Swiss Re to write-down $874 million loss

Source: Exec Digital USA

Date :11/19/2007 12:19:17 PM

Swiss Reinsurance Co., the world's largest reinsurer, reported a $878 million after-tax loss on Monday after exposure to two related credit default swaps.

Swiss Re, in a trading statement, said the loss, which occurred in October, stems mainly from its so-called credit default swaps.

Swiss Re has marked down these ABS CDOs to zero. The sub-prime securities have been written down to 62 percent of their original value. Other smaller adjustments have been made to the remainder of the portfolio.

The market value of the portfolio is now $3.2 billion.

Sub-prime exposure

Swiss Re said today that the two default swaps were written by its Credit Solutions unit to provide protection against a "remote risk of loss" for two of its customers.

The first swap was written last year, the other this year.

While the majority of the exposure is to prime and mid-prime securities, there is exposure to sub-prime and, more importantly, to asset backed securities (ABS) in the form of collateralized debt obligations or CDOs, the reinsurer said.

On-target performance

However the company said it will still post a full-year net profit for 2007 and the year-end return on equity would be above its 13 percent target.

“The excellent performance of the Group throughout the year to date means that Swiss Re is able to absorb the extraordinary financial market developments in October,“ said Jacques Aigrain,(pictured) Swiss Re’s Chief Executive Officer.

“Despite this, it is clear that further improvement and reinforcement of our financial risk taking process is appropriate and we have taken immediate action to make the necessary changes,” he said.

November 19, 2007