Company reports additional loss of 819m Swiss francs in structured credit default swaps in run-off

Swiss Re has announced a 53% drop in profits which it has blamed on market turmoil and losses on its structured credit default swap portfolio.

Its net profit for the first quarter was 624m Swiss francs (382.61m euros/ 593.86m dollars), down 53% on last year.

"The reduction was attributable to the continuing turmoil in the financial markets and the resulting additional mark-to-market loss of 819m Swiss francs on the structured credit default swaps in run-off since November 2007," a company statement said.

Losses of 819m Swiss francs for the quarter were more than three times more than the 240m in losses that the group estimated for the beginning of the year up to February 20, pointing to a greater fall between February and March.

Swiss Re’s structured credit default swaps in run-off generated an additional mark-to-market loss of 819m Swiss francs in the first quarter. While this business is in run-off, the company said it continues to be exposed to market value fluctuations on the underlying securities and estimates a further loss of CHF 200m for April. The annualised return on investments, which excludes the mark-to-market loss on the structured credit default swaps, was 5.8%, up 0.4%age points compared to the first quarter of 2007.

The latest mark-to-market losses add to the 1.2bn Swiss francs depreciation made in November due to credit underwriting activities.

However, Jacques Aigrain, Swiss Re CEO, said the company’s capital position remains “strong”.

“Despite the continuing turmoil in the financial markets, we remain confident in our earnings power and our ability to maximise shareholder returns. Our capital position is strong and our insurance related portfolio is 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.

Swiss Re said it is maintaining its targets of earnings per share growth of 10% and return on equity of 14% over the cycle.