S&P cites the reinsurer’s strong capital position despite CDS losses

Standard & Poor's has said that its 'AA-' long-term counterparty credit and insurer financial strength ratings on Swiss Re are unaffected by its 819m Swiss franc mark-to-market loss in its structured credit default swap (CDS) portfolio. The outlook remains stable.

The announced of further write-down brings the group's aggregate write-down to about 2bn Swiss francs and represents a material increase in the group's mark-to-market loss. Nevertheless, Standard & Poor's has not taken negative ratings action because the loss continues to be manageable in the context of both the group's earnings and its capital position.

Despite the write-down, the group reported a net profit after tax for the first quarter of 624m Swiss francs, albeit at a disappointing return on equity of 8.5%.

The ratings agency said it expected to see further earnings volatility related to fair-value adjustments for the group's structured CDS portfolio.

Standard & Poor's has reviewed its assessment of Swiss Re's enterprise risk management (ERM) in light of the circumstances that gave rise to the losses on the structured CDS portfolio. While events have had a negative impact on certain aspects of the assessment, including an appraisal of the group's risk culture, S&P considers that the shortcomings exposed are “not pervasive enough to cause a lowering of the strong overall ERM assessment”.