Swiss Re Ag · SIX:SREN
Swiss Re — FY2003 Earnings Presentation
40 slides from Swiss Re's earnings presentation, Mar 25, 2004
Slide 1: Analysts' meeting March 2004
ab Analysts’ meeting 25 March 2004 Zurich, Switzerland ab Agenda Executive summary Coomber Results 2003 and business overview Godbehere Strategy and outlook 2004 Coomber Q&A Analysts' meeting 25.03.2004 Slide 2 1
Slide 2: Cautionary note on forward-looking statements
Cautionary note on ab forward-looking statements Certain statements contained herein are forward-looking. These statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-
Slide 3: Executive summary
ab Executive summary (I) Net income of CHF 1.7 billion primarily driven by a strong increase in underwriting profitability in non-life reinsurance Premium growth of 6%, equivalent to 16% in original currencies Non-life premium growth of 15% (25% at constant FX rates) as Swiss Re fully captured
Slide 4: Substantial premium growth in non-life
Substantial premium growth ab in non-life Property & Financial Non Life Life & CHF millions Casualty Services Total Health Total 2002 premiums earned 15 059 2 724 17 783 11 275 29 058 FX impact -1 123 -246 -1 369 -1 104 -2 473 Premiums 2002 at 2003 rates 13 936 2 478 16 414 10 171 26 585 Change in s
Slide 5: Results 2003 and business overview
Results 2003 and business ab overview Ann Godbehere Chief Financial Officer Analysts' meeting 25.03.2004 Slide 9 Income statement: ab Net income up CHF 1.8 billion CHF millions 2002 2003 Change Change at Î Growth/results Revenues const. FX impacted by FX Premiums earned 29 058 30 740 6% 16% movement
Slide 6: Excellent investment performance in 2003
Excellent investment performance ab in 2003 Investment result of CHF 5bn, ahead of the 3-year average target with an RoI of 5.1% (2002 RoI: 4.7%) Current income lower than in 2002 due to US dollar decline and lower book yields, partly offset by higher invested volumes and lower management charge
Slide 7: Large claim events: Lower impact in 2003
Large claim events: Lower impact ab from man-made and credit events in 2003 CHF millions 2002 2003 Change Total events exceeding CHF 20 million Natural catastrophes 338 347 3% Man-made events 945 666 -30% Credit events 381 -55 Gross loss 1 664 958 -42% Retrocession -70 - Impact on operating in
Slide 8: Swiss Re's A&E reserves remain stronger than the industry
Swiss Re’s A&E reserves ab remain stronger than the industry 3-year A&E net survival ratio 2000 2001 2002 2003 US Insurance Industry* 5.8 7.4 8.7 n.a. Swiss Re 6.8 6.0 6.1 7.4 Swiss Re 12.6 13.3 13.9 12.1 (adjusted for commutations) Analysts' meeting 25.03.2004 * Source: A.M. Best Special Report, “A
Slide 9: Loss development table: Key points
Loss development table: ab Key points 1993 deficiency due to major strengthening of US A&E reserves in 1994/95 1994 - 1999 show positive run-off, both in 2003 and overall Adverse development in some recent accident years, notably 2000, comes from US casualty exposures Reserve increase in 200
Slide 10: Increased financial flexibility
ab Increased financial flexibility Prudent capital management: since 1999 shift from senior financial debt to hybrid capital CHF millions 27.7 29.7 22.4 23.3 Senior financial 30 30% 3.3 debt 3.0 25 1.9 3.8 25% Hybrid capital 1.4 2.2 20 3.4 20% 3.5 Shareholders' 22.6 15 22.8 15% equity 16.7 18.5 Hybr
Slide 11: Property & Casualty Business Group: Strong growth and profitability
Property & Casualty Business Group: ab Strong growth and profitability Combined ratio of 98.4% beats 2003 target of 100% Premium growth of 16% (25% excluding currency effects) Improvements in all lines of business more than offset adverse liability development of CHF 755m Net impact of A&E r
Slide 12: P&C: Premium growth captures attractive market conditions
P&C : Premium growth captures ab attractive market conditions Significant growth of 16%, currency adjusted growth of 25% CHF millions 0 5 000 10 000 15 000 20 000 Premiums 2002 15 059 Foreign exchange -1 123 Organic growth 3 473 Analysts' meeting 25.03.2004 Premiums 2003 17 409 Slide 23 P&C : Combin
Slide 13: Life & Health Business Group: Attractive operating performance continues
Life & Health Business Group: ab Attractive operating performance continues Return on operating revenues was 8.7% (2002: 9.1%), an improvement from the half year return of 8.1% – Life: 10.3% (2002: 7.9% incl. 2.4% negative impact from GMDB) – Health: 2.5% (2002: 13.8% incl. 12.8% impact non-recurr
Slide 14: L&H: Underlying growth of 3% overshadowed by decline in US dollar
