Swiss Reinsurance Company 50/60 Mythenquai, P.O. Box 172, 8022 Zurich, Switzerland Telephone 01 208 21 21 Telex 59261 reas ch Cables
Personalia (Board of D irectors, Auditors, General M anagem ent/M anagem ent) 19
Summary of Important Figures in m illions of francs Swiss Re, Zurich 1977/78 1976/77
Managem ent expenses, taxes, fluctuations in stock exchange and fore ign currency rates 134 134
Management expenses, taxes, fluctuations in stock exchange and fore ign currency rates
Total Per share *Subject to approval by the General Meeting **C onsolidated figures (of. notes on page 36)
Ernst A. Kubli W illy Kuster* Gérard Lavanchy *With e ffect from 1st January, 1979
Roger Aeberli A lbert A lbrecht A lfred Bai Gunnar Benktander Fritz Bo lliger Edouard Burnens Richard R. Doerr
Edward Spargnapani t Paul S trickler Max A. Tobler Martin Trippel Paul Würsch* Hans W yler
Gottfried Bachmann Engelbert Betz* Peter Bieri* Christoph Blanc Edmond Capt Pierre Darioli* Enzo Delco Erich Etter Fritz Eugster* Heinz Fischer Léon Genoud Georges Haering* Balthasar Heyer*
The business year 1977/78 em braces the reinsurance business for the ca lendar year 1977 and other incom e and expenditure from 1st July, 1977, until 30th June, 1978.
This year’s result is marked by decreases in business volume and in profit. One reason lies in the steep increase of the exchange rate of the Swiss franc against all 134 foreign currencies in which reinsur­ ance transactions have been carried out. With the exception of the Japanese yen, which only showed a fall of 1 .6 % in its exchange rate, all m ajor foreign currencies fell by between 15 % and 30 % . The other reason lies in the experience of non-Life reinsurance, w hich has shown a loss. In contrast, Life reassurance produced a s lightly h igher profit than in the previous year. Combined, these gave a positive reinsurance underwriting result of Sw. frs. 16.2 m illion (previous year, Sw. frs. 36.5 m illion). Investment income again grew and reached Sw. frs. 189.5 m illion (previous year, Sw. frs. 173.5 m illion). — M anagement expenses and taxes have only changed insignificantly. — The net pro fit of Sw. frs. 71.5 m illion is Sw. frs. 4.1 m illion less than in the previous year.
Non-Life reinsurance — prior to deduction of head o ffice m anagement expenses — showed a loss of
A current example of excessive com petition with du­ bious side-effects can be found in German Industria l Fire and Loss of Profit business where, fo llow ing two very good years, the average prem ium rate was w ithin a very short time reduced by one third. The only reason why we do not have to report a heavy de fic it in th is area is that no losses of ca tastrophic proportions occurred or, where they did occur — as in the case of a m ajor fire in a car facto ry — they were largely borne by foreign risk carriers.
The result of the reporting year was burdened by forces of nature dam age prim arily in Switzerland where the Swiss Re had to pay Sw. frs. 15 m illion for flood losses.
During the year under report there was an increase in the num ber of m ajor Fire and Explosion claim s due to arson or sabotage. Crim inal acts of th is kind were appreciab ly rarer in form er years and consequently were inadequately, if at all, taken into account in the loss statistics on which premium ca lcu lations are based. This phenomenon is also one of the structural changes of the general risk situation which it is of utmost importance for the insurance industry to m on­ itor and make tim ely allowance fo r in the premium tariff.
High losses in certain branches over a number of years repeatedly bring insurers and reinsurers to consider the possib ility or the need to offset them against the profits in other branches. There is no denying that such a counterbalancing is necessary and purposeful as a short-term measure whenever one branch is affected by unusual and unforeseeable fluctuations in results. It must, however, be just as firm ly rejected if it is so to speak forced by structural under-rating in individual branches of insurance over a period of years. As a permanent state of affairs it also underm ines the earning power of the insurance industry fo r another reason, namely that the profits which today’s insurance tariffs allow do not support any additional burden from outside the branch. The requirement that m ajor branches be se lf-supporting is not met at the moment in Aviation and Marine insurance in particular. Even w ithin national insurance markets it would be dangerous and, both socia lly and from the point of view of the econom y as a
Fire reinsurance produced a profit in the reporting year which was somewhat h igher than in the previous year. Taken w orldw ide the picture is a very varied one: whereas positive results were achieved almost w ithout exception in Europe and the markets of our subsidiary reinsurance companies, overseas business handled from Zurich produced a defic it, the m ajor exception being Japan. A lthough some progress has been made in achieving adequate prem iums fo r nat­ ural catastrophe risks, the prem ium income of w orld ­ w ide reinsurers from this class is still not yet p ropor­ tionate to the high reinsurance loss potential.
