Welcome to Swiss Re half year 2020 results conference call. Please note that today's conference is being recorded. At this time, I would like to turn the conference over to Christian Mumenthaler, Group CEO. Please go ahead, sir.
Hello. Good morning, good afternoon, everyone. Thanks for joining this call. I hope you're all safe and well in these challenging times. I will make a few introductory remarks to questions that are particularly important to me, and then we will open up for Q&A. I intended to have three quick topics. One is around COVID-19, obviously, second one around the underlying business, and third one around ReAssure. First around COVID-19, right? We entered the crisis with a lot of capital. We were able to manage from an operational point of view without any problems and flaws. We could do renewals, we could pay claims, all of that. We protected the balance sheet in a very early stage in the year, which helped us a lot. Personally, I'm overall very happy of how Swiss Re was able to get through this crisis so far.
Loss estimates on COVID, obviously big topic for discussion. It's an extremely challenging thing to do, so let me just go a little bit into that, since I'm sure we're going to have lots of questions around that. The challenge our team had is obviously we need an estimate for GAAP, and GAAP asks for everything that we think has incurred in Q2, whether reported or not, to be booked. SST is even more challenging because SST needs to be not just what we book in Q2, but all further losses during a one-year time horizon we can see or we expect. Therefore, we had to do a second estimate for SST, which is in our SST number that is above 220%. We don't talk about SST here, I talk about GAAP.
What did we do in GAAP on the three biggest category, just to have a sense of what we tried to do. On event cancellation, obviously, we know a lot of the underlying policies. We tried to actually go on the internet site of the organizers and find out which events have been canceled, which have not been canceled, so that even if things that have not been reported to us can be booked in Q2. There's some sense of high certainty around this booking. On the mortality side, we had to decide a methodology of how to define COVID losses. If you just go by the death certificates, only about $100 million of claims came in with the notion that people died from COVID-19. We have all seen the elevated mortality in the U.K., in the U.S. in particular.
Therefore, we have gone another route by saying we define the COVID losses as excess losses over the average of the last three years. Basically, from a baseline, assuming that a lot of people died without an explicit mention of COVID-19 on their certificates, which is $300 million. It's a higher number. Based on that and on what we know about delays in reporting claims, which always exist, we set up an IBNR on top of that to cover all the people who have died in Q2 but who have not been reported to us. The mortality side, by the way, we feel very fine about. It's also uncertain. The estimate, the IBNR, is also uncertain, but on the mortality side, at least, that's a risk we knew, we have costed for, it's priced, we get money for it. It's in our capital model.
It is the expected type of event. Pandemic is basically the NatCat for mortality. We're probably number one or number two in the world in terms of mortality rider. This is entirely expected and costed and fine, and what clients expect us to do. The biggest uncertainty, I guess it was the biggest uncertainty, is business interruption, so non-damage business interruption. Here we did a huge amount of work, which doesn't mean that our assessment is exact. I'm sure all my experts would ask me to make sure I mention how uncertain this is. What we try to do with mostly reinsurance, we try to approach all clients which make up the bulk of our exposure. Mostly it's facultative sales.
We ask them for their own exposure, underlying it, because there is a general practice in the corporate world and the SME space, to give some sub-limits for non-damage BI. We had to ask our clients how much exposure we think they have. Many of them responded to us. It's also a challenge for them because they have to go through all their legal entities, through all the countries, through all the products, and even within products, sometimes there have been periods where they had a certain wording and other periods they had a different wording. Based on all of that, we then looked at the wording of our Cat XL treaty, how this then translates to us.
Based on all of that, we had to make an estimate, which is nearly $1 billion, and seems to be the biggest difference between our estimates and what other people are putting up with. Obviously we could be wrong. We try our best to have more than 30 experts working on that, but it's very hard to say what it will ultimately cost. As you could see in the slides I showed this morning, only a tiny fraction of that has actually been claimed so far. We will see where this ends up with. I think the most important thing to say here is that through all of our search, we couldn't find any place where we'll be more exposed than others or have any outsized exposure. It's the same market. Some of it, or a lot of it is Europe. It's a standard wording.
One way or the other, I guess the loss estimates will converge as we know more through Q3. If I take a step back and look at $2.5 billion for our loss on the market loss, which we estimate $50 billion-$80 billion, that's entirely in line with what one would expect and what we had in hurricanes or 19 NatCat of similar magnitude. That's, I would say, a sort of a sense check for it from top down. We also said that we think that Q2 of H1 constitute the majority of the ultimate loss. What I mean with ultimate loss is, if in three years' time we make the final calculation of how much we had to pay for COVID-19, that's the ultimate loss. We think it's a majority. Obviously, there's some uncertainty around that.
