Insurance risk

Risk Management also provides independent assurance throughout the business cycle, starting with the annual business planning process. It reviews underwriting standards, costing models and large transactions, and monitors exposures, reserves and limits. Regular internal reports ensure transparency across the Group, providing management with quantitative and qualitative risk assessments.

Swiss Re also manages and mitigates insurance risk through external retrocession, insurance risk swaps or by transferring risk to capital markets. This provides protection against extreme catastrophic events, further diversifies risk, stabilises economic results and releases underwriting capacity.

Insurance risk stress tests: Single event losses with a 200-year return period¹

Property and casualty riskChange from 2016 99% tail VaR: +5%

Developments in 2017

Property and casualty risk, net of retrocession and securitisation, grew by 5% to USD 9.8 billion. This increase was mainly driven by the strengthening of major currencies against the US dollar as well as higher property reserves following the major natural catastrophes in the second half of 2017.

These effects were partly offset by a reduction in natural catastrophe exposures in 2017 as a result of disciplined underwriting in a challenging market environment.

The 200-year event losses from major natural catastrophe scenarios, net of retrocession and securitisation, are shown in the table above.

The Atlantic hurricane and Californian earthquake scenarios decreased by 10% and 5%, respectively, reflecting the reduction in exposures mentioned above. The European windstorm scenario remained broadly stable as the reduction in exposure was largely offset by the strengthening of the euro against the US dollar. The Japanese earthquake scenario also remained stable.

Management

The CROs of SRZ, SRCS and their subsidiaries are responsible for overseeing all property and casualty exposures written in their areas. In addition, Group Risk Management monitors and controls accumulated exposures across Swiss Re to ensure that they remain within the defined risk tolerance level.

The first line of control for property and casualty risks lies within Swiss Re’s underwriting units. All transactions must be reviewed by at least two authorised individuals, and are subject to authority limits. Each underwriter is assigned an individual authority based on technical skills and experience. In addition, capacity limits are allocated to local teams; any business that exceeds this authority or is otherwise complex or unusual triggers an escalation process that extends up to the Group Executive Committee. As an exception, single risks and some renewed treaties with non-material changes can be authorised by an individual underwriter with the necessary authority − but these risks are subject to checks after acceptance.

Large transactions that could materially impact the risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they are authorised. This is part of a three-signature principle, under which key transactions must be approved by Client Markets, Underwriting and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through an individual review.

In addition to underwriting and capacity limits, Swiss Re’s limit framework includes aggregate Group limits for P&C risk as well as individual limits for major natural catastrophe scenarios – Atlantic hurricane, Californian earthquake, European windstorm and Japanese earthquake. These limits guard against exposure accumulations and ensure that risk-taking remains within Swiss Re’s risk tolerance.

Life and health riskChange from 2016 99% tail VaR: +4%

Developments in 2017

Overall life and health risk increased by 4% to USD 7.7 billion, driven mainly by the strengthening of major currencies against the US dollar as well as lower interest rates.

In addition, higher lethal pandemic and critical illness exposure contributed to the increase. The growth was driven in part by new business written in Europe and Asia, particularly in China.

The 200-year lethal pandemic event shown in the table above rose by 15%. The increase is in line with the increase in lethal pandemic tail VaR and is driven by the strengthening of major currencies against the US dollar as well as by the higher exposure mentioned above.

Management

The CROs of SRZ, SRLC and their subsidiaries are responsible for overseeing all life and health exposures written in their respective areas. Accumulated exposures across Swiss Re are monitored and controlled by Group Risk Management to ensure that they remain at an acceptable level for the Group.

Underwriters represent the first line of control for life and health risks. All transactions that could materially change risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they can be authorised. This is part of a three signature principle, under which key transactions must be approved by Client Markets, Underwriting, and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through a review of the individual transaction.

In addition to underwriting and capacity limits, Swiss Re’s limit framework includes aggregate Group limits for L&H risk as well as separate limits for mortality, longevity and lethal pandemic risk. At SRZ and SRLC level, acceptance of life and health risks is governed by aggregated limits. Market exposure limits are in place for catastrophe and stop loss business. Swiss Re pays particular attention to densely populated areas and applies limits for individual buildings to guard against risk exposure accumulations.