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Annual Report 2015

14 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.

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2014
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Benefit obligation as of 1 January

3 531

2 305

341

6 177

Service cost

100

8

5

113

Interest cost

76

98

12

186

Amendments

–90

1

 

–89

Actuarial gains/losses

587

226

52

865

Benefits paid

–129

–75

–17

–221

Employee contribution

27

 

 

27

Acquisitions/disposals/additions

 

–4

 

–4

Effect of settlement, curtailment and termination

1

–24

 

–23

Effect of foreign currency translation

–418

–146

–22

–586

Benefit obligation as of 31 December

3 685

2 389

371

6 445

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets as of 1 January

3 661

2 245

0

5 906

Actual return on plan assets

281

266

 

547

Company contribution

101

91

17

209

Benefits paid

–129

–76

–17

–222

Employee contribution

27

 

 

27

Acquisitions/disposals/additions

 

 

 

0

Effect of settlement, curtailment and termination

1

–23

 

–22

Effect of foreign currency translation

–407

–149

 

–556

Fair value of plan assets as of 31 December

3 535

2 354

0

5 889

Funded status

–150

–35

–371

–556

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2015
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Benefit obligation as of 1 January

3 685

2 389

371

6 445

Service cost

111

8

5

124

Interest cost

42

79

10

131

Amendments

 

 

 

0

Actuarial gains/losses

236

–67

–2

167

Benefits paid

–189

–74

–16

–279

Employee contribution

26

 

 

26

Acquisitions/disposals/additions

 

2

 

2

Effect of settlement, curtailment and termination

2

 

 

2

Effect of foreign currency translation

–36

–131

–5

–172

Benefit obligation as of 31 December

3 877

2 206

363

6 446

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets as of 1 January

3 535

2 354

0

5 889

Actual return on plan assets

36

7

 

43

Company contribution

94

85

16

195

Benefits paid

–189

–74

–16

–279

Employee contribution

26

 

 

26

Acquisitions/disposals/additions

 

1

 

1

Effect of settlement, curtailment and termination

2

 

 

2

Effect of foreign currency translation

–25

–138

 

–163

Fair value of plan assets as of 31 December

3 479

2 235

0

5 714

Funded status

–398

29

–363

–732

Amounts recognised in “Other assets” and “Accrued expenses and other liabilities” in the Group’s balance sheet as of 31 December were as follows:

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2014
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Non-current assets

 

208

 

208

Current liabilities

 

–3

–15

–18

Non-current liabilities

–150

–240

–356

–746

Net amount recognised

–150

–35

–371

–556

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2015
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Non-current assets

 

232

 

232

Current liabilities

 

–3

–15

–18

Non-current liabilities

–398

–200

–348

–946

Net amount recognised

–398

29

–363

–732

Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows:

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2014
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Net gain/loss

896

407

–45

1 258

Prior service cost/credit

–87

2

–77

–162

Total

809

409

–122

1 096

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2015
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Net gain/loss

1 133

384

–43

1 474

Prior service cost/credit

–78

2

–67

–143

Total

1 055

386

–110

1 331

Components of net periodic benefit cost

The components of pension and post-retirement cost for the years ended 31 December were as follows:

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2014
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Service cost (net of participant contributions)

100

8

5

113

Interest cost

76

98

12

186

Expected return on assets

–112

–111

 

–223

Amortisation of:

 

 

 

 

Net gain/loss

43

24

–12

55

Prior service cost

–5

–3

–11

–19

Effect of settlement, curtailment and termination

1

–2

 

–1

Net periodic benefit cost

103

14

–6

111

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2015
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Service cost (net of participant contributions)

111

8

5

124

Interest cost

42

79

10

131

Expected return on assets

–113

–95

 

–208

Amortisation of:

 

 

 

 

Net gain/loss

76

22

–4

94

Prior service cost

–9

 

–10

–19

Effect of settlement, curtailment and termination

2

 

 

2

Net periodic benefit cost

109

14

1

124

Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended 31 December were as follows:

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2014
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Net gain/loss

418

71

52

541

Prior service cost/credit

–90

–3

 

–93

Amortisation of:

 

 

 

 

Net gain/loss

–43

–24

12

–55

Prior service cost

5

3

11

19

Effect of settlement, curtailment and termination

 

 

 

0

Exchange rate gain/loss recognised during the year

 

–25

 

–25

Total recognised in other comprehensive income, gross of tax

290

22

75

387

Total recognised in net periodic benefit cost and other comprehensive income, gross of tax

393

36

69

498

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2015
USD millions

Swiss
plan

Foreign
plans

Other
benefits

Total

Net gain/loss

313

21

–2

332

Prior service cost/credit

 

 

 

0

Amortisation of:

 

 

 

 

Net gain/loss

–76

–22

4

–94

Prior service cost

9

 

10

19

Effect of settlement, curtailment and termination

 

 

 

0

Exchange rate gain/loss recognised during the year

 

–22

 

–22

Total recognised in other comprehensive income, gross of tax

246

–23

12

235

Total recognised in net periodic benefit cost and other comprehensive income, gross of tax

355

–9

13

359

The estimated net loss and prior service credit for the defined benefit pension plans that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2016 are USD 87 million and USD 9 million, respectively. The estimated net gain and prior service credit for the other defined post-retirement benefits that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2016 are USD 4 million and USD 9 million, respectively.

The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 5 980 million and USD 6 016 million as of 31 December 2014 and 2015, respectively.

