Net profit at Swiss Re dropped by less than expected in the third quarter, as the world's largest reinsurer benefited from low claims and said damage from a global credit crisis was limited.
Net profit fell by 5 percent to 1.47 billion Swiss francs ($1.27 billion) on the back of lower capital gains and trading losses, but remained well above the average forecast in a Reuters poll of 14 analysts of 1.23 billion francs.
Swiss Re shares rose 2.6 percent to 104 francs each, outperforming the DJ Stoxx insurance index, which added 0.1 percent.
"The numbers are looking very good, especially the combined ratio is very attractive. This means we may need to raise our full-year estimates," said Heinrich Wiemer, an insurance analyst at Swiss bank Vontobel.
The group's combined ratio of costs and claims as a percentage of premium income was 83.4 percent, far better than the 91.8 percent average expected in the poll.
The lower the ratio below 100 percent, the more profitable an insurer's underwriting business is.
Group net profit had been expected to drop by a fifth after unusually benign claims in the year-ago period, when results were also boosted by capital gains.
Many analysts had also taken a safety margin in their third-quarter 2007 forecasts due to financial turmoil triggered by rising defaults in the U.S. subprime mortgage sector.
"The performance is so much ahead of expectations that we must build in some caution with regards to its sustainability," Keefe, Bruyette & Woods said in a note.
The company increased its claims provisions by a total of 673 million francs in its liability and its accident reinsurance units, while at the same time releasing prior-year reserves of some 170 million francs.
Comparing the third-quarter numbers with a year ago is difficult because 2007 is the first year in which Swiss Re has published quarterly figures, analysts have said.
Market losses in the credit portfolio and in asset-backed securities led the Financial Services unit to post an operating loss of 113 million francs and Swiss Re would not say whether the unit would turn profitable in the fourth quarter.
"I want to be a wee bit cautious about making predictions, given the volatility we're seeing in financial markets," Chief Financial Officer George Quinn told journalists.
"It's relatively difficult to predict how we're going to end the year and therefore I'm not going to make a forecast today," he said on a conference call.
Swiss Re's remaining exposure to subprime-related assets stood at 290 million francs at the end of the last week, Quinn also said, down from some 500 million francs at the end of the second quarter, due to market losses.
Claims for California wildfires, floods in Mexico and hurricane Noel should be within Swiss Re's normal assumptions for natural catastrophe claims, Quinn also said.
Asked about rumors Swiss Re could raise its bid for certain Resolution assets if Standard Life's bid for the British insurer succeeds, Swiss Re repeated its bid was fixed, signaling it would not raise its price.