November 1989 English translation of original German report; French, Italian and Spanish versions are also available.
Swiss Reinsurance Company Mythenquai 50/60, P.O. Box, CH-8022 Zurich, Switzerland Telephone 01 2082121 Telex 815 722 sre oh Telefax 01 208 29 99 Cables swissre
Notes on the illustrations in this Annual Report On the occasion of Swiss Re's 125th anniversary, the illustrations in this year's Annual Report take as their theme "Then and now". Where risks change with the times, insurers and reinsurers have invariably fulfilled their task of affording security for mankind and his property. Photos: AMP, Zurich - H. R. Bramaz, Adiiswil - Ford Motor Company (Switzerland), Zurich - The Image Bank, Zurich - University Hospital, Zurich
Summary of Important Figures in millions of Swiss francs Swiss Re, Zurich 1988 1987
Underwriting results Non-Life reinsurance - 180 - 216 Life reinsurance 38 35
Total investments 10,080 8,570 Technical resen/es 8,041 7,044 Capital funds shown 1,949 * 1,865
Hans R.Lüthy* Deputy Chairman, Küsnacht Chairman of the Board of Directors of IBM Switzerland, Zurich 1989
Hans Bühlmann * Rüschlikon, President of the Federal Institute of Technology, Zurich 1992
Paul R. Jolles Berne, Chairman of the Board of Directors of Nestle S.A., Vevey 1992
Deputy General Managers Hans R. Kaufmann Theo Obrist Pierre-Claude Perrenoud Arnold W. Saxer Werner G. Seifert
Auditors Term to expire In Swiss Auditing and Fiduciary Company, Zurich 1991
German-speaking Switzerland, Germany, Austria, Eastern Europe, Netherlands, Denmark, Sweden, Norway, Finland, Iceland
Reinsurance technique, acquisition, special risks. Insurance medicine J.-C. Mayor, Senior Executive Manager H. 0. Rutlshauser, Executive Manager Executive Managers S. Gourant, E. Deled, R. Eckert*, K. Küstahler, F. Lock, K. Wettenschwiler Managers R. Boutin, Y. Burgener, J, Forster, H, Fuchs, F, Joseph, M. Lies, A.Loye, H. Menzl, Ms F. Schulthess*, Ms S. Stelner, J.-R Vogel Members of Management M. L. Hefti, J. Doktor*, A. Rerret
W. Künzle*, Executive Manager R. Kellenberger, Manager Manager O. Olsson Member of Management H. TIedemann
H. Fischer, Executive Manager H. Lüthl, Manager Managers M. A. Bloesch, E. Stalder
Capital market investments, real estate P. P. Hiigle, Senior Executive Manager B. H. Letsch, Executive Manager Executive Managers A. Decurtlns, E. Locher, B. Perrin, J.-R Preyer, F, E. Rohner Managers E. Canj, M. Gurber, M. Ringli
B. Laube, Senior Executive Manager E. FrancI, Executive Manager Managers H. Brechet, W. Engter
Personnel service, training R. Oberle, Senior Executive Manager H. Sporri, Manager EExecutlve Manager J. Niederer
Organization, public relations, economic studies. Internal services, catering R. Rüesch, Senior Executive Manager O. Kem, Executive Manager Manager H. von Aesch Member of Management J. Marbacher
P. E. Christen, General Manager H. Odermatt, General Manager T. Obrist, Deputy General Manager
Holdings, planning and control, law and taxes J.B.R. Lieberman, Senior Executive Manager 0. Blanc, Executive Manager Executive Manager R.deck Managers H. Arrenbrecht, G. E. Brooks, P. Egger, H.H. Frey Member of Management M. Gaal
The titles In this chart are those used by Swiss Re, Zurich, worldwide excluding North America and certain other territories for which the corresponding hierarchical titles are as follows: General Manager Deputy General Manager Senior Executive Manager Executive Manager Manager
Member of the Executive Committee and Group Management Executive Vice President Senior Vice President Vice-President
The 1988 reporting year - Swiss Re's 125th business year - produced a gratifying result. Net profit was increased by 12.8% to Sw.frs. 168.5 million. The Board of Directors is proposing to the General Meeting to increase the divi­ dend, pay an anniversary bonus and increase the capital in several stages with share split.
The principal components making up the year's result are as follows: - The underwriting loss in Non-Life reinsurance fell by
Sw.frs. 36 million to Sw.frs. 180 million. - The underwriting profit in Life reinsurance rose from
In a period devoted to growth, the modest rise in turnover in recent years calls for some explanation. On the one hand, it is due to the significantly increased strength and thus capacity for retention of our reinsurance clients in in­ dustrial countries. It is, however, also affected by the switch from traditional forms of reinsurance to less pre­ mium-intensive covers (non-proportional reinsurance) as well as by Swiss Re's policy of avoiding as far as possible business which does not come up to its requirements as regards rating and conditions. Growth that enhances the overall profit is naturally still one of our objectives.
