Employee participation During 2015 and 2014, 768,128 shares and 733,614 shares, respectively, were issued to employees from contingent share capital. As a result, on December 31, 2015 and 2014, respectively, the remaining contingent share capital, which can be issued to employees of Zurich Insurance Group Ltd and its subsidiaries, amounted to CHF 89,030 and CHF 165,842 or 890,295 and 1,658,423 fully paid registered shares, respectively, with a nominal value of CHF 0.10 each. Pre-emptive rights of the shareholders, as well as the right for advance subscription, are excluded. The issuance of shares or respective option rights to employees is subject to one or more regulations to be issued by the Board and takes into account performance, functions, levels of responsibility and criteria of profitability. Shares or option rights may be issued to employees at a price lower than that quoted on the stock exchange.
c) Additional paid-in capital This reserve is not ordinarily available for distribution. However, as of January 1, 2011 a Swiss tax regulation based on the Swiss Corporate Tax reform II became effective, allowing for payments free of Swiss withholding tax to shareholders out of the capital contribution reserve, created out of additional paid-in capital. Therefore, amounts qualifying under this regulation can be paid out of additional paid-in capital.
The Group had 54,335 and 54,551 employees (full-time equivalents) as of December 31, 2015 and 2014, respectively. Personnel and other related costs incurred for the years ended December 31, 2015 and 2014, were USD 5,986 million and USD 6,241 million, including wages and salaries of USD 4,790 million and USD 5,096 million, respectively.
Governance of the Group’s pension and post-employment benefit plans is the responsibility of the Group Pensions Committee. This committee is responsible for developing, reviewing and advising on the Group governance framework for matters relating to pension and benefit plans, including the relevant policies and processes. The committee provides oversight and guidance over the Group’s principal pension and post-retirement benefit plans for benefit design, funding, investment purposes and accounting. This includes, but is not limited to: • Oversight of the impact of the Group’s principal defined benefit pension and post-retirement benefit plans in terms of cash, expense, and balance sheet accounting impact and capital implications
The Group’s policy on funding and asset allocation is subject to local legal and regulatory requirements and tax efficiency.
For post-employment defined benefit plans, total contributions to funded plans and benefits paid directly by the Group were USD 540 million for 2015 compared with USD 572 million for 2014. The estimated total for 2016 is USD 425 million (actual amount may differ).
Swiss pension plans The Group previously had two major pension plans in Switzerland in separate legal entities. As of the beginning of 2015 the two plans were merged into one plan with no change to the benefits. The plan provides benefits that exceed the minimum benefit requirements under Swiss pension law. It provides a lifetime pension to members at the normal retirement age of 65 (age 62 for Executive Staff). Participants can draw retirement benefits early from age 60 (age 58 for Executive Staff). Alternatively, the benefit can be taken as a lump sum payment at retirement. Contributions to the plan are paid by the employees and the employer, both for retirement savings and to finance risk benefits paid out in the event of death and disability. The accumulated balance on the pension account is based on the employee and employer pension contributions and interest accrued. The interest rate credited is defined annually by the plan’s Board of Trustees which is responsible for the governance of the plans. The amount of pension payable on retirement is a result of the conversion rate applied on the accumulated balance of the individual participant’s pension account at the retirement date. Although the Swiss plan operates like a defined contribution plan under local regulations, it is accounted for as a defined benefit pension plan under IAS 19 “Employee Benefits”, because of the need to accrue interest on the pension accounts and the payment of a lifetime pension at a fixed conversion rate under the plan rules.
Actuarial valuations are completed regularly and if the plans becomes underfunded under local regulations, options for dealing with this include the Group paying additional contributions into the plan and/or reducing future benefits. At present, the plan is sufficiently funded, meaning that no additional contributions into the plans are expected to be required in the next year. The investment strategy of the Swiss plan is constrained by Swiss pension law including regulations relating to diversification of plan assets. Under IAS 19, volatility arises in the Swiss pension plan net liability because the fair value of the plan assets is not directly correlated to movements in the value of the plan’s defined benefit obligation in the short-term.
The ongoing funding of the plan is closely monitored by the Trustee Board and a dedicated funding committee is made up of representatives from the Trustee Board and the Group. The plan rules and UK pension legislation set out maximum levels of inflationary increases applied to plan benefits. The plan assets are invested in diversified classes of assets and a portion are invested in inflation-linked debt securities, to provide a partial hedge against inflation. The Trustees have also implemented an interest rate swap contract which will provide partial protection against volatility in interest rates.
