Moody’s Ratings has upgraded the insurance financial strength rating (IFSR) of Zurich Insurance Company (ZIC), the main insurance arm of Zurich Group, from Aa3 to Aa2.
Additionally, Moody’s has raised Zurich Group’s long-term debt ratings by one notch. The outlook for all issuers has been revised to stable from positive.
The upgrade of ZIC’s IFSR reflects Zurich Group’s history of strong, stable earnings and its conservative approach to risk and capital management. These factors support the group’s balance sheet resilience and enhance its financial flexibility.
The stable outlook indicates Moody’s expectation that Zurich Group will continue to generate strong returns on capital from all major segments. The ratings agency also anticipates that Zurich Group will maintain a Swiss Solvency Test (SST) ratio at or above 200%.
An upgrade of ZIC’s Aa2 IFSR within the next 12-18 months is unlikely due to the current high ratings level, dividend policy, and capital exposures.
However, Moody’s outlines several factors that could strengthen the group’s credit profile: “a meaningful enhancement in the group’s market position in major retail insurance markets; the SST maintained consistently above 250%; and financial leverage falling sustainably below 20% with earnings coverage of interest above 15x.”
Conversely, Moody’s notes that Zurich Group’s ratings could be downgraded if: “a sustainable fall in the SST ratio below 200% or a substantial increase in catastrophe or financial risk exposures relative to capital; a sustainable reduction in profitability levels or a material increase in earnings volatility; a significant and prolonged reduction in diversification, e.g., following the divestment of a major operation; financial leverage exceeds 27% with earnings coverage falling below 10x for a prolonged period.”
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