Eight days after Swiss Re announced it had sustained an $860 million loss last year thanks in part to poor credit default swaps, and would need a $2.6 billion capital infusion from Berkshire Hathaway to preserve its "double-A" rating, the company named a new chief executive officer to implement its recovery strategy.
The Zurich, Switzerland-based reinsurance giant last week replaced CEO Jacques Aigrain with Deputy CEO and Chief Operating Officer Stefan Lippe.
Mr. Aigrain, who joined Swiss Re in 2001, was appointed CEO on Jan. 1, 2006. The company said he would support the transition to Mr. Lippe through Feb. 18.
"Having taken measures to reinforce the group's capital strength and further de-risk its investment portfolio, the interests of Swiss Re are now best served by a change in executive leadership," said Mr. Aigrain in a statement released by the company.
Mr. Aigrain said Mr. Lippe had been the architect of Swiss Re's "focus on disciplined, quality underwriting in the reinsurance business. I am proud to have had him by my side as a trusted colleague, and wish him and the team the greatest of success for Swiss Re to shine anew."
"I am clear about the challenges that Swiss Re needs to address," said Mr. Lippe. "Our core reinsurance portfolio is sound. We are focused on meeting our clients' needs, creating shareholder value and providing quality career opportunities in a stimulating business environment. I look forward to working closely with the board, the executive team and the employees of Swiss Re in my new capacity."
Mr. Lippe, 53, a German citizen, has been with the Swiss Re Group for 25 years. He was appointed a member of Swiss Re's executive board in 1995, and served for 10 years as CEO of the Bavarian Re group.
In 2001, he was appointed head of property and casualty business worldwide, as well as a member of the executive committee. Beginning in 2005, he led Swiss Re's property-casualty and life-health insurance underwriting, and in September 2008 assumed the role of chief operating officer and was appointed deputy CEO.
When Swiss Re announced its 2008 loss and capital infusion, Mr. Aigrain said that while his company was "disappointed with our overall results in 2008, our core business–property and casualty and life and health–is performing well." He added that "Warren Buffett's agreement to invest in Swiss Re is a testament to the strength of our franchise," referring to Berkshire Hathaway's billionaire CEO.
At the time the cash infusion was announced, Mr. Buffett said his company was "delighted to have this opportunity to increase our investment in Swiss Re. I am very impressed by Jacques Aigrain and his management team." Now, however, Mr. Aigrain is history, but Swiss Re's top management hailed his replacement.
"We are very pleased that Stefan Lippe assumes the CEO position," Swiss Re Chairman Peter Forstmoser said in a statement. "His proven track record in reinsurance will support our efforts to focus on our core business, while at the same time ensuring operational continuity. Stefan Lippe brings hands-on expertise, a clear strategic focus and a reputation for delivery of bottom-line results."
He noted that under Mr. Lippe's leadership, the company had successfully completed several major acquisitions, including the Insurance Solutions operations from General Electric.
Mr. Lippe, he added, had reorganized Swiss Re Group "to be fully client-oriented and to better position the company to leverage its global scale."
Swiss Re Group's announcement that it would secure $2.6 billion in capital from Berkshire Hathaway failed to keep one rating firm from downgrading its financial strength and two others from putting the firm on a "negative" watch.
The downgrade came from the London office of Moody's Investors Service, which dropped the insurance financial strength and debt ratings of Swiss Reinsurance and associated companies to "Aa3″ from "Aa2."
A.M. Best Company in Oldwick, N.J., said it placed the financial strength ratings of Swiss Re under review with negative implications. Earlier, Standard & Poor's in New York said it was putting the firm's ratings on "CreditWatch," with negative implications.
Moody's–noting Swiss Re's report of a reduction in shareholders' equity by 17-to-21 percent compared to third-quarter 2008–said the latest "results will rapidly accelerate the deterioration in key financial metrics that had already occurred during the course of 2008 and had led to the assignment of a negative outlook to Swiss Re's long-term ratings in November 2008."
A.M. Best said its rating actions followed Swiss Re's announcement of a "disappointing net loss for 2008," including a fourth-quarter erosion of shareholders' equity of four billion Swiss francs to five billion Swiss francs ($3.4 billion to $4.3 billion, in current exchange rates).
Best noted that on Dec. 19, 2008 it had assigned a negative outlook to Swiss Re's ratings "due to concerns that the continuing turmoil in the financial markets could further erode Swiss Re's capital position and negatively impact earnings in 2009."
Swiss Re is also considering raising an additional two billion Swiss francs ($1.7 billion), subject to market conditions, for a total of five billion Swiss francs ($4.3 billion), counting the infusion from Berkshire Hathaway.
The global reinsurer said it will trim back on its dividend and is "de-risking" its portfolio, which suffered from a heavy investment in credit default swaps.
Swiss Re Group had announced that to preserve its "double-A" rating, it was beefing up its capital with an infusion of three billion Swiss francs–$2.6 billion at current exchange rates–courtesy of Mr. Buffett.
The firm's surplus regulatory capital as of Dec. 31, 2008 was between 1.5 billion Swiss francs ($1.3 billion) and two billion Swiss francs ($1.7 billion) below the level required to maintain its current "double-A" rating.
The Zurich-based company said its arrangements to secure capital from Berkshire Hathaway are subject to shareholder approval.
Swiss Re said the investment from Berkshire Hathaway is expected to be in the form of a convertible perpetual capital instrument issued by Swiss Re, with a 12 percent coupon. At Berkshire Hathaway's option, it will be convertible after three years into Swiss Re shares, with a price of 25 Swiss francs ($21.48) per share (subject to anti-dilution adjustments).
The reinsurer said it intends to ask for authorization for a rights offering to existing shareholders of up to two billion Swiss francs ($1.7 billion), subject to market conditions.
The company has also agreed, subject to regulatory approval, to enter into an adverse development cover with Berkshire Hathaway on Swiss Re's total p-c reserves. The contract will provide total coverage of five billion Swiss francs ($4.3 billion).
Swiss Re said it expects to report an increase in reinsurance rates of around 2 percent, leading to a volume gain of around 6 percent, at constant foreign exchange rates, with the reinsurance premium cycle continuing to harden.
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