Swiss Reinsurance Company 50/60 Mythenquai, P.O. Box, 8022 Zurich, Switzerland Telephone 01 208 21 21 Telex 59261 reas oh Gables swissre
Management expenses, taxes, fluctuations in stock exchange and foreign currency rates 157 134
*Subiect to approval by the General Meeting **Consolldated figures (of. notes on page 38)
Hans R. Lüthy* Küsnacht, Chairman and Managing Director of IBM (Switzerland), Zurich 1981
Marcel Odier Cologny, Partner in Lombard, Odier & Cie., Bankers, Geneva 1980
Deputy Managers Roger Aeberli Albert Albrecht Alfred Bai Fritz Bolliger Edouard Burnens Richard R. Doerr Rolf Eckert
Ernst Hirzel Gerhard Holzel Peter P. Hügle Martin Imbach Hans W. Kreis Werner Künzle Karl Küstahler J. B. Richard Lieberman Fulco Lock Robert Martignier Simon R. Menn Roger P. Merkelbach Jean-Pierre Michot
Dieter Söhner Hans Spörri Jürg Steinrisser Paul Szöliösy Kurt Wettenschwiler Urs Winter Louis Wüger Edwin Wydler John W. Youngs Hans-Kaspar Zulauf
Non-Life reinsurance — prior to deduction of head office management expenses — showed a ioss of Sw. frs. 3.1 million: the previous year's loss was Sw. frs. 10.4 million. Satisfactory to good results stemmed particularly from Europe — West Germany and Spain being the two main exceptions — and from Japan. Losses were produced primarily by the busi­ ness from the United States and Canada, the oilproducing countries of the Middle East and from Mexico and Venezuela. The overall result Is com­ pose of widely varying individual results per country, branch and reinsurance category.
Such a far-reaching "atomization ot risk" appears at first to be extremely welcome, being able as it is to bring about, from the underwriting point of view, an almost optimal international spread of the risk, which would mean that major and catastrophe losses would place little burden on the individual risk carrier and that an ideal blend of profits and losses would occur throughout. However, on closer consideration this system reveals — at least in its current extreme form — considerable disadvantages which affect not only reinsurers but later also policyholders and insurers who in certain markets and branches are able at the moment to cover or pass on their risks at amazingly low rates.
Passing on risks in this way means that control of the problems in the individual branches and risks is increasingly lost. More and more major risks and entire portfolios are finding insurance and reinsurance cover on the basis of insufficient or not adequately evaluated risk information. Responsibility for the assessment and rating of risks is often obscured and becomes submerged in the anonymity of a large num­ ber of risk carriers. Only in this way is it possible to explain why success can not be achieved more quickly in bringing about the overdue improvement of Aviation and Marine business, for example. Further disadvantages of this system are the lack of experience in many respects of those responsible for assessing the risk and determining the cover arrangements and
a disquieting carelessness on the part of those who are unable to check premiums and conditions or even to influence them when assuming small and minimal risk shares. The uncertainty of liability and loss po­ tential in the case of major and catastrophe losses has spread. It is no surprise either that the basic rules of reinsurance technique not infrequently sink into oblivion. Premium shares which ought to be set aside on a long-term basis (for example, for natural catastrophes) are shown as profit in catastrophe-free years. For the last link in the chain of reinsurers and retrocessionaires it is an almost impossible task to check the adequacy of reserves for outstanding los­ ses. Necessary premium increases in branches where the loss trend is clearly upwards are neglected. Busi­ ness producing negative results is placed on other markets instead of being improved. Dangerous, un­ insurable risks slip through the broadened mesh of generous and often slovenly risk assessment. — The costs for passing on the risks are, of course, incurred at every stage and grow through the piling up of many stages to such an extent that the portion of the premium finally remaining is no longer adequate to cover the losses.
The described dangers of the current position are indeed commonly recognized and are dealt with at length in the international insurance and reinsurance press. However, so far no energetic and effective countermeasures have been taken.
