Reinsurer Swiss Re has published its Financial Condition Report. Compared to last year, the ratio of risk-bearing capital to market value margin has improved.

In addition to annual reports, large insurers are required to report their financial conditions in a separate report under the Swiss Solvency Test (SST). In doing so, companies must value all assets and liabilities in a market-consistent manner.

According to the Financial Condition Report, Swiss Re's SST ratio rose 71 percentage points to 294 percent in 2023 from 223 percent last year, exceeding the target range of 200 to 250 percent.

More Hedging, Lower Valuation

The change was down to several factors, one of which is rising interest rates. In addition, it said the ratio of risk-bearing capital to market value fell due to a higher hedging ratio and lower asset valuations. Offsetting these factors were the negative investment contribution, model updates, and dividends paid, the report added.

According to the report, $40.9 billion in risk-bearing capital (RBC) was offset by $13.9 billion in market value margin (MVM).

Interest Rate Sensitivity

Among the things that could negatively affect the SST is would be a 50 basis point decrease in interest rates which would lead to a 13 percentage point drop in the SST. At the same time, a 25 percent drop in real estate prices would have the impact of trimming nine percentage points from the SST.

Credit spreads are another variable with a potential impact on the SST. A 50 basis point increase would lower the SST by 5 basis points, according to Swiss Re.

Natural Catastrophe Exposure

In the 2023 SST, the most significant natural catastrophe exposure for Swiss Re is Atlantic hurricanes with a projected loss of $6.1 billion. Earthquake exposure in California and Japan is the next most significant risk at $4.5 billion and $3.4 billion, respectively. Losses from a Europen windstorm are assessed at $2.5 billion while a lethal pandemic would cost the insurer $3.5 billion, according to the report.  

At the same time, losses from credit defaults are estimated at $2.3 billion.