S&P affirms Swiss Re group AAA ratings

S&P affirms Swiss Re group AAA ratings
Our Banking Bureau
29 April 2002

Chennai: Standard & Poors (S&P) has affirmed its AAA-counterparty credit and insurer financial strength ratings on Swiss Reinsurance Company (Swiss Re) and related core subsidiaries of the Swiss Re group, following the publication of the groups annual results.

According to S&P, the outlook on all group companies is stable. At the same time, the short-term debt ratings on various entities were affirmed. Hit by 9/11 incidents in the US, the global reinsurer had announced a loss of CHF 165 million after tax or a loss-per-share of CHF 0.57 for the year 2001.

The affirmation largely reflects Swiss Res extremely strong and sustainable global business position, superior management team, and extremely strong financial flexibility, as demonstrated by the groups raising of Swiss franc (SFr) 6 billion of capital in November 2001, says S&P insurance ratings director Stephen Searby. These strengths are partly offset by the groups marginal performance in non-life underwriting over the past few years, particularly in the US.

In terms of premium income, the group ranks first in the growing life reinsurance market, with a market share of about 29 per cent, and second in the non-life reinsurance market, with about a 9-per cent market share. Swiss Res management recognises that the groups leading position can be sustained only by remaining proactive, innovative, strongly focused and technically superior.

Swiss Res capital position and financial flexibility are its major strengths and support the AAA ratings. According to S&Ps risk-adjusted model, capital adequacy, while having fallen during 2001, remains extremely strong.

Though Swiss Re groups overall earnings profile was heavily affected by the 9/11 events, it remains strong in the longer term. While the non-life performance, in line with many of its peer groups, has been marginal over the past few years, this is offset by the strong performance of Swiss Res growing life book and consistent realised gains arising on the groups investment portfolio. Average ROR and return on adjusted equity over the past six years, excluding the 9/11-related losses, are 5.3 per cent and 11 per cent, respectively.

Swiss Res non-life operating performance is expected to improve sharply in 2002 as a result of substantial rate increases, says Searby. Nevertheless, the ratings on the group could come under pressure if underwriting performance in 2002 and 2003 does not fully reflect Swiss Res business position and the improved underwriting conditions. The ratings on Swiss Res core subsidiaries, notably in the US, could also be pressured if they underperform relative to the group.