Financial highlights (unaudited) For the three months ended 31 March

Transcription

1 Swiss Re Group First Quarter 2013 Report

2 Key information Financial highlights (unaudited) For the three months ended 31 March USD millions, unless otherwise stated Change in % Group Net income attributable to common shareholders Premiums earned and fee income Earnings per share in CHF Shareholders equity ( / ) Return on equity1 in % (annualised) Return on investments in % (annualised) Number of employees2 ( / ) Property & Casualty Reinsurance Net income attributable to common shareholders Premiums earned Combined ratio in % Return on equity1 in % Life & Health Reinsurance Net income attributable to common shareholders Premiums earned and fee income Benefit ratio in % Return on equity1 in % Corporate Solutions Net income attributable to common shareholders Premiums earned Combined ratio in % Return on equity1 in % Admin Re Net income attributable to common shareholders Premiums earned and fee income Return on equity1 in % Return on equity is calculated by dividing annualised net income attributable to common shareholders by average common shareholders equity. 2 Regular staff Share price (CHF) Swiss Re Swiss Market Index STOXX Europe 600 Insurance Index Financial strength ratings As of 30 April 2013 S&P Moody s A.M. Best Rating AA A1 A+ Outlook stable positive stable Share information As of 30 April 2013 Share price in CHF Market capitalisation in CHF millions Share performance in % 1 January April 2013 (p.a.) Year to 30 April 2013 Swiss Re Swiss Market Index STOXX Europe 600 Insurance Index

3 Content 02 Letter to shareholders 04 Key events 06 Group results 08 Reinsurance 08 Property & Casualty Reinsurance 09 Life & Health Reinsurance 10 Corporate Solutions 11 Admin Re 12 Outlook 78 General information 79 Note on risk factors 86 Cautionary note on forwardlooking statements 14 Financial statements 14 Income statement 15 Statement of comprehensive income 16 Balance sheet 18 Statement of equity 20 Statement of cash flow 23 Notes to the Group financial statements 23 Note 1 Organisation and summary of significant accounting policies 25 Note 2 Investments 32 Note 3 Fair value disclosures 49 Note 4 Derivative financial instruments 54 Note 5 Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP) 55 Note 6 Debt and contingent capital instruments 56 Note 7 Insurance information 61 Note 8 Premiums written 62 Note 9 Earnings per share 63 Note 10 Benefit plans 65 Note 11 Information on business segments 74 Note 12 Variable interest entities Swiss Re Ltd Swiss Re Ltd is the holding company of the Swiss Re Group. Its shares are listed on the SIX Swiss Exchange and trade under the symbol SREN. Swiss Re First Quarter 2013 Report 1

4 Letter to shareholders Letter to shareholders A very strong quarter for Swiss Re Dear shareholders We are proud to present to you the results of our excellent performance over the first quarter of 2013: the Group delivered a very strong net income of USD 1.4 billion, or 21% higher than in the same period of This is a great start to our 150th anniversary year and an impressive step toward reaching all three of our financial targets. Achieving these targets remains our top priority. This result was led by the Property & Casualty Reinsurance segment, where net income was USD 1.0 billion 53% higher than in the first quarter of This excellent performance as well as the combined ratio of 69.7% is backed by the very strong quality of our underwriting and positive claims development from business written in prior years. A benign natural catastrophe experience in the quarter helped as well. Successful April renewals, mostly in Asia, provide clear evidence of our ability to earn and maintain our clients trust. The Life & Health Reinsurance segment contributed net income of USD 222 million. That is about the same as in the first quarter of There is work to be done to strengthen the profitability of this segment, and we are finalising our plans to do so. We will announce these plans at our Investors Day in June. Corporate Solutions also delivered a very strong performance, with net income of USD 101 million, or 20.2% higher than in the first quarter of Our combined ratio here was 87.6%. Such results make clear that Corporate Solutions has taken its place as one of the drivers of growth for the Group. Admin Re delivered net income of USD 78 million. This confirms that, after the sale of its US business in the third quarter of 2012, we now have a stronger in-force business with enhanced gross cash generation capacity. Through Admin Re, we can deliver capital up to the Group in order to deploy it to opportunities that meet our profitability requirements or pay it out as dividends to our shareholders. We are actively seeking opportunities in the UK and Continental Europe where we can generate even more value from Admin Re s strengths. This may include Admin Re seeking thirdparty capital. While our results look very good, we must bear in mind that the environment in which we operate and compete remains challenging. The global economic outlook is still subdued overall. We expect growth in the United States to continue, albeit at current low levels. Risks in Europe have decreased, but the region appears likely to remain in recession this year. The bulk of world economic growth is expected to come from emerging markets, notably China. We expect weak growth and low interest rates to continue for at least another year, which will restrain growth in our industry. Low interest rates inflate the value of re/insurers assets, while weak growth diminishes demand for insurance. These factors may lead to subdued price increases increases which we believe are necessary to provide a firm foundation for our industry in the long term. 2 Swiss Re First Quarter 2013 Report

