Swiss Life To Pass Dividend, Cut Costs

by Ulrika Lomas, Tax-News.com, Brussels

04 February 2002

A profit warning on Friday from Swiss Life, Switzerland's largest life insurer, sent its shares down more than 10% to SFr561 Swiss francs. At its low for the day of SFr545, the price matched levels last seen in early July 1997.

The company confirmed market rumours about its financial condition by warning that it would probably pass its dividend for 2001, with expected profits below the consensus among Swiss analysts of SFr375m. The company, whose shares have fallen 50% over the last year, released its profit warning on Thursday after the Swiss stock market closed.

Swiss Life relies heavily on investment gains on large equity holdings and reported doubled net profits of SFr924m in 2000. The company had already warned that as a result of the downturn in stock markets its 2001 profits would be down, and said that it would cut costs by 20%. Under domestic Swiss rules it has to guarantee a 4% investment return to its policy-holders, something that is very difficult when interest rates are low and equity markets have performed badly.

Standard & Poor's, the credit rating agency, warned last month that the company needed to strengthen its capital base to maintain its current credit rating. On Friday there were immediate downgrades from Schroder Salomon Smith Barney and Zuercher Kantonalbank. The former also slashed its target price to SFr450 from SFr700.

Analysts said Swiss Life's problems were company specific, but the European sector was sharply lower. Aegon of the Netherlands fell 4.2% to Euros25.97, Italy's Alleanza lost 2.1% to Euros11.20 and Skandia in Sweden dropped 3.3% to Euros58.50.

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