Risks are becoming less local and more global

Dear shareholders,

A year ago, I gave you a rather pessimistic outlook on developments in the global risk landscape – evidently I was not entirely wrong. Major shifts in security policy, the exceptional economic, trade and monetary policy situation as well as the reluctance of governments to face the challenges posed by climate change continue to give everyone cause for scepticism.

Walter B. Kielholz – Chairman of the Board of Directors (photo)

Swiss Re has the expertise and the network required to consistently assess the situation from all angles and to adapt capital allocation strategies accordingly.

Walter B. Kielholz
Chairman of the Board of Directors

The coronavirus pandemic clearly demonstrates the vulnerability of our globally interconnected economies. While the containment and isolation measures taken by governments have painful consequences for the economy and for the everyday life of each of us, they are sensible and necessary. The virus is not only claiming human lives — it is putting the entire political and psychological immune system of globalisation to the most severe stress test yet. Prudence and capital strength will help us steer through the crisis. Resilience — the theme of this annual report and the guiding principle of all our actions at the company — is more relevant than ever to global society and will remain so for many years to come.

Be it coronavirus, the American-Chinese trade war, the unresolved issue of the UK’s future integration in the European economy or the fight against the consequences of climate change, only one conclusion can be drawn: risks are becoming less local and more global. Responsibility must be taken for these enormous risks, and it is up to businesses and governments to do so.

Even those who do not take responsibility are responsible – for unresolved problems

Given the many pressing problems faced by and affecting society as a whole, we must acknowledge that there is a glaring lack of responsibility and political leadership at an international level. This situation can be seen reflected in a number of countries. Instead of championing joint solutions, politicians – whether democratically elected or not – are excelling at pursuing selfish, nationalist objectives. How is the world meant to move forward with this mindset? I remain firmly convinced that the big challenges can only be resolved with a multilateral approach based on global cooperation.

So who is poised to take the lead? Who will guide the world back onto the path of multilateralism? There are very few people on whom to pin our hopes, and some bizarre incidents at the recent World Economic Forum in Davos have only reinforced my concerns.

If there is no political consensus on how to manage major risks and ensure global prosperity, large global companies like Swiss Re will increasingly have to fend for themselves. This does not make our task of assessing insurable risks and making them economically manageable any easier. Risk management is the joint responsibility of both business and governments!

Cooperation requires interaction, and dialogue requires contacts. But it is becoming increasingly difficult to identify the points of contact for the business world, even in some established democracies. Tendencies towards populism, polarisation and – the third “P” – the handling of facts known as “post-truth” are also putting existential pressure on political parties that so far have advocated rational dialogue with businesses.

Given this development, the business world must become more involved in society and make its voice heard not only as the voice of economic reason, but increasingly also that of social reason. Businesses must shoulder their responsibility and take a leading role, for example in the fight against climate change. If they respond to the plea for climate protection with effective contributions of their own, they will also win back the people’s trust. Not only does Swiss Re intend to reduce its own 2 emissions to net zero by the end of the decade, it is also driving change through its underwriting policy and in its activities as an investor. Innovation and technology are the key to ultimately making climate protection an attractive business. As we do this, it is important to manage the high initial investment costs – a task in which not just our company but the entire financial sector has an important role to play.

Long-term capital allocation in a volatile context – our task

For the time being, however, the following applies to the overall context in which the company operates: without a reliable political framework, the range of possible scenarios will grow further, and careful handling of our capital will become even more essential. Our core task is now more demanding than it was a decade or two ago: specifically, to profitably allocate the capital that you provide to us to the various risk portfolios and to profitably reinvest or return to the shareholders the capital we receive from the cash flow from our insurance activities.

So why do we remain confident? Because Swiss Re has the expertise and the network required to consistently assess the situation from all angles and to adapt capital allocation strategies accordingly. We use our proprietary Economic Value Management (EVM) method to assess the performance of various risk portfolios, along with the factors derived from research by Swiss Re Institute. We acquire information through our cooperation with clients, be it insurance companies in every corner of the world, large industrial companies and service providers or the world’s best asset managers, as well as from our work with our high-level strategic advisory body, the Swiss Re Strategic Council.

I therefore believe that the company is well equipped to make decisions based on all relevant changes to the risk landscape and, if we consider it necessary, to shift capital very quickly.

Let me briefly explain at this point which of our decisions regarding capital allocation in 2019 and the previous years can from today’s perspective be judged as successful, and which were less so.

I am mindful that we operate in a very long-term business and are navigating an ever-changing environment. So, here is my assessment from today’s perspective.

Financial investments enjoyed a boost in 2019

Let’s start with a positive aspect: 2019 provided exceptionally favourable conditions for those invested in financial assets. Our asset managers did an excellent job and achieved a very strong result. And let’s not forget that this was achieved without taking excessive risks.

At the beginning of 2019, we expected to see interest rate increases during the course of the year. The US Federal Reserve’s policy U-turn on interest rates therefore came as somewhat of a surprise. However, we anticipated the opportunities in the credit and equity markets early on and were able to benefit accordingly. It was clear already in 2019 that these conditions would not last forever. We have therefore started to reallocate capital, reduce risk and realise gains.

