Swiss Re, Zurich reveal exposure to heavily-indebted U.S. mortgage agencies

Shortly after Swiss Re announced it has an exposure of approximately US$9.6 billion to U.S. mortgage agencies Fannie Mae and Freddie Mac, Zurich Financial Services also announced it held US$8.3 billion in debt securities, reports MarketWatch.
Fannie Mae and Freddie Mac own or guarantee almost half of the United States’ US$12-trillion residential mortgage market, Bloomberg.com reports. The companies’ stocks have plummeted 60% and the two companies now owe US$1.5 trillion in debt.
Hannover Re AG told MarketWatch it has about EUR120-million (Cdn$191-million) worth of exposure between the two U.S. mortgage agencies as well.
In a note to analysts and investors, Swiss Re said it holds a total of US$5.2 billion debt from Freddie Mac and US$4.4 billion from Fannie Mae at the start of July, though its equity holdings in the firms are minimal, the Dow Jones Newswire reports.
Shares in Swiss Re, which were trading more than 3% lower before the announcement, extended their losses to trade down 7.5% the lowest level since March 2003, a Dow Jones report observes.
Swiss Re raised its estimate for a 2008 Q2 loss last month from structured credit-default swaps to CHF350 million (Cdn$344.6 million), from an earlier prediction of CHF200 million (Cdn$196.9 million), reports Bloomberg.com.
The reinsurer wrote down more than CHF2 billion (Cdn$1.9 billion) on credit-default swaps in the previous two quarters, Bloomberg.com adds.
The UK’s RSA Insurance Group PLC said on July 16 it has a small amount of exposure to Fannie Mae and Freddie Mac. An RSA representative told MarketWatch: “Of that negligible amount, none of it is equity. What we have is fixed interest.”
Aviva PLC declined to give an update to MarketWatch, but when it released 2007 full-year earnings figures in February, it had GBP2.158 billion (Cdn$4.3 billion) worth of residential mortgage-backed securities (RMBS), MarketWatch notes.
Most of Aviva’s RMBS are “U.S. investments and the bulk of these are backed by one of the U.S. government-sponsored entities such as Fannie Mae and Freddie Mac,” Aviva said. The figure forms less than 2% of Aviva’s total debt securities worth GBP119 billion (Cdn$239.4 billion), MarketWatch adds.