In Non-Life reinsurance there were fewer large and catas­ trophe losses than in the previous year. Nevertheless, two events deserve special mention because of their size: the devastation that Hurricane Gilbert caused in the Carib­ bean cost Swiss Re Sw.frs. 43 million. The largest ever single insured loss, the explosion of the Piper Alpha drilling platform in the North Sea, cost the international insurance and reinsurance industry about Sw.frs. 2.5 billion; Swiss Re's share is about Sw.frs. 40 million. This major loss is made up of payments in the Marine, Employer's Liability and Life insurance branches.
thanks past generations of staff who at a not always easy time helped to build up the company. The appreciation and acknowledgement of the Board of Directors go especially to today's employees whose technical competence and hard work are the foundation of our company's positive future development. We are also indebted to our share­ holders, great numbers of whom have demonstrated their loyalty to Swiss Re through their mostly long-term share ownership.
In the year under report, investment income rose from Sw. frs. 581 million to Sw. frs. 648 million - this too being a result of positive foreign currency effects. The generally fa­ vourable economic climate in 1988, coupled with the re­ stored confidence in shares, triggered substantial rises in stock market prices, a trend which continued into the cur­ rent year. Substantial realized capital gains, although not as high as in the previous year, when the share portfolio was reduced before the crash, made possible consider­ able additional write-offs on capital market investments. Additional write-offs were undertaken on newly acquired holdings, especially in the services sector.
Although the insurance and reinsurance industry had borne a heavy burden from large and catastrophe losses in 1987, this did not, in the year under report, result in higher premiums and stricter insurance conditions to the extent anticipated. The supply side of insurance and reinsurance was characterized by consistently high capacities at not always cost-effective premium rates; this is a phenome­ non which occurs in cycles, especially in reinsurance, and is known as overcapacity.
After scarcely three years of recovery - distinguished by good results - 1988 already produced Indications of dwindling market discipline in the American market. There were massive premium reductions, especially In Property business, a development which, after Initial resistance, later also spread to Casualty business. The endeavours begun after the crisis of 1984/85 to bring about reforms in liability law and in jurisdiction have largely come to a standstill. Moreover, insurance companies In various states have been singled out by consumer protection or­ ganizations in attempts to force premium rates down to the level of former years In specific branches, for example Motor insurance, regardless of the loss experience.
In the year under report, the gross premiums rose by 8% to Sw. trs. 3,889 million. The growth is almost entirely due to the effects ot foreign exchange rates.
The underwriting result improved, the previous year's loss ot Sw.trs. 216 million having been reduced to Sw.trs. 180 million, following a rise ot Sw. trs. 21 million in 1987. The de­ clining loss is due on the one hand to the general improve­ ment in claims experience and on the other to the tact that there happened to be fewer large and catastrophe losses.
In Haii reinsurance premium income was unchanged. The small portfolio was not affected by any significant losses and closed with a higher profit.
The premium income at Burglary, Fidelity and Allied Lines again rose slightly, following a consistent decline in recent years. - The result was once more positive, exceeding even the previous year's result.
In Accident reinsurance premiums rose by about 10%. The increase was attributable to higher insurance premiums and improved reinsurance conditions. - Compared with the previous year, the lower but still positive result was just about satisfactory. The explosion on the Piper Alpha dril­ ling platform in the North Sea furnished dramatic proof ot the Accident accumulation risk. In this branch ot insur­ ance, which includes Employer's Liability insurance, rein­ surers increasingly find themselves transferred to the sec­ tor ot pure catastrophe cover. The improved medical eval­ uation ot the late consequences ot accidents indicates that great attention has also to be paid in this branch ot in­ surance to the phenomenon ot late claims familiar from the Liability sector.
In Sickness reinsurance the premium income rose slightly. - Business showed further improvement in the year under report and produced a balanced result.
The 12% increase in the premium volume ot General Third Party Liability reinsurance is due to both the natural growth ot proportional reinsurance business and the effects ot for­ eign currencies. - The results are marked by the strength­ ening ot reserves tor late claims. The allocations needed tor European risks were not as extensive. Higher amounts
America 19% (17%) I USA/Canada 15% (14%), Latin America 4% (3%)
In Motor reinsurance, premium income was Increased by 12%. An Improvement of insurance premiums in certain major countries led to greater premium volume for propor­ tional reinsurance business. In view of the great pressure of competition, it was, however, only partly possible to implement the premium increases needed in non-pro­ portional reinsurance. - The underwriting loss rose again somewhat as a result of the deterioration of results in cer­ tain European countries. In many countries Motor insur­ ance is subject to politicai influences making it difficult to achieve premium rates that cover costs. The belated con­ sequences of accidents and their implications on the loss burden, already mentioned in connection with Accident reinsurance, are also significant in Motor reinsurance.
Rre, Business Interruption 1,346 1,287 Hail 38 38 Burglary, Fidelity and Allied Lines 91 87
Accident 214 194 Sickness 101 97 General Third Party Liability 495 442
The premium income of Nuclear Energy reinsurance was slightly higher than in the previous year. - Once again there were no significant losses in the year under report. A sub­ stantial amount of the underwriting surplus has been allo­ cated to the reserves being buiit up for iarge iosses.
