A.M. Best Co. said yesterday it has removed Swiss Re from under review with negative implications.
The Oldwick, N.J.-based rating firm affirmed Swiss Re and its similarly rated subsidiaries' financial strength ratings at "A-plus (Superior)" and its issuer credit ratings at "double-a."
Best said the financial strength rating outlook is stable, but the issuer credit rating is negative.
The rating service said it has removed from under review with negative implications all debt issued or guaranteed by Swiss Re and assigned a negative outlook.
Best said it placed the ratings under review because of uncertainties relating to the insurers announcement Nov. 19 of a Swiss Franc 1.2 billion (U.S. $1.1 billion) mark-to-market loss, or Swiss Franc 981 million ($890 million) after-tax loss.
The loss arose from Swiss Re's, exposure to two credit default swaps written by its Credit Solutions unit, Best said. The loss resulted from the unprecedented ratings downgrades in October 2007 and the lack of liquid markets for the underlying securities.
In light of this unexpected loss, Best said it needed more time and efforts to further evaluate Swiss Re's enterprise risk management and identify and evaluate the steps Swiss Re has taken to minimize such financial risks in the future.
Best noted that Swiss Re has executed a thorough review of other credit default swap transactions, as well as its investment and trading portfolios, and has concluded that it has no similar exposures.
The firm said Swiss Re also has strengthened the processes around its credit and financial market risk taking, including the integration of Credit Solutions into a matrix organization and a clear segregation of business origination from underwriting and portfolio steering.
Best said the negative outlook on the issuer credit rating reflects concerns over the long-term effectiveness of these processes and the efficacy of Swiss Re's newly established Commitment Committee that oversees all financial services products.
Best said it plans to continue to monitor Swiss Re's enterprise risk program during the current credit turmoil.
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