(Updates with analyst comment in the fourth paragraph.)
Feb. 23 (Bloomberg) -- Swiss Re Ltd., the world’s second- biggest reinsurer, may use excess capital to pay a special dividend for this year after increasing its 2011 payout as fourth-quarter profit exceeded analyst estimates.
Swiss gained the most in five weeks in Zurich trading after posting net income of $983 million following a loss of $725 million in the year-earlier period. That beat the $299 million average estimate of 16 analysts surveyed by Bloomberg. The Zurich-based reinsurer raised its 2011 dividend to 3 Swiss francs ($3.30) from 2.75 francs the previous year.
Swiss Re regained its AA- credit rating from Standard & Poor’s in October after shedding risky assets, repaying a 3 billion-franc loan from Warren Buffett’s Berkshire Hathaway Inc. and stabilizing earnings. Property and casualty premiums climbed 20 percent when the firm joined larger rival Munich Re and other reinsurers in renewing contracts last month.
“One of the main highlights is that the non-life treaty portfolio increased by some 20 percent, which is far better than what Munich Re did,” said Daniel Bischof, a Zurich-based analyst with Helvea. The property and casualty result was boosted by reserve releases of about $1.3 billion, he said.
Swiss Re rose as much as 4.2 percent and was up 4.1 percent at 55.15 francs as of 9:09 a.m. in Zurich. The stock has climbed 15 percent this year compared with a 14 percent gain in the 28- company Bloomberg Europe 500 Insurance Index.
Michel Lies, who took over as chief executive officer from Stefan Lippe earlier this month, is courting investors with bigger payouts as low interest rates and record natural-disaster losses weigh on industry profitability.
Swiss Re said excess capital at the end of last year was over $7 billion. The reinsurer said it may pay a special dividend to shareholders for 2012 if it can’t “fully deploy capital at favorable terms” to boost its returns.
The firm prefers paying a special payout to a share buyback because it has “substantial capacity to pay dividends free of withholding tax,” Chief Financial Officer George Quinn said on a conference call.
The reinsurer, which sells coverage to primary carriers to guard against the cost of major claims, said the average price increase in January for its renewed book was 4 percent. The firm typically renews about two-thirds of its annual contracts in January.
“The primary reason for the confidence that you hear today is the results of the renewal,” Quinn said. “We started this year with growth of 20 percent, and we had a significant price rise at the same time.”
Munich Re said earlier this month that it expects further rate increases, particularly in regions that have suffered natural-catastrophe losses.
Full-year profit tripled to $2.63 billion from $863 million. Swiss Re is targeting an average annual increase in earnings per share of 10 percent over the next five years.
“With a successful year behind us and a modest but broad market turn under way, Swiss Re is well positioned to perform and grow in a low-yield environment,” Lies said in the statement. “We are positioned well heading into 2012.”
The company said Matthias Weber will assume the position of Chief Underwriting Officer, succeeding Brian Gray, who will retire early on April 30 to return to Canada.
The reinsurer’s Swiss solvency ratio was 210 percent at the end of June with a ratio of 227 percent for the reinsurance unit, which accounts for about 80 percent of its business. The solvency test, introduced in January last year, requires insurers to provide a mark-to-market valuation of assets and liabilities, including their investment portfolios.
--Editors: Dylan Griffiths, Keith Campbell.
To contact the reporter on this story: Carolyn Bandel in Zurich at firstname.lastname@example.org
To contact the editor responsible for this story: Frank Connelly at email@example.com