(Bloomberg) — Swiss Re AG, the world's second-biggest reinsurer,unexpectedly reported an increase in first-quarter profit, helpedby returns from selling fixed income securities.

Net income rose to $1.4 billion from $1.2 billion a yearearlier, the Zurich-based company said in a statement on Thursday.A Bloomberg survey of eight analysts predicted profit of $971million. The highest estimate was $1.16 billion.

Europe's insurers are seeking ways to increase returns forshareholders after the European Central Bank's bond-buying programslashed yields from investments such as government bonds, squeezingmargins.

"The current market and interest rate environment continues tobe very challenging," Chief Executive Officer Michel Lies said. "Wehave nine months until the end of our financial target period2011-2015 and we are on track to deliver on the commitments we madeto our shareholders."

Swiss Re's shares had climbed to 96.95 Swiss francs in Zurichtrading on April 13, the highest since 2007, fueled by specialdividends and a planned buyback of stock worth as much as 1 billionfrancs ($1.1 billion). The shares fell 0.7% to 82.7 at 12:29 p.m.on Thursday, extending losses since the high to 14%.

Investment Return

Return on investments increased to 3.9% from 3.7% a year ago,driven by the sales of fixed income securities. The reinsurerbooked net realized gains of $380 million after $234 million in theyear-earlier quarter. Lower revenue from equities and alternativespushed down income from investments to $728 million from $835million a year ago.

"The improvement in profit all seems to come from one-offs fromselling fixed income securities and movements in hedges," saidCharles Graham, an analyst at Bloomberg Intelligence in London.

Earnings at the life and health reinsurance unit increased to$277 million from $64 million a year ago, driven by income fromselling securities and foreign exchange re-measurement. Losses froman interest rate hedge last year also weren't repeated, the companysaid.

Swiss Re's Admin Re unit, which buys and manages closed books oflife and health insurance, increased net income to $206 millionfrom $48 million.

"This will not be the new run rate" for Admin Re as the unit'snet income was supported by realized gains from the sale ofgovernment bonds, Chief Financial Officer David Cole said.

Profit at the property and casualty reinsurance divisiondeclined 18 percent to $808 million as prices fell.

Return on Equity

Swiss Re's return on equity improved to 16.1% in the quarterfrom 14.9% a year ago.

"Mid-term, we see Swiss Re developing into a lower ROE group, asits highest ROE (P&C Re) segment has started to shrink," ThomasSeidl, an analyst at Sanford C. Bernstein in London, said in ane-mailed report to clients.

The rates property and casualty reinsurers charge primarycarriers to backstop claims from catastrophes declined in seven ofthe last 10 years, according to the Guy Carpenter World PropertyCatastrophe Rate on Line Index.

"We were probably able to outperform most of our peers onpricing," Swiss Re CFO Cole said, referring to April renewals,where the company renegotiates about 10 percent of its property andcasualty reinsurance treaty portfolio. "The market as a whole saw acontinued albeit moderated softening."