Moody’s Revises Rating Outlook For Swiss Re

June 29, 2000

Catastrophes and intense competition can effect even the largest companies. Moody’s Investors Service provided graphic proof of this on Wednesday when it announced that it had changed its rating outlook on Swiss Re and its subsidiaries, including Swiss Re America Corp., from stable to negative.

While Moody’s affirmed Swiss Re’s top Aaa ratings, it noted that several factors had caused it to make the change. The announcement indicated that market forces were as much a factor in ratings as “company-specific factors,” and that the combination of “market and shareholder pressures,” combined with increased catastrophe losses had caused a “medium-term deterioration in operating results.” The Group’s overall strength, however, remains unquestioned.

“Moody’s still views Swiss Re as one of the strongest reinsurers in the world. The breadth and depth of the organisation’s intellectual and financial resources is only comparable to that of a handful of peers,” said the announcement.

The change came as a result of “a more aggressive approach to underwriting than had historically been the case,” said Moody’s. “In an effort to maintain or increase market share, underwriting discipline has been allowed to deteriorate.”

It also blamed shareholder demands for higher returns on capital as a cause for riskier underwriting, saying, “an attempt to deliver high returns will lead to capital erosion, in the form of an unsustainable level of investment gains, special dividends,and increased financial and operating leverage.”

Moody’s has been generally bearish on the reinsurance industry for several years, and continues to express a negative outlook due to “soft markets, low growth rates in property and casualty insurance and adverse trends.” The rating agency acknowledges that some companies are exceptions, but expressed the opinion that “industry consolidation, convergence, fierce competition and a greater emphasis on maximisation of share value are gradually changing this situation.”

Swiss Re may therefore be only the first of the biggest reinsurers to have the outlook for their credit ratings reexamined.

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