U.S. pension plans There are two major pension plans in the U.S., the Zurich North America (ZNA) plan and the Farmers Group, Inc. (FGI) pension plan. These are both cash balance pension plans funded entirely by the participating employers. The ZNA plan is entirely cash balance and the FGI pension plan provides benefits on a cash balance pension formula for benefits accruing after January 1, 2009, except with respect to certain grandfathered participants. A final average pay defined benefit formula applied for benefits accrued before 2009, and for the grandfathered participants. For both cash balance plans, an amount is credited to the cash balance plan each quarter, determined by an employee’s age, service and their level of earnings up to and above the social security taxable wage base. The minimum annual interest earned on the account balance is 5 percent. The retirement account is available from age 65, or age 55 with five years’ service. The benefit can be taken as a monthly annuity or as a lump sum. Both the ZNA plan and the FGI pension plan have fiduciaries as required under local pension laws. The fiduciaries are responsible for the governance of the plans. Actuarial valuations are completed regularly and the Group has historically elected to make contributions to the plans to maintain a funding ratio of at least 90 percent as valued under local pension regulations. The annual employer contributions are equal to the present value of benefits accrued each year, plus a rolling amortization of any prior underfunding.
Tables 21.1a and 21.1b set out the reconciliation of the defined benefit obligation and plan assets for the Group’s post-employment defined benefit plans.
Remeasurement effects included in other comprehensive income 853 (209) (17) 627 Employer contributions – 508 – 508 Employer contributions paid to meet benefits directly 31 – – 31 Plan participants’ contributions (54) 54 – – Payments from the plan (incl. settlements) 870 (870) – – Foreign currency translation effects 900 (750) – 150
Movement in defined benefit obligation and fair value of assets – prior period in USD millions Defined benefit obligation
Net post-employment benefit (expense)/income is recognized in other employee benefits, which is included within administrative and other operating expense.
Fair value of assets held in funded defined benefit pension plans in USD millions, as of December 31
For the classification of pension assets the Group follows the same principles as outlined in note 24 Fair value measurement. Assets meeting the criteria of Level 1 are generally considered quoted in active markets, while assets meeting the criteria of Level 2 or Level 3 are generally considered other assets.
Key information by main country – current period in USD millions, as of December 31, 2015
States Germany 1 In the UK part of the liability is linked to the inflation measure of the Retail Price Index (RPI), which is assumed to be 1.0 percent higher than the Consumer Price Index (CPI) as of both December 31, 2015 and 2014.
Tables 21.5a and 21.5b set out the life expectancies used in the valuation of the Group’s major plans. The mortality assumptions in each country have been based on mortality tables in accordance with typical practice in that country.
Mortality tables and life expectancies for major plans – current period in years, as of December 31, 2015 Life expectancy at age 65 for a male currently
Table 21.6 shows the expected benefits to be paid under the Group’s major plans in the future. It should be noted that actual amounts may vary from expected amounts. Therefore future benefit payments may differ from the amounts shown.
Duration of the defined benefit obligation (in years) 16.4 21.0 13.6 14.7 15.7 21.3 14.1 15.3
Defined benefit obligation1 in USD millions, as of December 31 2015 2014
Consolidated financial statements continued 22. Share-based compensation and cash incentive plans
The cost of share-based payments depend on various factors, including achievement of targets, and are subject to the discretion of the Remuneration Committee. Costs may therefore vary significantly from year to year. The net amounts of USD 111 million and USD 202 million for the years ended December 31, 2015 and 2014, respectively, reflect all aspects of share-based compensation, including adjustments made during the year.
The Group also operates a profit-sharing element of the Share Incentive Plan (Reward Shares) which was launched in 2004 with annual share allocations being made in May each year subject to business performance. The awards are based on business operating profit (BOP) after tax for the year achieved by the business unit of each participating employee. Individual awards are subject to a maximum of 5 percent of a participant’s base salary (before any flexible benefit adjustments) with an overall maximum of GBP 3,600. The total number of participating employees in Reward Shares as of December 31, 2015 and 2014 was 5,607 and 5,463, respectively.
LTIP in 2013 and prior years included phased annual vesting of allocations in three equal tranches at the end of the first, second and third year after allocation, based on the achievement of pre-defined performance criteria. One half of the vested shares were sales-restricted for a further three years from the respective vesting dates.
