Swiss Re Announced Anticipated Sub-Prime Losses

by Stewart Douglas

Story link: Swiss Re Announced Anticipated Sub-Prime Losses

Reinsurance giant Swiss Re has announced today that it is anticipating losses in excess of £500 million on insurance cover linked to declining values in its client’s sub-prime mortgage debt exposure, which has resulted in its shares trading strongly down on the morning.

The world’s biggest reinsurer today announced that its losses could amount to 1.2 billion francs as a result of cover for a client’s bad debt exposure in light of the sub-prime mortgage sector collapse of the summer. Its losses are anticipated to arise from a triggered policy linked to mortgage securities exposure, which has generally lost substantial value in light of the US situation.

Whilst Swiss Re did not disclose precisely its client or the exact nature of their liability, it is thought that the potential losses totalling some half a billion pounds could be linked to just one client, suggesting there may be even more trouble ahead for the reinsurer.

Speaking today on the situation, Swiss Re has said that whilst its business remains fundamentally sound, it is working to help minimise its risk exposure to similar situations on further client accounts over the mid to long term.

Jacques Aigrain, Swiss Re chief executive, said that although the announcement may be disappointing for shareholders, the strong financial year previously would mean that there were more than sufficient funds to absorb the loss.

Markets were today dismayed by the announcement, which saw significant sell offs of Swiss Re securities for fear of the potential losses that could be realised by the company in the near future. The identity of its particular client remains unknown.

Meanwhile analysts have predicted that the reverberations of the sub-prime situation could be felt into the next couple of years with insurance companies and reinsurers bearing the ultimate burden of claimed policies.