Swiss Re Ag · SIX:SREN
Swiss Re — FY2002 Earnings Presentation
43 slides from Swiss Re's earnings presentation, Mar 27, 2003
Slide 1: Analysts' meeting
Analysts’ meeting 27 March 2003 Zurich, Switzerland Agenda Executive summary Coomber Results and investments 2002 Fitzpatrick Business overview Coomber – Property & Casualty – Life & Health – Financial Services Strategic topics and outlook Coomber Q&A Analysts' meeting 27.03.2003 Slide 2
Slide 2: Cautionary note on forward-looking statements
Cautionary note on 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-loo
Slide 3: Executive summary (I) and (II)
Executive summary (I) n 2002 loss of CHF 91 million n Investment result of CHF 5 billion, down from CHF 8.4 billion due to asset impairments n Strong premium growth of 15% n Operational performance – P&C: Target combined ratio 104% achieved – L&H: 9% return on operating revenue for 4th consecutive y
Slide 4: Executive summary (III) and performance vs targets
Executive summary (III) n Lower investment yields lead to revised targets n Expect underwriting profits in a sustained hard market for Property & Casualty n Life & Health will continue to be a substantial and stable source of earnings n Turn around in Financial Services n Excellent opportunities in
Slide 5: Results and investments 2002 - Income statement
Results and investments 2002 John H. Fitzpatrick Chief Financial Officer Analysts' meeting 27.03.2003 Slide 9 Income statement CHF millions 2001 2002 Change % Revenues Premiums earned 25 219 29 058 15% Net investment income 5 765 5 507 -4% Net realised investment gains/losses 2 665 -515 Other revenu
Slide 6: Large losses by line of business; expense ratios
Large losses by line of business CHF millions (losses in excess of CHF 20 million) 2000 2001 2002 Liability 342 671 520 Property 804 560 509 Credit incl. Lloyd’s Central Fund 58 297 381 Aviation and space 0 85 133 Marine 5 43 87 Engineering 40 52 34 Motor 143 0 0 Subtotal excl. 11 September 1 392 1
Slide 7: Strong operating cash flow; equity reconciliation
Strong operating cash flow n Cash flow from operating activities CHF 3.9 billion, up from CHF 3 billion in 2001 n Additional net cash flow from acquisitions and disposals of CHF 1.1 billion (2001: CHF -4.2 billion) n Continuing improvements in core business will lead to further growth in operating c
Slide 8: Active management of capital and risk; Investments
Active management of capital and risk n Published shareholders’ equity has declined primarily due to declines in equities and the US dollar n Swiss Re has actively managed its risk profile: – Exposure to risk: Required capital for risk: – Equity êê -30% – Interest rate è – Credit î – Nat Cat î – Lia
Slide 9: Investment result; impairments
Investment result CHF millions 2001 2002 Current investment income 6 113 5 804 Realised gains and losses 3 434 3 092 Unrealised gains and losses -769 -3 607 Management expenses -348 -297 Total 8 430 4 992 RoI (Swiss GAAP) 8.0% 4.7% Analysts' meeting RoI (marked-to-market) 2.7% 2.9% 27.03.2003 Slide
Slide 10: Maturity of unrealised losses; equity exposure reduced
Maturity of unrealised losses in the balance sheet n CHF 821 million of net unrealised losses on equities in the balance sheet consists of CHF 539 million of unrealised gains and 1.36 billion of unrealised losses n At 31 December 2002 valuation levels, the CHF 1.36 billion of unrealised losses would
Slide 11: Business overview - Premiums
Business overview John Coomber Chief Executive Officer Analysts' meeting 27.03.2003 Slide 21 Business overview - Premiums Property & Financial Non Life Life & CHF millions Casualty Services Total Health Total 2001 premiums earned 13 846 2 451 16 297 8 922 25 219 FX impact -818 -133 -951 -606 -1 557
Slide 12: Operating results excluding capital gains/losses
