Swiss Re earnings driven by underwriting again

In the first half of 2018, Swiss Re’s earnings were driven by underwriting, a shift from the same period a year ago.

“The composition of the earnings has changed,” CEO Christian Mumenthaler said during the reinsurer’s first half earnings conference call.

“Last year it was very much driven by investments and less so on the underwriting side, and this half year we had a very good performance on the underwriting side and much less so on the investment side,” he noted.

Swiss Re’s P&C reinsurance operations reported a combined ratio of 92.9 percent for the first half of 2018, an improvement compared to 97.4 percent in the prior-year period. Underwriting results benefited from an absence of large losses, whereas for the same period last year, it included losses from Cyclone Debbie in Australia and floods in Peru.

The combined ratio in Corporate Solutions improved to 101.7 percent in the first six months of 2018 compared to 104.5 percent in the same period of 2017, primarily driven by lower large natural catastrophe losses and an improved prior-year result. This trend was, however, partially offset by higher large man-made losses. The combined ratio in Corporate Solutions continues to be heavily influenced by business written in previous underwriting years and last year in particular, the company noted.

Corporate Solutions suffered some very large losses in the first half of 2018, said chief financial officer John Dacey, pointing to a large engineering loss in Colombia.

The combined ratio in Corporate Solutions is still not where we would like it to be, but it’s improving year on year materially, Dacey noted.

Overall man-made losses accounted for 7.2 percentage points on the combined ratio in Corporate Solutions, Dacey said. Without these losses, the underlying performance of Corporate Solutions would have been much stronger, he added.

The unit’s gross premiums written and premiums for insurance in derivative form, net of internal fronting for the reinsurance business unit, increased by 18.5 percent to $2.0 billion in the first six months of 2018.

“We’ve been telling people for some time that corporate solutions continues to invest in building the primary lead capability to be the leading insurer for a complicated programme,” Dacey said. “We are now up and running in 18 different geographies and in nine of those geographies we have the ability to put together an international programme for our clients.

“Both the combined ratios of corporate solutions and P&C Re have improved significantly which has also to do with a lack of big natural catastrophes in this first half year,” Mumenthaler admitted.

But Swiss Re also benefitted from positive price trends during the period. “We would have hoped for higher increases but we are happy that rates are up,” Mumenthaler said. “We were able to improve the quality of our book by about 2 points in the renewals year to date while also increasing the volume,” he noted.

Overall, gross premiums written grew to $19.59 billion in the first half of 2018 from $18.15 billion in the same period a year ago, helped by foreign exchange movements.

Return on equity (ROE) in P&C Re was 14.5 percent in the first half, in L&H Re it was 11.5 percent, while for Corporate Solution it was 5.0 percent. At the same time, the group’s return on investment declined to 2.6 percent from 3.5 percent over the period. Overall, the group’s ROE fell to 6.3 percent in the first half from 7.0 percent in the first half of 2017.

“The reason for the depressed ROE is mostly excess capital,” Mumenthaler said. “We have a significant amount of excess capital which I would argue with investors that it is a good thing to have in this phase of the cycle. The market is difficult and the geopolitical situation is difficult to tense,” he explained.

Swiss Re returned $2.3 billion to shareholders through dividends and share buy-backs in the first half of 2018.

Dacey said: “We look for opportunities to deploy our capital in our businesses. When those opportunities are not found and we believe that our capital is otherwise sufficient, we do routinely return to our shareholders excess capital.

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