The premium volume in Credit and Surety reinsurance rose by 13%. This is mainly a result of the favourable eco­ nomic development in Europe. In the United States, on the other hand, the premium volume in local currency has fallen as a result of a selective underwriting policy and a growing trend towards non-proportional reinsurance. Another gratlfyingly positive result was achieved in Euro­ pean Credit and Surety reinsurance. A baianced result was achieved in the United States following a series of loss-bringing years and after major efforts to improve this business. The loss runoff of American Mortgage Guaranty business is proceeding as expected.
The net amount of Life reinsurance business in force rose in the year under report by 21.5% to Sw. frs. 62,855 million. About two fifths of this growth is attributable to the effects of foreign currencies and the rest to the increase of new business by 20.5% to Sw.frs. 14,545 million. In original currencies, business in force increased by 12.9% over the previous year and new business by 11.2%.
The gross premiums grew by 21.6% to Sw. frs. 546.1 mil­ lion. At constant foreign exchange rates, there would have been an increase of 14.8%.
The underwriting result has again been affected by varying factors. Claims incurred continued to rise, and the alloca­ tions to the policy and premium reserve were again higher than in the previous year; on the other hand, the technical interest on the policy reserves increased, while the com­ missions and profit commissions paid remained practi­ cally constant. Overall, a profit of Sw.frs. 38.4 million was achieved, Sw.frs. 3.1 million higher than in the previous year.
As a result of the explosion on the Piper Alpha drilling plat­ form, Swiss Re was hit by a large loss of Sw. frs. 10 million in non-proportional Life catastrophe reinsurance.
The repercussions the disease Aids will have on Swiss Re's business are still difficult to predict. Although the number of Aids claims continued to rise in the year under report, they are still hardly of significance. It is expected, however, that the burden on the existing portfolio will in­ crease in the years to come. The reserve for Aids cases was therefore strengthened once more. In order to keep the effects Aids has on new business within appropriate bounds. Life insurers have taken appropriate steps world­ wide.
Capital market investments and real estate in 1988 the world economy experienced another year of growth and prosperity. Following the crash on the world stock markets in October 1987, scepticism and apprehen­ sion about economic development prevailed at the start of the year. Contrary to all fears, the economic boom re­ mained unaffected by the events on the stock markets. Demand and production expanded, and the OECD coun­ tries' real growth rate of about 4% turned out to be the sec­ ond highest achieved in the 1980s. A scarcity of produc­ tion capacity together with price increases on the com­ modities markets led to growing signs of an overheating economy and gave rise to fears of inflation. This compelled the central banks to resort to a more restrictive monetary policy, which was not without effect on foreign exchange and interest rates.
Fixed-interest securities with equity character 1% (1%) 1 Shares 8% (7%) IIH Real estate 15% (15%)
The balance-sheet value of capital market investments and real estate of Sw.frs. 6,808 million is Sw.frs. 324 mil­ lion higher than that of the previous year. This increase is due to both new investments and the higher valuation of all investment currencies.
The main emphasis of new Investments and reinvest­ ments lay on bonds and real estate. The balance-sheet value of all fixed-interest investments rose by Sw. frs. 250 million to Sw. frs. 5,274 million. Since a rise in the level of in­ terest rates worldwide could not be ruled out, the average maturity of the bond portfolio was shortened. The real es­ tate portfolio rose by Sw.frs. 7 million to Sw.frs. 982 mil­ lion: this increase is due to the acquisition of existing prop­ erty as well as to new building projects. The share portfolio was expanded by Sw.frs. 67 million to Sw.frs. 552 million.
Bonds, certificates of deposit and mortgage bonds 4,247 3,913 Loans (including mortgages) 947 1,049 Fixed-interest securities with equity character 80 62 Shares 552 485 Real estate 982 975 Capital market investments and real estate 6,808 6,484
Net investment income in the broad sense (i.e. on invest­ ments as set out above, plus money market investments) amounts, after deduction of the interest required for the Life insurance and annuity fund and other technical re­ serves as well as for current-account balances and cash deposits, to Sw. frs. 648 million (previous year, Sw. frs. 581 million). This increase in income by 11.4% (previous year, 0.7%) is due to higher interest earned on the greatly in­ creased loans to Group companies as well as to exchange rate influences. Had exchange rates remained stable, there would have been an increase of 4.1 % (previous year, 7.8%).
