Zurich announces its intention to raise fixed rate senior debt in the Euro market for refinancing and general corporate purposes. The transaction raises EUR 1 billion and is more than three times over-subscribed.
Contacts 1 based on gross written premiums 2003 Source: Zurich’s internal research and analysis 2 including Farmers Exchanges*, based on net written premiums 2003 Source: A.M. Best 3 based on gross written premiums 2003 Source: Peer company data 1 including Farmers Exchanges*, based on direct written premiums 2003 Source: A.M. Best 2 including Farmers Exchanges*, based on net written premiums 2003 Source: A.M. Best *“Farmers Exchanges” refers to three reciprocal insurers, their subsidiaries and affiliates operating mainly under the Farmers brand, to which we provide management services but do not own.
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.
Zurich’s Annual General Meeting approves a nominal value reduction of its shares, resulting in a payment to shareholders of CHF 2.50 per registered share.
Group, Inc. (FGI) and from the GEC. We thank him for his dedicated service and welcome his successor Paul N. Hopkins as a member of the
As the second largest insurer in general corporate business worldwide, we are building on a proven record of giving our customers and potential customers what they need.
A critical part of the risk management process is to advise customers about the hazards they face, and help them minimize potential losses.
Semiconductor Corporation, one of the world’s leading manufacturers of high-tech dynamic random access memory, or DRAM, said: “Zurich is our trusted strategic partner, and we are sticking with them because they have provided quality and innovative services to us.”
Gary’s belief in the value of coaching and mentoring is shared by managers and employees throughout the Zurich organization – which is one of the reasons The Zurich Way will come to represent a new standard of risk management excellence worldwide.
Gary Kaplan knows what it takes to be a winning coach. Reinforcing positive attitudes and behaviors in others is a talent he puts to good use in coaching his three sons and their soccer teammates in his hometown of
Group (SIG), he led the effort to reduce underwriting “leakage” in various lines of business.
Peter brings the same constructive approach to his favorite pastime, painting. “I like to use bold colors and to show positive elements.
I was a neutral third party, and no one there had any preconceptions about me. I think my presence and my questions allowed the group a period of reflection. They were able to focus on issues that they would have found little time to address in their busy schedules. I was a catalyst to get things happening, and I learned a lot.”
Steven’s faith in the value of education to his country is equaled only by Zurich’s belief in calling upon individuals of his experience and vision as ambassadors of The Zurich Way in important, emerging markets.
We regularly monitor our risks through analyses and reports, and through relevant risk modeling.
• The increase in both investments and reserves for unit-linked products reflects exchange rate and market movements and continued sales of these products.
In 2004, our Farmers Management Services earned USD 2.0 billion in management fees and other related revenue, an increase of 5% over the prior year.This increase is a result of higher gross premiums earned by the Farmers Exchanges, which we manage but do not own, primarily in the Farmers Specialty, Commercial and Fire lines of business.
Equity securities include common stock and equity unit-trusts for which the Group bears the investment risk. At year end 2004, we had reduced our holding in this category of equity securities to 4.9% of our investment portfolio, down from 6.4% as of December 31, 2003.
Policyholder allocation of net capital gains – 4,429 – 64 – 4,493
Rest of the World 95 82 16% 93.5% 93.4% (0.1 pts)
UKISA recorded an increase of USD 475 million in net income to USD 761 million in 2004 driven by the same factors as business operating profit.
Net capital gains / (losses) on investments and impairments 171 (289) nm
Gross written premiums and policy fees decreased by USD 78 million, or 11% (–16% in local currency), from USD 711 million in 2003 to USD 633 million in 2004, due to the divestments of certain life businesses in this region in 2003.The divestment of our life portfolio in Taiwan in the fourth quarter 2004 also contributed to the lower volume.
Corporate Center – highlights in USD millions, for the years ended December 31 2004 2003 Change
Insurance reserves for life insurance where the investment risk is carried by policyholders 7 24,261 22,063
As of December 31, 2004 and 2003, cash and cash equivalents restricted as to use were USD 645 million and USD 782 million, respectively. Cash and cash equivalents held for the benefit of policyholders in connection with unit-linked products amounted to USD 3,206 million and USD 2,141 million, respectively.
Cash amounts represent cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments with original maturities of 90 days or less.
