Swiss Re Corporate Solutions swings to profit as turnaround gathers pace

Andreas Berger, CEO at Swiss Re Corporate Solutions

Swiss Re Corporate Solutions swung to a $96m net profit in the first quarter, from a loss of $166m in the prior-year period, and saw its combined ratio fall to 96% from 120.6% as fortunes continued to improve.

Swiss Re said the numbers reflect a “continuation of the successful turnaround achieved in 2020 and the diminishing impact of Covid-19-related losses”.

Last year, Swiss Re Corporate Solutions’ first-quarter numbers were dented by pandemic losses. It would have made a profit of $6m during that period while achieving a combined ratio of 102.3%.

In Q1 2021, profit would have been a touch higher without Covid-19 losses at $122m and the combined ratio a touch lower at 94.4%.

Swiss Re Corporate Solutions’ actual 96% combined came despite higher-than-expected natural catastrophe losses of $110m.

Net premiums earned were stable at $1.22bn as rate increases and growth in selected areas offset the impact of previous portfolio pruning measures. The unit achieved a risk-adjusted average price increase of 13% in the first quarter.

Swiss re said that “as a result of disciplined underwriting, strict expense management and continued rate increases”, the business unit is on track to achieve its targeted normalised combined ratio of less than 97% this year. Its return on equity stood at 16.2% in the first quarter.

Parent group Swiss Re reported net income of $333m in Q1, compared to a loss $225m in the same period of 2020.

It said “strong underlying performance of all businesses” more than offset a further $643m in Covid-19-related losses and large nat cat claims of $426m. Some $570m of the pandemic losses fell to life and health reinsurance.

Excluding Covid-19-related claims and reserves, Swiss Re’s net income was $843m in the first quarter.

Group net premiums rose to $10.21bn from $9.58bn a year earlier.

Swiss Re’s P&C reinsurance division (P&C Re) reported net income of $477m in the first quarter, up significantly on the $61m during the same period last year. Swiss Re said this was the result of continued price improvements and disciplined underwriting.

The unit suffered large nat cat losses of $316m, primarily from US winter storms. Excluding the impact of Covid-19, P&C Re would have reported net income of $509m.

P&C Re’s combined ratio improved to 96.5% from 110.8% in Q1 2020. Net premiums earned increased by 5.7% to $5bn.

The P&C reinsurance division saw a 20% increase in treaty business to $2.6bn at April renewals, on the back of “attractive transaction opportunities and pricing”. It achieved a nominal price increase of 4% in the renewal round, more than offsetting lower interest rates and higher loss assumptions.

Swiss Re’s life and health business fell to a net loss of $184m in Q1 as a result of significant Covid-19 claims, which were driven by high mortality rates in the US and other countries. Life and health posted a net profit of $299m in the same period last year.

Swiss Re’s CFO John Dacey said: “The return to profitability this quarter in our property and casualty businesses underlines the earnings potential of our diversified business model. We effectively absorbed the heightened mortality impact on our life and health business and maintained a very strong capital position.“

Group CEO Christian Mumenthaler said: “We have seen a solid start to 2021 and expect all our businesses to continue delivering a strong underlying performance with diminishing Covid-19 losses. I am particularly encouraged by the improving profitability in our property and casualty businesses, supported by strong renewals year to date in improving market conditions.“

Moody’s analyst Dominic Simpson said Swiss Re’s return to profit in Q1, despite having to increase its Covid-related loss provisions by more than $600m, is “testament to the continued improvement in its underwriting performance”.

“A loss in the life and health business as a result of significant additional Covid-related mortality losses was more than offset by a good performance in the P&C reinsurance and Corporate Solutions businesses, notwithstanding the US winter storms. Rate increases achieved at the April renewals will further benefit the group’s underlying profitability,” he said.