Swiss Re outlook turns positive on ‘strongly improved’ financials
Global reinsurance giant Swiss Re’s outlook has turned positive on “strongly improved financial performance and better capitalisation and leverage”, Fitch Ratings said in its latest rating update.
With a revision in outlook from ‘stable’ to ‘positive’, the agency has also affirmed Swiss Re’s Insurer Financial Strength (IFS) Rating at ‘A+’ and Long-Term Issuer Default Rating (IDR) at ‘A’.
Fitch views Swiss Re’s financial performance and debt service capabilities as ‘strong’ and improving. It expects a significant recovery in earnings in 2023 and additional, but more marginal, improvements in 2024 as Swiss Re benefits from firm premium rates in property and casualty (P&C), lower excess mortality claims in life and health (L&H) and an increase in market interest rates. In consequence, the fixed-charge coverage of interest expenses, which is weak for the rating, is also set to improve in 2023 and 2024.
In the nine month of 2023, Swiss Re returned to a net profit of $2.5 billion corresponding to an annualised return on equity (ROE) of 26% (9M22: net loss of $285 million). In P&C reinsurance, the reported combined ratio improved to 94% (9M22: 106%) on lower natural catastrophe claims as well as better pricing and terms and conditions. The performance of L&H reinsurance continued to improve on the back of sharply lower pandemic-related claims. Its corporate solutions division reported a better combined ratio of 91% in 9M23 (9M22: 93%) on shrinking large losses.
Fitch assesses Swiss Re’s capital position as ‘strong’, and expects its capital adequacy to improve at end-2023 and in 2024 on higher earnings, assuming a normal level of major losses. The group’s Swiss solvency test (SST) ratio rose to 314% at end of June 2023 from 294% at end-2022 on higher interest rates and lower financial market risk.
Swiss Re’s financial leverage ratio (FLR) was 32% at end-2022 (end-2021: 31%), which is high for the ratings, the agency noted. Fitch expects the FLR to fall below 30% at end-2023 on the recently completed $1.5 billion tender offer on six outstanding grandfathered subordinated debt instruments and to fall further in 2024 on announced deleveraging plans.
Additionally, Fitch views Swiss Re’s reserving as prudent and supportive of the ratings. In 9M23, Swiss Re strengthened reserving levels in P&C reinsurance, adding $151 million to US liability reserves, in particular, in 3Q23 alone. In contrast, Swiss Re was able to release reserves at its corporate solutions division, shaving 1.4pp from its reported combined ratio in 9M23.
“Fitch regards Swiss Re as one of a select group of reinsurers with the scale, diversity and financial strength to attract the highest-quality business placed in the global reinsurance market. We rank its company profile as ‘Most Favourable’ within the global reinsurance sector. Given this ranking, we score its company profile at ‘aa+’ under our credit factor scoring guidelines,” the agency stated.
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