The result is impacted by the sale at a loss of USD 1.0 billion of the Admin Re® US business. Property & Casualty Reinsurance delivered a strong result while Life & Health Reinsurance net income benefited from realised gains. Group return on investment was a very good 4.5%.
Michel M. Liès, Group CEO, says: "We have delivered a profit in the second quarter. Given the impact from the sale of the Admin Re® US business, this shows the strength and resilience of our underlying earnings power. With another successful renewal round in July behind us, we will continue to focus on implementing our strategy and capturing growth opportunities in developed and high-growth markets in the second half of the year."
Group return on investment of 4.5%; stable shareholders’ equity of USD 31.0 billion
Premiums earned and fee income increased by 13.7% to USD 6.1 billion (vs. USD 5.4 billion in Q2 2011). Swiss Re Group's combined ratio was 85.7% (vs. 81.4%). The Group's performance was supported by a very good investment result. Investment income was USD 1.2 billion with a Group return on investment of 4.5%.
Shareholders’ equity remained largely stable at USD 31.0 billion (vs. USD 31.2 billion at the end of Q1 2012). Dividends paid to shareholders (USD 1.1 billion) were mostly offset by unrealised gains. Group return on equity was 1.1% (vs. 15.6%); excluding the Admin Re® US sale, it would have been 14.5% for Q2 2012.
Earnings per share for the quarter were USD -0.12; excluding the Admin Re® US sale, they would have been USD 3.22. Book value per common share fell to USD 87.03 (CHF 82.38) compared to USD 87.59 (CHF 79.17) at the end of Q1 2012.
Property & Casualty Reinsurance produces strong result; Life & Health Reinsurance benefits from realised gains
Net income in Property & Casualty Reinsurance was USD 717 million (vs. USD 385 million). This result was helped by low losses from natural catastrophes in the quarter, reserve releases and net investment gains. Premiums earned were USD 2.8 billion, a healthy increase of 18.2% from USD 2.4 billion in Q2 2011. Successful renewals in the first half of the year contributed to this very strong growth. The combined ratio was 81.0% (vs. 78.1%). Adjusting for natural catastrophes and reserve releases, the underlying combined ratio for Q2 2012 was 94.6%, in line with expectations.
Life & Health Reinsurance delivered net income of USD 248 million (vs. USD 525 million). Although the result benefited from realised gains on investments, the cost of claims was significantly higher.
The result also reflects lower investment income, a continuation of the negative performance of business written in the Americas prior to 2004 and slightly higher expenses due to strategic initiatives, especially in the Health area. Consequently, the operating result was lower than expected. Premium and fee income slightly increased to USD 2.2 billion (vs. 2.1 billion). The benefit ratio increased to 73.8% compared to 72.4% in Q2 2011.
Corporate Solutions growth plans on track
Corporate Solutions posted a quarterly profit of USD 26 million (vs. USD 52 million). Premiums earned rose by 22% to USD 536 million (vs. USD 439 million). This is in line with the Business Unit's growth plans. Higher-than-expected claims from natural catastrophes and man-made disasters in the quarter were partly offset by investment income. The combined ratio for the quarter increased to 110.4% (vs. 99.5%).
Admin Re® result impacted by loss from sale of US business
Admin Re® reported a loss of USD 916 million in the quarter due to the loss of USD 1.0 billion from the sale of the Admin Re® US business (REALIC) to Jackson National Life. This impact is higher than the figures previously estimated in the announcement of the transaction on 31 May 2012, principally due to the fall in interest rates in June. This does not affect the capital benefits of the transaction, but will continue to vary through to closing. Admin Re® shareholders' equity reduced from USD 7.4 billion at the end of Q1 2012 to USD 6.6 billion, the loss on sale being partly offset by rising unrealised gains due to lower interest rates in Q2. The sale of the Admin Re® US business to Jackson National Life is expected to be completed in the second half of 2012. The transaction is expected to result in a USD 0.9 billion dividend to Swiss Re Ltd, unlocking capital for re-deployment across the Swiss Re Group.
Successful July renewals in Americas and Australia/New Zealand
Swiss Re saw a successful renewal period in July, which was focused on the Americas, Australia and New Zealand and comprises 20% of the Group's reinsurance annual treaty premiums. The Group saw economic rate increases of 3% in this renewal season over last year’s already strong levels. Overall, the portfolio grew by 7% in volume. Rates continued to rise, especially in Cat XL business in the US, and in key markets of Latin America as well as Australia and New Zealand. Swiss Re has also been able to take advantage of increasing prices in casualty lines in some markets. Swiss Re expects this trend to continue.
Swiss Re has also revised upwards its estimates of premium volume increases for the January and April renewals. Year to date, it estimates that premium volumes have increased by USD 2.9 billion or 24%.
Continued focus on growth in developed and high-growth markets
The current economic conditions and low interest rates are creating challenges for many businesses, including Swiss Re's clients. At the same time, underlying growth in high-growth markets remains robust despite signs of moderate slowdown in some economies. With its new structure, brand value, strong capitalisation and innovation power, Swiss Re is well positioned to benefit from opportunities in developed and high-growth markets, both in the private as well as in the public sectors.
Michel M. Liès says: "We are looking to grow our share of business from high-growth markets from the current 15% to 20-25% by 2015. We will make the necessary investments to achieve this shift. Profitable growth in these markets is a ‘must’, as they will play an important role in achieving the five-year financial targets, the Group’s top priority. However, we will not neglect our client base in developed markets. We will capture profitable growth opportunities wherever they arise."
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