SSREF - Swiss Re AG (SSREF) Q4 2022 Earnings Call Transcript

Swiss Re AG (SSREF)

Q4 2022 Results Conference Call

February 17, 2023 7:30 AM ET

Company Participants

Thomas Bohun - Head, IR

Christian Mumenthaler - CEO

John Dacey - CFO

Moses Ojeisekhoba - Reinsurance CEO

Conference Call Participants

Carol Howson - JP Morgan

Andrew Ritchie - Autonomous

Freya Kong - Bank of America

Will Hardcastle - UBS

Vikram Gandhi - Societe Generale

Vinit Malhotra - Mediobanca

Ashik Musaddi - Morgan Stanley

Thomas Fossard - HSBC

Derek Au - RBC

Presentation

Operator

Good morning or good afternoon. Welcome to Swiss Re's Annual Results 2022 Conference Call.

At this time, I would like to turn the conference over to Christian Mumenthaler, Group CEO. Please go ahead, sir.

Christian Mumenthaler

Thank you very much, and good morning, good afternoon, everyone here from me as well. I'm here with John Dacey, our Group CFO; Moss Oiseoba, our Reinsurance CEO; and Thomas Bohun, our Head of Investor Relations, to talk you through the annual results 2022.So let me maybe start with just a few points. '22 was obviously a tough year with a lot of factors that affected our results, like the or Ukraine, inflation, the financial markets, NatCat losses, COVID, et cetera, et cetera. But I think it's important to stress, of course, that Q4 was a good quarter, a clean quarter for all the businesses with a very good combined ratio in P&C Re, and that's while taking some actions on the economic inflation front.

We had good results in Life Re, USD 200 million approximately and hope definitely to -- of the 3 quarters to see the pandemic go behind us. We had CorSo, good performance, 93.1% combined ratio, which is the same for the full year.

So they continue to perform well. And then we saw increased improvements on the investment front with higher reinvestment yields -- and all of that leads us to believe that next year, overall, the recurring investment yield should lead to about USD 400-plus million compared to this year -- to 2022.And then we had a strong capitalization, which supports a dividend of USD 6.4. As you know, we switched to U.S. dollars because it's our currency in which we report, and it's also underlying from an economic perspective, a currency that is very important for Swiss Re in contrast to Swiss Francs. So while they had a successful start into the new year, you have seen the renewals, the renewals data. We're personally very excited about that. We think we have a very good renewal.

We're happy about the results. But I also need to stress that it was needed. It was needed for the reinsurance industry. The industry -- the price increase in the industry have historically lagged behind what we could see in the primary insurance space and the corporate solutions space. So it was really needed, and you could also see last year '22, the underlying combined ratio actually deteriorated because of the high inflationary pressure. So it was needed appropriate, but we're still very happy of how we could navigate the situation, get through some volume growth, a very high price increases of 18%, of course, eaten up partially by inflation and model updates of 13%.So a net 5% improvement, which should translate into an improvement of the combined ratio of the underwriting year of about 3 points.

We were also proud that we had actually investors coming in. And towards the end of the year, they saw the underwriting performance as good and wanted to participate. So we're also able to increase our sidecar funds to almost $3 billion. And the reason I mentioned that is because of the trust is an important sign to us and our underwriting that we've got these investors coming in. Now in terms of all of that makes us optimistic in terms of the targets and where we want to go. We didn't change the multiyear targets, so the versus 14% group ROE, which is on a normalized equity basis.

And of course, we will have to translate that into an IFRS ROE and we intend to do that at the Investor Day. -- at the end of December of this year. And there's no change to the message that the IFRS equivalent should benefit from higher earnings on the Life & Health side, while shareholder equity also expected to be significantly higher than where it is now in U.S. GAAP. Then when it comes to '23, P&C moved to a reported combined ratio target. So we feel the quality of the portfolio we have now and everything else, we feel comfortable to do that.

So the target is less than 95%. The starting point, of course, is impacted by the inflation. So we think something like 96% is probably the starting point. And then you take into account the renewal we had so far, the 3-point improvement on the underwriting basis, which gets earned through, of course, through 2 years, and that gets a sense of how we got to the 95% less than USD 95 million.

On the Life Neal reside, we increased the target from USD 300 million to USD 900 million. There's still a bit of COVID in that, assuming as we could see in the last 3 quarters, but much more subdued. And also we -- as we have communicated previously, see less of a drag or expect less of a drag from the pre-2004 business in the U.S.

