Swiss Reinsurance Company Mythenquai 50/60, P.O. Box, CH-8022 Zurich, Switzerland Telephone 01 208 21 21 Telex 59261 reas ch Cables swissre
Packed stand in a sports stadium; example of a potential catastroptie loss.
Thie other illustrations in this Annual Report show aspects of Swiss Re's activity in the field of Lite assurance (page 11) and photographs of subsidiary companies and advisory offices abroad (pages 14, 32 and 33).
Consolidated net profit Total Per share In Sw. frs. Per non-voting share in Sw. frs.
E. Luk Keller Erlenbach, Chairman and Managing Director of Eduard Keller Ltd., Zurich 1981
Hans Ulrich St.Gall, Professor, St. Gall Graduate School of Economics, Business and Public Administration 1981 * Members of the Committee of Directors
Deputy Managers Roger Aeberli Gottfried Bachmann Alfred Bai Fritz Bolliger Edouard Burnens Richard R.Doerr Rolf Eckert
Members of Management in Advisory Capacity Robert P. Brouwer Kurt Egg Hans F. Enzmann Max Gasche
Premium income for own account for the business year rose in Swiss francs by 11 %, which is more than the pre­ vious year's growth, this being partly due to the increase in the exchange rates of numerous foreign currencies. In non-Life reinsurance the result deteriorated, whereas the profit of Life reassurance was of the same order as that of the previous year. Overall, the reinsurance result is below that of the 1979 business year. Investment income con­ tinued to grow. After taking into account management ex­ penses and taxes, a net profit remained of Sw. frs. 76.2 million, as against Sw. frs. 69.6 miilion in the previous year.
The situation on the internationai reinsurance market continues to be highly unsatisfactory and marked by a pronounced excess of reinsurance capacity. The number of professionai reinsurers, i.e. companies specialized in the field of reinsurance, has multiplied in the last decades with reinsurance companies being founded to an in­ creasing extent not only in industrialized countries but also in developing countries. In addition, more and more insurance companies have entered the field of inter­ national reinsurance with their own reinsurance depart­ ments, subsidiary companies or authorized underwriters. Many small insurers only write active reinsurance inci­ dentally, without being in a position to assess adequately the reinsurance business they accept or to monitor its progress beyond question. Although they offer their capacity on the international market, they are in many re­ spects not genuine risk carriers, since they tend to pass on byway of retrocession the reinsurance risks they have accepted. They exert no influence on the working out of reinsurance conditions, yet by their mere number they represent a substantial market factor, causing the excess capacity situation to intensify even more.
The worldwide escalation of available reinsurance has led to constantly increasing pressure on prices and in many places to an actual decay of reinsurance premium rates; in numerous markets or classes this is reflected in correspondingly high iosses from reinsurance business.
Reliance on offsetting or even overcompensating such underwriting losses by investment income has led to even more pronounced cash-flow underwriting, helping to oust underwriting and commercial principles. And yet drastic changes in the capital market can unexpectedly bring about an accumulation of underwriting and finan­ cial losses. A reinsurer's risk portfolio comprises to a large extent special, major and target risks, and his share of the insurer's more balanced basic business (e.g. Motor or Fire insurance) tends to decline. For the reinsurer an underwnf/ngp/'offf on the unbalanced part of his portfolio is therefore imperative, since he needs a substantial part of the investment income for major and catastrophe losses, as well as for other result fluctuations.
For some time now Fire insurance policies conceived as "ail risks" covers with a vastly extended scope of cover­ age have been available in a number of the international reinsurer's major markets. In such cases Liability, Ma­ chinery Breakdown, Marine or Fidelity risks are also in­ cluded, i.e. risks which lie outside the field of Fire insurance. Such global covers are often offered without any precise specification of cover limits, exclusions or a breakdown of the overall premium for the various parts. No matter how desirable such policies may be from the point of view of the policyholder, they remain equally questionable if they elude clear assessment or rating from the insurance and reinsurance angle.
nomena arise, such as the damaging or even destruction of property as a result of vandalism, sabotage or wide­ spread social or political unrest. A wide variety of circles, not least Insurers and reinsurers, are attempting. In con­ junction with the responsible authorities, to combat this ominous trend with effective loss prevention and contain­ ment measures or, where necessary, to comply with the justified wishes of policyholders, by adjusting covers or introducing new forms of cover. Here falls the difficult task of defining as clearly and plainly as possible the limits of Insurability in the Interest of the entire community of In­ sureds.
