“ Exploring solutions beyond the obvious ref lects our commitment to the future.”
Combined ratio Non-Life in % 122 117 Return on operating revenues Life&Health in % 9.3 9.2 Return on total revenues Financial Services in % 24.4 11.9 Return on investment in % 8.8 10.0 Return on equity in % 10.9 11.9
* Subject to approval by the General Meeting, not including a capital repayment of CHF 8 per share in %
Source: Datastream *as of 20 April 2001: Closing share price: CHF 3 361, Stockmarket capitalisation: CHF 47 904 million
Performance of Swiss Re shares and the Swiss Performance Index from 31 December 1990 to 20 April 2001 in CHF
Annual report of the Chairman and the Chief Executive Officer 2
Spotlights e-business 33 Environmental report 34 Social report 35 Rüschlikon 36
Group financial statements Income statement 39 Balance sheet 40 Statement of shareholders’ equity 42 Statement of comprehensive income 43 Statement of cash flow 44 Notes 46 Report of the Group auditors 85
In the year under review, Swiss Re once again achieved a strong increase in profits, which rose by 21.3% from CHF 2 446 million in 1999 to CHF 2 966 million in 2000. Earnings per share rose from CHF 171 in 1999 to CHF 208 in 2000. This result is the latest in a long series of marked improvements. Over the past six years – in other words, since the strategic reorientation of the Group and the sale of our direct insurance interests in 1994 – profits have grown by an average of 22% per annum.
The Board of Directors will propose to the Annual General Meeting an unchanged dividend of CHF 50 and, in addition, a capital repayment of CHF 8 per share. The nominal value of Swiss Re shares is currently CHF 10, and would reduce to CHF 2 after the capital repayment. In addition, the Board of
Directors will propose a 20-for-1 split of the shares, which should increase the liquidity of the stock in the marketplace.
The present accounts have been prepared in accordance with new basis Swiss GAAP accounting standards (explained in detail on p. 83–84 of this report) – which significantly improve both the quality and the breadth of information on our operations when compared with the previous method. With this new accounting basis, our reporting will in future focus on our three business groups: Non-Life reinsurance, Life & Health reinsurance and Financial Services, as well as the Corporate Centre.
CHF 1 788 million at the end of 1995 and CHF 3 019 million at the end of 2000. The reserve ratio, which includes equalisation reserves, was 244% of premiums at the end of 1995 (when the soft market began), and at the end of 2000 it stood at 337%. These figures indicate that we have consistently adhered to our standards for prudently establishing claims reserves and provisions for major catastrophes, even if the results reported by the company suffered as a consequence. Thus, we are now well placed to benefit from the expected upturn in the non-life business cycle.
Our life and health reinsurance business continued the positive development of recent years with premiums rising by 14%. The operating result decreased by 4% to CHF 1 447 million attributable to a reduction in the capital gains realised as the life and health business took capital losses on bonds to maximise the Group’s investment strategy. The fundamental performance of our Life & Health Business Group continues to be very strong, exceeding management’s targets, and is an important and stable contributor to Swiss Re’s overall growth.
Products in 1999. In addition, in the area of run-off covers, provisions for policies from the previous year had to be increased. Consequently, the excellent results achieved in 1999 could not be repeated in 2000. However, our belief in the business remains strong, particularly as the traditional non-life cycle continues to tighten.
After a series of very successful years, the Group's asset management entities achieved another outstanding return on investments of 10.0%, despite difficult market conditions. The decision to reduce the equity positions early in the year was very beneficial, generating significant gains and reducing the exposure to the later downturn of the markets.
For the last two years, our Group has been committed to the “Triple 20” programme, which sought to respond to the harsh competitive environment and the downward phase of the business cycle by focusing the company’s efforts on improving operating results. Today, we can report progress: a turnaround has been achieved in non-life underwriting results, underpriced natural hazard risks have been largely eliminated, total natural hazard exposure has been reduced and – a particularly important achievement – productivity has been improved dramatically, with costs rising at a considerably slower rate than premium income despite further expansion of the Group. The successes of the Triple 20 programme have made the company significantly more efficient. This puts Swiss Re in a strong position to now capitalise on the improving markets in which we compete.
We shall long remember Max E. Eisenring with gratitude and respect.
Business groups Non-Life Life & Health Financial Services Stefan Lippe1 John R. Coomber1 Walter B. Kielholz a.i.
Asia Swiss Re New Markets Pierre L. Ozendo Erwin K. Zimmermann
Auditors PricewaterhouseCoopers Ltd 1 Members of the Committee of the Executive Board
Gross premiums written increased to CHF 26.1 billion, a rise of 26% over 1999, while net premiums earned grew by 22%. The Non-Life Business Group increased its premium volume by 29%. The acquisition of Underwriters Re in May 2000, together with growth in North America and Europe, more than offset any losses from business cancelled through Swiss Re’s drive to improve profitability during the renewal process. Premiums in the Life & Health Business Group increased by 14% to CHF 8.3 billion. The completion of new Administrative ReinsuranceSM (Admin Re) transactions – as well as the inclusion of the first full-year policy revenue on certain second-half 1999 Admin Re transactions – more than counterbalanced any impact from the remaining runoff of US medical business. The Financial Services Business Group increased premiums to CHF 2.2 billion, up 22% compared to the prior year.
The Group’s net income increased by 21% to CHF 2 966 million; earnings per share increased from CHF 171 to CHF 208, continuing the Group’s record of double-digit earnings growth. Return on equity increased from 10.9% to 11.9%.
Interest rates in most major markets peaked around the beginning of the year, helping to support high average earnings on the fixed income portfolio and thereby contributing to Swiss Re’s strong investment result. Rates then receded throughout the year, most notably in the US, leading to price appreciation on the fixed income portfolio. By focusing early in the year on long durations in its substantial USD portfolio, Swiss Re achieved a relative performance on the fixed income portfolio far in excess of market indices.
The remaining 65% of Società Italiana Cauzioni, Rome (“SIC”), was acquired as of 13 November 2000. Its balance sheet is consolidated in the 2000 accounts. Earlier in the year SIC, which specialises in the surety bond and credit insurance sector, announced its co-operation with NCM, a Dutch credit insurer and member of the Swiss Re Group.
During 2000, there were three administrative reinsurance transactions. Administrative reinsurance is the purchase of closed blocks of in-force business and can be facilitated through either a stock purchase or reinsurance. The stock of Midland Life was purchased on 31 July 2000 for CHF 496 million. The Group also entered into two reinsurance-based deals with CIGNA and UnumProvident.
The US market saw a partial reversal in the rate deterioration of the last few years; this, together with the market’s strong economic activity, contributed to a premium volume growth of 5%. In the future this should lead to a lower combined ratio, which in 2000 suffered from an unusual increase in loss frequency, particularly in the personal lines business.
