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Executives

Eric Schuh – Head, IR

Stefan Lippe – CEO

Brian Gray – Chief Underwriting Officer

Christian Mumenthaler – Chief Marketing Officer

Analysts

Paul Goodhind – Redburn Partners

Fabrizio Croce – Kepler Capital Markets

Thomas Fossard – HSBC

Swiss Reinsurance Company Ltd (OTC:SWCEY) Investor Meeting Call September 12, 2011 8:00 AM ET

Operator

Good morning and good afternoon. Welcome to today’s Swiss Re’s Investor and Media briefing in Monte Carlo. Please note that today’s conference is being recorded. At this time, I’d like to turn the conference over to Eric Schuh. Please go ahead.

Eric Schuh

Welcome everyone. In the room here with us in Monte Carlo and also for those of you joining us via telephone, my name is Eric Schuh, I am the Head of Investor Relations for Swiss Re. Our agenda this afternoon, first of all Stefan Lippe, our CEO will make his introductory remarks about the markets and Swiss Re Group, then he will hand over to Brian Gray, our Chief Underwriting Officer to talk about his assessment and outlook for the P&C reinsurance market; and then Christian Mumenthaler, our Chief Marketing Officer and designated CEO for reinsurance will talk about how well Swiss Re is positioned today and for tomorrow.

After the presentation we’ll have some time for Q&A. So with that I’d like to hand over to Stefan.

Stefan Lippe

Thank you, Eric. Good afternoon everybody. As a short introduction, I would like to first comment on today’s environment. We are living in a reinsurance company then demonstrate why Swiss Re is well positioned to catch our growth opportunities tomorrow. For those who are listening on the phone, I am now on slide four. Let me first talk about the challenges of today and the opportunities for our industry. In the current economic environment, insurance companies and reinsurance companies are facing big challenges.

First, extremely low interest rates, and this means the available capital remains high and therefore our competition is strong in insurance markets, but Brian will take a deeper view into that and discuss it in more detail. Furthermore there is volatility in stock markets and the impact of inflation or lack thereof that keeps us on our toes as managers of insurance and reinsurance companies. On the other hand, I am glad to report that the insurance and reinsurance market conditions are definitively improving however the broad market turn is still to come.

P&C prices have gradually firmed since January in Europe. We see increased demand for example for peak nat cat exposures and improved turns especially for example in Australia and New Zealand but also in the U.S. and non-cat business has also improved since January and is now at the moment largely flat. In summary the current environment requires from our reinsurance company diversification, size, ambiguous volatility and agility. Brian and Christian will talk about the importance of the deep understanding about the risks in underwriting for full service reinsurance company like us, and also about the necessity of low risk asset management in better delivering today’s market and the markets ahead of us.

Against this background let’s now turn our attention to Swiss Re and what positions us well to capture those opportunities tomorrow. Thanks to our group structure. With that I will now be on slide five. On 17th February we announced the establishment and implementation of a new group structure, aligning our business priorities, increasing the accountability, transparency and flexibility of our business model to become the leading player in the wholesale reinsurance space.

The three business units sitting beneath Swiss Re Holdings are Reinsurance, the well known source of our strength for many years and decades already. Corporate solutions, where we are lean and nimble partner for our corporate clients, and last but not least Admin Re, our business focusing on closed life books with an important goal to diversify our earnings office. We are committed to each and all of them and we have made excellent progress in the transition to this new structure.

One very important step in that regard was the successful exchange over this summer and soon from Q1, 2012 onwards we will be reporting our financial results under the new structure. In short, thanks to our new group structure, our underwriting skills, our excellence capitalization, our conservative asset portfolio, and our continued track record of innovation, Swiss Re Group is well positioned to improve returns and to capture the risk-adjusted earnings growth tomorrow.

With that I would like to hand over to my colleagues, and Brian is the first.

Brian Gray

Thank you, Stefan and from my side good afternoon everyone. For those of you on the phone I will start on slide seven. So there are two key messages about the reinsurance market that I’d like to share with you this afternoon. The first is that underwriting terms have begun to improve and we forecast that this will continue. The second is that record low interest rates, non-earthquakes or other natural catastrophes have been the most significant structural shock to the industry in recent years.

We’ll start with the cycle. The market turn is often signaled or driven by one or more of the three factors that we’ve shown here on the list and obviously these three are often highly correlated amongst themselves. Right now the message they appear to be giving is positive, although as Stefan mentioned, not completely felt. First of all there is clear pressure on the industry’s profit and loss from an accumulation affect, its first of all the very low interest rates that are slowly flowing through into running yields certainly the natural catastrophe events is slowing but the reserve releases that has propped up some of the industry accounting year results recently and certainly three to four years of soft market pricing.

