Swiss Re AG

Ladies and gentlemen, welcome to the first quarter 2022 and 2024 Key Financial Data Conference Call. I am Sandra, the Chorus Call Operator. I would like to remind you that all participants have been listened only mode and the conference has been recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Elena Logutenkova, Head Media Relations and Corporate Reporting. Please go ahead, madam.

Thank you. Good morning, everyone. Welcome to our media conference call for the first quarter results of 2024. I'm joined today by our Group CFO, John Dacey, and he will give you a brief overview of our results, and then we'll be happy to take your questions.

John, over to you. Thank you, Elena, and good morning to everyone. Swiss Re had a strong start to the year, achieving a net income of $1.1 billion. All our main businesses contributed to this result, reflecting our continued underwriting discipline, a strong return on investments, and effective management of operating expenses. This is the first quarter when Swiss Re is reporting results under IFRS after transitioning from U.S. GAAP as of the 1st of January of this year. So prior period results for the first quarter of 2023 are not directly comparable. Insurance revenues for the group reached $11.7 billion in the quarter, while the insurance service result, which reflects the profitability of our underwriting activities, amounted to $1.4 billion. In asset management, Swiss re-achieved a return on investments of 4% in the first quarter, driven by continued increases in recurring income. Now let's turn to the results for the individual businesses. Property and casualty reinsurance reported a net income of $552 million for the first quarter, driven by the discipline underwriting and low natural catastrophe experience in the current period. PNC achieved an insurance revenue of $5 billion, an insurance service result of $704 million, and a combined ratio of 84.7 in the first quarter. As a reminder, the business targets a combined ratio below 87% for the full year. PNCRE also achieved good results in the April 2024 renewals. The business renewed contracts with $2.5 billion in treaty premium volume, which represents a 6% volume increase compared with the business that was up for renewal. Overall, PMC re-achieved a price increase of 12% in this renewal round. Based on the continued prudent view of inflation and updated loss models, loss assumptions also increased by 12%. Turning to life and health reinsurance, the business unit reported a net income of $412 million for the quarter. This reflects U.S. mortality experience in line with expectations and a strong investment result driven by increased yields. Life and Health re-achieved an insurance revenue of $4.8 billion, an insurance service result of $434 million. The business continues to target a net income of approximately $1.5 billion for the full year 2024. Now looking at corporate solutions, the business unit reported a net income of $194 million for the quarter. The result was driven by continued discipline underwriting lower than expected man-made losses, and a strong investment result also here. Insurance revenues for the first three months of 2024 was $1.8 billion, benefiting from good rate environments in most segments and new business growth. Corporate Solutions achieved an insurance service result of $213 million and a combined ratio of 89.9 for the first quarter, while targeting a combined ratio below 93 for the all of 2024. Finally, let me touch on IPTQ. We announced this morning that following the strategic review of IPTQ, we plan to withdraw from this business in a manner in the timeframe that maximizes value for the group, subject to applicable regulatory approvals and notifications. The reason for this decision is that the market environment now is vastly different from the one when IPTQ was created. Given these changed conditions, and the group's strategic priorities, we therefore concluded that we are not the best owners going forward of this business. In this regard, we are considering options for the different IPTQ entities. To sum up, Swiss Re had a positive start to the year, and we continue to focus on the 2024 financial targets, including a group net income of more than $3.6 billion. And with that, I'd hand it back to Elena.

Thank you, John. I think we can open the lines for questions now. Let's take the first question, please.

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. The first question comes from Joshua Geer from Insurance ERM. Please go ahead.

Hello, can you hear me? Yes, we can. So with Swiss Re transitioning to reporting under IFRS, what metrics were showing the key differences from last year and what, as you said, was sort of best representing Swiss Re's results?

Well, I think for our property casualty businesses, the combined ratios continue to be key indicators KPIs for demonstrating the underlying quality of the business. And here we've set out very explicit targets for full year. And you saw that both corporate solutions and reinsurance were able to achieve in the first quarter a better result than those targets. And that would have been true as the key KPIs under US GAAP. It's true under IFRS. So I think that's the first case. The second is the development of the net income, where especially in our life and health business, we show a stronger profit recognition for the book that we have in force that we built up literally over the last 40 years. And that earning coming through allows us to have a much stronger target for life and health. In 2023, our target for net income in life and health was $900 million. It's $1.5 billion for 2024. And again, we seem well positioned after the first quarter to achieve that target. Overall, the group's net income is up 20% from our target of last year, $3 billion, to a $3.6 billion target. The fact that we're going to IFRS as an accounting standard doesn't change the underlying economics of the business, but does change in some cases the way profits are recognized. And again, I think we're very comfortable recognizing that 20% increase year on year is an impressive adjustment to our ability to continue to run our various businesses in a highly profitable way that provides an adequate, actually more than adequate, return on equity for the group and for our shareholders.

