Zurich reports business operating profit of USD 2.2 billion for the first half of 2015

Zurich Insurance Group (Zurich) today reported a business operating profit (BOP) of USD 2.2 billion and net income attributable to shareholders of 2.1 billion for the half-year ended June 30, 2015.

• H1 BOP of USD 2.2 billion, down 15% compared with prior year period
• H1 NIAS of USD 2.1 billion, down 3% compared with prior year period
• BOPAT ROE 11.6%, down from 12.5% in the first half of 2014
• General Insurance combined ratio of 98.3%; actions underway to deliver on 2016 targets
• Global Life delivers good growth in APE and BOP at constant currency
• Farmers continues progress in strategic execution
• Full-year cash remittances expected to be over USD 3.5 billion; expectation for three year period ending 2016 of more than USD 10 billion, well ahead of target
• GEC members take on additional responsibilities

Select financial highlights – half year (H1) and second quarter (Q2) of 2015

(For a more comprehensive set of financial highlights covering the six months ended June 30, see page 7 of the news release)

Zürich, August 6, 2015 – Zurich Insurance Group (Zurich) today reported a business operating profit (BOP) of USD 2.2 billion and net income attributable to shareholders of 2.1 billion for the half-year ended June 30, 2015.

Chief Executive Officer Martin Senn said:

“While the positive trend in Global Life and Farmers has continued, with these businesses delivering good results, the profitability of our General Insurance business was adversely affected by large losses, particularly within Global Corporate and the UK, and a higher expense ratio. In consequence, our business operating profit return on equity for the first half of 2015 was 11.6%.”

“We are addressing the expense ratio issue and expect to see the benefits of the measures we have already taken or are in the process of implementing coming through early next year. In addition, we have launched a number of actions to address the profitability issues in parts of our General Insurance business.”

“In terms of our other key targets, we remain in a very strong position. First, our Zurich Economic Capital Model ratio stood at 120% at the end of the first quarter, at the top of our target range. And second, cash remittances are expected to exceed USD 3.5 billion for the full year and USD 10 billion for the period 2014-2016, well ahead of our target of USD 9 billion.”

“Separately, we have informed the market that we are evaluating a potential offer for RSA Insurance Group plc. We believe that a transaction could bring significant benefits to us and to our investors in terms of the complementary fit of RSA’s business with our own operations and in financial terms. But any capital deployment would need to meet the same hurdles that we apply to any other investment.”

Additional GEC responsibilities

Zurich has also reassigned the following responsibilities within its Group Executive Committee. These will be effective October 1, 2015, subject to regulatory and board approvals.

• George Quinn, Chief Financial Officer, will be the new Regional Chairman for Europe, Middle East and Africa, and the Chairman of Zurich Insurance plc (Ireland).
• Isabelle Welton, Chief Human Resources Officer, will take on the role of Regional Chairman for Latin America.
• Jeff Dailey, CEO of Farmers Group, Inc., will also assume the role of Chairman of the Board of Directors of Farmers Group, Inc.
• Robert Dickie, Chief Operations and Technology Officer, will become member of the Board of Directors of Farmers Group, Inc.

Segment performance

(for the half year ended June 30, 2015)

General Insurance

General Insurance BOP fell by USD 515 million to USD 1.2 billion, 31% in U.S. dollar terms or 27% in local currency terms. This was predominantly due to an increase in large losses in the UK and Global Corporate in North America, higher levels of catastrophe and weather related losses, and higher expenses. The increase in expenses was mainly due to one-off positives in the prior year and mix effects on commission, including the extended warranty business in Brazil. The combined ratio deteriorated 2.6 percentage points to 98.3%.

Gross written premiums and policy fees fell in dollar terms but increased by 3% on a local currency basis, with growth in all regions. The rate environment remained stable, with overall rates increasing by 1.4%.

Global Life

Global Life BOP was USD 673 million, up 6% in U.S. dollar terms and 21% on a local currency basis. Gross written premiums, policy fees and insurance deposits increased by USD 612 million to USD 14.8 billion, or 4% in U.S. dollar terms and 22% in local currency. Annual premium equivalent rose 19% in local currency.

