Swiss Re reported a full-year 2019 net income of USD 727 million, driven by a strong Life & Health Reinsurance result and excellent investment performance.
Strategy and priorities
Swiss Re’s purpose is to make the world more resilient and act as the ultimate shock absorber for societies and communities. We collect premiums and risk from all over the world, diversify the risks on our balance sheet and pay out claims to those who have been hit by catastrophes. Our business strategy is centred around diversifying our access to risk pools by leveraging our risk knowledge, unique client access and capital strength to achieve our financial targets and create sustainable value for all stakeholders.
Our 2019 results were impacted by heavy natural catastrophe losses, our decisive management actions to reposition Corporate Solutions and increased claims in US casualty. On the other hand, we delivered an excellent investment result and strong performance in L&H Re, demonstrating the power of our diversified business model.Christian Mumenthaler
Group Chief Executive Officer
The Reinsurance Business Unit remains the core engine of profitability, delivering a market-leading combination of shareholder returns and capital repatriation for the Group. Long-term performance of Property & Casualty Reinsurance (P&C Re) remains strong, despite significant natural catastrophe claims in recent years. Life & Health Reinsurance (L&H Re) is delivering peer-leading returns underpinned by global diversification and strong growth in Asia. In line with our strategy, we are profitably expanding our Reinsurance business through our capabilities in underwriting large transactions and providing innovative solutions. At the same time, we are also accessing corporate and retail market risk directly, through our Corporate Solutions and Life Capital Business Units, respectively. Asset Management is consistently generating attractive returns while taking an industry-leading approach focused on Environmental, Social and Governance (ESG) criteria, leveraging our financial markets expertise and benefiting from our flexible investment platform built on the latest technology and advanced analytics.
An integral part of the Group strategy relies on monetising our research and development (R&D) capabilities, thereby cementing Swiss Re’s position as the leading risk knowledge company. We are running 80 R&D programmes with 450 dedicated FTEs and investing about USD 300 million a year in key technology projects. The aim is to strengthen Swiss Re’s proprietary risk knowledge and to advance our capabilities to enter new risk pools, compete and advise. In particular, platforms such as iptiQ, the digital B2B2C business, and Magnum, the leading automated underwriting solution for L&H Re, are becoming a significant business driver.
In Corporate Solutions, we took decisive management actions in 2019 to return this business to profitability. These measures included cost cutting, reserve strengthening, as well as a reduction in risk exposures in specific lines of business. Portfolio repositioning will allow Corporate Solutions to focus on selected profitable segments, where we are seeing an improving price environment. The next steps in business transformation will focus on de-commoditisation of its core portfolio, selective growth with differentiating capabilities such as innovative risk solutions and expansion through tech-driven initiatives.
Life Capital is successfully transitioning to a dynamically growing, digital B2B2C business. In line with our objective to deconsolidate our UK subsidiary ReAssure, Swiss Re entered into an agreement to sell this closed-book business to Phoenix Group Holdings plc in December 2019. The transaction has a compelling strategic rationale and valued ReAssure at GBP 3.25 billion. The sale is expected to close in mid-2020, subject to regulatory and antitrust approvals. We also continue to expand our open book businesses. In particular, iptiQ is developing dynamically and averaged more than 4 000 policy sales a week, with significant expansion opportunities geographically.
Swiss Re reported net income of USD 727 million for the year, compared with USD 421 million for 2018, driven by strong L&H Re results and excellent investment performance. The Group’s property and casualty businesses were impacted by natural catastrophes and man-made losses, as well as ongoing trends in US casualty business. The Group’s net operating margin1 increased to 3.4% compared with 2.9% in the prior year.
Reinsurance generated a net income of USD 1.3 billion, compared with USD 1.1 billion in 2018. P&C Re reported a net income of USD 396 million in 2019, up from USD 370 million in 2018. The current year’s result benefited from profitable business growth and a very strong investment result, while both years were adversely impacted by large natural catastrophe losses.
Net investment income in USD billions, 2019
(2018: USD 4.1 billion)
Group return on investments, 2019
Claims in 2019 primarily stemmed from Typhoon Hagibis and Typhoon Faxai in Japan, Hurricane Dorian in the Atlantic, and wildfires, floods and hailstorms in Australia, as well as losses from the Ethiopian Airlines crash and the subsequent grounding of the Boeing 737 MAX fleet. The result was further impacted by late claims development from Typhoon Jebi. The net operating margin decreased slightly to 3.8% in 2019 from 4.3% in 2018.
L&H Re contributed a net income of USD 899 million in 2019, up from USD 761 million in 2018. The underwriting result included a negative adjustment to the carrying value of an existing treaty, which had to be fair valued following the acquisition of Old Mutual Wealth Life Assurance Limited by ReAssure from Quilter plc. This was partially offset by active portfolio management and improved mortality development in the Americas. The net operating margin increased to 10.0% in 2019 from 9.4% in the previous year.
Corporate Solutions incurred a net loss of USD 647 million in 2019, compared with a net loss of USD 405 million in 2018. The current year’s result reflected management actions to reposition the business and large and medium-sized man-made losses, mainly from prior accident years related to the recent deterioration in US casualty. The net operating margin was –16.7% and –11.1% for 2019 and 2018, respectively.
