Best’s News & Research Service - September 25, 2019 12:55 PM (EDT)
AM Best Affirms Credit Ratings of Zurich Insurance Group Ltd and Its Main Rated Subsidiaries
- September 25, 2019 12:55 PM (EDT)
London //BestWire// - AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the main rated insurance subsidiaries of Zurich Insurance Group Ltd (Switzerland). These companies are referred to collectively as the Zurich group. (See below for a detailed list.) At the same time, AM Best has affirmed the Long-Term ICR of “a” of the non-operating holding company, Zurich Insurance Group Ltd. Additionally, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICR) of “a” of Farmers Reinsurance Company (Farmers Re) (Woodland Hills, CA). The outlook of these Credit Ratings (ratings) remains stable.
The Zurich group’s ratings reflect its balance sheet strength, which AM Best categorises as very strong, its strong operating performance, very favourable business profile and appropriate enterprise risk management (ERM).
The ratings of Farmers Re reflect its balance sheet strength, which AM Best categorises as very strong, as well as its adequate operating performance, limited business profile and appropriate ERM. The ratings also reflect the company’s strategic importance to the Zurich group.
Zurich group’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), being at the strongest level. The group’s balance sheet strength further benefits from excellent liquidity and solid financial flexibility, through demonstrated access to capital markets. These rating factors are offset by Zurich’s reliance on soft capital components to support its capital buffers, although the use of such components is consistent with the group’s European peers.
Zurich is one of the world’s leading insurance groups, with excellent diversification by geography and product. The group maintains sustained competitive advantages in Europe and the United States, a strong presence in Latin America and selective positions in Asia Pacific. Consequently, the group’s five-year average weighted return on equity of 10.4% (2014-2018) benefits from its diversified earnings profile. This includes strong returns from its life insurance operations, stable investment yields and consistent risk-free income derived from its non-claims management services for Farmers Exchanges (a leading mutual insurance group operating in the United States). Additionally, Zurich has implemented an impressive turnaround of its property/casualty (P/C) operations, driven by strengthened underwriting discipline, material cost reduction, and a shift in business mix towards shorter tail and specialty lines. As a result, P/C profitability metrics have shown sustainable improvements, gradually moving in-line with global peers. AM Best expects the group to report a combined ratio below 96% for 2019, in the absence of higher-than-budgeted catastrophe losses.
The shift in business mix has translated into improved loss experience for the group, which is offset by higher acquisition costs. However, overall the group’s underwriting ratio (accident year loss ratio plus commission ratio) diminished by two points between 2016 and half-year 2019, vindicating the group’s strategic decisions. Additionally, the group continues to maintain its run-rate in achieving its expense saving targets year-on-year.
The FSR of A+ (Superior) and the Long-Term ICRs of “aa-” have been affirmed with a stable outlook for the following subsidiaries of Zurich Insurance Group Ltd:
- Zurich Insurance Plc
- The Fidelity and Deposit Company of Maryland
- Empire Fire and Marine Insurance Company
- Empire Indemnity Insurance Company
- Universal Underwriters Insurance Company
- American Guarantee and Liability Insurance Company
- American Zurich Insurance Company
- Universal Underwriters of Texas Insurance Company
- Steadfast Insurance Company
- Zurich American Insurance Company
- Zurich American Insurance Company of Illinois
- Colonial American Casualty & Surety Company
- Rural Community Insurance Company
- Zurich Insurance Company Limited
- Zurich American Life Insurance Company
This press release relates to Credit Ratings that have been published on AM 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 see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
AM Best is a global credit rating agency and information provider with an exclusive focus on the insurance industry.