Ratings agency Standard & Poor’s (S&P) is monitoring the Australian Prudential Regulation Authority’s (APRA) review of Zurich Australian Insurance’s former reinsurance arrangements to help it assess the company’s financial strength. It said in a statement late last week that it will “assess any negative implications” for the stand-alone strength of the company.

The tone of S&P’s statement is not very happy. It says the current insurer financial strength and counterparty credit ratings on the company “are predicated on strong capital support from the parent as evidenced by the explicit net-worth agreement recently updated by Zurich Insurance Co (rated ‘A+/Stable’)”.

As Sunrise Exchange News reported last week, APRA is reviewing so-called financial reinsurance contracts taken out by Zurich Australian Insurance which date back to 2000. Zurich managers say the investigation is based on past – “and now unwound” – business. But questions in the market still abound about why the contracts were taken out.

Steve Somogyi, APRA’s Head of General Insurance, said last week he is confident Zurich’s obligations to policyholders are adequately protected.

Zurich says its insurance arm is financially strong and has almost double APRA’s minimum capital requirement.