investors' day - swiss re › dam › jcr:8a0609bc-c33c-4761... · 3/25/2011 ·...
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a
Investors' DayZurich, 25 March 2011
Investors' Day | 25 March 2011
a
IntroductionSusan Holliday, Head of IR
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Investors' Day | 25 March 2011
a
Introduction Susan Holliday
New corporate structure Stefan Lippe
Underwriting Brian Gray
Reinsurance Christian Mumenthaler
Break
Corporate Solutions Agostino Galvagni
Admin Re® David Blumer
Today’s agenda
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Investors' Day | 25 March 2011
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New corporate structureStefan Lippe, CEO
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Investors' Day | 25 March 2011
aSwiss Re's priorities
Outperform our peers Reinsurance Admin Re® Asset Management
Smart expansion Corporate Solutions Longevity Emerging Markets
Build on what we are
good at
The leading player in the wholesale
re/insuranceindustry
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Investors' Day | 25 March 2011
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Skill-set
Innovation
Credit quality
Capital efficiency
Client relationships
Reputation
Significant risk capacity
Best-in-class solutions
High counterparty security
Effective financial structure
Targeted client approach
Top-class brand
Drivers of our success
To be the leading player in the wholesale re/insurance industry
Risk knowledge
Size
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Investors' Day | 25 March 2011
aThree Business Units to support our priorities
Reinsurance Corporate Solutions Admin Re®
Swiss Re Holding
Mission To be a lean, global player in large commercial business
To be a recognised force in the closed life book market
To be the world's leading reinsurer
The foundation of our strengths
A key opportunity for growth
Providing diversified earnings
Business positioning
~12% ~8%~80%
1 Gross written premium, gross earned premium and fees for Admin Re®
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Approximate premium weighting1
Investors' Day | 25 March 2011
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Japan earthquake updateBrian Gray, Chief Underwriting Officer
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The Japan EQ was an extreme event
Earthquakes with Magnitude 9.0 or greater since 1900
1952 – Kuril Islands 9.0 1960 – Chile 9.5 1964 – Alaska 9.2 2004 – Indonesia 9.1 2011 – Japan 9.0
New Zealand22 February 2011
Chile27 February 2010
Japan11 March 2011
Magnitude 6.3 8.8 9.0
Energy Released(compared to NZ)
1 5 600 11 200
Fatalities/missing >160 562 >20 000
Investors' Day | 25 March 2011
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Japan market structure and Swiss Re exposureProperty & Casualty
Residential non-life
Co-operatives Commercial & industrial non-life
Nuclear facilities
Scope of cover1
FireEarthquake shock and tsunami, if purchased as extensionPhysical damage plus limited cover for expenses, business interruption and contingent business interruption Nuclear damage is excluded
Earthquake and tsunami excluded in property and liability
Approx. Swiss Re gross market share3
0%2 7% 12% <1% n/a
of propertyreinsurance
limits
of propertyreinsurance
limits
of direct insurance
limits
Swiss Re's claims are largely physical damage and business interruption from commercial and industrial risks
1 Property is main line affected, but marine, engineering, motor, personal accident will have claims2 Protected by Japan Earthquake Re and reinsured within the local market3 Gross share of limits is not predictive of claims in a specific loss event due to the structure or re/insurance layers
Investors' Day | 25 March 2011
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Japan market structure and Swiss Re exposureLife & Health
Basic death benefit Accidental death benefit Other
Source Life companies Life companies Non-life companies
Critical illness, Catastrophe
excess of loss
Scope of cover
Proportional and surplusDeaths from EQ, Tsunami and Nuclear are covered (nuclear not covered for risks
ceded by non-life companies)
Approx. Swiss Re gross market share
<1%1
Predominantly from high face-amount policies, mainly in urban centres
Life & Health is not expected to be a significant contributor to Swiss Re claims
1 Of in-force primary protection risk market
Investors' Day | 25 March 2011
aHedging for Japan earthquake
1 Expected pattern for the first event, before basis risk
P&C protection is in place, L&H protected against severe events
L&H: Vita IV – Series III
Protects extreme mortality based on published death statistics over a 2 year risk period, commencing 1 October 2010
Deaths are weighted by age and gender to represent Swiss Re's portfolio, and will not be an exact comparison to total population deaths
Population deaths Vita protection
Attachment 50 000 nil
Exhaustion 100 000 USD 100m
0% 50% 100%
P&C: EQ Japan protection tower In-force at 1 March 2011
20
% B
erks
hire
Hat
haw
ay Q
S
Hedging1
Estimated loss for Swiss Re
10%
Loss
pro
babi
lity
0.2%
Mar
ket l
oss
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Japan earthquakeSwiss Re loss estimate
Estimate net, before tax USD 1.2bn
Based primarily on modelled estimates for our own portfolio
Estimate is subject to a high degree of uncertainty due to– Calibrating to clients' estimates and original policyholder claims will take an
extended period of time
– The high proportion of commercial and industrial claims in the reinsured share of the event is likely to extend the settlement time
Investors' Day | 25 March 2011
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1.60.90.9 0.7
0
2
4
EarthquakeCALIFORNIA
EarthquakeJAPAN
4.35.2
4.12.62.6 3.2 2.4 1.9
0
2
4
6
EarthquakeCALIFORNIA
HurricaneNORTH ATLANTIC
WindstormEUROPE
EarthquakeJAPAN
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Estimated Swiss Re claims are within our expectation
1 Net of estimated hedging impacts, adjusted for basis risk2 Excl. Japan Earthquake ReAs at 31 December 2010
net1gross /Estimated Swiss Re loss:
1.71.21.1 0.8
0
2
4
HurricaneNORTH ATLANTIC
WindstormEUROPE
Estimated market loss
25 year return period
60 14
50 year return period
Estimated market loss 22 162
Estimated single event lossesUSD bn
200 year return period
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-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
0
30
60
90
120
150
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 est.
