Analysts conference call 7 August 2007

Transcription

1 7 August 2007 Today s agenda Introduction Susan Holliday, Head IR Business Performance George Quinn, CFO Questions & Answers Jacques Aigrain, CEO George Quinn, CFO Roger Ferguson, Head of Financial Services Slide 2

2 Today s agenda Introduction Susan Holliday, Head IR Business Performance George Quinn, CFO Questions & Answers Jacques Aigrain, CEO George Quinn, CFO Roger Ferguson, Head of Financial Services Slide 3 results Summary Performance Quality Shareholders equity, returns Share buy-back Slide 4 Net income of CHF.2 billion, up 45%, EPS of CHF 3.50 Continuing strong operating performance Property & Casualty operating income up 68%, improved combined ratio of 90.7% Life & Health operating result down 30%, return on operating revenues 7.4% Strong performance in Financial Services, operating income up 70.8% Strong investment result, RoI 5.6% Shareholders equity and book value per share down 3% in second quarter due to mark-to-market impact of interest rate on bonds and dividend payout; economically slightly positive Annualised RoE 5.9%, up from 3.3% in 2Q 2006 Operating earnings result in accumulation of excess capital Buy-back continues immediately, subject to market conditions Income statement comparisons versus prior year quarter; balance sheet versus prior quarter end

3 Key figures Continued strong operating performance, except for EPS Premiums earned % H Net income % Earnings per share (EPS) % 7.26 % Property & Casualty combined ratio, traditional excluding unwind of discount 93.9% 93.9% 90.7% 90.% -3.2pts. -3.8pts. H % 92.0% Life & Health return on operating revenues 3.2% 7.4% -5.8pts. 8.0% Financial Services return on total revenues 5.7% 3.5% 5.8pts. 32.0% Return on investments 4.8% 5.6% 0.8pts. 5.7% Return on equity 3.3% 5.9% 2.6pts. 6.8% Slide 5 CHF Book value per share (BVPS) End End Q End Property & Casualty Strong result Premiums earned Operating income Combined ratio, traditional +6% +68% % -3.2pts % % Slide 6 Premium growth reflects successful renewals, including the Insurance Solutions portfolio Premiums for traditional business up 9% to CHF 4.5 billion Non-traditional premiums have decreased by 53% to 89 million Operating income rose due to improved underwriting result and strong investment performance Investment result grew 82% to CHF.4 billion Full quarter inclusion of Insurance Solutions Improvement due to strong underwriting performance, especially in the property and motor lines of business Nat Cat loss levels slightly higher than Q 2007 No net prior year development Combined ratio excluding unwind of discount down to 90.%

4 P&C traditional business Recent line of business trends and steady performance continue P&C traditional combined ratios %, operating income in Property Liility Motor Accident Main drivers of change 86.7% 79.8% Nat Cat slightly ove expectations offset by prior year reserve release and good current year experience 07.2% 2.8% Large individual claim in second quarter arising from prior year 93.7% 87.0% Good result due to positive development and favourle renewal 06.% 07.3% No change compared to CR, trad.; % Operating income H % 9.9% 94.4% 09.2% Other Total 93.9% Analysts Excl. unwind conference call Slide 7 85.% 73.2% Marine and Aviation showed strong positive experience 90.7% 90.% % 92.8% 92.0% Including non-traditional business, operating income is CHF 75m Nat Cat premiums and claims Nat Cat premiums and claims 2006 Expected net premiums 770 Expected net claims est Swiss Re s Nat Cat events in 2007 Floods in UK Earthquake in Japan Floods in UK Storms and floods in Australia Typhoon Gonu in Middle East Floods and landslides in Indonesia Winter storm Kyrill over northern Europe Date in July 6 July 25 June 07 June 06 June 3 January 7 January Est net claims 2 ~50 <25 ~ Slide 8 Only events exceeding CHF 20m reflected; premiums net of acquisition costs; inclusive IS portfolio, on an annualised basis 2 Net of hedging

