Swiss Re Downgraded by S&P After 'Capital Depletion' (Update1)

By Erik Holm
Bloomberg News
February 18, 2009

Feb. 18 (Bloomberg) -- Swiss Reinsurance Co., the world's second-biggest reinsurer, was downgraded by Standard & Poor's after record losses forced the company to raise capital from Warren Buffett's Berkshire Hathaway Inc.

The reduction of credit and financial-strength ratings to A+ from AA- reflects "greater-than-anticipated capital depletion," S&P said today in a statement on the Zurich-based firm. "These developments are symptomatic of Swiss Re's greater tolerance for financial risk than its peers."

The downgrade comes two weeks after Buffett said he was "very impressed" by Swiss Re's management and announced his Berkshire was injecting 3 billion Swiss francs ($2.6 billion) into the reinsurer. Swiss Re is abandoning a strategy to increase profit by trading securities such as credit-default swaps, which led to a loss of about 1 billion francs in 2008.

Swiss Re replaced Chief Executive Officer Jacques Aigrain Feb. 12 as the reinsurer's shares fell by more than a third after announcing the loss and Buffett's investment earlier this month.

Swiss Re, which became the world's biggest reinsurer after buying GE Insurance Solutions in 2005, now has less than a quarter of the market value of competitor Munich Re.

Insurers worldwide have posted more than $160 billion in losses and writedowns tied to the collapse of the mortgage market, with Swiss Re representing more than $4 billion of that total, the most among any European carrier, according to Bloomberg data.

Swiss Re is scheduled to report detailed full-year earnings tomorrow at 7 a.m. local time in Zurich.

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