Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — Investor Day (January 2005)
68 slides from Zurich Insurance's investor day presentation, Jan 20, 2005
Slide 1: Underwriting rigor – A Platform for Profitability
Underwriting rigor – “A Platform for Profitability” Investors’ Day London, January 20, 2005
Slide 2: Agenda
Agenda • The Zurich Transformation John Amore • Underwriting rigor Timothy Mitchell • Q&A • Underwriting of Global Corporate Geoff Riddell • Underwriting systems & controls in Global Corporate Mary Merkel • What this means for Zurich John Amore • Q&A © Zurich Financial Services - Investors’ Day, Lon
Slide 3: The Zurich Transformation
The Zurich Transformation John Amore CEO, General Insurance
Slide 4: Objectives of today
Objectives of today • Today, we will show you what it means to be an underwriting company • ZFS is committed to maintaining an underwriting profit. We are prepared to forego premium rather than write unprofitable business • Throughout our presentation we will highlight to you the changes we have put
Slide 5: The imperatives of underwriting
The imperatives of underwriting • Adequate information on risk • Skills to write the right risks • Ability and incentive to price properly • Ability to control aggregation • Reinsurance to manage extremes Underwriting workflow Informa- Account Under- tion Risk structure Nego- Account writing gatheri
Slide 6: Having delivered the turnaround, we are now focusing on delivering profitable growth
Having delivered the turnaround, we are now focusing on delivering profitable growth…. Build the future Lay the foundation • Established a clear direction Create stable for the Group on April 2, 2004 platform • Delivered for customers • Aligning organizational and shareholders model with strategic p
Slide 7: General Insurance businesses playing a critical role in this effort
…with General Insurance businesses playing a critical role in this effort Build the future Lay the foundation • Strong functional leadership Create stable and governance from the platform • Foundational work in General Insurance underwriting the organization • Cut expense ratio business in the US, U
Slide 8: The Zurich Way – one best way to achieve operational excellence
The Zurich Way – one “best” way to achieve operational excellence in all core processes Seven initial work streams The Zurich Way Framework 1. General Insurance claims 2. Large corporate and commercial Common underwriting l language & ca ni methodologies ch 3. Personal lines underwriting Te Consiste
Slide 9: Financial benefits of improvement initiatives of the entire Zurich Group
Financial benefits of improvement initiatives of the entire Zurich Group 100% = 100% = 100% = USD 1 billion USD 540 million USD 500 million 8% 4% 15% 19% Life, AM & other 12% 5% Growth/Distribution 13% 20% 23% Claims 31% 26% Underwriting Process 60% 7% Pricing 37% 20% Operating Expenses 2003 2004 20
Slide 10: Contribution from General Insurance to overall benefits
This is the contribution from General Insurance to overall benefits 100% = 100% = 100% = USD 870 million USD 360 million USD 370 million 6% 8% 14% Growth/Distribution 14% 22% 20% 30% Claims 19% 23% 35% Underwriting Process 60% 9% Pricing 28% 12% Operating Expenses 2003 2004 2005 © Zurich Financial S
Slide 11: Global leadership to drive technical and operational excellence
Global leadership to drive technical and operational excellence NA Comm. Europe GI Global Corp. International Tim Mitchell Underwriting CEO General Insurance (CUO) TBA Claims (CCO) Hanspeter Frei Risk Engineering (Chief RE) Tom Bradley Finance / Control (CFO) • Dual reporting of key management roles
Slide 12: Significant changes to incentives
Significant changes to incentives - focus on long term profitability and overall performance Zurich Overall Targets • 12% Business Operating Profit after tax return on equity throughout cycle • Underwriting profit from General Insurance Top 200 Managers • long-term incentive tied to overall performa
Slide 13: The Zurich transformation – what has changed?
