Swiss Re Ltd., the world’s second-biggest reinsurer, posted an unexpected quarterly profit after fewer natural catastrophe claims countered a loss on the sale of its U.S. Admin Re unit.
Net income fell 91 percent to $83 million in the three months to June 30, beating the mean estimate for a $73.7 million loss of 17 analysts surveyed by Bloomberg.
Swiss Re profit slumped as the company booked a $1 billion loss in the quarter after agreeing to sell its U.S. Admin Re holding company to Prudential Plc for 398 million pounds ($624 million). While earnings were boosted by fewer losses from natural catastrophes, they were also helped by reserve releases and gains from currency movements and government bond sales.
“If you exclude the one-offs, the underlying profit is not very exciting,” said Daniel Bischof, a Zurich-based analyst with Helvea who has a neutral rating on the stock. “In previous quarters, they were significantly beating expectations.”
Swiss Re fell 1.1 percent to 61.20 francs as of 10:24 a.m. in Zurich trading, paring this year’s gain to 35 percent. The stock is the fourth-best performer this year on the 26-company Bloomberg Europe 500 Insurance Index, which climbed 16 percent.
Net income in property and casualty reinsurance rose 86 percent to $717 million, helped by lower-than-expected natural catastrophe losses, exchange rate gains and the sale of government bonds. Earnings were also supported by reserve releases of $307 million, Swiss Re said.
Europe’s biggest insurers and the reinsurers who help them shoulder risks for clients used last year’s catastrophes to push through higher prices for coverage. Natural disasters caused an estimated $5.48 billion of insured losses for insurers and re-insurers in the second quarter, down from more than $27 billion a year earlier, according to estimates from Aon Benfield, the world’s biggest reinsurance broker.
Larger rival Munich Re said on Aug. 7 that it expects to exceed its full-year profit target after higher investment income helped boost second-quarter net income to 808 million euros ($1 billion).
“We have delivered a profit in the second quarter,” Chief Executive Officer Michel Lies said in the statement. “Given the impact from the sale of the Admin Re U.S. business, this shows the strength and resilience of our underlying earnings power.”
Swiss Re’s combined ratio, a measure of profitability, worsened to 85.7 percent from 81.4 percent a year earlier. A ratio above 100 percent means claims and costs exceed premium income, leaving a loss from underwriting.
Swiss Re said July renewals, when most reinsurers agree on contracts with customers in parts of the U.S. market, Australia and New Zealand, saw rate increases of 3 percent. The portfolio increased by 7 percent.
Swiss Re estimates that premium volumes have climbed by 24 percent, or $2.9 billion, this year.
The reinsurer is targeting an average annual gain in earnings per share of 10 percent until 2015 and a return on equity averaging 700 basis points above the risk-free yield of a five-year U.S. Treasury bond. A basis point is one-hundredth of a percentage point.
Swiss Re started providing a breakdown for reinsurance, corporate solutions and Admin Re unit this year following a restructuring of the company. The property and casualty reinsurance unit targets a return on equity of 10 percent to 15 percent, while the life and health reinsurance business has a target of 7 percent to 9 percent.