Swiss Re highlights rising prices as disasters wipe out profit

[ZURICH] Swiss Re, the reinsurer that has piqued the interest of SoftBank Group's billionaire founder Masayoshi Son, said it expects to benefit from rising prices even as natural disasters all but wiped out its full-year profit.

The Zurich-based company on Friday reported a slump in net income to US$331 million from US$3.6 billion a year earlier, following one of the most costly hurricane seasons in history. Still, that beat the US$287 million average estimate of analysts surveyed by Bloomberg.

It also said it will raise the dividend to 5 Swiss francs and will authorise a new share buyback program.

"We believe the outlook for our industry is now more positive than it has been during the last four years," Swiss Re chief executive officer Christian Mumenthaler said in the statement.

"Changes in the market environment, such as adjusting property and casualty price levels and increases in interest rates, are expected to be beneficial for our business."

Munich Re, the world's biggest reinsurer, on Feb 6 reported earnings that missed estimates for the fourth quarter as freak weather events dominated the result.

Swiss Re, the world's second-largest reinsurer, this month confirmed it's in talks with SoftBank, Japan's largest mobile-phone carrier that CEO Son is reshaping into a technology investor, over a potential deal.

SoftBank wants to buy as much as a third of the reinsurer, people familiar with the matter have said, a move that could see Son follow business titans including Warren Buffett who have buttressed their conglomerates with healthy cash flows from reinsurance.

Swiss Re's board of directors is assessing the strategic and financial implications of a deal with Softbank, the company said on Friday. The Zurich-based insurer has hoarded money in recent years during which there were relatively few disaster claims, and completed a one billion franc (S$1.41 billion) share buyback earlier this month despite one of the worst natural disaster years in history.

SoftBank, which has raised US$93 billion of a planned US$100 billion Vision Fund, the world's biggest private equity pool, has taken stakes in businesses including ride-hailing, chipmaking, office-sharing, satellite-building, robot-making and even indoor kale-farming.

Reinsurers have raised their hopes that high claims may put an end to years of falling prices that have eroded profit. The combined ratio at Swiss Re's property and casualty reinsurance unit, the largest division, increased to 111.5 per cent, as the year's weather events produced above average claims. A ratio above 100 per cent means more money is paid out in claims than received from premiums.

Global insured losses resulting from natural and man-made disasters in 2017 are expected to be around US$136 billion, according to data collected by Swiss Re. That's the third highest since it began collecting records in 1970. That was mostly due to the three hurricanes - Harvey, Irma and Maria - that hit the US and the Caribbean, and wildfires in California.

BLOOMBERG