Swiss Re takes $878M subprime hit

Swiss Reinsurance Co. today reported that it lost $878 million after taxes due to its subprime-mortgage exposure. The loss, which occurred in October, stemmed from a pair of credit default swaps written by the Zurich-based firm’s Credit Solutions unit. The swaps were made to protect portfolios against a risk of loss, but the mortgage crisis has made the value of the underlying assets plummet, Swiss Re said. These portfolios contained mostly mortgage-backed securities, including some exposure to subprime and asset backed securities in the form of collateralized debt obligations. Swiss Re has marked down the ABS CDOs to zero, while the subprime assets have lost 62% of their original value. The market value of the portfolio is now $5.4 billion. Still, Swiss Re will stick with its targets: a 10% rise in earnings per share and a year-end return on equity of 13%.