Swiss Re SWOT and PESTLE Analysis

Strength

1. Good performance in market capitalization, cash generation and continual maintenance of shareholder value: The premium earned and fee income shows a rise from previous year’s value of $33.714 billion depicting growth in business lines. The Group continues to have strong market capitalisation with solvency test ratio above the respectability level of 269%. However, there is a dip in annual return on investment from 3.4% to 2.6%, and net income from $3.6 billion in 2016 to $0.33 billion in 2017, mainly due to huge losses in natural catastrophes and man-made losses. The Group continues to maintain its shareholder value by increasing its dividend to $5 as compared to $4.85 in the previous year. The gross cash generation was grew to 998 million as compared to 720 million in 2016.

2. Strong Dominance in global reinsurance sector: The Company bagged second position in Top 50 Global Reinsurance Groups in 2016 ranked by A.M. The Swiss insurer best projected its continuous dominance in the market by being in top 10 for a couple of consecutive years. The company is ranked 504 by Forbes list of Global 2000 and ranked 257 by Fortune Global 500 in 2018. The company has won the Insurance ERM awards in 2018. The company also has won two major awards at the Reactions North America 2016 Gala Awards: 'Best Casualty Reinsurer' and 'Best Specialty Reinsurer'.

3. Strategic alliances to diversify business portfolio as well as geographical presence: The Company is diversifying and broadening its client base by accessing new emerging markets, new clients, and new risks. It is extending its global partnership with public sector institutions such as government, international development institutions, and NGOs which have different needs as compared to those of insurers and corporate clients, by aligning its business model accordingly. For instance the company is partnering to promote sustainable farming by helping small farmers. It is also targeting high growth market to increase its contribution to premiums. The Company extends its help to clients in dealing with new emerging risks such as exposure to cyber risks. The company is also eyeing for geographical diversification and extending its base to frontier markets such as Sub-Saharan Africa, the Middle East, Southeast Asia, etc. which are small economies with low income level but emerging insurance markets.The company has plans to acquire minority stake with Kenyan insurer Britam. Zurich-based Swiss Re has also set its eyes on the mature savings business of Legal & General Group (L&G) for £650m in 2017.

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Weakness

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Opportunity

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Threat

1. Facing strong competition with the drop in renewal businesses: Swiss Re has strong competition in the industry from major players such as Munich Re, Hannover Re, SCOR Re, Berkshire Hathaway Inc. The Company also faced 18% drop in renewal businesses in 2017. The competition is intensified with the increase in participation by small and local reinsurers targeting the same risk factors. In recent market scenario dominated by strong analytics and innovation incumbents from other sectors are actively looking to enter and disrupt insurance by leveraging their leadership in access to customer data and analytics capabilities. The whole insurance value chain is highly competitive with these digital initiatives and major companies increasingly spending in R&D and innovation to achieve competitive advantage.

2. Minimal global economic growth with continued low interest rates leading to a decline in premium rates: The negative and lowered interest rate in some economies hinder growth making their product less attractive resulting in reduced sales, and thus leading to an accelerated decline in premium rates. The slowdown in the global economy is also hindering the demand for non-life insurance cover challenging short terms and medium term growth. The global economy is likely to show only moderate growth, with the divergences persisting between the steady growth in many industrialized countries and the continuing weakness of many emerging economies in 2017 as well as in 2018.

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Political

1. Evolving US tax reforms: The changes in TJCA by Trump administration include significant changes in domestic tax laws as well as in international tax provisions. Not only U.S. multinationals, but also foreign multinationals with U.S. operations are affected by the reforms. Companies which operate in US like Munich Re as well as Swiss Re are significantly affected by the reforms as it would lead to regulatory changes. The new tax reform introduces the limitation of interest deduction or the limitation of NOLs (net operating losses) which negatively impacts the operations of the Swiss firms.

2. Impact on Market due to Brexit: Insurers, reinsurers and insurance intermediaries throughout the EEA (including those owned by groups based outside it) currently benefit from the European insurance single market system. The passporting system provides access to an EU market of 500 million people for companies which are UK-incorporated-and-authorized insurance businesses (UK firms). If UK leaves the EU then there will be regulatory changes which may impact the market growth for Swiss Re. There may be a need for Swiss Re to establish a locally authorized branch or subsidiary to mitigate the effects. the outcome of the UK referendum on EU membership could also impact the legislative and/or regulatory regimes to which the Group is subject, both in the United Kingdom and in the European Union.

3. Political conflicts in Europe: In different ways, Insurers and reinsurers are financially sensitive to the Euro's position with uncertainty, and to the more extensive effect of a discouraged world economy. This sensitivity must be overseen or lessened to constrain exposures and misfortunes, and at last to ensure the solvency of insurance agencies' balance sheets. Insurance providers may likewise be exposed to sovereign debt through their holdings in European banks, themselves extensive moneylenders to national governments. Numerous insurers give cover to banks and other money related organizations in regard of their D&O (Directors and Officers) liabilities and fidelity risks. At the point when banks' monetary records go in loss it might be reflected in the market value of shares issued by the bank concerned.

4. Uncertainty in China: As China's economy undergoes significant changes, recent growth adjustment might be turned around. Development in China remains intensely subject to government improvement and credit expansion; it keeps on confronting noteworthy capital outflows, reflecting worries over foreign currency, and its banking sector could be unfavorably affected by rising interest rates. This might be exacerbated by geopolitical pressures, fears over security and relocation, and vulnerability made for the regulatory changes and policy developments as declared by the US administration on a scope of announced by the new US administration on a range of trade, security, foreign policy, environmental protection and other issues having global implications.

Economic

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Social

Technological

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Legal

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Environmental

1. Focus on sustainable initiatives: The highest amount of annual insured losses worldwide are caused by weather-related catastrophe like the Floods in Europe, the U.S. and China, earthquakes in New Zealand, Ecuador, Japan, wildfires in Canada, and hailstorms in the U.S. These catastrophes caused the most severe economic damages over the last few years. It can be clearly said that more the climate change manifests itself, the harder it will become for reinsurers to have a profitable natural catastrophe business. By the year 2020, Swiss Re commits to having advised 50 sovereigns and sub-sovereigns on climate risk resilience and to have offered them USD 10 billion against this risk. The insurer divested from the coal sector in 2016 as well as no longer insures Greenfield tar sands projects. Swiss Re has also adopted a policy to stop its investments in companies where a substantial part of their revenues is stemming from thermal coal. The insurer has also adopted to have a carbon neutrality objective. Carbon neutrality is part of a comprehensive strategy which consists of four core elements: promoting risk expertise, developing products and solutions, reducing its own greenhouse gas emissions, and actively raising awareness of the problem. Swiss Re has recently partnered with Apple, Akamai, Etsy to develop two new wind and solar energy farms in Illinois and Virginia. The new projects will generate 290 megawatts to the PJM electric grid serving much of the Eastern United States, including areas of Virginia, Illinois, Pennsylvania, New Jersey, and Maryland.