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Munich Re Posts Profit Of €3.1bn For 2015 And Raises Dividend To €8.25

Despite a difficult market environment, Munich Re posted a consolidated result of €3.1bn for 2015 – which almost matched the very good result of €3.2bn from the previous year. According to provisional calculations, in the fourth quarter the Group posted a profit of €0.7bn (previous year: €0.7bn). Shareholders are to participate in last year’s success through a much higher dividend: subject to approval by the Supervisory Board and Annual General Meeting, the dividend will rise to €8.25 (7.75) per share.

CFO Jörg Schneider said, "Due to the fact that the market environment is so challenging, the 2015 result is pleasing. Even though we benefited from random effects in the form of a low impact from major losses, the good result is mainly due to our operational profitability and rock-solid balance sheet." The result includes various one-off factors that had a net positive effect. Schneider noted that despite low interest rates and increasing volatility in the financial markets, the investment result was again robust.

The low-interest-rate environment depresses regular income from investments, with the consequence that competition in reinsurance markets remains strong. "But the decision by the Federal Reserve to raise interest rates at the end of the year is an indication of a gradual change in interest-rate policies. Yet it will be a long time before the interest-rate environment returns to a relatively normal level, and one of the factors this depends on is geo-political developments," Schneider commented.

"The further strong increase in the dividend demonstrates our trust in the sustained earnings power of Munich Re," said Schneider. Munich Re also continued its share buy-back programme. As part of the programme running since the Annual General Meeting in April 2015, to date Munich Re has acquired shares amounting to around €800m; by the next Annual General Meeting on 27 April 2016, the total value should be €1bn.

Significant developments in the 2015 financial year

The following developments had an impact on the Group's assets and earnings in 2015, although they may be only partially reflected in the IFRS result:

  • High volatility in the capital markets – particularly intense activity at asset manager MEAG
    • Interest rates at the end of 2015 at around the same level as at the end of 2014, but with somewhat higher risk spreads
    • Stock markets in the USA at the same level at the end of 2015 as in the previous year; in most other regions, they closed slightly higher
  • Devaluation of the euro against most foreign currencies pertinent for Munich Re's business operations
  • In reinsurance, low impact of major losses from natural catastrophes, high releases of reserves for basic losses from prior years
  • Impact of one-off effects at ERGO and in Munich Health, including goodwill impairments
  • Low tax charge due to adjustments for prior years

Summary of the preliminary figures for the 2015 financial year

In 2015, the Group generated extremely pleasing operating earnings of €4.8bn (4.0bn), of which €1.4bn (0.7bn) was attributable to the fourth quarter. Once again, there were negative foreign-exchange effects of –€0.2bn (–0.1bn) on the "other non-operating result" in 2015, with a positive effect of €0.1bn in the fourth quarter. As in previous years, the consolidated result for the Group was marked by various opposing effects. Changes in the value of derivative financial instruments, negative currency effects, along with goodwill impairments in the ERGO field of business had an overall adverse impact. This contrasted in particular with the very good result in property-casualty reinsurance. A comparatively low tax charge – due to adjustments for prior years – also had a positive effect. In 2015, equity increased by around €0.7bn to €31.0bn (31.12.2014: €30.3bn), with an increase of more than €0.9bn in the fourth quarter alone. The return on risk-adjusted capital (RORAC), which serves as the key performance indicator for the Group as a whole, was a pleasing 11.5% (13.2%), whilst the return on equity (RoE) amounted to 10.0% (11.3%). For the fourth quarter, Munich Re achieved an annualised RORAC of 10.8% (12.2%) and an RoE of 9.6% (9.8%). Gross premiums written by the Group increased in 2015 to €50.4bn (48.8bn), due to currency effects.

With a carrying amount of €215.1bn (market value of €230.5bn), total investments (excluding insurance-related investments) as at 31 December 2015 were down on the year-end 2014 figure of €218.9bn (market value of €235.8bn). The Group's investment result (excluding insurance-related investments) decreased to €7.5bn (8.0bn). Changes in the value of derivatives had an overall adverse impact of –€1.2bn for the year under review, and of
–€0.2bn for the fourth quarter. Munich Re posted net write-downs of €0.8bn (0.2bn) on non-derivative investments during the year; in the fourth quarter net write-downs amounted to €0.1bn. The balance of gains and losses on disposals excluding derivatives, on the other hand, was positive at €2.7bn (fourth quarter: €0.4bn). Considering the situation in the capital markets, this investment result represents a relatively high annualised return of 3.2% in relation to the average market value of the portfolio.

Munich Health: Result of €0.09bn

The Munich Health field of business contributed a profit of €0.09bn (0.11bn) to the consolidated result. At €0.08bn, the operating result was below the level of the previous year (€0.12bn). The somewhat weaker year-on-year result was largely due to higher claims expenditure in parts of health reinsurance business in the USA. Munich Health's premium income showed an increase of around 5% to €5.6bn (5.3bn), which was attributable to positive currency translation effects. The combined ratio for 2015 totalled 99.9% (98.8%).

Renewals of reinsurance treaties in property-casualty business at 1 January 2016
During the reinsurance treaty renewals at 1 January 2016, the market environment was nearly unchanged compared with the previous year. There was sufficient capacity in all classes of reinsurance business. Prices remained under pressure, but to a slightly lesser degree than in previous years. Treaty terms and conditions were largely unchanged, as was the demand for reinsurance cover.

Torsten Jeworrek, member of Munich Re’s Board of Management, said, "We can be satisfied with the figures for the January renewals. Despite a continuing difficult market environment, Munich Re was able to seize attractive business opportunities. We are a preferred partner for clients that place value on sophisticated insurance solutions."

