Europe's insurers count the cost of the credit crunch

Swiss Re and Axa book billions of writedowns on investments

European insurers were yesterday counting the cost of the credit crunch as Swiss Re and Axa suffered what the Swiss group called "extreme financial market turbulence".

Swiss Re, the world's second-biggest reinsurer, swung to a Sfr864m (£518m) loss last year from a profit of Sfr4.2bn in 2007, following huge losses in its sales and trading division. This followed a record loss of Sfr1.7bn in the fourth quarter.

The group slashed its dividend and could look to raise Sfr2bn from investors just days after Warren Buffett made a multibillion-franc investment.

Swiss Re's new boss, Stefan Lippe, said the results were "clearly disappointing", adding that while some divisions had been robust, the numbers had "been impacted by investment losses". Writedowns on its assets came in at Sfr5.89bn.

Axa avoided falling into a loss, but profits were smashed by 82 per cent. The group announced profits of €923m (£818m) for 2008, down from €5.6bn after it was hit by fair-value adjustments on assets and mark-to-market losses. Henri de Castries, the chairman of Axa, said: "The 2008 financial market turmoil was unprecedented and had a significant impact upon our industry. In this adverse environment, Axa was not immune."

The French group's outlook for the industry remained bearish. "2009 will be another challenging year, in light of the current global economic environment," according to Mr de Castries.

Swiss Re's announcement yesterday, while ahead of the forecast of €1bn losses, caps a miserable few weeks for the Swiss insurer. At the beginning of the month, it shocked the market by forecasting the full-year losses and huge writedowns.

Jacques Aigrain, the group's chief executive, who had pioneered the move into offering risky products, including insuring mortgage bonds using credit default swaps, was replaced by Mr Lippe last week.

This came as the company revealed it had approached Warren Buffett's Berkshire Hathaway to bolster its capital position. The move, carried out through a $3bn (£2.1bn) convertible bond issue, could see the US investor's stake reach 20 per cent.

The original announcement prompted Standard & Poor's to downgrade the group's credit rating to A+ from AA- earlier this week. The move will prove costly as the group admitted funding requirements will jump by $1.5bn as a result.

Swiss Re has taken measures to reduce the risk in its investment portfolio "to further protect the long-term financial strength of the company. These measures are all contributing to building a stronger firm for the years to come", Mr Lippe said. The group added that its renewals in January were up 6 per cent, which Mr Lippe called "a clear vote of confidence".

In Paris, Europe's second-largest insurance group, Axa, yesterday announced that underlying earnings had fallen by 17 per cent to €4.04bn last year. Full-year profits plunged after mark-to-market losses on bonds and the adjustments in fair value of its securities wiped off €1.8bn, as the group posted a loss in the second half for the first time in seven years.

The group also announced it was to cut its dividend to 40c from €1.20 the previous year. It also intends to raise €2bn through the issue of preference shares to boost its capital ratio.