A.M. Best Affirms Financial Strength Ratings of Swiss Re, Downgrades Debt Ratings and Changes Outlook to Negative.Business Editors OLDWICK, N.J.--(BUSINESS WIRE)--Dec. 5, 2002 A.M. Best Co. has affirmed the financial strength ratings of A++ (Superior) of Swiss Reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. Company (Swiss Re Swiss Re is the world’s largest reinsurer, now that it has acquired GE Insurance Solutions (Ligi 2006). Founded in 1863, Swiss Re now operates in more than 30 countries. General Electric owns 8.9% of the firm. ), Zurich, and its core subsidiaries with a negative outlook. At the same time, existing debt either issued or guaranteed by Swiss Re has been downgraded as follows: senior debt from "aaa" to "aa+" and subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". from "aa" to "aa-." The ratings of the company's short term debt obligations have been affirmed at AMB-1+. The senior debt securities assumed by Swiss Re America Holdings (originally issued by Underwriters Reinsurance Corporation) have been downgraded from "aa+" to "aa." The outlook for all ratings has been changed from stable to negative. Swiss Re's ratings reflect A.M. Best's expectation that the company will re-establish its superior capitalisation by year-end 2003, its strongly performing life business, the improving trend in its non-life underwriting and the company's leading presence in the reinsurance market. Offsetting factors include weakness in the recent consolidated financial performance of the company's non-life business and the vulnerability of its equity portfolio to asset devaluation devaluation, decreasing the value of one nation's currency relative to gold or the currencies of other nations. It is usually undertaken as a means of correcting a deficit in the balance of payments. . Superior risk-based capitalisation--A.M. Best expects Swiss Re to re-establish its superior capitalisation by year-end 2003 following some erosion in 2001 and 2002 as a result of weak underwriting performance and investment losses. At year-end 2002, A.M. Best expects consolidated shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. to be comparable to the half year level of CHF CHF In currencies, this is the abbreviation for the Swiss Franc. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 18,268 million (USD USD In currencies, this is the abbreviation for the U.S. Dollar. Notes: The currency market, also known as the Foreign Exchange market, is the largest financial market in the world, with a daily average volume of over US $1 trillion. 12,274 million). Substantial further deterioration might trigger a downgrade Downgrade A negative change in the rating of a security. Notes: For example, an analyst may downgrade a stock from strong buy to buy, or a bond rating agency may downgrade a bond from AAA to AA. in Swiss Re's rating. Strong life and improving non-life performance--The growth and performance of Swiss Re's life business have consistently exceeded the company's targets. In the first half of 2002, life operating revenues operating revenue Revenue from any regular source. Revenue from sales is adjusted for discounts and returns when calculating operating revenue. Compare other revenue. increased 25% (Swiss Re target growth: 13%) following consolidation of the Lincoln National Corporation's reinsurance business, and return on operating revenues was 11.5% (Swiss Re target return: 10%). In property and casualty reinsurance, A.M. Best believes that Swiss Re is well-positioned to take advantage of improved market conditions and expects this to lead to an average combined ratio of less than 105% for the period 2002 to 2004, down from 116% average for the five years to 2001. The current ratings are predicated upon A.M. Best's expectation that a modest profit (after tax net income) will be recorded for 2002. If consolidated results fall significantly short of this expectation, the ratings may be downgraded. Leading business position--Based on net earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. in 2001 of CHF 25,219 million (USD 15,076 million), Swiss Re ranks as the second-largest global reinsurer re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. and is the world's largest life reinsurer with net earned premium in this sector of CHF 8,922 million (USD 5,334 million). It offers a broad range of traditional and non-traditional reinsurance products and risk management services in addition to specialised risk financing alternatives for non-insurance clients. Weak recent performance--In 2001, Swiss Re recorded a net loss of CHF 165 million (USD 99 million) and, although there was a modest recovery in the first six months of 2002, the company remains vulnerable to reductions in current investment income and both net realised and unrealised investment losses. A.M. Best expects equities to represent less than 10% of total investments at year-end 2002, down from 18% at year-end 2001. Expectations: - The current rating level is dependent upon no further substantial erosion in Swiss Re's risk-based capital as assessed using A.M. Best's capital model. - A modest profit at year-end 2002 is anticipated, followed by stronger performance in 2003 and 2004, subject to loss experience. For a complete list of debt and financial strength ratings, please visit www.ambest.com/press/swissre2.pdf. A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com. |
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