Profit and loss account 22 Balance sheet 24 Cash flow statement 26 Notes 27
Glossary of technical terms 58 Financial years 1993 –1999 62 Chart analysis 63 Swiss Re registered shares 64
Dividend per share in CHF 50* 48 4.2 * Subject to approval by the General Meeting
An investor who invested CHF100 000 in Swiss Re registered shares at the end of 1990 and reinvested all subsequent dividends, share rights, and the 1996 par value repayment of CHF10, without investing any new funds, held a position with a market value of CHF 902 247 on 5 May 2000.The total performance amounts to 802.2% or an average of 26.5% per year.
(basis: Swiss Performance Index with reinvestment of income). The total performance amounts to 464.7% or 20.3% per year.
Closing share price on 5 May 2000: CHF 2 750 Stockmarket capitalisation CHF 39 346 million
Performance of Swiss Re registered shares and the Swiss Performance Index from 31 December1990 to 5 May2000
Swiss Re is very pleased to report earnings per share of CHF 196, an increase of 12% compared to the previous year’s earnings per share of CHF 175. This is the sixth consecutive year of double-digit increases in the earnings-per-share result. The ordinary Group profit was CHF 2 807 million, up CHF 303 million from the previous year.
This very good overall result is due to a substantial increase in earnings from our life operations and excellent growth in the investment result for the year 1999. Life earnings were CHF 761 million, more than double the previous year’s figure of CHF 365 million. This significant increase was due to exceptionally strong growth in net life premiums of 78%, a result both of the acquisition of Life Re and of strong internal growth in existing operations and Life Re. In addition, the life operation significantly reduced its expense ratio, boosting profitability. The investment result was CHF 7 245 million, up CHF 1160 million or 19% compared to the previous year. Partially offsetting these excellent results, the non-life business reported an operating result of CHF 132 million, down from CHF 551 million the previous year. This was due to the large volume of catastrophe claims, which made 1999 the secondhighest year for insured losses in industry history. Swiss Re was able to absorb a large portion of the catastrophe losses within its normal practice of equalisation provisions.
The Board of Directors proposes to the General Meeting of 30 June 2000 to increase the dividend payment to CHF 50 per share up from CHF 48 last year.
For the current financial year we expect continued growth in our life business and a strong investment result. We expect improvement in the non-life result, following promising signs during the last business renewal. The Triple 20 programme is also expected to contribute favourably to this result.
Swiss Re is actively working on its e-business implementation. The aim is to make internal processes “fit for e-business”, to transform existing business, generate new business and realise significant efficiency gains.
Ulrich Bremi, a farsighted personality in Switzerland’s political and economic scene, left his indelible stamp on Swiss Re from 1992. It was under his leadership that the Schweizer Rück of yesteryear, in answer to the slowly materialising challenge of globalisation, seized the development potential offered by concentrating on core business, and reinvented itself as today’s global Swiss Re.
Prof Bühlmann began his professional career at Swiss Re in 1958, as an actuary. Concurrent with his successful mathematical career in academe, he brought benefit to Swiss Re, and to the insurance industry as a whole, through his outstanding actuarial expertise.
The technical result of CHF 893 million is 3% lower than in the previous year. The life result, which more than doubled while maintaining stable margins, contributed greatly to offsetting the unsatisfactory non-life result. This confirms Swiss Re’s strategy of increasing the proportion of life business, with its less volatile results, for better portfolio balance and sustainable growth. The non-life technical result declined to CHF 132 million, ref lecting both the large number of catastrophe and other large claims experienced during 1999 and the soft market conditions prevalent during the year. As a result, the combined ratio rose by two points to 116%. This figure includes a release of CHF 696 million in provisions for large and catastrophe losses, built up in earlier years, to cover extraordinary events such as the European windstorms.
The life technical result more than doubled to CHF 761 million – up 108% compared to the previous year. The first-time inclusion of Life Re Corporation accounts for a substantial part of this increase. The existing business also showed good and sustainable margins.
1999 was another exceptional year for investments. Overall investments rose significantly to CHF 98 billion, up 27%, boosted by company and portfolio acquisitions as well as by favourable exchange-rate movements and strong growth in some equity markets. The total investment result rose to CHF 7.2 billion, up 19%, ref lecting both a strong increase in current investment income and slightly higher results from realised gains. The return on investment was 8.4%.
