Swiss Re posts surprise loss

Swiss Re, the world's second-largest reinsurer, after Munich Re, missed forecasts on most of its results except combined ratio, as natural catastrophes also took their toll after being below forecast a year earlier, and said aggregate net claims for Hurricanes Gustav and Ike were around $365 million in the third quarter.

Swiss Re, which is based in Zurich, has been hurt more than its competitors by the financial crisis, writing down around 3 billion francs on its investments so far in its financial services unit, which creates products to transfer risk to capital markets.
Analysts said that the losses in structured credit default swaps were no surprise but noted that Swiss Re was still heavily exposed, with a current market value of 1.9 billion Swiss francs on its credit default swaps portfolio, which is 41 percent below original par value.
Swiss Re maintained its long-term targets and dividend policy, but analysts warned that the poor results might signal more to come.

"We believe worse is to come in the fourth quarter, despite the numerous hedges and protection in place on the investment side," said Stefan Schürmann, an analyst for Vontobel. "The company suspended the share buyback program, which hints at the difficult capital situation in the currently volatile financial markets."
Swiss Re said it had suspended the share buyback because of high volatility in the financial market and a significant increase in demand for reinsurance, but the company said it was very comfortable with its capitalization.
The company said it could still complete the buyback by April 2010, but in a conference call, the chief financial officer, George Quinn, said Swiss Re preferred to use the money for new business in the meantime.
"We see positive signs in the property and casualty businesses," Quinn said. "We're cautiously optimistic about the pricing trend for 2009."
Noting higher overall demand for reinsurance, he added, "It does not feel like a smart thing to do to reduce excess capital in the current very volatile market conditions."
Return on investment declined in the third quarter and will continue to drop as the company tries to reduce risk, Quinn said.
Swiss Re said that it sharply cut its exposure to corporate credit during the third quarter and that its corporate bonds were now fully hedged.



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