Corporate Solutions, catastrophes drag down profits at Swiss Re in first half 2019; CEO remains bullish

Zurich-based global reinsurer Swiss Re's half year 2019 net profit fell despite strong reinsurance performance in both property/casualty and life & health segments and investment gains, due to losses stemming from natural catastrophes, Ethiopian Airlines crash, Boeing 737 MAX fleet grounding, and a large reserve charge for Corporate Solutions business.

The reinsurer reported H1 2019 net income of $953 million, down from $1 billion in the same period last year.

Swiss Re also posted a loss in its commercial insurance arm due to a large reserve charge. Corporate Solutions reported a net loss of $403 million in the first six months of 2019, compared with net income of $58 million in the previous year. The combined ratio was 132.8 percent, which it said was a result of decisive management actions to reposition the business.

The group's group chief executive officer Christian Mumenthaler, said: “Our half-year results underline the strength of our Reinsurance franchise in both the P&C and L&H segments. We are confident that our strategic position in terms of our large scale, global portfolio, diversification with L&H business and client access will continue to drive profitable growth, as evidenced by the positive renewals momentum we have achieved year to date."

“We are confident that the measures we are taking in Corporate Solutions will return the business to underwriting profitability," he added.

In the property & casualty reinsurance segment, the company saw a net income of $771 million, an increase of 2.5 percent. The combined ratio was 100.5 percent in the first half of 2019, compared with 92.9 percent in the same period last year.

Swiss Re said the underwriting performance was impacted by late claims development from Typhoon Jebi in the first quarter, and also reflects current year claims from natural catastrophes and man-made losses, including floods, hail and storm losses in Australia, as well as losses stemming from the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet. It added that the P&C business unit is on track to achieve a normalised combined ratio of 98 percent in 2019.

In the life and health segment, the company's net income for the first six months of 2019 rose 15.3 percent to $459 million, driven by active portfolio management and improved mortality developments in the Americas. The net income was also supported by a "very strong return on investments", reflecting favourable equity market performance and realised gains within the fixed income portfolio.

Swiss Re stated that to address the "underperformance" in Corporate Solutions business, it has strengthened claims reserves by $328 million in the second quarter of 2019. In addition, an Adverse Development Cover was established with P&C Re for a one-time premium of $100 million. The business unit is also actively reducing risk exposures in specific lines to ensure a more focused and profitable portfolio going forward.

The reinsurer hopes that portfolio repositioning, as well as efficiency improvements and the accelerating momentum in insurance rates will help Corporate Solutions return to underwriting profitability with a target normalised combined ratio of 98 percent in 2021. The group increased Corporate Solutions’ capital by $600 million, underlining its commitment to the commercial insurance market.

Swiss Re’s group chief financial officer John Dacey said: “We are in a strong position to deploy capital and take advantage of the opportunities to grow in diverse risk pools. As we keep our costs under control, this provides scale benefits and enhanced annual profits."

The firm's life capital unit saw its net income fall to $5 million in the period. Earlier in July, the planned initial public offering (IPO) of ReAssure was suspended due to unfavourable UK primary market conditions. Swiss Re said it retains the objective to reduce its ownership in order to de-consolidate ReAssure.

Mumenthaler said: "And we are excited about growth of our open book businesses in Life Capital. We see many opportunities ahead and continue to work closely with our clients, while delivering attractive returns to our shareholders."

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