Capital funds shown 257* 247 * Subject to approval by the General Meeting
to the General Meeting of the Shareholders on the 19th November 1971 60 Mythenquai, Zurich
Deputy Managers Roger Aeberli Kurt Aerni Albert Albrecht Eduard Bart Georges Bassin Erik Bosshardt Hans Brodbeck Edouard Burnens
Ralph Ochsenbein Hermann Odermatt Max D. de Sails Hans Salzmann Herbert Schönenberger Peter Schuppli Edward Spargnapani Paul Strickler
Assistant Managers Erwin Arpagaus Alfred Bai Emil Baumgartner Gunnar Benktander Fritz Bolliger Andreas Brügger Richard R. Doerr Rolf Eckert Leon Genoud
We have the honour to present to you the Annual Report and Statement of Accounts of the Company for the bu­ siness year 1970/71. The 107th business year embraces the reinsurance business for the calendar year 1970 and the other income and expenditure from 1st July, 1970 until 30th June, 1971.
Reinsurance General Remarks One of the functions of the reinsurer is to relieve direct insurers of the risk peaks exceeding their retention and to contribute thereby to the balance of their results. Direct insurers are entitled to expect their reinsurers to be able to pay even very large claims or whole series of such claims. This legitimate demand on reinsurers, who, in turn, have to seek the balance of their results in the spread of their portfolios over different countries and branches, as well as in time, implies that reinsurers should receive premiums commensurate with the risks of the covers granted.
In those markets where direct insurers have been able to adapt the structure of their covers and their premiums to the many risk-increasing factors and to the effects of in­ flation, which have frequently been a topic of discussion in recent years, reinsurers have met with circumstances which they were able to master with the technical me­ thods of reinsurance. However, where direct insurers have not taken the necessary remedial measures but have deceived themselves into hoping that the situation would improve by itself, a situation having severe effects on direct insurers and reinsurers has arisen. In the year of report this was the case in the industrial Fire and Motor Liability branches, especially in the Federal Republic of Germany, and in the Burglary branch in many industrial countries.
The worldwide inflation, which was given even greater impetus in the autumn of 1970 and the spring of the current year by exceptionally high wage increases in many industrial coimtries, will affect even more than in the
past all claims, but especially those which, due to their nature, take several years to adjust. It is not yet possible to calculate the extent of this extraordinary claims in­ flation, it can only be estimated. However, a further in­ crease of the technical reserves is called for.
During the year under review, our business policy was again aimed at offering direct insurers optimum cover at conditions commensurate with the risks, combined with a broad range of services. As in previous years, we endeavoured to improve the transparency of the business assumed and to see claims settled as promptly as possible with increasing assistance, at the request of direct insurers, from our own claims specialists in an advisory capacity. Particular attention was paid to the technically very complicated Special Lines and to Facultative business.
Result In spite of the negative reinsurance results in certain branches, the aggregate underwriting result showed a pro­ fit. In those markets where certain branches of business ran unsatisfactorily, especially in the Federal Republic of Germany, direct insurers are making efforts to improve the situation. The sources of loss stemming from the risks and inflation have been recognized. A continual adap­ tation of conditions and, where necessary, of premiums is taking place. Even though the measures adopted cannot be expected to take full effect in the current year, an im­ provement of the results in 1972 can be expected with great probability.
The direct insurers and reinsurers with interests in the German market have applied themselves energetically during the year under review to improving Fire insurance. By agreement with the competent authorities, the pre­ miums have been adapted during the current year which has meant drastic increases of up to 50 % in certain risk categories.
The Burglary branch which was already in the deficit zone last year in certain markets but produced overall a profit, closed with a deficit in the year of report. Rising crime rates are one of the causes. The increasing carelessness on the part of the general public also renders burglary easier. Burglars use the most modern technical methods and obviously have an international receiver organisation behind them which disposes of the stolen property.
