Annual report o f the Chairman and the Chief Executive O fficer 2
Board o f Directors, Executive Board and A ud ito rs 4
Performance o f Swiss Re registered shares vs the SBC to ta l m arket index and the SBC insurance index: CHF
An investor w ho bought 10 Swiss Re registered shares at the end o f 1987 at a price o f CHF 64000.- and reinvested all subsequent dividends, share rights, and the 1996 par value repaym ent of CHF 10.-, w ith o u t investing any new funds, held a position w ith a market value o f CHF 374556.- on 15 May 1997.
The tota l perform ance am ounts to 485.2% or an average o f 20.8% per year.
Profit on ord inary activities a fte rtax 1 461 1 092
Return on equity (in percent) 13.82 12.7 Num ber of employees 6 939 6 782 in service and other companies 1 119 2 609 1 subject to approval by the General Meeting 2 before offset o f goodw ill from the acquisition of Mercantile & General Re 1 Swiss Re Group
We are able to present you with the Swiss Re Group’s annual report for the first time in the spring instead of, as in the past, in the autumn. This follows extensive changes in the work process fo r closing the accounts. As a consequence, the Ordinary General Meeting can now take place on 27June 1997.
The Board o f Directors proposes to the General Meeting on 27June 1997an increase in the dividend payment from CHF22.50 to CHF30 .0 0 per share. I f the proposed dividend payment is approved, a total o f C H F439 million will be paid out to our shareholders in 1997.
1996 was a year o f worldwide consolidation in the reinsurance industry, to an extent not previously observed. Several large reinsurers were acquired. The four largest reinsurers further expanded their already notable market share in the wake o f this change, whereas the number o f small and medium-sized, independent players continued to fall. This trend is continuing in 1997.
leading reinsurers to offer a global service and make efficient use o f their capital funds through globally diversified risk portfolios.
The sale o f the direct insurance operations in 1994gave the Swiss Re Group increasedfinancial flexibility. This formed a solid basis for the latest consolidation process in the reinsurance industry: in 1996 the Swiss Re Group acquired Mercantile & General Re and agreed to acquire Unione Italiana di Riassicurazione. In the first quarter o f1997 we began restruc­ turing our holdings in Société Anonyme Française de Réassurances (SAFR) and PartnerRe. The process should be completed in the next few weeks.
Stable client relationships and loyal employees are particularly impor­ tant in these times o f change. We therefore wish to thank our clients fo r their renewed confidence in us, and our employees for their significant contribution.
Board o f Directors U lrich B re m i* C hairm an 2000
Board o f D irectors Lukas Apafi * Com m ittee o f Directors
Executive Board W alter B. K ie lho lz* C hief Executive O ffice r
Erw in K. Z im m erm an n * Com m ittee o f the Executive Board
Rudolf Kellenberger* Bruno Porro Urs H. W inter Heidi E. Hutter W alter B. K ie lholz*/ Erwin K. Z im m erm ann
Bangkok Beijing Hong Kong Kuala Lum pur Manila Seoul Shanghai Singapore Taipei Tel Aviv Tokyo
Insurance Underwriting P & C : Hans-Kaspar Zu lauf Credit: Adrian Sulzer
Bavarian Re Union Re Human Resources, Chief Financial Chief Investment Accounting, Logistics, Law Officer Officer Controlling
Corporate Accounting Non-German-speak- Non-life Giovanni O lgiati2 Group Information Europe Helmut Brechot ing Markets, Credit, Aviation Erich Herrgen
M ario Köchli Investment Centre Investments, Munich Accounting, Informa­ Stefan Schröder tion Processing Stefan Schröder
Singapore Sydney Tokyo * M em ber o f the Com m ittee o f the Executive Board * * replaces the current structure o f the ART division as of Ju ly 1997 1 until June 1997 2 as of Ju ly 1997 3 until September 1997 4 as of October 1997 5 until end of 1997 9 Swiss Re Group
This annual report informs you about the 1996 financial year and the major developments in the first four months o f 1997.
In the second half o f 1996, the Swiss Re G roup assumed an active role in the consolidation now taking place in the reinsurance industry by making two large acquisitions: - In December 1996 the previously agreed acquisition o f the London-based
— Also in December 1996, an agreement to acquire the Rome-based Unione Italiana di Riassicurazione was signed. As a first step, 49% o f the company was acquired in February 1997. T he purchase o f the remaining 51% and the establishment o f the definitive purchase price will follow a restructuring o f the balance sheet, with a spin-off o f real estate investments. The total pur­ chase price will be approximately C H F 500 million. We expect the trans­ action to be completed in 1997.
T he acquisition o f Unione Italiana di Riassicurazione will close a gap in the European strategy o f the Swiss Re Group and increase our market share in Italy which has been too low for a num ber o f years.
The 1996 accounts are significantly influenced by strong movements in currency exchange rates, particularly in the last months of the financial year. For example, the value o f the US dollar rose by 17% against the Swiss franc, the Deutsche M ark by 8% , and the British pound by 29% .
Profit and loss account The Swiss Re G roup’s ordinary profit rose by 34% to C H F 1461 million in 1996. Further improvement in the underwriting result in non-life and life business as well as a substantially higher investment result contributed to this notable advance.
Gross premiums climbed by 11% to C H F 14.2 billion, impacted by exchange rate movements. This increase was mainly attributable to the 27% growth o f life reinsurance to C H F 2228 million; our non-life business recorded much more modest growth o f 8% to C H F 12 022 million. If these figures are adjusted to offset currency influences, there is a decline o f 3% . Premium development is affected by the form and configuration o f the reinsurance treaty. It provides only an imprecise indication of the risk exposure assumed by the Swiss Re Group and the related profit prospects.
The technical result in life reinsurance improved by 18% to C H F 178 million. The investment result, including allocated investment return, climbed
C H F 704 million from the previous year to C H F 3309 million. This reflects another strong increase in the investment portfolio and higher capital gains. The return on investment increased from 6.8% to 7.0% .
Investments climbed from C H F 41.7 billion to C H F 58.5 billion, o f which Mercantile & General Re accounted for C H F 9.0 billion.
Technical provisions increased from C H F 29.9 billion to C H F 43.6 billion, with Mercantile & General Re accounting for C H F 7.8 billion.