So this explains this number. And in case we improved 1 point of the target ratio compared to last year to less than 94%.And I think it's important not to forget that there's also inflationary pressures around us, including in the U.S., as evidenced in the results -- the Q4 results of other primary companies. And although reinsurance got more expensive, fortunately. But of course, this has an impact on the expectations for the combined ratio of course. And then all of that, of course, leads to this target of more than USD 3 billion of net income. We used to have an ROE target, but we felt and there were concerns in this community, what an R target means in last gap in this rate environment with rapidly increasing rates.

And so we -- for this year, switched to a net income guidance, so to say. And then next year, we intend to go back to ROE since the IFRS equity is much more stable than the GAAP on. So clearly, I think a very different and more optimistic place we start from this year compared to 2022, but we also stay vigilant and focused on all the risks we see around us.

And I think with that, I hand over to Thomas for Q&A.

Thomas Bohun

Thank you, Christian. Before we start, if I could just remind you to limit yourself to 2 questions and then should we have follow-up questions, please rejoin the queue.

With that, operator, could we have the first question, please?

Question-and-Answer Session

Operator

The first question comes from the line of Carol Howson with JPMorgan.

Carol Howson

Two questions for me. The one is on the combined ratio target in P&C Re, where you've moved to this reported basis rather than a normalized basis. Just in that change, is this a song you've got more confidence overall in delivery or rechange the way that you're doing things. I just think about kind of cars when you move from having a normalized ratio to a reported ratio suddenly it felt a little bit more robust. And there I say there's probably few opportunities to give excuses for lighting the target. So just interested in the thinking around where you've moved from normalize to reported in P&C Re. The second question is on the economic uplift to profitability from the 1st of January renewals, which I think you said was USD 0.8 billion.

It's around half of the book. What do you expect for the remainder of the year to bring in terms of market conditions? Should we expect something similar? Or is it just a little bit too early to tell?

Christian Mumenthaler

Yes, I'll take the first one, Cameron. So I think you're right. Part of it is a cultural thing. We want to just to make sure externally and internally that we have the confidence and that we want to see the reported figure, as we did in quarter. I think that's healthy. It also means people have to really think through the volatility around this number.

What helps it, of course, CorSo can buy a lot of reinsurance, which they did, and they can protect some of that this way. It's a bit harder for reinsurance. But the fact that we increased the attachment points and a lot of programs, I think, on average about 50% means that we move a little bit away from this frequency losses that hit us again and again in the last few years. So of course, we're still exposed to significant losses. But this combined with the price increases, just gives you more room to maneuver and that period that we felt this is a transition we should do now, and it's indeed the combination of all of these factors. But there's definitely a signaling element to that. And it's also more market practice. So I think that's probably the answer then Mosses maybe on the rest of the year.

Moses Ojeisekhoba

Yes. I mean for the rest of the year, the factors driving what ship generally first renewals remain for the rest of the year, which is the need for attachment points to move up any need for rates to move to match up with the risk that's been taken. Clearly, this looks different, depending on which part of the region you happen to be in keeping in mind that January 1st was dominated by Europe. And as you get into April 1 with Japan, you get into the latter part of the year in the U.S. But the underlying this is similar, the rate changes will be slightly different depending on the market and the move towards attachment point. They have different starting points. But the underlying message across the rest of the year is simply the same thing. [Indiscernible] needs move rates also need to move off to match up with the risk we are taking.

Operator

The next question comes from the line of Andrew Ritchie with Autonomous.

Andrew Ritchie

Could you just walk through why the NAT cat budget assumption for P&C really as we kept the same I think the moving parts are underlying exposure in terms of limit deploys actually went down slightly, although it may change the rest of the year. There is some underlying inflation, but the attachment points have shifted it as well. But I don't know if you could give us some sense as to the robustness of why the 1.9% doesn't change year-on-year, even allowing for the better underwriting such as attachment points. The second question, just to clarify, some of the true-ups or adjustments in the liability lines, you talk about reflecting higher wages and medical expense inflation -- do I assume that that's a true-up to the state we're in at this point? Or should there be further wage and FedEx inflation? Is there a further adjustment -- would there be a further adjustment required, particularly in the current year profitability. Maybe just clarify that.

