S&P Rates Swiss Re Sub ELM BV Notes ‘A’

April 18, 2007

Standard & Poor’s Ratings Services has assigned its “A” long-term debt rating to the Australian dollar-denominated perpetual step-up notes to be issued by repackaging structure ELM BV and secured over the perpetual subordinated step-up loan notes (the loan notes) of Swiss Re – rated “AA-“/Stable/”A-1+”).

“The performance of the notes is directly linked to the performance of the loan notes,” said S&P, and the “rating is subject to a review of final documentation.”

S&P explained that it “characterizes the notes as ‘strong,’ being at the upper level of its Category 2 (intermediate equity content) classification. This reflects: (1) the notes’ subordinated nature; (2) the notes’ optional and mandatory interest deferability; and (3) that the notes have no final maturity date.”

“The rating on the issue reflects the financial strength of the underlying Swiss Re group, the deeply subordinated nature of the notes, and the optional and mandatory interest-deferral features of the issue,” stated S&P credit analyst Simon Marshall.

S&P also noted that the “mandatory interest deferral of the loan notes is linked to a combined net income and capital test. Mandatory deferral will be triggered if: (1) Swiss Re’s consolidated net income for the two half-year periods ending half a year prior is less than zero; (2) Swiss Re’s adjusted shareholders’ equity (on a consolidated basis) has declined by 10 percent or more over the four half-year periods ending half a year prior; and (3) half a year after the half-year period in which conditions (1) and (2) apply, adjusted capital (including three-year mandatory convertibles) has declined by more than 10 percent over the prior five half-year periods.

“Optionally or mandatorily deferred interest can only be settled through an alternative coupon-settlement mechanism, which includes the proceeds from the issuance or sale of shares of Swiss Re (including forward sales of shares through issuance of three-year mandatory convertibles), the issuance of hybrid securities with terms and conditions at least as good as those of the loan notes, or via the use of “payment in kind” whereby the principal amount of the loan notes is increased by an amount equal to the outstanding deferred interest.”

The rating agency indicated that “in the unlikely event that a mandatory deferral is triggered on the loan notes involving circumstances where the group is not deferring interest or distributions on all its other hybrid issues, Swiss Re will use its best endeavors to arrange for the issue or sale of its shares or such other securities so as to raise cash to enable it to settle interest, no later than 30 days after its original due date.

“This being the case, Standard & Poor’s considers that the likelihood of Swiss Re deferring on these securities is no greater than the likelihood of it deferring on its other, conventional hybrids not containing mandatory-deferral language.

“The loan notes’ optional interest-deferral feature is triggered in the event that Swiss Re does not pay a dividend or interest on any class of its junior securities (including shares) or parity securities, or does not repurchase or redeem any class of its junior securities (including shares) or parity securities.

“The issuer can call the loan notes after 10 years (and at any coupon date thereafter), in which event ELM BV will also call the notes.
Standard & Poor’s will consider the loan notes as part of Swiss Re’s total adjusted capital up to the normal tolerance of 25 percent. The loan notes are being issued for general corporate purposes and qualify as upper additional capital for Swiss regulatory purposes.

“The notes are being issued by ELM BV for the purpose of financing the step-up subordinated perpetual loan to be made to Swiss Re. The loan will be at the sole economic risk and to the sole benefit of the noteholders. The credit risk of the notes is linked to Swiss Re. The two-notch differential between the counterparty credit rating on Swiss Re and the rating assigned to the notes reflects their subordinated nature and interest-deferral features.

“The terms and conditions of the notes correspond to the terms and conditions of Swiss Re’s obligations to ELM BV under the loan notes.”

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