# Is Zurich promoting AA- rating fair game?



## Duke of Marmalade (4 Oct 2010)

Far from me to fight other peoples' corners but I raised an eyebrow at an advert by Zurich in yesterday's Sunday Times. In graphic form it produced the following stats:

Zurich Group market cap 26bn, long term rating AA-
Great West 17bn; AA
Aviva 13bn; AA-
Standard Life 6bn; A+
BoI 3bn; A-
AIB 0.6bn; A-
IL&P 0.4bn; BBB+

This was an advert for pensions and PRSAs. The comparison between Zurich and IL&P is particularly misleading. ILAC, the life and pension company, is totally sound and the rating of its parent is totally irrelevant. In any event Zurich Ireland is not the same as Zurich Group.

I think it a retrograde move for life companies to start playing the "we're safer" competition especially when using parent group comparisons. The life industry should be acting in concert emphasising that life assurance is an entirely different ball game from banking. The former is broadly asset/liability matched, the whole essence of the latter is to run a massive asset/liability mismatch.

However, since no-one else has made this point maybe I'm being too fussy.


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## mercman (4 Oct 2010)

Duke of Marmalade said:


> However, since no-one else has made this point maybe I'm being too fussy.



Maybe you are simply incorrect with your assumptions.


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## Brendan Burgess (4 Oct 2010)

Hi Duke

I was surprised at the ad, but for different reasons. It ranked them in order of size, so Zurich came out at the top. However,Aviva has the same rating and Great Western is rated higher.

I had not twigged the point about the life insurance companies and that is a very valid point. 

Are the banks' subsidiaries rated separately? Does Bank of Ireland Life, for example, have a rating? 

If I remember correctly, Standard Life and Equitable Life(?) used to quote their ratings in ads.


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## Duke of Marmalade (4 Oct 2010)

Brendan,  I think the rating agencies stick to quoted companies.   I don't think any of those life assurance subs would have a rating.


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## Olivetti (12 Dec 2010)

*Black Mark for Zurich*

Another black mark for Zurich's advertising in last week's Sunday Times (Niall Brady). Apparently they have knowingly used overstated and non-comparable investment performance in their marketing material. They apply a lower management fee than the general investor actually pays, whereas the other firms use the actual charges.

One of their actuaries said when Brady queried it that a differential of 0.35% p.a. over 20 years was almost immaterial, which seems a stretch too.

I thought we had rules against this sort of thng. Oh yeah - the Financial regulator monitors them.


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## mercman (12 Dec 2010)

Olivetti said:


> I thought we had rules against this sort of thng. Oh yeah - the Financial regulator monitors them.



Olivetti have a read of this report which will show you how the public in both the UK and Ireland are conned. The link is http://www.askaboutmoney.com/showthread.php?t=144230. 

The real charges go way beyond the quoted AMC and are a complete rip off to feed the fat cats. As a reminder all these are investing in the same product. But people fail to realise that by investing in ETFs with a reasonable Management charge they feel they are been ripped off. In fact they are ripping themselves off by maintaining their investments with these institutions.


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## 10romans (13 Dec 2010)

Surely Zurich would not deliberately market misleading performance charts.  Brokers and consumers would have grounds to be upset if this is the case.  There used to be ads in the papers about how good their performance was in comparison to the rest of the market.   Does that mean such ads were not true.  Surely the Financial Regulator had something to say? Did Niall Brady's article say anything about the Regulators position?  

I noticed that the recent ads seem to be the type that the Duke of Marmalade was talking about ie financial strength which seems to be offside as well?

Once could be a mistake, twice ....?   How come other than Niall Brady there has been very little about these in the media??


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## mercman (13 Dec 2010)

It really is quite simple. The Minister of Finance does not deem it necessary for companies to comply with reporting procedures and simil other countries. Saying that it just as bad in other countries. Tale a look at the profit made by these companies. The report on post number 6 on this thread provides good reference as a basis. Zurich are a good company - do not get me wrong, there are plenty of companies out there that are seeking profit long before their clients best interests or investment gains.

I simply wish that those invested in Irish Financial products would learn from forums like this and speak with their feet.


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## Olivetti (16 Dec 2010)

*Niall Brady Article re Zurich*

Can't find this online so will retype key points.



> Serious discrepancies have emerged in performance data reported by top fund managers, allowing them to manipulate investment growth ... Most of the information reported to MoneyMate, an independent data firm, assumes funds have identical charges of 0.75% a year ... Zurich Life uses a charge of just 0.4% on many of its funds, however, even though few retail investors qualify for such low charges. Zurich was the top pension performer over the past 10 years, but the comparison loophole means some of its better performance was due to assuming a lower charge than the competition - not to better investment performance. Other fund managers believe the practice is unfair ... if the data were consistent, Zurich's balanced fund would have grown by 9.43% over the past five years, not 11.37% as reported. {Zurich} relies on MoneyMate data {in its} advertising


 
The Zurich spokesman says that 





> the difference between {a charge of} 0.4% and 0.75% is immaterial over a 20-year investment term


 which seems a bizarre claim if it makes a 2% difference over five years!

Agree is it surprising no-one else has picked up on it. Whatever about the actual numbers the tactic seems highly questionable and you'd imagine the authorities would be interested.


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## DerKaiser (3 Jan 2011)

In relation to the market capitalisation and credit rating point, it would be very naive to believe that the financial strength of a parent company has no impact on the security of a subsidiary, particularly one with the same brand.  It would be inconceivable to imagine the Zurich group would allow its Irish subsidiary to get into any financial difficulty as this would have catastrophic consequences for the brand.  Same as Aviva, etc.

That said, as the Duke has pointed out, Life assurer's policy of matching assets to liabilities and maintaining large capital surpluses through stringent regulations should be a huge peace of mind for all the companies referred to in that advert. The financial strength of a parent would be a safety net only in very remote scenarios.

A few sober points on the fund returns quoted:

1) Moneymate independently compile the fund return statistics in question. These are the figures quoted in adverts and marketing literature, so I don't think the "authorities" are going to be leading anyone away in handcuffs just yet!

2) The 20 year return on the fund in question is currently 11.15% p.a. which would reduce to 10.80% p.a. if moneymate had adjusted for the fact that a typical customer would pay a management charge of 0.75% rather than the 0.4% allowed for in the fund price. 

3) The immateriality referred to by the spokesperson is the difference it makes in comparing either 11.15% or 10.80% to the next best return, which is significantly lower than both.


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