Quantifiable commitments and contingencies in USD millions, as of December 31 2015 2014
Remaining commitments under investment agreements 1,431 871 Guarantees and letters of credit1 895 9,661 Future operating lease commitments 1,512 1,222 Undrawn loan commitments 8 3 Other commitments and contingent liabilities 574 538 1 Guarantee features embedded in life insurance products are not included.
Guarantees and letters of credit In 2015 and 2014, USD 701 million and USD 740 million, respectively, relate to guarantees in the aggregate amount of GBP 475 million which were provided to the directors of a wholly owned subsidiary in connection with the repatriation of capital. These guarantees have no expiry date. In 2014, an additional USD 8,715 million of the USD 9,661 million for financial guarantees and letters of credit relate to guarantees in the aggregate amount of GBP 5,595 million provided to the directors of a wholly owned subsidiary in connection with the rationalization of the Group’s top holding structure which resulted in the merger of Zurich Group Holding into Zurich Financial Services Ltd in December 2009. These guarantees expired in August 2015.
Commitments under lease agreements The Group has entered into various non-cancellable operating leases as lessee for office space and certain computer and other equipment. Lease expenses totaled USD 254 million and USD 123 million for the years ended December 31, 2015 and 2014, respectively.
Future payments under non-cancelable operating leases with terms in excess of one year in USD millions, as of December 31 2015 2014
Legal, compliance and regulatory developments In recent years there has been an increase in the number of legislative initiatives that require information gathering and tax reporting regarding the Group’s customers and their contracts, including the U.S. Foreign Account Tax Compliance Act (FATCA) and the expected introduction of other automatic tax information exchange regimes based on the Common Reporting Standard (CRS). The Group’s compliance activities in this area, as well as actions by local tax and law enforcement officials (including inquiries and investigations into cross-border business activities), could result in higher compliance costs, remedial actions and other related expenses for its life insurance, saving and pension business. As with the industry more generally, it is also possible that implementation of automatic tax information exchange and other developments relating to cross-border life, saving and pension business could give rise to inquiries by legal, tax and/or regulatory authorities in the future.
Legal proceedings and regulatory investigations The Group’s business is subject to extensive supervision, and the Group is in regular contact with various regulatory authorities. The Group is continuously involved in legal proceedings, claims and regulatory investigations arising, for the most part, in the ordinary course of its business operations. Specifically, certain companies within the Group are engaged in the following legal proceedings: Consolidated financial statements
The court issued its Statement of Decision for Phase 1 on December 27, 2013. While the court found that the plaintiffs had established that Home transferred certain assets to one of the defendants in connection with the 1995 recapitalization transaction, it held that the plaintiffs’ fraudulent transfer claims, which all related to transfers allegedly made as part of the 1995 recapitalization, were time-barred. The court further held that Home’s liquidator had exclusive standing to bring fraudulent transfer claims involving Home’s assets. The effect of these holdings should be the dismissal of the plaintiffs’ fraudulent transfer claims. In addition, the court accepted the defendants’ arguments that the findings made by the regulators in approving the recapitalization transaction are binding on the plaintiffs in the Fuller-Austin Case.
The governance framework and oversight of the Group standards and procedures regarding the valuation of financial instruments measured at fair value is the responsibility of the Valuation Forum, an independent committee composed of representatives from Risk Management, Investment Management and Group Finance. The Valuation Forum ensures the adequacy of valuation models, approves methodologies and sources to derive model input parameters, provides oversight over the selection of third party pricing providers, and on a quarterly basis reviews the classification within the fair value hierarchy of the financial instruments in scope.
Total available-for-sale securities 143,535 155,037 143,535 155,037 Fair value through profit or loss securities
Total fair value through profit or loss securities 9,699 10,740 9,699 10,740
Held-to-maturity debt securities 4,086 4,747 3,369 3,971 Investments in associates and joint ventures 18 70 18 70
Liabilities related to investment contracts (913) (977) (754) (843) Liabilities related to investment contracts with DPF (6,447) (6,195) (7,629) (7,006)
Fair value hierarchy – non unit-linked – current period in USD millions, as of December 31, 2015 Level 1 Level 2 Level 3 Total
Total available-for-sale securities 12,638 123,977 6,921 143,535 Fair value through profit or loss securities
Total fair value through profit or loss securities 1,017 6,116 2,565 9,699
Fair value hierarchy – non unit-linked – prior period in USD millions, as of December 31, 2014 Level 1 Level 2 Level 3 Total
Reinsurers’ share of reserves for insurance contracts fair value option1 – – 375 375
Reserves for insurance contracts fair value option 2 – – (3,594) (3,594)
Over the counter derivative financial instruments are valued using internal models. The fair values are determined using dealer price quotations, discounted cash flow models and option pricing models, which use various inputs including current market and contractual prices for underlying instruments, time to expiry, correlations, yield curves, prepayment rates and volatility of underlying instruments. Such instruments are classified within level 2 as the inputs used in pricing models are generally market observable or derived from market observable data.
