Swiss Re Q1 profits plunge 53%

Swiss Re, the global reinsurance group,  announced on Tuesday that  first quarter profits were halved down by 53%. The plunge in profitability is blamed on recent market turmoil and losses contained within its structured credit default swap portfolio.

Swiss Re's net profit for the first quarter 2008 was 624 million Swiss francs [383 million euros, 594 million dollars] down 53 percent on last years reported figures.

"The  profit reduction  was attributed to the continuing  turmoil in the financial markets and the resulting additional mark-to-market loss of 819 million Swiss francs on the structured credit default swaps," it said.

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. News of the results sent the shares down 5.2 percent to 83.10 Swiss francs in early afternoon trade while the overall market was off 1.4 percent.

The losses for the quarter were over three times more than what the group had earlier estimated at the beginning of the year up to February 20, this sharp decline suggests significant deterioration of the situation during February and March.

Swiss Re chief financial officer George Quinn said "March was a very bad month".

The reinsurance group estimated further losses of 200 million Swiss francs for April.

Quinn would not be drawn to comment as to whether  the group would continue to take write-downs due to the uncertainty surrounding the financial markets but he added: "We clearly remain exposed to short-term market value volatility."

It will be interesting to see what happens when the April figures are announced.

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