• The Group expanded bank distribution agreements through alliances in the Middle East, Italy, Spain and Indonesia
Supervisory Authority (FINMA). The SST Ratio for January 1, 2012 has been restated following FINMA’s review of the Annual SST Report.
The Group has also restated its accounts for 2010 and 2011 in accordance with International Financial Reporting Standards (IFRS) for a portion of the previously announced financial adjustments in the German General Insurance business, as it was determined in the review initiated in 2012 that improper case reserving practices had resulted in errors. Additionally, the Group determined that deferred policy acquisition costs were overstated due to a system error in Germany. In aggregate those errors were deemed material and have resulted in a restatement that has increased the previously reported third quarter 2012 business operating profit by USD 264 million and net income attributable to shareholders by USD 194 million, reallocating these errors to the respective prior periods. Shareholders’ equity at the end of 2012 is unaffected, while shareholders’ equity at the end of 2011 was reduced by USD 196 million. With these changes, the results are presented on a more comparable basis.
Farmers: Consistent profit generation Farmers business operating profit decreased by USD 72 million to USD 1.4 billion or by 5 percent, primarily due to a net underwriting loss incurred by Farmers Re.
As a global insurer with a presence in over 170 countries, Zurich takes an active approach to regulatory, economic and operational matters.
What we do We want to become a more customer-driven organization. That means we must focus on specific markets and customer segments, create competitive propositions and provide a superior experience for our customers.
We aim: • to create more value from our existing portfolio by expanding the opportunities for cross-selling and by increasing customer loyalty; • to win new business by improving our visibility and attractiveness to customers.
This report describes the Group’s approach to corporate governance and illustrates the key elements of corporate governance within the Group. It includes the information required by the following rules: • Directive on Information Relating to Corporate Governance of the SIX Swiss Exchange (as of October 29, 2008, effective July 1, 2009).
Individual shareholders 95.5 24.7 Legal entities 3.8 26.2 Nominees, fiduciaries 0.7 49.1
For information on changes of share capital during 2010, see the Annual Report 2011 of Zurich Insurance Group, pages 26 to 27, pages 160 to 161 and pages 227 to 228.
Relations between our Board and our Management are structured to support both bodies in fulfilling their commitments to deliver. This structure establishes checks and balances and is designed to provide for institutional independence of the Board of Directors from the Chief Executive Officer and the Group Executive Committee.
Don Nicolaisen American 1944 Director Chairperson of the Audit Committee Member of the Risk Committee
Josef Ackermann (1948), Swiss Citizen Chairman of the Board Skills and experience: Mr. Ackermann has been serving as Chairman of Zurich Insurance Group Ltd since March 2012. Prior to this he served as Vice-Chairman for two years. Mr. Ackermann started his career at Schweizerische Kreditanstalt (SKA) in 1977. In 1990, he was appointed to the executive board of SKA, becoming its president in 1993. In 1996, Mr. Ackermann joined the management board of Deutsche Bank AG, where he was responsible for the investment banking division. In 2002, he became spokesman of the management board and chairman of the group executive committee. Mr. Ackermann was chairman of the management board from February 2006 until May 2012. Committee memberships: Governance and Nominations Committee (Chairperson), Remuneration Committee Other directorships within the Group: Zurich Insurance Company Ltd (Chairman) External appointments: Mr. Ackermann has been a member of the supervisory board of Siemens AG (second deputy chairman), Germany since 2003; a member of the board of directors of Royal Dutch Shell plc, The Netherlands since 2008; a member of the board of directors of Investor AB, Sweden since 2012; as well as vice-chairman of the board of directors of Belenos Clean Power Holding Ltd, Biel since 2008. Since 2012, he has also been a member of the International Advisory Board of the China Banking Regulatory Commission (CBRC), the National Bank of Kuwait as well as of Akbank, Turkey. Mr. Ackermann also plays an active role in the World Economic Forum (vice-chairman of the foundation board); the St. Gallen Foundation for International Studies (chairman); the Foundation Lindau Nobel prizewinners Meetings at Lake Constance (Honorary Senate member) and the Metropolitan Opera New York (advisory director). Also, and amongst others, in 2007, Mr. Ackermann accepted an appointment as visiting professor in finance at the London School of Economics. In July 2008, he was appointed Honorary Professor at Frankfurt’s Johann Wolfgang Goethe University. Furthermore, he is an Honorary Fellow of the London Business School and holds an Honorary Doctorate from the Democritus University of Thrace in Greece. Mr. Ackermann is also member of the International Advisory Board of the Lingnan (University) College, Sun Yatsen University. Educational background: Mr. Ackermann gained his doctorate in economics and social sciences from the University of St Gallen, Switzerland.
