November 1994 English translation of original German report; French, Italian and Spanish versions are also available.
Gross premiums 7,510 6,816 Non-Life reinsurance 6,719 6,069 Life reinsurance 791 747
Investment income 866 828 Other income and outgo, taxes - 145 - 59
Total investments 16,500 13,584 Technical reserves 12,748 11,490 Capital funds shown 3,961 1 3,092 Published hidden surplus after tax 1,370 742
Board of Directors Term to expire in Ulrich Bremi* Chairman, Zollikon 1996
BénédictG.F Hentsch Céligny 1997 * Members of the Committee of Directors
Group Management Lukas Muehlemann, Chief Executive Officer (from 1 September 1994)
Members of Senior Management J. -J. Bertschi, T. Drisch, K. Häuptli, J. Fleck, H.W. Kreis
E. Jutzi, Head P. P. Hügle, R. Kellenberger, W. B. Kielholz, B.Laube
Switzerland, Italy, Austria E. Etter A. Galfetti Members of Senior Management J. Eugster, T. Hiltmann, F. Raffaele, J.W. Youngs
Germany, Eastern Europe W. Hersberger M. Oesterreicher Members of Senior Management P. Neuwirth, R. Siegrist
France, Belgium, Luxembourg P. Bieri C, Herzog Members of Senior Management D. Corbaz, G. Felder, P. Gasser
Near and Middle East, Africa, Greece B. Gilliand U. R. Kaeser
Netherlands, Nordic Countries P. Schmid W. Müller Member of Senior Management K. Weber
Asia/Pacific H. Hefti J. Bleuler, G.D, Cantieni Member of Senior Management M. Freylinger
Members of Senior Management H. Arrenbrecht, M. Becker, H. Fricker, H. Hefti, J. Thinnhof
Reinsurance Services Risk Management, Claims Services, IS Coordination, Run-off A. Schneeberger M, Bürge Members of Senior Management D. Dürst, A. Frei, J. Hofmann, T. Lörtscher
Members of Senior Management C. Benz, E. CarO, A. Decurtins, M. Gürber, F. Marty, B, Perrin, F. Riedle, M. Ringli
Personnel R. Oberle J, Niederer Members of Senior Management J. Elmiger, P. Eugster, E, Giger
Executive Board Staff Controlling, Legal Matters, Research and Development, Retrocession, Special Assignments
Gross premium income in reinsurance rose by CHF1.502 million or 13.9% to CHF12.277 million; growth would have been 17.2% if exchange rates had remained unchanged. At the same time, the underwriting loss was reduced to CHF 298 million. Profit of the reinsurance companies advanced from CHF 167 million in the previous year to CHF 499 million. This gratifying development - strong, selective growth and a marked improvement of the under­ writing result with a continued high level of technical reserves - is the result of determined efforts to optimize the earnings potential of our business.
However, SCHWEIZ Seguros, Barcelona had to report a large loss. Along with all other insurers in the Spanish market, it was forced to strengthen its reserves signifi­ cantly as stricter legislation on indemnities for claims was introduced. SCHWEIZ Seguros also faced serious losses arising from a misguided business policy in recent years which had previously been concealed in the local com­ pany’s reporting. We have set aside CHF 480 million to put the company back on a sound footing. The claims reserves are now fully satisfactory and well above the market level. Moreover, there are sufficient funds avail­ able for the required organisational and structural reme­ dial measures.
In our judgement, the reinsurance market will grow by an annual rate of approximately 4% in real terms for the fol­ lowing main reasons: - Insurance business is expected to show substantial real growth rates even in developed markets. The markets in Asia and other emerging markets will also experience more than average growth and generate a rapid increase in demand for reinsurance capacity and related services.
- The rapidly increasing number of captive insurance companies is creating a large market in international large risk business. Here Swiss Re already has opera­ tions which extend beyond traditional risk transfer, offering specialized services in Financial reinsurance, risk and captive management (through our subsidiary International Risk Management Group) and claims handling (through our subsidiaries Thomas Howell Group and Gay & Taylor).
Swiss Re holds an outstanding strategic position to exploit all of these opportunities. Our global presence - we already have 55 reinsurance operations in 25 coun­ tries across all continents - the professionalism of our staff and the Group’s strong financial basis provide us with the preconditions for success.
This move allows Swiss Re to focus its extensive resources on its core business. We will use the consider­ able funds of more than CHF 5 billion arising from the divestiture to strengthen our capital base and thus facili­ tate a systematic expansion of our reinsurance business. The impact of our new Group strategy on results will only be felt from the 1995 business year.
The following changes have taken place in the structure of the Swiss Re Group: At the end of the year under report SwissRe Holding Limited was merged with Swiss Re, Zurich. As a result, the holdings formerly in the name of SwissRe Holding Limited have been transferred to the direct ownership of Swiss Re, Zurich. Whereas the merger of Vereinte Lebensversicherung AG with Magdeburger Lebensversicherung AG was effected as planned during the year under report, the corresponding merger of Ver­ einte Versicherung AG with Magdeburger Versicherung AG has not yet been entered in the commercial register because of objections filed and actions for annulment.The Bavarian Reinsurance Ireland Limited, Dublin, founded at the end of 1992, took up full business activity in the course of the year under report. General Surety & Guarantee Company Limited, Wilmslow, has been sold.
