Looking beyond the 11 September event, it is encouraging to see that Swiss Re strengthened its competitive position throughout the year 2001. In spite of adverse events and unsatisfactory overall results, Swiss Re is now in an excellent position to capitalise on improving markets and achieve superior results in the coming years.
Business is conducted through multiple distribution channels. This includes direct business relationships with insurance clients and large corporations as well as business brought through reinsurance and direct brokers.
Oswald J. Grübel 2002–2006 Proposed member Born 1943, German citizen. Mr Grübel started his career at Deutsche Bank before joining Credit Suisse Group in 1970.
25 April/27 April Conclusion of two major Admin Re business transactions On 25 April, Swiss Re Life & Health in America announced that its affiliate, Reassure America Life Insurance Company, entered into a modified coinsurance agreement with Aurora National Life Assurance Company. On 27 April, a definitive agreement to acquire Southwestern Life Holdings Inc was announced.
12 July Unique USD 450 million catastrophe risk swap Swiss Re and Tokio Marine and Fire Insurance Company, through Tokio Millennium Re Ltd, Bermuda, arranged a USD 450 million catastrophe risk swap to cover losses from natural perils: Japan earthquake for California earthquake, Japan typhoon for Florida hurricane, and Japan typhoon for France storm.
The combined ratio in the Property & Casualty Business Group deteriorated from 117% to 124%, due to the impact of losses arising from 11 September. Excluding this loss, the underlying combined ratio was 110%. The operating return in Life & Health Business Group was 9.5%, compared to 9.2% in 2000. Excluding the impact of the 11 September loss, the operating margin was 10.7%. Life & Health Business Group continued to achieve above-benchmark growth and profitability. The principal reasons for this were continued growth in traditional life reinsurance and Admin Re, as well as the run-off of underperforming health accounts. The return on total revenues in Financial Services Business Group was –26.6%, compared to 11.9% in 2000. The underlying operating performance, excluding the effects of 11 September, improved but this was more than offset by a private equity investments write-down of CHF 231 million.
With a return on investment of 8.0%, Swiss Re was able to exceed its long-term target of 7% for the fourth year in a row, mainly due to solid results on the enlarged bond portfolio and significant gains on equities.
Outlook Based on the positive outlook for 2002, the Board of Directors proposes to the Annual General Meeting an unchanged dividend of CHF 2.50 per share.
where property rates for industrial risks increased by 20 to 25%; and in France, where the increase was 15%. In other major European markets and lines of business, significant rate increases were achieved across the board. Marine war coverage rates rose by 100% in most markets following 11 September, while hull rates went up by 15 to 50%. The largest increases – 100% and more – were in the energy sector. Engineering rates rose significantly as well, particularly for large, multiyear projects. As well as increasing rates, much of the insurance industry returned to the fundamentals of sound underwriting principles, tightening contractual terms and conditions. In many instances, these developments were driven by the reinsurance industry. There is still room for improvement, however, before a technically-sound level is achieved. Japan, where rates remain inadequate, is an exception to the trend, as the insurance market suffers from a generally weak economic environment and continuing fierce competition. The developing countries, too, produced some rate increases – but these remained typically far below those in the rest of the world and thus were short of the level needed for profitability.
The creation of the Property & Casualty Business Group allows Swiss Re to capitalise on its global underwriting expertise while adapting it to local market situations. Staying close to the market and maintaining a single, unitary underwriting philosophy will enable the business group to anticipate and adapt quickly to changing market conditions, improving its management of the underwriting cycle.
In Japan, the market situation continues to be affected by general economic uncertainties.
The proportion of health business declined from 25% in 1999 to 17% in 2001 as Swiss Re continues to withdraw from unprofitable health lines. While a global trend towards privatising health and welfare benefits has resulted in a growing recognition of the protection provided by health policies, it has proven difficult in some countries to develop products that both meet policyholder needs and provide a reasonable return for insurers or reinsurers. Following an extensive review of its health portfolio, Swiss Re has put its underperforming health product lines into run-off. The Life & Health Business Group remains committed to markets and products that allow it to generate an acceptable return.
Apart from 11 September, other significant items, when aggregated, were neutral to the operating result. Of the two largest items, a positive impact arose from the run-off of some Latin American business, where the Life & Health Business Group’s investment strategy resulted in Swiss Re benefiting from capital and currency market movements.
