The Business Report appears separately. See Annual Report 2003 – Business Report.
Amortisation of goodwill 4 –350 –315 Other operating costs and expenses –3 240 –2 942 Total expenses –34 379 –34 094
Income before income tax expense 36 2 336 Income tax expense 10 –127 –634
Short-term investments, at amortised cost, which approximates fair value 3 356 7 339
Premiums and other receivables 12 397 11 651 Reinsurance recoverable on unpaid claims and policy benefits 15 6 443 6 657 Funds held by ceding companies 18 266 19 870
Acquired present value of future profits 5 6 668 5 952
Common paid-in gains/losses, currency Retained for own CHF millions stock capital net of tax translation earnings shares Total
Net income/loss –91 –91 Change in unrealised gains/losses on securities, net (note 2) –2 974 –2 974 Change in foreign currency translation –2 201 –2 201 Dividends –776 –776 Change in own shares (note 9) 81 –81 Equity issued 212 212 Additional minimum liability, net (note 11) –82 –82
Net income/loss –91 1 702 Other comprehensive income: Change in foreign currency translation –2 201 –513 Change in unrealised gains/losses, net of tax –2 974 1 116 Additional minimum liability, net –82 –22
Cash flows provided/used by financing activities Issuance of long-term debt 214 135 Issuance/repayment of other debt –290 –1 017 Equity issued 212 Capital repayment –148 Dividends paid –776 –310 Net cash provided/used by financing activities –640 –1 340
Equity investments AFS are carried at fair value, based on quoted market prices, with the difference between original cost and fair value included in shareholders’ equity. The cost of equity securities is reduced to fair value, with a corresponding charge to net realised investment gains/losses for declines in value that are other than temporary.
Interest on fixed income securities is recorded as income when earned and is adjusted for the amortisation of any purchase premium or discount. Dividends on equity securities are recorded on the basis of the ex-dividend date. Realised gains and losses on sales are included in the income statement and are calculated using the specific identification method.
Investment in real estate that the Group intends to hold for the production of income is carried at depreciated cost, net of any write-down for impairment in value. An impairment in value is recognised if the estimated future undiscounted cash flows from the use of the real estate asset are less than its carrying value. Impairments in value, depreciation and other related charges or credits are included in net investment income. Investment in real estate held for sale is carried at the lower of cost or fair value, less estimated selling costs, and is not depreciated. Reductions in the carrying value of real estate held for sale are included in net realised investment gains/losses.
The Group enters into security lending arrangements under which it loans certain securities in exchange for collateral and receives security lending fees. The Group’s policy is to require collateral, consisting of cash or securities, equal to at least 102% of the carrying value of the securities loaned. In certain arrangements, the Group may accept collateral of less than102%, if the structure of the overall transaction offers an equivalent level of security. Cash received as collateral is recognised along with an obligation to return the cash. Securities received as collateral that can be sold or repledged are also recognised along with an obligation to return those securities. Security lending fees are recognised over the term of the related loans.
Acquisition costs, which vary with, and are primarily related to, the production of new business, are deferred to the extent they are deemed recoverable from future gross profits. Deferred acquisition costs consist principally of commissions. Deferred acquisition costs associated with property and casualty reinsurance business are amortised in proportion to the property and casualty premiums earned. Future investment income is considered in determining the recoverability of deferred acquisition costs on property and casualty business. Deferred acquisition costs associated with life and health reinsurance business are amortised over the premium-paying period. For investment-type contracts, deferred acquisition costs are amortised in relation to the present value of estimated gross profits.
Liabilities for life and health policy benefits that generate offsetting foreign exchange and interest rate risks. Long-term debt that is strictly used for funded business is classified as operational debt. Operational debt is generally excluded from financial leverage calculations. “Financial services assets and liabilities“ are valued according to the relevant principles for the underlying instruments.
External direct costs of materials and services incurred to develop or obtain internal use software, payroll and payroll-related costs for employees who are directly associated with software development and interest cost incurred while developing internal use software are capitalised and amortised on a straight-line basis over a period of three years through the income statement.
Liabilities for unpaid claims and claim adjustment expenses for property and casualty reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims, using reports and individual case estimates received from ceding companies. A provision is also included for claims incurred but not reported, which is developed on the basis of past experience adjusted for current trends and other factors that modify past experience. The establishment of the appropriate level of reserves is an inherently uncertain process involving estimates and judgements made by management, and therefore there can be no assurance that ultimate claims and claim adjustment expenses will not exceed the loss reserves currently established. These estimates are regularly reviewed, and adjustments for differences between estimates and actual payments for claims and for changes in estimates are reflected in income in the period in which the estimates are changed or payments are made.
Reserves prescribed by local regulatory authorities for future claim fluctuations and for large and catastrophic losses are established and included in the unpaid claims and claim adjustment expenses liabilities.
Reinsurance ceded time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. The assumptions are based on projections from past experience, making allowance for possible adverse deviation. Interest assumptions for life and health reinsurance benefits liabilities range from 2.25% to 14%. Assumed mortality rates are generally based on experience multiples applied to the actuarial select and ultimate tables commonly used in the industry. Withdrawal assumptions for individual life reinsurance contracts issued by the Group range from 1% to 20% and are based on historical experience. Liabilities for investment-type contracts, including separate account (unit-linked) life reinsurance business, are based either on the contract account balance, if future benefit payments in excess of the account balance are not guaranteed, or on the present value of future benefit payments, if such payments are guaranteed. Liabilities for policy benefits are increased if it is determined that future cash flows, including investment income, are insufficient to cover future benefits and expenses. The liability for accident and health policy benefits consists of active life reserves and the estimated present value of the remaining ultimate net costs of incurred claims. The active life reserves include unearned premiums and additional reserves. The additional reserves are computed on the net level premium method using assumptions for future investment yield, mortality and morbidity experience. The assumptions are based on projections of past experience and include provisions for possible adverse deviation.
The Group uses retrocession arrangements to diversify its risk and to reduce the risk of catastrophic loss on reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Group of its obligations to its ceding companies. The Group regularly evaluates the financial condition of its retrocessionaires and monitors the concentration of credit risk to minimise its exposure to financial loss from retrocessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are reported as reductions of premiums earned and claims and claim adjustment expenses. Amounts recoverable for ceded claims and claim adjustment expenses and ceded unearned premiums under these retrocession agreements are reported as assets in the accompanying consolidated balance sheet.
Contracts which do not meet risk transfer requirements, defined as transferring a reasonable possibility of a significant loss to the reinsurer, are accounted for as deposit arrangements. Deposit amounts are adjusted for payments received and made, as well as for amortisation or accretion of interest. The Group provides reserves for uncollectible
Financial services assets and liabilities amounts on reinsurance balances ceded and assumed, based on management’s assessment of the collectibility of the outstanding balances.
At 31 December 2003 the Group had a fixed option plan and an employee participation plan. These stock-based employee compensation plans, which are described in more detail in note 12, are accounted for using the intrinsic value method. In accordance with the intrinsic value method, the fair value of options is not reflected in net income. The pro-forma impact on net income is given in note 12.
Assets and liabilities denominated in foreign currencies are translated at the rates of exchange on the balance sheet date. Revenues and expenses are translated at average exchange rates. Unrealised gains and losses resulting from translation of functional currencies to the reporting currency are included as a separate component of shareholders ’ equity. Realised currency gains and losses resulting from foreign currency transactions are included in income.
In 2003 the Group adopted an additional income statement line item for the trading revenues generated principally by the Capital Management and Advisory business sector in the Financial Services Business Group. Trading revenues include realised gains and losses, unrealised gains and losses and other income from trading activities, net of associated funding costs. The 2002 trading revenues have been reclassified from net realised investment gains/losses and net investment income.
The Group is currently evaluating the impact of recent international guidance on accounting for derivatives. The guidance clarifies the scope of embedded derivatives in certain reinsurance agreements including modified coinsurance arrangements. The complexity of the requirements and arrangements involved require detailed analysis to determine whether embedded derivative instruments should be accounted for separately. The Group is in the process of performing the analysis and has not included the results in this year’s financial statements. As areas were identified where the scope of the guidance overlaps with the scope of the guidance on variable interest entities, the Group will include the results in the 2004 financial statements. The two sets of guidance will be implemented in parallel.
As of 1 January 2003, the Group adopted new accounting guidance for recognition and measurement of certain guarantees. A liability for the fair value of the obligation assumed under these guarantees is recognised in the balance sheet for guarantees issued or modified after 31 December 2002. The Group has certain derivatives with similar characteristics to guarantees. The derivatives are included in the disclosure on derivative financial instruments.
The Group applied the guidance issued in January 2003 to all VIEs created after 31 January 2003 in the 2003 interim financial statements. The revised guidance has also been applied to these VIEs in the 2003 annual financial statements.
The Group is in the process of analysing the impact of the revised guidance on VIEs created or acquired before 31 January 2003 and will apply the revised guidance to these VIEs in the 2004 financial statements.
Net investment income by source was as follows: CHF millions 2002 2003
Dividends received from investees accounted for using the equity method were CHF 198 million and CHF 50 million in 2002 and 2003, respectively.
Net realised gains on other investments 1 060 –579 Value readjustments 205 285
Realised gains and losses include the change in market value of trading fixed income securities and of derivative financial instruments except for those classified as cash flow hedges.
Debt securities issued by governments and government agencies: Mortgage and asset-backed securities 7 277 277 –17 7 537 Fixed income securities available-for-sale 59 282 2 431 –199 61 514 Equity securities available-for-sale 13 080 539 –1 360 12 259
The Group has reclassified amounts in 2002 related to mortgage and asset-backed securities to debt securities issued by United States government and government agencies. The reclassification has no impact on the total fixed income securities available -for-sale.
As of 31 December 2002 and 2003, fixed income securities available-for-sale with a carrying value of CHF 4 422 million and of CHF 6 183 million, respectively, were lent to third parties that have the right to sell or repledge the borrowed securities. In addition, as of 31 December 2002 and 2003, fixed income securities available-for-sale with a carrying value of CHF 159 million and CHF 243 million, respectively, were lent to third parties that do not have the right to sell or repledge the borrowed securities.
The following table shows the fair value and unrealised losses of the Group’s fixed income securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealised loss position, as of 31 December 2003. A continuous decline in the value of equity securities available-for-sale for longer than twelve months is considered other-than-temporary and recognised as net realised investment gains/losses in the income statement. Therefore, the gross unrealised loss on equity securities available-for-sale of CHF 144 million shown in the above table relates to declines in value for less than 12 months.
Debt securities issued by governments and government agencies 27 961 695 111 28 072 695
As of 31 December 2003 CHF millions USD EUR GBP CAD CHF Other Total
As of 31 December 2002 and 2003, investments with a carrying value of approximately CHF 6 945 million and CHF 5 862 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities.
As of 31 December 2002 and 2003, investments in mortgages and other loans, real estate and investment for separate account business comprised the following: As of 31 December 2002 2003 CHF millions Carrying value Fair value Carrying value Fair value
As of 31 December 2002 and 2003, investments in real estate included CHF 37 million and CHF 29 million, respectively, of real estate held for sale.
Substantially all mortgages and other loans receivable are secured by buildings, land or the underlying policies. The ultimate collectibility of the receivables is evaluated regularly and an appropriate allowance for uncollectible amounts is established.
Effect of foreign currency translation –69 –146 19 10 Depreciation –30 –31 Additions/sales/interest in equity –231 –1 182 88 –136 Unrealised gains/losses 23 –17 Realised gains/losses 270 169 27 –12
Cash and cash equivalents include short-term deposits with a carrying value of CHF 1334 million and CHF 2 404 million as of 31 December 2002 and 2003, respectively.
The maximum potential loss assuming non-performance by all counterparties, and based on the market replacement cost at 31 December 2002 and 2003, approximated CHF 1533 million and CHF 1933 million, respectively. These values are net of amounts offset pursuant to rights of set-off and qualifying master netting arrangements with various counterparties.
The contractual or notional amounts reported under Credit derivatives include portfolio credit default swap structures and corresponding credit default swaps transacted to hedge certain credit exposure within these structures (2002: 67%, 2003: 41%). The swaps were underwritten by the Credit Solutions business sector of the Financial Services Business Group. Within these structures, the Group continues to maintain over 85% of the notional exposure assigned to the “Super-Senior” category.
