Reinsurance News

Premium growth, strong returns in reinsurance & an accounting hit for Swiss Re

4th May 2018 - Author: Steve Evans

Global reinsurance firm Swiss Re reported its first-quarter results this morning, revealing strong growth in premiums written, improved returns in P&C reinsurance and an accounting hit, without which the reinsurers income would have been up year-on-year.

Swiss Re logoSwiss Re has reported group net income for Q1 2018 of $457 million, down on 2017’s $656 million thanks to an estimated $280 million adverse impact from reporting under new U.S. GAAP accounting rules.

Without the impact of the GAAP accounting change, Swiss Re’s group net income for Q1 would have been slightly higher than a year ago, at $678 million.

Annualised Group return on equity (ROE) was 5.6% for the first three months of 2018, which would have been higher at 8.3% without the accounting hit, up on Q1 2017’s 7.5% group ROE.

Group Chief Executive Officer, Christian Mumenthaler, commented on the results, “We delivered a solid set of results across the board in the first quarter of 2018, as we maintained our underwriting discipline while expanding in an improving, yet still challenging, re/insurance pricing environment. The first quarter shows again the importance of our diversified business model, as Reinsurance delivered good results and Life Capital generated exceptional gross cash. Gross premiums written increased, reflecting robust growth in Asia and EMEA.”

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Group Chief Financial Officer, John Dacey, added, ”We are satisfied with our first quarter results, in spite of the impact of the new US GAAP accounting guidance. On a like-for-like basis, the figures reported by the Group are broadly stable compared to the first quarter last year. Our reserve strength remains fully intact and our capital position very strong. This allows us to continue to return excess capital to our shareholders.“

Premium growth was evident across much of the business, as Swiss Re took advantage of better market conditions at the renewals in Q1.

The reinsurer underwrote over $11.5 billion of gross premiums, up roughly 13% over Q1 2017’s almost $10.2 billion.

Swiss Re said it, “Continued to carefully select the risk pools to which it allocates capital, and maintained its strong underwriting discipline.” At constant foreign exchange rates, the premium growth would have amounted to 6.8%.

In P&C reinsurance, Swiss Re reported income of $345 million, up on 2017’s $321 million, which resulted in an annualised ROE of 13.5%, up on the prior years 10.8%. With a combined ratio that had also improved to 92.0%, thanks to low large loss experience, the property and casualty reinsurance business was clearly more profitable.

The company said that renewals have been positive, with treaty reinsurance premium volumes up by 7%, while prices increased by 2%.

As a result, the overall risk-adjusted price quality of the renewed P&C reinsurance portfolio improved by 2% to 103% compared to the same period in 2017. The firm said this was stable relative to the January 2018 renewal, and beats its hurdle rate to achieve the Group’s over-the-cycle ROE target.

The life and health reinsurance business also delivered, with $201 million of net income, up on the prior years $193 million. While ROE came in close to the prior year at 11.5%, just slightly down on Q1 2017’s 11.6%.

Swiss Re also underwrote more life and health reinsurance premiums during the quarter, at $4 billion compared to $3.2 billion in the prior year, which it said was largely due to growth in Asia and EMEA as well as positive foreign exchange movement.

The Corporate Solutions business was not as bright, with net income falling to $41 million, down from $55 million in Q1 2017.

Swiss Re explained the Corporate Solutions decline, saying, “The result was influenced by business written in previous underwriting years where a soft market environment prevailed, leading to a combined ratio of 100.2% for the first three months of 2018.”

However the firm also grew its commercial and corporate insurance premium base, writing $923 million of premiums in Corporate Solutions, up from $717 million a year earlier.

Swiss Re also saw better market conditions for Corporate Solutions, saying, “Rates as well as terms and conditions have started to improve after last year’s sizable natural catastrophe losses, albeit at a variable pace depending on the region and segment.”

The Life Capital business grew both in terms of premiums and cash generation, with over $1.4 billion underwritten and cash of $705 million generated, more than double last year’s figures in both cases.

But the poor investment market hit this unit, resulting in only $3 million of income from Life Capital for the first quarter of 2018, as it was hit by lower unit-linked and participating income due to poor performance of the UK investment market.

The company explained that Life Capital’s premium growth largely came from growth in its open book business and a large medex transaction for iptiQ EMEA.

So a reasonably strong start to the year for Swiss Re, with a larger portfolio underwritten at better terms and rates the results should feed through as premiums are realised across the coming quarters.

Mumenthaler commented on the outlook for the firm, “While the P&C market continues to present opportunities, it remains challenging and current price levels remain insufficient for long-term sustainability. I am, however, positive on the outlook for our industry because risk pools themselves will continue to grow. We have built our business units on three strategic differentiators: client access, risk knowledge and capital strength. This, together with our fully embedded tech strategy, forms the basis of our future success. We will continue to work together with our clients to make the world more resilient.”

Update: Also read about CFO John Dacey’s comments, made this morning on the potential tie-up with SoftBank here.

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