Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — H1 2002 Earnings Presentation
101 slides from Zurich Insurance's earnings presentation, Sep 5, 2002
Slide 1: Half year 2002 results and future plans
Half year 2002 results and future plans Analyst / Investor presentation September 5, 2002
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 targeted profit
Slide 3: Introduction and strategic assessment
Introduction and strategic assessment James Schiro Group Chief Executive Officer September 5, 2002
Slide 4: We undertook a thorough review process
We undertook a thorough review process Strategy • Is the existing strategy the right one in the current assessment environment? Balance sheet • Is the balance sheet presented conservatively? adequacy • Are the reserving levels appropriately conservative? Capital • How can we best manage our capital
Slide 5: Our strategy will be one of greater focus
Our strategy will be one of greater focus “We are an insurance based financial services provider focused on chosen markets with an international network” Core product Core geographies • Insurance • North America • Distribution of 3rd party • UK financial services • Continental Europe products (as ap
Slide 6: The foundations are laid… now we focus on delivery
The foundations are laid… now we focus on delivery • Core product, core markets Strategy • 12% target operating return on equity over medium assessment term • USD2bn reserve strengthening (before tax) and Balance sheet USD950m intangible asset write-off (after tax) in adequacy first half 2002 • Inve
Slide 7: Agenda
Agenda • Introduction and strategic assessment James Schiro • Half year 2002 results Thomas Buess • Managing our investment portfolio David Wasserman • Managing our capital base James Schiro • Zurich Global Assets David Wasserman Break • Delivery of operational improvements Peter Eckert • North Amer
Slide 8: Half year 2002 results
Half year 2002 results Thomas Buess Group Chief Financial Officer September 5, 2002
Slide 9: Pre-provision first half results were reasonable given the difficult environment
Pre-provision first half results were reasonable given the very difficult operating environment in USD millions % First half 2002 2001 change Total GWP, deposits and policy fees1 31,254 28,056 11.4% Net investment result 3,055 3,716 -17.8% of which: Realized and unrealized gains/losses -122 555 nm T
Slide 10: Net income after tax was impacted by special provisions
Net income after tax was impacted by special provisions in USD millions First half 2002 2001 Pre-provision net income 683 861 Impact of special provisions: Reserve strengthening -1,758 Goodwill impairments -727 Write-off of capitalised software -227 Total special provisions -2,712 Net income (loss)
Slide 11: Business operating profit and pre-provision net income by segment
Business operating profit and pre- provision net income by segment was as follows in USD millions Business op. profit Pre-prov. net income First half 2002 2001 2002 2001 Non life 244 271 123 429 Life 338 560 461 411 Farmers 445 408 269 262 Centre 102 50 22 112 Capital Markets & Banking -48 59 -32 66
Slide 12: Strong premium growth led to improved pre-provision combined ratio in non-life
Strong premium growth led to an improved pre-provision combined ratio in non-life Combined ratios (%) in USD millions % 109.3 First half 2002 2001 change Total2 103.3 GWP 14,933 11,444 30.5% NEP 9,742 7,630 27.7% 108.3 NA Corp. Pre-provision loss ratio 77.2% 78.8% -1.6ppt 97.4 Expense ratio1 26.1% 2
Slide 13: Life premiums were boosted by the acquisition of the DB insurance operations
Life premiums were boosted by the acquisition of the DB insurance operations in USD millions New business margins (%) % 6.5 First half 2002 2001 change Total 3 5.4 GWP, dep. and pol. fees 9,357 8,876 5.4% excl. DB insurance ops. 8,684 8,876 -2.2% 9.2 UKISA Business operating profit 338 560 -40.0% 7.
