Negative outlook on the reinsurance group’s long-term issuer credit rating reflects operating performance pressure
AM Best has affirmed the Financial Strength Rating (FSR) of A+ (superior) of Swiss Re and its rated operating affiliates. The outlook on the FSR is stable. However, the outlook of its long-term issuer credit rating (ICR) of “aa” (superior) is negative.
The group has a track record of strong operating performance over the business cycle and the rating agency expects improved pricing in the reinsurance market and the earn-through of remedial actions taken by Swiss Re in recent years to support prospective underwriting performance.
The group reported a net income attributable to shareholders of $157m for the first half of 2022, reflective of profitable non-life underwriting operations, despite elevated natural catastrophe activity and provisions of $283m booked for potential exposures to the Russia-Ukraine war, partially offset by COVID-19 mortality losses in the life segment incurred largely in the first quarter, and mark-to-market losses on equity investments.
ICR on ’negative’
The negative outlook on the Long-Term ICR reflects pressure on Swiss Re’s operating performance assessment.
Actions implemented to strengthen the performance of certain sub-segments of its portfolio have led to improvements in underlying results, and in 2021, the group reported a return to underwriting profitability for its non-life divisions (ie, Property & Casualty Reinsurance and Corporate Solutions).
Adverse COVID-19-related mortality continued to weigh on underwriting returns for life business. AM Best is closely monitoring the sustainability of improvements in Swiss Re’s overall underwriting performance.
The affirmation of Swiss Re’s ratings reflect AM Best’s assessment of the consolidated rating fundamentals of Swiss Re, namely its balance sheet strength, which AM Best assesses as strongest, as well as its strong operating performance, very favourable business profile and very strong enterprise risk management.
The reinsurer’s balance sheet strength is underpinned by consolidated risk-adjusted capitalisation comfortably in excess of AM Best’s minimum requirement for the strongest level assessment, as measured by Best’s Capital Adequacy Ratio (BCAR).
The assessment also factors in the group’s conservative asset allocation, strong asset liability management capabilities and low dependence on retrocession. In addition, AM Best considers Swiss Re’s financial flexibility excellent, supported by effective capital management.
Swiss Re maintains a leading position in the global reinsurance market. In AM Best’s view, the group’s strong brand and excellent geographic diversification partly insulate it from the impact of competition in the international reinsurance market and position it well to capitalise on improved reinsurance market conditions.