i r e m A n e i s A a p o r u E * a k i r e m A Z N A / n e n a e z O i Z N A / n e n a e z O i n e i s A a p o r u E a k i r f A * a k i r e m A a k i r f A Z N A / n e n a e z O i a k i r f A * a k i r e m A * a k i r e m A n e i s A a p o r u E Z N A / n e n a by 2018 e z O 96 i n e i s A a k i r f A a p o r u E Z N A / n e n a by 2019 e z O 120 i n e i s A * a k i r e m A a p o r u E Z N A / n e n a by 2020 e z O i 130 Amount of climate protection offered (in USD) Versicherte Schäden Nicht versicherte Schäden *Nordamerika und Lateinamerika/Karibik 8.2 billion Quelle: Swiss Re Institute 10.0 billion 10.7 billion Swiss Re | Financial Report 2020 173 Climate-related financial disclosures Climate metrics and targets Investments Through our dedicated climate strategy, we are working to achieve a net-zero emissions investment portfolio by 2050 by setting intermediate targets every five years and regularly reporting on progress. In accordance with the AOA’s TSP, we set targets for the years 2020 to 2025. For our corporate bond, listed equity and real estate sub-portfolio targets, we set the base year at the end of 2018, reflecting previous portfolio actions. Our investment-related climate targets and actions for 2020–2025 Targets by 2025 aligned with the Net-Zero Asset Owner Alliance Inaugural 2025 Target Setting Protocol Actions Financing Transition • Green bonds: USD 4bn1 • Renewable infrastructure loans: +USD 750m2 • Green bonds: constant market monitoring to identify potential investments • Renewable infrastructure loans: constant market monitoring to identify potential investments Engagement Engagement topic: alignment with 1.5°C target • Engagement with investee companies delegated to investment managers based on Swiss Re Engagement Framework and portfolio monitoring results • Direct engagement with investment managers • Engagement collaboration through Climate Action 100+ Sub-Portfolio • Corporate bonds & listed equities: –35% carbon • Corporate bonds & listed equities: constant portfolio intensity3 • Real estate: –5% carbon intensity4 monitoring to identify optimisation opportunities, also aligned with engagement targets and actions • Real estate: ongoing portfolio improvements through refurbishments and energy usage optimisations Sector • Corporate bonds & listed equities: • Corporate bonds & listed equities: coal maturities to run coal phase-out by 2030 off by 2030, ongoing monitoring • Infrastructure loans & private placements: maturity • Corporate bonds & listed equities: expansion restrictions limitation for fossil fuel5-related investments for capital expenditures >USD 100 million for coal mining, coal-fired capacity >300 megawatts for coal-based power generation • Infrastructure loans & private placements: fossil fuel5 guideline application in investment decisions Investment target also includes social and sustainability bonds. Investment target also includes social infrastructure loans. 1 2 3 Base year 2018. 4 Base year 2018. 5 Fossil fuel: coal, oil & gas (including oil sands). 174 Swiss Re | Financial Report 2020 Our long-term objective for 2030 is to fully exit coal-related assets, such as coal mining and coal-based power generation, for our listed equity and corporate bond portfolio via normal portfolio reallocations. To increase efforts to mitigate transition risks in our portfolio, we have also begun to limit investments in companies active in coal mining or coal-based power generation that are planning to expand their capacity. We therefore apply a threshold for capital expenditures above USD 100 million for coal mining expansion, and one of 300 megawatts for coal-fired capacity, applicable to our listed equity and corporate bond portfolios. To further strengthen our mitigation strategy in less liquid asset classes, we developed dedicated fossil fuel guidelines for our infrastructure loan and our private placement portfolios in 2020. This is particularly important as both have a long-term investment horizon. For upstream (exploration and production), midstream (transportation and storage) and downstream (refinement and distribution) investments, we are limiting the maturities for fossil fuel-related assets. The guidelines ensure an investment universe that is in line with our commitment to a net-zero emissions investment portfolio by 2050. Financing transition targets Green bond proceeds are used to finance environmentally sustainable projects and thereby facilitate the transition towards a net-zero emissions economy. By the end of 2020, we held USD 2.3 billion in green bonds. As part of our adaptation strategy, our mandate also considers social and sustainability bonds. This enables us not only to support the environment, but also underserved groups or populations, thus generating a positive impact on society. Our ambition is to achieve our investment target of USD 4 billion for green, social and sustainability bonds by the end of 2024. Infrastructure loans are an attractive asset class for our investment portfolio given their credit quality and inherent liquidity premium. Renewable infrastructure loans in particular are used to finance environmentally sustainable infrastructure projects. By the end of 2020, we held USD 468 million of renewable energy infrastructure loans and an additional USD 455 million were allocated to social infrastructure, such as hospitals, student dorms or affordable housing projects. As part of our climate-positive investments, we have for the first time set a target to increase our renewable energy and social infrastructure loan portfolio by USD 750 million by the end of 2024. Engagement targets We believe that engagement with the real economy is an integral component to support the limitation of global warming to 1.5°C. In 2020, we therefore established an Engagement Framework aligned with the engagement targets defined in the AOA’s TSP. For details on our external managers’ engagement activities related to our two topics “Alignment of Business Model with 1.5°C Target” and “Disclosure of ESG Key Metrics”, please refer to the Sustainability Report 2020, pages 50–51. Sub-portfolio targets As Swiss Re committed to have a net-zero emissions investment portfolio by 2050, we established an intermediate portfolio emission reduction target for the period from 2020 to 2025. Informed by IPCC’s pathways consistent with the 1.5°C target, we defined a carbon intensity reduction target of –35% for our corporate bond and listed equity portfolio, to be achieved by 2025 with 2018 as the base year. This is also well in line with the AOA’s TSP recommendation of a reduction of at least –16% to –29%. Having chosen 2018 as the base year for our target, we included an additional 5% reduction for the one year of difference to the AOA’s base year. Furthermore, we set a carbon intensity reduction target for our Swiss and German real estate investment portfolio of –5% with 2018 as the base year, to be achieved by 2025. This builds on our analysis showing that the portfolio emission intensity is already well aligned with the 1.5°C trajectory. Sector targets Coal assets are particularly carbon intensive and susceptible to stranded asset risk given the long life of these assets, as well as the evolving regulations on carbon emissions. To ensure we actively manage such risks, we have stopped investing in companies that use at least 30% thermal coal for power generation or produce 30% or more of their revenues from thermal coal mining. We also exclude oil sands companies that generate 20% or more of their revenues from such operations from the investment universe. Furthermore, in 2019, we extended our mitigation approach by implementing an absolute coal threshold to identify large carbon emitters with a diversified business mix, where relative thresholds may provide inadequate guidance. We do not invest in mining companies producing at least 20 million tonnes of coal per year and power utility generators with more than 10 gigawatts of installed coal fire capacity. Additionally, as part of the updated oil and gas policy of our Group-wide Sustainable Business Risk Framework, we divested from the world’s 10% most carbon-intensive oil and gas companies in 2020. Swiss Re | Financial Report 2020 175 Climate-related financial disclosures Climate metrics and targets Carbon footprint of our investment portfolio In line with TCFD guidelines, we monitor the carbon footprint of our corporate bond and listed equity portfolio on an ongoing basis. For the carbon footprints of these portfolios, we use the metric “weighted average carbon intensity”, which defines the portfolio carbon intensity based on relative investment share. We also monitor any coal-related activities in our private equity investments. Carbon footprint of our corporate bond portfolio The US corporate bond portfolio remains below its corresponding benchmark in terms of weighted average carbon intensity, given its continued underweight in high carbon intensity holdings. 322 174 163 134 Since 2019, the UK corporate bond portfolio carbon intensity further decreased, whereas the index carbon intensity remained relatively stable. Carbon footprint of our listed equity portfolio The portfolio of listed equities continues to be significantly less carbon intensive than the corresponding benchmark due to its focus on high quality companies with low carbon intensity. 130 73 US Corp IG ESG BB+ index US IG corporate bond portfolio (tonnes CO2e /USDm revenue) 322 174 163 134 US Corp IG ESG BB+ index US IG Kreditportefeuille (Tonnen CO2e /Mio. USD Umsatz) UK Corp IG ESG BB+ index UK IG corporate bond portfolio (tonnes CO2e /USDm revenue) UK Corp IG ESG BB+ index UK IG Kreditportefeuille (Tonnen CO2e / Mio. USD Umsatz) 130 73 MSCI ACWI ESG Leaders index Listed equity portfolio (tonnes CO2e /USDm revenue) MSCI ACWI ESG Leaders index Aktienportefeuille (Tonnen CO2e /Mio. USD Umsatz) Carbon footprint of our corporate bond and listed equity portfolio Since the end of 2015, carbon intensities in both the corporate bond and the listed equity portfolio decreased substantially as part of our fossil fuel divestment. In 2020, carbon footprints for both, the corporate bond and listed equity portfolios, further decreased. In alignment with the AOA’s TSP, we adjusted the carbon footprint scope of our listed equity portfolio to include ETFs and exclude strategic holdings. 31/12/2015 30/12/2016 29/12/2017 31/12/2018 31/12/2019 31/12/2020 369 285 252 242 168 161 152 91 198 123 82 172 73 51 Corporate bond portfolio Listed equity portfolio – old scope Listed equity portfolio – new scope (tonnes CO2e/ USDm revenue) 31.12.2015 30.12.2016 29.12.2017 31.12.2018 31.12.2019 31.12.2020 369 285 252 242 176 Swiss Re | Financial Report 2020 168 161 152 91 198 123 82 172 73 51 Unternehmens- Börsennotiertes anleiheportefeuille Aktienportefeuille – Börsennotiertes Aktienportefeuille– (Tonnen CO2e / Mio. USD Umsatz) alter Erhebungsumfang neuer Erhebungsumfang To take our dedicated approach towards climate risk management one step further, we started to measure the carbon intensity of our government bonds in 2020. We implemented a widely adopted approach for these bonds, which constitute the largest holding within our investment portfolio. Here, the metric “weighted average carbon intensity” is also defined as the portfolio carbon intensity based on relative investment share but is combined with an additional element allowing for the comparison of the carbon intensity of economies. The greenhouse gas emissions of a specific bond’s issuing country are divided by its gross domestic product adjusted by purchasing power parity (PPP). This enables the equitable comparison of carbon intensity in terms of physical production and corresponding environmental impact. Carbon footprint of our government bond portfolio The composition of our government bond portfolio is impacted by the fact that asset-liability management is at the core of our investment approach. In 2020, Swiss Re’s government bond portfolio was less carbon intensive than the G201 countries due to our higher allocation to low carbon intensity countries. 0.42 0.32 G20 Swiss Re (kg CO2e / USD GDP PPP-adjusted) 1 G20 carbon intensity calculated as total of emissions of the G20 divided by the total PPP-adjusted GDP. 0,42 0,32 G20 Swiss Re (kg CO2e / USD BIP KKP-bereinigt) Swiss Re | Financial Report 2020 177 Climate-related financial disclosures Climate metrics and targets Greenhouse gas emissions from our own operations (Scope 1, 2 and 3) Reducing our operational carbon footprint is an important part of our Group Sustainability Strategy. In 2003, Swiss Re was one of the first major companies to become carbon neutral. By the end of 2020, we achieved 100% renewable power sourcing for our operations. All remaining emissions are compensated by purchasing high-quality carbon offsets (carbon avoidance certificates) in line with our carbon neutrality claim. Successful conclusion of our Greenhouse Neutral Programme Our first implementation plan to become carbon neutral was our Greenhouse Neutral Programme, starting in 2003 and ending in 2020. Throughout the course of the programme, we publicly reported on our Scope 1 and 2 greenhouse gas emissions, plus a major source of Scope 3 emissions (business travel). From 2003 to 2013, we cut CO2 emissions per employee (full-time equivalent, FTE) by 49.3%. From 2013 onward, we expanded our reporting to include further Scope 3 emissions such as waste and paper. By the end of 2020, we had reduced CO2 emissions by another 59.6% (2019: 10%) per employee relative to the 2013 level. As the 2020 data is distorted by the impact of the COVID-19 pandemic, we also show the figures per end of 2019 where relevant (see table on next page). 178 Swiss Re | Financial Report 2020 CO2NetZero Programme to reduce our operational footprint to net zero Swiss Re has committed to reducing its operational CO2 footprint to net-zero emissions by 2030. To achieve this goal, we will “do our best, remove the rest” under our CO2NetZero Programme. “Doing our best” means we will intensify our efforts to reduce emissions. A special focus lies on our business travel emissions, which are currently responsible for the bulk of our operational carbon footprint. We have set ourselves the company-wide target of reducing our flight emissions by 30% in 2021, relative to the 2018 level, and will define a new, ambitious target for the post-pandemic period. “Removing the rest” means we are moving from buying conventional carbon offsets to supporting carbon removal projects to compensate for any unavoided emissions. Carbon removal is a new form of emission compensation that extracts CO2 out of the atmosphere and stores it permanently. This is a prerequisite for balancing remaining gross emissions in any net-zero emissions target, including the Paris Agreement. Carbon removal is currently much more expensive than conventional carbon offsetting, as the carbon removal industry is still in its infancy. To cover the first-mover price for carbon removal certificates, we are stepping up our internal carbon levy from less than USD 10 per tonne of CO2 to USD 100 per tonne of CO2 in 2021. Swiss Re is the first multinational company with a triple-digit real internal carbon price on both its direct emissions and indirect operational emissions (such as business travel). A real carbon price – unlike the more commonly used shadow carbon price – impacts budgets and is therefore particularly effective in fostering low-carbon decision-making within the company. Externally, a triple-digit carbon price signals to our stakeholders that Swiss Re is a credible partner when it comes to addressing climate risks. The new carbon steering levy will gradually increase to USD 200 per tonne of CO2 by 2030. This price transparency and the 10-year planning horizon will allow us to enter into long-term purchase agreements with carbon removal service providers, which sends a particularly strong market signal to the emerging carbon removal industry. CO2 emissions per employee (full-time equivalent, FTE), Swiss Re Group 20131 kg/FTE 20191 kg/FTE 2020 kg/FTE Change in % since 2019 Change in % 2013–20192 Change in % 2013–2020 Scope 1 Heating Scope 2 Power Scope 3 Business travel Copy paper Waste Water Technical gases Commuting Total 396 313 3 724 34 50 13 97 1 225 5 852 202 137 3 849 10 33 9 98 926 5 266 172 44 1 626 6 18 7 38 454 2 363 –15.2 –68.0 –57.8 –45.8 –47.0 –28.0 –61.8 –51.0 –55.1 –49.0 –56.2 3.4 –70.6 –34.0 –30.8 1.0 –24.4 –10.0 –56.6 –86.0 –56.3 –83.6 –64.9 –50.6 –61.4 –62.9 –59.6 1 The figures for 2013 and 2019 have been restated due to the sale of our ReAssure business in the UK and the adjustment of how we handle renewable electricity credentials. An overview of the restatement is available in the Sustainability Report, page 90. 2 Because of the distorting effect of the COVID-19 crisis, we also show the figures per end of 2019. You can learn more about our Greenhouse Neutral Programme and net-zero commitment for operations in our Sustainability Report 2020, pages 60–69. Swiss Re | Financial Report 2020 179 Financial statements 180 Swiss Re  |  Financial Report 2020 Contents Group financial statements   Income statement   182 182 Statement of comprehensive income   183 Balance sheet   Statement of shareholders’ equity   Statement of cash flows   186 188 190 294 294 295 296 298 306 307 Notes to the Group financial statements  193 Swiss Re Ltd  Annual Report  Income statement  Balance sheet  Notes  Proposal for allocation of   disposable profit  Report of the statutory auditor  Note 1 Organisation and summary of  accounting policies   Note 2 Information on business   segments   Note 3 Insurance information   Note 4 Premiums written   Note 5 Unpaid claims and claim   adjustment expenses   193 202 213 218 219 Note 6 Deferred acquisition costs (DAC)   and acquired present value of future   profits (PVFP)   234 Note 7 Investments   Note 8 Fair value disclosures   236 244 Note 9 Derivative financial instruments   254 Note 10 Acquisitions and disposals   258 Note 11 Debt and contingent capital  instruments   Note 12 Leases   Note 13 Earnings per share   Note 14 Income taxes   Note 15 Benefit plans   Note 16 Share-based payments   Note 17 Compensation, participations   and loans of members of governing   bodies   Note 18 Related parties   Note 19 Commitments and contingent  liabilities   Note 20 Significant subsidiaries and   equity investees   Note 21 Variable interest entities   Report of the statutory auditor   Group financial years 2011–2020   259 262 263 264 267 273 275 276 277 278 281 286 292 Swiss Re  |  Financial Report 2020 181 Financial statements Income statement For the years ended 31 December USD millions Revenues Gross premiums written Net premiums written Change in unearned premiums Premiums earned Fee income from policyholders Net investment income – non-participating business1 Net realised investment gains/losses – non-participating business2 Net investment result – unit-linked and with-profit business Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Return credited to policyholders Acquisition costs Operating expenses Total expenses before interest expenses Income/loss before interest and income tax expense Interest expenses Income/loss before income tax expense Income tax expense/benefit Net income/loss before attribution of non-controlling interests Income/loss attributable to non-controlling interests Net income/loss attributable to common shareholders Earnings per share in USD Basic Diluted Earnings per share in CHF3 Basic Diluted Note 2019 2020 4 4 3 3 7 7 7 3 3 3 14 13 13 13 13 42 228 39 649 –1 675 37 974 620 4 171 1 580 4 939 30 49 314 –18 683 –13 087 –4 633 –7 834 –3 579 –47 816 1 498 –589 909 –140 769 –42 727 2.46 2.39 2.46 2.40 42 951 39 827 494 40 321 449 2 988 1 730 –2 187 37 43 338 –19 838 –13 929 1 760 –8 236 –3 597 –43 840 –502 –588 –1 090 266 –824 –54 –878 –3.04 –3.04 -2.97 –2.97 1 Total impairments for the years ended 31 December of USD 80 million in 2019 and of USD 5 million in 2020, respectively, were fully recognised in earnings. 2 Total impairments for the years ended 31 December of USD 10 million in 2019 and of USD 29 million in 2020, respectively, were fully recognised in earnings. 3 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates. The accompanying notes are an integral part of the Group financial statements. 182 Swiss Re | Financial Report 2020 Statement of comprehensive income For the years ended 31 December USD millions Net income/loss 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 cash flow hedges Change in foreign currency translation Change in adjustment for pension benefits Change in credit risk of financial liabilities at fair value option Transactions with non-controlling interests Disposal of ReAssure Other comprehensive income/loss attributable to non-controlling interests Total comprehensive income/loss before attribution of non-controlling interests Comprehensive income/loss attributable to non-controlling interests Total comprehensive income/loss attributable to common shareholders The accompanying notes are an integral part of the Group financial statements. 2019 769 3 375 2 –9 46 –29 –2 –56 341 4 437 –383 4 054 2020 –824 2 741 2 52 –24 1 –2 080 127 –5 –181 –186 Swiss Re | Financial Report 2020 183 Financial statements Reclassification out of accumulated other comprehensive income For the years ended 31 December 2019 USD millions Balance as of 1 January Transactions with non-controlling interests Change during the period Amounts reclassified out of accumulated other comprehensive income Tax Balance as of period end 2020 USD millions Balance as of 1 January Amounts reclassified on disposal of ReAssure Change during the period Amounts reclassified out of accumulated other comprehensive income Tax Balance as of period end Net unrealised investment gains/losses1 1 905 –128 5 668 –1 491 –802 5 152 Net unrealised investment gains/losses1 5 152 –2 133 5 634 –2 263 –630 5 760 Other-than- temporary impairment1 –3 Cash flow hedges1 6 1 –57 Foreign currency translation1, 2 –5 904 64 Adjustment for pension benefits3 –828 7 –93 2 –1 48 –2 135 –89 –5 794 46 18 –850 Credit risk of financial liabilities at fair value option 5 –2 3 Other-than- temporary impairment1 –1 Cash flow hedges1 –2 17 –15 –1 0 Foreign currency translation1, 2 –5 794 –13 –166 Adjustment for pension benefits3 –850 66 –166 18 200 –5 755 137 5 –808 Credit risk of financial liabilities at fair value option 3 1 4 Accumulated other comprehensive income –4 819 –56 5 516 –1 262 –871 –1 492 Accumulated other comprehensive income –1 492 –2 080 5 320 –2 123 –425 –800 1 Reclassification adjustment included in net income is presented in “Net realised investment gains/losses – non-participating business”. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. 3 Reclassification adjustment included in net income is presented in “Operating expenses”. The accompanying notes are an integral part of the Group financial statements. 184 Swiss Re | Financial Report 2020 This page is intentionally left blank. Swiss Re | Financial Report 2020 185 Financial statements Balance sheet Assets As of 31 December USD millions Investments Fixed income securities: Note 7, 8, 9 2019 2020 Available-for-sale (including 14 175 in 2019 and 7 435 in 2020 subject to securities lending and repurchase agreements) (amortised cost: 2019: 74 780; 2020: 73 862) Trading (including 1 911 in 2019 and 1 551 in 2020 subject to securities lending and repurchase agreements) Equity securities at fair value through earnings (including 186 in 2019 and 59 in 2020 subject to securities lending and repurchase agreements) Policy loans, mortgages and other loans Investment real estate Short-term investments (including 1 157 in 2019 and 3 969 in 2020 subject to securities lending and repurchase agreements) Other invested assets Investments for unit-linked and with-profit business (including equity securities at fair value through earnings: 520 in 2019 and 463 in 2020) Total investments Cash and cash equivalents (including 1 257 in 2019 and 773 in 2020 subject to securities lending, and 4 in 2019 and 3 in 2020 backing unit-linked and with-profit contracts) 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 Assets held for sale¹ 6 6 14 10 79 163 81 080 2 410 1 938 2 993 3 021 2 528 5 768 7 343 4 899 3 315 2 602 16 082 10 314 520 103 746 463 120 693 7 562 673 15 271 5 898 9 472 7 838 1 042 3 945 466 4 726 3 489 74 439 5 470 626 15 934 5 892 10 726 8 230 928 4 021 337 6 079 3 686 Total assets 238 567 182 622 1 Please refer to Note 10 ”Acquisitions and disposals” for more details. The accompanying notes are an integral part of the Group financial statements. 186 Swiss Re | Financial Report 2020 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 Liabilities held for sale¹ Total liabilities Equity Common shares, CHF 0.10 par value 2019: 327 404 704; 2020: 317 497 306 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 Cash flow hedges, 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 Shareholders’ equity Non-controlling interests Total equity Total liabilities and equity 1 Please refer to Note 10 ”Acquisitions and disposals” for more details. The accompanying notes are an integral part of the Group financial statements. Note 2019 2020 5 8 14 11 7 11 10 72 373 19 836 5 405 13 365 3 521 889 378 5 663 185 7 191 10 138 68 586 207 530 31 256 –2 220 5 152 –1 –2 –5 794 –850 3 –1 492 32 676 29 251 1 786 31 037 81 258 22 456 5 192 13 309 5 146 1 097 336 6 740 153 8 093 11 584 155 364 30 251 –1 396 5 760 –1 –5 755 –808 4 –800 29 050 27 135 123 27 258 238 567 182 622 Swiss Re | Financial Report 2020 187 Financial statements Statement of shareholders’ equity For the years ended 31 December USD millions Common shares Balance as of 1 January Cancellation of shares bought back Balance as of period end Additional paid-in capital Balance as of 1 January Transactions with non-controlling interests1 Cancellation of shares bought back Share-based compensation Realised gains/losses on treasury shares Balance as of period end Treasury shares, net of tax Balance as of 1 January Purchase of treasury shares Cancellation of shares bought back Issuance of treasury shares, including share-based compensation to employees Balance as of period end Net unrealised investment gains/losses, net of tax Balance as of 1 January Transactions with non-controlling interests1 Disposal of ReAssure2 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 Cash flow hedges, net of tax Balance as of 1 January Transactions with non-controlling interests1 Changes during the period Balance as of period end The accompanying notes are an integral part of the Group financial statements. 188 Swiss Re | Financial Report 2020 2019 2020 32 –1 31 496 –241 –23 –9 33 256 –2 291 –1 041 1 020 92 –2 220 1 905 –128 3 375 5 152 –3 2 –1 6 1 –9 –2 31 –1 30 256 9 –27 –1 14 251 –2 220 –228 1 011 41 –1 396 5 152 –2 133 2 741 5 760 –1 –1 –2 2 0 USD millions Foreign currency translation, net of tax Balance as of 1 January Transactions with non-controlling interests1 Disposal of ReAssure2 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 Transactions with non-controlling interests1 Disposal of ReAssure2 Changes during the period Balance as of period end Credit risk of financial liabilities at fair value option, net of tax Balance as of 1 January Changes during the period Balance as of period end Retained earnings Balance as of 1 January Net income/loss after attribution of non-controlling interests Dividends on common shares Cancellation of shares bought back Impact of ASU 2016-023 Balance as of period end Shareholders’ equity Non-controlling interests Balance as of 1 January Transactions with non-controlling interests1 Income/loss attributable to non-controlling interests Other comprehensive income attributable to non-controlling interests: Change in net unrealised investment gains/losses Change in foreign currency translation Other Disposal of ReAssure2 Balance as of period end Total equity 2019 2020 –5 904 64 46 –5 794 –828 7 –29 –850 5 –2 3 34 512 727 –1 659 –996 92 32 676 29 251 797 606 42 380 –25 –14 1 786 31 037 –5 794 –13 52 –5 755 –850 66 –24 –808 3 1 4 32 676 –878 –1 765 –983 29 050 27 135 1 786 4 54 179 –53 1 –1 848 123 27 258 1 In 2019, MS&AD Insurance Group Holdings, Inc. (MS&AD) acquired a 10% stake in ReAssure Group Plc. (ReAssure), then a subsidiary of the Group, increasing its total non-controlling interest to 25%. In the fourth quarter of 2019, the Group agreed to reacquire the 25% stake in ReAssure in connection with the agreement to sell ReAssure to Phoenix Group Holdings Plc. (Phoenix). In the third quarter of 2020, the Group completed the agreed sale. 2 In the third quarter of 2020, the Group completed the sale of ReAssure to Phoenix. 3 Impact of Accounting Standards Update in 2019. Please refer to the Annual Report 2019 for more details. The accompanying notes are an integral part of the Group financial statements. Swiss Re | Financial Report 2020 189 Financial statements Statement of cash flows For the years ended 31 December USD millions Cash flows from operating activities Net income/loss attributable to common shareholders Add 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 and with-profit business Net cash provided/used by investing activities Cash flows from financing activities Policyholder account balances, unit-linked and with-profit business: Deposits Withdrawals Issuance/repayment of long-term debt Issuance/repayment of short-term debt Purchase/sale of treasury shares Dividends paid to shareholders Transactions with non-controlling interests Net cash provided/used by financing activities The accompanying notes are an integral part of the Group financial statements. 190 Swiss Re | Financial Report 2020 2019 2020 727 42 538 –5 515 –283 10 659 –5 –571 –472 –471 –252 4 397 51 008 7 732 –58 240 –405 2 225 –1 495 –869 340 581 1 584 2 461 551 –2 629 3 614 –2 205 –946 –1 659 634 –2 640 –878 54 617 972 175 4 736 393 214 –281 –630 22 5 394 50 302 7 333 –52 212 –9 681 1 782 –1 749 –1 587 –2 535 –1 262 1 888 –7 721 215 –1 630 1 071 –190 –199 –1 765 –2 498 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 1 January classified as assets held for sale Reclassified to assets held for sale Cash and cash equivalents as of 31 December 2019 4 218 88 4 306 5 985 –2 729 7 562 2020 –4 825 4 –4 821 7 562 2 729 5 470 Interest paid was USD 572 2020, respectively. Tax paid was USD 611 million and USD 563 million (thereof USD 24 million and USD 7 million for letter of credit fees) for 2019 and million and USD 364 million for 2019 and 2020, respectively. Non-cash investing activities for 2020 amounted to USD 1.1 billion. USD 1.4 billion reflects the receipt of shares in Phoenix as part of the sales consideration for ReAssure to Phoenix. This is reduced by USD 0.3 billion representing the transaction with MS&AD. Please refer to Note 10 “Acquisitions and disposals“ for more details. Cash and cash equivalents include restricted cash and 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 Re | Financial Report 2020 191 Financial statements This page is intentionally left blank. 192 Swiss Re | Financial Report 2020 Notes to the Group financial statements 1 Organisation and summary of significant accounting policies Nature of operations The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss Re Ltd (the parent company) and its subsidiaries (collectively, the “Swiss Re Group” or the “Group”). The Swiss Re 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 consisting of insurance companies, mid- to large-sized corporations and public-sector clients. Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law. All significant intra-group transactions and balances have been eliminated on consolidation. On 22 July 2020, the Group completed the sale of ReAssure to Phoenix. Subsequently, the subject business was deconsolidated as of that date. Further details on the transaction are provided in Note 10 “Acquisitions and disposals”. The Board of Directors of Swiss Re Ltd has decided that as of 1 January 2024 the Group’s consolidated financial statements will be prepared in accordance with International Financial Reporting Standards (IFRS). Financial statements for periods ending on or prior to 31 December 2023 will continue to be prepared in accordance with US GAAP. Principles of consolidation The Group’s financial statements include the consolidated financial statements of Swiss Re Ltd and its subsidiaries. Voting entities which Swiss Re Ltd 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 Swiss Re 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 Swiss Re 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 Swiss Re Group’s liabilities for unpaid claims and claim adjustment expenses and policy benefits for life and health include estimates for premium, claim and benefit data not received from ceding companies at the date of the financial statements. In addition, the Group uses certain financial instruments and invests in securities of certain entities for which exchange trading does not exist. The Group determines these estimates based on historical information, actuarial analyses, financial modelling and other analytical techniques. Actual results could differ significantly from the estimates described above. Foreign currency remeasurement and translation Transactions denominated in foreign currencies are remeasured to the respective subsidiary’s functional currency at average exchange rates. Monetary assets and liabilities are remeasured to the functional currency at closing exchange rates, whereas non-monetary assets and liabilities are remeasured to the functional currency at historical rates. Remeasurement gains and losses on monetary assets and liabilities and trading securities are reported in earnings. Remeasurement gains and losses on available-for-sale securities, investments in consolidated subsidiaries and investments accounted for using the equity method are reported in shareholders’ equity. For consolidation purposes, assets and liabilities of subsidiaries with functional currencies other than US dollars are translated from the functional currency to US dollars at closing rates. Revenues and expenses are translated at average exchange rates. Translation adjustments are reported in shareholders’ equity. Swiss Re | Financial Report 2020 193 Financial statements 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 by incorporating 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 a manner consistent with the aforementioned approach, with consideration given to 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 investment 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 inputs 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 related to 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 financial instruments in excess of its own market value estimates. 2020, the Group had not provided any collateral on 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 shareholders’ 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. 