(i) Obligation to repurchase securities Sales of securities under agreements to repurchase are accounted for as collateralized borrowing transactions and are recorded at their contracted repurchase amount plus accrued interest at the balance sheet date. The Group minimizes the credit risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring customer credit exposure and collateral value and generally requiring additional collateral to be deposited with the Group when deemed necessary.
(n) Employee benefits The operating companies in the Group provide employee retirement benefits through both defined benefit plans providing specified benefits and defined contribution plans. The assets of these plans are generally held separately from the Group’s general assets in trusteeadministered funds. Defined benefit plan obligations and contributions are determined annually by qualified actuaries using the projected unit credit method. The Group’s expense related 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 as income or expense when the net cumulative unrecognized actuarial gains and losses for each individual plan at the end of the previous reporting year exceeded 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognized over the expected average remaining working lives of the employees participating in the plans. Contributions to the defined contribution pension plans are charged to the operating statement as they become due.
As of December 31, 2003, Zurich Capital Markets (“ZCM”) consolidated Zurich Premier Series Ltd. (“Premier”), an investment company. ZCM’s equity interest in the investment company increased from 32% to 59% during the year with the majority interest acquired on December 31, 2003. As a result of the consolidation of Premier,“trading equity portfolios in capital markets and banking activities” and “other liabilities” increased by USD 638 million.
Other investments: Investments held by investment companies 1,728 0.7% 1,576 0.7%
Total debt securities – available-for-sale 104,239 97,243 4,062 3,702 (419) (859) 107,882 100,086
7. Investments held on account and at risk of life insurance policyholders and insurance reserves for life insurance where the investment risk is carried by policyholders
The term “contractual amount” is used for derivative financial instruments for which an exchange of the principal sum at maturity could take place, e.g. options, futures, currency swaps.The term “notional amount” describes instruments for which the principal sum is only notionally lent or borrowed, e.g. interest swaps, forward rate agreements (FRAs).The notional principal amounts are used to express the extent of the Group’s involvement in derivative transactions.This standard measurement of the volume of derivative transactions is not a quantification of market risk or credit risk and it may not necessarily be recorded on the balance sheet.
Table 10.3 Breakdown of underwriting and policy acquisition costs Gross Ceded Net in USD millions, for the years ended December 31 2004 2003 2004 2003 2004 2003
The uncertainties arise out of changes or potential changes in various laws or the interpretation of laws. While the Group believes that it has made adequate provision for these claims, it is possible that future adverse development could have a material effect on the Group’s results of operations, cash flows and financial position. As of December 31, 2004 and 2003, the net reserve amounts related to these claims included above were USD 2,919 million and USD 2,979 million, respectively.
The amount of policyholder dividends to be paid is determined annually by each Group life insurance company. Policyholder dividends include life policyholders’ share of net income and unrealized appreciation of investments that are required to be allocated by the insurance contract or by local insurance regulations. Experience adjustments relating to future policyholders’ benefits and policyholders’ contract deposits vary according to the type of contract and the territory. Investment, mortality and morbidity results may be passed through by experience credits or as an adjustment to the premium mechanism, subject to local regulatory provisions.
The Group recorded provisions for certain guarantee features embedded in certain life insurance products for the first time as explained in note 3 on the implementation of SOP 03-01.
Table 13 Receivables in USD millions, as of December 31 2004 2003
As of January1 (opening balance) 2,085 1,895 9,564 8,788 135 179 11,784 10,862
Zurich Capital Markets Commercial paper, due in the following year – 2,113
The summary of the balance sheet movements in relation to defined benefit plans and other defined post-employment benefits is given below.
Allied Dunbar Share Option Plan: Inland Revenue unapproved share options were granted to selected managers and franchisees in the United Kingdom. Vesting is over a maximum five-year period with an exercise period of six months after vesting occurs. Participants have the right to acquire Zurich Financial Services shares at the exercise price determined at the day of grant. The first grants were made in February 2000 and based on performance achievements, additional grants were made in 2002, 2003 and 2004. All grants under this plan vested on December 31, 2004.There were a total of 492 and 1,232 participants in this plan as of December 31, 2004 and 2003, respectively.
