The illustrations in th is Annual Report show typ ical m ajor risks occupying the reinsurer to a high degree.
Construction of a hydraulic power station on the Rio Parana, Brazil 15
Management expenses, taxes, fluctuations in stock exchange and foreign currency rates, depreciation 18
Erlenbach, Chairman and Managing D irector of Eduard Keller Ltd., Zurich 1981
Küsnacht, Chairman and Managing D irector of IBM (Switzerland), Zurich 1981
St. Gall, Professor, St. Gall Graduate School of Econom ics, Business and Public Adm inistration 1981 * Members of the Committee of D irectors
Rolf Eckert Fritz Ehrsam W alter Isler Ernesto Jutzi Hans R. Kaufmann Lavre D. K irianoff A lbert Kunz
Jean-C laude Mayor Max Nabholz Samuel Patthey Pierre-C laude Perrenoud H. Conrad Rutishauser O tmar Schm idlin Peter Schuppli
Ernst Hirzel* Gerhard Hölzel* W illy Honegger Peter P. H iigle Martin Imbach* Hans W. Kreis W erner Künzle Karl Küstahler* J. B. Richard Lieberman Fulco Lock Robert M artignier Simon R. Menn Roger P. M erkelbach
Paul Schweizer* Dieter Söhner Hans Spörri* Jürg Steinrisser Paul Szöllösy* Kurt W ettenschwiler* Urs Winter* Louis Wüger* Edwin Wydler* John W. Youngs Hans-Kaspar Zulauf*
Robert P. Brouwer Max L. Hefti Hans F. Enzmann Oskar Jenni Max Gasche* Roland Maag*
Gross prem ium incom e from non-Life reinsurance, when expressed in Swiss francs, declined by Sw. frs. 262 m illion, or 9.5 % , over the previous year to Sw. frs. 2,490 m illion. In orig inal currencies, however, a premium growth rate of 1 2 .9 % was achieved. In the year under report, 94 % of the premium volume was paid in foreign currencies. After deduction of the retrocessions w ithin and outside the Swiss Re Group, the remaining net prem ium s amounted to Sw. frs. 1,911 m illion (previous year, Sw. frs. 2,135 m illion).
Sw. frs. 10.4 m illion (previous year, pro fit of Sw. frs. 11.1 m illion). The unfavourable results stemmed prim arily from the markets of the Third W orld and from the United States. With few exceptions, the European markets and Japan produced satisfactory to good results.
Business from many of the industria l countries of Europe also shows pro fit margins which are un­ m istakably shrinking. The Marine Hull and Aviation branches ran at a loss worldw ide. In view of these developments, the situation w ith which reinsurance markets have been fam ilia r fo r some years, namely of ample available capacity at premium rates which are depressed often to a com m ercia lly and techn i­ ca lly unjustifiable extent, is still d ifficu lt to under­ stand. In d irect insurance, too, the volume of busi­ ness, while grow ing at a reduced pace, is being more intensely fought over and many insurers are com pla in ing about ruinous com petition. The question at least arises whether in future the earning power of non-Life insurance w ill suffice to meet the so l­ vency m argin requirem ents which have come into force in the countries of the European Community. These requirem ents are based on the ratio of capita l funds to net premium volume or to the loss burden and call fo r capita l funds to be increased in line with the growth of business or the loss developm ent.
Reinsurance business from the Third World is in­ creasingly suffering from a lack of structural balance. The costly installations of industry and the in frastruc­ ture, such as factories, power stations, oil production plants and refineries, port build ings, etc., which are being built and insured in the course of the rapid industria lisation process currently going on in rich developing countries, constitu te more and more the main reinsurance business from these countries. Smaller installations which — when available in suf­ fic ien t num ber — provide the reinsurer w ith a risk spread in developed econom ies are here e ither too few or more recently have been reinsured loca lly or reg ionally as part of national and regional autonom y efforts. If there is an accum ulation of m ajor industrial losses in such unbalanced portfo lios of international reinsurers — as was the case in the year under re­ port — the results produced fluctuate substantially.
