Stefan Lippe, Swiss Re?s Chief Executive Officer
Earnings per share of CHF 1.49
Capital position fully restored, estimated excess capital at AA level over CHF 9 billion
Continued focus on underwriting profitability
Swiss Re reported net income of CHF 506 million for the full year 2009. Earnings per share were CHF 1.49. The estimated excess capital at AA level increased to more than CHF 9 billion. During 2009, Swiss Re’s core business continued to demonstrate strong earnings power, while the company significantly de-risked and strengthened its balance sheet.
Stefan Lippe, Swiss Re’s Chief Executive Officer, said: “Today, I am proud to say: we have come a long way. First, we have fully restored our capital position. Second, we have significantly de-risked and strengthened our balance sheet. And third, we have maintained the strong earnings power of our core business through underwriting profitability and cost discipline throughout the Group. These robust achievements for the year enable us to continue to support our clients and generate value for our shareholders.”
Shareholders’ equity rose substantially by CHF 5.7 billion in 2009
Swiss Re returned to profit in 2009, reporting net income of CHF506million, compared to a loss of CHF 864 million in the prior year.Net income was impacted by impairments of CHF 2 billion, mainly in the securitised products portfolio, and by mark-to-market losses of CHF 1.9 billion on corporate bond hedges. The unrealised gains on these hedged corporate bonds of CHF 2.6 billion are reflected in shareholders’ equity. Earnings per share were CHF 1.49, compared to CHF –2.61 in 2008.
Shareholders’ equity increased to CHF 26.2 billion at the end of 2009, compared to CHF 20.5 billion at the end of 2008. For the full year, return on equity increased to 2.3%, compared to –3.4% in 2008. Book value per common share was CHF 67.7, an increase of 11.1% compared to CHF 61.0 at the end of 2008. Given the restored capital strength of the Group and the continued healthy operating performance of its core business, the Board of Directors proposes to increase the dividend to CHF 1.00. This is the first step in returning to a normal dividend policy.
George Quinn, Swiss Re’s Chief Financial Officer, commented: “In 2009, our capital position improved steadily quarter by quarter. At year end, our estimated excess capital at AA level was more than CHF 9 billion. Our declared priority is to regain AA rating and to redeem the convertible perpetual capital instrument. The substantial improvement in our financial flexibility increases our confidence that we will achieve these targets.”
Fourth-quarter 2009 profit of CHF 403 million
Swiss Re reported net income of CHF 403 million for the fourth quarter of 2009, compared to a loss of CHF –1.7 billion in the same period of the previous year. Earnings per share were CHF 1.18, compared to CHF –5.34 in the fourth quarter of 2008. Annualised return on equity
was 7%, compared to –3.4% in the prior year period.
Property & Casualty operating income increased to CHF 853 million in the fourth quarter of 2009, compared to CHF 409 million in the prior year period. With natural catastrophe losses at low levels, the combined ratio improved to 88.3% (or 86.5% excluding unwind of discount), compared to 104.6% (103.3%) in the prior year period.
Life & Health reported operating income of CHF 88 million in the fourth quarter of 2009, compared to operating income of CHF 224 million in the prior year period. Own credit spreads tightening negatively impacted the result in the quarter. The benefit ratio increased to 84.0% in the reporting period, compared to 81.1% in the same quarter of 2008.
Asset Management reported a return on investments of 3.3% for the fourth quarter, compared to 4.9% in the prior year period, reflecting the shift to higher-quality assets and short-term investments, as well as impairment losses of CHF 248 million.
Legacy generated operating income of CHF 34 million in the fourth quarter, compared to a net operating loss of CHF 3.1 billion in the prior year period.
Strong full-year 2009 core business results
Even at the peak of the financial crisis, Swiss Re’s client franchise proved its strength and sustainability. This has resulted in strong results from the company’s core business segments in 2009.
Property & Casualty continued to deliver excellent results. Operating income increased 39% to CHF 3.8 billion in 2009 from CHF 2.7 billion in 2008. As a result of careful underwriting and lower levels of natural catastrophe losses, the combined ratio improved to 88.3% (or 86.5% excluding unwind of discount) for the full year, compared to 97.9% (96.1%) in 2008.
Life & Health operating income increased to CHF 746 million in 2009 from CHF 697 million in 2008. The benefit ratio improved 3.1 percentage points to 82.4% for the full year, compared to 85.5% in 2008. Improvement in the financial markets, favourable mortality experience as well as the positive outcome of an arbitration matter related to a 2001 reinsurance agreement were partially offset by unfavourable results from the discontinued variable annuities business.
Despite the shift towards lower-risk and shorter duration assets and the lower yield environment, Asset Management achieved a return on investments of 1.8%, compared to 4.7% in the prior year. Swiss Re increased the allocation to government securities and reduced its corporate credit hedging, increasing the company’s exposure to high grade corporate bonds in the third quarter of 2009. Swiss Re will continue to adjust its hedging programme as credit market conditions stabilise.
Significant reduction in Legacy exposure Swiss Re succeeded in significantly reducing risk in Legacy during 2009.
The company terminated substantially all of its exposures in the Portfolio CDS, and liquidated several positions from the former Structured CDS.
Financial Guarantee Re exposure was significantly reduced by the commutation of CHF 9.2 billion notional protection. Swiss Re expects a further significant reduction in the remaining Legacy exposures in 2010. For the full year, Legacy generated operating income of CHF 139 million, compared to a net operating loss of CHF 5.9 billion in 2008.
Improved cost base
Demonstrating its pronounced commitment to increased effectiveness and efficiency, Swiss Re achieved net savings, after restructuring costs, of CHF 205 million in 2009. This is significantly above the original target of CHF 100 million for the year, and the company is well on track to meet its cost saving target of CHF 400 million by the end of 2010.
January 2010 renewals: Continued focus on profitability
Swiss Re continued to focus on disciplined underwriting during the January 2010 renewals, with restored industry capital and the absence of hurricanes partially delaying the market hardening.
Through consistent pruning of unprofitable business, the repositioning of the Credit and Surety portfolio and the shift from proportional business to non-proportional business, Swiss Re achieved a further increase in the profitability of the company’s reinsurance portfolio. The company reduced its January renewals premium volume by 15%, boosting the long-term rate adequacy of its portfolio to 108%, compared to 106% in 2008. Consequently, Swiss Re estimates a 2010 treaty year combined ratio for Property & Casualty of 93%, assuming a normal level of natural catastrophes.
Outlook
Stefan Lippe said: “The strong fundamentals of our business underpin my confidence in the future. Few reinsurers can match the size and diversification of our portfolio. And fewer still can match our capital strength, our underwriting performance and our ability to innovate. Based on these strengths, we are well placed to reinforce our competitive edge.”
Having made considerable progress in the past year, the Group believes now is an appropriate time to re-establish targets. Swiss Re aims to achieve a return on equity of 12% over the cycle. This target reflects the lower yield environment and the shift in the company’s asset portfolio towards lower-risk and shorter duration assets. There is still work to be done in 2010, including the continuing optimisation of the investment portfolio and the further unwinding of the remaining Legacy positions.
Swiss Re expects this process to be largely completed in the course of the year.
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