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.

“In the course of our 153 years of experience, we have shown an undisputed ability to operate successfully in ever-changing and highly challenging situations.”

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 them both the viewpoint of the Board of Directors and my personal assessment. We on the Board of Directors address this matter on a continual basis, of course, and discuss the relevant questions intensively and thoroughly. In this context, we see four main topics taking centre stage in the coming years — on top of the current negative price cycles in the property and casualty businesses:

• 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

In the second half of 2016, the situation was greatly aggravated in many respects.

In my view, the geopolitical environment is becoming less predictable, with the UK’s vote to leave the EU (Brexit) and the US presidential election showing how wrong ‘conventional wisdom’ can be. Other geopolitical circumstances that have been taken as a given for years seem to now be in question. Those aspects include security alliances, European integration, global trade, even globalisation in general, and the international regulation of financial markets and their institutions, including insurance regulation — not to mention the place of liberal values and the recognition of human rights.

Digitalisation, which is often assumed to be the new industrial revolution, is now also transforming the service sector — including the business model of the insurance industry. It is difficult to predict exactly where this is leading. However, it is certain that insurance risks will change — to some extent dramatically; the distribution of insurance products will be revolutionised and the development of relevant services will take a completely different form. In this context, banks are relatively progressive and have partly reinvented themselves already in recent years; yet, such changes in the insurance industry may potentially have a much more severe impact.

Since the financial crisis, central banks have played an extraordinarily dominant role from a historical perspective, to the extent that they were sometimes the ‘only game in town’. However, the end of this period seems foreseeable now. Politicians are making every effort to get events under control and exert more influence over economic policy. But, it remains unclear how this paradigm shift will develop and how much upheaval it will cause. As major institutional investors, insurance companies are on the front line of this development in my view.

Let’s talk about climate change: global climate change is a fact, even if it is readily questioned by politicians in the so-called ‘post-factual’ era. While the political discussion mainly centres on questions of causation, the insurance industry, and reinsurers in particular, are concerned with providing solutions for both the prevention and management of losses.

Against this backdrop, we focus on closing what is known as the ‘protection gap’, referring to the huge global discrepancy between uninsured and unprotected risks, on the one hand, and the potentially high economic losses on the other. For this, we rely on cooperation with political authorities and international organisations. If these parties are impeded by a political discourse that does not focus on solutions, or if they are even prevented from cooperating, this doesn’t bode well — certainly for the people affected.

Swiss Re can thrive even under complex conditions

Our main strategic task is to decide which risks we want to underwrite and hold on our books, and under which conditions. In other words, how much capital are we willing to invest to assume certain risks? This is capital that you, as Swiss Re shareholders, provide to us.

The uncertainties outlined make this task increasingly challenging. This is particularly true at a time when the regulatory environment in many parts of the world is diverging in an uncoordinated manner, leading to greater unpredictability. Meanwhile, the spectre of protectionist measures may return and suddenly become politically acceptable again, with the potential of provoking quick and sharp changes in monetary policy. If the political consensus on how to handle environmental risks also breaks down and the traditional business model comes under fundamental attack, institutions such as Swiss Re will be the best-positioned in the global insurance market when it comes to tackling these complex challenges.

In the course of our 153 years of experience, we have shown an undisputed ability to operate successfully in ever-changing and highly challenging situations. Just think of the problems that our forerunners had to deal with in the 20th century alone. The organisation of the Group is set up in a way that we can operate as a local competitor in key markets — this has been the case not only recently, but for a very long time. Swiss Re has a strong footing in its markets and risk segments: we have experienced local staff across the globe, and a highly loyal client base in virtually every country in the world. Few competitors can offer anything similar.

Swiss Re is very strong in terms of capital, which allows us to thrive also under increasingly volatile market conditions. And we have designed our strategic asset allocation taking into account potential upheaval in the financial markets. We remain aware that the extraordinary monetary policy environment was and is not sustainable and the Board of Directors, and in particular the Investment Committee, keep a very close eye on market developments and analyse the relevant trends in coordination with the Group Chief Investment Officer and his team. Hence, we are confident that Swiss Re is ideally positioned to respond quickly and flexibly to respective changes.

In recent years, we have also purposefully set up the Group to allow for an agile response to fundamental shifts in primary-market structures. These measures were intended to ensure that, even in the event of changes in the primary insurance markets, we always have access to risks that we wish to underwrite and where we can invest our shareholders’ capital in the most profitable way.

