S&P Global Ratings today revised its outlook to stable from negative on Swiss Re and its core subsidiaries, as well as affirmed the ratings on these entities.
According to the rating agency, the outlook revision to stable reflects improvements in Swiss Re’s underwriting performance since 2021 and its expectation that the company will continue to post strong and improving underwriting results in 2023-2024.
This rating move also recognises the strong underwriting results in the corporate solutions segment (combined ratio of 91% in first-half 2023) and property and casualty reinsurance (94.7%), and the improvement in life and health reinsurance results, mostly reflecting reduced COVID-19 mortality losses.
With increasing investment income, analysts predict net incomes of over $2.8 billion and $3 billion for 2023 and 2024, respectively. These figures are likely to translate to a return on equity (ROE) of close to 20% for 2023 and 2024, which will be inflated in the coming years by the recent drop in shareholders’ equity.
Additionally, in conjunction with its strongly performing corporate solutions segment, the rating agency expects the group should record combined ratios below 95% in 2023-2024.
All of this is due to Swiss Re’s non-life underwriting performance continued improvement, in line with S&P’s expectations, which have been driven by management’s corrective actions in recent years and a significantly improved pricing environment.
In the first half of 2023, the reinsurer reported a net profit of $1.4 billion and an overall combined ratio (loss and expense) for its consolidated non-life segments of 94%.
As S&P expects the group to continue to manage its risk-based capital at the ‘AA’ level over the period to 2025, it has revised its outlook to stable from negative and affirmed the ‘AA-‘ ratings on Swiss Re’s core subsidiaries.
“We could take a negative rating action on Swiss Re over the next 24 months if the group cannot maintain profitability levels in line with its closest peers or if we believe its capital levels will fall consistently below the ‘AA’ level,” S&P concluded.
Adding: “We believe a positive rating action is unlikely over the next 24 months. Any upside to the rating would rely on capital improving to above our ‘AAA’ level at the same time as the group outperforming its peer group.”
