Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Q1 2010 Earnings Presentation
57 slides from Zurich Insurance's earnings presentation, May 6, 2010
Slide 1: Results Reporting for the Three Months to March 31, 2010
Results Reporting for the Three Months to March 31, 2010 May 6, 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: Financial highlights
Financial highlights in USD millions 2010 20091 Change for the three months to March 31 Business operating profit (BOP) 1,259 1,061 19% Net income attributable to shareholders 935 532 76% General Insurance combined ratio 99.0% 95.8% -3.2pts Global Life new business value2 183 149 23%2 Farmers Mgmt S
Slide 4: Business operating profit by segment
Business operating profit by segment in USD millions 2010 20091 Change for the three months to March 31 General Insurance 621 889 -30% Global Life 351 222 58% Farmers (including Farmers Re) 462 324 43% Other Operating Businesses -199 -43 nm Total Core BOP 1,235 1,392 -11% Non-Core Businesses 24 -331
Slide 5: General Insurance – key performance indicators
General Insurance – key performance indicators in USD millions 2010 2009 Change Change for the three months to March 31 in LC1 GWP and policy fees 10,010 9,814 2% -4% Rate change2 2.3% 2.1% 0.2pts Loss ratio 72.2% 70.0% -2.2pts Expense ratio 26.9% 25.7% -1.2pts Combined ratio 99.0% 95.8% -3.2pts Bus
Slide 6: General Insurance – rate change monitor for personal and commercial lines
General Insurance – rate change monitor1 for personal and commercial lines 3 months 2010 12 months 2009 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 3% 2% 3% Commercial Lines 3% 0% 1% 4% 1% 5% 2% 3% 5% 4% EGI by country EGI by country Sw
Slide 7: General Insurance – comparison of loss ratio
General Insurance – comparison of loss ratio 75% 2010 2009 Loss ratio development Last nine discrete quarters 72.2% Underlying loss ratio 70.0% 79.2% 70% 71.2% 73.0% 72.2% 69.9% 71.1% 69.8% 70.0% 69.5% 66.2% 66.2% 65% 6.6% 1.6% 0.0% 5.5% 3.5% 2.8% 60% USD USD USD USD USD 247m 200m 465m 114m 383m 67.
Slide 8: General Insurance – net expense ratio walk from Q1-09 to Q1-10
General Insurance – net expense ratio walk from Q1-09 to Q1-10 25.7% 26.9% Change year-over-year Expense ratio development Other tech Last nine discrete quarters 13.5% expenses 14.3% 26.6% 26.7% 26.9% 0.8% 1.2% 25.7% 25.5% 24.7% 24.7% 25.2% 25.1% 0.4% -0.0% 12.2% Commissions 12.6% e pe W s x i on ng
Slide 9: Global Life – key performance indicators
Global Life – key performance indicators in USD millions 2010 2009 Change Change for the three months to March 31 in LC1 GWP and policy fees (incl. insurance 6,743 5,529 22% 14% deposits)2 Net inflows to Assets under Mgmt 1,369 335 309% Annual Premium Equivalent (APE) 833 721 16% 9% New business val
Slide 10: Global Life – new business by pillar
Global Life – new business by pillar in USD millions NBV NBV Change APE APE Change for the three months to March 31 1 1 2010 2009 in LC 2010 2009 in LC Bank Distribution 52 41 27% 221 263 -20% IFA/Brokers 48 31 32% 246 189 19% Agents 22 38 -42% 97 88 4% Corporate Life & Pensions 31 21 39% 151 111 30
Slide 11: Farmers – key performance indicators
Farmers – key performance indicators in USD millions 2010 2009 Change for the three months to March 311 Farmers Management Services Managed gross earned premium margin2 7.4% 7.5% -0.1pts Business operating profit 351 322 9% Farmers Re Business operating profit 111 2 nm Farmers Exchanges2 Gross writt
Slide 12: Acquisition of 21st Century – Update
