Swiss Re ‘resilient’ in face of pandemic - but has $3.1bn exposure in L&H

"The group has devolved a proprietary pandemic model to assess scenarios and enable active monitoring.” Swiss Re chief financial officer John Dacey.

· L&H has exposure in billions, says group CFO
· Corporate Solutions and P&C Re could also see large 2020 cancellation costs
· Group confirms $250m Tokyo Olympic exposure
· More impact may be seen in reinsurer's primary businesses revenues

Swiss Re says it has prepared well for the hit the COVID 19 pandemic is expected to bring as it outlines a number of ‘hedges’ to mitigate the worst.

As the COVID 19 pandemic continues to disrupt lives and economies around the world, Swiss Re confirmed that it has an overall market share of around 15 percent of event insurance that could be claimed due to COVID 19, including a $250 million exposure to the Tokyo 2020 Olympics.

The group’s chief financial officer John Dacey, revealed the figure last week (March 19) during Swiss Re’s 2019 annual report conference.

Dacey also flagged up a “mid three digit exposure” in the millions split between Corporate Solutions (CorSo) and P&C Re for other events scheduled over the rest of the calendar year.

He said: “We have potential exposures through our credit & surety lines at reinsurance and CorSo but it is premature to estimate any exceptional losses due to COVID 19.

“Similarly it is too early to give any indications of industry and Swiss Re losses related to business interruption. While the vast majority of property and interruption covers have a physical damage trigger, some policies may not and those that do may have specific sub-limits that provide modest covers independently of physical losses.”

He said the group has “devolved a proprietary pandemic model to assess scenarios and enable active monitoring”.

Dacey reiterated that the reinsurer’s own business remains resilient in the current environment.

“We have long spoken about the depth and breadth of relationships with our reinsurance clients that is again serving us well as we continue and increasingly operate remotely.

"For example, our April 1 renewals focused on Japan are proceeding without any interruptions, our reinsurance revenues are secure and [with] proportional covers where primary companies premiums are below expectations ,or may be below expectations, there may be some impact on our revenues but we are yet to see anything material.”

However, he added: “There may be more impact in our primary businesses revenues but it is too early to say how much.”

He also said that the major impact of COVID 19 was “on the insurance industry to date is on the asset side of the balance sheet” and that Swiss Re had entered 2020 with an “extremely strong balance sheet overall and prudent positioning on asset risk”.

Swiss Re “put in place hedges” as the pandemic started to unfold, he explained, saying that this action would “partially mitigate the economic impacts of falling equity prices and widening credit spreads”.

He added: “We have also recently opportunistically lengthened some durations as a partial hedge against further yield decreases.”

For the group’s P&C and L&H businesses, Dacey said that further or potential impact of this pandemic have been assessed “to be entirely manageable at this point”.

Commenting on life and health (L&H) exposure to the pandemic, group chief underwriting officer Edouard Schmid, confirmed a potential loss of $3.1 billion for the 1 in 200 year pandemic. “Obviously the pandemic has been identified as a key risk factor for our mortality business for a long time. In a similar way to the natural catastrophe space, we have a lot of inhouse expertise and [had been] building the pandemic model for a number of years.

“So picture something like 50,000 different pandemic scenarios applied to the underlying mortality book which is then described in terms of regions, density of people and the age distributions. The scenarios are run and we come out with a loss distribution curve and the 1 in 200 yer pandemic comes out at $3.1billion on that curve.”

Schmid explained that at a high level “we would talk about excess mortality in the range of 1 per million”. But he said it would depend on each country, on distribution of people, and the capability of the health system.

“For example if we look at China, in our pandemic stress scenario at that high level, you would be talking about an excess mortality of 1.82 per million. This would actually mean that in China 2.5 million additional people would have to die to reach that level. And today we are talking about more than 3,000 people [dying], so obviously we are far away from that level.”