The way forward - Group strategic framework updated for 2016 and beyond
Our financial targets give us a benchmark and a way for investors to track our progress. Our Group strategic framework is our plan to meet those targets.
The graphic below shows this framework as updated in December 2015.
In one sense this journey began in 2012, when we established three largely independent Business Units, with our Group acting as the strategic controller above them.
Since then the rationale for this strategic controller model, and the systematic capital allocation that is its core operating principle, is stronger than ever.
Ageing, climate change and other drivers continue to build the fundamental case for reinsurance. We make the world more resilient.
We aim to meet those forces head-on. Broadening and diversifying our client base is therefore an over-arching strategic priority – new markets, new clients, new risks.
We aim to optimise our resources and platforms. Our business environment is tough and changing. It's critical that we have the right people, processes and tools in place.
Finally we continue to emphasise differentiation. Swiss Re's financial strength, long-standing client relationships and status as a knowledge company are just a few distinct strengths. Our clients have an exceptional partner in Swiss Re.
We'll say more about this strategic framework, our targets and our progress in the 2015 annual report. Until then we invite you to look at the full slide package from the Investors' Day 2015 presentation.
From 2016 our Group has two financial targets. One focuses on profitability and the other on economic growth.
The first target is to deliver a return on equity of 700 basis points above the risk-free rate (as measured by 10-year US Treasury bonds) over the cycle.
The second target is to grow economic net worth per share by 10% per year, also over the cycle.
We have already defined return on equity (RoE) targets that our businesses will have to meet over the cycle to achieve these goals: Property and Casualty Reinsurance will target 10%–15% RoE and Life and Health Reinsurance 10%–12% RoE. Over the same period, Corporate Solutions will target 10%–15% RoE. The renamed Life Capital Business Unit aims at delivering 6%–8% RoE over the mid-term.
Reinsurance consists of two segments, Property & Casualty and Life & Health. The Reinsurance Business Unit operates globally, both through brokers and directly with clients, and provides a large range of solutions for risk and capital management. Clients include insurance companies and mutual insurers as well as public sector entities. In addition to traditional reinsurance solutions, Reinsurance offers insurance-linked securities and other insurance-related capital market products in both Property & Casualty and Life & Health.
Corporate Solutions offers innovative insurance capacity to mid-sized and large multinational corporations across the globe. Offerings range from standard risk transfer covers and multi-line programmes to customised solutions tailored to the needs of clients. Corporate Solutions serves customers from over 50 offices worldwide.
As of 1 January 2016 onwards all areas of the Group that manage open and closed life insurance books, including Admin Re®, were combined under a new Business Unit called Swiss Re Life Capital. Admin Re® provides risk and capital management solutions by which Swiss Re acquires closed books of in-force life and health insurance business, entire lines of business, or the entire capital stock of life insurance companies.
As of December 2015 we have a defined target portfolio of liability and asset risks. Risks can always be added to this target portfolio, and they may also be discontinued.
Flexible capital allocation among these portfolios – and taking advantage of the diversification benefits – is what drives value creation at Swiss Re. We aim to make our decisions based on capital usage and returns from each portfolio balancing cash flow, EVM and US GAAP metrics.
There are three ways to broaden and diversify our access to risk: by finding new markets, new clients and new risks.
We have targeted select high growth markets for both Reinsurance and Corporate Solutions, with the aim that their contribution to premiums will increase from 15% in 2012 to 30% by 2020.
There are also client segments where we can extend our reach, such as regional and national insurers and, through Global Partnerships, governments and multilateral institutions.
When new risks arise we can also help clients deal with those, such as cyber threats.
Our capital allocation strategy requires us to attract the right talent and to equip them with the right resources, platforms and processes. Reaching new markets, for example, often requires local expertise. For this reason our local talent pool in high growth markets has grown by 50% between 2011 and 2015.
This strategic focus goes beyond talent and geographies. Smart analytics and cognitive computing, for example, have the potential to change our industry. Our initiatives focus on concrete applications with direct business impact, such as in sales and contracts.
Financial strength, client relationships, and being a knowledge company are the main components of our differentiation. All three have underpinned our outperformance. They remain pivotal going forward.
Our clients take confidence from our financial strength. This helps form direct client relationships through which we can develop specifically tailored deals. As part of our offer we bring top talent and a deep understanding of market dynamics – the practical benefit of being a knowledge company.