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 Management function 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 stages. Underwriting systems across the Group provide timely information on risks assumed and capacity committed.

Insurance risk stress tests: Single event losses with a 200-year return period1


Pre-tax impact on economic capital in USD billions, as of 31 December



Change in %

Natural catastrophes





Single event losses with a 200-year return period show for example that there is a 0.5% probability over the next year that the loss from a single Atlantic hurricane event could exceed USD 4.5 billion. The impact excludes earned premiums for the business written and reinstatement premiums that could be triggered as a result of the event.

Atlantic hurricane




Californian earthquake




European windstorm




Japanese earthquake








Life insurance




Lethal pandemic




Property and casualty riskChange from 2012 99% Tail VaR


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 property and casualty 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 2013

Swiss Re’s property and casualty risk increased by 17% in 2013. Some natural catastrophe risks increased significantly above that while other risks, like those associated with reserves and general liability, moved to a lesser extent thereby reducing the overall impact on property and casualty 99% Tail VaR.

The expiry of a major quota share retrocession agreement, which was only partly replaced by other hedges, was a key driver of the overall increase in risk.

The strong increase in the natural catastrophe stress tests shown in the table above were mainly driven by a reduction in effective hedging, some shifts in business mix from proportional to non-proportional business growth as well as parameter updates for Atlantic hurricane and Californian earthquake.


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 (such as the current Successor and Mythen cat bond programmes).

Life and health riskChange from 2012 99% Tail VaR


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 2013

The decrease by 10% in Swiss Re’s life and health risk in 2013 was mainly driven by the rise in long-term interest rates throughout the year. Mortality trend risk, a major component of the life and health business, decreased significantly as the long time horizon of mortality trend risk means that changes in interest rates impact the economic value of future liabilities. Updating the mortality and lapse assumptions used in the internal risk model, to take into account our most recent experience, further reduced life and health 99% Tail VaR.

These developments are only partially offset by the increase in new business for both life and health portfolios. Lethal pandemic risk, the other major contributor to life and health risk, increased (see above table) mostly due to new business growth in group life insurance. Group life business, unlike individual life business, is renewed annually and is exposed to the shock of a lethal pandemic, but is not exposed to mortality trend risk which develops over time.


We have an aggregate Group limit governing the acceptance of all life and health risks, with separate individual limits for mortality, longevity, and lethal pandemic risk.

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.

As 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 and also issue insurance-linked securities to reduce peak exposures.