Swiss Re Reports $1.1B Net Income for the Nine Months 2018

Swiss Re reported a Group net income of $1.1 billion for the first nine months of 2018 compared to a loss of $468 million for the same period a year ago, despite an estimated claims burden of $1.6 billion from natural catastrophes and large man-made events in the reporting period. While the Group’s property and casualty businesses were particularly impacted by the natural catastrophe and large man-made losses in the third quarter, the Group’s life and health businesses continued to deliver a strong performance. L&H Re reported strong net income and Life Capital delivered exceptional gross cash generation in the first nine months of 2018. Swiss Re maintains a very strong capital position, which provides flexibility to execute on its capital management priorities.

Source: Swiss Re | Published on November 1, 2018

Swiss Re’s Group Chief Executive Officer, Christian Mumenthaler, says: ”During the third quarter, we once again witnessed a series of natural catastrophes and large man-made disasters that devastated lives and disrupted businesses, particularly in Japan and in the US. The situation continued to be challenging in the US, with the landfall of Hurricane Michael in October. Our sympathies go out to people affected by all of the events of the past months. In these tough times, we have the financial strength to support our clients, and ultimately their customers. This demonstrates the value we can bring by swiftly paying claims to help people and businesses get back on their feet following such catastrophes.”

Nine-month 2018 Group net income impacted by natural catastrophes and large man-made events
Swiss Re reported a nine-month 2018 net income of USD 1.1 billion, compared to a net loss of USD 468 million for the same period in 2017. Results were impacted by an estimated claims burden of USD 1.6 billion from natural catastrophes and large man-made losses, notably typhoons Jebi and Trami in Japan, Hurricane Florence and the Carr wildfire in the US, and a windstorm in Canada. The net income also reflected an estimated negative pre-tax impact of USD 144 million due to the previously reported US GAAP guidance on recognition and measurement of equity investments that took effect on 1 January 2018. Excluding the accounting guidance, net income would have been USD 1.2 billion.

Swiss Re generated an annualised ROE of 4.7% in the first nine months of 2018, while selectively growing its business. Swiss Re’s investment portfolio continued to provide a solid contribution to the overall result. The Group’s annualised ROI was 2.8%, benefiting from a strong mark-to-market return on equities during the third quarter – partly offsetting adverse developments experienced in the first half of 2018. The fixed income running yield was 2.9%. Excluding the impact of the new US GAAP guidance, the estimated Group ROE would have been 5.1% and the corresponding ROI 3.0%. Swiss Re’s high-quality portfolio continues to be well positioned to reinvest at higher rates, which supports further growth in net investment income.

Gross premiums written for the first nine months were up 6.5% to USD 28.4 billion, primarily driven by premium growth across the Group’s life and health businesses. Measured at constant foreign exchange rates, the increase would have been 4.4%.

Common shareholders’ equity as of 30 September 2018 decreased to USD 29.0 billion due to lower accumulated unrealised gains on fixed income securities from higher interest rates, and the ongoing share buy-back programme.

Swiss Re’s Group Chief Financial Officer, John Dacey, says: ”Following fairly benign catastrophe experience in the first half of the year, the claims burden of the third quarter was large for an individual quarter. The cumulative losses for the first nine months, however, are broadly in line with our year-to-date expectations. Large losses keep reminding us of the importance of maintaining a robust capital position to respond proactively to adverse market events. Our Group SST ratio rose during the first half, underscoring our strong capital generation, which is the basis for future actions in line with our capital management priorities.“

P&C Re result impacted by natural catastrophe and large man-made claims
P&C Re net income for the nine months was USD 634 million, significantly affected by natural catastrophe and large man-made loss experience of USD 1.2 billion. Natural catastrophe loss experience includes losses due to windstorms, floods and the typhoons Jebi and Trami in Japan; Hurricane Florence and wildfires in the US, and storms in Canada.

The annualised ROE was 8.3%. The combined ratio improved to 99.5% compared to the same period last year. P&C Re is on track to achieve its combined ratio estimate of 99%, assuming an expected average large loss burden in the fourth quarter.

Gross premiums written of USD 13.8 billion for the nine months improved compared to the same period last year, while maintaining underwriting discipline.

L&H Re continues to deliver strong net income and gross premium growth
L&H Re delivered strong net income of USD 644 million for the nine months. This result was mainly driven by large transactions in Canada and New Zealand, solid performance in Asia and EMEA and solid investment results. The annualised ROE was 12.5%. The fixed income running yield for the nine months was 3.4%, compared to 3.3% for the same period last year.

Gross premiums written were up 11.7% to USD 10.8 billion for the nine months, reflecting growth across all markets and a positive impact of intra-group retrocession agreements, combined with favourable currency fluctuations.

The attractive growth translated into strong economic value creation within L&H Re and continued to be a key driver for the Group’s strong solvency capital generation.

