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16 Oct 1997
MOODY'S PLACES ZURICH INSURANCE COMPANY AND ITS SUBSIDIARIES UNDER REVIEW FOR POSSIBLE DOWNGRADE
London, 10-16-97 -- Moody's Investors Service has placed the Aa1 insurance financial strength rating of the Zurich Insurance Company (Zurich), as well as the debt and financial strength ratings of most of Zurich's subsidiaries, under review for possible downgrade. The rating action follows the announcement by Zurich and B.A.T. Industries plc (B.A.T.), that they have reached an agreement in principle to merge Zurich and the financial services operations of B.A.T., which includes Farmers of the United States, and Allied Dunbar and Eagle Star of the UK, under a new structure. The review will focus on the financial impact that the merger could have on Zurich, and on the effect that the new legal structure will have on cash flows and the ranking of policyholders and debt obligations.
On 30 June 1997, Moody's put Zurich's ratings on negative outlook due to the increasingly aggressive capital structure of the group, the expectation that further expansion by acquisition may ensue, and the competitive environment in which its core companies operate.
The new structure consists of three new holding companies. Two of these, one listed in London and one listed in Zurich, will hold 45% and 55%, respectively, of the third holding company to be based in Zurich -- Zurich Financial Services Group (ZFS Group). ZFS Group, in turn, will wholly own Farmers, Allied Dunbar, Eagle Star Holdings and Zurich Insurance Company.
Moody's stated that Zurich is becoming affiliated with comparatively weaker companies, some of which have required substantial support from B.A.T. in the past, and which now account for a substantial proportion of the new group's business. This could have long-term consequences for its own financial strength.
In recent years, Zurich's management has moved quickly to establish its position in reinsurance, life assurance and fund management, all of which require substantial capital and management resources. As the importance of these parts of the group has risen, notably fund management, the resources available to support the other core businesses may decline.
Moody's stated that Zurich Insurance Company is strongly positioned in the Swiss and European nonlife insurance markets, and that its property and casualty insurance subsidiaries have also achieved strong positions in other countries. Zurich's life assurance subsidiaries are prominent in Switzerland and Germany, and have gained significance in the U.S. life insurance market through its acquisition of the Kemper companies in 1996. In addition, its reinsurance subsidiaries located in Europe, the United States and Bermuda, are among the leading and most innovative global reinsurers.
The announced merger would create in one move a group with leading positions in some of the largest property and casualty insurance markets in the world, and would increase the presence of life assurance in the United Kingdom, where Zurich previously wrote only a small proportion of its life assurance business. Further, it would give it access to the valuable agency force of the Farmers Group in the United States. Nevertheless, Moody's added, the absence of overlap among these entities, and the management philosophy of Zurich, whereby units are not integrated but instead are run separately and autonomously, reduces the potential for substantial synergies, either through cost savings or cross-selling.
The following ratings were placed under review for possible downgrade:
Zurich Insurance Company -- Aa1 insurance financial strength.
Alpina Insurance Company Limited -- Aa1 insurance financial strength.
Zurich Insurance (Jersey) Limited -- Aa3 guaranteed subordinated debentures.
Zurich Life Insurance Company of America -- Aa3 insurance financial strength.
Federal Kemper Life Assurance Company -- Aa3 insurance financial strength.
Kemper Investors Life Insurance Company -- Aa3 insurance financial strength.
Kemper Corporation -- A1 senior unsecured debt, A1 senior unsecured medium-term notes, and "a1" preferred stock.
Zurich Holding Company of America, Inc. -- Aa3 junior subordinated debentures.
Zurich Capital Trust I -- "aa2" capital securities.
The ratings of Zurich Reinsurance Centre, Inc. -- Aa3 insurance financial strength -- and Zurich Reinsurance Centre Holdings, Inc. -- A1 senior unsecured debt-- remain under review for possible upgrade. These ratings were placed under review on 13 January 1997 following the announcement that Zurich Insurance intended to acquire all the minority interests of its subsidiary.
Zurich Insurance Company, based in Zurich, Switzerland, is a leading nonlife insurer and reinsurer with significant operations in nonlife insurance, reinsurance, life assurance and fund management. In 1996, the group wrote total gross premiums in excess of Sfr 31 billion. At year-end 1996, the Zurich Group reported consolidated assets of Sfr 131 billion, and shareholders' funds of Sfr 13.7 billion.
No Related Data.
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