Standard & Poor’s Ratings Services raised its long-term counterparty credit and insurer financial strength ratings on Swiss Life’s core operating companies to ‘A-‘ from ‘BBB+’. The long-term counterparty credit ratings on Swiss Life Holding to ‘BBB’ from ‘BBB-‘ has also been raised. The outlooks are stable.
Standard & Poor’s report :
The upgrade of Swiss Life reflects our opinion that Swiss Life has managed to rebuild its financial profile to strong levels, in line with its business profile.
The group has also managed to maintain its capital adequacy according to our criteria in very difficult market conditions, and we expect it to continue to do so in 2012 and 2013. Against our initial base-case assumption, government rates in Switzerland and Germany deteriorated further in 2011. Nonetheless, Swiss Life’s bottom-line profitability in 2011 was in line with our expectations because its efforts to improve cost and risk results continued to bear fruit. Prospective profitability, as measured by market-consistent embedded value (MCEV)-based new business margins, was below our initial expectation, mostly because of lower interest rates. We consider that this was offset by the improved operational efficiency.
We see Swiss Life’s strong capitalization and strong competitive position, particularly in its domestic market, as strengths to the ratings. These positive factors are partly offset by the company’s only good operating performance and its focus on European life insurance markets, which we view as challenging.
The stable outlook reflects our expectation that Swiss Life will continue to improve its operating performance, in terms of both profit from operations and new business margins. It is also based on our expectation that Swiss Life will maintain its strong capitalization and its strong competitive position.
We would consider a negative rating action if Swiss Life failed to meet the following measures in 2012 or 2013:
• Counteract unfavorable investment conditions by further improving margin management and by reducing interest rate dependence, reflected in increasing risk and cost results and in profit from operations and new business margins similar to those stated above;
• Maintain a healthy spread of about 100 basis points between net investment yield and average guaranteed rates, as well as a weighted-average duration mismatch of below 1;
• Conserve group capital adequacy according to our model at least at strong levels, and maintain a healthy regulatory solvency position (including that under the Swiss Solvency Test (SST) regime), both helped by a conservative asset allocation;
• Maintain the proportion of traditional products below 30% of new business production;
• Leverage financial advisory company AWD Holding AG (not rated) to attain at least stable EBIT margins of above 10% and to moderately increase its new business contribution further.
• Keep group fixed charge coverage higher than 5x and a financial leverage ratio lower than 30%.
Based on our criteria and the information currently available to us, we see no potential for a positive rating action in the next two years.
