Annual Report 2000 the obvious ref lects our commitment “ Exploring solutions beyond to the future.” 137th Annual Report 2000 Swiss Reinsurance Company Swiss Re Mythenquai 50/60 P. O. Box CH-8022 Zurich Telephone +411 285 21 21 +411 285 29 99 Fax www.swissre.com Internet Published April 2001 Water: risk and opportunity Water is an important and multi-faceted topic. It embod- ies the double-edged sword of risk and opportunity with its power not only to save but also to destroy life. Seven special- ists who have a link with Swiss Re explain what they find so fascinating about wa- ter, and where their individual professional and personal challenges lie. For more information, visit www.swissre.com (click Inve- stor Relations/Annual Report- ing 2000/Annual report – comprehensive overview / Por- traits of water specialists) Dealing with the climate means dealing with uncertainty. It is a scientific fact that global warm- ing is taking place, so what does this mean for Swiss Re and, ultimately, for society? What are the risks; how and when will their effects be felt? What can and must be done to counteract this trend? Finding practical answers to these ex- tremely complex questions is imperative, and a challenge which fascinates me day after day. Gerry Lemcke Climate and Natural Hazards Specialist, Swiss Re, Zurich m o c . e r s s i w s . w w w t a e k c m e L y r r e G t u o b a e r o m : k r @ m k o o B Performance of Swiss Re shares and key figures Performance of Swiss Re shares and the Swiss Performance Index from 31 December 1990 to 20 April 2001 An investor who invested CHF100 000 in Swiss Re 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 posi- tion with a market value of CHF 1119 267 on 20 April 2001. The total performance amounts to 1019.3% or an average of 26.4% per year. An investment of CHF 100 000 in the total Swiss market at the end of 1990 would have increased in value to CHF 551712 on 20 April 2001 (basis: Swiss Per- formance Index with reinvest- ment of income). The total performance amounts to 451.7% or 18.0% per year. in % 100 90 80 70 60 50 40 30 20 10 0 –10 in CHF 4000 3400 3000 2600 2200 2000 1800 1600 1400 1200 1000 800 600 400 300 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001* 1991– 2001* p.a. Annual performance of Swiss Re shares (left-hand scale) Annual performance of Swiss Performance Index (left-hand scale) Price of Swiss Re share weekly (logarithmic right-hand scale) Source: Datastream *as of 20 April 2001: Closing share price: CHF 3 361, Stockmarket capitalisation: CHF 47 904 million Key figures CHF millions Gross premiums written Premiums earned (net) – Non-Life Business Group – Life & Health Business Group – Financial Services Business Group Net income Shareholders’ equity 1999 20 661 18 051 8 916 7 311 1 824 2 446 24 832 2000 26 057 22 081 11 530 8 330 2 221 2 966 22 787 Change in % 26 22 29 14 22 21 –8 Combined ratio Non-Life in % 122 9.3 Return on operating revenues Life&Health in % Return on total revenues Financial Services in % 24.4 8.8 Return on investment in % 10.9 Return on equity in % Earnings per share in CHF Dividend per share in CHF Number of employees – of which in Switzerland 117 9.2 11.9 10.0 11.9 208 50* 171 50 9 010 2 870 9 585 2 841 * Subject to approval by the General Meeting, not including a capital repayment of CHF 8 per share 22 6 – 1 Contents Performance of Swiss Re shares and key figures Annual report of the Chairman and the Chief Executive Officer Board of Directors Executive Board Business report Financial year 2000 Non-Life Business Group Life & Health Business Group Financial Services Business Group Corporate Centre Income reconciliation Capital management Group risk management Recent events and outlook Spotlights e-business Environmental report Social report Rüschlikon Group financial statements Income statement Balance sheet Statement of shareholders’ equity Statement of comprehensive income Statement of cash flow Notes Report of the Group auditors Annual report Swiss Reinsurance Company Income statement Balance sheet Notes Proposal for allocation of profit Report of the statutory auditors Glossary Financial years 1997–2000 Swiss Re securities Chart analysis 2 4 5 7 10 15 18 23 25 26 28 30 33 34 35 36 39 40 42 43 44 46 85 89 90 92 98 99 101 105 106 107 1 Swiss Re Annual Report 2000 Annual Report of the Chairman and the Chief Executive Officer Fellow shareholders, colleagues, ladies and gentlemen In the year under review, Swiss Re once again achieved a strong increase in profits, which rose by 21.3% from CHF 2 446 million in 1999 to CHF 2 966 million in 2000. Earnings per share rose from CHF 171 in 1999 to CHF 208 in 2000. This result is the latest in a long series of marked improvements. Over the past six years – in other words, since the strategic reorientation of the Group and the sale of our direct insurance interests in 1994 – profits have grown by an average of 22% per annum. The Board of Directors will propose to the Annual General Meeting an unchanged dividend of CHF 50 and, in addition, a capital repayment of CHF 8 per share. The nominal value of Swiss Re shares is currently CHF 10, and would reduce to CHF 2 after the capital repayment. In addition, the Board of Directors will propose a 20-for-1 split of the shares, which should increase the liquidity of the stock in the marketplace. The present accounts have been prepared in accordance with new basis Swiss GAAP accounting stan- dards (explained in detail on p. 83–84 of this report) – which significantly improve both the quality and the breadth of information on our operations when compared with the previous method. With this new accounting basis, our reporting will in future focus on our three business groups: Non-Life rein- surance, Life & Health reinsurance and Financial Services, as well as the Corporate Centre. In 2000, the three business groups showed varying development: after several years of fierce com- petitive pressure, the non-life business benefited from signs of recovery. Premium income was up 29%, from CHF 8 916 million in 1999 to CHF 11 530 million in 2000. Operating income rose by no less than 43% to CHF 2 164 million (1999: CHF 1 513 million). The European winter storms Lothar and Martin – which had a substantial impact on results in 1999 and also left their mark on the fig- ures for 2000 – were a key factor prompting firmer pricing in non-life reinsurance. This process is still very much under way, and we confidently expect to see further sharp improvements in the perfor- mance of the non-life business. 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 con- siderably 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 CHF 1 788 million at the end of 1995 and CHF 3 019 million at the end of 2000. The reserve ratio, which includes equalisation reserves, was 244% of premiums at the end of 1995 (when the soft mar- ket began), and at the end of 2000 it stood at 337%. These figures indicate that we have consistently adhered to our standards for prudently establishing claims reserves and provisions for major catastro- phes, even if the results reported by the company suffered as a consequence. Thus, we are now well placed to benefit from the expected upturn in the non-life business cycle. Our life and health reinsurance business continued the positive development of recent years with pre- miums rising by 14%. The operating result decreased by 4% to CHF 1 447 million attributable to a reduction in the capital gains realised as the life and health business took capital losses on bonds to maximise the Group’s investment strategy. The fundamental performance of our Life & Health Busi- ness Group continues to be very strong, exceeding management’s targets, and is an important and sta- ble contributor to Swiss Re’s overall growth. 2 Swiss Re Annual Report 2000 Peter Forstmoser Chairman of the Board of Directors Walter Kielholz Chief Executive Officer The financial services business comprises a selected range of activities. Results for 2000 were marked by an above-average number of major loss events for large industrial risks and weather contracts and the absence of a significant gain realised on the sale of our 20% interest in Credit Suisse Financial Products in 1999. In addition, in the area of run-off covers, provisions for policies from the previous year had to be increased. Consequently, the excellent results achieved in 1999 could not be repeated in 2000. However, our belief in the business remains strong, particularly as the traditional non-life cycle continues to tighten. After a series of very successful years, the Group's asset management entities achieved another out- standing return on investments of 10.0%, despite difficult market conditions. The decision to reduce the equity positions early in the year was very beneficial, generating significant gains and reducing the exposure to the later downturn of the markets. Swiss Re’s Corporate Centre essentially manages the Group’s most important shared resources and functions: finances, risk, human resources, information technology, brand and reputation. For the last two years, our Group has been committed to the “Triple 20” programme, which sought to respond to the harsh competitive environment and the downward phase of the business cycle by focus- ing the company’s efforts on improving operating results. Today, we can report progress: a turnaround has been achieved in non-life underwriting results, underpriced natural hazard risks have been largely eliminated, total natural hazard exposure has been reduced and – a particularly important achieve- ment – productivity has been improved dramatically, with costs rising at a considerably slower rate than premium income despite further expansion of the Group. The successes of the Triple 20 programme have made the company significantly more efficient. This puts Swiss Re in a strong position to now capitalise on the improving markets in which we compete. We are convinced that all three sectors of the business are extremely well positioned in the global mar- ketplace. They hold a leading position in their respective markets, and they are leaner and fitter than just a few years ago. They have demonstrated their powers of innovation, can offer our clients a com- prehensive range of products and they are underpinned by a strong financial base. In the future, Swiss Re will go on to even greater recognition as one of the world’s leading successful financial services groups. 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 under- going rapid and radical changes. Your continuing loyalty cannot be taken for granted, and it is sin- cerely appreciated. 7 3 Swiss Re Annual Report 2000 Board of Directors n i s e r i p x e m r e T 2002 2001 2004 2004 2001 2003 2002 2003 2002 Board of Directors Peter Forstmoser Chairman Thomas W. Bechtler George L. Farr Rajna Gibson Bénédict G. F. Hentsch Ernesto Jutzi From 1 July 2000 Walter B. Kielholz Chief Executive Officer Jorge Paulo Lemann Lukas Mühlemann Deputy Chairman Thomas Hodler Corporate Secretary Committees Audit Committee Compensation and Appointments Committee Finance and Risk Committee Investments Committee Shareholder Relations Committee Max E. Eisenring, our Honorary Chairman, passed away on 21 January 2001, short- ly after his 91st birthday. Mr Eisenring joined Swiss Re in 1944 as an actuary in the Life Department. In 1958 he was appointed a member of the Executive Board. From 1964 to 1979 he was Chairman of the Board of Directors. In recognition of his outstanding achievements, he was appointed Honorary Chairman at the Annual General Meeting of Shareholders in 1979. Mr Eisenring’s contribution and encour- agement helped Swiss Re grow into a truly international enterprise. His ability to communicate, his humanity and openness to new developments were exemplary. We shall long remember Max E. Eisenring with gratitude and respect. 4 Swiss Re Annual Report 2000 Executive Board Chief Executive Officer Walter B. Kielholz1 Deputy Chief Executive Officer Rudolf Kellenberger1 Corporate Centre divisions Risk & Knowledge Finance Bruno Porro1 John H. Fitzpatrick1 Communications & Human Resources Walter Anderau Information Technology Yury Zaytsev Business groups Business divisions Non-Life Stefan Lippe1 Life & Health John R. Coomber1 Financial Services Walter B. Kielholz a.i. Europe Michel M. Liès Swiss Re Life & Health Swiss Re Investors John R. Coomber Jacques E. Dubois Giuseppe Benelli Americas Andreas Beerli Asia Pierre L. Ozendo Capital Partners John J. Hendrickson Swiss Re New Markets Erwin K. Zimmermann Auditors PricewaterhouseCoopers Ltd 1 Members of the Committee of the Executive Board 5 Swiss Re Annual Report 2000 “ Mastering the unpredictable needs passion, logic and intuition.” m o c . e r s s i w s . w w w t a h c o h c S a n n A a k i r E t u o b a e r o m : k r @ m k o o B Business report Financial year 2000 Swiss Re’s record of outstanding earnings growth continued in 2000 with an increase in earnings per share of 22%. The Non-Life Business Group delivered significant improvements in underwriting performance despite having to absorb loss developments from prior years and a larger than usual contri- bution to equalisation reserves. The Life & Health Business Group continued to perform strongly and the Financial Ser- vices Business Group further developed its capabilities while delivering exceptional returns on the Group’s investments. Swiss Re is now poised to emerge from this period of soft pricing with its balance sheet strength intact, well placed to take advantage of the opportunities that lie ahead. Gross premiums written increased to CHF 26.1 billion, a rise of 26% over 1999, while net premiums earned grew by 22%. The Non-Life Business Group increased its premium volume by 29%. The acquisition of Underwriters Re in May 2000, together with growth in North America and Europe, more than offset any losses from business cancelled through Swiss Re’s drive to improve profitability during the renewal process. Premiums in the Life & Health Business Group increased by 14% to CHF 8.3 billion. The completion of new Administrative ReinsuranceSM (Admin Re) transactions – as well as the inclu- sion of the first full-year policy revenue on certain second-half 1999 Admin Re transactions – more than counterbalanced any impact from the remaining run- off of US medical business. The Financial Services Business Group increased premiums to CHF 2.2 billion, up 22% compared to the prior year. The combined ratio in the Non-Life Business Group improved from 122% to 117%, primarily due to an absence of natural catastrophes on the scale of those seen in 1999. In the Life & Health Business Group, continuing good operating profitability was mainly driven by strong returns from Swiss Re’s Admin Re business. 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 long- term target rate of 7%. This was achieved despite generally mixed market con- ditions. Amortisation of goodwill increased from CHF 211 million in 1999 to CHF 310 million in 2000, mainly related to the acquisition of Underwriters Re. Several other smaller acquisitions – such as of Washington International Insurance Com- pany and Società Italiana Cauzioni – also contributed to the increase. Amortisation of all intangible assets arising from acquisitions increased from CHF 453 million in 1999 to CHF 580 million in 2000. This includes the amor- tisation of goodwill and the effects of amortising the acquired present value of future profits from life and health acquisitions including Admin Re transactions. This latter component is included in the results for the Life & Health Business Group. 7 Swiss Re Annual Report 2000 The sea is probably one of the most unpredictable forces of nature, a quality which has characterised all the activities associated with it, such as fishing, sport, trade – as well as reinsurance. While devel- oping an online rating tool for yacht business, my major challenge was to identify the constants that govern the unpredictability of maritime activities. In order to do so, you need not only passion and logic, technical know-how, experience and perseverance, but also intuition. Creating an electronic tool for the web- based reinsurance of yachts was previously considered almost impossible. It is great to lead the team that has man- aged to cope with that chal- lenge. Erika Anna Schoch Marine centre of competence, Swiss Re, Zurich Other operating expenses increased from CHF 2.8 billion to CHF 3.1 billion, mainly due to the acquisition of Underwriters Re, as well as continued invest- ment in information technology and e-business to achieve Swiss Re’s efficiency targets. The Group also incurred restructuring charges of CHF 110 million in 2000; this relates to various initiatives being undertaken by the Non-Life Business Group to improve operating efficiency – most notably the merger of the former divisions Bavarian Re and Europe which was announced in early 2001. Shareholders’ equity decreased from CHF 24.8 billion to CHF 22.8 billion. This ref lects a reduction in unrealised gains on equity securities, due to move- ments in world stock markets in 2000. The effect of net income in 2000 was partly offset by payments made to shareholders in the form of dividends and share repurchases. Swiss Re’s effective rate of taxation declined from 24% to 19%, due to a number of one-off changes which took effect this year. The Group’s net income increased by 21% to CHF 2 966 million; earnings per share increased from CHF 171 to CHF 208, continuing the Group’s record of double-digit earnings growth. Return on equity increased from 10.9% to 11.9%. Investments Following a good first quarter, most equity markets declined throughout 2000, ending an extended period of exceptionally high returns on equities. The well- publicised fall from grace of the technology, media and telecommunications stocks and the peaking of the US economy both contributed largely to this set- back. In the favourable market conditions at the beginning of the year, Swiss Re actively reduced its exposure to equities by eight percentage points. In addi- tion, 10% of the remaining equity portfolio was hedged against potential losses, including a portion of key holdings in financial stocks. Both actions paid off handsomely, leading to substantial realised gains and significantly reduced exposure to the subsequent equity market decline. Interest rates in most major markets peaked around the beginning of the year, helping to support high average earnings on the fixed income portfolio and thereby contributing to Swiss Re’s strong investment result. Rates then receded throughout the year, most notably in the US, leading to price appreciation on the fixed income portfolio. By focusing early in the year on long durations in its substantial USD portfolio, Swiss Re achieved a relative performance on the fixed income portfolio far in excess of market indices. Earnings per share in CHF Return on equity in % 1999 2000 171 10.9 208 11.9 Asset allocation in % 62% 69% 34% 4% 26% 5% 1999 2000 Fixed income investments Equities Other investments 8 Swiss Re Annual Report 2000 At the year end, fixed income investments accounted for CHF 62 billion, or 69% of the total portfolio, compared with 62% in 1999. This increase is attributable to company and portfolio acquisitions in the US – mostly related to Admin Re – as well as to Swiss Re's more cautious stance towards equities. These acquisitions also account for the growth in total investments to CHF 90 billion and for an increased weighting of both bonds and the US dollar within the investment port- folio. Despite the high level of realised gains in 2000, Swiss Re had unrealised gains on the investment portfolio of CHF 8.6 billion at 31 December 2000. Expansion of the Group The US broker reinsurance company Underwriters Reinsurance Group, Inc., of Calabasas, California, was acquired and consolidated as of 10 May 2000. Renamed Swiss Re Underwriters Agency Inc., it has been operating as a sepa- rate underwriting entity since 1 January 2001. The remaining 65% of Società Italiana Cauzioni, Rome (“SIC”), was acquired as of 13 November 2000. Its balance sheet is consolidated in the 2000 accounts. Earlier in the year SIC, which specialises in the surety bond and credit insurance sector, announced its co-operation with NCM, a Dutch credit insurer and member of the Swiss Re Group. On 1 January 2000, Swiss Re completed the acquisition of Washington Inter- national Insurance Company. It has been included as from this date in the Group financial statements. During 2000, there were three administrative reinsurance transactions. Admin- istrative reinsurance is the purchase of closed blocks of in-force business and can be facilitated through either a stock purchase or reinsurance. The stock of Midland Life was purchased on 31 July 2000 for CHF 496 million. The Group also entered into two reinsurance-based deals with CIGNA and Unum- Provident. The results of all of these deals have been included from the date of the transactions. 9 Swiss Re Annual Report 2000 Non-Life Business Group Swiss Re’s non-life premiums grew strongly in 2000, parti- cularly in European property and motor business – as well as through the acquisition of Underwriters Re. The combined ratio improved significantly, mainly due to the low number of natural catastrophes in 2000; this was partially offset, how- ever, by the adverse development of prior treaty years – in- cluding the 1999 European winter storms. At the January 2001 renewal, Swiss Re secured significant improvements in reinsurance rates, terms and conditions in many markets. Primary market In 2000, non-life insurance showed the first signs of improvement in selected markets. Pressure towards further improvement should continue to build, particularly in those markets which have so far withstood the general price increase – thereby holding overall market performance nearer to 1999 levels. The US market saw a partial reversal in the rate deterioration of the last few years; this, together with the market’s strong economic activity, contributed to a premium volume growth of 5%. In the future this should lead to a lower combined ratio, which in 2000 suffered from an unusual increase in loss fre- quency, particularly in the personal lines business. The positive trend was less pronounced in Europe, although price increases in selected markets and lines of business at least kept pace with claims inf lation. Late loss reporting from the winter storms Lothar and Martin put additional strain on profitability, keeping the underwriting result comparable to the pre- vious year’s level; there are, however, good prospects for improvement in the coming years. Premium income in Japan stagnated in 2000, ref lecting the continuing diffi- cult economic situation. Contrary to European and US experience, the Japa- nese insurance industry was affected by natural disasters which weighed heavily on overall performance. Reinsurance market In 2000, the non-life reinsurance markets saw a clear, though still small, rever- sal of pricing trends. After years of downward pressure, global prices stabilised in 1999 and then picked up during 2000. In retrospect, this is a further con- firmation that the breakdown of the retrocession market in London at the end of 1999 was a definite turning point from a soft market into a general rate hardening. 10 Swiss Re Annual Report 2000 This favourable trend has had a positive impact on business newly written in 2000. Overall, however, the reinsurance market was affected by late reporting of claims from previous years, leading to an estimated combined ratio for the global reinsurance industry somewhat below the level of 1999. This, together with the unfavourable stock-market development both in 2000 and 2001 year- to-date, has increased pressure on reinsurers to push through significant rate increases, both during the renewals in January and April 2001 and throughout the remainder of the year. Premiums earned by currency in % Non-Life Business Group results (cid:2) USD EUR (cid:2) GBP JPY AUD (cid:2) CAD (cid:2) CHF other 40.3 28.8 11.2 2.2 2.3 2.2 1.3 11.7 Strong premium growth despite a drive to reduce unprofitable business CHF millions Revenues Premiums earned Net investment income Net realised investment gains Expenses Claims and claim adjustment expenses Acquisition costs Other operating costs and expenses 1999 2000 Change in % 8 916 1 564 1 904 11 530 1 722 2 459 – 7 980 – 2 062 – 829 – 10 143 – 2 653 – 751 29 10 29 27 29 – 9 43 Operating income 1 513 2 164 Claims ratio in % Expense ratio in % Combined ratio in % Net premiums earned 90 32 122 88 29 117 Net premiums earned increased by 29% from 1999 to 2000, due to growth in Europe and North America, the acquisition of Underwriters Re in May 2000 and the continuing weakness of the Swiss franc against other major currencies. Swiss Re was able to replace a sizeable portion of its underperforming contracts with better-priced business and increased participations. A shift from lower, more loss-exposed layers to higher, less loss-exposed layers has also improved Swiss Re’s premium-to-risk ratio. 