5 Life & Health Normal quarterly volatility in mortality reduced returns Operating revenues +25% Operating revenues increase reflects IS and GE Life UK acquisition Operating result -30% Mortality volatility in US life business, partly offset by positive claims experience in UK traditional business On H basis mortality is in line with expectations Return on operating revenues % 3.2% -5.8pts. 7.4% Traditional Life down to 5.3%, reflecting adverse short term volatility in the US life business Admin Re RoR up to 0.3% from 4.6% Slide 9 Life & Health new business Significant Admin Re contribution Capital invested in new traditional business Capital invested in new Admin Re business Total capital invested in new business H H 2006 at H 2007 FX rates H Value added by traditional new business Value added by Admin Re new business Value added by new business IRR new business after tax 7 3.8% % % Slide 0

6 Financial Services Continued growth combined with solid performance Operating income Return on total revenues Combined ratio, traditional +70.8% % +5.8pts. % +.7pts % 92.7% Strong contribution of capital markets platform to the development of new client solutions in credit and varile annuities Strong margins in the capital markets business 32.0% return on total revenues in H 2007 Continued good claims experience and stringent underwriting in Credit Solutions Slide Excluding proprietary asset management Investments Strong investment return despite challenging market conditions Invested assets Total investment result Return on investments CHF bn +4.2% CHF bn +57% % +0.8pts %.4 4.8% Q 2007 Increase was mainly due to longevity transactions Average running yield up to 5.0% in 2007 Net investment income increased by 49% mainly due to IS and GE Life UK acquisitions Net realised gains on equities offset by m-t-m losses on the fixed income portfolios classified as trading as well as derivative hedging costs Against a challenging environment created by rising bond yields, Swiss Re delivered a strong return on investments of 5.6% Slide 2 At average FX rates; excluding assets held for linked liilities

7 Shareholders equity Dividend payment and mark-to-market of fixed income affect book value in shareholders equity in March Net income 2007 Shares repurchased Net change in unrealised gains/losses on securities Foreign currency translation adjustments Capital movements Dividend payment Other 30 June 2007 Slide 3 July 2007 renewals Price adequacy increased despite softening trend Total traditional portfolio 20% CHF 3.2bn CHF 3.0bn 00% 80% 60% 40% 20% 0% 00% Total renewle 0 July % Pending -2% Cancelled or replaced 73% Renewed -2% 4% 6% Represents 2% decrease on the renewed block, comprising: Rates -2% in share -3% Exposure growth 3% Decrease on renewal New business/ replacement Pending 9% Estimated outcome Slide 4 Roughly CHF 3.2bn traditional treaty business was up for renewal at July 2007 Property still at attractive levels (especially nat cat), pressure on liility, capacity withdrawn where prices not adequate most notly US casualty Despite the reduction in rates, the overall price adequacy, including new business, increased from 2% to 5% Higher client retention levels are continuing All renewal figures are estimated and calculated at constant FX rates

8 Managing credit risk Swiss Re has maintained a cautious stance in relation to credit risk, given historically low spreads Within total invested assets of CHF 90bn, exposure to sub-prime is CHF 0.5bn, which was recently acquired to take advantage of attractive prices Typically high credit quality sub-prime risks (AA minus or better) exist in portfolio CDS, swaps and Financial Guarantee Re, but not in leveraged form; risk is lower than exposure to subprime in invested assets No LBO exposure, either as underwriter or to debt in syndication Gross impact of spread widening in July <CHF 00m for credit risk in total; impact net of hedges is positive Swiss Re intends to manage exposures dynamically and take advantage of market conditions. Slide 5 Management of credit spread exposure PAM has been proactive in managing its credit exposures via cash sales or buying protection in CDS form. Both single-name and index CDS are used. A number of indices have been utilized, covering different rating spectrums and currencies, leaving net zero high yield exposure. Development of Major CDS Indices y CDX IG Spreads (bps) 5y Itraxx Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Most of the hedges were put on when the credit market was benign, thus reaping benefits from the recent spread widening. Slide 6 Effect of Hedges in Reducing Credit Spread Stress Exposure Credit Spread Stress Exposure () Gross Net Q2 06 Q3 06 Q4 06 Q 07 Q2 07

