Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — H1 2010 Earnings Presentation
66 slides from Zurich Insurance's earnings presentation, Aug 5, 2010
Slide 1: Half Year Results Reporting 2010
Half Year Results Reporting 2010 August 5, 2010
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 of Zurich Financial Services Ltd or the Zurich Financial Services Group (t
Slide 3: Agenda
Agenda Introduction Martin Senn Half Year Results 2010 Dieter Wemmer Q&A Closing remarks Martin Senn © Zurich Financial Services Ltd August 5, 2010 Half Year Results Reporting 2010 3
Slide 4: Introduction
Introduction Martin Senn Chief Executive Officer August 5, 2010
Slide 5: Financial highlights
Financial highlights in USD millions 2010 20091 Change for the six months to June 30 Business operating profit (BOP) 2,286 2,552 -10% Net income attributable to shareholders 1,642 1,967 -16% General Insurance combined ratio 98.0% 96.2% -1.7pts Global Life new business value2 392 332 18%2 Farmers Mgm
Slide 6: Half Year Results 2010
Half Year Results 2010 Dieter Wemmer Chief Financial Officer August 5, 2010
Slide 7: Business operating profit by segment
Business operating profit by segment in USD millions 2010 20091 Change for the six months to June 30 General Insurance 1,377 1,714 -20% Global Life 720 641 12% Farmers (including Farmers Re) 845 724 17% Other Operating Businesses -361 -239 -51% Total Core BOP 2,581 2,840 -9% Non-Core Businesses -295
Slide 8: General Insurance – key performance indicators
General Insurance – key performance indicators in USD millions 2010 2009 Change Change for the six months to June 30 in LC1 GWP and policy fees 17,940 18,247 -2% -4% Rate change2 2% 3% -1pts Loss ratio 71.0% 70.6% -0.4pts Expense ratio 27.0% 25.6% -1.4pts Combined ratio 98.0% 96.2% -1.8pts Business
Slide 9: General Insurance – rate change monitor
General Insurance – rate change monitor1 for personal and commercial lines Half Year 2010 Q1 2010 Int’l Total Int’l Total GC NAC EGI Markets GI GC NAC EGI Markets GI Personal Lines n/a n/a 5% 0% 4% n/a n/a 5% 0% 4% Commercial Lines 2% -1% 1% 5% 1% 3% 0% 1% 4% 1% EGI by country EGI by country Switzer
Slide 10: General Insurance – comparison of loss ratio
General Insurance – comparison of loss ratio Half Year 2010 Half Year 2009 75% Loss ratio development Discrete quarters Underlying loss ratio 71.0% 70.6% 70% 73.0% 72.2% 70.0% 71.2% 69.5% 69.8% 66.4% 66.3% 65% 7.4% 2.8% 0.0% 7.0% 4.2% 1.5% 60% USD USD USD USD USD 579m -200m -1,015m 395m -1,003m 55%
Slide 11: General Insurance – net expense ratio walk from HY09 to HY10
General Insurance – net expense ratio walk from HY09 to HY10 25.6% 27.0% Change year-over-year Expense ratio development Other tech Discrete quarters 13.2% expenses 14.3% 1.0% 1.4% 26.7% 26.9% 27.0% 25.7% 25.5% 25.1% 12.4% Commissions 12.7% 0.1% 0.3% e pe W s x i on ng Ta es ex er U ns ha iss ium Q4
Slide 12: Reinsurance program to reduce volatility from Nat Cat
Reinsurance program to reduce volatility from Nat Cat severity and frequency Global Top Layer Catastrophe Cover – USD 200m4 US Catastrophe Euro Catastrophe Rest of the World Treaty2 Treaty3 Catastrophe Treaty USD 1,000m USD 1,470m USD 250m USD 1,000 Excess of loss protection1 Retention USD 500m USD
Slide 13: Global Life – key performance indicators
Global Life – key performance indicators in USD millions 2010 2009 Change Change for the six months to June 30 in LC1 GWP and policy fees (incl. insurance 13,111 11,569 13% 12% deposits)2 Net inflows to Assets under Mgmt 2,949 1,670 77% Annual Premium Equivalent (APE) 1,716 1,579 9% 8% New business
