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30 May 2003
MOODY'S LOWERS LONG-TERMS RATINGS OF ZURICH INSURANCE COMPANY (INSURANCE FINANCIAL STRENGTH RATING TO A2 FROM A1); SHORT-TERM RATING OF PRIME-1 AND RATINGS OF FARMERS GROUP ARE CONFIRMED WITH STABLE OUTLOOKS; OTHER RATING ACTIONS ANNOUNCED
Negative outlook assigned to long-term ratings of ZIC
London, 30 May 2003 -- Moody's Investors Service has lowered the long-term insurance
financial strength rating of Zurich Insurance Company (ZIC) and guaranteed
subsidiaries to A2 from A1, senior debt rating to Baa1 from A2,
and subordinated debt rating to Baa2 from A3. The long-term
issuer ratings of Zurich Capital Markets Inc. (ZCMI) and ZCM Matched
Funding Corp. were downgraded to A2 from A1. The long-term
ratings have been assigned a negative outlook. Moody's added that
a separate release would follow regarding Zurich Bank.
Separately, the short-term rating of Prime-1 was confirmed
of ZCM Matched Funding Corporation. The ratings of the Farmers
Insurance Exchanges as well as Zurich RegCaps securities were confirmed.
These ratings carry a stable outlook. Other rating actions on ZFS
Group companies are detailed in the list below.
The current rating actions conclude a review that commenced on 27 February
Moody's said that the negative outlook assigned to the long-term
ratings of ZIC and related companies reflects the rating agency's
assessment of the near-term execution risks associated with the
company's divestment program and restructuring of the Global Assets
Division. Moody's added that, over the medium-term,
the current improvements in pricing for non-life insurance,
which accounts for approximately 2/3rds of total net premiums written,
coupled with enhanced operational performance across the Group and the
orderly restructuring of the Global Assets division, which includes
ZCM and Centre, will lead to sustained improvements in the quantity,
stability, and quality of earnings throughout the ZFS Group.
Moody's added that ZCMI, ZCM Matched Funding Corp.
and Zurich Bank are beneficiaries of a Surety Bond, dated August
6, 1997, which was issued by Zurich Insurance Company in favour
of ZCMI. Because a surety bond is a policyholder obligation,
Moody's believes that the credit strength of these securities is commensurate
with that of the insurance financial strength of the Zurich Insurance
The ratings of Kemper Corporation, Kemper Investors Life Insurance
Company (KILICO), Federal Kemper Life Assurance Company (FKLA),
Zurich Life Insurance Company of America (ZLICA) were also downgraded
(see list below). In a subsequent rating action, the ratings
of FKLA and ZLICA (Insurance Financial Strength rating of A3, following
the downgrades) are being placed on review for possible upgrade following
the announcement of the sale to Bank One Corporation (senior rating of
Aa3). In addition, the A3 insurance financial strength rating
of Kemper Investors Life Insurance Company are being placed on review
for possible downgrade. (Please see separate press release for
In addition, Moody's said that because of the weakened capacity
of ZIC to provide support for other group companies, ratings on
certain entities, which previously had benefited from implied support,
are being placed at levels which reflect their stand-alone financial
In reference to the rating downgrades, Moody's said these
are based on four factors: 1.) As of the end of 2002,
Zurich Insurance Company's (ZIC) balance sheet was qualitatively
weaker than that of the parent. However, Moody's expects
that ZFS will be taking steps over the course of 2003 to improve the capitalisation
of ZIC. 2.) Because of reduced solvency levels, the
capacity of ZFS' regulated subsidiaries to upstream dividends is
proscribed and likely to remain so until at least 2004, in the rating
agency's view. This is placing pressure on holding company
liquidity 3.) The somewhat weaker interest and dividend coverage
levels and elevated tangible leverage profile relative to Moody's
expectations at the prior rating level 4.) The potential that adverse
reserve development, which reflects the rating agency's concerns
for the sector, coupled with the potential for additional impairments
and costs associated with the restructuring of the Global Assets division,
may depress profitability for the near term.
