In a strategic move to fortify its financial position and mitigate the impact of ongoing challenges stemming from its US casualty exposure, Swiss Re is poised to strengthen its casualty reserves by an estimated $2.1 billion in the years 2023-2024, according to a Berenberg report.
This move comes in the wake of a prolonged period of multi-year reserve strengthening, which saw the company accumulate approximately $5.1 billion from 2015 to the fiscal year 2022.
This factor has been a significant contributor to Swiss Re’s underperformance in the market.
The reinsurance giant has encountered persistent headwinds due to its casualty exposure, coupled with concerns within the industry regarding loss cost trends.
The company has already set aside around $1 billion towards this endeavour in the first half of 2023, and it plans to rely on multiple factors to manage the additional strengthening without compromising its financial health.
One key aspect supporting Swiss Re’s efforts is the margin available in its property and specialty (re)insurance segments, which can be harnessed to offset the impact of reserve strengthening.
Additionally, there is potential to utilize any unused natural catastrophe budget during the latter part of 2023 and into 2024 to further bolster casualty reserves.
Notably, Swiss Re has already enhanced its casualty reserves by approximately $6.1 billion since 2015, representing roughly 15% of its total $40 billion casualty reserve portfolio.
Furthermore, the company has undergone a significant reduction in its exposure to large corporate risks by 70% since 2020, and improved commercial pricing and terms and conditions during this period are expected to yield favourable results for the 2020-2023 underwriting years.
While Swiss Re acknowledges the ongoing challenges posed by its casualty book, the firm has taken proactive measures to anticipate and address future concerns, the report noted.
This includes setting aside $1.2 billion in Incurred But Not Reported (IBNR) reserves specifically aimed at countering the impact of social inflation, of which approximately $1 billion remains untouched as of H1 2023.
The company’s strategy also leverages the strength of the super-hard property reinsurance and specialty market, as well as higher reinvestment yields, which are anticipated to counterbalance any potential deterioration in liability lines.
Overall, Swiss Re’s approach to additional casualty reserve strengthening underscores its commitment to navigating the complexities of the insurance landscape, ensuring the sustainability of its operations and fulfilling its financial targets, according to Berenberg.
The company is expected to provide further details on its financial progress at the upcoming Q3 results and December 1st capital markets day, with a focus on achieving a net income target of over $3 billion, the report noted.