Slide 14: Global Life – new business by pillar
Global Life – new business by pillar in USD millions NBV NBV Change APE APE Change for the six months to June 30 1 1 2010 2009 in LC 2010 2009 in LC Bank Distribution 105 85 31% 422 535 -18% IFA/Brokers 97 74 22% 497 413 15% Agents 56 83 -33% 217 206 4% Corporate Life & Pensions 58 40 39% 285 248 14
Slide 15: Global Life – Business Operating Profit: Profit by Source
Global Life – Business Operating Profit: Profit by Source in USD millions New Business Business in Force Total for the six months to June 30 2010 2009 2010 2009 2010 2009 Net Expense margin -819 -706 681 650 -138 -56 Net Risk margin 7 1 305 296 312 297 Net Investment margin -2 -1 372 328 370 327 Oth
Slide 16: Farmers – key performance indicators
Farmers – key performance indicators in USD millions 2010 2009 Change for the six months to June 301 Farmers Management Services Managed gross earned premium margin2 7.4% 7.3% 0.1pts Business operating profit 694 643 8% Farmers Re Business operating profit 151 80 88% Farmers Exchanges2 Gross written
Slide 17: Acquisition of 21st Century – Update
Acquisition of 21st Century1 – Update GWP by distribution channel (Direct vs Agency) GWP in Q2-10 of USD 482m reflects: 1000 Direct: levels rebounding – Agency Q2-10 shows increasing renewals and 726 Direct GWP in USD m 152 595 600 higher new business applications 500 536 compared to previous quarte
Slide 18: Other Operating and Non-Core Businesses – BOP contribution
Other Operating and Non-Core Businesses – Business operating profit contribution in USD millions 2010 2009 Change for the six months to June 30 Other Operating Businesses -361 -239 -51% Non-Core Businesses - Banking activities -318 -25 nm - Centrally managed businesses 21 -322 nm - Centre 3 57 -95%
Slide 19: Investment performance of Group investments
Investment performance of Group investments in USD millions 2010 2009 Change for the six months to June 30 Net investment income 3,561 3,739 -5% Net capital losses/gains on investments and 418 -1,465 nm impairments1 of which attributable to shareholders 46 -1,138 nm Net investment result 3,979 2,274
Slide 20: Development of shareholders' equity in 2010
Development of shareholders’ equity in 2010 in USD millions 31,000 1,614 1,372 30,000 29,304 2,207 1,642 589 29,000 77 28,469 28,000 27,000 26,000 25,000 24,000 23,000 22,000 21,000 20,000 19,000 Balance as of Dividends Net Income Change in Cumulative Net actuarial Other Balance as of © Zurich Finan
Slide 21: 2010 estimated economic and regulatory solvency
2010 estimated economic and regulatory solvency Statutory solvency ratio Economic solvency ratio3 (Group’s Solvency I1) +30pts -10pts ~136% 232% ~133% 212% ~124% 195% -7pts -2pts Dec 31 March 31 Impact in Impact June 30 Jan 1 est. March 31 Movements Impact June 30 20092 2010 Q2-105 from 2010 for 201
Slide 22: Q&A
Q&A © Zurich Financial Services Ltd August 5, 2010 Half Year Results Reporting 2010 22
Slide 23: Closing remarks
Closing remarks Martin Senn Chief Executive Officer August 5, 2010
Slide 24: Appendix
Appendix © Zurich Financial Services Ltd August 5, 2010 Half Year Results Reporting 2010 24
Slide 25: The Zurich Way
The Zurich Way The Zurich Way – Target of USD 0.9 billion annually for 2010 and 2011 USD USD USD We have comfortably achieved our USD 900m 900m 900m 2009 target. USD 800m Developing our plan, we expect benefits 700m of USD 0.9 billion for 2010 and 2011 USD 7 major TZW workstreams with continuing 500