This favourable trend has had a positive impact on business newly written in 2000. Overall, however, the reinsurance market was affected by late reporting of claims from previous years, leading to an estimated combined ratio for the global reinsurance industry somewhat below the level of 1999. This, together with the unfavourable stock-market development both in 2000 and 2001 yearto -date, has increased pressure on reinsurers to push through significant rate increases, both during the renewals in January and April 2001 and throughout the remainder of the year.
Expenses Claims and claim adjustment expenses – 7 980 – 10 143 27
Other operating costs and expenses – 829 – 751 – 9
The operating result rose by 43% from CHF 1 513 million in 1999 to CHF 2 164 million in 2000. Markedly higher investment returns, lower operating costs and expenses and an improved claims ratio led to this significant improvement.
Property claims experience improved substantially and a significant contribution to the equalisation reserves was made. Claims and claim adjustment expenses in Europe dropped by more than 20%. There was also a marked improvement in Asia, where in 1999 reinsurers had suffered from a high inci-
Liability Growth was less pronounced in liability, with earned premiums rising by only 5%. Again, the portfolio of Underwriters Re made the largest contribution to this increase. Solid growth in certain lines of business, such as professional indemnity in Europe, helped to compensate for the absence of some large single transactions which were recorded in 1999. In industrial liability, the challenge of overcapacity continued, impeding the improvements in original rates and reinsurance terms seen in other business segments. Swiss Re therefore maintains its cautious underwriting approach – and has noted indications of a wider movement to sounder underwriting at the January 2001 renewal.
Results improved significantly, ref lecting the absence of large loss events as well as the continued upward move of original rates in a number of key European markets and in the US. These developments bolstered proportional results, while non-proportional business benefited from better reinsurance terms and conditions.
The accident underwriting result worsened as a consequence of two factors. Firstly, additional reserves had to be established for losses from prior underwriting years. Secondly, new business written in the US had to be reserved at a combined ratio well in excess of 100%. In this business line, however, a negative result for newly-accepted covers in the first underwriting year is normal as the profit will only emerge in future years, in the form of investment returns.
Underwriting results improved in all business lines, with marine showing a particularly strong increase. Positive developments from previous years helped boost profitability through the consequent release of reserves established in prior years. Engineering could not escape a generally depressed market situation and also felt the effects of a large f lood loss in Northern India.
Swiss Re sees clear signs of a recovery from the prolonged soft phase of the non-life business cycle and expects a markedly positive development in the coming years. Improvements are being recorded in original premium levels as well as in reinsurance conditions. The newly formed Non-Life Business Group will further sharpen Swiss Re’s skills and processes to exploit this market upturn and offer superior value to clients.
Premiums grew by 14% for Swiss Re’s Life & Health Business Group in 2000. The operating result decreased by 4% to CHF 1 447 million due to reduced realised gains as the business group took capital losses on bonds to maximise the Group’s investment strategy. The fundamental performance of the Life & Health Business Group continues to be very strong exceeding management targets.
Strong growth continues in the life and health insurance industry. This growth is likely to be sustained into the future by the market responses to the challenges facing national social insurance programmes and the resulting need for private provision.
In the US market, consolidation has continued as companies seek the capital and cost efficiencies of increased scale. Insurers have redesigned their products, often using reinsurance to reduce both earnings volatility and capital requirements. Primary life insurers are also managing their cost base and capital requirements by selling blocks of in-force business.
In Japan, the market situation continues to be affected by some legacy problems specific to the industry, as well as general economic uncertainties. Elsewhere in Asia, primary market trends are generally positive, ref lecting the high level of personal responsibility for welfare provision and a cultural bias towards savings.
Expenses Claims and claim adjustment expenses; life and health benefits – 6 119 – 7 448 22
Management expense ratio in % 4.9 4.7 Return on operating revenues in %1 9.3 9.2 1Operating revenues include premiums earned and net investment income
Health business premiums were 5% higher than in 1999; if exchange rate distortions are eliminated, however, the underlying figures show a decline of 1%, which ref lects withdrawals from unprofitable lines. The run-off of US medical business is now essentially complete, contributing positively to results for 2000.
The operating result of CHF 1 447 million was modestly below the 1999 level of CHF 1 505 million due to a reduction of CHF 202 million in net realised gains. The reduction in capital gains was due to capital losses the business group took on bonds to maximise the Group’s investment strategy. Operating performance exceeded management targets. Life business in particular performed well, with North America providing the main impetus. During 2000, Swiss Re undertook three major Admin Re transactions, with Cigna Re, Midland Life and UnumProvident. These transactions involved total invested capital of CHF 1.3 billion and added CHF 6.1 billion to the Group’s assets. Health business results in 2000 also improved compared to 1999, but remained disappointing, due primarily to adverse performance in Latin America and Australia. Unprofitable business is now in the course of being run off.
Swiss Re’s strategy in response to the convergence of the reinsurance and financial services industries has been to build up its ability to address clients’ capital management needs through its divisions Swiss Re New Markets, Capital Partners and Swiss Re Investors. In early 2001, Swiss Re announced the next step forward in this strategy by combining these divisions into the new Financial Services Business Group.
Through this business group, Swiss Re offers a unique range of insurance-based capital management solutions covering the spectrum from risk financing and risk transfer to asset management and merchant banking. The strategy is both a sector play – the target clients are insurance companies, other financial institutions and corporates with risk-related needs – and a theme play, ie the solutions all benefit from Swiss Re’s expertise in the risk and capital management field. The growth potential in this field is attractive, given the market trends towards convergence, the expanding capital and risk management needs of the clients, Swiss Re’s established track record of innovation, and the strong franchise Swiss Re has with clients.
During 2001, work already in progress will create the synergistic benefits from combining these product businesses into one organisation, while still continuing Swiss Re’s efforts to achieve profitable growth in each business on a standalone basis. Being an integrated financial solutions provider should result in above-average growth and return on capital. The main synergies are expected to come from greater cross-referrals and cross-selling between units based on a better understanding of client needs. In addition, more efficient and effective operations should be set up by combining common processes, for instance in risk management, financial management and client account management.
Results for 2000 were marked by the above-average number of major loss events in the sectors of large industrial risks and weather contracts and the absence of a CHF 341 million gain realised on the sale of the Group’s 20% interest in Credit Suisse Financial Products in 1999. A detailed view is structured around classes of products which share similar economic characteristics: credit, structured risk finance, corporate risk underwriting, asset management, private equity, and the equity and fixed income business.
Credit This business area consists of Swiss Re New Markets’ credit and surety reinsurance and structured credit solutions businesses as well as Swiss Re’s interest in the primary credit and surety insurer NCM.