Other assets rose by C H F 2.5 billion. This position relates primarily to debtors from reinsurance operations. Other liabilities grew strongly by C H F 4.8 billion to C H F 11.4 billion. They mainly include creditors arising out of reinsurance operations and the financing o f the acquisition o f M ercantile & General Re.
Key ratios The ratios relevant for assessment o f the annual financial statements of aI I m reinsurer have improved; they have also been influenced by the acquisition of Mercantile & General Re: - Investments in relation to net premiums climbed to 373% (1995: 315%); excluding the consolidation o f M ercantile & General Re, the figure would have increased to 355% .
Return on equ ity r j j excluding the consolidation o f Mercantile & General Re.
— In 1996 a branch was opened in Paris. The Swiss Re Group holds a leading market position in France. Service for the French insurance industry should be further improved through the build-up o f a strong local presence in Paris.
We are convinced that the further expansion o f our reinsurance business at many locations o f the Group, and the related investments in qualified staff, will create the basis for the Swiss Re Group to enhance its global leadership role and to deal professionally with increasingly complex and concentrated risks.
The major claims experience in the first quarter o f 1997 was comparable to the previous year. This continues the favourable trend of recent years. C ondi­ tions in the reinsurance business have weakened somewhat. O ur cautious underwriting policy, with a careful assessment o f risk, aims to counteract this trend. The diversification o f technical risks will further improve through the inclusion of Mercantile & General Re in the Group. Growth in life business should have a stabilising effect on the quality o f profits.
We expect the generally satisfactory business performance o f early 1997, further improvements in the balance sheet structure and the expansion o f the scope o f consolidation to have a positive effect on the result.
Developments in the non-life insurance and reinsurance markets 1996 was a good year for the insurance and reinsurance business. Despite intense competitive pressure, most companies improved their results compared with the previous year. This was attributable to a favourable general claims experience, rigorous cost-cutting measures and a very good investment perfor­ mance. In Europe, market deregulation proceeded at a gradual pace. Primary insurers are undertaking great efforts to adapt swiftly to changed market condi­ tions and are investing in the development o f new products and the opening of additional distribution channels. In the USA, underwriting results have been affected by tougher com petition due in part to overcapacity. Nevertheless, gains on investments have provided a stable result. Asian markets continue to display robust growth.
Gr os s p r e m i u m s by c o u n t r y
In commercial business, pressure on premiums has risen again following a brief phase of recovery. Although the claims ratio o f this prestigious area for the insurers was lower than anticipated despite the large loss at the airport in Düsseldorf, considerable price reductions for the renewal o f peak risks point to inadequate margins in the future.
T he Swiss Re Group’s premium volume fell slightly, but our result exhibits notable stability. We play an active role in shaping market events and are using our strong position to increase our client base and expand our non-pro- portional portfolio.
Central and Eastern Europe We have built up a position as a leading reinsurer in these markets and will reinforce our market presence through the opening o f a representative office in Warsaw this year. C ontinuing premium growth and a stable positive result are verification o f our efforts to date.
tion in premiums. The corporate client business, financial reinsurance and other forms o f alternative risk transfer are also to be further expanded in line with our strategic focus.
Nordic Countries These markets also display an increased need for advisory services. We see growing interest in the sm oothing o f results over time (multi-year covers for large risks) and the com bination of technical risks and investment risks. The somewhat poor development of the primary property business has an influence on various proportional treaties.
United Kingdom In terms of insurance market liberalisation, the United Kingdom is considered to be one of the most progressive markets in Europe and thus a trendsetter for possible developments in other countries. Lloyd’s staged a remarkable recovery in the financial year, successfully completing its reconstruction and renewal plan.
The Swiss Re Group achieved particularly successful results for the year and will be able to expand its market share significantly through the acquisition of Mercantile & General Re.
Italy Italy’s insurance market still exhibits considerably higher growth potential than in other Western European countries. Above-average growth rates such as in 1996 may therefore be expected in the future as well, especially in personal lines.
Gr oss p r e m i u m s As ia and Paci f ic
We increased our business volume substantially in the Asia-Pacific markets - due in part to favourable currency effects. At the same time, our business posted a higher result than in the previous year. Further expansion o f our local presence enables us to steadily pursue our long-term market strategy.
Southeast Asia T he insurance industry is developing at a very swift pace in most markets in Southeast Asia. Intense com petition among the countless local companies is heightened further by an incomprehensible oversupply o f reinsurance capacity which enables companies to cede as much risk as possible.
We operate with our long-term strategy in a challenging environm ent in which we attem pt to expand and strengthen our market position mainly through differentiation o f our service and support capabilities. This approach enabled us to further expand our business relations as well as our business volume.
Israel The opening o f our representative office in Tel Aviv last year enhanced our inte­ gration in the Israeli market and strengthened our leadership position. We are now able to com m it our full capacity on an even more targeted and successful basis.
Australia and New Zealand In both markets we achieved another excellent result, with property lines in particular profiting from lower claims ratios; premiums correspondingly reached their limit. Increasing capacity is becoming available in liability busi­ ness. Premium rates attainable in this area barely take into account the possible claims development during a very long settlement period and in the long term are not supportable.
Through our leading market position and intensified cooperation within our Group, we are focusing more on assisting our Australian clients with their expansion in Asian markets.
Gr oss p r e m i u m s by r eg io n 1996: 100% = CHF 3613 mi l l i in %
The Swiss Re Group has two divisions operating in the non-life business in the USA: - The N orth America division with Swiss Re America in the client seg­
Canada Extremely unfavourable climatic events resulted in the most expensive year o f losses ever for the Canadian insurance industry. The flooding in the Saguenay region (Quebec) alone caused insured losses o f over C H F 350 million. There is still no sign o f easing in the intense competitive situation which has charac­ terised this market for years.
We have reduced our presence in loss-producing business segments, resulting in lower premium volume and a positive total result. In the wake o f the inte­ gration of Mercantile & General Re, the organisation o f our Canadian Group company was streamlined and geared even more strongly to client needs.
