Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — H1 2003 Earnings Presentation
53 slides from Zurich Insurance's earnings presentation, Aug 20, 2003
Slide 1: Half Year 2003 Results
Zurich Financial Services Half Year 2003 Results Zurich, 20 August 2003
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 and overview James J. Schiro • Half Year 2003 results overview Patrick O’Sullivan • Operational performance / Regional results Peter Eckert • Closing remarks James J. Schiro • Q&A © Zurich Financial Services | August 2003 3
Slide 4: Introduction and overview
Zurich Financial Services Introduction and overview James J. Schiro Chief Executive Officer 20 August 2003
Slide 5: Half Year 2003 Results
Zurich Financial Services Half Year 2003 Results Patrick O’Sullivan Group Finance Director 20 August 2003
Slide 6: Financial highlights – operating statement
Financial highlights – operating statement in USD millions HY 03 HY 02 Change Total GWP and policy fees 26,096 20,727 26% Net investment result 3,145 3,055 3% Business operating profit 1,265 812 56% Net income 701 -2,029 nm Non-life combined ratio 98.8% 119.7% -20.9 pts Life new business profit marg
Slide 7: Business operating profit and net income by segment
Business operating profit and net income by segment Business Operating Profit1 Net Income2 in USD millions HY 03 HY 02 HY 03 HY 02 Non-life 929 249 766 132 Life 550 368 391 446 Farmers Management Services 513 445 313 269 Other Businesses -478 45 -304 354 Corporate Center -249 -295 -465 -518 Total 1,
Slide 8: Non-life financial highlights
Non-life financial highlights Combined ratio (%)1 in USD millions HY 03 HY 02 Change 103.3 Total3 GWP 19,308 14,983 29% 98.8 NEP 13,146 9,788 34% 97.7 NA Corp. Business operating profit 929 249 273% 96.3 Net income1 766 132 480% 105.5 Cont. Eur. Loss ratio1 74.0% 77.1% -3.1pts 98.7 Expense ratio2 24
Slide 9: Life financial highlights
Life financial highlights New business margins (%) in USD millions HY 03 HY 02 Change 5.4 4 Total GWP, policy fees & deposits 10,421 9,252 13% 8.2 Business operating profit 550 368 49% 10.1 Net income1 391 446 -12% NA Cons 27.5 New bus. premiums (APE) 1,092 896 22% 7.0 New bus. profit margin (APE) 8
Slide 10: Farmers Management Services financial highlights
Farmers Management Services financial highlights in USD millions HY 03 HY 02 Change Management fees & other related revenue 935 885 6% Management & other expenses 422 432 -2% Investment result 41 30 37% Business operating profit 513 445 15% Net income1 313 269 16% Gross operating margin 54.7% 51.2%
Slide 11: Other Businesses financial highlights
Other Businesses financial highlights in USD millions HY 03 HY 02 Change Business operating profit -478 45 nm of which: Centre -463 102 nm other -15 -57 74% Net income1 -304 354 nm of which: Centre -344 21 nm other 40 333 -88% Other Businesses include Centre, Asset Management (excluding Threadneedle
Slide 12: Centre's insurance exposures by line of business
Centre’s insurance exposures by line of business Composition at 30 June 2003 Credit Enhancement 27% P&C 47% Life and Health 9% Real Estate 17% © Zurich Financial Services | August 2003 12
Slide 13: Update on Centre business
Update on Centre business • HY 2003 results: • Centre has incurred a business operating loss of USD 463 million • Reserve strengthening of USD 474 million in structured reinsurance and discontinued credit enhancement and life & health lines of business • Management actions: • Discontinued writing no
Slide 14: Corporate Center financial highlights
Corporate Center financial highlights in USD millions HY 03 HY 02 Change Net underwriting income 45 2 nm Total investment income / (loss) -33 21 nm of which Baloise -158 -163 3% Net admin & other operational expenses2 125 207 -40% Interest expense 353 337 5% Business operating profit -249 -295 16% N
Slide 15: Investment highlights
