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Source: Swiss Re
3 November 2016Insurance

Swiss Re wrestles with its P&C business

A soft market in property/casualty has pushed down Swiss Re’s  results in the third quarter and in the absence of attractive investment opportunities the reinsurer decides to return excess capital to investors.

Its net profit in P&C reinsurance dropped to $679 million in the third quarter of 2016 from $1.02 billion in the same quarter a year ago. The segment has been under pressure due to low prices driven by excess capacity, however supported by the absence of large nat cat losses.

The company’s combined ratio in the P&C business, which comprises the segments Property & Casualty Reinsurance and Life & Health Reinsurance, also increased to 87.9 percent in the third quarter from 77.7 percent in the same period a year ago.

Referring to its targetted full-year underlying combined ratio of 99 percent in P&C reinsurance, Swiss Re CFO David Cole said during a results call that the company is currently “slightly above that” in the first nine months of the year.

“The 99 percent is about the best place we can come out in terms of overall outcome for the year,” Cole noted. “It’s very difficult to predict where losses may or may not occur,” he added, noting that Swiss Re had losses in the third quarter “in a range of over a hundred million” related to agricultural exposures in Europe.

Pointing to the softening pricing in a number of important markets, Cole said that “it is expected that the combined ratio will be higher than it has been in the recent past.”

Pricing levels have, in some markets, reached a point where it no longer makes sense for Swiss Re to write the same level of business as it did before and it is reducing its flow business, the yearly renewed contracts, Cole said.

In order to mitigate the impact on results, Swiss Re is emphasizing discipline in underwriting.

“We are confident that our portfolio is of high quality,” Cole said. However, “we have to, from time to time, to take a step back from certain business because it no longer meets our economic hurdles,” he added.

Even so, gross premiums written in P&C reinsurance jumped 11 percent year-on-year to $4.16 billion in the third quarter, driven by large and tailored transactions in the US and Europe. Such tailored transactions “tend to be a bit more profitable than the normal flow business,” Cole noted. However, the increase in tailored transactions may further impact the combined ratio.

“These transactions do have an impact on our reported combined ratio,” Cole said. “Casualties under most circumstances would have the tendency of increasing the combined ratio certainly over a shorter period of time,” he noted. As pricing in nat cat cover has been particularly under pressure, Swiss Re has been moving its focus to the casualty business.

A higher expected combined ratio will be driven by “a combination of both pricing level movements and business mix,” he said.

Nevertheless, Cole believes that the third quarter was a strong one for Swiss Re, with positive contributions from all business units. The group net income was $ 1.18 billion compared to $1.40 billion in the same period a year ago.

An overall ‘satisfactory’ business performance in the first nine months, partly driven by low natcat loss levels, has motivated Swiss Re to launch a Sfr1.0 billion share buyback programme.

The reinsurer generated a return on equity of 11.6 percent in the first nine months of the year compared to 14.5 percent in the same period of 2015.

“We hold more capital than we need for our existing business and would be able to invest [in our businesses] within reasonable time,” Cole said.

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Insurance
3 November 2016   A series of agricultural losses, softening market conditions and negative prior year development, hit profits in Swiss Re’s property/casualty (P&C) reinsurance segment in the third quarter of 2016, despite solid growth in the unit.