In view of the fact that In recent years the loss burden for Insurers and in particular for reinsurers has been con­ stantly on the increase, a general raising of the premium level In numerous countries or classes of business (In­ dustrial Fire, Marine Hull, Aviation, Burglary) would ap­ pear justified. However, In almost all classes of reinsur­ ance activity and practically all countries which are Important for the reinsurer, excessive competition has led to an erosion or even to a pronounced decay of premi­ ums. Despite the remedial attempts which the Swiss Re and certain other reinsurers introduced some time ago, this ungratlfying development can only be surmounted In the medium or long term In view of the prevailing excess of capacity.
The insurer rightly expects his traditional reinsurerto lend him particularly strong support In times of high losses. The reinsurer, however, will only be able to fulfil this task If he achieves satisfactory results himself. He Is compelled, within the scope of the reinsurance treaties he has con­ cluded, to follow the business policy of the direct insurer. The possibilities he has of exerting an influence are re­ stricted essentially to the careful selection of and best possible support to responsible Insurers with Immacu­ late organization and top quality know-how. It Is, however, another matter with the facultative reinsurance of special or major risks. Here the professional reinsurer can affect the business experience by careful risk selection and as­ sessment, If necessary also by expert assistance in rat­ ing, policy wording and possibly special loss prevention measures.
The Swiss Re's business poiicy is founded on the convic­ tion that achievement ot a reinsurance profit has to take priority over the - in itself also - desirable growth of turn­ over. Quaiified staff, whose continued training is a major concern, as well as excellent financiai strengtfi, which also grew in the reporting year, enable the Swiss Re to counter effectively hard competition primarily by means of the quaiity of the cover offered to reinsurance clients and accompanying services. In addition to granting tradi­ tional forms of reinsurance cover, based on a high degree of solvency and continuity, the Swiss Re sees its task as being to expand constantly the range of new forms of re­ insurance cover and services for its business partners.
Fire 1,134 992 905 887 1,008 Hail 21 19 19 19 21 Burglary/Fidelity and allied lines 87 69 66 70 80
Aviation 103 84 78 74 82 Nuclear Energy 7 6 5 5 4 Credit, Surety 184 157 141 125 126
1 Throughout the world the Swiss Re holds seminars on Life assurance and Its allied lines. 2 Actuaries work out statistics and rating tables. 3 Lite assurance can Include Accident, Disability and Sickness benefits; tor highly exposed profes­ sions these additional covers are particularly Important. 4 When accidents occur, treatment and rehabilitation of injured patients calls tor the use of the latest aids. 5 At the Head Ottice and abroad own doctors advise clients in the assessment of special Lite assurance risks.
Fire reinsurance, which accounts for almost 31 % of the gross premium income, again closed with a small profit, after having registered a loss in the previous year. This is derived from a loss from treaty reinsurance and a profit from the reinsurance of facultative risks; this does nothing to alter the fact that the premium rates for indus­ trial fire risks in almost all countries have fallen to a level which is no longer justifiable. In the year under report there were no actual catastrophe losses.
The gratifying profit of Haii reinsurance was somewhat higher than the average of the last five years.
As a result of rearranging a major business connection, the premium volume of Sickness reinsurance fell. The profit was slightly lower than in the previous year.
The premium income in Credit and Surety reinsurance continued to increase. The restrictive credit policy throughout the world, which entailed a substantial in­ crease in the number of insolvencies, largely contributed to the bad experience of Credit insurance business which for years has been insufficiently rated. Although Surety reinsurance again closed with a profit, the combined re­ sult is slightly negative.
The net amount of new business for 1980 amounted to Sw. frs. 9,864 miilion, which is 18% higher than in the pre­ vious year. The net amount of business in force rose by 16% to Sw. frs. 41,094 miiiion.
Foliowing weak growth in 1979, which was partiy due to transfer bookings, premium income again rose strongiy; in particuiar disability business grew at an above average rate. A random accumuiation of large claims brought a higher ciaims burden. In contrast to the previous year, new business calied for substantial financing. Moreover, as valuation liabilities for annuities again had to be strengthened in view of current mortality rates, the result of Life reassurance stagnated, remaining at Sw. frs. 26 miilion.
