March 27, 2023

Swiss Re has said it expects more than $1bn in claims from last month’s hurricane that battered Cuba and Florida, meaning the reinsurer is “unlikely” to meet its target for return on equity this year.

The Zurich-based group on Tuesday forecast a third-quarter net loss of about $500mn because of an expected $1.3bn in claims from Hurricane Ian.

While the company had given an overall target for return on equity for the full year of 10 per cent, it had not said what net income it expected to report in the third quarter.

The group is the first big reinsurer to warn about Hurricane Ian’s effects on its earnings. It gave a preliminary total insured market loss from the storm of between $50bn and $65bn. Those figures would confirm the event as the second most expensive storm in US history after 2005’s Hurricane Katrina, whose $65bn of insured losses would total $99bn in 2022 money.

However, Swiss Re’s figures were lower than the estimate of $75bn of insured losses that US investment bank Stonybrook Capital issued last week.

Swiss Re’s shares were up 1.75 per cent at SFr74.56 in mid-morning trading in Zurich.

Swiss Re’s warning follows a difficult year for insurers and reinsurers. Companies face continuing losses as a result of factors such as Russia’s seizure of aircraft following its invasion of Ukraine. Insurers have also been hit by worldwide economic uncertainty.

Swiss Re said in its statement that it expected two of its divisions to meet their targets for 2022. Life and health reinsurance was on track to meet its target of net income for the year of approximately $300mn, while corporate solutions, the commercial insurance division, was forecast to record a “combined ratio” — the balance between payouts and premium income — of less than 95 per cent.

However, the company warned that a third division — property and casualty reinsurance — had been affected during the third quarter by an increase in small to midsized claims, driven partly by rising inflation.

“As a result, the business is unlikely to reach its normalised combined ratio target of less than 94 per cent in 2022,” Swiss Re said.

At an investor day in April, Swiss Re committed itself to achieving a 14 per cent return on equity for 2024. It said on Tuesday that it was still committed to doing so.

“While the 2022 target of 10 per cent group ROE is unlikely to be reached given the impact from natural catastrophes, the Ukraine war and financial market volatility, the group remains confident in the midterm outlook and committed to its 2024 profitability goals,” the company said in a statement.

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