Risk assessment
In SST 2020, total risk increases to USD 21.3 billion, driven by higher insurance risk mainly reflecting business growth and lower interest rates.
Swiss Re’s internal model provides a meaningful assessment of the risks to which the company is exposed and is an important tool for managing the business. It is used to measure the Group’s risk position and related capital requirements as well as for defining the risk tolerance, risk limits and liquidity stress tests.
Swiss Re is exposed to insurance and financial risks that are calculated in its internal risk model, as well as other risks that are not explicitly part of the economic capital requirement but are actively monitored and controlled due to their significance for Swiss Re. These include operational, liquidity, model, valuation, regulatory, political, strategic and sustainability risks (see Swiss Re’s risk landscape).
Property and casualty insurance risk is mainly driven by underlying risks inherent in the business Swiss Re underwrites, in particular costing and reserving and non-life claims inflation, as well as Atlantic hurricane risk. The main drivers of life and health insurance risk are lethal pandemic, mortality trend, lapse and critical illness risk.
The Group’s financial risk derives from financial market risks as well as from credit risk. Key drivers of financial market risk are credit spread and equity risk. Credit risk is mainly driven by the default risk of capital market products and credit and surety business.
Total risk is based on 99% tail VaR and represents the average unexpected loss that occurs with an estimated frequency of less than once in 100 years over a one-year time horizon.
Total risk increases to USD 21.3 billion, driven by higher insurance risk mainly reflecting business growth and lower interest rates impact. Financial market and credit risk increase only marginally. The higher weight of insurance risk leads to increased diversification.
USD millions |
SST 2019 |
SST 2020 |
Change |
cross reference information |
||
---|---|---|---|---|---|---|
|
||||||
Property and casualty |
10 537 |
11 708 |
1 170 |
see Insurance risk |
||
Life and health |
8 633 |
9 857 |
1 224 |
see Insurance risk |
||
Financial market |
10 981 |
11 218 |
236 |
see Financial risk |
||
Credit1 |
3 371 |
3 496 |
125 |
see Financial risk |
||
Diversification |
–13 809 |
–14 945 |
–1 136 |
|
||
Total risk |
19 713 |
21 332 |
1 620 |
|
Swiss Re’s internal risk model takes account of the accumulation and diversification between individual risks. The effect of diversification at the category level is demonstrated in the table above, which represents the difference between the Group 99% tail VaR and the sum of standalone tail VaR amounts in the individual risk categories. The extent of diversification is largely determined by the selected level of aggregation – the higher the aggregation level, the lower the diversification effect.
USD billions |
SST 2019 |
SST 2020 |
Change in % |
||
---|---|---|---|---|---|
|
|||||
99% VaR1 |
14.8 |
16.1 |
9 |
||
99.5% VaR1 |
17.5 |
19.0 |
9 |
Alternative risk measurements — 99% and 99.5% VaR — increase to USD 16.1 billion and USD 19.0 billion, respectively.