Reinsurance consists of two segments, Property & Casualty and Life & Health. The Business Unit operates globally, both through brokers and directly with clients, and provides a large range of solutions for risk and capital management.
Strategy and priorities
Our Reinsurance strategy is to achieve excellence in our core business, continuously improve the value provided by our products and services, and expand selectively in target areas.
Excellence in our core businesses relies on underwriting as a key differentiator, based on cycle management and portfolio steering. This includes the steering of peak perils, our risk transformation capabilities, and research and development. In property, an in-house research team develops and maintains proprietary models for storm, earthquake and flood. In casualty, we are developing an equivalent forward looking model based on a systematic assessment of risk drivers. In Life & Health, our mortality experience data allows us to better quantify the underlying risk.
Our key value drivers are large capacity, technical expertise and the ability to develop tailored solutions to meet clients’ needs, for example in the area of solvency relief. In addition we have a market-leading position in transferring both property and life risks to the capital markets.
We continue to see growth opportunities in health and high growth markets, particularly in the focus countries China, India, Indonesia, Brazil and Mexico, as well as Sub-Saharan Africa. We are continuing to build our footprint in these markets through a combination of organic growth and direct investment, and building expertise by hiring and developing local talent.
Property & Casualty
We believe that active cycle management and positioning as a knowledge company is likely to be key to success for Property & Casualty Reinsurance (P&C) in the current market environment. We aim to maintain earnings quality through disciplined underwriting and superior service. Our product offerings go beyond pure capacity, with customised solutions that complement traditional reinsurance. We believe this approach differentiates Swiss Re from pure capacity providers.
Natural catastrophe prices are still attractive, though reduced. Over 2013 we were able to defend our leading position by deploying more capacity while maintaining absolute earnings at attractive economic profit margins. Property and specialty continued to contribute significantly to overall reinsurance earnings. Casualty price levels are softer overall, though improving in some markets. In all segments we will continue to focus on tailored solutions for clients, which in 2013 allowed us to put our capital to use at differentiated terms and conditions.
Capturing opportunities in growth markets remained a key priority across all P&C business lines in 2013. As part of the high growth market strategy implementation, we strengthened expertise by adding to our local underwriting and client management staff in Asia and Latin America. We expect that this will enable us to deliver superior service to our existing clients and build new relationships.
Life & Health
The environment for Life & Health Reinsurance (L&H) continued to be challenging in 2013, with low yields pressuring reinvestment rates and investment income. In addition, clients in mature markets are retaining more protection risks due to the diversification benefits recognised in economic solvency models. Most in-force portfolios are performing in line with or above expectations, although the performance of a few in-force books — in particular US pre-2004 individual life business and Australia group disability income portfolios — has negatively impacted US GAAP profits and RoE. Management is committed to improving the performance of these portfolios and (combined with other initiatives on asset and capital management) to delivering 10%–12% RoE by 2015.
We believe L&H is strategically attractive. It is an integral part of Swiss Re’s business model. L&H adds to the profits and diversification of the Group, enhances the value proposition to core clients and represents an attractive growth opportunity.
L&H saw increased underlying demand in high growth markets in 2013, particularly in health. There were also a number of important large transactions in developed markets. One example of Swiss Re’s expertise in health was a very large in-force transaction with a major client. This was won thanks to an extraordinary effort of a highly dedicated team of Swiss Re experts across four countries and three continents. This deal is expected to contribute substantially to our revenues and earnings for many years.
Swiss Re offers a variety of life and health reinsurance solutions to help close the global protection gap. Due to our recognised expertise, strong balance sheet, excellent track record and dedicated teams, we believe Swiss Re is the ideal partner for product development, large capital-driven transactions, longevity deals and structured solutions tailored to client needs.
We believe that we are well positioned to capture the market opportunities ahead of us. We expect that our capitalisation will allow for continued business growth and the payment of dividends to the holding company.
We expect natural catastrophe business to grow globally. Despite an increase in alternative capacity, particularly in the US, we believe we will continue to achieve attractive returns on the property business we write. We also see growth opportunities in casualty. In L&H we will continue to actively manage our in-force book to increase profitability and develop new solutions to grow in both mature and developing markets.