Swiss Re Insurance-Linked Fund Management

Xactanalysis Insights and PCS

Swiss Re puts 9-month cat losses at $2.5bn, falls to $285m net loss

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For Swiss Re, global natural catastrophe and severe weather events have been a significant driver of a net loss of $285 million for the first nine-months of 2022, led by the Q3 impacts of hurricane Ian.

swiss-re-logo-buildingPreviously, Swiss Re had pre-announced an expectation that major hurricane Ian would cost it $1.3 billion in cat losses, net of retrocessional reinsurance recoveries and before tax.

Now, in announcing its results for the first nine-months of the year this morning, Swiss Re has disclosed its toll from catastrophes and weather losses so far this year, pegging that at $2.5 billion, presumably net of retrocession and any risk sharing again.

It’s a key driver for the $283 million net loss for Swiss Re’s P&C Reinsurance division, alongside an underwriting loss with a combined ratio of 106.1%.

The third-quarter hit from hurricane Ian tipped the results into negativity though, as Swiss Re reported a third-quarter net loss of $442 million.

Life and health reinsurance and Corporate Solutions fared much better though, both delivering positive net income for the year-to-date, while a positive 1.6% return on investments has also helped to soften the blow from natural catastrophe events.

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler explained, “The first nine months of this year were marked by a confluence of events affecting Swiss Re’s financial performance: from turbulence in the financial markets, to an increase in natural catastrophe claims, surging inflation and the war in Ukraine. While P&C Re has been significantly affected by these headwinds, all other businesses are performing well and are on track to reach their 2022 financial targets.”

Swiss Re’s Group Chief Financial Officer John Dacey added, “We have bolstered reserves by USD 0.7 billion over the past 12 months to address the impact of economic inflation. Rising interest rates are already helping to compensate for this impact, with the recurring contribution from our fixed-income portfolio rising by around USD 100 million in the third quarter alone. Most importantly, despite the challenges this year, we have maintained our very strong capital position and remain committed to our capital management priorities.”

Because of the net loss for the first nine-months of 2022, Swiss Re reported a negative return on equity (ROE) of –2.1%, with lower investment results, natural catastrophe losses and the Ukraine conflict blamed.

Net premiums earned and fee income for Swiss Re were up by 1.3% to $32.4 billion in the first nine months of 2022, although growth would have been far higher, at 5.2%, were it not for foreign exchange effects.

P&C Reinsurance’s large natural catastrophe claims of $2.5 billion were largely due to Hurricane Ian, floods in Australia and South Africa, hailstorms in France, and a series of other smaller events around the world, the company said.

In addition, reflecting how inflation is affecting reinsurers, Swiss Re said that it has made some reserving actions on economic inflation (as Dacey said, this amounted to roughly $0.7bn), while also saying that, in its P&C Re business an increase in small- and mid-sized claims, largely due to economic inflation, means this unit is unlikely to hit its normalised combined ratio target of less than 94% in 2022.

Finally, Swiss Re said it is unlikely to hit its Group ROE target of 10% in 2022, but the mid-term outlook remains positive and the reinsurance firm is committed to lifting its US GAAP Group ROE to 14% in 2024.

CEO Mumenthaler closed by saying, “While we are disappointed that the Group ROE target is unlikely to be reached this year, we remain confident in our mid-term outlook. In this volatile environment, risk aversion and the need for protection will continue to increase. Our strategy and very strong capitalisation put us in a favourable position for the upcoming renewals amid rising prices and constrained market capacity. We remain committed to drive profitability and create value for our shareholders, clients and employees, as reflected in our 2024 financial targets.”

It’s safe to assume that an element of Swiss Re’s catastrophe losses will have flowed to its third-party capital partners and investors in some of its insurance-linked securities (ILS) structures.

The Sector Re quota share sidecar will certainly have taken a share of losses, as most likely has Swiss Re’s Viaduct Re sidecar partnership with pension investor PGGM.

On the ILS fund side, it’s possible some of the reinsurance focused ILS funds at Swiss Re Insurance-Linked Investment Management Ltd. will also have shared some of the significant global catastrophe loss activity to its investors as well.

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