At the Swiss Re, great attention is paid to the careful assessment and selection of risks in all branches, the basic evil of the current difficulties lying in the disregard of these functions. First-class specialists, both at Head Office and branch offices and Group companies, must be in a position to know precisely the peculiarities of their branch and the specific needs of their clients and to offer them extensive capacity for well-rated risks, together with further services.
previous years and the reserves needed at year-end for outstanding claims and rarely occurring catastro­ phes only allow loss trends to be recognized if the relevant year under report is considered as part of a several-year period. Viewed in this way, General and Motor Third Party Liability, Marine, Credit and Surety, Aviation and Burglary reinsurance turn out to be branches in which the premiums are not able to cover the losses and costs. In the Motor Liability branch premium adjustments can only be implemen­ ted with difficulty in many countries although the loss burden, particularly for bodily injury, is constantly increasing through inflation and continually growing indemnities. In the other "problem branches" con­ ditions are somewhat different. Where urgently needed improvement measures are not or only half­ heartedly carried out, the reason lies as a rule neither with the insurance supervisory authorities nor in the lack of valid statistics, but primarily in exaggerated price competition in insurance and reinsurance.
Aviation 78 74 82 70 62 Atomic Risks 5 5 4 4 3 Credit, Surety 141 125 126 101 95
Frequently, however, the efforts of the insurance in­ dustry fail through lack of interest on the part of the public or else they come up against psychoiogicai barriers. Ail too many policyholders believe that, once they are in possession of an insurance policy, they are relieved of all care for the insured object. Even speed limits on the road and regulations com­ pelling the wearing of seat belts meet with resistance, although proof exists that such measures reduce los­ ses. It is impossible to provide a rational explanation for this attitude, which appears to be founded on a curious interpretation of the rights of personal free­ dom. As the losses of a branch of insurance have to be spread amongst all members of a risk com­ munity, premium gradings are necessary, taking into account as far as possible the special risk situation of the individual. Substantial differences between premiums for protected and unprotected risks, for policyholders who pay attention to the interest of loss prevention and reduction and for those who care­ lessly and inconsiderately ignore them are therefore justified. In the future such premium differentials will have to be much more pronounced than hitherto.
Hail reinsurance again closed well In the reporting year. At the moment this branch shows a gratifying result even in a long-term comparison of premiums and losses, which is essential because of the wide deviations from year to year.
In Motor reinsurance both the business of Swiss Re, Zurich, and the cessions of the subsidiary reinsurance companies showed overall a growth in volume, al­ though several treaties in certain overseas territories were cancelled in the course of necessary pruning measures. The result of Motor reinsurance is negative as it has been for years. More than in almost any other branch, adverse influences and effects amass here (inflation, slow settlement of serious bodily in­ juries, rapidly growing indemnities, slow premium adjustments).
Marine reinsurance registered a smaller loss than in the previous year. Premium rates are too low through­ out the world and the expected increase, both for Hull and also for Cargo insurance, did not come about. High losses stemmed from West Germany and from Mexico and Venezuela.
Although it was possible in Aviation reinsurance to reduce the loss over the previous year, this branch has brought overall a loss over the last five-year period. An improvement is hardly likely In the near future since most of the policies of the major airlines expire after 1980 and only then will it be possible to adjust premium rates.
In the year under report, the premium income from Credit and Surety reinsurance has substantially in­ creased. The gratifying results of most overseas markets were, however, not able to offset in full the losses from European and American business.
Technical Reserves for Own Account Compared with the Balance-sheet Total In thousand millions of francs 1974/75 1975/76 1976/77 1977/78 1978/79
Events on the ieading share markets reflected in general the conflicting developments in the economic environment. The expectation of higher corporate prof­ its triggered off a rise in share prices in many coun­ tries, but this was generaliy of limited proportions due to the drying up of liquidity which set in at around the same time; nevertheiess, price changes were pre­ dominantly positive. The exceptions were the share markets of West Germany and the Netherlands where sharp interest rate increases also led to lower share prices.
in accordance with this exchange rate development, the conversion of assets denominated in foreign cur­ rencies caused less depreciation than in the previous year.
The hidden surplus on capital market investments (excluding loans), i.e. the difference between book and market values, declined by Sw. frs. 54 million to Sw.frs. 432 million. Expressed as a percentage of the balance-sheet value, this amounts to 16.3 °/o (pre­ vious year, 19.1°/o). This decline has several causes: it is mainly a consequence of the already mentioned increases of interest rates, which meant that market values of fixed-interest investments fell and in part again approached redemption values. This develop­ ment did not come unexpectedly; however, an insti­ tutional investor is to a large extent unable to avoid it because of the size of the investments involved and for want of other suitable investment outlets. The large number of early bond redemptions, by which pre­ miums over redemption prices dwindled, also con­ tributed to the decline of the hidden surplus.
