A.M. Best has affirmed the financial strength rating of A+ (Superior) and the issuer credit rating (ICR) of "aa-" of Zurich Insurance Company Limited (ZIC) (Switzerland), the main operating company of Zurich Insurance Group Ltd (Zurich) (Switzerland). A.M. Best has also affirmed the ICR of "a" of Zurich, the ultimate parent of the Zurich group of companies.
Additionally, A.M. Best has affirmed all the ratings of the debt instruments either issued or guaranteed by ZIC or benefitting from a subordinated support agreement from ZIC. The outlook on all ratings is stable. (See link below for a detailed listing of all debt ratings.)
Concurrently, all debt ratings have been withdrawn at the company's request.
The ratings of ZIC, which are based on the analysis of the consolidated Zurich group, reflect Zurich's strong consolidated risk-adjusted capitalisation, solid operating performance and excellent competitive profile as a global multi-line insurer. Partly offsetting rating factors are the lacklustre, albeit improving, technical results of the non-life segment and the challenging conditions of ZIC's core European markets.
Zurich's consolidated risk-adjusted capitalisation remains at a strong level, although highly supported by softer elements of capital, including credit for the value of life in-force business (an embedded value concept) and hybrid debt capital. ZIC's financial leverage and interest coverage ratios remain within A.M. Best's tolerances.
Zurich's solid operating performance benefits from positive, albeit declining, yields from its conservative investment policy and strong income contribution from Zurich's attorney-in-fact relationship with The Farmers Exchanges, a leading mutual insurance group operating in the United States. Additionally, good results are expected from Zurich's life portfolio supported by improving new business margins, due to the shift toward protection and unit-linked products and growth in the emerging markets, particularly in Latin America. The technical performance of the non-life portfolio has been a relative rating weakness, as per the group's five-year average combined ratio of 101.7%. Nonetheless, corrective measures taken by Zurich to restore profitability have resulted in consistent improvements in the accident-year combined ratio (since 2010), which is beginning to materialise in the reported non-life technical results.
Zurich maintains an excellent competitive position in its core markets of Europe and the U.S. However, the operating environment remains challenging due to intense competition coupled with weakened economic demand in Europe. Zurich seeks to enhance its operating earnings by focusing on business segments in which it benefits from a distinct competitive advantage, whilst turning-around or exiting the under-performing segments of the insurance portfolio. As a result, A.M. Best expects growth to largely emanate from Zurich's global corporate segment, where it benefits from a leading profile on international programmes business, with further penetration in Latin America.
Upwards rating actions could occur if Zurich is able to sustain the improving trends in the technical results of its general insurance portfolio, whilst strengthening the quality of capital supporting its consolidated risk-adjusted capitalisation. Additionally, Zurich's ability to demonstrate fundamentals that consistently exceed that of similarly rated peers could also result in positive rating pressures.
Negative rating actions are currently unlikely, but could occur if consolidated risk-adjusted capitalisation were to fall below A.M. Best's expectations as a result of a consistent deterioration in operating earnings, erosion in the quality of its capital or unexpected investment losses arising as a result of Zurich's increased risk appetite.
For a detailed listing of Zurich Insurance Company Limited's debt ratings, please visit Zurich Insurance Company Limited.
The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilised:
- A.M. Best's Perspective on Operating Leverage
- Analyzing Insurance Holding Company Liquidity
- Catastrophe Analysis in A.M. Best's Ratings
- Equity Credit for Hybrid Securities
- Insurance Holding Company and Debt ratings
- Rating Members of Insurance Groups
- Risk Management and the Rating Process for Insurance Companies
- Understanding Universal BCAR
In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe Rating Services Limited Supplementary Disclosure.
This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best's Ratings & Criteria Center
Copyright 2014 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
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A.M. Best
Deniese Imoukhuede, +(44) 20 7397 0277
Associate Director, Analytics
deniese.imoukhuede@ambest.com
or
Carlos Wong-Fupuy, +(44) 20 7397 0287
Senior Director, Analytics
carlos.wong-fupuy@ambest.com
or
Christopher Sharkey, +(1) 908-439-2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +(1) 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com