Equity securities: Available-for-sale, at fair value (cost: 2003: 6 335; 2004: 4 586) 6 751 4 959
Cash and cash equivalents as of 31 December 5 429 6 402
Deferred acquisition costs Acquisition costs, which vary with, and are primarily related to, the production of new business, are deferred to the extent they are deemed recoverable from future gross profits. Deferred acquisition costs consist principally of commissions. Deferred acquisition costs associated with property and casualty reinsurance business are amortised in proportion to the property and casualty premiums earned. Future investment income is considered in determining the recoverability of deferred acquisition costs on property and casualty business. Deferred acquisition costs associated with life and health reinsurance business are amortised over the premium-paying period. For investment-type contracts, deferred acquisition costs are amortised in relation to the present value of estimated gross profits.
Contracts which do not meet risk transfer requirements, defined as transferring a reasonable possibility of a significant loss to the reinsurer, are accounted for as deposit arrangements. Deposit amounts are adjusted for payments received and made, as well as for amortisation or accretion of interest. The Group provides reserves for uncollectible amounts on reinsurance balances ceded and assumed, based on management’s assessment of the collectibility of the outstanding balances.
Foreign currency Assets and liabilities denominated in foreign currencies are translated at the rates of exchange on the balance sheet date. Revenues and expenses are translated at average exchange rates. Unrealised gains or losses resulting from translation of functional currencies to the reporting currency are included as a separate component of shareholders’ equity. Realised currency gains and losses resulting from foreign currency transactions are included in earnings.
On 30 April 2004, the Group completed the acquisition of CNA Financial Corporation’s individual life insurance business for USD 690 million. The transaction was facilitated mainly through a stock acquisition.
Derivatives indexed to Swiss Re shares As of 31 December 2003 and 2004, the Group was short 383 333 and 335 000 call options, respectively. In 2004, 2 255 000 call options were sold at an average price of CHF 1.04.
As of 31 December 2004, the Group had CHF 943 million of domestic and CHF 6 037 million foreign net operating tax loss carryforwards, expiring as follows: CHF 292 million in 2007, CHF 137 million in 2008, CHF 888 million in 2009 and CHF 5 663 million after 2009. The Group also had capital loss carryforwards of CHF 461 million, almost all of which expire beyond 2009.
After the destruction of the World Trade Center the Group initiated litigation against the lessees, its lenders and the Port Authority of New York and New Jersey in the United States District Court for the Southern District of New York to obtain a declaration of the Group‘s rights and obligations with respect to all parties in interest. The defendants filed counterclaims and joined other insurers in the lawsuit.
The Financial Services Business Group provides structuring support for certain transactions, for example insurance-linked securities, issued on behalf of the business groups. The Financial Services Business Group includes the fees charged in net investment income. The business groups provide origination services for certain transactions underwritten and accounted for within another business group. The commissions are included in acquisition costs.
Claims and claim adjustment expenses –3 221 –4 178 –2 530 –847 –1 884 –12 660
Major shareholders As of 31 December 2004, there was one shareholder with a participation exceeding the 5% threshold of Swiss Re‘s share capital. As these shares have mostly not been registered under the shareholder’s name, Swiss Re is unable to track, on its own, changes in these holdings.
The Annual Report 2004 is also available in German and French.
It was an exceptional year for natural catastrophes where globally insured claims reached USD 46 billion, the largest ever recorded in a single year. Windstorms were the predominant cause with four Atlantic hurricanes making landfall in the state of Florida and ten Pacific typhoons impacting Japan. These risks lie at the heart of our value proposition to clients as we help them to manage the effects of low frequency, high severity events. We constantly refresh our pricing and risk accumulation limits for this risk class; our windstorm models, for example, simulate 50 000 years of storm tracks and the 2004 storms produced no surprises to expected loss scenarios. As indicated in our letter last year, going forward we will be paying increasing attention to the changes in possible windstorm patterns arising from global warming.
