Dealing with the climate means dealing with uncertainty. It is a scientific fact that global warming is taking place, so what does this mean for Swiss Re and, ultimately, for society? What are the risks; how and when will their effects be felt? What can and must be done to counteract this trend? Finding practical answers to these extremely complex questions is imperative, and a challenge which fascinates me day after day.
Water is an important and multi-faceted topic. It embodies the double-edged sword of risk and opportunity with its power not only to save but also to destroy life. Seven specialists who have a link with Swiss Re explain what they find so fascinating about water, and where their individual professional and personal challenges lie. For more information, visit www.swissre.com (click Investor Relations/Annual Reporting 2000/Annual report – comprehensive overview / Portraits of water specialists)
An investor who invested CHF100 000 in Swiss Re shares at the end of 1990 and reinvested all subsequent dividends, share rights, and the1996 par value repayment of CHF10, without investing any new funds, held a position with a market value of CHF1119 267 on 20 April 2001.The total performance amounts to 1019.3% or an average of 26.4% per year.
An investment of CHF 100 000 in the total Swiss market at the end of 1990 would have increased in value to CHF 551712 on 20 April 2001 (basis: Swiss Performance Index with reinvestment of income).The total performance amounts to 451.7% or 18.0% per year.
S ch o ch a t w w w .s w is sr e
Swiss Re’s effective rate of taxation declined from 24% to 19%, due to a number of one-off changes which took effect this year.
Following a good first quarter, most equity markets declined throughout 2000, ending an extended period of exceptionally high returns on equities. The wellpublicised fall from grace of the technology, media and telecommunications stocks and the peaking of the US economy both contributed largely to this setback. In the favourable market conditions at the beginning of the year, Swiss Re actively reduced its exposure to equities by eight percentage points. In addition, 10% of the remaining equity portfolio was hedged against potential losses, including a portion of key holdings in financial stocks. Both actions paid off handsomely, leading to substantial realised gains and significantly reduced exposure to the subsequent equity market decline.
At the year end, fixed income investments accounted for CHF 62 billion, or 69% of the total portfolio, compared with 62% in 1999. This increase is attributable to company and portfolio acquisitions in the US – mostly related to Admin Re – as well as to Swiss Re's more cautious stance towards equities. These acquisitions also account for the growth in total investments to CHF 90 billion and for an increased weighting of both bonds and the US dollar within the investment portfolio. Despite the high level of realised gains in 2000, Swiss Re had unrealised gains on the investment portfolio of CHF 8.6 billion at 31 December 2000.
In 2000, non-life insurance showed the first signs of improvement in selected markets. Pressure towards further improvement should continue to build, particularly in those markets which have so far withstood the general price increase – thereby holding overall market performance nearer to 1999 levels.
Net premiums earned increased by 29% from 1999 to 2000, due to growth in Europe and North America, the acquisition of Underwriters Re in May 2000 and the continuing weakness of the Swiss franc against other major currencies. Swiss Re was able to replace a sizeable portion of its underperforming contracts with better-priced business and increased participations. A shift from lower, more loss-exposed layers to higher, less loss-exposed layers has also improved Swiss Re’s premium-to-risk ratio.
Motor Earned premiums grew strongly by 35%, benefiting from new business as well as increased original rates. Premium volume grew in almost all geographical areas, with the UK as the most productive market. Re-underwriting also led to more favourable terms and conditions in the existing portfolio, particularly for non-proportional business in Germany, France, the UK and Switzerland.
Accident The solid 74% growth in accident premiums stems primarily from workers’ compensation in the US, where rates started to harden significantly following the Unicover failure.
Expenses Claims and claim adjustment expenses – 1 382 – 2 040 48
This division enhances Swiss Re’s brand recognition, maintaining its distinct corporate profile and culture in open dialogue with all its stakeholders. It also promotes Swiss Re as the employer of choice for professionals worldwide: attracting, rewarding, developing and retaining the best people.
Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. The Group utilises interest rate swaps to convert its variable rate debt into fixed rate debt and accordingly records interest expense using the fixed interest rate. Any related fees are amortised as yield adjustments.
The Group uses interest rate forwards to lock in an interest rate at a future date. Accordingly interest expense is recognised using the forward rate.
Amortised cost or cost and estimated fair values of investments in fixed income and equity securities classified as Available for sale were as follows: Gross Gross
Derivative financial instruments include futures, forward, swap or option contracts and other financial instruments with similar characteristics. The Group, under its risk management strategy, uses these instruments to manage risk.
Interest rate contracts Forwards and futures Swaps Floors and caps Total interest rate contracts
Maturity Instrument in Currency in m rate in CHF m 2002 Syndicated loans 1997 ITL 600 000 Libor+10bp 471 2007 Trust preferred stock2 (TruPs) 1997 USD 46 8.72% 93 2013 Payment Undertaking Agreement 2000 USD 24 Libor-15bp 38 2026 Payment Undertaking Agreement 2000 USD 57 Libor-15bp 92
The following own shares of Swiss Re Zurich, are held by the Swiss Re Group: Number of registered CHF
Discount rate Expected return on plan assets Rate of compensation increase Medical trend – initial rate Medical trend – ultimate rate
Liabilities for life and health policy benefits are generally calculated using the net level premium method, based on assumptions which are set at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. Under the old basis, liabilities for policy benefits were based on the statutory requirements for each Group company.
This is the impact of deferred taxes on the differences described above.
Income statement Swiss Reinsurance Company For the years ended 31 December
Dividend paid for the previous year Share buyback / capital reduction Special allocations Profit for the financial year
The General Meeting to be held in Zurich on 31 May 2001 has at its disposal the following balance sheet profit (cf. income statement and balance sheet, pages 89 to 91): in CHF 1999 2000
Sum of the claims ratio and the expense ratio. This ratio enables the assessment of business performance in non-life reinsurance before inclusion of investment return.
The cost of insurance coverage, often described as “written” or “earned”. Written premiums refer to premiums for all policies sold during a specific accounting period. Earned premiums refer to premiums an insurance company has recorded as revenues during a specific accounting period. For example, a one-year policy sold on 1 January would produce just three months’ worth of “earned premium” in the first quarter of the year.
The Annual Report 2000 summary is available in: English, French, German, Italian, Portuguese and Spanish.