Slide 26: The Zurich Way initiatives – 2010 target
The Zurich Way initiatives – 2010 target by function by business division USD 900m USD 900m USD 900m USD 900m USD 800m 17% USD 800m 33% Growth/ Europe General 33% Distribution 42% Insurance 32% 35% 32% 19% North America 17% Commercial 31% Claims 22% 22% 13% Global Corporate 30% 17% 34% 12% 24% Globa
Slide 27: Top line development by segment
Top line development by segment in USD millions 2010 2009 Change Change for the six months to June 30 in LC1 General Insurance GWP and policy fees 17,940 18,247 -2% -4% Global Life GWP and policy fees (incl. insurance 13,111 11,569 13% 12% deposits)2 Annual Premium Equivalent (APE)3 1,716 1,579 9% 8
Slide 28: Business division BOP-ROE
Business division BOP-ROE1 based on RBC-allocated IFRS equity for the six months to June 30 2010 2009 General Insurance 17.6% 26.2% Global Corporate 24.9% 23.4% North America Commercial 21.6% 24.4% Europe General Insurance 16.6% 32.2% International Markets 2.7% 21.2% GI Global Functions including Gr
Slide 29: Zurich RBC by segment and risk type for 2010
Zurich RBC by segment and risk type for 2010 Capital Allocation: Total RBC estimate: USD 31 billion1,4 USD 29 billion Farmers1 Other2 8% 11% 11% Market/ALM risk 10% 34% Operational risk 1% 4% Business risk General P&R risk3 Insurance Global Life Re-ins credit risk 54% 25% Life insurance risk 29% 6%
Slide 30: 2010 estimated economic and regulatory solvency
2010 estimated economic and regulatory solvency What if scenarios Statutory solvency ratio / Group’s Solvency I1 Dec 31, 09 March 31, 10 Impact Q2-10 Dividend4 June 30, 10 Debt securities at cost -22pts 195%2 212% +30pts -10pts 232% GI DAC +25pts Economic solvency ratio3 ~136% ~133% -7pts -2pts 7 ~1
Slide 31: Updated economic solvency view for 2010
Updated economic solvency view for 2010 in USD billions1 Available Financial Resources (AFR) Estimated AFR as of March 31, 2009 + 39 Movements in Q2-10 - 2 Dividend accrual2 - 1 June 30 estimate for 2010 AFR + 36 Estimated 2010 economic solvency ratio Risk Based Capital (RBC) ~124% Estimated RBC as
Slide 32: Strong economic solvency
Strong economic solvency1 in USD billions (rounded) 40 Change from EV to MCEV 41 38 35 36 34 Available to policyholders 30 30 30 30 29 28 29 28 27 25 27 26 26 27 23 20 21 15 10 5 RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR Jan. 1 Jan. 1 Jan. 1 Jan. 1 Jan. 1 Jan. 1 Jan. 1
Slide 33: Estimation of Available Financial Resources as of June 30, 2010
Estimation of Available Financial Resources (AFR) as of June 30, 2010 in USD billions (rounded) 45 40 (2) 35 9 38 36 30 (1) 25 28 17 27 20 (16) 15 10 5 0 Reported Dividend 1 Net Net intangibles 2 Value of in- Financial debt 3 Total AFR Capital Net AFR shareholders' accrual shareholders' force busine
Slide 34: Group's Solvency I calculation
Group’s Solvency I calculation in USD millions June 30, 2010 March 31, 2010 Dec 31, 20092 finalized Eligible equity Total equity 29,986 29,876 31,104 Net of intangibles and other assets -6,855 -7,305 -7,456 Free reserves for policyholder dividends 3,076 3,208 2,799 Subordinated debt 3,630 3,950 4,16
Slide 35: Group's Solvency I - sensitivities
Group’s Solvency I - sensitivities1 Solvency I ratio impact (in %) Monetary impact on IFRS equity 100% 150% as of June 30, 2010 (in USD bn) Base case 232% Interest rate +100 bps 194% -4.2 Interest rate -100 bps 272% 4.5 Equity markets -10% 225% -0.8 Credit spreads +100 bps 222% -1.2 © Zurich Financi