Asset leverage is an indicator of the importance of investments in relation to the reinsurance business; this figure for 1999 was 415%.
Other income and charges resulted in a net expenditure of CHF 575 million. Interest on senior debt and hybrid capital increased slightly following shifts to longer maturities, a higher proportion of hybrid capital and a re-balanced currency mix. This position also includes incurred and provisioned restructuring charges of CHF 123 million mainly related to the Triple 20 cost-management initiative.
Ordinary profit after tax for the Swiss Re Group amounted to CHF 2 807 million – an increase of 12% over the previous year. This ref lects another excellent result both from investments and from the life business. Earnings per share (EPS) also rose by 12% to CHF 196, while the number of shares entitled to dividend remained unchanged during the year.
Shareholders’ capital rose by CHF 4.8 billion or 37% to CHF 17.8 billion. Contributing to this rise were the strong profit, positive currency adjustments, positive effects from the deconsolidation of equity-accounted companies, and unrealised gains on shares. With investments reckoned at market value, capital funds were CHF 18.7 billion, an increase of CHF 1.0 billion.
Return on equity amounted to 12.1% compared to 13.6% in 1998. This is slightly below Swiss Re’s stated long-term target of 1000 basis points over the CHF risk-free rate over a cycle. This RoE figure was calculated by adding back a goodwill offset of CHF 5 405 million to equity and deducting an imputed goodwill write-off of CHF 340 million from profit.
Swiss Re’s workforce (including the 192 staff of Fox-Pitt, Kelton, acquired last year) remained essentially stable at 9 010. The strong growth in premium volume therefore indicates an increase in overall productivity. Of the staff, 32% were employed in Switzerland and 68% in Swiss Re’s more than 70 offices around the world.
Full income statements of Life Re Corporation, and Swiss Re Mexico (the former Alianza S.A.), are now included in the Group Accounts. The companies had been acquired at the end of 1998.
Fox-Pitt, Kelton, the London-based investment bank, was acquired and consolidated as of 1 May 1999. It employed a total of 192 people based in London and New York.
At the end of 1999, NCM, the Dutch credit insurer, acquired a majority of Maryland Netherlands Credit Insurance Company, which was subsequently renamed NCM Americas Inc. Balance sheet positions are consolidated in the 1999 accounts.
Europe 46.1 US/Canada 38.0 Asia/Pacific 8.3 Latin America 4.1 Other 3.5
The major refinancing transactions were all completed in June 1999: the equivalent of approximately CHF 1 billion in hybrid capital was raised in the form of two subordinated perpetual issues. CHF 600 million was issued as subordinated perpetual bonds “SUPERBs” in the Swiss domestic market, with a fixed interest rate for the first 12 years of 3.75% p. a. The remaining EUR 250 million was issued as subordinated perpetual auction reset capital solvency “PARCS”, with a coupon of six-month EURIBOR plus 55 basis points for the first seven years. The floating-rate liabilities were swapped into seven-year fixed-rate liabilities of 4.65% p. a. After seven years – and thereafter every five years – an auction will be conducted to determine the re-offer yield for the next period. These particular hybrid instruments are favourably treated in the solvency-margin considerations of regulatory authorities and of some rating agencies. Finally, Swiss Re issued a USD 530 million exchangeable bond with a five-year term, a 2.25% coupon p. a. and a 40% exchange premium. The bonds are exchangeable at the bondholders’ option for registered shares of Swiss Re, Credit Suisse Group or Novartis (“Triples”). Exchangeable bonds are attractive since significant upside potential is monetised and converted into low financing costs while the tax impact is deferred. The timing of all these transactions was favourable, since underlying interest rates have significantly increased in the meantime.
In December 1999 Swiss Re announced the acquisition of Underwriters Re Group of Calabasas, California, for approximately USD 725 million in cash.
The acquisition is expected to be closed in the second quarter 2000. With this acquisition, Swiss Re strengthened its property and casualty market position, achieving a top-tier rank in the US non-life industry and expanding its distribution capabilities into the broker channel. This deal fits well with the global strategy of supporting consistent organic growth with attractive acquisitions in target markets. It also reinforces Swiss Re’s commitment to be the pre-eminent manager of risk and capital for business partners in the United States – the largest insurance market in the world.
