Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — Investor Day (March 2007)
87 slides from Zurich Insurance's investor day presentation, Mar 28, 2007
Slide 1: Capital Management Investors' Day
Capital Management Investors‘ Day London, March 28, 2007
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 predications of or indicate future events, trends, plans or objectives. Forward-looking statements include statements regarding our targeted prof
Slide 3: Key questions to be answered today
Key questions to be answered today 1. How is capital allocated across Zurich? 2. What is the ‘bridge’ from economic to IFRS capital? 3. How does capital fungibility impact our capital management? 4. What is Zurich’s capital management strategy? 5. Is the current capital structure consistent with Zur
Slide 4: Key messages
Key messages • Zurich actively manages its capital base to maximize long-term shareholder return • Zurich has restored its balance sheet to the desired financial strength • Zurich is managing its legal structure to maximize capital efficiency • Zurich has a state-of-the-art Risk Based Capital framew
Slide 5: Our starting point in 2002
Our starting point in 2002 “We will use a disciplined process of allocating risk-based capital across our businesses and markets. The risk-based capital allocation will be dynamic and will adapt flexibly to changes in market conditions, assuring that those markets and businesses with the most attrac
Slide 6: Our ROE exceeds the hurdle of 12%
Our ROE exceeds the hurdle of 12% BOP (after tax) return on Return1 on common shareholders’ equity common shareholders’ equity 20% 18.1% 20% 19.0% 2 13.6% 2 15.5% 13.6% hurdle 12% 9.8% 12.6% 12.1% 10% 10% 5.1% 0% 0% -10% -10% -20.8% -20% -20% 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 Active
Slide 7: Capital management: challenge for the industry
Capital management: challenge for the industry Accounting Local Statutory Rating Agency Economic Capital Zurich’s IFRS e.g. NAIC-RBC, e.g. S&P CAR RBC application Solvency I Scope Global standard Local/regional Global standard Internal (based on standard by agency certain accepted principles) Primar
Slide 8: Capital management: focus of today
Capital management: focus of today Accounting Local Statutory Rating Agency Economic Capital Zurich’s IFRS e.g. NAIC-RBC, e.g. S&P CAR RBC application Solvency I Scope Global standard Local/regional Global standard Internal (based on standard by agency certain accepted principles) Primary use Extern
Slide 9: Target measures in Zurich's capital management
Target measures in Zurich’s capital management • Statutory solvency: regulatory requirement plus adequate buffer for short- term volatility • Liquidity: adequate buffer in actual and contingent resources to meet potential cash calls (e.g. from shock losses) in a timely manner • Financial leverage: c
Slide 10: Zurich's capital management
Zurich’s capital management Zurich’s capital management is designed to efficiently manage the capital base in line with underlying sustainable earnings and growth opportunities, but with an emphasis on maximizing long-term total shareholder value. In addition to cash dividends, other components of t
Slide 11: Zurich's capital management actions 2006
Zurich’s capital management actions 2006 Capital management actions Approximate amounts in USD billions • Dividend payment 1.3 billion1,4 • Further attributions to: • Increase in internal capital requirement 2.5 billion (increase of 2007 over 2006) • Non-cash difference from life business < 0.5 bill
Slide 12: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich Peter Giger • Case study: RBC as tool in pricing • Case study: Capital allocation within a business unit 2. Bridge from IFRS to economic capital 3. Capital management strategy • Case study: European legal entity structure 4. Current capital stru
Slide 13: Zurich's application of the Risk Based Capital (RBC) framework
Zurich’s application of the Risk Based Capital (RBC) framework The RBC framework is an integral part of how we run the Group. Namely, it is applied in: • Capital allocation • Performance management • Pricing • Reinsurance purchasing • Transaction evaluation (M&A, securitization, etc) • Risk optimiza
Slide 14: Key criteria for building our internal capital model
