Good morning or good afternoon. Welcome to Swiss Re's First Quarter 2021 Conference Call. Please note that today's conference call is being recorded. At this time, I would like to turn the conference over to John Dacey, Group CFO. Please go ahead.
Thank you, And good morning or good afternoon to everyone on the line. I'm here today with Thierry Leger, our Chief Underwriting Officer and Thomas Bowen, our Head of Investor Relations. As usual, I'll start with a brief overview of the key figures we published this morning. Swiss Re had a strong start to 2021 with the 1st quarter net income of $333,000,000 This resilient result has to be seen in the context of the quarter We've sadly witnessed the highest pandemic deaths till the date in our 2 largest life and health markets, the United States and the UK. Excluding COVID related losses, the group achieved a net income of $843,000,000 P and C Reinsurance reported a net income of $477,000,000 benefiting from Benefiting significantly from underwriting discipline and a continued price improvement in the book.
The business segment was Affected by large natural catastrophes of $316,000,000 primarily due to the U. S. Winter storms in February. We believe that the recent portfolio actions taken on secondary perils in particular helped us to reduce these impacts. The reported combined ratio was 96.5%, and we are well on track to achieve our normalized combined ratio estimate of less than 95% Life and Health Reinsurance endured significant COVID losses of $570,000,000 Driven by peak COVID deaths in the United States and the UK as well as some other countries.
Excluding COVID-nineteen, the underlying business performed very strongly With an ROE of 16.8%. Corporate Solutions reported a net income of $96,000,000 A result of successful turnaround, which has been achieved. The reported combined ratio was 96%, And we are on track here to meet our estimate of below 97 for the year. Within group items, Iftyq continued its strong track record of growth with Gross premiums written in the core business up 150% versus the same period last year. The group reported a strong return on investments of 3.5% for the 1st 3 months of 2021, driven largely by recurring income and supplemented by gains on equities in the course of the valuation of close for the Q1.
As for the April reinsurance renewals, We're pleased with the outcomes achieved. We saw overall volume growth supported by transactions of 20%, Our nominal prices increased by 4%, more than offsetting the slightly lower interest rates and the higher loss assumptions in some of the sub portfolios. Our year to date premiums renewed are now down 3% versus last year, and we continue to seek out attractive opportunities, which meet our profitability requirements. Overall, we're pleased with the performance of our businesses this quarter, in particular, the strong profitability in P&C. We're also encouraged by the rapidly diminishing impact from COVID-nineteen on both our P and C and most recently in the current quarter And with that, I hand it over to Thomas, who will take us through the Q and A.
Thank you, John, and hi to you all from my side. Before we start, if I could remind you to restrict yourselves to 2 questions and then rejoin the line if you have additional Questions? With that, could we take the first question, please, operator?
The first question comes from the line of Andrew Ritchie with Autonomous. Please go ahead.
Hi, there. First question, John, you benefited a lot from the underwriting actions In the quarter, I'm guessing that would be particularly your reduction of aggregate reinsurance exposure. I don't know, one, could you give us as a counterfactual what you think your cat losses would have been had you not taken that action? Or if you can't give us that, Just remind us what remaining work there is to do on reducing that exposure. I guess I'm just trying to understand Some of those contracts have seen deductibles used up in the quarter because of tax losses and therefore could be more on risk As we go into wind season, and I'm not sure what your remaining exposure is there in that and how comfortable you are, how much more work you still have to do on that.
The second question, is this now you sound in your clear on P and C COVID losses, as in we should forget the guidance of up to $500,000,000 which you gave at the full year. Thanks.
So Andrew, I'll take a maybe frame the question a little bit if I can and then probably turn it over Sierra, our Chief Underwriting Officer, Ken can help with more details. With respect to The underwriting, especially January 1, where we said we reduced the aggregates, we also We're looking to reduce our exposure more broadly to what we refer to as secondary perils by, among other things, increasing The attachment point for our covers in excess of loss. And so this combination, I think, has helped us. That's the first thing. The second thing is Our overall view for the industry loss in the winter storms in the U.