Acquisition of 21st Century1 – Update GWP by distribution channel (Direct vs Agency) GWP in Q1-10 of USD 536m reflects: 1000 Direct: levels rebounding – Agency Q1-10 shows increasing renewals and 726 Direct GWP in USD m higher new business applications 152 595 600 118 101 500 536 compared to previou
Slide 13: Other Operating and Non-Core Businesses – Business operating profit contribution
Other Operating and Non-Core Businesses – Business operating profit contribution in USD millions 2010 2009 Change for the three months to March 31 Other Operating Businesses -199 -43 nm Non-Core Businesses - Banking activities -3 -3 - - Centrally managed businesses 36 -271 nm - Centre -5 -61 91% - O
Slide 14: Investment performance of Group investments
Investment performance of Group investments in USD millions 2010 2009 Change for the three months to March 31 Net investment income 1,779 1,832 -3% Net capital losses/gains on investments and 191 -1,073 nm impairments1 of which attributable to shareholders 22 -728 nm Net investment result 1,970 759
Slide 15: Group Investments – Eurozone Government & supranational bonds are well diversified
Group Investments1 – Eurozone Government & supranational bonds are well diversified Eurozone Government and supranational bonds: USD 20bn (100%) As of March 31, 2010 Market/Cost: 104% of which: Split by credit rating 34% in General Insurance 100% inv. grade 65% in Global Life 38% AAA 22% A
Slide 16: Development of shareholders' equity in 2010
Development of shareholders’ equity in 2010 in USD millions 30,000 29,304 2,205 914 691 29,000 935 142 91 28,206 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 © Zurich Financial Services Lt
Slide 17: 2010 estimated economic and regulatory solvency
2010 estimated economic and regulatory solvency Statutory solvency ratio Economic solvency ratio3 (Group’s Solvency I1) +21pts -4pts 212% 136% 133% 195% -1pts -2pts Dec. 31 Impact Impact Mar. 31 Dec 31 Movements Impact March 31 20092 Q1-10 from 2010 2009 in AFR and from est. for dividend RBC in divi
Slide 18: Appendix
Appendix © Zurich Financial Services Ltd May 6, 2010 Results Reporting for the Three Months to March 31, 2010 18
Slide 19: Zurich is poised for profitable growth
Zurich is poised for profitable growth 9% 0% 13% Global Focus on volume growth1 Farmers Life IM EGI -5% Legend for GI BDs IM International Markets GC EGI Europe General NAC Insurance GC Global Corporate -2% -6% NAC North America Commercial © Zurich Financial Services Ltd Focus on margin enhancement
Slide 20: 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 21: 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 22: Top line development by segment
Top line development by segment in USD millions 2010 2009 Change Change for the three months to March 31 in LC1 General Insurance GWP and policy fees 10,010 9,814 2% -4% Global Life GWP and policy fees (incl. insurance 6,743 5,529 22% 14% deposits)2 Annual Premium Equivalent (APE)3 833 721 16% 9% Fa
Slide 23: Business division BOP-ROE based on RBC-allocated IFRS equity
Business division BOP-ROE1 based on RBC-allocated IFRS equity for the three months to March 31 2010 2009 General Insurance 15.7% 29.9% Global Corporate 24.8% 29.4% North America Commercial 21.2% 29.1% Europe General Insurance 17.8% 37.1% International Markets -4.5% 12.9% GI Global Functions includin
Slide 24: 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% 33% Market/ALM risk 10% Operational risk 1% Business risk General 4% P&R risk3 Global Life Insurance 25% Re-ins credit risk 54% Life insurance risk 7% Natu
