¹ Including Property & Casualty and Credit Solutions ² Subject to approval at the Annual General Meeting on 20 April 2007 ³ Permanent staff
In 2006, Swiss Re achieved a series of strategic milestones. The successful integration of Insurance Solutions marked the largest acquisition ever completed by Swiss Re, providing us with increased scale and an expanded talent pool. In December, we concluded our largest Admin ReSM transaction to date: the acquisition in the UK of GE Life business (which was not part of the acquisition of Insurance Solutions from General Electric). We also added several sizeable transactions to our securitisation strategy, structuring and selling pools of extreme mortality risk (Vita Capital), credit reinsurance (Crystal Credit) and natural catastrophe risks (Successor) to the capital markets. Finally, various efforts to advance our operational efficiency were successfully completed.
18 May Swiss Re opens new Asian training centre in Hong Kong Swiss Re officially opened its new training centre, on the occasion of the Group‘s 50th year in Asia-Pacific. The centre provides state-of-the-art courses for insurance and reinsurance professionals from throughout the region.
4 August Interim results 2006 Swiss Re reported successful first half 2006 results with net income of CHF 1.6 billion, up 16% compared to a strong first half of 2005, or CHF 4.92 per share. Annualised return on equity was 13.9% and shareholders’ equity increased 18% to CHF 27.1 billion (all figures based on Swiss GAAP).
22 February Sale of 30 St Mary Axe Swiss Re completed the sale of its London office building, 30 St Mary Axe, to an affiliate of the real-estate corporation IVG Immobilien AG for GBP 600 million. Swiss Re remains a principal tenant of 30 St Mary Axe.
Denmark France Germany Ireland Israel Italy Luxembourg Netherlands Poland Russia South Africa Spain Switzerland United Kingdom
Revenues by business1 43% Life & Health 5% Financial Services 52% Property & Casualty
Net premiums earned by product line1 34% Life and health 3% Admin ReSM
W. Weldon Wilson Americas Life & Health and Global Admin ReSM
Enlarge market scope The changing risk landscape creates opportunities for Swiss Re, as a risk specialist, by providing opportunities to extend its presence into new markets and to develop innovative products for existing markets.
We want to remain the leading reinsurer over the long term. More than anything, that depends on the commitment and passion of our people. To maintain a top position, we must continue to attract, retain and develop the best talents in the industry: people who will use all the resources available at Swiss Re to create innovative solutions and deliver outstanding service.
“Swiss Re provided Norwich Union with capital in a cost effective and flexible manner, ensuring that our regulatory solvency position was maintained at the optimal level. Swiss Re‘s expert understanding of the mechanics of the UK life sector facilitated an efficient and timely delivery of the transaction.” Howard Kew, Director of Capital Management, Norwich Union
Swiss Re works closely with clients to deliver efficient and innovative solutions. Howard Kew, Director of Capital Management (Norwich Union), after a meeting at Swiss Re’s office in London.
Economic Research & Consulting and sigma Swiss Re has a team of 20 economists based in Zurich, New York and Hong Kong that constitute the Group’s centre of competence for the economic analysis of risk transfer and risk financing solutions, global business cycles, and financial markets. The sigma studies, a recognised source of market information for more than thirty years and the team’s flagship publication series, analyse market trends in the insurance and financial services industries.
For fixed-income investors, ILS provide an attractive rate of return that is not correlated with other bonds, so their addition offers diversification benefits that improve the portfolio’s performance while lowering its risk. Catastrophe bonds yield a higher return than corporate bonds with the same rating, yet show less year-over-year volatility. The investor base for catastrophe bonds has been expanding to include dedicated catastrophe funds, hedge funds and traditional money managers, in addition to insurance and reinsurance companies.
Premium income growth in life and health reinsurance developed only moderately in 2006. The main reasons for this were lower cession rates in the US, with a shift from quota share to excess of loss covers, as well as the increased use of alternative solutions (such as securitisation) due to higher reinsurance prices and slowing term sales in the US and UK.
Shareholders’ equity rose by 27% to CHF 30.9 billion. The increase was principally due to excellent earnings over the year and the equity raised during the year in conjunction with the financing of the GE Insurance Solutions acquisition.
