Zurich, May 7, 2009 – Despite the impact of highly adverse economic circumstances as well as the continued deterioration of financial markets during the first quarter, Zurich Financial Services Group (Zurich) reported today another solid operating performance for the first three months of 2009, showing a continuous improvement over the discrete third and fourth quarter performance in 2008. Zurich achieved these results based on its continued focus on financial and underwriting discipline, operating efficiency, robust risk management and its well-balanced portfolio of businesses.
“We have shown continual quarter on quarter improvement since the financial crisis began, and remain confident in our strategy despite the ongoing financial turmoil,” remarked Zurich's Chief Executive Officer James J. Schiro. “Though we anticipate 2009 to remain challenging, I am pleased with our ability to maintain our strong solvency ratio and add to shareholders’ surplus while capitalizing on market opportunities that emerge.”
Three-month performance highlights1 include:
- Business operating profit (BOP) of USD 1.1 billion, a decrease of 40%. Annualized BOP ROE2 after tax of 14.8%
- Net income3 of USD 362 million, a decrease of 75%. Annualized return on equity (ROE) of 6.6%
- General Insurance gross written premiums and policy fees of USD 9.8 billion, down 12% or 3% in local currencies, and a combined ratio of 95.8%
- Global Life new business value4, after tax, down 7% to USD 149 million, with new business margin, after tax (as % of APE), of 20.6%. APE basically unchanged but up 16% in local currencies
- Farmers Management Services’ management fees and other related revenues up 6% to USD 623 million
- Shareholders’ equity of USD 22.3 billion, an increase of 1% over year end
The Group continued to exploit profitable opportunities, expanding its product range and distribution capabilities organically as well as through the ongoing successful integration process of its recent acquisitions completed in Europe, the US and emerging markets. Furthermore, Zurich continued to reap the benefits of the continuous improvements embedded through The Zurich Way initiatives, targeting USD 900 million of after-tax benefits for each year from 2009 until 2011 as well as an additional USD 400 million in expense savings for 2009 to mitigate current economic challenges. The company is well on track to achieve both targets this year.
General Insurance:
|
in USD millions, for the three months ended March 31 |
2009 |
2008 |
Change in USD |
Change in LC |
|
General Insurance gross written premiums and policy fees |
9,814 |
11,191 |
(12%) |
(3%) |
|
General Insurance business operating profit |
889 |
1,189 |
(25%) |
(17%) |
|
General Insurance combined ratio (in %) |
95.8% |
94.6% |
(1.2 pts) |
|
|
|
|
|
|
|
General Insurance continued to show resilience across its well-diversified book of business, as a deliberate and prudent approach to rates and expense management maintained profitability despite the ongoing negative economic environment. Business operating profit decreased 25% to USD 0.9 billion, driven by a lower underwriting performance due to the impact of recessionary forces on business volumes and challenging market conditions. Reductions in investment income equally contributed to the lower result. The combined ratio increased by 1.2 percentage points to 95.8%, mainly reflecting continued investments in operational transformation, changes in business mix and integration costs associated with the newly acquired businesses in Brazil and Turkey.
Gross written premiums and policy fees overall decreased by 3% in local currencies (minus 12% in dollar equivalent terms) as moderate growth in most of the businesses was offset by some contraction, primarily in the US. The lower volumes were driven by a slowdown of customers’ business activities as well as the Group’s continued disciplined approach to rates, which resulted in over 5 percentage points of renewal price improvement in the US and 4 points in the UK commercial business compared to the first quarter 2008.
In North America Commercial, the ability to drive rates and capitalize on growth opportunities in targeted market segments helped to partially mitigate the volume impact from downward economic pressures. In Europe General Insurance, volume growth of 1% in local currencies reflected the successful integration of various acquisitions over the last year, while difficult market conditions and strict underwriting discipline held organic development flat. Global Corporate continued to focus on underwriting and pricing discipline within a continuing competitive market environment, achieving positive price trends across most major lines in North America and Europe and improved profitability. The Group’s International Markets also exhibited increased profitability, with volume growth on a local currency basis achieved across all regions, aided in Latin America by last year’s acquisition in Brazil.
Global Life:
|
in USD millions, for the three months ended March 31 |
2009 |
2008 |
Change in USD |
Change in LC |
|
Global Life gross written premiums, policy fees and insurance deposits |
5,529 |
5,397 |
2% |
20% |
|
Global Life business operating profit |
222 |
340 |
(35%) |
(25%) |
|
Global Life gross new business annual premium equivalent (APE) |
721 |
722 |
(0.1%) |
16% |
|
Global Life new business margin, after tax (as % of APE) |
20.6% |
22.2% |
(1.6 pts) |
|
|
Global Life new business value, after tax |
149 |
160 |
(7%) |
5% |
|
|
|
|
|
|
The Global Life segment continued to deliver a solid performance through the first three months as it faced challenging market conditions in its core markets from falling and volatile equity markets as well as from consumer reactions to the global financial crisis. New business value, after tax, declined 7% to USD 149 million from USD 160 million during the same period last year but increased by 5% on a local currency basis, primarily as a result of the acquisitions in Spain and growth in sales volumes in the UK and Latin America. Business operating profit decreased by 35%, or 25% in local currencies, to USD 222 million primarily due to the impact of movements in the financial markets in the UK, Australia and Switzerland.