Swiss Re extended its leading position by exploiting its prudent credit risk management and underwriting expertise while also benefiting from a favourable economic situation in Europe. In the US, Swiss Re significantly increased and consolidated its position in the credit and surety business despite an environment characterised by sharp increases in the number of insolvencies in the construction industry and a deterioration of overall credit quality after 10 years of largely uninterrupted economic growth. Appropriate underwriting adjustments have been implemented to guard against these adverse factors undermining the quality of the credit portfolio. Furthermore, Swiss Re is a leading provider of structured credit products for corporates and banks. It expects continued strong demand for tailor-made solutions in the future.
Structured risk finance This product unit includes finite reinsurance for non-life and certain product specialities of structured finance for life, loss portfolio run-off solutions and the alternative asset reinsurance business.
Credit Premiums earned 860 874 Net investment income1 68 75 Other revenues2 25 35 Gross revenues 953 984
Structured risk finance Premiums earned 403 400 Net investment income1 333 528 Other revenues2 28 65 Gross revenues 764 993 1 including current income, realised gains and trading returns 2 including fees, commissions and income on deposits
Gross revenues for 2000 showed a strong increase over 1999 ref lecting growth in net investment income. In addition, the expanding portfolio resulted in increased fee income. While new business generation was good, the structured risk finance business suffered in 2000 due to three main factors: losses from a small number of prior years’ stop-loss transactions; adverse development from run-off contracts written in prior years; and weather-related contracts due to the extreme weather patterns in the US in the first quarter of 2000. Management has made the necessary reinforcements to reserves and has taken strong, positive measures to strengthen underwriting and risk management.
The outlook for 2001 is positive. The pipeline for new transactions remains strong and robust; with the hardening of the market for traditional risk transfer, expectations are high that demand for structured transactions will continue to grow.
Corporate risk underwriting This product unit offers mainly facultative reinsurance products to large corporate (Fortune 500) clients, financial institutions and the aviation market in the high-severity/low-frequency risk segment. During 2000, the risk underwriting area implemented an aggressive, two-pronged strategy of pushing rates higher, while following a very selective client acceptance and retention policy. This approach was adapted in order to improve the overall pricing and quality of its risk underwriting portfolio of Fortune 500 business. This strategy will continue to be pursued in 2001.
Premiums earned as well as net investment income substantially increased due to growth especially in the accountants and aviation/space business as well as due to new business written in marine for oil industry participants.
Property business experienced a difficult year mainly due to a series of large, man-made losses. As the market is expected to continue to harden, the efforts to narrow policy coverage, increase deductibles and increase premium levels are expected to be successful. This should mitigate the reduction of premium volume written as a result of decreased capacity provided in critical natural catastrophe areas of business.
Corporate risk underwriting Premiums earned 488 842 Net investment income1 243 391 Other revenues2 6 1 1 including current income, realised gains and trading returns 2 including fees, commissions and income on deposits 20 Swiss Re Annual Report 2000
For 2001, growth of assets under management is expected both in the proprietary and in the third party segment, with a positive impact on fee income. Expenses are expected to develop at a slower pace than the fees, thus improving the profitability of the product unit.
Securitas Ventures, L. P., a USD 100 million fund, was formed in 2000 to invest in early-stage companies in the insurance industry. During 2000, commitments were made totalling USD 13.2 million to 4 companies. Both these funds were funded by commitments made by Swiss Re and Credit Suisse.
Capital Partners also makes private equity investments in the non-insurance area; this strategy allows an optimal diversification by industry sector, maturity level and geographical distribution. These benefits are especially manifest in Europe, which lags behind North America’s pace in terms of private equity and venture capital spending. During 2000, Swiss Re committed over CHF 284 million to 11 funds. The portfolio at year-end ref lected total commitments of over CHF 2 billion.
Capital Partners also actively manages the portfolio of Swiss Re’s direct minority holdings in insurance companies. The portfolio at year-end had a market value of over CHF 5 billion and a book value of approximately CHF 3.2 billion.
Equity and fixed income The investment bank Fox-Pitt, Kelton (“FPK”) focuses on equity brokerage (research, sales and trading) and corporate finance (M&A and equity capital markets), specialising in insurance companies, banks and other financial institutions. In 2000, FPK was able to substantially grow gross revenues and operating income, with the brokerage business contributing heavily to the increase.
Swiss Re Financial Products (“SRFP”) as a separate business unit was established at the beginning of 2001 to participate in the ongoing convergence of insurance and capital markets. SRFP works closely with many Swiss Re divisions to develop synergies that will enhance existing Swiss Re businesses, thereby building its competitive advantage in both the insurance and capital markets arenas. SRFP's client base is the global insurance industry and selected financial services companies. SRFP's aim is to become a leading provider of various forms of capital, structured investment products and financial risk management solutions through the integration of cash and derivative capabilities: fixed income, credit and equity derivatives structuring, trading and distribution including fixed income bond sales, and trading with particular focus on insurance linked, asset-backed and structured credit securities.
Equity and fixed income Premiums earned 0 0 Net investment income1 21 35 Other revenues2 88 177 Gross revenues 109 212 1 including current income, realised gains and trading returns 2 including fees, commissions and income on deposits 22 Swiss Re Annual Report 2000
The Corporate Centre acts as a strategic architect, defining Group-wide business direction for financial and human capital, information and technology, knowledge and risk, brand and communications. This supports Swiss Re’s policy of managing shared resources and skills efficiently while making them available to all business units worldwide.
In 2000 the Corporate Centre continued its programme to improve the Group’s efficiency by making prudent investments in web technology. The Corporate Centre advanced plans to “e-enable” the Group’s systems by starting to roll out some of the key components of the planned information technology architecture.
The costs associated with these initiatives have led to a modest increase in Corporate Centre expenses in 2000. Swiss Re is convinced that these investments are essential to maintain its competitive advantage and to leverage the knowledge and experience of its employees. The Corporate Centre continues to be focused on value for money.
The Finance Division provides planning and reporting information for strategic management, performance assessment and external accounting. Through Group-wide financial management it ensures best use of capital, balancing overall risk and expected returns. It maintains close and continuous relationships with the investment community, keeping regular contacts with all stakeholders – including analysts, investors and key media.
During 2000, the division introduced new basis Swiss GAAP and enhanced Group performance measurement for all non-life business: a major milestone towards Group-wide integration of management reporting and control.
The Risk & Knowledge Division anticipates, monitors and reports on the Group risk landscape from an underwriting, credit and financial risk perspective. It supports Swiss Re’s strategic capital allocation process and ensures optimal risk diversification. Group claims reserves are based on a best practice
assessment of potential threats. To improve the underwriting and reporting process, new tools were implemented in 2000, setting Group-wide standards, enhancing underwriting quality and increasing cost efficiency.
