Moody's Drops Swiss Re Rating, Despite Buffett Cash

Swiss Re Group's announcement yesterday that it would secure $2.6 billion in capital from Berkshire Hathaway, in the wake of an $860 million loss last year, failed to keep one rating firm from downgrading its financial strength and two others from putting the firm on negative watch.

The downgrade came from the London office of Moody's Investors Service, which dropped the insurance financial strength and debt ratings of Swiss Reinsurance Company and associated companies to "Aa3" from "Aa2."

A.M. Best Company in Oldwick, N.J., said it placed the financial strength ratings of Swiss Reinsurance Company under review with negative implications. Earlier, Standard & Poor's in New York said it was putting the firm's ratings on CreditWatch with negative implications.

Moody's--noting Swiss Re's report of a reduction in shareholders' equity by 17-to-21 percent, compared to third quarter 2008--said the "results will rapidly accelerate the deterioration in key financial metrics that had already occurred during the course of 2008, and had led to the assignment of a negative outlook to Swiss Re's long-term ratings in November 2008."

A.M. Best said its rating actions followed Swiss Re's announcement of a "disappointing net loss for 2008," including a fourth-quarter erosion of shareholders' equity of four billion Swiss francs to five billion Swiss francs ($3.4 billion to $4.3 billion, in current exchange rates).

Best noted that on Dec. 19, 2008, it had assigned a negative outlook to Swiss Re's ratings "due to concerns that the continuing turmoil in the financial markets could further erode Swiss Re's capital position and negatively impact earnings in 2009.

Swiss Re said yesterday that the firm will also consider raising an additional two billion Swiss francs ($1.7 billion), subject to market conditions, for a total of five billion Swiss francs ($4.3 billion), counting the infusion from billionaire investor Warren Buffett's Berkshire Hathaway.

The global reinsurer also said it will trim back on its dividend and it is "de-risking" its portfolio, which suffered from a heavy investment in credit default swaps.