New business overview Zurich Financial Services Group Results for the three months to March 31, 2011

Transcription

1 0 Results for the three months to March, 0

2 Results for the three months to March, 0 Global Life (unaudited) Key results (in USD millions, for the three months ended March ) %.7% 0 89.%.7% annual value premium equivalent value annual premium equivalent margin (% APE) margin (% PVNBP) key results in USD millions, for the three months ended March 0 00 Change annual premium equivalent value net of non-controlling interests margin (%APE) 7.%.7% 4.4% margin (%PVNBP).%.7% 0.5% 0 new business values include a change to methodology in group protection business which benefited value by USD 4 million. 00 new business values have been restated for the inclusion of a liquidity premium in the discount rates applied and changed CRNHR assumptions. The Global Life segment delivered a solid set of new business results that reflect the strong focus on profitability with continued robust sales in spite of the difficult economic environment persisting in major markets. annual premium equivalent (APE) was USD 849 million. APE increased by USD 6 million or by percent in U.S. dollar terms and remained flat in local currency terms. This increase was driven by strong sales in corporate life and pensions business particularly in the UK and Switzerland but was partially offset by reduced sales in Ireland. Asia- Pacific and Middle East also performed well with growing sales in protection products. However, Spanish financial institutions continued to compete for deposits on uneconomical terms for Zurich and hence volumes of savings business were reduced in favor of higher margin but lower volume protection products. The divestment of Caixa Sabadell also reduced volumes in the first three months of 0 compared with same period in 00. value was USD 0 million, an increase of USD 4 million or by percent in U.S. dollar terms and by 9 percent in local currency. value benefited from the increase in sales referred to above as well as the inclusion of a methodology refinement for the calculation of group protection business where the total value expected to be generated over the life of the contract is used rather than value generated up to the next review date (see Section.Methodology and assumptions for further details). In Germany and in the Americas new business value remained resilient. margin (NBM) was 7. percent. NBM increased by 4.4 percent from.7 percent mainly reflecting the benefit in new business value from changes in the group protection methodology referred to above.

3 Results for the three months to March, 0. Annual premium equivalent (APE) (in USD millions), Q Q Q Q4 for the three months ended March 0 00 Present value of new business premiums (PVNBP) (in USD millions) 0,5 7,49 6,94 7,677 6,56 7,49 6,94 Q Q Q Q4 for the three months ended March 0 00 value (in USD millions) Q Q Q Q4 for the three months ended March 0 00 value by country (in USD millions, for the three months ended March ) North America Latin America 5 8 United Kingdom Germany Switzerland Ireland Spain Rest of Europe Asia Pacific and Middle East 57 9 Other 0 00

4 4 Results for the three months to March, 0 continued margin (% APE) (in percent) 7.% 4.5% 7.%.7%.5%.8%.7% Q Q Q Q4 for the three months ended March 0 00 margin (% PVNBP) (in percent).%.7%.8%.9%.6%.%.7% Q Q Q Q4 for the three months ended March 0 00 by quarter in USD millions 0 00 Q Q Q Q4 Q YTD Q Q Q Q4 Q YTD Annual premium equivalent (APE) ,04 8 Annual premiums Single premiums,496,496 4,9 4,,7 5,59 4,9 Present value of new business premiums (PVNBP) 7,49 7,49 6,94 7,677 6,56 0,5 6,94 Average annual premium multiplier value margin (as % APE) 7.% 7.%.7% 4.4%.5%.8%.7% margin (as % PVNBP).%.%.7%.8%.9%.6%.7% APE is new annual premiums plus 0% of single premiums. PVNBP is new single premiums plus the present value of new annual premiums. 00 new business values have been restated for the inclusion of a liquidity premium in the discount rates applied and changed CRNHR assumptions.

