L&H Re hits profits at Swiss Re despite P&C performing well
Swiss Re faced a tough year in 2014 as losses in its life and health reinsurance (L&H Re) segment drove down profits.
The reinsurer’s profits hit $3.5 billion in 2014 compared with $4.4 billion in 2013. In the fourth quarter of 2014 its profits slumped to $245 million compared with $1.2 billion in the fourth quarter of 2013.
Swiss Re said the fall in profits primarily reflected the effects of management actions and the unwinding of an asset funding structure supporting a longevity transaction.
L&H Re posted a $462 million net loss for 2014, compared with a profit of $420 million in 2013. This was driven by the conclusion of management actions taken on Swiss Re's pre-2004 US life business, leading to a pre-tax charge of $623 million. In addition, the unwinding of an asset funding structure adversely impacted the L&H Re 2014 results.
Swiss Re said that it “took advantage of an opportunity to unwind the structure as it was earning lower returns than the interest payable on the related debt”.
It added: “The unwinding created economic benefits and removed debt from Swiss Re's balance sheet. The longevity part of the transaction remains unchanged. These actions are expected to support higher earnings in the future.”
The story was very different in its property and casualty division. Thus unit posted profit growth of 10.4 percent to $3.6 billion in 2014, compared with $3.2 billion in 2013. The reinsurer said this was due to a strong underwriting result driven by benign natural catastrophe experience and prior-year net reserve releases. This unit’s combined ratio was 83.7 percent, compared to 83.8 percent for the previous year.
The group’s overall combined ratio improved slightly to 85.4 percent, compared with 85.7 percent in 2013.
Michel Liès, Swiss Re's chief executive officer, said: "Through our disciplined underwriting approach and active differentiation, Swiss Re generated strong earnings despite the challenging industry environment. We also succeeded in serving our clients by providing knowledge, expertise and services beyond our core re/insurance capacity.
“Our performance, together with our capital position, supports the proposed significant capital distribution of around $3.7 billion to our shareholders. In addition, we addressed issues in the underperforming areas. As a result, we are confident in our ability to reach our 2011–2015 financial targets."
David Cole, Swiss Re's chief financial officer, added: "The 2014 results show that we are successfully executing our strategy and delivering a strong performance. At the same time we decisively executed the management actions we had previously identified, together with the unwinding of a long-dated asset funding structure.
“These measures are expected to enhance our profitability going forward. Overall, Swiss Re shows a clear ability to steer its portfolio in a challenging market environment and to allocate capital to the most attractive business areas while serving our clients with our knowledge and expertise."
