Risk profile

SRLC Re assumes all its business via intra-group transactions from other entities within the Swiss Re Group. SRLC Re is exposed to insurance and financial risks, 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 the entity. These include operational, liquidity, model, valuation, regulatory, political and strategic risks (see Swiss Re’s risk landscape, 2018 Financial Report, p. 88).

On the insurance risk side, SRLC Re is exposed to life and health risk, which is driven by lapse, lethal pandemic, income protection and mortality trend risk. Going forward, SRLC Re will also be exposed to property and casualty risks written by a newly formed subsidiary, iptiQ EMEA P&C S.A., but these are expected to remain immaterial in 2019.

The financial risk of SRLC Re arises from both financial market risk and credit risk. Key drivers of financial market risk are credit spread and foreign exchange risk. Credit risk is mainly driven by the default risk on the US funds withheld credit assets.

Total risk

Total risk is based on 99% tail VaR and represents the average unexpected loss that occurs with a frequency of less than once in 100 years over a one-year time horizon.

Total risk increases by USD 35 million to USD 563 million due to higher life and health risk, partly offset by lower financial market risk.

• The increase in life and health risk results from model improvements, new business growth within the open-book cedents, and the inclusion of a previously non-modelled stop loss treaty with Elips Life AG (Elips Life Ltd). These increases are partly offset by the impact of higher US dollar interest rates.
• The decrease in financial market risk mainly results from a reduction in credit spread exposure due to spread widening throughout the period.
• The slight decrease in credit risk reflects the impact of market movements which reduce the value of the US funds-withheld credit assets.

Operational risk

SRLC Re uses the Group-wide risk matrix methodology and Swiss Re’s Global Risk Register to capture operational risks which exceed or approach SRLC Re’s risk tolerance limit. Adherence to risk tolerance is monitored and reported at least on a quarterly basis.

SRLC Re has proper processes and procedures in place in order to identify and implement mitigation strategies, closely monitor their developments and – if required – act timely upon changes to these risks.

As of SST 2019, SRLC Re’s operational risk management efforts are directed towards mitigating risks related to people risk and key person dependency.

Other significant risks

For details on other significant risks, including liquidity, model, valuation, regulatory, political, strategic and sustainability risks, see the Group’s 2018 Financial Report sections on Liquidity management on page 80, Swiss Re’s risk landscape on pages 88 and 89, and Management of other significant risks on pages 94–97.

Risk concentration

SRLC Re uses 99% tail VaR to measure its risk concentrations. Additionally, risk concentrations can also be measured via value at risk calculations for lethal pandemic and lapse risk, stress calculations for credit default, as well as sensitivities to key financial market parameters.

SRLC Re assesses potential annualised losses from insurance peak scenarios (lethal pandemic, lapse) with a return period of 200 years as well as the annualised potential loss from a credit default event. The impacts of financial risk sensitivities (interest rates +/– 50 bps, credit spreads +/– 50 bps, equity values +/– 25%, real estate values +/– 25%) are assessed in terms of impact on the SST ratio.

SRLC Re’s largest potential annualised loss from an insurance peak scenario or a credit default event in SST 2019 derives from the lapse scenario.

Among the financial market sensitivities, SRLC Re’s SST ratio is most sensitive to a 50-bps increase in credit spreads.

Risk mitigation

SRLC Re manages and controls its risks through a limit framework.