14 Benefit plans
Defined benefit pension plans and post-retirement benefits
The Group sponsors various funded defined benefit pension plans. Employer contributions to the plans are charged to income on a basis which recognises the costs of pensions over the expected service lives of employees covered by the plans. The Group’s funding policy for these plans is to contribute annually at a rate that is intended to maintain a level percentage of compensation for the employees covered. A full valuation is prepared at least every three years.
The Group also provides certain healthcare and life insurance benefits for retired employees and their dependants. Employees become eligible for these benefits when they become eligible for pension benefits.
The measurement date of these plans is 31 December for each year presented.
Download |
2014 |
Swiss |
Foreign |
Other |
Total |
Benefit obligation as of 1 January |
3 531 |
2 305 |
341 |
6 177 |
Service cost |
100 |
8 |
5 |
113 |
Interest cost |
76 |
98 |
12 |
186 |
Amendments |
–90 |
1 |
|
–89 |
Actuarial gains/losses |
587 |
226 |
52 |
865 |
Benefits paid |
–129 |
–75 |
–17 |
–221 |
Employee contribution |
27 |
|
|
27 |
Acquisitions/disposals/additions |
|
–4 |
|
–4 |
Effect of settlement, curtailment and termination |
1 |
–24 |
|
–23 |
Effect of foreign currency translation |
–418 |
–146 |
–22 |
–586 |
Benefit obligation as of 31 December |
3 685 |
2 389 |
371 |
6 445 |
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of 1 January |
3 661 |
2 245 |
0 |
5 906 |
Actual return on plan assets |
281 |
266 |
|
547 |
Company contribution |
101 |
91 |
17 |
209 |
Benefits paid |
–129 |
–76 |
–17 |
–222 |
Employee contribution |
27 |
|
|
27 |
Acquisitions/disposals/additions |
|
|
|
0 |
Effect of settlement, curtailment and termination |
1 |
–23 |
|
–22 |
Effect of foreign currency translation |
–407 |
–149 |
|
–556 |
Fair value of plan assets as of 31 December |
3 535 |
2 354 |
0 |
5 889 |
Funded status |
–150 |
–35 |
–371 |
–556 |
Download |
2015 |
Swiss |
Foreign |
Other |
Total |
Benefit obligation as of 1 January |
3 685 |
2 389 |
371 |
6 445 |
Service cost |
111 |
8 |
5 |
124 |
Interest cost |
42 |
79 |
10 |
131 |
Amendments |
|
|
|
0 |
Actuarial gains/losses |
236 |
–67 |
–2 |
167 |
Benefits paid |
–189 |
–74 |
–16 |
–279 |
Employee contribution |
26 |
|
|
26 |
Acquisitions/disposals/additions |
|
2 |
|
2 |
Effect of settlement, curtailment and termination |
2 |
|
|
2 |
Effect of foreign currency translation |
–36 |
–131 |
–5 |
–172 |
Benefit obligation as of 31 December |
3 877 |
2 206 |
363 |
6 446 |
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets as of 1 January |
3 535 |
2 354 |
0 |
5 889 |
Actual return on plan assets |
36 |
7 |
|
43 |
Company contribution |
94 |
85 |
16 |
195 |
Benefits paid |
–189 |
–74 |
–16 |
–279 |
Employee contribution |
26 |
|
|
26 |
Acquisitions/disposals/additions |
|
1 |
|
1 |
Effect of settlement, curtailment and termination |
2 |
|
|
2 |
Effect of foreign currency translation |
–25 |
–138 |
|
–163 |
Fair value of plan assets as of 31 December |
3 479 |
2 235 |
0 |
5 714 |
Funded status |
–398 |
29 |
–363 |
–732 |
Amounts recognised in “Other assets” and “Accrued expenses and other liabilities” in the Group’s balance sheet as of 31 December were as follows:
Download |
2014 |
Swiss |
Foreign |
Other |
Total |
Non-current assets |
|
208 |
|
208 |
Current liabilities |
|
–3 |
–15 |
–18 |
Non-current liabilities |
–150 |
–240 |
–356 |
–746 |
Net amount recognised |
–150 |
–35 |
–371 |
–556 |
Download |
2015 |
Swiss |
Foreign |
Other |
Total |
Non-current assets |