5 Letter to shareholders Walter B. Kielholz Chairman of the Board of Directors Michel M. Liès Group CEO 1.4 Group net income USD billions For life and health re/insurance the situation is more pressing. Primary life insurers are shifting away from savings products and into protection products. We expect traditional life reinsurance premiums to remain broadly flat in real terms. Because a significant part of global economic growth short-term as well as long-term will take place outside our traditional markets in the US and Europe, we want to focus on high growth markets in Asia, Africa and Latin America. In countries where there is broad and sustained economic growth, demand for insurance is sure to follow. We witnessed this in Taiwan and South Korea two decades ago. We are devoting significant resources to these markets, especially in the targeted lines where we see compelling opportunities, such as health and property in the Reinsurance Business Unit and special lines and agriculture in our direct business. We are very grateful for your support and hope that these results have reinforced your confidence in Swiss Re. All credit goes to the more than employees whose hard work lies behind this excellent performance. Their spirit and professionalism is the source of value creation for both our clients and shareholders alike. Zurich, 2 May 2013 Walter B. Kielholz Chairman of the Board of Directors Michel M. Liès Group CEO Swiss Re First Quarter 2013 Report 3

6 Key events 3 January 2013 Swiss Re places USD 270 million of North American earthquake risk Swiss Re Capital Markets has successfully structured and placed USD 270 million of notes issued by Lakeside Re III Ltd., covering North American earthquake risk on behalf of Zurich Insurance Group. The transaction demonstrates Swiss Re s strong commitment to serve clients in transferring natural catastrophe risks to the capital markets. 21 February 2013 Swiss Re delivers net income of USD 4.2 billion for 2012; a regular dividend of CHF 3.50 per share and an additional special dividend of CHF 4.00 per share to be proposed The 2012 net income was driven by very strong profitability in Property & Casualty Reinsurance and an excellent investment result. Swiss Re s Board of Directors proposes a regular dividend of CHF 3.50 per share and an additional special dividend of CHF 4.00 per share, amounting to a total return of capital to shareholders of approximately USD 2.8 billion. 15 March 2013 Swiss Re announces proposals for Annual General Meeting The Board of Directors proposes an ordinary dividend of CHF 3.50 per share and an additional special dividend of CHF 4.00 per share. The Board of Directors further proposes the election of Mary Francis as a new independent member of the Board of Directors for a three-year term of office. Swiss Re also publishes its 2012 Annual Report, Working together, achieving the best, and its Economic Value Management (EVM) 2012 report. 28 March 2013 Dispute with Berkshire Hathaway settled Swiss Re settled a dispute with Berkshire Hathaway over a life retrocession agreement which was concluded in Under the terms of the agreement reached with Berkshire Hathaway, Swiss Re will recapture certain treaties and Berkshire Hathaway will make a payment of USD 610 million to Swiss Re. The limits under the contract have also been amended and Berkshire Hathaway will now assume total losses of up to USD 1.05 billion under the contract compared to USD 1.5 billion in the original agreement. 10 April 2013 Swiss Re shareholders approve proposals put forward by the Board of Directors at Swiss Re s Annual General Meeting Swiss Re Ltd s shareholders approved all proposals at its Annual General Meeting, including the increase in regular dividend to CHF 3.50 per share (from CHF 3.00 in 2012) as well as an additional special dividend of CHF 4.00 per share. Together, this represents a return of USD 2.8 billion of capital to shareholders and is a reflection of Swiss Re s strong capital position. At the Annual General Meeting, shareholders elected Mary Francis to the Board of Directors for a three-year term of office, and re-elected current Board members Walter B. Kielholz, Malcolm D. Knight, Carlos E. Represas and Jean-Pierre Roth for another term. The shareholders also approved the proposed changes to the capital structure. 4 Swiss Re First Quarter 2013 Report

