Swiss Re

Managing global value creation – Swiss Re Group at the turn of the millennium

Walter B. Kielholz Chief Executive Officer Glen Cove, 27 September 1999 GEM 99 Z

Swiss Re

Managing global value creation

• Looking back: The last 12 months • The world around us: Through the rapids • SR Group: The new basic line-up or The offensive team GEM 99 Z 2

Swiss Re

Managing global value creation

• Looking back: The last 12 months • The world around us: Through the rapids • SR Group: The new basic line-up or The offensive team GEM 99 Z 3

Looking back – the last 12 months

• Asia Crisis – impact on Swiss Re Swiss Re GEM 99 Z 4

Asia Crisis – dramatic impact on exchange rates USD/Local currency

Indonesia (left scale) Korea (right scale) Philippines (right scale) Thailand (right scale) Malaysia (right scale) 110 100 90 80 70 60 50 40 30 20 10 Index; June 1997 = 100 Jun 97 Aug 97 Okt 97 Dez 97 Feb 98 Apr 98 Jun 98 Aug 98 Okt 98 Dez 98 Feb 99 Apr 99 Jun 99 Source: Datastream Swiss Re GEM 99 Z 5

Non-life reinsurance premiums in Asia and the Pacific region 1

1 excl. Aus/NZ and Japan Index 1990 = 100 220 Local currencies index based on weighted average of real growth rate in local currencies.

USD index derived from nominal USD figures, but adjusted for US inflation. Local currencies USD 200 180 160 140 120 100 80 1990 1992 1994 1996 1998 2000 2002 Source: Swiss Re Economic Research & Consulting Swiss Re GEM 99 Z 6

Asia Crisis – what it means for Swiss Re

• A throw-back of five years for the region and for Asia Division • Crisis caused serious cost pressure – Zurich cost block not hedged • No change of strategy for the region • Tactical: – Better cost management – Further decentralisation Swiss Re GEM 99 Z 7

Looking back – the last 12 months

• Asia Crisis • October 98 Financial Crisis – the near miss Swiss Re GEM 99 Z 8

October 98 Financial Crisis - the near miss

Sw iss Re EU Ins Index SMI DJ Ins 120 Index; 4.9.98 = 100 110 100 90 80 70 60 Sep-98 Okt -98 Source: Bloomberg Swiss Re GEM 99 Nov-98 Z Dez-98 9

Interest rates plummeted – the example of US Govt bond rates

6.0

% 5.5

5.0

5 Year US Govt Bond 10 Year US Govt Bond 4.5

4.0

3.5

Mai 98 Jun 98 Jul 98 Aug 98 Sep 98 Okt 98 Nov 98 Dez 98 Jan 99 Feb 99 Mrz 99 Apr 99 Mai 99 Source: Bloomberg Swiss Re GEM 99 Z 10

Interest rates - the spread widens

7 % 5 Year US Govt Bond 6 5 Year AAA Industrial 5 4 5 Year BBB Industrial 3 Mai 98 Jun 98 Jul 98 Aug 98 Sep 98 Okt 98 Nov 98 Dez 98 Jan 99 Feb 99 Mrz 99 Apr 99 Mai 99 Source: Bloomberg Swiss Re GEM 99 Z 11

October 98 Financial Crisis - lessons learned and steps taken

• Superior risk management in investments and credit risk is vital • The right steps taken by SR Investors • Market disruption of this kind offers excellent opportunities for strong players (AAA) – this is also true for insurance events • Liquid, high quality credit risk portfolios demonstrate distinct advantages over other portfolio compositions Swiss Re GEM 99 12 Z

Looking back – the last 12 months

• Asia Crisis • October 98 financial crisis • Life Re acquisition – effects on the Group Swiss Re GEM 99 Z 13

Life Re acquisition - effects on the Group

• Significant task: – Integration of Life Re – Exit US Health business – Reduce headcount to recognise new set-up – push pipeline • Most targets achieved • Increased Life contribution to Group results were overdue to confirm SR’s strategy • Self confidence of division has increased over the past 12 months Swiss Re GEM 99 Z 14

Swiss Re

Looking back – the last 12 months

• Asia Crisis • October 98 Financial Crisis • Life Re acquisition • Fox-Pitt, Kelton – a first step toward a new business model GEM 99 Z 15

Swiss Re

Looking back – the last 12 months

• Asia Crisis • October 98 Financial Crisis • Life Re acquisition • Fox-Pitt, Kelton • Closing 98 to Triple 20 – background, timing and update of achievements GEM 99 Z 16

Profit composition – unbalanced development

Before tax Investment Income Life* Non-life* Asset Leverage (right scale) * incl. Allocated Investment Return 9 000 8 000 CHF m 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 1993 1994 1995 1996 1997 1998 2H98 1H99 525 450 375 300 225 150 75 0 Swiss Re GEM 99 17 Z

Headcount development - acquisition synergies realised?

