A “noisy” period for catastrophe events is expected to see global reinsurance giant Swiss Re exceed its large losses budget in both Q4 and full-year 2019, which, combined with other factors has seen analysts at JP Morgan reduce their full-year 2019 net income for the reinsurer by 20%.
The Switzerland-based reinsurer is set to announce its results for the fourth-quarter and full-year 2019 towards the end of next month, and, in light of numerous significant loss events in the final months of the year, analysts have revised the company’s expected 2019 net income.
Underpinned by typhoon Hagibis in Japan, wildfires in both Australia and California, the riots in Chile and a series of other smaller weather/man-made events, analysts at JP Morgan expect “another noisy period for large losses” in the fourth-quarter.
Towards the end of last year, primary estimates from Swiss Re Institute put total economic losses from natural and man-made disasters at $140 billion in 2019, of which $56 billion is covered by insurance and reinsurance protection.
Analysts expect that the majority of the losses within P&C Re in the quarter will relate to Hagibis, which Swiss Re has previously estimated to be an $8 billion loss for the re/insurance industry.
“Given Swiss Re has a smaller budget allocated to Q4 we expect this to be comfortably exceeded (we assume $850m in natcat losses for Q4 standalone), and we also expect man-made claims to be slightly above average,” explain analysts.
Furthermore, JP Morgan also expects Swiss Re to assume a small net reserve addition of $100 million for the second-half of 2019, driven by the ongoing discussion of U.S. casualty in the sector. As such, analysts see Swiss Re’s full-year 2019 combined ratio at 105.1%, compared with the previous estimate of 102.9%. However, for 2020, analysts expect the underlying combined ratio to improve to 97%, compared with 98% in 2019, driven by continued growth in gross written premiums.
After some initial challenges, Swiss Re announced in December 2019 that it had reached an agreement to sell its UK closed life book consolidator business, ReAssure, to Phoenix Group Holdings plc in a deal worth £3.25bn.
In light of this, JP Morgan notes a life capital accounting loss in Q4, with the sale of ReAssure resulting in a $300 million pre-tax charge to be taken in the quarter, which analysts have included in their estimates.
Looking at Life & Health, and JP Morgan expects that this area of the business will deliver another steady period, while a slightly strong investment result might also occur given the positive momentum in equity markets in Q4.
As a result of JP Morgan’s view of the fourth-quarter, it has lowered its estimated full-year 2019 net income by around $275m, or -20% (on an already depressed base-level). Adding that its estimates in future periods are unchanged.
Offsetting some of the negativity expected in the fourth-quarter of 2019, say analysts, should be the forward looking outlook, driven by anticipation of ongoing growth in P&C at an improving underlying combined ratio.