Business overview - Operating results excluding capital gains/losses CHF millions, pre-tax 1 970 2 000 1 681 1 500 1 317 1 344 920 1 000 500 265 99 0 -294 -500 Analysts' meeting P&C BG L&H BG FS BG Total 27.03.2003 Slide 23 2001 excl. impact of 11 Sept. 2002 Property & Casualty Business Group Analys
Slide 13: Property & Casualty 2002 headlines and results
Property & Casualty Business Group 2002 headlines n Premium growth 9%, in original currency and adjusted for shifts of business 19%, well in excess of growth target of 11% n Combined ratio at 104% hit target (2001: 124%; 110% excluding 11 September) n Business quality improved including shift to non
Slide 14: Improvements in combined ratio by line of business
Improvements in combined ratio by line of business 2001 2001 2002 Main drivers of improvement incl. 11 Sept excl. 11 Sept Property 136% 109% 97% 2002 reflects significant increase in rates Liability 125% 115% 106% 2001 impacted by exceptionally large claims. 2002 improvement due to higher rates and
Slide 15: Facultative trends; early April renewals
Facultative trends n Facultative year to date premiums increased by 27% over the corresponding period last year n Strong growth driven by restrictions, exclusions and capacity limitations being placed on automatic arrangements n Trend towards facultative and non-proportional business enhances Swiss
Slide 16: Life & Health Business Group 2002 headlines
Life & Health Business Group Analysts' meeting 27.03.2003 Slide 31 Life & Health Business Group 2002 headlines n Operating revenue growth exceeds target, 20% vs 13% n Operating result (excluding realised gains) grew 15%, CHF 1.34 billion vs CHF 1.17 billion n Return on operating revenues 9.1% agains
Slide 17: Life & Health results; Lincoln Re integrated
Life & Health Business Group results CHF millions 2001 2002 Change % Revenues Premiums earned 8 922 11 275 26% Net investment income 3 388 3 476 3% Operating revenues 12 310 14 751 20% Net realised investment gains/losses 515 -28 Total revenues 12 825 14 723 15% Expenses Claims and claim adjustment
Slide 18: L&H growth since 1995; Financial Services Business Group
L&H BG: Sustained volume and earnings growth since 1995 Operating revenues (CHF millions) 2 975 CAGR 29.1% 2 602 2 887 2 520 2 555 2 404 11 776 872 9 708 586 6 630 7 973 2 385 3 776 4 252 1 887 1995 1996 1997 1998 1999* 2000* 2001* 2002* Pre-tax earnings excl. realised gains (CHF millions) 92 410 71
Slide 19: Financial Services 2002 headlines and results
Financial Services Business Group 2002 headlines n Premiums up 11%, in original currency and adjusted for deconsolidation of NCM and business shifts from P&C 31% n Operating loss of CHF 633 million, main factors being Lloyd’s central fund cover, US surety book, some corporate client related ART tran
Slide 20: Premium business and fee and trading businesses
Premium business: Core portfolio performing well n Corporate Risk Underwriting (CRU) premium growth above 50% in local currency due to price and market share increases. Combined ratio at 97% n Structured Finance (ART) transactions with insurance companies performing favourably. However, a few corpor
Slide 21: Strategic topics and outlook; target matrix principles
Strategic topics and outlook John Coomber Chief Executive Officer Analysts' meeting 27.03.2003 Slide 41 Principles impacting revision to Target Matrix n Change from target over cycle to target over planning period n Growth targets exclude acquisitions n Historical low interest rate environment and a
Slide 22: New target matrix; dividend policy
New target matrix Business Key figures Average target Group 2003 - 2005 Property & Combined ratio 98% Casualty Premium growth 8% Life & Return on operating revenue 9% Health Operating revenue growth 7% Financial Premium business: Services Combined ratio 95% Premium growth 7% Fee business: Return on