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8 Group results Swiss Re reported net income of USD 1.4 billion for the first quarter of 2013, compared to net income of USD 1.1 billion in the prior-year period. Earnings per share were CHF 3.72 or USD 4.02, compared to CHF 3.08 (USD 3.33) in the first quarter of The Group results in the first quarter of 2013 reflected a strong underlying performance supported by the absence of large natural and man-made catastrophe losses in the quarter and by prior-year reserve releases. Property & Casualty Reinsurance reported net income of USD 1.0 billion after USD 660 million in the prior-year period, benefiting from strong underwriting results as well as the absence of large man-made and natural catastrophe losses and from positive development of prior-year reserves. Life & Health Reinsurance delivered net income of USD 222 million compared to USD 209 million in the first quarter of Favourable results in the variable annuity business and from the settlement of the dispute with Berkshire Hathaway were partially offset by less favourable mortality experience, higher expenses and lower investment income. Corporate Solutions delivered net income of USD 101 million compared to USD 84 million in the prior-year period, reflecting continued premium growth, the absence of major natural catastrophe losses in the first quarter and realised investment gains and gains on insurance business written in derivative form. Admin Re reported net income of USD 78 million compared to USD 174 million in the prior-year period, with the reduction in net income mainly attributable to a 2012 one-time tax benefit in the UK not repeated in The comparative period of 2012 also included the results of Admin Re US operations that were sold in the third quarter of The very strong Group combined ratio of 72.4% in the first quarter of 2013, compared to 84.9% in the same period of the prior year, was driven by a strong underlying business performance, successful 2013 renewals, the absence of any new large natural catastrophe losses and by positive development of prior-year reserves. Return on investments was 3.4%, compared to 4.0% for the same period in 2012, mainly driven by lower realised gains from sales compared to the prior-year period. Return on investments excluding foreign exchange impacts was 3.6% in the reporting period compared to 4.4% in first quarter of Shareholders equity increased to USD 34.8 billion from USD 34.0 billion as of 31 December The growth in shareholdersʼ equity from net income generated in the first quarter of 2013 was partially offset by a reduction in unrealised gains on investments and negative foreign currency translation adjustments. For the first quarter of 2013, annualised return on equity increased to 16.6%, compared to 13.4% for the full year 2012, and 15.3% (annualised) for the first quarter of Book value per common share rose to USD or CHF at the end of March 2013, compared to USD or CHF at the end of December Book value per common share is based on common shareholders equity and excludes non-controlling interests and the impact of contingent capital instruments. For information on segment shareholdersʼ equity, please see pages 68 to 69. First quarter 2013 operating performance Premiums earned increased 15% to USD 3.5 billion for Property & Casualty Reinsurance, mainly driven by the expiry of the quota share agreement with Berkshire Hathaway and continued earnings from large transactions written in Life & Health Reinsurance premiums and fees increased 6% to USD 2.3 billion, driven by increased health premiums in Europe and Asia as well as increased longevity premiums. Corporate Solutions premiums earned increased 15% to USD 613 million, reflecting organic growth across most lines of business. The Group s non-participating net investment income decreased to USD 0.9 billion, compared to USD 1.2 billion in the same period of the prior year. The decrease was primarily driven by the sale of the Admin Re US business in 2012 in addition to lower yields. The Groupʼs running yield was 3.0% in the reporting period, compared to 3.5% in the same period of the prior year. The Group reported non-participating net realised investment gains of USD 0.2 billion in the first quarter of 2012 and The first quarter of 2013 benefited from realised gains on sales of investments. Property & Casualty Reinsuranceʼs combined ratio of 69.7% reflected a very benign large loss experience and favourable net reserve development for prior years, as well as lower administrative expenses. Corporate Solutionsʼ result reflected no large catastrophe losses and favourable net reserve development compared to the first quarter of The combined ratio in the reporting period was 87.6%, compared to 84.7% in the same period of the prior year, mostly driven by an increase in the expense ratio. 6 Swiss Re First Quarter 2013 Report

9 Group results Life & Health Reinsurance benefits increased 13% to USD 1.7 billion over the prior-year quarter. The business segment benefited from a one-off gain of USD 75 million from the recapture of retrocessions in the quarter. The benefit ratio was 78.5% in the first quarter of 2013 from 74.4% in the same period of Returns credited to policyholders reflected the investment performance on the underlying assets, mainly backing unitlinked and with-profit policies, which are passed through to policyholders. In the first quarter of 2013, an investment gain of USD 2.1 billion was passed through to policyholders compared to a gain of USD 1.4 billion in the prior-year period. Acquisition costs for the Group decreased by 5% to USD 1.1 billion, reflecting the impact of the recapture of retrocessions partially offset by higher business volumes, particularly for Property & Casualty Reinsurance and Corporate Solutions. Administrative expenses were USD 746 million, 19% higher than the prioryear period due to various growth initiatives. Other expenses were USD 71 million. The administrative expense ratio was 11.0% for the quarter, compared to 10.5% for the prior-year period. Interest expenses were USD 188 million, remaining stable compared to the first quarter of The Group reported a tax expense of USD 535 million on a pre-tax income of USD 1.9 billion in the first quarter of 2013, compared to an expense of USD 263 million on a pre-tax income of USD 1.4 billion for the same period in This translates into an effective tax rate in the current and prior-year reporting periods of 27.7% and 18.4%, respectively. Income statement USD millions Change in % Revenues Premiums earned Fee income from policyholders Net investment income non-participating Net realised investment gains/losses non-participating Net investment result unit-linked and with-profit Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Return credited to policyholders Acquisition costs Administrative expenses Other expenses Interest expenses Total expenses Income before income tax expense Income tax expense Net income before attribution of non-controlling interests Income attributable to non-controlling interests Net income after attribution of non-controlling interests Interest on contingent capital instruments 3 18 Net income attributable to common shareholders Swiss Re First Quarter 2013 Report 7

