Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — H1 2002 Earnings Presentation
35 slides from Zurich Insurance's earnings presentation, Sep 5, 2002
Slide 1: Half year 2002 results and future plans
Half year 2002 results and future plans Media presentation September 5, 2002 © Zurich Financial Services
Slide 2: Disclaimer & Cautionary Statement
Disclaimer & 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 targeted profit i
Slide 3: Introduction
Introduction AGENDA • Strategic assessment • Managing our capital base • Half year 2002 results • Delivery of operational improvements • Closing remarks • Q&A James Schiro Chief Executive Officer © Zurich Financial Services
Slide 4: Strategic assessment
Strategic assessment © Zurich Financial Services
Slide 5: We undertook a thorough review process
We undertook a thorough review process Strategy • Is the existing strategy the right one in the current assessment environment? Balance sheet • Is the balance sheet presented conservatively? adequacy • Are the reserving levels appropriately conservative? Capital • How can we best manage our capital
Slide 6: Our strategy will be one of greater focus
Our strategy will be one of greater focus “We are an insurance based financial services provider with an international network, focused on chosen markets ” Core product Core geographies • Insurance • North America • Distribution of 3rd party • UK financial services • Continental Europe products (as
Slide 7: Managing our capital base
Managing our capital base © Zurich Financial Services
Slide 8: We are implementing a USD5bn risk based capital improvement program
We are implementing a USD5bn risk based capital improvement program Capital • USD2.0-2.5bn rights offering1 in October raising 2002 USD2.5-3bn • Potential USD500m hybrid issue by end 2003 Risk based • Release of capital from exited businesses capital • Selective use of reinsurance savings USD2.5 - •
Slide 9: Half year 2002 results
Half year 2002 results Thomas Buess Chief Financial Officer C:\Documents and Settings\pdewin\Desktop\02 Final Draft - 2002 HY Results Presentation.PPT© Zurich Financial Services
Slide 10: Pre-provision first half results were reasonable given the very difficult operating environment
Pre-provision first half results were reasonable given the very difficult operating in USD millions environment % First half 2002 2001 change Total GWP, deposits and policy fees1 31,254 28,056 11.4% Net investment result 3,055 3,716 -17.8% of which: Realized and unrealized gains/losses -122 555 nm T
Slide 11: Net income after tax was impacted by special provisions
Net income after tax was impacted by special provisions in USD millions First half 2002 2001 Pre-provision net income 683 861 Impact of special provisions: Reserve strengthening -1,758 Goodwill impairments -727 Write-off of capitalised software -227 Total special provisions -2,712 Net income (loss)
Slide 12: Business operating profit and pre-provision net income by segment
Business operating profit and pre- provision net income by segment was as follows in USD millions Business op. profit Pre-prov. net income First half 2002 2001 2002 2001 Non life 244 271 123 429 Life 338 560 461 411 Farmers 445 408 269 262 Centre 102 50 22 112 Capital Markets & Banking -48 59 -32 66
Slide 13: Strong premium growth led to an improved pre-provision combined ratio
Strong premium growth led to an improved pre-provision combined ratio in in non-life USD millions Combined ratios (%) % 109.3 First half 2002 2001 change Total2 103.3 GWP 14,933 11,444 30.5% NEP 9,742 7,630 27.7% 108.3 NA Corp. Pre-provision loss ratio 77.2% 78.8% -1.6ppt 97.4 Expense ratio1 26.1% 2
Slide 14: Life premiums were boosted by the acquisition of the DB insurance operations
Life premiums were boosted by the acquisition of the DB insurance operations in USD millions New business margins (%) % 6.5 First half 2002 2001 change Total 3 5.4 GWP, dep. and pol. fees 9,357 8,876 5.4% excl. DB insurance ops. 8,684 8,876 -2.2% 9.2 UKISA Business operating profit 338 560 -40.0% 7.