Knowledge networks, training and publications serve to build and disseminate reinsurance skills. Swiss Re’s recent initiatives include Intranet-based training activities; internal knowledge networks, which allow specialists to share and exchange information; and externally acquired and disseminated reinsurance skills. Swiss Re’s clients can access special knowledge platforms, such as the Food Forum, and benefit from a broad expertise. The Intranet-based ‘knowledge portal’ enables 9000 Swiss Re employees around the globe to obtain fast access to the specific information they need to do their jobs.
sigma, Swiss Re’s periodic publication, is a recognised source for research articles in the business and trade press; it covers developments and driving forces in the insurance and reinsurance markets. In 2000, Swiss Re also created an Internet-based industry chart resource and began selling insurance data to its clients.
In 2000, Swiss Re enhanced its already strong brand identity through increasing use of web technology. Clients and other stakeholders can now access Swiss Re information, services and transactions through the new Swiss Re Portal.
Rüschlikon, Swiss Re’s centre for global dialogue, opened for business in November 2000 – a unique, inspiring platform for meeting internal and external partners and developing new industry solutions.
Web-based applications harmonise business practices for Non-Life, Life & Health and Financial Services
In 2000, Swiss Re redeemed its 1995 USD 500 million issue of 2% convertible bonds. Due to the favourable development of the Group’s share price since 1995, nearly all of the bonds were converted into Swiss Re shares. There were no other maturities of debt or hybrid capital instruments in 2000. In order to further optimise its corporate capital structure, Swiss Re issued about USD 80 million of long-dated structured financial debt at favourable rates.
Share repurchases and dividend payments are both ways of returning capital to shareholders. Using both of these instruments allows Swiss Re to manage the capital base of the company efficiently. On 6 May 1999 the company announced a second share repurchase programme of up to CHF 1 billion, subject to market conditions. As part of this programme, in 2000 Swiss Re repurchased 72 650 shares for a total value including commissions of CHF 195.6 million, which results in an average repurchase price of CHF 2 692 per share.
The Annual General Meeting held in June 2000 agreed to cancel these shares and to reduce the share capital accordingly. Swiss Re has CHF 804.7 million of remaining capacity for share repurchases.
Swiss Re was a net seller of own shares, at an average price well above the level in the repurchase programme. This was achieved partly by the sale of a large block of shares to an institutional investor.
The Board of Directors of Swiss Re proposes to the Annual General Meeting a dividend of CHF 50 per share. In addition to the CHF 50 dividend, the Board of Directors proposes a capital repayment of CHF 8 per share. The capital repayment has become possible as a result of a change in the law, due to come into effect on 1 May 2001, which provides for a minimum nominal share value of CHF 0.01 for public limited companies (Aktiengesellschaften) registered under Swiss law. The Board of Directors also proposes that the registered shares, after the capital repayment each with a nominal value of CHF 2, be split in the ratio 20-for-1 to a nominal value of CHF 0.10.
Through its underwriting and investment activities, Swiss Re is in the business of managing insurance, credit and financial market risks. These risks must be measured accurately to help achieve an optimum risk/return profile. Group risk management focuses on the combined impact of individual risks to identify potential accumulation and diversification effects.
Swiss Re’s shareholder capital ultimately absorbs any large, unexpected losses resulting from the Group’s various exposures. Swiss Re measures its risk exposure in terms of the amount of capital required to maintain normal operations even under such rare adverse conditions. This risk exposure is counterbalanced by the return Swiss Re expects to generate from its reinsurance and investment operations.
In 1999, Swiss Re’s exposure to financial market risk was considerably higher than its exposure to credit and underwriting risk. In the course of 2000, Swiss Re shifted its portfolio balance towards underwriting and credit exposure. The acquisition of Underwriters Re in North America, for instance, increased exposure to California earthquake and North Atlantic hurricane risks. At the same time, the Group recorded strong growth in credit and life and health business and reduced its financial market risk exposure by paring down its equity holdings.
Swiss Re applies standard risk-measurement methods when assessing potential losses from f luctuations in equity prices, interest and exchange rates. Due to its asset allocation strategy, the financial market risk exposure of Swiss Re’s investment portfolio is determined largely by the European and US markets. Volatility in these markets was comparatively high in the first quarter of 2000, stabilising on a lower level through the second and third quarters before increasing again in the fourth quarter. The decision taken early in the year to lower Swiss Re’s equity exposure reduced the financial market risk on the investment portfolio. This reduction, however, was offset in absolute terms by growth in the fixed income portfolio through acquisitions and the shift to fixed income investments.
Over the year, the net effect was a modest increase of the risk within the investment portfolio, assessed on a stand-alone basis. From an integral Group perspective, however, financial market risk exposure decreased because, by and large, the interest rate and currency risk of bonds are balanced by the corresponding exposure of reinsurance liabilities, which tends to run in the opposite direction.
Swiss Re continues to manage and monitor investment risk closely, being particularly careful to avoid financial leverage at a portfolio level, limit equity exposure and maintain strict credit-rating requirements for bonds.
In the first quarter of 2001, Swiss Re consolidated its European non-life business into one organisation by merging the Bavarian Re and Europe divisions. The goal is to improve and streamline services, foster knowledge-sharing and eliminate duplications – thus lowering costs and enhancing client benefit. The Non-Life Business Group will also benefit more directly from product and risk-management resources transferred from the Corporate Centre. Overall, these measures will contribute to achieving strategic cost leadership in the nonlife reinsurance business and strengthen the Group’s competitive position in Europe.
The renewals per 1 April in three major Far East markets showed overall positive results. In Japan natural catastrophe business improved, especially industrial earthquake coverages. Terms of earthquake treaties improved as well and Swiss Re shifted capacity from proportional to non-proportional business. The rates of wind and f lood catastrophe covers increased after many years of rate reductions. In Korea, where Swiss Re has received a provisional reinsurance licence, a general trend towards raising rates and conditions was also observed. In the Indian market liberalisation continues and Swiss Re maintained its leadership presence.
Swiss Re’s life and health business will benefit from continued strong demand for traditional life reinsurance in US. Further consolidation in the primary market should also sustain demand for Admin Re. In Europe, the gradual move towards private provision in social security and health care will create new challenges and opportunities for the industry; Swiss Re is ready to meet these alongside its clients. Overall, Swiss Re’s life business margins are expected to remain stable while benefiting from further improvements in productivity.
e n zi n g e r a t w w w
Swiss Re’s determination to add value through e-business was underlined in the public announcement of its e-business strategy in May 2000. The initial focus was on risk placement: on-line submission and quoting for standardised reinsurance products – as well as a customised client-renewal process developed in partnership with selected global clients. This was quickly complemented by business services such as comprehensive reinsurance accounting transaction services. Other service components were expanded to allow client access to Swiss Re’s knowledge and expertise: web-enabled underwriting tools, in-depth information and visual summaries of hazard exposure, loss frequencies, financial/ insurance benchmarking, performance comparisons and calculation of claims indices.
