Stefan Lippe, Swiss Re's Chief Executive Officer, says: "I am pleased to announce another successful quarter for Swiss Re. Third-quarter Group results were excellent with a positive contribution from all segments. Our underlying earnings power is very strong and our conservative asset management approach is proving to be appropriate in these times of heightened financial market volatility."
Excellent Group net income and increase in shareholders' equity
Swiss Re reported a 118% increase in net income to $1.3 billion in the third quarter. Earnings per share were $3.94 or CHF 3.46 (vs $1.80 or CHF 1.93).
Shareholders' equity rose by $3.0 billion compared to the second quarter to $27.8 billion, due to the excellent Group result and a $2.5 billion increase in unrealised gains, mostly driven by declining interest rates on government bonds. Book value per common share increased to $81.20 or CHF 73.75 at the end of September 2011, compared to $72.37 or CHF 60.94 at the end of June 2011.
Very strong underlying earnings power in P&C business
Property & Casualty reported an operating income of $1.0 billion (vs $1.1 billion). This result was based on a very strong underlying performance, further reserve releases and a better-than-expected natural catastrophe experience in the quarter. The combined ratio increased to 80.8%. Premiums earned increased by 18.0% or 13.1% at constant foreign exchange rates, reflecting successful renewals and new business written during 2011, particularly in Asia.
Operating income in Life & Health rose by 21.8% to a solid level of $145 million (vs $119 million). The benefit ratio improved to 83.6%.
Premiums and fee income increased by 6.8% or 1.7% at constant foreign exchange rates. The increase was largely due to growth in the Asia traditional life and health businesses and the Americas traditional life business.
Asset Management delivered a very strong operating income of $1.2 billion (vs $1.2 billion) and an annualised return on investments of 6.7% (vs 2.8%), with a significant contribution from net realised investment gains of $354 million, mainly from government bonds. The annualised total return on investments was 20.8% (vs 10.6%), largely driven by unrealised gains of $3.9 billion, mainly from government bonds.
Given the heightened volatility in financial markets as a result of economic uncertainties, Swiss Re has and will continue to maintain a conservative asset management strategy. Swiss Re's exposure to sovereign debt issued by peripheral eurozone countries remains very low at $74 million. The exposure to Greek sovereign debt is nil.
Fourth-quarter event
The floods in Thailand are expected to have a severe impact on industrial businesses that have established manufacturing facilities locally. As the flooding is still ongoing, it is currently not possible to evaluate damage, repair times and supply chain interruptions. As a result, a reliable claims estimate cannot be determined at this time.
Change in the Executive Committee
Swiss Re also announces that Brian Gray, Chief Underwriting Officer and member of the Executive Committee, has chosen to retire early to return to Canada, as of 30 April 2012 after more than 26 years of service. His successor will be announced in the first quarter of 2012.
Financial targets are Swiss Re’s most important priority
Swiss Re remains committed to achieving its 2011– 2015 financial targets, after delivering a return on equity of 20.5% (vs 9.5%) in the third quarter, up from 15.6% in the second quarter and -10.7% in the first quarter.
Stefan Lippe says: "Our five-year financial targets announced in February 2011 are our most important priority and we are fully focused on achieving them."
Focus on capturing growth without compromising profitability
With the persistently low interest rate environment, Swiss Re believes a modest but broad market turn in the property and casualty market is underway.
Throughout 2011, Swiss Re continued to deploy capital in a responsible manner to those lines of business where expected returns are strong. In the upcoming January renewals and beyond, this disciplined approach will be maintained in order not to compromise profitability.
In October, rating agency Standard & Poor's upgraded its rating on Swiss Re to AA– from A+, confirming the company's very strong capital and market position.
Stefan Lippe says: "The ratings upgrade applies across all three of our business units – Reinsurance, Corporate Solutions and Admin Re® – and supports our excellent client franchise. Swiss Re remains focused on capturing profitable growth opportunities – putting to work our capital strength and our ability to deliver innovative solutions."