Our activities in Asia have progressed particularly well. In the last 15 months our infrastructure has been strengthened by the move to branch status in China, Japan and Taiwan, adding to five existing branches in the region and our growing strength in locally based insurance expertise and client management. Asian insurance markets continue to show impressive growth prospects. China and India have drawn much attention due to their huge populations, growing economic importance and rapid deregulation. Supervisory bodies in these countries have started to align local underwriting and investment regulations with international best practice, creating a good climate for business. To build on these achievements, Swiss Re would encourage government bodies in India to further boost the development of the insurance market by relaxing restrictions on foreign access. Allowing wholly-owned reinsurance branches would stimulate competition and investment.
3 June Executive Board appointments Swiss Re named Christian Mumenthaler as new Chief Risk Officer of the Swiss Re Group and Charlotte A. Gubler as the new Head of Communications & Human Resources. These appointments to the Executive Board became effective as of 1 January 2005.
Economic risk modelling will become more widespread, particularly due to regulatory requirements. This trend will be challenging for the industry, but will also bring opportunities for reinsurers in easing primary insurers’ capital constraints. Swiss Re continuously refines its internal capital adequacy model to ensure the effective implementation of its strategy.
Highly qualified staff are a key success factor for any company, and the insurance industry must make every effort to attract and retain high-quality underwriting and financial talent. Swiss Re attaches great importance to developing the skills of its employees and sharing its knowledge with clients to support their product development and risk expertise activities.
 ILS are an effective risk management tool to hedge peak risks and volume insurance products
Swiss Re’s ability to generate long-term value centres around knowledge building and expertise. The development and exchange of knowledge are thus key to Swiss Re’s success.
landfall in the United States after causing widespread devastation in the Caribbean. Japan experienced a record-breaking year, with an unprecedented ten typhoons totalling more than USD 5 billion in claims. Coastal areas around the Indian Ocean were hit by a tsunami triggered by a major earthquake. Despite its enormous scale in terms of fatalities and devastation, the Asian tsunami is expected to result in comparatively low (re)insured claims of an estimated USD 5 billion, comparable to the claims related to the 2004 hurricanes Jeanne or Frances. The impact of natural catastrophe claims in the third and fourth quarters on global reinsurers’ 2004 combined ratio is estimated to be 4–6 percentage points for the full year.
Universal drive for increased regulation and disclosure also evident in reinsurance Although the reinsurance industry managed well through the financial challenges between 2001 and 2003, outside observers still raised concerns about its financial stability. The reinsurers’ capital base was materially affected by significant events, such as the bursting of the stock market bubble in 2000, 11 September 2001 and adverse claim developments in US liability business written between 1997 and 2001.
All the sigma studies can be downloaded electronically or ordered as a print copy for free from Swiss Re‘s homepage at www.swissre.com in English, German, French, Spanish, Italian, Japanese and Chinese.
Strong improvements across all business groups and an excellent investment return led to net income of CHF 2.5 billion for 2004.
The total investment result increased by 36% to CHF 2 091 million from CHF 1 536 million in 2003. Net investment income rose by CHF 148 million to CHF 1.3 billion, driven mostly by the organic growth of the investment portfolio. Realised gains increased by CHF 407 million to CHF 778 million, due to gains on equities and lower impairment charges in 2004.
Property’s share of the portfolio fell slightly by 1% to 32%. Liability increased its share from 27% to 30%. Motor and accident and health lines declined by 1% and 2% respectively. The share of other business
Lines of business Effective cycle management was the driver of improved underlying performance in all lines. Swiss Re capitalised on its enhancements to its cycle management tools and ability to focus capacity in those segments producing the highest economic returns after the cost of capital. In general, rates remained at satisfactory levels, although there were signs of softening in some property lines during 2004 following excellent underwriting results.
The market for closed life funds has attracted new entrants over the past year, particularly in the UK. Swiss Re has competitive advantages both from its experience and its knowledge – gained through traditional business – of the types of portfolios available for acquisition. Swiss Re’s skills and reputation for excellence in this area have developed over many years, and continue to increase with each transaction.
Claims and claim adjustment expenses; life and health benefits –9 085 –9 331 3
Business group results The operating result increased by 5% to CHF 1.2 billion in 2004. Excluding currency exchange movements – principally a depreciation in the US dollar – the operating result increased by 9%.
