S&P Affirms Zurich’s ‘A+’ Rating; Off CreditWatch; Outlook Negative

May 24, 2005

Standard & Poor’s Ratings Services announced that it has affirmed its ratings on the various operating entities of Swiss-based composite insurance group Zurich Financial Services (collectively ZFS), including its ‘A+’ long-term counterparty credit and insurer financial strength ratings and its ‘A-1’ short-term foreign currency counterparty credit rating on Zurich Insurance Co.

S&P also said that it has removed all of the ratings from CreditWatch, where they had been placed with negative implications on Feb. 17, 2005, “pending a detailed review of the group’s reserve adequacy.” The outlook on the ratings, however, is negative.

S&P also affirmed and removed from CreditWatch with negative implications its “A+” long-term counterparty credit and insurer financial strength ratings on the members of the Zurich U.S. Intercompany Pool (ZUS), also with a negative outlook. The rating agency noted that it “continues to consider ZUS to be a core unit of ZFS, therefore benefiting from group support.”

The bulletin also said: “The ‘A’ long-term counterparty credit and insurer financial strength ratings on Zurich Specialties London Ltd. (ZSL) remain on CreditWatch with negative implications, reflecting increased uncertainty about ZSL’s future role within ZFS’ Global Corporate (GC) business segment (please refer to “Research Update: Zurich Specialties London ‘A’ Ratings Still On Watch Neg As Future Role Becomes More Uncertain” published on May 9, 2005, on RatingsDirect, Standard & Poor’s Web-based credit analysis system).”

S&P credit analyst Antonello Aquino noted: “The ratings reflect ZFS’ very strong competitive position and strong operating performance.” Additional rating factors noted by S&P include “significantly strengthened underwriting controls and further improved capitalization. Despite significant reserve strengthening in 2004, after-tax business operating profits over equity was 11.5 percent and the underlying combined ratio was 94.7 percent. The risk of further reserve strengthening for prior years is modest. In 2004, management introduced a comprehensive rolling-reserve process, combined with more conservative reserving assumptions, which Standard & Poor’s deems to be appropriate to effectively capture future deficiency risk.”

Aquino indicated that the “negative outlook reflects the group’s exposure to the U.S. commercial property/casualty sector. Nevertheless, Standard & Poor’s expects the company to deliver sustainable strong underwriting results throughout the underwriting cycle.”

S&P said it “expects ZFS to achieve a combined ratio significantly below 100 percent for the years ending Dec. 31, 2005, and 2006. Management is expected to continue to adhere to adequate rates in its general insurance business. If 2005 results are not as good as expected, or if there is any future unexpected reserving development, the ratings are likely to be lowered. Management will continue to rebuild capitalization through retained earnings.”

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