Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Investor Day (December 2007)
51 slides from Zurich Insurance's investor day presentation, Dec 6, 2007
Slide 1: Investment Management: A Creator of Value
Investment Management A Creator of Value Investors‘ Day Zurich, December 6, 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: Investment Management: A Creator of Value
Investment Management A Creator of Value Martin Senn Chief Investment Officer Zurich, December 6, 2007
Slide 4: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 5: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 6: We are Zurich's center of competence for investments
We are Zurich’s center of competence for investments Investment Investment Investment Asset Strategy Strategy Portfolio / Responsibility Development Implementation Systems Support © Zurich Financial Services - Investors' Day, December 6, 2007 6
Slide 7: Investments dominate the asset side of our balance sheet
Investments dominate the asset side of our balance sheet in USD billions 391 391 28 Shareholders’ Equity Group Investments 193 189 Insurance Liabilities Other Assets 74 54 Other Liabilities Unit-linked Investments 124 120 Unit-linked Liabilities Assets Liabilities Source: Zurich Financial Services b
Slide 8: Investment risk contributes 32% to our Risk Based Capital
Investment risk contributes 32% to our Risk Based Capital Zurich RBC by risk type for 2007 Investment credit default risk Natural catastrophe risk 3% Life insurance risk 10% 1% 29% Market/ALM risk Reinsurance credit risk 5% 7% Premium & 34% reserving risk Business risk 11% Operational risk Source: Z
Slide 9: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 10: Investment Management aims to maximize economic value
Investment Management aims to maximize economic value for our policyholders and shareholders Mission Ambition Achieve superior risk- Strive to become the benchmark adjusted investment in insurance investment returns relative to management liabilities Build a reputation for service excellence, custom
Slide 11: Investment Management has significantly outperformed its internal benchmark
Investment Management has significantly outperformed its internal benchmark Economic performance 2003 to 9 months 2007 relative to internal liability benchmark, % 5.69 5.40 4.69 4.68 4.25 3.21 3.02 2.56 2.67 1.34 2003 2004 2005 2006 9 months 20071 Performance Benchmark 1 Not annualized © Zurich Fina
Slide 12: Investment Management: A Creator of Value
Investment Management A Creator of Value Peter Teuscher Head of Investment Strategy Development and Analysis Zurich, December 6, 2007
Slide 13: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 14: Why we manage investments relative to liabilities
Why we manage investments relative to liabilities Typical balance sheet1 of an insurance company (excluding unit-linked business) 100 100 Equities 15 10 Shareholders’ • Asset Allocation: 20% Equities Equity Group Investments of Group Investments or 15% of total assets Fixed Insurance • Interest Rate
Slide 15: Negative equity markets can significantly impact shareholders' equity
Negative equity markets can have a significant impact on shareholders’ equity Typical balance sheet1 of an insurance Balance sheet1 after a 40% company (excluding unit-linked business) decrease in equity markets 100 100 94 94 10 Shareholders’ Equities 15 9 4 Equity Group Investments Fixed Insurance
Slide 16: Falling interest rates further deteriorate economic capital
In addition falling interest rates lead to a further deterioration of economic capital Balance sheet1 after a 40% Balance sheet1 after a fall of decrease in equity markets interest rates by 2% 100 100 94 94 Shareholders’ 9 Equities 9 4 Equity Group Investments Fixed Insurance -2% 60 70 interest 66 8
Slide 17: We manage investments relative to liabilities through a disciplined process
We manage investments relative to liabilities through a disciplined process Zurich applies a disciplined and structured 3 step investment process: Portfolio Systematic risk Determine risk-free construction to taking to Investment position generate extra enhance returns skill-based returns © Zurich F
Slide 18: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 19: Our sources of returns and risks are balanced
Our sources of returns and risks are balanced Facts about Zurich’s investment portfolio as of December 31, 2006, in % Asset allocation (%) Hedge Funds / Private Equity Real Estate 2.5 Equities Cash, 4.7 short term 5.7 8.5 78.6 Fixed income © Zurich Financial Services - Investors' Day, December 6, 20
Slide 20: Our sources of returns and risks are balanced
Our sources of returns and risks are balanced Facts about Zurich’s investment portfolio as of December 31, 2006, in % Asset allocation (%) Risk diversification and matching (%) Hedge Funds / Private Equity 100 Real Estate 2.5 Equities Cash, 4.7 short term 5.7 51 8.5 19 Sum of Investment Investment s
Slide 21: Our sources of returns and risks are balanced
Our sources of returns and risks are balanced Facts about Zurich’s investment portfolio as of December 31, 2006, in % Asset allocation (%) Risk diversification Risk exposure (%)1 and matching (%) Hedge Funds / 100 Private Equity Real Estate Hedge 51 2.5 Equities Real Funds Cash, 4.7 19 short term 5.