Incurred annual loss (LHS)
Camares Index Change (RHS)Est. average loss Q2 - Q4 2011
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Historic catastrophe loss burden and global cat price development
1 Assuming normal cat burden for remainder of yearSource: CAMARES (Swiss Re's Cat market research of cat programme profitability in 14 largest markets), Sigma 2010/1 and 2011/1
2011 is expected to have one of the highest historic natural catastrophe claims burdens
1999/2000: Windstorms Lothar & Martin
2001: WTC terrorist attack
2005: Hurricanes Katrina, Rita, Wilma
2008: Hurricane Ike, Financial crisis
2010: Earthquake Chile
2010/2011: Earthquakes New Zealand, JapanFloods Australia
USD bn
?
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UnderwritingBrian Gray, Chief Underwriting Officer
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Investors' Day | 25 March 2011
aOrganised to deliver consistent underwriting across the Group
Reinsurance
Swiss Re Holding
Corporate Solutions
Admin Re®
Products
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Underwriting quality is core to Swiss Re's DNA
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Creating value in wholesale re/insurance
We aspire to capture value from market inefficiencies and portfolio efficiency, via fundamental analysis and execution
Client access & knowledge
Re/insurance value drivers Swiss Re capabilities
UW insight & structuring
Global steering & delivery
Market inefficiencies at a point in time
Market inefficiencies over time
Portfolio construction & efficiency
Investors' Day | 25 March 2011
aMarket inefficiencies at a point in time
The market is inefficient at pricing Success drivers: critical mass and
investment in- R&D into risk factors- Proprietary costing tools- UW training- Metrics and measurement- Leveraging skills across portfolios
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Inefficiencies create the opportunity for investment in outperformance
Price variability at a point in time
-50% 0% 50% 100% 150%
Property & Casualty
Life & Health
Profit Margin after capital costs & tax, 2010
Pre
miu
m
Investors' Day | 25 March 2011
aMarket inefficiencies over time
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Market inefficiencies create opportunity for outperformance
The market is inefficient at pricing at a consistent profit margin over time
The magnitude of the price cycle is extreme
Success drivers– Accurate costing at time of sale– EVM: consistent and comparable metrics
for a value creation UW-year basis, across all units
– Structure allowing shifts between units and over time
?
?
50
100
150
200
1999 2001 2003 2005 2007 2009 2011
Natural Catastrophe
US General Liability
Pricing cycle over time1
?
?
1 Source: Camares, Council of Insurance Agents & Brokers
Investors' Day | 25 March 2011
aCapturing value from the cycleA track record of steering over time
50
75
100
125
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
9.7%
P&C margins decrease: Swiss Re expands life business
P&C margins increase: Swiss Re grows P&C business above market
Swiss Re share of global P&C reins. market
P&C margins decrease: Swiss Re reduces P&C market share
9.7%
Net Premium CAGR 2007-2010
Non–life reinsurance market
Swiss Re P&C
Swiss Re L&H
1994-1999
5%
-0.2%
41%
2000-2006
6.5%
13%
10%
3.5%
-7%2
0%
1999-2000: Windstorms Lothar & Martin
2001: WTC terrorist attack
2005: Hurricanes Katrina, Rita, Wilma
1993: 2nd
generation of Bermuda capacity
2008: Financial crisis
P&C pricing index1 (1994=100)
1 Source: Swiss Re Economic Research & Consulting2 Includes effect of 20% P&C quota share beginning in 2008
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7.7% 10.9% ~ 7%
Investors' Day | 25 March 2011
aPortfolio constructionSteering towards segments offering most value
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0%
10%
20%
30%
40%
50%
2004 2005 2006 2007 2008 2009 2010 2011
PropertyCasualtyLife & Health
Underwriting Year
% of portfolio
Steering is enabled by consistent, Group wide, value-driven metrics
Swiss Re has steered away from Casualty in recent years
Net present value of premiums written
Investors' Day | 25 March 2011
aPortfolio constructionCompetitive advantage through risk transformation
Portfolio steering
Risk retained
Input
Heterogeneous
Various durations
Complex
Indemnity cover
Regulated
Output
Homogenous
Limited duration
Clear, trans-parent triggers
Tradable
Risk origi-nation
Riskceded
Success drivers– Critical mass– Global steering of risk and return on a consistent, value-driven basis– Appetite for basis and execution risks– Structuring capability for innovation
Swiss Re generates positive arbitrage for key peak nat cat risks, and leads development of longevity market structures
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Risk transformation requires scale and knowledge, and is not easily replicated
Investors' Day | 25 March 2011
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Source: Company reports and Swiss Re Economic Research & Consulting, combined ratios as published
Consistent strength in underwritingCombined ratio comparison
Swiss Re
Munich ReHannover Re
General Re
SCOR
PartnerRe
Everest Re
Transatlantic Re
80%
85%
90%
95%
100%
105%
110%
115%
120%
FY 05 FY 06 FY 07 FY 08 FY 09 FY 10
Active capital allocation and cycle management delivers results
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ReinsuranceChristian Mumenthaler, Chief Marketing Officer Reinsurance
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Reinsurance introductionA world leading reinsurer
Strong market position
L&H – USD 49bn market1
P&C – USD 156bn market1
Strong diversification
Geography2
Line of business2
1 Preliminary estimate 2010 by Swiss Re, Economic Research & Consulting2 Excluding Admin Re®, Accounting Year view3 EMEA = Europe, Middle East, Africa
18%Swiss Re
7%Swiss Re
37%
48%
15%
Americas
EMEA3
Asia - Pacific
42%
27%
18%
13%
L&H
Property
Casualty
Specialty
Moderate growth environment
L&H outlook
P&C outlook
Casualty4.3%
Cession rates down from
12.9% to 10.2%
Market growth(average annual)
Casualty6.9%
Market growth(average annual)
Cession rates up from
10.6% to 11.5%
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EVM performance 2008 - 2010New business
-200
0
200
400
600
800
1000
1200
1400
-10% 0% 10% 20% 30% 40%
Property & Specialty
Life & Health
Casualty
Profit Margin
EVM
Pro
fit in
US
D m
Property & Specialty2008: depressed price levels and hurricane Ike2009: increased price levels and Chile earthquake1
2010: increased price levels and no major nat cat events
Casualty2008 and 2009: impacted by German Motor business and Medical Malpractice 2010: strong improvements due to one off transactions and portfolio pruning