Latin America The effects o f the Mexican currency crisis at the end o f 1994 have faded sooner than expected. This has spurred an economic recovery throughout Latin America. Despite this positive trend, primary insurance volume stagnated as a result o f deregulation and a renewed drop in original rates. The positive technical results are comparable to those o f 1995 following another lack of large claims in the financial year. The partial privatisation o f social security programmes launched in several countries opens up new business opportunities, also for us, which promise attractive returns over the medium term.
■ A c c id e n t /h e a l th 10%
W ith the exception o f flooding in northwest USA and in Canada (with a C H F 73 million share for the Swiss Re Group), large insured natural catastro­ phes remained absent. The facultative business and increasingly also the financial treaty business made another significant contribution to the positive total result.
T he reinsurance industry is currently shifting to a certain extent from facul­ tative to treaty covers. Part o f the transparency o f large risks is lost in this process. In the treaty business, the covers are already quite broad, leaving little room for further expansion. Globally active insurers show the intention of 2 2 Swiss Re Group
entering into uniform worldwide treaties which also include risks in the USA. Up to now, these risks have typically been covered separately due to the special legal situation.
Gross p re m ium s a c c id e n t /h e a l th
( inc lud ing d isabi l i ty) Non-l i fe
The business units o f Swiss Re New Markets (currently ART division) recorded slightly lower gross premium volume and a sustained improvement in results in 1996.
The international corporate client business is developing into an indepen­ dent global market. The needs o f large service and industrial firms are changing significantly and at a rapid pace. To meet these needs requires comprehensive risk financing solutions for large and catastrophe losses which also cover finan­ cial risks in addition to the recognised insurance risks. Participation in this business segment is increasingly limited to a small group o f financially sound, well-diversified, professional carriers who possess the necessary risk manage­ ment instrum ents and are prepared to com m it a large am ount o f their own capacity.
The Swiss Re New Markets division has positioned itself in this market and devises innovative risk transfer products and alternative financing solutions for large companies, most of which operate globally.
R un-off M anagement focuses on cancelled reinsurance business and especially on the efficient handling o f outstanding claims. We see interesting opportunities in this field to offer new services to the global insurance industry. Expansion o f this specialised service should satisfy the growing needs o f the insurance market.
The foremost event in this area was the acquisition o f Mercantile & General Re in December 1996 and the consequent expansion o f our life and health business. This purchase has made the Life and Health division the world leader in its sector. Size alone is not decisive; but the broadening o f our client base, the strengthening o f our professional skills and the addition o f new inform ation sources will enable us to add value for clients and shareholders.
Results In the life business, premiums grew by 27% . 12% can be attributed to ex­ change rate adjustments; the first-time inclusion o f Alhermij for a full year, and other special factors, accounted for 4% . The technical result increased by 18%.
Outlook The integration o f the Mercantile & General Re organisation into the Swiss Re Group is now complete. Although some transitional tasks still have to be dealt with, efforts can now focus on meeting client needs and addressing our strategic goals o f business expansion, profit improvement, skill building and better utilisation o f technology.
We remain optimistic about the future potential o f this business line.
■ Land and bu ild in g s 3120 5 2 953 7
— Favourable foreign exchange rates. — Increased income due to positive cash flow and the resulting rise in invested assets.
■ Ser v i ce and o t h e r c o m p a n i e s
The renewed increase in the num ber o f staff in the year under report reflects the development o f the world economy and the markets in which we are active.
8 4 % Globalisation and rising purchasing power in emerging regions o f the world increase the need for risk advice and insurance cover. O ur claim to offer tailor- made solutions to suit individual client needs requires a close-knit network o f local offices on a global scale. A significant num ber o f jobs are thereby being created outside o f Switzerland. Although technology and systems offer sup­ port in com m unicating with clients, they cannot replace personal contact and the basis o f trust.
Change in the p ro v is io ns fo r unearned p rem ium s 2. O ther techn ica l incom e
A d m in is tra tiv e expenses 8. O ther techn ica l charges 9. A llocated inves tm en t re turn
D ividend, in te rest and o th e r incom e from unconso lida ted subs id ia ries and a ffilia te d com pan ies
Incom e fro m fixed incom e securities, loans and m ortgages
Incom e fro m deposits w ith ceding com pan ies
Realised ga ins on sale o f investm en ts 2. U nrea lised incom e on investm en ts fo r un it-lin ked life re insurance
V aluation ad jus tm e n ts on in ves tm en ts - 352 - 252
Realised losses on sale o f investm en ts - 246 - 164
P rofit on ord inary activ ities a fte r ta x 1461 1092 5. E x trao rd in a ry incom e - 514 6. E x trao rd in a ry charges - - 500 7. Tax on e x tra o rd in a ry p ro fit 3
CHF m illions 1996 1995 1. Land and bu ild in g s 3 120 2953 2. Investm ents in unconso lida ted subs id ia ries and a ffilia te d com pan ies 2 595 1 784 3. Loans to unconso lida ted subs id ia ries and a ffilia te d com pan ies 41 38 5. Fixed incom e securities and reg istered debt in s tru m e n ts 32 514 23 961 9. O ther investm en ts 118 113 10. D eposits w ith ceding com pan ies 3401 2675
II Investm ents fo r un it-linked life reinsurance policies w here po licyholders bear the investm en t risk 1151 260 1. Debtors fro m reinsurance op era tions 3937 2 543
IV O ther assets 1259 495 2. Cash at bank and in hand 575 355
III Technical p rovis ions 42 532 29 606 1. P rov is ions fo r unearned p re m ium s 2211 1 830 2. P rovis ions fo r life , health and d is a b ility re insurance 8 707 4 243 3. P rovis ions fo r c la im s o u ts ta nd ing 30 520 22 821 4. P rovis ions fo r bonuses and rebates 964 600 5. O ther techn ica l p ro v is io n s 130 112
IV Technical prov is ions fo r un it-linked life reinsurance policies w here po licyho lders bear the investm en t risk 1 024 263
V Provisions fo r o th er risks and charges 2 998 1 792 1. P rovis ions fo r pensions 84 62 2. P rov is ions fo r taxa tio n 2 137 1 010 3. O ther p ro v is io ns 777 720
VI Deposits re ta ined from ceded reinsurance business 238 193
VII O ther lia b ilities 7 948 4475 1. C red ito rs a ris ing ou t o f re insurance op era tions 3 070 2313 3. A m o u n ts ow ed to banks 391 217 4. O ther c red ito rs 3 300 808
Cash flo w fro m re insurance opera tions 2. N on-technica l opera tions
Investm ent charges exc lud ing va lua tio n ad justm ents
Purchase o f ho ld ings in unconso lida ted subs id ia ries and a ffilia te d com pan ies
Increase in o th e r financ ia l lia b ilit ie s
Contents C o nso lida tion accoun ting p rinc ip les 36
G ross p re m ium s by co u n try 39
Technical p ro v is io n s by currency 41
The G roup accounts are based on the accoun ts o f the con so lida te d com pan ies tha t have been prepared in accordance w ith u n ifo rm accoun ting po lic ies and va lua tio n princ ip les . In tra -G roup transa c tion s are e lim ina ted .
