Swiss Re AG, the world’s biggest reinsurer, reported lower first-quarter profit as the company bulked up its reserves and pricing in the industry remained under pressure.

Net income dropped to $1.23 billion from $1.44 billion a year earlier, the Zurich-based company said in statement on Friday. That beat the $969 million average estimate of six analysts surveyed by Bloomberg. Swiss Re said the company benefited from the absence of large natural catastrophes, though “unfavorable” developments in earlier years including earthquakes in New Zealand prompted the company to bulk up its reserves.

“The increase in reserves came as a complete surprise,” Thomas Seidl, an analyst at Sanford C. Bernstein in London, wrote in a note to investors. He said that the net income at the property & casualty reinsurance unit, which fell to $587 million from $808 million, missed Bernstein’s expectations.

Reinsurers including Munich Re, Swiss Re and Hannover Re sell backup coverage to insurance companies, protecting them against big risks such as natural disasters. While losses from catastrophes last year fell to the lowest since 2009, earnings in the industry are being squeezed by record-low interest rates and declining prices for coverage.

Shares Drop

Swiss Re fell as much as 1.8 percent in Zurich to 86.80 Swiss francs, the lowest in three weeks. The shares have declined about 11 percent this year.

Chief Financial Officer David Cole said on a call with reporters that Swiss Re received some late claims related to earthquakes in New Zealand in 2010 and 2011. The reinsurer is continuing to review its overall reserving position on asbestos and all other major portfolios, he said.

“We’ve come to the conclusion that there is an indication there may be some further deterioration,” Cole said. “We are well-positioned in terms of our overall reserving levels for asbestos-related claims relative to the industry.”

While premium income increased at the main units, property & casualty reinsurance and life & health reinsurance, net income declined.

The combined ratio, an industry measure, rose to 92.8 percent from 85 percent a year earlier. A ratio greater than 100 means that an insurer is paying more in claims and costs than it is collecting in premiums.

‘Question Marks’

“The key driver of profitability is the P&C reinsurance business and these results raise some question marks about the medium-term profitability of that business,” said Sami Taipalus, a London-based analyst at Berenberg.

Reinsurance prices have been falling to their lowest in four years due to competition from alternative-capital providers that started offering products and absence of natural catastrophes.

“The price erosion for property natural catastrophe business has slowed, while casualty markets remained relatively stable,” the company said in a statement.

Hedge funds, sovereign wealth funds and other providers of alternative capital set aside $72 billion for reinsurance last year, a 12 percent increase from 2014, even as allocations from traditional capital fell 4 percent to $493 billion, according to research by Aon Plc. That led to price cuts when policies were renewed on April 1, according to reinsurance broker Willis Re Inc.

Swiss Re appointed Moses Ojeisekhoba to become the head of the reinsurance unit. He will succeed Christian Mumenthaler, who will become chief executive officer on July 1, replacing the retiring Michel Lies.

Topics Profit Loss Reinsurance Property Casualty