In the 1993 Group accounts, the consolidated gross pre­ miums amounted to CHF 23,749 million, an increase of 8.3% as against the previous year. When expressed in original currencies, the growth rate was 13.4% (previous year, 14.4%).The consolidated net premiums rose by 8.6% to CHF 22,458 million, reinsurance business accounting for 54% and insurance for 46%.
The consolidated overall result rose by 15.7% to CHF 325 million. In Non-Life insurance, the underwriting loss re­ duced by CHF 83 million to CHF 1,034 million. In Life in­ surance, a profit of CHF 144 million was shown (previous year, CHF 130 million). Overall, the underwriting loss amounted to CHF 890 million (previous year, CHF 987 mil­ lion). Investments and other financial income increased by CHF 39 million to CHF 2,101 million. Hate fluctuations, depreciation and value adjustments produced a positive balance of CHF 601 million (previous year, CHF 486 mil­ lion). Management expenses and other outgo rose by 12.1% to CHF 1,191 million, while taxes increased by 32.0% to CHF223 million. At the end of 1993, the Group's capital funds shown including Group profit amounted to CHF 4,857 million (previous year, CHF 3,945 million).
At the Union Reinsurance Company, Zurich, gross pre­ miums in Non-Life reinsurance rose by 9.3% to CHF 1,125.3 million. Liability and Marine business made a more than proportional contribution to this growth. The underwriting result showed a slight improvement over the previous year. - In Life reinsurance the gross amount of business in force increased by 22.2% to CHF12.100 mil­ lion, and the underwriting profit again rose slightly. - Investment income remained at about the previous year’s level, while realized capital gains increased substantially.
The profit for the year was CHF12.9 million (previous year, CHF 7.9 million), from which a dividend of CFIF 6.0 million (previous year, CFIF 4.0 million) was paid.
At the Canadian Reinsurance Company, Toronto, the gross premiums increased over the previous year by 20.0% to CAD 277.1 million, the principal contribution coming from Property and Motor business. The premium volume in the other lines of insurance was in line with that of the previous year. The experience of Property insur­ ance and Motor business showed a marked improve­ ment, while the result of Surety reinsurance was again unsatisfactory. In the financial sector, capital gains were realized thanks to the healthy state of the stock market, while the position in real estate remained unsatisfactory. The published profit rose in the year under report to CAD 13.8 million (previous year, CAD 0.8 million). The com­ pany paid a dividend of CAD 0.6 million (previous year, CAD 0.8 million).
The gross premiums of the Bavarian Reinsurance Com­ pany Limited, Munich, rose in Non-Life reinsurance by 16.7% to DEM 2,899.4 million. Fire and Motor business, the lines with the greatest turnover, contributed to this exceptionally high growth, as did Marine and Aviation. Following the previous year’s loss, the underwriting result was positive largely because of relatively lower burdens from large and catastrophe losses, premium increases in direct insurance and more favourable reinsurance conditions. This gratifying development is however set against a higher allocation to the equalization reserve. - In Life reinsurance, the gross amount of business in force was unchanged at DEM 13,200 million. The underwriting result was a significant improvement over the previous year’s unsatisfactory result. - Investment income showed a moderate increase. An overall profit for the year of DEM 57.0 million (previous year, DEM 52.0 million) is foreseen from which an unchanged dividend of DEM 7.0 million is to be paid. For tax reasons the remaining profit for the year of DEM 50.0 million is to be paid as a special dividend along with an amount of DEM 19.0 million taken from the profit provisions. This will revert to the company in the form of a capital increase. - In November 1992, Bavarian Re founded Bavarian Reinsurance Ireland Lim­ ited in Dublin. In its first business year this subsidiary showed a gross premium volume of ECU 58.3 million and a profit of ECU 5.3 million. A dividend of ECU 2.5 million was paid.
Despite improved results of the larger companies of the ELVIA Insurance Group, Zurich, and the Vereinte Ver­ sicherungsgruppe, Munich/Hanover, as well as a profit of Lloyd Adriatico S.p. A..Trieste, which was only slightly less than that of the previous year, the overall result was dis­ tinctly negative owing to losses incurred by two compa­ nies in Spain and Italy. This development is largely due to the substantial amount that had to be set aside after revaluation of the claims reserves of the SCHWEIZ Com- pania Anonima Espanola de Seguros y Reaseguros, Bar­ celona. This amount of CHF 480 million mainly concerns losses incurred in earlier years. In addition, the result of SCHWEIZ Assicurazione S.p.A., Milan (formerly Savoia S.p.A.), was again negative. The underwriting result of Non-Life insurance for the entire Group Division Insur­ ance rose to CHF 641 million (previous year, CHF 189 mil­ lion). The Group result of insurance companies was a loss of CHF360 million (previous year, profit of CHF78 million).
