Published February 13, 2009

Swiss Re ousts CEO after shares plunge on record losses

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(ZURICH) Swiss Reinsurance Co ousted chief executive officer Jacques Aigrain after record losses wiped out more than a third of its market value in a week and forced the second-biggest reinsurer to turn to Warren Buffett for capital.

Changing watch: Mr Aigrain (above) will be replaced by Mr Lippe (next). Trading of securities such as credit-default swaps led to six billion franc writedowns in 2008

The board of directors accepted Mr Aigrain's offer to resign and named deputy CEO Stefan Lippe, 53, as his successor, Swiss Re said in a statement yesterday from Zurich.

The reinsurer announced last week a 3 billion Swiss franc (S$3.9 billion) capital injection from Mr Buffett's Berkshire Hathaway after a full-year loss of about 1 billion francs. The company is abandoning Mr Aigrain's strategy to increase profit by trading securities such as credit-default swaps, which led to writedowns of 6 billion francs in 2008.

'When a bad situation turned into a dramatic one, they had to act,' said Thomas Noack, an analyst at WestLB Equity Markets in Dusseldorf who has a 'neutral' rating on the shares. 'Lippe is a real reinsurance guy, which is exactly the right and reassuring signal they need to send at this moment.' Swiss Re was seen 4.3 per cent higher at 19.75 francs in pre-market trading at 8.18 am Zurich time yesterday, according to Clariden Leu.

Swiss Re has dropped 37 per cent since announcing the loss and the capital increase, bringing declines this year to 62 per cent. The company, which became the world's biggest reinsurer after buying GE Insurance Solutions in 2005, now has less than a quarter of the market value of rival Munich Re.

Mr Lippe, a German national, has been with Swiss Re for 25 years. He joined the executive board in 1995 and led Swiss Re's property and casualty and life and health underwriting since 2005. He became chief operating officer in September 2008.

'I am clear about the challenges that Swiss Re needs to address,' Mr Lippe said in the statement. 'Our core reinsurance portfolio is sound.'

Swiss Re said last week it will disband its financial- markets unit, cut its dividend and may seek an additional 2 billion francs from investors, on top of Mr Buffett's investment, to keep its credit rating.

Swiss Re's long-term debt rating was last week lowered one step to Aa3 from Aa2 by Moody's Investors Service, which cited last year's loss and the outlook for 2009. Standard & Poor's Ratings Services said it may lower Swiss Re's long-term credit ratings from AA-.

Berkshire's investment may give it a stake of more than 20 per cent in Swiss Re. Mr Buffett bought 3 per cent of Swiss Re in January 2008, which ceded 20 per cent of its property and casualty business to Berkshire Hathaway over five years to free up capital.

Mr Buffett, 78, said last week that he was 'very impressed by Jacques Aigrain and his management team.' The Omaha, Nebraska-based billionaire isn't seeking a seat on Swiss Re's board of directors, Mr Aigrain said last week.

Mr Aigrain, 54, ramped up Swiss Re's sales and trading of securities in 2006 and 2007, when the reinsurance business was trying to cope with stagnant premiums.

While the strategy boosted profit in 2006, his first year as CEO, the credit crunch and rising bond defaults forced record writedowns in 2008. About a third of Swiss Re's markdowns last year were tied to credit default swaps, it said.

Under Mr Aigrain, 'Swiss Re successfully completed several major acquisitions, including the Insurance Solutions operations from General Electric,' chairman Peter Forstmoser said in the statement. 'The board is tremendously grateful for his significant contributions and personal commitment to Swiss Re.' - Bloomberg