Capital Management. George Quinn, Group Chief Financial Officer Investors' Day, Zurich, 24 June 2013

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1 Cpitl Mngement George Quinn, Group Chief Finncil Officer Investors' Dy, Zurich, 24 June 2013

2 Key messges 1. SST, rting nd liquidity re the three key drivers of our "risk tolernce frmework", which is the bsis for the Group's cpitl mngement 2. We re working towrds Group trget cpitl structure, expected to reduce leverge nd use of LOCs by more thn USD 4bn by end 2016 improve ROE nd EPS 3. Aim to utilise pprox. USD 3bn of dditionl economic cpitl by yer-end to re-blnce sset lloction, but stying within mid-term pln rnges 4. Cpitl mngement priorities re unchnged, emphsis on growing regulr dividends nd profitble business growth Delivering on the finncil trgets remins our top priority Investors' Dy Cpitl Mngement Zurich, 24 June

3 Agend Swiss Re Group risk tolernce frmework George Quinn Group CFO Group trget cpitl structure Cpitl mngement priorities Summry nd Q&A Investors' Dy Cpitl Mngement Zurich, 24 June

4 Group risk tolernce frmework Bsis for cpitl mngement, risk steering nd limit setting The risk tolernce represents the mount of risk Swiss Re is willing to ccept within the constrints imposed by its cpitl nd liquidity resources, its strtegy, its risk ppetite, nd the regultory nd rting gency environment. It is bsed on the following objectives: Mintin cpitl nd liquidity tht re sufficiently ttrctive from client perspective, nd tht meet regultory requirements nd expecttions ("respectbility criteri") Be ble to continue to operte following n extreme loss event ("extreme loss criteri"): Group Respectbility criteri 1 2 Extreme loss criteri 3 Solvency I > 150% SST > 185% Rting AA After n extreme loss event (99% shortfll) ble to meet SST > 100% Liquidity Level reflects regultor nd client requirements SST > 185% implies n estimted S&P excess cpitl bove AA of USD 3-5bn; brodly reflects the Group SST rtio corresponding to the extreme loss criteri Assuring both sets of constrints determines the dditionl funding required to be held t Swiss Re Ltd. level s well s the bsis for externl dividend proposls Minimum sttutory cpitl to be in position to continue to write new business, for ll mjor entities Sufficient liquidity to fund subsidiry recpitliztions where needed nd cover committed requirements in the yer following the stress loss Investors' Dy Cpitl Mngement Zurich, 24 June

5 1 SST cpitl mesures Internl model is bsis for SST rtio Avilble cpitl (risk bering) Cpitl vilble to bsorb the compny s losses before they ffect policyholders Derived from economic net worth (shreholders equity in Swiss Re's EVM methodology) with SST djustments Required cpitl (trget cpitl) Cpitl required to cover the compny's ssumed risks in n extreme yer Bsed on 99% shortfll clculted from Swiss Re's internl risk model, with SST djustments (e.g. expected chnge in RBC, run-off cpitl costs) SST rtio = SST risk-bering cpitl (RBC) SST trget cpitl (TC) Our trget SST rtio for the Group is 185% Our Risk Tolernce tkes into ccount the SST for both Group nd relevnt BUs We include ll other relevnt constrints when ssessing cpitl dequcy Investors' Dy Cpitl Mngement Zurich, 24 June

6 1 SST cpitl mesures SST 1/2013: components of risk-bering nd trget cpitl USD billions 2012 Economic net worth (ENW) 33.9 Vlution djustments 12.3 SST net sset vlue 46.3 Projected dividend nd other deductions -3.2 SST core cpitl 43.1 Supplementry cpitl (eligible hybrids) 5.6 SST risk-bering cpitl (RBC) 48.7 Swiss Re 99% shortfll 17.3 Mrket vlue mrgin run-off cpitl costs 5.0 Other djustments -2.4 SST trget cpitl (TC) 19.8 SST rtio 245% = RBC = 48.7 TC = 19.8 Key djustments: Adding bck EVM cpitl costs ("Vlution djustments") to ENW on RBC side Adding run-off cpitl costs ("Mrket vlue mrgin") to 99% shortfll on TC side Investors' Dy Cpitl Mngement Zurich, 24 June

7 1 Group cpitlistion Swiss Solvency Test (SST) nd Solvency I SST 1 nd Solvency I, USDbn (%) SST risk-bering cpitl SST trget cpitl SST rtio % 266% 160% 164% 269% 227% 243% 208% 292% 318% 213% 245% 350% 300% 250% 200% 150% 100% Solvency I rtio SST 1/2008 Solv I FY2007 1/2009 FY2008 1/2010 FY2009 1/2011 FY2010 1/2012 FY2011 1/2013 FY % 0% Group solvency remins very strong in both SST nd Solvency I views 1 SST RBC is bsed on the preceding yer-end cpitl position (minus projected dividends). SST trget cpitl reflects 12-month forwrd looking view 2 Swiss Reinsurnce Ltd. stndlone (solo); no consolidted Group rtio ws filed with FINMA in SST 1/2013 s filed with FINMA t the end of April 2013 Note: As required by FINMA, the SST 1/2009 rtio excludes the effects of the Februry 2009 Berkshire Hthwy CPCI nd ADC trnsctions Investors' Dy Cpitl Mngement Zurich, 24 June

