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Annual Report 2018

Insurance risk

Insurance risk management involves identifying, assessing and controlling risks that Swiss Re takes through its underwriting activities, including related risks such as inflation or uncertainty in pricing and reserving.

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.

In 2018, Swiss Re further refined its limit framework, establishing a principles-based approach that is more strongly focused on Swiss Re’s key defensive objectives. The new framework enables more dynamic capital allocation while strengthening the accountability of the first line of control of the capacity allocation decisions and capacity management.

Regular internal reports ensure transparency across the Group, providing management with quantitative and qualitative risk assessments. Swiss Re’s insurance risk landscape and related governance processes are regularly discussed and reviewed by the Senior Risk Council and other insurance risk oversight bodies in order to assist and advise the Group CRO in the risk oversight.

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: Annualised losses with a 200-year return period

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Annualised, 99.5% VaR in USD millions

SST 2019

Atlantic hurricane

5 854

Californian earthquake

3 751

European windstorm

2 336

Japanese earthquake

3 351

Lethal pandemic

2 799

In SST 2019, the largest natural catastrophe exposure for Swiss Re Group derives from the Atlantic hurricane scenario with a USD 5.9 billion loss. The lethal pandemic loss is estimated to be at USD 2.8 billion.

Property and casualty riskChange since SST 2018: +4%

Risk developments

The increase in property and casualty risk is driven by growth in property business, which increases both natural catastrophe and terrorism exposure. Costing and reserving risk decreases, reflecting claims payment and reserve releases related to the 2017 natural catastrophes, partly offset by reserve increases for the 2018 large losses.

Management

The legal entity CROs 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. In general, 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. Certain single risks and specified renewable treaty classes with non-material changes can be authorised by only one individual underwriter with the necessary authority − but these risks and treaties are subject to checks after acceptance.

All 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 individual limits for major natural catastrophe scenarios and other key risks, such as terrorism, claims inflation, reserving and liability. These limits guard against exposure accumulations and ensure that risk-taking remains within Swiss Re’s risk tolerance.

Life and health riskChange since SST 2018: +12%

Risk developments

Overall life and health risk increases due to business growth in Asian markets increasing critical illness and lethal pandemic exposure. Mortality trend risk also increases reflecting an update on external retrocession cashflow. The increase is further driven by the introduction of an improved health model, which assumes higher dependencies between different health products and mortality trend risk.

Management

The legal entity CROs 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 separate limits for key risks such as mortality, longevity and lethal pandemic risk. 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.