Company Reports

For almost a decade, Swiss Re has been missing its stride. Yet we think this is a top-quality reinsurer with some unique assets. More than any other European reinsurer we cover, Swiss Re puts research and development, data and technology, customer relationships, analytics, and insight front and center when trying to carve out a pure underwriting-based competitive advantage. It has the leading property and casualty claims ratio by a minimum of 1 percentage point. We think it operates with strong natural catastrophe underwriting skill sets, driven by its proprietary risk models and collaboration with leading scientists. Barriers to entry are high because of potential losses, should a business fail to properly underwrite. A new entrant's entire capital base could easily be wiped out. That entrenches Swiss Re with customers, enhances trust, and increases switching costs.

Swiss Re has reported a net income of $3.2 billion for 2023, or $11.1 in EPS, ahead of the $3.1 billion and $10.3 for net income and EPS, respectively, we forecast. The board is proposing a dividend of $6.8 per share, ahead of the $6.4 per share we forecast. For 2024 Swiss Re has guided for more than $3.6 billion in net income. The Feb. 16 results translate into a 22% return on equity. We maintain our CHF 130 per-share fair value estimate and no moat rating.

Swiss Re reported a strong set of results for the first nine months of 2023, across all three divisions. Earning net income of USD 2.5 billion for its shareholders for the first nine months of this year leaves the business well on track to meet its full-year target of USD 3 billion. Our full-year target is a pinch over this. So far, Swiss Re has generated a 19.4% return on equity. We maintain our CHF 130 per share fair value estimate and our no-moat rating.

For almost a decade, Swiss Re has been missing its stride. Yet we think this is a top-quality reinsurer with some unique assets. More than any other European reinsurer we cover, Swiss Re puts research and development, data and technology, customer relationships, analytics, and insight front and center when trying to carve out a pure underwriting competitive advantage. It has the leading property and casualty claims ratio by a minimum of 1 percentage point. We think it operates with strong natural catastrophe underwriting skill sets, driven by its proprietary risk models and collaboration with leading scientists. Barriers to entry are high because of potential losses, should a business fail to properly underwrite. A new entrant's entire capital base could easily be wiped out. That entrenches Swiss Re with customers, enhances trust, and increases switching costs.

Despite the market's reaction after Swiss Re’s first-half 2023 earnings report, we believe the results are good. In summary, the company reported net income of a little over $1.4 billion for the first half of the year, delivering a return on equity for these six months of 11.3%. This means that if Swiss Re can remain in the black over the second half, it will deliver economic profit because we apply a 10% cost of capital. Second-half earnings always tend to be lighter because of the heavy natural catastrophe season in the third quarter, but we would anticipate that a full-year return on equity of about 13.5% is a reasonably conservative assumption. That would be the first year in over five years that Swiss Re delivered excess returns. Earnings per share were $4.75 for the first six months, and we believe the company delivered about $2.12 per share in the first quarter. That indicates $2.63 per share for the latest three months, less than the $2.92 Refinitiv-collected consensus.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, the largest Swiss Re acquisition in that period.

We believe balance sheets have been an underappreciated element in insurance and that prior accounting rules and economic conditions have left property and casualty-orientated insurers in unenviable positions. Even before the coronavirus pandemic, as interest rates remained low, traditional reinsurance capital became elevated as the fall in interest rates led to rises in the value of fixed-income assets. Couple this with the rise of alternative capital as pension funds and hedge funds sought to diversify their returns into an asset class with little correlation to financial markets, and reinsurance capital available for deployment increased to new heights. That meant the pressure on pricing increased as the number of claims related to climate change rose.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, the largest Swiss Re acquisition in that period.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, the largest Swiss Re acquisition in that period.

For activity over the first quarter of 2023, Swiss Re has reported a middling set of results. The broad takeaway is that the full-year targets currently look like a stretch. And we are lowering our fair value estimate to $110 per share as a result. We maintain our rating of no economic moat.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, the largest Swiss Re acquisition in that period.

When looking at the exposure of insurers to the unfolding banking crisis, we believe this is limited. The main impact of the crisis currently seems to be contagion, so investors are selling shares cheaply. However, exposure to United States bonds is either in government bond securities, or exposure to Credit Suisse, Silicon Valley Bank, and other U.S. regional banks is immaterial, which is 50 basis points or less of their investment portfolio. Some do hold larger bank debt holdings of up to 5.5% of shareholder investments, but nearly all that debt ranks as senior. AT1 debt tends to be very minimal or there is no exposure as a policy with board-level approval. The vast majority of corporate debt held is investment-grade. We maintain our fair value estimates and moat ratings across our European insurance coverage. Allianz remains our Best Idea. Admiral is one of our top picks.

Swiss Re reported net income of USD 472 million for full-year 2022. This includes a fourth-quarter net income of USD 757 million swinging the result well ahead of our USD 261 million loss forecast. For full-year 2023 Swiss Re is targeting USD 3 billion in net income, and if delivered, that will be a very solid number. The board will propose a USD 6.4 dividend at the AGM in April, giving the stock a solid dividend yield. Solvency stands above the strong 200% to 250% target. We maintain our fair value estimate of USD 115 per share and our rating of no economic moat. We are likely to refine our estimates when we roll our model with the release of the annual report.

Swiss Re has reported a net loss of $285 million for the first nine months of this year. That means the business is tracking a little better than the $261 million loss that we have forecast for the full year. The loss is ultimately attributable to the property and casualty division and the $2.5 billion of large natural disaster losses that Swiss Re has incurred. These stem from Hurricane Ian, floods in Australia and South Africa, and hailstorms in France. We maintain that reinsurers have a lot of rates to put through to catch up with the rising intensity of natural disasters. Fortunately, with rising yields and declining portfolios, capital has become lighter and that gives these businesses more leverage during renewal periods. The combined ratio so far is 106.1%. That’s a little worse than the 104.4% that we forecast for the full year.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, a historic and largest Swiss Re acquisition in that period.

Swiss Re has reported a low net income number for the first half of 2022, and this has been driven by the continued large loss environment. Net income for the interim came in at USD 157 million, well below what was estimated by consensus. Swiss Re’s top line looks robust, growing by midsingle digits. However, July 29's results include USD 983 million of natural catastrophe claims within the property and casualty reinsurance division, USD 283 million of reserves established for the war in Ukraine, mainly booked in the first quarter of this year, and USD 540 million of coronavirus-related claims that again were mainly booked in the first quarter this year.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, a historic and largest Swiss Re acquisition in that period.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, a historic and largest Swiss Re acquisition in that period.

Swiss Re has a history of overly aggressive expansion and typically too much leverage. The first example of this can be seen in the acquisition of General Electric Insurance Solutions in the earlier part of the new millennium. This was financed through a combination of debt and share issuance, a historic and largest Swiss Re acquisition in that period.

Swiss Re has reported a loss of USD 248 million for the first quarter of 2022, which brings into question the company’s ability to deliver a good result for full-year 2022. However, at present we maintain our no-moat rating and our fair value estimate, and believe the shares are undervalued.