Key criteria for building our internal capital model Economic Capturing value perspective Consistent Consistent across General Insurance, Global Life and Investments Practical As far as possible, based on available data, systems, and methodology Applicable Allowing a relative ranking of business uni
Slide 15: Defining capital at risk: calibrating to AA financial strength
Defining capital at risk: calibrating to AA financial strength Probability density What does AA mean in practice? • AA represents a policyholder perspective • Historical bond defaults of AA issuers run at about 1 out of 2000 99.95% per annum (i.e. we apply a one year time horizon) • We use this assu
Slide 16: Zurich RBC: risk landscape
Zurich RBC: risk landscape Group RBC Asset risk Liability risk Operating risk Credit risk Market/ Life insurance P&C Operational Business ALM risk risk insurance risk risk risk Investment Natural cat credit risk risk Reinsurance Premium & credit risk reserving risk Modelled risk type © Zurich Financ
Slide 17: Zurich RBC by risk type for 2007
Zurich RBC by risk type for 2007 Graph taken from Investment credit risk Zurich Risk Modeling Platform Natural cat risk 3% Life insurance risk 10% 1% Reinsurance credit risk 5% 29% Market/ALM risk 7% Premium & 34% reserving risk Business risk 11% Operational risk © Zurich Financial Services - Invest
Slide 18: Zurich RBC: risk capital aggregation and allocation
Zurich RBC: risk capital aggregation and allocation Group diversified RBC Asset risk Liability risk Operating risk Market/ Business Credit risk Life insurance risk P&C insurance risk Operational risk ALM risk risk Investment portfolio Catastrophe Reinsurance Premium risk ceded Aggregated by risk typ
Slide 19: Group capital efficiency: diversification analysis
Group capital efficiency: diversification analysis (going concern only) Group diversification benefits are significant Diversification benefit within GI and Global Life 100% Diversification benefit between GI and Global Life 41% General 75% Insurance sum of 59% 54% BUs 5% General 40% Insurance stand
Slide 20: Two perspectives for economic capital
Two perspectives for economic capital Calendar year view New business view (GI: accident year) • Captures the economic capital • Captures the impact of risks taken in a requirement in a given year i.e. the given year i.e. the stream of capital capital required to support all risks required to suppor
Slide 21: Economic capital consumption
Understanding the dynamics between calendar and accident year views Illustrative example, 50% volume growth Economic capital consumption 800 graph taken from Zurich Risk Modeling 700 Platform 600 500 400 300 200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Calendar year capi
Slide 22: Economic value measure – Risk Based Return Measure (RBRM)
Economic value measure – Risk Based Return Measure (RBRM) PV economic profit after tax RBRM = PV RBC Cash flows: Capital benefit: e.g. premium in, risk free interest claims and expenses out on RBC PV Cash flow PV Capital flows: RBC Initial allocation and unwind © Zurich Financial Services - Investor
Slide 23: Producing RBC/RBRM with an integrated and stable tool
Producing RBC/RBRM with an integrated and stable tool Risk Modeling Platform (RMP) Input Calculation Engine Output S - PLUS Web GUI (Intranet) Web GUI (Intranet) Raw data Server Excel output files S - PLUS Simulation model Library Word output files output (graphs) On-line graphs with drill down Para
Slide 24: Zurich RBRM numerator – economic profit after tax
Zurich RBRM numerator – economic profit after tax (GI new business example) Economic profit = PV (NEP, NEP discount, claims, claims discount, expenses, after tax expense discount, capital benefit, capital benefit discount, tax) Illustrative example, graph taken from Zurich Risk Modeling Platform NEP
Slide 25: Zurich RBRM denominator – Accident Year RBC
Zurich RBRM denominator – Accident Year RBC (GI new business example) Accident Year = PV (Premium RBC + Cat RBC + Business RBC + RBC Operational RBC + Reinsurance credit RBC + Reserve RBC) Illustrative example, graph taken from Zurich Risk Modeling Platform Note: Risks stemming from investment AY ac
Slide 26: RBC analyses – understanding capital patterns of different businesses
RBC analyses – understanding capital patterns of different businesses Development of capital consumption of one accident year over the lifetime (until run-off) of the business Illustrative example, graph taken from Zurich Risk Modeling Platform 100% 90% 80% 70% 60% 50% 40% 30% 20% Long-tail business