Negative technical cash flows are often a signal of a market turn. Here in the graph on the upper right we show U.S. primary P&C market flow. So you can see there has been some volatility but more or less for the last 2.5 years these flows have been negative. The third normally reliable indicator a cycle turn is capital. And here the position is mixed. But superficially certainly the industry capital appears to be solid although there has been some pressure in 2011.

I think what is important to know and as Stefan alluded to is that U.S. GAAP capital has been artificially enhanced by the record low in the drop in interest rates which of course makes the asset side of the balance sheet, the bonds, mark-to-market looks stronger while we leave the liabilities unchanged. We all know that is non-economic, it is not the best way of looking at the capital available in the industry but it does create the appearance of more capital availability than there maybe. Of course this can reverse itself fairly quickly if there is a rise in interest rates. So our economic research team estimates that a 100 bps rise in interest rates eliminate about $100 billion of capital in the total P&C industry.

These are the conditions that we’ve seen so far this year, more or less the softness continued through January and then prices began to increase in the April and July renewals led by natural catastrophe following the events of this year and also some vendor model changes. Commercial industrial business appears finally to have bottomed out and there are also nat cat exposures are increasing. The alignment has not yet moved and that we think is particularly vulnerable to low interest rates of course is casualty.

On the property side on slide 10, the peak risks continue their long-term upward trend in insured claims. As you can see in the little graph on the upper right, and certainly 2011 it continues this pattern. Now over the past decade we’ve focused – a lot of the industry has focused a lot on North Atlantic storms so U.S. hurricanes and occasionally Pacific storms. This year earthquakes the power of earthquakes have been highlighted force as we all know. The impaired that has not had a high profile since the late 1990s but it remains potent at any time and its particularly relevant for a lot of the European community here is European windstorm.

On the casualty side; so motor business has been weak throughout many of the European countries in the last several years. It has started to improve in several of them and began to go in the right direction. However liability remains troubling. So in addition to years of rate cutting the long tail as we know makes it particularly sensitive to yield. And in my view the reality of low rates has yet to be reflected in the casualty markets. Published results have been held up by reserve releases in the recent years. I really do believe that a bubble here is forming and that inevitably is must pop.

Now we all know for those on the phone I’m on slide 12, interest rates are lower than they were, and we show this again on the upper left hand side, five year risk free rates. Immediately after the financial crisis, I think many players assumed that the very low rates for a temporary aberration. And that there was therefore no real need structurally to change the contribution from the underwriting side to replace them with the yields. However the rates have continued to remain at levels below what was earlier expected. We now face at least a possibility of a very sustained period of low rates.

This of course makes a big difference in terms of the underwriting performance that is required to be successful. On the right hand side, we’ve shown a very typical graph that you’ve seen before, so the relationship between the combined ratio and the return on equity in this case, we taken eight major primary P&C markets. In each case for a given return on investment, each of two lines represents different return on investment, the one that was around in 2000 and the one in 2010.

And you can see certainly how the line has dropped as interest rates have come down. To achieve the same ROE, given the asset leverage and the underwriting leverage that exists in these eight markets, the combined ratio needs to have adjusted by about eight percentage points. And this simply has not happened, this adjustment process is not complete. And of course this presents a little bit of an optimistic picture. If interest rates do stay at the levels that they currently are, then the running yield, the ROI that’s shown there for 2010 will prove to be optimistic and an even further adjustment will be required.

The earthquake this year caused earnings volatility that they were within the expected model ranges and more and less the industry behaved as we would have expected to behave after the series of earthquakes. However the interest rate shock has been something that weren’t a more sustained structural shift especially if as it now appears. It is likely to be with us for some time. In our view this is the real shock and the underappreciated shock to the industry in the last several years.

So to finish from my side on slide 13, repeat our industry forecast. Of course no one knows for sure when demand and supply will interact as they do and that’s why we’re all in Monte Carlo. And the income can be thrown off by things that haven’t happened yet, either in the financial markets or on the underwriting side for natural catastrophe. However our baseline expectations is that the bottoming out and the sporadic nat cat led increases that we’ve seen so far through the spring and summer will transform themselves into a modest, but also a much broader upswing in market conditions over the next 15 months meaning each of the next two January renewals.

And with that I will turn it to Christian.

