Best Downgrades Swiss Re’s Ratings

March 2, 2009

A.M. Best Co. has downgraded the financial strength rating (FSR) to ‘A’ (Excellent) from ‘A+’ (Superior) and issuer credit ratings (ICR) to “a+” from “aa-” of Swiss Reinsurance Company Limited and its subsidiaries. Best also downgraded the ratings for all debt issued by Swiss Re and its subsidiaries.

The downgrade was not unexpected, as both Best and Standard & Poor’s Ratings Services had earlier placed Swiss Re’s ratings on their respective credit watch list [See IJ web site –]. Best has now removed the ratings from their under review status, and has assigned them a stable outlook.

In addition Best explained that the rating actions reflect its opinion—based on its quantitative and qualitative assessment of risk capital—that “Swiss Re’s overall risk-adjusted capitalization does not have sufficient cushion to weather more negative effects of the continuing turmoil in the financial markets and other unexpected events.”

Best added that in the determination of Swiss Re’s overall risk-adjusted capitalization, it had “considered a significant level of capital credit from the new convertible perpetual securities as well as the capital relief derived from the loss reserve adverse development
reinsurance cover, both provided by Berkshire Hathaway Inc.”

Best duly noted that Berkshire has “agreed to invest CHF 3.0 billion [$2.553 billion] in Swiss Re in the form of a 12 percent convertible perpetual financial instrument (convertible perpetual securities) and to provide a CHF 5.0 billion [$4.254 billion] loss reserve adverse development reinsurance cover (ADC) for Swiss Re’s property/casualty loss reserves as of December 31, 2008. The convertible perpetual securities are subject to stockholders’ approval, and the ADC is subject to regulatory approval.”

In addition best pointed out that “Swiss Re’s investment portfolio and legacy financial risks in structured credit default swaps (SCDS), portfolio credit default swaps (PCDS) and total return swaps (TRS) backed by securitized products could be subject to more credit spread volatility and potentially further mark-to-market adjustments. As of December 31, 2008, a material part of the investment portfolio was in the form of non-agency structured credit financial instruments.

“The rating actions are partially offset by Swiss Re’s continued execution of asset de-risking initiatives. Swiss Re’s actions include portfolio simplification, more focused asset liability management and improved hedging strategies in its Asset Management unit, as well as active management of underlying assets on SCDS, PCDS and TRS and acceleration of run-offs and commutations in the group’s legacy portfolio.”

Best said it would “continue to assess the sustainability of Swiss Re’s competitive market position, which is key to its future earnings capability and strong financial flexibility. The long-term effectiveness of the group’s enterprise risk management program and its ability to respond effectively during this current period of capital markets volatility and credit markets dislocations also will be monitored.”

For a complete listing of Swiss Re’s FSRs, ICRs and debt ratings go to:

Source: A.M. Best –

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