Christian Mumenthaler

Okay. Andrew, I'll take the first point around the NatCat budget and why it hasn't shipped it. Stepping point always is the portfolio that's up for renewal. And then we make adjustments driven by a combination of the retro placements that we have together with the view of the losses under the threshold of USD 20 million. And then a couple of other adjustments. And here, I think we've been prudent by saying the up-for-renewal portfolio, we expect some growth in exposure in that for renewal portfolio, which we factor into the NatCat budget, and that's why we feel comfortable that it's better we stick with the $1.9 billion same as we had last year.

Moses Ojeisekhoba

With respect to the liability Andrew, I think there was a chart that Christian spoke to in the deck, which showed over the previous years, how much we've actually added to reserves and liability year-on-year. And that's been a decrease in positioning, but we did the inflation in 2022, in particular, although we started in 2021 with IBNRs. And our view is that we've closed this year with a very strong reserve positions for inflation broadly, including for Wage Medical and other dimensions, which might affect some of the longer tail lines, with an expectation of continued elevated inflation in 2023, returning down to some more normal levels in 2024.So we don't necessarily expect to start to have to do a lot more here.

Obviously, the reality of what we face in the future here is inflation will have some influence over where we are potentially positively or negatively. But our view is we're well positioned. And it actually goes back to part of the answer to the Cameron question. By reporting -- using a reported combined ratio not a normalized -- this is going to include any prior year development that might be necessary. And the fact that we're comfortable saying less than 95%, I think, correctly reflects that we believe that we've got the right starting point, not just for year-end 2022 but for the expected inflation that's coming out of us.

Christian Mumenthaler

If I could add maybe on the NatCat just because I remember you asked a similar question, I think last year, Andrew, this is very much a bottom-up number. So it's hard to decompose it into some of the easy factors. This is basically the whole portfolio once at the end of the year with all the expected losses and everything adding up to USD 1.9 billion in terms of overall loss. So it will be, of course, the combination of shifting layers up, writing some more business, including the inflation, the change in models, all of that, but we don't have a decomposition right of that. And also the frequency profile changes a little bit. So you would have less exposure in higher frequency and more in the rest. So -- but I think it's an interesting idea.

We maybe look at that internally, but we don't have that big composition. And -- on the inflation side, just -- I mean, just I hope it was very clear. Of course, we -- so our actuaries and our economies make a prediction of where the inflation will be in all these different inflation indicators and lines over the next 2 years, and then you bring that back into the reserves. If of course, next year, there was a totally different assessment both ways. I mean, certainly, if it was much higher, you would, of course, have to add reserves. So it's just -- I think we just feel comfortable with the parameters we have taken and what we have chosen.

But this is an analysis that is done once or twice a year by the actuaries based on the forward-looking curves of all of these inflations.

Operator

The next question comes from the line of Freya Kong with Bank of America.

Freya Kong

Just following up on Ken's question on moving to the reported target. This seems to now give you more credit for reserve releases, which have been historically more of a drag than a benefit. Can we interpret this as you are now building in more confidence and prudence into reserving, hopefully, to generate some positive PYD in outer years? And just following up on the cat budget question as well. I'm still not clear on the moving parts.

I know it's a bottom-up view, but if you're growing, you've got inflation, you're growing exposure -- why hasn't that increased as well?

Christian Mumenthaler

So a, maybe I'll come back. I think it's premature to expect that we would be planning material reserve releases into the P&C re numbers in the coming quarters. But I do think it does reflect the confidence we have that the reserves we start the year with are in very good shape. And now we'll release our triangles in March with our EBM numbers, but you will be able to come to your own judgments. But we're obviously $1.1 billion stronger than we had been before these inflation IBNRs were put into place.

And the other thing I would say is on the CorSo side, not the point of your question, we've had some positive reserve sees come through the P&L for the last 2 years. A lot of that in 2021, in particular, was related to a lower frequency driven by some of the lockdowns around COVID. We're back to a more normal position in 2022. And again, with CorSo, we're very confident about the overall positions of the reserves, but we're not counting on releases to get us to the better than 94 million.

Moses Ojeisekhoba

Like I said, maybe I mean we didn't grow exposure. Our estimate is that exposure is flat to actually slightly down. So the 20-plus percent growth is pure price --

Christian Mumenthaler

It's pure rate. I mean -- and maybe just on the moving parts, as you mentioned, I mean even though we moved the exposure away from the frequency layers, I think you have to look at the countering factors there around a prudent view on inflation as well as the view we now have on the loss model as well. If you take those 2 things, they actually end up countering for the growth we are showing in 1/1, clearly, as we move throughout the course of the year, if the growth trajectory is any different, you may also have a bit of an impact on the budget itself, but for the growth we have right now, we feel the prudent number to put out is the USD 1.9 billion.