The ELVIA Insurance Group, Zurich, achieved in the year under report consolidated gross premiums of CHF 2,637.1 million (previous year, CHF 2,508.8 million). - The gross premiums of ELVIA Swiss Insurance Company Zurich fell by 2.7% to CHF 1,248.4 million.The reduction in premium is largely due to the transfer of the medical expenses port­ folio to sickness funds. The underwriting result deterio­ rated as against the previous year, while the financial result improved. The profit for the year rose to CHF 35.1 million (previous year, CHF 30.0 million), from which an unchanged dividend of CHF 23.6 million and an anniver­ sary bonus of CHF 4.7 million was paid.-At the ELVIA Life Swiss Life Insurance Company, Geneva, the amount of business in force rose by 3.1% to CHF 17,100 million. Thanks to an improved underwriting result and higher investment income, the profit-sharing bonus to policy­ holders was increased again. The profit for the year amounted to CHF 6.4 million (previous year, CHF 5.2 mil­ lion). The dividend was raised to CHF 3.4 million (previous year, CHF 3.1 million). - The gross premiums of ELVIA Travel Insurance Company, Zurich, rose by 7.7% to CHF 266.2 million. The underwriting result and investment income showed further improvement. The profit for the year amounted to CHF 4.3 million (previous year, CHF 3.8 million), from which a dividend of CHF 3.0 million (pre­ vious year, CHF 2.3 million) was paid.
The gross premiums of Lloyd Adriatico S.p.A., Trieste, increased in the year under report by 14.0% to ITL 1,695,400 million. The increased underwriting loss as against the previous year is among other things due to the still unsatisfactory premium level in Motor Liability insur­ ance and to significant increases of the claims reserves. A further postponement by the government of the long overdue tariff deregulation ruled out any premium adjust­ ments before mid-1994. The development of expenses was slightly below that of premium growth. Life insurance accounted for 12.0% of the premium volume with an amount of business in force of ITL 5,018,000 million (pre­ vious year, ITL 4,237,100 million). The financial result showed significant improvement thanks to higher invest­ ment income and an increase in realized capital gains. The published profit fell as a result of a large increase in the tax burden to ITL 43,100 million (previous year, ITL 48,400 million), from which dividends were paid of ITL 19,500 million (previous year, ITL 18,000 million) on ordinary shares and ITL 4,200 million (previous year, ITL 3,900 million) on savings (risparmio) shares.
The SCHWEIZ Compania Anônima Espanola de Seguros y Reaseguros, Barcelona, increased its premium income by 12.9% to ESP 33,400 million. In the year under report the reserves for outstanding claims in Motor Liability insurance were substantially increased to take into account stricter legislation on indemnities for claims. In addition, a misguided business policy had qiven rise in recent years to serious losses, previously concealed in the company’s reporting. In order to put the company back on a sound footing, a total amount of CHF 480 mil­ lion was set aside. The company’s published loss totalled ESP 18,700 million (previous year, profit of ESP 109 mil­ lion).
The International Risk Management Group, with head office in Hamilton, Bermuda, is active in captive manage­ ment and risk analysis. It achieved a fee income of USD 37.0 million (previous year, USD 33.9 million).The dividend amounted to USD 3.4 million, as in the previous year.
The turnover of the Thomas Howell Group, with head office in London, showed only a marginal increase as against the previous year to GBP 74.4 million (previous year, GBP 74.0 million). The published result was again negative.The unsatisfactory result is due to development costs and to a drop in the claims frequency in the principal markets.
Group company profit applicable to minority shareholders 71 73 49 * The underwriting result figures of reinsurance and insurance companies correspond to the net values in accordance with commercial law (in­ cluding mutual cessions).
Cash in hand, postal bank account, bank balances 840 339 1,210 1,811
Profit applicable to minority shareholders - 71 73 49 Capital funds applicable to minority shareholders 1 508 534 571
Share and non-voting share capital 301 276 Reserves shown 3,567 2,747 Consolidation reserve fund 664 641 Group Profit 325 281
The scope of consolidation includes all domestic and for­ eign insurance and reinsurance companies in which Swiss Re, Zurich, directly or indirectly maintains a holding of more than 50% in the voting share capital. Each indi­ vidual item of the profit and loss accounts and the bal­ ance sheets of these companies is shown at 100%.The shares of the capital funds and profit applicable to minor­ ity shareholders are shown as separate items in the con­ solidated balance sheet and profit and loss account.
As in previous years, advisory and service companies as well as a few other small companies are not consolidated in view of their insignificant effect on the Group’s funds and income or because their activities are dissimilar. The mh Bausparkasse AG, Munich, is, however, included in the consolidation.
The consolidation includes for the first time Bavarian Reinsurance Ireland Limited, Dublin, which was founded at the end of 1992 by Bavarian Reinsurance Company, Munich. General Surety & Guarantee Company Limited, Wilmslow, has been sold and is no longer included in the Group accounts.
The value of the Swiss franc rose against most of the cur­ rencies used in the Group accounts, especially the German mark and in particular the Italian lira and Spanish peseta. In contrast, the US dollar stabilized slightly against the Swiss franc.
Fixed-interest investments are in principle stated at acqui­ sition cost or, if they are quoted and the stock exchange price is lower on the balance-sheet date, at the lower value. The lower valuation is retained until the security is sold or redeemed. The fixed-interest investments of ELVIA Life are stated at actuarial value. The registered debt instruments owned by Group companies in Germany are stated at nominal value. Zero coupon bonds are valued at amortized cost.
