Zurich faces credit review

BY LUCY ROBERTS

Standard & Poor's, the credit-rating agency, yesterday placed Zurich Insurance Company on its review list following a $2bn deal to acquire Kemper Corporation, one of the largest asset managers in the US.

S&P believes that financing the acquisition by an investment group led by Zurich may reduce the financial strength of Zurich. The total value amounts to just over 20 per cent of Zurich's reported shareholder equity.

The move is intended to scoop up a substantial slice of the US fund management market, where integration of the asset management and life insurance industries is well under way. Zurich already has fund management operations in Europe.

An analyst described the move as significant, both in terms of amount and of direction for the Swiss-based insurer. The deal indicated Zurich was formulating an aggressive growth via acquisition strategy.

Zurich has told shareholders they would receive $47.50 per share in cash andcumulative exchangeable preferred stock with a liquidation value equal to $2 per Kemper share.

Kemper has $69bn under management, of which $42bn is in mutual funds, and its life insurancebusiness produces premiums of $750m. But the company has exposure to securities issued by the bankrupt Orange County and has seen sales and earnings decline.

Standard & Poor's does not expect earnings to rebound significantly over the medium term.

Kemper's holding company will be acquired by a group consisting of Zurich and Insurance Partners, an investment partnership in which Zurich and its subsidiary Centre Reinsurance together have a 20 per cent interest.

The investment group's other main partners are Keystone and Chase Manhattan.