Friday, May 6, 2011

Swiss Re Loss Beats Analyst Estimate

Swiss Re Loss After Japan, New Zealand Earthquakes Beats Analyst Estimate

Swiss Re Reports First-Quarter Loss of $665 Million

The logo of Swiss Reinsurance Co. at their headquarters in Zurich. Photographer: Fabrice Coffrini/AFP/Getty Images

Swiss Reinsurance Co., the world’s second-biggest reinsurer, posted a second consecutive quarterly loss after claims from earthquakes in New Zealand and Japan.

The net loss of $665 million compares with a year-earlier profit of $158 million, the Zurich-based reinsurer said today in astatement. That beat the average estimate for a loss of $1.03 billion of 10 analysts surveyed by Bloomberg. The shares rose.

Swiss Re, which is bidding to regain the AA credit rating thatStandard & Poor’s cut in 2009, expects major first-quarter natural catastrophe pretax losses to be about $2.3 billion after the temblors in Japan and New Zealand. That may erode the company’s capital, which exceeded S&P’s AA requirements by more than $10 billion at the end of last year.

“If we continue to do what we’ve done in the past, I’m sure the rating change will come,” Chief Financial Officer George Quinn said in a conference call with reporters today. “The impact of the first quarter’s disasters on our capital position was relatively small.”

Swiss Re almost tripled its dividend to 2.75 Swiss francs ($3.16) a share last year, after repaying a 3 billion-franc capital injection by Warren Buffett’s Berkshire Hathaway Inc.

The shares rose 2.2 percent to 51.25 francs at 9:07 a.m. in Zurich. They have gained 7.1 percent this year, giving the company a market value of 18.9 billion francs. Larger rival Munich Re has dropped 2.3 percent this year.

Risk Management

“Swiss Re’s net loss is better than expected and confirms its improved risk management and solid balance sheet,” Stefan Schuermann, an analyst with Vontobel Holding AG in Zurich, wrote in a note to clients.

Spending on claims and costs as a percentage of property and casualty reinsurance premiums, the so-called combined ratio, worsened to 163.7 percent from 109.4 percent a year earlier following the first quarter’s disasters, Swiss Re said.

The first-quarter as well as last year’s natural catastrophes are expected to “accelerate price improvements,” Swiss Re said, adding that the April renewals of reinsurance treaties in Japansaw approximately 20 percent to 50 percent price increases for earthquake coverage and as much as 10 percent higher rates for non-earthquake exposed property policies.

“We remain committed to our five-year targets and are confident that we can deliver,” Swiss Re Chief Executive Officer Stefan Lippe said in today’s statement. “The impact of natural catastrophe losses in the first quarter creates an additional challenge but it will also accelerate the market turn we had previously expected in 2012/2013.”

Earnings Target

Swiss Re targets include an average annual increase in earnings per share of 10 percent over the next five years.

Aon Benfield, an arm of the world’s largest insurance broker, expects total losses for insurers and reinsurers to top $52.6 billion in the first quarter compared with $40.6 billion for the whole of 2010. The disaster in Japan may cost insurers and reinsurers $21 billion to $34 billion, according to catastrophe modeler Risk Management Solutions.

Munich Re said on April 20 it will report a “clearly negative” first-quarter result. The Munich-based company in March scrapped its 2.4 billion-euro ($3.6 billion) profit target for this year as it estimated about 1.5 billion euros in claims from Japan.

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