•7'" ularly imporfant areas the Swiss Re has subsidiary companies, branch
Technical Reserves for Own Account Compared with the Balance-sheet Total in thousand millions of francs 1976/77 1977/78 1978/79
Despite these unfavourable influences, prices rose on most of the share markets, since the relatively low valua­ tion of shares and hopes of an imminent easing of the monetary policy were able to override the subduing ef­ fects of the higher interest rates. Practically ail major share markets were higher at the end of the year under report than at the beginning, the price gains in the United States and Canada being particularly pronounced.
Holdings and loans to Group companies grew by Sw. frs. 53 million to Sw. frs. 483 million, largely as a result of addi­ tional share purchases and share capital increases.
The emphasis in new investments lay on fixed-interest securities, with Switzerland and the United States taking priority as investment countries. Equities showed clearly lower increases. In this way the share portfolio, measured in terms of book value, only rose by Sw. frs. 97 million, the new investments stemming mainly from overseas coun­ tries. In Europe a slight decline in the portfolio Is to be re­ ported. The growth in real estate by Sw. frs. 30 million is due to the construction of new buildings In the agglomer-
Foreign currency rate fiuctuations caused a debit of Sw. frs. 11.8 million to the annual result (compared with Sw. frs. 0.7 million in the previous year). This debit amount is the conversion difference between the uniform valua­ tion of transfers at the exchange rates prevailing at the end of the year and the counter-value obtained at the rate on the day of the actual transfer. As many of the foreign currencies which are important for business activity rose substantially against the Swiss franc up to the end of 1980, the conversion differences turned out to be corre­ spondingly higher.
The Board of Directors would also like to thank here ail members of staff at home and abroad for their great ef­ forts during the business year.
To our deep regret, Mr. Edmond Capt, Assistant Manager, died on 21st November, 1980, after a grave illness. We are greatly indebted to him for his many years of esteemed work.
Donations in accordance with the credit for donations approved by the shareholders and taking into account an amount brought forward from the previous year, donations of approx. Sw. frs. 562,000 were made during the1980 busi­ ness year. More than a quarter of this total comprised donations for educational and research purposes, a fifth was allotted to charitable and welfare institutions and a further fifth to cultural aid and environmental protection. The rest was mainly used for foreign and domestic devel­ opment aid and humanitarian aid (Red Cross and refugee aid).
The Board ot Directors proposes to the General Meeting the following allocation: Sw. trs. Sw.trs.
After distribution ot ttie profit in accordance witti ttie pro­ posal on page 20, thie capital and reserves stiown, includ­ ing thie balance brougtit forward, would be raised from Sw. trs. 450 million to Sw. trs. 563 million. Otttiis increase, Sw. trs. 84 million is accounted tor by ttie issue ot non­ voting shares in December, 1980.
The actuarial auditor, Mr. Marc-Henri Amsier, has more­ over confirmed in his report that the technical reserves ot the Lite reassurance business at the end ot1980 were cal­ culated on the basis approved by the Swiss Federal Council.
Reinsurances ceded b 1980 Net for own account a-b 1979 Net for own account
Investment and other financial income (less interest on Life assurance and annuity fund and other technical reserves) 279,918,921 148,413,585
Share capital (400,000 registered shares at Sw.frs. 250.- nom.) ( 44,000 bearer shares at Sw.frs.250.- nom.) Non-voting share capital (240,000 non-voting shares at Sw. frs. 50.- nom.)
Auditors' Reoort To the General Meeting of the Shareholders of the Swiss Reinsurance Company, Zurich
As the Auditors of your Company we have examined the Annual Statement as at 31st December, 1980, in accor­ dance with the provisions set down by law.
Furthermore, we confirm that the proposal of the Board of Directors regarding allocation of the profit complies with the law and the Articles of Association.
European General Reinsurance Company of Zurich • Bavarian Reinsurance Company Ltd., Munich • Swiss Reinsurance Company (UK) Ltd., London
Palatine Insurance Company Ltd., London • SwissRe Holding (North America) Inc., New York
North American Reassurance Company, New York • ^ North American Reinsurance Corporation, New York
Direct and indirect share of SwissRe Holding Ltd.: over 95% between 55% and 95% 9 50% O
The consolidated net premiums of the Group rose by 16.3% (previous year, 11.4%) from Sw. frs. 6,492 million to Sw. frs. 7,551 million. This strong increase is partly due to the special Life reassurance covers granted by the Ameri­ can subsidiary companies which, however, because of their special nature, were not included in the consoli­ dated Life business in force. Of the Group's consolidated net premium volume Sw. frs. 2,700 million, or 36%, was contributed by direct insurance.
