Ratings Recap: Zurich/Santander, Jasindo

Standard & Poor’s Ratings Services has affirmed its ‘AA-‘ long-term counterparty credit and insurer financial strength ratings on the various operating entities of Switzerland-based insurance group Zurich Financial Services (collectively ZFS), which includes Zurich Insurance Co. Ltd. (ZIC), Ireland-based Zurich Insurance PLC, the members of the Zurich U.S. Intercompany Pool (ZUS), and Farmers Group Inc. (FGI). The outlook for all of the ratings is stable. Credit analyst Hiltrud Besgen explained: “The affirmation of the ratings follows a recent announcement that ZFS has entered into a 25-year exclusive strategic distribution with Banco Santander S.A. in Latin America, which includes the acquisition of a 51 percent stake in the bank’s life insurance, pension, and general insurance operations in Brazil, Mexico, Chile, Argentina, and Uruguay.” In addition S&P said the “ratings remain underpinned by our view of ZFS’ very strong underlying operating performance, strong enterprise risk-management program, and a very strong competitive position. These strengths are partly offset by ZFS’ capitalization, which we think remains a relative rating weakness. Moreover, economic conditions are still difficult and could impede ZFS’ plans to implement further rate increases and limit opportunities for additional business and earnings growth.” Besgen added: “The stable outlook reflects our assessment that ZFS will be able to defend its very strong competitive position, continue to maintain its very strong profitability, and generate retained earnings at a level that should sustain strong capital adequacy in the future.”

A.M. Best Co. has affirmed the financial strength rating of ‘B++’ (Good) and issuer credit rating of “bbb” of Indonesia’s PT Asuransi Jasa Indonesia (Persero) (Jasindo), both with stable outlooks. Best said the ratings reflect Jasindo’s “long operating history and strong market profile in Indonesia, improved underwriting performance over the last two years, sound liquidity and favorable investment income. The ratings also acknowledge the company’s effort to enhance the measurement of risks through the development of enterprise risk management.” Best also noted that, although the “expense ratio remains high relative to its Asian peers, it has trended downward over the past five years due to expenditure control. A more prudent pricing strategy and risk selection have lowered the net loss ratio since 2008, contributing to an improvement in the combined ratio for the second consecutive year. Jasindo continues to record positive investment income, which consistently balances its bottom line by cushioning the underwriting volatility. Its sound level of liquidity also enables it to settle claims in a short timeframe.” As offsetting factors, Best cited the “competitive landscape in Jasindo’s core operating market, its reserving practice and exposure to potential catastrophe perils. Due to the change in regulation, the emergence of stronger players in Jasindo’s key marketplace will further soften the operating environment, which will reduce its underwriting margin. Jasindo’s incurred but not reported claims reserve (IBNR) is assessed by applying percentages to the outstanding claims reserves. Given the prevailing claims reserve practice,” Best said it “remains cautious regarding Jasindo’s loss development pattern in its insurance portfolio and the potential impact on the adequacy of its claim reserves in the future.”