10 Reinsurance The Reinsurance Business Unit reports the segments Property & Casualty Reinsurance and Life & Health Reinsurance. Property & Casualty Reinsurance Net income for the first quarter of 2013 increased to USD 1.0 billion, compared to USD 0.7 billion in the first quarter of The results were driven by strong underwriting results, reflecting significant premium growth and very good claims experience, supported by the absence of any new large man-made or natural catastrophe losses and by favourable prioryear reserve development. Net premiums earned Net premiums earned increased 15.1% to USD 3.5 billion in the first quarter of 2013, compared to USD 3.1 billion in the same period of The strong increase in premiums earned was mainly driven by the expiry of the 20% quota share agreement with Berkshire Hathaway and continued premium earnings from large transactions written in 2012, compensating for the share reduction on a large capital relief quota share contract in Europe. Combined ratio Property & Casualty Reinsurance reported an exceptionally low combined ratio of 69.7% for the first quarter of 2013, compared to 85.0% in the prior-year period. The improvement was largely driven by better current year claims experience, and favourable net development of prior accident years as well as lower administrative expenses. The expected impact from large natural catastrophes on the combined ratio in the first quarter of 2013 was 8.9 percentage points. The actual impact for the reporting period was nil, as no claims above the USD 20 million threshold were recorded. Net reserve releases in prior accident years improved the combined ratio in the first quarter of 2013 by 8.2 percentage points. By comparison the combined ratio for the first quarter of 2012 was impacted by loss estimate increases for large prior natural catastrophe events, resulting in an unfavourable net impact from prior accident years of 1.3 percentage points in the first quarter of Expense ratio The expense ratio improved by 2.2 percentage points to 9.1% in the first quarter of 2013 compared to 11.3% in the same period of 2012, mainly driven by premium growth year on year. Lines of business The property combined ratio improved to 56.3% in the first quarter of 2013, compared to 71.0% in the first quarter of 2012, reflecting the absence of large natural catastrophe events and better prior-year claims experience in the reporting period. The casualty combined ratio was 90.0% in the first quarter of 2013, compared to 103.1% in the first quarter of The improvement was mainly due to higher net reserve releases for prior accident years in the first quarter of 2013 than in the same period of The specialty combined ratio improved to 61.4% in the first quarter of 2013, compared to 80.5% in the first quarter of 2012, largely driven by better claims experience year on year. The first quarter of 2012 was impacted by the grounding of Costa Concordia. Investment result The return on investments was 2.6% in the first quarter of 2013, compared to 3.5% in the same period of 2012, mainly due to lower net investment income and lower realised gains year on year. The reduction of the investment result of USD 128 million was driven by lower mark-to-market gains on private equity investments and the transfer of Principal Investments from Property & Casualty Reinsurance to the Group in the first quarter of The latter had a negative impact of USD 56 million. Return on equity The annualised return on equity for the first quarter of 2013 was 35.5%, mainly due to the strong underwriting result, as well as to the continued good investment performance in a low-yield market environment. In addition, shareholdersʼ equity was impacted during the quarter by USD 2.2 billion due to the transfer of Principal Investments to the Group (USD 1.2 billion) which was in the form of a dividend in-kind, as well as due to a cash dividend payment to the Group of USD 1.0 billion. Outlook Overall, price developments in the insurance and reinsurance markets lack clear direction. While insurance and reinsurance rates in US casualty are moderately increasing, prices for nat cat reinsurance in Japan and the US have started to give in while still remaining on a strong level. In this market environment, our superior risk selection will be a key value driver. We believe we are well positioned to support clients in both developed and high growth markets, and to meet increased demand for tailored solutions. We are likely to continue to see an increase in retained premiums due to the expiry of a 20% quota share treaty with Berkshire Hathaway. 8 Swiss Re First Quarter 2013 Report

11 Reinsurance Life & Health Reinsurance Net income increased to USD 222 million in the first quarter of 2013 from USD 209 million in the first quarter of The increase was primarily attributable to favourable results in the variable annuity business and positive recaptures from the settlement of the dispute with Berkshire Hathaway, partially offset by less favourable mortality experience, higher expenses and lower investment income. Net premiums earned Premiums earned and fee income increased 6.4% to USD 2.3 billion in the first quarter of 2013, primarily a result of increased health premiums in Europe and Asia and increased longevity premiums. Benefit ratio The benefit ratio rose to 78.5% in the first quarter of 2013 compared to 74.4% in the same period of the prior year, mainly due to less favourable mortality experience and slightly higher morbidity experience. Expense ratio The management expense ratio increased to 8.2% in the reporting period from 6.2% in the first quarter of The increase was primarily due to higher costs related to strategic initiatives in the current year and a one-time expense reduction in the prioryear period relating to the reimbursement of servicing costs. Lines of business Operating income for traditional life business increased to USD 252 million in the first quarter of 2013 from USD 170 million in the same period of The result was driven primarily by USD 72 million from the variable annuity business, USD 75 million in positive recaptures and a loss of USD 26 million in the pre-2004 US business compared to a loss of USD 57 million in the first quarter of These positive changes were partially offset by less favourable mortality experience in the current reporting year period compared to the prioryear period and lower investment income. Operating income for the traditional health business decreased to USD 108 million in the first quarter of 2013, compared to USD 145 million in the first quarter of 2012, primarily driven by unfavourable morbidity experience and higher administrative expenses related to strategic initiatives. Investment result The return on investments was 3.9% in the first quarter of 2013, compared to 4.3% in the same period of Net realised investment gains were USD 111 million compared to USD 118 million in the same period of The realised gains included favourable foreign exchange rate movements of USD 29 million in the current year. Realised gains in 2012 included foreign exchange losses of USD 127 million. Return on equity The annualised return on equity was 12.6% for the first quarter of The quarter saw a USD 1.1 billion reduction of shareholdersʼ equity as of 31 March 2013, mainly due to the payment of USD 1.0 billion in dividends to the Group and a reduction of unrealised gains on available-for-sale securities. Outlook Growth in the traditional life business is expected to be muted as cession rates are expected to decrease as primary insurers retain more risk. The low interest rate environment will also continue to have an unfavourable impact on the growth of longterm life business for our cedents. In this environment Life & Health Reinsurance is proactively managing the in-force business in order to improve profitability, write new business at attractive rates (including through large transactions) as well as diversify into longevity risk. Furthermore, Swiss Re is planning to offer its solutions and services in several attractive, growing markets where major demographic and socio-economic trends are leading to increased demand for health insurance, including in Asia. Swiss Re First Quarter 2013 Report 9

