Zurich Insurance Group Ltd · SIX:ZURN
Zurich Insurance — Zurich Financial Services — Investor Presentation (May 2005)
30 slides from Zurich Insurance's investor presentation, May 3, 2005
Slide 1: Impact of Changes to International Financial Reporting Standards (IFRS)
Impact of Changes to International Financial Reporting Standards (IFRS) Analysts’ presentation Zurich, May 3, 2005
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 predictions of or indicate future events, trends, plans or objectives. Forward-looking statements include statements regarding our strategic dire
Slide 3: Agenda
Agenda • Introduction Patrick O’Sullivan • Financial statement impacts Louis Mannello • Concluding remarks Patrick O’Sullivan • Appendix © Zurich Financial Services - Impact of Changes to IFRS, Analysts’ presentation, May 3, 2005 3
Slide 4: Introduction
Introduction Patrick O’Sullivan Group Finance Director May 3, 2005
Slide 5: Introduction
Introduction • Zurich is not a first-time adopter of IFRS - IAS has been applied since 1997 - Reference to US GAAP where IAS (IFRS) has been silent • However, IFRS has changed as of January 1, 2005 - IFRS 4 – new insurance contract standard - 4 other new standards, one of which implemented in 2003 -
Slide 6: Primary impact on Zurich due to IFRS 4
Primary impact on Zurich due to IFRS 4 Accounting Standard changes Retrospective IFRS 4 – Insurance contracts IAS 1 – Presentation of financial statements IAS 27 – Consolidated financial statements IAS 39 – Financial Instruments Prospective IFRS 3 – Business combinations IFRS 5 – Assets held for dis
Slide 7: Illustration of major impacts on the Zurich balance sheet
Illustration of major impacts on the Zurich balance sheet Assets before revisions Revised IFRS balance sheet Liabilities before revisions Reserves for Total insurance Total investments products Insurance investments (incl. reserves unit-linked assets) Reserves for investment Unit-linked Unit-linked
Slide 8: IFRS changes do not affect business fundamentals
IFRS changes do not affect business fundamentals • No change in underlying economics of transactions • No change in “real”cash flows • No change in Embedded Value • No change in regulatory capital requirements on a legal entity basis and risk based capital requirements © Zurich Financial Services -
Slide 9: Financial statement impact
Financial statement impact Louis Mannello Group Controller May 3, 2005
Slide 10: Restatement of 2004 Shareholders' Equity
Restatement of 2004 Shareholders’ Equity Gross Tax effect Opening % of Closing net impact opening net impact (in USD millions – unaudited) Jan 1, 2004 S/H equity Dec 31, 2004 As published in the 2004 Annual Report 18,934 100% 22,181 IFRS 4 adjustments a) Contract classification -1,248 293 -955 -1,09
Slide 11: IFRS 4 - Insurance Contracts
IFRS 4 - Insurance Contracts • Definition of an insurance contract: - Mainly affects reclassification of contracts in Life insurance business - General Insurance business not significantly impacted • Contracts no longer classified as insurance are accounted for as investment products with changes to
Slide 12: IFRS 4 impact: a) Contract classification
IFRS 4 impact: a) Contract classification • Certain life products in the UK, Ireland, Isle of Man and Australia no longer classified as insurance but as investment products • These contracts are now subject to the accounting treatment for financial instruments under IAS 39 and IAS 18 in respect of c
Slide 13: IFRS 4 impact: b) Centre discount unlocking
IFRS 4 impact: b) Centre discount unlocking • IFRS 4 permits changes for accounting for insurance products, where there is a more “relevant and reliable” treatment • For certain life and health insurance contracts, Centre held investments as trading with the corresponding liability held at fixed or
Slide 14: IFRS 4 impact: c) Swiss pension
IFRS 4 impact: c) Swiss pension • Currently, there is an insurance contract between the Group’s Swiss pension fund and Zurich Life Insurance Company. IFRS 4 does not allow recognition of such a contract as insurance, though it is an admissible asset under Swiss law • As the contract can no longer be
Slide 15: Restatement of 2004 Shareholders' Equity
Restatement of 2004 Shareholders’ Equity Gross Tax effect Opening % of Closing net impact opening net impact (in USD millions – unaudited) Jan 1, 2004 S/H equity Dec 31, 2004 As published in the 2004 Annual Report 18,934 100% 22,181 IFRS 4 adjustments a) Contract classification -1,248 293 -955 -1,09