S, Texas in particular on Erie Our $13,000,000,000 which might be a little smaller than some of the other players, equally in New South Wales, our view of the industry loss there probably is more contained than what you might see otherwise. And so what we booked For those storms ended up being a fairly minor amount compared to what the picture is coming out of Australia In the days where the flooding occurred might have indicated. But Thierry, maybe you can help with some color.
Just to build on what you just said, John, so it's absolutely factual. I would just not To be so specific with regard to aggregate XLs, they were part of the reduction that we had been targeting, but the real targets were secondary perils, as John pointed out, and anything too close to the frequency. So we also targeted very Low layers, for example, and proportional business, what we call drop down layers and so on. So it was A broader target that we had. You also asked what's remaining, right?
And Obviously, there's always something to do in the portfolio to make it better. But given that we Didn't just start on oneone this year, but we did some strong work already last year. My expectation is that The big work is done by this point in time.
And maybe on your second question with The P and C COVID losses, yes, the Q1 P and C losses were probably below where we Might have expected them. I don't think that means we're all clear for the rest of the year. We think There may be some event cancellation charges, which still come through. There may be some In certain geographies, some credit and shorty losses otherwise popping up. What we Feel comfortable about is that at least with everything we know, we believe our BI portfolio on property is well reserved.
We maintain IBNRs for both Property and for casualty in the P&C Re business above 80%. So we'll continue to work with our primary clients to sort out What the actual losses really are there and book them accordingly, but I wouldn't say that there's nothing coming on P&C Re. I think We're probably a little more optimistic today than we might have been 3 months ago.
Thank you, Andrew. Could we have the next question, please?
The next question comes from the line of Kamran Hossein with RBC. Please go ahead.
Hi. I mean, just following on from Andrew's question about, I guess, COVID and that all clear on the P and C side. Let me ask it in a slightly Is it reasonable to assume that more than half of the losses would have happened in kind of Q1 or a large proportion of the €500,000,000 you had kind of flagged for P and C would have happened in Q1. Therefore, it's unlikely that you do hit €500,000,000 So that's the first question. And the second question is just on, I guess, the Life Insurance Clearly, the picture in the U.
S. And the UK was dire in Q1, but seems to be getting
a lot
better. Once those issues really go away, once debt slow down, I guess they have, do we stop worrying about COVID as an issue for the Life business? Or is there something that could surprise us elsewhere? Any thoughts on that would be really helpful. Thank you.
Thanks. So maybe I'll take a shot here and again, Thierry can come in. With respect to the P and C, yes, I think there is some reasonable expectation of attrition During the course of 2021, the numbers we gave, which was less than $500,000,000 across the lines of business was for the full year. We've suggested that most of the exposure was probably in the first half on event cancellation in particular. It doesn't Exclude the possibility of something popping up, but again, I think we're feeling better about The exposures and the likelihood of losses now than we were at the beginning of the Q1.
I know you're looking for more precision. I think we could probably provide something at the midyear results where Full half of the year is clear and we might have a better line of sight frankly on some of the other reserving positions on property in particular. With respect to life and health, you're exactly right. The curve has been bending down hard in the U. K.
First and more recently in the U. S. On actual There, if you look month by month, December was the worst Month for average daily deaths related to COVID in the United States for all of 2020. January was Worse than that, February was still very, very bad and March started to see some improvements. And here in April, we're now down to less than 1,000 Daily deaths in the United States and trending lower.
The vaccination efforts clearly are being rolled out and being effective in reducing DAS and the overloads that you saw in those Q1 months with respect to hospitals Health Systems more broadly. So I think this will come down. It's not going to go to 0. There will be a continuation of COVID related deaths in the United States for some period of time as the vaccines reach Some equilibrium level of the people that wanted got it, but some people just are not going to. So I don't expect it to be 0, but I think you should expect some time Towards the end of this year, we'll stop talking about it as a separate event assuming we continue in the current path And that there are no new variants which are overwhelming the current vaccination efforts.
