Zurich Units Under Review

The "A+" financial strength rating (FSR) of Zurich Financial Services Group's (Zurich) reinsurance operations were placed under review with developing complications by A.M. Best. Zurich recently announced that it will exit the reinsurance business, spinning it off to create an independent, publicly traded and globally operated company. The close of that transaction is expected to occur by the fourth quarter of this year. Companies affected by the rating action are Zurich Reinsurance North America Group; Zurich Reinsurance North America Inc. (ZRNA); and Zurich Ruckversicherung (Koln) AG (ZRK). However, Zurich's "A+" FSR will remain unaffected.

S&P placed its "AA" counterparty credit rating and insurer FSR on ZRNA and ZRK on CreditWatch with negative implications.

Sterling Casualty's 'BBBpi' Affirmed

The "BBBpi" FSR on Newport Beach, Calif.-based Sterling Casualty Insurance Co. was affirmed by Standard & Poor's (S&P). Cited as major rating factors were the company's high common stock leverage, volatile premium revenues and two-year reserve development ratio. Those factors were offset by the company's extremely strong capitalization adequacy and good operating performance.

Wholly owned by H&H Agency Inc., Sterling Casualty Insurance Co. is rated on a stand-alone basis. It writes mainly private passenger auto with a specialization in the nonstandard market, and is licensed only in California.

ERC Affirmed

The "A++" group FSR of Employers Reinsurance Corporation (ERC) was affirmed by A.M. Best. The rating action also applies to ERC's affiliated domestic and international non-life and life insurance companies, which with ERC collectively comprise the GE Global Insurance Group. A.M. Best noted that the rating was a reflection of the group's leading global market position and superior financial strength, and also considers the group's prospective earnings capabilities, well-diversified business platform and dominant position in global reinsurance markets.

Munich Re Affirmed

The "AAA" counterparty credit rating and insurer FSR on Munich Reinsurance Co. AG were affirmed by S&P. The rating action includes all core reinsurance members, which together comprise the Munich Reinsurance Group (Munich Re) as well as, for the first time, ERGO Versicherungsgruppe AG and the core companies of the ERGO group.

Munich Re's unsurpassed global position, supreme capital strength and extremely strong financial flexibility were cited as key rating factors. Those strengths were partially offset by the complication risk implicit in Munich Re's stake in Allianz AG. The outlook is stable.

Fitch Affirms Arrow Re

The "A+" insurer FSR on Arrow Reinsurance Company Ltd. was affirmed by Fitch. The Bermuda-domiciled reinsurance company is a wholly owned subsidiary of the investment banking and asset-management company, The Goldman Sachs Group Inc., and a capital support agreement exists between the two companies. Fitch indicated that the rating is a reflection of the financial strength and explicit support of Goldman Sachs; Arrow Re's sound underwriting policies and controls; and Fitch's belief that Arrow Re is closely linked to its parent from a risk management and marketing perspective. These strengths were somewhat offset by the uncertainty associated with a nascent company.

XL Affirmed

The "A+" FSR on XL Capital Ltd. was affirmed by A.M. Best. The rating action also applies to the following members of the XL group of companies: XL Europe; XL Ins. Ltd. (Bermuda); XL Re Ltd.; XL Reinsurance America Group; XL Reinsurance America Inc.; XL Ins. of NY; XL Specialty Ins. Co.; Greenwich Ins. Co.; Indian Harbor Ins. Co.; NAC Reinsurance Corp. (Canada); and NAC Reinsurance International Ltd. Concurrently, an "a" rating was assigned to existing senior debt of NAC Re Corp. Cited as rating factors were the group's global market capabilities, strong capitalization, sustained earnings and the demonstrated success of management strategies.

These strengths are offset by ongoing market challenges related to the group's large account and reinsurance segments; integration and financial risks associated with recent, large acquisitions; and the significant amount of goodwill carried by XL Capital Ltd. in relation to its acquisition of XL Re Ltd.

AFC Re's 'A-' Withdrawn

The "A-" insurer FSR of AFC Re Ltd. was withdrawn by Fitch. AFC Re's was acquired in December 2000 by Everest Reinsurance (Bermuda) Ltd., to which all of AFC Re's policies have been subsequently transferred through novation.

SAFECO Credit on Watch Evolving

Following SAFECO Corp.'s announcement of a potential sale of SAFECO Credit, the "F2" commercial paper rating on SAFECO Credit Company was placed on Rating Watch Evolving by Fitch. The rating group indicated that any future rating action and resolution of the Rating Watch status will be determined by the financial strength and strategic commitment of SAFECO Credit's ultimate owner, should SAFECO Credit eventually be sold.

Fitch P/C Report Published

A new ratings criteria report, "Property/Casualty Insurance Ratings Criteria (U.S.)," was recently published by Fitch. Covered is the issue of the methodology used by the group to analyze credit quality and financial strength of p/c organizations. The report was developed primarily for the edification of key players in the credit rating process, including rated entities, institutional investors, insurance brokers, and ratings advisory personnel at investment banker firms.