Investment highlights in USD millions HY 03 HY 02 Change Investment income 3,567 3,177 12% Realized capital gains/(losses) and impairments -418 56 nm of which: non-cash investment impairment -978 -292 -235% Unrealized capital losses (in oper. stmt) -4 -178 98% of which: Bâloise swap & options -158 -
Slide 16: Investment portfolio by asset class
Investment portfolio by asset class in USD millions HY 03 YE 02 Debt securities 67.5% 62.6% Equity securities Common stocks, including equity unit trusts 6.1% 8.3% Unit trusts (debt securities, real estate, short-term investments) 0.9% 1.5% Common stock portfolios backing the participating with- pro
Slide 17: Shareholders' equity
Shareholders‘ equity in USD millions 20'000 701 865 304 -25 18'000 16'000 14'000 18'650 16'805 12'000 10'000 Balance at 1 Jan Change in net Translation Treasury stock and Net income Balance at 30 Jun 2003 unreal. gains on adjustments dividend 2003 investments transactions © Zurich Financial Services
Slide 18: Business operating return on equity
Business operating return on equity in USD millions HY 2003 Annualized Business Operating Profit (after tax) 886 = 5.3% 10.9% Average IFRS Equity 16,632 • HY 2003 BOP 1,265 less tax at 30% = 886 • IFRS Equity (excluding preferred shares) BoY 15,709, Current 17,554 = 16,632 average © Zurich Financial
Slide 19: USD 1bn divestiture program – progress on track
USD 1bn divestiture program – progress on track Divested... • Rüd Blass Total Zurich RBC release: approx. USD 120 mio Net cash proceeds: approx. USD 240 mio • India – asset management • Czech Republic Announced... • Zurich Netherlands Total Zurich RBC release: approx. USD 1.0 bn Net cash proceeds: a
Slide 20: Operational performance / Regional results
Zurich Financial Services Operational performance/ Regional results Peter Eckert Chief Operating Officer 20 August 2003
Slide 21: Global Profit Improvement Program (GPIP) on target
Global Profit Improvement Program (GPIP) on target Pricing 20% On target to achieve USD 1 bn Underwriting 12% after tax Over 95% of Claims 8% initiatives implemented Expenses 60% Over half of the financial benefit Total 100% realized © Zurich Financial Services | August 2003 21
Slide 22: NA Corporate non-life
NA Corporate non-life in USD millions HY 03 HY 02 Change GWP & policy fees 7,832 6,875 14% Loss ratio (before 2002 provisions) 74.9% 74.6% 0.3pts Expense ratio1 21.4% 23.1% -1.7pts Combined ratio (before 2002 provisions) 96.3% 97.7% -1.4pts Business operating profit 441 354 25% 1 Including 0.1% and
Slide 23: NA Consumer life
NA Consumer life in USD millions HY 03 HY 02 Change New bus. premiums (APE) 130 155 -16% New bus. profit margin 27.5% 10.1% 17.4pts Business operating profit 187 145 29% Half Year 2003 achievements/key actions • Sale of Zurich Life companies (excluding KILICO) to Bank One announced on 30 May 2003 •
Slide 24: Continental Europe non-life
Continental Europe non-life in USD millions HY 03 HY 02 Change GWP & policy fees 5,923 4,252 39% Loss ratio (before 2002 provisions) 73.8% 77.4% -3.6pts Expense ratio1 24.9% 28.1% -3.2pts Combined ratio (before 2002 provisions) 98.7% 105.5% -6.8pts Business operating profit 299 24 nm 1 Including 0.7
Slide 25: Continental Europe life
Continental Europe life in USD millions HY 03 HY 02 Change New bus. premiums (APE) 397 260 53% New bus. profit margin 5.5% -0.2% 5.7pts Business operating profit 211 49 331% Half Year 2003 achievements/key actions • Integration of Deutsche Herold operations in Germany into Zurich organization on-tra
Slide 26: UKISA non-life
UKISA non-life in USD millions HY 03 HY 02 Change GWP & policy fees 3,068 2,297 34% Loss ratio (before 2002 provisions) 75.3% 78.7% -3.4pts Expense ratio 22.3% 24.8% -2.5pts Combined ratio (before 2002 provisions) 97.6% 103.5% -5.9pts Business operating profit 216 48 350% Half Year 2003 achievements
Slide 27: UKISA life
UKISA life in USD millions HY 03 HY 02 Change New bus. premiums (APE) 382 379 1% New bus. profit margin 7.4% 7.0% 0.4pts Business operating profit 148 119 24% Half Year 2003 achievements/key actions • Expense reduction program progressed beyond GPIP • Segmentation and specialization of tied agents i