Slide 25: 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 Impact Q1-10 Dividend4 Dec 31, 09 Debt securities at cost -14pts 195%2 +21pts -4pts 212% GI DAC +25pts Economic solvency ratio3 ~139% ~136% -1pt -2pts ~133% Impact of AFR Impa
Slide 26: Updated economic solvency view for 2010
Updated economic solvency view for 2010 in USD billions1 Available Financial Resources (AFR) Estimated AFR as of December 31, 2009 + 41 Movements in Q1-10 - 1 Dividend accrual2 - 1 March 31 estimate for 2010 AFR + 39 Estimated 2010 economic solvency ratio Risk Based Capital (RBC) ~133% Estimated RBC
Slide 27: Strong economic solvency
Strong economic solvency1 in USD billions (rounded) 40 Change from EV to MCEV 41 38 39 35 34 Available to policyholders 30 30 30 29 28 28 27 30 29 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 28: Estimation of Available Financial Resources (AFR) as of March 31, 2010
Estimation of Available Financial Resources (AFR) as of March 31, 2010 in USD billions (rounded) 45 40 (2) 10 41 35 39 30 (1) 20 25 28 28 20 (16) 15 10 5 0 1 2 3 Reported Dividend Net Net intangibles Value of in- Financial debt Total AFR Capital Net AFR shareholders' accrual shareholders' force busi
Slide 29: Group's Solvency I calculation
Group’s Solvency I calculation in USD millions Mar 31, 2010 Dec 31, 20092 finalized Eligible equity Total equity 29,876 31,104 Net of intangibles and other assets -7,305 -7,456 Free reserves for policyholder dividends 3,208 2,799 Subordinated debt 3,950 4,161 Deferred policyholder acquisition costs
Slide 30: Group's Solvency I - sensitivities
Group’s Solvency I - sensitivities1 Solvency I ratio impact (in %) Monetary impact on IFRS equity as of March 31, 2010 (in USD bn) 100% 150% Base case 212% Interest rate +100 bps 179% -4.0 Interest rate -100 bps 248% 4.4 Equity markets -10% 205% -0.8 Credit spreads +100 bps 202% -1.2 © Zurich Financ
Slide 31: General Insurance – key performance indicators
General Insurance – key performance indicators Business operating profit Combined ratio (%) CAT Global 3.0 91.4 Corporate in USD millions 2010 2009 Change 93.8 for the three months ended March 31 NA 97.0 Global Corporate 226 207 10% Commercial 96.6 North America Commercial 278 311 -11% Europe 97.7 E
Slide 32: General Insurance – written rate change 2008 through Q1-2010
General Insurance – written rate change 2008 through Q1-2010 General Insurance – rate change 2008 through Q1-2010 5% 4.2% 3.6% 3.7% 2.1% 2.3% 1.2% 0% -0.7% 2008 -2.4% 2009 -3.0% 2010 -4% Q1 Q2 Q3 Q4 © Zurich Financial Services Ltd May 6, 2010 Results Reporting for the Three Months to March 31, 2010
Slide 33: Development of Reserves for Losses and Loss Adjustment Expenses (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 -5,886 -5,863 Net losses and LAE incurred - Current year 6,359 5,792 - Prior years1 -192 -72 Foreign currency transla
Slide 34: Global Life – new business indicators
Global Life – new business indicators in USD millions APE APE Change Change NBV2 NBV2 Change for the three months ended March 31 2010 2009 in LC1 2010 2009 Americas, of which 69 59 18% 14% 23 37 -37% US 20 24 -16% -16% 12 30 -61% Latin America 49 34 42% 34% 11 7 70% United Kingdom 177 149 19% 9% 23
Slide 35: Global Life – new business value & margin by pillar
Global Life – new business value & margin by pillar in USD millions NBV NBV Change Change NBM NBM Change for the three months to March 31 2010 2009 in LC1 2010 2009 Bank Distribution 52 41 27% 27% 23.6% 15.6% 8.0pts IFA/Brokers 48 31 55% 32% 19.7% 16.6% 3.1pts Agents 22 38 -41% -42% 22.9% 43.0% -20.
