Swiss Re posts loss of CHF 381 million

5th August 2009, Comments 0 comments

One of the world’s largest reinsurers slips back into red in the second quarter.

Zurich -- Swiss Re, one of the world's biggest reinsurers, on Wednesday slipped back into the red, posting losses of CHF 381 million (EUR 249 million, USD 359 million) for the second quarter.

The Zurich-based group, whose earnings were severely hit by the financial crisis, posted a small profit in the first quarter but that has not carried into the second quarter.

Swiss Re's latest losses also stand in stark contrast to fellow reinsurer Munich Re's 14 percent rise in net profit during the second quarter to EUR 691 million (CHF 1.05 billion).

The Swiss reinsurer blamed mark-to-market losses on corporate bonds, impairments on securitised products and own credit spread charges for the second quarter losses.

It also warned that future earnings, particularly those from its investments, could be depressed given the current market climate and trends.

"The financial market volatility and the shift towards lower risk investments, which allowed Swiss Re to reduce its exposures significantly, may adversely impact future earnings," it said.

However, it said that it had made "significant progress" in reducing risky positions by ending all of its credit default swap contracts, instruments that enable investors to protect themselves against the risk of default.

In addition, it said it had been able to raise its excess capital to CHF 4.5 billion.

"This powerful combination increases our confidence in delivering on our targets," said the group's chief executive Stefan Lippe.

On its main reinsurance business, the group determined that conditions were improving.

"Swiss Re sees the strongest immediate improvements taking place in some life segments, especially the US, and many natural catastrophe markets," it added.

Bank Wegelin said the quarterly loss would be disappointing to investors.

"Even though the management indicated confidence for future development ... the reinsurer seems to remain a major construction site -- with high risk positions," said Bank Wegelin, noting that investors should favour Munich Re ahead of Swiss Re.

The group's shares were trading down 0.51 percent at CHF 43.20, counting among the worst performers of the Swiss Market Index, which was up 0.11 percent.

Swiss Re's troubles began to emerge in November 2007, when it warned of CHF 1.2 billion in losses from the US subprime home loan crisis.

It sold a 3.0 percent stake in the company in January 2008 to Warren Buffett for an undisclosed sum as it sought to shore up its finances.

But as writedowns piled up through 2008, it asked Buffett for about CHF 3 billion in fresh funds in February 2009.

The group's chief executive officer Jacques Aigrain resigned a week following that recapitalisation announcement, after he was widely blamed for having led the reinsurer into the risky world of investment banking.

The group in April said it would cut around 1,000 jobs worldwide in the next 12 months to trim costs.

AFP / Expatica

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