Susan Bies (1947), U.S. Citizen Member of the Board Skills and experience: Ms. Bies has served as a member of the Board of Zurich Insurance Group Ltd since April 2008. Ms. Bies began her career in 1970 as regional and banking structure economist with the Federal Reserve Bank of St. Louis, Missouri and two years later became assistant professor of economics at Wayne State University, Detroit, Michigan. In 1977, she moved to Rhodes College, Memphis, Tennessee, in a similar role and in 1979 joined First Tennessee National Corporation in Memphis, where she remained until 2001. During the early years, her areas of responsibility included tactical planning and corporate development. In 1984, she became chief financial officer and chairman of the asset/ liability committee. In 1995, she became executive vice president of risk management and auditor and chairman of the executive risk management committee, as well as continuing her duties with the asset/liability committee. From 2001 until 2007, she was a member of the board of governors of the Federal Reserve System. Between 1996 and 2001, Ms. Bies was a member of the Emerging Issues Task Force of the Financial Accounting Standards Board. From 2007 to 2008, she was a member of the Securities and Exchange Commission’s advisory committee on improving financial reporting. Committee membership: Audit Committee, Risk Committee Other directorships within the Group: Zurich Insurance Company Ltd, Zurich Holding Company of America, Inc. External appointments: Ms. Bies has served as a member of the board of directors of The Bank of America Corporation since June 2009 and has also been a member of the Senior Advisory Board of Oliver Wyman since 2009. Educational background: Ms. Bies graduated with a BS degree from the State University College at Buffalo, New York and with a MA degree from Northwestern University, Evanston, where she later gained a PhD.
Don Nicolaisen (1944), U.S. Citizen Member of the Board Skills and experience: Mr. Nicolaisen has substantial expertise in accounting, auditing and financial reporting. He joined Price Waterhouse (which subsequently became PricewaterhouseCoopers or PwC) and was admitted to partnership in 1978. He served in various capacities, including as an auditor and as chairman of their financial services practice. Mr. Nicolaisen also led PwC’s national office for accounting and Securities and Exchange Commission services from 1988 to 1994 and served on both the U.S. and global boards of PwC from 1994 to 2001. From September 2003 to November 2005, he was chief accountant of the U.S. Securities and Exchange Commission and was principal adviser to the Commission on accounting and auditing matters.
Other directorships within the Group: Zurich Insurance Company Ltd External appointments: Mr. Watter has been a nonexecutive director of Nobel Biocare Holding AG since 2007 and has served as chairman of the board since summer 2012. He has been a non-executive director of UBS Alternative Portfolio AG since 2000 and of A.W. FaberCastell AG since 1997. He is a member of the SIX admission board and of its Disclosure Commission of Experts. Moreover, Mr. Watter will assume the position of non-executive chairman of the board of PostFinance AG in mid-2013. He also serves as chairman of two charity institutions. Educational background: Mr. Watter graduated from the University of Zurich with a doctorate in law and holds a master of laws degree from Georgetown University in the U.S. He is admitted to the bar of the Canton of Zurich.
Audit Committee Composition and membership: Zurich Insurance Group Ltd’s Organizational Rules require the Audit Committee to consist of at least four non-executive Board members independent from the Management. Currently, Messrs. Don Nicolaisen (Chairperson), Fred Kindle, Rolf Watter and Ms. Susan Bies – all of whom meet the relevant requirements for independence and qualification – serve on this committee.