12 Corporate Solutions Net income reached USD 101 million in the first quarter of 2013, an increase of 20.2% compared to USD 84 million in the same period of The result benefited from continued premium growth, realised investment gains and gains on insurance business written in derivative form, as well as an absence of major natural catastrophe losses in the first quarter. Net premiums earned Net premiums earned increased 15.4% to USD 613 million in the first quarter of 2013, compared to USD 531 million in the same period of 2012, driven by successful organic growth across most lines of business. Gross written premium net of intra-group transactions increased 8.0% to USD 488 million in the first quarter of 2013, compared to USD 452 million in the same period of Combined ratio The combined ratio deteriorated by 2.9 percentage points to 87.6% in the first quarter of 2013 from 84.7% in the same period of The expense ratio increased from 32.4% in the first quarter of 2012 to 34.4% in the first quarter of 2013, primarily driven by increased amortisation of software expense. Lines of business The property combined ratio was 77.7% in the first quarter of 2013 and 79.5% in the same quarter of 2012, reflecting the absence of major natural catastrophe losses in the reporting period. The casualty combined ratio deteriorated by 17.2% to 110.9% in the first quarter of 2013 due to negative reserve development in the Accident & Health business. The credit combined ratio increased to 69.6% in the first quarter of 2013, compared to 63.3% in the same quarter of 2012, mostly related to expense increases. In other specialty, the combined ratio improved to 76.3% in the first quarter of 2013, compared to 88.3% in the first quarter of A large marine loss in 2012 and a large space loss in 2013 were both offset by favourable reserve development. Investment result The return on investments of 3.2% in the first quarter of 2013 remained consistent with the same period of Net investment income was up slightly year on year, despite lower yields, due to the increase in invested assets. Realised gains were also up compared to the same quarter in 2012; however, the return on investment was flat due to the higher asset base. Realised insurance derivative gains, which are not included in return on investments, increased to USD 20 million in the first quarter of 2013, compared to a loss of USD 16 million in the same period of These contracts offer protection against weather perils and other risks related to insurance, but are accounted for as derivatives. Return on equity Annualised return on equity reached 13.1% in the first quarter of 2013, compared to 13.9% in the same period of Shareholdersʼ equity increased to USD 3.1 billion at the end of the first quarter of 2013, compared to USD 2.6 billion in the same quarter of the prior year and USD 3.0 billion as of year-end Outlook Pricing trends for corporate insurance are improving moderately, though differences in quality between geographies and types of business continue to exist. The most pronounced price increases were again in North America and generally for lossaffected segments. Corporate Solutions believes it is well positioned to capture opportunities thanks to its value proposition, strong balance sheet and expanding geographic reach. 10 Swiss Re First Quarter 2013 Report

