Report of the statutory auditor

to the General Meeting of Swiss Re Ltd
Zurich

Report of the statutory auditor on the consolidated financial statements

As statutory auditor, we have audited the accompanying consolidated financial statements of Swiss Re Ltd and its subsidiaries (the ‘Company’), which comprise the income statement and statement of comprehensive income for the year ended 31 December 2019, the balance sheet as at 31 December 2019 and the statement of shareholders’ equity and the statement of cash flows for the year then ended, and notes to the Group financial statements (pages 170 to 278).

Board of Directors’ responsibility

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (US GAAP) and the requirements of Swiss law. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Swiss law, Swiss Auditing Standards and auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the accompanying consolidated financial statements for the year ended 31 December 2019 present fairly, in all material respects, the financial position, the results of operations and the cash flows in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law.

Other Matter

Accounting principles generally accepted in the United States of America (US GAAP) requires that the supplementary information based on the requirements of ASU 2015-09, Disclosures about Short-Duration Contracts, on pages 210 to 218 be presented to supplement the consolidated financial statements. Such information, although not part of the consolidated financial statements, is required by the Financial Accounting Standards Board, which considers it an essential part of financial reporting for placing the consolidated financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of the Company about the methods of preparing the information and comparing the information for consistency with the Company’s responses to our inquiries, the consolidated financial statements and other knowledge we obtained during our audit of the consolidated financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Unobservable or interpolated inputs used for the valuation of certain level 2 and 3 investments

Key audit matter

Investment valuation continues to be an area with inherent risk for certain level 2 and 3 investments that have unobservable or interpolated inputs. The risk is not the same for all investment types and is greatest for those listed below. These investments are more difficult to value because quoted prices are not always available, and valuation requires unobservable or interpolated inputs and complex valuation models:

  • Fixed income securitised products
  • Fixed income mortgage and asset-backed securities
  • Private placements and infrastructure loans
  • Private equities
  • Derivatives
  • Insurance-related financial products

How our audit addressed the key audit matter

We assessed and tested the design and operating effectiveness of selected key controls around the valuation models for level 2 and 3 investments, including the Company’s independent price verification process. We also tested the Company’s data integrity and change management controls relating to the valuation models.

In relation to the matters set out opposite, our substantive testing procedures included the following:

  • Challenging the Company’s methodology and assumptions, in particular, the yield curves, discounted cash flows, perpetual growth rates and liquidity premiums used in the valuation models.
  • Comparing the assumptions used against appropriate benchmarks and investigating significant differences.
  • Engaging our own valuation specialists to perform independent valuations of selected level 2 and 3 investments.

Based on the work performed, we consider the methodology and assumptions used by the Company in determining the valuation to be appropriate.

Valuation of actuarially determined Property & Casualty (‘P&C’) loss reserves

Key audit matter

Valuation of actuarially determined P&C loss reserves involves a high degree of subjectivity and complexity. Reserves for losses and loss adjustment expenses represent estimates of future payments of reported and unreported claims for losses and related expenses at a given date.

Furthermore, on a regular basis, the Company enters into large and/or structured transactions which often have material or complex financial reporting and reserving consequences. The reserving for such transactions is subject to increased risk of error due to the non-routine nature of transactions and the judgmental nature of reserving.

The Company uses a range of actuarial methodologies and methods to estimate these reserves. Actuarially determined P&C loss reserves require significant judgment relating to certain factors and assumptions. Among the most significant reserving assumptions are the A-priori loss ratios, which typically drive the estimates of P&C loss reserves for the most recent contract years. Other key factors and assumptions include, but are not limited to changes in interest rates, exposures and mix as well as inflation trends, claims trends and regulatory decisions.

In particular, loss reserves for ‘long tail’ lines of business (for example, the Liability, US Asbestos and Environmental, Motor Liability and Workers’ Compensation portfolios) generally require more judgment to estimate. This is due to the protracted period over which claims may be reported and/or settled as well as the fact that claim settlements are often less frequent but of higher magnitude.

Moreover, not all natural catastrophe events and significant man-made losses can be modelled using traditional actuarial methodologies, which increases the degree of judgment needed in establishing reserves for these events.

How our audit addressed the key audit matter

We assessed and tested the design and operating effectiveness of selected key controls relating to the application of the actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by the Company in the valuation of actuarially determined P&C loss reserves.

