Profits tumble at Swiss Re yet growth surges

Swiss Re’s profits plummeted in 2016 with all its business units except Life Capital fairing worse than in 2015. Yet the reinsurer also posted strong growth across the board despite warning of a toxic mixture of softening rates, slow global economic growth, continued low interest rates and political uncertainty.

The company made a net profit of $3.6 billion in 2016, $1 billion less than in 2015 when it made $4.6 billion. The group's combined ratio in 2016 was 94.8 percent, a marked deterioration on the year before when it was 87 percent.

Its profits were particularly hard hit in the fourth quarter, its net profit falling to $517 million compared with $938 million a year earlier. David Cole, the CFO of Swiss Re, said: “We were reminded in the fourth quarter that large losses do occur, but paying claims and helping to make the world more resilient is what we're here for."

Christian Mumenthaler, the company’s CEO, also remained bullish. "The environment was more challenging in 2016 than in past years, but we achieved and exceeded the group performance target we set ourselves," he said.

Swiss Re’s lower overall profit can be attributed to a weaker performance in almost all its units. Its property/casualty unit P&C Re made a profit of $2.1 billion, a big decrease on the $3 billion it made a year earlier.

Swiss Re described this result as reflecting solid underwriting results despite challenging market conditions, a higher large loss burden compared to last year, and a lower contribution from positive prior-year development. It also noted that the year was impacted by a number of large losses, notably the wildfires in Canada, the earthquake in New Zealand, and Hurricane Matthew in the US.

Its L&H Re unit posted a net income of $807 million in 2016, again a big fall on the $968 million it made in 2015), which its aid was mainly due to lower performance in the UK life and health portfolio. Also, the prior-year result benefited from more favourable valuation adjustments.

Its Corporate Solutions unit posted a net profit of $135 million in 2016 compared with $357 million in 2015). It said the 2016 result was impacted by continued pricing pressures and large man-made losses, mainly in North America, offset by lower-than-expected natural catastrophe losses, income from investment activities and realised gains from insurance in derivative form.

The Life Capital unit was the only unit to improve profits. It made a net profit of $638 million in 2016, compared with $424 million in 2015. The increase was driven by a strong investment performance, mainly from the Guardian portfolio, and solid underlying business performance, Swiss Re said.

Yet despite profits margins suffering, Swiss Re enjoyed solid growth last year. Its premiums earned and fee income for the group rose by 10 percent to $33.2 billion. Its P&C Re unit was a big contributor to this, its net premiums earned increasing by 12.7 percent $17 billion driven by large and tailored transactions in the US and Europe.

In its L&H Re unit, premiums earned and fee income increased by 8.6 percent $11.5 billion mainly from transactions in the Americas, successful renewals, and new business deals in Asia, it said.

In its Corporate Solutions unit, net premiums earned increased by 3.7 percent $3.5 billion in 2016, driven by its IHC Risk Solutions acquisition completed in the first quarter of 2016. It also opened an office in Kuala Lumpur, obtained an insurance license in Hong Kong and recently announced a joint venture with Bradesco Seguros in Brazil, which is pending regulatory approval.

It its Life Capital unit premiums earned and fee income in 2016 rose 5.7 percent to $1.2 billion.

Mumenthaler added: "We report a good net income for 2016, despite navigating a difficult environment for quite some time now. Amid softening market conditions, we saw minimal global economic growth and continued low interest rates last year, on top of significant political developments.

"Nonetheless, our full-year results show that Swiss Re continues to create value for our clients and shareholders by applying our strategic framework. This is driven by our outstanding client access, a large and strong balance sheet, and our position as a risk-knowledge company."

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