Slide 14: Farmers Management Services reported improved margins
Farmers Management Services reported improved margins in USD millions % First half 2002 2001 change Management fees 885 829 6.8% Operating margin 51.2% 49.0% 2.2ppt Investment result 30 60 -50.0% Business operating profit 445 408 9.1% Net income 269 262 2.7% © Zurich Financial Services 14
Slide 15: Centre and Capital Markets & Banking results declined
Centre and Capital Markets & Banking results declined in USD millions % First half 2002 2001 change Total Revenues Centre 862 892 -3.4% Capital Markets & Banking 321 446 -28.0% of which ZCM 245 352 -30.4% Net income Centre 22 112 -80.4% Capital Markets & Banking -32 66 nm of which ZCM -33 67 nm Note
Slide 16: Corporate segment results were impacted by poor investment returns
Corporate segment results were impacted by poor investment returns in USD millions First half 2002 2001 Net U/W result -31 -81 Total investment income 8 154 Net admin. and operational expenses1 -252 -132 of which: GHO -127 -156 Other admin. and operational expenses -81 -67 Employee share option plan
Slide 17: Investment results were impacted by weak financial markets
Investment results were impacted by weak financial markets in USD millions % First half 2002 2001 change Investment income 3,177 3,161 0.5% Excluding DB insurance operations 2,933 3,161 -7.2% Realized and unrealized gains/losses excluding Bâloise1 41 534 -92.3% of which: IAS non-cash asset impairmen
Slide 18: Total pre-provision shareholders' equity remained stable
Total pre-provision shareholders’ equity remained stable in USD millions First half 18'000 -70 17'500 349 683 -1,120 -434 17'000 435 16'500 17,742 17,585 16'000 15'500 15'000 Balance at Net unreal. Cumulative MILES Treasury Dividend Net income Balance at January 1, loss on translation stock after ta
Slide 19: The pre-provision balance sheet remained stable
The pre-provision balance sheet remained stable in USD millions HY 2002 YE 2001 Shareholders’ equity¹ 17,5852 17,742 of which: Net unrealized gains³ 447 1,567 Cumulative FX adjustments -716 -1,151 Subordinated debt 1,500 1,500 Senior debt 2,943 3,187 Total capital 22,028 22,429 1) Including preferre
Slide 20: Since June 30, 2002
Since June 30, 2002 • Local solvency margins have continuously exceeded regulatory requirements • The value of the investment portfolio excluding net inflows has returned to June 30 levels, with appreciation of the bond portfolio and currency effects offsetting equity weakness • Current estimated co
Slide 21: We have conducted a thorough review of our reserves
We have conducted a thorough review of our reserves… • Assisted by independent actuaries, Miller, Herbers, Lehmann & Associates (MHL) – A leading US non-life actuarial consultancy – Former unit of Tillinghast – Covered 95% of non-life and reinsurance reserves (excluding Centre) held at December 31,
Slide 22: Reserve strengthening of USD2.0bn before tax
…which resulted in reserve strengthening of USD2.0bn before tax • Based on MHL recommendations, in concurrence with the ZFS Chief Actuary and PwC, we have increased our non-life and reinsurance reserves by USD2.0bn before tax (USD1.8bn after tax), equivalent to 7% of year-end 2001 net reserves • “We
Slide 23: The reserve strengthening is split as follows
The reserve strengthening is split as follows in USD millions Before tax Note US corporate exposures 922 Incl. internal reinsurance Covariance effect 400 Less diversified business mix Asbestos exposures 360 Survival ratio >24 Continental Europe 270 Partially due to ULAE Other 69 Misc. small business
Slide 24: Other assets provisioned: goodwill and capitalized software
In addition, we have examined other assets and have provisioned as follows … in USD millions After tax Note Goodwill 727 Based on current value assessments and business strategy Capitalized software 227 Various e-related programs Total 954 © Zurich Financial Services 24
Slide 25: Goodwill will be reduced by the provisions