For more information on the supervision and control of the external audit process, see pages 51 and 52.
Risk Committee Composition and membership: Zurich Insurance Group Ltd’s Organizational Rules require the Risk Committee to consist of at least four non-executive Board members independent from the Management. Currently, Messrs. Tom de Swaan (Chairperson), Don Nicolaisen, Armin Meyer and Ms. Susan Bies serve on this committee.
To the extent not reserved to the Board, management is delegated to the CEO. The CEO, and under his supervision the GEC, are responsible for dealing with strategic, financial and business policy issues of Group-wide relevance, including consolidated performance, capital allocation and mergers and acquisitions.
Insurance Council of the Association of British Insurers and for three years chaired its liability committee. From 1990 to 1995, he was a member of the Hong Kong Federation of Insurers Council. He was a director of Pool Re from February 2005 until August 2010 and of the Forum for Global Health Protection from 2007 until the end of 2010. He was a member of the Confederation of British Industry’s Chairmen’s Committee and chaired the CBI Financial Services Council until September 2010. Until late 2009, he was a member of the Foundation Board of IMD in Lausanne, the City of London EU Advisory Committee and the Lord Mayor of London’s Advisory Committee. External appointments: Mr. Riddell has been a director of the General Committee of the British Chamber of Commerce in Hong Kong since April 1, 2011. Educational background: Mr. Riddell holds a MA degree in natural sciences (chemistry) from Oxford University (The Queen’s College) and later qualified as a chartered accountant.
Operating Officer for General Insurance. In his current role, which he assumed in 2010, he is responsible for the Group’s shared services, IT, procurement and sourcing as well as operational transformation initiatives. External appointments: None Educational background: Mr. Terryn holds a law degree and a degree in economics from the University of Leuven, Belgium, as well as an MBA from the University of Michigan.
Agenda The Board is responsible for setting the agenda and sending it to shareholders. Shareholders with voting rights who together represent shares with a nominal value of at least CHF 10,000 may request in writing, no later than 45 days before the day of the meeting, that specific proposals be included in the agenda.
Board – Audit Committee and Risk Committee: The Board is ultimately responsible for the supervision of the assurance activities. Its Audit and Risk Committees receive regular updates from Group Risk Management, Group Audit, External Audit, Group Compliance throughout the year.
The Audit Committee assesses the independence of Group Audit and reviews its activities, plans, organization, quality and its mutual cooperation with the external auditors. As required by professional and regulatory quality assurance regulations the Internal Audit function has to be quality-reviewed periodically, but at least every five years by an independent qualified body. This review was most recently conducted in 2011. The results confirmed that Group Audit’s practices conform with all Institute of Internal Audit standards and FINMA requirements and Group Audit was assessed as a very mature internal audit function.
The operations relating to the long term alliance with Banco Santander entered into in 2011 are progressively adopting the Zurich Risk Management framework and continue to leverage their existing internal control system.
The fees paid to Directors (including the portion provided in sales restricted shares) are not subject to the achievement of any specific performance conditions.
Short-term (1 year) incentives are performance-driven based on the following design: • Short-term incentive awards are paid in cash.
Long-term (3 year) incentives support the achievement of the Group’s longer term financial goals and are utilized for a defined group of executives and senior managers, whose specific roles focus on the performance drivers of long-term shareholder value. This group contains the individuals with the highest levels of total remuneration, as well as those individuals considered to be KRTs. In alignment with the Group’s risk profile and business strategy, long-term incentives are provided with a deferral element taking into account material risks and the time horizon thereof. Such deferred remuneration is structured in a way to promote the risk awareness of the participants and to encourage the participants to operate the business in a sustainable manner.
No restricted share grants were made to members of the GEC during 2012 and 2011.
Restricted share grants There were no restricted shares outstanding as of December 31, 2012 for members of the GEC (494 restricted shares were outstanding at the end of 2011).
