Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — FY2008 Earnings Presentation
68 slides from Zurich Insurance's earnings presentation, Feb 5, 2009
Slide 1: Annual Results Reporting 2008
Annual Results Reporting 2008 Analysts and Media Presentation February 5, 2009
Slide 2: Disclaimer and cautionary statement
Disclaimer and cautionary statement By attending this meeting where this presentation is made you agree to be bound by the following limitiations. Certain statements in this document are forward-looking statements, including, but not limited to, statements that are predications of or indicate future
Slide 3: Agenda
Agenda Introduction James J. Schiro Annual Results 2008 Dieter Wemmer Investment Management Martin Senn General Insurance John Amore Global Life Mario Greco Farmers Paul Hopkins Q&A Closing remarks James J. Schiro © Zurich Financial Services February 5, 2009 Annual Results Reporting 2008 3
Slide 4: Introduction
Introduction James J. Schiro Chief Executive Officer February 5, 2009
Slide 5: Financial highlights
Financial highlights in USD millions 2008 20071 Change for the years ended December 31 Business operating profit 5,186 6,707 -23% Net income attributable to shareholders 3,039 5,714 -47% General Insurance combined ratio 98.1% 95.6% -2.5pts Global Life new business margin2 23.1% 24.7% -1.6pts Farmers
Slide 6: Annual Results 2008
Annual Results 2008 Dieter Wemmer Chief Financial Officer February 5, 2009
Slide 7: Business operating profit by segment
Business operating profit by segment in USD millions 2008 20071 Change for the years ended December 31 General Insurance 3,535 4,024 -12% Global Life 1,480 1,443 3% Farmers Management Services 1,202 1,271 -5% Corporate Functions -772 -810 5% Total Core Business operating profit 5,445 5,928 -8% Other
Slide 8: Impact of financial markets on Business operating profit
Impact of financial markets on Business operating profit Financial market Total BOP impact on BOP in USD millions FY08 Q4-08 FY08 General Insurance -87 -40 3,535 Global Life -340 -107 1,480 Farmers Management Services - - 1,202 Corporate Functions - - -772 Total Core BOP -427 -147 5,445 Other Busine
Slide 9: Top line development by segment
Top line development by segment in USD millions 2008 2007 Change Change for the years ended December 31 in LC1 Gross written premiums and policy fees General Insurance 37,151 35,650 4% 2% Global Life (incl. insurance deposits)2 21,863 21,703 1% -2% Other Businesses 4,043 2,350 72% 72% Annual Premium
Slide 10: Rate Change Monitor for personal and commercial lines
Rate Change Monitor1 for personal and commercial lines EGI by country by division Switzer- Rest of EGI Farmers UK Germany land Italy Spain Europe Total IB NAC GC Exchanges2 12m 2008 Personal Lines 9% 1% -1% 2% 5% -2% 2% 1% n/a n/a 7% Commercial Lines -2% 1% -1% 0% 5% -4% -1% 7% -3% -5% n/a 9m 2008 P
Slide 11: General Insurance – key performance indicators
General Insurance – key performance indicators Business Operating Profit Combined ratio (%) 112.4 CAT 7.5 Global CAT in USD millions 2008 2007 Change Corporate 96.2 1.5 for the years ended December 31 CAT 97.4 2.1 Global Corporate 47 738 -94% NA Commercial 94.5 North America Commercial 1,238 1,460 -
Slide 12: General Insurance net expense ratio walk from 2007 to 2008
General Insurance net expense ratio walk from 2007 to 2008 25.1% 0.6% -0.4% 0.2% 25.5% 2007 Commission1 Internal Acquisitions2 2008 Expense expenses Expense Ratio Ratio © Zurich Financial Services 1 Commission has increased mainly due to the effect of writing greater amounts of higher commission, lo
Slide 13: Comparison of General Insurance loss ratio
Comparison of General Insurance loss ratio 2008 2007 75% 75% 6.6% 72.6% 5.6% 70.5% 70% 70% 0.6% 4.2% 67.8% 1.8% 0.6% 3.6% 65.5% 2.5% 65% 65% USD USD USD USD USD USD USD USD -258m 1’308m -556m -2’059m -236m 1’079m -750m -1’672m 60% 60% Underlying PY PY Major Large Reported Underlying PY PY Major Larg
Slide 14: Global Life – key performance indicators
Global Life – key performance indicators in USD millions 2008 2007 Change Change for the years ended December 31 in LC1 Annual Premium Equivalent (APE) 3,261 2,947 11% 10% New business value, after tax 753 729 3% 1% New business margin, after tax2 23.1% 24.7% -1.6pts Business operating profit 1,480