Slide 27: RBC analyses – understanding the degrees of freedom
RBC analyses – understanding the degrees of freedom (capital signature) Illustrative example, graph taken from Zurich Risk Modeling Platform RBC Consumption AY 2009 AY 2008 AY 2007 AY 2006 AY 2005 and prior 2006 2007 2008 2009 © Zurich Financial Services - Investors' Day, March 28, 2007 27
Slide 28: RBRM analyses – understanding performance drivers
RBRM analyses – understanding performance drivers Illustrative example, graph taken from Zurich Risk Modeling Platform Business division average Business unit average Accident BU A Relative share in divisional RBC BU B Motor other Relative share in unit RBC Property BU C Other liability Motor TPL BU
Slide 29: Capital allocation process
Capital allocation process Capital Operational monitoring planning Strategic Capital review allocation Quartiling and hurdle benchmarking Focus of capital allocation process is business unit (e.g. US Small business, Germany personal) © Zurich Financial Services - Investors' Day, March 28, 2007 29
Slide 30: RBRM analyses support Zurich's capital allocation process
RBRM analyses support Zurich’s capital allocation process Illustrative example, graph taken from Zurich Risk Modeling Platform Margin on premium RBRM RBRM hurdle rate Bubble represents business unit with color indicating division and size of bubble representing premium volume © Zurich Financial Serv
Slide 31: RBRM analyses – RBRM quartiling
RBRM analyses – RBRM quartiling: understanding relative performance Illustrative example, graph taken from Zurich Risk Modeling Platform 2006 2007 2008 2009 BU 2 BU 1 BU 1 BU 1 BU 3 BU 2 BU 2 BU 2 BU 1 BU 3 BU 4 BU 4 BU 4 BU 4 BU 3 BU 3 BU 6 BU 5 BU 9 BU 9 BU 7 BU 6 BU 6 BU 6 BU 11 BU 7 BU 7 BU 5 BU
Slide 32: RBC applied in performance management
RBC applied in performance management – tracking relevant RBC based metrics Performance focus Performance Scope2 Target Tracking measure setting frequency Economic capital consumption1 RBC In-force & target semi- new business range annual Economic profitability RBRM In-force & minimum quarterly new
Slide 33: RBC in reinsurance purchasing: retention levels for natural catastrophe risk
RBC in reinsurance purchasing: different retention levels for natural catastrophe risk Illustrative example 30 minus cost of reinsurance in USD millions Marginal cost of capital 20 10 0 -10 -20 200 250 300 350 400 450 500 550 Retention • Benefit of reinsurance is only becoming positive at USD 300 mi
Slide 34: Zurich's application of the Risk Based Capital (RBC) framework
Zurich’s application of the Risk Based Capital (RBC) framework The RBC framework is an integral part of how we run the Group. Namely, it is applied in: • Capital allocation • Performance management • Pricing • Reinsurance purchasing • Transaction evaluation (M&A, securitization, etc) • Risk optimiza
Slide 35: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich • Case study: RBC as tool in pricing David Coughlan • Case study: Capital allocation within a business unit 2. Bridge from IFRS to economic capital 3. Capital management strategy • Case study: European legal entity structure 4. Current capital s
Slide 36: Our global pricing strategy is fully integrated into The Zurich Way of Underwriting
Our global pricing strategy is fully integrated into The Zurich Way of Underwriting Technical The price that produces a return on RBC which delivers the price Group’s hurdle rate. Target price The price, expressed as a percentage of technical price, or as the corresponding percentage of ROE, set by
Slide 37: Capital is a core component of our technical price benchmark
Capital is a core component of our technical price benchmark Pricing formula: future capital NPV + Economic cash flows benefits return = * (1 - tax) after tax AY RBC1 RBC at a policy and product level is aligned to the Group RBC framework. 1 Net present value (NPV) of AY RBC © Zurich Financial Servi
Slide 38: Technical price certification process
Technical price certification process delivers confidence in our technical price levels • Confidence that each component of our technical price has been addressed in pricing and the calculation is robust • Confidence that the process to develop technical price is robust • Confidence that our rating