The Zurich transformation – what has changed? From: To: 4 customer facing segments over 300 semi-autonomous within a matrix organization; strategic business units strong central governance Emphasis on premium growth Focus on underwriting profit Performance management focus Multiple approaches to on
Slide 14: Underwriting rigor
Underwriting rigor Timothy Mitchell Global Chief Underwriting Officer General Insurance
Slide 15: Agenda
Agenda • Governance and underwriting organization • How we improve and monitor underwriting © Zurich Financial Services - Investors’ Day, London, January 20, 2005 15
Slide 16: Underwriting governance process – what is new?
Underwriting governance process – what is new? • Zurich Risk Policy governs all functional processes including underwriting Underwriting Underwriting • Virtuous circle of self Strategy Authorities reinforcing underwriting activities • Changes are: - central coordination - new underwriting infrastruc
Slide 17: Global Chief Underwriting Officer – New mandate and authority
Global Chief Underwriting Officer – New mandate and authority • Govern each responsibility Grant Underwriting Authority globally and monitor local application Audit • Direct reporting relationship Underwriting Practices with CUOs of all 4 business division Underwriting and Pricing • Act through the
Slide 18: Today's presentation focuses on next level of underwriting improvements
Today’s presentation focuses on next level of underwriting improvements New organization Fully embed The From past initiatives we Zurich Way of have developed a strong and governance underwriting in foundation installed (2003-2004) 2005 and after • Foundational file-review • CUO for each business •
Slide 19: We have achieved much in a short period
We have achieved much in a short period Business reviewed for file-level insight (in % of 2003 GWP) UK Commercial & Corporate NA Comm. & NA Global Corp 100% = USD 3.4 billion 100% = USD 15.5 billion 10% 33% 67% 90% > 90% reviewed by end of 2005 UK started in mid 2001 US started in late 2002 File rev
Slide 20: The Zurich Way – a consistent way to underwrite and improve
The Zurich Way – a consistent way to underwrite and improve Common language and methodologies Identify Implement Value Capture Opportunities Solutions (Measure/Monitor) • File Reviews • Processes • Clear metrics • Process Reviews • Technology - Operational • Profitability analysis • People - Audit -
Slide 21: What is underwriting leakage?
What is underwriting leakage? Technical Leakage + Negotiation Leakage = Total leakage Technical leakage due to a Negotiation leakage due technical underwriting error to a lack of negotiation – Information gathering skills or market pressure – Risk assessment – Coverage – Rating – Pricing – Issuance
Slide 22: Underwriting improvement approach: file reviews
Zurich’s underwriting improvement approach: file reviews Approach Value Capture Identify Opportunities Implement Solutions (Measure/Monitor) Identified gaps in …and implemented more ... then rigorously executed underwriting execution, disciplined processes and through a set of key metrics such as… c
Slide 23: Underwriting improvement example 1: underwriting logic
Underwriting improvement example 1: underwriting logic Value Capture Identify Opportunities Implement Solutions (Measure/Monitor) Leakage by quality of underwriting narrative (in %) • Leakage is highly 38 correlated to u/w Illustrative example narrative quality 27 22 • When a good narrative is prese
Slide 24: Underwriting improvement example 1: underwriting logic
Underwriting improvement example 1: underwriting logic Value Capture Identify Opportunities Implement Solutions (Measure/Monitor) Illustrative example 1.0 Information Collection 4.0 Reviews 3.0 Program Structure and Pricing • Instill underwriting logic 2.0 Exposure Assessment & Risk Engineering by r
Slide 25: Underwriting improvement example 1: underwriting logic
Underwriting improvement example 1: underwriting logic Value Capture Identify Opportunities Implement Solutions (Measure/Monitor) Illustrative example • Quality metric based on Accounts with adequate or superior monthly operational audits / 92 95 reviews of a random sample quality narratives (in %)
Slide 26: Underwriting improvement example 2: information collection
