Swiss Re has $9.6 Billion Exposure to Freddie, Fannie

Swiss Re said it had $9.6 billion exposure to the debt of U.S. mortgage financers Freddie Mac and Fannie Mae, renewing fears over its vulnerability to the credit crunch and sending its shares down.

Shares in the world's largest reinsurer fell about 8 percent, hitting their lowest level in over five years after the group's latest unwelcome admission to ownership of troubled U.S. assets.

The U.S. government was last week forced to pledge help to Freddie and Fannie , which command just under half of the United States' $12 trillion in outstanding mortgage debt, amid concerns they might run out of capital as house prices tumble.

Swiss Re has been one of the biggest insurance victims of the credit crunch, because of its strategy of operating in both the investment banking and insurance markets.

It has already written down more than 2 billion Swiss francs ($2 billion) on credit default swaps.

But analysts said investors had overreacted to the reinsurer's latest announcement of its exposure to risky U.S. assets, because the agencies' debt is insured by the U.S. government.

"If that is the reaction to the announcement of exposure to Freddie Mac and Fannie Mae then it is very overdone," said Julius Baer analyst Roger Degen.

"We are not talking about the shares of Freddie Mac and Fannie Mae here, but the bonds." But Rene Locher, analyst at Sal.

Oppenheim, said such bonds had lost value despite government backing, which could lead to further write downs and therefore impact Swiss Re's profits.

Zurich's Exposure Unchanged

Also on Wednesday, Swiss insurer Zurich Financial Services Group said it still held U.S. agency debt positions totaling $9.4 billion, the same as it had at the end of the first quarter, of which $8.3 billion are exposure to the debt of Freddie Mac and Fannie Mae.

The positions in U.S. agency debt were mostly available for sale and were not for trading, which means that price swings in the bond do not impact the group's profit.

Swiss Re's exposure to Freddie Mac was $5.2 billion and to Fannie Mae was $4.4 billion at the start of July.

Swiss Re shares were down and Zurich shares fell, both underperforming the DJ Stoxx European insurance index.

Lower recommendations by analysts at Dresdner Kleinwort and Landsbanki Kepler also weighed on Swiss Re.

Dresdner downgraded the stock to "hold" from "buy" and cut its price target.

Kepler Landsbanki cut its price target for Swiss Re, but kept its "buy" rating.