Management expenses, taxes, fluctuations in stock exchange and foreign currency rates, depreciation
Management expenses, taxes, fluctuations in stock exchange and foreign currency rates Profit applicable to minority shareholders
Helmut F. Rudolf Zumikon, General Manager (ret.) of Swiss Re 1982
Hans Ulrich St. Gall, Professor, St. Gall Graduate School of Economics, Business and Public Administration 1981 *Members of the Committee of Directors
Assistant Managers Gottfried Bachmann Engelbert Betz Peter Bieri Christoph Blanc Edmond Capt Pierre Darioli Enzo Delcö Erich Etter Fritz Eugster Heinz Fischer Leon Genoud Georges Heering Balthasar Heyer
Fritz Ehrsam Walter Isler Ernesto Jutzi Hans R. Kaufmann Lavre D. Kirianoff Albert Kunz Jean-Claude Mayor
Members of Management In Advisory Capacity Robert P. Brouwer Max Gasche Kurt Egg Max L. Hefti Hans F. Enzmann Cskar Jenni
Max Nabholz Samuel Patthey Pierre-Claude Perrenoud H. Conrad Rutishauser Otmar Schmidlin Peter Schuppli Paul Strickler
Walter Minorett! Werner Müller Bruno Nigg Theodor Christ Bernard Perrin Egon J. Ritter Werner G. Rüegg Robert Rüesch Willi Rüetschi Rene Rüttimann Werner Schiegg Franpoise Schulthess Paul Schweizer
Report of the Board of Directors The business year 1978/79 embraces the reinsurance business for the caiendar year 1978 and other income and expenditure from 1st Juiy, 1978, untii 30th June, 1979.
In the business year 1978/79, the premium volume in Swiss francs rose despite lower exchange rates for almost all foreign currencies. Non-Life reinsurance produced a smaller loss than in the previous year. The profit shown by Life reassurance was rather less than in 1977/78. Together the reinsurance result was Sw. frs. 20.9 million, which is more than that of the previous year (Sw. frs. 16.2 million). Investment in­ come has grown, mainly thanks to a larger invest­ ment portfolio. After taking into account manage­ ment expenses and taxes, a net profit remained of Sw. frs. 74.4 million, as against Sw. frs. 71.5 million the previous year.
The general situation on the reinsurance markets has hardly changed over the previous year. Developments which for some time have been perceptible have un­ fortunately intensified even more: despite continuing losses in major branches and markets, there is a distinct gtut ot reinsurance capacity. A large number of new reinsurers are competing with existing ones for business, the volume of which has not increased very greatly at all, in terms of real value, since 1974. An intrinsic restructuring of the reinsurance supply has brought about a change in the system of risk spread which has not yet proven the strain it can take, the distinguishing feature being that risks are broken down vertically and horizontally much more than was formerly the case. The constantly growing number of small new reinsurance companies whose capacity often only allows them to accept a very modest share of major risks are increasingly tending to cover their own often imperspicuous portfolio by means of reinsur­ ance with other companies. These too retain in turn only a portion of the risk and seek further cover for the rest. This reinsurance of the reinsurer is known as retrocession. This is mainly made possible by reinsurance brokers, since many small reinsurers do not have an organization of their own to acquire, assess and place business.
In reinsurance the resuits of a caiendar year are only of limited information value. The claims run-off from
It is generally known that in many insurance branches a large part of losses can be avoided or greatly re­ duced in their extent by means of appropriate measures and installations, particularly, however, by risk-conscious conduct. This remark applies in prin­ ciple to the insurance of persons as well as to Prop­ erty and Liability insurance. Although the insurance industry is scoring success in promoting loss pre­ vention and reduction especially in industrial coun­ tries, it is by experience often difficult and calls for many years of efforts to spread the idea. When deciding on investments in costly safety installations financial aspects of course play an essential role.
Fire 905 887 1,008 907 853 Hail 19 19 21 20 20 Burglary/Fidelity and allied lines 66 70 80 70 66
Accident 155 156 188 167 160 Sickness 110 86 87 70 71 Third Party Liability 220 211 213 168 159
The list of major losses in the Swiss Re's portfolio during the year under report is headed by flood los­ ses in Switzerland with a total burden of approx. Sw. frs. 30 million. Two thirds of this amount stemmed from damage caused by floods in the canton of Ticino in August, 1978. For the third time in four years the forces of nature have caused extensive damage in Switzerland. In 1975, the Swiss Re had to pay Sw. frs. 7 million for floods, mainly in the canton of Berne and in 1977 Sw. frs. 15 million in the canton of Uri. Property insurers have meanwhile substantially in­ creased premium rates for natural hazards in Switzer­ land, a measure which, in view of the fact that most policies are concluded over several years, will only have an effect in a few years' time.