Slide 22: Exposure to US sub-prime remains very small (0.16%)
Group Investments – Exposure to US sub-prime remains very small (0.16%) and of high quality Group Investments US sub-prime: USD 317m (0.16%) USD 193bn (100%) 100% inv. grade 76% AAA Minimal downgrades by rating agencies since June 07 (USD 10m) Debt No impairments in 2007 y-t-d securities O
Slide 23: Exposure to CDO remains very small (0.23%)
Group Investments – Exposure to CDO remains very small (0.23%) and of high quality Group Investments CDO: USD 450m (0.23%) USD 193bn (100%) 99% inv. grade, 1% unrated 71% AAA 79% backed by UK bank loans (CLO) and 21% by other types of collateral assets Debt Minimal impairments in 2007 y-t-d
Slide 24: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 25: Q&A
Q&A ~—h on ZURICH
Slide 26: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 27: Investment Management: A Creator of Value
Investment Management A Creator of Value Cecilia Reyes Head of Investment Strategy Implementation Zurich, 6 December 2007
Slide 28: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 29: Using a systematic approach is the basis for success
Using a systematic approach is the basis for success Clear investment philosophy driving a consistent and tested approach to investing Capital markets Maximize generally do work economic value Supported by a clear governance structure and state-of-the-art investment information solutions © Zurich Fi
Slide 30: We believe that capital markets generally do work
We believe that capital markets generally do work • We have realistic return expectations • Have a realistic view of skills • Only take risks that provide commensurate returns • Differentiate between 3 sources of return using our 3 step investment process © Zurich Financial Services - Investors' Day
Slide 31: We believe that capital markets generally do work
We believe that capital markets generally do work Zurich applies a disciplined and structured 3 step investment process Portfolio Systematic risk Determine risk-free construction to Steps taking to Investment position generate extra enhance returns skill-based returns Result Portfolio of Zurich’s lo
Slide 32: We aim to maximize economic value
We aim to maximize economic value • Create long term value • Measure investment risk and returns relative to liabilities • Consider regulatory restrictions and accounting targets • Minimize short term trading © Zurich Financial Services - Investors' Day, December 6, 2007 32
Slide 33: Investment Management governance is based on four pillars
Zurich’s Investment Management governance is based on four pillars ZFS Board Board Risk Committee Group Balance Sheet Group Governance Group Asset Liability Mgt Finance Council Investment Committee Investment Local Asset Liability Management Asset Allocation Manager Selection Mgt Investment Governan
Slide 34: Information Solutions – Live Demonstration
Information Solutions – Live Demonstration © Zurich Financial Services - Investors' Day, December 6, 2007 34
Slide 35: We employ state-of-the-art investment information solutions
We employ state-of-the-art investment information solutions • Daily information on our investment exposures globally • Detailed access to all individual positions for all investments • Ability to aggregate bottom up our investment exposure • Key to manage investments centrally in a global organizati
Slide 36: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 37: Investment strategy determines more than 90% of the investment return
Investment strategy determines more than 90% of the investment return Zurich’s sources of expected investment return as of December 31, 2006, in % 6 2.5 100 91.5 Risk-free SAA1 TAA1 and Expected return (Rf) (ß) security Investment selection Return Investment strategy (α) 1 SAA refers to Strategic As
Slide 38: Skill-based returns are important to enhance Zurich's investment result
Skill-based returns are important to enhance Zurich’s investment result Asset Security Manager Selection Selection Tactical Trade Asset Execution Allocation © Zurich Financial Services - Investors' Day, December 6, 2007 38
