financial services division has kept Zurich International (Bermuda) Ltd. on CreditWatch with Standard & Poor's (S&P) for two months.

S&P's double-`A' claims paying ability and counterparty credit ratings on the Bermuda company, a Zurich subsidiary, have been on CreditWatch with developing implications since October 15.

Developing implications means ratings may be raised or lowered.

Zurich's double `A'-plus claims paying ability rating was also placed on CreditWatch, with negative implications, after the deal with BAT (single-`A'-minus senior debt, CreditWatch negative) was announced.

S&P said Zurich International's claims paying ability rating reflected several factors, including their use of their parent to develop strong client relationships as well as sources for increased writings.

Through affiliate Centre Re (Bermuda) Ltd., Zurich International is provided with actuarial, marketing and underwriting services to enhance its own operations.

In the main, all of Zurich International's assumed liabilities are ceded out to various affiliates in the Zurich Group. Reinsurance utilisation has increased over time to 61.2 percent in 1996 from 26.8 percent in 1992.

For finite risk contracts, 50 percent of all bound contracts for 1992 were ceded to Centre Re, while all the 1993 and subsequently bound contracts were 100 percent ceded to Centre Re.

Operational leverage, as measured by gross written premiums to equity, equated to 2.4 times for 1996, which is considered modest for both traditional and finite business.

At September 30, reported GAAP equity increased 27.6 percent to $180 million from the $141 million level reported over the last two years.

S&P stated that although Zurich International provided an array of insurance and risk management services, over 90 percent of the company's revenue was generated from Zurich affiliates.

Since 1988, operating performance has fluctuated due to changes in Zurich International's business strategy pertaining to the types of products that the company offers.

Operational profits have been closely correlated to investment income, which comprises a majority of Zurich International's revenues. Due to poor investment income, the profit margin (as indicated by GAAP return on revenues) was 0.9 percent for 1996, which is well below the company's five year average of 12.9 percent.

However, improved investment performance as of September 30 resulted in 34.8 percent return on revenues.

Prospectively, S&P believes that Zurich International will be utilised more as a financial service company in comparison to direct/reinsurance business, by providing capital location and optimisation, captive management, and fronting reinsurance arrangements for the Zurich Group.

Operational results will continue to fluctuate with Zurich Group operations.

In 1997, Zurich Group divested itself of a subsidiary that accounted for 28.2 percent of Zurich International's total 1996 gross writings.

S&P said gross writings would decline to about $130 million for 1997 as opposed to $335 million in 1996, and should experience modest single-digit growth in 1998.