13 Admin Re Admin Re reported net income of USD 78 million in the first quarter of 2013, reflecting positive performance subsequent to the sale of the Admin Re US business in The USD 78 million compares to USD 174 million in the prior-year period, with the reduction in net income mainly attributable to a 2012 one-time tax benefit in the UK not repeated in The 2012 comparative period also included USD 18 million from the results of the Admin Re US operations, the sale of which closed in the third quarter of Operating revenues Premiums and fee income were USD 322 million in the first quarter of 2013 compared to USD 434 million in the prioryear period, with the decrease mainly due to lower revenues following the sale of the Admin Re US business. Gross cash generation Gross cash generation reflects the statutory surplus from life companies less working capital requirements, with Admin Re generating USD 63 million in the first three months of Investment result The return on investments was 4.7% for the first three months of 2013, a reduction from the 5.0% return for the prior-year period. The return on investments was driven by net investment income on corporate and government bonds. Proprietary net investment income decreased to USD 287 million in the first quarter of 2013, compared to USD 439 million in the first quarter of The running yield on investments declined to 4.1% in 2013 from 4.3% in the first quarter of 2012, primarily due to lower yields on new asset purchases. Expenses Administrative expenses were USD 119 million in the first quarter of 2013, an increase of USD 7 million compared to the first quarter of The increase reflected a property write-down partially offset by lower administrative expenses following the disposal of Admin Re US. Return on equity The annualised return on equity was 4.8% in the first quarter of the year, 4.6 percentage points lower than in the prior-year period, driven by the reduction in the levels of realised gains and nonrecurring one-off items. Shareholders equity Shareholders equity decreased by USD 199 million to USD million compared to 31 December The decrease was mainly due to adverse foreign currency movements and a reduction of unrealised gains arising in the reporting period. Outlook Admin Re continues to seek to fully establish its franchise value in the UK and Continental Europe and contribute to Swiss Re s financial targets to deliver on its strategic aim of being a recognised force in the closed life book business. Admin Re is actively seeking to explore new opportunities that meet Swiss Re s investment criteria and hurdle rates, with this potentially including the option to involve third-party capital. Swiss Re First Quarter 2013 Report 11

14 Outlook Delivering on our financial targets remains our top priority. All Business Units contributed to the strong first quarter result. The 2013 renewals to date show a continued strong environment for property and casualty business, which we expect to see reflected in July renewals in our Property & Casualty Reinsurance segment and in continued growth from Corporate Solutions within its return on equity target range. We have made progress in our Life and Health businesses, with work on their profitability continuing. We are undertaking a comprehensive review of the Life & Health Reinsurance business and will share the results of that review at the June 2013 Investorsʼ Day. The Admin Re Business Unit is open to new business and possible third-party capital. 12 Swiss Re First Quarter 2013 Report

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16 Financial statements Income statement (unaudited) For the three months ended 31 March USD millions Note Revenues Premiums earned Fee income from policyholders Net investment income/loss non-participating Net realised investment gains/losses non-participating business (total impairments for the three months ended 31 March were 104 in 2012 and 12 in 2013, of which 79 and 12, respectively, were recognised in earnings) Net investment result unit-linked and with-profit Other revenues 12 5 Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Return credited to policyholders Acquisition costs Other expenses Interest expenses Total expenses Income before income tax expense Income tax expense Net income before attribution of non-controlling interests Income attributable to non-controlling interests 25 0 Net income after attribution of non-controlling interests Interest on contingent capital instruments 3 18 Net income attributable to common shareholders Earnings per share in USD Basic Diluted Earnings per share in CHF1 Basic Diluted The translation from USD to CHF is shown for informational purposes only and has been calculated using the Group s average exchange rates. The accompanying notes are an integral part of the Group financial statements. 14 Swiss Re First Quarter 2013 Report

17 Financial statements Statement of comprehensive income (unaudited) For the three months ended 31 March USD millions Net income before attribution of non-controlling interests Other comprehensive income, net of tax: Change in unrealised gains/losses (tax: 306 in 2012 and 193 in 2013) Change in other-than-temporary impairment (tax: 28 in 2012 and 3 in 2013) 54 6 Change in foreign currency translation (tax: 52 in 2012 and 67 in 2013) Change in adjustment for pension benefits (tax: 1 in 2012 and 14 in 2013) 1 46 Total comprehensive income before attribution of non-controlling interests Interest on contingent capital instruments 3 18 Comprehensive income attributable to non-controlling interests 25 Total comprehensive income attributable to common shareholders Reclassification out of accumulated other comprehensive income For the three months ended 31 March Other-thantemporary impairment1 Accumulated other comprehensive income Unrealised Foreign currency Adjustment from 2013 USD millions gains/losses1 translation1, 2 pension benefits3 Balance as of 1 January Change during the period Reclassification adjustment, included in net income Tax Balance as of period end Reclassification adjustment included in net income is presented in the Net realised investment gains/losses non-participating business line. 2 Reclassification adjustment is limited to translation gains and losses realised upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity. 3 Reclassification adjustment included in net income is presented in the Other expenses line. The accompanying notes are an integral part of the Group financial statements. Swiss Re First Quarter 2013 Report 15

18 Financial statements Balance sheet (unaudited) Assets USD millions Note Investments 2, 3, 4 Fixed income securities: Available-for-sale, at fair value (including in 2012 and in 2013 subject to securities lending and repurchase agreements) (amortised cost: in 2012 and in 2013) Trading (including 196 in 2012 and 140 in 2013 subject to securities lending and repurchase agreements) Equity securities: Available-for-sale, at fair value (including 0 in 2012 and 8 in 2013 subject to securities lending and repurchase agreements) (cost: in 2012 and in 2013) Trading Policy loans, mortgages and other loans Investment real estate Short-term investments, at amortised cost which approximates fair value (including in 2012 and in 2013 subject to securities lending and repurchase agreements) Other invested assets Investments for unit-linked and with-profit business (including fixed income securities trading: in 2012 and in 2013, equity securities trading: in 2012 and in 2013) Total investments Cash and cash equivalents (including 75 in 2012 and 692 in 2013 subject to securities lending) Accrued investment income Premiums and other receivables Reinsurance recoverable on unpaid claims and policy benefits Funds held by ceding companies Deferred acquisition costs Acquired present value of future profits Goodwill Income taxes recoverable Deferred tax assets Other assets Total assets The accompanying notes are an integral part of the Group financial statements. 16 Swiss Re First Quarter 2013 Report

