Note 7 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. Interest expense is classified accordingly.

The Group’s debt as of 31 December was as follows:

The Group uses debt for general corporate purposes and to fund discrete pools of operational leverage and financial intermediation assets. Operational leverage and financial intermediation are subject to asset and liability matching, resulting in little to no risk that the assets will be insufficient to service and settle the liabilities. Debt used for operational leverage and financial intermediation is treated as operational debt and excluded by the rating agencies from financial leverage calculations. Certain debt positions are limited recourse, meaning the debtors’ claims are limited to assets underlying the financing. As of 31 December 2011 and 2012, debt related to operational leverage and financial intermediation amounted to USD 13.8 billion (thereof USD 6.3 billion limited recourse) and USD 9.9 billion (thereof USD 6.1 billion limited recourse), respectively.

Maturity of long-term debt

As of 31 December, long-term debt as reported above had the following maturities:

Senior long-term debt

Subordinated long-term debt

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:

Interest expense on contingent capital instruments for the year ended 31 December 2012 was USD 56 million.

Long-term debt issued in 2012

In July 2012, Swiss Reinsurance Company Ltd issued a 30-year subordinated fixed-to-floating rate loan note which is callable after 10 years. The instrument has a face value of EUR 500 million, with a fixed coupon of 6.625% per annum until the first optional redemption date (1 September 2022).

In December 2012, Swiss Re Treasury (US) Corporation, an indirect subsidiary of Swiss Re Ltd, issued two tranches of senior notes, maturing in 2022 and 2042, respectively. The 2022 notes have a face value of USD 250 million, with a fixed coupon of 2.875%. The 2042 notes have a face value of USD 500 million, with a fixed coupon of 4.25%. The notes are guaranteed by Swiss Reinsurance Company Ltd.

Contingent capital instruments issued in 2012

In February 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated note with stock settlement. The instrument has a face value of CHF 320 million, with a fixed coupon of 7.25% per annum until the first optional redemption date (1 September 2017).

In March 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated capital instrument with stock settlement. The instrument has a face value of USD 750 million, with a fixed coupon of 8.25% per annum until the first optional redemption date (1 September 2018).

Both instruments may be converted, at the option of the issuer, into Swiss Re Ltd shares at any time at market or within six months following a solvency event at a pre-set floor price. These instruments are referred to in these financial statements as “contingent capital instruments”.