• Certain options and long-dated derivative financial instruments with fair values determined using counterparty valuations or calculated using significant unobservable inputs such as historical volatilities, historical correlation, implied volatilities from the counterparty or derived using extrapolation techniques.
• Certain investment properties for which fair value is based on valuations performed annually by internal valuation specialists and generally on a rotation basis at least once every three years by an independent qualified appraiser. The valuation methods applied are income capitalization, discounted cash flow analysis, and market comparables taking into account the actual letting status and observable market data. The majority of such investments have been categorized within level 3 because the valuation techniques used include significant adjustments to observable data of similar properties. Some of these investments have been categorized within level 2, where there are active and transparent markets and no significant adjustments to the observable data are required.
No material transfers between level 1 and level 2 occurred for the years ended December 31, 2015 and 2014.
Development of assets and liabilities classified within level 3 – non unit-linked – current period in USD millions Available-for-sale securities
For the year ended December 31, 2015, the Group transferred USD 1,829 million of available-for-sale debt securities out of level 2 into level 3 as a result of a review of the classification of certain collateralized loan obligations and privately placed debt securities. The fair value of these securities is obtained from third party pricing providers, who use significant unobservable inputs and expert judgment in their valuation models. The Group also transferred derivatives with a market value of USD 124 million out of level 2 into level 3. The transfers resulted from certain significant input parameters used to derive the fair value (such as volatility) becoming unobservable.
Transfer from assets held for own use – – – – – – 72 Transfer to assets held for sale – – – – – – (28)
Fee income and other expenses1 (172) 25 (147) Interest and bonuses credited to policyholders 78 (11) 67 Changes in assumptions (39) 3 (36)
Fee income and other expenses (15) 2 (12) Interest and bonuses credited to policyholders 522 (53) 468 Changes in assumptions (4) – (4)
Realized gains/(losses) recognized in income1 – 1 26 Unrealized gains/(losses) recognized in income1 3 – 383
Transfers into level 3 1 2 – Transfers out of level 3 – – – Foreign currency translation effects (7) (5) (257)
Sensitivity of fair values reported for level 3 instruments to changes to key assumptions Within level 3, the Group classified non-agency ABS/MBS, CLOs, and private debt placements amounting to USD 6,108 million and USD 2,950 million for Group investments and USD 43 million and USD 67 million for investments for unit-linked contracts as of December 31, 2015 and 2014, respectively.
Sensitivity analysis of level 3 investments to changes in key assumptions – current period as of December 31, 2015
Sensitivity analysis of level 3 investments to changes in key assumptions – prior period as of December 31, 2014
Inter-relationship analysis of level 3 investments to changes in key assumptions – prior period as of December 31, 2014 Key assumptions Increase/decrease in reported fair value
Scenarios Equity levels +10% +10.0% +1.3% +1.3% +1.3% 338 Equity levels –10% –10.0% –1.0% –1.0% –1.0% (340) Discount rates +10% +0.2% +10.0% +15.0% –2.0% (68) Discount rates –10% –0.2% –10.0% –7.5% +2.0% 58 Spread rates +10% +0.2% +7.0% +10.0% +0.2% (47)
• USD 270 million and USD 375 million for reinsurers’ share of reserves fair value option and, USD 2,927 million and USD 3,594 million reserves for insurance contracts fair value option as of December 31, 2015 and 2014, respectively. The significant unobservable inputs used in the fair value measurement are the policy decrement assumptions used in projecting cash flows. Significant increases/(decreases) in claim incidence rates and significant decreases/ (increases) in claim termination rates would result in a significantly higher/(lower) fair value measurement.
Analysis of financial assets – prior period in USD millions, as of December 31, 2014
Table 26 summarizes related party transactions with key personnel reflected in the Consolidated financial statements. Key personnel includes members of the Board of Directors of Zurich Insurance Group Ltd and Zurich Insurance Company Ltd and members of the Group Executive Committee.
