The FINANCIAL -- Swiss Re reported net income of CHF 334 million for the third quarter of 2009. The estimated excess capital position at the AA level increased to more than CHF 6 billion.

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Swiss Re’s core business continued to deliver very strong results, and the company achieved further significant progress in de-risking its Legacy portfolio.

Stefan Lippe, Swiss Re’s Chief Executive Officer, said: “During the third quarter of 2009, we continued to improve Swiss Re’s financial flexibility through a combination of strong underlying performance in our core business and continued de-risking of the Legacy activities. During the first nine months of 2009, our excess capital at the AA level improved to over CHF 6 billion. Our excess capital is substantial and allows us to support our clients when they need us most.”

Significant increase in shareholders’ equity

Swiss Re reported net income of CHF 334 million for the third quarter of 2009, compared to a loss of CHF 304 million in the same period of the previous year. Net income was impacted by mark-to-market losses of CHF 706 million on the corporate bond hedges and by impairments of CHF 263 million, mainly in the securitised products portfolio. Earnings per share were CHF 0.97.

 

"Shareholders’ equity increased by CHF 2.4 billion, compared to the second quarter of 2009, to CHF 26.2 billion at the end of September 2009. Net unrealised investment gains of CHF 2.8 billion, driven by mark-to-market valuation of securitised products, corporate and government bonds, were partially offset by unfavourable foreign exchange movements. Annualised return on equity was 6.1%, compared to –7.4% for the second quarter of 2009. Basic book value per common share increased by 11.4% to CHF 67.6, compared to CHF 60.7 at the end of the previous quarter. Swiss Re estimates that its excess capital at the AA level improved to more than CHF 6 billion at the end of September 2009," Swiss Re says.

 

Strong core business performance

Property & Casualty operating income increased to CHF 998 million in the third quarter of 2009, compared to CHF 685 million in the third quarter of 2008. The combined ratio improved to 84.5% (or 82.7% excluding unwind of discount), compared to 99.6% (97.4%) in the same period of the previous year. This excellent result is partly driven by low levels of natural catastrophes in the quarter, but it is also a testament to the success of Swiss Re’s continued disciplined underwriting.

 

Life & Health reported an operating income of CHF 388 million in the third quarter of 2009, compared to an operating loss of CHF 79 million in the prior year period. The benefit ratio improved to 80.2% in the quarter under review, compared to 91.5% in the same quarter of 2008. This strong improvement primarily reflects the current year’s favourable mortality experience within the traditional life segment, as well as the favourable outcome of an arbitration matter related to a 2001 reinsurance agreement with Lincoln National.

 

Asset Management reported a return on investment of 1.6%, compared to 2.8% in the prior year period, reflecting the shift towards lower-risk and shorter duration assets, lower interest rates and the impact of mark-to-market losses on corporate bond hedges. These effects were more than offset by the improvement in the market value of the underlying assets reflected by the increase in shareholders’ equity. Total return on invested assets, which includes changes in unrealised gains or losses, was very strong at 14.3%, compared to –1.8% in the third quarter of 2008. Swiss Re has started to reduce its hedging programme and to increase its exposure to higher grade corporate credit.

Further significant progress in de-risking the Legacy portfolio

The Group significantly reduced its Financial Guarantee Re (FG Re) exposure with a further commutation of CHF 6.6 billion notional exposure during the third quarter of 2009. Since year end 2008, this marks a total reduction in the company’s notional exposure in FG Re of 68%. At the same time, the third quarter saw liquidity returning to markets for securitised assets, enabling Swiss Re to sell some securities from the former Structured CDS at a gain of CHF 221 million. Legacy generated an operating income of CHF 22 million for the third quarter of 2009.

Efficiency programme ahead of plan

Net savings after restructuring costs for 2009 are now expected to be in the range of CHF 150 to 200 million, well ahead of the original net target of CHF 100 million.  

Outlook

Stefan Lippe concluded: “The outlook for our company is encouraging. In the first nine months of 2009, we restored our capital position. Our underlying performance remains very strong and we have achieved significant progress in de-risking our Legacy portfolio. The excellent underwriting results, which we have consistently delivered over many years, demonstrate our disciplined underwriting approach.”

 

Lippe added: “Our focus now is on the January renewals. While the market fundamentals point towards higher prices, restored industry capital and the absence of hurricanes may partially delay the market correction. With our very profitable reinsurance portfolio and proven underwriting track record, we are well placed for the upcoming renewal season.”

 

 

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