Accounting error deals blow to Swiss Life funding plans

Swiss Life, the insurer that is banking on convincing shareholders to back a rights issue to rescue the company's ailing finances, yesterday revealed its situation was even more precarious than first thought due to an accounting error that understated its investment losses.

The group reported its biggest ever loss last month of 386m Swiss francs (£165m), but this was understated by Sfr192m. Swiss Life has now restated its results, posting a half-year loss of Sfr578m after tax.

The disclosure of the accounting inaccuracy comes two days before Swiss Life plans to seek approval from shareholders to raise between Sfr900m and Sfr1.2bn in a rights offering. The news is likely to mean the rights issue will have to be offered at a very steep discount.

The error was discovered by the company's auditors, PricewaterhouseCoopers, in connection with the preparations for the launch of the rights issue. A new computer system for administering the group's securities had not been functioning properly and the value of maturing bonds had been calculated wrongly. This increased the company's investment losses by Sfr254m more than originally stated.

Swiss Life yesterday said the embedded value of the group and its total equity remained unchanged. PwC have now signed off the corrected accounts.

Roland Chlapowski, the chief executive of Swiss Life, called the error "very regrettable" and blamed poor project management behind introducing the new securities administration system. He yesterday promised shareholders, which have seen Swiss Life become the worst performing stock in its sector, he would rectify the problem and strengthen the group's accounting team. A new finance director, Bruno Pfister, has been in charge since the middle of August after joining the company from Credit Suisse.

Dr Andres Leuenberger, the group chairman, said: "To ensure the quality of our accounting, we will strengthen our internal controls and increase the involvement of the external auditors."

He said auditors would now be instructed to review all its half-year financial statements.

The news sent shares in Swiss Life down 8 per cent in Zurich to Sfr155 and brought down the rest of the European insurance sector.