As of December 31, 2015 and 2014 there were no loans, advances or credits outstanding from members of the Group Executive Committee. Outstanding loans and guarantees granted to members of the Board of Directors amounted to nil for the years ended December 31, 2015 and 2014. The terms “members of the Board of Directors” and “members of the Group Executive Committee” in this context include the individual as well as members of their respective households. The figures in table 26 include the fees paid to members of the Board of Directors of Zurich Insurance Group Ltd and Zurich Insurance Company Ltd, which were USD 5 million and USD 4 million for the years ended December 31, 2015 and 2014, respectively.
The cash compensation, current benefits and fees are short term in nature.
Quota share reinsurance treaties in USD millions, for the years ended December 31 APD agreement All Lines agreement Total
1 Farmers Re Co assumed 7.0 percent and ZIC assumed 64.0 percent. The remaining 29.0 percent was assumed by a third party on the same terms as Farmers Re Co and ZIC. 2 Farmers Re Co assumed 10.0 percent and ZIC assumed 80.0 percent. The remaining 10.0 percent was assumed by a third party on the same terms as Farmers Re Co and ZIC.
3 From January 1, 2015, Farmers Re Co and ZIC assumed a 1.0 percent and 9.0 percent respective quota share. Another 4.0 percent was assumed by a third party on the same terms as Farmers Re Co and ZIC. Subject to the approval of the California Department of Insurance, effective December 31, 2015. ZIC assumed an 8.0 percent quota share, while another 12.0 percent is assumed by third parties on the same terms as ZIC. Farmers Re Co ceased its participation in the All Lines agreement, effective December 31, 2015.
4 From January 1, 2014, Farmers Re Co and ZIC assumed a 2.0 percent and 16.0 percent respective quota share. Another 2.0 percent was assumed by a third party on the same terms as Farmers Re Co and ZIC. Effective December 31, 2014, Farmers Re Co and ZIC assumed a 1.0 percent and 9.0 percent respective quota share. Another 4.0 percent is assumed by a third party on the same terms as Farmers Re Co and ZIC.
c) Farmers management fees and other related revenues FGI through its attorney-in-fact (AIF) relationships with the Farmers Exchanges, which are managed but not owned by Farmers Group, Inc., a wholly owned subsidiary of the Group, is permitted by policyholders to receive a management fee of up to 20 percent (up to 25 percent in the case of the Fire Insurance Exchange) of the gross premiums earned by the Farmers Exchanges.
FGI has historically charged a lower management fee than the amount allowed by policyholders. The range of fees has varied by line of business over time and from year to year. The gross earned premiums of the Farmers Exchanges were USD 18,885 million and USD 18,545 million for the years ended December 31, 2015 and 2014, respectively.
The Group pursues a customer-centric strategy and is managed on a matrix basis, reflecting both businesses and geography. The Group’s reportable segments have been identified on the basis of the businesses operated by the Group and how these are strategically managed to offer different products and services to specific customer groups. Segment information is presented accordingly. The Group’s reportable segments are as follows: General Insurance provides a variety of motor, home and commercial products and services for individuals, as well as small and large businesses.
Farmers, through Farmers Group, Inc. and its subsidiaries (FGI), provides certain non-claims administrative and management services to the Farmers Exchanges. This segment also includes all reinsurance assumed from the Farmers Exchanges by the Group. Farmers Exchanges are prominent writers of personal and small commercial lines of business in the U.S.
Net earned premiums and policy fees 28,051 30,023 11,876 13,866 2,266 3,956 6 (2) 426 478 – – 42,624 48,321 Farmers management fees and other related revenues – – – – 2,786 2,791 – – – – – – 2,786 2,791 Net investment result on Group investments 2,002 2,239 4,415 4,988 49 68 300 387 236 762 (427) (628) 6,576 7,816
Net written premiums and policy fees 28,386 30,859 11,957 13,919 2,145 3,428 6 (2) 426 475 – – 42,920 48,680 Net change in reserves for unearned premiums (335) (837) (82) (53) 120 528 – – – 3 – – (296) (359)
Losses and loss adjustment expenses, net 20,157 19,923 – – 1,588 2,650 – (1) 118 299 – – 21,862 22,871 Life insurance death and other benefits, net1 (4) (3) 8,612 10,684 – – – (6) 276 817 – – 8,884 11,492
2 The Group’s life operations in the UK entered into a reinsurance agreement to transfer the risk associated with a significant annuities portfolio as of April 1, 2015 and an additional tranche as of October 1, 2015. The combined initial impact of this transaction was an increase of USD 1.8 billion in premiums ceded to reinsurers and an increase of USD 1.8 billion in ceded insurance benefits and losses in the Global Life business. The gain resulting from this transaction of approximately USD 105 million will be recognized on a linear basis over the lifetime of the reinsurance contract, which is expected to end on June 30, 2016.
