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Swiss Re Posts Loss on Hurricane Hit, Signals Price Hikes Ahead

Swiss Re reported a third-quarter loss of $442 million driven by claims tied to the damage from hurricane Ian, and signaled that renewal prices would jump next year.

The Zurich-based reinsurer’s key unit saw $2.5 billion in claims related to large catastrophes including the storm which hit Florida last month, it said in a statement on Friday. It set aside an extra $700 million in reserves over the past twelve months to cover the impact inflation.

 

Reserves for hurricane Ian are adequate to cover any new claims that come in the fourth quarter, Chief Financial Officer John Dacey said on a call with journalists. In the first month of the final quarter of the year, there have been no indications of major natural catastrophe losses, he said.

Swiss Re had already warned it would likely see a net loss for the third quarter and was unlikely to meet its target of 10% return on equity this year. A survey published by French insurer Axa this month put climate change at the top of the sector’s worries, as rising global temperatures exacerbate physical catastrophes from wildfire to flooding.

Prices Up

“It’s clear that there are some people that have seen the last five years and have decided they’re going to stop providing capital for these risks,” Dacey said in an interview with Bloomberg Television’s Francine Lacqua. “Swiss Re remains committed to providing capacity but it will provide that capacity at a price level and in structures which we think are fair to all of the people not just our primary clients but also our shareholders. That said, we expect in January 1 renewals prices to go up substantially.”

Swiss Re shares fell as much as 4% on the open on Friday, trading at 74.06 Swiss francs ($74.393) as of 10:39 a.m..

The reinsurer reiterated its guidance for the mid-term outlook and confirmed its 2024 profitability goals. Net premiums earned and fee income were $32.4 billion for the first nine months of the year; an increase of 1.3% compared with the same period last year.

The firm’s key property and casualty unit reported a net loss of $283 million for the first nine months of the year. The claims for natural catastrophes included Hurricane Ian, floods in Australia and South Africa, and hailstorms in France. The business is unlikely to meet its 2022 normalized combined ratio target of less than 94%. The ratio was 106.1% for the first nine months, but on a normalized basis was 96.2%.

 

Ian hit Florida was one of the strongest hurricanes to ever make landfall in the US. It carved a trail of ruin across southern Florida, downing bridges, inundating roads, and shattering homes. Insured losses have been estimated at more than $60 billion for the industry.

What Bloomberg Intelligence Says:

What will cause concern in these numbers is the need to further increase prior-year reserves for the US casualty business, and in addition to this provision, $700 million for potential adverse effects of economic inflation on property, specialty and motor lines. At 96.2%, Swiss Re’s P&C Reinsurance “normalized” combined ratio looks a long way from achieving its sub-94% target, and with it the company’s 10% return-on-equity goal.

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