The decline in holdings is almost exclusively due to foreign exchange losses.
Net cash deposits with Insurance companies 1,159 1,124 1,244 1,091 1,159
Investments in the amount of Sw. frs. 50 million (previous year, Sw. appointed by us In overseas territories.
Distribution of Capital Market Investments and Real Estate In Percent at Market Values (Previous year in parentheses)
In the year under report, management expenses rose by Sw. frs. 5.3 million, or 6 % (previous year, 2.5 %), to Sw. frs. 94.1 million. This increase is largely due to higher personnel costs again mainly caused by the employment of additional staff following expansion of business activity. A further contribution to the in­ crease of personnel costs was made by growing expenditure for staff training and for the training of insurance personnel from developing countries. In contrast the part of the growth of management expen­ ses which was due to pure wage increases remained modest.
The account for fluctuations in stock exchange and foreign currency rates and depreciation closed with a loss of Sw. frs. 6.9 million (previous year, surplus of Sw. frs. 2.1 million).
On capital investments, book values were written down in the amount of Sw. frs. 69.5 million (previous year, Sw. frs. 67.9 million). The amount is contrasted by net capital gains totalling Sw.frs. 85.6 million (pre­ vious year, Sw.frs. 75.7 million) as the result of sales and switches in the securities portfolio. Consequent­ ly market rate fluctuations on investments have con­ tributed a net profit of Sw.frs. 16.1 million (previous year, Sw. frs. 7.8 million) to the year's result.
Currency 30/6/79 30/6/78 30/6/77 30/6/76 30/6/75 78/79 75/79 * Rates in Swiss francs for 100 units of currency
As announced at the last General Meeting, Mr. Max E. Eisenring wishes to retire as Chairman of the Board. The Board of Directors has acknowledged this decision with great regret, is however pleased that Mr. Eisenring, with his excellent abilities and pro­ found knowledge, is prepared to continue as Member of the Board and its Committee.
All five members have served for many years, most of them for decades; the Board of Directors is grateful to them for their circumspect and valuable work.
In accordance with a resolution of the Board of Direc­ tors, Mr. Kurt Egg joined our Company on 1st April, 1979, as Member of the Management in an Advisory Capacity.
To our deep regret, Mr. Willy Honegger, Assistant Manager, died on 29th August, 1979, following a brief illness. We are greatly indebted to him for his many years of valuable service.
Proposal regarding the Allocation of the Net Profit of. Profit and Loss Account (page 24) and Balance Sheet (page 27)
The Board of Directors proposes to the General Meeting the following allocation: 1978/79 1977/78
Dividend if the Board of Directors' proposal is accepted, a dividend of Sw. frs. 100.— per share is to be paid. Thus, upon presentation of Coupon No. 25 of the registered and bearer shares, a gross amount of Sw.frs. too.— or, after deduction of the Federal With­ holding Tax of 35 %, Sw.frs. 65.— will be paid.
The report of the Auditors appointed by the Share­ holders appears on page 28.
Profit and Loss Account for the Business Year 1978/79 embracing the reinsurance business for the calendar year 1978 and the other income and expenditure for the period from 1st July, 1978 to 30th June, 1979
All Classes excl. Life Commissions and profit commissions 785,803,907 186,388,592 599,415,315 573,909,298
Fluctuations in stock exchange and foreign currency rates, depreciation 6,854,059 — 2,100,518
Reinsurances ceded b 1978/79 Net for own account a—b 1977/78 Net for own account
All Classes exci. Life Premium income 2,641,758,825 605,577,140 2,036,181,685 1,910,409,125 Adjustment in unearned premiums — 82,239,988 — 70,961,919
Adjustment in policy valuations — 59,395,576 — 41,780,872 Annuities purchased 5,339,738 5,339,738 5,207,436 Adjustment in annuity valuations 475,906 — 1,764,305 Interest on Life assurance and annuity fund 34,289,343 35,144,087
In this year's accounts, last year's scope of con­ solidation remained unchanged. Additional notes on the Group accounts are to be found on page 38.
