Swiss Life stocks plunge 10 per cent

Market shocked by Swiss Life profit doubts Keystone Archive

Shares in insurance giant Swiss Life/Rentenanstalt fell by 10 per cent on Friday after the company issued a bleak profit warning late on Thursday.

Swiss equity markets reacted swiftly to news that the group’s profits would fall well short of expectations this year and that management had embarked on a 20 per cent cost-cutting regime, worth SFr700m ($408.88) per year.

At the end of trading on the Swiss stock exchange, Swiss Life stocks had slumped 10.08 per cent to SFr562, after dipping as a low as SFr545.

Zurich Cantonal Bank analyst Macro Curti said the profit downgrade had been “a complete surprise”.

Industry analysts had predicted Swiss Life would realise a full-year profit of between SFr375m to SFr642m before Thursday’s announcement, which was made after the market closed.

Jittery market

Rosanna Burcheri, head of M&G Asset Management pan-European equities, said insurance firms were bound to be punished in a jittery market wracked by doubts about accounting standards, following the collapse of energy giant Enron.

“There are a lot of accounting worries right now and the insurance accounts are among the most difficult to understand,” she said.

“You never know where the insurers are investing and how they arrive at the returns which they report. Companies like Swiss Life have been very active in high yield products, junk bonds and so on.

“These are difficult products to understand and when you don’t understand the products you’re buying they can sometimes explode in your hand.”

The company blames its profit cut on the need to honour guarantees of four per cent on some company pension policies at a time of low interest rates and poor investment returns.

The share rout comes as the company faces the threat of a credit rating downgrade by Standard & Poor’s. Over the last month, investors have seen the value of Swiss Life stocks fall by 22.7 percent.

swissinfo with agencies.