On 22 September 1989, the value of Swiss Re, Zurich, on the Zurich stock exchange was as follows: 400,000 registered shares at Sw. frs. 8,825 44,000 bearer shares at Sw.frs. 12,100 860,000 non-voting shares at Sw.frs. 2,005
Stock Market Capitalization in thousand millions of Swiss francs 1986' Total Registered shares Non-voting shares Bearer shares
' rate at year end ^ rate at 22 September 1989
The Swiss Reinsurance Company was founded in the late autumn of 1863 by the Schweizerische Kreditanstalt (Credit Suisse), the Basier Handelsbank and the Helvetia General Insurance Company. On 19 December 1863 the government of the canton of Zurich gave its seal of approv­ al, thereby granting the infant company legal status (ac­ cording to the prevailing code of private law in the canton of Zurich). In May 1864 the first director set about his work from a modest two-room office in Zurich's Schoffelgasse. From here the first business links were established, not simply in Switzerland and neighbouring countries but also in England and Russia. Within a few months 16 Fire and 8 Marine reinsurance treaties had been concluded, making 1864 a curtailed but successful initial business year for Swiss Re.
The anniversary year will end with the General Meeting of 24 November 1989 which will be asked to resolve an increase in dividend, a bonus and an attractive capital increase with free option rights.
The Board of Directors announced the following promo­ tions with effect from 1 January 1989: Senior Executive Manager: Mr Urs Winter: Executive Managers: Messrs Adolf Decurtins, Otto Kern, Eduard Locher, Bernard Perrin and Jean-Pierre Preyer: Managers: Ms Suzanne Steiner and Messrs Arthur Ammann, Helmut Brechet, Enrico Carü, Walter Engler, Jakob Forster, Michel Lies, Josef Marbacher (Member of Man­ agement in Advisory Capacity), Pietro Marcionelli, Werner Meier, Niklaus Müntener, Max Ringli, Peter Schmid, Heinz von Aesch and Hans Voser. In the course of 1989 Messrs Walter B. Kielholz and Ste­ phen J. Riley joined our company as Members of Manage­ ment in an Advisory Capacity.
On 31 December 1988, Mr Alfred Bal, Executive Manager, and on 30 June 1989, Mr Ernst Schlenker, Member of Management in an Advisory Capacity, entered retirement. Both gentlemen have rendered our Company great ser­ vices for decades and we should like to express our sin­ cere gratitude to them. - Messrs Andre Chuffart and Rich­ ard H. Uhler, Managers, left our company during the first half of 1989. We should like to thank them for their valuable services.
The General Managers: R E. Christen, R. Camper, R-F. Niquille H. Cdermatt, H. Schönenberger
Cash in hand, postal bank account, bank balances Current-account balances Cash deposits
The 1988 business year comprises both reinsurance busi­ ness and general income and outgo for the period from 1 January to 31 December 1988.
German mark 84.70 80.90 4.7 + Pound sterling 271.50 240.25 13.0 + French franc 24.82 23.90 3.8 + Belgian franc 4.04 3.86 4.7 + Dutch guilder 75.02 71.93 4.3 + Italian lira 0.1151 0.1095 5.1 + US dollar 151.— 128.50 17.5 + Canadian dollar 127.— 98.75 28.6 + Yen 1.2025 1.0525 14.3 + Rand 63.50 66.75 4.9-
The commissions and profit commissions accounted for gross business totalled Sw.frs. 1,096.4 million. Of this amount, Sw.frs. 210.6 million referred to retrocession­ aires, leaving Sw. frs. 885.8 million for own account.
The claims incurred comprise claims paid and the adjust­ ment in the outstanding claims reserve. In the year under report this figure for own account rose by Sw.frs. 187.1 million to Sw.frs. 2,449.5 million.
Gross premiums totalled Sw.frs. 546.1 million, Sw.frs. 20.9 million of which were for annuities purchased. After deduction of retrocession premiums of Sw.frs. 28.7 mil­ lion, the remaining net premiums amounted to Sw.frs. 517.4 million, corresponding to a rise of 22.1 % over the previous year. Without the effect of foreign currency fluc­ tuations, net premiums would have risen by 15.5%.
The commissions and profit commissions calculated for business assumed totalled Sw.frs. 98.4 million. The retro­
cessionaires' share of this amount was Sw.frs. 3.5 million, so that Sw.frs. 94.9 million remained for own account.
The surrenders in business assumed amounted to Sw. frs. 49.3 million, of which Sw.frs. 1.0 million was debited to retrocessionaires. A total of Sw.frs. 48.3 million remained for own account.
The total of Sw.frs. 647.8 million is a net amount after deduction of various outgo items, such as the interest on the Life reinsurance and annuity fund and other technical reserves as well as outgo interest for bank and current account balances and cash deposits. Income rose as compared with the previous year by 11.4%. Without the effect of foreign currency fluctuations, an increase of 4.1 % would have been registered.
Overall management expenses rose in the year under re­ port by Sw.frs. 24.1 million or 15.8% to Sw.frs. 177.1 mil­ lion (previous year, fall of 9.6%). As a result of a distinct rise in the number of staff, actual personnel costs increased by 10.5% (previous year, 5.3%). Non-personnel costs rose even more steeply, namely by 24.2%; this was partly due to extra efficiency and capacity in the EDP sector.
