ZURICH, Aug 5 (Reuters) - Swiss Re, the world's
second-biggest reinsurer, smashed expectations with a $812
million net profit in the second quarter as recovering financial
markets boosted asset values and investment returns.

Operating income of $1.2 billion at the Zurich-based
reinsurer's asset management unit more than offset a further
$130 million hit from the Chile earthquake and a $200 million
hit from the Deepwater Horizon oil rig explosion, the group said
on Thursday.

The company's property and casualty reinsurance combined
ratio -- a measure of underwriting profitability -- improved to
102 percent from 109.4 percent in the previous quarter, but
missed forecast. A number below 100 percent indicates operating
profitability.

Swiss Re said it was sticking to its target of 12 percent
return on equity over the reinsurance cycle.

Swiss Re's net profit of $812 million for the quarter came
well ahead of the $359 million analysts' forecast in a Reuters
poll.

Excess capital was $10 billion at the end of June, down from
$12 billion at the end of the first quarter, but still giving
Swiss Re breathing space as it tries to regain the coveted 'AA'
credit rating lost in the crisis. Standard & Poor's currently
rates the company's financial strength 'A+'.

Bigger competitor Munich Re on Wednesday posted
stronger-than-expected earnings, as strong investment income
offset a slew of damage claims for storms and the collapse of
the Deepwater Horizon rig.

Data from StarMine, which weights analysts' forecasts
according to their track record, show Swiss Re trades at 8.7
times 12-month forward earnings, against multiples of 9.1
and 7.5 at rivals Munich Re and Hannover Re, respectively.
(Reporting by Jason Rhodes; Editing by Sharon Lindores)
($1=1.042 Swiss Franc)