Interests in com pan ies tha t are no t con so lida te d due to th e ir m in o r s ig n ifica nce and o th er m in o rity h o ld ing s are carried at the lo w e r o f cost o r m arket value.
Land and bu ild in g s are va lued at m arket value. M arket va lue is p e rio d ic a lly assessed by experts. A ny decrease in the m arket va lue betw een assessm ents by experts is taken in to account. Realised gains and losses fro m sales as w e ll as va lua tio n a d ju s t­
m ents inc luded in the p ro fit and loss account are based on cost.
Fixed incom e secu rities are va lued at am o rtised cos t.T h e d iffe re nce betw een cost and red em p tio n va lue is am ortised as a p re m ium or d isco u n t.T h is am o rtisa tio n is inc luded in incom e fro m fixed incom e secu rities in the p ro fit and loss account.
P rovis ions required fo r pe rm anent d im in u tio n in va lue are deducted.
P rovis ions fo r c la im s o u ts ta nd ing are based on the fu ll expected am oun t o f the re la ted paym ents, w ith the exception o f the life business and p a rtly fo r the accident, health and d is a b ility businesses, in w h ich the present va lue o f fu tu re incom e and ou tgo are set aside as p rov is io ns . In a lte rna tive risk trans fe r business, p ro v is io ns fo r c la im s o u ts ta nd ing are also p a rtia lly accounted fo r at present va lue fo r p roducts w ith lim ite d risk w ritte n by som e specia lised G roup com panies.
P rovis ions fo r c la im s ou ts ta nd ing are ca lcu la ted in d iv id u a lly o r by s ta tis tica l m ethods.
P rovis ions fo r the life , accident, health and d is a b ility businesses are actuaria lly de te rm ined . The corre spo nd ing reserves are those show n in the books o f the G roup com panies.
Technical in ves tm en t re turn is a lloca ted to the re insurance result. It re flects the in ves tm en t re tu rn generated on the investm en ts cove ring the techn ica l prov is ions.
The tax charge disclosed relates to the p ro fit fo r the fina nc ia l year. Valuation d iffe r­
G roup com pan ies and m in o rity h o ld ing s are d isclosed in the notes to the financ ia l s ta tem ents.
P ro fits fro m in tra -G ro up transactions are e lim ina ted .
In de pa rtu re fro m European Union d irec tives, the com pensa tion o f the Board o f
Foreign currency tra ns la tion A ll item s in the balance sheet and the p ro fit and loss account de no m ina te d in fo re ig n currencies are trans la ted at the currency exchange rates app licab le on the balance sheet da te .The currency tra n s la tio n a d ju s tm e n t fro m the reca lcu la tion o f the open ing balance sheet is ne tted against re ta ined earn ings.
C urrency exchange rates in CHF per 100 un its o f fo re ig n currency
A ustra lian d o lla r AUD 106.66 85.60 24.60
EU countries : N orth and South A m erica 25.4 27.8
Health (in c lu d in g d isa b ility ) 745 - 69 676 615 - 68 547
S ub to ta l non -life 12 022 - 639 11 383 11 094 - 567 10 527 39 Swiss Re Group
Additional information on the profit and loss account and balance sheet
Change in the p ro v is io ns fo r c la im s ou ts ta nd ing - 420
Change in o th er techn ica l p ro v is io ns - 1
O perating ra tio 90 * Refer to glossary fo r defin ition
Accident, Other total iability M otor health lines non-life Life Total 40 Swiss Re Group
P rovis ions fo r unearned p re m ium s 2 289 - 78 2211 1 898 - 68 1 830
P rovis ions fo r bonuses and rebates 971 7 964 606 6 600
O ther techn ica l p ro v is io n s 130 130 112 112
Total techn ica l p ro v is io n s 44 129 -1 597 42 532 30 744 -1 138 29 606
Technical p ro v is io n s fo r un it- lin ke d life re insurance po lic ies w here po licyh o ld e rs bear the in ve s tm e n t risk 1 024 1 024 263 263
P rovis ions fo r life , health and d is a b ility re insurance 2 644 2 644 6 063 8 707
P rovis ions fo r bonuses and rebates 438 46 257 82 55 878 86 964
O ther techn ica l p ro v is io n s 6 2 9 1 111 129 1 130
Total techn ica l p ro v is io ns 6 008 11 071 6 145 6 675 5 805 35 704 6 828 42 532
Technical p ro v is io n s fo r u n it-lin ked life re insurance po lic ie s w here p o licyh o ld e rs bear the in ve s tm e n t risk 1 024 1 024 in %
Technical p ro v is io n s ra tio 2 147 660 246 350 204 268 1 Refer to glossary fo r de fin ition 2 Excluding Mercantile & General Re
Investm ents in unconso lida ted subs id ia ries and a ffilia te d com pan ies 1 784
Fixed incom e securities and reg istered debt in s tru m e n ts 23 961
D eposits w ith ced ing com pan ies 2 675
Fixed incom e securities and reg istered debt in s tru m en ts 121 289 98
D eposits w ith ced ing com pan ies 12 11 6
Investm ents in uncon so lida ted sub s id ia rie s and a ffilia te d com pan ies 184 404 566 61 961 419 2 595
Fixed incom e secu rities and reg istered debt in s tru m e n ts 2 783 4142 1 510 3 684 11 905 8 490 32 514
O ther in ves tm en ts 6 102 10 118
Effects o f exchange rate flu c tu a tio n s on open ing balance sheet fig u re s 831 20
D iv idend by the parent com pany fo r the prev ious year - 329 - 211
P ro fit fo r the year 1 459 1 101
D iv idend by the parent com pany fo r the fina nc ia l year accord ing to proposed a lloca tion o f p ro fit - 439 - 329
Capital funds on 31 Decem ber a fte r a lloca tion o f p ro fits 9451 8801
U nrea lised ga ins on investm en ts 3 278 2 473 less a ttr ib u ta b le to p o licyh o ld e rs 0 16
A dd it ion a l in fo rm a t ion
O ther in c o m e /o th e r charges
G roup was acq u ire d .T he com pan ies o f th is G roup are inc luded w ith th e ir balance sheet p o s ition s in the conso lida ted balance sheet as o f 31 Decem ber 1996. In v ie w of the sh o rt t im e le ft in 1996, it was decided no t to inc lude the resu lts o f th is G roup in the p ro fit and loss account. The m a jo rity ho ld in g inTH G H o ld ing , w h ich was p re v i­
o u s ly fu lly conso lida ted in the accounts, has now been tra n s fo rm e d in to a m in o rity h o ld in g .T h is is inc luded in the accounts at Sw iss Re's share o f eq u ity .T h e agree­
m ent reached in D ecem ber 1996 fo r the tw o -p a rt acq u is ition o f the U nione Ita liana di R iassicurazione G roup w ill on ly take e ffect fro m the 1997 business year.