5 Results for the three months to March, 0 5 by country in USD millions, for the three months ended March APE PVNBP value as % APE margin as % PVNBP North America % 55.% 5.5% 5.8% Latin America %.0% 5.% 4.% Europe ,756 5, %.%.0%.% of which: United Kingdom 77,96, % 0.4%.%.% Germany 9 7,5, %.8%.7%.% Switzerland % 0.%.0%.% Ireland 9 75, % 6.%.%.% Spain ,6 7.%.0%.0%.4% Rest of Europe % 0.%.4%.9% Asia-Pacific and Middle East %.5% 4.7% 4.0% Other % 40.9% 6.9%.6% Global Life ,49 6, %.7%.%.7% 00 new business values have been restated for the inclusion of a liquidity premium in the discount rates applied and changed CRNHR assumptions. Most of the new business value in Other is generated from the International Group Protection business. The term over which group protection business is valued now includes the term over which the business is expected to be retained, see Methodology and assumptions for further details. New Business Value in North America remained stable compared with the first three months of 00. The increase in the value of protection business from higher volumes and lower interest rates was offset to a large extent by a reduction in value from changes to persistency assumptions which were updated in 00 to reflect emerging experience. Latin America showed steady growth in both volume and value. The UK achieved a significant increase in sales with the main drivers being the Private Banking Client Solutions and Corporate Life & Pensions business. Germany delivered stable new business value in the first three months of 0. High volumes of low margin business in the first three months of 00 were not repeated in the first three months of 0 leading to an increased new business margin. In Switzerland sales increased in the Corporate Life pillar which helped sustain new business value performance. In Ireland, sales suffered as a result of depressed market conditions and competitors defensive actions. Sales in Spain decreased due to the divestment of Caixa Sabadell and from lower sales of savings business as noted earlier. The impact on new business value was partially offset by higher sales of protection business which generate higher new business margins. Asia-Pacific and Middle East performed well from recovering sales in individual protection products and corporate business. In Other, new business value benefited from strong sales growth and inclusion of a methodology refinement for the calculation of group protection business where the total value expected to be generated over the life of the contract is used rather than value generated up to the next review date (see Section. Methodology and assumptions for further details).

6 6 Results for the three months to March, 0 continued value by component, in 0 in USD millions, for the three months ended March, 0 Net asset Certainty equivalent Frictional Value of business strain value costs TVFOG CRNHR in force Total North America (8) 5 () () 9 Latin America () 5 () () Europe (45) 04 (5) (7) () 60 6 of which: United Kingdom (04) 4 () () () 8 5 Germany () 6 () (5) () 4 4 Switzerland () 5 () (7) () 5 4 Ireland (8) 5 () () 4 6 Spain (5) 0 () () () 7 Rest of Europe (6) 8 () () () 4 8 Asia-Pacific and Middle East (9) 69 () (4) 6 4 Other () 6 (4) Global Life (04) 496 () (8) (4) TVFOG is the time value of financial options and guarantees CRNHR is the cost of the residual non-hedgeable risk (see Methodology and assumptions for further details) Most of the new business value in Other is generated from the International Group Protection business. 4 The term over which group protection business is valued now includes the term over which the business is expected to be retained, see Methodology and assumptions for further details. value by component, in 00 in USD millions, for the three months ended March, 00 Net asset Certainty equivalent Frictional Value of business strain value costs TVFOG CRNHR in force Total North America (9) 6 () () () 0 Latin America (8) () () 9 Europe (7) 98 (6) (0) (0) 7 4 of which: United Kingdom (8) 06 () () () 0 8 Germany () 5 () (5) () 4 40 Switzerland () 8 () () 5 Ireland (8) 6 () () 60 Spain (5) 4 () () () 7 Rest of Europe (7) 8 () () 5 9 Asia-Pacific and Middle East () 6 () (4) 55 4 Other 4 (6) Global Life (0) 40 (0) () (9) TVFOG is the time value of financial options and guarantees CRNHR is the cost of the residual non-hedgeable risk (see Methodology and assumptions for further details) 00 new business values have been restated for the inclusion of a liquidity premium in the discount rates applied and changed CRNHR assumptions. 4 Most of the new business value in Other is generated from the International Group Protection business.

