Overall risk remained within our risk tolerance despite higher financial market and credit risk due to inclusion of Guardian Financial Services.
In 2015, Swiss Reʼs overall risk increased by 3% mainly driven by higher financial market and credit risk exposure related to the portfolio of Guardian Financial Services (see Overview). Property and casualty risk also increased while the decrease in life and health risk partly alleviated the development.
Swiss Re’s internal risk model (see Risk modelling and risk measures) is used to measure the Group’s capital requirements and for defining the risk tolerance, risk limits, and liquidity stress tests. Based on the internal risk model, our overall risk exposure in terms of 99% tail value at risk (tail VaR) increased to USD 19.6 billion in 2015, up 3% from USD 19.1 billion in 2014. 99% tail VaR (also known as expected shortfall) represents an estimate of the average annual unexpected loss likely to occur with a frequency of less than once in 100 years.
Alternative risk measures — 99% and 99.5% VaR — showed an increase of our risk by 1% to USD 14.5 billion and by 2% to USD 17.4 billion, respectively.
The Group capital requirement table in Swiss Re’s risk landscape shows the 99% tail VaR on a standalone basis for each of Swiss Re’s core risk categories:
- Financial market risk increased by 4% to USD 12.6 billion in 2015, mainly driven by the additional credit spread risk related to the assets of Guardian Financial Services. This is slightly offset by the reduction in equity risk reflecting negative market movements.
- Credit risk was 29% higher at USD 3.4 billion, mainly reflecting the additional default and migration risk of the corporate bonds acquired with the Guardian Financial Services portfolio.
- Property and casualty risk increased by 4% to USD 9.4 billion, net of risk mitigating measures, reflecting growth in natural catastrophe business and continued reductions in our external hedging in the year.
- Life and health risk decreased by 10% to USD 7.2 billion. This drop was mainly driven by the depreciation of several currencies against the US dollar.