AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “aa-” of the main rated insurance subsidiaries of Zurich Insurance Group Ltd (Zurich) (Switzerland). At the same time, AM Best has affirmed the Long-Term ICR of “a” of Zurich (a non-operating holding company). The outlook of these Credit Ratings (ratings) is stable.
The ratings reflect Zurich’s consolidated balance sheet strength, which AM Best categorises as very strong, as well as its strong operating performance, very favourable business profile and appropriate enterprise risk management (ERM).
Zurich’s balance sheet strength is underpinned by risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), at the strongest level. The group’s balance sheet strength further benefits from excellent liquidity and good financial flexibility, with demonstrated access to capital markets. A partially offsetting factor is Zurich’s reliance on soft capital components to support its capital position, which include the value of in-force life business and hybrid debt.
Zurich’s strong operating performance is supported by solid returns from its life insurance operations, consistent risk-free income derived from its non-claims management services for Farmers Exchanges (a leading mutual insurance group operating in the United States), and stable investment yields. Additionally, the underlying performance of the group’s non-life business has improved in recent years, driven by stronger underwriting discipline, material cost reduction and a shift in business mix toward shorter tail and specialty lines. As a result, the group had a five-year (2015-2019) weighted average return-on-equity of 10.2%. Zurich’s operating performance was adversely affected by COVID-19-related claims in the first half of 2020, particularly in the business interruption, workers compensation, and travel insurance lines of business. Nonetheless, the group reported a pre-tax profit, highlighting the benefit of its good diversification of revenue streams.