Financial risk

Financial risk management involves identifying, assessing and controlling risks inherent in the financial markets as well as counterparty credit risks, while monitoring compliance with Swiss Re’s risk appetite and risk management standards.

Swiss Re’s central Financial Risk Management team oversees all activities that generate financial market or credit risk. Its mandate covers internally and externally managed assets, strategic participations, treasury activities, and credit and market risks that derive from Swiss Re’s underwriting and retrocession activities, including structured transactions, credit insurance and surety business. The Head of Financial Risk Management reports to the Group Chief Risk Officer, with a secondary reporting line to the Group Chief Investment Officer.

Financial Risk Management controls exposure accumulation for financial market and credit risks. In addition, the team is responsible for assurance activities related to asset valuation and financial risk models, as well as for reporting Swiss Re’s financial risks. These responsibilities are exercised through defined governance processes, including regular reviews by Swiss Re’s Senior Risk Council and other financial risk oversight bodies.

All activities with financial market and credit risk are subject to limits at various levels of the organisation (eg Group, lines of business and legal entities). At the highest level, the Group Board of Directors sets a financial risk concentration limit which defines how much of the Group’s risk exposure can derive from financial risk. As part of the business planning process, the Group Executive Committee establishes limits for aggregate financial market and credit risk at Group level as well as for major legal entities, with additional limits set for individual risk factors, business lines, portfolio managers, corporate counterparty and country. Risk limits may be expressed in terms of losses in a stress scenario, value at risk based on historic market moves, linear sensitivities to a particular risk factor or different methodologies of exposure aggregation.

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 2016 99% tail VaR: –3%

Developments in 2017

In terms of tail VaR, overall financial market risk decreased by 3% to USD 11.9 billion. The reduction was primarily driven by lower credit spread risk, which decreased due to the minority investment of MS&AD into ReAssure; to a lesser extent the decrease is also due to a simplified aggregation methodology for bond portfolios and lower risk factor volatilities. These effects were partly offset by the strengthening of the British pound and additional government bond and credit investments.

The sensitivities in the table above show the pre-tax impact of various market scenarios on Swiss Re’s economic capital. They differ from tail VaR, in particular as they do not take into account the historic volatility of the underlying assets.


Financial market risk is monitored and controlled by dedicated experts within the Group’s Financial Risk Management team. Financial Risk Management regularly reports on key financial market risks and risk aggregations, as well as on specific limits for internally and externally managed investment mandates. These reports track exposures, document limit usage and provide information on key risks that could affect the portfolio. The reports are presented and discussed with those responsible for the relevant business line at the weekly Financial Market Risk Council.

The reporting process is complemented by regular risk discussions between Financial Risk Management, Asset Management and the Group’s external investment managers, as well as by regular interactions with other key units that take financial market risk, such as Principal Investments and Acquisitions, Treasury, and the respective business teams that write transactions.

Credit riskChange from 2016 99% tail VaR: –3%

Developments in 2017

In 2017, Swiss Re’s credit risk – which includes default and migration (deterioration in credit rating) risk – decreased slightly to USD 3.3 billion.

The main driver for the decrease in credit risk was lower exposure as a result of the minority investment of MS&AD into ReAssure as well as due to the implementation of counterparty default hedges.

The table above shows the pre-tax impact of various market scenarios on Swiss Re’s economic capital. The credit default stress is calculated as the change in expected loss of the credit exposure in a stress event.


Credit risk is monitored and controlled by experts within the Financial Risk Management team. Financial Risk Management regularly monitors and reports on credit exposures and limits. In addition, it is responsible for regularly monitoring corporate counterparty credit quality and exposures, and compiling watch lists of cases that merit close attention. These reports are presented and discussed with those responsible for the relevant business line at the weekly Credit Council.

The reporting process is supported by a Group-wide credit exposure information system that contains all relevant data, including counterparty details, ratings, credit risk exposures, credit limits and watch lists. Key credit practitioners across Swiss Re have access to this system, thus providing the necessary transparency to implement specific exposure management strategies for individual counterparties, industry sectors and geographic regions.

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