Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — Investor Day (June 2001)
75 slides from Zurich Insurance's investor day presentation, Jun 26, 2001
Slide 1: Zurich North America
Zurich North America Dinos Iordanou President & CEO, Zurich North America Wayne Fisher Chief Risk Officer John Amore President & CEO, Zurich U.S. Ray Thomas President & CEO, Zurich Small Business Presentation to U.S. Analysts June 26, 2001 © Zurich Financial Services Analysts´ Day 2001
Slide 2: Agenda
Agenda • Business Model • Financial Results • Pricing outlook/market conditions/competition • Reserve adequacy • Strategic Positioning • Small Business success story • Outlook 2
Slide 3: Zurich North America Corporate Transition Overview
Zurich North America Corporate Transition Overview 1998 Zurich in North America 2001 Zurich North America • Zurich American Insurance Specialties SBU Empire SBU Energy SBU UUG Zurich Canada Strategic Partnerships SBU Warranty SBU Surety & Financial Enterprises SBU Construction SBU Small Business SBU
Slide 4: Zurich North America - Business Model
4 Corporate Customer SBU Zurich North America - Business Model Middle Market SBU Small Business SBU Construction SBU Corporate Risk Management Energy SBU Corporate Marketing Corporate Finance Corporate Legal Shared Services Manufacturing Empire SBU Surety & Financial Enterprises SBU Specialties SBU
Slide 5: Agenda
Agenda • Business Model • Financial Results • Pricing outlook/market conditions/competition • Reserve adequacy • Strategic Positioning • Small Business success story • Outlook 5
Slide 6: Zurich North America Year Trend - IAS
Zurich North America 6 Year Trend - IAS $ Millions 1998 1999 2000 2001e* 2002e* 2003e* Gross Written Premium 6,115 6,436 8,142 Growth Rates 5.1% 26.3% 24% 15% to 20% per year Net Written Premium 4,384 3,921 5,027 Incurred Loss and LAE 83.6% 75.2% 78.3% 77% 75% to 77% Ratio Expense Ratio, Div ratio 3
Slide 7: Zurich U.S. - Statutory Key Ratios Year Trend
Zurich U.S. - Statutory Key Ratios 4 Year Trend $ Millions 1998 1999 2000 2001 1Q01 1Q00 Q101/ (all numbers net unless Actual Actual Actual Plan Actual Actual Q100 indicated) Gross Written Premium 4,620 4,801 6,140 1,904 1,334 42.7% Growth Rates 3.9% 27.9% Net Written Premium 2,933 2,701 3,557 1,186
Slide 8: Zurich U.S. Cash Flow
Zurich U.S. Cash Flow $650 $550 $450 $350 $250 $150 $50 ($50) ($150) ($250) ($350) ($450) ($550) ($650) ($750) March YTD 1995 1996 1997 1998 1999 2000 2001 ($ in millions) Operating Cash flow Includes UUG 8
Slide 9: Agenda
Agenda • Business Model • Financial Results • Pricing outlook/market conditions/competition • Reserve adequacy • Strategic Positioning • Small Business success story • Outlook 9
Slide 10: Zurich U.S. - 2001 Rate Monitoring Summary
Zurich U.S. - 2001 Rate Monitoring Summary* 18.0% 15.9% 16.0% 14.7% 14.0% 12.2% 10.6% 12.0% 11.2% 10.0% 8.4% 8.0% 6.0% 6.0% 4.1% 4.0% 2.0% 1.0% -1.6% 0.0% -2.0% 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr May 1999 1999 1999 1999 2000 2000 2000 2000 2001 2001 *excluding La
Slide 11: Zurich U.S. - Compounded Quarterly Rate Changes
Zurich U.S. - Compounded Quarterly Rate Changes* 30.0% 25.0% Through May 20.0% 2001 15.0% 10.0% 5.0% 0.0% 3rd Quarter 4th Quarter 1st Quarter 2nd Quarter 1999 2000 2001 *excluding Large Accounts and Empire 11