Jeworrek continued, "Our clients appreciate the value added that we offer them. In Europe and South America in particular, we were able to conclude some treaties individually, which meant that these transactions were only subject to the intensely competitive environment in standard business to a limited extent. For some clients, we developed bespoke capital-relief reinsurance solutions – such as where there were short-term capital requirements following an acquisition."

At 1 January 2016, slightly more than half of Munich Re's non-life reinsurance business was up for renewal, representing a premium volume of around €9.1bn. Of this, 11% (around €1.0bn) was not renewed. By contrast, Munich Re wrote new business with a volume of approximately €1.2bn. Altogether, the volume of business written at 1 January grew slightly by 0.7% to around €9.2bn. Prices fell by around 1.0%.

Munich Re is proceeding on the assumption that the market environment will not change significantly in the subsequent renewal rounds in 2016, unless extraordinary loss events occur. The renewal date of 1 April is mainly for reinsurance treaties in Japan, whereas 1 July is the renewal date for the USA, Australia and Latin America.

Reinsurance: Result of €3.3bn
The reinsurance field of business contributed a remarkable €3.3bn (2.9bn) to the consolidated result, with the operating result up by €0.9bn to €4.1bn. Gross premiums written climbed to €28.2bn (26.8bn). Changes in the value of the euro as against other currencies had a significant impact on premium growth (+5.4%).

Life reinsurance contributed €0.3bn (0.4bn) to the consolidated result. At €0.34bn (0.28bn), the technical result fell somewhat below the target of €0.4bn; the figure for the fourth quarter was €0.09bn (0.01bn). It was impacted by two mortality claims, for each of which Munich Re paid out an amount in the two-digit million euro range. In the USA and Australia, business largely developed as expected in 2015 after negative effects had impacted the result in the previous year.

Property-casualty reinsurance again accounted for an impressive share of the consolidated result for the full year, with a total of €2.9bn (2.5bn). The combined ratio for 2015 amounted to an excellent 89.7% (92.7%) of net earned premiums, and totalled only 78.6% (91.2%) for the fourth quarter. Claims notifications for basic losses remained noticeably below the expected level overall. Munich Re was able to release loss reserves in the amount of €1.4bn during the full year, corresponding to around 8.2 percentage points of the combined ratio. The figure for the fourth quarter was €0.9bn, corresponding to around 20.9 percentage points of the combined ratio. Munich Re also still aims to set the amount of provisions for newly emerging claims at the very top end of the estimation range, so that profits from the release of a portion of these reserves are possible at a later stage.

Total major-loss expenditure for 2015 amounted to €1.0bn (1.2bn), of which €0.2bn (0.2bn) was attributable to the fourth quarter. Reserve strengthening was somewhat lower than run-off profits for major losses from previous years. In relation to net earned premiums, the major-loss burden of 6.2% (7.2%) for the full year was below the average expected figure of 12%, and amounted to 4.7% (6.1%) for the fourth quarter. Natural catastrophe losses impacted the full year with €149m (538m), while the figure for the fourth quarter was €0m (111m). Heavy rainfall in northern Chile, which caused considerable flooding, was the largest nat cat loss event of the year at €47m. A severe earthquake off the coast of Chile gave rise to expenditure of €45m. At €897m (625m), man-made major losses were up on the level of the previous year, which is equivalent to 5.3% (3.9%) of net earned premiums. The explosion at Tianjin harbour in China (€175m) and a dam failure in Brazil (€156m) were by far the largest individual losses of the year.

ERGO: Result of –€0.2bn

In 2015, the ERGO field of business generated a loss of €0.2bn (previous year: profit of €0.2bn). One of the factors contributing to this result was additional expenses of €452m from the revaluation of goodwill. The sale of the Italian subsidiary ERGO Italia agreed in November also had a negative impact of €0.1bn on the result. At €0.6bn, the operating result remained stable year on year (€0.6bn), while gross premiums written fell to €16.5bn (16.7bn).

The combined ratio in property-casualty insurance in Germany was 97.9% (95.3%) for the full year, and amounted to 103.9% (97.1%) in the fourth quarter. Flooding caused by the low pressure systems Eva and Frank in the fourth quarter was the largest loss event of the year in German business. The combined ratio in property-casualty insurance for ERGO International was 104.7% (97.3%) for the full year, and amounted to 115.3% (96.8%) for the fourth quarter.



Anthem Reports Fourth Quarter And Full Year 2015 Results

Anthem, Inc. announced that fourth quarter 2015 net income was $180.9 million, or $0.68 per share. These results included net negative adjustment items of $0.46per share. Net income in the fourth quarter of 2014 was $506.7 million, or $1.80 per share, which included net negative adjustment items of $0.06 per share.

Excluding the items noted in each period, adjusted net income was $1.14 per share in the fourth quarter of 2015, a decrease of 38.7 percent compared with adjusted net income of $1.86 per share in the prior year quarter (refer to the GAAP reconciliation table for a reconciliation to the most directly comparable measure calculated in accordance with U.S. generally accepted accounting principles, or “GAAP”).

Full year 2015 net income totaled approximately $2.6 billion, or $9.38 per share, including net negative adjustment items of $0.78 per share. Full year 2014 net income was approximately $2.6 billion, or $8.99 per share, including net negative adjustment items of $0.36 per share. Excluding the items noted in each period, adjusted net income was $10.16 per share for the full year of 2015, an increase of 8.7 percent from $9.35 per share in 2014 (refer to the GAAP reconciliation table).

