Swiss Re Finance Luxembourg's Proposed Guaranteed Subordinated Notes Rated 'A'


LONDON (S&P Global Ratings) March 14, 2019--S&P Global Ratings today said it 
had assigned its 'A' long-term issue rating to the proposed subordinated 
fixed-rate callable notes to be issued by Swiss Re Finance (Luxembourg) S.A. 
(SRFL; not rated) and guaranteed by Swiss Reinsurance Co. Ltd. (SRZ; 
AA-/Stable/A-1+). The rating on the notes is subject to our review of the 
final terms and conditions. The securities will benefit from an unconditional 
and irrevocable subordinated guarantee from SRZ. 

The issue rating on the proposed notes is two notches below our 'AA-' rating 
on SRZ, reflecting our standard notching for deferrable subordinated debt 
issues. We rated the proposed debt on the understanding that, when issued, the 
notes will be subordinated to debt held by senior creditors and that interest 
will be deferrable.

We expect to classify the notes as having intermediate equity content under 
our hybrid capital criteria, subject to review of the final terms and 
conditions. 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 notes being considered eligible for 
regulatory solvency, and the aggregate amount of included subordinated debt 
being no more than the total eligible for regulatory solvency.

We understand that the subordinated debt contains interest-deferral provisions 
that enable the issuer to optionally defer coupons on any interest payment 
date, unless any of the following events have occurred in the previous six 
months: 
  • Any dividend payment has been made or declared by SRZ or its parent, or payments have been made or declared on junior securities.
  • Any member of the Swiss Re group has repurchased any SRZ or Swiss Re Ltd. shares (except in respect of a share-based compensation plan), or junior or parity securities.
  • Payments have been made or declared on parity securities.
In addition, the notes have provisions for mandatory deferral of interest if:
  • SRZ or the Swiss Re Group does not meet the required solvency margin of 100% Swiss Solvency Test (SST);
  • There are reasonable grounds for concern that either SRFL or SRZ would be unable to pay its debts as they fall due, or their assets would not exceed their liabilities; or
  • The Swiss Financial Market Supervisory Authority (FINMA) gives notice to SRFL or SRZ to defer the payment of an interest or redemption amount in whole or in part.
We note that SRZ's and Swiss Re Group's SST ratios stood at 218% and 251%, 
respectively, in January 2019. We therefore consider the risk of mandatory 
deferral to be remote and we don't believe it is necessary to deduct a further 
notch from the rating on these notes to reflect the additional nonpayment 
risk.

SRFL will pay a fixed coupon until the first optional redemption date in 2030. 
After that, if it does not exercise its call option on the first call date, 
the coupon will reset at the prevailing one-year mid-swap rate, plus a step-up 
of 100 basis points to the spread.

SRFL can choose to redeem the notes under certain circumstances, such as for 
regulatory, tax, or accounting reasons, or following a change in rating 
methodology. 

The notes are being issued for capital management purposes. We anticipate that 
the issuance will have a negligible impact on the Swiss Re group's financial 
leverage and fixed-charge coverage, and expect the group to maintain leverage 
below 20% and coverage greater than 6.0x for the next two years. 
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