Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — FY2004 Earnings Presentation
42 slides from Zurich Insurance's earnings presentation, Feb 17, 2005
Slide 1: Annual Results Reporting 2004 Analyst presentation
Annual Results Reporting 2004 Analyst presentation Zurich, February 17, 2005
Slide 2: Disclaimer and cautionary statement
Disclaimer and cautionary statement Certain statements in this document are forward-looking statements, including, but not limited to, statements that are predictions of or indicate future events, trends, plans or objectives. Forward-looking statements include statements regarding our strategic dire
Slide 3: Agenda
Agenda • Introduction James J. Schiro • Annual Results 2004 Patrick O’Sullivan • The Way Forward James J. Schiro • Q&A © Zurich Financial Services - Annual Results Reporting 2004, February 17, 2005 3
Slide 4: Introduction
Introduction James J. Schiro Chief Executive Officer February 17, 2005
Slide 5: Financial highlights
Financial highlights in USD millions 2004 2003 Change Gross written premiums and policy fees 49,304 48,805 1% General Insurance GWP and policy fees 37,638 36,250 4% Life Insurance GWP and policy fees 10,979 11,625 -6% Net investment result for Group investments 8,395 7,815 7% Business operating prof
Slide 6: Annual Results 2004
Annual Results 2004 Patrick O’Sullivan Group Finance Director February 17, 2005
Slide 7: Improved reserving process
Improved reserving process • New formal review structure • Rolling reviews of all reserves • Third party actuaries support where appropriate • Strengthened actuarial reporting lines • Consistent methodologies supported by reporting process © Zurich Financial Services - Annual Results Reporting 2004,
Slide 8: Split of insurance reserves as at December 31
Split of insurance reserves as at December 31 2002: USD 30,366 million 2003: USD 37,013 million 2004: USD 43,474 million NA Corp. Cont. Europe UKISA NA Cons. RoW CMB in USD millions Cont. NA Corp. Europe UKISA NA Cons. RoW CMB Total 2002 9,384 8,836 6,075 746 897 4,428 30,366 2003 12,005 10,628 8,21
Slide 9: Insurance reserves development
Insurance reserves development in USD millions 2004 2003 Losses and LAE reserves, net, at January 1 37,013 30,366 Losses and LAE paid 17,515 16,516 Losses and LAE incurred Current year 21,506 19,254 Prior year 1,964 1,874 Other movements (FX and divestments) 506 2,035 Losses and LAE reserves, net, a
Slide 10: Insurance reserves: prior year development by business division
Insurance reserves: prior year development by business division NA Corporate 2,565 NA Consumer -58 Continental Europe -121 UKISA -208 Rest of the World -79 Centrally Managed Businesses -135 Total 1,964 Major lines of business affected in the US • Workers’ Compensation • Commercial General Liability
Slide 11: Business operating profit by segment
Business operating profit by segment in USD millions 2004 2003 Change General Insurance 1,380 2,146 -36% Life Insurance 1,063 856 24% Farmers Management Services 1,077 970 11% Other Businesses 137 -958 nm Corporate Center -514 -698 26% Total 3,143 2,316 36% © Zurich Financial Services - Annual Resul
Slide 12: General Insurance key performance indicators
General Insurance key performance indicators Business Operating Profit Combined ratio (%) in USD millions 2004 2003 Change Total 1 101.6 97.9 NA Corporate -1,165 664 nm 117.3 NA Corp. 99.0 NA Consumer 224 115 95% NA Cons. 95.9 Continental Europe 1,004 603 67% 98.7 94.0 UKISA 1,112 441 152% Cont. Eur
Slide 13: General Insurance combined ratio by business division – excluding reserve adjustments
General Insurance combined ratio by business division – excluding reserve adjustments 2004 2003 Change NA Corporate 93.0%1 87.7% -5.3pts NA Consumer 97.8% 98.7% 0.9pts Continental Europe 95.3% 99.1% 3.8pts UKISA 91.5% 96.7% 5.2pts Rest of World 98.9% 94.9% -4.0pts Total excluding reserve strengtheni
Slide 14: Combined ratio NA Corporate
Combined ratio NA Corporate 2004 2003 Change As reported 117.3% 99.0% -18.3pts Excluding reserve strengthening/releases 93.0%1 87.7% -5.3pts • Reduced underwriting and claims leakage • Current terms and conditions firm • Maintained low expense ratio • Book comfortably above technical price • Growth
Slide 15: Combined ratio Continental Europe
