Sergio Ermotti won’t get an effusive public goodbye from UBS. After a decade of untangling the Swiss wealth manager’s scandals, nearly as knotty a challenge looms in his new job.
When the long-standing UBS boss faces shareholders for the last time on Wednesday – he won’t. Like most companies, the Swiss bank is conducting an online-only annual meeting, robbing CEO Sergio Ermotti a deserved look back at his nine-year tenure at UBS.
Much has been written about his legacy at UBS – partly because Ermotti had made it clear he considered it a point of honor to leave the Swiss giant unfettered of the ugly scandals that marred its reputation for years (at least one big one remains, as finews.com wrote on Monday).
At his next professional station, more storms await him: two weeks ago, 95.1 percent of Swiss Re shareholders elected him to the reinsurer’s board. Next April he is poised to take on the mantle of chairman from Walter Kielholz, who retires at 70.
Big Hits and Wider Woes
The coronavirus outbreak, as well as ensuing economic shocks, will hit profitability and capital at reinsurers like Swiss Re, analysts from ratings agency Moody’s said recently. Reinsurers sell the cover that insurance companies buy to protect themselves from high payouts.
«Although global reinsurers entered the year with solid capital levels, investment volatility, losses primarily from pandemic exposure and specialty property and casualty lines as well as potential adverse reserve development in US casualty lines will weaken future results, even as pricing remains favorable,» the Moody's team led by analyst Siddhartha Ghosh said.
The pandemic is being pegged as the insurance industry's biggest-ever loss event. Big events like Tokyo’s Olympics, where Swiss Re said last month it is exposed for $250 million, are also a major problem for reinsurers.
Crisis Uncertainty
But a crisis such as COVID-19 affects all reinsurance business sectors – property and casualty, life, and health cover. «At this point in time, at least we assess it as being absolutely manageable,» Kielholz told shareholders (virtually) two weeks ago.
«Our business remains resilient. We have always managed our capital, with prudence, and we continue to do so now,» Kielholz said. Like UBS, Swiss Re abandoned a share buyback in favor of stowing its capital for tougher times.
The uncertainty at Swiss Re represents another chance for Ermotti to test his mettle as a crisis manager: he faced down a series of homemade scandals at UBS, including rigging benchmark interest rates as well as foreign exchange and precious metals markets and various tax wrong-doing. At the reinsurer, he faces a more uncertain challenge – in that the scope of the pandemic is thus far unknown.
Understudy to Chairman
Ermotti is an investment banker by trade, not a math or actuarial whiz. He has twelve months to be an understudy to Kielholz, an insurance veteran who frequently crisscrossed into banking (he chaired Credit Suisse for six years, including during the financial crisis of 2008/09).
For big events like the Olympics, much depends on whether they are postponed or ultimately canceled. The Tokyo games, set for July, were already pushed back to 2021 but may be buried altogether, their organizer signaled on Tuesday.
For the world’s second-largest reinsurer after Munich Re, success at renewals is key. Renewals gauge pricing, contract terms, and other indicators for future business.
Relishing Challenge
The wider industry’s January season was favorable, and the trend is expected to have continued this month. Swiss Re reports the first quarter – including comments on the latest renewal season – on Thursday.
Cancellations like Tokyo would mean another blow on claims. Swiss Re also faces some losses from credit insurance, surety, and business interruption – where policies trigger without physical damage to insured properties.
Ermotti, who turns 60 in two weeks, clearly relishes a challenge: he told UBS staff that his nine years at the helm had «not always an easy journey, but thanks to all of you and many of our former colleagues, our firm is in great shape today.» His next challenge is already waiting for him.