The Group profit fell from Sw. frs. 105 million to Sw. frs. 95 million. The Group's capital funds shown, including Group profit, rose on the other hand from Sw. frs. 665 million to Sw. frs. 824 million. Of this amount, Sw. frs. 84 million is due to the issue of non-voting shares by Swiss Re, Zurich.
With inflation remaining strong in many countries, the consolidated net premium income in non-Life reinsur­
ance rose by 11.4% (previous year, 10.6%). The extensive glut of reinsurance capacity in these classes did not abate during the year under report and still exerts an un­ favourable effect on the result. The underwriting account closed with a greatly increased loss of Sw. frs. 108 million, compared with one of Sw. frs. 64 million in the previous year.
in Life reassurance, growth was good and the result satisfactory. With a net amount of business in force of Sw. frs. 81,000 million (excluding the mentioned special covers) an improved profit of Sw. frs. 54 million (previous year, Sw. frs. 50 million) was achieved.
The consolidated Group profit of the reinsurance com­ panies fell by Sw. frs. 10 million to Sw. frs. 80 million (previ­ ous year, fail of Sw. frs. 7 million).
At the Canadian Reinsurance Company, Toronto, the in­ creased investment income was more than sufficient to offset the slightly higher underwriting loss, inadequate premium rates, excess capacity and hard competition for market shares continue to dominate the scene in Cana­ dian non-Life insurance.
The Bavarian Reinsurance Company Ltd., Munich, showed a lower underwriting loss than in the previous
year, stemming from all non-Life lines with the exception of General Liability and Accident business. The weaken­ ing of the German mark impaired the overall result.
The gross premiums of the «SWITZERLAND» General Group again rose clearly by 14.5% to Sw. frs. 449 million. Although the underwriting loss of the «SWITZERLAND» General, Zurich, has been reduced in direct insurance, the result is still unsatisfactory; in reinsurance business there has been a noticeable worsening of the result. The subsidiary company in London again achieved a satisfy­ ing profit. In contrast, the result of SWITZERLAND Gen­ eral, New York, was negatively affected by major losses and by the generally unfavourable market situation.
The premium growth of the German insurance groups, the Vereinigte Versicherungsgruppe and the Magdebur­ ger Versicherungsgruppe, is gratifying with an overall 9.4%. The gross premiums of the Vereinigte Versiche­ rungsgruppe rose by 10.0% to DM 2,185 million, those of the Magdeburger Versicherungsgruppe by 7.8% to DM 829 million. The overall premiums broke down as fol­ lows: non-Life insurance 39%, Life assurance 13% and Sickness insurance 48%. Compared with the previous year, there was a slight shift from non-Life to Life insur­ ance. Thanks to above-average growth it was possible to increase somewhat the market share in Life and Sickness insurance. In non-Life insurance the market share was unchanged.
The remedial and restructuring measures which have been implemented have not yet had an effect on the re­ sult, so that a further slight increase of costs was reg­ istered. Together with the somewhat higher loss ratios this meant that the annual result of non-Life insurers worsened. In the cost sector the situation is likely to ease in future. Sickness and Life insurance brought marginally better results than in the previous year.
The SwissRe Holding Ltd. comprises all majority holdings whose figures have been consolidated - with the excep­ tion of Swiss Re, Zurich - together with a number of minority holdings.
The outgo of the Profit and Loss Account comprises mainly the interest of Sw. frs. 15.7 million (previous year, Sw. frs. 12.5 million) on the loan granted by Swiss Re, Zurich, taxes of Sw. frs. 2.4 million (previous year, Sw. frs. 3.4 million), management expenses of Sw. frs. 1.1 million (previous year, Sw. frs. 0.3 million) and depreciation and fluctuations in stock exchange and foreign currency rates ofSw.frs. 8.0 million (previous year,Sw.frs. 7.6 million).On Group company holdings book value adjustments were only carried out if the market values in Swiss francs were less than the balance-sheet values on the closing date.
The capital structure of the company was unchanged. The loan granted by the parent company rose by Sw. frs. 49.5 million to Sw. frs. 435 million. The increase was used mainly to finance the purchase of additional shares and capital increases in Group companies and minority hold­ ings.
In certain major insurance markets the Swiss Re is represented with subsidiary companies, in the Federal Republic of Germany the Swiss Re owns one holding and two service companies, two insurance groups and one reinsurance company.