In February 2000 NCM and the Italian bonding and credit insurance company Società Italiana Cauzioni (SIC) signed an agreement formalising future close cooperation. This agreement should be seen as a first step, and is expected to enable NCM and SIC to offer a superior range of products to clients in their domestic markets and elsewhere in the world.
e-extend will bring Swiss Re closer to the client and increase the Group’s attraction as the reinsurance partner of choice. A Client Portal will provide clients with selected content, enabling them as joint users of Swiss Re’s know-how and experience – and allowing them to conclude agreements on-line. Such developments could drive down costs for standardised lines of business where reinsurance can be considered as a commodity, to approximately half of today’s levels. This would open up business segments that until now have been unattractive due to high costs, thus improving our market position. Several such e-business solutions will be implemented this year, using experience gained with ELRiX, the first electronic risk exchange platform (www.ELRiX.com). The Agreement Management System (AMS) is an on-line facultative reinsurance system that allows instant access to submission, pricing, and processing features via the internet. Global renewal system is an intranet-based solution used to support the treaty renewal process for a global client in 1999. This workflow/business process support application can be used for further (global) client treaty renewals, or extended to the client side (“business to business”). ELRAC – Electronic Reinsurance Accounting – is a Swiss Re web application, offered via the internet, which allows our clients to process reinsurance business quickly and
e-new business will allow Swiss Re to explore new roles, opening up new opportunities with a skilful mix of e-business solutions, alliances and acquisitions. A number of projects are already in progress that, for example, separate the development of reinsurance solutions from distribution. As reinsurer, Swiss Re has compiled a rich store of know-how, particularly in the large-risk area, and is thus well positioned to develop innovative solutions over the entire value creation chain.
As a global knowledge company, Swiss Re is already well on the way to an e-business future. A comprehensive strategy has been developed and continues to evolve in a Groupwide culture of innovation. Solutions based on the e-business platform will not only bring considerable gains in efficiency, but also new opportunities for growth.
Cost management will remain a high priority, both for Swiss Re and for its customers. Business processes are continuously under review to increase efficiency. Despite further acquisitions during the year, Swiss Re expects the total size of its workforce to remain stable or even decline. With further improvements expected in both the life and non-life areas, Swiss Re will continue to deliver on its commitment to reduce its administrative expense ratio by two percentage points by 2001.
First analyses of the available market figures for 1999 show that premium income among the world’s primary insurers continued to languish throughout the year. Deregulation and excess capacity have heightened competitive pressure to the point where premium volume in the world insurance industry could not keep pace with growth in the global economy. This is particularly evident in the US, where real premium income decreased while the economy overall surged by 4%. Some major European markets show a similar picture: in Germany and France premium income continued its slide, although the UK finally managed to register a solid gain after years of decline. Meanwhile, the loss burden in 1999 exceeded that of 1998. This is due in large measure to the extraordinary losses inf licted by both natural catastrophes and manmade disasters.
Reinsurers are also affected by developments in the primary non-life insurance sector. Throughout recent years they, too, have felt the impact of excess capacity, which has led to steady price deterioration. Prices finally did bottom out in 1999, though at a level quite inadequate to support the associated risk. The first signs of an upturn could be seen in the year’s second half, with an increase in London retrocession prices: these are considered a leading indicator for the reinsurance market overall.
Non-traditional risk financing solutions were introduced in many areas where traditional products could not match the requirements set by the markets. Overcapacity in the traditional markets, however, combined with the comparatively low prices of these products have not yet allowed a broader development.
Net premiums written Combined ratio in % Operating ratio in %
Europe 52.2 US/Canada 32.5 Asia/Pacific 8.7 Latin America 3.0 Other 3.6
The principal growth areas were non-proportional treaties and corporate business served directly through Swiss Re New Markets. Traditional facultative and proportional treaties lost ground overall, despite an increase in volume for some divisions.
European storms Lothar and Martin caused large losses for the reinsurance industry as a whole. Other disasters had their greatest impact on the primary insurance industry. These included events in the most developed and exposed markets: the US (Hurricane Floyd) and Japan (Typhoon Bart) as well as f lood losses in Switzerland.
The outlook is becoming positive. At the last renewal, reinsurers observed some hardening of the markets, particularly in the US. It is expected that the European windstorms at the end of 1999 will have a considerable impact on the development of both demand and prices for catastrophe covers in the near future. Swiss Re, however, will continue its selective underwriting and further reduce allocation of catastrophe capacity in the worst-priced markets as part of its continuing programme to improve non-life profitability.