Share and share option holdings of members of the Group Executive Committee The following table sets out the actual share and share option holdings of the members of the GEC as of December 31, 2012 and 2011. In addition to any shares acquired in the market, the numbers include vested shares, whether sales restricted or not, and vested share options received under the Group’s LTIP. However, the table does not include the share interests of the members of the GEC through their participation in the currently unvested performance shares, unvested restricted shares or unvested performance share options.
Personal loans for members of the Group Executive Committee As of December 31, 2012 and 2011, there were no loans, advances or credits outstanding for members of the GEC.
The Operating and financial review is the management analysis of the business performance of Zurich Insurance Group Ltd (formerly known as Zurich Financial Services Ltd) and its subsidiaries, collectively the Group, for the year ended December 31, 2012 compared with 2011. It also explains key aspects of the Group’s financial position as of the end of 2012.
Average Group investments 203,192 196,788 3% Net investment result on Group investments 8,911 9,367 (5%) Net investment return on Group investments 5 4.4% 4.8% (0.4 pts) Total return on Group investments 5 7.0% 5.3% 1.7 pts
ROE was 11.8 percent for 2012, compared with 11.9 percent for 2011. This decrease was driven by the increase in shareholders’ equity. BOPAT ROE of 9.3 percent decreased 0.9 percentage points. Diluted earnings per share increased by 10 percent to CHF 24.66 for the year ended December 31, 2012 compared with CHF 22.52 in 2011. The increase in diluted earnings per share of 10 percent compared with the increase in net income attributable to shareholders of 3 percent was due to the currency translation impact, as the U.S. dollar was on average stronger against the Swiss franc in 2012 than in 2011.
Gross written premiums and policy fees 11,882 12,932 (8%) Net underwriting result 310 360 (14%) Business operating profit 687 946 (27%) Loss ratio 69.9% 71.0% 1.1 pts Expense ratio 27.5% 26.1% (1.4 pts) Combined ratio 97.4% 97.2% (0.2 pts)
New business – highlights 1, 2, 3, 4 New business annual premium equivalent (APE) 4,030 3,992 1% Present value of new business premiums (PVNBP) 35,296 33,399 6% New business margin, after tax (as % of APE) 22.1% 24.5% –2.5 pts New business margin, after tax (as % of PVNBP) 2.5% 2.9% –0.4 pts New business value, after tax 890 980 (9%)
Other operating businesses loss increased by USD 68 million to USD 903 million in 2012. Holding and financing business operating loss increased by USD 147 million to USD 736 million driven by benefits from foreign currency movements in 2011, which did not recur in 2012, as well as reduced income on short term deposits. The reduction of USD 80 million in the business operating loss at Headquarters was driven by lower staff related costs and media spend combined with an increase in revenues due to higher license fee charge outs to units.
Real estate held for investment 8,561 8,472 3,481 3,898 Mortgage loans 10,519 11,058 – –
Debt securities, which are invested to match the Group’s insurance liability profiles, returned 7.9 percent. Equity securities returned 11.9 percent and other investments returned 3.0 percent.
Fee income and other expenses (1,900) (1,866) (1,780) (2,277) (3,679) (4,143) Interest and bonuses credited to policyholders 10,394 (3,105) 3,496 3,176 13,890 71
Net cash provided by operating activities 2,563 3,888 Net cash used in investing activities (234) (1,062) Net cash used in financing activities (2,318) (2,439) Foreign currency translation effects on cash and cash equivalents 187 48
To support the governance process, the Group relies on documented policies and guidelines. The Zurich Risk Policy is the Group’s main risk governance document; it specifies the Group’s risk tolerance, risk limits and authorities, reporting requirements, procedures to approve any exceptions and procedures for referring risk issues to senior management and the Board of Directors. Limits are specified per risk type, reflecting the Group’s willingness and ability to take risk, considering earnings stability, economic capital adequacy, financial flexibility and liquidity, franchise value and reputation, the Group’s strategic direction and operational plan, and a reasonable balance between risk and return, aligned with economic and financial objectives. The Group regularly enhances the Zurich Risk Policy to reflect new insights and changes in the Group’s environment and to reflect changes to the Group’s risk tolerance. In 2012, the Zurich Risk Policy was updated and strengthened for various areas, including actuarial reserving in General Insurance, reinsurance, receivables and operational risk management, particularly outsourcing and business continuity management. Related procedures and risk controls were strengthened or clarified for these areas. As an ongoing process, adherence to requirements stated in the Zurich Risk Policy is assessed.
