Fitch Ratings has affirmed Swiss Re's insurer financial strength (IFS) rating at 'AA-'. The otlooks for the rating is stable.
The affirmation of the rating follows Swiss Re's announcement that it has written down CHF 1.2 billion pre-tax, or CHF 981 million after tax, from the value of two credit default swaps written by its Credit Solutions unit.
The loss is primarily due to exposure to asset backed securities (ABS) in the form of collateralised debt obligations (CDOs) with a par value of CHF 953m that has been written down to zero.
Fitch said that in spite of the write-down and the sudden announcement of the exposure, it had affirmed Swiss Re's ratings, as the agency considers the size of the write-down to be immaterial to the group.
The write-down is equivalent to only 0.7% of the group's total investments as of 30 September 2007 and 25% of the profit before tax realised by Swiss Re in the first nine months of 2007 (CHF 4,923m).
Despite the profit realised in January-September 2007, the write-down and the continuing share buy-back programme have combined, in Fitch's view, to reduce Swiss Re's capital adequacy. Nevertheless, Fitch views Swiss Re's capital as continuing to support a 'AA-' (AA minus) rating, should no more losses be incurred.
