UPDATE 5-Swiss Life cuts outlook as writedowns hit H1 profit

(Adds analyst comment, background, latest share price)

By Andrew Thompson

ZURICH Aug 28 (Reuters) - Swiss Life (SLHN.VX), among Europe's top 10 life insurers, issued a profit warning after first-half earnings missed analysts' forecasts due to investment writedowns, sending its shares tumbling.

Swiss Life shares fell 9.4 percent to 203.00 Swiss francs by 1305 GMT on Thursday and have now lost almost a third of their value since the insurer bought roughly 25 percent of German pension sales specialist MLP (MLPG.DE) two weeks ago.

Swiss Life said it would miss its targets for this year and its earnings per share (EPS) goal for next year without the support of the share buybacks it recently cancelled to finance the MLP buy.

"We are surprised by the magnitude of Swiss Life's problems and overwhelmed by the insignificant contribution of continuing operations after disposals," Landsbanki Kepler analyst Fabrizio Croce said.

"We could not understand that a company in this shape would seriously consider an unfriendly takeover," he added.

The global credit crisis has slashed profits at many of Europe's top insurers, with companies like AXA (AXAF.PA) and Allianz (ALVG.DE) reporting a weak first half. The European insurance sector .SXIP was 2.6 percent higher.

Rainer Skierka, analyst at Bank Sarasin, was not suprised that Swiss Life had to admit that it will not achieve its 2008 financial targets.

Swiss Life said earlier this month it had built up a 26.75 percent stake in Germany's MLP, which responded last week by raising its capital by almost 10 percent in a bid to fend off a possibile hostile bid from the Swhhiss firm.

Swiss Life Chief Executive Bruno Pfister said he was in contact with MLP's management but that negotiations were tense and could take a long time.

While he declined to comment on the possibility of expanding Swiss Life's MLP stake, he said it has "no plans for a hostile takeover" as that would not be in the interest of either company.

"Swiss Life's action is difficult to comprehend for us," ZKB insurance analyst Georg Marti said.

On Thursday, MLP again rejected strategic talks with Swiss Life and said that the Swiss group's stake amounted to no more than a "financial investment".

BACK ON TRACK AFTER 2009?

Swiss Life reported a net capital loss of 1.2 billion Swiss francs ($1.10 billion) versus a gain of 516 million Swiss francs a year earlier, hit by rising interest rates on fixed-interest investments, widening credit spreads and falling stock prices.

Its first-half net profit almost tripled to 1.64 billion Swiss francs from 635 million, but was short of the 1.82 billion expected on average by analysts and was boosted by a 1.5 billion franc one-off book gain from the sale of its Banca del Gottardo unit and its Dutch and Belgian life insurance operations.

Those sales have given Swiss Life a large cash pile, some of which it used for share buy backs and the MLP stake -- part of its plans to shift focus to expansion in Germany, Austria and central Europe.

Net profit from continuing operations fell by 64 percent to 152 million francs.

"Due to the distortions on the financial markets in the first half of the year and their repercussions, it has become clear that the Swiss Life Group cannot achieve its financial targets for 2008," it said in a statement.

Nevertheless, Swiss Life said it expected to return to its EPS growth target of 12 percent and a 12 percent return on equity after 2009.

The insurer reported a first-half decline in gross premiums, policy fees and deposits received to 10.9 billion francs, down 11.2 percent on the year-earlier period. (Additional reporting by Paul Arnold in Zurich and Hendrik Sackmann in Stuttgart, Germany; Editing by David Cowell)