In reporting his companies first-half 2020 results this morning, Swiss Re’s CEO Christian Mumenthaler said that the $2.5 billion of largely IBNR reserves set aside for losses from the Covid-19 pandemic should be sufficient to cover the majority of the firms ultimate.
Swiss Re pre-announced a “significant addition” to its loss reserves for the Covid-19 pandemic over a week ago, with the increase taking its total first-half 2020 hit from the coronavirus to $2.5 billion of pandemic related claims and reserves.
Due to the impacts of the pandemic, Swiss Re has reported a net loss of $1.1 billion across the group this morning, but if the impacts of the pandemic were excluded from it the company would have reported a much healthier $865 million of Group net income.
It’s important to note that this would still have been down on H1 2019’s $953 million of net income that Swiss Re reported.
In property and casualty reinsurance, Swiss Re reported a net loss for H1 2020 of $519 million. Excluding Covid-19 impacts the company would have reported net income of $646 million and a return on equity of 14.9%, down on H1 2019’s $771 million of positive net income.
In life and health reinsurance, Swiss Re reported positive net income of $74 million, but without Covid-19 this could have been $516 million, which would have been up on 2019’s $459 million.
In Corporate Solutions, Covid-19 drive the commercial risk underwriting unit to a net loss of $301 million. But had the pandemic not occurred, the company said it would have been positive for the first-half in the CorSo division, with net income of $81 million, much better than H1 2019’s net loss of $403 million.
Swiss Re has reported 6% growth in premiums written in the first-half of 2020, as the company has taken advantage of firming rates to boost the overall size of its underwriting portfolio.
Swiss Re’s Group Chief Executive Officer Christian Mumenthaler commented, “As the extraordinary crisis caused by COVID-19 unfolds across the globe, we share our sympathies with those who have suffered personal loss and financial uncertainty. Swiss Re is doing its part to facilitate recovery from this crisis, and we are working with many stakeholders around the world on improving resilience to future large systemic risks.”
Importantly though, Swiss Re believes that the huge $2.5 billion of Covid-19 losses it booked for the first-half of this year will cover the majority of its claims from the pandemic, meaning it could bounce back to profitability in the coming quarters, depending on how the pandemic pans out globally and also how the tail of claims develops in longer-tailed lines.
Mumenthaler said, “Based on current information and a prudent analysis of our businesses, and recognising the inherent uncertainty of the ongoing pandemic, we expect the claims and reserves we have booked in the first half of 2020 to cover the majority of our ultimate COVID-19 losses.
“While the impact on our earnings is significant, it remains manageable as our operations continue uninterrupted, all our businesses are performing well and our capital position allows us to take advantage of attractive opportunities in an improving market.”
Swiss Re’s important solvency metric, the SST ratio, remains above the target 220% as of 1st July 2020, which is after factoring in the impact of the sale of life consolidator arm ReAssure and the COVID-19 losses.
However, reflecting the impact of the pandemic on the global reinsurer, Swiss Re’s shareholders’ equity fell to $27.9 billion from $29.3 billion at the end of 2019.
Group Chief Financial Officer John Dacey commented, “Although the COVID- 19 crisis is still evolving, we took a prudent approach to build substantial reserves for the Group’s exposures already in the first half of this year. This gives us more certainty in the outlook for the remainder of 2020 and beyond. Thanks to our disciplined long-term approach to capital management and the decisive actions taken early in the crisis to protect our balance sheet, our capital position remains very strong.”
Of the Covid-19 losses reported, Swiss Re disclosed today that $1.5 billion fell to its P&C reinsurance division, across affirmative non-damage business interruption, cancelled or postponed events, casualty and credit & surety losses, $548 million fell to the life and health reinsurance unit and $485 million to Corporate Solutions.
The Corporate Solutions performance, excluding the impacts of Covid-19, is likely to buoy analysts and investors today, as this unit is now beginning to show the signs of a turnaround.
Looking ahead, Swiss Re CEO Christian Mumenthaler said, “We are encouraged by the good progress we see in all of Swiss Re’s businesses so far this year. While some degree of uncertainty remains with regards to future COVID-19 losses, we are confident in the outlook for our Group. Thanks to our disciplined capital management, we are in a strong position to continue to support our clients and deploy capital for business growth in improving pricing conditions.”