The notional amount and the fair value of derivatives outstanding at 31 December 2002 and 2003 are as follows: Contract/ Carrying As of 31 December 2002 notional Positive Negative value assets/ CHF millions amount fair value fair value liabilities
Contract/ Carrying As of 31 December 2003 notional Positive Negative value assets/ CHF millions amount fair value fair value liabilities
As of 11 August 2003, the Group increased its equity-accounted participation in the credit insurer Gerling NCM Credit and Finance AG, which has been renamed Atradius, from 25% to 47.5%. In addition, Sociedad Unipersonal (SCO) purchased an option from Swiss Re to acquire an additional 7.94% of the shareholding in Atradius for EUR 52 million. Under this agreement, SCO took over part of Swiss Re’s commitment to purchase subordinated notes from Atradius.
During the years ended 31 December 2002 and 2003, goodwill of CHF 350 million and CHF 315 million, respectively, was amortised.
The Group systematically amortises goodwill over periods up to 20 years depending on specific factors. The amount charged in any one year can vary due to foreign exchange and other factors. Despite this, goodwill is amortised within the originally determined periods.
5. Deferred acquisition costs (DAC) and acquired present value of future profits (PVFP)
The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines long-term debt as debt having a maturity at the balance sheet date of greater than one year. The Group’s long-term debt as of 31 December 2003 was as follows: Senior debt Book value
Nominal Interest in CHF Maturity Instrument Issued in Currency in millions rate millions 2005 EMTN (Floating Rate Bond) 2003 JPY 20 000 3M Libor 231 +3bp 2005 EMTN (Floating Rate Bond) 2003 JPY 10 000 3M Libor 115 +5bp 2005 EMTN (Floating Rate Bond) 2003 CHF 100 3M Libor 100 2005 EMTN (Floating Rate Bond) 2003 USD 100 3M Libor 124
+3bp 2006 EMTN (Floating Rate Bond) 2003 CHF 50 3M Libor 50
Various Payment Undertaking Agreements 2000 USD 172 Various 245 Various Payment Undertaking Agreements 2001 USD 95 Various 135 Various Payment Undertaking Agreements 2002 USD 441 Various 608 Various Payment Undertaking Agreements 2003 USD 166 Various 212 Total senior debt as of 31 December 2003 4 695 Total senior debt as of 31 December 2002 3 921 1 Assumed in the acquisition of Underwriters Re Group 2 Assumed in the acquisition of Life Re Corporation
+45bp – Subordinated Perpetual Loan 1999 EUR 250 6M Euribor 2006 390
Interest expense on long-term debt Interest expense on long-term debt for the years ended 31 December 2002 and 2003, respectively, was as follows: CHF millions 2002 2003
In 2002, the Group issued under the EMTN programme index-linked notes. In June 2002, EUR 10 million was issued with an index-linked coupon, maturing in 2009.
At 31 December 2002, the Group reclassified USD 200 million and USD 70 million of insurance-linked placements.
In April 2003, the EUR 24 million note, issued in 2002 under the EMTN programme, was repaid prior to maturity.
As of 30 June 2003, the Group consolidated a securitisation vehicle that had placed with institutional investors, in the first half of 2003, catastrophe-linked notes totalling USD 419 million. As of 31 December 2003, the Group is no longer considered the primary beneficiary of the vehicle under the revised guidance on variable interest entities (see notes 1 and 16). As a result, the catastrophe-linked notes were derecognised as of 31 December 2003.
The Group issued a further USD 11 million of insurance-linked securities relating to two catastrophe bond securitisations.
Claims incurred –1 88 Claims paid –213 –327 Effect of foreign currency translation –436 –204 Effect of acquisitions 11
The Group has revised the allocation of expenses to employee benefits. The equivalent 2002 employee benefits would have been CHF 287 million.
Basic earnings/losses per share Income/loss available to common shares –91 1 702 Weighted average common shares outstanding 310 335 772 310 379 068 Net income/loss per share in CHF –0.29 5.48
Diluted earnings/losses per share Income/loss available to common shares assuming debt conversion and exercise of options –91 1 735 Weighted average common shares outstanding 310 335 772 319 776 487 Net income/loss per share in CHF –0.29 5.43
The effects of debt conversion have not been included in the 2002 losses per share. The effect of converting the debt to 9 236 800 shares was anti-dilutive. In addition, 319 766 employee options have not been included in the 2002 losses per share as they were anti-dilutive.
Own shares held as of 1 January at cost 1 311 772 218
Realised losses –33 Own shares held as of 31 December at cost 1 280 875 110 Own shares held as of 31 December at market value 1 280 875 107
Unrealised losses on investments 698 428 Benefit on loss carryforwards 1 725 2 163
Gross deferred tax assets 5 562 4 501 Valuation allowance –434 –1 052
As of 31 December 2003, the Group had CHF 2 215 million of domestic and CHF 4 941 million foreign net operating tax loss carryforwards, expiring as follows: CHF 325 million in 2007, CHF 398 million in 2008 and CHF 6 433 million after 2008. The Group also had capital loss carryforwards of CHF 459 million, expiring as follows: CHF 2 million in 2004, CHF 2 million in 2005, CHF 2 million in 2006 and CHF 453 million after 2008.
The Group has revised the treatment of the foreign currency impacts in deferred taxes and certain of the allocations between the components in 2003. The 2002 deferred tax assets, on a comparable basis, were CHF 5 065 million and the deferred tax liabilities were CHF 6 145 million. The main component impacted is the deferred tax liability on technical provisions, which was CHF 1000 million on a comparable basis. The revision to foreign currency impacts the foreign currency translation adjustment in shareholders’ equity.
The Group sponsors various funded defined benefit pension plans covering the majority of its worldwide operations. Employer contributions to the plans are charged to income on a basis which recognises the costs of pensions over the expected service lives of employees covered by the plans. The Group’s funding policy for these plans is to contribute annually at a rate that is intended to maintain a level percentage of compensation for the employees covered. A full valuation is prepared at least every three years.
Fair value of plan assets as of 1 January 2 843 2 610 Actual return on plan assets –283 281
Unrecognised prior service cost 48 43 –56 –52 Unrecognised transition obligation/asset –62 –37 Additional minimum liability, gross –106 –129 Net amount recognised 166 233 –491 –519
Components of net periodic benefit cost Service cost (net of participant contributions) 138 141 40 36
Expected return on assets –174 –170 Amortisation of: Net gain/loss –6 4 2 3 Prior service cost 4 6 –5 –5 Transition obligation/asset –25 –25
Effect of settlement, curtailment and termination –2 –3 –4 Net periodic benefit cost 68 91 56 58
Expected return on plan assets in % 5.8 5.6 Rate of compensation increase in % 3.0 3.1 Medical trend – initial rate in % 7.4 7.2 Medical trend – ultimate rate in % 4.5 4.5
Assumed health-care cost trend rates have a significant effect on the amounts reported for the health-care plans. A one percentage point change in assumed health-care cost trend rates would have had the following effects for 2003: 1percentage 1percentage CHF millions point increase point decrease
Effect on total of service and interest cost components 14 –11 Effect on post-retirement benefit obligation 97 –74
The Group sponsors a number of defined contribution plans to which employees and the Group make contributions. The accumulated balances are paid as a lump sum at the earlier of retirement, termination, disability or death. The amount expensed in 2002 and in 2003 was CHF 20 million and CHF 22 million, respectively.
As of 31 December 2002 and 2003, the Group had the stock-based compensation plans described below.
The following table summarises the status of fixed stock options outstanding as of 31 December 2003: Range of Weighted average Weighted average exercise remaining contrac- exercise price in CHF Number of options tual life in years price in CHF
Net income/loss, as reported –91 1 702 Less: total stock-based employee compensation expenses determined under the fair value method, net of related tax effects –37 –37 Pro-forma net income/loss –128 1 665 Earnings/losses per share
Basic – as reported –0.29 5.48 Basic – pro-forma –0.41 5.36 Diluted – as reported –0.29 5.43 Diluted – pro-forma –0.41 5.31
Notes to the Group financial statements 12. Stock compensation plans (continued)
In 2002 and 2003, 361758 and 1381951 options, respectively, were issued to employees and the Group contributed CHF14 million and CHF14 million, respectively, to the plan.
As of 31 December 2002 and 2003, the Group had outstanding guarantees of CHF 4 994 million and CHF 11696 million, respectively.
As a participant in limited investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnerships for periods of up to 10 years. The total commitments remaining uncalled as of 31 December 2002 and 2003 were CHF 1104 million and CHF 835 million, respectively.
The Group had four guarantees as of 31 December 2002 and 2003, which primarily indemnify the purchasers of former Group entities for possible run-off losses or claims for pending litigation.
Following the 11 September terrorist attack, the Group initiated litigation against the lessees, its lenders and the Port Authority of New York and New Jersey, in the United States District Court for the Southern District of New York to obtain a judicial declaration of its rights and obligations with respect to all parties in interest. That action is captioned SR International Business Insurance Ltd. v. World Trade Center Properties, LLC, Case No. 01 CV 9291 (JSM). The defendants have filed counter-claims and joined other insurers to the lawsuit.
The Group acts as manager for certain pooled funds that operate similarly to mutual funds. As of 31 December 2002 and 2003, net third-party assets under management at market value were CHF 54 084 million and CHF 57 546 million, respectively.
a) Business group results 2002 Property & Life & Financial Corporate ReconciliCHF millions Casualty Health Services Centre Other ation Total
Amortisation of goodwill –350 –350 Other operating costs and expenses –740 –741 –1 008 –437 –594 280 –3 240 2003 Property & Life & Financial Corporate ReconciliCHF millions Casualty Health Services Centre Other ation Total
Amortisation of goodwill –315 –315 Other operating costs and expenses –699 –587 –926 –403 –504 177 –2 942
Premiums, claims and claim adjustment expenses and acquisition costs are reported net of retrocession in the Group’s income statement. Gross, retroceded and net amounts for these items were as follows: 2002 Property & Life & Financial CHF millions Casualty Health Services Total
Acquisition costs Acquisition costs, gross –3 913 –2 808 –623 –7 344
Unpaid claims and claim adjustment expenses, liabilities for life and health policy benefits and unearned premiums are reported gross in the Group’s balance sheet. Gross and retroceded amounts for these and other items were as follows: 2002 Property & Life & Financial CHF millions Casualty Health Services Total
Reinsurance recoverable on paid and unpaid claims 2 729 1 057 554 4 340 Reinsurance recoverable on life and health policy benefits 2 317 2 317
e) Life & Health Business Group – by line of business
Expenses Claims and claim adjustment expenses; life and health benefits –7 225 –1 860 –9 085 Acquisition costs –1 924 –555 –2 479 Other operating costs and expenses –455 –132 –587
Operating result, excluding net realised investment gains 1 099 64 1 163
Management expense ratio in % 4.3 5.1 4.4 Return on operating revenues in % 10.3 2.5 8.7
The Capital Management and Advisory business sector provides marketing services to the Credit Solutions and Risk Solutions business sectors. Capital Management and Advisory fees and commissions include the fees charged. The Asset Management business sector provides investment management services to other business sectors. These management services fees are included in net investment income.
The Group has allocated the investment return on certain proprietary assets from Asset Management to the other business groups and business sectors as described in note 15a).
Switzerland Diax Holding 9 37.26 e European Reinsurance Company of Zurich 312 100 f Swiss Re Asset Management (Switzerland) AG 15 100 f Swiss Re Partnership Holding AG 0 100 f Xenum Finance AG 1 42.5 e
Germany Swiss Re Germany AG 70 100 f Swiss Re Germany Holding AG 78 100 f
Luxembourg Special Risk Insurance and Reinsurance Luxembourg SA 117 18.18* e Swiss Re Management (Luxembourg) SA 12 100 f Swiss Re Treasury (Luxembourg) SA 12 100 f
Calam CV 0 100 f Pension Factory NV 2 80 f Swiss Re Life & Health Nederland NV 5 100 f Swiss Re Nederland Holding BV 1 100 f
Notes to the Group financial statements 16. Subsidiaries, equity investees and variable interest entities (continued)
Method of consolidation: f full e equity * Joint venture from accounting perspective
Cayman Islands Ampersand Investments (UK) Ltd 1 328 100 f Argonaut Ltd 0 100 f Dunstanburgh Finance (Cayman) Ltd 0 100 f Swiss Re Funding (UK) Ltd 0 100 f Swiss Re Strategic Investments (UK) Ltd 0 100 f
Swiss Re Asset Management (Australia) Ltd 0 100 f Swiss Re Australia Ltd 19 100 f Swiss Re Life & Health Australia Ltd 1 100 f The Mercantile and General Reinsurance
Variable interest entities In January 2003, new international guidance was issued on the consolidation of variable interest entities (“VIEs”). This guidance was subsequently revised and replaced in December 2003. The Group has applied the revised guidance to VIEs created or acquired after 31 January 2003, and has consolidated, as of 31 December 2003, those VIEs of which it is the primary beneficiary.
