Leadership Performance Plan
The LPP is a forward-looking instrument focusing on motivating select members of Swiss Re’s senior management to take decisions that are in the shareholders’ long-term interest and to achieve sustainable business performance. The intention of the LPP is to:
- focus participants’ energies on earnings, capital efficiency and our position against peers, all of which are critical to long-term shareholder value creation;
- attract and retain individuals of exceptional skill; and
- provide competitive compensation that rewards long-term performance.
For all Group EC and GMB members, the LPP plan duration is five years. Plan duration comprises a three-year vesting and performance measurement period and an additional two-year holding requirement. For all other participants, the vesting and performance measurement period is three years with no additional holding requirement.
At grant date, the award is split equally into two underlying components – Restricted Share Units (RSUs), and Performance Share Units (PSUs). Both are explained next.
Restricted Share Units
The performance condition for RSUs is return on equity (RoE) with a linear vesting line. Vesting is at 0% for an RoE at risk free rate* and at 100% for an RoE at a predefined premium above risk free rate. The premium is set at the beginning of the plan period and for LPP 2014 this premium has been set at 900 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 RSUs are locked in within a range from 0% to 100%. At the end of the three-year period, the total number of units locked in at each measurement period will vest.
Performance Share Units
The performance condition for PSUs is relative total shareholder return (TSR) measured over three years. The PSU vesting curve starts with 50% vesting at the 50th percentile of TSR relative to peers and is capped at 200% vesting at the 75th percentile. The PSUs vest within a range of 0%–200%. In the case of a negative TSR over three years, the Compensation Committee retains the right to reduce the level of vesting.
Swiss Re’s TSR performance is assessed relative to the TSR of the peer group. The defined peer group consists of companies that are similar in scale, have a global footprint or have a similar business mix as Swiss Re. The peer group which is set at the beginning of the plan period is ACE Ltd, Allianz SE, American International Group Inc, Amlin PL C, AXA SA, Catlin Group Ltd, Everest Re Group Ltd, Hannover Rueck SE, Muenchener Rueckversicherungs-Gesellschaft AG, PartnerRe Ltd, Reinsurance Group America Inc, RenaissanceRe Holding Ltd, SCOR SE, XL Group PLC and Zurich Insurance Group AG.
At the end of the three-year measurement period, both components will typically be settled in Swiss Re shares. For Group EC and GMB members, an additional two-year holding is required. For the full three-year performance measurement period, forfeiture conditions apply. Additionally, clawback provisions apply in the event of any downward financial restatement which is caused or partially caused by the LPP participant’s fraud or misconduct. In this case, the company is entitled to seek repayment of any vested and settled award.
The amounts disclosed under LPP in the section Compensation decisions in 2013 reflect the grants made in March 2014. This LPP award will be measured over the period 2014–2016.
Swiss Re also offers the possibility for all LPP participants to have shares sold to cover statutory tax and social security liabilities that may arise at vesting.
* Annual risk free rate is defined as the average of 12 monthly rates for 5-year US Treasury Bonds of the corresponding performance year.