Brilliant.

Thank you so much. The next question comes from Nathalie Olofors from Agence France-Presse. Please go ahead.

Hi. Thanks for taking my question. I would like to see if you would have an estimate for the Baltimore Bridge and if you see vulnerabilities elsewhere around the world around massive bridges like this, or if you think that, I mean, should the sector do a review of Is it something that's worrying you? Is it something that could be seen from elsewhere in the world? And for Ibtiq, could you explain to us what changed? Because it's a relatively new business. What changed during this short time?

Sure. I'm happy to answer both questions. So with respect to the Baltimore Bridge, This was a first quarter loss for our PNC Re business. Corporate Solutions was not on risk in any material way for that loss. In PNC Re, our gross loss was approximately $100 million. After some reinstatements on the reinsurance premiums, the net loss booked was closer to $75 million. So I think... Overall, this is a material loss for the industry. We are a major insurer of infrastructure around the world, and we continue to evaluate with a risk engineering team the nature of these risks and what we might learn from any accident like this as it plays itself out. I don't think that we view this as an indication of an elevated risk compared to what we knew. We do think that there will undoubtedly be some adjustments by the people owning infrastructures having seen the vulnerability the bridge had to this incident. With respect to IPTICU, Your question is what's changed in the intervening years? I think fundamentally it's important to understand that we built IptiQ internally as an option where we believed that there was a challenge or a potential challenge by technology broadly, what's sometimes referred to as INSTEC, to reshape parts of the market. And so we wanted to be sure that we explored that option and saw what was possible for a possible way for Swiss Re to participate in what was a B2B2C platform. The reality is the uptake of demand for the capabilities of that platform was probably lower than we might have expected, at least that we could have imagined. that option. And the other thing I'd say is the underlying opportunities for our core businesses of large commercial insurance and reinsurance have been much better than we might have thought seven, eight years ago. And in that context, this is about making sure that we are able to make the best of the investments that we've made in IptiQ at the same time refocusing management attention and ultimately our capital on our core activities that have a very bright future in front of us.

Can you just explain the figures for the Baltimore Bridge? I'm not sure I understand how much this did cost you.

So rough numbers, the gross loss to Swiss Re property casualty reinsurance would have been about 100 million U.S. dollars, the net loss closer to 75 million, 77 to be precise.

Thank you. The next question comes from Ben Dyson from S&P Global Market Intelligence. Please go ahead.

Hi, good morning. I've just got a question about reserving in P&C. You mentioned in the presentation that there was some reserve additions for prior year large events and also for pre-2020 US casualty. I was just wondering if you could say how much that was. Obviously, you can see the experience variance, but not what the actual reserve addition was, because that's a net figure, I think. And if you could break it down as in how much was for prior year large events and what they were and how much was for US casualty. Thanks very much.

Ben, thanks for the question. We're actually not providing a great amount of detail here. What I can say is one major market event, which you probably heard some other people speak about, was an increase in the reserves related to summer storms, flooding and hail storms in Italy, where based on information that was received in the first quarter from our seeding clients, we've adjusted the estimate for the industry loss up from $3.3 billion all the way to $6 billion. And as a result of that increase for the industry loss, we've booked a gross number of over $100 million additional for this loss. We think that's well-reserved. We don't expect any subsequent deterioration from that, but that was one chunk. We also had some important man-made losses where we had a new assessment based on internal modeling of what potential risks were for a finite but clear set of man-made losses that allowed us to put aside some additional reserves in the expectation of an ultimate cost that was higher than where we had been sitting. And then, yes, we referred to some of the challenging years in U.S. casualty pre-2020, which we also took the opportunity to reinforce. This is in part in the same quarter, whereas we've been very explicit about the NatCat losses were benign and very different than a year ago when we were reserving more than 400 million for the earthquake in Turkey in the first quarter of 2023.

Okay, thank you very much.

The next question comes from Daniel Zulauf from Börsenzeitung. Please go ahead.

Good morning, thank you. I have two questions. The first one on IPTIC Can you give me the loss this entity has produced during 2023 and in the first quarter? and how you expect to exit this business. Are you expecting to sell it? Do you think you can find a buyer for it? Are you going to shut it down? What does it entail in terms of employees? Give us, please, a bit more color on the end of Iptic. And the second question is simply... you're saying now that, um, um, IFRS is giving you the opportunity to show much better than, uh, um, before, uh, the real value of your business, et cetera. My simple question would then be, why did you opt for us gap in the first place then?

