Swiss Re result hit by underwriting losses & Jebi in Q1 2019

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Underwriting losses across the property and casualty reinsurance and Corporate Solutions business units, as well as impacts from prior year events largely due to typhoon Jebi loss creep, dented Swiss Re’s first-quarter 2019 results.

Swiss Re building logoThe global reinsurance player has reported a combined ratio of 110.3% for the P&C reinsurance unit, signalling technical underwriting losses, as large natural and man-made disaster impacts dented Swiss Re’s result.

Swiss Re explained that it suffered losses of around $210 million due to the North Queensland floods in Australia and around $90 million from the Ethiopian Airlines crash and grounding of the Boeing 737 MAX fleet. Swiss Re also saw claims from cyclone Idai in Mozambique in the quarter.

In addition P&C reinsurance was hit by “significant impact from prior-year events,” the majority of which were related to an increase in the loss estimate for Typhoon Jebi, which the reinsurer said was aligned with “a material increase in the total market loss.”

As a result, Swiss Re’s P&C Re unit only delivered net income of $13 million, and a 0.6% return on equity (ROE), helped by the investment return across the group.

The Corporate Solutions division at Swiss Re continued to deliver negative results as well, which will not have been pleasing for the reinsurer at a time when it has been working to rectify issues at the commercial insurance unit.

Swiss Re Corporate Solutions reported a net loss of $55 million, thanks largely to impacts from large and medium-sized man-made losses, in particular from prior-year events.

The combined ratio reached 116.3%, and the ROE was negative at –12.1%.

As a result of this, Swiss Re said that it is conducting a review of the Corporate Solutions business, including all business lines and reserve positions.

CEO of Swiss Re Christian Mumenthaler explained, “Corporate Solutions continues to present challenges, and we are taking decisive measures to address recent performance issues. In this context, we are conducting a thorough review of the Business Unit, led by the new Corporate Solutions CEO Andreas Berger, which will be completed in the second quarter.”

More positively, the life and health reinsurance unit profited at Swiss Re and the group return on investment was impressive.

Overall, Swiss Re reported net income of $429 million for the first-quarter of 2019, with a Group ROE of 5.9%, which was largely thanks to the Life & Health Re division and the strong investment result.

Life and health reinsurance delivered net income of $328 million and an ROE of 19.6%. While the return on investment across the group reached an impressive 4.5%, more than double the prior year quarter, driven by significant market value gains from equity securities.

The Life Capital business delivered $300 million of cash generation to the group, less than half the prior year quarter, while net income was $7 million, more than double the prior year, and net premiums grew to $426 million.

These two factors helped Swiss Re to report a profitable quarter still, although the property and casualty focused sides of the business were less impressive in their performance.

Mumenthaler commented, “While our property and casualty businesses were affected by significant large losses, Life & Health Re continued on its successful and steady path – a sign of the strength of our diversified business model. Another encouraging sign was the ongoing and accelerating improvement in the overall pricing environment for the property and casualty businesses, especially in loss affected markets. This continued positive momentum in renewals gives us confidence in our outlook.”

Premium growth continued, as Swiss Re sought to take advantage of better pricing across reinsurance markets at renewals, with net premiums earned increasing by 5.5% to $8.8 billion, thanks to growth across all units. At constant exchange rates the premium growth was actually 9.4%.

Swiss Re’s Group Chief Financial Officer John Dacey said, “We are pleased with our premium growth and the very strong investment result in the first quarter of 2019. We continue to have an industry-leading capital position, providing us with high financial flexibility to support profitable growth. On Monday, we will start to return excess capital to our shareholders through the first tranche of our share buy-back programme – a clear commitment to our capital management priorities.”

Net premiums earned in the P&C reinsurance unit were up by 10.9% to $4.2 billion, thanks to large transactions. In April, Swiss Re saw its treaty premium volumes overall increase by 18%, while price improved by 1%, the reinsurer said.

“This reflects the successful outcome of the Japan renewals, where Swiss Re could reinforce its strong position, often at preferential terms, increasing premium volume by 10% and improving price quality by 7%,” the company explained.

In Corporate Solutions, Swiss Re said that net premiums earned increased by 12.3% to $1 billion, as “active pruning” of the US General Liability book was offset by growth in Credit and Property, as well as rate increases.

The firm said it expects “positive momentum in commercial insurance rates to accelerate during 2019,” having experienced a 5% rate increase across this business in Q1 2019.

Once again Swiss Re demonstrates the scale of the protection it provides, being hit by all the major events of the quarter and suffering loss creep from the prior year.

The company has not disclosed its typhoon Jebi loss creep so far this morning, but it’s expected to be significant.

Deutsche Bank analysts estimated it could be as much as an additional $500-$600 million, based on their model for the firm and the combined ratio hit.

Swiss Re itself had said it likely took around 10% of the industry loss from Jebi and that market-wide impact has risen by roughly $5 billion in recent months it seems, suggesting Deutsche Bank’s analysts could be close to the mark.

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