Swiss Re (
Q4 2011 Earnings Call
February 23, 2012 8:00 am ET
Eric Schuh - Head, IR
Michel Liès - CEO
George Quinn - CFO
Fabrizio Croce - Kepler
Andreas Frick - Bank am Bellevue
Stefan Schürmann - Vontobel
Michael Klien - Nomura
René Locher - MainFirst
Vinit Malhotra - Goldman Sachs
Jason Kalamboussis - Societe Generale
Michael Huttner - J.P. Morgan
Spencer Horgan - Deutsche Bank
Andy Broadfield - Barclays Capital
Niccolo Dalla Palma - Exane BNP Paribas
Paul Goodhind - Redburn
Brian Shea - Bank of America-Merrill Lynch
Andrew Ritchie - Autonomous Research
Thomas Fossard - HSBC
Frank Kopfinger - Cheuvreux
Georg von Wyss - Classic Fund Management
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Good afternoon and good morning everybody. And from Swiss Re welcome to our Annual Results 2011 Analyst and Investor Meeting. I would also like to welcome those watching the webcast and joining us on the phone. I’m here with our new CEO, Michel Liès and our Chief Financial Officer, George Quinn. After the Michel’s welcome, George will go through the results, elaborates on our capital management and report to you on our financial targets.
Michel will then update you on our January P&C renewals, take a quick look back at our 2011 achievements, present on our 2012 priorities and close with a summary and outlook. We will then have time for Q&A for the participants in the room as well as on the phone.
With that, I would like to handover to Michel.
Thank you, Eric. Also for my part good morning, good afternoon to everybody. Welcome to this analyst and investor conference on Swiss Re’s annual results 2011. Not all of you know me yet, so let me start with a few personal remarks. I am Michel Liès from Luxembourg, Group CEO of Swiss Re since February 1st when I took over from Stefan Lippe. Before anything else, I would like to thank my predecessor Stefan Lippe and his team for the excellent work they did. The company is in very good shape.
I have been with Swiss Re for 33 years. I joined the company actually life actuary, actually as a mathematician having graduated from the FTI. And after two, three years in Latin America just after my graduation mainly in the Brazil in the manufacturing industry I joined Swiss Re in which I had several assignments in both the life and non-life segments in various geographical areas between Europe and the Americas. I acted as Head of Client Markets Worldwide from 2005 and then took the fascinating job of Chairman Global Partnership early last year. Now, with full enthusiasm, but also with a lot of respect, that I takeover to lead this firm into the future.
Well through the last two years, we've developed new strategy priorities and initiated the implementation of a new legal structure and operating model. Today, we report for the last time in the old format on Swiss Re's results. Going forward, we will have three clearly separated business units, Reinsurance, Corporate Solutions, and Admin Re. Each of these business units will have its own balance sheet and P&L. And it will provide additional transparency about their individual performance. We will start reporting in this mode with the first quarter results of this year in May. Of course, we will also continue reporting about the Group performance.
My focus, going forward, will be on implementing and further advancing our strategy on setting free and challenging the energy and dynamism embedded in our new setup. The role of the Group is fundamentally in strategy development and control, making sure Reinsurance, Corporate Solutions, and Admin Re stay on course and deliver strongly on the Group’s financial targets. The management of the business on the daily basis, however, will be the CEO of the respective business units, Christian Mumenthaler, Agostino Galvagni, and Bob Ratcliffe.
Among others, one of my main job and interests is to assure quality and discipline, first and foremost in underwriting, one of the key assets of our firm and for which Swiss Re well known. In this sense it has been my first priority since taking over to find a new good Chief Underwriting Officer. Very happy to announce that Matthias Weber will succeed Brian Gray. Matthias is currently Division Head Property & Specialty and can look back on the 20-year career, not only career, but also success in underwriting with Swiss Re.
I would also like to add that Martyn Parker, current CEO of Reinsurance Asia and Regional President, Asia, has agreed to succeed me in my former role as Head of Global Partnerships. Martyn's succession has been already announced on 19th of January in the name of Moses Ojeisekhoba.
Time to turn to the figure. George, up to you.
Thanks, Michel, and good morning or good afternoon to everyone in the room or joining the call via the webcast. I’m going to start on slide 5.
So, as you’ve seen already today we’ve reported strong result for the Group. Net income for the year of $2.6 billion compared to $900 million in the prior period. As you remember from our updates this year, and from last year, and from the 2010 results, there were some significant one-offs negatives and positives in the result. And I’m now trying to highlight these as I go through the presentation, and in fact one of them I’ll start with.
We have an exceptionally low tax rate for the year. We’ve had a number of one-off benefits through the course of the year, but in particular, we got a especially large impact in the fourth quarter, triggered by the corporate restructurings that’s been taking place, in fact, Michel mentioned, at the end of prepared remarks.
This has triggered adjustments to the statutory accounting values that generate substantial tax losses. And the net impact of this particular item in Q4 was about $200 million. We would not expect this to recur. And the previous guidance that we gave around the tax rate being at 25% level for the Group overall still holds.
Given the result for the year, return on equity is 9.6%, which is slightly above the level implied by our five-year targets in earnings per share of $7.68. That represents 16% growth over the starting point that we defined for the same targets, not the actual result for 2010, the growth will be far higher but 16% over the starting point. As a result both of these, even though the targets aren’t annual, mean that we exceed the targets in 2011.
P&C has got strong result, which may seem odd given the fairly high combined ratio 101.6%. And of course that demonstrates the firm’s ability to absorb some very significant natural catastrophe events. The underlying combined ratio has been 93%, which is about one point greater than the guidance that we gave this time last year.
Life & Health result is weak. We’ve got operating income $464 million mainly due to a combination of market volatility so the impact on the embedded derivatives in Life & Health, and the costs that we've incurred in the restructuring of Admin Re. There are some additional issues some of which you know about before by the way that we report investment income, and we have some weaker performance in some of our older traditional Life blocks, which I’ll talk about when I come to Life & Health today.
The changes that we will have in April will certainly improve both the presentation and the actual result for Life & Health, and which should reduce the volatility that we’re seeing and have seen over the last couple of years.
Asset Management for the year excellent results, return on investments 5.1% I said throughout 2011, and I will repeat it today that it’s substantially above our expectations anything your expectations of a reasonable return for 2012, given the kind of market conditions is supported by realized gains.
And finally on slide 5, book value per share up by nearly 70% to $86 and change or almost CHF 81 per share driven by a combination of strong result, and the impact of interest rates on the fixed income portfolio.
P&C is on slide 7. Strong years I mentioned earlier for P&C despite the extraordinary level of natural catastrophes. We’ve got substantial growth against the backdrop of rising new crisis. Premiums grew on an annual basis by 11% or 7.6% if you adjust for foreign exchange. And in fact, the headline growth was partly offset by clients reporting premium reductions in prior years. So even this number is slightly understated.
That growth is mainly driven in 2011 by new business in Asia. We talked about China in particular last year, but price rises in other markets have also contributed to the growth. Gross premiums written, which is a good indicator of growth still to come, is up by nearly 25%. That’s before we talk about the impact of renewal or the impact of the expiry of the Berkshire Hathaway quota share before the end of this year.
Operating income down significantly in comparison to the prior year, result of about $1.29 billion, a fall of about 50% mainly due to the impact of the natural catastrophe events partly offset by very strong favorable development from prior accident years $1.3 billion. The allocated investment returns also trail as the yields dropped during the course of the year.