John Dacey, Group Chief Financial Officer (CFO) of Swiss Re, has said that the firm was surprised at the relatively low set of natural catastrophe losses it incurred in the first half of the year, and while the reinsurer’s ability to absorb a major event in the second half of the year is substantial, caution remains.
During the first half of 2024, Swiss Re’s natural catastrophe losses amounted to less than $100 million, and with a budget for the period of $700 million, came in significantly below what the firm might have expected.
However, the $600 million favourable impact from nat cats was offset by $500 million of reserve actions in the property and specialty lines, which includes $300 million of IBNR reserves for the current year in the second quarter, and also reserves for selected prior year losses, including the Italian hail storms from last year.
“This allowance obviously helps in case of heightened and loss activity in the remainder of the year, where we seasonally expect larger reinsurance relevant events on average. But also, will deal with the potential creep of losses that we might have seen in the first half of the year,” said Dacey during a recently held analyst call.
The Swiss Re Institute pegged H1’24 insured nat cat losses at $60 billion, but with more than 90% of these losses from so called secondary perils, Swiss Re’s own losses for large nat cats in the period was low at less than $100 million.
“I think our view is linked a little bit to the reality that we had on the Italian floods last year, that there is some risk of creep. The fairly remarkable events that occurred, for example, in the Emirates in April, the floods in Brazil, where the reporting lags have been significant, made us think that there’s value in setting aside this relatively large IBNR for the potential of late reported claims. And we’ll see what’s required or not required of that amount,” said Dacey.
When questioned on whether there will be more actions like this on a going forward basis, Dacey noted the firm’s nat cat budget and also the fact Swiss Re is easing into its first year of IFRS and managing the seasonality that is slightly different than the treatment under US GAAP.
“As a result, this just seemed a more prudent way to move forward. I’m not quite sure I would necessarily expect that you’d see the same sort of behaviour a year from now, but we’ll remain cautious, I think, as we go through 2024,” he said.
The reinsurance giant’s nat cat budget for the year is $1.8 billion, potentially a little higher after the most recent renewals, and with $700 million budgeted for the first half, there’s $1.1 billion of the nat cat budget left for the second half of the year.
“Our ability to absorb a major event is substantial, even for multiple events and still be within the budget for H2,” said Dacey.
The CFO was also questioned on the potential to unwind the nat cat prudence put in at H1 if the firm were to experience a budgeted loss in H2.
“When you think about the unwind of what we set up, we set up these reserves in property in the current year for evaluating what might be required. We purposely chose not to drop them into the PML because we, again, have some recent experience of creep on cat and late reporting that we wanted to be sure that we were protected against. But we’ll see how the year goes.
“But as Andreas said multiple times, we are committed to deliver our $3.6 billion of net income, and I think you should expect that we will work very hard to be sure that that occurs absent some truly cataclysmic event which prohibits us from even trying to get there,” said Dacey.
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