Insurance risk
Insurance risk management involves identifying, assessing and controlling risks that Swiss Re takes through its underwriting activities, including related risks such as inflation or uncertainty in pricing and reserving.
Risk Management also provides independent assurance throughout the business cycle, starting with the annual business planning process. It reviews underwriting standards, costing models and large transactions, and monitors exposures, reserves and limits.
Swiss Re’s Group limit framework includes risk limits for major insurance exposures that guard against risk accumulations and ensure that risk-taking remains within Swiss Re’s risk tolerance. At the entity level, underwriting and capacity limits are assigned that are used to ensure adherence to the Group’s risk limits and SST capitalisation targets.
Regular internal reports ensure transparency across the Group, providing management with quantitative and qualitative risk assessments. Swiss Re’s insurance risk landscape and related governance processes are regularly discussed and reviewed by the Senior Risk Council and other insurance risk oversight bodies in order to assist and advise the Group CRO on risk oversight.
Swiss Re also manages and mitigates insurance risk through external retrocession, insurance risk swaps or by transferring risk to capital markets. This provides protection against extreme catastrophic events, further diversifies risk, stabilises economic results and releases underwriting capacity.
Annualised unexpected loss, 99.5% VaR in USD millions1 |
SST 2020 |
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|---|---|---|---|
|
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Atlantic hurricane |
6 371 |
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Californian earthquake |
4 406 |
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European windstorm |
2 369 |
||
Japanese earthquake |
3 668 |
||
Lethal pandemic |
3 086 |
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In SST 2020, the largest natural catastrophe exposure for Swiss Re Group derives from the Atlantic hurricane scenario with a USD 6.4 billion loss. The lethal pandemic loss is estimated to be at USD 3.1 billion.
Property and casualty risk
+11%
Change since SST 2019
Risk developments
The increase in property and casualty risk mainly reflects growth in property business translating into higher exposure to key natural catastrophe scenarios. Higher costing and reserving risk further contributes to the increase driven by higher reserves related to the 2019 large losses, business growth and, to a lesser extent, reserve strengthening for US liability.
Management
The legal entity CROs are responsible for overseeing all property and casualty exposures written in their areas. In addition, Group Risk Management monitors and controls accumulated exposures across Swiss Re to ensure that they remain within the defined risk tolerance level.
The first line of control for property and casualty risks lies within Swiss Re’s underwriting units. In general, all transactions must be reviewed by at least two authorised individuals, and are subject to authority limits. Each underwriter is assigned an individual authority based on technical skills and experience. In addition, capacity limits are allocated to local teams; any business that exceeds this authority or is otherwise complex or unusual triggers an escalation process that extends up to the Group Executive Committee. Certain single risks and specified renewable treaty classes with non-material changes can be authorised by only one individual underwriter with the necessary authority − but these risks and treaties are subject to checks after acceptance.
All transactions that could materially impact the risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they are authorised. This is part of a three-signature principle, under which key transactions must be approved by Client Markets, Underwriting and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through an individual review.
Swiss Re’s limit framework for property and casualty exposures includes risk limits for major natural catastrophe scenarios and other key risks, such as terrorism, claims inflation, reserving and liability.
Life and health risk
+14%
Change since SST 2019
Risk developments
Higher life and health risk mainly reflects the impact of lower interest rates and the appreciation of the Canadian dollar and British pound against the US dollar. The overall increase is further driven by business growth in Asia and the US, resulting in higher exposure to critical illness, lethal pandemic, mortality trend and lapse risk.
Management
The legal entity CROs are responsible for overseeing all life and health exposures written in their respective areas. Accumulated exposures across Swiss Re are monitored and controlled by Group Risk Management to ensure that they remain at an acceptable level for the Group.
Underwriters represent the first line of control for life and health risks. All transactions that could materially change risk at Group level or for key legal entities require independent review and sign-off by Risk Management before they can be authorised. This is part of a three-signature principle, under which key transactions must be approved by Client Markets, Underwriting and Risk Management. For transactions of defined types and within defined limits, this may be applied through the approval of underwriting or pricing guidelines. For other transactions, the signatures must be secured through a review of the individual transaction.
Swiss Re’s limit framework for life and health exposures includes risk limits for key risks, such as mortality, longevity, lethal pandemic, critical illness and income protection risk. Market exposure limits are in place for catastrophe and stop loss business. Swiss Re pays particular attention to densely populated areas and applies limits for individual buildings to guard against risk exposure accumulations.