Swiss Re profits treble to $2.6bn

Swiss Re trebled its profits in 2011 despite a year of unprecedented natural catastrophes for the insurance industry.

The Swiss reinsurer reported an income of $2.6bn (£1.6bn) after tax last year (2010: $863m) as underlying performance continued to improve and the company benefited from a low tax rate.

But the prior year result included a charge for the redemption of the convertible perpetual capital instrument issued to Berkshire Hathaway.

The main driver was asset management with an operating income of $5bn (2010: $4.5bn) and a 5.1% return on investments (2010: 3.5%) as a result of realised gains on government bonds, higher net investment income from purchases and lower impairments during the year.

The company also reduced its exposure to debt issued by peripheral eurozone countries to $59m at year-end versus $74m at the end of September 2011 with no exposure to Greek sovereign debt for the year.

Significant events in Asia, Australia, New Zealand and the USA and reduced investment income took their toll on Swiss Re over the 12-month period as the company’s property and catastrophe income dropped 48.1% to $1.3bn from $2.5bn the previous year.

This was partly offset by reserve releases of around $1.3bn.

The company’s combined ratio also deteriorated to 101.6% in 2011 from 93.9% in 2010, reflecting the natural catastrophe burden which contributed to 29.6 percentage points.

The company’s life and health segment suffered a 40% decline in operating income to $464m last year from $810m in 2010 as evidenced by the volatility in the financial market and increased costs in Admin Re from the strategic realignment of the business to the new structure. The benefit ratio meanwhile was up 0.8 percentage points at 87.9%.

Swiss Re group chief executive Michel Liès said: “With a successful year behind us and a modest but broad market turn underway, Swiss Re is well positioned to perform and grow in a low-yield environment. Our risk management has proven robust in 2011 with strong Group and P&C results, as well as the excellent performance of our asset management portfolio in challenging markets.

“This solid foundation, combined with unique growth opportunities, means that we are positioned well heading into 2012. We will further capture excellent opportunities in P&C reinsurance and corporate solutions, while focusing on the profitable development of our L&H business, including high-growth markets.”

The reinsurer, which focused on its core strengths of underwriting and asset management, and strategy implementation, said that it had made big strides towards achieving its 2011-15 financial targets with a 9.6% return on equity (2010: 3.6%). It was now well-positioned to outperform and take advantage of unique growth opportunities in 2012, including the 25% growth offered by the expiry of the quota share agreement with Berkshire Hathaway at the end of this year.

Shareholders’ equity rose by $4.3bn to $29.6bn for the year, due in part to a $3.2bn increase in unrealised gains driven by declining interest rates on government bonds.

Book value per share also increased to $86.35 at the end of December 2011 from $81.20 at the end of September 2011.

At the end of 2011, Swiss Re held excess capital of more than $7bn.

The reinsurer’s January property and catastrophe renewals showed a 20% premium growth across all regions with an estimated combined ratio of 94% for 2012.

The company has also announced the promotion of Matthias Weber to group chief underwriting officer effective from April 1, 2012. Weber, who joins the group executive committee, will step up from the role of division head of property and specialty reinsurance.

In addition, reinsurance Asia chief executive and regional president Asia Martyn Parker will take over as the chairman of global partnerships from Liès and join the group management board. Moses Ojeisekhoba will assume Parker’s current role on March 15, 2012.

Swiss Re has proposed a dividend of SFr3 (£2.10) for 2011.

For full annual results coverage, visit our Results Special page.