Ladies and gentlemen, welcome to the First Quarter Trami Trami Media Conference Call. I'm Sarah, the Carusco operator. I would like to remind you that all participants will be in listen only mode and the conference is being recorded. The presentation will be followed by a Q and A session. The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Elena Logotankova. Please go ahead, madam.
Thank you. Good morning, and welcome to Swiss Re's First quarter results media call. I'm Elna Logotankova, Head of Media Relations and Corporate Reporting. I'm joined today by our group CFO, John Dacey, who will give you a brief overview of our results and then answer your questions. John, over to you.
Thank you, Elena, and good morning. Thank you for dialing in. These are the 1st quarterly results where we've seen the impact of COVID-nineteen, and I will explain how this is reflected in our figures. Swiss reentered the situation with a very strong capital position. We also took proactive measures, which successfully protected our investment portfolio and the balance sheet from a larger impact, which I'll also elaborate on.
So let's take a look at the 3 main drivers of the quarterly net loss of $225,000,000 First, we booked losses related to COVID-nineteen in our property and casualty businesses of $476,000,000 This primarily covers expected claims for canceled or postponed events. As usual, we followed a prudent approach and established reserves as a result of claims notifications as well as evidence of expected claims materializing through the end of March. As previously communicated, our total maximum exposure to event cancellation across 2020 is a mid to high triple digit million amount. This is skewed towards the first half of the year in terms of events covered, which means we would expect to book most of the losses in the 1st two quarters. 2nd, on the investment side, market turbulence was responsible for U.
S. GAAP net valuation loss of approximately $300,000,000 As you know, the Q1 saw one of the sharpest sell offs in recent histories with significant volatility affecting most major asset classes. In anticipation of challenging markets, we put in place credit and equity hedges in the early part of the quarter. This helped us to substantially contain a higher gross impact of market turbulence through gains of approximately $650,000,000 attributable to those hedges. And 3rd, the Q1 result was also adversely impacted by a mark to market valuation of the Phoenix Group shares, which Swiss Re will receive upon the completion of our sale of ReAssure to Phoenix, which we would expect to complete in the Q3.
Despite these challenges, Swiss Re maintains its industry leading capital position with our group SST ratio comfortably above 200% as of the 31st March. We remain a strong partner for our clients and our business is resilient. Over the past weeks, even with most of our staff working from home, our business continued to run without interruptions as evidenced by the very successful April renewals. We posted a strong investment result for the quarter with an ROI of 3.2%, thanks to the proactive hedging and the portfolio management actions I mentioned earlier. And all of our business units are performing strongly, if we adjust for COVID-nineteen impact.
Let's have a look at them individually. On P and C Reinsurance, we reported a net income of $61,000,000 despite the losses related to COVID-nineteen of $253,000,000 and $397,000,000 in large natural catastrophe claims. Excluding the impact from COVID, the ROE of P and C Re was at 13%, in line with our target range of 10% to 15%, and the business unit is on track to reach our combined ratio estimate on a normalized basis of 97% for the year. We're also very pleased with the April renewals, which were particularly important for the Japan market. We achieved a treaty premium volume increase of 4% and a nominal price increase of 8%, with particularly strong nominal price increases for Japan windstorm risk of more than 50%, reflecting the recent loss experience in Japan.
Risk adjusted price quality year to date remained unchanged, Life and Health Reinsurance delivered a net income of almost $300,000,000 and an ROE of 15.8%, well above the target 10% to 12% range. This reflected strong underwriting and investment results. To date, we've not seen a noticeable impact either on mortality or in our critical illness book for claims related to the COVID-nineteen pandemic. From what we've observed so far, the virus disproportionately affects older populations with an average age for fatalities above 80, while 90% of our life and health portfolio covers individuals aged 60 and below. Corporate Solutions reported a net loss of $167,000,000 impacted by $223,000,000 of losses related to COVID-nineteen.
Again, most of these losses are reserves posted for anticipated claims related to event cancellations. This is a line of business that Corporate Solutions decided to exit and the restructuring announced last year. Therefore, our exposure is below what it could have been otherwise. And in particular, the events that were responsible for ensuring tend to be front loaded in the first half of the year. Excluding the COVID-nineteen related losses, Corporate Solutions normalized combined ratio was 103% in the quarter.
