Switzerland: Underwriting the Underwriters

A lot of insurance companies would like to forget the past year. The Watts riots cost them $44 million in damage claims. Windstorms in Belgium, fires in the Philippines and a rash of burglaries in Switzerland drained additional huge sums. Then there was Hurricane Betsy, which did an estimated $750 million worth of damage, bringing on the worst single losses in insurance history.

Zurich’s Swiss Reinsurance Co. has more reason than most to rue the vintage year of disaster. It is the world’s biggest reinsurance company. “Swiss Re,” as its name suggests, insures the insurance companies—more than 1,000 of them are its clients—by accepting part of their liability for claims arising from natural catastrophe or human accident. On the broad marble staircase of the company’s châteauesque lakeside headquarters stands a baroque statue of St. Florian, who is regarded as a protector against natural disasters. Says Matthew Klaas, 63, one of Swiss Re’s two general managers: “Last year St. Florian let us down.”

Awesome Assets. The fact is, however, that he has not let them down so much that it really hurt. Despite a net underwriting loss of $759,000 over its last 18-month reporting period, the company showed an overall profit of $10 million, paid its 14,373 shareholders about 75% of that in dividends. How? By astute investment of premium income. Swiss Re owns $811 million in interest-bearing investments and has cash reserves of $31 million—enough, suggested one hyperimaginative financial writer recently, to cover the cost of the end of the world. Says Chairman Max E. Eisenring, 55: “The writer is overstating it by a shade.”

Swiss Re was founded in 1863 by two Swiss banks and an insurance company, later benefited from an immense catastrophe that was almost its undoing. Hard hit by $989,000 in claims after the San Francisco earthquake and fire in 1906, the still small company gulped, somehow got together enough money to pay off promptly. By cementing client confidence, this performance paved the way for rapid expansion. Swiss Re had become the world’s biggest reinsurer by the outbreak of World War II, emerged from the war stronger than ever.

Betting on Quality. The company weighs its risks carefully, sticks to the motto of its founders: “Rather no business than bad business.” Essentially, Swiss Re bets on the quality of the insurance company whose risks it accepts, pays claims on the nail, often within 48 hours. The company weekly pays out an average of $4,000,000 in claims, takes pride in the fact that no client has ever sued it for payment.

Swiss Re owns subsidiaries in the U.S., Canada, South Africa and Australia, controls affiliates in Britain, France and West Germany and is actively seeking new business in developing countries. Its foreign staff, made up of local nationals, is duly imbued with Swiss industry and frugality. But nobody nowadays is encouraged to be quite as desperately conscientious as Swiss Re’s first manager. After making a loss-producing mistake in judgment, he committed suicide.