Zurich ‘stronger and less volatile’ on turnaround in hard market

Moody’s has turned its outlook of  Zurich Insurance Group’s Aa3 financial strength rating to positive from stable, citing improved and resilient profitability, as well as a more balanced business mix.

The ratings agency credited Zurich's “improved profitability that has become stronger and less volatile” for the change in outlook to positive. Moody’s also took into consideration the company’s  “more balanced business mix with reduced risk” in its commercial insurance business and “diminished exposure” to interest rate and credit risk expected on completion of its life insurance back-book sales for its action.

Moody's expects Zurich’s profitability to remain resilient through future underwriting and economic cycles and the change in outlook anticipates a turnaround in the Farmers Insurance Exchange's (Farmers) underwriting profitability and capital generation over the outlook period.

The insurer’s capitalisation and financial flexibility, as measured by Moody’s, to withstand macroeconomic challenges and fluctuations of the insurance pricing cycle is “robust” with several sources of income arising from its commercial and retail property and casualty insurance businesses, a growing capital efficient life business and significant management fee income from Farmers Group.

Within commercial property and casualty (P&C), Moody’s noted that Zurich’s balance has shifted towards lower severity, shorter-tail risks, reducing the potential for volatility.

“Zurich has made use of the hard market to improve the quality of its commercial insurance book, including enhancing terms and conditions, implementing higher deductibles and by pruning higher risk exposures, which should position it to perform well when the cycle changes,” analysts said. “Nevertheless, the commercial business line remains more exposed to natural catastrophe and reserve risk than retail P&C.”

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