8 2 Rting cpitl Cpitl dequcy is key spect Swiss Re ims to mintin S&P excess cpitl of USD 3-5bn to be ble to retin n investment grde rting fter shortfll loss Rting gencies evlute Swiss Re bsed on set of quntittive nd qulittive criteri, including cpitl dequcy For ll rting gencies, cpitl dequcy hs pivotl role in determining the rting S&P: "Swiss Re benefits from extremely strong cpitl nd ernings. the group's cpitl dequcy remins mterilly in excess of our 'AAA' benchmrk" (S&P reserch updte, 23 My 2013) Investors' Dy Cpitl Mngement Zurich, 24 June

9 3 Liquidity stress test We hold sufficient liquidity to meet funding requirements even under dverse circumstnces Liquidity sources Unencumbered liquid ssets nd csh, subject to conservtive hircuts Assumes tht intr-group funding is not vilble if subject to regultory pprovl, tht no new unsecured funding is vilble, nd funding from new reinsurnce business is reduced Liquidity requirements Csh nd collterl requirements in n extreme yer Bsed on n extreme loss event corresponding to 99% shortfll, clculted using Swiss Re's internl risk model, nd three notch rtings downgrde Liquidity rtio (>100%) = Liquidity sources 1 Liquidity requirements We ctively mnge liquidity risks to ensure tht we cn stisfy the finncil obligtions of the Group 1 The min pool comprises Swiss Reinsurnce Compny Ltd (SRZ) s well s those of its subsidiries whose funds re freely trnsferble to SRZ. The estimted totl liquidity sources in the SRZ liquidity pool vilble within one yer fter hircuts nd net of short-term lons from Swiss Re Ltd mounted to USD 24.0 billion s of 31 Mrch This totl includes USD 18.2 billion of liquid ssets nd csh, referred to s "spot liquidity". Investors' Dy Cpitl Mngement Zurich, 24 June

10 Cpitl mngement in prctice SST trget levels for Group nd Reinsurnce SST rtio SST1/13 245% Group FINMA rnges Reinsurnce 185% trget 175% Excess cpitl to be used for dividends or business growth Tolerted rnge, ddressed in norml plnning Implement de-risking nd remedil ctions SST >100%: 'green zone' = no ction required Excess cpitl to be pid up to Group Tolerted rnge, ddressed in norml plnning Remedil ction required by BU, greed with Group SST1/13 224% 175% trget 165% 100% SST %: 'yellow zone' = FINMA intensifies risk dilogue SST 33-80%: 'ornge zone' = restructuring pln SST 0-33%: 'red zone' = immedite steps to protect policyholders Investors' Dy Cpitl Mngement Zurich, 24 June

11 Cpitl mngement in prctice Business Unit nd Legl Entity trget process A trget SST cpitl rtio is defined for ech Business Unit Trget cpitl for Business units equls the minimum cpitl required to meet respectbility risk tolernce criteri A trget cpitl rnge is defined for ech Legl Entity of the Group Trget cpitl lwys reflects level bove required regultory cpitl, ccounting for the voltility of regultory cpitl nd other externl constrints Yer 1 Trget setting Dividend forecsting to py out bove SST trget Agree trget dividend s prt of plnning process Performnce Deliver ginst pproved plns Monitor sensitivities to tolerted rnge Yer 2: Py dividend Py dividend to Group s greed SST needs to be within tolerted rnge Excess cpitl bove Trget Cpitl typiclly pid s dividend to Group in Q1 Investors' Dy Cpitl Mngement Zurich, 24 June

12 Agend Swiss Re Group risk tolernce frmework George Quinn Group CFO Group trget cpitl structure Cpitl mngement priorities Summry nd Q&A Investors' Dy Cpitl Mngement Zurich, 24 June

58% reduction of totl leverge since pek in 2007 80% reduction of opertionl leverge book to dte The Group's trget cpitl structure is

13 Trgeting n optiml cpitl structure Swiss Re's trget cpitl structure is expected to mximise return on equity within risk tolernce trgets; it lso optimises finncil flexibility complies with externl constrints compres fvorbly to peers Achievements in recent yers 58% reduction of totl leverge since pek in % reduction of opertionl leverge book to dte The Group's trget cpitl structure is expected to reduce leverge by more thn USD 4bn by end of 2016 whilst improving ROE nd EPS Investors' Dy Cpitl Mngement Zurich, 24 June