Slide 36: General Insurance – BOP and Combined ratio by business
General Insurance – BOP and Combined ratio by business Business operating profit Combined ratio (%) CAT4 in USD millions 2010 2009 Change Global 1.5 91.1 for the six months to June 30 Corporate 95.7 Global Corporate 462 354 31% 96.2 NA Commercial 97.7 North America Commercial 558 576 -3% Europe Gene
Slide 37: General Insurance – written rate change 2008 through HY10
General Insurance – written rate change 2008 through HY10 General Insurance – rate change 2008 through HY10 5% 4.2% 3.6% 3.7% 2.1% 2.3% 1.7% 1.2% 0% -0.7% 2008 -2.4% 2009 -3.0% 2010 -4% Q1 Q2 Q3 Q4 © Zurich Financial Services Ltd August 5, 2010 Half Year Results Reporting 2010 37
Slide 38: Development of Reserves for Losses and LAE
Development of Reserves for Losses and Loss Adjustment Expenses (LAE) in USD millions 2010 2009 Net reserves for losses and LAE, as of January 1 55,903 52,986 Net losses and LAE paid -11,813 -11,706 Net losses and LAE incurred - Current year 12,588 12,045 - Prior years1 -505 -414 Foreign currency tr
Slide 39: Global Life – Profit by Source (1/3)
Global Life – Business Operating Profit: Profit by Source (1/3) in USD millions Americas UK Germany for the six months to June 30 2010 2009 2010 2009 2010 2009 Net Expense margin -8 -11 -113 -50 70 31 Net Risk margin 88 64 53 49 41 39 Net Investment margin 63 60 40 32 75 78 Other profit margins 6 15
Slide 40: Global Life – Profit by Source (2/3)
Global Life – Business Operating Profit: Profit by Source (2/3) in USD millions Switzerland Ireland Spain for the six months to June 30 2010 2009 2010 2009 2010 2009 Net Expense margin 6 0 -60 -23 11 15 Net Risk margin 44 70 31 27 22 15 Net Investment margin 75 52 6 13 49 39 Other profit margins 0 0
Slide 41: Global Life – Profit by Source (3/3)
Global Life – Business Operating Profit: Profit by Source (3/3) in USD millions Emerging Rest of World Total for the six months to June 30 Markets 2010 2009 2010 2009 2010 2009 Net Expense margin -14 -3 -30 -15 -138 -56 Net Risk margin 16 24 17 9 312 297 Net Investment margin -7 -2 68 55 370 327 Oth
Slide 42: Global Life – Profit by Source: Definitions
Global Life – Profit by Source: Definitions + Fund and non-fund based fees, acquisition and maintenance Net expense margin expenses, surrender charges, and any related policyholder bonuses + Net risk margin Mortality, morbidity, and longevity premiums and benefits, reinsurance result, and any relate
Slide 43: Global Life – new business by region/country
Global Life – new business by region/country in USD millions NBV2 NBV2 Change APE APE Change for the six months to June 30 2010 2009 in LC1 2010 2009 in LC1 Americas, of which 54 69 -21% 144 114 27% US 28 55 -49% 45 47 -4% Latin America 26 14 88% 99 67 47% United Kingdom 70 48 43% 445 341 28% German
Slide 44: Global Life – Embedded Value result
Global Life – Embedded Value result for the six months to June 30 2010 2010 2009 2009 USD m Return4 USD m Return4 Opening Embedded Value 16,752 12,818 New business value2 392 332 Expected contribution1,2 370 387 Operating variance2,3 38 244 Total operating earnings2 800 9.5% 962 13.0% Economic varia
Slide 45: Global Life - Assets under Management
Global Life - Assets under Management1 AuM decreased slightly due the currency translation despite a balanced net flow Split of AuM Development of AuM in USD billions in USD billions 215 198 25 Balance as of 215 Jan 1, 2010 24 Inflows +21 102 94 Outflows -17 Market move- ments & other2 +11 81 87 Cur