Hail reinsurance closed well in the year under report. The Hail reinsurance portfo lio is small in volume; it is therefore only possible to assess its experience and consequently the adequacy of prem ium rates in this branch over an extended period of time. As in Storm insurance, m eteorologists are considering to what extent we are currently undergoing long-term clim ati- cal changes which could have a determ ining effect
As in the previous year, the result of Accident re­ insurance was affected by losses from W orkmen's Compensation business in the United States and Australia caused by inflation, increased claims con­ sciousness and politica lly motivated reluctance on the part of supervisory authorities to approve the necessary premium increases. In the year under re­ port, the profit from individual Accident business was not enough to offset the losses of W orkm en’s Compensation business.
Motor reinsurance produced a loss. The Swiss Re's portfo lio largely com prises M otor Third Party L iability business, where it remains extrem ely d ifficu lt to de­ term ine the reserves for bodily injury claim s still outstanding at year-end because of the long claim s settlement period. Nevertheless, the position in this respect varies from one country to another. Conse­ quently, there are also markets where the Swiss Re's prolonged presence and many years of experience with the run-off of m ajor claim s enable a realistic assessment of the expected final loss burden to be made. This is, however, always w ithout unexpected surges in inflation and unforeseeable state inter­ vention such as new laws and changes in court practice.
In Marine reinsurance, which closes with a loss, pre­ mium rates throughout the world have sunk to an unsatisfactory level, particu larly in Marine Hull bus­ iness. Cargo business, too, brought a high loss bur­ den, especia lly in those developing countries which are undergoing rapid industria lisation. Too much strain is often put on ports and transport systems, leading to serious delays in unloading, storage and onward despatch of goods inland. Risks therefore become unproportionally larger (unsuitable storage, careless and im proper handling, massive accum ula­ tion of insured values, greater risk of theft through lack of supervision).
In Engineering reinsurance, results were on the whole gratify ing although negative in C ontractors' All Risks business. Erection All Risks insurance again went well. As in the Fire branch, natural hazards play an important role in C ontractors’ All Risks business — mainly in the form of the flood risk — and place high demands on risk assessment and loss prevention.
Loss experience can on the whole be described as satisfactory, although the burden from m ajor losses increased com pared with the previous year. In the portfo lio of add itional benefits which has seen above average growth (particu larly D isability insur­ ance) pro fitab ility has improved since 1975 which, together with a noticeable decline in the financing requirem ents fo r new business only partly due to foreign currency rates, brought about a slight decline in the profit from Sw. frs. 25.4 m illion to Sw. frs. 26.6 m illion.
Events on the leading share markets were in contrast to the econom ic development. Price movements were not so much determ ined by the uncertainty of future expectations as by the cheap money policy being pursued in most countries. The overall high liqu id ity tended to sustain share prices during the recurrent periods of increased uncertainty so that in most cases setbacks were only tem porary and recoveries often surpassed even the price levels of the previous year. Except in the United States, prices rose on all leading share markets over the past year.
The hidden surplus on capita l market investments, i.e. the difference between book and market values, also declined for the same reasons, by Sw. frs. 35 m illion to Sw. frs. 486 m illion. Since the lower foreign exchange rates had an equally unfavourable effect on balance-sheet and market values, and reflecting appreciation in share values, the hidden surplus reached 19 .1% of the book value (previous year, 18.5 % ) .
New investments in fixed-in terest securities and shares were approxim ately in the same proportion as book values at the start of the year. This meant that by fa r the largest part of the add itional funds was again allocated to the acquis ition of bonds. The d istribution of capita l market investments and real estate at balance-sheet and market values is shown in the table opposite.
Net cash deposits w ith insurance com panies de­ creased due to the effect of fore ign exchange rates: they amounted to Sw. frs. 1,124 m illion as against Sw. frs. 1,244 m illion a year earlier.