Also in the slide deck this morning, I think page six, you can see some of the underlying statistics around the business closures, for example, or mortality, which in our view, personally, I think it's extremely unlikely that we get into a copy-paste situation of what we went through in the first half year in terms of lockdowns. There's now ample evidence that a lot of countries in Asia, a lot in Europe can manage that. It's going to be a management. It's not going to be an easy walk, but you don't have to close down your whole economy to get COVID-19 under control. There's much more knowledge at this stage. I think it's highly likely that there's outburst all the time, but you need to manage it more locally.
We don't think that that's going to be a huge lockdown comparable to Q2, which means that for some lines of business like BI, it's really a Q2 event mostly. That's what's behind this, I think, relatively high probability statement of, we believe that the majority is behind, but obviously you can make your own scenario, and make your own judgment. The second point I wanted to talk to is the underlying business. P&C lifelines, once you take these COVID claims out, are performing according to expectations. P&C Re, as many noticed, is about 97% combined ratio underlying normalized, which is what we had expected for this year. The upside surprise, I guess, for all of us was in Corporate Solutions, where we see better results than expected at this stage of our transformation program. The transformation program is going on plan.
We have 60% of the pruning done, which is what we had expected at this stage. We have two-thirds of the cost cuts done, which is also according to plan. The price increases are higher than we had originally planned. They were 12% the full last year and 15% year- to- date. That compounds obviously. The math are obviously quite complicated because last year the 12% started to 5% in the beginning of the year and then went to higher than 12%. We have a delay of how this is recognized in GAAP. We had last year, as you might remember, in Corporate Solutions, we increased basically these APLRs, the a priori loss ratios, by about 10 points. That makes you go backwards from the 12% we had last year.
We believe that we start to see these price increases come through at this stage. As time passes, that's what we expected. We had hoped or planned 105 normalized combined ratio for Corso. The current normalized is 101. There might be an effect from COVID-19, which nobody can say. There might be a low frequency of claims or less reported claims. We'll see as time goes by, but I think it's fair to say that we're all quite optimistic seeing these numbers and these developments, that we're seeing the light at the end of the tunnel. Renewals when signed, obviously, 6% nominal is actually quite a big number when you think that a lot of the business is proportional, and there sometimes it is a bit difficult for us to judge the quality increase underneath that. It's also needed because of the interest rate situation.
Interest rates fell down quite significantly, which means that from an economic basis, these increases are needed and more are needed in our views. I should add that on the COVID front, on the renewals since April, all contract renewed in April and July, have clauses that exclude the COVID-19 and pandemic. This is a cleanup that's being done. That's not just us, that's the whole industry is working towards that. It's obvious that we couldn't renew Cat XL treaties, including COVID. That's clear to the whole market. That means that basically the exposure has gone from these treaties in the U.S., for example, since July. Last point on ReAssure. I guess there's a bit of risk that this is just a tick in the box now and gone.
I think a lot of you have been here for several years and remember the long journey of this project. We decided a few years ago that we were probably not the right owner for this kind of asset. We looked at the best possible way for our shareholders to transfer that asset to somebody else. Obviously, we could have sold it at a steep discount at the time. We're really pleased about this final outcome where we went through some ups and downs, as you know, with an IPO that didn't work last year. Now I think we found an ideal home for this asset. I actually think Phoenix will also profit from this transaction as a true win-win transaction. I think policyholders will also profit from that because these are two companies who have really focused on policyholder interest and treating customers fairly.
I think it's a very positive transaction from all aspects.
You have probably seen that the SST benefit from it is higher than what we thought at the beginning of the year. We had a figure which we have never updated of 12%, which was true at the beginning of the year. What happens from a risk perspective with this asset is you basically have 100% of this asset, which is mostly credit risk in the U.K., where volatility has gone up enormously over the year. So it has become a much bigger part of our overall risk for the group. This is now traded by roughly half of that is now cash, so completely de-risked, and the other half is an equity risk at this stage and treated as equity risk, which is a smaller part of our risk profile and diversifying better.
That explains why in this particular situation, doing this transaction is a 19% versus a 12% benefit for us. All of that obviously is very positive for us. The SST is above 220. We feel extremely well-positioned, for whatever will come now. Hopefully, what will come now is some further increase in prices. We see no change in the trend in Corporate Solutions. We don't feel any change in the trend in reinsurance, only the future will tell. With that, I guess I hand over to Philippe Brahin, our Head of Investor Relations.
Thank you very much, Christian, and good day also from my side to all of you. For our Q&A session, we will have with us John Dacey, our Group CFO, and Edi Schmid, our Group Chief Underwriting Officer. As usual, before we start our Q&A, I would like to remind you to restrict yourselves to two questions each and register again if you have follow-up questions. With that, Operator, could we please take the first question?
