We are now probably witnessing the end of one of the most severe periods of “soft market” conditions ever experienced by the traditionally cyclical non-life reinsurance business. Swiss Re emerges considerably strengthened from this difficult period because, throughout the cycle, our priority has been to maintain a strong balance sheet. This is apparent from two indicators: equalisation reserves totalled
On behalf of the Board of Directors and the Executive Board, we would like to take this opportunity to thank the employees who, at our offices throughout the world, devote all their energies to the success of the Group – day in, day out. We would also like to thank our clients and shareholders, who repeatedly place their trust in our company, even at a time when the global financial services industry is undergoing rapid and radical changes. Your continuing loyalty cannot be taken for granted, and it is sincerely appreciated.
Swiss Re achieved a record investment result of CHF 9.1 billion, up 22% on the prior year. The return on investment was 10%, compared with 8.8% in 1999, marking the fifth year in a row of a return at or above Swiss Re’s longterm target rate of 7%. This was achieved despite generally mixed market conditions.
The measures taken since 1999 to reduce the non-life combined ratio have shown improvement: a drop from 122% in 1999 to 117% in 2000. This improvement underlines Swiss Re’s determination to keep to sound underwriting principles and also ref lects the low number of natural catastrophe losses in most regions. It was partially offset by more medium-sized man-made losses, such as fires, explosions and pharmaceutical liability claims. A continuing negative inf luence from adverse loss developments of prior treaty years, particularly relating to the 1999 storms Lothar and Martin, prevented an even more pronounced improvement in 2000. In addition, Swiss Re made a larger than normal contribution to equalisation reserves of CHF 691 million. Excluding the effects of this contribution, and the effect of Lothar and Martin on year-2000 results, the combined ratio was 110% – a meaningful improvement over the 1999 baseline figure of 114% (the baseline combined ratio adjusts for the impact of losses above or below expectations).
In total, the unit achieved a moderate growth of gross revenues at stable margins, despite highly competitive conditions in the major credit markets and general deterioration in credit quality. In order to further reduce operating costs, Swiss Re has investigated possibilities to deliver some of its short-term credit products through electronic platforms. Such solutions are expected to have an economic impact in the coming years.
Asset management Swiss Re Investors manages fixed income investments and traded equity investments, on behalf of Swiss Re as well as on behalf of third parties. Its presence with dedicated units in all major financial markets centres is geared to optimising investment returns on a global basis while observing intricate and dynamic requirements concerning risk, return and liquidity. These requirements are the typical adjunct of an insurance company's asset and liability management considerations. Value is added both on a market assessment level as well as on a security selection level. Third party assets under management increased from CHF 4.6 billion to CHF 6.8 billion by organic growth. Proprietary invested assets under management including private equity and participations grew from CHF 86 billion to CHF 90 billion in 2000.
Private equity and participations Premiums earned 0 4 Net investment income1,3 359 96 Other revenues2 0 0 Gross revenues 359 100 1 including current income, realised gains and trading returns 2 including fees, commissions and income on deposits 3 1999 includes realised gains on sale of CSFP
Investments Fixed income securities: Available for sale, at amortised cost (fair value: 1999: 44 659; Trading, at fair value (amortised cost: 1999: 574; 2000: 648)
Investments in equity securities are classified as AFS and carried at fair value with temporary declines in fair value below acquisition cost and subsequent recoveries up to acquisition cost being recognised in the income statement, and all movements in fair value above acquisition cost being reported as a separate component of shareholders’ equity.
Basic earnings per common share is determined by dividing income available to common shareholders by the weighted average number of common shares entitled to dividends during the year. Diluted earnings per common share reflects the effect on earnings and average common shares outstanding associated with dilutive securities.
The outstanding 65% of Società Italiana Cauzioni, Rome, not previously owned by the Group was acquired on 13 November 2000 for CHF 53 million. Società Italiana Cauzioni is an Italian specialist credit insurer.
In June 1999, the Group issued CHF 600 million in subordinated perpetual debt, with an interest rate of 3.75% for 12 years, resetting to six-month LIBOR plus 100–140 basis points thereafter, depending upon the rating of Swiss Re.
In 2000, the Group entered into three Payment Undertaking Agreements, which are a form of financing transactions in which a counterparty deposits funds with the Group having fixed repayment terms and interest rates on the deposited funds.
United States United Kingdom Germany The Netherlands Italy Canada Switzerland Other Total e) Gross premiums written by line of business
Contracts that do not meet the risk transfer requirements defined as transferring a significant possibility of a significant loss to the reinsurer are accounted for as deposit arrangements. Assets and liabilities transferred for such transactions are recorded as assets and liabilities in the balance sheet, with a service fee recognised in revenues. Under the old basis, such transactions were recorded as reinsurance, with all transferred assets and claims provisions recorded in the balance sheet, and as premium revenues and claims expenses, respectively, in the income statement.
Shareholders’ equity at year-end 1999 amounted to CHF 6 470 million. Movements during the year include the dividend payment of CHF 712 million as well as the consideration of the capital reduction from shares repurchased to a total value of CHF 195 million. Furthermore, a special allocation of CHF 130 million mainly related to a Group internal merger was considered. With the inclusion of the profit for the financial year 2000, shareholders’ equity equalled CHF 6 839 million at year-end 2000.
The overall management charges are allocated to the reinsurance business and the investment business on an imputed basis. Self-charged rent on properties used for own purposes is included in these expenses as well as in income from land and buildings.
All items in the balance sheet and the income statement denominated in foreign currencies were uniformly translated into Swiss francs at the currency exchange rates applicable on the balance sheet date. Differences arising from the recalculation of the opening balance sheet are booked via a corresponding provision and have no impact on the income statement.
The current account obligations towards employee pension funds amounted to CHF 61 million on the 2000 balance sheet date (1999: CHF 151 million).
The company has the following outstanding bonds and debentures: 33⁄4% interest, CHF 500 million, 2 July 1997–2007 33⁄4% interest, CHF 600 million, perpetual from 15 June 1999 but no less than 12 years; this bond is included in the item Subordinated liabilities.
Deposits retained from ceded reinsurance business – 162 Other liabilities 631 791
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