Operating result, excluding realised gains CHF millions 2000 2001 Change in %
Outlook The continuing emphasis on asset management and distribution in the primary insurance market should sustain the demand for traditional life reinsurance and the need for specialised capital and risk management solutions which Swiss Re offers. Swiss Re expects life reinsurance growth to continue to outpace primary market growth. Swiss Re’s strong market position, expense management expertise and full service capability mean the Group is in an excellent position to meet clients’ needs in all areas of business. Continuing consolidation and rationalisation in the primary market should also sustain the demand for Admin Re.
Business group strategy ■ Build a strong franchise in the convergence between capital markets and insurance; ■ Increase cross-selling of risk transfer and corporate finance solutions to better serve clients; ■ Enhance securitisation capabilities as a product offering for clients and a capital management tool for the Group; ■ Maintain leading edge capabilities for strategic and tactical asset allocation and management; ■ Build third party asset and asset/ liability management business.
The Corporate Centre offers the Chief Executive Officer and the Executive Board the necessary global information and strategic tools to manage a group with CHF 170 billion in assets, CHF 34 billion in revenue and more than 8 600 employees, spread across three business groups in over 70 locations and 30 countries.
The Corporate Centre’s response reflected years of preparation and experience in dealing with large losses such as hurricanes, earthquakes, typhoons, stock market crashes and other extreme events. In prior years, Swiss Re had set up a business continuity management process in the mid-1990s, designed to give the Chief Executive Officer and local managers alike prompt access to vital information, available at any location.
The Board of Directors is authorised by law to delegate powers to committees or to individual members of the Board. To enhance efficiency and most effectively monitor the company’s business operations, the Board has established the following committees: Committees Main responsibilities
Executive Board Swiss Re’s Board of Directors has delegated the conduct of business operations to an Executive Board made up of senior executive officers. Members of the Executive Board are appointed by the Board of Directors upon recommendation of the Chief Executive Officer and after consultation with the Compensation and Appointments Committee. The Executive Board is headed by the Chief Executive Officer and includes the heads of the business groups and divisions. The Executive Board is responsible for managing, coordinating and supervising Swiss Re’s business operations. The Executive Board has delegated authority to the Committee of the Executive Board, which is responsible for the conduct of day-to-day business activities.
Organisationally independent of management, the Head of Group Internal Audit reports directly to the Chairman of the Board of Directors and regularly reports to the Audit Committee. Group Internal Audit focuses its activities primarily on those areas identified as possessing the highest operating and control risks within the Group. Group Internal Audit maintains a regular dialogue with the external auditor to share reports and risk issues arising from their respective audits and to co-ordinate their activities.
The Group accounts for its pension and other post-retirement benefit costs under the accrual method of accounting. Amounts charged to expense are based on periodic actuarial determinations.
Currency exchange rates in CHF per 100 units of foreign currency are as follows: Closing rate Average rate Closing rate Average rate
Interest rate contracts Forwards and futures Options Swaps Swaptions Floors and caps Total
Provisions for long latent injury claims outstanding on 31 December 2001 reflect the estimated future trend of claims payments and claims settlement charges. Due to the inherent uncertainties and assumptions on which these estimates are based, however, the Group cannot exclude the need to make further additions to these provisions in the future.
Subtotal Effect of settlement, curtailment and termination Net periodic benefit cost
The Group sponsors a number of defined contribution plans to which employees and the Group make contributions. The accumulated balances are paid as a lump sum at the earlier of retirement, termination, disability or death. The amount expensed in 2000 was CHF 18 million, and in 2001 CHF 20 million.
Method of consolidation: f full e equity 17. Subsidiaries and equity investees
At the end of 2000 the Group established a provision for restructuring the Property & Casualty Business Group.
Shareholders’ equity on 31 December 2000 amounted to CHF 6 839 million. Movements during the year include the dividend payment of CHF 713 million and an 80% or CHF 117 million repayment of the nominal value of Swiss Re’s share capital.
Technical account Premiums earned Claims incurred Change in the provisions for life reinsurance Profit commissions Operating expenses Allocated investment return Technical result
Deposits retained from ceded reinsurance business as well as subordinated and other liabilities are stated at redemption value. Exceptions are the derivative financial instruments included under the item Other creditors: these are valued using the same principles applied for the derivative financial instruments included under investments.
The undisclosed reserves on investments in securities and participations, as the difference between cost or lower market valuation and the book values, decreased by a net amount of CHF 825 million in the year under report.
After deduction of the Federal Withholding Tax of 35%, the dividend will be paid from 10 May 2002 by means of dividend order to shareholders recorded in the share register or to their deposit banks.
The possibility of an insured object, hazard or interest causing a loss, or a loss being larger than previously estimated.
Number of shares issued – of which reserved for corporate purposes – of which reserved to underlie the convertible bond Number of shares entitled to dividend