• Group Reinsurance Committee (GRC) – defines the Group’s reinsurance strategy in alignment with the Group’s risk framework and is chaired by the Global Head of Group Reinsurance.
• Credit risk is the risk associated with a loss or potential loss from counterparties failing to fulfill their financial obligations, which is analyzed in the “Credit risk” section in the Risk review.
Tables 6.a and 6.b on sensitivities for the rest of the businesses include Farmers, Other Operating Businesses and Non-Core Businesses. Where Non-Core Businesses includes business with life insurance characteristics, the analysis is based on market-consistent embedded value market risk sensitivities. See the “Embedded value report” for more details on the market risk sensitivities specifications.
As of December 31, 2012 the largest concentration in the Group’s debt securities portfolio is in government and supranational debt securities at 48.2 percent. A total of USD 40.3 billion or 49.5 percent of the non-government and non-supranational debt securities are secured. As of December 31, 2011, 46.6 percent of the Group’s debt portfolio was invested in governments and supranationals and a total of USD 38.7 billion or 50.1 percent of the non-government and non-supranational debt securities were secured.
Table 16 shows reinsurance premiums ceded and reinsurance assets split by rating.
Neither past due nor impaired financial assets 155,182 9,318 – 12,423 14,491 191,414 Past due but not impaired financial assets. Past due by: 1 to 90 days – 185 – – 1,207 1,392
The Group has specific processes and systems in place to focus on high priority operational matters such as information security, managing business continuity, and combating fraud.
1 Under regulations issued by FINMA during 2007, dated subordinated debt issuances are admissible up to 25 percent of the capital requirement, undated issuances up to 50 percent of the capital requirement.
Risk-free yield curve Swap rates (without liquidity premium) Government rates (without liquidity premium) (German Bund for EUR)1
Extreme market risk scenarios Included as stress buffer in ALM Aggregated to the overall result
Net income after taxes 3,967 3,775 attributable to non-controlling interests 89 25 attributable to shareholders 3,878 3,750 in USD
Balance as of December 31, 2010, as previously reported 10 11,630 2,468 56 (1,120) 126 18,259 31,429 475 31,905 1,336 33,241 Total adjustments due to restatement – – – – – – (187) (187) – (187) (1) (188) Balance as of December 31, 2010, as restated 10 11,630 2,468 56 (1,120) 126 18,072 31,243 475 31,718 1,335 33,053
The following balances are mixed in nature (including both current and non-current portions): debt securities, mortgage loans, other loans, reinsurers’ share of reserves for insurance contracts, deposits made under assumed reinsurance contracts, deferred origination costs, other assets, mortgage loans given as collateral, reserves and investments for unit-linked contracts, liabilities for investment contracts, deposits received under ceded reinsurance contracts, deferred front-end fees, reserves for losses and loss adjustment expenses, reserves for unearned premiums, future life policyholders’ benefits, policyholders’ contract deposits and other funds, other liabilities, collateralized loans, senior and subordinated debt, and assets and liabilities held for sale.
Basic earnings per share 22.79 (0.10) 22.69 Diluted earnings per share 22.62 (0.10) 22.52
New Standards IFRS 10 Consolidated Financial Statements 2 1 January 2013 2013
3 Expected to result in a change in the fair value hierarchy disclosures. 4 Projected expenses applying a high quality corporate bond rate rather than an expected return on assets rate would have been approximately USD 50 million lower.
Policyholders’ contract deposits represent the estimated policy benefits for investment type insurance contracts invested in non unit-linked funds. This liability comprises the accumulation of premiums received less charges plus declared policyholder dividends.