Real estate is entered at the balance-sheet values of the individual Group companies: these correspond as a rule to the acquisition cost less the depreciation permitted by the tax authorities. Revaluations which certain Group companies are required by law to make are incorporated in the consolidated accounts but have no effect on the profit for the year.
The valuation of all other items of the Group balance sheet plays a subordinate role. Foreseeable risks of loss are taken into consideration by means of value adjustments to the individual Group company results.
The consolidated gross premiums rose by 8.3% to CHF 23,749 million (previous year, increase of 25.6%).
Surrenders rose by CHF 443 million to CHF 778 million. The increase reflects mainly a portfolio withdrawal by a reinsurance client.
Reserve for profit commission 2 450 452 401 in % of net premiums earned 196.9 175.0 187.3 181.6
The profits and capital funds applicable to third party shareholders correspond to the percentage shares of non-Group shareholders in the capital funds or in the re­ sults of the relevant companies. The capital funds appli­ cable to minority shareholders fell in the reporting year by CHF 37 million to CHF 534 million.This is mainly due to the effect of foreign currencies. The share of profit applicable to third party shareholders rose by CHF 24 million to CHF 73 million. The increase is mainly attributable to the higher profit published by Vereinte Krankenversicherung AG, Munich.
Capital funds at end of previous year 3,945 3,148 Effects of exchange rate fluctuations on opening balance-sheet figures - 61 - 22 Paid-out profits for previous year -118 -106 Increase of Swiss Re’s capital funds 776 429 Group profit 325 281
Western Atlantic Reinsurance Corporation USD 100 101,091 200,983 172,930 1 consolidated with Palatine Insurance Company Limited
SR International Business Insurance Company Limited GBP 100 24,423 82,882 97,655
Vereinte Lebensversicherung AG DEM 96.7 72,093 10,540,292 1,118,624 1 in millions of lira 2 after 1994 capital increase
Liabilities Current-account and bank balances Cash deposits Technical reserves Non-Life insurance Life insurance Transitory entries, value adjustments and other liabilities (incl. share of minority shareholders and building society deposits) Group Capital Funds Shown (incl. Group profit)
Compania Suiza de Reaseguros, Oficina de Asesorfa Técnica, Bogota, D.E. *
ELVIA Life Swiss Life Insurance Company, Geneva ELVIA Travel Insurance Company, Zurich ELVIA - Assurances S.A., Brussels CAP Compagnie d’Assurances de Protection Juridique S.A., Geneva Grupo La Equitativa, Madrid
Lloyd Adriatico Espana S.A., Madrid Giuliana Assicurazioni S.p.A., Trieste Giuliana Vita S.p.A., Trieste
International Risk Management Group with worldwide organizationMagdeburger Versicherung AG, Hanover *
Harp-string arrangement of tracks in the Maschen railway yard, Hamburg, Germany
Arches and domes above the bazaar in the town of Yazd, Iran
Customs clearance at the border crossing between lain, Spain, and Hendaye, France
There are several reasons for the marked improvement in results against the preceding years, the main factor being the distinct drop in the natural catastrophe burden. Although reports of extreme weather conditions with floods came in from both the USA (Mississippi/Missouri) and Europe, their influence on the loss ratio was modest for insurers and particularly for reinsurers. This circum­ stance can be put down to the fact that in many countries insurance capacity for flood damage is either not avail­ able at all or only to a limited extent. Still, a reduced loss burden in one particular year must not be allowed to mask the fact that the long-term overall loss development is clearly deteriorating. Higher concentrations of values, higher insurance density and the growing number of extraordinary natural catastrophes are only some of the causes. The main tasks of the insurance industry still con­ sist in mastering the financial consequences, promoting research projects and supporting preventive measures against losses from natural catastrophes. However, the precondition is that the premium, calculated on the basis of the probability of occurrence and possible size of loss, remains stable and allows adequate reserves to be formed in years with less severe loss burdens.
The professionalism which insurance buyers and insurers have displayed in dealing with fire risks in large-scale industry is reflected internationally in a steady improve­ ment of results. The risk dialogue has been introduced successfully and must now be cultivated to ensure that competition in this sensitive segment will continue on the basis of risk consultancy and coverage tailored thereto rather than on the price. Moreover, in Europe the influence of captive companies is making itself felt more distinctly in this specialised field of business.
In the American insurance market, intensified regulation and supervisory activities and new capital requirements (risk based capital) have prompted some premium in­ creases in Property insurance, but in the industrial risks sector rates have stayed at a low level with no turnabout in sight.
In the year under review, the reinsurance market was characterized by substantial shifts in capacity. Some renowned international companies discontinued their business activities in the wake of the high worldwide loss burden which arose from natural catastrophes and from IBNR liability claims in the USA. The difficulties at Lloyd’s have led to far-reaching structural adjustments. New, highly capitalized companies backed by financially strong partners have entered the market and focused on catastrophe business. This move has placed the emphasis back on the financial and long-term soundness of the reinsurer. Although this is a welcome development, the solvency requirements must be reflected in the prices. Moreover, lasting quality in business handling and related services continue to play an important role.