The first question comes from Paris Hadjiantonis from Exane BNP Paribas. Please go ahead.
Yes. Hi, everyone. I hope you are doing well. A couple of questions from me. Firstly, Christian, in your introduction, you have mentioned that on the SST front, COVID losses assumptions are higher than the 2.5 Billion that you have disclosed on a U.S. GAAP basis. I was just wondering if you can give us a bit more details on what is Swiss Re's current assumption about the ultimate cost of COVID, on a forward-looking basis. Secondly, on the pricing side for insurance, nominal price increases up six, but more or less those completely offset by the lower interest rate environment and changes to your loss assumptions. At the same time, obviously, 2020 is not going to be a particularly profitable year because of COVID.
I was wondering, what are your expectations for pricing going forward, especially given that you're starting negotiations with clients about January, March, April?
Thanks, Paris. Maybe John?
The first one, Paris, I understand your keen interest in understanding or knowing what we've got in the SST. We've chosen not to actually disclose the additional losses which we've put there. You can imagine we've gone through a series of scenarios, trying to get some reasonable estimates of what losses might be coming through in future quarters, and that's effectively what we've included. That's also consistent with what we've suggested, that we're past the worst, that the majority of the losses that we expect coming from COVID-19 have been booked in the first half of the year. I think Christian alluded to the places where we have put up what we think would be reserves which might have some modest subsequent charges, but largely done. I think that's the business interruption and property in particular. I think on event cancellation, it's very straightforward.
We've booked what we can. There are probably some events which might get canceled in Q3 and Q4, but have not been canceled yet, because they're still on at the moment. We've not booked them in the first half year. If they do get canceled or postponed, we'll have those charges. I think if you go through the slide on credit and surety to the degree that there are significant defaults, and those defaults end up not being managed by some of the government interventions which has been targeted towards trade credit in particular, they might come through. That's a source of potential claims in the future quarters. On mortality, again, if you look at the slides where we show the peaks in the second quarter for the U.S. and U.K., which are the two relevant markets for our mortality charges, they seem to be coming down.
Obviously, the U.S. caseload has increased recently. The mortality associated with that caseload is lower than it was in April, and we'll see how that itself plays out. As Christian said, at least in the calculation as of Q2, we've got IBNRs for later reported deaths that occurred in the second quarter. I don't think you should assume that that will be all the deaths related to the pandemic.
The last box of others, again, large IBNRs in the second quarter, there could be some casualty losses related to COVID that show up and incur in future quarters to be seen. We're going to leave you, unfortunately, I think, with some work to do to try to make some reasonable estimates of what those numbers could look like. As we have more clarity in future quarters, we'll obviously provide the information at Q3 and for the full year results.
Edi, you take the P&C pricing outlook now?
Yeah. Thanks for the question on P&C pricing. As you correctly summarized, we see nominal price increase of 6%. This largely eroded by the lower interest rates and by the more conservative loss models we have tested. 6% may sound a bit moderate given some noise in the market. It has to be understood that we have a huge book, $16 billion-$17 billion, which is two-thirds proportional. Obviously you see these little pockets like Florida cat business where we have achieved, let's say, nominal 15%-30%. Obviously that's a small proportion in terms of premium contribution to the total book. U.S. cat nationwide, also nominal, maybe 7%-15%. To get a huge increase on a total book, which is dominated by two-thirds proportional, obviously it needs more.
I would just reiterate the importance of these lower interest rates, which I think it's important to look at the business in economic terms. Our P&C liabilities have a duration of six, seven years. If interest rates drop to the extent we have seen, and that they're going to stay likely that low, it's very important to factor this in. This is also the reason why the industry and also we need to drive on the writing margins up quite a bit further. We increased our loss cost to reflect some trends, as we have explained earlier in U.S. liability. We updated some of our models in Japan, where clearly typhoon risk was underestimated. We really factored all of these in.
I think what is another dimension that clearly at this point, from an online perspective, we focus a lot on improving the quality of the business. This is not just the price, but it's also terms and conditions. Christian explained it was very important to really get our property commercial business clean from virus exposure, also in other lines. Similar things happen now on the original side. You see a lot of rate increases, but also tightening of terms and conditions. Obviously, these things are more hard to quantify, but over time, they will also flow through in terms of better profit. We see no reason why this momentum is going to change. It started on the commercial side first. Reinsurance was a bit lagging, but now we see the momentum also accelerating on the reinsurance side.
We will look into next year with a positive outlook, but obviously, always need to be a bit cautious with making predictions about the future.
All right. Thanks, Paris, for your questions. Operator, can we have the next question, please?