9 Active management of financial market risk in recent equity markets Short futures were used to quickly reduce the net exposure in the equity market weakness at the end of February and again in mid-march In the course of March 2007, the short futures were mostly replaced by put options to regain the upside potential Since April, the put programme has been constantly renewed such that protection has been kept at high levels. Risk management monitors the exposure by daily monitoring of stress, VaR and P/L broken down by futures, options, structured products and cash securities daily communication with portfolio managers to receive updates on Second Quarter trading 2007 activities results Zurich, 7 August weekly 2007 PAM reports Slide 7 Development of Major Equity Market Indices YTD 2007 Equity Market Indices (change in %) 5% 0% 05% 00% 95% SPX Index VIX Index 90% Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 PAM's Listed Equity Delta and Stress Exposures YTD 2007 Equity Delta () 4,000 2,000 0,000 8,000 6,000 4,000 2,000 Delta 0 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Stress VIX Index Level -3,500-3,000-2,500-2,000 -,500 -, Equity Stress () Summary and Outlook Over the cycle targets EPS growth 0% RoE 3% Swiss Re s second quarter 2007 results show strong performance with an annualised RoE of 5.9% and EPS of CHF 3.50, showing an increase of 38% compared to second quarter 2006 P&C rates remain at attractive levels, particularly for property business. Slight decline in business volume, partly due to higher client retentions. Swiss Re continues to manage the cycle actively Swiss Re continues to optimize use of capital including continuance of the buy-back programme announced earlier this year First half substantially exceeded our targets and assuming normal nat cat events in H2 the outlook for the rest of the year remains strong Slide 8

10 Today s agenda Introduction Susan Holliday, Head IR Business Performance George Quinn, CFO Questions & Answers Jacques Aigrain, CEO George Quinn, CFO Roger Ferguson, Head of Financial Services Slide 9 Appendix Slide 20

11 Group income statement Earnings up 55% at constant FX rates constant FX H 2007 Revenues Premiums earned Fee income Net investment income Net realised investment gains Trading and other revenues Total revenues % 28% 46% n/a 5% 4% 7% 29% 45% n/a 98% 42% Expenses Claims and claim adjustment expenses; L&H benefits Interest credited to policyholders Acquisition costs Other expenses Interest expenses Total expenses % 438% 0% 8% 49% 4% 32% 440% 0% 3% n/a 4% Slide 2 Income before tax expense (Operating income) Income tax expense Net income % 43% 45% 5% 40% 55% Group income statement 2007 Business segment results Group income statement by business segments Property & Casualty Life & Health Financial Services Other Total Total H 2007 Revenues Premiums earned Fee income Net investment income Net realised investment gains/losses Trading and other revenues Total revenues Expenses Claims and claim adjustment expenses and L&H benefits Interest credited to policyholders Acquisition costs Other expenses Interest expenses Total expenses Income/loss before tax (Operating income) Zurich, Income 7 August tax expense 2007 Net income Slide

12 Interest and other expenses Corporate Centre & other costs Group function expenses Thereof restructuring expenses Interest expenses Indirect and other taxes Other Interest and other expenses % -99% 49% 30% 27% -% H Slide 23 Investment portfolio CHF bn Balance sheet values Unit-linked investments Balance sheet values (excl. unit-linked) End End % 2% 3% 8% 5% 2% 3% 8% Fixed income Equities Other investments Real estate Cash and cash equivalents 80% 82% Slide 24 The investment portfolio grew 4.2%, from CHF 64.8bn at end of March 2007 to CHF 7.7bn, mainly related to longevity transaction with Zurich Assurance Ltd. (GBP 3.7bn/CHF 8.7bn) Split excludes unit-linked securities

13 Net investment income Fixed income Equities % 4% H Other asset classes Investment expenses Interest paid on cedant deposits % 55% 5% Assets held for linked liilities % 405 Net investment income % Slide 25 Net investment income increased 46% to CHF 2.6 billion Swiss Re s running yield on its large fixed income portfolios increased to 5.0% in 2007 Other asset classes reflects excellent performance of alternative investments Increased investment expenses in line with the growth in assets Interest paid on cedant deposits increased due to fund withheld covers acquired as part of Insurance Solutions Net realised gains FX M-t-m Q Q Fixed income Equities Other asset classes Assets held for linked liilities Foreign exchange remeasurement and designated trading portfolios % 294% 830% n.a. 77% H Total net realised investment gains n.a. 988 Slide 26 Net realised investment gains excluding assets held for linked liilities increased by CHF 56m due to higher realised gains from equities Fixed income impacted by mark-to-market losses from portfolios classified as trading. However, the economic impact was mildly positive, as the fixed income portfolio was duration matched to Swiss Re s liilities Other includes costs of derivatives used to hedge financial market and insurance risk exposure The designated trading portfolios are foreign currency denominated trading fixed income securities which back certain foreign currency denominated liilities