Slide 28: Farmers Management Services
Farmers Management Services in USD millions HY 03 HY 02 Change Management fees & other related revenue 935 885 6% Gross operating margin 54.7% 51.2% 3.5pts Business operating profit 513 445 15% Half Year 2003 achievements/key actions • Renewed focus on agency development and development of new marke
Slide 29: Farmers Exchanges: Continuous improvement in combined ratio
Farmers Exchanges: Continuous improvement in combined ratio 125% 120% 115% 110% 105% 100% 95% 90% 2001 Q2 Q3 Q4 2002 Q2 Q3 Q4 2003 Q2 Q1 Q1 Q1 2001 Actual 2002 Actual 2003 Actual Data shown is for Farmers P&C Group Companies, not owned by Zurich © Zurich Financial Services | August 2003 29
Slide 30: Net expenses HY 2003 reduced at headquarters in Zurich
Net expenses HY 2003 reduced by CHF 73 million at headquarters in Zurich in CHF millions 300 266 250 66 Net expenses 207 Charge backs 200 172 81 150 -37% 118 100 200 -58% 126 50 53 0 HY 2001 HY 2002 HY 2003 © Zurich Financial Services | August 2003 30
Slide 31: Zurich Financial Services
Z) ZURICH FINANCIAL SERVICES Zurich Financial Services
Slide 32: Closing remarks
Zurich Financial Services Closing remarks James J. Schiro Chief Executive Officer 20 August 2003
Slide 33: Q&A
Zurich Financial Services Q&A 20 August 2003
Slide 34: Half Year 2003 Results Appendix
Zurich Financial Services Half Year 2003 Results APPENDIX 20 August 2003
Slide 35: Segmentation changes
Segmentation changes Primary Segment (Core Business) Secondary Segment (Region) Non-life NA Corporate Life NA Consumer Farmers Management Services UKISA Other Businesses Zurich Continental Europe - Centre Rest of World - Capital Markets/ Banking Centrally Managed Businesses - Reinsurance Run-off - G
Slide 36: Net income to business operating profit
Net income to business operating profit in USD millions HY 03 HY 02 IFRS Net Income 701 -2,029 Adjust for: Special provisions 0 2,985 Adjust for: (Gains)/losses on disposals -1 -463 Adjust for: Realized and unrealized capital (gains)/losses, 514 141 including impairments, excluding Capital Markets a
Slide 37: Business operating profit and net income by segment
Business operating profit and net income by segment Business Operating Profit1 Net Income2 in USD millions HY 03 HY 02 HY 03 HY 02 Non-life 929 249 766 132 Life 550 368 391 446 Farmers Management Services 513 445 313 269 Other Businesses3 -15 -57 34 -36 Corporate Center -249 -295 -465 -518 Subtotal
Slide 38: BOP – 2003 quarter on quarter comparison
BOP – 2003 quarter on quarter comparison 600 536 400 Q1 2003 393 Q2 2003 294 200 256 260 253 0 -103 -85 -164 -200 -375 -400 -600 Non-life Life Farmers Mgmt Other Businesses Corporate Services Center © Zurich Financial Services | August 2003 38
Slide 39: Net Income – 2003 quarter on quarter comparison
Net Income – 2003 quarter on quarter comparison 500 400 455 415 Q1 2003 300 311 Q2 2003 200 100 158 155 0 -24 -41 -100 -175 -200 -263 -290 -300 -400 Non-life Life Farmers Other Corporate Mgmt Businesses Center Services © Zurich Financial Services | August 2003 39
Slide 40: Special Provisions – after tax
Special Provisions – after tax in USD millions HY 03 HY 02 Net income / (loss) 701 -2,029 Provision for reserve strengthening 0 1,758 Provision for goodwill impairments 0 727 Provision for E-business and other assets 0 227 Total special provisions – after tax 0 2,712 Net income before special provis
Slide 41: Deferred policy acquisition costs - life
Deferred policy acquisition costs - life in USD millions HY 03 Balance at 1 January 9,029 Acquisition costs deferred 670 as a % of 1 Jan balance 7.4% Amortization charged to income -379 as a % of 1 Jan balance -4.2% Amortization reflected in shareholders’ equity -112 Incr./decr. due to currency tran
Slide 42: Investment returns by asset class - HY 2003