The next question comes from Andrew Ritchie from Autonomous. Please go ahead.
Hi there. Two questions. First of all, you describe throughout the presentation and Christian's comments about how strong the underlying business is performing. I guess I'm just slightly concerned that there's an underestimation of the COVID benefit. Clearly, we focused on the COVID negatives, but you have a substantial motor book, for example. Even in life and health, there could be positive utilization rates on some of the health products because of lockdown. Have you had a stab at what the COVID benefits are in the ex-COVID performance, if that isn't too convoluted? The second question, I was a bit surprised at the speed of the decline in running yield and investment income, especially in the P&C business. I note also that your cash balances are very high at the end of the half year. I don't know if that includes the cash from Phoenix.
I don't think it does because it's at the half year position. I appreciate interest rates have gone down. I've seen that, but still the speed of declining running yield seems excessive. Is it been a deliberate kind of de-risking? Is this an effect because there was quite a lot of realized gains in fixed income, so you've almost accelerated the decline? Maybe just clarify what is your reinvestment rate, you think, today, roughly, across the book? Thanks.
You on the underlying business, and John, the running yield.
Thanks, Andrew, on the question regarding potential COVID positives. We also had a thorough look at our business where there are other changes than the $2.5 billion losses we booked for the first half of the year. What you would expect that particularly on motor, workers comp, and aviation are kind of the places where on the one hand side, obviously there's an impact first on premium. Due to lower economic activity, lower driving, all of that, the premium is coming down, which is actually a negative to your bottom line as the premium has some margin attached which you would lose. Given the lower economic activity, you would expect lower frequency of certain claims, which should be a positive. We looked at that. In Corporate Solutions, it was really not a significant thing. Nothing coming through.
On the reinsurance side, a very moderate positive actually showed up, but it was not much at this point. Also important that in many of our treaties, particularly in motor, it is not so straightforward. Sometimes you have sliding scales, so you do not immediately see the benefit coming through also to us. We looked at all these things, and we had a bit of positives overall in P&C Re, but it was not that significant yet. We will see maybe some more to come.
Andrew, it's John. On the running yield, yes, it is down for the group. In the first half of 2019, it was at 2.9%, 2.5% for the first half of 2020. For the full year of 2019, it moved down to 2.8%, which I think shows you that some of this was already heading in place. You mentioned specifically P&C Re, the respective numbers there, first half 2019 at 2.4%, full year 2019 at 2.3%, and the half year 2020, 2.0%. I think, part of this is a reduced new money rate on reinvestments. We're currently looking at about 1.6%. Don't forget that not just the numerator, but also the denominator adjusted a little bit.
We have, at the group level, I think about CHF 1.8 billion of additional unrealized gains in the portfolio, which blows up a little bit the denominator in these calculations, just because of those unrealized gains that are there. Sitting on the cash you mentioned, there were some maneuvers that we took in the latter part of the quarter. I think you've heard Guido in the past, and I reiterate, we remain cautious in our outlook for financial market risk and we'll continue to be fairly defensive. We'll undoubtedly redeploy some of that cash into other assets, over the quarter. It's probably already happened, but I don't think you should expect us to go risk-on in any material way here for the next periods.
All right. Thanks, Andrew, for your questions. Can we have the next question, please?
The next question comes from Jonny Urwin from UBS. Please go ahead.
Hi there. I hope everyone's doing well. Two quick ones from me, please. Firstly, the normalized combined ratio that you've reported in Q2 is slightly better than the 97% guidance, albeit it's boosted a bit by benign man-made. If we adjust for man-made, then I think year-on-year we're a little worse. I guess, is that the higher casualty loss picks which are starting to earn through? Any comments there would be great. Are you satisfied with that result given the man-made benefit? Secondly, how should we think about the normalized development from here? Obviously prices are rising, but they're still getting absorbed to some extent by higher loss assumptions, and lower yields. I guess, what is possible for the normalized next year? When do we think your view of the underlying risk will stabilize and those loss assumptions will stop creeping higher?
Thank you.
Yeah. Thanks, Jonny, for the two questions on the combined ratio. As you correctly pointed out, the normalized in our way we do it is coming out slightly below the 97. There was a bit of luck on the man-made side, and actually, the explanation you gave on the casualty side is correct. As explained last year, we did a lot of work around this liability, on the underwriting side, but also adjusting not just reserves, but also APLRs. What is now flowing through is it's coming at a bit higher combined ratio than what we originally saw. That is a correct explanation. In terms of what is really realistic to assume into the future, we'd obviously not go into speculation what our combined ratio outlook may be for 2021.
