Further credit swap writedown of CHF240m; Class action suit filed against the reinsurer
Swiss Re has reported net income for 2007 of CHF4.2bn and a return on equity of 13.5%, despite the $1bn mark-to-market loss from credit underwriting activities announced in November.
Net income for the fourth quarter was modest at CHF170m.
Jacques Aigrain, Swiss Re’s Chief Executive Officer, said, “Driven by an outstanding performance across our key businesses, we delivered the second-best result in Swiss Re’s 144-year-history.
“Property & casualty had its best performance ever and life & health improved on an already very strong prior year result. Investment activities developed positively, despite a generally difficult market environment.
“As a result, the board of directors is proposing to increase the cash dividend to CHF 4.00 per share, underlining our confidence in the future earnings of the firm.”
For the full year 2007, Swiss Re reported a 9% decrease in net income to CHF4.2 billion compared with 2006.
Premiums earned increased 7.3% to CHF 31.7bn. Return on equity was 13.5%, compared to 16.3% in 2006.
Shareholders’ equity rose by CHF1bn to CHF31.9bn. Book value per share increased 7% to CHF 92.00, despite the return of CHF 3.7bn to shareholders in the form of dividends and through Swiss Re’s share buy-back programmes.
Swiss Re’s fourth quarter result was impacted by the isolated, yet significant, mark-to-market loss from credit underwriting activities announced in November.
As of 31 December 2007, the mark-to-market loss had not changed materially.
Jacques Aigrain explained, “We took immediate action to strengthen the risk taking and supervision processes, and have ceased writing new structured credit derivative transactions, putting the existing portfolio into run-off. Swiss Re’s very strong capitalisation, leading business position, financial flexibility and outstanding franchise are confirmed by superior financial strength ratings, which are among the highest in the industry and consequently allows us to pursue an active capital management approach.”
Based on market movements as of 20 February 2008, Swiss Re estimates a further structured credit default swap mark-to-market loss of CHF240m. This change in value has been offset by positive developments in Swiss Re’s investment portfolio.
Swiss Re confirmed that a putative securities class action complaint had been filed in the US District Court for the Southern District of New York against Swiss Re and several of its executive officers alleging false and misleading statements in connection with the structured credit default swap mark-to-market loss.
It intends to vigorously defend itself against the action.