The diagram of the Group structure on the adjacent page contains for the first time the Palatine insurance Company, London, which is a whoiiy-owned sub­ sidiary of Swiss Reinsurance Company (U.K.) Ltd. it carries out non-Life insurance on a coinsurance and facultative reinsurance basis in the market of its parent company.
in the year under report, the monetary situation was again marked by the continued decline of the dollar and by general unrest. The effect of the higher val­ uation of the Swiss franc on the Group accounts is, however, clearly less than in the previous year.
The slowing-down of premium growth in non-Life reinsurance, which had already been discernable a year earlier, persisted in the reporting year despite the rising inflation rates in various markets. This development is decisively marked by the worldwide glut of reinsurance cover and the consequent con­ siderably intensified competition. The underwriting account closed with a loss of Sw.frs. 9 million, com­ pared with a profit of Sw. frs. 4 million in the previous year. This deterioration has been caused by insuffi­ cient premiums in certain branches and persistent inflation with Liability claims.
In the United States the insurance industry registered quite gratifying results in 1978, as it had done a year earlier. The development was favoured in part by the fact that the country was spared large-scale natural catastrophes. At North American Reinsurance Corpo­ ration, New York, this was reflected in an improve­ ment of the underwriting profit registered a year earlier for the first time in years. Prior to deduction of management expenses, this totalled U.S. $ 6.2 mil­ lion (previous year, U.S.I 5.1 million). In addition to the good profit situation in Property insurance, it was also possible to achieve a further improvement in various Liability branches. In view of the practically unchanged strong competition both In insurance and reinsurance and the rapidly increasing inflation, it remains, however, questionable whether the favour­ able trend of the last two years will continue.
The two subsidiary companies which operate ex­ clusively In Life reassurance. North American Reas­ surance Company, New York, and Canadian Reas­ surance Company, Toronto, again achieved gratifying results, the former in particular registered a striking increase of the underwriting result.
vious year; this was substantially caused by a num­ ber of major losses. However, the favourable de­ velopment in the financial sector enabled the year's profit to be increased.
The Swiss-South African Reinsurance Company Ltd., Johannesburg, achieved an increase of the under­ writing profit. Nevertheless, the development in the insurance market indicates that here too results will worsen in the near future. There has been a similar noticeable trend in Australia, which to a certain ex­ tent already had an effect on the results of the Austraiian Reinsurance Company Ltd., Melbourne, in 1978.
The Swiss Reinsurance Company (U.K.) Ltd., London, was able overall to maintain its profit at the previous year's level, although the situation on the London market is marked by a pronounced glut of reinsur­ ance capacity.
sidiary companies in New York and London were able to further expand business with a good profit position.
The gross premium income of the Vereinigte Versi­ cherungsgruppe rose by 8% to DM 1,821 million, that of the Magdeburger-Gruppe by 6% to DM 704 mil­ lion. The overall premiums of these two groups broke down as follows: non-Life insurance 39%, Life as­ surance 12 % and Sickness insurance 49 %. Growth in the non-Life sector was somewhat below the mar­ ket average, whereas in both Life assurance and Sick­ ness insurance above average growth and increased market shares were achieved.
The gross premiums of the General Surety & Guaran­ tee Company Ltd., Wilmslow, increased by 8 % to £ 2.3 million. Profit continued to be good.
The net profit was Sw.frs. 0.1 million (previous year, Sw.frs. 1.8 million); no dividend was paid to SwissRe, Zurich.
The capital structure of the company remained un­ changed. The current-account credit granted by the parent company rose by Sw.frs. 61.6 million to Sw.frs. 358.5 million. The increase is almost exclusively due to the holding in «SWITZERLAND» General being transferred from the Swiss Re, Zurich, to SwissRe Holding Ltd.
