Global carrier Swiss Re has reiterated how core its reinsurance operations are to its overall strategy, as the company targets a Group return on equity (ROE) of 14%, supported by greater profits in its Life and Health (L&H) business and attractive margins in property and casualty (P&C).
At today’s Swiss Re Investor Day, the global reinsurer confirmed its target to raise the Group’s U.S. GAAP ROE to 14% in 2024. The firm expects to achieve this through higher L&H Re profit contributions, attractive margins in P&C Re, and continued cost discipline.
For its P&C Re business, Swiss Re say that the focus on underwriting excellence and disciplined growth remains a top priority and includes the continued expansion of the natural catastrophe business.
Swiss Re notes that this part of the business has recorded an average combined ratio of 75% over the past ten years and attracted increasing interest from third-party capital partners.
Despite 2021 being another year of above-average insured losses from catastrophe events, which cost Swiss Re $2.4 billion in the year, the firm still grew its nat cat-related premium by 24% at the January 1st, 2022, reinsurance renewals.
While some have pulled back from the catastrophe space in recent times, the scale and diversification of Swiss Re enables it to continue to underwrite and be able to grow in the hardening catastrophe space despite the potential for losses. And it’s clear from its Investor Day that this remains the plan going forwards.
Within its L&H Re operation, Swiss Re notes that over the past ten years, the unit’s profitable economic new business generation has more than doubled in-force margins to USD 27 billion.
Of course, COVID-19 losses within L&H Re have overshadowed this underlying development of the business, but Swiss Re is keen to note these margins provide a solid basis for attractive future earnings growth as they are expected to gradually materialise into reported profit.
Christian Mumenthaler, Swiss Re’s Group Chief Executive Officer (CEO), commented: “We have come a long way since our last Investors’ Day. We successfully completed the turnaround of Corporate Solutions and significantly improved P&C Re margins. Despite the COVID-19 pandemic, the underlying L&H Re business continues to perform strongly.
“In addition, we are developing iptiQ into a leading white-label digital insurer. Our strategy to provide more than just risk transfer to our clients is working, and we see attractive opportunities to deploy shareholders’ capital. At the same time, we will maintain our strict cost discipline, which has allowed us to keep costs broadly stable over the past ten years, while growing revenues by 6% per annum.”
After successfully turning the fortunes of Corporate Solutions, Swiss Re says that the strategy is now to focus on increasing earnings resilience and diversification. This will be achieved through a targeted portfolio strategy, which solely focuses on markets where Corporate Solutions has a competitive advantage.
Swiss Re’s iptiQ operation is another positive story, having expanded its gross premiums written by 85% annually to USD 723 million in 2021. Additionally, operating costs have only increased by 12% per year, while the business was able to grow its global network to 51 partners.
Finally, Swiss Re notes that its capital management priorities remain unchanged, with the Group maintaining a very strong capital position throughout the past years, comfortably within or above the 200-250% Group Swiss Solvency Test target range.
