Moody’s May Lower Zurich’s Ratings

February 28, 2003

Moody’s Investors Service announced that it has placed the ratings on Zurich Insurance Company [insurance financial strength rating of A1, senior debt rating of A2, subordinated debt rating of A3, and ZCM Matched Funding Corp.’s short-term rating of Prime-1], Farmers Insurance Exchanges and other rated entities of the Zurich Financial Services Group on review for possible downgrade.

“The rating actions do not include the long-term ratings of Deutscher Herold Lebensversicherungs AG, Eagle Star Life Assurance, Eagle Star Insurance Company, and Centre Group,” said Moody’s, as they are already on review for downgrade. Moody’s plans to make another announcement soon concerning Zurich Bank.

“Zurich’s poor results for FY2002 reflect special provisions, of around $3.5 billion,” said the announcement. “These provisions include charges for reserve strengthening, operational improvement, goodwill impairment, and the repositioning of the Global Assets Division, the unit which encompasses the Centre Group and Zurich Capital Markets. ”

The rating agency noted that “Zurich’s earnings were also undermined by investment losses, lower business operating earnings in its non-life business and significant expenses related to the Baloise hedge and to currency hedges and swaps in place during 2002.”

“These substantial charges offset the underlying improvements in some operating business, notably Farmers, the P&C units, and selected life businesses (North America & Latin America consumer),” Moody’s indicated. However, it said that the group continues to face “challenging operating environments” in the U.K. and Europe due to “declines in the equity markets and pressured new business margins.”

Moody’s sees the difficult conditions continuing and expects them to impact on ZFS’ earnings, but it did note that the $2.7 billion the company has raised in fresh equity in 2002, and its strong cash flow of around $6.8 billion were both positive factors.

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