By Sean FarrellFinancial Editor
Swiss Re, the world's biggest reinsurer, became the latest victim of the sub-prime meltdown yesterday as it announced a SFr1.2bn (525m) loss on two credit default swaps.
Shares of the world's biggest reinsurer dropped more than 10 per cent on the news, which weighed on the European insurance sector. The insurer sold the complex credit instruments to clients seeking to protect themselves against falls in mortgage-backed investments.
The investment portfolios the insurance was sold for included collateralised debt obligations (CDOs), which are bundles of bonds of differing quality and include securities backed by mortgages. The value of CDOs collapsed after mortgage defaults rocketed in the US. "We clearly made some poor choices," said Roger Ferguson, the head of Swiss Re's financial services business.
The company's finance director, George Quinn, said Swiss Re had carried out "a very detailed and exhaustive review to ensure we don't have any further exposure, and we do not". He said the credit default swaps were not sold aggressively. But investors voiced disapproval of the company's losses in complex financial markets, which are not …