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Swiss Life drags SMI to lowest level since 1996

Investors pushed stocks in Swiss Life to their lowest level ever on Monday Keystone

Shares in Swiss Life plunged by more than 20 per cent on Monday as investors ditched the stock amid fears about the life insurer's financial health.

This content was published on March 10, 2003 - 18:30

The share rout helped push the benchmark Swiss Market Index (SMI) to its lowest levels since November 1996 - well below the psychologically important 4000-point mark.

During afternoon trading on Monday, Swiss Life's shares hit a new all-time low of SFr42.50 ($32), before ending the day at SFr44.10.

Analysts blamed the dramatic share slump on market fears about the company's ability to meet its legally required solvency levels.

Switzerland's insurance industry regulator, the Federal Office for Private Insurers, said on Monday that Swiss Life had adequate capital to meet its obligations but might need to tap investors for extra cash at a later point.

"I can't exclude that it will come to that at a later point, but at the moment I would exclude it", said Peter Streit, a member of the regulators' board.

Streit told Reuters that he was confident that Swiss Life was not in danger of breaching Swiss solvency regulations.

"But of course you don't have as much wiggle room as you did maybe ten years ago," Streit said.

Swiss Life spokesman Andreas Hildenbrand said the company had "sufficient capital" at its disposal.

"I don't see any reason for this development [on the stock market]," added Hildenbrand.

SMI down

Swiss Life's crumbling share price helped push the leading SMI index to its lowest level since November 1996.

The 27-stock SMI lost 3.8 per cent, falling to 3,732 points during a day in which only two companies on the index saw modest gains.

Analysts said worries about insurance firms coincided with uncertainty about the economy and a war in Iraq.

"There is a vicious circle," said Rudi Buxtorf, a fund manager with Coutts Bank Switzerland. "One negative factor leads to the next."

Big investment losses

Swiss Life, like most of Europe's big insurers, has been hit by falling equity markets, which have undermined investments that are used to secure policies.

Falling stock markets have also forced many insurers to liquidate big parts of their equity portfolios in order to maintain their legally required solvency ratios.

To make the adjustment, many insurers are also resorting to big write-downs.

Swiss Life was also forced to slash the equity portion of its investment portfolio at the end of February to below two per cent, from 16 per cent at the start of 2002.

However, analysts remain concerned about the insurer's exposure to the private investment firm, Private Equity Holding, which owes Swiss Life over SFr325 million in loans.

Credit threat

Monday's falling shareprice followed Swiss Life's announcement last week that it expected to report a loss of around SFr1.7 billion for 2002 when it releases its annual results on April 8.

The figure is double the SFr839 million loss forecast by analysts.

"Concerns about writedowns are hurting all of the insurers," said one dealer.

Swiss Life added that it had also been affected by restructuring costs and heavy losses in the core insurance business and at its Banca del Gottardo private banking arm.

The problems have prompted the international ratings agency, Standard & Poor's, to warn that Swiss Life could lose its single A credit rating.

Return to profit

Last week, the company said it expected to return to profit this year. It said that despite the losses it would still have a capital reserve of SFr4 billion and would not need to tap investors for fresh funds.

The insurer raised SFr1.1 billion in new capital last year boosting its solvency levels.

However, Swiss Life stock has shed more than a third of its value this year alone.

A key aim for 2003, the company said, was to salvage its company pensions business, which has been struggling to meet fixed-return guarantees.

"Pulling the group pensions business in Switzerland out of the red is an important objective for Swiss Life," the company said.

swissinfo with agencies

Key facts

Stocks in Swiss Life fell by more than 20 per cent to SFr42.40 on Monday.
The fall helped push the Swiss Market Index (SMI) to its lowest level since November 1996.
The SMI finished on Monday at 3,732, down 3.8 per cent.
Investors are worried about Swiss Life's financial health.

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