Swiss Re : 2023 FULL-YEAR Annual Report – Financial Report

Swiss Re's Annual Report consists of the Business Report and the Financial Report.

Financial Report

This publication provides a more detailed account of Swiss Re's financial performance during the year and the market trends influencing its business. It also provides details on risk and capital management, as well as information on our governance and compensation.

Climate-related financial disclosures Swiss Re's climate-relatedfinancial disclosures based on the recommendations of the Task Force on Climate-relatedFinancial Disclosures (TCFD) were published in the Financial Report since 2016. Starting this year, they are part of theSwiss Re Sustainability Report.

www.swissre.com/sustainabilityreport

Say on pay and sustainability highlights 110

World real gross domestic product (GDP) growth outperformed expectations in 2023, in spite of numerous geopolitical and macro challenges. Disinflation is underway, but continued economic strength has kept labour markets tight, keeping wage growth above the historical trend. A strong jobs market and robust consumer spending saw the S&P 500 rise 24.2% in 2023. The rapid interest rate hiking cycle continued into its second year, pushing yields on government bonds to multi-decade peaks in the autumn.

Global economic growth

Global real GDP growth was stronger than expected in 2023, staying relatively stable at 2.6% compared with 3.1% in 2022. In the US, ongoing economic resilience was based largely on consumer spending and a lower impact of monetary policy than anticipated. In Europe, government support measures to combat the energy crisis, notably at the start of the year, helped consumers weather the ongoing cost of living crisis.

Advanced economies once again grew at a slower rate (1.6%) than emerging markets (3.9%). The US was a pillar of strength, avoiding a technical recession - defined as two consecutive quarters of negative growth - and with full-year real GDP growth stronger in 2023 (2.5%) than in 2022 (2.1%). The euro area, on aggregate, narrowly avoided a technical recession in the face of cyclical and structural headwinds.

Emerging market GDP growth, excluding the contribution from China, was 3.0% in 2023 in real terms, down from 4.1% in 2022. India outperformed among major emerging markets, with real growth of 6.7%. Brazil continued to grow solidly at 2.9% in 2023, the economy having rebounded in 2021-2022. Growth in China disappointed due to weak domestic and external demand, and a downturn in the property market. Nevertheless, large government interventions kept the economy growing at 5.2%, in line with the target.

Inflation

Headline inflation rates eased in 2023 as global energy and food prices came off the peaks seen in 2022. Still, the outbreak of conflict in the Middle East, together with oil production cuts and tensions in the Red Sea, kept energy prices front of mind. Core consumer inflation measures, which strip out the more volatile energy and food components, proved more resilient, peaking only in 2023 rather than the previous year. Strong labour markets kept wage growth high, adding to inflation pressures, particularly in service sectors.

In the US, the softening of the extremely hot labour market and cooling in real estate rentals saw Consumer Price Index (CPI) inflation average 4.1% in 2023, down from 8.0% in the prior year. In the euro area, inflation was more persistent due to the longer duration of wage contracts than in the US, but the easing of global supply chains and strong reverse base effects from lower energy prices saw headline inflation come down to 5.4% (versus 8.4% in 2022).

There was significant disinflation in Latin America, except in Argentina, where price gains continued to accelerate into year end. In emerging Asian markets, more conservative fiscal policy and geographical distance from the larger geopolitical shocks kept inflation lower than global averages. Inflation in China stood at just 0.2% in 2023 on weak domestic demand. In Japan, inflation averaged 3.2% over the course of 2023 versus 2.5% in 2022.

Financial year

3.9%

US 10-year Treasury bond yield Year-end2023

2.0%

German 10-year Bund yield Year-end2023

Economic indicators 2022-2023

• Yearly average
  2 Year-end

• USD per 100 units of foreign currency Source: Oxford Economics, Swiss Re Institute

Interest rates for 10-year government bonds 2020-2023

5

4

3

2

1

0

-1

Source: Refinitiv, Swiss Re Institute

Financial year

Interest rates

In the second year of the steepest and largest interest rate hiking cycle in decades, policy rates in 2023 climbed to levels last seen before the global financial crisis as central banks sought to tame rampant inflation. The US Federal Reserve (Fed) raised policy rates by 100 basis points (bps) in 2023, keeping interest rates steady at 5.375% after their final hike in July. The European Central Bank (ECB) hiked rates by twice as much over the course of the year and also launched its quantitative tightening policy, with the refinancing rate reaching 4.5% in September. The rate hike cycle in major advanced markets appears to be over. Central banks will now likely look for evidence of inflation returning to target, and of the pass-through of higher rates to the real economy. One potential exception to the end of the rate hike cycle in 2023 in major advanced markets is Australia, where the Reserve Bank followed a "stop-start" approach, resuming interest rate hikes on two occasions after initially pausing in between meetings during the year.