Net income/(expense) on intercompany loans 2 (17) (16) (17) (6) – – 33 22 – – (1) –
General Insurance Global Life Farmers Other Operating Businesses Non-Core Businesses Eliminations Total in USD millions, as of December 31 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014
Investments for unit-linked contracts – – 115,559 122,446 – – – – 11,169 11,970 – – 126,728 134,416
Reserves for losses and loss adjustment expenses, gross 57,777 58,390 – – 1,103 1,551 23 26 4,142 4,590 (75) (84) 62,971 64,472 Reserves for unearned premiums, gross 15,664 16,101 – – 560 680 3 3 13 14 (10) (19) 16,230 16,779 Future life policyholder benefits, gross 36 45 67,717 72,783 – – 2 2 4,198 4,823 – – 71,952 77,652 Policyholder contract deposits and other funds, gross 25 30 19,858 21,120 – – – – 2,193 2,265 – (1) 22,076 23,415 Reserves for unit-linked contracts, gross – – 53,224 59,431 – – – – 11,169 11,970 – – 64,393 71,400
Global Life – Revenues and non-current assets by region in USD millions Gross written premiums and policy fees from external customers Life insurance deposits
Other International Group Risk Solutions 3 201 187 – – – –
Bermuda Centre Group Holdings Limited Hamilton Non-Core Businesses 100 100 USD 0.3 CMSH Limited Hamilton Non-Core Businesses 100 100 USD 0.3 Zurich International (Bermuda) Ltd. Hamilton General Insurance 100 100 USD 9.9 Brazil Zurich Santander Brasil Seguros e Previdência S.A. Sao Paulo Global Life 51 51 BRL 1,659.2
Chile Chilena Consolidada Seguros de Vida S.A. Santiago Global Life 98.99 98.99 CLP 24,484.0 Zurich Santander Seguros de Vida Chile S.A. Santiago Global Life 51 51 CLP 36,252.9 Germany Deutscher Herold Aktiengesellschaft Bonn Global Life 100 100 EUR 18.4 Zürich Beteiligungs-Aktiengesellschaft (Deutschland) Frankfurt General Insurance 100 100 EUR 152.9 Zurich Deutscher Herold Lebensversicherung Aktiengesellschaft Bonn Global Life 100 100 EUR 68.5 Zurich GI Management Aktiengesellschaft (Deutschland) Frankfurt General Insurance 100 100 EUR 10.0 Ireland Zurich Life Assurance plc Dublin Global Life 100 100 EUR 17.5
South Africa Zurich Insurance Company South Africa Limited 2 Johannesburg General Insurance 100 100 ZAR 4.7 Spain Bansabadell Pensiones, E.G.F.P, S.A. 3 Barcelona Global Life 50 50 EUR 7.8 Bansabadell Seguros Generales, S.A. 3 de Seguros y Reaseguros Barcelona General Insurance 50 50 EUR 10.0 Bansabadell Vida S.A. de Seguros 3 y Reaseguros Barcelona Global Life 50 50 EUR 43.9 Zurich Latin America Holding S.L. – Sociedad Unipersonal Barcelona
Zurich Investment Management AG Zurich Other Operating Businesses 100 100 CHF 10.0
Taiwan Zurich Insurance (Taiwan) Ltd. Taipei General Insurance 99.73 100 TWD 2,000.0 Turkey Zurich Sigorta A.S. Isanbul General Insurance 100 100 TRY 168.9 United Kingdom
Zurich (Scotland) Limited Partnership 6 Edinburgh Global Life 100 100 GBP –
Farmers Reinsurance Company 7 Woodland Hills Farmers 100 100 USD 58.8
1 The segments are defined in note 28. 2 In September 2015, Zurich Insurance Company South Africa Limited was delisted from the Johannesburg Stock Exchange after an increase in its shareholding from 84.05 percent to 100 percent (see note 5).
For Zurich Santander Insurance America, S.L. and its subsidiaries, and the Bansabadell insurance entities, certain protective rights exist, amongst others around liquidation, material sale of assets, transactions impacting the legal ownership structure, dividend distribution and capital increase, distribution channel partnerships and governance, which are not quantifiable.
Table 29.2 shows the summarized financial information for each subsidiary that has non-controlling interests that are material to the Group.