Christian Mumenthaler

Thank you, and good afternoon here in Monte Carlo, and hello to everybody on the phone. So I would like to say a few things about reinsurance. And in times of stress and market turbulences like these, there is always a risk that the time horizon of people narrow. So I’d like to start by making a point of and expanding that time horizon because reinsurance is really a very, very long-term business that’s spread over decades.

And I’d like to illustrate that with the example of the French markets. And I’m choosing the French market because they say the French market chose this place here for the annual event in ‘057 and they chose Monte Carlo for the precise reason that it was mutual territory and there was no other insurance company in this market. So I come to talk to you about long-term relationship with Monte Carlo actually from. So on slide 15, just to take that example, we created our first foreign office actually in Paris in 1865. And that was in the time of Napoleon III who famously was raised in Switzerland and had Swiss citizenship, so I think it’s the first time and only time there was a French emperor who was Swiss, but that’s just an anecdote.

So some of the relationships we have in this market go for nearly a 100 years. So we have a time in the French markets. We have a relationship for 98 years uninterrupted, so never interrupted to any war or anything, that gives you a sense of the very long-term nature of the business. And I checked out with our claims people, so what’s the oldest claims were paid last year and the oldest single claim was from 1966. And the oldest, we paid was 1961. Its 45 years later that we’ve paid a claim.

It’s just very important to illustrate that because whatever the capital adequacy, the rating or whatever it is, so the reinsure you today have to pay every claim. You need to have to trust that, that reinsurer will be around in 50 years to pay this claim. So that’s the reality of our business and I think it’s very important to state again here at the beginning.

So where does Swiss Re stand today? So a few points on that. So one is that we have a very strong capitalization right now. These are the figures we have given at the Q2 results. So in terms of the Swiss Solvency Test, which is relevant for our Switzerland, we are over 200% and 100% is the threshold. In terms of equities, excess capitals over AA level, we set this quite look it phrase that we’re comfortably in excess of a capital buffer of $3 billion to $5 billion above the S&P AA level, I am sorry this is how we said it so I have to repeat it exactly the same way, but it’s very strongly capitalized, although on a AA basics for S&P.

And then the Solvency I reading which is still the relevant one in many countries, again have over 200 percent of capitalization. So this means that in the time of stress, we feel ideally positioned to take more business on board if the rates are correct and the way we see them. So one of the reasons I guess we are in this typical position is that we had a conservative asset portfolio about 59% of our asset portfolio is investing cash, treasuries and government backed securities. So we have an absolute minimal exposure to this peripheral U.S sovereign, so total of $78 million nothing increase at the end of Q2 but obviously with no intent to change that. Duration matched and I would say conservative medium-term asset allocation plan.

So this is obviously something we had now for several years and to a certain extent we were lucky to be in that particular position as we’re ramping to new phase of turbulence right now. Then I’d like to talk about underwriting since that’s clearly one of our key value proposition, and make a point about market share, because it always depends how do you find market share, is the market share premium or profit.

And so I put those on here. So on the left side you see Swiss Re’s P&C premium market share versus the top eight reinsurers. So you can see from 2006 through 2010, it went down significantly. That’s typically the one we would see. But if you make the analysis on the underwriting profit which is something you can’t extract from all the reinsurers. So that’s basically the profit before allocation of any investment income, then the market share is quite different in that definition so that’s the right chart.

The last year basically the charts says, we had more than 50 percent of the underwriting profit of these top eight reinsurers and clearly I believe that these two in the last years have been anti-correlated [ph]. So more premiums in select profits and vice versa and its why thanks to the great work of Brian Gray and the teams and the underwriting guys, what’s been extremely disciplined and the painful steps to decrease premium.

Then come to the 2011 that slide is probably you’ve all seen that so we had three main renewals that we paid January renewal in a soften environment, the difficult renewal. There were a few opportunities we could grab particularly in Asia. April was all, was in the tragedy of the Japan earthquake, so there was a significant there. But also here it’s a lot of very large capital release shares from China because they had changed their regulatory regimes and forced people to buy more reinsurance so we could profit from that. And then July clearly there was an increase. There was a hardening of the market which we could capture. So the total picture is on the right side, an increase about 20 percent of business. And that is about at the same rate adequacy that we had a year before. So we’re pretty happy with that result this year.

And then on the innovation side, something we are always have been proud about. I am not going to read to this whole list of things that are done, longevity, I talked about Agro Vietnam in the March Investor Day. So maybe just as the first point here, we are seeing more and more possibility to transact P&C run-off transactions. As you know we struggled to do much business on the casualty side, much new business on the casualty side. We think its slowly priced but we see some opportunities all the casualty portfolio is best. We are trying to really keen to get rid of it completely including the risk. We actually have no opportunities there that we could take that going forward in one go.

