Standard & Poor's has revised its outlook to stable from negative on the various operating entities of Switzerland-based insurance group Zurich Financial Services.
The rating incorporates the members of the Zurich US Intercompany Pool (ZUS) and the intermediate holding Zurich Group Holding.
S&P has affirmed the 'A+' long-term counterparty credit and financial strength ratings on the group's core subsidiaries, as well as the 'A-' counterparty credit rating on Zurich Group Holding.
S&P credit analyst, Hiltrud Besgen, said: "The outlook revision reflects the group's continued positive earnings momentum as a result of further improvements in business fundamentals, operational processes, and risk controls."
Further factors supporting the rating are ZFS' very strong competitive position and strong capitalization. "Partially counterbalancing these strengths are the unsatisfactory operating performance at the US operation and the potential for further — although lower scale —reserve deficiencies," said Ms. Besgen.
The stable outlook reflects S&P's expectation that bottom-line results in 2006 and 2007 will be maintained at a level similar to 2005. The main earnings drivers will be continued strong underwriting results, demonstrated by a combined ratio of significantly below 100% as well as increased profit contributions from life insurance, reflected in an operating return on embedded value of at least 10% to 11%. New business margin should reach at least 10%. Overall operating ROE is expected to remain at or to exceed 12%. Capitalization will remain strong based on sound retained earnings.
The outlook could be revised to positive if there were the potential for further material progress in operating performance also translating into very strong capitalization. However, the outlook could be revised to negative if prospective results are not as strong as expected, and if there were to be any further unexpected reserve deficiencies materially affecting bottom-line results and/or weakening of the group's current capitalization level.