Growing demand for Financial reinsurance to supplement traditional reinsurance business has opened up a new and important field of operation for reinsurers, although finding the most appropriate combination of the two risk transfer methods does put very high demands on the rein­ surer’s professional skills.
The issue of environmental damage is steadily gaining in importance. In the USA, estimates on clean-up costs for residual pollution loads (particularly ground pollution in waste deposits) have assumed gigantic dimensions and have become an issue of political debate. In Europe, the insurance industry is making big efforts, by setting up environmental pools, to deal with new business and handle residual loads in a coordinated approach.
The substantial drop in the underwriting loss to CFIF 235 million (previous year, CHF 623 million) is attributable to several factors, foremost among which is the absence of
major burdens from natural catastrophes in Fire insur­ ance. In most other branches too, gratifying improve­ ments in results were achieved, particularly in Liability reinsurance, Motor business and Marine, Engineering and Aviation. In contrast, the results of Hail and Credit/Surety were less favourable than in the previous year. The results of proportional treaty reinsurance remain unsatisfactory so that, even in a good business year like the one under report, the result was still negative. There is an urgent need for the pricing of reinsurance cover to be detached from that of the original business.
Net Premiums 6,737 6,039 the outcome is significant improvements in all three forms of cover. The burdens in non-proportional business were due to natural occurrences. It was possible to compen­ sate in part for the loss suffered over the period 1989- 1992. In view of the considerable loss potential from floods (Europe and USA), the prime target must be the final elimination of the accrued loss and the setting aside of fresh reserves. The facultative portfolio was similarly spared exceptional major losses and has developed over the years to become a stable positive result element. Although the result of proportional treaty business improved, it was still negative as compared with the pre­ vious year, because of unfavourable loss experience in the USA and some European markets.
In Accident reinsurance, the premium volume fell slightly as against the previous year. At unchanged exchange rates there would have been an increase in the region of 4%. - The run-off of American Workers’ Compensation business again produced a heavy burden on the result, but was offset in the year under report by some in part substantial result improvements in Europe. The overall result is a small profit.
Sickness reinsurance business too, stemming mainly from Germany, France and Italy, stagnated after conver­ sion into Swiss francs. In local currency growth would have been around 4%. With the exception of a few facul­ tative acceptances, the volume is mainly accounted for by proportional treaties. - The result in this line of insur­ ance, which is characterised by the concept of solidarity, fluctuates within a relatively narrow bandwidth around a technical break-even result. The previous business year had produced a small profit.
General Third Party Liability reinsurance recorded growth of 13% which, unlike the previous year, was only margin­ ally affected by exchange rate fluctuations, as this busi­ ness is mostly conducted in US dollars. About half of the growth is due to newly concluded financial reinsurance treaties. Facultative acceptances in the field of profes­ sional indemnity led to further additional income. - The underwriting result in this business segment follows the cyclical movements of reserve formation for residual pol­ lution loads. In the year under report, only minimal addi­ tional reserves were called for in the case of both the European and the American portfolio. Overall the under­ writing loss dropped. The problem facing this line of busi­ ness is the uncertainty surrounding the magnitude of claims lodged in the two sectors health and environment, which may in turn be affected by court practice. The con­ tinuous review of reserves is therefore particularly impor­ tant.
In the year under report, growth in Marine reinsurance remained strong, although less so, with a rise of 14%. This can be attributed to general improvements in original con­ ditions and the expansion of existing connections in the Far East and Scandinavia. Non-proportional business again recorded more than proportional growth. - The underwriting result closed with a small loss. Positive fac­ tors, such as higher original premiums and the absence of peak losses, were set against further run-off losses from earlier treaty years.
There was a noticeable absence of major movements in Nuclear Energy reinsurance. Investment in nuclear energy has gradually been declining for years. New busi­ ness opportunities are restricted to the Far East and the former member states of COMECON. - Another positive result permitted further allocations to the catastrophe reserve.
The net amount of Life reinsurance business in force rose in the year under report by 5% to CHF 107,000 million, thanks to substantial new business. Without the effects of exchange rate fluctuations, the growth would have been 7%.
Special classes such as health insurance, dread disease covers, long-term care annuities and financial reinsur­ ance meet with keen interest on the part of insurers but remain of minor importance in the portfolio. So far Aids has hardly had any impact on results; even so, reserves were again increased in the year under report.
In 1993, the development of the world economy recorded regional differences. Whereas the economic recovery which began in the USA during the previous year gained momentum and the UK economy managed to climb out of recession, continental Europe and Japan were faced with a lull which persisted throughout the year.The advancing rate of unemployment affected consumer demand and together with large surplus capacities slowed down com­ pany investment activities over lengthy periods. Initial signs of economic recovery did not emerge in Europe until late in the year. The Japanese economy remained subdued despite a comprehensive fiscal incentive pro­ gramme. Sluggish economic development caused the rate of inflation in most OECD countries to slow down further; it averaged 3.6% in 1993 against 4.1% in the pre­ ceding year.
The foreign exchange markets - particularly in Europe - again experienced strong fluctuations. At the beginning of the year, the US dollar improved marginally against most European currencies owing to the comparatively favourable development of the US economy and an antic­ ipated drop in interest rates in Europe. At the same time, persistent currency speculation challenged the European Monetary System (EMS) and already in the spring caused the Irish, Spanish and Portuguese currencies to devalue.
