Swiss Re Targets a Return on Equity of 14% in 2024

  • Swiss Re’s strategy of building risk insights and successful risk partnerships complements its risk transfer business
  • Group return on equity (ROE) target of 14% in 2024 to be achieved by higher L&H Re profit contributions, attractive margins in the property and casualty businesses and continued cost discipline
  • Attractive opportunities to deploy capital across all businesses; growth in long-term earnings to drive dividend policy
  • The Group’s transition to IFRS in 2024 expected to increase earnings and ROE relative to the current US GAAP framework

At today’s Investors’ Day, Swiss Re reiterates its target to increase the Group’s US GAAP ROE to 14% in 20241

Source: Swiss Re | Published on April 8, 2022

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler said: "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."

Reinsurance is at the core of Swiss Re’s strategy

Reinsurance continues to be a highly attractive franchise, comprised of P&C Re and L&H Re segments. With its capital strength, diversification and alternative capital capabilities, the Business Unit possesses key strategic assets to effectively compete in the core risk transfer market and the more sophisticated arena of large transactions. At the same time, its global scale, industry-leading risk knowledge and well-established client network allow Reinsurance to increasingly provide solutions that go beyond traditional risk transfer into areas such as exposure monitoring, underwriting analytics and telematics.

The focus on underwriting excellence and disciplined growth remains a top priority for P&C Re. This includes the continued expansion of the natural catastrophe business, which reported an average combined ratio of 75%2 over the past ten years and attracted rising interest from third-party capital partners.

Over the past decade, L&H Re’s profitable economic3 new business generation has more than doubled in-force margins from USD 13 billion to USD 27 billion. These margins represent expected profits on in-force business that have not yet flowed through as earnings under the US GAAP framework, which defers profit recognition over a longer time horizon. While COVID-19 losses have overshadowed this underlying development during the last two years, these margins provide a strong basis for attractive future earnings growth as they are expected to gradually materialise into reported profit.

Corporate Solutions as a specialised risk partner to corporates

Following the successful completion of its turnaround, Corporate Solutions’ strategy is centred on increasing earnings resilience and diversification. At the heart of this effort lies a targeted portfolio strategy, which focuses only on markets where Corporate Solutions has a competitive advantage, combined with the continued build-up of the Business Unit’s international programme and risk solutions capabilites. Already today, Corporate Solutions generates a significant portion of its new business profits through its differentiated offering and adjacent services, where it is among the market leaders.

iptiQ continues to grow as a leading white-label digital insurer

Over the last two years, iptiQ has grown its gross premiums written by 85% annually to USD 723 million in 2021. At the same time, operating costs have increased by only 12% per year, thereby outpeforming industry peers on both metrics. Thanks to its digital white-label value proposition and being part of the Swiss Re Group, iptiQ was able to grow its global network to 51 partners aross the banking, insurance and corporate space.

Swiss Re’s capital management priorities remain unchanged

Swiss Re has maintained a very strong capital position throughout the past years – comfortably within or above the 200–250% Group Swiss Solvency Test (SST) target range, despite above-average natural catastrophe claims and the COVID-19 pandemic. The Group’s capital management priorities remain unchanged, focusing on ensuring superior capitalisation, increasing the ordinary dividend in line with long-term earnings and deploying capital to profitable growth opportunities.

Transition to IFRS

Swiss Re continues to prepare its transition to IFRS for its consolidated financial statements as of 1 January 2024. Current modelling indicates that the transition from US GAAP to IFRS will lead to an acceleration of earnings recognition for the L&H Re business, better reflecting the underlying economics. As a result, the Group’s annual earnings and ROE are expected to increase following the introduction of the new reporting framework relative to the current US GAAP framework.

 

1. As of 2024, Swiss Re Group will report under IFRS. Current modelling indicates that the equivalent IFRS target will be higher than 14%.

2. Including favourable prior-year development, the ten-year average combined ratio was 69%.

3. Refers to EVM profit: New business according to the Group’s Economic Value Management (EVM) results.