Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — H1 2018 Earnings Presentation
64 slides from Zurich Insurance's earnings presentation, Aug 9, 2018
Slide 1: Half year results 2018 – Ongoing momentum
Half year results 2018 – Ongoing momentum Investor and media presentation August 9, 2018 Zurich Insurance Group
Slide 2: Content
Content MAIN SECTION (Use symbols to navigate through the document) APPENDIX (Use symbols to navigate through the document) Key highlights Group financial targets Group results and outlook P&C catastrophe reinsurance program Property & Casualty (P&C) Farmers Exchanges Life Group solvency Farmers Gro
Slide 3: Delivering on key targets and priorities
KEY HIGHLIGHTS Delivering on key targets and priorities Group Strong performance with BOP up 12%; BOPAT ROE of 12.3% Strong performance with BOP up 17%; continued growth in new business with APE Life and NBV up 11% and 2% on a like-for-like basis1 BOP up 11%; Stable top-line; improved accident year
Slide 4: Key businesses strengthened while exiting non-core activities
KEY HIGHLIGHTS Key businesses strengthened while exiting non-core activities; Customer focus improved with tangible results CUSTOMER FOCUS YIELDING POSITIVE RESULTS IN RETAIL Leadership in Latin America strengthened NET PROMOTER SCORE CUSTOMER RETENTION HY-18 vs. FY-17 (ppts) HY-18 vs. FY-17 (ppts)
Slide 5: Continued delivery across all businesses
KEY HIGHLIGHTS Continued delivery across all businesses P&C LIFE FARMERS EXCHANGES1 COMBINED RATIO (%) BOP GROWTH (%) COMBINED RATIO (CR) (%) 104.9% 98.3% 99.5% 97.5% +17% 10.5% 6.6% 2.9% 3.0% 32.4% 32.5% 94.4% 91.8% 65.2% 64.5% -1.0% -2.5% HY-17 HY-18 HY-17 HY-18 HY-17 HY-18 Cat ER AY LR ex-cat PYD
Slide 6: Well on track to achieve all 2017-2019 targets
KEY HIGHLIGHTS Well on track to achieve all 2017-2019 targets BOPAT ROE (%)1 Z-ECM RATIO (%) CUMULATIVE CASH REMITTANCES (USDbn) 12.3% 134% >9.5 120% 12.1% >7.0 >12.0% 100% 3.7 FY-17 HY-18 Target2 HY-18e3 Target range FY-17 & FY-18e 2017 - 2019 Target CUMULATIVE NET EXPENSE SAVINGS (USDm) ~USD 900m
Slide 7: HY-18 CFO update
@ ZURICH HY-18 CFO update
Slide 8: Continued progress with Group BOP up 12%
GROUP – BOP Continued progress with Group BOP up 12% and 15% pre impact of charges related to restructuring within BOP BOP BY REGION (USDm) BOP BY BUSINESS (USDm) +15% pre- +15% pre- restructuring restructuring +12% +12% 2,422 2,422 2,167 233 2,167 51 282 152 3 808 193 794 808 794 760 619 650 548 1,
Slide 9: Higher BOP and lower effective tax rate lead to 19% increase in net income
GROUP – NIAS Higher BOP and lower effective tax rate lead to 19% increase in net income attributable to shareholders BOP TO NIAS WALK (USDm) 26.8% Tax rate 159 -102 -51 +19% 200 vs. HY-17 -704 133 2,422 1,791 HY-18 BOP Realized capital gains Restructuring costs1 Other Income taxes attributable HY-18
Slide 10: 2018 updated outlook
GROUP – OUTLOOK 2018 updated outlook NEP expected to be broadly stable P&C Combined ratio to move towards the indicated 95-96% range by 2019 Investment income excluding gains expected to be stable versus the prior year Life Low double-digit growth in BOP compared to prior year Steady growt
Slide 11: Higher rates and stable topline
