A.m. Best Assigns "A+" (Superior) Rating to Zurich Group.

OLDWICK, N.J.--(BUSINESS WIRE)--June 3, 1998-- OLDWICK, N.J., U.S.A., June 3, 1998 -- A.M. Best Co. has assigned an "A+" (Superior) rating to Zurich Group. The rating reflects the group's global market presence, superior financial strength, significant earnings momentum, extensive product offering and multi-distribution capabilities.

Zurich Group is among the world's five largest insurers, with more than $21 billion in gross premiums written, and a market leader in each of its four core businesses: property/casualty insurance (which accounts for 64% of gross premiums written), life insurance (22%), reinsurance (14%) and asset management. Zurich Group is the second-largest insurer in Switzerland and the tenth-largest property/casualty insurer in the United States. Collectively, these two countries contribute more than 50% of the group's gross premiums written. Germany, the U.K, and Italy contribute an additional 24%.

The group continuously refines its strategy of providing integrated insurance risk and investment solutions tailored to meet specific customer needs. The group's strategy focuses on serving targeted individual and corporate customer groups, identifying areas in which it can provide a differentiated service or product capability. Management believes its ability to cross-sell a broad array of products through a variety of distribution channels is key to the group's strategy and will increase customer loyalty and reduce expenses. Zurich Group is organized into approximately 300 strategic business units, grouped into 60 business units, which target specific customer groups, geographic areas or distribution channels.

Lastly, the rating reflects the positive implications of Zurich Group's pending merger with B.A.T. Industries' financial service businesses. The group announced its intent to merge with B.A.T.'s financial services businesses in October 1997. Upon the closing of the merger, the two businesses will be combined to form Zurich Financial Services (ZFS), headquartered in Zurich, Switzerland. The merger will combine two powerful and complementary businesses, further strengthening Zurich Group's position as one of the world's largest insurance and financial services group. ZFS will operate in more than 50 countries and will maintain a strong presence in each of its three "home" markets: the United States, Switzerland, and the United Kingdom.

In the United States, the merger will give Zurich Group access to Farmers Insurance Group's strong captive agency distribution system and its significant personal lines customer base. ZFS also will be one of the world's top 10 asset managers, with approximately $375 billion under management.

Zurich Group's financial strength is derived from its strong loss-reserve position, conservative premium leverage and modest catastrophe exposure. It also maintains significant financial flexibility despite several large acquisition in recent years. In addition, the group is attempting to enhance its liquidity and financial flexibility by restructuring or refinancing its existing debt.

The group's financial performance has been strong, driven primarily by its investment results. Pre-tax return on revenue has averaged 9.7% over the past three years, supported by solid underwriting results and strong investment income. In addition, realized capital gains have been substantial. Net income rose 17% in dollar terms in 1997, despite a charge of more than $300 million related to restructuring and acquisition expenses connected with its acquisition of Scudder, Stevens & Clark and the planned B.A.T. merger. Earnings for 1998 will be significantly impacted by an expected $1.4 billion charge, which includes additional merger and restructuring costs and approximately $700 million to $800 million of reserve strengthening.

Offsetting the group's strengths are its high investment leverage and above-average expense ratio. Common stocks and real estate represent 150% of equity, which subjects the group to greater earnings volatility following a substantial devaluation in any of the world's major financial markets. In addition, the group's expense ratio continues to trend upward, driven by its life insurance and reinsurance businesses. Further, premium growth has been modest due to competitive conditions in most of its major markets, and the group's emphasis on profitability over growth. Lastly, despite the positive implications of the pending B.A.T merger, uncertainty remains regarding the potential benefit to long-term earnings and successful implementation of its plan to distribute Zurich Group's products through Farmers Insurance Group's captive agency force.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source. For more information, visit A.M. Best's Web site at http://www.ambest.com.

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