Swiss Reinsurance posts first loss in six years

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Nov 4 : Swiss Reinsurance Co., the world’s second-biggest reinsurer, posted its first loss in almost six years and suspended a share buyback program after wrong-way bets on credit-default swaps.

Swiss Re fell 5% in Zurich trading after reporting a third-quarter loss of 304 million Swiss francs ($259 million) compared with net income of 1.47 billion francs a year ago. The median estimate of eight analysts was a 150 million-franc profit.

The reinsurer has been plagued by losses on contracts sold to protect clients against declines in fixed-income securities after the worst US housing market since the Great Depression sparked a global credit crunch. Swiss Re booked 289 million francs of writedowns on credit default swaps in the third quarter, bringing losses in the past year to 2.81 billion francs. US insurer American International Group Inc. needed an $85 billion government bailout after losses on similar products.

“The company delivered awful figures,” said Fabrizio Croce, an analyst at Kepler Capital Markets in Zurich who has a “reduce” rating on the stock. Tuesday’s writedown is “only the tip of the iceberg -- the present is cloudy and the future looks stormy,” he added.

Swiss Re dropped 4.5% to 48.48 francs at 12:07 p.m. in Zurich, bringing its decline this year to 40%. That compares with the 43% decline in the Bloomberg Europe 500 Insurance Index.

The insurer, founded in 1863, reported investment losses of 1.5 billion francs in the quarter, even as Chief Executive Officer Jacques Aigrain increased hedging against corporate credit risk. Swiss Re cut investments in corporate bonds through hedging, reducing the notional value of its portfolio to zero at the end of September from 25.7 billion francs three months earlier.

“There are big distortions from investment losses, as expected, and the numbers overall look slightly worse than consensus,” said Tim Dawson, an analyst at Helvea in Geneva who rates the company “neutral.”

Swiss Re suspended its 7.75 billion franc share buyback program, which was 51.2% complete at the end of October, the Zurich-based reinsurer said in a statement today.

Halting the buyback is “the prudent thing to do given current market environment,” Chief Financial Officer George Quinn said in a television interview. “We don’t need” to raise more capital, he added.