Accident business which developed favourably in certain markets during the year under review was affected in other areas by a series of major claims which brought the overall result into the deficit zone. The claims derived from high Personal Accident policies on car occupants and aircraft passengers who lost their lives. In addition there were a number of claims under Group Accident reinsurances. — Sickness reinsurance again produced a deficit because once more the costs of medical and inhospital treatment rose quicker than premiums.
In the Marine branch, a deterioration of the result com­ pared with the previous year has been observed which is mainly attributable to the exceptional rise in the cost of ship repairs and the persistently high number of cargo thefts. Judging by recent experience, the direct insurance markets are reacting quicker than before to these losses. This should become evident in higher premium rates and
In Engineering reinsurance the volume of business in terms of premiums increased during the year of report by 20 % and a higher underwriting profit than in the previous year was achieved. Careful risk assessment by specialists provided a sound underwriting basis. However, due to its very nature, the business is subject to fluctuations and the portfolio is still unbalanced because of the, in part, very high covers.
The net business in force of the Swiss Re Group increased from Sw.frs. 35,885 million to Sw.frs. 39,285 million.
As a consequence of the conversion of Life reassurance treaties from co-insurance basis to risk premium basis, the premium income has tended to decline in recent years. The growth in the business in force achieved since then has eaused premiums to grow again. The premium growth in the year of report amounted to Sw.frs. 6.7 million and the gross premium income reached Sw.frs. 255.9 million.
Our loss experience in recent years coincides with the fact that the average life expectaney is at present improving only slightly and is even deteriorating in certain countries. In addition, the profitability of new business is generally decreasing. Again this year, the increase of the profit was lower than that of the business in force. As in previous years, the acquisition costs have been fully amortized.
Investments The income from investments increased again during the year under report, although the rate of growth was lower than in the previous year because the greater part of the profits from abroad were lessened by the revaluation of the Swiss franc.
After deduction of the deposit requirements with respect to retrocessionaires, the level of cash deposits with ceding companies remained almost constant (in previous year, slight decrease). On the other hand, the actual investments (cf. table on page 9) increased by Sw.frs. 168 million (pre­ vious year, Sw.frs. 73 million). Of the new investments, approximately 60 % were placed in shares and real estate and about 40 % in fixed-interest securities (previous year, approximately 50% in each). The proportion invested in real values seems so large because a considerable number of convertible bonds has been sold during the year under report and shares in the same companies bought in their place.
On the balance-sheet valuation date, the actual invest­ ments were distributed as follows: At Balance-sheet Values: Fixed-interest investments (including convertibles) 71.4 % (74.5 %)
Shares (excluding Permanent Holdings) 25.9 % (21.6 %) Real Estate (at balance-sheet values) 7.5 % ( 8.1 %) Shares and Real Estate 33.4 % (29.7 %)
Permanent Holdings 10 10 138 138 179 Net Cash Deposits with Insurance Companies
The revaluation of our account currency on 9th May, 1971 led to a certain reduction of income from Life reassurance and, especially, investments. The affects of the revaluation on the balance-sheet and profit and loss account of the year of report were not greater firstly because not only the value of the total assets abroad decreased but also the liabilities in foreign currencies were reduced to the same extent. Due to this simultaneous reduction in value of foreign income and outgo after conversion into Swiss francs, the pofit and loss account was only affected to the extent that certain foreign currency accounts did not ba­ lance out. However, it is one of the principles of our in­ vestment policy to use balances which are not technically tied in order to avoid as far as possible inadequate funds in countries with hard currencies and excessive fimds in other coimtries. — Through the revaluation of the Swiss franc the new situation arose whereby — from the balancesheet point of view — all other currencies were devalued. At the end of the year of report the book losses on ba­ lance-sheet credits in foreign currencies were almost equi­ valent to the book profits on corresponding balance-sheet debits. A small deficit was covered by subsequent foreign exchange profits on sales of exchange actually effected up to the time of the devaluation. Given normal profitability, and if no large investments are effected abroad, the sales of foreign exchange predominate at the Swiss Re. This is, of course, linked with the fact that about 96 % of our business is derived from abroad whilst the majority of management expenses and taxes as well as dividends have to be paid in Swiss francs.