New business annual premium equivalent (APE) grew by 16% in local currencies, however remained basically flat in dollar equivalent terms. A strong new business margin of 20.6% reflected the quality of new business. APE growth was driven by acquisitions accompanied by Bancassurance agreements in Spain, IFA/Broker growth in the UK, growth from Corporate Life and Pensions in Zurich International Solutions and Latin America, and was partly offset by a reduction in International/Expatriate sales due to adverse market conditions.
Farmers5:
|
in USD millions, for the three months ended March 31 |
2009 |
2008 |
Change in USD |
Change in LC |
|
Farmers Management Services (FMS) management fees and other related revenues |
623 |
589 |
6% |
6% |
|
Farmers Re gross written premiums and policy fees |
1,056 |
409 |
nm |
nm |
|
Farmers business operating profit |
324 |
331 |
(2%) |
|
|
FMS gross management result |
311 |
281 |
11% |
|
|
FMS managed gross earned premium margin |
7.5% |
7.0% |
0.5 pts |
|
|
|
|
|
|
|
Farmers Management Services (FMS) continued to successfully manage the Farmers Exchanges, the third largest personal lines insurer in America, which Zurich manages but does not own. Management fees and other related revenues grew by 6% to USD 623 million, primarily reflecting a 5% earned premium growth at the Farmers Exchanges, of which 4 percentage points are attributable to the transfer of North America Commercial’s Small Business Solutions book to the Exchanges in June 2008. As a consequence and in conjunction with cost savings actions, FMS’ gross management result improved by 11%, resulting in a 7% higher business operating profit and an improved managed gross earned premium margin of 7.5%.
Farmers Re, which provides reinsurance to the Farmers Exchanges, more than doubled its premium volume compared to the same period last year due to an increase of the existing quota share reinsurance from 5% to 25% as of September 30, 2008. In combination with a significant rise in weather-related incidents causing higher claims payments, Farmers Re’s business operating profit fell to USD 2 million, resulting in a slightly decreased business operating profit for the Farmers segment overall of USD 324 million.
Other Operating Businesses: The Other Operating Businesses segment, predominantly consisting of the Group’s Headquarter, Holding & Finance and Banking activities, reported a reduced business operating loss of USD 46 million, primarily as a result of gains on buy-backs of subordinated debt executed in advantageous market conditions.
Non-Core Businesses: The Non-Core Businesses segment, mostly comprising the Group’s run-off businesses, incurred a business operating loss of USD 328 million as a consequence of deteriorating equity markets and widening credit spreads.
Group investments:
|
in USD millions, for the three months ended March 31 |
2009 |
2008 |
Change in USD |
Change in LC |
|
Group investments average invested assets |
176,692 |
196,165 |
(10%) |
|
|
Group investments results, net |
816 |
2`173 |
(62%) |
|
|
Group investments return (as % of average invested assets) |
0.5% |
1.1% |
(0.6 pts) |
|
|
|
|
|
|
|
The net investment result for Group investments, which includes investment income and realized losses and impairments, contributed USD 816 million, a return of 0.5% (not annualized), to Zurich’s profit and loss statement. The realized losses and impairments amounted to USD 1 billion, of which impairments – driven largely by equity write-downs – accounted for USD 500 million. The remaining realized losses, including net revaluations of trading securities, were split equally between equity and debt securities. The positive contribution attained by the Group’s Investment Management demonstrated once again the benefit of managing assets relative to liabilities on a risk-adjusted basis.
Capital management-related issues: During the first quarter, shareholders’ equity increased over year end by 1%, with reported net income3 of USD 362 million and net actuarial profits on pension plans of USD 689 million more than offsetting net unrealized losses and translation adjustments related to foreign exchange movements of USD 689 million and USD 229 million, respectively.
Zurich’s capital surplus as of March 31, 2009, reflects a healthy balance sheet and a strong Group solvency position (Solvency I) of 157%. The successful placing of 6.7 million shares during April related to the announced acquisition of AIG’s personal auto business is expected to further benefit statutory solvency by about 3 percentage points. The Group remains confident that it is not only well positioned to weather the current financial-market crisis but to take advantage of opportunities both currently and once a more stable economic environment returns.