Terry, I don't know if there's anything
No, nothing to add. I think you said it very precisely with regard to the Life and Health COVID that December was rather worse than we were expecting. March was rather better. And right now, U. K.
And U. S, Because of the vaccination efforts are actually rather positive for us, but and those are 2 countries we have major
The next question comes from the line of Will Hardcastle from UBS. Please go ahead.
Hey, afternoon, everyone. Can we get a bit more color perhaps on how the net written premiums have developed at this stage? You mentioned that the full year, You're looking at using more retro. So should we expect the reduction in the net level to be a bit worse, I guess, than the 3% year to date on the gross level? And should we expect to see any more material volume reductions at later in your like January?
Or is April more of the one that we should run off Going forward as a baseline. And then perhaps thinking about April renewals, can we get a bit more color On what made up that growth, which lines, which countries? And how much of it was the regular premium? I think you mentioned just then that there was The odd one off transaction, perhaps just trying to for us to get a run rate on regular volume growth within that would be great. Thanks.
So I'll ask Thierry to start on these, and I'll jump in if there's anything that comes to mind.
Okay. So let me start with the net written premium question. So as you could see, right, the prediction is not easy to make on the premium side, but To assume that we will hedge considerably more is not our assumption. And if we do, it's not going to have a major impact The premium anyway. So but of course, we will be opportunistic.
If there
are opportunities to protect Volatility at the right price, we will do. But again, it will not have a strong impact on the next premium Development. Regarding the April renewals, so there were already the 2 elements that we have Emphasized already over the last month, so we said the January move has been down, but We haven't done as many large transactions as we would have done the other years, but we also said we would expect Large transactions to come our way at some point, and so we had some of those now coming through, and we were pleased about those. And we think it's a good There has been good opportunities for us to put capital at work, so the margins are very satisfactory. On the non transactional, let's call it, core business, we actually had a very good renewal on the volume side and the margin side.
We've been building, in particular in Japan, on a very strong renewal a year ago and have been able to improve the portfolio further in terms of Margin, but also the mix of business also there. We have done a bit of work around our exposures to secondary perils and low frequencies. So a very, very satisfactory renewal.
And one of your specific questions on geography, what I can say is that The April renewals is dominated by Japan. We did see some opportunity And to also book some important premiums in the United States with the Safe Harbor renewal.
Thank you, Will. Could we have the next question, please?
The next question comes from the line of Vinit Malhotra with Mediobanca. Please go ahead.
Yes. Good afternoon. Thank you very much. So one topic I could ask On Infant Corporate Solutions, where obviously the numbers look great. And one comment is the reserve releases Remain very high.
So 4th quarter was very high and 1Q was also quite high as I understand. Could you just help us understand, this comes from Very recently, you have property book. How should we I mean, is it steady to come? Is it done mostly this reserve releasing In Corporate Solutions, because usually you don't expect many releases from yourself. That's the first question.
Second thing is just if I can follow-up. So clearly you had very clearly said at the last call that NEP will not be as poor as the January date renewals and obviously it's working out better. How should the rest of the year will there also be some similar effects from The last 1 or 2 years business to be expected in the NEP? And are you comfortable with this kind of 5%, 6% Sort of a growth rate for this year. Thanks.
So maybe I'll do the first one with respect to Corporate Solutions. I mean, you're correct that there was a positive prior year development from Reserves largely in the property side coming through on Corporate Solutions. I think
the
Point here is we're very comfortable with the overall reserve position across all lines of business On Corporate Solutions book, we've been somewhat cautious about not Over interpreting what has been a modest frequency of reported losses to us, We think there may be late claims development or reporting coming through. And so we're Not bringing everything into the current P and L on the expectation that There's still something to come. So I don't think we're being extravagant with the Realization of prior year reserves here, I think, in fact, that we will we continue to be very well And strongly positions having learned some lessons in Corporate Solutions in 2017 'eighteen. The second question, I'll come back to Thierry.