The results, although benefiting from non-recurring items in both periods, reflect growth in bank distribution and developed markets, and the positive effect of in-force initiatives in the Global Life back-books being managed for value.

The ongoing focus on fee-based and protection business has delivered an underlying improvement in loadings and fees, as well as in the technical margin. Loadings and fees fell 6% in U.S. dollar terms but were up 8% in local currency, while the technical margin improved by 23% in U.S. dollar terms. These were partly offset by a lower investment margin.

Farmers

Farmers BOP declined 5% to USD 719 million as a reduction in revenues and slightly higher costs at Farmers Management Services offset an improved result at Farmers Re.

Gross written premiums at the Farmers Exchanges, which are owned by their policyholders and managed by Farmers Group Inc., a wholly owned subsidiary of the Group, increased by about 2%. Growth in most books of business more than compensated for a decline in earnings from businesses being managed for value and Direct Auto and Business Insurance sold through independent agents.

The Non-Core Businesses, which comprise run-off portfolios that are managed with the intention of proactively reducing risk and releasing capital, reported a business operating profit of USD 10 million, compared to a profit of USD 2 million in the prior year, largely due to one-off items in the prior year.

In Other Operating Businesses, the holding and financing business operating loss fell by USD 122 million to USD 330 million, primarily due to favorable currency movements and lower interest expenses on debt refinanced in 2014 and 2015.

The net investment result on Group investments, which includes net investment income, realized capital gains and losses and impairments, contributed USD 4 billion to the Group's total revenues for the six months ended June 30, 2015, a net return of 2.0% (not annualized). Total return on Group investments, which in addition to the net investment result includes changes in unrealized gains/(losses) reported in shareholder's equity on investments classified as 'available-for-sale' and cash flow hedges, was 0.1% (not annualized), compared with 4.8% in the same period of 2014. This was largely driven by rising yields and widening credit spreads.

1 Parentheses around numbers represent an adverse variance.
2 Total Group business volumes comprises gross written premiums, policy fees, insurance deposits and management fees generated within General Insurance, Global Life and Farmers.
3 As of June 30, 2015 and December 31, 2014, respectively.
4 Shareholders’ equity used to determine ROE and BOPAT ROE is adjusted for unrealized gains/(losses) on available-for-sale investments and cash flow hedges.
5 Details of the principles for calculating new business are included in the embedded value report in the Annual Report 2014. New business value and new business margin are calculated after the effect of non-controlling interests whereas APE is presented before non-controlling interests.

Financial highlights (unaudited)

The following table presents the summarized consolidated results of the Group for the half year ended June 30, 2015 and 2014, and the financial position as of June 30, 2015 and December 31, 2014, respectively. All amounts are shown in U.S. dollars and rounded to the nearest million unless otherwise stated, with the consequence that the rounded amounts may not add to the rounded total in all cases. All ratios and variances are calculated using the underlying amounts rather than the rounded amounts. This document should be read in conjunction with the Annual Report 2014 for the Zurich Insurance Group and with its Consolidated financial statements 2014. In addition to the figures stated in accordance with International Financial Reporting Standards (IFRS), the Group uses business operating profit (BOP), new business measures and other performance indicators to enhance the understanding of its results. Details of these additional measures are set out in the separately published Glossary. These should be viewed as complementary to, and not as substitutes for the IFRS figures.

1 Parentheses around numbers represent an adverse variance.
2 Details of the principles for calculating new business are included in the embedded value report in the Annual Report 2014. New business value and new business margin are calculated after the effect of non-controlling interests, whereas APE is presented before non-controlling interests.
3 Calculated on average Group investments.
4 As of June 30, 2015 and December 31, 2014, respectively.
5 Ratios as of January 1, 2015 and July 1, 2014, respectively. The Swiss Solvency Test (SST) ratio is calculated based on the Group’s internal model, and both the ratio and the internal model are subject to the review and approval of the Group’s regulator, the Swiss Financial Market Supervisory Authority (FINMA). The ratio is filed with FINMA bi-annually.
6 Shareholders’ equity used to determine ROE and BOPAT ROE is adjusted for unrealized gains/(losses) on available-for-sale investments and cash flow hedges.