Shorting European Insurers

In much acuter need for a capital increase is Swiss Life. The company has been fighting it off by using some interesting accounting techniques (reclassifying debt as assets for example). Many investors have flocked to Swiss Life after their screening tools showed them a stock trading on a very low price-to-book valuation.

Anyone following the story more closely is aware that there is good reason for that, though. Swiss Life is also still in the process of untangling a mess it got itself into by making a hostile bid for Germany's MLP and will likely have to take sizable goodwill writedown on an other recent acquisition.

Being the pro-cyclical animal that it is, Swiss Life brought down its equity exposures at the low, to close to zero. This positions them perfectly to have missed out on the recent market gains. Exposure to a weak German life insurance market and other issues will see the share rerate.

Allianz provides us with a Q2 update on August 7th while Swiss Life Q2 results are out on August 26th, we hope they prove us wrong.

-- Written by Dan Scott in Zug, Switzerland.

>To order reprints of this article, click here: Reprints