Financial Market and Credit Risk

Financial market and credit risk management involves identifying, assessing and controlling risks inherent in the financial markets as well as counterparty risks, while monitoring compliance with our risk management standards. Both risk categories are managed centrally by our Financial Risk Management team.

Our central Financial Risk Management team oversees activities generating financial market and/or credit risk, proposes limits, provides quantitative risk assessment across financial risk factors, and monitors portfolio risk. It also develops considerations for risk mitigation or risk reduction, reviews risk and valuation models, assesses asset valuations, and approves transactions and new products. These responsibilities are exercised through defined governance procedures, including regular reviews by our Senior Risk Council. Financial Risk Management is responsible for both internally and externally managed assets, principal investments and all liability-based business generating financial market and/or credit risk, including credit and surety.

Financial market and credit risk stress tests


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



Change in %

Market scenarios




100bp increase in credit spreads




30% fall in equity markets (incl. hedge funds)




15% fall in real estate markets




100bp parallel increase in global yield curves








Credit stress test




Credit default stress




Financial market riskChange from 2014 99% tail VaR


Financial market risk is the risk that assets or liabilities may be impacted by movements in financial market prices or rates − such as equity prices, interest rates, credit spreads, foreign exchange rates or real estate prices. Financial market risk originates from two main sources: our own investment activities and the sensitivity of the economic value of liabilities to financial market fluctuations. Swiss Re actively manages the potential mismatch in financial market risk between its liabilities and the assets that it holds.

Developments in 2015

The overall financial market risk increased by 4% to USD 12.6 billion (see table in Swiss Re’s risk landscape). The increase reflects the inclusion of Guardian Financial Services (Guardian) as well as changes to Swiss Re’s asset allocation increasing in particular our credit spread risk. This increase is partly offset by a decrease in equity and interest rate risk.

The table above shows Swiss Re’s sensitivity to various market scenarios. The potential loss from credit spread widening increased in 2015, reflecting the inclusion of the Guardian portfolio (see Overview). Without the Guardian transaction, the sensitivity of the portfolio to changes in credit spread would have decreased. The decrease in equity stress is driven by the impact of negative market movements on our equity portfolio as well as by the sale of hedge fund positions. The increase in real estate risk reflects additional investments mainly in US real estates. The decrease in the interest rate scenario resulted from the reduction of Swiss Re’s net short duration position to an almost balanced portfolio.


Financial market risk is subject to limits at various levels of the organisation (eg, Group, Business Units, lines of business and legal entities). Individual limits are expressed in terms of stress, VaR and risk factor sensitivities. Asset Management determines a more detailed set of risk limits for its portfolio mandates.

Financial Risk Management regularly reviews and updates the risk framework and is also responsible for monitoring financial market risk in accordance with our risk management standards. The unit provides daily and weekly Group-level reports on risks and on specific limits for internally and externally managed investment mandates as well as for the Business Units. These reports track exposures, document limit usage (which is independently monitored by Financial Risk Management) and provide information on key risks that could affect the portfolio. Specific limits are assigned to the line of business heads, who seek to optimise their portfolios within those limits. The reports are normally presented and discussed with the relevant business line responsibles at weekly meetings.

This process is complemented by regular risk discussions between Financial Risk Management, Asset Management, Business Units and the Group’s external investment managers.

Credit riskChange from 2014 99% tail VaR


Credit risk is the risk of incurring a financial loss due to diminished creditworthiness or default of Swiss Re’s counterparties or of third parties (credit spread risk falls under financial market risk). Credit risk arises primarily from our investment activities as well as from liabilities underwritten by our Business Units, such as credit, surety and from retrocession. We distinguish between three types of credit exposure: the risk of issuer default from instruments in which Swiss Re invests or trades; counterparty exposure in a direct contractual relationship; and risk assumed by Swiss Re through reinsurance contracts.

Developments in 2015

In 2015, Swiss Re’s credit risk — which includes default and migration (deterioration in credit rating) risk — increased by 29% to USD 3.4 billion (see table in Swiss Re’s risk landscape) and the credit default stress test increased by 22% (see table above).

The changes reflect the inclusion of the Guardian Financial Services portfolio (see Overview) and growth in the underwriting portfolio.


Credit risk is managed and monitored by our Credit Risk Management unit within the central Financial Risk Management team.

An aggregate credit stress limit is set by the Group Executive Committee. In addition, we assign aggregate credit limits by Business Unit, corporate counterparty and country. These limits are based on multiple factors, including the prevailing economic environment, the nature of the underlying credit exposures and a detailed internal assessment of the counterparty’s financial strength, industry position and other qualitative factors. Financial Risk Management is also responsible for regularly monitoring corporate counterparty credit quality and exposures, and compiling watch lists of cases that merit close attention.

Financial Risk Management monitors and reports credit exposure and limits for the Group and its Business Units on a weekly basis. The reporting process is supported by a Group-wide credit exposure information system that contains all relevant data, including corporate counterparty details, ratings, credit risk exposures, credit limits, and watch lists. All credit practitioners in the Group and Business Units have access to this system, thus providing the necessary transparency to implement exposure management strategies for individual counterparties, industry sectors, and geographic regions.

To take account of country risks other than from credit default, Swiss Re’s Political and Sustainability Risk Management unit prepares specific country ratings in addition to the sovereign ratings used by the Group and the Business Units. These ratings are considered in the decision-making process, and cover political, economic and security-related country risks.