“Our solid fourth quarter results reflected a continuation of our positive operating momentum as we ended the year serving 38.6 million members across our Commercial and Government markets. As we look ahead to 2016, we remain well-positioned to continue advancing affordability, quality and choice for our members. We believe our strategy will be enhanced with the pending acquisition of Cigna, which we continue to expect should close in the second half of 2016," said Joseph Swedish, chairman, president and chief executive officer.

“We are pleased with our performance in the fourth quarter and our full-year 2015 results of $10.16 in adjusted EPS. Our 2015 performance and favorable medical cost trends set a strong starting point for 2016,” said Wayne DeVeydt, executive vice president and chief financial officer.


Membership: Medical enrollment totaled approximately 38.6 million members at December 31, 2015, an increase of approximately 1.1 million members, or 2.9 percent, from 37.5 million at December 31, 2014. Medicaid enrollment increased by 721,000 members and the Commercial & Specialty Business enrollment increased by 314,000 medical members as the Company experienced growth of 328,000 and 104,000 in the National and Local Group markets, respectively, partially offset by a decrease of 118,000 members in the Individual business. Enrollment also grew in theMedicare business and Federal Employee Program by 35,000 and 30,000, respectively.

Medical enrollment decreased by 102,000 members, or 0.3%, sequentially during the fourth quarter of 2015. The decrease reflected enrollment losses in the National and Individual businesses, partially offset by gains in the Medicaidbusiness.

Operating Revenue: Operating revenue was $20.0 billion in the fourth quarter of 2015, an increase of approximately $1.2 billion, or 6.6 percent, versus the nearly $18.8 billion in the prior year quarter. The growth in revenue reflected premium increases to cover overall cost trends and higher enrollment in the Medicaid and Commercial self-funded businesses. These increases were partially offset by a decline in Local Group fully insured and Individual enrollment.

Benefit Expense Ratio: The benefit expense ratio was 87.0 percent in the fourth quarter of 2015, an increase of 250 basis points from 84.5 percent in the prior year quarter. The increase was largely driven by an increase in the Individual and Local Group businesses, which included higher favorable prior period reserve development in the 4th quarter of 2014 than in the 4th quarter of 2015 and the timing of medical cost experience. The increase was partially offset by improved medical cost performance in certain markets in the Medicare business.

Medical claims reserves established at December 31, 2014, developed moderately better than the Company’s expectation during 2015, which resulted in offsetting adjustments for the risk stabilization programs from Health Care Reform.

Medical Cost Trend: For the full year 2015, underlying Local Group medical cost trend was at the lower half of our previously guided range of 6.5% - 7.5%. The Company anticipates that medical cost trends will be in the range of 7.0% - 7.5% in 2016.

Days in Claims Payable: Days in Claims Payable (“DCP”) was 42.7 days as of December 31, 2015, an increase of 0.4 days from 42.3 days as of September 30, 2015. The increase was primarily due to changes in the timing of claims payments between periods.

SG&A Expense Ratio: The SG&A expense ratio was 16.3 percent in the fourth quarter of 2015, an increase of 10 basis points from 16.2 percent in the fourth quarter of 2014. The increase was primarily driven by higher costs to support strong membership growth in 2015, partially offset by the impact of higher enrollment in the Medicaid business, which carries a lower average SG&A expense ratio than the consolidated company average.

Operating Cash Flow: Operating cash flow was $949.1 million, or 5.2 times net income in the fourth quarter of 2015, and approximately $4.1 billion, or 1.6 times net income for full year 2015. The Company’s 2015 results include the impact of approximately $500 million in timing items related to government and vendor payments. For 2016, the company expects operating cash flow to be greater than $3.0 billion, which includes the impact of the timing items referenced above.

Share Repurchase Program: The Company did not repurchase any shares of its common stock during the fourth quarter of 2015 due to the pending acquisition of Cigna. During 2015, the Company repurchased approximately 10.4 million shares of its common stock, or 3.9 percent of the shares outstanding as of December 31, 2014, for $1.5 billion, or a weighted-average price of $145.50. As of December 31, 2015, the Company had nearly $4.2 billion of Board-approved share repurchase authorization remaining.

Cash Dividend: During the fourth quarter of 2015, the Company paid a quarterly dividend of $0.625 per share, representing a distribution of cash totaling $163.1 million.

Investment Portfolio & Capital Position: During the fourth quarter of 2015, the Company recorded net realized gains on investments totaling $30.6 million and other-than-temporary impairment losses totaling $28.5 million. During the fourth quarter of 2014, the Company recorded net realized gains of $43.8 million, partially offset by other-than-temporary impairment losses totaling $13.5 million.

As of December 31, 2015, the Company’s net unrealized gain position in the investment portfolio was $367.5 million, consisting of net unrealized gains on equity securities totaling $389.7 million and net unrealized losses on fixed maturity securities totaling $22.2 million. As of December 31, 2015, cash and investments at the parent company totaled approximately $1.4 billion.

Discontinued Operations: In late December 2013, the Company entered into agreements to divest its 1-800 CONTACTSsubsidiary and related assets. The sales were completed on January 31, 2014. As a result, the current and prior period operating results of 1-800 CONTACTS have been classified as discontinued operations, net of the related tax effects.


A Strengthening Economy To Support Insurance Industry Growth

The global economy is expected to strengthen moderately next year, supporting insurance premium growth in most regions, according to Swiss Re's latest publication, Global insurance review 2015 and outlook 2016/17. Demand for non-life insurance is expected to grow, led by an 8% to 9% annual gain in the emerging markets in 2016 and 2017. The life insurance sector faces challenges, in particular from ongoing low interest rates. Nevertheless, global life premiums are forecast to rise by about 4% in each of the next two years, led also by the emerging markets.

