Friday, 24 February 2012
Reserves release of $1.3bn boosts Swiss Re profits
Swiss Re joined the rest of the international reinsurance market by significantly boosting its 2011 results by the release of further reserves that helped it cope with the heavy catastrophe losses experienced last year.
Michel Lies, Swiss Re's chief executive officer
The group said it enjoyed a positive year-end renewals round and is eyeing expansion this year, particularly in Asia and Latin America on the back of much improved profits compared to 2010.
The results were helped by the release of $1.3bn of reserves from prior underwriting years. But Swiss Re was certainly not alone in this respect.
Munich Re’s recently announced net profit of €700m was boosted by €600m reserve releases for the underwriting years 2007–2009.
Over in Bermuda Renaissance Re boosted its numbers with reserve releases of $132m last year and the rest of that market followed suit.
At Swiss Re, a decent asset management performance, flat investment income and big unrealised gains on falling interest rates on government bonds also helped boost the profits and capital position as shareholder’s equity rose by almost a fifth.
The result was also helped by a reduction in the effective tax rate from 20.2% in 2010 to only 2.7% last year.
The group reported a 20% increase in non-life reinsurance premiums as a result of the year-end renewals, an overall price increase of 4%, higher than peers, and 108% ‘premium quality’ on a risk-adjusted basis.
The group hopes to report a 94% combined ratio for 2012 if it’s a ‘normal’ catastrophe year against 101.6% in 2011 and seeks growth especially in Asia and Latin America.
Total premiums earned were up 8% from $19.65bn in 2010 up to $21.3bn last year. Non-life reinsurance premiums were up from $10.87bn to $12.05bn.
The group suffered high catastrophe claims as did all its competitors and these losses added 29.6% to the combined ratio.
But, largely because of the reserves releases, Swiss Re still managed a combined ratio well below the market average of 101.6% against 93.6% in 2010.
The group’s asset management business delivered a decent operating income of $5bn against $4.5bn in 2010 and a return on investments of 5.1% against 3.5%.
This was driven by realised gains, primarily on government bonds, higher net investment income from net purchases, and lower impairments during the year. The total return on investments, including unrealised gains and losses, rose to 9.7% last year against 6.5% in 2010.
Swiss Re said that despite recent improvements in market sentiment, the euro sovereign debt crisis continues to create market uncertainty. It added that its ‘prudent’ investment stance has paid off under these difficult circumstances.
The group’s exposure to sovereign debt issued by peripheral eurozone countries was further reduced to $59m at year-end against $74m at the end of September 2011.
Exposure to Greek sovereign debt was nil over the entire year, reported the group.
The net profit was therefore a creditable $2.63bn for 2011 against $863m in 2010.
The underlying operating profit, however, reflected the underwriting conditions more accurately as the Swiss reinsurer reported a profit of $1.29bn against $2.48bn the year before, a fall of 48.1%.
After a tricky 2010 for Swiss Re the group managed to boost returns on equity from only 3.6% up to a solid 9.6% considering the overall trading and investment conditions. Shareholders’ equity rose by $4.3bn up to $29.6bn. This included a $3.2bn increase in unrealised gains, mostly driven by declining interest rates on government bonds.
Michel M. Liès, who recently took over from Stefan Lippe as Swiss Re's Group Chief Executive Officer, said: "With a successful year behind us and a modest but broad market turn underway, Swiss Re is well positioned to perform and grow in a low yield environment.”
The group reported strong premium growth of 20% across all regions. Swiss Re said that thanks to its strong capital position, it was able to respond to increased client demand for natural catastrophe cover and for capital relief transactions, where prices were above the thresholds it set.
The average price increase for the renewed book was 4% and risk-adjusted price quality improved slightly to 108%, added the group.
Swiss Re also said that it intends to ‘capture fully’ business opportunities offered in its core reinsurance and insurance activities, including a 25% growth opportunity offered by the expiry of its quota share agreement with Berkshire Hathaway at the end of this year.
“While Swiss Re's focus will remain resolutely on traditional markets, the company will also seek to capitalise on the potential for re/insurance solutions in emerging and fast-growing markets in Asia and South America,” added the group.
Swiss Re also announced that Matthias Weber has taken on the role of Group Chief Underwriting Officer and will join its Group Executive Committee, effective April 1. Mr Weber is currently Division Head Property & Specialty Reinsurance and a member of the Group Management Board.
In addition, Martyn Parker, CEO Reinsurance Asia and Regional President Asia, will become Chairman Global Partnerships and will thus succeed Michel M. Liès as he steps up to the CEO role.
Moses Ojeisekhoba will succeed Martyn Parker as CEO Reinsurance Asia, Regional President Asia and member of the Group Executive Committee, with effect from March 15.