Slide 12: Rate Increases Highest in Segments with Highest Loss Ratios
Zurich U.S. - Rate Increases highest in segments with highest Loss Ratios* Loss Ratio AY 2000 Apr YTD Apr YTD % 2000 2001-1st Range Loss Ratio 2000 WP 2001 WP Growth Rate Chg Rate Chg <70% 47.7% 69,035 115,260 67.0% 3.5% 5.1% 70%-79.9% 73.8% 393,191 576,692 46.7% 9.0% 7.9% 80%-90% 82.9% 394,571 730,
Slide 13: Zurich U.S. - Key Competitors
Zurich U.S. - Key Competitors US Commercial Lines 2000 Rank 2000 DWP 1999 Rank American International Group 1 $13,137 1 CNA Insurance Companies 2 8,063 2 Travelers PC Group 3 6,234 4 Zurich U.S. 4 $6,189 5 Liberty Mutual Insurance Company 5 5,937 3 St Paul Companies 6 4,857 7 Chubb Group of Insuranc
Slide 14: Zurich U.S. Ranking
Zurich U.S. Ranking* Within line of business Line of Business 1999 Ranking Market Share Commercial Auto 2 4.4% Products & Other Liability 5 3.1% Fidelity & Surety 7 5.0% Commercial Multi Peril 9 3.3% Workers Comp 15 1.6% Fire 20 1.3% Medical Malpractice 33 0.9% *Based on NWP 14
Slide 15: Gross Written Premium by LOB - December 2000
Zurich U.S. - Gross Written Premium by LOB - December 2000 $6,140 Million 8% 7% 2% 4% 31% General Liability Workers Compensation Total Auto Property 20% Surety Medical Malpractice Other Business Owners 15% 13% 15
Slide 16: Growth is Important in Hard Markets
Growth is Important in Hard Markets Industry 1984 - 1987 NWP Growth Commercial Lines Cumulative NWP Growth 350% 300% 250% 200% 150% 100% 50% 0% y s tr du In 16
Slide 17: Growth is Important in Hard Markets
Growth is Important in Hard Markets Industry 1984 - 1987 NWP Growth Commercial Lines Cumulative NWP Growth 350% 300% 250% 200% 150% 100% 50% 0% IG ry A t us d In 17
Slide 18: Growth is Important in Hard Markets
Growth is Important in Hard Markets Industry 1984 - 1987 NWP Growth Commercial Lines Cumulative NWP Growth 350% 300% Less than industry 250% average 200% 150% 100% 50% 0% IG G e rs na a d nd l ch r l ry au a te id gn & or le A nt t ri et Fu w F rs .P us tf ve Ci Zu US e A n Fo r in d St 's a Ha io I
Slide 19: Results in Last Hard Market
Results in Last Hard Market Loss Ratios and Combined Ratios (averages for 1985-1989) 120% 112.8% 110% 106.5% 100% 90% 80% 68.9% 70% 66.5% 60% 50% 40% companies with less than average growth companies with greater than average rate (8) growth rate (4) Loss Ratio Combined Ratio 19
Slide 20: M&A Activity Since Last Hard Market
M&A Activity Since Last Hard Market Relationship between Growth and Survival • Companies which grew faster than the industry (4) Remained Independent Acquired - AIG - Continental - Zurich - Hartford • Companies which grew slower than the industry (8) Remained Independent Acquired - Nationwide - USF&
Slide 21: Loss and Expense Ratio Comparison
Loss and Expense Ratio Comparison 140.0 120.0 100.0 Survival Ratio (Years) 80.0 60.0 40.0 20.0 0.0 1998 1999 2000 AIG Loss Ratio Zurich-NA Loss Ratio Comm Lines - Loss Ratio AIG Exp Ratio Zurich-NA Exp Ratio Comm Lines - Exp Ratio 21
Slide 22: U.S. Statutory Expense Ratio