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 194 Swiss Re | Financial Report 2020 (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 shareholders’ equity. Cash and cash equivalents Cash and cash equivalents include cash on hand, short-term deposits, certain short-term investments in money market funds and highly liquid debt instruments with a remaining maturity at the date of acquisition of three months or less. Deferred acquisition costs 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. Swiss Re | Financial Report 2020 195 Financial statements Life Capital closed blocks of business can be acquired in different legal forms, either through an acquisition of an entity’s share capital or through a reinsurance transaction. The Group’s policy is to treat these transactions consistently regardless of the legal form of the acquisition. Accordingly, the Group records the acquired assets and liabilities directly to the balance sheet. Premiums, life and health benefits and other income statement items are not recorded in the income statement on the date of the acquisition. The underlying 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, lease right-of-use asset, 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. Leases The Group recognises for finance and operating leases 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. The lease right-of-use asset is included in “other assets” and the lease liability is included in “accrued expenses and other liabilities” on the balance sheet. Lease expense for lease payments is recognised on a straight-line basis over the lease term. Additional disclosures are provided in Note 12 “Leases”. Capitalised software costs External direct costs of materials and services incurred to develop or obtain software for internal use, payroll and payroll-related costs for employees directly associated with software development and interest cost incurred while developing software for internal use are capitalised and amortised on a straight-line basis through earnings over the estimated useful life. Income taxes Deferred income tax assets and liabilities are recognised based on the difference between financial statement carrying amounts and the corresponding income tax bases of assets and liabilities using enacted income tax rates and laws. A valuation allowance is recorded against deferred tax assets when it is deemed more likely than not that some or all of the deferred tax 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. 196 Swiss Re | Financial Report 2020 Unpaid claims and claim adjustment expenses Liabilities for unpaid claims and claim adjustment expenses for property and casualty and for 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. Reserves also are established for claims incurred but not reported, which are 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 by the Group. 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 COVID-19 pandemic has created additional uncertainty, both in respect of estimation of claims across the insurance and reinsurance industry and assessments of the wider potential global health and economic impacts. This uncertainty has been compounded by the evolving nature of the pandemic, including the spread of new strains of the virus, and is driven, among other factors, by lack of definitive answers about the impacts of the pandemic and related mitigation efforts on economies and societies across the globe, the efficacy of vaccines and other treatments, and the long-term health and social impacts of the pandemic on populations, as well as by evolving responses of governments and regulators, responses of businesses and outcomes of legal actions that have already been brought or may in the future be brought. The Group has recorded its best estimate of claims and claim adjustment expenses incurred as a result of the pandemic as at 31 December 2020, which best estimate reflects the Group’s expectations based on current facts and circumstances. However, the Group may, as a result of the myriad uncertainties, need to change its estimates for claims incurred and additional future claims over time as underlying facts develop. 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 and with-profit 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 and with-profit business, which is presented in a separate line item on the face of the income statement. Swiss Re | Financial Report 2020 197 Financial statements Unit-linked and with-profit business are presented together as they are similar in nature. For unit-linked contracts, the investment risk is borne by the policyholder. For with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the downside risk for the policyholder, and a certain proportion of the returns may be retained by Swiss Re Group (typically 10%). Additional disclosures are provided in Note 7 “Investments”. 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 shareholders’ equity will ultimately accrue to policyholders and not shareholders. 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. 198 Swiss Re | Financial Report 2020 Insurance and reinsurance ceded The Group uses retrocession arrangements to increase its aggregate underwriting capacity, to diversify its risk and to reduce the risk of catastrophic loss on reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Group of its obligations to its ceding companies. The Group regularly evaluates the financial condition of its retrocessionaires and monitors the concentration of credit risk to minimise its exposure to financial loss from retrocessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are reported as reductions of premiums earned and claims and claim adjustment expenses. Amounts recoverable for ceded short- and long- duration contracts, including universal-life-type and investment contracts, are reported as assets in the accompanying consolidated balance sheet. The Group provides reserves for uncollectible amounts on reinsurance balances ceded, based on management’s assessment of the collectability of the outstanding balances. Receivables Premium and claims receivables which have been invoiced are accounted for at face value. Together with assets arising from the application of the deposit method of accounting that meet the definition of financing receivables they are regularly assessed for impairment. Evidence of impairment is the age of the receivable and/or any financial difficulties of the counterparty. Allowances are set up on the net balance, meaning all balances related to the same counterparty are considered. The amount of the allowance 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 2020, the Group has a Leadership Performance Plan, restricted shares and a Global Share Participation Plan. These plans are described in more detail in Note 16 “Share-based payments”. The Group accounts for share-based payment transactions with employees using the fair value method. Under the fair value method, the fair value of the awards is recognised in earnings over the vesting period. For share-based compensation plans which are settled in cash, compensation costs are recognised as liabilities, whereas for equity-settled plans, compensation costs are recognised as an accrual to additional paid-in capital within shareholders’ equity. Treasury shares Treasury shares are reported at cost in shareholders’ equity. Earnings per common share Basic earnings per common share are determined by dividing net income available to shareholders by the weighted average number of common shares entitled to dividends during the year. Diluted earnings per common share reflect the effect on earnings and average common shares outstanding associated with dilutive securities. Subsequent events Subsequent events for the current reporting period have been evaluated up to 17 March 2021. This is the date on which the financial statements are available to be issued. Adoption of new accounting standards In August 2018, the FASB issued ASU 2018-13, “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement”, an update to Topic 820, “Fair Value Measurement”. The amendments in this ASU add, remove and modify some disclosure requirements on fair value measurement. The Group adopted the standard retrospectively on 1 January 2020 with the exception of the amendments which require prospective adoption. The applicable amendments of ASU 2018-13 are reflected in Note 8 “Fair value disclosures”. In August 2018, the FASB issued ASU 2018-14, “Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans”, an update to Subtopic 715-20, “Compensation – Retirement Benefits – Defined Benefit Plans – General”. The amendments in this Update remove, clarify and add disclosure requirements related to defined benefit pension and other postretirement plans. The Group adopted the annual disclosure requirements retrospectively as of year-end 2020, which are provided in Note 15 “Benefit plans”. In August 2018, the FASB issued ASU 2018-15, “Customer’s Accounting for Implementation Cost Incurred in a Cloud Computing Arrangement That Is a Service Contract”, a consensus of the FASB Emerging Issues Task Force (EITF) to Subtopic 350-40, “Internal-Use Software”. The amendments in this ASU align the requirements for capitalising implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract with the requirements for capitalising implementation costs incurred to develop or obtain internal use software. The update requires that implementation costs related to a CCA that is a service contract need to be capitalised based on the phase and nature of the costs. The Group adopted ASU 2018-15 prospectively on 1 January 2020. The adoption did not have a material impact on the Group’s financial statements. Swiss Re | Financial Report 2020 199 Financial statements In October 2018, the FASB issued ASU 2018-17, “Targeted Improvements to Related Party Guidance for Variable Interest Entities”, an update to Topic 810, “Consolidation”. The standard requires that indirect interests held through related parties in common control arrangements should be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The Group adopted the ASU retrospectively on 1 January 2020. The adoption did not have an impact on the Group’s financial statements. In November 2018, the FASB issued ASU 2018-18, “Clarifying the Interaction between Topic 808 and Topic 606”, an update to Topic 808, “Collaborative Arrangements”. The amendments in this ASU provide guidance on whether certain transactions between collaborative arrangement participants should be accounted for with revenue under Topic 606 “Revenue from Contracts with Customers”. In particular, the update requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, the presentation of the transaction together with revenue recognised under Topic 606 is precluded. The Group adopted ASU 2018-18 on 1 January 2020 retrospectively to the date of initial application of Topic 606. The adoption did not have an impact on the Group’s financial statements. In April 2019, the FASB issued ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”. The ASU provides selective clarifications and corrections of guidance on credit losses, hedging, and recognising and measuring financial instruments. The Group adopted the standard on 1 January 2020 with the exception of the guidance relating to ASU 2016-13 “Measurement of Credit Losses”. The adoption did not have an impact on the Group’s financial statements. The amendments related to credit losses will be adopted together with ASU 2016-13 as required by the standard. In March 2020, the FASB issued ASU 2020-03, “Codification Improvements to Financial Instruments”. The amendments in this ASU address seven specific issues identified related to financial instruments with the aim to improve and clarify the Codification, correct unintended application of current guidance and eliminate inconsistencies. The Group adopted issues 1, 2, 3, 4 and 5 on 9 March 2020, which is the issuance date of the ASU. The adoption did not have an impact on the Group’s financial statements. Issues 6 and 7 will be adopted together with ASU 2016-13 “Measurement of Credit Losses” as required by the standard. In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, an update to Topic 848, “Reference Rate Reform”. In response to concerns about structural risks of interbank offered rates (IBORs) and, particularly, the risk of cessation of the London Interbank Offered Rate (LIBOR), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates. The amendments in this update provide optional expedients and exceptions for applying US GAAP accounting principles to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of these reference rate reform initiatives. The Group adopted ASU 2020-04 on 12 March 2020, which is the issuance date of the standard. There is a choice to apply the guidance by Topic or industry Subtopic at any time prospectively during the effective period from 12 March 2020 through 31 December 2022. As of 31 December 2020, the Group applied the guidance to Topic 815 related to changes to the critical terms of a hedging relationship due to reference rate reform as well as to Topic 944 related to changes resulting from the replacement of discontinued reference rates included in contracts within the scope of Topic 944, “Financial Services – Insurance”. While these elections did not have a material impact on the Consolidated Financial Statements, they ease the administrative burden of accounting for contracts impacted by the reference rate reform. Future adoption of new accounting standards In June 2016, the FASB issued ASU 2016-13, “Measurement of Credit Losses”, an update to Topic 326, “Financial Instruments – Credit Losses”. ASU 2016-13 replaces the incurred loss impairment methodology in current US GAAP with a methodology that reflects expected credit losses. The standard is applicable to all financial assets such as financial instruments that are measured at amortised cost, available- for-sale debt securities and reinsurance recoverables. The objective of the expected credit loss model is that a reporting entity recognises its estimate of expected credit losses incorporating forward-looking information in a valuation allowance for financial assets in scope. As amended by ASU 2019-10 “Effective Dates”, ASU 2016-13 is effective for annual and interim periods beginning after 15 December 2022. For most affected financial assets, the ASU must be adopted using a modified retrospective approach, with a cumulative effect adjustment recorded to opening retained earnings on the adoption date. 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 of its assets and liabilities (including unrecognised assets and liabilities) at the impairment testing date 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. As amended by ASU 2019-10 “Effective Dates”, ASU 2017-04 is effective for goodwill impairment tests in annual and interim periods beginning after 15 December 2022. Early application of the ASU is permitted. The Group is currently assessing the impact of the new requirements. 200 Swiss Re | Financial Report 2020 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 nonparticipating traditional and limited-payment insurance and reinsurance contracts. 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. Further, 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. As amended by ASU 2020-11 “Effective Date and Early Application”, ASU 2018-12 is effective for annual periods beginning after 15 December 2024, and interim periods beginning after 15 December 2025. Due to the decision of the Board of Directors of Swiss Re Ltd to prepare the Group’s consolidated financial statements in accordance with IFRS beginning 1 January 2024, the Group does not plan to adopt ASU 2018-12. Swiss Re | Financial Report 2020 201 Financial statements 2 Information on business segments The Group provides reinsurance and insurance throughout the world through its business segments. The business segments are determined by the organisational structure and by the way in which management reviews the operating performance of the Group. The Group presents 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 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). Cross-segmental dividends and gains and losses on certain one-off transfers and transactions between segments are accounted for through segmental shareholders' equity. 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. Corporate Solutions Corporate Solutions offers innovative insurance capacity to mid-sized and large multinational corporations across the globe. Offerings range from standard risk transfer covers and multi-line programmes to highly customised solutions tailored to the needs of clients. Corporate Solutions serves customers from offices worldwide. Life Capital In the fourth quarter of 2019, the Group entered into an agreement to sell its subsidiary ReAssure, previously within the Life Capital business segment, to Phoenix. On 22 July 2020, the Group successfully completed the sale of ReAssure to Phoenix, following the receipt of all required regulatory and anti-trust approvals. The sale effectively led to the deconsolidation of ReAssure from the Group financial statements in the third quarter of 2020. For more details on the transaction, please refer to Note 10 ”Acquisitions and disposals”. Life Capital manages Swiss Re’s primary life and health business as well as its primary retail property and casualty business. It encompasses the closed and open life and health insurance books, including the ReAssure business sold in 2020 and the business comprising elipsLife and iptiQ. Through ReAssure, Swiss Re acquired closed blocks of inforce life and health insurance business, either through reinsurance or corporate acquisition, and typically assumed responsibility for administering the underlying policies. The administration of the business was managed directly or, where appropriate, in partnership with a third party. In the open books business, elipsLife, the Group life and health insurance business, offers solutions to pension funds, corporates and affinity groups through an intermediated business to business to consumer (“B2B2C”) model. The iptiQ business partners with distributors and enables individuals to address their protection needs on a white labelled basis. As announced on 19 June 2020, the segmental disclosures will be revised to reflect the way the Group will manage its business activities going forward. As of 1 January 2021, the Life Capital reporting segment ceases to be managed as a separate Business Unit. iptiQ becomes a stand-alone division, and is reported as part of the Group items reporting segment. elipsLife moves to the Corporate Solutions reporting segment. Group items Items not allocated to the business segments are included in the “Group items” column, which encompasses Swiss Re Ltd, the Group’s ultimate parent company, Principal Investments and certain Treasury units and reinsurance and insurance business in run-off. Swiss Re Ltd charges trademark licence fees to the business segments which are reported as other revenues. Certain administrative expenses of the corporate centre functions that are not recharged to the operating segments are reported as Group items. 202 Swiss Re | Financial Report 2020 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 Re | Financial Report 2020 203 Financial statements a) Business segments – income statement For the year ended 31 December 2019 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 and with-profit 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 Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 21 562 20 882 –1 607 19 275 1 419 14 452 12 734 101 12 835 169 1 207 4 974 4 253 –87 4 166 234 2 831 1 780 –82 1 698 451 1 193 –1 591 552 –434 883 628 162 18 –111 18 21 595 118 4 14 961 5 4 567 4 821 1 8 182 414 855 –412 –846 42 228 39 649 –1 675 37 974 620 4 171 1 580 4 939 30 49 314 –14 783 –3 900 –10 587 –162 –1 975 –746 –20 782 –13 470 –4 810 –1 189 –2 500 –4 471 –409 –721 –8 101 –640 –788 –5 328 813 –352 461 –65 1 491 –445 1 046 –147 –761 –40 –801 143 81 –72 9 –133 –547 –547 308 –114 194 62 396 899 –658 –124 256 –18 683 –13 087 –4 633 –7 834 412 –3 579 412 –47 816 –434 434 0 0 0 1 498 –589 909 –140 769 –42 727 79.7 31.7 111.4 3.4 Income/loss attributable to non-controlling interests Net income/loss attributable to common shareholders 396 899 11 –647 –53 –177 256 Claims ratio in % Expense ratio in % Combined ratio in % Management expense ratio¹ in % Net operating margin2 in % 76.7 31.1 107.8 3.8 93.6 34.3 127.9 5.2 10.0 –16.7 2.4 1 Management expense ratio is calculated as ”Operating expenses” divided by ”Total revenues” excluding ”Net realised investment gains/losses – non-participating business” and ”Net investment result – unit-linked and with-profit business”. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. 204 Swiss Re | Financial Report 2020 Business segments – income statement For the year ended 31 December 2020 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 – non-participating business Net investment result – unit-linked and with-profit business Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Return credited to policyholders Acquisition costs 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 Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 21 512 20 636 196 20 832 1 178 15 067 13 657 68 13 725 158 1 140 4 839 3 824 223 4 047 140 2 533 1 686 7 1 693 291 827 24 24 24 20 –1 024 –317 683 445 74 243 285 26 22 719 –32 4 15 440 5 4 266 –2 155 1 900 407 736 –406 –723 42 951 39 827 494 40 321 449 2 988 1 730 –2 187 37 43 338 –16 403 –3 433 –12 204 5 –1 999 –786 –22 707 –14 984 –5 104 –1 200 –592 –690 –4 715 –2 –1 716 1 755 –527 –613 –1 103 12 –321 –309 62 456 –367 89 –18 –449 –31 –480 136 –203 –55 –258 41 –9 –14 –714 –737 –1 –131 –132 45 –19 838 –13 929 1 760 –8 236 406 –3 597 406 –43 840 –317 317 0 –502 –588 –1 090 266 –247 71 –344 –217 –87 0 –824 Income attributable to non-controlling interests Net income/loss attributable to common shareholders –247 71 –6 –350 –48 –265 –87 0 Claims ratio in % Expense ratio in % Combined ratio in % Management expense ratio¹ in % Net operating margin2 in % 78.7 30.3 109.0 0.1 84.8 31.7 116.5 5.2 2.9 –10.5 –6.6 –54 –878 79.7 30.5 110.2 –1.1 1 Management expense ratio is calculated as ”Operating expenses” divided by ”Total revenues” excluding ”Net realised investment gains/losses – non-participating business” and ”Net investment result – unit-linked and with-profit business”. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. Swiss Re | Financial Report 2020 205 Financial statements Business segments – balance sheet As of 31 December 2019 USD millions Assets Fixed income securities Equity securities Other investments Short-term investments Investments for unit-linked and with-profit business Cash and cash equivalents Deferred acquisition costs Acquired present value of future profits Reinsurance recoverable Other reinsurance assets Goodwill Other Assets held for sale1 Total assets Liabilities Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Policyholder account balances Other reinsurance liabilities Short-term debt Long-term debt Other Liabilities held for sale1 Total liabilities Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 38 877 1 749 14 606 3 283 3 674 2 613 2 325 12 524 1 895 7 723 32 008 620 4 871 1 678 520 1 694 4 529 577 4 887 8 471 1 846 5 325 7 473 172 147 380 1 698 483 7 058 2 667 204 2 342 89 269 67 026 22 624 3 088 57 865 377 494 213 465 3 111 5 951 127 395 5 009 50 2 3 –12 606 –11 483 –4 873 658 74 983 90 262 2 256 7 842 –8 950 –544 –38 456 49 963 12 899 915 5 511 11 662 13 094 20 679 1 401 2 904 1 500 11 225 7 970 12 881 728 4 987 798 1 093 80 950 58 773 20 487 2 489 4 250 4 004 2 034 66 838 1 015 68 624 83 320 –6 054 –5 821 –5 051 –2 356 –8 728 –10 408 –38 –38 456 2 60 494 1 900 2 456 81 573 2 993 12 892 5 768 520 7 562 7 838 1 042 5 898 24 743 3 945 9 354 74 439 238 567 72 373 19 836 5 405 17 775 185 10 138 13 232 68 586 207 530 Shareholders’ equity 8 318 8 253 2 005 5 289 5 386 0 29 251 Non-controlling interests Total equity 1 8 319 8 253 132 2 137 1 653 6 942 5 386 0 1 786 31 037 Total liabilities and equity 89 269 67 026 22 624 90 262 7 842 –38 456 238 567 1 Please refer to Note 10 ”Acquisitions and disposals” for more details. 206 Swiss Re | Financial Report 2020 Business segments – balance sheet As of 31 December 2020 USD millions Assets Fixed income securities Equity securities Other investments Short-term investments Investments for unit-linked and with-profit business Cash and cash equivalents Deferred acquisition costs Acquired present value of future profits Reinsurance recoverable Other reinsurance assets Goodwill Other Total assets Liabilities Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Policyholder account balances Other reinsurance liabilities Short-term debt Long-term debt Other Total liabilities 0 Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group items Consolidation Total 39 691 1 518 19 345 9 216 2 941 2 576 2 030 13 003 1 958 8 769 101 047 55 267 14 570 435 4 771 16 834 91 877 32 958 641 3 502 4 275 463 1 625 4 900 510 2 042 7 883 1 869 7 705 68 373 14 863 20 207 1 303 1 399 1 500 12 304 9 416 60 992 7 024 204 144 1 865 558 413 6 733 2 491 194 2 366 21 992 13 560 746 4 137 498 909 19 850 3 244 110 817 535 294 285 418 258 4 469 101 2 426 5 018 191 52 56 9 –12 595 –5 171 –1 195 1 193 11 623 4 580 12 433 –13 885 –32 846 2 727 1 495 3 889 887 66 808 9 872 9 9 –5 168 –1 74 60 2 400 3 067 5 619 –1 515 –1 908 –8 389 –15 865 –32 846 83 018 4 899 16 231 16 082 463 5 470 8 230 928 5 892 26 660 4 021 10 728 182 622 81 258 22 456 5 192 19 552 153 11 584 15 169 155 364 Shareholders’ equity 9 168 7 381 2 021 1 751 6 814 0 27 135 Non-controlling interests Total equity 2 9 170 7 381 121 2 142 1 751 6 814 0 123 27 258 Total liabilities and equity 101 047 68 373 21 992 11 623 12 433 –32 846 182 622 Swiss Re | Financial Report 2020 207 Financial statements b) Property & Casualty Reinsurance business segment – by line of business For the year ended 31 December 2019 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 7 927 7 329 –122 7 207 10 497 10 452 –1 166 9 286 3 138 3 101 –319 2 782 7 207 9 286 2 782 –5 328 –1 365 –610 –7 303 –7 675 –2 758 –395 –10 828 –96 –1 542 –96 –1 542 73.9 27.4 101.3 82.6 34.0 116.6 –1 780 –687 –184 –2 651 131 131 64.0 31.3 95.3 1 419 883 18 2 320 0 2 320 –352 1 968 21 562 20 882 –1 607 19 275 1 419 883 18 21 595 –14 783 –4 810 –1 189 –20 782 813 –352 461 76.7 31.1 107.8 208 Swiss Re | Financial Report 2020 Property & Casualty Reinsurance business segment – by line of business For the year ended 31 December 2020 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 9 001 8 278 –28 8 250 9 445 9 364 245 9 609 3 066 2 994 –21 2 973 8 250 9 609 2 973 –6 785 –1 640 –604 –9 029 –7 570 –2 732 –443 –10 745 –2 048 –732 –153 –2 933 –779 –1 136 –779 –1 136 82.2 27.2 109.4 78.8 33.0 111.8 40 40 68.9 29.8 98.7 1 178 683 26 1 887 0 1 887 –321 1 566 21 512 20 636 196 20 832 1 178 683 26 22 719 –16 403 –5 104 –1 200 –22 707 12 –321 –309 78.7 30.3 109.0 Swiss Re | Financial Report 2020 209 Financial statements c) Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2019 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 and with-profit 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 ratio1 in % Net operating margin2 in % Life Health Unallocated Total 10 123 8 522 126 8 648 169 912 –24 118 3 9 826 –7 316 –162 –1 295 –472 –9 245 581 581 4.8 6.0 4 329 4 212 –25 4 187 295 1 4 483 –3 271 –680 –274 –4 225 258 258 6.1 5.8 14 452 12 734 101 12 835 169 1 207 628 118 4 14 961 –10 587 –162 –1 975 –746 –13 470 1 491 –445 1 046 5.2 10.0 652 652 0 652 –445 207 1 Management expense ratio is calculated as ”Operating expenses” divided by ”Total revenues” excluding ”Net realised investment gains/losses – non-participating business” and ”Net investment result – unit-linked and with-profit business”. 2 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. 210 Swiss Re | Financial Report 2020 Life & Health Reinsurance business segment – by line of business For the year ended 31 December 2020 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 and with-profit business Other revenues Total revenues Expenses Life and health benefits Return credited to policyholders Acquisition costs Operating expenses Total expenses before interest expenses Income/loss before interest and income tax expense Interest expenses Income/loss before income tax expense Management expense ratio1 in % Net operating margin2 in % Life Health Unallocated Total 10 291 9 156 36 9 192 158 870 54 –32 3 10 245 –8 587 5 –1 309 –522 –10 413 –168 –168 5.1 -1.6 4 776 4 501 32 4 533 270 –12 1 4 792 –3 617 –690 –264 –4 571 221 221 5.5 4.6 15 067 13 657 68 13 725 158 1 140 445 –32 4 15 440 –12 204 5 –1 999 –786 –14 984 456 –367 89 5.2 2.9 403 403 0 403 –367 36 1 Management expense ratio is calculated as ”Operating expenses” divided by ”Total revenues” excluding ”Net realised investment gains/losses – non-participating business” and ”Net investment result – unit-linked and with-profit business”. 2 Net operating margin is calculated as ”Income/loss before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”. Swiss Re | Financial Report 2020 211 Financial statements d) Net premiums earned and fee income from policyholders by geography Net 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 Net premiums earned and fee income from policyholders by country for the years ended 31 December USD millions United States United Kingdom China Australia Japan Canada Germany Netherlands Switzerland France Ireland Other Total 2019 18 158 12 017 8 419 38 594 2019 15 804 3 593 2 136 2 026 1 620 1 205 1 330 913 1 071 941 709 7 246 38 594 2020 19 462 12 889 8 419 40 770 2020 17 130 3 793 2 133 1 865 1 677 1 341 1 336 1 325 1 205 968 757 7 240 40 770 Net premiums earned and fee income from policyholders are allocated by country, based on the underlying contract. 212 Swiss Re | Financial Report 2020 3 Insurance information Premiums earned and fees assessed against policyholders For the years ended 31 December 2019 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 2020 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 Corporate Solutions Life Capital Group Items Total 19 577 265 19 842 –567 19 275 0 14 13 836 205 14 055 –1 220 12 835 170 170 –1 169 3 837 910 –265 4 482 –316 4 166 0 2 211 95 –205 2 101 –403 1 698 360 91 451 451 6 062 34 418 0 40 480 –2 506 37 974 360 261 621 –1 620 0 0 Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group Items Total 21 152 418 14 794 343 21 570 –738 20 832 15 137 –1 412 13 725 3 896 940 –411 4 425 –378 4 047 159 159 –1 158 0 2 427 67 –350 2 144 –451 1 693 205 86 291 10 14 24 24 6 333 36 967 0 43 300 –2 979 40 321 205 245 450 –1 449 0 291 0 Swiss Re | Financial Report 2020 213 Financial statements Claims and claim adjustment expenses For the year ended 31 December 2019 USD millions Claims paid, thereof: Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group Items Total Gross claims paid to external parties Intra-group transactions (assumed and ceded) –12 453 –585 –10 077 –165 –3 836 585 –3 481 165 –13 038 352 –12 686 –10 242 1 049 –9 193 –3 251 264 –2 987 –3 316 472 –2 844 –2 151 –25 –1 394 –8 –1 143 25 –2 176 79 –1 402 8 –1 118 205 –2 097 –1 394 –913 409 8 417 –73 344 –29 847 0 –29 847 2 137 –27 710 0 –4 279 0 –4 279 219 0 –4 060 –14 783 –10 587 –3 900 –2 500 0 –31 770 Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group Items Total –4 875 –28 –2 148 –4 –4 903 93 –4 810 –2 152 177 –1 975 –729 28 –701 61 –640 –458 4 –454 45 –409 –8 210 0 –8 210 376 –7 834 0 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 Claims and claim adjustment expenses; life and health benefits Acquisition costs For the year ended 31 December 2019 USD millions Acquisition costs, thereof: 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 214 Swiss Re | Financial Report 2020 Claims and claim adjustment expenses For the year ended 31 December 2020 USD millions Claims paid, thereof: Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group Items Total Gross claims paid to external parties Intra-group transactions (assumed and ceded) –12 225 –553 –11 813 –222 –3 221 553 –2 791 222 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 Claims and claim adjustment expenses; life and health benefits Acquisition costs For the year ended 31 December 2020 USD millions Acquisition costs, thereof: 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 –12 778 416 –12 362 –12 035 1 228 –10 807 –2 668 225 –2 443 –2 569 414 –2 155 –4 087 278 –1 474 –88 –646 –284 –3 809 –232 –1 562 165 –930 –60 428 94 522 –85 –7 –7 –7 –2 –2 –30 057 0 –30 057 2 283 –27 774 –5 781 0 –5 781 –212 –4 041 –1 397 –990 437 –2 –5 993 –16 403 –12 204 –3 433 –1 718 –9 –33 767 Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group Items Total –5 142 –68 –2 243 –24 –5 210 106 –5 104 –2 267 268 –1 999 –712 66 –646 54 –592 –599 26 –573 46 –527 –14 –14 –14 –8 710 0 –8 710 474 –8 236 Swiss Re | Financial Report 2020 215 Financial statements Reinsurance recoverable on unpaid claims and policy benefits As of 31 December 2019 and 2020, the Group had a reinsurance recoverable of USD The concentration of credit risk is regularly monitored and evaluated. The reinsurance programme with Berkshire Hathaway and subsidiaries accounted for 33% and 30% of the Group’s reinsurance recoverable as of year-end 2019 and 2020, respectively. million, respectively. million and USD 5 898 5 892 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 2019 3 589 444 249 –56 2020 3 960 468 649 –73 Policyholder dividends Policyholder dividends are recognised as an element of policyholder benefits. The relative percentage of participating insurance of the life and health policy benefits in 2019 and 2020 was 10% and 0%, respectively. The amount of policyholder dividend expense in 2019 and 2020 was USD 165 million, respectively. million and USD 42 216 Swiss Re | Financial Report 2020 This page is intentionally left blank. Swiss Re | Financial Report 2020 217 Financial statements 4 Premiums written For the years ended 31 December 2019 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 2020 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 Corporate Solutions Life Capital Group Items Consolidation Total 21 189 373 21 562 –68 21 494 –612 20 882 14 13 794 644 14 452 –506 13 946 –1 212 12 734 3 869 1 037 68 4 974 –373 4 601 –348 4 253 2 230 95 506 2 831 –644 2 187 –407 1 780 –1 591 –1 591 1 591 0 0 6 113 36 115 0 42 228 0 42 228 –2 579 39 649 Property & Casualty Reinsurance Life & Health Reinsurance Corporate Solutions Life Capital Group Items Consolidation Total 20 871 641 21 512 –48 21 464 –828 20 636 14 732 335 15 067 15 067 –1 410 13 657 3 883 908 48 4 839 –589 4 250 –426 3 824 2 466 67 2 533 –387 2 146 –460 1 686 10 14 24 24 24 6 359 36 592 0 42 951 0 42 951 –3 124 39 827 –1 024 –1 024 1 024 0 218 Swiss Re | Financial Report 2020 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 Balance as of 1 January classified as held for sale Reinsurance recoverable Deferred expense on retroactive reinsurance Net balance as of 1 January Incurred related to: Current year Prior year Amortisation of deferred expense on retroactive reinsurance and impact of commutations Total incurred Paid related to: Current year Prior year Total paid Foreign exchange Effect of acquisitions, disposals, new retroactive reinsurance and other items Net balance as of period end Reinsurance recoverable Deferred expense on retroactive reinsurance Reclassified to liabilities held for sale Balance as of period end 2019 67 446 −3 606 −169 63 671 29 338 2 231 −23 31 546 2020 72 373 497 −3 732 −168 68 970 34 064 166 −36 34 194 −9 702 −18 008 −27 710 −10 329 −17 445 −27 774 161 1 302 68 970 3 732 168 –497 72 373 2 149 −108 77 431 3 636 191 81 258 Swiss Re | Financial Report 2020 219 Financial statements Prior-year development Non-life claims development in the year ended 31 December 2020 on prior years is mainly driven by favourable property experience largely offset by adverse casualty experience. Development in property is principally due to reserve releases related to natural catastrophe events in Asia. The deterioration for casualty mostly comes from adverse claims experience for liability in North America, partially offset by favourable development for accident & health and motor. Specialty was impacted by adverse claims experience in engineering and large losses for credit and surety, partly offset by positive claims experience and reduction of large losses for marine. For life and health lines of business, development on prior years' unpaid claims is unfavourable. For health business, adverse experience in disability portfolios in Australia and the US led to unfavourable claims development. Claims development related to prior years for disability portfolios also includes an element of interest accretion for unpaid claims reported at an estimated present value. For life business, favourable development in the US, driven by positive experience, is partly offset by unfavourable development in Latin America and the UK due to adverse experience. A summary of prior year net claims and claim adjustment expenses development by lines of business for the years ended 31 shown below1: December is USD millions Line of business: Property Casualty Specialty Life and health Total 2019 2020 367 1 425 105 334 2 231 –582 456 26 266 166 1 Adverse development is shown as positive numbers, and represents a charge to the income statement. Favourable development is shown as negative, and represents a credit to the income statement. US asbestos and environmental claims exposure The Group‘s obligation for claims payments and claims settlement charges also includes obligations for long-latent injury claims arising out of policies written prior to 1986, in particular in the area of US asbestos and environmental liability. At the end of 2020, the Group carried net reserves for US asbestos and environmental liabilities equal to USD 1 428 million. During 2020, the Group incurred net losses of USD 18 million and net paid losses of USD 80 million in relation to these liabilities. 