Swiss Re sees mid-triple-digit million loss for July floods & South Africa riots

Global reinsurance giant Swiss Re reported its first-half results this morning and revealed that it expects a mid-triple digit million combined loss from the severe flooding in Europe in July and also the unrest and rioting seen in South Africa.

The reinsurance firm reported $1 billion of first-half profits, while net-income could have been as high as $1.7 billion without the losses from the COVID-19 pandemic.

Return on equity (ROE) was 8.2% for the group, but could have been 13.4% minus pandemic loss effects. ROE was particularly strong in the property and casualty (P&C) reinsurance division, at 27.2%.

P&C reinsurance also grew strongly where net premiums earned grew by 8.9% to $10.5 billion, driven by volume and price increases as well as favourable foreign exchange developments.

The P&C Re business delivered $1.2 billion of profit as a result and Swiss Re looks set to earn out favourably across a higher rated book of business, following several years of rate increases.

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler commented on the result, “We are very pleased with the improved profitability achieved by the Group in the first half of this year. The focus on portfolio quality at P&C Re is delivering very strong results, and we are reaping the fruits of our decisive actions that brought Corporate Solutions back on track. Although L&H Re is still impacted by claims related to COVID-19 as we support our clients and society during this pandemic, its underlying business continues to perform well. All our businesses are growing, and our very strong capital position allows us to pursue attractive opportunities across all lines of business.“

Swiss Re’s Group Chief Financial Officer John Dacey added, “Our property and casualty businesses are on track to deliver on their ambitious combined ratio goals for this year. At L&H Re, we currently believe that the progress of the global vaccination programmes will lead to diminishing COVID-19 losses over the coming quarters. Swiss Re’s asset management continues to successfully navigate financial markets and deliver strong returns for the Group.“

During the first-half, Swiss Re’s P&C reinsurance business suffered $521 million of catastrophe losses, largely due to winter storm Uri in the United States.

In addition, large man-made losses were reported as $100 million during the first-half.

As a result, the P&C reinsurance combined ratio was 94.4% in the first-half of 2021, an improvement from the prior years 115.8%.

Because of “disciplined underwriting and improving margins” Swiss Re expects its P&C reinsurance division is on-track for a normalised combined ratio under its target 95% in 2021.

Swiss Re also gave some insight into how Q3 major events could affect its book going forwards.

The reinsurance firm said that things remain “highly uncertain” with these recent loss events, but that it anticipates a combined loss of around the mid-triple-digit million US dollars level after the severe European flooding in July and the riots and social unrest in South Africa, suggesting roughly $500 million should be considered as a guide.

At the estimate levels, of roughly EUR 5 billion of insured losses in Germany alone, Swiss Re picking up a few hundred million dollars of this is to be expected.

Which could be enough to see the reinsurance firm tap into its retrocession perhaps, or at the very least share some losses with investors in its sidecar Sector Re and perhaps with its other third-party capital and ILS investor partners.

Swiss Re also updated on the property and casualty reinsurance renewals at July 1st, saying that it has achieved a nominal price increase of 4% in year-to-date renewals, while treaty volumes remained largely stable at $16 billion.

Overall pricing quality improved, which Swiss Re said more than offset the the impact of decreased interest rates and adjustments to loss assumptions.

At the July renewals premium volumes increased slightly, the reinsurance firm said, adding that it grew in natural catastrophe business in the United States.

Like many others, Swiss Re likely carries a little more nat cat risk after renewals this year, given attractive pricing, but will also have had increasing opportunity to share exposures with its range of third-party capital partners, we’d imagine.