For a Resilient Future Key Information
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2016 Financial Review For a resilient future Key information Financial highlights For the years ended 31 December USD millions, unless otherwise stated 2015 2016 Change in % Group Net income attributable to common shareholders 4 597 3 5 5 8 –23 Premiums earned and fee income 30 214 33 231 10 Earnings per share in CHF 12.93 10.55 –18 Common shareholders’ equity 32 415 3 4 5 3 2 7 Return on equity in %1 13.7 10.6 Return on investments in % 3.5 3.4 Net operating margin in %2 17.1 13.0 Number of employees3 12 767 14 0 5 3 10 Property & Casualty Reinsurance Net income attributable to common shareholders4 3 0 08 2 10 0 –30 Premiums earned 15 090 17 0 0 8 13 Combined ratio in %2,4 85.7 93.5 Net operating margin in %2,4 22.5 15.4 Return on equity in %1,4 22.4 16.4 Life & Health Reinsurance Net income attributable to common shareholders4,5 968 807 –17 Premiums earned and fee income5 10 616 11 5 2 7 9 Net operating margin in %2,4,5 12.2 10.4 Return on equity in %1,4,5 16.2 12.8 Corporate Solutions Net income attributable to common shareholders4 357 135 –62 Premiums earned 3 379 3 5 0 3 4 Combined ratio in %4 93.2 101.1 Net operating margin in %4 14.1 4.2 Return on equity in %1,4 15.5 6.0 Life Capital Net income attributable to common shareholders4,5 424 638 50 Premiums earned and fee income5 1 129 1 19 3 6 Gross cash generation6 543 721 33 Net operating margin in %4,5 17.8 27.0 Return on equity in %1,4,5 7.5 10.4 1 Return on equity is calculated by dividing net income attributable to common shareholders by average common shareholders’ equity. 2 Letter of credit fees of USD 55 million in 2015, thereof USD 45 million in Life & Health Reinsurance and USD 10 million in Property & Casualty Reinsurance, have been reclassified from “Operating expenses” to ”Interest expenses”. 3 Regular staff. 4 The Group’s new internal service cost framework resulted in a reallocation of operating expenses to Group items from the business segments. Comparative information for 2015 has been adjusted accordingly. 5 As of 1 January 2016, the primary life and health insurance business (individual and group) is reported in the Life Capital segment instead of the Life & Health Reinsurance segment. Comparative information for 2015 has been adjusted accordingly. 6 Gross cash generation is the change in excess capital available over and above the target capital position, with the target capital being the minimum statutory capital plus the additional capital required by Life Capital’s capital management policy. Share price (CHF) Financial strength ratings As of 17 February 2017 Standard & Poor’s Moody’s A.M. Best 120 Rating AA- Aa3 A+ 100 Outlook Stable Stable Stable 80 Last update 25 November 2016 15 December 2015 16 December 2016 60 40 Share information 20 As of 17 February 2017 Share price in CHF 92.75 0 2012 2013 2014 2015 2016 2017 Market capitalisation in CHF millions 33 397 Swiss Re Share performance Swiss Market Index in % 1 January 2012 ‒ 17 February 2017 (p.a.) 2016 STOXX Europe 600 Insurance Index Swiss Re 13.8 –1.7 Swiss Market Index 7.3 –6.8 STOXX Europe 600 Insurance Index 14.8 –5.6 Contents Message from the Chairman 2 Notes to the Group General information 100 A conversation with the Group CEO 6 financial statements 36 Cautionary note on Group strategy 8 Note 1 Organisation and forward-looking statements 100 Group results 10 summary of significant Note on risk factors 102 Group underwriting 12 accounting policies 36 Contacts 110 Group investments 14 Note 2 Information on business Corporate calendar 111 Summary of financial statements 16 segments 40 Reinsurance 18 Note 3 Insurance information 51 Property & Casualty 20 Note 4 Premiums written 56 Life & Health 22 Note 5 Unpaid claims and claim adjustment expenses 57 Corporate Solutions 24 Note 6 Deferred acquisition Life Capital 26 costs (DAC) and acquired Condensed Group Financial present value of future Statements (unaudited) 28 profits (PVFP) 60 Income statement 28 Note 7 Investments 62 Statement of comprehensive Note 8 Fair value disclosures 70 income 29 Note 9 Derivative financial Balance sheet 30 instruments 81 Statement of shareholders‘ equity 32 Note 10 Acquisitions and disposals 85 Statement of cash flow 34 Note 11 Debt and contingent capital instruments 88 Note 12 Earnings per share 91 Note 13 Commitments and contingent liabilities 92 Note 14 Variable interest entities 94 This 2016 Financial Review of the Swiss Re Group contains updates on our business and results and preliminary unaudited financial information for 2016. The updates on our business and results will be included in our 2016 Annual Report, together with our audited financial statements for 2016 and other disclosures we are required to include or historically have included in an annual report. This Financial