The Bavarian Reinsurance Company Ltd. writes both Life and non-Life reinsurance.
6, 8 Interior and overall view of the office building of the Magdeburger Versicherungsgruppe, Hanover 7 Offices of mh Bausparkasse, Munich 9 Donnicile of SR Beteiligungen AG, Munich
Management expenses 244 52 296 185 Taxes 56 23 79 68 Fluctuations in stock excfiange and foreign currency rates, depreciation 58 36 94 59 Result from further Income and outgo 134 - 11 123 89
Adjustment in policy and annuity valuations -160 -185 -345 -223 interest on Life assurance and annuity fund 74 108 182 153
Cash In hand, Postal bank account, Bank balances 199 71 270 266
All classes excl. Lite (Incl. valuation of current annuity indemnities) 4,977 1,266 6,243 5,492
The Group accounts were compiled according to the same principles as In previous years based on the pub­ lished individual statements of the Group companies as at 31st December, 1980. The only exception was the Bavarian Reinsurance Company Ltd. whose balance sheet had not yet been published at the time of the con­ solidation.
All figures from foreign Group companies were converted Into Swiss francs using the average foreign currency rates as at 31st December, 1980. Of the foreign curren­ cies used in the Group accounts, the U.S. dollar, Cana­ dian dollar, Australian dollar, South African rand and pound sterling showed higher exchange rates than they did on the previous closing date, whereas the German mark was valued slightly lower (cf. table on page 18). The foreign currency profit of Sw. frs. 21.9 million (previous year, loss of Sw. frs. 2.6 million) was, In accordance with established practice, taken into the consolidation reserve fund.
investments (except for real estate) were valued at the lower of cost or market. The hidden surplus on the entire investment portfolio rose by Sw. frs. 208 million to Sw. frs. 844 million and totaled 8.1 % of its present balance-sheet value (previous year, 7.0%).
The capital funds applicable to minority shareholders correspond to the percentage of the relevant Group com­ pany's capital funds which is held by non-Group share­ holders. These funds rose marginally in the year under report by Sw. frs. 1 million to Sw. frs. 33 million.
The consolidation reserve fund results from the differ­ ence between the capital funds shown of Group compa­ nies and the corresponding book values applied by SwissRe Holding Ltd. and Swiss Re, Zurich. The change in the exchange rates over the previous year as well as the Increase In the capital funds of various Group compa­ nies as a result of retained profits caused the consolida­ tion reserve to rise by Sw. frs. 58 million to Sw. frs. 195 mil­ lion.
Fluctuations in stock exchange and foreign currency rates, depreciation - 94 - 59* - 8 7 27 .
Group profit applicable to minority shareholders - 3 - 3 - 6 - 5 - 9
Total consolidated net profit Per share in Sw. frs. Per non-voting share in Sw. frs.
Gash in hand, postal bank account, bank balances 270 266 304 374 264
Other liabilities (incl. share applicable to minority shareholders) 434 409 436 462 531
Swiss Reinsurance Company Mythenquai 50/60, GH-8022 Zurich with branch offices in Melbourne, New York and Toronto
Swiss Reinsurance Company (UK) Ltd. 108 Cannon Street, London EC4N 6HE
Palatine Insurance Company Ltd. Forum House, 15-18 Lime Street, London EC3M 7AP
General Surety & Guarantee Company Ltd. Hawthorn Hall, Hall Road, Wilmslow, Cheshire, England SK9 5BZ
Canadian Reassurance Company 95 St. Clair Avenue West, Toronto, Ontario IV14V 1N9 with a branch office in Montreal
Eidelity and Deposit Company of Maryland Charles and Lexington Streets Baltimore, Md. 21203
SwissRe Holding (North America) Inc. 100 East 46th Street, New York, N.Y.10017
Australian Reinsurance Company Ltd. Embank House, 325 Collins Street, Melbourne, Victoria 3000 with branch offices in Sydney and in Auckland and Wellington, New Zealand
SwissRe Advisers (Singapore) Private Ltd. Suite 2406A, Clifford Centre, Raffles Place, Singapore 0104
Scope of Business The Swiss Re Group is active in all classes of reinsurance and insurance. The classes commented on in the Annual Report comprise the risks listed below: Fire Fire/Lightning/Explosion Loss of Profits Windstorm Earthquake Elooding Riot/Strike
Life Individual and Group assurance: Endowment/Term assurance Annuity assurance Supplementary assurance (Accident, Disability, etc.)