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Executives

Eric Schuh – Head of Investor Relations

George Quinn – Chief Financial Officer

Analysts

Spencer Horgan – Deutsche Bank

Vinit Malhotra – Goldman Sachs

Michael Klien – Nomura

Andrew Ritchie – Autonomous

Andy Broadfield – Barclays Capital

Fabrizio Croce – Kepler

Maciej Wasilewicz – Morgan Stanley

James Shuck – Jeffries

Paul Goodhind – Redburn

Thomas Fossard – HSBC

Thomas Seidl – Sanford Bernstein

Ben Cohen – Collins Stewart

Swiss Re Ltd. (OTC:SWCEY) Q3 2011 Earnings Conference Call November 3, 2011 9:00 AM ET

Operator

Good morning or good afternoon. Welcome to the Swiss Re Third Quarter 2011 Results Conference Call. Please note that today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Eric Schuh, Head of Investor Relations. Please go ahead sir.

Eric Schuh – Head of Investor Relations

Thank you very much. Good afternoon and good morning, everybody. And also from the Swiss Re side welcome to our third quarter 2011 results conference call. As already announced, we have changed the format of this call and we will today solely focus on your questions. I’m here with our CFO, George Quinn who will give you a one-minute opening remarks before we turn to the Q&A, with the usual restriction of two questions each please.

So, with that, I’d like to hand over to George.

George Quinn – Chief Financial Officer

Thanks, Eric. And I am pretty sure it doesn’t last for one minute. Good morning and good afternoon to everyone. As you’ve seen you’ll forgive me for mentioning the – following the rating upgrade last week. We today reported an excellent overall result for the Group. Net income for the quarter, $1.3 billion, although it’s one quarter, that translates into an ROE of over 20%. Well the numbers have definitely been flattered by a number of one offs and we’re very pleased with the underlying result for the quarter. And we believe that we’re well on track towards the 2011-2015 financial targets that we established earlier this year.

Eric Schuh – Head of Investor Relations

Thank you, George. And with that operator, could we please take the first question?

Question-and-Answer Session

Operator

The first question is from Mr. Spencer Horgan from Deutsche Bank. Please go ahead sir.

Spencer Horgan – Deutsche Bank

Good afternoon, thank you very much. Two questions, please. First one is, well I guess is more a usual one I say it was just about in the combined ratio because it’s obviously very good on the underlying basis again this quarter at 90%. And I think at the start of the year you said you had priced the business at 94%. And then I think last quarter, when I asked the same question you were sort of implying maybe the underlying combined ratio had been not be free, but you got a bit lucky in the second quarter. I am just kind of wondering, I mean, this business is actually in reality price to produce 90%, it’s obviously sort of seems to be the case on the quarter-to-quarter basis?

And then the second one was, on the investment side, obviously the realized gains on the government bond side is a function of you shifting the portfolio around. I was just kind of wondering, what is the purpose of shifting around? Is that duration management exercise and to the extent that it has been shifted around, presumably that might accelerate the reduction in running yields we might otherwise have expected to see. Is that the case? And maybe you could give us some guidance on where we should see the running yield going from here? Thank you very much.

George Quinn

Spencer, thank you. So on the first one, the – I’d like to be cautious on the combined ratio. We – obviously we tracked very carefully the expected and actual Nat Cat loss that we haven’t got into the habit of trying to track in public the underlying man-made impact on the property side, or even the liability loss cost. I think it’s pretty clear that we obviously over achieved this year versus we thought we would be at the beginning. But of course we have had better renewals and we would have anticipated when we announced the expectation of the combined ratio earlier in the year. I think we’re almost selling somewhere between 90% and 94%. Even though, we have a large major losses from that explosion in Cyprus in the quarter, it still feels to be that we are before good luck and place is other than properties, I wouldn’t necessarily assume that the figure that you have seen today is the underlying normalized and predictive combined ratio for the following quarter, but clearly better than I thought.

On the asset side of things that the rate that has been some pretty substantial moves especially in our rates book in the quarter. I think that when you look at the rates portfolio, you need to look at the – I think just the realized gains on the cash side, but taking into account the movements on the derivatives. We use derivatives for full year effect need to get duration, or to shift the sheet of the key rate durations, without necessarily turning the whole thing over. But we do have made significant shift out because of duration updates across the portfolio, or because of views on particular sovereign trade-ins. It doesn’t going forward again you’re right that type of activity tends to accelerate, the convergence between the current running yield, and the yield that you would achieve if you invested into the same portfolio on average today.

But again, given the duration of the overall portfolio, which is still between five and six years, it takes a reasonably longtime even with service and I think it’s more important to try and manage the portfolio and manage the risk. Try and keep the thing either duration matched, or deliberately unmatched if that’s the decision that we take. And we do more of that and then trying to target our substantial income number for rates for the quarter. In terms of future movements, we have seen a drop in the fixed income-running yield this quarter. The two main drivers of that were the reinvestment rates. And we were reinvesting a bit more than 2.5% in the quarter.