Underwriting improvement example 2: information collection Value Capture Identify Opportunities Implement Solutions (Measure/Monitor) Higher leakage for accounts Underwriters required to vali- % of accounts that met info with poor info collection date collection of relevant collection requirements,
Slide 27: Underwriting improvement example 3: adequate Risk Engineering insights
Underwriting improvement example 3: adequate Risk Engineering insights Value Capture Identify Opportunities Implement Solutions (Measure/Monitor) Risk Engineering (RE) for 50% of risk engineers Accounts (in %) with underwriting purposes- required to expand their comprehensive RE analyses % of review
Slide 28: Underwriting improvement example 4: discretionary pricing
Underwriting improvement example 4: discretionary pricing Value Capture Identify Opportunities Implement Solutions (Measure/Monitor) Schedule credits Max. schedule credits set Average discount from based on explicit identifica- manual rates (in %) Illustrative example tion of controls in place Perce
Slide 29: Indicators of underwriting quality are tracked rigorously – scorecard
Indicators of underwriting quality are tracked rigorously – U/W scorecard example Illustrative example Implementation dates Actual values (1) Full ramp- Variance from INITIATIVE / Governing metrics Start up Dec-02 Goal Dec-03 Feb-04 Apr-04 June-04 Aug-04 Oct-04 current target IMPLEMENT A CONSISTENT,
Slide 30: Indicators of underwriting quality are tracked rigorously – scorecard
Indicators of underwriting quality are tracked rigorously – U/W scorecard example Illustrative example Implementation dates Acutal values (1) Variance INITIATIVE / Governing metrics Start Full ramp-up Dec-02 Goal Dec-03 Feb-04 Apr-04 Jun-04 Aug-04 Oct-04 Implement a consistent, rigorous underwriting
Slide 31: Underwriting management actively monitors key metrics
Underwriting management actively monitors key metrics on a regular basis Actual to technical price Leakage Rates relative to claims • Data collected (at file • Data collected (at file • Data collected (at file level) level) level - new vs. • Aggregated monthly • Aggregated monthly renewal by line of
Slide 32: Global Corporate Underwriting
Global Corporate Underwriting Geoff Riddell CEO, Global Corporate
Slide 33: Definition of Global Corporate customers
A reminder: Definition of Global Corporate customers • Global Corporate deals with the needs of corporate customers on a global basis • These customers typically: - employ a risk manager - are capable of taking large self-insured retentions - desire tailored claims and risk engineering services - em
Slide 34: A major player with a unique and compelling value proposition
We are a major player with a unique and compelling value proposition • #1 or #2 in our core markets • In excess of USD 7 billion Gross Written Premiums in 2003 • Long term commitments to this segment, backed by strength and stability • Long term relationship built on in-depth customer knowledge • Me
Slide 35: A global business needs global control
A global business needs global control • Underwrite consistently worldwide – The Zurich Way • Consistent performance measures • Leverage data and knowledge • Maximize capabilities: - transatlantic footprint - global network - people • Develop global value proposition © Zurich Financial Services - In
Slide 36: Our management approach supports underwriting rigor
Our management approach supports underwriting rigor • Highly committed to underwriting discipline • Don’t incentivize volume • Never override underwriting decisions • Scrutinize wins and losses • Preset walk away pricing and account strategies © Zurich Financial Services - Investors’ Day, London, Ja
Slide 37: We understand sector specific risk
We understand sector specific risk • A big customer is not necessarily a good customer • Evaluate behaviors, choosing relationship customers over transactional • Continually working on value proposition (Risk Management Council) • Use of referral processes • Play in servicing layers where relationsh
Slide 38: Flow of underwriting authority/reporting lines
Flow of underwriting authority/reporting lines reinforces our approach John Amore CEO General Insurance Tim Mitchell Geoff Riddell Global CUO General Insurance CEO Global Corporate Alan Fairhead John Kelm / Markus Hongler CUO Global Corporate Regional CEOs Mary Merkel / Axel Schmidt Regional CUOs ©
Slide 39: Underwriting systems & controls in Global Corporate in North America
