Reinsurance News

Swiss Re returns to profit but H1 net income falls on investment result & Ukraine reserves

29th July 2022 - Author: Luke Gallin

Global reinsurance giant Swiss Re has reported a year-on-year decline in net income to $157 million for the first half of 2022, driven mostly by a lower investment result and reserves booked for the war in Ukraine in the first quarter.

Swiss ReFor H1 2022, Swiss Re has announced that reserves of $283 million booked in Q1 for potential impacts from Ukraine is unchanged.

However, the reinsurer did absorb large natural catastrophe claims of $938 million in the opening six months of this year, mostly related to floods in Australia and South Africa, storms in Europe, and a series of hailstorms in France.

Overall, Swiss Re says that total claims came in some $270 million above expectations for large nat cat losses in H1 2022, although the property and casualty (P&C) reinsurance segment does still have $1.2 billion of the $1.9 billion full-year nat cat budget allocated for the remainder of the year.

Across the group, net premiums earned and fee income jumped by 1.9% to $21.2 billion, with growth negatively impacted by adverse foreign exchange developments.

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Within P&C Re, Swiss Re has posted H1 2022 net income of $316 million, compared with $1.3 billion a year earlier. According to the firm, this result reflects the robust technical underwriting performance, offset by materially lower investment results and Q1 Ukraine war reserves.

Net premiums earned increased to $10.6 billion within P&C Re, which Swiss Re attributes to higher volumes and price increases, offset by adverse foreign exchange developments.

All in all, the P&C Re arm has produced a combined ratio of 98.5% for the first half of 2022, or 95.8% on a normalised basis. Swiss Re expects the normalised combined ratio to come down in the second half of 2022, as it earns the majority of its nat cat premiums in Q3 and Q4, with the segment still focused on achieving a normalised combined ratio of less than 94% for the full-year.

At the July reinsurance renewals, Swiss Re renewed contracts with $4.8 billion in treaty premium volume, with the business achieving a price increase of 12%. The reinsurer says that this fully offset higher loss assumptions. So far this year, P&C Re has achieved treaty premium volume growth of 3% and price increases of 6%, with a focus on profitable growth in both nat cat and specialty lines.

Turning to the company’s life and health reinsurance (L&H Re) operation, and net income improved from a loss of $129 million in H1 2021 to a gain of $2 million in H1 2022, driven by the sharp decline in deaths related to the COVID-19 pandemic. In total, pandemic-related claims reached $540 million in H1 2022, of which the vast majority was booked in the first quarter.

Within L&H Re, net premiums earned and fee income fell from $7.6 billion last year to $7.5 billion this year, primarily as a result of adverse foreign exchange developments. For 2022, Swiss Re says that L&H Re still targets a net income of roughly $300 million.

At Swiss Re Corporate Solutions, net income totalled $220 million in H1 2022, down from $262 million a year earlier, and was achieved despite reserves related to the ongoing war in Ukraine in Q1, less favourable prior-year development, and lower investment income.

Within this part of the business, the company has reported large man-made losses of $165 million, which reflects Q1 reserves for Ukraine of $129 million, and natural catastrophe losses of $102 million. Net premiums earned at Swiss Re Corporate Solutions increased by almost 13% to $2.9 billion on the back of the earn-through of previously realised rate increases and new business growth.

The segment produced a combined ratio of 93.2% for the first half of 2022 and is on track to meet the full-year target of less than 95%.

At iptiQ, the global reinsurer has reported gross premiums written for core business jumped by 37% to $455 million in H1 2022, compared with $333 million in the prior year period.

On the asset side of the balance sheet, Swiss Re has reported that its recurring income yield rose to 2.3% in H1 2022, and benefitted from reinvestments in the rising interest rate environment. At the same time, the fixed income reinvestment yield increased to 3.1% in the second quarter of 2022 from 0.9% for the full year 2021.

However, the return on investments of 1.2% in the first half of 2022 was impacted by listed equity mark-to-market losses (net of hedges) of approximately $400 million, as well as modest impairments of $50 million including Russia-related exposures.

Swiss Re’s Group Chief Executive Officer (CEO), Christian Mumenthaler, commented: “After a challenging start to the year, Swiss Re returned to profitability in the second quarter. This was supported by strong results in Life & Health Reinsurance and Corporate Solutions, as well as robust underwriting performance in Property & Casualty Reinsurance.”

John Dacey, the firm’s Group Chief Financial Officer (CFO), said: “Rising interest rates are clearly positive for the re/insurance sector, and we are starting to see the benefits come through in our recurring income yield. With respect to inflationary trends, we remain vigilant and are taking appropriate actions, including increasing the pricing of new business and the related initial loss expectations.”

“Thanks to the actions we have taken over the past years, all our businesses are well positioned and focused on achieving their segmental targets for the year. The achievement of the Group targets is highly dependent on the performance of financial markets and large-loss experience in the second half of 2022. Our very strong capital position and excellent client franchise enable us to capture further profitable growth opportunities in a supportive pricing environment,” added Mumenthaler.

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