14 Trget cpitl structure Principles nd trget rnges govern the Group's nd Business Units' funding structures Group Consider ech Business Unit, then consolidte Internl nd externl constrints Funding mix for ech Business Unit to be considered seprtely, subject to combined totl Group funding being cceptble Return on equity to be mximised subject to externl nd internl constrints on overll funding structure, incl. finncil flexibility Reinsurnce nd Corporte Solutions Admin Re SST risk tolernce trget Economic cpitl requirements ccording to risk tolernce funded by equity nd equity-like cpitl instruments Risk tolernce respectbility trget Cpitlistion should be in investment grde rnge Liquidity trget Incrementl funding requirements funded by senior debt or LOCs Senior leverge Leverge level mnged within investment grde thresholds Investors' Dy Cpitl Mngement Zurich, 24 June

15 Trget Cpitl Structure To be implemented by end Core cpitl (%) Totl hybrid incl. contingent cpitl (%) Senior debt (%) LOC (%) 160% 140% 120% 100% 80% 60% Leverge Trget vs ctul Group Reinsurnce Corporte Solutions Admin Re LOC - - Senior - 40% Subordinted - 20% 0% Cpitl structure YE2012 Trget cpitl structure YE2016 Contingent - - Totl > USD 4bn Trget cpitl structure expected to reduce leverge by more thn USD 4bn by 2016 Senior leverge plus LOC trget rnge 2 = 15-25% (YE 2012: 32%) Subordinted leverge rtio trget rnge 3 = 15-20% (YE 2012: 14%) 1 Core cpitl of Swiss Re Group is defined s Economic Net Worth (ENW) 2 Senior debt plus LOCs divided by totl cpitl 3 Subordinted debt divided by sum of subordinted debt nd ENW Investors' Dy Cpitl Mngement Zurich, 24 June

16 Importnt role of new style hybrids Grdul replcement of trditionl instruments We see merit in including hybrids s n efficient prt of the cpitl bse In the fce of chnging regultion for insurers, Swiss Re is positioning itself to rect to new regultory demnds Gol: Issue rnge of complementry contingent cpitl instruments incresing qulity, flexibility nd fungibility of the cpitl structure while diversifying the portfolio, both by structures nd investors Recent new style hybrid issunces: Q1 2012: USD 1.1 bn cross two trnsctions (USD nd CHF), combining perpetul deeply subordinted instrument with issuer stock settlement fetures Q1 2013: USD 750m dted subordinted instrument with contingent write-off feture Trget 2016: pprox. 10% of Swiss Re totl cpitl bse in new style instruments Investors' Dy Cpitl Mngement Zurich, 24 June

17 Agend Swiss Re Group risk tolernce frmework George Quinn Group CFO Group trget cpitl structure Cpitl mngement priorities Summry nd Q&A Investors' Dy Cpitl Mngement Zurich, 24 June

Uses of cpitl (I/III) Unchnged dividend policy Strong cpitl position llows Swiss Re to continue to py n ttrctive dividend nd tke dvntge of business growth opportunities Swiss Re's dividend policy

18 Uses of cpitl (I/III) Unchnged dividend policy Strong cpitl position llows Swiss Re to continue to py n ttrctive dividend nd tke dvntge of business growth opportunities Swiss Re's dividend policy Highest priority on growing our regulr dividend with long-term ernings; t minimum mintin Business growth where it meets our profitbility requirements Investors' Dy Cpitl Mngement Zurich, 24 June

Uses of cpitl (II/III) Profitble business growth Delivered profitble business growth over the pst three yers Appetite for business continues to exist, especilly in high growth mrkets Relistic bout

19 Uses of cpitl (II/III) Profitble business growth Delivered profitble business growth over the pst three yers Appetite for business continues to exist, especilly in high growth mrkets Relistic bout mrket growth rtes nd new cpitl entering in some lines, but no need to be defensive Profitbility nd cpitlistion metrics demonstrte tht ernings nd finncil strength hve priority Profitbility requirements for new business hold firm (ROE >11%) Strong growth, yet higher SST rtios Investors' Dy Cpitl Mngement Zurich, 24 June

20 Uses of cpitl (III/III) Continue sset re-blncing to mid-term pln, utilising pprox. USD 3bn dditionl economic cpitl 100% 90% 2% ~2% 0-5% 8% ~9% 5-10% Other (incl. derivtives) 80% 70% 60% 50% 40% 30% 21% 5% 41% ~28% ~6% ~30% 20-30% 5-10% 35-55% Equities nd lterntives Corporte bonds (incl. lons) Securitised products Government bonds (incl. gency) 20% 10% 0% 23% ~25% End Q Projected Yer-End % Mid-term pln Csh, csh equivlents nd shortterm investments Our economic outlook of moderte growth continues to fvour credit products We continue to move the sset lloction within the current mid-term pln, dding minly high qulity credit exposure We hve lso estblished short durtion position in nticiption of higher yields Additionl economic cpitl requirements of pprox. USD 3bn overll from bove moves 1 Projection, subject to mrket developments Investors' Dy Cpitl Mngement Zurich, 24 June

