Swiss Re Reports $66 Million Net Loss for 2002; to Reduce Dividend Payment

Swiss Re, the world’s second largest reinsurer, didn’t manage to dodge the bullet as successfully as its German rival (see previous article). The Group announced that it expects to post a net loss of SwF 91 million ($65.75 million) for 2002, due largely to “impairment charges, primarily on equities,” of SwF 3.9 billion ($2.81 billion).

Coming after Swiss Re’s 2001 net loss of SwF 165 million ($119 million) the results obscure a strong increase in operating revenues for the company, which profited from what it called “the benefits of the excellent insurance and reinsurance market conditions in property and casualty.” Net premiums earned increased 15% to SwF 29.1 billion ($21 billion) while “management expenses declined, reflecting the positive impact from efficiency gains.”

Swiss Re said its combined ratio for its P/C group was “on target at 104%, while the “Life & Health Business Group produced a return on operating revenues of better than 9% for the fourth year in a row.”

CEO John Coomber commented, “Swiss Re’s improved operating performance during 2002 was offset by the severe capital markets’ downturn leading to a second consecutive loss. As a result of the loss, the Board will propose a dividend reduction to shareholders. The favourable business outlook for our reinsurance operations should lead to a strong recovery in earnings in the coming years.” The company plans to reduce its dividend to one Swiss Franc, about 72 cents from the current SwF 2.50 ($1.80); the first time it has done so since 1906, following the San Francisco earthquake.

Nothing explained the poor performance more clearly than the company’s statement on its investment returns. “Swiss Re’s return on investment was 4.7% in 2002, compared to an above average return of 8% in the prior year. As the investment strategy has been adjusted to reduce exposure to equities, and with capital market returns expected to be lower, Swiss Re’s return on investment target will be reduced to 5%.”

The diminished returns were offset by the good performance of the group’s P/C activities, which had net operating income, excluding the impact of capital gains, of SwF 920 million ($665 million) in profits, compared to a loss of SF 1.6 billion ($1.15 billion) in 2001, following losses from the Sept. 11 attacks. “Earned premiums rose to CHF 15.1 billion [$10.9 billion], an increase of 9%”, said the company. “In original currency, the increase was 16%. In addition to premium growth, the quality of business written continued improving through strong underwriting policies and the shift to non-proportional covers,” it added.

“Swiss Re believes the hard market will be sustained for a number of years and with continued rigorous underwriting discipline and management of costs, the combined ratio will be further reduced. The target for the combined ratio will be reduced to 100% in 2003 and to 98%, on average, over the 2003-2005 period,” said the bulletin.

The reinsurer’s Life & Health’s operating revenues jumped 20% to SwF 14.7 billion ($10.62 billion), “outperforming the 13% target.” Swiss Re noted that “Lincoln Re’s contribution to this increase was significant,” following its successful integration into the group. Financial Services’ net premiums also grew by 11% to SwF 2.7 billion ($1.95 billion) in 2002. “However,” the company noted, “poor investment conditions, US surety losses, and prior year claims from large corporate client business, had a significant negative impact leading to a loss of CHF 633 million [$457 million) compared to a CHF 932 million [$673 million] loss in 2001.”