With a plus of 11.5%, the Swiss Re share performed above average in the first quarter of 2021. The share thus not only made it into the top 10 in the SMI, but also left its competitor Munich Re behind. However, this only applies in the short term, as the recovery is less dynamic when viewed in relation to the low from the Corona crash. Although Swiss Re has already regained around three quarters of its ground since 19 March 2020, it is still 25% short of the top. Munich Re, on the other hand, is only 7% off its pre-crisis level.
The Swiss Re share's climb has been held back by operational obstacles. On the one hand, the burdens from the pandemic, and on the other, natural catastrophes put pressure on the result in the past financial year. Ultimately, the global industry runner-up ended 2020 with a loss of USD 878 million. Not only did Swiss Re fail to meet analysts' expectations, the group was also unable to keep pace with its German arch-rival. Munich Re, by comparison, posted a profit in the billions.
But not all lines of business of the domestic insurance group were in the red. Life business, for example, posted a profit of USD 71m despite Corona burdens. Meanwhile, the primary insurance division "Corporate Solutions" continues to be on a turnaround course. Excluding Corona costs, this segment would have contributed a positive result of USD 393m to the Group's net income. This compares with a loss of USD 647m in 2019.
However, the focus is now on the future and the outlook for the future certainly appears bright. "We are confident for 2021, because the Covid 19 claims are largely behind us," CEO Christian Mumenthaler made clear in mid-February at the presentation of the financial statements. In contrast to last year, when Corona-related charges amounted to USD 3.9 billion, these are expected to total less than USD 0.5 billion in 2021.
While expenses are falling, reinsurers can look forward to rising prices. In the January treaty renewal round for non-life business, which is important for the industry, premium treaties with a volume of USD 7.8 billion were renewed. Although this represents a decline of 11% compared with the previous year, prices rose by 6.5%. This gives Swiss Re hope of achieving a combined ratio of below 95% in the current year. By comparison, in 2020 the ratio was still an unprofitable 109%.
Swiss Re's management is underlining its growing confidence by paying out an unchanged dividend. Despite the red figures, shareholders will receive a steady CHF 5.90. Even though the payout will tap into the company's substance, this is no great tragedy. At USD 27 billion, the capital cushion appears reassuringly large. With the planned payout, Swiss Re continues to live up to its reputation as a dividend hit. Since the financial crisis in 2009 alone, the group has raised its dividend 10 times and not cut it once. The dividend yield is currently an above-average 6.3%.
If the analysts' guild has its way, Swiss Re's stock market valuation does not seem excessive at present. Of a total of 25 studies, 11 result in a hold recommendation, 10 experts even recommend buying and only 4 rate the SMI member as a sell. The consensus also expects rising profits in the coming years. While the turnaround is expected to be completed in 2021, the average estimate for the growth rate in the coming year is 31.6%. Then in 2022, earnings per share could grow another 5.7%.
Despite the thoroughly respectable outlook, a further rise in the share price is not set in stone. Major loss events can occur unexpectedly. According to a study published by Swiss Re at the end of March, the insurance industry faces the threat of large claims of USD 250 to 300 billion in the future due to population growth, rising real estate values and the effects of climate change. An investment with a risk buffer could therefore make perfect sense. With the new Barrier Reverse Convertible, a yield that exceeds Swiss Re's dividend yield is even possible. The product has a coupon of 7.00% p.a.. The profit opportunity is hedged by a comfortable risk buffer of 31%.
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