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The Actuary The magazine of the Institute & Faculty of Actuaries

Swiss Re struck again by CDS deal fall-out

Swiss Re, the world’s largest reinsurer, has taken a further hit from the structured credit default swap (CDS) deals that blew a hole in its 2007 full year results. The group cited continuing turmoil in the credit markets as the key driver behind a 52% drop in earnings per share for the first quarter of 2008 compared to the previous year.

Despite being in run-off, the structured CDS deals continue to be affected by price volatility of the underlying securities. The mark-to-market loss for the first quarter of 2008 was SFr819m arising from these deals alone. A further loss of SFr200m for April is anticipated.

Swiss Re also recently released a new sigma report entitled ‘Non-life reserving: improving on a strategic challenge’. The study examined how insurers can improve reserving methodologies and the particular relevance of reserving for long-tail lines of business such as liability.

“Insurers are increasingly recognising that they have to pay more attention to reserving,” explained Rudolf Enz, the author of the study. “Shareholders are becoming more reluctant to accept that blocks of business originally identified as being reasonably profitable could instead trigger substantial losses. At the very least, they want to understand when and why such revisions take place.”

The report also examined relationships between reserving and the insurance price cycle, and the impact of improved reserving approaches on compliance and investor relations. The report can be downloaded from www.swissre.com/sigma