Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — Merrill Lynch Conference 2007
53 slides from Zurich Insurance's conference presentation, Oct 4, 2007
Slide 1: Zurich Financial Services - Delivering growth in a riskier world
Zurich Financial Services - Delivering growth in a riskier world James J. Schiro Chief Executive Officer Merrill Lynch Conference London, October 4, 2007
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: Delivery of results the central theme at Zurich
Delivery of results the central theme at Zurich Business Operating Profit BOPaT-ROE1 (in USD millions) 5,996 2 2 20.1% 6,000 19.4% 20% 5,000 3,947 15% 13.6% 2 4,000 12.6% 2 3,278 2,988 9.8% 3,000 2,316 10% 2,000 5% 1,000 0 0% 2003 2004 2005 2006 HY07 2003 2004 2005 2006 HY07 Shareholders’ equity Dil
Slide 4: Consistent delivery of ROE results ahead of our peers
Consistent delivery of ROE results ahead of our peers 20.0% 19.0% 17.2% 15.5% 15.0% 13.4% 13.6% 13.0% 12.1% 10.7% 10.0% 5.0% 0.0% 2003 2004 2005 2006 Peer Basket Zurich Peer Basket includes the unweighted average of: Allianz, AXA, Generali, AVIVA, AIG, Allstate, Travelers, Hartford Source: Bloomberg
Slide 5: Zurich has ability to deliver stable earnings thanks to well diversified book
Zurich has ability to deliver stable earnings thanks to well diversified book Business Operating Profit Business Operating Profit General Insurance1,3 split by segment1,2 Int’l Businesses 5% Global Corporate 18% Other Businesses Europe 8% General 45% North Insurance 32% America Farmers Commercial Mg
Slide 6: Strategic transformation focus on Margin and Volume
Strategic transformation focus on Margin and Volume Capital ROE Margin 16%1 Volume Operational Transformational Transformation Growth Enhanced service Platforms Customer delivery Scale Data quality Product Cost advantage Larger data set Expense base Distribution Customer insight 1 Business operating
Slide 7: Focus on volume growth
Zurich applies a differentiated focus to unlock and grow business value Global IB Focus on volume growth Farmers Life EGI Legend for GI BDs: IB International GC Businesses EGI Europe General Insurance NAC GC Global Corporate NAC North America Commercial Focus on margin enhancement © Zurich Financial
Slide 8: Q&A
Q&A © Zurich Financial Services - Merrill Lynch Conference – London, October 4, 2007 8
Slide 9: Appendix
Appendix Half year results - highlights Group strategy General Insurance strategy Global Life strategy Farmers strategy © Zurich Financial Services - Merrill Lynch Conference – London, October 4, 2007 9
Slide 10: Financial highlights
Financial highlights in USD millions 2007 20061 Change for the six months to June 30 Business operating profit 3,278 2,923 12% Net income attributable to shareholders 2,684 2,011 33% General Insurance combined ratio 96.5% 94.5% -2pts Global Life new business margin2 24.1% 17.8% 6.3pts Farmers Mgmt S
Slide 11: Business operating profit by segment
Business operating profit by segment in USD millions 2007 20061 Change for the six months to June 30 General Insurance 1,838 1,787 3% Global Life 721 576 25% Farmers Management Services 672 626 7% Other Businesses 478 304 57% Corporate Functions -430 -371 -16% Total 3,278 2,923 12% 1 Throughout this
Slide 12: Top line development by segment
Top line development by segment in USD millions 2007 2006 Change Change for the six months to June 30 in LC1 Gross written premiums and policy fees General Insurance 19,026 18,454 3% 0% Global Life (incl. insurance deposits)2 10,427 10,190 2% -5% Other Businesses 1,210 1,117 8% 8% Annual Premium Equ
Slide 13: Global Life – key performance indicators
Global Life – key performance indicators in USD millions 2007 2006 Change Change for the six months to June 30 in LC1 Annual Premium Equivalent (APE) 1,323 1,184 12% 5% New business value, after tax 319 211 51% 45% New business margin, after tax2 24.1% 17.8% 6.3pts Embedded value operating profit 1,
Slide 14: General Insurance – key performance indicators
General Insurance – key performance indicators Business Operating Profit Combined ratio (%) in USD millions Major CAT 2007 2006 Change Global 3.2 94.4 for the six months to June 30 Corporate 93.6 Global Corporate 385 367 5% 92.9 NA North America Commercial 767 544 41% Commercial 95.5 Europe Europe G
Slide 15: Farmers Exchanges – key performance indicators
