Swiss Re Earnings: Strong Profit in Half 1. We Raise Our Full-Year Earnings Forecast.

Despite the market’s reaction after Swiss Re’s SREN 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.

Underwriting in all core segments is by and large strong, and though there is still work to do in casualty reinsurance, nearly every other business line has delivered solid to good results. The July renewals demonstrate pricing power and thus margin expansion yet to come. The capital position remains in the 200% to 250% targeted range. Management reiterated its full-year net income target of $3 billion. While this does look punchy, we remain confident that the business can deliver profit of over $2 billion to shareholders, and we raise our fair value estimate to CHF 140 per share. We maintain our no-moat rating.