Operator

Next question comes from the line of Will Hardcastle with UBS.

Will Hardcastle

I'm afraid part of my question is quite numbers-based now. We're not getting that financial review pack. So on the reserve development, can you separate the Q4 reserve by line of business. So just a Q4 part between motor property and liability that would be growth. And just on the flat premium Americas, it's really helpful comes as on the exposure discussion you've just done there, overall. Can you maybe get some color specifically on the Americas because we've got flat premium here. I'm wondering if there's exposure reduction or it's just where you're operating has resulted in same exposure, better price for black premium? That would be helpful.

Christian Mumenthaler

Yes. Well, before -- John, and we'll just answer your question. So we will obviously publish all these details on March 16. We will also get the reserve triangle so you will have all those details. We just decided not to publish the financial review as announced in Q3 in order not to have too many documents out there. And also as we're focused on the transition to IFRS to make sure that we are focusing on the right things this year. But I hand over to John and Moses.

Moses Ojeisekhoba

Yes. So maybe on the reserve movements on Q4 for P&C Re, again, for the quarter, we had a positive -- approximately $20 million related to the inflation numbers that we put up the casualty was roughly minus 300, property plus 200 and -- plus 20 specialty plus $100 million gives you a sense of where that was within the casualty, some of it was motor, but a good chunk of it was some other casualty lines that were reflecting with longer tails on the wage and medical inflation in particular.

John Dacey

And with regard to the flat premiums in the Americas, I mean, 2 main factors. We moved fairly aggressively the retention upwards. And clearly, in the lower part of program, you have more premiums loaded into that space. So once you move further up, clearly, you lose some of that premium.The second factor is we're also in the casual multipart of our portfolio, we continue to reduce our exposure to the large corporate risks as well. So these are the 2 main reasons why the Americas premiums are flat.

Operator

The next question comes from the line of Vikram Gandhi with Societe Generale.

Vikram Gandhi

Just a couple of quick ones from my side. Can you remind us on the latest position on COVID reserves? Has the group released any of it was the latest IBNR and the latest IBNR on Russia Juan reserves as well. So that's question one. And secondly, is there any change to CorSo reinsurance structure? I think the net retentions were down to USD 200 million and $35 million, respectively, for NatCat and manmade losses, the last time we saw that. So those are my questions.

Christian Mumenthaler

Vikram, on the COVID, we actually were able to settle some of the outstanding positions with some of our larger clients and bring down the IBNRs. They're still material, about 30% of the overall positions for P&C Re, but we expect most of this to be cleaned up during the course of 2023. There's some regulatory/legal positions in both Australia and the U.K., which are resolving themselves. And once those are clear, I think the primary companies and Swiss free or the reinsurers more broadly, we'll be able to lay on this one. So it's still mature.

With respect to Russia, we did do some modest increase in positions in Q4, both for P&C Re and for CorSo. There's about 330 million total setup. The vast majority of this is IBNRs. There are relatively few paid claims related to this. And again, as it was the pace from the first quarter, but continued through the year-to-date, most of those IBNR reserves are related to the aviation lines for Swiss REIT.

Or maybe more precisely, the largest single position is related to Aviation. And the second question was -- of course, Reinsurance program. Of course, we paid more for reinsurance. But the details I don't think we're planning to deliver. They've got the combined ratio that they've target that they need to hit. I would say that what they're paying is market rate, mostly to Swiss Re, but not exclusively.

Operator

The next question comes from the line of Vinit Malhotra with Mediobanca.

Vinit Malhotra

So just my first question is on Slide 16, the renewal side. And I'm just curious that, I mean, motor inflation motor is a topic, so it's not Slide 16, apologies. But the renewal data, Slide 13. The motor inflation -- I mean, too insurance inflation is a very much in focus we say. And I'm a bit surprised that in casualty, we see quite a turkey increase here almost equal to the nat cat increase in dollars in premiums in the renewals.

And you mentioned here increase in Asia motor. Can you just comment a little bit? I'm just curious maybe you see the trends are different there or better there than in Europe, presumably. So just a quick comment on that, please. Second thing is just on the Slide 16. I mean, I am a bit surprised that we earn to the business you have assumed it seems at least optically not very high.

