February 23, 2017 / 2:33 PM / 9 months ago

UPDATE 2-Swiss Re renewals drop as pricing gets 'painful'

* 2016 net profit down 23 pct at $3.56 bln

* January P&C renewals fall 18 pct

* Proposes 4.85 Sfr dividend

* Announces buyback of up to 1 bln Sfr

* Confirms over-the-cycle targets

By Brenna Hughes Neghaiwi

ZURICH, Feb 23 (Reuters) - Swiss Re said renewals in its main property and casualty (P&C) reinsurance business dropped by 18 percent in January as it opted out of more business because of falling industry prices.

Chief Executive Christian Mumenthaler warned on Thursday, after reporting a 45 percent fall in net profit in the fourth quarter, that more pain was coming to the industry because it was taking on risk too cheaply.

The industry acts as a financial backstop for insurance companies, helping them cover the cost of claims from natural and man-made disasters. But it has been squeezed by falling prices for years.

The low prices coupled with natural disasters such as Hurricane Matthew and an earthquake in New Zealand proved costly for the world’s second largest reinsurer in 2016.

“The declines in prices were about half as big as they were a year ago. So we can talk about a bottoming out, but it’s not clear we’re at the bottom yet,” Mumenthaler told journalists.

“Clearly, we’re getting to a point where it gets painful, so it’s not surprising (we) have to cut more at this level of price adequacy.”

January renewals, which account for some 55 percent of Swiss Re’s main P&C business unit, fell to $8.5 billion from $10.3 billion the previous year as it declined to take on some business.

Bigger German rival Munich Re also said January renewals had been challenging, while Hannover Re raised its 2017 guidance after snatching up more business during the renewals round despite falling prices.

“The January renewals outcome was somewhat worse than expected,” analyst Daniel Bischof of Baader Helvea said in a note on Swiss Re. “The price reduction of 1 percent was in line with our expectations but the volume decline of 18 percent was clearly harsher than anticipated by us or the market.”

Swiss Re now expects a P&C combined ratio -- a measure of underwriting profitability -- of around 100 percent this year.

That means it expects to collect roughly as much in premiums as it will have to pay out in claims.

In 2016 its property and casualty combined ratio rose to 93.5 percent, where a number below 100 indicates a profit. This included reserve releases, unaccounted for in the 2017 forecast.

Bischof said Baader Helvea forecast a combined ratio of 96.5 percent in 2017 once reserves were taken into account.

Swiss Re shares traded down 1 percent at 1410 GMT.

A 23 percent fall in full-year net profit to $3.56 billion lagged analysts’ average estimate of $3.72 billion in a Reuters poll.

It proposed raising its regular dividend to 4.85 Swiss francs from 4.60 francs in 2015 and announced a new share buyback programme of up to 1 billion Swiss francs ($991 million).

$1 = 1.0086 Swiss francs Reporting by Brenna Hughes Neghaiwi; Editing by Michael Shields and Elaine Hardcastle

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