The Group is in the process of analysing the impact of the revised guidance on VIEs created or acquired before 31 January 2003, and will consolidate those VIEs of which it is the primary beneficiary in the 2004 financial statements.
Variable interests in VIEs created or acquired after 31 January 2003
The insurance-linked securitisations transfer pre-existing insurance risk to the capital markets through the issuance of insurance-linked securities. The securitisation vehicle generally retains the issuance proceeds as collateral. The variable interests arise through ownership of insurance-linked securities or through protection provided for the value of the collateral held. The Group’s maximum exposure to loss in the insurance-linked securitisations equals the higher of the carrying amount of the collateral protected or the carrying amount of the insurance-linked securities held. The collateral held usually consists of investment grade securities.
As of 31 December 2003, the total assets of VIEs, created or acquired after 31 January 2003, of which the Group is the primary beneficiary, amounted to CHF 126 million.
Variable interests in VIEs created or acquired before 31 January 2003
It is reasonably possible that the Group will be considered to be, as of 1 January 2004, the primary beneficiary of certain VIEs created or acquired before 31 January 2003. As of 31 December 2003, the total assets and estimated maximum exposure to loss of these VIEs amounted to CHF 4 894 million and CHF 230 million, respectively. Under applicable existing guidance, the Group has recognised CHF 4 256 million of these total assets, arising mainly from a modified coinsurance agreement.
Increase in provision 62 62 Costs incurred –6 –5 –41 –52 Effect of foreign currency translation –3 –6 –9
The following commentary on the 2003 financial year of the parent company therefore complements the review of the financial year of the Swiss Re Group.
The business year was characterised by a good technical result. The reinsurance market either remained stable or improved in all regions and lines of business and the upturn in securities markets had a positive impact on the investment result. After-tax profit for the financial year based on the Swiss legal accounting regulations amounted to CHF 1190 million, compared to CHF 106 million in the previous year.
Net premiums written increased by 10.45% to CHF 17397 million. Growth was equally from the property and casualty and life and health businesses. The net result from the technical and the deposit account improved by CHF 3 041 million to a profit of CHF 1537 million for the year.
The investment result increased by CHF 872 million to a profit of CHF 139 million. Investment income, consisting of current income and realised gains, increased by CHF 717 million to CHF 3 861 million. Investment expenses decreased by CHF 236 million to CHF 3 036 million, due to reduced depreciation as a result of the favourable market conditions.
Liabilities 4 Liabilities from technical and deposit account 36 637 42 809 Other provisions 748 873
Shareholders’ equity 5 Share capital 32 32 Reserve for own shares 137 110 Other legal reserves 650 650
The following assets are stated at cost, less necessary and legally permissible depreciation: – Investment real estate/own-use property (purchase or construction cost) – Investments in subsidiaries and affiliated companies – Equity securities and fixed income securities – Derivative financial instruments
The technical provisions are valued in accordance with the following principles: Premiums written relating to future periods are stated as unearned premium reserves and are normally calculated by statistical methods. The accrual of commissions is determined correspondingly and is reported in the item “Other assets from technical account”.
Future policy reserves are determined on the basis of actuarially calculated present values taking experience into account.
Cash deposits withheld from retrocession as well as debt and other liabilities are stated at redemption value. The liabilities from derivative financial instruments are valued using the same principles applied for the derivative financial instruments included under investments.
All items denominated in foreign currencies are translated into Swiss francs. Balance sheet figures are translated at the currency exchange rates applicable on the balance sheet date and, in the income statement, figures are stated at average exchange rates of the year under report.
The currency exchange rates applicable for key currencies are shown on page 14.
Change in provisions for claims outstanding –6 091 406 –5 685 –3 139 –284 –3 423
Other technical income and expenses 19 –53 –34 74 6 80 Result from cash deposits 457 –13 444 508 –6 502
Result from technical and deposit account1 –1 504 1 537 1 2002 including transition impact of CHF –40 million
Income from investment real estate 98 95 Income from subsidiaries and affiliated companies 614 1 192 Income from equity securities 139 161 Income from fixed income securities, mortgages and loans 354 408 Income from short-term investments 27 33 Income from investment services 1 8 Realised gains on sale of investments 1 911 1 964
Allocated investment return –605 –686 Investment result2 –733 139 2 2002 including transition impact of CHF –163 million 3. Other income and expenses
Other expenses –856 –198 Total other income and expenses 2 467 –103
Shareholders’ equity on 31 December after allocation of profit 9 977 10 826 1 Board of Directors’ proposal to the Annual General Meeting of 14 May 2004
From other allocations 299 299 Shareholders’ equity on 31 December after allocation of profit 9 977 10 826
Contingent liabilities, mainly towards Group companies, amounted on 31 December 2003 to CHF 2 450 million (2002: CHF 3 181 million). In addition, there were 28 unlimited guarantees; 24 of these are for obligations of Group companies. No payments are expected under these guarantees.
To secure the technical provisions on the 2003 balance sheet date, securities in the amount of CHF 5 905 million were deposited in favour of ceding companies (2002: CHF 4752 million).
The insurance value of tangible assets, comprising the real estate portfolio and other tangible assets, amounted on 31 December 2003 to CHF 2 596 million (2002: CHF 2 554 million).
The current account obligations towards employee pension funds amounted to CHF 23 million on the 2003 balance sheet date (2002: CHF 220 million).
Details on the Swiss Re Group’s subsidiaries are to be found on pages 48 to 53.
This item contains provisions for taxation in the amount of CHF 344 million (2002: CHF 81 million) and other provisions totalling CHF 529 million (2002: CHF 667 million). Other provisions include a provision for currency fluctuations of CHF 268 million (2002: CHF 450 million).
These items contain long-term liabilities in the amount of CHF 3127 million (2002: CHF 3 838 million) which include subordinated liabilities of CHF 1968 million (2002: CHF 1893 million), and short-term liabilities amounting to CHF 2 231 million (2002: CHF 1594 million).
As of 31 December 2003, there were two shareholders with a participation exceeding the 5% threshold of Swiss Re's share capital. As these shares have mostly not been registered under their name, Swiss Re is unable to track, on its own, changes in their holdings.
Swiss Reinsurance Company, Zurich, employed a staff of 2 959 on the balance sheet date (2002: 2 941). Personnel expenses for the 2003 financial year amounted to CHF 865 million (2002: CHF 870 million).
The Annual General Meeting to be held in Zurich on 14 May 2004 has at its disposal the following profit: in CHF 2002 2003
The Board of Directors proposes to the Annual General Meeting to allocate this profit as follows: in CHF 2002 2003
If the Board of Directors’ proposal for allocation of profit is accepted, a dividend of CHF 1.10 per share will be paid.
In our opinion, the accounting records and financial statements and the proposed appropriation of available earnings comply with Swiss law and the company’s Articles of Association.
Expenses Claims and claim adjustment expenses –8 057 –8 514 –9 333 –12 153 –16 266 –14 485 –14 898
Amortisation of goodwill –75 –91 –211 –310 –368 –350 –315 Other operating costs and expenses –1 940 –2 698 –2 785 –3 074 –3 384 –3 240 –2 942
Income/loss before income tax expense 2 257 2 808 3 229 3 655 –104 36 2 336 Income tax expense –480 –647 –783 –689 –61 –127 –634 Net income/loss on ordinary activities 1 777 2 161 2 446 2 966 –165 –91 1 702 Extraordinary income 450 Extraordinary charges –450
Earnings/losses per share in CHF 5.90* 7.35* 8.55* 10.39* –0.57 –0.29 5.48 *Adjusted by 20-for-1share split
Natural catastrophes Josef Breitsameter, natural scientist and expert on flood risk assessment in Munich, outlines the benefits of a new flood risk assessment tool recently developed for the Czech market.
Insurance-linked securities Judith Klugman in New York and Masaaki Katsuyama in Tokyo, both advisory experts on insurance related financial solutions, explain how insurance-linked securities are used to manage peak risks.
Sustainability Jürg Busenhart, lawyer and underwriting expert on environmental liability insurance in Zurich, offers insight into the insurability of ecological damage in the European Union.
Return on equity (in %) –0.5 10.2 1 Subject to approval at the Annual General Meeting of 14 May 2004
■ Life & Health Business Group: attractive result; first European Admin ReSM transaction completed
For detailed information on the financial statements and notes, please see Annual Report 2003 – Financial Statements.
Improved operating performance was supported by a higher return on investment of 5.1%. Against the background of historically low interest rates across major financial markets and asset impairment charges, this was a very satisfactory result. Swiss Re chose to lower its risk profile in asset management by further reducing equity holdings during the year.
With regard to major operating activities, our Property & Casualty Business Group exceeded targets both in growth and margin as market conditions in this sector further improved. Helped by its strong balance sheet, Swiss Re continued to gain market share, achieving premium growth in original currencies of 25% (16% in Swiss francs). More importantly, improved prices and disciplined underwriting are being translated into significantly higher earnings. Swiss Re achieved a combined ratio of 98.4%, better than our target of 100% for 2003.
All parts of the Financial Services Business Group performed well, producing an operating income of CHF 558 million. The premium business, comprising corporate risk underwriting, credit, and aviation, took advantage of favourable market conditions and recorded growth of 14% (25% in original currencies). In addition, revenue from fees increased by 26% (42% in original currencies) as our Capital Management and Advisory business sector emerged from its start-up phase. We are especially pleased with the leading position we have established in insurance securitisation, which has enhanced capital management opportunities for Swiss Re and our clients.
We have expanded our knowledge networks within the Group and encourage debate with interested parties in industry and academia, often through our Centre for Global
Dialogue in Rüschlikon. As illustrated by the photographs in this Annual Report, Swiss Re researches a broad canvas of risk related topics. We shall continue to share and foster our expertise in identifying business opportunities and attracting talented people to
Swiss Re will actively support our clients’ efforts to reach fair settlements with their claimants. In particular, and in the hope of bringing finality to the issue, we endorse measures now underway in the US to find an industry-wide solution to asbestos litigation, based on scales of compensation proportionate to the health impairment and fair apportionment of financial cost between industry and insurers.
A major review of the regulatory environment for the insurance and reinsurance industries by government bodies is now reaching an important phase. Swiss Re welcomes well considered and appropriate regulation and conducts an active dialogue with regulatory authorities and industry organisations. Europe has gained a leadership position in the specialist field of reinsurance in part due to the strong risk management traditions within the leading companies. We encourage the use of modern risk management techniques as the basis of future regulation.
We have engaged in a thorough review of our life and health pricing models in the US, prompted by changed economic factors, such as low interest rates. While we expect in the short term our share of new life reinsurance business to be reduced, our clients’
reactions are encouraging and longer term we expect to regain market share. Our transaction based Admin ReSM business is largely unaffected by these changes, and the transaction with CNA announced in February 2004 demonstrates our ability to grow profitably in our life and health business. We expect to build upon the current level of profitability in the Financial Services Business Group with positive development in both the premium and fee based sectors. In addition, Swiss Re was pleased and honoured to be awarded branch licences in both China and Japan in 2003, and we expect the
Asia region to become an even more important market for our products in the future.
We know that success is very much a team effort. It is built upon the skill and expertise of our employees, and we would like to express our appreciation to all of them for their hard work and commitment. We would like to thank our clients for their trust in our company and our shareholders for their loyalty and support. We have greatly enjoyed our first year of working together closely as a team and look forward with confidence to the coming year.
Corporate Centre Bruno Porro1 Chief Risk Officer, Head of the Risk & Knowledge Division
Yury Zaytsev Group Information Officer, Head of the Information, Processes & Technology Division
Jacques E. Dubois Deputy Head of the Life & Health Business Group
Phillip Colebatch Head of the Capital Management and Advisory business sector
The management of risk and capital, in its many facets, is Swiss Re’s core business. Providing economically viable reinsurance and financial services solutions generates economic benefits for Swiss Re’s clients and value for its shareholders. Swiss Re’s mission is ”to be the authority on managing capital and risk”, recognised as the industry leader for its comprehensive knowledge of risk transfer, risk financing and asset management.
In fulfilling its mission, Swiss Re strives to produce attractive financial returns in a constantly changing business environment. The company assumes a comprehensive and long-term perspective on the business it writes and attaches great importance to balancing the interests of various stakeholder groups.
As a global reinsurance company, Swiss Re continuously monitors the risk landscape to identify emerging risks and opportunities. In order to ensure long-term value creation, Swiss Re focuses on increasing shareholder value and balancing the interests of all stakeholders through a comprehensive strategic framework.
