Swiss Re Ltd., the world’s second-biggest reinsurer, plans to return about $2.8 billion to shareholders after lower natural catastrophe claims last year boosted excess capital.
Swiss Re shares climbed to the highest level in almost five years after the Zurich-based company said investors will receive a special dividend of 4 Swiss francs ($4.31) a share and boosted the ordinary dividend to 3.50 francs from 3 francs. That exceeded the average estimate of eight analysts surveyed by Bloomberg for a total payout of 6.21 francs a share.
Reinsurers accumulated a record $500 billion of capital in 2012 as global insured catastrophe losses dropped by almost half, according to a report by Aon Benfield, the world’s largest reinsurance broker. Swiss Re is making the payout after its capital climbed to more than $10 billion in excess of Standard & Poor’s AA requirements at the end of last year.
“Investors should be very happy today as the ordinary dividend is also very good,” said Stefan Schuermann, a Zurich-based analyst with Vontobel Holding AG. “The underlying result is good.”
Swiss Re rose as much as 3.8 percent and was up 3.3 percent to 76.20 francs as of 9:11 a.m. in Zurich trading. The stock has gained 15 percent this year compared with a 1.1 percent decline by larger rival, Munich Re, which increased its dividend 12 percent to 7 euros ($9.28) a share on Feb. 5.
“Our capital management priorities remain unchanged for the coming years,” Swiss Re Chief Financial Officer George Quinn said in the statement. “First, we aim to grow the regular dividend, then we will grow our business where new opportunities meet our profitability expectations.”
Swiss Re’s fourth-quarter net income fell to $795 million, from $983 million in the year-earlier period, after $900 million of losses from Hurricane Sandy. That beat the $240.3 million average estimate of seven analysts surveyed by Bloomberg.
Swiss Re and Munich Re help insurers shoulder the risks of natural disasters in return for a share of the premiums. The hurricane helped reinsurers resist lower prices with January renewal rates for property-catastrophe reinsurance rising 2 percent in nominal terms. Risk-adjusted prices, taking into account the impact of lower interest rates, were unchanged, Swiss Re said.
The reinsurer expects the same pricing trend to continue for renewals in April and July, Quinn told reporters on a conference call.
Spending on claims and costs as a percentage of property and casualty reinsurance premiums -- the so-called combined ratio -- improved to 90.5 percent from 97.3 percent, Swiss Re said.
Hurricane Sandy, which hit the U.S. Northeast in October, may have resulted in as much as $25 billion of industry losses, according to broker Willis Group Holding Plc. Still, global insured catastrophe losses dropped by 45 percent to $65 billion last year, Munich Re said Jan. 3.
Swiss Re said it will benefit over the next two years from the expiry of the property and casualty quota share agreement with Warren Buffett’s Berkshire Hathaway Inc. Property and casualty net premiums will increase by about 25 percent over the next two years, Quinn said.
Swiss Re said it wasn’t satisfied with the results of the life and health businesses after net income at the reinsurance unit dropped 56 percent to $739 million and profit at Admin Re declined 44 percent to $183 million.
“As for our life & health businesses, both reinsurance and for Admin Re, we have work to do,” Quinn said. “Part of this work is around capital management, but we will also focus on the operational side of these businesses.”