Assets were rolling off about 2.9%. So that definitely explains about 10% of the reduction in running yield. The remainder is due to the change in value of the portfolio because of the fallen interest rates. I think that the 2.5%, that doesn’t really represent I guess the average yield that we would achieve if we were investing in the same portfolio mix. It’s more than nice on which parts we were investing and as you have seen, because of the really substantial rates activity there is more investors on the government side which is even closer to risk-free than all the other parts of the portfolio. But the yield is clearly coming down in the current environment.

Operator

The next question is from Mr. Vinit Malhotra of Goldman Sachs. Please go ahead sir.

Vinit Malhotra – Goldman Sachs

If I just on the combined and just to be very clear – just to be very clear, again. The beat that you are seeing out away from that 94, did I gave it right and then it was somewhere outside the property line? That’s the first question really. But I’m quite curious as to where at least broadly where this is coming in, is it specialty that casualty property? And on this – on the life and health morbidity, since last year now, it’s pretty fall with a strong better-than-expected morbidity. And if it’s something that was written very conservatively or if you could just spend a few minutes on it? Thanks.

George Quinn

Yes. So on the first one, so apologies if I left the impression in response to Spencer question I’ve given the authority design so there were absolutely no performance in a particular line of business, I think the last Chinese year, I haven’t tried to measure the good luck and anything other than that actually the business that account property so that’s why our stake is there is probably some good luck in the lines of business outside. I don’t knew to-date if we need where that would be at this stage, I’d like to caution that we don’t 90% as the running rate. On the morbidity cost for health for the quarter, again, you are right then we’ve seen and that in several quarter is now a pretty good performance from – if you go back long enough I can remember the thing was different. But of course the way that we do health business has changed substantially over the last few years. Having said that, I wouldn’t claim that I believe the morbidity variation that we’re and this quarter is any different from the mortality variation, I’m seeing negatively on the traditional life business. I think both of those things tend to be volatile although I think, I probably also recognize that health has had more positives recently, where life has probably had slightly more negatives. I wouldn’t point again to a trend I will tell you, you should expect continued performing well.

Vinit Malhotra – Goldman Sachs

Sure. And can I ask one more about the tax rate, please? The very low tax rate in 3Q and I have had a chat with (indiscernible), but is the full-year’s outlook for tax changing now or it’s a bit in other words this fourth quarter also we’re going to see some tax can affect in you view?

George Quinn

Well, on the tax side of things, you understand how the process works. So the tax in contrast to other elements, it’s a nice thing if you actually project into the year-end and trying to the termination of what his contribution is then predict discrete item and a number of positives discrete items in the quarter. Underlying tax rate is actually in line with the guidance that we gave earlier in the year. So they kept at 27%, 28%, but the rest had some reserve releases on the (indiscernible) side and that has substantially reduced the post tax rate. I can’t predict what the discreet ends would be in Q4, but it’s certainly underlying perspective the guidance that we gave earlier this year is still valid. So at this stage I was projecting Q4 return to the normal tax rate of 27 and 28.

Operator

Next question is from Mr. Michael Klien of Nomura. Please go ahead sir.

Michael Klien – Nomura

Yes. I had a just one question firstly on the reserve releases on the liability side in Europe. Can you make a little bit modification in terms of where exactly this came, and what prompted you to release those reserves and the second question is in terms of regaining the AA rating because it becomes now in times to for the general renewals, do you think that it is going to have some positive impacts or do you retain the comments you have made previously post Monte Carlo and so on?

George Quinn

On the reserve releases, first Michael, the problem that we see in Q3 lot like Q2 I think one point that I highlight here is that probably we got some big positives and some longer negatives than we saw in Q2. Again, just remind you Q2 was mainly driven by liability, liability Europe and mainly accident years 2007 and prior which mean under 18 years mainly 2006 and prior. The picture is almost identical for Q3 and what we’re really seeing is again an absence of the claim you would expect to see compared to what the like factor that we just got missing claims compared to expectations and IBNR at the moment.

Lines of business is pretty much everywhere. We got it in GL, we have got it motor, I wouldn’t isolate a particular part, but it’s mainly Europe, Asia as a small contributor and the U.S. doesn’t really figure in this at least so far similar to Q2. On the renewal side of things, it would really stretch credibility as I said that I know I believe the regain relating will have a huge impact on yields given our spend two years time, I hope doing very steady and very significant and prior to the company. I still believe that today, I think as I said to the media this morning that, it’s only psychologically beneficial and for the sales teams to have rest (indiscernible) given to renewal. But I don’t really think it’s going to change things substantially. I think most of our clients have been following us very closely for the last couple of years and I think told they already reached a level of comfort with Swiss Re's balance sheet and risk position ahead of this and management but it’s a very good confirmation that we have actually achieved at this point. I don’t expect this is going to produce a big boost for us in the near.

