Best Affirms Zurich’s ‘A’ Ratings

A.M. Best Co. has affirmed the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit rating (ICR) of “a+” of Zurich Insurance Company Limited (ZIC), the main operating company of Zurich Financial Services Ltd. (ZFS), and its rated subsidiaries. Best also affirmed the ICR of “a” of ZFS, as well as the ratings of the debt instruments issued or guaranteed by members of ZFS. The outlook for all of the ratings is stable.

“ZFS’s consolidated risk-adjusted capitalization has improved strongly in 2009, supported by a reversal of the unrealized investment losses and currency exchange losses that adversely affected the group in 2008,” Best explained. The rating agency also expects “further improvement in 2010, which is likely to return ZFS to the capital position it had prior to the onset of the financial crisis. ZFS is likely to achieve solid earnings in 2009, with net income expected to reach approximately $2.5-3.0 billion (2008: $3.1 billion).”

In addition Best forecast that “earnings from the group’s general insurance, global life and Farmers management services divisions will remain good; however, investment income is expected to be modest. Non-life underwriting income is likely to improve in 2009 due to better loss experience, resulting in a lower loss ratio than in 2008. The expected positive impact on the loss ratio from beneficial claims experience will, however, partly be offset by less favorable prior year development, which has been affected by a strengthening of UK asbestos reserves during 2009. The global life division is expected to continue to perform well, with new business margins remaining excellent (22 percent at third quarter 2009).

“ZFS is expected to maintain its excellent position in non-life business in its core markets in Europe and the United States. Reported gross written premiums (GWP) in the non-life division are expected to decline in 2009, partly due to the impact of movements in foreign exchange rates. The more modest decline expected in local currencies has been influenced by the North American commercial division, where economic conditions have led to a decline in insured exposure. In the global life division, GWP and unit-linked deposits are both expected to increase, driven by business development in Spain (due to acquisitions made in 2008).”

Best noted that “ZFS’s operations in the United States are led by Zurich American Insurance Company (ZAIC) (Schaumburg, IL), with 13 domestic U.S. property/casualty companies either directly or indirectly reinsuring 100 percent of their premiums with ZAIC. The consolidated risk-adjusted capitalization for Zurich U.S. (New York, NY) is adequate, and operating performance is expected to continue the improvement achieved in recent years. The ratings also reflect ZAIC’s affiliation with and support from ZFS.”

For a complete listing of Zurich Financial Services Ltd. and its subsidiaries’ FSRs, ICRs and debt ratings, go to – www.ambest.com/press/121702zurich.pdf.

Source: A.M. Best – www.ambest.com