|
232 |
|
232 |
Current liabilities |
|
–3 |
–15 |
–18 |
Non-current liabilities |
–398 |
–200 |
–348 |
–946 |
Net amount recognised |
–398 |
29 |
–363 |
–732 |
Amounts recognised in accumulated other comprehensive income, gross of tax, as of 31 December were as follows:
Download |
2014 |
Swiss |
Foreign |
Other |
Total |
Net gain/loss |
896 |
407 |
–45 |
1 258 |
Prior service cost/credit |
–87 |
2 |
–77 |
–162 |
Total |
809 |
409 |
–122 |
1 096 |
Download |
2015 |
Swiss |
Foreign |
Other |
Total |
Net gain/loss |
1 133 |
384 |
–43 |
1 474 |
Prior service cost/credit |
–78 |
2 |
–67 |
–143 |
Total |
1 055 |
386 |
–110 |
1 331 |
Components of net periodic benefit cost
The components of pension and post-retirement cost for the years ended 31 December were as follows:
Download |
2014 |
Swiss |
Foreign |
Other |
Total |
Service cost (net of participant contributions) |
100 |
8 |
5 |
113 |
Interest cost |
76 |
98 |
12 |
186 |
Expected return on assets |
–112 |
–111 |
|
–223 |
Amortisation of: |
|
|
|
|
Net gain/loss |
43 |
24 |
–12 |
55 |
Prior service cost |
–5 |
–3 |
–11 |
–19 |
Effect of settlement, curtailment and termination |
1 |
–2 |
|
–1 |
Net periodic benefit cost |
103 |
14 |
–6 |
111 |
Download |
2015 |
Swiss |
Foreign |
Other |
Total |
Service cost (net of participant contributions) |
111 |
8 |
5 |
124 |
Interest cost |
42 |
79 |
10 |
131 |
Expected return on assets |
–113 |
–95 |
|
–208 |
Amortisation of: |
|
|
|
|
Net gain/loss |
76 |
22 |
–4 |
94 |
Prior service cost |
–9 |
|
–10 |
–19 |
Effect of settlement, curtailment and termination |
2 |
|
|
2 |
Net periodic benefit cost |
109 |
14 |
1 |
124 |
Other changes in plan assets and benefit obligations recognised in other comprehensive income for the years ended 31 December were as follows:
Download |
2014 |
Swiss |
Foreign |
Other |
Total |
Net gain/loss |
418 |
71 |
52 |
541 |
Prior service cost/credit |
–90 |
–3 |
|
–93 |
Amortisation of: |
|
|
|
|
Net gain/loss |
–43 |
–24 |
12 |
–55 |
Prior service cost |
5 |
3 |
11 |
19 |
Effect of settlement, curtailment and termination |
|
|
|
0 |
Exchange rate gain/loss recognised during the year |
|
–25 |
|
–25 |
Total recognised in other comprehensive income, gross of tax |
290 |
22 |
75 |
387 |
Total recognised in net periodic benefit cost and other comprehensive income, gross of tax |
393 |
36 |
69 |
498 |
Download |
2015 |
Swiss |
Foreign |
Other |
Total |
Net gain/loss |
313 |
21 |
–2 |
332 |
Prior service cost/credit |
|
|
|
0 |
Amortisation of: |
|
|
|
|
Net gain/loss |
–76 |
–22 |
4 |
–94 |
Prior service cost |
9 |
|
10 |
19 |
Effect of settlement, curtailment and termination |
|
|
|
0 |
Exchange rate gain/loss recognised during the year |
|
–22 |
|
–22 |
Total recognised in other comprehensive income, gross of tax |
246 |
–23 |
12 |
235 |
Total recognised in net periodic benefit cost and other comprehensive income, gross of tax |
355 |
–9 |
13 |
359 |
The estimated net loss and prior service credit for the defined benefit pension plans that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2016 are USD 87 million and USD 9 million, respectively. The estimated net gain and prior service credit for the other defined post-retirement benefits that will be amortised from accumulated other comprehensive income into net periodic benefit cost in 2016 are USD 4 million and USD 9 million, respectively.
The accumulated benefit obligation (the current value of accrued benefits excluding future salary increases) for pension benefits was USD 5 980 million and USD 6 016 million as of 31 December 2014 and 2015, respectively.
