Expectations Seem Low For Swiss Re, But Not Without Cause

Swiss Re (OTCPK:SSREY), the second-largest reinsurance company in the world, has not had a very good run. Not only have the shares lagged the S&P 500 over the last one-, two-, five-, and ten-year periods, but also many of those performances compare poorly to sector peers/rivals like Munich Re (OTCPK:MURGY), Hannover Re (OTCPK:HVRRY), SCOR (OTCPK:SCRYY), and smaller players like Everest Re (NYSE:RE). Comparatively weaker ROEs do explain at least some of the underperformance, but the more important question is whether Swiss Re looks placed to do better in the coming years.

Swiss Re should be poised to benefit from rate improvements, but it remains to be seen whether management can achieve the necessary margin improvements in its casualty reinsurance and primary insurance operations. Modest expectations are an advantage in that respect, as only modest improvements in long-term ROEs can drive mid-single-digit income growth and double-digit annual shareholder returns.

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Expectations Seem Low For Swiss Re, But Not Without Cause