Swiss Re Insurance-Linked Fund Management

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Swiss Re expansive in P&C Re, creep & CorSo reserve charge dent results


Global reinsurance firm Swiss Re has reported an expansive year-to-date in its core property & casualty reinsurance operations, with premiums rising 23%, but its results have been dented by loss creep from typhoon Jebi and a large reserve charge for Corporate Solutions.

Swiss Re building logoHelping to offset those dents to its first-half 2019 results, Swiss Re has reported much better investment income, which has helped to deliver stronger profitability across its business.

Net premiums earned and fee income rose almost 8% year-on-year across the group reaching $18.2 billion, while net income reached $953 million for the first-half, which is a slight dip on 2018, and Group Return on Equity (RoE) 6.6%.

Group Chief Executive Officer Christian Mumenthaler commented on the results, “Our half-year results underline the strength of our Reinsurance franchise in both the P&C and L&H segments. We are confident that our strategic position in terms of our large scale, global portfolio, diversification with L&H business and client access will continue to drive profitable growth, as evidenced by the positive renewals momentum we have achieved year to date.”

Return on equity was a strong 15.9% though, thanks in the main to the contribution coming from the investment side of Swiss Re’s reinsurance business.

Return on investment rose to 4.2% for the first-half, up from 2.6% in the prior year, thanks to strong performance from equity securities and gains within the fixed income portfolio.

Swiss Re’s Group Chief Financial Officer John Dacey commented, “We are in a strong position to deploy capital and take advantage of the opportunities to grow in diverse risk pools. As we keep our costs under control, this provides scale benefits and enhanced annual profits.”

Property & Casualty Reinsurance (P&C Re) net income was up 2.5% to $771 million, while the combined ratio fell to an underwriting loss at 100.5% largely on the loss creep from typhoon Jebi.

Large transactions and growth in natural catastrophe underwriting business helped to drive net premiums earned up 13.2% to $8.7 billion, while RoE reached 15.9% in 2019 so far.

Loss creep from typhoon Jebi hurt though, with late claims development in the first-quarter of the year, Swiss Re said. The firm said that this Jebi loss creep was “in line with a material increase in the total market loss.”

The firm also said that it was impacted by natural catastrophes and man-made losses, such as floods, hail and storm losses in Australia, as well as losses due to the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet.

With a technical underwriting loss and a 100.5% combined ratio in the first-half, Swiss Re said that its full-year target is now for a 98% combined ratio in 2019.

Helping though is the growth in the P&C reinsurance book as well as the benefits of higher pricing generally.

Swiss Re has been expansive, growing its book at the renewals so far this year.

The firm said that P&C reaty premium volume increased by 23% to $17 billion, 1% of which was due to price increases. At the July treaty renewals, with their U.S. focus, Swiss Re said that it achieved a 17% increase in premium volume and a 2% increase in price quality at the same time.

In Life & Health Reinsurance Swiss Re reported net income of 15.3% at $459 million, with an RoE of 13.1%, again with the investment return assisting.

On the commercial insurance underwriting side Swiss Re has taken the largest dent to its business, as management took “decisive actions” to address underperformance in Corporate Solutions.

The firm strengthened its claims reserves by $328 million in the quarter and also set up an adverse development cover with its own P&C Re for a further $100 million, in an effort to stem the impacts of prior year loss escalation across the Corporate Solutions (CorSo) book.

In addition, CorSo is also reducing risk exposure in some specific lines of business, to try to maintain higher profitability going forwards.

This resulted in a net loss of $403 million for the CorSo unit with a combined ratio of 132.8% for the first-half of the year.

More positively though, Swiss Re said that net premiums earned by CorSo rose by 7.6% to $2.1 billion, with “significant rate increases and growth in selected lines of business” helping to offset the pruning of several underwriting portfolios.

The firm said, “Swiss Re expects the positive momentum in commercial insurance rates to continue after achieving a broad-based 9% price quality increase in the first half of 2019.”

Swiss Re further said that the actions taken should help it to reach underwriting profitability for CorSo, aiming for a target normalised combined ratio of 98% in 2021.

Finally on CorSo, Swiss Re also injected $600 million of capital which it said is “underlining its commitment to the commercial insurance market.”

Looking ahead, Swiss Re will be hoping that its expansive underwriting at higher pricing in property and casualty reinsurance, as well as the decisive actions taken in Corporate Solutions, will position it for a more profitable future.

Commenting, Christain Mumenthaler said, “We are very pleased to see the strength of our reinsurance franchise come back to the fore. We are confident that the measures we are taking in Corporate Solutions will return the business to underwriting profitability. And we are excited about growth of our open book businesses in Life Capital. We see many opportunities ahead and continue to work closely with our clients, while delivering attractive returns to our shareholders.”

Whether Swiss Re’s actions in its commercial insurance division read across to others in the sector remains to be seen, but in being so decisive the firm has demonstrated what could become necessary for others with a similarly constructed book of business.

Of course, the rate increases seen in CorSo could also read across to other large commercial and corporate insurance players, which will be viewed as positive by analysts we’re sure.

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