Risk management – Overview

In 2012, Swiss Re maintained its strong capitalisation – demonstrating its ability to efficiently manage risks and optimise capital within the Group.

Sound risk management enables us to optimise our strategic planning, capital allocation and risk-taking, and align them to Swiss Re’s Group-wide risk tolerance.

We continue to hold excess capital under all relevant capital adequacy requirements, including Standard & Poor’s AA rating level, Group Solvency I, and the Swiss Solvency Test (SST). We continue to follow and implement the requirements of the forthcoming Solvency II regime for our European entities, which are broadly in line with SST. Swiss Re’s capital management aims to ensure our ability to continue operations following an extremely adverse year of losses from insurance and/or financial market events.

Swiss Re’s Risk Management function is core to our business model. Risk Management is involved in all of Swiss Re’s risk-taking activities and is mandated and structured to support and control both the Group and the Business Units. It thus ensures that our strategic planning and limit setting conforms to our Group-wide risk tolerance. In addition, our risk experts are involved in capital cost assessment, large transaction approvals, portfolio monitoring and performance measurement. Risk Management is embedded throughout our business through dedicated risk functions and CROs for each Business Unit. These functions have a strong mandate to challenge the business and their independence is maintained by a direct reporting line to the Group CRO. As part of our Group-wide Risk management, they apply a consistent Enterprise Risk Management approach and ensure a fully integrated view of risk and thus support long-term stability and growth.

Swiss Re’s internal risk model provides a meaningful assessment of the risks to which the company is exposed and is an important tool for managing our business. It determines our capital requirements for internal purposes and forms the basis for regulatory reporting under the SST. The model also provides the basis for Swiss Re’s capital cost allocation in its Economic Value Management (EVM) framework, which is used for pricing, profitability evaluation and compensation decisions (see chapter Economic Value Management for further information on EVM). We continuously refine and update our model and its parameters to reflect our experience, changes in the risk environment and advances in best practice.