Low claims lift reinsurer profits but competition bites

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 yesterday.

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 about $900 million (€673 million) in damage in Germany, reinsurers saw little in the way of big disaster claims in the quarter.

Swiss Re and Hannover Re 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 aircraft during fighting around Tripoli airport in Libya.

Swiss Re estimated its share of those losses would be less than $100 million. 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 shares fell 3.2 per cent and Hannover Re was down 3.5 per cent. Munich Re, which reports second-quarter results today, fell 1.6 per cent.

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

Swiss Re chief executive Michel M Liès 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. – (Reuters)