11 Swiss Re Annual Report 2000 (cid:2) (cid:2) (cid:2) (cid:2) Results improve in difficult conditions CHF millions Property Premiums earned Combined ratio in % 1999 2000 2 869 130 3 850 129 Combined ratio 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 im- provement 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 nega- tive inf luence from adverse loss developments of prior treaty years, particularly relating to the 1999 storms Lothar and Martin, prevented an even more pro- nounced improvement in 2000. In addition, Swiss Re made a larger than nor- mal 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 im- pact of losses above or below expectations). Operating result The operating result rose by 43% from CHF 1 513 million in 1999 to CHF 2 164 million in 2000. Markedly higher investment returns, lower oper- ating costs and expenses and an improved claims ratio led to this significant improvement. Technical reserves Swiss Re’s technical reserve ratio in the Non-Life Business Group decreased from 399% to 337%, driven mainly by the strong growth in premiums earned in 2000 and the impact of foreign exchange movements. Lines of business Property Despite the termination of certain under-performing contracts, property busi- ness achieved a robust earned-premium growth of 34% over 1999. The acquisi- tion of Underwriters Re accounted for one-third of that growth, but it also be- nefited from increased rates and new sources of business in Europe and North America. Moreover, premium income for the underwriting year 1999 had been underestimated and was therefore revised upwards. Substantial price improve- ments following the winter storms which hit Western Europe in the last days of 1999 will only show their effect in 2001, since most reinsurance contracts had already been concluded for 2000 at the date the events occurred. Property claims experience improved substantially and a significant contri- bution to the equalisation reserves was made. Claims and claim adjustment expenses in Europe dropped by more than 20%. There was also a marked improvement in Asia, where in 1999 reinsurers had suffered from a high inci- 12 Swiss Re Annual Report 2000 CHF millions Liability Premiums earned Combined ratio in % 1999 2000 2 220 108 2 326 106 CHF millions Motor Premiums earned Combined ratio in % 1999 2000 1 860 134 2 520 118 dence of natural catastrophes. Although these are only first steps towards satis- factory profitability in this line of business, the signs are promising that a posi- tive trend will continue in the years to come. Results were affected negatively by some significant losses from man-made events, such as the explosion of an oil refinery in Kuwait, a chemical plant in Texas, a coal mine in Utah (USA) and a fireworks factory in the Netherlands. Natural events such as storms and earthquakes produced a much lower loss burden for the insurance industry in 2000 than in 1999: USD 7.6 billion as against USD 24.4 billion. According to experts, though, this single year experience does not change the trend towards greater frequency and severity of losses from natural catastrophes in the world. Liability Growth was less pronounced in liability, with earned premiums rising by only 5%. Again, the portfolio of Underwriters Re made the largest contribution to this increase. Solid growth in certain lines of business, such as professional indemnity in Europe, helped to compensate for the absence of some large sin- gle transactions which were recorded in 1999. In industrial liability, the chal- lenge of overcapacity continued, impeding the improvements in original rates and reinsurance terms seen in other business segments. Swiss Re therefore maintains its cautious underwriting approach – and has noted indications of a wider movement to sounder underwriting at the January 2001 renewal. Swiss Re’s prudent acceptance policy kept its liability result at a very satisfacto- ry level, despite the adverse development of prior underwriting years – mainly in product liability – and some large losses, such as the Kaprun tunnel fire in Austria. Swiss Re has also benefited from its conservative reserve-setting in asbestos and environmental exposures, which resulted in a positive contribu- tion from some successful commutations agreed in 2000. Motor Earned premiums grew strongly by 35%, benefiting from new business as well as increased original rates. Premium volume grew in almost all geographical areas, with the UK as the most productive market. Re-underwriting also led to more favourable terms and conditions in the existing portfolio, particularly for non-proportional business in Germany, France, the UK and Switzerland. Results improved significantly, ref lecting the absence of large loss events as well as the continued upward move of original rates in a number of key European markets and in the US. These developments bolstered proportional results, while non-proportional business benefited from better reinsurance terms and conditions. CHF millions Accident Premiums earned Combined ratio in % 1999 2000 511 95 889 115 Accident The solid 74% growth in accident premiums stems primarily from workers’ compensation in the US, where rates started to harden significantly following the Unicover failure. 13 Swiss Re Annual Report 2000 CHF millions Other lines Premiums earned Combined ratio in % 1999 2000 1 456 120 1 945 109 The accident underwriting result worsened as a consequence of two factors. Firstly, additional reserves had to be established for losses from prior under- writing years. Secondly, new business written in the US had to be reserved at a combined ratio well in excess of 100%. In this business line, however, a nega- tive result for newly-accepted covers in the first underwriting year is normal as the profit will only emerge in future years, in the form of investment returns. Other lines The 34% rise in earned premiums is mainly attributable to marine business and that portion of credit and surety programmes underwritten in the Non-Life Business Group. Marine premium volume increased worldwide, with the strongest growth recorded in the US – in part through the consolidation of the Underwriters Re portfolio. Engineering saw modest premium growth due to Swiss Re’s restrained underwriting approach; terms and conditions in this business segment have still not reached a satisfactory level. Underwriting results improved in all business lines, with marine showing a par- ticularly strong increase. Positive developments from previous years helped boost profitability through the consequent release of reserves established in prior years. Engineering could not escape a generally depressed market situa- tion and also felt the effects of a large f lood loss in Northern India. Outlook Swiss Re sees clear signs of a recovery from the prolonged soft phase of the non-life business cycle and expects a markedly positive development in the coming years. Improvements are being recorded in original premium levels as well as in reinsurance conditions. The newly formed Non-Life Business Group will further sharpen Swiss Re’s skills and processes to exploit this market upturn and offer superior value to clients. Strict underwriting discipline and focused deployment of capacity have already brought a significant improvement in Swiss Re’s book of business during the January 2001 renewal negotiations. Swiss Re is determined to continue these efforts, giving particular attention to consistent and thorough assessment of exposures and allocated capital in relation to potential returns. Swiss Re continues with initiatives to optimise internal business processes and achieve strategic cost leadership. New, specific e-business applications, current- ly in the implementation phase, are key drivers in transforming Swiss Re’s mid- dle and back office operations into an efficient and lean business-support unit. The first results of these changes are already visible. 14 Swiss Re Annual Report 2000 Life & Health Business Group Strong growth and consolidation: opportunities for reinsurers Health – still seeking the proper balance Premiums grew by 14% for Swiss Re’s Life & Health Business Group in 2000. The operating result decreased by 4% to CHF 1 447 million due to reduced realised gains as the busi- ness group took capital losses on bonds to maximise the Group’s investment strategy. The fundamental performance of the Life & Health Business Group continues to be very strong exceeding management targets. Primary market Strong growth continues in the life and health insurance industry. This growth is likely to be sustained into the future by the market responses to the chal- lenges facing national social insurance programmes and the resulting need for private provision. In the US market, consolidation has continued as companies seek the capital and cost efficiencies of increased scale. Insurers have redesigned their products, often using reinsurance to reduce both earnings volatility and capital require- ments. Primary life insurers are also managing their cost base and capital requirements by selling blocks of in-force business. In several European countries, market developments centre around social secu- rity reforms, mainly in relation to pensions. The impact on life reinsurance requirements has so far been minor. The UK market in 2000 was strongly inf luenced by capital and cost pressures which have prompted consolidation and demutualisations. The strains on capital resources have simultaneously heightened interest in reinsurance as a capital management tool. In Japan, the market situation continues to be affected by some legacy prob- lems specific to the industry, as well as general economic uncertainties. Elsewhere in Asia, primary market trends are generally positive, ref lecting the high level of personal responsibility for welfare provision and a cultural bias towards savings. Health business continues to offer unfulfilled potential in a number of markets worldwide. While a global trend towards privatising health and welfare provi- sion means there is a growing recognition of the protection provided by health policies, it has proved difficult in some countries to develop products which both meet policyholder needs and provide a reasonable return for insurers. Some existing health products have made losses because of unrealistic policy benefits, lax policy conditions or insufficient underwriting enquiries. Such business is not only detrimental to the interests of primary companies and rein- surers, but also ultimately disadvantageous to the consumer. 15 Swiss Re Annual Report 2000 Reinsurance market Cost and capital pressure on primary companies during 2000 has stimulated demand for reinsurance in key markets. Life reinsurance in particular has bene- fited both from strong growth in direct insurance and the ceding of more mor- tality risk to reinsurers. While competition among reinsurers has been intense, this has not led to a systematic underpricing. Premiums by region Life & Health Business Group results CHF millions Revenues Premiums earned Net investment income Net realised investment gains Expenses Claims and claim adjustment expenses; life and health benefits Acquisition costs Other operating costs and expenses (cid:2) North America Europe Rest of world 1999 2000 Change in % 7 311 1 839 655 8 330 2 530 453 – 6 119 – 1 732 – 449 – 7 448 – 1 912 – 506 14 38 – 31 22 10 13 – 4 Operating income 1 505 1 447 Management expense ratio in % Return on operating revenues in %1 4.9 9.3 4.7 9.2 1Operating revenues include premiums earned and net investment income Good underlying growth for life business Premiums for life business grew by 17% in the year 2000. If adjustments are made for distorting factors – exchange rate movements and a large single pre- mium treaty in 1999 – the underlying rise was 12%. Life Admin Re premiums more than doubled, thanks both to the full-year effect of 1999 transactions and to new deals in 2000. Traditional business benefited from strong demand for life reinsurance in the North American and UK markets. CHF millions Premiums Life Health Total 1999 2000 5 514 1 797 7 311 6 439 1 891 8 330 Health business premiums were 5% higher than in 1999; if exchange rate dis- tortions are eliminated, however, the underlying figures show a decline of 1%, which ref lects withdrawals from unprofitable lines. The run-off of US medical business is now essentially complete, contributing positively to results for 2000. 16 Swiss Re Annual Report 2000 (cid:2) (cid:2) Admin Re: a market-leading capital management tool Global opportunities for a full-service reinsurer The operating result of CHF 1 447 million was modestly below the 1999 level of CHF 1 505 million due to a reduction of CHF 202 million in net realised gains. The reduction in capital gains was due to capital losses the business group took on bonds to maximise the Group’s investment strategy. Operating performance exceeded management targets. Life business in particular per- formed well, with North America providing the main impetus. During 2000, Swiss Re undertook three major Admin Re transactions, with Cigna Re, Midland Life and UnumProvident. These transactions involved total invested capital of CHF 1.3 billion and added CHF 6.1 billion to the Group’s assets. Health business results in 2000 also improved compared to 1999, but remained disappointing, due primarily to adverse performance in Latin America and Australia. Unprofitable business is now in the course of being run off. The management expense ratio (other operating costs and expenses in relation to operating revenues) declined in 2000. A continued focus on cost efficiency and the implementation of new systems should together generate further sav- ings in the next two years. Outlook Demand for traditional life reinsurance in the US should remain strong. Pri- mary companies will continue to need the specialised capital and risk-manage- ment solutions which leading reinsurers offer. In addition, the extension of primary market distribution channels, especially through banks, will create new reinsurance opportunities. Swiss Re's strong market position and full-service capability mean that the Group is well positioned to satisfy clients’ needs in all these areas of business. Continuing consolidation and rationalisation in the primary market should also sustain the demand for Admin Re. In Europe, the welfare and health-care provision regimes are likely to change significantly in the medium term; insurance and reinsurance products will need to be developed or adapted to respond to evolving conditions. Swiss Re will be working closely with clients to meet these challenges. In Asia, and particularly in Japan, insurance and reinsurance markets will be strongly inf luenced by general economic conditions. Liberalisation of the insur- ance markets in China and India should provide new reinsurance opportunities for Swiss Re over the long term. 17 Swiss Re Annual Report 2000 Financial Services Business Group Swiss Re’s strategy in response to the convergence of the reinsurance and financial services industries has been to build up its ability to address clients’ capital management needs through its divisions Swiss Re New Markets, Capital Partners and Swiss Re Investors. In early 2001, Swiss Re an- nounced the next step forward in this strategy by combining these divisions into the new Financial Services Business Group. Through this business group, Swiss Re offers a unique range of insurance-based capital management solutions covering the spectrum from risk financing and risk transfer to asset management and merchant banking. The strategy is both a sector play – the target clients are insurance companies, other financial institu- tions and corporates with risk-related needs – and a theme play, ie the solu- tions all benefit from Swiss Re’s expertise in the risk and capital management field. The growth potential in this field is attractive, given the market trends towards convergence, the expanding capital and risk management needs of the clients, Swiss Re’s established track record of innovation, and the strong fran- chise Swiss Re has with clients. During 2001, work already in progress will create the synergistic benefits from combining these product businesses into one organisation, while still continu- ing Swiss Re’s efforts to achieve profitable growth in each business on a stand- alone basis. Being an integrated financial solutions provider should result in above-average growth and return on capital. The main synergies are expected to come from greater cross-referrals and cross-selling between units based on a better understanding of client needs. In addition, more efficient and effective operations should be set up by combining common processes, for instance in risk management, financial management and client account management. Financial Services Business Group results CHF millions Revenues Premiums earned Net investment income Net realised investment gains Other revenues Expenses Claims and claim adjustment expenses Acquisition costs Other operating costs and expenses Operating income Return on total revenues in % 1999 2000 Change in % 1 824 422 659 97 2 221 458 738 217 – 1 382 – 179 – 708 – 2 040 – 318 – 845 733 24.4 431 11.9 22 9 12 124 48 78 19 – 41 18 Swiss Re Annual Report 2000 CHF millions Credit Premiums earned Net investment income1 Other revenues2 Gross revenues 1999 2000 860 68 25 953 874 75 35 984 1999 CHF millions Structured risk finance Premiums earned 403 Net investment income1 333 Other revenues2 28 764 Gross revenues 2000 400 528 65 993 1 including current income, realised gains and trading returns 2 including fees, commissions and income on deposits Results for 2000 were marked by the above-average number of major loss events in the sectors of large industrial risks and weather contracts and the absence of a CHF 341 million gain realised on the sale of the Group’s 20% interest in Credit Suisse Financial Products in 1999. A detailed view is structured around classes of products which share similar economic characteristics: credit, structured risk finance, corporate risk underwriting, asset management, private equity, and the equity and fixed income business. Credit This business area consists of Swiss Re New Markets’ credit and surety reinsur- ance and structured credit solutions businesses as well as Swiss Re’s interest in the primary credit and surety insurer NCM. Swiss Re extended its leading position by exploiting its prudent credit risk management and underwriting expertise while also benefiting from a favourable economic situation in Europe. In the US, Swiss Re significantly increased and consolidated its position in the credit and surety business despite an environ- ment characterised by sharp increases in the number of insolvencies in the con- struction industry and a deterioration of overall credit quality after 10 years of largely uninterrupted economic growth. Appropriate underwriting adjustments have been implemented to guard against these adverse factors undermining the quality of the credit portfolio. Furthermore, Swiss Re is a leading provider of structured credit products for corporates and banks. It expects continued strong demand for tailor-made solutions in the future. In its core markets, NCM, a primary credit insurer, maintained its strong mar- ket positions, and further expanded its business activities with the acquisition of SIC (Società Italiana Cauzioni), the leading primary surety provider in the Italian market. In total, the unit achieved a moderate growth of gross revenues at stable mar- gins, 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. Structured risk finance This product unit includes finite reinsurance for non-life and certain product specialities of structured finance for life, loss portfolio run-off solutions and the alternative asset reinsurance business. Swiss Re experienced sustained strong demand for sophisticated, risk-based, corporate finance solutions, which resulted from the continued convergence of the banking and insurance sectors. Very good performance was seen in alterna- tive asset reinsurance, contingent capital, life financial reinsurance solutions, and special asset-backed risks. In the run-off business, the unit closed a modest number of new transactions, ref lecting both Swiss Re Financial Services’ con- tinued disciplined approach to this business, and the fact that the run-off mar- ket in general was very competitive. 19 Swiss Re Annual Report 2000 Swiss Re New Markets’ solid position as the market leader for risk-based corpo- rate finance solutions was recently confirmed when it was nominated “Alternative Risk Solutions House of the Year” by the industry publication Risk magazine. Innovative structured transactions for Enron, Michelin, Royal Bank of Canada, and Arby’s were cited as prime examples of Swiss Re’s ability to deliver sophisticated solutions for its clients’ expanding risk and capital man- agement needs. Gross revenues for 2000 showed a strong increase over 1999 ref lecting growth in net investment income. In addition, the expanding portfolio resulted in increased fee income. While new business generation was good, the structured risk finance business suffered in 2000 due to three main factors: losses from a small number of prior years’ stop-loss transactions; adverse development from run-off contracts written in prior years; and weather-related contracts due to the extreme weather patterns in the US in the first quarter of 2000. Manage- ment has made the necessary reinforcements to reserves and has taken strong, positive measures to strengthen underwriting and risk management. The outlook for 2001 is positive. The pipeline for new transactions remains strong and robust; with the hardening of the market for traditional risk trans- fer, expectations are high that demand for structured transactions will continue to grow. Corporate risk underwriting This product unit offers mainly facultative reinsurance products to large corpo- rate (Fortune 500) clients, financial institutions and the aviation market in the high-severity/low-frequency risk segment. During 2000, the risk underwriting area implemented an aggressive, two-pronged strategy of pushing rates higher, while following a very selective client acceptance and retention policy. This approach was adapted in order to improve the overall pricing and quality of its risk underwriting portfolio of Fortune 500 business. This strategy will continue to be pursued in 2001. Premiums earned as well as net investment income substantially increased due to growth especially in the accountants and aviation/space business as well as due to new business written in marine for oil industry participants. Property business experienced a difficult year mainly due to a series of large, man-made losses. As the market is expected to continue to harden, the efforts to narrow policy coverage, increase deductibles and increase premium levels are expected to be successful. This should mitigate the reduction of premium volume written as a result of decreased capacity provided in critical natural catastrophe areas of business. Casualty business produced a satisfactory result with continued sound reserve setting particularly in light of the very difficult and competitive market condi- tions. Recent offers are providing evidence that market conditions are firming up, reinforcing the optimistic outlook for 2001. 20 Swiss Re Annual Report 2000 1999 CHF millions Corporate risk underwriting 488 Premiums earned Net investment income1 243 Other revenues2 6 737 Gross revenues 2000 842 391 1 1 234 1 including current income, realised gains and trading returns 2 including fees, commissions and income on deposits CHF millions Asset management Premiums earned Net investment income1 Other revenues2 Gross revenues 1999 2000 0 0 209 209 0 1 212 213 1999 CHF millions Private equity and participations Premiums earned 0 Net investment income1,3 359 Other revenues2 0 359 Gross revenues 2000 4 96 0 100 Aviation premium volume increased substantially due to growth in the space business and to the successfully managed aviation cycle, whereby Swiss Re increased its involvement in an improving market. Swiss Re New Markets is very optimistic that the continued growth of aviation premium levels in 2001 will generate continued volume growth and an improved result in 2001. Asset management Swiss Re Investors manages fixed income investments and traded equity invest- ments, 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 optimis- ing 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 con- siderations. 