■ Leverage Swiss Re’s financial strength and superior research/underwriting skills to outperform the market’s underwriting result over the cycle
■ Focus on key clients and grow business in attractive new segments
■ Achieve operational excellence and manage operational risks by improving business processes and leveraging information technology
■ Achieve and strengthen leading position in strategic markets with key clients
■ Focus on mortality business and selected accident and health opportunities
■ Expand Admin ReSM and in-force business in the US and Europe
■ Achieve operational excellence through pricing and performance measurement, strategic cost management and operational risk management
■ Build on the opportunities offered by the industry’s capital constraints to profitably grow the run-off portfolio
■ Extend leadership position in credit and surety while managing peak risks
■ Continue to develop insurance-linked securities and other capital management tools for both clients and the Group
■ Exercise effective control and coordinate operations by managing capital and a diversified risk portfolio, enhancing and protecting brand reputation, providing information and technology
The implementation of Swiss Re’s strategy is assessed through both the Target Matrix and Group Balanced Scorecard.
The Target Matrix focuses on financial objectives for the Group and the individual business groups. Each business group is measured against a profitability as well as a growth target over three years.
Swiss Re continuously monitors industry developments which could potentially impact its corporate value, bottom line or strategy. “Top
Topics” is the process through which Swiss Re works to anticipate, identify, analyse and communicate to stakeholders the key issues affecting global management of capital and risk.
■ Accounting standards: new standards and transparency have become increasingly important. Swiss Re works closely with the
■ Mortality trends: advances in medicine, among other factors, have produced a clear trend towards improved mortality experience. Insurers and reinsurers must be alert, however, to extreme mortality events such as a lethal epidemic, as well as to the emergence of new risks such as obesity which could reduce the positive mortality trend if not addressed. Swiss Re has conducted various research studies in order to better understand the drivers of mortality trends.
Even though individual extreme weather events cannot be directly attributed to climate change, this recent increase is consistent with the evolution climatologists expect towards a warmer climate. Swiss Re has been active in developing ways to assess and manage the risks from natural disasters, designing risk transfer solutions and mitigation strategies for its clients.
■ Terrorism: the tragedy of 11 September 2001 revealed the scale of potential losses due to terrorism and threw into question the limits of insurability. Appropriate publicprivate partnerships are needed to support the development of private insurance industry risk transfer and finance solutions. Through its technical publications and experts’ statements, Swiss Re has been contributing actively to the global debate and to the development of solutions to terrorism risks.
Swiss Re’s sigma publishing series, available at www.swissre.com, is another channel through which the company disseminates industry expertise. In 2003, these publications covered a variety of topical and strategic questions and included an important analysis of the systemic risk posed by the reinsurance industry. The study found that there was virtually no evidence to support the claim that reinsurance represents a systemic risk and concluded that financial distress encountered by individual reinsurers was highly unlikely to trigger a contagion effect comparable to that observed during crises of confidence in banks.
Swiss Re’s Chief Underwriting Office regularly produces publications on a wide range of topics that generate significant expert and public interest. In 2003, these publications, which are also available from Swiss Re’s website, included an indepth analysis of terrorism from a risk management perspective, special reports on large dams and prion infection, and studies on nuclear risks in property insurance, insurance aspects of gas turbomachines and the insurability of ecological damage. They also provided insight into lines of business such as marine insurance.
In 2003, Swiss Re’s Centre for Global Dialogue hosted a number of industry gatherings and some high level stakeholder conferences including a conference on insurance -linked securities. The event was aimed primarily at institutional investors, enabling Swiss Re to build on its global leadership position in this innovative area – one that promises to extend the traditional limits of insurability. The Centre for Global Dialogue was the venue for the International Biotechnology Forum, focusing principally on issues of risk perception and public concern surrounding genetic engineering. The Centre also joined forces with Avenir Suisse, a Swiss think tank for social and economic development, and the Geneva Association, an international association for the study of insurance economics, to host a conference on “The Economics of an Ageing Society: The Future of Funded Systems”.
A truly international working environment and the company’s commitment to professional development make Swiss Re an attractive employer. Swiss Re conducts business from more than 30 countries; this diversity is matched by the wide variety of nationalities represented among its employees. Through its experts, Swiss Re systematically screens business relevant information and fosters knowledge sharing. Between 1998 and 2003, Swiss Re established 13 internal “Knowledge Networks ” designed to further stimulate the exchange of valuable expertise and innovation across various functions within the Group.
Mr Epprecht, how would you describe the insurance industry’s experiences with gene technology to date? While public concern centres on the perceived health risks of GMOs, so far most of the claims encountered by the insurance industry have involved so-called “commingling ”, whereby apparently conventional products are found to have been unintentionally or unlawfully mixed with GM products. The agri-food chain is poorly equipped to ensure the total segregation of crops demanded by consumers and by differing local legal requirements. So the commingling issue looks set to continue. However, it should be noted that there have still been no scientifically validated reports of commercially available GM products leading to health impairments.
By the end of 2003, the world economy had regained stability and appeared headed for a recovery. Earlier fears that other countries would follow Japan into deflation proved unfounded. Instead, the global economy recovered, spurred by strong growth in the US and – surprisingly – Japan. At the year’s end, interest rates were slightly higher than they had been a year earlier and stock market indices in most countries were up by more than 15% on their 2002 year-end levels.
Technical and financial results improved substantially in 2003. Primary insurers successfully returned to underwriting profitability by tightening policy terms and conditions and improving cost efficiency, as well as by increasing rates. Combined ratios in the major markets are therefore expected to decrease by three to seven percentage points from 2002 levels, additionally supported by a below average loss burden from major man-made disasters. Insured losses of natural catastrophes were slightly above the long-term average. Credit claims, which are heavily dependent on general economic conditions, also developed favourably in 2003.
■ In some European countries, impairments to insurers’ assets, resulting from the equity market decline in prior years, were not fully recognised until 2003.
The reinsurance sector fared similarly: underwriting profitability improved considerably, especially in short-tail business. However, long-tail lines continued to be affected (albeit to a lesser extent than in previous years) by adverse claims developments.
The capital position of the insurance industry remained relatively weak during 2003, reflecting the financial difficulties of the previous years. Rating agencies continued to be sceptical about the outlook for the industry, further downgrading several insurance and reinsurance companies.
■ United States ■ Japan ■ United Kingdom ■ Germany ■ France ■ Switzerland
2003 was a year of recovery for the global insurance industry. Substantial non-life premium rate improvements raised the industry’s technical results, despite its need to strengthen loss reserves.
The capital market environment improved, leading to better investment results and helping life insurers to sell their guaranteed interest products.
The life industry continued to face a challenging environment in 2003. Although premium volume further increased in North America and Continental Europe, growth was well below the trend of the 1990s. The volatility of financial markets hampered sales of unit-linked policies and variable annuities. However, life insurers benefited from continued strong demand for private and occupational pension products as governments in many countries, particularly in Europe, grappled with pension system reform.
They are no longer able to invest as heavily as they once did in high return securities such as equities, since they lack the capital necessary to absorb the higher risk involved. This is a fundamental problem for providers of life policies with bonus payments in markets such as the UK, Germany and Switzerland.
Although the industry has generally managed to avoid defaults, a number of insurers still have weak balance sheets, indicating that some consolidation between market players will be inevitable.
Life reinsurance premium growth has continued to outpace primary growth in 2003, reflecting in part the fact that protection business has not experienced the same sluggish growth as savings-type products. However, growth slowed in 2003 – particularly in the US, which accounts for over 60% of global life reinsurance volume; cession rates there have now stabilised. New opportunities are expected to arise in Continental Europe as a result of the capital pressure facing life insurers.
17 March First Swiss Re ReSource Award conferred Swiss Re awarded USD 70 000 to Defensores de la Naturaleza and WWF Central America for a project safeguarding water resources in Guatemala.
6 August First Admin ReSM transaction in the UK Swiss Re acquired the closed book of business of Zurich Life Assurance Company (Zurich Life), one of Zurich Financial Services’ United Kingdom based life assurance businesses, for a cash payment of approximately USD 240 million. This is Swiss Re’s first Admin ReSM transaction outside the United States.
11 August USD 205 million of catastrophe protection obtained through cat bond Swiss Re obtained USD 205 million of catastrophe protection through the Arbor programme for North American hurricane, European windstorm and Japanese and California earthquake exposures.
13 August Flood risk assessment tool launched for Czech market In response to the severe flooding in the Czech Republic, Swiss Re entered a joint venture partnership with Czech technology company MultiMedia Computer (MMC) to develop a flood risk assessment tool for the Czech insurance market.
7 October Swiss Re wins Asian Reinsurer of the Year 2003 For the third time in the award’s seven year history, Swiss Re was awarded the “Asian Reinsurer of the Year” accolade by “Asia Insurance Review“ and “The Review“ reinsurance magazine.
29 December Japan branch licence Swiss Re received a branch licence from Japan’s Financial Services Agency (FSA), which will allow the company to provide property and casualty and life and health reinsurance services in Japan.
transaction Swiss Re announced an agreement to acquire CNA Financial’s individual life insurance business for USD 690 million. The transaction is subject to certain customary closing conditions and regulatory approvals.
16 February 2004 renewals announcement Swiss Re reported premium growth of 7% for its traditional non-life business in its January 2004 renewals. Strong demand for high security capacity, especially in casualty, enabled Swiss Re to be selective regarding business mix and desired layers.
Trading revenues increased significantly to CHF 472 million from CHF 228 million in 2002, due to strong growth in insurance -linked and asset-backed securities, structured transactions and in credit business. This growth was partly offset by currency exchange effects.
Claims and claim adjustment expenses and life and health benefits decreased from CHF 24.6 billion to CHF 24.0 billion.
Amortisation of goodwill decreased from CHF 350 million to CHF 315 million, due to currency exchange effects.
Premiums earned increased by 6% to CHF 30.7 billion compared to 2002. Excluding the effect of the stronger Swiss franc, the increase was 16%.
The Property & Casualty Business Group reported premiums earned of CHF 17.4 billion. Adjusting for currency exchange effects, premium growth was 25%.
Strong improvement in operating results and investment performance led to net income of CHF 1.7 billion for 2003.
Other operating costs and expenses declined from CHF 3.2 billion to CHF 2.9 billion. Adjusted for currency exchange effects, the Group’s other operating costs fell by 3%, compared to the 16% growth in total revenues. The change reflects further improvements in operating efficiencies across all parts of the Group. In line with this, Corporate Centre costs for 2003 were CHF 403 million, down 8% compared to CHF 437 million in 2002. The overall Group management expense ratio fell to 8.2% from 9.2% in 2002, which represents an improvement for the fifth consecutive year.
The tax expense in 2003 was CHF 634 million compared to CHF 127 million in 2002 and represents an effective tax rate in 2003 of 27%.
The Group recorded net income of CHF 1.7 billion, compared to a net loss of CHF 91 million in 2002. Earnings per share were CHF 5.48, compared with CHF –0.29 in
Key topics 2003 was a year of contrasts for investments. In the first half, war in Iraq and mixed economic news translated into a climate of instability and pessimism, driving equity markets to record lows in the first quarter and interest rates to historic lows in the second quarter. The second half of 2003, however, offered a more upbeat perspective, as leading economic indicators turned generally positive in the US, Japan and (to a lesser extent) Continental Europe.
The result is composed of net investment income totalling CHF 4.6 billion, and net realised investment gains of CHF 376 million. This outcome compares favourably to 2002, when the investment return of 4.7% was heavily affected by impairments on equity securities.
US dollar denominated holdings, mainly fixed income securities, now account for 53% of the total investment portfolio. This is slightly down from 55% at the end of 2002. The growth in the US dollar portfolio has been more than offset by the fall in value of the US dollar against the Swiss franc.
Investments by currency as of 31 December 2003 Total CHF 88 205 million
Three Admin ReSM transactions, including the purchase of the Zurich Life business in the UK, added CHF 1.9 billion to the fixed income portfolio. The organic growth of the portfolio was more than offset on the balance sheet by the 11% decline in value of the US dollar against the Swiss franc.
The Group realised significant capital gains of CHF 1.1 billion, mainly in the second quarter of the year, as fixed income values peaked. Net unrealised gains on the bond portfolio (which are not included in the balance sheet) decreased to CHF 1.1 billion at year end from CHF 2.2 billion at the prior year end.
The size of the Group’s equity portfolio was further reduced in 2003 in order to increase its allocation of capital to core reinsurance business and to take full advantage of the favourable non-life underwriting conditions. The hedging instruments used throughout the year to manage exposure to equity markets expired in the fourth quarter. They were not renewed because the Group’s gross equity exposure has now achieved targeted levels.
