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Trio pile on insurance misery
LONDON, England (Reuters) -- A trio of leading European insurers revealed deepening damage from slumping financial markets on Thursday, as Swiss Life warned of a record loss while Aegon and Royal & Sun Alliance slashed their dividends. The three statements show that Europe's insurance industry still has the potential to disappoint investors, even after months of weak results and widely-voiced concerns about the sector's financial stability. Shares in Swiss Life, Switzerland's largest life insurer, plummeted nine percent by 0918 GMT and Dutch group Aegon slipped around seven percent. Royal & Sun (RSA) -- already down at its lowest in well over 10 years -- managed a modest 2p bounce to 68-1/2. The European sector was down 1.3 percent at 123.00, its lowest in some eight years. The sector has fallen over 70 percent since hitting a peak in November 2000 and has lagged European equities as a whole <.STOXX> by over 30 percent through the past 12 months. In a surprise preview of full year figures not due until April 8, Swiss Life said it expected a record net loss of around 1.7 billion francs ($1.3 billion), double analysts' estimates. It said restructuring costs and big losses in its core domestic life insurance business, as well as its Banca del Gottardo private banking arm, will take their toll. Like other insurers, Swiss Life has been forced to sharply cut the equity portion of its investment portfolio, to below two percent at the end of February from 16 percent at the start of 2002. It had to realise big losses as it dumped large parts of its huge stock holdings into weak markets. Swiss Life, in the midst of refocusing on its core life insurance business, said it expected to return to profit this year, but warned 2003 would be "very challenging". It said markets remained weak and falling interest rates made it difficult to meet regulatory minimum returns on pensions. However it insisted it had enough capital on hand, signalling it sees no need to tap investors for fresh funds. "The Swiss Life Group has sufficient financial leeway to pursue its new strategic direction," it said. HOME MADE PROBLEMSSwiss Life said it made an unspecified loss in its Swiss group or company pensions business, which has been struggling to meet fixed-return guarantees. Reeling from an ambitious expansion and badly hit by the global equities rout, Swiss Life last year threw out a risky and expensive foreign expansion plan, vowing to concentrate on its core European life business and shedding some 700 jobs. A series of home made problems kept Swiss Life firmly in the spotlight for much of last year, including several accounting errors and the revelation of a shady investment vehicle that made millions for top executives. In Britain Royal & Sun Alliance announced a 62.5 percent cut in its dividend as 2002 profits came in at the low end of expectations. Operating profits of 226 million pounds ($360 million) were up from just 16 million the previous year but were at the lower end of forecasts in a 205-300 million range. Royal & Sun is to pay a total dividend of six pence a share, down from 16p the year before. Most investors had expected the payout to be cut by 50 percent. "The dividend cut was worse than expected," said David Buik of Cantor Index. Royal & Sun is also contending with a shortfall in its own pensions fund of 406 million pounds on the basis of new UK accounting standards expected to be enforced in coming years. "As it is a long-term liability the group intends funding the shortfall over the next 10 years at the rate of around 30 million pounds per annum," Royal & Sun said. Dutch group Aegon, a life insurance giant once synonymous with solid earnings growth, said it would cut its dividend to 0.40 euros per share in 2003 from 0.74 in 2002. "This was not very positive news and the dividend is worrying...Obviously the market was braced for a little tick down but this is much bigger," said Eureffect asset manager Florian van Laar. Aegon met its own forecast for a 35 percent slide in yearly net profit to 1.547 billion euros. The group's bottom line has been hurt by heavy provisions for bond defaults in the United States and write-downs on deferred acquisition costs. It has also been forced to set aside money to cover guaranteed returns on certain products. Aegon, which has lost about two-thirds of its market value in the last 12 months and which issued its first ever profit warning in 2002, gave no earnings outlook for this year. "Business operations are sound...Nonetheless, weak and volatile financial markets and geo-political uncertainty continue to create a difficult operating environment for our businesses," Aegon said. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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