Slide 39: Capital is the third most important element in our technical price
Capital is the third most important element in our technical price after losses and expenses Allocation of capital has a significant impact on the risk adjusted profit load that is required in our technical price Required capital charge 25% 20% in Technical Price 15% 10% 5% 0% Low capital High capit
Slide 40: Local RBC charge is calculated consistently according to Group RBC framework
Local RBC charge is calculated consistently according to Group RBC framework Homogenous lines Non homogenous lines Alternative Bottom up allocation key approach Data mining process data process data process data Document Select and Select and Document Select and variant variant Implement RBC charge
Slide 41: Technical price is embedded in our pricing and performance monitoring
Technical price is embedded in our pricing and performance monitoring Actual premium is a key metric in our global underwriting scorecards Technical price Lines of business Illustrative example Property Liability Motor Specialties Other BD 1 Business Divisions BD 2 Legend: Actual premium Technical p
Slide 42: Embedding RBC in pricing gives control and consistency
Embedding RBC in pricing gives control and consistency between local and group returns • RBC is embedded in our pricing formulae to assess the rates that are charged at a policy level. • RBC at the policy level is derived from and aligns to the Group RBC model, allowing for individual policy risk ch
Slide 43: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich • Case study: RBC as tool in pricing • Case study: Capital allocation within a business unit Ken Sroka 2. Bridge from IFRS to economic capital 3. Capital management strategy • Case study: European legal entity structure 4. Current capital struct
Slide 44: Zurich's definition of Specialty business in the US
Zurich’s definition of Specialty business in the US Non-standard e.g. D&O, Product Liability, exposures Professional Liability, A&H, Political Risk, Surety, etc. Higher hazard e.g. hospital, manufacturing, classes construction Distinctive products for Layers above e.g. Umbrella, Excess, Aggregate un
Slide 45: Specialties force-ranked baskets within North America Commercial's portfolio
Specialties 24 force-ranked baskets within North America Commercial’s portfolio Illustrative example Examples of market Margin on premium baskets are: • Med. Malpractice • Empl. Practices Liability • Professional Liab. • Crime • Corporate Accident • Corporate D&O • Contract Surety • General Liabilit
Slide 46: Active portfolio management balances RBRM versus margin on premium
Active portfolio management means that we balance RBRM versus margin on premium and… Margin on Illustrative example premium RBRM hurdle rate Higher Basket 15 Basket 6 Basket 19 Basket 14 Basket 8 Basket 20 Basket 7 Basket 4 Basket 3 Basket 13 Basket 10 Basket 9 Basket 1 Grow Basket 12 Basket 2 Manag
Slide 47: We continually sub-segment our baskets
…we continually sub-segment our baskets to find profitable growth opportunities Margin on Margin on Illustrative example premium premium RBRM hurdle rate RBRM hurdle rate Higher Higher Sub-segmentation Basket 20C Grow Basket 20D Basket 20 Manage Basket 20B Opportunistic Size of bubble indicates plan
Slide 48: Capital is allocated to market baskets – operational plans are more granular
Capital is allocated to market baskets – operational plans are at a more granular level Planning Illustrative example Monitoring and controlling Market Basket Assessment Strategy TP Certification Sponsor Market Basket Leader Business Division/BU • Clear operating metrics defined Basket 7 Grow Q3/200
Slide 49: Key take aways – capital allocation in a business unit
Key take aways – capital allocation in a business unit • Our active portfolio management approach helps us define WHERE to compete in order to maximize growth, profits and optimize capital utilization. • While capital is allocated to market baskets, operational plans to achieve our aspirations (grow
Slide 50: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich • Case study: RBC as tool in pricing • Case study: Capital allocation within a business unit 2. Bridge from IFRS to economic capital Dieter Wemmer 3. Capital management strategy • Case study: European legal entity structure 4. Current capital st