So Vinit, on the premium growth rate and the expectations for the full year And how much we you should read from the 1st 3 months into what it means for the full year. So it's clear that The first three months have been profiting from 2020 business that is now earning through. So the 1:1 renewals, obviously, they earn through the Q1 only very partially. So that therefore, the growth we've experienced In 2020 is what has been part of the driver here. Other driver has been effects with some proportion as well.
And therefore, I when your question is, can we kind of Expect this growth impact to be the one for the full year. I can really not say, but it does seem On the higher end of what I would expect, definitely, I would rather go into something flat for the year, but it's very difficult To say and will depend on the level of transactions that we see and the opportunities in the business.
Yes, I'd say both transactions, but also I mean we do have some important renewals on June 1 July 1 in front of us. And depending on What we find ultimately price adequacy there, we'll be happy to write Value creating business along the way. But for now, as Terry said that the current 6% premium earned has been
Thank you, Vinit. Could we have the next question, please?
The next question comes from the line of Thomas Fossard with HSBC.
Yes, good afternoon. Two questions on the Life 3 side. The first one would be on the top line growth of 13%. Also, if you could make some comments on what drove this Growth in Q1 and what we should expect on a full year basis. 2nd question related to Life as well will be on the normalized On the adjusted for COVID €270,000,000 net profit, which looks to be, I would Higher run rate than the €200,000,000 per quarter.
So just wanted to also, could you explain What has been the driver? Is there anything to flag on the underwriting side, on the expanding side? Or That was driven by financial specificities. Thank you.
So on the premium growth, we did find some attractive Transactions in life and health also that we could book especially in the math that were assisting us. I don't know that we'll maintain exactly that level of growth for the full year, but We've got capital to deploy and our life and health franchise continues to roll and we see a number of opportunities. So As the primary industry continues to do some restructuring, we can be helpful in the positioning of some of the Portfolios that people are looking to move with. With respect to the Ex COVID performance, you're right, 270 is a big number. The 16.8% ROE It's clearly flattered by a decreased equity base as the unrealized gains in the portfolio have shrunk Because of interest rates rising, I think the way I think about it, we said And our guidance that we thought we'd be at the lower end of the 10% to 12% return on equity range In 2021 2022, based on an equity base of $8,000,000,000 and I'm comfortable To continue to provide that guidance, we had a little bit of an unusual situation where in almost Every geography, the technical result was modestly positive, but positive, oftentimes we see In some geographies, a plus and some a minus.
And the technical result is not as universally strong as what we saw here. But this was Pretty much across the board. And is it somehow helped by The COVID losses, I can't say that, but I can't say that it might not have been modestly either. So The guidance we have out there for something closer to, if you do the math, dollars 200 per quarter, It is probably something which I suggest is consistent with what we've previously stated.
Thank you, Thomas. Could we have the next question, please?
The next question comes from the line of Ashik Musaddi with JPMorgan. Please go ahead.
Yes, thank you. I have
a couple of questions, if you can help me. First of all is, how do we think about return on investment? It was pretty high at about So would it be possible for you to give some extra color as to where it came from? Like what is the recurring return? What is The unrealized gains on equities, what is the crystallized gains on equities and bonds?
So that would help. And any split in business lines would be very helpful as well just to understand How much of the strength in earnings are coming from this? The second question I have is going back to your lower cat losses this year, I mean, Any thoughts on like whether you had just lower market share in Texas or were your market share like normal, it was just higher retrocession? Any thoughts on that would be very helpful as well. Thank you.
Okay, Ashik. I'll let Thierry. Sorry, I'll let Thierry do the second. On the first one on the return on investments, yes, I mean, 3.5 It is a very, very solid number. The underlying number 2.1% is our new running yield definition.