Life & HealthLower volumes, especially quota share business, since the financial crisis
Figures are Swiss Re Group, excluding Admin Re®Bubble size is proportional to PV of Economic CapitalNew Business: inception date within the reported calendar year
2008
2009
2010
2008
20092010
2010
20082009
1 Chile EQ included in underwriting year 2009
Investors' Day | 25 March 2011
aPortfolio constructionSteering towards segments offering most value
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0%
10%
20%
30%
40%
50%
2004 2005 2006 2007 2008 2009 2010 2011
PropertyCasualtyLife & Health
Underwriting Year
% of portfolio
Steering is enabled by consistent, Group wide, value-driven metrics
Swiss Re has steered away from Casualty in recent years
Net present value of premiums written
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Our fundamental strengths
Very strong client franchise
Very strong, 148 years old brand
C-suite access with nearly all clients
More than USD 10bn of excess capital (SR Group as at 31 Dec 2010)
Ability to deploy very large capacities for single risks and events (both P&C and L&H)
Global presence
Very diversified portfolio
Underwriting knowledge in all relevant risk classes
Natural Catastrophes
Mortality
Longevity
Separation of costing and pricing to keep costing unbiased
Own R&D and models to better estimate risks
Large and very strong balance sheet
Global distribution and access to risk
Leading reinsurer in transforming risks to
the capital market
Unique own proprietary risk
analysis
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Reinsurance strategy
Maximise EVM Profit
Excellence in core business
Keep and expand our fundamental strengths
Invest in our future
Increase origination through segmented marketing approach
Expand pipeline of unique transactions with our clients to complement traditional flow business
Cycle Management & Portfolio Steering
Operational Excellence: further simplify system landscape and improve leveraging of data
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Client segmentationTargeted sales approach
Globals
Very large global players
Usually active on several continents
Complex capital structures and financial needs
Aggregators
Large
National market leaders and/or active in several countries
Strive to grow and/or become Globals
Similar complexity to Globals, but not yet global knowledge
Aggregators
Regional & Nationals
Combination of national insurers, mutuals, start-ups and specialised companies
Mainly traditional reinsurance products
Segments Description & needs Our approach
One globally dedicated team
Tailor made solutions
Large capacities
"Light" version of Globals approach
One main Swiss Re contact person
Tailor made solutions with increasing focus on risk & capital management opportunities
Lean and efficient delivery model
Pursue growth
Investors' Day | 25 March 2011
aCustomised transactions vs. traditional flow business
We expect customised transactions will grow Swiss Re is ideally placed to benefit from this trend
Traditional flow business
Part of daily business of insurers
Renewed or re-priced frequently
Tendered in open market with potentially dozens of reinsurers
Commodity-type product
Dealt with by reinsurance manager
Customised transactions
Customised solutions to address specific client needs
Often multi-year deals
Often granted exclusivity to one partner
Price is not the primary consideration
Dealt with by client C-suite
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Reinsurance strategy
Maximise EVM Profit
Excellence in core business
Keep and expand our fundamental strengths
Invest in our future
Operate at AA capitalisation level
Expand own R&D
Extend leadership in risk transformation
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Expand our own R&DIntellectual investment
Property & Specialty
Own research team
Own models for storm, earthquake and flood
Ability to compare to commercial tools and understand differences
Life & Health
Unparalleled amount of patient medical data and mortality experience available in the US and UK
R&D team strengthened in 2010 to model future trends in longevity
Experts include researchers, medical doctors, actuaries and underwriters
Casualty
Group-wide casualty risk R&D initiative since 2007
New "nat-cat-like" casualty risk and pricing models established, based on systematic risk drivers approach
Investors' Day | 25 March 2011
aRisk transformation – ILSSwiss Re has been a leader and innovator in the sector since its inception
As of 3 January 2011Source: Swiss Re Capital Markets
1997 – 2010 Market position
0 5,000 10,000 15,000 20,000
Lehman Brothers
Guy Carpenter
BNP Paribas
Aon
Goldman Sachs
Swiss Re Capital Markets
Lead ManagerTotal Underwritten
35
Leadership in the ILS market creates business opportunities for Swiss Re
USD million
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Reinsurance strategy
Maximise EVM Profit
Excellence in core business
Keep and expand our fundamental strengths
Invest in our future
Emerging Markets: pursue country and risk pool specific growth strategies and benefit from fast growing primary insurance markets
Offer new solutions to clients, e.g. Longevity
Investors' Day | 25 March 2011
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Reinsurance growth lagging due to various factors such as low primary capital needs in some regulatory regimes or a focus on savings products with no need for risk transfer
Reinsurance margins are thin in the mid-term due to focus of primary on top line and strong reinsurance competition
Emerging MarketsA long term play for reinsurance
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Reinsurance growth opportunities lag primary insurance in Emerging Markets
Emerging Markets are a long term play and require smart expansion
Capture value from proprietary investments in fast growing primary sector
Pursue country and risk pool specific expansion strategies such as focusing on special lines, alternative channels, or low cost products which promise to add significant value over a 5 year horizon
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Innovative insurance solution in VietnamRice yield index
Importance Agriculture contributes 22% to GDP and rice is the
key crop. Production losses from natural perils reach 5% of annual GDP
What we did Area-yield index cover to protect farmers against
major natural catastrophes such as impact of typhoons, floods and droughts
Benefits Agribank, Vietnam’s agriculture bank and key
provider of agriculture loans – will insure their rice farming clients against the inability to make loan repayments due to low yields
" With this solution we can in the future continue to sustain a key sector that provides a means of livelihood to more than 50% of Vietnam's 86 million people", Nguyen Van Minh, Chairman ABIC and Board Member Agribank