Slide 51: Defining Available Financial Resources (AFR)
Defining Available Financial Resources (AFR) • Zurich’s AFR calculation translates the IFRS balance sheet into an economic view consistent with our Zurich RBC methodology. AFR reflects financial resources protecting policyholders in worst case loss events. • Methodology: IFRS shareholders’ equity -
Slide 52: Calculation of AFR as of January 1, 2007
Calculation of AFR as of January 1, 2007 in USD billions (rounded) 40 35 7 36 2 34 30 13 25 27 2 24 9 20 15 10 Reported Proposed Net share- Net Value of in- Financial Total AFR Capital Net AFR share- distribu- holders‘ intangibles2 force business debt3 allocation holders‘ tions1 equity and RBC to Fa
Slide 53: Capital development: IFRS capital and Available Financial Resources
Capital development: IFRS capital and Available Financial Resources (AFR) IFRS capital Available Financial Resources (AFR) in USD billions (rounded) in USD billions (rounded) 40 40 2 2 n bn 1 $2b 1 4 30 0.5 bn + 30 0.5 n +$ 34 +$ 3 32 3b 30 +$ 29 27 26 20 20 . 10 10 0 0 2004 2005 2006 2004 2005 2006
Slide 54: Development of economic financial strength based on AA calibration
Development of economic financial strength based on AA calibration in USD billions Change from EV to MCEV (rounded) 35 34 30 30 Available to policyholders 28 29 25 27 26 27 26 23 20 21 15 10 5 RBC RBC AFR AFR RBC AFR RBC AFR RBC AFR RBC AFR 0 2003 2004 2005 2006 2007 Economic financial strength is b
Slide 55: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich • Case study: RBC as tool in pricing • Case study: Capital allocation within a business unit 2. Bridge from IFRS to economic capital 3. Capital management strategy Dieter Wemmer • Case study: European legal entity structure 4. Current capital st
Slide 56: Development of economic financial strength based on AA calibration
Development of economic financial strength based on AA calibration in USD billions Change from EV to MCEV (rounded) 35 34 30 30 Available to policyholders 28 29 25 27 26 27 26 23 20 21 15 10 5 RBC RBC AFR AFR RBC AFR RBC AFR RBC AFR RBC AFR 0 2003 2004 2005 2006 2007 Economic financial strength is b
Slide 57: RBC development by risk type
RBC development by risk type Significant shift from Market/ALM risk to general insurance risks 2003 20071 Graph taken from Zurich Risk 4% Modeling Platform 1%4% 3% 10% 4% 1% 5% 29% Market/ALM risk 40% Business risk 27% Operational risk P&R risk2 7% Re-ins credit risk 34% Life insurance risk 9% 11% N
Slide 58: Allocated capital development by segment
Allocated capital development by segment Significant shift from all other segments to General Insurance Graph taken from Zurich Risk 2003 20071 Modeling Platform Other Other Farmers 16% Mgmt 12% Farmers Services2 7% Mgmt 9% Services2 General General 45% 58% Insurance Insurance 23% Global Life 30% Gl
Slide 59: Zurich RBC 2007: allocated capital by segment
Zurich RBC 2007: allocated capital by segment Graph taken from Zurich Risk Modeling Platform In % of total Group allocated capital1 30% 25% General Insurance (GI) 20% 15% 10% 5% 0% s2 al s e e e ife ss t se A en nc nc at ce s ci et lL es or er ra ra G em vi in ba m rp er su su g us m lo tS Co In in
Slide 60: Applying RBC ROE measurement below Zurich's definition of BOP ROE
Applying RBC ROE measurement below Zurich’s definition of BOP ROE Adjusted BOP BOP ROE = Allocated IFRS equity avg. unit RBC Allocated IFRS equity = * avg. Group IFRS equity avg. Group RBC BOP + Adjusted BOP = (Allocated IFRS equity – IFRS equity)*notional inv. inc.1 1 Notional investment income © Z
Slide 61: 2006 business division BOP-ROE based on RBC-allocated IFRS equity
2006 business division BOP-ROE based on RBC-allocated IFRS equity Allocated IFRS BOP-ROE Adj. BOP1 in USD billions equity2 (before tax) GI 4.0 12.7 31% - North America Commercial 1.2 5.0 24% - Global Corporate 0.8 3.0 25% - European General Insurance 1.6 3.5 47% - International Businesses 0.2 0.9 20
Slide 62: Capital fungibility from a dividend perspective
Capital fungibility from a dividend perspective Why is net income after taxes not equal to available cash? • Difference in accounting standards (IFRS vs local statutory accounting which almost always is more conservative) • Legal structure implications • Changes in regulatory capital requirements (n
Slide 63: Capital fungibility from an economic capital perspective
