Strategy and priorities

Admin Re^® implemented a transformation programme starting in 2011 which resulted in a three-pronged strategy leveraging its core competencies: portfolio steering, management actions and transactions.

The first part of this strategy, portfolio steering, relates to the active management of the in-force business portfolio including seeking ways to release capital. The sale of the Admin Re^® US business in 2012 was a key event reflecting this, as the Group sought to focus its efforts on opportunities in the UK and Continental Europe.

Management actions include cost management and increasing capital efficiency. The Alico transaction in the UK, which concluded in 2012, enhanced capital efficiency by transferring the individual policies from the previous carrier to an Admin Re^® subsidiary.

Admin Re^® results

Transactions are a core component of Admin Re^®’s business. Admin Re^® has a proven track record of generating significant cash dividends as a result of transactions, for example the sale of the Admin Re^® US business, which resulted in USD 881 million of cash dividends to the Swiss Re Group. Admin Re^® continues to pursue new opportunities, including the acquisition of closed books of in-force life insurance business and the entire capital stock of life insurance companies. Any transactions need to meet Swiss Re’s Group investment criteria and hurdle rates.

In addition to in-house funding, the Swiss Re Group and Admin Re^® can also seek alternative funding arrangements for new business growth, including third-party financing.

Performance

Admin Re^® generated gross cash of USD 1 196 million for 2012, significantly higher than the USD 302 million in 2011. The increase was mainly due to the cash proceeds and release of capital from the sale of the Admin Re^® US holding company, including Reassure America Life Insurance Co., to Jackson National Life Insurance Company. The sale closed on 4 September 2012 with the Group receiving total cash proceeds of USD 0.9 billion and recognising a USD 399 million loss on the disposal.

Excluding the impact of the sale gross cash generation was USD 432 million, an increase of USD 130 million over the prior year. The increase was driven by Admin Re^®’s UK business, which included benefits from statutory valuation updates and the completion of the legal transfer of the Alico UK business acquired in 2011.

Net income in 2012 amounted to USD 183 million, including the USD 399 million loss related to the sale of the Admin Re^® US business in the reporting year. Excluding this loss, net income was USD 582 million, compared to USD 329 million in the prior-year period, an increase of 76.9%. The rise in underlying net income was driven by an improvement in investment performance, including higher realised gains, and management actions mainly related to business transformation and efficiency initiatives which provided one-off benefits to the result.

Operating revenues

Premiums and fee income were USD 1 705 million in 2012, compared to USD 1 686 million in the prior year. The increase was mainly due to the recognition of accelerated premiums for a retained block of business in the US, offset by an increase in claims reserves. Excluding the impact of the acceleration, premiums and fees were lower compared to the prior year primarily due to the impact of the Admin Re^® US sale.

Investment result

The return on investment was 4.9% for 2012, slightly lower than the prior-year return, with this excluding the effects from the sale of the Admin Re^® US business. Proprietary net investment income was USD 1 548 million in 2012, compared to USD 1 611 million in 2011.

The running yield on investments declined to 4.3% in 2012 from 4.5% in 2011, mainly as a result of lower yields on new purchases. The reduction was partially offset by the Admin Re^® US sale, with the investment portfolio supporting the continuing Admin Re^® operations providing a higher yield than the portfolio that was disposed of as part of the transaction.

Expenses

Administrative expenses were USD 457 million in 2012, a marginal decrease from USD 466 million for 2011. The costs remained relatively flat with the impact from the sale of Admin Re^® US and lower expenses associated with corporate realignment being offset by new business-related costs and continued investment in Admin Re^®.

Return on equity

The return on equity was 2.6% for 2012, compared to 5.0% in 2011, with the reduction driven by the loss recognised in the year related to the sale of the Admin Re^® US business. Excluding the loss on disposal, the return on equity was 7.7% for the year, 2.7 percentage points higher than the prior year.

Shareholders’ equity

Common shareholders’ equity, which excludes non-controlling interests, was USD 6 662 million as of 31 December 2012, a decrease of USD 716 million compared to 2011. The decrease was mainly due to the loss on the sale of the Admin Re^® US business and payment of a USD 881 million dividend to the Swiss Re Group on completion of the sale, with a further USD 175 million of dividends paid in the first half of 2012. The reduction was partially offset by an increase in unrealised gains arising in the year as a result of tighter credit spreads, together with business shifts from the Reinsurance segment as part of the restructuring following the sale of the Admin Re^® US business. The realisation of previously unrealised gains on the disposal of Admin Re^® US had no impact on shareholders’ equity.

Outlook

Admin Re^® seeks to grow through selective acquisitions that offer predictable, long-term and consistent returns. The closed life market remains active with recent activity centred in the UK and Continental Europe where Admin Re^® is looking to continue building on its strong market position. As part of its growth plans Admin Re^® is also focused on potentially raising third-party capital to fund future growth.