In relation to the matters set out opposite, our substantive testing procedures included the following, which are applicable for both the standard reserving and large and/or structured transactions:

  • Testing the completeness and accuracy of underlying data utilised by the Company’s actuaries in estimating P&C loss reserves.
  • Applying IT audit techniques to analyse claims through the recalculation of claims triangles.
  • Involving PwC’s internal actuarial specialists to independently test the Company’s estimates of P&C loss reserves and evaluate the reasonableness of the methodology and assumptions used by comparing them with recognised actuarial practices and by applying our industry knowledge and experience.
  • Performing independent projections of selected portfolios. For these portfolios, we compared our calculations of projected reserves with those of the Company taking into account the available corroborating and contrary evidence and challenging the Company’s assumptions as appropriate.
  • Assessing the process and related judgments of the Company in relation to natural catastrophes and other large losses, including using our industry knowledge to assess the reasonableness of market loss estimates and other significant assumptions.
  • Performing sensitivity tests to determine the impact of selected key assumptions.
  • Evaluating the appropriateness of any significant adjustments made by the Company to P&C loss reserve estimates.
  • Evaluating the appropriateness of the recognition, accounting and disclosures for large and/or structured transactions.

Based on the work performed, we consider the methodologies and assumptions used by the Company in the valuation of actuarially determined P&C loss reserves to be appropriate.

Valuation of actuarially determined Life & Health (‘L&H’) reserves

Key audit matter

The Company’s valuation of liabilities for L&H policy benefits and policyholder account balances involves complex judgments about future events affecting the business.

Actuarial assumptions selected by the Company with respect to interest rates, inflation trends, investment returns, mortality, morbidity, lapse in coverage, longevity, persistency, expenses, stock market volatility and future policyholder behaviour may result in material impacts on the valuation of L&H reserves. The methodology and methods used can also have a material impact on the valuation of actuarially determined L&H reserves.

Furthermore, on a regular basis, the Company enters into large and/or structured transactions which often have material or complex financial reporting and reserving consequences. The reserving for such transactions is subject to increased risk of error due to the non-routine nature of transactions and the judgmental nature of reserving.

The valuation of actuarially determined L&H reserves depends on the use of complex models. The Company continues to migrate actuarial data and models from legacy systems and/or spreadsheets to new actuarial modelling systems. At the same time, the Company is validating models to ensure that new models are fit for use. Moving from one modelling platform to another is a complex and time-consuming process, frequently taking several years. Any resulting adjustments to reserves need to be assessed in terms of appropriateness and classified as a change in estimate or as an out-of-period adjustment.

How our audit addressed the key audit matter

We assessed and tested the design and operating effectiveness of selected key controls relating to the application of actuarial methodology, data collection and analysis, as well as the processes for determining the assumptions used by the Company in the valuation of actuarially determined L&H reserves.

In relation to the matters set out opposite, our substantive testing procedures included the following, which are applicable for both the standard reserving and large and/or structured transactions:

  • Testing the completeness and accuracy of the underlying data by vouching against the source documentation.
  • Testing the migration of actuarial data from legacy systems and/or spreadsheets to the new actuarial systems for completeness and accuracy.
  • Involving our life insurance actuarial specialists to perform independent model validation procedures, including detailed testing of models, independent recalculations and back testing.
  • Challenging the Company’s methodology and methods, focusing on changes to L&H actuarial methodology and methods during the year, by applying our industry knowledge and experience to check whether the methodology and methods are consistent with recognised actuarial practices and reporting requirements.
  • Evaluating the appropriateness of the recognition, accounting, and disclosures for large and/or structured transactions.

Based on the work performed, we consider the methodologies and assumptions used by the Company in the valuation of actuarially determined L&H reserves to be appropriate.

Completeness and valuation of uncertain tax positions

Key audit matter

The Company operates in various countries and is subject to income taxes in those jurisdictions. The assessment of the valuation of deferred tax assets, resulting from net operating losses and temporary differences, and provisions for uncertain tax positions is based on complex calculations and depends on sensitive and judgmental assumptions made by the Company. These include, amongst others, future profitability and local fiscal regulations and developments.

Changes in those estimates may have a material impact (through income tax expense) on the Company`s results.

How our audit addressed the key audit matter

We assessed and tested the design and operating effectiveness of selected key controls in place to determine the completeness of the uncertain tax items and the Company’s assessment of the items for recognition and valuation.

In relation to the matters set out opposite, our substantive testing procedures included the following:

  • Involving our own tax specialists to critically review the Company’s ‘more likely than not’ tax assessments and to evaluate the Company’s judgments and estimates of the probabilities and the amounts.
  • Assessing how the Company considered new information or changes in tax law or case law and assessing the Company’s judgment of how these impact the Company’s position or measurement of the required provision.
  • Examining tax audit documentation to validate the appropriateness of releases of uncertain tax provisions.
  • Evaluating the appropriateness of the Company’s assessment of completeness of uncertain tax positions.
  • Examining material movements within uncertain tax positions in each jurisdiction.

Based on the work performed, we determined the Company’s assessment of the completeness and valuation of uncertain tax positions to be appropriate.

Report on other legal requirements

We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence.

In accordance with article 728a paragraph 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors.

We recommend that the consolidated financial statements submitted to you be approved.

PricewaterhouseCoopers AG

Roy Clark

Audit expert
Auditor in charge

Frank Trauschke

Audit expert

Zurich, 18 March 2020