Investors' Day | 25 March 2011
aLongevitySwiss Re ideally positioned for longevity risk because of our large mortality book
25 30 35 40 45 50 55 60 65 70 75 80 85 90
Mortality Longevity
Ris
k in
US
D
Age
Illustrative data
Risk of 1% p.a. increase in mortality, compounded
■ Mortality and longevity portfolios are significantly matched from age 70, but basis risk exists across many dimensions
■ Our biggest risk is the basis risk between middle-aged US mortality and older-aged UK longevity
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Difference in US and UK mortality improvements
In December 2010, Swiss Re announced the transfer of USD 50m of longevity trend risk to the capital markets through the Kortis Capital Ltd. ("Kortis") securitisation programme
The bond protects the differencebetween the mortality development of the younger US and the older UK population, each measured by a population index, rather than pure longevity risk
Independent modelling firm RMS has issued a Risk Analysis to support the ILS
The transaction builds on Swiss Re's leadership in ILS innovation, first in natural catastrophe and later with extreme mortality
LongevitySwiss Re issued first longevity/mortality basis risk bond in Q4 2010
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Inde
x va
lue
US mortality
UK longevity
Investors' Day | 25 March 2011
aEnvironment & strategic contextKey Trends
Trend Potential market impactOpportunities
for SR
Sho
rt-t
erm
P&C market hardeningOutperformance potential for players with strong cycle management & steering across lines
L&H dislocations: refinancings, M&A
Demand for portfolio transactions (most requiring cash), Admin Re®
Regulatory changes, incl. Solvency II
Potentially increased reinsurance demand, increased focus on risk and diversification, reduction of arbitrage
Low interest rate environment
Revaluation of life guaranteesLimited appetite for long-tail Casualty business
Long
-ter
m
Population ageing, retirement funding crisis
Demand for longevity risk transfer
Increase in interest rates, and (potentially) inflation
Dislocations in Casualty and L&H
GDP growth in Asia and Latin America
Higher demand
Increasing influence of capital markets
ILS expansion, especially towards hybrid risk/funding transactions
Further consolidation of insurance market
Potentially lower demand for traditional reinsurance; opportunity for Swiss Re to offer global solutions
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Investors' Day | 25 March 2011
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Global and diversified leader in Property & Casualty and Life & Health reinsurance products and services
Excellent client franchise, built around client centric delivery model
Capital strength allows deployment of sizeable capacity lines for our clients
Complete focus on economic value creation supported by separated costing and marketing functions, resulting in underwriting excellence
Significant own data and R&D leading to better risk selection
Ability to optimise portfolio through retro and risk transformation
Well positioned to capture growth
– From unique and large one off transactions (in an M&A environment)
– When market turns (both P&C and L&H)
Reinsurance summaryA world leading reinsurer
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Questions & answers
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Corporate SolutionsAgostino Galvagni, CEO Corporate Solutions
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Investors' Day | 25 March 2011
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Corporate Solutions provides insurance solutions worldwide to corporates and their captives; personal lines insurance is out of scope
Target clients are corporates with revenues exceeding USD 750m and selected small/niche corporates
Customised solutions and longevity products are integral to Corporate Solutions' value proposition
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Corporate Solutions introductionBusiness scope
Same costing, underwriting quality and portfolio steering as rest of Swiss Re Group
Investors' Day | 25 March 2011
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32 existing offices
Corporate Solutions todayAn insurer with global reach
North America: 21
Europe: 4
Asia Pacific: 6
Latin America: 1
6 new offices becoming operational in 2011
Among top 20 large commercial insurers
Employees1
~1200
■ Insurance licences in North America, Brazil, Europe, Japan and Australia
■ Reinsurance licences in most remaining countries for fronting business
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1 Excluding employees in Shared Service Centers and other Group Functions
2011 origination / underwriting footprint
Key facts & figures
Investors' Day | 25 March 2011
aCorporate Solutions today A diversified player focused on North America and large corporates
47
Gross written premiums of approximately USD 2.5bn
35%
25%
10%
30%
Property & multilines
Specialty
Credit & surety
Casualty & health
1 Engineering, Marine, Aviation and Space2 Approx. segmentation of clients based on revenues in USD; large: revenues >2bn; mid-sized: <2bn, >250m; small: <250m
Line of business split
50%
25%
25%
Large corporates
Mid-sized corporates
Small corporates
Client segment split2
1
60%5%
5%
30%
North America
Latin America
Asia Pacific
Europe & Middle East
Regional split
Significant marketshare in selectedsegments
Weather (OTC market): 25% Space: 12% Energy & Power: 12%
Subset 100 of F500 companies: 6% Airlines: 5%
Investors' Day | 25 March 2011
aCorporate Solutions todaySegmentation based on client needs
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Fortune 500 corporates
Multi-line / multi-year
Parametric covers
Capital relief for captives
Longevity
Industries Product niches (examples)
Aviation
Energy & Power
Engineering & Construction
Financial & Professional Services
Space
Bank, Trade & Infrastructure Finance
Surety (US only)
Weather
Health cover for self-insured corporations
Dedicated client managers for key clients offering the
full range of solutions
Dedicated units for underwriting and marketing
Dedicated units for underwriting and marketing
Our service model
Regions
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1 Cessions available in the open market 2 Global insurance policies; primary layers 3 Including lower end mid-sized commercial clients
Administrative load
High
Medium
Low
Bubbles indicate estimated market size, USD bn
Strategic rationaleLarge commercial insurance is wholesale business
High
Medium
Low
Deal size/complexity
High Medium Low
Distribution granularity
Small commercialinsurance33 600