Sure. So let me answer the, the, um, the second question first, the, um, The IFRS actually changed fundamentally their standard a year ago, where most of the European markets that we are compared to made that transition as of January 1, 2023. The previous version of IFRS, I would argue, was not nearly as effective. insightful in terms of the underlying economics as the business as this new version, which sometimes referred to as IFRS 17. And, and so our decision to migrate from US GAAP to IFRS was fundamentally linked to this, uh, uh, major revision of the IFRS accounting standard, um, that came online last year, uh, because we were under US GAAP, we had some, uh, flexibility in exactly when we made the transition. And so we've gone ahead and done this as of January 1st this year. So I think that's the issue. The group's original adoption of U.S. GAAP dates back more than 20 years and certainly before my time as CFO. So I can't help with a great logic for why that was available. But again, the standard that we're now on was not an option at that time. With respect to IptiQ, it's important to understand IptiQ has a number of different businesses across Europe and the US. These businesses are run under an umbrella leadership that would have their own specific capabilities. And frankly, they're in different stages of development. some further along than others. Exactly what we do with each of them is being sorted out. We believe there is unambiguous value inside the group of businesses. Some of them may well be of interest to potential customers. um, acquires, we say explicitly, we don't believe we're the best owners of, of, of these activities. Uh, other people may be much better owners. And so over the coming, uh, uh, quarters, and in some cases, maybe even years, we'll evaluate what's, what's possible. But in the meantime, we'll, uh, be very consequent in, in managing these in a way that, um, limits the downside to the group and maximizes any potential upside that we might see across the businesses. With respect to employees, I don't think there's going to be a dramatic impact immediately over time. We'll have to sort out what the best answer is. all stakeholders will be. And that's how we'll go about this.

The figures, you told me last year that you were expecting in 2023 a loss of $250 million. I guess this has turned out higher. Otherwise, you might not have decided to shut down or to sell or whatever you want to do with it. Maybe you can elaborate a bit on the figures.

The 2023 number was, as you say, a loss of approximately 250 million as we were building this business out again across multiple jurisdictions. The expected performance in 2024 was for a smaller loss as we continue to improve the business that, um, directionally what was, is where the business is heading. There may be some charges related to this restructuring, uh, in coming quarters. Uh, but, but overall, uh, there's, there's nothing, uh, dramatically bad happening in, in the underlying numbers. It's just that we, um, came to the conclusion that we had better places to invest, um, in our core businesses. And, and so, uh, shutting this down one way or another, either through potential sales, and we'll see what's possible, managing the business tighter for those activities which are very close to breakeven and potentially putting into runoff those that are very far from breakeven is the way we'll go forward here.

Well, what is the value of the business in your balance sheet at the moment?

If you're talking about potential depreciations and... So one of the important things, as you referenced, we've actually been taking the losses of this business through our P&L. And so for the group earnings... we've recognized already the challenges and expenses related to building a business like this. So the overall, on what was US GAAP, what's now IFRS, the impact will be contained. Again, it's very important that we maintain our our confidence in being able to achieve the $3.6 billion of earnings for 2024. So I think that's a good summary of where we are here, and we probably need to move on to the next question.

The next question comes from Thomas Paul from AWP. Please go ahead.

Yes, good morning. Thank you much. I've been answered. Again, say a little bit your expectations on catastrophe, on losses for this year, viewing also the renewal seasons. Can you, after a very benign Q1, can you say something?

Sure. And there is unambiguously seasonality to the natural catastrophe season. losses, the expectations that the hurricane season in the U.S., which is typically a Q3 center of activity, is still very much in front of us. So the fact that we've had a benign Q1 doesn't in any way imply that we'll have a benign year. Having said that, we're happy to take the relatively low level of losses in the first quarter into account. We overall have an exposure which would have expected losses for a full year given the book we have of approaching 1.9 billion U.S. dollars. We think that activity is well priced with those expected losses. And we'll have to wait quarter by quarter to see what actually arrives. But when we put out our targets, both of the earnings, but also of the combined ratios for our PNC business, we assume that we will have a material set of natural catastrophe losses of that sort of magnitude for the full year. And we can absorb those losses because of the premiums that we receive.

Okay.

1.9 billion, you said, is the... Yeah, and we have in front of us the June and July renewals, so that number is an estimate that will continue to be dynamic, but we're approximately there at this point in time.

Thank you.

The next question comes from Aisling Sin from Insider Insurance. Please go ahead.