During 2001, Swiss Re expects to create further substantial value, both for itself and for its clients, through e-business. The focus will be on implementing the most promising initiatives and integrating e-related activities into normal business practices. Success will depend on three factors: adding value for Swiss Re’s clients through substantially simplified business transactions and reduced costs; providing B2B applications which allow clients to transact and administer a significant portion of their premium volume through e-business; and strengthening client relationships by providing enriched information content.
“Companies which do business according to the principles of sustainability have the best chance of success in the long term.” Bruno Porro, Head of Risk & Knowledge
Swiss Re’s environmental report can be accessed at www.swissre.com or ordered from Swiss Re Publishing.
Swiss Re’s commitment to its employees includes a broad spectrum of services and benefits, customised to the needs of the individual. Compensation is based on a global “pay-for-performance” philosophy with a variable wage component and, in most countries, an opportunity to purchase Swiss Re shares at attractive terms. A strong emphasis on continuing education includes intensive management development, identifying and training individuals with high potential at all levels of the company; the centre for global dialogue at Rüschlikon will be an essential part of this process.
Swiss Re’s employment model includes f lexible annual working time, teleworking, part-time opportunities and an increased number of apprenticeships. The Group encourages staff to strike a healthy long-term balance between work and private life, with support and counselling packages for maternity or paternity leave and childcare. In the wider world, Swiss Re offers financial and intellectual support to a variety of institutions and projects with humanitarian, social, environmental and cultural goals.
Good corporate citizenship: as a reinsurer, as an employer and as a sponsor
The knowledge generated in applied research needs to be translated into viable business solutions which bring value to clients. The centre therefore provides a shared space for workshops with clients and specialists to develop tailor-made products and services in risk and capital management.
Corporate development means shaping corporate strategy, communicating shared values and developing the talents of employees. Management development programmes bring together staff from all divisions across the globe to share knowledge, exchange best practice and establish networks – activities which are further facilitated by the Media Net. For more information, visit: www.ruschlikon.net.
Income statement 39 Balance sheet 40 Statement of shareholders’ equity 42 Statement of comprehensive income 43 Statement of cash flow 44 Notes 46 Report of the Group auditors 85
Income before income tax expense Income tax expense Net income on ordinary activities
Equity securities – Available for sale, at fair value (cost: 1999: 18 008; 2000: 16 812)
(note 2) Foreign currency translation adjustments Dividends Change in own shares (note 10)
Net income Other comprehensive income: Change foreign currency translation adjustments Change unrealised gains (losses), net of tax
Cash flows provided (used) by operating activities Net income Adjustments to reconcile net income to net cash provided (used) by operations: Depreciation, amortisation and other non-cash items Net realised investment gains Change in technical provisions, net Change in reinsurance receivables and funds held by ceding companies Change in other assets and liabilities Change in income taxes payable (recoverable) Income from equity accounted investees Net cash provided (used) by operating activities
Cash paid for acquisitions and reinsurance transactions, net Other investments, net Net cash provided (used) by investing activities
Effect of foreign currency translation Change in cash and cash equivalents (including short-term investments) Cash and cash equivalents as of 1 January Cash and cash equivalents as of 31 December
Adrienne Atwell Manager Environmental Liability Department (ELD), Swiss Re Americas Division, Armonk (USA)
Scope of consolidation 1. Organisation and summary of significant accounting policies
The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss Reinsurance Company (the parent company, referred to as “Swiss Re Zurich”) and its subsidiaries (collectively, the “Swiss Re Group” or the “Group”). The Group provides reinsurance, alternative risk transfer products and services to life and non-life insurance companies, clients and others world-wide. Reinsurance and other related products and services are delivered to clients through a network of more than 70 offices in over 30 countries as well as through reinsurance brokers.
Companies in which Swiss Re Zurich, directly or indirectly, holds a voting majority or otherwise controls are consolidated in the Group accounts. Companies in which Swiss Re Zurich maintains a direct or indirect holding of between 20% and 50% and has a significant influence, but not controlling interest, are accounted for using the equity method and are included in other invested assets. The Swiss Re Group’s share of net profit or loss in investees accounted for under the equity method is included in net investment income. Equity and net income of these companies are adjusted as necessary to be in line with the Group accounting policies. The results of consolidated subsidiaries and investees accounted for using the equity method are included in the financial statements for the period commencing from the date of acquisition.
The preparation of financial statements requires management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the related disclosure including contingent assets and liabilities. The Swiss Re Group’s liabilities for unpaid claims and claim adjustment expenses and policy benefits for life and health include estimates for premium, claim and benefit data not received from ceding companies at the date of the financial statements. In addition, the Group uses certain financial instruments and invests in securities of certain entities for which exchange trading does not exist. The Group determines these estimates on the basis of historical information, actuarial analyses, financial modelling and other analytical techniques. Actual results could differ from the estimates described above.
The Group’s investments in fixed income securities are classified as Available for sale (“AFS”) or Trading. Fixed income securities AFS are reported at amortised cost. Trading fixed income securities are carried at fair value with unrealised gains and losses being included in the income statement.
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.
The Group uses foreign currency and interest rate forward contracts to manage its exposure to future movements in foreign exchange and interest rates. Foreign currency forward contracts are agreements to exchange fixed amounts of two different currencies at a specified future date and at a specified price. The Group generally utilises foreign currency forward contracts with terms of between one and six months. Foreign currency forward contracts designated as a hedge at inception and qualifying as a hedge are accounted for as a hedge with unrealised gains or losses deferred. Foreign currency forward contracts that do not qualify for hedge accounting are carried at fair value with changes in unrealised gains or losses recognised in income.
The Group uses bond forward contracts to lock in sales prices for fixed income securities that it intends to sell at a future date. The contracts are used to determine the carrying value of the related investments.
Equity index options, which are used to manage the market and liquidity risks of equity securities, represent an option to either purchase or sell a “basket” of shares underlying a well-established stock market index; delivery of the stocks is not required as the contracts are settled for cash on maturity. Equity index options are included in other invested assets with changes in unrealised gains and losses included in investment income.
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 non-life reinsurance business are amortised to income in proportion to non-life premiums earned. Future investment income is considered in determining the recoverability of deferred acquisition costs on non-life business.
The acquired present value of future profits (“PVFP”) of in-force business is recorded in connection with the acquisition of life reinsurance operations. The initial value is determined actuarially by discounting estimated future gross profits as a measure of the value of business acquired. The resulting asset is amortised on a constant yield basis over the expected revenue recognition period of the business acquired, generally over periods ranging up to 30 years, with the accrual of interest added to the unamortised balance at the earned rate.
Liabilities for unpaid claims and claim adjustment expenses for non-life 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 continually 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.
