Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — H1 2009 Earnings Presentation
55 slides from Zurich Insurance's earnings presentation, Aug 6, 2009
Slide 1: Half Year Results Reporting 2009
Half Year Results Reporting 2009 Analysts and Media Presentation August 6, 2009
Slide 2: Disclaimer and cautionary statement
Disclaimer and cautionary statement By participating in this conference call you agree to be bound by the following limitiations. Certain statements in this document are forward-looking statements, including, but not limited to, statements that are predications of or indicate future events, trends,
Slide 3: Agenda
Agenda Introduction James J. Schiro Half Year Results 2009 Dieter Wemmer Q&A Closing remarks James J. Schiro © Zurich Financial Services Ltd August 6, 2009 Half Year Results Reporting 2009 3
Slide 4: Introduction
Introduction James J. Schiro Chief Executive Officer August 6, 2009
Slide 5: Financial highlights
Financial highlights in USD millions 2009 20081 Change for the six months to June 30 Business operating profit (BOP) 2,552 3,549 -28% Net income attributable to shareholders 1,254 2,681 -53% General Insurance combined ratio 96.2% 96.2% 0.0pts Global Life new business margin2 21.0% 22.4% -1.3pts Farm
Slide 6: Half Year Results 2009
Half Year Results 2009 Dieter Wemmer Chief Financial Officer August 6, 2009
Slide 7: Business operating profit and net income by quarter
Business operating profit and net income by quarter Business operating profit in USD millions 2,000 1,764 1,785 1,491 1,500 1,002 1,061 1,000 636 500 0 Q1-2008 Q2-2008 Q3-2008 Q4-2008 Q1-2009 Q2-2009 Net income attributable to shareholders in USD millions 2,000 1,500 1,427 1,254 1,000 892 © Zurich F
Slide 8: Business operating profit by segment
Business operating profit by segment in USD millions 2009 20081 Change for the six months to June 30 General Insurance 1,714 2,236 -23% Global Life 641 772 -17% Farmers (including Farmers Re) 724 672 8% Other Operating Businesses -264 -223 -18% Total Core BOP 2,815 3,457 -19% Non-Core Businesses -26
Slide 9: Top line development by segment
Top line development by segment in USD millions 2009 2008 Change Change for the six months to June 30 in LC1 General Insurance GWP and policy fees 18,247 20,593 -11% -2% Global Life GWP and policy fees (incl. insurance 11,569 10,397 11% 30% deposits)2 Annual Premium Equivalent (APE)3 1,579 1,528 3%
Slide 10: Rate Change Monitor for personal and commercial lines
Rate Change Monitor1 for personal and commercial lines Half year 2009 Q1 2009 Int’l Farmers Int’l Farmers GC NAC EGI Markets Exchanges2 GC NAC EGI Markets Exchanges2 Personal Lines n/a n/a 2% 3% 4% n/a n/a 1% 3% 3% Commercial Lines 5% 3% 2% 5% 2% 3% 2% 2% 3% 1% EGI by country EGI by country Switzer-
Slide 11: General Insurance – key performance indicators
General Insurance – key performance indicators Business operating profit Combined ratio (%) Global 95.7 Corporate in USD millions 2009 2008 Change 100.5 for the six months to June 30 NA 97.7 Global Corporate 354 347 2% Commercial 97.4 North America Commercial 576 628 -8% Europe 96.5 Europe General I
Slide 12: General Insurance net expense ratio walk from HY08 to HY09
General Insurance net expense ratio walk from HY08 to HY09 25.6% 25.6% Expense ratio development Last eight discrete quarters 0.2% 0.4% 0.2% 26.6% 26.6% 26.1% 25.7% 25.5% 25.2% 24.7% 24.7% 13.6% Other technical 13.2% expenses 12.0% Commissions 12.4% Q307 Q407 Q108 Q208 Q308 Q408 Q109 Q209 © Zurich F
Slide 13: Comparison of General Insurance loss ratio
