Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — FY2007 Earnings Presentation
56 slides from Zurich Insurance's earnings presentation, Feb 14, 2008
Slide 1: Annual Results Reporting 2007
Annual Results Reporting 2007 Analysts and Media Presentation Zurich, February 14, 2008
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: Agenda
Agenda • Introduction James J. Schiro • Annual Results 2007 Dieter Wemmer • Closing remarks James J. Schiro • Q&A © Zurich Financial Services - Annual Results Reporting 2007 - February 14, 2008 3
Slide 4: Introduction
Introduction James J. Schiro Chief Executive Officer Zurich, February 14, 2008
Slide 5: Financial highlights
Financial highlights in USD millions 2007 20061 Change for the years ended December 31 Business operating profit 6,614 6,035 10% Net income attributable to shareholders 5,626 4,620 22% General Insurance combined ratio 95.6% 93.9% -1.7pts Global Life new business margin2 24.7% 21.6% 3.1pts Farmers Mg
Slide 6: Strategic transformation
Strategic transformation Capital ROE Margin 16%1 Volume Operational Transformational Transformation Growth Enhanced service Platforms Customer delivery Scale Data quality Product Cost advantage Larger data set Expense base Distribution Customer insight 1 Business operating profit (after tax) return
Slide 7: Annual Results 2007
Annual Results 2007 Dieter Wemmer Chief Financial Officer Zurich, February 14, 2008
Slide 8: Business operating profit by segment
Business operating profit by segment in USD millions 2007 20061 Change for the years ended December 31 General Insurance 4,024 3,804 6% Global Life 1,443 1,200 20% Farmers Management Services 1,271 1,225 4% Other Businesses 687 577 19% Corporate Functions -810 -772 -5% Total 6,614 6,035 10% 1 Throug
Slide 9: Differentiated focus: 2007 volume growth and margin enhancement
Zurich applies a differentiated focus to unlock and grow business value – 2007 actual 11 10 6 Percentage volume growth1 Life 3 (1) IB 0 FMS 3 (4) EGI Legend FMS Farmers Management Services IB International GC 1 Businesses (2) EGI Europe General Insurance NAC 4 GC Global Corporate (3) NAC North Ameri
Slide 10: Top line development by segment
Top line development by segment in USD millions 2007 2006 Change Change for the years ended December 31 in LC1 Gross written premiums and policy fees General Insurance 35,650 34,123 4% 0% Global Life (incl. insurance deposits)2 21,703 21,022 3% -4% Other Businesses 2,350 2,329 1% 1% Annual Premium E
Slide 11: General Insurance – key performance indicators
General Insurance – key performance indicators Business Operating Profit Combined ratio (%) in USD millions 2007 2006 Change Global Major 96.1 CAT 1.5 for the years ended December 31 Corporate 94.4 Global Corporate 736 692 6% NA 94.5 North America Commercial 1,460 1,123 30% Commercial 95.6 Europe Eu
Slide 12: General Insurance net expense ratio walk from 2006 to 2007
General Insurance net expense ratio walk from 2006 to 2007 0.6% -0.3% 25.1% 0.1% 0.1% 0.7% 23.8% 2006 Commission 1 Premium 2 Product mix Investments Other 3 2007 Expense refund on e.g. Nasta in TZW Expense Ratio loss sensitive initiatives Ratio business 1 Commission is up mainly due to the effect of
Slide 13: Comparison of General Insurance loss ratio allowing for major CAT and PYD
Comparison of General Insurance loss ratio allowing for major CAT and PYD 2007 2006 75% 75% -3.6% 71.6% 70.5% 2.5% -0.8% 70.9% 70.1% 0.0% 70% 70% USD -239m USD 750m USD -1,079m 65% 65% 60% 60% Booked Major PYD2 Underlying Booked Major PYD2 Underlying Loss Ratio CAT1 Loss Ratio Loss Ratio CAT1 Loss R
Slide 14: Development of Reserves for Losses and Loss Adjustment Expenses (LAE)
