Fitch Affirms Zurich Insurance Company's IFS at 'AA-'; Outlook Stable

(The following statement was released by the rating agency) Fitch Ratings-Frankfurt am Main-23 November 2020: Fitch Ratings has affirmed Zurich Insurance Company's (ZIC) Insurer Financial Strength (IFS) Rating at 'AA-' (Very Strong) and Long-Term Issuer Default Rating (IDR) at 'A+'. The Outlooks are Stable. ZIC is the main operating company of the Zurich Insurance Company Group (ZIG). A full list of rating actions is provided below. Zurich Finance (UK) plc ----subordinated; Long Term Rating; Affirmed; A- Zurich Insurance Company Ltd; Long Term Issuer Default Rating; Affirmed; A+; Rating Outlook Stable ; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable ----senior unsecured; Long Term Rating; Affirmed; A+ ----subordinated; Long Term Rating; Affirmed; A- ----senior unsecured; Long Term Rating; New Rating; A+ Aquarius + Investments PLC ----subordinated; Long Term Rating; Affirmed; A- Cloverie Plc ----senior unsecured; Long Term Rating; Affirmed; A+ ----subordinated; Long Term Rating; Affirmed; A- Key Rating Drivers The affirmation reflects ZIG's very strong business profile, solid and stable capital position and strong earnings generation. Compared with 2019, Fitch expects deterioration in ZIG's financial performance due to coronavirus, including pandemic-induced claims and increased credit defaults, and negative rating migration in the investment portfolio over the near term. However, Fitch expects the impact of coronavirus, while material, to be manageable for ZIG due to its very strong capital position. ZIG's capitalisation, as measured by Fitch's Prism factor-based model (FBM), remained 'Very Strong' based on 2019 financials. The result of the Swiss Solvency Test (SST) remained very strong at 198% as at 1 January 2020 (versus 221% a year ago). Since March 2020 ZIG has generally applied standard yield curves in its internal model, as allowed by FINMA, the Swiss regulator. Based on this its SST was 185% at end-1H20 and 193% at end-9M20. Its Fitch-calculated financial leverage was 22% at end-2019 (end-2018: 24%). However, during 1H20 ZIG's debt increased by USD2 billion to USD14 billion. Although almost half of the increase will be used to replace outstanding debt, Fitch expects the FLR to rise by end-2020, but to remain commensurate with the ratings. Fitch ranks ZIG's business profile as 'most favourable' compared with other large European insurance groups', based on its competitive positioning, its business risk profile, and diversification. Given this ranking, Fitch scores ZIG's business profile at 'aa+' under its credit factor scoring guidelines. ZIG is one of the largest composite insurance groups in Europe, with a strong global brand. The group has a major presence in many mature European markets and the US, and targets emerging markets as an area of growth. Fitch views underlying earnings as strong, primarily driven by ZIC's diversified profit sources. However, ZIG's business operating profit declined 40% yoy in 1H20 to USD1.7 billion, burdened by COVID-19 related claims of USD686 million, larger catastrophe-related losses and negative market movements. Despite the increase in the combined ratio to 99.8% in 1H20 (1H19: 95.1%), ZIG was able to achieve price increases of about 8% in 1H20. This compares favourably with 2019, particularly in commercial insurance, and the positive trend continued in 3Q20. RATING SENSITIVITIES Factors that could, individually or collectively, lead to positive rating action/upgrade: --Positive rating action would be prefaced by Fitch's ability to reliably forecast the impact of the coronavirus pandemic on the financial profiles of both the global insurance industry and ZIG. -- Profitability improving on a sustained basis, as indicated by a return on equity above 12% and a combined ratio of 95% or below, while maintaining a Prism FBM score of 'Very Strong' and a consistently favourable reserve development. Factors that could, individually or collectively, lead to negative rating action/downgrade: --A material adverse change in Fitch's assumptions with respect to the coronavirus impact. --A sustained drop in ZIG's risk-adjusted capital position, as measured by a Prism FBM score, to the 'Strong' range and an increase in the FLR to more than 30%. Best/Worst Case Rating Scenario International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579] REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg. Contacts: Primary Rating Analyst Stephan Kalb, Senior Director +49 69 768076 118 Fitch Ratings – a branch of Fitch Ratings Ireland Limited Neue Mainzer Strasse 46 - 50 Frankfurt am Main D-60311 Secondary Rating Analyst Christoph Schmitt, Director +49 69 768076 121 Committee Chairperson Willem Loots, FIA Senior Director +44 20 3530 1808 Media Relations: Athos Larkou, London, Tel: +44 20 3530 1549, Email: athos.larkou@thefitchgroup.com Additional information is available on www.fitchratings.com The following issuer(s) did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure: Zurich Finance (UK) plc Cloverie Plc Zurich Insurance Company Ltd Aquarius + Investments PLC Applicable Model Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s). Prism Factor-Based Capital Model, v1.7.2 (1 (https://www.fitchratings.com/site/re/979204)) Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10143668) Solicitation Status (https://www.fitchratings.com/site/pr/10143668#solicitation) With respect to this RAC, if the lead analyst is based in an EU-registered entity, the issuer(s) will be displayed below in the following colour when the ratings provided are unsolicited and the issuer(s) did not participate in the rating process, or provide additional information beyond the issuer's available public disclosure. Non-Participating Unsolicited Issuers Zurich Insurance Company Ltd Endorsement Status (https://www.fitchratings.com/site/pr/10143668#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10143668#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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