Emerging economies have demonstrated greater divergence on interest rates compared to the advanced markets, with central banks across several continents already cutting rates. Brazil, China and Poland have all begun to lower rates amid improving inflation outlooks. Meanwhile,

South Africa and Mexico ended the year on hold, and Turkey and Russia were raising rates.

Longer-dated advanced market sovereign bond yields moved notably higher in both nominal and real terms over the first three quarters of 2023 and peaked at multi-year highs in the autumn. Bond market volatility was extremely high versus historical averages in 2023. In October, the US

10-year Treasury hit 5.0% for the first time since 2007. In the UK, 10-year gilt yields surpassed those seen in the pension fund crisis in 2022. Bond yields, however, retreated into the year-end on faster disinflation and increased expectations for broader central bank interest rate cuts in 2024. A notable development in 2023 was the Japanese central bank easing its long-held yield curve control (YCC) policy in July.

Stock market performance

The S&P 500 yielded a price return of 24.2% in 2023, after the 19.9% decline in 2022. Equities rallied through to July, with technology stocks leading the way, spurred by hopes around the potential of artificial intelligence. Then, stronger-than-expected economic growth, particularly in the US, led stock markets to decline over the summer over concerns that central banks would be forced to raise interest rates higher than

previously thought in order to tame inflation. Stocks picked up the pace again from October to the year end as lower inflation readings and signs of a soft landing - an environment where both inflation and economic growth slow, but recession is avoided ‒ made interest rate cuts in 2024 more likely.

Stock market volatility was lower in 2023 than in 2022, but there were nonetheless notable moves. Events in 2023 included a regional banking crisis in the US and the failing of Credit Suisse. The resulting market volatility spurred interventions of the respective central banks and government bodies amid fears of contagion in the broader banking system. The suspension of the US debt ceiling and outbreak of the conflict in the Middle East also created short-term volatility. At the same time, markets had to digest a net reduction in liquidity as central banks continued to shrink their balance sheets.

Among advanced markets, in the US the S&P 500 had a strong annual performance, on par with European equities (Euro Stoxx 50 +19.2%, FTSE 100 +3.8%) in local currency terms. Emerging markets stock performance varied (MSCI EM +7.0%, Shanghai Composite Index -3.7%).

Currency movements

Stock markets 2019-2023, indexed 100 = January 2019

200

Source: Refinitiv, Swiss Re Institute

• Bloomberg, US Dollar Index (DXY index).

European currencies strengthened against the US dollar in 2023, including sterling (+6.0%), the euro (+3.5%) and the Swiss franc (+9.9%). The dollar weakened in the first half of the year on domestic growth concerns and narrowing yield differentials, but outperformed in the second due to much stronger-than-expected GDP readings in the US and higher real yields relative to advanced market peers. The currency peaked in October before weakening into the year end on rising confidence that the US rate hiking cycle is over, and expectations of Fed rate cuts in 2024.

In Asia, the Japanese yen weakened to 150 per US dollar in November after the Bank of Japan announced tweaks to its YCC policy.

The Chinese renminbi was weighed down by the divergence between the Fed and the People's Bank of China monetary policy stance, a large differential in growth outlooks and weak external demand.

Year ahead economic outlook

The world economy will likely slow in

2024 as the lagged impacts of monetary policy tightening continue to accumulate. However, outlooks diverge across the major economies: the US is likely to continue to outperform, slowing only in the second half of the year, while the euro area enters 2024 with a stagnant outlook, with a recovery expected to begin in the second half of the year. China, meanwhile, is grappling with structural domestic growth challenges despite large government interventions. Swiss Re forecasts below- trend global real GDP growth in 2024 of 2.4% before a rebound to 2.7% in 2025, the latter supported by lower inflation and interest rates.

Inflation is likely to remain volatile in the advanced markets and remain above target in 2024. CPI inflation is expected to moderate in both 2024 and 2025 in advanced markets.

Advanced market central banks are set to begin to ease monetary policy, but interest rates are likely to remain in restrictive territory in 2024. A sharp rise in long-term US sovereign bond yields in the autumn of 2023 signalled a shift out of the low interest rate environment which had endured since the Great Financial Crisis.

