Overall risk in 2016 remained stable

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) remained stable at USD 19.5 billion in 2016 (compared to USD 19.6 billion at the end of 2015).

Alternative risk measurements – 99% and 99.5% VaR – remained unchanged at USD 14.5 billion and USD 17.4 billion, respectively.

The Group capital requirement table below shows the 99% tail VaR on a standalone basis for each of Swiss Re’s core risk categories:

• Property and casualty risk remained broadly stable at USD 9.4 billion (–1%) as higher costing and reserving risk was offset by lower natural catastrophe risk.
• Life and health risk changed by 2% to USD 7.4 billion. The increase mainly resulted from the acquisition of a large block of in-force US term life business in the first quarter of 2016.
• Financial market risk decreased by 3% to USD 12.3 billion. The decrease is mainly driven by lower equity risk.
• Credit risk remained stable at USD 3.4 billion.

Group Capital requirement based on one-year 99% tail VaR

Our internal risk model takes account of the accumulation and diversification between individual risks. The effect of diversification at the category level is demonstrated in the table above, which represents the difference between the Group 99% tail VaR and the sum of standalone tail VaR amounts in the individual risk categories. The extent of diversification is largely determined by the selected level of aggregation – the higher the aggregation level, the lower the diversification effect.

Alternative risk measurements to 99% tail VaR for Swiss Re Group