Swiss Re Ltd., the world’s second-biggest reinsurer, said it may consider paying a special dividend after third-quarter profit beat analyst expectations following smaller losses from natural disasters.
Swiss Re climbed the most almost five months in Zurich trading after net income rose 62 percent to $2.18 billion from a year earlier. That beat the $1.35 billion average estimate of 16 analysts surveyed by Bloomberg.
Lower natural catastrophe claims increased third-quarter profit, which was also boosted by a $626 million gain from the sale of its U.S. Admin Re business to Prudential Plc. Chief Financial Officer George Quinn said Swiss Re may consider paying a special dividend should the reinsurer be unable to find ways of deploying excess capital that meet its return expectations.
“The result, being ahead in all units, beats all expectations,” said Stefan Schuermann, a Zurich-based analyst with Vontobel Holding AG who has a buy rating on the shares. “Hinting for the first time that they might use some of the excess capital for a potential special dividend is also good.”
Swiss Re increased as much as 3.3 percent, the biggest intraday gain since June 19, and was up 2.5 percent to 67.55 francs at 9:51 a.m. in Zurich. The stock has advanced 41 percent this year compared with the 35 percent gain at larger rival Munich Re.
Swiss Re said in the first nine months of the year, it was ahead of targets for a return on equity averaging 700 basis points above the risk-free yield of a five-year U.S. Treasury bond and annual earnings per share growth of 10 percent.
“We have achieved very good financial results in a volatile environment,” Chief Executive Officer Michel Lies said in a statement. “A low large loss burden and the one-off gain from the sale of the Admin Re U.S. business in the quarter undoubtedly helped.”
The Zurich-based reinsurer said spending on claims and costs as a percentage of property-and-casualty reinsurance premiums, the so-called combined ratio, improved to 72 percent from 85.3 percent helped by fewer natural catastrophe losses and reserve releases.
“The combined ratio jumps out, which is beating all market participants,” said Schuermann. “That is not only because of reserve releases, but from outstanding underlying profitability.”
Premiums and fee income rose 11 percent to $6.6 billion, driven by property and casualty, Swiss Re’s biggest business.
Munich Re, the world’s largest reinsurer, and Hannover Re both raised their full-year earnings forecasts this week after higher investment income contributed to better-than-expected third-quarter profit.
Swiss Re said it’s too early to estimate claims from Sandy, the Atlantic superstorm that left 8.5 million homes and businesses without power after hitting New Jersey, New York and other East Coast states on Oct. 29. Hurricane Sandy may cost insurers and reinsurers, which shoulder some of the risks in return for a share of the premiums, $10 billion to $20 billion, according to Eqecat Inc., a catastrophic risk modeler.
Swiss Re expects moderate price increases when reinsurance contracts are renewed in January, with Hurricane Sandy probably having “some impact,” Quinn said on a conference call today.