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Küsnacht, Managing Director and General Manager of IBM Switzerland, Zurich 1977 *Members of the Committee of Directors
Roger Aeberll Kurt AernI Albert Albrecht Erwin E. Arpagaus Eduard Bart Gunnar Benktander Andreas Brügger Edouard Burnens
Gottfried Bachmann Alfred Bai Fritz Bolliger Edmond Capt Enzo Delcö Rolf Eckert Erich Etter Heinz Fischer Leon Genoud Walter Isler
Richard R. Doerr Fritz Ehrsam Hans R. Kaufmann Ernst A. Kubli Albert Kunz Willy Küster Gerard Lavanchy Jean-Claude Mayor
Max Nabholz Jan C. Roos H. Conrad Rutlshauser Peter Schuppll Edward Spargnapanl Paul Strickler
Once again, the closeness of the links between the business of international reinsurance and its eco­ nomic, technical and social environment has been confirmed. However, each branch reacts in a different and often very complex manner which corresponds to its inherent characteristics. Analysis of this inter­ play is an important foundation of a reinsurer's business policy.
Our attention is still focused on intiation, which remains a worldwide phenomenon despite economic recession. The main problem created for the insur­ ance industry continues to be timely adjustment of premiums to the rising loss burden. The effects of Inflation are felt in many branches, but with particular force in Property and Liability insurance, where in­ demnities are determined by the costs of wages and materials. This is especially true for major losses which often require several years to settle.
obligations to poiicyhoiders. The case illustrates with particular clarity the great responsibility of the insurance supervisory authorities towards the insured. It demonstrates the extent to which a supervisory body, by practising misguided consumer protection through a restrictive policy on premium increases, runs the risk of neglecting its principal responsibility, which Is to protect policyholders from the collapse of their Insurance companies.
There Is a somewhat different aspect to government Influence on the business of Liabiiity insurance in the United States. There, individual claimants have recently received unusually large awards, a trend which Is outstripping inflation. In the United States, juries determine the size of an award, but the fees of the claimants' lawyers are based on a percentage of the award and thus account for a substantial part of the payment. The situation has also been aggra­ vated by the fact that recently supervisory authorities In certain states have not infrequently refused, de­ layed or restricted their approval of insurance com­ panies' documented applications for rate increases corresponding to the rising loss burden.
Fire reinsurance closed with a modest profit in the year under report. There Is some concern about the tendency for premium rates to fall, even after brief periods of good results, and for excessive compe­ tition to gain the upper hand over rational risk analysis. At the moment, this observation would
Fire . 853 835 775 736 684 Hail 20 18 16 16 13 Burglary/Fidelity and allied lines 1 66 65 66 62 53
Accident C. 160 i 165 150 147 130 Sickness f 71 ! i 71 72 68 121 Third Party Liability |r 159 .1 159 178 161 144
Hail reinsurance, wfiere a clear picture of results can only be obtained over a period of several years, closed with a good profit in the reporting year.
For the fifth consecutive time. Burglary reinsurance produced a loss. Although remedial measures (more rigorous risk selection, higher premium rates, de­ ductibles and loss prevention measures) have shown success in some countries, it has been impossible
Fire in "Grand Passage" department store, Geneva so far to right the branch, particularly in Italian business. Taken as a whole. Accident reinsurance again closed with a profit. Mention has already been made of the difficulties with retroactive benefit increases in Work­ men's Compensation business. For the first time in four years. Sickness reinsurance produced a loss. The specific structure of the Swiss Re's reinsurance portfolio permits, however, expectations of renewed, modest profits.
In the year under report, economic growth came to a standstill in the principal industrial countries, and the majority even registered a reduction of the real gross national product. Since the beginning of 1975, gov­ ernment anti-inflationary measures have been sup­ planted by a policy of economic stimulation. In all major investment countries this has entailed an increase of the money supply and a reduction of interest rates. The decline in interest rates was par­ ticularly evident in the short-term sector but less pronounced for long-term, fixed-interest securities.
investment emphasis, as in the previous year, was placed on the purchase of high yielding, fixed-interest securities. In equity investments, a slight reduction of shares was complemented by a somewhat larger rise in real estate holdings. Essentially, this stems from the realization of a 1962 purchase agreement for the "Mythenschloss", on office and residential building adjacent to our Head Office extension.
A breakdown by currency shows the following distri­ bution of investments: 29 % in Swiss francs, 47 % in other European currencies, 21 % in U.S. and Cana­ dian dollars and the remaining 3% in Australian dollars and Japanese yen.
The following page shows the distribution of all income-producing assets in percent by type of invest­ ment, at both balance-sheet and market values.