I mean is it because you expect a bit longer and 2 of that 3%? Or is it just the slide isn't labeled and that's why we are seeing that kind of effect --

Christian Mumenthaler

Okay. I'll take the first question around the growth in casualty. Motor forms a part of it but the largest part of our growth in casualty comes from structured contracts and structured deals, which have protections around them. And the second piece that I think is important to keep in mind on the casualty with the longer duration for the reserves that you hold from an economic standpoint with interest rates rising, these deals that were costing actually very attractive for us. That's why we were willing to grow that.

John Dacey

Maybe on Page 16. So it, of course, this is not pure mathematics. You have a starting point, which here is at 96.9%, but that includes Ukraine. So it's a question, is it out or do you expect anything else? And then there's this earn through.

And the business written in '23, I think we're right in a different place that we -- the portfolio written now, we expect a 3 point improvement in combined ratio, but only, let's say, half of that gets earned through in the first year, but it's the short tail lines. So it's not exactly half of that, but the first year should be 1.5 to 2 points improvement that this contributes to. And then this earn-throf what we wrote last year, which, of course, had to be reviewed because of inflation. So this was also subject to these APLRs, plus cost discipline. So technically, I think it's correct, it's less than 95 million, but it's not -- 95% is not a mathematical outcome.

Operator

The next question comes from the line of Ashik Musaddi with Morgan Stanley.

Ashik Musaddi

Yes. Just a couple of questions. So first of all, with respect to your capital position, I mean you printed even a higher SST ratio now to 80%, and that is certainly helping you to pay the dividend. But how do you see the dividend outlook going forward, especially in light of, I mean, continuing, improving economic earnings? Because, I mean, even now you mentioned that the renewals that you are seeing is leading to $800 million of higher economic -- sorry, higher economic earnings. So how do we think about that? That's the first question. And secondly, if I look at your guidance for full year $3 billion net profit, I mean, with the improvement that you are suggesting with respect to combined ratio and the new business you have written this year, should this $3 billion be more? Or is there something we are missing that this is just a conservative number or you're expecting some headwind some there. So yes, these are kind of 2 questions, I would say.

Christian Mumenthaler

So Ashik, on the first one, yes, the January 1 SST number, we expect to be above 280%. That's flattered a little bit by a very low risk position on assets that we had at the end of the year, purposely, a series of hedges on higher risk assets, which we may determine during the course of this year to remove. So I think the starting point should not be overinterpreted. -- there's reasons that both the jump in interest rates during 2022 and the relatively low risk position on our asset side, which made this number big. We're comfortable operating at a relatively high level, given the macroeconomic uncertainties, geopolitical risks that surround us.

And on top of that, I think what we showed on January 1 is the ability to write profitable -- very profitable actually new business. And so this capital will also be a source of supporting the growth opportunities for the rest of the year. So that's where we are -- on the dividends doing overstate, but the economic earnings, which will display in March also are going to be affected by a lot of the things that affected our GAAP earnings. And so maintaining the dividend at around CHF 590 for this year was important for us. I think as we deliver against the targets we've put out for 2023, we can evaluate the dividend policy to be paid in 2024. But for now, I think we're comfortable maintaining the stability of the dividend for this current year and let's have a different discussion 12 months from now when we've got these earnings actually delivered.

For the target, the $3 billion -- we do think that there are positives that should help us get there. And whether it's on the investment income or what we expect to be a much better performance in the P&C Re business in the course of this year. But again, we've taken off the guardrails of normalization. So in that number, we need to absorb big shocks that might come from our NatCat portfolio. We've got $1.9 billion to absorb it, but other places.

And I think we're more protected today than we were on the asset side, but there could also be during the course of the year, some challenges there. So I think we're comfortable saying we believe we've got the levers to deliver $3 billion if we deliver more than that, which is implied by the sign in front of it, that will be a good answer for all of us, and we'll give you an update quarter-by-quarter and how we're doing.

Operator

The next question comes from the line of Thomas Fossard with HSBC.

Thomas Fossard

The first question will be related to CorSo. Could you maybe elaborate a bit more about what kind of pricing environment you're seeing into 2023? How does it compare to loss cost inflation? And in this context, what -- or how should we expect CorSo to grow or not grow in terms of premium income in 2023. The second question will be maybe more for Christian.