The global economy is expected to strengthen moderately next year. The US and the UK economies are currently growing by close to 2.5%, and real gross domestic product (GDP) growth in Japan and the Euro area are a more subdued 0.7% and 1.5%, respectively. The four economies are all expected to see slightly better growth in 2016. Emerging markets will grow by about 5% in each of the next two years, an improvement on the current 4% pace.

The global economy faces three main headwinds: slower growth in China, lower commodity prices and an imminent rate increase by the Federal Reserve. The headwinds pose a risk to the baseline forecast, but are unlikely to derail the improving growth momentum. With the overall improved outlook and expected monetary policy tightening in the US and UK, government bond yields (especially in the US and the UK) will likely rise.

"Global economic growth is a good sign for insurers," says Kurt Karl, Swiss Re's Chief Economist. "This is especially so in the emerging markets, where urbanisation and growing wealth will support overall sector growth. We've said for some years now that emerging markets are the growth engines for the insurance industry – and this is expected to continue for at least several years more."

Non-life premium growth will improve along with economic activity

Demand for primary non-life insurance should increase in the next two years. Global primary non-life premium growth is forecast to improve to 3% in 2016 and 3.2% in 2017, from 2.5% this year. Growth in advanced markets is expected to slow slightly due to the generally softening prices and only modest improvement in economic growth. The emerging markets will be the main drivers in non-life, with premiums up an estimated 7.9% and 8.7% in 2016 and 2017, respectively, after a 5.6% gain in 2015. Premium growth is expected to be strongest in emerging Asia (12% annually), and a recovery is expected in Central and Eastern Europe after contraction in 2014 and 2015.

Despite the challenging pricing environment, underwriting profits in primary non-life insurance have been sustained by low natural catastrophe losses and a continuation of reserve releases from past years. The non-life reinsurance sector underwriting result has likewise been strong so far this year, also based on low natural catastrophe losses. However, with falling prices, profit margins have eroded over the past two years. Property catastrophe reinsurance rates are currently close to bottoming out and the rate softening in most lines is expected to moderate or come to a standstill. In casualty and specialty, significant differences in pricing developments by market and line of business are expected.

Life insurers face major challenges but premiums will grow

Primary life insurers face significant downside risks in the short to medium term from the modest global growth outlook, persistently low interest rates, volatility in financial markets and regulatory changes. Nevertheless, in the advanced markets, real premium income is forecast to rise by about 2.5% in 2016 and 2017, up from about 2% this year. In emerging markets, premiums will grow by an estimated 10.7% in both 2016 and 2017. This improvement will in part be attributable to improved use of currently available technologies, such as wearable devices and cloud computing. Again, emerging Asia is expected to have the most robust growth of about 13% each year. A key issue in many emerging markets will be the implementation of risk-based solvency regimes.

In the advanced markets, life reinsurance premium growth is expected to decline slightly in 2016 and 2017 in real terms. In the US, regulatory changes – including increased scrutiny of the use of captive reinsurance and an expected move towards principles-based reserving – will impact business opportunities. In other markets, traditional life reinsurance will continue to record low, single-digit growth in line with the protection business on the primary side. Growth in emerging market life reinsurance premiums is expected to be about 7% to 8% each year in 2016 and 2017.

Economic headwinds in Sub-Saharan Africa

This year's outlook report covers Sub-Saharan Africa (SSA), which faces headwinds as commodity prices remain low and capital flows out of the emerging markets. GDP growth in SSA is forecast to slow to around 3.8% in 2015 from 4.7% in 2014, but the region is still the fastest growing after emerging Asia. Non-life premium growth increased to 4.5% in 2015 so far, after having been suppressed in previous years by the increased enforcement of the cash-and-carry principle. With this principle, insurers can only issue policies and book premiums after they have received payment. Premiums in South Africa recovered in 2015, despite a weak economy and intense competition, as insurers raised rates on the basis of past claims experience.

Demand for non-life insurance is likely to remain solid in SSA in 2016 and 2017, with premium growth of 4.5% to 5.0%, even though volumes are expected to stagnate or even contract in some of the oil- and commodity-exporting countries. Global and regional insurance groups continue to expand their footprint in SSA which will enhance expertise in the region.

Life premium growth in the region is estimated to have slowed to 4.2% this year from 5% in 2014, and will likely slow further to about 2.5% growth in 2016 and 2017. Growth weakened to 3.8% in South Africa in 2015 as the economic environment failed to improve and the rand was hit by capital outflows. Elsewhere in SSA (eg in Kenya and Nigeria), growth is estimated to have remained strong. However, given that South Africa accounts for around 90% of the region's premiums, the results for SSA overall were disappointing.


ABRY Completes Acquisition of International Medical Group, Inc.

ABRY Partners ("ABRY"), a Boston-based private equity firm, has completed the previously announced acquisition of International Medical Group® (IMG®), a leader in the global insurance and assistance services market.

Brent Stone, partner at ABRY, said, "We are proud to welcome IMG into the ABRY family. Its outstanding leadership, sustained growth and reputation for excellence position IMG as the top player among its competitors. With our shared vision and values, we look forward to continuing our partnership and further expanding IMG's global presence."

IMG's executive management team, Board of Directors and previous private equity partners — Altaris Capital Partners and Galen Partners — approved the acquisition. The company's operations were not impacted by the ownership change.

IMG President and CEO Brian Barwick said, "We are excited to partner with ABRY, whose solid financial foundation and decades of experience investing in high-quality companies will provide the support necessary to drive additional expansion."

