6 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 Groupʼs debt as of 31 December was as follows:

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USD millions

2012

2013

Senior financial debt

793

901

Senior operational debt

2 819

2 917

Short-term debt – financial and operational debt

3 612

3 818

 

 

 

Senior financial debt

4 952

3 233

Senior operational debt

1 704

708

Subordinated financial debt

4 302

5 367

Subordinated operational debt

5 328

5 414

Long-term debt – financial and operational debt

16 286

14 722

 

 

 

Total carrying value

19 898

18 540

Total fair value

20 106

18 526

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 debtorsʼ claims are limited to assets underlying the financing. As of 31 December 2012 and 2013, debt related to operational leverage and financial intermediation amounted to USD 9.9 billion (thereof USD 6.1 billion limited recourse) and USD 9.0 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:

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USD millions

2012

2013

1

Balance was reclassified to short-term debt.

Due in 2014

1 763

01

Due in 2015

708

730

Due in 2016

2 136

2 151

Due in 2017

1 428

1 341

Due in 2018

0

0

Due after 2018

10 251

10 500

Total carrying value

16 286

14 722

Senior long-term debt

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Maturity

Instrument

Issued in

Currency

Nominal in millions

Interest rate

Book value in USD millions

1

Assumed in the acquisition of GE Insurance Solutions.

2015

EMTN

2001

CHF

150

4.00%

169

2015

EMTN

2010

CHF

500

2.00%

561

2017

EMTN

2011

CHF

600

2.13%

671

2019

Senior notes1

1999

USD

234

6.45%

282

2022

Senior notes

2012

USD

250

2.88%

248

2026

Senior notes1

1996

USD

397

7.00%

530

2030

Senior notes1

2000

USD

193

7.75%

285

2042

Senior notes

2012

USD

500

4.25%

488

Various

Payment undertaking agreements

various

USD

559

various

707

Total senior debt as of 31 December 2013

3 941

Total senior debt as of 31 December 2012

6 656

Subordinated long-term debt

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Maturity

Instrument

Issued in

Currency

Nominal in millions

Interest rate

first call in

Book value in USD millions

2024

Subordinated contingent write-off loan notes

2013

USD

750

6.38%

2019

831

2042

Subordinated fixed-to-floating rate loan note

2012

EUR

500

6.63%

2022

679

2045

Subordinated contingent write-off securities

2013

CHF

175

7.50%

2020

234

2047

Subordinated private placement (amortising, limited recourse)

2007

GBP

1 355

4.90%

 

2 223

2057

Subordinated private placement (amortising, limited recourse)

2007

GBP

1 929

4.77%

 

3 191

 

Subordinated perpetual loan note

2006

EUR

1 000

5.25%

2016

1 376

 

Subordinated perpetual loan note

2006

USD

752

6.85%

2016

752

 

Subordinated perpetual loan note

2007

GBP

500

6.30%

2019

826

 

2 subordinated perpetual loan notes

2007

AUD

750

various

2017

669

Total subordinated debt as of 31 December 2013

10 781

Total subordinated debt as of 31 December 2012

9 630

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:

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USD millions

2012

2013

Senior financial debt

161

148

Senior operational debt

109

48

Subordinated financial debt

238

286

Subordinated operational debt

251

246

Total

759

728

Interest expense on contingent capital instruments was USD 56 million and USD 67 million for the years ended 31 December 2012 and 2013, respectively.

Long-term debt issued in 2013

In March 2013, Swiss Reinsurance Company Ltd issued subordinated contingent write-off loan notes with a scheduled maturity in 2024. The instrument has a face value of USD 750 million, with a fixed coupon of 6.375% per annum until the optional redemption date (1 September 2019). The full principal amount of the instrument is mandatorily written off if Swiss Reinsurance Company Ltd reports a Swiss Solvency Test (SST) ratio of less than 125% to the Swiss Financial Market Supervisory Authority (FINMA).

In October 2013, Swiss Reinsurance Company Ltd issued 32-year subordinated contingent write-off securities with a scheduled maturity in 2045. The instrument has a face value of CHF 175 million, with a fixed coupon of 7.5% per annum until the first optional redemption date (1 September 2020). The full principal amount of the instrument will be written off upon the earlier to occur of: 1) Swiss Reinsurance Company Ltd reporting a Swiss Solvency Test (SST) ratio of less than 135% to the Swiss Financial Market Supervisory Authority (FINMA), or 2) the occurrence of an Atlantic hurricane which causes insured industry losses defined in an USD billion amount exceeding those of a 1-in-200 year event, subject to an annual reset assessment to adjust for changes in insured values, while neutralising any impact due to model changes.

Contingent capital instruments issued in 2012

In February 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated instrument 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 through at market conversion using the retrospective five-day volume weighted average share price with a 3% discount or within six months following a solvency event at a pre-set floor price (CHF 26 for the instrument with face value of CHF 320 million and USD 32 for the instrument with face value of USD 750 million, respectively). These instruments are referred to in these financial statements as “contingent capital instruments”.