Management Expenses In the year under review the management expenses in­ creased by Sw.frs. 4.2 million or about 11 % to Sw.frs. 41.8 million; however, the growth rate slowed down considerably compared with the 19 % increase in the pre­ vious year. In particular, the personnel costs have shown a smaller increase, the main reason for this being the relatively moderate growth of the number of personnel in the preceding year. Furthermore, the Swiss Re was relieved of management expenses to a certain extent by virtue of the fact that the percentage share of the Euro­ pean General in the joint management expenses increased substantially during the year of report because of the comparatively much greater increase of its premium in­ come (cf. page 27).
The terms of office of Mr. Max H. Schneebeli and Mr. Felix W. Schulthess have now expired by rotation. Both gentlemen stand for re-election and are immediately eligible under the Articles of Association.
On the day of this year's General Meeting, Mr. Walter Bechtler wishes to withdraw as substitute auditor. We thank him for offering his services in this office for more than a decade. The Board of Directors proposes Mr. Hans Karrer, Lawyer, Zurich, as the new substitute.
In view of the need to replace all technical installations in the main building which is now nearly sixty years old, the Board of Directors decided to have the interior com­ pletely renovated and air-conditioning installed. This should create for the whole staff modern working conditions with good protection from the increasing air pollution and noise, such as were created in the extension building, occupied two years ago. Work has been in progress since last spring and will last until about the end of 1973.
Proposal regarding the allocation of the net profit (cf. profit and loss account on page 14)
Balance brought forward from previous year Net profit for the year
Audit In accordance with Art. 723 of the Swiss Code of Obli­ gations the present Annual Statement has been examined and found correct by an independent auditor.
The actuarial auditor, Mr. H. Bühlmann, has moreover confirmed in his report that the technical reserves of the Life department at the end of 1970 were correctly cal­ culated on the basis approved by the Swiss Federal Council.
embracing the reinsurance business for the calendar year 1970 and the other income and expenditure for the period from the 1st July, 1970 to the 30th June, 1971
Outstanding Claims for Own Accoimt All classes excl. Life (incl. Valuation of Current Annuity Indemnities)
Acting upon our terms of reference, we have checked the Profit and Loss Account for the business year 1970/71 and the Balance Sheet as at 30th June, 1971, against the ac­ counts 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 accordance with the methods of valuation legally prescribed.
The capital structure of the individual Group companies remained unaltered during the year of report. The Swiss Reinsurance Company (U. K.) Ltd., London, founded in August 1969, concluded its first full business year.
At the beginning of 1971, the newly founded SwissRe Advisers Inc., New York, commenced its activities as in­ vestment advisory office to our American and Canadian companies.
The following tables give a general review of the deve­ lopment of the essential income components and of the consolidated net profit of the Swiss Re Group in the narr­ ower sense, i. e. of the companies which are fully owned. It should also be noted that the business years of the SwissRe Holding and its overseas subsidiaries correspond to the calendar year, whilst the European General, in line with Swiss Re, Zurich, closes its books as at 30th June.