So that has been something where we’ve been quite successful during this year and we’ll see how this goes on next year. We would foresee that with the Solvent II regimes coming into Europe that is could be something that is will be attractive to a lot of our clients. So clearly we intent to keep that edge also on innovation power. That leads to me already to the end, sorry on page 21 for the people on the phone. So basically just four points on how is the reinsurance today. So I think first of all the proprietary deep understanding of risk underwriting is one of the key foundations of Swiss Re and I think we have proven that we are strong at that.

I would say we’re ideally positioned for a potential hardening due to the excellent capital position and the conservative asset portfolio that will help us get through difficult times and we have a really good track record in innovation that would help us to capture opportunities as they come up. And with that I end my speech and I’d pass over to Eric.

Eric Schuh

Thank you very much Christian. So for the Q&A session we’ll stick to the usual, mention of asking no more than two questions. So operator, if you would like to start asking for questions over the phone and in the meantime we’ll ask everybody in the room to wait for microphone to ask your questions.

Question-and-Answer Session

Paul Goodhind – Redburn Partners

Thanks. It’s Paul Goodhind from Redburn Partners. My two questions are firstly on interest rates. Do you think that pricing in the market reflects one, the new money yields or two, the yields on the blended portfolio or the outlook [ph]. Second question is, do you think there is a potential conflict between your key statements that firstly do you think there will be a broad based pricing out in the one hand and on the other that you ready to commit more capital if pricing does improve?

Stefan Lippe

I might address the first one and Brian perhaps you the second. So every product in your business you have to take the forward rates. Now our portfolio is sitting on that’s on the asset side, talking how to supporting new underwriting that the few most of the insurance reinsurance company are matched. So they all been economically even if it's dancing anything around we are perfectly matched, not only keep your all business stable but not the new ones. This clearly means if you look today underwrite business and take these average return on investment on your old books which is already allocated and used for matching other liabilities, you fool yourself. It means you have to price, because it’s very simple. It’s a cash better you expect and you have to just count a base and you have to use the forward rates.

And your interesting [ph] question if I got it correctly was do we have this feeling that this is properly recognized in our line of business, my clear answer is no, otherwise you would not see these type of combined ratios which are obviously not reflecting this forward looking type of view with a current and known forward looking rates.

Brian Gray

On the second question, no I do not see a conflict for a simple reason that the market is cyclical and we have for many years engaged in cycle management and being counter cyclical. So I had a chart last year that shows the market swinging with big ways of cycle and not having a much more moderate ways. And I think it is consistent with the facts that as, you saw Christian’s slides showing the market share based on premium sliding a little bit as pricing went down as the broader market turn advances. And our thresholds have remained similar than it is logical we would write more business on the way up.

Eric Schuh

The last row in this side.

Unidentified Analyst

Thanks a lot. I have two questions, one that is on the capital and the other one is on the RMS [ph] sorry, on the capital the two to five is significantly less than the 10 with (inaudible) changes obviously January seen long time away. I wanted to kind of sensitivity of what has moved in the mean time. And the other is RMS, we just as saw them and they explained since we’re talking about fronts, particularly the tax front, it’s the area where the exposures on them are confusing and that cause a particular problem I guess to the regional (inaudible) to the extent that you’re still the market leader in France, I wonder how are you’re adjusting your pricing for that? Thanks a lot.

Brian Gray

So I think on the capital. So there has been no change in our statement, also with that second quarter we expressed comfortably about the $3 billion to $5 billion buffer about S&P AA. We said that we deliberately want to get away from every quarter announcing a specific number. So there is no change in our statement on excess capital. We’re still very comfortable with our capital position.

On RMS, we do not use RMS in Europe. We have invested for many years in our own proprietary models, very broadly the changes in RMS and I won’t go into some regions because that there are some arbitrages between the model but very broadly the changes in RMS brings them up much closer to where our model already were in Europe. So there is no direct change from us as a reinsurer, now demand and supply have to interact but we’re certainly happy to see that others in the market are looking at an exposure for European windstorms that is higher.

Eric Schuh

So one there and one there.

Unidentified Analyst

So Christian you were talking a little bit about the Chinese decision to force insurers to buy more reinsurance. Can you give us some details and figures and show us what this means with growth perspective in Asia?

