A.M. Best Europe – Rating Services Limited has upgraded the financial strength rating (FSR) to ‘A+’ (Superior) from ‘A’ (Excellent) and issuer credit rating (ICR) to “aa-” from “a+” of Zurich Insurance Company Limited (ZIC), the main operating company of Zurich Financial Services Ltd.
At the same time Best upgraded its ratings of Zurich’s U.S. subsidiaries .
Best also upgraded the ratings of the debt instruments issued or guaranteed by ZIC and assigned a rating of “a” to the CHF 700 million [$701 million] subordinated perpetual notes recently issued by ZIC under its Euro medium-term note program. Best has also affirmed the ICR of “a” and the related debt ratings of Zurich. The outlook for all the ratings remains stable.
The upgrade of ZIC’s ratings reflects “anticipated improvement in consolidated risk-adjusted capitalization at year-end 2010, which will further build on strengthening achieved in 2009,” best explained. The rating agency added that it “anticipates that Zurich’s enhanced risk-adjusted capitalization will be maintained into 2011 and beyond. Capitalization is likely to be supported by stable consolidated reserves.”
In addition Best it expects Zurich’s earning s to “remain solid in 2010, with net income broadly in line with 2009. Zurich’s main business units are all expected to contribute positively, although earnings from the general insurance division are likely to reduce due to the impact of above average loss experience during the year, as well as a reduction in premiums. Earnings from global life are expected to remain good, with strong and improving new business margins.
“The income from Farmers Management Services remains a significant contributor to Zurich’s overall earnings. For 2010, the positive contribution from the main business units will be reduced by negative earnings from Zurich’s non-core business unit, which comprises banking activities and run-off portfolios, due to an increase in the loan loss provision for the group’s commercial property loans in the United Kingdom and Ireland.”
Best also expects Zurich to “maintain its strong position in non-life business in its core markets in Europe and the United States. Gross written premiums for non-life business are expected to reduce marginally in 2010 compared with 2009, driven by weak demand due to the economy, combined with the group’s focus on achieving rate increases.
“For global life, new business annual premium equivalent is expected to increase, driven in part by private banking client solutions and corporate life and pensions. Growth in global life premiums in the United Kingdom, Germany and Latin America is expected to be somewhat offset by a reduction in sales of short-term savings products in Spain.