Accident 297 269 192 167 133 % Sickness 124 167 135 121 100 Third Party Liability 203 181 150 141 126 1
Net Cash Deposits with Insurance Companies 1,392 1,385 1,376 1,263 1,277
Development of Investment Income (excluding income allocated to the underwriting sector to cover legally prescribed reserves)
Depreciation, Fluctuations in Stock Exchange and Foreign Currency Rates - 3.4 -27.2 - 3.9" 6.7 1.0 * excl. sale of holding in Mercantile and General Reinsurance Company Ltd., London
Interest from Parent Company 0.7 1.9 Dividends and Interest from Holdings 11.1 8.9 Outgo
Interest to Parent Company 3.3 Management Expenses 0.2 0.1 Depreciation, Fluctuations in Stock Exchange and Foreign Exchange Rates 2.6 4.0
North American Reinsurance Corporation, New York Share Capital US I 6,000,000 us$ us$
Underwriting Result * Investment Income Management Expenses Net Realized Capital Gains/Losses Taxes * adjusted for changes in commission equity Despite the burden of hurricane "Celia" a satisfactory result was again achieved, in particular thanks to the con­ siderable investment income on the technical reserves. The rapid growth of staff and the opening of new branch offices led to a further considerable rise in management expenses. Taxes increased in line with the improved po­ sition.—The dividend remained unchanged at US 1375,000.
North American Reassurance Company, New York Share Capital US $ 3,000,000 us$ us$
The gross Life business in force increased by US $ 506 million to US $ 4,600 million. The continued low mor­ tality together with the profits of the Accident and Sick­ ness branches again produced a favourable underwriting result. The tax burden rose accordingly. — Since, due to the transfer of the company to the SwissRe Holding, its withholding tax position had not been defined by the end of 1970, no dividend was paid in the second half-year; therefore the dividends paid amounted to only US $ 200,000 (previous year, US I 360,000).
Underwriting Result * Investment Income Management Expenses Net Realized Capital Gains/Losses Taxes
Partially due to portfolio assumptions, the gross premium income again showed a considerable increase. A heavier claims burden in the Accident/Liability branches led to a slightly lower, but still satisfactory result, after taking into account the investment income on technical reserves. The substantial increase in the investment income was achieved partly through a restructuring of the security portfolio which, in turn, involved certain capital losses. — The dividend remained unchanged at Can. | 187,500.
The gross Life business in force rose by Can. $ 112 million to Can. $ 1,028 million. High acquisition costs lessened the, in itself, good underwriting result. A restructuring of the security portfolio with a view to improving its profita­ bility, led to the incurrence of capital losses. — The di­ vidend remained unchanged at Can. $ 50,000.
A substantial growth in the gross premium income was again achieved. Catastrophic earthquake and flood losses as well as large industrial fires adversely affected the underwriting result in non-Life reinsurance. Life reas­ surance again produced a satisfactory result. If the non­ recurring gains in the previous year are excluded, the in­ vestment income grew by Rand 38,000. — In view of the deficit shown, no dividend was paid.
Above all due to the more selective underwriting policy, the gross premiums did not increase at the same rate as in the previous year. Non-Life reinsurance produced a slight loss, chiefly under the influence of the Fire and Liability Lines. The development of Life reassurance was again satisfactory. — From the net profit a first instalment of A I 100,000 of the initial financing funds was repaid to the parent company.
Underwriting Result 91,000 2,000 Investment Income 148,000 35,000 Management Expenses - 54,000 - 25,000 Taxes - 75,000 - 6,000
Sw. frs. Sw.frs. : Gross Premiums 327,467,000 267,148,000 Net Premiums 229,631,000 209,082,000
The assumption of reinsurance from the Swiss Reinsurance Company (U. K.) Ltd. contributed fundamentally to the substantial increase in the gross premiums. The deterio­ ration of the underwriting result was caused solely by non-Life reinsurance, in fact by the Motor and General Third Party Liability lines. The development of Life re­ assurance was again satisfactory. — The dividend remained unchanged at Sw.frs. 1,500,000.
"North American Reinsurance Corporation 245 Park Avenue, New York, N.Y. 10017 with Offices in Atlanta, Chicago, Houston, Los Angeles and San Francisco
Canadian Reassurance Company 95 St. Clair Avenue West, Toronto 195, Ontario with an Office in Montreal
Australian Reinsurance Company Ltd. Embank House, 325 Collins Street, Melbourne, Vic. 3000 with Offices in Sydney and Hong Kong