Corporate Solutions
Corporate Solutions’ results were impacted by decisive management actions to reposition the business and strengthen reserves. The result was also affected by large and medium-sized man-made losses, mainly from the prior accident years related to the recent deterioration in US casualty.
Corporate Solutions’ results were impacted by decisive management actions to reposition the business and strengthen reserves. The result was also affected by large and medium-sized man-made losses, mainly from the prior accident years related to the recent deterioration in US casualty.
2019 was a difficult year for Corporate Solutions. However, we are actively managing risk exposure and correcting the price deficiencies to ensure a more focused and profitable portfolio going forward.
Andreas Berger
CEO Corporate Solutions
Strategy and priorities
As communicated with half-year 2019 results, Corporate Solutions has carried out a strategic review of its portfolio to address recent underperformance. In addition to increasing reserves and reinsurance protection, decisive management actions include portfolio pruning measures to ensure a more focused and profitable portfolio going forward. Portfolio repositioning, together with efficiency improvements and accelerated momentum in insurance rates, will help Corporate Solutions return to underwriting profitability with an estimated normalised combined ratio of 105% in 2020. The target normalised combined ratio for 2021 remains 98%.
Performance
Net loss was USD 647 million in 2019 with a net operating margin of –16.7%, compared with a net loss of USD 405 million in 2018 with a net operating margin of –11.1% for the previous period. The 2019 result reflected management actions to address underperformance and increased claims in US casualty business. It was also impacted by a high frequency and severity of large and medium-sized man-made losses, mainly from the prior accident years, with a claims burden of USD 1.1 billion. The investment result was higher year-on-year, mainly due to realised gains from sales of fixed income securities and market value gains on equity securities. The 2019 result was supported by higher realised gains from insurance in derivative form. From 1 July 2019, Corporate Solutions entered into an Adverse Development Cover (ADC) with Property & Casualty Reinsurance to protect accident years 2012–2018 across its portfolio.
Premiums
Net premiums earned were USD 4.2 billion in 2019, an increase of 6.1% year-on-year, driven by significant rate increases and growth in many lines of business, which more than offset the active pruning of several portfolios, including US general liability. Gross premiums written increased by 6.0% to USD 5.0 billion in 2019.
USD millions |
2018 |
2019 |
Change in % |
|---|---|---|---|
Revenues |
|
|
|
Gross premiums written |
4 694 |
4 974 |
6 |
Net premiums written |
4 122 |
4 253 |
3 |
Change in unearned premiums |
–197 |
–87 |
–56 |
Premiums earned |
3 925 |
4 166 |
6 |
Net investment income |
207 |
234 |
13 |
Net realised investment gains/losses |
16 |
162 |
– |
Other revenues |
3 |
5 |
67 |
Total revenues |
4 151 |
4 567 |
10 |
|
|
|
|
Expenses |
|
|
|
Claims and claim adjustment expenses |
–3 241 |
–3 900 |
20 |
Acquisition costs |
–607 |
–640 |
5 |
Operating expenses |
–763 |
–788 |
3 |
Total expenses before interest expenses |
–4 611 |
–5 328 |
16 |
|
|
|
|
Loss before interest and income tax expense |
–460 |
–761 |
65 |
Interest expenses |
–24 |
–40 |
67 |
Loss before income tax expense |
–484 |
–801 |
65 |
Income tax expense/benefit |
75 |
143 |
91 |
Net loss before attribution of non-controlling interests |
–409 |
–658 |
61 |
Income attributable to non-controlling interests |
4 |
11 |
175 |
Net loss attributable to common shareholders |
–405 |
–647 |
60 |
|
|
|
|
Claims ratio in % |
82.6 |
93.6 |
|
Expense ratio in % |
34.9 |
34.3 |
|
Combined ratio in % |
117.5 |
127.9 |
|
Combined ratio
The Business Unit’s combined ratio increased to 127.9% in 2019 from 117.5% in 2018, mainly due to large and medium-sized man-made losses from prior accident years and reserve increases as part of the management actions taken in 2019.
Lines of business
The property combined ratio for 2019 improved by 1.3 percentage points to 116.6%, driven by lower natural catastrophe losses, partially offset by higher man-made losses.
The casualty combined ratio increased to 137.6% in 2019, mainly as a result of adverse prior-year development. The casualty combined ratio includes the full recovery from the ADC, as the majority of the reserves covered under the ADC agreement are casualty reserves.
The specialty combined ratio for 2019 deteriorated by 22.7 percentage points to 129.2%, impacted by higher large losses, including the compulsory liquidation of Thomas Cook in the third quarter.
Investment result
The return on investments was 3.4% for 2019, compared with 2.1% in 2018, reflecting an increase in the investment result of USD 124 million.
Net investment income increased by USD 16 million to USD 240 million in 2019, mainly due to a higher running yield.
Net realised gains were USD 84 million, up from net realised losses of USD 24 million in 2018. The current year result benefited from realised gains from sales of fixed income securities and market value gains on equity securities.
Insurance-related derivative results and foreign exchange gains/losses are not included in the investment figures.
Corporate Solutions offers insurance protection against weather perils and other risks, which is accounted for as derivatives. Insurance in derivative form reported net realised gains of USD 89 million in 2019, compared with USD 30 million in 2018.
Shareholdersʼ equity
Shareholdersʼ equity increased to USD 2.0 billion since the end of 2018, due to the Group’s injection of USD 600 million capital in the second quarter of 2019 and unrealised investment gains, partly offset by the net loss for the period.
The return on equity was –34.1% in 2019, compared with –19.4% in 2018.
Outlook
Market momentum substantially accelerated throughout 2019. Terms and conditions tightened in parallel. Swiss Re expects the positive momentum in commercial insurance rates to continue after achieving a broad-based 12% price quality increase in 2019 (17% in the fourth quarter), which we expect will have a positive effect on the Business Unit’s profitability. Further rate hardening is required until the price level is sufficient across all lines of business. Corporate Solutions expects to realise the benefits from the 2019 management actions in its financial results in 2020 and 2021.
Swiss Re is closely monitoring the developments of the current SARS-CoV-2 coronavirus pandemic. Depending on future developments, Corporate Solutions may see an impact in certain lines of business, including credit & surety, property and other specialty lines.