Development of Reserves for Losses and Loss Adjustment Expenses (LAE) in USD millions 2007 2006 Net reserves for losses and LAE, as of January 1 50,814 46,194 Net losses and LAE paid -19,856 -18,908 Net losses and LAE incurred - Current year 23,374 21,448 - Prior years -1,2191 -218 Currency translat
Slide 15: Non-life ultimate loss ratios by accident year
Non-life ultimate loss ratios by accident year Cumulative incurred 2001 2002 2003 2004 2005 2006 2007 net loss ratios1 In the year 81.4% 70.6% 67.1% 68.3% 73.3% 69.6% 72.7% 1 year later 85.7% 72.0% 66.1% 64.2% 68.1% 66.2% 2 years later 85.8% 72.3% 65.4% 63.5% 66.6% 3 years later 87.4% 74.5% 65.5% 63
Slide 16: Global Life – key performance indicators
Global Life – key performance indicators in USD millions 2007 2006 Change Change for the years ended December 31 in LC1 Annual Premium Equivalent (APE) 2,947 2,500 18% 11% New business value, after tax 729 539 35% 28% New business margin, after tax2 24.7% 21.6% 3.1pts Embedded value operating profit
Slide 17: Global Life – APE growth accelerated quarter by quarter in 2007
Global Life – APE growth1 accelerated quarter by quarter in 2007 FY + 11% 9M + 8% Q4 HY + 17% + 5% Q3 Q2 + 14% Q1 + 9% + 2% 2007 2006 Q1 Q2 Q3 Q4 1 Local Currency © Zurich Financial Services - Annual Results Reporting 2007 - February 14, 2008 17
Slide 18: Global Life – emerging markets are growing strongly and profitably
Global Life – emerging markets are growing strongly and profitably in USD millions APE APE Growth NBM1 NBM1 for the years ended December 31 2007 2006 2007 2006 Emerging markets 664 447 49% 26.6% 24.7% of which: Southeast Asia 316 180 76% 36.6% 36.4% Share of emerging markets in total Global Life APE
Slide 19: Global Life Embedded Value result
Global Life Embedded Value result for the years ended December 31 2007 2007 20061 2006 USD m Return USD m Return Opening Embedded Value 14,092 11,680 Expected operating profit2,3 889 750 New business value3 729 539 Operating variance3 2774 -17 Total operating profit3 1,895 13.1% 1,272 10.5% Economic
Slide 20: Farmers Management Services – key performance indicators
Farmers Management Services – key performance indicators in USD millions 2007 2006 Change for the years ended December 31 Management fees and other related revenues 2,266 2,133 6% Business operating profit 1,271 1,225 4% Gross operating margin 46.6% 50.1% -3.5pts Managed gross earned premium margin1
Slide 21: Farmers Exchanges – key performance indicators
Farmers Exchanges1 – key performance indicators in USD millions 2007 2006 Change for the years ended December 31 Gross written premiums2 15,806 15,003 5% Net underwriting result -17 450 N/A Combined ratio 99.2% 95.9% -3.3pts Adjusted combined ratio3 92.3% 88.6% -3.7pts Surplus ratio4 39.9% 39.9% 0.0
Slide 22: Bristol West integration
Bristol West integration • Acquisition completed on July 3, 2007 • Rapidly expanding product distribution to Farmers Tied Agency Force: • 20 of 29 tied agents states rolled out successfully by year-end 2007 • This includes large states such as California and Texas • The remainder to be rolled out in
Slide 23: Other Businesses and Corporate Functions – Business operating profit contribution
Other Businesses and Corporate Functions – Business operating profit contribution in USD millions 2007 2006 Change for the years ended December 31 Other Businesses: - Farmers Re 173 181 -4% - Centre 167 249 -33% - Other 347 147 136% Total Other Businesses 687 577 19% Corporate Functions -810 -772 -5
Slide 24: Investment performance of Group investments
