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Swiss Re Takes $1.07 Billion Loss on Mortgage-Backed Securities

On November 18 Swiss Re, the world's largest reinsurer, said that it had taken a write down of $1.07 billion on the value of some...
November 27, 2007

On November 18 Swiss Re, the world's largest reinsurer, said that it had taken a write down of $1.07 billion on the value of some derivatives backed by mortgage securities. Two weeks earlier, the company said that its exposure to problems in the subprime mortgage market in the U.S. would be limited.  Swiss Re explained that the losses resulted from two credit default trades made to protect against declines in the value of investments backed primarily by mortgages. Analysts, who anticipate additional write downs related to the mortgage market to be made by large investment banks, expected the losses of insurance companies to be limited since their exposure to mortgage-backed securities is generally smaller.

In a conference call with analysts Roger Ferguson, Jr., a former governor of the U.S. Federal Reserve who now heads Swiss Re's financial services unit, acknowledged that the company made some poor choices. William Hawkins, an analyst at Keefe, Bruyette & Woods in London, said that Swiss Re's announcement would raise concerns about risk in the insurance industry for some time.

The Washington Post reported on November 20 that analysts said one of the main questions was whether Swiss Re has opened its books to provide full transparency to investors, or whether there are more losses to come. Swiss Re said it has no similar transactions on its books.

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