Canadian Underwriter

Net income for Swiss Re US$1.2 billion in 2017 H1, down from about US$1.9 billion in 2016 H1

August 4, 2017   by Canadian Underwriter

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Disciplined underwriting and strong investment returns contributed to Swiss Re recording net income of US$1.2 billion for the first half of 2017, although catastrophe claims served to reduce the total from the comparable period in 2016.

Net income for Swiss Re’s Consolidated Group was about US$1.2 billion for the first six months of 2017 compared to just shy of US$1.9 billion for the prior-year period, notes a statement Friday from the global wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer.

“The decline compared to the prior-year was primarily driven by the absence of large one-off realized gains within the investment portfolio in Life Capital in 2016, which did not recur, as expected, in 2017,” the statement reports.

Christian Mumenthaler, Group CEO of Swiss Re

Christian Mumenthaler, Group CEO of Swiss Re

Swiss Re posted a solid result despite the challenging market environment and significant claims in the aftermath of natural catastrophes, suggests company CEO Christian Mumenthaler (pictured right).

“While in the short term these drivers, especially the pricing pressures, are concerning and are being addressed, we are steering our company with long-term value creation in mind,” Mumenthaler notes.

Most company results for 2017 H1 – including gross premiums written (GPW), return on equity and earnings per share – were also down compared to 2016 H1.

The Group’s GPW for the half year in 2017 decreased 8.3% to US$18.1 billion from US$19.8 billion for the same period of 2016 as a result of “disciplined underwriting and active portfolio management,” Swiss Re reports.

Lower numbers were also seen in Property & Casualty Reinsurance. GPW for P&C Reinsurance amounted to about US$9.4 billion for the six months ended June 30, 2017 – the result of a disciplined reduction in capacity where prices did not meet Swiss Re’s profitability expectations – but 15.5% lower than the approximately US$11.1 billion for the first half of 2016; net income was US$546 million compared to US$870 million; net operating margin was 10.0% compared to 13.6%; and combined ratio was 97.4% compared to 97.2%.

“The overall result was impacted by US$360 million (net of retrocession and before tax) insurance claims in the aftermath of Cyclone Debbie in Australia,” Swiss Re notes. In addition, “last year’s net income benefited from positive foreign exchange movements which did not repeat in 2017.”

Related: Swiss Re losses from Cyclone Debbie currently estimated at US$350 million

Looking at the other Group segments, GPW for Life & Health Reinsurance was about US$6.4 billion for the first half of 2017 compared to about US$6.6 billion for the first half of 2016, while net income was US$432 million compared to US$417 million; GPW for Corporate Solutions was about US$1.7 billion compared to about US$1.8 billion, while net income was US$39 million compared to US$55 million; and GPW for Life Capital was US$932 million compared to US$886 million, while net income was US$143 million compared to US$569 million.

David Cole, Group Chief Financial Officer of Swiss Re

David Cole, Group Chief Financial Officer of Swiss Re

“While our property and casualty segments continued to experience pricing pressure in line with the overall industry and market environment, our life and health segments have delivered stable or even improved results,” David Cole (pictured right), Swiss Re’s Group chief financial officer, says in the statement.

“This shows the importance of having a diversified business model, which can help to balance out volatility in individual areas,” Cole emphasizes.

Overall results demonstrate Swiss Re “coped well with a business and market environment that continued to be challenging,” the company reports. Based on its “very strong capital position, Swiss Re is well-positioned to respond to market opportunities while continuing to focus on its capital management priorities.”

Swiss Re’s Group results for 2017 H1 include the following:

  • annualized return on investments (ROI) of 3.5%, with the ROI driven by both net investment income and net realized gains, largely from sales of equity securities;
  • disciplined underwriting led to a stable year-to-date risk adjusted price adequacy for the renewed P&C Re portfolio at 102%;
  • capitalization remains very strong, with a Group SST (Swiss Solvency Test) 2017 ratio of 262%;
  • treaty premium volume for July renewals decreased by 10% and year-to-date volume declined by 13%, as the company continued to allocate capital only to those opportunities that meet the Group’s profitability criteria;
  • year-to-date risk adjusted price quality of the renewed portfolio was stable at 102%; and
  • rate decreases for p&c reinsurance continued to slow down, and casualty rates remained generally more stable, but with significant differences by market and product.

“Swiss Re believes it is well-positioned to weather any headwinds while continuing to focus on its capital management priorities and to respond to market opportunities,” the statement points out.

Related: P&C reinsurance premiums down 17.6% for Swiss Re

Acknowledging that the market environment remains difficult, the company will “continue to be selective in choosing the risks we underwrite, aiming to ensure future profitability. We are equally determined to put our knowledge and leadership position to work and collaborate with our clients,” Mumenthaler says.

“I am confident the long-term trends for our industry are positive as risk pools will continue to grow,” he adds.

In July, Swiss Re announced the implementation of benchmarks that systematically integrate environmental, social and governance (ESG) criteria into its investment decisions, one of the first-movers in the industry.

“Swiss Re is convinced taking ESG criteria into account makes economic sense and reduces downside risks especially for long-term investors,” the statement notes.

As well, pointing out that technological advances will impact insurance risks and how insurance products will be distributed, the company adds “it remains a key priority for Swiss Re to stay ahead of industry developments.”