Goodwill will be reduced by the provisions in USD millions Half year 2002 Goodwill before provisions for impairments 1,550 Provisions for goodwill impairments -727 of which: Zurich Kemper Life -462 Deutscher Herold Leben -157 GE Warranty Joint Venture -83 Other -25 Goodwill after provisions for impa
Slide 26: Reported shareholders' equity post-provision
Reported shareholders’ equity post- provision is as follows in USD millions First half 18'000 17'000 -1,758 16'000 -727 -227 15'000 17,585 14'000 14,873 13'000 12'000 Pre-provision Reserve Goodwill Write-off Post-provision shareholders' strengthening impairments capitalized shareholders' equity soft
Slide 27: Reporting processes have also been reviewed
Reporting processes have also been reviewed • We already follow best practices in many of the areas being scrutinized in the US, e.g. SPVs, expensing stock options and share compensation plans through our income statement • DAC accounting reviewed and deemed appropriate • Starting in 2003, we intend
Slide 28: Managing our investment portfolio
Managing our investment portfolio David Wasserman Group Chief Investment Officer CEO, Zurich Global Assets September 5, 2002
Slide 29: Investment portfolio well diversified by asset class
The Group’s investment portfolio is well diversified by asset class HY 2002 YE 2001 Fixed maturities 58.1% 56.4% Equity securities Common stock (including equity unit trusts) 11.8% 12.1% With-profit policyholder contracts 2.2% 3.0% Capital Markets & Banking 4.5% 4.8% Unit trusts (bonds, buildings, s
Slide 30: 99% of the bond portfolio is investment grade
99% of the bond portfolio is investment grade… Bond portfolio ratings1 distribution as at June 30, 2002 Unrated2 4% BB & below 1% BBB 5% A 14% AAA AA 58% 18% 1) Lower of Moody's, S&P, or Internal Ratings 2) Primarily within Deutscher Herold investment portfolio © Zurich Financial Services 30
Slide 31: …and is well diversified
…and is well diversified Bond portfolio industry distribution as at June 30, 2002 Oil 1% Chemicals & Pharma 1% Telecom 1% Others 3% Utilities 2% Manufacturing 6% Financial Governments & institutions supranationals 45% 21% Structured finance/asset backed 20% © Zurich Financial Services 31
Slide 32: The equity portfolio also remains diversified
The equity portfolio also remains diversified Equity portfolio industry distribution at June 30, 2002 Financial Others institutions 27% 24% Structured finance 2% Chemicals & Utilities 3% Pharma Telecom 5% 16% Oil 9% Manufacturing 14% © Zurich Financial Services 32
Slide 33: Investment returns
Investment returns in USD millions % First half 2002 2001 change Investment income 3,177 3,161 0.5% Excluding DB insurance operations 2,933 3,161 -7.2% Realized/unrealised gains/losses excluding Bâloise 41 534 -92.3% of which: IAS Non-cash asset impairment -259 -48 nm Bâloise swap and options -163 2
Slide 34: Investment returns by asset class
Investment returns by asset class in USD millions Inv. Capital Change First half income gains in UCG 3 Total Equity securities 2 313 129 -2,459 -2,017 Fixed maturities 2 2,301 -66 530 2,765 Other investments 2 635 -531 25 607 % of average assets Equity securities 1.1% 0.5% -8.7% -7.1% Fixed maturiti
Slide 35: Portfolio managers' performance met benchmarks
Overall performance of portfolio managers in first half 2002 met benchmarks HY 2002 Benchmark Relative First half1 Performance Performance Performance Fixed income portfolios 2.54% 2.57% -0.03ppt Equity portfolios -7.56% -8.20% 0.64ppt Balanced portfolios -0.12% -0.10% -0.02ppt Total 0.51% 0.41% 0.1
Slide 36: Our alternative investments recorded positive results
Our alternative investments recorded positive results in USD millions Fair Value Remaining Total First half HY 2002 commitment exposure Capital Z Investments I & II 1,129 1,8651 2,994 Capital Z Financial 360 69 429 Services Fund II Gresham Trust – Managed 277 613 890 Other 956 235 1,191 Total 2,722
Slide 37: The alternative investment portfolio is diversified