Hi, good morning. I just sort of was wondering, I know this has been mentioned on the call, but would it be possible to actually provide the specific insurance revenue figures for the prior year quarter, just so that we can compare it? Because obviously net earned premium and insurance revenue aren't a great comparison. And then also we have sort of seen a slowdown of rates over the last year. And P&C reported a 12% rate increase this year. And in the prior year quarter, it was 19%. So I was just wondering if the rate deceleration is something on your radar and if you are concerned about it.

So on the second question, I don't think we were surprised, but we were pleased in the April renewals that we were able to achieve a 12% increase in pricing uh, for the risks that we did renew. And this led us to an overall increase on that renewed book of about 6%. Um, the, um, the reality is, uh, we've also increased our expected loss costs by, uh, in this case for the April renewals at an identical amount of 12%. Um, but, uh, we continue to see a recognition that, um, the lingering inflation and some needs for model adjustments require needs for better pricing and are able to achieve that. We'll see what happens in the June and July renewals. There are certain pockets which the market seems to be willing to provide additional prices for and we will make sure that we get the rate that we think we need along the way. I think what we can say is we expect a continued strong demand for reinsurance, and while there's adequate supply, there's not excessive supply. So we don't expect any breakdown in the discipline that we've seen through the January 1 and April renewals, but rather that that discipline will continue for us. I appreciate the... The comparative challenge that you have, I can give a rough indication that year on year, we think our book is about 5% larger than it was a year ago under an identical measurement system in IFRS. So that's the way to be thinking about the growth that we're able to achieve here. in reinsurance as we go forward here. And in the half year, we'll give a fuller disclosure with comparatives, which will allow you to do it. But the reality is the volatility that we see in individual quarters is challenging as we make this transition into IFRS.

Okay, thank you. And just one other question quickly. It's a little off-piece, but I was just wondering if you could share your outlook on the cap bond and ILF market for 2024.

So what we've seen is a continued discipline also in the ILS market. There is capital available, but I call it well-informed capital. A number of people had a very good year in 2023. They're careful not to extrapolate that and those results into 2021. future years, including 2024, but rather to recognize that there will be good years and there will be less good years in this space. I think in terms of cap on issuance, we continue to see large volumes. The relative rates are probably a little less frothy than they might have been a year ago, but this continues to be an important part of the market for named losses. It doesn't solve necessarily every problem that a primary or even reinsurance company might have in terms of transferring risk. But for specific loss exposures, it can be very efficient.

Great. Thank you. The next question comes from Arnold from Reuters. Please go ahead.

Good morning. My question goes in the same direction of prices. Rival or competitor Munich recently indicated that net cat prices are not longer on the rise, let's put it that way. You reported a 12% increase in April. What do you think, where are the pricing going? Has a peak... reached or are they continuing to rise? And if a peak has reached, are the prices going to stabilize or are they already?

Paul, the pricing environment is a little complicated in that a lot depends on which risks and which positions inside a reinsurance tower we're speaking about. So overall, we think there's continued room for prices to increase in property broadly, NatCat specifically. There are also some sublines in the specialty book which we expect prices to continue to firm for reinsurance. I think there are places in the NatCat space which are probably judged by the market to be well-priced today, and so additional price increases may not be available for subsectors, certain layers. But overall, there remains, I think, the ability to be selective in finding some price increases, certainly the covered continued inflationary impacts, and in some cases, some model impacts with adjustments. The other thing I would say is driving the demand for reinsurance is a continued increase in underlying asset values. And so whether it's coastal properties, residential, but also commercial, or any exposure that's covered by property markets, there is simply more value to be insured. And so the primary companies are finding themselves with larger exposures and as a result are looking for additional reinsurance to help manage those exposures. And as an ongoing business, our PNC REIT team is looking to be able to support those primary companies, but at prices that we judge adequate. And so right now, as I say, we're in a market where the pricing is in some places adequate, in some places we see the need to continue to increase. And I just reach back to the facts of our April renewal, where those prices did go up 12%. It was necessary. Our That included, and you'll see it in the slide deck, the NACCOT space, the property and specialty space where premiums went up for our book by 12%, 18%, and 17% respectively. So we see opportunities to right this business while still achieving some important price additions.

Thank you.

The next question comes from Tom Seams from Reuters. Please go ahead.

Hi, good morning. You mentioned, this is a follow-up question to Ibtiq. You mentioned possible restructuring charges over the coming quarters, and I wondered if you had an estimate on what those charges could amount to in dollar terms, what the maximum might be.