Of the total amount of current-account balances of Sw. frs. 1,064.6 million, Sw.frs. 903.5 million was for reinsurance and Sw. frs. 53.8 million for retrocession business; Sw.frs. 107.3 million concerned other balances, particularly amounts due from Group companies and reclaimed taxes. The overall increase over the previous year was Sw.frs. 224.8 million and is partly due to higher conversion rates.
Technical reserves comprise, in Non-Life reinsurance, the reserves for unearned premiums and outstanding claims and, in Life reinsurance, the policy and claims reserves. The changes in the reporting year and the composition are shown in the following table.
Changes Valuation difference based on exchange rate fluctuations -1-581.4 - 595.8 Increase of technical reserves In year under report -r415.5 -1-667.7 Total business in force on balance-sheet date 8,040.7 7,043.8
In addition, on 31 December 1988, there was an author­ ized non-voting share capital of Sw. frs. 2.5 million (50,000 non-voting shares with a nominal value of Sw.frs. 50.-).
At the end of the previous year they amounted to Sw.frs. 1,865.3 million which would rise to Sw. frs. 1,948.8 million as a result of the proposed allocation of the profit, provided it is approved by the General Meeting of Shareholders. The capital funds would then be composed as follows: in millions of Swiss francs
Life Reinsurance Policy reserves 1,382.7 1,261.1 Outstanding claims reserve 294.6 256.4 in % of insurance in force, net 2.7% 2.9%
Contingent liabilities (sureties and guarantees) amounted to Sw.frs. 613,575.- per 31 December 1988.
These include, in addition to various accounts payable, in particular the value adjustments on outstanding balances together with reserves for foreign-currency risks and taxes.
The Board of Directors proposes to the General Meeting to allocate this profit as follows: Sw.frs. Sw.frs.
If the proposal of the Board of Directors is General Meeting, the following amounts
C. Helbling P. Bachmann Swiss certified Swiss certified public accountant public accountant
Liabilities Current-account and bank balances Cash deposits Technical reserves Non-Life reinsurance Life reinsurance Transitory entries, value adjustments and other liabilities (incl. dividend) Capital Funds Shown (after distribution of profit)
* Reinsurance business of the calendar year and general income and outgo for the period from 1.7.-31.12.79 ** These figures are not comparable with those of the other years following change in balance-sheet date from 30 June to 31 December.
North American Reassurance Company, New York 1 SwissRe Corporation, 1 New York
North American Reinsurance Corporation, New York 1 Swiss Reinsurance Company, 1 Representative Office Tokyo, Tokyo *
In the year under report, the following changes took place in the structure of the Swiss Re Group: in March 1988 SwissRe Holding Limited, Zurich, acquired a majority hold­ ing in the voting share capital of Lloyd Adriatico S.p.A., Trieste, while in November it also took over the majority of the capital of Union Reinsurance Company, Zurich. The 1988 accounts of the Lloyd Adriatico have been included in the Group accounts for the nine months since the date of acquisition, while the Union Reinsurance Company will only be consolidated from the 1989 business year. In Au­ gust 1988 the «Schweiz Allgemeine» Finanz Holding AG, Munich, acquired a 50% share in the Augsburger Aktien­ bank AG, Augsburg. The holding company subsequently founded the «Schweiz Aiigemeine» Direkt Versicherung AG, Augsburg, and the «Schweiz Aiigemeine» Finanz-Vertriebs -Service GmbH, Munich. The North American inter­ national Reinsurance Company, set up in 1986 in Hamilton (Bermuda), began operating at the end of 1988 and was included in the consolidated accounts for the first time in the year under report.
In the current year, SwissRe Holding Limited founded the Engiewood Reinsurance Company Limited, Hamilton (Bermuda). This company is to be used to reinsure U.S. lia­ bility risks. Management is in the hands of the international Risk Management Group Ltd., Hamilton (Bermuda), which was set up in 1988 and is specialized in the field of captive insurance company management. Lastly, in the course of the expansion of its range of services, Swiss Re, Zurich, acquired or founded a number of other companies. These participations are listed under the Group companies (page 33), but are not consolidated in view of the special nature of their activity.
Foreign exchange rates, which had risen in most cases, basically had the same effect on the Group accounts as on the annual accounts of Swiss Re, Zurich (cf. page 11). The conversion of foreign currencies into Swiss francs is ex­ plained on page 42.
In the 1988 Group accounts, the consolidated gross pre­ miums amounted to Sw.frs. 12,326 million, an increase of 18.1% as against the previous year (decline by 2.2% to Sw.frs. 10,434 million). Part of this increase (7.0%) is due to the majority holding of Lloyd Adriatico which is consoli­ dated for the first time in the year under report. Expressed in original currencies, the companies comprising the for­ mer scope of consolidation experienced growth of 2.9% (previous year, 7.0%). The consolidated net premiums rose by 16.9% to Sw.frs. 11,508 million; reinsurance busi­ ness accounted for 55% and insurance for 45% of the net premiums.
