Swiss Reinsurance Company 50/60 Mythenquai, P.O. Box 172, 8022 Zurich, Switzerland Telephone 25 88 00 (from 8th June, 1977: 208 21 21) Telex 59261 reas oh Cables reassurance
Management expenses, taxes, fluctuations in stock exchange and foreign currency rates, depreciation 14
Hans R. Lüthy* Küsnacht, Managing Director and General Manager of IBM (Switzerland), Zurich 1977
Felix W. Schulthess Zurich, Chairman of the Board of Directors, Swiss Credit Bank, Zurich 1979
Deputy Managers Roger Aeberli Kurt Aerni Albert Albrecht Erwin E. Arpagaus Alfred Bai* Eduard Bart Gunnar Benktander Fritz Bolliger* Andreas Brügger
Members of Management In Advisory Capacity Robert P. Brouwer Max L. Hefti Hans F. Enzmann Cskar Jenni
Willi Schürpf Dieter Söhner* Jürg Steinrisser Paul Würsch John W. Youngs*
The business year 1975/76 embraces the reinsurance business for the caiendar year 1975 and other income and expenditure from 1st Juiy, 1975 untii 30th June, 1976.
Non-Life reinsurance showed an underwriting loss, primarily because of North American business; on the other hand, Life reassurance produced a satis­ factory result. Whilst investment income, mostly accrued in foreign currencies, remained about the same as in the previous year, fluctuations in foreign currency rates brought a substantial profit, in contrast to the previous year's loss. The growth rate of man­ agement expenses was reduced but tax payments rose considerably. The net profit of Sw. frs. 55.2 mil­ lion is slightly higher than that of the previous year (Sw. frs. 53.4 million).
The reporting year once more put to the test the great significance of having a wide technical and geographical balance In the portfolio of the Swiss Re, despite the fact that Inflation and recession were felt worldwide. Whereas a major concern of the Insurance industry during the years of economic boom in Property insurance was the growing lack of care taken with regard to insured objects, the year under report saw more fire claims due to arson or sabotage — presumably to some extent a consequence of greater social unrest. Both acts are covered In Fire policies, yet the premiums levied usually originate from a time when such claims were much rarer and in many cases are in urgent need of adjustment to the new circumstances.
Natural catastrophes, such as earthquakes and wind­ storms, are among the major risks figuring In the portfolio of an International reinsurer. Their relative infrequency and the extent of their loss potential, which can never be assessed with absolute accuracy, make It very difficult for them to be handled In terms of Insurance and reinsurance. Rapid population growth. Intensive Industrial expansion and the conse­ quent high concentration of values in exposed areas call for the regular review of potential financial reper­ cussions. Analyses of this kind are difficult and timeconsuming and require close cooperation between Insurer and reinsurer. The prerequisites for such cooperation do not exist everywhere to any uniform degree. In Earthquake insurance, the insured values located within a particular earthquake zone have first to be determined and totalled; then the percentage of the total value which could possibly be destroyed by earthquakes of varying intensities is calculated, taking into account the geological conditions, the type and quality of building construction, the strength and effects of earlier .quakes, etc. Premiums for natural catastrophes which are not absorbed by earthquake and storm claims may not be entered in the annual accounts as profits, but must be set aside for years, and often decades, to build up catastrophe reserves. Unfortunately, in catastrophe-free years, this necessity is repeatedly forgotten by reinsurers involved
Fire 907 853 835 775 736 Hail 20 20 18 16 16 Burglary/Fidelity and allied lines 70 f 66 65 66 62
Aviation 70 62 i 65 73 101 Atomic Risks 4 3 2 2 2 Credit, Surety 101 95 j 89 75 78
For the reasons already mentioned, General Third Party Liability reinsurance produced a high loss, stemming mainly from the United States. The enact­
The premium volume of Atomic reinsurance has again grown. The positive balances of this branch are used exclusively to accumulate reserves for future losses. Compared with overall business, the importance of Atomic reinsurance in terms of actual premium volume is very modest.
In the Credit and Surety branches, the annual account was burdened by major surety claims in the United States and by a large number of medium-sized credit claims mainly in West Germany and France; a loss was produced in these branches, which are greatly dependent on the economic situation, in the current year, there has already been a noticeable improve­ ment of loss experience in leading markets (the
,The gross amount of new business, in terms of sums reassured, was Sw. frs. 7,822 million in the year under report. The net amount reached Sw. frs. 6,824 million, i.e. 8 % less than in the previous year. At Sw. frs. 27,229 million, the net business in force at the end of 1975 was 5 % more than a year earlier. Exchange rate fluctuations — particularly in the case of Euro­ pean currencies — meant that, when expressed in terms of Swiss francs, both new business and the business in force showed approximately 10% less increase than would have been the case, had foreign currency rates remained unchanged.