14 Net unrealised gains, pre-tax Total End Q End Other Real estate Fixed income Equities On BS Off BS On BS Off BS Slide 27 Net unrealised gains on fixed income fell due to rising interest rates in the UK, Euroland and in the US Higher net unrealised gains on equities due to market movements despite higher realised gains Figures before hedging Excluding assets held for linked liilities Equity and credit exposure hedging Traded equities CHF bn Credit products CHF bn /2/05 3/03/06 30/06/06 30/09/06 3/2/06 3/03/07 30/06/07 3/2/05 3/03/06 30/06/06 30/09/06 3/2/06 3/03/07 30/06/07 Market values Net, stress test loss Market values of corp bonds Net, stress test loss Slide 28 The net stress test loss is based on a 30% fall in traded equity markets with a simultaneous increase in volatility for Swiss Re s tradele equities Excluding assets held for linked liilities The net stress loss shows the impact of the widening of credit spreads based on the experience over the past 5 years

15 Swiss Re s Risk Management approach Financial Markets Risk Limits Aggregate financial market risk limits (VaR and Stress) are estlished, which are then broken down into risk categories (Equity, Interest Rate, Credit Spread, Foreign Exchange, Real Estate, Hedge Funds) Credit Risk Limits Credit risk limits are based upon shortfall Limits are broken down among the key credit risk-generating Business Units in the Group and by country. We also manage credit risk by individual name Limit Monitoring & Pricing Validation All limits are monitored by Group Credit & Financial Market Risk Management and have pre-defined escalation procedures in the event of limit breach All limit usage is monitored on a daily or minimum weekly basis Limit usage is reported monthly to Group Executive Board All risk limits capture firm wide exposure Slide 29 Return on investments calculation at avg FX at avg FX Investment result excl. linked % Adjustments % Investment result (basis for RoI) % Investments (as defined in the balance sheet) % Assets held for linked liilities % Cash and cash equivalents % Funds held by ceding companies % Funds held under reinsurance treaties % Other adjustments % Invested assets % Average invested assets 5 Return on investments % % 30% 0.8pts. H 2007 at avg FX % Slide 30 Income from current cash accounts, reinsurance derivatives, participating business and other adjustments 2 Cash deposits with ceding companies less cash deposits withheld from retrocessionaires 3 Deposits with credit institutions below 3 months less amounts owed to credit institutions 4 Separate account business, assets held for linked liilities, derivative financial instruments with negative replacement values and amortised goodwill, acquisition timing adjustments, participating business and other adjustments 5 Average assets are calculated as opening balance plus one half of the net asset turnover at average foreign exchange rates

16 Return on equity calculation Return on equity calculation Net income YTD Opening equity Closing equity Average equity Time weighted capital movement Time weighted average equity Return on equity, annualised 3.3% 5.9% 6.8% Slide 3 Shareholders equity 2007 YTD in shareholders equity year-to-date December 2006 Net income Shares repurchased Net change in unrealised gains/losses on securities Foreign currency translation adjustments Capital movements Dividend payment Other 30 June 2007 Slide 32

17 Insurance Solutions update Finalisation of purchase price allocation Increase in reserves Other adjustments Total adjustments, gross of tax Tax (35%) Increase in goodwill Slide 33 Expense synergies on track H 2006 Acquisitions and disposals Varile compensation in restructuring provision Other Pro forma H Actual H Synergy gains realised 20 Excludes synergies realised at closing Insurance Solutions integration Final purchase price allocation Allocation of the purchase price Total cost of investment at 30 June 2007 Net assets acquired Historic intangibles set to zero Adjustments to assets acquired and liilities assumed: Unpaid claims and claim adjustment expenses gross discounting, net of capital cost Unpaid claims and claim adjustment expenses adjustments and reinsurance payles/receivles and funds held Customer intangible assets Liilities for policy benefits for life and health Present value for future profits (PVFP) Restructuring provision Other Tax impact of ove adjustments and other tax adjustments Purchased net assets excluding goodwill Goodwill Insurance Solutions Slide 34