In Life reinsurance the profit improved, mainly thanks to the good result of the Canadian subsidiary company. In some companies the result was impaired by the establish­ ment of reserves for Aids claims. The underwriting profit rose overall to Sw. frs. 35 million (previous year, Sw. frs. 33 million) and the net amount of business in force increased to Sw.frs. 179,000 million (previous year, Sw.frs. 137,000 million).
Investment income rose to Sw.frs. 970 million (previous year, Sw.frs. 861 million). Securities transactions once again produced attractive capital gains; they were not, however, able to offset fully the higher write-off require­ ment. Management expenses and taxes caused a greater burden to the accounts than in the previous year. The con­ solidated Group profit of the reinsurance companies in­ creased to Sw.frs. 169 million (previous year, Sw.frs. 130 million).
At the North American Reinsurance Corporation, New York, the gross premiums in the year under report fell by 11.5% to US$ 696.2 million. The main causes are once more lower premium rates in insurance, increased reten­ tions on the part of clients and the changeover from pro­ portional to non-proportional covers, particularly in Prop­ erty business. Only in Special Markets did the premium in­ come not decline. The underwriting result showed further improvement, especially because of the more favourable results of Liability business; in contrast the profitability in Property business worsened. Surety business returned to the profit zone. A good performance can again be reported in Marine, Engineering and especially Special Markets. The favourable conditions in the American insurance mar­ ket were short-lived. Improved results put renewed pres­ sure on premium rates and conditions of insurance. Investment income fell in line with the decline in investment volume, while capital gains again rose thanks to the good market conditions. Following fiscal reform, the tax burden rose significantly. The company published a profit of US$ 41.6 million (previous year, US$ 32.2 million). The dividend was US$ 2.5 million, no dividend having been paid in the previous year.
The consolidated gross premiums of the Swiss Reinsur­ ance Company (UK) Limited, London, and the Paiatine In­ surance Company Limited, London, again fell in Non-Life
The Fidelity and Deposit Company of Maryland, Baltimore, in which the "Zurich" Insurance Company and Swiss Re each have a 50% shareholding, is not consolidated in the Group accounts. In 1988 the premium income rose by 4.1% to LIS$ 307.8 million. Growth has slowed down, especially owing to the deterioration of premiums in the commercial sector. In contrast, the underwriting result im­ proved significantly, as Bonding business again produced good results after a difficult phase. The result of Fidelity business reflects the crisis which savings institutions and mortgage banks are experiencing in various parts of the United States. The investment result developed well in line with market conditions. On the other hand, realized capital gains were less than in the previous year and the tax bur­ den rose steeply. The year's profit totalled US$ 32.2 million
The North American Specialty Insurance Company, Man­ chester, New Hampshire, has been in the process of devel­ opment as a Non-Life insurance company since 1985. In the year under report, the company achieved a gross pre­ mium volume of US$ 18.4 million (previous year, US$ 13.2 million). The overall loss of US$ 1.7 million (previous year, US$ 1.6 million) is due to high development costs.
The service companies acquired or founded by Swiss Re, Zurich, since 1987 are active in the fields of risk manage­ ment, loss adjusting and information services in insurance and reinsurance. In accordance with established practice, these companies are not included in the scope of consoli­ dation of the Swiss Re Group.
The SwissRe Holding Limited comprises in principle all majority holdings together with a number of minority hold­ ings in the insurance and reinsurance sector.
The holding portfolio was substantially extended in the year under report. Following an increase in the holding of the Gotthardfinanz AG, Lugano, and by direct purchases, a majority holding of 52.2% was obtained in the voting share capital of the Italian insurance company, Lloyd Adriatico S.p.A., Trieste. Moreover, a majority of 73.8% of the share capital of the Union Reinsurance Company, Zurich, was acquired. In the course of the current year this holding has been increased to 99.9% through the pur­ chase of further share packets. These and other trans­ actions of lesser significance have meant a substantial rise in the funds invested in company holdings. The loan grant­ ed by Swiss Re to finance holding investments rose in the year under report by Sw.frs. 936.7 million to Sw.frs. 1,504.0 million.
At the request of the Executive Committee and Group Management, we have examined the Consolidated Bal­ ance Sheet of the Swiss Reinsurance Company per 31 December 1988 and the Consolidated Profit and Loss Account for the 1988 business year.
Underwriting result from Non-Life insurance - 184 8 - 176 - 222
Gross premiums 1,265 871 2,136 1,763 Net premiums 1,138 838 1,976 1,667 Adjustment in policy and annuity valuations - 229 - 489 - 718 - 596 Interest on Life insurance and annuity fund 142 357 499 445 Commissions and profit commissions - 265 - 408 - 673 - 586 Claims incurred incl. adjustment in outstanding claims reserve - 644 - 221 - 865 - 707 Surrenders - 107 - 63 - 170 - 165
Investment income 970 285 1,333 1,116 Other financial income - - 25 18 Management expenses - 450 - 177 - 662 - 525 Rate fluctuations, depreciation. value adjustments - 65 12 - 53 - 68 Other outgo - - - 16 - 11
Fixed-interest investments 10,422 11,316 22,661 18,899 Shares 1,245 1,290 2,535 2,277 Real estate 1,356 964 2,325 1,959 Non-consolidated holdings 108 86 1,030 437
Share and non-voting share capital 154 154 Reserves shown 1,711 1,640 Consolidation reserve fund 108 156 Group Profit 248 201
The Group accounts were compiled according to the pub­ lished financial statements as at 31 December 1988 of the companies belonging to the Swiss Re Group. Oniy the re­ sults of the Bavarian Reinsurance Company Limited and the European Generai Reinsurance Company of Zurich had not yet been published at the time of the consolida­ tion.