Clearly, as I mentioned before, there's a lot of positive momentum now in the marketplace, and I particularly would point to the underlying businesses. In our reinsurance book, two-thirds, three-quarters is underlying commercial business. Which now since 18 months, is seeing significant original rate increases and tightening of terms and conditions. To some extent, we try to reflect this in what this means on the reinsurance account, but it's really hard to quantify. I clearly see some of these will start to earn through into the future. As I explained before, the reinsurance marketplace has lagged behind the original market. Last year was only moderate increases, only in pockets where there were clear loss trends or cat events. It was going up.
Now you see it a bit more broad, also on business that has not seen actual losses, you can reuse commissions, and you can increase non-proportional rates. This momentum is continuing. Again, we bring into the equation this challenge of the much lower interest rates. The industry overall has no other answer than to drive underwriting margins to higher level. Otherwise, it's just not possible to get to decent ROE. I think this momentum in the industry has to continue, and this will come through, also to us.
That's why I think it's really important to put the focus on the quality of the business. We have grown the book, but only 6%, because clearly quality needs to come first. Over time, we clearly see we can deploy more capital at even better rates. Clients may come with increased needs on situation are getting tighter. I think there will be opportunity also then to deploy more at more attractive terms than they are at this point in time.
Okay. Thanks, Johnny, for your questions. Can we have the next question, please?
The next question comes from Kamran Hossain from RBC. Please go ahead.
Hi, everyone. First question is just, I guess it's a big picture one on strategy. First of all, kind of congratulations on the ReAssure. I know it's been a very long time coming. Do you anticipate much major change to the structure of the business to come, or are you happy now with the makeup and composition of the group? Perhaps with a greater focus on improving what you've got now. That's the first question. The second question is coming back to the last point from Edi. I guess, what's your message to clients ahead of 1/1? You've got a $2.5 billion loss this year. You've had three difficult years before that. Are you giving away your capital too cheaply?
Are you confident that future claims from pandemics, the second wave could be going in the beginning of next year, will they now be excluded from the 1st of January? Thanks.
Thanks, Kamran. Strategy, obviously is always a good trap in calls like that if I say anything definite and then in two years we do something different. I think the group needs to hold all options open all the time because you never know how things will develop. I think broadly, I'm happy where we are. We clearly stick with our course of business. Anything else wouldn't make sense now at this stage, although in my view. You need to focus on quality both in P&C Re and Corso. This is the top priority right now. I don't know whether we're going to see some M&A opportunities later in the year. Depends a bit how things develop. As you know, our philosophy is that in P&C Re, it's hard to see anything strategic. There could be some financial deals possible, maybe.
In Corso, although there's a limited choice of strategic transactions, but there could be transactions which add to it. I'm obviously totally aware of the skepticism that investors have towards Corso, and we would take that into account, and we are very aware we need to first fix this and show good results. The transaction would have to be very attractive to be done. Obviously on iptiQ and the digital field, we remain open. There's nothing particular right now, but I think it's important to state that if we find something that makes sense there and we can explain it to shareholders again, that could be interesting. I think on Corso, right, obviously, we went through a lot of reflections. Although, I think something I wouldn't underestimate is the option value of having access to these corporate clients. Corporate clients are very important.
More of the risk will shift towards them. You see more and more huge companies with more complex needs. Having that option maybe is not that well explained and not that much used at this stage, but we think there's going to be some definite value. You can see the cross sell to iptiQ, for example, and things like that. I think for the future of the group, having access to that risk pool is important, and obviously we're going to hope to persuade everybody that this is the case. How we do it and which lines, et cetera, I think this is going to be a constant review process, right? I don't think it's going to be done in a totally me too fashion. It will have to change quite substantially over time.
I think broadly with where we are now, I'm happy where we are now.
Edi, on the second question.
Yeah, second question. The message vis-a-vis clients. Obviously, the message vis-a-vis clients has been quite tough since quite a while. Since we have seen a few tough years for us, but also we need to see that the situation is tough for the clients as well. Ultimately, we're in the same boat when it comes to the P&C business. It's just these need to deliver better underwriting margins going forward, and this can only be achieved even on the original side and then also on the reinsurance side. Terms and conditions keep improving. If you look at U.S. liabilities, it's now two years of working with clients to fix this. We have reduced shares. We have reduced our exposure quite a bit to larger corporate risk exposed to social inflation.
We could do this with our clients without them seeing relationships too much, because still there's a lot they need from us, and we deliver the solutions that really also make sense within our appetite. Then you refer to the pandemic situation. Clearly, as Christian explained on the life and health side, pandemic has been a part of the offering. We always knew we would provide coverage to life policies for also pandemic events, so it was costed and factored in. Clearly on the P&C side, this has never been the intention to provide significant capacity for pandemic. Over the last years, there was some slippage, a bit too much generosity to include non-damage business interruption. It was also a bit underestimated on the event cancellation that a big pandemic would create such a broadband lockdown leading to cancellation, postponement of so many large events.