U.S. Statutory Expense Ratio Competitors are primarily commercial lines writers - Industry represents Commercial Lines Totals 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Hartford Chubb Berk. Hath Liberty Mut St Paul Zurich US Industry AIG CNA Travelers 1998 1999 2000 2001 Forecast 22
Slide 23: Agenda
Agenda • Business Model • Financial Results • Pricing outlook/market conditions/competition • Reserve adequacy • Strategic Positioning • Small Business success story • Outlook 23
Slide 24: Loss Reserve Review
Loss Reserve Review Overall Philosophy • Review of trends and indications from several perspectives – Quarterly ZUS Actuarial Analysis – Semi Annual Business Unit profitability meetings – Zurich Group Head Office Reviews – External Auditor review Actuarial Ranges • Corporate guideline of range of +
Slide 25: Zurich North America - Wayne Fisher
Zurich North America Wayne Fisher Chief Risk Officer Presentation to U.S. Analysts June 26,2001 © Zurich Financial Services Analysts´ Day 2001
Slide 26: Claims Operating Model
Claims Operating Model • Organized around dedicated Centers of Expertise producing high levels of specialization. • Introduced Express Claims Centers. • Claims assignment matches the precise skill level and expertise needed to produce the best cost-effective solution for the customer. • Effective ex
Slide 27: Workers Compensation Claims Handling Efficiency
Workers Compensation Claims Handling Efficiency Duration 1200 1000 800 Zurich US Days 600 Industry 400 200 0 1998 2000 ZA Industry Relativity Average Duration 2000 530 870 61% Change 00/98 (14%) (19%) 27
Slide 28: Workers Compensation Claims Handling Efficiency
Workers Compensation Claims Handling Efficiency Severity $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $0 Medical Indemnity Expense ZA-1998 ZA-2000 Industry-1998 Industry-2000 28
Slide 29: Workers Compensation Claims Handling Efficiency
Workers Compensation Claims Handling Efficiency Severity Trend % Change 2000/1998 ZA Industry Medical 12% 25% Indemnity 3% 12% Expense 14% 20% Total 9% 18% 29
Slide 30: Claim Handling Efficiency Closure Rates
Claim Handling Efficiency Closure Rates Auto Liability - BI General Liabilty - BI 100.0% 100.0% 90.0% 90.0% 80.0% 80.0% 70.0% 70.0% 60.0% 60.0% 50.0% 50.0% 40.0% 40.0% 30.0% 30.0% 4 Mths 6 Mths 12 Mths 4 Mths 6 Mths 12 Mths YTD 5/01 FY 2000 FY 1999 YTD 5/01 FY 2000 FY 1999 30
Slide 31: Claim Handling Efficiency Closure Rates
Claim Handling Efficiency Closure Rates Auto Physical Damage Auto Liability - PD Only 100.0% 100.0% 95.0% 95.0% 90.0% 90.0% 85.0% 85.0% 80.0% 80.0% 75.0% 75.0% 4 Mths 6 Mths 12 Mths 4 Mths 6 Mths 12 Mths YTD 5/01 FY 2000 FY 1999 YTD 5/01 FY 2000 FY 1999 31
Slide 32: Claim Handling Efficiency Closure Rates
Claim Handling Efficiency Closure Rates Property Workers Compensation Medical Only 100.0% 100.0% 95.0% 95.0% 90.0% 90.0% 85.0% 85.0% 80.0% 80.0% 75.0% 75.0% 4 Mths 6 Mths 12 Mths 4 Mths 6 Mths 12 Mths YTD 5/01 FY 2000 FY 1999 YTD 5/01 FY 2000 FY 1999 32
Slide 33: Stop Loss Reinsurance
Stop Loss Reinsurance • Accident Year stop loss covers in place since 1994. • 1994-1998 – Cover purchased for capital support. – Zurich American legal entity only. – Attaches 3.5 points over plan loss ratio with 6 points of protection. • 1999-2001 – Cover purchased for capital support and earnings s
