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Kenya: Swiss Re Suffers First Quarter Loss
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Business Daily (Nairobi)
8 May 2008
Posted to the web 8 May 2008
Steve Mbogo
Continuing turmoil in the global financial markets has eaten into the income of Swiss Re, a reinsurance company which has strong business relations with the listed Kenya Re.
Swiss Re reported net income of Sh36 billion in the first quarter of 2008, a reduction of 53 per cent over the prior year's first quarter. The company said the drop was also a result of revaluing loss of Sh46.7 billion on the structured credit default swaps since November 2007.
Swiss Re has what is known as retrocession arrangements with Kenya Re whereby the local firm reinsures 95 per cent of all risks above the sum assured of Sh1.5 million it accepted since March, 2004. The other five per cent is placed with Africa Re.
According to analysis by stockbrokerage firm, Faida Securities, this investment portfolio has in the past supported Kenya Re through rough patches in re-insurance business.
Swiss Re said in the first quarter of this year, it its annualised return on equity was 8.5 per cent. The income losses were partially offset by a strong performance from Asset Management, Property & Casualty and Life & Health departments which had satisfactory performance.
Jacques Aigrain, Swiss Re's Chief Executive Officer, said despite the continuing turmoil in the financial markets, the company remains confident in its earnings power and its 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 was targeting earnings per share growth of 10 per cent and return on equity of 14 per cent this year.
In its global reinsurance business outlook for this year, the company said it expects property and casualty market conditions to remain challenging in the short term.
In January, 2008, Swiss Re entered into a significant quota share arrangement to increase the company's operational leverage by ceding a 20 per cent share in new and renewed property and casualty business to Berkshire Hathaway, an insurer.
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The agreement provides for a ceding commission that covers ongoing acquisition costs and a further fixed 14 per cent. Overall, the agreement provides Swiss Re with both downside protection and upside flexibility, enabling the company to further advance its capital management.
Swiss Re has diversified business providing solutions for property and casualty lines of business in insurance and reinsurance, covers mortality (death) risks, financial services and offers business space, apartments for rent and residential properties for sale.
The company operates through offices in more than 25 countries. Swiss Re is rated AA by Standard & Poor's rating agency, which indicates "very strong" financial security.
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