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Swiss Life eyes profit after record loss

Swiss Life experienced the blackest year in its history in 2002

(Keystone)

Swiss Life, Switzerland's largest life insurer, has pledged to return to profit in 2003 after posting a record loss of SFr1.69 billion ($1.22 billion) in 2002.

Publication of last year's figures comes a day after regulators censured the insurer over a secretive investment fund operated by six of the firm's senior managers.

Swiss Life had already warned in March of a loss of around SFr1.7 billion, surprising markets which had been expecting a full-year loss closer to SFr840 million.

Tuesday's result was blamed on large charges for investments hit by falling equity values and write-offs on unsaleable assets.

Last month's profit warning fanned concerns about the prospect of a marked earnings recovery this year and about the firm's underlying financial health.

The insurer, which lost SFr115 million in 2001, said it would not pay a dividend this year.

New strategy

However, Swiss Life said that with shareholders' equity of SFr4.2 billion and SFr7.5 billion in core capital, it had sufficient financial strength to implement its new strategy.

"I am convinced we are back on solid ground. We not only identified the steps that were necessary immediately, but have also implemented them," CEO Rolf Dörig told swissinfo.

"We reduced our equity exposure and with the capital increase we stabilised and reinforced our finances," he added.

Investors were sufficiently heartened to send the company's share price soaring by more than nine per cent by mid-afternoon trading on Tuesday. The stock later fell back to close 4.5 per cent higher at SFr86.75.

On track

Dörig said the drive to refocus on its core European insurance business, coupled with cost cutting and reductions in investment and balance sheet risks, remained on track.

By the end of 2002, costs had been cut by SFr212 million - 40 per cent of the 2004 target of SFr515 million.

Dörig added that he saw no need for additional restructuring despite a deterioration in market conditions early in 2003 with interest rates and shares prices falling, reducing returns on investments.

The company is already scheduled to cut around 800 staff from its 11,500-strong workforce by 2004.

However, Dörig warned: "Should things get worse we will have to think about further measures."

Poor returns

The impact of poor returns has been especially felt in Swiss Life's large group life business, where Swiss insurers are legally bound to pay a guaranteed minimum interest rate.

That rate is currently at a level that cannot be secured in financial markets and insurers are having to cover the shortfall themselves.

This has further deepened losses from big charges for investments and from assets which have proved impossible to sell, such as private bank Banca del Gottardo.

To plug the gap in its balance sheet, Swiss Life tapped investors for SFr1.1 billion late last year in a share and bond offering. It also reduced the equity share of its investment portfolio.

Scandal

November's capital increase came shortly after the insurer revealed that six top managers - including former CEO Roland Chlapowski - made a combined profit of SFr11.5 million ($7.8 million) by investing their own money in Long Term Strategy AG (LTS), a company with close ties to the insurer.

Chlapowski and chairman Andres Leuenberger stepped down in the wake of the scandal.

Swiss Life was also forced to correct its results twice in the space of a month after two accounting errors wiped more than SFr450 million off its bottom line.

This led to an investigation by the Federal Office of Private Insurance whose findings were published on Monday.

The regulator criticised "insufficient" controls and ordered the company to retrieve profits gained by the six managers.

swissinfo with agencies

Swiss Life

The insurer's bottom line was hit by falling share prices and write-offs on assets such as private bank Banca del Gottardo.

Last year's record loss was compounded by a scandal surrounding a secretive investment fund involving top managers, and by two accounting errors.

On Monday, Switzerland's insurance regulator said managers' actions had endangered the interests of policyholders.

It has ordered Swiss Life to claim back some of the SFr11.5 million profits gained by the six managers.

CEO Rolf Dörig insists the company is on track for a return to profitability in 2003.

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