Slide 34: Zurich U.S. - Accident Year Results
Zurich U.S. - Accident Year Results Loss & ALAE Ratios Net Loss Ratios Net Loss Ratios Post Stop Loss Pre Stop Loss 1994 74.5% 74.2% 1995 74.2% 73.9% 1996 73.3% 73.0% 1997 76.4% 76.0% 1998 76.1% 77.8% 1999 68.1% 76.1% 2000 70.5% 74.0% 34
Slide 35: Paid Losses to Net Earned Premium Ratios
Paid Losses to Net Earned Premium Ratios 80.0% Workers' Compensation 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3rd Prior 2nd Prior 1st Prior Current Accident Years Liberty Mutual AIG CNA Travelers Kemper Top 5 Competitors Industry Zurich US 35
Slide 36: Loss Reserves to Net Earned Premium Ratios
Loss Reserves to Net Earned Premium Ratios 90.0% Workers' Compensation 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3rd Prior 2nd Prior 1st Prior Current Accident Years Liberty Mutual AIG CNA Travelers Kemper Top 5 Competitors Industry Zurich US 36
Slide 37: Losses Incurred to Losses Paid Ratios
Losses Incurred to Losses Paid Ratios 6.00 Workers' Compensation 5.00 4.00 3.00 2.00 1.00 0.00 3rd Prior 2nd Prior 1st Prior Current Accident Years Liberty Mutual AIG CNA Travelers Kemper Top 5 Competitors Industry Zurich US 37
Slide 38: Losses Paid to Net Earned Premium Ratios
Losses Paid to Net Earned Premium Ratios 100.0% Commercial Auto 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3rd Prior 2nd Prior 1st Prior Current Accident Years CNA Travelers Liberty Mutual State Farm St. Paul Top 5 Competitors Industry Zurich US 38
Slide 39: Loss Reserves to Earned Premium Ratios
Loss Reserves to Earned Premium Ratios 80.0% Commercial Auto 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 3rd Prior 2nd Prior 1st Prior Current Accident Years CNA Travelers Liberty Mutual State Farm St. Paul Top 5 Competitors Industry Zurich US 39
Slide 40: Losses Incurred to Losses Paid Ratios
Losses Incurred to Losses Paid Ratios 5.00 Commercial Auto 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 3rd Prior 2nd Prior 1st Prior Current Accident Years CNA Travelers Liberty Mutual State Farm St. Paul Top 5 Competitors Industry Zurich US 40
Slide 41: Asbestos/Environmental Survival Ratios (3-year)
Asbestos/Environmental Survival Ratios (3-year) Zurich U.S. vs. U.S. Insurance Industry ZUS ZUS Industry Net reserve Survival ratio Survival ratio @ 12/00 @ 12/00 @ 12/00 Asbestos $129.1 15.7 5.5 Pollution $302.3 21.0 7.2 Total $431.4 19.1 6.3 41
Slide 42: Asbestos/Environmental Survival Ratios (3-year)
Asbestos/Environmental Survival Ratios (3-year) 25.0 1'600 1'400 20.0 1'200 Net Reserves (millions) Survival Ratio (Years) 1'000 15.0 AM Best Industry 800 Estimate: 12 years 10.0 600 400 5.0 200 0.0 IG 0 A r d b s S ul l ry pe ua er U r ub A N Pa fo st el ch em ut Ch C du t av . ar M ri St K In Zu T
Slide 43: Zurich North America - John Amore
Zurich North America John Amore President & CEO, Zurich U.S. Presentation to U.S. Analysts June 26,2001 © Zurich Financial Services Analysts´ Day 2001
Slide 44: Agenda
Agenda • Business Model • Financial Results • Pricing outlook/market conditions/competition • Reserve adequacy • Strategic Positioning • Small Business success story • Outlook 44
Slide 45: Set up to succeed
