Swiss Life Outlook Revised To Positive On Improving Capital #A# Ratings Affirmed

Stocks and Financial Services Press Releases Monday April 30, 2018 18:44
FRANKFURT--30 Apr--S&P Global Ratings

FRANKFURT (S&P Global Ratings) April 30, 2018--S&P Global Ratings today revised the outlook on the core operating entities of Switzerland-based life insurer Swiss Life AG and the group's holding company Swiss Life Holding AG to positive from stable. At the same time, we affirmed our long-term insurer financial strength and issuer credit ratings on Swiss Life at 'A' and Swiss Life Holding at 'BBB+'.

We also affirmed our 'BBB+' issue ratings on the group's junior subordinated and senior unsecured debt.

The outlook revision reflects our view that Swiss Life's capital position will consolidate at extremely strong levels, through strong retained earnings and less reliance on capital-intensive products. The outlook revision also reflects our expectation the group will continue to enhance its earnings and risk diversity as its fee and foreign businesses continue to grow.

Swiss Life has built an extremely strong capital position, according to our risk-based model, thanks to strong and stable earnings, a cautious dividend policy, and a sound track record of raising hybrid capital in the market. The group is prioritizing capital-efficient products and fee business, in line with its strategic decision to further underpin its solid solvency position. We therefore expect capital adequacy to improve further over the next two years as a result of modest growth in capital requirements, reducing reliance on softer forms of capital, such as value of in-force and hybrid capital, and a continuation of strong retained earnings.

We estimate in our base-case scenario that Swiss Life will post an annual average post-tax income of about Swiss franc (CHF) 1 billion (EUR0.834 billion) over 2018-2020, with a dividend payout of about 50%. In our view, the group's strong competitive position is underpinned by its leading market position, proven expertise, and strong reputation in the Swiss group life insurance markets. As a pure life insurer, Swiss Life shows greater business concentration than its higher-rated peers. However, we believe that Swiss Life's earnings and risk diversity are set to benefit from its growing foreign, fee, and asset management businesses, which we estimate will contribute to more than 20% of total revenues by 2020. In our view, Swiss Life's significant sensitivity to low interest rates, mainly stemming from the traditional backbook in Switzerland and Germany, is declining. Various management measures have helped contain risks arising from prolonged low interest rates, and our view of Swiss Life's strong risk-management capabilities reduce downside risk to the ratings. New business is shifting away from capital-intensive products, and investment margins amply cover average minimum rates guaranteed to policyholders. These factors, together with prudent investment policies, have helped to mitigate capital volatility.

The positive outlook indicates that we could raise the ratings on Swiss Life during the next 12-24 months if the group's capital position consolidates at extremely strong levels while the quality of capital continues to improve, with softer forms of capital accounting for less than 40% of total adjusted capital. The upgrade is also contingent on earnings diversification continuing to improve through higher contributions from fee and foreign business.

We could revise the outlook to stable if capital were to weaken over the next 12-24 months because of rising capital requirements, significantly lower retained earnings, or a shift toward a more aggressive risk appetite. This could also be the case if the improvements in earnings diversification are not sustainable or if our view of Swiss Life's strong risk-management capabilities weakens.

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