Investment performance of Group investments in USD millions 2007 2006 Change for the years ended December 31 Net investment income 8,591 7,899 9% Net capital gains on investments and 1,498 1,536 -2% impairments of which attributable to shareholders 1,112 1,088 2% Net investment result 10,089 9,434 7
Slide 25: Investment Management highlights
Investment Management highlights • Net investment return of 5.3% reflects our disciplined investment approach. • Zurich’s equity exposure after hedging is well controlled and amounts to 5.4% of Group investments (see slide 50). About a third of our equity portfolio is hedged with put options. • Zuri
Slide 26: Development of shareholders' equity
Development of shareholders’ equity in USD millions 31,000 1,339 30,000 1,025 29,000 28,804 5,626 627 28,000 1,205 623 27,000 26,531 26,000 944 25,587 25,000 24,000 Balance Dec IAS 19 SoRIE Restated Net Income Dividends Share Treasury Change in Other Balance as of 31, 2006 as Balance as of attributa
Slide 27: Zurich's capital actions in 2007 and 2008
Zurich’s capital actions in 2007 and 2008 Capital management actions Approximate amounts in USD billions 2008 2007 In respect of 2007 In respect of 2006 • Proposed Dividend payment1,2 1.9 1.3 • Increase in internal capital requirement3 1.4 2.0 • Committed acquisitions 0.5 1.2 • 2007 Treasury share p
Slide 28: Capital management actions – total capital return increases to CHF 36.02 per share
Capital management actions – total capital return increases to CHF 36.02 per share and total payout ratio to 78% 100% 46.37 Diluted earnings per share 36.02 (in CHF) 39.52 78% 5.27 66% Treasury share purchase (per share)1 15.75 19.65 Share buyback 8.65 32% (per share)2 15.003 11.00 Payout to shareho
Slide 29: Financial highlights
Financial highlights in USD millions 2007 20061 Change for the years ended December 31 Business operating profit 6,614 6,035 10% Net income attributable to shareholders 5,626 4,620 22% General Insurance combined ratio 95.6% 93.9% -1.7pts Global Life new business margin2 24.7% 21.6% 3.1pts Farmers Mg
Slide 30: Closing remarks
Closing remarks James J. Schiro Chief Executive Officer Zurich, February 14, 2008
Slide 31: Q&A
Q&A © Zurich Financial Services - Annual Results Reporting 2007 - February 14, 2008 31
Slide 32: Appendix
Appendix © Zurich Financial Services - Annual Results Reporting 2007 - February 14, 2008 32
Slide 33: The Zurich Way – Target of USD 2.4 billion for 2008 to 2010
The Zurich Way – Target of USD 2.4 billion for 2008 to 2010 Total planned benefits • We have comfortably achieved our 2008 to 2010: 2007 target. USD 2.4 billion • We expect benefits of USD 2.4 billion from 2008 to 2010 USD 800m • 14 TZW workstreams with over 400 USD USD USD 500m 500m 700m initiative
Slide 34: The Zurich Way initiatives – 2008 target
The Zurich Way initiatives – 2008 target by function by business USD 800m division USD 800m USD 700m USD 700m Growth/ 32% Distribution Europe General 21% 35% Insurance 31% USD 500m USD 500m 16% 36% 17% Claims 18% North America 22% 34% Commercial 16% 28% 43% Global 34% U/W 20% 17% Corporate 36% 15% 1
Slide 35: Net income by currency: currency changes balanced
Net income by currency: currency changes balanced Change of GBP/CHF: +4% Change of USD/CHF: -4% GBP: Change of EUR/CHF: +5% 12% EUR: 22% USD: 50% CHF: 8% Other: 8% neutral Numbers for the year ended December 31, 2007; change of average exchange rates of 2007 over 2006 © Zurich Financial Services - A
Slide 36: Business division BOP-ROE based on RBC-allocated IFRS equity