Pension plans with an accumulated benefit obligation in excess of plan assets as of 31 December were as follows:
Download |
USD millions |
2014 |
2015 |
Projected benefit obligation |
4 771 |
4 883 |
Accumulated benefit obligation |
4 722 |
4 843 |
Fair value of plan assets |
4 379 |
4 283 |
Principal actuarial assumptions
Download |
|
Swiss plan |
|
Foreign plans weighted average |
|
Other benefits weighted average |
|||
|
|
|
|
|
|
|
|
|
|
2014 |
2015 |
|
2014 |
2015 |
|
2014 |
2015 |
Assumptions used to determine obligations at the end of the year |
|
|
|
|
|
|
|
|
Discount rate |
1.1% |
0.8% |
|
3.5% |
3.7% |
|
2.7% |
2.7% |
Rate of compensation increase |
2.3% |
2.0% |
|
2.9% |
2.9% |
|
2.1% |
2.1% |
|
|
|
|
|
|
|
|
|
Assumptions used to determine net periodic pension costs for the year ended |
|
|
|
|
|
|
|
|
Discount rate |
2.3% |
1.1% |
|
4.4% |
3.5% |
|
3.5% |
2.7% |
Expected long-term return on plan assets |
3.3% |
3.3% |
|
5.2% |
4.3% |
|
|
|
Rate of compensation increase |
2.3% |
2.3% |
|
3.4% |
2.9% |
|
2.1% |
2.1% |
|
|
|
|
|
|
|
|
|
Assumed medical trend rates at year end |
|
|
|
|
|
|
|
|
Medical trend – initial rate |
|
|
|
|
|
|
6.0% |
6.1% |
Medical trend – ultimate rate |
|
|
|
|
|
|
4.5% |
4.6% |
Year that the rate reaches the ultimate trend rate |
|
|
|
|
|
|
2019 |
2020 |
The expected long-term rates of return on plan assets are based on long-term expected inflation, interest rates, risk premiums and targeted asset category allocations. The estimates take into consideration historical asset category returns.
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one percentage point change in assumed healthcare cost trend rates would have had the following effects for 2015:
Download |
USD millions |
1 percentage point increase |
1 percentage point decrease |
Effect on total of service and interest cost components |
1 |
–1 |
Effect on post-retirement benefit obligation |
26 |
–22 |
Plan asset allocation by asset category
The actual asset allocation by major asset category for defined benefit pension plans as of the respective measurement dates in 2014 and 2015 was as follows:
Download |
|
Swiss plan allocation |
|
Foreign plans allocation |
||||
|
|
|
|
|
|
|
|
|
2014 |
2015 |
Target allocation |
|
2014 |
2015 |
Target allocation |
Asset category |
|
|
|
|
|
|
|
Equity securities |
28% |
26% |
25% |
|
29% |
26% |
26% |
Debt securities |
46% |
47% |
47% |
|
66% |
68% |
68% |
Real estate |
18% |
21% |
20% |
|
0% |
0% |
1% |
Other |
8% |
6% |
8% |
|
5% |
6% |
5% |
Total |
100% |
100% |
100% |
|
100% |
100% |
100% |
Actual asset allocation is determined by a variety of current economic and market conditions and considers specific asset class risks.
Equity securities include Swiss Re common stock of USD 6 million (0.1% of total plan assets) and USD 6 million (0.1% of total plan assets) as of 31 December 2014 and 2015, respectively.
The Groupʼs pension plan investment strategy is to match the maturity profiles of the assets and liabilities in order to reduce the future volatility of pension expense and funding status of the plans. This involves balancing investment portfolios between equity and fixed income securities. Tactical allocation decisions that reflect this strategy are made on a quarterly basis.
Assets measured at fair value
For a description of the different fair value levels and valuation techniques see Note 8 “Fair value disclosures”.
Certain items reported as pension plan assets at fair value in the following table are not within the scope of Note 8, namely two positions: real estate and an insurance contract.
Real estate positions classified as level 1 and level 2 are exchange traded real estate funds where a market valuation is readily available. Real estate reported on level 3 is property owned by the pension funds. These positions are accounted for at the capitalised income value. The capitalisation based on sustainable recoverable earnings is conducted at interest rates that are determined individually for each property, based on the property’s location, age and condition. If properties are intended for disposal, the estimated selling costs and taxes are recognised in provisions. Sales gains or losses are allocated to income from real estate when the contract is concluded.
The fair value of the insurance contract is based on the fair value of the assets backing the contract.
Other assets classified within level 3 mainly consist of private equity investments valued with the same methodology as mentioned in Note 8.
