S&P Affirms Zurich Specialties ‘A’ Rating; Off Watch

Standard & Poor’s Ratings Services announced that it has affirmed its ‘A’ long-term counterparty credit and insurer financial strength ratings on Zurich Specialties London Ltd. (ZSL), and removed it from its CreditWatch, where it had been placed last last December. The rating outlook is negative.

“The rating action follows a review of ZSL’s reserves and reflects the company’s strategic importance to the Zurich Financial Services group (ZFS; main operating entities rated A+/Stable/A-1) alongside a good business position in the London market specialties lines, a good capital position, and a conservative investment profile,” stated S&P credit analyst Paul Oates.

The rating agency cited ZSL’s “marginal operating results, which stem from reserve deteriorations on closed books of business, as an offsetting factor. It said the negative outlook “reflects concern over future deterioration on the reserves and the extent to which this may affect the company’s strategic importance to ZFS.”

Oates further explained that the “negative outlook reflects the continuing uncertainty in the reserves risks for certain discontinued lines and the potential impact that this may have on the prospective operating performance. Although ZSL took decisive steps to solve this problem during 2003, uncertainty still remains on this book.”

S&P also expressed concern over the continued support level ZFS would provide ZSL over the long term in the event the subsidiary “were to continue to fall short of return benchmarks set by the group.”

S&P said that “following ZFS’ announcement in April 2004 of a new Global Corporate Customer Business market segment,” it would “monitor how ZSL will fit into the new structure. ZSL currently benefits from a stop-loss protection from ZFS, which expires on Dec. 31, 2004. The stop-loss was put in place to protect ZSL’s balance sheet from reserve deterioration. Standard & Poor’s currently considers the stop-loss as an important feature of group support.”