Maintenance of target capital structure
Having achieved the Group’s target capital structure in 2016, the focus is now on maintaining and optimising it.
The Group targets a senior leverage ratio of less than 25% and a subordinated (including contingent capital) leverage ratio of less than 20%. In prior years the Group’s leverage ratios included undrawn off-balance sheet facilities (undrawn letter of credit capacity was included in the senior leverage ratio and undrawn, pre-funded subordinated debt facilities were included in the subordinated leverage ratio). To enable better peer comparison, from 2019 these off-balance sheet facilities are excluded from the Group’s leverage ratios to the extent they remain undrawn. As further detailed below, in 2019, the Group took advantage of attractive market conditions to upsize planned funding activities. ReAssure Group also issued GBP 1 billion of subordinated debt as part of the implementation of a more efficient capital structure.
Despite the increase in on-balance sheet leverage through 2019, the Group’s leverage is comfortably under the senior and subordinated leverage targets at 10% and 16%, respectively. The expected deconsolidation of the ReAssure Group upon closing of the sale to Phoenix Group Holdings Plc in mid-2020 will further reduce the Group’s subordinated leverage which, together with the off-balance sheet facilities, further strengthen the Group’s financial flexibility.
In March 2019, Swiss Re redeemed its senior notes issued by Swiss Re America Holding Corporation of USD 234 million at maturity.
Also in March 2019, Swiss Reinsurance Company Ltd issued EUR 750 million of subordinated notes with a coupon of 2.53% with a first call date in April 2030 and scheduled maturity in April 2050. In April 2019, Swiss Reinsurance Company Ltd issued USD 1 billion of subordinated notes with a coupon of 5.00% with a first call date in April 2029 and scheduled maturity in April 2049. Part of the proceeds of these two issuances were used to redeem the GBP 500 million perpetual subordinated notes that were called in May 2019 as well as the USD 750 million subordinated notes with contingent write-off that were called in September 2019.
In June 2019, ReAssure Group Plc issued three subordinated notes that were initially held by the Swiss Re Group and were subsequently placed with third party investors outside the Swiss Re Group. These subordinated notes comprised GBP 500 million of Tier 2 subordinated notes with a coupon of 5.867% and a scheduled maturity in 2029, GBP 250 million of callable Tier 2 subordinated notes with a coupon of 5.766% with a first call date in 2024 and a scheduled maturity in 2029, and GBP 250 million of Tier 3 subordinated notes with a coupon of 4.016% and a scheduled maturity in 2026.
In August 2019, Swiss Reinsurance Company Ltd issued USD 1 billion of truly perpetual subordinated notes at a coupon of 4.25%. The notes, which have a fixed credit spread for life and may be called by Swiss Re at its option every five years, provide permanent non-dillutive capital for Swiss Re.
Financial flexibility strengthened through reduced leverage
USD billions
1 Drawn unsecured LOC and related instruments (2015 – 2018 shows drawn and undrawn).
2 Senior debt excluding non-recourse positions.
3 Funded subordinated debt and contingent capital instruments (2015 – 2018 also shows undrawn pre-funded facilities).
4 Core capital of Swiss Re Group is defined as economic net worth (ENW).
5 Senior debt plus LOCs divided by total capital.
6 Funded subordinated debt divided by sum of funded subordinated debt and ENW (2015 – 2018 also
shows undrawn pre-funded facilities).