Swiss Re makes another loss

Swiss Re announced a net loss of CHF381m for the second quarter of 2009 against a profit of CHF564m the previous year.

It gave three reasons:

• Losses on hedges on corporate bonds of CHF1.1.bn
• Impairments of CHF0.6bn, primarily on securitised products.
• US accounting rules require Swiss Re to record the effects of its own credit spreads in certain financial liabilities cutting CHF431m

Property & Casualty good

• P&C operating income CHF1.0bn (CHF0.9bn)
• Combined ratio 89.4% - or 87.6% excluding unwind of discount (91.0% - or 89.0%)
• Life & Health operating loss CHF10m (profit of CHF535m)

Successful renewals

Swiss Re said: “Conditions in the reinsurance market continued to improve in the second quarter of 2009. Swiss Re sees the strongest immediate improvements taking place in some life segments, especially the US, and many natural catastrophe markets. In several other segments, the softness of the market has slowed but has not yet really reversed.

“In the July 2009 Property & Casualty renewals, Swiss Re achieved a rate increase of 4%, reflecting the shift in its reinsurance portfolio from Casualty lines towards more profitable Property non-proportional business, as well as a gradual hardening of the market.

“More importantly, though, the company succeeded in raising long-term price adequacy. Overall, the renewals in the first six months of 2009 demonstrated that Swiss Re’s client franchise is strong and that the company has sufficient capacity to provide the capital relief its clients need.

Strong underwriting results

Stefan Lippe, Swiss Re’s chief executive officer, said: “During the second quarter of 2009, our core business, despite the reported loss, continued to deliver strong underwriting results and solid earnings power.

“Most importantly, the measures we implemented to improve our capital base have proven to be effective, considerably increasing our excess capital at the AA level. We have also made significant progress in de-risking Legacy with the termination of substantially all of our portfolio credit default swap contracts.

“This powerful combination increases our confidence in delivering on our targets.”

Outlook

The company said: “Swiss Re has succeeded in increasing its capital strength and remains a strong partner for its clients. For Property & Casualty, the company expects further modest rate increases. The company is likely to surpass its combined ratio target of 95% for the underwriting year, provided that natural catastrophe events remain within expectations.

“However, the economic environment remains uncertain and the company’s investment and Legacy portfolios remain exposed to market volatility. The financial market volatility and the shift towards lower risk investments, which allowed Swiss Re to reduce its exposures significantly, may adversely impact future earnings.

Lippe said: “We believe the underlying operating trends are positive and we have the ability to allocate significant capacity to lines of business that offer an appropriate return on our capital.”