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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 2017 and 2018, operational debt, ie debt related to operational leverage, amounted to USD 2.8 billion (thereof USD 2.4 billion limited- or non-recourse) and USD 2.5 billion (thereof USD 2.1 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

Contingent capital instruments classified as long-term debt

Interest expense on long-term debt and contingent capital instruments classified as equity

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 67 million and USD 41 million for the years ended 31 December 2017 and 2018, respectively.

Long-term debt issued in 2018

In June 2018, Swiss Re Ltd issued a six-year senior unsecured exchangeable instrument with issuer stock settlement. The instrument has a face value of USD 500 million, with a fixed coupon of 3.25% per annum payable semi-annually in arrear until the maturity date (13 June 2024). The interest expense was USD 10 million for the year ended 31 December 2018. In limited circumstances, the instrument may be redeemed early, in cash. Noteholders have a put option requiring the issuer to redeem the instrument at par if a delisting, nationalisation or change of control occurs. The higher of the par value and the fair market value of the instrument may be stock-settled, at any time at the option of the issuer, by delivering Swiss Re Ltd shares at a prevailing share price which uses a forward-looking 15 trading day volume-weighted average share price with a 1% discount. If the issuer stock settlement option is exercised at a time when the Groupʼs, or the issuerʼs, regulatory solvency ratio calculated under the Swiss Solvency Test is less than 160%, the prevailing share price is subject to a share price floor of USD 44.3305. After year five, holders of the instrument have the unrestricted option (and prior to year five, a restricted option) to exchange the instrument for Swiss Re Ltd shares at the prevailing exchange price, which is initially set at USD 115.2593, representing a premium of 30% to the reference share price, which used a forward-looking ten trading day volume-weighted average share price commencing on 7 June 2018. The number of Swiss Re Ltd shares to be delivered upon a noteholder-initiated exchange will be determined by dividing the principal amount of the instrument held by such noteholder by the prevailing exchange price at the time. The issuer may elect to settle a noteholder exchange in cash or Swiss Re Ltd shares. The share price floor and the exchange price are subject to customary anti-dilution adjustments. To economically hedge the settlement of a noteholder-initiated exchange (in cash or in Swiss Re Ltd shares), Swiss Re Ltd purchased matching call options in an aggregate amount of USD 500 million with an expiry date of 13 June 2024 on Swiss Re Ltd shares with a portion of the proceeds of the offering through an internal call option entered through Swiss Reinsurance Company Ltd with external banks. Consequently, no new Swiss Re Ltd shares will be issued upon a noteholder-initiated exchange. Both the noteholder-initiated exchange option and the matching call options are accounted as equity within Swiss Re Ltd.

In June 2018, Swiss Re ReAssure Limited entered into a GBP 550 million revolving credit facility with a syndicate of banks. The facility has an expiry date of 26 June 2021. At 29 June 2018, the amount drawn under the facility was GBP 468 235 294. This revolving credit facility replaces the previous GBP 550 million revolving credit facility that Swiss Re ReAssure Limited (formerly known as Swiss Re Admin Re Limited) had entered into in April 2016.

Contingent capital instruments classified as equity

In March 2012, Swiss Reinsurance Company Ltd issued a perpetual subordinated capital instrument with issuer stock settlement, a face value of USD 750 million and a fixed coupon of 8.25% per annum. This capital instrument was redeemed on 1 September 2018.