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Swiss Re’s reinsurance & investments offset Corporate Solutions loss

31st July 2019 - Author: Luke Gallin

A solid investment result and strong reinsurance performance helped Swiss Re record net income of $953 million in H1 2019, while the firm’s Corporate Solutions segment fell to a $403 million net loss in the period.

swiss reAt $953 million, net income declined from the $1 billion recorded in the first-half of 2018, while the reinsurer’s return on equity (ROE) also fell from 6.6% to 6.3%.

Overall, net premiums earned and fee income increased to $18.2 billion, which is growth of 7.9% on the $16.8 billion recorded in H1 2018. The reinsurer’s return on investments improved from 2.6% in H1 2018 to 4.2% in H1 2019.

The firm’s Chief Executive Officer (CEO), Christian Mumenthaler, said: “Our half-year results underline the strength of our Reinsurance franchise in both the P&C and L&H segments. We are confident that our strategic position in terms of our large scale, global portfolio, diversification with L&H business and client access will continue to drive profitable growth, as evidenced by the positive renewals momentum we have achieved year to date.”

By segment, and Swiss Re’s P&C Re division performed well in the period despite late claims development related to typhoon Jebi. P&C Re saw its net earned premiums increase to $8.7 billion, which the firm says is driven by large transactions and expansion in natural catastrophe lines.

For the first-half of the year, P&C Re recorded net income of $771 million, which is growth of 2.5%, while the unit’s ROE improved from 14.5% to 15.9%.

However, P&C Re’s combined ratio did reach 100.5% in the six-month period, with the company’s underwriting performance being hit by Jebi loss creep, current year claims from nat cats and man-made losses, and also losses from the Ethiopian Airlines crash and grounding of the Boeing 737 MAX fleet. For the full-year, Swiss Re notes that P&C Re is on track to record a combined ratio of 98%.

At the mid-year renewals, P&C Re treaty volume grew 23% to $17 billion, year-to-date, 1% of which was a result of price increases. At the July renewal, the global reinsurance giant achieved a 17% volume increase and 2% price quality improvement.

Swiss Re’s Chief Financial Officer (CFO), John Dacey, said: “We are in a strong position to deploy capital and take advantage of the opportunities to grow in diverse risk pools. As we keep our costs under control, this provides scale benefits and enhanced annual profits.”

The reinsurer’s L&H Re unit also performed well in the quarter, with net income increasing by more than 15% to $459 million, which the firm says was driven by active portfolio management and improved mortality developments in the Americas. The unit’s ROE for the six-month period increased from 11.5% to 13.1%, year-on-year.

L&H Re net premiums earned and fee income in H1 2019 declined by 1.6% to $6.3 billion, which Swiss Re attributes to unfavourable foreign-exchange rate movements and the termination of an intragroup retrocession agreement with Life Capital.

Swiss Re’s solid reinsurance result was somewhat offset by a $430 million net loss recorded in Corporate Solutions, which reflects decisive management actions. The unit recorded a combined ratio of 132.8% in H1 2019 as the management looks to reposition the business. Premiums earned increased to $2.1 billion, driven by significant rate increases and expansion in selected business lines, which Swiss Re says more than offset the impact from “active pruning of several underwriting portfolios.”

Despite the challenges experienced by the Corporate Solutions segment, Swiss Re expects positive momentum in commercial insurance rates to continue, after it achieved a broad-based 9% price quality increase in H1 2019.

In an effort to turn the fortunes of the segment, Swiss Re notes that Corporate Solutions strengthened claims reserves by $328 million in Q2 2019 and, at the same time, established an Adverse Development Cover with P&C Re for a one-time premium of $100 million. Swiss Re says that the business unit is also reducing risk exposures in certain lines to ensure profitable growth in the future.

Swiss Re notes that the actions taken to reposition Corporate Solutions and return to underwriting profitability, projecting a combined ratio of 98% in 2021. Underlining the firm’s commitment to the commercial insurance sector, Swiss Re increased Corporate Solutions’ capital by $600 million.

The firm’s Life Capital unit saw its net income fall to $5 million in the period, while net earned premiums increased by 33.1% to $1.1 billion.

Looking forward, Mumenthaler said: “We are very pleased to see the strength of our reinsurance franchise come back to the fore. We are confident that the measures we are taking in Corporate Solutions will return the business to underwriting profitability. And we are excited about growth of our open book businesses in Life Capital. We see many opportunities ahead and continue to work closely with our clients, while delivering attractive returns to our shareholders.”

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