Michael Klien – Nomura

But will you maybe just considering that now you have regained it and you still have got a certain amount of excess capital, will you may be somewhat more forceful or will you be really into use certainly more capital on the renewals side?

George Quinn

When I speak on this, the capital position that we’d held around United, withheld and that was never obtained to try and encourage S&P to upgrade us faster because we had a very redundant capital position. We held that because of our own risk appetite during the period. So, again I think the capital management velocity of the firm would be changed by the revision of S&P last week, although I am aware we need to come forward explain more thoroughly what we are doing on the capital management side, so that we will do in February.

Operator

The next question is from Jean-Francois Tremblay of RBC. Please go ahead, sir.

Jean-Francois Tremblay – RBC

Hi, good afternoon. Just wanted to reconfirm your views on the upcoming renewals here, what you are seeing on the ratings upgrade, but when you look at your landscape, to what extent have your expectations to market trends and general readings has changed since your monthly target update? So, that’s my first question. And then the second question has to do with the outlook for the Life business, it seems to me that again it’s no easy quarter for Life and can you try to highlight some of the what you see as key underlying trends and to what extent things should be expecting meaning noise in the fourth quarter 2012?

George Quinn

Okay. On the first one, the – I don’t think our view has changed that post Monte Carlo. I think that I should say that well I don’t think the rating change really is any necessarily positive impact or able to generate substantially more business in January. I think the reasons for the rating change are indication that we are in a very strong competitive position and we can use that to do well in the January renewal. But I think our view on the positive rate pressure that we perceive in the market hasn’t changed since Monte Carlo, and if anything, if you look at the way the market has been up since on the financial market side, and of course we have this ongoing event in Thailand, I think there is more challenges to come on the capital side and we certainly hope that there will be more call for our services to help support our clients.

On life and health and, yeah, it's a tough quarter for life and health. We end up with a headline number that’s slightly better than last year, probably slightly lower than expectations but it’s full of very, very large one-offs. I think the good news is that most of the merits, if I look at morbidity and mortality, poor mortality but good morbidity. If I look at some of the financial market effects like the impact of be (indiscernible) or the impact of our own credit spread on the VA, there is small negative of that, but it’s not massive and then again more by luck than by design within Admin Re, we had a very substantial negative from the impact of financial market both on fee income and on fee amortization, but that was offset by model change or reserve release from the Admin Re book. For trends, going forward, I think all that we guided to say at this stage is we obviously do not expect but health of the only provider of profit in the quarter, and I really expect morbidity to normalize again, but that would be equally true for mortality and traditional health. I think, the challenge and the noise that comes from the financial markets and that’s very difficult to project and I wouldn’t take the risk of trying to predict that here. I think, all I could tell you is obviously if the markets can't do any spread tamed, we'll get some or all the (BK-6) adjustment back. But at the same time, we’ll have to return the benefits that we received from the VA branch. But unfortunately, the financial market volatility we have to live with and the underlying low cost whether it’s morbidity or mortality of expense in normal line. I don’t see a bias in one direction or another.

Jean-Francois Tremblay – RBC

Thank you.

Operator

The next question is from Mr. Andrew Ritchie of Autonomous. Please go ahead, sir.

Andrew Ritchie – Autonomous

Hi there. Just, could I – George, maybe just add a bit more colors to your comment on capital management. Do you want to say that – do you said that you would update the market in February on that, but can you give us more color what was that, would you mean, we’ve been always planning to update the market in February? Is this – it may be put in place a buyback facility, not necessary execution? Maybe just give us some color as to why February is the date when you feel you can update capital management. Second question a more technical one, on premium growth, obviously in Q3, we have a lot of seasonality because of the booking of higher force of your cap premiums in Q3. But there is also, it could be effect we're seeing this quarter of some of the earned through of the business earlier in the year renewal earlier in the year. You have in the past given sort of guidance as to how think about momentum on earned premium growth. Can we assume – and can you give just some clear (indiscernible) the rest of the year, how much more of that renewed business there is to earn through in Q4. Any sort of color there will be useful? Thanks.

George Quinn

On the first one I was intended to know something new today. The capital management comment you’ve heard me repeating. I think what I said in earlier quarter so is that the year ends are natural time to update this given that’s when most of the detailed work has been around. For example this actually positions we get a very solid foundation. I think if I answer the rest of your question and it’s not to anticipate something that we are seeing in February. And I want to avoid that today. But at February, we'll come forward more comprehensive approach to capital management and what you can expect from us beyond the dividend policy that we announced.