19 Financial statements Liabilities and equity USD millions Note Liabilities Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Policyholder account balances Unearned premiums Funds held under reinsurance treaties Reinsurance balances payable Income taxes payable Deferred and other non-current tax liabilities Short-term debt Accrued expenses and other liabilities Long-term debt Total liabilities Equity Contingent capital instruments Common stock, CHF 0.10 par value 2012: ; 2013: shares authorised and issued Additional paid-in capital Treasury shares, net of tax Accumulated other comprehensive income: Net unrealised investment gains/losses, net of tax Other-than-temporary impairment, net of tax Cumulative translation adjustments, net of tax Accumulated adjustment for pension and post-retirement benefits, net of tax Total accumulated other comprehensive income Retained earnings Shareholders equity Non-controlling interests Total equity Total liabilities and equity The Group updated its balance sheet presentation of deferred tax assets and liabilities. Deferred tax assets and liabilities are presented on a gross basis as per the first quarter The comparative period has been adjusted accordingly and is consistent with the relevant income tax disclosure in the notes to the financial statements in the prior year. 2 Please refer to Note 1 Organisation and summary of significant accounting policies and Note 9 Earnings per share for details on the number of shares authorised and issued. The accompanying notes are an integral part of the Group financial statements. Swiss Re First Quarter 2013 Report 17

20 Financial statements Statement of equity (unaudited) For the twelve months ended 31 December 2012 and the three months ended 31 March 2013 USD millions Contingent capital instruments Balance as of 1 January Issued Balance as of period end Common shares Balance as of 1 January Issue of common shares Balance as of period end Additional paid-in capital Balance as of 1 January Contingent capital instruments issuance costs 18 Share-based compensation Realised gains/losses on treasury shares 83 6 Dividends on common shares Balance as of period end Treasury shares, net of tax Balance as of 1 January Purchase of treasury shares Issuance of treasury shares, including share-based compensation to employees Balance as of period end Net unrealised gains/losses, net of tax Balance as of 1 January Other changes during the period Balance as of period end Other-than-temporary impairment, net of tax Balance as of 1 January Other changes during the period 90 6 Balance as of period end Foreign currency translation, net of tax Balance as of 1 January Other changes during the period Balance as of period end Adjustment for pension and other post-retirement benefits, net of tax Balance as of 1 January Change during the period Balance as of period end Retained earnings Balance as of 1 January Net income after attribution of non-controlling interests Interest on contingent capital instruments, net of tax Cumulative effect of adoption of ASU , net of tax 24 Attribution of value to option on redeemable non-controlling interest3 132 Balance as of period end Shareholders equity Non-controlling interests Balance as of 1 January Change during the period Income attributable to non-controlling interests 141 Attribution of value to option on redeemable non-controlling interest3 132 Balance as of period end Total equity Swiss Re First Quarter 2013 Report

21 Financial statements 1 Dividends to shareholders were paid in the form of a withholding tax-exempt repayment of legal reserves from capital contributions. 2 The Group adopted a new accounting guidance, ASU Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts as of 1 January 2012, which required the release of USD 24 million of deferred acquisition costs against retained earnings. Refer to Note 5 for more details on the adoption of ASU In 2000, Swiss Re and the shareholders of New California Holdings, Inc. entered into a put/call agreement for the acquisition of New California Holdings, Inc. by Swiss Re. The put/call agreement was considered a redeemable non-controlling interest; however, a value was not assigned to this instrument as the exercise was contingent on several items occurring to complete the transaction. During the second quarter of 2012, the majority of the contingencies had been resolved and the exercise of the put/call option at the predetermined price became probable. In accordance with US GAAP requirements, the difference between the carrying value of the minority interest and the redemption price, USD 132 million, was recorded against shareholders equity and as a reduction in the net income attributable to common shareholders for the purposes of calculating earnings per share. In August 2012, the put/call option was exercised and New California Holdings Inc. was acquired. 4 The sale of Swiss Re Private Equity Partners AG, the management company of Swiss Re s private equity fund-of-fund business, to BlackRock, Inc. was closed on 4 September The sale resulted in the deconsolidation of a number of private equity funds, which led to a reduction in non-controlling interests of USD million. In addition, New California Holdings, Inc. was acquired for USD 548 million in cash on 29 August As of acquisition date, Swiss Re also fully owns Aurora National Life Assurance Company and consequently no longer reports any non-controlling interest related to this subsidiary. The accompanying notes are an integral part of the Group financial statements. Swiss Re First Quarter 2013 Report 19