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. 220 Swiss Re | Financial Report 2020 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 and information on reserves for claims relating to insured events that have occurred but have not yet been reported (“IBNR”). Claims development information and IBNR are presented on an accident year basis and by line of business for individually significant categories. 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. Amounts shown in the claims development tables are on a nominal basis, including cases where the Group discounts claims liabilities for measurement under US GAAP, and are net of external retrocession and retrocession between business segments to the extent that a retrocession programme 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. In the Property & Casualty Reinsurance and Corporate Solutions segments, 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 disability business in Australia and the UK. 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. In the Life Capital segment, short duration contracts include mainly disability medical expenses business. The Group provides no claims development information for Life Capital as its short duration reserves are not material. The number of years shown in the claims development tables differs by business segment. For Property & Casualty Reinsurance and Life & Health Reinsurance, the Group discloses data for ten accident years and reporting periods. The Corporate Solutions business segment was created in 2012. Therefore, nine accident years and reporting periods are shown for this business unit. Corporate Solutions related business written in Property & Casualty Reinsurance prior to 2012 is included in the net claims development information reported by this segment. All but an immaterial portion of claims arising from accident years prior to 2012 relate to accident years which are over ten years ago and therefore out of the required range of disclosure. 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 and 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 Re | Financial Report 2020 221 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 The Group develops and recognises its own estimate of IBNR claims, which includes circumstances in which cedents have 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 are reported by cedents and this IBNR is presented together with the Group‘s own estimate as IBNR in the claims development tables. For insurance business, reserving is performed similarly, except that estimates for case reserves and IBNR are performed by the Group. 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, accident and health and similar Corporate Solutions lines, where the information is available. 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, also in Corporate Solutions (see also separate section “US asbestos and environmental claims exposure” on page 220). 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 business, 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 disability business, claims with multiple payments in a year are counted as one claim. Claims that are reported but not admitted are included in the claim count. For Corporate Solutions, claims frequency is displayed for direct business only, as individual claims information is generally not available for assumed and ceded business. Claims are counted individually per contract to produce the claims frequency table. For some direct business, summary reports are received and multiple claims are booked under a single claim code; this is usually done at a programme, policy year, state, country and/or line of business level of detail. This approach may be applied to business which has a high volume of claim counts, but with only minor claims dollars associated with each claim. 222 Swiss Re | Financial Report 2020 Property & Casualty Reinsurance – Property Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 4 513 2012 4 586 2 772 RSI 2013 4 399 2 597 3 255 2014 4 463 2 393 3 267 2 808 2015 4 414 2 349 3 087 2 642 2 914 2016 4 409 2 318 2 999 2 458 2 840 4 030 2017 4 428 2 303 2 974 2 426 2 667 3 752 6 132 2018 4 468 2 303 2 958 2 423 2 634 3 446 6 041 4 799 2019 4 470 2 297 2 954 2 411 2 592 3 440 5 802 5 294 5 351 2020 4 482 2 294 2 947 2 423 2 573 3 411 5 771 5 019 5 268 7 363 41 551 thereof IBNR 23 5 –2 9 9 10 53 74 555 4 385 5 121 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 704 2012 2 524 236 RSI 2013 3 371 1 639 550 2014 3 835 2 040 2 076 469 2015 4 140 2 163 2 601 1 755 472 2016 4 248 2 208 2 802 2 146 1 696 653 2017 4 376 2 228 2 865 2 279 2 229 2 283 1 002 2018 4 401 2 239 2 887 2 325 2 402 2 932 3 736 642 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance 2019 4 416 2 248 2 904 2 342 2 482 3 151 4 845 3 557 944 2020 4 425 2 250 2 918 2 362 2 506 3 239 5 187 4 175 3 332 1 330 31 724 205 10 032 Years Property (RSI) 1 16.8% 2 50.3% 3 17.7% 4 6.7% 5 3.1% 6 1.1% 7 1.2% 8 0.5% 9 0.2% 10 0.2% 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 which also affected 2018-2020 accident years. In addition, the current accident year was impacted by COVID-19. Swiss Re | Financial Report 2020 223 Financial statements Property & Casualty Reinsurance – Liability, proportional Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 650 2012 708 531 RSI 2013 731 615 741 2014 678 571 764 1 009 2015 636 542 772 1 000 1 280 2016 632 514 766 1 013 1 329 1 732 2017 606 523 770 1 002 1 418 1 738 1 985 2018 599 514 760 990 1 493 1 737 2 096 1 916 2019 598 528 757 1 028 1 564 1 842 2 239 2 095 2 744 2020 588 526 760 1 036 1 548 1 892 2 420 2 241 3 115 2 999 17 125 thereof IBNR 54 58 87 157 267 573 869 1 245 2 204 2 692 8 206 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 2 2012 110 12 RSI 2013 185 120 13 2014 255 188 131 24 2015 341 247 238 162 35 2016 387 301 354 298 214 47 2017 422 360 437 438 431 94 50 2018 446 396 513 575 662 395 257 52 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance 2019 468 432 567 672 915 665 551 314 84 2020 472 436 599 755 1 094 906 1 015 597 426 114 6 414 1 165 11 876 Years Liability, proportional (RSI) 1 2.2% 2 12.6% 3 13.4% 4 14.3% 5 13.0% 6 10.0% 7 7.0% 8 5.0% 9 2.3% 10 0.7% The increase in the incurred losses for accident years 2013 to 2020 is driven by volume increases of business being written. The increases in the incurred losses in reporting year 2020 for accident years 2016 to 2019 are driven by US business. The current accident year was impacted by COVID-19. 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. 224 Swiss Re | Financial Report 2020 Property & Casualty Reinsurance – Liability, non-proportional Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 415 2012 444 340 2013 482 358 421 RSI 2014 441 317 402 446 2015 397 288 365 451 1 860 2016 363 267 309 418 1 901 608 2017 355 256 283 375 1 869 591 500 2018 341 232 260 345 1 886 620 517 459 2019 342 227 261 365 1 910 667 600 464 2 424 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 1 2012 10 –4 RSI 2013 66 11 –2 2014 114 35 11 –2 2015 141 53 37 8 0 2016 149 85 60 40 94 14 2017 162 100 84 71 204 224 –2 2018 176 115 109 101 337 250 18 –1 2019 194 130 133 142 490 303 48 21 211 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance thereof IBNR 31 36 56 107 129 162 213 265 543 815 2 357 2020 347 219 255 364 1 886 720 649 483 2 395 849 8 167 2020 212 139 145 169 596 365 124 72 499 10 2 331 3 856 9 692 Years Liability, non-proportional (RSI) 1 0.9% 2 7.9% 3 8.8% 4 9.4% 5 9.5% 6 7.2% 7 6.9% 8 5.2% 9 4.6% 10 5.2% The increase in incurred losses for accident year 2015 compared to other years is due to an increase in volume of business written in that year. Accident year 2019 includes an Adverse Development Cover and a Loss Portfolio Transfer written with Corporate Solutions. Liabilities before 2011 include reserves for historic US Asbestos and Environmental losses. The current accident year was impacted by COVID-19. In line with the Group‘s policy, cash flows under Loss Portfolio Transfers are reported through claims paid. For longer-tailed lines and depending on the business volume written, timing of cash flows can lead to net inward payments across the whole portfolio in the first development year of the contract for some accident years. Swiss Re | Financial Report 2020 225 Financial statements Property & Casualty Reinsurance – Accident & Health Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 233 2012 253 338 RSI 2013 248 346 354 2014 240 331 360 306 2015 243 321 346 340 439 2016 237 318 336 331 436 597 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 48 2012 122 81 RSI 2013 143 186 56 2014 154 213 144 30 2015 163 229 185 104 62 2016 168 240 209 147 139 74 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance thereof IBNR 21 22 32 42 45 129 206 187 242 533 1 459 2017 237 311 328 320 414 631 737 2017 177 249 222 175 192 179 96 2018 233 309 326 308 404 625 771 730 2018 180 252 230 193 225 273 235 98 2019 232 304 321 307 395 589 732 818 807 2019 183 256 236 208 244 328 336 316 113 2020 228 297 309 292 375 583 723 814 799 901 5 321 2020 185 258 242 215 257 358 395 458 332 122 2 822 2 924 5 423 Years Accident & Health (RSI) 1 15.9% 2 26.0% 3 13.5% 4 7.7% 5 4.7% 6 3.3% 7 2.3% 8 1.5% 9 1.0% 10 0.9% The increase in incurred losses from accident year 2015 onwards is due to an increase in the volume of workers‘ compensation written on a proportional basis with the current year impacted by COVID-19. The 2010 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. 226 Swiss Re | Financial Report 2020 Property & Casualty Reinsurance – Motor, proportional Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 1 048 2012 1 042 1 573 RSI 2013 1 012 1 562 1 628 2014 967 1 545 1 601 2 085 2015 968 1 532 1 607 2 045 1 983 2016 967 1 521 1 579 2 044 1 979 2 557 2017 966 1 520 1 572 2 026 1 982 2 675 2 438 2018 956 1 517 1 567 2 015 1 986 2 725 2 455 2 089 2019 960 1 516 1 567 2 013 1 986 2 727 2 441 2 124 2 090 2020 963 1 520 1 568 2 011 1 994 2 732 2 453 2 102 2 066 1 916 19 325 thereof IBNR –13 24 12 –7 15 39 136 225 416 1 015 1 862 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 277 RSI 2012 702 501 2013 893 1 167 599 2014 927 1 337 1 225 767 2015 947 1 388 1 415 1 530 823 2016 957 1 421 1 462 1 787 1 486 844 2017 965 1 443 1 494 1 867 1 736 1 872 776 2018 968 1 456 1 510 1 904 1 840 2 229 1 560 636 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance 2019 971 1 467 1 520 1 925 1 886 2 414 1 901 1 364 674 2020 971 1 473 1 529 1 938 1 912 2 520 2 078 1 613 1 320 630 15 984 340 3 681 Years Motor, proportional (RSI) 1 33.8% 2 37.2% 3 13.4% 4 4.7% 5 2.4% 6 1.2% 7 0.7% 8 0.5% 9 0.4% 10 0.0% The increase in the incurred losses from accident years 2012 to 2016 is driven by new business volume across all regions, with the current accident year impacted by COVID-19. 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 Re | Financial Report 2020 227 Financial statements Property & Casualty Reinsurance – Motor, non-proportional Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 430 2012 471 350 RSI 2013 450 367 456 2014 447 345 479 428 2015 432 329 481 461 404 2016 425 330 462 457 426 488 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 -11 2012 21 2 RSI 2013 58 25 7 2014 82 50 90 4 2015 107 86 156 63 –1 2016 122 113 202 108 34 9 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance thereof IBNR 99 60 68 66 83 123 177 212 330 444 1 662 2017 413 311 448 456 463 609 605 2017 138 139 229 148 94 67 9 2018 441 320 454 449 458 571 636 510 2019 434 315 453 426 470 564 623 553 1 231 2018 150 161 256 193 160 129 60 4 2019 157 173 273 223 206 184 128 36 93 2020 430 318 459 423 468 550 629 560 1 243 536 5 616 2020 179 181 288 243 236 244 205 97 310 3 1 986 2 876 6 506 Years Motor, non-proportional (RSI) 1 1.2% 2 10.7% 3 10.9% 4 10.4% 5 8.6% 6 6.2% 7 4.8% 8 3.3% 9 2.1% 10 5.1% Claims development in non-proportional motor business is considered long-tailed as it is dominated by liability exposures leading to bodily injury claims which pay out for the lifetime of the claimant. For accident year 2011, negative claims paid in the first year are due to the commutation of an external retrocession on acquired retroactive business. The increase in incurred losses for accident year 2019 compared to other years is due to an increase in volume of business written, with the current accident year impacted by COVID-19. 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. 228 Swiss Re | Financial Report 2020 Property & Casualty Reinsurance – Specialty Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 1 327 2012 1 316 977 RSI 2013 1 226 1 036 1 131 2014 1 139 1 056 1 054 1 138 2015 1 184 1 036 1 011 1 124 1 278 2016 1 178 1 034 974 1 022 1 252 1 317 2017 1 193 1 021 963 995 1 235 1 305 1 643 2018 1 177 1 018 941 980 1 225 1 255 1 565 1 685 2019 1 175 1 014 929 984 1 224 1 255 1 434 1 777 1 785 2020 1 175 1 006 932 966 1 246 1 238 1 400 1 744 1 950 1 867 13 524 thereof IBNR 2 7 22 32 47 91 125 467 662 1 161 2 616 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 170 2012 577 132 2013 799 458 154 2014 904 698 432 181 2015 956 791 621 422 139 RSI 2016 991 848 734 607 400 146 2017 1 056 891 789 706 711 491 186 2018 1 078 926 826 764 876 740 592 189 2019 1 095 945 850 802 980 909 879 663 284 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance 2020 1 104 952 863 826 1 036 1 000 1 046 984 716 307 8 834 625 5 315 Years Specialty (RSI) 1 14.1% 2 27.7% 3 20.8% 4 11.3% 5 6.3% 6 3.9% 7 3.5% 8 1.7% 9 1.1% 10 0.8% This category contains several individual large losses on marine, aviation and space lines, including the Costa Concordia event in accident year 2012. From 2017 to 2020 accident years, claims incurred is higher due to natural catastrophes, with the current accident year impacted by COVID-19. Accident year 2019 has increased this year due to aviation and engineering but is partially offset by marine decreases. Swiss Re | Financial Report 2020 229 Financial statements Corporate Solutions Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Reporting year Accident year 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 2012 1 311 2013 1 237 1 613 2014 1 162 1 593 1 855 2015 1 129 1 523 1 799 1 907 2016 1 127 1 439 1 728 2 080 2 037 2017 1 184 1 436 1 732 2 144 2 124 3 036 2018 1 165 1 427 1 702 2 115 2 162 3 268 2 734 RSI Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2012 184 2013 562 275 RSI 2014 724 673 276 2015 819 946 841 354 2016 908 1 106 1 137 914 373 2017 980 1 175 1 284 1 316 1 150 385 2018 1 014 1 252 1 375 1 514 1 405 1 520 421 All liabilities before 2012 Liabilities for claims and claim adjustment expenses, net of reinsurance Average annual percentage payout of incurred claims by age, net of reinsurance 2019 1 210 1 399 1 631 1 932 2 153 3 016 2 673 2 835 2020 1 207 1 412 1 610 1 894 2 146 3 037 2 704 2 678 3 401 20 089 2019 1 044 1 300 1 473 1 650 1 676 2 131 1 447 534 2020 1 067 1 327 1 491 1 740 1 750 2 388 1 932 1 247 580 13 522 416 6 983 Cumulative number of reported claims (in nominals) 13 004 26 338 21 671 18 252 17 439 20 609 25 472 20 509 10 662 173 956 thereof IBNR 39 87 165 198 308 367 320 788 1 949 4 221 Years Corporate Solutions (RSI) 1 17.0% 2 32.8% 3 17.5% 4 10.0% 5 5.7% 6 5.6% 7 2.4% 8 2.2% 9 1.9% The increase in current accident year claims is driven by COVID-19-related losses and reserves and a number of large natural catastrophe losses, impacting mainly the property line of business. Decrease across prior accident years is driven by favourable reserve development on accident year 2019, mainly due to lower large man-made claims activity. Reserves on the US liability line of business on accident years 2012-2019 were reduced by a Loss Portfolio Transfer to P&C Reinsurance of USD 1.2bn in the financial year 2019. In addition, the impact of unfavourable development across all lines of business for accident years 2012-2018 was reduced by recoveries under an Adverse Development Cover with P&C Reinsurance in place since the second half of the financial year 2019. For the financial year 2020, there were immaterial movements under both the Loss Portfolio Transfer and the Adverse Development Cover. P&C Reinsurance reports both the Adverse Development Cover and the Loss Portfolio Transfer under accident year 2019 (see ’’Property & Casualty Reinsurance – Liability, non-proportional’’ on page 225). 230 Swiss Re | Financial Report 2020 Life & Health Reinsurance, long tail Incurred claims and allocated claim adjustment expenses, net of reinsurance USD millions Reporting year Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total 2011 229 2012 240 284 2013 303 380 512 2014 316 383 503 502 2015 331 409 501 457 428 2016 308 371 463 435 463 449 2017 301 374 462 437 448 465 458 2018 302 370 464 461 449 451 465 426 RSI Cumulative number of reported claims (in nominals) 6 945 9 525 12 168 14 227 17 140 14 667 17 303 16 491 12 806 2 295 123 567 thereof IBNR 28 26 29 38 40 87 124 164 217 158 911 2019 309 386 489 486 481 483 488 461 396 2020 308 387 489 495 491 498 512 477 484 184 4 325 Cumulative claims paid and allocated claim adjustment expenses, net of reinsurance USD millions Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total Reporting year 2011 20 2012 65 29 RSI 2013 105 92 39 2014 132 147 128 34 2015 153 188 195 114 38 2016 175 222 259 208 112 14 2017 191 246 302 274 198 91 13 2018 206 266 330 312 251 167 79 12 All liabilities before 2011 Liabilities for claims and claim adjustment expenses, net of reinsurance 2019 217 283 353 342 291 223 171 78 13 2020 228 298 374 369 327 268 246 171 83 5 2 369 294 2 250 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 5.0% 15.2% 16.3% 11.8% 8.2% 6.5% 5.1% 4.5% 3.7% 3.6% The increase in incurred losses from accident year 2013 onwards is due to an increase in volume of group disability business in Australia. Disability business volume written in Australia has reduced since 2019. Swiss Re | Financial Report 2020 231 Financial statements Reconciliation of gross liability for unpaid claims and claim adjustment expenses The following table reconciles the Group‘s net outstanding liabilities to the gross liabilities for unpaid claims and claim adjustment expenses. The net outstanding liabilities correspond to the total liabilities for unpaid claims and claim adjustment expenses, net of reinsurance for each disaggregation category. Other short duration contract lines include 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 and Corporate Solutions 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 ’’Information on business segments’’. As of 31 December USD millions Net outstanding liabilities Property & Casualty Reinsurance Property Liability, proportional Liability, non-proportional Accident & Health Motor, proportional Motor, non-proportional Specialty Corporate Solutions 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 Corporate Solutions Consolidation 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 232 Swiss Re | Financial Report 2020 2020 10 032 11 876 9 692 5 423 3 681 6 506 5 315 6 983 2 250 61 758 –311 –435 61 012 4 131 65 143 572 245 239 238 52 220 506 5 217 –4 986 –79 523 2 747 1 242 12 126 13 368 81 258 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 2019 1 318 –305 28 3.0–3.4% 2020 1 374 –311 29 3.0–3.2% 1 Interest accretion is shown as part of “Life and health benefits” in the income statement. Please refer to Note 1 ’’Organisation and summary of significant accounting policies’’ for more details about the Group‘s discounting approach for unpaid claims and claim adjustment expenses. Swiss Re | Financial Report 2020 233 Financial statements 6 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) As of 31 December, the DAC were as follows: 2019 USD millions Opening balance as of 1 January Deferred Effect of acquisitions/disposals and retrocessions Amortisation Effect of foreign currency translation and other changes Reclassified to held for sale Closing balance 2020 USD millions Opening balance as of 1 January Opening balance as of 1 January classified as held for sale Deferred Effect of acquisitions/disposals and retrocessions Amortisation Effect of foreign currency translation and other changes Closing balance Property & Casualty Reinsurance 2 156 5 269 –4 809 Life & Health Reinsurance 4 784 434 –256 –445 Corporate Solutions 488 621 –626 –3 12 2 613 4 529 483 Property & Casualty Reinsurance 2 613 Life & Health Reinsurance 4 529 Corporate Solutions 483 5 016 –5 103 50 2 576 619 –2 –417 171 4 900 504 –579 5 413 Life Capital 789 229 68 –240 24 –657 213 Life Capital 213 657 211 –5932 –166 –37 285 Group Items 0 Group Items –14 70 56 Total 8 217 6 553 –188 –6 120 33 –657 7 838 Total 7 838 657 6 350 –595 –6 279 259 8 230 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. 234 Swiss Re | Financial Report 2020 As of 31 December, the PVFP was as follows: 2019 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 Reclassified to held for sale Closing balance 2020 USD millions Opening balance as of 1 January Opening balance as of 1 January classified as held for sale Effect of acquisitions/disposals and retrocessions2 Amortisation Interest accrued on unamortised PVFP Effect of change in unrealised gains/losses Effect of foreign currency translation Closing balance 1 Impact from termination of a reinsurance arrangement included. 2 Please refer to Note 10 “Acquisitions and disposals”. Life & Health Reinsurance 804 –1611 –108 32 10 577 Life & Health Reinsurance 577 –99 28 4 510 Positive PVFP 1 505 2032 –220 103 –13 43 –1 156 465 Positive PVFP 465 1 156 –914 –328 73 –8 –26 418 Negative PVFP –491 46 –15 –16 476 0 Negative PVFP –476 444 33 –10 9 0 Life Capital Total Total 1 014 203 –174 88 –13 27 –680 465 1 818 42 –282 120 –13 37 –680 1 042 Life Capital Total Total 465 680 –470 –295 63 –8 –17 418 1 042 680 –470 –394 91 –8 –13 928 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 16%, 15%, 14%, 13% and 12%. Swiss Re | Financial Report 2020 235 Financial statements 7 Investments Investment income Net investment income by source (excluding unit-linked and with-profit business) was as follows: USD millions Fixed income securities Equity securities Policy loans, mortgages and other loans Investment real estate Short-term investments Other current investments Share in earnings of equity-accounted investees Cash and cash equivalents Net result from deposit-accounted contracts Deposits with ceding companies Gross investment income Investment expenses Interest charged for funds held Net investment income – non-participating business 20191 2 889 66 162 226 93 97 387 75 149 452 4 596 –412 –13 4 171 2020 2 251 92 127 241 36 103 –51 25 128 421 3 373 –378 –7 2 988 1 The Group revised its allocation of net investment income. The revision has no impact on the income statement or balance sheet of the Group. Comparative information for 2019 has been adjusted accordingly. Dividends received from investments accounted for using the equity method were USD 104 2020, respectively. million and USD 124 million for 2019 and Share in earnings of equity-accounted investees included impairments of the carrying amount of equity-accounted investees of USD 80 million and USD 5 million for 2019 and 2020, respectively. Realised gains and losses Realised gains and losses for fixed income securities, equity securities and other investments (excluding unit-linked and with-profit business) were as follows: USD millions Fixed income securities available-for-sale: Gross realised gains Gross realised losses Other-than-temporary impairments Net realised investment gains/losses on equity securities Change in net unrealised investment gains/losses on equity securities 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 Loss related to sale of ReAssure Net realised investment gains/losses – non-participating business 2019 2020 1 590 –143 –5 200 478 153 –26 –197 108 –348 –230 1 580 1 676 –256 –29 –87 782 86 –33 –41 40 –163 –245 1 730 Net realised/unrealised gains/losses on insurance-related activities included impairments of USD 5 million and nil for 2019 and 2020, respectively. 236 Swiss Re | Financial Report 2020 Investment result – unit-linked and with-profit business For unit-linked contracts, the investment risk is borne by the policyholder. For with-profit contracts, the majority of the investment risk is also borne by the policyholder, although there are certain guarantees that limit the downside risk for the policyholder, and a certain proportion of the returns may be retained by the Group (typically 10%). Net investment result on unit-linked and with-profit business credited to policyholders was as follows: USD millions Investment income – fixed income securities Investment income – equity securities Investment income – other Total investment income – unit-linked and with-profit business Realised gains/losses – fixed income securities Realised gains/losses – equity securities Realised gains/losses – other Total realised gains/losses – unit-linked and with-profit business Total net investment result – unit-linked and with-profit business Unit-linked 58 733 25 816 89 3 333 90 3 512 4 328 2019 With-profit 101 76 11 188 135 279 9 423 611 Unit-linked 29 401 5 435 92 –2 566 –8 –2 482 –2 047 2020 With-profit 50 27 3 80 72 –283 –9 –220 –140 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 2019 80 5 –24 2 –3 1 61 2020 61 18 –32 –2 1 46 Swiss Re | Financial Report 2020 237 Financial statements Investments available-for-sale Amortised cost or cost, estimated fair values and other-than-temporary impairments of fixed income securities classified as available-for-sale as of 31 December were as follows: 2019 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 France Canada Japan Other Total Corporate debt securities Mortgage- and asset-backed securities Reclassified to assets held for sale Fixed income securities available-for-sale 2020 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 France Canada Japan 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 14 192 7 034 1 783 7 936 2 870 2 095 2 256 2 028 10 589 50 783 37 293 4 397 –17 693 74 780 377 104 168 1 309 298 343 139 98 583 3 419 3 749 195 –2 785 4 578 –31 –14 –3 –26 –35 –13 –4 –2 –33 –161 –46 –14 28 –193 –2 –2 Amortised cost or cost Gross unrealised gains Gross unrealised Other-than-temporary impairments recognised in other losses comprehensive income 10 915 6 575 1 444 4 206 3 038 2 551 2 179 2 086 10 189 43 183 27 538 3 141 73 862 693 214 248 841 494 570 223 56 788 4 127 3 084 157 7 368 –18 –10 –5 –1 –1 –13 –24 –20 –92 –35 –22 –149 –1 –1 Estimated fair value 14 538 7 124 1 948 9 219 3 133 2 425 2 391 2 124 11 139 54 041 40 996 4 576 –20 450 79 163 Estimated fair value 11 590 6 779 1 692 5 042 3 531 3 120 2 389 2 118 10 957 47 218 30 587 3 275 81 080 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. 238 Swiss Re | Financial Report 2020 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 2019 and 2020. 2019 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 France Canada Japan Other Total Corporate debt securities Mortgage- and asset-backed securities Reclassified to assets held for sale Total 2020 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 France Canada Japan 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 2 357 1 842 39 1 297 669 340 863 443 1 492 9 342 2 562 730 –1 071 11 563 31 7 1 22 34 12 3 1 17 128 18 5 –8 143 97 654 30 83 17 16 62 2 315 1 276 531 404 –301 1 910 0 7 2 4 1 1 1 1 16 33 28 11 –20 52 2 454 2 496 69 1 380 686 356 925 445 1 807 10 618 3 093 1 134 –1 372 13 473 31 14 3 26 35 13 4 2 33 161 46 16 –28 195 Less than 12 months Unrealised losses Fair value 12 months or more Unrealised losses Fair value Total Unrealised losses Fair value 1 315 382 8 230 13 41 61 841 1 539 4 430 1 072 402 5 904 18 10 0 5 0 0 8 24 11 76 31 9 116 9 27 28 66 108 238 147 173 558 0 1 1 5 9 16 4 14 34 1 315 391 8 230 40 69 127 841 1 647 4 668 1 219 575 6 462 18 10 0 5 1 1 13 24 20 92 35 23 150 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 2019 and 2020, USD million, respectively, of fixed income securities available-for-sale were callable. million and USD 20 188 20 219 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 Reclassified to assets held for sale Total fixed income securities available-for-sale Amortised cost or cost 7 294 27 559 15 994 37 865 3 761 –17 693 74 780 2019 Estimated fair value 7 324 28 083 17 115 43 144 3 947 –20 450 79 163 Amortised cost or cost 8 806 18 298 14 512 29 942 2 304 2020 Estimated fair value 8 863 19 040 15 696 35 035 2 446 73 862 81 080 Swiss Re | Financial Report 2020 239 2020 1 907 31 1 938 4 899 2020 With-profit Financial statements Investments trading and at fair value through earnings The carrying amounts of fixed income securities classified as trading and equity securities at fair value through earnings (excluding unit- linked and with-profit business) as of 31 December were as follows: USD millions Debt securities issued by governments and government agencies Mortgage- and asset-backed securities Fixed income securities trading – non-participating business Equity securities at fair value through earnings – non-participating business 2019 2 358 52 2 410 2 993 Investments held for unit-linked and with-profit business The carrying amounts of investments held for unit-linked and with-profit business as of 31 December were as follows: USD millions Fixed income securities trading Equity securities at fair value through earnings Investment real estate Other Reclassified to assets held for sale Total investments for unit-linked and with-profit business Unit-linked 1 963 35 528 512 692 –38 175 520 2019 With-profit 2 717 2 078 200 3 –4 998 0 Unit-linked 463 463 0 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 and with-profit business) were as follows: USD millions Policy loans Mortgage loans Other loans Investment real estate Carrying value1 50 2 104 2 314 2 674 2019 Fair value 50 2 144 2 376 4 706 Carrying value 43 1 410 1 862 2 602 2020 Fair value 43 1 458 1 906 5 118 1 Policy loans, mortgages and other loans include a total of USD 1 447 million which were reclassified to assets held for sale. Investment real estate of USD 146 million was reclassified to assets held for sale. Depreciation expense related to investment real estate was USD 61 Accumulated depreciation on investment real estate totalled USD 660 respectively. Investment real estate held by the Group includes residential and commercial investment real estate. million and USD 779 million and USD 67 million for 2019 and 2020, respectively. million as of 31 December 2019 and 2020, Substantially all mortgage, policy and other loan receivables are secured by buildings, land or the underlying policies. Maturity of lessor cash flows As of 31 December 2020, the total undiscounted cash flows to be received from operating leases of investment real estate for the next five years and thereafter were as follows: USD millions Less than one year Between one year and two years Between two years and three years Between three years and four years Between four years and five years After five years Total cash flows Operating leases 203 182 158 125 97 412 1 177 The Group manages risk associated with the residual value of its leased properties through careful property selection as well as diversification by geographical region and property type. Lease contracts for residential real estate in Switzerland and Germany are usually open-ended. Cash flows for such contracts have been projected taking into consideration the average turnover rate in the region. Lease contracts for residential real estate in the US with a lease term of one year or less have been excluded from the projected cash flows in the table above. Rental income for those leases for the year ended 31 December 2019 and 2020 was USD 28 million and USD 27 million, respectively. 240 Swiss Re | Financial Report 2020 Other financial assets and liabilities by measurement category As of 31 December 2019 and 2020, ‘‘Other invested assets’’ and ‘‘Accrued expenses and other liabilities’’ by measurement category were as follows: 2019 USD millions Other invested assets Derivative financial instruments Reverse repurchase agreements Securities lending/borrowing Equity-accounted investments Other Reclassified to liabilities held for sale Other invested assets Accrued expenses and other liabilities Derivative financial instruments Repurchase agreements Securities lending Securities sold short Other Reclassified to liabilities held for sale Accrued expenses and other liabilities 2020 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 472 457 335 76 –60 1 280 692 458 1 764 –161 2 753 2 089 21 905 –445 2 570 678 115 1 653 –329 2 117 913 913 0 2 580 2 580 0 2 512 –191 2 321 0 472 2 089 478 2 915 1 894 –505 7 343 692 678 573 1 764 4 165 –681 7 191 Investments measured at net asset value as Fair value practical expedient Amortised cost or cost Equity-accounted Not in scope1 Total 266 1 636 287 302 2 491 495 1 638 1 353 3 486 3 002 282 1 010 4 294 248 84 1 959 2 291 1 026 1 026 0 2 503 2 503 0 0 2 316 2 316 266 3 002 1 918 2 790 2 338 10 314 495 248 1 722 1 353 4 275 8 093 Swiss Re | Financial Report 2020 241 Financial statements Offsetting of derivatives, financial assets and financial liabilities Offsetting of derivatives, financial assets and financial liabilities as of 31 December was as follows: 2019 USD millions Derivative financial instruments – assets Reverse repurchase agreements Securities borrowing Total Gross amounts of recognised financial assets 1 662 5 185 171 7 018 Amounts set-off in the balance sheet –1 184 –3 096 –150 –4 430 Net amounts of financial Related financial assets presented instruments not set-off in the balance sheet –2 –2 061 –20 –2 083 in the balance sheet 478 2 089 21 2 588 2019 USD millions Derivative financial instruments – liabilities Repurchase agreements Securities lending Total Gross amounts of recognised financial liabilities –1 750 –3 352 –1 145 –6 247 Amounts set-off in the balance sheet 1 058 2 674 572 4 304 Net amounts of financial Related financial liabilities presented instruments not set-off in the balance sheet in the balance sheet 75 –692 653 –678 524 –573 1 252 –1 943 2020 USD millions Derivative financial instruments – assets Reverse repurchase agreements Securities borrowing Total Gross amounts of recognised financial assets 1 609 4 945 292 6 846 Amounts set-off in the balance sheet –1 343 –1 943 –10 –3 296 Net amounts of financial Related financial assets presented instruments not set-off in the balance sheet –3 –3 002 –280 –3 285 in the balance sheet 266 3 002 282 3 550 2020 USD millions Derivative financial instruments – liabilities Repurchase agreements Securities lending Total Gross amounts of recognised financial liabilities –1 775 –1 891 –2 032 –5 698 Amounts set-off in the balance sheet 1 280 1 643 310 3 233 Net amounts of financial Related financial liabilities presented instruments not set-off in the balance sheet in the balance sheet 303 –495 248 –248 1 652 –1 722 2 203 –2 465 Net amount 476 28 1 505 Net amount –617 –25 –49 –691 Net amount 263 0 2 265 Net amount –192 0 –70 –262 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 and with-profit business” and “Accrued expenses and other liabilities”. Assets pledged As of 31 December 2019 and 2020, investments with a carrying value of USD deposit with regulatory agencies in accordance with local requirements, of which USD 223 cash and cash equivalents. As of 31 December 2019 and 2020, investments with a carrying value of USD USD in subsidiaries, of which USD 485 million and USD 259 pledged include some instances where cash is legally restricted from usage or withdrawal. million and USD 15 424 5 239 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities, including pledged investments million, respectively, were cash and cash equivalents. Cash and cash equivalents million and USD 249 5 858 million, respectively, were on million, respectively, were 14 659 million and As of 31 December 2019 and 2020, securities of USD under securities lending transactions and repurchase agreements on a fully collateralised basis. Corresponding liabilities of USD collateral that the Group has the right to sell or reuse. million, respectively, were recognised in accrued expenses and other liabilities for the obligation to return million, respectively, were transferred to third parties million and USD million and USD 18 686 13 787 1 970 1 251 As of 31 December 2019 and 2020, a real estate portfolio with a carrying value of USD 188 served as collateral for a credit facility, allowing the Group to withdraw funds up to CHF 500 million. million and USD 200 million, respectively, 242 Swiss Re | Financial Report 2020 Collateral accepted which the Group has the right to sell or repledge As of 31 December 2019 and 2020, the fair value of the equity securities, government and corporate debt securities received as collateral million, respectively. Of this, the amount that was sold or repledged as of 31 December 2019 and million and USD was USD 5 477 2020 was USD 1 341 2 025 agreements and derivative transactions. million, respectively. The sources of the collateral are securities borrowing, reverse repurchase 4 837 million and USD Recognised gross liability for the obligation to return collateral (from repurchase agreements and securities lending) As of 31 December 2019 and 2020, 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. 