Corporate Solutions net income impacted by natural catastrophes and high frequency of large man-made losses; strong gross premium growth
Corporate Solutions reported a net loss of USD 5 million for the first nine months of 2018, a period heavily impacted by large man-made losses and natural catastrophes. Third quarter losses included the collapse of the Genoa Bridge in Italy, a shipyard fire in Germany and natural catastrophes, such as Hurricane Florence in the US.

The annualised ROE for the first nine months of 2018 was –0.3%, and the combined ratio was 105.4%.

Gross premiums written1 increased by 9.1% to USD 3.1 billion, mainly driven by growth in the Primary Lead business.

As already announced on 23 September 2018, Andreas Berger, previously Chief Regions & Markets Officer and Member of the Board of Management of Allianz Global Corporate & Specialty SE, is appointed CEO Corporate Solutions and member of the Group Executive Committee. He will now start with Swiss Re already on 1 March 2019, one month earlier than previously communicated.

Life Capital exceptional gross cash generation continues
Life Capital continued to deliver on its strategy to optimise gross cash generation. In the first nine months of 2018, the Business Unit delivered an exceptional gross cash generation of USD 1.0 billion, driven by a strong underlying emerging surplus, the proceeds from the sale of an initial stake in ReAssure to MS&AD and the finalisation of the 2017 year-end statutory valuation.

The Business Unit generated a net income of USD 4 million, as unit-linked and participating income was impacted by the unfavourable UK investment market performance. The result was also impacted by the costs associated with the integration of the Legal & General portfolio acquisition and development costs relating to ongoing investments in its open book businesses. The annualised ROE for the first nine months was 0.1%.

Gross premiums written for the first nine months increased to USD 2.2 billion, driven by growth across all businesses and combined with the impact of intra-group retrocession agreements.

Life Capital will continue its strategy to grow its individual and group businesses in Europe and in the US. iptiQ’s B2B2C digital insurance offering is attractive to an increasing number of distribution partners, with 15 having been onboarded to date.

Continued focus on capital management priorities
Swiss Re maintains a market-leading capital position with a Group SST ratio of 285% (1 July 2018 estimate), well in excess of its 220% target. The Group’s superior capital position combined with continued strong economic earnings supports its sustained capital generation, which in turn is the basis for delivering attractive future actions, in line with the Group’s capital management priorities.

Thomas Wellauer to retire at the end of June 2019
Swiss Re today announces that Thomas Wellauer (63), currently Group Chief Operating Officer and Member of the Group Executive Committee, will retire at the end of June 2019.

Thomas Wellauer joined Swiss Re in 2010 as Group COO, initially leading the complex, multi-year reorganisation of the company when it introduced a new holding structure and legally separate Business Units. Over recent years, Thomas Wellauer has successfully introduced a globally integrated operations platform and instilled a commercial mindset in the over 3 500 employees in all related functions such as IT, HR, Legal or Digital Delivery. In addition, he has served as member of the Boards of Swiss Re’s key subsidiaries in the US, Singapore and Luxemburg and represented Swiss Re as CEO Switzerland. In this function, he also led the initiative of establishing Campus Mythenquai with its remarkable new headquarters, Swiss Re Next, which opened in 2017.

Swiss Re's Chairman, Walter B. Kielholz, says: “I would like to thank Thomas on behalf of the Swiss Re Board of Directors for his substantial contribution to Swiss Re throughout the years. Under his leadership, Group Operations developed into a highly effective and efficient backbone for the company. We will miss Thomas' broad experience, strategic mindset and entrepreneurial drive, and we will ensure a smooth transition once a successor has been identified.”

Responding to natural catastrophes through innovative solutions
Swiss Re remains committed to its strategy to leverage its risk knowledge and harness technology to deliver innovative insurance solutions effectively. In particular, solutions to mitigate the effects of climate risk take higher priority every year, as the wrath of natural catastrophes continues to cause widespread destruction in disaster-prone areas.

In 2018, Japan and the US were heavily struck by typhoons and windstorms that wiped away entire communities as a result of extreme wind forces and floods in coastal areas and inland. Until recently considered an uninsurable risk, advancements in technology have allowed Swiss Re to pioneer an innovative flood risk modelling product. Offered in partnership with Security First Insurance in Florida, local residents can now benefit from flood coverage in their homeowners policy. The joint venture represents a breakthrough in flood protection. Ratings are based on Swiss Re’s proprietary flood risk model and priced according to the individual risk exposure.

Swiss Re’s Group Chief Executive Officer, Christian Mumenthaler, says: “After a prolonged period of benign loss years from 2012 to 2016, followed by heavy natural catastrophes last year, 2018 seems to be developing into what the overall industry would consider a normal year for losses. We observe that the P&C insurance industry globally is struggling to earn its cost of capital. It seems that the industry has reached an inflection point and non-life insurance prices are hardening modestly in the major markets; however our latest sigma research shows that underwriting margins need to further improve to ensure sustainable returns on equity for shareholders.”