So, Tom, a lot depends on how this plays out. I mentioned that we have seen and might see, um, some outsider interest in, in, in some of the businesses that we have built up here. It's very difficult to put a number out there again, uh, in the scenarios that we have, we, we don't see anything that would, um, bring us off of our full year target, uh, of, uh, of 3.6 billion for, for, uh, net net earnings for the year. But, um, Will there be something coming through? I would expect so as we go forward, but we'll be transparent with this as we see the need to put something up. Obviously, this is a decision that was taken here in the second quarter, so there's nothing reflected whatsoever in the first quarter other than the normal operating expenses of IPTQ in that quarter.

Okay, thanks. The next question comes from Notker Blechner from Finanzen Wirtschaft. Please go ahead.

Good morning. How have you got the investment return of 4%? Could you explain how you got this investment return? Did you focus more on stocks? Did you focus more on private markets? What was the reason? And if I got you right, you disagree with the Munich Re CEO who predicted that the increase of prices in the reinsurance market will be finished soon.

So on the second part, I can comment on where Munich Re's overall position view is whether it's the CEO or the market. What I can say is our experience coming through in the two major renewals that we have in January 1 and April was that we have been able to achieve price increases on a net basis. Those increases have largely been used up in what we think is a higher loss cost. And so It may be the case that his reference was whether there's a net increase, and there the reality that we show is that, yes, we're not getting a price increase above what we think is required. But again, I'd say that those estimates for lost costs are our estimates, and I believe in nature they are prudential in both the estimates of future inflationary impacts and some of the, the, the modeling changes that we've done. So, um, that would be the, uh, the position there with respect to the, um, investment return. This is largely driven by the, uh, fixed income portfolio that we have, uh, performing very well in our ability to reinvest, uh, new money. Um, we, our, our asset base is largely dollar based. focused and the recurring income yield for full year 2023 was 3.6%. In Q1, it was up to 3.9%. Our ability to invest new money in the first quarter has yields of 5%. And this is not... an all risky portfolio in the fixed income. This is focused on largely government bonds and some investment grade credit, but we're not reaching out into any risky assets to achieve this 4%. But again, it's helpful to be in the dollar environment where those rates have gone up materially and are staying higher. We are headquartered in Switzerland, but our business has a very, very strong U.S. dollar component in terms of our liabilities and therefore the assets that we hold against those liabilities.

And one additional question, the loss of 100 million of the Baltimore Bridge, is it integrated in the quarter, the first quarter results?

Yes, that's entirely part of Q1. We've made this full reservation for what we think will be ultimate cost. We'll have to continue to evaluate If there's new information that comes out, but in the scenario that we use, that's a loss that we're booking.

The next question comes from Jay Singh from Insurance Insider. Please go ahead.

Good morning. It's just not sure if this question is directed in the correct place, but is there any kind of commentary or figures for the kind of income fees or third-party capital for the alternative capital partners business?

We don't release those on a quarterly basis. We can probably at mid-year give a stronger indication that that business continues to perform well for us, both in terms of the activities in structuring and placing catastrophe bonds for our clients, but also some of the other activities that they're involved with.

Thank you.

As a reminder, if you wish to register for a question, please press star followed by one. The next question comes from Guido Schetti from NZZ Amzontag. Please go ahead.

Good morning. Could you say what is the overall loss you booked at the APTQ over the years?

I don't think we've... Had that figure, I mean, the business has been going for about nine years in a material way. I think the last two years, the losses because of the expansion into additional geographies, those were the two big uh, largest lost years. And we talked about last year at approximately 250 million. So, uh, again, this was an, uh, an option that we built, uh, some real capabilities, uh, in terms of delivering both life and health, but also, um, retail property casualty, uh, policies, uh, to clients in this B2B to C model. And over time, um, you know, That bill has cost us real money, but our decision, again, is to withdraw from these activities in a way that maximizes the residual value of what we have and treats the various stakeholders fairly along the way. We do have important partnerships and clients that we'll continue to service as we've committed to. So I think it's not been trivial, but it's also something that we've managed and, as I say, expensed each year, every year. And so we don't expect any dramatic one-off charges. There will be some charges as we do this restructuring. Okay, thank you.

And could you say how big is the total workforce now? at APQ?

I don't believe we've actually provided that information, but it is spread across, as I say, multiple geographies and continents. Again, some of these businesses, our business will continue to operate and manage. Others are probably less or not going to be part of the future in terms of the the nature of the current activities.

I read the number of 800. Is that correct?

I don't believe so. But I don't believe we've provided a number. Okay. Thank you.

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Elena Lugutenkova for any closing remarks.

Thank you, and thank you everyone for participating in today's call. Just a quick reminder that there will be also a session for analysts and investors later today at 2 p.m. Zurich time, and journalists can follow that in listen-only mode. If you have any further questions, please reach out to Media Relations. Thank you everyone. Bye-bye.

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