Slide 15: Global Life – new business indicators
Global Life – new business indicators in USD millions APE APE Change Change for the years ended December 31 in LC1 2008 2007 Bancassurance 746 477 56% 46% IFA/Brokers 942 1,124 -16% -15% Tied agents 537 551 -3% -7% Corporate Life 414 314 32% 29% International / Expats 323 389 -17% -8% Private Bankin
Slide 16: Global Life – Embedded Value result
Global Life – Embedded Value result for the years ended December 31 2008 2008 2007 2007 USD m Return USD m Return Opening Embedded Value 15,935 14,092 Expected operating profit1,2 964 889 New business value2 753 729 Operating variance2 283 277 - Global development expenses3 -16 Total operating profi
Slide 17: Farmers Management Services – key performance indicators
Farmers Management Services – key performance indicators in USD millions 2008 2007 Change for the years ending December 31 Management fees and other related revenues 2,458 2,266 8% Management and other related expenses -1,317 -1,210 -9% Gross management result 1,141 1,056 8% Managed gross earned pre
Slide 18: Farmers Exchanges – key performance indicators
Farmers Exchanges1 – key performance indicators in USD millions 2008 2007 Change for the years ending December 31 Gross written premiums (statutory)2 17,135 16,128 6% Gross written premiums3 16,710 15,806 6% Net underwriting result -922 -17 nm Combined ratio 105.6% 99.2% -6.4pts Adjusted combined ra
Slide 19: Other Businesses and Corporate Functions – BOP contribution
Other Businesses and Corporate Functions – Business operating profit contribution in USD millions 2008 2007 Change for the years ended December 31 Other Businesses: - Farmers Re 154 173 -11% - Centre -106 252 nm - Other -308 354 nm Total Other Businesses -260 779 nm Corporate Functions -772 -810 5%
Slide 20: Investment performance of Group investments
Investment performance of Group investments in USD millions 2008 2007 Change for the years ended December 31 Net investment income 8,725 8,591 2% Net capital losses/gains on investments and -2,893 1,503 nm impairments1 of which attributable to shareholders -2,046 1,112 nm Net investment result 5,832
Slide 21: 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 2000 2000 1,507 1000 1000 687 4
Slide 22: Group investments – unrealized losses
Group investments – unrealized losses Change in net unrealized losses on investments incl. in shareholders’ equity1 in USD millions Equity investments 2000 Debt investments 1,649 Other investments 1000 72 11 21 0 -54 -33 -77 -55 -144 -212 -602 -1000 -1,428 -1,596 -2000 -2,419 -2,937 -3000 Q1-08 Q2-0
Slide 23: Development of shareholders’ equity
Development of shareholders’ equity in USD millions 3,039 2,096 32,000 31,000 1,045 30,000 28,945 3,159 29,000 28,000 27,000 26,000 2,725 25,000 24,000 1,115 23,000 259 22,103 22,000 21,000 20,000 19,000 Restated Net Income Dividends Share Change in net Cumulative Net actuarial Other Balance as of ©
Slide 24: Resilient statutory and economic solvency
Resilient statutory and economic1 solvency in USD billions (rounded) Change from EV to MCEV 40 38 35 34 30 29 30 30 28 27 Available to policyholders 27 28 27 25 26 26 20 23 21 15 10 5 RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR RBC AFR 2003 2004 2005 2006 2007 2008 2009 estimate2 Group‘s Solvenc
Slide 25: Proposed dividend of CHF 11 per share, payout ratio 47%
Proposed dividend of CHF 11 per share resulting in a dividend payout ratio of 47% Diluted earnings per share 47.11 (in CHF) Dividend to shareholders (in CHF) 23.35 32% 47% 15.00 11.001 in respect of in respect of 2008 2007 © Zurich Financial Services 1 Proposed gross dividend by the Board of Directo
Slide 26: Operational Summary
Operational Summary Continued strong operational performance Achieved BOP after tax RoE target Balance sheet remains resilient Profitable growth achieved in targeted areas TZW benefits and additional expense control actions © Zurich Financial Services February 5, 2009 Annual Results Reporting 2008 2
Slide 27: Investment Management
Investment Management Martin Senn Chief Investment Officer February 5, 2009
Slide 28: Investment Management
