Swiss Re’s Dacey: Confidence in FY24 targets bolstered by low H1 cat claims

Swiss Re CFO John Dacey has said the reinsurer remains confident it will meet its “ambitious” full-year targets on the back of positive headwinds during H1, including a relatively benign nat cat experience and better-than-expected investment results.

On Thursday, Swiss Re reported net profit of $996mn for the second quarter, ahead of company-compiled consensus of $925mn.

The result was driven by a P&C Reinsurance combined ratio of 84.4 percent for the quarter, within Swiss Re’s full-year target of 87 percent or below.

“We look forward to meeting all of the financial targets that we’ve got for the full year. We have been helped by a few things in the first half, we recognise that. But the achievement of $3.6bn of net income for the full year is clearly within our sights,” said Dacey on a media call.

“I do believe the targets are ambitious, but I think it’s important to recognise that we’ve had the benefit of a very benign nat cat experience for Swiss Re in the first half of this year, as well as a probably slightly better-than-expected investment result as the fixed income yields have remained relatively high compared to what people might have thought as of 1 January.”

Swiss Re reported just two nat cat events above its $20mn large loss threshold in Q2 – flooding in Brazil and the UAE, with claims notifications continuing to be reported.

Other events that occurred in the first half of the year that did not exceed Swiss Re’s large loss threshold include convective storms in continental Europe and the US, and the Taiwan earthquake.

“All of these are important for the primary industries – we’ve said in Swiss Re Institute that total insured claims in H1 were at $60bn, that’s probably 50 percent above the 10-year average,” said Dacey.

“But, at least at the moment, the attachment points for Swiss Re, thanks to the underwriting teams, have kept us off of most of these risks. We remain exposed for truly large catastrophes like the Baltimore bridge.”

The other driver of Swiss Re’s positive performance in H1 was a better-than-expected investment result.

“The asset allocation over the first six months of the year has not changed very much,” Dacey explained. “You’ll see total assets down by $2bn, that’s actually very similar to the amount of dividends that we paid in Q2.”

He added: “The shift of the business away from casualty will, over time, result in a more contained P&C asset base. But we’re comfortable with that, given the relative risk-reward trade-off in the casualty lines versus the shorter-tail property lines for which we hold fewer assets.”

Reserve strengthening

Low reported nat cat claims in property and specialty lines were partially offset by selected additions across both nat cat and man-made loss reserves, the large majority of which were for IBNR, as well as on specific casualty lines.

This included $650mn of reserve strengthening in US liability over the six-month period.

“We’ve gotten some notifications from primary companies about some losses that have either come through or become larger than originally expected. But, overall, the IBNRs of this casualty book have increased during this reinforcement of the reserves,” Dacey explained.

“We’re continuing to build resiliency to ensure that we have what we need for covering ultimate cost in what is a challenging part of the US insurance market. We’re comfortable where we are at mid-year. I think it’s pretty obvious with these kind of significant additions that we’re in better shape, and our ability to absorb bad news continues to increase.”

Previous reserve strengthening over 2022 and 2023 was focused on the life and health (:&H) portfolio, particularly mortality reserves in anticipation of lingering Covid-related impacts in insurance portfolios.

“We continue to watch very closely what the long-term impact of Covid has been on our portfolio – what long Covid means, and what the clear reduction of medical treatments and medical diagnoses during 2020 to 2022 might mean for the long-term development of our L&H portfolio. But for now, we’re comfortable that we’ve got reserves in pretty good shape,” Dacey concluded.