Combined ratio Continental Europe 2004 2003 Change As reported 94.0% 98.3% 4.3pts Excluding reserve strengthening/releases 95.3% 99.1% 3.8pts • Excellent performance in all countries • Claims frequency down in motor books • USD 85 million from motor claims initiatives • Italy motor book up 10% • Cor
Slide 16: Combined ratio UKISA
Combined ratio UKISA 2004 2003 Change As reported 87.8% 97.5% 9.7pts Excluding reserve strengthening/releases 91.5% 96.7% 5.2pts • Low CAT and large loss experience • Reduction in motor claims frequency • Rate increases in strong market positions © Zurich Financial Services - Annual Results Reportin
Slide 17: Life Insurance key performance indicators
Life Insurance key performance indicators Business operating profit New business margin1 (%) in USD millions 2004 2003 Change 11.4 Total 9.0 NA Consumer 235 245 -4% Continental Europe 355 294 21% NA 61.0 Cons. 31.1 UKISA 402 271 48% 12.7 Cont. Rest of World 71 46 54% Europe 7.9 Total 1,063 856 24% 5
Slide 18: Life Insurance performance highlights
Life Insurance performance highlights • 15% growth in new business APE1 (adjusted for f/x and divestments) • Continental Europe − Record sales growth in Germany − Strong performance in Italy • UKISA − IFA channel 20% APE growth − Openwork launched − Agency numbers reduced to 2,200 − Market leading t
Slide 19: Life embedded value performance
Life embedded value performance EV operating profit EV operating return (%) in USD millions 2004 2003 Change 10.8 Total 10.5 NA Consumer 330 318 4% NA Cons. 15.0 Continental Europe 419 380 10% 10.0 UKISA 264 321 -18% 23.8 Cont. Eur. 19.6 Rest of World 104 40 160% Total 1,117 1,059 5% UKISA 4.7 7.4 R
Slide 20: Farmers Management Services with record year
Farmers Management Services with record year in USD millions 2004 2003 Change Management fees & other related revenue 1,985 1,885 5% Management & other expenses 955 900 6% Investment income 86 77 12% Net income 686 604 14% Business operating profit 1,077 970 11% Gross operating margin 51.9% 52.3% -0
Slide 21: Other Businesses financial highlights
Other Businesses financial highlights in USD millions 2004 2003 Change Business operating profit 137 -958 nm of which: Centre 58 -882 nm other 79 -76 nm Net income 96 -1,012 nm of which: Centre 9 -818 nm other 87 -194 nm © Zurich Financial Services - Annual Results Reporting 2004, February 17, 2005
Slide 22: Shareholders' equity
Shareholders’ equity in USD millions 23'000 386 -241 -226 22'000 741 21'000 2,587 22,181 20'000 19'000 - 450 19,384 18,934 18'000 Balance as of SOP 03-01 Restated Net income Translation Change in Nominal Impact of Balance as of Dec 31, 2003 implement. Balance as of adjustments net unreal. value init
Slide 23: The Way Forward
The Way Forward James J. Schiro Chief Executive Officer February 17, 2005
Slide 24: Having delivered the turnaround, we are now building the future
Having delivered the turnaround, we are now building the future Build the future Lay the foundation • Establish a clear direction Create stable • Align organizational model platform • Delivered for customers with strategic priorities and shareholders • Focus on core • Zurich Way: • Business model op
Slide 25: The Zurich Way – one best way to achieve operational excellence
The Zurich Way – one “best” way to achieve operational excellence in all core processes Seven initial work streams The Zurich Way framework 1. General Insurance claims 2. Large corporate and commercial Common underwriting language & l ca ni methodologies ch 3. Personal lines underwriting Te Consiste
Slide 26: Financial benefits of improvement initiatives of the entire Group
Financial benefits of improvement initiatives of the entire Zurich Financial Services Group 100% = 100% = 100% = USD 1 billion USD 540 million USD 500 million 8% 4% 15% 19% Life, AM & other 12% 5% Growth/Distribution 13% 20% 23% Claims 31% 26% Underwriting Process 60% 7% Pricing 37% 20% Operating Ex
Slide 27: We have a well diversified General Insurance book
We have a well diversified General Insurance book1 North United Cont. Inter- America Kingdom Europe national Total Corporate Global Corporate 19% Lines 8% 3% 8% Commercial NA Comm.2 4% 51% Lines 33% 8% 6% Europe Int. General Insurance Businesses Personal US Personal3 5% 14% 3% 30% Lines 8% Total 49%
Slide 28: Q&A
@ ZURICH O&A
Slide 29: Appendix
@ ZURICH Appendix
Slide 30: Return on equity