Unpaid non-life claims provisions may only be discounted if the payment pattern and ultimate cost are fixed and reasonably determinable.
Non-life reinsurance premiums are recorded when written and include an estimate for written premiums receivable at period end. Premiums earned are generally recognised in income over the contract period in proportion to the amount of reinsurance provided. Unearned premiums consist of the unexpired portion of reinsurance provided.
The Group uses retrocession arrangements to increase its aggregate underwriting capacity, 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.
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.
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 or losses resulting from translation of functional currencies to the reporting currency are included as a separate component of shareholders’ equity, net of applicable deferred income taxes. Realised currency gains and losses resulting from foreign currency transactions are included in income.
Shares purchased are recorded at market value and are classified and accounted for as equity securities Available for sale. Unrealised gains and losses are recorded in equity. The average cost method is used to determine the cost of own shares sold. Any gains or losses on the disposition of own shares are recorded in the income statement.
The Group carries financial instruments generally at fair value on its balance sheet, with the exception of fixed income securities AFS, real estate, mortgages and other loans and debt. Fair values for investment real estate and mortgages are presented in Note 2.
The Group also has an investment concentration with ING Groep N.V., a Europeanbased financial institution. As of 31 December 1999 and 2000, the Group held CHF 1 222 million and CHF 1 239 million, respectively, of common stock at fair value, and CHF 1 439 million and CHF 1 516 million, respectively, of other operating assets.
The amortised cost and estimated fair values of investments in fixed income securities by remaining maturity are shown below. Fixed maturity investments are assumed not to be called for redemption prior to the stated maturity date. As of 31 December 1999 and 2000, CHF 1 945 million and CHF 2 180 million, respectively, of fixed income securities were callable or had call options in the instruments’ structure.
As of 31 December 1999 and 2000 securities with a carrying value of CHF 808 million and CHF 653 million, respectively, were on deposit with regulatory agencies in accordance with local requirements.
As of 31 December 1999 and 2000 investments with a carrying value of approximately CHF 4 575 million and CHF 4 161 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities.
Cash and cash equivalents included short-term deposits with a carrying value of CHF 2 208 million and CHF 1 424 million as of 31 December 1999 and 2000, respectively.
As of 31 December 1999 and 2000 investments in real estate included CHF 20 million and CHF 11 million, respectively, of real estate held for sale.
Carrying value as of 1 January Foreign currency translation adjustments Depreciation Additions/sales/disposals Unrealised gains/losses Gains or losses on sales Carrying value as of 31 December 56 Swiss Re Annual Report 2000
Net investment income by source was as follows: CHF millions 1999 2000
Dividends received from investees accounted for using the equity method were CHF 31 million and CHF 40 million in 1999 and 2000, respectively.
Realised gains and losses for fixed income securities, equity securities and other investments were as follows: CHF millions 1999 2000
For fixed income and equity securities, gross realised gains of CHF 1 607 million and gross realised losses of CHF 493 million as of 31 December 1999 were calculated using the specific identification method of determining investment cost. The remainder of realised gains and losses were calculated using the average cost method. All realised gains and losses for the year ended 31 December 2000 were calculated using the specific identification method.
Interest rate contracts Forwards and futures Options Swaps Swaptions Floors and caps Total interest rate contracts
Both of these acquisitions were accounted for as purchases, and the companies’ results were included in the Group’s results from the date of purchase.
During 2000, there were three Admin Re transactions. Admin Re is the purchase of closed blocks of in-force business and can be facilitated through either a stock purchase or reinsurance. The stock of Midland Life was purchased on 31 July 2000 for CHF 496 million. The Group also entered two reinsurance-based deals with CIGNA and UnumProvident. The results of all of these deals have been included from the date of the transaction.
Swiss Re’s share of Euler SA of 19.99% was reduced to 8% during 2000 through a sale which realised CHF 125 million. This investment, which had been accounted for under the equity method of consolidation, has now been deconsolidated and is recorded as an available for sale equity security.
The following table presents changes in deferred acquisition costs: CHF millions 1999 2000
The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. It also issues operational debt for financing of specific assets on a matched basis as part of its business activities. The Group defines long-term debt as debt having a maturity greater than one year. The Group’s long-term debt as of 31 December 2000 was: Senior debt as of 31 December 2000: Issued Nominal Interest Book value
Long-term operational debt Operational debt as of 31 December 2000: Issued Nominal Interest Book value
In June 1995, the Group issued convertible bonds with a face value of USD 500 million, bearing interest at 2% and maturing on 30 June 2000 in exchange for proceeds of USD 439.5 million. The bond conversion rights were exercisable in multiples of USD 5 000 in exchange for 4.9033 Swiss Re shares through 30 June 2000. Interest was payable semi-annually. As of 30 June 2000, when the conversion right expired, 99 833 bonds of nominal value USD 499 million had been converted into 489 447 shares of the Group.
In June 1998, the Group issued exchangeable bonds with a face value of NLG 925 million bearing interest at 1.25% payable annually and maturing on 23 June 2003, in exchange for proceeds of NLG 901 million. The bond exchange rights are exercisable in multiples of NLG 1 000 into 5.4054 ING depositary receipts in respect of fully paid ordinary shares of ING Groep N.V.
The Swiss Re Group continues to make provisions at the undiscounted value of potential ultimate claims payments and claims settlement charges, less amounts paid to date.
Premiums written Claims paid Change life and health benefits Acquisition costs
Unpaid claims and claim adjustment expenses, liabilities for life and health policy benefits and unearned premiums are reported net of retrocession in the Group’s balance sheet. Gross, retroceded and net amounts for these items were as follows: Non-Life Business Group
All of the Group’s reinsurance companies prepare statutory financial statements based on local laws and regulations, which in some jurisdictions impose complex regulatory requirements. Most jurisdictions require reinsurers to maintain a minimum amount of capital in excess of a statutory definition of net assets or maintain certain minimum capital and surplus levels. In addition, some jurisdictions place certain restrictions on amounts that may be loaned or transferred to the parent company. The Group’s ability to pay dividends may be restricted by these requirements.
In 1999, the Board of Directors announced a share repurchase programme. In the period to end of March 2000, 72 650 shares with a total value of CHF 195.3 million had been repurchased. These shares were approved for cancellation by the shareholders in June 2000.
On 26 May 1997, the Group issued 5 000 000 call options. The options were exercisable up to and including 5 May 1999. They were exercisable at a minimum number of 100 options, with 50 options entitling the holder to receive one Swiss Re share for a purchase price of CHF 1 900.
Diluted earnings per share Income available to common shares assuming debt conversion and exercise of options Weighted average common shares outstanding Net income per share in CHF
The effects of debt conversion have not been included in the 1999 and 2000 earnings per share, as the effect of converting to 169 408 and 77 186 shares, respectively, was anti-dilutive.
