Agency affirms insurance giant's ratings

Fitch has upgraded Zurich’s rating outlook from negative to stable.

The ratings agency has affirmed Zurich’s Insurer Financial Strength rating at 'A+' and its Long-term Issuer Default Rating at 'A'.

The revision in Zurich’s outlook reflects the strong recovery of Zurich's capital adequacy during 2009, during which shareholders' funds rose by 34%.

Fitch's said the group's capitalisation level is again in line with expectations for the current rating level.

Fitch said the revision also reflects Zurich’s continued strong earnings and the better operating conditions resulting from a more stabile wider economic environment.

The increase in shareholders funds was mainly driven by unrealised gains on investments of $3.3bn, resulting from narrowing credit spreads and rising stock prices, and retained earnings of $3.2bn, which were only partly offset by dividend payments of $1.4bn.

Fitch's assessment also said that Zurich’s capital adequacy further benefited from a decrease in capital charges for its non-life book due to a reduction in premium volume.

It said: “The ratings continue to reflect Zuruch 's good operating performance and the strength of the group's business position in its key markets. Underlying earnings remain broadly in line with Fitch's expectations in light of challenging investment market conditions.

“The reported combined ratio improved to 96.8% in 2009 (2008: 98.1%) and net income increased by 4% to USD3.2bn. The combined ratio benefited from a prior year reserve development equivalent to 3.7pts as well as a benign natural catastrophe environment.”

“Fitch notes that ZFS's combined ratio in general insurance in Europe deteriorated by 4% to 98.4%, reflecting soft markets primarily in the UK and Italy. Fitch recognises that ZFS increased rates to actively manage the insurance cycle. Other positive rating factors include the strength of ZFS's relationship with the Farmers Exchanges and the stable and reliable income stream that this generates, and the good new business margins that continued to be achieved in the life business.

“Fitch believes that ZFS is well-positioned in terms of liquidity and does not face near-term refinancing risk on any of its outstanding debt issues. The agency notes that the group has access to a number of credit facilities which were substantially unused as of end-2009.”