The alternative investment portfolio is diversified Including strategic private equity investments Other 1% Hedge Funds 1% • Includes over 60 investments • Largest investment: Direct • Largest investment: Endurance Invest- Fund Capital Z ments of Funds 41% Investments, LP 24% (CZI1) Private • Includ
Slide 38: We actively manage investment risk
We actively manage investment risk • Investment strategy and risk management is centrally managed with implementation through local investment committees • Group ALM / Investment Committee – Reviews and approves changes to Group asset allocation – Reconciles investment strategy with available risk c
Slide 39: Managing our capital base
Managing our capital base James Schiro Group Chief Executive Officer September 5, 2002
Slide 40: USD5bn risk based capital improvement program
We are implementing a USD5bn risk based capital improvement program • USD2.0-2.5bn rights offering1 in October Capital 2002 raising USD2.5-3bn • Potential USD500m hybrid issue by end 2003 • Release of capital from exited businesses Risk based capital • Selective use of reinsurance savings • Revised
Slide 41: We expect the rights offering to be fully underwritten
We expect the rights offering to be fully underwritten • Shareholders’ approval will be sought at an EGM on October 11 – EGM notice to be posted in mid-September – Exact terms to be announced on morning of EGM • Preparations well advanced • Expected to close in late October © Zurich Financial Servic
Slide 42: Disciplined redeployment of capital
We will execute a disciplined redeployment of capital • A rigorous review of capital allocation across the Group is being carried out • Markets and lines of business that do not meet our hurdle rate of 12% operating return on equity over the medium term will be generally exited • Capital released wi
Slide 43: Selective use of cost effective reinsurance
We have made selective use of cost effective reinsurance • The working layer US Stop Loss treaty has not been renewed in 2002 and was replaced by a very cost effective 10% whole account quota share treaty • This treaty releases USD400m of risk based capital © Zurich Financial Services 43
Slide 44: Dividend policy will be revised to conserve capital
Dividend policy will be revised to conserve capital to fund growth • For the 2002 year, the Board of Directors expects to propose at the AGM a modest cash payout in the form of a dividend or a nominal value reduction • Thereafter, the Board of Directors will adopt a flexible dividend policy reflecti
Slide 45: Reducing exposure to equities in the investment portfolio
We intend to reduce our exposure to equities in the investment portfolio • We have already been reducing our allocation to equities – Acquisition of Deutscher Herold equity portfolio of USD4.3bn, however, has increased the absolute Group total amount during H1 2002 • Equity exposures (where ZFS shar
Slide 46: Zurich Global Assets
Zurich Global Assets David Wasserman Group Chief Investment Officer CEO, Zurich Global Assets September 5, 2002
Slide 47: Centre and Capital Markets & Banking results declined
Centre and Capital Markets & Banking results declined in USD millions % First half 2002 2001 change Total Revenues Centre 862 892 -3.4% Capital Markets & Banking 321 446 -28.0% of which ZCM 245 352 -30.4% Net income Centre 22 112 -80.4% Capital Markets & Banking -32 66 nm of which ZCM -33 67 nm © Zu
Slide 48: Centre's business model
Centre’s business model is … • Structured Reinsurance – Renewed interest in Centre’s capacity and approach in P&C and Health markets – More transactions meeting pricing criteria/hurdle rates – Improved terms and conditions • Structured Asset Finance – Focus on higher quality underlying collateral an
Slide 49: Centre's business operating profit improved
Centre’s business operating profit improved but 2001 favourable investment results not repeated in USD millions % First half 2002 2001 change Revenues 862 892 -3.4% Business operating profit 102 50 104.0% Net realized gains/(losses) -64 63 nm Net income 22 112 -80.4% © Zurich Financial Services 49