tio n s since 1 Jan ua ry 1996 am ounts to CHF 2140 m illio n .
Deferred a cq u is ition costs in the am o un t o f CHF 446 m illio n (1995: CHF 135 m illio n )
(1995: CHF 150 m illio n ) against p ro v is io ns fo r life , health and d is a b ility re insurance.
The p ro v is io ns in the balance sheet o f the p rio r year fo r c la im s fro m 1995 and p re­
These item s re fer m a in ly to charges and incom e o f the service com pan ies active in the fie ld s o f loss a d jus tm e n t and risk m anagem ent.T hey also inc lude currency d iffe rences and o th e r charges and incom e not a ttr ib u ta b le to the techn ica l account o r to investm en ts . In 1996, a p ro v is io n o f CHF 100 m illio n fo r re s truc tu ring costs aris ing fro m the acq u is ition o f M ercantile & G eneral Re and U nione Ita liana di Riassi­
Total taxes accord ing to p ro fit and loss account 365 305
O ther m in o rity ho ld ings 925 545
Incom e fro m o th e r m in o r ity h o ld ing s 44 16
Incom e fro m investm en ts CHF m illions 1996 1995 in subsid iaries Incom e fro m loans to un conso lida ted subs id ia ries 4 4
Incom e fro m cash depos its w ith uncon so lida ted subs id ia ries 0 36
Claim s on and co m m itm e n ts to The am o un t in the respective balance sheet po s itio n s re la ted to uncon so lida ted sub ­
Loans to unconso lida ted subs id ia ries and a ffilia te d com pan ies 41 38
Shares The shares stated at m arket va lue in the balance sheet cost CHF 9.265 b illio n (1995: CHF 6.421 b illio n ).
P rov is ions fo r c la im s ou ts ta n d in g
The fo llo w in g ow n shares o f Sw iss Re, Zurich , are held by the Sw iss Re G roup: N um ber Num ber o f registered o f bearer shares shares CHF m illions
O wn shares held on 1 Jan ua ry 1996 at cost 791 971 708
O wn shares held on 1 Jan ua ry 1995 at cost 208 888 155
O wn shares held on 31 Decem ber 1995 at m arke t value 791 971 842
As o f year-end 1996, Sw iss Re G roup also held op tio n s fo r6 5 447 Sw iss Re, Zurich , reg is tered shares.The p o rtfo lio o f ow n shares serves m a in ly as a guarantee fo ro b lig a tions a ris ing fro m the co n ve rtib le bonds and bu ll spread w a rran ts issued by SwissRe
(1995: CHF 193 m illio n ) are no t recognised.
Technical p rov is io ns , in c lud ing techn ica l p ro v is io ns fo r u n it-lin ked life re insurance po lic ies w here po licyh o ld e rs b e a rth e in ves tm en t risk, on 31 D ecem ber (p rev ious year) 29 869 28 609
Change in techn ica l p ro v is io n s in accordance w ith the o rd in a ry p ro fit and loss account 2 132 2 575
Increase in p ro v is io n s fo rc la im s ou ts ta nd ing inc luded in e x tra o rd in a ry charges 0 500
Technical p rov is io ns , in c lud ing techn ica l p ro v is io ns fo r u n it-lin ked life re insurance po lic ies w h ere po licyh o ld e rs b e a rth e in ves tm en t risk,
The p ro v is io n s fo rc la im s o u ts ta nd ing inc lude p ro v is io ns o f CHF 2.270 b illio n
L iab ilities due a fte r m ore than five years
Provis ions fo rc la im s o u ts ta nd ing on 31 D ecem ber 1996 2 091 2 467
' For statistical purposes. Mercantile & General Re payments are not included in the Group accounts.
Reserve s treng then ing in 1994 proved again to be adequate in to ta l. Balance-sheet p ro v is io ns fro m the M ercan tile & G eneral Re G roup are inc luded in the p ro v is io n s fo r c la im s ou ts ta nd ing fo r the f irs t tim e . In the sam e w ay as fo ro th e rc la im s ,th e Sw iss
Re G roup con tinues to make p ro v is io n s fo r long la te n t in ju ry c la im s on a cau tiou s but rea lis tic basis, be ing the und iscoun ted va lue o f p o ten tia l u ltim a te c la im s paym ents and c la im s se ttlem e n t charges, less am o un ts paid to date.
Due to the in he re n t un certa in ties and assu m ptio ns on w h ich these estim ates are based, how ever, we cannot exclude the need to make fu rth e r a d d itio n s to these p ro ­
Z urich , re la ting to a guarantee made in connection w ith the m in o r ity ho ld in g in C redit Suisse F inancia l Products, London .T he p ro v is io n was estab lished at the d ire c tio n o f the Sw iss insurance su p erv iso ry a u tho rity .
