Swiss Re reports net income of CHF 0.6 billion in the second quarter 2008

05 August 2008 Swiss Re

Swiss Re reported net income of CHF 0.6 billion for the second quarter of 2008 despite the continuing challenging financial market environment. The Property & Casualty and Life & Health businesses continued to deliver strong performance. Earnings per share were CHF 1.70. Annualised return on equity was 8.5%. Swiss Re is very strongly capitalised with a significant excess over the capital required for a AA rating.

Jacques Aigrain, Swiss Re’s Chief Executive Officer, said: “The continued strong performance of Property & Casualty and Life & Health demonstrates our ability to generate healthy operating earnings, even in challenging market conditions. The
financial market turbulence continues, but, despite this, we are strongly capitalised and our investment portfolio remains sound.”

Swiss Re reported net income of CHF 0.6 billion or CHF 1.70 per share for the second quarter of 2008. Return on equity was equivalent to an annualised rate of 8.5% for the quarter and 8.4% for the half year. The unrealised mark-to-market loss on the
structured credit default swaps in run-off was CHF 362 million for the quarter. While this business is in run-off, Swiss Re continues to be exposed to market value fluctuations on the underlying securities and estimates mark-to-market losses on the structured credit default swaps in run-off of CHF 163 million for the month of July 2008.

Compared to the first quarter of 2008, shareholders’ equity decreased 8% in the second quarter to CHF 25.6 billion due to valuation effects on the investment portfolio of CHF 1.7 billion, resulting from interest rate moves and dividends paid of CHF 1.3 billion. At the end of July 2008, the Group had completed 49% of its CHF 7.75 billion share buy-back programme target, ahead of schedule and reflecting Swiss Re’s solid capital base. Book value per share was CHF 77.65 at the end of June, compared to CHF 83.26 at the end of March 2008.

Swiss Re’s businesses continued to generate strong results. Property & Casualty once again delivered strong performance with an excellent combined ratio of 92.3%, demonstrating Swiss Re’s Swiss Re reports net income of CHF 0.6 billion in the second quarter 2008 Strong performance in Property & Casualty and Life & Health businesses
Earnings per share of CHF 1.70 Annualised return on equity of 8.5% effective cycle management. Against a background of a softening pricing cycle, the Group’s focus on underwriting quality and careful risk selection enabled Property & Casualty to deliver operating income of CHF 0.8 billion, despite sharply lower investment return
allocation in the quarter.

Life & Health operating income was CHF 0.6 billion, an increase of 1% compared to the second quarter of 2007, benefiting from significantly improved mortality and morbidity experience. Relative to the first quarter of 2008, Admin Re® business was impacted by lower investment gains.

Financial Markets delivered operating income of CHF 1.3 billion, excluding the mark-to-market loss on the structured credit default swaps in run-off, reflecting a solid investment yield of 5.2%. Annualised return on investments (which excludes the impact of the structured credit default swaps in run-off) was 3.0% for the quarter. The decrease in the return on investments was mainly due to the impact of the Group’s hedging programmes. The programmes are effective as they protect the portfolio against the risk of impairments, but lead, in the shorter term, to volatility in
Swiss Re’s return on investments on an accounting basis. The Group’s investment portfolio quality continues to be high, with only minor impairments totalling CHF 175 million and low net exposure to listed equities.

Jacques Aigrain said: “The difficult market environment also creates new opportunities. Underpinned by its strict underwriting discipline, expansion in emerging markets and new product offerings, Swiss Re has the execution capability and capital strength to seize these opportunities.”

As a case in point, on 5 August 2008, Swiss Re agreed to acquire Barclays Life Assurance Company Ltd for a cash purchase price of GBP 753 million. Swiss Re will acquire approximately 760 000 life insurance and pension policies, as well as annuity contracts, representing approximately GBP 6.8 billion in invested assets. The
transaction is accretive to economic and US GAAP earnings and is expected to achieve an ROE in excess of Swiss Re’s over-the-cycle target of 14%. This transaction has no effect on Swiss Re’s previously announced share buy-back programme – the buy-back of
CHF 7.75 billion of shares is expected to be completed as scheduled by April 2010.

Swiss Re anticipates additional demand for life and non-life run-off solutions, which will allow the Group to further grow its Admin Re® business in the United Kingdom and North America, and to venture into new markets as opportunities arise. Swiss Re’s latest securitisation, the USD 150 million of multi-peril natural catastrophe protection through the Vega capital programme, affirms Swiss Re’s leading role in insurance-linked securities product innovation.

Swiss Re maintains its targets of earnings per share growth of 10% and return on equity of 14% over the cycle.

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