Capital fungibility from an economic capital perspective • In the economic perspective, capital fungibility is required to bring capital to the place where a loss has occurred. Therefore, only partial capital fungibility is required. • In this context, Zurich holds capital resources centrally to res
Slide 64: Pooling of risk and capital
Pooling of risk and capital We strive to pool risk and capital in larger entities to operationalize our global risk diversification and minimize the friction from local statutory regimes. Examples include: • Consolidation of multiple Insurance entities in European countries (e.g. Switzerland, UK, Ge
Slide 65: Example of capital structure: US commercial and US Global Corporate business
Example of capital structure: US commercial and US Global Corporate business Zurich Insurance Company Additional excess of loss 50% Whole Account volatility cover (in this Quota Share instance aggregate nat. cat. stop loss) Zurich American Insurance Pool Small GCiUS Specialties business © Zurich Fin
Slide 66: Reinsurance as a tool in capital management
Reinsurance as a tool in capital management • Internal reinsurance is a key tool for our balance sheet structuring • External reinsurance is a source of capital but may also be used to improve the quality of earnings • Reinsurance credit risk is a relatively unattractive risk for us • Zurich’s strat
Slide 67: RBC application led to accelerated growth in net earned premiums
RBC application lead to accelerated growth in net earned premiums CAGR 2002-2006 in % 12 10 8 6 4 2 Gross written premiums Net earned premiums 0 Total Group Total Group minus Global Life and reinsurance with Farmers Exchanges © Zurich Financial Services - Investors' Day, March 28, 2007 67
Slide 68: External considerations: financial strength ratings
External considerations on balance sheet structuring: financial strength ratings • Zurich Insurance Company is Zurich’s main operating legal entity. Its financial strength is rated by all four major rating agencies as follows: • Standard & Poor’s A+/Positive • Moody’s A1/Stable • Fitch A+/Stable • A
Slide 69: External considerations: Swiss Solvency Test (SST)
External considerations on balance sheet structuring: Swiss Solvency Test (SST) • The Swiss Solvency Test is being introduced and the first filing will be due in 2008. • We are currently in an extended, mandatory field-test phase. • Zurich Financial Services Group and Zurich Insurance Company have t
Slide 70: Observations on changing regulations
Observations on changing regulations • Regulatory regimes are moving to include a more economic view of insurance. Our approach of pooling risk and capital is naturally responding to this. • With larger entities we benefit in regimes where diversification benefits are recognized (e.g. NAIC-RBC, SST)
Slide 71: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich • Case study: RBC as tool in pricing • Case study: Capital allocation within a business unit 2. Bridge from IFRS to economic capital 3. Capital management strategy • Case study: European legal entity structure Claudia Dill 4. Current capital str
Slide 72: Development of legal structure in Europe
Development of legal structure in Europe How is Europe implementing the new capital management standards of the Group in practice and bringing them to life? • Management of legal entity structure to maximize capital efficiency • Legal entity reduction program, e.g. UK • Organizational transition for
Slide 73: Overview – legal entity reduction
Overview – legal entity reduction Number of regulated Zurich entities operating in the EEA 80 60 40 20 0 2004 2005 2006 • 40% of target number of regulated entities sold, dissolved or merged • Process is ongoing, further reductions are planned © Zurich Financial Services - Investors' Day, March 28,
Slide 74: UK: simplification of legal entity structure
UK: simplification of legal entity structure Zurich Zurich Financial Services 2004 2007 Zurich Financial Services Financial Services Regulated general insurance entity Regulated life insurance entity Regulated composite insurance entity © Zurich Financial Services - Investors' Day, March 28, 2007 Un
Slide 75: UK: concentration of businesses
UK: concentration of businesses Allied Dunbar Allied Dunbar Assurance p.l.c. Assurance p.l.c. Business transfer Zurich Assurance Ltd. Eagle Star Life (former Eagle Star Assurance Co. Business transfer Life Assurance Co. Ltd. Ltd.) Zurich Assurance Business transfer p.l.c. Zurich Assurance (2004) p.l
