July 17, 2017 / 5:44 PM / 6 months ago

Fitch Affirms Swiss Re's IFS at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) LONDON, July 17 (Fitch) Fitch Ratings has affirmed Swiss Reinsurance Company Limited's (Swiss Re) Insurer Financial Strength (IFS) Rating at 'AA-' (Very Strong) and Long-Term Issuer Default Rating (IDR) at 'A+'. Fitch has also affirmed the ultimate holding company Swiss Re Ltd.'s IDR at 'A'. The Outlooks are Stable. A full list of rating actions is at the end of this commentary. KEY RATING DRIVERS The affirmation reflects Swiss Re's very strong capitalisation, business profile and financial performance. Fitch regards Swiss Re as having the scale, diversity and financial strength to attract the highest quality business being placed into the global reinsurance market. This should provide high resilience to softening pricing conditions that are being reported across several reinsurance classes. Fitch views capitalisation as 'Very Strong' based on the agency's Prism Factor Based Model (FBM). The strength of Swiss Re's capital position led the reinsurer to commence a share buy-back programme on 4 November 2016. Fitch expects Swiss Re's P&C reinsurance business to remain the core earnings generator for the foreseeable future. The company's main business segment has consistently achieved strong results, both on an absolute basis and compared with peers, reflecting a depth of underwriting experience and strong diversity by reinsurance class. Swiss Re's Fitch-calculated P&C reinsurance combined ratio worsened to 94% in 2016 (2015: 86%), driven by an increase in major loss activity. Normalised for reserve variations and major losses, the metric remained stable at 99.8% (2015: 99.5%), reflecting the continued underlying effects of the protracted soft market. This increases the sensitivity of future underwriting profitability to even a modest rise in major loss claims. Fitch expects Swiss Re's P&C reinsurance business to remain the core earnings generator for the group. Life and health reinsurance performance remained strong, despite the 2016 net operating margin decreasing to 10.4% (2015: 12.2%), mainly as a result of lower performance in the UK portfolio. Gross written premiums increased by 7.2%, mainly driven by large transactions in the Americas and new business deals in Asia. With return on equity (ROE) of 12.8% (2015:16.2%), the reinsurer exceeded its commitment to achieve 10%-12% ROE for 2016. Fitch recognises that the current operating environment remains challenging for Swiss Re and the wider (re)insurance industry. Persistently low interest rates and increasingly intense competition, especially in non-life reinsurance, continue to drive price softening across certain major reinsurance classes. The agency expects Swiss Re's diversified business profile and prudent underwriting policy to help the reinsurer weather a protracted period of price softening, should this occur. RATING SENSITIVITIES The key rating drivers that could result in a downgrade include: increased financial leverage above 25%; a sustained material drop in the company's risk-adjusted capital position to below 'Very Strong', as measured by FBM; a combined ratio consistently above 100%, net income return on equity consistently below 6%. The key rating drivers that could result in an upgrade include reduced financial leverage to below 15% or the company's risk-adjusted capital position increasing to 'Extremely Strong', as measured by Prism FBM. FULL LIST OF RATING ACTIONS Swiss Reinsurance Company Ltd IFS Rating: affirmed at 'AA-'; Outlook Stable Long-Term IDR: affirmed at 'A+'; Outlook Stable Senior unsecured debt: affirmed at 'A+' Swiss Re Corporate Solutions Ltd IFS Rating: affirmed at 'AA-'; Outlook Stable Long-Term IDR: affirmed at 'A+'; Outlook Stable Subordinated debt affirmed at 'A-' Swiss Re Treasury (US) Corp. Senior notes affirmed at 'A+' Aquarius + Investments PLC Subordinated debt (XS0897406814) affirmed at 'A-' Contingent write-off note (XS0901578681) affirmed at 'BBB+' Cloverie PLC Subordinated debt affirmed at 'A-' ELM B.V. Subordinated debt affirmed at 'A-' Swiss Re Ltd Long-Term IDR: affirmed at 'A'; Outlook Stable Demeter Investments B.V. Subordinated debt affirmed at 'BBB' (XS1261170515, XS1389124774, XS1423777215) Contact: Primary Analyst Graham Coutts Director +44 20 3530 1654 Fitch Ratings Limited 30 North Colonnade London, E14 5GN Secondary Analyst Stephan Kalb Senior Director +49 69 768 076 118 Committee Chairperson Chris Waterman Managing Director +44 20 3530 1168 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: athos.larkou@fitchratings.com. 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