Despite the growth in the amount of business in force, the profit fell from Sw. frs. 24.7 million to Sw. frs. 22.6 million due to increased financing requirementsfor new business and a greater loss burden. Expenditure for disability cases was noticeably increased and there was an unusually high frequency of suicide cases as the cause of death for assureds with large sums assured.
In the year under report, the economic slump in the western Industrial countries seems to have come to an end. At varying times from country to country and with varying degrees of intensity, economic revival has set in. Since spring of this year, however, the initially rapid rate of recovery has again weakened. The next few months will show whether this Is just a temporary slowdown or whether It is already the end of the upswing.
On the leading stock markets, prices developed at approximately the same pace as the economy. Here the steep upward trend In the first eight months of the year under report gave way more and more to a hesitant or even slightly yielding trend.
The slackening of economic growth has by no means produced merely negative consequences. The still persistent prospects of Inflation have been noticeably subdued and the danger of a premature Impetus to wages and costs reduced. In view of the fact that the private sector of the economy made fewer credit demands than expected, interest rates in several major investment territories have declined further; bond holdings have consequently been subject to a corresponding appreciation in value. However, lower interest rates also mean a reduced yield for new funds and capital falling due for reinvestment, resulting in a restraining effect on the growth rate of our investment income.
The value of foreign investmenfs was considerably impaired because of the customary practice of converting them into Swiss francs at the exchange rates prevailing on the balance-sheet date. Conse­ quently, despite additional funds invested of Sw. frs. 182 million, the balance-sheet value of investments only rose by Sw. frs. 38 million and the total of Income-producing assets remained almost constant. The decreased conversion rates also gave rise to a reduction of current Investment Income and, together with the already mentioned lower interest rates on new funds and capital falling due for reinvestment, led to the fact that an Impressive 10 % growth In original currency amounted to a barely changed'result In Swiss francs. After deduction of Interest on the life insurance and annuity fund and other technical reserves, it reached Sw. frs. 143 million (previous year, Sw. frs. 145 million).
The emphasis of new Investments lay on the purchase of fixed-Interest securities, their balance-sheet value Increasing by Sw. frs. 30 million to Sw. frs. 1,852 mil­ lion. Increases in the equity sector are correspond­ ingly lower (Sw. frs. 7 million for shares; Sw. frs. 1 mil­ lion for real estate). Because of favourable prices in the building industry, substantial renovation and maintenance work has been carried out on our property. Some examples are shown In the Illustrations below.
Renovated property belonging to the Swiss Re and its Employees' Welfare Foundation.
A breakdown by currency shows the following distri­ bution of Investments: 31 % (previous year, 29 °/o) in Swiss francs, 41 % (47 °/o) in other European currencies, 25% (21%) in U.S. and Canadian dollars; the remaining 3% (unchanged) Is In Australian dollars and Japanese yen. The Increased percentage of Investments in Swiss francs and U.S. and Canadian dollars Is due to two circumstances: on the one hand, substantially more funds were Invested during the reporting year In Switzerland and the United States than in the remaining investment territories and, on the other, the value of the U.S. dollar has remained almost stable and that of the Canadian dollar even Increased, whereas all European currencies have depreciated against the Swiss franc.
Net Cash Deposits with Insurance Companies 30/6/76'- 30/6/75 30/6/74 jV^07lJ 4,074 30/6/73 30/6/72
Distribution of investments in percent at balance-sheet values (Previous year in parentheses)
Distribution of investments in percent at market values (Previous year in parentheses)
The last Genera! Meeting re-elected Mr. Felix W. Schulthess to the Board of Directors for an additional four-year term of office.
Mr. Heinz B. VIscher, Deputy Chairman, was also appointed Managing Director at the meeting of the Board of Directors on 23rd September, 1976.
At this year's General Meeting, the Board of Directors will propose election to the Board of Mr. Hans Bühlmann, Rüschlikon, Professor of Mathematics at the Swiss Federal Institute of Technology, Zurich.
Deputy Managers: Messrs. Alfred Bai, Fritz Bolliger, Rolf Eckert, Max L. Hefti (In Advisory Capacity), Wal­ ter Isler, Ernesto Jutzi, Lavre D. KIrlanoff, Balthasar Mätzener, Samuel Patthey, Pierre-Claude Perrenoud, Arnold Saxer, Otmar Schmidlin, Max A. Tobler and Hans Wyler; Assistant Managers: Messrs. Christoph Blanc, Willy Honegger, Peter P. Hügle, Hans W. Kreis, J.B. Richard Lieberman, Fulco Lock, Simon R. Menn, Walter MInoretti, Theodor Christ, Egon J. Ritter, Robert Rüesch, Rene Rüttimann, Dieter Söhner, Herbert Tiedemann (in Advisory Capacity) and John W. Youngs.
