MOODY'S AFFIRMS ZURICH FINANCIAL SERVICES' RATINGS FOLLOWING 1H02 LOSS AND ANNOUNCEMENT OF STRATEGIC AND OPERATIONAL INITIATIVE
The Zurich Financial Services Group (ZFS), in conjunction with its 1H02 interim results released today, announced a broad-based program to improve its operating efficiency, strengthen its balance sheet and enhance its capital adequacy. The program's major initiatives include:
1. Sharpened strategic focus with concentration on core insurance markets in the US, UK, and Continental Europe.
2. Measures to improve operational efficiency with a target return on equity (ROE) of 12% (excluding realised gains) over the medium term.
3. Steps to strengthen the balance sheet including an increase of non-life and reinsurance reserves by $1.8 bn (after-tax) and a write-off of goodwill and other assets of $954mn (after-tax).
4. A Rights Issue of $2bn- $2.5bn as well as other steps to achieve risk-based capital savings of $2.5bn to $2.7 bn.
While ZFS reported pre-provision net income of $683mn, the company announced a loss of $2,029mn for the period as a result of special provisions of $2.7 bn (after-tax).
Moody's has reviewed the strategic and operational initiatives announced by ZFS and believes the program is likely to improve the quality of earnings and capital over the medium-term. In particular, Moody's notes that the forthcoming rights issue, which the company expects to be fully underwritten, will largely offset the negative impact from the 1H02 loss. Furthermore, in Moody's opinion, ZFS is well-positioned to benefit from significant pricing increases in its non-life business. Therefore, Moody's affirms its current ratings of the ZFS Group, including the A1 insurance financial strength rating and A2 senior debt rating assigned to Zurich Insurance Company (ZIC). The rating outlook is stable.
At the end of June 2002, the Zurich Financial Services Group reported shareholders' equity of $14.9 bn, assets of $ 276bn, and a net loss of $2,029 mn. The ZFS Group is based in Zurich, Switzerland.
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