2019 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 Gross amount of recognised liabilities for repurchase agreements and securities lending 2020 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 Gross amount of recognised liabilities for repurchase agreements and securities lending Overnight and continuous Up to 30 days Remaining contractual maturity of the agreements Greater than 90 days 30–90 days Total 30 3 33 295 58 353 3 312 7 3 319 0 0 493 299 0 493 299 3 342 10 3 352 1 087 58 1 145 4 497 Overnight and continuous Up to 30 days Remaining contractual maturity of the agreements Greater than 90 days 30–90 days Total 197 2 199 1 490 148 1 638 54 54 0 1 099 79 1 178 303 551 0 303 551 1 741 150 1 891 1 953 79 2 032 3 923 The programme is structured in a conservative manner with a clearly defined risk framework. Yield enhancement is conducted on a non- cash basis, thereby taking no re-investment risk. Swiss Re | Financial Report 2020 243 Financial statements 8 Fair value disclosures Fair value, as defined by the Fair Value Measurements and Disclosures Topic, is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurements and Disclosures Topic requires all assets and liabilities that are measured at fair value to be categorised within the fair value hierarchy. This three-level hierarchy is based on the observability of the inputs used in the fair value measurement. The levels of the fair value hierarchy are defined as follows: Level 1 inputs are unadjusted, 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. The types of instruments include most US government and sovereign obligations, active listed equities, certain exchange-traded derivative instruments and most money market securities. Level 2 inputs are market-based inputs that are directly or indirectly observable, but not considered level 1 quoted prices. Level 2 inputs consist of (i) quoted prices for similar assets or liabilities in active markets; (ii) quoted prices for identical assets or liabilities in non-active markets (eg markets which have few transactions and where prices are not current or price quotations vary substantially); (iii) inputs other than quoted prices that are observable (eg interest rates, yield curves, volatilities, prepayment speeds, credit risks and default rates); (iv) inputs derived from, or corroborated by, observable market data; and (v) quoted prices provided by third party brokers. The types of instruments that trade in markets that are not considered to be active include most government agency securities, investment-grade corporate bonds, certain mortgage- and asset-backed products, certain exchange-traded derivative instruments, catastrophe bonds, less liquid listed equities and state, municipal and provincial obligations. 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. 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. 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. 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 2020, 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 Group items. In certain situations, the Group uses inputs to measure the fair value of asset or liability positions that fall into different levels of the fair value hierarchy. In these situations, the Group will determine the appropriate level based on the lowest level input that is significant to the determination of the fair value. Valuation techniques US government securities typically have quoted market prices in active markets and are categorised as level 1 instruments in the fair value hierarchy. Non-US government holdings are generally classified as level 2 instruments and are valued on the basis of the quotes provided by pricing services, which are subject to the Group’s pricing validation reviews and pricing vendor challenge process. Valuations provided by pricing vendors are generally based on the actual trade information as substantially all of the Group’s non-US government holdings are traded in a transparent and liquid market. Corporate debt securities mainly include US and European investment-grade positions, which are priced on the basis of quotes provided by third party pricing vendors and first utilise valuation inputs from actively traded securities, such as bid prices, bid spreads to Treasury securities, Treasury curves and same or comparable issuer curves and spreads. Issuer spreads are determined from actual quotes and traded prices and incorporate considerations of credit/default, sector composition, and liquidity and call features. Where market data is not available, valuations are developed based on the modelling techniques that utilise observable inputs and option-adjusted spreads and incorporate considerations of the security’s seniority, maturity and the issuer’s corporate structure. Values of mortgage- and asset-backed securities are obtained both from third party pricing vendors and through quoted prices, some of which may be based on the prices of comparable securities with similar structural and collateral features. Values of certain ABS for which there are no significant observable inputs are developed using benchmarks to similar transactions or indices. For both residential mortgage- 244 Swiss Re | Financial Report 2020 backed securities (RMBS) and commercial mortgage-backed securities (CMBS), cash flows are derived based on the transaction-specific information, which incorporates priority in the capital structure, and are generally adjusted to reflect benchmark yields, market prepayment data, collateral performance (default rates and loss severity) for specific vintage and geography, credit enhancements and ratings. For certain RMBS and CMBS with low levels of market liquidity, judgements may be required to determine comparable securities based on the loan type and deal-specific performance. CMBS terms may also incorporate lock-out periods that restrict borrowers from prepaying the loans or provide disincentives to prepay and therefore reduce prepayment risk of these securities, compared to RMBS. The factors specifically considered in valuation of CMBS include borrower-specific statistics in a specific region, such as debt service coverage and loan-to-value ratios, as well as the type of commercial property. Mortgage- and asset-backed securities also includes debt securitised by credit card, student loan and auto loan receivables. Pricing inputs for these securities also focus on capturing, where relevant, collateral quality and performance, payment patterns and delinquencies. The Group uses third party pricing vendor data to value agency securitised products, which mainly include collateralised mortgage obligations (CMO) and mortgage-backed government agency securities. The valuations generally utilise observable inputs consistent with those noted above for RMBS and CMBS. Equity securities held by the Group for proprietary investment purposes are mainly classified in level 1. Securities classified in level 1 are traded on public stock exchanges for which quoted prices are readily available. The category “Other invested assets” includes the Group’s private equity and hedge fund investments which are made directly or via ownership of funds. Valuation of direct private equity investments requires significant management judgement due to the absence of quoted market prices and the lack of liquidity. Initial valuation is based on the acquisition cost, and is further refined based on the available market information for the public companies that are considered comparable to the Group’s holdings in the private companies being valued, and the private company-specific performance indicators, both historic and projected. Subsequent valuations also reflect business or asset appraisals, as well as market transaction data for private and public benchmark companies and the actual companies being valued, such as financing rounds and mergers and acquisitions activity. The Group’s holdings in private equity and hedge funds are generally valued utilising net asset values (NAV), subject to adjustments, as deemed necessary, for restrictions on redemption (lock-up periods and amount limitations on redemptions). These investments are included under investments measured at net asset value as a practical expedient. The Group holds both exchange-traded and OTC interest rate, foreign exchange, credit and equity derivative contracts for hedging and trading purposes. The fair values of exchange-traded derivatives measured using observable exchange prices are classified in level 1. Long- dated contracts may require adjustments to the exchange-traded prices which would trigger reclassification to level 2 in the fair value hierarchy. OTC derivatives are generally valued by the Group based on the internal models, which are consistent with industry standards and practices, and use both observable (dealer, broker or market consensus prices, spot and forward rates, interest rate and credit curves and volatility indices) and unobservable inputs (adjustments for liquidity, inputs derived from the observable data based on the Group’s judgements and assumptions). The Group’s OTC interest rate derivatives primarily include interest rate swaps, futures, options, caps and floors and are valued based on the cash flow discounting models which generally utilise as inputs observable market yield curves and volatility assumptions. The Group’s OTC foreign exchange derivatives primarily include forward, spot and option contracts and are generally valued based on the cash flow discounting models, utilising as main inputs observable foreign exchange forward curves. The Group’s investments in equity derivatives primarily include OTC equity option contracts on single or baskets of market indices and equity options on individual or baskets of equity securities, which are valued using internally developed models (such as the Black-Scholes type option pricing model and various simulation models) calibrated with the inputs, which include underlying spot prices, dividend curves, volatility surfaces, yield curves and correlations between underlying assets. The Group’s OTC credit derivatives can include index and single-name credit default swaps. 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. Swiss Re | Financial Report 2020 245 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: 2019 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 Fixed income securities backing unit-linked and with-profit business Equity securities held for proprietary investment purposes Equity securities backing unit-linked and with-profit business Short-term investments held for proprietary investment purposes Derivative financial instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Contracts backing unit-linked and with-profit business Investment real estate 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 Contracts backing unit-linked and with-profit business Liabilities for life and health policy benefits Accrued expenses and other liabilities Total liabilities at fair value Quoted prices in active markets for identical assets and liabilities (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Impact of netting1 Reclassified to assets held for sale Total 14 057 86 270 1 696 –20 450 81 573 14 057 2 992 37 550 1 098 11 2 6 3 317 56 025 –5 –5 2 510 7 175 32 654 39 303 4 628 4 680 1 56 4 812 1 426 492 381 530 17 3 3 140 174 97 559 –1 280 –415 –296 –506 –63 3 1 693 –121 –5 283 –14 671 –375 16 446 7 175 27 374 26 325 4 253 –4 680 0 2 993 –37 086 520 225 –1 184 186 39 143 411 –142 –65 –8 –51 –6 –143 2 475 –1 184 –62 566 –465 –2 –20 –443 –91 1 058 161 50 1 111 –1 5 768 413 484 330 718 17 48 0 0 868 174 92 309 –531 –367 –295 –531 –63 –332 –1 –91 –2 222 –2 844 –340 –345 –1 882 –3 162 –556 1 058 161 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. 246 Swiss Re | Financial Report 2020 2020 USD millions Assets Fixed income securities held for proprietary investment purposes Debt securities issued by US government and government agencies US Agency securitised products Debt securities issued by non-US governments and government agencies Corporate debt securities Mortgage- and asset-backed securities Equity securities held for proprietary investment purposes Equity securities backing unit-linked and with-profit business Short-term investments held for proprietary investment purposes Derivative financial instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Other invested assets Funds held by ceding companies Total assets at fair value Liabilities Derivative financial instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Liabilities for life and health policy benefits Accrued expenses and other liabilities Total liabilities at fair value Quoted prices in active markets for identical assets and liabilities (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Impact of netting1 Total 11 264 70 571 1 183 11 264 4 899 463 6 846 5 4 1 551 24 028 –12 –10 –2 2 194 7 021 28 646 29 404 3 306 9 236 1 372 494 215 653 10 1 085 172 82 436 –1 422 –444 –410 –331 –237 1 183 232 –1 343 201 31 588 2 003 –1 343 1 280 –341 –2 –23 –316 –98 –891 –903 –2 099 –3 521 –439 1 280 83 018 13 458 7 021 28 646 30 587 3 306 4 899 463 16 082 266 494 215 858 10 32 2 224 172 107 124 –495 –446 –410 –364 –237 –318 –98 –2 990 –3 583 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 Re | Financial Report 2020 247 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: 2019 USD millions Assets and liabilities Balance as of 1 January Realised/unrealised gains/losses: Included in net income1 Included in other comprehensive income2 Purchases Issuances Sales Settlements Transfers into level 3 Transfers out of level 3 Disposals Impact of foreign exchange movements Closing balance as of 31 December Fixed income securities Equity Derivative assets securities Investment real estate Other invested assets Total Derivative liabilities assets Liabilities for life and health policy benefits Total liabilities 1 378 0 404 166 364 2 312 –517 –119 –636 4 73 417 –56 –82 –76 –151 16 16 –9 –37 –46 32 –4 120 –147 24 60 20 20 –2 2 –111 73 453 0 –113 –119 2 –76 38 1 696 2 225 7 143 7 411 54 2 475 –5 –465 0 –91 152 –4 0 –147 24 60 0 0 –5 –556 2 1 Fair value changes are reported in “Net realised investment gains/losses – non-participating business”. Fair value changes from fixed income securities are reported in “Net unrealised investment gains/losses”. Fair value changes from liabilities for life and health policy benefits are reported in “Credit risk of financial liabilities at fair value option”. 2020 USD millions Assets and liabilities Balance as of 1 January Realised/unrealised gains/losses: Included in net income1 Included in other comprehensive income2 Purchases Issuances Sales Settlements Transfers into level 3 Transfers out of level 3 Disposals Impact of foreign exchange movements Closing balance as of 31 December Fixed income securities Equity Derivative assets securities Investment real estate Other invested assets Total Derivative liabilities assets Liabilities for life and health policy benefits Total liabilities 1 696 0 225 143 411 2 475 –465 –91 –556 79 –2 367 –7 –48 –945 43 1 183 14 1 –14 –134 4 0 –11 3 1 232 204 –204 0 –9 19 –47 211 3 588 85 –2 386 0 –68 –59 418 0 –1 283 51 2 003 –8 –8 1 –102 6 127 104 –3 –341 –98 –16 1 0 –102 6 127 0 0 104 –3 –439 2 1 Fair value changes are reported in “Net realised investment gains/losses – non-participating business”. Fair value changes from fixed income securities are reported in “Net unrealised investment gains/losses”. Fair value changes from liabilities for life and health policy benefits are reported in “Credit risk of financial liabilities at fair value option”. 248 Swiss Re | Financial Report 2020 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 2019 41 –45 2020 69 –16 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 Investment real estate Liabilities Derivative equity contracts OTC equity option referencing correlated equity indices 2019 2020 Fair value Fair value Valuation technique Unobservable input Range (weighted average1) 1 693 1 183 1 147 504 42 186 186 201 201 701 Discounted cash flow model Corporate spread matrix 440 42 Discounted cash flow model Valuation spread Credit spread Illiquidity premium 84–526 bps (199 bps) 214–236 bps (112 bps) 125–150 bps (146 bps) Proprietary option model Correlation –30–55% (30%) 143 –20 –20 –23 –23 Proprietary option model Correlation –30–95% (42%) Other derivative contracts and liabilities for life and health policy benefits –534 –414 Variable annuity and fair valued GMDB contracts –311 –355 Discounted cash flow model Risk margin Volatility Lapse Mortality improvement Withdrawal rate 4% (n/a) 12.8–63.8% 1.5–15% 0–1.5% 0–90% Swap liability referencing real estate investments Weather contracts –110 –76 –30 Proprietary option model Risk margin Correlation Volatility (power/gas) Volatility (temperature) Index value (temperature) 6–11% (7.9%) –49–45% (12.1%) 27–65% (56.4%) 34–385 (164) HDD/CAT2 441–7586 (2315) HDD/CAT2 1 Unobservable inputs were weighted by the relative fair value of the instruments. For Derivative equity contracts, the weighted average correlation is derived by computing an absolute piecewise correlation impact and is not weighted by the relative fair value. 2 Heating Degree Days (HDD); Cumulative Average Temperature (CAT). Swiss Re | Financial Report 2020 249 Financial statements Uncertainty of recurring level 3 measurements from the use of significant 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 have resulted 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 have resulted 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 have resulted 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 have resulted 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 have resulted in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value measurement of the Group’s investment real estate and swap liability referencing real estate investment is the rate used to discount future cash flows from property sales. A significant increase (decrease) in this input in isolation would have resulted 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 improvement rate and withdrawal rate. A significant increase (decrease) in isolation in each of the following inputs: risk margin, volatility and withdrawal rate would have resulted in a significantly lower (higher) fair value of the Group’s obligation. A significant increase (decrease) in isolation in lapse rate would, in general, have resulted in a significantly higher (lower) fair value of the Group’s obligation due to the maturity of the contracts. Changes in the mortality improvement 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 improvement rate (ie decrease (increase) in mortality) in isolation would have resulted in a decrease (increase) in fair value of the Group’s liability. For the latter, a significant increase (decrease) in the mortality improvement rate in isolation would have resulted in an increase (decrease) in fair value of the Group’s liability. The significant unobservable inputs used in the fair value measurement of the Group’s weather contracts are risk margin, correlation, volatility and index value. Where the Group has a long position, a significant increase (decrease) in the risk margin input in isolation would have resulted in a significantly higher (lower) fair value measurement. Where the Group has a long volatility or correlation position, a significant increase (decrease) in the correlation and volatility inputs would have resulted in a significantly higher (lower) fair value measurement. Where the Group has a long index position, an increase (decrease) in the index value input in isolation would have resulted in a significantly higher (lower) fair value measurement. Where the Group has a short position, a significant increase (decrease) in the risk margin input in isolation would have resulted in a significantly lower (higher) fair value measurement. Where the Group has a short volatility or correlation position, a significant increase (decrease) in the correlation and volatility inputs would have resulted in a significantly lower (higher) fair value measurement. Where the Group has a short index position, an increase (decrease) in the index value input in isolation would have resulted in a significantly lower (higher) fair value measurement. 250 Swiss Re | Financial Report 2020 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 2019 Fair value 565 208 128 12 913 2020 Fair value 763 2 259 2 1 026 Unfunded commitments 589 72 15 676 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. The period of time over which the underlying assets are expected to be liquidated is indeterminate as investees provide liquidation notices. 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. Other derivative liabilities For operational efficiencies, the Group elected the fair value option on a hybrid financial instrument, where the host contract is a debt instrument and the embedded derivative is pegged to the performance of the fund’s real estate portfolio. The liability was carried at fair value and changes in fair value were reported as a component of earnings. In the balance sheet and the following fair value disclosures, this item was included under ”Liabilities held for sale” for the year ended 31 December 2019. Swiss Re | Financial Report 2020 251 Financial statements Assets and liabilities measured at fair value pursuant to election of the fair value option Pursuant to the election of the fair value option for the items described, the balances as of 31 December were as follows: USD millions Assets Other invested assets of which at fair value pursuant to the fair value option Funds held by ceding companies of which at fair value pursuant to the fair value option Liabilities Liabilities for life and health policy benefits of which at fair value pursuant to the fair value option Liabilities held for sale of which at fair value pursuant to the fair value option 2019 2020 10 314 287 10 726 172 –22 456 –98 7 343 335 9 472 174 –19 836 –91 –68 586 –110 Changes in fair values for items measured at fair value pursuant to election of the fair value option Gains/losses included in earnings for items measured at fair value pursuant to election of the fair value option including foreign exchange impact for the years ended 31 December were as follows: USD millions Other invested assets Funds held by ceding companies Liabilities for life and health policy benefits Liabilities held for sale Total 2019 16 11 32 –10 49 2020 –24 6 –8 –26 Fair value changes from other invested assets and funds held by ceding companies are reported in “Net investment income – non-participating business”. Fair value changes from the GMDB reserves are shown in “Life and health benefits”. Fair value changes from accrued expenses and other liabilities are reported in “Net realised investment gains/losses – non-participating business“. 252 Swiss Re | Financial Report 2020 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: 2019 USD millions Assets Policy loans Mortgage loans Other loans Investment real estate Total assets Liabilities Debt Total liabilities 2020 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) 50 2 144 2 376 4 563 9 133 0 Total 50 2 144 2 376 4 563 9 133 –10 639 –10 639 –3 565 –3 565 –14 204 –14 204 Significant other observable inputs (level 2) Significant unobservable inputs (level 3) 43 1 458 1 906 5 118 8 525 0 Total 43 1 458 1 906 5 118 8 525 –10 735 –10 735 –4 014 –4 014 –14 749 –14 749 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. Swiss Re | Financial Report 2020 253 Financial statements 9 Derivative financial instruments The Group uses a variety of derivative financial instruments including swaps, options, forwards, credit derivatives and exchange- traded financial futures in its trading and hedging strategies, in line with the Group’s overall risk management strategy. The objectives include managing exposure to price, foreign currency and/or interest rate risk on planned or anticipated investment purchases, existing assets or liabilities, as well as locking in attractive investment conditions for future available funds. The fair values represent the gross carrying value amounts at the reporting date for each class of derivative contract held or issued by the Group. The gross fair values are not an indication of credit risk, as many over-the-counter transactions are contracted and documented under ISDA master agreements or their equivalent. Management believes that such agreements provide for legally enforceable set-off in the event of default, which substantially reduces credit exposure. 254 Swiss Re | Financial Report 2020 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: Total derivative financial instruments 99 903 1 662 –1 750 2019 USD millions Derivatives not designated as hedging instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Total Derivatives designated as hedging instruments Interest rate contracts Foreign exchange contracts Total Amount offset Where a right of set-off exists Due to cash collateral Total net amount of derivative financial instruments 2020 USD millions Derivatives not designated as hedging instruments Interest rate contracts Foreign exchange contracts Equity contracts Credit contracts Other contracts Total Derivatives designated as hedging instruments Interest rate contracts Foreign exchange contracts Total Notional amount assets/liabilities Fair value assets Fair value liabilities Carrying value assets/liabilities 27 544 26 256 16 089 3 283 10 290 83 462 1 403 15 038 16 441 494 291 721 17 48 1 571 1 90 91 –395 –108 –531 –63 –443 –1 540 –22 –188 –210 –675 –509 478 675 383 –692 99 183 190 –46 –395 31 –21 –98 –119 –88 –214 Notional amount assets/liabilities Fair value assets Fair value liabilities Carrying value assets/liabilities 21 315 27 311 21 583 9 755 10 128 90 092 3 990 18 258 22 248 485 195 858 10 32 1 580 9 20 29 –436 –186 –364 –237 –318 –1 541 –10 –224 –234 49 9 494 –227 –286 39 –1 –204 –205 Total derivative financial instruments 112 340 1 609 –1 775 –166 Amount offset Where a right of set-off exists Due to cash collateral Total net amount of derivative financial instruments –653 –690 266 653 627 –495 –229 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 “Investments for unit-linked and with-profit business”. 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 2019 and 2020. Swiss Re | Financial Report 2020 255 Financial statements Non-hedging activities The Group primarily uses derivative financial instruments for risk management and trading strategies. Gains and losses of derivative financial instruments not designated as hedging instruments are recorded in “Net realised investment gains/losses — non-participating business” and “Net investment result — unit-linked and with-profit 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 20191 2020 –116 –123 –183 –51 112 –361 145 970 –114 –93 908 1 The Group has revised the scope of its non-hedging derivative activities. The revision had no impact on net income or shareholders' equity. Comparative information for 2019 has been adjusted accordingly. 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 2019 and 2020, the following hedging relationships were outstanding: Fair value hedges The Group enters into foreign exchange and interest rate swaps to reduce the exposure to foreign exchange and interest rate volatility for certain fixed income securities and its issued long-term debt positions. These derivative instruments are designated as hedging instruments in qualifying fair value hedges. For the years ended 31 December, the gains and losses attributable to the hedged risks were as follows: USD millions Total amounts of income and expense line items Foreign exchange contracts Gains/losses on derivatives Gains/losses on hedged items Amounts excluded from the effectiveness assessment Interest rate contracts Gains/losses on derivatives Gains/losses on hedged items Net realised investment gains/losses — non- participating business Interest expenses 2019 Other comprehensive income - Net unrealised investment gains/losses1 Net realised investment gains/losses — non- participating business 2020 Other comprehensive income - Net unrealised investment gains/losses1 Interest expenses 1 580 –589 3 375 1 730 –588 2 741 40 –40 –852 852 –2 –18 20 30 –30 1 Represents the net change in accumulated other comprehensive income, reflecting the revised presentation of gains/losses recorded in AOCI. Comparative information for 2019 has been adjusted accordingly. As of 31 December, the carrying values of the hedged assets and liabilities, and the cumulative amounts of fair value hedging adjustments included therein, recognised in the balance sheet, were as follows: USD millions Assets Fixed income securities available-for-sale Liabilities Long-term debt Carrying value 9 555 2019 Cumulative basis adjustment 2020 Cumulative basis adjustment Carrying value 13 083 –1 355 20 –3 968 –10 256 Swiss Re | Financial Report 2020 Cash flow hedges The Group entered into cross-currency swaps to reduce the exposure to foreign exchange volatility for a long-term debt instrument issued in the second quarter of 2016. These derivative instruments were designated as cash flow hedging instruments, until the hedge was discontinued in the second quarter of 2020. For the years ended 31 December, the gains and losses recorded in accumulated other comprehensive income, and reclassified into income were as follows: USD millions Total amounts of income and expense line items Foreign exchange contracts Gains/losses on derivatives Net realised investment gains/losses — non- participating business 1 580 2019 Other comprehensive income - Cash flow hedges1 –9 Net realised investment gains/losses — non- participating business 1 730 2020 Other comprehensive income - Cash flow hedges1 2 –48 –9 152 2 1 Represents the net change in accumulated other comprehensive income, reflecting the revised presentation of gains/losses recorded in AOCI. Comparative information for 2019 has been adjusted accordingly. 2 Includes a loss of USD 11 million that was reclassified into earnings, as a result of cash flow hedge discontinuance. 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. As of 31 December 2019 and 2020, the Group recorded an accumulated net unrealised foreign currency remeasurement gain of USD 1 895 million and USD 248 million, respectively, in “Other comprehensive income - Foreign currency translation“. These offset translation gains and losses on the hedged net investment. 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 2019 and 2020 was approximately USD 987 is based on the positive market replacement cost assuming non-performance of all counterparties, excluding cash collateral. million and USD 956 million, respectively. The maximum potential loss Credit risk-related contingent features Certain derivative instruments held by the Group contain provisions that require its debt to maintain an investment-grade credit rating. If the Group’s credit rating were downgraded or no longer rated, the counterparties could request immediate payment, guarantee or an ongoing full overnight collateralisation on derivative instruments in net liability positions. The total fair value of derivative financial instruments containing credit risk-related contingent features amounted to USD 75 USD 71 million as of 31 December 2019 and 2020, respectively. For derivative financial instruments containing credit risk-related contingent features, the Group posted collateral of nil and USD 48 million as of 31 December 2019 and 2020, respectively. In the event of a reduction of the Group’s credit rating to below investment grade, a fair value of USD 25 million additional collateral would have had to be posted as of 31 December 2020. The total equals the amount needed to settle the instruments immediately as of 31 December 2020. million and Swiss Re | Financial Report 2020 257 Financial statements 10 Acquisitions and disposals Disposal of ReAssure Group Plc. On the 22 July 2020, the Group completed the sale of ReAssure Group Plc. (ReAssure) to Phoenix Group Holdings Plc. (Phoenix), following the receipt of all required regulatory and anti-trust approvals. The agreement to sell the subsidiary was entered into in the fourth quarter of 2019. The principal products administered by ReAssure, formerly part of the Life Capital business segment, are long-term life and pension products, permanent health insurance, critical illness products and retirement annuities. Swiss Re received a cash payment of USD 1.6 billion, shares in Phoenix representing a 13.3% stake and is entitled to a seat on the Board of Directors of Phoenix. ReAssure’s minority shareholder, MS&AD Insurance Group Holdings, Inc. received shares in Phoenix representing a 14.5% stake. Phoenix is not considered a related party of Swiss Re preceding or following the transaction. The transaction resulted in a net loss of USD 245 million in the Life Capital business segment for the year 2020, which has been reflected in the “Net realised investment gains/losses“ line in the income statement. In 2019, USD 139 million of the estimated loss was allocated against the goodwill held by ReAssure in 2019, reducing its carrying amount to zero, and for the remainder of USD 91 million, an additional liability was established within “Liabilities held for sale”. The Group reassessed goodwill based on the agreement to sell ReAssure to Phoenix. For the year ended 31 December 2019 and for the period ended 22 July 2020, ReAssure reported a pre-tax income, including the loss on sale, of USD 120 million and a pre-tax loss of USD 69 million, of which a net income of USD 32 million and a net loss of USD were attributable to the Swiss Re Group, respectively. million 113 The major classes of assets and liabilities held for sale as of 31 December 2019 and disposed on 22 July 2020 are listed below. USD millions Assets Fixed income securities Short-term and other investments Investments for unit-linked and with-profit business Cash and cash equivalents Reinsurance recoverable Deferred acquisition costs Acquired present value of future profits Other assets Total Assets disposed Liabilities Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Policyholder account balances Accrued expenses and other liabilities Total Liabilities disposed 2019 2020 20 450 2 240 43 173 2 729 3 134 657 680 1 376 74 439 497 22 624 41 459 4 006 68 586 19 797 2 287 37 885 4 171 2 031 595 468 1 752 68 986 512 21 300 36 177 4 430 62 419 Acquisition of Old Mutual Wealth Life Assurance Limited On 31 December 2019, the Group through its ReAssure subsidiary acquired 100% of the UK closed book business of Quilter plc, consisting of Old Mutual Wealth Life Assurance Limited and its subsidiary Old Mutual Wealth Pensions Trustees Limited, including around 300 employees. The business acquired provides pension schemes, protection products, investment solutions and savings offerings, predominantly to the UK retail market. The transaction was consistent with ReAssure’s strategy to grow its closed-book business and added approximately 0.2 million customer policies, increasing ReAssure’s total policy count to 3.2 million. The acquisition was funded from ReAssure’s internal resources. The total consideration paid was USD 591 million in cash. As the business was acquired by ReAssure, it was recognised as held for sale upon acquisition and deconsolidated as part of the ReAssure assets and liabilities set out above on disposal. 