Best Affirms Zurich Insurance ‘A+’ Ratings; Outlook Stable

November 21, 2011

A.M. Best Europe – Rating Services Limited has affirmed the financial strength rating (FSR) of ‘A+’ (Superior) and issuer credit rating (ICR) of “aa-” of Zurich Insurance Company Limited (ZIC), the main operating company of Zurich Financial Services Ltd.

Best also affirmed the ratings of the debt instruments issued or guaranteed by ZIC and assigned a rating of “a+” to the CHF 500 million [$543.43 million] and CHF 250 million [$271.8 million] senior notes recently issued by ZIC under its Euro medium-term note program. In addition Best has affirmed the ICR of “a” and the related debt ratings of Zurich. The outlook for all the ratings remains stable.

Best said it expects a “minimal reduction in ZIC’s risk strong adjusted capitalization in 2011, principally due to a difficult year for the company’s non-life business with a large number of catastrophe losses.

“Despite this, ZIC continues to maintain excellent risk adjusted capitalization supported by retained earnings and unrealized gains on the investment portfolio. ZIC has a manageable direct exposure to peripheral Euro zone countries at 14 percent of total investments, with Italian bonds representing 3 percent $5.7 billion) of total investments at third quarter 2011.”

Best pointed out that the company “has taken positive steps to reduce its exposure to these bonds in recent months. However, the risk remains that any further exacerbation of the Euro zone crisis will harm profitability as well as the company’s approximately $13 billion subordinated and senior debt holdings in Euro zone banks.”

ZIC’s earnings are “expected to remain solid in 2011, although they are unlikely to match performance in 2010. 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 catastrophe and large claims experience during the year, which was $868 million higher than third quarter 2010 at third quarter 2011.

“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; however, income from Farmers Re is expected to reduce due to a lower quota share and higher loss experience.”

From an overall point of view, Best said it 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 remain broadly flat in 2011 compared with 2010, as the company focuses on underwriting profitability and increasing rates. 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.

“The acquisition of a 51 percent stake in Santander’s Latin America insurance operations should further enhance the group’s business profile and improve growth prospects in 2012 for both the life and non-life businesses.”

A complete list of Zurich Financial Services Ltd and its subsidiaries’ FSRs, ICRs and debt ratings is available on Best’s web site.

Source: A.M. Best

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