Swiss Re hit by profits slide
The world's biggest reinsurer, Swiss Re, has announced it posted a profit of SFr4.2 billion ($4 billion) for 2007 – down nine per cent on the previous year.
The result nevertheless beat analysts’ expectations and was hailed by the Zurich-based company as the second-best in its 144-year history.
Swiss Re said that its key businesses in 2008 had given an “outstanding performance” and that investment activities had developed positively.
On Friday morning shares jumped five per cent on the news.
But the company’s fourth quarter profit for 2007 of SFr170 million was in particular hit by losses linked to credit default swaps. These are designed to provide protection for a client against a fall in the value of a portfolio.
In November last year, Swiss Re announced that it had been affected by what it called an “isolated, yet significant” loss of SFr1.2 billion in its credit underwriting activities – a result of the United States subprime crisis. The firm pledged to withdraw from riskier investments.
“We took immediate action to strengthen the risk taking and supervision processes, and have ceased writing new structured credit derivative transactions, butting the existing portfolio into run-off,” Chief Executive Officer Jacques Aigrain said in a statement.
Not in the clear
However, the company added that it was not completely in the clear – it expects to lose a further SFr240 million on credit default swaps in 2008.
“Swiss Re expects property and casualty market conditions to remain challenging in the short term,” the company said in a statement. “The January renewal season confirmed this trend.”
Nevertheless, Swiss Re said its property and casualty unit posted record results in “difficult market conditions” and that its board has proposed increasing the dividend per share.
In January, the group was given a timely lift when Warren Buffett’s Berkshire Hathaway group purchased a three per cent stake.
Berkshire will assume 20 per cent of Swiss Re’s property and casualty exposure over the next five years as part of the deal.
Swiss Re said that despite the difficult outlook for the future, it remained optimistic.
“We are confident in Swiss Re’s growth prospects,” said Aigrain.
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The company, based in Zurich, is the world’s largest reinsurer. Reinsurance is the business of insuring the insurers.
Founded in 1863, it operates through offices in more than 25 countries.
The company’s reinsurance products for property and casualty, as well as the life and health business, are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management.
Credit default swaps are usually bought by bond investors, who seek insurance against potential market losses.
When bonds lose their value fast, the insurer has to pay out claims that help investors recover some losses.
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