Poor underwriting hits Swiss Re’s second quarter

City A.M. Reporter
Swiss RE, the world’s second-biggest reinsurer, yesterday revealed a poor underwriting performance in the second quarter, sending its shares lower even though investment gains helped lift profits beyond expectations.

The company’s property and casualty reinsurance combined ratio – a measure of underwriting profitability – missed forecasts at 102 per cent. A number below 100 per cent indicates underwriting profitability.

The company’s property and casualty reinsurance unit’s operating profit fell to $455m (£286m) from $896m a year earlier because of higher catastrophe payouts and lower premiums earned.

Operating income of $1.2bn at the Zurich-based reinsurer’s asset management unit more than offset a further $130m hit from the Chile earthquake and a $200m hit from the Deepwater Horizon oil rig explosion, the group said.

“The result looks good at first sight and any quarterly profit is most welcome in the Swiss Re recovery process. However, underlying, the result does not look great, neither on the non-life nor on the life & health side,” said Vontobel analyst Stefan Schuermann.

Net profit of $812m for the quarter was well ahead of the $359m consensus analysts’ forecast and was up from a net loss of $342m a year ago.

Swiss Re stuck to its target of 12 per cent return on equity over the reinsurance cycle. Excess capital was $10bn at the end of June, down from $12bn at the end of the first quarter, but still giving Swiss Re breathing space as it tries to regain the coveted AA credit rating lost in the credit crisis.