Business division BOP-ROE1 based on RBC-allocated IFRS equity 2007 2006 for the years ended December 31 General Insurance 27.8% 31.8% - Global Corporate 22.1% 25.9% - North America Commercial 26.3% 25.1% - Europe General Insurance 31.3% 43.8% - International Businesses 19.2% 23.2% - Group Reinsuranc
Slide 37: Zurich RBC by segment and risk type for 2008
Zurich RBC by segment and risk type for 2008 Graph taken from Total RBC estimate: Zurich Risk Modeling Platform Farmers USD 32 billion Mgmt Services1 2% Other2 10% 16% 1% Market/ALM risk 7% 5% 30% Business risk Operational risk General P&R risk3 Global Life Insurance Re-ins credit risk 20% 56% Life
Slide 38: Estimation of Available Financial Resources (AFR) as of January 1, 2008
Estimation of Available Financial Resources (AFR) as of January 1, 2008 in USD billions (rounded) 40 8 40 -2 35 38 30 17 29 -4 25 25 -10 20 15 10 Reported Proposed Net Net Value of in- Financial debt3 Total AFR Capital Net AFR shareholders' distributions1 shareholders' 2 intangibles force business a
Slide 39: Development of economic financial strength based on AA calibration
Development of economic financial strength based on AA calibration in USD billions (rounded) Change from EV to MCEV 40 35 38 34 Available to policyholders 30 32 29 30 25 28 27 26 26 20 23 15 10 5 RBC RBC AFR AFR RBC AFR RBC AFR RBC RBC AFR AFR RBC AFR RBC AFR RBC AFR RBC AFR 0 2004 2005 2006 2007 20
Slide 40: Asbestos and environmental reserves
Asbestos and environmental reserves 2007 2006 Gross 3-year Gross 3-year reserves survival reserves survival USD m ratio USD m ratio Asbestos 3,799 26.5 3,499 28.8 of which: US 1,535 14.3 1,570 15.4 of which: UK 2,264 34.81 1,929 39.71 Environmental 394 8.7 433 7.8 Total 4,193 3,932 1 3-year survival
Slide 41: Global Life – new business indicators
Global Life – new business indicators in USD millions APE APE Change Change NBV2 NBV2 Change for the years ended December 31 2007 2006 in LC1 2007 2006 United States 119 113 5% 5% 108 59 83% United Kingdom 926 820 13% 4% 121 100 22% Germany 570 563 1% -7% 184 133 38% Switzerland 104 90 16% 11% 33 35
Slide 42: Global Life – IFRS net assets adjusted to bridge EV
Global Life – IFRS net assets adjusted to bridge EV in USD billions 2007 2006 Goodwill 0.6 0.5 Intangible assets1 3.5 2.9 Tangible assets 7.8 8.2 Global Life IFRS net assets 11.9 11.6 Adjustments to Global Life IFRS net assets for EV Minorities -0.2 -0.2 Reserves and investments valuation difference
Slide 43: Global Life – Intangible assets
Global Life – Intangible assets in USD billions 2007 2006 DAC/DOC assets included in Global Life 12.5 10.9 Present value of future profits1 and other intangibles 1.1 1.0 Deferred front-end fees -5.8 -5.3 Policyholder share of DAC/DOC and other intangibles -2.9 -2.4 Tax deductions on intangible asset
Slide 44: Farmers Exchanges – financial highlights: strong premium and surplus growth
Farmers Exchanges1 – financial highlights: strong premium and surplus growth 6'000 42.0% in USD millions 2007 2006 for the years ended December 31 5'000 40.0% Gross written premiums2 15,806 15,003 4'000 38.0% Net underwriting result -17 450 3'000 36.0% Net surplus growth 444 645 Ending surplus 5,719
Slide 45: Farmers Exchanges – gross written premiums by line of business
Farmers Exchanges – gross written premiums1 by line of business in USD millions 2007 2006 Change for the years ended December 31 Auto 8,252 7,754 6% Homeowners 4,271 4,079 5% Commercial P&C 1,246 1,187 5% Workers’ Compensation2 356 386 -8% Specialty 1,544 1,467 5% Other 136 129 5% Total 15,806 15,00
Slide 46: Farmers Exchanges – premium growth outperforming industry