Slide 50: The business of ZCM is controlled risk
The business of ZCM is controlled risk • Goal is to maintain a market neutral position, no proprietary trading • Structured transactions – Asset matching principle, no principal risk – Average credit quality of credit exposure at “AA” • Managed assets – USD5bn of loans collateralized by USD12bn of a
Slide 51: ZCM key data
ZCM key data is as follows in USD millions % First half 2002 2001 change Revenues net of interest expense 145 200 -27.5% Operating expenses -114 -81 40.7% Net income -33 67 nm Total assets 13,137 9,724 35.1% Debt 6,787 5,142 32.0% Equity 210 235 -10.6% © Zurich Financial Services 51
Slide 52: Zurich Capital Markets developments in 2002
Zurich Capital Markets developments in 2002 • Management changed from an entrepreneurial team to a group of professional with extensive capital markets experience • Harnessing growth – Investment in operational infrastructure – Asset securitization to accommodate balance sheet growth – Transition fr
Slide 53: Break
Half year 2002 results and future plans Break
Slide 54: Delivery of operational improvements
Delivery of operational improvements Peter Eckert Group Chief Operating Officer September 5, 2002
Slide 55: Expected performance gap in excess of USD1bn after tax
Our analysis indicates an expected performance gap in excess of USD1bn after tax Capital • Operating return on market consolidated equity of 12% over the medium term Gap in External best • Benchmarking our main excess of practice competitors USD1bn after tax Internal best • ZFS best and second best
Slide 56: We focused on the following main levers
We focused on the following main levers • Additional price increases, Pricing benefiting from hardening markets • Improve underwriting quality Underwriting • Programs to improve claims Focus on Claims management core insurance • FTE reduction activities • IT cost savings Expenses • Procurement savin
Slide 57: Expected effect on 2003 profit after tax
…with the expected effect on 2003 profit after tax as follows Pricing 20% Expected impact in Underwriting 12% excess of USD1bn after tax Claims 8% Restructuring cost of Expenses 60% approximately USD500m Total 100% after tax © Zurich Financial Services 57
Slide 58: Expected effect on profit after tax by division in 2003
The expected effect on profit after tax by division in 2003 is as follows in USD millions 1'200 1'000 85 150 800 150 600 275 >1bn 400 200 400 0 Continental Group UKISA/ NA Corp. NA Total Europe mgmt and AP Cons./ cross-BD LatAm © Zurich Financial Services 58
Slide 59: Improvement program includes group management and cross-BD
The improvement program includes group management and cross-BD in USD millions Group management Cross business division 300 250 50 275 200 85 150 100 70 50 70 0 GHO GRI/GTC IT Procurement Total • Planned FTE • Capital • NA ISP • Business travel reduction by management consolidation • Marketing/ 10%
Slide 60: We will measure progress of these initiatives rigorously
We will measure progress of these initiatives rigorously • Established a Program Management Organization (PMO) process at GHO and business division level to drive execution and aggressively monitor and control • Improvement initiatives – Ongoing tracking of milestones and impact • Business division
Slide 61: Discipline in execution is key
Discipline in execution is key • My priorities: – Setting operational targets for Group and business divisions – Monitoring operational performance at Group and Business Division level – Tracking profit improvement initiatives • Program Management Organisation • New Operations Committee • John Amore
Slide 62: North America Corporate
North America Corporate John Amore CEO, North America Corporate September 5, 2002
Slide 63: US reserve strengthening primarily related to 1998 and prior years
The US reserve strengthening was primarily related to 1998 and prior years in USD millions 1999 and 1998 subsequent and prior Total NA Corporate (excluding asbestos) 193 487 680 Group Internal Re 0 242 242 Total 193 729 922 © Zurich Financial Services 63
