Swiss Re Writedowns Less than Feared, Keeps Financial Targets

By | September 25, 2008

Swiss Re said on Thursday its investment portfolio remains sound despite tough financial markets and reaffirmed its targets as additional writedowns were lower than many had expected.

The world’s largest reinsurer also said it had taken steps to reduce its exposure to corporate bonds, equities and the underlying quality of its reinsurance business. “The company is doing the right thing because it said it will reduce exposure to corporate bonds and structured assets,” said analyst Rene Locher at Sal. Oppenheim.

Swiss Re shares were indicated to open some 2 percent higher, according to pre-market data from Clariden Leu.

Swiss Re said it maintains its targets of earnings per share growth of 10 percent and return on equity of 14 percent over the cycle and sees opportunities for attractive returns from its Life & Health and Admin Re operations.

But the reinsurer had a mark-to-market loss of CHF 245 million ($225 million) between June 30 and August 31, 2008 in structured credit default swaps (CDS), the company said in a slide presentation.

For the period from the end of August to September 19, Swiss Re estimated a CDS mark-to-market loss of CHF 32 million [$29.5 million].

These add to previous writedowns of some CHF 2.7 billion [$2.491 billion] in its financial services unit, which creates products to transfer risk to capital markets.

“Structured CDS is the weak spot and we may see more of these (writedowns), but this is as the market expected,” Locher said when asked if today’s additional writedowns came as a surprise.

Swiss Re also said it had hedged sub-prime exposures within its trading portfolio and gross notional exposure was now CHF 3.2 billion [$2.95 billion].

(Editing by Greg Mahlich)

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