Moody’s upgrades Zurich ratings

Moody’s Investors Service has upgraded the insurance financial strength rating of Zurich Insurance Company (ZIC) to A1, its senior debt rating to A3, and its subordinated debt rating to Baa1. The outlook on all ratings is stable.Commenting on its decision, Moody’s said the upgrade reflected the strong profitability of Zurich Financial Services (ZFS) in 2004 and in the first nine months of 2005, the successful repositioning of its core business units, a major improvement in the group’s reserving position following reserving action in North America in the fourth quarter of 2004, as well as the continuing success in running off Zurich Capital Markets and Centre companies.Moody’s said the one-notch upgrade for debt guaranteed by ZIC reflected the improvements above as they relate to the company’s stand-alone operating performance and financial stability, tempered by ZIC’s relatively high level of double leverage. Debt ratings at ZIC reflect its operating company features, as well as the position of ZIC as a holding company with stakes in a substantial proportion of the ZFS group’s insurance operations.Commenting on what could move ZIC’s ratings further up, Moody’s mentioned a further decline of financial leverage to the low twenties, continued capital building through a circumspect dividend payout policy, a fixed charge coverage ratio in the 8-12x range across the insurance cycle, as well as sustained operating profitability in both life and non-life as evidenced by a return on equity in the mid-teens across the insurance cycle.