Pension plans with an accumulated benefit obligation in excess of plan assets as of 31 December were as follows:

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USD millions

2014

2015

Projected benefit obligation

4 771

4 883

Accumulated benefit obligation

4 722

4 843

Fair value of plan assets

4 379

4 283

Principal actuarial assumptions

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Swiss plan

 

Foreign plans weighted average

 

Other benefits weighted average

 

 

 

 

 

 

 

 

 

 

2014

2015

 

2014

2015

 

2014

2015

Assumptions used to determine obligations at the end of the year

 

 

 

 

 

 

 

 

Discount rate

1.1%

0.8%

 

3.5%

3.7%

 

2.7%

2.7%

Rate of compensation increase

2.3%

2.0%

 

2.9%

2.9%

 

2.1%

2.1%

 

 

 

 

 

 

 

 

 

Assumptions used to determine net periodic pension costs for the year ended

 

 

 

 

 

 

 

 

Discount rate

2.3%

1.1%

 

4.4%

3.5%

 

3.5%

2.7%

Expected long-term return on plan assets

3.3%

3.3%

 

5.2%

4.3%

 

 

 

Rate of compensation increase

2.3%

2.3%

 

3.4%

2.9%

 

2.1%

2.1%

 

 

 

 

 

 

 

 

 

Assumed medical trend rates at year end

 

 

 

 

 

 

 

 

Medical trend – initial rate

 

 

 

 

 

 

6.0%

6.1%

Medical trend – ultimate rate

 

 

 

 

 

 

4.5%

4.6%

Year that the rate reaches the ultimate trend rate

 

 

 

 

 

 

2019

2020

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.

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have had the following effects for 2015:

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USD millions

1 percentage point increase

1 percentage point decrease

Effect on total of service and interest cost components

1

–1

Effect on post-retirement benefit obligation

26

–22

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 2014 and 2015 was as follows:

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Swiss plan allocation

 

Foreign plans allocation

 

 

 

 

 

 

 

 

 

2014

2015

Target allocation

 

2014

2015

Target allocation

Asset category

 

 

 

 

 

 

 

Equity securities

28%

26%

25%

 

29%

26%

26%

Debt securities

46%

47%

47%

 

66%

68%

68%

Real estate

18%

21%

20%

 

0%

0%

1%

Other

8%

6%

8%

 

5%

6%

5%

Total

100%

100%

100%

 

100%

100%

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 common stock of USD 6 million (0.1% of total plan assets) and USD 6 million (0.1% of total plan assets) as of 31 December 2014 and 2015, 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.

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.

Other assets classified within level 3 mainly consist of private equity investments valued with the same methodology as mentioned in Note 8.

As of 31 December, the fair values of pension plan assets by level of input were as follows:

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2014
USD millions

Quoted prices in active markets for identical assets
(Level 1)

Significant other observable inputs (Level 2)

Significant unobservable inputs (Level 3)

Total

Assets

 

 

 

 

Fixed income securities:

 

 

 

 

Debt securities issued by the US government and government agencies

9

146

 

155

Debt securities issued by non-US governments and government agencies

 

890

 

890

Corporate debt securities

 

2 150

 

2 150

Residential mortgage-backed securities

 

22

 

22

Commercial mortgage-backed securities

 

2

 

2

Other asset-backed securities

 

1

 

1

Equity securities:

 

 

 

 

Equity securities held for proprietary investment purposes

976

684

 

1 660

Derivative financial instruments

–3

 

 

–3

Real estate

53

10

578

641

Other assets

21

59

139

219

Total assets at fair value

1 056

3 964

717

5 737

Cash

148

4

 

152

Total plan assets

1 204

3 968

717

5 889

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2015
USD millions

Quoted prices in active markets for identical assets
(Level 1)

Significant other observable inputs (Level 2)

Significant unobservable inputs (Level 3)

Total

Assets

 

 

 

 

Fixed income securities:

 

 

 

 

Debt securities issued by the US government and government agencies

34

149

 

183

Debt securities issued by non-US governments and government agencies

 

799

 

799

Corporate debt securities

 

2 179

 

2 179

Residential mortgage-backed securities

 

16

 

16

Commercial mortgage-backed securities

 

1

 

1

Other asset-backed securities

 

4

 

4

Equity securities:

 

 

 

 

Equity securities held for proprietary investment purposes

917

572

 

1 489

Derivative financial instruments

–9

 

 

–9

Real estate

129

9

596

734

Other assets

19

79

142

240

Total assets at fair value

1 090

3 808

738

5 636

Cash

82

–4

 

78

Total plan assets

1 172

3 804

738

5 714

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:

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2014
USD millions

Real estate

Other assets

Total

Balance as of 1 January

631

132

763

Realised/unrealised gains/losses:

 

 

 

Relating to assets still held at the reporting date

 

5

5

Relating to assets sold during the period

 

14

14

Purchases, issuances and settlements

13

–4

9

Impact of foreign exchange movements

–66

–8

–74

Closing balance as of 31 December

578

139

717

Download

2015
USD millions

Real estate

Other assets

Total

Balance as of 1 January

578

139

717

Realised/unrealised gains/losses:

 

 

 

Relating to assets still held at the reporting date

10

–13

–3

Relating to assets sold during the period

 

17

17

Purchases, issuances and settlements

12

6

18

Impact of foreign exchange movements

–4

–7

–11

Closing balance as of 31 December

596

142

738

Expected contributions and estimated future benefit payments

The employer contributions expected to be made in 2016 to the defined benefit pension plans are USD 158 million and to the post-retirement benefit plan are USD 16 million.

As of 31 December 2015, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows:

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USD millions

Swiss plan

Foreign plans

Other benefits

Total

2016

204

74

16

294

2017

197

78

16

291

2018

196

81

17

294

2019

195

84

18

297

2020

191

86

19

296

Years 2021–2025

905

462

104

1471

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 2014 and in 2015 was USD 79 million and USD 77 million, respectively.