Christian, you just announced recently significant restructuring or a change in corporate structure of the group. Maybe you can drive us through the benefits you intend to extract of it. And maybe this was not the intention initially of the legal restructuring, but maybe there are some cost savings associated to this one. So maybe if you could say well to about this.

Christian Mumenthaler

Okay, Thomas, I'll take both of them. So course, obviously, being part of the rat corporate insurance part of the value chain has experienced huge price increases since the low point, as you know. So they are very large cumulative. And then lastly, we saw a decline in the increases. So still increases, but much lower one. So we had several years of double-digit last year was more like 3% or so on our portfolio.

And so in view of the results also that were published by a lot of corporate solutions players, you can definitely assume that pressure is on. I think what helps the corporate insurance market is the inflation indeed, that is coming through, and you see it in the numbers of the corporate insurance player. So this is a negative, but it keeps rates up. And the other one is reinsurance prices now becoming bigger. So to a certain extent, you could say this is good because it keeps the discipline.

And so while we don't see big increases, we're also not seeing decreases. I have to qualify that. There are some line of business where, unfortunately, there is some decreases. And of course, as full licenses to cut wherever again, we will not depend on premium volumes. But overall, the -- I would say the environment is still a very constructive environment for Cogeco and conducive to growth, but at a flattish level.

And that's just for CorSo. Remember that we're not in U.S. casualty or the lines, which maybe show bigger growth. So don't compare us to others. But in terms of our portfolio, we see a flattish-to-slightly positive pricing environment, net pricing environment.

On the reorganization, I mean, you have coverage for a long time. You probably remember when in 2012, we created the current structure, which is a bit unusual, but there was a corset was Admin Re. There were several businesses, and the idea was to have a flexible structure where we could have potentially investors and some of them grow some of them, et cetera. But of course, really has been sold. And so the structure as it is now is heavy for what we -- what it has to cover.

And it's probably -- we felt one layer too much for what is needed. So we -- of course, there was a strong sense internally that we want to simplify that and fit into a structure that would lead us for the next 5 to 10 years. I mean, I'm a strong believer that every -- at least every 10 years, you need to change some of these structures just for -- to keep the company fit. And so -- but in this case, we came to a conclusion we can take out about a layer. We can or should empower some of these market units that we have.

we're not changing them that much, but they basically are one level closer to me. So it's 3 layers, it's 2 layers. And this was only possible by splitting reinsurance into 2 entities. So this is more towards the top, it becomes leaner and some decision power for some of the decisions, the easier ones going to the front. And that's all based on the analysis.

I mean, we already have looked at all the successes and mistakes of the last 10 years. And what works, what not, which type of controls are necessary for good underwriting and what is not necessary. And so this sort of embodied the complex transactions will still be priced by the central function in these 2 units, while a lot of the smaller business, which is much less dangerous will be more delegated down to these market units, and that should make them quicker and more client-centric. We expect some cost savings, obviously, from that, but it's not a cost-saving program. If you -- a cost saving program when you start with a number and then you allocate it everywhere.

Here, we start with making the organization more nimble. And then we will, as we go through that add up all the consequences we see on the cost side and communicate that, I guess, by Q1 or so, give you an update on where we are. But we see this as basically contributing to ambition to keep the costs flat and grow the top line. I think I showed the slide in the Investor Day last year that over 10 years, which we had grown the top line by 6% and the cost line by 1%. So this basically improves the competitive position.

Of course, the competition is also improving that. And so this is something we have to do and need to do to become more nimble and more efficient, have a higher productivity as we go forward. So this exercise will contribute to this impatient, which is a high ambition in this high inflationary environment, obviously. So I hope this gives you a bit of a sense. And so yes, definitely, there's going to be some contribution from that to this ambition.

Operator

The next question comes from the line of Derek Au with RBC.

Derek Au

Two questions, please. The first one is on the loss model updates. Can you say what kinds of risks were the updates for? And if it's possible to split the 30% between inflation and the model updates? And my second question is just going back to the SST. Did the loss assumption changes impact SST at all? And can you say what amount of premium growth for capital usage for 2023, you pursue within this 280%, please?

John Dacey

So I'll take the first one on the loss model update. In terms of the split between inflation and loss model of it, it's roughly 2/3, 1/3 is a split, so inflation about 2/3 of the 13% and 1/3 on the loss model update. And the loss model update really is driven across most lines of business. So not just property, we also have a model of casualty and also in specialty and they reflect just a view of risk in terms of -- from the standpoint of both severity as well as frequency. So if you take an event like the Hiltons in France, which sort like you ended up with losses that have a return period that were much longer than we expected.