On the premium, you’re right I gave guidance, I think back at the end of Q1 for the – and through the and when you look at plants that we’ve seen so far this year. If you look at this quarter we’re not far off where I thought we’d be and I think was very close even though we’ve had a pretty significant negative impact in the quarter from the client notified reductions to try the year for new estimates. What would I expect from (indiscernible) I’d expect the premium volumes to continue to rise so there should be on a like for like basis and more in Q4 the tangible assets in the January renewals how long that’s going to continue. If you look at the time we’ve had this year on the renewals January further the lower April 1 substantially up, July 1 up and in fact we’ve run some substantial new business again in the third quarter after the renewal. So, I think if you still expect to see positive trends in the end premium, I have been trying to counter you the figure ahead of (indiscernible) I don’t have a good number in my head, but the thing I used the last time I did it was the written premium disclosure which is in the footnotes and that will give you a good sense of how the renewals translating into what’s been written and given that on the P&C side mostly very short tail, you will see that written and be replicated and then fairly rapidly. I will look that again for the yearend, but other than the fact that I expected to grow through Q4, I can’t give you precise indication of the number.

Andrew Ritchie – Autonomous

Okay, thanks.

Operator

The next question is from Mr. Andy Broadfield of Barclays Capital. Please go ahead sir.

Andy Broadfield – Barclays Capital

Hi George. Two questions please, one is a quick technical one on the PDSP amortization and I’m trying to make sense just to the, am I right in saying this is likely to if I look at the chart and it has been quarter-after-quarter accelerated amortization and am I right in saying that is a consequence of the (indiscernible) being capitulated on normalized twitter and that’s as long as we remain in a low interest rate volume in that, unlike it’s going to always be accelerated a bit faster than the expected level and that’s the first question. Second question is a little bit broader actually about the business you are seeing we had – frankly, we have non-peak risks becoming peak dominant factors in the catastrophe claims. And I was just wondering two things whether you are changing whether you are thinking about your own management (indiscernible) but nevertheless are you thinking how you are managing those non-peak risks and also I think clients asking for sort of more aggregate covers or those sort of things, does that in anyway help you in terms of your what you look to versus some of your competitors?

George Quinn

Okay. So on the first one, the very short answer to the question is, yes. So, PVFP is amortized and that portion to expect gross profits and because we have an assumption of lower fee income, that’s what’s driving speed up in the quarter. Of course, if that continue, you will see a continued accelerated amortization of PVFP. On the second one, just sounds that was broader point the non-peak cat risks, our philosophy on cat risks a combination of – we have volatility limits or targets, so we set a volatility limit for peak risks. And non-peak risks in relation to capital, we then set target in relation to the earnings volatility that we’re prepared to accept. And that’s reflected in the Q2 disclosure that we male. And then, we also set targets to make sure that we don’t an investment and that’s been overlying on particular risk. I think, when we look at the experience, you also mentioned not only this year but over the last couple of years in particular Australia has been a source of number of significant losses and I think (indiscernible) is that we are quite comfortable with the market in Australia even with the loss in New Zealand and we think that given the source of the loss for us, it’s only the potential for payback we expect to get payback for that loss. I think there are other non-peak risks where with the benefit of hindsight, we are going to get a bit smarter. But it’s much harder to see that the local market can pay you back and the event of those sizeable, it’s not sufficient enough to drive an overall global move.

So, I think for example in Chile will make things difficult in future. The change in the way that clients are buying, I think the anecdotal things I have heard so far from trying to doing underwriting team, but moreover clients trying to protect themselves in frequency, so people buying back-up cover. Capacity is a big issues in all the loss effected – substantially loss affected markets. I think we feel quite comfortable with the market is going. We like the fact that rates have also risen very substantially, and we have more capacity that we can deploy. We have done it better this year, not a lot so far, we could plan more capacity on January 1 if prices moved, but I think that they – we are now in very strong position, I think, to help clients on the non-peak risks, but also focusing on whatever we can expect to cover over time some of the losses we may suffer and that may impact our appetite for particular risk in the future.

Andy Broadfield – Barclays Capital

Okay, thanks.

Operator

Your next question is from Mr. Brian Shea of Bank of America/Merrill Lynch. Please go ahead.

Brian Shea – Bank of America/Merrill Lynch

Okay. Good afternoon. It is a mouthful, isn’t it? Two questions please. First of all, George in your recorded presentation you described the Life & Health result as solid. I just had just wondered if you can elaborate on the use of that word. I thought that the Life & Health result it kind of smells like it’s earning a mid-single digit ROE. Am I wrong with that or just on what basis did you, are you satisfied with that result. And then secondly, going back to maybe when you are talking to Spencer, this 3.5% new money yield, it sounds like you said that’s probably not indicative of how you would be investing going forward if rates stay where they are, because there’s a particular skew to where the new money was going in the quarter. It’s kind of tough one, but any sense you can give us of a more indicative figure for the money yield if you’re investing in more of a neutral way going forward? Thank you.

George Quinn

Yes, so the first one, Life & Health, yeah, a tricky one. I think that the Life & Health number was not bad enough for me to be deeply concerned about, but it wasn’t high enough for me to be particularly happy about. I think if I look into the various components, I think the underlying number is actually stronger than the headline suggests. So as I mentioned earlier, I think the other common thing that you need to know to answer the question, I look at two particular pieces of it; one being the market driven features which is VA impact and the BCI fix, that’s a negative.

