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The outlook of these credit ratings remains stable.
AM Best said Zurich group’s ratings reflect its “very strong” balance sheet strength, strong operating performance, very favourable business profile, and appropriate enterprise risk management (ERM). Offsetting these rating factors was “Zurich’s reliance on soft capital components to support its capital buffers, although the use of such components is consistent with the group’s European peers.”
The ratings agency also noted Zurich’s excellent diversification by geography and product, as well as its sustained competitive advantages in Europe, the US, Latin America, and certain positions in Asia-Pacific that have brought the group a five-year average weighted return on equity of 10.4% (2014-2018) benefits from its diversified earnings profile.
Meanwhile, Zurich’s “impressive turnaround” of its property/casualty (P/C) operations, “driven by strengthened underwriting discipline, material cost reduction, and a shift in business mix towards shorter tail and specialty lines,” resulted in “sustainable improvements” in its P/C profitability metrics, gradually moving in-line with global peers, AM Best said.
AM Best added that it expects the group to report a combined ratio below 96% for 2019, in the absence of higher-than-budgeted catastrophe losses.
“The shift in business mix has translated into improved loss experience for the group, which is offset by higher acquisition costs,” AM Best said. “However, overall the group’s underwriting ratio (accident year loss ratio plus commission ratio) diminished by two points between 2016 and half-year 2019, vindicating the group’s strategic decisions. Additionally, the group continues to maintain its run-rate in achieving its expense saving targets year-on-year.”