Slide 76: Germany: concentration of regulated entities
Germany: concentration of regulated entities Zurich Versicherung AG (Deutschland) Zurich Versicherung AG DEUTSCHER (Deutschland) HEROLD Legal merger Allgemeine Versicherung AG Patria Versicherung AG DEUTSCHER ZURICH HEROLD Lebens- DEUTSCHER Versicherung AG HEROLD Lebens- Legal merger versicherung AG
Slide 77: Switzerland: concentration of regulated entities
Switzerland: concentration of regulated entities Zurich Insurance Company Zurich Insurance Company Alpina Insurance Company Ltd. Legal merger Geneva, General Insurance Company Zurich Life Zurich Life Insurance Insurance Company Ltd. Company Ltd. Business transfer Genevoise, Life Genevoise, Life Insu
Slide 78: Organizational structure for GI business in the EEA
Organizational structure for GI business in the EEA: capitalizing on EU Insurance Directive Complementary and highly efficient business models running in parallel: Branch structure Central/Cross-border (Freedom of structure establishment) (Freedom to provide services) ZIIL ZIIL already established a
Slide 79: Key take aways of Zurich moving to a highly capital efficient legal structure
Key take aways of Zurich moving to a highly capital efficient legal structure in Europe • Zurich has already implemented radical steps to optimize its capital pooling in Europe, and there is more to come. • The use of Zurich Ireland as the one regulated entity for all EEA related general insurance b
Slide 80: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich • Case study: RBC as tool in pricing • Case study: Capital allocation within a business unit 2. Bridge from IFRS to economic capital 3. Capital management strategy • Case study: European legal entity structure 4. Current capital structure Dieter
Slide 81: Zurich's current capital structure
Zurich’s current capital structure in USD billions 40 35 14% 30 14% 8% 10% 25 10% 10% 12% 20 7% 11% 14% 78% 15 76% 78% 79% 10 79% 5 0 2002 2003 2004 2005 2006 Shareholders' equity1 Senior debt1 Subordinated debt1 1 As reported © Zurich Financial Services - Investors' Day, March 28, 2007 81
Slide 82: Zurich's current capital structure: financial leverage
Zurich’s current capital structure: financial leverage1 in USD billions 40 50% 44%2 35 36% 40% 30 34% 32% 25 28% 30% Aa range Moody’s 20 20% 15 10 10% 5 0 0% 2002 2003 20043 2005 20064 Shareholders' equity Senior debt Subordinated debt Financial leverage1 1 Financial leverage as published by Moody’s
Slide 83: Impact on ROE following change in pension accounting
Impact on ROE following change in pension accounting In 2007, Zurich will restate its pension accounting as per IAS 19 (“Employee Benefits”): Zurich will adopt the SORIE1 option to account for actuarial gains and losses for employee benefits instead of the “corridor” approach as applied up to 2006.
Slide 84: Zurich ROE compared to peers
Zurich ROE compared to peers1 2006 ROE 2006 ROE 2006 ROE under corridor approach under SORIE2 approach under US GAAP approach for pension accounting for pension accounting for pension accounting 25% 23.5 22.0 20% 20.4 19.0 18.5 19.0 17.9 15% 15.6 16.3 16.1 15.3 14.3 13.1 13.1 10% 5% 0% Zurich Fortis
Slide 85: Agenda for the day
Agenda for the day 1. Allocating capital across Zurich • Case study: RBC as tool in pricing • Case study: Capital allocation within a business unit 2. Bridge from IFRS to economic capital 3. Capital management strategy • Case study: European legal entity structure 4. Current capital structure 5. Con
Slide 86: Conclusions and way forward
Conclusions and way forward • Zurich has restored its balance sheet and we have achieved our desired level of economic financial strength • We continuously strive to optimize our balance sheet structure and improve the efficiency of our legal structure • Zurich shifted significant amounts of capital
Slide 87: Key messages
Key messages • Zurich actively manages its capital base to maximize long-term shareholder return • Zurich has restored its balance sheet to the desired financial strength • Zurich is managing its legal structure to maximize capital efficiency • Zurich has a state-of-the-art Risk Based Capital framew
Zurich Financial Services — Investor Day (March 2007) on 6ix