Slide 46: Farmers Management Services – key performance indicators
Farmers – Farmers Management Services – key performance indicators in USD millions 2010 2009 Change for the six months to June 301 Management fees and other related revenues 1,399 1,247 12% Management and other related expenses 718 636 -13% Gross management result 681 610 12% Managed gross earned pr
Slide 47: Farmers Re – key performance indicators
Farmers – Farmers Re – key performance indicators in USD millions 2010 2009 Change for the six months to June 30 Gross written premiums 2,4911 2,8832 -14% Net underwriting result 49 7 n/m Combined ratio 98.5% 99.7% 1.2pts CAT3 impact 4.7% 4.2% -0.5pts Business operating profit 151 80 88% © Zurich Fi
Slide 48: Farmers Exchanges – key performance indicators
Farmers Exchanges1 – key performance indicators in USD millions 2010 2009 Change for the six months to June 30 Gross written premiums 9,207 8,438 9% Net underwriting result2 129 -12 n/m Combined ratio2 98.6% 99.8% 1.2pts Adjusted combined ratio3 91.1% 92.2% 1.1pts CAT4 impact 5.8% 5.6% -0.2pts Surpl
Slide 49: 21st Century - contribution
21st Century1 - contribution in USD millions 2010 for the six months to June 301 Farmers Management Services: Management fees and other related revenues 179 Management and other related expenses 91 Gross management result 88 Business operating profit 82 Farmers Exchanges: Gross written premiums 1,01
Slide 50: Farmers Exchanges – financial highlights
Farmers Exchanges – financial highlights in USD millions 2010 2009 6'000 50.0% for the six months to June 30 48.0% 5'000 Gross written premiums 9,207 8,438 46.0% 44.0% Net underwriting result 1291 -12 4'000 42.0% Net surplus growth 1032 186 3'000 40.0% 38.0% Ending surplus 5,8592 5,220 2'000 36.0% S
Slide 51: Farmers Exchanges – gross written premiums by line of business
Farmers Exchanges – gross written premiums by line of business in USD millions 2010 2009 Change for the six months to June 30 Auto1 4,910 4,119 19% Homeowners 2,239 2,260 -1% Commercial P&C 661 663 -0% Small Business Solutions 294 299 -2% Workers’ Compensation 143 169 -15% Specialty 888 865 3% Other
Slide 52: Farmers Exchanges – premium growth outperforming industry
Farmers Exchanges – premium growth outperforming industry GWP growth2 11% Industry Growth Rate1 10.1% 2009: -0.8% 9.1% 2010 Forecast: 3.2% 8% 6.5% 6% 6.1% 5.7% 5.7% 5.4% 5.4% 5.0% 5.1% 4.6% 4.7% 4% 3.2% 3.3% 3.1% 2.2% 2% 1.8% 1.4% 0% © Zurich Financial Services Ltd 3M 6M 9M FY 3M 6M 9M FY 3M 6M 9M F
Slide 53: Farmers Exchanges – combined ratio
Farmers Exchanges – combined ratio for the six months to June 30 20101 20091 Change Auto2 95.8% 96.1% 0.3pts Homeowners 104.2% 104.8% 0.6pts Commercial P&C 96.8% 96.1% -0.7pts Small Business Solutions 102.8% 107.4% 4.6pts Workers' Compensation 98.9% 98.4% -0.5pts Specialty 98.7% 102.8% 4.1pts Total
Slide 54: 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 Ike 105% wildfires Other California Cats Rita wildfires Midwest CO/TX Cats Hail- 100% Texas storms Florida Hail hurricanes Katrina 95% © Zurich Financial Services L
Slide 55: Competitor Snapshot - Overall
Competitor Snapshot - Overall June 2010 Growth vs. GAAP Combined Ratio – Overall P&C1, 4 March 2010 Growth 12 Industry6 FY10 Industry Forecast NPW % 102.1% 2, 3 10 Farmers 8 USAA4 Progressive 6 GEICO5 Liberty 4 Mutual4 Industry6 State Farm4 3.2% 2 Travelers American 0 Family4 Hartford Allstate -2 Me
