Swiss Re Reports $83 Million Q2 Net Income; $717 Million in P&C

August 9, 2012

Swiss Re reported a net profit of $83 million for the second quarter of 2012, indicating that the figure was “impacted by the sale at a loss of $1.0 billion of the Admin Re® US business.” Property & Casualty reinsurance delivered a strong result, posting $717 million net income, while Life & Health reinsurance “net income benefited from realized gains,” posting $248 million.

Group CEO Michel M. Liès commented: “We have delivered a profit in the second quarter. Given the impact from the sale of the Admin Re® US business, this shows the strength and resilience of our underlying earnings power. With another successful renewal round in July behind us, we will continue to focus on implementing our strategy and capturing growth opportunities in developed and high-growth markets in the second half of the year.”

Premiums earned and fee income increased by 13.7 percent to $6.1 billion (vs. $5.4 billion in Q2 2011). Swiss Re Group’s combined ratio was 85.7 percent (vs. 81.4 percent in Q2 2011). The Group’s performance was supported by a very good investment result. Investment income was $ 1.2 billion with a Group return on investment of 4.5 percent.

Shareholders’ equity remained largely stable at $31.0 billion (vs. $31.2 billion at the end of Q1 2012). Dividends paid to shareholders ($1.1 billion) were mostly offset by unrealized gains. Group return on equity was 1.1 percent (vs. 15.6 percent); excluding the Admin Re® US sale, it would have been 14.5 percent for Q2 2012.

Swiss Re explained that “earnings per share for the quarter were $-0.12; excluding the Admin Re® US sale, they would have been $3.22. Book value per common share fell to $87.03 (CHF 82.38) compared to $87.59 (CHF 79.17) at the end of Q1 2012.

Net income in Property & Casualty Reinsurance was $717 million (vs. $385 million). Swiss Re noted that the result was “helped by low losses from natural catastrophes in the quarter, reserve releases and net investment gains. Premiums earned were $2.8 billion, a healthy increase of 18.2 percent from $2.4 billion in Q2 2011. Successful renewals in the first half of the year contributed to this very strong growth. The combined ratio was 81.0 percent (vs. 78.1 percent). Adjusting for natural catastrophes and reserve releases, the underlying combined ratio for Q2 2012 was 94.6 percent, in line with expectations.

Life & Health Reinsurance delivered net income of $248 million (vs. $525 million). Swiss Re indicated that, “although the result benefited from realized gains on investments, the cost of claims was significantly higher. The result also reflects lower investment income, a continuation of the negative performance of business written in the Americas prior to 2004 and slightly higher expenses due to strategic initiatives, especially in the Health area. Consequently, the operating result was lower than expected. Premium and fee income slightly increased to $2.2 billion (vs. $2.1 billion). The benefit ratio increased to 73.8 percent compared to 72.4 percent in Q2 2011.

Swiss Re’s Corporate Solutions segment posted a quarterly profit of $26 million (vs. $52 million in Q2 2011). Premiums earned rose by 22 percent to $536 million (vs. $439 million). Swiss Re said this was “in line with the Business Unit’s growth plans. Higher-than-expected claims from natural catastrophes and man-made disasters in the quarter were partly offset by investment income. The combined ratio for the quarter increased to 110.4 percent (vs. 99.5 percent).

In discussing the adverse impact from the sale of Admin Re® ‘s U.S. business, Swiss Re said the unit “reported a loss of $916 million in the quarter due to the loss of $1.0 billion from the sale of the Admin Re® US business (REALIC) to Jackson National Life.

“This impact is higher than the figures previously estimated in the announcement of the transaction on 31 May 2012, principally due to the fall in interest rates in June. This does not affect the capital benefits of the transaction, but will continue to vary through to closing. Admin Re® shareholders’ equity reduced from $7.4 billion at the end of Q1 2012 to $6.6 billion, the loss on sale being partly offset by rising unrealized gains due to lower interest rates in Q2.”

The sale of the Admin Re® US business to Jackson National Life is expected to be completed in the second half of 2012. The transaction is expected to result in a $900 million dividend to Swiss Re Ltd, unlocking capital for re-deployment across the Swiss Re Group.

Swiss Re also reported “a successful renewal period in July, which was focused on the Americas, Australia and New Zealand and comprises 20 percent of the Group’s reinsurance annual treaty premiums. The Group saw economic rate increases of 3 percent in this renewal season over last year’s already strong levels.

“Overall, the portfolio grew by 7 percent in volume. Rates continued to rise, especially in Cat XL business in the US, and in key markets of Latin America as well as Australia and New Zealand. Swiss Re has also been able to take advantage of increasing prices in casualty lines in some markets. Swiss Re expects this trend to continue.”

Swiss Re has also revised upwards its estimates of premium volume increases for the January and April renewals. Year to date, it estimates that premium volumes have increased by $2.9 billion or 24 percent.

As far as future growth is concerned, the report noted that “current economic conditions and low interest rates are creating challenges for many businesses, including Swiss Re’s clients. At the same time, underlying growth in high-growth markets remains robust despite signs of moderate slowdown in some economies. With its new structure, brand value, strong capitalization and innovation power, Swiss Re is well positioned to benefit from opportunities in developed and high-growth markets, both in the private as well as in the public sectors.”

Liès added: “We are looking to grow our share of business from high-growth markets from the current 15 percent to 20-25 percent by 2015. We will make the necessary investments to achieve this shift. Profitable growth in these markets is a ‘must’, as they will play an important role in achieving the five-year financial targets, the Group’s top priority. However, we will not neglect our client base in developed markets. We will capture profitable growth opportunities wherever they arise.”

Source: Swiss Re

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