MOODY'S COMMENTS ON ITS REVIEW OF ZURICH INSURANCE COMPANY AND GUARANTEED SUBSIDIARIES
New York, September 27, 2001 -- In the wake of the terrorist attacks that occurred on September 11th, Moody's Investors Service recently announced that it had initiated rating reviews for possible downgrade of a number of insurance enterprises. At that same time, Moody's also changed its rating outlook for a number of other insurers. Among the companies affected by these actions was Zurich Insurance Company (ZIC) and ratings on guaranteed subsidiaries of ZIC. Specifically excluded from this review are the ratings of Farmers Group Inc. (with the exception of the RegCap securities issued by Farmers but which are rated based on the implied support of Zurich Financial Services Group), the Centre Group, and the Zurich Kemper Life Companies. The ratings of ZIC and its subsidiaries and affiliates (insurance financial strength at Aa1, senior unsecured debt at Aa2) were placed on review for possible downgrade (with exceptions indicated above).
In its earlier press release, Moody's cited a number of common factors that it had identified as key rating variables. These factors, all of which are relevant for ZIC, will be subject to further consideration and analysis during the review process. These common concerns are:
1) The magnitude of actual losses reported, both gross and net, relative to capitalization, fixed charges, cash flows, and core earnings.
2) The degree of uncertainty surrounding current estimates of loss, including the prospect for disputes about the extent to which reinsurance will respond.
3) The extent to which, following the recent attacks, the profile of risk within the insurance industry has changed, at least for some period of time.
In addition, Moody's stated that there are a host of additional factors that will bear on its analysis of ZIC during the rating review. These factors include:
1) A review of operational and financial leverage, including contingent liabilities stemming from its corporate guarantees.
2) Capital management and strategic position in the context of the company's recently announced agreement in principle to pursue a number of business initiatives (including the transfer of key units) with Deutsche Bank.
3) Core operating earnings and the stability and growth prospects stemming from the company's non-life segment, its growing life business, and the contribution of the Farmers Group (whose rating outlook was recently changed to negative owing to steadily declining earnings and weakening capital adequacy).
Moody's noted that ZIC and its subsidiaries also have a number of credit strengths that will be considered during its review. Among these strengths Moody's noted the company's historical track record of profitability and its strong management culture, its conservative stance on asset quality and reserving, as well as its diversification across business units. Based on current loss estimates, Moody's expects that the rating review will conclude with either a confirmation or a one-notch downgrade.
Zurich Insurance Company is the main company in the Zurich Financial Services Group, which also includes the Farmers Group Inc., and the UK operations of Eagle Star Holdings and Allied Dunbar. Zurich Financial Services Group is a leading international provider of financial solutions, including non-life and life insurance products.
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