Despite reinsurer Swiss Re’s net income for 2019 falling below analysts’ expectations, S&P Global Ratings has said that it anticipates that the group will maintain its risk-based capital above the ‘AA’ level.
Global reinsurance giant Swiss Re recorded net income of $727 million for 2019, which, although an improvement on the previous year, is someway below the $2.5 billion S&P forecast as at August 2019.
Analysts note the higher than expected level of catastrophe losses, most driven by Hurricane Dorian, Typhoons Faxai and Hagibis and the Australian bushfires, as well as some prior-year adverse development related to Typhoon Jebi and the US casualty space.
However, in spite of the lower than expected performance for the year, analysts at S&P have said that the reinsurer is expected to maintain its Group risk-based capital above the ‘AA’ level, which supports S&P’s ‘AA-‘ long-term ratings and stable outlook on the Group’s core operating entities.
“Unlike some of its peers, Swiss Re Group benefits from its capital buffer–which it has built up over time–above our requirement for ‘AAA’ level risk-based capital (measured using our model). From a regulatory perspective, we anticipate that the Swiss Re Group is likely to report a solvency ratio above its target of 220% (241% at midyear 2019),” explain analysts.
In particular, S&P highlights the weak performance of the reinsurer’s commercial insurance arm, Swiss Re Corporate Solutions, which again fell to a loss in the period and dragged on the Group’s overall performance.
Swiss Re CorSo reported a combined ratio of almost 128% for the year and the reinsurance division saw its combined ratio hit almost 108% in the period, with the Group’s bottom line being boosted once again by favourable investment returns and the good performance of its Life and Health reinsurance division.
In light of all of the above, analysts at S&P still expect the Group to reported a combined ratio of 95% to 99% for 2020 and net income of close to $2.5 billion. Analysts explain that the reason for this is the fact that Swiss Re is expected to see its non-life underwriting performance improve and benefit from premium rate rises throughout the 2020 renewals.
“The rate rises for April renewals are likely to be favorable, particularly following the material losses from Japan during 2019. Furthermore, earnings from life and health reinsurance will continue to support earnings,” explains S&P.
Of course, another significant year of catastrophe losses in 2020 and the picture is altered for Swiss Re and the wider reinsurance industry.
Many companies have expanded in the natural catastrophe space to take advantage of rate improvements and it’s expected that this trend will continue at the Japan-focused April renewals and Florida-focused mid-year renewals. However, more exposure in these regions does leave companies open to higher losses when an event does strike, so it will be interesting to see how firms adjust their exposure as the market moves through 2020.
