Fitch Assigns Initial 'A+' Insurer Financial Strength Rating to Zurich North America

NEW YORK--()--Fitch Ratings has assigned a first-time 'A+' Insurer Financial Strength (IFS) rating to Zurich American Insurance Company (ZNA) and its affiliates, the principal North American insurance operating subsidiaries of Zurich Financial Services (ZFS). The Rating Outlook is Stable (see full rating list below).

Fitch views ZNA's strategic importance as 'core' to ZFS in accordance with Fitch's insurance group rating criteria, which is an important consideration toward assigning an IFS rating that is equivalent to the rating of ZFS' other core insurance subsidiaries, including Zurich Insurance Company Ltd. Based strictly on ZNA's own financial profile, Fitch believes the stand-alone IFS rating of ZNA is two notches below the group IFS rating of 'A+'.

ZNA's group rating reflects the support and financial flexibility provided by the larger ZFS organization, which is manifested by numerous, sizable capital contributions made by ZFS to ZNA in the past, as well as by the existence of a whole account quota share reinsurance agreement through which ZNA cedes 50% of its business to ZFS.

ZNA's stand-alone rating reflects the company's strong competitive position as one of the largest commercial lines insurers in the U.S., the company's recently improved underwriting performance that has led to increased operating profits, and the company's high quality investment portfolio that is dominated by highly rated fixed income securities.

These positive factors are partially offset by continued deterioration of the commercial insurance pricing environment and added uncertainty and potential volatility related to ZNA's loss reserves given its exposure to asbestos and other longer-tail liabilities. Moreover, Fitch believes that ZNA's underwriting results, although recently improved, continue to compare unfavorably to many of ZNA's closest peers.

Key rating drivers for the company to maintain its current IFS ratings at the 'A+' level include Fitch's expectation that ZFS' operating performance, capital strength, financial flexibility and liquidity remain supportive of that rating at the group level.

Additionally, Fitch expects that ZFS will remain committed to accessing the North American insurance market through ZNA. In evaluating this commitment, Fitch will place particular emphasis on ZNA's earnings contribution and strategic importance to the broader ZFS group, as well as other factors including ZFS' willingness and ability to provide capital support to ZNA if needed.

If the factors noted above remain in place and Fitch were to upgrade the ratings of ZFS, ZNA's ratings would likely also be upgraded. Likewise, if Fitch were to downgrade ZFS' ratings, ZNA's ratings would also likely be downgraded.

Additionally, if ZFS' willingness or ability to support ZNA's operations if needed were to come into question, Fitch could consider moving closer to ZNA's stand-alone ratings.

Fitch has assigned the group IFS rating of 'A+' to Universal Underwriters Insurance Company and Universal Underwriters of Texas Insurance Company despite the fact that the company attempted to sell these two entities in 2006, in a transaction that ultimately was not completed. If it became apparent that ZNA were again considering divesting these companies, it could lead to future rating volatility for these entities.

Fitch assigns the following ratings with a Stable Outlook:

Zurich American Insurance Company

American Zurich Insurance Company

American Guarantee and Liability Insurance Company

Steadfast Insurance Company

Zurich American Insurance Company of Illinois

Maryland Casualty Company

Maryland Insurance Company

National Standard Insurance Company

Maine Bonding and Casualty Company

Northern Insurance Company of New York

Assurance Company of America

Fidelity and Deposit Company of Maryland

Colonial American Casualty and Surety Company

Empire Fire and Marine Insurance Company

Empire Indemnity Insurance Company

Universal Underwriters Insurance Company

Universal Underwriters of Texas Insurance Company

--IFS 'A+'.

Contact:

Additional information is available at 'www.fitchratings.com'. The ratings above have been initiated by Fitch as a service to investors. The issuer did not participate in the rating process other than through the medium of its public disclosure.

Applicable Criteria and Related Research:

--'Insurance Rating Methodology' (Dec. 29, 2009);

--'Non-Life Insurance Rating Methodology' (March 24, 2010);

--'Fitch's Approach to Rating Insurance Groups' (March 24, 2010)

--'Insurance Industry: Global Notching Methodology and Recovery Analysis' (Dec. 29, 2009).

Applicable Criteria and Related Research:

Non-Life Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506369

Fitch's Approach to Rating Insurance Groups

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=506368

Insurance Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547766

Insurance Industry: Global Notching Methodology and Recovery Analysis

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493114

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Contacts

Fitch, Inc.
Primary Analyst
Greg Dickerson, +1-212-908-0220
Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Jim Auden, +1-312-368-3146
Managing Director
or
Committee Chairperson
Andrew Davidson, +1-312-368-3144
Senior Director
Brian Bertsch, +1-212-908-0549 (Media Relations, New York)
brian.bertsch@fitchratings.com

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Contacts

Fitch, Inc.
Primary Analyst
Greg Dickerson, +1-212-908-0220
Director
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Jim Auden, +1-312-368-3146
Managing Director
or
Committee Chairperson
Andrew Davidson, +1-312-368-3144
Senior Director
Brian Bertsch, +1-212-908-0549 (Media Relations, New York)
brian.bertsch@fitchratings.com