Swiss Re posts strong Q2 results, beats expectations by Investing.com

Investing.com — Swiss Re AG (SIX:) delivered strong results in the second quarter, continuing the positive momentum established in the first quarter.

The company reported net income of $996 million, which beat consensus estimates by 7.6%, reflecting robust underwriting and investment performance across its segments.

Although the reinsurance segments posted lower-than-expected revenues, these shortfalls were effectively offset by better-than-anticipated margins, highlighting Swiss Re’s resilience and operational strength.

The company achieved a return on equity (ROE) of 20.1% for the first half of 2024, highlighting the underlying strength of the reinsurance market and the favorable impact of higher interest rates.

“While no doubt some investors will argue that the continued consolidation is disappointing, we continue to believe that Swiss Re is improving the adequacy of underlying reserves, with the new CEO clearly maintaining the strategy set by his predecessor last year,” Jefferies analysts said.

In property and casualty reinsurance (P&C Re), Swiss Re reported insurance income of $4.815 billion, which was 5.2% below expectations.

However, the segment’s performance was supported by a better-than-expected combined ratio of 84.4% due to a significant discount benefit of approximately 11 percentage points versus the expected 7 percentage points.

Losses from natural disasters were also significantly lower than expected, coming in at $70 million, against a forecast of $360 million. Despite some notable reserve additions, notably $0.65 billion for US liabilities, these moves are seen as strategic efforts to improve the adequacy of underlying reserves, which should support long-term stability.

The Corporate Solutions segment (Cor So) showed solid results with insurance revenue of $1.961 billion, beating consensus by 2.6%. The combined segment rate of 87.6% was significantly better than the expected 92.0%, benefiting from favorable premium volume developments and a favorable claims environment. This performance underscores the segment’s improved operational efficiency and strategic execution.

In Life & Health Reinsurance (L&H Re), Swiss Re reported insurance income of $3.893 billion, which was 10.0% below expectations. However, the segment’s net income was a standout, coming in at $471 million, 15.2% higher than consensus estimates.

This was driven by positive mortality experience in the US, demonstrating the segment’s resilience despite revenue challenges.

Swiss Re’s first half-year results under IFRS 17 underline the company’s robust profitability, with an ROE of 20.1% for the first half of 2024.

Despite challenges such as reserve additions and lower-than-expected revenues, the company maintained strong profitability, supported by effective underwriting and investment strategies.

“We suspect that most of these additions are indeed buffers that should continue to strengthen SREN’s earnings outlook. Guidance for the financial year was maintained, as was the case with peers reflecting conservatism ahead of the hurricane season,” said analysts at RBC Capital Markets.

Management reiterated its 2024 target of $3.6 billion in group net income, signaling a stable and optimistic outlook despite potential challenges.

Both RBC Capital Markets and Jefferies maintain a CHF 114.00 price target on Swiss Re based on a thorough valuation model.

While upside potential includes the possibility of capital returns, downside risks are associated with natural catastrophes and the potential impact of prolonged low fixed income returns on investment returns.