Personallines insurance
Large commercial insurance(Master policies2)
Reinsurance1
Large commercial insurance(Excess policies & upper middle market)
Wholesale focus
250
100
250
200
250
250
100
Corporate Solutions'target market
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Market features
Large commercial insurance risk pool is bigger than reinsurance1
Market is expected to grow at ~6% per annum until 2015
Core strengths
UW expertise
Financial strength
Cycle management
Innovation capabilities
Swiss Re's core strengths are key success factors in commercial insurance
15 years of experience in commercial insurance
Solid geographical footprint
Current market share allows for significant growth
Sound starting position
+ +
Strategic rationaleSwiss Re is well placed to expand in commercial insurance
1 Cessions available in the open market
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The commercial insurance landscapeClient needs drive insurers' value proposition
Large corporates Mid-sized corporates
Revenues, in USD
Insurance cover
Global players
Opportunistic players
Regional players
Focus on mid-sized and small clients. Strong local origination. Wide product offering (incl. Motor ) to enable “one-stop” shopping. Ability to manage large number of policies and claims.
Insurers' responses to client needs
Small corporates
Focus on large clients and Specialty niches. Significant capacity. Wholesale origination.
Lower end = < 750m, > 250m
Upper end =< 2bn, > 750m
> 2bn <250m
Insu
rers
Corporates
Standard products Special niche expertise
Retail origination
Large capacity Ability to lead master policies
Wholesale and retail origination
Master policy Excess policy
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Corporate Solutions' strategyFocus on large commercial insurance as "lean global player"
Corporate Solutions will be Leaner than 'global players' because it will not lead master policies (lower cost) Closer to risks than 'opportunistic players' thanks to local origination (access to risks not
placed in wholesale centres e.g. London, Bermuda and New York) Broader international expertise than 'regional players'
Large corporatesUpper end
Mid-sized corporates Small corporatesLower end
Corporate Solutions' value proposition
Niche-related skills (focus on niches where Corporate Solutions is now active and well positioned)
Top brand
Financial strength
Large net capacity
Innovation
"We are here to stay"
Master policy Excess policy
Investors' Day | 25 March 2011
aExamples of recent transactionsLarge capacity and innovation make a difference
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Transaction requiring large capacity
Large energy corporation
Global corporate multiline programme SR's capacity: USD 350m for a 15% share (lead role) in most programme
sections; this transaction allowed Corporate Solutions to increase its share of wallet from 3% to 7%
Non-standard transactions
Large electricitynetwork operator
Parametric cat-windstorm Europe cover (swap contract) 100% share of EUR 150m xs EUR 100m Option to transfer into a cat bond co-led by Swiss Re
European builders association
Online sales platform for corporates to protect themselves directly or via brokers
Weather derivatives with 10 to 90-day duration covering the risk of absenteeism due to cold weather
Total limit: USD 26m; SR's share: 100%
Investors' Day | 25 March 2011
aOverview of growth initiativesDiversified portfolio
1 Focus on corporates with revenues between USD 750m and USD 2bn
Expand product range selectively
Leverage Swiss Re's technical skills to expand Corporate Solutions offering (e.g. Excess & Surplus Property in the US)
Grow in Emerging Markets
Enter and/or strengthen position in strategic emerging markets
Accelerate growth in existing businesses
Increase penetration in markets/client segments where Corporate Solutions already has a foothold
Establish effective operating platform
Simplify/standardise processesHarmonise/upgrade IT platform and increase online availability of steering dataEn
able
rB
usin
ess
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US middle market1
European footprint
Brazil
Examples of initiatives
Engineering & Construction
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5555
BrazilAn expanding insurance market
Corporate Solutions' profile
Country highlights
2010 premium: USD 73m 107 employees Shareholders: Swiss Re (80%) and
International Finance Corporation1
(20%); transaction approved by local regulator on 1 March 2011
Current market position
Strengthen position as leading Specialty insurer
Leverage surety clients to cross sell other lines of business, particularly Engineering & Construction
Integrate UBF into SR framework, where appropriate
Significant investments in (>USD 300bn) in the next decade– Infrastructure sector: USD ~90bn investments– Oil and gas sector: USD ~170bn investments
Size and complexity of development projects will create opportunities for specialized insurers with large capacities
Agriculture: 4th player (7% market share) Surety: 4th player (10% market share) Other P&C lines of business: Small player
1 World Bank Group
Strategy and next stepsFacts & figures
Investors' Day | 25 March 2011
aCorporate Solutions summaryA lean global player in commercial insurance
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Modest market share, but strong value proposition and solid platform upon which to build
Focus on large commercial insurance as a "lean global player" fits well with Swiss Re's core strengths
Dedicated resources, separate from Reinsurance
Ambitious organic growth strategy subject to rigorous cycle management, portfolio steering and clear focus on profitability
Investors' Day | 25 March 2011
a
Admin Re®David Blumer, Chief Investment Officer and Chairman of Admin Re®
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Investors' Day | 25 March 2011
aAdmin Re® introductionA recognised force in the closed life business
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Admin Re® is focussed on the acquisition and administration of blocks of closed life business
Admin Re® will pursue an ambitious programme
– To strengthen its market presence through key transactions
– To build on the established skill base of the business and further strengthen class-leading global disciplines
– To deliver operational excellence and consistent policy-holder service
Admin Re® will have the option to attract third party capital to realise its ambition
Investors' Day | 25 March 2011
a
United StatesREALIC
United KingdomWindsor Life / Barclays Life
SR Life Capital
New global Admin Re® holding
REALIC serves as the main carrier for US closed book transactions
Over 40 transactions have been completed since 1995