Investment Management We maximize risk adjusted returns relative to liabilities A systematic approach is the basis of success in Investment Management We invest in a well diversified and high quality portfolio A total return of 1% in 2008 is proof that our approach works We will continue our discipl
Slide 29: General Insurance
General Insurance John Amore Chief Executive Officer General Insurance February 5, 2009
Slide 30: Market outlook for General Insurance
Market outlook for General Insurance Zurich well positioned to “lead the market” Premium rates expected to improve Economic crisis impacting General Insurance environment Operational and UW excellence through TZW and OT Selected profitable growth can be achieved Confident to deliver market leading r
Slide 31: Global Life
Global Life Mario Greco Chief Executive Officer Global Life February 5, 2009
Slide 32: We remain focused on delivering the strategy communicated in May 2008
We remain focused on delivering the strategy communicated in May 2008 The outlook for Zurich's Global Life business is positive as we reap the benefits from continuing to deliver our strategy… Leverage Full year's sales and new business value from the acquisitions acquisitions completed during 2008
Slide 33: Market conditions demand customer focus, flexibility and ability to seize opportunities
Market conditions demand customer focus, flexibility and ability to seize opportunities Trends Our response Customers Customer & Distributor Focus Risk aversion Emphasize our strength and risk Focus on capital preservation management capabilities Increased interest in risk-based Launch new propositi
Slide 34: Global Life Priorities for 2009
Global Life Priorities for 2009 Disciplined execution of our strategy Stay flexible on markets, rebalancing investment between Asia, Europe and Americas as required Focus on customer and distributor needs, developing new propositions to suit the changing environment Target of USD 1.2bn Continue to d
Slide 35: Farmers
Farmers Paul Hopkins Chairman of the Board of Farmers Group, Inc. February 5, 2009
Slide 36: The U.S. P&C market landscape is challenging… Farmers continues to outperform
The U.S. P&C market landscape is challenging… Farmers continues to outperform Continued contraction forecasted through Leverage current strong competitive 2009 in recessionary US market… position to continue to outperform… Sep. 2008 Premium growth rate (NWP) in the market Growth NPW % Industry5 FY08
Slide 37: Strong strategy execution to continue Farmers market leadership
Strong strategy execution to continue Farmers market leadership Continue to drive operational excellence (baseline operating expense flat from 2007-2009 period) Maintain core underwriting discipline Meet or exceed the target of USD 21bn in GWP at the Exchanges by 2010 Establish Direct Channel Capabi
Slide 38: Q&A
Q&A © Zurich Financial Services February 5, 2009 Annual Results Reporting 2008 38
Slide 39: Closing remarks
Closing remarks James J. Schiro Chief Executive Officer February 5, 2009
Slide 40: Appendix
Appendix © Zurich Financial Services February 5, 2009 Annual Results Reporting 2008 40
Slide 41: Zurich is poised for profitable growth
Zurich is poised for profitable growth 10% 10% 8% Global Focus on volume growth1 Farmers Life 7% IB EGI 1% Legend for GI BDs IB International Businesses GC EGI Europe General NAC Insurance GC Global Corporate -3% NAC North America Commercial Focus on margin enhancement © Zurich Financial Services 1
Slide 42: The Zurich Way and 2009 expense saving initiatives
The Zurich Way and 2009 expense saving initiatives The Zurich Way – Target of USD 2.7 billion for 2009 to 2011 We have comfortably achieved our USD USD 900m 2008 target. USD 800m Developing our three year plan, we 700m expect benefits of USD 2.7 billion for Total TZW 2009 to 2011 USD planned benefit
Slide 43: The Zurich Way initiatives – 2009 target
The Zurich Way initiatives – 2009 target by function by business USD 900m division USD 900m Growth/ USD 800m 21% Distribution USD 800m USD 700m USD 700m 39% Europe General 32% Insurance 21% 35% 30% Claims 31% 36% 16% 17% North America 23% Commercial 22% 28% 43% 29% U/W Global 34% 17% 15% Corporate 1
Slide 44: Business division BOP-ROE based on RBC-allocated IFRS equity