Underwriting systems & controls in Global Corporate in North America Mary Merkel Chief Underwriting Officer Global Corporate in North America
Slide 40: Agenda
Agenda • Set the timeline for underwriting transformation • Describe underwriting tools for Global Corporate business in North America • Highlight underwriting controls for profitability © Zurich Financial Services - Investors’ Day, London, January 20, 2005 40
Slide 41: Setting the timeline
Setting the timeline • Need for increased underwriting rigor recognized in 2002 • Zurich Way for Underwriting implemented in 2003 led to refinements in underwriting tools • Underwriting tools, controls, and measures in place to maintain underwriting discipline through the cycle © Zurich Financial Se
Slide 42: Underwriting systems in Global Corporate in North America
Underwriting systems in Global Corporate in North America Zorba workstation highlighting Property Underwriting System & Tools - Technical Price - Accumulation Management - Insurance to Value Tools ZLAPS workstation highlighting Casualty Underwriting System & Tools - Loss and Exposure Rating - Risk r
Slide 43: Property underwriting: technical price development
Property underwriting system and tools: technical price development Location by Location Rating Approach • AOP (All Other Perils) - Rate by hazard and class to develop base rate - Adjustment Base Rate based on risk engineering scoring - Further Credits / Debits based on established criteria • Catast
Slide 44: Property underwriting: accumulation management
Property underwriting system and tools: accumulation management GUARD: Global Underwriting Accumulation Repository of Data • Locations/Employee Counts/Property Limits entered into GUARD • Geocoding Capability - mapping of locations to longitude/latitude - provides a more precise geographical positio
Slide 45: Property underwriting: GUARD output
Property underwriting system and tools: GUARD output © Zurich Financial Services - Investors’ Day, London, January 20, 2005 45
Slide 46: Property underwriting: Insurance to Value (ITV)
Property underwriting system and tools: Insurance to Value (ITV) • Provides estimation of replacement values for - Building - Personal Property • Factors in the following characteristics - Occupancy - Construction - Age - Square feet - Geographic location factor • Compares - Estimated Value to Repor
Slide 47: Property underwriting: ITV output
Property underwriting system and tools: ITV output Illustrative example – in USD millions Property Type Prior Year Reported Estimated Reported Acceptable Actual Value Value Value Value Value to Used Estimated Value Building 119.7 122.1 106.2 114.90% Yes 122.1 Personal Property 9.1 9.2 59 16% No 57.7
Slide 48: Casualty underwriting: loss and exposure rating
Casualty underwriting system and tools: loss and exposure rating • Loss Rating - projects future losses based upon insured’s historical experience loss development, trend, and law amendment factors - determines loss rating layer - calculates loss rating on a paid and incurred basis • Exposure Rating
Slide 49: Casualty underwriting: class fit example
Casualty underwriting system and tools: class fit example Illustrative example © Zurich Financial Services - Investors’ Day, London, January 20, 2005 49
Slide 50: Casualty underwriting: risk assessment example
Casualty underwriting system and tools: risk assessment example Illustrative example © Zurich Financial Services - Investors’ Day, London, January 20, 2005 50
Slide 51: Casualty underwriting: emerging trends / large loss database
Casualty underwriting system and tools: emerging trends / large loss database • Database providing underwriters with developing litigation trends • Database identifies Global Corporate actual large losses by industry • Highlights individual claims to point out exposure and coverage issues © Zurich F
Slide 52: Emerging trends / large loss database output
Casualty underwriting system and tools: emerging trends / large loss database output Illustrative example Emerging Issues Claims of the month Emerging issues are a reality for Corporate Customer and On av. each day Corporate Customer incurs at least one large loss. Zurich: we have already been impac
Slide 53: Casualty underwriting: forms
Casualty underwriting system and tools: forms • Consistency in policy construction • Documentation of coverage extensions • Underwriting Guide to Broker coverage requests © Zurich Financial Services - Investors’ Day, London, January 20, 2005 53