18 Our strategic direction Generate economic profit growth Reduce earnings volatility Enlarge market scope Talent, culture and organisational efficiency Higher sustainle shareholder returns Best-in-class customer service Slide 35 Admin Re and longevity transactions Deeper and wider market share June 2007 Admin Re and longevity transaction with Zurich Assurance Ltd. 2nd largest longevity transaction globally, transferring annuity policies and GBP 3.7bn assets Attractively priced business with positive effects in Embedded Value and EVM terms and additional diversification benefits May 2007 Admin Re transaction with Conseco Acquisition of block of deferred annuity contracts with total assets of approx. USD 3bn April 2007 longevity transaction with Friends Provident Swiss Re s first ever longevity transaction transferring longevity and investment risks on a GBP.7bn block of annuities-in-payment CHF 9.bn CHF 3.7bn CHF 3.9bn Slide 36 Transaction signed but not yet closed

19 Swiss Re s catastrophe perils hedging has grown further Hedging instruments CHF bn Industry loss warranties (ILW) and Derivatives Insurance linked securities (e.g. Successor, Australis) Swaps Retro 2 Slide 37 July 999 July 2000 July 200 July 2002 July 2003 July 2004 July 2005 July 2006 July 2007 Hedging expanded from capital to earnings protection Earnings volatility events Hurricane NORTH ATLANTIC Windstorm EUROPE Earthquake CALIFORNIA Earthquake JAPAN Return period 25 yrs 25 yrs 50 yrs 50 yrs Market loss Est. Swiss Re gross claims Est. claims hedge effect Est. net claims Claims exceeding these figures are considered as extreme claims Slide 38 As of ; Source: ESBOS Note: Estimated claims hedge effect is adjusted for basis risk

20 Swiss Re is well-diversified among peak exposures Single event claims, 200 year return period as of CHF bn Slide Atlantic hurricane Gross European windstorm Net* California earthquake Japanese earthquake * Net of estimated hedging impacts (cat bonds, industry loss warranties, retrocessions) Japanese typhoon Source: UMF Advances in risk transfer and trading Swiss Re cat bond indices First performance indices for catastrophe bonds in cooperation with Standard & Poor s Important step in increasing transparency of cat bond returns Attracting additional investors and enhancing the secondary market Slide 40 Securitisations sponsored by Swiss Re Programme Size Type Australis USD 50m Australian Typhoon, EQ MedQuake USD 00m Turkey, Greece, Cyprus, Portugal, Israel EQ Successor II USD 00m US Wind, US EQ, Euro Wind, Japan EQ Vita Capital III USD 250m Extreme Mortality Vita Capital III EUR 20m Extreme Mortality Securitisations on behalf of 3rd parties Programme AKIBARE Blue Wings Calash Re II Fusion 2007 Gamut Reinsurance Javelin Re Longpoint Re Mystic Re II Spinnaker Capital Size USD 20m USD 50m USD 250m USD 40m USD 30m USD 25m USD 500m USD 50m USD 380m Type Japan Typhoon North American EQ, UK River Flood US Wind, US EQ Mexico EQ, Japan Typhoon Multiperil CDO Multiperil US Wind US Wind US Wind All information as of 3 July 2007