Fuelled by this success, pressure on the weaker EMS currencies built up further and in August prompted the margin for permissible currency fluctuations to be widened to 15%, which virtually amounted to floating the currencies. Although this measure largely eliminated speculation, the EMS currencies were unable to recover entirely from the turbulence by the end of the year. They all closed the year lower against the Swiss franc. The yen continued to improve and gained value significantly over the previous year, its lofty course being determined to a large extent by the steady progress in the surplus of the Japanese balance of payments.
Fixed-interest securities with equity character 2% (1%) 1 Shares 13% (12%) ■Hi Real estate 11% (15%) H
Swiss francs 31% (27%) HHH Remaining European currencies 42% (47%) HHHH North American currencies 21% (21%) HH Asian currencies, Australian dollars 6% (5%) H
expansive monetary policy in Japan showed similar effects. The securities markets adopted the favourable money market developments and occasionally even rushed on ahead of the decline on the money markets.
Bonds, certificates of deposit and mortgage bonds 7,828 5,630 Loans (including mortgages) 454 517 Fixed-interest securities with equity character 165 109
Holdings and loans comprise holdings and loans to Group companies. Most holdings were previously con­ trolled through SwissRe Holding Limited and financed by way of loans to this company. SwissRe Holding Lim­ ited merged with Swiss Re, Zurich with effect from 31 December 1993. The result of this operation is that all holdings are shown in the balance of Swiss Re, Zurich from the balance-sheet date 1993; they total CHF 2,599 million (CHF 895 million in the previous year). Loans to Group companies declined to CHF485 million (CHF1.853 million in the previous year). Overall, holdings and loans increased by CHF 336 million to CHF 3,084 million.
Net cash deposits (i.e. cash deposits with clients from active reinsurance after deduction of the deposit reserves due to retrocessionaires from passive reinsurance) declined by CHF 65 million to CHF2.215 million.
The following table shows the structure of total invest­ ments at balance-sheet values.
Net investment income in the broad sense (i.e. on invest­ ments as set out above, plus money market investments) amounts to CHF 866 million, and so is 4.6% higher than in the previous year (see the comments on investment income on page 51).
On 14 October 1994, the value of Swiss Re, Zurich, on the Zurich stock exchange was as follows: 12,468,742 registered shares at CHF 704 573,545 registered shares CHF 8,778 million 1994 issue at CHF 694 1,019,700 bearer shares
CHF 398 million at CHF 730 CHF 744 million Stock market capitalization
Having reached retirement age, Mr Kurt Furgler is re­ signing from the Board of Directors at the forthcoming General Meeting. He has served as a Member of the Board since 1987. His outstanding knowledge of national and international politics and international organizations have been a valuable asset to Swiss Re and we are greatly indebted to him.
At the coming General Meeting, the terms of office of Messrs Urs Bärlocher and Peter Forstmoser expire. The Board of Directors will propose to the General Meeting that these gentlemen be re-elected.
In addition, the Board of Directors will propose to the forthcoming General Meeting that Mr Lukas Muehlemann be elected to the Board for the first time.
Immediately after the General Meeting, the Board of Directors intends to appoint Mr Muehlemann as Man­ aging Director.
Claims incurred incl. adjustment in outstanding claims reserve - 474,064,295 - 477,482,620
Profit brought forward from previous year Profit of the Business Year 234,937,023 187,128,186
The accounts are compiled according to Swiss law and the underlying commercial and insurance principles. The principle of caution inherent in these regulations is deter­ mining for the valuation and reserving practice of the Company. The principles of accounting and valuation hitherto applied were retained in the year under report.
The structure of the annual accounts has been altered to comply with the amended Swiss Corporation Law. The presentation of the balance sheet and profit and loss account basically corresponds to that of the previous year, the new statutory requirements being mainly fulfilled in the notes. Unless a specific statement is made, there is no obligation to disclose.
Gross premiums in the year under report totalled CHF 6,719.1 million (previous year, CHF 6,069.0 million). After deduction of retrocession premiums of CHF 691.6 million (previous year, 738.1 million), the remaining net premiums amounted to CHF6,027.5 million, corresponding to an in­ crease of 13.1% over the previous year. At unchanged foreign currency rates the growth would have been 16.8%.
The earned premiums for own account result from the total of the net premiums and the difference in the un­ earned premium reserve over the last year under report. At CHF 5,771.3 million they were CHF 614.4 million, or 11.9% above that of the previous year. For gross business the earned premiums amounted to CHF 6,559.3 million (previous year, CHF 5,898.9 million).
Gross premiums totalled CHF790.6 million, CHF11.5 mil­ lion (previous year, CHF8.6 million) of which was for annu­ ities purchased. After deduction of retrocession pre­ miums of CHF 81.1 million, the remaining net premiums amounted to CHF 709.5 million, corresponding to a rise of 0.2% over the previous year. At unchanged foreign currency rates the growth would have been 2.7%.
