Management expenses, taxes fluctuations in stock exchange and foreign currency rates, depreciation 16
Board of Directors Term to expire in Max E. Eisenring* Chairman, Rüschlikon 1980
Hans R. LOthy* Küsnacht, Managing Director and General Manager of IBM (Switzerland), Zurich 1977
Marcel Odier Gologny, Partner In Lombard, Odier & Cie., Bankers, Geneva 1980
Assistant Managers Gottfried Bachmann Christoph Blanc Edmond Capt Enzo Delcö Erich Etter Heinz Fischer Leon Genoud
Members of Management in Advisory Capacity Robert P. Brouwer Max L. Hefti Hans F. Enzmann Oskar Jenni
Simon R. Menn Roger P. Merkelbach Walter Minoretti Werner Müller Theodor Christ Heinrich Pfefferle Egon J. Ritter
Arnold Saxer Otmar Schmidlin Peter Schuppli Edward Spargnapani Paul Strickler Max A. Tobler Martin Trippel Hans Wyler
The difficulties outlined in last year's Annual Report with regard to Third Party Liability business in the United States — and lately also Workmen's Com­ pensation — continue to preoccupy us. Our reinsur­ ance subsidiary company in the United States was able to counter the further growth in the loss burden by considerably increasing reinsurance premium rates. The general situation in these branches has, however, not yet undergone any decisive change, the current problems being deeply rooted in the American legal system. Effective rectification presupposes mobili­ zation of the political determination in the United States to remove the prevailing underlying faults. American insurance companies are currently con­ ducting an intensive campaign to make the insured public more aware of the link between the often exorbitant awards granted by juries, at least 30 °/o of which goes on average in lawyers' fees, and the constantly increasing premiums. The conditions de­ scribed differ greatly among the various Liability branches, but also from state to state, so that the fine distinctions in underwriting policy which our American subsidiary is striving to achieve as regards Liability category and location of risk are of utmost significance.
Accident 188 167 160 165 150 Sickness 87 70 71 71 72 Third Party Liability 213 168 159 159 178
Aviation 82 70 62 65 73 Atomic Risks 4 4 3 2 2 Credit, Surety 126 101 95 89 75
However, the preconditions of this required triple spread are repeatedly jeopardized: balance by branch is only possible If the risks in the various branches are correctly rated. Geographical spread presupposes that reinsurance activity is not unduly subject to government restrictions (deposit regula­ tions, limitation of reinsurance business ceded abroad, obstructions to the transfer of balances, investment regulations, etc.). Finally, a reinsurer can only successfully achieve spread in time if his prof­ itability enables him to build up the necessary reserves to meet catastrophe losses or a generally unfavourable future loss experience.
Fire reinsurance closed positively in the reporting year with a declining profit margin. Apart from the storm and earthquake losses already mentioned, the annual result was burdened by a number of individual major losses. Premium rates for industrial business are currently on the decline in many countries, a development reflecting above all the intensified competition for new business which, because of the recession, is only modest. In point of fact, sinking premium rates could only be justified by correspond­ ing progress in loss prevention, leading to a reduction in the loss burden.
Business in the Burglary, Fidelity and allied lines again produced a substantial deficit. These branches bring a loss in almost all territories. Many of our clients also sustained high losses in the Burglary/ Fidelity branch under the influence of increasing crime. Despite intensive remedial measures, such as careful underwriting, increased premium rates, intro­
As in the previous year. Accident reinsurance showed a profit. There is still, however, no adequate control over American Workmen's Compensation reinsur­ ance, which is undergoing the same precipitous claims inflation as American Liability reinsurance business.
Sickness reinsurance produced a small loss. The expansion of state insurance in this branch is impeding the development of private Sickness insurance. Moreover, the latter, just like national health insurance schemes, is affected by the cost explosion in medical care.
Engineering reinsurance registered a 25 °/o premium growth and a profit. As the volume increases, the regional spread is steadily improving.
rebates allowed for good individual loss records made it impossible to allocate sufficient funds to the catastrophe reserves.
Thanks to improved loss experience in American Surety business and a good international spread of the portfolio, Credit and Surety business reverted to a profit in the year under report. There is, however, continuing concern at the large number of insolven­ cies which the recession is bringing about in West Germany; these weigh heavily on Credit insurance results.