Dividends paid to non-controlling interests 133 94 28 23 1 Includes reserves for premium refunds, liabilities for investment contracts, deposits received under ceded reinsurance contracts, deferred front-end fees and reserves for insurance contracts.
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 159 to 257 and the audited sections of the Risk review on pages 123 to 155), for the year ended December 31, 2015.
We recommend that the Consolidated financial statements submitted to you be approved.
The Annual General Meeting on April 1, 2015, approved a dividend of CHF 17.00 per share to be paid free of Swiss withholding tax to the shareholders out of the capital contribution reserve.
Income statements in CHF thousands, for the years ended December 31 Notes 2015 2014
Dividend income 2,500,000 2,500,000 Interest income 306,953 307,085 Other financial income 21,420 106,064
Assets in CHF thousands, as of December 31 Notes 2015 2014
Liabilities and shareholders’ equity in CHF thousands, as of December 31 Notes 2015 2014
Short-term liabilities Other liabilities to subsidiaries 524,128 496 Other liabilities to third parties 17,636 20,438 Other liabilities to shareholders 1,032 950 Accrued expenses and deferred income to subsidiaries 996 2,048 Accrued expenses and deferred income to third parties 210 2,946 Derivatives with subsidiaries – 127 Total short-term liabilities 544,002 27,005 Long-term liabilities Loans from subsidiaries – 520,150 Provisions – 20,745 Total long-term liabilities – 540,895 Total liabilities 544,002 567,900 Shareholders’ equity (before appropriation of available earnings)
Retained earnings: As of January 1 10,371,266 7,648,444 Net income after taxes 2,693,247 2,722,822
Retained earnings, as of December 31 13,064,513 10,371,266 Total shareholders’ equity (before appropriation of available earnings) 17,408,448 17,050,932 Total liabilities and shareholders’ equity 17,952,450 17,618,832 1 Dividends paid in the year, out of capital contribution reserve in respect of the 2014 result, amounting to CHF 2,534,052.
b) Investments in subsidiaries Investments in subsidiaries are equity interests, held on a long-term basis for the purpose of the holding company’s business activities. Each investment in subsidiaries is valued individually and carried at its cost less adjustments for impairments. This constitutes a change compared to prior periods where the investments in subsidiaries have been valued on a group basis. This change in methodology reflects the changes in the Swiss Code of Obligations effective January 1, 2015.
d) Derivatives Derivatives are carried at market value, with changes in the market value recorded in the income statements.
4. Other operating income Other operating income mainly represents the release of CHF 21.1 million (prior year CHF 20.7 million) of the irrevocable commitment made by the Company on behalf of the Zurich Insurance Group to the Z Zurich Foundation in 2011, as another Group company made the payments for 2015 and 2014.
5. Other operating expenses Other operating expenses include directors’ fees of CHF 4.7 million and CHF 3.5 million for the years ended December 31, 2015, and December 31, 2014, respectively. In addition, overhead expenses of CHF 10.0 million for both the years ended December 31, 2015 and 2014 are included. Fees paid to the Swiss Financial Market Supervisory Authority increased by CHF 1.4 million to CHF 5.3 million in 2015.
6. Depreciation and valuation adjustments to non-current assets Impairments on investments in subsidiaries amount to CHF 90 million and CHF 100 million for the years ended December 31, 2015, and December 31, 2014, respectively (also refer to note 11).
Holding company continued 8. Financial expenses Financial expenses decreased by CHF 43.2 million to CHF 22.3 million mostly driven by realized and unrealized foreign exchange losses of CHF 16.1 million compared with CHF 59.2 million in the previous year.
10. Subordinated loans to subsidiaries Subordinated loans have remained unchanged in local currency compared with 2014, and mainly include a loan to Zurich Insurance Company Ltd of CHF 4,832 million as of December 31, 2015 and 2014, respectively.
The investment in Zurich Financial Services EUB Holdings Limited was impaired by CHF 90 million in 2015 compared with an impairment of CHF 100 million in the previous year.
13. Share capital a) Issued share capital In 2015, there was no change to the ordinary share capital. At the Annual General Meeting on April 2, 2014, the shareholders approved an extension of authorized share capital with the number of shares remaining unchanged at 10,000,000 fully paid registered shares with a nominal value of CHF 0.10 each until April 2, 2016. In 2015, there were no changes to the authorized share capital. In 2014, there were no changes to the ordinary share capital or to the authorized share capital. During the years 2015 and 2014, a total of 768,128 shares and 733,614 shares, respectively, were issued to employees out of the contingent capital.