Own shares held on 1January1999 at cost 808 092 1 127
Own shares held on 1 January 2000 at cost 580 496 1 005
The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the Group operates. The components of the income tax charge were: CHF millions 1999 2000
The components of deferred income taxes were as follows: CHF millions 1999 2000
Deferred tax liabilities Present value of future profits Deferred acquisition costs Technical provisions Bond amortisation Unrealised gains on investments Other Total deferred tax liability
Income taxes paid in 2000 were CHF 627 million, and in 1999 CHF 635 million.
The Group paid an aggregate of CHF 26.4 million in 1999 and CHF 31.8 million in 2000 to the members of the Executive Board and to the members of the Board of Directors (28 persons in total) for services in all capacities, of which CHF 12.4 million in 1999 and CHF 18.5 million in 2000 represented bonuses taken in restricted shares. In addition, the Group contributed or accrued CHF 1.8 million in 1999 and CHF 2.4 million in 2000 for pension, retirement or similar benefits for the Executive Board members in the year ended 31 December.
The Group sponsors various funded defined benefit pension plans covering 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.
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 the following effects for 2000: 1 percentage 1 percentage
Effect on total of services and interest cost components Effect on post-retirement benefit obligation
A summary of the activity of the Group’s fixed stock option plan is as follows: Weighted 1999 Weighted 2000 average average exercise exercise price in CHF Shares price in CHF Shares
The fair value of each option grant is estimated on the date of the grant using a binomial option-pricing model with the following weighted average assumptions used for grants in 1999 and 2000, respectively: dividend yield of 1.9% and 2.5%; expected volatility of 22% and 22%; risk-free interest rate of 2.3% and 3.8%; expected life of 5.5 years and 5.5 years.
The Group does not recognise compensation expense for these options. If compensation expense for the options had been recognised, the Group’s net income and earnings per share would approximate the pro forma amounts in the following table: CHF millions 1999 2000
Under the terms of the discount plan for 1999, eligible employees of Swiss Re Zurich could choose to purchase shares at a discount of CHF 1 000 per share, or receive a cash equivalent of 90% of Swiss Re Zurich’s contribution. Swiss Re Zurich purchases these shares on the open market. The required service for eligibility is one calendar year. The number of shares that an employee can purchase are 15 shares for senior managers, 10 shares for managers and 5 shares for other staff. This plan was discontinued after 1999.
As a participant in limited investment partnerships, the Group commits itself to making available certain amounts of investment funding, callable by the partnership for periods of up to 10 years.The total commitments remaining uncalled as of 31 December 1999 and 2000 were CHF 964 million and CHF 1 074 million, respectively.
The Group had four and five guarantees as of 31 December 1999 and 2000, respectively, which primarily indemnify the purchasers of former Group entities for possible run-off losses or claims for pending litigation. The Group enters into guarantees with regulators, purchasers of former group entities and others in the ordinary course of business.
As part of its normal business operations, the Group enters into a number of agreements for the leasing of premises. Such agreements, which are operating leases, total the following obligations for the next five years and thereafter: As of 31 December 2000 CHF millions
Investment income and assets are allocated to business groups based on the investment income and assets of the legal entities that are operated by these business groups. Where one entity is controlled by two or more business groups, the investment income and assets are hypothecated to these business groups using technical liabilities and other information as a key for the allocation.
Expenses Claims and claim adjustment expenses; life and health benefits Acquisition costs Amortisation of goodwill Other operating costs and expenses
Revenues Premiums earned Net investment income Net realised investment gains Other revenues
Expenses Claims and claim adjustment expenses; life and health benefits Acquisition costs Other operating costs and expenses
Property Liability Motor Accident/health Marine Aviation Credit/surety Engineering/other lines Subtotal non-life Life Total gross premiums written
M e th o d o f c o n so li d a ti o n 80 Swiss Re Annual Report 2000 18. Subsidiaries and equity investees
Switzerland European Reinsurance Company of Zurich 100 f Schweiz Allgemeine Versicherungsgesellschaft 100 f Swiss Re Investors Zurich 100 f Swiss Re Partnership Holding AG 100 f Xenum Finance AG 42.5 e
Germany Bavarian Reinsurance Company Limited 100 f Bayerische Rück-Holding Aktiengesellschaft 100 f
United Kingdom European Credit and Guarantee Insurance PCC Limited 100 f Fox-Pitt, Kelton Group Limited 66.6 f Palatine Insurance Company Limited 100 f SR International Business Insurance Company Ltd. 100 f Swiss Re Asset Management Ltd. 100 f Swiss Re Capital Markets Limited 100 f Swiss Re GB Limited 100 f Swiss Re Life & Health Limited 100 f Swiss Re New Markets Ltd. 100 f Swiss Re (UK) House Ltd. 100 f Swiss Reinsurance Company UK Limited 100 f The Mercantile & General Reinsurance Company 100 f
Luxembourg Rück Treasury & Management (Luxembourg) S.A. 100 f Swiss Re Treasury (Luxembourg) S.A. 100 f
Bermuda Englewood Reinsurance Company Ltd. 100 f Harrington International Insurance Ltd. 71.43 f Life Re International, Ltd. 100 f Partner Reinsurance Company1 24.51 e SwissRe Finance (Bermuda) Ltd. 100 f SwissRe Investments (Bermuda) Ltd. 100 f
Canada Swiss Reinsurance Company Canada 100 f Swiss Re Holdings (Canada) Inc. 100 f Swiss Re Life & Health Canada 100 f
US Facility Insurance Holding Corporation 100 f Allied Life Financial Corporation 100 f Assure America, Inc. 100 f International Risk Management Group Ltd. with 28 subsidiaries 100 f Life Re Capital Trust I 100 f Life Re Capital Trust II 100 f Life Reassurance Corporation of America 100 f LSL Financial Corporation 100 f Midland Life Insurance Company 100 f Reassure America Life Insurance Company 100 f Texas Re Life Insurance Company 100 f NAS Management Inc. 100 f North American Capacity Insurance Company 100 f North American Elite Insurance Company 100 f North American Specialty Insurance Company 100 f Swiss Reinsurance America Corporation 100 f Swiss Re America Holding Corporation 100 f Swiss Re Atrium Corporation 100 f Swiss Re Capital Markets Corporation 100 f Swiss Re Financial Products Corporation 100 f Swiss Re Investors America 100 f Swiss Re Life & Health America Inc. 100 f Swiss Re Management Corporation 100 f
The Group has changed its accounting policies and presentation to conform to more widely accepted international practice. Therefore certain accounting policies changed from one acceptable method to another under the Swiss ARR basis. The nature and impact of these changes are set out below.
