EUR 850.00 For Business Accounts Only

Morningstar | Swiss Re Full-Year 2018: Outlook Remains Uncertain for Corporate Solutions. See Updated Analyst Note from 04 Mar 2019

Swiss Re reported net income for full-year 2018 of CHF 420 million post CHF 3.0 billion of large claims. This is well below our long-term estimate for the long-term earnings of the business. While the net income number includes USD 600 million for a U.S. GAAP accounting change impact, we are lowering our fair value estimate to CHF 84.0 to account for a generally lower level of pricing improvement within non-life reinsurance and a remaining poor environment for corporate solutions. We maintain our no-moat rating.

The property and casualty combined ratio of 104 percent is equal to 2011, a terrible year for the reinsurance industry with the Tohoku earthquake in Japan and Hurricane Irene in the United States. The market discussion is that 2018 has been one of the largest natural catastrophe years on record. But we continue to believe this is frequency and not severity. In the high aggregate claims environment, we are only seeing rate rises of around 1%. This is not in line with historical averages. What is needed to turn this industry is a large loss from less well modeled event or some severe distress in financial markets combined with a higher year of natural catastrophe events. We model a long-term 93.0% combined ratio within the property line of the non-life reinsurance business.

We continue to question the long-term profitability of the commercial insurance business, Corporate Solutions, which again, over the full year has caused Swiss Re issues. The combined ratio here came in at 117.5%, and while this is an improvement on the 133.4% prior year, it still lead to a USD 460 million loss. Rate increases being put through have come to 3% versus a targeted 5%. We think Corporate Solutions will take longer to reach full recovery than the market is expecting.

Life reinsurance results were okay, with operating income CHF 720 million. There has again been unfavourable experience in the United States mortality that we think is due to influenza and deaths related to opioid usage. There seems to be a trend appearing within these two causes of death, and we want to watch the evolution. However, overall, we think Life and Health Reinsurance results are good.