Management expenses have risen by Sw. frs. 2.2 m il­ lion or 2.5 % (previous year, 2 % ) to Sw. frs. 88.8 m il­ lion. However gratifying the achieved relative stability of management expenses m ight be, the developm ent still causes some concern fo r monetary reasons, as these management expenses are almost to ta lly in­ curred in Swiss francs, yet almost 92 % of our bus­ iness activity is transacted in foreign currencies. In view of the persistent franc boom, a noticeably in­ creased share of foreign income has to be used to cover these management expenses.
The account fo r fluctuations in stock exchange and foreign currency rates and depreciation closed with a surplus of Sw. frs. 2.1 m illion (previous year, Sw. frs. 1.5 m illion).
On cap ita l investments, book values were written down in the amount of Sw. frs. 67.9 m illion (previous year, Sw. frs. 82.1 m illion). This amount is contrasted by net capital gains to ta lling Sw. frs. 75.7 m illion (previous year, Sw. frs. 87.1 m illion) as the result of sales and sw itches in the securities portfo lio. Overall market rate fluctuations on investments led to a net c red it in the Profit and Loss Account of Sw. frs. 7.8 m illion (previous year, Sw. frs. 5.0 m illion).
Foreign currency rate fluctuations brought a profit of Sw. frs. 7.9 m illion, largely occasioned by the special accounting procedure used in the reinsurance branch fo r fore ign currency items. All balance-sheet and profit and loss account figures are converted into Swiss francs using the uniform exchange rates valid on the balance-sheet date; this gives rise to d iffe r­ ences against the foreign exchange rates used in the previous year's balance sheet and against the day-to- day rates obtained fo r foreign currency transactions. In this year’s balance sheet these valuation d iffe r­ ences were positive.
The depreciation from other causes involved a debit of Sw. frs. 13.6 m illion (previous year, Sw. frs. 3.3 m il­ lion). This is due partly to an a llocation to the reserve fo r outstanding claim s in fore ign currencies and part­ ly to costs in connection w ith renovation work on business property.
Currency 30/6/78 30/6/77 30/6/76 30/6/75 30/6/74 77/78 74/78 * Rates in Swiss francs for 100 units o f currency
Mr. Berchtold was elected to the Board in 1970 and has been a mem ber of the Com m ittee of D irectors since 1974. His extensive international experience in many of the econom ic, financia l and personnel mat­ ters essential to our Com pany was of extraordinary value to us. We are very grateful to him fo r the ser­ vices rendered.
At th is year’s General Meeting, the Board of D irectors w ill propose election to the Board of Mr. Helmut F. Rudolf, who is retiring as General Manager of our Com pany at the end of 1978.
The three-year term of o ffice of the Auditors expires at the forthcom ing General Meeting. Messrs. Hans Hornberger, Rudolf Huber-R iibel and Peter G. Syz, as Auditors, and Messrs. Max Honegger and Hans Karrer, as Substitutes, are standing fo r re-election.
Deputy Managers: Messrs. Paul Würsch and Hans H. Zollinger (in advisory capacity); Assistant Managers: Miss Françoise Schulthess and Messrs. Engelbert Betz, Peter Bieri, Pierre Darioli, Fritz Eugster, Max Gasche (in advisory capacity), Georges Haering, Balthasar Heyer, Ernst Hirzel, Ger­ hard Hölzel, Martin Imbach, Karl Küstahler, Roland Maag (in advisory capacity), Jean-Pierre Michot, Bruno Nigg, Bernard Perrin, W erner G. Rüegg, W er­ ner Schiegg, Ernst Schlenker (in advisory capacity), Paul Schweizer, Hans Spörri, Paul Szöllösy, Kurt W ettenschwiler, Francis James W ingrove (in advisory capacity), Urs Winter, Louis Wüger, Edwin W ydler and Hans-Kaspar Zulauf.
The Board of D irectors proposes to the General Meeting the fo llow ing allocation: 1977/78 1976/77
A llocation to reserve fund fo r catastrophe losses 9,000,000 10,000,000
After d istribu tion of the profit in accordance with the proposal on page 20, the capita l and free reserves, including the balance brought forward, would be raised from Sw. frs. 371 m illion to Sw. frs. 397 m illion.
Audit Accord ing to the Swiss Code of Obligations, Art. 723 (independent audit), the present Annual Statement has been exam ined and found correct by the Swiss Auditing and F iduciary Company, Zurich branch.
The actuarial auditor, Mr. M arc-H enri Amsler, has m oreover confirm ed in his report that the technical reserves of the Life reassurance business at the end of 1977 were calculated on the basis approved by the Swiss Federal Council.
The report of the Auditors appointed by the Share­ holders appears on page 26.
