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Rating Action:

Moody's affirms Swiss Re's Aa3 IFS and senior debt ratings; outlook stable

16 December 2019

London , December 16, 2019 - Moody's Investors Service ("Moody's") has affirmed the Aa3 Insurance Financial Strength (IFS) and senior debt ratings of Swiss Reinsurance Company Ltd (SRZ). In the same action, Moody's has affirmed the Aa3 IFS and A2(hyb) subordinated debt ratings of Swiss Re Corporate Solutions Ltd (SRCS), and the Aa3 IFS ratings of Swiss Re Life & Health America Inc. (SRLHA) and Swiss Reinsurance America Corporation (SRAC). The outlook is stable.

SRZ is the lead reinsurer of Swiss Re Ltd. ("Swiss Re", or "the Group"), one of the leading global reinsurance groups.

A complete list of the ratings impacted by this action is included at the end of this document.

RATINGS RATIONALE

The Aa3 IFS rating of SRZ, Swiss Re's lead reinsurance entity, reflects its excellent market position and extensive diversification by geography and line of business, very strong capital adequacy and good reserve adequacy. Swiss Re's financial profile is further strengthened by its conservative investment portfolio resulting in lower asset risk than many peers, and very good financial flexibility, albeit with slightly lower earnings coverage given the recent decline in profitability. These strengths are partially offset by the inherent volatility of its catastrophe exposed business, as evidenced in the Group incurring P&C underwriting losses during 2017 and 2018, and rising natural catastrophe exposure.

Moody's said that Swiss Re's market position is excellent, supported by a leading franchise and its position as one of the largest global reinsurers, with a leading presence in most life and nonlife reinsurance markets globally. Swiss Re's franchise supports its ability to source its business directly from clients and secure differentiated terms and/or pricing in many reinsurance relationships. The Group's growing focus on providing solutions alongside its risk transfer capabilities further strengthens its role as a core partner and provider of value propositions to its clients.

Swiss Re's business is very well diversified by geography and product across both life and nonlife reinsurance as well as a growing presence in primary insurance, mainly through SRCS, its primary commercial insurer, albeit that the Group is restructuring SRCS at present. Over time, the Group expects its Life Capital division open book businesses, including its iptiQ and Elips platforms, to make a growing contribution to Group earnings, likely with considerably less volatility than earnings from the Group's commercial lines and natural catastrophe lines. The Group recently announced that it had agreed to sell ReAssure, its closed life book consolidator subsidiary, to consolidator Phoenix Group Holdings plc. We expect the Group's business profile to become slightly less diversified as a result of this sale, although the associated reduction in credit risk exposure will offset the negative impact of reduced diversification. The Group also participates in the insurance-linked securities market, whereby it is able to offer its clients risk-transfer solutions that include an aspect of alternative capital. However, despite its extensive diversification, Swiss Re's significant natural catastrophe exposure still gives rise to earnings volatility, as shown in 2017 and 2018, although its strong capitalisation is able to withstand high catastrophe losses.

The Group's capital adequacy remains very strong, both in absolute terms and compared to peers. The Group's regulatory and economic capital ratio under the Swiss Solvency Test (SST) was 241% at half-year 2019, declining from 251% at year-end 2018 and 269% at year-end 2017, but remaining well above its target level of 220%. The Group's SST coverage declined due to a number of reasons, including continued dividend and share buybacks despite significantly lower profitability in 2017 and 2018, as well as redemption of a subordinated debt instrument, the impact of further declining interest rates in 2019 and rising capital deployment in the business to take advantage of rising prices for reinsurance. The Group's capital adequacy is further bolstered by $2.7 billion in pre-funded facilities and $500 million in senior exchangeable notes that are convertible into subordinated debt at the Group's option. While these securities are relatively modest in the context of the Group's current capital levels – Swiss Re's SST risk-bearing capital, net of the market value margin, was $40.6 billion and $46.3 billion at the start of 2019 and 2018, respectively - they strengthen the Group's financial flexibility and would become an important source of capital in a severe stress event.

Reserve adequacy is good across both Life and P&C segments, with Swiss Re reporting strong GAAP margins on its Life reserves and consistent reserve releases on its P&C reserves. Moody's noted that it expects reserve releases to continue, albeit at a reduced rate due to rising loss trends and softer pricing in recent years. In line with industry peers, Swiss Re has strengthened reserves on specific casualty lines, including US Liability exposures, to reflect rising loss cost trends in the face of social inflation. Given its sizable book of long tail casualty reserves, the Group is exposed to potential reserve volatility during a higher inflationary environment.