Review is not intended to be a substitute for the full 2016 Annual Report, which will be published on the Swiss Re website on 16 March 2017. MESSAGE FROM THE CHAIRMAN Message from the Chairman Swiss Re can thrive — also in turbulent times. Dear shareholders, 2016 was a year of profound changes. However, despite many difficulties, Swiss Re was able to stay on course and deliver good results. In brief: Property & Casualty Reinsurance and Life & Health Reinsurance have continued to generate sound returns. Our direct insurance unit Corporate Solutions faced a very difficult market environment, which is reflected in the results. Meanwhile, our newest Business Unit, Life Capital, which is still in development, had great success in integrating the acquired Guardian Financial Services portfolio in 2016. Strategic challenges — in turbulent times In the summer of 2016, as in every other year, I discussed the main strategic challenges of the coming years with our global top management, presenting to “ In the course of our 153 years them both the viewpoint of the Board of Directors and my personal assessment. of experience, we have We on the Board of Directors address this matter on a continual basis, of shown an undisputed ability course, and discuss the relevant questions intensively and thoroughly. to operate successfully In this context, we see four main topics taking centre stage in the coming years — on top of the current negative in ever-changing and highly price cycles in the property and casualty businesses: challenging situations.” ̤ Significantly higher geopolitical risk ̤ Transformation of business models in the insurance sector due to limitless possibilities opened up by digitalisation ̤ The shift in the monetary policies of major central banks, perhaps even a restructuring of the roles of these institutions ̤ The effects of global climate change 2 Swiss Re 2016 Financial Review In the second half of 2016, the situation Let’s talk about climate change: global was greatly aggravated in many respects. climate change is a fact, even if it is readily questioned by politicians in the In my view, the geopolitical environment so-called ‘post-factual’ era. While the is becoming less predictable, with the political discussion mainly centres on UK’s vote to leave the EU (Brexit) and questions of causation, the insurance the US presidential election showing industry, and reinsurers in particular, are how wrong ‘conventional wisdom’ can concerned with providing solutions for be. Other geopolitical circumstances both the prevention and management that have been taken as a given for of losses. years seem to now be in question. Those aspects include security alliances, Against this backdrop, we focus on European integration, global trade, closing what is known as the ‘protection even globalisation in general, and the gap’, referring to the huge global international regulation of financial discrepancy between uninsured and markets and their institutions, including unprotected risks, on the one hand, and insurance regulation — not to mention the potentially high economic losses on the place of liberal values and the the other. For this, we rely on cooperation recognition of human rights. with political authorities and international organisations. If these parties are Digitalisation, which is often assumed to impeded by a political discourse that be the new industrial revolution, is now does not focus on solutions, or if they also transforming the service sector — are even prevented from cooperating, including the business model of the this doesn’t bode well — certainly for insurance industry. It is difficult to predict the people affected. exactly where this is leading. However, it is certain that insurance risks will Swiss Re can thrive even under change — to some extent dramatically; complex conditions the distribution of insurance products will Our main strategic task is to decide be revolutionised and the development which risks we want to underwrite and of relevant services will take a completely hold on our books, and under which different form. In this context, banks are conditions. In other words, how much relatively progressive and have partly capital are we willing to invest to assume reinvented themselves already in recent certain risks? This is capital that you, years; yet, such changes in the insurance as Swiss Re shareholders, provide to us. industry may potentially have a much more severe impact. The uncertainties outlined make this task increasingly challenging. This Since the financial crisis, central banks is particularly true at a time when the have played an extraordinarily dominant regulatory environment in many role from a historical perspective, to parts of the world is diverging in an the extent that they were sometimes the uncoordinated manner, leading to ‘only game in town’.