Swiss Re reports strong 2010 results with full-year net income of USD 863 million, announces new corporate structure aligned with strategic priorities

Including the impact from the termination of the convertible perpetual capital instrument (CPCI) issued to Berkshire Hathaway, full-year 2010 net income was USD 863 million, an increase of 74%, and return on equity was 3.6%

- Excluding the impact of the CPCI termination, full-year 2010 net income was USD 2.3 billion and return on equity was 9.2%
- 2010 dividend proposal of CHF 2.75, Swiss withholding tax exempt distribution out of reserves from capital contributions
- Strong start to 2011: Very successful January renewals
- New corporate holding structure to be established
- Financial targets established for the next five years

Zurich, 17 February 2011 – Swiss Re reports strong results for 2010, reflecting the sustained earnings power of its business and the strength of its client franchise. The company achieved full-year net income of USD 863 million and earnings per share of USD 2.52. Swiss Re plans to establish a new corporate structure under a newly-formed holding company, increasing its client focus, improving the transparency and accountability of its businesses, and creating greater flexibility

“Over the past two years we have come a long way,” says Stefan Lippe, Chief Executive Officer. “Swiss Re has strengthened its balance sheet, set new strategic priorities and aligned its management structure. The company is now taking the next step in shaping the company's future by adjusting its legal structure to reinforce its strategic priorities and allow it to fully unlock the potential of its business.”


Strong earnings power in 2010

Swiss Re delivered strong results for the year. Excluding the impact of the CPCI termination, net income for 2010 was USD 2.3 billion. The return on equity excluding the CPCI was 9.2%. The CPCI was terminated in November 2010 and repaid in January 2011. Including the impact of the CPCI termination, Swiss Re achieved in 2010:

Full-year net income of USD 863 million (USD 496 million in 2009), an increase of 74%
Return on equity of 3.6% (2.3% in 2009)
Earnings per share (EPS) of USD 2.52 or CHF 2.64 (USD 1.46 or CHF 1.49 in 2009)
Shareholders' equity of USD 25.3 billion (USD 25.3 billion at end 2009)


Strong results from business segments

Property & Casualty (P&C) delivered very strong results due to disciplined underwriting and despite a high level of natural catastrophe losses. Operating income was USD 2.5 billion, down 30% due to the higher large loss experience and lower net investment income. The combined ratio was 93.9%, compared to 88.3% in 2009. The impact of natural catastrophes was 3.0 percentage points above the expected level and was partially compensated by 0.8 percentage points from positive run-off. Swiss Re estimates claims, net of the benefits of retrocession and before tax, relating to the Queensland, Australia flooding for the fourth quarter of 2010 of USD 100 million. The company’s preliminary estimate of claims from the floods in the first quarter of 2011 is USD 225 million. Swiss Re also estimates that claims from the Australian cyclone Yasi will be approximately USD 100 million. Both of these estimates are net of the benefits of retrocession and before tax. Significant uncertainties are involved in estimating losses from such an event and this preliminary estimate may need to be adjusted as new information becomes available.

Life & Health reported good results with a significant improvement in operating performance. Operating income was USD 810 million, an increase of 18%. The benefit ratio increased 4.9 percentage points to 88.7%. Excluding the 2009 benefit derived from the rescission of a disability contract, together with the impact of certain commutations, the benefit ratio increased 3.0 percentage points. Mortality experience was better than expected, although less favourable than the results recorded in the prior year. Morbidity was within expectations for both periods.

Asset Management achieved good results with an operating income of USD 4.5 billion due to lower impairments and lower hedging costs compared to 2009, which offset the impact of lower net investment income from lower yields. Return on investments was 3.5%. Total return, including unrealised gains and losses, rose to 6.5%.

The Legacy process is essentially complete. Legacy will no longer be reported as a separate segment in 2011.


Restored capital position

In 2010, Swiss Re created around USD 4 billion of shareholder equity, compensating for the impact of the termination of the CPCI. Shareholders' equity remained stable at USD 25.3 billion. Swiss Re's capital is over USD 10 billion in excess of Standard & Poor’s AA requirements per end 2010.
The Board of Directors will propose to the Annual General Meeting on 15 April 2011 to increase the dividend to CHF 2.75 per share.   


