A.M. Best Affirms Zurich Insurance Co., Farmers Insurance in Light of Planned Merger With B.A.T. Industries

Business Wire, Oct 20, 1997

OLDWICK, N.J.--(BUSINESS WIRE)--Oct. 20, 1997--Effective immediately, A.M. Best Co. has affirmed the ratings of Zurich Insurance Co. (Switzerland) and of Farmers Insurance Group's (Los Angeles) property/casualty and life/health subsidiaries. The affirmations follow the announcement that Zurich Insurance and B.A.T Industries p.l.c. have reached an agreement in principle to merge Zurich with B. A. T's financial services businesses in a stock-for-stock transaction.

These businesses are complementary and would create a financial service organization with a strong presence in insurance, reinsurance and asset management. Under the agreement, a new Swiss company, headquartered in Zurich, would be called Zurich Financial Services Group. Zurich Financial Group would be one of the world's largest insurance groups, with a top-10 position in the growing asset-management industry.

The transaction would allow both groups to build on strong positions in key markets, including the United States, United Kingdom, Switzerland and Continental Europe. In the United States, the merger with Farmers will allow Zurich Group to immediately achieve a significant presence in the personal lines market. Long-term benefits include the opportunity to capitalize on Farmers' strong captive distribution system in the United States. Furthermore, in combination with Zurich Group's pending acquisition of Scudder, Stevens & Clark, Zurich Financial will be one of the leading financial services organizations.

The agreement contains a number of conditions that must be met to ensure the completion of the merger. Most notably, B. A. T Industries would hold Zurich harmless from any potential tobacco liability stemming from its tobacco operation. As part of this complicated transaction, B. A. T would spin off its tobacco division in a separate legal entity, British American Tobacco plc. The transaction, which management expects to close in the third quarter of 1998, is subject to shareholder and regulatory approval. To the extent that there are any material changes to the transaction, A. M. Best will determine the rating implications.

The affirmations apply to the following companies: Zurich Insurance Co. (Switzerland) ("A "), Farmers Insurance Group ("A-"), Mid-Century Insurance Co. ("B "), and Farmers New World Life Insurance Co.("A "). The ratings of all other Zurich Group and B. A. T insurance subsidiaries are unaffected.

A.M. Best Co., established in 1899, is America's oldest and most widely recognized insurance rating and information source.

CONTACT: A.M. Best

Jeffrey Dunsavage, 908/439-2200, ext. 5618

dunsavj@ambest.com