Moody’s Investors Service has assigned an A3(hyb) rating to the SGD 350 million (USD 250 million) guaranteed subordinated fixed rate reset notes to be issued by Swiss Re Finance (UK) Plc (SRF) and guaranteed by Swiss Re Ltd.
The notes, due 2035 and callable from 2025, form part of Swiss Re’s multi-issuer $10 billion EMTN program.
Moody’s explained that the A3(hyb) rating reflects the subordination of the notes and guarantee, the optional and mandatory coupon skip mechanisms, and the cumulative nature of deferred coupons, in case of deferral.
The notes allow SRF to defer interest payments under certain conditions, and also contain a mandatory interest deferral trigger based upon breach of regulatory capital requirements.
They are intended to qualify as regulatory capital under the Swiss insurance solvency regulations, but Moody’s says their hybrid features will not result in any equity credit under its debt equity continuum based on the notes’ maturity.
The issuance, which is for general corporate purposes, will in itself have a small negative increase on Swiss Re’s adjusted financial leverage and earnings coverage.
Moody’s noted that the debt rating is notched down from Swiss Re’s IFSR, and therefore any change in the IFSR would be reflected in the debt rating.
Upwards pressure on the IFSR could be caused by increased diversification of earnings streams, sustained strong core earnings with return on capital above 10% over the underwriting cycle, financial and total leverage consistently below 20%, and improvement in the business environment, including P&C reinsurance pricing and interest rates.
Conversely, downward pressure could be caused by higher than expected life or non-life reinsurance claims related to coronavirus, return on capital remaining below 6%, sustained adverse reserve development, increase in risk appetite, including for higher net catastrophe exposure, and reduction in shareholders’ equity due to weak underwriting results.