Life Capital reported a net loss of USD 177 million in 2019, compared with a net income of USD 23 million in 2018, mainly due to a charge related to the agreement to sell ReAssure. Excluding this one-time accounting impact, net income rose to USD 53 million, Life Capital’s net operating margin declined to 2.4% in 2019 from 3.9% in 2018.
Shareholders’ equity, excluding non-controlling interests, increased to USD 29.3 billion at the end of 2019, up from USD 27.9 billion at the end of 2018. The rise was mainly driven by net income of USD 0.7 billion and unrealised gains on fixed income securities of USD 3.2 billion, partially offset by a payment to shareholders of USD 2.6 billion for the 2018 regular dividend and the share buyback programmes.
Swiss Re achieved a return on equity (ROE) of 2.5% for 2019, compared with an ROE of 1.4% in 2018.
Earnings per share for 2019 were USD 2.46 or CHF 2.46, compared with USD 1.37 or CHF 1.34 for 2018.
Book value per share stood at USD 100.64 or CHF 97.46 at the end of 2019, compared with USD 93.09 or CHF 91.72 at the end of 2018. Book value per share is based on shareholders’ equity and excludes non-controlling interests.
Net premiums earned and fee income for the Group amounted to USD 38.6 billion for 2019, an increase of 12.0% year-on-year. At constant exchange rates, net premiums earned and fee income increased by 15.0%.
Gross premiums written increased by 16.0% to USD 42.2 billion in 2019, driven primarily by growth in P&C Re.
P&C Re contributed USD 19.3 billion of net premiums earned in 2019, up 19.8% from USD 16.1 billion in 2018, reflecting large transactions and growth in the natural catastrophe business. At constant exchange rates, net premiums earned increased by 23.0% year-on-year.
The P&C Re combined ratio increased to 107.8% in 2019 from 104.0% in the prior year, mainly due to unfavourable prior-year development and a higher large loss burden.
L&H Re net premiums earned and fee income increased 1.3% to USD 13.0 billion, affected by unfavourable foreign exchange movements and the termination of an intragroup retrocession agreement with Life Capital. At constant exchange rates, premiums earned and fee income increased by 4.5%.
Corporate Solutions net premiums earned were USD 4.2 billion for 2019, up 6.1% from the previous year, as double-digit rate increases and growth in targeted lines of business more than offset the impact from active pruning of selected underwriting portfolios. At constant exchange rates, net premiums earned increased 7.3% year-on-year. The Corporate Solutions combined ratio was 127.9% in 2019, compared with 117.5% in the previous year, mainly due to exceptionally severe and frequent large- and medium-sized man-made losses from prior accident years and reserve increases.
Net premiums earned and fee income for Life Capital increased to USD 2.1 billion in 2019 from USD 1.6 billion in the prior year, driven by growth in the open book life and health insurance business and the termination of an intra-group retrocession agreement with L&H Re. Life Capital continued to generate significant gross cash2 amounting to USD 1.1 billion in 2019, compared with USD 818 million in 2018.
Investment result and expenses
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 investment (ROI) was 4.7% for 2019, compared with 2.8% in 2018, reflecting strong equity market performance, as well as additional gains within the fixed income portfolio.
The Group’s non-participating net investment income increased to USD 4.2 billion in 2019 from USD 4.1 billion in the prior year, demonstrating the stability of the recurring investment income.
The Group reported non-participating net realised investment gains of USD 1.6 billion in 2019, compared with USD 0.1 billion in 2018. The increase was primarily due to the contribution from equity securities and additional gains on sales of fixed income securities.
Acquisition costs for the Group amounted to USD 7.8 billion in 2019, up from USD 6.9 billion in 2018, driven primarily by growth in P&C Re.
Operating expenses were USD 3.6 billion in 2019, compared with USD 3.4 billion in 2018. The year-on-year increase of 4.3% was primarily driven by expenses related to the suspended initial public offering of and subsequently, the agreement to sell ReAssure.
Interest expenses increased by 6.1% to USD 589 million in 2019 from USD 555 million in the prior year.
The Group reported a tax charge of USD 140 million on a pre-tax income of USD 909 million for 2019, compared with a tax charge of USD 69 million on a pre-tax income of USD 550 million for 2018. This translated into an effective tax rate in the current and prior-year reporting periods of 15.4% and 12.5%, respectively. The tax rate in 2019 was largely driven by tax benefits from effective settlement of tax audits and tax-exempt income, partially offset by tax charges from other income-based taxes and non-deductible expenses.
1 Net operating margin is calculated as ”Income before interest and income tax expense” divided by ”Total revenues” excluding ”Net investment result – unit-linked and with-profit business”.
2 Gross cash generation is the estimated net cash arising from business activity within the Life Capital Business Unit during the reporting period taking into account both surplus development and certain capital actions. It is calculated gross across both Swiss Re’s and MS&AD Insurance Group Holdings Inc’s interest in ReAssure.