Christian Mumenthaler

Yes, I can – well not details obviously but the strategic environment is such that for many years there is very large local companies that wrote the loss of motor business won’t do that, that’s what it is. And as the Chinese regulators has decided to strengthen the capital requirements, I mean what was required for holding that business at the same time some source of alternative capital they have where this allows are limited.

So certainly in the short-term this has led to these companies which are huge. It’s sort of force them to write close the share reinsurance arrangements, I didn’t official mean to get the better capitalization level. This is what we saw this year. It’s very hard to say how sustainable that is and whether that’s going to continue or whether they will find other needs to finances so we remain cautious.

But at least for the first time there is a clear need from these companies on the big scale to do that, and therefore also that we were happy to see the profitability of that business. Again very hard to say going forward. And we haven’t disclosed the exact numbers but it’s quite significant that we can imagine.

Stefan Lippe

Perhaps to add to this because you asked also Asia, so our forecast on an underwriting year basis and it takes a little bit time until you see this in the accounting figures that has certain delays. We assume that our Asian market share and this is not only driven by China but we have significantly pricing fees and top line increases in Japan, after the earthquake and the same is true for Australia. These are the three driving marks that you can even go to Vietnam where we significantly increased our total cost is much smaller than the other three nations. We will end up as a sum of all these growth will end up with 20% share of the total top line being Asian market and two years ago it was around about 11%. So it’s a huge step forward and it would take China alone, China alone will rank on the biggest countries on place number two.

Our own internal economic research is forecasting that China will be in 10 years the second – the world’s second largest insurance market after the U.S. And our ranking at the moment from our reinsurance agreement is U.S., U.K., China.

Unidentified Analyst

I just want to know whether you could tell us a bit more about the other impact of the interest rate development that on the capital supply, will it be great to say that the reinsurance industry gets more capital than it can utilize because the interest rate environment is as low as it is so that investors are prepared to give you the money or other reinsurers. And secondly, wouldn’t it be right to ask investors to agree to lower returns on investment in a situation where the risk free or whatever is interest rates.

Stefan Lippe

I’ll start with the second one. As we have choosing type of targets metrics which has one driver in the probably U.S. economy, our type of target automatically are reacting to change in the let’s say baseline is so called risk free yields. And I think our answer to your question is we have already stated in how we a year ago, one enough have more than a year ago with our targets. The first question is an interesting one because that first message defined what type of capital we are talking about. As Brian said in his presentation so the big difference between U.S. GAAP or IFRS [ph] capital and economic capital for us, for example an economic is mainly the methodology for S&P is using, Europe will introduce and also some of the Swiss has running and our internal model. And lower yields does not create economic capital by the opposite [ph].

So what we are seeing under unbalanced accounting rules which just discounts with the lower yields asset side but keeps the liability, it’s an obviously misleading on the view of your capital movement. And so of course you can say if this is new normal what would it mean. If it’s a new normal, let’s assume over the next 10 years we have half a percentage point on five years, 10 points. Take roughly three or four years until just roll forward of the current maturities or the bonds will leave the impact that their ROI is closer to the event till this the (inaudible) scenario.

And then suddenly by doing so, every time when your bonds run to the end, your cap is going to be shrinking at the same moment. So this capital I would not use harsh fake but it’s a capital you only have for a certain time and even there is no uptick on the interest. You lose a chance with a maturing of your bonds in P&C the average might be false on how it is and from this perspective I think it’s a very strong part of the reduction we have (inaudible) first type Brian talked about. So I personally don’t see this capital as sustainable. It will automatically disappear even if you have no losses or other short-term in our balance sheet. And based on this capital tool slide shared by (inaudible) asset reinsurance strategy I think is taking new tricks.

So from this perspective, I think the capitalization of the market is mainly overestimated because economically this low yields environment is a burden for the company.

Brian Gray

Maybe I could just add if I understood your part of your question correctly, you’re asking if it’s a case of reinsurers have lots of capital access because the investors have no place else to put it. If that is the case, I guess when you look at the valuations throughout the industry right now, it doesn’t appear that they are aligning up to invest huge amounts in the industry, I mean we would see in a post event scenario but it doesn’t I believe appeared to be the case now.

Fabrizio Croce – Kepler Capital Markets

Fabrizio Croce, Kepler. Sorry to following up on this but if capital is set to disappear, why are you actually engaging this capital now with additional growth? And the second question is, is it correct actually to argue that the premium you grew in January given the current product development what actually potentially U.S. too aggressive in writing this business and you should have met the leads better conditions?

Stefan Lippe

So first of all in the second quarter we gave an overview of our January, April and July renewal. And we said that this 20% growth in top line was not the target by putting our targets on the quality of the business value, similar type of price situation. And the first question was about.

