* Swiss Re FY profit 506 mln Sfr vs forecast 534 mln
* Shareholder equity rises to 26.2 bln Sfr
* P&C combined ratio 88.3 pct beats forecast 90.4 pct
* Raises dividend to 1.00 Sfr from 0.10 Sfr
* Shares rise 2.3 pct, outperform European insurers
(Recasts; adds CFO and analysts' comments, shares
ZURICH, Feb 18 (Reuters) - The world's second-largest
reinsurer, Swiss Re (RUKN.VX), was more confident it could repay
a costly convertible loan from Warren Buffett after
strengthening its capital and returning to the black in 2009.
Net profit just missed expectations due to heavy losses on
securitised products and corporate bond hedges, but capital
bounced back from uncomfortable levels in the crisis to an
excess of over 9 billion Swiss francs ($8.33 billion).
"The balance sheet remains the key focus and in this regard
Swiss Re's results are good," said Helvea analyst Tim Dawson.
"Overall we believe that the good news from the balance
sheet should help the shares to consolidate and extend their
recent recovery."
Swiss Re, which had to reach for support from Buffett-owned
competitor Berkshire Hathaway (BRKa.N) last year after losses on
risky assets depleted its capital, expressed renewed belief in
its business by hiking its dividend and re-establishing targets.
"Capital excess at that level increases our confidence that
we can achieve some of most important goals and these include
the redemption of the Berkshire security in 2011," Chief
Financial Officer George Quinn said on Thursday.
Shares in Swiss Re were 2.3 percent higher at 47.84 Swiss
francs by 0930 GMT, outperforming a flat DJ Stoxx European
insurance index .SXIP and 0.4 percent rise in bigger rival
Munich Re (MUVGn.DE).
The stock, battered by the financial crisis and risky
investments, plummeted as low as 11.88 francs in March 2009 but
has steadily regained ground since then, though it remains some
way below a 2007 peak.
Swiss Re would now target a 12 percent return on equity over
the cycle, reflecting lower investment returns as the company
shifts to safer investments, said Chief Executive Stefan Lippe.
Lippe, appointed after the company turned to Buffett for a 3
billion franc convertible loan, has said Swiss Re will only go
after the most profitable business, even if this means missing
out on some sales.
His safety-first approach and low catastrophe payouts
widened Swiss Re's operating margins, enabling it to reward
shareholders with an improved dividend of 1.00 franc after it
paid out only a nominal sum of 0.10 francs for 2008.
SOVERIGN DEBT RISK
Swiss Re increased its shareholder equity by 5.7 billion
francs, giving it more breathing space as it targets a return to
a coveted 'AA' credit rating lost in the crisis, and CFO Quinn
said it had delivered on a promise to clients to boost capital.
It had very small sovereign debt exposure, Quinn said, after
worries about Greek debt risk recently caused a temporary dip in
the company's shares.
"We have almost no exposure to Portugal and Spain. We have
minimal amounts of exposure to Italy and for Greece at the end
of 2009 we had less than 500 million Swiss francs and that would
be the largest of those particular countries," said Quinn.
The bulk of the company's euro zone sovereign debt exposure
was to Germany and France, he added.
Restored industry capital and the absence of hurricanes
partially delayed the marked rise in prices many had predicted
in the crisis from extra demand for reinsurance from primary
insurers trying to shore up flagging capital, the company said.
Main competitor Munich Re beat expectations on Feb. 2 after
a fortuitous combination of low disaster claims and a financial
market revival boosted its earnings. [ID:nLDE6110SX]
Swiss Re's property and casualty reinsurance combined ratio
-- a measure of underwriting profitability -- improved to 88.3
pct on lower catastrophe payouts, beating expectations, and the
company said it would achieve a combined ratio of 93 percent in
2010, given a return to normal level of natural disasters. A
number below 100 percent indicates operating profitability.
Impairments of 2 billion francs on securitised products and
losses of 1.9 billion francs on corporate bond hedges hit full
year profit, which came in at 506 million francs, against
expectations for 534 million in a Reuters poll of analysts.
($1=1.081 Swiss Franc)
(Editing by Hans Peters)
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