Farmers Exchanges1 – key performance indicators in USD millions 2007 2006 Change for the six months to June 30 Gross written premiums 7,780 7,435 5% Net underwriting result 72 228 -68% Combined ratio 97.7% 95.8% -1.9pts Adjusted combined ratio2 91.1% 88.7% -2.4pts Surplus ratio 41.0% 38.3% 2.7pts 1
Slide 16: Group Investments – Exposure to US sub-prime is very small
Group Investments – Exposure to US sub-prime is very small (0.18%) and of high quality Group Investments USD 186bn (100%) US sub-prime: USD 340m (0.18%) 100% inv. grade 76% AAA No downgrades by rating Debt agencies in June/July 07 securities Only USD 53m is of 2006 vintage 63% year, and USD
Slide 17: Group Investments – Exposure to CDO is very small
Group Investments – Exposure to CDO is very small (0.26%) and of high quality Group Investments USD 186bn (100%) CDO: USD 479m (0.26%) 99% inv. grade, 1% unrated 69% AAA Debt 76% backed by UK bank loans (CLO) and 24% by other types of collateral assets securities US sub-prime exposure (of th
Slide 18: Appendix
Appendix Half year results - highlights Group strategy General Insurance strategy Global Life strategy Farmers strategy © Zurich Financial Services - Merrill Lynch Conference – London, October 4, 2007 18
Slide 19: A track record of performance improvements
A track record of performance improvements Business Operating Profit BOPaT-ROE1 (in USD millions) 2 6,000 5,996 20% 19.4%2 5,000 3,947 15% 13.6% 4,000 12.6%2 2 2,988 3,000 2,316 10% 9.8% Half Year 2007 2,000 1,175 5% 5.1% • BOP USD 1,000 3,278m 0 2002 2003 2004 2005 2006 0% • BOPaT-ROE1 2002 2003 20
Slide 20: Our aspiration
Our aspiration We aspire to become the leading global insurance group in our chosen general and life insurance markets, consistently delivering top-tier results for our shareholders. By so doing, we will create strong relationships with customers, agents and brokers and rewarding opportunities for e
Slide 21: Strategic transformation
Strategic transformation Capital ROE Margin 16%1 Volume Operational Transformational Transformation Growth Enhanced service Platforms Customer delivery Scale Data quality Product Cost advantage Larger data set Expense base Distribution Customer insight 1 Business operating profit (after tax) return
Slide 22: Strategic objectives
Strategic objectives • Become a top-five insurer globally • Strengthen our market leadership positions • Expand capital light and fee income businesses • Position Zurich as the employer of choice in the insurance industry globally • Generate a consistent mid-term BOPaT-ROE1 of 16% 1 Business operati
Slide 23: Focus on volume growth
Zurich applies a differentiated focus to unlock and grow business value Global IB Focus on volume growth Farmers Life EGI Legend for GI BDs IB International GC Businesses EGI Europe General Insurance NAC GC Global Corporate NAC North America Commercial Focus on margin enhancement © Zurich Financial
Slide 24: Growth program makes profitable growth a top priority
Growth program makes profitable growth a top priority across the Group Align the organization for profitable growth Mission Make profitable Leverage growth growth a top opportunities priority across the Group Energize growth at the front line / BU level © Zurich Financial Services - Merrill Lynch Co
Slide 25: Zurich's focus on emerging markets
Zurich’s focus on emerging markets Russia Greater China (incl. Hong Kong and Taiwan) South East Asia (excl. Greater Latin America China) Middle East • Argentina • Chile • Mexico • Venezuela • Bolivia • Brazil South Africa © Zurich Financial Services - Merrill Lynch Conference – London, October 4, 20
Slide 26: Growth targets
Growth targets 5% CAGR GWP growth1 over the cycle, maintaining a pre tax General Insurance BOP ROE of greater than 25% Double digit APE growth taking the New Business Value to Global Life USD 850m by 2010 GWP of USD 21bn by 2010, not exceeding a combined ratio of Farmers 98% 1 From a strategic persp
Slide 27: The Zurich Way – shift from expense savings to operational improvements
The Zurich Way – shift from expense savings to operational improvements to foster profitable growth Global Profit The Zurich Way Improvement Program USD 1bn Total planned benefits Legend: Growth / 2007 to 2009: USD 2 billion Distribution USD 700m Claims USD 540m USD 500m USD 500m Pricing / Underwrit
Slide 28: Operational Transformation sharpens business processes
Operational Transformation sharpens business processes to create competitive advantage Product Sales/ Service Factory Marke- IT Support develop- ting Distrib- Under- Servi- functions ment ution writing cing Claims Operational efficiency Operational transformation powered by The Zurich Way Customer e