As of 31 December, the fair values of pension plan assets by level of input were as follows:
Download |
2014 |
Quoted prices in active markets for identical assets |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total |
Assets |
|
|
|
|
Fixed income securities: |
|
|
|
|
Debt securities issued by the US government and government agencies |
9 |
146 |
|
155 |
Debt securities issued by non-US governments and government agencies |
|
890 |
|
890 |
Corporate debt securities |
|
2 150 |
|
2 150 |
Residential mortgage-backed securities |
|
22 |
|
22 |
Commercial mortgage-backed securities |
|
2 |
|
2 |
Other asset-backed securities |
|
1 |
|
1 |
Equity securities: |
|
|
|
|
Equity securities held for proprietary investment purposes |
976 |
684 |
|
1 660 |
Derivative financial instruments |
–3 |
|
|
–3 |
Real estate |
53 |
10 |
578 |
641 |
Other assets |
21 |
59 |
139 |
219 |
Total assets at fair value |
1 056 |
3 964 |
717 |
5 737 |
Cash |
148 |
4 |
|
152 |
Total plan assets |
1 204 |
3 968 |
717 |
5 889 |
Download |
2015 |
Quoted prices in active markets for identical assets |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total |
Assets |
|
|
|
|
Fixed income securities: |
|
|
|
|
Debt securities issued by the US government and government agencies |
34 |
149 |
|
183 |
Debt securities issued by non-US governments and government agencies |
|
799 |
|
799 |
Corporate debt securities |
|
2 179 |
|
2 179 |
Residential mortgage-backed securities |
|
16 |
|
16 |
Commercial mortgage-backed securities |
|
1 |
|
1 |
Other asset-backed securities |
|
4 |
|
4 |
Equity securities: |
|
|
|
|
Equity securities held for proprietary investment purposes |
917 |
572 |
|
1 489 |
Derivative financial instruments |
–9 |
|
|
–9 |
Real estate |
129 |
9 |
596 |
734 |
Other assets |
19 |
79 |
142 |
240 |
Total assets at fair value |
1 090 |
3 808 |
738 |
5 636 |
Cash |
82 |
–4 |
|
78 |
Total plan assets |
1 172 |
3 804 |
738 |
5 714 |
Assets measured at fair value using significant unobservable inputs (Level 3)
For the years ended 31 December, the reconciliation of fair value of pension plan assets using significant unobservable inputs were as follows:
Download |
2014 |
Real estate |
Other assets |
Total |
Balance as of 1 January |
631 |
132 |
763 |
Realised/unrealised gains/losses: |
|
|
|
Relating to assets still held at the reporting date |
|
5 |
5 |
Relating to assets sold during the period |
|
14 |
14 |
Purchases, issuances and settlements |
13 |
–4 |
9 |
Impact of foreign exchange movements |
–66 |
–8 |
–74 |
Closing balance as of 31 December |
578 |
139 |
717 |
Download |
2015 |
Real estate |
Other assets |
Total |
Balance as of 1 January |
578 |
139 |
717 |
Realised/unrealised gains/losses: |
|
|
|
Relating to assets still held at the reporting date |
10 |
–13 |
–3 |
Relating to assets sold during the period |
|
17 |
17 |
Purchases, issuances and settlements |
12 |
6 |
18 |
Impact of foreign exchange movements |
–4 |
–7 |
–11 |
Closing balance as of 31 December |
596 |
142 |
738 |
Expected contributions and estimated future benefit payments
The employer contributions expected to be made in 2016 to the defined benefit pension plans are USD 158 million and to the post-retirement benefit plan are USD 16 million.
As of 31 December 2015, the projected benefit payments, which reflect expected future service, not adjusted for transfers in and for employees’ voluntary contributions, are as follows:
Download |
USD millions |
Swiss plan |
Foreign plans |
Other benefits |
Total |
2016 |
204 |
74 |
16 |
294 |
2017 |
197 |
78 |
16 |
291 |
2018 |
196 |
81 |
17 |
294 |
2019 |
195 |
84 |
18 |
297 |
2020 |
191 |
86 |
19 |
296 |
Years 2021–2025 |
905 |
462 |
104 |
1471 |
Defined contribution pension plans
The Group sponsors a number of defined contribution plans to which employees and the Group make contributions. The accumulated balances are paid as a lump sum at the earlier of retirement, termination, disability or death. The amount expensed in 2014 and in 2015 was USD 79 million and USD 77 million, respectively.