Stefan Lippe, Swiss Re's Chief Executive Officer, said: "Swiss Re's business performed well in the second quarter of 2010. Our underlying earnings power continues to be strong and we benefited this quarter from an excellent result in Asset Management. This proves our ability to generate sustainable earnings in a challenging market environment."
Stefan Lippe added: “For the past two years, we have positioned our (re)insurance portfolio for the softening market. The July 2010 renewals demonstrate that we are continuing to focus on disciplined cycle management – with profitability as the clear priority.”
Resilient performance in a challenging market environment
Swiss Re reported strong net income of USD 812 million for the second quarter of 2010, compared to a net loss of USD 342 million in the same period of the previous year. Earnings per share were CHF 2.56 (USD 2.37), compared to CHF –1.13 (USD –1.01) for the second quarter of 2009.
Shareholders’ equity increased by USD 1.3 billion to USD 27.5 billion in the second quarter of 2010. Return on equity for the second quarter of 2010 was 13.4%, compared to –7.4% in the prior-year period. Book value per common share increased to CHF 78.44 (USD 72.51), from CHF 72.23 (USD 68.62) at the end of the first quarter of 2010.
Strong underlying Property & Casualty result despite large claims
Property & Casualty delivered operating income of USD 455 million, compared to USD 896 million in the prior-year period, maintaining underwriting profitability despite large claims. As previously disclosed, the result was impacted by the USD 130 million increase in estimated claims from the Chile earthquake to approximately USD 630 million before tax and the estimated claims from the Deepwater Horizon oil rig explosion of approximately USD 200 million before tax. The combined ratio for the second quarter of 2010 was 102.0% (or 100.2% excluding unwind of discount), compared to 89.4% (87.6%) in the prior-year period.
Life & Health reported operating income of USD 142 million in the second quarter of 2010, compared to an operating loss of USD 8 million in the prior-year period. The improved operating income is the result of significantly improved results in variable annuities, partly offset by lower investment returns. The benefit ratio increased to 93.5%, compared to 78.6% in the same quarter of 2009.
Asset Management achieved an excellent result with operating income of USD 1.2 billion in the reporting period, compared to USD 472 million in the second quarter of 2009. The annualised return on investments was 5.8% in the second quarter of 2010, compared to 0.5% in the second quarter of 2009. Total return on investments for the quarter was an excellent 13.2%, compared to 2.4% in the same period of the previous year. The results were also positively influenced by foreign exchange gains and mark-to-market gains on investments.
In the second quarter of 2010, Swiss Re continued to reduce risks in Legacy significantly, with the sale of the entire remaining positions from the former Structured CDS and the commutation of USD 1.0 billion of notional exposure in Financial Guarantee Re. In the second quarter of 2010, Legacy generated a net operating loss of USD 54 million.
Outlook
For the past two years, Swiss Re has positioned its (re)insurance portfolio for the softening market. Supported by its portfolio steering approach, Swiss Re succeeded in maintaining stable price adequacy during the July 2010 renewals despite underlying market softening estimated at 3%. The Group will continue to focus on disciplined cycle management. The combination of low investment returns, weaker industry profitability and regulatory change will generate pressure on the industry, and create opportunities for strong, innovative reinsurers.
Asset Management will continue to adjust the asset allocation to focus on long-term risk-adjusted returns by diversifying the investment portfolio in accordance with the asset-liability management framework.
Swiss Re has continued to make significant progress in winding down the Legacy positions and the Group expects to have addressed all the significant exposures in Legacy by the end of 2010.
The first six months of 2010 demonstrated the strength of Swiss Re’s market position. Its capital strength and expertise enabled the company to support clients with a number of innovative transactions. In June 2010, Swiss Re entered into a first-of-its-kind public sector agreement with a US state, structuring a multi-year parametric wind cover for the Alabama State Insurance Fund to hedge insurance price volatility after a major storm. This agreement marks a first for a governmental body from an industrialised country to utilise a parametric solution to transfer government catastrophe exposure to the private sector.
Stefan Lippe concluded: “Looking ahead, we continue to build on our strengths. The reinsurance industry is expected to experience moderate but stable growth over the coming years – we anticipate that the property and casualty market will grow on average by 6.5% and the life and health market by 3.7% annually during the decade ahead. Swiss Re is well placed to meet the demand in these markets, and become the leading player in the wholesale (re)insurance industry.”