The net amount of new business in terms of sums reassured was Sw. frs. 7,245 miiiion or 6 % more than in the previous year; the net amount of business in force increased by 11 % to Sw. frs. 30,272 miiiion. Overall, these figures were only slightly affected by exchange rate fluctuations as foreign exchange profits and losses largely offset each other.
In the year under report, the technical reserves for own account increased from Sw.frs. 3,967 million to Sw. frs. 4,495 million; Sw. frs. 3,237 million of this total was for non-Life reinsurance and Sw.frs. 1,258 million for Life reassurance. As the diagram below illustrates, fluctuations from year to year are as a rule slight, although in the reporting year total reserves grew considerably following the steep increase in the premium volume. Their share of the balance-sheet total has remained almost stable in recent years at 77 %.
For the most part, activity on the leading share markets foiiowed the underlying economic develop­ ments. Repeated attempts towards higher share prices invariabiy came to a halt, only to be followed by new declines. Compared with the start of the business year, fiuctuations stayed within narrow iimits and, on many leading stock exchanges, even iosses were registered over the year. A general increase in share prices took place only in Great Britain, Japan and Switzerland.
The lack of economic strength had, however, a favourable effect on bond markets. As there contin­ ued to be little demand for credit, interest rates deciined in our main investment areas. Consequentiy, bond holdings in these countries showed an appre­ ciation In value, which was only partly offset by a trend towards rising interest rates in certain countries shortly before the balance-sheet date. The reduced yield on the investment of new money, including redemption proceeds, which is the inevitable con­ sequence of lower interest rates, had a somewhat restraining effect on the growth rate of our investment income expressed in original currencies. When con­ verted into Swiss francs, this negative impact was, however, more than offset by currency developments which, in contrast to the previous year, on balance were favourable.
The emphasis in new Investments again lay on the purchase of fixed-interest securities. Their book value increased by Sw. frs. 432 million to Sw. frs. 2,284 million. In the equity sector, the book value of shares increased by Sw. frs. 66 million, whilst real estate decreased by Sw. frs. 12 million, reflecting sales abroad and provision for depreciation.
Of the assets shown, Sw. frs. 126 million (previous year, by us In overseas territories.
In the year of report, management expenses rose by Sw. frs. 1.8 million to Sw. frs. 86.6 million. It was possible to reduce the rate of increase from 4% in the previous year to 2 %. This development was favoured by a tight control on expenses and by the low rate of inflation; the latter also meant that less funds had to be allocated to the Employees' Welfare Foundation than in previous years.
The account for fluctuations in stock exchange and foreign currency rates and depreciation closed with a surplus of Sw. frs. 1.5 million (previous year, Sw. frs. ,23.3 million).
Foreign currency rate tiuctuations remained within more restricted bounds than in 1975/76. Whereas the previous year's above average result was largely due to positive exchange rate differences realized in foreign currency transactions, these transactions brought a small loss in the year under report. On the other hand, the conversion of the balance-sheet figures at the beginning of the year, on the basis of the average rates of exchange at the end of the business year, produced a profit, in view of the fact that this item of income is mainly of a bookkeeping nature, it was earmarked for an appropriate reserve. — The table below summarizes the exchange rate fluctuations which have taken place over the past five years' in major operating currencies.
At this year's General Meeting, the terms of office of Messrs. Hans R. Lüthy, Max Troendle, Hans Ulrich and Heinz B. Vischer expire. Having reached re­ tirement age, Mr. Troendle is resigning from the Board; the other gentiemen are standing for re­ election. — Mr. Felix W. Schulthess informed us about a year ago of his wish to withdraw from the Board of our Company at the General Meeting following his retirement from the Board of Directors of the Swiss Credit Bank.
With effect from 1st January, 1978, the Board of Directors has appointed Mr. Hermann Odermatt as General Manager and Mr. Herbert Sohönenberger as Deputy General Manager. Mr. Eduard Bart, Deputy Manager, retired on 30th June, 1977. We should like to express our sincere gratitude to him for almost four decades of valuable servioe to our Company. Mr. Wiiiy Sohürpf, Assistant Manager, whom we also thank for his many years of service, left our Company in April, 1977, to take up another position in the Swiss insurance industry. To our great regret, Mr. Balthasar Mätzener, Deputy Manager, unexpectedly died on 19th Cctober, 1977. We are grateful to him for his many years of service to our Company.