Greenhill, a leading independent investment bank, facilitated the acquisition. Terms of the transaction were not disclosed.


Aon Reports Third Quarter 2015 Results

Aon plc (NYSE: AON) reported results for the three months ended September 30, 2015.

Net income attributable to Aon shareholders was $295 million, or $1.04 per share, compared to $309 million, or $1.04 per share, for the prior year quarter.  Net income per share attributable to Aon shareholders, adjusted for certain items, decreased 4% to $1.24, compared to $1.29 in the prior year quarter, including a $0.09 per share unfavorable impact on adjusted net income from continuing operations if the Company were to translate prior year quarter results at current quarter foreign exchange rates ("foreign currency translation").  The prior year quarter included a $25 million pre-tax, or $0.07 per share after tax, gain related to the sale of a business.  Certain items that impacted third quarter results and comparisons with the prior year quarter are detailed in the "Reconciliation of Non-GAAP Measures - Operating Income and Diluted Earnings per Share" on page 12 of this press release. 

"In our seasonally weakest quarter, our results reflect organic revenue growth and operating margin expansion across both segments, effective capital management and significant free cash flow generation, despite the impact of unfavorable foreign currency translation and macroeconomic challenges," said Greg Case, president and chief executive officer.  "Driven by our industry-leading portfolio and investments across data and analytics, we expect a strong fourth quarter and finish to the year across each of our key metrics, further positioning the firm for free cash flow generation and shareholder value creation."


Total revenue decreased 5% to $2.7 billion compared to the prior year quarter driven primarily by a 7% unfavorable impact from foreign currency translation, partially offset by 2% organic revenue growth.

Total operating expenses for the third quarter decreased 5% to $2.3 billion compared to the prior year quarter due primarily to a $162 million favorable impact from foreign currency translation and a $12 million decrease in intangible asset amortization, partially offset by an increase in expense to support 2% organic revenue growth.

Depreciation expense decreased 8%, or $5 million, to $56 million compared to the prior year period.

Intangible asset amortization expense decreased 13%, or $12 million, to $78 million compared to the prior year quarter, consisting of a $10 million decrease in HR Solutions and a $2 million decrease in Risk Solutions.

Foreign currency exchange rates in the third quarter had a $0.09 per share, or $30 million pretax, unfavorable impact (-$25 million in Risk Solutions and -$5 million in HR Solutions) on adjusted net income from continuing operations, if the Company were to translate prior year quarter results at current quarter foreign exchange rates.

Effective tax rate used in the U.S. GAAP financial statements in the third quarter was 14.0%, compared to the prior year quarter of 19.1%.  After adjusting to exclude the applicable tax impact associated with expenses for legacy litigation incurred in the second quarter, the adjusted effective tax rate for the third quarter of 2015 declined to 16.0% compared to 19.1% in the prior year quarter, due primarily to certain favorable discrete items. 

Average diluted shares outstanding decreased to 283.8 million in the third quarter compared to 296.1 million in the prior year quarter.  The Company repurchased 6.3 million Class A Ordinary Shares for approximately $600 million in the third quarter.  As ofSeptember 30, 2015, the Company had $4.5 billion of remaining authorization under its share repurchase program.

Cash flow from operations for the first nine months of 2015 increased 22%, or $192 million, to $1.1 billion driven by working capital improvements and a decline in cash paid for pension contributions, taxes, and restructuring.

Free cash flow, defined as cash flow from operations less capital expenditures, for the first nine months of 2015 increased 21%, or $146 million, to $850 million driven by an increase in cash flow from operations, partially offset by a $46 million increase in capital expenditures primarily due to real estate related projects.  


Certain noteworthy items impacted operating income and operating margins in the third quarters of 2015 and 2014.  The third quarter segment reviews provided below include supplemental information related to organic revenue, adjusted operating income and operating margin.

Risk Solutions total revenue decreased 8% to $1.7 billion compared to the prior year quarter due to an 8% unfavorable impact from foreign currency translation and a 1% decrease in commissions and fees related to acquisitions, net of divestitures, partially offset by 1% organic growth in commissions and fees.

Retail organic revenue increased 2% reflecting revenue growth in both the Americas and International businesses.  Americas organic revenue increased 4% driven by growth across all region and product lines, including strong new business generation in US Retail andCanada and effective management of the renewal book portfolio in Latin America.  International organic revenue increased 1% driven by growth in New Zealand and across Asia. 

Reinsurance organic revenue decreased 4% compared to the prior year quarter due primarily to an unfavorable market impact globally, a modest decline in facultative placements, and unfavorable timing, partially offset by record new business growth in treaty placements.


Three Months Ended




Sep 30,


Sep 30,















Compensation and benefits







Other general expenses







Total operating expenses







Operating income









Operating margin






Operating income - adjusted









Operating margin - adjusted






Compensation and benefits for the third quarter decreased 7%, or $76 million, compared to the prior year quarter due primarily to an $84 million favorable impact from foreign currency translation and a $9 million decrease in expenses related to acquisitions, net of divestitures, partially offset by an increase in expense to support 1% organic growth.

Other general expenses for the third quarter decreased 12%, or $52 million, compared to the prior year quarter due primarily to a $46 million favorable impact from foreign currency translation.

Third quarter operating income decreased 6% to $324 million compared to the prior year quarter. 


Admin Re® To Buy Guardian Financial Services For GBP 1.6 Billion

Swiss Re's business unit Admin Re® has agreed to acquire Guardian Holdings Europe Limited, the holding company for operations trading under the name Guardian Financial Services ("Guardian") from private equity company Cinven for GBP 1.6 billion. The acquisition will extend Admin Re®'s position as a leading closed life book consolidator in the UK, with over four million policies in force. As a result of the acquisition, Admin Re® will further diversify its current business and increase its assets and reserves. Closing of the acquisition is subject to regulatory approval and could be completed in early 2016.

