• Group net income USD 3.5 billion, supported by strong underwriting performance and investment results • Property & Casualty Reinsurance USD 3.6 billion net income on strong underwriting, benign natural catastrophe losses and net reserve releases; combined ratio of 83.7% • Life & Health Reinsurance USD 462 million loss reflecting previously announced management actions on pre-2004 US life business and the unwinding of an asset funding structure; both enhancing future profitability • Corporate Solutions net income USD 319 million; profitable growth across all regions • Admin Re® net income USD 34 million; excellent gross cash generation of USD 945 million • High-quality portfolio maintained in January P&C renewals despite rate pressures • Board of Directors to propose CHF 4.25 regular dividend, CHF 3.00 special dividend per share1 and a public share buyback programme2 of up to CHF 1.0 billion • Swiss Re on track to meet 2011–2015 financial targets; announces new financial targets commencing 2016
Swiss Re delivered a full-year net income of USD 3.5 billion for 2014, driven by a strong underwriting performance and investment results. L&H Re reported a full-year net loss of USD 462 million, reflecting the impact from several previously announced management actions as well as the unwinding of an asset funding structure supporting a longevity transaction. These are expected to enhance future profitability. Corporate Solutions generated profitable growth for the year. Admin Re® reported an excellent gross cash generation of USD 945 million, up 81.4% compared to 2013. Given the business performance and the strong capital position, Swiss Re's Board of Directors will propose a regular dividend of CHF 4.25 and a special dividend of CHF 3.00 per share. In addition, Swiss Re's Board of Directors proposes a public share buy-back of up to CHF 1.0 billion.
Swiss Re's Group Chief Executive Officer, Michel M. Liès, says: "Through our disciplined underwriting approach and active differentiation, Swiss Re generated strong earnings despite the challenging industry environment. We also succeeded in serving our clients by providing knowledge, expertise and services beyond our core re/insurance capacity. Our performance, together with our capital position, supports the proposed significant capital distribution of around USD 3.7 billion to our shareholders. In addition, we addressed issues in the underperforming areas. As a result, we are confident in our ability to reach our 2011–2015 financial targets."
Strong full-year Group results; strong investment income
Group net income was USD 3.5 billion in 2014 (vs USD 4.4 billion in 2013). The decrease in net income reflects primarily the effects of management actions taken to address – as previously announced – the problematic pre-2004 US life business. In addition, the L&H Re results were impacted by the unwinding of an asset funding structure supporting a longevity transaction.
Group premium and fee income grew by 8.4% to USD 31.3 billion (vs USD 28.8 billion). Swiss Re achieved a strong annual investment result in a difficult low-yield environment. The investment result totalled USD 4.4 billion (vs USD 4.3 billion). Return on investments was slightly higher at 3.7% (vs. 3.6%). The result includes a positive contribution from the sale of listed equities and alternative investments.
Earnings per share were USD 10.23 or CHF 9.33 (vs USD 12.97 or CHF 12.04 in 2013). Common shareholders' equity was USD 34.8 billion at the end of 2014 (vs USD 31.9 billion at the end of 2013). Book value per common share was USD 101.78 or CHF 101.12 as of 31 December 2014, compared to USD 93.08 or CHF 82.76 at the end of 2013.
Significant capital returns to shareholders planned
Based on the Group's capital strength, Swiss Re's Board of Directors will propose a 10% increase in the 2014 regular dividend to CHF 4.25 per share, up from CHF 3.85 in 2013. In addition, the Board of Directors will propose a special dividend of CHF 3.00 per share. These payments will be made in the form of Swiss withholding tax exempt distributions out of legal reserves from capital contributions and will be made after shareholder approval at the Annual General Meeting on 21 April 2015. This will exhaust these tax privileged reserves. With that reserve fully utilised, Swiss Re expects future excess capital management measures to be in the form of a buy-back. Accordingly, the Board of Directors proposes a public share buy-back programme for the maximum amount of CHF 1.0 billion, exercisable until the AGM in 2016. Once completed, these capital measures are expected to bring the total amount of capital returned to shareholders to USD 10.7 billion since the implementation of the new Group structure in 2012.
