Liquidity risk management

Swiss Re’s core liquidity policy is to retain access to sufficient liquidity in the form of unencumbered liquid assets, cash and pre-funded facilities, to meet potential funding requirements arising from a range of possible stress events. To allow for regulatory restrictions on intra-Group funding, liquidity is managed from a legal entity perspective. The amount of liquidity held is determined by internal liquidity stress tests, which estimate the potential funding requirements stemming from extreme loss events.

The funding requirements under stress include:

• Cash and collateral outflows, as well as potential capital and funding support required by subsidiaries as a result of loss events
• Repayment or loss of all maturing unsecured debt and credit facilities
• Additional collateral requirements associated with a potential ratings downgrade
• Further contingent funding requirements related to asset downgrades
• Other large committed payments, such as expenses, commissions and tax

The stress tests also assume that funding from assets is subject to conservative haircuts, intra-Group funding is not available if subject to regulatory approval, no new unsecured funding is available and funding from new re/insurance business is reduced.

The primary liquidity stress test is based on a one-year time horizon, a loss event corresponding to 99% tail value at risk (see chapter Risk assessment), and a three-notch ratings downgrade.

Swiss Re’s liquidity stress tests are reviewed regularly and their main assumptions are approved by the Group Executive Committee. Swiss Re provides FINMA with a yearly report on its liquidity position, in accordance with FINMA circular 13/5, “Liquidity — Insurers.”