22 Financial statements Statement of cash flow (unaudited) For the three months ended 31 March USD millions Cash flows from operating activities Net income attributable to common shareholders Add net income attributable to non-controlling interests 25 Adjustments to reconcile net income to net cash provided/used by operating activities: Depreciation, amortisation and other non-cash items Net realised investment gains/losses Change in: Technical provisions, net Funds held by ceding companies and other reinsurance balances Reinsurance recoverable on unpaid claims and policy benefits Other assets and liabilities, net Income taxes payable/recoverable Income from equity-accounted investees, net of dividends received Trading positions, net Securities purchased/sold under agreement to resell/repurchase, net Net cash provided/used by operating activities Cash flows from investing activities Fixed income securities: Sales and maturities Purchases Net purchase/sale/maturities of short-term investments Equity securities: Sales Purchases Cash paid/received for acquisitions/disposal and reinsurance transactions, net Net purchases/sales/maturities of other investments 22 4 Net cash provided/used by investing activities Cash flows from financing activities Issuance/repayment of long-term debt Issuance/repayment of short-term debt Proceeds from the issuance of contingent capital instruments, net of issuance cost Purchase/sale of treasury shares Net cash provided/used by financing activities Total net cash provided/used Effect of foreign currency translation Change in cash and cash equivalents Cash and cash equivalents as of 1 January Cash and cash equivalents as of 31 March Interest paid was USD 125 million and USD 122 million for the three months ended 31 March 2012 and 2013, respectively. Tax paid was USD 64 million and USD 106 million for the three months ended 31 March 2012 and 2013, respectively. The accompanying notes are an integral part of the Group financial statements. 20 Swiss Re First Quarter 2013 Report

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25 Notes to the Group financial statements (unaudited) 1 Organisation and summary of significant accounting policies Nature of operations The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss Re Ltd (the parent company) and its subsidiaries (collectively, the Swiss Re Group or the Group ). The Swiss Re Group is a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Working through brokers and a network of more than 60 offices around the globe, the Group serves a client base made up of insurance companies, mid- to large-sized corporations and public sector clients. Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) and comply with Swiss law. All significant intra-group transactions and balances have been eliminated on consolidation. The year-end balance sheet data presented was derived from audited financial statements. These interim financial statements do not include all disclosures that US GAAP requires on an annual basis and therefore they should be read in conjunction with the Swiss Re Group s audited financial statements for the year ended 31 December Use of estimates in the preparation of financial statements The preparation of financial statements requires management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the related disclosure, including contingent assets and liabilities. The Swiss Re Group s liabilities for unpaid claims and claim adjustment expenses and policy benefits for life and health include estimates for premium, claim and benefit data not received from ceding companies at the date of the financial statements. In addition, the Group uses certain financial instruments and invests in securities of certain entities for which exchange trading does not exist. The Group determines these estimates based on historical information, actuarial analyses, financial modelling and other analytical techniques. Actual results could differ significantly from the estimates described above. Valuation of financial assets The fair value of the majority of the Group s financial instruments is based on quoted prices in active markets or observable inputs. These instruments include government and agency securities, commercial paper, most investment-grade corporate debt, most high-yield debt securities, exchange-traded derivative instruments, most mortgage- and asset-backed securities and listed equity securities. In markets with reduced or no liquidity, spreads between bid and offer prices are normally wider compared to spreads in highly liquid markets. Such market conditions affect the valuation of certain asset classes of the Group, such as some asset-backed securities as well as certain derivative structures referencing such asset classes. The Group considers both the credit risk of its counterparties and own risk of non-performance in the valuation of derivative instruments and other over-the-counter financial assets. In determining the fair value of these financial instruments, the assessment of the Group s exposure to the credit risk of its counterparties incorporates consideration of existing collateral and netting arrangements entered into with each counterparty. The measure of the counterparty credit risk is estimated with incorporation of the observable credit spreads, where available, or credit spread estimates derived based on the benchmarking techniques where market data is not available. The impact of the Group s own risk of non-performance is analysed in the manner consistent with the aforementioned approach, with consideration of the Group s observable credit spreads. The value representing such risk is incorporated into the fair value of the financial instruments (primarily derivatives), in a liability position as of the measurement date. The change in this adjustment from period to period is reflected in realised gains and losses in the income statement. For assets or derivative structures at fair value, the Group uses market prices or inputs derived from market prices. A separate internal price verification process, independent of the trading function, provides an additional control over the market prices or market input used to determine the fair values of such assets. Although management considers that appropriate values have been ascribed to such assets, there is always a level of uncertainty and judgment over these valuations. Subsequent valuations could differ significantly from the results of the process described above. The Group may become aware of counterparty valuations, either directly through the exchange of information or indirectly, for example, through collateral demands. Any implied differences are considered in the independent price verification process and may result in adjustments to initially indicated valuations. As of 31 March 2013, the Group had not provided any collateral on financial instruments in excess of its own market value estimates. Swiss Re First Quarter 2013 Report 23