L&H: Underlying growth of 3% ab overshadowed by decline in US dollar CHF millions 0 5 000 10 000 15 000 Premiums 2002 11 275 Foreign exchange -1 104 Sale of ESL business* -231 Organic growth 289 Premiums 2003 10 229 Analysts' meeting 25.03.2004 Slide 27 *ESL: Employers Stop Loss business sold in Jul
Slide 15: Financial Services Business Group: Excellent turnaround
Financial Services Business Group: Excellent turnaround in profitability ab and growth achieved Revenue growth significantly above target – premium business 14% (25% at constant FX rates) and fee business 26% (42% at constant FX rates) Operating income up substantially at CHF 558m (2002: CHF -63
Slide 16: FS: Excellent business growth in all business sectors
FS: Excellent business growth in all ab business sectors CHF millions 0 1 000 2 000 3 000 4 000 5 000 Total revenues 2002 3 580 Foreign exchange -336 Premium growth 626 Fees & trading revenue 285 growth Investment income & 200 realised gains Analysts' meeting Total revenues 2003 4 355 25.03.2004 Sli
Slide 17: FS: Premium business delivering strong performance
FS: Premium business delivering ab strong performance Premium split 15% Traditional 94.7% Non-traditional 124.0% 85% Total premium business 99.1% Traditional business Non-traditional 50% 60% 70% 80% 90% 100% 110% 120% Non-traditional business (supporting client’s balance sheet needs as well as ris
Slide 18: Risk is a growth business: Reinsurance outpaced insurance and GDP growth
Swiss Re to grow sustainable ab earnings power Attractive industry growth Maximising margin by business focus Risk and controls improve quality of earnings Outlook and target matrix Analysts' meeting 25.03.2004 Slide 35 Risk is a growth business: Reinsurance outpaced insurance ab and GDP gro
Slide 19: Clients become larger and need a high quality counterparty
Clients become larger and need a high ab quality counterparty with global expertise and relevant balance sheet capacity Global market share top 40 life insurer 60% 53% 48% 50% 45% 38% 43% 40% 27% 30% 23% 18% 19% 20% 15% 10% 0% 1998 1999 2000 2001 2002 Analysts' meeting 25.03.2004 Market share top 40
Slide 20: Swiss Re's competitive advantages in Admin Re
Swiss Re’s competitive advantages ab in Admin Re Full value chain: – Origination – Execution – Due diligence – Transition conversions – Structuring – Post-conversion management – Pricing More than 35 transactions Over 3.5 million policies Slide 39 Swiss Re to grow sustainable ab earnings power
Slide 21: Swiss Re grows non-life business during hard market
Swiss Re grows non-life business during hard market, focus on life ab growth during soft market Non-life pricing (Lloyd’s non-marine price index) 1994 = 100 150 Non-life margins increase: Swiss Non-life margins increase: Non-life margins decrease: Re grows non-life business above Swiss Re grows non-
Slide 22: Current tactical actions to grow earnings
Current tactical actions to grow ab earnings Adjust business mix to most favourable sectors Repricing US term products: – revised economic and experience assumptions – expect (temporary) fall in new business market share Leverage Swiss Re’s skills in Admin Re – established in US and UK – obser
Slide 23: Terrorism cover substantially reduced since September
Terrorisms cover substantially reduced ab since 11 September by exclusions, limits, aggregation control and other contract terms Industry solutions introduced in many countries (e.g.: USA, France, Germany, UK, Spain, Netherlands) Swiss Re provides terrorism coverage in a limited and strictly con
Slide 24: Increase velocity of balance sheet using ILS
Increase velocity of Swiss Re’s ab balance sheet by using ILS to mitigate peak risks and improve RoE Swiss Re has the clear leadership position in the 2 132 Insurance Linked Security (ILS) sector Vita Capital USD millions Formosa Arbor Pylon B 1 122 Pylon A 967 990 Seism ic Redwood IV 825 Prim e SR
Slide 25: Outlook
ab Outlook P&C and FS: Continued growth and improved profitability in non-life business as rates remain at attractive levels “Profit before volume” will lead to active management of business mix L&H: After slowdown in 2003, expect return to strong revenue growth at attractive margins in 2004-2
Slide 26: Questions and answers / Appendix
ab Questions and answers Analysts' meeting 25.03.2004 Slide 51 ab Appendix Analysts' meeting 25.03.2004 Slide 52 26
Slide 27: Income statement: 2002 at 2003 FX rates
Income statement : ab 2002 at 2003 FX rates CHF millions Revenues 2002 2003 Change Premiums earned 26 585 30 740 16% Net investment income 4 981 4 606 -8% Net realised investment gains/losses -632 376 Trading revenues 189 472 150% Other revenues 342 236 -31% Total revenues 31 465 36 430 16% Expenses
