S&P Revises Outlook to Stable on Zurich Operating Companies

April 1, 2010

Standard & Poor’s Ratings Services announced that it has revised the outlooks on the various operating entities of Switzerland’s Zurich Financial Services (collectively ZFS) to stable from negative.

ZFS includes Swiss-based Zurich Insurance Company Ltd. (ZIC), Ireland-based Zurich Insurance PLC, and the members of the Zurich U.S. Intercompany Pool.

S&P also affirmed its ‘AA-‘ long-term counterparty credit and insurer financial strength ratings on ZFS’ core operating companies.

“The outlook revision reflects a recovery in ZFS’ risk-based capital adequacy, which we view as strong. We expect the group to maintain strong capitalization based on its very strong operating performance, strong enterprise risk management capabilities, and various measures implemented to reduce risk from the balance sheet,” explained credit analyst Hiltrud Besgen.

In addition S&P noted that the “ratings are further supported by what we regard as ZFS’ very strong competitive position.”

However, S&P also indicated that these “strengths are partly offset in our view by the fact that ZFS’ capitalization, although improved, remains a relative rating weakness. Moreover economic conditions remain difficult, which we believe may impede ZFS’ progress in implementing further rate increases as well as limit opportunities for further business and earnings growth.”

S&P also indicated that in its opinion, ZFS’ capital adequacy has “improved to strong levels and is now more supportive of the current rating than previously. In 2009, ZFS’ shareholders’ equity increased significantly by about $7.6 billion or 34 percent, mainly because of sound retained earnings, net unrealized gains on investments, and positive currency translation effects. In addition, ZFS has taken actions to manage down equity and credit risks. Nevertheless, capital adequacy has not reached a level that is fully commensurate with the current rating level.

“The stable outlook reflects our assessment that ZFS will defend its very strong competitive position, continue to maintain very strong profitability, and generate retained earnings at a level that will sustain strong capital adequacy.”

Source: Standard & Poor’s – www.standardandpoors.com

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