Approx 2.7m administered policies AuM USD 20bn Policies are serviced and administered through
third-party administrators (TPAs1)
Windsor Life (WL) serves as the main carrier for UK closed book business
10 transactions have been completed since 2003
Approx 3.5m administered policies AuM USD 35bn (of which unit linked/with profit
of USD 21bn) Policies are serviced and administered mainly in-
house
Swiss Re Life Capital Ltd serves as provider of global functions: origination and structuring, pricing, portfolio management and hedging, risk management, asset management, operational consistency, capital and performance management
Admin Re® overview
1 TPA=Third-party administrators
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Investors' Day | 25 March 2011
aClosed life books are a natural fit for the Swiss Re Group
Opportunity to acquire life exposure at attractive valuation levels, providing a diversification benefit to Swiss Re P&C
Stable, relatively low-correlated predictable cash flows/dividend streams with transparent risk. Cash flows on past transactions have met expectations
We have the experience and the skills to be a leading closed book consolidator
– Core competencies in origination, management of actuarial and financial market risk, as well as asset management – organised in global disciplines
– Unique global footprint with 50+ transactions in 12-year history
– Scalable business setup, allowing for seamless integration of acquired blocks of business
– Operational flexibility with experience in outsourced and in-house policy administration
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Investors' Day | 25 March 2011
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Admin Re® follows a three-pronged strategy to maximise value creation
Pursue a selective global growth strategy to strengthen the business in closed book markets, executing transactions with rigor and focus
Selective growth
Systematically address all levels of value extraction of existing books through class-leading management of assets, capital, portfolios and risk
Value extraction
Drive operational excellence and platform consolidation and improve consistency of policy-holder service
Operational excellence
Investors' Day | 25 March 2011
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Asset management
Admin Re® systematically addresses the different levers of value creation
Operationsand infrastructure
Acquisition of closed life books at attractive valuation levels
All transactions to be value accretive for Swiss Re Group and SRLC
Consistent AM approach across geogra-phies and portfolios
Objective to generate long-term, stable investment returns
Optimisationof capital allocation
Prudent use of leverage for existing and new transactions
Active portfolio management
Active management of actuarial risk, complemented by class leading financial risk management, hedging and modeling
Rigorous transition management
Efficient use of TPAs
Consistent policy holder service and focus on treating customers fairly
Continuous operational improvement
Capital management
Origination & valuation
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1 Selective growth
2 Value extraction
3 Operational excellence
Portfolio & risk factor management
Investors' Day | 25 March 2011
a
Insurers seeking to unlock capital allocated to low-growth mature markets to pursue growth opportunities elsewhere
Financial conglomerates and composite insurers exiting sub-scale operations and reverting to core business activities
Need for capital to fund growth
Market cycle is positive and opportunities are expected to emerge over coming years
Trend away from bancassurance model as Basel III is implemented Likely increase in required capital for life insurance operations under
Solvency II National bailouts may drive the disposal or spin-off of closed books in
some markets
Changing regulatory environment
Leading consolidators face challenges Several traditional life re/insurers have exited the in-force market
Reduced competition for closed books
Closed life book business industry trends
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Investors' Day | 25 March 2011
aClosed life book market in favourable cycle for acquisitions
1 Market capitalisation-weighted index composed on 20 largest UK-based, 51 largest US-based life insurers
Valuations attractive for acquirers
UK Global insurers reviewing options with
regards to UK operations Potential for sale of closed books
following recent M&A activity Fragmented market with some insurers
operating below scale
Cont.Europe
Mature market with increasing pressure on regulatory capital and limited growth
Presence of large, re-capitalised players may prompt marginal participants to exit
Asset disposals driven by reduction in government support a potential catalyst
US Polarised market with transformational
and small targets Global insurers aiming to decrease capital
allocated to US to fund growth elsewhere Smaller companies lacking scale and with
high funding costs constitute an opportunity
Characteristics of target markets favourable
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Price-to-book ratio – US and UK Life Insurance1
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2002 2004 2006 2008 2010
UK
US
Investors' Day | 25 March 2011
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Seller characteristics
Strong underwriting standards
M&A and transition experience
Additional transaction potential
Reinforce synergies
Admin Re®’s rigorous approach to transaction origination and structuring
Size
Appropriate scale transactions in main markets: UK, US, continental Europe
Minimum size to limit execution risk
Use leverage / external funding to execute larger transactions
Profitability
Diligent pricing at inception
Optimise mortality, investment and longevity risk to achieve profitability targets
Stringent Swiss Re and SRLC hurdles applied to all transactions
Business mix
No general product exclusions
Focus on target business and asset mix
Confirm operational resources to manage properly
Transactions to meet
internal and external hurdles
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Investors' Day | 25 March 2011
aTransactions will be assessed based on a range of parameters
Acquisitions at attractive valuation levels. Current market EV discounts are in the 70% - 85% range
Target medium size acquisitions with up to USD 1bn equity, usage of leverage considered if appropriate
Returns must be competitive with other uses of capital
Significant positive EVM profit at inception
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Transactions will be measured with different metrics depending on underlying risk characteristics, region, etc.