Comparison of General Insurance loss ratio Half Year 2009 Half Year 2008 75% 75% 70.6% 70.5% 70% 70% 66.3% 66.2% 65% 65% 2.8% 0.0% -7.1% 3.8% 0.0% -8.1% 60% 60% USD USD 395m -1,003m USD USD 609m -1,291m 55% 55% Underlying PYD1 Major Large Reported Underlying PYD1 Major Large Reported Loss Ratio CAT2
Slide 14: Reinsurance program protects against CAT severity and frequency
Reinsurance program protects against CAT severity and frequency Global Top Layer Catastrophe Cover – USD 200m6 USD 175m Rest of World US Catastrophe Catastrophe Treaty Treaty 20093 EU Catastrophe 2009 Treaty 20092 USD USD1,100m 1,000 USD 1,540m USD 250m Excess of loss protection1 Retention USD 500m
Slide 15: Global Life – key performance indicators
Global Life – key performance indicators in USD millions 2009 2008 Change Change for the six months to June 30 in LC1 Annual Premium Equivalent (APE) 1,579 1,528 3% 19% New business value, after tax 332 342 -3% 9% New business margin, after tax2 21.0% 22.4% -1.3pts Embedded value operating profit 96
Slide 16: Global Life – new business by pillar
Global Life – new business by pillar in USD millions APE APE Change Change for the six months to June 30 in LC1 2009 2008 Bank Distribution 546 254 115% 146% IFA/Brokers 403 501 -20% 1% Agents 206 240 -14% -7% Corporate Life & Pensions 248 207 20% 43% International / Expats 110 181 -39% -39% Private
Slide 17: Global Life – Embedded Value result
Global Life – Embedded Value result for the six months to June 30 2009 2009 2008 2008 USD m Return4 USD m Return4 Opening Embedded Value 12,818 15,935 Expected operating profit1,2 387 522 New business value2 332 342 Operating variance2 254 27 Global development expenses3 -10 - Total operating profit
Slide 18: Farmers Management Services – key performance indicators
Farmers – Farmers Management Services – key performance indicators in USD millions 2009 2008 Change for the six months to June 30 Management fees and other related revenues 1,247 1,196 4% Management and other related expenses -636 -622 -2% Gross management result 610 574 6% Managed gross earned prem
Slide 19: Farmers Re – key performance indicators
Farmers – Farmers Re – key performance indicators in USD millions 2009 2008 Change for the six months to June 30 Gross written premiums1 2,883 836 nm Net underwriting result 7 9 -22% Combined ratio 99.7% 99.0% -0.7pts CAT2 impact 3.9% 2.6% -1.3pts Business operating profit 80 54 47% © Zurich Financi
Slide 20: Farmers Exchanges – key performance indicators
Farmers Exchanges1 – key performance indicators in USD millions 2009 2008 Change for the six months to June 30 Gross written premiums2 8,438 8,285 2% Net underwriting result3 -12 -400 97% Combined ratio3 99.8% 104.2% 4.4pts Adjusted combined ratio4 92.1% 97.0% 4.9pts CAT5 impact 4.4% 5.9% 1.5pts Sur
Slide 21: Acquisition of AIG Personal Auto Group – Update
Acquisition of AIG Personal Auto Group (AIG PAG) – Update GWP by distribution channel (Direct vs. Agency) Transaction closed July 1, 2009 5000 4,093 Initial acquisition price of USD 1.9bn GWP in USD m 4000 3,578 1'117 plus assumption of USD 0.1bn of debt1 3000 873 2000 USD 1.7bn cash, plus USD 200m
Slide 22: AIG PAG integration is in full swing
AIG PAG integration is in full swing Finance and shared services functions being integrated Other business operations / functions integration planning workstreams underway Charges related to restructuring activities expected primarily in Q3-09 and Q4-09 On track to achieve planned EPS accretion in y
Slide 23: Other Operating and Non-Core Businesses – BOP contribution