Capital m arket issues made in 1995 resu lted in o b lig a tio n s o f CHF 1003 m illio n , o f w h ich CHF 493 m illio n are co n ve rtib le bonds and CHF 510 m illio n bu ll spread w arrants .
O ther lia b ilit ie s con ta in net lia b ilit ie s fo r cu rre n t taxes o f CHF 66 m illio n
To the General M eeting o f Shareholders of Swiss Reinsurance Com pany Zurich
O ur audit was conducted in accordance with auditing standards promulgated by the profession in Switzerland and with the International Standards on Auditing issued by the International Federation o f Accountants (IFAC), which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the am ounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statem ent presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements give a true and fair view o f the financial position, the results o f operations and the cash flows in accordance with the 4th and 7th Directives and the Insurance Directive o f the European Union, and comply with the law.
Based on the pub lished figu res before the change in accoun ting p rinc ip les and in c lud ing the insurance com pan ies sold as o f 31.12.1994 o r 1.1.1995.
O ther techn ica l po s ition s - 3 585 - 3 379 - 4 066 - 5 044 - 5 534
M in o rity in te rests 30 27 36 - 49 73
Profit fo r the financia l year 277 216 266 281 325
S hareho lders ' cap ita l and reserves at m arket va lue, a fte r taxes 50 Swiss Re Group
Change in the p ro v is io n s fo r life , health and d is a b ility re insurance - 428 - 132 82 - 466
A llo ca ted in ve s tm e n t re tu rn - 1 648 - 1 525 - 1 792 - 2 126
O ther non-techn ica l p o s ition s 36 - 127 171 251
P ro fit on o rd in a ry a c tiv itie s be fore tax 774 964 1 397 1 826
P ro fit on e x tra o rd in a ry a c tiv itie s be fore tax - 348 14 -
Tax on e x tra o rd in a ry a c tiv itie s - - 121 3 -
E xtraord inary p ro fit a fte r tax - 227 11 -
P rofit fo r th e financia l year 545 932 1 101 1459
Technical p ro v is io ns 25 332 28 609 29 869 43 556
C om bined ra tio no n -life 110 109 108 109
Return on in ves tm en t 6.6 6.1 6.8 7.01
W alter B. K ie lholz* Peter Schmid Hans Hefti, Jean-Pierre Vogel
Insurance U nde rw riting P& C: Hans-Kaspar Zulauf Credit: Adrian Sulzer Christian Cotti, W erner Schläpfer, Hans Z im m erm ann
Risk Services Alessandro Santo liqu ido Daniel D iirst, W illy Künzi, Ezio E.Tranini
Swiss Re Brasil Serviços e P a rtic ip a te s Ltda. Säo Paulo
Germany, Eastern Europe M artin Oesterreicher Peter L. Bär, Markus von Escher, Jean-Pierre Kolb, Rudolf S iegrist, Bernard Tettamanti
Netherlands, Nordic Countries Ruurd de F luiter Yu Chung Fok, Stephan Imfeld, Peter H. Luck, Carl Mäder, Kurt Weber
Sw itzerland, Italy, Austria Richard Glückler Peter Arbenz, Jakob Eugster, Peter Hagnauer, Max Klingler, Sebastiaan Reitsma, Andreas Schraft
Engineering Christoph Sievers René Bolliger, Hans Gfeller, Hans Mahrla, Kurt Staub
Marine Erich Stalder Marc A. Bloesch, W alter M. M eliert, Fritz Stabinger
Spain, Portugal, Latin America M ichel Liés Andrés Lorenzana, Pietro M arcionelli, Franco Renggli, Max Scagnetti, Hans Sigrist, Jakob W ind
Near and M idd le East, Africa, Greece Bernard G illiand Theodore Dritsas, Urs Rudolf Kaeser
D ivision IT Asia Pacific / Africa Jürgen Heck 52 Swiss Re, Zurich
Swiss Re Human Resources, Chief Financial Chief Investm ent Accounting, Life and Health Logistics, Law Officer Officer C ontro lling
Asia Pacific Jean-Michel Chatagny Reynald Boutin, André Chuffart, N orbert Hähnel, Peter King, Fritz Peter
Logistics Dieter E. Söhner1 Giovanni Olgiati2 Heinz von Aesch, Daniel Haessig, Gody Müller, Andreas Bernhard Soliva
IT Investment Jorge Riera Risk Management and Controlling Tactical Asset Allocation Jean-Pierre Preyer Real Estate Zurich Enrico Cam Ferdinand Marty
Accounting Ennio Franci M artin Benz, Ernst Fröhlich, Erich Hunold, Gottlieb Schm idli, Rolf Schultheiss
Change in the closing of the accounts In the interest o f a more timely and up-to-date reporting policy, Swiss Re, Zurich, is for 1996 presenting for the first time its annual accounts in the first half o f the year. This change allows the General M eeting o f Shareholders to take place in June starting in 1997. The balance sheet date remains 31 December o f the corresponding financial year.
An acceleration o f the accounting schedule has been made possible by the development and im plementation o f a modified procedure for calculating the reinsurance results. The estimates required under this approach provide comparable results in view of the pronounced diversification o f the reinsurance portfolio and the large body o f historical statistical data.
The modest rise in profit is the result o f conflicting trends. T he non-technical result climbed from C H F —31 million to C H F 261 million. T he technical result, which benefited last year from various intra-G roup transactions, fell by C H F 324 million. Moreover, taxes declined as a result o f changed tax considerations.
Investments and investment income The financial year was marked by a favourable trend on the capital markets. Higher realised gains on the sale o f investments were accompanied by increased valuation adjustments. To a large extent these include legally perm itted, pre­ cautionary valuation adjustments.
The notable increase in subsidiaries and affiliated companies is mainly due to the acquisition o f Mercantile & General Re. C om bined with other invest­ ments in subsidiaries and affiliated companies as well as the favourable currency 5 4 Swiss Re, Zurich
effect, the book value o f subsidiaries and affiliated companies rose by CH F 4.3 billion compared with the previous year.
Provisions for other risks and charges, and other liabilities The growth in provisions for other risks and charges was primarily due to the formation of a provision for currency fluctuations arising from the recalculation o f the opening balance sheet. This has no impact on the profit and loss account.