In the Burglary, Fidelity and allied lines, premiums on the one hand and loss payments and reinsurance commissions on the other approximately offset each other. As notoriously loss-incurring business was dis­ carded, the premium income has declined somewhat. The high rate of criminality, not least in the form of insurance fraud, continues to be a source of concern to insurers. Sabotage has gained in significance as a cause of loss, primarily in Europe.
Despite losses in American and Australian Workmen's Compensation business. Accident reinsurance pro­ duced on the whole a profit. In these countries, the premium adjustments needed to meet the claims burden come up against politically motivated resis­ tance on the part of insurance supervisory authorities.
The premium volume of General Third Party Liability reinsurance has increased slightly. Overall the branch again brought a high loss. In American business, sub­ stantial amounts again had to be added to the reserves for outstanding claims. In the case of the Liability reinsurance business accepted by Swiss Re, Zurich, the premiums were only just enough to cover losses and add to claims reserves. Particularly in Business Liability as weil as in Product Liability and various fields of Professional Indemnity, the premium rates do not yet correspond to the constantly growing loss burden.
In the period under report, Engineering reinsurance earned a profit. A glut of capacity in this branch also depresses the premium rates and forces extremely selective risk acceptance. Major losses occurred in CAR insurance in Spain and in the Middle East. Machinery insurance went well, whereas, particularly in the case of civil engineering projects, exception­ ally high losses were registered.
The volume of Atomic reinsurance which at the mo­ ment is only developing slowly remained unchanged and a good result could again be achieved. The favourable loss experience over several years in the insurance of nuclear power plants has put Increased pressure on premium rates and caused certain nuclear power plant owners to turn to partial selfinsurance. The high property loss in March, 1979, in Harrisburg, U.S., clearly shows that the adequacy of premiums in this branch can only be judged over a longer period of time.
Following a decline of 7% a year earlier, caused by the effect of foreign exchange rates, the net amount of new business rose this time by 9 % to Sw. frs. 7,370 million. The net amount of business in force totalling Sw. frs. 30,905 million exceeds that of the previous year by 10% and is the highest ever achieved.
The loss burden has increased relatively strongly: it turned out to be unexpectedly high particularly in business from Western Europe. Despite a further slight decrease in the financing requirements for new business, total reassurance commissions were on the whole greater. As allocations to the Life assurance and annuity reserve also had to be increased, the final profit was lower than In the previous year despite considerable premium growth.
In the year under report, the technical reserves rose by Sw. frs. 352 millicn tc Sw. frs. 4,538 mllllcn. Of this total, Sw. frs. 3,332 millicn was for non-Life reInsurance and Sw. frs. 1,206 millicn for Life reassur­ ance. In the non-Life sector the ratio of reserves to net premium volume has increased slightly. In the
Life branch, the relation between reserves and insur­ ance in force has declined minimally, largely re­ flecting the trend towards pure risk business which calls for less reserves. The share of total reserves in the balance-sheet total is again slightly higher at 79 %.
In the reporting year the econonnic situation in the industrial countries of Western Europe and in Japan strengthened: in contrast growth tapered off notice­ ably in the United States. Even though there are so far no signs that this siowing down wili spread to other Western industrial countries, the overall situation remains rather uncertain. This applies all the more as new problems, such as the massive price increase for energy and raw materials, have been added to the persistent cid probiems, such as extensive unempioyment and stubborn infiation.
On the bond markets the reverse trend already visible towards the end of the last reporting period continued and intensified: interest rate increases were the rule. The accompanying decline of market values caused a not insignificant fall in the value of bond holdings. This reduced primarily the appreciation that had arisen in previous years, so that for the time being the investment result was not affected substantially by write-offs.
On the currency front, following the pronounced higher valuation of the Swiss franc in the autumn of last year, the situation has stabilized and a reverse trend has partly set in. Therefore, the declines in foreign exchange rates from last year's closing date to this year's are in general less extreme. Two cur­ rencies especially relevant to our operations, the German mark and the pound sterling, have even slightly strengthened against the Swiss franc over the past year.
The more moderate development of foreign exchange rates as compared with 1977/78 has not remained without effect on the investment portfolio and income: In the various foreign currencies the consistently higher net new investments during the reporting year, most of them made at rising interest rates, led to an increase in investment income, a substantial portion of which still remained even after conversion at the generaliy lower exchange rates prevailing on the closing date. After deduction of the interest required for the Life assurance and annuity fund and other technical reserves, investment income totalled Sw.frs. 210 million (previous year, Sw. frs. 189 million).