Adjustm ent in unearned prem iums — 70,961,919 — 129,361,974 j
Investment income (less interest on Life assurance and annuity fund and other technical reserves) 189,535,275 173,519,758
Current-account balances from reinsurances assumed from reinsurances ceded other balances 368,569,931 116,688,357 489,836,387 119,318,860
All classes excl. Life (incl. valuation of current annuity indemnities) Life business 2,056,030,168 2,174,645,435
Acting upon our terms of reference, we have checked the Profit and Loss Account fo r the business year 1977/78 and the Balance Sheet as at 30th June, 1978, against the accounts of the Company, which have been kept in proper form and order, and have found that the figures concord. The assets of the Company and the operating results are presented in accor­ dance w ith the methods of valuation legally pre­ scribed.
On th is basis, we recommend that the present accounts be approved. Furthermore, we confirm that the a llocation of the net profit, as proposed by the Board of Directors, com plies with the law and the statutes.
Consolidated net prem ium s fe ll in the year under report due to the effect of fore ign currencies by 4 .6 % to Sw. frs. 5,503 m illion (previous year, increase by 1 7 .5 % ). The contribution made by the insurance com panies has risen from 32 % to 36 % fo llow ing inclusion of the «SWITZERLAND» General. — Rein­ surance com pan ies’ underwriting business closes overall w ith a pro fit which is slightly down on that of the previous year. In insurance, a profit was achieved fo llow ing last year’s underwriting loss, sub­ stantial contribu tions having been made by im prove­ ment in the result of S ickness insurance and the reduced cost burden in non-L ife insurance. Invest­ ment income only showed a m oderate increase, be­ cause of declin ing foreign exchange rates, whereas the surplus from fluctuations in stock exchange and fore ign currency rates was clearly lower than in the previous year. It was possible to increase the Group p ro fit from Sw. frs. 107 m illion in the previous year to Sw. frs. 111 m illion. The G roup’s cap ita l funds shown, includ ing Group profit, amounted to Sw. frs. 550 m illion (previous year, Sw. frs. 555 m illion).
The rapid growth of previous years partly due to the effects of infla tion has c learly slowed down in non- Life reinsurance. The underwriting account closed with an unchanged profit of Sw. frs. 4 m illion. Foll­ owing the losses of recent years, Am erican business was restored to a profitab le basis; furtherm ore, in contrast to the previous year, the Group was spared m ajor catastrophe losses.
The Swiss-South A frican Reinsurance Co. Ltd., Jo ­ hannesburg, was favoured by the positive deve lop­ ment of the South A frican insurance market and was able to produce an underwriting profit. This gra tify­ ing situation was decis ive ly aided by the absence of natural catastrophes and m ajor losses.
In 1977, the overall underw riting result of the German insurance companies, in which SR Bete iligungen AG, Munich, m aintains a m ajority holding, improved somewhat thanks to the good results of the Life and Sickness insurers. Because of reduced investment income, the annual surplus is somewhat less than in the previous year.
The gross premium income of the Vereinigte Ver­ sicherungsgruppe rose by 1 2 % to DM 1,684 million, that of the M agdeburger Gruppe by 9 % to DM 664 m illion. Of the com bined total prem iums of both these groups, 41% was fo r non-Life insurance, 11% fo r Life assurance and 48 % fo r S ickness insurance. — Non-Life insurers' prem ium increases were insuf­ fic ien t fo r all com panies to offset the further increase in the loss burden; therefore underwriting results were again unsatisfactory, despite slightly more favourable expense ratios. As in add ition investment income was lower because of the general decline in interest rates, the annual profit of the non-L ife insurance com ­ panies was less than in the previous year. — Life and S ickness insurers in the Group enjoyed, however, a gratify ing developm ent. Both were able to augment their market share and to increase profits.
The outgo of the Profit and Loss Account com prises m ainly the interest of Sw. frs. 10.5 m illion (previous year, Sw. frs. 9.9 m illion) on the current-account cre ­ dit granted by the Swiss Re, Zurich, the taxes, which have risen to Sw. frs. 4.2 m illion (previous year, Sw. frs. 2.5 m illion), depreciation and fluctuations in stock exchange and foreign currency rates in the amount of Sw. frs. 7.8 m illion (previous year, Sw. frs. 1.1 m illion). Compared with the previous year, foreign currency w rite -offs on the holdings have risen con­ siderably.
