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6 Debt and contingent capital instruments

The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines short-term debt as debt having a maturity at the balance sheet date of not greater than one year and long-term debt as having a maturity of greater than one year. Interest expense is classified accordingly.

The Groupʼs debt as of 31 December was as follows:

The Group uses debt for general corporate purposes and to fund discrete pools of operational leverage and financial intermediation assets. Operational leverage and financial intermediation are subject to asset and liability matching, resulting in little to no risk that the assets will be insufficient to service and settle the liabilities. Debt used for operational leverage and financial intermediation is treated as operational debt and excluded by the rating agencies from financial leverage calculations. Certain debt positions are limited recourse, meaning the debtorsʼ claims are limited to assets underlying the financing. As of 31 December 2012 and 2013, debt related to operational leverage and financial intermediation amounted to USD 9.9 billion (thereof USD 6.1 billion limited recourse) and USD 9.0 billion (thereof USD 6.1 billion limited recourse), respectively.

Maturity of long-term debt

As of 31 December, long-term debt as reported above had the following maturities:

Senior long-term debt

Subordinated long-term debt

Interest expense on long-term debt and contingent capital instruments

Interest expense on long-term debt for the years ended 31 December was as follows:

Interest expense on contingent capital instruments was USD 56 million and USD 67 million for the years ended 31 December 2012 and 2013, respectively.

Long-term debt issued in 2013

In March 2013, Swiss Reinsurance Company Ltd issued subordinated contingent write-off loan notes with a scheduled maturity in 2024. The instrument has a face value of USD 750 million, with a fixed coupon of 6.375% per annum until the optional redemption date (1 September 2019). The full principal amount of the instrument is mandatorily written off if Swiss Reinsurance Company Ltd reports a Swiss Solvency Test (SST) ratio of less than 125% to the Swiss Financial Market Supervisory Authority (FINMA).

In October 2013, Swiss Reinsurance Company Ltd issued 32-year subordinated contingent write-off securities with a scheduled maturity in 2045. The instrument has a face value of CHF 175 million, with a fixed coupon of 7.5% per annum until the first optional redemption date (1 September 2020). The full principal amount of the instrument will be written off upon the earlier to occur of: 1) Swiss Reinsurance Company Ltd reporting a Swiss Solvency Test (SST) ratio of less than 135% to the Swiss Financial Market Supervisory Authority (FINMA), or 2) the occurrence of an Atlantic hurricane which causes insured industry losses defined in an USD billion amount exceeding those of a 1-in-200 year event, subject to an annual reset assessment to adjust for changes in insured values, while neutralising any impact due to model changes.

Contingent capital instruments issued in 2012

In February 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated instrument with stock settlement. The instrument has a face value of CHF 320 million, with a fixed coupon of 7.25% per annum until the first optional redemption date (1 September 2017).

In March 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated capital instrument with stock settlement. The instrument has a face value of USD 750 million, with a fixed coupon of 8.25% per annum until the first optional redemption date (1 September 2018).

Both instruments may be converted, at the option of the issuer, into Swiss Re Ltd shares at any time through at market conversion using the retrospective five-day volume weighted average share price with a 3% discount or within six months following a solvency event at a pre-set floor price (CHF 26 for the instrument with face value of CHF 320 million and USD 32 for the instrument with face value of USD 750 million, respectively). These instruments are referred to in these financial statements as “contingent capital instruments”.