P&C – TOPLINE Higher rates and stable topline HY-18 TOPLINE DEVELOPMENT RATE CHANGE (%)1 NORTH AMERICA RATE CHANGE (%)1 GWP Like-for-like HY-18 Change vs. HY-17 (USDm) GWP growth (%)2 3.8% EMEA 8,576 0% 2% Stable 3.5% North 8,027 -4% 4% Increasing America 1.6% APAC 1,392 16% 3% Increasing 0.9% 0.2%
Slide 12: Improved underlying underwriting result, positive investment result offset by lower hedge fund and FX gains
P&C – BOP COMPONENTS Improved underlying underwriting result, positive investment result offset by lower hedge fund and FX gains BOP BREAK DOWN (USDm) BOP CHANGE BY SEGMENT (USDm) COMBINED RATIO (%) +11% -2.0ppts 1,137 71 -40 99.5% -73 1,137 97.5% 182 -23 1,020 1,020 325 62 32.4% 32.5% 108 45 918 94
Slide 13: Improvement in accident year loss ratio ex-cat and other underwriting expense ratio
P&C – COMBINED RATIO DETAILS Improvement in accident year loss ratio ex-cat and other underwriting expense ratio drive improved combined ratio AY LOSS RATIO EXCLUDING OTHER UNDERWRITING EXPENSE COMMISSION RATIO (%)2 CATASTROPHES (%)1 (OUE) RATIO (%)2 +1.1ppts -0.7ppts 65.4% 16.8% 65.2% -0.6ppts 14.9
Slide 14: Underlying improvements in EMEA and North America primarily in commercial business
P&C – COMBINED RATIO BY SEGMENT AND CUSTOMER UNIT Underlying improvements in EMEA and North America primarily in commercial business AY COMBINED RATIO (CR) EXCLUDING CATASTROPHES BY SEGMENT (%)1 AY CR EXCL. CATASTROPHES BY CUSTOMER UNIT (%)1 +2.9ppts -1.1ppts -1.4ppts +1.2ppts -0.3ppts -1.2ppts 100.
Slide 15: Gap to new money yields narrowing further
P&C – INVESTMENT RESULT Gap to new money yields narrowing further INVESTMENT RESULT IN BOP (USDm) INVESTMENT INCOME YIELD INVESTMENT INCOME YIELD OF GROUP INVESTMENTS (%)1,3 1,026 991 2.7% 2.7% 108 45 HY-17 HY-18 918 946 INVESTMENT INCOME & REINVESTMENT YIELD OF DEBT SECURITIES (%)2,3 2.7% 2.7% 2.6%
Slide 16: Strong Life performance across all metrics
LIFE – OVERVIEW Strong Life performance across all metrics BOP (USDm) APE (USDm)1 NBM (%) & NBV (USDm)1 +12% +11% like-for-like2 like-for-like2 23.9% 25.3% 26.4% +17% +1% 760 2,291 2,275 2 2,203 +2% 650 like-for-like2 1 173 566 521 473 562 149 113 +4% 78 36 73 87 43 121 25 12 78 503 522 453 76 80 56
Slide 17: Growth across all continuing products and distribution channels
LIFE – PRODUCT AND DISTRIBUTION MIX Growth across all continuing products and distribution channels; 84% of APE from capital efficient products PRODUCT MIX (USDm)1 DISTRIBUTION MIX (USDm)1 APE 2,275 2,291 APE 2,275 2,291 250 374 317 709 607 627 538 317 758 371 84% 668 315 787 919 752 825 HY-17 HY-18
Slide 18: Strong increase in net inflows; AUM decrease driven by negative FX impact
LIFE – NET INFLOWS AND ASSETS UNDER MANAGEMENT Strong increase in net inflows; AUM decrease driven by negative FX impact NET INFLOWS BY SEGMENT (USDbn) AUM DEVELOPMENT (USDbn) +60% -2% 4.3 270 4 -1 264 -9 1.1 44 45 0.0 0.1 2.7 111 108 1.3 3.2 0.1 0.0 116 111 1.3 HY-17 HY-18 Balance as of Net inflows
Slide 19: Growth in BOP driven by improved investment margin, higher loadings and fees
LIFE – BOP BY SOURCE Growth in BOP driven by improved investment margin, higher loadings and fees with stable operating costs BOP BY SOURCE OF EARNINGS (USDm) KEY DRIVERS2 D HY-17 Actual LC Loadings & fees 1,338 415 1,753 7% 2% GWP, policy fees and deposits +18% Inv. margin 339 37% 35% Technical mar
Slide 20: Growth in investment income driven by increase in asset base