I think the difference between the two was not the result of a bunch of realized gains that we went out and sold either fixed income or equities, but rather Largely driven by valuation increases across our equity portfolio, some of that in the principal investments Some of that in the private equity portfolio, which typically gets booked or Comes into our books with a 3 month leg. And so what you're seeing here is the 4th Quarter for some of those positions positive again, actually the Q1 of this year has been positive. So there'll be a little Head start as we go into Q2 with those private equity positions. Overall, nothing exceptional there. And again, it wasn't a matter of us going out and Pushing grabbing a lot of gains on this portfolio, the U.
S. Capital will say that We have to do the mark to market on a quarterly basis, and that's what you see. So Thierry, on that second question?
Yes. So the winter storm in Texas has been actually a good example to demonstrate the impact of our strategy in underwriting. It's a secondary peril, so it's cost it forward, but it's one that We still try to avoid in the sense where when we say we want to avoid the frequency, remove ourselves from secondary perils, Then that's one of those. And at the level of the loss, SEK 13,000,000,000 as mentioned by John, You wouldn't expect reinsurers like CICEFRE to participate to a large extent. So the way we would design The reinsurance programs would be that our clients take rather a higher share of those losses Please and our share of wallet, if you want, would kick in when the losses in the market get larger.
So that's a very good example. And I can tell you that without the restructuring of our portfolio, Indeed, our loss in the Q1 would have been larger from that Texas loss, but also from the Australian So we could really demonstrate also internally that it had a very positive impact.
Thank you, Ashik. Could we have the next question, please?
The next question comes from the line of Vikram Gandhi with Societe Generale. Please go ahead.
Hello, hi. It's Vik from SocGen. Good afternoon, everybody. I'd be interested to know if the group Has started deploying the excess liquidity given how the yields have moved this year. And secondly, if you can remind us on the hedges that are still in place on various asset classes, that will be very helpful.
Thank you.
All right. So that's actually one big question because My answer to the first is actually the second. We've done a fairly large unwind of the hedges during course of the Q1, continuing a little bit here in April. As we mentioned, we started the year With a fairly defensive posture, it seems a long, long, long time ago, but The month of January or the 1st week of January was a pretty eventful one visavis political situation in the U. K.
And in the U. S. And so we were starting defensively. Those hedges have largely come off Since then, but in doing so, we've been measured in the rerisking of the portfolio. And so we still maintain a fairly liquid position outside of having Reduce the hedges.
If we see the opportunities to put those funds to work, we will. But in the meantime, we remain, I think, focused on Keeping liquidity high and the duration, well, largely matched For the regulatory reasons, with enough space at the lower end to be able To move cash if we need to move cash into some new opportunities on the asset side.
Thank you, Vic. Could we have the next question, please?
The next question comes from the line of Emmanuel Muziot with Morgan Stanley. Please go ahead.
Hello. Hi. Thanks for taking my question. A quick one on the combined ratio. The combined ratio that you This quarter reflects your initiatives plus better rates, now that are running through throughout the year.
So my question is, have you seen any tailwind in Q1 that might not be recurring such as, for example, lower man made? And also on Casualty, could you please give us an indication on how claim trends in Casualty looked like this year versus
Okay. So the combined ratio that you mentioned and added there was some tailwind we profited From I would say that is not the case. We've been actually experiencing results very much in In line with our expectations for the portfolio that we've built, we have been very confident with the portfolio, the mix type of business that we have been writing. In terms of Tailwinds, as you called it, right? Manmade losses, you mentioned, they have Certainly, been at the lower end, we are observing still that space.
We think some of it is helped by COVID, But the year is still very long, and we will have to be careful to see how this will turn around when actually COVID It's going away. So that's a space certainly from an underwriting perspective, we watch very, very carefully. Also, in the cost business, we are particularly careful not to take necessarily the experience of the last 12 months As an indicator for the future, that will be very dangerous, which leads me to casualties. So You were kind of right to imply that somewhat in casualty, we've seen a calmer month. And we think that particularly in the U.