So we go into the models we make adjustments to reflect that same exactly for a lot of the secondary perils, floods, things of that sort. And also on the casualty side, you take the same exact view for frequency of events from a motor standpoint. So all of those we load into our loss models, and that's the driver of the loss model updates.

Christian Mumenthaler

And maybe, Daryl, on the SST, again, this is a preliminary indication that we were providing these sort of above $280. We'll actually give you the precise number on March 16 when we come out with the economic report. And there, you'll see. But just to partially answer your question. These estimates include what we believe based on our plans and trued up for January 1, the exposures the risk exposures that we expect to have in the next 12 months from January 1.

And so in some ways, it's indicating if we grow faster or take some additional liability risks that would affect the measure. And as I mentioned before, if we reduce some of the hedges and take additional asset risk, that will also affect the number.

Operator

The next question is a follow-up from is Freya Kong with Bank of America.

Freya Kong

On the positive development you saw in Property and Specialty lines, could we get more color on this and how much of this was covered provisions being released? And secondly, could we get an update on your exposure to the earthquakes in Turkey and Syria.

Christian Mumenthaler

Yes. I can take both of them. On the releases, I don't think we're providing sort of the very specific details of where it comes from. The -- as I said, the major reduction of IBNRs for the COVID was related to actual settlement with our major clients along the way. So that's an important piece.

On Turkey, unfortunately the reality is the economic losses and the human strategy of this event is huge. At this point of time, the insured losses seem to be an unusually small fraction compared to other natural catastrophes. For Swiss Re itself, we are in contact with both government agencies, including the people that organized a pool in Turkey for earthquake risks, but also our primary companies were not able to quantify our specific losses yet will be coming out, obviously, in Q1, if we can provide more update in our March release, we will.

Operator

We have a follow-up coming from Mr. Hardcastle with UBS.

Will Hardcastle

Two quick ones. Can you give the NatCat price increase stand-alone annual possible? And the second one, you mentioned a more cautious approach to cyber in January. I guess just a bit more color on what's driving the more cautious approach.

John Dacey

Okay. I'll take the pricing, increase on. I mean, well, I think we cannot give you an exact number. I think suffice to say, for the nonproportional part of NatCat covers that renewed, the increases were quite substantial. I referenced the broker reports. I think there's a bunch of reports out there that gives you a bit of a sense of how the overall market did.

Christian Mumenthaler

I think on cyber, obviously, we had a portfolio, I think, about EUR 500 million. The price increases were significant, about 50%, but we ended up at USD 600 million. So both is true. We had growth in premium and we cut exposure and cyber -- it's really the environment you see. One thing is what -- the kind of events you saw in the past, but this is an event of, I think, a heightened risk when you think about the geopolitical tensions that are existing. And so we have obviously the accumulation potential in cyber, which has been one of my worries and needs to be controlled. And so we cannot grow without limit on this, and we took a cautious stance at this point in time.

Operator

The next question is the follow-up from Mr. Gandhi with Societe Generale.

Vikram Gandhi

Just one last for me. Can we get a sense of the expected level of NatCat premiums given that the budget is constant Y-o-Y --

John Dacey

Yes. So thank you for that. We will provide that update sometime in midyear because it's so dependent on the upcoming renewals. We started with a portfolio of about USD 4.2 billion to USD 4.3 billion. So if you take the volume growth at January, that gives you a good sense that we are now at 4.5% or above that, and we'll provide an update after April and July, which will then be comparable to the USD 1.9 billion budget as well --

Operator

Next question comes from the line of Evan Buckman with Barclays.

Q –Unidentified Analyst

My questions are related to alternative capital partners, but also your view on the cycle. Thank you for the help detail in the presentation. I was just wondering, how do you assess the pipeline, the undeployed capital that you think may be waiting to come to the market. And with that, perhaps you could express another view of how you think the cycle will play out the current hard market reinsurance?

Christian Mumenthaler

Sure. So the -- we were successful in bringing additional capital into our sidecar as we've indicated. And I think part of that is because a very strong alignment of interest that we've got between our own positions and the people that come and invest with us. The market conditions are supportive for that. But I also think in the last 5 years, enough people have been burned by losses coming, frankly, from some vectors, which they didn't expect, whether it's P&C losses related to the pandemic, the secondary apparel is loading up a series of losses on people that were in retro programs. Clearly, reaching back even to 2017 with 3 major hurricanes, named apparels, also affecting not just the cap on side, but almost everybody's retro programs.