Slide 64: NA Corporate non-life results were very strong
NA Corporate non-life results were very strong… in USD millions % First half 2002 2001 change GWP 6,823 5,179 31.7% NEP 3,594 2,797 28.5% Pre-provision loss ratio 74.9% 79.2% -4.3ppt Expense ratio1 22.5% 25.3% -2.8ppt Pre-provision combined ratio 97.4% 104.5% -7.1ppt Business operating profit 327 14
Slide 65: Significant rate increases continued
…as we have continued to achieve significant rate increases 35% 33.8 32.9 30% 31.0 25% 20% 20.3 15% 16.8 10% 10.2 10.5 7.4 7.7 5% 5.8 1.0 2.8 4.1 0% -1.3 -5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1999 2000 2001 2002 Note: Year on year quarterly change © Zurich Financial Services 65
Slide 66: Reducing our terrorism exposure
…while reducing our terrorism exposure • ZFS estimate of ultimate Group net non-life loss from 9/11 of USD800m before tax has not changed materially since October 2001 • New underwriting guidelines issued immediately post 9/11 – Exclude whenever and wherever possible – Monitor accumulations – Use of
Slide 67: Actions planned to achieve USD150m profit improvements
Actions planned to achieve the USD150m profit improvements are: • Increase profitability by achieving rate increases in excess of plan Pricing through 2002 and early 2003 • ITV capture: Accelerate tightening of insurance-to-value of property book Underwriting • Workers Comp underwriting: Improve mix
Slide 68: North America Consumer / Latin America
North America Consumer / Latin America Martin Feinstein CEO, North America Consumer September 5, 2002
Slide 69: NA Consumer / Latin America business operating profit
NA Consumer / Latin America recorded favorable business operating profit in USD millions % First half 2002 2001 change Total GWP, deposits and policy fees 9,390 9,225 1.8% of which: NA Consumer-life 1,925 2,481 -22.4% Latin America 599 448 33.7% Farmers P&C Group Companies 6,866 6,296 9.1% Farmers m
Slide 70: Farmers Management Services reported improved margins
Farmers Management Services reported improved margins in USD millions % First half 2002 2001 change Management fees 885 829 6.8% Operating margin 51.2% 49.0% 2.2ppt Investment result 30 60 -50.0% Business operating profit 445 408 9.1% Net income 269 262 2.7% © Zurich Financial Services 70
Slide 71: Cost and processing efficiencies
…resulting from cost and processing efficiencies 8,000 17,000 Policies in force ('000) No. employees 7,000 16,000 6,000 15,000 5,000 4,000 14,000 1996 1997 1998 1999 2000 2001 Policies in force FTE © Zurich Financial Services 71
Slide 72: The Exchanges' underwriting results have improved substantially
The Exchanges’ underwriting results have improved substantially over the last 12 months in USD millions % First half 2002 2001 change Auto (59% of total premiums) 97.7% 109.5% -11.8ppt Fire (ex mold) 108.5% 143.3% -34.8ppt Commercial P&C 107.4% 115.2% -7.8ppt Work compensation 111.1% 122.9% -11.8ppt
Slide 73: Texas mold claims and coverage are decreasing
Texas mold claims and coverage are decreasing 2002 year to date and expected run-off 3,500 500 policies in force ('000) 3,000 400 Homeowners B No. of claims 2,500 300 2,000 200 1,500 100 1,000 0 Jan Feb Mar Apr May Jun Sep Dec Claims Homeowners B policies in force Source: Farmers © Zurich Financial
Slide 74: NA Consumer life results adversely affected by Zurich Life
NA Consumer life results were adversely affected by Zurich Life in USD millions % First half 2002 2001 change GWP, deposits and policy fees 1,925 2,481 -22.4% Business operating profit 145 171 -15.2% Pre-provision net income 99 127 -22.0% New business premiums (APE) 155 240 -35.4% New business margi
Slide 75: Actions planned to achieve USD85m profit improvements
Actions planned to achieve the USD85m profit improvements are: • Continue to increase rates at the Exchanges to fuel growth in premiums Pricing • Increase Foremost management fee rate 3 percentage points • Reduce Farmers Life interest crediting rates to optimise margins • Introduce new Life Cycle pr
