Swiss Re - pregnant with dividends What a contrast with the financial crisis funk that triggered Swiss Re's costly bailout. The reinsurer's steady comeback continued in the third quarter with net income of $2.2bn, beating consensus by 75 per cent. Its annualised return on equity was an almost surreal 28 per cent. True, a big chunk of the uplift came from a one-off $630m gain on the sale of its US Admin Re closed-book business. But the underlying performance of property and casualty reinsurance was robust thanks to fewer natural catastrophes and solid renewals. The P&C unit's combined ratio also had an unreal ring, thanks to substantial reserve releases. Never mind the financial moves that lifted Swiss Re's capital; investors are more interested in how much can be paid out as a special dividend. Key to this is whether recent performance is sustainable. P&C's combined ratio was remarkably low at 69 per cent, given consensus at 86 per cent and an average of about 95 per cent since 2009. Reserve releases are hardly assured. But strip out the 13 percentage points of reserve releases and allow 10 percentage points for good fortune on natural catastrophes, and Swiss Re's ratio would have been closer to 92 per cent, Deutsche Bank estimates. Not shabby at all, by industry standards. And, although boosted by realised gains, Swiss Re's return on investment of 4.5 per cent is solid. Swiss Re's talk of prioritising a sustainable ordinary dividend, then business growth, before even considering a special dividend sounds like flannel. The share price performance - up more than a third this year, beating the index - says it all. Assuming a steady-state return on equity of about 10 per cent, a special dividend of, say, SFr3 a share would give a roughly 5 per cent ROE fillip. Too bad that solid renewals in July, expected premium increases in January, and that special dividend look largely priced in.