Swiss Re reported third-quarter net income of $618 million, compared to $314 million in the prior-year period. Swiss Re also announced that the convertible perpetual capital instrument issued to Berkshire Hathaway has been terminated effective November 3, 2010.
Stefan Lippe, Swiss Re's Chief Executive Officer, said: “Today we are pleased to report that our improved capital position allowed us to reach an agreement to repay Berkshire Hathaway, with no additional charge for bringing forward the repayment date."
Swiss Re will expense the interest charges and the 20% premium in the fourth quarter, adjusted for foreign exchange. The charge to earnings is expected to be approximately USD 1 billion pre-tax. After making the termination payment, Swiss Re will still hold significant excess capital above the 'AA' level.
Strong Group results despite challenge of low interest rates
Swiss Re reported net income of USD 618 million for the third quarter of 2010, compared to USD 314 million in the same period of the previous year.
Earnings per share were CHF 1.93 (USD 1.80), compared to CHF 0.97 (USD 0.92) in the third quarter of 2009.
Shareholders' equity increased by USD 2.4 billion to USD 29.9 billion in the third quarter of 2010. Return on equity for the third quarter was 9.5%, compared to 6.1% in the prior-year period. Book value per common share was CHF 77.81 (USD 79.65) at the end of September 2010, versus CHF 78.44 (USD 72.51) at the end of June 2010.
Continued exceptional performance in P&C
Property & Casualty delivered excellent operating income of USD 1.1 billion in the third quarter of 2010, compared to USD 0.9 billion in the third quarter of 2009. The combined ratio improved to 76.4% (or 74.8% excluding the unwind of discount) from 84.5% (82.7%) in the prior-year period, despite an earthquake in New Zealand that impacted operating income by USD 160 million. The combined ratio for the first nine months of 2010 was 95.6%. The 2010 third-quarter result benefited from below-average natural catastrophe activity, the company's continued disciplined underwriting and cycle management approach, and positive prior-year development.
Life & Health reported operating income of USD 119 million in the third quarter of 2010, compared to USD 363 million in the prior-year period. The benefit ratio increased to 93.3% in the third quarter of 2010, compared to 81.1% in the same quarter of 2009. The change was primarily due to the absence of a gain recognised in the prior-year result together with the impact of certain commutations.
Asset Management again delivered strong operating income of USD 1.2 billion for the third quarter of 2010, compared to USD 697 million in the third quarter of 2009. The annualised return on investments was 2.8% in the third quarter of 2010, compared to 1.6% for the same period of the prior year. This was driven mainly by the lower impact from hedges and impairments but partially offset by the impact of foreign exchange rate movements. The annualised total return on investments was 10.6% in the third quarter of 2010, compared to 14.3% in the same period of the prior year.
Group items for the third quarter of 2010 include a foreign exchange loss of net USD 195 million that relates to an intra-group transaction that was completed in the second quarter of 2010 (please refer to the third quarter financial statements, Note 1 'Organisation and summary of significant accounting policies').
Focus on clients
Swiss Re wishes to further strengthen the company's core capabilities and market presence with a focus on Reinsurance, Corporate Solutions and Admin Re®. As communicated in October 2010, these three client-facing operations will in future each be represented by dedicated Executive Committee members.
Stefan Lippe said: "These changes demonstrate that our relationship with our clients lies at the heart of what we do. Our strong capital position makes us an outstanding partner in the upcoming renewal seasons."
Rating confirmed, outlook revised upward
On 12 October 2010, Standard & Poor's affirmed its 'A+' long-term counterparty credit and insurer financial strength ratings on Swiss Reinsurance Company Ltd. At the same time, the outlook was revised upwards, from 'stable' to 'positive'.
The ratings outlook revision is a strong signal, reflecting Standard & Poor's view that Swiss Re's financial strength has recovered considerably, thanks primarily to the speed and effectiveness of the company's de-risking measures and the resilience of its franchise.
In view of the challenge that the low interest rate environment presents, Swiss Re will continue to focus on writing profitable business while opening up new sources of income through its capacity for innovation. The company's (re)insurance portfolio is well positioned for this environment. Swiss Re remains committed to active cycle management and portfolio steering and will deploy capital to those lines of business where it expects to achieve an appropriate return.
Stefan Lippe said: "At the beginning of 2009, we set out a series of firm commitments aimed at restoring trust in Swiss Re. We have delivered on our promises and successfully turned around the company's performance. We are now firmly focused on the future, implementing our strategy and leveraging our core capabilities."