For many years our attention has focused on the Liab ility and W orkmen’s Com pensation business of our subsid iary com pany in the United States. Although massive prem ium increases have reduced the gap between loss burden and prem ium volume, it is d iffi­ cult to raise prem iums fo r new or renewed insurance and reinsurance business to an extent which fu lly covers the expected loss and cost burden. Our shareholders are well fam ilia r with the claim s inflation brought about in L iability business by the pecu lia rities of the Am erican legal system which a European mind has d ifficu lty in com prehending. To what extent these w ill change in future is uncertain. Nevertheless, there are signs that the Am erican pub­ lic w ill be less readily disposed to go on paying increased prem iums to finance the inexplicably high awards to ind ividual claim ants and the lawyers' fees which, by European standards, are exorbitant.
on the occurrence of Hail losses. So far there appear to be no decisive conclusions.
For the first time in years, the business in the Burg­ lary, Fidelity and all ied lines produced a small overall p rofit in the markets serviced by Swiss Re, Zurich. Am erican Fidelity business again made a loss. Many d irect insurers continue to suffer losses in this branch as particularly the number of small and medium-sized losses, which are not covered by reinsurance, has increased. Intensive efforts on the part of the insur­ ance industry to protect m ajor risks such as large banks, jewellers, etc. seem to be having some effect in that thieves are turning more often than ever to private houses and apartments, which therefore calls for premium increases and loss prevention cam ­ paigns in Household Burglary business.
The premium volume of General Third Party Liability reinsurance grew in the reporting year somewhat more strongly than that of other branches. This branch closes with a loss. Particularly in Business and Products Liability, loss frequency and average loss amount continue to increase. In Am erican Liab­ ility business there is still concern at the slow and unfavourable run-off of losses incurred in previous years. The claim s reserves which w ill presumably still be needed fo r them are being continually checked and adjusted.
The introduction of strict liabil ity fo r all products planned w ithin the European Community with a very high lim it of liab ility per product w ill undoubtedly give considerable impetus to the growth of the premium volume of Liability reinsurance. The high liab ility covers to be generally introduced by this concept and the greatly extended possib ilities to claim given to consumers could prom pt an exaggerated claim s consciousness which would cause an escalating loss burden. This would in turn have to be passed on to all policyholders by means of premium increases. European industry has therefore urgently warned that a general introduction of strict liab ility could cause the price of the ir products to rise and has pointed out that the ir ability to compete on international markets could be weakened at a very unfavourable time.
The volume of Atomic reinsurance in the reporting year increased with good results. Some non-nuclear losses occurred in connection with the construction and operation of nuclear power stations. In view of the absence so far of very high insured reactor
Credit and Surety business which is particu larly de­ pendent on the state of the econom y has shown marked growth in terms of orig inal currency and closed with a profit. The unusually close in terdepen­ dence of these branches w ith the general econom ic activ ity p laces high dem ands on insurers and reinsur­ ers with regard to risk assessment and loss regulation, particu larly in tim es of stagnation and recession.
Compared with the previous year, the net amount of new business in terms of sums reassured fell to Sw. frs. 6,758 m illion, i.e. by 7 % , despite increased new production in orig inal currency. The net amount of business in force is likewise 7 % lower than in the previous year and amounts to Sw. frs. 28,047 m il­ lion.
Life Reassurance in Force for Own Account at Year’s End (excluding Annuities) in thousand m illions of francs
In the year under report, the techn ical reserves for The decline in reserves is m ainly due to the considerown account fell from Sw. frs. 4,495 m illion to able fall in foreign exchange rates. In contrast, their Sw. frs. 4,186 million. Sw. frs. 3,033 m illion of this share of the balance-sheet total has increased slightly total was fo r non-Life reinsurance and Sw. frs. 1,153 over previous years to 78 % . m illion fo r Life reassurance.
Technical Reserves for Own Account Compared with the Balance-sheet Total in thousand m illions of francs
The year under report brought no fundam ental im ­ provement in the basic state of the world economy. A lthough measures have been taken in most indus­ trial countries to stimulate the economy, they have not been of any permanent effect, except in North Am erica; prom ising attempts at a revival have in many cases come to an end because of renewed upheavals on the currency markets. The general situation in many countries is still marked by com ­ paratively high rates of inflation, an unsatisfactory level of employm ent and a low utilization of capacity in m ajor fie lds of industry. The requirements are still lacking that this phase of persistent econom ic instability w ill be overcome in the near future.
