Swiss Re Insurance-Linked Fund Management

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Swiss Re targets higher P&C reinsurance profits


Global reinsurance firm Swiss Re looks set to target profitable growth for its property and casualty (P&C) reinsurance business, aiming to underwrite more business in the hardening market at a reduced combined ratio.

swiss-re-building-imageSwiss Re is targeting an improved combined ratio for its P&C reinsurance business of less than or equal to 96% for 2021.

At the same time the reinsurer said that its P&C reinsurance business is “pursuing targeted growth opportunities in a hardening market” aiming to build on the strong franchise it has already created.

The focus will be on profitability of the business assumed, with Swiss Re focused on expanding P&C reinsurance underwriting margins over the next year.

All of which suggests a focus on delivering higher profits, a larger book of P&C business and a lower rate of attrition from losses and major catastrophes.

Key to achieving that will be the retrocession strategy at Swiss Re, which will need to be robust to fend off the impacts of catastrophe loss events.

The new combined ratio target assumes an average large natural catastrophe loss burden for 2021, excludes any effects of prior year development and also ongoing COVID-19 impacts.

But the way Swiss Re shares in these P&C reinsurance profits, as well as its losses, will also be a key driver of its ability to deliver a less volatile performance throughout 2021, which its relationships with third-party investors through its collateralised reinsurance sidecar vehicles, plus its expanding catastrophe bond retro program can assist with.

The combination of improved market conditions and targeted growth in a hardening P&C reinsurance market, also suggest more opportunities for third-party investors will be coming through 2021.

Already Swiss Re has roughly $2.5 billion of third-party capital under its management through its Sector Re quota share sidecar vehicle, its direct partnership with major investor PGGM through the Viaduct Re sidecar structure, other investor relationships and its internally managed cat bond portfolio.

On top of that, as we explained yesterday when revealing the latest and fifth catastrophe bond of the year under Swiss Re’s Matterhorn Re program, the company is now heading for almost $1.5 billion of cat bond market supplied retrocession as well.

As the reinsurer targets further growth, all of these activities with the insurance-linked securities (ILS) market and third-party investors are likely to expand, to support its growth using efficient capital and protect it from the downside of both frequent and major catastrophe loss events.

Swiss Re is also honing its targets for the Corporate Solutions division, with a 98% or better normalised combined ratio aimed for in 2021.

The company said that “the pronounced hard market offers opportunities for profitable growth in areas” for its commercial risk division, adding that over time it expects to shift CorSo “towards a better diversified and more cycle-resilient commercial insurance model.”

The third-party capital Swiss Re utilises supports losses affecting its entire book, so growth and improved performance at Corporate Solutions are also of interest and can help to support the delivery of returns to investors in its various vehicles.

But of course investors will also be supporting the CorSo book should it face significant losses from catastrophe events as well, helping Swiss Re to manage its PML’s across both reinsurance and corporate insurance books.

Commenting on the targets revealed at today’s investor day, Swiss Re Group Chief Executive Officer Christian Mumenthaler said, “We are optimistic on the outlook for all of our businesses as we see positive momentum in the underlying earnings power of the Group. Our confidence is underpinned by Swiss Re’s capital strength and the proactive approach we have taken to the Group’s COVID-19 reserves. We expect that COVID-19 will remain an earnings and not a capital event for the Group, with declining exposures going forward. We are focused on delivering on our financial targets and capital management priorities. At the same time, our strategy positions Swiss Re for long-term success.“

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