Quota share reinsurance treaties with the Farmers Exchanges The Farmers Exchanges have Quota Share reinsurance treaties with Farmers Reinsurance Company (“Farmers Re”), a wholly owned subsidiary of FGI, and Zurich Insurance Company (“ZIC”).
With effect from January1, 2004, Farmers Re assumes annually USD 200 million (USD 200 million in 2003) and ZIC assumes USD 800 million (USD1,200 million in 2003) of gross written premiums under an Auto Physical Damage (“APD”) Quota Share reinsurance agreement with the Farmers Exchanges.
Net change in reserves for unearned premiums (38) (652) 3 35
Net income/ (loss) before income taxes and minority interests 1,458 2,364 1,387 1,621
Zurich Assurance Limited London, England Life Insurance 100.00 100.00 GBP 879.9
None of the Directors had a material interest in a contract of significance with Zurich Financial Services or any subsidiary during the year 2004 or a service contract with any member of the Group with a notice or contract period of one year or more or with provisions for predetermining compensation on termination in amount which equals or exceeds one year’s salary and benefit in kind.
Zurich Financial Services used electronic voting for all the resolutions taken at last year’s Annual General Meeting. In accordance with Swiss practice, Zurich Financial Services informs all shareholders at the beginning of the Annual General Meeting of the aggregate number of proxy votes received.
The Board of Directors is responsible for developing the agenda and sending it to the shareholders. Shareholders with voting rights who together represent shares with a nominal value of at least CHF 650,000 may request in writing, no later than 45 days before the day of the meeting, that specific proposals be included on the agenda.
The Group has adopted a coordinated and formalized approach to risk management and control. A risk-aware and control-conscious environment is fostered in the Group, supported by staff education and training.
The total aggregate fees paid to the Directors of Zurich Financial Services for the year ended December 31, 2004, were USD 1,992,500, excluding fees paid to the Directors of Zurich Insurance Company referred to below.
Under the plans, a further condition of payment is that the individual must remain employed throughout the performance period. One half of the shares awarded under the plans at the end of each performance period are sales-restricted for a further period of three years. In addition, certain members of the GEC participated in an all-employee share plan in Switzerland and were able to receive three-year sales restricted shares under the terms of that plan. As a result, the total number of share awards made under the various performance share plans to members of the GEC during 2004 was as follows
Share options held by the members of the Group Executive Committee Under the share option program for senior management, the Group can issue share options to individuals within prescribed rules. The first share option grant was made in 1999 and regular annual grants have been made since then. Prior to 2003, option grants were typically made on the basis of a seven-year option term, a threeyear vesting period and an exercise price set at a 10% premium to the market rate during the month prior to the grant date. Under the rules of the plan, other parameters are allowed for option grants made under the share option program. In connection with the re-design of the long-term incentive program in 2003, the exercise price under the option grant made in 2004, which includes performance based vesting criteria, was set at the market price on the day prior to the date of grant. The vesting schedule for the option grant is the same as for the performance shares.
Zurich Financial Services is the holding company of the Group with a primary listing on the SWX Swiss Exchange and a secondary listing on the London Stock Exchange. Zurich Financial Services was incorporated on April 26, 2000, with a share capital of CHF100,000. As of December 31, 2004, the shareholders’ equity totaled CHF 16,267,755,044 (December 31, 2003: CHF 16,097,175,155).
Contacts Registered Office Zurich Financial Services Mythenquai 2 8022 Zurich, Switzerland
Disclaimer & Cautionary Statement Certain statements in this Annual Report 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 profit improvement, return on equity targets, expense reductions, pricing conditions, dividend policy and underwriting claims improvements. 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 Zurich Financial Services’ plans and objectives 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 our key markets; (ii) performance of financial markets; (iii) levels of interest rates and currency exchange rates; (iv) frequency, severity and development of insured claims events; (v) mortality and morbidity experience; (vi) policy renewal and lapse rates; (vii) changes in laws and regulations and in the policies of regulators may have a direct bearing on Zurich Financial Services’ results of operations and on whether Zurich Financial Services will achieve its targets. Zurich Financial Services 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.
L’Assemblée générale annuelle de la Zurich approuve une réduction de la valeur nominale de ses actions, débouchant sur le paiement aux actionnaires de 2,50 francs suisses par action nominative.