The Group's profitability is strong, albeit having shown more volatility than some peers due to its high natural catastrophe exposures. Swiss Re experienced significant underwriting losses in its P&C Reinsurance and Corporate Solutions divisions during 2017 and 2018, mainly as a result of significant natural catastrophes, but the Group overall remained profitable through both years, reporting net income of $421 million and $331 million in 2018 and 2017, respectively. Swiss Re is the market leader in reinsurance natural catastrophe risk, and as such is meaningfully exposed to environmental risks, including the effects of climate change and multi-decadal weather patterns that make the frequency and severity of weather events more unpredictable and complex to model and price. This risk is somewhat mitigated by the Group's sophisticated and proactive approach to understanding and managing these exposures, as well as its ability – along with other reinsurers - to adjust natural catastrophe pricing and exposures on an annual basis.

SWISS RE CORPORATE SOLUTIONS LTD (SRCS)

SRCS' Aa3 IFS rating reflects its A2 standalone profile and two notches of support from the Group. Moody's noted that SRCS' standalone profile reflects its market position in the large commercial excess layers market and growing presence in the primary lead market, well diversified global P&C commercial lines portfolio, good capital adequacy (post-recapitalisation by the Group) and conservative investment portfolio. These strengths are partially offset by a recent history of underwriting losses and reserve development, the still challenging operating environment, and underwriting volatility and cyclicality inherent in a number of its commercial insurance business lines. SRCS also has a relatively high gross and net natural catastrophe exposure, although with reinsurance protection from the Group.

SRCS reported a net loss of $-403 million and a combined ratio of 132.8% for H1 2019 (FY2018: $-405 million, 117.5%; FY2017: $-741 million, 133.4%), with H1 2019 results reflecting significant management actions – mainly reserve strengthening - taken to reposition the business and remediate underwriting challenges. SRCS suffered significant underwriting losses during 2018 and 2017, due to significant natural catastrophe loss events and elevated frequency and severity of large man-made losses, with the Group injecting $1.6 billion in fresh capital over the past two years.

Looking ahead, Moody's expects SRCS to benefit from rising prices for commercial insurance, and for its reported profitability to be less volatile, due to enhancements made to the intra-group reinsurance agreements between Swiss Re and SRCS. These include an aggregate cover on natural catastrophe exposures, which if in place during 2017, would have significantly reduced its losses. In addition, SRCS now benefits from adverse development cover (ADC) on its 2018 and prior reserves, which should protect it against further material reserve development.

SWISS RE LIFE AND HEALTH AMERICA INC. (SRLHA)

SRLHA's Aa3 IFS rating reflects its A2 standalone profile and two notches of support from the Group. Moody's noted that SRLHA's standalone profile reflects its strong business and financial profiles. The company's business profile is defined by its strong brand and leading presence in the U.S. life and health reinsurance market as well as a large and diversified book of business. The company's strong financial profile is supported by good asset quality, but partially offset by its adequate level of standalone capital, as the Group manages and holds excess capital centrally.

SWISS RE AMERICAS CORPORATION (SRAC)

SRAC's Aa3 insurance financial strength rating reflects its A2 standalone profile and two notches of support from the Group. Moody's noted that SRAC's standalone credit profile reflects its strong competitive position in the North American and Latin American reinsurance markets, high quality investment portfolio, and good profitability. These strengths are tempered by the cyclical nature and the price competitiveness of the reinsurance industry, volatility from catastrophes, SRAC's adequate level of capital as the Group manages and holds excess capital centrally, and heavy dependence on reinsurance protections from the Group. The reinsurance protections demonstrate explicit support from the Group.

WHAT COULD PLACE UPWARD/ DOWNWARD PRESSURE ON THE RATING

Moody's noted that the following factors could place upward pressure on SRZ's IFS rating: (i) increased diversification of earnings streams resulting in lower potential earnings volatility, (ii) sustained strong core earnings with return on capital above 10% over the underwriting cycle, while maintaining very strong capital adequacy, (iii) financial and total leverage consistently below 20%, with earnings coverage over 10x through the cycle, and (iv) material improvement in the business environment, including P&C reinsurance pricing and interest rates.