Third Party L iab ility /M otor 1,451 1,516 1,218 1,245 754
Life Business in Force (consolidated) in m illions of francs *torm er scope o f conso lidation; no t com parable with subsequent years
Result from a ll classes excl. Life 4 — 1 3 — 13
Com m issions and partic ipation in profits 123 124 247 259
Adjustm ent in outstanding claim s reserve 17 — 17 16
Adjustm ent in po licy and annuity valuations — 119 — 128 — 247 — 282
Interest on Life assurance and annuity fund 61 78 139 146
All classes excl. Life (incl. valuation of Sickness insurance) 1,305 847 2,152 2,222 Life business (Policy and annuity valuations) 1,801 898 2,699 2,878
A ll classes excl. Life (incl. valuation of current annuity indem nities) 3,308 910 4,218 4,216
The Group accounts were com piled according to the same princip les as in previous years. The conso l­ idated Balance Sheet and Profit and Loss Account were based on the individual statements of Group com panies as at 31st December, 1977, but on those of the Swiss Re, Zurich, and the European General of Zurich as at 30th June, 1978. The balance sheet of the Bavarian Reinsurance Com pany Ltd. had not been published at the time of consolidation.
Outgo and income from intra-G roup transactions and balances from transfers of capita l and dividend pay­ ments among consolidated com panies were e lim i­ nated.
Balances receivable and payable among conso li­ dated com panies were offset against each other.
The cap ita l funds app licab le to m inority shareholders correspond to that part of the relevant Group com ­ pany’s capita l funds which is held by non-Group shareholders. This fell by Sw. frs. 16 m illion during the year under report to Sw. frs. 29 m illion because of the addition to our hold ing in the Bavarian Re and because of the decline in the exchange rate of the German mark.
The items “ C ap ita l“ , “ Statutory reserve fu nd ” , “ Spe­ cial reserve fu nd ” and “ Reserve fund fo r catastrophe losses” correspond to the capita l funds at book value of the Swiss Re, Zurich, as parent company.
The conso lidated cap ita l funds of the Group fell, com pared with the previous year, by Sw. frs. 5 m illion net to Sw. frs. 550 m illion. This slight decrease is the result of two counterm ovements, namely the m entioned decrease of the conso lidation reserve fund on the one hand and the Group profit, which is considerab ly h igher than the paid-out profits, on the other hand.
In 1977, the num ber of staff employed at the head office in Zurich increased by 3.6 % to 858. This growth was centred on the techn ica l reinsurance departm ents of the company. The labour market situation has c learly hardened; in particu la r it is d ifficu lt to recruit trained clerica l staff.
By means of continued im provem ent and system- isation of personnel train ing, attempts are being made to m aintain a high professional level. Technica l tra in ­ ing is supplem ented by a w ide range of train ing courses. The num ber of employees benefiting from these courses has again increased.
«SWITZERLAND» General Insurance Com pany Ltd. 43 Gotthardstrasse, 8022 Zurich with o ffices in Barcelona, Brussels, Genoa, M elbourne and Montreal
SWITZERLAND General Insurance Com pany (London) Ltd. The Bowring Build ing, Tower Place, London EC3P 3BE
SWITZERLAND General Insurance Corporation of New York 102 White Plains Road, Tarrytown, N.Y. 10591
M agdeburger Union Rechtsschutz Versicherungs-AG K irchhorster Strasse 2, 3000 Hanover 51
General Surety & Guarantee Com pany Ltd. Hawthorn Hall, Hall Road, W ilmslow, Cheshire SK9 5BZ, England
North Am erican Reassurance Company 245 Park Avenue, New York, N.Y. 10017 w ith branch o ffices in Chicago, Dallas and Lakewood (Colorado)
North Am erican Reinsurance Corporation 245 Park Avenue, New York, N.Y. 10017 w ith branch o ffices in Atlanta, Boston, Chicago, Dallas, Houston, Los Angeles, Philadelphia and San Francisco
Australian Reinsurance Com pany Ltd. Embank House, 325 Collins Street, Melbourne, Vic. 3000 with branch o ffices in Sydney and Auckland, New Zealand
Swiss-South A frican Reinsurance Co. Ltd. Swiss House, 86 Main Street, Johannesburg with branch o ffices in Cape Town and Pretoria
Canadian Reinsurance Company 95 St. C la ir Avenue West, Toronto M4V 1N9, Ontario with a branch o ffice in Montreal Far East, Latin America
SwissRe Holding (North Am erica) 245 Park Avenue, New York, N.Y.