Swiss Re Australia Lowered to AA by S&P

July 30, 2003

Standard & Poor’s has lowered its long-term counterparty credit and insurer financial strength ratings on Swiss Re Australia Ltd. to ‘AA’ from ‘AA+’, following similar ratings action on Zurich-based global reinsurer Swiss Reinsurance Co. and related core subsidiaries of the Swiss Re group (Swiss Re) to ‘AA’ from ‘AA+’. The outlook has been revised to stable from negative.

“The downgrade primarily reflects a re-evaluation by Standard & Poor’s of reinsurance industry risk and Swiss Re’s position within that industry following the relative underperformance in its nonlife underwriting profitability,” said Standard & Poor’s credit analyst Stephen Searby. The action also reflects the slower-than-expected recovery in Swiss Re’s earnings and the impact this may have on the group’s ability to fully replenish capital during the current hard phase of the cycle. Nevertheless, the ratings remain underpinned by Swiss Re’s very strong business position, superior management team, and very strong financial flexibility (defined as the ability to source
capital relative to requirements).

The stable outlook is based on Standard & Poor’s expectation that the group will maintain or improve its business position in the life reinsurance market over the longer term as it exports the rollout of a well-established and successful business model into new territories. It is expected that there will be further improvement in the combined ratios of the property/casualty and financial services business groups to the target levels of 100 percent and 95 percent, respectively, for the year ending Dec. 31, 2003. Standard & Poor’s considers this prospective performance to be strong, but not yet consistent with a rating in the ‘AA’ range at the current stage in the cycle.

However, this is partly mitigated by continued very strong and stable profitability from the life and health business group. Risk-based capital adequacy is expected to strengthen over the next few years, but reliance on soft forms of capital will remain relatively high.

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