Dollar Decline Hits Swiss Re’s Embedded Value

July 9, 2003

Swiss Re, the world’s second largest reinsurer, can’t seem to get a break. Despite reporting a 15 percent increase in gross premium volume last year, to SwF 29.1 billion ($21.2 billion) the company posted a net loss of SwF 91 million ($67.3 million) in 2002 due to the meltdown in global equity values, and decreasing returns on investments.

Today Swiss Re reported that the embedded value of its life and health reinsurance business decreased in 2002 from SwF 17.6 billion ($12.85 billion) to SwF16.3 billion ($11.9 billion). The culprit this time wasn’t the equity markets, which have been experiencing something of a comeback, but the weakness of the U.S. dollar against the Swiss Franc. More than two thirds of Swiss Re’s life and health business is in the U.S., and the exchange rate movements cost the company around SwF 2.5 billion ($1.825 billion).

Had the dollar remained stable, Swiss Re would have posted a SwF 1.2 billion ($876 million) increase in embedded value as result of “a combination of earnings and capital movements.” The life and health sector accounts for around half of the company’s earnings.

The decline also affected the embedded value of its after tax operating profit, which declined to SwF 1.2 billion ($876 million) in 2002, from SwF 1.5 billion ($1.095 billion)in 2001. The value added by new business actually grew in 2002 to SwF 627 million ($457.6 million) from SwF 616 million ($449.6 million) in 2001, “without exchange rate movements the increase was actually 9.8%,” said the bulletin. It also noted that “Offsetting this growth were changes in operating assumptions, negative investment variances and an adjustment to Lincoln Re’s 2001 closing value (resulting from its conversion to Swiss Re’s embedded value models).”

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