Swiss Re’s catastrophe book positive despite ~$2.5bn large loss burden

Global reinsurance firm Swiss Re reported strong performance across its property and casualty reinsurance business and Corporate Solutions this morning, with group net income of $1.3 billion reported, despite natural catastrophe and man-made losses driving an almost $2.5 billion net impact in the first nine-months of 2021.

Continued losses from the COVID-19 pandemic in the life and health reinsurance business was the only dampener for this morning’s results from Swiss Re, as the life and health business fell to a $62 million net loss after $1.182 billion of COVID losses through the year so far.

But the P&C reinsurance and commercial underwriting at Corporate Solutions are the brightest spots, with P&C reinsurance net income of $1.5 billion and Corporate Solutions net income reaching $425 million.

The combined ratios were also impressive, with P&C reinsurance coming in at 97.5% for the nine-months and Corporate Solutions even lower and a figure analysts are likely to be delighted to see at 91.1%.

This is despite Swiss Re having pre-announced around $1.27 billion of losses from hurricane Ida and the European floods in Q3, earlier this month.

In fact, for the first nine-months of 2021, Swiss Re reported almost $2.5 billion of net major losses across its reinsurance and commercial insurance businesses.

P&C reinsurance experienced $1.7 billion of net natural catastrophe losses, with hurricane Ida, the European floods and winter storm Uri the main drivers of this.

The company said this was higher than anticipated, but importantly below the premiums earned for property catastrophe business.

On top of that, the P&C reinsurance segment reported large man-made losses of $292 million for the period.

Corporate Solutions meanwhile, reported net natural catastrophe losses of $286 million and man-made losses of $212 million.

Together, the large loss burden across P&C Re and CorSo amounted to $2.47 billion, so just under the $2.5 billion headline figure.

Given these are net loss figures, as Swiss Re always reports, its safe to assume the gross burden will have been significantly higher and that there’s a strong chance an element of these losses may have been supported by retrocessional reinsurance protection, as well as by third-party investor capital from Swiss Re’s reinsurance sidecars and insurance-linked securities (ILS) funds.

Swiss Re has been working hard to improve the profitability of its catastrophe book, somewhere that third-party capital has become an important lever.

While the company hasn’t reported full Q3 results, only revealing nine-months at this point in the year, during a call this morning some interesting detail was shared.

For the nine-months in fact, CFO John Dacey explained that the group did deliver a profit for Q3, despite the catastrophe loss activity and even more interesting, he also said that Swiss Re’s natural catastrophe portfolio is still operating with a combined ratio below 90 for the year to September 30th.

That’s impressive, given the significant catastrophe and weather loss activity and that Swiss Re has global exposure to almost every event that occurs.

Statistics like this will also be appealing to insurance-linked securities (ILS) investors, as a property catastrophe portfolio that can weather catastrophe losses like we’ve seen in 2021 so far and still be running at a sub-90 combined ratio is a very attractive investment prospect.

Swiss Re has made a considerable effort to send price signals to the market, by moving out of certain lower layers and writing business higher up, while pushing through price increases this year.

This has clearly helped to moderate its exposure to large industry loss events, as in previous years the catastrophe portfolio was often the first to turn negative when catastrophes and severe weather struck.

In fact CFO Dacey said this morning that Swiss Re had removed itself from roughly $2 billion of notional catastrophe risk in lower layers and in areas of the market like aggregate risk, moves which are clearly taking effect.

This added resilience, through adjusting its catastrophe risk appetite, as well as its use of third-party capital, is certain to please shareholders and also analysts today.

Commenting on the results, Swiss Re’s Group Chief Executive Officer Christian Mumenthaler said, “Thanks to the Group’s sustained focus on portfolio quality and disciplined underwriting, our property and casualty businesses delivered excellent results in the first nine months of 2021. At the same time, we were able to support communities impacted by natural catastrophes and the COVID-19 pandemic.“

Swiss Re’s Group Chief Financial Officer John Dacey also said, “P&C Re and Corporate Solutions are delivering on their ambitious targets for this year, with a combined net income of just below USD 2 billion in the first nine months. We are also pleased with the underlying performance of L&H Re, which offset the impact from the pandemic, resulting in a reported profit for the second consecutive quarter.“

Mumenthaler added, “We continue to reap the benefits of our strategic underwriting actions and see opportunities across all businesses to deploy capital at attractive returns. This gives us confidence for the remainder of the year and into 2022, with all our businesses well positioned to continue their strong performance.“