258 Swiss Re | Financial Report 2020 11 Debt and contingent capital instruments The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines short-term debt as debt having a maturity at the balance sheet date of not greater than one year and long-term debt as having a maturity of greater than one year. For subordinated debt positions, maturity is defined as the first optional redemption date (notwithstanding that optional redemption could be subject to regulatory consent). Interest expense is classified accordingly. The Groupʼs debt as of 31 December was as follows: USD millions Senior operational debt Contingent capital instruments classified as financial debt Short-term debt Senior financial debt Senior operational debt Subordinated financial debt Subordinated operational debt Contingent capital instruments classified as financial debt Reclassified to liabilities held for sale Long-term debt Total carrying value Total fair value 2019 185 185 2 809 244 5 993 1 918 494 –1 320 10 138 10 323 14 204 2020 153 153 2 919 95 6 147 1 927 496 11 584 11 737 14 749 billion (thereof As of 31 December 2019 and 2020, operational debt, ie debt related to operational leverage, amounted to USD USD 1.9 billion limited- or non-recourse) and USD leverage is subject to asset/liability matching and is excluded from rating agency financial leverage calculations. 2.2 billion (thereof USD 1.9 billion limited- or non-recourse), respectively. Operational 2.2 Maturity of long-term debt As of 31 December, long-term debt as reported above had the following maturities: USD millions Due in 2021 Due in 2022 Due in 2023 Due in 2024 Due in 2025 Due after 2025 Reclassified to liabilities held for sale Total carrying value 2019 152 804 840 2 573 802 6 287 –1 320 10 138 2020 856 916 2 271 1 157 6 384 11 584 Swiss Re | Financial Report 2020 259 Financial statements Senior long-term debt Instrument Senior notes Senior notes EMTN Senior notes1 EMTN Senior notes1 Senior notes Payment undertaking agreements Maturity 2022 2023 2024 2026 2027 2030 2042 Various Total senior long-term debt as of 31 December 2020 Total senior long-term debt as of 31 December 2019 1 Assumed in the acquisition of GE Insurance Solutions. Subordinated long-term debt Issued in 2012 2016 2014 1996 2015 2000 2012 various Currency USD EUR CHF USD CHF USD USD USD Nominal in millions 250 750 250 397 250 193 500 85 Interest rate 2.88% 1.38% 1.00% 7.00% 0.75% 7.75% 4.25% various Instrument Subordinated fixed rate resettable callable loan note Subordinated fixed-to-floating rate callable loan note Subordinated fixed rate resettable callable loan note Subordinated fixed rate reset step-up callable loan note Subordinated fixed rate reset step-up callable loan note Subordinated fixed rate reset step-up callable loan note Subordinated private placement (amortising, limited recourse) Perpetual subordinated fixed-to-floating rate callable loan note Perpetual subordinated fixed spread callable note Maturity 2035 2042 2044 2049 2050 2052 2057 Perpetual Perpetual Total subordinated long-term debt as of 31 December 2020 Total subordinated long-term debt as of 31 December 2019 Contingent capital instruments classified as long-term debt Issued in 2020 2012 2014 2019 2019 2020 2007 2015 2019 Currency SGD EUR USD USD EUR EUR GBP EUR USD Nominal in millions 350 500 500 1 000 750 800 1 409 750 1 000 Interest rate 3.13% 6.63% 4.50% 5.00% 2.53% 2.71% 6.16% 2.60% 4.25% First call in 2025 2022 2024 2029 2030 2032 2025 2024 Book value in USD millions 250 913 282 453 284 246 491 95 3 014 3 053 Book value in USD millions 263 606 498 992 913 990 1 927 892 993 8 074 7 911 Maturity Instrument Senior unsecured exchangeable instrument with issuer stock settlement 2024 Total contingent capital instruments classified as long-term debt as of 31 December 2020 Total contingent capital instruments classified as long-term debt as of 31 December 2019 2018 USD 500 3.25% 496 496 494 Issued in Currency Nominal in millions Interest rate Book value in USD millions 260 Swiss Re | Financial Report 2020 Interest expense on long-term debt and contingent capital instruments Interest expense on long-term debt for the years ended 31 December was as follows: USD millions Senior financial debt Senior operational debt Subordinated financial debt1 Subordinated operational debt Contingent capital instruments classified as financial debt Total 2019 87 10 194 111 22 424 2020 88 7 263 112 17 487 1 The Group has revised the presentation of interest expense on subordinated financial debt to exclude the change in fair value of the hedged long-term debt positions in addition to the change in fair value of the swap. The change has no impact on total interest expenses as shown in the income statement. Comparative information for 2019 has been amended accordingly. The Group hedges the interest rate risk on some of its long-term debt positions. The net impact of the change in the fair value of the debt and interest rate swap is reflected in the interest expense line in the income statement but not in the table above. For more details on the hedging, please refer to Note 9 “Derivative financial instruments“. Long-term debt issued in 2020 In June 2020, Swiss Re Finance (UK) Plc., a subsidiary of Swiss Re Ltd, issued 32-year guaranteed subordinated fixed rate reset step-up callable notes, which are callable after 12 years. The notes have an aggregate face value of EUR 800 million, with a fixed coupon of 2.714% until the first optional redemption date (4 June 2032). The notes are guaranteed on a subordinated basis by Swiss Re Ltd. In July 2020, Swiss Re Finance (UK) Plc., a subsidiary of Swiss Re Ltd, issued 15-year guaranteed subordinated fixed rate reset callable notes, which are callable after 5 years. The notes have an aggregate face value of SGD 350 million, with a fixed coupon of 3.125% until the first optional redemption date (3 July 2025). The notes are guaranteed on a subordinated basis by Swiss Re Ltd. Swiss Re | Financial Report 2020 261 Financial statements 12 Leases As part of its normal business operations, the Group as a lessee enters into a number of lease agreements mainly for office space. Certain lease agreements include rental payments adjusted periodically for inflation. Renewal or termination options that are reasonably certain of exercise by the lessee are included in the lease term. The lease agreements do not contain any material residual value guarantees or material restrictive covenants. Lease liabilities and right-of-use assets Lease liabilities and right-of-use assets for operating leases as of 31 December were as follows: USD millions Operating lease right-of-use assets Operating lease liabilities 2019 485 531 2020 471 524 Operating lease right-of-use assets are included in “Other assets” and operating lease liabilities are included in “Accrued expenses and other liabilities” on the balance sheet. Maturity of lease liabilities As of 31 December, the total undiscounted cash flows due to operating leases for the next five years and thereafter were as follows: USD millions Less than one year Between one year and two years Between two years and three years Between three years and four years Between four years and five years After five years Total undiscounted cash flows Less imputed interest Total lease liability 2019 89 77 69 61 55 239 590 –59 531 2020 90 80 73 63 51 232 589 –65 524 As of 31 December 2020, undiscounted sublease cash flows over the next eleven years were USD 39 million. The discount rates used to determine the lease liability reflect the collateralised borrowing rates for the Group, where the underlying collateral is assumed to be real estate. The weighted average discount rate for operating leases as of 31 December 2019 and 2020 was 2.5% and 2.4%, respectively. The weighted average remaining lease term for operating leases as of 31 December 2019 and 2020 was 8.9 years and 9.3 years, respectively. Lease cost The composition of total lease cost for all operating leases for the year ended 31 December was as follows: USD millions Fixed operating lease cost Other lease cost1 Total operating lease cost Less sublease income from operating leases Total lease cost 1 “Other lease cost” includes variable lease cost. 2019 87 3 90 –9 81 2020 89 5 94 –10 84 Other information For the year ended 31 December 2019 and 2020, cash paid for amounts included in the measurement of operating lease liabilities was USD 91 million and USD 93 million, respectively. Right-of-use assets obtained in exchange for new operating lease liabilities in 2019 and 2020 were USD 68 million and USD 51 million, respectively. 262 Swiss Re | Financial Report 2020 13 Earnings per share Earnings per share for the years ended 31 December were as follows: USD millions (except share data) Basic earnings per share Net income/loss Non-controlling interests Net income/loss attributable to common shareholders Weighted average common shares outstanding Net income/loss per share in USD Net income/loss per share in CHF¹ Effect of dilutive securities Change in income available to common shares due to convertible debt Change in average number of shares due to convertible debt Change in average number of shares due to employee options Diluted earnings per share Net income assuming debt conversion and exercise of options Weighted average common shares outstanding Net income/loss per share in USD Net income/loss per share in CHF¹ 1 The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group’s average exchange rates. 2019 2020 769 –42 727 295 660 059 2.46 2.46 –824 –54 –878 289 126 570 –3.04 –2.97 14 13 143 130 704 411 741 309 507 600 2.39 2.40 –3.04 –2.97 Dividends are declared in Swiss francs. During the years ended 31 December 2019 and 2020, the parent company of the Group (Swiss Ltd) paid dividends per share of CHF 5.60 and CHF 5.90, respectively. Re At the 2019 Annual General Meeting held on 17 April 2019, Swiss Re Ltd’s shareholders authorised a public share buyback programme consisting of two tranches of each up to CHF 1 billion purchase value of Swiss Re Ltd’s own shares for cancellation purposes prior to the 2020 Annual General Meeting, the first tranche being conditional on obtaining all necessary legal and regulatory approvals and Board of Directors approval and the second tranche being conditional on (in addition to obtaining all necessary legal and regulatory approvals and Board of Directors approval) the 2019 development of the Group’s excess capital position and subject to the Group’s capital management priorities. The first tranche of the public share buyback programme approved by the 2019 Annual General Meeting was completed on 18 February 2020. The total number of shares repurchased amounted to 9.9 million, of which 8.2 million and 1.7 million shares were 2019 and between 1 January and 18 February 2020, respectively. As announced on 31 October 2019, the repurchased as of 31 Board of Directors of Swiss Re Ltd decided not to launch the second tranche of the public share buyback programme approved by the 2019 Annual General Meeting. December On 17 April 2020, the 2020 Annual General Meeting resolved the cancellation of the 9.9 million repurchased shares by way of share capital reduction. The share capital reduction was registered in the Commercial Register of the Canton of Zurich on 23 July 2020 and publication in the Swiss Commercial Gazette occurred on 28 July 2020. Swiss Re Ltd’s shareholders authorised the SRL Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of Swiss Re Ltd’s own shares by way of a public share buyback programme for cancellation purposes prior to the 2021 Annual General Meeting. At the post-AGM meeting, the Board of Directors decided that the share buyback programme would not be launched. Net of tax expense effects of debt conversion, totalling USD 14 million in 2020, and the potential impact of this debt conversion as well as the issuance of employee options on the weighted average number of shares, of 14 303 549 shares, have not been included in the diluted earnings per share calculation because the impact of such an inclusion was antidilutive. Swiss Re | Financial Report 2020 263 Financial statements 14 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/benefit 2019 496 –356 140 Tax rate reconciliation The following table reconciles the expected tax expense at the Swiss statutory tax rate to the actual tax expense in the accompanying income statement: USD millions Income tax at the Swiss statutory tax rate of 21.0% Increase (decrease) in the income tax charge resulting from: Foreign income taxed at different rates Impact of foreign exchange movements Tax exempt income/dividends received deduction Change in valuation allowance Non-deductible expenses Other income based taxes Change in liability for unrecognised tax benefits including interest and penalties Basis differences in subsidiaries Intra-entity transfers Other, net1 Total 1 Other, net includes tax return to tax provision adjustments from various jurisdictions. 2019 191 27 16 –142 –16 38 76 –42 1 20 –29 140 2020 398 –664 –266 2020 –229 –12 172 –181 –88 61 –36 –17 38 92 –66 –266 For the year ended 31 December 2020, the Group reported a tax benefit of USD 266 million on a pre-tax loss of USD 1 090 million, compared to a charge of USD 140 million on a pre-tax income of USD 909 million for 2019. This translates into an effective tax rate in the current and prior-year reporting periods of 24.4 % and 15.4%, respectively. For the year ended 31 December 2020, the tax rate was largely driven by tax benefits from tax-exempt income and the release of valuation allowance on deferred tax assets, partially offset by tax charges from intra-entity transfers and foreign currency translation differences between statutory and US GAAP accounts. The tax rate in the year ended 31 December 2019 was largely driven by tax benefits from effective settlement of tax audits and tax-exempt income, partially offset by tax charges from other income based taxes and non-deductible expenses. 264 Swiss Re | Financial Report 2020 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 Unearned Premium Reserves Pension provisions Benefit on loss carryforwards Currency translation adjustments Unrealised gains in income Investment valuation in income Other Reclassified to assets held for sale Gross deferred tax asset Valuation allowance Unrecognised tax benefits offsetting benefits on loss carryforwards Total deferred tax assets Deferred tax liabilities Investment valuation in income Deferred acquisition costs Technical provisions Unrealised gains on investments Foreign exchange provisions Currency translation adjustments Other Reclassified to liabilities held for sale Total deferred tax liabilities Liability for unrecognised tax benefits including interest and penalties Reclassified to liabilities held for sale Total deferred and other non-current tax liabilities 2019 2020 238 519 318 303 2 446 316 651 269 774 –604 5 230 –505 1 4 726 –448 –1 036 –2 230 –1 443 –489 –156 –961 1 321 –5 442 –250 29 –5 663 312 756 322 295 2 982 522 232 182 869 6 472 –395 2 6 079 –240 –1 062 –1 818 –1 492 –790 –266 –883 –6 551 –189 –6 740 As of 31 December 2020, the aggregate amount of temporary differences associated with investment in subsidiaries, branches and associates and interests in joint ventures, for which deferred tax liabilities have not been recognised amount to approximately USD 3.4 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 2020, the Group had USD 14 061 million net operating tax loss carryforwards, expiring as follows: USD 6 million in 2021, USD 3 million in 2022, USD 7 million in 2023, USD 841 million in 2024, USD 7 495 million in 2025 and beyond, and USD 5 709 million never expire. As of 31 December 2020, the Group had capital loss carryforwards of USD 592 million that never expire. For the year ended 31 December 2020, net operating tax losses of USD 1 596 million and net capital tax losses of USD 1 036 million were utilised. Income taxes paid in 2019 and 2020 were USD 611 million and USD 364 million, respectively. Swiss Re | Financial Report 2020 265 Financial statements Unrecognised tax benefits A reconciliation of the opening and closing amount of gross unrecognised tax benefits (excluding interest and penalties) is as follows: USD millions Balance as of 1 January Additions based on tax positions related to current year Additions based on tax positions related to prior years Reductions for tax positions of current year Reductions for tax positions of prior years Statute expiration Settlements Other (including foreign currency translation) Reclassified to assets/liabilities held for sale Balance as of 31 December 2019 257 38 8 –7 –83 –2 –16 –1 –24 170 2020 170 13 –6 16 –30 –5 –17 9 150 As of 31 December 2019 and 2020, 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 150 million, respectively. Interest and penalties related to unrecognised tax benefits are recorded in income tax expense. For the year ended 31 December 2019 such expenses were USD 5 million and for the year ended 31 December 2020 such benefits were USD 10 million. For the years ended 31 December 2019 and 2020, USD 55 million and USD 37 million, respectively, were accrued for the payment of interest (net of tax benefits) and penalties. The accrued interest balance as of 31 December 2020 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 2020 presented in the table above excludes accrued interest and penalties (USD 37 million). During the year, certain tax positions and audits in the United Kingdom, Japan, Malaysia, United States 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 2014–2020 2014; 2016–2020 2012–2020 2010–2020 2016–2020 2015–2020 2018–2020 2017–2020 2014–2020 2004; 2010–2020 2016–2020 2016–2020 2016–2020 2013–2020 Korea Luxembourg Malaysia Mexico Netherlands New Zealand Nigeria Singapore Slovakia South Africa Spain Switzerland United Kingdom United States 2013–2020 2016–2020 2016–2020 2016–2020 2015–2020 2014–2020 2016–2020 2014–2020 2016–2020 2015–2020 2016–2020 2016–2020 2008, 2013–2020 2017–2020 266 Swiss Re | Financial Report 2020 15 Benefit plans Defined benefit pension plans and post-retirement benefits The Group sponsors various funded defined benefit pension plans. Employer contributions to the plans are charged to income on a basis which recognises the costs of pensions over the expected service lives of employees covered by the plans. The Group’s funding policy for these plans is to contribute annually at a rate that is intended to maintain a level percentage of compensation for the employees covered. A full valuation is prepared at least every three years. The Group also provides certain healthcare and life insurance benefits for retired employees and their dependants. Employees become eligible for these benefits when they become eligible for pension benefits. The measurement date of these plans is 31 December for each year presented. 2019 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 2020 USD millions Benefit obligation as of 1 January Service cost Interest cost Amendments Actuarial gains/losses Benefits paid Employee contribution Acquisitions/disposals/additions Effect of settlement, curtailment and termination Effect of foreign currency translation Benefit obligation as of 31 December Fair value of plan assets as of 1 January Actual return on plan assets Company contribution Benefits paid Employee contribution Acquisitions/disposals/additions Effect of settlement, curtailment and termination Effect of foreign currency translation Fair value of plan assets as of 31 December Funded status Swiss plan 3 832 99 29 Foreign plans 2 270 8 67 307 –59 32 –150 75 4 165 3 760 391 97 –59 32 –150 74 4 145 –20 297 –95 42 2 589 2 336 323 16 –95 53 2 633 44 Other benefits 319 3 7 –1 24 –16 4 340 0 16 –16 0 –340 Swiss plan 4 165 120 4 Foreign plans 2 589 8 47 Other benefits 340 4 5 226 –49 35 –161 410 4 750 4 145 220 104 –49 35 –161 408 4 702 –48 169 –84 –541 46 2 234 2 633 272 15 –84 –559 39 2 316 82 10 –17 18 360 0 17 –17 0 –360 Total 6 421 110 103 –1 628 –170 32 –150 121 7 094 6 096 714 129 –170 32 –150 127 6 778 –316 Total 7 094 132 56 0 405 –150 35 –541 –161 474 7 344 6 778 492 136 –150 35 –559 –161 447 7 018 –326 Swiss Re | Financial Report 2020 267 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: 2019 USD millions Non-current assets Current liabilities Non-current liabilities Net amount recognised 2020 USD millions Non-current assets Current liabilities Non-current liabilities Net amount recognised Swiss plan –20 –20 Swiss plan –48 –48 Foreign plans 242 –3 –195 44 Foreign plans 294 –3 –209 82 Other benefits –17 –323 –340 Other benefits –18 –342 –360 Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows: 2019 USD millions Net gain/loss Prior service cost/credit Total 2020 USD millions Net gain/loss Prior service cost/credit Total Swiss plan 818 –85 733 Swiss plan 832 –70 762 Foreign plans 441 2 443 Other benefits 13 –50 –37 Foreign plans 297 2 299 Other benefits 23 –35 –12 Components of net periodic benefit cost The components of pension and post-retirement cost for the years ended 31 December were as follows: Swiss plan 99 29 –93 Foreign plans 8 67 –88 Other benefits 3 7 35 –15 28 83 15 2 –2 –15 –7 Swiss plan 120 4 –102 Foreign plans 8 47 –61 Other benefits 4 5 66 –15 34 107 21 15 –15 –6 2019 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 2020 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 268 Swiss Re | Financial Report 2020 Total 242 –20 –538 –316 Total 294 –21 –599 –326 Total 1 272 –133 1 139 Total 1 152 –103 1 049 Total 110 103 –181 48 –30 28 78 Total 132 56 –163 87 –30 34 116 Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended 31 December were as follows: 2019 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 2020 USD millions Net gain/loss Prior service cost/credit Amortisation of: Net gain/loss Prior service cost Effect of settlement, curtailment and termination Impact of sale of ReAssure 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 10 Foreign plans 55 Other benefits 24 –1 –35 15 –26 –36 47 –15 3 43 45 2 15 40 33 Swiss plan 108 Foreign plans –42 Other benefits 10 –66 15 –28 29 –21 –93 12 –144 136 –129 15 25 19 Total 89 –1 –48 30 –26 3 47 125 Total 76 0 –87 30 –28 –93 12 –90 26 The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 6 687 million and USD 6 921 million as of 31 December 2019 and 2020, respectively. Pension plans with a projected benefit obligation and an accumulated benefit obligation in excess of plan assets as of 31 December were as follows: USD millions Projected benefit obligation Fair value of plan assets USD millions Accumulated benefit obligation Fair value of plan assets 2019 4 793 4 575 2019 619 430 2020 5 455 5 195 2020 5 413 5 195 Swiss Re | Financial Report 2020 269 Financial statements Principal actuarial assumptions Assumptions used to determine obligations at the end of the year Discount rate Rate of compensation increase Interest crediting rate 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 Interest crediting rate 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 2019 2020 2019 2020 2019 2020 0.1% 1.8% 1.5% 0.8% 2.5% 1.8% 1.5% 0.0% 1.8% 1.8% 0.1% 2.5% 1.8% 1.8% 2.1% 2.9% 1.6% 2.6% 1.5% 2.1% 1.1% 2.1% 3.0% 3.7% 3.0% 2.1% 2.9% 2.9% 2.2% 1.5% 2.1% 2.1% 4.4% 3.6% 4.3% 3.6% 2023 2024 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. 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 2019 and 2020 was as follows: Asset category Equity securities Debt securities Real estate Other Total Swiss plan allocation Foreign plans allocation 2019 2020 Target allocation 2019 2020 Target allocation 26% 41% 18% 15% 100% 26% 37% 18% 19% 100% 23% 46% 23% 8% 100% 8% 76% 0% 16% 100% 5% 75% 0% 20% 100% 6% 86% 0% 8% 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 shares of USD 3 million (0.04% of total plan assets) and USD 2 million (0.03% of total plan assets) as of 31 December 2019 and 2020, 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. 270 Swiss Re | Financial Report 2020 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. As of 31 December, the fair values of pension plan assets were as follows: 2019 USD millions Assets Fixed income securities: Government debt securities Corporate debt securities RMBS/CMBS/ABS Equity securities Real estate Other assets Cash and cash equivalents Total plan assets 2020 USD millions Assets Fixed income securities: Government debt securities Corporate debt securities RMBS/CMBS/ABS Equity securities Real estate Other assets Cash and cash equivalents Total plan assets Fair value Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Investments measured at net asset value as practical expedient 50 1 082 4 198 1 334 1 576 2 011 13 205 174 11 756 3 979 767 698 698 Fair value Quoted prices in active markets for identical assets (level 1) Significant other observable inputs (level 2) Significant unobservable inputs (level 3) Investments measured at net asset value as practical expedient 60 1 209 4 119 1 392 1 521 1 891 9 122 56 11 861 1 155 3 599 872 1 155 Total 1 626 2 022 13 1 287 760 872 198 6 778 Total 1 581 1 902 9 1 331 865 1 211 119 7 018 Swiss Re | Financial Report 2020 271 Financial statements Assets measured at fair value using significant unobservable inputs (level 3) For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs were as follows: 2019 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 2020 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 721 Other assets 10 20 2 13 756 1 11 Real estate 756 Other assets 11 19 12 74 861 –1 1 11 Total 731 21 0 2 0 13 767 Total 767 18 0 12 0 75 872 Expected contributions and estimated future benefit payments The employer contributions expected to be made in 2021 to the defined benefit pension plans are USD 127 million and to the post- retirement benefit plan are USD 18 million. As of 31 December 2020, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows: USD millions 2021 2022 2023 2024 2025 Years 2026–2030 Swiss plan 240 233 226 228 222 1 095 Foreign plans 83 87 89 91 93 486 Other benefits 18 18 18 19 19 93 Total 341 338 333 338 334 1 674 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 2019 and 2020 was USD 86 million and USD 84 million, respectively. 272 Swiss Re | Financial Report 2020 16 Share-based payments As of 31 December 2019 and 2020, the Group had the share-based compensation plans as described below. The total compensation cost for share-based compensation plans recognised in net income was USD 30 million and USD 44 million in 2019 and 2020, respectively. The related tax benefit was USD 6 million and USD 9 million, respectively. Restricted shares The Group granted 51 036 and 21 709 restricted shares to selected employees in 2019 and 2020, respectively. In addition, 37 593 and 47 984 shares were delivered to members of the Board of Directors during 2019 and 2020, respectively, which are generally not subject to forfeiture risk. A summary of the movements in shares relating to outstanding awards granted under the restricted share plans for the year ended 31 December 2020 is as follows: Non-vested at 1 January Granted Forfeited Vested Outstanding as of 31 December 1 Equal to the market price of the shares at grant. Weighted average grant date fair value in CHF1 91 79 92 90 87 Number of shares 238 125 69 693 –3 212 –71 103 233 503 Swiss Re | Financial Report 2020 273 Financial statements Leadership Performance Plan The Leadership Performance Plan (LPP) awards are expected to be settled in shares, and the requisite service as well as the maximum contractual term are three years. For LPP 2017, LPP 2018, LPP 2019 and LPP 2020 awards, an additional two-year holding period applies for all members of the Group EC and other key executives. At grant date, LPP 2017, LPP 2018 and LPP 2019 awards were split equally into two underlying components of Performance Share Units (PSUs). The ROE PSUs are measured against a return on equity performance condition and will vest within a range of 0–100%. The TSR PSUs are based on relative total shareholder return, measured against a pre- defined group of peers and will vest within a range of 0–200%. At grant date, LPP 2020 was split equally into three underlying components of PSUs. The ENW PSUs, being the third component, are measured against ENW growth performance and will vest within a range of 0-100%. The fair values of all components are determined separately, based on stochastic models. The fair value assumptions in the grant valuations include market estimates for dividends and the risk-free rate based on the average of the 10-year US Treasury bond taken monthly over each year in the performance period, resulting in risk-free rates ranging between 1.5% and 3.1% for all outstanding LPP awards. For the year ended 31 December 2020, the outstanding units were as follows: ROE PSU Non-vested at 1 January Granted Forfeited Vested Outstanding as of 31 December Grant date fair value in CHF TSR PSU Non-vested at 1 January Granted Forfeited Vested Outstanding as of 31 December Grant date fair value in CHF ENW PSU Non-vested at 1 January Granted Forfeited Vested Outstanding as of 31 December Grant date fair value in CHF LPP 2017 446 794 LPP 2018 317 069 LPP 2019 314 151 –13 864 –17 121 LPP 2020 215 458 –7 532 303 205 70.18 297 030 78.22 207 926 78.81 –10 337 –436 457 47.41 609 090 256 939 302 567 –14 091 –594 999 34.78 –11 243 –16 498 352 827 –12 334 245 696 86.62 286 069 81.25 340 493 48.12 199 497 –6 974 192 523 85.17 Unrecognised compensation cost As of 31 December 2020, the total unrecognised compensation cost (net of forfeitures) related to non-vested, share-based compensation awards was USD 52 million and the weighted average period over which that cost is expected to be recognised is 1.9 years. The number of shares authorised for the Group’s share-based payments to employees was 3 660 142 and 3 004 148 as of 31 December 2019 and 2020, respectively. The Group’s policy is to ensure that sufficient treasury shares are available at all times to settle future share-based compensation plans. Global Share Participation Plan Swiss Re has a Global Share Participation Plan, which is a share purchase plan available to employees of companies within the Group. Swiss Re makes a financial contribution to participants in the plan, by matching the commitment that they make during the plan cycle with additional Swiss Re shares. If the employee is still employed by Swiss Re at the end of a plan cycle, the employee will receive an additional number of shares equal to 30% of the total number of purchased and dividend shares held at that time. In 2019 and 2020, Swiss Re contributed USD 12 million and USD 11 million to the plans and authorised 169 772 and 178 571 shares as of 31 December 2019 and 2020, respectively. 274 Swiss Re | Financial Report 2020 17 Compensation, participations and loans of members of governing bodies The disclosure requirements under Swiss Law in respect of compensation and loans to the members of the Board of Directors and of the Group Executive Committee, as well as closely related persons, are detailed in the Compensation Report on pages 140–146 of the Financial Report of the Swiss Re Group. The disclosure requirements under Swiss Law in respect of participations of members of the Board of Directors and the Group Executive Committee, as well as closely related persons, are detailed on pages 304–305 of the Annual Report of Swiss Re Ltd. Swiss Re | Financial Report 2020 275 Financial statements 18 Related parties The Group defines the following as related parties to the Group: subsidiaries of Swiss Re Ltd, entities in which the Group has significant influence, pension plans, members of the Board of Directors (BoD) and the Group Executive Committee (EC) and their close family members, and entities which are directly and indirectly controlled by members of governing bodies of the Group and their close family members. As part of the consolidation process, transactions between Swiss Re Ltd and subsidiaries are eliminated in consolidation and are not disclosed in the notes. Contributions made to defined benefit pension plans and post-retirement benefit plans are disclosed in Note 15 ‘‘Benefit plans’’. Plan assets of the defined benefit pension plans include Swiss Re common stock of USD 3 million (0.04% of total plan assets) and USD 2 million (0.03% of total plan assets) as of 31 December 2019 and 2020, respectively. The total number of shares, options and related instruments held by members of the BoD and the Group EC and persons closely related to, amounts to less than 1% of the shares issued by Swiss Re Ltd. None of the members of the BoD and the Group EC has any significant business connection with Swiss Re Ltd or any of its Group companies. The Board member Susan L. Wagner is also a board member of BlackRock, Inc. BlackRock, Inc. acts as external asset manager for the Group. The Board member Joachim Oechslin is a senior advisor to Credit Suisse Group AG. Swiss Re has a banking relationship with Credit Suisse. It is also a credit provider, and a named dealer under Swiss Re‘s Debt Issuance Programme. 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 2019 387 104 2020 –51 124 276 Swiss Re | Financial Report 2020 19 Commitments and contingent liabilities 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 2020 were USD 1 781 million. The Group has entered into various real estate construction contracts. The commitments under the contracts amount to USD 127 million over the next six years. The Group enters into a number of contracts in the ordinary course of reinsurance and financial services business which, if the Group’s credit rating and/or defined statutory measures decline to certain levels, would require the Group to post collateral or obtain guarantees. The contracts typically provide alternatives for recapture of the associated business. Legal proceedings In the normal course of business operations, the Group is involved in various claims, lawsuits and regulatory matters. In the opinion of management, the resolution 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 Re | Financial Report 2020 277 Financial statements 20 Significant subsidiaries and equity investees Share capital (millions) Affiliation in % as of 31.12.2020 Method of consolidation EUR GBP GBP GBP CHF CHF EUR EUR EUR EUR EUR EUR EUR EUR EUR CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF CHF GBP GBP USD GBP GBP 45 100 0 3 0 12 5 6 0 105 350 0 13 772 182 0 0 0 100 0 0 1 0 0 10 0 0 0 34 0 1 60 0 2 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f Europe Germany Swiss Re Germany GmbH, Munich Jersey Swiss Re Finance Holdings (Jersey) Limited, St Helier Swiss Re Finance (Jersey) Limited, St Helier Swiss Re Finance Midco (Jersey) Limited, St Helier Liechtenstein Elips Life AG, Vaduz Elips Versicherungen AG, Vaduz Luxembourg iptiQ Life S.A., Luxembourg Swiss Pillar Investments Europe SARL, Luxembourg Swiss Re Europe Holdings S.A., Luxembourg Swiss Re Europe S.A., Luxembourg Swiss Re Finance (Luxembourg) S.A., Luxembourg Swiss Re Funds (Lux) I, Senningerberg1 Swiss Re International SE, Luxembourg Netherlands elipsLife EMEA Holding B.V., Hoofddorp Swiss Re Life Capital EMEA Holding B.V., Hoofddorp Switzerland Swiss Pillar Investments Ltd, Zurich Swiss Re Corporate Solutions Ltd, Zurich Swiss Re Direct Investments Company Ltd, Zurich Swiss Re Investments Company Ltd, Zurich Swiss Re Investments Ltd, Zurich Swiss Re Life Capital Ltd, Zurich Swiss Re Life Capital Management Ltd, Zurich Swiss Re Nexus Reinsurance Company Ltd, Zurich Swiss Re Management Ltd, Adliswil Swiss Re Principal Investments Company Ltd, Zurich Swiss Re Reinsurance Holding Company Ltd, Zurich Swiss Reinsurance Company Ltd, Zurich United Kingdom IptiQ Holdings Limited, London Swiss Re Finance (UK) Plc., London Swiss Re Capital Markets Limited, London Swiss Re Life Capital Regions Holding Ltd, London Swiss Re Services Limited, London 1 Net asset value instead of share capital. 