The lack of econom ic strength in most countries again had a favourable effect on bond markets. For the most part, interest rates continued to decline — albeit w ith less impetus — and brought a further appreciation in value of bond holdings. This did not apply to the United States and Canada where, parti­ cu larly in the first half of 1978, there were to some extent substantial increases in interest rates, with corresponding declines in bond prices.
Conversion of foreign assets at lower exchange rates gave rise to a considerab le depreciation in the value of capita l market investments. The balance-sheet value of cap ita l investments and rea l estate fell by Sw. frs. 277 m illion to Sw. frs. 2,818 m illion, notw ith­ standing the investment of new money. At Sw. frs. 215 m illion, new investments did not, however, reach last year’s level, as further sw itches made by our Branch tem porarily led to a higher liquid position.
A breakdown by currency shows the fo llow ing d is tri­ bution of capita l market investments and real estate: 30 % (previous year, 27 % ) in Swiss francs, 43 % (42 % ) in other European currencies, 21 % (27 % ) in U.S. and Canadian dollars and the rem aining 6 % (4 % ) in Japanese yen and Australian dollars. Changes over the previous year were particu larly evident in the North Am erican currencies and in Swiss francs. This is p rim arily due to the greater devaluation of the U.S. and Canadian dollars as com pared to the Euro­ pean currencies and to the tem porary reduction of the portfo lio in the United States. For the increase of the share in Swiss francs, the reverse applies, since there are no currency losses; moreover, new invest­ ments in Switzerland were relatively h igher than in most other countries.
The total of hold ings and loans was m ainly affected by the transfer of the «SWITZERLAND» General shares, previously held by Swiss Re, to SwissRe Holding Ltd. To finance this transaction, SwissRe Holding Ltd. has been granted a loan in the amount of the transfer price. A decline in hold ings is therefore offset by a corresponding increase in the loans to Group companies.
Capita l m arket investments and real estate 2,818 3,095 2,609 2,571 2,628
Net cash deposits with insurance com panies 1,124 1,244 1,091 1,159 1,172
Investments in the am ount of Sw. 1rs. 85 m illion (previous year, Sw. frs. 126 m illion ) are held by trustees appoin ted by us in overseas territories.
Distribution of Capital Market Investments and Real Estate in Percent at Balance-sheet Values (Previous year in parentheses)
Distribution of Capital Market Investments and Real Estate in Percent at Market Values (Previous year in parentheses)
The last General Meeting re-elected Messrs. Hans R. Lüthy, Hans U lrich and Heinz B. V ischer fo r an add it­ ional four-year term of office. At the same time, Mr. E. Luk Keller was e lected to the Board for a firs t term.
At th is year’s General Meeting, the terms of o ffice of Messrs. W alter Berchtold and Edwin Stopper ex­ pire. Having reached retirem ent age, Mr. Berchtold is resigning from the Board; Mr. Stopper is standing for re-election.
Mr. W alter Eschmann, Manager, retired on 31st De­ cember, 1977, and Mr. Heinrich Pfefferle, Assistant Manager, on 30th June, 1978. We should like to ex­ press our sincere gratitude to them fo r the ir many years of service to our Company.
To our deep regret, Mr. W erner Leimbacher, General Manager, died in a fatal road accident on 3rd Feb­ ruary, 1978; he made a lasting contribution to the developm ent and management of both Swiss Re, Zurich, and the Swiss Re Group. On 23rd February, 1978, we learned to our sorrow of the death of Mr. Edward Spargnapani, Deputy Manager, fo llow ing a prolonged and serious illness. We are greatly in­ debted to both gentlemen fo r the ir many years of suc­ cessful service to our Company.
With effect from 1st January, 1979, the Board of D i­ rectors has made the fo llow ing appointments: Deputy General Managers: Messrs. Paul E. Christen and Paul-Francis N iquille; Managers: Messrs. Kurt Aerni, Erwin E. Arpagaus, Andreas Brügger, W illy Kuster and Arnold Saxer;
Proposal regarding the Allocation of the Net Profit cf. Profit and Loss Account (page 22) and Balance Sheet (page 25)
Dividend If the Board of D irectors’ proposal is accepted, a d iv idend of Sw. frs. 100.— per share is to be paid. Thus, upon presentation of Coupon No. 24 of the registered and bearer shares, a gross amount of Sw. frs. 100.— or, after deduction of the Federal W ith­ holding Tax of 35 % , Sw. frs. 65.— w ill be paid.