P&C Re delivers strong net income of USD 3.6 billion
P&C Re's net income increased by 10.4% to USD 3.6 billion in 2014 (vs USD 3.2 billion in 2013) thanks to a strong underwriting result driven by benign natural catastrophe experience and prior-year net reserve releases. The combined ratio was 83.7%, compared to 83.8% for the previous year. Adjusted for expected natural catastrophes and prior-year reserve releases, the combined ratio was 94.1% (vs 94.1%).
Net premiums earned increased by 7.3% to USD 15.6 billion (vs USD 14.5 billion), mainly driven by the expiry of a quota share agreement in 2012 and large, bespoke transactions in Asia and the Americas.
L&H Re USD 462 million net loss driven by actions to enhance future profitability
L&H Re reported a USD 462 million net loss for 2014 (vs net income of USD 420 million in 2013), reflecting the conclusion of management actions taken on Swiss Re's pre-2004 US life business, leading to a pre-tax charge of USD 623 million. These previously announced actions included negotiations with clients to resolve underperforming books of business. In addition, the unwinding of an asset funding structure adversely impacted the L&H Re 2014 results. Swiss Re took advantage of an opportunity to unwind the structure as it was earning lower returns than the interest payable on the related debt. The unwinding created economic benefits and removed debt from Swiss Re's balance sheet. The longevity part of the transaction remains unchanged. These actions are expected to support higher earnings in the future.
Swiss Re remains confident to achieve its 10%–12% return on equity target for the L&H Re segment by 2015.
The operating margin for the year was 2.6% (vs 5.8%). Excluding the effect of the management actions on the US life business, the operating margin would have improved to 7.4%. Premiums earned and fee income increased by 12.4% to USD 11.3 billion (vs USD 10.0 billion), primarily driven by volume growth and new business in Asia, large longevity transactions in the UK and regular rate increases in the US yearly-renewable term business.
Corporate Solutions net income 14.3% higher; premiums increase 17.9%
Corporate Solutions delivered a net income of USD 319 million in 2014, 14.3% higher than the 2013 net income of USD 279 million. The increase was driven by continued organic business growth, mainly in property and credit lines. Natural catastrophe experience was lower than expected but was offset by a larger number of man-made losses. Corporate Solutions' combined ratio improved to 93% from 95.1% in 2013.
Net earned premiums increased by 17.9% to USD 3.4 billion (vs USD 2.9 billion), driven by organic growth across all regions, with the highest growth in Europe and Latin America.
At Swiss Re's Investors' Day in July 2014, Corporate Solutions presented its strategic initiatives for growth beyond 2015, communicating the intent to focus on expansion into Primary Lead and moving more significantly into selected High Growth Markets. During 2014, Corporate Solutions closed an acquisition in Colombia and announced an acquisition in China, which is expected to close in the first quarter of 2015 pending regulatory approval.
Admin Re® net income of USD 34 million; gross cash generation of USD 945 million
Admin Re® reported a net income of USD 34 million for the full year 2014 (vs USD 423 million in 2013). The result was impacted by a net loss of USD 203 million on the sale of US subsidiary Aurora National Life Assurance Company (Aurora) – announced in October 2014 – as part of its strategy to further exit the US market. Excluding the Aurora loss, net income was USD 237 million. Gross cash generation was USD 945 million (vs USD 521 million). This strong performance was supported by the release of surplus reserves, solid underlying cash generation in the UK and the sale of Aurora.
In June 2014, Admin Re® acquired individual and group pension and related annuity policies from HSBC Life (UK) Limited, underpinning the Unit's ability to maintain and increase its business scale in the UK and generate future shareholder returns.
Commenting on the full-year results across the Group, Swiss Re's Group Chief Financial Officer David Cole says: "The 2014 results show that we are successfully executing our strategy and delivering a strong performance. At the same time we decisively executed the management actions we had previously identified, together with the unwinding of a long-dated asset funding structure. These measures are expected to enhance our profitability going forward. Overall, Swiss Re shows a clear ability to steer its portfolio in a challenging market environment and to allocate capital to the most attractive business areas while serving our clients with our knowledge and expertise."
