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UPDATE 3-Swiss Re sees pricing up, capital improving

Published 09/07/2009, 10:40 AM
SRENH
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* Group says well positioned for Jan 2010 renewal season

* Sees further internal capital strengthening

* Says property, casualty segments resilient in crisis

* Swiss Re redirecting capacity into property

* Shares up 3.2 percent, outperform sector

(Adds company, analyst comment; updates shares)

By Jason Rhodes

MONACO, Sept 7 (Reuters) - Swiss Re said on Monday reinsurance prices were rising overall and it was well positioned for the January 2010 renewals season, with a considerably strengthened capital base.

Pricing was improving at a faster pace in property than in casualty, prompting the world's second-biggest reinsure to move capacity into the property line of business, Michel Lies, Head of Client Markets, said at the annual meeting of the reinsurance industry in Monte Carlo.

"We are observing a broad upward trend in overall reinsurance pricing, although this varies significantly between different lines of business," Lies said.

Kepler analyst Fabrizio Croce said Swiss Re's outlook for stronger pricing was unexpected good news.

Swiss Re shares traded 3.2 percent higher at 1339 GMT, outperforming a 1.5 percent rise in the DJ Stoxx European insurance index and a 0.4 percent dip in the shares of its main rival Munich Re.

IMPROVED CAPITAL

Chief Executive Stefan Lippe said Swiss Re would generate more capital internally after announcing a considerably stronger capital position at the end of the second quarter, and that this would give it significantly increased capacity to support clients.

This is of paramount importance for the company as it strives to repay a costly convertible investment made by Warren Buffett's Berkshire Hathaway earlier this year after Swiss Re suffered heavy losses from structured products.

Lippe did not want to be drawn on whether he was confident of earning enough to pay back Buffett in the two to three-year window available, while simultaneously retaining a comfortable capital buffer.

"We now have what we need to pay back, but on top, we need to make profits," said Lippe. "Our core business as everybody knows is very strong, and I would rather like people to focus on that. There are unfortunately no guarantees for the future."

Any investment case for Swiss Re still depended on the clean-up of the legacy portfolios and the outcome of the Berkshire Hathaway convertible, said Helvea analyst Tim Dawson.

"We still expect a favourable outcome in both regards," Dawson said.

PRICES

Swiss Re's Lies said that while prices on property lines of business were improving, long-tail industry segments, especially casualty, had yet to adjust to the lower interest rate environment and still did not adequately reflect years of premium reductions and anticipated loss trends.

"We therefore continue to steer capacity away from casualty into the more profitable property lines of business," he said.

Reinsurers have been unable to push through the radically higher prices they promised last year for the risk cover they sell to their insurance company clients.

Reinsurance experts gathered in the Mediterranean resort of Monaco to discuss prices and conditions for renewing reinsurance contracts in 2010 have been arguing over whether pricing will increase slightly, stay flat or even fall.

Industry players had expected demand to surge in the wake of the financial crisis, as insurance companies sought to use reinsurance to protect their balance sheets as an alternative to raising fresh capital in volatile financial markets.

Reinsurers present in Monaco have promised to stand firm on the prices they charge for covering big risks like hurricanes and plane crashes, but many observers doubt if reinsurers can stick to their pledge on prices as the recession robs their insurance company clients of cash needed to pay for the service.

The resilience of the property and casualty industry segment helped Swiss Re deliver capacity to its clients in spite of the economic crisis, Lies said.

"This has created a lot of goodwill and positioned us well for the upcoming January 2010 renewals," he said. (Additional reporting by Jonathan Gould, Lisa Jucca and Sven Egenter; Editing by Simon Jessop/Will Waterman)

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