This is in line with our 105 estimate for the year and a 13 percentage point improvement from the year earlier period. The strong pricing momentum experienced in 2019 for CorSo has continued into 2020 with Corporate Solutions achieving a price increase of 13% in the Q1. Given the current market conditions, we expect this trend to continue. Life Capital's net loss of $261,000,000 is almost entirely attributable to the mark to market adjustment on Phoenix Group shares, as mentioned earlier. This has no effect on the agreed share sale of ReAssure, which remains on track and is expected to close in the Q3, as I mentioned.
The open book business continues to perform strongly with gross premiums written increasing 20% year on year in the first quarter. To sum up, it hasn't been an easy quarter for the entire industry. And of course, our financial results reflect this. But more importantly, our underlying businesses continue to perform well. We took timely and substantial measures to protect our balance sheet, and we maintain our industry leading capital position.
And with
that, I'll hand it back to Elena to manage the Q and A.
Thank you, John. We'll now open the lines for questions. Operator, could we take the first question, please?
The first question from the phone is from Marion Alstheimer from Bloomberg News. Please go ahead.
Hi, Elena. Hi, John. Thanks for taking my question. I was wondering if you could elaborate a little bit more on the losses versus the reserving. I'm just trying to square the P and C numbers.
You say you had the $476,000,000 charge, I'm assuming that's based in loss, but then there's the $253,000,000 from the little subsection. Is that just future reserves not baked into the loss or am I reading that correctly?
No, sorry. Let me see if I can clarify. The 476 is for the group. The two places that arise is in the P and C Re. So the P and C Re is part of the 476 is a 253.
And in addition, in CorSo, there's I think 223,000,000 of losses. So those two numbers added together will get you to the $476,000,000 When we say losses, in many cases, we've not seen the specific claims presented to us. So we've not paid this money out. We've done our own forensic work to try to anticipate which events either have publicly been postponed or are highly likely to be canceled or postponed and put those reserves up as of March 31. Again, there are more events which will be decided upon in the second, 3rd and 4th quarters, and we'll have to address those as they occur.
Okay. Thank you. That's helpful. That clarifies my question. The other follow-up I had to that on the reserves is that in the Life and Health division, you actually said you had no impact from COVID in this quarter.
Do you expect to be having some impacts in 2Q or 3Q?
It's just very difficult at this point of time to try to estimate where claims are going to come through. What we can say is that the health crisis continues to exist, even if in certain countries we seem to be over the hump of at least the first wave. It's going to be challenging to understand what the total impact is going to be on mortality in the course of 2020. We're working very closely in the reinsurance business with our primary clients. We want to be sure that we're doing everything we can to assist people that are directly affected by this.
But as I said, for the moment, the overlap between those populations most affected by COVID-nineteen and the insured populations in many countries is not large.
Okay. That's helpful. And then lastly, I was hoping you could elaborate or clarify a little bit more in the asset management section, you have this sort of net unrealized losses of $55,000,000 How do I read that? Is that losses you expect to take later because it's unrealized now?
So under our U. S. GAAP rules, the deviations for listed equities, even if we continue to own the equities, have to be written down in the quarter where their value declines. In addition, we've got a series of non listed equities in our private equity portfolio and another portfolio we call principal investments, which we've evaluated in terms of relative movements of either underlying positions or comparable positions in the public market. Taken altogether, the Q1 impact for our P and L would have been approximately minus $950,000,000 Against that, we have the positive impact of the hedges, both on equities and in some cases, on the credit portfolio, the corporate bond portfolio that we have in the group that had a positive impact of about $650,000,000 So the net difference that was booked into the P and L of Q1 is about a $300,000,000 decline.
Okay. Thank you.
The next question from the phone is from the line of Arnold Pol from Reuters. Please go ahead.
Good morning, gentlemen. Do you hear me?
Yes, we do Arnold.
Okay. Sorry.
In the Q1, COVID-nineteen costs P&C and Corporate Solutions nearly EUR 500,000,000 as you said. Can you estimate what costs C3 will face due to the pandemic going forward? You said the most of the losses are expected in Q1 and Q2. Do you have any estimate for the losses for the industry coming out of COVID-nineteen?
Yes. I understand the question. Unfortunately, at this point of time, we don't have a good answer for you. This is a the way that I think about this, we are in the middle of a slow moving storm. There's the underlying health crisis with the pandemic.
