Swiss Re to Post $862 Million 2008 Net Loss; Buffett to Invest $2.6 Billion

February 5, 2009

The Swiss Re Group announced that it expects to report a net loss for the full year 2008 of approximately CHF 1 billion ($862.5 million) for 2008, compared to net income of CHF 4.2 billion ($3.62 billion) in 2007. It will officially announce its 2008 results on February 19.

Other “key figures” cited by the group also showed declines. Shareholders equity dropped from CHF 31.9 billion ($27.5 billion) to around CHF 19 to 20 billion ($19.4 to $17.25 billion. Book value per share declined from CHF 92 to CHF 60 ($79.30 to $51.72), while the combined ratio rose to 97.4 percent from 90.2 percent.

However, Swiss Re also announced that it “is taking significant measures to reinforce its capital strength. In addition to ongoing de-risking in its investment portfolio, the Group is raising CHF 3 billion [$2.586 billion] of capital from Berkshire Hathaway Inc., subject to shareholder approval, and will consider further equity raising of up to CHF 2 billion [$1.726 billion], subject to market conditions.”

“We are disappointed with our overall results in 2008, but our core business – Property & Casualty and Life & Health – is performing well,” commented CEO Jacques Aigrain. “We have taken steps to protect our capital strength to ensure the continued trust of our clients, and we continue to manage our business in a disciplined, conservative manner. Warren Buffett’s agreement to invest in Swiss Re is a testament to the strength of our franchise.”

Swiss Re has been badly hit by plummeting investment values in a portfolio that contains a lot of “toxic waste” (See IJ web site – https://www.insurancejournal.com/news/international/2009/02/04/97572.htm).

It is, however, taking a number of steps to correct the situation. Swiss Re listed these measures as follows:
— Former Financial Markets division disbanded. Asset Management and Legacy units established. Approx. CHF 24 billion [$20.7 billion] assets reclassified as available for sale (AFS) from trading.
— Separately managed Legacy unit for products no longer offered by the group including, SCDS, PCDS, FG Re and former trading activities
— New cash flows invested in short-term investments, government or government agency paper
— Hedging: significant hedging of corporate bonds, dynamic “proxy” hedging of securitized products and Legacy trading activities
— Accelerate run-off of former trading activities
— FG Re: CHF 1 billion commutation October 2008, increased IBNR.

Source: Swiss Re – www.swissre.com

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