For traditional participating and investment type life insurance contracts DAC is adjusted for the impact of unrealized gains/(losses) on allocated investments that are recorded in OCI.
Liability adequacy tests Liability adequacy testing is performed annually for groupings of contracts determined in accordance with the Group’s manner of acquiring, servicing and measuring the profitability of its insurance contracts.
Investment contracts at amortized cost Liabilities for investment contracts with fixed and guaranteed terms are measured at amortized cost, using the effective interest rate method. Transaction costs are included in the calculation of the effective yield. As of each reporting date, the Group re-estimates the expected future cash flows and re-calculates the carrying amount of the financial liability by computing the present value of estimated future cash flows using the original effective interest rate for the financial liability. Any adjustment is immediately recognized as income or expense.
Loans and receivables are carried at amortized cost using the effective interest rate method, less any charges for impairment.
Other items Cash and cash equivalents comprise cash in hand, deposits held at call with banks and other short-term highly liquid investments that are readily convertible into cash and are subject to an insignificant risk of change in fair value, for example,
Securities lending Certain entities within the Group participate in securities lending arrangements whereby specific securities are loaned to other institutions, primarily banks and brokerage firms, for short periods of time. Under the terms of the securities
Defined benefit plan obligations and contributions are determined annually by qualified actuaries using the projected unit credit method. The Group’s expense relating to these plans is accrued over the employees’ service periods based upon the actuarially determined cost for the period. Actuarial gains and losses are recognized in full in the period in which they occur and are presented on a separate line in the consolidated statement of comprehensive income. To the extent that past service costs are vested, they are recognized immediately. Unrecognized past service costs represent past service costs not yet vested, and are recognized on a straight-line basis over the average vesting period.
See notes 3, 6, 15, 17 and 18 for further information on impairment of assets.
Real estate held for investment 506 531 12 46 517 576
Securities at fair value through profit or loss: 8,654 (5,472) 924 777 9,578 (4,695) Net capital gains/(losses) on Group investments 242 33 339 541 581 574
A fair value hedge relationship on the CHF 400 million 1.5 percent senior note due for repayment in June 2019 issued by Zurich Insurance Company Ltd (see note 21), was entered into on June 25, 2012 and will end on the maturity of the underlying debt instrument in 2019.
As of January 1 1,488 2,168 Net unrealized (losses)/gains on investments 557 (676) Current period profit 476 5 Foreign currency translation effects 39 (9) As of December 31 2,560 1,488
Change in policyholders’ contract deposits and other funds 1,210 644 (19) (1) 1,190 643 Change in reserves for unit-linked products 6,153 (1,826) – – 6,153 (1,826) Change in liabilities for investment contracts – unit-linked 4,166 (1,801) – – 4,166 (1,801) Change in liabilities for investment contracts – other 233 224 – – 233 224 Change in unit-linked liabilities related to UK capital gains tax (264) 75 – – (264) 75 Total policyholder dividends and participation in profits 11,499 (2,684) (19) (1) 11,479 (2,685)
Amortization of deferred acquisition costs 6,484 5,365 (536) (506) 5,948 4,860 Amortization of deferred origination costs 168 135 – – 168 135 Commissions and other underwriting and acquisition expenses 1 4,283 3,802 (384) (280) 3,898 3,522 Total underwriting and policy acquisition costs 10,934 9,302 (920) (786) 10,014 8,516 1 Net of additions related to deferred acquisition and origination costs.
Gross carrying value as of December 31, 2011 325 1,057 575 559 694 3,210 1 Related to the acquisition of Zurich Santander and ZIMB (see note 5).
The loss of control over one of the Group’s subsidiaries resulted in the derecognition of the related assets and liabilities, including a goodwill asset of USD 1 million and USD 137 million of distribution agreements (see note 5).
