Net profit rose to 1.4 billion Swiss francs ($1.10 billion) from 691 million in the same period last year, exceeding analysts' expectations of 1.12 billion francs.
But investors sold shares in Swiss Re - which reinsures risks that are too big for insurance companies to take on alone - after the firm said investment results were unlikely to remain as strong as they had been in the first six months.
"It's mainly people starting to look below the headline, realising it's being supported by pretty hefty capital gains which may not be sustainable in the future," said Spencer Horgan, an analyst at Deutsche Bank.
Swiss Re shares were down 0.3 percent at 71.90 francs by 1335 GMT after opening as much as 1.5 percent higher, adding to a near 14 percent loss so far this year and under-performing the DJ Stoxx European insurers' index.
Earned premiums were down 2 percent at 14.1 billion francs - though they were flat at constant foreign exchange rates - as Swiss Re was more selective in the kinds of risks it took on. Analysts had been looking for a rise of around 9 percent.
Swiss Re's results were boosted by 3.1 billion francs in investment income in the first half, helped by equity gains, but Chief Financial Officer Ann Godbehere said the return on investment (ROI) was likely to decline in the months ahead.
"After taking those very well-timed equity gains in the first half we wouldn't expect ... to achieve a 5.8 percent ROI for the full year, although we still expect to achieve a good investment result," she told reporters.
Swiss Re largely stuck to its cautious guidance for the full year, saying it would post "strong results" in 2004. Previously it had said it expected to "see more progression on earnings".
But the insurance market is likely to remain strong next year, Godbehere told Reuters on the sidelines of a media conference in London. That would bolster 2006 and 2007 results because at least 40 percent of the group's annual earnings come from policies written in the previous two years, she said.
Analysts were relieved the company only added a modest net 168 million francs to reserves in the first half, even though it added 420 million to reserves for its US business alone.
"The pessimist scenario that is presently contained in the share price (such as massive reserve additions) has not been affirmed," Zuercher Kantonalbank said in a research note. "This is a positive sign."
Smaller rival Converium shocked investors last month by saying it will tap investors for $250-400 million in fresh cash after revealing an unexpected hole in its reserves that is likely to push it to a loss this year.
Swiss Re's results coincided with those of French reinsurer Scor, whose earnings were boosted by tougher underwriting practices in the non-life area but still fell short of expectations. Both Scor and Swiss Re have been helped by fewer disaster claims and a push to reduce their exposure to riskier insurance policies.
Swiss Re's combined ratio, which measures costs and claims against premiums, dropped to 96.1 percent at its property and casualty business, improving from 99.8 percent a year ago.
A combined ratio below 100 percent shows the company's core insurance business is profitable.