Solutions in June 2006 and CHF 12.2 billion from the Admin ReSM acquisition of GE Life UK business in December 2006. At the end of 2006, Swiss Re’s overall gross asset allocation was 8% in equity securities, 79% in fixed income, 2% in real estate, 8% in cash and cash equivalents, and 3% in other assets.
Swiss Re’s fixed income portfolio rose to CHF 129.3 billion in 2006 from CHF 104.0 billion in 2005, including CHF 23.9 billion related to GE Insurance Solutions and CHF 8.0 billion to GE Life UK business. The portfolio increase was partly offset by a shift to equities, as well as by the weakening US dollar compared to the Swiss franc. Net investment income on the fixed income portfolio grew by 21% to CHF 5.6 billion. Net realised gains on fixed income securities were CHF 144 million in 2006, compared to CHF 481 million in 2005 which benefited from a sizeable sale of BBB-rated corporate bonds.
In February 2007, Swiss Re sold its London office building at 30 St Mary Axe. Realised gains from this transaction will be recorded in 2007 and future years.
Unpaid claims and claim adjustment expenses 71 759 95 011 32
Cash and cash equivalents as of 1 January 9 681 8 368 –14
In life and health, Swiss Re anticipates strong sales of accumulation and retirement products in developed markets such as the US, Europe and Japan. The Group is actively addressing client needs by developing new variable annuity products and exploring longevity products. Sales of protection products are expected to continue to grow but at a slower pace. Swiss Re’s strength in traditional reinsurance makes it ideally positioned to offer effective solutions and respond to the needs of clients.
Other risks comprise: Funding and liquidity risk is the risk that Swiss Re is unable to meet its short-term financial obligations or raise funds in the markets to finance its commitments at a reasonable cost.
Conditional capital Up to 9 million shares in favour of GE: Share component of purchase price for GEIS through possible mandatory convertible
(iv) Upon closing the GE Insurance Solutions acquisition, Swiss Re issued CHF 610 million of three-year mandatory convertible instruments to General Electric. The Mandatory Convertible Bond (MCS), issued as a private offering, may, at the option of each holder, be converted into registered shares of Swiss Reinsurance Company at any time from 18 July 2006 until 4.00 pm CET on the business day before the 20th trading day prior to the maturity date on 8 June 2009. Holders exercising such early conversion right will be entitled initially to receive 1 024.14923 shares, subject to adjustment, for each MCS of CHF 100 000 nominal value.
Mr Forstmoser has been a law professor at the University of Zurich since 1974 and a partner of Niederer Kraft & Frey, Attorneys, in Zurich, since 1975. Mr Forstmoser was elected to Swiss Re’s Board of Directors in 1990. His mandate was renewed in 1994 and 1998, each time for a further four years. The Board of Directors elected him Chairman on 30 June 2000. He was re-elected in 2002 and 2006 for further four-year terms.
Mr Dammerman began his professional career with General Electric in the Financial Management Program at GE Appliances. In 1984, he became senior vice president finance of General Electric Company. He was elected to the company’s board of directors in December 1994 and was subsequently appointed vice chairman of the board, at the same time remaining an executive officer of GE and a member of the corporate executive office. He also served as chairman of GE Capital Services. At the end of 2005, he retired from all General Electric positions.
Mr Hentsch was elected to Swiss Re’s Board of Directors in 1993. His mandate was renewed in 1997, 2001 and 2005, each time for a further four-year term. He is also a member of the board of the ISC Foundation and the MLE-Foundation, both at the University of St. Gallen.
b. Committees of the Board of Directors: members, tasks and responsibilities General provisions for all committees The Board may delegate certain responsibilities, including the preparation and execution of its resolutions, to committees or the Executive Vice Chairman. Any such committee or the Executive Vice Chairman must keep the Board apprised on a timely basis of actions and determinations.
Compensation Committee Members Robert A. Scott, Chair (from 8 December 2006, previously George L. Farr) Thomas W. Bechtler Raymund Breu (from 8 December 2006) Dennis D. Dammerman
Tasks and responsibilities This Committee oversees risk management, approves the fundamental risk management principles, reviews their implementation, and the appropriateness of the Group’s risk management framework and its implementation. It reviews, and makes recommendations in respect of, the Group’s risk strategy proposed by management, it evaluates the bases on which the Board determines the overall risk tolerance and the risk appetite for the Group’s most significant risk taking activities, and it also reviews the strategic asset allocation and its conformity with the risk tolerance level as determined by the Board; in respect of risk controlling, it reviews the methodology for risk measurement, the results of risk-adjusted capital calculations and the most significant risk exposures and their limits, and it receives reports on the Group-wide use of derivative instruments; in respect of the balance sheet, it reviews the valuation of assets and liabilities for economic, accounting and regulatory purposes, and the treasury strategy; it reviews capital adequacy, the ratings received from the rating agencies, and management’s reaction and recommendations thereto; and it reviews the Group’s integrated portfolio risk management activities. The Finance and Risk Committee reviews its own performance annually.
