Swiss Re Q2 profit surges to $786mn

All business segments contributed positively to the robust results and profitable growth

August 08, 2013 11:11 IST | India Infoline News Service
Swiss Re Group on Thursday reported net income of USD 786 million for the second quarter of 2013, a period that saw high levels of natural catastrophes.

Premium growth in the property and casualty businesses continued with a good renewal season in July. All business segments contributed positively to the robust results and profitable growth.

Michel M. Liès, Group CEO, says: "The robust performance comes against the backdrop of high claims, especially those caused by the devastating floods in Europe and Canada.”

Group return on equity of 10%; Group shareholders’ equity at USD 30.1 billion 

All Business Units contributed positively to the net income of USD 786 million (vs. USD 83 million in Q2 2012) and a 10.0% annualised Group return on equity (vs. 1.1%). Group shareholders' equity stood at USD 30.1 billion as of 30 June 2013 (vs. USD 34.8 billion at the end of Q1 2013). This reflects the second quarter payment to shareholders of USD 2.8 billion for the 2012 regular and special dividends as well as a reduction in unrealised gains caused by higher interest rates. 

Book value per common share fell to USD 84.03 (CHF 79.50) compared to USD 97.80 (CHF 92.84) at the end of Q1 2013. Earnings per share for the quarter were USD 2.28 (vs. USD –0.12). 

The annualised return on investments was 3.8% (vs. 4.5%). Net realised gains from investments for the Group were USD 309 million (vs. USD 486 million in Q2 2012). Swiss Re continued to rebalance its investment portfolio by shifting out of government bonds and mainly into corporate bonds and other credit investments and, to a smaller extent, into equities. 

George Quinn, Group CFO, says: "Our operational performance continues to be strong as is our return on investments. We have realised significant gains from the sale of government bonds as we rebalance our asset portfolio into credit and equities and from active management of the equity portfolio. As announced at our Investors' Day this year, we have started to take the first steps to achieve our target capital structure which will contribute to the achievement of our financial targets. We are also implementing productivity measures across the Group to achieve USD 250
-300 million in savings by the end of 2015, with the goal of redeploying these savings to finance profitable growth opportunities." 

Reinsurance produces good result
Net income in Property & Casualty Reinsurance was USD 468 million (vs. USD 717 million in Q2 2012). Mark-to-market gains on private equity, realised gains on investments and a lower tax rate helped the result. Premiums earned were USD 3.2 billion, an increase of 12% from USD 2.8 billion in Q2 2012 due primarily to the expiry of a major quota share agreement. The combined ratio was 100.7% (vs. 81.0%), reflecting flooding in Europe and Canada as well as lower reserve releases. Adjusting for expected natural catastrophes and prior year development, the underlying combined ratio for Q2 2013 was 97.9%. 

Life & Health Reinsurance delivered net income of USD 141 million (vs. USD 248 million). The result benefited from a strong performance in the Health segment and favourable one-off tax effects, offset by reserve strengthening in Australia and the adverse result from the US life business that was recaptured in the first quarter of 2013. Premium and fee income increased by 16% to USD 2.5 billion (vs. USD 2.2 billion). The benefit ratio increased to 79.6% (vs. 73.8%). 

Corporate Solutions continues to deliver on profitable growth 

Corporate Solutions posted a quarterly profit of USD 55 million (vs. USD 26 million in Q2 2012). Premiums earned rose by 28.0% to USD 686 million (vs. USD 536 million), reflecting the expiry of a major quota share agreement as well as continued growth across virtually all lines of business and markets, as a result of multiple growth initiatives and the associated ongoing increase in offices and staff. The combined ratio for the quarter was 96.9% (vs. 110.4%). Natural catastrophe losses were higher than expected. Corporate Solutions paid a dividend to the Group of USD 489 million in the quarter. 

Admin Re with high realised gains
Admin Re reported net income of USD 109 million in the quarter. This compares to a net loss of USD 916 million in Q2 2012, which resulted from the sale of Admin Re US. Realised gains on investments of USD 97 million contributed to the Q2 2013 result. Admin Re generated USD 107 million of gross cash (vs. USD –17 million in Q2 2012) and paid a dividend to the Group of USD 357 million. 

Good renewals in Americas and Australia/New Zealand
July is a significant month for reinsurance renewals in the Americas, Australia and New Zealand. During this period Swiss Re concludes roughly 20% of the Group's reinsurance annual treaty premiums. The July 2013 renewal premium volume was 12% higher, driven by tailored transactions. The overall price quality was 5% lower than in July 2012, but remains at attractive levels. The margin decreases were largely driven by US natural catastrophe business, where the supply of alternative capital is most significant. 

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