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. For 2001, growth of assets under management is expected both in the propri- etary and in the third party segment, with a positive impact on fee income. Expenses are expected to develop at a slower pace than the fees, thus improv- ing the profitability of the product unit. Private equity and participations Gross revenues declined due to the absence of a CHF 341 million gain realised on the sale of the Group’s 20% interest in Credit Suisse Financial Products in 1999. Capital Partners manages in its private equity business several funds, totalling over CHF 1 billion, both for Swiss Re and for third parties. Securitas, a USD 500 million fund, was formed in 1995 to invest in the insurance industry. While the insurance investing environment in 1999 was not very conducive to great economics, the environment changed in 2000 when the pace of invest- ment activities doubled, directly committing over USD 143 million to 7 com- panies in 4 countries. The portfolio at year-end ref lected total commitments of USD 245.8 million. Securitas Ventures, L. P., a USD 100 million fund, was formed in 2000 to invest in early-stage companies in the insurance industry. During 2000, com- mitments were made totalling USD 13.2 million to 4 companies. Both these funds were funded by commitments made by Swiss Re and Credit Suisse. 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 Capital Partners also makes private equity investments in the non-insurance area; this strategy allows an optimal diversification by industry sector, maturity level and geographical distribution. These benefits are especially manifest in Europe, which lags behind North America’s pace in terms of private equity and venture capital spending. During 2000, Swiss Re committed over CHF 284 million to 11 funds. The portfolio at year-end ref lected total commitments of over CHF 2 billion. 21 Swiss Re Annual Report 2000 Capital Partners also actively manages the portfolio of Swiss Re’s direct minori- ty holdings in insurance companies. The portfolio at year-end had a market value of over CHF 5 billion and a book value of approximately CHF 3.2 bil- lion. 1999 CHF millions Equity and fixed income Premiums earned Net investment income1 Other revenues2 Gross revenues 2000 0 21 88 109 Equity and fixed income The investment bank Fox-Pitt, Kelton (“FPK”) focuses on equity brokerage (research, sales and trading) and corporate finance (M&A and equity capital markets), specialising in insurance companies, banks and other financial institu- tions. In 2000, FPK was able to substantially grow gross revenues and operat- ing income, with the brokerage business contributing heavily to the increase. 0 35 177 212 Swiss Re Financial Products (“SRFP”) as a separate business unit was estab- lished at the beginning of 2001 to participate in the ongoing convergence of insurance and capital markets. SRFP works closely with many Swiss Re divisions to develop synergies that will enhance existing Swiss Re businesses, thereby building its competitive advantage in both the insurance and capital markets arenas. SRFP's client base is the global insurance industry and selected financial services companies. SRFP's aim is to become a leading provider of various forms of capital, structured investment products and financial risk management solutions through the integration of cash and derivative capabilities: fixed income, credit and equity derivatives structuring, trading and distribution including fixed income bond sales, and trading with particular focus on insur- ance linked, asset-backed and structured credit securities. 1 including current income, realised gains and trading returns 2 including fees, commissions and income on deposits 22 Swiss Re Annual Report 2000 Corporate Centre Increased Group-wide reporting efficiency by the implementation of the Financial Systems Architecture The Corporate Centre acts as a strategic architect, defining Group-wide business direction for financial and human capi- tal, information and technology, knowledge and risk, brand and communications. This supports Swiss Re’s policy of man- aging shared resources and skills efficiently while making them available to all business units worldwide. CHF millions Operating expenses 1999 – 293 2000 – 321 Change in % 10 In 2000 the Corporate Centre continued its programme to improve the Group’s efficiency by making prudent investments in web technology. The Corporate Centre advanced plans to “e-enable” the Group’s systems by starting to roll out some of the key components of the planned information technology architec- ture. It also continued to invest in ideas and technology that will maintain Swiss Re’s competitive advantage. In order to improve long-term efficiency cer- tain initiatives were undertaken to reduce the cost base – such as a reduction in the number of data centres in 2000. The Corporate Centre also completed a number of other notable achievements in 2000, including the opening of Rüschlikon, Swiss Re’s centre for global dialogue. The costs associated with these initiatives have led to a modest increase in Corporate Centre expenses in 2000. Swiss Re is convinced that these invest- ments are essential to maintain its competitive advantage and to leverage the knowledge and experience of its employees. The Corporate Centre continues to be focused on value for money. Finance Division The Finance Division provides planning and reporting information for strategic management, performance assessment and external accounting. Through Group-wide financial management it ensures best use of capital, balancing over- all risk and expected returns. It maintains close and continuous relationships with the investment community, keeping regular contacts with all stakeholders – including analysts, investors and key media. During 2000, the division introduced new basis Swiss GAAP and enhanced Group performance measurement for all non-life business: a major milestone towards Group-wide integration of management reporting and control. Risk & Knowledge Division The Risk & Knowledge Division anticipates, monitors and reports on the Group risk landscape from an underwriting, credit and financial risk perspec- tive. It supports Swiss Re’s strategic capital allocation process and ensures opti- mal risk diversification. Group claims reserves are based on a best practice 23 Swiss Re Annual Report 2000 assessment of potential threats. To improve the underwriting and reporting process, new tools were implemented in 2000, setting Group-wide standards, enhancing underwriting quality and increasing cost efficiency. Knowledge networks, training and publications serve to build and disseminate reinsurance skills. Swiss Re’s recent initiatives include Intranet-based training activities; internal knowledge networks, which allow specialists to share and exchange information; and externally acquired and disseminated reinsurance skills. Swiss Re’s clients can access special knowledge platforms, such as the Food Forum, and benefit from a broad expertise. The Intranet-based ‘knowl- edge portal’ enables 9000 Swiss Re employees around the globe to obtain fast access to the specific information they need to do their jobs. sigma, Swiss Re’s periodic publication, is a recognised source for research arti- cles in the business and trade press; it covers developments and driving forces in the insurance and reinsurance markets. In 2000, Swiss Re also created an Internet-based industry chart resource and began selling insurance data to its clients. Information Technology Division Web-based applications harmonise business practices for Non-Life, Life & Health and Financial Services The IT division supports Swiss Re’s global IT organisation in its dual role: enabling efficient business processes Group-wide and driving innovation. It also ensures efficient project portfolio management and resource allocation to make best use of synergies. New business solutions for 2000 included a Group-wide client management system to enhance global client relationships; a harmonised information archi- tecture to support worldwide risk and performance analysis; and an Internet- based knowledge management facility. A cost-efficient, standardised technical IT infrastructure has enabled the implementation of further innovative web- enabled systems throughout the Group. Communications & Human Resources Division This division enhances Swiss Re’s brand recognition, maintaining its distinct corporate profile and culture in open dialogue with all its stakeholders. It also promotes Swiss Re as the employer of choice for professionals worldwide: attracting, rewarding, developing and retaining the best people. In 2000, Swiss Re enhanced its already strong brand identity through increas- ing use of web technology. Clients and other stakeholders can now access Swiss Re information, services and transactions through the new Swiss Re Portal. Rüschlikon, Swiss Re’s centre for global dialogue, opened for business in November 2000 – a unique, inspiring platform for meeting internal and exter- nal partners and developing new industry solutions. 24 Swiss Re Annual Report 2000 Income reconciliation Income reconciliation The following table reconciles the income from Swiss Re’s business groups and the operations of its Corporate Centre with the Group consolidated net income before tax. CHF millions Business groups’ operating income Corporate Centre expenses Items excluded from the business groups: Net realised gains/losses Amortisation of goodwill Other income/expenses Net income before tax 1999 3 751 – 293 370 – 211 – 388 3 229 2000 4 042 – 321 625 – 310 – 381 3 655 Net realised gains or losses on own shares; amortisation of goodwill; and other income or expenses – such as indirect taxes, capital taxes, interest charges, restructuring costs and certain other income and expense items – have been excluded when assessing the performance of each business group. 25 Swiss Re Annual Report 2000 Capital management Favourable adjustments to Swiss Re’s debt structure Active management of Swiss Re’s capital base In 2000, as an integral part of its Corporate Centre activities, Swiss Re continued to build on the efficient use of its capital base. The active management of the capital structure – equity, debt and hybrid capital – allows Swiss Re to retain financial flexibility at a low weighted average cost of capital. Among other initiatives in 2000, the launch of a European Medium Term Note programme and the repurchase of Swiss Re shares exemplified the successful implementation of this strategy. In 2000, Swiss Re redeemed its 1995 USD 500 million issue of 2% convertible bonds. Due to the favourable development of the Group’s share price since 1995, nearly all of the bonds were converted into Swiss Re shares. There were no other maturities of debt or hybrid capital instruments in 2000. In order to further optimise its corporate capital structure, Swiss Re issued about USD 80 million of long-dated structured financial debt at favourable rates. Swiss Re also launched a European Medium Term Note (EMTN) programme, a platform for raising funds from different investor categories in 14 different cur- rencies, up to a nominal USD 1 billion outstanding at any time. At the end of 2000, pursuant to this programme Swiss Re had debt outstanding of an aggre- gate face value of USD 240.4 million, rising to USD 527.5 million by the end of March 2001. In February 2001, Swiss Re repurchased Adjustable Conversion-Rate Equity Security Units (ACES), assumed in the acquisition of Life Re Corporation. The nominal amount of the repurchases was USD 37.6 million. The remaining secu- rities were redeemed on 15 March 2001, retiring a nominal amount of USD 42 million. Share repurchases and dividend payments are both ways of returning capital to shareholders. Using both of these instruments allows Swiss Re to manage the capital base of the company efficiently. On 6 May 1999 the company announced a second share repurchase programme of up to CHF 1 billion, sub- ject to market conditions. As part of this programme, in 2000 Swiss Re repur- chased 72 650 shares for a total value including commissions of CHF 195.6 million, which results in an average repurchase price of CHF 2 692 per share. The Annual General Meeting held in June 2000 agreed to cancel these shares and to reduce the share capital accordingly. Swiss Re has CHF 804.7 million of remaining capacity for share repurchases. 26 Swiss Re Annual Report 2000 Sources of capital CHF millions CHF millions Shareholders’ equity Equalisation reserves Subordinated debt Senior debt 1999 24 832 2 566 1 998 2 949 2000 22 787 3 019 1 941 3 013 Swiss Re was a net seller of own shares, at an average price well above the level in the repurchase programme. This was achieved partly by the sale of a large block of shares to an institutional investor. Outlook Apart from a private placement of CHF 200 million which will mature on 7 June 2001, Swiss Re has no other maturities of senior debt or hybrid capital during this year. It does, however, plan to increase the capacity of its EMTN programme to USD 2.0 billion during 2001, thus further extending its finan- cial f lexibility. The Board of Directors of Swiss Re proposes to the Annual General Meeting a dividend of CHF 50 per share. In addition to the CHF 50 dividend, the Board of Directors proposes a capital repayment of CHF 8 per share. The capital repayment has become possible as a result of a change in the law, due to come into effect on 1 May 2001, which provides for a minimum nominal share value of CHF 0.01 for public limited companies (Aktiengesellschaften) registered under Swiss law. The Board of Directors also proposes that the registered shares, after the capital repayment each with a nominal value of CHF 2, be split in the ratio 20-for-1 to a nominal value of CHF 0.10. Following the reduction in share capital and the share split, the Board of Directors proposes to the General Meeting that conditional capital amounting to no more than CHF 900 000 be created for issuance of convertible bonds, and CHF 700 000 for employee share and option plans. 27 Swiss Re Annual Report 2000 Group risk management Shareholder capital is also risk capital Assets Liabilities Market value of assets Economic value of liabilities Risk Bearing Capital (RBC) Excess capital Risk Adjusted Capital (RAC) An integrated, quantitative approach to managing risk Through its underwriting and investment activities, Swiss Re is in the business of managing insurance, credit and financial market risks. These risks must be measured accurately to help achieve an optimum risk/return profile. Group risk man- agement focuses on the combined impact of individual risks to identify potential accumulation and diversification effects. Group risk management provides the Executive Board and the Board of Directors with the necessary tools to measure risks accurately. It supports a range of processes, including adequate risk identification and measurement, reporting and controlling, capacity allocation and approval – all of which are essential for value-oriented decision-making. Swiss Re’s shareholder capital ultimately absorbs any large, unexpected losses resulting from the Group’s various exposures. Swiss Re measures its risk expo- sure in terms of the amount of capital required to maintain normal operations even under such rare adverse conditions. This risk exposure is counterbalanced by the return Swiss Re expects to generate from its reinsurance and investment operations. Swiss Re takes an integrated approach to managing its risk, modelling the com- bined effect of all individual risk exposures. The effect of adding any new risk – such as through an acquisition – is assessed in the context of the whole port- folio. In particular, the model identifies accumulation and diversification effects. A new exposure to California earthquakes, for example, will diversify a portfolio with existing exposure to earthquakes in Japan. Groups of interdepen- dent exposures within a portfolio, however – such as a set of California earth- quake risks – will not have this desired diversification effect. A case in point is credit risk, which is highly interdependent with financial market risk. Swiss Re is exposed to a great diversity of risks. The Group risk model regulary updates all relevant insurance, credit and financial market risk exposures, to ensure that every new exposure and risk interdependency is considered. Among the latest developments in this field is a model which describes the dependency between financial market and credit risks. Reports to key management Group risk management reports to the Executive Board and Board of Directors giving a detailed analysis of the Group’s risk exposure and its sources as well as views on the adequacy of Swiss Re’s capitalisation. This reporting analyses changes in the risk landscape and also serves as the basis for evaluating busi- ness plans or possible acquisitions. 28 Swiss Re Annual Report 2000 Adjusting the portfolio in response to a changing risk landscape Changes in the risk landscape In 1999, Swiss Re’s exposure to financial market risk was considerably higher than its exposure to credit and underwriting risk. In the course of 2000, Swiss Re shifted its portfolio balance towards underwriting and credit exposure. The acquisition of Underwriters Re in North America, for instance, increased expo- sure to California earthquake and North Atlantic hurricane risks. At the same time, the Group recorded strong growth in credit and life and health business and reduced its financial market risk exposure by paring down its equity hold- ings. Financial market risk Swiss Re applies standard risk-measurement methods when assessing potential losses from f luctuations in equity prices, interest and exchange rates. Due to its asset allocation strategy, the financial market risk exposure of Swiss Re’s invest- ment portfolio is determined largely by the European and US markets. Vola- tility in these markets was comparatively high in the first quarter of 2000, sta- bilising on a lower level through the second and third quarters before increas- ing again in the fourth quarter. The decision taken early in the year to lower Swiss Re’s equity exposure reduced the financial market risk on the investment portfolio. This reduction, however, was offset in absolute terms by growth in the fixed income portfolio through acquisitions and the shift to fixed income investments. Over the year, the net effect was a modest increase of the risk within the investment portfolio, assessed on a stand-alone basis. From an integral Group perspective, however, financial market risk exposure decreased because, by and large, the interest rate and currency risk of bonds are balanced by the corre- sponding exposure of reinsurance liabilities, which tends to run in the opposite direction. Swiss Re continues to manage and monitor investment risk closely, being particularly careful to avoid financial leverage at a portfolio level, limit equity exposure and maintain strict credit-rating requirements for bonds. 29 Swiss Re Annual Report 2000 Recent events and outlook The reorganisation of Swiss Re’s non-life operations, announ- ced in early 2001, is designed to further improve its com- petitive position in a substantially hardening market. Demand for insurance-based corporate finance solutions – an area in which Swiss Re has well-established strengths – is also in- creasing. In the life business, Swiss Re can take advantage of its leadership position, benefiting from economies of scale in strongly-growing traditional life reinsurance markets, and ex- panding its Admin Re business. In the first quarter of 2001, Swiss Re consolidated its European non-life busi- ness into one organisation by merging the Bavarian Re and Europe divisions. The goal is to improve and streamline services, foster knowledge-sharing and eliminate duplications – thus lowering costs and enhancing client benefit. The Non-Life Business Group will also benefit more directly from product and risk-management resources transferred from the Corporate Centre. Overall, these measures will contribute to achieving strategic cost leadership in the non- life reinsurance business and strengthen the Group’s competitive position in Europe. Early 2001 also saw the formation of the Financial Services Business Group, comprising: Swiss Re Investors, with its asset management and asset liability management focus; Swiss Re New Markets, which concentrates on underwriting business to large corporate clients, as well as aviation and space risks, struc- tured finance and credit solutions; and Capital Partners, Swiss Re’s private equity division, which includes the investment bank Fox-Pitt, Kelton and credit insurer NCM. The aim of the Financial Services Business Group is to promote the convergence of reinsurance and financial solutions and judiciously expand the existing range of products and services while co-ordinating marketing activi- ties and consolidating the risk management and financial management areas. Swiss Re successfully negotiated significant improvements in non-life reinsur- ance conditions and prices during the 1 January 2001 renewal period. These improvements covered most of its business in the largest non-life markets: Europe, North America and parts of Asia. Business relationships which were not in line with profit requirements were either re-underwritten, reduced or closed. Swiss Re expects any loss of business to be recouped, in original curren- cies, by new business and price increases. The renewals per 1 April in three major Far East markets showed overall posi- tive results. In Japan natural catastrophe business improved, especially industri- al earthquake coverages. Terms of earthquake treaties improved as well and Swiss Re shifted capacity from proportional to non-proportional business. The rates of wind and f lood catastrophe covers increased after many years of rate reductions. In Korea, where Swiss Re has received a provisional reinsurance licence, a general trend towards raising rates and conditions was also observed. In the Indian market liberalisation continues and Swiss Re maintained its leadership presence. 30 Swiss Re Annual Report 2000 Swiss Re’s entire non-life reinsurance portfolio is showing the positive effects of improved conditions and higher prices. In parallel with this welcome trend in its own reinsurance business, Swiss Re sees direct insurance rates and condi- tions improving in its largest relevant markets. One cause of hardening prices and conditions has been the withdrawal of capital from reinsurance markets and a similar reduction of capacity in the retrocession markets. Swiss Re there- fore expects that the trend towards improved prices and conditions will contin- ue for the balance of renewals in 2001 and on into 2002. Given this expecta- tion and barring extraordinary or unusually high losses, Swiss Re believes that one of its major targets for 2001 is within reach: a combined ratio of 107%. Swiss Re has already achieved a leading position in insurance-based corporate finance solutions. Changes in the non-life market environment and in the financial options facing large corporate clients suggest that demand in this area is likely to increase, offering attractive growth opportunities for Swiss Re. Swiss Re’s life and health business will benefit from continued strong demand for traditional life reinsurance in US. Further consolidation in the primary market should also sustain demand for Admin Re. In Europe, the gradual move towards private provision in social security and health care will create new chal- lenges and opportunities for the industry; Swiss Re is ready to meet these alongside its clients. Overall, Swiss Re’s life business margins are expected to remain stable while benefiting from further improvements in productivity. 