Balances receivable and payable as well as interest and dividend payments between consolidated companies are eliminated. Similarly the Group's consolidated figures con­ tain no premiums from the intra-Group exchange of busi­ ness. The consolidation and valuation principles are the same as in the previous year.
Gross premiums as well as all balance sheet and profit and loss account figures from foreign Group companies which are shown in the various local currencies were uniformly converted into Swiss francs using the average foreign cur­ rency rates as at 31 December 1988.
The foreign currencies used in the Group accounts showed markedly higher rates as compared with the pre­ vious year. Sole exception is the South African rand, which showed a slightly lower rate against the Swiss franc (cf. table on page 22).
The net assets of foreign companies have been calculated using the exchange rates at the end of the year. The con­ version loss of Sw. frs. 93 million (previous year, loss of Sw.frs. 90 million) resulting from the revaluation was di­ rectly debited to the consolidated capital funds.
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 by the individual Group companies.
The consolidated gross premiums rose in all classes by 18.1 %to Sw.frs. 12,326 million (previous year, fall of 2.2%). Part of this increase (7%) is due to the consolidation for the first time of the holding of Lloyd Adriatico. In addition, in­ creasing foreign currency rates had an effect on the rise in volume.
Sw.frs. 2,108 million (previous year, Sw.frs. 1,814 million). Of this amount, the interest on the Life insurance and An­ nuity fund accounted for Sw. frs. 499 million (previous year, Sw.frs. 445 million); in the Non-Life classes it included a credit of Sw. frs. 276 million (previous year, Sw. frs. 253 mil­ lion) to Sickness business.
Investment income also includes dividend payments of non-consolidated holdings in the amount of Sw. frs. 45 mil­ lion (previous year, Sw.frs. 43 million).
This item comprises a positive balance from realized capi­ tal gains and depreciation on investments of Sw.frs. 14 million (previous year, Sw.frs. 7 million), foreign currency profits of Sw. frs. 8 million (previous year, losses of Sw. frs. 34 million) as well as value adjustments and depreciation on assets outside the investment sphere of Sw. frs. 75 mil­ lion (previous year, Sw.frs. 41 million).
In the case of fixed-interest securities and shares (without non-consolidated holdings), the difference between the lower book and higher market value of the individual secu­ rities, taking into account the estimated value of taxes due on realization, amounted to Sw.frs. 1,258 million, or 5.0% of the balance-sheet value (previous year, Sw. frs. 932 mil­ lion or 4.4%).
Adriatico in the consolidation for the first time and to higher capital funds and increased reported earnings.
The consolidation reserve fund results from the difference between the capital funds shown of Group companies and the corresponding book values applied by SwissRe Hold­ ing Limited and Swiss Re, Zurich. In the year under report the consolidation reserve fund fell by Sw.frs. 48 million to Sw.frs. 108 million (previous year, fall of Sw. frs. 35 million), despite generally higher conversion rates, because of the inclusion of new Group companies.
Technical Reserves in millions of Swiss francs Group capital funds shown
The capital funds shown In the consolidated balance sheet (sum of share and non-voting share capital, reserves
Total 10,817 7,631 18,448 14,998 Changes in Grouo Caoital Funds in millions of Swiss francs In % of net premiums earned In % of net premiums earned 206.0% 189.0% 198.6% 190.6% 1988 1987
Life insurance Life insurance and annuity fund Outstanding claims reserve Reserve for profit commission
Capital funds at end of previous year Effects of exchange rate fluctuations on opening balance-sheet figures Paid-out profits for previous year Group profit Other movements
Total 3,446 5,185 8,631 7,177 Capital funds on 31 December 2,221 2,151 in % of Life insurance in force, net 1.9% 26.2% 4.3% 4.7%
European General Reinsurance Company of Zurich Sw.frs. 100 83,735 2,377,714 802,908
North American Reassurance Company US$ 100 65,167 545,874 258,532 1 North American Reinsurance Corporation US$ 100 269,581 852,419 696,173
Fidelity and Deposit Company of Maryland' US $ 50 193,826 453,596 307,841
SWITZERLAND General Insurance Company Limited Sw. frs. 99.9 164,774 1,493,774 881,559
SCHWEIZ Compahia Anönima Espahola de Seguros y Reaseguros Ras. 100 3,912,070 20,546,518 12,312,653
' not Consolidated ' of the voting share capital ^ in millions of lira
Assets Cash in hand, postal bank account, bank balances Current-account balances Cash deposits Fixed-interest investments Shares and real estate Transitory entries and other assets
Switzerland Swiss Reinsurance Oompany Mythenquai 50/60, CH-8022 Zurich with branch offices in Melbourne, New York and Toronto
Canada Canadian Reassurance Company 99 Yorkville Avenue, Suite 300 Toronto, Cntario M5R3K5 with a branch office in Montreal
Canadian Reinsurance Company 99 Yorkville Avenue, Suite 300 Toronto, Cntario M5R3K5 with branch offices In Montreal and Vancouver
North American International Reinsurance Company Limited Clarendon House, Church Street Hamilton HM 11, Bermuda with a branch office in Westport, CT (USA)
United States SwissRe Advisers, Inc. 200 Park Avenue, New York, NY 10166
Argentina Sociedad Anälisis de Riesgos S.A. Aisina 756, Piso 6, 1087 Buenos Aires
Mexico OFATEC (Mexico) S.A. de CV. Viena 71, Piso 5 Col. del Carmen Coyoacän 04100 Mexico, D.F.