Conversely, the following factors could place downward pressure on SRZ's ratings: (i) sustained deterioration in financial flexibility, including financial leverage above 25% and earnings coverage below 6x, (ii) average return on capital below 6% on a through-the-cycle basis, (iii) material erosion of asset quality, (iv) meaningful and sustained adverse reserve development, and (v) reduction in shareholders' equity of greater than 10% over a rolling 12 month period due to catastrophe losses or poor operating results.

With respect to subsidiary ratings, Moody's added that because their IFS ratings benefited from meaningful support from the Group, upward or downward pressure on the ratings of SRCS, SRAC and SRLHA would primarily be the result of upward or downward pressure, respectively, on SRZ and the Group's IFS ratings, as well as any reduction in Moody's assessment of support from the Group.

The following ratings were affirmed

Swiss Reinsurance Company Ltd

…Insurance Financial Strength, at Aa3

…Senior unsecured debt, at Aa3

…Subordinated debt, at A2(hyb)

…Senior unsecured MTN program, at (P)Aa3

…Subordinated MTN program, at (P)A2

…Other Short Term, at (P)P-1

Swiss Re Corporate Solutions Ltd

…Insurance Financial Strength, at Aa3

…Subordinated debt rating, at A2(hyb)

Westport Insurance Corporation

…Insurance Financial Strength, at Aa3

Swiss Re International SE

…Insurance Financial Strength, at Aa3

Swiss Re Solutions Holding Corporation

…Senior unsecured debt, at A2

Swiss Reinsurance America Corporation

…Insurance Financial Strength, at Aa3

Swiss Re Life & Health America Inc.

…Insurance Financial Strength, at Aa3

Swiss Re Financial Products Corporation

…Long-term issuer, at Aa3

Swiss Re Treasury (US) Corporation

…Backed senior unsecured debt, at Aa3

…Backed senior unsecured MTN program, at (P)Aa3

…Backed subordinated MTN program, at (P)A2

…Backed Other Short Term, at (P)P-1

Swiss Re Asia Pte. Ltd.

…Insurance financial strength, at Aa3

Swiss Re Europe SA

…Insurance Financial Strength, at Aa3

Swiss Re Finance (Luxembourg) S.A.

…Backed senior unsecured MTN program, at (P)Aa3

…Backed subordinated MTN program, at (P)A2

…Backed subordinated debt, at A2(hyb)

…Backed Other Short Term, at (P)P-1

Elm B.V.

…Junior subordinated debt, at A3(hyb)

The outlook for all entities is stable

PRINCIPAL METHODOLOGY

The principal methodology used in rating Swiss Re Corporate Solutions Ltd, Swiss Re International SE and Westport Insurance Corporation was Property and Casualty Insurers Methodology published in November 2019. The principal methodology used in rating Swiss Reinsurance Company Ltd, ELM B.V., Swiss Re Financial Products Corporation, Swiss Re Life & Health America Inc., Swiss Re Solutions Holding Corporation, Swiss Re Treasury (US) Corporation, Swiss Reinsurance America Corporation, Swiss Re Asia Pte. Ltd., Swiss Re Europe SA and Swiss Re Finance (Luxembourg) S.A. was Reinsurers Methodology published in November 2019. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

The person who approved Swiss Re Corporate Solutions Ltd, Swiss Re International SE, Westport Insurance Corporation, Swiss Reinsurance Company Ltd, ELM B.V., Swiss Re Asia Pte. Ltd., Swiss Re Europe SA and Swiss Re Finance (Luxembourg) S.A. credit ratings is Simon Harris, MD-Gbl Ins, Fnds & Asset Mgmt, Financial Institutions Group, JOURNALISTS : 44 20 7772 5456, Client Service : 44 20 7772 5454. The person who approved Swiss Re Financial Products Corporation, Swiss Re Life & Health America Inc., Swiss Re Solutions Holding Corporation, Swiss Re Treasury (US) Corporation and Swiss Reinsurance America Corporation credit ratings is Marc R. Pinto, CFA, MD-Financial Institutions, Financial Institutions Group, JOURNALISTS : 1 212 553 0376, Client Service : 1 212 553 1653.

The relevant office for each credit rating is identified in "Debt/deal box" on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the website.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Brandan Holmes
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London
United Kingdom
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Simon Harris
MD-Gbl Ins, Fnds & Asset Mgmt
Financial Institutions Group
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

Releasing Office :
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London, E14 5FA
United Kingdom
JOURNALISTS : 44 20 7772 5456
Client Service : 44 20 7772 5454

© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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