Slide 16: Impact on Zurich's 2004 net income
Impact on Zurich’s 2004 net income Dec 31, Mar 31, (in USD millions – unaudited) 2004 2004 As published in the 2004 annual report 2,587 730 a) Contract classification -67 -9 b) Centre discount unlocking -12 -61 c) Swiss pension -42 -16 Total adjustments -121 -86 Net income after tax and minority int
Slide 17: Description of IFRS 4 impact on net income
Description of IFRS 4 impact on net income a) Contract classification and related: - Fewer costs related to new business are deferrable - Change to passive DAC amortization method b) Centre discount unlocking: - Removal of volatility resulting from movement in investments not being matched by the va
Slide 18: Restated Q1 2004 net income by segment
Restated Q1 2004 net income by segment As Adjustments Restated Adjustments As restated reported for IFRS for IFRS for segment for segment (in USD millions – unaudited) for Q11 changes changes General Insurance 458 -7 451 -12 439 Life Insurance 220 -13 207 -1 206 Farmers Management Services 177 - 177
Slide 19: Illustration of major impacts of accounting standards on the Zurich balance sheet
Illustration of major impacts of accounting standards on the Zurich balance sheet Revised IFRS balance sheet • IAS 1: liquidity option changes • IFRS 4 / IAS 39: reduction of order of line items insurance reserves by transfer of Reserves for liabilities related to investment • IAS27: consolidation o
Slide 20: IFRS - prospective impacts
IFRS - prospective impacts IFRS 3 – Business IFRS 5 – Assets held for combinations disposal Balance No impact on 2004 - No impact on 2004 Sheet shareholders’ equity shareholders’ equity - Assets and liabilities identified for disposal are reclassified as a single line item Income - Amortization of g
Slide 21: New IFRS disclosures in the 2005 Annual Report
New IFRS disclosures in the 2005 Annual Report • Insurance loss development tables • Maturity of General and Life Insurance reserves • Roll forward of Life Insurance reserves • Judgments and sensitivity information and their impact on the financial statements © Zurich Financial Services - Impact of
Slide 22: Concluding remarks
Concluding remarks Patrick O’Sullivan Group Finance Director May 3, 2005
Slide 23: Concluding remarks
Concluding remarks • Zurich is not a first time adopter of IFRS • The adoption of IFRS 4 has had a major impact on the financial statements • IFRS changes do not affect business fundamentals: - No change in underlying economics of transactions - No change in “real” cash flows - No change in Embedded
Slide 24: Q&A
@ ZURICH O&A
Slide 25: Appendix
@ ZURICH Appendix
Slide 26: Revised IAS / IFRS changes
IAS / IFRS changes Standard No. Description IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events after the Balance Sheet Date IAS 16 Property, Plant and Equipment IAS17 Leases IAS 21 The Effects of Changes in
Slide 27: Cash flow, deferral and amortization of insurance versus investment products
Cash flow, deferral and amortization of insurance versus investment products Insurance product Investment product 30 New DAC/DOC 20 DAC / DOC amortization 10 charged to income 0 0 1 2 3 4 5 -10 Underlying profitability of both products does not change, however, IFRS 4 alters the -20 timing of report
Slide 28: Deferred Origination Costs (1/3)
Deferred Origination Costs (1/3) • Origination costs are deferred for investment contracts at a different level to acquisition costs deferred for insurance contracts • Origination costs relate to management services for investment contracts which are deferred and amortized over the period in which t
Slide 29: Deferred Origination Costs (2/3)
Deferred Origination Costs (2/3) Examples of different costs incurred and whether they qualify as DOC or DAC Description Qualify for DOC ? Qualify for DAC ? Initial commission Yes Yes Commission to direct sales force Yes Yes Production bonuses payable to direct sales force Yes, incremental Yes Salar
Slide 30: Deferred Origination Costs (3/3)
Deferred Origination Costs (3/3) DAC on insurance DAC products DAC on DOC investment products pre IFRS 4 classification Separation of DAC and DOC • ‘pre IFRS 4’-DAC on investment products will be reclassified as Deferred Origination Costs (DOC) • since origination costs are deferrable to a lesser ex
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