Swiss Re P&C businesses takes $476m Covid-19 charge

Swiss Re, the Zurich headquartered global reinsurance firm, has fallen to a group net loss of -$225 million for the first-quarter of 2020, after taking a pre-tax charge of $476 million for its property and casualty businesses due to the Covid-19 pandemic.

Swiss Re has set aside a considerable reserve for the initial expected claims impacts of the Covid-19 coronavirus pandemic.

As well as the $476 million hit from Covid-19 to the reinsurance firms underwriting result, Swiss Re also reported a $300 million hit to the investment side of the business.

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler commented, “The COVID-19 pandemic has had a deep impact on society, governments and businesses across the globe. Our heartfelt sympathies go to those who have lost a loved one or have otherwise suffered in the crisis. These difficult times reinforce our resolve to continue working towards Swiss Re’s vision – making the world more resilient. We do this each day by handling claims, renewing contracts, sharing our knowledge and innovating.

“Swiss Re’s business remains resilient despite the financial impact of the crisis on our results. And our industry-leading capital position means we will weather this situation as a strong partner for our clients.”

In property and casualty (P&C) reinsurance, Swiss Re reported net income of $61 million (up on the prior years $13m), despite the loss hit from the pandemic, but in Corporate Solutions the company reported a net loss of -$167 million as the pandemic related loss expectations wiped out profitability completely.

The P&C reinsurance side of Swiss Re established some $253 million of loss reserves primarily for expected claims for cancelled or postponed events.

Losses from major natural catastrophes reached $397 million in Q1 2020, which was above plan, but Swiss Re noted that driving this was its significant market-share in Australia this quarter (hail, bushfires and flooding), as well as winter storm losses in Europe.

Swiss Re has continued to expand its P&C reinsurance business, with net premiums growing 12% to $4.7 billion in the quarter.

Annualised ROE was 3% compared with 0.6% a year earlier and excluding Covid-19 losses, the ROE was 13.2%.

Swiss Re’s P&C reinsurance unit reported a combined ratio of 110.8%, but excluding the claims related to Covid-19 the company feels its combined ratio is on track for its targeted 97% for the full year 2020.

In the Corporate Solutions division, claims reserves for Covid-19 amounted to $223 million, helping to drive the loss for the quarter to -$167 million.

But the underlying still isn’t all that promising, as Swiss Re Corporate Solutions reported a 103.2% combined ration excluding Covid-19. This is some 13 points better than a year earlier, but still this unit is only seen as on track to achieve a combined ratio estimate of 105%.

Positively though, Corporate Solutions achieved price increases of 13% in the first-quarter, which Swiss Re expects that “current market conditions are expected to reinforce this trend.”

The Life reinsurance business at Swiss Re did not experience any material Covid-19 related claims in the period, likely because it is too early at this stage.

This unit reported positive net income of $299 million and an above target RoE of 15.8%.

Analysts called Swiss Re’s result broadly in-line with their expectations, but noted the significance of a 3.2% return on investments, and in particular some $650 million of credit and equity hedging gains without which it would have been a very different story.

This highlights the importance of the two-sides of the balance-sheet to major players like Swiss Re and why they need to be equally well-managed.

Swiss Re’s Group Chief Financial Officer John Dacey explained, “We took timely and substantial measures to protect our balance sheet and hedge investment positions in the first quarter, ahead of one of the sharpest sell-offs in recent history. This allowed us to largely mitigate the negative impacts of market turbulence, and the low impairments in our portfolio underscore its quality. As markets remain volatile, we continue to be vigilant to the challenges the current conditions present.“

Overall the result seems reasonable under the challenging circumstances and the benefits of the investment management side at Swiss Re once again are evident.

Whether the reserves set aside prove enough over the longer-term remains to be seen and with many reinsurers forecasting Q2 onwards to be when the claims from the Covid-19 pandemic really start to be seen it will be interesting to look at how much topping up, or otherwise, are required by the major players as it helps us better understand the potential impacts elsewhere in P&C, including the ILS market.

Looking ahead, CEO Mumenthaler said, “The COVID-19 pandemic is far from over and its broader economic and social consequences will be far-reaching. Our industry plays an important part by absorbing some of the pain caused by this crisis. At Swiss Re, we continue to be here for our clients, run our business without interruptions, and use the flexibility allotted by our capital strength. We are confident that we will make a positive contribution. In the longer term, we will need to draw lessons from the current situation and look at public-private partnership solutions to ensure society can better deal with such large-scale disruptive events in the future.“