Return on equity 2004 2003 Business Operating Profit1 2,235 = Average IFRS Equity2 19,462 11.5% 9.8% Net Income3 2,587 = 13.3% 12.1 % Average IFRS Equity2 19,462 1 In USD millions, after tax (2004 BOP = 3,143 less tax @ 28.9% = 2,235) 2 In USD millions, IFRS Equity (excluding preferred shares) BoY:
Slide 31: Asbestos & Environmental reserves
Asbestos & Environmental reserves 2004 2003 Gross 3-year sur- Gross 3-year sur- reserves1 vival ratio reserves1 vival ratio Asbestos 2,964 22.1 2,930 23.6 of which: US 1,601 19.1 1,915 15.9 of which: UK 1,363 41.0 1,015 42.0 Environmental 500 703 Total 3,464 3,633 1 In USD millions © Zurich Financia
Slide 32: Life Insurance financial highlights
Life Insurance financial highlights in USD millions 2004 2003 Change GWP, policy fees & deposits 19,272 20,163 -4% Business operating profit 1,063 856 24% Net investment income1 6,224 5,883 6% New business premiums (APE2) 2,403 2,134 13% New business profit margin (as % of APE) 11.4% 9.0% 2.4pts EV
Slide 33: Life IFRS equity adjusted to bridge EV
Life IFRS equity adjusted to bridge EV in USD billions 2004 Tangible assets in IFRS equity 8.3 DAC and other intangibles 3.5 Goodwill 0.5 Life IFRS equity 12.3 Adjustments: Reserves and investment valuation differences1 -1.4 Deduct DAC and other intangibles2 -3.5 Deduct goodwill3 -0.5 Subtotal adjus
Slide 34: Shareholders' deferred acquisition costs and recoverability
Shareholders’ deferred acquisition costs and recoverability in USD millions 2004 2003 DAC asset incl. in Life Insurance segment balance sheet 11.0 9.6 Present value of future profits1 1.1 1.2 Deferred front-end fees -3.5 -3.0 Investments less reserves where the investment risk is carried by the poli
Slide 35: Total Group investments by major category
Total Group investments by major category USD 163.8bn USD 176.0bn USD 191.1bn 100% 7.5% 3.9% 4.7% 8.3% 6.4% 4.9% 75% 62.6% 64.2% 65.1% 50% 25% 21.6% 24.7% 26.1% 0% 2002 2003 2004 Other equity securities Common stock, including equity unit trusts Debt securities Other investments © Zurich Financial S
Slide 36: 96% of the bond portfolio is investment grade
96% of the bond portfolio is investment grade Bond portfolio ratings1 distribution as at December 31, 2004 ‘BB’ & below 1% ‘BBB’ 4% Not available 3% ‘A’ 12% ’AAA‘ 63% ‘AA’ 17% 1 Lower of Moody's and S&P issuer ratings, if no rating available, internal ratings have been assigned © Zurich Financial Se
Slide 37: The bond portfolio diversification
The bond portfolio diversification Bond portfolio currency distribution as at December 31, 2004 Other 3.2% CHF 11.8% EUR 36.8% GBP 19.1% USD 28.7% © Zurich Financial Services - Annual Results Reporting 2004, February 17, 2005 37
Slide 38: The equity portfolio diversification
The equity portfolio diversification Equity portfolio country distribution as at December 31, 2004 Other 10.2% Switzerland 7.9% Europe 39.5% UK 21.4% North America 21.0% © Zurich Financial Services - Annual Results Reporting 2004, February 17, 2005 38
Slide 39: Credit quality of reinsurance counterparties / collateralization of recoverables
Credit quality1 of reinsurance counterparties / collateralization of recoverables Not rated 8% ‘BB’ & below 1% ‘BBB’ 5% ‘A’ 20% Collateralized: 44% ‘AA’ 18% ‘AAA’ 4% 1 Lower of Moody's and S&P issuer ratings; if no rating is available, internal ratings have been assigned © Zurich Financial Services
Slide 40: Farmers Exchanges financial highlights
Farmers Exchanges1 financial highlights in USD millions 2004 2003 4'000 40.0% Gross written premiums 14,189 13,833 38.0% Net underwriting gain 235.9 -372.6 3'800 Net surplus change (YTD) 461.6 211.1 36.0% 3'600 Ending Surplus 4,145.8 3,684.2 34.0% Surplus Ratio 36.5% 36.7% 3'400 32.0% 3'200 30.0% 20
Slide 41: Farmers Exchanges – combined ratio by line of business
Farmers Exchanges – combined ratio by line of business 2004 2003 Change Auto 99.9% 99.5% -0.4pts Homeowners 77.8% 94.7% 16.9pts Commercial P&C1 99.0% 103.8% 4.8pts Specialty 99.9% 96.8% -3.1pts Total 96.8% 101.9% 5.1pts Adjusted combined ratio2 89.9% 95.2% 5.3pts 1 Excludes earthquake losses before
Slide 42: Farmers Exchanges – development of the combined ratio
Farmers Exchanges – development of the combined ratio Quarterly combined ratio 125% 120% 115% 110% Californian Wildfires 105% Hurricanes 100% 95% 90% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2001 2002 2003 2004 © Zurich Financial Services - Annual Results Reporting 2004, February 17, 2005 42
Zurich Financial Services — FY2004 Earnings Presentation on 6ix