Swiss Re Insurance-Linked Fund Management

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Swiss Re grows nat cat premiums 23%, shifts to higher attachments


Global reinsurance giant Swiss Re reported its first-half 2022 results this morning and revealed a continued strong appetite for growth into natural catastrophe business, as it remains one of the larger players to keep its core focus on protecting society against disasters and weather events.

swiss-re-building-imageOther major insurance and reinsurance companies are currently pulling back from property catastrophe risks, as evidenced by both SCOR and Everest in their results this week.

But Swiss Re has been displaying an increasing appetite for nat cat exposure, writing more business as the property catastrophe reinsurance market has hardened.

Recently, the firms Group Chief Underwriting Officer Thierry Léger said that pricing is now hard in the natural catastrophe reinsurance space, but that further rate hardening is also expected with momentum likely to hold for two or more years.

Swiss Re has been leveraging its ability to partner with third-party capital investors as it has been growing its catastrophe book, both through its use of catastrophe bonds and other forms of retrocession and increasingly through its insurance-linked securities (ILS) fund operations at Swiss Re Insurance-Linked Investment Management Ltd.

In reporting its results this morning, Swiss Re revealed a return to profit after its first-quarter was impacted by losses related to catastrophe events, Covid-19 and the conflict in Ukraine.

The second-quarter was a far more profitable period for the reinsurer, leading it to report $405 million of profit for Q2 alone, that has driven $157 million of positive net income for the first-half.

Swiss Re’s Property & Casualty Reinsurance (P&C Re) division delivered net income for the first-half of 2022 of $316 million and a combined ratio of 98.5%, which normalised to 95.8%.

The commercial risk insurance underwriting division Corporate Solutions delivered net income of $220 million and a strong combined ratio of 93.2%.

In addition, Swiss Re managed a positive 1.2% return on its investments for the first-half, despite the market downturn and global economic factors.

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler commented, “After a challenging start to the year, Swiss Re returned to profitability in the second quarter. This was supported by strong results in Life & Health Reinsurance and Corporate Solutions, as well as robust underwriting performance in Property & Casualty Reinsurance.”

Swiss Re’s Group Chief Financial Officer John Dacey added, “Rising interest rates are clearly positive for the re/insurance sector, and we are starting to see the benefits come through in our recurring income yield. With respect to inflationary trends, we remain vigilant and are taking appropriate actions, including increasing the pricing of new business and the related initial loss expectations.”

There was no increase to Swiss Re’s Ukraine war related reserves in Q2, but the company did suffer $938 million of catastrophe claims through the first-half of the year.

Despite that, the P&C reinsurance unit remains profitable through the first-half, with $316 million of net income.

Catastrophe claims came in above budget, but because of the way Swiss Re attributes cat budget to first and second-halves of the year, the company has $1.2 billion left for H2 2022.

Overall, P&C reinsurance net premiums earned increased slightly to $10.6 billion in the first-half, but growth was particularly strong in some areas of Swiss Re’s business.

At the July 1st reinsurance renewals, Swiss Re renewed $4.8 billion in treaty premium volume, at an average price increase of 12%.

Importantly, the reinsurer said, “This fully offset higher loss assumptions, which reflect a clear view on inflation and other changes in exposure.”

Since the start of 2022, Swiss Re’s P&C Reinsurance unit has achieved treaty premium volume growth of 3%, at a price increase of 6%, which it said was focused on “profitable growth in natural catastrophe and specialty lines.”

Year-to-date, Swiss Re saw some $3.3 billion of gross natural catastrophe reinsurance premiums up for renewal, but the company estimates it has written roughly 23% more, at around $4 billion for the period.

That significant continued growth in natural catastrophe business marks a different strategic direction to some competitors that are pulling-back on nat cat risks at this time.

It’s possible Swiss Re’s greater scale than some of those competitors means it has broader diversity and believes it can absorb nat cat losses more effectively, without being over-concentrated.

But the growth in cat reinsurance also comes with a strategic shift to move higher into reinsurance towers, seeking to moderate the impacts of events as well.

Swiss Re said that its growth in nat cat business at the July renewals was in-line with growth achieved in January and April, and explained that it has been shifting its capacity to higher attaching layers which show attractive economics.

As we said, the company has been tapping alternative capital sources increasingly as well, so it will be interesting to see whether the company continues to build on its cat bond program through the remainder of the year.

On the flipside of this, Swiss Re reduced its premiums in proportional property business at renewals this year, as it seeks to mitigate inflationary effects.

Again, that’s a little different in strategy, as some of the players reducing property cat risks, have been growing their proportional books.

Commenting on the rest of the year ahead, CEO Christian Mumenthaler said, “Thanks to the actions we have taken over the past years, all our businesses are well positioned and focused on achieving their segmental targets for the year. The achievement of the Group targets is highly dependent on the performance of financial markets and large-loss experience in the second half of 2022. Our very strong capital position and excellent client franchise enable us to capture further profitable growth opportunities in a supportive pricing environment.”

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