Equity investments, including private equities, contributed sizable net realised gains of CHF 650 million, even though the 2002 market decline necessitated additional net impairments of CHF 583 million. These were recognised in the income statement, principally in the first half of the year and mainly related to 2002 change in values. At the end of 2003, the equity portfolio had CHF 416 million of net unrealised gains, compared to net unrealised losses of CHF 821 million the year before.
The following information is a summary of the audited 2002 and 2003 consolidated financial statements of the Group that have been prepared in accordance with Swiss GAAP FER and the Swiss Company Law. For more details, please refer to the Group’s financial statements.
Cash and cash equivalents as of 1 January 5 018 3 773 –25
Cash and cash equivalents as of 31 December 3 773 5 429 44
Change in unrealised gains/losses on securities, net –2 974 1 116
Ronald Klein Actuary and expert in mortality trends, passing through New Spitalfields wholesale fresh produce market near the City of London.
Mr Klein, what has changed over the past 20 or 30 years to make obesity such a concern? People live differently these days. Energy intake has increased while energy expenditure has fallen. We eat more high fat and high calorie foods. There are more private cars, and more machines and gadgets at home and in the office – meaning that less time is spent on physical exercise. Of particular concern is how many of our children prefer TV, video games and junk food to a healthy diet and physical recreation: addressing obesity in pre-teens and teenagers is a major priority.
Swiss Re’s underwriting philosophy continues to evolve to keep pace with a changing environment. Although pricing is an important part of underwriting, a vigilant approach to coverage issues, such as tighter exclusion clauses, has also become increasingly necessary.
Concerns about security of reinsurers, combined with noticeable improvements in primary results, prompted many ceding companies to increase their retentions.
In 2003, Swiss Re’s strong global control of underwriting, combined with an effective local delivery capability, ensured worldwide consistency in standards and contributed significantly to continued improvements in results. Client focus, underwriting profitability and cost efficiency remained the business group’s driving principles.
In a low interest rate environment, successful reinsurers rely on superior underwriting through risk selection and capacity control. Swiss Re therefore introduced major underwriting initiatives in 2002 and 2003, designed specifically to strengthen the business group’s ability to steer underwriting through the various
Business group results 2003 saw the business group achieve an underwriting profit with a combined ratio of 98.4%. This was a significant improvement on the figure of 104.1% reported in 2002 and better than the target for the year of 100%.
Operating income increased from CHF 309 million to CHF 1.8 billion, due largely to improvement in the underwriting profit of CHF 894 million in 2003. With the current low interest rate environment and currency exchange movements, net investment income fell by CHF 368 million to CHF 1.2 billion. The operating result, excluding net realised investment gains and losses, increased by CHF 526 million. Net realised investment gains increased by CHF 982 million in the year due to sales of fixed income securities, and lower investment impairments.
The underwriting profit in 2003 was CHF 281million, compared to an underwriting loss of CHF 613 million in 2002. This improvement was largely due to rate increases and a disciplined underwriting approach, and was achieved despite a poor result in liability from adverse developments from prior years.
The Property & Casualty Business Group showed continued significant volume growth, with a 16% rise in reported premiums earned. The weakness of the US dollar and British pound relative to the Swiss franc had a negative impact on this growth: excluding currency effects, premiums grew by 25%.
The continued hard market produced rate rises across the board. Moreover, the earning pattern of contracts meant that 2003 premiums earned benefited from rate increases secured in 2002 as well as 2003. Additionally, some premiums earned in 2003 were actually related to 2002 late reported business from clients.
Another major factor driving premium growth was non-traditional business. This business supports clients’ balance sheet needs as well as providing risk transfer. The business group wrote several of these large single transactions during the year which, depending on the clients’ future needs, may or may not be renewed.
The weighting of property business within the portfolio reduced slightly to 33% from 34% of premiums earned due to the relative increase in the liability book. Liability rose by 2 percentage points to 27%, due largely to increasing rates and some underestimation of prior year premiums. Motor remained stable at 18%. Accident’s proportion reduced by 1 percentage point to 7% due mainly to currency exchange movements. Other lines represented 15% of the portfolio, as in 2002.
The continued increase in rates at both the primary and reinsurance levels, improved terms and conditions, and a lower than average level of property losses helped to improve the claims ratio. Partially offsetting this improvement was a strengthening of liability reserves, predominantly for US business.
Property & Casualty Business Group results CHF millions 2002 2003 Change in %
In 2003 most lines reported an improvement in the combined ratio. In property, part of the increased profitability was due to the incidence of large “man-made” losses being lower than in 2002. Losses from natural catastrophes were at a similar level to 2002. Liability was severely impacted by losses from prior years, but showed a significant improvement in underlying performance. The motor portfolio benefited from re-underwriting and the cancellation of under-performing contracts.
As the hard market persisted following the tragedy of 11 September 2001, property results continued to improve in 2003. The combined ratio advanced from 96.8% to 80.5%. Premiums earned grew by 14%, 23% in local currencies, thanks both to improved pricing and to new business. All divisions contributed to this growth and to the significant improvement in the bottom line result.
Prices for new business continued to improve significantly, a fact reflected in the 24% growth in premiums earned. In original currencies premium growth was notably higher at 38%. The most significant growth came from the Americas with 28%, followed by Asia (25%) and Europe (17%). In both Europe and the Americas, new business accounted for slightly less than half of the growth, while rate increases on renewal accounts made up the balance. In Asia, the bulk of the growth in the portfolio came from new business.
Premiums earned 2003 by line of business Total CHF 17 409 million
The motor portfolio showed an improvement in results of 5 percentage points, with a combined ratio of 102.4%. All three divisions contributed to this improvement.
Primary rates increased in most markets. In addition, there has been a move away from unlimited reinsurance covers (except in those markets in which they are required by law). Average claim cost continued its steady rise, driven by medical cost inflation and by low interest rates, which require larger lump sum settlements to finance annuities.
Growth in premiums earned of 15% was driven by Europe (26%) and Asia (9%). Americas premium was flat in original currencies, but decreased by 13% when expressed in Swiss francs. In original currencies, premium growth for the business group was 20%.
Accident business produced an improved combined ratio of 99.3% as a result of the continuing shift from proportional to non-proportional coverage and the cancellation of underperforming business.
Engineering The re-underwriting process that began in 2002 started to reap benefits in 2003, as shown by an overall combined ratio improvement for this long-tail business from 110.0% to 100.0%. All three divisions contributed positively to the improvement in this line.
In the absence of any unexpected large events, the business group’s 2004 underwriting result is expected to show a further improvement over 2003. The year 2004 will benefit from increased prices and tight terms and conditions. Producing attractive returns for shareholders remains a priority.
is a core offering of Swiss Re. It involves the acceptance of closed blocks of in-force life and health insurance business, either through acquisition or reinsurance, with Swiss Re usually assuming responsibility for administering the underlying policies.
Admin ReSM allows insurers to free their capital and gain access to future cash flows from non-core portfolios. It also increases operational efficiency by removing the need for life insurers to maintain legacy IT systems for non-core lines. With 35 transactions successfully completed over the past seven years, Swiss Re has superior experience in the complexities of policy conversion, regulatory approval and effective management of in-force books of business for the continuing benefit of policyholders. Swiss Re draws on its extensive experience gained through its traditional reinsurance business to bring customers an attractive solution.
that when this transaction closes later in the first half of 2004, it will add an additional one million policies and CHF 3.8 billion in assets to the Group. This will bring the total number of Admin ReSM policies managed by the Group to over three and a half million.
Insurance-linked securitisation In December 2003, Swiss Re sponsored the first ever insurance-linked security relating to life mortality risk, obtaining USD 400 million of coverage from institutional investors. This transaction reflects Swiss Re’s strategy of proactively protecting against remote but significant contingencies.
Through this securitisation, Swiss Re has transferred mortality risk to the capital markets as an alternative to traditional retrocession. To fund potential payments under this arrangement, variable rate notes were issued by Vita Capital, a specially created insurance-linked security intermediary. The notes mature after four years.
Swiss Re gains from having one of the largest books of mortality risk in the world, allowing it to diversify and reduce exposure to the risks of any particular insured segments. The Life & Health Business Group also benefits from its leading role in the market, which enables it to monitor mortality results from a global client base. Swiss Re can therefore ensure that mortality risk is priced appropriately and adjust these prices over time where necessary. During the course of 2004, Swiss Re will be updating its pricing assumptions, particularly in North America, in line with revised economic and experience assumptions. Swiss Re continues to lead strategic thinking through its knowledge of mortality issues.
The operating result (excluding net realised investment gains/losses) declined from CHF 1.3 billion in 2002 to CHF 1.2 billion in 2003. The principal reason for this decrease was the impact of currency exchange movements, in particular the depreciation of the US dollar, where the average rate fell 14%.
The life operating result rose 30% to CHF 1.1 billion, excluding currency exchange movements. This rise was partly aided by the absence of the nega-
Business groups Life & Health Business Group tive impact recorded from Guaranteed Minimum Death Benefit (GMDB) products, which was primarily related to the poor equity market performance in 2002.
GMDB continued in run-off through the year under review, with no significant effect on results. The life operating result was somewhat reduced because of lower investment yields; this will continue to be the case as long as interest rates remain at historically low levels.
Currency exchange rate movements also affected premiums earned in 2003, reducing reported growth by 10%.
In 2002, the ESL business generated CHF 231 million in health premiums (at constant exchange rates). Excluding the impact of the ESL disposal and of adverse currency exchange movements, total premiums increased by 3% during 2003. This slow growth rate reflects both flat sales of protection business in the North American and UK primary markets and the first impacts of Swiss Re’s repricing actions.
The return on operating revenues for life business increased from 7.9% to 10.3%, reflecting both the absence of a charge arising from GMDB in 2003 compared to 2002 and the underlying stability of life results. The return on operating revenues for health continues to be volatile, reflecting the fact that the majority of this business is in run-off.
In mature markets, traditional life reinsurance is expected to grow by 6% a year in the medium term. Emerging markets, particularly China and India, could see a much higher rate of growth. The Life & Health Business Group anticipates that short-term growth in its traditional life reinsurance may be lower in the US and UK as cession rates have stabilised and growth in primary protection markets remains flat.
Swiss Re expects Admin ReSM to continue to grow strongly, compensating for lower growth in traditional business – as was shown in early 2004 by the CNA life transaction. The business group continues to focus above all on improving margins and returns.
The Financial Services Business Group reported an operating income of CHF 558 million, compared to a loss of CHF 633 million in 2002. All business sectors contributed strongly to this turnaround in performance, despite the impact of the significantly weaker dollar on operating income. The premium business reported a combined ratio of 99.1%, compared to a three year target of 95%. The ratio remained high primarily because of an increase in volume from non-traditional business. The fee business produced a return on total revenues of 9.7% compared to –16.9% for the prior year.
Total revenues were CHF 4.4 billion, up 35%, adjusting for the effects of currency movements and the Group’s change in allocation of investment income in 2003. Both the premium and fee businesses contributed: in premium business, growth was recorded in all lines, whereas growth in fee business stemmed from the Capital Management and Advisory business sector.
The Financial Services Business Group reported a profit of CHF 558 million, compared to a loss in the prior year. This strong turnaround in performance was due to improved profitability in all business sectors.
The premium business reported an operating profit of CHF 474 million, compared to an operating loss of CHF 609 million in 2002. This represents a very strong improvement of CHF 817 million in underwriting performance over the prior year, with the credit reinsurance business being a key contributor. The combined ratio was 99.1%, compared to 127.4% in 2002. The traditional corporate risk and credit businesses produced a combined ratio of 94.7%. The overall figure is distorted by a high combined ratio for non-traditional business (in excess of 120%). Despite their high combined ratio, the non-traditional product lines showed strong profitability in 2003, as investment return represents an important component of profit.
Premiums earned grew by 25%, excluding currency exchange effects. This was significantly above the business group’s three year average target of 7%. Premium growth was largely price driven, however the business group was also able to expand its participation in a number of risks at attractive price levels. Growth was spread across all lines of business, with casualty slightly ahead of other lines. The volume of non-traditional business increased, particularly in the second half of the year.
Net investment income fell by 24%, due to currency exchange effects and lower yields. Net realised investment gains were CHF 39 million, compared to net realised losses of CHF 330 million in the prior year.
Premium business trading revenues, fees and commissions were CHF 88 million, compared to CHF 45 million in 2002. The main source of this increase was the portfolio credit default swap book. There was no significant change in the markedto -market position during 2003 – in contrast to the negative impact in 2002.
Operating costs fell to CHF 225 million, a reduction of 12%, adjusted for currency exchange effects. This is attributable to savings that have emerged from the restructuring of the premium businesses during 2003 and the increased focus on cost management throughout the Financial Services Business Group. The management expense ratio improved to 7.2% from 10.1% in the prior year.