Michel M. Liès, Swiss Re's Group Chief Executive Officer, says, "This acquisition is an excellent opportunity for Admin Re® to further enlarge its successful business and diversify its portfolio. It is proof that we can deliver on our ambitions to seek profitable growth opportunities for Admin Re® in the UK. The expected returns exceed our profitability targets for new business and represent an excellent fit with our Group strategy as well as with Admin Re®'s capabilities and existing infrastructure."

Admin Re® and Guardian are both buyers and consolidators of blocks of in-force life and pension insurance business. With this acquisition of Guardian, Admin Re® will add 900 000 annuity, life insurance and pension policies in the UK and Ireland. This will bring the policy count of Admin Re®'s UK business to over four million and strengthen its established business.

David Cole, Swiss Re's Group Chief Financial Officer, says, "This acquisition is in line with Admin Re®'s strategic goals as well as with our multi-year financial planning. We will continue to remain well capitalised and our economic solvency ratio will remain comfortably above our risk tolerance. This acquisition is also in line with the Swiss Re Group's capital management priorities and, accordingly, does not alter our view of the share buy-back programme, which was authorised by our shareholders at the 2015 Annual General Meeting. The transaction is of a scale that was already contemplated when we evaluated the scope of the share buy-back programme. The launch of the programme remains subject, as previously said, to the availability of excess capital, and any decision to launch it will also take into account other potential business opportunities meeting Swiss Re's strategic and financial objectives and major loss events."

The acquisition is an attractive opportunity for Swiss Re to deploy part of its excess capital above the Group’s hurdle rate of 11% ROE. Admin Re® is expected to generate around USD 1.7 billion of gross cash, including capital synergies, over the first three years. In addition, the assets under management of the Swiss Re Group will increase by GBP 12.5 billion, or approximately 15%. Under US GAAP accounting standards, the acquired business will be accretive to the Group's net income. Under Swiss Re's proprietary economic value management (EVM) framework, the acquisition is expected to result in an EVM loss of approximately USD 0.9 billion at inception. It is however expected to generate a positive contribution to EVM economic net worth over time, supporting Swiss Re's focus on long-term value generation.

Bob Ratcliffe, CEO of Admin Re®, says, "We're very proud to be taking on Guardian's policyholders and staff delivering the same seamless service that we bring to our current 3.4 million customers. Admin Re®has an expert team and the infrastructure in place to ensure we can bring the benefits of scale that make a closed life book consolidator successful. Admin Re® has a long track record of migrating life portfolios and maintaining a high level of customer service for policyholders. We expect that after this acquisition, we will continue to seek growth via other acquisition opportunities, developing further our leading consolidation franchise."

The acquisition will be financed from cash on the balance sheet as well as debt financing. Swiss Re believes that significant growth opportunities are still available as vendors seek to refocus on new products and release capital from legacy books.

Table1: Admin Re®'s exceptional execution capability

Acquired business

Transaction type

Date of completion


Share Acquisition

Exp. early 2016*


Reinsurance and Part VII Transfer

August 2015

Alico UK Life

Reinsurance and Part VII Transfer

July 2012

Barclays Life

Share Acquisition

October 2008

GE Life's new business platform

Share and Business Disposal

December 2007

Zurich's immediate pensions annuities

Reinsurance and Part VII Transfer

June 2007

Friends Provident

Longevity Swap

April 2007


Reinsurance and Administration

March 2007

GE Life

Share Acquisition

December 2006

Virgin Money Life

Share Acquisition

December 2005

Life Assurance Holding Company

Share Acquisition

August 2004

Zurich Life Assurance Company

Share Acquisition

October 2003

*Expected closing date subject to regulatory approval

HCC Insurance Holdings Stockholders Approve Acquisition by Tokio Marine

HCC Insurance Holdings, Inc. (NYSE:HCC) announced that stockholders voted during a special meeting held in Houston to adopt the merger agreement entered into on June 10, 2015 with Tokio Marine Holdings, Inc., whereby Tokio Marine agreed to acquire all of the outstanding shares of HCC for $78.00 in cash per share.

More than 99% of the votes cast were in favor of the merger agreement and the merger. Completion of the merger remains subject to approval by relevant regulatory authorities in the United States, the United Kingdom and Japan, as well as customary closing conditions.


Private Health Insurance Can Play A Key Role In Building Sustainable National Healthcare Systems

As income levels in emerging markets rise, people spend more on healthcare services as a means to improve their quality of life. This is driving demand and expectations for better health services in the emerging markets, says Swiss Re's latest sigma study Keeping healthy in the emerging markets: insurance can help.

Key Points

Demand and expectations for better healthcare services are rising in the emerging markets; Premiums for reimbursement-type products expected to double by 2020; Private health insurers have the tools to meet this demand; Private health insurance can play a key role in building sustainable national healthcare systems; The success of innovative solutions in advanced markets has attracted interest in many emerging countries.

The study shows the insurance industry is well-equipped to meet the increasing healthcare spending needs of individuals, and that it can also become a central pillar of a sustainable national healthcare delivery system. In the emerging markets, the money to pay for healthcare has traditionally come from the government via taxation revenues and from private individuals who often make significant contributions from their household savings. However, reliance on these two channels of healthcare financing is becoming increasingly challenging. There are growing strains on public coffers and at the same time, more advanced technologies and medicines are pushing up the price of healthcare services.