Mr. Willy Bruppacher, Manager and Financial Advisor to the General Management, retired on 31st Decem­ ber, 1975. We should like to- express our sincere gratitude to him for his many years of valuable service to our Company.
Last year's General Meeting confirmed Messrs. Hans Homberger, Rudolf Huber-RGbel and Peter G. Syz as Auditors and Messrs. Max Honegger and Hans Karrer as Substitutes. Their re-election was for a threeyear term, as stipulated In the Articles of Association.
With effect from 1st January, 1977, the Board of Directors has made the following appointments: General Manager: Mr. Walter Diehl; Managers: Messrs. Ernst A. Kubli, Gerard Lavanchy and Jan C. Roos;
cf. Profit and Loss Account (page 18) and Balance Stieet (page 21)
If the Board of Director's proposal Is accepted, a dividend of Sw. frs. 90.— per share Is to be paid. Thus, upon presentation of Coupon No. 22 of the registered and bearer shares, a gross amount of Sw. frs. 90.— or, after deduction of the Federal With­ holding Tax of 35 °/o, Sw. frs. 58.50 will be paid.
After distribution of the profit in accordance with the including the balance brought forward, would be proposal on page 16, the capital and free reserves, raised from Sw. frs. 327 million to Sw. frs. 341 million.
In accordance with Art. 723 of the Swiss Code of Obligations, the present Annual Statement has been examined and found correct by the independent auditor, Mr. A. Ehrbar.
The report of the Auditors appointed by the Share­ holders appears on page 22.
Zurich, 14th October, 1976 For the Board of Directors: M. E. Eisenring, Chairman
Sw. frs. Sw. frs. 1 Sw. frs. "=v • 1 Sw. frs.
All Classes excl. Life Commissions and Profit Commissions 737,899,871 168,294,767 ^ 569,605,104 533,166,023
Depreciation, Fluctuations in Stock Exchange and Foreign Currency Rates — 23,272,833 20,174,586
Holdings f" 21,563,055 17,036,225 Loans to Group Companies g 349,307,870 327,063,606
Unearned Premiums for Own Account All Classes excl. Life Life Business (Poiicy and Annuity Valuations)
t 111,000,000 ] 1 111,000,000 Statutory Reserve Fund 55,500,000 : ) i 55,500,000 Special Reserve Fund Y 90,000,000 5 1 82,500,000 Reserve Fund for Catastrophe Losses 69,000,000 1 64,000,000 Balance Profitbroughtforwardfrompreviousyear 1,393,154 Net Profit for the Year 55,213,132
Acting upon our terms of reference, we have checked the Profit and Loss Account for the business year 1975/76 and the Balance Sheet as at 30th June, 1976, against the accounts of the Company, which have been kept in proper form and order, and have found that the figures concord. The assets of the Company and the operating results are presented in accor­ dance with the methods of valuation legally pre­ scribed.
Peter Frey, General Manager Clinton E, Geiser, General Manager Bavarian Reinsurance Company Ltd. Swiss Reinsurance Company (U.K.) Ltd.
Michel Sales, President Robert F. Clark, President Canadian Reassurance Company Canadian Reinsurance Company
Consolidated net premiums increased in the reporting year by 5.7 % to Sw. trs. 4,909 million. The contri­ bution made by the insurance companies remained about one third. — The underwriting business of the reinsurance companies closed with an overall loss. Furthermore, the underwriting profits of the insurance companies were lower than in the previous year. However, thanks to increased investment income and substantially reduced write-offs, the Group profit of Sw. frs. 72 million was almost as high as a year earlier. The Group's capital funds shown, including Group profit, amounted to Sw. frs. 488 million (pre­ vious year, Sw. frs. 503 million).
While premium income in the original currency partly showed above average growth, the result of non-Life reinsurance has deteriorated further, as expected, the previous year's experience having already been disappointing. Whereas a year earlier it had just proved possible to offset the losses incurred in North America against the profits of other Group companies, the year under report resulted in an underwriting loss of Sw. frs. 60 million (previous year, profit of Sw. frs. 5 million), without any largescale catastrophe losses affecting the Group.
The main sources of loss were again the United States and Canada, where the insurance industry in 1975 remained in the throes of a severe structural crisis. It was therefore to be expected that the business acquired by the Swiss Re Group would not be spared this development. The underwriting loss suffered by the North American Reinsurance Corporation domi­ ciled in New York was almost double that of the previous year.