Premium Income (consolidated) in millions of francs 1978 1977 1976 1975 1974
Fire 1,516 1,497 1,582 1,378 1,293 Accident/Sickness 1,423 1,310 1,316 1,107 1,032 Third Party Liability/Motor 1,538 1,451 1,516 1,218 1,245 Marine 396 399 359 310 298 Other branches 700 642 624 522 478 Life 862 818 900 840 806 Gross premiums Retrocessions to companies outside Group
Life Business in Force (consolidated) in millions of francs 1978 1977 1976 1975 1974
AH Classes excl. Life Commissions, profit commissions, underwriting expenses 894 482 1,376 1,330
Result from all classes excl. Life — 9 4 — 5 3
Life Business Commissions and participation in profits 120 141 261 247
Claims on deatti and maturity and annuities paid 243 45 288 278
All Classes excl. Life Premium income 3,129 1,881 5,010 4,717 Adjustment in unearned premiums —111 —135 —246 —235
Investment income (less interest on Life and Sickness assurance and annuity fund and other technical reserves) 358 82 440 389
All classes excl. Life (incl. valuation of Sickness insurance) Life business (policy and annuity valuations)
All classes excl. Life (incl. valuation of current annuity indemnities) 3,722 1,000 4,722 4,218
All companies in which Swiss Re, Zurich, directly or indirectly maintains a majority holding were included in the consolidation. The degree of holding varies between 55% and 100%. The outgo and income and assets and liabilities of the consolidated com­ panies are shown at 100 %; an adjustment was made for the amount applicable to minority shareholders for the items "Profit" and "Capital funds shown".
The item "Non-consolidated holdings" refers to hold­ ings of less than 50% in insurance and reinsurance companies.
The consolidated capital funds of the Group rose, compared with the previous year, by Sw. frs. 72 mil­ lion to Sw. frs. 622 million. Changes in the consoli­ dated capital funds are shown in the following table: Profit and Loss Account
Investments (except for real estate) were valued at the lower of cost or market. Mainly as a result of rising interest rates, the hidden surplus on the entire invest-
Group Balance Sheet In millions of francs 30/6/79 30/6/78 30/6/77 30/6/76 30/6/75
Gash In hand, postal bank account, bank balances 304 374 264 241 201 Current-account balances 1,194 977 1,064 943 990 Gash deposits 1,591 1,569 1,606 1,497 1,543 Fixed-Interest Investments 7,160 6,453 6,893 5,552 5,182 Shares and real estate 2,219 2,055 1,923 1,711 1,644 Other assets 348 334 391 282 279 Liabilities Current-account balances 1,093 1,023 1,117 853 953 Gash deposits 219 200 176 182 178 Technical reserves All classes excl. Life Life business
Other liabilities (Incl. share applicable to minority shareholders) 436 462 531 378 331 Capital funds (prior to distribution of profit) 622 550 555 488 503 Balance-sheet amount 12,816 11,762 12,141 10,226 9,839
Group Personnel 31/12/78 31/12/77 31/12/76 31/12/75 31/12/74 Reinsurance companies 2,273 2,108 2,021 2,024 1,961 Insurance companies 10,395 10,233 10,171 10,124 9,970 Total 12,668 12,341 12,192 12,148 11,931
Magdeburger Feuerversicherungs-Gesellschaft Magdeburger Allgemeine Lebens- und RentenversIcherungs-AG Magdeburger Hagelversicherungs-Gesellschaft Magdeburger RückversIcherungs-AG Magdeburger Union Rechtsschutz Versicherungs-AG Kirchhorster Strasse 2, 3000 Hanover 51 Union und Rhein Versicherungs-AG Wotanstrasse 88, 8000 Munich 38
General Surety & Guarantee Company Ltd. Hawthorn Hall, Hall Road, Wilmslow, Cheshire SK9 5BZ, England
North American Reinsurance Corporation 245 Park Avenue, New York, N.Y. 10017 with branch offices in Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Philadelphia and San Francisco
Canadian Reinsurance Company 95 St. Clair Avenue West, Toronto M4V 1N9, Ontario with a branch office in Montreal
SwissRe Holding (North America) Inc. 245 Park Avenue, New York, N.Y. 10017
SwissRe Advisers Ltd. 2306-2309 Connaught Centre, Hong Kong with offices in Tokyo and Manila: 2-9, Nihonbashi 3-chome, Sansho Building, Tokyo 103 Dona Narcisa Building 8751 Paseo de Roxas, Makati, Metro Manila
SwissRe Advisers (Singapore) Private Ltd. Suite 2406A, Clifford Centre, Raffles Place, Singapore 1