A.M. Best has downgraded the outlook for
Zurich Insurance Company from stable to negative, the ratings agency disclosed this week.
While affirming the international insurer’s financial strength rating of A+ and its issuer credit rating of “aa-,” A.M. Best expressed concerns over Zurich’s recent high losses.
The group is concerned Zurich will face challenges improving its performance thanks to an industry environment of downward pressure on rates, lower demand and an unfavourable investment environment.
Even if Zurich management takes action, it is likely to take quite some time for those changes to impact the company portfolio and, according to A.M. Best, leaves Zurich “exposed to the occurrence of further large losses that have impacted the group’s results during the year.”
The ratings agency expects Zurich’s General Insurance earnings to be reduced by aggregate losses of roughly US$275 million in the third quarter, thanks to the explosions of the Port of Tianjin in China earlier this year. Furthermore, provisions established for the company’s North American auto liability and other lines of business are expected to be strengthened by US$300 million.
All told, A.M. Best expects these factors to contribute to a US$200 million operating loss in the third quarter, compared with a profit of US$724 million during the same period last year.
The forecasts continue a pattern of loss for Zurich, which reported a 31% decline in business operating profit to US$1,166 million for the portfolio, as compared to 2014’s third quarter.
Despite these issues, Zurich’s consolidated risk-adjusted capitalisation is expected to remain strong throughout the year, though highly supported by soft capital elements like the credit given for the value of life in-force business.
The carrier’s financial leverage and interest coverage ratios are also expected to remain within A.M. Best’s tolerances for its ratings, the agency said in a statement.
A.M. Best said it would continue to monitor Zurich’s consolidated risk-adjusted capitalization in view of its plan to deploy $3 billion of excess capital by 2016.