Slide 39: Skill-based returns: we insource manager selection and tactical asset allocation
Skill-based returns are important to enhance Zurich’s investment result We insource asset manager selection and tactical asset allocation Insourced Asset Security Manager Selection Selection Tactical Trade Asset Execution Allocation Insourced © Zurich Financial Services - Investors' Day, December 6,
Slide 40: Skill-based returns: we outsource security selection and trade execution
Skill-based returns are important to enhance Zurich’s investment result We outsource security selection and trade execution Insourced Asset Security Outsourced Manager Selection Selection Tactical Trade Asset Outsourced Execution Allocation Insourced © Zurich Financial Services - Investors' Day, Dec
Slide 41: Outsourcing to best-of-breed asset managers gives us a competitive edge
Outsourcing to best-of-breed asset managers gives us a competitive edge As of September 30, 2007 Insourced Outsourced Fixed Income 18% 82% (excluding Mortgages) Mortgage Loans 100% 0% Cash & short term investments 58% 42% Equities 21% 79% Real Estate1 92% 8% Hedge Funds / Private Equity1 100% 0% Ove
Slide 42: Investment Management: A Creator of Value
Investment Management A Creator of Value Martin Senn Chief Investment Officer Zurich, December 6, 2007
Slide 43: Our structure is aligned with our strategy
Our structure is aligned with our strategy Group Chief Investment Officer Martin Senn Investment Strategy Investment Strategy Operations Development & Analysis Implementation Peter Teuscher Cecilia Reyes Michael Vos • Strategic Asset Allocation • Regional Management • Business Strategy • Tactical As
Slide 44: We continuously improve our business strategy, investment strategy & execution
We continuously improve our business strategy, investment strategy & execution Investment Management concentrates on three key enablers Optimally use available risk capacity Risk Management Achieve mission & ambition Inno- People Continuously vation Manage- Efficiently explore & exploit ment employ
Slide 45: Investment Management creates significant value
Investment Management creates significant value • Investment management is a key function • We aim to maximize economic value • Investments are managed relative to liabilities • Our sources of returns and risks are balanced • A systematic approach is the basis of our success • We focus on the value
Slide 46: Q&A
Q&A ~—h on ZURICH
Slide 47: Appendix
Appendix er on ZURICH
Slide 48: Zurich's debt securities are of very high quality (99.4% investment grade)
Group Investments – Zurich’s debt securities are of very high quality (99.4% investment grade) Group Investments Debt securities USD 193bn USD 121bn credit rating: AAA 63.3% credit rating: AA Other Debt 99.4% 12.7% asset securities investment classes grade 37% 63% credit rating: A 17.8% Unrated/belo
Slide 49: Split of total MBS/ABS of USD 27.6bn (14%)
Group Investments – Split of total MBS/ABS of USD 27.6bn (14%) MBS/ABS: USD 27.6bn (14%) 100% inv. grade Group Investments 94% AAA USD 193bn (100%) includes: US MBS: USD 17bn (8.8%) 100% inv. grade 99% AAA see further details on next slide Debt securities US ABS1: USD 3.1bn (1.6%) 100% i
Slide 50: Split of US MBS of USD 17bn (8.8%)
Group Investments – Split of US MBS of USD 17bn (8.8%) Group Investments US-MBS: USD 17bn (8.8%) USD 193bn (100%) 100% inv. grade 99% AAA Debt of which: securities US “Agency” MBS: USD 9.9bn (5.1%) 63% 100% AAA USD 0.6bn backed by GNMA USD 9.3bn backed by FNMA and FHLMC Other asset US Comm
Slide 51: Further details on US MBS: Commercial, Retail, Sub-prime, Alt-A
Group Investments – Further details on US MBS: Commercial, Retail, Sub-prime, Alt-A US Commercial MBS: US Residential MBS: US Alt-A: US Sub-prime: USD 5.1bn (2.7%) USD 2bn (1.0%) USD 602m (0.31%) USD 317m (0.16%) Credit rating Credit rating Credit rating Credit rating AAA: 96% AAA: 99% AAA: 97% AAA:
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