Swiss Solvency Test (SST)

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1 Swiss Solvency Test (SST) George Quinn, CFO 1 Key messges Swiss Solvency Test (SST) Cpitl mesures re becoming more consistent nd economic, with convergence between Swiss Re s internl model, SST nd Swiss Re is well cpitlised under the SST frmework Experience in implementing SST nd economic cpitl strength position Swiss Re well to support our clients in prepring for 2

2 Swiss Solvency Test (SST) Wht is it? Lunched in erly 2003 in coopertion with the industry Risk-bsed economic solvency regime: integrted ssessment of underwriting, finncil mrket nd credit risk, bsed on shortfll (TilVR) economic vlution of ssets nd libilities recognition of diversifiction Groups, conglomertes nd reinsurers required to pply internl models Modelling of legl entities nd intr-group trnsctions Bi-nnul SST reports required (for groups nd conglomertes) SST is n economic solvency regime Swiss Re hs been reporting under SST since 2008 SST cpitl requirements will be effective from beginning SST timeline SST hs been extensively tested nd is opertionl Voluntry tests SST mndtory for lrge p&c insurnce compnies SST mndtory for ll insurnce groups nd reinsurnce compnies SST development SST mndtory for lrge life insurnce compnies 1 Jn 2011: Compnies must meet SST cpitl dequcy 31 Dec 2012: in force SST regultion becme effective Jn 2006 Compnies must meet SST cpitl dequcy by 2011 Solvency I remins in force (expected to be phsed out fter lunch of ) 4

3 Scope of SST (nd ) Affected legl entities SST pplies to All legl entities domiciled in Switzerlnd Swiss Re Group, becuse the prent compny is domiciled in Switzerlnd SST for the Group requires the modelling of ll legl entities nd the interctions mong them For mjor operting insurnce entities, vilble nd required cpitl bsed on SST is reported to FINMA will pply directly to Swiss Re s Europen Union domiciled entities (e.g. Windsor Life, SR Europe) 5 SST building blocks: Mrket-consistent (economic) blnce sheet SST principles: Totl blnce sheet pproch All mteril finncil instruments must be tken into ccount Assets nd libilities re vlued on mrketconsistent bsis Mrked to mrket or mrked to model, if no redily vilble mrket vlue Mrket vlue of ssets Risk bering cpitl SST trget cpitl Mrket consistent vlue of libilities Free cpitl SCR: Required cpitl for 1-yer risk Mrket Vlue Mrgin Best estimte of libilities 6

4 Comprison of different pproches Internl SST * Mrket consistent vlution Risk bsed Diversifiction Three-pillr pproch Modelling of group effects SST is n economic solvency mesure, similr to Swiss Re s internl model nd * sttus s of My Key differences Group pproch Internl Consolidted pproch SST A group hs to model ll mteril legl entities s well s intr-group cpitl nd risk trnsfer instruments * Consolidted pproch Fungibility to be considered Hybrid tretment No limits for hybrid Tiering bsed on vilble cpitl Tiering bsed on required cpitl Opertionl risk Qulittive tretment Qulittive tretment Quntittive tretment Liquidity premium No liquidity premium No liquidity premium Liquidity premium likely Risk mesure Bsed on 99% shortfll Bsed on 99% shortfll Bsed on 99.5% VR All three mesures re lrgely similr We expect SST to be recognised s equivlent to * sttus s of My

5 SST impct on internl model (I) Cpitl dequcy model expnded In implementing SST, Swiss Re hs gined prcticl experience by pplying the internl model to ssess the solvency of its legl entities: Model vlidtion, clibrtion nd documenttion were enhnced, complying with the requirements of SST Internl model will be further enhnced for the use in No mjor chnges to the risk tolernce frmework will be required to the extent tht cpitl requirements re in line with SST cpitl requirements 9 SST impct on internl model (II) Better reflection of Swiss Re s legl entity network Pre-Swiss Solvency Test Post-Swiss Solvency Test Swiss Re Group consolidted Internl Cpitl Adequcy consolidted Swiss Re Group s network of legl entities Internl Cpitl Adequcy per finncil reporting entity Risk-bering Cpitl Required Cpitl Risk-bering Cpitl Required Cpitl Modelling of intrgroup risk nd cpitl trnsfer instruments Assessment of intrgroup credit risk Considertion of legl entity structure Considertion of knock-on effects resulting from economic insolvencies Group effects 10

6 Swiss Re s cpitl strength Swiss Re is well cpitlized Internl cpitl model Cpitl dequcy rtio Internl trget rnge (YE 2009, CHFbn) 300% 299% CPCI * 250% 264% 243% 200% % 217% 175% % 162% % YE 2005 YE 2006 YE 2007 YE 2008 YE 2009 Required cpitl Avilble cpitl Q estimted SST >200% * includes ll expected cshflows from redemption of CPCI 11 Convergence of frmeworks Economic view will previl but t different speeds time Economic Exmple of diverging cpitl rtios: regultory cpitl (RBC) nd SST for two US subsidiries (YE 2009) Rting gencies Subsidiry RBC rtio SST Rtio SST / Swiss Re Americ Corp. 296% 738% IFRS II Swiss Re L&H Americ 752% 156% US Solvency (RBC) Illustrtive Swiss Re subsidiries continue to be subject to locl regultory cpitl constrints Some locl regultory frmeworks (e.g. US RBC) my give different nswers compred to SST Despite the introduction of economic regultory frmeworks like SST or, cpitl continues to be locked-up due to more conservtive locl cpitl constrints 12

