Standard & Poor's on Friday raised its rating on Swiss Re to AA- with a stable outlook from A+, citing the company's strong capital base.
The impact should be positive, allowing Swiss Re to deploy more of its capital into reinsurance underwriting and also apply a somewhat more flexible investment strategy, analysts at Vontobel said.
Swiss Re lost its double A rating in 2009 after risky investments put its capital base in jeopardy, forcing it to take an emergency 3 billion Swiss franc ($3.48 billion) loan from U.S. billionaire Warren Buffett.
The Zurich-based reinsurer repaid the Buffett loan late last year, and some analysts have been speculating the firm could be ripe for a ratings upgrade.
Swiss Re said earlier this year its goal was to reclaim the prized rating, expand its business, and then possibly return cash to shareholders.
A share buyback or other form of capital return could come in 2013, said Ben Cohen, an analyst at Collins Stewart in London.
It's still a prospect on an 18-month view, not least because to hit their return on equity targets they do need to improve the capital-efficiency of the business, and a buyback would be a good way to do that, Cohen said.
Swiss Re successfully reduced the riskiness of its investment portfolio, repaid the convertible bond held by Buffett's Berkshire Hathaway
The stable outlook reflects our expectation that Swiss Re will maintain its very strong competitive position, the ratings agency also said. We expect net income in 2011 to be strong and stable.
A spokesman for Swiss Re declined to comment.
Swiss Re's shares were trading down 0.7 percent at 1500 GMT, outperforming a 1.8 percent fall in the sector index <.SXIP>.
The fall in the shares was due to profit-taking after a rise during the previous session, several traders said.
Swiss Re presents third-quarter results on November 3. The reinsurer's rating had been cut from AA- by S&P in February 2009.
($1 = 0.862 Swiss Francs)
(Reporting by Catherine Bosley; Additional reporting by Rupert Pretterklieber in Zurich and Myles Neligan in London; Editing by Erica Billingham)