Business division BOP-ROE1 based on RBC-allocated IFRS equity for the years ended December 31 2008 2007 General Insurance 26.0% 27.5% - Global Corporate 1.6% 22.1% - North America Commercial 25.5% 26.3% - Europe General Insurance 42.0% 30.2% - International Businesses 29.6% 18.9% - Group Reinsurance
Slide 45: Zurich RBC by segment and risk type for 2009
Zurich RBC by segment and risk type for 2009 Total RBC estimate: Farmers USD 28 billion Mgmt Services1 3% Other2 10% 14% 1% 10% 4% 24% Market/ALM risk Business risk General Operational risk Global Life Insurance P&R risk3 20% 56% Re-ins credit risk 8% 41% Life insurance risk 9% Natural cat risk Inve
Slide 46: Estimation of Available Financial Resources (AFR) as of January 1, 2009
Estimation of Available Financial Resources (AFR) as of January 1, 2009 in USD billions (rounded) 30 8 29 -2 25 27 22 -1 20 21 -15 15 15 10 5 0 Reported Proposed Net Net Value of in- Financial Total AFR Capital Net AFR shareholders’ distributions1 shareholders’ intangibles2 force business debt3 allo
Slide 47: Development of Reserves for Losses and Loss Adjustment Expenses
Development of Reserves for Losses and Loss Adjustment Expenses (LAE) in USD millions 2008 2007 Net reserves for losses and LAE, as of January 1 54,712 50,814 Net losses and LAE paid -22,150 -19,856 Net losses and LAE incurred - Current year 25,416 23,374 - Prior years1 -1,271 -1,219 Currency transl
Slide 48: 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 2008 net loss ratios1 In the year 81.4% 70.6% 67.1% 68.3% 73.3% 69.6% 72.7% 74.6% 1 year later 85.7% 72.0% 66.1% 64.2% 68.1% 66.2% 71.7% 2 years later 85.8% 72.3% 65.4% 63.5% 66.6% 64.8% 3 years lat
Slide 49: Asbestos and environmental reserves
Asbestos and environmental reserves 2008 2007 Gross 3-year Gross 3-year reserves survival reserves survival USD m ratio USD m ratio Asbestos 3,001 23.52 3,799 26.5 General Insurance 2,352 28.4 2,732 30.3 of which: US 422 7.6 468 8.6 of which: UK 1,929 32.91 2,264 34.81 Other Businesses 649 5.92 1,06
Slide 50: 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 2008 2007 in LC1 2008 2007 United States 101 119 -15% -15% 91 108 -16% United Kingdom 878 926 -5% 2% 90 121 -26% Germany 690 570 21% 13% 265 184 44% Switzerland 123 104 19% 7%
Slide 51: Global Life – emerging markets
Global Life – emerging markets in USD millions APE APE Growth NBM1 NBM1 for the years ended December 31 2008 2007 2008 2007 ZIS2 449 453 -1% 20.3%3 20.4% Hong Kong 77 135 -43% 21.6% 48.2% Latin America 122 76 61% 24.6% 25.4% Total Emerging markets 648 664 -2% 20.1% 26.6% Share of emerging markets 20
Slide 52: Global Life – IFRS net assets adjusted to bridge EV
Global Life – IFRS net assets adjusted to bridge EV in USD billions 2008 2007 Goodwill 0.6 0.6 Intangible net assets1 6.1 3.5 Tangible net assets 5.1 7.8 Global Life IFRS net assets 11.8 11.9 Adjustments to Global Life IFRS net assets for EV Minorities -0.1 -0.2 Reserves and investments valuation di
Slide 53: Global Life - intangible assets
Global Life - intangible assets in USD billions 2008 2007 DAC / DOC assets included in Global Life 11.5 12.5 Present value of future profits1 and other intangibles 3.8 1.1 Deferred front-end fees and other -4.7 -5.8 Policyholder share of DAC/DOC and other intangibles -2.2 -2.9 Tax deduction on intan
Slide 54: Global Life - Assets under Management
Global Life - Assets under Management1 AuM decreased mainly due to currency translation and a reduction of the market value of assets Split of AuM Development of AuM in USD billions 220 in USD billions 18 Balance as of Jan 1, 2008 220 180 20 106 AuM acquired 13 66 Inflows 23 Outflows 25 94 96 Market
Slide 55: Farmers Exchanges – financial highlights: strong premium growth
Farmers Exchanges1 – financial highlights: strong premium growth in USD millions 6'000 42.0% 2008 2007 for the years ending Dec. 31 5'000 40.0% Gross written premiums2 16,710 15,806 Net underwriting result -922 -17 4'000 38.0% Net surplus growth -721 444 3'000 36.0% Ending surplus 4,997 5,719 2'000
Slide 56: Farmers Exchanges – gross written premiums by line of business