Profit and Loss Account for the Business Year 1977/78 em bracing the reinsurance business fo r the ca lendar year 1977 and the other income and expenditure fo r the period from 1st July, 1977 to 30th June, 1978
Com m issions and profit comm issions 751,179,781 177,270,483 573,909,298 646,345,603
Fluctuations in stock exchange and foreign currency rates, depreciation — 2,100,518 — 1,457,060
Reinsurances ceded b 1977/78 Net for own account a— b 1976/77 Net for own account
Balance Sheet - 30th June 1978 before approval of the proposal of the Board of D irectors
Current-account balances from reinsurances assumed from reinsurances ceded other balances 455,245,515 582,412,711
A ll classes excl. Life Life business (po licy and annuity valuations)
Capital (400,000 registered shares at Sw. frs. 250.— nom.) ( 44,000 bearer shares at Sw. frs. 250.— nom.) 111,000,000 111,000,000
Balance Profit b rought forward from previous year 3,328,195 Net Profit for the Year 71,458,813 74,787,008 78,773,195
The decline in the exchange rate of the Am erican do lla r beginning in June, 1977, and the subsequent higher valuation of the Swiss franc, also against other currencies, had a lasting influence on the Group accounts. The im provements achieved by Group com panies in local currencies are therefore not re­ flected at all or only to a greatly reduced extent.
In Life reassurance, the Group again enjoyed a good result w ith satisfying growth of business in force in orig inal currencies. With a net amount of business in force of Sw. frs. 53,000 m illion (previous year, Sw. frs. 60,000 m illion), a profit of Sw. frs. 37 m illion (previous year, Sw. frs. 41 m illion) was achieved.
The growth of investment income has been greatly impaired by the persistent decline of interest rates and the unfavourable monetary developm ent. Man­ agement expenses in the reinsurance sector are largely incurred in Swiss francs, which explains why the reduction is less than that of business volume. Tax payments have again risen.
The Group profit of the reinsurance com panies rose by Sw. frs. 3 m illion to Sw. frs. 92 m illion (previous year, increase of Sw. frs. 34 m illion).
In 1977, the North Am erican insurance industry was able to record a substantial overall improvement of its results. Most branches of non-Life insurance pro­ duced profits; the exception was W orkm en’s Com ­ pensation business which continued to show a con­ siderable defic it. The satisfactory result in the various L iability branches must, however, be considered with some reservations in view of the long run-off period and the relevant problem s involving claim s reserves. The general developm ent also favoured the North Am erican Reinsurance Corporation, New York, which fo r the firs t time in years was able to achieve — prior to deduction of m anagement expenses — an under­ writing profit of US S 5.1 m illion (previous year, loss of US $ 4.1 m illion). However, com petition in insur­ ance and reinsurance has already increased again in the United States in the course of the business year, so that it w ill be d ifficu lt to fu lly adjust premium rates to the continuing inflation. A lthough the Canadian Reinsurance Company, Toronto, was able to reduce its underwriting loss, business has not yet been restored to a profitab le basis.
The underwriting loss of the Bavarian Reinsurance Company Ltd., Munich, was considerab ly less than in the previous year, when the result was greatly burdened by the “ Capella ” storm damage. A con tri­ bution to th is improvement was also made by the below-average burden of m ajor losses. A tax audit of operating results com pleted during the year under report led to additional tax payments, resulting in an annual pro fit which was down on that of the previous
year. — In the autumn of 1977, the SwissRe Holding Ltd. was able to increase its holding in the Bavarian Re from 8 7 .5 % to 9 9 .7 % through the purchase of a large share parcel.
Low m orta lity and the greatly reduced financing re­ quirem ents again led to good underwriting results fo r the North Am erican Reassurance Company, New York, and the Canadian Reassurance Company, Toronto, both of which operate exclusively in the Life reassurance field.