Long-term outlook: the "four Ds" The key structural factors affecting the long-termeconomic outlook remain the "4Ds": Divergence, Digitalisation, Decarbonisation and Debt. Governments will have to balance the need for investment in decarbonisation and digitalisation with growing debt sustainability concerns. This is especially true as economies slow in 2024, thereby reducing tax revenue, and as interest rates remain higher than over the past decade, increasing the cost of debt repayments. With advanced market government initiatives supporting sectors in their efforts to onshore, reshore or friend- shore, divergence could further stress fiscal deficits. Divergence, decarbonisation and debt could also add to structurally higher inflation, while digitalisation could alleviate some of the price pressures.

Geopolitics will likely play a dominant role in 2024. The conflict between Israel and Hamas has added new, potentially non- linear, downside risks to the outlook, whereby energy price shocks have knock-on spiralling effects throughout the global economy. At the same time, the conflict in Ukraine enters its third year, and key elections in many countries, including in the US, add uncertainty to the outlook.

Primary non-life

4 300

Market size in USD billions

Estimated global premiums written in 20231

3.7%

Market growth

Estimated real premium growth in 2023

• Numbers in this section are based on estimates as of February 2024.

• Based on the 4Q23 Global Insurance Market Index report prepared by Marsh.

Market overview

The global non-life insurance industry generated around USD 4 300 billion in gross premiums in 2023. Non-life insurance ranges from motor to property, specialty, personal accident, health and liability insurance. Health insurance accounts

for about 47% of total non-life premiums; commercial property and casualty (P&C) about 25% and personal P&C about 28%.

Market performance

Swiss Re estimates that global non-life insurance premiums written increased by 3.7% year-on-year in inflation-adjusted (real) terms in 2023, above the 3.1% average annual growth from 2018-2022. Challenging economic conditions weighed on demand for insurance in 2023, primarily the high inflation rates in many economies, which again put pressure on consumers' purchasing power. This was more than offset by strong insurance price growth, in particular in personal lines. Elevated inflation also increased the value of exposures in 2023, which positively impacted premium growth.

Personal insurance outperformed commercial lines and health insurance premium growth in real-terms in 2023. Personal premiums written rose by 5.3% compared with 2022, driven by significant repricing of risk in motor and homeowner insurance. In contrast, commercial insurance premium growth was softer at about 2.5% in 2023, below its five-year average of 4.1%, as hard market conditions softened in advanced markets. Global reported price increases for composite commercial insurance were 2.0% in the fourth quarter of 2023, the slowest growth rate since early 2019.2 However, worldwide commercial property insurance price growth remained strong at 6% in the fourth quarter - the 25th consecutive quarter of growth.

Global health insurance premiums rose by around 3.7% in 2023. This followed a 0.7% increase in 2022, and comes just above the five-year average premium growth rate of 3.5%. The acceleration in growth is attributable to the US, where premiums grew by 3.6% in 2023 as insurers adjusted to higher costs and utilisation.

In advanced markets, non-life premiums written grew by around 3.6% in real terms

in 2023, stronger than the 2018-2022 annual average of 2.9%. Advanced EMEA, North America and Advanced Asia performed similarly. Emerging market premiums rose by 4.2% in 2023, close to the five-year average growth. China, which accounts for about half of emerging market non-life premiums, grew more strongly than the rest, at around 5.0%. Emerging Europe and Middle East experienced no real growth in premiums, while real premiums declined in Latin America.

Insurance claims in most large markets have increased markedly since 2021, in line with economic inflation. In 2023, the impact of economic inflation on claims growth eased from the heights of 2022, but it remains elevated. In the US, for example, non-life claims grew by 3.8% in 2023, following

a 16.3% increase in 2022. Motor and property were the main contributors due to both higher frequency and severity. The shift of inflation into wages and healthcare costs in 2023 is seen in increasing claims costs in casualty lines, in particular from bodily injury claims.

Swiss Re estimates overall profitability of the global non-life insurance industry, indicated by return on equity (ROE), at 5.9% in 2023.

This is a clear improvement from 4.3% in 2022, which was the lowest point in recent years. In 2023, the further rise in claims was counterbalanced by more commensurate pricing, resulting in an industry combined ratio of 98.9%. Insurers' investment results also benefitted from higher yields on fixed income assets, which raised the total investment yield by about 1 percentage point vs 2022.

Outlook

Swiss Re forecasts global real growth in non- life premiums of 3.1% in 2024. This would be around trend, as repricing continues, principally in personal lines, and despite slowing GDP growth globally. In 2025, premium growth is forecast at around 2.6%.

Underwriting profitability should improve further in 2024 as the impact of economic inflation on claims diminishes. As more of the fixed income portfolio is renewed at higher yields, investment returns are also expected to strengthen further. Industry return on equity (ROE) could consequently move up to 8.9% in 2024.