EUR 850.00 For Business Accounts Only

Morningstar | Previously an Overly Financially Engineered Company, Swiss Returns to Solid Underwriting Business

Swiss Re is a well-capitalised reinsurer, but we have reservations regarding its competitive positioning and growth.Swiss Re has a history of higher risk appetite, having been more involved in Post-Level Term and Yearly Renewable Term episodes than most. The business also went through high levels of risk engineering leading up to the financial crisis and this ultimately led to a capital raise. The two most recent management teams have been better, and the business is looking for growth in its primary commercial insurance unit, corporate solutions. Corporate solutions is expanding beyond its trodden ground of excess loss, but because of this, we have concerns on the division’s expense and combined ratios. Corporate solutions is moving into primary lead because its position within excess loss has started to reach a natural limit. We expect administrative expenses and claims frequencies to increase as a result of this move.The absolute claims trend for the overall business can look startling, as claims reserves declined from $183 billion in 2006 to $145 billion by 2017. However, this is because Swiss Re acquired General Electric Insurance Solutions in 2005. This carried a heavy portion of casualty business, particularly within pharmaceutical and workers' compensation, written relying on higher investment returns with looser underwriting loss rates. As underwriting losses began to materialise, Swiss Re started writing tighter business. As a result, casualty loss ratios have improved substantially, although the 20% quota share with Berkshire Hathaway has helped.The reinsurance industry has been through some tough years, and some residual tough years still lie ahead. The benign natural catastrophe environment has been obscuring the negative impacts of lower rates, countered by high reserve releases. We still believe the industry needs a supply-side event. Alternatively, reinsurance managers will have to force the pricing situation. In the event of a big supply-side impact, prices will harden but the industry will consolidate. The best-capitalised players will be left to take advantage.