Mr. Schulthess has been a Member of the Board since 1967. His many years of close connections with national and international financial circles and his comprehensive knowledge of the world economy made him a valuable advisor to whom we are greatly indebted.
Staff The number of staff employed by the Head Cffice in Zurich was 842 at the end of June, 1977, which is practically unchanged over the previous year. The number of staff employed by the whole Group is shown in a table on page 35. Handling the various main and special branches of reinsurance on a broad international scale, with the many complexities this often entails, calls for an extremely versatile and highly qualified staff with a large number of specialists in responsible positions. By means of Internal and external training, attempts are made to ensure that the level of training is at ail times high. Thanks and recognition are due to the entire staff for the good work at all levels during the year under report.
Proposal regarding the Allocation of the Net Profit cf. Profit and Loss Account (page 20) and Balance Sheet (page 23)
The Board of Directors proposes to the General Meeting the following allocation: 1976/77 1975/76
rofit and Loss Account for the Business Year 1976/77 embracing ttie reinsurance business for the calendar year 1976 and the other income and expenditure for the period from 1st July, 1976 to 30th June, 1977
Life Business Commissions 48,428,256 2,248,853 46,179,403 59,000,420 Surrenders 135,644,316 102,251,964 33,392,352 64,038,231 Claims on death and maturity 119,389,791 2,254,398 117,135,393 123,727,607 Annuities paid 4,895,392 4,047,983 847,409 3,814,970 Adjustment in outstanding claims reserve 13,577,265 7,539,891
Further Outgo Management expenses 86,646,622 84,790,843 Taxes 49,260,546 38,426,617 Fluctuations in stock exchange and foreign currency rates, depreciation — 1,457,060 — 23,272,833 Result from further income and outgo 39,069,650 43,690,618
Annuities purchased 4,835,568 4,835,568 5,400,174 Adjustment in annuity valuations — 5,270,102 — 2,416,150 Interest on Life assurance and annuity fund 37,609,102 36,108,183
Outstanding claims for own account All classes excl. Life (incl. valuation of current annuity indemnities) Life business
On this basis, we recommend that the present accounts be approved. Furthermore, we confirm that the allocation of the net profit, as proposed by the Board of Directors, complies with the law and the statutes.
In February/March, 1977, the Swiss Re acquired 98.5 % of the share capital of the «SWITZERLAND» General Insurance Company Ltd., Zurich, following a public takeover bid. The annual accounts of the «SWITZERLAND» General will be integrated into the Group accounts for the first time next year.
Consolidated net premiums increased in the report­ ing year by 17.5% (previous year, 5.7%) to Sw. frs. 5,770 million. The contribution made by the insurance companies was Sw. frs. 1,826 million or 32 %. — Both non-Life reinsurance and Life re­ assurance achieved underwriting profits. In insurance, however, there was a slight underwriting loss brought about by the continuing deterioration of non-Life business. Increase of investment income and a further positive result from fluctuations in stock exchange and foreign currency rates helped raise the Croup profit from Sw. frs. 72 million in the previous year to Sw. frs. 107 million in the year under report. The Group's capital funds shown, including Group profit, amounted to Sw. frs. 555 million (previous year, Sw. frs. 488 million).
Despite the decline in interest rates, investment income has greatly increased because of the substantial investment of new funds. It was possible to keep the development of management expenses under control but tax payments have again risen steeply because of the increase in profit.
The Group profit of the reinsurance companies rose by Sw. frs. 34 million to Sw. frs. 89 million (previous year, decrease by Sw. frs. 6 million).
Life reassurance in force showed above average growth and earnings were good. Financing require­ ments for new business were less than in the previous year. With a net amount of business in force of Sw. frs. 66,000 million, a profit of Sw. frs. 41 million (previous year, Sw. frs. 32 million) was achieved.
A clear improvement of underwriting results was reported by the Swiss Relnsuranoe Company (U.K.) Ltd., London, the Australian Reinsurance Company Ltd., Melbourne, and the European General Rein­ surance Company of Zurich.