Employee participation On January 1, 2014, the contingent share capital, to be issued to employees of Zurich Insurance Group Ltd and its subsidiaries, amounted to CHF 239,203.70 or 2,392,037 fully paid registered shares with a nominal value of CHF 0.10 each. On January 1, 2015, the contingent share capital, to be issued to employees of Zurich Insurance Group Ltd and its subsidiaries, amounted to CHF 165,842.30 or 1,658,423 fully paid registered shares with a nominal value of CHF 0.10 each.
As of January 1 5,983,320 8,319,504 Transfer to free reserve (adjustment capital contribution reserve) (1,964) (1,799) Dividend payment out of capital contribution reserve (2,534,052) (2,516,073) Agio on share-based payment transactions 198,244 181,688 As of December 31 3,645,548 5,983,320 15. Reserve for treasury shares This reserve corresponds to the purchase value of all Zurich Insurance Group Ltd shares held by companies of the Zurich Insurance Group as shown in the table below. The Company itself does not hold any treasury shares.
Average selling price, in CHF 277 255 1 in CHF thousands 16. Free reserve
19. Shareholdings of the Board of Directors and the Group Executive Committee The information on share and share option holdings of Directors and of the members of the GEC, who held office as of December 31, 2015, as required by article 663c paragraph 3 of the Swiss Code of Obligations is included and audited in the Remuneration report on pages 68 to 101 of this Annual Report.
Appropriation of available earnings as proposed by the Board of Directors Net income after taxes 2,693,247 2,722,822 Balance brought forward 10,371,266 7,648,444 Retained earnings 13,064,513 10,371,266 Balance carried forward 13,064,513 10,371,266
The Board of Directors proposes to the shareholders at the Annual General Meeting on March 30, 2016, to carry forward retained earnings of CHF 13,064,513 as shown in the above table.
Appropriation of capital contribution reserve As of January 1, 2016 (incl. reserve for treasury shares) 3,645,548 Dividend payment out of capital contribution reserve1 (2,556,884) Balance carried forward1 1,088,664 1 These figures are based on the issued share capital as of December 31, 2015. They may change following the issuance of shares out of contingent capital for employees after the balance sheet date (see note 13). Treasury shares are not entitled to dividends.
The Board of Directors proposes to the Annual General Meeting on March 30, 2016, to pay a dividend of CHF 2,557 million from the capital contribution reserve.
If this proposal is approved, a payment of CHF 17.00 per share exempt from Swiss withholding tax is expected to be paid starting from April 5, 2016.
Opinion In our opinion, the financial statements for the year ended December 31, 2015, comply with Swiss law and the company’s articles of incorporation.
Opinion In our opinion, the issue of 768,128 registered shares with a nominal value of CHF 0.10 complies with Swiss law and the company’s articles of incorporation.
The shares registered in the share ledger as of December 31, 2015 were owned by 130,151 shareholders of which 124,667 were private individuals holding 29.3% of the shares (or 17.0% of all outstanding shares), 1,970 were foundations and pension funds holding 6.5% of the shares (or 3.8% of all outstanding shares), and 3,514 were other legal entities holding 64.2% of the shares (or 37.2% of all outstanding shares).
The announcements related to these notifications can be found via the search facility on the SIX Disclosure Office’splatform: com/en/home/publications/significant-shareholders.html
Annual Review 2015 The Annual Review provides an overview of Zurich’s business and strategy, and its financial and operating performance in 2015. It is available in English and German.
Annual Report 2015 The Annual Report contains detailed information about Zurich’s financial performance, structure, executive bodies, risk management, corporate governance and remuneration in 2015. It is available in English and German, with the financial statements in English only.
Share Register Services Zurich Insurance Group Ltd, Switzerland Telephone: +41 (0)44 625 22 55 Email: shareholder.services@zurich.com Website: www.zurich.com/shareholder-information
American Depositary Receipts (ADR) Zurich Insurance Group Ltd has an ADR program with The Bank of New York Mellon. For information relating to an ADR account, please contact BNY Mellon Shareowner Services, P.O. Box 30170, College Station, TX 77842-3170 Telephone: +1 888-269-2377 (toll-free number in the U.S.) Telephone: + 1 201 680 6825 (international) Website: www.mybnymdr.com Email: shrrelations@cpushareownerservices.com General information on the company’s ADR program can be obtained from The Bank of New York Mellon at www.adrbnymellon.com