Change in the p ro v is io ns fo r unearned p rem ium s 18 2 16
Realised gains on investm en ts 1 221 724 56 Swiss Re, Zurich
O rdinary p ro fit a fte r ta x 517 501 5. E x trao rd in a ry incom e 6. E x tra o rd in a ry charges 7. Tax on e x tra o rd in a ry p ro fit
Land and bu ild in g s 1 314 1 244
Loans to subs id ia ries and a ffilia te d com pan ies 994 928
Fixed incom e securities and reg is tered debt in s tru m en ts 7 675 8 560
Deposits w ith ced ing com pan ies 1 498 1 359
Total lia b ilities and shareholders' capital 25 979 20819 58 Swiss Re, Zurich
V alua tion m ethods: P ro fit and loss account
The ove ra ll investm ent m anagem ent charges are a lloca ted to the re insurance bu s i­ ness and the in ves tm en t business on an im p uted basis. Self-charged rent on p ro p e r­
The taxes relate to the fina nc ia l year and inc lude taxes on incom e and cap ita l as w e ll as in d ire c t taxe s.T he taxes a ttr ib u ta b le to fo re ig n branches are inc luded on the basis o f local fina nc ia l sta tem ents.
Provisions fo rc la im s outstanding are based on in fo rm a tio n p ro v ide d by c lie n ts and ow n estim ates o f expected c la im s experience w h ich are d raw n fro m em p irica l s ta tis tics .T hese inc lude p ro v is io n s fo rc la im s incurred bu t no t reported . Unpaid insurance o b lig a tio n s are set aside at the fu ll expected am o un t o f fu tu re paym ent.
Provisions for pro fit com m issions are based on co n tra c tua l ag reem ents w ith c lien ts and depend on the resu lts o f re insurance trea ties.
A dd it io n a l in fo rm a t io n on the balance sheet
P ro v is io n s fo r u n e a rn e d p re m iu m s 997 - 25 972 898 - 27 871
P ro v is io n s fo r c la im s o u ts ta n d in g 10724 - 154 10 570 9 398 - 143 9 255
Capital fu n d s on 31 D ecem ber o f p re v iou s year 5 345 4 772
C apita l fun ds on 31 D ecem ber be fore a lloca tion o f p ro fit 5 382 5 345
Proposed d iv id e n d paym ent - 439 - 329
Capital fun ds on 31 D ecem ber a fte r a lloca tion o f p ro fit 4 943 5016
Source of capita l funds (after a llocation of p ro fit)
From p ro fit a lloca tion 1 678 1 600
Fire insurance value o f ta n g ib le assets
C laim s on and o b lig a tion s to w a rd s G roup com panies
O b liga tio ns tow a rds em ployee pension funds
C on tingen t lia b ilit ie s , m a in ly to w a rd s G roup com pan ies, am oun ted on 31 Decem ber 1996 to CHF 1.920 b illio n (1995: CHF 1.757 b illio n ). In ad d itio n the re w ere seventeen u n lim ite d guarantees; ten o f these are fo r o b lig a tio n s to w a rd s G roup com pan ies. No paym ents are expected under these guarantees.
To secure the techn ica l reserves on the 1996 balance sheet date secu rities in the am o un t o f CHF 1.227 b illio n w ere depos ited in fa v o u r o f ced ing com pan ies
The insurance va lue o f ta n g ib le assets, co m p ris in g the real estate p o rtfo lio and o th e r ta n g ib le assets, am oun ted on 31 D ecem ber 1996 to CHF 1.848 b illio n
The cu rre n t account o b lig a tio n s to w a rd s em p loyee pension fun ds am oun ted to
CHF 29 m illio n on the 1996 balance sheet date (1995: CHF 29 m illio n ).
Based on the in fo rm a tio n at ou r d isposa l, C redit Suisse G roup ow ned 1 336 033 reg is­
Personnel expenses fo r the 1996 fina nc ia l year am oun ted to CHF 352 m illio n
The independent actuary, H ans-U lrich Gerber, Lausanne, has co n firm e d in his rep o rt th a t the balance sheet p ro v is io n s fo r the life re insurance business stated at year-end 1996 have been ca lcu la ted in accordance w ith European U n ion gu ide lin es .
T he General M eeting to be held in Zurich on 27 June 1997 has at its disposal the following balance sheet profit (cf. profit and loss account and balance sheet, pages 56 to 58): in CHF 1996 1995
Retained earn ings b ro u g h t fo rw a rd fro m prev ious year 9 109 318 9 155 871
P ro fit fo r the fina nc ia l year 516861979 500 907 070
For the 1996 fina nc ia l year - e lig ib le fo r d iv ide nd 14620161 146 201610 - not e lig ib le fo r d iv ide nd 423140 4 231 400
Balance carried fo rw a rd 9 366 467 9 109318
A d justed stock exchange prices per reg is te red s h a re 4
Stock m arke t c a p ita lis a tio n 7
N um ber o f shares per shareholder Shareho lders % Shares %
On 1 F ebruary 1996, Sw iss Re, Z urich , launched an A m erican D e posito ry Receipts P rogram (Level I, over-the-counte r), to g e th e r w ith
SwissRe Finance (Berm uda) Ltd., a w h o lly ow ned sub s id ia ry o f Sw iss Re, Z urich , placed a co n ve rtib le bond issue and issued bull spread w a rran ts on 29 June 1995.The co n ve rtib le bonds, in the nom ina l am o un t o f USD 500 m illio n and m a tu ring in five years
They exp ire on 26 June 1998. In o rd e r to secure convers ion and o p tion righ ts , no new securities w ere issued.