15 000 No. of employees

19 056

Tot al staf f t hrough acquisit ions Direct Insurance 10 000 Service Companies 5 000 Reinsurance Core Business 0 1993 1994 1995 1996 1997 1998 July 99 Source: Group HR Controlling Swiss Re GEM 99 18 Z

Divisional headcount - SR L&H ahead in tackling the issue

8 000 No. of employees 1 Corporat e Cent re Divisions 6 000 Invest ment Divisions 4 000 Lif e Division 2 000 Non-lif e Divisions 0

9 5 8 1 8 9 0 3 0 5 1

1996 Source: Group HR Controlling Swiss Re GEM 99

1 0 0 7 1 6 4 1 3 8 3 9 9 3 3 1 7 2 9 4 3 0 9 9 9 3 1 6 8 5 4 3 3 4

1997 1998 July 99 1 Year end figures excluding IRMG, NCM IRMG (July 99: 412), NCM (July 99: 1231) Z 19

Premiums per employee - Non-life divisions need to improve

5 000 000 CHF 4 000 000 Gross premiums per employee Non-life 3 000 000 2 000 000 Gross premiums per employee Life 1 000 000 0 1996 Swiss Re GEM 99 1997 1998 Z 2H98-1H99* * Adjusted for two large transactions 20

Swiss Re

Triple 20 Programme

• How to create awareness quickly despite record result • Address various issues at the same time: underwriting, capacity, costs • Timing: Too early or just in time?

• Reaction in the market and the Group: better than expected GEM 99 Z 21

Swiss Re

Triple 20 Programme – where do we stand?

• Cost Management: Divisional targets agreed, follow-up and controlling organised • The underwriting part now enters the critical phase (renewals) • Need to enter the next round of productivity gains soon GEM 99 Z 22

The evolution of Cost Management Cost Management 1998 Cost Management 2001 To reach our ambitious CMI targets by 2001, all of us ought to accept, contribute and help establish a new way of thinking

Swiss Re GEM 99 Z 23

Swiss Re

Looking back – the last 12 months

• Asia Crisis • October 98 Financial Crisis • Life Re acquisition • Fox-Pitt, Kelton • Closing 98 to Triple 20 • Y2K – the sword of Damocles GEM 99 Z 24

Y2K - towards the finishing/crossing line

Swiss Re cannot rule out regional & time limited disruptions. Our aim is to maintain ‘operational stability’ even under adverse/unexpected circumstances.

Business Continuity Management (BCM) • Strategy formulated, distributed and in implementation • Y2K Command Center Group (Y2K-CC) established and trained • Y2K-CC coordinates, steers and controls the rollover between Logistics, IT, Business Units and Corporate Communications • Y2K specific exercises to be conducted for major locations to optimize cooperation / coordination within Group Swiss Re GEM 99 25 Z

Y2K - towards the finishing/crossing line

Swiss Re IT readiness for Y2K • Mission Critical Systems (MCS) work “fully completed” (100%) • Business Relevant Systems (BRS) work “sufficiently completed” (97%) • IT Contingency Planning (IT CP) work “advanced substantially” (49%) • Millennium weekend roll-over plans approved and impact understood • No problems reported as a result of critical 09.09.99 date change • Very low internal IT system risks expected at 1.1.00 date change Swiss Re GEM 99 Z 26

Y2K – underwriting aspects

• Global campaign to raise Y2K-awareness of clients • Underwriting measures established to guide Market Divisions • Assessment of Y2K-exposures per LoB and implementations of underwriting measures by Market Divisions • Best estimate of claims incurred for SR Group and top-down verification • Current status: – All underwriting measures taken – Y2K related claims should not surpass magnitude of expected claims from other claims scenarios – Group wide coordination of claims handling procedures ready Swiss Re GEM 99 Z 27

Swiss Re

Looking back – the last 12 months

• Asia Crisis • October 98 Financial Crisis • Life Re acquisition • Fox-Pitt, Kelton • Closing 98 to Triple 20 • Y2K • Stock markets’ opinion – has Swiss Re fallen out of grace?