The emphasis in new investments lay on fixed-interest securities and to a lesser extent on real estate. The share portfolio was reduced slightly, giving the distri­ bution of capital market investments and real estate at balance-sheet and market values as shown on the opposite page. For yield considerations a part of the new fixed-interest investments was placed in the form of loans. To make the trend of this investment cate­ gory visible in future, loans are shown for the first time as a separate item together with mortgage loans. For comparison purposes the previous years' figures are also given.
A breakdown by currency reveals the following distri­ bution of capital market investments and real estate: 36°/o (previous year, 30 "/o) in Swiss francs, 38°/o (43°/o) in other European currencies, 22°/o (21°/o) in U.S. and Canadian dollars and the remaining 4°/o (6 %) in Japanese yen and Australian dollars. In the year under report, the main changes took place in Europe: on the one hand a large proportion of new investments was made in Swiss francs, on the other hand the share of other European currencies declined because of the below-average volume of new invest­ ments and partly as a result of exchange rate depre­ ciation.
Net cash deposits with insurance companies in­ creased to Sw.frs. 1,159 million, as against Sw.frs. 1,124 million a year earlier.
Capital market Investments and real estate 3,116 2,818 3,095 2,609 1
Distribution of Capital Market Investments and Real Estate In Percent at Balance-sheet Values (Previous year in parentheses)
Shares, excluding holdings 19.2% Real estate (21-5%) at balance-sheet values 8.5%
The tax burden in the reporting year rose by Sw. frs. 8.4 million to Sw. frs. 56.0 million. Only a part of this increase applies to the period under report, since the amount shown last year had been considerably re­ duced following the dissolution of a contingency re­ serve made possible by the favourable outcome of a fiscal dispute in Australia. Moreover, as a result of the higher profits of the two previous years, tax pay­ ments in Switzerland have increased compared with the preceding assessment period.
Foreign currency rate fiuctuations have caused a debIt to the annual result of Sw.frs. 15.4 million, which is due to the fact that the conversion rates of most foreign currencies were again lower. Only five of the total 135 foreign currencies showed a slight increase in value against the Swiss franc over last year's balance-sheet date; 130 were lower, the commercially significant overseas currencies particularly registering greater falls (8% to 16%).
Direct and indirect depreciation outside the sector of investments and holdings involved a debit of Sw. frs. 7.6 million (previous year, Sw.frs. 13.6 million). This amount is due, on the one hand, to a further increase of the reserve for outstanding claims In foreign cur­ rencies and, on the other hand, to costs for rebuilding and renovating own business property.
Staff catering, introduced as early as 1917 when Swiss Re staff first began to work continuous hours, was transferred in 1957 from the top floor of the main building to the then newly-built clubhouse. However, over the last twenty years the number of staff has doubled to around 900 and the number of business lunch guests from home and abroad has risen from a few hundred per year at the beginning to over 5,000. The former building with one main floor was therefore enlarged to three floors with the corre­ sponding working space during a two-year rebuilding programme, taking into consideration urban planning aspects and the representative purposes which are important for the Company. The enlarged clubhouse was reopened in mid-1979 and, in addition to pro­ viding lunches for staff and guests, is used for nu­ merous business and training events as in the past.
As also already announced, the proposal will be put to the forthcoming Annual Meeting of Shareholders to elect Mr. Walter DIehl, General Manager, to the Board of Directors. The Board of Directors intends to appoint Mr. Diehl as its new Chairman.
The retiring Chairman has unreservediy devoted his vast creative powers to the Company for over 35 years, as Member of the Management, Generai Man­ ager, and, since 1964, as Chairman of the Board of Directors, hie has made unique and fasting contribu­ tions to ati major spheres of the Company's activity and is a/so hefd in high regard in internationai rein­ surance thanks to his exceptionai personaiity and many years of worldwide experience. Mr. Eisenring has a/so contributed decisiveiy to the deveiopment of our Company during his time as Chairman and quite extensiveiy infiuenced the reputation it enjoys today throughout the wer id. The Board of Directors is very much obiiged to Mr. Eisenring for his excelient leadership and will nominate him Honorary Chair­ man of the Swiss Reinsurance Company at the meet­ ing foiiowing the Generai Meeting.