Other Operating Businesses – – – – 286 – 286 Non-Core Businesses – – – – 1 – 1 Net carrying value as of December 31, 2011 2,060 1,184 4,132 1,025 1,616 104 10,121
The tax rates applicable to tax losses for which a deferred tax asset has not been recognized are 18.6 percent and 20.6 percent for the years 2012 and 2011, respectively.
Total operational and financial debt increased by USD 281 million to USD 12.5 billion.
Zurich Insurance Group Annual Report 2012 239Consolidated financial statements 23. Employee benefits
For the defined benefit pension plans, total contributions to funded pension plans and benefit payments by the Group are currently estimated at USD 488 million for 2013 compared with USD 479 million estimated in the previous year for 2012. The actual amounts may differ.
Table 23.1 in USD millions, as of December 31Status of funded defined benefit plans
Discount rate 3.7% 5.0% Expected increase in long-term health cost – initial rate 7.9% 7.7% Expected increase in long-term health cost – ultimate rate 4.9% 4.8%
Table 23.11 as of December 31Assumptions used in determining the actuarial liabilities for other defined post- employment benefit plans
Total option-based expenses 14 35 Total share-based expenses 126 141 Total expenses 140 176
Consolidated financial statements continued 25. Contingent liabilities, contractual commitments and financial guarantees
Level 3 – this category includes financial assets and liabilities for which fair values are determined using valuation techniques with at least one significant input not being based on observable market data. In circumstances when there is little, if any, market activity for a certain instrument, the Group is required to develop internal valuation inputs based on the best information available about the assumptions that market participants would use when pricing the asset or liability. This would normally apply in the case of investments in hedge funds, private equity funds, assetbacked securities for which currently very limited market activity is observed, and long-dated derivative financial instruments. The effect of changes in the internal valuation inputs to reasonably possible alternative values is disclosed in tables 26.4a and 26.4b.
Reinsurers’ share of reserves for insurance contracts 13,901 13,660 1,983 2,079 – – – – 4,042 4,509 (174) (656) 19,753 19,592 Deposits made under assumed reinsurance contracts 46 71 29 19 2,319 2,141 – – 194 508 – (28) 2,588 2,711
Table 29.3 in USD millions, as of December 31Assets and liabilities by business segment
Net investment result on Group investments 312 330 526 134 3,778 3,957 206 140 11 13 – – 4,833 4,575 Net investment income on unit-linked investments (34) (29) 9 8 2,026 2,024 79 106 32 30 – – 2,112 2,139 Net capital gains/(losses) and impairments on unit-linked investments 59 (18) 1,166 (24) 5,586 (4,595) 682 (946) 98 (104) – – 7,591 (5,687)
As statutory auditor, we have audited the Consolidated financial statements of Zurich Insurance Group Ltd, which comprise the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of cash flows, consolidated statement of changes in equity, and notes (pages 112 to 152 and 165 to 285), for the year ended December 31, 2012.
Zurich produces and reports Market Consistent Embedded Value in accordance with the Market Consistent Embedded Value Principles and Guidance issued by the CFO Forum in October 2009 to provide an economic view of the value of the life business to shareholders in order to support financial management and strategic decision making. This report provides an overview of the movement in the Market Consistent Embedded Value over the previous year and New Business Value added from new sales during the same period, including further splits into constituent parts and geographical regions.
Embedded value in Switzerland increased by USD 160 million following positive investment variance that was to some extent offset by capital movements.
of which: Asia-Pacific and Middle East 464 524 3,058 2,943 125 136 26.9% 25.9% 4.1% 4.6%
In Rest of Europe, APE reduced by USD 46 million or 15 percent on a local currency basis, mainly due to lower sales of savings business in Italy. This was offset by higher margins in Italy and Portugal which led to new business reducing by USD 2 million or an increase of 2 percent on a local currency basis.