Slide 76: UKISA / Asia Pacific
UKISA / Asia Pacific Sandy Leitch CEO, UKISA / Asia Pacific September 5, 2002
Slide 77: UKISA / Asia Pacific were impacted by equity markets
UKISA / Asia Pacific were impacted by equity markets in USD millions % First half 2002 2001 change Total GWP, deposits and policy fees 6,401 5,855 9.3% of which: UKISA 5,450 4,962 9.8% Asia Pacific 951 893 6.5% Business operating profit 173 264 -34.5% of which: UKISA 151 268 -43.6% Asia Pacific 22 -
Slide 78: UKISA non-life results were strong
UKISA non-life results were strong in USD millions % First half 2002 2001 change GWP 2,297 1,866 23.1% NEP 1,664 1,372 21.3% Pre-provision loss ratio 78.7% 83.3% -4.6ppt Expense ratio 24.8% 22.5% 2.3ppt Pre-provision combined ratio 103.5% 105.8% -2.3ppt Business operating profit 48 46 4.3% Pre-provi
Slide 79: UKISA life earnings declined
UKISA life earnings declined in USD millions % First half 2002 2001 change GWP, deposits and policy fees 3,153 3,096 1.8% Business operating profit 99 234 -57.7% Pre-provision net income 13 180 -92.8% New business premiums (APE)1 379 415 -8.7% New business margins 7.0% 9.2% -2.2ppt 6 month EV return
Slide 80: Key planned improvements in UKISA / Asia Pacific
The key planned improvements in UKISA / Asia Pacific are Key thrusts Improve operational income dramatically in Challenge UK Non Life: Take market share from competition by increased efficiency and better service through: • Non-life: Continued double digit growth • Call centre processing efficiency
Slide 81: Actions planned to achieve USD150m profit improvements
Actions planned to achieve the USD150m profit improvements are: • Continue aggressive pricing on non-life; e.g. year-to-date rate increases: Pricing — Property and employers liability up over 50% — Commercial motor up 10% • Major integrated program to strengthen underwriting skills, Underwriting inc
Slide 82: The potential depolarisation opportunity is significant
The potential depolarisation opportunity is significant • Regulatory changes will permit tied sales force to distribute products of other providers • The changes will fundamentally change distribution: – Widen the ‘Zurich’ proposition and increase customer appeal – Help increase the productivity of
Slide 83: Continental Europe
Continental Europe Axel Lehmann CEO, Continental Europe September 5, 2002
Slide 84: Continental Europe top line growth benefited from acquisitions
Continental Europe top line growth benefited from acquisitions in USD millions % First half 2002 2001 change Total GWP, deposits and policy fees 7,731 6,076 27.2%1 Net investment result 1,716 1,459 17.6% of which Realized gains/losses 406 277 46.3% Business operating profit 72 294 -75.5% Pre-provisi
Slide 85: Continental Europe non-life premium growth was strong
Continental Europe non-life premium growth was strong in USD millions % First half 2002 2001 change GWP 4,252 3,483 22.1% NEP 2,898 2,375 22.0% Pre-provision loss ratio 77.4% 75.4% 2.0ppt Expense ratio1 28.1% 28.8% -0.7ppt Pre-provision combined ratio 105.5% 104.2% 1.3ppt Business operating profit 2
Slide 86: Continental Europe life new business improved
Continental Europe life new business improved in USD millions % First half 2002 2001 change GWP, policy fees and deposits 3,479 2,593 34.2% Business operating profit 53 88 -39.8% Pre-provision net income 291 63 nm New business premiums (APE) 260 164 58.5% New business margins -0.2% -7.3% 7.1ppt 6 mo
Slide 87: Half year results benefited from DH Leben
The half year results benefited from DH Leben for the first time Key indicators life in USD millions First half 20021 Gross new business premiums (including deposits) 155.8 of which: Annual premiums 84.4 Single premiums 71.4 APE 91.6 New business margin 2.7% Embedded value2 321.2 After tax 6 month r
Slide 88: Synergy potential from Deutscher Herold integration
The synergy potential from the integration of Deutscher Herold is significant • Planned annual cost savings of approximately USD70m after tax • Bulk of improvements to come from headcount reduction of 700-750 FTEs – To be accomplished principally via attrition and early retirement programs – Over an
