Swiss Re Profit Beats Estimates on Lower Catastrophe Losses

Swiss Re AG, the world’s second-biggest reinsurer, said third-quarter profit rose 14 percent, beating analysts’ estimates, following lower-than-expected losses from natural catastrophes.

Net income rose to $1.23 billion from $1.07 billion in the year-earlier period, beating the $928.6 million average estimate of 12 analysts surveyed by Bloomberg. Net income at property and casualty reinsurance, the biggest unit, rose 7.4 percent to $842 million, the Zurich-based company said in a statement today.

Swiss Re is cutting back on catastrophe coverage and moving into new lines of business to bolster earnings growth as low interest rates and fewer natural disasters undercut prices. Munich Re, the world’s largest reinsurer, said yesterday that third-quarter profit rose 16 percent, while German rival Hannover Re reported a 21 percent increase for the period.

“Swiss Re’s third-quarter net income came substantially ahead of expectations, with very strong operating performance in P&C reinsurance,” Thomas Seidl, a London-based analyst at Sanford C. Bernstein with a market perform rating on the stock, said in a note to investors. “Shareholders are poised to benefit from another high special dividend.”

The shares rose 2.9 percent to 80.35 Swiss francs at 9:23 a.m. in Zurich, valuing the company at about 29.8 billion francs ($30 billion). They have dropped 2 percent this year, while the 32-company Bloomberg Europe 500 Insurance Index is up 5.4 percent.

Dividend Plans

Reinsurers help primary insurers such as Allianz SE and AXA SA cover the cost of damage claims from disasters such as floods and hurricanes. Natural catastrophe and man-made losses in P&C reinsurance were $494 million in the year’s first nine months, down from about $1.01 billion a year ago, Chief Financial Officer David Cole said on a conference call.

The company plans to invest $3 billion of its excess capital at an 11 percent return on equity by 2015. Swiss Re earlier this year raised its proposed payout to shareholders for 2013 with a special dividend of 4.15 Swiss francs a share and a regular full-year dividend of 3.85 francs.

“If there aren’t intelligent ways to invest, we will look for intelligent ways to return money to our shareholders,” said Cole, who took the job of CFO at the company in May.

‘Solid Performance’

The combined ratio, a profitability measure in property and casualty reinsurance, improved to 76.7 percent in the quarter from 81.5 percent a year ago, as there was “less of an impact” from natural catastrophes than Swiss Re would typically expect, Cole said. Net earned premiums in property and casualty reinsurance rose about 9 percent to $4.31 billion mainly driven by the expiry of a quota share agreement in 2012.

“All business units have again delivered a solid performance during the third quarter, contributing to an overall strong group result,” Cole said in the statement. “This performance was supported by a lower-than-expected loss burden from natural catastrophes as well as a continued improvement in the life and health operating margin.”

The life and health reinsurance unit saw net income rise to $160 million in the quarter from $35 million after adding health business in Asia and in Europe while it had to strengthen reserves for its Australian group disability business in the year-earlier period.

Swiss Re said it remains on track to meet its financial targets for 2011 to 2015.

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