First-half net profit at the Swiss Reinsurance Company fell by 91.2 per cent to SFr118 million ($78 million), dragged down by the firm’s exposure to weak equity markets.
The result was way below the expectations of analysts who had forecast a bottom line figure of around SFr1 billion.
The news sent Swiss Re's share price tumbling at the stock exchange. It had fallen by more than 11 per cent in early afternoon trading on Thursday to SFr108.50, after closing at SFr122.75 on Wednesday.
Net profit was SFr1.35 billion in the comparable period last year.
The company said that it expected a "satisfactory" full year result, provided there was a modest stock market recovery and no extraordinary loss events.
"If equity markets were to persist at the end-June level or below, additional impairment charges would negatively impact the second-half results," the firm said in a statement from its Zurich headquarters.
It added that it had partly hedged its equity holdings to reduce its exposure to falling markets.
Swiss Re's net premium income rose by 16 per cent in the first half of 2002 to SFr13.8 billion from SFr11.9 billion in the same 2001 period.
The company blamed an eight per cent drop in net investment income to SFr2.8 billion on the strong Swiss franc and "the absence of certain dividend income from the prior year".
Swiss Re said the life reinsurance business was expected to see increased demand on the back of growing pressure on the capital needs of primary insurers who are Swiss Re clients.
The life business registered growth and continued to outperform its targeted profit margin.
"The last 12 months were a severe test for all industry players," said CEO Walter Kielholz. "However, in tough times experience tells us the opportunities are greatest for the strongest players. I believe this remains so now for Swiss Re."
Commenting on the result, investment analyst Richard Schreuder at Barclays told swissinfo that the reduced profit was negative news. However, he pointed out that the insurance companies were not only insuring both companies and customers, but also investing the premiums and capital.
"The insurance business is doing quite well. We saw the underwriting performance improve markedly against the first half of 2001...but on the investment side, things are a bit more negative because of the weak equity markets," he said.
He agreed with Swiss Re CEO Kielholz that there were opportunities in the present economic climate for the company to pick up more business.
"Swiss Re has enough capital and a very good reserve to premium ratio which makes it financially very strong and it can therefore pick up the best bits of the business," he added.
Legal battle over WTC
Swiss Re is currently embroiled in a legal battle with the leaseholder of the World Trade Center in New York, Larry Silverstein, over whether the terrorist attacks of September 11 constitute one or two events.
The policy limit, according to Swiss Re is $3.5 billion. Siverstein is demanding twice that amount. A first trial on the issue is expected to take place in November.
In a related development, the world's largest reinsurer, Munich Re, announced on Thursday it was abandoning its profit forecast after posting a deep second quarter loss.
In a statement, Munich Re said its loss from April to June was €383 million (SFr562.82 million) due to additional reserves at its troubled US unit, American Re, higher claims from the September 11 World Trade Center attacks and writedowns on its equity investments.
swissinfo with agencies
The role of the reinsurer is to take on that share of large risks which direct insurance companies cannot carry alone.
Premium income was up 16 per cent to SFr13.8 billion.
Swiss Re said it had hedged some equity holdings to reduce exposure to falling markets.
It said the life sector was picking up because of capital needs of primary insurers.
In compliance with the JTI standards