These companies are collectively referred to as the Zurich group (see below for a detailed list). At the same time, A.M. Best has affirmed the Long-Term ICR of "a" for the holding company, Zurich Insurance Group Ltd. The outlook of these Credit Ratings (ratings) remains stable.
Zurich group's ratings reflect its balance sheet strength, which A.M. Best categorizes as very strong, its robust operating performance, very favorable business profile, and appropriate enterprise risk management.
Zurich group's balance sheet strength is underpinned by risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), being at the highest level. It further benefits from excellent liquidity and substantial financial flexibility, through demonstrated access to capital markets. These rating factors are offset by Zurich's reliance on soft capital components to support its capital buffers, although the use of such components is common among the group's European peers.
Zurich group maintains a highly diversified business profile with sustained competitive advantages in Europe and the United States, a strong presence in Latin America, and selective positions in Asia Pacific. Consequently, the group's operating performance benefits from diversified sources of income, which have allowed the group to post good return on equity metrics. These include strong returns from its life insurance operations, stable investment yields and consistent risk-free income derived from its non-claims management services for Farmers Exchanges (a leading mutual insurance group operating in the United States). These are softened by the weaker, albeit improving, results from the group's property/casualty (P/C) operations. The value of the group's diversified earning sources is evident through a strong return on equity of 9.8% in 2017, despite material exposure to North American catastrophe (CAT) losses.
Following effective management actions, the group's P/C operations continued to improve in 2017, with accident year loss ratios (excluding catastrophe losses) improving from 65.7% in 2016 to 64.8% in 2017. This trend continued during the first half of 2018, with the accident year loss ratios further improving to 64.5%. Overall, North American CAT losses drove up the group's 2017 combined ratio to 100.4% (under A.M. Best's calculations). However, Zurich's comprehensive and recently realigned reinsurance program demonstrated its effectiveness in 2017 by significantly softening the impact of CAT losses.
Relative to its peers, Zurich group's P/C operations suffer from a high expense ratio. The group has implemented an expense savings initiative, which is expected to benefit the group's P/C expense ratio over the next few years. The group continues to maintain its impressive run-rate in achieving expense saving targets year-on-year. A.M. Best expects changes in the group's business mix, while enhancing its participation in alternative markets and specialty business lines, to lead to improvement in the group's P/C loss ratio, which will be somewhat offset by slightly higher acquisition expenses in these business lines.
The FSR of A+ (Superior) and the Long-Term ICRs of "aa-" have been affirmed with a stable outlook for the following subsidiaries of Zurich Insurance Group Ltd:
- Zurich Insurance Plc
- Fidelity and Deposit Company of Maryland
- Empire Fire and Marine Insurance Company
- Empire Indemnity Insurance Company
- Universal Underwriters Insurance Company
- American Guarantee and Liability Insurance Company
- American Zurich Insurance Company
- Universal Underwriters of Texas Insurance Company
- Steadfast Insurance Company
- Zurich American Insurance Company
- Zurich American Insurance Company of Illinois
- Colonial American Casualty & Surety Company
- Rural Community Insurance Company
- Zurich Insurance Company Limited
- Zurich American Life Insurance Company