2005: A Rough Year for Swiss Re; Net Income Down 41% to $1.1 Billion

Big reinsurance companies also take big hits when natural catastrophes occur. So its not too surprising that Swiss Re’s 2005 earnings report reflects the overall losses from an exceptionally violent year. Net profits fell by 41 percent from CHF2.475 ($1.887 billion) in 2004 to CHF 1.451 billion ($1.106 billion) in 2005, “impacted,” as the bulletin said, “by record natural catastrophe claims.”

P/C operating income decreased to CHF 1 billion ($762.6 million), while the giant reinsurer’s combined ratio ballooned from 97 percent to 108.7 percent – a direct result of catastrophe claims, which jumped from CHF 1.2 billion ($915 million) in 2004 to CHF 3 billion ($2.287 billion) last year.

The report also contained some positive news, as Swiss Re reported a return on investments of 5.7 percent; however, its return on equity dropped from 13.6 percent in 2004 to 6.7 percent last year. Financial Services operating income grew by 15 to CHF 366 million ($279 million), “driven by excellent performance in credit business, while shareholders equity rose 20 percent to CHF 22.9 billion ($17.465 billion), “demonstrating the Group’s ability to remain financially very strong even after an extraordinary claim event.” Swiss announced it would increase its dividend payments by 56 percent to CHF 2.50 ($1.90) per share.

Swiss Re also recorded a 6 percent drop in premiums earned from CHF 29.439 billion ($22.452 billion) in 2004 to CHF 27.779 billion ($21.186 billion) in 2005. The Company said the decrease was mainly attributable to its ongoing policy of reducing the volume of marginal business it accepts and a trend among cedants to retain higher amounts of exposure.

CEO Jacques Aigrain commented: “2005 has been a year of contrasts. Swiss Re has benefited from its well diversified business to absorb an unparalleled sequence of exceptionally large natural catastrophe events.”

Commenting on its ongoing acquisition of GE Insurance Solutions, Swiss Re said it is “well on track, with the “regulatory and antitrust approval process for the acquisition” progressing towards closing by midyear 2006. The financing for the transaction received shareholder approval at the Extraordinary General Meeting on 27 February 2006.”

Swiss Re also affirmed its targets: “Over the cycle: it expects to achieve earnings per share growth of 10 percent per annum and a return on equity average of 13 percent over the cycle,” said the bulletin. “As 2005 has proven, size and diversification are crucial for absorbing insurance risk volatility. With the acquisition of GE Insurance Solutions, Swiss Re will become the largest and best diversified reinsurer, building on an excellent base to sustainably grow earnings.”

The full report and a replay of the press conference and analysts’ meeting may be obtained on the Company’s Website at: www.swissre.com.