A.M. Best, SP Affirm Ratings on ZFS

March 26, 2002

Despite its current difficulties – repeated profit warnings, a $387 million net loss last year, the need to replace its CEO, etc.- the rating agencies don’t appear to have lost overall confidence in the basic economic health of the Swiss-U.K. Group Zurich Financial Services (ZFS).

A.M. Best released a report last Friday which affirmed and removed from under review the A+ (Superior) financial strength rating of ZFS Group’s core operating subsidiaries. It did warn, however that “The outlook for the Zurich Group’s financial strength and debt ratings is negative.”

It also stated that “Concurrent with these actions, A.M. Best has placed the A+ (Superior) financial strength rating of the property/casualty insurance exchanges of the Farmers Insurance Group, a member of ZFS, under review with negative implications,” reflecting “its diminished capitalization and poor underwriting performance over the past two years.”

Best noted, however that ZFS ranks among the world’s five leading insurers, with total premiums and deposits of $ 56 billion (including the Farmers Exchanges), and that “Through its vast distribution network, including strategic alliances with several leading banks, ZFS provides a broad array of products focused on financial protection and asset accumulation solutions to both individual and corporate clients.”

On Monday Standard & Poor’s affirmed its single-‘A’-plus counterparty credit and insurer financial strength ratings on U.K.-based commercial lines insurer Zurich Specialties London Ltd. (ZSL), a wholly owned subsidiary of ZFS, with a stable outlook. It also noted that ZFS’ “main operating subsidiaries are rated AA-/Stable/–).”

“The ratings on ZSL are based on the company’s continued strategic importance to ZFS, strong capitalization, good overall operating performance, and good business position,” stated Stephen Searby, a director at S&P’s Insurance Ratings Group in London.” These factors are partly offset by high outward use of reinsurance, reliance on investment earnings from surplus capital to produce bottom-line profits, and continuing involvement in a number of commoditized London Market business lines.”

The ratings affirmations come at a time when ZFS could use some good news. Last week it had to acknowledge that its earnings targets for the year 2002 were probably unreachable, and it’s still looking for someone to replace its embattled CEO Rolf Hüppi, who announced in February that he would give up day to day management responsibilities, but would remain as board chairman.

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