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Large losses hit Swiss Re’s P&C unit, L&H Re posts record net income

3rd May 2019 - Author: Luke Gallin

Global reinsurance giant Swiss Re has announced net income of $429 million for the first-quarter of 2019, driven by a solid performance in its Life & Health Reinsurance segment, somewhat offset by large losses.

swiss reAt $429 million, Swiss Re’s Q1 2019 net income declined slightly year-on-year from $457 million. The firm’s L&H Reinsurance segment posted record net income of $328 million, up substantially from the $201 million recorded a year earlier.

L&H Re net premiums earned decreased 6% in Q1 2019 to $3.1 billion, which the firm attributes to unfavourable foreign-exchange movements and the termination of an intra- group retrocession agreement with Life Capital.

Offsetting the solid performance in its L&H Reinsurance segment, Swiss Re’s P&C Reinsurance unit saw its net income decline significantly, from $345 million in Q1 2018 to $13 million in Q1 2019. The unit recorded a combined ratio of 110.3%, driven by the impact of large losses.

According to Swiss Re, this included claims of roughly $210 million from the North Queensland, Australia flood, and around $90 million from the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet.

At the same time, Swiss Re notes that results were hit by prior year losses, with the vast majority being driven by Typhoon Jebi, in line with the material increase in the total market loss.

Swiss Re has not disclosed its loss creep from Jebi, but it is expected to be fairly sizeable. Analysts at Deutsche Bank estimate that it could be as much as an additional $500 million – $600 million, based on their model for Swiss Re and the combined ratio impact.

The global reinsurer has said that it is likely it took about 10% of the industry loss from Jebi, and with the market-wide loss increasing by around $5 billion in recent times, analyst estimates could be pretty close.

Net premiums earned in its P&C Reinsurance unit increased by almost 11% year-on-year to $4.2 billion, supported by large transactions.

Prior year events also significantly hit Swiss Re’s Corporate Solutions arm, which reported a net loss of $55 million in Q1 2019. Swiss Re notes challenges in this business unit, and says that it is undertaking a comprehensive review of the business.

“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,” said Swiss Re Chief Executive Officer (CEO), Christian Mumenthaler.

Swiss Re has also commented on its experience at the April renewals, noting that overall, treaty premium volumes increased by 18%, while the price quality improved by 1%. Swiss Re says this is a reflection of the successful Japanese renewals, where the firm reinforced its solid position in the market, often at preferential terms, growing premium volume by 10% and price quality by 7%.

The firm’s Life Capital unit recorded gross cash generation of $300 million in Q1 2019, and includes proceeds from the sale of a further 10% stake in ReAssure to MS&AD Insurance Group Holdings Inc. The unit reported net income of $7 million while net premiums earned grew to $426 million.

“Based on the successful year-to-date renewals, we remain optimistic for P&C Re, while L&H Re continues to perform strongly. In Life Capital, we are focusing on preparing the potential IPO of ReAssure in 2019. 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,” said Mumenthaler.

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