Very successful January 2011 renewals of P&C treaty business

Swiss Re began 2011 with very successful January renewals. While average reinsurance market prices declined by 4-7%, Swiss Re was able to outperform the market based on its disciplined underwriting and success on non-commodity placements. Swiss Re's risk-adjusted price adequacy fell by 2%.

Swiss Re's P&C January treaty business premiums grew strongly by 14%. The drivers for this performance were increased demand for tailored solutions from large clients and growth in insurance demand, especially in Asia. Swiss Re's 2011 combined ratio is estimated at approximately 94%, assuming a normal large loss burden.


New legal structure to support implementation of strategic priorities

In a first step, Swiss Re plans to establish a new holding structure in line with the company's strategic priorities. The new legal structure aims to enhance client focus, to increase capital efficiency and transparency, and to create long-term value for shareholders.
The next step will be to create a structure below the new holding company comprising legally separate Business Units, namely Swiss Re’s existing reinsurance business, along with two new entities for Corporate Solutions and Admin Re®.

The rationale for the adjusted legal structure is as follows:

Client focus – Swiss Re's clients will be better served by individual Business Units, which will develop dedicated service models. The changes announced will increase the flexibility and agility of these Business Units, allowing them to develop tailored market approaches and leading to a more entrepreneurial approach to client service;

Transparency – A significant benefit of the new legal set-up will be to create a simplified corporate structure that further improves transparency with respect to the performance of Swiss Re's three main Business Units. Furthermore, it will increase clarity as to how capital and assets are allocated between them. The increase in transparency comes at a time of intensified regulatory focus on the component parts of large cross-border (re)insurance groups;

Accountability – Greater transparency into the performance of the Business Units will bring more accountability in terms of the allocation of resources within those units. The management of each Business Unit will be fully accountable for the strategy as well as the entire business performance of each Unit, including financial results, capital and asset allocation, and tax issues;

Flexibility – The new structure grants Swiss Re more flexibility to manage its core business segments in distinct ways, including creating the option to attract new funding sources for individual business areas if business opportunities exceed our balance sheet capacity – for example in Admin Re®. As a further benefit, it will be possible for each business area to have a capital and funding structure appropriate to its needs, which Swiss Re anticipates should improve returns.

The new holding company structure will be established through an exchange offer. Shareholders will be invited to exchange their shares in Swiss Re for new shares in the holding company, on a one-for-one basis and subject to applicable securities laws. Further information on the exchange offer and new holding company structure will be provided in an offer prospectus on 31 March 2011. The initial offer period will start on 15 April 2011.


Positioned to capture future earnings growth

Swiss Re is in an excellent position to capture future earnings growth. Over the next three years, the following growth drivers will provide opportunities for Swiss Re's Business Units:

Hardening in the property and casualty market in 2012/2013 will benefit Reinsurance and Corporate Solutions;

Expiration of the quota share with Berkshire Hathaway at end 2012 will add 25% growth potential in P&C Reinsurance and Corporate Solutions;

Higher capital demands and further industry consolidation will provide opportunities for Admin Re® and for large deals in Reinsurance;

Recovery of the global economy will benefit Reinsurance, Corporate Solutions, and Asset Management as the company moves towards its medium-term asset allocation; and

Emerging market growth will provide opportunities for Reinsurance and Corporate Solutions.


Based on this assessment, combined with the progress that the company has made over the past two years, Swiss Re has established the following financial targets for the next five years:

Return on equity (RoE): 700 basis points above 5 year risk free, average over 5 years;

Earnings per share growth: 10% average annual growth rate over 5 years;

Economic net worth per share growth plus dividend: 10% average annual growth rate over 5 years.

“Based on our capital strength, our global market position, our outstanding (re)insurance expertise and our innovation power, we are well placed to improve returns and to capture future earnings growth,” says Stefan Lippe.