Tuesday May 6, 02:17 PM
Reinsurance group Swiss Re's first quarter profit falls
ZURICH (AFP) - Swiss Re (Virt-X: RUKN.VX - news) , the world's largest reinsurance group, on Tuesday said its first quarter profits were halved, blaming recent market turmoil and losses on its structured credit default swap (CDS) portfolio.
The group also reported fresh writedowns of 819 million Swiss francs, sending its shares sharply lower.
Swiss Re's net profit for the first quarter was 624 million Swiss francs (383 million euros, 594 million dollars), down 53 percent on last year.
"The reduction (in profit) was attributable to the continuing turmoil in the financial markets and the resulting additional mark-to-market loss of 819 million Swiss francs on the structured credit default swaps," it said.
Credit default swaps are instruments meant to cover possible losses for banks and bondholders if borrowers fail to repay their debts.
Swiss Re, which acts as an insurer of insurance companies, was hit in the fallout from the US subprime or high-risk home loan collapse which has seen the credit markets freeze up.
The results sent the shares down 5.2 percent to 83.10 Swiss francs in early afternoon trade while the overall market was off 1.4 percent.
The losses for the quarter were over three times more than what the group had earlier estimated for the beginning of the year up to February 20, suggesting a deterioration between February and March.
Swiss Re chief financial officer George Quinn said "March was a very bad month".
On Tuesday, the reinsurance group estimated further losses of 200 million Swiss francs for April.
Quinn would not say if the group would continue to take write-downs due to the uncertainty surrounding the financial markets but he added: "We clearly remain exposed to short-term market value volatility."
The latest mark-to-market losses add to the 1.2 billion Swiss francs announced in November (Frankfurt: A0S9N7 - news) .
Chief executive officer Jacques Aigrain said the group's capital position was "strong" and its insurance related portfolio "sound."
"While we face challenging conditions, we are well prepared and will not deviate from our sharp focus on underwriting quality, careful risk selection and economic profit growth," he said.
Analysts were more negative.
Credit Suisse analyst Eric Gueller described the results as "disappointing" and moved to downgrade the stock.
"While we still believe Swiss Re will achieve its long-term targets, we see continued headwinds in the short-term," he said.
Zuercher Kantonalbank also downgraded the stock, saying the risks were still "high".
"Despite better market conditions, further writedowns are expected," it said.
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