S&P takes Swiss Re off CreditWatch

Standard & Poor’s Ratings Services has removed Swiss Reinsurance from CreditWatch with negative implications, where they were placed Sept. 9, 2005.
S&P has affirmed a counterparty credit and financial strength rating of ‘AA’ for Swiss Re and its core operating companies, although the outlook is negative.
Following discussions with Swiss Re’s management, Standard & Poor’s says it “has greater confidence in Swiss Re’s ability to post an operating performance that is consistent with the ‘AA’ ratings over the medium term.”
Standard & Poor’s credit analyst Simon Marshall said: “Specifically, Swiss Re is expected to perform better in its non-life operations in the future than in the past, due to the centralization of strategy and controls, more focus on the bottom line, and an emerging ability to translate its financial strength, market presence, and underwriting expertise into market-leading earnings.”
S&P added that: “Swiss Re’s success in these initiatives is demonstrated in some instances by better pricing and other terms and conditions than peers on the same risk.
“In addition, the group’s extensive diversification across non-life lines of business, and its ability to write business with little dependence on the availability of reinsurance places it in a strong position relative to peers in the hardened market expected to exist at the time of the January 2006 treaty renewals. Adverse reserve development is not expected to affect earnings materially.”
Standard & Poor’s originally placed Swiss Re’s ratings on CreditWatch because of the negative impact of Hurricane Katrina, which, S&P says, “added to its existing concerns over Swiss Re’s ability to post an operating performance that is consistent with the ‘AA’ ratings.”
The ratings on Swiss Re reflect Swiss Re’s very strong competitive position, very strong financial flexibility (defined as the ability to source capital relative to requirements), and very strong risk-based capitalization, Standard & Poor’s said.
“The negative outlook reflects the risk that the actions Swiss Re has taken to improve performance in its non-life sector may not translate into market-leading published financial results over the cycle,” said Marshall.
Failure to deliver these may lead to a downgrade, whereas a stable outlook could follow from achieving these targets, S&P noted.