Life Capital
Life Capital accelerated its transition to a dynamically growing, digital B2B2C business, creating improved access to risk pools.
Strategy and priorities
During 2019, Life Capital further accelerated its transition to a dynamically growing, digital B2B2C business.
2019 was a pivotal year for Life Capital. With the agreement to sell ReAssure, we took a definitive step in our transition to a B2B2C business focused on making insurance more accessible and affordable for people globally – both through our digital platform iptiQ and our Group Life & Health business, elipsLife.
Thierry Léger
CEO Life Capital
A significant step in this transformation was the agreement to sell Life Capital’s UK closed book business, ReAssure, to Phoenix Group Holdings plc. As previously communicated, Swiss Re’s goal has been to deconsolidate ReAssure by reducing its ownership below 50%. The transaction, which is expected to close in mid-2020, subject to regulatory and antitrust approvals, valued ReAssure at GBP 3.25 billion. Earlier in the year, ReAssure agreed to acquire the UK closed book business of Quilter plc, adding over 0.2 million customer policies and GBP 12 billion of assets to ReAssure’s platform. This transaction closed on 31 December 2019.
In the open book business, Life Capital continues to use technology to enable both elipsLife and iptiQ to achieve efficiencies and profitable growth and focuses on expanding both platforms globally. In 2019, the strong growth in these businesses continued, with gross written premiums increasing 22% year-on-year when measured at constant exchange rates.
Steady growth in elipsLife’s mature markets allowed the business to expand into new markets, including the US. Meanwhile, iptiQ expanded into property & casualty personal lines in Europe. By the end of 2019, iptiQ had onboarded 29 partners, providing protection to more than 377 000 customers globally, and leading to an estimated valuation of USD 1–1.5 billion.
Life Capital made the first steps towards expanding into Asia in 2019, where significant potential for future growth is expected.
Performance
In 2019, Life Capital reported a net loss of USD 177 million, including a USD 0.2 billion charge in connection with the agreement to sell ReAssure. Excluding this charge, net income was USD 53 million, an increase from USD 23 million in 2018. The current year result benefited from strong investment results, partially offset by expenses related to the separation of ReAssure into a standalone group and operating costs arising from the continued growth in the open book businesses.
The net operating margin in 2019 was 2.4%, compared with 3.9% in the prior year, in line with movements in income.
Life Capital generated significant gross cash of USD 1.1 billion in 2019, compared with USD 818 million in the prior year. The gross cash generated in 2019 was mainly driven by the proceeds from the sale of subordinated bonds issued by ReAssure and a 10% stake sale in ReAssure to MS&AD Insurance Group Holdings Inc, partially offset by the impact of ReAssure recapitalisation ahead of separation. Consistent with the transition of Life Capital, the Group will no longer disclose the gross cash generation for 2020 and beyond.
Life Capital paid a dividend of USD 0.5 billion to the Group in October 2019.
Premiums
Gross premiums written in the open book businesses increased by 22% during 2019 when measured at constant exchange rates. Net premiums earned and fee income increased to USD 2.1 billion during 2019 from USD 1.6 billion in the prior year, driven by growth in the open book life and health insurance businesses, combined with the net impact of intra-group retrocessions and foreign exchange movements.
USD millions |
2018 |
2019 |
Change in % |
|---|---|---|---|
Revenues |
|
|
|
Gross premiums written |
2 739 |
2 831 |
3 |
Net premiums written |
1 175 |
1 780 |
51 |
Change in unearned premiums |
–3 |
–82 |
– |
Premiums earned |
1 172 |
1 698 |
45 |
Fee income from policyholders |
434 |
451 |
4 |
Net investment income – non-participating business |
1 256 |
1 193 |
–5 |
Net realised investment gains/losses – non-participating business |
66 |
18 |
–73 |
Net investment result – unit-linked and with-profit business |
–1 560 |
4 821 |
– |
Other revenues |
– |
1 |
– |
Total revenues |
1 368 |
8 182 |
498 |
|
|
|
|
Expenses |
|
|
|
Life and health benefits |
–1 489 |
–2 500 |
68 |
Return credited to policyholders |
1 038 |
–4 471 |
– |
Acquisition costs |
–255 |
–409 |
60 |
Operating expenses |
–549 |
–721 |
31 |
Total expenses before interest expenses |
–1 255 |
–8 101 |
– |
|
|
|
|
Income before interest and income tax expense |
113 |
81 |
–28 |
Interest expenses |
–41 |
–72 |
76 |
Income before income tax expense |
72 |
9 |
–88 |
Income tax expense |
–26 |
–133 |
– |
Net income/loss before attribution of non-controlling interests |
46 |
–124 |
– |
Income attributable to non-controlling interests |
–23 |
–53 |
130 |
Net income/loss attributable to common shareholders |
23 |
–177 |
– |
Investment result
The return on investments was 3.7% for 2019, compared with 3.3% in 2018, reflecting an increase in the investment result of USD 57 million.
Net investment income decreased by USD 57 million to USD 787 million in 2019, mainly due to run-off within the closed book portfolios.
Net realised gains increased by USD 114 million to USD 191 million in 2019, reflecting additional gains from sales of fixed income securities, partially offset by equity and interest rate derivative losses.
Insurance-related investment results as well as foreign exchange gains/losses are not included in the figures above.
Operating expenses
Operating expenses were USD 721 million in 2019, compared with USD 549 million in 2018. The increase was due to expenses related to the separation of ReAssure and investment into the growth of the open book businesses.
Shareholdersʼ equity
Shareholdersʼ equity increased by USD 0.2 billion to USD 5.3 billion, mainly driven by increased unrealised gains, partially offset by the net loss and the USD 0.5 billion dividend paid in 2019. The return on equity was –3.4% for 2019, compared with 0.4% for 2018. The year-on-year decrease was due to lower net income in 2019 including the charge in connection with the agreement to sell ReAssure.
Outlook
Life Capital’s ambition is to increase access to the primary insurance risk pool through its fast growing B2B2C digital platform iptiQ and its Group L&H business elipsLife. The Business Unit applies leading-edge technology and smart use of data to offer affordable insurance products to more consumers. Life Capital’s operations span Europe, the US, Australia, New Zealand, and going forward also China.
At present the scale and impact of the SARS-CoV-2 coronavirus outbreak does not appear to be great enough to cause significant mortality or morbidity impacts, but the situation is still changing rapidly. However, the Business Unit anticipates impacts on new policies written in some markets as sales activity is affected. Life Capital is closely monitoring this as the situation continues to unfold.