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01 Sep 2003
MOODY'S REVISES RATING OUTLOOK FOR ZURICH INSURANCE COMPANY AND SELECTIVE AFFILIATES OF THE ZURICH FINANCIAL SERVICES GROUP TO STABLE FROM NEGATIVE
Outlook for Centre Group remains negative
London, 01 September 2003 -- Moody's Investors Service announced today that it had revised to
stable from negative the long-term rating outlook for Zurich Insurance
Company (ZIC) and supported entities including Zurich Capital Markets
Inc. (ZCMI), ZCM Matched Funding Corp and Zurich Bank,
as well as other entities in the Zurich Financial Service Group including
Eagle Star Life Assurance, Eagle Star Insurance Company, Deutscher
Herold Leben, Kemper Corporation, and Zurich Financial Services
(Jersey) which is guaranteed on a subordinated basis by Zurich Financial
Services (ZFS). (For the full list, see below). ZIC
is rated A2 for insurance financial strength, Baa1 for senior debt,
and Baa2 for subordinated debt and junior subordinated debt.
The rating outlook for the rated entities of Centre Group (IFSR of A3)
remains negative. In addition, the rating of Kemper Investors
Life Insurance Company (KILICO) remains on review for possible downgrade
while the ratings of Federal Kemper Life Assurance Company (FKLA) and
Zurich Life Insurance Company of America (ZLICA) remain on review for
possible upgrade. A separate press release will follow regarding
The stable outlook assigned to ZCM Matched Funding Corp's short-term
rating of Prime-1, as well as the long-term ratings
of Farmers New World Life Insurance Company and of the Zurich RegCaPS
securities were affirmed.
Moody's said that the revised rating outlook reflects its view that
broadly speaking, the execution risks in the winding down of the
Zurich's Global Assets Division had abated, notwithstanding
the larger than expected reserve strengthening of of $474 mm at
Centre Group for the 1H03. Furthermore, the rating agency
believes that ZFS's continuing businesses are likely to produce
a Business Operating Profit (BOP) - defined 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 earnings-
in the range of the company's medium term target of 12% return
after tax, assuming normal claims development. In Moody's
view, these earnings coupled with the proceeds from the group's
aggressive divestment program, will be sufficient to absorb potential
impairment charges and winding down expenses at ZCM and Centre along with
possible further reserve strengthening at Centre.
Moody's commented that ZFS' first half 2003 results largely
confirm the expected trends: the non-life business provided
most of the group's earnings, driven primarily by an improved
combined ratio (1H03: 98.8%; 1H02: 103.3%
excluding 2002 special provisions) in a benign claims environment,
while the contributions of Farmers and the life business were generally
solid. An active expense reduction program named GPIP (Global Profit
Improvement Program) has also been an important contributing factor.
The major negative in the group's earnings came from the larger-than-expected
reserve strengthening requirement of $474mn at the Centre Group,
related to its structured reinsurance and discontinued business lines,
including credit enhancement and life & health. Furthermore,
ZFS has disclosed that it does not rule out the possibility of further
reserve actions at Centre being necessary. Overall, net income
for the period was $701mn, compared to $683mn in 1H02
(before special provisions of $2.7bn). While the
net impact of these charges will be absorbed by solid operating earnings
and the proceeds from divestments, they also restrain the pace of
capital formation and the speed with which management can reduce leverage.
On the negative side, Moody's said that the rate environment
is turning less favourable in certain important lines, in particular
for US and UK personal lines. This is likely to have an impact
on Farmers as well as ZFS' core property-casualty business.
In addition, Moody's continues to have its previously cited
concerns regarding the potential for adverse reserve development in ZFS'
US non-life portfolio, in particular for the long tailed
book of business written for the years 1997-2000. Moody's
believes the current subdued investment climate will remain subdued (ZFS's
investment yield was 3.3% for the 1H03) which will heighten
the challenge for ZFS, along with its peers, to maintain the
current momentum to improve the quality of its underwriting and operating
efficiency, as well as address the issues in under-performing
units. Lastly, Moody's believes that while ZFS is actively
reducing costs and changing product structures in its European life business,
the returns on this business are still lower than in the non-life
The rating outlook for the following issuers was revised to stable from
Zurich Insurance Company and guaranteed issuers; Insurance Financial
Strength of A2, senior unsecured debt of Baa1; subordinated
debt of Baa2, and subordinated perpetual notes of Baa2;
Zurich Financial Services (Jersey) guaranteed on a subordinated basis
by Zurich Financial Services; preferred stock rating of Baa3;
Zurich Capital Markets Inc; Issuer rating of A2 and preferred stock
rating of Baa1;
ZCM Matched Funding Corp; Issuer rating of A2;
Zurich Capital Trust; preferred stock rating of Baa2;
Kemper Corporation; Senior MTN of Baa1; cumulative preferred
stock of Baa3;
Eagle Star Life Assurance-insurance financial strength rating of
Eagle Star Insurance Company- insurance financial strength rating
Deutscher Herold Leben- insurance financial strength rating of
The rating outlook for the following issuer remains negative:
Rated entities of the Centre Group- insurance financial strength
The following rating remains on review for possible downgrade:
Kemper Investors Life Insurance Company: insurance financial strength
rating of A3;
The following ratings remain on review for possible upgrade:
Federal Kemper Life Assurance Company: insurance financial strength
and backed senior debt rating of A3;
Zurich Life Insurance Company of America: insurance financial strength
The following ratings were affirmed with a stable outlook:
Farmers New World Life Insurance Company: insurance financial strength
Zurich RegCaPS; preferred stock of Baa2;
ZCM Matched Funding Corp; Commercial Paper rating of Prime-1.
As at 30 June 2003, the Zurich Financial Services Group reported
shareholders' equity of U.S. $ 18.7bn
and net income of $701mn for the first half of 2003. 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.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Senior Vice President
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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