Swiss Re to Trim Costs and Buy Bank Debt to Lift Profitability

Swiss Re Ltd. (SREN), the world’s second-biggest reinsurer, plans to reduce costs and repurchase debt as it seeks to boost profitability and increase its dividend.

Swiss Re expects costs savings of as much as $300 million by 2015, which will be redeployed to areas offering “attractive financial returns,” the company said in a statement before a meeting with investors in Zurich today. The firm plans to cut leverage by more than $4 billion by 2016 and said a subsidiary is offering to repurchase three tranches of senior debt.

The reinsurer, which is targeting an average annual increase in earnings per share of 10 percent until 2015, reiterated its intention to address lagging profitability in the traditional life business, which is under pressure amid low interest rates and subdued demand.

“Our strategy has produced excellent results and we continue to focus on performance and growth,” Chief Executive Officer Michel Lies said in the statement. “Our top priority is delivering on the financial targets set for 2011-2015.”

Swiss Re aims to improve the performance of its individual U.S. life portfolio written before 2004, which isn’t meeting its original profitability expectations, the company said. Swiss Re expects the life and health unit to generate return on equity of between 10 percent and 12 percent by 2015.

Swiss Re said “near-term management actions to improve profitability” will temporarily reduce life & health reinsurance earnings next year by about $500 million before tax. The company wants to improve margins by expanding in areas such as longevity reinsurance after net income in life & health reinsurance more than halved last year.

The company said it wants to increase the dividend. Earlier this year, the company paid out a special dividend of 4 Swiss francs a share, and boosted the ordinary dividend to 3.50 francs from 3 francs, exceeding estimates.

Swiss Re, which said earlier it may buy a further $5 billion of corporate debt this year, confirmed it will continue to move towards high-quality corporate debt and a reduction in government bonds.

To contact the reporter on this story: Carolyn Bandel in Zurich at cbandel@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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