278 Swiss Re | Financial Report 2020 Americas and Caribbean Brazil Swiss Re Brasil Resseguros S.A., Sao Paulo Swiss Re Corporate Solutions Brasil Seguros S.A., Sao Paulo Cayman Islands FWD Group Ltd, Grand Cayman SRE HL PE 1 LP, George Town SREH HL PE 1 LP, George Town SRZ HL PE 1 LP, George Town Colombia Compañía Aseguradora de Fianzas S.A. Confianza, Bogota United States First Specialty Insurance Corporation, Jefferson City iptiQ Americas Inc., Wilmington Lumico Life Insurance Company, Jefferson City North American Capacity Insurance Company, Manchester North American Elite Insurance Company, Manchester North American Specialty Insurance Company, Manchester Pecan Re Inc., Colchester Pillar RE Holdings LLC, Wilmington SR Corporate Solutions America Holding Corporation, Wilmington SRE HL PE 1 (Master) LP, Wilmington SREH HL PE 1 (Master) LP, Wilmington SRZ HL PE 1 (Master) LP, Wilmington Swiss Re America Holding Corporation, Wilmington Swiss Re Capital Markets Corporation, New York Swiss Re Corporate Solutions Global Markets Inc., New York Swiss Re Financial Markets Corporation, Wilmington Swiss Re Financial Products Corporation, Wilmington Swiss Re Life & Health America Holding Company, Wilmington Swiss Re Life & Health America Inc., Jefferson City Swiss Re Life Capital Americas Holding Inc., Wilmington Swiss Re Management (US) Corporation, Wilmington Swiss Re Property & Casualty America Inc., Kansas City Swiss Re Risk Solutions Corporation, Wilmington Swiss Re Treasury (US) Corporation, Wilmington Swiss Reinsurance America Corporation, Armonk Washington Insurance Corporation, Jefferson City Westport Insurance Corporation, Jefferson City Wing Re Inc., Jefferson City Wing Re II Inc., Jefferson City Share capital (millions) Affiliation in % as of 31.12.2020 Method of consolidation BRL BRL USD EUR EUR USD 295 318 1 156 213 190 100 60 15 100 100 100 COP 234 203 51 USD USD USD USD USD USD USD USD USD EUR EUR USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD USD 5 0 0 4 4 5 5 0 0 155 213 190 0 0 0 0 0 0 4 0 0 1 0 0 10 4 6 0 0 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 f f e f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f f Swiss Re | Financial Report 2020 279 Financial statements Africa South Africa Swiss Re Africa Limited, Cape Town Asia-Pacific Australia Swiss Re Australia Ltd, Sydney Swiss Re Life & Health Australia Limited, Sydney China Swiss Re Corporate Solutions Insurance China Ltd, Shanghai Singapore Swiss Re Asia Holding Pte. Ltd., Singapore Swiss Re Asia Pte. Ltd., Singapore Swiss Re Principal Investments Company Asia Pte. Ltd., Singapore Share capital (millions) Affiliation in % as of 31.12.2020 Method of consolidation ZAR 2 100 AUD AUD 845 980 100 100 CNY 569 100 USD USD USD 0 3 002 0 100 100 100 f f f f f f f Significance is defined by the total assets of the subsidiaries and the carrying value of the equity investees in relation to the total assets of the Group. The threshold is set at 0.05%. Method of consolidation f e full equity 280 Swiss Re | Financial Report 2020 21 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 the creation of funding notes by a separate funding vehicle which is generally considered a VIE. The Group’s participation in these transactions is generally limited to providing contingent funding support via a financial contract with a funding vehicle, which represents a potentially significant variable interest in the funding vehicle. The Group does not have power to direct activities of the funding vehicles and therefore is not a primary beneficiary of the funding vehicles in these transactions. The Group’s maximum exposure in these transactions equals either the total contract notional or outstanding balance of the funding notes issued by the vehicle, depending on the specific contractual arrangements. Swaps in trusts The Group provides interest rate and foreign exchange risk hedges to certain asset securitisation trusts which qualify as VIEs. As the Group’s involvement is limited to interest rate and foreign exchange derivatives, it does not have the 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. Swiss Re | Financial Report 2020 281 Financial statements 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 on the following pages. 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 on the following pages. 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, in most cases it does not have 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. 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 2020 that it was not previously contractually required to provide. 282 Swiss Re | Financial Report 2020 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 Investment real estate Short-term investments Investments for unit-linked and with-profit business Cash and cash equivalents Accrued investment income Premiums and other receivables Funds held by ceding companies Deferred acquisition costs Deferred tax assets Other assets Reclassified to assets held for sale Total assets Unpaid claims and claim adjustment expenses Unearned premiums Funds held under reinsurance treaties Reinsurance balances payable Deferred and other non-current tax liabilities Accrued expenses and other liabilities Long-term debt Reclassified to liabilities held for sale Total liabilities 2019 3 423 143 260 654 49 27 31 1 3 182 15 –812 3 976 55 12 4 21 152 129 1 918 –114 2 177 2020 3 807 59 20 30 35 1 5 191 14 4 162 59 16 4 22 166 18 1 926 2 211 The assets of the consolidated VIEs may only be used to settle obligations of these VIEs and to settle any investors’ ownership liquidation requests. There is no recourse to the Group for the consolidated VIEs’ liabilities. The assets of the consolidated VIEs are not available to the Group’s creditors. Swiss Re | Financial Report 2020 283 Financial statements Non-consolidated VIEs The following table shows the total assets and liabilities on the Group’s balance sheet related to VIEs in which the Group held a variable interest but was not the primary beneficiary as of 31 December: USD millions Fixed income securities available-for-sale Equity securities at fair value through earnings Policy loans, mortgages and other loans Other invested assets Investments for unit-linked and with-profit business Funds held by ceding companies Reclassified to assets held for sale Total assets Unpaid claims and claim adjustment expenses Accrued expenses and other liabilities Total liabilities 2019 1 187 113 1 735 2 160 17 131 –17 590 4 736 43 43 2020 1 084 100 1 518 2 359 145 25 5 231 19 52 71 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 Other Reclassified to held for sale Total 2019 Maximum exposure to loss1 627 2 300 –2 2 174 2 318 –607 –2 Total liabilities 43 43 Total assets 598 22 83 2 174 17 131 2 318 –17 590 4 736 2020 Maximum exposure to loss1 381 2 377 –2 2 435 2 047 –2 Total liabilities 52 19 71 Total assets 545 20 14 2 435 145 2 047 25 5 231 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. 284 Swiss Re | Financial Report 2020 This page is intentionally left blank. Swiss Re | Financial Report 2020 285 Report of the statutory auditor to the General Meeting of Swiss Re 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 Re Ltd and its subsidiaries (the ‘Group’), which comprise the income statement and statement of comprehensive income for the year ended 31 December 2020, the balance sheet as at 31 December 2020 and the statement of shareholders’ equity and the statement of cash flows for the year then ended, and notes to the Group financial statements (pages 182 to 284). Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation 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 (US GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the Group’s preparation 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 Group’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 consolidated financial statements of the Group for the year ended 31 December 2020 present fairly, in all material respects, the financial position, the results of operations and the cash flows in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law. Other Matter Accounting principles generally accepted in the United States of America (US GAAP) requires that the supplementary information based on the requirements of ASU 2015-09, Disclosures about Short-Duration Contracts, on pages 223 to 231 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 (US GAAS), which consisted of inquiries of the Group about the methods of preparing the information and comparing the information for consistency with the Group’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 supplementary information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. PricewaterhouseCoopers Ltd, Birchstrasse 160, Postfach, CH-8050 Zurich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers Ltd is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity. 286 Swiss Re  |  Financial Report 2020 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 judgment, 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 How our audit addressed the key audit matter Investment valuation continues to be an area with inherent risk for certain level 2 and 3 investments that have unobservable or interpolated inputs. The risk is not the same for all investment types and is greatest for those listed below. These investments are more difficult to value because quoted prices are not always available, and valuation requires unobservable or interpolated inputs and complex valuation models: Fixed income securitised products Fixed income mortgage and asset-backed securities Private placements and infrastructure loans Private equity investments      Derivatives  Insurance-related financial products We assessed and tested the design and operating effectiveness of selected relevant controls around the valuation models for level 2 and 3 investments, including the Group’s independent price verification process. We also tested the Group’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 Group’s methodology and assumptions, in particular, the yield curves, discounted cash flows, perpetual growth rates and liquidity premiums used in the valuation models; comparing these assumptions against appropriate benchmarks; and investigating significant differences. Engaging our own valuation specialists to perform independent valuations of selected level 2 and 3 investments.  Based on the work performed, we determined the Group’s conclusions with regard to the valuation of these investments to be reasonable. 2 Swiss Re Ltd | Report of the statutory auditor to the General Meeting Swiss Re  |  Financial Report 2020 287 Valuation of Property & Casualty (‘P&C’) loss reserves Key audit matter How our audit addressed the key audit matter The valuation of P&C loss reserves within the unpaid claims and claim adjustment expenses financial statement line item involves a high degree of subjectivity and complexity. Reserves for losses and loss adjustment expenses represent estimates of future payments of reported and unreported claims for losses and related expenses at a given date. The Group uses a range of actuarial methodologies and methods to estimate these reserves. P&C loss reserves require significant judgment 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 changes in exposure and business mix as well as inflation trends, claim emergence trends, and legal or regulatory decisions. In particular, loss reserves for ‘long tail’ lines of business (for example, Liability, US Asbestos and Environmental, Motor and Workers’ Compensation portfolios) generally require more judgment to estimate. This is due to the protracted period over which claims may be reported and/or settled as well as the fact that claim settlements are often less frequent but of higher magnitude. Moreover, losses from natural catastrophe, significant man- made and COVID-19 pandemic events cannot be modelled using traditional actuarial methodologies or available proprietary models, which increases the degree of judgment needed in establishing reserves for these events. The ongoing nature of the COVID-19 pandemic and additional complexity because of unresolved contract coverage issues, notably on property lines, required particular focus and judgment by management. We assessed and tested the design and operating effectiveness of selected relevant controls relating to the application of the actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by the Group in the valuation of P&C loss reserves. In relation to the matters set out opposite, our substantive testing procedures included involving our PwC internal actuarial specialists, as appropriate, to perform the following:    Testing the completeness and accuracy of underlying data utilised by the Group’s actuaries in estimating P&C loss reserves; this includes applying IT audit techniques to validate the claims triangles used by management to develop reserving estimates. Performing independent projections of selected portfolios. For these portfolios, we compared our calculations of projected reserves with those of the Group taking into account the available corroborating and contrary evidence and challenging the Group’s assumptions as appropriate. Testing the reasonableness of the methodology and assumptions for further selected portfolios by comparing the methodologies and assumptions adopted by the Group with recognised actuarial practices and by applying our industry knowledge and experience. Assessing the process and related judgments of the Group 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.  Challenging the process followed and related  judgments of the Group in relation to COVID-19 pandemic losses to assess the reasonableness of loss estimates.  Where there was significant estimation uncertainty,  performing sensitivity tests to determine the impact of selected key assumptions. Evaluating the appropriateness of any significant adjustments made by the Group to P&C loss reserve estimates. Based on the work performed, we determined the Group’s conclusions with regard to the valuation of P&C loss reserves to be reasonable. 3 Swiss Re Ltd | Report of the statutory auditor to the General Meeting 288 Swiss Re  |  Financial Report 2020 Valuation of actuarially determined liabilities for Life & Health (‘L&H’) policy benefits Key audit matter How our audit addressed the key audit matter The Group’s valuation of actuarially determined liabilities for L&H policy benefits involves complex judgments about future events affecting the business. Actuarial assumptions selected by the Group, including mortality, morbidity, longevity, and persistency, may result in material impacts on the valuation of liabilities for L&H policy benefits. The methodology and methods used can also have a material impact on the valuation of actuarially determined liabilities for L&H policy benefits. In addition, the impact of the COVID-19 pandemic required additional management judgment, particularly over shorter-term mortality assumptions. The valuation of actuarially determined liabilities for L&H policy benefits depends on the use of complex models. The Group continues to migrate actuarial data and models from legacy systems and/or spreadsheets to new actuarial modelling systems. At the same time, the Group 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 the liabilities for L&H policy benefits need to be assessed in terms of appropriateness and classified as a change in estimate or as an out-of-period adjustment. Furthermore, on a regular basis, the Group 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 judgmental nature of reserving. We assessed and tested the design and operating effectiveness of selected relevant controls relating to the application of actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by the Group in the valuation of actuarially determined liabilities for L&H policy benefits. In relation to the matters set out opposite, our substantive testing procedures included involving our PwC internal actuarial specialists, as appropriate, to perform the following, which are applicable for the valuation of both standard 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. Performing independent model validation procedures, including detailed testing of models, independent recalculations and back testing. Testing the Group’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. Testing the reasonableness of L&H assumptions by applying our industry knowledge and experience to check whether the assumptions are consistent with recognised actuarial practices and industry trends.  Challenging the process followed and related judgments of the Group in relation to COVID-19 pandemic losses to assess the reasonableness of loss estimates. Evaluating the appropriateness of the recognition, accounting, valuation, and disclosures for large and/or structured transactions.  Based on the work performed, we determined the Group’s conclusions with regard to the valuation of actuarially determined liabilities for L&H policy benefits to be reasonable. 4 Swiss Re Ltd | Report of the statutory auditor to the General Meeting Swiss Re  |  Financial Report 2020 289 Valuation of deferred tax assets and completeness and valuation of uncertain tax positions Key audit matter How our audit addressed the key audit matter The Group operates in various countries and is subject to income taxes in those jurisdictions. The assessment of the valuation of deferred tax assets, resulting from net operating losses and temporary differences, and provisions for uncertain tax positions is based on complex calculations and depends on sensitive and judgmental assumptions made by the Group. These include, amongst others, future profitability and local fiscal regulations and developments. Changes in those estimates may have a material impact (through income tax expense) on the Group’s results. We assessed and tested the design and operating effectiveness of selected relevant controls related to the valuation of deferred tax assets and selected relevant controls in place to determine the completeness of the uncertain tax items and the Group’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 the Group’s ‘more likely than not’ tax assessments and to evaluate the Group’s judgments and estimates of the probabilities and the amounts. Assessing the feasibility of the Group’s tax planning measures, including the assessment of forecasted taxable income and any relevant tax rulings that impact the recoverability of deferred tax assets resulting from net operating losses. Assessing how the Group considered new information or changes in tax law or case law and assessing the Group’s judgment of how these impact the Group’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 the Group’s assessment of completeness of uncertain tax positions. Examining material movements within uncertain tax positions in each jurisdiction. Based on the work performed, we determined the Group’s assessments of the valuation of deferred tax assets and the completeness and valuation of uncertain tax positions to be reasonable. 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, 17 March 2021 Jasmine Chang 5 Swiss Re Ltd | Report of the statutory auditor to the General Meeting 290 Swiss Re  |  Financial Report 2020 This page intentionally left blank. Swiss Re  |  Financial Report 2020 291 Financial statements Group financial years 2011–2020 USD millions Income statement Revenues Premiums earned Fee income Net investment income Net realised investment gains/losses Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Return credited to policyholders Acquisition costs Other operating costs and expenses Total expenses Income/loss before income tax expense 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 shareholders Balance sheet Assets Investments Other assets Assets held for sale Total assets Liabilities Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Unearned premiums Other liabilities Long-term debt Liabilities held for sale Total liabilities Shareholders’ equity Non-controlling interests Total equity Earnings per share in USD Earnings per share in CHF 2011 2012¹ 2013 21 300 876 5 469 388 50 28 083 –8 810 –8 414 –61 –4 021 –3 902 –25 208 2 875 –77 2 798 –172 2 626 2 626 24 661 785 5 302 2 688 188 33 624 –7 763 –8 878 –2 959 –4 548 –3 953 –28 101 5 523 –1 125 4 398 –141 4 257 –56 4 201 28 276 542 4 735 3 325 24 36 902 –9 655 –9 581 –3 678 –4 895 –4 268 –32 077 4 825 –312 4 513 –2 4 511 –67 4 444 162 224 63 675 152 812 68 691 150 075 63 445 225 899 221 503 213 520 64 878 39 044 8 299 65 850 16 541 63 670 36 117 9 384 62 020 16 286 61 484 36 033 10 334 57 970 14 722 194 612 187 477 180 543 29 590 34 002 32 952 1 697 31 287 7.68 6.79 24 34 026 11.85 11.13 25 32 977 12.97 12.04 1 The Group updated its balance sheet presentation of deferred tax assets and liabilities. Deferred tax assets and liabilities are presented on a gross basis as per the first quarter 2013. The comparative period has been adjusted accordingly and is consistent with the relevant income tax disclosure in the notes to the financial statements in the prior year. 292 Swiss Re | Financial Report 2020 2014 2015 2016 2017 2018 2019 2020 30 756 506 4 992 1 059 34 37 347 –10 577 –10 611 –1 541 –6 515 –3 876 –33 120 4 227 –658 3 569 3 569 –69 3 500 29 751 463 4 236 1 220 44 35 714 –9 848 –9 080 –1 166 –6 419 –3 882 –30 395 5 319 –651 4 668 –3 4 665 –68 4 597 32 691 540 4 740 5 787 28 43 786 –12 564 –10 859 –5 099 –6 928 –3 964 –39 414 4 372 –749 3 623 3 3 626 –68 3 558 33 119 586 4 702 4 048 32 42 487 –16 730 –11 083 –3 298 –6 977 –3 874 –41 962 525 -132 393 5 398 –67 331 33 875 586 5 077 –2 530 39 37 047 –14 855 –11 769 1 033 –6 919 -3 987 –36 497 550 –69 481 –19 462 –41 421 143 987 60 474 137 810 58 325 155 016 60 049 161 897 60 629 147 302 60 268 204 461 196 135 215 065 222 526 207 570 57 954 33 605 10 576 53 670 12 615 55 518 30 131 10 869 55 033 10 978 57 355 41 176 11 629 59 402 9 787 66 795 42 561 11 769 56 959 10 148 67 446 39 593 11 721 51 581 8 502 168 420 162 529 179 349 188 232 178 843 37 974 620 5 175 5 515 30 49 314 –18 683 –13 087 –4 633 –7 834 –4 168 –48 405 909 –140 769 –42 727 40 321 449 3 503 –972 37 43 338 –19 838 –13 929 1 760 –8 236 –4 185 –44 428 –1 090 266 –824 –54 –878 727 –878 103 746 60 382 74 439 238 567 72 373 19 836 13 365 23 232 10 138 68 586 207 530 120 693 61 929 182 622 81 258 22 456 13 309 26 757 11 584 155 364 35 930 33 517 35 634 34 124 27 930 29 251 27 135 111 36 041 10.23 9.33 89 33 606 13.44 12.93 82 35 716 10.72 10.55 170 34 294 1.03 1.02 797 28 727 1.37 1.34 1 786 31 037 2.46 2.46 123 27 258 –3.04 –2.97 Swiss Re | Financial Report 2020 293 Financial statements Annual Report Swiss Re Ltd Swiss Re Ltd (the Company), domiciled in Zurich, Switzerland, is the ultimate holding company of the Swiss Re Group (the Group). Its principal activity is the holding of investments in Swiss Re Group companies. Income statement Net income for 2020 amounted to CHF 1 573 million (2019: CHF 932 million). Revenues were mainly driven by cash dividends from subsidiaries and affiliated companies of CHF 3 658 million, trademark licence fees of CHF 416 million, interest on loans with subsidiaries and affiliated companies of CHF 75 million, and commitment fees of CHF 67 million. Expenses were mainly driven by valuation adjustments to the carrying amount of investments in subsidiaries and affiliated companies totalling CHF 1 982 million. These valuation adjustments were recognised to reflect the substance reduction caused by dividend payments funded by proceeds from sale of significant investments. Expenses were also driven by administrative expenses of CHF 310 million. Assets Total assets increased from CHF 24 247 million as of 31 December 2019 to CHF 25 104 million as of 31 December 2020. Current assets increased by CHF 1 786 million to CHF 4 713 million as of 31 December 2020, mainly driven by an increase in receivables from subsidiaries and affiliated companies, partially offset by a decrease in loans to subsidiaries and affiliated companies. Non-current assets decreased by CHF 929 million to CHF 20 391 million as of 31 December 2020, mainly driven by a decrease in investments in subsidiaries and affiliated companies partially offset by an increase in loans to subsidiaries and affiliated companies. Liabilities Total liabilities increased from CHF 1 447 million as of 31 December 2019 to CHF 2 619 million as of 31 December 2020. Short-term liabilities decreased by CHF 428 million to CHF 502 million as of 31 December 2020, mainly driven by a decrease in loans from subsidiaries and affiliated companies. Long-term liabilities increased by CHF 1 600 million to CHF 2 117 million as of 31 December 2020, mainly due to loan agreements with Swiss Re Finance (UK) plc. Shareholders’ equity Shareholders’ equity decreased from CHF 22 800 million as of 31 December 2019 to CHF 22 485 million as of 31 December 2020, mainly due to dividends to shareholders of CHF 1 705 million and share buyback programme of CHF 184 million partially offset by net income of CHF 1 573 million. Share capital decreased by CHF 1 million to CHF 32 million as of 31 December 2020 and legal profit reserves decreased by CHF 998 million to CHF 4 314 million as of 31 December 2020 resulting from the cancellation of own shares. Own shares (directly held by the Company) decreased by CHF 817 million to CHF 1 073 million as of 31 December 2020 due to share buyback programme of CHF 184 million offset by the cancellation of own shares of CHF 1 000 million and net sale of own shares of CHF 1 million. Coronavirus The global spread of the novel coronavirus and the disease it causes (“COVID-19”), and the actions taken to slow the spread of the pandemic, have had an adverse impact on communities, social and business interactions, economic activity and economies across the globe. After significant contractions in 2020, the global economy is expected to experience a protracted and uneven recovery in 2021. As the COVID-19 crisis continues, the ultimate toll of the pandemic in terms of lives lost, societal dislocations, business activity, economic growth, broader costs to society and industry losses remains highly uncertain. The Swiss Re Group will continue to monitor pandemic- related developments and their impact on its operations and its investments. 294 Swiss Re | Financial Report 2020 Income statement Swiss Re Ltd For the years ended 31 December CHF millions Revenues Investment income Trademark licence fees Other revenues Total revenues Expenses Administrative expenses Investment expenses Other expenses Total expenses Income before income tax expense Income tax expense Net income The accompanying notes are an integral part of Swiss Re Ltd’s financial statements. Notes 2019 2020 2 3 2 2 629 407 41 3 077 –143 –1 893 –105 –2 141 936 –4 932 3 832 416 9 4 257 –310 –2 072 –299 –2 681 1 576 –3 1 573 Swiss Re | Financial Report 2020 295 Financial statements Balance sheet Swiss Re Ltd As of 31 December Assets CHF millions Current assets Cash and cash equivalents Short-term investments Receivables from subsidiaries and affiliated companies Other receivables and accrued income Loans to subsidiaries and affiliated companies Total current assets Non-current assets Loans to subsidiaries and affiliated companies Investments in subsidiaries and affiliated companies Total non-current assets Total assets The accompanying notes are an integral part of Swiss Re Ltd’s financial statements. Notes 2019 2020 4 2 5 0 48 703 16 2 160 2 927 0 55 2 615 26 2 017 4 713 911 20 409 21 320 1 241 19 150 20 391 24 247 25 104 296 Swiss Re | Financial Report 2020 Liabilities and shareholders’ equity CHF millions Liabilities Short-term liabilities Payables to subsidiaries and affiliated companies Other liabilities and accrued expenses Loans from subsidiaries and affiliated companies Total short-term liabilities Long-term liabilities Provisions Debt Total long-term liabilities Total liabilities Shareholders’ equity Share capital Legal reserves from capital contributions Other legal capital reserves Legal capital reserves Legal profit reserves Reserve for own shares (indirectly held by subsidiaries) Voluntary profit reserves Retained earnings brought forward Net income for the financial year Own shares (directly held by the Company) Total shareholders’ equity Notes 2019 2020 149 152 629 930 33 484 517 264 128 110 502 – 2 117 2 117 1 447 2 619 33 192 0 192 5 312 17 18 200 4 932 –1 890 22 800 32 192 0 192 4 314 16 17 431 – 1 573 –1 073 22 485 7 8 10 9 Total liabilities and shareholders’ equity 24 247 25 104 The accompanying notes are an integral part of Swiss Re Ltd’s financial statements. Swiss Re | Financial Report 2020 297 Financial statements Notes Swiss Re Ltd 1 Significant accounting principles Basis of presentation The financial statements are prepared in accordance with Swiss Law. Time period The financial year 2020 comprises the accounting period from 1 January 2020 to 31 December 2020. Use of estimates in the preparation of annual accounts The preparation of the annual accounts requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the related disclosures. Actual results could differ 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 reported in Swiss francs at historical exchange rates. Income and expenses in foreign currencies are converted into Swiss francs using the exchange rate prevailing at the date of transaction. Until the end of the financial year 2019, income and expenses were converted into Swiss francs using the average exchange rates for the reporting year. 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. Short-term investments Short-term investments contain investments with an original maturity between three months and one year. Such investments are carried at cost, less necessary and legally permissible depreciation. Receivables from subsidiaries and affiliated companies/ Other receivables These assets are generally carried at nominal value. Value adjustments are recorded where the expected recovery value is lower than the nominal value. Receivables from subsidiaries and affiliated companies/ Other receivables also include derivative financial instruments. Derivative financial instruments which have an observable market price and are traded in an active and liquid market are recorded at market value. Accrued income Accrued income consists of both other expenditures incurred during the financial year but relating to a subsequent financial year, and revenues relating to the current financial year but receivable in a subsequent financial year. Loans to subsidiaries and affiliated companies Loans to subsidiaries and affiliated companies are carried at nominal value. Value adjustments are recorded where the expected recovery value is lower than the nominal value. Investments in subsidiaries and affiliated companies These assets are carried at cost less necessary value adjustments to reflect other than temporary decreases in the value in use. As of year-end 2020 a group valuation approach is applied for the Company’s investments in subsidiaries and affiliated companies, when the facts and circumstances indicate that the investments are to be seen as an economical unit. Payables to subsidiaries and affiliated companies/ Other liabilities These liabilities are generally carried at nominal value. Payables to subsidiaries and affiliated companies/ Other liabilities also include derivative financial instruments. Derivative financial instruments which have an observable market price and are traded in an active and liquid market are recorded at market value. Accrued expenses Accrued expenses consist of both income received before the balance sheet date but relating to a subsequent financial year, and charges relating to the current financial year but payable in a subsequent financial year. 298 Swiss Re | Financial Report 2020 Loans from subsidiaries and affiliated companies Loans from subsidiaries and affiliated companies are carried at nominal value. Provisions Provisions contain provision for currency fluctuation and provision for taxation. As of 2020, the provision for currency fluctuation comprises the net effect of foreign exchange gains and losses arising from the revaluation of the balance sheet at year-end. Until the end of the financial year 2019, the provision for currency fluctuation comprised 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 period of up to three years. 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. The provision for taxation represents an estimate of taxes payable in respect of the reporting year. Debt Debt is held at redemption value. Other legal capital reserves Other legal capital reserves reflect gains and losses from sale of own shares (directly held by the Company). Reserve for own shares (indirectly held by subsidiaries) Reserve for own shares is accounted for at the book value of those shares in the statutory financial statements of the respective subsidiary. Own shares (directly held by the Company) Own shares are carried at cost and presented as a deduction in shareholders’ equity. Foreign exchange transaction gains and losses Foreign exchange gains and losses arising from foreign exchange transactions are recognised in the income statement and reported in other expenses or other revenues, respectively. Dividends from subsidiaries and affiliated companies Dividends from subsidiaries and affiliated companies are recognised as investment income in the year in which they are declared. Trademark licence fees Trademark licence fees are charged by the Company to its direct and indirect subsidiaries and their branches that benefit from the use of the Swiss Re brand. 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 As of 1 January 2020, due to the abolishment of the holding company exemption on a cantonal/ communal level as part of the Swiss Tax Reform, Swiss Re Ltd is subject to ordinary income taxation at cantonal/ communal and federal level. In 2019, as a holding company incorporated in Switzerland, Swiss Re Ltd was exempt from income taxation at cantonal/ communal level. Dividends from subsidiaries and affiliated companies are indirectly exempt from income taxation (participation relief). Subsequent events Subsequent events for the current reporting period have been evaluated up to 17 March 2021. This is the date on which the financial statements are available to be issued. Swiss Re | Financial Report 2020 299 Financial statements Notes Swiss Re Ltd 2 Investment income and expenses CHF millions Cash dividends from subsidiaries and affiliated companies Realised gains on sale of investments Valuation adjustments on derivative financial instruments 1 Income from short-term investments Income from loans to subsidiaries and affiliated companies Investment management income Other interest revenues Investment income CHF millions Realised losses on sale of investments Valuation adjustments on derivative financial instruments 1 Valuation adjustments on investments in subsidiaries and affiliated companies Investment management expenses Other interest expenses Investment expenses 2019 2 230 155 35 1 131 0 77 2 629 2019 157 14 1 702 1 19 1 893 2020 3 658 5 24 0 75 0 70 3 832 2020 13 32 1 982 0 45 2 072 1 The derivative financial instruments are included in Receivables from subsidiaries and affiliated companies and Payables to subsidiaries and affiliated companies. As of 31 December 2020, the Company’s assets for derivative financial instruments carried at market value amounted to CHF 155 millions (2019: CHF 101 millions). 