Slide 89: Addressing key issues in Swiss group life
We are addressing the key issues in Swiss group life • Government decision on conversion rate and guaranteed interest rate expected by October 2002 • We are undertaking radical measures to address the situation: – Reduction of the policyholder participation to a minimum – Adjustment of pricing on ne
Slide 90: Non-life business benefited from rate increases
Continental Europe non-life business has benefited from rate increases Selected examples in corporate business (CEC) % change for 2002 to date Liability Property Germany – domestic business 5% 18% Spain – domestic business 30% 30% International program business 20% 25% © Zurich Financial Services 90
Slide 91: Key planned operational improvements in Continental Europe
The key planned operational improvements in Continental Europe are Key thrusts Challenge Improve operational income dramatically by • Costs • Moderate operational – Aggressive cost reduction program margin (e.g. FTE, shared services) • Realized capital gains as • Non-life main profit driver – Claims
Slide 92: Actions planned to achieve USD400m profit improvements
Actions planned to achieve the USD400m profit improvements are: • Non-Life: major increase of rates across Continental Pricing Europe. • Life: restructuring of life business in Switzerland • Restructuring of corporate portfolio by, e.g., Underwriting eliminating loss makers and rate increases across
Slide 93: Closing remarks
Closing remarks James Schiro Group Chief Executive Officer September 5, 2002
Slide 94: Q&A
September 5, 2002 Z) ZURICH FINANCIAL SERVICES
Slide 95: Appendix
Appendix Z) ZURICH FINANCIAL SERVICES
Slide 96: We will measure future performance by business operating profit
We will measure our future performance by business operating profit Normalised net income will not be used Business operating profit Operating income • Before tax • Before tax • Excludes realized and • Includes realized and unrealized1 gains/losses2 unrealized1 gains/lossess2 • Excludes gains/losses
Slide 97: Accounting bridge from IAS Net Income to business operating profit
Accounting bridge from IAS Net Income to business operating profit Deduct: Special Deduct: Tax Deduct: Realized/ provisions expense, Deduct: unrealized Business IAS Net Income and Gains on adjusting for Realized/unrealized gains/losses Operating as reported disposal UK-PH Tax gains/losses applicable
Slide 98: Half year IAS asset impairment write-down by investment category
Half year IAS asset impairment write-down by investment category in USD millions H1 H2 H1 2002 2001 2001 Fixed maturities 16 64 8 Equity securities 216 635 39 Others 27 91 1 Subtotal – before tax 259 790 48 Less: allocation to PHs -66 -133 -14 Less: tax credit -53 -165 -9 Total – after tax 139 492 2
Slide 99: Deferred policy acquisition costs
Deferred policy acquisition costs Life insurance in USD millions 2002 Balance at January 1, 2002 7,887 Acquisition costs deferred 210 Amortization charged to income -372 Gains/losses on investments 131 Additions 485 Disposals -54 Increase/decrease due to currency translation 405 Balance at June 30,
Slide 100: Allocation of special provisions by segment
Allocation of special provisions by segment in USD millions Provision for Provision for e- Provision for goodwill business and Total special After tax reserve strength impairments other assets Provisions Non-life -1,389 -108 -1,497 Life -558 -558 Farmers Asset Management Centre Capital Markets & Ban
Slide 101: Estimated net loss from European floods
The total estimated net loss from European floods is USD175-200m Estimated exposures as of September 2, 2002 Group Total net loss (before tax) USD175 - 200m Business Units Gross loss (before tax) • Germany USD73m • Corporate (CEC) USD95m • Rest of Continental USD82m Europe © Zurich Financial Service
Zurich Financial Services — H1 2002 Earnings Presentation on 6ix