Swiss Re expects CHF 1.2 billion mark-to-market loss in the iSwiss Re expects CHF 1.2 billion mark-to-market loss in the income statement arising from its credit underwriting activities following the market deterioration in October

19 November 2007, Zurich

Following completion of its October performance reporting, Swiss Re has to report a CHF 1.2 billion mark-to-market loss, or CHF 981 million after tax, arising from its exposure to two, related credit default swaps written by its Credit Solutions unit that provide protection for a client against a fall in the value of a portfolio of assets.

These investment grade credit default swaps were structured to provide protection against a remote risk of loss. The unprecedented and severe ratings downgrades undertaken by the Rating Agencies in October and the lack of any truly liquid market for these securities has resulted in a significant and material reduction of the value of the underlying assets.

The portfolios being protected via these credit default swaps, consist largely of mortgage backed securities in various forms including residential and commercial mortgage backed securities. While the majority of the exposure is to prime and mid-prime securities, there is exposure to sub-prime and, more importantly, to asset backed securities (ABS) in the form of collateralised debt obligations or CDOs.

Swiss Re has marked down these ABS CDOs to zero. The sub-prime securities have been written down to 62% of their original value. Other smaller adjustments have been made to the remainder of the portfolio. The market value of the portfolio is now CHF 3.6 billion.

The transactions were approved by the relevant internal risk committees with the appropriate levels of delegated authority. The speed of the financial market deterioration and the size of the loss underlines the need for a more pro-active management of this type of financial market transactions. We have taken steps to ensure this.

“The excellent performance of the Group throughout the year to date means that Swiss Re is able to absorb the extraordinary financial market developments in October. Despite this, it is clear that further improvement and reinforcement of our financial risk taking process is appropriate and we have taken immediate action to make the necessary changes” said Jacques Aigrain, Swiss Re’s Chief Executive Officer.

The transactions continue to be exposed to market value changes. This is substantially mitigated by the Group's conservative market value estimates for the ABS CDO part of the exposure, which is the most significant concern.

Swiss Re remains committed to its previously announced share buy-back programme and reiterates its over the cycle targets of EPS 10% and RoE of 13%.

Notes to editors

Swiss Re

Swiss Re is the world’s leading and most diversified global reinsurer. The company operates through offices in more than 25 countries. Founded in Zurich, Switzerland, in 1863, Swiss Re offers financial services products that enable risk-taking essential to enterprise and progress. The company’s traditional reinsurance products and related services for property and casualty, as well as the life and health business are complemented by insurance-based corporate finance solutions and supplementary services for comprehensive risk management. Swiss Re is rated “AA-“ by Standard & Poor’s, “Aa2” by Moody’s and “A+” by A.M. Best.

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