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A.M. Best to review Swiss Re’s ‘A+’ financial strength rating


November 21, 2007   by Canadian Underwriter


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A.M. Best Co. has placed the A+ financial strength rating of Swiss Reinsurance Company (Swiss Re) (Switzerland) and its similarly-rated subsidiaries under review with negative implications, following Swiss Res revelation that it took a loss linked to the subprime mortgage crisis in the United States.
Concurrently A.M. Best has placed all debt issued or guaranteed by Swiss Re under review with negative implications.
These rating actions follow Swiss Res announcement of a CHF1.2-billion (Cdn$1.058 billion) mark-to-market, pre-tax loss arising from its exposure to two credit default swaps written by its credit solutions unit, A.M. Best announced in a press release.
A statement from Swiss Re linked the credit swaps to the ratings fallout surrounding the subprime mortgage issue in the United States marketplace.
In its statement, Swiss Re said the portfolios being protected via credit default swaps consisted largely of mortgage-backed securities in various forms, including residential and commercial mortgage-backed securities.
Although the majority of the exposure is to prime and mid-prime securities, Swiss Re noted, there is exposure to sub-prime and more importantly to asset-backed securities (ABS) in the form of collateralized debt obligations or CDOs.
Swiss Re said its loss has resulted from unprecedented ratings downgrades in October and the lack of liquid markets for the underlying securities.
A.M. Best says it will discuss with Swiss Res management the potential for further write-downs arising from this exposure.
In addition, although the loss does not exceed Swiss Res credit risk tolerance, A.M. Best will further evaluate Swiss Res enterprise risk management in light of this unexpected loss, and the steps Swiss Re has taken to minimize such financial risks in the future, A.M. Best announced.


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