Swiss Life joins rush with £400m call

LIFE INSURANCE giant Swiss Life today turned to the markets for financial support, unveiling plans to raise £400m through a new share issue. The move is seen as a further indicator of crisis in insurance worldwide as companies seek to beef up their capital ratios after disastrous stock market falls post 9/11. The news sent Swiss Life's shares sliding more than 10% to Swfr157.5 (£67) today.

The company admitted it is considering the cash injection following a flurry of speculative reports at the weekend. Shareholders will meet on 23 October to discuss the issue but more details will emerge with the half-year results on Wednesday, when the Zurich-based group is also expected to announce a new 'strategic direction'.

Between 1985 and 2001 Swiss Life/ Rentenanstalt distributed £7bn in benefits and dividends to its Group Life customers. This is more than 95% of the total income generated during the same period.

Roland Chlapowski, chief executive of Swiss Life/Rentenanstalt, said: 'Even in the current difficult environment, Swiss Life/Rentenanstalt is in a position to meet all its obligations at all times. Upholding our commitment to an economically realistic regulatory framework is our way of expressing corporate responsibility for a secure second pillar both now and in the future.'

Swiss Life is one of many wounded insurance companies planning to go cap-in-hand to shareholders. Investors are likely to be asked to provide between $2bn and $2.5bn extra for rival Zurich Financial Services.

Dutch financial services group Aegon yesterday unveiled plans to bolster its finances through a capital reorganisation, and insurance stocks across Europe were under the cosh. With UK insurance sharing the pain, companies are looking to the US for an upturn. But it is not happening. Applications for life insurance in America dropped 4.6% in August compared with the same period last year. Overall, US applications declined 1.9% for the summer period June-August.

Life insurance companies are caught in a double bind: on the one hand asset values are falling, while on the other hand high returns to policyholders are still being offered in an effort to stave off a collapse of new policy subscriptions. A vicious circle of insolvency then arises when liquidity constraints oblige these funds to liquidate depreciated assets.