Other Operating and Non-Core Businesses – Business operating profit contribution in USD millions 2009 2008 Change for the six months to June 30 Other Operating Businesses -264 -223 -18% Non-Core Businesses - Centre 57 4 nm - Centrally managed businesses -322 49 nm - Other run-off 2 39 -95% Total Non
Slide 24: Investment performance of Group investments
Investment performance of Group investments in USD millions 2009 2008 Change for the six months to June 30 Net investment income 3,777 4,402 -14% Net capital losses/gains on investments and -1,342 -426 nm impairments1 of which attributable to shareholders -1,015 9 nm Net investment result 2,435 3,97
Slide 25: Group investments – unrealized gains / losses
Group investments – unrealized gains / losses Change in net unrealized gains / losses on investments incl. in shareholders’ equity1 in USD millions Equity investments 1500 1,395 Debt investments Other investments 1000 546 500 441 173 78 0 -90 -13 -105 -500 -1000 -1,222 -1500 Q1-09 Q2-09 HY09 1 Total
Slide 26: Development of shareholders' equity
Development of shareholders’ equity in USD millions 26,000 571 85 25,211 25,000 889 24,000 629 1,250 1,401 1,254 23,000 22,103 22,000 21,000 20,000 19,000 Balance as of Issuance of Dividends Net Income Change in Cumulative Net actuarial Other Balance as of © Zurich Financial Services Ltd Dec 31, 200
Slide 27: 2009 estimated economic and regulatory solvency
2009 estimated economic and regulatory solvency What if scenarios Statutory solvency ratio / Group’s Solvency I1 Unrealized losses on +13pts debt securities Dec. 31, 08 Mar. 31, 09 Impact Q2-09 Jun. 30, 09 GI DAC +24pts 160%2 157% +23pts 180%4 Economic solvency ratio3 14pts ~124% 8pts ~102% ~95% Imp
Slide 28: Capital Management action – subordinated debt buy-back & new issue
Capital Management action – subordinated debt buy-back & new issue Tender to buy-back subordinated debt of USD 728m par value at approx. USD 590m1 Issued new subordinated debt of EUR 425m (approx. USD 600m) with a 7.5% coupon on July 24 Benefits of the combined transaction: P&L: USD 137m capital gai
Slide 29: Summary
Summary BOPaT-ROE above our target level of 16% Continually improving rate environment in General Insurance Profitable growth achieved in targeted areas Statutory solvency up 20pts1, economic solvency up 29pts1 TZW benefits and additional expense control actions on track © Zurich Financial Services
Slide 30: Q&A
Q&A © Zurich Financial Services Ltd August 6, 2009 Half Year Results Reporting 2009 30
Slide 31: Closing remarks
Closing remarks James J. Schiro Chief Executive Officer August 6, 2009
Slide 32: Appendix
Appendix © Zurich Financial Services Ltd August 6, 2009 Half Year Results Reporting 2009 32
Slide 33: Zurich is poised for profitable growth
Zurich is poised for profitable growth 19% 2% 4% Global Focus on volume growth1 Farmers Life IM 0% EGI 3% Legend for GI BDs IM International Markets GC EGI Europe General NAC Insurance GC Global Corporate -10% NAC North America Commercial © Zurich Financial Services Ltd Focus on margin enhancement 1
Slide 34: The Zurich Way and 2009 expense saving initiatives
The Zurich Way and 2009 expense saving initiatives The Zurich Way – Target of USD 2.7 billion for 2009 to 2011 We have comfortably achieved our USD USD 900m 2008 target. USD 800m Developing our three year plan, we 700m expect benefits of USD 2.7 billion for Total TZW 2009 to 2011 USD planned benefit
Slide 35: The Zurich Way initiatives – 2009 target
The Zurich Way initiatives – 2009 target by function by business USD 900m division USD 900m Growth/ USD 800m 21% Distribution USD 800m USD 700m USD 700m 39% Europe General 32% Insurance 21% 35% 30% Claims 31% 36% 16% 17% North America 23% Commercial 22% 28% 43% 29% U/W Global 34% 17% 15% Corporate 1