And I think it’s not unreasonable to expect overtime that that should be a zero unless someone very substantial falls beneath their obligations. So that would – and to see the underlying performance is notably stronger than the headline result today. On the business side, I will put Admin Re one side for a second and just look at traditional life and traditional health, again on these two we got one which is suffering in the quarter and one which is doing very well. And I think there if I just offset those two, I probably wouldn’t have a definite expectation for the future, so the net for me there is probably okay.

If I bring in Admin Re, Admin Re is got a very noisy quarter. We got one item which is driven by the – that markets which of course Andy highlighted a second ago that we cannot really expect or count on reversing very, very rapidly. But at the same time we had a positive impact from models that you certainly wouldn’t anticipate by the quarter and you certainly wouldn’t anticipate what all will be positive. So, I think that means Re has still got a challenge. I think traditional life and traditional health is okay, I think the underlying is probably stronger than the headline suggests and that we really got some work to do. I think the team that you know we have a new management team, we have been working on the restructuring or the recapitalizing, we’re spending some money to try and put themselves in a more independent fitting. I think we will get much better view of that business when we changed the new view in April next year with the asset returns in the segment. But that’s probably what leaves me to the view overall is solid which is not bad but if not great.

Brian Shea – Bank of America/Merrill Lynch

Okay, thank you.

George Quinn

And you ask me the second question, you did. So the new money yields, this is kind of stupid, something that you don’t have the answer to. I don’t actually know, need to go and look. So, and I know we can all have a look at it and anyone has an interest, then they can get it from the IR team. But, it will be higher. I don’t know how much higher, Brian.

Brian Shea – Bank of America/Merrill Lynch

Okay, that’s fine. Thank you.

Operator

The next question is from Mr. Fabrizio Croce from Kepler. Please go ahead, sir.

Fabrizio Croce – Kepler

Good afternoon. Two questions actually, the first one is about the agent fees exposure. As so that – within the structural product portfolio, you had an increase by 41% of the U.S. agency exposure, now irrespective of you putting that, so different opinion on those type of exposure in these days. But what stressed me a little bit is that the exposure is currently over your strategic asset allocation in this segment, which is between 5% and 10%, although if you are over the strategic location, the question is how strong do you respect actually the asset allocation and now tight is the grip of the risk manager on those investments? And the second one is about the demand that you are facing with new product. As you’ve heard for several other companies that they add particularly volatility reduction products demands, which means focuses on the frequencies and larger special class contracts. And the question is, if the demand in your case is the same?

George Quinn

Thanks, Fabrizio. So on the first one, you are right that we have increased agencies. I think, our view of agency and I think it makes clear – I think, it’s broader than just for example, Fannie, Freddie, etcetera includes (indiscernible) and other kind of government backed securities. But – so, if you are on the concern on the asset allocation, I think, probably in due course, we need to separate agency out of the securitized insured, more as part of the, kind of, government and rate portfolio – because the rest, because it’s really quite different. I think, I agree with you that you shouldn’t be going into additional risks that do exist in agency. But, I think, the rest there is really quite different from those that exist in the other RMBs and CMBS areas, et cetera.

And the volatility reduction point, I can’t give you a chapter and verse, but certainly from the limited interaction I’ve had with our clients coming from the feedback we had from the people we speak to them most frequently. Clients are clearly more concerned about volatility. So the appetite to accept volatility seems to be much lower. I haven’t yet seen that translate into a new or innovative product. Probably the most obvious example for us is what people are buying backup severance because of the risks of the existing coverage is about to run on. But I haven’t yet seen it translate into some innovative form of product design.

Fabrizio Croce – Kepler

Sorry for the follow-up. I know that I have only two question, but okay, out of the $7 billion, $7.2 billion that we have now in agents, is how much as U.S. and how much is rest of the world?

George Quinn

So, if you hang on. It appears actually almost all U.S, almost all U.S.

Fabrizio Croce – Kepler

Okay. And the story with the bandwidth, the strategic bandwidth which is broken through with 11%?

George Quinn

I think one thing to be really careful Fabrizio. Within the company we have I’ll say risk limit framework that is applied relatively in terms of everything we do. The challenge her is intend to lay an indication to investors of where we intend to put the money. So where we wouldn’t expect to see lots of volatility say at these levels. These are not the risk controls that we apply internally. This is obviously intended to be a bit more indicative given the way that same of the range is.

Fabrizio Croce – Kepler

Okay.

George Quinn

This year on the agency again more that it does more of a government bond risk characteristic and that’s fairly a securitized product and may be at some point we have looked at reclassifying that.

Operator

The next question is from Mr. Maciej Wasilewicz of Morgan Stanley. Please go ahead, sir.