And in that context, with Hurricane -- and I think there are people that were not really committed to this space that have decided to step out. And we don't think they're necessarily flowing back in anytime soon until the concerns around climate change impacts on that are better addressed. I think Swiss Re is addressing them, and I think that's why we're able to get the funds coming in. My own sense is the supply of capacity will through 2023, continue to be limited. And so the market conditions that we saw on January 1 will be maintained for the April, June, July renewals. It's probably premature to try to project into 2024 already.

But the -- what's clearly emerging is there's a series of professional investors that are willing to work with people that have a shared risk profile, and there's a group of people that feel that they've been somehow taken advantage of whether that's true or not and are probably not going to return anytime soon.

Operator

The next question is the follow-up from Mr. Fossard with HSBC.

Thomas Fossard

Yes. Just wanted to check with you if you could provide an update on the loss or claims environment since the start of the year, I would say, it went so far if you want to flag anything that we should have in mind? And then the second question will be related to the target of 14% return on equity. I fully understand that actually you don't need to change this target at the present time. But I was trying to compare the implied net income of the 14% return on equity compared to your above USD 3 billion for 2023 and looks to me that the 14% has been set in very different environment, both for underwriting profitability and investment income. So maybe you can help us to reconcile the 2 KPIs.

Christian Mumenthaler

Sure. So if I understand your first question, you're asking about the current quarter.

Thomas Fossard

Yes -- quarter so far into the year, yes.

John Dacey

Yes. So I think it's premature we're exactly halfway through to start talking about the current quarter, beneath.in general, we'll -- we think the renewal has given us a good start to the year. We think the investment side has also been supportive quarter-to-date, maybe that's as far as I'll go.

Christian Mumenthaler

With respect to the 14%, you're exactly right. We came out with a midterm target. A year ago, when our shareholders' equity was in a very different place. And when we gave a target for last year, which obviously we didn't achieve of a 10% return on equity. The nearly $10 billion swing in our fixed income portfolio due to the unrealized losses on the investment changes or interest rate changes have adapted that.

What I think is -- we left is on the page because it's directionally where we would want to be with a normal shareholders' equity, if you will. And so we will update this in December when we give you a clear indication of where we think we're landing on IFRS. What we said in the past is our IFRS starting point on shareholders' equity, we expect to be materially above where we currently are with U.S. GAAP -- and that will be one big change between the 2 accounting standards. The other big changes.

We expect the earnings coming from our Life and Health business to be materially above where they are unused Scott because of a different profit recognition envelope. And so we'll give you details later in the year on both of those. But I think the way to think about the 14% is a sustainable return on equity on a more normal equity base rather than the shareholders' equity we're currently reporting, which inched up a bit here at year-end to 12.7%. But yes, you're right, if you take the $3 billion on the current shareholders' equity, you get to an ROE of above 20%.

Operator

We have a follow-up from Mr. Malhotra with Mediobanca.

Vinit Malhotra

Just on the organizational chart, Christian. So also, if I can ask, there was a high profile moving out of -- in demand -- top management and the CEO? And would you -- should we expect some changes to how we perceives NatCat or secondary perils -- or would you rather say no changes business as you go? And this is just it. So just wanted to hear that.

Christian Mumenthaler

Just to be clear, no changes. I mean we are very close to the risk underwriting is the core of who we are and of our future success. There has been some mistakes made in the past. There's some -- also some successes, obviously. We all learned the lessons. And so we are totally focused to keep underwriting as strong as it is now. I mean, underwriting is not just one person, obviously. It's a whole huge organization, and I'll be happy to introduce you to our new Chief Underwriting Officer when the next opportunity shows. So no change.

Thomas Bohun

Thank you, Vinit. Do we have any more questions?

Operator

There are no more questions at this time.

Thomas Bohun

Thank you for all the questions asked for your interest. I'd just like to remind you that we will release our annual report on March 16. We then have our management dialogues on March 17 at our offices at Swiss Re London. So we hope to see many of you there. With that, thanks again for attending the call, and we wish you a nice weekend. Thank you all --

Operator

Thank you for your participation, ladies and gentlemen. You may now disconnect.

For further details see:

Swiss Re AG (SSREF) Q4 2022 Earnings Call Transcript