The gross premium income of the Vereinigte Ver­ sicherungsgruppe rose by 10% to DM 1,499 million and that of the Magdeburger Gruppe by 9 % to DM 610 million. After 2 years of stagnating premium development, the non-Life companies of the two groups were again able to clearly increase their volume of business. The premium increase of most companies was, however, not enough to offset the further increase in the loss burden. The fact that premiums were not adjusted in time to the constantly increasing loss burden, if at all, and the storm damage in North Germany in early January, 1976, caused sizeable underwriting losses affecting both the Swiss Re and the Bavarian Re. In 1977, there is a discernible trend for premium growth to accelerate further and for underwriting results to improve.
The Group's insurance companies handling personal insurances developed gratifyingly in the past year. The Sickness insurance and Life assurance com­ panies were again able to increase their market share with a satisfying profit.
In the 1976 reporting year, dividends were paid for the first time by the German holding company, SR Beteiiigungen AG, Munich, and by the Swiss Reinsurance Company (U.K.) Ltd., London. The Canadian Reassurance Company and the SwissSouth African Reinsurance Company Ltd., together with several minority holdings, increased their divi­ dends. On the other hand, the SwissRe Holding (North America) Inc. again did not pay any dividend. Despite additional income, dividend payments only increased by Sw. frs. 1 miliion to Sw. frs. 15.6 miilion. This was caused by the reduced payment from the Bavarian Re, which, because of the postponement of its 1975 annual statement, only paid an interim dividend, and by the reduced dividend from the European General Reinsurance Company for the 1975 business year. In addition, foreign exchange rates, which in certain cases were again iower at the end of 1976, compared with the previous year, had a negative effect on dividend income.
The net profit was Sw. frs. 1.9 million as in the previous year, and, together with the profit carried forward, enabled an unchanged dividend payment to the Swiss Re, Zurich, of Sw. frs. 2 miliion.
Adjustment in outstanding claims reserve 15 1 16 12 Result from Life business 41 12 53 41
Fluctuations in stock exchange and foreign currency rates, depreciation — 6 — 21 — 27 — 67 Result from further income and outgo 46 30 76 104
Life Business Premium income and annuities purchased 630 241 871 808
Cash in hand, Postal bank account, Bank balances 228 36 264 241
Current-account balances 885 232 1,117 853 Cash deposits 54 122 176 182
All classes excl. Life (Incl. valuation of current annuity indemnities) 3,471 745 4,216 3,555
The Group accounts were compiled according to the same principles as in previous years. The consoli­ dated Balance Sheet and Profit and Loss Account were based on the individual statements of Group companies as at 31st December, 1976, but for Swiss Re, Zurich, and the European General of Zurich as at 30th June, 1977. The balance sheet of the Bavarian Reinsurance Company Ltd. had not been published at the time of consolidation.
The consolidation reserve fund results from the difference between the capital funds shown of Group companies and the corresponding book values ap­ plied by SwIssRe Holding Ltd. and Swiss Re, Zurich. The increase of the consolidation reserve fund by Sw. frs. 20 million net is due to the above-mentioned foreign currency profit and to changes in the holding structure.
The restrained recruitment policy pursued for some years meant that, in the year under report, the total of Group personnel increased only slightly; the increase was primarily due to reinforcement of the field service in the companies belonging to the Vereinigte Ver­ sicherungsgruppe, Munich.
South Africa 5 % Australia 4 % ^ Great Britain 4 % 1 Other countries 4 %
«SWITZERLAND» General Insurance Company Ltd. 43 Gotthardstrasse, 8022 Zurich with offices in Barcelona, Brussels, Genoa, Melbourne and Montreal SWITZERLAND General Insurance Company (London) Ltd. The Bowring Building,Tower Place, London EC3P 3BE SWITZERLAND General Insurance Corporation of New York 102 White Plains Road, Tarrytown, N.Y. 10591
North American Reassurance Company 245 Park Avenue, New York, N.Y. 10017 with offices in Chicago, Dallas and Lakewood (Colorado)
Australian Reinsurance Company Ltd. Embank House, 325 Coliins Street, Melbourne, Vic. 3000 with offices in Sidney and Auckland, New Zealand
Canadian Reassurance Company 95 St. Clair Avenue West, Toronto M4V 1N6, Ontario with an office in Montreal