Fourth quarter results
The Group's net income for the fourth quarter was USD 245 million, down from the USD 1.2 billion in the same period of the prior year. This reflects the impact of management actions and the unwinding of an asset funding structure supporting a longevity transaction in L&H Re. The Group return on investment for the quarter was 3.6%, (vs 3.8% in Q4 2013). The slight comparative decrease was due to the positive foreign exchange impact in Q4 2013.
P&C Re increased its net income to USD 1.2 billion for the fourth quarter of 2014 (vs USD 1.0 billion in Q4 2013), reflecting realised gains from listed equities and alternative investments, partially offset by a weaker underwriting result and lower net tax benefit. Premiums earned rose 0.8% to USD 3.9 billion as increases in casualty lines offset slightly lower property rates across all regions.
L&H Re reported a net loss for the quarter of USD 734 million (vs a break-even result in Q4 2013). This was mainly the result of management actions on its pre-2004 US life business and the unwinding of an asset funding structure. The operating margin decreased to –15.9% (vs –0.5%). Premium and fee income increased by 2.4% to USD 2.8 billion.
Corporate Solutions reported fourth quarter net income of USD 70 million (vs USD 52 million in Q4 2013). Premiums earned were up 4.6% to USD 870 million (vs USD 832 million), with successful organic growth in casualty and credit lines, especially in Latin America and Asia.
Admin Re® delivered a net loss of USD 185 million for the fourth quarter (vs a net income of USD 85 million in the prior-year period). The result was impacted by the USD 203 million post-tax loss on the sale of US subsidiary Aurora. Gross cash generation was USD 330 million, up from USD 266 million in the prior-year period.
Swiss Re maintains a high-quality portfolio despite rate pressures at January 2015 renewals
Swiss Re renewed USD 9.2 billion of the USD 9.6 billion premium volume up for renewal, representing a decline of 4%. This reflects active steering of the quality of the portfolio and, where necessary, an exit from unprofitable business. With a decrease in risk-adjusted price quality by 3 percentage points to 105%, the renewed book continues to meet Swiss Re's economic return hurdles.
Property catastrophe rates softened in all markets but rates still remain at economically adequate levels. Differences in price development by casualty segments were observed. Opportunities for new, attractive casualty business presented themselves in selected markets. Non-proportional business remained more attractive than proportional business despite the price declines. Swiss Re continued to be successful in differentiating its business through tailored deals and large transactions and generally remained firm on terms and conditions.
On track to deliver 2011–2015 targets; two new Group financial targets focusing on profitability and economic growth
Swiss Re remains on track to deliver on its financial targets for the 2011–2015 period. In 2014, return on equity was 10.5%, ahead of the targeted 8.6% for the year. Earnings per share for 2014 were USD 10.23 and were also ahead of the targeted USD 8.80 for the year. Economic net worth per share figures will be reported with the publication of the 2014 Annual Report and EVM disclosure on 18 March 2015.
Swiss Re introduces two new Group financial targets starting in 2016. Over the cycle, the company targets a 700 basis points return on equity above risk free rate, e g 10-year US government bonds. In addition, the company aims to grow economic net worth per share by 10% per year.
Group Chief Executive Officer, Michel M. Liès, says: "We expect the overall re/insurance market environment to remain challenging over the next years, especially for the smaller and less differentiated players. With this, a clear focus on profitability and economic growth is essential – so we can continue to deliver value to our clients and shareholders. With the two new Group financial targets announced today, we clearly show that this remains our top priority and long-term commitment."
Details of full-year performance (2014 vs 2013)
[1] Proposed dividends to be paid in the form of Swiss withholding tax exempt distributions from legal reserves from capital contributions.
[2] On a separate trading line for the purpose of cancellation of the shares.
[3] Operating margin is calculated as operating income divided by total operating revenues.
[4] Also reflects Group Items, including Principal Investments.
Details of fourth quarter performance (Q4 2014 vs Q4 2013)
The foregoing and the 2014 Financial Review of the Swiss Re Group contain updates on our business and results and preliminary unaudited financial information for 2014. The updates on our business and results will be included in our 2014 Annual Report, together with our audited financial statements for 2014 and other disclosures we are required to include or historically have included in an annual report. The foregoing and the 2014 Financial Review of the Swiss Re Group are not intended to be a substitute for the full 2014 Annual Report, which will be published on the Swiss Re website on 18 March 2015.
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