The world's largest reinsurer by premium volume, which warned of more sub-prime-linked write-downs for current quarter and said the market will remain tough this year, said net profit for quarter fell to 170 million Swiss francs ($161.9 million) from 1.3 billion francs a year earlier.
The figure, however, beat analysts' forecasts of a net loss of 50 million francs for Swiss Re, the worst-hit among European reinsurance companies by the global credit-market crisis.
The fourth-quarter results were hurt by a 1.3 billion franc charge on credit-default swaps, hedging instruments that were issued by Swiss Re and were designed to protect an investor from falling bond prices.
Swiss Re, which still has sizable mortgage-backed security holdings, had warned in November that due to deteriorating bond prices, the reinsurer would post a loss on these instruments.
As bond markets have worsened further since late last year, the company, which is in the process of cleaning up its balance sheet, estimated another mark-to-market loss of 240 million francs in the first quarter.
"Overall, the operational results are strong, but the big question mark is how Swiss Re will solve its large exposure to risky instruments," said Heinrich Wiemer, an analyst at Bank Vontobel. "However, Swiss Re seems optimistic to solve this problem. Otherwise, they wouldn't have boosted their dividend or outlook target."
Swiss Re said its underlying reinsurance business remained strong.