Swiss Re "Earnings pressure and an elevated multiple" (Sell) Hardcastle

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Swiss Re "Earnings pressure and an elevated multiple" (Sell) Hardcastle

Swiss Re UBS Research

UBS Research THESIS MAP Thesisa guideMapto our thinking and what´s where in this report

Pivotal Questions Q: Can Swiss Re hold margin in the face of declining industry pricing?

We think unlikely. The targeted <85% is predicated on c.3ppts of pricing pressure in 2026, a level we

expect to at least be met, or more likely exceeded. There will be an earn-through into 2027E, and

while the benefit of emerging reserve releases and the cost save programme can help to offset some

of this, we believe the soft cycle is outstripping this. We forecast a 2027E CoR of 85.9%, and each

1ppt CoR deterioration is worth -3% to group EPS.

Q: Is the market assuming a multi-year soft pricing cycle?

No, we find ourselves mid-single-digit below consensus for 2027/28E net income, and this is to an

increasing level. Consensus is currently forecasting 60bps YoY decline in 2027E and 2028E, which

appears optimistic in our view.

Q: Can Swiss Re distribute more to shareholders?

Yes, we think this would be at the expense of excess capital or in an environment that would require

forward earnings to be reduced. Swiss Re essentially opted to right size it's capital at 2025 year end to

the upper end of its target SST ratio (250%). The 75% or so all-in payout ratio leaves this relatively

stable on our forecasts. So in order for the yield to be higher, it would require distribution from excess

capital or lower growth or a benign catastrophe environment. Both the latter would see forward

pricing pressure.

VIEW Swiss Re has fixed a number of overhangs in recent years: debt leverage, catastrophe risk and P&C

reserve additions, and has re-rated as a result. It now finds itself facing a P&C Re softening cycle