A strong set of results in the second quarter driven by its property/casualty unit helped Swiss Re to an impressive overall performance in the first half of 2014, despite what its chief executive described as a demanding time for the reinsurance industry.
A relatively benign natural catastrophe period boosted profits in the property/casualty unit and the company as a whole achieved growth. The negatives for the world’s second biggest reinsurer were lower profits in some of its other business units and its return on equity for both the second quarter and the first half is down slightly on the year before.
The company made a net profit of $802 million in the second quarter and a net profit of $2 billion in the entire first half of 2014. This compares with profits of $786 million and $2.1 billion in the comparable periods a year earlier.
Splitting out the performance of different divisions in the first half as a whole, its P&C Re business contributed a net profit of $1.5 billion compared with $1.4 billion a year earlier. Swiss Re said this was driven by good underwriting and a successful July renewals with higher premium volumes and year-to-date risk adjusted price quality of 108 percent.
Premiums earned in this unit rose by 10 percent to $7.4 billion benefiting from the expiry of a major quota share agreement at the end of 2012 and large Asia and Americas transactions written at the end of 2013. Its combined ratio for the period was 86.1 percent compared with 84.8 percent a year earlier.
The company said the July treaty renewals, which focus on the Americas and the Australia and New Zealand region, were successful, especially casualty, which grew further on profitable terms. Swiss Re said it wrote less nat cat business, but did so at attractive price levels. The July treaty renewal premium volume grew by 8 percent.
Some of its other units did not fare so well in terms of profitability. Its L&H Re unit delivered a profit of $112 million, a considerable drop compared with the $385 million it made in the first half of 2013.
The unit grew, however, its premiums earned and fee income increasing to $5.6 billion compared with $4.8 billion a year earlier, a 15.7 percent rise with health business in Asia and EMEA contributing to continued growth. Swiss Re said that management action is underway to achieve its targeted profitability level in this unit.
Its corporate solutions group also grew, its net premiums earned increasing to $1.7 billion, 28.6 percent higher than in the first half of 2013. But its net income contribution fell slightly to $146 million compared with $156 million the first half of 2013.
Swiss Re reiterated its intention that this unit will focus on developing primary lead capabilities and its position in a number of high growth markets. It has also agreed to acquire the insurer Sun Alliance Insurance (China), allowing it to offer corporate insurance directly from mainland China.
Finally, Admin Re delivered net income of $165 million in the first half of 2014 compared with $187 million in the first half of 2013 but gross cash generation of $473 million compared with $170 million.
The company said it its well on track toward achieving its 2011 - 2015 financial targets although its annualised return on equity has dropped slightly. For the six-month period, this was 12.6 percent compared with 14 percent the year before and for the second quarter it was 9.7 percent compared with 10 percent a year earlier.
Michel Liès, Swiss Re’s group chief executive officer, said: "$2.0 billion profit in the first six months of 2014 is an impressive result. I'm especially pleased as it demonstrates our strong client relationships, and obviously translates well into shareholder value. We see the insurance market generally softening. Thanks to our leading position we continue to take advantage of opportunities as they arise – for example in high growth markets – and actively manage our overall portfolio. I am confident that Swiss Re will remain successful at every stage of the cycle."
David Cole, group chief financial officer, added: "I'm pleased how 2014 has been shaping up so far. Our results show the fundamental strength of the group's business model and strategy. All business units have delivered an improved performance against their key metrics in the second quarter. Also L&H Re improved its operating margin in comparison to the prior-year period, as promised; however, there is still lot of work to be done in this segment. Meanwhile, Admin Re generated substantial cash for the Group – $271 million in the second quarter of 2014."
Swiss Re, Europe, Second Quarter 2014 Results, Michel Liès, David Cole