To a large extent this is already possible thanks to our investment in this very flexibility in recent years, as demonstrated by the organisation of our two Business Units Corporate Solutions and Life Capital.

Our activities in high growth markets of Asia, Africa and Latin America are primarily geared towards closing the aforementioned ‘protection gap’ in close collaboration with our clients. In these markets, which face above-average exposure to natural hazards, insurance coverage compared to potential economic losses is highly inadequate.

In addition to all these strategic challenges, we also need to address the price cycle in the Property & Casualty Reinsurance markets. Our Group CEO, Christian Mumenthaler, and the CEOs of the individual Business Units, will address this in greater detail in this Annual Report. The Board of Directors supports the long-term underwriting policy of the Group Executive Committee, the partial withdrawal from conventional business that does not meet our pricing standards, and the stronger focus on larger individual transactions, which are of great strategic importance for the clients concerned. We monitor the performance of these individual transactions very carefully over their entire life cycle.

While we decisively invest in our business and actively address the challenges mentioned, we stay committed — in the context of our capital management priorities — to return capital to you if we do not identify any better investment opportunities. For this reason, we will increase the regular dividend to CHF 4.85 and, at the upcoming Annual General Meeting, we will again propose a share buy-back programme of up to CHF 1 billion.

The Swiss Re Institute — research, knowledge and expertise set us apart

We aim to shape, anticipate and understand the future; with research, knowledge and expertise, we can offer our clients added value that helps them succeed. To keep expanding our leading position as a ‘risk knowledge company’ and strengthen this competitive advantage, we have created the Swiss Re Institute — a very important milestone when it comes to preparing Swiss Re for the future. In the Swiss Re Institute, we are pooling our extensive research and development activities and will

• coordinate our diverse projects and research activities more efficiently
• put our research and development to targeted use for forward-looking capital allocation; ie, use our research even more effectively to aid decisions about the risks in which we want to invest, and
• offer our clients and partners research-based assistance, providing sound support for their business decisions.

Our knowledge and its practical application to our business have been key to our success for the last 153 years. In a world that is changing ever more rapidly, a lead based on outstanding research and development will give us the crucial advantage necessary to identify and assess trends early on. We are convinced that the Swiss Re Institute will be a decisive factor setting Swiss Re apart from competitors. The Swiss Re Institute will in our view undoubtedly make a key contribution to the further improvement of revenue from our risk portfolios.

The challenges for the coming years must not be underestimated, but our strategic priorities are clear, and we are well-positioned to thrive, shape the industry, and provide our clients with proficient and loyal support even in rocky times. It is a privilege to have worked for so long with many of our clients, in some cases for over 100 years now. Day after day, our clients motivate us to put our convictions into practice and strive to make the world more resilient on a shared and sustainable basis.

Let me end with some personnel announcements. We are pleased to be able to propose the election of Jay Ralph, Joerg Reinhardt and Jacques de Vaucleroy to the Board of Directors at our upcoming Annual General Meeting. We believe their international experience and diverse backgrounds will be an important asset for Swiss Re. On behalf of my colleagues, I would like to thank Carlos E. Represas, who has decided not to stand for re-election after serving on the Board since 2010.

Finally I regret to announce that Matthias Weber, currently our Group Chief Underwriting Officer, will step down from his current role as of 30 June 2017 to focus on his family and begin a new chapter in his life. Throughout his 25-year career with Swiss Re, Matthias Weber has consistently stood for core Swiss Re strengths such as disciplined underwriting and a focus on the long term. The Board of Directors and I will miss his wise counsel, tireless commitment and good humour. We look forward to continuing our relationship with Matthias Weber in whatever form suits him.

The only consolation is that we have a strong pipeline of talent to draw from. Edouard Schmid, currently Head Property & Specialty Reinsurance, is the ideal candidate to take on the role, especially due to his strong underwriting background in various lines of business across Reinsurance and Corporate Solutions, in catastrophe modelling and in a number of markets. He was also a key contributor in developing Insurance Linked Securities. I have every confidence that Edouard Schmid will succeed in the role and we wish Matthias Weber all the best for the future.

On behalf of the Board of Directors, I would like to thank our 14 000 employees around the world, in all areas of the company, for their commitment — once again, it is them who drive Swiss Re’s success.

Many thanks to you, valued shareholders, for your support and for placing your confidence in us to lead your company successfully into the future.

Zurich, 23 February 2017

Walter B. Kielholz
Chairman of the Board of Directors