LIFE – INVESTMENT RESULT Growth in investment income driven by increase in asset base on a local currency basis, gap to new money yields narrowing INVESTMENT RESULT IN BOP GROSS OF PH (USDm)1 INVESTMENT INCOME YIELD INVESTMENT INCOME YIELD OF GROUP INVESTMENTS (%)2,4 1,903 2.9% 3.0% 1,642 328 193 HY
Slide 21: Growth across all continuing operations at Farmers Exchanges
FARMERS EXCHANGES1 – GROWTH Growth across all continuing operations at Farmers Exchanges GWP GROWTH (%) GWP GROWTH BY BUSINESS LINE (%) 6.1%4 3.5% Auto 5.8% 1.8% 3.8%4 Home 0.8% 3.3% 2.9% 4.4% Specialty 2.7% 2.3% 2.0% 18.7%4 Business Insurance 0.8% 0.5% 2.9% Total3 0.1% 1.7% Q3-17 Q4-17 Q1-18 Q2-18
Slide 22: Customer KPIs continue to improve
FARMERS EXCHANGES1 – GROWTH DRIVERS Customer KPIs continue to improve NET PROMOTER SCORE2 AND RETENTION (%)3 NEW BUSINESS COUNT – YTD CHANGE (%)4 5.8% 45.3 4.9% 44.6 1.4% 43.3 43.2 43.1 43.3 42.7 42.6 -2.3% 82.5% 82.5% 82.3% 82.2% 81.9% 81.9% -11.3% -13.7% 81.5% 81.4% -16.8% -19.3% Q3-16 Q4-16 Q1-17
Slide 23: Combined ratio driven by underlying improvement and return to normal catastrophe levels
FARMERS EXCHANGES1 – PROFITABILITY Combined ratio driven by underlying improvement and a return to more normal levels of natural catastrophes COMBINED RATIO (%)2 SURPLUS3 -6.6ppts vs. HY-17 38.7% 38.8% 106.4% 104.9% 37.1% 10.4% 98.3% 10.5% 6.6% 5.4 5.5 5.4 96.0% 94.4% 91.8% HY-16 HY-17 HY-18 HY-17 F
Slide 24: Stable margin and BOP contribution from FMS
FARMERS MANAGEMENT SERVICES – OVERVIEW Stable margin and BOP contribution from FMS BOP (USDm) MGEP MARGIN (%)1 700 702 7.0% 7.0% HY-17 HY-18 HY-17 HY-18 © Zurich 1 Margin on gross earned premiums of the Farmers Exchanges. Regarding Farmers Exchanges see footnote 2 on slide 3. August 9, 2018 Half yea
Slide 25: Strong improvement of Farmers Re combined ratio
FARMERS LIFE AND FARMERS RE – OVERVIEW Strong improvement of Farmers Re combined ratio, with improved new business margins at Farmers Life BOP (USDm) FARMERS LIFE APE & NBV (USDm) FARMERS RE1 CR (%) APE 106 46 45 103.0% 96.3% 94 10.4% 6.0% 81 87 NBV 92.6% 64 90.3% 49 25 6 HY-17 HY-18 HY-17 HY-18 HY-
Slide 26: Group Functions and Operations & Non-Core Businesses BOP
GROUP FUNCTIONS AND OPERATIONS & NON-CORE BUSINESSES – BOP Lower recharges to business units offset reduced headquarter expenses; portfolio exits benefit Non-Core Businesses GROUP FUNCTIONS AND OPERATIONS BOP (USDm) NON-CORE BUSINESSES BOP (USDm) 51 -84 -143 -217 -191 3 -301 -334 HY-17 HY-18 HY-17 H
Slide 27: Capital position remains strong and above target range
GROUP – SOLVENCY RATIOS Capital position remains strong and above target range supported by strong operating capital generation pre-dividend Z-ECM AND SST RATIO (%)1 Z-ECM RATIO DEVELOPMENT (%) 240% 217% 216% -1% 3% 220% 204% -1% -5% 200% 196% 189% 7% 185% 134% 0% 180% 132% 160% 140% 132% 134% 127%
Slide 28: Shareholders’ equity driven by capital return to shareholders
GROUP – BALANCE SHEET AND CAPITAL STRUCTURE Shareholders’ equity driven by capital return to shareholders SHAREHOLDERS’ EQUITY (USDM) CAPITAL STRUCTURE (%)1 -10% -925 7% 7% 1,791 33,062 17% 16% -2,805 -3,730 -638 29,729 -1,339 582 76% 77% FY-17 NIAS Dividend Currency Net URG/L Pension HY-18 FY-17 HY
Slide 29: 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 of Zurich Insurance Group Ltd or the Zurich Insurance Group (the ‘Group’).