Distribution of investments in percent at market values (Previous year In parentheses) Real Estate (at balance-sheet values) 9.7%
with the exchange rate differences realized in foreign currency transactions, produced a loss of Sw. frs. 13.9 million (previous year, a profit of Sw. frs. 17.4 million). Bearing in mind the turbulent development of foreign currency rates, which brought an unex­ pectedly strong Increase In the rate of the Swiss franc against practically all other foreign currencies. It is perhaps surprising that the negative effects on the Profit and Loss Account were not even more pro­ nounced. The main reason lies in the extensive reinsurance commitments counterbalancing our as­ sets in the corresponding foreign currencies.
The account for fluctuations in stock exchange and foreign currency rates and depreciation closed with a loss of Sw. frs. 20.2 million (previous year, Sw. frs. 46.3 million).
On capital investments, writing down the book values to the lower market values caused an unrealized loss of Sw. frs. 39.3 million (previous year, Sw. frs. 116.6 million). The reasons for the reduced depreciation requirement are given in the section on Investments on page 12. As the result of sales and switches in the securities portfolio, net capital gains In the amount of Sw. frs. 34.7 million (previous year, Sw. frs. 56.9 million) were realized. The net charge to the Profit and Loss Account from the market-rate fluc­ tuations on capital Investments was merely Sw. frs. 4.6 million (previous year, 59.7 million).
The three-year term of office of the Auditors also expires at the General Meeting. Mr. Hans Homberger,
cf. Profit and Loss Account (page 18) and Balance Sheet (page 21)
The Board of Directors proposes to the General Meeting the following allocation: 1974/75 1973/74
Balance carried forward 1,393,154 1.372,511 * Bonus Sw. frs. 10.— per share
In accordance with Art. 723 ot the Swiss Code ot Obligations the present Annual Statement has been examined and found correct by the independent auditor, Mr. A. Ehrbar.
The report ot the Auditors appointed by the Share­ holders appears on page 22.
Zurich, 16th October, 1975 For the Board ot Directors: M. E. Eisenring, Chairman
embracing the reinsurance business for the calendar year 1974 and the other income and expenditure for the period from 1st July, 1974 to 30th June. 1975
All Classes excl. Life Commissions and Profit Commissions 687,668,428 154,502,405 533,166,023 522,963,237
All Classes excl. Life Premium Income 2,237,230,217 505,924,112 1,731,306,105 ^ 1,728,832,422
Investment Income (less Interest on Life Assurance and Annuity Fund and other Technical Reserves)
SOtfi June 1975 1 30tfi June 1974 Sw. frs. Sw. frs.
Current-account Balances from Reinsurances Assumed from Reinsurances Ceded g other Balances
Outstanding Claims for Own Account | All Classes excl. Life (incl. Valuation of Current Annuity Indemnities) | Life Business
Capital ? (400,000 registered shares at Sw. frs. 250.— nom.) j ( 44,000 bearer shares at Sw. frs. 250.— nom.) 1 111,000,000 111,000,000
Acting upon our terms of reference, we have checked the Profit and Loss Account for the business year 1974/75 and the Balance Sheet as at 30th June, 1975, 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 with the methods of valuation legally pre­ scribed.
On this basis, we recommend that the present accounts be approved. Furthermore, we confirm that the allocation of the net profit, as proposed by the Board of Directors, compiles with the law and the statutes.
In recent years the report on the Swiss Re Group was divided into two parts: first, a statistical section containing consolidated key figures with regard to business volume, investment structure and earnings; and second, individual reports on the SwissRe Hold­ ing Ltd. and the eight reinsurance companies wholly owned by SwissRe Holding Ltd.
After a reorganization phase lasting several years, a clear majority status has now been achieved within the sector of the German insurance companies be­ longing to the Group in the broader sense. The basis of consolidation has therefore been extended to in­ clude those companies in which Swiss Re, Zurich, maintains a majority holding through its holding companies. In addition to the German insurance companies mentioned above, the figures of the Bavarian Reinsurance Company Ltd., Munich, and the General Surety and Guarantee Company Ltd., Wilmslow, England, have also been taken into account. For the first time, therefore, the consolidated figures include both reinsurance and insurance com­ panies (of. the opposite page).
As a consequence of the extended basis of con­ solidation, consolidated net premiums totalled Sw. frs. 4,644 million in 1974. The contribution made by the insurance companies amounted to Sw. frs. 1,474 million, i.e. approximately one-third. — Despite a further improvement of Life reassurance business, the underwriting results of the reinsurance companies were on the whole disappointing. Good underwriting results were achieved by the insurance companies. After allowing for the high write-offs on securities and the other items of income and outgo, the Group profit was Sw. frs. 75 million. •— The Group's capital funds shown (including Group profit) amounted to Sw. frs. 503 million.