Liability Liability business saw an increase in net premium volume of 18% to CHF 3.2 billion, a figure inf luenced in part by positive currency f luctuations. The liability result was also strongly positive at CHF 599 million. Significant run-off profit was achieved despite the adverse impact of increased claims from pharmaceutical companies. The principal growth areas were professional indemnity coverage for US and European insurance clients, as well as corporate-client business written by Swiss Re New Markets. This division was able to generate new business and also shifted capacity to more profitable market segments. Competition remained strong, particularly for large industrial accounts. Loss ratios have increased for business written in the most recent years, ref lecting both the broader terms and conditions that have been granted and the decreasing prices that have prevailed. Although price deterioration appears to have bottomed out, rates must increase before results for current business will improve. The number of multi-year treaty and facultative contracts presently in force have slowed the improvement process.
Motor Net premiums increased to CHF 2.2 billion, up 3% on the previous year. Although original policy rate increases were realised in several European countries, the result in motor business remained negative. The loss ratio was affected significantly by the Mont Blanc and Tauern Tunnel fires as well the storms Lothar and Martin. It is expected, however, that loss ratios and results will improve as further price increases are realised in several key markets.
Aviation Net premium volume of CHF 298 million was down by 12% from last year as a result of a selective underwriting policy. The positive result was greatly inf luenced by favourable claims developments from previous years, substantial recoveries from a retrocession facility and above average returns on the Group’s space reinsurance portfolio. Thus, this good result does not ref lect the difficult environment characterised by a highly competitive airline segment and a general aviation market which has stabilised at a low rating level. The frequency of major airline losses and the high level of attritional claims, however, have led to the withdrawal of some market participants offering low-level reinsurance and retrocession covers – thereby causing a welcome contraction of capacity in these areas.
The continued low volume of claims in credit-risk-related business contributed to a further decline in premium rates and to significantly extended scopes of cover. Excess reinsurance capacity made it difficult to establish risk-adequate premium rates, particularly for credit-risk quality on the brink of investment grade. Swiss Re saw additional growth from the development of non-traditional business activities; this type of business is making a growing contribution to the company’s overall result and market position. Sound underwriting
Engineering Net premiums rose to CHF 571 million. This 14% increase was achieved despite difficult market conditions in both the construction and the insurance industries. Growth was uniform across all major markets. Substantial capacity was allocated to write large shares on selected risks.
In 1999 results deteriorated substantially largely due to two major claims in the electric power sector in Europe and the US, as well as earthquake losses in Turkey and Taiwan.
The trend towards rolling up profitable annual engineering risks into property all-risk covers continued in 1999, leading to reduced premium income for machinery and computer business. New business opportunities are developing in the insurance and reinsurance of contingency covers for large infrastructure and power generating projects.
Swiss Re New Markets has also been successful in helping clients protect their increasingly important intangible assets, specifically through patent infringement and patent validity coverages. This market is still in its developmental phase but demand is growing, and it will absorb considerable capacity in future.
The whole range of innovative risk financing solutions increasingly contributes to Swiss Re New Markets’ overall good results.
Nineteen ninety-nine was a year of notable growth in many of the world’s life insurance and reinsurance markets. The main role of the industry continues to be to supply life insurance products for medium to long-term savings. There are, however, noticeable changes in consumers’ buying behaviour, particularly shifts in emphasis towards single-premium funding arrangements and equity rather than fixed interest asset portfolios. These changes have had an impact on the insurers’ cost structure; taken together with other consumer-led pressures, they have raised the issue of cost management to the top of many companies ’ agendas.
Partly as a result of these cost considerations, corporate consolidation continues to play a major role in the primary life insurance market. During 1999, more than 5% of worldwide premium volume was absorbed in mergers and acquisitions. The main focus was domestic consolidation, motivated by an expectation of economies of scale and cost efficiencies. Cross-border activity also grew, led by interest in Japan and other parts of Asia, as major European and North American insurers sought new growth opportunities. Capital restructuring also affected the mutual sector, with further demutualisations especially in North America.