Acquisition costs are primarily related to dealing; growth in acquisition costs was largely driven by the transaction volume associated with the higher revenues.
Operating costs were CHF 701 million. This is 2% higher than the currencyadjusted operating costs reported for 2002. Variable compensation cost is a significant component of Capital Management and Advisory’s operating expenses and this increased significantly in 2003, in line with the improved profitability of this business sector. This was partially offset by reductions in cost, both from the integration of trading and investment banking operations in the first half of 2003 and the restructuring of Asset Management in the second half of the year.
–45 1 As if fee model was in place for all proprietary assets, previously included in Asset Management in %
Further improvements for the fee business are expected. Growth in the trading and advisory product lines will be the main driver. However, the increasing scale will mean that growth is unlikely to reach the levels seen in 2003. The full-year impact of the restructuring in Asset Management will also contribute by increasing efficiency and improving overall profitability. The business group anticipates strong growth in third party asset management in North America.
This means that, assuming a static portfolio over 10 days, there is a 1% chance that losses will exceed VaR.
One way of validating the VaR methodology is to compare its predictions with actual results.
The graph below shows the number of days on which market risk related revenues fell within particular ranges. Daily revenue was positive on 82% of the trading days during the year.
Mr Breitsameter, are floods a growing concern for the insurance industry? Overall, there has been a marked rise in the frequency and severity of natural catastrophe losses, including flood risks, over the last 30 years. The vast damage caused by these events largely reflects an increase of value concentration in exposed areas. Moreover, the majority of the scientific community believes climate change will lead to more frequent and more severe precipitation in many areas in the future.
How can insurers and reinsurers make sure they are able to provide coverage for such catastrophes, given that they are becoming more frequent and more severe? Ultimately, insurers and reinsurers must be able to understand and assess the risk in order to calculate an adequate premium. The tool we have developed for the Czech market greatly facilitates this process.
All that is required in order to determine the risk category of the location is the precise address. Tools of this type are likely to become a standard for sound flood risk assessment in many other countries in the near future.
An aerial view of the swollen Berounka and Vltava rivers as they flood a huge area near Zbraslav on the outskirts of Prague, in August 2002.
Swiss Re has interactive relationships with Standard & Poor’s, Moody’s and A.M. Best. The company’s commitment to prudent risk and capital management is reflected in its financial strength ratings, which remain among the highest in the industry.
Swiss Re is exposed to multiple risks; it must therefore assess the entirety and correlation of the risks in its portfolio to determine which of them may accumulate and which contribute to diversification. This assessment is carried out on the basis of proprietary integrated risk models, developed over the course of more than a decade.
Growth opportunities in property and casualty and life and health prompted Swiss Re to seek new ways of managing its business and reducing its net exposure through risk securitisation and risk swaps. The company will continue to pursue these risk transfer opportunities and seek to further develop these instruments.
In 2003 Swiss Re concluded a USD 100 million risk swap with Mitsui Sumitomo, and increased its natural catastrophe securitisation volume by several hundred million US dollars. Swiss Re’s range of securitised risks was extended in December 2003 by the first life cat bond, Vita Capital, which provides USD 400 million of protection against a sudden severe increase in mortality claims.
The management of risk and capital is a core competency for Swiss Re. Risk management evaluates the amount of risk adjusted capital needed to support the classes of business written.
Capital management assesses total risk bearing capital and is responsible for timely capital supply. Swiss Re’s dynamic risk and capital management functions ensure that the company is adequately capitalised at all times and that it has sufficient financial flexibility to profit from new business opportunities as they arise.
Swiss Re also redeemed a NLG 925 million Exchangeable Bond issued in 1998, and repaid a maturing CHF 100 million Private Placement issued in 2001. With the maturing of these two transactions, Swiss Re considerably reduced its outstanding financial debt, an achievement made possible by strong positive cash flow from operating activities.
Swiss Re’s European Medium Term Note (EMTN) programme has become an actively used funding instrument. In June 2003 the company successfully updated the programme, increasing its capacity to USD 5 billion. At the end of December 2003 Swiss Re’s outstanding debt under the EMTN programme had an aggregate book value of USD 1.95 billion.
Swiss Re will continue to build on its strong risk and capital management skills. An integrated approach and a proactive attitude towards risk and capital management will remain key features of the company ’s philosophy. Swiss Re strives to ensure a high level of security for its clients while delivering value for its shareholders, thereby maintaining the company’s strong franchise and status as an attractive investment choice.
Operational long-term debt raised under Payment Undertaking Agreements in 2003 totalled
Solutions for greenhouse gas risks Market based emissions reduction programmes using pricing and economic
■ Swiss Re developed Contingent Cap Forward Insurance to facilitate emissions trading by covering the counterparty and delivery risks for buyers of emissions reduction credits.
There is growing evidence that most of the warming observed over the last 50 years is attributable to greenhouse gases emitted in the course of human activity. Every year, each of Swiss Re’s employees emits an average of 5 to 6 metric tonnes of carbon dioxide (CO2) – the main greenhouse gas – amounting to a total of about 46 000 tonnes for the whole Group. This figure is split between electricity use (44%), combustion of heating fuels (13%) and business travel (43%).
■ Swiss Re asset managers received a mandate from the United Nations Economic Commission for Europe (UN ECE) to manage an Energy Efficiency Fund focused on providing project finance in Eastern Europe. Swiss Re’s Greenhouse Gas Risk Solutions unit will be responsible for monetising the emissions reductions.
■ Swiss Re led the identification of potential climate change related risks in directors’ and officers’ insurance: directors and senior managers may in the future be held liable if their companies fail to comply with emissions regulations.
Swiss Re frequently teams up with academic institutions both to support specialised research and gain valuable insight on its risk landscape. In 2003, for example, Swiss Re participated in a research project, carried out under the auspices of the Swiss National Competence Center in Research on Climate (NCCR Climate), designed to assess the accuracy of medium to long-term statistical weather forecasts. The information gained from such research helps Swiss Re to be better prepared for extraordinary weather events, such as droughts or heat waves, and to mitigate their economic impact.
Investing in energy efficient buildings Wherever feasible, Swiss Re has been applying the MINERGIE® standard to its real estate investments and its own facilities in Switzerland since 1999. This voluntary Swiss standard combines high user comfort with reductions in energy consumption of up to 60% compared with current regulations, and construction costs are usually no more than 2–4% higher. In 2003 Swiss Re had another 16 000 square metres of floor space newly certified, bringing the total to approximately 151000 square metres. MINERGIE® certification not only makes a substantial contribution to climate protection, but has also helped Swiss Re to cut energy consumption at its Zurich locations by more than 20% in the last four years. Swiss Re’s new office building at 30 St Mary Axe in London, which has been in use since December 2003, is a prime example of how an intelligently designed office building can combine high energy efficiency and comfort.
Liability“ aims to introduce strict liability for ecological damage, ie damage to free resources of nature. This, in turn, is challenging Europe’s insurers and reinsurers to define the insurability of ecological damage and to develop concepts for suitable covers.
In many regions of the world, clean water is becoming ever more scarce, and gaining access to it increasingly difficult.
This situation generates new risks and opportunities for the insurance industry, as pollution liability disputes are bound to increase. Water may not yet have received as much attention as climate change, but Swiss Re is determined to help set the agenda, build awareness, exchange expertise and encourage dialogue. In 2003 the company published a Focus Report on dams, explaining the many risks involved in large dam building projects and outlining the insurance and finance solutions available. Swiss Re is also involved in a multi-stakeholder project with the Swiss government aimed at developing transparent, reliable rules to facilitate private sector participation in water service management. During 2003 Swiss Re launched the International Water Management Course in cooperation with the Swiss Federal Institute of Environmental Science and Technology (EAWAG). The course provided decision makers with up-to-date knowledge on sustainable water management solutions.
105 project entries were submitted from around the world: the first prize went to “Using the Water Fund as a financial mechanism to engage downstream water users in upstream forest conservation in Guatemala”, a project submitted jointly by WWF Central America in Costa Rica and the Fundación Defensores de la Naturaleza in Guatemala.
Judith Klugman Institutional salesperson in New York, manages the distribution of insurance-linked securities designed to transfer insurance risks to the capital markets.
Insurance-linked securities (ILS) are becoming an increasingly accepted method of transferring peak risks from insurers, reinsurers or corporations to institutional investors. ILS offer institutional investors an attractive risk/return profile and, given that they are essentially uncorrelated with other financial risks, they diversify portfolio risk.
Masaaki Katsuyama Marketing expert for advisory work on insurance related financial solutions, visiting the Nojima
Ms Klugman, Swiss Re continued to sponsor a number of cat bonds in 2003, most recently through the Arbor programme. What are the benefits of this transaction for the company? The Arbor programme allows us to hedge some of our peak natural catastrophe exposures for our own risk management purposes. Swiss Re acted as sole bookrunner on this transaction and privately placed the securities with institutional investors. Our enthusiasm for these risk management solutions is also shared by our clients for whom we have underwritten cat bonds in the past. They value the attractive pricing over a multi-year term, systematic claims recovery, and, in some cases, greater security in the form of lower counterparty credit risk than traditional retrocession.
Mr Katsuyama, shortage of earthquake reinsurance capacity has traditionally been an issue in Japan. What were the key features of the transaction with Zenkyoren? Our client Zenkyoren, the National Insurance Federation of Agricultural Cooperatives in Japan, was interested in obtaining significant capacity from the capital markets for second event earthquake and typhoon risk. Swiss Re successfully addressed Zenkyoren’s needs by underwriting the “Phoenix” securitisation, which represented USD 470 million of insurance -linked securities, the largest cat bond to date in terms of risk transfer.
The Hanshin Expressway symbolises the devastation caused by the Great Hanshin Earthquake which struck the Japanese city of Kobe in January 1995. With the help of special steel-plate reinforcement, it resumed full service 20 months later.
In accordance with the SWX directive, the following information about Swiss Re’s capital structure is provided for the listed parent company, Swiss Reinsurance Company, Zurich.
With regard to the conditional capital for employee participation purposes, shareholders’ subscription rights are excluded. Such shares may be issued at a price below the prevailing market price. The Board of Directors shall specify the precise conditions of issue.
Changes in capital At the Annual General Meeting in 2001, shareholders approved a par value reduction from CHF 10 to CHF 2 per share and a subsequent 1:20 split. At an extraordinary General Meeting later in the year, a capital increase was approved which, combined, led to a decrease in the company’s share capital from CHF 147 million to CHF 32 million. This capital increase was primarily responsible for a CHF 4.5 billion increase in “Other reserves ”. It is also the principal reason for the increase in “Reserves”, consisting of “Reserve for own shares” and “Legal and other reserves”, from CHF 5.5 billion to CHF 10 billion.
In 2003 the company’s share capital remained unchanged at CHF 32 million. Total reserves decreased by CHF 195 million to CHF 9.9 billion. The higher profit for the financial year of CHF 1.2 billion (compared to CHF 106 million in 2002) led to an increase of disposable profit from CHF 122 million to CHF 1.2 billion. Total shareholders’ equity before allocation of profit increased from CHF 10.3 billion to CHF 11.2 billion. At the Annual General Meeting shareholders will vote on a dividend payment of CHF 341 million, compared to CHF 310 million in the previous year.
Shares As of 31 December 2003, Swiss Reinsurance Company’s share capital, including shares reserved for corporate purposes, amounted to CHF 32 205 787. It is fully paid-in and divided into 322 057 870 registered shares (each with a nominal value of CHF 0.10), of which 310 379 068 are entitled to dividend. Other than shares reserved for corporate purposes, there are no additional types of shares with a higher or a limited voting power, privileged dividend entitlement or any other preferential rights; nor are there any other securities representing a part of the company’s share capital. Swiss Re’s capital structure ensures equal treatment of all shareholders in accordance with the principle “one share, one vote”.
Admissibility of nominee registrations Trustees or nominees, who act as fiduciaries of shareholders, are entered without further inquiry in Swiss Reinsurance Company’s share register as shareholders with voting rights up to a maximum of 2% of the outstanding share capital available at the time. Additional shares held by such nominees, which exceed the limit of 2% of the outstanding share capital, are entered in the share register with voting rights only if such nominees disclose the names, addresses and shareholdings of the beneficial owners of the holdings amounting to or exceeding 0.5% of the outstanding share capital. Such nominees must in addition comply with the disclosure requirements of the Stock Exchange Act.
Procedure and conditions for cancelling statutory privileges and limitations on transferability The point is not applicable as no statutory privileges or limitations on transferability exist.
