S&P Affirms ZFS Operating Units Ratings after Review

October 21, 2004

Standard & Poor’s Ratings Services announced that it has affirmed all ratings on the core operating entities of Switzerland’s composite insurance group Zurich Financial Services (ZFS). These include its “A+/A-1” counterparty credit and insurer financial strength ratings on Zurich Insurance Co. and its “A-” long-term counterparty credit rating on the group holding company, Zurich Group Holding. The ratings outlook is stable.

“The ratings reflect ZFS’ very strong competitive position, continued recovery in underlying earnings, and strong management,” stated S&P credit analyst Antonello Aquino. “Restraining factors are the possibility of further reserve additions and the execution risk involved in the restructuring of ZFS’ life insurance business.”

S&P said the stable outlook reflects its expectation “that ZFS will continue to demonstrate strong earnings performance, even in a less benign market environment. In particular, management is expected to continue to adhere to adequate rates in its general insurance business. Specifically, the combined ratio will remain below 100 percent for the years ending Dec. 31, 2004, and 2005.”

S&P also indicated that it “expects the group to successfully implement the restructuring of its life business, and operating return on embedded value should range at about 10 to11 percent at year-end 2004, with some further improvements expected for 2005.

“The restructuring in the U.K., Switzerland, and Germany will further increase new business margins. Management will continue to retain a significant proportion of earnings to further build its capital base. Further reserve additions remain a possibility, but should be mitigated by continued strong earnings.”

The rating agency confirmed that it would “continue to closely monitor reserve developments and the likely impact of these on ZFS’ financial strength.”

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