Maciej Wasilewicz – Morgan Stanley

Hi, there. Maciej from Morgan Stanley. I simplified my first name, I hope you don’t mind. So my questions are – my two questions are. Number one, just on you your big one-off trading effects gain this quarter. I’m just wondering if you could point to one or multiple macro drivers that I should be watching to try to predict when and if that FX trading gain could potentially unravel? That’s the first question. Second question is, I know you said already in this call that you have more capital than you could deploy, I’m just very simplistically looking your capital disclosure, you had 6.4 billion backing your P&C business before diversification, even if we assumed 1.5 billion to end the quarter, even if we assumed 20% growth per annum of that business on top of that. We still – give me the generating on a run rate 2 billion maybe and paying dividend of 1 billion.

It’s seems that you have far, far more capital than you could possibly burn up in your business. And yet every time we meet, you say well, we first wanted to pay capital for business if possible rather than paying it back and if that’s not possible pay it back. I’m just wondering am I missing something, is this is something strange – fundability constraint, is there some business opportunity outside of P&C and could you – could you – recycle of that capital? Is there something that I am missing? Or is basically the capitalization indicating quite strongly that you could do a buyback or something next year?

George Quinn

So first of all, thank you very much for the third question, I was hoping someone was going to ask me that one. The we all (indiscernible) come with it and so obviously the portfolio can change, we can choose to hedge in different way. It’s a pretty dynamics process; we try and give you something that you can all look to perhaps. The two main trading portfolio blocks are Euro block and the Sterling block, we have interest rate sensitivity of CVO1 in each of these of about 2.8, 2.9 billion – sorry 2.8, 2.9 million sort of for 1 basis points move, 2.8, 2.9 impact on the euro, 2.9 million impact on Sterling. If you look at the third quarter, the euro shift was parallel so of course we don’t actually have – we got a number of key duration and the exposures spread right on 30 years.

The overall duration is between eight and nine years, so if you look at probably 10 years being the simplest point for example, that will give you some very rough sense of at least what the sensitivity was at the end of September. So that would mean for example if we saw 100 basis point raise on the euro, that will translate into 280 million pre-tax negative, 100 basis point move on sterling would be a 290 million pre-tax negative. I think that’s the base guidance I can give you today to try and allow you to look at the end of the quarter what’s the caveat that things change, we adjust the portfolio but that’s probably the best we can do at this stage.

On the capital point, I think that I will characterize that we express that at this point on the capital side maybe a best guess from the initiatives. So, we said back in February that we do a number of potential ways to deploy the capital and the length of business. Really there are a number of what these opportunities might be, some of them have managed, some of them haven’t and some new ones have come to the floor. We’ve also seen some pretty volatile capital markets which of course has reduced our capital position and which is just of the competitors and the clients. If I look at the fundability, all of the constraints that limit Swiss Re’s ability are the use of return on capital are the ones that we say internally, so that’s costs, exchange laws, solvency requirement on a post extreme loss liquidity requirement that we have headroom on all of them. And we have to remind you that we had said that I have said probably a couple of years ago that we will maintain a substantial buffer. And if you measure that in S&P capital terms the figure I gave was $3 billion to $5 billion and that’s a level that is consistent with the internal risk tolerance set by the Board, which is today.

And, so there are constraints, but they don’t constrain us at this point in time and we have freedom to deploy more capital and the point that you made kind of new business side, I think one of the other I has actually made earlier (indiscernible) section to deploy more capital in the year and you quoted a number P&C Capital, which in economic $1.5 billion, but we’ve told to do to both in an S&P context to end the quarter share will actually be substantially less when it comes to the economic capital, and economic capital is probably a key constraint for us. I don’t want to start discussing major this and major that. As I mentioned to Andrea Riche in his question earlier, we will back to this topic in February when we are through the year end, we have some sight of the January 1 renewal and have a review on the opportunities that lie ahead, and we’ll talk about the capital deployment either in the business or elsewhere if that’s what required.

Maciej Wasilewicz – Morgan Stanley

Thank you.

Operator

The next question is from Mr. James Shuck of Jeffries. Please, go ahead sir.

James Shuck – Jeffries

Thanks. Yeah, apologies if this is something that you need to return to in February as well, but I’m just thinking about your targeted return on equity, because risk free rates – the U.S. risk free at sub 2% at the moment and you are targeting 700 basis points on top that so that means you kind of only aiming for the kind of the 9% ROE currently, and what markets are telling at the moment is your cost of equity certainly isn’t’ that low. so I’m just trying to get a view of – your kind of updated view of actually what you are prepared to commit incremental capital as, because if you think in a wider context in the re-insurance industry as a whole, that’s one of the lowest hurdle rates in the industry, and I’m thinking to myself, okay, well, you are making positive needs about out the cycle turning and yet one of the plays that has the lowest hurdles has got the most excess capital so I can’t quite square how I see the circle turning when you are prepared to commit capital at 9% ROE and others are targeting more that.

George Quinn

Just one question James?