Slide 36: 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 212 215 Balance as of Jan 1, 2010 215 26 25 Inflows +7 99 102 Outflows -6 Market move- ments & other2 +7 87 87 Curren
Slide 37: Farmers – Farmers Management Services – key performance indicators
Farmers – Farmers Management Services – key performance indicators in USD millions 2010 2009 Change for the three months ended March 311 Management fees and other related revenues 703 623 13% Management and other related expenses -361 -311 -16% Gross management result 342 311 10% Managed gross earne
Slide 38: Farmers – Farmers Re – key performance indicators
Farmers – Farmers Re – key performance indicators in USD millions 2010 2009 Change for the three months ended March 31 Gross written premiums1 1,495 1,056 42% Net underwriting result 60 -25 nm Combined ratio 96.3% 102.3% 6.0pts CAT2 impact 1.1% 4.6% 3.5pts Business operating profit 111 2 nm © Zurich
Slide 39: Farmers Exchanges – key performance indicators
Farmers Exchanges1 – key performance indicators in USD millions 2010 2009 Change for the three months ended March 31 Gross written premiums 4,573 4,152 10% Net underwriting result2 195 -89 nm Combined ratio2 95.9% 102.2% 6.3pts Adjusted combined ratio3 88.6% 94.4% 5.8pts CAT4 impact 1.8% 5.1% 3.3pts
Slide 40: Integration of 21st Century shows rapid progress on or ahead of schedule
Integration of 21st Century shows rapid progress on or ahead of schedule Farmers has moved aggressively to restructure/integrate businesses: Agency Auto integration into Foremost effective Sep. 1, 2009 Rationalization of Direct operations (Woodland Hills, CA / Vestal, NY) Further back-office transit
Slide 41: 21st Century - contribution
21st Century1 - contribution in USD millions 2010 for the three months ended March 311 Farmers Management Services: Management fees and other related revenues 92 Management and other related expenses -49 Gross management result 43 Business operating profit 41 Farmers Exchanges: Gross written premium
Slide 42: Farmers Exchanges – financial highlights
Farmers Exchanges1 – financial highlights in USD millions 2010 2009 6'000 46.0% for the three months ended March 31 44.0% 5'000 Gross written premiums 4,573 4,152 42.0% Net underwriting result2 195 -89 4'000 40.0% Net surplus growth (estimated) 139 -34 3'000 38.0% Ending surplus (estimated) 5,895 5,
Slide 43: 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 three months ended March 31 Auto1 2,540 2,126 19% Homeowners 1,016 1,012 0% Commercial P&C 327 330 -1% Small Business Solutions 145 148 -2% Workers’ Compensation 80 95 -16% Specialty 425 413 3% Ot
Slide 44: Farmers Exchanges – premium growth outperforming industry
Farmers Exchanges – premium growth outperforming industry GWP growth2 11% Industry Growth Rate1 10.1% 2009: -0.8% 2010 Forecast: 3.3% 8% 6.5% 6.1% 6% 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% 06 07 08 09 06 06 06 07 07 07 08 08 08 09 09 09 10 20 20 20 20 20 20 20
Slide 45: Farmers Exchanges – combined ratio
Farmers Exchanges – combined ratio for the three months to March 31 20101 20091 Change Auto2 96.4% 100.0% 3.6pts Homeowners 93.0% 108.8% 15.8pts Commercial P&C 97.8% 96.5% -1.3pts Small Business Solutions 103.5% 103.7% 0.2pts Workers' Compensation 98.6% 98.6% 0.0pts Specialty 98.7% 100.2% 1.5pts Tot
Slide 46: Farmers Exchanges – development of the combined ratio
Farmers Exchanges – development of the combined ratio Quarterly combined ratio 120% Other Cats 115% Gustav 110% Midwest Cats California wildfires Ike 105% California Other Rita wildfires Cats CO/TX Hail- 100% Florida Texas storms hurricanes Hail Katrina 95% © Zurich Financial Services Ltd 90% Q1 Q2
