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WRAPUP 2-Low claims lift reinsurer profits but competition bites
August 6, 2014 / 1:45 PM / in 3 years

WRAPUP 2-Low claims lift reinsurer profits but competition bites

* Swiss Re CEO sees weakening prices in insurance industry

* Hannover Re says targets profit over premium volume

* Swiss Re share down 3.2 pct, Hannover Re down 3.5 percent (Adds analyst comment, company comment, detail)

By Alice Baghdjian and Jonathan Gould

ZURICH/FRANKFURT, Aug 6 (Reuters) - Lower claims from natural disasters boosted earnings at reinsurers Swiss Re and Hannover Re in the second quarter, but signs of intensifying price competition in the sector pushed their shares lower on Wednesday.

Reinsurers like Hannover, Swiss and market leader Munich Re help their insurance company clients cover claims from major events such as earthquakes or floods in exchange for part of the premium.

Other than a storm in early June that caused around $900 million in damage in Germany, reinsurers saw little in the way of big disaster claims in the quarter.

Swiss Re and Hannover Re both played down the expected financial hit from recent aviation losses such as the downing of Malaysia Airlines flight MH17 over Ukraine and the destruction of planes during fighting around Tripoli airport in Libya.

Swiss Re estimated its share of those losses would be less than $100 million, while Hannover said its hits for MH17 and Libya would each be in the mid-double digit million euro range.

The companies said they were on track to meet their financial targets.

But gains in their quarterly earnings fell short of analyst expectations.

Ultra-low interest rates since the financial crisis are enticing “alternative capital” investors such as pension funds, high-net worth individuals and other institutional investors to forge into the reinsurance market in search of higher returns, putting pressure on the prices reinsurers can charge.

Swiss Re’s share fell 3.2 percent and Hannover Re was down 3.5 percent by 1151 GMT. Munich Re, which reports second-quarter results on Thursday, fell 1.6 percent.

Hannover Re said it was focusing solely on maintaining the profitability of its portfolio in face of falling prices.

“Supply substantially exceeds demand in global non-life reinsurance, as a consequence of which competition has continued to intensify sharply in 2014,” it said in a statement, adding it expected premium volume for 2014 to remain broadly stable.

Swiss Re’s chief executive warned he saw prices generally weakening further, but said the Zurich-based company could depend upon its strong relationship with clients to see it through.

“We continue to take advantage of opportunities as they arise - for example in high-growth markets - and actively manage our overall portfolio,” Michel Lies said in a statement.

Global reinsurers in particular have placed more emphasis on service and offering tailor-made reinsurance products in an effort to hold on to customers but they have also been forced to cut prices to match those on offer from alternative investors.

Swiss Re reported an 8 percent increase in premium volume when renewing contracts with its insurance company clients in July.

“This is far more aggressive than peers in our view,” Bank of America analyst William Hardcastle said in a research note. “The group has again chased growth.”

Hardcastle expects Swiss Re stock to underperform the market and has a preference for Munich Re shares over Swiss Re.

Investors in the sector are watching closely to see if reinsurers will stick to their pledges to maintain profitability, rather than engage in destructive price cutting as they have in the past.

Reinsurers rely on sophisticated mathematical models that should tell them when prices have dropped too low for the risk being insured, but the temptation to hang on to market share can still be strong.

Net profit at Swiss Re rose 2 percent to $802 million, compared to expectations for a 14 percent rise according to the average estimate from six analysts in a Reuters poll.

Hannover Re also posted a lower-than-expected rise in net income of 211.5 million euros ($283 million), compared to a consensus forecast of 219 million euros.

The low level of claims also helped Scor’s net profit rise by more than one third in the first half of the year, the French reinsurer reported last week. (Editing by Tom Pfeiffer)

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