GEM 99 Z 28

Stock markets’ opinion – has Swiss Re fallen out of grace?

Sw iss Re EU Ins Index SMI DJ Ins 600 Index; 6.1.95 = 100 500 400 300 200 100 0 Jan 95 Jul 95 Jan 96 Jul 96 Jan 97 Jul 97 Jan 98 Jul 98 Jan 99 Jul 99 Source: Bloomberg Swiss Re GEM 99 Z 29

Swiss Re vs. peers – not a preferred stock right now

Sw iss Re Munich Re Zurich Allied AIG 180 Index; 25.09.98 = 100 160 140 120 100 80 60 Sep-98 Dez-98 Source: Bloomberg Swiss Re GEM 99 Mrz-99 Jun-99 Z Sep-99 30

Swiss Re

Looking back – the last 12 months

• Asia Crisis • October 98 Financial Crisis • Life Re acquisition • Fox-Pitt, Kelton • Closing 98 to Triple 20 • Y2K • Stock markets’ opinion • Interim 99 – light at the end of the tunnel?

GEM 99 Z 31

Swiss Re

Interim 99 – Light at the end of the tunnel?

• Excellent overall result • Strong Life development • Improved, but still unacceptable Non-life results • Investment results clearly exceed expectations • Development overall within Swiss Re’s long term target • Unrelenting efforts on Triple 20 GEM 99 32 Z

Interim Report 99: Financial key figures

in CHF m

Gross premiums Ordinary result a.t.

Non-life combined ratio Life ROS Investments ROI

Swiss Re GEM 99

1996 1997 1998 1H/99 14 250 17 414 18 042 10 690 1 461 109% 2 121 110% 2 504 114% 2 559 112% 8.8% 11.6% 7.0% 7.4% 11.0% 10.2% 8.5% 11.5%

Z 33

Gross premiums Technical result

Non-life reinsurance premium growth

in CHF m

11 094 12 022 13 857 14 206 15 034 912 604 716 822 551 691

Swiss Re 95 GEM 99 96 97 98 2H98 1H99 Adjusted for US medical loss 34 Z

Gross premiums Technical result Source: Finance Division Swiss Re

Life reinsurance premium growth

in CHF m

1 7 5 4 2 2 2 8 3 5 5 7 3 8 3 6 4 7 3 1 525 3 5 3 3 6 5 1 7 8 1 5 1

9 5 9 6 9 7 9 8 GEM 99 2 H9 8 1 H9 9 35 Z

The growing importance of Life business by technical result

1 500 Technical result in CHF m 28% 1 000 43% 20% 20% 40% Lif e Non-lif e 500 0 37% 63% 1994 80% 1995 80% 1996 72% 1997 60% 1998 57% 2H98 1H99 Source: Finance Division Swiss Re GEM 99 Z 36

Swiss Re’s financial goal - sustainable return on equity

Return on equity

12.7%

800 bps

13.8%

970 bps

14.0%

1040 bps

13.6%

1060 bps

15.2%

1260 bps Annual average Swiss 10-year govt bond yield Swiss Re

4.7%

1995

4.1%

1996

3.6%

1997

3.0% 2.6%

1998 2H98-1H99 GEM 99 Z 37

Current investment result/ unrealised gains/ losses Realised gains/ losses on other investments Realised gains/ losses on fixed income Realised gains/ losses on shares Source: Swiss Re Investors Swiss Re

Components of investment result

(before management charges) 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 CHF m 3 419 1996 72% 14% 4 770 1997 68% 3% 15% 14% 6 259 1998 51% 6% 25% 18% 7 249 2H98 1H99 49% 5% 12% 46% GEM 99 38 Z

Bond portfolio actively managed – Duration shifts of bond portfolio

10 %; years 8 6 US bond duration DEM/ EUR bond duration USD 10-year EUR 10-year 4 2 0 Swiss Re GEM 99 31.12.97

31.12.98

30.06.99

39 Z

Swiss Re

Managing global value creation

• Looking back: The last 12 months • The world around us: Through the rapids • SR Group: The new basic line-up or The offensive team GEM 99 Z 40

The financial services industry – five main areas Wholesale banking

• Investment banking • M&A • Equity and debt issuance • Securities trading & sales • Services • Corporate banking: • Corporate lending • Forex & payments • Custody • Treasury • Private equity • Institutional AM