Slide 30: Appendix
@ ZURICH Appendix
Slide 31: 2017-2019 Financial targets
GROUP – FINANCIAL TARGETS 2017-2019 Financial targets1 BOPAT ROE2 in excess of 12% and increasing, despite higher equity base USD 1.5bn in net savings by 2019 compared to the 2015 baseline Z-ECM target ratio of 100-120% Cash remittances in excess of USD 9.5bn over 2017-2019 period © Zurich 1 BOPAT R
Slide 32: Reinsurance program in line with Group risk appetite
P&C – CATASTROPHE REINSURANCE Reinsurance program in line with Group risk appetite GROUP CATASTROPHE REINSURANCE PROTECTION (USDm) 200 105 200 200 750 750 200 750 200 350 750 250 456 250 250 300 7503 497 600 600 200 Europe US US Rest of World all perils Global aggregate cat treaty all perils1 all pe
Slide 33: Top-line growth and combined ratio improvement across all continuing operations
FARMERS EXCHANGES1 – GWP, PIF/VIF AND COMBINED RATIO BY LINE Top-line growth and combined ratio improvement across all continuing operations GWP (USDm) PIF/VIF (000’s)2 COMBINED RATIO (%) 3% 0% 10,335 17,929 17,876 10,047 105.2 124 101 454 193 486 87 Auto 272 115 409 410 102.0 1,1264 949 3,153 3,218
Slide 34: Well diversified capital base by risk type
GROUP – Z-ECM COMPONENTS Well diversified capital base by risk type AFR COMPOSITION (USDbn)1 RBC SPLIT (%)1 10% Market risk Shareholders equity 29.7 5% 3% Reinsurance credit risk 7% Premium and reserving risk 46% Dividend accrual -1.4 Natural catastrophe risk Life insurance risk 26% Net intangibles
Slide 35: Solvency ratios resilient to market movements
GROUP – SOLVENCY RATIO SENSITIVITIES1 Solvency ratios resilient to market movements Z-ECM IMPACT2 SST IMPACT2 Actual value as of FY-17 132% Actual value as of FY-17 216% Interest rate +100 bps 136% Interest rate +100 bps 223% Interest rate -100 bps 121% Interest rate -100 bps 195% USD appreciation +
Slide 36: Low average debt cost and balanced maturity profile
GROUP – DEBT Low average debt cost and balanced maturity profile DEBT (USDbn) AND AVERAGE DEBT COST (%) MATURITY PROFILE (USDbn)1 11.4 10.8 2.2 2.0 3.8 4.6 0.6 0.2 1.7 Average debt 2017 2018e cost (%) 1.3 0.5 Senior 1.3 1.5 1.0 0.9 0.8 1.9 6.9 6.8 0.7 1.6 Subordinated 5.1 4.9 0.5 0.3 1.2 0.3 0.3 Tot
Slide 37: Commentary
@ ZURICH Commentary
Slide 38: Page 3: Key messages
COMMENTARY Page 3: Key messages The first half 2018 results show a strong underlying performance, with the business operating profit (BOP) up 12% on a headline basis and 15% after adjusting for USD 70m of restructuring charges taken through business operating profits. The results show the Group maki
Slide 39: Page 4: Key highlights – Strategic update
COMMENTARY Page 4: Key highlights – Strategic update The first half of the year saw the Group continue to strengthen core businesses and customer propositions while continuing to extract capital from non-core businesses. During the first half, the Group’s Latin American business consolidated its alr
Slide 40: Page 5: Key highlights – Proof points by business