S, due to COVID, the courts were just less active, and That's one thing, but we also think that the industry and people were generally less active. So many reasons why You have actually seen less of casualty claims. Now underlying all of this, Our conviction, my conviction is that social inflation, all the megatrends that we observe Has not changed at all. So we still feel that there's a negative sentiment, sentiment toward large companies, If at all, that has even worsened during the COVID crisis. The COVID crisis on its own has offered through its dramatic toll on people, As offered or will offer, when the courts open, even more opportunities for plaintiffs' borrowers We are looking at the funding of this industry, and the funding It's going up.
And if you, therefore, take the combination of the funding, the COVID crisis and The reopening of the courts, there is no reason to believe that this would remain at this low level. And it does support our Strategy and strong, very strong repositioning of our casualty book into large corporate space, where we actually exited 60% of the exposures.
Thank you, Emmanuel. Could we have the next question, please?
The next question comes from the line of Ian Piazza with Credit Suisse. Please go ahead.
Hi. Thanks for taking my questions. The first one I had was on the cat budget. I'm just trying to understand the moving parts of that. The cat budget is up 5% year on year, but obviously you've shrunk exposure to secondary perils and sort of those aggregate exposures.
So just wondering why that's increased, particularly with the use of ACP as well and whether you think that is a more conservative estimate. And then also on sort of large loss exposures. With the cat budget going up and reduced exposure to secondary power, should we expect Lower market shares of secondary parallel events and aggregate exposures, but then higher market shares of the sort of more tail risk events.
Okay. I can start. And John, if you want to add something. So the cat budget, obviously, is not just related to One peril such as TCNA or so, so it is an expression of all the business we write Around all the perils, we've actually seen healthy growth in many of Of the perils, we wish to write more off. I've told you over the last month that we actually, to the contrary, very, very keen To grow any of our modeled perils, we have modeled 180 perils.
And as I said, we are very keen to grow those. So the for me, the increase in cat budget, therefore, is very good news, and it shows that we're actually Improving our diversification of the cat book, which is the case. And accordingly, the budget The question to secondary perils is or your remark rather that secondary perils, Our market share would have reduced and to the benefit of the others is absolutely correct. So we have definitely strongly reduced Our exposure to secondary unmodeled frequency tariffs and increased our exposure to the modeled tariffs.
So I mean just to reiterate, I do think the true tail risk of large events It's something which we're comfortable reinsuring. And yes, that exposure Has grown, but it hasn't necessarily grown in any single, it's grown across a range of global Potential venture as Thierry
indicated.
Thank you, Ian. Could we have the next question, please?
The next question comes from the line of Michael Haidt with Commerzbank. Please go ahead.
Thank you very much and good afternoon. Just one question on LifeHealth 3. As obviously, you experienced strong premium growth. Some, to my understanding, was driven by some transactional business. Can you tell us How much is actually Financial Solutions business, in particular, sovereign securities and transactions?
These usually come with a lower Margin. And if I remember correctly from the Investor Day, you said that you want to move down towards smaller clients. There's also an effect from that seen in the Q1 already.
Yes. I'm happy to take this one. So on Life and Health premium growth, so I think John alluded to it already. So it's been rather at the high end of growth definitely for us 2, this is a risk for business that we expect to grow over time. We Many reasons for that, societal reasons.
There is this huge protection gap out there on the Life and Health Business side across almost all lines of business. So that's clearly enough room to grow, but definitely not At this pace, so as you rightly point out, the differential in growth has been coming from Large transactions and no, they haven't come from Financial Solutions or Solvency Driven Deals, they have mainly been in the area of longevity and M and A restructuring related transactions.
Thank you, Michael. Could we have the next question, please?
There are no more questions at this time.
Thank you all for joining the call. If you have any questions after this, please don't hesitate to contact the Investor Relations team. Thank you all. We wish you a nice weekend, and thank you, operator. Back to you.