Total revenues were CHF 4.6 billion, up 9%, after adjusting for the effects of currency movements. Premium business recorded growth in revenues of 9% to CHF 3.9 billion. Fee business revenues net of acquisition costs were CHF 687 million, down 12% compared to 2003.
In January 2005, Swiss Re completed a USD 245 million securitisation of life insurance policies. The asset backing the securitisation is the expected future profit from five blocks of life insurance business previously acquired by Swiss Re through Admin ReSM transactions. Additionally, in December 2003 Swiss Re underwrote the first ILS linked to extreme mortality risk. Swiss Re received mortality protection from Vita Capital Ltd, which in turn issued USD 400 million of notes to collateralise its obligation to Swiss Re. Investors in the Vita Capital notes are exposed to principal loss if the mortality index value in any one of the calendar years in the four year risk period reaches or exceeds 130% of the baseline index value in 2002.
, i n su ra n ce c o m p an ie s an d b ro ke r h o us es . O
Swiss Re’s risk landscape At Swiss Re, risk management considerations are an essential dimension of strategic planning and an integral part of the management discipline exercised by the Executive Board and the Board of Directors. In addition to strategic risks, Swiss Re distinguishes three types of risks: core risks, operational risks and other risks (see Figure 2).
Other risks comprise:  Funding and liquidity risk is the risk that
Swiss Re‘s overall risk exposure remained stable between mid 2003 and mid 2004. Exposure to market risk increased by 36%, primarily because of increased equity exposure from expired hedge positions that were not renewed, as well as increased corporate bond investment. Swiss Re‘s exposure to life and health, credit, and funding and liquidity risk decreased between mid 2003 and mid 2004. The decrease in life and health risk was primarily due to the impact of the fall in the US dollar on the large portfolio of US dollar-denominated life business, together with the Vita transaction, which was Swiss Re’s first mortality index-linked security issued in the second half of 2003. Credit risk declined mainly because of the improved outlook for credit markets, particularly the reduction in estimated default rates. The funding and liquidity risk reflects risks with respect to Swiss Re’s use of letter of credit (LoC) facilities. This risk arises from collateralisation obligations linked to Swiss Re’s net asset value falling below a predefined threshold. This risk has decreased as Swiss Re‘s financial strength has improved. More generally, in 2004 Swiss Re was able to lock in significant multi-year LoC capacity at attractive terms thereby extending the duration of its LoC capacity substantially.
Estimated economic impact of loss events in CHF billions as of 31 December 2004
The guidelines include a framework of limits determined by the nature of the underlying activity generating the exposure and by a detailed assessment of the counterparty ’s financial strength, the prevailing economic environment, industry position and qualitative factors. This assessment generates an internal counterparty specific rating in one of 20 categories. Swiss Re constantly monitors counterparty credit quality and exposures, compiling cases that merit particularly close attention into specific “watch lists”.
insurance financial strength ratings which are among the highest in the industry.
1 Group structure and shareholders, page 58 2 Capital structure, page 59 3 Board of Directors, page 62 4 Executive Board, page 74 5 Compensation, shareholdings and loans, page 80 6 Shareholders’ participation rights, page 84 7 Changes of control and defence measures, page 84 8 Auditors, page 85 9 Information policy, page 86 1 Group structure and shareholders 1.1 Group structure Operational Group structure
2.2 Authorised and conditional capital At the Annual General Meeting in 2001, the creation of conditional capital was approved as follows: a maximum nominal amount of CHF 900 000 for conversion rights and warrants granted in connection with convertible bonds or similar financial instruments issued by the Group.
which 310 387 372 are entitled to dividend. Other than the shares reserved for corporate purposes, which have no voting power and are not entitled to dividend, there are no additional types of shares with a higher or a limited voting power, privileged dividend entitlement or any other preferential rights; nor are there any other securities representing a part of the company’s share capital. Swiss Re’s capital structure ensures equal treatment of all shareholders in accordance with the principle “one share, one vote”.