Investment returns by asset class - HY 2003 Inv Capital Change in USD millions Income Gains in UCG Total2 Debt securities 2,560 1,251 614 4,425 Equity securities1 324 -1,282 1,649 691 Other investments 825 -391 85 519 Return as a % of average assets Debt securities 2.3% 1.1% 0.6% 4.0% Equity securit
Slide 43: 98% of the bond portfolio is investment grade
98% of the bond portfolio is investment grade Bond portfolio ratings1 distribution as of 30 June 2003 BB & below BBB 1% NA 6% 1% A 13% AA AAA 19% 60% 1 Lower of Moody's and S&P issuer ratings, if no rating available, internal ratings have been assigned © Zurich Financial Services | August 2003 43
Slide 44: The bond portfolio is well diversified
The bond portfolio is well diversified Bond portfolio industry distribution as of 30 June 2003 Oil 1% Chemicals & Pharma 1% Telecom 2% Others 3% Utilities 2% Manufacturing 5% Financial Governments & institutions supranationals 51% 22% Structured finance/ asset backed 13% © Zurich Financial Services
Slide 45: The equity portfolio also remains diversified
The equity portfolio also remains diversified Equity portfolio industry distribution at 30 June 2003 Others 8% Financial Utilities 5% institutions 27% Telecom 9% Oil 8% Chemicals & Pharma 14% Manufacturing 29% © Zurich Financial Services | August 2003 45
Slide 46: Stock market movements vs. impairment charges
Stock market movements vs. impairment charges 1200 120 1000 100 Impairments - USD millions 800 80 Impairments S&P 500 Indexes 600 60 FTSE 100 SMI DAX 400 40 200 20 Source: Bloomberg & Zurich Financial Services 0 0 • Impairment charges are for the period ended Dec '00 Dec '01 June '02 Dec '02 June '0
Slide 47: NA Consumer non-life
NA Consumer non-life1 in USD millions HY 03 HY 02 Change GWP 1,583 550 188% Combined ratio (before 2002 provisions) 98.5% 97.6% 0.9pts Business operating profit 57 34 68% 1 Includes results of Farmers Reinsurance as well as part of Group Reinsurance (GRe). © Zurich Financial Services | August 2003 4
Slide 48: Rest of the World non-life & life
Rest of the World non-life & life Non-Life in USD millions HY 03 HY 02 Change GWP 995 855 16% Combined ratio (before 2002 provisions) 95.7% 103.3% -7.6pts Business operating profit 63 23 174% Life in USD millions HY 03 HY 02 Change New bus. premiums (APE) 183 102 79% New bus. profit margin 1.9% 6.6%
Slide 49: Latin America non-life & life
Latin America non-life & life1 Non-Life in USD millions HY 03 HY 02 Change GWP 371 353 5% Combined ratio (before 2002 provisions) 98.4% 111.3% -12.9pts Business operating profit 11 8 38% Life in USD millions HY 03 HY 02 Change New bus. premiums (APE) 20 46 -57% New bus. profit margin 9.9% 4.6% 5.3pt
Slide 50: Asia Pacific non-life & life
Asia Pacific non-life & life1 Non-Life in USD millions HY 03 HY 02 Change GWP 624 502 24% Combined ratio (before 2002 provisions) 94.1% 100.4% 6.3pts Business operating profit 52 16 225% Life in USD millions HY 03 HY 02 Change New bus. premiums (APE) 162 56 189% New bus. profit margin 0.9% 8.3% -7.4
Slide 51: Life new business results for selected European countries
Life new business results for selected European countries in USD millions Switzerland Germany Italy Spain HY 03 HY 02 HY 03 HY 02 HY 03 HY 02 HY 03 HY 02 New Business Annual Premiums (APE) 92 75 237 139 32 10 10 6 New Business Profit Margin (APE) 7.2% -7.2% 4.5% 5.8% 14.2% 22.3% 9.8% -21.8% Discount
Slide 52: Half Year 2003 Results Appendix: Farmers P&C Group Companies
Zurich Financial Services Half Year 2003 Results APPENDIX Farmers P&C Group Companies 20 August 2003
Slide 53: Farmers – combined ratio improvement across virtually all lines of business
Farmers – combined ratio improvement across virtually all lines of business Core Lines of Business HY 03 HY 02 Change Auto 99.0% 98.6% 0.4 pts Homeowners‘ * 97.9% 127.7% -29.8 pts Commercial P&C * 104.8% 107.4% -2.6 pts Specialty 95.3% 92.5% 2.8 pts Total 99.9% 106.7% -6.8 pts Northridge earthquake
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