Slide 54: Guide to broker coverage requests example
Casualty underwriting system and tools: guide to broker coverage requests example Illustrative example © Zurich Financial Services - Investors’ Day, London, January 20, 2005 54
Slide 55: Underwriting controls
Underwriting controls • Pricing • Scorecards • Audits © Zurich Financial Services - Investors’ Day, London, January 20, 2005 55
Slide 56: Underwriting controls: pricing
Underwriting controls: pricing • All bound account’s components captured in databases which contain details on component part of pricing • Monthly reporting of actual premium to technical price • Ad hoc reporting on key components of profitability © Zurich Financial Services - Investors’ Day, London
Slide 57: Underwriting controls: ad hoc reports
Underwriting controls: ad hoc reports Illustrative example Self insured retention distribution YTD 20041 Full Year 2003 Increased or same Retention 94% 99% Decreased Retention 6% 1% Defense indicator distribution Insured shares Defense costs incl. in defense costs in insured retention 2004 YTD 1 51%
Slide 58: Underwriting controls: operational scorecards for key issues
Underwriting controls: operational scorecards for key issues • Monthly review of at least 10% of each office business to gauge underwriting quality • Financial and qualitative review to predefined standards © Zurich Financial Services - Investors’ Day, London, January 20, 2005 58
Slide 59: Underwriting controls: operational scorecards for key issues
Underwriting controls: operational scorecards for key issues Illustrative example Actual Values Optimize Risk Engineering Jan Feb Mar Apr May Jun Jul Aug Sep Oct Percent of all new and renewal 83% 90% 88% 90% 90% 90% 92% 88% 98% 97% business with risk engineering before the effective date Actual Val
Slide 60: Underwriting controls: underwriting audits
Underwriting controls: underwriting audits • Focus on relating underwriting to pricing • Total audit of accounts: - underwriting - financial - operation - risk engineering • Quality control of development of technical price © Zurich Financial Services - Investors’ Day, London, January 20, 2005 60
Slide 61: Underwriting controls: underwriting audits
Underwriting controls: underwriting audits Illustrative example % Accounts % Accounts Not Illustrative example Acceptable Acceptable A. Underwriting Strategy - narratives 100% 0% B. Underwriting Strategy – RRS1 100% 0% C. True Value 84% 16% D. Catastrophe Underwriting 100% 0% E. Risk Assessment and
Slide 62: Underwriting controls: underwriting audits
Underwriting controls: underwriting audits Identification of leakage - difference between the actual premium and the technically correct price as determined by the auditor: Illustrative example Excess Pricing Leakage Account Name Actual Price Technically Correct Price Account A USD 824'600 USD 824'6
Slide 63: Conclusion
Conclusion • Tools, measures, and forward looking underwriting indicators in place to maintain profitability through the market cycle • Best practice underwriting tools increase efficiency © Zurich Financial Services - Investors’ Day, London, January 20, 2005 63
Slide 64: What this means for Zurich
What this means for Zurich John Amore CEO, General Insurance
Slide 65: Being an underwriting company has a significant financial benefit
Being an underwriting company has a significant financial benefit 100% = 100% = 100% = USD 870 million USD 360 million USD 370 million 6% 8% 14% Growth/Distribution 14% 22% 20% 30% Claims 19% 23% 35% Underwriting Process 60% 9% Pricing 28% 12% Operating Expenses 2003 2004 2005 © Zurich Financial Ser
Slide 66: Our underwriting rigor gives us a strong platform for profitable growth
Our underwriting rigor gives us a strong platform for profitable growth Today’s presentation has shown you that we have: • put a new, global governance structure in place • significantly enhanced underwriting controls • improved underwriting processes • improved pricing expertise and tools • strengt
Slide 67: Zurich
@ ZURICH OWA
Slide 68: 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 predictions of or indicate future events, trends, plans or objectives. Forward-looking statements include statements regarding our strategic dire
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