The benefits of private health insurance (PHI)

PHI provides consumers financial protection against future care-related expenses at an affordable regular premium, relieving the burden of large one-off hits to private savings.

"Consumers will increasingly be purchasing PHI because it provides a means to pay for level of healthcare services they need," says Kurt Karl, Swiss Re's chief economist.

PHI also offers consumers more choice with respect to place, type and level of treatment, and, with certain products, freedom to choose how to use the benefits received (eg. to cover treatment costs or perhaps as income replacement). In this way, it can supplement and/or complement public sector health services by helping consumers pay for treatments not covered by or available from state-sponsored schemes. For governments, PHI has the potential to be a main channel of healthcare expenditure. However, it is underused. In 2012, PHI covered less than 10% of total healthcare spending in the main emerging markets. On the supply side, PHI can bring innovation across the value chain in healthcare, including in product development, sales and distribution, underwriting, claims, payment systems and customer services, leading to better services at lower cost.

"Insurers have been able to reach new clients with the use of new technologies and by pricing products in line with willingness and ability to pay", says Clarence Wong, co-author of the study.

For example, in 2014 a mobile health insurance scheme in Nigeria called Y'ello Health was launched. Subscribers pay an affordable premium using their mobile phones for cover of basic outpatient care and minor surgery. The scheme is expected to significantly extend the reach of health insurance in Nigeria, particularly in rural areas and to the previously under- and uninsured.

Growth of Private Health Insurance products

There are two main types of PHI product. The first is reimbursement-type, with which the insured is paid back the costs incurred in hospital and other treatment. The second are fixed-benefit products, whereby the insured receives a lump sum at the onset of specific conditions. Fixed-benefit products include critical illness, disability income and hospital cash insurance.

Both product types are showing strong growth in the emerging markets. Premiums from reimbursement products grew by an estimated 11.2% in real annual terms between 2003 and 2013. They are forecast to rise on average by 9.6% per year to 2020, three times the rate of global premium growth in this segment.

Premium data on fixed-benefit products in the emerging markets is scarce, but expert interviews conducted for the study suggest that demand for fixed-benefit PHI products is also growing rapidly.

Emerging markets

The PHI sector is at varied stages of development in the different emerging regions, due in large part to the different structures of national healthcare systems and health infrastructure. In Emerging Asia, many governments have earmarked reimbursement products as a growth area, and premiums are forecast to grow by 15.4% annually between 2013 and 2020, the strongest of all the emerging regions. Fixed-benefit products are also popular. For example, cancer insurance has attracted widespread interest in many markets in the region following the success of cancer products in South Korea and relapse products in Japan.

In Latin America, premiums from reimbursement-type products grew by a real annual growth rate of 6.8% from 2003 to 2013, and are forecast to average growth of 6.2% to 2020. On the fixed-benefits side, critical illness solutions are developing favourably, although lack of consumer awareness remains a key obstacle. Hospital cash insurance, another fixed-benefit product, has become increasingly common as part of bancassurance offerings.

Against a backdrop of relatively comprehensive coverage of social security benefits, overall PHI peneration is low in Central and Eastern Europe. PHI is mainly used to pay for advanced and additional treatments not covered by the public healthcare systems. Critical illness products are widely available as riders to endowment and unit-linked insurance policies, and as stand-alone solutions. Hospital cash insurance is also popular.

In Sub Saharan Africa, private out-of-pocket payments from household savings are a main component of total healthcare spending. The PHI sector remains small, however microinsurance is expected to become a main channel of healthcare expenditure in many of the region's markets.

Private Health Insurance Can Play A Key Role In Building Sustainable National Healthcare Systems


Major U.S. Health Plans Agree to Give Consumers Free Access to Timely Information About Health Care Prices to Foster Greater Transparency

The Health Care Cost Institute (HCCI) announced today that it will work with three of the nation’s largest health insurance companies, Aetna, Humana and UnitedHealthcare, to develop and provide consumers free access to an online tool that will offer consumers the most comprehensive information about the price and quality of health care services.

The independent, not for profit HCCI will create and administer this information portal, which is expected to be available in early 2015. The health benefit companies will provide information on health care costs to HCCI, which will maintain and manage access to the information in a highly secure, protected environment. Other major carriers have expressed interest and HCCI expects additional carriers to participate in the near future and be part of the initial release in early 2015. Participating insurers will continue to offer their own cost transparency tools and solutions as well. The cost data will be supplemented with quality and other information to provide consumers a transparent and comprehensive destination to make more informed decisions about health care.

“Consumers, employers and regulatory agencies will now have a single source of consistent, transparent health care information based on the most reliable data available, including actual costs, which only insurers currently have,” said David Newman, Executive Director of HCCI. “Voluntarily making this information available will be of immeasurable value to consumers and other health system participants as they seek to manage the cost and quality of care.”

Health care costs have been rising more than three times as fast as wages. Official estimates project that U.S. health spending will reach $4.7 trillion by the end of the decade - an 80 percent increase from $2.6 trillion in 2010 - underlining the need to better understand the prices of health care services to help make decisions and choices about purchasing care. The new transparency tool that HCCI is developing will aggregate pricing data from commercial health plans, as well as Medicare Advantage and Medicaid health plans, if the states agree. The information will be available to consumers, purchasers, regulators and payers in an accessible, comparable and easy-to-use format.

“The HCCI governing board is pleased by the trust the participating insurers are placing in the Institute. The foresight and commitment of these insurers to create a national resource for consumers, employers and policy makers is without precedent,” said Stephen T. Parente, Chair of HCCI’s governing board. “This new transparency initiative seeks to ensure that every American gets the best value out of their national investment.”