A drop of CHF22.5 million for own account (previous year, CHF0.2 million) took place as a result of a further increase in surrenders. This balance is the outcome of a decrease of CHF25.5 million applicable to Life insurance and an in­ crease of CHF3.0 million applicable to annuities. Forgross business the drop of the policy and premium reserve amounted to CHF 12.8 million (previous year, CHF1.7 mil­ lion).
This group of accounts closed with a positive balance of CHF 153.9 million (previous year, CHF 228.9 million). The breakdown to the various account items is shown in the following table: in millions of Swiss francs
Other depreciation and value adjustments - 22.8 - 39.9 Value adjustments from foreign currency transfers - 1.8 - 14.8 * Investments = capital market investments, real estate and holdings
The year under report produced an extraordinary result with a net debit of CHF295.2 million. Following revaluation of the loss reserves of the Spanish subsidiary company SCHWEIZ Companfa Anonima Espanola de Seguros y Reaseguros, Barcelona, an exceptional burden of CHF 480.0 million arose which also includes the provisions for unexpired risks. On the other hand, in the year under report, the sale of holdings to third parties brought extra­ ordinary capital gains of CHF 184.8 million. This income went to SwissRe Holding Limited but was incorporated in the profit and loss account of Swiss Re, Zurich, as part of the merger profit.
The tax outgo contains both taxes on profit and on capital as well as indirect taxes. It amounted to CHF49.8 million, as against CHF 53.6 million in the previous year. Cantonal and local taxes in Switzerland have been set aside on the basis of the result of the 1993 business year, while direct federal tax is included in the account as the amount actu­ ally owed in the particular calendar year. The taxes of foreign subsidiaries are incorporated on the basis of the local accounts.
Of the total amount of CHF 613.0 million (previous year, CHF1,127.0 million) CHF612.2 million (previous year, CHF 1,126.2 million) was for bank balances. A substantial part of these funds is invested short-term in the principal currencies for our business activity and is used to meet current obligations on time.
Cash deposits with clients from active reinsurance busi­ ness amounted to CHF 2,274.3 million (previous year, CHF2,343.7million); CHF843.4 million of this amount was for cash deposits on behalf of Group companies.
Transitory entries amounted to CHF 382.6 million (pre­ vious year, CHF 439.3 million). This item comprises ac­ crued investment income, i.e. investment income already earned on the balance-sheet date but not yet received. It comprises further transitory items.
Of the current-account balances CHF 969.0 million (pre­ vious year, CHF 1,062.2 million) was for reinsurance and CHF70.2 million (previous year, CHF94.5 million) for retro­ cession business. Other liabilities totalled CHF339.3 mil­ lion (previous year, CHF 387.1 million). Current-account balances with regard to companies of the Swiss Re Group amounted to CHF464.9 million.
Cash deposits for retrocessions rose to CHF 59.7 million (previous year, CHF63.9 million), of which CHF2.5 million concerned deposits with regard to Group companies.
At the end of 1993, transitory entries amounted to CHF 93.2 million (previous year CHF61.1 million).
Provisions totalled CHF 535.6 million (previous year, CHF 408.1 million) and include the delcredere reserve and reserves for foreign currency risks and taxes.
Other liabilities amounted to CHF 11.4 million (previous year, CHF 10.7 million).
Business in force at end of previous year Non-Life reinsurance 9,461.6 7,933.1 Life reinsurance 2,028.7 1,969.2 Total for own account 11,490.3 9,902.3
Changes Valuation difference based on exchange rate fluctuations 294.7 + 79.6 Increase of technical reserves in year under report + 1,552.1 + 1,508.4
At the end of the previous year, the capital funds amounted to CHF 3,092.3 million. At the 1993 General Meeting various capital transactions were approved including a share split in the ratio of 1:5, the conversion of non-voting shares into registered shares, capital increase with subscription offer. As a result the share capital rose by a total of CHF 93.1 million. From the capital increase and shareholder warrants exercised up to the end of 1993 a premium total resulted of CHF 566.4 million (after deduction of issue costs of CHF 29.9 million) which was allocated to the reserves shown.
Including the proposed allocation of the profit, provided it is approved by the General Meeting, the capital funds will amount at the end of 1993 to CHF 3,960.8 million.
Share capital 300.9 207.8 Non-voting share capital - 68.7 Reserves and profit carried forward 3,659.9 2,815.8
Contingent liabilities (mainly guarantees) amounted on 31 December 1993 to CHF247.0 million. In addition there were four unlimited guarantees on behalf of companies of the Swiss Re Group.
To secure the technical reserves on the balance-sheet date 1993 securities in the amount of CHF 901.5 million were deposited in favour of ceding companies.
The insurance value of tangible assets, comprising the real estate portfolio and other tangible assets, amounted on 31 December1993 to CHF1,723.1 million.
The current account obligations vis-à-vis personnel wel­ fare institutions amounted to CHF 8.6 million on the 1993 balance-sheet date.
Details of the Swiss Re Group’s holdings are to be found on pages 27-29 and 32/33.