Slide 56: Zurich's investment portfolio benefits from diversification
Zurich’s investment portfolio benefits greatly from diversification and is balanced in terms of risk Risk Allocation of Zurich’s investment portfolio As of June 30, 2010 Asset allocation (%) Risk diversification Risk exposure (%)1 and matching (%) 100 Hedge Funds / Real Estate Private Equity 48 Hedg
Slide 57: Debt securities of consistently high quality
Group Investments – Zurich’s debt securities are of consistently high quality (98% investment grade) As of June 30, 2010 Group Investments Debt securities USD 186bn USD 135bn credit rating: AAA 52.9% credit rating: AA Other Debt 98.3% 12.0% asset securities investment classes grade 27% 73% credit ra
Slide 58: Debt securities are well balanced
Group Investments – Zurich’s debt securities are well balanced Group Investments - USD 186bn (100%) As of June 30, 2010 Government and supranational bonds: USD 49bn (26%) Market/Cost1: 103% of which: 99% inv. grade 47%in General Insurance 71% AAA 45% in Global Life 11% AA 16% A 1% BBB
Slide 59: Government & supranational bonds are well diversified
Group Investments – Government & supranational bonds are well diversified Group Investments - USD 186bn (100%) As of June 30, 2010 Government and supranational bonds: USD 49bn1 (26%) Market/Cost: 103% of which: 99% inv. grade 47% in General Insurance 71% AAA 45% in Global Life 11% AA 16%
Slide 60: Eurozone Government & supranational bonds
Group Investments1 – Eurozone Government & supranational bonds are well diversified As of June 30, 2010 Eurozone Government and supranational bonds: USD 20bn (100%) Market/Cost: 103% of which: Split by credit rating 32% in General Insurance 99% inv. grade 68% in Global Life 42% AAA 20% AA
Slide 61: Corporate bonds are of high quality
Group Investments – Zurich’s Corporate bonds are of high quality Group Investments - USD 186bn (100%) As of June 30, 2010 Corporate bonds: USD 61bn (33%) Market/Cost: 104% Split by industries Split by credit rating 42% Banks, 99% inv. Grade including 15%1 covered bonds 27% AAA 9% Cities, Age
Slide 62: Banks Corporate bonds are of high quality
Group Investments – Banks Corporate bonds are of high quality and well diversified Group Investments - USD 186bn (100%) As of June 30, 2010 Banks Corporate bonds: USD 26bn (14%) Market/Cost: 102% Split by seniority Split by credit rating 37% Covered bonds 100% inv. grade 48% Senior bonds 40%
Slide 63: Split of total MBS/ABS of USD 25bn
Group Investments – Split of total MBS/ABS of USD 25bn (13%) MBS/ABS: USD 25bn (13%) Market/Cost: 101% Group Investments 96% inv. grade USD 186bn (100%) 84% AAA includes: US MBS: USD 16.1bn (8.7%) Market/Cost: 103% 95% inv. grade; 88% AAA Debt US ABS1: USD 3.8bn (2.0%) securities Market/Cost:
Slide 64: Split of US MBS of USD 16.1bn
Group Investments – Split of US MBS of USD 16.1bn (8.7%) Group Investments US-MBS: USD 16.1bn (8.7%) Market/Cost: 103% USD 186bn (100%) 95% inv. grade 88% AAA Debt of which: securities US “Agency” MBS: USD 9.7bn (5.2%) Market/Cost: 105% 73% 100% AAA USD 2.3bn backed by GNMA USD 7.4bn backe
Slide 65: 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 1000 1000 827 579 500 500 248 8
Slide 66: 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 3000 Debt investments 2,699 Other investments 2500 2000 1,815 1500 1000 884 500 230 38 -169 30 61 68 0 -500 Q1-10 Q2-10 HY10 1 Total
Zurich Insurance Group — H1 2010 Earnings Presentation on 6ix