James Shuck – Jeffries

Well, it’s one with multi parts and I think the first of two so…

George Quinn

Okay, all right. So the first thing you can really say, we don’t generally target a 9% ROE in new business and the charge of course is, we’ve got business that’s coming in January, slightly less than that and we cannot flip the entire company every renewal. So, it will take time for us to add new transaction to higher rates and move the overall average. And you shouldn’t assume that the target we set, which recognizes the enforced portfolio and it’s expiry over the next five years is the target or the hurdle rate that we set for current new business. It expects a lot more than the 9% ROE to deploy chunks of capital in current environments, that’s for sure? And on the other hand, see and this is of course, the target is, it’s a five-year target that we do track it on a quarterly basis. We all show it to you on a quarterly basis. But interest rates I guess are going to be volatile over the period and I expect at some time in the five-year period, it could be demanding much more from it. But the real reason that you have a target at that level, it’s simply because we need to bring new business on at far higher rates of return and bring up the overall level of returns from the entire portfolio?

James Shuck – Jeffries

That’s very – I mean, if it’s an average over five-year period then in five years time, there won’t really be or they shouldn’t be any kind of backward depression of a certain tradition from it. Another way of asking is this kind of – what is your hurdle rate ROE on new business?

George Quinn

What we do is the economic framework that we apply, we allocate frictional capital cost or cost of capital and market risk premiums in the case of asset management and we track that overall cost in comparison to the market implied cost of capital. And that’s the rate that we expect the business to generate overall. And if I look at the – have it back to what we had presented on the economics earlier this year, this EVM information that we gave, I think that implies something more like a 11% and 12% total capital. Now, it’s the last year.

James Shuck – Jeffries

Got it. Okay, thank you.

Operator

Your next question is from Mr. Paul Goodhind of Redburn. Please go ahead, sir.

Paul Goodhind – Redburn

Hi, George. Thanks for the thoughts to your last question. And so I just present to the capital position movement in the quarter and can you just give if anything that would change on the S&P basis and in particular what impact the spread of widening you’ve had on that position?

George Quinn

Yeah, so I am going to avoid the temptation to give you a number. The spread wide enough – the spread is widening and in mark-to-market impact from equities is a direct hit to S&P capital. We don’t assume that it reverses. We don’t reverse the unrealized losses on life bonds. We take it straight into the S&P available as a redemption. So, I think if you look at the figures that we gave for trade experience activities and you look at the widening in the quarter of high grade corporate bond you get a good indication of the three types of capital impact from spreads and the equity impact shown in the equity waterfall. So, even though we have – I think arguably a less risky portfolio than probably many of the peer group, it still had an impact on us this quarter. But we’re still obviously very strong to capitalize even at the end of September.

Paul Goodhind – Redburn

Just (indiscernible) if I can, I mean, 20% ROE in the quarter, obviously there is also noise there, if you strip out those releases, caps, normalized realized gains, and normalized tax charge, so that’ll be as that you’re kind of really clearing that at 9% total rate in the quarter. Is that fair and does it make sense to publish some sort of more normalized level of profitability to make sure more sense than the headline that we jump all over the place from quarter-to-quarter?

George Quinn

Yeah, that is a real chance. I made a list yesterday of the one-offs and that’s well my view of the one-offs anyway. It’s a long, which of course is the kind of thing that I know irritates all of you guys, because it makes it so hard to estimate what’s coming. But, I think, when you boil it down, the way I certainly – I explained it to the media, and this wasn't to try and dumb it down to a level that was digestible by and its intended to be a broad indication of where we see the underlying. And that’s – I focused on the prior year, the interest rate impact or that the mark-to-market when this trading portfolio and then the tax. I taxed the two pretax items that are underlying expected tax rate for the year that’s the 27%, 28% and I end up with the result underlying something around 650 to 700 range. I think, you can go through the rest of the book and you pick up all kinds of things. So, I mentioned to Brian earlier on life and health, just like more bullish view because of the two end market movements.

On asset management I almost certainly have a slightly more negative view. I think, we’ve also, expenses are too high for the Group or Admin Re and there was some offs I think was there, there was a small negative from legacy and I think you can go on and on and on. I think my view is 650 maybe slightly higher, but reasonably reliable indicator of what we think the underlying looks like in Q3 of 2011.

Paul Goodhind – Redburn

Yeah, sure.

Operator

The next question is from Mr. Thomas Fossard of HSBC. Please go ahead sir.

Thomas Fossard – HSBC

Yes, good afternoon. I have just one question left on my side. CPI, we see the (indiscernible) very quite area following the Japanese quake. I just wanted to how you understanding of what the situation is? Is that completely – is this risk completely gone or is it, I would say is it usual long emerging process for this losses to be reported? Thanks.

George Quinn

So Thomas just to check, you are referring to CBI for Japan, is that right?

Thomas Fossard – HSBC

Exactly, yes.