The gross prem iums of the «SWITZERLAND» General Insurance Company Ltd., Zurich, decreased in the reporting year by 3 % to Sw. frs. 313 m illion, caused by the conversion of foreign currencies into Swiss francs. Thanks to good investment income and re­ duced w rite -off requirements, the com pany was able to increase its profit, which was mostly used to carry out the necessary strengthening of capita l funds.
The General Surety & Guarantee Com pany Ltd., W ilmslow, which only w rites Surety business, con­ tinued its gratify ing progress. Profit was again good and it was possible to expand business.
In the 1977 reporting year, d iv idend paym ents in­ creased by Sw. frs. 9 m illion to Sw. frs. 24.6 m illion. This increase was partly caused by the final d ividend payment of Sw. frs. 2.1 m illion fo r the year 1975 w hich the Bavarian Reinsurance Com pany Ltd. re­ m itted in the reporting year fo llow ing the postpone­ ment of its annual statement. In addition, SwissRe Holding (North Am erica) Inc. again resumed dividend payments. Increased d iv idends were received from the European General, the Canadian Reassurance Com pany and SR Beteiligungen AG as well as from certain m inority holdings.
The net p ro fit was Sw. frs. 1.8 m illion (previous year, Sw. frs. 1.9 m illion) and, together w ith the pro fit car­ ried forward, enabled an unchanged dividend pay­ ment to the Swiss Re, Zurich, of Sw. frs. 2 m illion.
The cap ita l structure of the com pany remained un­ changed. The current-account cred it granted by the parent com pany fell by Sw. frs. 11 m illion to Sw. frs. 296.9 m illion.
Commissions, pro fit comm issions, underwriting expenses 861 469 1,330 1,389
Adjustm ent in outstanding claim s reserve 433 98 531 531
C laims on death and maturity and annuities paid 238 40 278 301
Fluctuations in stock exchange and fore ign currency rates, depreciation — 5 — 2 — 7 — 27
Result from further incom e and outgo 51 14 65 76
Investment income (less interest on Life and Sickness assurance and annuity fund and other techn ica l reserves) 311 78 389 378
Cash in hand, Postal bank account, Bank balances 315 59 374 264
Reserve fo r partic ipation in profits 19 326 345 333
All com panies in which Swiss Re, Zurich, d irectly or ind irectly maintains a m ajority holding were included in the consolidation. The degree of holding varies between 5 5 % and 1 0 0 % . The outgo and income and assets and liab ilities of the consolidated com ­ panies are shown at 100 % ; an adjustm ent was made fo r the amount app licable to m inority shareholders fo r the items “ P rofit” and “ Capital funds show n".
All figures from foreign Group com panies were con­ verted into Swiss francs using the average foreign currency rates as at 30th June of the fo llow ing year. The exchange rates of foreign currencies used in the Group accounts (U.S. dollar, Canadian dollar, Austra­ lian dollar, rand, pound sterling and German mark) were all much lower than in the previous year (cf. table on page 18). The foreign currency loss of Sw. frs. 32.1 m illion (previous year, pro fit of Sw. frs. 8.9 m il­ lion) resulting from the new valuation of the opening balance-sheet figures was, as before, debited to the conso lidation reserve fund.
The item “ N on-consolidated ho ld ings ’ ’ refers to ho ld ­ ings of less than 50 % in insurance and reinsurance companies.
In 1977, the num ber of Group em ployees rose by 149, or 1 .2 % , to 12,341, th is figure being affected, however, by inclusion fo r the firs t time of the staff of the «SWITZERLAND» General. Of th is total figure, 89 % were em ployed by fore ign subsid iary com ­ panies.
The re insurance com panies increased the ir person­ nel in the year under report by 4.3 % . The breakdown of personnel figures among the various Group com ­ panies has only s ligh tly changed: At the end of 1977, 40 % of Group personnel was em ployed in Switzer­ land, 32 % in the United States/Canada, 8 % in West Germany, 6 % in South Africa, 4 % in Australia, 5 % in the United K ingdom and 5 % in other countries.
In the insurance sector, the num ber of employees only increased slightly. W ithout including the staff of the «SWITZERLAND» General, there would have been a decrease. In the German Group companies, which em ploy 91% of those engaged in the insurance sec­ tor, there was a reduction in the num ber of employees in the internal service.
Total Num ber of Swiss Re Group Personnel 31/12/1977 31/12/1976 31/12/1975
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