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Swiss Re says ratings downgrade to cost $1.5 bln

Swiss Re said it aims to maintain capital in the AA range in the long-term and that a ratings downgrade by S&P will lead to an additional funding requirement of around $1.5 billion.

The world's biggest reinsurer posted a net loss of 864 million Swiss francs and 5.9 billion francs in writedowns for 2008, and said it would provide a strategic update in the first quarter.

Swiss Re replaced its chief executive, Jacques Aigrain, with industry veteran Stefan Lippe last week in a bid to steer it back to reinsurance basics following a surprise preliminary announcement of a large full-year loss and hefty writedowns.

The company is targeting a combined ratio of 95 percent for 2009, it said on Thursday, adding that it aims to save 200 million francs in costs in 2009 and 400 million by the end of 2010.

January renewals resulted in an increase of around 2% in prices, with volumes up about 6% at constant rates.

Shares in the Zurich-based reinsurer, which is disbanding its financial markets activities, have slumped 66% this year, clearly underperforming rivals.

The writedowns forced Swiss Re to take a 3 billion franc investment from Warren Buffett's Berkshire Hathaway on unattractive terms and propose a further 2 billion franc capital hike from a rights offer to existing shareholders.

The additional capital was not enough to save Swiss Re's AA rating, seen as key for attracting new reinsurance business. Ratings agency S&P cut its rating to A+ on Wednesday because of the larger-than-anticipated capital depletion in 2008.

S&P also cited the company's battered share price, credit default swap (CDS) levels, yields on its bonds and its exposure to Berkshire Hathaway.

The ratings agency also said it could revise Swiss Re to negative if it fails to complete its capital increase and that the chance of an outlook revision to positive was “remote” over next 12 to 24 months. (Reuters)