(i) Holders may convert the bonds, due 2021 and issued in denominations of USD 10 000 principal amount and integral multiples thereof, into registered shares of Swiss Reinsurance Company (nominal value CHF 0.10 per share) at any time on and after 22 November 2001, and prior to the close of business on 21 November 2011, at a conversion price of CHF 207.19 per share and a fixed exchange rate of USD 1 = CHF 1.6641. The exercise of this convertible bond will not affect Swiss Re’s conditional capital as Swiss Reinsurance Company purchased a call option to hedge the underlying shares. If bondholders exercise this convertible bond Swiss Re will exercise the hedge option purchased to obtain the necessary shares without accessing Swiss Re’s conditional capital.
the heads of the three business groups with the respective division and business sector heads, and the heads of the four Corporate Centre divisions. The Executive Board is responsible for the operational management of the Group as well as the coordination and execution of the Group’s business operations. It held ten meetings in 2004, often on two consecutive days. Two of those meetings were extended to consider strategic issues.
Ms Godbehere was appointed Group CFO with effect from 1 April 2003. Previously, she held the position of Chief Financial Officer of the Property & Casualty Business Group and, prior to this, from 1998–2001, she served as the Chief Financial Officer of the Life & Health Business Group, based in London. Ann Godbehere joined Swiss Re in 1996, following the acquisition of the Mercantile & General Reinsurance Group. Until 1998, she held a number of senior positions in Swiss Re Life & Health North America, most recently the position of Chief Executive Officer of Swiss Re Life & Health Canada. Ms Godbehere started her career with Sun Life of Canada in 1976 in Montreal, Canada. She joined the M & G Group in 1981, where she held several management roles, including senior vice president and controller for both life and health and property and casualty businesses throughout North America.
Pierre L. Ozendo Head of the Asia Division within the Property & Casualty Business Group
Trinity Expert Systems Contract Windsor Life Assurance Company Limited (“Windsor Life”), an indirect wholly-owned subsidiary of Swiss Reinsurance Company, entered into an outsourcing agreement with Trinity Expert Systems (“TES”) with an effective date of 1 October 2003. The outsourcing agreement has a term of three years but may be terminated early with six months’ notice. In accordance with the outsourcing agreement, TES will supply IT help desk, LAN support and administration system application support services. In addition, TES provides services outside the outsourcing contract, agreed on an individual project and cost basis.
statutory rules on “opting up” or “opting out”. Should a shareholder reach the threshold of 33⅓% of all voting rights, then, pursuant to the Stock Exchange Act, he/she would be required to submit a general take-over offer. (“Opting up” is a statutory rule based on which the triggering threshold would be lifted to a higher percentage, while “opting out” is a statutory rule waiving the legal duty to submit an offer.)
Mr Michael P. Nelligan and Mr Ray J. Kunz took up office as head auditors responsible for the existing auditing mandate as of 1 January 1997 and 1 July 2001, respectively. As of 1 January 2004, Mr David J. A. Law took over the position of Swiss Re’s lead audit partner from Mr Nelligan who retained his responsibility for the audit of the 2003 financial statements. His involvement ended in June 2004.
News release 3 May Jury verdict on World Trade Center News release 16 February Reporting of 2004 non-life renewals
A rival company might say that Swiss Re is decreasing its personal contact. What differentiates SwiftRe from competitors that might still offer more personal attention?
The vast majority of Swiss Re’s private shareholders are domiciled in Switzerland. Its large institutional shareholder base is geographically diverse, with 33% of shareholders domiciled in Switzerland, 33% in Europe (excluding Switzerland), 31% in North America and 3% throughout the rest of the world. Socially responsible investors (those who focus specifically on social, environmental and corporate governance factors) account for approximately 2% of Swiss Re’s shares.
Total number of registered shares 57 057 100.00 213 489 834 68.78
A feature of variable annuity business. The benefit is a pre-determined minimum amount that the beneficiary will receive upon death.
Reserves Amount required to be carried as a liability in the financial statements of an insurer or reinsurer to provide for future commitments under outstanding policies and contracts.