Slide 28: Investment result
ab Investment result RoI of 5.1% is above the 3-year average target, driven by lower impairment charges on equities compared to 2002 and a solid stream of capital gains realised on both the fixed income and equity portfolios Swiss GAAP Swiss GAAP M-t-m M-t-m CHF millions 2002 2003 2002 2003 Current
Slide 29: Current investment income 2003 vs 2002
Current investment income ab 2003 vs 2002 At constant FX rates, net investment income decreased 8% due to lower yields partly offset by larger investment volumes and lower management expenses 2002 2002 2003 Variance Variance at 2003 as reported at constant CHF millions FX rates FX rates Fixed Income
Slide 30: Asset growth and allocation
ab Asset growth and allocation Size of equity portfolio was further reduced in 2003 to increase Group’s allocation of capital to its core reinsurance business Balance sheet values 86 90 96 87 88 Market values 88 92 98 90 90 Investments in CHF bn Balance sheet values 100 5% 5% 4% 4% 5% 80 20% 8% Othe
Slide 31: Corporate bond portfolio by rating
ab Corporate bond portfolio by rating The credit exposure remained focused on high-quality corporates Rating split of corporates as of 31 December 2003 Rating CHF millions CHF millions % of fixed % of total 2002 2003 income investments investments AAA 1 794 2 233 2.9% 2.6% AA 1 112 988 1.3% 1.1% A 5
Slide 32: Declining significance of A&E
ab Declining significance of A&E CHF millions Year end Net A&E Total net non- A&E as % of reserves life reserves total reserves 1998 3 829 33 387 11.5 1999 3 815 38 874 9.8 2000 2 961 43 108 6.9 2001 2 757 52 169 5.3 2002 2 118 45 688 4.6 2003 1 675 47 414 3.5 Analysts' meeting 25.03.2004 Slide 63 L
Slide 33: Reserve ratio impact
Reserve ratio impact ab Factual 2003 Ratio decreased due to growth in rates and premium volume 300% 12 % -55 % 16 % 200% 265 % 238 % 100% Analysts' meeting 0% 25.03.2004 2002 Foreign exchange Growth in Other 2003 premiums Slide 65 ab Return on equity calculation CHF millions 2002 2003 Net income/los
Slide 34: Increase in conditional capital – Proposal to AGM
Increase in conditional capital – ab Proposal to AGM Conditional capital is a flexible and an efficient financing tool Interest bearing capital at attractive conditions Potential capital increased is deferred and done at a premium to current stock price Dilution impact on EPS and ROE (accretio
Slide 35: P&C: Premiums earned by line of business
ab P&C: Premiums earned by line of business 100% Growth in the liability 16% 15% 15% portfolio occurred 80% 8% 8% 7% principally in general liability and commercial 18% 18% 21% umbrella lines. Rates rose 60% strongly and premiums 25% 27% were boosted by prior 21% 40% treaty year adjustments being
Slide 36: P&C: Type of business mix has stabilised
P&C: Type of business mix has ab stabilised 100% 19% 15% 17% 17% 80% 31% 28% 35% 36% 60% 40% 53% 54% 48% 47% 20% 0% 2000 2001 2002 2003 Prop NP Fac Analysts' meeting 25.03.2004 Based on premiums written in calendar years at historic exchange rates Slide 71 Traditional business only ab L&H BG: Pr
Slide 37: L&H: Focusing on higher returns
ab L&H: Focusing on higher returns Percentage of total premiums Return on operating revenues 73% 12% 2000 2000 27% 3% 78% 11% 2001 2001 22% 4% 80% 8% 2002 2002 20% 14% 81% 10% 2003 2003 19% 3% Analysts' meeting 25.03.2004 Life Health Slide 73 FS: Quality of Swiss Re’s exposure ab in Portfolio Credit
Slide 38: FS: Portfolio CDS run-off profile
ab FS: Portfolio CDS run-off profile Portfolio credit default swap (CDS) exposure down from CHF 36.8 billion as of December 2001 to CHF 15.7 billion as of December 2003 Swiss Re’s exposure in portfolio CDS expected to run off as per the chart below No cash losses in 2002 and 2003 Notional expo
Slide 39: Strategic Map 2004
ab Strategic Map 2004 Corporate Centre Set strategic direction and promote innovation and growth Exercise effective control and coordinate operations by managing capital and diversified risk portfolio, enhancing and protecting brand reputation, providing information and technology Attract, ret
Slide 40: Corporate calendar & contacts
ab Corporate calendar & contacts 14 May 2004 140th Annual General Meeting 17 May 2004 Embedded value 2003 announcement 19 May 2004 Dividend payment 26 August 2004 Interim results 2004, Analysts’ meeting Contacts Investor Relations Zurich +41 43 285 44 44 Stefan Senn, Andreas Leu, Kathrin Schriber Ne