(i) The relevant exchange price relating to Swiss Reinsurance Company shares is CHF 224.661 per Swiss Re share and noteholders are entitled, upon the exercise of the exchange rights for Swiss Reinsurance Company shares, to receive for each note of USD 10 000 66.3533 Swiss Re shares. The relevant exchange price relating to Credit Suisse shares is CHF 96.538 per Credit Suisse share and noteholders are entitled, upon the exercise of the exchange rights for Credit Suisse shares, to receive for each note 154.4159 Credit Suisse shares. The relevant exchange price relating to Novartis shares is CHF 79.030 per Novartis share and noteholders are entitled, upon the exercise of the exchange rights for Novartis shares, to receive for each note 188.6246 Novartis shares and 1.1584 registered shares of Syngenta AG. Swiss Re has the option to pay the cash equivalent in lieu of delivering shares.
Members of the Board of Directors Status as at 31 December 2003 With the exception of Mr Walter B. Kielholz, no member of the Board of Directors has ever held a management position in the Group nor has any important business connections with Swiss Re or any of its Group companies.
Mr Forstmoser, a Swiss citizen born in 1943, received a doctorate in law from the University of Zurich in 1970, became an attorney-at-law in 1971 and received a master’s degree in law from Harvard Law School in 1972.
Mr Kielholz has been a member of the board at Credit Suisse Group since 1999. He served as chairman of the audit committee from 1999 to 2002 and as vice-chairman of the board from 31 May 2002 to 31 December 2002. He has been chairman of the board of directors and the chairman’s and governance committee since 1 January 2003.
In addition, Mr Kielholz is treasurer and a member of the board of the International Association for the Study of Insurance Economics (“The Geneva Association”) in Geneva, president of the “Avenir Suisse” foundation and chairman of the Zurich Art Society.
Mr Bechtler joined Swiss Re’s Board of Directors in November 1993. His mandate was renewed in 1997 and 2001, each time for a further four years. Mr Bechtler has been managing director of Hesta AG as well as Hesta Tex AG, Zug, since 1972. In this capacity he is chairman of the boards of Zellweger Luwa AG, Uster, and Schiesser Group, Küsnacht. He also serves on the boards of directors of Credit Suisse Group, Zurich, Bucher Industries, Niederweningen, Robert Bosch Internationale Beteiligungen AG, Zurich, Sika Finance AG, Baar, and Conzzeta Holding, Zurich. From 1987 to 1999 he served as chairman of “Swisscontact”, a large Swiss development foundation, and from 1987 to 2002 as chairman of the Zurich Art Society.
Mr Breu is a member of the board of directors of Chiron Corp., Emeryville, California, and of the SWX Swiss Exchange and its admission panel. He is also a member of the Swiss Takeover Board.
Mr Farr joined Swiss Re’s Board of Directors in November 1996. His mandate was renewed in 2000 for a further four year period. He will stand for re-election at the Annual General Meeting on 14 May 2004. Mr Farr has been managing partner of Muirhead Holdings LLC., Greenwich, CT, since 1998. Prior to that he was vice chairman of American Express Company, New York, from 1995 until his retirement in 1998. Before 1995, Mr Farr was a director of McKinsey & Co., New York. Mr Farr serves also as chairman of the board of directors of Covanta Energy, New York, and as a director of Misys plc, London, and Meridian Rail Company, New York.
Mr Hentsch, a Swiss citizen born in 1948, studied business administration at the University of St. Gallen, Switzerland, graduating in 1972 with a master’s degree in business finance and accounting.
Mr Scott is chairman of the board of directors of Yell Group plc, and a non-executive director of the Royal Bank of Scotland Group plc, Jardine Lloyd Thompson Group plc, and Focus Wickes Group Limited.
Elections and term of office Principles of the election procedure and term limits The term of office of a directorship is four years. It begins with the date of election by an Annual General Meeting and ends on the fourth subsequent Annual General Meeting. Members whose term has expired are immediately eligible for re-election.
The age limit is 70. Members who reach the age of 70 during a regular term of office shall tender their resignation at the Annual General Meeting following the attainment of that age.
All members of the Audit Committee must be non-executive and independent. They may not accept any consulting, advisory, or other compensatory fee from the company. They should not serve on the audit committee of more than two other listed companies. Members of the Executive Board are not eligible for membership until three years after the termination of their executive employment. Financial literacy is required for members of the Audit Committee.
Compensation and Appointments Committee Members George L. Farr, Chair Thomas W. Bechtler Bob Scott
Tasks and responsibilities This Committee oversees the development of a compensation philosophy, which is submitted to the Board for approval; it reviews and approves the Group’s compensation and pension plans; it recommends to the Board the amount and composition of directors’ remuneration; it determines the amount and composition of remuneration for the Chairman, the Executive Vice Chairman, the CEO and the members of the Executive Board on the basis of their performance; it approves the total amount available for performance based compensation; and it ensures compliance with any remuneration disclosure requirements.
Finance and Risk Committee Members Rajna Gibson, Chair Walter B. Kielholz Jorge Paulo Lemann Bob Scott
In respect of balance sheet issues, the Committee reviews the valuation of assets and liabilities for economic, accounting and regulatory purposes; capital adequacy, strategic asset allocation and its conformity with the risk tolerance level as determined by the Board; the treasury strategy, including the debt structure, the size of operational leverage and the dividend policy; and the liquidity policy, including cash and liquidity management. It also reviews the ratings received from the major rating agencies, takes note of their considerations and reviews management’s actions and recommendations.
Investments Committee Members George L. Farr, Chair Raymund Breu Bénédict G. F. Hentsch Walter B. Kielholz Jorge Paulo Lemann
Corporate governance semi-annually, on the Group-wide use of derivative instruments; and it reviews the business relationship of the asset-managing units with their counterparties, as well as associated transaction fees.
The Committees meet, on average, three to four times per year.
In 2003, the following meetings were held: Month BoD1 AC2 CAC3 FRC4 IC5 GSRC6
December regular regular regular regular regular 1 Board of Directors 4 Finance and Risk Committee 2 Audit Committee 5 Investments Committee 3 Compensation and Appointments Committee 6 Governance and Shareholder Relations Committee
The attendance rate at the regular Board meetings held throughout the year was 93%.
Board is responsible for the operational management of the Group as well as the coordination and execution of the Group’s business operations. The Executive Board has delegated certain authority to the Executive Board Committee, consisting of seven members. The Executive Board Committee is responsible for the conduct of day-to-day operational business activities. The Executive Board held ten meetings in 2003, often on two consecutive days. Two of those meetings were extended for the consideration of strategic issues. The Executive Board Committee has, as a rule, two meetings per month, except when the full Executive Board meets and in holiday seasons. In 2003, the Executive Board Committee met 17 times.
Information and control instruments The internal control system comprises a risk management system designed for the size, complexity and risk profile of the company, an internal auditing procedure and an organisation that ensures adherence to certain standards (compliance). Swiss Re is thus organised as follows: Group Risk Management Group Risk Management forms part of the Risk & Knowledge Division. It reports to the Chief Risk Officer and is responsible for creating transparency at the Group level with respect to the risks assumed through Swiss Re’s business origination and investment activities. Group Risk Management is not involved in the acquisition and execution of business.
There is a clear separation of tasks and responsibilities between the business units (with their own risk management organisations) and Group Risk Management. Group Risk Management sets the guidelines and standards, based on best practice. It is also responsible for developing risk measurement techniques, and managing the risk reporting, risk aggregation and risk steering processes. The business units are responsible for implementing Group guidelines in their particular areas of activity, adhering to limits and procedures, and managing data in the reporting process.
Risks include insurance underwriting risks, financial market risks, credit risks, and operational risks. Swiss Re’s risk landscape is updated and quantified whenever significant changes occur, such as movements in the market value of securities, the acquisition of companies, or very large transactions. The results of Group Risk Management analyses are regularly discussed by both the Executive Board and the Finance and Risk Committee of the Board of Directors.
Compliance Compliance at Swiss Re means the upholding of legal, regulatory and ethical standards by staff throughout the company. Swiss Re has developed a Group-wide Code of Conduct which lays down the company’s core principles and values, and offers guidance on how to apply these in all business activities. The Code of Conduct also sets out certain behavioural standards which all Swiss Re employees are expected to maintain. A Group Compliance Programme defines the role and duties of the compliance officers employed by Swiss Re. These officers report to the Group Compliance Officer and run local centres of competence whose remit is to uphold Group procedures and local or regional practices. Training for staff and compliance officers is carried out regularly at both local and Group level to ensure ongoing best practice in compliance matters. The Group Compliance Officer regularly provides the Audit Committee with a compliance report and reports to the Chief Risk Officer as the most senior representative of Group Risk Management. The Group Compliance Officer also conducts periodic compliance risk assessments. Management is then advised on appropriate control measures, with resultant action plans being implemented via the Compliance Officer Network, and in cooperation with key functions such as Group Internal Audit, Group Risk Management and line management.
Prior to the commencement of the external audit, the external auditor presents its plan and estimated fees to the Audit Committee for approval. At the conclusion of the external audit, the external auditor presents and discusses its report on the financial statements with the Audit Committee, and highlights any significant internal control issues identified. Each year the external auditor is required to provide a formal written statement to the Audit Committee defining all relationships it has with the Swiss Re Group. The Audit Committee and external auditor discuss any disclosed relationships or services that might affect the external auditor’s objectivity and independence.
Actuarial review The Board of Directors has appointed Mr Freddy Delbaen as an external actuary to perform examinations of the balance sheet provisions for the life reinsurance business of Swiss Reinsurance Company. Mr Delbaen is a professor and has held the position of Chair of Financial Mathematics at the Swiss Federal Institute of Technology (ETH) in Zurich since 1995.
Mr Fitzpatrick joined Swiss Re in July 1998 as Chief Financial Officer and was appointed to his current position in April 2003. Before joining, he was senior managing director and co-head of Securitas Capital, a private equity firm focused on the insurance industry.
Jacques E. Dubois Deputy Head of the Life & Health Business Group, Chairman & CEO of Swiss Re America Holding Corporation
Ms Godbehere was appointed Group CFO with effect from 1 April 2003. Previously, she held the position of Chief Financial Officer of the Property & Casualty Business Group and, prior to this, from 1998–2001, she served as the Chief Financial Officer of the Life & Health Business Group, based in London. Ann Godbehere joined Swiss Re in 1996, following the acquisition of the Mercantile & General Reinsurance Group. Until 1998, she held a number of senior positions in Swiss Re Life & Health North America, most recently the position of Chief Executive Officer of Swiss Re Life & Health Canada. Ms Godbehere started her career with Sun Life of Canada in 1976 in Montreal, Canada. She joined the M&G Group in 1981, where she held several management roles, including senior vice president and controller for both life and health and property and casualty businesses throughout North America.
Rudolf Kellenberger Deputy Chief Executive Officer, Member of the Executive Board Committee
Corporate governance sion in 1998. On 1 April 2000, he assumed his current function as Head of Europe Division. He is also CEO of Swiss Re Germany, a Group company which was integrated in Europe Division in 2001.
Bruno Porro Chief Risk Officer, Head of the Risk & Knowledge Division, Member of the Executive Board Committee
Stefan Lippe Head of the Property & Casualty Business Group, Member of the Executive Board Committee
Mr Wilson has been associated with Swiss Re, and previously Life Re, since 1991, as general counsel, secretary, and director of Swiss Re Life & Health America Inc. and its subsidiaries. Before his appointment in 2003 to the Executive Board, he held the position of executive vice president and head of the business engineering services unit, where he was responsible for overseeing the firm’s Admin ReSM programme as well as other non-traditional reinsurance solutions for life and health clients in North America.
Mr Wilson formerly served as general counsel for the Life & Health Business Group. Before joining Life Re, Mr Wilson worked for two Texan law firms as an associate attorney.
Mr Zaytsev joined Swiss Re in 1992 as head of corporate information resources for US subsidiaries, based in New York. In 1995 he was seconded to head office in Zurich, where he was put in charge of Group Information and Technology and the Group’s Data Centre. Mr Zaytsev was appointed to the Executive Board in 1999 as Group Information Officer. Prior to joining Swiss Re, Mr Zaytsev developed the IT systems for the 1980 Olympic Games in Moscow. He then emigrated to the US, where he first worked as an IT project manager for the retail group K-Mart in New Jersey. He then spent seven years working for the American International Group, New York, where he handled the firm’s domestic and international IT applications.
Ann F. Godbehere took over as Chief Financial Officer on 1 April 2003. At the same time she joined the Executive Board and became a member of the Executive Board Committee.