On 26 November 1993, Revisuisse Price Waterhouse Ltd. certified that it had reviewed, in accordance with Article 652f of the Swiss Code of Obligations, the reports sub­ mitted to it as auditors concerning the increase of capital by CHF 68.72 million by converting non-voting shares in­ to registered shares and the regular increase of capital by CHF 24.4 million. The examination was carried out in accordance with auditing standards promulgated by the profession, and Revisuisse Price Waterhouse Ltd. con­ firmed that it complied with the legal requirements con­ cerning professional qualification and independence. Based on the examination, the conclusion was reached that the information contained in the reports concerning the increase of capital was complete and accurate and complied with the legal provisions and the resolutions of the General Meeting of 26 November 1993.
The General Meeting to be held in Zurich on 25 November 1994 has at its disposal the following balance-sheet profit (cf. Profit and Loss Account and Balance Sheet, pages 48/49): Swiss francs Swiss francs
The Board of Directors proposes to the General Meeting to allocate this profit as follows: Swiss francs Swiss francs
Swiss-Am Reassurance Company 237 Park Avenue, New York, NY 10017 Australia / New Zealand
Reinsurance Corporation 380 Madison Avenue New York, NY 10017 31 Queen Street, Melbourne, Vic. 3000 with branch offices in Sydney and in Auckland and Wellington, New Zealand
Colombia Compania Suiza de Reaseguros Oficina de AsesoriaTécnica Calle 72, No. 12-65, Piso 9 Apartado aéreo 057293, Bogota, D. E.
Switzerland ELVIA Swiss Insurance Company Zurich Bleicherweg 19 CH-8022 Zurich with branch offices in Amsterdam and Paris
Vereinte Versicherungen Lloyd Adriatico Espaha S.A. Fritz-Schäffer-Strasse 9 Orense 81 - planta 5a D-81737 Munich E-28020 Madrid
France Compagnie Européenne d’Assurances 29, rue des Poissonniers F-92522 Neuilly-sur-Seine Cedex
ELVIA Life Swiss Life Insurance Company Avenue du Bouchet 2 CH-1211 Geneva 28 with branch offices in Amsterdam and Paris
SR International Business Insurance Company Limited 71-77 Leadenhall Street London EC3A 2PQ
Glossary of Technical Terms and Classes of Business For readers who are not familiar with insurance and reinsurance, the following glossary briefly defines various tech­ nical terms and classes of business as used in the Annual Report.
Cash deposits: A sum left by the -*• reinsurer in the hands of his client to guarantee contractual liabilities.
Ceding company: The reinsurer’s client, i.e. the -> insur­ er, who passes on (cedes) -> risks to the -> reinsurer against payment of a -*■ premium.
Cession: Insurance that is reinsured; passing on of the -*■ insurer’s -* risks to the -*■ reinsurer against payment of a -*• premium.
- Retrocession: Passing on by the -> reinsurer of the -*■ risk accepted in reinsurance to other companies (->• retrocessionaire).
Claim: Payment for the loss incurred under the terms of a ->■ (re)insurance contract.
Commission: Remuneration paid by the -*■ insurer to his agents, -> brokers or other commercial intermediaries or by the -*■ reinsurer (reinsurance commission) to the -*■ in­ surer for their costs in connection with the acquisition and administration of insurance business.
- Reinsurer: Company which accepts a share of the in­ surer’s -*■ risks in return for payment of a -> premium.
- Gross amount: Life insurance in force of the ->• insurer before deduction of the -*■ cessions or Life business of the -> reinsurer before deduction of -> retrocessions.
Premium: Amount paid by the -> policyholder to the -> in­ surer in the business year in return for insurance -* cover.
- Unearned premium (also premium reserve): Premium applicable to that part of the period of reinsurance con­ tinuing after the business year of the balance sheet (-*• earned premium).
Profit commission: Contractually agreed -*■ commission paid by the -* insurer or -> reinsurer in proportion to his profit in a particular piece of insurance or reinsurance business.
- Financial reinsurance: Form of reinsurance treaty with reduced ->• risk and specific consideration of accounting features of the ->■ insurer.
- Proportional reinsurance: Form of reinsurance in which the -*■ premiums and losses of the -*■ insurer are shared proportionally by the -*• insurer and -► reinsurer.
Surrender: In -» Life insurance payment to the insured of the cash value of an insurance policy before it has run its course.
- Aviation insurance: Insurance of accident and liability risks, as well as -» hull damage, in connection with the operation of aircraft.
- Burglary, Fidelity and Allied Lines insurance: Insur­ ance against burglary, breaking and entering, robbery, embezzlement; also includes water damage, glass breakage, damage to and loss of jewellery or damage or losses in connection with the keeping of animals.
Business Interruption/Loss of Profits/Business In­ come Protection insurance: Insurance against finan­ cial effects of a loss on a company’s income. The insur­ ance covers overhead costs (interest, salaries, etc.) and lost profit. This business is mostly included in the corresponding insurance class (principally Fire and Engineering insurance).
- Fire insurance: Insurance against fire, lightning, explosion and damage caused by falling aircraft; it can also embrace insurance against windstorm, earth­ quake, flood, other natural hazards and political risks (riot, strike, etc.).
General Third Party Liability insurance: Insurance of industrial, commercial, employers, products, profes­ sional or private liability to third parties.
- Occupational Incapacity insurance: Insurance against the incapacity to exercise a profession as a re­ sult of sickness or other infirmity.