7 Results for the three months to March, 0 7. Methodology and assumptions Methodology The new business value results presented in this report have been developed using the European Insurance CFO Forum MCEV Principles updated in October 009. A more complete description of the methodology that these principles apply is found in the embedded value methodology section of the Annual Report 00, with the exception of methodology changes, implemented with effect from January 0, as to how new business value is calculated and reported by the Group, which are described below. Renewals for Group business The term over which group protection business policies are valued has been changed from the term up to the date of the first renewal option under the contract to a term equal to the period over which the policy is expected to be retained, i.e. the expected life time value of the policy. The life time value is only included for those businesses where reliable data exists so that renewal rates can be reasonably assessed and / or where renewals are not based on regular re-negotiations. The life time value is included on the same basis for new business and renewals of the in-force portfolio to maintain consistency in the valuation of new business and in-force business. For the in-force portfolio the life time value is accounted for in new business as and when the in-force portfolio renews. The allowance for renewals has been included to capture a more realistic view of the expected life time of policies and hence value contributed by this line of business at inception. Liquidity premium The CFO Forum engaged Barrie & Hibbert who estimated a liquidity premium proxy to be equal to 50 percent times the (Credit spread over swaps less 40 basis points) where Credit spreads over swaps is equal to Credit spread on a representative corporate bond index less the swap rate for each particular currency. In order to align assumptions with industry standards the Group introduced liquidity premium in its discount rates for new business reporting from 0. A liquidity premium has been applied to the base yield curve applicable to units reporting in U.S. dollar, Euro, British pound or Swiss franc. The liquidity premium is applied to the following lines of business: 00 percent for annuities; 75 percent for contracts with participating features, universal life contracts and fixed interest annuities in the U.S; and 0 percent for all other lines of business. The liquidity premium is not applied to the time value of financial options and guarantees. Cost of Residual Non-Hedgeable Risk (CRNHR) In order to further align assumptions to industry standards the cost of capital charge was changed from.5 percent to 4 percent for new business reporting from 0. The cost of capital charge is applied to the diversified present value of non-hedgeable risk based capital to calculate the CRNHR. This change was implemented in conjunction with the introduction of the liquidity premium and 00 reported figures have been restated. Stichting CFO Forum Foundation 008

8 8 Results for the three months to March, 0 continued Assumptions Projections of future shareholder cash flows expected to emerge from new business are determined using best estimate operating assumptions. These assumptions, including mortality, morbidity, persistency and expenses, reflect recent experience and are actively reviewed. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating efficiency are not anticipated in the assumptions in particular for expenses and persistency. For new business, the future economic and operating experience assumptions are based on conditions at the start of the relevant quarter. Further commentary on these assumptions is available in the Annual Report 00. Details of the economic assumptions for the major economies in which Zurich Global Life carries out business can be downloaded in a spreadsheet from the Investor Relations section at The assumptions in the new business value models are based on market consistent assumptions. Interest volatility is derived from the implied volatility of interest rate swaptions. Swaption implied volatilities vary both by the term of the option and also the term of the underlying swap contract, a fact that is reflected in the economic scenarios. The equity volatilities are based on at-the-money forward European options on capital indices, consistent with traded options in the market. Volatility of property investments is derived from relevant historical return data for each modelled economy.

9 Results for the three months to March, 0 Disclaimer & 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 of Zurich Financial Services Ltd or the (the Group ). Forward-looking statements include statements regarding the Group s targeted profit improvement, return on equity targets, expense reductions, pricing conditions, dividend policy and underwriting claims improvements, as well as statements regarding the Group s understanding of general economic, financial and insurance market conditions and expected developments. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results and plans and objectives of Zurich Financial Services Ltd or the Group to differ materially from those expressed or implied in the forward looking statements (or from past results). Factors such as (i) general economic conditions and competitive factors, particularly in key markets; (ii) the risk of the global economic downturn and a downturn in the financial services industries in particular; (iii) performance of financial markets; (iv) levels of interest rates and currency exchange rates; (v) frequency, severity and development of insured claims events; (vi) mortality and morbidity experience; (vii) policy renewal and lapse rates; and (viii) changes in laws and regulations and in the policies of regulators may have a direct bearing on the results of operations of Zurich Financial Services Ltd and its Group and on whether the targets will be achieved. Zurich Financial Services Ltd undertakes no obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or circumstances or otherwise. It should be noted that past performance is not a guide to future performance. Please also note that interim results are not necessarily indicative of the full year results. Persons requiring advice should consult an independent adviser. This communication does not constitute an offer or an invitation for the sale or purchase of securities in any jurisdiction. THIS COMMUNICATION DOES NOT CONTAIN AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES; SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES ABSENT REGISTRATION OR EXEMPTION FROM REGISTRATION, AND ANY PUBLIC OFFERING OF SECURITIES TO BE MADE IN THE UNITED STATES WILL BE MADE BY MEANS OF A PROSPECTUS THAT MAY BE OBTAINED FROM THE ISSUER AND THAT WILL CONTAIN DETAILED INFORMATION ABOUT THE COMPANY AND MANAGEMENT, AS WELL AS FINANCIAL STATEMENTS.