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(Bloomberg) -- Swiss Re AG, the world’s second-biggest reinsurer, lowered its dividend payout to investors after fourth-quarter profit declined 80 percent on charges related to the restructuring of the U.S. business.
Net income fell to $245 million from $1.2 billion in the year-earlier period. That missed the $325 million average estimate of seven analysts surveyed by Bloomberg.
The Zurich-based company plans to pay shareholders a dividend of 4.25 Swiss francs ($4.52) a share, up from 3.85 francs distributed for 2013, it said in a statement Thursday. On top of that, it proposed a special dividend of 3 francs, down from 4.15 francs a year ago. In addition, Swiss Re plans to buy back 1 billion francs of its shares by the 2016 shareholder meeting.
“We have now seen for some time a trend of economic value significantly exceeding the market value,” Chairman Walter Kielholz said in a letter to shareholders. “It makes therefore a lot of sense for the company to invest in its own shares and benefit from the discount.”
Swiss Re, led by Chief Executive Officer Michel Lies, is cutting back coverage of catastrophes like hurricanes and earthquakes amid a decline in the incidence of natural disasters that has undercut prices. In a quest for alternative sources of revenue, it is ramping up new lines of business, such as corporate insurance and coverage in Asia, to bolster earnings eroded by low interest rates. It is also expanding in markets including China, where in July it agreed to acquire Sun Alliance Insurance (China) Ltd.
Swiss Re booked a pretax charge of $623 million from the restructuring of business written before 2004 at its U.S. life and health reinsurance unit. The reinsurer had said in November that it expects an impairment of $550 million.
The sale of U.S. life insurer Aurora National Life Assurance Co. resulted in a loss of $203 million in the quarter. Swiss Re said in November it expects a loss of less than $200 million as it focuses its Admin Re unit, which buys and manages closed books of life and health insurance, on the U.K. market.
Reinsurers, which help primary insurers such as Allianz SE and AXA SA shoulder risks in exchange for a share of the premiums, are increasing payouts to investors as gains on fixed income investments and lower-than-average disaster losses leave them with a surplus of funds. Capital available for reinsurance coverage reached a record $575 billion at the end of the third quarter, according to estimates by broker Aon Benfield.
Munich Re, the world’s largest reinsurer, said on Feb. 5 that it plans to raise its dividend even after fourth-quarter profit declined 42 percent on investments and goodwill impairments. At the same time, the Munich-based reinsurer confirmed a plan to buy back 1 billion euros of its stock by its annual shareholder meeting in April.
Swiss Re shares rose 1.4 percent in Zurich this year, valuing the company at about 31 billion francs. That compares to a 10 percent increase in the Bloomberg Europe 500 Insurance Index.
--With assistance from Elena Logutenkova in Zurich.
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