Slide 29: Appendix
Appendix Half year results - highlights Group strategy General Insurance strategy Global Life strategy Farmers strategy © Zurich Financial Services - Merrill Lynch Conference – London, October 4, 2007 29
Slide 30: Significant performance improvement in General Insurance over the past 5 years
Significant performance improvement in General Insurance over the past 5 years Business Operating Profit Combined Ratio In USD billions 3.8 111.4% CAGR 75% 101.6% 100.8% BOP-ROE1 2.1 97.9% 1.9 32% Reduction 94.2% 1.2 4pts p.a. Half Year 2007 0.4 GWP: USD 19.0bn 2002 2003 2004 2005 2006 NEP: USD 14.5
Slide 31: Zurich General Insurance operating model
Zurich General Insurance operating model leverages global operations for local delivery Group Value Added Global Talent Base General insurance Global global functions Global Risk Underwriting Engineering The Zurich Brand The Zurich Way Market facing business divisions Global Corporate North Europe I
Slide 32: General Insurance Strategy
General Insurance Strategy Grow revenue organically through superior execution of customer 1 relationship, product and distribution management capabilities Target specific acquisitions to further diversify, focusing on consumer, 2 small business and key emerging markets Sustain top tier performance
Slide 33: Organic Growth: Global cross sell, Zurich Connect and Micro-segmentation
1 Organic Growth: Global cross sell, Zurich Connect and Micro-segmentation Global Cross Sell: Infrastructure to generate additional sales between Business Units across General Insurance and Global Life USD 1bn GWP expected by 2010 Zurich Connect: New internet based distribution of General Insurance
Slide 34: Target Acquisitions: Zurich Expanding in Russian Emerging Market
2 Target Acquisitions: Zurich Expanding in Russian Emerging Market • Market consolidation and more than 30% growth in Zurich personal lines Opportunity • Enlarged Russian operations through Nasta acquisition with increased regional presence • 2007 GWP USD 350m (no. 5-6 market position in Motor) • 3,
Slide 35: Top Tier Performance: The Zurich Way will continue to leverage our global position
3 Top Tier Performance: The Zurich Way will continue to leverage our global position Not applicable No TZW initiatives started GI TZW initiatives partially rolled out NAC EGI GC IB TZW init. rolled out, full value not yet captured First wave TZW init. fully rolled out, full value UW – Commercial and
Slide 36: Strategic focus on growth in International, EGI, Personal Lines, Direct and P&A
Strategic focus on growth in International, EGI, Personal Lines, Direct and P&A business GWP Breakdown 2006 Growth Focus IB Business Global 8% Division NAC Corporate 21% 35% • International Businesses 36% • Europe General Insurance EGI Sub-Segment Corporate Personal 21% 25% • Personal Commercial 54%
Slide 37: Appendix
Appendix Half year results - highlights Group strategy General Insurance strategy Global Life strategy Farmers strategy © Zurich Financial Services - Merrill Lynch Conference – London, October 4, 2007 37
Slide 38: Significant improvement of financial metrics over the past years
Significant improvement of financial metrics over the past 6 years New business APE New business margin in USD millions in % CAGR 2,403 Up 17.6 21.7%EEV 3% 2,368 points 2,303 * 17.7%EEV 2,134 11.4% Half Year 2007 2,082 9.0% 2,008 6.1% • APE USD 4.1% 1,323m • NBM 24.1% 2001 2002 2003 2004 2005 2006 2
Slide 39: Strategic Roadmap: Cornerstones of the Global Life Strategy
Strategic Roadmap: Cornerstones of the Global Life Strategy Five cornerstones of the Global Life Strategy Key thrusts Shift focus to volume Growing new business volume while maintaining 11 growth high margin Focus on multi-niche Identifying profitable niches and achieve 2 strategy leadership positio
Slide 40: Volume growth – Plan for double digit growth rates
1 Volume growth – Plan for double digit growth rates p.a. fuelled by global opportunities Global Life Strategy 11 Shift focus to volume growth • Switzerland unit-linked • Risk products through Focus on multi- • Ireland SSIA reinvestment brokers 2 niche strategy Leverage • Italy pension reform • New
Slide 41: Volume growth – Where will the growth come from