For reinsurers, merger activity can lead to a reduced cession rate as fewer clients retain more risk — the reinsurer’s traditional anxiety in a consolidating market. Recent experience, however, shows that the benefits of reinsurance in helping clients manage capital costs and reduce earnings volatility more than counteract this tendency. In fact, the protection business has been buoyant throughout 1999. The world’s largest market for term life sales, North America, has had a particularly high cession rate, making it the world’s most important life reinsurance market. Primary US companies have used reinsurance routinely to outsource mortality risk as they focus on their core strengths of distribution and asset accumulation. They also use reinsurance to manage their associated capital needs. These uses are likely to become yet more common
with the advent of new (Triple X) regulations in the current year, further strengthening the successful teamwork between the primary and reinsurance companies in delivering low-cost risk cover to the consumer. There is a similar trend in the UK, where a successful housing market has boosted sales of term and critical illness products. The recovery in Asian economies is adding further good news, though European markets, while growing, remain more focused on the savings sector. The overall message for the reinsurance sector is positive.
Swiss Re continues to expect good growth for life business in the near term.
Europe 31.2 US/Canada 51.6 Asia/Pacific 7.3 Latin America 6.8 Other 3.1
In the world’s capital markets, an increase in interest rates led to a significant bond market reorientation, replacing the spectre of global def lation (as a consequence of the financial crises of 1997 and 1998) with the prospect of an economic boom and moderate inf lation. The increase in bond yields reversed only partially the interest rate reduction that had driven the stock markets over the last five years.
Despite the removal of interest rate decreases as a factor driving the equity boom, many stock markets nonetheless recorded significant gains. The advances in most cases were attributable to a small number of large-cap shares, particularly technology and telecommunications companies promising aboveaverage profit growth. Were these shares to be excluded, many stock markets would have remained level or reported only slight growth.
Swiss Re’s investments at book value amounted CHF 98.2 billion at the end of 1999 (1998: CHF 77.5 billion). The increase of CHF 20.7 billion, or 27%, is due to three major factors: an extraordinarily high positive impact from foreign currency exchange (CHF 6.3 billion, of which CHF 4.8 billion originates from the US dollar and Canadian dollar); higher market values for equities; and a net turnover of CHF 9.2 billion. This last was produced by CHF 6.4 billion of additional investments arising from Administrative ReinsuranceSM transactions in the US, and inf lows of CHF 2.8 billion.
Swiss Re’s total investment result rose strongly by 19% to CHF 7.2 billion (1998: CHF 6.1 billion). Net realised gains contributed 46% or CHF 3.3 bil-
In the private equity area, Swiss Re Capital Partners is the lead sponsor of the Securitas investment programme. The Securitas Capital Fund had capital commitments of CHF 235 million through the end of 1999, with an additional CHF 108 million of commitments made during the first quarter of 2000. One fund investment was realised during 1999, yielding a return of 42.4%. Among the fund’s investments are shares in a Europe-based internet company; a risk management service provider to the satellite industry; a company specialising in internet distribution of insurance services; and an ownership interest in a US property casualty insurer. Swiss Re Investors has also made private equity investments, predominantly in the non-insurance area; this strategy allows an optimal allocation of resources as well as a diversification by industry sector, maturity level and geographical distribution.
Change in the provisions for unearned premiums 2. Other technical income 3. Claims incurred
Realised gains on sale of investments 2. Unrealised income on investments
III Total result 1. Technical result 2. Non-technical result 3. Profit on ordinary activities before tax 4. Tax on ordinary activities
Profit on ordinary activities after tax 5. Extraordinary income 6. Extraordinary charges
IV Technical provisions 1. Provisions for unearned premiums 2. Provisions for life, health and disability reinsurance 3. Provisions for claims outstanding 4. Provisions for profit commissions 5. Other technical provisions
VI Provisions for other risks and charges 1. Provisions for pensions 2. Provisions for taxation 3. Other provisions
Additional information on the Group accounts Gross premiums by country 31 Premiums by line 31 Net technical account by line 32 Technical provisions 33 Technical provisions by line 33 Technical provisions by currency 33 Investments 34 Investment result 34 Investments by currency 35 Capital funds 36
The Group accounts are prepared in accordance with the Accounting and Reporting Recommendations issued by the Swiss Foundation for Accounting and Reporting Recommendations and with Swiss Company Law.
The use of derivative instruments forms part of the risk management strategy, the main purpose being to hedge market risks. Derivative instruments used as hedging instruments are valued in the same way as the underlying transactions they hedge: gains and losses are included in the profit and loss account when gains and losses on the underlying transactions are recognised in income. Derivative instruments which are not effected for hedging purposes are valued at market values, and the resulting gain or loss is recognised in the profit and loss account.
