Standard & Poor’s revised its outlook on Switzerland-based life insurer Swiss Life and on the group’s holding company Swiss Life Holding to positive from stable. At the same time, we affirmed the ‘BBB+’ long-term counterparty credit and insurer financial strength ratings on Swiss Life and our ‘BBB-‘ counterparty credit ratings on Swiss Life Holding.
“The outlook revisions reflect our opinion that Swiss Life is taking significant steps to improve its operating performance and capitalization and is well positioned to further improve its financial profile, based on its success in implementing strategic change,” said Standard & Poor’s credit analyst Christian Badorff.
Among the strategic actions to strengthen operating performance and capitalization, Swiss Life has undertaken a shift toward less interest-rate-sensitive products, such as unit-linked policies, variable annuities, and protection insurance. This has lowered the sensitivity of market-consistent embedded value (MCEV) to interest rates and we expect this to continue. Enhanced asset-liability management has also helped reduce the sensitivity of earnings to interest rate changes. Furthermore, we view Swiss Life’s integration of its acquisition–AWD–as on track.
The ratings on Swiss Life reflect our view of the company’s strong capitalization and competitive position. These strengths are partly offset by business concentration in challenging markets and a still subdued, albeit improving, operating performance.
Swiss Life’s capitalization has improved to levels that we regard as strong. Our assessment is based on Swiss Life’s strong capital base and quality of capital, as well as lower sensitivity to interest rate changes. We also take into consideration regulatory solvency requirements that Swiss Life exceeds comfortably.
Swiss Life’s competitive position is, in our view, strong. Swiss Life benefits from a market leading position in Switzerland and defendable niche positions in France and Germany. Swiss Life’s business model focuses, however, on life insurance markets, which we consider to be challenging. The Swiss, German, and French life insurance markets are mature and competitive.
Although improving, we view operating performance as negative for the rating. However, we expect Swiss Life’s management to take measures related to product design, cost savings, and risk management to strengthen the group’s operating performance.
The positive outlook reflects our expectation that Swiss Life will continue to improve its bottom-line and prospective profitability in 2011 and 2012 and maintain strong capitalization and a strong competitive position.
Increasing contributions from Swiss Life’s foreign operations and AWD should enhance revenue and earnings diversity over the next 12-18 months. Furthermore, we expect that Swiss Life will improve net incomes as well as MCEV-based profitability in 2011 and 2012.
“We may consider a positive rating action over the next 12 months if Swiss Life were able to show sustained strengthening of its operating performance, in line with the upper end of our range of expectations,” said Mr. Badorff. “We could revise the outlook to stable if Swiss Life’s operating performance or capitalization were to weaken or if its risk management practices were to be less supportive of attaining a strong operating performance.”
Source : Standard & Poor’s