Asset management Wholesale insurance

• Reinsurance & reinsurance • Group life • Group pension plans brokerage • Alternative risk transfer (ART) • International commercial lines • Mutual funds • Private banking • Unit linked life • Individual pension plans

Retail and commercial banking

• Payments • Savings • Mortgages

Banking related

Source: McKinsey & Co Swiss Re GEM 99

Retail and commercial insurance

• Life • Non-life

Insurance related

41 Z

Financial services industry – the options Wholesale banking

Securitization of risk portfolios

Wholesale insurance Asset management Retail and commercial banking Banking related

Source: McKinsey & Co Swiss Re GEM 99 Banks offering insurance products and vice versa

Retail and commercial insurance Insurance related

42 Z

Financial services industry – the deals Wholesale banking Wholesale insurance

Merill Lynch Mercury AM Deutsche Bank Bankers Trust

Asset management

Nat West Gartmore

Retail and commercial banking Banking related

Source: McKinsey & Co Swiss Re GEM 99 Credit Suisse Winterthur Ins.

General Re New England AM Z Munich Re DKV AIG Sun America

Retail and commercial insurance Insurance related

43

World direct and ceded premiums Non-life 1993 – 2002

110 Index 1 ; 1993 = 100 105 100 Direct premiums Ceded premiums 95 93 94 Source: Swiss Re Economic Research & Consulting Swiss Re GEM 99 95 96 97 98 99* 00* 01* * Estimates 02* 1 Note: Index constructed with real annual growth rates Z 44

Real growth of Life and Disability markets 1993 – 2002

Primary lif e and disabilit y market Risk lif e and disabilit y market Lif e and disabilit y reinsurance market 220 200 180 160 140 120 100 80 Index; 1993 = 100 93 94 95 96 97 98 99* 00* 01* 02* * Estimates Source: Swiss Re Economic Research & Consulting Swiss Re GEM 99 Z 45

Long term growth curve

3000 Index; 1965 = 100 2500 2000 Global Insurance 1500 1000 Global Reinsurance 500 World GDP 0 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 * * Estimates Source: Swiss Re Economic Research & Consulting Swiss Re GEM 99 46 Z

The Non-life cycle – a negative overlay

World wide reinsurance combined ratio % 1 1 8 1 1 6 1 1 4 1 1 2 1 1 0

1 1 0 1 1 1 1 1 4 1 0 9

1 0 8 1 0 6 1 0 4 1 0 2

1 0 6

1 0 0 9 8 1 9 9 0 1 9 9 1 1 9 9 2 1 9 9 3 Source: Swiss Re Economic Research & Consulting Swiss Re GEM 99 1 9 9 4

1 0 2 1 0 2

1 9 9 5 1 9 9 6

1 0 4

1 9 9 7 1 9 9 8 E 1 9 9 9 F Z 47

E-Business

• Internet a catalyst for accelerated momentum of change – Established business processes and business models under attack • Two sides of the coin – The cost game – disintermediation, commoditisation, transparency – Business innovation - new value propositions and business models • SR Group is much affected – more positive aspects than negative ones – SR willing to drive technology enabled business innovation – SR less affected by business legacy systems than primary companies Swiss Re GEM 99 Z 48

E-Business

• Urgent need for a clear and comprehensive E-Business strategy - presentation to the BoD in December Swiss Re GEM 99 Z 49

The world around us: Through the rapids

Summary • Consolidation and changes to traditional financial sector structure will continue • What is large?

• Basic growth drivers in the core business are positive • The cycle: Yes, the down-cycle will end, but soon?

• Competition – SR among the winners of this phase • E-Business – the wild radical Swiss Re GEM 99 Z 50

Swiss Re

Managing global value creation

• Looking back: The last 12 months • The world around us: Through the rapids • SR Group: The new basic line-up or The offensive team GEM 99 Z 51

Swiss Re Group 1999

Corporate Centre Reinsurance & Risk

Europe Asia North America Latin America Bavarian Re Non-life

Swiss Re Board of Directors Executive Board Chief Executive Officer Finance Communications & Human Resources Information Technology

Swiss Re New Markets Swiss Re L&H Swiss Re Investors Swiss Re Capital Partners Specialities & ART

