The vast majority of the group's COVID-19 losses represent incurred but not reported (IBNR) reserves. A range of factors relating to the pandemic, including future infection and mortality rates; the duration and effects of mitigation measures, including on business activity; the timing of an effective vaccine and/or alternative treatment solutions; legislative or regulatory efforts and the outcome of court and arbitration cases on coverage issues; the impact of government stimulus packages; and the severity and duration of recessionary impacts, may impact claims development in the coming quarters, either positively or negatively, relative to Swiss Re's projections, the group mentioned.
At the end of the first half of 2020, Swiss Re's SST ratio was above the target level of 220%, including the impact from the sale of ReAssure and COVID-19 losses. Shareholders' equity decreased to USD 27.9 billion (1H2019: USD 29.3 billion). Swiss Re's book value was at USD 96.65 per share at the end of June 2020.
- Net premiums and fees: USD 19,329 million (+6.4%), of which:
- P&C Reinsurance: USD 9,601 million (+10.1%)
- L&H Reinsurance: USD 6,676 million (+6.2%)
- Corporate Solutions: USD 2,004 million (-2.9%)
- Life Capital: USD 1,048 million (-4.2%)
- Return on equity: -7.9% (1H2019: 6.6%)
- Return on investments: 3.2% (-1.0 pp.)
- Net income/loss: USD -1,135 million (-219.1%)
- Net income (excl. COVID-19): USD 865 million (-9.2%)
Swiss Re generated a strong ROI of 3.2% for the first six months of 2020. The result was driven by recurring income and realised gains from the fixed income portfolio, as well as a positive contribution from portfolio hedges that partly offset the impact of global market volatility. The running yield declined to 2.5% from 2.9% in the prior-year period, reflecting the unprecedented low-yield environment.
Excluding COVID-19 claims and reserves, P&C Re's net income amounted to USD 646 million in the first half of 2020 (1H2019: USD 771 million), largely as a result of large natural catastrophe losses reported in the first quarter and the Calgary hailstorm in the second quarter. The ROE, excluding the impact of COVID-19 losses, amounted to 14.9%. P&C Re is on track to reach the normalised combined ratio estimate of 97% for the full year 2020.
Claims and reserves related to the COVID-19 crisis impacted the result by USD 1.5 billion, reflecting affirmative non-damage business interruption, cancelled or postponed events, casualty and credit & surety losses. Including these losses, P&C Re reported a US GAAP net loss of USD 519 million.
Net premiums earned increased strongly by 10% to USD 9.6 billion, due to large transactions and growth in natural catastrophe business, driven by successful renewals in the US and Asia.
P&C Re treaty premium volume increased by 6% to USD 17.0 billion year to date, with a nominal price increase of 6%. Overall price quality was unchanged, reflecting the need to compensate further decreased interest rates and material adjustments to loss assumptions. In the July treaty renewals, Swiss Re achieved a 6% volume increase and significant rate hardening in natural catastrophe business.
Excluding the impact of COVID-19 losses, L&H Re increased its net income to USD 516 million in the first six months of 2020 (1H2019: USD 459 million). The increase was supported by a strong investment result, with an ROI of 4.1%. The ROE, excluding the impact of COVID-19 losses, was 12.4%.
COVID-19-related claims and reserves amounted to USD 548 million in the first half of 2020, driven primarily by higher mortality claims (reported and IBNR) in the US and the UK versus expected levels. Including the impact of COVID-19 losses, L&H Re reported a US GAAP net income of USD 74 million for the period.
Net premiums earned and fee income in the first half of 2020 increased 6.2% to USD 6.7 billion, supported by individual large transactions including longevity deals. L&H Re continues to see attractive opportunities in high-growth markets and in large transactions.
Excluding COVID-19 losses, Corporate Solutions swung to a net income of USD 81 million (1H2019: net loss of USD 403 million). The combined ratio, excluding COVID-19 losses, was 98.4%. The normalised combined ratio was estimated at 101.3% in the first half of 2020, ahead of the 105% estimate for 2020.
Claims and reserves related to COVID-19 totalled USD 485 million in the first half of 2020, resulting in a US GAAP net loss of USD 301 million. Approximately half of the losses are claims and reserves related to event cancellations, a line of business which Corporate Solutions exited in 2019, with the rest mainly covering affirmative non-damage business interruption and credit & surety losses.
Net premiums earned were 2.9% lower at USD 2.0 billion, as active portfolio pruning was cushioned by rate improvements. The Business Unit expects pricing momentum to remain favourable after achieving rate increases of 15% for the first six months of 2020.
The sale of ReAssure to Phoenix Group successfully closed on 22 July 2020. As part of the sale, Swiss Re received a cash payment of GBP 1.2 billion and shares in Phoenix representing a 13.3% stake. As previously announced, Swiss Re will simplify its legal entity structure by disbanding the Life Capital Business Unit, which is expected to be concluded by the end of 2020 subject to regulatory approvals.
Life Capital reported a net loss in the first six months of 2020 of USD 217 million, driven by a mark-to-market charge related to the decline in Phoenix's share price, partly offset by a hedge on the broader UK equity market. Losses related to COVID-19, reflecting the expected mortality impacts, were minimal at USD 13 million.
Net premiums earned and fee income were slightly below the prior-year period at USD 1.0 billion due to lower fee income in the closed book business. Gross premiums written of the open books increased by 20% when measured at constant foreign exchange rates. Swiss Re's white-label digital insurance platform iptiQ added seven new partners in the period.
"As the extraordinary crisis caused by COVID-19 unfolds across the globe, we share our sympathies with those who have suffered personal loss and financial uncertainty. Swiss Re is doing its part to facilitate recovery from this crisis, and we are working with many stakeholders around the world on improving resilience to future large systemic risks.
Based on current information and a prudent analysis of our businesses, and recognising the inherent uncertainty of the ongoing pandemic, we expect the claims and reserves we have booked in the first half of 2020 to cover the majority of our ultimate COVID-19 losses.
While the impact of COVID-19 on our earnings is significant, it remains manageable as our operations continue uninterrupted, all our businesses are performing well and our capital position allows us to take advantage of attractive opportunities in an improving market."
John Dacey, Swiss Re's Group Chief Financial Officer, said:
"Although the COVID-19 crisis is still evolving, we took a prudent approach to build substantial reserves for the Group's exposures already in the first half of this year. This gives us more certainty in the outlook for the remainder of 2020 and beyond. Thanks to our disciplined long-term approach to capital management and the decisive actions taken early in the crisis to protect our balance sheet, our capital position remains very strong."