At this year's General Meeting, the terms of office of Messrs. Hans Homberger, Rudolf Huber-Rübel and Peter G. Syz, as Auditors, and Messrs. Max Honegger and Hans Karrer, as Substitutes, expire. Pending ap­ proval by the shareholders of the amendment to the Articles of Association, the Board of Directors pro­ poses to transfer with effect from the next business year the functions of Auditors, in accordance with Article 727 of the Swiss Code of Obligations, to the Swiss Auditing and Fiduciary Company, Zurich branch, which has already carried out the indepen­ dent audit over the last few years, in accordance with Article 723 of the Swiss Code of Obligations.
Canadian subsidiary companies until spring, 1979. Mr. Rudolf worked with great diligence for our com­ panies in Zurich and abroad for very many years. The Board of Directors is greatly Indebted to him for his most valuable service and Is pleased that, with his vast experience, he will continue as Member of the Board.
The Board of Directors has appointed Mr. Herbert Schönenberger as General Manager with effect from 1st January, 1980.
After distribution of the profit in accordance with the proposal on page 22, the capital and free reserves, including the balance brought forward, would be raised from Sw. frs. 397 million to Sw. frs. 426 million.
Total surplus 4 Free reserves including reserve fund for catastrophe losses
Audit According to the Swiss Code of Obligations, Art. 723 (independent audit), the present Annual Statement has been examined and found correct by the Swiss Auditing and Fiduciary Company, Zurich branch. The actuarial auditor, Mr. Marc-Henri Amsier, has moreover confirmed in his report that the technical reserves of the Life reassurance business at the end of 1978 were calculated on the basis approved by the Swiss Federal Council.
Zurich, 17th October, 1979 For the Board of Directors: M. E. Eisenring, Chairman
Outgo Reinsurances assumed Reinsurances ceded 1978/79 Net for own account 1977/78 Net for own account a b a—b
Investment income (less interest on Life assurance and annuity fund and other technical reserves) 210,492,225 189,535,275
Balance Profit brought forward from previous year 2,865,341 Net Profit for the Year 74,371,731 77,237,072 74,787,008
For the Board of Directors: The General Management: M. E. Eisenring, Chairman H. B. Vischer, Deputy Chairman and Managing Director
Acting upon our terms of reference, we have checked the Profit and Loss Account for the business year 1978/79 and the Balance Sheet as at 30th June, 1979, against the accounts of the Company, which have been kept in proper form and order, and have found that the figures concord. The assets of the Company and the operating results are presented in accor­ dance with the methods of valuation legally pre­ scribed.
Non-Life reinsurance registered an underwriting loss; in contrast, the profit of Life reassurance was higher than in the previous year. A profit was earned in non-Life insurance for the first time since 1974, this having been aided by the further reduction of costs. Overall the Group's underwriting result improved. Furthermore, there was a clear increase in investment income. On the other hand, write-offs on capital in­ vestments were higher, as was expenditure for man­ agement expenses and taxes. The Group profit rose from Sw. frs. 111 million in the previous year to Sw.frs. 119 million. The Group's capital fund shown, including Group profit, amounted to Sw.frs. 622 mil­ lion (previous year, Sw.frs. 550 million).
In Life reassurance, growth of business in force was satisfactory and the result good. With a net amount of business in force of Sw. frs. 56,000 million, a profit of Sw. frs. 53 million (previous year, Sw. frs. 37 mil­ lion) was achieved.
The Group profit of the reinsurance companies rose by Sw. frs. 5 million to Sw. frs. 97 million (previous year, increase of profit by Sw. frs. 3 million).
Following an improvement of the earnings situation in the previous year, the Canadian Reinsurance Com­ pany, Toronto, showed overall an unsatisfactory re­ sult. The situation was determined by insufficient premium rates in Property insurance and hard com­ petition for market shares.
The Bavarian Reinsurance Company Ltd., Munich, showed a higher underwriting loss than in the pre-
The gross premiums of the «SWITZERLAND» Generai Group were almost unchanged over the previous year at Sw. frs. 340 million. — The business year of the «SWITZERLAND» General, Zurich, was marked by an unexpectedly good development in the newly written branches of Accident, Liability, Motor and Sickness Daily Benefits insurance in Switzerland, a distinct worsening of unden/vriting results in insurance and an improvement of the financial account. The two sub­
The German insurance companies, in which the SR Beteiligungen AG, Munich, maintains a majority hold­ ing, showed a gratifying development of profit in the reporting year with slightly less premium growth.
In almost all companies rationalization measures led to a further reduction of cost ratios; on the other hand, the loss experience was somewhat less favourable than in the previous year. On the whole, however, underwriting results were successfully improved. The general decline of interest rates in the preceding years meant that investment income rose only slightly despite a larger investment volume. Various company tax audits completed during the reporting year led to additional tax expenditure. Compared with the pre­ vious year, the annual profit improved significantly.
