Business activities

Reinsurance strategy and priorities

SRZ’s near-term priorities focus on achieving growth in targeted areas and sustaining the risk knowledge that underpins the capital allocation overall.

Large and tailored transactions in Reinsurance provide an attractive growth opportunity. They reinforce differentiation through tailored offerings, leveraging the strong risk knowledge base. SRZ is responding to the expanding need for health protection driven by ageing societies and will apply its risk knowledge experience to help reduce the protection gap in all regions.

SRZ intends to maintain its leading position in high-growth markets, establishing a strong presence. These regions continue to remain a key element of the strategy, even when they are temporarily challenged.

Property & Casualty Reinsurance business

Market environment

The global non-life reinsurance industry has experienced slight growth in 2018, driven by the emerging markets. Growth in advanced markets is attributable to strong economic momentum, especially in North America, and more favourable general market conditions, especially in natural catastrophes and casualty lines. Non-life premium development is expected to be stable across the global, advanced and emerging markets over the next two years. With the stabilisation of rates in 2019, the underwriting result for the global non-life sector is expected to remain slightly positive. Overall profitability of the global property/casualty insurance remains at moderate levels, also driven by continuing low investment returns.

Outlook

SRZ has benefitted from an improved non-life reinsurance market environment, with price increases and increasing interest rates impacting positively our long tail lines of business.

In the context of these favourable market conditions, SRZ is applying its selective growth strategy, specifically focused on portfolios with long-term profitability. Additionally, a differentiation approach is continuously applied and clients’ needs are addressed through the development of innovative, structured transactions. Further, SRZ is diversifying its access to various risk pools through the contribution of its three main pillars (core, transactions and solutions).

Life & Health Reinsurance business

Market environment

The life reinsurance industry registered a 2% increase in 2018. Underlying reinsurance premium growth in traditional reinsurance areas such as mortality and morbidity risk has again remained relatively subdued, but also other kinds of reinsurance transactions were sluggish this year. In mature markets, slow increases in the US were contrasted by healthy growth in Europe and Asia.

Against this background, life reinsurers have sought to increase revenues through large, individual risk transfer transactions that help primary insurers stabilise income and/or bolster their balance sheets. The introduction of risk-based capital regimes has prompted much of this activity. Another area of growth for reinsurers has been longevity risk transfer.

Continued recovery in primary insurance should support growth in life reinsurance revenues, including a recovery in traditional renewable business. Premium growth will nonetheless likely remain modest, especially in the large advanced markets. In real terms, global life reinsurance premiums are forecast to increase by around 2% in 2019 and 2020. Premiums in the advanced markets are projected to expand by below 1% annually, driven by developments in the US where cession rates continue their long-term down trend and growth in the primary market remains weak. In Western Europe, where cession rates are usually lower, reinsurance premiums are forecast to grow by about 1%. The strongest contribution to real growth in the advanced markets will likely come from developed markets in Asia.

Outlook

SRZ has experienced material growth of its life reinsurance portfolio, mostly reflecting the increasing diversification of its sources of earnings, through a larger mix of products lines and markets.

SRZ is diversifying its access to various risk pools through the contribution of its three main pillars (core, transactions and solutions). With this differentiation strategy, SRZ is aiming to deliver sustainable profitability.

Investments

Strategy and priorities

Financial investments are managed in accordance with Swiss Re’s Targeted Standard on Asset Management and SRZ’s investment guidelines, which are intended to ensure compliance with regulatory requirements. The general principle governing investment management in SRZ is the creation of economic value on the basis of returns relative to the liability benchmark, while adhering to the investment guidelines and the general prudence principle. The liability benchmark is determined by approximating an investable benchmark from projected liability cash flows. A cash benchmark is used for the economic surplus.

Outlook

Global economic growth has peaked and is expected to slow in 2019, particularly in advanced markets. In the US and Euro area, tighter financial conditions, the waning US fiscal stimulus and lingering political concerns are likely to weigh on growth. Economic growth in emerging Asia will slow moderately, but remains the strongest region globally, while Latin America is expected to see a modest growth recovery, albeit from a low base. In contrast to last year’s outlook, the balance of risks is seen as skewed to the downside, amid increasing protectionism (eg US-China trade conflict), ongoing monetary-policy tightening, late-cycle concerns (especially in the US) and uncertain (geo)politics (eg Brexit, European Parliament elections and elections in India, South Africa and Argentina).

