Admin Re®
Strategy and priorities
423
Net income
in USD millions, 2013
Admin Re® aims to enhance business profitability by applying a three-pronged strategy to leverage its core competencies of selective growth, value extraction and operational excellence.
Selective growth is the first element of Admin Re®’s strategy. Admin Re® continues to pursue opportunities to build and enhance the franchise in the UK market. All transactions need to meet Swiss Re’s Group investment criteria and hurdle rates.
Admin Re® results
| Download |
|
USD millions |
2012 |
2013 |
Change in % |
|
Revenues |
|
|
|
|
Premiums earned |
992 |
844 |
–15 |
|
Fee income from policyholders |
713 |
486 |
–32 |
|
Net investment income – non-participating |
1 548 |
1 180 |
–24 |
|
Net realised investment gains/losses – non-participating |
–89 |
201 |
– |
|
Net investment result – unit-linked and with-profit |
2 348 |
3 098 |
32 |
|
Other revenues |
3 |
1 |
–67 |
|
Total revenues |
5 515 |
5 810 |
5 |
|
|
|
|
|
|
Expenses |
|
|
|
|
Life and health benefits |
–2 086 |
–1 506 |
–28 |
|
Return credited to policyholders |
–2 688 |
–3 392 |
26 |
|
Acquisition costs |
–142 |
–30 |
–79 |
|
Other expenses |
–457 |
–441 |
–4 |
|
Interest expenses |
–53 |
–46 |
–13 |
|
Total expenses |
–5 426 |
–5 415 |
0 |
|
|
|
|
|
|
Income before income tax benefit |
89 |
395 |
– |
|
Income tax benefit |
101 |
28 |
–72 |
|
Income attributable to non-controlling interests |
–7 |
0 |
– |
|
Net income attributable to common shareholders |
183 |
423 |
131 |
Value extraction relates to the active management of the portfolios of assets and blocks of businesses and a focus on consistently creating value through capital and tax synergies.
Operational excellence is the third core competency and involves continuous improvement of the unique and scalable operating platform as well as a focus on transformation and management actions including business efficiency and cost reduction.
In addition to in-house funding, the Swiss Re Group and Admin Re® may seek alternative funding arrangements including an expanded use of leverage for new business growth. The clear objective is to lower Admin Re®’s weighted average cost of capital, and build more flexibility for future transaction funding.
Performance
521
Gross cash generation
in USD millions, 2013
Admin Re® generated gross cash of USD 521 million, significantly higher than the USD 392 million generated in 2012 (net of the USD 804 million relating to the sale of the Admin Re® US business).
Admin Re® reported net income of USD 423 million in 2013 compared with USD 183 million in 2012. The 2013 result included realised gains following the re-balancing of the investment portfolio, favourable UK tax impacts driven by a reduction in the corporation tax rate and favourable investment market movements in the UK. The 2012 figure included a USD 399 million loss relating to the sale of the Admin Re® US business. Excluding this loss, the 2012 net income would have been USD 582 million. The decrease in underlying income in 2013 was primarily due to lower revenues following the sale of the Admin Re® US business and less favourable tax credits than in 2012.
Investment result
The return on investments for 2013 was 5.1%, compared to 4.9% in 2012. As the portfolio is primarily comprised of fixed income assets, the result for 2013 was driven by net investment income on corporate and government bonds. Re-balancing of the portfolio from government bonds to corporate bonds also led to realised gains, which contributed positively to the return on investments.
Overall investment-related net investment income decreased by USD 345 million to USD 889 million in 2013, primarily due to lower income following the sale of the Admin Re® US business, partially offset by the impact of portfolio re-balancing.
Total investment-related net realised gains were USD 283 million in 2013, mainly as a result of gains from the sale of government bonds related to the re-balancing of the investment portfolio. This compares to USD 270 million in the prior year.
Expenses
Administrative expenses decreased by USD 16 million to USD 441 million in 2013, primarily driven by lower costs following the sale of the Admin Re® US business, partly offset by one-off transaction-related costs incurred in 2013.
Return on equity
The return on equity was 6.8% for 2013 compared to 2.6% for 2012. The 2012 return on equity included 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 would have been 7.7% for 2012.
Shareholdersʼ equity
Shareholders’ equity decreased by USD 0.9 billion to USD 5.8 billion compared to 31 December 2012. The reduction mainly reflects lower unrealised gains, driven by increasing interest rates in the UK and the US during 2013. The increase related to net income was broadly offset by the USD 357 million dividends paid to the Group in 2013.
Outlook
Admin Re® aims to pursue selective growth opportunities in the UK, taking advantage of its unique and scalable platform. All transactions must meet Group investment criteria and hurdle rates. It also aims to improve efficiency, achieve capital and tax synergies, and to actively manage its asset portfolios and blocks of business. Through these actions Admin Re® aims to generate USD 850–950 million in cash from 2014 to 2016, and to pay dividends of USD 900 million to the Group in the same period.