Swiss Re Reports Net Gain But Underwriting Loss Due to Disaster Claims

August 8, 2013 by Carolyn Bandel

Swiss Re Ltd., the world’s second- biggest reinsurer, reported its first quarterly underwriting loss since 2011 after a surge in claims from natural catastrophes and man-made disasters.

The combined ratio worsened to 100.1 percent in the second quarter from 85.7 percent a year ago, the Zurich-based company said today. A ratio above 100 percent means claims and costs exceed premium income, leaving a loss from underwriting. Net income rose more than ninefold to $786 million after year- earlier losses on the sale of its U.S. Admin Re unit.

The underwriting loss came after “above average” large losses, including claims of more than $550 million from floods in central Europe and Canada and a landslide in Utah, Swiss Re said. That was partly offset by a one-time tax credit of $134 million, the reinsurer said.

“Net income was bolstered by a large tax credit, but investors may be disappointed by the property/casualty operating profit, which was impacted by a large number of smaller catastrophes and man-made losses,” said Daniel Bischof, a Zurich-based analyst with Helvea with a neutral recommendation on Swiss Re stock.

Swiss Re fell as much as 2.4 percent and was down 1.3 percent to 71.50 francs at 10:03 a.m. in Zurich trading, paring this year’s gain to 8.5 percent. That compares with a 17 percent gain for the 30-company Bloomberg Europe 500 Insurance Index and a 6.4 percent increase for Munich Re, the world’s biggest reinsurer.

Tax Benefit

Munich Re posted a 35 percent drop in second-quarter profit earlier this week after claims from the June floods in central Europe of about 230 million euros ($307 million). Swiss Re reported European flood claims of about $300 million.

Swiss Re posted a tax benefit in the quarter after an expense of $437 million in the year-earlier period.

“The group results in the second quarter of 2013 reflected the impact of several natural catastrophes and man-made losses on the underwriting result, partially offset by one-time tax benefits,” Swiss Re said in the statement.

Reinsurers, which help primary insurers such as Allianz SE and Axa SA shoulder risks in return for a share of the premiums, face challenges from low interest rates and an abundant supply of capital. Even with the recent European flooding, catastrophe claims remain below average, weighing on demand for reinsurance coverage.

Rate Pressure

Swiss Re said prices at contract renewals in July, which cover about 20 percent of its annual reinsurance treaty premiums, were about 5 percent lower than a year earlier. Renewal premium volumes for July, which focus on the Americas, Australia and New Zealand, were 12 percent higher, the company said.

The rates reinsurers charge may remain under pressure throughout the year because of an influx of capital to alternative forms of disaster coverage, such as catastrophe bonds, reinsurance broker Guy Carpenter & Co. said in a report last month.

Profit at Swiss Re’s reinsurance unit declined 37 percent to $609 million in the quarter from a year earlier, with net income at its property and casualty business dropping 35 percent to $468 million.

Total net income jumped from $83 million in the year- earlier period, when the reinsurer booked a $1 billion loss from the sale of its U.S. Admin Re business to Prudential Plc. Profit in the second quarter of this year beat the $631.8 million mean estimate of six analysts surveyed by Bloomberg.

Editors: Dylan Griffiths, Simone Meier