Forecasts & Results

Swiss Re 1Q22 trading statement

Posted 05/05/2022 – Quick takes

Swiss Re reported a net loss of US$248m and a return on equity (RoE) of -4.6% for 1Q22 vs. a net (positive) income of US$333m and an RoE of 5.2% in 1Q21. The Group was impacted by higher-than-expected large natural catastrophe claims of US$524m in its property and casualty (P&C) businesses, COVID-19 claims of US$515m and reserves of US$283m for the war in Ukraine.

Other highlights in the statement were:

  • Property & Casualty Reinsurance (P&C Re) net income of US$85m and a combined ratio of 99.3%;
  • P&C Re April 2022 renewals saw treaty premium volumes up 15%;
  • Return on investments (ROI) of 0.7%, reflecting mark-to-market impacts on equity investments;
  • Reserves of USD 283 million related to the war in Ukraine.

Swiss Re’s Group CEO, Christian Mumenthaler, said: “The first quarter turned out to be a challenging one. Russia’s invasion of Ukraine came as a shock, and our thoughts are with everyone impacted. While the situation remains highly uncertain and we do not believe we have an outsized exposure, we decided to take a proactive and cautious approach to establishing reserves for potential impacts from the war. Despite this and other headwinds in the quarter, Swiss Re’s property and casualty businesses delivered robust underwriting results, and we remain focused on delivering on our financial targets for the year.”

Swiss Re’s Group CFO, John Dacey, said: “While the first quarter was impacted by negative equity mark-to-market movements, the recurring income yield remained stable at 2.1%. We expect our investment results to benefit from rising interest rates in the medium-term. At the same time, the Group maintained its very strong capital position, enabling us to capture profitable growth opportunities in a supportive pricing environment.”

Alpha comment

Swiss Re’s management still believes that the war in Ukraine is equivalent to a mid-sized hurricane, but closer to US$10bn rather than the previous implication for US$10-20bn. This coincides with the views expressed by the management of Lloyd’s. Swiss Re says that it has no out-sized exposures relative to its normal market share in reinsurance. Interestingly, Swiss Re believes that they can ultimately achieve their P&C Re combined ratio target of less than 94% (from 96.9% in 1Q22) because Ukraine has added only 2.9 percentage points to this ratio. However, given its leading position in the aviation reinsurance market it is entirely possible that further provisions may need to be made in respect of potential aviation losses. The major European reinsurers have provided Lloyd’s syndicates with considerable quota share and excess-of-loss capacity on their aviation, political risk, terror and war books, which could result in a tightening of their approach to the property catastrophe market (which has long been the area where Alpha wanted to see significant rate improvements given higher attritional and catastrophe losses in recent years). Clearly the COVID loss number for 1Q22 is large, but the figure is almost all due to Life & Health Reinsurance (L&H Re) COVID losses of $501m rather than P&C Re (which is more relevant for the Lloyd’s market).

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