Slide 23: Outlook; questions and answers
Outlook n Lower investment yields, prospect of impairment charge in 2003 n Good growth opportunities for all businesses n P&C combined ratio of 100% expected in 2003 with further improvements in following years n L&H to continue strong contribution to earnings n FS returning to profitability after p
Slide 24: Appendix: Consolidated statement of cash flow
Appendix Analysts' meeting 27.03.2003 Slide 47 Consolidated statement of cash flow CHF millions 2001 2002 Cash flows provided (used) by operating activities 3 023 3 930 Cash flows provided (used) by investing activities -8 385 -6 562 Cash flows provided (used) by financing activities 6 795 1 838 Eff
Slide 25: Non-life reserves to premiums ratio; growth example
Non-life reserves to premiums ratio 2002 400% - 18% -6% -51% 300% 200% 340% 265% 100% 0% 2001 Foreign 11. Sep Growth in 2002 exchange premiums earned/other Analysts' meeting è As indicated previously, ratio comes down as rates 27.03.2003 and premium volume increases Slide 49 Example: effect of growt
Slide 26: Equalisation reserves; asbestos and environmental exposure
Equalisation reserves CHF millions 3 500 2 818 3 019 3 000 2 615 2 566 2 500 2 270 2 000 1 788 1 388 1 385 1 356 1 500 1 000 500 Analysts' meeting 27.03.2003 0 1994 1995 1996 1997 1998 1999 2000 2001 2002 Slide 51 Asbestos and environmental claims exposure (US APH traditional business) n Conducted d
Slide 27: Declining significance of A&E; reserves vs industry
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 38 916 9.8 2000 2 961 43 108 6.9 2001 2 757 52 169 5.3 2002 2 118 45 688 4.6 Analysts' meeting 27.03.2003 Slide 53 Swiss Re’s A&E reserves re
Slide 28: War coverage (I) and (II)
War coverage (I) n Life & health – No business in-force in Iraq – Main exposure to military personnel from US and UK n Property & casualty – No business in-force in Iraq – “Interests abroad”: Swiss Re adheres to the (London) War and Civil War exclusion agreement n Marine – No significant exposure as
Slide 29: Revised investment return target; asset allocation
Revised investment return target OLD 2003 - 2005 100% Expected return 100% Expected return Equities * 20% x 9.25% 10% x 8.00% Bonds 80% x 6.00% 90% x 4.70% thereof corporate bonds 30% 25% Total expected return 6.70% 5.00% Expected return 7.5% 7.0% 6.7% ♦ 6.5% lower return expectations 6.0% for equit
Slide 30: Equity exposure down 84%; stock markets 2003
30 June 2002 - 12 March 2003: Equity exposure down 84% è Minimal exposure to crash scenario CHF billion history crash scenario 16.4 gross exposure 15 14.4 13.5 12.3 11.7 13.2 net exposure 10.0 8.9 10 9.0 7.9 7.8 8.9 7.5 7.3 8.0 6.4 5.4 7.8 7.8 4.6 4.8 5.3 6.9 5 5.2 delta equivalent of puts 2.7 1.1 0
Slide 31: Unrealised gains and losses on and off balance sheet
Unrealised gains and losses on and off balance sheet CHF millions, pre-tax 4 651 788 2 426 not 907 recognised 2 280 in B/S 731 869 3 101 not recognised Recognised 2 225 2 232 in B/S in B/S Recognised 2001 -821 in B/S 2002 Analysts' meeting 27.03.2003 Equities Fixed income Real estate Other Slide 61
Slide 32: Impairment policy; asset and liability matching (I)
Impairment policy for securities: FER 14 requires: n write down of all securities with fair value below cost for more than 12 months or with intention of trading n definition and documentation of impairment criteria in written form Swiss Re accounting policy: n presumes that securities with fair val
Slide 33: Asset and liability matching (II); corporate bond portfolio