Set up to succeed Zurich North America BU’s Customer Focus Specialty areas Distribution Corporate Customer Empire Fire & Marine Strategic Partnerships Middle Markets Specialties Small Business Surety & Financial Construction Warranty Zurich Global Energy Zurich Canada Universal Underwriters Services
Slide 46: Set up to succeed
Set up to succeed Customer Focus Specialties • D&O for Energy and Construction Customers • A&H for Small and Middle Market Customers • Excess Casualty for Corporate Customers • Surety Bonds for Construction Customers • Environmental Coverages for Small Businesses 46
Slide 47: Strategic Partnerships
Strategic Partnerships • Market Management BU – utilizes Zurich US manufacturing capabilities • Sells through: – Associations – Affinity Groups – Franchisers – Communities of Interest – Partnering Organizations 47
Slide 48: Strategic Partnerships
Strategic Partnerships • Distribution types – Wholesaling – Programs – e-distributors – e-direct • E-Distributors on Board – insurancenoodle.com – epolicy.com – insurezone.com – accesscoverage.com 48
Slide 49: Operational Priorities
Operational Priorities • Pricing • Growth • Expense Control 49
Slide 50: Zurich U.S. - Rate Changes 1995 to May 2001
Zurich U.S. - Rate Changes 1995 to May 2001* 1.30 1.25 1.20 1.15 Rate Change Index 1.10 1.05 1.00 0.95 0.90 0.85 0.80 0.75 0.70 0.65 0.60 1995 1996 1997 1998 1999 2000 2001-05 Specialties Middle Mkts Corp. Customer Small Business Construction Energy (domestic) Inflation Trend *excluding Large Accoun
Slide 51: Growth Remained Strong Despite Rate Increases
Growth Remained Strong Despite Rate Increases • New Business Submission Activity – 65% increase in first quarter 2001 – 31% increase in 2000 over 1999 • Renewal Retention Ratio’s Improving – 85% in first quarter 2001 – 80% in 2000 and 1999 51
Slide 52: Gross Written Premium - May 2001 YTD
Zurich North America Gross Written Premium - May 2001 YTD GWP 2000 Growth Rate GWP May Growth Rate 2000/1999 2001 YTD May 01/May 00 Corporate Customer 1,710 32.6% 906 37.4% Specialties 1,056 16.8% 587 49.6% Small Business 893 19.5% 500 37.8% UUG 865 16.0% 432 16.8% Construction 635 65.4% 370 107.4%
Slide 53: Expense Control
Expense Control • Right Sizing • Shared Services • Impact of Expense Improvements • Market Reaction 53
Slide 54: Expense Control
Expense Control • During 1999 - 2000 Right Sized Employee Population – Headcount Grew from 7,700 in 1998 to only 7,900 (2.5%) in 2000 while Production Increased 33%. • Controlled Expense Dollars. – OUE Increased by less than 3% from $545 million in 1998 to $559 million in 2000. • Statutory Gross OUE
Slide 55: Stages of Transformation
Stages of Transformation 1999 2000 2001 2002 Zurich American Leveraging • Integration Fidelity & UUG, Zurich and Re- the Platform Deposit Canada and • Production Maryland • Process engineer Mgt integrated to create Empire & Growth consolidation to with Zurich Platforms integration Market Zurich U.S.
Slide 56: Zurich Branding Study
Zurich Branding Study • Zurich U.S. assessed the image of its brand in the U.S. commercial property-casualty market. • Overall objective was to measure brand presence, image and brand equity of Zurich U.S. and its key competitors. • ORC International surveyed 199 Zurich customers and 204 prospects.
