Swiss Re SREN had a very profitable first quarter, led by a 53% increase in its Property and Casualty segment on a year-over-year basis. The combined ratio in this segment was 70%, reflecting a dearth of catastrophe events and favorable reserve development which reduced the ratio by 8 points. Life and Health reinsurance net income improved slightly from last year while Corporate Solutions was up 20%. For the quarter, the combined results of all segments reported an annualized 16.6% return on equity.

While we think the first-quarter earnings were impressive we will stick with our fair value estimate on the stock, which we recently increased to CHF 72 per share from CHF 68. Capacity is building in global reinsurance markets and a benign catastrophe environment cannot be expected to last for long, particularly with the rise in weather-related issues over the past few years. It also does not help that demand for the product is waning due to an increase in competitive CAT bonds and primary insurers ceding less. We think all reinsurers will confront difficult times due to excess capacity, and that the lack of differentiation among them denies participants an economic moat.