Slide 36: Business division BOP-ROE
Business division BOP-ROE1 based on RBC-allocated IFRS equity for the six months to June 30 2009 2008 General Insurance 25.3% 26.7% Global Corporate 22.6% 19.8% North America Commercial 23.5% 22.0% Europe General Insurance 31.1% 39.7% International Markets 20.5% 20.7% GI Global Functions including G
Slide 37: Updated economic solvency view for 2009
Updated economic solvency view for 2009 in USD billions1 Available Financial Resources (AFR) Estimated AFR as of March 31, 2009 + 27 • Movements in Q2-09 + 6 • Senior bond issue in April 2009 + 2 • Capital increase related to PAG transaction + 1 June 30 estimate for 2009 AFR + 36 Estimated 2009 econ
Slide 38: Group's Solvency I calculation
Group’s Solvency I calculation in USD millions Jun 30, 091 Mar 31, 09 Dec 31, 08 finalized2 Eligible equity Total equity 26,942 23,850 23,781 Net of intangibles, other assets and free -5,151 -4,832 -3,892 reserves for policyholder dividends Subordinated debt 4,103 3,582 3,683 Deferred policyholder a
Slide 39: Group's Solvency I – sensitivities
Group’s Solvency I1 - sensitivities Statutory solvency ratio as of June 30, 2009: 180% Sensitivities: Equities 10% decrease -8 pts Interest rate 100bp increase -28 pts Interest rate 100bp decrease +36 pts © Zurich Financial Services Ltd 1 Solvency I requirements in accordance with the Swiss insuranc
Slide 40: Development of Reserves for Losses and LAE
Development of Reserves for Losses and Loss Adjustment Expenses (LAE) in USD millions 2009 2008 Net reserves for losses and LAE, as of January 1 52,986 54,712 Net losses and LAE paid -11,706 -11,119 Net losses and LAE incurred - Current year 12,045 12,408 - Prior years1 -414 -586 Foreign currency tr
Slide 41: Global Life – new business indicators
Global Life – new business indicators in USD millions APE APE Change Change NBV2 NBV2 Change for the six months to June 30 2009 2008 in LC1 2009 2008 Americas, of which 114 94 22% 33% 69 59 18% US 47 51 -8% -8% 55 47 19% Latin America 67 43 57% 99% 14 12 16% United Kingdom 341 472 -28% -4% 48 49 -3%
Slide 42: Global Life – Assets under Management
Global Life - Assets under Management1 AuM increased mainly due to currency translation and an increase of the market value of assets Split of AuM Development of AuM in USD billions in USD billions Balance as of 193 Jan 1, 2009 180 180 22 20 Inflows +12 98 95 Outflows -11 Market move- ments & other2
Slide 43: Farmers Exchanges – financial highlights: strong premium growth
Farmers Exchanges1 – financial highlights: strong premium growth 6'000 in USD millions 2009 2008 44.0% for the six months to June 30 5'000 42.0% Gross written premiums2 8,438 8,285 4'000 40.0% Net underwriting result3 -12 -400 38.0% 3'000 Net surplus growth4 95 -239 36.0% 2'000 Ending surplus4 5,130
Slide 44: Farmers Exchanges – gross written premiums by line of business
Farmers Exchanges – gross written premiums by line of business in USD millions 2009 2008 Change for the six months to June 30 Auto 4,119 4,326 -4.8% Homeowners 2,260 2,180 3.7% Commercial P&C 663 637 4.0% Small Business Solutions1 299 60 401.9% Workers’ Compensation 169 174 -2.9% Specialty 865 843 2
Slide 45: Farmers Exchanges – premium growth outperforming industry
Farmers Exchanges – premium growth outperforming industry GWP growth 8% Industry Growth Rate1 2008: -1.1% 2009 Forecast: -0.3% 6.5% 2, 3 6.1% 2, 3 6% 5.7% 5.7% 5.4% 5.0% 5.1% 4.6% 4% 2 3.2% 3.3% 3.1% 2.2% 2 1.8% 2% 1.4% 0% 06 07 08 09 06 06 06 07 07 07 08 08 08 09 20 20 20 20 20 20 20 20 20 20 20 20