Brian Gray

About why grow if we think capital is going to disappear.

Stefan Lippe

Sorry, that’s right, I said on the U.S. GAAP or IFRS on capital disappearing but you might recall we never talked about capital we are always talked about against the AA rank of S&P which qualifies as an economic type of measure. And so there we hold huge exit capital. So and we rather would like to use this capital at a point of time and the high volatility in the market and we have quite some good opportunities will show up because our clients need us most when they are strong and you know what, for the capital whatever depletes a capital, what a real storm and earthquake or storm, sovereign debt it’s the same. So this might be in balance sheet and this is exactly the point in time where reinsurance of course is needed and we would like to be there with our full capacity to really support our clients most when they need us most.

Unidentified Analyst

Question regarding your current excess capital situation as compared to the S&P AA rating standard. Firstly, when do you expect S&P to recognize you capitalization into what you some sort of the AA. Secondly, are you considering using part of your excess capital for acquisitions in the industry which might be quite attractive given the tremendous discounts from 10% to about 30% over net asset value which some of your competitors, all the competitors could be purchased.

It would have been that this would be in line with your corporate philosophy given that on the Admin Re side you do the sort of portfolio acquisitions and that you’ve recently done the Zurich [ph] transaction acquiring a legacy portfolio. You might and perhaps you would also wish to expand on that, have additional firepower given your close relationship with you have a great may or may not have received part of the Zurich [ph] transactions as a retrocession? Thank you.

Stefan Lippe

OK, minimum four questions. So first of all the question of the excess capital then what I would how we see M&A and there was a point I would put into what is run-off transaction we are doing on the P&C side and it looks like I would go for three Brian and there might have a close one for you in that. So I start with the excess capital. So again we have I think done our work that were required some significant [ph] S&P and last I think I know about October 12th last year when they wrote the in excess of AAA so we are redundant towards AAA.

And we demonstrated that the last time we did a precise update was in February this year when we said it was $10 billion excess of AA. And so I think we have done our work and S&P was quite clear to the market saying they look for the core earnings. And we have demonstrated and not everybody could do so that for the first five years we went up quite from earthquake storms and floods mainly in Asia. Despite this there are significant frequency.

We were able to show our positive results for the first half year. So again it’s like a downgrade though in its second and for an operator proper procedures. So we guys we have done our work and now S&P has to follow their timetable which we cannot inference but I think we have very well position although we will see relative capital obviously remain [ph] we feel very comfortable situation.

Then mergers and acquisitions, and now be a relative size. So overall and I am not talking about Swiss Re but market situation. The key question from a generic question at the moment is have you seen the very lowest point in valuation of the insurance companies. Of course at the moment I see we can argue that still a big misunderstanding when some noise in the market and banking companies are dancing up and down, you kind of observe that to a large extent insurance or reinsurance company following the same type of movement to be frank in some cases hard for if you go to technical analysis why this is happening but sometimes people take in the market everybody who is called a financial – part of the financial industry as a proxy for such things.

I think there will be a point in time especially when they don’t mind apart from a liquidity side. That this type of misunderstanding will show up as no longer valid to result in the last prices. Liquidity was always a friend of the insurance or reinsurance industry but really contagious part on the banking side. So from this perspective there might be due to hike in the market, rates were even I’d say somewhat interesting targets might be getting as much cheaper they are at the moment because if all the economists the real optimists are no longer around. And on this perspective I guess tactically we always said we never excluded that we also see do more than just organic growth but if you ask me personally if in the second call and acquisition about time I think (inaudible) things are getting cheaper. So the different was the third portion of the question was it what we are doing, when we are buying run-off business on the casualty side.

This is if you ignore for a second, the technicality that is nothing else but buying into the casualty market and its smart attention than just pay in too low prices into account. On a run-off deal you know we are not bound to the original prices portfolio what requires, we just take the right price from point of view using taking the yields and discounts for future cash flow business and with this with same casualty business but we have selective in some case a different part while we make our return and just rather go for the business in this transactional fashion.

Brian Gray

On the last piece of your question about Berkshire, yes Berkshire get 20% of all of our P&C business including retroactive transactions, you know anything about the transaction you just get 20% of everything that we write. On the run-off deals, it gives us an opportunity to add value for our clients like structuring and executing cases where they need large capacities and make something happening and as Stefan has said that gives us the opportunity to buy casualty exposures at pricing that maybe different from current low business in the market. So to your question about whether we would, so at this point then by negotiated prices with the seller would we also do have been letting the markets set the price by buying the publicly traded market casualty business than I would refer back to Stefan to question about M&A.