In terms of our investments, we have used the momentum in capital markets to sell or reduce some commitments. For example, we sold a stake in the Brazilian insurance company SulAmérica – for a very good profit. That was an attractive opportunity. We continue to hold significant positions in the Latin American market, although political developments in some of the countries most relevant to the region’s economy, such as Argentina, Venezuela, Mexico and, more recently, Chile, indicate that caution is needed.

Growth in the reinsurance business for natural catastrophes

Our decision to invest more capital in the dynamic growth of the non-life reinsurance business has proved to be the right move. After little opportunity to expand this business on acceptable terms in recent years, we changed our underwriting policy at the end of 2018 amid improved market conditions. Although we were still dealing with late claims at the beginning of 2019 (eg the impact from Typhoon Jebi in Japan in September 2018), by the end of the year we had achieved a positive result: in the natural catastrophe business, claims and profits from previous years were balanced. The business achieved profitability in 2019. And it is clear from the renewals on 1 January 2020 that prices are continuing to rise in certain segments.

Vigilance in the US casualty business

The big disappointment of 2019 was the casualty business in the US. Yet again, you might say, since this is a sector that regularly causes headaches for reinsurers. However, it was a very profitable area in the years prior to 2015, thanks in no small part to the reform of liability legislation during George W. Bush’s presidency. There had also not been any significant inflation in the US for years, something that usually has a negative impact on this business. And so we gradually expanded this business from 2015 onwards – not massively, but consistently. That was a mistake.

In light of the dynamically increasing problem of a public that has a critical attitude towards businesses as well as US case law – known as the “social inflation” phenomenon – the number of medium and larger claims, which we as reinsurers deal with, has risen sharply. We are doing our utmost to react responsibly in the face of this development and to respond as quickly as possible to structural changes. Among other things, this also required subsequent reserving in 2019, though these reserves are quite modest compared to our total non-life reserves.

Separation from the closed-book business initiated in the UK; Corporate Solutions turnaround

At the beginning of 2019, we announced that we would separate from ReAssure as part of an IPO. An IPO that, as you know, we had to suspend in the summer of 2019 due to the political uncertainty in the UK. However, the separation from the closed-book business in the UK has now been set in motion thanks to an agreement to sell ReAssure to Phoenix Group Holdings plc. And at a price that is at the upper end of the range we were hoping to achieve through the IPO. I am also confident that the shares in the Phoenix Group that we are receiving as part of this deal will prove to be an attractive investment.

However, we also had to invest in the Corporate Solutions business unit in 2019. The insurance of major corporate risks is cyclical and volatile due to the capacity used. However, it is and will remain an important component of our business portfolio. We are adhering to our strategy and returning this Business Unit, which achieved solid results up to 2016, back to profitability.

Thanks to sharply increasing market rates, the Business Unit maintained its premium volume in the past year despite the restructuring measures. These measures are being implemented consistently: key members of the Corporate Solutions management team have been replaced, the underwriting policy has been tightened, the portfolio has been comprehensively adjusted and costs have been reduced. The right course has been set. “Stay tuned”, as the Americans would say.

Complete reliability in the equity base

Dividend policy

Swiss Re’s dividend policy is a central element of Swiss Re’s capital management priorities.

The Group aims to grow the regular dividend with long-term earnings or, at a minimum, maintain it.

Dividend per share (CHF)
Dividend per share (CHF) (bar chart)

A year ago, I wrote that we wanted to stand our ground where necessary. For me, that means our capital position. I am confident that our client, the regulators – our own and those of our clients – and ultimately also our shareholders want Swiss Re’s capital strength to be beyond any doubt. So this is one area where we are standing our ground.

For this reason, we took into account that we have enjoyed strong organic growth, that the development of the US casualty business would affect annual profit, that the persistently low US interest rates cost capital and that the ReAssure IPO did not take place in 2019 – and cancelled the second tranche of the share buyback programme last year. At the same time, we continue to ensure highly attractive conditions for our investors through a dividend that is once again being increased. We will evaluate the appropriateness of launching another share buyback programme in the second half of 2020. All of this is consistent with our policy.


We are very pleased to also announce an orderly succession plan for the role of Chairman. Sergio P. Ermotti, who has been the Group CEO of UBS since 2011, will be nominated for election to our Board of Directors at the upcoming Annual General Meeting of shareholders on 17 April 2020. After one year on the Board, Sergio P. Ermotti will then be nominated for election as the next Chairman upon my retirement. His wealth of experience and impressive leadership track record will be important assets for Swiss Re, and his appointment will ensure a smooth leadership transition.

Looking back, 2019 was not an easy year – and the challenges are getting bigger, not smaller. But we know that we can count on the experience and commitment of more than 15 000 employees worldwide. I would also like to thank you as shareholders for your trust and support, which were invaluable in 2019.

Zurich, 19 March 2020

Signature Walter B. Kielholz (signature)

Walter B. Kielholz

Chairman of the Board of Directors