Farmers Exchanges – gross written premiums by line of business in USD millions 2008 2007 Change for the years ending December 31 Auto 8,550 8,252 4% Homeowners 4,465 4,271 5% Commercial P&C 1,283 1,242 3% Zurich Small Businesses 3771 N/A N/A Workers’ Compensation2 338 347 -3% Specialty 1,563 1,544 1
Slide 57: Farmers Exchanges – premium growth outperforming industry
Farmers Exchanges – premium growth outperforming industry GWP growth 8% Industry Growth Rate1 2007 : -0.5% 2 6.5% 2008 Forecast: -1.0% 6.1% 2 2 6% 5.7% 5.7% 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 3 Half 9 Full year months year months 2006 months year m
Slide 58: Farmers Exchanges – combined ratio
Farmers Exchanges – combined ratio for the years ending December 31 20081 20071 Change Auto 99.2% 99.6% 0.4pts Homeowners 119.8% 97.3% -22.5pts Commercial P&C 96.0% 95.3% -0.7pts Zurich Small Business 116.1% N/A N/A Workers' Compensation 95.8% 97.6% 1.8pts Specialty 107.8% 94.8% -13.0pts Total 105.6
Slide 59: Farmers Exchanges – development of the combined ratio
Farmers Exchanges – development of the combined ratio Quarterly combined ratio 120% Other Cats 115% Gustav 110% Midwest California Cats wildfires Ike 105% Rita California wildfires 100% Florida hurricanes Katrina 95% 90% © Zurich Financial Services Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
Slide 60: Competitor Analysis - Overall
Competitor Analysis - Overall Growth vs. GAAP Combined Ratio1,6 Growth NPW % Industry4 September 2008 8.0 104.0% FY08 Industry Estimate GEICO5 Farmers2,3 4.0 Liberty Mutual6 State Farm6 Travelers 0.0 Industry4 Progressive Allstate American -1.0% Hartford Family6 Nationwide6 -4.0 Mercury -8.0 Combine
Slide 61: 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, 2008 Asset allocation (%) Risk diversification Risk exposure (%)1 and matching (%) 100 Hedge Funds / Private Equity Hedge Real Estat
Slide 62: Zurich’s debt securities are of a very high quality
Group Investments – Zurich’s debt securities are of a very high quality (99.3% investment grade) As of December 31, 2008 Group Investments Debt securities USD 180bn USD 118bn credit rating: AAA 59.3% credit rating: AA Other Debt 99.3% 11.2% asset securities investment classes grade 34% 66% credit ra
Slide 63: Zurich’s debt securities are well balanced
Group Investments – Zurich’s debt securities are well balanced Group Investments - USD 180bn (100%) As of December 31, 2008 Government and supranational bonds: USD 44bn (25%) of which: 100% inv. grade 44%in General Insurance 76% AAA 43% in Global Life 7% AA 16% A 1% BBB Corporate bonds
Slide 64: Corporate bonds are of high quality
Group Investments – Corporate bonds are of high quality Group Investments - USD 180bn (100%) As of December 31, 2008 Corporate bonds: USD 51bn (28%) Split by industries Split by credit rating 47% Banks, 99% inv. grade including 19%1 covered bonds 32% AAA 10% Cities, Agencies, Cantons, 16%
Slide 65: Split of total MBS/ABS of USD 23bn
Group Investments – Split of total MBS/ABS of USD 23bn (13%) MBS/ABS: USD 23bn (13%) Group Investments 100% inv. grade USD 180bn (100%) 95% AAA includes: US MBS: USD 15.7bn (8.7%) 100% inv. grade 98% AAA Debt see further details on next slide securities US ABS1: USD 3.1bn (1.7%) 99% inv.
Slide 66: Split of US MBS of USD 15.7bn
Group Investments – Split of US MBS of USD 15.7bn (8.7%) Group Investments USD 180bn (100%) US-MBS: USD 15.7bn (8.7%) 100% inv. grade 98% AAA Debt of which: securities US “Agency” MBS: USD 9.6bn (5.3%) 66% 100% AAA USD 0.7bn backed by GNMA USD 8.8bn backed by FNMA and FHLMC Other asset US
Slide 67: Exposure to US sub-prime remains very small
Group Investments – Exposure to US sub-prime remains very small (0.09%) and of high quality Group Investments US sub-prime: USD 155m (0.09%) USD 180bn (100%) 93% inv. grade 35% AAA Downgrades by rating agencies in Q4-08: USD 61m Debt Limited impairments in FY08: USD 14m securities Only USD
Slide 68: Exposure to CDO remains very small
Group Investments – Exposure to CDO remains very small (0.39%) and of high quality Group Investments CDO: USD 694m (0.39%) USD 180bn (100%) 100% inv. grade 93% AAA We added roughly USD 0.5bn of a AAA rated bespoke CLO tranche providing exposure to Debt securities US and European credits in Q3-
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