Swiss Re AG's underwriting loss was an exception to what was otherwise a positive first half of the year for the world's biggest nonlife reinsurers despite lingering claims from past years.
A majority of the top 10 reinsurers saw a deterioration of underwriting performance compared with same period in 2018, in many cases because of worse-than-expected catastrophe claims from 2018 and 2017.

Shock therapy
Swiss Re was the only one of the top 10 nonlife reinsurers to report an underwriting loss for first half. The world's second-largest reinsurer reported a combined ratio of 106.6%, up sharply from 94.6% a year earlier, according to S&P Global Market Intelligence data.
The biggest cause of the underwriting loss is Swiss Re's commercial insurance unit, Corporate Solutions, which saw its combined ratio jump to 132.8% in the first from 101.7% a year ago. The unit has not produced a half-year underwriting profit since 2015, but was hit particularly hard in the first half of this year by actions Swiss Re took to turn it around. CEO Christian Mumenthaler on the company's first-half earnings call described those efforts as "shock therapy." The remedial work included a $328 million reserve strengthening and buying adverse development reinsurance cover from the group's nonlife reinsurance arm to protect against reserve deterioration.
But even excluding the corporate solutions segment, Swiss Re's underwriting performance was slightly worse than its peers. For instance, its property and casualty reinsurance division reported a combined ratio of 100.5%. While Swiss Re's claims bill from first-half catastrophes had a smaller impact on nonlife reinsurance underwriting performance than expected, reserve strengthening for old claims, in particular 2018's Typhoon Jebi, added 5.1 percentage points to the combined ratio.
When presenting its first-half results Swiss Re insisted that it is on track for a 98% normalized combined ratio for the full year in nonlife reinsurance, assuming average natural catastrophe claims and excluding prior-year reserve movements.
Typhoon troubles
Claims from Jebi have been far worse than expected, dragging on several companies' first-half results. The industry had initially expected a hit of between $3 billion and $7 billion from the typhoon, which hit Japan in September 2018. It now expects the final bill to come in between $14 billion and $16 billion.
Swiss Re was therefore not alone in reporting worse underwriting performance in the first half; seven of the world's 10-largest nonlife insurers saw their combined ratios deteriorate. Unlike Swiss Re, however, they all remained the right side of the 100% mark.
The deterioration was Jebi-related in a number of cases. Hannover Re, whose combined ratio ticked up to 96.7% from 95.7%, suffered a €106 million hit from Jebi reserve strengthening. Scor SE's combined ratio increase to 93.7% from 91.4% was partly driven by reserve strengthening in the first quarter for both Jebi and Typhoon Trami, which also impacted Japan in September 2018.
Exceptions to the trend were Munich Re Co., China Reinsurance (Group) Corp. and Everest Re Group Ltd.
Munich Re attributed its improved nonlife reinsurance underwriting performance to "very low" major losses and reserve releases, which shaved 5.7 percentage points from its first-half combined ratio.
The drop in China Re's combined ratio to was mainly due to its international nonlife reinsurance operations. The company attributed the improvement in this segment to moving its existing Lloyd's of London syndicate into recently acquired Lloyd's managing agency Chaucer, which helped cut management expenses. China Re also credited its Singapore branch entering a "stable operating period" with an improved combined ratio and cutting underperforming business for the lower combined ratio.
Everest Re's first-half underwriting performance benefited from a smaller catastrophe bill than it had in the first half of 2018. Its first-half results last year were marred by claims deterioration from the record catastrophes experienced a year earlier.
Stormy weather
Despite the ups and downs in nonlife reinsurers, the top 10 reinsurers generally had a good first half, with every company seeing their returns on equity rising and only two reinsurers, Munich Re and Swiss Re, reporting worse net income. Also, the industry stands to benefit from prices being on an upward trend.
But with risk modelling firm RMS estimating total claims from Hurricane Dorian of up to $8 billion, rival modeler AIR Worldwide putting Typhoon Faxai losses at up to ¥740 billion ($6.85 billion), and much of the storm season still to go, it remains to be seen whether reinsurers will enjoy an equally positive second half.
As of Sept. 19, US$1 was equivalent ¥108.03.