Clearly this whole business is exposed to pandemic need to be reviewed, and to a large extent, I think there's only one answer that on the P&C side, pandemic needs to be excluded. That's what we've been working on already since April. In all the renewal rounds, we were successful to exclude.
Pandemic, infectious disease more broadly for underlying business that has commercial business interruption exposure. This needs to continue also into the next year. As we mentioned in other calls already, the only real solution on the P&C side is to set up public-private partnerships where the government, together with the industry, finds ways the government needs to provide some backstop, and the insurance industry can then help with the risk assessment, with the policy distribution, and then the claims settlement. These discussions are going quite well in many markets, and Swiss Re is part of that.
All right. Thanks, Kamran, for your questions. Can we have the next question, please?
The next question comes from Vinit Malhotra from Mediobanca. Please go ahead.
Yes, good afternoon. Thank you very much. My two questions, please. First one is, just picking up again on Kamran's question, please, from a slightly different angle, the first one, the fact that if you just look at the GAAP net income, and I know it's not the perfect measure, but just the GAAP net income last three years, and then this 1H , we are slightly in the surplus, but not too much. Obviously Swiss Re has been paying dividends and buybacks and what have you. How is this situation on the net income being this kind of level? How should investors look at it from future dividends or buybacks? I'm sure the answer might be somewhere linked to the economic capital generation, but if you could remind us your thoughts on that, it'd be very good.
Second thing is just for Edi, just looking at the slide nine, the fact that the impacts of lower interest rate is 4%, impact of loss function is 2%. These numbers are not terribly different from what we saw in the January renewals. Then we've had Japanese business, we've had Florida business, where at least in Japan, Florida, there was a much more pickup in loss assumptions. Could you just comment on whether is anything going to change on this kind of flat margin impact? Do you think clients are willing to talk about low interest rates as something they should compensate you for example? Just any idea on this economic impact going forward from what you're hearing from your clients. Thank you.
Maybe John on the first.
Sure. Vinit, yes, obviously the group's GAAP income has been lower than our targets and has been a problem for multiple years. The COVID crisis is not helping us here in 2020. That's one of the reasons why we think about the underlying and our view that, in fact, our businesses are performing and capable of performing when we don't get one of these left field very large balls thrown at us. I think the underlying question about our capacity to pay dividends eventually to do share buybacks is, as you correctly point out, related to our EVM results rather than the U.S. GAAP results. Over time, those have been better than GAAP, but still have been impacted by some of the significant losses that we've had in these years. We need to get back on track.
The good news is the capital situation, the starting point, both at the beginning of the year and again here at mid-year, remains very robust. We've taken some steps to protect the balance sheet to make sure that that's the case. We have suspended this year's buyback. It's great the ReAssure transaction completed, the cash has come in, the capital charges have reduced. That doesn't change our view for share buybacks for 2020. It also, I think, reinforces the view that our dividend is secure, and we shouldn't have to worry about at least maintaining the dividend on a going forward basis as the second leg of our four legs of capital policy. We'll evaluate, together with the board, after the year end, where we stand for other capital actions. Right now, I'm not concerned.
The group has the liquidity, we've got the capital, we've got the underlying earnings, and we just need to, as you say correctly, show the GAAP income to come through in future quarters, future years, and we expect that to happen.
I think on your second question, again, the lower interest rate and what should we expect in terms of improvement in the price quality of the P&C business. The topic is not new. We've started to address this since quite a while because interest rates were already low the last couple of years. Now it's just another level driven by COVID. Clearly more there is recognition that these lower rates need to be reflected in much better underwriting margin forward for P&C insurance.
Businesses. I would again, as I already commented earlier, put into perspective that the NatCat business you may have in mind, that's an important business for us in terms of margin production, but it is a bit more than $3 billion out of a total of $20 billion P&C pool. There's a whole lot of proportional business, of casualty business, where we also fight hard to reduce commissions, and we are getting successful. It's not that easy to see a massive price improvement coming through. Clearly that journey needs to continue and would again point to what's really happening on the underlying businesses. There, if you look at what Corporate Solutions can achieve across their book, last year, 12%, now in the first half, another 15% across the business that they wrote. That tells you that the increase are getting much more substantial.
Obviously, that's driven by losses incurred in the past, but clearly lower interest rates is a factor that carriers need to start to factor in in underwriting these premiums. Clearly more needs to come, but it is an uphill battle. The momentum is only accelerating.
All right. Thanks, Vinit, for your questions. Can we have the next question, please?
