Zurich’s AM Best FSR rating unchanged after acquisition
AM Best has announced that the financial strength rating (FSR) of A+ (Superior) of Zurich Insurance and its rated affiliates are unchanged following the announcement that Zurich American Insurance Company (ZAIC), Zurich’S US non-life subsidiary, will acquire 100 percent of Rural Community Insurance Agency (RCIA) and its wholly owned subsidiary, Rural Community Insurance Company (RCIC), together known as Rural Community Insurance Services (RCIS).
Zurich announced last week that it had acquired the crop insurance provider from Wells Fargo & Company, a financial services organisation in the US.
Zurich will pay Wells Fargo approximately $675 million plus the amount of excess capital in RCIS at the date of closing, estimated to be up to $375 million.
AM Best said it believes the scale of the acquisition is unlikely to have a negative impact on Zurich’s rating fundamentals. RCIS wrote gross written premium (GWP) of approximately $2 billion compared with Zurich’s reported GWP of $55 billion in 2014.
The rating firm also said that the transaction is in line with Zurich’s strategic objectives to prioritise investments in business segments where the group maintains a distinct competitive advantage.
The purchase is expected to exceed Zurich’s hurdle rate of 10 percent return on investment in 2017, according to AM Best, thereby enhancing the diversity of the group’s general insurance portfolio and strengthening its earnings.
AM Best also said the acquisition of RCIS is aligned with the group’s previously announced plans to deploy approximately $3 billion of excess capacity by 2016.
Zurich has a long-standing relationship with RCIS as a member of its reinsurance panel since 2000, which should support the swift transition of RCIS into the group’s operating model, according to AM Best.
Zurich is expected to capture substantially all of the RCIS business, through a 100 percent quota share reinsurance arrangement by July 1, 2016 from ZAIC. After considering the terms of the transaction, AM Best expects Zurich’s consolidated risk-adjusted capitalisation to remain supportive of the current ratings.
The transaction is expected to close in the first quarter of 2016, subject to the required regulatory approvals. AM Best said it will continue to monitor Zurich’s financial position after the completion of the acquisition.
