Moody's Confirms Swiss Re Ratings, With Negative Outlook

Despite positive potential, Swiss Re's acquisition of GE InsuranceSolutions has resulted in a negative outlook on the company from Moody's.

Moody's announced today that it confirmed the "Aa2" insurance financial strength and senior debt ratings of Swiss Re as well as its "A1" subordinated debt rating, with a negative outlook.

The decision to review Swiss Re for a possible downgrade was made last November, Moody's said, when the company announced it had reached an agreement with General Electric to acquire GE Insurance Solutions for $6.8 billion.

Moody's said the concern at the time was Swiss Re's ability to implement its underwriting and risk management policies over the newly acquired company, as well as reserving concerns at GE Insurance Solutions.

After completing the review, Moody's concluded that the combined entity was worthy of an "Aa2" rating level and that the transaction could provide a number of opportunities for Swiss Re--including access to new clients and markets and further risk diversification.

Additionally, Moody's found that the funding mix used in the transaction has not resulted in a negative effect on Swiss Re's financial strength.

"While much work remains to be completed to ensure the successful integration of GEIS entities into the Swiss Re Group, we note the considerable management focus on developing a successful implementation strategy for the new business platform," said Timour Boudkeev, vice president, senior credit officer and lead analyst for Swiss Re at Moody's.

Despite the positive aspects of the deal, Moody's said it has a negative outlook for the company, noting that the acquisition is likely to have some effect on Swiss Re's profitability in the short term. Due to the likely costs of the restructuring, it is possible that Swiss Re could miss its cross-cycle 13 percent ROE target in 2006, according to Moody's.

Moody's also said that the potential for unexpected problems with respect to reserving continues to be an issue, as Swiss Re works through a thorough reserve analysis after closing the deal. Once the deal has been completed, Moody's said it would be able to comment further on the ratings of GEIS operating entities and the senior unsecured rating of GE Insurance Solutions Corporation.