Financial Services Business Group
Operating income was CHF 273 million, compared to a loss of CHF 379 million in the same period last year. This reflects lower claims activity, improved pricing, strong revenue growth and increased efficiency. |
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Business development
The Financial Services Business Group reported revenues of CHF 2.1 billion for first half 2003, an increase of 12% over first half 2002. Adjusting for the effects of foreign exchange rate movements, the growth in total revenues was 28%.
Premiums earned grew by 14% (32% at constant rates of exchange), significantly above the Financial Services Business Group's target of 7%. Premium growth was largely price driven and was spread across all lines of business transacted by the Risk Solutions and Credit Solutions units.
Net investment income fell by 23%, due primarily to foreign exchange effects (approximately 14%) and lower yields. Net realised investment losses were lower by CHF 17 million at CHF 41 million.
Trading revenues, fees and commissions (including internal fees from other parts of the Swiss Re Group for proprietary asset management services) grew by 24%. Adjusting for foreign exchange effects, completed disposals, and excluding internal fees, the underlying growth approached 80%. The primary reasons for this were strong growth in structured transactions, credit and convertibles trading, and in sales of insurance-linked securities. The fee earning and trading business units - Asset Management and Capital Markets & Advisory - produced growth significantly above target levels.
Acquisition costs increased due to premium growth and higher profit commissions.
Claims and claim adjustment expenses decreased by more than 35% (25% at constant exchange rates). This is due primarily to improved underwriting, resulting in claims activity returning to expected levels.
Operating costs, although showing a modest decline in the reported results, rose by approximately 11% after adjustment for foreign exchange rate movements, well below growth in total revenues of 28%. Reductions in operating costs in the premium business and in asset management were offset by increased performance-related compensation in Capital Markets & Advisory business.
The Financial Services Business Group's combined ratio improved to 96.0% for first half 2003, compared to 139.9% for first half 2002, and is close to the three year target average of 95%. The fee earning and trading business units have achieved a return on total revenues of 10.7% for first half 2003, compared to -11.2% for the same period last year. This is below the three year target average of 15%, but reflects the offsetting of the substantial improvements in the core businesses of Capital Markets & Advisory (where the return is in excess of 17%) by the lower return on internal services provided by Asset Management to the Swiss Re Group.
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| CHF millions |
First half
2002 |
First half
2003 |
Change
in % |
|||
|
|
||||||
|
Revenues |
||||||
| Premiums earned |
1366
|
1555
|
14
|
|||
| Net investment income |
242
|
187
|
-23
|
|||
| Net realised investment gains/losses |
-58
|
-41
|
29
|
|||
| Trading revenues, fees and commissions1 |
340
|
423
|
24
|
|||
|
|
||||||
| Total revenues |
1890
|
2124
|
12
|
|||
|
Expenses |
||||||
|
|
||||||
| Claims and claim adjustment expenses |
-1718
|
-1110
|
-35
|
|||
| Acquisition costs |
-63
|
-267
|
324
|
|||
| Operating costs |
-488
|
-474
|
-3
|
|||
|
|
||||||
| Total expenses |
-2269
|
-1851
|
-18
|
|||
|
|
||||||
| Operating income/loss |
-379
|
273
|
||||
|
|
||||||
|
|
||||||
| Operating result, excluding net realised investment gains/losses |
-321
|
314
|
||||
|
|
||||||
| Premium business: combined ratio in % |
139.9%
|
96.0%
|
||||
| Fee business: return on total revenues in % |
-11.2%
|
10.7%
|
||||
1 Reclassification of trading revenues in first half 2002
Outlook
The Financial Services Business Group expects continued solid performance in the second half of 2003. The premium business is expected to continue to produce strong underwriting results, assuming that large losses are within expected levels. While the fee earning business enjoyed highly favourable growth in the first half, the overall growth for the full year 2003 is expected to be lower due to growth already achieved in the second half 2002. Asset Management operations will be restructured in the second half of 2003 to improve efficiency, however the benefits will not become apparent until 2004.
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