Swiss Re expands nat cat premiums 24% at renewals

Global reinsurance giant Swiss Re was expansive in natural catastrophe risks at the January 2022 renewal season, reporting 24% growth in premiums, while property and casualty pricing rose 4% across the firms renewal book.

In announcing its full-year 2021 results this morning, Swiss Re reported $1.4 billion of net income across its business, which was below analyst expectations.

But, the P&C reinsurance side shone through with $2.1 billion of income despite heavy catastrophe losses, compared to a COVID-hit that drove the life and health reinsurance side to a loss of -$523 million and caused the earnings miss.

Corporate Solutions performance continued to improve, with $578 million of income delivered on a combined ratio of 90.6%.

Excluding the hit from COVID-19 related losses on the life and health reinsurance side, Swiss Re would have reported $3 billion of net income for the year and an RoE of 11.6%, the company said.

Property & Casualty Reinsurance (P&C Re) delivered its strong results against a combined ratio of 97.1%.

That’s despite Swiss Re recording $2.4 billion of natural catastrophe losses in 2021, alongside the COVID losses that reached $2 billion.

While analysts may be disappointed with the overall income miss, Swiss Re has once again demonstrated the resilience of its business against a backdrop of severe loss activity, driving home the importance of the protection it provides at the same time.

Swiss Re’s Group Chief Executive Officer Christian Mumenthaler commented, “2021 marked an important turning point for Swiss Re. Despite still major COVID-19 impacts and a high occurrence of large natural catastrophe events throughout the year, we rebounded to a USD 1.4 billion profit. We have worked hard to strengthen business performance, with a rigorous focus on portfolio quality and underwriting excellence. Our 2021 results are a testament to these efforts, and we are convinced our performance will continue to improve.“

Reflected in the strong P&C reinsurance result are the “improved quality of the portfolio and rate increases” Swiss Re said.

“P&C Re’s net premiums earned grew by 5.3% to USD 21.9 billion, supported by continued price improvements, disciplined underwriting as well as favourable foreign exchange developments,” the reinsurer explained for 2021.

Despite 2021 being another year of elevated global insurance market losses, Swiss Re’s combined ratio improved considerably year-on-year in its P&C business, coming out at 97.1% for 2021, much improved from 109.0% in 2020.

Normalised, the P&C combined ratio was 94.7%, beating the 95% full-year target and providing a signal of improved portfolio quality.

At the key January 2022 reinsurance renewal season Swiss Re continued to pursue an expansive approach to building out its portfolio for the year ahead.

Swiss Re’s P&C Re division renewed $8.9 billion of premium volume on at 1/1 2022.

That was a 6% volume increase compared with the business that was up for renewal and the company said that strong growth was achieved in property and specialty lines.

Of particular note for our readers and also for Swiss Re’s alternative capital investors and insurance-linked securities (ILS) capacity partners, natural catastrophe-related premiums rose by a significant 24% at the renewals.

Swiss Re continues to utilise third-party capital and ILS structures to help it manage a growing portfolio of nat cat risks. Read our recent article for more details on Swiss Re’s expanding third-party capital assets and our story from yesterday in which we revealed that Swiss Re is back with a new catastrophe bond.

Swiss Re recorded a 4% price increase across its P&C Re book at this renewal round.

The reinsurer said that, “This fully offset more conservative loss assumptions, which reflect a prudent view on inflation and other changes in exposure.”

One other area of note is Swiss Re’s iptiQ, which regular readers will know is a technology focused underwriting division that effectively white-labels the reinsurers own balance-sheet and underwriting rules, for third-parties to integrate re/insurance products into their customer flow.

iptiQ’s in-force policies rose by an impressive 144% year on year to more than 1.6 million, while gross premiums written rose by 95% from the previous year to $723 million.

iptiQ has the potential to become another source of risk for Swiss Re and its third-party capital partners, expanding the reinsurers reach and ultimately creating a bigger mouse-trap for risk.

With the underlying earnings power of a reinsurance business like Swiss Re’s expected to grow, the company has released updated ROE targets of 10% for 2022 and 14% for 2024.

In P&C, Swiss Re expects performance will continue to improve, thanks to a “sustained focus on portfolio quality in combination with increasing prices.”

P&C reinsurance targets a normalised combined ratio of less than 94% for 2022, while Corporate Solutions targets a reported combined ratio of less than 95%, the company said today.

Mumenthaler comcluded, “With our sharpened Group strategy and clear business development priorities, we will continue the strong trajectory displayed in these full-year results. The new financial targets for the Group and individual businesses reflect the ambition to drive profitability and create value for our shareholders, clients and employees. While we remain in an uncertain environment with regards to the pandemic, we are confident in the Group’s ability to deliver against these targets, underpinned by our very strong capital position.“

Swiss Re’s strong growth at the January renewals in natural catastrophe business may also be a driver in its returning to the catastrophe bond market in search of aggregate protection this year.

As we revealed yesterday, Swiss Re has launched a new Matterhorn Re cat bond with an annual aggregate focus, the first of the series to target aggregate retro cover for the company.

As the catastrophe book continues to grow for the company, we expect Swiss Re to be a regular visitor to the cat bond market and to continue expanding its core alternative capital propositions, of its sidecars and ILS funds.