Management contracts Swiss Re Life & Health America Inc. and certain of its life insurance affiliates, each of which is a United States life insurance subsidiary of Swiss Reinsurance Company (such US insurance subsidiaries are together referred to as “Swiss Re Life”), are parties to a third party administration contract (the “TPA Agreement”) with affiliates of Computer Sciences Corporation, a Nevada corporation (together “CSC”). The TPA Agreement provides for CSC to carry out most of the policyholder administration services, including customer service, claims processing, and audit and regulatory compliance support, at mutually agreed and measured service levels for over two million direct life insurance policies and annuities of Swiss Re Life and its clients. Under the TPA Agreement, CSC provides these policyholder administration services at a number of operational sites throughout the United States. Swiss Re Life & Health UK has engaged CSC’s UK affiliate to provide administration services for an additional approximately 220 000 direct life policies. Subject to certain early termination provisions, the TPA Agreement has a ten year term ending in 2013. For competitive reasons, Swiss Re is contractually obliged to keep certain material commercial terms of the TPA Agreement confidential. Pricing terms, including form and extent of compensation, and termination provisions under the existing TPA Agreement, have thus not been disclosed here.
Swiss Re has a “pay for performance” philosophy. The Executive Board is paid a base salary and variable bonus. The fixed salary consists of a cash payment, while the bonus can be either in cash or shares that are deferred for four years. Furthermore, all Executive Board members are obliged to own a multiple of their base salary in shares.
Swiss Re also grants its top management options as a long-term performance incentive. The size of the option grant depends on the labour market, the degree of influence on the Group result, and the potential and acceptability of the resulting dilution. Swiss Re options have a total duration of 10 years with a four year vesting period. Entitlement to the options is forfeited in the event of resignation during this period.
The disclosure follows the SWX directive, which requires differentiation between the executive members of the Board of Directors and the management board in toto and the non-executive members of the Board of Directors in toto. This applies to the tables shown on page 68 and 69.
Three former members of the Executive Board perform periodic services on behalf of the firm.
Members of the Board of Directors receive an honorarium, 25% of which is in the form of shares; the remainder may be taken either in the form of cash or shares. Shares have a taxable value of CHF 73.65 if subject to a four year deferral period, and CHF 93, respectively, if not restricted.
Highest total compensation The compensation of the highest paid member of the Board of Directors (Peter Forstmoser) during the reporting year can be broken down as follows: Number of shares/options CHF millions
(as defined in ”Allocated number of options”, page 69) 40 000
The options run for ten years and have a four year restriction period during which there is a forfeiture risk. The value of one share is CHF 93. Based on the value of the restricted shares, the option has a value of CHF 23.25 at grant date.
Voting right restrictions, statutory group clauses, exception rules There are no voting right restrictions, no statutory group clauses and hence no rules on making exceptions.
Statutory rules on participating in the General Meeting of shareholders if differing from legal provisions At the Annual General Meeting of 12 May 2003, the statutory rules were aligned with the legal provisions. Accordingly, any shareholder with a voting right may have his/her shares represented at any General Meeting by another person authorised in writing or by corporate bodies, independent proxies or proxies for deposited shares. Such representatives need not be shareholders.
Statutory quorums The Articles of Association do not provide for any statutory quorums. Any General Meeting of shareholders passes resolutions by an absolute majority of the votes validly cast, subject to the compulsory exceptions provided by law.
Registrations in the share register There is no statutory rule on the deadline for registering shareholders in connection with the attendance of the General Meeting. In recent years, Swiss Re has acknowledged voting rights of shares which were registered at least two working days before the General Meeting. In 2003, the qualifying date was Thursday, 8 May, while the Annual General Meeting was held on Monday, 12 May.
Clauses on change of control Unvested bonus shares, share options, and certain other employee benefit programmes would vest upon a change of control. Rights of members of the governing bodies are identical to those of employees generally.
Mr Michael P. Nelligan and Mr Ray J. Kunz took up office as head auditors responsible for the existing auditing mandate as of 1 January 1997 and 1 July 2001, respectively. As of 1 January 2004, Mr David Law took over the position of Swiss Re’s lead audit partner from Mr Nelligan. However, Mr Nelligan has retained his responsibility for the audit of the 2003 financial statements and, in order to ensure a smooth transition, his involvement will extend until approximately June 2004.
Duration of the mandate and term of office of the head auditors
Auditing honorarium The following summarises fees for professional services for the year ended 31 December
Additional honorarium In addition to the fees described above, aggregate fees of CHF 2.4 million were billed by PricewaterhouseCoopers during the year ended 31 December 2003, primarily for the following: Income tax compliance and related tax services CHF 1.3 million Other fees CHF 1.1 million
The Board of Directors has established the Audit Committee, which holds four meetings a year and to which the two head auditors are regularly invited as advisory guests. The Audit Committee evaluates external auditors annually and recommends one firm to the Board for election at the Annual General Meeting of shareholders. The Audit Committee cooperates closely with the elected external auditors. In particular, it consults them in respect of significant risks, contingencies or other obligations of the company; it reviews and approves the planned audit services and discusses the audits with them; it approves in advance non-audit services expected to be provided by the external auditors and reviews and approves other non-audit services that have been pre-approved by the Chairman of the Audit Committee between Audit Committee meetings; it reviews major changes to the company’s accounting principles and practice brought to its attention by the external auditors; together with the external auditors, it reviews the adequacy and efficacy of the financial reporting process, the system of internal controls and quality control procedures, as well as any other significant findings and recommendations; it discusses with them the results of the annual audit, and in particular their report on the financial statements, necessary changes in the audit plan, any serious difficulties or differences of opinion encountered with management during the audit, critical accounting policies and alternative accounting treatments that have been discussed with management. The Audit Committee’s discussions include considering the possible consequences of using such alternatives and investigating the treatment preferred by the external auditors. It also discusses other material written communications with management, such as management letters or schedules of unadjusted differences; external auditors are requested, at least once a year, to supply a formal written statement delineating all relationships with the company that might affect auditor independence; it actively engages in a dialogue with the auditors in respect of any disclosed relationships or services that might impact their objectivity and independence, and recommends to
One of the guiding principles in Swiss Re’s Corporate Philosophy is “clear and open communication ”. As a result, the Group’s information policy goes beyond legal requirements, aiming to meet best practice standards established by global industry peers.
Swiss Re maintains a close relationship with the financial community and the broader public by using all available communication channels. The company’s website includes full details of its corporate disclosure. Swiss Re is strongly committed to treating all investors equally. Meetings dealing with important corporate information are held with institutional investors and analysts; they can also be followed by private shareholders via telephone conference or on the Internet.
Swiss Re prevents selective disclosure by observing ad-hoc publicity rules, and a policy of restrictions for the so-called “close period” during which the financial results are finalised. The close period commences on a given date preceding the official publication of the financial results and lasts until such publication has been made. No meetings are held with analysts or investors during this close period. In addition, members of the governing bodies, their secretariats and employees preparing or communicating material non-public financial information are subject to close period communication and trading prohibitions.
Communication of major corporate news in 2003 Please see page 16 (“Key events”) for details on major corporate news in 2003.
Mr Busenhart, why is water an issue in the current European debate on ecological damage? Pollution of transboundary water courses and the decline in quality and availability of drinking water have devastating effects on nutrition and health. In the European Union (EU), the debate on how best to deal with environmental damage and the resultant health issues was launched almost a decade ago. At present, each individual country within the EU still has its own set of regulations for determining who should be held liable for the cost of environmental impairments. However, an EU-wide solution may well emerge in the medium term. As representatives of the insurance industry, we are very pleased to see this happening.
Do you expect demand for environmental liability solutions to grow, and if so, what is Swiss Re doing to prepare itself? A revised EU directive on the prevention and remedying of environmental damage is due to come into force in the near future, meaning that national legislation will have to be aligned. This new directive will amplify demand for insurance cover and provide the insurance industry with an impetus to develop products and realise potential business opportunities. Swiss Re is seeking to foster public awareness of environmental issues and develop solutions that address the complexities of ecological risks.
At Hardhof, the groundwater is drawn using horizontal filter wells from a depth of up to 25 metres. From there it is fed to the pumping station – a vital link in Zurich’s water supply infrastructure.
Swiss Re’s weighting in indices Swiss/blue chip indices Index weight (in %)
Swiss Re shares are listed on the main board of the SWX Swiss Exchange and traded on the virt-x under the symbol “RUKN”. An average daily trading volume of more than CHF 100 million was recorded in 2003. On 1 February 1996, Swiss Re launched an American Depositary Receipts (ADR) programme together with Morgan Guaranty Trust Company of New York. Under this programme, level 1 ADRs are not listed, but traded overthe -counter. One ADR corresponds to one Swiss Re share.
Swiss Re’s goal is to provide the financial community with appropriate corporate disclosure, thereby allowing the most efficient pricing of its securities by the market and maximising sustainable valuation.
Shareholder structure As of 31 December 2003 Number of shareholders in % Number of shares in %
Total number of registered shares 57 721 100.00 202 239 173 65.16
Daily trading volume (CHF million) 131 168 129 133 167 166 115 124 1 The 1997–2000 figures have been adjusted by the 20-for-1 share split in 2001 2 Based on shares entitled to dividend 3 All data as of 17 March 2004 4 Subject to approval at the Annual General Meeting of 14 May 2004
Acquisition costs That portion of an insurance premium which represents the cost of obtaining the insurance business: it includes the intermediaries’ commission, the company’s sales expense, and other related expenses.
Asset-backed securities A security backed by notes or receivables against assets such as auto loans, credit cards, royalties, student loans and insurance.
Asset-liability management Management of a business in a way that coordinates decisions on assets and liabilities. Specifically, the ongoing process of formulating, implementing, monitoring and revising strategies related to assets and liabilities in an attempt to achieve financial objectives for a given set of risk tolerances and constraints.
Catastrophe bonds (cat bonds) Risk based securities that allow (re)insurance companies to transfer natural catastrophe insurance risk to institutional investors in the form of bonds. Cat bonds help to spread peak exposures (see insurance-linked securities).
Cession Insurance that is reinsured: the passing of the insurer’s risks to the reinsurer against payment of a premium. The insurer is referred to as the ceding company or cedent.
Claim Demand by an insured for indemnity under an insurance contract.
Claims handling The work in connection with the investigation, settlement and payment of claims from the time of their occurrence until settlement.
Claims ratio Sum of claims paid, change in the provisions for unpaid claims and claim adjustment expenses in relation to premiums earned.
Coinsurance Arrangement by which a number of insurers and/or reinsurers share a risk.
Credit insurance Insurance against financial losses sustained through the failure, for commercial reasons, of policyholders’ clients to pay for goods or services supplied to them.
Actuarially determined estimate of the economic value of the in-force life and health insurance operations of an insurance company (excluding any value attributable to future new business). Embedded value earnings, defined as the change in the embedded value over the year (after adjustment for any capital movements such as dividends and capital injections), provide a measure of the performance of the life and health insurance operations of an insurance company.
Financial reinsurance Form of reinsurance that provides risk financing which may be combined with elements of traditional risk transfer.
Liability insurance Insurance for damages that a policyholder is obliged to pay because of bodily injury or property damage caused to another person or entity based on negligence, strict liability or contractual liability.
Life insurance Life insurance, sometimes referred to as life assurance, provides for a payment of a sum of money upon the death of the insured. In addition, life insurance can be used as a means of investment or saving.
Form of reinsurance in which coverage is not in direct proportion to the original insurer’s loss; instead the reinsurer is liable for a specified amount which exceeds the insurer’s retention.
Property insurance Collective term for fire and business interruption insurance as well as burglary, fidelity guarantee and allied lines.
Proportional reinsurance Form of reinsurance in which the premiums and claims of the insurer are shared proportionally by the insurer and reinsurer.
Return on total revenues Measure of profitability in the Financial Services Business Group: the operating result (operating revenues less the sum of acquisition costs, claims and claim adjustment expenses and operating costs) as a percentage of operating revenues (premiums earned and net investment income plus trading revenues and fees and commissions).
Some of the terms included in the glossary are explained in more detail in note 1 “Organisation and summary of significant accounting policies” in the Financial Statements. Swiss Re uses some of the term definitions provided by the glossary of the International Association of Insurance Supervisors (IAIS). For additional insurance terms, please refer to Swiss Re’s online glossary of technical terms at: www.swissre.com
Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise.
Photographs: Urs Siegenthaler (cover page) Andreas Seibert/Lookat (p. 38, 47) Keystone (p. 39, 46 right)
The web version of the Annual Report 2003 is available in English at: www.swissre.com/annualreport
XXXX XXXX Annual Report 2003 Business Report Swiss Reinsurance Company Mythenquai 50/60 P. O. Box 8022 Zurich Switzerland www.swissre.com