Swiss Re’s investment portfolio provided an excellent contribution in 2019, despite headwinds from the declining interest rate environment. Fundamentally, the portfolio performed well with no material impairments alongside gains generated from the fixed income portfolio and strong equity performance. Overall, Swiss Re’s asset allocation changed only moderately during 2019, with a modest reduction in corporate bond exposure and continued deployment in private debt as well as real estate. We continue to systematically incorporate ESG across the entire investment value chain. As in the past, the Group remains flexible should there be a change in the investment outlook or if market opportunities arise.
Asset management delivered excellent value to the Group, supported by a high quality investment portfolio.Guido Fürer
Group Chief Investment Officer
Financial markets overview
Financial markets started 2019 on a strong note amid the central bank shift to looser monetary policy early in the year. This turn in policy stance was mainly driven by worsening market conditions coupled with weaker economic data, in particular slowing global trade and manufacturing activity.
Looking at specific asset classes, government bond yields declined significantly across multiple regions in 2019. In August 2019, the US Treasury yield curve briefly inverted for the first time since 2007 and sovereign bond yields hit all-time lows in various countries, with further expansion of negative-yielding debt. Equities rose sharply throughout 2019 following the large declines at the end of the prior year, predominantly due to the accommodative monetary policy. The S&P 500 index hit all-time highs and ended the year up 29%, further supported by optimism regarding the US-China “phase one” trade deal. Investment-grade corporate credit spreads tightened notably during the year.
In the global macroeconomic environment, growth weakened in 2019 as trade activity slowed and the manufacturing sector contracted. Meanwhile, inflationary pressures have remained muted. Finally, the US-China trade dispute dominated geopolitics throughout the year, while the prospect of Brexit added to the political uncertainty in Europe.
The Group’s investment portfolio, excluding unit-linked and with-profit investments, increased to USD 134.5 billion at the end of 2019, from USD 122.6 billion at the end of 2018. The increase was largely driven by the impact of declining interest rates and credit spread tightening as well as favourable foreign exchange movements. The return on investments for 2019 was 4.7%.
The result was primarily driven by net investment income as well as gains within the fixed income portfolio and performance from equity securities, reflecting the Group’s strong overall investment portfolio position. In 2018, the return on investments was 2.8%. The Group’s non-participating net investment income increased to USD 4.2 billion in 2019 from USD 4.1 billion the prior year, demonstrating the stability of the recurring investment income. The Group’s running yield was largely unchanged at 2.8% from 2.9% in the prior year, alongside declining yields.
The Group reported non-participating net realised investment gains of USD 1.6 billion in 2019, compared with USD 0.1 billion in 2018, as the current year benefited from significant market value gains within the equity portfolio, as well as additional gains from sales within the fixed income portfolio.
Global economic growth is expected to slow significantly in 2020 due to the SARS-CoV-2 coronavirus pandemic, with several G7 countries at risk of recession during the year. Central banks are likely to cut policy rates further and stay very accommodative in this environment of elevated uncertainty. The US Federal Reserve has already enacted two surprise interest rate cuts for a total of 150bp in March. On the policy front, the attention is also on the fiscal policy responses that are currently being discussed.
Besides the rapidly evolving coronavirus situation, other important themes for 2020 include the continued trade policy uncertainty and the US presidential elections.
Our investment portfolio remains well diversified across investment classes, with a continued focus on quality and ESG criteria. We plan to moderately increase our allocation to private markets, including investments in private debt and real estate, which will further diversify the overall investment portfolio.
Net investment income in USD billions, 2019
(2018: USD 4.1 billion)
Group return on investments 2019
Group running yield 2019