And in most countries, we remain in the 1st wave. We've seen even in what we would consider well organized countries like Singapore, the risk of a second or even third wave of infections coming through that you should not exclude for other countries. So that's the starting point. On top of that, we obviously have an economic crisis, which has been exacerbated by the lockdown procedures that many countries have put in place. The net impact of these lockdowns, I think, is still being evaluated across economies.
The massive intervention of governments and monetary and fiscal policies, also unprecedented, is very difficult to predict and how all of this will intervene in terms of not just society losses, but insured losses as we go forward. And so it's very difficult for us to make any predictions for what the industry losses will be or frankly where Swiss Re's potential losses. One clarification I would make on the front loading of the year for losses related to event cancellation, that's only event cancellation. So we as we said, we've got many exposures during all four quarters. They tend to be larger in the 1st two quarters and the second two quarters, but it doesn't mean that we don't have any event cancellation options there.
Okay. Thank you. A second question, if I may. There are efforts to make the insurance industry, which argues that pandemic damages is often not covered, to pay more. How do you view this?
Do you expect, let's say, a kind of flood of lawsuits?
So again, Swiss Re in business for 156 years has a strong reputation and a deserved reputation, I believe, for fully paying all the claims we're responsible for, and we will continue to move forward in this pandemic in that spirit. I think it's at the same time, it's important that our shareholders and other stakeholders don't expect us to pay for claims that we're not responsible for. In certain cases where people have chosen to pay additional premiums to include coverages oftentimes in what would be a supplement for a property policy that would be covered for pandemic derived losses, we're happy to pay those losses. But in those situations where people attempt to make claims for businesses closed not because of physical damage, but for the pandemic when the policy does not cover that. You should expect us not to volunteer our shareholders' funds to cover these losses.
Okay. But still the question, do we expect a lot of lawsuits in connection?
There may well be disagreements over these coverages. We'll defend ourselves appropriately. But more importantly, we will pay and have we expect to pay those losses, which we are responsible for.
Okay. Thank you.
The next question from the phone is from the line of Tom Sims from Reuters. Please go ahead.
Yes. Hi, good morning. Just a follow-up on Paul's questions. The $476,000,000 how much of that is Olympics related?
So we don't specify the specific amounts related to specific covers. The Olympics was a large cover. There are actually multiple policies to multiple entities related to the Olympics. And so this is what our losses related there are a mix of positions visavis those policies. But again, we did flag that our gross exposure on that was the largest single exposure we had on events.
Okay. So in our but you couldn't say it's 50% or just sort of a qualitative
amount or? Unfortunately not.
Okay. So but we wouldn't be wrong in our stories to highlight the Olympics sort of high.
So the Olympics are a part of the event cancellation. The event cancellation is the majority of the 4 76.
Okay. Thank you.
The next question from the phone is from the line of Thomas Zengartner from FCB. Please go ahead.
Yes, good morning. Question goes to the renewals. Maybe you could tell us a bit more on the size of the portfolio that had been renewed in April? And is it correct to assume that there are higher price that we have with gross written premiums increased in nominal terms, but the risk also increased so that the price quality sort of is stable. There's about the same margin in it on a bit higher volume.
Is that a correct assumption? And the second question is, at the very end of the tax, Christian Munnetal alludes to some sort of finding solutions together with governments. To me, it seems, can you explain a bit on what sort of solutions he tries to think to get ahead?
Sure. So on your first question on the renewals, an important dimension of this renewal was an assessment that our technical underwriters have made that the model we had in place for the loss expectations from typhoons in Japan, both the winds damage, but especially the flooding damage, was underestimating those losses. We took the experiences of Jebi, Trami, Faisha and Hagibis in the last 2 years to do a major reevaluation of the economic cost of these typhoons. And so we've we shared this information with our Japanese clients and other clients that have Japanese exposures and basically said, if you want these risks covered, we're going to have to receive a materially different level premiums. So in some ways, it's the same risk, but just with a different valuation of what ultimate losses will be.
That's why on the windstorm, we were able to get this very strong double digit increase, which fed into the entire renewal of an 8% nominal increase. When we say nominal, we mean that it's a result of our own redefinition of expected losses as well as the reality on the investment side of lower interest rates says that the prices we achieved were largely sufficient to continue to write this business with a similar level of profits that we had previously. And so that's why we say overall year to date, the margins are stable, but that's with a more pessimistic view of what the cost will be for losses associated with this. We think our nat cat book is a both a very profitable book in normal years as well as a strong important book for the industry. And therefore, we're happy to see this grow in most markets.