31 Swiss Re Annual Report 2000 “ Our computer model will facilitate much improved risk management.” m o c . e r s s i w s . w w w t a r e g n i z n e M o v I t u o b a e r o m : k r @ m k o o B Spotlights e-business Swiss Re’s e-business strategy is being implemented In 2000, the insurance indus- try witnessed the highest loss amounts due to flooding ever recorded. Floods are an extremely complex phenome- non. To date, there has not been a computer-aided model based on physical processes and probabilities which can be used to estimate this insurance risk. My team and I want to be the ones to make this break- through, thus laying the foun- dation for much improved risk management. We are well on the way to achieving this. Ivo Menzinger Head of Flood Group, Swiss Re, Zurich Swiss Re has built a leading e-business position in the rein- surance industry: 22 e-solutions are currently available to clients and further diversified e-initiatives are being imple- mented. The Swiss Re Client Portal increasingly serves as the integrated entrance point to all Swiss Re’s e-business solu- tions and services. Swiss Re’s determination to add value through e-business was underlined in the public announcement of its e-business strategy in May 2000. The initial focus was on risk placement: on-line submission and quoting for standardised rein- surance products – as well as a customised client-renewal process developed in partnership with selected global clients. This was quickly complemented by business services such as comprehensive reinsurance accounting transaction ser- vices. Other service components were expanded to allow client access to Swiss Re’s knowledge and expertise: web-enabled underwriting tools, in-depth infor- mation and visual summaries of hazard exposure, loss frequencies, financial/ insurance benchmarking, performance comparisons and calculation of claims indices. Clients actively participate in interactive services such as the Food Forum, the first of several planned industry communities. In December 2000, Swiss Re launched an industry-wide reinsurance risk exchange inreon (insurance meets reinsurance online), in partnership with Munich Re, Accenture and the ven- ture-capitalist Internet Capital Group. In 2000, nearly 300 people at Swiss Re were working on the development of e-solutions. During 2001, Swiss Re expects to create further substantial value, both for it- self and for its clients, through e-business. The focus will be on implementing the most promising initiatives and integrating e-related activities into normal business practices. Success will depend on three factors: adding value for Swiss Re’s clients through substantially simplified business transactions and reduced costs; providing B2B applications which allow clients to transact and admini- ster a significant portion of their premium volume through e-business; and strengthening client relationships by providing enriched information content. 33 Swiss Re Annual Report 2000 Environmental report “Companies which do business accord- ing to the principles of sustainability have the best chance of success in the long term.” Bruno Porro, Head of Risk & Knowledge Swiss Re’s continuing commitment to environmental man- agement covers three areas: reinsurance, investment and in- ternal operations. During 2000, the Group further developed its environmental risk management, increased the impor- tance of sustainability-relevant factors in its business and continued a risk dialogue with its stakeholders. Swiss Re has a leading position as a reinsurer in the US environmental market. In Europe, it is closely involved in national environmental insurance pools. It has also built up its environmental presence in the emerging economies of Eastern Europe and Asia by providing training courses and client seminars. Swiss Re’s study on greenhouse gas emission trading shows promising future market opportunities. Swiss Re has further increased its environmental portfolio to CHF 87 million. This portfolio now comprises balanced direct investments in 11 companies, 2 holding companies and 2 investment funds. All Swiss Re’s construction and renovation projects in Switzerland conform to the recognised MINERGIE standard, which defines limits for a building’s ener- gy consumption. Internal environmental management in Zurich has been certi- fied to the ISO 14001 standard. Swiss Re is represented in the Dow Jones Sustainability Group Index; other sustainability and environmental rating agencies, such as Oekom and Centre Info, continue to rank the Group as a leader within the insurance industry. Around 2% of all Swiss Re shares are estimated to be held by institutional investors who build up their portfolios through systematic consideration of environmental and social performance criteria. Swiss Re’s environmental report can be accessed at www.swissre.com or ordered from Swiss Re Publishing. 34 Swiss Re Annual Report 2000 Social report Good corporate citizenship: as a re- insurer, as an employer and as a sponsor Consistent with its role as a global leader in risk manage- ment, Swiss Re places the highest importance on good corporate citizenship in its internal and external relations. The Group-wide Code of Conduct defines individual and cor- porate roles in maintaining the high standards of responsibil- ity which form the core of Swiss Re’s brand and reputation. Swiss Re’s commitment to its employees includes a broad spectrum of services and benefits, customised to the needs of the individual. Compensation is based on a global “pay-for-performance” philosophy with a variable wage component and, in most countries, an opportunity to purchase Swiss Re shares at attractive terms. A strong emphasis on continuing education includes intensive manage- ment development, identifying and training individuals with high potential at all levels of the company; the centre for global dialogue at Rüschlikon will be an essential part of this process. Swiss Re’s employment model includes f lexible annual working time, telework- ing, part-time opportunities and an increased number of apprenticeships. The Group encourages staff to strike a healthy long-term balance between work and private life, with support and counselling packages for maternity or paternity leave and childcare. In the wider world, Swiss Re offers financial and intellec- tual support to a variety of institutions and projects with humanitarian, social, environmental and cultural goals. 35 Swiss Re Annual Report 2000 Rüschlikon “Rüschlikon has been called not just the brain, but the new heart of Swiss Re.” Walter Anderau, Head of Communica- tions & Human Resources Rüschlikon, Swiss Re’s centre for global dialogue, opened in November 2000. It offers a platform for sharing knowledge, building networks, identifying the topics of the future and generating sustainable innovation. A broad range of internal and external events take place in Rüschlikon, focusing on applied research, business solutions and corporate develop- ment – designed to generate tangible results for all stake- holders. Applied research, in this context, means detecting emerging risks and identify- ing business opportunities. Together with its partners in risk management, Swiss Re examines issues in the economy, business, science and technology, to assess their impact on the industry. The inaugural Rüschlikon conference, Digital Worlds, investigated the strategic, legal and risk implications of increas- ing digitalisation. The knowledge generated in applied research needs to be translated into viable business solutions which bring value to clients. The centre therefore provides a shared space for workshops with clients and specialists to develop tailor-made products and services in risk and capital management. Corporate development means shaping corporate strategy, communicating shared values and developing the talents of employees. Management develop- ment programmes bring together staff from all divisions across the globe to share knowledge, exchange best practice and establish networks – activities which are further facilitated by the Media Net. For more information, visit: www.ruschlikon.net. 36 Swiss Re Annual Report 2000 Water is gradually emerging as an investment topic. Billions of dollars need to be invested to renew drinking water and sewage systems in industri- alised countries. In some devel- oping countries, this type of infrastructure does not exist at all. Furthermore, in the northern and southern hemi- spheres, very innovative and sustainable concepts and tech- nologies are needed that allow environmentally-friendly deployment of scarce water resources. I find it fascinating to search out and invest in companies who are today working on solutions for tomorrow, thereby creating for themselves an excellent foothold in a growing market. Alois Flatz Head Research, SAM Sustainable Asset Management, Zurich “ Water is an investment topic with a bright future.” m o c . e r s s i w s . w w w t a z t a l F s i l o A t u o b a e r o m : k r @ m k o o B 37 Swiss Re Annual Report 2000 Group financial statements Income statement Balance sheet Statement of shareholders’ equity Statement of comprehensive income Statement of cash flow Notes Report of the Group auditors 39 40 42 43 44 46 85 38 Swiss Re Annual Report 2000 Income statement For the years ended 31 December CHF millions Revenues Premiums earned Net investment income Net realised investment gains Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Acquisition costs Amortisation of goodwill Other operating costs and expenses Total expenses Income before income tax expense Income tax expense Net income on ordinary activities Extraordinary income Extraordinary charges Net income Earnings per common share in CHF Basic Diluted Notes 1999 2000 8 2 2 7,8 8 5 4 11 18 051 3 846 3 588 246 25 731 22 081 4 802 4 275 395 31 553 – 9 333 – 6 200 – 3 973 – 211 – 2 785 – 22 502 – 12 153 – 7 478 – 4 883 – 310 – 3 074 – 27 898 3 229 – 783 2 446 450 – 450 2 446 3 655 – 689 2 966 2 966 10 10 171 171 208 207 The accompanying notes are an integral part of the consolidated financial statements. 1999 figures have been restated (see notes 1 and 19). 39 Swiss Re Annual Report 2000 Balance sheet As of 31 December Assets CHF millions Investments Fixed income securities: Available for sale, at amortised cost (fair value: 1999: 44 659; 2000: 51 019) Trading, at fair value (amortised cost: 1999: 574; 2000: 648) Equity securities – Available for sale, at fair value (cost: 1999: 18 008; 2000: 16 812) Mortgages and other loans Investment real estate Short-term investments, at amortised cost which approximates fair value Other invested assets Total investments Cash and cash equivalents Accrued investment income Premiums receivable Reinsurance recoverable on paid and unpaid claims Funds held by ceding companies Prepaid reinsurance premiums Deferred acquisition costs Acquired present value of future profits Goodwill Income taxes recoverable Other assets Total assets Notes 2,3 1999 2000 46 023 579 49 826 646 29 426 3 100 1 143 3 015 2 398 85 684 3 300 832 8 601 6 995 9 537 174 2 469 2 678 4 084 632 5 214 130 200 23 224 6 920 1 183 4 156 3 629 89 584 3 433 1 383 10 824 6 459 10 922 780 4 444 2 628 4 574 539 7 070 142 640 5 4 4 The accompanying notes are an integral part of the consolidated financial statements. 1999 figures have been restated (see notes 1 and 19). 40 Swiss Re Annual Report 2000 Balance sheet As of 31 December Liabilities and shareholders’ equity CHF millions Current liabilities Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Unearned premiums Funds held under reinsurance treaties Reinsurance balances payable Income taxes payable Deferred income taxes Short-term debt Accrued expenses and other liabilities Total current liabilities Long-term debt Total liabilities Shareholders’ equity Common shares, CHF 10 par value; 1999: 14 730 951 and 2000: 14 658 301 shares authorised and issued Additional paid-in capital Accumulated other comprehensive income: Net unrealised investment gains, net of deferred taxes Cumulative translation adjustments Total accumulated other comprehensive income Retained earnings Reserve for own shares Total shareholders’ equity Total liabilities and shareholders’ equity Notes 1999 2000 7 11 6 10 54 072 23 279 4 251 4 284 3 286 1 120 4 223 1 116 4 790 100 421 4 947 105 368 59 600 29 300 6 131 4 247 3 697 582 3 442 2 074 5 722 114 795 5 058 119 853 147 1 934 147 1 753 8 829 1 874 10 703 11 043 1 005 24 832 130 200 5 714 871 6 585 14 053 249 22 787 142 640 The accompanying notes are an integral part of the consolidated financial statements. 1999 figures have been restated (see notes 1 and 19). 41 Swiss Re Annual Report 2000 Statement of shareholders’ equity CHF millions Balance as of 31 December 1998 Net income Unrealised gains on securities, net (note 2) Foreign currency translation adjustments Dividends Change in own shares (note 10) Balance as of 31 December 1999 Net income Unrealised losses on securities, net (note 2) Foreign currency translation adjustments Dividends Change in own shares (note 10) Net unrealised Cumulative Additional gains translation Reserve Common paid-in (losses) adjust- Retained for own stock 147 capital 1 934 net of tax 7 317 ments 276 earnings 9 162 2 446 shares Total 1 127 19 963 2 446 1 512 1 598 1 512 1 598 – 687 – 687 122 – 122 147 1 934 8 829 1 874 11 043 2 966 1 005 24 832 2 966 – 3 115 – 1 003 – 181 – 712 756 – 756 – 3 115 – 1 003 – 712 – 181 Balance as of 31 December 2000 147 1 753 5 714 871 14 053 249 22 787 The accompanying notes are an integral part of the consolidated financial statements. 1999 figures have been restated (see notes 1 and 19). 42 Swiss Re Annual Report 2000 Statement of comprehensive income For the years ended 31 December CHF millions Net income Other comprehensive income: Change foreign currency translation adjustments Change unrealised gains (losses), net of tax Comprehensive income 1999 2 446 1 598 1 512 5 556 2000 2 966 – 1 003 – 3 115 – 1 152 The accompanying notes are an integral part of the consolidated financial statements. 1999 figures have been restated (see notes 1 and 19). 43 Swiss Re Annual Report 2000 Statement of cash flow For the years ended 31 December CHF millions Cash flows provided (used) by operating activities Net income Adjustments to reconcile net income to net cash provided (used) by operations: Depreciation, amortisation and other non-cash items Net realised investment gains Change in technical provisions, net Change in reinsurance receivables and funds held by ceding companies Change in other assets and liabilities Change in income taxes payable (recoverable) Income from equity accounted investees Net cash provided (used) by operating activities 1999 2000 2 446 2 966 722 – 3 588 4 212 – 2 990 – 590 78 – 29 261 940 – 4 275 2 135 – 2 102 – 534 157 – 31 – 744 Cash flows provided (used) by investing activities Fixed income securities – Available for sale: Proceeds from sale of investments Purchase of investments Net purchase of short-term investments Equity securities – Available for sale: Proceeds from sale of investments Purchase of investments Cash paid for acquisitions and reinsurance transactions, net Other investments, net Net cash provided (used) by investing activities Cash flows provided (used) by financing activities Issuance of long-term debt Issuance (repayment) of other debt Repurchase of common shares Dividends paid Net cash provided (used) by financing activities Effect of foreign currency translation Change in cash and cash equivalents (including short-term investments) Cash and cash equivalents as of 1 January Cash and cash equivalents as of 31 December 42 288 – 41 821 – 366 33 846 – 35 219 – 116 12 172 – 10 874 – 747 743 1 395 17 902 – 12 389 – 1 727 – 1 404 893 1 048 – 1 107 – 687 – 746 – 244 666 2 634 3 300 142 732 – 181 – 712 – 19 3 133 3 300 3 433 The accompanying notes are an integral part of the consolidated financial statements. 1999 figures have been restated (see notes 1 and 19). 44 Swiss Re Annual Report 2000 Non-point source (NPS) pollution deals with the uncon- trolled run-off into bodies of water resulting from polluted rainfall, snowmelt or irrigation practices. Agriculture is a major source of NPS. We research the topic and its impact on the en- vironment, the population as a whole, and our business. We follow developments in regula- tions, produce guidelines for underwriting, and assist our clients in product development. What fascinates me is the po- tential we have as a reinsurer to positively impact the effects of human practices on the envi- ronment and human health. Adrienne Atwell Manager Environmental Liability Department (ELD), Swiss Re Americas Division, Armonk (USA) “We help to manage and prevent water pollution.” m o c . e r s s i w s . w w w t a l l e w t A e n n e i r d A t u o b a e r o m : k r @ m k o o B 45 Swiss Re Annual Report 2000 Notes Nature of operations Basis of presentation Scope of consolidation 1. Organisation and summary of significant accounting policies The Swiss Re Group, which is headquartered in Zurich, Switzerland, comprises Swiss Reinsurance Company (the parent company, referred to as “Swiss Re Zurich”) and its subsidiaries (collectively, the “Swiss Re Group” or the “Group”). The Group provides reinsurance, alternative risk transfer products and services to life and non-life insurance companies, clients and others world-wide. Reinsurance and other related products and services are delivered to clients through a network of more than 70 offices in over 30 countries as well as through reinsurance brokers. The accompanying consolidated financial statements have been prepared in accor- dance with the Accounting and Reporting Recommendations (ARR) and comply with the Swiss Company Law and include the financial statements of Swiss Re Zurich and its subsidiaries. The presentation requirements of ARR 14 have been complied with except certain financial information has been disclosed in the notes and not in the primary financial statements. All significant intercompany transactions and balances have been eliminated in consolidation. In the current year the Swiss Re Group is modifying the presentation of its consolidat- ed financial information to improve comparability with more widely accepted interna- tional practice. In connection with this effort, the Group has also changed certain accounting policies from one acceptable method to another under the Swiss ARR basis and has restated its previously reported 1999 consolidated financial state- ments to conform to the new basis (see note 19). Companies in which Swiss Re Zurich, directly or indirectly, holds a voting majority or otherwise controls are consolidated in the Group accounts. Companies in which Swiss Re Zurich maintains a direct or indirect holding of between 20% and 50% and has a significant influence, but not controlling interest, are accounted for using the equity method and are included in other invested assets. The Swiss Re Group’s share of net profit or loss in investees accounted for under the equity method is included in net investment income. Equity and net income of these companies are adjusted as necessary to be in line with the Group accounting policies. The results of consolidated subsidiaries and investees accounted for using the equity method are included in the financial statements for the period commencing from the date of acquisition. 46 Swiss Re Annual Report 2000 Use of estimates in the preparation of financial statements Investments The preparation of financial statements requires management to make significant estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses as well as the related disclosure including contingent assets and liabilities. The Swiss Re Group’s liabilities for unpaid claims and claim adjust- ment expenses and policy benefits for life and health include estimates for premium, claim and benefit data not received from ceding companies at the date of the financial statements. In addition, the Group uses certain financial instruments and invests in securities of certain entities for which exchange trading does not exist. The Group determines these estimates on the basis of historical information, actuarial analyses, financial modelling and other analytical techniques. Actual results could differ from the estimates described above. The Group’s investments in fixed income securities are classified as Available for sale (“AFS”) or Trading. Fixed income securities AFS are reported at amortised cost. Trading fixed income securities are carried at fair value with unrealised gains and losses being included in the income statement. 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. Interest on fixed income securities is recorded as income when earned and is adjusted for the amortisation of any purchase premium or discount. Dividends on equity securities are recorded on the basis of the ex-dividend date. Realised gains and losses on sales are included in the income statement. Mortgages and other loans are carried at amortised cost (effective yield method), net of any allowance for amounts estimated to be uncollectible. Other loans consist of mortgage participations associated with linked investment contracts where the contract holders bear all investment risk. Investment real estate that the Group intends to hold for the production of income is carried at depreciated cost, net of any write-down for impairment in value. An impair- ment in value is recognised if the estimated future undiscounted cash flows from the use of the real estate asset are less than its carrying value. Impairments in value, depreciation and other related charges or credits are included in net investment income. Investment real estate held for sale is carried at the lower of cost or fair value, less estimated selling costs, and is not depreciated. Reductions in the carrying value of real estate held for sale are included in net realised investment losses. Short-term investments are carried at amortised cost, which approximates fair value. The Group considers highly liquid investments purchased with an original maturity of one year or less, but greater than three months, to be short-term investments. 47 Swiss Re Annual Report 2000 Notes Derivative financial instruments Interest rate and foreign currency swaps Foreign currency and interest rate forward contracts The Group enters into security lending arrangements under which it loans certain securities in exchange for collateral and receives security lending fees. The Group’s policy is to require collateral equal to at least 102% of the carrying value of the secu- rities loaned. The collateral held consists of deposits, cash or other securities. The liability for collateral held is included in accrued expenses and other liabilities. Security lending fees are recognised over the term of the related loans. The Group uses a variety of derivative financial instruments including swaps, options, forwards and exchange traded financial futures as part of an overall risk manage- ment strategy. These instruments are included in other invested assets and are primarily used as a means of managing exposure to price, foreign currency and/or interest rate risk on planned or anticipated investment purchases, existing assets or liabilities and also to lock in attractive investment conditions for funds which become available in the future. Derivative instruments which do not meet the criteria for hedge accounting or which are held for investment purposes are carried at fair value with changes in unrealised gains and losses recognised in income. Interest rate swaps involve the periodic exchange of payments without the exchange of underlying principal or notional amounts. The Group utilises interest rate swaps to convert its variable rate debt into fixed rate debt and accordingly records interest expense using the fixed interest rate. Any related fees are amortised as yield adjust- ments. A foreign currency swap operates in a similar way to an interest rate swap. Different currencies are exchanged, based on a notional amount, at an agreed upon exchange rate at the beginning and the end of the swap. Foreign currency swaps purchased in anticipation of a firm commitment to make foreign currency asset purchases are carried at fair value with related unrealised gains or losses deferred until the asset purchase date, at which time the deferred gain or loss is recognised in income offset- ting the change in value of the underlying asset or liability. The Group uses foreign currency and interest rate forward contracts to manage its exposure to future movements in foreign exchange and interest rates. Foreign currency forward contracts are agreements to exchange fixed amounts of two different currencies at a specified future date and at a specified price. The Group generally utilises foreign currency forward contracts with terms of between one and six months. Foreign currency forward contracts designated as a hedge at inception and qualifying as a hedge are accounted for as a hedge with unrealised gains or losses deferred. Foreign currency forward contracts that do not qualify for hedge accounting are carried at fair value with changes in unrealised gains or losses recog- nised in income. 