3 Administrative expenses and personnel information Swiss Re Ltd receives management and other services from Swiss Re Management Ltd and Swiss Reinsurance Company Ltd and has no employees of its own. 4 Securities lending As of 31 December 2020, securities of CHF 53.0 million (2019: CHF 47.1 million) were lent to Group companies under securities lending agreements. As of 31 December 2020 and 2019, there were no securities lent to third parties. 300 Swiss Re | Financial Report 2020 5 Investments in subsidiaries and affiliated companies As of 31 December 2020 and 2019, Swiss Re Ltd held directly the following investments in subsidiaries and affiliated companies: As of 31 December 2020 Swiss Reinsurance Company Ltd Swiss Re Corporate Solutions Ltd Swiss Re Life Capital Ltd1 Swiss Re Principal Investments Company Ltd Swiss Re Management Ltd Swiss Re Insurance-Linked Investment Management AG2 Swiss Re Finance (UK) plc3 As of 31 December 2019 Swiss Reinsurance Company Ltd Swiss Re Corporate Solutions Ltd Swiss Re Life Capital Ltd Swiss Re Investments Holding Company Ltd Swiss Re Principal Investments Company Ltd Swiss Re Management Ltd Swiss Re Specialised Investments Holdings (UK) Ltd Domicile Zurich Zurich Zurich Zurich Zurich Zurich London Domicile Zurich Zurich Zurich Zurich Zurich Zurich London Currency CHF CHF CHF CHF CHF CHF GBP Currency CHF CHF CHF CHF CHF CHF GBP Share capital (millions) 34.4 100.0 0.1 0.1 0.1 1.5 1.0 Share capital (millions) 34.4 100.0 0.1 0.1 0.1 0.1 1.0 Affiliation in % 100 100 100 100 100 100 100 Affiliation in % 100 100 100 100 100 100 100 Voting interest in % 100 100 100 100 100 100 100 Voting interest in % 100 100 100 100 100 100 100 1 On 22 July 2020, the Group completed the sale of ReAssure Group Plc a subsidiary of Swiss Re Life Capital Ltd, to Phoenix Group Holdings Plc. Detailed information is included in Note 10 “Acquisitions and disposals” on page 258 in the notes to the Group’s 2020 financial statements. 2 New direct subsidiary, registered 16 October 2020. 3 Swiss Re Specialised Investments Holdings (UK) Ltd was renamed to Swiss Re Finance (UK) plc. Further disclosures in respect of investments in significant indirect subsidiaries and affiliated companies are detailed in Note 20 “Significant subsidiaries and equity investees” on pages 278 to 280 in the notes to the Group’s 2020 financial statements, where the voting interests are equal to the affiliations disclosed. 6 Commitments The Company has established subordinated debt facilities which allow the Company to issue subordinated callable notes at any time. The Company pays a fee on the available commitment under the facility and an interest rate on issued notes. Notes, when issued, will be classified as subordinated debt. As of 31 December 2019 and 2020, no notes have been issued under the facilities. An overview of the subordinated debt facilities is provided in the following table: Instrument Dated subordinated fixed-to-floating rate callable notes facility Dated subordinated fixed rate callable notes facility Dated subordinated fixed-to-floating rate callable notes facility Perpetual subordinated fixed spread callable notes facility Issued in 2015 2016 2016 2017 1 Until first optional redemption date. 2 First optional redemption date in 2022 and every five years thereafter. Currency USD USD USD USD Nominal value in millions 700 400 800 750 Commitment fee (paid on undrawn amount) 3.53% 3.92% 3.67% 2.77% Interest rate on issued notes 5.75%1 6.05%1 5.625%1 4.625%1 Facility first termination date 2025 2031 2027 2022 Issued notes’ scheduled maturity date 2050 2056 2052 Perpetual2 The Company has entered into subordinated funding facilities with its subsidiary Swiss Reinsurance Company Ltd under which Swiss Reinsurance Company Ltd has the right, among others, to issue subordinated notes to the Company at any time. For its various rights, Swiss Reinsurance Company Ltd owes the Company an unconditional fixed commitment fee on the total facility amount, payable in annual instalments. Annually, Swiss Reinsurance Company Ltd receives a partial reimbursement of the commitment fee on the undrawn facility amount. As of 31 December 2019 and 2020, the facilities were undrawn. An overview of the subordinated funding facilities is provided in the following table: Instrument Subordinated funding facility Swiss Reinsurance Company Ltd Subordinated funding facility Swiss Reinsurance Company Ltd Subordinated funding facility Swiss Reinsurance Company Ltd Borrower Issued in Currency USD USD USD 2015 2016 2016 Nominal value in millions 700 400 800 Total commitment fee calculated and paid on nominal value 5.80% 6.10% 5.68% Reimbursement fee paid on undrawn amount 2.22% 2.13% 1.95% Net commitment fee paid on undrawn amount Maturity 3.58% 2030 3.97% 2036 2032 3.73% Swiss Re | Financial Report 2020 301 Financial statements Notes Swiss Re Ltd 7 Debt As of 31 December 2020, Swiss Re Ltd had outstanding debt of CHF 442 million (2019: CHF 484 million). Instrument Convertible debt Issued in 2018 Currency USD Nominal in millions 500 Interest rate 3.25% Maturity 2024 Book value CHF millions 442 8 Change in shareholders’ equity CHF millions Shareholders’ equity 1.1.2020 Allocations relating to the dividend paid Dividend for the financial year 2019 Net income for the financial year Share buyback programme 20191 Share cancellation1 Other movements in own shares Shareholders’ equity 31.12.2020 CHF millions Shareholders’ equity 1.1.2019 Allocations relating to the dividend paid Dividend for the financial year 2018 Net income for the financial year Share buyback programme 2018 Share cancellation Share buyback programme 2019 Other movements in own shares Shareholders’ equity 31.12.2019 Share capital 33 Legal capital reserves2 192 Legal profit reserves 5 312 Reserves for own shares 17 –1 32 –999 1 4 314 192 –1 16 Share capital 34 Legal capital reserves 192 Legal profit reserves 6 294 Reserves for own shares 18 Voluntary profit reserves 18 200 936 –1 705 Retained earnings brought forward 4 –4 Net income for the financial year 932 –932 1 573 17 431 0 1 573 Voluntary profit reserves 16 797 3 077 –1 674 Retained earnings brought forward 4 Net income for the financial year 3 077 –3 077 932 –1 –16 –983 33 16 192 1 5 312 –1 17 18 200 4 932 Total shareholders’ equity 22 800 0 –1 705 1 573 –184 0 1 22 485 Total shareholders’ equity 24 470 0 –1 674 932 –111 0 –816 –1 22 800 Own shares –1 890 –184 1 000 1 –1 073 Own shares –1 946 –111 1 000 –816 –17 –1 890 1 At the 155th Annual General Meeting held on 17 April 2019, the Group’s shareholders authorised the Board of Directors to repurchase up to a maximum CHF 1 billion purchase value of the Group’s own shares prior to the 2020 Annual General Meeting through a public share buyback programme for cancellation purposes. The buyback programme was completed on 18 February 2020. The total number of shares repurchased amounted to 9.9 million, of which 8.2 million and 1.7 million shares were repurchased by 31 December 2019 and between 1 January and 18 February 2020, respectively. On 17 April 2020, the 156th Annual General Meeting resolved the cancellation of the repurchased 9.9 million shares by way of share capital reduction. The shares were cancelled on 28 July 2020, after completion of the procedure in respect of a share capital reduction as set forth in Article 732 et seqq of the Swiss Code of Obligations. 2 Under the new provision applicable as of 1 January 2020 (Article 4a paragraph 4 VstG), legal reserves from capital contributions need to be used for share buyback programmes. With the share buyback programme completed on 18 February 2020, the CHF 0.7 million legal reserves that have been previously confirmed by the Swiss Federal Tax Administration were fully used. Consequently, the Board of Directors proposes at the Annual General Meeting to reclassify the full amount of legal reserves from capital contributions into voluntary profit reserves. 302 Swiss Re | Financial Report 2020 9 Own shares (directly and indirectly held by the Company) Number of own shares Own shares held by subsidiaries Own shares held by Swiss Re Ltd directly Opening balance own shares Purchase of own shares1 Sale of own shares 2 Share buyback programme (154th AGM 2018)3 Share buyback programme (155th AGM 2019)4 Cancellation of shares bought back Own shares as of 31 December 1 Purchased at average price of CHF 74.56 (2019: CHF 98.75). 2 Sold at average price of CHF 73.99 (2019: CHF 98.03). 3 Purchased at average price of CHF 94.98. 4 Purchased at average price of CHF 110.56 (2019: CHF 98.99). 10 Major shareholders 2019 197 194 38 378 130 38 575 324 1 111 638 –1 125 758 1 164 319 8 239 000 –11 214 761 36 749 762 2020 169 772 36 579 990 36 749 762 484 557 –474 412 – 1 668 398 –9 907 398 28 520 907 As of 31 December 2020, there was one shareholder with a participation exceeding the 3% threshold of Swiss Re Ltd’s share capital: Shareholder BlackRock, Inc Number of shares 15 995 446 % of voting rights and share capital1 5.04 Creation of the obligation to notify 31 December 2020 1 The percentage of voting rights is calculated at the date the obligation was created and notified. Further information in respect of major shareholders are detailed in “Group structure and shareholders” on page 84 of the Group’s 2020 financial report. In addition, Swiss Re Ltd held, as of 31 December 2020, directly and indirectly 28 520 907 (2019: 36 749 762) own shares, representing 8.98% (2019: 11.22%) of voting rights and share capital. Swiss Re Ltd cannot exercise the voting rights of own shares held. 11 Release of undisclosed reserves In 2020 and 2019, no net undisclosed reserves were released. 12 Contingent liabilities Swiss Re Ltd has issued guarantees to its subsidiaries and affiliated companies in support of their business activities by securing their overall capital positions or specific transactions. As of 31 December 2020, the Company has guaranteed CHF 2 130 million (2019: CHF 0 million) of which no amount was utilised as of 31 December 2020 and 2019, respectively. Swiss Re | Financial Report 2020 303 Financial statements Notes Swiss Re Ltd 13  Share ownership, options and related instruments of  governing bodies This section is in line with Articles 663c para. 3 and 959c para. 2 cif. 11 of the Swiss Code of Obligations, which require disclosure of  shareholdings, options and related instruments held by members of the Board of Directors and Group Executive Committee (Group EC) at  the end of the reporting year and of share-based compensation for the Board of Directors during the reporting year. Further disclosures   in respect of shareholding and compensation for the members of the Board of Directors and the Group EC, and persons closely related, are  detailed in the Compensation Report on pages 140–145 of the Financial Report of the Swiss Re Group.  Share ownership The number of shares held as of 31 December were: Members of the Group EC Christian Mumenthaler, Group Chief Executive Officer Urs Baertschi, CEO Reinsurance EMEA /Regional President EMEA  Andreas Berger, CEO Corporate Solutions  Anette Bronder, Group Chief Operating Officer  John R. Dacey, Group Chief Financial Officer Nigel Fretwell, Group Chief Human Resources Officer  Guido Fürer, Group Chief Investment Officer Hermann Geiger, Group Chief Legal Officer  Russell Higginbotham, CEO Reinsurance Asia/Regional President Asia Jonathan Isherwood, CEO Reinsurance Americas/Regional President Americas Thierry Léger, Group Chief Underwriting Officer Moses Ojeisekhoba, CEO Reinsurance  Patrick Raaflaub, Group Chief Risk Officer  Edouard Schmid, former Chairman Swiss Re Institute & Group Chief Underwriting Officer1 J. Eric Smith, former CEO Reinsurance Americas/Regional President Americas2 Total 1  The number of shares held on 31 August 2020 when Edouard Schmid stepped down from the Group EC was 31 935. 2  The number of shares held on 13 August 2020 when J. Eric Smith stepped down from the Group EC was 25 355. Members of the Board of Directors Walter B. Kielholz, Chairman1 Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and Nomination Committees Raymond K.F. Ch’ien, member Sergio P. Ermotti, member2 Karen Gavan, member3 Trevor Manuel, former member4 Joachim Oechslin, member2 Deanna Ong, member2 Jay Ralph, member Joerg Reinhardt, member Eileen Rominger, former member4 Philip K. Ryan, member, Chair Finance and Risk Committee Sir Paul Tucker, member Jacques de Vaucleroy, member, Chair Compensation Committee Susan L. Wagner, member, Chair Investment Committee Larry Zimpleman, member Total 2019 75 305 546 34 0 29 809 12 272 53 983 49 318 4 662 n/a 56 167 40 704 16 590 31 794 25 262 396 446 2 019 423 878 31 143 21 345 n/a 2 803 7 065 n/a n/a 3 299 25 684 1 997 15 693 5 403 4 835 13 920 1 997 559 062 2020 83 157 1 371 125 135 30 346 12 436 54 203 49 756 8 546 51 196 56 343 40 831 24 063 n/a n/a 412 508 2 020 399 005 35 513 18 067 874 4 587 n/a 1 263 1 166 4 950 27 300 n/a 18 871 7 125 7 511 17 125 3 745 547 102 1  Walter B. Kielholz reported in the reporting period the purchase of 300 call options for a total of 30 000 shares, if exercised. For further details, please refer to:   www.swissre.com/investors/shares/management-transactions 2  Elected to Swiss Re’s Board of Directors at the AGM of 17 April 2020. 3  Shareholdings include 2 500 American Depository Receipts (ADRs), equivalent to 625 shares.  4  Term of office expired after the completion of the AGM of 17 April 2020 and did not stand for re-election. 304 Swiss Re  |  Financial Report 2020   Share-based compensation The share-based compensation for the members of the Board of Directors for 2019 and 2020 was: Members of the Board of Directors Walter B. Kielholz, Chairman Renato Fassbind, Vice Chairman, Lead Independent Director, Chair Audit and  Nomination Committees Raymond K.F. Ch’ien, member Sergio P. Ermotti, member3 Karen Gavan, member Trevor Manuel, former member4 Joachim Oechslin, member3 Deanna Ong, member3 Jay Ralph, member Joerg Reinhardt, member Eileen Rominger, former member4 Philip K. Ryan, member, Chair Finance and Risk Committee Sir Paul Tucker, member Jacques de Vaucleroy, member, Chair Compensation Committee Susan L. Wagner, member, Chair Investment Committee Larry Zimpleman, member Total 2019 Fees in blocked shares1  2020 Fees in blocked shares1 (CHF thousands) Number of shares2 16 355 1 520 (CHF thousands) Number of shares2 20 127 1 520 330 130 n/a 120 140 n/a n/a 110 118 110 240 130 198 238 110 3 494 3 550 1 399 n/a 1 291 1 507 n/a n/a 1 184 1 269 1 184 2 582 1 399 2 129 2 560 1 184 37 593 330 130 60 133 47 87 80 123 122 37 240 130 202 242 130 3 613 4 370 1 722 874 1 784 494 1 263 1 166 1 651 1 616 388 3 178 1 722 2 676 3 205 1 748 47 984 1  Represents the portion (40%) of the total fees for the members of the Board of Directors that is delivered in Swiss Re Ltd shares, with a four-year blocking period. 2  The number of shares is calculated by dividing the portion (40%) of the total fees with the average closing price of the shares on the SIX Swiss Exchange during the ten trading days preceding  the AGM less the amount of any dividend resolved by such AGM. 3  Elected to Swiss Re’s Board of Directors at the AGM of 17 April 2020. 4  Term of office expired after the completion of the AGM of 17 April 2020 and did not stand for re-election. Vested options For the years ended 31 December 2019 and 2020, neither the members of the Board of Directors nor the members of the Group EC   held any vested options granted or allocated by Swiss Re.  Swiss Re  |  Financial Report 2020 305 Financial statements Proposal for allocation of disposable profit The Board of Directors proposes to the Annual General Meeting to be held in Zurich on 16 April 2021 to approve the following allocations and dividend payment: CHF millions Retained earnings brought forward Net income for the financial year Disposable profit Allocation to voluntary profit reserves Retained earnings after allocation CHF millions Voluntary profit reserves brought forward Allocation from retained earnings Reclassification of legal reserves from capital contributions3 Ordinary dividend payment out of voluntary profit reserves Voluntary profit reserves after allocation and dividend payment 2019 4 932 936 –936 – 2019 18 200 936 – –1 7051 17 431 2020 – 1 573 1 573 –1 573 – 2020 17 431 1 573 192 –1 7052 17 491 1 Since the Board of Directors’ proposal for allocation of disposable profit, included in the Annual Report 2019, the number of registered shares eligible for dividend, at the dividend payment date of 23 April 2020, decreased due to the share buyback programme of 1 668 398 shares and transfer of 3 811 shares for employee participation purposes from not eligible to eligible for dividend. This resulted in a lower dividend of CHF 10 million, compared to the Board of Directors’ proposal, and higher voluntary profit reserves by the same amount. 2 The Board of Directors’ proposal to the Annual General Meeting of 16 April 2021 is based on the number of shares eligible for dividend as of 31 December 2020. The actual dividend payment will depend on the number of shares eligible for dividend as of 19 April 2021. 3 Under the new provision applicable as of 1 January 2020 (Article 4a paragraph 4 VstG), legal reserves from capital contributions need to be used for share buyback programmes. As of 31 December 2020, Swiss Re Ltd has no legal reserves from capital contributions that can be distributed exempt from Swiss withholding tax and, for Swiss resident shareholders holding the shares in private wealth, exempt from Swiss income taxes. Therefore, the full amount of legal reserves from capital contributions is proposed to be reclassified into voluntary profit reserves. Dividend If the Board of Directors’ proposal for allocations and dividend payment is accepted, an ordinary dividend of CHF 5.90 per share will be paid on 22 April 2021 from voluntary profit reserves. Share structure per 31 December 2020 Eligible for dividend1 Not eligible for dividend Total shares issued Number of registered shares 288 976 399 28 520 907 317 497 306 Nominal capital in CHF 28 897 640 2 852 091 31 749 731 1 The Board of Directors’ proposal to the Annual General Meeting of 16 April 2021 is based on the number of shares eligible for dividend as of 31 December 2020. The actual dividend payment will depend on the number of shares eligible for dividend as of 19 April 2021. Zurich, 17 March 2021 306 Swiss Re | Financial Report 2020 Report of the statutory auditor to the General Meeting of Swiss Re Ltd Zurich Report of the statutory auditor on the financial statements As statutory auditor, we have audited the accompanying financial statements of Swiss Re Ltd (the ‘Company’), which comprise the income statement, balance sheet and notes (pages 295 to 305), for the year ended 31 December 2020. Board of Directors’ responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the Company’s Articles of Association. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the 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 2020 comply with Swiss law and the Company’s Articles of Association. PricewaterhouseCoopers Ltd, Birchstrasse 160, Postfach, CH-8050 Zürich, Switzerland Telefon: +41 58 792 44 00, Telefax: +41 58 792 44 10, www.pwc.ch PricewaterhouseCoopers Ltd is a member of the global PricewaterhouseCoopers network of firms, each of which is a separate and independent legal entity. Swiss Re | Financial Report 2020 307 Report on key audit matter based on the circular 1/2015 of the Federal Audit Oversight Authority A key audit matter is a matter that, in our professional judgment, was of most significance in our audit of the financial statements of the current period. The matter was 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 this matter. Impairment assessment of investments in subsidiaries and affiliated companies Key audit matter How our audit addressed the key audit matter The Company applies either individual valuations, or when the facts and circumstances indicate that the investments are to be seen as an economic unit, group valuations of investments in subsidiaries and affiliated companies in accordance with Swiss law. The impairment assessments of investments in subsidiaries and affiliated companies are based on the selected valuation method that reflects specific characteristics of the investment and corresponding assumptions as model inputs. The impairment assessment is considered a key audit matter due to the considerable judgment in the assumptions and adjustments applied to the valuation method as well as the materiality of this account to the Company’s financial statements. In relation to the matter set out opposite, our substantive testing procedures included the following: • • • Assessing whether the group valuation approach (where applied) is appropriate. Evaluating the method used by the Company to determine a market value. Assessing whether the assumptions used are reasonable. • Understanding changes in the approach and discussing them with the Company to ensure they are in accordance with our own expectations based on our knowledge of the business and industry. Based on the work performed, we consider the methods and assumptions used by the Company to assess the recoverability of investments in subsidiaries and affiliated companies to be reasonable. 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 (page 306) 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 Zürich, 17 March 2021 Michael Stämpfli Audit expert 2 Swiss Re Ltd | Report of the statutory auditor to the General Meeting 308 Swiss Re | Financial Report 2020 This page intentionally left blank. Swiss Re | Financial Report 2020 309 General information Headquartered in Zurich, Switzerland, Swiss Re has operations across the globe. Our success is built on our solid client relationships, capital strength and risk knowledge company approach. We make the world more resilient. 310 Swiss Re | Financial Report 2020 Contents Glossary Cautionary note on forward-looking statements Note on risk factors Contacts Corporate calendar 312 318 320 328 329 Swiss Re | Financial Report 2020 311 General information Glossary Acquisition costs That portion of an insurance premium which represents the cost of obtaining the insurance business: it includes the intermediaries’ commission, the company’s sales expense and other related expenses. Asset-backed securities Securities backed by notes or receivables against financial assets such as auto loans, credit cards, royalties, student loans and insurance profits. Asset-liability management (ALM) Management of an insurance business in a way that coordinates investment-related decisions on assets and liabilities. Specifically, the ongoing process of formulating, implementing, monitoring and revising investment strategies related to assets and liabilities in an attempt to achieve financial objectives, while managing exposure to financial market risks, such as interest rates, credit spreads and currency movements. Aviation insurance Insurance of accident and liability risks, as well as hull damage, connected with the operation of aircraft. Benchmark investment result Book value per share Business interruption Capacity Catastrophe bonds Cession Claim Claims and benefits Includes changes in the economic value of liabilities (as represented by the replicating portfolio) as a result of movements in risk-free discount rates, the passage of time, changes in credit spreads, changes in equity prices or changes in the economic value of embedded options and guarantees. The ratio of ordinary shareholders’ equity to the number of common shares entitled to dividend. Insurance covering the loss of earnings resulting from, and occurring after, destruction of property; also known as “loss of profits” or “business income protection insurance”. Maximum amount of risk that can be accepted in insurance. Capacity also refers to the amount of insurance coverage allocated to a particular policyholder or in the marketplace in general. Securities used by insurance and reinsurance companies to transfer peak insurance risks, including natural catastrophes, to the capital markets. Catastrophe bonds help to spread peak exposures (see insurance-linked securities). Insurance that is reinsured: the passing of the insurer’s risks to the reinsurer against payment of a premium. The insurer is referred to as the ceding company or cedent. Demand by an insured for indemnity under an insurance contract. Claims and benefits in the EVM income statement represent the present value of all estimated future claims and benefits on contracts written during the year. Changes in estimates of claims and benefits payable on contracts written in prior years are reflected in previous years’ business profit, along with changes in other underwriting cash flows relating to previous years. Claims handling Activities in connection with the investigation, settlement and payment of claims from the time of their occurrence until settlement. Claims incurred and claim adjustment expenses All claims payments plus the adjustment in the outstanding claims provision of a business year and claim adjustment expenses. Claims ratio Coinsurance Combined ratio Sum of claims paid and change in the provisions for unpaid claims and claim adjustment expenses in relation to premiums earned. Arrangement by which a number of insurers and/or reinsurers share a risk. The ratio is a combination of the non-life claims ratio and the expense ratio. 312 Swiss Re | Financial Report 2020 Commission Commutation Cover Credit insurance Credit spreads Remuneration paid by the insurer to its agents, brokers or intermediaries, or by the reinsurer to the insurer, for costs in connection with the acquisition and administration of insurance business. The termination of a reinsurance contract by agreement of the parties on the basis of one or more lump sum payments by the reinsurer which extinguish its liability under the contract. The payment made by the reinsurer commonly relates to incurred losses under the contract. Insurance and reinsurance protection of one or more specific risk exposures based on a contractual agreement. Insurance against financial losses sustained through the failure, for commercial reasons, of policyholders’ clients to pay for goods or services supplied to them. Difference in yield between a fixed income security which has default risk and one which is considered to be risk-free, such as U.S. Treasury securities. Directors’ and officers’ liability insurance (D&O) Liability insurance for directors and officers of an entity, providing cover for their personal legal liability towards shareholders, creditors, employees and others arising from wrongful acts such as errors and omissions. Disability insurance Insurance against the incapacity to exercise a profession as a result of sickness or other infirmity. Earnings per share (EPS) Economic net worth EVM EVM capital EVM profit Expense ratio Portion of a company’s profit allocated to each outstanding share of common stock. Earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Economic net worth (ENW) is defined as the difference between the market-consistent value of assets and liabilities. ENW is an economic measure of shareholders’ equity and the starting point in determining available capital under the Swiss Solvency Test (SST). Economic Value Management (EVM) is Swiss Re Group’s proprietary integrated economic valuation and accounting framework for planning, pricing, reserving, and steering our business. EVM capital is the capital required to support uncertainty related to estimated cash flows arising from existing underwriting and investment activities. EVM profit is a risk-adjusted measure of performance that can be compared across all business activities. Sum of acquisition costs and other operating costs and expenses, in relation to premiums earned. G-SIIs Globally systemically important insurers. Gross outperformance Defined as the difference between the mark-to-market investment result and the benchmark investment result. Gross underwriting result – new business Gross underwriting result from new business is defined as present value of new business underwriting cash flows (eg premiums, claims, commissions, etc) before internal expenses, taxes and capital costs. Guaranteed minimum death benefit (GMDB) A feature of variable annuity business. The benefit is a predetermined minimum amount that the beneficiary will receive upon the death of the insured. Health insurance Generic term applying to all types of insurance indemnifying or reimbursing for losses caused by bodily injury or sickness or for expenses of medical treatment necessitated by sickness or accidental bodily injury. Swiss Re | Financial Report 2020 313 General information Glossary Incurred but not reported (IBNR) Provision for claims incurred but not reported by the balance sheet date. In other words, it is anticipated that an event will affect a number of policies, although no claims have been made so far, and is therefore likely to result in liability for the insurer. Insurance-linked securities (ILS) Security for which the payment of interest and/or principal depends on the occurrence or severity of an insurance event. The underlying risk of the security is a peak or volume insurance risk. Layer Liability insurance Life insurance Longevity risk Marine insurance Mark-to-market Mark-to-market investment result Market value margin Motor insurance Net outperformance Net reinsurance assets Net underwriting result – new business Section of cover in a non-proportional reinsurance programme in which total coverage is divided into a number of consecutive layers starting at the retention or attachment point of the ceding company up to the maximum limit of indemnity. Individual layers may be placed with different insurers or reinsurers. Insurance for damages that a policyholder is obliged to pay because of bodily injury or property damage caused to another person or entity based on negligence, strict liability or contractual liability. Insurance that provides for the payment of a sum of money upon the death of the insured, or upon the insured surviving a given number of years, depending on the terms of the policy. In addition, life insurance can be used as a means of investment or saving. The risk to which a pension fund or life insurance company could be exposed as a result of higher-than-expected payout ratios. Increasing life expectancy trends among policyholders and pensioners can result in payout levels that are higher than originally expected. Line of insurance which includes coverage for property in transit (cargo), means of transportation (except aircraft and motor vehicles), offshore installations and valuables, as well as liabilities associated with marine risks and professions. Adjustment of the book value or collateral value of a security, portfolio or account to current fair market value. Includes net investment income, realised gains and losses and changes in unrealised gains and losses reported under the accounting principles generally accepted in the United States of America (US GAAP). In addition, it includes changes in market value of investment positions carried at amortised cost under US GAAP. It excludes the following US GAAP items: investment income from cedants, unit-linked and with-profit business and certain loans as well as minority interest and depreciation on real estate. The market value margin (MVM) represents the minimum cost of holding capital after the one-year SST period until the end of a potential run-off period. Line of insurance which offers coverage for property, accident and liability losses involving motor vehicles. Defined as the gross outperformance after deducting the actual costs incurred by managing our actual investment portfolio in excess of the internal fee paid by underwriting for the purchase and maintenance of the investment portfolio replicating the best-estimate liability and backing the associated capital requirements. Receivables related to deposit accounting contracts (contracts which do not meet risk transfer requirements) less payables related to deposit contracts. Net underwriting result from new business is defined as the gross underwriting result from new business net of the present value of internal expenses allocated to new business but before taxes and capital costs. Non-life insurance All classes of insurance business excluding life insurance. Non-proportional reinsurance Form of reinsurance in which coverage is not in direct proportion to the original insurer’s loss; instead the reinsurer is liable for a specified amount which exceeds the insurer’s retention; also known as “excess of loss reinsurance”. 