Solvency

The Company uses Swiss Re’s internal risk model to determine the economic capital required to support the risks on the Company’s books, as well as to allocate risk-taking capacity to the different lines of business. The model also provides the basis for capital cost allocation in Swiss Re’s EVM framework, which is used for pricing, profitability evaluation and compensation decisions. In addition to these internal purposes, the model is used to determine regulatory capital requirements under economic solvency frameworks such as the SST and Solvency II (see Governance and risk management for further details).

In November 2017, FINMA approved Swiss Re’s internal model and its components for SST reporting purposes under their revised model review process. The approval included three major model changes implemented since SST 2017:

  • Credit risk – New approach for calculating correlation parameters
  • Asbestos risk – Refined and expanded model
  • Calculation of MVM of subsidiaries – Methodology change

Solvency

In SST 2018, the Company’s SST ratio increases to 202%, 64 percentage points higher than in SST 2017.

The Company is an internal reinsurer of the Life Capital Business Unit. It is a Swiss-regulated entity, which was created in 2016 and acts primarily as an internal risk pooling vehicle, optimising the capital base of Life Capital. It also provides Life Capital open-book businesses with capital support for their new business.

SST risk-bearing capital

The SST RBC is derived from the SST NAV, which represents the difference between the market-consistent value of assets and liabilities, according to the valuation methodology prescribed under SST. For this purpose, the SST NAV is adjusted for the items in the table below:

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USD millions

SST 2017

SST 2018

Change

SST net asset value

981

1 154

173

Deductions

 

 

 

SST core capital

981

1 154

173

Supplementary capital

 

 

 

SST risk-bearing capital

981

1 154

173

Market value margin

231

155

–76

SST risk-bearing capital – market value margin

750

999

249

The increase in SST NAV reflects investment contributions and capital movements, partly offset by a negative underwriting contribution:

  • A negative experience variance on in-force business leads to a negative underwriting contribution; this effect is partly offset by the implementation of a new intra-group transaction with the Canadian branch of Swiss Reinsurance Company Ltd.
  • The investment contribution is driven by positive impact of interest rate movements and spreads tightening.
  • Capital injections into the Company lead to a positive capital contribution.

There are no SST deductions for the Company.

There is no supplementary capital for the Company.

A description of the change in MVM, which represents the capital costs for the run-off period, is provided together with the SST TC comments below.

SST target capital

In order to derive SST TC, total risk is adjusted for the line item Other impacts as shown in the table below:

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USD millions

SST 2017

SST 2018

Change

Total risk

531

528

–3

Other impacts

244

121

–123

SST target capital

775

649

–126

Market value margin

231

155

–76

SST target capital – market value margin

544

494

–50

SST TC decreases by USD 126 million to USD 649 million. While total risk remains broadly unchanged (see Risk profile for details), the decrease is primarily driven by a decrease in other impacts.

Other impacts mainly reflect run-off capital costs (MVM) – which are deducted again from the SST TC to calculate the ratio – as well as the impact from business development over the forecasting period and requirements from FINMA that are not included in total risk as they are not consistent with Swiss Re’s own risk view.

The decrease in MVM results from a more granular and thus more accurate calculation of run-off capital cost.