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11 Debt and contingent capital instruments

The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines short-term debt as debt having a maturity at the balance sheet date of not greater than one year and long-term debt as having a maturity of greater than one year. For subordinated debt positions, maturity is defined as the first optional redemption date (notwithstanding that optional redemption could be subject to regulatory consent). Interest expense is classified accordingly.

The Groupʼs debt as of 31 December was as follows:

As of 31 December 2016 and 2017, operational debt, ie debt related to operational leverage, amounted to USD 3.1 billion (thereof USD 2.2 billion limited- or non-recourse) and USD 2.8 billion (thereof USD 2.4 billion limited- or non-recourse), respectively. Operational leverage is subject to asset/liability matching and is excluded from rating agency financial leverage calculations.

Maturity of long-term debt

As of 31 December, long-term debt as reported above had the following maturities:

Senior long-term debt

Subordinated long-term debt

Interest expense on long-term debt and contingent capital instruments

Interest expense on long-term debt for the years ended 31 December was as follows:

In addition to the above, interest expense on contingent capital instruments classified as equity was USD 68 million and USD 67 million for the years ended 31 December 2016 and 2017, respectively.

Long-term debt issued in 2017

No long-term debt was issued in the year ended 31 December 2017.

Perpetual subordinated debt facility established in 2017

In July 2017, Swiss Re Ltd established a subordinated debt facility with no fixed termination date. The facility allows Swiss Re Ltd to issue at any time subordinated fixed rate callable notes with a face value of up to USD 750 million, having a first optional redemption date of 15 August 2022 and additional optional redemption dates every five years thereafter. Swiss Re Ltd pays a fee of 2.77% per annum on the available commitment under the facility. Notes issued under the facility have a fixed coupon of 4.63% per annum until the first optional redemption date, which will be reset every five years to the prevailing five-year US Treasury rate plus the fixed-for-life spread of 2.76%.

In these financial statements, the facility fees are classified as interest expense. Notes, when issued under this facility, will be classified as subordinated debt. As of 31 December 2017, no notes have been issued under the facility.

Contingent capital instruments

In March 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated capital instrument with stock settlement. The instrument has a face value of USD 750 million, with a fixed coupon of 8.25% per annum until the first optional redemption date (1 September 2018).

The instrument may be converted, at the option of the issuer, into Swiss Re Ltd shares at any time through “at market“ conversion using the retrospective five-day volume weighted average share price with a 3% discount or within six months following a solvency event at a pre-set floor price of USD 32. The instrument is referred to in these financial statements as “contingent capital instrument”.

In February 2012, Swiss Reinsurance Company Ltd issued a contingent capital instrument accounted for as equity with a face value of CHF 320 million and a fixed coupon at a rate of 7.25% per annum. This capital instrument was redeemed on 1 September 2017.