COMMENTARY Page 5: Key highlights – Proof points by business The first half 2018 has seen the Group progress steadily forward against the Group’s priorities, with the business showing a range of proof points against key management goals, including: Property & Casualty (P&C) gross written premium inc
Slide 41: Page 6: Key highlights – Status on financial targets
COMMENTARY Page 6: Key highlights – Status on financial targets The first half of 2018 continued to build on the positive performance of 2017 with the Group making good progress in terms of profitability across the businesses and remaining on track to meet the financial targets set out in November 2
Slide 42: Page 8: Group – BOP
COMMENTARY Page 8: Group – BOP Overall BOP growth in the first half year was 12% on a reported basis. Growth in EMEA was driven by a combination of strong performance in the life business together with improved underlying results in P&C as well as the absence of the impact from the Ogden discount ra
Slide 43: Page 9: Group – NIAS
COMMENTARY Page 9: Group – NIAS Net income attributable to shareholders (NIAS) increased 19% in the first half of the year, with growth driven primarily by the increase in BOP together with a reduced tax rate. Below the operating line, realized capital gains of USD 159m, primarily driven by the real
Slide 44: Page 10: Group – Outlook
COMMENTARY Page 10: Group – Outlook Allowing for the first half performance, the Group updates its previous guidance on key items. Property & Casualty: The Group continues to take specific actions to adjust the portfolio mix, with these expected to offset underlying growth to leave overall net earne
Slide 45: Page 11: P&C – Top line
COMMENTARY Page 11: P&C – Top line Gross written premiums in Property & Casualty (P&C) for the first half year of 2018 rose 3% in U.S. dollars and were flat in local currency. Growth in Asia Pacific and Latin America was mainly offset by a decline in North America. The Group’s focus remains on profi
Slide 46: Page 12: P&C – BOP Components
COMMENTARY Page 12: P&C – BOP Components P&C BOP on a reported basis for HY-18 was USD 1,137m, 11% higher than in the same period last year. The underwriting result increased strongly by USD 263m with last year’s result impacted by the adjustment in the Ogden discount rate in the UK. In line with th
Slide 47: Page 13: P&C – Combined ratio details
COMMENTARY Page 13: P&C – Combined ratio details Looking at the HY-18 split of the combined ratio: The accident year loss ratio excluding catastrophes and the other underwriting expense ratio improved by 0.7 percentage points and 0.6 percentage points respectively compared to HY-17, driven by improv
Slide 48: Page 14: P&C – Combined ratio by segment and customer unit
COMMENTARY Page 14: P&C – Combined ratio by segment and customer unit During HY-18 the accident year combined ratio excluding catastrophes showed an underlying improvement in EMEA and North America, particularly in the commercial business. The EMEA accident year combined ratio ex-catastrophes of 95.
