A.M. Best Affirms Ratings of Zurich Insurance Company Limited and Zurich Insurance Group Ltd

  A.M. Best Affirms Ratings of Zurich Insurance Company Limited and Zurich
  Insurance Group Ltd

Business Wire

LONDON -- November 27, 2012

A.M. Best Europe – Rating Services Limited has affirmed the financial strength
rating of A+ (Superior) and issuer credit rating (ICR) of “aa-” of Zurich
Insurance Company Limited (ZIC) (Switzerland), the main operating company of
Zurich Insurance Group Ltd (Zurich) (Switzerland). Concurrently, A.M. Best has
assigned ratings and affirmed the existing ratings of the debt instruments
issued or guaranteed by ZIC. A.M. Best has also affirmed the ICR of “a” and
the related debt ratings of Zurich. The outlook for all the ratings remains
stable. (See link below for a detailed listing of all debt ratings.)

A.M. Best expects ZIC’s risk-adjusted capitalisation to remain excellent in
2012, supported by retained earnings and unrealised gains on its investment
portfolio. ZIC has a manageable direct exposure to peripheral eurozone
countries at 5.2% of total investments, with Italian bonds representing 3%
(USD 6.1 billion) of total investments at third quarter 2012. ZIC recently
announced a strengthening in long-tail line claims reserves in the German
business of USD 426 million. Although this does raise issues around the risk
controls of the German business, A.M. Best believes that this has been
isolated and is not reflective of the group’s overall reserves, which have
shown positive prior year development in recent years including a redundancy
of USD 617 million at third quarter 2012.

Earnings are expected to remain solid at year-end 2012, although they are
unlikely to significantly outperform 2011, despite a relatively benign
catastrophe year. The 2012 result has been affected by a pre-tax loss of USD
550 million in the German business as a result of reserve increases and a
write off in deferred acquisition costs. Although Zurich have not given
guidance on any losses from Hurricane Sandy, the losses are expected to be
reasonably significant, albeit manageable in the context of the group’s
overall 2012 result. Overall, Zurich’s main business units are expected to
contribute positively to results, with the general insurance division likely
to increase profitability through an improved combined ratio despite the
issues in Germany and with Hurricane Sandy. Earnings from global life are
expected to remain good, with the emphasis of the book on protection and
unit-linked products a positive in this low interest rate environment. The
income from Farmers Management Services remains a significant contributor to
Zurich’s overall earnings; however, earnings from Farmers Reinsurance Company
are expected to reduce despite a higher quota share on the back of increased
weather-related losses.

Zurich is expected 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 increase in local currency terms in 2012
compared with 2011, as the company benefits from rate increases and growth in
Latin America through the Santander joint venture. For global life, new
business annual premium equivalent is expected to increase, driven by strong
growth in private banking client solutions and corporate life and pensions as
well as growth in Latin America.

Upwards rating actions are unlikely at this point.

Negative rating actions could occur if there were a weakening of Zurich’s
risk-adjusted capitalisation as a result of large investment losses associated
with its eurozone exposures; there were a significant increase in long-tail
claims reserves across the group; and if prospective losses from Hurricane
Sandy were significantly outside the group’s risk tolerance.

For a complete list of Zurich Insurance Company Limited  and Zurich Insurance
Group Ltd’s debt ratings, please see www.ambest.com/press/112704zurichuk.pdf.

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. Key criteria utilised include: “Risk Management and the Rating
Process for Insurance Companies”; “Understanding Universal BCAR”;
“Understanding BCAR for Property/Casualty Insurers”; “Rating Members of
Insurance Groups”; and “Insurance Holding Company and Debt Ratings”. Best’s
Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to
required disclosures: A.M. Best Europe - Rating Services Limited Supplementary

A.M. Best Europe – Rating Services Limited is a subsidiary of A.M. Best
Company. Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.


A.M. Best
Sam Dobbyn
Associate Director
+(44) 20 7397 0264
Carlos Wong-Fupuy
Senior Director
+(44) 20 7397-0287
Rachelle Morrow
Senior Manager, Public Relations
+(1) 908 439 2200, ext. 5378
Jim Peavy
Assistant Vice President, Public Relations
+(1) 908 439 2200, ext. 5644
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