Swiss Re’s (SSREF) Q2 2016 Earnings Call

posted in: Earnings Call, Notes | 0

Christian Mumenthaler – CEO

A diversified portfolio makes them resilient in a challenging market environment

“As you know, the market environment remains challenging, impacting all insurance players in multiple ways…Swiss Re’s diversified business model and operating structure are key strengths in this current turbulent macro environment..Swiss Re is well-positioned to withstand this challenging environment .”

They expect rates to stabilize even though prices are very low

“…within our industry, P&C {property and casualty} prices are at very low levels; however, we see signs of stabilization in rate developments. This environment can only be managed by maintaining strong underwriting discipline. As a consequence, we have been reducing capacity in flow business and growing our portfolio of large and tailored transactions, in which we achieve differentiated terms and conditions. ”

Slightly increased exposure to government bonds, slightly reduced equity & derivatives exposure

“Our asset allocation in the second quarter remained relatively stable, with a moderate increase in government bonds as we reduced our exposure to interest rate derivatives and we modestly reduced our holdings of equity securities. ”

The business is cyclical.

“What is very clear and obvious is that we’re in a cycle, we enter a period that is more difficult, the whole industry enters that, and it has started a while ago and I think all the new CEOs in Europe in particular in the insurance industry will face some of that.”

 

David Cole – CFO

They are carefully managing expenses while seeking to grow revenues long-term

“I’ve commented many times that our focus on long-term revenue growth does not give us a pass on managing expenses. We invest a lot of time and effort in assessing how to manage for revenue growth with the utmost respect for the resources deployed and a focus on getting the best return on those resources, recognizing that in some areas secular trends are creating margin headwinds.”

They will consider share buybacks vis-à-vis available investment opportunities

“There are all sorts of different scenarios about what could happen in the remainder of the year that may lead us to conclude that there are better uses of capital than buyback… It could be opportunities that arise to invest capital…if we find ourselves sitting in a situation where the amount of capital we hold is in excess of that that we think we should reasonably hold to continue to be able to respond to the opportunities that arise, then we will think about the best way to return that excess capital to our shareholders.”

On negative yielding government debt

“We have been actually moving some cash into government bonds as you see that number has gone up a little bit, as well as in the short-term investments, which are typically also this short-term government paper, but you could imagine non-government paper with a negative yield… It remains a little bit of a quagmire. We have no intent to start putting a lot of cash in vaults or cash in mattresses or anything of the sort. We’re looking for good quality credit.”