Slide 49: Page 15: P&C – Investment result
COMMENTARY Page 15: P&C – Investment result The HY-18 investment result of USD 991m included fair value movements of USD 45m, mainly from the Group’s hedge fund portfolio. Investment income rose 3% on a reported basis and 2% in local currency, while fair value items showed a decline of USD 63m year
Slide 50: Page 16: Life – Overview
COMMENTARY Page 16: Life – Overview On a headline basis, Life BOP increased by 17% to USD 760m over the first half of 2018, with FX contributing 5 percentage points to this growth. Charges related to the Group’s restructuring recognized in BOP were USD 6m within this figure. In EMEA, BOP increased b
Slide 51: Page 17: Life – Product and distribution mix
COMMENTARY Page 17: Life – Product and distribution mix The Group continues to focus on protection, unit-linked and corporate pension business, with these products accounting for 84% of APE sales. Compared to HY-17, this represents a 5 percentage point reduction as a result of reduced sales of corpo
Slide 52: Page 18: Life – Net inflows & AuM
COMMENTARY Page 18: Life – Net inflows & AuM Net inflows increased by 60% compared to the first half of the prior year, equating to 1.6% of assets under management in the first half. The increase was primarily driven by higher volumes of corporate savings business in Switzerland as well as the previ
Slide 53: Page 19: Life – BOP by source
COMMENTARY Page 19: Life – BOP by source The Group’s life business continued to be driven by stable revenue streams, with 87 percent of life revenues coming from loadings and fees together with technical margins. Viewed by margin and beginning with revenues, loadings and fees increased by 2% in loca
Slide 54: Page 20: Life – Investment Result
COMMENTARY Page 20: Life – Investment Result Life investment result, which is gross of policyholder sharing, increased by 16% to USD 1.9bn in U.S. dollars and 7% in local currency, driven mainly by favorable developments in overall earned portfolio yields across the Group’s major geographies, and hi
Slide 55: Page 21: Farmers Exchanges – Growth
COMMENTARY Page 21: Farmers Exchanges – Growth The Farmers Exchanges showed continued growth in the first half of the year. Gross written premiums for continuing operations increased by 4.7% compared to the prior year period, with growth coming in all lines of business and driven by a combination of
Slide 56: Page 22: Farmers Exchanges – Growth drivers
COMMENTARY Page 22: Farmers Exchanges – Growth drivers Key customer metrics continued to improve as a result of the Farmers Exchanges customer focused strategy. Net Promoter Score, an indicator of customer satisfaction and loyalty, further improved in the second quarter of 2018. This is supportive o
Slide 57: Page 23: Farmers Exchanges – Profitability
COMMENTARY Page 23: Farmers Exchanges – Profitability The Farmers Exchanges recorded an underwriting profit in the first half year. The combined ratio improved 6.6 percentage points compared to the prior year period, with the Auto combined ratio also improving by 3.2 percentage points year on year.
Slide 58: Page 24: FMS – Overview
COMMENTARY Page 24: FMS – Overview Farmers Management Services (FMS) BOP was stable compared to the prior year period, driven by higher gross earned premium at Farmers Exchanges, which increased by approximately 1 percent year on year and lower expenses, offset by an unfavorable fluctuation related
Slide 59: Page 25: Farmers Life and Farmers Re – Overview
COMMENTARY Page 25: Farmers Life and Farmers Re – Overview Farmers Re BOP was USD 19m higher than the prior year period, driven by a 6.8 percentage points combined ratio reduction, as a consequence of improved underwriting results at the Farmers Exchanges. Farmers Life BOP was USD 6m lower than in t
Slide 60: Page 26: Group Functions and Operations & Non-Core Businesses – BOP
COMMENTARY Page 26: Group Functions and Operations & Non-Core Businesses – BOP The business operating loss reported under Group Functions & Operations increased by USD 33m to USD 334m. Lower recharges to business units more than offset reduced Headquarters expenses, while the Holding and Financing r
Slide 61: Page 27: Group – Solvency ratios
COMMENTARY Page 27: Group – Solvency ratios The Group’s Z-ECM ratio is estimated at 134% as of the end of June, which is 2 percentage points higher than at the start of the year. Strong operational capital generation from the businesses added 7 percentage points. Positive market movements added a fu
Slide 62: Page 28: Group – Balance sheet and capital structure
COMMENTARY Page 28: Group – Balance sheet and capital structure Shareholders’ equity decreased by USD 3.3bn over the first half of the year as a result of the approximately USD 3.7bn of capital returned to shareholders through share repurchases and dividends in the first half. Other movements includ
Slide 63: For further information
For further information CALL US VISIT OR FOLLOW US Investor Relations Richard Burden +41 44 628 96 40 Francesco Bonsante +41 44 628 00 68 Samuel Han +41 44 625 32 57 Gianni Vitale +41 44 625 48 26 Rating Agency Management Michèle Matlock +41 44 625 28 50 Investor Relations website Financial resu
Slide 64: Calendar
CALENDAR: September 25-26, 2018, Bank of America Merrill Lynch Conference 2018, London November 8, 2018, Update for the nine months ended September 30, 2018 December 5, 2018, Investor Day 2018 © Zurich Insurance Company Ltd
Zurich Insurance Group — H1 2018 Earnings Presentation on 6ix