George Quinn

So the – I don’t think (indiscernible) but in fact, several of our teams were in Japan last week. We have the impression that I think the more straight forward part of the losses were actually pretty well advanced. The Japanese company seems to have – they were very, very efficient locally. On the CBI side, I don’t think – we are not seeing a trend that causing us a concern on CBI. Most of the loss estimates remain open and I wouldn’t make a commitment today, but we are not foreseeing problem around CBI when Japan at least today.

Thomas Fossard – HSBC

On that, did you encourage any, I would say, what could be qualified as significant loss for the Q3 on the Japan earthquake or I mean up to now you booked some IBNR, but just did not receive four more claims yet?

George Quinn

I don’t know for sure what the exact notified claim is for the CBI element with Japan, I don’t know for sure that when we made the estimate, we made with a component represent there for CBI and just by nature it tends to be one of the pieces that come through to you slightly later in the process, but I couldn’t give you an update today how much for that the element and how much of our original estimate we have used so far.

Thomas Fossard – HSBC

Okay, thanks.

Operator

The next question is from Mr. Thomas Seidl of Sanford Bernstein. Please go ahead sir.

Thomas Seidl – Sanford Bernstein

Yeah, thank you, good afternoon. Basically two questions one on the with sales releases, think we have seen now a string of your sales releases and my question is on this date or back to 2006 and prior year as you said short how should we think by this going forward, could you give us some guidance there and the other thing is given let’s say the profitability of non-life book, how should we think about the quarter share (indiscernible) going forward. Any ideas about how this evolves? Thanks.

George Quinn

Yeah, so, I guess the first question you are asking, I think, is a sustainable element of those releases, I tried to be very cautious on the Q2 call, I have been different today, I think it’s fundamentally different for reinsurers and from primary companies and the portfolios that we have (indiscernible) more volatile that actually which should be if I made any forward looking statement about reserve releases. If you look at this quarter, I think there is enough evidence you can have from very big movements in either direction and we have seen that this quarter was a significant posters we seen across the liability and also a significant negative on the UK motor end of liability. So it’s been good year this year. We don’t plan for reserve releases and notably projects into the future and I can’t give you guidance. The only thing I can give you that we should not be seeing what we are seeing in Q2 and Q3 as a pattern that will necessarily continue.

On your second point on the P&C share, of course I was very happy with the performance of P&C team, Client team and our underwriting team has done a fantastic job very several quarters and several years now. For the core share itself, the core share expires end of the next year and another we no (indiscernible) half the way any rates or options to renew, and I think that – I might have said it earlier this year that in fact we are planning for that contract to expire and for us to retain the risk. I think the core share has not being helping back for us, but the book is early performing extremely strongly, we are in a strong capital position and it’s a risk to what a we can relatively easily retain I think in future and at least today that’s the plan for the future.

Thomas Seidl – Sanford Bernstein

And then probably eating up some of the capital we discussed earlier?

George Quinn

So whether you want to can reopen the capital discussion again, just to repeat that, I know we have focused on the discussion that we had in the past on the rating capital side of this, on the economic side the capital requirements from the retention of that business a much, much smaller, I think the challenge is to try and make sure that when we retain the business that we actually stay with the some of the limits I mentioned earlier so our appetite for capital volatility or the earnings volatility. But we have to do something but (indiscernible) from what we see today there are some additional attractive economics but we would expect to retain either of the end of 2012 for our shareholdings.

Thomas Seidl – Sanford Bernstein

Okay, thanks.

Operator

The next question is from Mr. Ben Cohen of Collins Stewart. Please go ahead sir.

Ben Cohen – Collins Stewart

Hi, guys, thanks very much. Just one question I was just interested in terms of where you are actually investing new money at the moment, I know you gave a comment earlier in terms of sort of the yield and then how would ship bust just in terms of what you see as a reasonable risk and what are clearly difficult markets for investments?

George Quinn

Good question, Ben. So, we think a pretty risk of that approach in the third quarter so I think and most of you that we have had – would be in the process for most of us here launching mandates either on the equity side and in fact we some issue some new ones on corporate credit and in fact securitized early in the year. For the ones that went and ramp up we stopped them in Q3 and well the current volatility continues I think unlikely it’s kind of different to deeper into the water so we would reinvest a new money at the lower return into the spectrum. It wouldn’t be our intention to maintain that position and assuming at some point the market recovers its poise, some of the immediate rates start to indicate, we then go back to complete the risking, the derisking that we identified earlier, but currently new money is mainly got into like government so similarly low risk investments.

Ben Cohen – Collins Stewart

Okay. Thanks very much.

Operator

Gentlemen, there are no more questions registered at this time.

George Quinn – Chief Financial Officer

Okay, thanks very much everybody and if you have further questions please feel free to give the investor relations team a call. I think we had a very interactive session today, this is also the first time in the long time that we stayed within one hour, so it helps to leave out the presentation I guess. And with that I would like to thank everybody for listening and we would like to close the call.

Operator

Thank you for your participation. Ladies and gentlemen, you may now disconnect.

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