Moody's said that its ratings on Zurich Insurance and other companies
of the ZFS Group are supported by several strengths. The new management
team has undertaken an active program of de-risking the balance
sheet. This, coupled with a more focused business profile,
points to prospects of strengthening credit profile over the next years
and one which should result in a stronger performance from the Group's
excellent franchise. Moody's noted that ZFS has made demonstrable
progress in increasing its risk-based capital by $5 bn,
which included: $2.7 bn in "fresh equity";
reduction in its equity exposure by $5.6 bn to a target
level of 5%; an active program of divestures which appears
on target; and use of reinsurance. Moody's added that
for the first quarter of 2003, ZFS reported a combined ratio of
98.2% (1Q02: 104.1%) and a Business
Operating Profit-BOP, which ZFS defines as operating income
adjusted for taxes, net realized and unrealized gains, policyholders'
share of investment returns, non-operational currency gains
and losses and the corporate financing of subsidiaries, of $785mn
and IAS net income of $114mn. Nevertheless, as with
other companies in the sector, while Moody's believes that
the underlying trends in core profitability are likely to improve in 2003
relative to 2002, it is cautious in extrapolating full year results
from the 1Q03 performance.
The following ratings were downgraded and assigned a negative outlook:
Zurich Insurance Company and guaranteed issuers; Insurance Financial
Strength to A2 from A1, senior unsecured MTN to Baa1 from A2,
subordinated MTN to Baa2 from A3, and subordinated perpetual notes
to Baa2 from A3;
Zurich Financial Services (Jersey) guaranteed on a subordinated basis
by Zurich Financial Services: preferred stock rating to Baa3 from
Zurich Capital Markets Inc.; Issuer rating to A2 from A1 and
preferred stock to Baa1 from A2;
ZCM Matched Funding Corp.; Issuer rating to A2 from A1;
Zurich Capital Trust I: preferred stock rating to Baa2 from A3;
Kemper Corporation; Senior MTN to Baa1 from A3; Cumulative preferred
stock to Baa3 from Baa2;
Centre Group - insurance financial strength rating to A3 from A1;
Eagle Star Life Assurance - insurance financial strength rating
to Baa2 from A3;
Eagle Star Insurance Company - insurance financial strength rating
to Baa2 from A3;
Deutscher Herold Leben - insurance financial strength rating to
A2 from A1.
The following ratings were confirmed and assigned a stable outlook:
Farmers New World Life Insurance Company: Insurance Financial Strength
Farmers Insurance Exchange: Insurance Financial Strength rating
of A3, surplus notes rating of Baa3
Farmers Group Capital and Farmers Group II: Preferred Stock of Baa2;
Farmers Exchange Capital: Trust Surplus Notes of Baa3.
Truck Insurance Exchange, Fire Insurance Exchange, Farmers
Insurance Company of Oregon: Insurance Financial Strength of A3;
Zurich RegCaPS; preferred stock of Baa2;
ZCM Matched Funding Corp; Commercial Paper rating of Prime-1;
The following rating was downgraded and placed on review for possible
Kemper Investors Life Insurance Company: insurance financial strength
rating to A3 from A2;
The following ratings were downgraded and placed on review for possible
Federal Kemper Life Assurance Company: insurance financial strength
to A3 from A2;
Zurich Life Insurance Company of America; Insurance Financial Strength
rating to A3 from A2;
At year-end 2002, the Zurich Financial Services Group reported
shareholders' equity of U.S. $ 16.8 billion,
and a net loss of $3.4 bn. The ZFS Group is based
in Zurich, Switzerland. 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.
Financial Institutions Group
Moody's Investors Service Ltd.
44 20 7772 5454
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
44 20 7772 5454
No Related Data.
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