Investments for unit-linked life reinsurance are valued at market value. Unrealised gains and losses are disclosed in the profit and loss account.
Debtors are valued at nominal value. Any necessary valuation adjustments are deducted.
Provisions for claims outstanding are calculated individually or by statistical methods. They also include provisions for claims incurred but not yet reported as well as provisions prescribed by local regulatory authorities for future claim fluctuations and for large and catastrophic losses. The amount of these provisions is disclosed in the notes to the financial statements.
Technical investment return is allocated to the reinsurance result. It reflects the investment return generated on the investments covering the technical provisions. In addition, income from investments relating to unit-linked life reinsurance is also part of the allocated investment return.
Notes Additional information on the profit and loss account and balance sheet
Capital funds on 31 December including unrealised gains, before allocation of profit in %
Return on equity 1 assuming the proposal to reduce the share capital is approved by the General Meeting 2 refer to glossary for definition 3 before offset of goodwill from acquisitions made since 1 January 1996
Several administrative reinsurance transactions – the acquisition of closed blocks of in-force life and health business – were completed in 1999. This involved the acquisition of Lone Star Life Insurance (1. 4.1999), Royal Maccabees Life Insurance (31. 7.1999), PIMA Capital (22. 8.1999) and Allied Life Financial Corporation (30. 9.1999), all in the US. A 50.1% majority of Fox-Pitt, Kelton, a London-based investment bank, was acquired and consolidated as of 1 May 1999.
Württembergische AG Versicherungs-Beteiligungsgesellschaft merged as of January 1, 1999 with the German building society Wüstenrot AG. Swiss Re’s participation in the merged entity was reduced to 16%. The participation, which had been accounted for at equity, was deconsolidated.
The goodwill from acquisitions is offset against capital funds in the year of acquisition. A capitalisation and scheduled amortisation of the goodwill on acquisitions made since 1 January 1996 would result in an asset of CHF 5 405 million (1998: CHF 5 158 million). Amortisation of goodwill for 1999 would be CHF 340 million (1998: CHF 170 million). This calculation is based on periods of between five and twenty years determined individually for each shareholding. The remaining value of goodwill is reviewed periodically.
Land and buildings with a cost of CHF 1 324 million (1998: CHF 1198 million) and a market value of CHF 1 511 million (1998: CHF 1 412 million) are used by Group companies for own purposes. Fair market rent is charged for their use. The total cost of land and buildings is CHF 2 972 million (1998: CHF 2 812 million).
Investments in unconsolidated subsidiaries and affiliated companies as stated in the balance sheet 2 992 2 791
Income from companies stated at Swiss Re’s share of their equity 70 182
The amount in the respective balance sheet positions related to unconsolidated subsidiaries is as follows: CHF millions 1999 1998
The shares stated at market value in the balance sheet cost CHF15 311 million (1998: CHF 12 298 million).
Own shares held on 1 January 1999 at cost 808 092 1 127
Own shares held on 31 December 1999 at cost 580 496 1 005
Own shares held on 31 December 1998 at market value 808 092 2 378
As security for own obligations, assets totalling CHF 4 955 million (1998: CHF 4 519 million) have been either deposited, pledged or assigned in favour of ceding companies.
Other assets include a deferred tax credit of CHF 1 018 million (1998: CHF 975 million).
Change in technical provisions in accordance with the profit and loss account 3 761 2 489
Technical provisions, including technical provisions for unit-linked life reinsurance policies where policyholders bear the investment risk, 39 Swiss Re Group
The Swiss Re Group’s obligations for claims payments and claims settlement charges also include obligations for long latent injury claims arising out of policies written prior to 1985, in particular in the area of US asbestos and environmental liability. The following table shows the payments made by the Swiss Re Group as well as the estimated, non-discounted obligations for own account as a result of these claims: Claims paid: in USD millions
The Swiss Re Group continues to make provisions for long latent injury claims on a cautious but realistic basis, being the undiscounted value of potential ultimate claims payments and claims settlement charges, less amounts paid to date.
A 1998 provision of CHF 450 million in the books of Swiss Re, Zurich, relating to a guarantee made in connection with the minority holding in Credit Suisse Financial Products, London, has been released as an extraordinary item.