Acquired present value of future profits (PVFP) – 242 2 678 Investment valuation changes 367 1 307 Non-life reserves and loss adjustment expense (LAE) 110 – 1 613 Life reserves and deferred acquisition costs – 287 1 020 Exchange rate impacts – 215 118 Deferred tax 82 – 935
The main differences between the accounting standards used by the Swiss Re Group in the 1999 Annual Report as previously published and those now adopted are set out below.
PVFP represents the discounted value of estimated future gross profits on in-force life business acquired. The asset is amortised over the expected revenue recognition period of the underlying acquired business. Under the old basis, elements of PVFP were implicitly included in goodwill.
Land and buildings leased to unrelated third parties are recorded at depreciated cost, net of any impairment charges and classified as investment property. Real estate investments held for resale are accounted for at the lower of carrying value or market and are not depreciated. Under the old basis, investments in land and buildings were recorded at market value with realised gains and losses from sales as well as valuation adjustments included in the income statement.
Under the new basis, minority (typically less than 20% interests) shareholdings are accounted for as “Available for sale” securities, and are recorded at fair value. Unrealised gains and losses are recorded in equity and other than temporary declines in value below cost are recorded in income. Other minority shareholdings were accounted for at the lower of cost or market under the old basis.
For new basis Swiss GAAP, unpaid non-life claims provisions may only be discounted if the payment pattern and ultimate cost are fixed and determinable on an individual basis. Under the old basis, claims provisions for finite risk reinsurance and acquired blocks of retroactive reinsurance business were discounted if this was required for statutory reporting of the Group company.
As auditors of the Group, we have audited the consolidated financial statements (income statement, balance sheet, statement of shareholders’ equity, statement of comprehensive income, statement of cash f low and notes / pages 39 to 44 and 46 to 84) of Swiss Re Group for the year ended 31 December 2000.
In our opinion, the consolidated financial statements give a true and fair view of the financial position, the results of operations and the cash f lows in accordance with the Accounting and Reporting Recommendations (ARR) and comply with Swiss law.
“ Access to sufficient water of good quality is a basic human need.”
e h n d e r a t w w w .s w is sr e
The following commentary on the 2000 financial year of the parent company therefore complements the review of the financial year of the Swiss Re Group and is intentionally kept short.
After-tax profit for the financial year amounted to CHF 1 146 million, following CHF 1 759 million in 1999.
Access to sufficient water of good quality is a basic human need. Today, over one-fifth of the world’s population still does not have access to safe drinking water and natural water resources are continually being polluted. Unless properly managed, water scarcity will also curb additional food production. Since Switzerland is so fortunate as to be located in the “water tower” of Europe, it is our task to back others in their efforts to deploy their water resources wisely. My institute and I are accepting the challenge to become a global player in helping to achieve fair partnerships for water.
The technical provisions continued to rise and amounted to CHF 23 486 million on the balance sheet date. The increase of CHF 1707 million ref lects the higher business volume and the loss burden incurred during the financial year. Furthermore, reserves were strengthened by a contribution to the provision for catastrophe claims in the amount of CHF 371 million; as of the balance sheet date, this provision amounted to CHF 1696 million.
At the General Meeting on 30 June 2000, a capital reduction in the amount of the 72 650 shares repurchased was approved, thus reducing the nominal share capital of the company to CHF 146 583 010, consisting of 14 658 301 registered shares with a par value of CHF 10.
Non-technical account Investment income Investment charges Allocated investment return Interest charges Other income Other charges Non-technical result
The income statement and the balance sheet are presented in a format which follows the Accounting and Reporting Recommendations issued by the Swiss Foundation for Accounting and Reporting. The financial statements and the notes are prepared in accordance with the regulations of the Swiss Company Law.
The technical provisions for life reinsurance business are determined on the basis of actuarially calculated present values taking experience into account. They also include the provisions for unearned premiums of life reinsurance and the deduction of deferred charges.
The currency exchange rates applicable for key currencies are shown on page 53.
Technical account Premiums written Change in the provision for unearned premiums 1. Premiums earned
Details on the Swiss Re Group’s subsidiaries are to be found on pages 80 ff.
This item contains provisions for taxation in the amount of CHF 221 million (1999: CHF 229 million) and other provisions totalling CHF 3 896 million (1999: CHF 4 176 million). Other provisions notably include a provision deriving from the restructuring of participations and a provision for currency fluctuations.
Based on the information at our disposal, Credit Suisse Group owned 977 441 registered shares of Swiss Reinsurance Company on 20 April 2001, representing 6.67% of the total share capital.
In Switzerland, Swiss Reinsurance Company employed a staff of 2 841 on the balance sheet date (1999: 2 870). Personnel expenses for the 2000 financial year amounted to CHF 687 million (1999: CHF 648 million).
As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes / pages 89 to 98) of Swiss Reinsurance Company for the year ended 31 December 2000.
Without water there would be no life. And good fresh water is becoming scarce on our planet. How can we share this precious resource in a sustainable way without resorting to violence? The River Nile, for example, lies at the centre of a complex system of waterways, economic and political aspirations, various development programmes, basic human needs and sophisticated management methods.
The maximum amount of insurance coverage that a company may sell. Companies make judgements about how much insurance coverage they can prudently provide. One factor in determining capacity is state government regulations that define minimum statutory surplus requirements. Capacity also refers to the amount of insurance coverage 1) to a particular policyholder or 2) in the marketplace in general.
Payment incurred under the terms of a (re)insurance contract for the claim event.
Unpaid claims and claim adjustment expenses: Provision for claims and claim adjustment expenses which have been incurred but not yet finally settled.
Sum of claims paid, change in the provision for unpaid claims and claim adjustment expenses, in relation to net earned premiums. This ratio enables the assessment of business performance in non-life reinsurance.
Business interruption/loss of profits/business income protection insurance: Insurance against the financial effects of an insured loss on a company’s income. The insurance covers overhead costs and lost profit.
Insurance for insurance companies which spreads the risk of the direct insurer, making the risk of its portfolio more homogeneous.
Non-proportional reinsurance: Form of reinsurance in which the reinsurer assumes – against payment of a specially calculated premium – the part of the insurer’s claims that exceed a certain amount.
Income statement Revenues Premiums earned Net investment income Net realised investment gains Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Acquisition costs Amortisation of goodwill Other operating costs and expenses Total expenses Income before income tax expense Income tax expense Net income on ordinary activities
Stock exchange listing The shares of Swiss Re are listed on the Swiss Exchange as security number 124.558. In addition, on 1 February 1996, an American Depositary Receipts Program (ADR level I, over-the-counter) was launched together with Morgan Guaranty Trust Company of New York. One ADR corresponds to 1/20 of a Swiss Re share. It is intended that after the proposed 20-for-1 share split one ADR will correspond to one Swiss Re share.
Number of shares entitled to dividend Dividend paid per share Net income per share1