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Swiss Re fourth-quarter net profit falls 87 percent on bad loans

Swiss Re fourth-quarter net profit falls 87 percent on bad loans

Swiss Reinsurance Co. reported an 87 percent drop in fourth-quarter net profit on Friday, blaming massive write-downs linked to bad loans.
The world's largest reinsurer said its net profit during the three months to December was 170 million Swiss francs (US$161.7 million; euro106.9 million) compared with 1.3 billion francs in the year-earlier period.
Swiss Re said its group net income for the whole of 2007 fell 9 percent to 4.16 billion (US$3.96 billion; euro2.62 billion) from 4.56 billion in 2006.
Investors had expected worse after analysts predicted a full-year profit closer to 4 billion francs (US$3.81 billion; euro2.52 billion).
As a result, shares in Swiss Re rose Friday, closing 5.2 percent higher at 84.10 francs (US$80.62; euro53.15) on the Zurich exchange. The company said it would propose increasing its dividend by 18 percent to 4 francs (US$3.81; euro2.52) from 3.40 francs in 2006.
The Zurich-based reinsurer announced in November that it would record a 1.2 billion franc pretax loss as a result of credit default swaps gone bad. On Friday it warned to expect further write-downs of some 240 million francs (US$228.3 million; euro151 million) in the current year.
Credit default swaps are usually bought by bond investors, who seek insurance against potential market losses. When bonds lose their value fast, the insurer has to pay out claims that help investors recover some losses.
Swiss Re said the business unit at which the losses occurred was marginal to its credit underwriting operations and would be closed down.
"We have learned from the mistake and are confident that we have a stronger organization as a result," the company said in a statement.
A New York law firm on Wednesday announced it was organizing a class action lawsuit on behalf of U.S. investors who lost out when Swiss Re share prices dropped sharply following writedowns.
Coughlin Stoia said Swiss Re violated U.S. Securities Exchange Act rules by providing misleading information about its financial condition, a charge the company denies.
Swiss Re said premiums in its property and casualty division rose 2 percent last year, reflecting the inclusion of General Electric Co.'s reinsurance unit which it acquired in 2006 for around US$8 billion.
Property and casualty premiums _ still the company's main business _ reached almost 19 billion francs (US$18 billion; euro12 billion) compared with 18.5 billion francs a year, it said.
The increase helped improve Swiss Re's combined ratio _ an industry benchmark that compares costs and claims to premium income _ by 3 basis points to 90.2 percent from 90.5 percent the previous year. A level below 100 percent means the business is profitable.
Reinsurance companies sell backup coverage to other insurers, spreading risk so the system can handle huge losses from major disasters.


Updated : 2021-05-09 01:36 GMT+08:00