48 Swiss Re Annual Report 2000 The Group uses interest rate forwards to lock in an interest rate at a future date. Accordingly interest expense is recognised using the forward rate. Bond forward contracts The Group uses bond forward contracts to lock in sales prices for fixed income secu- rities that it intends to sell at a future date. The contracts are used to determine the carrying value of the related investments. Equity and equity index contracts Equity index options, which are used to manage the market and liquidity risks of equity securities, represent an option to either purchase or sell a “basket” of shares underlying a well-established stock market index; delivery of the stocks is not required as the contracts are settled for cash on maturity. Equity index options are included in other invested assets with changes in unrealised gains and losses included in investment income. The Group uses equity options to lock in sales prices for investments in equity securi- ties and to improve investment returns on its equity security investments. Options are carried at fair value as available for sale, with changes in carrying value included in other comprehensive income. Cash and cash equivalents Cash and cash equivalents include cash on hand, highly liquid debt instruments, and short-term deposits purchased with an original maturity of three months or less. Deferred acquisition costs Acquired present value of future profits 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 non-life reinsurance business are amortised to income in proportion to non-life premiums earned. Future investment income is con- sidered in determining the recoverability of deferred acquisition costs on non-life 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 and are adjusted to reflect the estimated effect of realising unrealised invest- ment gains and losses with an offset to unrealised investment gains and losses included in shareholders’ equity. The acquired present value of future profits (“PVFP”) of in-force business is recorded in connection with the acquisition of life reinsurance operations. The initial value is determined actuarially by discounting estimated future gross profits as a measure of the value of business acquired. The resulting asset is amortised on a constant yield basis over the expected revenue recognition period of the business acquired, generally over periods ranging up to 30 years, with the accrual of interest added to the unamortised balance at the earned rate. The carrying value of PVFP is reviewed periodically for indicators of impairment in value. Adjustments to reflect impairment in value are recognised in income during the period in which the determination of impairment is made. 49 Swiss Re Annual Report 2000 Notes Goodwill Other assets Capitalised software costs Deferred income taxes Unpaid claims and claim adjustment expenses The excess of the cost of acquired businesses over the fair value of net assets acquired is recorded as goodwill (purchase method). It is amortised using the straight-line method over periods that correspond with the benefits expected to be derived from the related acquisition. Goodwill is amortised over periods of between 5 and 20 years. The carrying value of goodwill is reviewed periodically for indicators of impairment in value. Adjustments to reflect an impairment in value are recognised in income in the period in which the determination of impairment is made. Other assets consist of investments for separate account business relating to certain types of insurance contracts where the contract holder bears the investment risk, deferred expenses on retroactive reinsurance, own use real estate, property, plant and equipment, accrued income and prepaid assets. Separate account business assets and liabilities are valued at market value and unre- alised gains/losses are included in the income statement. Own use real estate and property, plant and equipment are carried at depreciated cost. Deferred expenses on retroactive reinsurance policies are amortised into income over the expected claims paying period. External direct costs of materials and services incurred to develop or obtain internal use software, payroll and payroll-related costs for employees who are directly associ- ated with software development and interest cost incurred while developing internal use software are capitalised and amortised on a straight-line basis over a period of 3 years through the income statement. Deferred income tax assets and liabilities are recognised based on the difference between financial statement carrying amounts and the corresponding income tax bases of assets and liabilities using enacted income tax rates and laws. A valuation allowance is recorded against deferred tax assets when it is deemed more likely than not that some or all of the deferred tax asset may not be realised. Liabilities for unpaid claims and claim adjustment expenses for non-life reinsurance contracts are accrued when insured events occur and are based on the estimated ultimate cost of settling the claims, using reports and individual case estimates received from ceding companies. A provision is also included for claims incurred but not reported, which is developed on the basis of past experience adjusted for current trends and other factors that modify past experience. The establishment of the appropriate level of reserves is an inherently uncertain process involving estimates and judgements made by management, and therefore there can be no assurance that ultimate claims and claim adjustment expenses will not exceed the loss reserves currently established. These estimates are continually reviewed, and adjustments for differences between estimates and actual payments for claims and for changes in estimates are reflected in income in the period in which the estimates are changed or payments are made. Unpaid non-life claims provisions may only be discounted if the payment pattern and ultimate cost are fixed and reasonably determinable. 50 Swiss Re Annual Report 2000 Equalisation reserves Reserves prescribed by local regulatory authorities for future claim fluctuations and for large and catastrophic losses are established and included in the unpaid claims and claim adjustment expenses liabilities. Liabilities for life and health policy benefits Premiums Liabilities for life and health policy benefits are generally calculated using the net level premium method, based on assumptions as to investment yields, mortality, withdrawals and policyholder dividends. Assumptions are set at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. The assumptions are based on projections from past experience, making allowance for possible adverse deviation. Interest assumptions for life and health reinsurance benefits liabilities range from 4% to 14%. Assumed mortality rates are generally based on experience multiples applied to actuarial select and ultimate tables commonly used in the industry. With- drawal assumptions for individual life reinsurance contracts issued by the Group range from 1% to 20% and are based on historical experience. Liabilities for investment-type contracts, including separate account (unit-linked) life reinsurance business, are based either on the contract account balance, if future benefit payments in excess of the account balance are not guaranteed, or on the present value of future benefit payments, if such payments are guaranteed. Liabilities for policy benefits are increased if it is determined that future cash flows, including investment income, are insufficient to cover future benefits and expenses. The liability for accident and health policy benefits consists of active life reserves and the estimated present value of the remaining ultimate net costs of incurred claims. The active life reserves include unearned premiums and additional reserves. The additional reserves are computed on the net level premium method using assump- tions for future investment yield, mortality and morbidity experience. The assump- tions are based on projections of past experience and include provisions for possible adverse deviation. Non-life reinsurance premiums are recorded when written and include an estimate for written premiums receivable at period end. Premiums earned are generally recog- nised in income over the contract period in proportion to the amount of reinsurance provided. Unearned premiums consist of the unexpired portion of reinsurance provided. Life reinsurance premiums are earned when due. Related policy benefits are recorded in relation to the associated premium or gross profits so that profits are recognised over the expected lives of the contracts. For investment type contracts, charges assessed against policyholders’ funds for the costs of insurance, surrender charges, actuarial margin and other fees are recorded as income. Life and health reinsurance premiums for group coverages are generally earned over the term of the coverage. For group contracts that allow experience adjustments to premiums, such premiums are recognised as the related experience emerges. 51 Swiss Re Annual Report 2000 Notes Reinsurance ceded The Group uses retrocession arrangements to increase its aggregate underwriting capacity, to diversify its risk and to reduce the risk of catastrophic loss on reinsurance assumed. The ceding of risks to retrocessionaires does not relieve the Group of its obligations to its ceding companies. The Group regularly evaluates the financial condition of its retrocessionaires and monitors the concentration of credit risk to minimise its exposure to financial loss from retrocessionaires’ insolvency. Premiums and losses ceded under retrocession contracts are reported as reductions of premiums earned and claims and claim adjustment expenses. Amounts recover- able for ceded claims and claim adjustment expenses and ceded unearned premiums under these retrocession agreements are reported as assets in the accompanying consolidated balance sheet. Contracts which do not meet risk transfer requirements defined as transferring a rea- sonable 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. The excess of estimated liabilities for claims and claim costs payable over considera- tion paid in respect of retroactive non-life reinsurance contracts which meet risk transfer tests is recorded as a deferred charge. The deferred charges are amortised over the expected settlement periods of the claims liabilities. Pensions and other post-retirement benefits The Group accounts for its pension and other post-retirement benefit costs under the accrual method of accounting. Amounts charged to expense are based on periodic actuarial determinations. 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 func- tional currencies to the reporting currency are included as a separate component of shareholders’ equity, net of applicable deferred income taxes. Realised currency gains and losses resulting from foreign currency transactions are included in income. 52 Swiss Re Annual Report 2000 Currency exchange rates in CHF per 100 units of foreign currency are as follows: British pound GBP Euro EUR US dollar USD Canadian dollar CAD Japanese yen JPY AUD Australian dollar South African rand ZAR MXP Mexican peso Closing rate 257.97 160.44 160.07 110.29 1.56 104.74 26.00 16.89 1999 Average rate 244.16 160.21 150.32 101.14 1.35 96.84 24.74 15.74 Closing rate 242.08 152.15 162.05 107.89 1.42 90.04 21.41 16.87 2000 Average rate 256.43 156.11 168.81 113.75 1.57 98.24 24.41 17.83 Shares purchased are recorded at market value and are classified and accounted for as equity securities Available for sale. Unrealised gains and losses are recorded in equity. The average cost method is used to determine the cost of own shares sold. Any gains or losses on the disposition of own shares are recorded in the income statement. 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 securi- ties. The Group carries financial instruments generally at fair value on its balance sheet, with the exception of fixed income securities AFS, real estate, mortgages and other loans and debt. Fair values for investment real estate and mortgages are presented in Note 2. Own shares Earnings per common share Fair value of financial instruments 53 Swiss Re Annual Report 2000 Notes 2. Investments Amortised cost or cost and estimated fair values of investments in fixed income and equity securities classified as Available for sale were as follows: As of 31 December 1999 Amortised unrealised unrealised Estimated Gross Gross CHF millions Debt securities issued by govern- ments and government agencies: United States Switzerland Germany United Kingdom Canada Other Corporate debt securities Mortgage and asset-backed securities Fixed income securities Available for sale Equity securities Available for sale cost or cost gains losses fair value 14 798 1 249 3 051 2 450 2 841 7 624 11 853 3 4 17 59 79 186 105 – 631 – 24 – 106 – 55 – 95 – 259 – 584 14 170 1 229 2 962 2 454 2 825 7 551 11 374 2 157 5 – 68 2 094 46 023 458 – 1 822 44 659 18 008 11 820 – 402 29 426 As of 31 December 2000 Amortised unrealised unrealised Estimated Gross Gross CHF millions Debt securities issued by govern- ments and government agencies: United States Switzerland Germany United Kingdom Canada Other Corporate debt securities Mortgage and asset-backed securities Fixed income securities Available for sale Equity securities Available for sale cost or cost gains losses fair value 15 673 917 2 035 2 952 2 917 7 268 13 641 664 4 31 98 245 164 333 – 26 – 18 – 13 – 5 – 5 – 55 – 304 16 311 903 2 053 3 045 3 157 7 377 13 670 4 423 97 – 17 4 503 49 826 1 636 – 443 51 019 16 812 7 324 – 912 23 224 Investment concentration The Group has an investment concentration with Credit Suisse Group. As of 31 December 1999 and 2000, the Group’s investments in equity securities included CHF 3 481 million and CHF 2 469 million, respectively, of Credit Suisse Group securi- ties at fair values and CHF 370 million and CHF 331 million, respectively, of other operating assets. 54 Swiss Re Annual Report 2000 Maturity of fixed income securities The Group also has an investment concentration with ING Groep N.V., a European- based financial institution. As of 31 December 1999 and 2000, the Group held CHF 1 222 million and CHF 1 239 million, respectively, of common stock at fair value, and CHF 1 439 million and CHF 1 516 million, respectively, of other operating assets. The amortised cost and estimated fair values of investments in fixed income securi- ties by remaining maturity are shown below. Fixed maturity investments are assumed not to be called for redemption prior to the stated maturity date. As of 31 December 1999 and 2000, CHF 1 945 million and CHF 2 180 million, respectively, of fixed income securities were callable or had call options in the instruments’ structure. 1999 2000 As of 31 December Amortised Estimated Amortised Estimated CHF millions Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage and asset-backed securities Total fixed income securities cost 1 689 10 771 13 413 18 651 1 499 46 023 fair value 1 689 10 733 12 980 17 808 1 449 44 659 cost 1 435 25 571 10 937 8 320 3 563 49 826 fair value 1 417 26 231 11 166 8 564 3 641 51 019 Assets on deposit or pledged As of 31 December 1999 and 2000 securities with a carrying value of CHF 808 million and CHF 653 million, respectively, were on deposit with regulatory agencies in accordance with local requirements. As of 31 December 1999 and 2000 investments with a carrying value of approxi- mately CHF 4 575 million and CHF 4 161 million, respectively, were placed on deposit or pledged to secure certain reinsurance liabilities. Cash and cash equivalents Cash and cash equivalents included short-term deposits with a carrying value of CHF 2 208 million and CHF 1 424 million as of 31 December 1999 and 2000, respectively. Mortgages, loans and real estate As of 31 December 1999 and 2000 investments in mortgage and other loans, real estate and investment for separate account business comprised the following: As of 31 December CHF millions Mortgages and other loans Investment real estate Investment for separate account business Carrying value 3 100 1 143 1999 Fair value 3 100 2 122 Carrying value 6 920 1 183 2000 Fair value 6 920 2 167 1 688 1 688 1 964 1 964 As of 31 December 1999 and 2000 the Group’s investment in mortgages and other loans included CHF 170 million and CHF 204 million, respectively, of loans due from employees and CHF 284 million and CHF 322 million due from officers. These loans generally consist of mortgages offered at variable and fixed interest rates. 55 Swiss Re Annual Report 2000 Notes Development of real estate and investments in affiliated companies The Group’s investment in mortgages and other loans included CHF 955 million and CHF 1 483 million of mortgage participations associated with linked investment contracts as of 31 December 1999 and 2000, respectively. Contract holders bear all investment risk related to mortgage participations. Fair value for other loans is con- sidered to be equal to carrying value. As of 31 December 1999 and 2000 investments in real estate included CHF 20 mil- lion and CHF 11 million, respectively, of real estate held for sale. Depreciation expense related to income producing properties was CHF 28 million and CHF 27 million for 1999 and 2000, respectively. Accumulated depreciation on investment real estate totalled CHF 631 million and CHF 638 million as of 31 Decem- ber 1999 and 2000, respectively. Substantially all mortgages and other loans receivable are secured by buildings and land. The ultimate collectibility of the receivables is evaluated regularly and an appro- priate allowance for uncollectible amounts is established. CHF millions Carrying value as of 1 January Foreign currency translation adjustments Depreciation Additions/sales/disposals Unrealised gains/losses Gains or losses on sales Carrying value as of 31 December Investment real estate Affiliated companies 1999 1 102 2000 1 143 1999 1 446 2000 1 274 23 – 28 14 32 1 143 – 25 – 27 51 41 1 183 151 – 29 – 451 128 1 274 – 8 55 130 1 422 56 Swiss Re Annual Report 2000 Investment income Net investment income by source was as follows: CHF millions Fixed income securities Equity securities Mortgages and other loans Real estate Short-term investment Other current investment Income on investments in affiliated companies Equity in earnings of equity accounted investees Cash and cash equivalents Deposits with ceding companies Gross investment income Less investment expenses Net investment income 1999 2 407 571 152 88 171 61 58 60 65 474 4 107 – 261 3 846 2000 3 027 516 404 89 281 126 15 71 94 391 5 014 – 212 4 802 Dividends received from investees accounted for using the equity method were CHF 31 million and CHF 40 million in 1999 and 2000, respectively. Realised gains and losses Realised gains and losses for fixed income securities, equity securities and other investments were as follows: CHF millions Fixed income securities: Gross realised gains Gross realised losses Equity securities: Gross realised gains Gross realised losses Net realised gains on other investments Value readjustments Value adjustments Net realised investment gains 1999 2000 614 – 672 3 807 – 514 334 305 – 286 3 588 469 – 735 5 837 – 976 242 303 – 865 4 275 For fixed income and equity securities, gross realised gains of CHF 1 607 million and gross realised losses of CHF 493 million as of 31 December 1999 were calculated using the specific identification method of determining investment cost. The remain- der of realised gains and losses were calculated using the average cost method. All realised gains and losses for the year ended 31 December 2000 were calculated using the specific identification method. 57 Swiss Re Annual Report 2000 Notes 3. Derivative financial instruments Derivative financial instruments include futures, forward, swap or option contracts and other financial instruments with similar characteristics. The Group, under its risk management strategy, uses these instruments to manage risk. The Group uses derivative financial instruments with the following characteristics: As of 31 December 1999 CHF millions Interest rate contracts Forwards and futures Swaps Floors and caps Total interest rate contracts Equity and index contracts Forwards and futures Options Total equity and index contracts Foreign currency Forwards and futures Swaps Total foreign currency Other derivatives Credit derivatives Catastrophe derivatives Weather derivatives Total other derivatives Contract/ notional amount 3 019 1 915 5 442 10 376 69 6 408 6 477 14 128 142 21 175 144 235 21 554 Positive fair value Negative value assets fair value (liabilities) Carrying 3 35 254 292 178 178 17 17 – 9 – 56 – 254 – 319 – 2 – 141 – 143 – 3 – 3 – 20 – 1 – 43 – 64 – 6 14 8 – 2 37 35 – 3 – 3 – 3 – 1 – 43 – 47 – 7 Total 38 549 487 – 529 58 Swiss Re Annual Report 2000 Contract/ notional amount Positive fair value Negative value assets fair value (liabilities) Carrying As of 31 December 2000 CHF millions Interest rate contracts Forwards and futures Options Swaps Swaptions Floors and caps Total interest rate contracts Equity and index contracts Forwards and futures Options Total equity and index contracts Foreign currency Forwards and futures Swaps Total foreign currency Other derivatives Credit derivatives Weather derivatives Other Total other derivatives 4 101 45 392 395 227 5 160 109 6 261 6 370 1 994 4 014 6 008 36 197 382 62 36 641 3 3 1 7 1 127 128 107 76 183 93 11 1 105 – 6 – 1 – 1 – 8 – 1 – 71 – 72 – 19 – 70 – 89 – 77 – 43 – 6 – 126 – 3 – 1 2 1 – 1 56 56 88 6 94 16 – 32 – 5 – 21 128 Total 54 179 423 – 295 4. Acquisitions and dispositions Underwriters Reinsurance Group, Inc., a US broker reinsurance company based in Calabasas, California, was acquired for CHF 1 084 million on 10 May 2000. On 1 January 2000, the acquisition of Washington International Insurance Company for CHF 82 million was completed by the Group. Washington International writes mainly credit and surety business. Both of these acquisitions were accounted for as purchases, and the companies’ results were included in the Group’s results from the date of purchase. 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. 59 Swiss Re Annual Report 2000 Notes Acquired present value of future profits Goodwill During 2000, there were three Admin Re transactions. Admin Re is the purchase of closed blocks of in-force business and can be facilitated through either a stock purchase or reinsurance. The stock of Midland Life was purchased on 31 July 2000 for CHF 496 million. The Group also entered two reinsurance-based deals with CIGNA and UnumProvident. The results of all of these deals have been included from the date of the transaction. Swiss Re’s share of Euler SA of 19.99% was reduced to 8% during 2000 through a sale which realised CHF 125 million. This investment, which had been accounted for under the equity method of consolidation, has now been deconsolidated and is recorded as an available for sale equity security. Acquisitions resulted in CHF 539 million and CHF 426 million being capitalised in 1999 and 2000, respectively. The net amortisation charge recorded in the income statement for 1999 and 2000 amounted to CHF 242 million and CHF 270 million, respectively. The change in unrealised gains increased the balance by CHF 242 mil- lion in 1999 and decreased the balance by CHF 200 million in 2000. The foreign exchange impact in 1999 was CHF 298 million, and in 2000 CHF –6 million. The percentage of the PVFP which is expected to be amortised in each of the next five years is 7%, 7%, 6%, 6% and 5%, respectively. In conjunction with the acquisitions, CHF 126 million and CHF 874 million of goodwill was recorded in 1999 and 2000, respectively. During the years ended 31 December 1999 and 2000, goodwill of CHF 211 million and CHF 310 million, respec- tively, was amortised. As of 31 December 1999 and 2000, the balance of accumulated goodwill amorti- sation was CHF 394 million and CHF 664 million, respectively. 