Reinsurance and sub-holding company

SRZ, domiciled in Zurich, Switzerland, performs a dual role within the Swiss Re Group as both a reinsurance company and a sub-holding company for the Reinsurance Business Unit. SRZ is a wholly-owned subsidiary of Swiss Re Ltd, the ultimate parent company domiciled in Zurich, Switzerland.

Claims on and obligations towards affiliated companies

Share capital and major shareholder

The share capital of SRZ amounted to CHF 34 million. It is divided into 344 052 565 registered shares, each with a nominal value of CHF 0.10. The shares were fully paid-in and held directly by Swiss Re Ltd. As of 31 December 2018 and 2017, SRZ was a wholly-owned subsidiary of Swiss Re Ltd.

List of major branch offices

• Swiss Reinsurance Company Ltd, Australia Branch
• Swiss Reinsurance Company Ltd, Beijing Branch
• Swiss Reinsurance Company Ltd, Canada Branch
• Swiss Reinsurance Company Ltd, Hong Kong Branch
• Swiss Reinsurance Company Ltd, India Branch
• Swiss Reinsurance Company Ltd, Israel Branch
• Swiss Reinsurance Company Ltd, Japan Branch
• Swiss Reinsurance Company Ltd, Korea Branch
• Swiss Reinsurance Company Ltd, Kuala Lumpur Branch

Variable interest entities

SRZ and its subsidiaries enter into arrangements with variable interest entities (VIEs). For more information, please see (PDF:) Note 15 of SRZ’s consolidated 2018 Annual Report (available on www.swissre.com).

Significant events

The financial year 2018 was characterised by large intercompany transactions impacting both SRZ’s income statement and balance sheet. To further align the legal entity structure with the management view, SRZ sold the assets and liabilities of its Singapore branch to Swiss Re Asia Pte. Ltd. With this sale SRZ transferred related rights and obligations of the branch, including the entire reinsurance business as well as the employees employed by the branch. Following the sale, a new retrocession agreement for the life and health business transferred was set up from Swiss Re Asia Pte. Ltd., with a negative day-one impact on SRZ’s Life & Health Reinsurance result of CHF 297 million.

Further, SRZ sold its wholly-owned direct subsidiary Swiss Re Australia Ltd to Swiss Re Asia Holding Pte. Ltd. domiciled in Singapore, generating a one-off realised gain of CHF 545 million. In order to finance the sale, SRZ provided a capital contribution to Swiss Re Asia Holding Pte. Ltd. of CHF 1 236 million. This contribution increased the book value of SRZ’s direct subsidiary Swiss Re Reinsurance Holding Company Ltd in the same amount.

As a consequence of the new tax regime in the US, effective as of 31 December 2017, SRZ restructured its assumed intra-group retrocession agreements with the affiliated companies Swiss Reinsurance America Corporation and Swiss Re Life & Health America Inc. In 2018, these restructurings led to a one-off net gain of CHF 643 million in the Life & Health Reinsurance result.

In the last quarter of 2018, SRZ restructured its intra-group retrocession agreement with Swiss Re Life Capital Reinsurance Ltd for the Canadian life and health business, moving from a full funds withheld structure to a partial funds withheld and new securities lending agreements structure.

In order to further align the legal entity structure with the management view, SRZ is going to sell the assets and liabilities of its Korea branch to Swiss Re Asia Pte. Ltd., Korea branch, effective 1 January 2019. With this sale SRZ will transfer related rights and obligations of the branch to Swiss Re Asia Pte. Ltd., Korea branch, including the entire reinsurance business as well as the employees, employed by the branch of SRZ. Furthermore, SRZ plans to sell its remaining Asian branches to Swiss Re Asia Pte. Ltd. in the upcoming years.

Following the new tax regime in the US, effective as of 31 December 2017, SRZ will further restructure its intra-group retrocession agreements with the affiliated companies through a taxable presence in the US.

Report of the statutory auditors

PricewaterhouseCoopers Ltd is the auditor of SRZ. For more information, please see the (PDF:) Report of the statutory auditor in SRZ’s 2018 Annual Report (available on www.swissre.com).