Swiss Re’s Mumenthaler optimistic for 2023 on back of strong rates

Swiss Re CEO Christian Mumenthaler has told shareholders he is feeling much more optimistic about 2023 as a result of healthy primary and reinsurance rates. Mumenthaler said he expects further growth and profitability at Swiss Re Corporate Solutions, which performed well last year, and is forecasting a combined ratio of 94% for the business in 2023 compared with 95% for P&C reinsurance. This suggests that Europe’s risk and insurance managers can expect another tough set of renewals. Speaking at the Swiss Re’s AGM in Zurich after a tough 2022, Mumenthaler said last year was “full of challenges”, marked by the war in Ukraine, surging inflation, the tail end of the Covid-19 pandemic and elevated natural catastrophe losses. These challenges led to a significant reduction in Swiss Re’s 2023 net income at $472m, down from $1.4bn. “Naturally, I agree with Sergio Ermotti (chairman) that we cannot be satisfied with this result,” said Mumenthaler. He said there were four key factors that impacted the result. First, Swiss Re established reserves of $1.1bn in anticipation of surging claims inflation. Second, the sharp decline in global equity markets had a negative impact on its results of $600m. Third, Swiss Re recorded continued pandemic-related claims amounting to $600m. And fourth, natural catastrophe losses were $500m above expectations. These factors meant that P&C reinsurance reported net income of just $312m, supported by strong fourth-quarter performance. Corporate Solutions, however, once again reported “robust” results with net income of $486m last year. This was significantly higher than the core reinsurance business, noted Mumenthaler. The unit’s combined ratio was 93.1% for 2023, outperforming the target of less than 95%. Net premiums earned increased to $5.5bn, driven by growth in selected focus portfolios. Mumenthaler went on to explain that inflation is a “double-edged sword” for Swiss Re. “The immediate effect is negative and arises from the fact that in our property and casualty business, economic inflation leads to claims amounts that are higher than originally calculated. Throughout the year, Swiss Re therefore took measures to create additional reserves to address this risk,” he said. “The longer-term effect is positive and is on the investment side. Higher interest rates are already helping to compensate for the effects of higher inflation. In the fourth quarter, the contribution from our fixed-income portfolio increased by $170m compared to the same period last year,” continued Mumenthaler. “Inflation is therefore a double-edged sword for the insurance industry: an increased claims burden that has a direct impact, but also higher income on the investment side, which, however, only materialises with time,” he added. And Mumenthaler is optimistic that Swiss Re’s results will improve this year. “2022 may have been a challenging year, but I’m more optimistic about the future. The last quarter of 2022 was successful, with a net income of $757m, representing a return on equity of 24.6%. The January 2023 renewals were also strong,” he said. “It was the best renewals round in many, many years. Reinsurance prices have risen significantly – and we were able to increase our prices by 18%. Due to inflation and updates to risk models, we also had to increase our loss assumptions by 13%. However, this still leaves us with a net price increase of 5%,” added Mumenthaler. Not everyone was as bullish as Mumenthaler in their assessment of Swiss Re’s recent performance. The group’s ability to focus on customer needs was also called into question by shareholders as the tight hold on cost continues, and in the wake of the group’s decision to split its P&C and life reinsurance businesses. Swiss shareholder association Actares said: “Keyword restructuring: a little more than 25 years ago, a life division was formed at group management level – this increased independence was later reversed, only to be revived now. Are such (permanent) changes really effective? The group CEO promises a stronger customer orientation – won't the insecurity of the employees and the preoccupation with internal matters make it more difficult to focus on customers, at least for the time being?”

Swiss Re’s Mumenthaler optimistic for 2023 on back of strong rates

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