Global presence Support from over70 offices in more than 30 countries
8038 Zurich w ith 19 subsidiaries and affilia ted com panies in 14 countries
M ethod of consolidation: e equity f full - non-consolidated 1 acq u is ition /
Euler Société Anonym e 1 rue Euler 75008 Paris 68 Swiss Re Group
Bavarian Reinsurance Ireland Ltd. • 100 f XEU 24.0 219.0 54 F itzw illiam Square
Via dei G iuochi Istm ici 40 00194 Rome 69 Swiss Re Group
w ith 28 subsidiaries, affilia ted companies, and branch offices in 12 countries 41 Cedar Avenue
M ethod of consolidation: e equity f fu ll - non-consolidated 1 acqu is ition /
foundation 1997 2 consolidated figures 3 previous year's figures; local accounts in 2nd ha lf year 1 ° < CO
Toronto, O ntario M5R3K5 w ith branch offices in M ontreal and Vancouver
T oronto, O ntario M5R3K5 w ith a branch office in M ontreal
Manchester, NH 03101-2524 w ith branch offices in A tlanta and Cleveland
Suite 27-01 Menara Keck Seng 203 Jalan Bukit Bintang 55100 Kuala Lum pur
M .Thai Tower, A ll Seasons Place 87, W ireless Road
P u b lis h e d s h a re h o ld e rs '
c a p it a l an d re se rv e s in m ill io n s as o f
The M ercantile and General • 100 f - - -
Damage caused by tro p i­ cal cyclones is increasing. Can the insurance risk still be calculated? Order number: 96-78
W hat added value does Swiss Re create for its clients? Order number: 96-66
Innovative solutions to risk financing as part o f long­ term corporate planning. Order number: 96-79
Natural catastrophes and m ajor losses in 1996: high losses from man-made disasters, bu t no extrem ely costly loss­ es from natural catastrophes
and “Look back on 1994/95” are available in English and German.
Swiss Re publications in five languages under the follow­ ing headings: natural cata­ strophes, technology and industry, criminality, health and medicine, liability, aviation and marine, insur­
Swiss Re Public Relations R O. Box, CH-8022 Zurich Fax +41 1 285 20 23
Swiss Re promotes the exchange o f know-how and dialogue on issues regarding environmental and climate protection, as well as sustainable development, through technical and financial support for forums, conferences and projects. Notable events in 1996 were the first UNEP conference on the insurance industry and the environm ent, the presentation o f Swiss Re’s position in dealing with climate risks at the international conference o f the Framework Conven­ tion on Climate Change in Geneva, and the Aspen Energy & Environm ent Roundtable. 1996 also saw the publication o f Swiss Re’s first environmental and climate protection report. More details relating to our environmental and climate activities, as well as further background inform ation, are also available via the Internet (Homepage: Fund for the implementation of energy conservation measures in real estate investment properties
Enables the p ro pe r reco gn ition o f incom e and ou tgo a ttr ib u ta b le to the fina nc ia l year.
tio n o f shares in the same risk o r sam e event th ro u g h re insurance trea ties.
Cash advanced o r received to cover re insurance ob lig a tion s .
Paym ent incurred under the te rm s o f a (re)insurance con tra ct fo r the c la im event.
Claims incurred: A ll c la im s paym ents p lus the a d jus tm e n t in the ou ts ta nd ing c la im s p ro v is io n o f a business year.
Sum o f c la im s paid, change in the p ro v is io n fo r c la im s ou ts ta nd ing and change in o th e r techn ica l p rov is io ns , in re la tion to net earned p re m iu m s.T h is ra tio enables the assessm ent o f business pe rfo rm ance in non -life re insurance.
Im puted tax on the va lua tio n d iffe rences betw een the G roup accounts and the local accounts.
The p re m ium s a ttr ib u ta b le to the fina nc ia l year, in c lu d in g unearned p rem ium s o f the prev ious year and m inus unearned p re m ium s fo r the fo llo w in g years.
Insurance am o un t o r assum ed reinsurance am o un t before deduction o f the cess ion /
Accident insurance: Insurance o f in d iv id u a ls o r o f g ro up s aga inst the econom ic risks in the event o f death o r te m p o ra ry o r pe rm an ent d is a b ility by accident.
Aviation insurance: Insurance o f acc iden t and lia b il ity risks, as w e ll as hu ll dam age, in connection w ith the op era tion o f a irc ra ft.
P rovis ions fo r life , health and d is a b ility re insurance
N uclear energy insurance: Insurance against p ro p e rty dam age, lia b ility and acciden t in connection w ith the op era tion o f nuclear energy ins ta lla tio ns.
Product liability insurance: Insurance o f the lia b ility o f the m an ufactu re r o r su p p lie r o f goods fo r dam age caused by th e ir p roducts.
Professional and directors' and officers' liability: Insurance o f lia b ilit ie s aris ing fro m the pe rfo rm ance o f p ro fess iona l o r o ffic ia l com pany duties.
Surety insurance: Sure ties and guarantees issued to th ird parties fo r the fu lf il lm e n t o f con tractua l lia b ilit ie s .
A m o u n ts booked in re turn fo r insurance cover in the financ ia l year.
P rovis ions fo r fu tu re c la im s in life , health and d is a b ility re insurance.
Facultative reinsurance: Reinsurance o f the insure r's risks on an in d iv id u a l basis.
Proportional reinsurance: Form o f re insurance in w h ich the p rem ium s and c la im s o f the in sure r are shared p ro p o rtio n a lly by the in su re r and re insurer.
Quota-share reinsurance: Form o f p ro p o rtio n a l re insurance in w h ich risks are re insured over a specified am ount.
Treaty reinsurance: P artic ipa tion o f the re insure r in certa in sections o f the insurer's business as agreed by treaty.
A cq u is itio n cost o f shares in Sw iss Re, Zurich , held by G roup com p an ies .T h is am o un t is stated separa te ly as part o f the sha reho lders ' cap ita l and reserves.
In te rn a lly generated and u n d is tr ib u te d p ro fits o f the pre v iou s fin a n c ia l years w h ich exceed the reserve fo r ow n shares and the reva lua tion reserve.
A m o u n t o f the risk accepted in re insurance tha t is passed on by the re insu re r to o th e r re insurance com panies.
O rd in ary p ro fit in re la tion to the average cap ita l fun ds sta ted in the balance sheet.
Risk category: G roup ing to g e th e r o f risks w ith s im ila r hazard cha racteris tics .
The am o un t received fro m shareho lders fo r shares in excess o f par value.
Technical p ro v is io n s in re la tion to net earned p re m iu m s .T h is ra tio enables the assessm ent o f p ro v is io n s in the no n -life business.
English translation of o rig ina l German report; French, Italian and Spanish versions are also available.