After a number of profitable years, our subsidiary companies in the United States and Canada found themselves confronted with serious problems in their insurance markets. The insurance industry in the United States experienced one of the worst years in its history with losses of approximately US I 2,500 million; on a different scale, this is also true for Canada. The North American Reinsurance Corporation, domiciled in New York, suffered an underwriting loss of US S 10.8 mil­ lion (previous year, a profit of US $ 2.6 million), the Canadian Reinsurance Company in Toronto, a loss of Can. $ 0.7 million (previous year, loss of Can. $ 0.2 million). The reasons for this most unfavourable development are complex and can only be viewed within the framework of the economic, socio-political and legal conditions in these markets. The nucleus of the problem lies in the phenomenon of claims inflation, particularly for liability claims with a settlement period of several years. Insurance
The Bavarian Reinsurance Company Ltd., Munich, included In the Group report for the first time, pro­ duced a gratifying result. Since the spring of 1975, the SwissRe Holding Ltd. has owned 87% of the company's share capital (previously 69 %). The com­ pany earned a net profit of DM 15.7 million with net premiums of DM 324.4 million.
Both growth of and earnings from Life reassurance continued to be good throughout the Group; in certain markets, profitability was lower than in pre­ vious years. With a net amount of business in force of Sw. frs. 49,700 million, a profit of Sw. frs. 49 million was achieved.
In the year under report, the restructuring of holdings in German insurance companies culminated in cre­ ation of a German holding company, SR Beteili­ gungen AG, Munich, with a share capital of DM 40 million, fully owned by SwissRe Holding Ltd. From SwissRe Holding Ltd., the new company took over 53 % of the share capital of the Berlinische FeuerVersicherungs -Anstalt, Munich, and 71 % of the share capital of the Magdeburger FeuerversicherungsGesellschaft, Hanover. The Berlinische Feuer and the Magdeburger Feuer are the controlling companies of two multi-line insurance groups, the Vereinigte Ver­ sicherungsgruppe and the Magdeburger Gruppe. In 1974, the companies within the Vereinigte Ver­ sicherungsgruppe succeeded in increasing their net premiums by 5.8% to DM 991 million; the net premiums of the Magdeburger Gruppe declined slightly to DM 393 million. All companies In both groups closed the 1974 business year with an in­ creased net profit.
I 1971 1970 Fire 1,293 1,048 i 978 974 956 Accident/Sickness 1,032 378 363 374 i 421 Third Party Liability/Motor 1,245 754 1 727 713 635 Marine 298 257 1 249 238 187 Other branches 478 384 364 393 339 Life 806 540 473 484 473 Gross Premiums Retrocessions to companies outside Group i
Commissions and Participation in Profits Surrenders Claims on Death and Maturity and Annuities Paid
All Classes excl. Life Premium Income 2,583 1,292 1 1 3,875 Adjustment in Unearned Premiums — 133 — 83 m ~
All Classes excl. Life (incl. Valuation of Sickness Insurance) Life Business (Policy and Annuity Valuations)
All Classes excl. Life (incl. Valuation of Current Annuity Indemnities) 2,680 603 3,283
The Group accounts are based on the published balance sheets of the individual Group companies as at 31st December, 1974, but for Swiss Re, Zurich and the European General of Zurich, as at 30th June, 1975.
Outgo and income from in-Group transactions and balances from transfers of capital and dividend pay­ ments among consolidated companies were elimin­ ated. The exchange-rate loss of Sw. frs. 60 million result­ ing from the new valuation of the opening balancesheet figures was debited to the "Consolidation Reserve Fund".
Balances receivable and payable among consoli­ dated companies were offset against each other. The valuation of investments, except for fixed-interest investments of both Life reassurance companies in North America, was carried out in accordance with the cost or market method. The item "Holdings" refers to holdings in companies which have not been consolidated. The Consolidation Reserve Fund results from the difference between the capital funds shown of Group companies and the corresponding book values applied by SwissRe Holding Ltd.
# Swiss Re, Zurich O Branch offices of Swiss Re, Zurich A Holding companies • Advisory offices
North American Reinsurance Corporation 245 Park Avenue, New York, N.Y. 10017 with offices in Atlanta, Boston, Chicago, Houston, Los Angeles and San Francisco
SwissRe Advisers Ltd. 2306-2309 Connaught Centre, Hong Kong with an office in Tokyo
"Condeep" is a concrete drilling and production platform for use in the North Sea oilfields in depths of approx. 150 metres. It weighs approx. 160,000 metric tons, is some 200 metres high and, once in operation, has an insured value of about Sw. frs. 1,000 million. Construction begins in dry dock with the foundation, a cluster of cells which also serve as tanks for up to 160,000 cubic metres of oil or ballast. As soon as the foundation has grown enough to buoy up the structure, it is towed to a prepared deepwater site where the bottom section is completed and the towers erected. After the assembled steel deck has been floated into place and secured, the completed platform is towed to its drilling site and allowed to settle to the seabed, (of. sketch below)