(Bloomberg) -- Swiss Re AG, theworld’s biggest reinsurer, reported lower first-quarter profit asthe company bulked up its reserves and pricing in the industryremained under pressure.

Net income dropped to $1.23 billion from $1.44 billion a yearearlier, the Zurich-based company said in statement on Friday. Thatbeat the $969 million average estimate of six analystssurveyed by Bloomberg. Swiss Re said the company benefited from theabsence of large natural catastrophes, though “unfavorable”developments in earlier years including earthquakes in New Zealandprompted the company to bulk up its reserves.

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“The increase in reserves came as a complete surprise,” ThomasSeidl, an analyst at Sanford C. Bernstein in London, wrote ina note to investors. He said that the net income at the property& casualty reinsurance unit, which fell to $587 millionfrom $808 million, missed Bernstein’s expectations.

Reinsurers including Munich Re, Swiss Re and Hannover Re sellbackup coverage to insurance companies, protecting them against bigrisks such as natural disasters. While losses from catastropheslast year fell to the lowest since 2009, earnings in the industryare being squeezed by record-low interest rates and decliningprices for coverage.

Shares Drop

Swiss Re fell as much as 1.8% in Zurich to 86.80 Swiss francs, thelowest in three weeks. The shares have declined about 11% thisyear.

Chief Financial Officer David Cole said on a call with reportersthat Swiss Re received some late claims related to earthquakes inNew Zealand in 2010 and 2011. The reinsurer is continuing to reviewits overall reserving position on asbestos and all other majorportfolios, he said.

“We’ve come to the conclusion that there is an indication theremay be some further deterioration,” Cole said. “We arewell-positioned in terms of our overall reserving levels forasbestos-related claims relative to the industry."

While premium income increased at the main units, property &casualty reinsurance and life & health reinsurance, net incomedeclined.

The combined ratio, an industry measure, rose to 92.8% from 85%a year earlier. A ratio greater than 100 means that an insurer ispaying more in claims and costs than it is collecting inpremiums.

‘Question marks’

“The key driver of profitability is the P&C reinsurancebusiness and these results raise some question marks about themedium-term profitability of that business,” said Sami Taipalus, aLondon-based analyst at Berenberg.

Reinsurance prices have been falling to their lowest in fouryears due to competition from alternative-capital providers thatstarted offering products and absence of natural catastrophes.

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“The price erosion for property natural catastrophe business hasslowed, while casualty markets remained relatively stable,” thecompany said in a statement.

Hedge funds, sovereign wealth funds and other providers ofalternative capital set aside $72 billion for reinsurance lastyear, a 12% increase from 2014, even as allocations fromtraditional capital fell 4% to $493 billion, according to researchby Aon Plc. That led to price cuts when policies were renewed onApril 1, according to reinsurance broker Willis Re Inc.

Swiss Re appointed Moses Ojeisekhoba to become the head of thereinsurance unit. He will succeed Christian Mumenthaler, who willbecome chief executive officer on July 1, replacing the retiringMichel Lies.

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