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Insurance risk

Insurance risk management includes overseeing risk-taking activities, as well as ensuring that an appropriate risk governance framework is defined and operated.

The risk management function is embedded in our business process. Before any business is written, Risk Management is involved in annual business planning; it also reviews underwriting guidelines, pricing models, and large individual transactions. Total risk exposure is monitored against agreed risk limits.

Swiss Re’s Risk and Actuarial Management function sets and monitors reserving levels; it provides information to the risk-taking functions on trends to ensure appropriate pricing. Regular internal risk and issue reporting ensures transparency at all levels. Underwriting systems across the Group provide timely information on assumed risks and committed capacity.

Insurance risk stress tests: Single events with a 200-year return period


Pre-tax impact on economic capital




in USD billions, as of 31 December



Change in %

Natural catastrophes




Atlantic hurricane




Californian earthquake




European windstorm




Japanese earthquake








Life insurance




Lethal pandemic




Property and casualty risk Change from 2011 +1 %


Property and casualty (P&C) insurance risk arises from the coverage that Swiss Re provides for Property, Liability, Motor and Accident risks through its Reinsurance and Corporate Solutions Business Units, as well as for specialty risks such as Engineering, Aviation and Marine. We classify and model our P&C risks in three categories at Group and Business Unit level: natural catastrophes (eg, earthquakes and windstorms), man-made risks (eg, liability and fire) and geopolitical risks (eg, terrorism). We also monitor and manage underlying risks inherent in the business we underwrite, such as inflation or uncertainty in pricing and reserving.

Developments in 2012

Swiss Re’s overall property and casualty risk increased slightly in 2012 (see table in chapter Risk assessment). Business growth in most natural catastrophe risks was largely offset by a reduction in costing and reserving exposure as well as decreases in large US catastrophe risks.

The table above shows Swiss Re’s exposure to a set of major natural catastrophe scenarios, net of retrocession and securitisation. These risk exposures take into account the fact that such a scenario will trigger claims in other lines of business in addition to the most affected property line.

Swiss Re’s Japanese earthquake scenario rose by 13%, mainly reflecting business growth, which was partially offset by a reduction in aftershock seismicity risk, which had increased following the high-magnitude Tohoku earthquake in March 2011. Swiss Re’s Atlantic hurricane exposure decreased by 18% due to additional hedging in anticipation of the expiry of the Berkshire Hathaway quota share on 31 December 2012. The 17% decrease in the Californian earthquake exposure was mainly due to business reduction in 2012.


Swiss Re writes property and casualty business using the four-eye principle across all Business Units: every transaction must be approved by at least two authorised individuals - with the exception of single risk acceptances, which can be authorised by one underwriter with the four-eye principle taken care of by spot checks after acceptance. Each underwriter is assigned an individual underwriting authority based on technical skills and experience; any business exceeding this authority triggers a well-defined escalation process that extends up to the Group Products and Limits Committee.

Large individual transactions that could materially affect the Group’s and Business Units’ risk exposure require independent review and sign-off by Risk Management before they can be authorised. This is part of our three-signature approval process (involving Swiss Re’s Underwriting, Client Markets, and Risk Management functions) that establishes the accountability of each of the parties for significant transactions. We monitor accumulated exposure to single risks or to an underlying risk factor (such as Californian earthquake) on a Group-wide basis.

We further manage our risk by external retrocession, risk swaps, or by transferring risk to capital markets through insurance-linked securities. The quota share provided by Berkshire Hathaway, which expired on 31 December 2012, transferred 20% of our property and casualty risk covering all business written or renewed between 1 January 2008 and 31 December 2012. In addition, we have an adverse development cover (ADC) with Berkshire Hathaway on the Group’s total property and casualty reserves for 2008 and prior years. To reduce peak natural catastrophe exposure we use insurance-linked securities, such as the Successor and Mythen cat bond programmes.

Life and health risk Change from 2011 +4%


Swiss Re’s life and health insurance risk arises from the business we take on when providing mortality (death), longevity (annuity), and morbidity (illness and disability) coverage through both the Reinsurance Business Unit, and when acquiring run-off business through the Admin Re® Business Unit. In addition to potential shock events, such as a severe pandemic, we monitor and manage underlying risks inherent in life and health contracts (such as pricing and reserving risks) that arise when mortality, morbidity, or lapse experience deviates from expectations. The investment risk that is part of some life and health business is monitored and managed as financial market risk.

Developments in 2012 section

Our life and health risk increased by 4% in 2012 (see table in chapter Risk assessment) mainly due to higher mortality trend risk. Business growth was partially offset by the sale of the Admin Re® US business. Longevity risk increased through new deals (see example in chapter Reinsurance) but as it is negatively correlated with mortality trend risk it reduced the overall life and health risk.

The table above shows that Swiss Re’s exposure to a severe lethal pandemic remained stable. This is mainly due to the issuance of extreme mortality bonds in 2012 which offset business growth. These bonds are part of an established Vita programme, used to manage our lethal pandemic exposure.


We have an aggregate Group limit governing the acceptance of all life and health risks, with separate individual limits for mortality and longevity exposures. At the Business Unit level, acceptance of life and health risks is governed by aggregated Business Unit limits. Local teams can write reinsurance within their allocated capacity and clearly defined boundaries, such as per-life retention limits for individual business. Market exposure limits are in place for catastrophe and stop-loss business. We pay particular attention to accumulation risk in densely populated areas and apply limits for individual buildings. Following a process similar to the one in property and casualty, all large, complex, or unusual transactions are reviewed and require individual approval from Products Underwriting, Client Management, and Risk Management. We manage the risk exposure of Swiss Re’s life and health book by external retrocession. In addition, insurance-linked securities are used to reduce peak exposures.