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Profits surge at Swiss Re
ZURICH, Switzerland (Reuters) -- Swiss Re Friday posted an almost six-fold jump in first-half net profit as non-life premium income surged and it shook off the impact of a weak dollar, though its shares fell after a recent strong run. The world's second largest reinsurer after Munich Re, reporting the day after Munich Re posted its fifth straight quarter of red ink, said the full-year outlook was for continued improvements in operating performance. Swiss Re's net profit rose to 691 million Swiss francs ($486 million), exceeding the average analyst estimate of 501 million francs in a Reuters poll, and up from 118 million francs in the year-ago period. The firm said earnings could rise further on the back of strong demand for property and casualty reinsurance, which makes up about half of Swiss Re's business. Non-life premiums grew 18 percent to 7.86 billion, benefiting from rising prices. "Overall it is a good result," said analyst Georg Marti at Zuercher Kantonalbank, pointing to a swing to profit of 273 million francs at the niche financial services business unit as a clear positive. He noted group profit was lifted by the realization of gains on the firm's large bond portfolio, which helped halve losses on equity investments. Swiss Re shares, which rose as high as 91 euros, were down almost three percent at 86.60 euros at 1033 GMT, trading significantly lower than the Dow Jones Stoxx European Insurance index which was down 0.07 percent. Analysts' concernsTraders attributed the fall to the stock's recent good run against rival Munich Re. "It is 'sell on good news', said one analyst in Zurich, noting the stock rose some 7.5 percent in the last two-and-a-half weeks on anticipated good results. But analysts also said the improvement in its non-life combined ratio fell short of what Munich Re had managed. Swiss Re's combined ratio, a key operating performance measure, improved to 99.8 percent in the first half from 105.6 percent a year ago -- at the upper end of analysts' forecasts and lagging behind Munich Re, which posted 95.9 percent in its core reinsurance business. Swiss Re CFO Ann Godbehere said Swiss Re had met its full-year target of a 100 percent ratio six months early. But Edward Booth, an equity analyst at Morley Fund Management, said he had concerns about the slow turnaround in Swiss Re's liability underwriting business. "We are looking for some explanation from the company for the lack of improvement in the liability combined ratio, given that the property combined ratio has improved." He said he was "reasonably optimistic" that Swiss Re would reassure the market that its liability business would improve. Munich Re was down 1.51 percent at 93.57 euros, extending an over five percent fall on Thursday on fears it might have to raise cash to appease rating agencies' worries over its financial strength. No plans to raise cashGodbehere said Swiss Re had no plans to raise equity, reiterating comments made in March that it had enough capital to continue to benefit from good market conditions. "We have a good...very strong...capital base," she said. With investment income having plummeted in weak markets, reinsurers have been cutting costs and raising non-life policy prices to drive down the combined ratio and make overall earnings less reliant on investment gains. Chief Executive John Coomber said he was comfortable with its current reserve levels, responding to growing pressure from analysts and rating agencies that it needs to follow rivals and increase sums in its claims accounts. Despite a shaky first quarter in financial markets followed by a modest improvement in the second quarter, Swiss Re's return on investments held steady at 4.8 percent. Net investment income fell 13 percent to 2.4 billion francs due to currency effects. Charges for investments whose value has dropped during the prolonged bear market fell to 682 million francs from 917 million in the 2002 first half. Godbehere said that if markets were to hold at late-August levels until the end of the year, Swiss Re would have to book no further impairment charges on investments. Premiums from life reinsurance slipped 15 percent to 4.96 billion. The reinsurer said it also saw opportunities to expand its life insurance business by buying other insurers' portfolios at attractive prices. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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