Slide 57: Zurich Branding Study
Zurich Branding Study Six factors that define images • Customer orientation 35% • Product flexibility 30% • Positive practices 16% • Industry leader 9% • Global presence 7% • Familiarity 3% 57
Slide 58: Brand Equity Scores
Brand Equity Scores On a total basis, Zurich earned the highest overall corporate brand equity score. Zurich Competitor A Competitor B Competitor C Competitor D Competitor E 0 10 20 30 40 50 58
Slide 59: Brand Equity Scores
Brand Equity Scores Among customers, Zurich earned the highest corporate brand equity score. Zurich Competitor A Competitor B Competitor C Competitor D Competitor E 0 10 20 30 40 50 60 59
Slide 60: Brand Equity Scores
Brand Equity Scores Among prospects, Zurich earned the second-highest corporate brand equity score. Competitor A Zurich Competitor B Competitor E Competitor C Competitor D 0 10 20 30 40 50 60
Slide 61: Zurich Branding Study
Zurich Branding Study What did we find? • Zurich has a strong brand, positioned for Commercial Business. • Zurich leads the evaluated brands by a relatively large margin on Customer Orientation, the single most important image factor. 61
Slide 62: Initiatives Going Forward
Initiatives Going Forward • Accelerating Shared Services • Manufacturing • Market Management • Distribution Management • Customer Intimacy 62
Slide 63: Zurich North America - Ray Thomas
Zurich North America Ray Thomas President & CEO, Zurich Small Business Presentation to U.S. Analysts June 26,2001 © Zurich Financial Services Analysts´ Day 2001
Slide 64: Agenda
Agenda • Business Model • Financial Results • Pricing outlook/market conditions/competition • Reserve adequacy • Strategic Positioning • Small Business success story • Outlook 64
Slide 65: Small Business Mission
Small Business Mission We provide world class insurance and financial solutions to targeted small business customers (less than 50 employees). We deliver mass customized products and services that exceed our customers’ expectations by utilizing leading edge internet technology to promote ease of doi
Slide 66: Distribution of U.S. Commercial P&C Premium by Establishment Size
Distribution of U.S. Commercial P&C Premium By Establishment Size Small 44.8% (1-49) Middle 44.6% (50-999) Large 10.6% Source: 1999Marketstance; Intellistance, LLC (1000+) 66
Slide 67: Distribution of U.S. Commercial Accounts by Establishment Size
Distribution of U.S. Commercial Accounts By Establishment Size Middle 5.1% (50-999) Large 0.1% (1000+) Small 94.8% Source: 1999 Marketstance; Intellistance, LLC (1-49) 67
Slide 68: Service Delivery Compression
Service Delivery Compression 60 Minutes 13 1 12 2 11 60 Days 3 45 Minutes to 15 Minutes 10 60 Minutes 4 9 5 8 7 6 30 Minutes
Slide 69: Small Business Registered Internet Users
Small Business Registered Internet Users 26,000 25,622 26,635 24,462 23,272 23,000 22,535 21,637 20,768 19,874 20,000 18,754 17,689 17,000 16,551 15,610 14,613 14,000 13,339 11,821 11,000 Mar, Apr May Jun Jul Aug Sep Oct Nov Dec Jan, Feb Mar Apr May 2000 2001 69
Slide 70: Small Business Percent of New Business Policies via the Internet
Small Business Percent of New Business Policies via the Internet 80% 76% 75% 71% 70% 60% 58% 50% 46% 40% 31% 30% 20% 13% 10% 0% Dec-99 Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 May-01 70
Slide 71: Small Business Productivity 1998-2002
Small Business Productivity 1998-2002 (GWP Per Employee) (in millions) $5.0 4.2 $4.0 3.4 $3.0 2.6 $2.0 1.8 1.6 $1.0 $0.0 1998 1999 2000 2001 Forecast 2002 Plan 71
Slide 72: Small Business Premium Growth 1997-2002
Small Business Premium Growth 1997-2002 $Millions % New Issued on Internet 6.6% 40.5% 80.0% 90.0% $1,700 $1,500 $1,300 $1,100 $900 $700 $500 $300 $100 -$100 1997 1998 1999 2000 2001 2002 Plan Forecast 72
Slide 73: Agenda
Agenda • Business Model • Financial Results • Pricing outlook/market conditions/competition • Reserve adequacy • Strategic Positioning • Small Business success story • Outlook 73
Slide 74: Outlook - Reshaping the Game
Outlook - Reshaping the Game • Market Hardening for Two Years • Flight to Quality • E-Business to Achieve Economies of Scale • Focusing on Manufacturing and Market Management to Improve Product Density to Sustain Growth and Profitability • Carriers Who Play Multi-Distribution Channel Game are Well P
Slide 75: Zurich Financial Services
Z ZURICH FINANCIAL SERVICES