Unidentified Analyst

Two questions, first one is I know that you gave us a figure for the losses from hurricane Irene this morning. Can you give us a feeling what your losses will be and secondly on the renewals again you said it will be a modest hardening. It will be broader, can you be a bit more specific, can you translate that into some figures, some numbers for the overall markets not only some segments?

Stefan Lippe

I would take the first and Christian and Brian will answer second, or both given answer and we check whether they have the same opinion. The first one is very simple. We don’t report on smaller events. So at the moment due to the incoming information we are getting from our times on Irene. Irene, we’re not qualified for us to be (inaudible) next point in time which is the normal third quarter, third quarter reporting. And (inaudible) so I take the market the insured market loss you can read the newspaper like I do, so that $3.5 billion to $7 billion claims. And you have to understand after all these are gross numbers there is nothing to do with our big picture up to $3 billion you can assume a normal hurricane in the edge rather the smallest totally with insurance market, of course there might be Irene but principal [ph].

And the point where insurance market and reinsurance market share perhaps 50/50 if an again I am not talking Irene, somebody not writing the figure and put into Irene to make is very sure. Round about $30 billion regions might not pay an insured part of 50%. This is you can do your own interpolations so you should not expect to this has a huge relevance for the international reinsurance market.

Brian Gray

No, we do not wish to give more precise forecast partly because it’s too early to tell and partly because our legal team will get very upset with us if we mentioned the numbers.

Unidentified Analyst

Hi (inaudible) I wonder if you could tell a few words about the prospects specifically for the Admin Re business and how you see, whether you’re getting a little bit more interest, seems to be benefit more interest in that particular market so I want to just see if that may be your experience? Thank you.

Christian Mumenthaler

So Admin Re is a very important tool in our toolkit. Admin Re is just on the life-side something which is similar to the things we just explained on that P&C run-off. Admin Re taking all that closed book of life policy is nothing else at the end of the day of freeing our capital for all our clients because it needs the capital to write new business. And here of course which is very important for this Admin Re business we are in the major, in the mark one major market for Admin Re is Europe and the Americas and in Europe you know we are – people are waiting for the new measures how capital allocations will be defined. And you can assume as there are not many providers out in the market that we are a small Swiss company who would like to lay off some of the business to regain recapture the capital.

But in many of the discussions people are unsure what was the right methodologies because it’s not know yet in some part of life business how high their capital allocation will be. But of course there even if you didn’t ask for this but we can assume as a matter of principle long pay line whether it’s on the P&C side on the life side from the life side which would be pension type of stuff. Has a tendency due to one of the regulations going worldwide attracting more capital than in past methodologies have started to give you, and we have the appetite for that, we have our team is up. We are looking into the stuff but we will not compromise on the earnings also on that, these types of fees have also to mean our return requirements.

Unidentified Analyst

It has been fair that all the major reinsurers are having very big diversification plan. Will you agree this statement as far as the Swiss Re’s function? If you have, what are you diversification plans?

Brian Gray

Diversification plan.

Unidentified Analyst

Yes, diversification into other activities.

Brian Gray

You’re talking about the asset side or more broadly.

Unidentified Analyst

Broadly.

Brian Gray

So I think Swiss Re is one of the most broadly diversified reinsurers that there is. First of all given our split between life and non-life for our large life block diversification from P&C and then within P&C we are not focused on just the PQS payrolls [ph] that we have significant exposures, earning exposures in both Europe and Asia. So we actually think our diversification is a source of strength.

Eric Schuh

I think we have time for two more questions.

Unidentified Analyst

Yes, Brian talked you were saying that the interest rates stocks require much more exchange to the industry, what kind of changes do you think are required and what do you like think?

Brian Gray

It’s a change in the amount of contribution to earnings that needs to come from underwriting. So the shift in combined ratio on the P&C side that that is a market clearing price consistent with investor’s expectations is clearly different from what it was three or four or 10 years ago. We just don’t think the market yet is really priced in the level of interest rates currently exists and that if these rates are sustained that it means a combined ratio change ideal price change that’s still have been baked into the industry.

Unidentified Analyst

Is it possible to translate that into premium increases, that will be required to get that eight point increase in combined ratio, and also for casualty business, I assume that would be a great to (inaudible) combined ratio.

