Solid growth but changes to US GAAP hit profits at Swiss Re

Swiss Re enjoyed strong growth in the first quarter driven by its L&H Re and in Life Capital units but its profits were effected by a change in US GAAP accounting covering guidance on recognition and measurement of equity investments, which meant it took a $280 million hit to its net profit.

The reinsurer made a net profit of $457 million in the quarter, a big decrease on the $656 million it made in the same period a year earlier. But it stressed that without the negative impact triggered by changes in US GAAP, its profits would have been $678 million.

Its gross written premiums in the quarter increased by 13.1 percent to $11.5 billion, which it said reflected growth across all its business segments, especially in L&H Re and in Life Capital.

Swiss Re stressed that it maintained its underwriting discipline in the April renewals. Year-to-date, treaty premium volumes increased by 7 percent while prices increased by 2 percent. The risk-adjusted price quality of the renewed portfolio improved 2 percentage points to 103 percent compared to the same period a year ago. It remained stable relative to the January 2018 renewal, exceeding the hurdle rate to achieve the Group's over-the-cycle ROE target, it said.

The net income generated by the company’s P&C unit in the first quarter reached $345 million, an improvement on the $321 million it posted a year earlier. Gross written premiums in this segment grew by 4.5 percent to $6 billion in the first quarter of 2018, primarily driven by favourable foreign exchange movements.

Its L&H Re unit delivered net income of $201 million in the first quarter of 2018 supported, it said, by good investment income and large client transactions. The annualised ROE was 11.5 percent. The fixed income running yield for the quarter remained stable at 3.3 percent compared to the full year 2017.

Gross premiums written for the quarter were $4 billion compared to $3.2 billion in the first quarter last year, mainly due to premium growth in Asia and EMEA as well as a positive impact of foreign exchange movements.

Its Corporate Solutions division reported a net profit of $41 million in the first quarter of 2018. The result was influenced by business written in previous underwriting years where a soft market environment prevailed, leading to a combined ratio of 100.2 percent for the first three months of 2018. The annualised ROE for the first quarter was 7.0 percent. Gross premiums written increased by 32.3 percent to $914 million in the first quarter of 2018 primarily driven by business growth across most regions and lines of business.

Finally, Life Capital delivered an exceptional gross cash generation of $705 million in the first quarter of 2018. This reflected the underlying emerging surplus on the ReAssure business in the UK, a benefit from finalising the year-end 2017 Solvency II calculation and proceeds from the sale of the initial 5% stake in ReAssure to MS&AD.

Gross premiums written for the quarter more than doubled to $1.4 billion, mainly reflecting overall growth in the open book business and driven by a large medex transaction for iptiQ EMEA.

It also revealed that, given its strong capital position, it will start its public share buy-back programme of up to Sfr1 billion purchase value on 7 May 2018.

Christian Mumenthaler, Swiss Re's group chief executive, said: “We delivered a solid set of results across the board in the first quarter of 2018, as we maintained our underwriting discipline while expanding in an improving, yet still challenging, re/insurance pricing environment. The first quarter shows again the importance of our diversified business model, as Reinsurance delivered good results and Life Capital generated exceptional gross cash. Gross premiums written increased, reflecting robust growth in Asia and EMEA.”

John Dacey, the reinsurer’s chief financial officer, said: “We are satisfied with our first quarter results, in spite of the impact of the new US GAAP accounting guidance. On a like-for-like basis, the figures reported by the Group are broadly stable compared to the first quarter last year. Our reserve strength remains fully intact and our capital position very strong. This allows us to continue to return excess capital to our shareholders.”

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