Senior debt as at 31 December 1999: Nominal Interest Book value
Maturity Instrument Issued in Currency in m rate in CHF m 2001 Trust preferred stock1 2002 Syndicated loans 1997 ITL 600 000 Libor+10bp 497 2007 Trust preferred stock1 (TruPs) 1997 USD 46 8.72% 74
Subordinated debt as at 31 December 1999: Nominal Interest ...to first Book value
Maturity Instrument Issued in Currency in m rate... reset in in CHF m
Total subordinated debt 2 013 1 assumed in the acquisition of Life Re Corporation 2 exchangeable for depositary receipts in respect of ordinary shares of nominal value NLG 1.00 each of ING Groep N.V.
There are liabilities due after more than five years in the sum of CHF 1 001 million (1998: CHF 1 326 million).
There are liabilities covered by valuable security in the sum of CHF 53 million (1998: CHF 46 million).
Contingent liabilities at 31 December were as follows: CHF millions 1999 1998
All obligations entered into under derivative financial instruments are secured by underlying assets.
Method of consolidation: f full e equity 1 voting share 24.74%
Method of consolidation: f full e equity 44 Swiss Re Group
As auditors of the Group, we have audited the consolidated financial statements (profit and loss account, balance sheet, cash f low statement and notes) of Swiss Re Group for the year ended 31 December 1999 on pages 22 to 44.
After-tax profit for the financial year amounted to CHF 1 759 million, following CHF 1 282 million in 1998.
This rise in profit is attributable to the non-technical result, which rose considerably from CHF 1 352 million in 1998 to CHF 2 436 million. In contrast, the technical result fell from CHF 140 million in the previous year to CHF –487 million as a result of the high burden from large loss events.
The technical result is marked by a high claims burden from large loss events. While premiums and operating expenses decreased slightly, claims incurred rose by CHF 1 422 million to CHF 5 818 million although part of the claims burden was absorbed by the provision for catastrophe claims.
The balance sheet amount of investments increased from CHF 30.7 billion to CHF 36.8 billion mainly because of higher participation assets resulting from Group internal restructuring and the increase of loans to subsidiaries and affiliated companies.
With the sale of the minority holding in Credit Suisse Financial Products, London, it was possible to dissolve the existing guarantee provision of CHF 450 million. These funds were allocated to the provision for catastrophe claims.
Capital funds at year-end 1998 amounted to CHF 5 398 million. Following the dividend distribution of CHF 687 million and the inclusion of the 1999 profit, capital funds equalled CHF 6 470 million at year-end 1999.
Change in the provisions for claims outstanding 3. Change in the provisions for life reinsurance 4. Profit commissions 5. Operating expenses
IV Total result 1. Technical result 2. Non-technical result 3. Extraordinary result 4. Profit before tax 5. Tax
I Shareholders’ capital and reserves 1. Share capital 2. Legal reserve 3. Reserve for own shares 4. Other reserves 5. Disposable profit
III Technical provisions 1. Provisions for unearned premiums 2. Provisions for life reinsurance 3. Provisions for claims outstanding 4. Provisions for profit commissions 5. Provision for catastrophe claims
VI Other liabilities 1. Creditors arising out of reinsurance operations 2. Amounts owed to banks 3. Debenture 4. Loans 5. Other creditors
The taxes relate to the financial year and include taxes on income and capital as well as indirect taxes.The taxes attributable to foreign branches are included on the basis of local financial statements.
At the direction of the Swiss insurance supervisory authority, a provision for catastrophe claims is established.
Valuation differences from foreign exchange transactions versus the actually realised transaction rates are recognized in the profit and loss account.
To secure the technical reserves on the1999 balance sheet date, securities in the amount of CHF 2 132 million were deposited in favour of ceding companies (1998: CHF 2 369 million). In addition, a mortgage of CHF 7 million was taken out on a real estate property with a book value of CHF 16 million.
The insurance value of tangible assets, comprising the real estate portfolio and other tangible assets, amounted on 31 December1999 to CHF 2 325 million (1998: CHF 2 287 million).
The current account obligations towards employee pension funds amounted to CHF 151 million on the1999 balance sheet date (1998: CHF25 million).
Other liabilities are long-term liabilities in the amount of CHF 1 408 million (1998: CHF2 699 million) and short-term liabilities in the amount of CHF 2 753 million (1998: CHF 3 627 million).
