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Swiss Re to Trim Costs and Buy Credit to Lift Profitability

June 24 (Bloomberg) -- Swiss Re Ltd., 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 to help expand in faster-growing markets such as Brazil and China, 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 a share of 10 percent by 2015, reiterated its intention to address lagging profitability in the traditional life insurance business, which is under pressure amid low interest rates and subdued demand.

“Swiss Re is back on track and focused on delivering shareholder value,” Fabrizio Croce, a Zurich-based analyst with Kepler Cheuvreux, said in a note to investors. “The dividend is set to be increased sustainably through a group-wide cost benefit program.”

The company said today it plans to increase compensations to investors after earlier this year paying out a special dividend of 4 Swiss francs a share ($4.28) and boosting the ordinary dividend to 3.50 francs from 3 francs.

U.S. Portfolio

Swiss Re plans to improve the performance of its individual U.S. life portfolio written before 2004, which failed to meet its profitability expectations, it said. The firm forecasts the life and health unit to generate a return on equity of 10 percent to 12 percent by 2015.

Still, “near-term management actions to improve profitability” will erode life and health reinsurance earnings next year by about $500 million before tax, according to the statement. The company plans to improve margins by expanding in areas such as longevity and health reinsurance after net income in life and health reinsurance fell by more than half in 2012.

“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 to 2015.”

Swiss Re, which plans to buy $5 billion of corporate debt this year as well as about $2 billion of equities by reducing government bonds, said it will continue to move toward “high-quality” credit, such as investment-grade corporate bonds through third-party asset managers.

“You will also see us invest more in securitized products and see other items such as infrastructure, commercial mortgages and other elements in the portfolio,” Chief Financial Officer George Quinn said during a conference call.

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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