Slide 47: Competitor Snapshot - Overall
Competitor Snapshot - Overall March 2010 Growth vs. GAAP combined ratio – overall P&C1, 4 December 2009 Industry5 FY09 Industry Estimate Growth 12 102.2% 2, 3 NPW % Farmers 10 USAA4 8 GEICO Progressive 6 4 Industry5 State Farm4 3.3% 2 Travelers 0 Hartford Allstate -2 Mercury Nationwide4 -4 American
Slide 48: Zurich's investment portfolio profits greatly from diversification
Zurich’s investment portfolio profits greatly from diversification and is balanced in terms of risk Risk Allocation of Zurich’s investment portfolio As of March 31, 2010 Asset allocation (%) Risk diversification Risk exposure (%)1 and matching (%) 100 Hedge Funds / Private Equity Hedge Real Estate 4
Slide 49: Group Investments – debt securities of consistently high quality
Group Investments – Zurich’s debt securities are of consistently high quality (98% investment grade) As of March 31, 2010 Group Investments Debt securities USD 194bn USD 136bn credit rating: AAA 52.0% credit rating: AA Other Debt 98.4% 12.9% asset securities investment classes grade 30% 70% credit r
Slide 50: Group Investments – Zurich's debt securities are well balanced
Group Investments – Zurich’s debt securities are well balanced Group Investments - USD 194bn (100%) As of March 31, 2010 Government and supranational bonds: USD 51bn (26%) Market/Cost1: 103% of which: 99% inv. grade 49%in General Insurance 69% AAA 44% in Global Life 13% AA 17% A 2% BBB
Slide 51: Group Investments – Government & supranational bonds are well diversified
Group Investments – Government & supranational bonds are well diversified Group Investments - USD 194bn (100%) As of March 31, 2010 Government and supranational bonds: USD 51bn (26%) Market/Cost: 103% of which: 99% inv. grade 49% in General Insurance 69% AAA 44% in Global Life 13% AA 17%
Slide 52: Group Investments – Zurich's Corporate bonds are of high quality
Group Investments – Zurich’s Corporate bonds are of high quality Group Investments - USD 194bn (100%) As of March 31, 2010 Corporate bonds: USD 61bn (32%) Market/Cost: 103% Split by industries Split by credit rating 44% Banks, 99% inv. Grade including 16%1 covered bonds 26% AAA 9% Cities, Ag
Slide 53: Group Investments – Banks Corporate bonds are of high quality and well diversified
Group Investments – Banks Corporate bonds are of high quality and well diversified Group Investments - USD 194bn (100%) As of March, 31 2010 Banks Corporate bonds: USD 27bn (14%) Market/Cost: 102% Split by seniority Split by credit rating 37% Covered bonds 100% inv. grade 48% Senior bonds 40
Slide 54: Group Investments – Split of total MBS/ABS of USD 24bn
Group Investments – Split of total MBS/ABS of USD 24bn (13%) MBS/ABS: USD 24bn (13%) Market/Cost: 100% Group Investments 96% inv. grade USD 194bn (100%) 84% AAA includes: US MBS: USD 15.6bn (8.1%) Market/Cost: 102% 95% inv. grade; 88% AAA Debt US ABS1: USD 3.4bn (1.8%) securities Market/Cost:
Slide 55: Group Investments – Split of US MBS of USD 15.6bn
Group Investments – Split of US MBS of USD 15.6bn (8.1%) Group Investments US-MBS: USD 15.6bn (8.1%) Market/Cost: 102% USD 194bn (100%) 95% inv. grade 88% AAA Debt of which: securities US “Agency” MBS: USD 9.5bn (4.9%) Market/Cost: 104% 70% 100% AAA USD 1.2bn backed by GNMA USD 8.3bn backe
Slide 56: 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 500 500 248 85 0 0 -3 -39 -72 -
Slide 57: 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 4500 4000 3500 3000 2500 2000 1,815 1500 1000 500 230 39 0 -500 Equity investments -1000 Debt investments Other investments -1500 Q1-2010 1 Total 2,083
Zurich Insurance Group — Q1 2010 Earnings Presentation on 6ix