We'll have the renewals in June July focused in the United States and especially the Florida windstorm. We look for continued improvement in pricing in those markets. The last part of that question, about 15% of the book renewed in April across markets, again dominated by Japan. On the outlook, Christian does talk about public private partnerships. I think one of the things which is clear to the world today is that the economic cost of pandemics is more than any single industry, whether it's the insurance, the banking industry can manage.
We believe a little bit like we saw after nineeleven with the implementation of the Tria program in the United States that there may be a role to work with governments for the true extraordinary event where the insurance industry can, as it does today with some exposures to terrorism, play a role to manage pandemics. I think most importantly, what we've seen is the importance of preparation for managing future pandemics is clear. COVID-nineteen is a terrible event, but it's not going to be the last one. And as a society, it's incumbent upon all of us to do what we can to learn our lessons. We saw this, frankly, in working with local governments in New York and New Jersey after Hurricane Sandy, where the resilience of the cities and the states fundamentally changed as a result of analysis that we were able to do together with them about what had happened, why it happened and what you could do to make the cities more resilient.
I think the pandemic issue is complicated. The great news is we've got a bunch of scientists capable of assisting the world to understand the scope of the risk as well as what some reasonable approaches might be.
Thank you.
The next question from the phone is from Oliver Rall from Financial Times. Please go ahead.
You've actually answered most of my questions, but just a couple of follow ups. Firstly, on the details of the campaigns you're saying mostly from events. Could you give us some idea of what other sorts of claims that you're facing? The other question just really to follow-up on your last answer about public private partnerships. Do you think that this is needed just to address future pandemics?
Or do you think any new scheme has to be wider to address other source perils?
So I think your second question, once we've unambiguously have the COVID-nineteen crisis under control, I think the focus with governments and in some cases, international associations can and should focus on pandemics to the degree that this is clearly a risk which is too big for the industry to manage itself. There's a accumulation risk that even a company is well capitalized as Swiss free simply cannot manage on its own. The industry itself cannot manage the level of economic losses from a business interruption. What we can do is potentially assist ways to facilitate a better response and having some sort of a backstop by governments like we do with Tria and terrorism may be an approach that's worth pursuing. I think for natural catastrophes, what we've been able to do not only is to organize the industry to manage most or lots of the risk, but also, in some cases, organized capital markets through the alternative capital sector to bear natural catastrophe risks.
I think having capital markets bear pandemic risk is more complicated, but also should not be excluded from part of the potential solutions there. Your first question on where other losses come other than event cancellation, there's a couple of different lines of business in the P and C world, which have exposures. Clearly, the credit and surety lines, where we didn't see a lot of COVID related losses crop up yet, but you would expect over the next quarters there may be some. That again is complicated by the fiscal stimulus measures in certain countries that have been targeted at maintaining an orderly credit insurance market. On business interruption, as I mentioned, there are some policies which have sub limits that are not restricted to physical damage.
And in those policies, as we see clear and covered claims reported, we'll manage those. There hasn't been too much in the Q1. That will be something we'll work with our insureds and our primary companies with as well. I think that's most of the sources right now. But again, it's very difficult to predict how these losses will come and the magnitude of what the industry will face here.
Thank you.
The next question from the phone is from the line of Ben Dizon from SAP Global Marketing Intelligence. Please go ahead.
Hi, good morning. I was just wondering if you could say whether you expect the coronavirus crisis to have an effect or to reduce socially gross written premium because of lower economic activity or if the revert is true, whether you're seeing greater demand from insurance cover because of the uncertainty? And yes, the second question as well. I mean, obviously, the capital raise is strong at the moment, but do you envisage a point where you might need to raise more capital?
So your first question, I think you almost answered in asking it. The reality is with reduced economic activity, there may be especially on some of the proportional covers we place, a lower amount of premium to get written in 2020. But exactly to your point, we expect, especially in the second half of this year, frankly, a potential increase in demand as our primary insurance companies, in particular, are looking to modulate the risk profiles that they currently have and potentially gain some assistance in their own capital structures that reinsurance can deliver. And again, one of the reasons why we protected our balance as much as we have is with the beliefs that there will be, I think, some interesting business opportunities for us as we start to come out of the actual crisis, and we want to be sure that we're fully ready to serve our clients. With respect to capital, again, as we speak, we're very comfortable with the capital levels we have with expected premium volumes.