5. Deferred acquisition costs The following table presents changes in deferred acquisition costs: CHF millions Balance as of 1 January Deferred Effect of portfolio acquisitions Amortisation Foreign exchange Balance as of 31 December 1999 1 846 4 094 35 – 3 731 225 2 469 2000 2 469 5 440 1 306 – 4 613 –158 4 444 60 Swiss Re Annual Report 2000 6. Debt The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. It also issues operational debt for financing of specific assets on a matched basis as part of its business activi- ties. The Group defines long-term debt as debt having a maturity greater than one year. The Group’s long-term debt as of 31 December 2000 was: Long-term financial debt Senior debt as of 31 December 2000: Maturity Instrument in Currency in m rate in CHF m Issued Nominal Interest Book value 2002 Syndicated loans 2003 Exchangeable bonds 2004 2006 2007 Exchangeable bonds (TRIPLES) Senior Notes1 Trust preferred stock2 (TruPs) 2007 Straight bond 1997 1998 1999 1996 1997 1997 2013 2026 Payment Undertaking Agreement 2000 Payment Undertaking Agreement 2000 ITL 600 000 Libor+10bp NLG USD USD USD CHF USD USD 925 530 200 46 500 24 57 1.25% 2.25% 7.875% 8.72% 3.75% Libor-15bp Libor-15bp Total senior debt Total senior debt 1999 Subordinated debt as of 31 December 2000: 471 639 859 321 93 500 38 92 3 013 2 949 Book Maturity Instrument in rency in m rate... reset in CHF m Issued Cur- Nominal Interest ...to first value in – – – – – – Subordinated perpetual loan (PARCS) 1999 Subordinated perpetual loan 1998 Subordinated perpetual loan 1998 Subordinated perpetual loan 1998 Subordinated perpetual loan 1998 EUR DEM DEM CHF DEM Subordinated perpetual bond 250 340 400 300 110 Euribor+55bp Libor+40bp 5.71% Libor+37.5bp Libor+45bp 2006 2008 2008 2008 2010 (SUPERBs) 1999 CHF 600 3.75% 2011 Total subordinated debt Total subordinated debt 1999 1 assumed in the acquisition of Underwriters Re Group 2 assumed in the acquisition of Life Re Corporation 380 264 311 300 86 600 1 941 1 998 61 Swiss Re Annual Report 2000 Notes Long-term operational debt Operational debt as of 31 December 2000: Maturity Instrument in Currency in m rate in CHF m 2017 Payment Undertaking Agreement 2000 USD 64 Libor–15bp 104 Issued Nominal Interest Book value Interest expense on long-term financial debt as of 31 December 1999 and 2000, respectively, was as follows: CHF millions Senior debt Subordinated debt Total 1999 89 74 163 2000 105 90 195 The majority of interest payments on debentures are payable annually with the principal due at maturity. Interest on bank and other loans is generally due semi- annually with principal due upon maturity. In June 1995, the Group issued convertible bonds with a face value of USD 500 million, bearing interest at 2% and maturing on 30 June 2000 in exchange for proceeds of USD 439.5 million. The bond conversion rights were exercisable in multiples of USD 5 000 in exchange for 4.9033 Swiss Re shares through 30 June 2000. Interest was payable semi-annually. As of 30 June 2000, when the conversion right expired, 99 833 bonds of nominal value USD 499 million had been converted into 489 447 shares of the Group. In July 1997, the Group issued a straight bond with a face value of CHF 500 million, bearing interest at 3.75%, maturing on 2 July 2007, in exchange for proceeds of CHF 511 million. Interest is payable annually and the principal is due at maturity. In May 1998, the Group issued CHF 1 010 million of multi-currency subordinated debt with a perpetual term, bearing interest at the rate of six-month LIBOR plus 37.5 basis points, for the first tranche of CHF 300 million, LIBOR plus 40 basis points for a tranche of DEM 340 million, LIBOR plus 45 basis points for a tranche of DEM 110 million payable semi-annually and 5.71% for a tranche of DEM 400 million, payable annually. The loan is subordinated in the event of liquidation to all senior creditors of Swiss Re Zurich, but will be paid in priority to all holders of its equity. 62 Swiss Re Annual Report 2000 In June 1998, the Group issued exchangeable bonds with a face value of NLG 925 million bearing interest at 1.25% payable annually and maturing on 23 June 2003, in exchange for proceeds of NLG 901 million. The bond exchange rights are exercisable in multiples of NLG 1 000 into 5.4054 ING depositary receipts in respect of fully paid ordinary shares of ING Groep N. V. 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 June 1999, the Group also issued EUR 250 million of subordinated Perpetual Auction Reset Capital Solvency bonds, with a coupon of six-month EURIBOR plus 55 basis points for the first seven years. After seven years, and every five years there- after, an auction will be conducted to determine the re-offer yield. In June 1999, the Group also issued USD 530 million exchangeable notes with a five year term, bearing interest of 2.25% payable annually. The notes are exchangeable at the noteholders’ option for shares of Swiss Re, Credit Suisse Group or Novartis AG. 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. 63 Swiss Re Annual Report 2000 Notes 7. Unpaid claims and claim adjustment expenses Asbestos and environmental claims exposure The Swiss Re Group’s obligation for claims payments and claims settlement charges also includes 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. A reconciliation of the beginning and ending reserve balances for asbestos, environ- mental and other long latent liability claims and claim adjustment expenses for the periods presented is as follows: CHF millions Balance as of 1 January Less reinsurance recoverable Net Claims incurred Less paid Effect of foreign currency translation Effect of acquisition Net Plus reinsurance recoverable Balance as of 31 December 1999 4 279 – 450 3 829 – 293 – 314 593 3 815 478 4 293 2000 4 293 – 478 3 815 – 292 – 746 90 94 2 961 319 3 280 The routine reassessment has demonstrated that reserves established in prior years continue to be sufficient. This, in combination with an active commutation strategy, allowed for an overall release of provisions relating to long latent injury claims during 2000 of roughly 8%. In both 1999 and 2000, the Group was successful in achieving some major commutations which have significantly reduced future exposure to these types of claims. When commutation payments are made, the traditional “survival ratio” is artificially reduced by premature payments which should not imply a reduction in reserve adequacy. The Swiss Re Group continues to make provisions at the undiscounted value of potential ultimate claims payments and claims settlement charges, less amounts paid to date. Provisions for long latent injury claims outstanding on 31 December 2000 reflect the estimated future trend of claims payments and claims settlement charges. Due to the inherent uncertainties and assumptions on which these estimates are based, however, we cannot exclude the need to make further additions to these provisions in the future. 64 Swiss Re Annual Report 2000 8. Reinsurance Premiums, claims and claim adjustment expenses are reported net of retrocession in the Group’s income statement. Gross, retroceded and net amounts for these items were as follows: Non-Life Business Group CHF millions Premiums written Change unearned premiums Claims paid Claims and claim adjustment expenses Change equalisation Gross 10 192 Retro – 820 1999 Net 9 372 Gross 12 944 Retro – 895 2000 Net 12 049 – 426 – 7 393 – 30 882 – 456 – 537 – 6 511 – 9 995 18 – 519 1 168 – 8 827 – 2 851 599 – 2 252 – 246 – 379 – 625 reserves Acquisition costs 783 – 2 252 783 190 – 2 062 – 691 – 2 810 – 691 157 – 2 653 Life & Health Business Group CHF millions Gross Retro 1999 Net Gross Retro 2000 Net Premiums written Claims paid Change life and health 7 978 – 5 201 – 667 586 7 311 9 147 – 4 615 – 5 905 – 817 627 8 330 – 5 278 benefits Acquisition costs – 1 537 – 1 920 33 – 1 504 – 1 988 – 2 167 188 – 1 732 – 182 255 – 2 170 – 1 912 Financial Services Business Group CHF millions Gross Retro 1999 Net Gross Retro 2000 Net Premiums written Change unearned premiums Claims paid Claims and claim adjustment expenses Change equalisation reserves Acquisition costs 2 491 – 419 2 072 3 966 – 1 011 2 955 – 264 – 871 16 – 257 – 248 – 1 308 – 1 128 – 1 422 574 – 734 – 72 – 1 494 – 423 194 – 229 – 469 – 217 – 686 – 25 – 297 – 25 – 179 140 – 442 118 140 – 318 124 65 Swiss Re Annual Report 2000 Notes Unpaid claims and claim adjustment expenses, liabilities for life and health policy benefits and unearned premiums are reported net of retrocession in the Group’s balance sheet. Gross, retroceded and net amounts for these items were as follows: Non-Life Business Group CHF millions Provisions for un- earned premiums Unpaid claims and claim adjustment expenses Provisions for profit Gross Retro 1999 Net Gross Retro 2000 Net 3 146 – 136 3 010 3 704 – 180 3 524 36 375 – 3 214 33 161 39 543 – 3 531 36 012 commissions 624 – 2 622 742 Equalisation reserves 2 409 2 409 2 869 742 2 869 Life & Health Business Group CHF millions Provisions for un- earned premiums Unpaid claims and claim adjustment expenses Life and health Gross Retro 1999 Net Gross Retro 2000 Net 183 – 1 182 227 – 2 225 8 862 – 976 7 886 9 444 – 1 225 8 219 policy benefits 23 014 – 2 249 20 765 29 024 – 1 206 27 818 Provisions for profit commissions 218 – 3 215 271 – 2 269 Separate account liabilities 1 688 1 964 Financial Services Business Group CHF millions Provisions for un- earned premiums Unpaid claims and claim adjustment expenses Life and health policy benefits Provisions for profit commissions Equalisation reserves Gross Retro 1999 Net Gross Retro 2000 Net 922 – 37 885 2 200 – 598 1 602 6 269 – 556 5 713 7 594 – 498 7 096 265 19 157 265 276 19 79 157 150 276 79 150 66 Swiss Re Annual Report 2000 9. Personnel expenses CHF millions Wages and salaries Employee benefits 10. Shareholders’ equity 1999 1 219 192 2000 1 395 233 All of the Group’s reinsurance companies prepare statutory financial statements based on local laws and regulations, which in some jurisdictions impose complex regulatory requirements. Most jurisdictions require reinsurers to maintain a minimum amount of capital in excess of a statutory definition of net assets or maintain certain minimum capital and surplus levels. In addition, some jurisdictions place certain restrictions on amounts that may be loaned or transferred to the parent company. The Group’s ability to pay dividends may be restricted by these requirements. In 1999, the Board of Directors announced a share repurchase programme. In the period to end of March 2000, 72 650 shares with a total value of CHF 195.3 million had been repurchased. These shares were approved for cancellation by the share- holders in June 2000. On 26 May 1997, the Group issued 5 000 000 call options. The options were exercis- able up to and including 5 May 1999. They were exercisable at a minimum number of 100 options, with 50 options entitling the holder to receive one Swiss Re share for a purchase price of CHF 1 900. 67 Swiss Re Annual Report 2000 Notes Share data CHF millions Basic earnings per share Income available to common shares Weighted average common shares outstanding Net income per share in CHF Effect of dilutive securities Change in average number of shares due to: Employee options Diluted earnings per share Income available to common shares assuming debt conversion and exercise of options Weighted average common shares outstanding Net income per share in CHF 1999 2000 2 446 2 966 14 307 811 14 275 717 208 171 21 547 31 768 2 446 2 966 14 329 358 14 307 485 207 171 Included in treasury shares are 126 032 and 196 805 authorised and issued shares as of 31 December 1999 and 2000, respectively, which are kept in escrow for satis- fying obligations arising from employee options. The effects of debt conversion have not been included in the 1999 and 2000 earnings per share, as the effect of converting to 169 408 and 77 186 shares, respectively, was anti-dilutive. Own shares The following own shares of Swiss Re Zurich, are held by the Swiss Re Group: Own shares held on 1 January 1999 at cost Purchases in 1999 Sales in 1999 Realised gains Own shares held on 31 December 1999 at cost Own shares held on 31 December 1999 at market value Own shares held on 1 January 2000 at cost Purchases in 2000 Sales in 2000 Capital reduction from share repurchase Realised gains Own shares held on 31 December 2000 at cost Own shares held on 31 December 2000 at market value Number of registered shares 808 092 54 682 – 282 278 580 496 580 496 580 496 150 915 – 583 807 –72 650 74 954 74 954 CHF millions 1 127 177 – 819 520 1 005 1 497 1 005 444 –1 396 –195 391 249 293 68 Swiss Re Annual Report 2000 11. Income taxes The Group is generally subject to corporate income taxes based on the taxable net income in various jurisdictions in which the Group operates. The components of the income tax charge were: CHF millions Current taxes Deferred taxes Income tax expense The components of deferred income taxes were as follows: CHF millions Deferred tax assets Technical provisions Unrealised losses on investments Benefit on loss carryforwards Other Gross deferred tax asset Valuation allowance Total deferred tax asset Deferred tax liabilities Present value of future profits Deferred acquisition costs Technical provisions Bond amortisation Unrealised gains on investments Other Total deferred tax liability 1999 832 – 49 783 2000 364 325 689 1999 2000 1 107 248 391 608 2 354 – 440 1 914 634 404 1 022 203 2 633 1 241 6 137 1 526 432 567 964 3 489 – 277 3 212 772 846 675 691 1 968 1 702 6 654 Deferred income taxes 4 223 3 442 As of 31 December 2000, the Group had CHF 1 476 million of foreign net operating tax loss carryforwards, expiring as follows: CHF 7 million in 2001, CHF 7 million in 2004, CHF 12 million in 2005 and CHF 1 450 million after 2005. The Group also has capital loss carryforwards of CHF 125 million expiring as follows: CHF 4 million in 2003, CHF 10 million in 2004, CHF 104 million in 2005 and CHF 7 million after 2005. Income taxes paid in 2000 were CHF 627 million, and in 1999 CHF 635 million. 69 Swiss Re Annual Report 2000 Notes 12. Compensation and remuneration of directors and executive officers The Group paid an aggregate of CHF 26.4 million in 1999 and CHF 31.8 million in 2000 to the members of the Executive Board and to the members of the Board of Directors (28 persons in total) for services in all capacities, of which CHF 12.4 million in 1999 and CHF 18.5 million in 2000 represented bonuses taken in restricted shares. In addition, the Group contributed or accrued CHF 1.8 million in 1999 and CHF 2.4 million in 2000 for pension, retirement or similar benefits for the Executive Board members in the year ended 31 December. 70 Swiss Re Annual Report 2000 Pension plans and post-retirement benefits 13. Benefit plans The Group sponsors various funded defined benefit pension plans covering its world- wide operations. Employer contributions to the plans are charged to income on a basis which recognises the costs of pensions over the expected service lives of employees covered by the plans. The Group’s funding policy for these plans is to con- tribute annually at a rate that is intended to maintain a level percentage of compensa- tion for the employees covered. A full valuation is prepared at least every three years. The Group also provides certain health-care and life insurance benefits for retired employees and their dependents. Employees become eligible for these benefits when they become eligible for pension benefits. 1999 2000 1999 2000 CHF millions Benefit obligation as of 1 January Service cost Interest cost Amendments Actuarial loss (gain) Benefits paid Acquisitions Foreign currency translation adjustments Benefit obligation as of 31 December Fair value of plan assets as of 1 January Actual return on plan assets Company contributions Benefits paid Acquisitions Curtailment/settlement Foreign currency translation 2 414 112 119 – 17 – 68 Pension benefits 2 660 114 133 42 – 73 – 81 27 100 – 40 2 660 2 782 2 865 433 58 – 68 3 424 184 44 – 81 25 – 74 Other benefits 378 34 20 – 20 – 8 6 15 425 329 29 15 – 43 42 – 7 13 378 7 – 7 8 – 8 adjustments 136 – 48 Fair value of plan assets as of 31 December 3 424 3 474 Reconciliation of balance sheet Funded status Unrecognised loss (gain) Unrecognised prior service cost Unrecognised transition obligation (asset) Net amount recognised 764 – 431 21 – 138 216 692 – 415 58 – 112 223 – 378 101 – 43 – 425 78 – 25 – 320 – 372 71 Swiss Re Annual Report 2000 Notes CHF millions Amounts recognised in the balance sheet consist of Prepaid benefit cost Accrued benefit liability Net amount recognised 1999 2000 1999 2000 Pension benefits Other benefits 412 – 196 216 428 – 205 223 – 320 – 320 – 372 – 372 Components of net periodic benefit cost Service cost (net of participant contributions) Interest cost Expected return on assets Amortisation of: Net (gain) loss Prior service cost Transition obligation (asset) Subtotal Effect of settlement, curtailment and termination Net periodic benefit cost Weighted average assumptions at year-end Discount rate Expected return on plan assets Rate of compensation increase Medical trend – initial rate Medical trend – ultimate rate 112 119 – 164 – 2 2 – 25 42 42 5.1% 5.7% 3.4% 114 133 – 187 – 8 5 – 25 32 4 36 5.1% 6.0% 3.5% 29 15 2 46 46 34 20 4 – 2 56 56 5.0% 5.0% 7.8% 4.6% 7.8% 4.6% Assumed health-care cost trend rates have a significant effect on the amounts reported for the health-care plans. A one percentage point change in assumed health-care cost trend rates would have the following effects for 2000: CHF millions Effect on total of services and interest cost components Effect on post-retirement benefit obligation 1 percentage 1 percentage point increase point decrease 9 60 12 78 72 Swiss Re Annual Report 2000 Fixed option plan 14. Stock compensation plans As of 31 December 1999 and 2000, the Group had two and one, respectively, stock- based compensation plans, which are described below. Under the fixed option plan, the Group may grant options for a certain number of Swiss Re shares to members of the Executive Board and certain members of manage- ment each year. Under the plan, the exercise price of each option equals the market price of the shares on the date of the grant. Options issued vest at the end of the fourth year and have a maximum life of ten years. A summary of the activity of the Group’s fixed stock option plan is as follows: Weighted average exercise price in CHF 2 033 3 250 Shares 79 587 50 365 2 090 2 518 – 3 920 126 032 1999 Weighted 2000 average exercise price in CHF 2 518 2 594 1 567 3 092 2 587 Shares 126 032 80 778 – 8 660 –1 345 196 805 11 250 Outstanding, 1 January Options granted Options exercised Options forfeited Outstanding, 31 December Exercisable, 31 December Weighted average fair value of options granted during the year 641 550 The following table summarises the status of fixed stock options outstanding as of 31 December 2000. Range of exercise price in CHF 1 206 – 1 487 2 080 – 3 040 3 254 – 4 000 1 206 – 4 000 Weighted average Weighted average Number of options 40 200 107 653 48 952 196 805 remaining contrac- tual life in years 2.3 8.7 8.2 7.3 exercise price in CHF 1 453 2 704 3 260 2 587 The fair value of each option grant is estimated on the date of the grant using a binomial option-pricing model with the following weighted average assumptions used for grants in 1999 and 2000, respectively: dividend yield of 1.9% and 2.5%; expected volatility of 22% and 22%; risk-free interest rate of 2.3% and 3.8%; expected life of 5.5 years and 5.5 years. From annual option plans 1995 – 1999, an aggregate of 40 030 options to purchase the same number of shares were held by members of the Executive Board, as of 31 December 2000. Options vest after four years. 73 Swiss Re Annual Report 2000 Notes Employee stock purchase plan (discount plan) The Group does not recognise compensation expense for these options. If compensa- tion expense for the options had been recognised, the Group’s net income and earnings per share would approximate the pro forma amounts in the following table: CHF millions Net income Earnings per common share in CHF: Basic Diluted 1999 2 414 169 169 2000 2 922 205 204 Under the terms of the discount plan for 1999, eligible employees of Swiss Re Zurich could choose to purchase shares at a discount of CHF 1 000 per share, or receive a cash equivalent of 90% of Swiss Re Zurich’s contribution. Swiss Re Zurich purchases these shares on the open market. The required service for eligibility is one calendar year. The number of shares that an employee can purchase are 15 shares for senior managers, 10 shares for managers and 5 shares for other staff. This plan was dis- continued after 1999. Under the plan, Swiss Re Zurich sold 6 525 shares to employees with an associated cost of CHF 7 million in 1999. This cost is included in other operating costs and expenses. 15. Commitments and contingent liabilities Other commitments As of 31 December 1999 and 2000, the Group had outstanding guarantees of CHF 2 455 million and CHF 2 815 million, respectively. As a participant in limited investment partnerships, the Group commits itself to mak- ing available certain amounts of investment funding, callable by the partnership for periods of up to 10 years. The total commitments remaining uncalled as of 31 Decem- ber 1999 and 2000 were CHF 964 million and CHF 1 074 million, respectively. As part of its regular business, the Group makes capital (equity, debt) available to clients, contingent on the occurrence of a defined event. These commitments expire as follows: As of 31 December 2000 2001 2002 2004 2005 Total CHF millions 249 81 55 984 1 369 74 Swiss Re Annual Report 2000 The Group had four and five guarantees as of 31 December 1999 and 2000, respec- tively, which primarily indemnify the purchasers of former Group entities for possible run-off losses or claims for pending litigation. The Group enters into guarantees with regulators, purchasers of former group entities and others in the ordinary course of business. As part of its normal business operations, the Group enters into a number of agree- ments for the leasing of premises. Such agreements, which are operating leases, total the following obligations for the next five years and thereafter: As of 31 December 2000 2001 2002 2003 2004 2005 After 2005 Total CHF millions 44 41 38 37 35 210 405 The corresponding lease expenses incurred in 1999 and 2000 were CHF 44 million and CHF 41 million, respectively. In the normal course of business operations, the Group is involved in various claims, lawsuits and regulatory matters. In the opinion of management, the disposition of these or any other legal matters will not have a material adverse effect on the Group’s business, consolidated financial position or results of operations. 16. Assets under management The Group acts as manager for certain pooled funds that operate similar to mutual funds. As of 31 December 1999 and 2000, net third party assets under management at market value were CHF 3 720 million and CHF 6 017 million, respectively. The Group also manages an investment portfolio belonging to a group of companies in which the Group has an investment that is accounted for using the equity method. The market value of the portfolio, which is not recorded in the Group’s balance sheet, amounted to CHF 864 million and CHF 784 million as of 31 December 1999 and 2000, respectively. 75 Swiss Re Annual Report 2000 Notes 17. Information on business segments The Group provides reinsurance and financial services throughout the world. Swiss Re Group has three business groups, which are determined by the organisational structure. These are Non-Life Business Group, which includes property-casualty reinsurance; Life & Health Business Group, which includes life, health and disability reinsurance; Financial Services Business Group, which includes Swiss Re Investors, Capital Partners and New Markets. The Corporate Centre provides direction and Group-wide support to the business groups. The main expenses excluded from the measurement of segments are goodwill amortisation, interest expenses, indirect taxes and foreign exchange gains/losses. Investment income and assets are allocated to business groups based on the investment income and assets of the legal entities that are operated by these business groups. Where one entity is controlled by two or more business groups, the investment income and assets are hypothecated to these business groups using technical liabilities and other information as a key for the allocation. 