OREANDA-NEWS. December 08, 2015. Fitch Ratings has affirmed Zurich Insurance Company's (ZIC) Insurer Financial Strength (IFS) rating at 'AA-' and Long-term Issuer Default Rating (IDR) at 'A+'. The Outlooks are Stable. ZIC is the main operating company of the Zurich Insurance Group (ZIG). A full list of rating actions is at the end of this commentary.

KEY RATING DRIVERS
The affirmation follows ZIG's announcement on 1 December that Martin Senn has stepped down as CEO. ZIG emphasised that Martin Senn's departure will have no impact on its strategic focus or financial targets.

ZIG's 3Q15 results were affected by negative reserve development in the General Insurance segment, as well as higher than expected claims relating to the Tianjin port explosions, which caused the division to report a business operating loss of USD183m (3Q14: USD786m). The combined ratio for the quarter increased to 108.9% (3Q14: 96.7%). With the other divisions largely in line with 3Q14, the group reported a business operating profit of USD256m for 3Q15 (3Q14: 1,206m) and a net profit of USD207m (USD966m).

The review of the General Insurance business is ongoing and ZIG is expected to implement measures to improve the division's performance, potentially leading to significant restructuring costs. However, Fitch considers that the 3Q15 result has absorbed the majority of the burden and our current expectation is that the overall negative financial impact will be limited mainly to 2015.

ZIG's ratings reflect the group's solid and stable capital position and strong underlying earnings generation. ZIG's Fitch Prism factor-based model (FBM) score was 'Very Strong' based on 2014 financials, and we expect this to be resilient. The result of the Swiss Solvency Test, as calculated by the company, remained high at 209% at end-1H15 (versus 196% at end-2014).

ZIG's financial leverage is in line with its ratings. Under Fitch's methodology, ZIG's financial leverage was 23.2% at end-2014 (2013: 24.8%). Fitch considers the insurer's fixed charge coverage (2014: 10.8x) and financial flexibility as sufficiently strong for the rating.

RATING SENSITIVITIES
The ratings could be upgraded if ZIG's leverage drops below 20% and fixed-charge coverage increases to above 12x, on a sustained basis, while the capital score remains "Very Strong" in Fitch Prism FBM capital model.

The key triggers for a downgrade include a sustained drop in the company's risk-adjusted capital position and an increase in financial leverage to above 30%. The ratings could also be downgraded if the ongoing review of the General Insurance division leads to expectations of material weakening of ZIG's underlying financial performance beyond 2015.

FULL LIST OF RATING ACTIONS

ZIC
IFS rating affirmed at 'AA-'; Stable Outlook
Long-term IDR affirmed at 'A+'; Stable Outlook
Senior debt affirmed at 'A+'
Subordinated debt affirmed at 'A-'

Zurich Finance (UK) plc subordinated debt affirmed at 'A-'

ZFS Finance (USA) Trust II subordinated debt affirmed at 'BBB+'
ZFS Finance (USA) Trust V subordinated debt affirmed at 'BBB+'

Cloverie plc (secured on ZIC notes)
Senior debt affirmed at 'A+'
Subordinated debt affirmed at 'A-'