Investors' Day | 25 March 2011
aThree components to increase value extraction
Asset management Capital managementPortfolio and risk factor management
Optimise allocation of capital
Prudent use of leverage for new transactions
Active management of actuarial and financial risks
Class-leading financial risk management, portfolio management and hedging
Consistent long-term approach
Long-term stable investment performance
Strong link to capital/ALM and risk management
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Asset management
Operationsand infrastructure
Capital management
Portfolio & risk factor management
Origination & valuation
2 Value extraction1 Selective growth 3 Operational excellence
Increase in risk capital
Investors' Day | 25 March 2011
aOperational excellence key to realisingvalue in long-term
Rigorous transition management
Efficient use of TPAs
Excellent customer service, administration and intense focus on treating customers fairly (TCF)
Continuous self-improvement of in-house operations
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Asset management
Operationsand infrastructure
Capital management
Portfolio & risk factor management
Origination & valuation
2 Value extraction1 Selective growth 3 Operational excellence
Operational excellenceRigorous operational controls
10% call abandoned
5” 20” 1’ 2’ 5’
5” 20” 1’ 2’
2% call abandoned
Call centre:customer wait time before pick up
Call centre:customer wait time before pick up
Investors' Day | 25 March 2011
aAdmin Re® able to attract third-party capital to complement its growth ambitions
CapitalisationRobust legal entity capitalisation and clarity on balance sheet positions
Management Experienced management with effective global disciplines
ProfitabilityTransparency on financial performance, consistent dividend flow, sustainable and lean cost structure
Market presenceEstablished deal pipeline, as well as appetite and execution readiness (capital, transaction governance, etc.)
Stand-alone platformEfficient stand-alone operational base and infrastructure – investments to reinvigorate platform and ensure stability
Governance & Controls Key governance processes and robust control environment in place
Prerequisites
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Investors' Day | 25 March 2011
aThe new Admin Re® structure offers full flexibility for third-party investments
Holdingcompany
Life companies
Individual transactions
General Partner Strategic investment
in Admin Re®
Limited Partner Exposure only to
selected market(s)
Co-Investor Invest in selected
transactions
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Swiss Re Life Capital Ltd
(SRLC)
US Hold CoAdmin Re® UK
REALICWindsor Life Barclays LifeG Assurance &
Pensions
Origination & Valuation
Asset Management
Capital Management
Risk Management
Transaction pipeline1
Transaction 1 Transaction 2 Transaction 3 Transaction 4 1 Illustrative
Investors' Day | 25 March 2011
aAdmin Re® summaryA recognised force in the closed life business
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With the corporate realignment of Swiss Re, Admin Re® is established as one of the three core operating businesses of Swiss Re and is set up as a self-standing Business Unit within the SR Group
Admin Re® will
– Further deepen its market presence by executing transactions to realise the strategy of selective growth in global markets
– Focus on further strengthening its class-leading global disciplines asset management, capital management as well as portfolio and risk factor management to pursue a strategy of maximum value extraction from existing closed life books
– Drive operational excellence and strengthen consistency of policy-holder services
Admin Re® may seek to attract third-party capital – the new Admin Re® setup offers full flexibility for third-party investments
Investors' Day | 25 March 2011
a
Questions & answers
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Investors' Day | 25 March 2011
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Corporate calendar
15 April 2011 147th Annual General Meeting Zurich 05 May 2011 First Quarter 2011 results Conference call04 August 2011 Second Quarter 2011 results Conference call03 November 2011 Third Quarter 2011 results Conference call09 December 2011 Investors' Day
Investor Relations contacts
Hotline E-mail+41 43 285 4444 [email protected]
Susan Holliday Ross Walker Chris Menth +44 20 7933 3890 +41 43 285 2243 +41 43 285 3878
Simone Lieberherr Simone Fessler +41 43 285 4190 +41 43 285 7299
Corporate calendar & contacts
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Investors' Day | 25 March 2011
aCautionary note on forward-looking statements
Certain statements and illustrations contained herein are forward-looking. These statements and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as “anticipate“, “assume“, “believe“, “continue“, “estimate“, “expect“, “foresee“, “intend“, “may increase“ and “may fluctuate“ and similar expressions or by future or conditional verbs such as “will“, “should“, “would“ and “could“. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re’s actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed or implied by such statements. Such factors include, among others:
further instability affecting the global financial system and developments related thereto;
changes in global economic conditions; Swiss Re’s ability to maintain sufficient liquidity and access to capital markets,
including sufficient liquidity to cover potential recapture of reinsurance agreements, early calls of debt or debt-like arrangements and collateral calls under derivative contracts due to actual or perceived deterioration of Swiss Re’s financial strength;
the effect of market conditions, including the global equity and credit markets, and the level and volatility of equity prices, interest rates, credit spreads, currency values and other market indices, on Swiss Re’s investment assets;
changes in Swiss Re’s investment result as a result of changes in its investment policy or the changed composition of its investment assets, and the impact of the timing of any such changes relative to changes in market conditions;
uncertainties in valuing credit default swaps and other credit-related instruments; possible inability to realise amounts on sales of securities on Swiss Re’s balance
sheet equivalent to its mark-to-market values recorded for accounting purposes; the outcome of tax audits, the ability to realise tax loss carryforwards and the
ability to realise deferred tax assets (including by reason of the mix of earnings in a jurisdiction or deemed change of control), which could negatively impact future earnings;
the possibility that hedging arrangements may not be effective;
These factors are not exhaustive. Swiss Re operates in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. Swiss Re undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
the lowering or loss of financial strength or other ratings of one or more of the companies in the Group or developments adversely affecting the ability to achieve improved ratings;
the cyclicality of the reinsurance industry; uncertainties in estimating reserves; the frequency, severity and development of insured claim events; acts of terrorism and acts of war; mortality and morbidity experience; policy renewal and lapse rates; extraordinary events affecting Swiss Re’s clients and other counterparties,
such as bankruptcies, liquidations and other credit-related events; current, pending and future legislation and regulation affecting Swiss Re or
its ceding companies, and regulatory or legal actions; changes in accounting standards; significant investments, acquisitions or dispositions, and any delays,
unexpected costs or other issues experienced in connection with any such transactions, including, in the case of acquisitions, issues arising in connection with integrating acquired operations;
changing levels of competition; and operational factors, including the efficacy of risk management and other
internal procedures in managing the foregoing risks.
