AM Best has revised Swiss Re’s Long-Term Issuer Credit Rating to negative from stable due to pressure on operating performance assessment, following non-life underwriting losses in recent periods, partly driven by the casualty book of business.
The ratings agency also affirmed Swiss Re’s Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term ICR of “aa”.
At the same time, AM Best has revised the outlook to negative from stable and affirmed the associated Long-Term Issue Credit Ratings (Long-Term IRs) on the debt and assigned indicative Long-Term IRs on securities available under Swiss Re’s debt issuance programme.
The ratings reflect AM Best’s assessment of the rating fundamentals of the consolidated Swiss Re group, namely its balance sheet strength, which AM Best categorises as strongest, as well as its strong operating performance, very favourable business profile and very strong enterprise risk management.
The group has implemented actions to improve the performance of certain sub-segments of its portfolio.
However, AM Best notes that these actions have had limited impact on results so far, and will continue to monitor Swiss Re’s underwriting performance, particularly in the U.S. casualty segment; should the underlying performance not improve in the short-to-medium term, a further negative rating action on the Long-Term ICR is likely.
Swiss Re’s operating performance benefits from good diversification of earnings, which has limited the negative impact of underperformance in areas of the non-life book on the overall results in recent periods.
In particular, its life and health operations have demonstrated good profitability over the past few years, as evidenced by a return on equity between 10-15% since 2015.
In addition, the group possesses strong asset management capabilities, which help it navigate the prevailing low interest rate environment and financial market volatility.
The ratings agency says Swiss Re’s balance sheet strength is underpinned by consolidated risk-adjusted capitalisation that is comfortably in excess of minimum requirements for the strongest level assessment, as measured by Best’s Capital Adequacy Ratio (BCAR), as well as its conservative asset allocation and low dependency on retrocession.
In addition, AM Best considers Swiss Re’s financial flexibility as excellent, supported by effective capital management.
A partially offsetting factor in the balance sheet strength assessment is the adverse prior-year development reported on U.S. casualty reserves over the past two years.
Swiss Re maintains a leading position in the global reinsurance market and in AM Best’s view, the group’s strong brand and excellent geographical diversification partly insulate it from the impact of intense competition in the international reinsurance market and position it well to benefit from the hardening market conditions.