Slide 46: Farmers Exchanges – combined ratio
Farmers Exchanges – combined ratio for the six months to June 30 20091 20081 Change Auto 96.1% 101.7% 5.6pts Homeowners 104.8% 114.5% 9.7pts Commercial P&C 96.1% 93.1% -3.0pts Small Business Solutions 3 107.4% 101.9% -5.5pts Workers' Compensation 98.4% 95.9% -2.5pts Specialty 102.8% 101.9% -0.9pts T
Slide 47: Farmers Exchanges – development of the combined ratio
Farmers Exchanges – development of the combined ratio Quarterly combined ratio 120% Other Cats 115% Midwest Gustav 110% Cats California wildfires Ike 105% California Rita wildfires Other Cats 100% Florida Texas Hail hurricanes Katrina 95% 90% © Zurich Financial Services Ltd Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q
Slide 48: Investment portfolio profits from diversification and is balanced in terms of risk
Zurich’s investment portfolio profits greatly from diversification and is balanced in terms of risk Risk Allocation of Zurich’s investment portfolio as of June 30, 2009 Asset allocation (%) Risk diversification Risk exposure (%)1 and matching (%) 100 Hedge Funds / Private Equity Hedge Real Estate 38
Slide 49: Zurich's debt securities are of consistently high quality
Group Investments – Zurich’s debt securities are of consistently high quality (98% investment grade) As of June 30, 2009 Group Investments Debt securities USD 191bn USD 126bn credit rating: AAA 56.1% credit rating: AA Other Debt 98.4% 11.5% asset securities investment classes grade 34% 66% credit ra
Slide 50: Zurich's debt securities are well balanced
Group Investments – Zurich’s debt securities are well balanced Group Investments - USD 191bn (100%) As of June 30, 2009 Government and supranational bonds: USD 50bn (28%) Market/Cost1: 101% of which: 99% inv. grade 47%in General Insurance 71% AAA 44% in Global Life 11% AA 16% A 1% BBB
Slide 51: Zurich's Corporate bonds are of high quality
Group Investments – Zurich’s Corporate bonds are of high quality Group Investments - USD 191bn (100%) As of June 30, 2009 Corporate bonds: USD 54bn (26%) Market/Cost: 97% Split by industries Split by credit rating 46% Banks, 99% inv. grade including 19%1 covered bonds 29% AAA 9% Cities, Agen
Slide 52: Banks Corporate bonds are of high quality and well diversified
Group Investments – Banks Corporate bonds are of high quality and well diversified Group Investments - USD 191bn (100%) As of June 30, 2009 Banks Corporate bonds: USD 26bn (14%) Market/Cost: 97% Split by seniority Split by credit rating 41% Covered bonds 100% inv. grade 46% Senior bonds 45%
Slide 53: Split of total MBS/ABS of USD 22bn
Group Investments – Split of total MBS/ABS of USD 22bn (12%) MBS/ABS: USD 22bn (12%) Market/Cost: 92% Group Investments 97% inv. grade USD 191bn (100%) 90% AAA includes: US MBS: USD 14.8bn (7.7%) Market/Cost: 95% 95% inv. grade; 93% AAA Debt US ABS1: USD 2.9bn (1.5%) securities Market/Cost: 97
Slide 54: Split of US MBS of USD 14.8bn
Group Investments – Split of US MBS of USD 14.8bn (7.7%) Group Investments US-MBS: USD 14.8bn (7.7%) Market/Cost: 95% USD 191bn (100%) 95% inv. grade 93% AAA Debt of which: securities US “Agency” MBS: USD 8.6bn (4.5%) Market/Cost: 103% 66% 99.4% AAA USD 0.7bn backed by GNMA USD 7.9bn backe
Slide 55: Group investments – capital losses in P&L
Group investments – capital losses in P&L Net capital losses/gains on investments and impairments (in P&L) Equity investments Equity investments Debt investments of which: impairments Debt investments in USD millions Other investments in USD millions Other investments 500 500 0 0 -16 -23 -31 -15 -44
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