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Investors' Day | 25 March 2011
aImportant notice for holders of Swiss Re securitiesThe ability of Swiss Re shareholders who are not resident in Switzerland to accept the exchange offer (the “Exchange Offer”) to be launched for Swiss Re shares (“Swiss Re Shares”) in return for shares (“HoldCo Shares”) of Swiss Re Ltd (“HoldCo”) may be affected by the laws of the relevant jurisdictions in which they are located or of which they are citizens. The Exchange Offer will not be made, directly or indirectly, in or into any jurisdiction outside Switzerland where to do so would violate the laws of that jurisdiction or would require the preparation of a prospectus or registration or other qualification of the HoldCo Shares.
This presentation is not an offer of securities for sale, or the solicitation of an offer to acquire HoldCo Shares, in any jurisdiction, including the United States.
Information for U.S. Shareholders and U.S. ADS Holders
The HoldCo Shares have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or under the securities law of any state or other jurisdiction of the United States. The HoldCo Shares may not be offered, sold or delivered, directly or indirectly, in or into the United States, except pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, unless HoldCo is satisfied, in its sole discretion, that HoldCo Shares can be offered, sold or delivered to a shareholder in the United States pursuant to an applicable exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, a shareholder in the United States that validly accepts the Exchange Offer will receive, in lieu of HoldCo Shares to which it would otherwise be entitled under the terms of the Exchange Offer, the net cash proceeds of the sale of such HoldCo Shares.
When made, the Exchange Offer will be subject to Regulation 14E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Exchange Offer will be made in respect of the securities of a Swiss company, and will be subject to Swiss disclosure requirements.
The Exchange Offer will not be extended to holders (in their capacities as such) of American Depositary Shares representing Swiss Re Shares (“ADSs”). Holders of ADSs will receive a notice from JPMorgan Chase Bank N.A., the depositary (the "ADS Depositary") in respect of the Exchange Offer. Moreover, at Swiss Re's request, the ADS Depositary will be terminating the ADS program.
The receipt of cash consideration under the Exchange Offer by a U.S. shareholder may be a taxable transaction for U.S. federal income tax purposes and may be a taxable transaction under applicable U.S. state and local, as well as foreign and other, tax laws.
European Economic Area; United Kingdom
In the European Economic Area, the Exchange Offer and documents or other materials in relation to the HoldCo Shares will only be addressed to, and will only be directed at, (i) qualified investors in a relevant member state within the meaning of Article 2(1)(e) of the Prospectus Directive, as adopted in the relevant member state, and (ii) persons who hold, and will tender, the equivalent of at least €50,000 worth of Swiss Re Shares (collectively, “permitted participants”). These documents may not be acted or relied upon by persons in the EEA who are not permitted participants.
With reference to the U.K. Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), the Exchange Offer and any materials in relation to the HoldCo Shares will only be directed at persons in the United Kingdom that are (a) investment professionals falling within Article 19(5) of the Order or who fall within Article 49(2)(a) to (d) of the Order; (b) holders of Swiss Re Shares at the time of communication of the Exchange Offer and such materials; or (c) persons to whom they may otherwise lawfully be communicated (collectively, “relevant persons”). In the United Kingdom, the HoldCo Shares will only be available to, and the Exchange Offer may only be accepted by, relevant persons who are also permitted participants, and as such, any investment or investment activity to which this presentation relates is available only to, and may be relied upon only by, relevant persons who are also permitted participants.
Information for Shareholders in Hong Kong
This presentation does not constitute an offer, solicitation or invitation to the public in Hong Kong to purchase HoldCo Shares. No steps have been taken to register a prospectus in Hong Kong and the contents of this presentation have not been reviewed by any regulatory authority in Hong Kong. Unless permitted to do so by the securities laws of Hong Kong, no person may issue or have in its possession this presentation or any other information, advertisement or document relating to the HoldCo Shares, whether in Hong Kong or elsewhere that is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong other than with respect to the HoldCo Shares that are intended to be disposed of only to (a) “Professional Investors” within the meaning of the Securities and Futures Ordinance (CAP. 571) of Hong Kong and (b) “qualifying persons” within the meaning of the Companies Ordinance (CAP. 32), and any rules made thereunder. You are advised to exercise caution in relation to the disposition of the HoldCo Shares.
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