GEM 99

Life Asset Management & Financial Services

Z 52

Specific roles –

Reinsurance divisions

• Meet or exceed profit and growth targets set by the BoD • Shift resource allocation to true value creating activities within certain business, geographical and risk limits defined by Group strategy and risk and capital allocation • Plan and manage business portfolio to exploit opportunities: Integrate trends and developments Swiss Re GEM 99 Z 53

Specific roles –

Asset Management and Financial Services divisions

• Maintain most efficient investment portfolio within given SAA • Meet or exceed ROI and Third Party Assets under Management growth targets • Plan and execute TAA and securities selection • Provide ALM and financial advisory services to financial services sector based on leading edge research and service quality • Build and maintain Private Equity capabilities world wide and leverage these skills in managing SR’s participation portfolio Swiss Re GEM 99 Z 54

The role of the Corporate Centre

“Corporate centres have the potential to add or destroy significant value consequently one of the key questions is just how to go about designing and creating a centre that has the ability to fully exploit opportunities without the damaging overhangs.” Source: PriceWaterhouseCoopers Swiss Re GEM 99 Z 55

The role of the Corporate Centre

…. and by the way, this also applies to the Divisional Centres!

Source: PriceWaterhouseCoopers Swiss Re GEM 99 Z 56

The activities of the Corporate/Divisional Centre

Analysing Corporate Centre activities we can differentiate between Core tasks Added Value tasks Shared Services tasks Necessary to fulfil the organisation’s obligations to authorities and stakeholders. They embrace issues of legal compliance and regulatory reporting, as well as those which support stakeholder requirements Activities that enable the enterprise to take full advantage of the opportunities for the centre to significantly contribute to organisational well being and development Non-core activities that have been chosen to be conducted centrally because of economies of both scope and scale Source: PriceWaterhouseCoopers Swiss Re GEM 99 57 Z

Value creation – The real work of the Corporate/Divisional Centre

Build Stretch Link Leverage Portfolio development Source: PriceWaterhouseCoopers Swiss Re Emerging businesses, consolidation, mergers & acquisitions, decentralisation Help/force businesses to perform to the full potential Know-how & activity sharing, pooling of negotiation power, strategic coordination, vertical integration Brand, relationship with other companies, project portfolio Business start-ups, R&D GEM 99 Z 58

Specific roles –

Finance Division

• Capital management for the Group and efficient management of capitalisation process with the Group • Tax optimisation on world wise basis • Investors and Rating Agencies relations – balancing shareholders’ and rating agencies’ demands • Group accounting for external reporting • Group controlling for internal performance measurement and risk capital allocation • Law and compliance – managing Group legal, regulatory and reputational risks Swiss Re GEM 99 Z 59

Specific roles –

Reinsurance & Risk Division

• Risk management: CIRM, including Cat perils and Retro – to keep risk of the firm within agreed limits • Reinsurance support: Product management Property, Casualty, Marine, Aviation and Engineering, including interline issues – to maintain consistent underwriting policy • Knowledge management – to maintain best practice in risk underwriting • Claims & contracts services – to manage contractual and claims reserve risk • Economic research & consulting – to support strategic planning and brand reputation Swiss Re GEM 99 60 Z

Specific roles –

Information Technology Division

• Define and implement Group IT strategy to support and integrate with business strategy • Establish overview over Group IT project portfolio, ensure best practice and coordinate resource allocation in line with Group priorities • Group Data Information management – to enable optimal use of available data within our Group • Technology Office – establish and implement Group wide standards and provide technical consulting to local IT staff • Business development in respect of E-Business Swiss Re GEM 99 61 Z

Specific roles –

Communications & Human Resources Division

• Enhance further value of Brand and position it based on our Corporate Philosophy • Maintain communication with all stakeholders and in particular support Investor Relations • Set framework for divisional marketing communication and lead process of issue management • Help to win ’battle for talent’ in hiring, developing and retaining the best • Support top mgt to make appropriate management appointments Swiss Re GEM 99 62 Z

Corporate/Divisional Centre: the reason for being

Corporate centres are middlemen sitting between investors and value creating business units; as such, they can only justify their existence if they can add further value to shareholders.

Source: PriceWaterhouseCoopers Swiss Re GEM 99 Z 63

Swiss Re

The management process at Group level

• Corporate Philosophy • Group Strategic Plan and Financial Ambition • Group Balanced Scorecard • MbO’s and performance assessment of Group Key Position Holders • Group Compensation Philosophy GEM 99 64 Z