The SwissRe Holding Ltd. comprises all the majority holdings whose figures have been consolidated — with the exception of Swiss Re, Zurich — together with a number of minority holdings.
In the reporting year dividend payments fell by Sw. frs. 3.9 million to Sw.frs. 20.7 million. The fall is due on the one hand to the belated dividend payment (Sw.frs. 2.1 million) a year earlier from the Bavarian Reinsurance Company Ltd.; on the other hand, SR Beteiligungen AG refrained from paying a dividend for tax considerations. Finally the further decline in foreign exchange rates had a negative effect on the dividends received. Of the Group companies. Bava­ rian Reinsurance Company Ltd., SwissRe Holding (North America) Inc., Canadian Reassurance Com­ pany and the Swiss-South African Reinsurance Com­ pany increased their dividends. The Canadian Rein­ surance Company again resumed dividend payments and the Australian Reinsurance Company paid a divi­ dend for the first time.
Fluctuations in stock exchange and foreign currency rates, depreciation 24 — 16 8 — 7
Cash in hand, Postal bank account, Bank balances 248 56 304 374
The Group accounts were compiled according to the same principles as in previous years. The consol­ idated Balance Sheet and Profit and Loss Account were based on the individual statements of Group companies as at 31st December, 1978, but on those of the Swiss Re, Zurich, and the European General of Zurich as at 30th June, 1979. The balance sheet of the Bavarian Reinsurance Company Ltd. had not been published at the time of consolidation.
ment portfolio feil by Sw. frs. 100 million to Sw. frs. 684 million, thereby totalling 8.2 % of the present balance-sheet value (previous year, 10.4%).
The consolidation reserve fund results from the differ­ ence between the capital funds shown of Group companies and the corresponding book values ap­ plied by SwissRe Holding Ltd. and Swiss Re, Zurich. The increase of the consolidation reserve fund by Sw. frs. 38 million is due to the annual profits of various Group companies being in part considerably higher than the paid-out profits and to changes in capital funds following the introduction of new ac­ counting regulations in some countries.
Outgo and income from intra-Group transactions and balances from transfers of capital and dividend pay­ ments among consolidated companies were elimi­ nated.
Balances receivable and payable among consolidated companies were offset against each other.
Change In Group Capital Funds in millions of francs 1978/79 1977/78 Capital funds on 1st July 550 555 Paid-out profits for previous year — 45 — 45 Group profit 119 111 Effects of exchange rate fluctuations on opening balance-sheet figures — 13 — 32 Various movements 11 — 39 Capital funds on 30th June 622 550
Investment Income 440 389 378 323 312 Management expenses —218 —208 —221 —205 —199 Taxes —143 —123 —108 — 81 — 65 Fluctuations In stock exchange and foreign currency rates, depreciation — 8 7 27 67 — 64 Group profit applicable to minority shareholders — 6 — 5 — 9 — 8 — 8 Total consolidated net profit Per share in francs
«SWITZERLAND» General Insurance Company Ltd. 43 Gotthardstrasse, 8022 Zurich with offices in Barcelona, Brussels, Genoa, Melbourne and Montreal SWITZERLAND General Insurance Company (London) Ltd. The Bowring Building, Tower Place, London EC3P3BE SWITZERLAND General Insurance Corporation of New York 102 White Plains Road, Tarrytown, N.Y 10591
Berlinische Feuer-Versicherungs-Anstait Nymphenburger Strasse 112, 8000 Munich 19 Aachen-Leipziger VersIcherungs-AG Theaterstrasse 7-9, 5100 Aachen Eos Lebensversicherung AG Königinstrasse 19, 8000 Munich 22 Saar-Rhein Allgemeine VersIcherungs-AG Sulzbachstrasse 16-18, 6600 Saarbrücken 3 Salus Krankenhauskosten-VersIcherungs-AG Schlelsshelmer Strasse 124, 8000 Munich 40 Vereinigte Krankenversicherung AG Leopoldstrasse 24, 8000 Munich 40
North American Reassurance Company 245 Park Avenue, New York, N.Y. 10017 with branch offices in Chicago, Dallas and Lakewood (Colorado)
Australian Reinsurance Company Ltd. Embank House, 325 Collins Street, Melbourne, Vic. 3000 with branch offices in Sydney and Auckland, New Zealand
OFATEC (Mexico) S.A. de C.V. Comunal 80 bis, piso 5, Col. del Valle, Mexico 12, D.F.
OFATEC Venezuela C.A. Edif. Seg. Adriatica, piso 7, of. 72, Avda. Fco. de Miranda con Don Bosco, Caracas