Standard & Poor’s Ratings Services assigned its ‘A’ long-term debt rating to the $500 million dated, unsecured, and junior subordinated notes that global reinsurer Swiss Reinsurance Company Ltd. (Swiss Re; AA-/Stable/A-1+) plans to issue on July 9, 2012.
The rating reflects our standard notching for junior subordinated debt issues, which in this instance is two notches below the long-term counterparty credit rating on the issuer. S&P analyzed and rated the proposed debt issue on the understanding that:
– The notes will be subordinate to the issuer’s senior securities, pari passu among themselves and senior to the issuer’s junior securities;
– The issuer can choose to defer interest, subject to a “dividend pusher” clause with a look-back period of up to six months;
– Interest deferral can be mandatory for various reasons, including if the issuer’s regulatory capital is not sufficient to cover minimum regulatory capital requirements; and
– The issue is expected to be fully eligible for regulatory solvency purposes.
Standard & Poor’s Report :
We classify the notes as having “intermediate equity content” under our hybrid capital criteria. We include such securities up to a maximum of 25% in our calculation of total adjusted capital, which forms the basis of our consolidated risk-based capital analysis of insurance and reinsurance companies. The inclusion is subject to the issue being considered eligible for regulatory solvency, and the aggregate amount of included issues being no more than the total eligible for regulatory solvency. Our classification of the notes in the “intermediate equity content” category may change if the final Solvency II implementation measures preclude eligibility of the notes as regulatory capital.
The instruments have a tenor of 30 years, but will be callable in September 2022 and on any semiannual variable-interest payment date thereafter. The coupon will remain fixed until the first call date. After that, the interest rate will convert into a floating rate based on six-month euro interbank offered rate, plus a margin (including a 100 basis points step-up), and will be payable semi-annually. We therefore consider the incentive to call the proposed notes at year 10 to be moderate.
We understand that the issuance is in line with the group’s overall funding plan. We expect Swiss Re’s financial leverage and fixed-charge coverage ratios to remain within ranges that are consistent with our credit ratings on Swiss Re.
