Analysts lob brickbats as Swiss Re predicts £580m loss

Swiss Re expects to make a net loss of CHF1bn (£580m) for the full year of 2008, it has revealed.

The reinsurer said it was implementing measures to bolster its financial strength, but analysts have criticised its performance and rating agencies have moved to downgrade the company.

One analyst said: “They have had a very disappointing set of results indeed.”

Moody’s Investor Service downgraded the insurance financial strength and debt ratings of Swiss Re from AA2 to AA3. It added that the ratings had been placed on review for a further possible downgrade.

The downgrades came despite Swiss Re’s drive to raise CHF5bn to shore up its capital.

Part of the funding will come from a CHF3bn investment by Warren Buffett’s Berkshire Hathaway via a convertible perpetual capital instrument.

Swiss Re is also planning a CHF2bn rights issue.

Both moves are subject to shareholder approval.

Analysts said Swiss Re was left with little choice over the Berkshire Hathaway deal. “It’s not something that any shareholder will view positively because it’s an expensive transaction. But the company did need to do something after the fourth-quarter results. This is probably the least bad alternative.

“To raise capital from the equity market would be extremely hard so you have to present the market with a done deal,” said one.

Commentators attributed the losses to private equity and hedge fund writedowns, corporate bond impairments and mark-to-market losses.

Moody’s said Swiss Re’s earnings “contrasted poorly” with a number of its peers. The rating agency added: “The potential remains for further capital erosion in the light of the nature of Swiss Re’s investment and legacy portfolios – the latter containing non-core activities which have been discontinued, including structured credit default swaps and trading activities written within the former financial products division.”

Jacques Aigrain, chief executive of Swiss Re, said he was disappointed with the results but added: “We have taken steps to protect our capital strength to ensure the continued trust of our clients, and we continue to manage our business in a disciplined, conservative manner. Warren Buffett’s agreement to invest in Swiss Re is a testament of the strength of our franchise.”