21 Year-to-date premium volume increased 9% with stle rates Year-to-date renewals traditional portfolio CHF 3.8bn 00% 00% 80% -2% -2% 77% 3% 6% 2% CHF 5.bn % 09% 60% 40% 20% 0% Total Pending renewle YTD 2007 Slide 4 Cancelled or replaced Renewed This represents 4% increase on the renewed block, comprising: Rates 0% in share % Exposure growth 3% Increase on renewal New Insurance business/ Solutions replacement Pending All renewal figures are estimated and calculated at constant foreign exchange rates Estimated outcome Rate changes are pure improvements of quality of our book s to loss expectancy and claims inflation are included in exposure growth Base capital requirement based on internal risk model of Swiss Re Base capital requirement using one year 99% Tail VaR (Shortfall) CHF bn Property and casualty Life and health Financial market Credit Funding and liquidity Diversification effect Swiss Re Group required capital End End % +4% + 2% - 26% - 67% +28% +2% Base capital requirement using one year 99.5% VaR Slide 42 CHF bn Property and casualty Life and health Financial market Credit Funding and liquidity Diversification effect Swiss Re Group required capital End End % +4% +22% - 27% - 00% +23% +7%

22 Availle capital calculation Calculation of availle capital CHF bn Shareholders equity Market-to-market adjustments Goodwill and intangibles Equalisation reserves P&C and L&H valuation adjustments Hybrid capital Tax and other Swiss Re Group availle capital End End % +23% +54% - +40% +45% +27% +30% Slide 43 Internal capital adequacy further strengthened in 2006 Comparison of internal adequacy based on various measures of required capital 99% Shortfall (Tail VaR) 99.5% VaR 99% VaR 400% 365% 388% 300% 320% 285% 264% 200% 226% 00% Slide 44 0% End 2005 End 2006

23 Swiss Re s effective capital management Price adequacy Swiss Re s value proposition includes commitment to prudent capital management. At the same time financial flexibility and capital efficiency continue to improve over time CHF bn Senior long-term financial debt Hybrid capital Mandatory convertibles Shareholders' equity Hybrid to total capital Senior financial debt to total capital % 40% 35% 30% 25% 20% 5% 0 0% End Q 2007 End 5% 0% Second Hybrid Quarter / total 2007 capital results 2.8% 5.5% 4.4% 3.% 0.8% 3.8% 6.4% 6.7% Zurich, Senior 7 debt August / total 2007capital.0% 9.9% 6.2% 4.% 2.4% 2.3% 2.2% 2.0% Slide 45 Note: Shareholders equity figures for 2005, 2006 and 2007 on US GAAP basis Corporate calendar & contacts Corporate calendar Investors meeting (Monte Carlo) September Q 2007 results (Conference Call) 06 November 2007 Investors day (London) December 2007 Investor Relations contact Hotline Susan Holliday Andreas Leu Rolf Winter Marc Hermacher Investor_Relations@swissre.com Slide 46

24 Cautionary note on forward-looking statements Certain statements and illustrations contained herein are forward-looking. These statements and illustrations provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to a historical fact or current fact. Forward-looking statements typically are identified by words or phrases such as "anticipate", "assume", "believe", "continue", "estimate", "expect", "foresee", "intend", "may increase" and "may fluctuate" and similar expressions or by future or conditional verbs such as "will", "should", "would" and "could". These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause Swiss Re's actual results, performance, achievements or prospects to be materially different from any future results, performance, achievements or prospects expressed or implied by such statements. Such factors include, among others: the impact of significant investments, acquisitions or dispositions, and any delays, unexpected costs or other issues experienced in connection with any such transactions, including, in the case of acquisitions, issues arising in connection with integrating acquired operations; cyclicality of the reinsurance industry; changes in general economic conditions, particularly in our core markets; uncertainties in estimating reserves; the performance of financial markets; expected changes in our investment results as a result of the changed composition of our invested assets or changes in our investment policy; the frequency, severity and development of insured claim events; acts of terrorism and acts of war; mortality and morbidity experience; policy renewal and lapse rates; changes in rating agency policies or practices; the lowering or withdrawal of one or more of the financial strength or credit ratings of one or more of our subsidiaries; changes in levels of interest rates; political risks in the countries in which we operate or in which we insure risks; extraordinary events affecting our clients, such as bankruptcies and liquidations; risks associated with implementing our business strategies; changes in currency exchange rates; changes in laws and regulations, including changes in accounting standards and taxation requirements; and changes in competitive pressures. These factors are not exhaustive. We operate in a continually changing environment and new risks emerge continually. Readers are cautioned not to place undue reliance on forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statements, whether as a result of Second new information, Quarter 2007 future results events or otherwise. Slide 47