Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

Swiss Re lifts COVID hit to $3bn, reports Q3 profit & strong P&C growth


Global reinsurance firm Swiss Re has reported a solid third-quarter of net income that has helped to narrow its group net loss for the first nine months of the year, despite further additions to its reserves for the COVID-19 pandemic that have now reached US $3 billion.

swiss-re-building-imageSwiss Re has delivered positive net income of $444 million for the third-quarter of 2020, even after adding an extra $500 million to its still larger IBNR reserves for the pandemic.

At the same time, the reinsurance firms solvency ratio remains at a very high 223% and the company also achieved strong investment results of 3.4% for 2020 so far, which given the impact of COVID-19 on financial markets is impressive.

The group net loss has fallen by roughly $500 million during the third-quarter despite the additional COVID IBNR reserves being put up.

At the end of the first-half, Swiss Re had reported a net loss of $1.1 billion, but that has now fallen to $691 million for the first nine months of 2020.

The strong net income has been driven by growth in reinsurance lines of business and a profitable quarter, excluding the effects of the pandemic for Swiss Re’s business.

In lifting its COVID-19 losses and reserves to $3 billion Swiss Re moves up into second place for disclosures of insurance and reinsurance claims from the pandemic.

Some 67% of the $3 billion of COVID-related impacts are still IBNR Swiss Re said, explaining that uncertainty over the pandemic remains high and the figure could develop, positively or negatively, over the coming quarters.

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler commented on the results, “The COVID-19 pandemic continues to have a profound impact on communities, families and businesses across the globe, and our sympathies go out to all affected. Since the pandemic started, we have thoroughly tracked and prudently assessed its impact on our Group. We built substantial reserves in the first half of this year. Based on developments since then, we believe that our reserving approach remains appropriate and reflective of the ongoing uncertainty surrounding the impact of the pandemic. Our businesses are delivering a positive underlying performance, and we are confidently executing on the Group’s priorities in improving market conditions.“

Chief Financial Officer John Dacey also said, “We continue to be focused simultaneously on managing all dimensions of the COVID-19 crisis while delivering on business priorities and pursuing promising new ventures. Thanks to Swiss Re’s industry-leading capital strength and risk knowledge, we are strongly positioned to capture attractive opportunities in upcoming renewals and deliver on our financial targets over the business cycle.“

The P&C reinsurance business at Swiss Re is clearly displaying the effects of firming market conditions, both in terms of growth and returns.

Taking the pandemic out of the equation, Swiss Re’s P&C Re division has recorded net income of $1 billion in the first nine months of 2020, up from $880 million in the prior-year period.

Return on equity, excluding the COVID effects, was a very healthy 15.5% and Swiss Re believes P&C Reinsurance will hit a 97% normalised combined ratio this year.

Swiss Re has cited “strong recent renewals” as boosting its P&C reinsurance business, with net premiums earned rising 9.2% to $15.5 billion for the nine-months, driven by large transactions and growth in natural catastrophe reinsurance business, thanks to successful renewals in the US and Asia.

The strong growth and in particular growth in natural catastrophe reinsurance business is helped by Swiss Re’s growing use of third-party capital, delivered through catastrophe bonds, its Sector Re sidecar and its relationships with direct investors such as Dutch pension manager PGGM.

As we explained recently, Swiss Re’s alternative capital assets under management had reached $2.5 billion, which alongside the reinsurers catastrophe bonds are serving to significantly boost its catastrophe reinsurance underwriting firepower.

Given the hardening opportunity seen for the January renewals, we’d expect to see Swiss Re continue to be expansive in natural catastrophe risks and also expect to see the reinsurer tapping more alternative capital to assist with this.

The catastrophe activity of Q3 has affected the reinsurer, with Swiss Re reporting $1.5 billion of large natural catastrophe and man-made losses for the first nine months of 2020.

The company called catastrophe events in Q3 2020 “above expectations” citing impacts from Hurricanes Laura and Sally, the West Coast wildfires and Midwest storms in the US, as well as Yangtze floods in China and Typhoon Haishen. Man-made losses were dominated by the Beirut explosion, Swiss Re said.

Positively for shareholders in the reinsurer, there is evidence that excluding COVID-19 the Corporate Solutions turnaround continues.

Taking COVID losses away, the Swiss Re Corporate Solutions business delivered positive net income of $211 million for the nine months, much better than the prior year’s net loss of $441 million.

Again excluding COVID-19, the Corporate Solutions return on equity was 12.3% and the combined ratio 96%.

Across Swiss Re’s business, COVID-19 pandemic losses and IBNR reserves were split as $1.6 billion in P&C reinsurance, $689 million in life and health reinsurance, $678 million in Corporate Solutions and $15 million in Life Capital.

Looking ahead Swiss Re remains positive of its opportunities in the hardening marketplace.

Group CEO Mumenthaler explained, “Swiss Re is well-equipped to benefit from an improving market environment. Our capital position is very strong, allowing us to pursue profitable growth as prices develop favourably across both our P&C Re and Corporate Solutions businesses. We are confident that we can continue to support our clients with risk knowledge, capital strength and tailored solutions in these unprecedented times.“

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