Switzerland SWITZERLAND General Insurance Company Limited Gotthardstrasse 43 CH-8022 Zurich with branch offices In Athens, Brentwood, Brussels, Copenhagen, Genoa, Hamburg, Istanbul, Milan, Munich, Paris, Thessaloniki, Vienna, Hong Kong, Jakarta, Manila, Montreal, Sydney and Taipei
United Kingdom General Surety & Guarantee Co. Limited Hawthorn Hall, Hall Road Wllmslow, Cheshire SK9 5BZ
RIskex Group Contact address Riskex Holding AG Mythenquai 50/60 CH-8022 Zurich
North American Benefits Group Contact address 707 Brookpark Road Brooklyn Heights, OH 44109 (USA)
Thomas Howell Kiewit International Limited 60 Mark Lane London EC3R 7NE
SwIssRe Services (Canada) Ltd. 99 Yorkville Avenue, Suite 300 Toronto, Ontario M5R 3K5
Accumulation: Concentration of -» risks which may be affected by the same loss event or concentration of shares in the same -» risk through ^ reinsurance treaties.
- Retrocession: Passing on by the ̂ reinsurer of the ̂ risk accepted in reinsurance to other companies {—* ret­ rocessionaire).
- Incurred but not reported (IBNR) losses (also late claims): Losses which have occurred but which have not yet been reported to the-» insurer or ̂ reinsurer on the balance-sheet date.
Co-insurance: Where a number of-» insurers and/or ̂ reinsurers each share part of a ^ risk.
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.
- Insurer (also direct/primary insurer): Insurance com­ pany in a direct contractual relationship with the ̂ poli­ cyholder.
- Net amount: Life insurance in force of the-» insurer af­ ter deduction of the ̂ cessions or Life business of the
Portfolio: The totality of-^ risks assumed by an ̂ insurer or ^ reinsurer; also the totality of investments of a com­ pany.
Premium: Amount paid by the ̂ policyholder to the ̂ in­ surer in the business year in return for insurance cover.
- Earned premium: Part of the premium (including ^ unearned premium of the previous year) applicable to the expired part of a reinsurance period continuing after the balance-sheet date (cf. unearned premium).
- Gross premium: Insurance premium before deduction of the ceded premium (-> cession) or reinsurance pre­ mium before deduction of the retroceded premium retrocession).
- 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 (cf. 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 busi­ ness.
- Quota-share reinsurance: Form of -> proportional reinsurance, providing that the ^ reinsurer accepts a specified share of each -»risk of an ̂ insurer in a speci­ fied class of business.
- Treaty reinsurance: Participation of the ̂ reinsurer in certain sections of the ^ insurer's business as agreed by treaty.
Retention: The amount of a -> risk which the -> insurer does not reinsure but keeps for own account.
- Risk of change: Fluctuation of actual from statistically anticipated claims experience as a result of technical, social, commercial or political changes.
Risk premium basis: System of Life business under which the ̂ reinsurer only participates in the death risk in so far as it exceeds the policy reserves (cf. co-insurance basis).
Technical reserves: In the Non-Life sector: Reserves for ^ unearned premiums and ^ outstanding claims; in the Life sector: the ^ policy and claims reserves.
- Accident insurance: Insurance of individuals (per­ sonal accident) or of groups (group accident) against the economic ̂ risks in the event of death or temporary or permanent disability.
- 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 corre­ sponding insurance class (principally Fire and Engineer­ ing insurance).
- Hail insurance: Insurance of crops in open fields or of greenhouses and their contents against hail, storm and other natural hazards.
- Nuciear Energy insurance: Insurance against prop­ erty damage, liability and accident in connection with the operation of nuclear energy installations.
- Products Liability insurance: Insurance of the liability of the manufacturer or supplier of goods for damage caused by their products.