Governance Committee Members Peter Forstmoser, Chair Dennis D. Dammerman (from 1 March 2006) Benedict G. F. Hentsch Walter B. Kielholz John F. Smith, Jr. Kaspar Villiger
e. Description of the Management Information System (MIS) Members of the Board of Directors have access to a protected Internet site which offers a variety of information. The site includes a comprehensive electronic Management Information System (MIS). The MIS provides a strategic dashboard, an overview of the current status of strategic initiatives, the current financial performance, information on risk and capital management aspects, an analysis of the competitive landscape, and information on Swiss Re shares. Further sections supply detailed information on Swiss Re’s business and corporate functions.
Mr Liès, a citizen of Luxembourg born in 1954, gained a degree in mathematics from the Swiss Federal Institute of Technology (ETH) in Zurich in 1974.
Additional shares held in nominee form (within Share Register) 37 433 583 10.00
Realised gains and losses do not include the change in fair value of Financial Services assets/liabilities classified as trading revenues/expenses and the change in fair value of derivative financial instruments classified as cash flow hedges.
Financial statements Notes to the Group financial statements 8. Reinsurance information
Change in unpaid claims and claim adjustment expenses; life and health benefits, retro 643 251 894 –2 128 228 –1 900
Income taxes paid in 2005 and 2006 were CHF 282 million and CHF 742 million respectively.
Total compensation cost for share-based compensation plans recognised in net income is CHF 8 million and CHF 58 million in 2005 and 2006, respectively. The related tax benefit is CHF 3 million and CHF 13 million respectively.
Stock option plans include the long term equity award programme, the fixed option plan and an additional grant to certain members of executive management.
The fair value of each option grant is estimated on the date of grant using a binomial option -pricing model, with the following weighted average assumptions used for grants in 2005 and 2006, respectively: dividend yield of 3.0% and 3.8%; expected volatility of 30.0% and 20.0%; risk-free interest rate of 1.9% and 2.4%; expected life of 6.0 and 6.0 years.
Financial statements Notes to the Group financial statements liable for its share of a maximum of one policy limit and to determine the rights and obligations of all parties in interest.
Operating result, excluding non-participating net realised investment gains 688 394 1 082 435 1 517
Net realised investment gains – non-participating 88 87 175 –10 165
Funds held by ceding companies 18 833 75 18 908 17 698 – 17 698
In addition, authorised capital with shareholders’ subscription rights amounted to CHF 1 105 337 at year-end 2006.
Claims and claim adjustment expenses –8 514 –9 333 –12 153 –16 266 –14 485 –14 898 –13 853 –14 758 –11 799
Insurance-linked securities that allow (re)insurance companies to transfer peak insurance risks, including natural catastrophes, to the capital markets in the form of bonds. Catastrophe bonds help to spread peak exposures (see insurance-linked securities).
Some of the terms in the glossary are explained in more detail in note 1 “Organisation and summary of significant accounting policies” in the Financial Statements.
Photographs: Frederic Meyer (cover, inside cover) Philip Chau (p 5) Clinton Global Initiative (p 5) Matthew B. Nunnelee (p 5) Marc Wetli (p 10) Marc Wetli (p 12) Markus Bühler, Willy Spiller and Stefan Walter (p 13) Frederic Meyer (p 23) Charly Kurz (Screenshot), Frederic Meyer (p 26–27) Frederic Meyer (p 28–29) Gilles Mingasson (p 30–31) Pablo Bartholomew (p 32–33)
This report is printed on paper made from elementary chlorine-free (ECF) pulp. Approximately 40 percent of the wood used comes from forests certified by the Forest Stewardship Council (FSC) and the Programme for the Endorsement of Forest Certification (PEFC).
The 2006 Annual Report is also available in German and French.