Posted on 19 Feb 2009
The world's second-biggest reinsurer, Swiss Reinsurance Co., posted a record fourth-quarter loss after a failed effort to boost earnings with sales and trading of securities.
The loss of 1.75 billion Swiss francs ($1.49 billion) compares with net income of 170 million francs reported a year earlier. The full-year shortfall was 864 million francs, Zurich-based Swiss Re said in a statement today, less than the 1 billion francs estimated Feb. 5, when the company announced preliminary results.
Swiss Re said its funding requirements will rise by $1.5 billion after Standard & Poor's lowered its debt rating yesterday. The company turned to Warren Buffett's Berkshire Hathaway Inc. this month for 3 billion francs of capital and replaced Chief Executive Officer Jacques Aigrain, whose strategy of trading securities led to the record losses.
“This result is clearly disappointing,” Stefan Lippe, who replaced Aigrain as CEO, said in the statement. “We have already taken extensive measures to de-risk the investment portfolio and to further protect the long-term financial strength of the company.”
Swiss Re became the world’s biggest reinsurer after buying GE Insurance Solutions in 2005 and now has less than one quarter of the market value of market leader Munich Re.
S&P cut Swiss Re’s credit and financial-strength ratings to A+ from AA- after the market close yesterday, citing “greater-than-anticipated capital depletion.”
The company’s losses “are symptomatic of Swiss Re’s greater tolerance for financial risk than its peers,” S&P said.
To defend its credit rating, Swiss Re said it will cut its dividend to 10 centimes a share and may seek to raise 2 billion francs on top of the investment by Buffett. Berkshire Hathaway’s purchase of convertible bonds may give it a stake of more than 20 percent in Swiss Re.
Swiss Re has been plagued by losses on credit default swaps, contracts sold to protect clients against declines in fixed- income securities, after the worst U.S. housing market since the Great Depression sparked a global credit crunch.