314 Swiss Re | Financial Report 2020 Operating margin ratio The operating margin is calculated as operating result divided by total operating revenues. The operating result is before interest expenses, taxes and net realised gains/losses. Operating revenues Premiums earned plus net investment income plus other revenues. Operational risk Premium Premiums and fees Risk arising from failure of operational processes, internal procedures and controls leading to financial loss. The payment, or one of the periodical payments, a policyholder agrees to make for an insurance policy. Premiums and fees in the EVM income statement represent the present value of all estimated future premiums and fees on contracts written during the year. Gross premiums and fees represent premiums and fees before external retrocessions. Gross premiums and fees in the EVM income statement of the business segments also exclude retrocessions to other segments of the Group. Premiums earned Premiums an insurance company has recorded as revenues during a specific accounting period. Premiums written Premiums for all policies sold during a specific accounting period. Present value of future profits (PVFP) Intangible asset primarily arising from the purchase of life and health insurance companies or portfolios. Principal Investments and Acquisitions Principal Investments and Acquisitions is a unit of Swiss Re that manages all strategic acquisition activities of the Group as well as a portfolio of minority holdings in primarily insurance and insurance-related businesses with the goal of generating long-term value. Product liability insurance Insurance covering the liability of the manufacturer or supplier of goods for damage caused by their products. Professional indemnity insurance Liability insurance cover which protects professional specialists such as physicians, architects, engineers, lawyers, accountants and others against third-party claims arising from activities in their professional field; policies and conditions vary according to profession. Profit margin Property insurance Proportional reinsurance Provision for capital costs Profit margin is calculated for new business, previous years’ business and investment activities. The new business profit margin is the ratio of new business profit/loss to EVM capital allocated to new business over the lifetime of the business. The previous years’ business profit margin is the ratio of previous years’ business profit/loss to EVM capital allocated to previous years’ business in the current year. Investment profit margin is the ratio of investment profit/loss to EVM capital allocated to investment activities in the current year. These ratios can be used to compare profitability across all underwriting and investment activities on a consistent, risk-adjusted basis. Collective term for fire and business interruption insurance as well as burglary, fidelity guarantee and allied lines. Form of reinsurance arrangement in which the premiums earned and the claims incurred of the cedent are shared proportionally by the cedent and the reinsurer. Frictional capital costs provide compensation to shareholders for agency costs, costs for potential financial distress and regulatory (illiquidity) costs. Frictional capital costs include risk capital costs and funding costs. Risk capital costs are charged at 4.5% of eligible economic capital which consists of ENW and eligible hybrid debt. Funding costs are charged or credited at the legal entity level depending on the liquidity the respective legal entity uses or generates. In addition, the provision for capital costs includes an allowance for double taxation on the risk free return on capital allocated to underwriting activities. Swiss Re | Financial Report 2020 315 General information Glossary Quota share reinsurance Reinsurance Reserves Retention Retrocession Form of proportional reinsurance in which a defined percentage of the premiums earned and the claims incurred by the cedent in a specific line is reinsured for a given period. Quota share reinsurance arrangements represent a sharing of business in a fixed ratio or proportion. Insurance which lowers the risk carried by primary insurance companies. Reinsurance includes various forms such as facultative, financial, non-proportional, proportional, quota share, surplus and treaty reinsurance. Amount required to be carried as a liability in the financial statements of an insurer or reinsurer to provide for future commitments under outstanding policies and contracts. Amount of risk which the policyholder or insurer does not insure or reinsure but keeps for its own account. Amount of the risk accepted by the reinsurer which is then passed on to other reinsurance companies. Return on equity Net income as a percentage of time-weighted shareholders’ equity. Return on investments Risk Risk management Running yield Securitisation Solvency II SST risk-bearing capital SST target capital Stop-loss reinsurance Investment-related operating income as a percentage of invested assets. Invested assets include investments, securities in transit, certain financial liabilities and exclude policy loans, cash and cash equivalents, as well as assets related to securities lending, repurchase agreements and collateral balances. Condition in which there is a possibility of injury or loss; also used by insurance practitioners to indicate the property insured or the peril insured against. Management tool for the comprehensive identification and assessment of risks based on knowledge and experience in the fields of natural sciences, technology, economics and statistics. Net investment income on long-term fixed income positions and loan investments, including coupon income and amortisation, as a percentage of the average market value of the long-term fixed income portfolio and carrying value of loan investments. Financial transaction in which future cash flows from financial assets (or insurable risks) are pooled, converted into tradable securities and transferred to capital market investors. The financial assets are commonly sold to a special-purpose entity, which purchases them with cash raised through the issuance of beneficial interests (usually debt instruments) to third-party investors. Regulatory framework for EU re/insurance solvency rules. Solvency II is a comprehensive, economic and risk-based regulation and includes prudential requirements on solvency capital, risk modelling, supervisory control and disclosure. The SST risk-bearing capital (SST RBC) is the amount of capital that is available to protect the policyholders of an entity in case of a large and unexpected adverse event. Amount of capital that is required to support the risks assumed by an entity. It is based on the entity’s total risk. Form of reinsurance that protects the ceding insurer against an aggregate amount of claims over a period, in excess of either a stated amount or a specified percentage of estimated benefit costs. An example of this is employer stop-loss (ESL) coverage, which is used by US companies to cap losses on self-funded group health benefit programmes. The stop-loss can apply to specific conditions or aggregate losses. Surety insurance Sureties and guarantees issued to third parties for the fulfilment of contractual liabilities. Surplus reinsurance Form of proportional reinsurance in which risks are reinsured above a specified amount. 316 Swiss Re | Financial Report 2020 Swiss Solvency Test (SST) An economic and risk-based insurance regulation, similar to the objectives of Solvency II to which all insurance and reinsurance companies writing business in Switzerland are subject. Tail VaR See “Value at risk”. Top-down investment strategy approach An investment strategy process which analyses trends in the global economy and the associated impact on financial markets to assess the overall financial market outlook as well as their implications for various asset classes and risk exposures. Total contribution to ENW Total contribution to ENW is the total return generated for shareholders and includes the release of capital costs. Total contribution to ENW is therefore not a risk-adjusted performance measure. Total leverage ratio Treaty reinsurance Underwriting result Unearned premium Unit-linked policy US GAAP Value at risk (VaR) With-profit policy Total on-balance sheet senior and subordinated debt and contingent capital, including drawn LOCs, divided by total capitalisation. Participation of the reinsurer in certain sections of the insurer’s business as agreed by treaty, as opposed to single risks. Premiums earned less the sum of claims paid, change in the provision for unpaid claims and claim adjustment expenses and expenses (acquisition costs and other operating costs and expenses). Part of written premium (paid or owed) which relates to future coverage and for which services have not yet been provided; this is carried in an unearned premium reserve and may be refundable if the contract is cancelled before expiry. A life insurance contract which provides policyholder funds linked to an underlying investment product or fund. The performance of the policyholder funds is for the account of the policyholder. United States generally accepted accounting principles. Maximum possible loss in market value of an asset portfolio within a given time span and at a given confidence level. 99% VaR measures the level of loss likely to be exceeded in only one year out of a hundred, while 99.5% VaR measures the loss likely to be exceeded in only one year out of two hundred. 99% tail VaR estimates the average annual loss likely to occur with a frequency of less than once in one hundred years. An insurance contract that has additional amounts added to the sum insured, or paid/ credited separately to the policyholder as a bonus, which result from a share of the profit generated by the with-profits insurance funds, including these funds’ interests in other blocks of business. Some of the terms included in the glossary are explained in more detail in Note 1 to the Group financial statements. Swiss Re uses some of the term definitions provided by the glossary of the International Association of Insurance Supervisors (IAIS). Swiss Re | Financial Report 2020 317 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”, “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 or cause Swiss Re to not achieve its published targets. Such factors include, among others: • the frequency, severity and development of insured claim events, particularly natural catastrophes, man-made disasters, pandemics, acts of terrorism or acts of war; • mortality, morbidity and longevity experience; • the cyclicality of the reinsurance sector; • central bank intervention in the financial markets, trade wars or other protectionist measures relating to international trade arrangements, adverse geopolitical events, domestic political upheavals or other developments that adversely impact global economic conditions; • increased volatility of, and/or disruption in, global capital and credit markets; • 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 Group’s inability to realise amounts on sales of securities on the Group’s balance sheet equivalent to their values recorded for accounting purposes; • the Group’s inability to generate sufficient investment income from its investment portfolio, including as a result of fluctuations in the equity and fixed income markets, the composition of the investment portfolio or otherwise; • changes in legislation and regulation, or the interpretations thereof by regulators and courts, affecting the Group or its ceding companies, including as a result of comprehensive reform or shifts away from multilateral approaches to regulation of global operations; • the lowering or loss of one of the financial strength or other ratings of one or more companies in the Group, and developments adversely affecting its ability to achieve improved ratings; • uncertainties in estimating reserves, including differences between actual claims experience and underwriting and reserving assumptions; • policy renewal and lapse rates; 318 Swiss Re | Financial Report 2020 • uncertainties in estimating future claims for purposes of financial reporting, particularly with respect to large natural catastrophes and certain large man-made losses, 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; • legal actions or regulatory investigations or actions, including in respect of industry requirements or business conduct rules of general applicability; • 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, and the overall impact of changes in tax regimes on the Group’s business model; • changes in accounting estimates or assumptions that affect reported amounts of assets, liabilities, revenues or expenses, including contingent assets and liabilities; • changes in accounting standards, practices or policies; • strengthening or weakening of foreign currencies; • reforms of, or other potential changes to, benchmark reference rates; • failure of the Group’s hedging arrangements to be effective; • significant investments, acquisitions or dispositions, and any delays, unforeseen liabilities or other costs, lower-than- expected benefits, impairments, ratings action or other issues experienced in connection with any such transactions; • extraordinary events affecting the Group’s clients and other counterparties, such as bankruptcies, liquidations and other credit-related events; • changing levels of competition; • the effects of business disruption due to terrorist attacks, cyberattacks, natural catastrophes, public health emergencies, hostilities or other events; • limitations on the ability of the Group’s subsidiaries to pay dividends or make other distributions; and • operational factors, including the efficacy of risk management and other internal procedures in anticipating and 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. Swiss Re 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 Re | Financial Report 2020 319 General information Note on risk factors The operations, investments and other activities of Swiss Re Ltd (“Swiss Re”) and its subsidiaries (collectively, the “Group”) are subject to a range of risks that could adversely impact the Group’s business, financial condition, results of operations, liquidity and cash flows. Coronavirus The global spread of the novel coronavirus and the disease it causes (“COVID-19”), and the actions taken to slow the spread of the pandemic, have had an adverse impact on communities, social and business interactions, economic activity and economies across the globe. After significant contractions in 2020, the global economy is expected to experience a protracted and uneven recovery in 2021. The impact of the pandemic on recovery of individual economies will be affected by their respective capacities to absorb shocks and the fiscal responses of their governments, and more broadly by continuing uncertainties over the impact of new strains of the virus and the effectiveness of vaccines against new strains, the timeline for the rollout of vaccination programs, the duration of immunity and resulting restrictions on mobility. Despite the impact of the pandemic on the global economy, the global insurance markets (as measured by premium growth) were less severely impacted in 2020 than expected (although the life market was more adversely affected than the non-life market) and premium growth is expected to recover, alongside recovery of the global economy, in 2021 and 2022, supported by rate hardening. Growth is expected to be led by China and, to a lesser extent, by other markets in Asia, aided in the case of life business by greater awareness of the importance post-pandemic of mortality and health coverage, as well as digital insurance penetration. For the Group, in Property & Casualty Reinsurance, the COVID-19 crisis (in particular the impact on businesses and business activity) had the greatest impact on event cancellation, non-damage business interruption covers, and credit and surety. In Life & Health Reinsurance, the COVID-19 crisis had the greatest impact on mortality exposures. The majority of losses were incurred in the second and fourth quarters, largely driven by business closings and excess mortality, and reported 2020 losses continue to reflect high levels of incurred but not reported (IBNR) reserves. The COVID-19 crisis prompted regulatory actions, including regulatory guidance in a number of US states in respect of temporary policyholder leniency, and legislative proposals in respect of policy exclusions and retroactive business interruption coverage. Legal challenges have been brought in a variety of jurisdictions, including, most notably, test cases brought in the United Kingdom by the Financial Conduct Authority, in respect of which the UK Supreme Court largely found on appeal, by the insurance company parties, in favour of holders of business interruption insurance policies, and in Australia, where a Court of Appeal also found in favour of policyholders. Legal actions on a range of pandemic-related claims are likely to continue in a number of jurisdictions. The COVID-19 crisis continues, and the ultimate toll of the pandemic in terms of lives lost, societal dislocations, business activity, economic growth, broader costs to society and industry losses remains highly uncertain. Many pandemic-related developments interact with long-term trends and outlooks, including the impact of persistent low yields on the insurance industry. It also remains to be seen how public-private partnership initiatives may evolve to address future pandemics. 320 Swiss Re | Financial Report 2020 General impact of adverse market conditions Swiss Re’s operations as well as its investment returns are subject to conditions in the financial markets and macroeconomic factors, which are outside of its control. Financial, credit and foreign exchange markets are experiencing continued periods of volatility reflecting a range of political, geopolitical, economic and other uncertainties, some of the more significant of which are inter-related. 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 insurance and reinsurance. Any of the foregoing factors, developments and trends could have an adverse effect on the Group’s investment results, which in the current extremely low interest rate environment 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. Regulatory changes Swiss Re and its subsidiaries operate in a highly regulated environment, which continues to change over time. The regulatory regimes to which members of the Group are subject have changed significantly in recent years and are expected to continue to evolve. 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 group supervision and Swiss Re’s subsidiaries are also 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 and its Swiss regulated entities and branches are subject to the Swiss Solvency Test and, through its legal entities and branches organised in the European Economic Area (“EEA”) and the United Kingdom, Solvency II (which going forward as between the EEA and the UK could diverge). 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. Swiss Re | Financial Report 2020 321 On the international level, certain large insurance companies were designated as global systemically important insurers (“G-SIIs”) and reinsurance companies faced potential designation as G-SIIs. While further designations have been suspended until 2022, the determination to discontinue G-SII designations altogether will only be made in 2022, based on an assessment of progress made by the International Association of Insurance Supervisors (“IAIS”), in establishing a new holistic framework for systemic risk that was adopted in November 2019 and implemented as of the beginning of 2020. The new framework embraces an enhanced set of policy measures targeted at the exposures and activities that can lead to systemic risks from the insurance sector as a whole. The Group cannot predict what additional regulatory changes will be implemented as the IAIS systemic risk process evolves and what any such changes may mean for how the Group is structured in any particular jurisdiction and how aspects of its business may be affected. Moreover, the Group cannot predict whether the Financial Stability Board will endorse the new IAIS holistic framework or retain the existing G-SII approach, or what regulatory changes may apply in the future to ceding companies in the context of broader designations of reinsurers as systemically important. In addition, large internationally active insurance groups (“IAIGs”), which is a designation compiled by the IAIS as identified by group-wide supervisors, may become subject to a risk-based group-wide global insurance capital standard (“ICS”). ICS Version 2.0 was adopted in November 2019, and is expected to take effect in 2025, following a five-year confidential reporting period during which no supervisory action will be taken on the basis of the monitoring. In November 2019, the IAIS also adopted the Common Framework for the Supervision of Internationally Active Insurance Groups (“ComFrame”), as well as some changes to a number of Insurance Core Principles (“ICPs”) – guidance and standards on supervision of insurers and which apply to insurance companies regardless of size and international exposures. ComFrame strengthens ICP requirements for IAIGs and proposes that the group-wide supervisor, in consultation with the host supervisors, should exercise discretion in requiring IAIGs to submit resolution plans. Swiss Re expects that it will be classified as an IAIG. 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. Notwithstanding the departure of the United Kingdom from the EU single market and customs union, continued uncertainty regarding the ways in which the future relationship between the United Kingdom and the European Union will evolve could also impact the legislative and/or regulatory regimes to which the Group is subject (including Solvency II), both in the United Kingdom and in the European Union. Regulatory changes also could occur in areas of broader application, such as competition policy and tax laws. For example, changes in tax laws, or the interpretation of the tax laws or tax regulations in jurisdictions in which the Group does business, or withdrawals of tax rulings in jurisdictions such as Switzerland that have issued such rulings to Swiss Re, could increase the taxes the Group pays, or impact the attractiveness of products offered by the Group, the Group’s investment activities or the value of deferred tax assets. 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 General information Note on risk factors 322 Swiss Re | Financial Report 2020 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, low interest rates continue to pose significant challenges to the insurance and reinsurance industries, with earnings capacity under stress unless lower investment returns can be offset by lower combined ratios or higher returns from other asset classes, which in a soft market cycle is a challenge. 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 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 contracts, are wholly or partially exposed, directly and/or indirectly, to market fluctuations, including equity prices. 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, certain risks cannot be hedged, including actuarial, basis and correlation risks. Exposure to foreign exchange risk arises from changes in spot prices, forward prices and volatilities of currency 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 a possible mismatch between investments and liability benchmarks – that in turn can lead to reinvestment risk. The Group seeks to manage the risks inherent in its investment portfolio by repositioning the portfolio from time to time, as needed, and to reduce risk and fluctuations through the use of hedges and other risk management tools. Credit risk If the credit markets were to deteriorate, 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. 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. The Group is also subject to credit and other risks in its credit business, including reliance on banks that underwrite and monitor facilities in which the Group participates and potential default by borrowers under those facilities. Swiss Re | Financial Report 2020 323 General information Note on risk factors 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, among other things, its obligations arising in its insurance and reinsurance businesses (including claims and other payments as well as insurance provision repayments due to portfolio transfers, securitisations and commutations), which may include large and unpredictable claims (including catastrophe claims), funding of capital requirements and operating costs, payment of principal and interest on outstanding indebtedness and funding of acquisitions. The Group also has unfunded capital commitments in its private equity and hedge fund investments, which could result in funding obligations at a time when it is subject to liquidity constraints. In addition, the Group has potential collateral requirements in connection with a number of reinsurance arrangements, the amounts of which may be material and the meeting of which could require the Group to liquidate cash equivalents or other securities. The Group manages liquidity and funding risks by focusing on the liquidity stress that is likely to result from extreme capital markets scenarios or from extreme loss events or combinations of the two. Generally, the ability to meet liquidity needs could be adversely impacted by factors that the Group cannot control, such as market dislocations or interruptions, adverse economic conditions, severe disruption in the financial and worldwide credit markets and the related increased constraints on the availability of credit; changes in interest rates, foreign exchange rates and credit spreads; or by perceptions among market participants of the extent of the Group’s liquidity needs. Unexpected liquidity needs (including to meet collateral calls) could require the Group to increase levels of indebtedness or to liquidate investments or other assets. Should the Group require liquidity at a time when access to bank funding and the capital markets is limited, it may be unable to secure new sources of funding. The Group’s ability to meet liquidity needs through asset sales may be constrained by market conditions and the related stress on valuations. In addition, the Group’s ability to meet liquidity needs through the incurrence of debt may be limited by constraints on the general availability of credit in the case of bank funding, and adverse market conditions, in the case of capital markets debt. Failure to meet covenants in lending arrangements could further constrain access to liquidity. 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 are otherwise not tradeable. Finally, any adverse ratings action against the Group could trigger a need for further liquidity (for example, by triggering termination provisions or margin calls/collateral delivery requirements in contracts to which Swiss Re is a party) at a time when the Group’s ability to obtain liquidity from external sources is limited by such ratings action. See also “Risks relating to credit rating downgrades.” 324 Swiss Re | Financial Report 2020 Counterparty risks The Group is exposed to the risk of defaults, or concerns about defaults, by its counterparties. Issuers or borrowers whose securities or loans the Group holds, trading counterparties, counterparties under swaps and other derivative contracts, clearing agents, clearing houses and other financial intermediaries may default on their obligations to the Group due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions, operations failure, fraud or other reasons, which could also have a material adverse effect on the Group. The Group has increased its allocation to higher return-generating strategies, including high-quality corporate debt and some alternative assets, which tend to also be subject to potentially greater counterparty risk. The Group could also be adversely affected by the insolvency of, or other credit constraints affecting, counterparties in its insurance and 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, such as Swiss Re. These ratings are intended to measure a company’s ability to repay its obligations and are based upon criteria established by the rating agencies. Ratings may be solicited or unsolicited and 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 the Group’s ratings could be downgraded or withdrawn in the future. In addition, unsolicited ratings may also be downgraded or withdrawn, such as a downgrade in April 2020 of unsolicited insurer financial strength and long-term issuer default ratings assigned to various entities within the Group. Rating agencies may increase the frequency and scope of ratings reviews, revise their criteria or take other actions that may negatively impact the Group’s ratings and/or the ratings of its legal entities, which it cannot predict. In addition, changes to the process or methodology of issuing ratings, or the occurrence of events or developments affecting the Group, could adversely affect the Group’s existing ratings or 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 Swiss Re’s ratings and/or the ratings of its key rated legal entities 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 and derivative contracts may contain terms that would allow the ceding companies or counterparties to terminate the contract if the Group’s ratings or those of its subsidiaries are downgraded beyond a certain threshold. Furthermore, ratings directly impact the availability and terms of unsecured financing (potentially impacting the Group’s ability to rollover existing facilities or obtain new facilities) and declines in the Group’s ratings or the ratings of legal entities within the Group could also 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. These same factors could also impact the Group’s insurance business. Swiss Re | Financial Report 2020 325 Legal and regulatory risks In the ordinary course of business, the Group is involved in lawsuits, arbitrations and other formal and informal dispute resolution procedures, the outcomes of which determine the Group’s rights and obligations under insurance, reinsurance or other contractual agreements. From time to time, the Group may institute, or be named as a defendant in, legal proceedings, and the Group may be a claimant or respondent in arbitration proceedings. These proceedings could involve coverage or other disputes with ceding companies, disputes with parties to which the Group transfers risk under reinsurance arrangements, disputes with other counterparties or other matters. The Group cannot predict the outcome of any of the foregoing, which could be material for the Group. The Group could in the future be involved in investigations and regulatory proceedings, which could result in adverse judgments, settlements, fines and other outcomes. These investigations and proceedings could relate to insurance or reinsurance matters, or could involve 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 litigation or enforcement actions arising from potential employee misconduct, including non-compliance with internal policies and procedures, negligence 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 natural catastrophes, such as hurricanes, cyclones, tornadoes, windstorms, hail storms, wildfires, floods and earthquakes, as well as extreme space weather events such as solar storms and geomagnetic activity, and man-made disasters, such as acts of terrorism, cyberattacks and other disasters such as explosions, industrial accidents and fires, as well as pandemics) are inherently unpredictable in terms of both their frequency and severity and have exposed, and may continue to expose, the Group to unexpected large losses (and related uncertainties in estimating future claims in respect of such events); changes in the insurance industry that affect ceding companies, particularly those that further increase their sensitivity to counterparty risk; competitive conditions (including as a result of consolidation and the availability of significant levels of alternative capacity); cyclicality of the industry; risks related to emerging claims and coverage issues (including, in particular, social inflation), which trends may potentially be exacerbated by the COVID-19 crisis; macro developments giving rise to emerging risks, such as climate change and technological developments (including greater exposure to cyber risks (where accumulation risk is yet to be fully understood), 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. General information Note on risk factors 326 Swiss Re | Financial Report 2020 Use of models; accounting matters The Group is subject to risks relating to the preparation of estimates and assumptions that its management uses, for example, as part of its risk models as well as those that affect the reported amounts of assets, liabilities, revenues and expenses in the Group’s financial statements (such as assumptions related to the Group’s capital requirements and anticipated liabilities), 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 (and could be adversely affected if premiums turn out to be lower, while claims stay the same). 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 (in the case of accounting judgments), and such impact could be material. The Group’s results may be impacted by changes in accounting standards, or changes in the interpretation of accounting standards. Changes in accounting standards could impact future reported results or require restatement of past reported results. The Group’s results may also be impacted if regulatory authorities take issue with any conclusions the Group may reach in respect of accounting matters. The Group uses non-GAAP financial measures in its external financial reporting. These measures are not prepared in accordance with US GAAP or any other comprehensive set of accounting rules or principles and should not be viewed as a substitute for measures prepared in accordance with US GAAP. Moreover, these may be different from, or otherwise inconsistent with, non-GAAP financial measures used by other companies. These measures have inherent limitations, are not required to be uniformly applied and are not audited. The Group includes in its annual report a section in respect of its results, including financial statements, prepared in accordance with the Group’s proprietary economic value management (“EVM”) principles (“EVM report”). Financial information included in the EVM report contains non-GAAP financial measures. The EVM principles differ significantly from US GAAP and, accordingly, the Group’s results prepared in accordance with US GAAP will differ from its EVM results, and those differences could be material. The Group’s annual EVM results can be more volatile than the US GAAP results because, among others, assets and liabilities are measured on a market consistent basis, profit recognition on new contracts is recognised at inception rather than over the life time of the contract, and life and health actuarial assumptions are on a best estimate basis as opposed to generally being locked-in. The Group’s EVM financial statements should not be viewed as a substitute for the Group’s US GAAP financial statements. Risks related to the Swiss Re corporate structure Swiss Re is a holding company, a legal entity separate and distinct from its subsidiaries, including Swiss Reinsurance Company Ltd. As a holding company with no operations of its own, Swiss Re is dependent upon dividends and other payments from its direct and indirect operating subsidiaries. The Group is in the process of streamlining its legal entity structure, with the expectation that, over time, its structure will continue to evolve. In the future it may, for example, elect again to partner with minority investors or may elect otherwise to dispose of interests in Group businesses or portions thereof, or to grow through acquisitions. To the extent it undertakes acquisitions, it is subject to the risks inherent in acquiring and integrating new operations. Swiss Re | Financial Report 2020 327 General information Contacts Swiss Re has 81 office locations in 29 countries. For a full list of our office locations and service offerings, please visit www.swissre.com Investor Relations Telephone +41 43 285 4444 investor_relations@swissre.com Media Relations Telephone +41 43 285 7171 media_relations@swissre.com Share Register Telephone +41 43 285 6810 share_register@swissre.com Head office Swiss Re Ltd Mythenquai 50/60, P.O. Box, 8022 Zurich, Switzerland Telephone +41 43 285 2121 Americas Armonk 175 King Street Armonk, NY 10504 Telephone +1 914 828 8000 Kansas City 1200 Main Street Kansas City, MO 64105 Telephone +1 816 235 3703 New York 1301 Avenue of the Americas New York, NY 10019 Telephone +1 212 317 5400 Los Angeles 777 South Figueroa Street Los Angeles, CA 90071 Telephone +1 213 457 6190 Toronto 150 King Street West Toronto, Ontario M5H 1J9 Telephone +1 416 408 0272 Mexico City Avenida Insurgentes Sur 1898 Torre Siglum Colonia Florida, Del Alvaro Obregon México City 01030 Telephone +52 55 5322 8400 São Paulo Avenida Brigadeiro Faria Lima 3064 Itaim Bibi São Paulo, SP 01451-001 Telephone +55 11 3073 8000 328 Swiss Re | Financial Report 2020 Europe (incl. Middle East and Africa) Zurich Mythenquai 50/60 8022 Zurich Telephone +41 43 285 2121 London 30 St Mary Axe London EC3A 8EP Telephone +44 20 7933 3000 Munich Arabellastrasse 30 81925 Munich Telephone +49 89 3844 1200 Cape Town Block B The Boulevard Office Park Searle Street Woodstock Cape Town, 7925 Telephone +27 21 469 8400 Madrid Torre Europa Paseo de la Castellana, 95 28046 Madrid Telephone +34 91 598 1726 Paris 11–15, rue Saint-Georges 75009 Paris Telephone +33 1 43 18 30 00 Rome Via di San Basilio, 72 00187 Rome Telephone +39 06 323931 Asia-Pacific Singapore Asia Square Tower 2 12 Marina View Singapore 018961 Telephone +65 6532 2161 Hong Kong Central Plaza 18 Harbour Road Wanchai Hong Kong Telephone +852 2827 4345 Sydney Tower Two International Towers Sydney 200 Barangaroo Avenue Sydney, NSW 2000 Telephone +61 2 8295 9500 Beijing China Life Financial Centre 23 Zhenzhi Road Chaoyang District Beijing 100026 Telephone +86 10 6563 8888 Tokyo Marunouchi Nijubashi Building 3-2-3 Marunouchi Tokyo 100-0005 Telephone +81 3 5219 7800 Mumbai One BKC Plot no. C-66, G-Block Bandra Kurla Complex Bandra (East) Mumbai 400 051 Telephone +91 22 6661 2121 Corporate calendar 2021 16 April 2021 157th Annual General Meeting 30 April 2021 First quarter 2021 key financial data 30 July 2021 Half-year 2021 results 29 October 2021 Nine months 2021 key financial data Swiss Re | Financial Report 2020 329 ©2021 Swiss Re. All rights reserved. Title: Financial Report 2020 Design: Superunion, London Swiss Re Corporate Real Estate & Services/ Media Production, Zurich Photography: Braschler/Fischer Deniz Kenber Fredi Lienhardt Geri Krischker Getty Images, Shutterstock Marc Wetli Printing: Multicolor Print AG, Baar This report is printed on sustainably produced paper and is climate neutral. The wood used comes from forests certified to 100% by the Forest Stewardship Council (FSC). Original version in English. The Annual Report 2020 is also available in German. The web version of the Annual Report 2020 is available at: reports.swissre.com Order no: 1490793_21_en 03/21, 1850 en Swiss Re Ltd Mythenquai 50/60 P.O. Box 8022 Zurich Switzerland Telephone +41 43 285 2121 www.swissre.com 

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