The next question comes from Ivan Bokhmat from Barclays. Please go ahead.
Hi. Thank you very much. I've got two questions. The first one, just to follow up on the COVID losses. I'm wondering, your current $2.5 billion claims booked, that provision, what end of the $50 billion-$80 billion range would you think that best corresponds to? What do you think could push the overall loss higher? I'm referring to some of the comments you've made to the journalists regarding the business interruption and the test court cases. Maybe you could elaborate on that for us, please, if possible. The second question, just on the life and health business, I guess, should I read from your comments that pandemics is a normal risk that was costed? Should I read that we shouldn't really be expecting a substantial change of the economics of that business going forward?
I.e., no hardening to the same degree that we are seeing right now in the P&C market, I should say. Thank you.
Maybe, Edi, I go to you.
On the COVID losses at $2.5 billion, we booked them and the $50 billion-$80 billion range, we see this. Somewhere in the middle of this range would be the simple answer. I don't think there's really much more than I can say than John already alluded to. I think what I would reiterate that if you look at this $50 billion-$80 billion, we don't see any reason why the Swiss Re loss should be out of proportion. If you look at a bit at our market shares in different parts that are COVID affected, on P&C business overall, we have some 10%-12% those on Cat XL business, which may pick up some of these NBI losses that can be aggregated, also 10%-12%.
It's also important to point out that on the Corso side, these are market placements, so Corso is on the same policy conditions as other carriers, and also on the reinsurance side. We are largely having the same coverage conditions as other reinsurers may have. We see that our exposure is in line with our normal market share. In Corso, it is a very low single-digit market share, and on P&C Re, it's in the 10%-12% range. The only area where we are a bit heavily exposed is event cancellation, because there we wrote that business in Corso, but we exited some middle of last year, but still some run- off exposure is there, and we also had some in reinsurance. As we explained earlier, we have about a 15% combined market share.
Across the board, also, if you look at credit insured, we are at 10%. We are only number three behind two other more bigger players. We don't think we are out of proportion. Where some more losses could come, I think John already explained, credit insured, if some defaults are likely, a few more events may come up and then on the mortality side.
Edi, maybe if I can just intervene. It's not out of line with anything the market knows about Swiss Re, but the U.S. mortality book is designed in a way that large dollar policies tend to be reinsured, and there's a finite number of reinsurers that participate in that market. In that space, we're one of the larger players. The usual suspects that you know well are also there. While the primary companies may not show much in the way of mortality losses related to COVID, I think the reinsurers in the U.S., the ones active in the U.S., are likely to bear the brunt of the mortality experience.
Yes, that is the link to your second question. As Christian explained, I also point out pandemic risk is the NatCat element in the mortality business equivalent to the NatCat on a property book. For 20 years, we had a pandemic model, and then we write mortality business. Obviously, that's part of the assessment. It's costed into the cash flows, and we allocate appropriate capital to assuming pandemic risk as part of our mortality book, and that in the past was done adequately. Obviously, we would also try on the life and health side to achieve better margins given the pressures and the capital cost has increased. That's all the reasons also to be more demanding in terms of margins to be achieved on life and health side.
Pandemic overall, as it kind of unfolds now, as it was anticipated earlier in our costing and in our risk management, there's not a need to fundamentally change the way we underwrite mortality business with exposure to pandemics. The real correction needs to happen on the P&C side. As I already explained before, there, we to a large extent, need to exclude it or find ways in public private partnerships to have the government take a seat and then provide a backstop, and the insurance, we can then facilitate to distribute the risk and settle the claims.
All right. Thanks, Ivan, for your questions. Can we have the next question, please?
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from Thomas Fossard from HSBC. Please go ahead.
Yes, good afternoon. Two questions for Edi, I'm afraid. The first question will be related to BI again. Actually, I understand that there is quiet but tough discussions currently between primary insurers and their insurers regarding how CAT programs will react to BI. It may be that, I don't know, but maybe reinsurers have a different view on this regarding aggregation or regarding our clauses or anything that you can mention to better understand what is your scenario lying behind your $950 million BI expected losses. The second question will be related to U.S. social claims inflation. I think that in the past, you mentioned that you put in place a large corporate risk tracker. Actually, you had a gain in net $1,327 million of reserve strengthening, which is a net number or net of positive PYDs on hurricanes.
Just was wondering if you could update us on where you stand currently regarding your confidence level of your U.S. liability reserving position, and if you're starting to be closer to the 60 years or 80 years percentile of best estimate? Thank you.