Slide 15: Farmers Management Services reported improved margins
Farmers Management Services reported improved margins in USD millions % First half 2002 2001 change Management fees 885 829 6.8% Operating margin 51.2% 49.0% 2.2ppt Investment result 30 60 -50.0% Business operating profit 445 408 9.1% Net income 269 262 2.7% © Zurich Financial Services 15
Slide 16: Centre and Capital Markets & Banking results declined
Centre and Capital Markets & Banking results declined in USD millions % First half 2002 2001 change Total Revenues Centre 862 892 -3.4% Capital Markets & Banking 321 446 -28.0% of which ZCM 245 352 -30.4% Net income Centre 22 112 -80.4% Capital Markets & Banking -32 66 nm of which ZCM -33 67 nm Note
Slide 17: Corporate segment results were impacted by poor investment returns
Corporate segment results were impacted by poor investment returns in USD millions First half 2002 2001 Net U/W result -31 -81 Total investment income 8 154 Net admin. and operational expenses1 -252 -132 of which: GHO -127 -156 Other admin. and operational expenses -81 -67 Employee share option plan
Slide 18: Investment results were impacted by weak financial markets
Investment results were impacted by weak financial markets in USD millions % First half 2002 2001 change Investment income 3,177 3,161 0.5% Excluding DB insurance operations 2,933 3,161 -7.2% Realized and unrealized gains/losses excluding Bâloise1 41 534 -92.3% of which: IAS non-cash asset impairmen
Slide 19: 99% of the bond portfolio is investment grade
99% of the bond portfolio is investment grade… Bond portfolio ratings1 distribution as at June 30, 2002 Unrated2 4% BB & below 1% BBB 5% A 14% AAA AA 58% 18% 1) Lower of Moody's, S&P, or Internal Ratings 2) Primarily within Deutscher Herold investment portfolio © Zurich Financial Services 19
Slide 20: Total pre-provision shareholders' equity remained stable
Total pre-provision shareholders’ equity remained stable in USD millions First half 18'000 -70 17'500 349 683 -1,120 -434 17'000 435 16'500 17,742 17,585 16'000 15'500 15'000 Balance at Net unreal. Cumulative MILES Treasury Dividend Net income Balance at January 1, loss on translation stock after ta
Slide 21: Since June 30, 2002
Since June 30, 2002 • Local solvency margins have continuously exceeded regulatory requirements • The value of the investment portfolio excluding net inflows has returned to June 30 levels, with appreciation of the bond portfolio and currency effects offsetting equity weakness • Current estimated co
Slide 22: We have conducted a thorough review of our reserves
We have conducted a thorough review of our reserves… • Assisted by independent actuaries, Miller, Herbers, Lehmann & Associates (MHL) – A leading US non-life actuarial consultancy – Former unit of Tillinghast – Covered 95% of non-life and reinsurance reserves (excluding Centre) held at December 31,
Slide 23: Reserve strengthening of USD2.0bn before tax
…which resulted in reserve strengthening of USD2.0bn before tax • Based on MHL recommendations, in concurrence with the ZFS Chief Actuary and PwC, we have increased our non-life and reinsurance reserves by USD2.0bn before tax (USD1.8bn after tax), equivalent to 7% of year-end 2001 net reserves • “We
Slide 24: The reserve strengthening is split as follows
The reserve strengthening is split as follows in USD millions Before tax Note US corporate exposures 922 Incl. internal reinsurance Covariance effect 400 Less diversified business mix Asbestos exposures 360 Survival ratio >24 Continental Europe 270 Partially due to ULAE Other 69 Misc. small business
Slide 25: Provisions on goodwill and capitalized software
In addition, we have examined other assets and have provisioned as follows in USD millions … After tax Note Goodwill 727 Based on current value assessments and business strategy Capitalized software 227 Various e-related programs Total 954 © Zurich Financial Services 25
Slide 26: Reported shareholders' equity post-provision
Reported shareholders’ equity post- provision is as follows in USD millions First half 18'000 17'000 -1,758 16'000 -727 -227 15'000 17,585 14'000 14,873 13'000 12'000 Pre-provision Reserve Goodwill Write-off Post-provision shareholders' strengthening impairments capitalized shareholders' equity soft
Slide 27: Reporting processes have also been reviewed
Reporting processes have also been reviewed • We already follow best practices in many of the areas being scrutinized in the US, e.g. SPVs, expensing stock options and share compensation plans through our income statement • DAC accounting reviewed and deemed appropriate • Starting in 2003, we intend
Slide 28: Delivery of operational improvements
Delivery of operational improvements James Schiro Chief Executive Officer © Zurich Financial Services
Slide 29: Our analysis indicates a performance gap in excess of USD1bn after tax
Our analysis indicates a performance gap in excess of USD 1 bn after tax Capital • Return on consolidated market equity of 12% over the medium term Gap in External best • Benchmarking our main excess of practice competitors USD1bn after tax Internal best • ZFS best and second best practice business
Slide 30: We focused on the following main levers
We focused on the following main levers • Additional price increases, Pricing benefiting from hardening markets • Improve underwriting quality Underwriting • Programs to improve claims Focus on Claims management core insurance • FTE reduction activities • IT cost savings Expenses • Procurement savin
Slide 31: Discipline in execution is key
Discipline in execution is key • Improvement initiatives – Ongoing tracking of milestones and impact • BD operating performance – Monthly tracking • Group operating performance – Quarterly tracking • John Amore to oversee non-life corporate, Sandy Leitch to oversee life operations on a global basis
Slide 32: An ambitious but achievable program
An ambitious but achievable program • Start of a process • Implementation • Monitoring of progress • Profitable growth © Zurich Financial Services 32
Slide 33: Insurance-based financial services strategy
Insurance-based Strategy Re-deploy capital financial services Operating ROE Operation Improve efficiency of 12% over the medium term Improve capital base Capital Platform for growth management Balance Sheet Strengthen reserves Prudently reserved © Zurich Financial Services 33
Slide 34: © Zurich Financial Services
© Zurich Financial Services 34
Slide 35: Q&A
Q&A © Zurich Financial Services
Zurich Financial Services — H1 2002 Earnings Presentation on 6ix