1999 CHF millions Revenues Premiums earned Net investment income Net realised investment gains Other revenues Expenses Claims and claim adjustment ex- penses; life and health benefits Acquisition costs Amortisation of goodwill Other operating costs and expenses Life Financial Corporate Reconcili- Consoli- Non-Life & Health Services Centre ation dated 8 916 1 564 1 904 7 311 1 839 655 1 824 422 659 97 – 7 980 – 2 062 – 6 119 – 1 732 – 1 382 – 179 – 829 – 449 – 708 – 293 18 051 3 846 3 588 246 21 370 149 – 52 – 211 – 506 –15 533 – 3 973 – 211 – 2 785 Operating income/expense 1 513 1 505 733 – 293 – 229 3 229 76 Swiss Re Annual Report 2000 2000 CHF millions Revenues Premiums earned Net investment income Net realised investment gains Other revenues Expenses Claims and claim adjustment ex- penses; life and health benefits Acquisition costs Amortisation of goodwill Other operating costs and expenses Life Financial Corporate Reconcili- Consoli- Non-Life & Health Services Centre ation dated 11 530 1 722 2 459 8 330 2 530 453 2 221 458 738 217 – 10 143 – 2 653 – 7 448 – 1 912 – 2 040 – 318 – 751 – 506 – 845 – 321 22 081 4 802 4 275 395 92 625 178 – 19 631 – 4 883 – 310 – 3 074 – 310 – 651 Operating income/expense 2 164 1 447 431 – 321 – 66 3 655 a) Non-Life Business Group – Line of business 1999 CHF millions Revenues Premiums earned Property Liability Motor Accident, health Other lines Non-Life Business Group 2 869 2 220 1 860 511 1 456 8 916 Expenses Claims and claim adjustment expenses Acquisition costs Other operating costs and expenses – 2 609 – 800 – 332 – 1 875 – 357 – 168 – 1 973 – 430 – 94 – 327 – 121 – 37 – 1 196 – 354 – 198 – 7 980 – 2 062 – 829 Underwriting result – 872 – 180 – 637 Claims ratio in % Expense ratio in % Combined ratio in % 91 39 130 84 24 108 106 28 134 26 64 31 95 – 292 – 1 955 82 38 120 90 32 122 77 Swiss Re Annual Report 2000 Notes 2000 CHF millions Revenues Premiums earned Property Liability Motor Accident, health Other lines Non-Life Business Group 3 850 2 326 2 520 889 1 945 11 530 Expenses Claims and claim adjustment expenses Acquisition costs Other operating costs and expenses – 3 827 – 913 – 219 – 1 822 – 485 – 154 – 2 384 – 478 – 120 – 718 – 230 – 72 – 1 392 – 10 143 – 2 653 – 751 – 547 – 186 Underwriting result – 1 109 – 135 – 462 – 131 – 180 – 2 017 Claims ratio in % Expense ratio in % Combined ratio in % 99 30 129 78 28 106 94 24 118 81 34 115 71 38 109 88 29 117 b) Life & Health Business Group CHF millions Revenues Premiums earned Net investment income Net realised investment gains Expenses Claims and claim adjustment expenses; life and health benefits Acquisition costs Other operating costs and expenses Operating income/expense 1999 2000 7 311 1 839 655 8 330 2 530 453 – 6 119 – 1 732 – 449 – 7 448 – 1 912 – 506 1 505 1 447 78 Swiss Re Annual Report 2000 c) Financial Services Business Group CHF millions Revenues Premiums earned Net investment income Net realised investment gains Other revenues Expenses Claims and claim adjustment expenses Acquisition cost Other operating costs and expenses Operating income/expense d) Geographic gross premiums written CHF millions United States United Kingdom Germany The Netherlands Italy Canada Switzerland Other Total e) Gross premiums written by line of business CHF millions Property Liability Motor Accident/health Marine Aviation Credit/surety Engineering/other lines Subtotal non-life Life Total gross premiums written 79 Swiss Re Annual Report 2000 1999 2000 1 824 422 659 97 2 221 458 738 217 – 1 382 – 179 – 708 – 2 040 – 318 – 845 733 431 1999 6 450 2 541 1 747 1 400 1 068 847 814 5 794 20 661 1999 3 904 2 909 2 063 644 601 289 1 489 753 12 652 8 009 20 661 2000 8 354 3 801 1 866 1 447 1 139 781 1 570 7 099 26 057 2000 4 838 3 578 2 661 1 046 800 429 2 519 1 008 16 879 9 178 26 057 Notes Method of consolidation: f full e equity 1 voting share 24.74% n o i t a d i l o s n o c f o d o h t e M f f f f e f f f f f f f f f f f f f f f f f f f f f f . 0 0 0 2 2 1 1 3 f o s a . % n i n o i t a i l i f f A 18. Subsidiaries and equity investees Europe Switzerland European Reinsurance Company of Zurich Schweiz Allgemeine Versicherungsgesellschaft Swiss Re Investors Zurich Swiss Re Partnership Holding AG Xenum Finance AG Germany Bavarian Reinsurance Company Limited Bayerische Rück-Holding Aktiengesellschaft United Kingdom European Credit and Guarantee Insurance PCC Limited Fox-Pitt, Kelton Group Limited Palatine Insurance Company Limited SR International Business Insurance Company Ltd. Swiss Re Asset Management Ltd. Swiss Re Capital Markets Limited Swiss Re GB Limited Swiss Re Life & Health Limited Swiss Re New Markets Ltd. Swiss Re (UK) House Ltd. Swiss Reinsurance Company UK Limited The Mercantile & General Reinsurance Company Ireland Swiss Re International Treasury Ltd. Bavarian Reinsurance Ireland Ltd. Italy Swiss Re Italia S.p.A. Luxembourg Rück Treasury & Management (Luxembourg) S.A. Swiss Re Treasury (Luxembourg) S.A. Netherlands Holland Re Holding B.V. with 2 subsidiaries NCM Holding N.V. with 11 subsidiaries Norway Bayerische Rück Norge AS 80 Swiss Re Annual Report 2000 100 100 100 100 42.5 100 100 100 66.6 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 90 100 . 0 0 0 2 2 1 1 3 f o s a . % n i n o i t a i l i f f A North America Barbados Atlantic International Reinsurance Company Ltd. European Atlantic Reassurance Company Ltd. European Finance Reinsurance Company Ltd. European International Holding Company Ltd. European International Reinsurance Company Ltd. Stockwood Reinsurance Company Ltd. Bermuda Englewood Reinsurance Company Ltd. Harrington International Insurance Ltd. Life Re International, Ltd. Partner Reinsurance Company1 SwissRe Finance (Bermuda) Ltd. SwissRe Investments (Bermuda) Ltd. Canada Swiss Reinsurance Company Canada Swiss Re Holdings (Canada) Inc. Swiss Re Life & Health Canada Grand Cayman Harrington Holdings Ltd. US Facility Insurance Holding Corporation Allied Life Financial Corporation Assure America, Inc. International Risk Management Group Ltd. with 28 subsidiaries Life Re Capital Trust I Life Re Capital Trust II Life Reassurance Corporation of America LSL Financial Corporation Midland Life Insurance Company Reassure America Life Insurance Company Texas Re Life Insurance Company NAS Management Inc. North American Capacity Insurance Company North American Elite Insurance Company North American Specialty Insurance Company Swiss Reinsurance America Corporation Swiss Re America Holding Corporation Swiss Re Atrium Corporation Swiss Re Capital Markets Corporation Swiss Re Financial Products Corporation Swiss Re Investors America Swiss Re Life & Health America Inc. Swiss Re Management Corporation 81 Swiss Re Annual Report 2000 100 100 100 100 100 100 100 71.43 100 24.51 100 100 100 100 100 71.43 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 n o i t a d i l o s n o c f o d o h t e M f f f f f f f f f e f f f f f f f f f f f f f f f f f f f f f f f f f f f f f Notes Swiss Re New Markets Corporation Underwriters Re Washington International Insurance Company Latin America Mexico Swiss Re México, S.A. Australia Swiss Re Australia Ltd. Swiss Re Life & Health Australia Limited The Mercantile and General Reinsurance Company of Australia Limited Swiss Re Investors Australia Pty Ltd. Africa South Africa Swiss Re Southern Africa Limited Swiss Re Life & Health Southern Africa Limited Swiss Re Investors Southern Africa Asia Hong Kong Swiss Re Investors Asia Limited n o i t a d i l o s n o c f o d o h t e M f f f f f f f f f f f f 0 0 0 2 . . 2 1 1 3 f o s a % n i n o i t a i l i f f A 100 100 100 94.78 100 100 100 100 100 100 100 100 Method of consolidation: f full e equity 82 Swiss Re Annual Report 2000 19. Change in accounting basis The Group has changed its accounting policies and presentation to conform to more widely accepted international practice. Therefore certain accounting policies changed from one acceptable method to another under the Swiss ARR basis. The nature and impact of these changes are set out below. Reconciliation of previously published 1999 figures to new basis Swiss GAAP CHF millions As previously published Goodwill Acquired present value of future profits (PVFP) Investment valuation changes Non-life reserves and loss adjustment expense (LAE) Life reserves and deferred acquisition costs Exchange rate impacts Deferred tax Other New basis Swiss GAAP Net income 2 789 – 211 – 242 367 110 – 287 – 215 82 53 2 446 Net equity 17 778 4 121 2 678 1 307 – 1 613 1 020 118 – 935 358 24 832 The main differences between the accounting standards used by the Swiss Re Group in the 1999 Annual Report as previously published and those now adopted are set out below. For new basis Swiss GAAP, the excess of the cost of the acquired businesses over the fair value of the net assets acquired is recorded as goodwill and amortised over periods of between 5 and 20 years. Under the old basis, goodwill arising on the acquisition of consolidated entities was offset through retained earnings. PVFP represents the discounted value of estimated future gross profits on in-force life business acquired. The asset is amortised over the expected revenue recognition period of the underlying acquired business. Under the old basis, elements of PVFP were implicitly included in goodwill. Land and buildings leased to unrelated third parties are recorded at depreciated cost, net of any impairment charges and classified as investment property. Real estate investments held for resale are accounted for at the lower of carrying value or market and are not depreciated. Under the old basis, investments in land and buildings were recorded at market value with realised gains and losses from sales as well as valuation adjustments included in the income statement. Under the new basis, minority (typically less than 20% interests) shareholdings are accounted for as “Available for sale” securities, and are recorded at fair value. Unrealised gains and losses are recorded in equity and other than temporary declines in value below cost are recorded in income. Other minority shareholdings were accounted for at the lower of cost or market under the old basis. 83 Swiss Re Annual Report 2000 Goodwill Acquired present value of future profits Investment valuation changes Notes Non-life reserves and loss adjustment expense (LAE) Life reserves and deferred acquisition costs Exchange rate impacts 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. For new basis Swiss GAAP, unpaid non-life claims provisions may only be discounted if the payment pattern and ultimate cost are fixed and determinable on an individual basis. Under the old basis, claims provisions for finite risk reinsurance and acquired blocks of retroactive reinsurance business were discounted if this was required for statutory reporting of the Group company. Included with provisions for unpaid claims are provisions for estimated future costs associated with the settling of incurred claims. The change in the provision is recorded as part of claims expenses in the income statement. For the old basis, the recording of such items was in accordance with statutory practice of the respective Group company. Liabilities for life and health policy benefits are generally calculated using the net level premium method, based on assumptions which are set at the time the contract is issued or, in the case of contracts acquired by purchase, at the purchase date. Under the old basis, liabilities for policy benefits were based on the statutory requirements for each Group company. 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 in the currency transla- tion account in equity. Under the old basis, all items in the balance sheet and income statement denominated in a foreign currency were translated at the year-end rate of exchange. The difference resulting from the revaluation of opening balances was recorded in retained earnings. Deferred tax This is the impact of deferred taxes on the differences described above. 84 Swiss Re Annual Report 2000 Report of the Group auditors To the General Meeting of Swiss Reinsurance Company Zurich To the General Meeting of Swiss Reinsurance Company Zurich As auditors of the Group, we have audited the consolidated financial statements (income statement, balance sheet, statement of shareholders’ equity, statement of comprehensive income, statement of cash f low and notes / pages 39 to 44 and 46 to 84) of Swiss Re Group for the year ended 31 December 2000. These consolidated financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss profession and with the International Standards on Auditing issued by the International Federation of Accountants (IFAC), which require that an audit be planned and performed to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. We have examined on a test basis evidence supporting the amounts and disclosures in the consolidated financial statements. We have also assessed the accounting principles used, significant estimates made and the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements give a true and fair view of the financial position, the results of operations and the cash f lows in accordance with the Accounting and Reporting Recommendations (ARR) and comply with Swiss law. We recommend that the consolidated financial statements submitted to you be approved. PricewaterhouseCoopers Ltd Michael P. Nelligan Rudolf A. Bless Zurich, 24 April 2001 85 Swiss Re Annual Report 2000 “ Access to sufficient water of good quality is a basic human need.” m o c . e r s s i w s . w w w t a r e d n h e Z . B . J r e d n a x e A t u o b a l e r o m : k r @ m k o o B Annual report Swiss Reinsurance Company Reinsurance and holding company Swiss Reinsurance Company performs a dual role within the Swiss Re Group as both a reinsurance and a holding company. The assessment of the market posi- tion, profitability and financial strength of our world-wide organisation must focus primarily on the consolidated financial statements. The following commentary on the 2000 financial year of the parent company therefore complements the review of the financial year of the Swiss Re Group and is intentionally kept short. Profit for the financial year After-tax profit for the financial year amounted to CHF 1 146 million, follow- ing CHF 1 759 million in 1999. This decline in profit is attributable to the technical result, which fell consider- ably from CHF –487 million in the previous year to CHF –1 321 million. In contrast, the non-technical result rose from CHF 2 436 million in 1999 to CHF 2 646 million. Reinsurance result In the year under report, a strong growth in premium volume was recorded, as net premiums written increased by 16% to CHF 8 525 million. This was ac- companied by lower administrative expenses and only modestly higher overall operating expenses. The technical result is marked by a considerable increase in claims incurred of CHF 1 354 million, which is partly related to Group internal retrocessions and a contribution of CHF 371 million to the provision for catastrophe claims (release of CHF 833 million in 1999). Investment income and investments The investment result rose by CHF 149 million to CHF 3 673 million. As a result of capital market trends, which continued favourably, realised gains on the sale of investments once again increased significantly and reached CHF 4 183 million. These were accompanied by valuation adjustments of CHF 2 044 million, which consisted predominantly of precautionary valuation adjustments to the securities portfolio as well as the write-off of goodwill resulting from acquisitions in recent years. The balance sheet amount of investments increased by CHF 1.0 billion to CHF 37.8 billion. Most notably, participation assets increased due to capital contributions to existing subsidiaries. 87 Swiss Re Annual Report 2000 Access to sufficient water of good quality is a basic human need. Today, over one-fifth of the world’s population still does not have access to safe drinking water and natural water resources are continually being polluted. Unless properly managed, water scarcity will also curb additional food pro- duction. Since Switzerland is so fortunate as to be located in the “water tower” of Europe, it is our task to back others in their efforts to deploy their water resources wisely. My institute and I are accepting the challenge to become a global player in helping to achieve fair partnerships for water. Alexander J. B. Zehnder Director of Swiss Federal Institute for Environmental Science and Technology, Zurich Technical provisions The technical provisions continued to rise and amounted to CHF 23 486 mil- lion on the balance sheet date. The increase of CHF 1 707 million ref lects the higher business volume and the loss burden incurred during the financial year. Furthermore, reserves were strengthened by a contribution to the provision for catastrophe claims in the amount of CHF 371 million; as of the balance sheet date, this provision amounted to CHF 1 696 million. Subordinated liabilities As of 31 December 2000, the company held four different perpetual sub- ordinated liabilities totalling CHF 1 942 million. These liabilities combine elements of debt and equity, and may be included in solvency calculations. Shareholders’ equity 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. At the General Meeting on 30 June 2000, a capital reduction in the amount of the 72 650 shares repurchased was approved, thus reducing the nominal share capital of the company to CHF 146 583 010, consisting of 14 658 301 regis- tered shares with a par value of CHF 10. 88 Swiss Re Annual Report 2000 Income statement Swiss Reinsurance Company For the years ended 31 December CHF millions Technical account Premiums earned Claims incurred Change in the provisions for life reinsurance Profit commissions Operating expenses Allocated investment return Technical result Non-technical account Investment income Investment charges Allocated investment return Interest charges Other income Other charges Non-technical result Extraordinary income and charges Extraordinary income Extraordinary charges Extraordinary result Total result Profit before tax Tax Profit for the financial year Notes 1999 Net 2000 Net 1 2 3 4 5 6 7 7 060 – 5 818 – 53 – 174 – 2 416 914 – 487 5 774 – 2 250 – 914 – 188 214 – 200 2 436 450 – 450 0 1 949 – 190 1 759 7 680 – 7 172 112 – 248 – 2 692 999 – 1 321 6 353 – 2 680 – 999 – 195 353 – 186 2 646 – – – 1 325 – 179 1 146 The accompanying notes are an integral part of the financial statements. 89 Swiss Re Annual Report 2000 Balance sheet Swiss Reinsurance Company As of 31 December Assets CHF millions Investments Land and buildings Investments in subsidiaries and affiliated companies Loans to subsidiaries and affiliated companies Shares Fixed income securities and registered debt instruments Mortgages and loans Time deposits Deposits with ceding companies Total investments Debtors Debtors from reinsurance operations Other debtors Total debtors Other assets and accruals Cash at bank and in hand Intangible assets Fixed and other assets Accrued interest and rent Other accruals Total other assets and accruals Total assets 1999 2000 1 843 11 903 4 010 6 713 6 821 552 1 138 3 794 36 774 2 022 15 403 1 923 6 961 6 523 580 300 4 064 37 776 1 309 389 1 698 2 481 256 2 737 214 – 126 160 98 598 287 60 140 152 74 713 39 070 41 226 90 Swiss Re Annual Report 2000 Balance sheet Swiss Reinsurance Company As of 31 December Liabilities and shareholders’ equity CHF millions Technical provisions Provisions for other risks and charges Deposits retained from ceded reinsurance business Notes 8 1999 21 779 2000 23 486 4 405 4 117 68 226 Other liabilities and accruals 9 4 350 4 616 Subordinated liabilities Shareholders’ equity Share capital Legal reserve Reserve for own shares Other reserves Disposable profit Retained earnings brought forward Profit for the financial year Total shareholders’ equity Total liabilities and shareholders’ equity 9 1 146 The accompanying notes are an integral part of the financial statements. 10 1 998 1 942 147 650 1 005 2 897 1 771 147 650 249 4 638 1 155 6 470 6 839 39 070 41 226 91 Swiss Re Annual Report 2000 Notes Swiss Reinsurance Company Valuation principles Basis of presentation Time period Valuation methods: Income statement Balance sheet / Assets The income statement and the balance sheet are presented in a format which follows the Accounting and Reporting Recommendations issued by the Swiss Foundation for Accounting and Reporting. The financial statements and the notes are prepared in accordance with the regulations of the Swiss Company Law. The 2000 financial year comprises the accounting period from 1 January to 31 December 2000. However, due to local convention, reinsurance business from Japan included in the accounts is for the period from 1 April 2000 to 31 March 2001. The allocated investment return includes the actual investment income which can be directly attributed to the reinsurance business. In addition, it contains the investment return generated on the investments covering the technical provisions. The interest rate reflects the currency-weighted five-year average yield on five- year government bonds. 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. 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. The following assets are stated at cost, less necessary and legally permissible depreciation: – Land and buildings (purchase or construction cost) – Investments in subsidiaries and affiliated companies – Shares – Fixed income securities and registered debt instruments – Derivative financial instruments (without hedging intent) These assets are not subject to revaluation. Discounted securities are valued at their amortised cost. Derivative financial instruments used for hedging purposes are valued on the basis of the underlying business. The valuation rules prescribed by the Swiss insurance supervisory authority are observed. With the exception of property, fixed assets are stated at cost, less individually scheduled straight-line depreciation over their useful lives. Items of minor value are not capitalised. The same principles apply to the capitalisation of intangible assets which refer entirely to software development expenses. The following items are stated at nominal value in the balance sheet, after deduc- tion of known credit risks if applicable: – Loans to subsidiaries and affiliated companies – Mortgages and loans – Time deposits – Deposits with ceding companies – Debtors – Cash at bank and in hand 92 Swiss Re Annual Report 2000 Balance sheet / Liabilities The technical provisions are valued in accordance with the following principles: Premiums written relating to future periods are stated as provisions for unearned premiums and are normally calculated by statistical methods. The technical provisions for life reinsurance business are determined on the basis of actuarially calculated present values taking experience into account. They also include the provisions for unearned premiums of life reinsurance and the deduc- tion of deferred charges. Provisions for claims outstanding are based on information provided by clients and own estimates of expected claims experience which are drawn from empirical statistics. These include provisions for claims incurred but not reported. Unpaid insurance obligations are set aside at the full expected amount of future payment. Provisions for profit commissions are based on contractual agreements with clients and depend on the results of reinsurance treaties. At the direction of the Swiss insurance supervisory authority, a provision for catastrophe claims is established. Provisions for other risks and charges are formed according to business principles and are based on estimated needs. Provisions for taxation contain prospective taxes on the basis of the financial year just ended. Deposits retained from ceded reinsurance business as well as subordinated and other liabilities are stated at redemption value. Exceptions are the derivative finan- cial instruments included under the item Other creditors: these are valued using the same principles applied for the derivative financial instruments included under investments. 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. Valuation differences from foreign exchange transactions versus the actually realised transaction rates are recognised in the income statement. The currency exchange rates applicable for key currencies are shown on page 53. 