trending Market Intelligence /marketintelligence/en/news-insights/trending/zHlgEXhO4ePMD7XIEOmqwA2 content esgSubNav
In This List

Swiss Re to use excess capital for deals in life segment, CEO says


Banking Essentials Newsletter: 7th February Edition


Insurance Underwriting Transformed How Insurers Can Harness Probability of Default Models for Smarter Credit Decisions

Case Study

A Bank Outsources Data Gathering to Meet Basel III Regulations


Private Markets 360° | Episode 8: Powering the Global Private Markets (with Adam Kansler of S&P Global Market Intelligence)

Swiss Re to use excess capital for deals in life segment, CEO says

Swiss Re AG will use some of its excess capital to take advantage of potential deals in the reinsurance sector, particularly in the life and health segment, its CEO said Aug. 4.

The reinsurance group had a solvency ratio of 262% at the end of June, well above its target of 220%.

"Swiss Re is extremely strongly capitalized at this point, which I think is exactly the right position to be in to face industry challenges and to eventually respond to opportunities, which I am sure will arise," CEO Christian Mumenthaler told journalists after the publication of the company's first-half results.

He said he saw more opportunities on the life and health side over the short term, noting that the property and casualty sector was "hopelessly overpriced."

"I don't exclude P&C — I certainly think in the medium to long term, it is going to be a big source of transactions," he said. "It has been in the past, but I am not so sure about the short to medium term."

Potential deals in life and health could resemble Swiss Re's deal in March 2016 with Citigroup Inc., which transferred a coinsurance agreement from Prime Reinsurance Co. Inc. to the Swiss reinsurer, resulting in a reduction of $2.5 billion of assets from Citi Holdings' balance sheet. Other transactions could be transfers of books of old insurance policies by insurers as they seek to boost their capital, Mumenthaler said.

"It can be on the Life Capital side in the ReAssure business, where we take closed books in the U.K., where the market has left very few competitors, and this is an attractive field for some of my clients to free up capital to invest in other fields," he said.

Swiss Re created its Life Capital unit in 2016 to develop its life and health business. Its ReAssure business operates in the U.K. and takes on closed life insurance portfolios from insurers that seek to cut the costs of maintaining legacy products, helping them free up capital in a tough regulatory environment.

Difficult environment

Swiss Re's first-half net income fell 35% to $1.21 billion, as profits were hit by natural catastrophes, including Cyclone Debbie in Australia and pricing pressure in the reinsurance sector.

Prices for reinsurance have steadily declined over recent years amid a relative lack of natural catastrophes and competition from the capital markets, which now underwrite reinsurance risk directly through insurance-linked securities.

The low interest rate environment has contributed to a decline in reinsurers' investment income as the assets they hold in reserve can no longer achieve the same yields as in the past.

Swiss Re recorded a return on investments of 3.5% on an annualized basis, down from the 3.7% recorded in the year-ago period.

First-half gross premiums written amounted to $18.15 billion, down from $19.80 billion a year earlier, while net premiums written came in at $16.82 billion, compared with $18.68 billion a year earlier.

CFO David Cole said the group had received authorization from shareholders to carry out a share buyback of up to CHF1 billion over one year, but had yet to decide on the exact timing.

"We will wait a little later to see what happens in the North American windstorm season, so I would imagine we will be in a position to say something about that around the time of our [third-quarter] announcement," he told reporters.