Brian Gray

Yes, so I really don’t want to offer to my response to one of the earlier questions on price movements. It really depends a lot the specific sub-segment how long the tail is and therefore how much risk free investment yield your crediting to the product at the time of costing. If we use that one example of eight primary markets and to achieve an eight percentage point combined ratio reduction I assume its starting combined ratio and just do the math, it will be a little bit more than an eight percentage points price increase. So when the combined ratio is slightly below 100, but again I emphasize there is not one number that needs to adjust.

Stefan Lippe

And that different levers you can for example reduce your combined ratio by reducing your own cost of control not on the claims management, and there is prices it’s not only one parameter driving combined ratio. Now also the question you cannot cost but we don’t talk about because it’s a dangerous part, you can also of course increase the expected returns by taking more on the asset side. We don’t get yields on the straight forward simply type of government bonds. You might go into I don’t know what type of nice high yields assets but of course you have a minimum put the right capital behind it and this is not what we do that we don’t touch on that point but of course there are many I’d say wheels you can turn but we have clearly said, we are rather very conservative on the asset side and take the risk there where we understand the business and we’re at where we’re seeing there will be quite some opportunities coming up in the near future.

Eric Schuh

Just a quick one. We take one more.

Thomas Fossard – HSBC

Thomas Fossard, HSBC. Two quick questions, the first one is if your pricing your business using forward, could you tell us how much you have to increase pricing this year to offset the decline in the rates so that the returns to be completely flat compared with yours of 2011. And second question, we understand that New Zealand quake and Japanese quake could see again some massive revision in terms of (inaudible) could you tell us I mean how you feel exposed to control creeping up on the losses in the coming quarters? Thanks.

Stefan Lippe

We saw Brian giving those figures. Some things I have to say and these two guys close to me are too modest. But we have a different starting on the market when they’re talking about while we’re seeing some part of the casualty market especially U.S. have not erected at all and had might have the steepest dropping yield. We have a volatile market which shrunk our business significantly so our starting combining ratio you just go to slide Brian had shown that in 2010, we had 55% of the total of the big large eight reinsurance companies from this actual amount, we have more than 50%.

So our improvement on this, we are very happy if we get for the same type of quality we have shown from our business. Those who are running higher combination [ph] than we are, they have – I cannot talk for them, they have to explain you how they make the changes just to keep in mind because overall you are flat over the three year renewals on a risk adjusted point of view as Brian would like to say the changes from January to April and then through to July. And the price movements in our book.

Stefan Lippe

The question was what we have done.

Brian Gray

So I don’t want to give precise numbers especially for our book. If you look at the entire reinsurance industry, given the premium to capital and assets to capital, it is the case that every 100 bps is worth somewhere 300 to 400 or three to four combined ratio points. But it depends hugely on the line of business that needs to move. But the question is not, is that the question as Stefan said is the starting point. So how many years behind the curve is the pricing of some competitors. And your second question, no we have no updates on Japan or New Zealand. We will update it at third quarter unless something happens in the mean time that is material, we will report.

Christian Mumenthaler

I think I would like to add because we have a question before also how things are actually done within Swiss Re. How this actually works when we do the pricing. So we have a separation renewal, we costing and pricing [ph]. So for every single deal in the whole company, Brian’s people will do the costing. So they will do a bottom up analysis of what the expected loss is, the capital costs, the internal costs. And they will use the latest forward curve on that stage that we applied or cost steps piece so business.

So every piece of business done that way, consistently over the last few years and we have no intentions of changing that. That cost is entered into a system and cannot be changed, it cannot be negotiated to market. That’s just what it is. So then there is a market side trying to go up to decline say, OK, they try to have a margin on that obviously but the business we are in, we try to maximize that. If you can’t get the hurdles, the challenges OK, it’s that the long-term client relationship so we still keep it and book that negative profit, we’re not.

So really it’s moving with the market, and if you do their service if I contribute to profits I mean we’ll let it go that’s why the stock is declining. So I think I just want to remember everybody how this works. So this is why we say we going to increase 5%. It’s going to be automatic the cost of the business might go up in some cases. And I need to make my economic profit on that and otherwise I have to cover. So its automatic system that guarantees what your team and if it means cutting business, it’s going to cost your business. So we don’t say we’re going to grow. We’re going to see what the market gives using that business.

Eric Schuh

Great. With that I would like to note on the record that we have no questions over the phone. Obviously your questions answered and the questions that people might have elsewhere as well. I would like to thank everybody for joining us here in Monte Carlo and on the telephone. If you have any further questions, colleagues from media relations and investor relations, we’ll be here for some time and please feel free to ask more over cup of coffee. Thank you very much and goodbye.

Operator

That will conclude today’s conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.

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