Asset and liability matching (II) n Interest decrease scenario – Interest rates are historically low. Further downside potential seems limited – An interest rate decline across all respective currencies leads to a small economic loss only n Interest increase scenario – An interest rate increase woul
Slide 34: Return on investments calculation; fixed income performance
Return on investments calculation CHF millions 2000 2001 2002 Investment result (as defined in income statement) 9 077 8 430 4 992 Income on cash deposits below 3 month and Fin. Serv. Assets -81 -253 Investments result (investment return target base) 9 077 8 349 4 739 Investments (as defined in the
Slide 35: Relative performance of fixed income and equities
Relative performance (p.a.) fixed income investments over 10 years 0.0% 0.5% 1.0% 1.5% USD 1.17% EUR 0.66% CHF 1.20% GBP 0.51% CAD 1.14% AUD 1.31% Analysts' meeting 27.03.2003 Slide 69 Not all data in conformance with AIMR performance standards Benchmark: EFFAS indices, et al Relative performance eq
Slide 36: Relative performance equities; operating results
Relative performance (p.a.) equities over 10 years -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% USD -0.25% EUR* n.a. CHF 6.50% GBP 0.27% AUD 0.23% JPY 7.62% Asia ex-Japan 2.14% Analysts' meeting 27.03.2003 * starting from July 1999 Slide 71 Not all data in conformance with AIMR performance standards Benchmark: FT
Slide 37: P&C BG: Analysis of premium growth
P&C BG: Analysis of premium growth è 19% underlying growth in premiums earned in 2002 despite a continued shift towards non-proportional CHF millions Premiums 2001 13 846 Foreign exchange -818 Aviation & Credit -387 transfers Organic growth 2 418 Analysts' meeting Premiums 2002 15 059 27.03.2003 Sli
Slide 38: P&C BG: Premiums by line of business and division
P&C BG: Premiums by line of business CHF millions 2001 2002 % Property 4 675 5 052 8 Liability 2 840 3 801 34 Motor 2 989 2 745 -8 Accident 1 077 1 171 9 Other 2 265 2 290 1 Total 13 846 15 059 9 Impact of Business Shift -3 Impact of foreign exchange movements -7 Underlying growth 19 Analysts' meeti
Slide 39: P&C BG: Premiums by line; shift to non-proportional
P&C BG: Premiums earned by line of business In % of total n Liability includes a large 100% transaction with finite 8% 8% features; without this the 16% 15% proportion is 23% 80% 21% 18% n Growth in the liability portfolio 60% occurred principally in general 25% liability and commercial 21% 40% umbr
Slide 40: P&C BG: January 2003 renewals; industry outlook 2003
P&C BG: Update on January 2003 renewals* 120% 24% 109% 100% -28% 100% 13% 80% 72% 60% This represents 17% increase on the renewed 40% block, comprising: Rates 10% Increased shares 5% 20% Underlying growth 2% 0% Total Cancelled or Renewed Increase New Estimated renewable replaced on renewal business/
Slide 41: L&H BG: Premium growth; Admin Re development
L&H BG: Premium growth 26% from Lincoln Re acquisition and organic growth CHF millions Premiums 2001 8 922 Foreign exchange -606 Lincoln Re 2 179 ESL ¹ 266 Organic growth 514 Premiums 2002 11 275 Analysts' meeting 27.03.2003 0 5 000 10 000 15 000 Slide 81 ¹ Employers Stop Loss sold July 2002 Admin R
Slide 42: FS BG: Analysis of revenue growth; CDS maturity profile
FS BG: Analysis of revenue growth CHF millions 0 1 000 2 000 3 000 4 000 5 000 Total revenues 2001 3 801 Foreign exchange -147 NCM divesture -618 Aviation & credit transfers 387 Growth Risk Solutions 459 Growth Credit Solutions 58 Growth Advisory & Capital Markets 261 Asset Management -65 Change in
Slide 43: Quality of exposure in portfolio CDS
Quality of Swiss Re’s exposure in portfolio CDS December 01 December 02 n Investment-grade credit quality of – underlying assets and Super-Senior Super-Senior – Swiss Re layers (Super AAA) (Super AAA) n Structural risk mitigation n Advanced analytical skills n Tight accumulation control and 86.4% ac