Yeah. Thanks, Thomas, for these two questions. On the first one, really the question, to what extent actually not BI losses, it is mainly what we call non-damage BI losses. In quite a number of markets, cedents have given some sublimits for non-damage business interruption exposure. How this is translated into the reinsurance coverage really has to be looked at case by case. In our exposure assessment process, we actually went through over 100 of the largest covers that made up more than 80% of our exposure, looked at what these cedents have in their original book in terms of non-damage BI sublimits and how many of those may likely be affected. We apply the reinsurance coverage conditions. In some cases, you would have covers with no cover because it is a named category, which is give cover for earthquake storms, things like this.
In some cases, you would even have explicit pandemic exclusion already in the past. In many cases, the reinsurance contract would follow the underlying policies, and then you need to apply the correct aggregation interpretation as worded. That's what we have applied also, including advice from our legal counsels. That's how we have gone through contract by contract and came up with our estimate. That's how we look at it. As usual, we say, we will pay what is covered in the original policy and what is really covered according to the language, including occurrence language in the reinsurance contract. Your second question around social inflation in the U.S., clearly that's an ongoing important topic on our radar. We have been talking about it now since a couple of years.
You now have, in addition, the COVID situation, which adds, I think, even more color to that development. What we would, for example, see that given the lower economic activity, the frequency of some large verdicts, large settlements may even a bit lower due to lower economic activity, some lower commercial truck driving. The really aggressive court environment and the social inflation factor like inequality and really trying to get money from large corporates we don't think that's going to change in the midterm. We still are convinced that there needs to be court reform to bring U.S. liability business on a sustainable footing. That's why we continue to manage it very carefully. We continue to reduce exposure, particularly on larger corporates. We push a lot for commission reductions and other improvements. Also on the reserving side, we stay very close to it.
You pointed to some adverse development, which we would summarize for the first half like that in the first quarter, we already mentioned that we had some adverse. This was mainly driven by premium development, so less premium than initially anticipated came through. In Q2, actually, the PYD was about flat.
This was two components. One, as you point to, there was some reserve strengthening for some U.S. liability business, but this was compensated by favorable development in the property space and in the specialized space. We continue to manage this very carefully and we continue to take a very prudent stance towards U.S. liability also.
Great. Thanks, Thomas, for your questions. Can we have the next question, please?
The next question comes from Vikram Gandhi from Société Générale . Please go ahead.
Hello, everybody. It's Vik from Soc Gen. I hope everyone is well and you can hear me all right. I've got two questions. Firstly, should we expect some more capital flowing into Corporate Solutions from the group once elipsLife comes into the fold? Second question would be, would it be fair to say that the roughly 19 percentage point impact from the sale of ReAssure is more or less balanced out by the COVID impact within the SST ratio?
These are for you, John.
Vik, you get a prize for one of the cleverest questions I think I could imagine on the second one. Let me answer the first one. elipsLife will come with a balance sheet, certainly on a statutory basis, as we migrated that into the Corso carrier. We're sorting through exactly how and when to do that, we'll give you an update in due time. I think that it's not a giant balance sheet, but it will make a modest difference, at least, especially on the statutory side. With respect to your second question, there was an offset of COVID losses to the gain that we received in the closure of ReAssure. I'm not at liberty to say how close of a match that actually was.
Okay, Vikram, thanks for your questions. Can we have the next question, please?
The next question comes from Simon Fössmeier from Vontobel. Please go ahead.
Good afternoon. It's Simon from . I'm just wondering, two rating agencies, if I'm not mistaken, currently have a negative outlook on Swiss Re, and I'm sure you don't want to comment on the likelihood of a downgrade, but maybe you could give us an estimate how that would influence your pricing power in the upcoming renewal seasons? Thank you.
Simon, I'll take that. I think you're right. There's atually a negative outlook on the industry coming out of Standard & Poor's. Moody's reaffirmed the current rating and status, and AM Best, as you say, is interested. I think this goes back to the question we had earlier on the GAAP earnings. The rating agencies want to see clear evidence of the underlying earnings capability, and ultimately, they want to see those earnings coming through. I think we've had good discussions. I don't expect anything imminent, and I also don't expect any implications for the renewals. I believe we've got top ratings across the board. There are competitors that are able to operate with lesser ratings without a lot of trouble. It's not our goal or desire to see our ratings adjusted, but I think it's also not catastrophic in any sense, should they be.
Right now, we're looking to improve the earnings capability, the value creation of the business we write, reaffirm the current ratings in the course of the next four quarters. I think once COVID gets cleaned out, and we move forward into 2021, we should be able to do that.
All right. Thank you, Simon, for your question. We have come to the end of our Q&A session. If you have follow-up questions, please reach out to any member of the IR team. Thank you again for joining today. Stay safe, everyone. Have a good day or good weekend. Operator, back to you.
Thank you for your participation, ladies and gentlemen. You can now disconnect.