A.M. Best Comments on the Ratings of Zurich Insurance Group Ltd and Its Subsidiaries Following Its Announcement to Acquire Rural Community Insurance Agency Inc. and Its Subsidiary

LONDON--(BUSINESS WIRE)-- A.M. Best has commented that the financial strength rating of A+ (Superior) and the issuer credit rating of “aa-” of Zurich Insurance Company Limited (ZIC) (Switzerland) and its rated affiliates are unchanged following the announcement that Zurich Insurance Group Ltd’s (Switzerland) U.S. non-life subsidiary, Zurich American Insurance Company (ZAIC) (New York), will acquire 100% of Rural Community Insurance Agency Inc. (RCIA) and its wholly owned subsidiary, Rural Community Insurance Company (RCIC) (Anoka, MN), together known as Rural Community Insurance Services (RCIS) from Wells Fargo & Company (Wells Fargo) (NYSE:WFC), a financial services organisation in the United States.

This rating commentary follows Zurich’s announcement on 18 December 2015, that the group has entered into a definitive agreement to acquire a 100% stake in RCIS, which will be funded with cash for a value of approximately USD 675 million. A.M. Best believes that 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 USD 2 billion compared with Zurich’s reported GWP of USD 55 billion in 2014. ZAIC is fully owned by ZIC, the main operating company of the Zurich group of companies (together known as Zurich), whilst RCIS is ultimately owned by Wells Fargo.

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% return on investment in 2017, thereby enhancing the diversity of the group’s General Insurance portfolio and strengthening its earnings. The acquisition of RCIS is aligned with the group’s previously announced plans to deploy approximately USD 3 billion of excess capacity by 2016.

Zurich benefits from its 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. Zurich is expected to capture substantially all of the RCIS business, through a 100% quota share reinsurance arrangement by July 1, 2016 from ZAIC. After considering the terms of the transaction, A.M. 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. A.M. Best will continue to monitor Zurich’s financial position after the completion of the acquisition. Any material changes to Zurich’s financial profile will be reviewed to assess its impact on the group’s financial strength.

RCIS is a leading and well-established agricultural crop insurer in the United States, ranking second in the sector, with a 19.1% market share in 2014. The company is a highly diversified insurer (by crop mix and geography), insuring over 130 crops in all 50 states and over 90 million acres. Additionally, RCIS benefits from a comprehensive distribution channel comprising 4,000 independent agents.

In accordance with Regulation (EC) No. 1060/2009, the following is a link to required disclosures: A.M. Best Europe - Rating Services Limited Supplementary Disclosure.

This press release relates to rating(s) that have been published on A.M. Best's website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please visit A.M. Best’s Ratings & Criteria Center.

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Source: A.M. Best Company