Beirut Blast, Wildfires Cost Swiss Re as Virus Reserves Rise

(Bloomberg) -- Swiss Re added another $500 million in reserves for future claims as it warned about the high uncertainty that remains because of the coronavirus pandemic.

The reinsurer reported a net loss of $691 million for the first nine months, driven by the higher reserves, as the virus bounces back and the threat of more lockdowns rises. Excluding the impact of Covid related claims and related reserves, the firm said it would have had profit of $1.6 billion.

The uncertainty around the pandemic remains high and could impact the evolution of claims in the coming quarters, affecting Swiss Re’s projections for losses, the Zurich-based company said on Friday.

The Covid-19 pandemic and a near-record Atlantic hurricane season have caused insurance claims to soar globally while the economic impact from the virus also hurts earnings from investments. While Swiss Re had already set aside $2.5 billion for the first half of the year to cover the majority of the expected ultimate losses from the pandemic, the total amount of claims remains difficult to predict.

Managing Covid

“We continue to be focused simultaneously on managing all dimensions of the Covid-19 crisis, ” Chief Financial Officer John Dacey said in a statement. “We are strongly positioned to capture attractive opportunities in upcoming renewals and deliver on our financial targets.”

Swiss Re rose as much as 3% in Zurich trading and was up 2.7% as of 9:38 a.m. The stock has declined by about 40% this year.

At the firm’s key property and casualty business, the combined ratio rose to 110.3%, from 101.4% a year earlier. A ratio of more than 100% means claims and expenses exceed revenue from premiums. Excluding effects of the virus, the ratio would have been 100.1%, the company said. The division took $1.6 billion in reserves due to virus-related claims in the nine month period.

Hurricanes Laura and Sally, the U.S. West Coast wildfires, and floods in Asia contributed to natural catastrophe losses, while the Beirut explosion contributed to man-made losses for a combined $1.5 billion loss to the unit.

Price Increases

The world’s second-largest reinsurer said in September that the price for policies it provides through all of its divisions will increase as more exposure to disasters such as hurricanes drives demand for coverage. Swiss Re said it experienced improved market conditions and demand for large transactions in its reinsurance divisions in the third quarter.

Excluding Covid-19 losses, the corporate solutions unit, which offers primary insurance for companies, would have swung to profit of $211 million in the first nine months of the year, from a loss of $441 million a year ago. The unit has been undergoing a restructuring. After exiting some of its unprofitable portfolios, the combined ratio remains elevated at 118.7% from 127% a year ago.

The unit reserved $678 million for virus-related claims for the first nine months. The majority of claims are related to event cancellations, a line of business which Swiss Re exited in 2019.

Key results from Swiss Re’s nine-month report:

• Group net premiums earned and fee income rose to $30.2 billion, vs $28.4 billion a year earlier
• Group return on equity was negative 3.3%, vs 6% a year earlier
• Property and casualty business net loss $201 million, vs $880 million a year earlier
• Swiss solvency ratio 223%, above target of 220%
• Business interruption claims account for one third of total reserves pool
• Event cancellation and mortality claims account for $681 million and $667 million in reserves, respectively

©2020 Bloomberg L.P.