S&P Lowers Swiss Re’s Ratings to ‘AA+’

October 4, 2002

Standard & Poor’s announced yesterday that it has lowered its long-term counterparty credit and insurer financial strength ratings on Swiss Reinsurance Co. and related core subsidiaries of the Swiss Re group to double-‘A’-plus from triple-‘A’.

At the same time S&P stated that the group was no longer under CreditWatch, where they were placed on Aug. 30, and assigned a “stable” outlook. The rating agency’s action leaves only three remaining reinsurance group’s with the coveted triple-‘A’ rating – Munich Re, Berkshire Hathaway (General & Cologne Re) and Employers Re (GE’s reinsurance division).

The bulletin stated that “The main factors for the downgrade are recent marginal non-life underwriting performance, a decline in Swiss Re’s capital adequacy since the end of 2001, and somewhat reduced financial flexibility (that is, the ability to source additional capital when required).

While it stressed that Swiss Re’s financial position is extremely strong, and indicated that it expected the group’s earnings to strengthen in the near future, S&P nonetheless indicated that it was “not considered consistent with a triple-‘A’ rating.”

The group’s weakness, according to the report is mainly in its non-life operating performance. While S&P noted that there has been recent improvement in the first half of 2002, “due to substantial rate increases and tightening of terms and conditions, and further improvement is expected in 2003.” It expressed concern that “the sustainability of these levels of performance beyond 2003 is less certain.” S&P considers Swiss Re’s life operations, however, to be a growth sector, which will increase profitability in the future.

As far as capital adequacy is concerned, S&P indicated that it “has fallen from its extremely strong historic levels, and consequently is no longer consistent with a triple-‘A’ rating.” It expected Swiss Re’s capitalization level to remain stable, i.e. there won’t be any significant improvement, this year, but no further erosion either.

S&P credit analyst Stephen Searby indicated that “Although Standard & Poor’s expects Swiss Re to achieve very strong operating performance over the next few years and consequently outperform the reinsurance industry average, earnings are not expected to be sustained at a level commensurate with a triple-‘A’ rating in the longer term.”

Swiss Re offered no direct comment on S&P’s action, other than to confirm that its financial condition was very sound. A Swiss Re spokesperson was reported by Dow Jones Newswire to have stated that “We don’t comment on the ratings change, but what we can say is that obviously we are very confident about our financial strength.”

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