If there seem to be massive opportunities in the future, I don't exclude the possibility for that kind of growth serving our clients that we deploy more capital. But there's, in my view, no need today to think about any sort of external reinforcement. I'd remind people that we do have sitting on the sidelines a contingent capital accessible to us at our demand of $2,700,000,000 in addition to what's currently included in the calculation for the SSQ ratio. So we're feeling that we remain very robust as we're some months into this crisis. Okay.
Thank you very much.
The next question is from the line of Friederike Krieger from Felichel Santander. Please go ahead. Good morning. My question has already partly been answered. I was wondering if you see opportunities arising through the crisis.
You already said in the second half, there may be an increase in demand. But do you also think there will be an increase in reinsurance prices due to the COVID crisis?
So the we were coming into 2020 expecting a continued firmness of pricing for the reinsurance market. I think there's nothing that's occurred that would make us believe that firmness would not be accelerated. There has been some real capital losses in the industry as a result of the asset side, in particular. You've seen some people report declines in their equity of $1,000,000,000 plus positions. The in addition, the risk appetite for some of the players may be decreased given the uncertainty around future losses related to COVID-nineteen.
So our expectation is demand, if anything, will increase. Supply does not seem to be increasing at this point of time and maybe decreased as a result of the balance sheet losses some players have experienced as a result. That's probably a good thing for reinsurance prices.
Thank you. The next question is from the line of Patrick Finkers from Limburg News. Please go ahead.
Good morning. I'm following up on one of your comments earlier, John, about the maximum exposure this year for COVID. And I believe it was a mid to high triple digit amount. Could you just clarify what that means? Was that mid to high triple digit 1,000,000 of dollars?
Patrick, yes. So we explained that we had a $250,000,000 gross exposure for the Olympics and a series of other exposures. When you add them all together, yes, it's a triple digit million exposure. This is only related to the event cancellation sub segment. There are potential other losses, which might or might not come through with respect to our mortality book, with respect to business interruption on property policies with respect to credit insurities, none of which we've attempted to estimate publicly because it's simply very, very complicated at this point of time to put anything definitive out there.
On the event cancellation, we can't be definitive because we know what our gross exposures are. If every event in that portfolio gets canceled, it will still be less than $1,000,000,000 of losses.
Can I just follow-up there? So interesting you mentioned that on business introduction, you haven't kind of like formally given a public estimate. What are your thoughts around that? Because I'm noting some legal cases in the U. S.
Based around business interruption. Which way do you think the industry is how are you prepared for that in terms of which way will courts will court side? Are they going to making sure it's paid for business interruption or not?
So I'm not in the business of trying to estimate where court decisions will land. What I can say is we do expect contract wording to matter and rule of law to be exercised in jurisdictions. And as a result, as I mentioned before, on those policies where we are on risk, we'll work with our clients and pay the claims that we're responsible for. But in terms of ex post revisions of coverages that premiums were not paid for, we don't expect and would resist attempts to make the industry broadly and Swiss Re specifically pay.
Thank you.
The next question is from the line of Rachel Dalton from Insurance Insider. Please go ahead. Good morning. Thanks for taking my question. Could you tell us a little bit more about what you expect from the 1.6 and 1.7 renewals?
And also could you talk about how much of an impact do you think COVID-nineteen will have on those?
Rachel,
the indications we've got that are obviously preliminary are that there is real demand out there. People may be looking for covers down a little lower on the reinsurance programs. We also think to the degree that the ILS market is relevant for this space, the specific requirement of capital market players that all COVID related losses are absolutely excluded from any cover that they might be responsible for, I think just reinforces the discipline of the market here. So our expectations are that this is has the opportunity to be a strong renewal for Swiss Re. Where pricing adequacy, especially for the Florida market, could return to more rational levels from what had been under priced risks for multiple years and we'll participate accordingly.
But our goal is to find opportunities to put this capital to work. And these two renewals may provide, frankly, a little more opportunity than we might have thought at the beginning of the year.
Okay. Thank you. There are no further questions at this time.
All right. Thank you very much, everyone, for joining, and have a good day.
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