21 Agend Swiss Re Group risk tolernce frmework George Quinn Group CFO Group trget cpitl structure Cpitl mngement priorities Summry nd Q&A Investors' Dy Cpitl Mngement Zurich, 24 June

22 Ernings per shre We expect to chieve the 2015 EPS gol in USD EPS, s published 2012 tx benefits, reserve releses, US Admin Re sle Interest rtes flt, mid-term SAA, sset volume up 0.9 P&C: growth, QS expiry, nt ct mrgins down, csulty up 1.0 L&H: mngement ctions, growth 0.9 > Deploy USD 3bn Group excess Reduced leverge 2015E Criticl ssumptions re mrket trend nd bility to invest, redeploy, or 11% ROE, no relince on interest rtes to chieve trgets 1 Strtegic sset lloction Investors' Dy Cpitl Mngement Zurich, 24 June

23 Key messges 1. SST, rting nd liquidity re the three key drivers of our "risk tolernce frmework", which is the bsis for the Group's cpitl mngement 2. We re working towrds Group trget cpitl structure, expected to reduce leverge nd use of LOCs by more thn USD 4bn by end 2016 improve ROE nd EPS 3. Aim to utilise pprox. USD 3bn of dditionl economic cpitl by yer-end to re-blnce sset lloction, but stying within mid-term pln rnges 4. Cpitl mngement priorities re unchnged, emphsis on growing regulr dividends nd profitble business growth Delivering on the finncil trgets remins our top priority Investors' Dy Cpitl Mngement Zurich, 24 June

24 Q&A

25 Corporte clendr & contcts Corporte clendr 08 August 2013 Second Qurter 2013 results Conference cll 09 September 2013 Investors nd Medi meeting Monte Crlo 07 November 2013 Third Qurter 2013 results Conference cll 20 Februry 2014 Annul Results Conference cll Investor Reltions contcts Hotline E-mil Eric Schuh Ross Wlker Chris Menth Lorenz Fichter Simone Fessler Investors' Dy Cpitl Mngement Zurich, 24 June

26 Cutionry note on forwrd-looking sttements Certin sttements nd illustrtions contined herein re forwrd-looking. These sttements (including s to plns objectives, trgets nd trends) 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 of opertions, finncil condition, solvency rtios, liquidity position or prospects to be mterilly different from ny future results of opertions, finncil condition, solvency rtios, liquidity position or prospects expressed or implied by such sttements or cuse Swiss Re to not chieve its published trgets. Such fctors include, mong others: further instbility ffecting the globl finncil system nd developments relted thereto, including s result of concerns over, or dverse developments relting to, sovereign debt of euro re countries; further deteriortion 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 due to ctul or perceived deteriortion of Swiss Re s finncil strength or otherwise; 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 their 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 Swiss Re s hedging rrngements my not be effective; the lowering or loss of one of the finncil strength or other rtings of one or more Swiss Re compnies, nd developments dversely ffecting Swiss Re s bility to chieve improved rtings; the cycliclity of the reinsurnce industry; uncertinties in estimting reserves; uncertinties in estimting future clims for purposes of finncil reporting, prticulrly with respect to lrge nturl ctstrophes, s significnt uncertinties my be involved in estimting losses from such events nd preliminry estimtes my be subject to chnge s new informtion becomes vilble; the frequency, severity nd development of insured clim events; cts of terrorism nd cts of wr; mortlity, morbidity nd longevity experience; policy renewl nd lpse rtes; extrordinry events ffecting Swiss Re s clients nd other counterprties, such s bnkruptcies, liquidtions nd other credit-relted events; current, pending nd future legisltion nd regultion ffecting Swiss Re or its ceding compnies, nd the interprettion of legisltion or regultions by regultors; legl ctions or regultory investigtions or ctions, including those in respect of industry requirements or business conduct rules of generl pplicbility; chnges in ccounting stndrds; significnt investments, cquisitions or dispositions, nd ny delys, unexpected costs or other issues experienced in connection with ny such trnsctions; 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. This communiction is not intended to be recommendtion to buy, sell or hold securities nd does not constitute n offer for the sle of, or the solicittion of n offer to buy, securities in ny jurisdiction, including the United Sttes. Any such offer will only be mde by mens of prospectus or offering memorndum, nd in complince with pplicble securities lws. Investors' Dy Cpitl Mngement Zurich, 24 June

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