7 SST Vlue proposition for our clients SST precedes, s lredy commenced in 2008 SST hs given Swiss Re prcticl experience in implementing both quntittive nd qulittive requirements similr to Clients need to put more focus on risk nd cpitl - economic effects of reinsurnce will hve more immedite impct on their solvency cpitl requirement Clients will need to ssess their current reinsurnce progrmmes under SST or regime nd restructure, if necessry, to mke them more efficient An pproprite considertion of ll vilble risk mitigtion instruments in the respective models is key (Stndrd Formul or (prtil) internl model) Swiss Re is well positioned to offer tilor mde solutions to our clients bsed on our strong risk nd cpitl expertise nd prcticl experience of SST 13 Key messges Swiss Solvency Test (SST) Cpitl mesures re becoming more consistent nd economic, with convergence between SST, Swiss Re s internl model nd Swiss Re is well cpitlised under the SST frmework Experience in implementing SST nd economic cpitl strength position Swiss Re well to support our clients in prepring for 14

8 Q&A 15 Corporte clendr & contcts Corporte clendr 05 August 2010 Second Qurter 2010 results Conference cll 13 September 2010 Investors nd Medi meeting Monte Crlo 04 November 2010 Third Qurter 2010 results Conference cll 17 Februry 2011 Annul Results 2010 Zurich Investor Reltions contcts Hotline E-mil Susn Hollidy Ross Wlker Chris Menth John Piper Simone Fessler

9 Cutionry note on forwrd-looking sttements Certin sttements nd illustrtions contined herein re forwrd-looking. These sttements nd illustrtions provide current expecttions of future events bsed on certin ssumptions nd include ny sttement tht does not directly relte to historicl fct or current fct. Forwrd-looking sttements typiclly re identified by words or phrses such s nticipte, ssume, believe, continue, estimte, expect, foresee, intend, my increse nd my fluctute nd similr expressions or by future or conditionl verbs such s will, should, would nd could. These forwrd-looking sttements involve known nd unknown risks, uncertinties nd other fctors, which my cuse Swiss Re s ctul results, performnce, chievements or prospects to be mterilly different from ny future results, performnce, chievements or prospects expressed or implied by such sttements. Such fctors include, mong others: further instbility ffecting the globl finncil system nd developments relted thereto; chnges in globl economic conditions; Swiss Re s bility to mintin sufficient liquidity nd ccess to cpitl mrkets, including sufficient liquidity to cover potentil recpture of reinsurnce greements, erly clls of debt or debt-like rrngements nd collterl clls under derivtive contrcts due to ctul or perceived deteriortion of Swiss Re s finncil strength; the effect of mrket conditions, including the globl equity nd credit mrkets, nd the level nd voltility of equity prices, interest rtes, credit spreds, currency vlues nd other mrket indices, on Swiss Re s investment ssets; chnges in Swiss Re s investment result s result of chnges in its investment policy or the chnged composition of its investment ssets, nd the impct of the timing of ny such chnges reltive to chnges in mrket conditions; uncertinties in vluing credit defult swps nd other credit-relted instruments; possible inbility to relise mounts on sles of securities on Swiss Re s blnce sheet equivlent to its mrk-to-mrket vlues recorded for ccounting purposes; the outcome of tx udits, the bility to relise tx loss crryforwrds nd the bility to relise deferred tx ssets (including by reson of the mix of ernings in jurisdiction or deemed chnge of control), which could negtively impct future ernings; the possibility tht hedging rrngements my not be effective; the lowering or loss of one of the finncil strength or other rtings of one or more compnies in the Group; the cycliclity of the reinsurnce industry; uncertinties in estimting reserves; the frequency, severity nd development of insured clim events; cts of terrorism nd cts of wr; mortlity nd morbidity experience; policy renewl nd lpse rtes; extrordinry events ffecting Swiss Re s clients nd other counterprties, such s bnkruptcies, liquidtions nd other creditrelted events; current, pending nd future legisltion nd regultion ffecting Swiss Re or its ceding compnies, nd regultory or legl ctions; chnges in ccounting stndrds; significnt investments, cquisitions or dispositions, nd ny delys, unexpected costs or other issues experienced in connection with ny such trnsctions, including, in the cse of cquisitions, issues rising in connection with integrting cquired opertions; chnging levels of competition; nd opertionl fctors, including the efficcy of risk mngement nd other internl procedures in mnging the foregoing risks. These fctors re not exhustive. Swiss Re opertes in continully chnging environment nd new risks emerge continully. Reders re cutioned not to plce undue relince on forwrd-looking sttements. Swiss Re undertkes no obligtion to publicly revise or updte ny forwrd-looking sttements, whether s result of new informtion, future events or otherwise. 17

UBS European Conference. Stefan Lippe, Chief Executive Officer 16 November 2011

UBS European Conference. Stefan Lippe, Chief Executive Officer 16 November 2011 UBS Europen Conference Stefn Lippe, Chief Executive Officer 16 November 2011 The rodmp Build on wht we re good t Outperform our peers Reinsurnce Admin Re Asset Mngement Smrt expnsion Corporte Solutions