Allianz Starts 2014 With strong 1st Quarter

Allianz Group began 2014 with a strong first quarter. At 33.96 billion euros, Allianz achieved the highest total quarterly revenues in the company’s history.

Compared to the previous year’s first quarter figure of 32.05 billion euros, revenues increased by 6.0 percent. Operating profit reached 2.72 billion euros, 2.6 percent below the previous year’s record figure of 2.80 billion euros. Net income attributable to shareholders was 1.64 billion euros, a decrease of 3.9 percent from 1.71 billion euros the year before.

In Property and Casualty insurance, operating profit grew strongly, benefitting from an improved underwriting result after a lower impact from natural catastrophes.

Revenues increased in the Life and Health insurance segment due to strong new life sales, and operating profit remained at a high level.

Following exceptionally high results in the previous year, Asset Management performed within expectations. The conglomerate solvency ratio rose by two percentage points to 184 percent as of March 31, 2014, from 182 percent at the end of 2013. Shareholders’ equity grew over the same period by 6.9 percent to 53.525 billion euros from 50.084 billion euros.

“In the first three months, Allianz achieved results comparable to last year’s highs. This is an encouraging start for the year. While it is hard to predict what kind of economic and political volatility lies ahead in the current environment, we are well prepared for the rest of 2014,” said Dieter Wemmer, Chief Financial Officer of Allianz SE.

Property and Casualty insurance increases profitability

In the first quarter of 2014, gross premiums written in Property and Casualty insurance reached 15.22 billion euros, an increase of 0.1 percent year-on-year from 15.20 billion euros. Excluding foreign exchange and consolidation effects, internal growth was 1.9 percent. Strong internal premium growth came especially from Germany and Turkey as well as from Allianz Global Corporate & Specialty and Allianz Worldwide Partners. The segment’s operating profit rose 12.9 percent to 1.49 billion euros in the first quarter of 2014 from 1.32 billion euros over the same period last year.

Growth in operating profit stemmed mainly from a better underwriting result of 705 million euros after 540 million euros in the first quarter of 2013. This improvement was helped by lower natural catastrophe claims and a continued positive pricing environment. The quarterly combined ratio improved by 1.7 percentage points to 92.6 percent from 94.3 percent in the previous year’s first quarter.

Impacts from natural catastrophes were mainly limited to winter storms in the US and floods in the UK. Germany, France and the corporate and credit insurance areas recorded lower claims than last year. The loss ratio fell year-on-year to 64.6 percent from 66.1 percent. Over the same period, the expense ratio decreased to 28.0 percent from 28.2 percent partly due to operational improvements in various units.

“Our Property and Casualty business has continued on last year’s successful course with very good results. The segment contributed more than half of the Allianz Group’s total operating profit this quarter,” said Dieter Wemmer. “Not every quarter will have this low of an impact from natural catastrophes, but claims are also down overall, so I am very confident.”

Life and Health insurance with increased revenues and stable profits

In Life and Health insurance, statutory premiums rose to 17.16 billion euros in the first quarter of 2014 from 14.84 billion euros over the same period the previous year. This represents an increase of 15.7 percent. Excluding foreign exchange and consolidation effects, internal growth was 16.4 percent. Premium growth came from all core markets.

At 2.56 billion euros, Allianz Life in the US alone attracted some one billion euros more in premiums in the quarter than in the previous year’s first quarter, an increase of 63.6 percent. Germany and the Benelux region also recorded double-digit growth in volumes. The new business margin grew 0.7 percentage points in the first quarter of 2014 to 2.5 percent from 1.8 percent over the same period the year before.

Over the same period the value of new business increased to 360 million euros from 238 million euros. Operating profit rose 2.9 percent to 880 million euros in the first three months of 2014 from 855 million euros the year before. The transfer of certain entities from Asset Management contributed 26 million euros to this development.

“Innovations in core markets like Germany and the US are lifting our life insurance business to new heights. Customers are responding well to our new products,” said Dieter Wemmer. “Thus, for the first quarter, results were within the top range of our expectations.”

Asset Management on track

Operating revenues in Asset Management in the first quarter of 2014 were 1.52 billion euros, a decrease of 18.9 percent from 1.87 billion euros for the first quarter of 2013, after the transfer of certain entities to other business segments as of January 1, 2014. The first quarter of the previous year had exceptionally high performance fees as the result of the closure of a private fund. Operating profit reached 646 million euros for the quarter, a decline of 26.3 percent from 877 million euros in the first quarter of 2013, after the transfer of entities to other business segments. This reduction stemmed from one-off performance fees in the first quarter of the previous year and the weakening of the US-dollar. The non-recurrence of these performance fees increased the cost-income ratio to 57.4 percent from 53.1 percent.

Total assets under management rose 1.6 percent to 1,765 billion euros at the end of the first quarter of 2014 from 1,738 billion euros at the start of 2014. Over the same period, third-party assets under management grew 1.0 percent to 1,342 billion euros from 1,329 billion euros. The development in assets under management was supported by market value increases, which outweighed third-party net outflows of 19.8 billion euros in the first quarter of 2014, compared to net inflows of 41.8 billion euros in the previous year’s first quarter. While PIMCO recorded net outflows of 21.7 billion euros from January to March of 2014, AllianzGI saw net inflows over the same period of 1.9 billion euros.

“As expected, the results in Asset Management came in lower, but the business is in line with our target for the year,” said Dieter Wemmer. “Given its solid performance and the outperformance of both of our insurance segments, we remain on track to achieve our operating profit outlook for the full year of 10.0 billion euros, plus/minus 500 million euros.”

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