In Latin America, the Group acquired a 51 percent stake in the insurance operations of Banco Santander S.A. in Argentina, Brazil, Uruguay, Chile and Mexico. As part of the acquisition the Group also entered into a long-term distribution agreement with Santander in Latin America. The end of period embedded value of the acquired life business has also been included in the covered business for the first time and recorded as a transfer in at the end of the period. Previously the value of this business was included in the non-covered business as the unadjusted IFRS net asset value and consolidated in the Group MCEV.
in USD millions, as of December 31, 2012Dividend and capital movements
The large capital injections seen in Latin America and Asia-Pacific and Middle East mainly correspond to the inclusion of the Zurich Santander and ZIMB.
Non-operating MCEV earnings 0.4 0.0 0.4 Total MCEV Earnings 2.1 2.7 4.8
Dividends and capital movements end of period 13 54 (34) (105) (10) – – 28 (29) (23) – 219 (59) 174
Net income after taxes for the year was CHF 2,382 million compared with CHF 961 million in 2011. The increase was mainly driven by higher dividend income from its subsidiary Zurich Insurance Company Ltd which paid an ordinary dividend of CHF 2,400 million in 2012, compared with an extra-ordinary dividend payment of CHF 1,500 million in 2011, and by lower other financial expenses in 2012 as compared with 2011. In 2012, other financial expenses of CHF 191 million included impairments on investments in subsidiaries of CHF 75 million, compared with CHF 800 million other financial expenses for 2011, primarily driven by impairments related to the redemption of the three remaining series of Trust Capital Securities issued through the Zurich RegCaPS Funding Trusts of CHF 435 million and impairments on investments in subisidaries of CHF 256 million.
Free reserve, as of December 31 332,986 332,986 Retained earnings: As of January 1 2,939,269 3,254,285 Transfer to capital contribution reserve – (1,275,702)
A fixed portion of the fee continues to be allocated towards the provision of three-year sales-restricted Zurich Insurance Group Ltd shares. The portion for the Chairman was set at CHF 333,500 for both years ended December 31, 2012 and 2011, and the portion for the other members of the Board of Directors at CHF 80,000 for both years ended December 31, 2012 and 2011. The overall fees are set out in the following tables: Basic fee
6 Neither the Chairman nor the Vice-Chairman receive any additional fees for their committee work. 7 In addition to the fees received as Directors of Zurich Insurance Company Ltd, Mrs. Bies, Mr. Nicolaisen and Mr. de Swaan earned fees for their board memberships of the following of Zurich Insurance Group companies: – In both 2012 and 2011, Mrs. Bies and Mr. Nicolaisen earned CHF 50,000 for their membership of the board of Zurich Holding Company of America (ZHCA). – In 2012, Mr. de Swaan earned CHF 75,000 for his membership of the board of Zurich Insurance plc and of the board of Zurich Life Assurance plc. He also earned an annual fee of CHF 10,000 for being chair of the audit committees of these two companies. In 2011, Mr. de Swaan earned CHF 72,500 in respect for his work on the two boards.
Remuneration of Group Executive Committee The total remuneration of the members of the GEC for 2012 comprised the value of cash compensation, pensions, other remuneration and the value of the target equity grants made under the Group’s Long-Term Incentive Plan in 2012 and is calculated based on the same methodology as in 2011. Overall compensation of the GEC members in total and the overall compensation of the highest paid executive are set out in the following tables: Base salaries 11.30 11.20 Cash incentive awards earned for the year 11.20 12.70 Value of target performance share grants 4 15.20 15.50 Service costs for pension benefits 5 3.10 3.00 Value of other remuneration 6 1.80 3.00 Total in CHF million 7 42.60 45.40 Total in USD million 8 46.40 50.30 1 The remuneration shown in the table is gross, based on the accrual principle and does not include any business related expenses incurred in the performance of the members’ services.
Dr. Josef Ackermann as of December 31 in CHF thousands in CHF thousands
The shares registered in the share ledger as of December 31, 2012 were owned by 124,847 shareholders of which 119,238 were private individuals holding 24.7% of the shares (or 15.3% of all outstanding shares), 2,015 were foundations and pension funds holding 7.2% of the shares (or 4.5% of all outstanding shares), and 3,594 were other legal entities holding 68.1% of the shares (or 42.3% of all outstanding shares).