93 Swiss Re Annual Report 2000 Foreign currency translation Notes Swiss Reinsurance Company Additional information on the financial statements CHF millions Technical account Premiums written Change in the provision for unearned premiums 1. Premiums earned Claims paid Change in the provision for claims outstanding 2. Claims incurred 3. Change in the provision for life reinsurance 4. Profit commissions Commissions Administrative expenses 5. Operating expenses Gross Retro 1999 Net Gross Retro 2000 Net 7 882 – 525 7 357 9 462 – 937 8 525 – 294 7 588 – 3 – 528 – 297 7 060 – 844 8 618 – 1 – 938 – 845 7 680 – 5 025 385 – 4 640 – 5 916 222 – 5 694 – 1 299 – 6 324 121 506 – 1 178 – 5 818 – 1 589 – 7 505 111 333 – 1 478 – 7 172 – 56 – 231 – 1 527 3 57 92 – 53 – 113 225 112 – 174 – 308 60 – 248 – 1 435 – 981 – 2 416 1999 139 1 954 214 490 35 155 2 787 5 774 – 121 – 1 738 – 391 – 2 250 3 524 – 1 875 145 – 1 730 – 962 – 2 692 2000 146 1 140 191 465 44 184 4 183 6 353 – 105 – 2 044 – 531 – 2 680 3 673 CHF millions Investment result Income from land and buildings Dividend and interest from subsidiaries and affiliated companies Dividend income Income from fixed income securities, loans and mortgages Income from time deposits Income from deposits with ceding companies Realised gains on sale of investments 6. Investment income Investment management charges Valuation adjustments on investments Realised losses on sale of investments 7. Investment charges Investment result 94 Swiss Re Annual Report 2000 CHF millions 8. Technical provisions Provisions for unearned premiums Provisions for life reinsurance Provisions for claims outstanding Provisions for profit commissions Provision for catastrophe claims Gross Retro 1 557 2 294 16 759 104 1 325 – 18 12 – 250 – 4 – 1999 Net 1 539 2 306 16 509 100 1 325 Gross Retro 2 363 2 355 17 533 123 1 696 – 18 – 211 – 350 – 5 – 2000 Net 2 345 2 144 17 183 118 1 696 Total technical provisions 22 039 – 260 21 779 24 070 – 584 23 486 CHF millions 9. Other liabilities and accruals Creditors arising out of reinsurance operations Amounts owed to banks Debentures Loans Other creditors Accruals Total other liabilities and accruals 1999 1 763 29 500 908 961 189 4 350 2000 1 769 75 500 959 1 146 167 4 616 CHF millions 10. Shareholders’ equity 1999 2000 Change in shareholders’ equity Shareholders’ equity on 31 December (previous year) Dividend paid for the previous year Share buyback / capital reduction Special allocations Profit for the financial year Shareholders’ equity on 31 December before allocation of profit Dividend payment Shareholders’ equity on 31 December after allocation of profit Source of shareholders’ equity (after allocation of profit) From nominal capital From share premium, less share buyback / capital reduction From profit allocation From other allocations Shareholders’ equity on 31 December after allocation of profit 1 Board of Directors’ proposal to the General Meeting of 31 May 2001 5 398 – 687 – – 1 759 6 470 – 712 5 758 147 1 934 3 493 184 5 758 6 470 – 712 – 195 130 1 146 6 839 – 713 1 6 126 147 1 753 3 927 299 6 126 95 Swiss Re Annual Report 2000 Notes Swiss Reinsurance Company Additional information Contingent liabilities Security deposits Contingent liabilities, mainly towards Group companies, amounted on 31 December 2000 to CHF 1 672 million (1999: CHF 2 149 million). In addition, there were 17 unlimited guarantees and other contingent liabilities; 14 of these are for obligations towards Group companies. No payments are expected under these guarantees. To secure the technical provisions on the 2000 balance sheet date, securities in the amount of CHF 1 987 million were deposited in favour of ceding companies (1999: CHF 2 132 million). In addition, a mortgage of CHF 7 million exists on a real estate property with a book value of CHF 16 million. Fire insurance value of tangible assets The insurance value of tangible assets, comprising the real estate portfolio and other tangible assets, amounted on 31 December 2000 to CHF 2 605 million (1999: CHF 2 325 million). Obligations towards employee pension funds The current account obligations towards employee pension funds amounted to CHF 61 million on the 2000 balance sheet date (1999: CHF 151 million). Bonds and debentures 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. Investments in subsidiaries Details on the Swiss Re Group’s subsidiaries are to be found on pages 80 ff. Own shares Swiss Re Group Own shares held by the Swiss Re Group are stated on page 68. Claims on and obligations towards Group companies Provisions for other risks and charges CHF millions Deposits with ceding companies Debtors Deposits retained from ceded reinsurance business Other liabilities 1999 1 504 599 – 631 2000 1 716 1 432 162 791 This item contains provisions for taxation in the amount of CHF 221 million (1999: CHF 229 million) and other provisions totalling CHF 3 896 million (1999: CHF 4 176 million). Other provisions notably include a provision deriving from the restructuring of participations and a provision for currency fluctuations. Other liabilities and accruals Other liabilities and accruals are long-term liabilities in the amount of CHF 1 177 million (1999: CHF 1 408 million) and short-term liabilities amounting to CHF 3 439 million (1999: CHF 2 942 million). Netting of income and charges In the 1999 income statement, income and charges in the equal amount of CHF 3 500 million were netted. These positions resulted from a Group internal restructuring of participations and had no impact on the profit. 96 Swiss Re Annual Report 2000 Major shareholders Personnel information Actuarial audit Based on the information at our disposal, Credit Suisse Group owned 977 441 reg- istered shares of Swiss Reinsurance Company on 20 April 2001, representing 6.67% of the total share capital. In Switzerland, Swiss Reinsurance Company employed a staff of 2 841 on the balance sheet date (1999: 2 870). Personnel expenses for the 2000 financial year amounted to CHF 687 million (1999: CHF 648 million). The independent actuary, Paul Embrechts, Oberrohrdorf, has confirmed in his report that the balance sheet provisions for the life reinsurance business stated at year-end 2000 have been calculated in accordance with European Union guide- lines. 97 Swiss Re Annual Report 2000 Proposal for allocation of profit The General Meeting to be held in Zurich on 31 May 2001 has at its disposal the following balance sheet profit (cf. income statement and balance sheet, pages 89 to 91): in CHF Retained earnings brought forward from previous year Profit for the financial year 1999 2000 12 130 609 1 758 930 798 9 303 357 1 146 087 021 Disposable profit 1 771 061 407 1 155 390 378 Share structure For the financial year 2000 – eligible for dividend – not eligible for dividend Number of Nominal registered shares capital in CHF 14 253 041 405 260 142 530 410 4 052 600 Total shares issued 14 658 301 146 583 010 The Board of Directors proposes to the General Meeting to allocate this profit as follows: in CHF Dividend Allocation to reserves Balance carried forward 1999 711 758 050 1 050 000 000 9 303 357 2000 712 652 050 430 000 000 12 738 328 Disposable profit 1 771 061 407 1 155 390 378 Dividend If the proposal of the Board of Directors is accepted, a dividend of CHF 50 per share will be paid. After deduction of the Federal Withholding Tax of 35%, the dividend will be paid from 6 June 2001 by means of dividend order to shareholders recorded in the share register or to their deposit banks. Zurich, 24 April 2001 98 Swiss Re Annual Report 2000 Report of the statutory auditors To the General Meeting of Swiss Reinsurance Company Zurich As statutory auditors, we have audited the accounting records and the financial statements (income statement, balance sheet and notes / pages 89 to 98) of Swiss Reinsurance Company for the year ended 31 December 2000. These financial statements are the responsibility of the Board of Directors. Our responsibility is to express an opinion on these financial statements based on our audit. We confirm that we meet the legal requirements concerning professional qualification and independence. Our audit was conducted in accordance with auditing standards promulgated by the Swiss 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 financial statements and the proposed appropriation of available earnings comply with Swiss law and the company’s Articles of Association. We recommend that the financial statements submitted to you be approved. PricewaterhouseCoopers Ltd Michael P. Nelligan Rudolf A. Bless Zurich, 24 April 2001 99 Swiss Re Annual Report 2000 Without water there would be no life. And good fresh water is becoming scarce on our planet. How can we share this precious resource in a sustainable way without resorting to violence? The River Nile, for example, lies at the centre of a complex sys- tem of waterways, economic and political aspirations, var- ious development programmes, basic human needs and sophis- ticated management methods. The conflict and risk potential is huge, but so is the potential for fruitful cooperation. The Nile is becoming a supreme paradigm of how (or whether) man is able to deal with this new type of complex problem. My challenge is to contribute to in-depth “We must learn to share scarce resources.” understanding of such situa- tions and to the development of conflict-solving strategies for the equitable and sustainable use of scarce resources. Kurt R. Spillmann Director of Centre for Security Studies and Conflict Research, Zurich m o c . e r s s i w s . w w w t a n n a m l l i p S . R t r u K t u o b a e r o m : k r @ m k o o B Glossary Accumulation Admin Re Capacity Concentration of risks which may be affected by the same claim event or concen- tration of shares in the same risk or same event through reinsurance treaties. Admin Re is the acceptance of closed blocks of in-force life and health insurance business either through acquisition or reinsurance including assuming the responsi- bility to administer the underlying policies. The maximum amount of insurance coverage that a company may sell. Companies make judgements about how much insurance coverage they can prudently provide. One factor in determining capacity is state government regulations that define minimum statutory surplus requirements. Capacity also refers to the amount of insurance coverage 1) to a particular policyholder or 2) in the marketplace in general. Claim Payment incurred under the terms of a (re)insurance contract for the claim event. Claims handling: The work in connection with the investigation, settlement and payment of claims from the time of their occurrence until settlement. Claims incurred and claim adjustment expenses: All claims payments plus the adjustment in the outstanding claims provision of a business year and claim adjustment expenses. Unpaid claims and claim adjustment expenses: Provision for claims and claim adjustment expenses which have been incurred but not yet finally settled. Sum of claims paid, change in the provision for unpaid claims and claim adjustment expenses, in relation to net earned premiums. This ratio enables the assessment of business performance in non-life reinsurance. Sum of the claims ratio and the expense ratio. This ratio enables the assessment of business performance in non-life reinsurance before inclusion of investment return. Remuneration paid by the insurer to its agents, brokers or intermediaries, or by the reinsurer to the insurer, for its costs in connection with the acquisition and adminis- tration of insurance business. Claims ratio Combined ratio Commission Cover Insurance and reinsurance protection based on contractual agreement. Earned premiums Expense ratio The premiums attributable to the financial year, including unearned premiums of the previous year and minus unearned premiums for the following years. Sum of acquisition costs and other operating costs and expenses in relation to net premiums earned. This ratio enables the assessment of business performance in non-life reinsurance. 101 Swiss Re Annual Report 2000 Life insurance Insurance providing payment of a sum of money upon death of the insured, or in the case of endowment insurance, upon survival of a specified period. Annuity insurance: life insurance in which the benefits consist of a regular income payment for a specified period of time. Life or endowment insurance: life insurance in which the benefits take the form of a contractually determined amount payable upon death or on survival to a specified age. Non-life insurance All classes of insurance business with the exception of life. Accident insurance: Insurance of individuals or of groups against economic risks in the event of death or temporary or permanent disability by accident. Aviation insurance: Insurance of accident and liability risks, as well as hull damage, in connection with the operation of aircraft. Burglary, fidelity guarantee and allied lines insurance: Insurance against burglary, breaking and entering, robbery, embezzlement; also includes water damage, glass breakage, damage to and loss of jewellery or damage or losses in connection with the keeping of animals. Business interruption/loss of profits/business income protection insurance: Insurance against the financial effects of an insured loss on a company’s income. The insurance covers overhead costs and lost profit. Credit insurance: Insurance against financial losses sustained through the failure for commercial reasons of policyholders’ customers to pay for goods or services supplied to them. Disability insurance: Insurance against the incapacity to exercise a profession as a result of sickness or other infirmity. Employers’ liability insurance: Insurance by employers covering employees for injuries arising out of their employment. Engineering insurance: Insurance of construction and erection objects during the construction or erection period and the insurance of machinery in operating plants. 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. General third party liability insurance: Insurance of industrial, commercial, employers’, product, professional or private liability to third parties. Hail crop insurance: Insurance of crops in open fields, or of greenhouses and their contents against hail, storm and other natural hazards. 102 Swiss Re Annual Report 2000 Health insurance: Insurance against sickness as a result of accident or illness. Marine insurance: Insurance against damage or loss of ships and cargoes: also includes offshore drilling platforms. Mortgage guarantee insurance: Insurance protection of the mortgagee against loss of capital and interest. Motor insurance: Insurance against accident and liability as well as against accidental collision damage in connection with motor vehicles. Nuclear energy insurance: Insurance against property damage, liability and accident in connection with the operation of nuclear energy installations. Product liability insurance: Insurance of the liability of the manufacturer or supplier of goods for damage caused by their products. Professional and directors’ and officers’ liability: Insurance of liabilities arising from the performance of professional or official company duties. Property insurance: Collective term for fire and business interruption insurance as well as burglary, fidelity guarantee and allied lines. Surety insurance: Sureties and guarantees issued to third parties for the fulfilment of contractual liabilities. Operating revenues Premiums earned plus net investment income plus other revenues. Portfolio Premiums The totality of risks assumed by an insurer or reinsurer; also the totality of invest- ments of a company. The cost of insurance coverage, often described as “written” or “earned”. Written premiums refer to premiums for all policies sold during a specific accounting period. Earned premiums refer to premiums an insurance company has recorded as revenues during a specific accounting period. For example, a one-year policy sold on 1 January would produce just three months’ worth of “earned premium” in the first quarter of the year. Reinsurance Insurance for insurance companies which spreads the risk of the direct insurer, making the risk of its portfolio more homogeneous. Facultative reinsurance: Reinsurance of the insurer’s risks on an individual basis. Financial reinsurance: Form of reinsurance treaty with specific consideration of accounting features of the insurer. Non-proportional reinsurance: Form of reinsurance in which the reinsurer assumes – against payment of a specially calculated premium – the part of the insurer’s claims that exceed a certain amount. 103 Swiss Re Annual Report 2000 Retrocession Risk Proportional reinsurance: Form of reinsurance in which the premiums and claims of the insurer are shared proportionally by the insurer and reinsurer. Quota-share reinsurance: Form of proportional reinsurance in which a defined per- centage of all risks held by the insurer in a specific line is reinsured. Surplus reinsurance: Form of proportional reinsurance in which risks are reinsured over a specified amount. Treaty reinsurance: Participation of the reinsurer in certain sections of the insurer’s business as agreed by treaty. Amount of the risk accepted in reinsurance that is passed on by the reinsurer to other reinsurance companies. The probability of loss due to an insured object, hazard or interest. Risk involves the possibility of an event occurring causing a loss or an event occurring causing a loss that was larger than previously estimated. Risk category: Grouping together of risks with similar hazard characteristics. Risk management: Management tool for the comprehensive identification and assessment of risks based on knowledge and experience in the fields of natural sciences, technology, economics and statistics. Risk of change: Fluctuation of actual from statistically anticipated claims experience as a result of technical, social, commercial or political changes. Underwriting result Premiums earned less insurance losses and loss adjustment expenses and under- writing expenses (determined on a GAAP or statutory basis). Also referred to as GAAP underwriting result or statutory underwriting result. 104 Swiss Re Annual Report 2000 Financial years 1997–2000 Based on new accounting principles (1997–1999 restated) CHF millions 1997 1998 1999 2000 Income statement Revenues Premiums earned Net investment income Net realised investment gains Other revenues Total revenues Expenses Claims and claim adjustment expenses Life and health benefits Acquisition costs Amortisation of goodwill Other operating costs and expenses Total expenses Income before income tax expense Income tax expense Net income on ordinary activities Extraordinary income Extraordinary charges Net income 15 862 2 995 1 281 143 20 281 16 727 3 131 2 509 286 22 653 18 051 3 846 3 588 246 25 731 22 081 4 802 4 275 395 31 553 – 8 057 – 4 185 – 3 767 – 75 – 1 940 – 8 514 – 4 881 – 3 661 – 91 – 2 698 – 9 333 – 12 153 – 7 478 – 6 200 – 4 883 – 3 973 – 310 – 211 – 3 074 – 2 785 – 18 024 – 19 845 – 22 502 – 27 898 3 655 – 689 2 966 3 229 – 783 2 446 2 808 – 647 2 161 2 257 – 480 1 777 – – – – 450 – 450 – – 1 777 2 161 2 446 2 966 Balance sheet Investments Other assets Total assets Unpaid claims and claim adjustment expenses Liabilities for life and health policy benefits Unearned premiums Other current liabilities Long-term debt Total liabilities 62 725 28 657 91 382 41 876 9 963 3 691 13 757 3 921 73 208 69 589 38 748 89 584 85 684 53 056 44 516 108 337 130 200 142 640 59 600 54 072 29 300 23 279 6 131 4 251 19 764 18 819 5 058 4 947 119 853 88 374 105 368 45 866 15 143 3 174 19 142 5 049 Shareholders’ equity 18 174 19 963 24 832 22 787 Return on equity in % Earnings per share in CHF n /a 118 n /a 147 10.9 171 11.9 208 105 Swiss Re Annual Report 2000 Swiss Re securities Key share data Number of shares issued (par value CHF 10): of which reserved for corporate purposes Number of shares entitled to dividend Dividend paid per share Net income per share1 Equity per share1 Price per share: year-end year high year low Average daily trading volume Stockmarket capitalisation3 CHF CHF CHF CHF CHF CHF CHF millions CHF millions 1997 1998 1999 2000 20012 15 043 301 14 730 951 14 730 951 14 658 301 14 658 301 423 140 423 140 423 140 414 678 405 260 14 620 161 14 307 811 14 307 811 14 243 623 14 253 041 30 118 44 147 48 171 1 243 1 395 1 736 2 732 2 745 1 346 131.0 3 581 4 145 2 026 168.0 3 271 3 848 2 720 128.5 50 208 1 601 3 885 3 925 2 551 132.8 504 3 361 4 003 2 876 164.6 39 942 51 236 46 801 55 336 47 904 1 per share entitled to dividend 2 all data as of 20 April 2001 3 based on shares entitled to dividend 4 subject to approval by the General Meeting, not including capital repayment of CHF 8 Shareholder structure Number of registered shares as of 31 December 2000: Shareholders % Shares % 1 100 – 101 – 1 000 1 001 – 5 000 5 001 – 10 000 over 10 000 total Number of unregistered shares Number of shares entitled to dividend 44 392 5 074 495 72 99 50 132 88.55 10.12 0.99 0.14 0.20 100.00 997 193 1 456 385 1 019 346 501 110 6 061 227 10 035 261 4 208 362 14 243 623 7.00 10.22 7.16 3.52 42.55 70.45 29.55 100.00 Stock exchange listing The shares of Swiss Re are listed on the Swiss Exchange as security number 124.558. In addition, on 1 February 1996, an American Depositary Receipts Program (ADR level I, over-the-counter) was launched together with Morgan Guaranty Trust Company of New York. One ADR corresponds to 1/20 of a Swiss Re share. It is intended that after the proposed 20-for-1 share split one ADR will correspond to one Swiss Re share. Outstanding bonds Instruments Exchangeable bond (ING) Exchangeable bond (TRIPLES) Straight bond Subordinated perpetual bond (SUPERBs) * until 2011 Maturity Issued in Currency 2003 2004 2007 Perpetual 1998 1999 1997 1999 NLG USD CHF CHF Nominal in millions 925 530 500 600 Interest rate 1.25%1 2.25%1 3.75%1 3.75%* Price 31.12.2000 110.25 102.12 101.20 94.00 Ticker symbols Share ADR, Level 1 Bonds Bloomberg RUKN SW SWCEY US SCHREI 1–3 Telekurs RUKN SWCEY Reuters RUKZn.S 106 Swiss Re Annual Report 2000 Chart analysis Premiums earned CHF millions Net income CHF millions 2000 1999 1998 1997 22 081 2000 2 966 18 051 16 727 15 862 1999 1998 1997 2446 2 161 1 777 I I I I I I I Premiums, operating result Non-Life Business Group CHF millions Premiums, operating result Life & Health Business Group CHF millions 2000 11 530 2000 8 330 2164 1447 1999 8 916 1999 7311 1513 1505 I I I I I I I I Premiums earned Operating result Premiums earned Operating result Premiums, operating result Financial Services Business Group CHF millions Earnings per share CHF 2000 2 221 431 1999 1824 733 2000 1999 1998 1997 208 171 147 118 I I I I I I I Premiums earned Operating result 107 Swiss Re Annual Report 2000 (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Information Cautionary statement regarding forward-looking statements Contact addresses Share Register Karl Haas Telephone +411 285 32 94 +411 285 34 80 Fax Karl_Haas@swissre.com E-mail Investor Relations Stefan Senn, Andreas Leu Telephone +411 285 44 44 +411 285 55 55 Fax investor_relations@swissre.com E-mail Public Relations /Media Johann Thinnhof Telephone +411 285 32 81 E-mail Johann_Thinnhof@swissre.com Stefan Müller Telephone +41 1 285 24 81 E-mail Stefan_Mueller@swissre.com Fax +411 285 20 23 Important dates 31 May 2001 137th Ordinary General Meeting 6 June 2001 Payment of dividend 7 September 2001 Interim Report 6 May 2002 138th Ordinary General Meeting French, German, Italian and Spanish trans- lations of this report are also available. The Annual Report 2000 summary is avail- able in: English, French, German, Italian, Portuguese and Spanish. Certain statements contained herein are statements of future expec- tations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in Swiss Re’s core markets, (ii) performance of financial markets, (iii) the frequency and severity of insured loss events, (iv) mortality and morbidity levels and trends, (v) interest rate levels, (vi) currency exchange rates, (vii) increasing levels of competition, (viii) changes in laws and regulations, (ix) changes in the policies of central banks and/or foreign governments, and (x) general competitive factors, in each case on a global, regional and/or national basis. © 2001 Swiss Reinsurance Company Zurich Title Annual Report 2000 Published by Swiss Re Publishing Editing and translation Investor Relations, Language Services Text harmonisation Michael Kaplan Prospero, Edinburgh Concept and design Compostella & Perrot, Zurich Photographs Claude Stahel (cover, pages 45, 100) Neil Wilder (pages 6, 32, 37, 86) Lithography by Reprotechnik Kloten AG, Kloten Printed by NZZ Fretz AG, Schlieren Order no. 208_01267_en CC, 4/01, 25 000 en