Best Affirms Swiss Re’s Financial Strength and Debt Ratings; Assigns Issuer Credit Rating

A.M. Best Co. announced that it has affirmed the financial strength ratings of “A+” (Superior) and assigned an “aa” issuer credit rating to Swiss Reinsurance Company and of its core subsidiaries. Best also noted that it has affirmed the ratings on all debt instruments and commercial paper either issued or guaranteed by Swiss Re. The outlook on all ratings is stable.

“These ratings reflect improved earnings anticipated at year end 2004, despite the recent hurricanes, maintenance of an extremely strong consolidated risk-adjusted capitalisation and the company’s superior business position worldwide,” said Best.

The rating agency indicated that despite the negative impact from the recent hurricanes and typhoons (total losses of approximately $750 million) on the property and casualty results and the reserve strengthening in its US liability portfolio, “Swiss Re’s consolidated earnings for the full year 2004 are likely to improve.” Best also said it “anticipates the excellent profitability of the life and health segment to remain stable with a return on operating revenue of approximately 8.5 percent (8.6 percent achieved in the first half of 2004).”

Best also stressed that Swiss Re’s “consolidated extremely strong risk adjusted capitalization remains supportive of its existing ratings. Quantitatively, capital has strengthened following retained earnings (CHF 1.1 billion [$ 900 million] in the first six months of 2004) and a 672 million euro [$900 million] mandatory convertible bond issued in July 2004 treated as hybrid equity by A.M. Best. However, the level of ‘soft capital’ (i.e. present value of future profits, deferred acquisition costs and hybrid equity) remains relatively high.”

The rating agency duly noted that “as one of the leading providers of reinsurance solutions world-wide, Swiss Re’s consolidated premium volume is likely to remain stable at year end 2004.” The growth in life business is, however, offset by a premium reduction from the P/C sector, a 2.6 percent decline reflecting a reduction in non-traditional reinsurance transactions in the first 6 months of 2004. Best said it “believes that Swiss Re’s increased activities in the run-off of life portfolios, while enhancing diversification, somewhat increases operational risks.”