Although less serious, the situation in Canada still involved losses similar to the previous year. The complex reasons for this development have already been dealt with in last year's Annual Report and on page 7 of this report. The problems linked with the lengthy settlement period of liability claims have long been recognized in the American market but for years their material effects have been considerably underestimated. So far, the consequences have been borne primarily by the reinsurers, on the one hand in the form of actual run-off losses and, on the other, by the need to increase reserves for losses already incurred but not yet or not fully reported by the ceding company. Both act by nature as a debit to the current Profit and Loss Account and can considerably in­ fluence the result of a particular reporting year, in the 1975 business year this was clearly the case, both with the North American Reinsurance Cor­ poration and the Canadian Reinsurance Company. — The inclusion of the so-called stability or index clause in reinsurance treaties was practically com­ pleted by Group companies by the end of 1975, thereby fulfilling a prior need for a better distribution of claims inflation between ceding company and reinsurer in the classical sense of sharing of fate. Other remedial measures, also including organiza­ tional and personnel aspects, were energetically pursued and considerable progress is evident in the current year. Exactly when the two Group companies will again be on a sound, profit-making footing depends, however, to at least some extent on the overall development of the insurance industry in these markets.
Higher investment income together with a greatly reduced write-off requirement and largely stabilized management expenses were more than able to offset the overaii negative experience of the reinsurance companies' underwriting business. Their contribution to the Group profit therefore suffered only a minor set-back compared with the previous year.
The German insurance companies, in which SR Beteiligungen AG, Munich maintains a majority holding, produced a smaller underwriting profit than in the previous year. In contrast, the result from investment activity was higher, giving a slightly increased overall profit.
The SwissRe Holding Ltd. comprises all the com­ panies whose figures have been consolidated — with the exception of Swiss Re, Zurich — together with a number of minority holdings.
Although certain Group companies and minority holdings increased their dividends in the year under report, SwissRe Holding Ltd. suffered a further slight reduction of dividend income to Sw. frs. 14.6 million (previous year, Sw. frs. 15.3 million). The decline in dividends is attributable to the fact that SR Beteili­ gungen AG, Munich, founded at the end of 1974, only passed on to SwissRe Holding Ltd. the dividends paid by the German insurance companies in the year under report after it had closed its books. SwissRe Holding (North America) Inc. again did not pay any dividend. Lower foreign exchange rates similarly caused a reduction of income.
Life Business In force (consolidated) in millions of francs ^4975*^ 1974* 1973 1972 1971
Gross Business 61,712 , 57,057 51,554 45,249 45,691 Net Business 58,306 54,241 47,229 42,164 42,585 *scope of consoiidation extended; figures not comparabte with the years 1971—1973
Premium Income and Annuities Purchased 619 189 1 808 i 769 Adjustment in Policy and Annuity Valuations — 154 — 83 1 ro GO ! — 216 Interest on Life Assurance and Annuity Fund 62 60 122 115
Insurance Companies I lOffi June 1976 Total 30th June 1975 Total
The Group accounts embrace the Swiss Re, Zurich and all foreign and domestic companies in which the parent company directly or indirectly maintains a majority holding.
The conversion rates for foreign currencies into Swiss francs were the average rates as at 30th June of the particular year. The foreign currencies used in the Group accounts have varied over the previous year as follows: 30th June, 1976
The amount of capital funds shown appficabfe to minority shareholders rose by Sw. frs. 7 million net to Sw. frs. 38 million; this increase comprises the corresponding amounts of the previous year's profit and the effects of exchange rate fluctuations.
The Consolidation Reserve Fund results from the difference between the capital funds shown of Group companies and the corresponding book values applied by SwissRe Holding Ltd. and Swiss Re, Zurich. The decline of the Consolidation Reserve Fund by Sw. frs. 25 million is due to the abovementioned exchange rate loss as well as to internal changes of shareholdings.
The exchange rate loss of Sw. frs. 16.5 million re­ sulting from the new valuation of the opening balancesheet figures was debited to the "Consolidation Reserve Fund".
North American Reassurance Company 245 Park Avenue. New York, N.Y. 10017 with offices in Chicago, Dallas and Lakewood (Colorado)
Swiss-South African Reinsurance Co. Ltd. Swiss House, 86 Main Street, Johannesburg with offices in Cape Town and Pretoria
SwissRe Advisers Ltd. 245 Park Avenue, New York, N.Y. 10017 2306-2309 Connaught Centre, Hong Kong with an office in Tokyo 5-15, Nihonbashi 3-chome, Chuo-ku, Dowa Building, Tokyo 103