1 Volume growth – Where will the growth come from Global Life Strategy Shift focus to 11 volume growth Focus on multi- 2 niche strategy Leverage UK Germany Other Emerging 3 network Capital markets markets 4 management Talent 5 management UK product UL and FNWL niches protection Tied Agent Sales Exce
Slide 42: Multi-niche – Two-thirds of sales in unit-linked and protection
2 Multi-niche – Two-thirds of sales in unit-linked and protection Global Life Strategy 11 Shift focus to Why unit-linked? volume growth Focus on multi- • Fee based business/low capital requirement/attractive returns 2 niche strategy Leverage • Flexible and attractive customer propositions 3 network
Slide 43: Leverage network – Leverage our strength using the proven TZW methodology
3 Leverage network – Leverage our strength using the proven TZW methodology Global Life Strategy 11 Shift focus to volume growth Tied agent • Sales excellence: 2600 agents retrained resulted in 20% productivity increase. 2 Focus on multi- niche strategy distribution Leverage • Leverage GI and Farmer
Slide 44: Capital management – Further optimization of balance sheet
4 Capital management – Further optimization of balance sheet Global Life Strategy 11 Shift focus to Capital • Vita – off balancing of group life business in Switzerland volume growth 2 Focus on multi- release and • Consolidation of UK operations niche strategy Leverage de-risking • ALM hedging/de-ri
Slide 45: Talent management – Develop intellectual capital
5 Talent management – Develop intellectual capital Global Life Strategy Shift focus to 11 volume growth 2 Focus on multi- Proposition niche strategy 3 Leverage Management network 4 Capital • A strategic workforce management 5 Talent management planning implemented – 2010 Talent Initiative Distributi
Slide 46: Global Life Strategy
Global Life Strategy We have turned our business around and now we are growing, with specific 1 initiatives in three growth waves Promising niches identified and aligned with distribution, and… 2 • Actively adding new niches to capture the growing markets • Active proposition management to maintain
Slide 47: Appendix
Appendix Half year results - highlights Group strategy General Insurance strategy Global Life strategy Farmers strategy © Zurich Financial Services - Merrill Lynch Conference – London, October 4, 2007 47
Slide 48: Farmers' unique structure has created a history of reliable earnings growth
Farmers’ unique structure has created a history of reliable and steady earnings growth… US P&C Industry Income1 Farmers Management Services Underlying Business Operating Profit in USD billions in USD millions 90 1,400 80 70 1,200 60 1,000 50 800 40 30 600 20 400 10 200 0 -10 0 1990 1991 1992 1993 19
Slide 49: …as it insulates management company earnings from volatility of underwriting results
… as it insulates management company earnings from volatility of underwriting results Simplified structure and premium distribution Premium 12% 88% Management Farmers Company Exchanges Administration and Underwriting risk management Zurich owned Policyholders owned © Zurich Financial Services - Merr
Slide 50: U.S. market overview
U.S. market overview Total U.S. P&C market Top 10 U.S Personal Lines Insurers1 Market Company share (%) Other State Farm Group 18.8 Commercial2 PP Auto 29.1% 33.5% Allstate Insurance Group 11.5 Farmers Insurance Group 5.5 Progressive Insurance Group 5.4 Comm. Auto 6.2% Home Berkshire Hathaway Ins (G
Slide 51: Already a Market Leader in Core States…with Plans to be a Dominant Player
Already a Market Leader in Core States…with Plans to be a Dominant Player… 0.5% market share (independent agency states) 5.1% Market Share (exclusive agency states) 5.1% market share (exclusive agency states) Non-operating states Top 5 Top 10 Top 25 Independent agency states Source: 2006 Data from A
Slide 52: Farmers is outperforming its competitors
Farmers is outperforming its competitors Growth vs. GAAP Combined ratio1 - June 2007 Q207 YTD Peer Averages4 Growth 2007 Industry Estimate NPW growth = -1.6% NPW, % Industry3 6.0 97.6% Q207 Peer Average CR = 88.4% 5.0 Farmers2 4.0 3.0 2.0 1.0 State Farm 0.0 Industry3 -1.0 Safeco Hartford -0.6% Allst
Slide 53: Farmers' aspiration is to achieve 21bn in GWP by 2010
Farmers’ aspiration is to achieve 21bn in GWP by 2010 while maintaining current levels of profitability which positions it to be of the fastest growing personal and small business insurers in America Growth initiative pipeline: 2007-2010 net incremental GWP • Achieve double digit growth by 2010 • Ma
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