Farmers Exchanges – premium growth outperforming industry GWP growth Industry Growth Rate1 6% 2006: 2.2% 2007E: -0.7% 5.4% 5.0% 5.1% 4.6% 4% 3.2% 3.3% 2.2% 2% 1.4% 0% 3 Half 9 Full year 3 Half 9 Full year months year months 2006 months year months 2007 2006 2006 2006 2007 2007 2007 1 Source of 2007
Slide 47: Farmers Exchanges – combined ratio remains strong and outperforms industry
Farmers Exchanges – combined ratio remains strong and outperforms industry for the years ended December 31 20071 20061 Change Auto 99.6% 99.9% 0.3pts Homeowners 97.3% 88.1% -9.2pts Commercial P&C 95.2% 94.3% -0.9pts Workers’ Compensation 96.9% 95.9% -1.0pts Specialty 94.8% 92.4% -2.4pts Total 99.2%
Slide 48: Farmers Exchanges – development of the combined ratio
Farmers Exchanges – development of the combined ratio Quarterly combined ratio 115% 110% California wildfires 105% Rita California wildfires 100% Florida hurricanes Katrina 95% 90% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2002 2003 2004 2005 2006 2007 © Zurich Financia
Slide 49: Farmers Exchanges – very strong competitive performance
Farmers Exchanges – very strong competitive performance Growth vs. GAAP Combined ratio1 Growth NPW Industry3 % 95.2% Q407 YTD Peer Averages4 NPW growth = -1.6% 6.0 2 Farmers CR = 90.8% 5.0 4.0 3.0 September 2007 December 2007 2.0 2007 Industry Estimate 1.0 Q307 Peer Average 0.0 Safeco Industry3 Stat
Slide 50: 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 December 31, 2007, in % Asset allocation (%) Risk diversification Risk exposure (%)1 and matching (%) 100 Hedge Funds / Private Equity 62 Hedge R
Slide 51: Zurich's debt securities are of very high quality (98.8% investment grade)
Group Investments – Zurich’s debt securities are of very high quality (98.8% investment grade) As of December 31, 2007 Group Investments Debt securities USD 194bn USD 124bn credit rating: AAA 63.1% credit rating: AA Other Debt 98.8% 12.4% asset securities investment classes grade 36% 64% credit rati
Slide 52: Zurich's debt securities are well balanced
Group Investments – Zurich’s debt securities are well balanced Group Investments - USD 194bn (100%) As of December 31, 2007 Government and supranational bonds: USD 45bn (23%) 100% inv. grade 78% AAA 5% AA 16% A 1% BBB Corporate bonds: USD 51bn (27%) 98% inv. grade Debt 33% AAA securiti
Slide 53: Split of total MBS/ABS of USD 27.7bn (14%)
Group Investments – Split of total MBS/ABS of USD 27.7bn (14%) MBS/ABS: USD 27.7bn (14%) Group Investments 100% inv. grade USD 194bn (100%) 95% AAA includes: US MBS: USD 17.6bn (9.1%) 100% inv. grade 98% AAA Debt see further details on next slide securities US ABS1: USD 3.1bn (1.6%) 100%
Slide 54: Split of US MBS of USD 17.6bn (9.1%)
Group Investments – Split of US MBS of USD 17.6bn (9.1%) Group Investments US-MBS: USD 17.6bn (9.1%) USD 194bn (100%) 100% inv. grade 98% AAA Debt of which: securities US “Agency” MBS: USD 10.1bn (5.2%) 64% 100% AAA USD 0.6bn backed by GNMA USD 9.5bn backed by FNMA and FHLMC Other asset US
Slide 55: Exposure to US sub-prime remains very small (0.15%)
Group Investments – Exposure to US sub-prime remains very small (0.15%) and of high quality Group Investments US sub-prime: USD 289m (0.15%) USD 194bn (100%) 100% inv. grade 78% AAA Minimal downgrades by rating agencies since June 07 (USD 11m) Debt Minimal impairments in 2007 (USD 16m) secur
Slide 56: Exposure to CDO remains very small (0.20%)
Group Investments – Exposure to CDO remains very small (0.20%) and of high quality Group Investments CDO: USD 384m (0.20%) USD 194bn (100%) 99% inv. grade, 1% unrated 69% AAA 77% backed by UK bank loans (CLO) and 23% by other types of collateral assets Debt Minimal impairments in 2007 (USD 1
Zurich Financial Services — FY2007 Earnings Presentation on 6ix