This item notably includes a provision deriving from the restructuring of participations, and a provision for currency fluctuations.
Swiss Re, Zurich, employed a staff of 2 870 on the balance sheet date (1998: 2 750). Personnel expenses for the1999 financial year amounted to CHF 648 million (1998: CHF 562 million).
The General Meeting to be held in Zurich on 30 June 2000 has at its disposal the following balance sheet profit (cf. profit and loss account and balance sheet, pages 49 to 51): in CHF 1999 1998
The Board of Directors proposes to the General Meeting to allocate this profit as follows: in CHF 1999 1998
Disposable profit 1 Provisional. Assuming the proposal to reduce the share capital is approved by the General Meeting and no further shares are repurchased.
After deduction of the Federal Withholding Tax of 35%, the dividend will be paid from 5 July 2000 by means of dividend order to shareholders recorded in the share register or to their deposit banks.
As statutory auditors, we have audited the accounting records and the financial statements (profit and loss account, balance sheet and notes) of Swiss Reinsurance Company for the year ended 31 December 1999 on pages 49 to 56.
Our audit was conducted in accordance with auditing standards promulgated by the profession, which require that an audit be planned and performed to obtain reasonable assurance about whether the financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the financial statements. We have also assessed the accounting principles used, significant estimates made and the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the accounting records and the financial statements and the proposed appropriation of available earnings comply with the law and the company’s Articles of Association.
Claims handling: The work in connection with the investigation, settlement and payment of claims from the time of their occurrence until settlement.
Sum of claims paid, change in the provision for claims outstanding and change in other technical provisions, in relation to net earned premiums. This ratio enables the assessment of business performance in non-life reinsurance.
Insurance amount or assumed reinsurance amount before deduction of the cession/ retrocession.
Fire insurance: Insurance against fire, lightning, explosion or damage caused by falling aircraft; it can also embrace insurance against windstorm, earthquake, flood, and other natural hazards or political risks.
Acquisition cost of shares in Swiss Re, Zurich, held by Group companies. This amount is stated separately as part of the shareholders’ capital and reserves.
Internally generated and undistributed profits of the previous financial years which exceed the reserve for own shares and the revaluation reserve.
Net income from investments, ie investment income, valuation readjustments, realised gains and losses, less management charges, in relation to average investment holdings.
Risk of change: Fluctuation of actual from statistically anticipated claims experience as a result of technical, social, commercial or political changes.
Result from reinsurance operations, including allocated investment return and proportionate administrative expenses.
Earned net premiums Claims incurred Change in the provisions for life, health and disability reinsurance Operating expenses Other technical positions Allocated investment return Technical result
Ratios in %* Combined ratio non-life Operating ratio non-life Return on investment Technical provision ratio non-life Asset leverage Return on equity
Financial years 1993–1999 * Figures for both years exclude the insurance companies sold as of 31.12.94 and 1.1.95 1 not including Mercantile & General Re 2 not including Swiss Re Italia 3 before offset of goodwill from acquisitions since 1 January 1996 4 not including Life Re and Alianza 5 not including 1999 Administrative
At balance sheet values At market values Investment return in %
Number of registered shares issued of which reserved for warrant exercise
Swiss Re registered shares 1 Per share entitled to dividend 2 Includes published unrealised capital gains, ie based on market value 3 Closing rates – Source: Datastream 4 2000: price on 5 May 2000 5 On the stock exchanges of Zurich, Basle and Geneva or the Swiss Exchange 6 Based on shares entitled to dividend 7 Excluding reduction of capital proposed to the General Meeting
Convertible bonds Swiss Re Finance (Bermuda) Ltd., a wholly owned subsidiary of Swiss Re, Zurich, placed a convertible bond issue on 29 June 1995. The convertible bonds, in the nominal amount of USD 500 million and maturing in five years (on 30 June 2000), can be converted into a total of 490 330 registered shares of Swiss Re, Zurich. In order to secure conversion rights, no new securities were issued.
Stock exchange listing The shares of Swiss Re, Zurich, are listed on the Swiss Exchange. In addition, on 1 February 1996, an American Depository Receipts Program (Level 1, over-the-counter) was launched together with Morgan Guaranty Trust Company of New York. One American Depository Share corresponds to 1⁄20 of a Swiss Re registered share.